U.S. Securities and Exchange CommissionWashington, D.C. 20549

Form 40-F

|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 endedDecember 31, 2008Commission File Number 1-31690

TRANSCANADA CORPORATION(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 Northern Border Inc., 13710 FNB Parkway
Omaha, Nebraska, 68154-5200; (877) 290-2772(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:

|Title of each class                                            |  | Name of each exchange on which registered
|-------------------------------------------------------------- |  | -----------------------------------------
|Common Shares (including Rights under
Shareholder Rights Plan) |  | New York Stock Exchange                  

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

|For annual reports, indicate by check mark the information filed with this Form:
|--------------------------------------------------------------------------------
|ý    Annual Information Form                                                    

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, 2008, 616,471,522 common shares
were issued and outstanding

Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under theSecurities Exchange Act of 1934(the "Exchange Act").
If "Yes" is marked, indicate the file number assigned to the Registrant in connection with such Rule.

|Yes    o |  | No    ý
|-------- |  | -------

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theExchange
Actduring 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
|-------- |  | -------



---





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.
|---- |  | ----------------
|S-8  |  | 333-5916        
|S-8  |  | 333-8470        
|S-8  |  | 333-9130        
|S-8  |  | 333-151736      
|F-3  |  | 33-13564        
|F-3  |  | 333-6132        
|F-10 |  | 333-151781      

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS AND  MANAGEMENT'S DISCUSSION & ANALYSIS

A.    Audited Consolidated Annual Financial Statements

For audited consolidated financial statements, including the report of the independent chartered accountants, see pages 83 through 139 of the TransCanada
Corporation ("TransCanada") 2008 Annual Report to Shareholders included herein. See the related supplementary note entitled "Reconciliation to United States GAAP" for a reconciliation of the
differences between Canadian and United States generally accepted accounting principles, including the auditors' report, attached as document 13.4.

B.    Management's Discussion & Analysis

For management's discussion and analysis, see pages 6 through 82 of the TransCanada 2008 Annual Report to Shareholders included herein under the heading
"Management's Discussion & Analysis".

For
the purposes of this Report, only pages 6 through 82 and 83 through 139 of the TransCanada 2008 Annual Report to Shareholders shall be deemed incorporated herein by reference and
filed, and the balance of such 2008 Annual Report, except as otherwise specifically incorporated by reference in the TransCanada Annual Information Form, shall be deemed not filed with the
U.S. Securities and Exchange Commission (the "Commission") as part of this Report under theExchange Act.

C.    Management's Report on Internal Control Over Financial Reporting

For information on management's internal control over financial reporting, see:



UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the staff of the Commission, 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.

DISCLOSURE CONTROLS AND PROCEDURES

For information on disclosure controls and procedures, see "Controls and Procedures" in Management's Discussion and Analysis on page 69 of the TransCanada 2008 Annual
Report to Shareholders.

2

---





AUDIT COMMITTEE FINANCIAL EXPERT

The Registrant's board of directors has determined that it has at least one audit committee financial expert serving on its audit committee. Mr. Kevin E. Benson has been
designated an audit committee financial expert and is independent, as that term is defined by the New York Stock Exchange's listing standards applicable to the Registrant. The Commission has
indicated that the designation of Mr. Benson as an audit committee financial expert does not make Mr. Benson an "expert" for any purpose, impose any duties, obligations or liability on
Mr. Benson that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any
other member of the audit committee.

CODE OF ETHICS

The Registrant has adopted codes of business ethics for its President and Chief Executive Officer, Chief Financial Officer, Controller, directors, employees and contractors.
The Registrant's codes are available on its website at www.transcanada.com. No waivers have been granted from any provision of the codes during the 2008 fiscal year.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

For information on principal accountant fees and services, see "Corporate Governance  Audit
Committee  External Auditor Service Fees" and "Corporate Governance  Audit
Committee  Pre-Approval Policies and Procedures" on pages 26 and 25, respectively, of the 2008 TransCanada Annual
Information Form.

OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements, as defined in this Form, other than the guarantees and commitments described in Note 23 of the Notes to
the Audited Consolidated Financial Statements attached to this Form 40-F and incorporated herein by reference.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

For information on Tabular Disclosure of Contractual Obligations, see "Contractual Obligations" in Management's Discussion and Analysis on pages 55 and 56 of the
TransCanada 2008 Annual Report to Shareholders.

IDENTIFICATION OF THE AUDIT COMMITTEE

The Registrant has a separately-designated standing Audit Committee. The members of the Audit Committee are:

|Chair:
Members: |  | K.E. Benson
D.H. Burney
P. Gauthier
P.L. Joskow
J.A. MacNaughton
D.M.G. Stewart
|--------------- |  | -------------------------------------------------------------------------------

3

---



FORWARD-LOOKING INFORMATION

This document, the documents incorporated by reference, and other reports and filings made with the securities regulatory authorities may contain certain information that is
forward-looking and is subject to important risks and uncertainties. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or other similar words
are used to identify such forward looking information. Forward-looking statements in this document are intended to provide TransCanada shareholders and potential investors with information regarding
TransCanada and its subsidiaries, including management's assessment of TransCanada's and its subsidiaries' future financial and operational plans and outlook. Forward-looking statements in this
document may include, among others, statements regarding the anticipated business prospects and financial performance of TransCanada and its subsidiaries, expectations or projections about the future,
strategies and goals for growth and expansion, expected and future cash flows, costs, schedules, operating and financial results and expected impact of future commitments and contingent liabilities.
All forward looking statements reflect TransCanada's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those
predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among others, the ability of TransCanada to
successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Company's pipeline and energy assets, the
availability and price of energy commodities, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the pipeline and energy sectors,
construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and the current
economic conditions in North America. By its nature, forward-looking information is subject to various risks and uncertainties, which could cause TransCanada's actual results and experience to differ
materially from the anticipated results or other expectations expressed. The Company's material risks and assumptions are discussed further in TransCanada's Management's Discussion and Analysis filed
as document 13.2 hereto including under the headings "Pipelines  Opportunities and Developments",
"Pipelines  Business Risks", "Energy  Opportunities and Developments",
"Energy  Business Risks" and "Risk Management and Financial Instruments". Additional information on these and other factors is available in the reports filed by
TransCanada with Canadian securities regulators and with the Commission. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is
expressed in this document or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. TransCanada undertakes no obligation to update
publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

4

---





SIGNATURES

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

| |  | TRANSCANADA CORPORATION
| |  | -----------------------
| |  | Per:                   
| |  |                        

---



DOCUMENTS FILED AS PART OF THIS REPORT

|13.1 |  | TransCanada Corporation Annual Information Form for the year ended December 31, 2008.                                                                                           
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13.2 |  | Management's Discussion and Analysis (included on pages 6 through 82 of the TransCanada 2008 Annual Report to Shareholders).                                                    
|13.3 |  | 2008 Audited Consolidated Financial Statements (included on pages 83 through 139 of the TransCanada 2008 Annual Report to Shareholders), including the auditors' report thereon.
|13.4 |  | Related supplementary note entitled "Reconciliation to United States GAAP" and the auditors' report thereon.                                                                    
|13.5 |  | Management's Report on Internal Control Over Financial Reporting.                                                                                                               
|13.6 |  | Report of the Independent Registered Public Accounting Firm on the effectiveness of TransCanada's Internal Control Over Financial Reporting, as at December 31, 2008.           
|99.1 |  | Comments by Auditors for United States Readers on Canada-United States Reporting Differences.                                                                                   

EXHIBITS

|23.1 |  | Consent of KPMG LLP, Chartered Accountants.                                                        
|---- |  | ---------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 
|32.1 |  | Certification of Chief Executive Officer regarding Periodic Report containing Financial Statements.
|32.2 |  | Certification of Chief Financial Officer regarding Periodic Report containing Financial Statements.

---



TRANSCANADA
CORPORATION   ANNUAL
INFORMATION FORM   February 23, 2009


TRANSCANADA
CORPORATIONi  TABLE OF CONTENTS  PageTABLE OF CONTENTS
  iPRESENTATION OF INFORMATION
  iiFORWARD-LOOKING INFORMATION
  iiTRANSCANADA CORPORATION
  1Corporate Structure
  1Intercorporate Relationships
  1GENERAL DEVELOPMENT OF THE BUSINESS
  2Developments in the Pipelines Business
  2Developments in the Energy Business
  5Financing Activities
  8BUSINESS OF TRANSCANADA
  9Pipelines Business
  9Regulation of the Pipeline Business
  11Energy Business
  12GENERAL
  14Employees
  14Social and Environmental Policies
  14Environmental Protection
  15RISK FACTORS
  15Environmental Risk Factors
  15Other Risk Factors
  17DIVIDENDS
  17DESCRIPTION OF CAPITAL STRUCTURE
  17Share Capital
  17CREDIT RATINGS
  18DBRS Limited (DBRS)
  19Moodys Investors Service, Inc. (Moodys)
  19Standard & Poors (S&P)
  19MARKET FOR SECURITIES
  20DIRECTORS AND OFFICERS
  20Directors
  20Board Committees
  22Officers
  22Conflicts of Interest
  23CORPORATE GOVERNANCE
  24AUDIT COMMITTEE
  24Relevant Education and Experience of Members
  24Pre-Approval Policies and Procedures
  25External Auditor Service Fees
  26LEGAL PROCEEDINGS AND REGULATORY ACTIONS
  26MATERIAL CONTRACTS
  26TRANSFER AGENT AND REGISTRAR
  27INTEREST OF EXPERTS
  27ADDITIONAL INFORMATION
  27GLOSSARY
  28SCHEDULE A
  A-1SCHEDULE B
  B-1


TRANSCANADA CORPORATIONii  PRESENTATION OF INFORMATION  Unless the context indicates otherwise, a reference in this Annual
Information Form (AIF) to TransCanada or the Company
includes TransCanada Corporation and the subsidiaries of TransCanada
Corporation through which its various business operations are conducted. In
particular, TransCanada includes references
to TransCanada PipeLines Limited (TCPL).
Where TransCanada is referred to with respect to actions that occurred prior to
its 2003 plan of arrangement with TCPL, which is described below under the
heading TransCanada Corporation  Corporate Structure, these actions were
taken by TCPL or its subsidiaries. The term subsidiary,
when referred to in this AIF, with reference to TransCanada 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, 2008 (Year End). Amounts are expressed in Canadian dollars unless
otherwise indicated. Financial information is presented in accordance with
Canadian generally accepted accounting principles.  Certain portions of TransCanadas Managements Discussion and Analysis
dated February 23, 2009 (MD&A)
are incorporated by reference into this AIF as stated below. The MD&A can
be found on SEDAR at www.sedar.com under TransCanadas profile.  The Accounting
Standards Board (AcSB) of the Canadian Institute of Chartered Accountants has announced that
Canadian publicly accountable enterprises are required to adopt International
Financial Reporting Standards (IFRS), as
issued by the International Accounting Standards Board, effective January 1,
2011. In June 2008, the Canadian Securities Administrators proposed that
Canadian public companies that are United States Securities and Exchange
Commission (SEC) registrants, such as
TransCanada, retain the option to prepare their financial statements under
generally accepted accounting principles in the United States (US GAAP) instead of IFRS. In November 2008, the SEC issued for public
comment a recommendation that, beginning in 2014, United States issuers be
required to adopt IFRS using a phased-in approach based on market capitalization.  TransCanada is currently considering the
impact a conversion to IFRS or US GAAP would have on its accounting systems and
financial statements.  For more
information on TransCanadas conversion project, see TransCanadas MD&A
under Accounting Changes  International Financial Reporting Standards.  Information relating to metric conversion can be found at Schedule A
to this AIF.  FORWARD-LOOKING INFORMATION  This AIF, the documents incorporated by reference into this AIF, and
other reports and filings made with the securities regulatory authorities may
contain certain information that is forward-looking and is subject to important
risks and uncertainties. The words anticipate, expect, believe, may, should,
estimate, project, outlook, forecast or other similar words are used to
identify such forward-looking information. 
Forward-looking statements in this document are intended to provide
TransCanada shareholders and potential investors with information regarding
TransCanada and its subsidiaries, including managements assessment of
TransCanadas and its subsidiaries future financial and operational plans and
outlook.  Forward-looking statements in
this document may include, among others, statements regarding the anticipated
business prospects and financial performance of TransCanada and its
subsidiaries, expectations or projections about the future, strategies and
goals for growth and expansion, expected and future cash flows, costs,
schedules, operating and financial results and expected impact of future
commitments and contingent liabilities.All forward-looking statements
reflect TransCanadas beliefs and assumptions based on information available at
the time the statements were made. Actual results or events may differ from those
predicted in these forward-looking statements. Factors that could cause actual
results or events to differ materially from current expectations include, among
others, the ability of TransCanada to successfully implement its strategic
initiatives and whether such strategic initiatives will yield the expected
benefits, the operating performance of the Companys pipeline and energy
assets, the availability and price of energy commodities, regulatory processes
and decisions, changes in environmental and other laws and regulations,
competitive factors in the pipeline and energy sectors, construction and
completion of capital projects, labour, equipment and material costs, access to
capital markets, interest and currency exchange rates, technological developments
and the current economic conditions in North America. By its nature, forward-looking
information is subject to various risks and uncertainties, including those
material risks discussed in this AIF under Risk Factors, which could cause
TransCanadas actual results and experience to differ materially from the
anticipated results or expectations expressed. Additional information on these
and other factors is available in the reports filed by TransCanada with
Canadian securities regulators and with the SEC. Readers are cautioned to not
place undue reliance on this forward-looking information, which is given as of
the date it is expressed in this AIF or otherwise, and to not use
future-oriented information or financial outlooks for anything other than their
intended purpose. TransCanada undertakes no obligation to update publicly or
revise any forward-looking information, whether as a result of new information,
future events or otherwise, except as required by law.


TRANSCANADA
CORPORATION1  TRANSCANADA CORPORATION  Corporate Structure  TransCanadas head office and registered office are located at
450 - First Street S.W., Calgary, Alberta, T2P 5H1.
TransCanada was incorporated pursuant to the provisions of the CanadaBusiness
Corporations Act on February 25, 2003 in connection with a plan
of arrangement which established TransCanada as the parent company of TCPL. The
arrangement was approved by TCPL common shareholders on April 25, 2003
and, following court approval and the filing of Articles of Arrangement, the
arrangement became effective May 15, 2003. Pursuant to the arrangement,
the common shareholders of TCPL exchanged each of their TCPL common shares for
one common share of TransCanada. The debt securities and preferred shares of
TCPL remained obligations and securities of TCPL. TCPL continues to hold the
assets it held prior to the arrangement and continues to carry on business as
the principal operating subsidiary of the TransCanada group of entities.
TransCanada does not hold any material assets directly other than the common
shares of TCPL and receivables from certain of TransCanadas subsidiaries.  Intercorporate Relationships  The following diagram presents the name and jurisdiction of incorporation,
continuance or formation of TransCanadas principal subsidiaries as at December 31,
2008.  Each of these subsidiaries has
total assets that exceeded 10% of the total consolidated assets of TransCanada
or revenues that exceeded 10% of the total consolidated revenues of TransCanada
as at and for the year ended December 31, 2008.  TransCanada owns, directly or indirectly, 100
per cent of the voting shares of each of these subsidiaries.    The above diagram does not include all of the subsidiaries of TransCanada.  The assets and revenues of excluded
subsidiaries in the aggregate did not exceed 20% of the total consolidated
assets or total consolidated revenues of TransCanada as at and for the year
ended December 31, 2008.


TRANSCANADA CORPORATION2  GENERAL DEVELOPMENT OF THE BUSINESS  The general development of TransCanadas business during the last three
financial years, and the significant acquisitions, dispositions, events or
conditions which have had an influence on that development, are described
below.  Effective June 1, 2006, TransCanada revised the composition and
names of its reportable business segments to Pipelines
and Energy. Pipelines are
principally comprised of the Companys pipelines in Canada, the U.S. and Mexico
and its regulated natural gas storage operations in the U.S. Energy includes
the Companys power operations, the non-regulated natural gas storage business,
and liquefied natural gas (LNG)
projects.  Developments in the Pipelines Business  TransCanadas strategy in Pipelines is focused on both growing its
North American natural gas transmission network and maximizing the long-term
value of its existing pipeline assets. Summarized below are significant
developments that have occurred in TransCanadas Pipelines business over the
last three years.  2008  Pipeline Developments  ·January 4, 2008. The State of Alaska announced
that TransCanada had submitted a complete Alaska Gasline Inducement
Act (AGIA) application for a license
to construct the Alaska Pipeline Project and would be advancing to the public
comment stage.  ·February 2008. In 2005, certain subsidiaries of
Calpine Corporation (Calpine)
filed for bankruptcy protection in both Canada and the U.S. The Portland
Natural Gas Transmission System (the Portland System)
and GTNC reached agreement with Calpine for allowed unsecured claims in the
Calpine bankruptcy of US$125 million and US$192.5 million, respectively.
Creditors were to receive shares in the re-organized Calpine and these shares
would be subject to market price fluctuations as the new Calpine shares began to
trade. In February 2008, the Portland System and GTNC received partial
distributions of 6.1 million shares and 9.4 million shares, respectively.
Subsequently, these shareholdings were sold into the market.  Claims of Nova Gas Transmission Limited (NGTL) and Foothills Pipe Lines (South B.C.) Ltd., both
wholly-owned subsidiaries of TransCanada, for $31.6 million and $44.4 million,
respectively, were received in cash in January 2008 and were passed on to
shippers on these systems.  ·March 14, 2008. 
TransCanada Keystone Pipeline, LP (Keystone U.S.)
received a Presidential Permit authorizing the construction, maintenance and
operation of facilities at the United States and Canada border for the
transportation of crude oil between the two countries.  The Presidential Permit was a significant
regulatory approval required to begin construction of the 3,456 kilometre (km) pipeline project that will transport crude oil from
Alberta to markets in the United States (the Keystone
Oil Pipeline).  The
Presidential Permit was issued following the issuance by the U.S. Department of
State of the Final Environmental Impact Statement (FEIS)
on January 11, 2008 for the construction of the Keystone U.S. pipeline and
its Cushing extension.  The FEIS stated
the pipeline would result in limited adverse environmental impacts.
Construction of the Keystone Oil Pipeline began in May 2008 in both Canada
and the United States. 
Commissioning of the segment to Wood River and Patoka is expected to
commence in late 2009 with commercial operations to follow in early 2010.  Commissioning of the segment providing
service to Cushing is expected to commence in late 2010.  ·April 2008. 
An expansion to TransCanadas natural gas transmission system in the
province of Alberta (the Alberta System)
in the Fort McMurray area, comprising a total of approximately 150 km, was
placed in service on its projected on-stream date.  ·July 16, 2008. 
TransCanada announced plans to expand and extend the Keystone Oil
Pipeline system and provide additional capacity in 2012 of 500,000 barrels per
day (Bbl/d) from Western Canada to the
United States Gulf Coast, near existing terminals in Port Arthur, Texas.  The expansion, when completed, is expected to
increase the


TRANSCANADA CORPORATION3  Keystone Oil Pipeline system from
590,000 Bbl/d to approximately 1.1 million Bbl/d.  Construction of the expansion facilities is
expected to commence in 2010 subject to the receipt of the necessary regulatory
approvals.  ·September 3, 2008.  TransCanada acquired Bison Pipeline LLC from
Northern Border Pipeline Company (NBPL) for
US$20 million.  The assets of Bison
Pipeline LLC included executed precedent agreements as well as regulatory,
environmental and engineering work on the Bison Pipeline Project (Bison), a proposed 480 km (298 mile) pipeline from the
Powder River Basin in Wyoming to the Northern Border Pipeline system in Morton
County, North Dakota.  ·September 8,
2008.  TransCanada reached a proposed agreement
with Canadian Utilities Limited (ATCO Pipelines) to provide integrated natural gas
transmission service to customers.  If
approved by the regulatory authorities, the two companies will combine physical
assets under a single rates and services structure with a single commercial
interface with customers but with each company separately managing assets
within distinct operating territories in the province.  TransCanada continues to work with all
stakeholders to finalize this agreement.  ·October 29, 2008.  TransCanada announced that the Keystone Oil
Pipeline system successfully conducted the open season for expansion and
extension to the United States Gulf Coast by securing additional firm,
long-term contracts totaling 380,000 Bbl/d for an average term of approximately
17 years.  With these shipper commitments
the Keystone Oil Pipeline system has long-term commitments for 910,000 Bbl/d
for an average term of approximately 18 years. 
This includes commitments made by shippers to sign transportation
service agreements for 35,000 Bbl/d capacity in an open season to be held in
2009.  The commitments represent
approximately 83 per cent of the 1.1 million Bbl/d commercial design of the
system.  ·December 5,
2008.The Alaska Commissioner of Revenue and Natural Resources issued the AGIA
license to TransCanada to advance the Alaska Pipeline Project, following on the
approval by the Alaska Senate on August 1, 2008 of TransCanadas
application for the license.  TransCanada
has committed under the AGIA to advance the Alaska Pipeline Project through an
open season and subsequent United States Federal Energy Regulatory Commission (FERC) certification. 
TransCanada has commenced the engineering, environmental, field and
commercial work, and expects to conclude an open season by July 31,
2010.  Under AGIA, the State of Alaska
has agreed to reimburse a share of the eligible pre-construction costs to
TransCanada to a maximum of US$500 million.  ·TransCanada agreed to increase its equity ownership
in Keystone U.S. and TransCanada Keystone Pipeline Limited Partnership (Keystone Canada) up to 79.99 per cent from 50 per cent with
ConocoPhillips equity ownership being reduced concurrently to 20.01 per cent.  ·TransCanada continued funding of the Mackenzie
Valley Aboriginal Pipeline Limited Partnership for its participation in the
Mackenzie Gas Pipeline Project, a proposed 1,200 km (746 mile) natural gas
pipeline to be constructed from a point near Inuvik, Northwest Territories to
the northern border of Alberta, where it is expected to connect to the Alberta
System.  Regulatory Matters  ·January 2008. Gas Transmission Northwest
Corporation (GTNC), a wholly-owned subsidiary
of TransCanada, filed a Stipulation and Agreement with the FERC on October 31,
2007 comprised of an uncontested settlement of all aspects of its 2006 General
Rate Case.  On January 7, 2008, the
FERC issued an order approving the settlement. The settlement rates were
effective retroactive to January 1, 2007.  ·March 18, 2008. 
TransCanada filed an application with the National Energy Board (NEB) to increase the interim tolls on its Canadian gas
pipeline system (the Canadian Mainline)
previously approved in December 2007. 
This toll increase was a result of a significant decrease in forecasted
flows on the Canadian Mainline and was intended to allow TransCanada to more
accurately meet its 2008 revenue requirement. 
On March 28, 2008, the NEB approved the amended interim tolls for
transportation service effective April 1, 2008.  ·June 17, 2008. 
TransCanada filed an application with the NEB to establish federal
regulation for TransCanadas Alberta System. 
The application for a certificate of public convenience and necessity
and related approvals was made to recognize that TransCanadas Alberta System
was subject to Canadian federal jurisdiction and its operations to regulation
by the NEB.  An oral  hearing to discuss this matter began on November 18,
2008 and concluded on November 28, 2008. 
A decision on the matter is expected to be issued by the end of February
2009.  Currently, the provincial
regulation of the Alberta System precludes TransCanada from acquiring,
constructing or operating facilities that transport natural gas across Alberta
provincial borders.  Federal regulation
would enable the Alberta System to extend across provincial borders, thereby
providing integrated service to Alberta and British Columbia customers, and
northern natural gas producers.  ·June, 2008. 
The NEB approved TransCanadas application for additional pumping
facilities required to expand the Canadian portion of the Keystone Oil Pipeline
project from a nominal capacity of approximately 435,000 Bbl/d to 590,000 Bbl/d
to accommodate volumes to be delivered to the Cushing markets, after holding an
oral


TRANSCANADA CORPORATION4  hearing on April 8,
2008.  The hearing and decision followed
on an application filed by Keystone Canada with the NEB in November 2007.  ·October 10, 2008.  The Alberta Utilities Commission (AUC) approved TransCanadas application for a permit to
construct the North Central Corridor expansion, at a cost of approximately $925
million.  The expansion comprises a
42-inch, 300 km (186 mile) natural gas pipeline and associated compression
facilities on the northern section of the Alberta System.  Construction on the project began in October 2008.  The decision followed on a non-routine
application filed with the Alberta Energy and Utilities Board(EUB)on November 20, 2007.  ·December 17, 2008.  The AUC approved NGTLs 2008-2009 Revenue
Requirement Settlement Application as filed, in its entirety.  As part of the settlement, fixed costs were
established for operation, maintenance and administration costs, return on
equity and income taxes.  Any variances
between actual costs and those agreed to in the settlement accrue to
TransCanada, subject to a return on equity and income tax adjustment mechanism,
which accounts for variances between actual and settlement rate base and income
tax assumptions.  The other cost elements
of the settlement are treated on a flow-through basis.  The AUC also approved the 2008 Interim Rates
of NGTL on a final basis for the period January 1, 2008 to December 31,
2008.  Further information about these developments can be found in the
MD&A under the headings TransCanadas Strategy, Pipelines  Highlights,
and Pipelines  Opportunities and Developments.  2007  Pipeline
Developments  ·February 9, 2007. TransCanada received approval
from the NEB to transfer a section of its Canadian Mainline transmission
facilities to the Keystone Oil Pipeline project to transport crude oil from
Alberta to refining centres in the U.S. Midwest and to construct and
operate new oil pipeline facilities in Canada. TransCanada announced in January 2007
the start of a binding open season for an expansion and extension of the
proposed Keystone Oil Pipeline. The purpose of the open season was to obtain
binding commitments to support the expansion of the proposed Keystone Oil Pipeline
from approximately 435,000 Bbl/d to 590,000 Bbl/d and the construction of
a 468 kilometre extension of the U.S. portion of the pipeline.  ·February 22, 2007. TransCanada closed its
acquisitions of American Natural Resources Company and ANR Storage Company
(collectively, ANR) and acquired an additional
3.6 per cent interest in Great Lakes Gas Transmission Partnership (Great Lakes) from El Paso Corporation for a total of
US$3.4 billion, subject to certain post-closing adjustments, including
approximately US$491 million of assumed long-term debt. Additionally,
TransCanada increased its ownership in TC PipeLines, LP to 32.1 per cent in
conjunction with the TC PipeLines, LP acquisition of a 46.4 per cent interest
in Great Lakes. TransCanada subsequently became the operator of NBPL and now operates all three TC
PipeLines, LP investments.  The
acquisition was financed partly through an offering of 39,470,000 subscription
receipts at $38.00 per subscription receipt, which resulted in gross proceeds
to TransCanada of approximately $1.725 billion including the exercise of an
over-allotment option granted to the underwriters.  Upon closing of the acquisition of ANR, the
subscription receipts were automatically exchanged, without the payment of any
additional consideration by the subscribers, on a one-to-one basis for common
shares of TransCanada (Common Shares).  ·December 2007. ConocoPhillips contributed $207
million to acquire a 50 per cent ownership interest in the Keystone Oil
Pipeline.  Affiliates of TransCanada will
be responsible for constructing and operating the Keystone Oil Pipeline.  Regulatory Matters  ·February 2007. TransCanada received approval
from the NEB to integrate its natural gas pipeline system in southern British
Columbia with its natural gas pipeline systems in southern Alberta and
southwestern Saskatchewan (collectively, the Foothills
System) effective April 1, 2007.  ·May 2007. TransCanadas five-year settlement
with interested stakeholders for the years 2007 to 2011 on its Canadian
Mainline was approved by the NEB. The settlement reflects, among other things,
a deemed common equity ratio of 40 per cent.


TRANSCANADA CORPORATION5  2006  Pipeline
Developments  ·April 2006. TC PipeLines, LP, an affiliate
of TransCanada, acquired an additional 20 per cent general partnership
interest in NBPL for approximately US$307 million which brought its total
general partnership interest in NBPL owned by TC Pipelines, LP to 50 per
cent. TC PipeLines, LP also indirectly assumed approximately
US$122 million of the debt of NBPL. TransCanada is the parent company of
TC PipeLines GP, Inc., the general partner of TC PipeLines, LP.  ·April 2006. TransCanada sold its 17.5 per
cent general partner interest in Northern Border Partners, L.P. for
proceeds of $35 million, net of current taxes.  ·December 2006. The 130 km Tamazunchale
natural gas pipeline in east-central Mexico went into commercial service.  ·December 2006. TC PipeLines, LP acquired
an additional 49 per cent ownership interest in Tuscarora Gas Transmission
Company (Tuscarora). TransCanada became the
operator of Tuscarora.  Regulatory
Matters  ·February 2006. TransCanada filed an application
with the FERC for a certificate for a two-phase expansion of its existing
natural gas pipeline in southern California, the North Baja system (North Baja) and the construction of a new lateral pipeline
in Californias Imperial Valley.  ·April 2006. The NEB approved a negotiated
settlement of the 2006 Canadian Mainline tolls which included an increase in
the deemed common equity ratio to 36 per cent from 33 per cent and
incentives for managing costs through fixing certain components of the revenue
requirement.  ·June 2006. TransCanada filed an application
with the NEB seeking approval to transfer a portion of TransCanadas Canadian
Mainline natural gas transmission facilities to the Keystone Oil Pipeline
project which was approved by the NEB in February 2007. Additionally, in December 2006,
TransCanada filed an application with the NEB for approval to construct and
operate the Canadian portion of the Keystone Oil Pipeline.  Developments in the Energy Business  TransCanada has built a substantial energy business over the past
decade and has achieved a significant presence in power generation in selected
regions of Canada and U.S. More recently, TransCanada has also developed a
significant non-regulated natural gas storage business in Alberta. Summarized
below are significant developments that have occurred in TransCanadas energy
business over the last three years.  2009  ·February 19, 2009.  The FERC approved two separate applications
filed by TransCanada on December 19, 2008 requesting approval to charge
negotiated rates and to proceed with an open season in the spring of 2009 for
each of the Zephyr (Zephyr) and
Chinook (Chinook) transmission line
projects.  Both projects are proposed 500
kilovolt high voltage direct current transmission projects.  Zephyr is a proposed 1,760 km (1,100 mile)
transmission line that would originate in Wyoming, and Chinook is a proposed
1,600 km (1,000 mile) project that would originate in Montana.  Both projects would terminate in Nevada, and
it is anticipated that each would deliver 3,000 MW of primarily wind generation
resources to markets in the southwestern United States.  Pending successful completion of the open
seasons, regulatory work could commence later in 2009.  2008  Energy Developments  ·January 2008. A milestone in the Bruce Power A
L.P. (Bruce A) Units 1 and 2 refurbishment
and restart project was completed when the sixteenth and final new steam
generator was installed. With the completion of this stage of the project, the
authorized funding for Units 1 and 2 was increased from $2.75 billion to
approximately $3.0 billion.  This process
was expected to result in a further increase in the total project cost to
complete the Unit 1 and 2 restart. Project cost increases are subject to the
capital cost-risk and reward-sharing mechanism under the agreement with the
Ontario Power Authority. Bruce A Units 1 and 2 are expected to produce an
additional 1,500 megawatts (MW) when
completed in 2010.


TRANSCANADA CORPORATION6  ·February 2008. The
potential anchor LNG supplier for the Cacouna LNG project (Cacouna) terminal in Québec announced it
would no longer be pursuing the development of its LNG supply as originally
planned.  Although Cacouna received its
primary regulatory approvals, project development has been suspended until
alternate LNG supply is acquired and the North American market for LNG grows.  ·April 2008. 
The comprehensive review of costs to complete the Bruce A Units 1 and 2
refurbishment and restart project was completed.  Based on this assessment, the capital cost
for the restart and refurbishment of Bruce A Units 1 and 2 is expected to be
approximately $3.4 billion, up from an original 2005 cost estimate of $2.75 billion.  TransCanadas share is expected to be
approximately $1.7 billion compared to an original estimate of $1.4 billion.  ·May 12, 2008. 
TransCanada announced that the Phoenix, Arizona based utility, Salt
River Project, signed a 20 year power purchase agreement to secure 100 per cent
of the output from the Coolidge Generating Station (Coolidge),
a 575 MW simple-cycle natural gas-fired peaking power generation station
currently in development to be located 72 km (45 miles) southeast of Phoenix in
Coolidge, Arizona.  In December 2008,
the Arizona Corporation Commission granted a Certificate of Environmental
Compatibility approving Coolidge. 
Construction is scheduled to begin in the summer of 2009, and the
facility is expected to be commissioned in 2011.  ·May 30, 2008. 
Portlands Energy Centre, a natural gas-fired combined-cycle power plant
near downtown Toronto, Ontario (Portlands Energy Centre)
went into service in simple-cycle mode, capable of delivering 340 MW of power
during the summer of 2008.  Portlands
Energy Centre, which is 50 per cent owned by TransCanada, is currently under
construction and is expected to be fully commissioned in combined-cycle mode in
first quarter 2009 with delivery capabilities of 550 MW of power.  ·July 4, 2008. 
Hydro-Québec Distribution notified the Régie the Lénergie that it would
exercise its option to extend the suspension of all electricity generation from
TransCanadas 550 MW Bécancour cogeneration power plant near Trois-Rivières,
Québec (Bécancour) throughout 2009.  This followed on TransCanadas agreement with
Hydro-Québec Distribution to temporarily suspend all electricity generation
from Bécancour during 2008. TransCanada will continue to receive payments under
the agreement similar to those that would have been received under the normal
course of operation.  ·July 9, 2008. 
TransCanada announced that the Kibby Wind Power Project received
unanimous final development plan approval from Maines Land Use Regulation
Commission.  Construction on the project
began in July 2008.  The capital
cost of the project is expected to be approximately US$320 million with
commissioning of the first phase expected to begin in fourth quarter 2009.  ·August 26, 2008.  TransCanada completed its acquisition of the
2,480 MW Ravenswood Generating Station (Ravenswood)
located at Queens, New York for US$2.9 billion, subject to certain
post-closing adjustments.  The
acquisition was completed pursuant to a
membership interest and stock purchase agreement between KeySpan Corporation, KeySpan
Energy Corporation and TransCanada Facility USA, Inc. dated March 31,
2008 (the Ravenswood Agreement) whereby TransCanada Facility USA, Inc. agreed to acquire all of
the outstanding membership interests of KeySpan-Ravenswood, LLC and all of the
outstanding shares of KeySpan Ravenswood Services Corp. from National Grid
plc.  KeySpan-Ravenswood, LLC directly or
indirectly owned or controlled Ravenswood. 
The acquisition was financed through a combination of equity and
term debt offerings, funds drawn on a newly established bridge loan facility
and cash on hand (see Financing Activities
below).  ·November 22, 2008.  The Carleton wind farm, the third of six
phases of a wind energy project contracted by Hydro-Québec Distribution in the
Gaspé Region of Québec (the Cartier Wind Energy
Project), went into service and is capable of generating 109 MW of
power.  ·In fourth quarter 2008, Bruce Power completed a
review of the end of life estimates for Units 3 and 4.  Unit 3 is now expected to be in commercial
service until 2011, which provides the benefit of nearly two additional years
of generation before the unit commences an expected 36-month refurbishment
period.  After the refurbishment period,
the end of life estimate for Unit 3 is expected to increase from the originally
expected date of 2037 to 2038.  In
addition, Unit 4 is now expected to be in commercial service until 2016,
providing nearly seven years of generation before the unit commences a similar
refurbishment period, after which, the end of life estimate for Unit 4 is
expected to increase from the originally expected date of 2036 to 2042.


TRANSCANADA CORPORATION
  7  Regulatory Matters  ·January 11, 2008. The FERC issued its FEIS for
the Broadwater LNG project (Broadwater).  A joint venture with Shell US Gas &
Power LLC, Broadwater is a proposed offshore LNG facility in Long Island Sound,
New York. The FEIS confirmed project need, supported the location of the
project with acknowledgement of its target market and delivery goals, and found
safety and security risks to be limited and acceptable.  The FEIS concluded that with adherence to
federal and state permit requirements and regulations, Broadwaters proposed
mitigation measures and the FERCs recommendations, the project will not result
in a significant impact on the environment.  ·March 24, 2008. 
FERC authorized the construction and operation of Broadwater, subject to
the conditions reflected in the authorization. 
On April 10, 2008, the New York State Department of State (NYSDOS) determined that construction and operation of the
project would not be consistent with the states coastal zone policies.  As a result of this unfavourable decision,
TransCanada wrote down $27 million after tax of costs for Broadwater that had
been capitalized to March 31, 2008. 
On June 6, 2008, Broadwater Energy, LLC filed an appeal with the
United States Secretary of Commerce on the decision of the NYSDOS asking the
Secretary of Commerce to override the NYSDOS decision on the basis that the
project meets the criteria for approval under the Coastal Zone
Management Act and applicable regulations.  A decision is expected in early 2009.  Further information about each of these energy developments can be
found in the MD&A under the headings TransCanadas Strategy, Energy 
Highlights and Energy  Opportunities and Developments.  2007  Energy Developments  ·June 2007. Following public hearings in 2006,
the Québec government granted a provincial decree approving Cacouna.  Cacouna also received federal approvals
pursuant to the Canadian Environmental Assessment Act.  ·September 2007. Cacouna announced that it was
delaying the planned in-service date for the regasification terminal from 2010
to 2012. This delay resulted from a need to assess impacts of permit
conditions, to review the facility design in light of escalating costs and to
align the schedule with potential LNG supply facilities.  ·November 2007. The second phase of the Cartier
Wind Energy Project, the 101 MW Anse-à-Valleau wind farm, was placed into
service.  In addition, the Cartier Wind
Energy Project began construction of a third project, the 109 MW Carleton wind
farm.  2006  Energy Developments  ·TransCanada
continued construction of the Cartier Wind Energy Project, of which 62 per
cent is owned by TransCanada. The first of six proposed wind farm projects,
Baie-des-Sables, went into commercial service in late 2006.  ·September 2006. Portlands Energy
Centre L.P., 50 per cent owned by TransCanada, signed a 20-year
Accelerated Clean Energy Supply contract with the Ontario Power Authority for
Portlands Energy Centre.  ·September 2006. Construction of Bécancour was
completed and placed into service providing power to Hydro-Québec Distribution.  ·November 2006. TransCanada was awarded a
20-year Clean Energy Supply contract by the Ontario Power Authority to build,
own and operate a 683 MW natural gas-fired power plant near the Town of
Halton Hills, Ontario.  ·December 2006. The Edson gas storage facility
was placed in service.  Regulatory Matters  ·January 2006. TransCanada, on behalf of
Broadwater, filed an application with the FERC for approval of the LNG
regasification project to be located in Long Island Sound, New York.
Coincident with the FERC process, Broadwater applied to the NYSDOS for a
determination that the project is consistent with New Yorks coastal zone
policies.  ·December 2006. A public hearing on Cacouna was
held in May and June of 2006 and in December 2006 the Minister
of the Environment for Québec and the federal Minister of the Environment,
jointly released the report of the Joint Commission on Cacouna.


TRANSCANADA CORPORATION
  8  Financing Activities  2009  ·January 9, 2009.  TransCanada completed an issuance of US$750
million and US$1.25 billion of Senior Unsecured Notes maturing on January 15,
2019 and January 15, 2039, respectively, and bearing interest at 7.125 per
cent and 7.625 per cent, respectively. 
The proceeds from these notes are expected to be used to partially fund
TransCanadas capital projects, retire maturing debt obligations and for
general corporate purposes.  These notes
were issued under a US$3.0 billion debt shelf prospectus filed on January 2,
2009.  ·February 17, 2009.  TransCanada completed the issuance of $300
million and $400 million of Medium-Term Notes maturing on February 14,
2014 and February 17, 2039, respectively, and bearing interest at 5.05 per
cent and 8.05 per cent, respectively.  The
proceeds from these notes are expected to be used to fund the Alberta System
and Canadian Mainline rate bases.  These
notes were issued under a $1.5 billion debt shelf prospectus filed in March,
2007.  2008  ·May 5, 2008. 
TransCanada entered into an underwriting agreement with a syndicate of
underwriters led by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., and
TD Securities Inc. under which the underwriters agreed to purchase from
TransCanada 30,200,000 Common Shares and sell the Common Shares to the public
at a purchase price of $36.50 per Common Share. 
The underwriters were also granted an over-allotment option to purchase
an additional 4,530,000 Common Shares at the same price.  The offering was completed on May 13,
2008 and, together with the full exercise of the over-allotment option by the
underwriters, 34,730,000 Common Shares were issued and resulted in gross
proceeds to TransCanada of approximately $1.27 billion to be used by
TransCanada to partially fund acquisitions and capital projects of TransCanada
including, amongst others, the acquisition of Ravenswood, the construction of
the Keystone Oil Pipeline, and for general corporate purposes.  These Common Shares were issued under the
base shelf prospectus filed in January, 2007.  ·June 27, 2008. 
TransCanada executed an agreement with a syndicate of banks for a US$1.5
billion, committed, unsecured, one-year bridge loan facility, at a floating
interest rate based on the London Interbank Offered Rate (LIBOR)
plus 30 basis points.  The facility is
extendible at the option of TransCanada for an additional six month term at
LIBOR plus 35 basis points.  On August 25,
2008, TransCanada utilized US$255 million from this facility to fund a portion
of the Ravenswood acquisition and cancelled the remainder of the
commitment.  At December 31, 2008,
the US$255 million remained outstanding on the facility.  ·August 11, 2008. TransCanada completed an
issuance of US$850 million and US$650 million of Senior Unsecured Notes
maturing on August 15, 2018 and August 15, 2038, respectively, and
bearing interest at 6.50 per cent and 7.25 per cent, respectively. The proceeds
from these notes were used to partially fund the Ravenswood acquisition and for
general corporate purposes.  These notes
were issued under a US$2.5 billion debt shelf prospectus filed in September, 2007.  ·August 20, 2008.  TransCanada completed an issuance of $500
million of Medium-Term Notes maturing in 
August 2013 and bearing interest at 5.05 per cent.  The proceeds from these notes were used to
partially fund the Alberta Systems capital program and for general corporate
purposes.  These notes were issued under
the debt shelf prospectus filed in March, 2007.  ·November 17, 2008.  TransCanada entered into an underwriting
agreement with a syndicate of underwriters led by RBC Dominion Securities Inc.,
BMO Nesbitt Burns Inc., and TD Securities Inc. under which the underwriters
agreed to purchase from TransCanada 30,500,000 Common Shares and sell the
Common Shares to the public at a purchase price of $33.00 per Common
Share.  The underwriters were also
granted an over-allotment option to purchase an additional 4,575,000 Common
Shares at the same price.  The offering
was completed on November 25, 2008 and resulted in gross proceeds to
TransCanada of approximately $1 billion to be used by TransCanada to partially
fund its capital projects, including the Keystone Oil Pipeline, for general
corporate purposes and to repay short-term indebtedness.  The syndicate of underwriters fully exercised
the over-allotment option on December 5, 2008 for additional gross
proceeds to TransCanada of $151 million. 
The Common Shares were issued under the base shelf prospectus filed in July, 2008.  ·In November 2008, TransCanada established a
US$1.0 billion committed, unsecured bank facility with a syndicate of
banks.  The facility bears interest at a
floating rate plus a margin.  The
facility has an initial term of 364 days with a one-year renewal at the option
of the borrower and will support a new commercial paper program dedicated


TRANSCANADA CORPORATION
  9  to funding a portion of expenditures for the
Keystone Oil Pipeline and for general partnership purposes.  As at December 31, 2008, no draws had
been made on this facility.  Further
information about financing activities can be found in the MD&A under the
headings Short-Term Debt Financing Activities, 2009 and 2008 Long-Term Debt
Financing Activities, 2007 Long-Term Debt Financing Activities, 2006
Long-Term Debt Financing Activities, 2008 Equity Financing Activities and 2007
Equity Financing Activities.  BUSINESS
OF TRANSCANADA  TransCanada is a leading North American energy infrastructure company
focused on pipelines and energy. At Year End, Pipelines accounted for
approximately 54 per cent of revenues and 64 per cent of TransCanadas total
assets and Energy accounted for approximately 46 per cent of revenues and 30
per cent of TransCanadas total assets. 
The following is a description of each of TransCanadas two main areas
of operation.  The following table shows TransCanadas revenues from operations by segment,
classified geographically, for the years ended December 31, 2008
and 2007.  Revenues From Operations(millions of dollars)
  
  2008
  
  
  2007PipelinesCanada - Domestic
  
  $2,005
  
  
  $2,227Canada - Export(1)
  
  1,123
  
  
  1,003United States
  
  1,522
  
  
  1,4824,650
  
  
  4,712Energy(2)Canada  Domestic
  
  2,594
  
  
  2,792Canada - Export(1)
  
  2
  
  
  3United States
  
  1,373
  
  
  1,3213,969
  
  
  4,116Total
  Revenues(3)
  
  $8,619
  
  
  $8,828  (1)Exports include pipeline revenues attributable to
deliveries to U.S. pipelines and power deliveries to U.S. markets.  (2)Revenues include sales of natural gas.  (3)Revenues are attributed to countries based on country
of origin of product or service.  Pipelines Business  TransCanada is a leader in the responsible development and reliable
operation of North American energy infrastructure including natural gas
pipelines, regulated gas storage facilities and projects related to oil
pipelines. TransCanadas network of wholly owned pipelines extends more than
59,000 km (36,661 miles), tapping into virtually all major gas supply basins in
North America.  TransCanada has substantial Canadian and U.S. natural gas pipeline
and related holdings, and one oil pipeline project, including those listed below.  Canada  ·TransCanadas Canadian Mainline is a 100 per cent
owned 14,101 km (8,762 mile) natural gas transmission system in Canada that
extends from the Alberta/Saskatchewan border east to the Québec/Vermont border
and connects with other natural gas pipelines in Canada and the U.S.  ·TransCanadas Alberta System is a 100 per cent owned
natural gas transmission system in Alberta which gathers natural gas for use
within the province and delivers it to provincial boundary points for
connection with the Canadian Mainline and the Foothills System and with the
natural gas pipelines of other companies. The 23,705 km (14,730 mile) system is
one of the largest carriers of natural gas in North America.  ·Keystone Oil Pipeline is a 3,456 km (2,147 mile) oil
pipeline project currently under construction that will initially transport
crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood River and
Patoka in Illinois, and to Cushing, Oklahoma. 
In addition, an expansion to the United States Gulf Coast is under
development, which is expected to add approximately 2,720 km (1,690 miles) of
pipe to the system.  Commissioning of the
segment to Wood River and Patoka is expected to begin in late 2009.  Commissioning of the segment to Cushing is
expected to begin in


TRANSCANADA CORPORATION
  10  late 2010. 
The expansion to the United States Gulf Coast is expected to be
commissioned in 2012, subject to regulatory approvals.  Keystone Oil Pipeline was 62 per cent owned
by TransCanada as at December 31, 2008 and TransCanada has agreed to
increase its equity ownership in Keystone U.S. and Keystone Canada up to 79.99
per cent.  In accordance with this
agreement, TransCanada will fund 100 per cent of the construction expenditures
until the participants project capital contributions are aligned with the
revised ownership interests.  Certain
parties that have made volume commitments to the Keystone Oil Pipeline
expansion have an option to acquire up to a combined 15 per cent equity
ownership in Keystone U.S. and Keystone Canada by end of first quarter
2009.  If all of the options are
exercised, TransCanadas equity ownership would be reduced to 64.99 per cent.  ·TransCanadas
Foothills System is a 100 per cent owned, 1,241 km (771 mile) natural gas
transmission system in Western Canada which carries natural gas for export from
central Alberta to the U.S. border to serve markets in the U.S. Midwest,
Pacific Northwest, California and Nevada. Effective April 1, 2007, the
B.C. System was integrated into the Foothills System.  ·TransCanada
Pipeline Ventures LP, which is 100 per cent owned by TransCanada, owns a 161 km
(100 mile) pipeline and related facilities that supply natural gas to the oil
sands region of northern Alberta as well as a 27 km (17 mile) pipeline that
supplies natural gas to a petrochemical complex at Joffre, Alberta.  ·TransCanada
Québec & Maritimes Pipeline Inc. (TQM) is 50 per
cent owned by TransCanada. TQM is a 572 km (355 mile) pipeline system that connects
with the Canadian Mainline and transports natural gas from Montréal to Québec
City in Québec, and connects with the Portland System. TQM is operated by
TransCanada.  United States  ·TransCanadas
ANR System (ANR System) is a 100 per cent
owned 17,000 km (10,563 mile) natural gas transmission system which transports
natural gas from producing fields located primarily in Texas and Oklahoma on
its southwest leg, and in the Gulf of Mexico and Louisiana on its southeast
leg. The system extends to markets located mainly in Wisconsin, Michigan,
Illinois, Ohio and Indiana. ANRs natural gas pipeline also connects with other
natural gas pipelines, providing access to diverse sources of North American
supply, including Western Canada, and the mid-continent and Rocky Mountain
supply regions, and a variety of markets in the Midwestern and northeastern
U.S.  ·Underground gas
storage facilities owned and operated by ANR provide regulated gas storage
services to customers on the ANR System and the Great Lakes Gas Transmission
System (Great Lakes System) in upper
Michigan.  In 2008, ANR completed its
storage enhancement project and added 14 billion cubic feet (Bcf) of storage.  In
total, the ANR business unit operates sixteen underground natural gas storage
facilities throughout the State of Michigan with total natural gas storage
capacity of 250 Bcf.  ·The GTN System (GTN System) is TransCanadas 100 per cent owned natural gas
transmission system which extends 2,174 km (1,351 miles) and links the
Foothills System with Pacific Gas and Electric Companys California Gas
Transmission System, with Williams Companies, Inc.s Northwest Pipeline in
Washington and Oregon, and with Tuscarora.  ·Bison pipeline
is a proposed 480 km (298 mile) pipeline from the Powder River Basin in Wyoming
to the Northern Border Pipeline System in North Dakota.  The Bison pipeline has shipping commitments
for approximately 405 mmcf/d and is expected to be in-service in fourth quarter
2010.  TransCanada is continuing to work
with prospective Bison shippers to advance this project.  ·North Baja is
TransCanadas 100 per cent owned natural gas transmission system which extends
129 km (80 miles) from Ehrenberg in southwestern Arizona to a point near
Ogilby, California on the California/Mexico border and connects with the
Gasoducto Bajanorte natural gas pipeline system in Mexico.  ·The Great Lakes
System is owned 53.6 per cent by TransCanada and 46.4 per cent by TC Pipelines,
LP. The 3,404 km (2,115 mile) Great Lakes System connects with the Canadian
Mainline at Emerson, Manitoba, and serves markets primarily in Central Canada
and the Midwestern U.S. TransCanada operates the Great Lakes System and
effectively owns 68.5 per cent of the system through its 53.6 per cent
ownership interest and its indirect ownership, which it has through its 32.1
per cent interest in TC Pipelines, LP.  ·The Northern
Border Pipeline System (NBPL System)
is 50 per cent owned by TC PipeLines, LP and is a 2,250 km (1,398 mile) natural
gas transmission system, which serves the U.S. Midwest from a connection with
the Foothills System near Monchy, Saskatchewan. TransCanada operates and
effectively owns 16.1 per cent of the NBPL System through its 32.1 per cent
interest in TC PipeLines, LP.


TRANSCANADA CORPORATION
  11  ·Tuscarora is 100 per cent owned by TC PipeLines, LP
and has a 491 km (305 mile) pipeline system transporting natural gas from the
GTN System at Malin, Oregon to Wadsworth, Nevada (the Tuscarora
System) with delivery points in northeastern California and
northwestern Nevada. TransCanada operates the Tuscarora System and effectively
owns 32.1 per cent of the system through its 32.1 per cent interest in TC
PipeLines, LP.  ·The Iroquois Gas Transmission System (Iroquois System) connects with the Canadian Mainline near
Waddington, New York and delivers natural gas to customers in the northeastern
U.S. TransCanada has a 44.5 per cent ownership interest in this 666 km (414
mile) pipeline system.  ·The Portland System is a 474 km (295 mile) pipeline
that connects with TQM near East Hereford, Québec and delivers natural gas to
customers in the northeastern U.S. TransCanada has a 61.7 per cent ownership
interest in the Portland System and operates this pipeline.  ·TransCanada
holds a 32.1 per cent interest in TC PipeLines, LP, a publicly held
limited partnership of which a subsidiary of TransCanada acts as the general
partner. The remaining interest of TC PipeLines, LP is widely held by the
public. TC PipeLines, LP owns a 50 per cent interest in the NBPL
System, the remaining 46.4 per cent in the Great Lakes System and
100 per cent of Tuscarora.  ·The Palomar pipeline project is a proposed 349 km
(217 mile) pipeline extending from the GTN System to the Columbia River
northwest of Portland.  In December 2008,
Palomar Gas Transmission LLC filed with the FERC for a certificate to build
this pipeline, which is a 50/50 joint venture of GTNC and Northwest Natural Gas
Co.  International  TransCanada also has the following natural gas pipeline and related
holdings in Mexico and South America:  ·TransGas is a 344 km (214 mile) natural gas pipeline
system which runs from Mariquita in the central region of Colombia to Cali in
the southwest of Colombia. TransCanada holds a 46.5 per cent ownership interest
in this pipeline.  ·Gas Pacifico is a 540 km (336 mile) natural gas
pipeline extending from Loma de la Lata, Argentina to Concepción, Chile.
INNERGY is an industrial natural gas marketing company based in Concepción that
markets natural gas transported on Gas Pacifico. TransCanada holds a 30 per
cent ownership interest both in Gas Pacifico and INNERGY.  ·Tamazunchale is a 100 per cent owned, 130 km (81
mile) natural gas pipeline in east-central Mexico which extends from the facilities
of Pemex Gas near Naranjos, Veracruz to an electricity generating station near
Tamazunchale, San Luis Potosi. This pipeline went into service on December 1,
2006.  Further information about TransCanadas pipeline holdings, developments
and opportunities and significant regulatory developments which relate to
pipelines can be found in the MD&A under the headings Pipelines, Pipelines
 Opportunities and Developments and Pipelines  Financial Analysis.  Regulation of the Pipeline Business  Canada  CANADIAN MAINLINE, TQM AND FOOTHILLS SYSTEM  Under the terms of the National
Energy Board Act (Canada), the Canadian Mainline, TQM and the
Foothills Systems are regulated by the NEB. The NEB sets tolls which provide
TransCanada the opportunity to recover projected costs of transporting natural
gas, including the return on the Canadian Mainline, TQM and Foothills Systems
average investment base. In addition, new facilities are approved by the NEB
before construction begins and the NEB regulates the operation of the Canadian
Mainline, TQM and Foothills Systems. Net earnings of the Canadian Mainline, TQM
and Foothills Systems may be affected by changes in investment base, the
allowed return on equity, the level of deemed common equity and any incentive
earnings.  ALBERTA SYSTEM  Effective January 1, 2008, the EUB was reorganized into the Energy
Resources Conservation Board and the AUC. 
The AUC regulates all the physical and economic aspects of the Alberta
System which were previously regulated by the EUB primarily under the
provisions of the Gas Utilities Act
(GUA) and the Pipeline Act. Under the GUA, the Alberta
System rates, tolls and other charges, and terms and conditions of services are
subject to approval by the AUC. Under the provisions of the Pipeline Act, the AUC oversees various
matters including the economic, orderly and efficient development of pipeline
facilities, the operation and abandonment of the facilities and certain related
pollution and environmental conservation issues. In addition to


TRANSCANADA CORPORATION
  12  requirements under the Pipeline Act,
the construction and operation of natural gas pipelines in Alberta are subject
to certain provisions of other provincial legislation such as the Environmental Protection and Enhancement Act.  In June 2008, TransCanada filed an application with the NEB
seeking a determination that the Alberta System is within Canadian federal
jurisdiction and subject to regulation by the NEB.  TransCanada also requested approvals to
operate the Alberta System under NEB regulation.  A hearing on the application was held in November 2008
and a decision is expected by the end of February 2009.  KEYSTONE OIL PIPELINE  TransCanada is presently constructing the Canadian and U.S. sections of
the Keystone Oil Pipeline and expects to place the base facilities into service
in late 2009.  The NEB regulates the
terms and conditions of service, including rates, and the physical operation of
the Canadian portion of the pipeline. NEB approval is also required for
facility additions, such as the Canadian portion of the proposed Gulf Coast
expansion project.  United States TransCanadas
wholly owned and partially owned U.S. pipelines, including the ANR System,
the GTN System, the Great Lakes System, the Iroquois System, the Portland
System, the NBPL System, North Baja and the Tuscarora System, are natural gas
companies operating under the provisions of theNatural Gas Act of 1938 and the Natural Gas Policy Act of 1978, and are
subject to the jurisdiction of the FERC. The Natural
Gas Act of 1938 grants the FERC authority over the construction and
operation of pipelines and related facilities. The FERC also has authority to
regulate rates for natural gas transportation and interstate commerce.  The FERC also regulates the terms and conditions of service, including
rates, on the U.S. portion of the Keystone Oil Pipeline. However, primary
approvals for any facility additions to the Keystone Oil Pipeline are obtained
from state agencies.  Energy Business  The Energy segment of TransCanadas business includes the acquisition,
development, construction, ownership and operation of electrical power
generation plants, the purchase and marketing of electricity, the provision of
electricity account services to energy and industrial customers, the
development, construction, ownership and operation of non-regulated natural gas
storage in Alberta, and LNG facilities in Canada and the U.S.  The electrical power generation plants and power supply that
TransCanada has an interest in, including those under development, in the
aggregate, represent approximately 10,900 MW of power generation capacity.
Power plants and power supply in Canada account for approximately 60 per
cent of this total, and power plants in the U.S. account for the balance, being
approximately 40 per cent.  TransCanada owns and operates the following facilities:  ·Ravenswood, located in Queens, New York, is a 2,480
MW power plant that consists of multiple units employing steam turbine,
combined cycle and combustion turbine technology.  Ravenswood has the capacity to serve
approximately 21 per cent of New York Citys peak load.  ·TC Hydro, TransCanadas hydroelectric facilities
located in New Hampshire, Vermont and Massachusetts on the Connecticut and
Deerfield Rivers consist of 13 stations and associated dams and reservoirs with
a total generating capacity of 583 MW.  ·Ocean State Power, a 560 MW natural gas-fired,
combined-cycle facility in Burrillville, Rhode Island.  ·Bécancour, a 550 MW natural gas-fired cogeneration
power plant located near Trois-Rivières, Québec. The entire power output is
supplied to Hydro-Québec Distribution under a 20-year power purchase
contract.  Steam is also sold to an
industrial customer for use in commercial processes.  ·Natural gas-fired cogeneration plants in Alberta at
Carseland (80 MW), Redwater (40 MW), Bear Creek (80 MW) and
MacKay River (165 MW).  ·Grandview, a 90 MW natural gas-fired cogeneration
power plant located in Saint John, New Brunswick. Under a 20-year operating
lease for tolls, Irving Oil Limited receives 100 per cent of the plants heat
and electricity output.


TRANSCANADA CORPORATION
  13  ·Cancarb, a 27 MW facility at Medicine Hat, Alberta
fuelled by waste heat from TransCanadas adjacent thermal carbon black
facility.  ·Edson, an underground natural gas storage facility
connected to the Alberta System near Edson, Alberta. The facilitys central
processing system is capable of maximum injection and withdrawal rates of 725
million cubic feet per day (mmcf/d) of
natural gas. Edson has a working natural gas storage capacity of approximately
50 Bcf.  TransCanada has the following long-term power purchase arrangements in
place:  ·TransCanada has the rights to 100 per cent of the
generating capacity of the 560 MW Sundance A coal-fired power generation
facility under a Power Purchase Agreement (PPA), which
expires in 2017. TransCanada also has the rights to 50 per cent of the
generating capacity of the 706 MW Sundance B facility under a PPA, which
expires in 2020 (Sundance).  The Sundance facilities are located in
south-central Alberta.  ·The Sheerness facility, which consists of two 390 MW
coal-fired thermal power generating units, is located in southeastern Alberta.
TransCanada has the rights to 756 MW of generating capacity from the Sheerness
PPA, which expires in 2020 (Sheerness).  TransCanada has interests in the following:  ·Two generating stations, Bruce A which currently
generates 1,500 MW and is expected to produce an additional 1,500 MW of power
when restart of Units 1 and 2 is completed in 2010, and Bruce Power L.P. (Bruce B) with approximately 3,200 MW of generating
capacity.  Bruce Power is a partnership
with generating facilities and offices located on 2,300 acres northwest of
Toronto, Ontario on which are housed Bruce A and Bruce B.  TransCanada owns 48.9 per cent of Bruce A
which has four 750 MW reactors, two of which are currently being refurbished
and are expected to restart in 2010. 
TransCanada owns 31.6 per cent of Bruce B, which has four operating
reactors.  ·A 60 per cent ownership in CrossAlta, which is an
underground natural gas storage facility connected to the Alberta System
located near Crossfield, Alberta. CrossAlta has a working natural gas capacity
of 54 Bcf with a maximum deliverability capability of 480 mmcf/d.  ·A 62 per cent interest in the Carleton (109 MW),
Anse-à-Valleau (101 MW), and Baie-des-Sables (110 MW) wind farms, the first
three phases of the Cartier Wind Energy Project, which commenced commercial
operation in November 2008, November 2007 and November 2006,
respectively.  TransCanada owns the following facilities which are under construction
or development:  ·The Cartier Wind
Energy Project consists of six wind projects in the Gaspé region of Québec
contracted by Hydro-Québec Distribution representing a total of 740 MW when all
six wind projects are complete.  Three of
the wind farms are constructed and in service as noted above and the remaining
three projects are under planning and development and are expected to be
constructed through 2012, subject to the necessary approvals.  Cartier Wind is 62 per cent owned by
TransCanada.  ·The Portlands Energy Centre, a 550 MW high
efficiency, combined-cycle natural gas generation power plant located in
Toronto, Ontario is 50 per cent owned by TransCanada and is under construction.
The plant went into service in simple-cycle mode, capable of delivering 340 MW
of electricity in the summer of 2008. It is anticipated to be fully
commissioned in its combined-cycle mode, with delivery capabilities of 550 MW
of power in the first quarter of 2009.  ·A 683 MW natural gas-fired power plant near the town
of Halton Hills, Ontario is under construction and is expected to be placed in
service in the third quarter of 2010.  ·The Coolidge
generating station is a simple-cycle, natural gas-fired peaking power
generation station under development in Coolidge, Arizona.  Based on optimal operating conditions,
TransCanada predicts an electrical output of approximately 575 MW from this
facility, designed to provide a quick response to peak power demands.  The project has received its required
permits, and construction is expected to commence in the third quarter of 2009
with commissioning expected in 2011. 
When constructed, the power output will be supplied to Salt River
Project Agricultural Improvement and Power District under a 20-year power
purchase contract.  ·The proposed 132 MW Kibby wind power project is
under construction and is expected to include 44 turbines located in Kibby and
Skinner townships in Maine. Construction began in July 2008 and
commissioning of the first phase is expected to begin in fourth quarter 2009.  Further information about TransCanadas energy holdings and significant
developments and opportunities relating to energy can be found in the MD&A
under the headings Energy, Energy  Financial Analysis and Energy 
Opportunities and Developments.


TRANSCANADA CORPORATION
  14  GENERAL  Employees  At Year End, TransCanadas principal operating subsidiary, TCPL, had
approximately 3,987 employees, substantially all of whom were employed in
Canada and the U.S., as set forth in the following table.  Western Canada
  
  454Calgary
  
  1,697Eastern Canada
  
  242U.S. West Coast
  
  146U.S. Mid West
  
  478U.S. Northeast
  
  379U.S.
  Southeast/Gulf Coast
  
  246Houston
  
  342Mexico and Chile
  
  3Total
  
  3,987  Social and Environmental Policies  Health, safety and environment (HS&E) is a
priority in all of TransCanadas operations and is guided by its HS&E
Commitment Statement.  The HS&E
Commitment Statement outlines guiding principles for a safe and healthy
environment for TransCanadas employees, contractors and the public, and for
the protection of the environment.  All
employees are held responsible and accountable for HS&E performance.  Roles and responsibilities of employees are
clearly defined to ensure appropriate financial, human and organizational
resources are available to plan, implement and sustain the HS&E  management system, and to ensure that each
employee understands his or her role in HS&E management system implementation,
success and continuous improvement.  TransCanada
is committed to being an industry leader in conducting its business so that it
meets or exceeds all applicable laws and regulations, and minimizes risk to
people and the environment.  TransCanada
is committed to tracking and improving its HS&E performance, and to
promoting safety on and off the job, in the belief that all occupational
injuries and illnesses are preventable. 
TransCanada endeavors to do business with companies and contractors that
share its perspective on HS&E performance, and to influence them to improve
TransCanadas collective performance. 
TransCanada is committed to respecting the diverse environments and
cultures in which it operates, and to supporting open communication with the
public, policy makers, scientists and public interest groups with whom we share
stewardship of the world we inhabit.  TransCanada is committed to ensuring conformance with its internal
policies and regulated requirements.  The
HS&E Committee of TransCanadas board of directors (the Board) monitors conformance with the Companys HS&E
corporate policy through regular reporting. 
TransCanadas HS&E management system is modeled on the International
Organization of Standardizations (ISO) standard
for environmental management systems, ISO 14001, and focuses resources on the
areas of significant risk to the organizations HS&E business activities.
Management is informed regularly of all important HS&E operational issues
and initiatives through formal reporting processes.  TransCanadas HS&E management system and
performance are assessed by an independent outside firm every three years.  The most recent assessment occurred in November 2006.  The HS&E management system also is
subject to ongoing internal review to ensure that it remains effective as
circumstances change.  In 2008, employee and contractor health and safety performance
continued to be a top priority.  Overall
safety rates continue to perform significantly better than most industry
benchmarks.  TransCanadas assets were
highly reliable in 2008 and there were no incidents that were material to
TransCanadas operations.  The safety of the public and integrity of our pipelines is a top
priority of TransCanada.  The Company
expects to spend approximately $185 million in 2009 for pipeline integrity on
its wholly owned pipelines, which is higher than the amount spent in 2008
primarily due to increased levels of in-line pipeline inspection on all
systems.  Under the approved regulatory
models in Canada, pipeline integrity expenditures on NEB and AUC regulated
pipelines are treated on a flow-through basis and, as a result, have no impact
on TransCanadas earnings.  Expenditures
on the GTN System are also recovered through a cost recovery mechanism in its
rates. Pipeline safety in 2008 continued to be very good.  TransCanada experienced one small-diameter
pipeline failure in a remote part of east central Alberta.  The line break resulted in minimal impact
with no injuries or property damage. 
Spending associated with public safety on the Energy assets is focused
primarily on hydro dams and associated equipment, and is consistent with
previous years.


TRANSCANADA CORPORATION
  15  Environmental Protection  TransCanadas facilities are subject to various federal, provincial,
state and local statutes and regulations regarding environmental quality and
pollution control.  Environmental risks
from TransCanadas operating facilities typically include: air emissions, such
as nitrogen oxides (NOx),
particulate matter and greenhouse gases; potential impacts on land, including
land reclamation or restoration following construction; the use, storage or
release of chemicals or hydrocarbons; the generation, handling and disposal of
wastes and hazardous wastes; and water impacts such as uncontrolled water
discharge.   Environmental controls
including physical design, programs, procedures and processes are in place to
effectively manage these risks. TransCanada has ongoing inspection programs
designed to keep all of our facilities in compliance with environmental
requirements and we are confident that our systems are in material compliance
with the applicable requirements.  TransCanada is not aware of any material outstanding orders, material
claims or lawsuits against the Company in relation to the release or discharge
of any material into the environment or in connection with environmental
protection.  In 2008, TransCanada conducted various environmental risk assessments
and remediation work, resulting in total costs of approximately $7.0 million
for work conducted on TransCanadas Canadian facilities and US$5.5 million for
work conducted on our U.S. facilities. 
TransCanada also conducted various retirement, reclamation and
restoration work in 2008.  Total costs
were approximately $7.3 million.  In
North America, climate change policy continues to evolve at regional and
national levels. In 2008, policies related to industrial greenhouse gas (GHG) emissions were in effect in Alberta,
British Columbia and Québec and affected TransCanadas assets located in those
jurisdictions as discussed below.  In Alberta,
the Specified Gas Emitters Regulation (SGER), which
came into effect in 2007, requires industrial facilities to reduce GHG
emissions intensities on an annual basis by 12 per cent from the baseline
period, which has been established as the average emissions intensities in
2003, 2004 and 2005. A number of compliance mechanisms are available for those
facilities unable to meet this target. 
TransCanadas Alberta-based pipe and power facilities are subject to
this regulation, as are the Sundance and Sheerness coal-fired power facilities
with which TransCanada has commercial arrangements. The cost of compliance
incurred by TransCanadas Alberta-based facilities related to SGER was
approximately $12 million covering the period from July 1, 2007, the date
of implementation of the SGER, to December 31, 2007.  Costs for 2008 compliance are estimated to be
$28 million and will be finalized when compliance reports are submitted at the
end of March 2009.  Compliance costs
of the Alberta System pipeline network are recovered through tolls paid by
customers.  Compliance costs for the
Companys power generation facilities and interests in Alberta are partially
recovered through contracts and the impact of increased operating costs on
Alberta power market prices.  The
hydrocarbon royalty in Québec is collected by the natural gas distributor on
behalf of the Québec Government via a green fund contribution charge on gas
consumed. In 2008, the cost to Bécancour was less than $1.0 million as a result
of an agreement between TransCanada and Hydro-Québec Distribution to
temporarily suspend the facilitys power generation. The financial charges are
expected to increase substantially in 2010 when the plant returns to service.  British
Columbias carbon tax, which came into effect in 2008, applies to carbon
dioxide emissions arising from fossil fuel combustion. Compliance costs for
fuel combustion at the Companys compressor and meter stations in British Columbia
are recovered through tolls paid by customers. Costs related to the carbon
tax for 2008 are approximately $1 million. 
This cost is expected to increase over the next four years as the tax
rate (charge per tonne carbon dioxide) increases by $5 per tonne annually from
the initial tax rate of $10 per tonne carbon dioxide.  RISK
FACTORS  Environmental Risk Factors  As indicated above, there are multiple environmental risks associated
with TransCanadas operating facilities and, as a consequence, TransCanadas
operations are subject to various environmental laws and regulations that
establish compliance and remediation obligations. Compliance obligations can
result in significant costs associated with installing and maintaining
pollution controls, fines and penalties resulting from any failure to comply,
and potential limitations on operations. Remediation obligations can result in
significant costs associated with the investigation and remediation of
contaminated properties, some of which have been designated as Superfund sites
by the United States Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act,
and with damage claims arising out of


TRANSCANADA CORPORATION
  16  the contamination of properties or impact on natural resources. It is
not possible for us to estimate exactly the amount and timing of all future
expenditures related to environmental matters due to:  ·uncertainties
in estimating pollution control and clean up costs, including sites where only
preliminary site investigation or agreements have been completed; ·the
potential discovery of new sites or additional information at existing sites; ·the
uncertainty in quantifying liability under environmental laws that impose joint
and several liability on all potentially responsible parties; ·the
evolving nature of  environmental laws
and regulations, including the interpretation and enforcement thereof; and ·the
potential for litigation on existing or discontinued assets.  At December 31, 2008, TransCanada had accrued approximately $86
million for compliance and remediation obligations.  TransCanada believes that it has considered
all necessary contingencies and has established appropriate reserves for
environmental liabilities; however there is the risk that unforeseen matters
may arise requiring us to set aside additional monies.  In addition to those climate change policies already in force and which
are described above under the heading Environmental Protection, there are
also several federal (Canada and U.S.), regional and provincial initiatives
currently in development.  While recent
political and economic events may significantly impact the scope and timing of
new measures that are put in place, TransCanada anticipates that most of the
Companys facilities in Canada and the United States will be captured under
future regional and/or federal climate change regulations to manage industrial
GHG emissions.  Certain of these
initiatives are outlined below.  TransCanada expects a number of its
facilities will be affected by future Canadian federal climate change
regulations.  In April 2007, the
Government of Canada released the Regulatory Framework for Air Emissions (Framework).  The
Framework outlines short-, medium- and long-term objectives for managing both
GHG emissions and air pollutants in Canada. 
It is not known at this time whether the impacts from the pending
regulations will be material as draft regulations have not been released.  The Canadian government has also recently
expressed interest in pursuing the development of a North American cap and
trade system for GHG emissions.  It is
uncertain how the Framework will fit within a North American cap and trade
system and what the specific requirements for industrial emitters will be.  In the U.S., climate change is a strategic
issue for the new administration and federal policy to manage domestic GHG
emissions will be a priority.  At a regional level, seven western states and four Canadian provinces
(British Columbia, Manitoba, Ontario and Québec) are focused on the
implementation of a cap and trade program under the Western Climate Initiative
(WCI). In the northeastern U.S., states that are
members of the Regional Greenhouse Gas Initiative (RGGI) implemented a
CO2 cap
and trade program for electricity generators effective January 1, 2009.
Participants in the Midwestern Greenhouse Gas Reduction Accord, which involves
six states and one province (Manitoba), are developing a regional strategy for
reducing members GHG emissions that will include a multi sector cap and trade
mechanism.  At
a provincial level, TransCanada has assets located in Ontario and Manitoba,
where the provincial governments have announced climate change strategies that
will impact industrial sources of GHG emissions (as mentioned above, British
Columbia, Alberta and Québec already have policies in place). Details of these
programs and information about how provincial programs will align with the
Canadian governments climate change policies are still not available.  The
Company expects a number of its facilities will be affected by new legislative
initiatives in the United States. Under RGGI, both Ravenswood and Ocean State
Power generation facilities will be required to submit allowances shortly after
December 31, 2011. It is expected that the costs will be recovered from
the market and the net impact to TransCanada will be minimal. Company assets
located in WCI and Midwestern Greenhouse Gas Reduction Accord member states and
in California will be covered by measures put in place in these states;
however, the level of impact is not known at this time as key policy details
remain outstanding.  TransCanada monitors climate change policy developments and, when
warranted, participates in policy discussions in jurisdictions where the
Company has operations.  TransCanada is
also continuing its programs to manage GHG emissions from its facilities and to
evaluate new processes and technologies that result in improved efficiencies
and lower GHG emission rates.


TRANSCANADA
CORPORATION     17  Other Risk Factors  A discussion
of the Companys risk factors can be found in the MD&A under the headings Pipelines
- Opportunities and Developments, Pipelines - Business Risks, Pipelines 
Outlook, Energy - Opportunities and Developments, Energy - Business Risks,
Energy  Outlook, Corporate  Outlook and Risk Management and Financial
Instruments.  DIVIDENDS  The Board has not adopted a
formal dividend policy. The Board reviews the financial performance of
TransCanada quarterly and makes a determination of the appropriate level of
dividends to be declared in the following quarter. Currently, TransCanadas
payment of dividends on its Common Shares is primarily funded from dividends
TransCanada 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 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
Shares. In the opinion of TransCanadas management, such provisions do not
currently restrict or alter TransCanadas ability to declare or
pay dividends.  The dividends declared per
Common Share of TransCanada during the past three completed financial years are
set forth in the following table:  2008
  2007
  2006Dividends
  declared on Common Shares
  $1.44
  $1.36
  $1.28  DESCRIPTION
OF CAPITAL STRUCTURE  Share Capital  TransCanadas
authorized share capital consists of an unlimited number of Common Shares, of
which 616,471,522 were issued and outstanding at Year End, and an unlimited
number of first preferred shares and second preferred shares, issuable in
series, of which none are outstanding. The following is a description of the
material characteristics of each of these classes of shares.  Common Shares  The Common
Shares entitle the holders thereof to one vote per share at all meetings of
shareholders, except meetings at which only holders of another specified class
of shares are entitled to vote, and, subject to the rights, privileges,
restrictions and conditions attaching to the first preferred shares and the
second preferred shares, whether as a class or a series, and to any other class
or series of shares of TransCanada which rank prior to the Common Shares,
entitle the holders thereof to receive (i) dividends if, as and when
declared by the Board out of the assets of TransCanada properly applicable to
the payment of the dividends in such amount and payable at such times and at
such place or places as the Board may from time to time determine and (ii) the
remaining property of TransCanada upon a dissolution.  TransCanada has a Shareholder
Rights Plan (the Plan) that is designed to
ensure, to the extent possible, that all shareholders of TransCanada are
treated fairly in connection with any take-over bid for the Company.  The Plan creates a right attaching to each
Common Share outstanding and to each Common Share subsequently issued.  Each right becomes exercisable ten trading
days after a person has acquired, or commences a take-over bid to acquire, 20
per cent or more of the Common Shares, other than by an acquisition pursuant to
a take-over bid permitted under the terms of the Plan.  Each right permits registered holders to
receive Common Shares of TransCanada at 50 per cent of the market price of such
shares as determined as at the end of the day prior to the exercise date.  The Plan was reconfirmed at the 2007 annual
and special meeting of shareholders and must be reconfirmed every third annual
meeting thereafter.  TransCanada has a Dividend
Reinvestment and Share Purchase Plan which permits common shareholders of
TransCanada to elect to reinvest their cash dividends in additional Common
Shares of TransCanada, and preferred shareholders of TCPL to elect, until such
time as their participation is no longer permitted under securities law, to
reinvest their cash dividends in Common Shares of TransCanada.  These Common Shares may be provided to the
participants at a discount to the average market price in the five days before
dividend payment.  The discount was set
at 2 per cent commencing with the dividend payable in April 2007 and was
increased to 3 per cent for the dividend payable in January 2009.  Participants may also make additional cash
payments of up to $10,000 per quarter to purchase additional Common


TRANSCANADA
CORPORATION     18  Shares, which optional
purchases are not eligible for any discount on the price of Common Shares.  Participants are not responsible for payment
of brokerage commissions or other transaction expenses for purchases made
pursuant to the Dividend Reinvestment and Share Purchase Plan.  TransCanada also has
stock-based compensation plans that allow some employees to purchase Common
Shares of TransCanada.  Option exercise
prices approximate the market price for the Common Shares on the date the
options were issued.  Options granted
under the plan are generally fully exercisable after three years and expire
seven years after the date of grant.  First 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, provisions to the following effect.  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, the second
preferred 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 TransCanada in the event of a liquidation,
dissolution or winding up of TransCanada.  Except as provided by the Canada Business Corporations Act or as
referred to below, the holders of the first preferred shares will not have any
voting rights nor will they be entitled to receive notice of or to attend
shareholders meetings. The holders of any particular series of first preferred
shares will, if the directors so determine prior to the issuance of such
series, be entitled to such voting rights as may be determined by the directors
if TransCanada fails to pay dividends on that series of preferred shares for
any period as may be so determined by the directors.  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 662¤3 per cent of the first preferred shares
represented and voted at a meeting or adjourned meeting of such holders.  Second Preferred Shares  The rights, privileges,
restrictions and conditions attaching to the second preferred shares are
substantially identical to those attaching to the first preferred shares,
except that the second preferred shares are junior to the first preferred
shares with respect to the payment of dividends, repayment of capital and the
distribution of assets of TransCanada in the event of a liquidation,
dissolution or winding up of TransCanada.  CREDIT
RATINGS  Although
TransCanada has not issued debt to the public, it has been assigned an issuer
rating by Moodys Investors Service, Inc. (Moodys)
of Baa1 with a stable outlook. TransCanada does not presently intend to issue
debt securities to the public in its own name and future financing requirements
are expected to continue to be funded primarily through its subsidiary, TCPL.
The following table sets out the credit ratings assigned to those outstanding
classes of securities of TCPL which have been rated by DBRS Limited (DBRS), Moodys and Standard and Poors (S&P):  DBRS
  Moodys
  S&PSenior Unsecured
  DebtDebentures
  A
  A3
  A-Medium-term Notes
  A
  A3
  A-Junior Subordinated
  Notes
  BBB (high)
  Baa1
  BBBPreferred Shares
  Pfd-2 (low)
  Baa2
  BBBCommercial Paper
  R-1 (low)
  -
  -Trend/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. A description of the rating agencies credit ratings
listed in the table above is set out below.


TRANSCANADA
CORPORATION     19  DBRS Limited (DBRS)  DBRS has different rating scales
for short and long-term debt and preferred shares. High or low grades are
used to indicate the relative standing within a rating category. The absence of
either a high or low designation indicates the rating is in the middle of
the category. The R-1 (low) rating assigned to TCPLs short-term debt is the
third highest of ten rating categories and indicates satisfactory credit
quality. The overall strength and outlook for key liquidity, debt and
profitability ratios is not normally as favourable as with higher rating
categories, but these considerations are still respectable. Any qualifying
negative factors that exist are considered manageable, and the entity is
normally of sufficient size to have some influence in its industry. The A
rating assigned to TCPLs senior unsecured debt is the third highest of ten
categories for long-term debt. Long-term debt rated A is of satisfactory credit
quality. Protection of interest and principal is still substantial, but the
degree of strength is less than that of AA rated securities. While a
respectable rating, entities in the A category are considered to be more
susceptible to adverse economic conditions and have greater cyclical tendencies
than higher rated entities.  The BBB
(high) rating assigned to junior subordinated notes is the fourth highest of
the ten categories for long-term debt. 
Long-term debt rated BBB is of adequate credit quality.  Protection of interest and principal is
considered acceptable but there may be other adverse conditions present which
reduce the strength of the entity and its rated securities. The Pfd-2 (low)
rating assigned to TCPLs preferred shares is the second highest of six rating
categories for preferred shares. Preferred shares rated Pfd-2 are of
satisfactory credit quality. Protection of dividends and principal is still
substantial; however, earnings, the balance sheet and coverage ratios are not
as strong as Pfd-1 rated companies.  Moodys Investors Service, Inc. (Moodys)  Moodys has different rating
scales for short and long-term obligations. Numerical modifiers 1, 2 and
3 are applied to each rating classification, with 1 being the highest
and 3 being the lowest. The A3 rating assigned to TCPLs senior
unsecured debt is the third highest of nine rating categories for long-term
obligations. Obligations rated A are considered upper-medium grade and are
subject to low credit risk. The Baa rating assigned to TCPLs junior
subordinated debt and preferred shares is the fifth highest of nine rating
categories for long-term obligations, with the junior subordinated debt ranking
slightly higher within the Baa rating category with a modifier of 1 as opposed
to the modifier of 2 on the preferred shares. Obligations rated Baa are subject
to moderate credit risk, are considered medium-grade, and as such, may possess
certain speculative characteristics.  Standard & Poors
(S&P)  S&P has different rating
scales for short and long-term obligations. Ratings may be modified by the
addition of a plus (+) or minus (-) sign to show the relative standing within a
particular rating category. The A- rating assigned to TCPLs senior unsecured
debt is the third highest of ten rating categories for long-term obligations.
An A rating indicates the obligors capacity to meet its financial commitment
is strong; however, the obligation is slightly more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. The BBB ratings assigned to TCPLs Junior Subordinated
Notes and preferred shares are the fourth highest of ten rating categories for
long-term obligations. An obligation rated BBB 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.


TRANSCANADA CORPORATION     20  MARKET FOR
SECURITIES  TransCanadas
Common Shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange
(NYSE). The following table
sets 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 for the period indicated:  Common Shares TSX (TRP)
  NYSE (TRP)Month
  High
   ($)
  Low
   ($)
  Close
   ($)
  Volume
   Traded
  High
   (US$)
  Low
   (US$)
  Close
   (US$)
  Volume
   TradedDecember 2008
  34.50
  31.53
  33.17
  43,677,420
  27.82
  24.97
  27.14
  5,101,834November 2008
  37.45
  30.29
  32.70
  46,435,859
  32.59
  23.52
  26.37
  5,418,243October 2008
  39.26
  29.42
  36.42
  69,562,035
  36.33
  24.45
  30.30
  6,675,763September 2008
  40.60
  35.95
  38.17
  49,809,072
  37.96
  34.01
  36.15
  3,557,196August 2008
  40.65
  38.50
  40.27
  28,550,772
  39.18
  35.99
  37.97
  2,467,304July 2008
  39.99
  36.47
  39.70
  35,668,563
  39.29
  35.72
  38.74
  3,765,973June 2008
  40.71
  37.79
  39.50
  34,833,031
  40.08
  37.39
  38.77
  2,381,500May 2008
  40.04
  36.77
  39.16
  44,457,100
  40.64
  35.94
  39.38
  2,978,200April 2008
  38.90
  35.98
  36.90
  54,718,260
  37.70
  35.33
  36.74
  3,467,500March 2008
  40.60
  36.97
  39.55
  28,273,379
  41.25
  36.38
  38.53
  2,852,100February 2008
  40.50
  38.70
  39.54
  27,480,832
  41.53
  38.54
  40.09
  2,390,000January 2008
  40.97
  36.21
  39.57
  30,366,638
  41.31
  35.60
  39.23
  3,438,700  In addition, TransCanadas
subsidiary, TCPL, has Cumulative Redeemable First Preferred Shares, Series U
and Series Y listed on the TSX.  DIRECTORS AND OFFICERS  As of February 23, 2009, the
directors and officers of TransCanada as a group beneficially owned, or
exercised control or direction, directly or indirectly, over an aggregate of
1,401,751 Common Shares of TransCanada. This constitutes less than one per cent
of TransCanadas Common Shares. In addition, officers held exercisable options
to acquire an aggregate of 1,777,523 additional Common Shares.  TransCanada collects this information from
its directors and officers but otherwise has no direct knowledge of individual
holdings of its securities.  Directors  Set forth
below are the names of the thirteen directors who served on the Board at Year
End, together with their jurisdictions of residence, all positions and offices
held by them with TransCanada and its significant affiliates, their principal
occupations or employment during the past five years and the year from which
each director has continually served as a director of TransCanada and, prior to
the arrangement, with 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 andPlace of Residence
  
  Principal Occupation During the Five
  Preceding Years
  
  Director
  SinceKevin E.
  Benson(1) 
  Wheaton, Illinois
  United States
  
  President and Chief Executive Officer,
  Laidlaw International, Inc. (transportation services) from
  June 2003 to October 2007, and Laidlaw, Inc. from
  September 2002 to June 2003.
  
  2005Derek H. Burney,
  O.C.
  Ottawa, Ontario
  Canada
  
  Senior strategic advisor at Ogilvy
  Renault LLP (law firm), Chair, Canwest Global Communications Corp.
  (communications) and Chair, International Advisory Board for Garda World
  Consulting & Investigation, a division of Garda World Security Corporation.
  Lead director at Shell Canada Limited (oil and gas) from April 2001 to
  May 2007. President and Chief Executive Officer, CAE Inc.
  (technology) from October 1999 to August 2004.
  
  2005


TRANSCANADA CORPORATION 
   21  Name andPlace of Residence
  
  Principal Occupation During the Five
  Preceding Years
  
  Director
  SinceWendy K. Dobson Uxbridge, Ontario Canada
  
  Professor, Rotman School of Management and
  Director, Institute for International Business, University of Toronto. Vice
  Chair and Chair of the audit committee, Canadian Public Accountability Board
  from 2003 to 2009. Director, Toronto-Dominion Bank. Member of the Advisory
  Committees of the Peterson Institute of International Economics and the Canada
  Institute at the Woodrow Wilson International Centre. Member of the
  International Advisory Committee of the Asia Society and a director of the
  Stephen Leacock Foundation for Children.
  
  1992E. Linn Draper 
  Lampasas, Texas 
  United States
  
  Director, Alliance Data Systems Corporation
  (data processing and services), Lead Director, Alpha Natural
  Resources, Inc. (mining), NorthWestern Corporation (conducting business
  as NorthWestern Energy) (oil and gas) and Lead Director of
  Temple-Inland Inc. (materials). Chair, President and Chief Executive
  Officer of Columbus, Ohio-based American Electric Power Co., Inc.
  from April 1993 to April 2004.
  
  2005The Hon. Paule Gauthier, P.C., O.C., O.Q., Q.C.
  Québec, Québec
  Canada
  
  Senior Partner, Stein Monast LLP
  (law firm). Director, Cossette Communication Group Inc., Institut
  Québecois des Hautes Études Internationales, Laval University,
  Metro Inc., RBC Dexia Investor Services Trust and Royal Bank of Canada.
  
  2002Kerry L. Hawkins 
  Winnipeg, Manitoba 
  Canada
  
  Director, NOVA Chemicals Corporation.
  President, Cargill Limited (agricultural) from September 1982 to
  December 2005.
  
  1996S. Barry Jackson 
  Calgary, Alberta 
  Canada
  
  Chair of the Board, TransCanada since
  April 2005. Director, Nexen Inc. (oil and gas). Director, WestJet
  Airlines Ltd. Chair of Resolute Energy Inc. (oil and gas) from
  January 2002 to April 2005 and Chair of Deer Creek Energy Limited
  (oil and gas) from April 2001 to September 2005.
  
  2002Paul L. Joskow 
  New York, New York 
  United States
  
  Economist and President of the Alfred P.
  Sloan Foundation. On leave from his position as Professor of Economics and
  Management, Massachusetts Institute of Technology (MIT)
  where he has been on the faculty since 1972. Trustee of Yale University since
  July 1, 2008 and member of the Board of Overseers of the Boston Symphony
  Orchestra since September 2005. 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. Director of Exelon Corporation (energy) since
  July 2007. Trustee of Putnam Mutual Funds. President of the Yale
  University Council until July 1, 2006 and was on the Board of Directors
  of the Whitehead Institute of Biological Research until February 2005.
  
  2004Harold N. Kvisle 
  Calgary, Alberta 
  Canada
  
  President and Chief Executive Officer of
  TransCanada since May 2003 and TCPL since May 2001. Director, Bank
  of Montreal.
  
  2001John A. MacNaughton(2), 
  C.M. 
  Toronto, Ontario 
  Canada
  
  Chair of the Business Development Bank of
  Canada and of CNSX Markets Inc. (formerly the Canadian Trading and Quotation
  System Inc.) (stock exchange). Director, Nortel Networks Corporation and
  Nortel Networks Limited (the principal operating subsidiary of Nortel
  Networks Corporation) (technology). Appointed by the Minister of Human
  Resources and Social Development as Nominating Committee Chair for the new
  Canada Employment Insurance Financing Board in 2008. Founding President and
  Chief Executive Officer of the Canadian Pension Plan Investment Board from
  1999 to 2005.
  
  2006David P. OBrien(3) 
  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, Enerplus
  Resources Fund and C.D. Howe Institute. Chancellor, Concordia University and
  a member of the Science, Technology and Innovation Council of Canada.
  
  2001


TRANSCANADA CORPORATION     22  Name andPlace of Residence
  
  Principal Occupation During the Five
  Preceding Years
  
  Director
  SinceW. Thomas Stephens 
  Greenwood Village, 
  Colorado 
  United States
  
  Chair and Chief Executive Officer of Boise
  Cascade, LLC from November 2004 to November 30, 2008. Director,
  Boise Inc.
  
  2007(4)D. Michael G. Stewart 
  Calgary, Alberta 
  Canada
  
  Director, Canadian Energy
  Services Inc., Pengrowth Corporation and Orleans Energy Ltd. Director of
  Esprit Exploration Ltd. (oil and gas) from May 2002 to
  September 2004; a director of Canada Southern Petroleum Ltd. from
  June 2003 to August 2004; Chairman and a trustee of Esprit Energy
  Trust (oil and gas) from August 2004 to October 2006; and a
  director of Creststreet Power & Income General Partner Limited, the
  General Partner of Creststreet Power & Income Fund L.P. (wind
  power) from December 2003 to February 2006.
  
  2006  (1)Mr. Benson was President and Chief
Executive Officer of Canadian Airlines International Ltd. from July 1996
to February 2000. Canadian Airlines International Ltd. filed for
protection under the Companies Creditors
Arrangement Act (Canada) and applicable bankruptcy protection
statutes in the U.S. on March 24, 2000.  (2)Mr. MacNaughton was a director of
Nortel Networks Corporation and Nortel Networks Limited (either, Nortel) when they and certain other subsidiaries filed for
creditor protection under the Companies
Creditors Arrangement Act (Canada) and applicable bankruptcy
protection statutes in the U.S. and the United Kingdom on January 14,
2009.  Mr. MacNaughton became a
director of Nortel on June 29, 2005.  Nortel was subject to a
management cease trade order on April 10, 2006 issued by the Ontario
Securities Commission (OSC) and other
provincial securities regulators.  The
cease trade order related to a delay in filing certain of Nortels 2005 financial
statements.  The order was revoked by the OSC on June 8, 2006 and by
the other provincial securities regulators very shortly thereafter.  (3)Mr. OBrien was a director of Air
Canada in April 2003 when Air Canada filed for protection under the Companies Creditors Arrangement Act
(Canada) and applicable bankruptcy protection statutes in the U.S.  (4)Mr. Stephens previously served on the
Board from 2000 to 2005.  Board Committees  TransCanada has four committees of the Board: the Audit Committee, the
Governance Committee, the Health, Safety and Environment Committee and the
Human Resources Committee. Mr. Jackson, the Chair of the Board, is a
non-voting member of the Human Resources Committee and the Governance
Committee. The voting members of each of these committees, as of Year End, are
identified below:  Audit Committee
  Governance Committee
  Health, Safety &
  Environment Committee
  Human Resources
  CommitteeChair:
  K.E. Benson
  Chair:
  W.K. Dobson
  Chair:
  E.L. Draper
  Chair:
  W.T. StephensMembers:
  D.H. Burney
  Members:
  D.H. Burney
  Members:
  P. Gauthier
  Members:
  W.K. DobsonP. Gauthier
  
  P.L. Joskow
  
  K.L. Hawkins
  
  E.L. DraperP.L. Joskow
  
  J.A. MacNaughton
  
  W.T. Stephens
  
  K.L. HawkinsJ.A. MacNaughton
  
  D.P. OBrien
  
  D.M.G. Stewart
  
  D.P. OBrienD.M.G. Stewart  The charters of the Governance
Committee, the Health, Safety & Environment Committee and the Human
Resources Committee can be found on TransCanadas website under the Corporate
Governance - Board Committees page located at www.transcanada.com.  Information about the audit committee can be
found in this AIF under the heading Audit Committee.  Further information about the Board
committees and corporate governance can also be found on TransCanadas website.  Officers  All of the
executive officers and corporate officers of TransCanada reside in Calgary,
Alberta, Canada. References to positions and offices with TransCanada prior to May 15,
2003 are references to the positions and offices held with TCPL. Current
positions and offices held with TransCanada are also held by such person at
TCPL. As of the date hereof, the officers of TransCanada, their present
positions within TransCanada and their principal occupations during the five
preceding years are as follows:


TRANSCANADA CORPORATION     23  Executive Officers  Name
  
  Present Position Held
  
  Principal Occupation Duringthe Five Preceding YearsHarold N.
  Kvisle
  
  President
  and Chief Executive Officer
  
  President
  and Chief Executive OfficerRussell K.
  Girling
  
  President,
  Pipelines
  
  Prior to
  June 2006, Executive Vice-President, Corporate Development and Chief
  Financial OfficerGregory A. Lohnes
  
  Executive Vice-President and Chief
  Financial Officer
  
  Prior to June 2006, President and
  Chief Executive Officer of Great Lakes Gas Transmission CompanyDennis J. McConaghy
  
  Executive Vice-President, Pipeline Strategy
  and Development
  
  Prior to June 2006, Executive
  Vice-President, Gas
  DevelopmentSean McMaster
  
  Executive Vice-President, Corporate and General
  Counsel and Chief Compliance Officer
  
  Prior to October 2006, General Counsel
  and Chief Compliance Officer. Prior thereto, General Counsel since
  June 2006. Prior to June 2006, Vice-President, Transactions, Power
  Division, TCPL and concurrently, prior to August 2005, President
  TransCanada Power Services Ltd., general partner of TransCanada
  Power, L.P.Alexander J. Pourbaix
  
  President, Energy
  
  Prior to June 2006, Executive
  Vice-President, PowerSarah E. Raiss
  
  Executive Vice-President, Corporate Services
  
  Executive Vice-President, Corporate
  ServicesDonald M. Wishart
  
  Executive Vice-President, Operations and
  Engineering
  
  Executive Vice-President, Operations and
  Engineering  Corporate Officers  Name
  
  Present Position Held
  
  Principal Occupation During
  the Five Preceding YearsRonald L. Cook
  
  Vice-President, Taxation
  
  Vice-President, TaxationDonald J. DeGrandis
  
  Corporate Secretary
  
  Prior to June 2006, Associate General
  Counsel, CorporateGarry E. Lamb
  
  Vice-President, Risk
  Management
  
  Vice-President, Risk ManagementDonald R. Marchand
  
  Vice-President, Finance and 
  Treasurer
  
  Vice-President, Finance and TreasurerG. Glenn Menuz
  
  Vice President and Controller
  
  Prior to June 2006, Assistant
  Controller  Conflicts of Interest  Directors and
officers of TransCanada and its subsidiaries are required to disclose the
existence of existing or potential conflicts in accordance with TransCanada
policies governing directors and officers and in accordance with the Canada Business Corporations Act. Although
some of the directors sit on boards or may be otherwise associated with
companies that ship natural gas on TransCanadas pipeline systems, TransCanada,
as a common carrier in Canada, cannot, under its tariff, deny transportation
service to a credit-worthy shipper. Further, due to the specialized nature of
the industry, TransCanada believes that it is important for its Board to be
composed of qualified and knowledgeable directors, so some of them must come
from oil and gas producers and shippers; the Governance Committee closely
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.


TRANSCANADA CORPORATION     24  CORPORATE GOVERNANCE  The Board and the members of
TransCanadas management are committed to the highest standards of corporate
governance. TransCanadas corporate governance practices comply with the
governance rules of the Canadian Securities Administrators (CSA), those of the NYSE applicable to
foreign issuers and of the SEC,
and those mandated by the U.S. Sarbanes-Oxley
Act of 2002. As a non-U.S. company, TransCanada is not required
to comply with most of the NYSE corporate governance listing standards;
however, except as summarized on our website at www.transcanada.com, the
governance practices followed are in compliance with the NYSE standards for
U.S. companies in all significant respects. TransCanada is in compliance
with the CSAs Multilateral Instrument 52-110 pertaining to audit
committees; National Policy 58-201, Corporate Governance Guidelines; and
National Instrument 58-101, Disclosure of Corporate Governance Practices.
Further information about TransCanadas corporate governance can be found on
TransCanadas website at www.transcanada.com under the heading Corporate
Governance or at Schedule A to TransCanadas management proxy circular.  AUDIT COMMITTEE  TransCanada has an Audit
Committee which is responsible for assisting the Board in overseeing the
integrity of TransCanadas financial statements and compliance with legal and
regulatory requirements and in ensuring the independence and performance of
TransCanadas internal and external auditors. 
The Charter of the Audit Committee can be found in Schedule B of
this AIF and on TransCanadas website under the Corporate Governance - Board
Committees page, at www.transcanada.com.  Relevant Education and Experience of Members  The members of the Audit
Committee at Year End were Kevin E. Benson (Chair), Derek H. Burney, Paule
Gauthier, 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 or her responsibilities as a member of the
Audit Committee:  Kevin E. Benson  Mr. Benson earned a
Bachelor of Accounting from the University of Witwatersrand (South Africa) and
was a member of the South African Society of Chartered Accountants. Mr. Benson
was the President and Chief Executive Officer of Laidlaw International, Inc.
until October, 2007. In prior years, he has held several executive positions
including one as President and Chief Executive Officer of Canadian Airlines
International Ltd. and has served on other public company boards.  Derek H. Burney  Mr. Burney earned a
Bachelor of Arts (Honours) and Master of Arts from Queens University. He is
currently a senior strategic advisor at Ogilvy Renault LLP. Mr. Burney
previously served as President and Chief Executive Officer of CAE Inc. and
as Chairman and Chief Executive Officer of Bell Canada International Inc. Mr. Burney
was the lead director at Shell Canada Limited until May 2007 and is the
Chairman of Canwest Global Communications Corp. He has served on one other
organizations audit committee.  Paule Gauthier  Mme. Gauthier earned a Bachelor
of Arts from the Collège Jésus-Marie de Sillery, a Bachelor of Laws from Laval
University and a Master of Laws in Business Law (Intellectual Property) from
Laval-University. She has served on the boards of several public companies and
other organizations and on the audit committees of certain of
those boards.


TRANSCANADA CORPORATION     25  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 Ph.D. in Economics
from Yale University. He is currently the President of the Alfred P. Sloan
Foundation and on leave from his position as a Professor of Economics and
Management, MIT. He has served on the boards of several public companies and
other organizations and on the audit committees of certain of
those boards.  John A. MacNaughton  Mr. MacNaughton earned a
Bachelor of Arts in Economics from the University of Western Ontario. Mr. MacNaughton
is currently the Chairman of the Business Development Bank of Canada and of
Canadian Trading and Quotation System Inc. In prior years, he has held
several executive positions including founding President and Chief Executive
Officer of the Canadian Pension Plan Investment Board and President of Nesbitt
Burns Inc. He is currently the Chair of an audit committee of one other
public company.  D. Michael G. Stewart  Mr. Stewart earned a
Bachelor of Science (Honours) in Geological Science from Queens
University.  Mr. Stewart has served
and continues to serve on the boards of several public companies and other
organizations and on the audit committees of certain of those boards.  He has been active in the Canadian energy
industry for over 35 years.  Pre-Approval Policies and Procedures  TransCanada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, TransCanada 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.


TRANSCANADA CORPORATION     26  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 2008 and 2007 fiscal years.  Fee Category
  
  2008
  
  2007
  
  Description
  of Fee Category(millions of dollars)Audit Fees
  
  $6.69
  
  $6.27
  
  Aggregate
  fees for audit services rendered for the audit of the annual consolidated
  financial statements or services provided in connection with statutory and
  regulatory filings or engagements, the review of interim consolidated
  financial statements and information contained in various prospectuses and
  other offering documents.Audit Related Fees
  
  0.08
  
  0.07
  
  Aggregate
  fees for assurance and related services that are reasonably related to
  performance of the audit or review of the consolidated financial statements
  and are not reported as Audit Fees. The nature of services comprising these
  fees related to the audit of the financial statements of certain pension
  plans.Tax Fees
  
  0.14
  
  0.06
  
  Aggregate
  fees rendered for primarily tax compliance and tax advice. The nature of
  these services consisted of: tax compliance including the review
  of income tax returns; and tax items and tax services related to
  domestic and international taxation including income tax, capital tax and
  Goods and Services Tax.All Other Fees
  
  0.37
  
  0.00
  
  Aggregate
  fees for products and services other than those reported elsewhere in this
  table. The nature of these services consisted primarily of advice and
  training primarily related to compliance with IFRS.Total
  
  $7.28
  
  $6.40  LEGAL PROCEEDINGS AND REGULATORY ACTIONS  The Canadian Alliance of
Pipeline Landowners Association (CAPLA) and two
individual landowners commenced an action in 2003 under Ontarios Class Proceedings Act, 1992, against
TransCanada and Enbridge Inc. for damages of $500 million alleged to
arise from the creation of a control zone within 30 metres of a pipeline
pursuant to Section 112 of the National
Energy Board Act. On November 20, 2006, TransCanada and
Enbridge Inc. were granted a dismissal of the case but CAPLA appealed that
decision. The appeal was heard on December 18, 2007.  On April 3, 2008, the Ontario Court of
Appeal dismissed CAPLAs appeal.  The
decision of the Ontario Court of Appeal is final and binding as CAPLA did not
seek any further appeal within the time frame allowed.  TransCanada and its
subsidiaries are subject to various other 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
TransCanadas favour, it is the opinion of TransCanada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.  MATERIAL CONTRACTS  The Ravenswood Agreement as
described in this AIF under the heading General Development of the Business 
Developments in the Energy Business is available on SEDAR at www.sedar.com
under TransCanadas profile.  The underwriting agreement
between TransCanada Corporation and BMO Nesbitt Burns Inc., RBC Dominion
Securities Inc., TD Securities Inc., Scotia Capital Inc., CIBC World Markets
Inc., National Bank Financial Inc., HSBC Securities (Canada) Inc., UBS
Securities Canada Inc., Canaccord Capital Corporation and FirstEnergy Capital
Corp., as underwriters, dated May 5, 2008 as described in this AIF under
the heading General Development of the Business  Financing Activities is
available on SEDAR at www.sedar.com under TransCanadas profile.  The underwriting agreement
between TransCanada Corporation and RBC Dominion Securities Inc., BMO Nesbitt
Burns Inc., TD Securities Inc., Scotia Capital Inc., CIBC World Markets Inc.,
National Bank Financial Inc., HSBC Securities (Canada) Inc. and UBS Securities
Canada Inc., as underwriters, dated November 17, 2008 as described in this
AIF under the heading General Development of the Business  Financing
Activities is available on SEDAR at www.sedar.com under TransCanadas
profile.


TRANSCANADA CORPORATION     27  TRANSFER AGENT AND REGISTRAR  TransCanadas transfer agent
and registrar is Computershare Trust Company of Canada with transfer facilities
in the Canadian cities of Vancouver, Calgary, Winnipeg, Toronto, Montréal
and Halifax.  INTEREST OF EXPERTS  TransCanada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 TransCanada may be found under TransCanadas profile
on SEDAR at www.sedar.com.  2.Additional information including
directors and officers remuneration and indebtedness, principal holders of
TransCanadas securities and securities authorized for issuance under equity
compensation plans (all where applicable), is contained in TransCanadas
management proxy circular for its most recent annual meeting of shareholders
that involved the election of directors and can be obtained upon request from
the Corporate Secretary of TransCanada.  3.Additional financial information is
provided in TransCanadas audited consolidated financial statements and
MD&A for its most recently completed financial year.


TRANSCANADA CORPORATION     28  GLOSSARY  AcSB
  
  Accounting Standards
  Board
  
  IFRS
  
  International Financial
  Reporting StandardsAGIA
  
  Alaska Gasline Inducement Act
  
  Iroquois System
  
  A natural gas pipeline
  system in New York and ConnecticutAIF
  
  Annual Information
  Form of TransCanada Corporation dated February 23, 2009
  
  ISO
  
  International
  Organization of StandardizationAlberta System
  
  A natural gas
  transmission system throughout the province of Alberta
  
  Keystone Canada
  
  TransCanada Keystone Pipeline
  Limited PartnershipANR
  
  American Natural
  Resources Company and ANR Storage Company
  
  Keystone Oil Pipeline
  
  A 3,456 km (2,147 mile)
  oil pipeline project currently under construction that will initially
  transport crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood
  River and Patoka in Illinois, and to Cushing, OklahomaANR System
  
  A natural gas
  transmission system which extends approximately 17,000 km from producing
  fields in Louisiana, Oklahoma, Texas and the Gulf of Mexico to markets in
  Wisconsin, Michigan, Illinois, Ohio and Indiana
  
  Keystone U.S.
  LNG
  
  TransCanada Keystone
  Pipeline, LP
  Liquefied Natural GasATCO Pipelines
  
  Canadian Utilities
  Limited
  
  MD&A
  
  TransCanadas
  Managements Discussion and Analysis dated February 23, 2009AUC
  
  Alberta Utilities
  Commission
  
  mmcf/d
  
  Million cubic feet per
  dayBbl/d
  
  Barrels per day
  
  Moodys
  
  Moodys Investors
  Service, Inc.Bcf
  
  Billion cubic feet
  
  MW
  
  MegawattsBécancour
  
  A power plant near Trois-Rivières, Québec
  
  NBPL
  
  Northern Border Pipeline CompanyBison
  
  The Bison Pipeline
  Project, a proposed 298-mile pipeline from the Powder River Basin in Wyoming
  to the NBPL System
  
  NBPL System
  
  A natural gas
  transmission system located in the upper Midwestern portion of the U.S.Board
  
  TransCanadas Board of
  Directors
  
  NEB
  
  National Energy BoardBroadwater
  
  A proposed offshore LNG
  facility in Long Island Sound, New York
  
  NGTL
  
  Nova Gas Transmission
  LimitedBruce A
  
  Bruce Power A L.P.
  
  North Baja
  
  A natural gas pipeline
  in southern CaliforniaBruce B
  
  Bruce Power L.P.
  
  NOx
  
  Nitrogen oxidesCacouna
  
  The proposed Cacouna
  Energy LNG facility in Cacouna, Québec
  
  NYSDOS
  
  New York Department of
  StateCalpine
  
  Calpine Corporation
  
  NYSE
  
  New York Stock ExchangeCanadian Mainline
  
  A natural gas pipeline system
  running from the Alberta border east to delivery points in eastern Canada and
  along the U.S. border
  
  Portland System
  
  A natural gas pipeline
  that runs through Maine and New Hampshire into MassachusettsCAPLA
  
  Canadian Alliance of
  Pipeline Landowners Association
  
  Portlands Energy Centre
  
  A natural gas-fired
  combined-cycle power plant near downtown Toronto, OntarioCartier Wind Energy
  Project
  
  Six wind energy projects
  contracted by Hydro-Québec Distribution representing a total of 740 MW
  in the Gaspé region of Québec
  
  PPA
  
  Power Purchase
  ArrangementCO2
  
  Carbon dioxide
  
  Ravenswood
  
  Ravenswood Generating
  StationCommon Shares
  
  Common shares of
  TransCanada
  
  Ravenswood Agreement
  
  The membership interest
  and stock purchase agreement between KeySpan Corporation and TransCanada
  Facility USA Inc. dated March 31, 2008Coolidge
  
  Coolidge Generating
  Station
  
  RGGI
  
  Regional Greenhouse Gas
  InitiativeCSA
  
  Canadian Securities
  Administrators
  
  S&P
  
  Standard and PoorsDBRS
  
  DBRS Limited
  
  SEC
  
  United States Securities
  and Exchange CommissionEUB
  
  Alberta Energy and
  Utilities Board
  
  SGER
  
  Specified Gas Emitters
  RegulationFEIS
  
  Final Environment Impact
  Statement
  
  Sheerness
  
  A power plant consisting
  of two 390 MW coal-fired thermal powered generating unitsFERC
  
  Federal Energy
  Regulatory Commission (USA)
  
  Sundance
  
  Two coal fired
  electrical generating facilities which produce 560 MW and 706 MW,
  respectivelyFramework
  
  The Regulatory Framework
  for Air Emissions
  
  TCPL
  
  TransCanada PipeLines
  LimitedFoothills System
  
  A natural gas pipeline
  system in southeastern B.C., southern Alberta and southwestern Saskatchewan
  
  TQM
  
  Trans Québec &
  Maritimes Pipeline Inc.GHG
  
  Greenhouse gas
  
  TransCanada or the
  Company
  
  TransCanada CorporationGTNC
  
  Gas Transmission
  Northwest Corporation
  
  TSX
  
  Toronto Stock ExchangeGTN System
  
  A natural gas
  transmission system running from northwestern Idaho, through Washington and
  Oregon to the California border
  
  Tuscarora
  
  Tuscarora Gas
  Transmission CompanyGreat Lakes
  
  Great Lakes Gas Transmission
  Limited Partnership
  
  Tuscarora System
  
  A natural gas pipeline
  that runs from Oregon through northeast California to Reno, NevadaGreat Lakes System
  
  A natural gas pipeline
  system in the north central U.S., roughly parallel to the
  Canada-U.S. Border
  
  U.S.
  
  United StatesGUA
  
  Gas Utilities Act(Alberta)
  
  WCI
  
  Western Climate
  InitiativeHS&E
  
  Health, Safety and
  Environment
  
  Year End
  
  December 31, 2008


TRANSCANADA
CORPORATIONA-1  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
  FactorKilometres
  (km)
  Miles
  0.62Millimetres
  Inches
  0.04Gigajoules
  Million
  British thermal units
  0.95Cubic
  metres*
  Cubic feet
  35.3Kilopascals
  Pounds per
  square inch
  0.15Degrees
  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.


TRANSCANADA
CORPORATIONB-1  SCHEDULE B  CHARTER
OF THE AUDIT COMMITTEE  1.Purpose  The Audit Committee shall
assist the Board of Directors (theBoard) in overseeing and monitoring, among other
things, the:  ·Companys financial accounting and reporting
process;  ·integrity of the financial statements;  ·Companys internal control over financial
reporting;  ·external financial audit process;  ·compliance by the Company with legal and
regulatory requirements; and  ·independence and performance of the Companys
internal and external auditors.  To fulfill its purpose, the Audit Committee has been delegated certain
authorities by the Board of Directors that it may exercise on behalf of the
Board.  2.Roles
and Responsibilities  I.Appointment
of the Companys External Auditors  Subject to confirmation by
the external auditors of their compliance with Canadian and U.S. regulatory
registration requirements, the Audit Committee shall recommend to the Board the
appointment of the external auditors, such appointment to be confirmed by the
Companys shareholders at each annual meeting. 
The Audit Committee shall also recommend to the Board the compensation
to be paid to the external auditors for audit services and shall pre-approve
the retention of the external auditors for any permitted non-audit service and
the fees for such service.  The Audit
Committee shall also be directly responsible for the oversight of the work of
the external auditor (including resolution of disagreements between management
and the external auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work.  The external auditor shall report directly to
the Audit Committee.  The Audit Committee shall
also receive periodic reports from the external auditors regarding the auditors
independence, discuss such reports with the auditors, consider whether the
provision of non-audit services is compatible with maintaining the auditors
independence and the Audit Committee shall take appropriate action to satisfy
itself of the independence of the external auditors.  II.Oversight
in Respect of Financial Disclosure  The Audit Committee, to the extent it deems it
necessary or appropriate, shall:  (a)review, discuss with management and the
external auditors and recommend to the Board for approval, the Companys
audited annual financial statements, annual information form including
management discussion and analysis, all financial statements in prospectuses
and other offering memoranda, financial statements required by regulatory
authorities, all prospectuses and all documents which may be incorporated by
reference into a prospectus, including without limitation, the annual proxy
circular, but excluding any pricing supplements issued under a medium term note
prospectus supplement of the Company;  (b)review, discuss with management and the
external auditors and recommend to the Board for approval the release to the
public of the Companys interim reports, including the financial statements,
management discussion and analysis and press releases on quarterly financial
results;  (c)review and discuss with management and
external auditors the use ofpro formaoradjustednon-GAAP information and the applicable reconciliation;


TRANSCANADA CORPORATION     B-2  (d)review and discuss with management and
external auditors financial information and earnings guidance provided to
analysts and rating agencies; provided, however, that such discussion may be
done generally (consisting of discussing the types of information to be
disclosed and the types of presentations to be made).  The Audit Committee need not discuss in
advance each instance in which the Company may provide earnings guidance or
presentations to rating agencies;  (e)review with management and the external
auditors major issues regarding accounting and auditing principles and
practices, including any significant changes in the Companys selection or
application of accounting principles, as well as major issues as to the
adequacy of the Companys internal controls and any special audit steps adopted
in light of material control deficiencies that could significantly affect the
Companys financial statements;  (f)review and discuss quarterly reports from
the external auditors on:  (i)all critical accounting policies and
practices to be used;  (ii)all alternative treatments of financial
information within generally accepted accounting principles that have been discussed
with management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the external auditor;  (iii)other material written communications
between the external auditor and management, such as any management letter or
schedule of unadjusted differences;  (g)review with management and the external
auditors the effect of regulatory and accounting initiatives as well as
off-balance sheet structures on the Companys financial statements;  (h)review with management, the external
auditors and, if necessary, legal counsel, any litigation, claim or
contingency, including tax assessments, that could have a material effect upon
the financial position of the Company, and the manner in which these matters
have been disclosed in the financial statements;  (i)review disclosures made to the Audit
Committee by the Companys CEO and CFO during their certification process for
the periodic reports filed with securities regulators about any significant
deficiencies in the design or operation of internal controls or material
weaknesses therein and any fraud involving management or other employees who
have a significant role in the Companys internal controls;  (j)discuss with management the Companys
material financial risk exposures and the steps management has taken to monitor
and control such exposures, including the Companys risk assessment and risk
management policies;  III.Oversight
in Respect of Legal and Regulatory Matters  (a)review with the Companys General Counsel
legal matters that may have a material impact on the financial statements, the
Companys compliance policies and any material reports or inquiries received
from regulators or governmental agencies.  IV.Oversight
in Respect of Internal Audit  (a)review the audit plans of the internal
auditors of the Company including the degree of coordination between such plan
and that of the external auditors and the extent to which the planned audit
scope can be relied upon to detect weaknesses in internal control, fraud or
other illegal acts;  (b)review the significant findings prepared
by the internal auditing department and recommendations issued by the Company
or by any external party relating to internal audit issues, together with
managements response thereto;  (c)review compliance with the Companys
policies and avoidance of conflicts of interest;


TRANSCANADA CORPORATION     B-3  (d)review the adequacy of the resources of
the internal auditor to ensure the objectivity and independence of the internal
audit function, including reports from the internal audit department on its
audit process with associates and affiliates;  (e)ensure the internal auditor has access to
the Chair of the Audit Committee and of the Board and to the Chief Executive
Officer and meet separately with the internal auditor to review with him any
problems or difficulties he may have encountered and specifically:  (i)any difficulties which were encountered
in the course of the audit work, including restrictions on the scope of
activities or access to required information, and any disagreements with
management;  (ii)any changes required in the planned scope
of the internal audit; and  (iii)the internal audit department
responsibilities, budget and staffing;  and
to report to the Board on such meetings;  (f)bi-annually review officers expenses and
aircraft usage reports;  V.Insight
in Respect of the External Auditors  (a)review the annual post-audit or
management letter from the external auditors and managements response and
follow-up in respect of any identified weakness, inquire regularly of
management and the external auditors of any significant issues between them and
how they have been resolved, and intervene in the resolution if required;  (b)review the quarterly unaudited financial
statements with the external auditors and receive and review the review
engagement reports of external auditors on unaudited financial statements of
the Company;  (c)receive and review annually the external
auditors formal written statement of independence delineating all
relationships between itself and the Company;  (d)meet separately with the external
auditors to review with them any problems or difficulties the external auditors
may have encountered and specifically:  (i)any difficulties which were encountered
in the course of the audit work, including any restrictions on the scope of
activities or access to required information, and any disagreements with
management; and  (ii)any changes required in the planned scope
of the audit;  and to report to the Board
on such meetings;  (e)review with the external auditors the
adequacy and appropriateness of the accounting policies used in preparation of
the financial statements;  (f)meet with the external auditors prior to
the audit to review the planning and staffing of the audit;  (g)receive and review annually the external
auditors written report on their own internal quality control procedures; any
material issues raised by the most recent internal quality control review, or
peer review, of the external auditors, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years, and
any steps taken to deal with such issues;  (h)review and evaluate the external
auditors, including the lead partner of the external auditor team;


TRANSCANADA CORPORATION     B-4  (i)ensure the rotation of the lead (or
coordinating) audit partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required by law, but at
least every five years;  VI.Oversight
in Respect of Audit and Non-Audit Services  (a)pre-approve all audit services (which may
entail providing comfort letters in connection with securities underwritings)
and all permitted non-audit services, other than non-audit services where:  (i)the aggregate amount of all such
non-audit services provided to the Company constitutes not more than 5% of the
total fees paid by the Company and its subsidiaries to the external auditor
during the fiscal year in which the non-audit services are provided;  (ii)such services were not recognized by the
Company at the time of the engagement to be non-audit services; and  (iii)such services are promptly brought to the
attention of the Audit Committee and approved prior to the completion of the
audit by the Audit Committee or by one or more members of the Audit Committee
to whom authority to grant such approvals has been delegated by the Audit
Committee;  (b)approval by the Audit Committee of a
non-audit service to be performed by the external auditor shall be disclosed as
required under securities laws and regulations;  (c)the Audit Committee may delegate to one
or more designated members of the Audit Committee the authority to grant
pre-approvals required by this subsection. 
The decisions of any member to whom authority is delegated to
pre-approve an activity shall be presented to the Audit Committee at its first
scheduled meeting following such pre-approval;  (d)if the Audit Committee approves an audit
service within the scope of the engagement of the external auditor, such audit
service shall be deemed to have been pre-approved for purposes of this
subsection;  VII.Oversight
in Respect of Certain Policies  (a)review and recommend to the Board for
approval policy changes and program initiatives deemed advisable by management
or the Audit Committee with respect to the Companys codes of business conduct
and ethics;  (b)obtain reports from management, the
Companys senior internal auditing executive and the external auditors and
report to the Board on the status and adequacy of the Companys efforts to
ensure its businesses are conducted and its facilities are operated in an
ethical, legally compliant and socially responsible manner, in accordance with
the Companys codes of business conduct and ethics;  (c)establish a non-traceable, confidential
and anonymous system by which callers may ask for advice or report any ethical
or financial concern, ensure that procedures for the receipt, retention and
treatment of complaints in respect of accounting, internal controls and
auditing matters are in place, and receive reports on such matters as
necessary;  (d)annually review and assess the adequacy
of the Companys public disclosure policy;  (e)review and approve the Companys hiring policies for
partners, employees and former partners and employees of the present and former
external auditors (recognizing the Sarbanes-Oxley Act of 2002 does not permit
the CEO, controller, CFO or chief accounting officer to have participated in the
Companys audit as an employee of the external auditors during the preceding
one-year period) and monitor the Companys adherence to the policy;


TRANSCANADA CORPORATION     B-5  VIII.Oversight in Respect
of Financial Aspects of the Companys Pension Plans, specifically:  (a)provide advice to the Human Resources
Committee on any proposed changes in the Companys pension plans in respect of
any significant effect such changes may have on pension financial matters;  (b)review and consider financial and
investment reports and the funded status relating to the Companys pension
plans and recommend to the Board on pension contributions;  (c)receive, review and report to the Board
on the actuarial valuation and funding requirements for the Companys pension
plans;  (d)review and approve annually the Statement
of Investment Policies and Procedures (SIP&P);  (e)approve the appointment or termination of
auditors and investment managers;  IX.Oversight
in Respect of Internal Administration  (a)review annually the reports of the
Companys representatives on certain audit committees of subsidiaries and
affiliates of the Company and any significant issues and auditor
recommendations concerning such subsidiaries and affiliates;  (b)review the succession plans in respect of
the Chief Financial Officer, the Vice President, Risk Management and the
Director, Internal Audit;  (c)review and approve guidelines for the
Companys hiring of partners, employees and former partners and employees of
the external auditors who were engaged on the Companys account;  X.Oversight
Function  While the Audit Committee
has the responsibilities and powers set forth in this Charter, it is not the
duty of the Audit Committee to plan or conduct audits or to determine that the
Companys financial statements and disclosures are complete and accurate or are
in accordance with generally accepted accounting principles and applicable rules and
regulations.  These are the
responsibilities of management and the external auditors.  The Audit Committee, its Chair and any of its
members who have accounting or related financial management experience or
expertise, are members of the Board, appointed to the Audit Committee to
provide broad oversight of the financial disclosure, financial risk and control
related activities of the Company, and are specifically not accountable nor
responsible for the day to day operation of such activities.  Although designation of a member or members
as anaudit committee
financial expert is based on
that individuals education and experience, which that individual will bring to
bear in carrying out his or her duties on the Audit Committee, designation as
an audit committee financial
expert does not impose on such person
any duties, obligations or liability that are greater than the duties,
obligations and liability imposed on such person as a member of the Audit
Committee and Board in the absence of such designation.  Rather, the role of any audit committee
financial expert, like the role of all Audit Committee members, is to oversee
the process and not to certify or guarantee the internal or external audit of
the Companys financial information or public disclosure.  3.Composition
of Audit Committee  The Audit Committee shall
consist of three or more Directors, a majority of whom are resident Canadians
(as defined in the Canada Business Corporations Act), and all of whom are
unrelated and/or independent for the purposes of applicable Canadian and United
States securities law and applicable rules of any stock exchange on which
the Companys shares are listed.  Each
member of the Audit Committee shall be financially literate and at least one
member shall have accounting or related financial management expertise (as those
terms are defined from time to time under the requirements or guidelines for
audit committee service under securities laws and the applicable rules of
any stock exchange on which the Companys securities are listed for trading or,
if it is not so defined as that term is interpreted by the Board in its
business judgment).  4.Appointment
of Audit Committee Members  The members of the Audit
Committee shall be appointed by the Board from time to time, on the
recommendation of the Governance Committee and shall hold office until the next
annual meeting of shareholders or until their successors are


TRANSCANADA
CORPORATION     B-6  earlier appointed or until they cease to be
Directors of the Company.  5.Vacancies  Where a vacancy occurs at
any time in the membership of the Audit Committee, it may be filled by the
Board on the recommendation of the Governance Committee.  6.Audit
Committee Chair  The Board
shall appoint a Chair of the Audit Committee who shall:  (a)review and approve the agenda for each
meeting of the Audit Committee and as appropriate, consult with members of
management;  (b)preside over meetings of the Audit
Committee;  (c)ensure the Committee has sufficient
information to permit it to properly discharge its duties and responsibilities;  (d)report to the Board on the activities of
the Audit Committee relative to its recommendations, resolutions, actions and
concerns; and  (e)meet as necessary with the internal and
external auditors.  7.Absence
of Audit Committee Chair  If the Chair of the Audit
Committee is not present at any meeting of the Audit Committee, one of the
other members of the Audit Committee present at the meeting shall be chosen by
the Audit Committee to preside at the meeting.  8.Secretary
of Audit Committee  The Corporate Secretary shall act as Secretary  to the Audit Committee.  9.Meetings  The Chair, or any two
members of the Audit Committee, or the internal auditor, or the external
auditors, may call a meeting of the Audit Committee.  The Audit Committee shall meet at least
quarterly.  The Audit Committee shall
meet periodically with management, the internal auditors and the external
auditors in separate executive sessions.  10.Quorum  A majority of the members of
the Audit Committee, present in person or by telephone or other
telecommunication device that permit all persons participating in the meeting
to speak to each other, shall constitute a quorum.  11.Notice
of Meetings  Notice of the time and place
of every meeting shall be given in writing or facsimile communication to each
member of the Audit Committee at least 24 hours prior to the time fixed for
such meeting; provided, however, that a member may in any manner waive a notice
of a meeting.  Attendance of a member at
a meeting is a waiver of notice of the meeting, except where a member attends a
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully called.  12.Attendance
of Company Officers and Employees at Meeting  At the invitation of the
Chair of the Audit Committee, one or more officers or employees of the Company
may attend any meeting of the Audit Committee.  13.Procedure,
Records and Reporting  The Audit Committee shall
fix its own procedure at meetings, keep records of its proceedings and report
to the Board when the Audit Committee may deem appropriate but not later than
the next meeting of the Board.


TRANSCANADA CORPORATION     B-7  14.Review
of Charter and Evaluation of Audit Committee  The Audit Committee shall
review its Charter annually or otherwise, as it deems appropriate, and if
necessary propose changes to the Governance Committee and the Board.  The Audit Committee shall annually review the
Audit Committees own performance.  15.Outside
Experts and Advisors  The Audit Committee is
authorized, when deemed necessary or desirable, to retain and set and pay the
compensation for independent counsel, outside experts and other advisors, at
the Companys expense, to advise the Audit Committee or its members
independently on any matter.  16.Reliance  Absent actual knowledge to
the contrary (which shall be promptly reported to the Board), each member of
the Audit Committee shall be entitled to rely on (i) the integrity of
those persons or organizations within and outside the Company from which it
receives information, (ii) the accuracy of the financial and other
information provided to the Audit Committee by such persons or organizations
and (iii) representations made by Management and the external auditors, as
to any information technology, internal audit and other non-audit services
provided by the external auditors to the Company and its subsidiaries.


celebrating
  yesterday delivering today building for tomorrow 2008 annual report


celebrating
  yesterday It was a true engineering wonder of its time. Nearly 3,700
  kilometres of steel pipe  pushed through some of the toughest terrain in
  Canada. Up to 5,000 workers persevered through a multitude of obstacles,
  often under extremely adverse conditions, to build what would be the worlds
  longest pipeline. In 2008, TransCanadas Canadian Mainline celebrated 50
  years of history  recognizing a milestone anniversary of the final weld on
  the first pipeline system designed to deliver Alberta natural gas to markets
  in Ontario and Quebec. Construction of the Mainlines western leg began on
  June 17, 1956 at Burstall, Saskatchewan. Natural gas reached the cities of
  Winnipeg, Manitoba and Regina, Saskatchewan on the Canadian Prairies in
  September 1957. Workers pushed on, challenged by the terrain and the
  remoteness of the land - moving about one kilometre a day across Ontario and,
  finally into Quebec. The final weld on the pipeline took place in
  Kapuskasing, Ontario on October 10, 1958. To commemorate the event, Canada
  Post and TransCanada unveiled a special edition Canadian postage stamp,
  depicting a single, anonymous welder representing thousands of labourers who worked
  to complete the historic pipline. A little known fact  a silver dollar was
  welded to the pipe in that location. That silver dollar is now on display at
  TransCanadas head office in Calgary, Alberta. Canadian Mainline construction
  Facts $375 million original cost. 655,000 tons of pipe carried by 25,000
  railway cars. 184 lakes and rivers crossed. Permission needed from more than
  5,000 landowners. Swamp-like muskeg swallowed vehicles up to their door
  handles. Impenetrable rock that took up to 30,000 sticks of dynamite per
  kilometre to dislodge. Workers faced bone numbing winters and
  mosquito-infested summers. Rain, mud, snow and ice were the yearly challenges
  faced by crews.


22 7 15 19 3 11
  14 2 5 18 17 16 21 20 12 23 24 9 8 10 13 3 6 1 19 4 New York Boston Houston
  Toronto Calgary Portland Kapuskasing Montreal Natural Gas Pipeline Proposed
  Pipeline Oil Pipeline Power Facility Gas Storage


Pipelines
  TransCanada operates one of the largest natural gas pipeline systems in North
  America. With 50 years of experience, we are experts in the business of
  operating, maintaining and building large-diameter, long-haul pipelines. The
  strength of our pipeline business is rooted in these examples of critical
  infrastructure: Delivering 20% of the natural gas consumed in North America 1
  Alberta System This 23,705 kilometre (14,730 mile) pipeline moves
  approximately 11 Bcf/d, making it one of the largest in North America. It
  gathers natural gas for use in Alberta and delivers it to provincial border
  points for export to North American markets. In 2008, the Alberta System
  gathered 66 per cent of the natural gas produced in Western Canada. 2
  Canadian Mainline This 14,101 kilometre (8,762 mile) pipeline extends east
  from the Alberta border to Quebec and connects with other natural gas
  pipelines in Canada and the United States. Across the Canadian prairies, the
  system consists of five parallel lines capable of transporting approximately
  7.0 Bcf/d. 3 ANR Pipeline System 4 ANR Storage This 17,000 kilometre (10,563
  mile) pipeline has a peak day capacity of 6.8 Bcf/d. It delivers natural gas
  from producing fields in Texas, Oklahoma, Louisiana and the Gulf of Mexico to
  markets in Wisconsin, Michigan, Illinois, Ohio and Indiana. ANR also owns and
  operates 250 Bcf of regulated natural gas storage capacity in Michigan. 5 GTN
  6 Northern Border 7 Great Lakes These three natural gas pipelines include a
  total of 7,828 kilometres (4,864 miles) of pipe and deliver natural gas from
  Western Canada to premium markets across North America. Energy TransCanada
  has built a successful power business by acquiring low-cost, baseload
  generation, and developing new large-scale facilities backed by long-term
  power purchase arrangements. Today we own or have interests in 19 power
  plants in Canada and the United States. We also have a significant
  non-regulated natural gas storage business in Alberta where we own or have
  the rights to 120 Bcf of capacity. Some examples of our Energy assets
  include: Capacity to power 11 million homes 8 9 Sundance 10 Sheerness Through
  these power purchase arrangements in Alberta and a number of other
  wholly-owned plants, we market 20 per cent of the provinces power. 11 Bruce
  Power Canadas first private nuclear generating station, this facility
  currently produces 4,700 MW of power or more than 20 per cent of Ontarios
  electricity. 12 Ravenswood Generating Station Located in Queens, New York,
  the 2,480 MW power plant is capable of supplying 20 per cent of New York
  Citys power needs. 13 TC Hydro 13 hydroelectric facilities on the
  Connecticut and Deerfield rivers in New Hampshire, Vermont and Massachusetts
  produce 583 MW of power.


TransCanada is
  a leading North American energy infrastructure company. With approximately
  $40 billion in assets, today we are a leader in the responsible development
  and reliable operation of North American energy infrastructure including
  natural gas and oil pipelines, power generation and natural gas storage
  facilities. Our 59,000 kilometre (36,661 mile) wholly-owned natural gas
  pipeline network taps into virtually every major natural gas supply basin on
  the continent and provides our customers with unparalleled access to premium
  markets. Each day we deliver 20 per cent of the natural gas consumed in North
  America. Looking forward, our vast pipeline network is well positioned to
  connect new sources of supply such as shale gas, coalbed methane and offshore
  liquefied natural gas as well as supply from the north. We are also one of
  the continents largest providers of natural gas storage and related services
  with approximately 370 billion cubic feet of capacity  enough to meet the
  needs of nearly four million homes each year. As one of Canadas largest
  independent power producers, TransCanada owns, controls or is developing more
  than 10,900 megawatts of power generation in Canada and the United States 
  enough capacity to power 11 million homes. Our diversified power portfolio
  includes natural gas, nuclear, coal, hydro and wind generation primarily
  located in Alberta, Ontario, Quebec and the northeastern United States.
  Recently, we made a significant entry into the oil pipeline business through
  the Keystone Pipeline System. When completed it will be one of North
  Americas largest oil delivery systems with the capacity to move 1.1 million
  barrels per day from Western Canada to markets in the U.S. Midwest and Gulf
  Coast. Going forward, we will continue to create value for our shareholders
  and our customers by building and operating the energy infrastructure that
  North America needs. Today, we are in the midst of an $18 billion capital
  program that will see a number of attractive, low-risk projects completed over
  the next four years. They include expansions of our existing pipeline
  infrastructure, new pipeline infrastructure, new natural gas storage
  facilities and new power plants  critical infrastructure in the markets we
  serve. As we build for tomorrow, TransCanada is committed to being a reliable
  and safe operator, with a focus on providing low-cost, competitive services
  to our customers. With growth comes greater responsibility. Responsibility to
  our investors, to our customers, to our employees, to the contractors who
  work diligently with us, to the regulators across the continent who
  scrutinize our proposals, to the thousands of residents in communities
  located near our pipelines and power plants, and to the environment. We have
  always worked hard to ensure environmental sustainability wherever we
  operate. Our success is a reflection of our exceptional team of 4,000
  committed and motivated employees who bring skill, experience, energy and
  knowledge to the work they do. They are our competitive advantage. Creating
  value for our shareholders and customers $40 billion in assets 4,000 talented
  employees delivering today


building for
  tomorrow Pipelines 14 Keystone Pipeline System This US$12 billion pipeline
  will stretch 6,176 kilometres (3,837 miles) from Hardisty, Alberta to
  refining centres in the U.S. Midwest and Gulf Coast. When completed, Keystone
  will be one of the largest oil delivery systems in North America with the
  capacity to move 1.1 million barrels of oil a day to an American market
  looking for a growing and reliable supply. In 2008, TransCanada agreed to
  increase its ownership interest up to 79.99 per cent of Keystone. 15 Alberta
  System North Central Corridor Expansion Stretching 300 kilometres (186 miles)
  across northern Alberta, the $925 million North Central Corridor expansion
  will optimize natural gas flows on the Alberta System and allow TransCanada
  to address changing supply and demand dynamics in the province. 16 Bison
  Pipeline Project The 480 kilometre (298 mile) Bison Pipeline project will move
  natural gas from the Powder River Basin in Wyoming to the Northern Border
  System in North Dakota, tapping into a growing supply of U.S. Rockies natural
  gas for Midwest markets in the United States. The US$500 - US$600 million
  initiative is expected to begin shipping natural gas in late 2010. 17
  Groundbirch 18 Horn River Pipeline Projects Groundbirch and Horn River are
  both designed to transport natural gas to market from shale gas deposits in
  northeastern British Columbia. TransCanada held a successful open season late
  in 2008 for the Groundbirch line, with commitments reaching 1.1 Bcf/d by
  2014. The 77 kilometre (48 mile) project should be operational in late 2010.
  The company continues to work with potential shippers on the Horn River line.
  It is expected to start shipping gas in early 2011. 19 Northern Pipeline
  Projects Billed as the largest construction project in U.S. history, the
  US$26 billion (2007 dollars) Alaska Pipeline would transport natural gas from
  untapped reserves in Prudhoe Bay in the North to Alberta, where it would
  integrate with the Alberta System to provide access to diverse markets across
  North America. TransCanada has received a license from the Alaska government
  to advance the 2,760 kilometre (1,715 mile) line and is committed to moving
  the project through an open season in 2010 and the subsequent regulatory
  process. If successful, the project could be sanctioned in 2014, with natural
  gas anticipated to start flowing in 2018. In Canada, TransCanada and the
  other co-venture companies involved in the Mackenzie Gas Pipeline project
  continue to pursue approval of the proposed 1,200 kilometre (746 mile)
  pipeline project, focusing on obtaining regulatory approval and the Canadian
  governments support of an acceptable fiscal framework. Attractive, low-risk
  projects... Keystone will deliver 1.1 million barrels of oil per day to U.S.
  markets $18 billion capital program underway Today, TransCanada is in the
  midst of an $18 billion capital program that will see a number of attractive,
  low-risk energy infrastructure projects completed over the next four years.
  Each project has


Energy 11 Bruce
  Power The $3.4 billion refurbishment of Bruce A Units 1 and 2 is expected to
  be completed in 2010. TransCanadas share of the capital investment is approximately
  $1.7 billion. When complete, the two units will be capable of delivering
  1,500 MW of electricity to the Ontario market  enough to power one and a
  half million homes. Bruce Power is made up of two generating stations  A and
  B  with each consisting of four generating units. TransCanada owns 48.9 per
  cent of Bruce A and 31.6 per cent of Bruce B. 20 Portlands Energy 21 Halton
  Hills Construction of the Portlands Energy Centre is nearing completion and
  should be fully operational early in 2009. The 550 MW facility can supply 25
  per cent of Torontos electricity needs. This high-efficiency power plant is
  50 per cent owned by TransCanada and is expected to cost $730 million. Work
  on the $670 million Halton Hills Generating Station is 50 per cent complete.
  The 683 MW facility should be operational late in 2010. Located 40 kilometres
  (25 miles) west of Toronto, Halton Hills will generate enough power for
  600,000 homes. 22 Coolidge TransCanada continues to establish its energy
  footprint in the U.S. with a 575 MW power project in Coolidge, Arizona. The
  US$500 million plant will provide a quick response to peak power demands,
  have reserve capacity, and the ability to add power quickly to support
  reliability in the region. Construction is expected to begin in the summer of
  2009 and be complete in 2011. 23 Cartier 24 Kibby The Cartier and Kibby Wind
  projects will generate clean, renewable electricity for thousands of
  families. Cartier is the largest wind power project in Canada, valued at $1.1
  billion. Its six phases will ultimately generate 740 MW of power. Three
  phases are now complete, with the remainder coming on stream by 2012.
  TransCanada owns 62 per cent of Cartier. Residents of New England will
  ultimately see 44 wind turbines built between 2009 and 2010 as part of the
  US$320 million Kibby project. This 132 MW initiative will be the largest wind
  power development in the state, providing enough green energy for 50,000
  homes in the state of Maine. been commercially secured through long-term
  contractual arrangements. These arrangements, along with our expertise in
  developing, building and operating largescale energy infrastructure gives us
  confidence these projects will generate attractive, long-term returns for our
  shareholders. Looking forward, we will continue to cultivate a high quality
  portfolio of future growth opportunities that will create additional value
  for decades to come. Bruce Power will add 1,500 MW to the Ontario market
  generating long-term returns for our shareholders


Building on our
  track record of success 2008 Financial Highlights 04 05 06 07 08 2.53 2.13
  2.49 2.21 2.31 Net Income per Common Share  Basic (dollars) 04 05 06 07 08
  3,021 1,703 1,951 2,378 2,621 Funds Generated from Operations(1) (millions of
  dollars) 04 05 06 07 08 6,363 2,046 2,071 2,042 5,874 Capital Expenditures
  and Acquisitions (millions of dollars) 04 05 06 07 08 29.80 36.65 40.61 40.54
  33.17 Market Price  Close Toronto Stock Exchange (dollars) 04 05 06 07 08
  2.25 1.62 1.72 1.90 2.08 Comparable Earnings(1) per Common Share  Basic
  (dollars) 04 05 06 07 08 1.44 1.16 1.22 1.28 1.36 Dividends Declared per
  Common Share (dollars) (1) Non-GAAP measure that does not have any
  standardized meaning prescribed by generally accepted accounting principles.
  For more information on non-GAAP measures see page 16 in the Managements
  Discussion and Analysis of the 2008 Annual Report. (2) Compared to 2007. Net
  Income $1.4 billion or $2.53 per common share, a 10% increase(2) Comparable
  Earnings(1) $1.3 billion or $2.25 per common share, an 8% increase(2)
  Dividends Declared $1.44 per common share, a 6% increase(2) Funds Generated
  from Operations(1) $3.0 billion, a 15% increase(2) Capital Expenditures and
  Acquisitions $6.4 billion invested in core businesses




|Financial
Highlights |  | 
|-------------------- |  | 

| | Year ended December 31
(millions of dollars)                                                                                                                                                                                                           |  | 2004   |  | 2005   |   | 2006   |   | 2007   |  | 2008   |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------ |  | ------ | - | ------ | - | ------ |  | ------ | -
| |                                                                                                                                                                                                                                                        | 
| | Income                                                                                                                                                                                                                                                 |  |        |  |        |   |        |   |        |  |        |  
| | Comparable earnings(1)                                                                                                                                                                                                                                 |  | 786    |  | 839    |   | 925    |   | 1,100  |  | 1,279  |  
| | Net income                                                                                                                                                                                                                                             |  | 1,032  |  | 1,209  |   | 1,079  |   | 1,223  |  | 1,440  |  
| | Cash Flow                                                                                                                                                                                                                                              |  |        |  |        |   |        |   |        |  |        |  
| | Funds generated from operations                                                                                                                                                                                                                        |  | 1,703  |  | 1,951  |   | 2,378  |   | 2,621  |  | 3,021  |  
| | (Increase)/decrease in operating working capital                                                                                                                                                                                                       |  | 29     |  | (49    | ) | (303   | ) | 215    |  | (181   | )
| |                                                                                                                                                                                                                                                        | 
| | Net cash provided by operations                                                                                                                                                                                                                        |  | 1,732  |  | 1,902  |   | 2,075  |   | 2,836  |  | 2,840  |  
| |                                                                                                                                                                                                                                                        | 
| | Capital expenditures and acquisitions                                                                                                                                                                                                                  |  | 2,046  |  | 2,071  |   | 2,042  |   | 5,874  |  | 6,363  |  
| | Balance Sheet                                                                                                                                                                                                                                          |  |        |  |        |   |        |   |        |  |        |  
| | Total assets                                                                                                                                                                                                                                           |  | 22,422 |  | 24,113 |   | 25,909 |   | 30,330 |  | 39,414 |  
| | Long-term debt                                                                                                                                                                                                                                         |  | 9,749  |  | 9,640  |   | 10,887 |   | 12,377 |  | 15,368 |  
| | Junior subordinated notes                                                                                                                                                                                                                              |  |       |  |       |   |       |   | 975    |  | 1,213  |  
| | Common shareholders' equity                                                                                                                                                                                                                            |  | 6,565  |  | 7,206  |   | 7,701  |   | 9,785  |  | 12,898 |  
| | Common Share Statistics
Year ended December 31                                                                                                                                                                                                         |  | 2004   |  | 2005   |   | 2006   |   | 2007   |  | 2008   |  
| |                                                                                                                                                                                                                                                        | 
| | Comparable earnings(1)  Basic                                                                                                                                                                                                                         |  | $1.62  |  | $1.72  |   | $1.90  |   | $2.08  |  | $2.25  |  
| | Net income per share  Basic                                                                                                                                                                                                                           |  | $2.13  |  | $2.49  |   | $2.21  |   | $2.31  |  | $2.53  |  
| | Net income per share  Diluted                                                                                                                                                                                                                         |  | $2.12  |  | $2.47  |   | $2.20  |   | $2.30  |  | $2.52  |  
| | Dividends declared per share                                                                                                                                                                                                                           |  | $1.16  |  | $1.22  |   | $1.28  |   | $1.36  |  | $1.44  |  
| | Common shares outstanding (millions)                                                                                                                                                                                                                   |  |        |  |        |   |        |   |        |  |        |  
| | Average for the year                                                                                                                                                                                                                                   |  | 484.1  |  | 486.2  |   | 488.0  |   | 529.9  |  | 569.6  |  
| | End of year                                                                                                                                                                                                                                            |  | 484.9  |  | 487.2  |   | 489.0  |   | 539.8  |  | 616.5  |  
| | Market Price  Close                                                                                                                                                                                                                                   |  |        |  |        |   |        |   |        |  |        |  
| | Toronto Stock Exchange (Canadian dollars)                                                                                                                                                                                                              |  | 29.80  |  | 36.65  |   | 40.61  |   | 40.54  |  | 33.17  |  
| | New York Stock Exchange (U.S. dollars)                                                                                                                                                                                                                 |  | 24.87  |  | 31.48  |   | 34.95  |   | 40.93  |  | 27.14  |  
| | (1)  Non-GAAP measure that does not have any standardized meaning prescribed by generally accepted accounting principles. For more information on non-GAAP measures see page 16 in the Management's Discussion and Analysis of
the 2008 Annual Report. | 

TRANSCANADA
CORPORATION1

---







Chairman's
Message

Being able to say that 2008 was another strong year for TransCanada comes with considerable satisfaction. Success can be elusive at the best of times, but to be successful in this difficult global economy is a
true achievement. TransCanada has done just that, producing strong financial results and making significant progress on a number of important initiatives.


PHOTO

Recognition of this performance was demonstrated by our ability to secure significant funding during 2008 for our large portfolio of attractive projects. This support in the capital markets was particularly gratifying and
 these funds will be used to continue to deliver long-term value to our shareholders.
In early February, as a further reflection of the confidence we have in the company, the Board approved an increase in the dividend on common shares for the ninth consecutive year, taking the quarterly dividend to $0.38 per common share or $1.52
annually. We also approved a three per cent discount on common shares issued under our dividend reinvestment and share purchase plan. The plan allows common and preferred shareholders to participate in our future by purchasing additional common
shares at a discount.
While our financial track record is sound, we continue our commitment to social responsibility. TransCanada is one of only five companies from Canada to be recognized among this year's Global 100 Most Sustainable Corporations in the World. These
companies are honoured as having the best ability to manage environmental, social and governance risks. In addition, TransCanada was named to The Dow Jones Sustainability Index, recognizing the financial performance of leading
sustainability-driven companies worldwide.
The Board of Directors of TransCanada remains focused on strong corporate governance. Overseeing strategic direction and decision-making by the executive leadership are key responsibilities at all times but especially in this challenging environment,
and we are focused on the goals and objectives we set for TransCanada over the long-term.
In the final analysis, though, delivering results must be founded on a practical philosophy, sound strategy and flawless execution. TransCanada's thoughtful, measured approach, the company's leaders and our 4,000 employees across North America
are the reasons for our success. Along with all of the members of the Board of Directors, I would like to thank each team member for their extraordinary efforts in advancing our business in 2008. The company has doubled its asset base over the last
decade to $40 billion through your contributions and continues on its path of becoming North America's leading energy infrastructure company.On behalf of the Board of Directors, SIG S. Barry Jackson


2CHAIRMAN'S
MESSAGE

---





|Letter
to Shareholders |  | TransCanada delivered strong operating and financial results in 2008. Each of our major business units generated strong results, with growing cash flows and excellent progress on major initiatives.
Capital projects were executed to a very high standard, setting the stage for continued growth in earnings, cash flow and shareholder value in the years to come.
|---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PHOTO |  | In 2008, TransCanada earned $1.4 billion or $2.53 per share, compared to $1.2 billion or $2.31 per share in 2007, an increase of 10 per cent on a per share basis. Comparable earnings(1) per
share increased approximately eight per cent to $2.25 per share.
Funds generated from operations(1) increased substantially, to a record $3 billion. That represents a 15 per cent increase over 2007 and is nearly three times as large as our funds generated from operations(1)
in 1999.
Our long term shareholders will recall that TransCanada established a new strategic direction in 2000, shedding international assets, exiting the volatile midstream business and focusing our efforts on pipeline and power generation opportunities
within North America. In 2001 we further reduced our exposure to commodity price volatility by selling our natural gas marketing and trading business.
|      |  | Since 1999 TransCanada has invested approximately $24 billion in stable, value-creating pipeline and energy growth opportunities. Those investments have transformed TransCanada: today we are the unquestioned leader in North American natural gas
transmission; we are building a large and very competitive oil pipeline business; we are one of North America's largest and most profitable natural gas storage operators; and we own the largest and most profitable private-sector power business
in Canada.                                                                                                                                                                                                                                                                                                                                                                                   
|      |  | Our investments have been both large and profitable. Since 1999 our comparable earnings(1) per share have grown at a compound average annual rate of nine per cent, from $1.08 in 1999 to $2.25 in 2008. Over that same period we
generated significant additional earnings and cash proceeds from the sale of non-core assets and certain other items. These transactions funded a significant portion of our capital program over the past nine years.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|      |  | TransCanada's strong financial performance has enabled our Board of Directors to increase our dividend on common shares in each of the past nine years. Most recently, we increased our dividend to $1.52 per share on an annualized basis, an increase of
six percent over 2008. Our Board of Directors also approved an increase in the discount on the issuance of common shares from treasury under our Dividend Reinvestment and Share Purchase Plan from two to three per cent. This provides existing
shareholders with an opportunity to participate in the future growth of the company by reinvesting their dividends in additional common shares.                                                                                                                                                                                                                                          

LETTER TO
SHAREHOLDERS3

---



| |  | Our natural gas pipeline business achieved excellent results in 2008. Each day we deliver approximately 20 per cent of the natural gas consumed in North America, and we continue to build on that industry-leading position. We are currently
investing more than $1.5 billion to expand and extend our Alberta System. We have asked Canada's National Energy Board to assume jurisdiction over the Alberta System, a move that will enable TransCanada to compete for new natural gas supplies in
British Columbia, the Northwest Territories and Alaska. We are excited by the prospects for shale gas development in northeastern British Columbia and we look forward to extending our system to serve producers in the Montney and Horn River
shale plays.                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We continue to build a large scale, profitable natural gas pipeline business in the United States. Our 2007 acquisition of the ANR System has proven to be both profitable and well-timed. Rockies volumes have filled the southwest leg of ANR, and
the emerging Haynesville and Fayetteville shale plays are expected to contribute significant volumes to the southeast leg in the years ahead. ANR's large natural gas storage business in Michigan has grown significantly since acquisition, and we see
significant capital investment opportunities throughout the ANR System in the years ahead. Notably, we now have a strong commercial and business development team in Houston, Texas, improving our access to natural gas pipeline opportunities in the
United States.                                                     
| |  | Our efforts to bring Mackenzie and Alaska gas to market continue to move forward. These large, long term projects will connect more than 4 Bcf/d to our Alberta System, providing shippers with unparalleled access to premium North American markets
through our GTN, Northern Border, Great Lakes and Canadian Mainline systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Five years ago we identified the opportunity to move growing volumes of crude oil from Alberta's oilsands to major United States refining centres in the southern Midwest and Gulf Coast regions. Construction is well underway on our Keystone
pipeline from Hardisty, Alberta to Wood River and Patoka, Illinois, with flows commencing in early 2010. We are currently finalizing regulatory applications for the Keystone expansion, which will extend our reach to premium markets in the Gulf Coast
region. Both Keystone and the Gulf Coast expansion are underpinned by long-term contracts to move more than 900,000 barrels per day.                                                                                                                                                                                          
| |  | Our power generation business has grown more than tenfold over the past nine years, and projects currently under construction will deliver significant growth in cash flow and earnings over the next three years. The 550 MW Portlands Energy Centre
in Toronto is expected to be in service in first quarter 2009. The 683 MW Halton Hills Generating Station located west of Toronto is expected to be in service in third quarter 2010. The 1,500 MW refurbishment of Bruce A Units 1 and 2 is
also expected to come on line in 2010. Other projects now under construction or in development include the Cartier and Kibby Wind projects and the Coolidge Generating Station. These large-scale generating projects are highly efficient, located in
premium markets, and underpinned by strong, long-term commercial arrangements.

4LETTER TO
SHAREHOLDERS

---



| |  | Energy infrastructure is a long-cycle, capital intensive business, and we structure our projects carefully to ensure stable profitability throughout the cycle. With a strong balance sheet and significant liquidity, TransCanada has the ability to
endure turbulent economic times, today and in the future. Our strong cash flows from existing assets together with continued access to capital markets means we are well positioned to fund our sizeable capital program and deliver growing cash flow and
earnings in the years ahead.         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | TransCanada's enduring success is a reflection of the skills and commitment of our outstanding team of 4,000 employees located in Calgary, Houston and many other regions across North America. Our employees truly are our competitive advantage.
Their operating and commercial expertise, their project development and execution capabilities and their dedication to value creation are unparalleled in the energy infrastructure industry. I am confident that we will continue to deliver significant
shareholder value for many years to come.
| |  | GRAPHIC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Hal KvislePresident and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (1)  Non-GAAP measure that does not have any standardized meaning prescribed by generally accepted accounting principles. For more information on non-GAAP measures see page 16 in the Management's
Discussion and Analysis of the 2008 Annual Report.                                                                                                                                                                                                                                                                                                

LETTER TO
SHAREHOLDERS5

---





TABLE OF CONTENTS

|                                         
|-----------------------------------------
|TRANSCANADA OVERVIEW                     
|TRANSCANADA'S STRATEGY                   
|                                         
|CONSOLIDATED FINANCIAL REVIEW            
|                                         
|                                         
|                                         
|                                         
|                                         
|FORWARD-LOOKING INFORMATION              
|NON-GAAP MEASURES                        
|OUTLOOK                                  
|                                         
|PIPELINES                                
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|ENERGY                                   
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|CORPORATE                                
|                                         
|                                         
|                                         
|                                         
|DISCONTINUED OPERATIONS                  
|                                         
|LIQUIDITY AND CAPITAL RESOURCES          
|                                         
|                                         
|                                         
|CONTRACTUAL OBLIGATIONS                  
|                                         
|                                         
|                                         
|                                         
|                                         
|RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
|                                         
|                                         
|                                         

6MANAGEMENT'S DISCUSSION AND ANALYSIS

---



|                                                                 
|-----------------------------------------------------------------
|CONTROLS AND PROCEDURES                                          
|SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
|ACCOUNTING CHANGES                                               
|SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA                   
|FOURTH QUARTER 2008 HIGHLIGHTS                                   
|SHARE INFORMATION                                                
|OTHER INFORMATION                                                
|GLOSSARY OF TERMS                                                

MANAGEMENT'S DISCUSSION AND ANALYSIS7

---





The Management's Discussion and Analysis (MD&A) dated February 23, 2009 should be read in conjunction with the audited Consolidated Financial
Statements of TransCanada Corporation (TransCanada or the Company) and the notes thereto for the year ended December 31, 2008, which are prepared in accordance with Canadian generally accepted
accounting principles (GAAP). This MD&A covers TransCanada's financial position and operations as at and for the year ended December 31, 2008. Amounts are stated in Canadian dollars unless
otherwise indicated. Abbreviations and acronyms used in this MD&A are identified in the Glossary of Terms in the Company's 2008 Annual Report.

TRANSCANADA OVERVIEW

In 2008, TransCanada celebrated the 50th anniversary of the completion of its original pipeline from Alberta to Ontario and Québec. Fifty years of
experience has established TransCanada as a significant player in the development and operation of North American energy infrastructure, including natural gas and oil pipelines, power generation
plants, and natural gas storage facilities.

TransCanada
has invested approximately $24 billion in capital projects in the last nine years, and currently has more than $40 billion in total assets. The
Company is currently executing an $18 billion capital program and most of the projects are expected to be completed by 2012. Over the longer term, TransCanada intends to continue to pursue and
develop its substantial portfolio of large-scale infrastructure projects. TransCanada is committed to maintaining the financial strength required to build the energy infrastructure needed to serve
increased energy demand, respond to shifting energy supply-demand dynamics and replace aging North American infrastructure.

Pipelines Assets

The TransCanada network of more than 59,000 kilometres (km) (36,661 miles) of wholly owned and 7,800 km (4,847 miles) of partially owned natural gas
pipelines connect virtually every major natural gas supply basin and market, transporting 20 per cent of the natural gas consumed in North America. TransCanada's natural gas pipelines
link gas supplies from Western Canada, the United States (U.S.) mid-continent and Gulf of Mexico to premium North American markets. These assets are well positioned to connect
emerging natural gas supplies, including northern gas, northeastern British Columbia (B.C.) and U.S. shale gas, and offshore liquefied natural gas (LNG) imports, to growing markets.

TransCanada's
Alberta System gathered 66 per cent of the natural gas produced in Western Canada or 15 per cent of total North American production
in 2008. TransCanada exports natural gas from the Western Canada Sedimentary Basin (WCSB) to Eastern Canada and the U.S. West, Midwest, and Northeast through three wholly owned pipeline
systems: the Canadian Mainline, the GTN System and Foothills. TransCanada also exports natural gas from the WCSB to Eastern Canada and to the U.S. West, Midwest, and Northeast through six
partially owned natural gas pipeline systems: Great Lakes, Iroquois, Portland, TQM, Northern Border and Tuscarora. Certain of these pipeline systems are held through the Company's
32.1 per cent interest in TC PipeLines, LP (PipeLines LP).

ANR
was acquired in February 2007. ANR transports natural gas from producing fields located primarily in Oklahoma, Texas, Louisiana and the Gulf of Mexico to markets
located in Wisconsin, Michigan, Illinois, Ohio and Indiana. It also connects with numerous other natural gas pipelines, providing customers with access to diverse sources of North American supply,
including Western Canada and the Rocky Mountain region, and to a variety of end-user markets in the midwestern and northeastern U.S. ANR owns and operates 250 billion
cubic feet (Bcf) of regulated natural gas storage capacity in Michigan.

In
addition, the Company has agreed to increase its ownership interest up to 79.99 per cent in each of TransCanada Keystone Pipeline Limited Partnership and
TransCanada Keystone Pipeline, LP (collectively, Keystone partnerships). TransCanada has partnered with ConocoPhillips, a global, integrated oil and gas producer and refiner to build the
Keystone crude oil pipeline. Currently under construction, the Keystone pipeline will transport 1.1 million barrels per day (Bbl/d) of crude oil from Hardisty, Alberta to U.S. Midwest
markets at Wood River and Patoka in Illinois, and at Cushing, Oklahoma, and to U.S. Gulf Coast markets. The pipeline is supported by long-term contracts with strong counterparties
and provides a low-cost shipping option. While the current economic slowdown and low oil price environment have eased the pace of oil sands project activity, developments in the medium to
long term in Alberta will provide attractive opportunities for further additions to crude oil transmission infrastructure.

8MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Energy Assets

TransCanada's Energy business has grown from 754 megawatts (MW) in 1999 to more than 10,900 MW in 2008. The Company's diverse power generation portfolio of
primarily low-cost, baseload or long-term contracted facilities comprises a total of 19 plants in Alberta, Eastern Canada, New England, and New York City.
The accompanying graph illustrates each fuel source as a percentage of the Company's overall Energy portfolio:

GRAPHIC

TransCanada has developed a significant non-regulated natural gas storage business in Alberta where the Company owns or has rights to 120 Bcf or approximately one-third of the natural gas storage capacity in
the province.
Opportunities and developments in the Company's Pipelines and Energy businesses are discussed further in the "Pipelines" and "Energy" sections of this MD&A.


TRANSCANADA'S STRATEGY

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 it has or can develop significant competitive advantage. Since 2000, TransCanada's key strategies continue to evolve with the Company's growth and development and its changing business
environment. TransCanada's corporate strategy integrates five fundamental value-creating activities:

These strategies are defined by an integrated set of activities and performance objectives:

Maximize the full-life value of TransCanada's infrastructure assets and commercial positions

TransCanada relies on a low-risk business model to maximize the full-life value of existing assets and positions that generate predictable, sustainable
streams of cash flows and earnings. In the Company's Pipelines business, the natural gas pipeline network connects traditional and emerging basins to growing markets offering effective service and
competitive rates. TransCanada's Energy business supplies growing power markets through long-term power purchase agreements, and low-cost baseload generation. The Company's
activities in gas, nuclear, wind and hydro energy sources demonstrate its commitment to a sustainable energy future. TransCanada continues to make its long-term commercial and physical
asset operations a priority. The Company attempts to maximize the life and value of its assets by focusing on sustainable business initiatives derived from engaging in market and regulatory
developments, combined with an accretive capital investment program.

Cultivate a focused portfolio of high quality development options

The Company's core western and eastern regions are the primary focus of growth initiatives in the Pipelines and Energy businesses. Consideration is given to new markets with
good fundamentals where TransCanada has or can develop competitive strengths. There is a continued focus on low-cost, baseload power assets as well as on power and natural gas storage
assets supported by firm, long-term contracts with reputable counterparties. Greenfield development and acquisition of power generation, power transmission and natural gas storage are
considered if they meet the Company's investment standards. Greenfield and brownfield pipeline projects are being pursued to diversify the Pipelines business and add incremental value to existing
assets. Key areas of focus include greenfield development options to connect the Company's natural gas pipelines to northern gas reserves and emerging Canadian and U.S. shale gas supplies, and
transporting crude oil from the Alberta oil sands. Other possible growth opportunities include acquiring natural gas and

MANAGEMENT'S DISCUSSION AND ANALYSIS9

---



oil
transmission assets that complement TransCanada's existing assets, acquiring partners' interests in associated pipelines and acquiring stand-alone transmission enterprises in new regions of
North America.

Commercially develop and physically execute new asset investment programs

TransCanada's current $18 billion capital program is expected to begin generating revenue over the next four years beginning in 2009. The Company is committed to
completing the projects in its capital programs on time and on budget to deliver service to its customers and returns to its shareholders. Its large portfolio of projects is characterized by highly
contracted, long-term revenue streams and limited exposure to capital cost risks. These are key features of TransCanada's model for managing construction risks and improving the return
realized from new investment programs. This strategy will be applied to Pipelines and Energy growth opportunities that address North America's emerging energy infrastructure needs.

Maximize TransCanada's competitive strengths

TransCanada will use its competitive strengths to achieve responsible, profitable operations and growth. In the Pipelines and Energy infrastructure businesses, size and scale
of operations must be large enough to compete effectively and offer recognized value to customers. The Company believes its competitive strengths include the discipline it applies in operations,
governance and project, financial and risk management, and its ability to obtain capital at suitable terms. TransCanada strives to provide customers with safe, low-cost, reliable and
responsible service by such means as improved efficiencies, operational reliability and enhanced environmental and safety performance. The Company also strives to maintain constructive relationships
with its key stakeholder groups. Utilizing these strengths is the responsibility of all employees, and all employees contribute to the success of the Company. To maximize the quality,
capability and contribution of the Company's employees, management encourages and supports its employees' innovative thinking, development and leadership.

Maximize TransCanada's financial strength and reputation

TransCanada continues to value its reputation for financial strength based on a history of predictable, growing earnings and cash flow. The Company continues to communicate its
financial performance to current and prospective debt and equity holders, while making its management of risks transparent. TransCanada strives to maintain access to low-cost capital in
all market environments to enable it to capture growth opportunities and improve its financial performance.

10MANAGEMENT'S DISCUSSION AND ANALYSIS

---





CONSOLIDATED FINANCIAL REVIEW

---

SELECTED THREE YEAR CONSOLIDATED FINANCIAL DATA(millions of dollars, except per share amounts)

|                                                 |                         | 2008   |       | 2007   |       | 2006   |      
|------------------------------------------------ | ----------------------- | ------ | ----- | ------ | ----- | ------ | -----
|                                                 |                        
|Income Statement                                 |                         |        |       |        |       |        |      
|Revenues                                         |                         | 8,619  |       | 8,828  |       | 7,520  |      
|Net income                                       |                         |        |       |        |       |        |      
|                                                 | Continuing operations   |        | 1,440 |        | 1,223 |        | 1,051
|                                                 | Discontinued operations |        |      |        |      |        | 28   
|                                                 |                        
|                                                 |                         | 1,440  |       | 1,223  |       | 1,079  |      
|                                                 |                        
|Comparable earnings(1)                           |                         | 1,279  |       | 1,100  |       | 925    |      
|Per Common Share Data                            |                         |        |       |        |       |        |      
|Net income  basic                               |                         |        |       |        |       |        |      
|                                                 | Continuing operations   |        | $2.53 |        | $2.31 |        | $2.15
|                                                 | Discontinued operations |        |      |        |      |        | 0.06 
|                                                 |                        
|                                                 |                         | $2.53  |       | $2.31  |       | $2.21  |      
|                                                 |                        
|Net income  diluted                             |                         |        |       |        |       |        |      
|                                                 | Continuing operations   |        | $2.52 |        | $2.30 |        | $2.14
|                                                 | Discontinued operations |        |      |        |      |        | 0.06 
|                                                 |                        
|                                                 |                         | $2.52  |       | $2.30  |       | $2.20  |      
|                                                 |                        
|Comparable earnings per share(1)                 |                         | $2.25  |       | $2.08  |       | $1.90  |      
|Dividends declared                               |                         | $1.44  |       | $1.36  |       | $1.28  |      
|Summarized Cash Flow                             |                         |        |       |        |       |        |      
|Funds generated from operations(1)               |                         | 3,021  |       | 2,621  |       | 2,378  |      
|(Increase)/decrease in operating working capital |                         | (181   | )     | 215    |       | (303   | )    
|                                                 |                        
|Net cash provided by operations                  |                         | 2,840  |       | 2,836  |       | 2,075  |      
|                                                 |                        
|Balance Sheet                                    |                         |        |       |        |       |        |      
|Total assets                                     |                         | 39,414 |       | 30,330 |       | 25,909 |      
|Total long-term liabilities                      |                         | 20,392 |       | 16,511 |       | 14,464 |      
|                                                 |                        

MANAGEMENT'S DISCUSSION AND ANALYSIS11

---



HIGHLIGHTS

---

Net Income



Comparable Earnings



Cash from Operations



Investing Activities



Financing Activities



12MANAGEMENT'S DISCUSSION AND ANALYSIS

---





Balance Sheet



Dividend



Refer
to "Results of Operations" below and to the "Liquidity and Capital Resources" section of this MD&A for further discussion of these highlights.

MANAGEMENT'S DISCUSSION AND ANALYSIS13

---





---

SEGMENT RESULTS
Reconciliation of Comparable Earnings to Net Income

|Year ended December 31 (millions of dollars except per share amounts) |                                                | 2008                                                                          |       | 2007  |       | 2006  |      
|--------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------------------------- | ----- | ----- | ----- | ----- | -----
|                                                                      |                                               
|Pipelines                                                             |                                                |                                                                               |       |       |       |       |      
|                                                                      | Comparable earnings                            |                                                                               | 740   |       | 686   |       | 529  
|                                                                      | Specific items (net of tax):                   |                                                                               |       |       |       |       |      
|                                                                      |                                                | Calpine bankruptcy settlements                                                |       | 152   |       |      |      
|                                                                      |                                                | GTN lawsuit settlement                                                        |       | 10    |       |      |      
|                                                                      |                                                | Bankruptcy settlement with Mirant                                             |       |      |       |      |      
|                                                                      |                                                | Gain on sale of Northern Border Partners, L.P. interest                       |       |      |       |      |      
|                                                                      |                                               
|                                                                      | Net earnings                                   |                                                                               | 902   |       | 686   |       | 560  
|                                                                      |                                               
|Energy                                                                |                                                |                                                                               |       |       |       |       |      
|                                                                      | Comparable earnings                            |                                                                               | 641   |       | 459   |       | 429  
|                                                                      | Specific items (net of tax, where applicable): |                                                                               |       |       |       |       |      
|                                                                      |                                                | Writedown of Broadwater costs                                                 |       | (27   | )     |      |      
|                                                                      |                                                | Gain on sale of land                                                          |       |      |       | 14    |      
|                                                                      |                                                | Fair value adjustments of natural gas storage inventory and forward contracts |       |      |       | 7     |      
|                                                                      |                                                | Income tax reassessments and adjustments                                      |       |      |       | 34    |      
|                                                                      |                                               
|                                                                      | Net earnings                                   |                                                                               | 614   |       | 514   |       | 452  
|                                                                      |                                               
|Corporate                                                             |                                                |                                                                               |       |       |       |       |      
|                                                                      | Comparable expenses                            |                                                                               | (102  | )     | (45   | )     | (33  
|                                                                      | Specific item:                                 |                                                                               |       |       |       |       |      
|                                                                      |                                                | Income tax reassessments and adjustments                                      |       | 26    |       | 68    |      
|                                                                      |                                               
|                                                                      | Net (expenses)/earnings                        |                                                                               | (76   | )     | 23    |       | 39   
|                                                                      |                                               
|Net Income                                                            |                                                |                                                                               |       |       |       |       |      
|                                                                      | Continuing operations(1)                       |                                                                               | 1,440 |       | 1,223 |       | 1,051
|                                                                      | Discontinued operations                        |                                                                               |      |       |      |       | 28   
|                                                                      |                                               
|Net Income                                                            |                                                | 1,440                                                                         |       | 1,223 |       | 1,079 |      
|                                                                      |                                               
|Comparable Earnings(1)                                                |                                                | 1,279                                                                         |       | 1,100 |       | 925   |      
|                                                                      |                                               
|Net Income Per Share  Basic                                          |                                                |                                                                               |       |       |       |       |      
|                                                                      | Continuing operations(2)                       |                                                                               | $2.53 |       | $2.31 |       | $2.15
|                                                                      | Discontinued operations                        |                                                                               |      |       |      |       | 0.06 
|                                                                      |                                               
|                                                                      |                                                |                                                                               | $2.53 |       | $2.31 |       | $2.21
|                                                                      |                                               
|Comparable Earnings Per Share(2)                                      |                                                | $2.25                                                                         |       | $2.08 |       | $1.90 |      
|                                                                      |                                               

|                                                                              | (1)Comparable Earnings           |       | 1,279 |       | 1,100 |       | 925  
|----------------------------------------------------------------------------- | -------------------------------- | ----- | ----- | ----- | ----- | ----- | -----
|Specific items (net of tax, where applicable):                                |                                  |       |       |       |       |      
|Calpine bankruptcy settlements                                                |                                  | 152   |       |      |       |     
|GTN lawsuit settlement                                                        |                                  | 10    |       |      |       |     
|Writedown of Broadwater costs                                                 |                                  | (27   | )     |      |       |     
|Gain on sale of land                                                          |                                  |      |       | 14    |       |     
|Fair value adjustments of natural gas storage inventory and forward contracts |                                  |      |       | 7     |       |     
|Bankruptcy settlement with Mirant                                             |                                  |      |       |      |       | 18   
|Gain on sale of Northern Border Partners, L.P. interest                       |                                  |      |       |      |       | 13   
|Income tax reassessments and adjustments                                      |                                  | 26    |       | 102   |       | 95   
|                                                                             
|Net Income from Continuing Operations                                         |                                  | 1,440 |       | 1,223 |       | 1,051
|                                                                             
|                                                                              | (2)Comparable Earnings Per Share |       | $2.25 |       | $2.08 |       | $1.90
|Specific items  per share:                                                   |                                  |       |       |       |       |      
|Calpine bankruptcy settlements                                                |                                  | 0.27  |       |      |       |     
|GTN lawsuit settlement                                                        |                                  | 0.02  |       |      |       |     
|Writedown of Broadwater costs                                                 |                                  | (0.05 | )     |      |       |     
|Gain on sale of land                                                          |                                  |      |       | 0.03  |       |     
|Fair value adjustments of natural gas storage inventory and forward contracts |                                  |      |       | 0.01  |       |     
|Bankruptcy settlement with Mirant                                             |                                  |      |       |      |       | 0.04 
|Gain on sale of Northern Border Partners, L.P. interest                       |                                  |      |       |      |       | 0.03 
|Income tax reassessments and adjustments                                      |                                  | 0.04  |       | 0.19  |       | 0.18 
|                                                                             
|Net Income Per Share from Continuing Operations                               |                                  | $2.53 |       | $2.31 |       | $2.15
|                                                                             

14MANAGEMENT'S DISCUSSION AND ANALYSIS

---





RESULTS OF OPERATIONS

Net income and net income from continuing operations (net earnings) were $1,440 million or $2.53 per share in 2008 compared to $1,223 million or $2.31 per
share in 2007. Net income and net earnings in 2006 were $1,079 million or $2.21 per share and $1,051 million or $2.15 per share, respectively. Results in 2006 included net income from
discontinued operations of $28 million or $0.06 per share, reflecting bankruptcy settlements with Mirant Corporation and certain of its subsidiaries (Mirant) related to their transactions with
TransCanada's Gas Marketing business. TransCanada divested its Gas Marketing business in 2001.

Net
income in 2008 included $152 million of after-tax gains on shares received by the GTN System and Portland from the Calpine bankruptcy settlements,
$10 million after tax of GTN System lawsuit settlement proceeds and a $27 million after-tax writedown of costs previously capitalized for Broadwater. Net income in 2008 also
included $26 million of favourable income tax adjustments from an internal restructuring and realization of losses. Net income in 2007 included $102 million ($68 million in
Corporate and $34 million in Energy) of favourable income tax adjustments recorded in 2007 relating to changes in Canadian federal and provincial corporate income tax legislation, the
resolution of certain tax matters and an internal restructuring. Net income in 2007 also included an after-tax gain of $14 million on the sale of land and $7 million after
tax of net unrealized gains resulting from changes in the fair value of proprietary natural gas storage inventory and natural gas forward purchase and sale contracts. Net earnings in 2006 included
$95 million of favourable income tax adjustments, proceeds from an $18 million after-tax bankruptcy settlement with Mirant and an after-tax gain of $13 million
from the sale of TransCanada's general partner interest in Northern Border Partners, L.P.

Excluding
the above-noted items, comparable earnings for 2008, 2007 and 2006 were $1,279 million ($2.25 per share), $1,100 million ($2.08 per share) and
$925 million ($1.90 per share), respectively. Comparable earnings in 2008 increased $179 million or $0.17 per share compared to 2007 due to higher earnings in the Energy and Pipelines
businesses, partially offset by an increase in net expenses in Corporate. Pipelines' earnings
increased in 2008 compared to 2007 primarily due to a full year of earnings in 2008 from ANR. Energy's earnings from Western Power, Eastern Power and Bruce A and Bruce B (collectively, Bruce Power)
operations increased in 2008 compared to 2007 primarily due to higher realized prices. Corporate net expenses in 2008 increased from 2007 primarily due to unrealized losses from the changes in the
fair value of derivatives, which are used to manage TransCanada's exposure to rising interest rates but do not qualify for hedge accounting, and higher financial charges.

Comparable
earnings increased $175 million or $0.18 per share in 2007 compared to 2006 primarily due to additional earnings from the acquisition of ANR in
February 2007, a full year of earnings in 2007 from the Bécancour and Edson facilities, and positive impacts from rate case settlements for the GTN System and Canadian Mainline.
These increases were partially offset by a lower contribution from Bruce Power in 2007.

Results
in each business segment are discussed further in the "Pipelines", "Energy" and "Corporate" sections of this MD&A.

FORWARD-LOOKING INFORMATION

This MD&A may contain certain information that is forward looking and is subject to important risks and uncertainties. The words "anticipate", "expect", "believe", "may",
"should", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking information. Forward-looking statements in this document are intended to provide
TransCanada shareholders and potential investors with information regarding TransCanada and its subsidiaries, including management's assessment of TransCanada's and its subsidiaries' future financial
and operational plans and outlook. Forward-looking statements in this document may include, among others, statements regarding the anticipated business prospects and financial performance of
TransCanada and its subsidiaries, expectations or projections about the future, strategies and goals for growth and expansion, expected and future cash flows, costs, schedules, operating and financial
results and expected impact of future commitments and contingent liabilities. All forward-looking statements reflect TransCanada's beliefs and assumptions based on information available at the time
the

MANAGEMENT'S DISCUSSION AND ANALYSIS15

---



statements
were made. Actual results or events may differ from those predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current
expectations include, among others, the ability of TransCanada to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the
operating performance of the Company's pipeline and energy assets, the availability and price of energy commodities, regulatory processes and decisions, changes in environmental and other laws and
regulations, competitive factors in the pipeline and energy sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and
currency exchange rates, technological developments and the current economic conditions in North America. By its nature, forward-looking information is subject to various risks and uncertainties,
including those material risks discussed in the "Pipelines", "Energy" and "Risk Management and Financial Instruments" sections in this MD&A, which could cause TransCanada's actual results and
experience to differ materially from the anticipated results or expectations expressed. Additional information on these and other factors is available in the reports filed by TransCanada with Canadian
securities regulators and with the U.S. Securities and Exchange Commission (SEC). Readers are cautioned to not place undue reliance on this forward-looking information, which is given as of the
date it is expressed in this MD&A or otherwise, and to not use future-oriented information or financial outlooks for anything other than their intended purpose. TransCanada undertakes no obligation to
update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

NON-GAAP MEASURES

TransCanada uses the measures "comparable earnings", "comparable earnings per share", "funds generated from operations" and "operating income" in this MD&A. These measures do
not have any standardized meaning prescribed by Canadian GAAP. They are, therefore, considered to be non-GAAP measures and are unlikely to be comparable to similar measures presented by
other entities. Management of TransCanada uses these non-GAAP measures to improve its ability to compare financial results among reporting periods and to enhance its understanding of
operating performance, liquidity and ability to generate funds to finance operations. These
non-GAAP measures are also provided to readers as additional information on TransCanada's operating performance, liquidity and ability to generate funds to finance operations.

Management
uses comparable earnings/(expenses) to better evaluate trends in the Company's underlying operations. Comparable earnings comprise net income from continuing
operations adjusted for specific items that are significant, but are not reflective of the Company's underlying operations in the year. Specific items are subjective, however, management uses its
judgement and informed decision-making when identifying items to be excluded in calculating comparable earnings, some of which may recur. Specific items may include but are not limited to certain
income tax refunds and adjustments, gains or losses on sales of assets, legal and bankruptcy settlements, and certain fair value adjustments. The Segment Results table in this MD&A presents a
reconciliation of comparable earnings to net income from continuing operations. Comparable earnings per share is calculated by dividing comparable earnings by the weighted average number of shares
outstanding for the period.

Funds
generated from operations comprises net cash provided by operations before changes in operating working capital. A reconciliation of funds generated from operations to
net cash provided by operations is presented in the Summarized Cash Flow table in the "Liquidity and Capital Resources" section of this MD&A.

Operating
income is reported in the Company's Energy business segment and comprises revenues less operating expenses as shown on the Consolidated Income Statement. A
reconciliation of operating income to net income is presented in the "Energy" section of this MD&A.

16MANAGEMENT'S DISCUSSION AND ANALYSIS

---



OUTLOOK

TransCanada's corporate strategy is underpinned by a long-term focus on growing its Pipelines and Energy businesses in a disciplined and measured manner. In 2009
and beyond, TransCanada expects its net earnings and cash flow, combined with a strong balance sheet and proven access to capital markets, to provide the financial strength TransCanada will need to
complete its current capital expenditure program and continue to pursue other long-term growth opportunities and create additional value for its shareholders in the same disciplined and measured
manner utilized in developing its current capital expenditure program. TransCanada believes this prudence is especially important in the economic environment that currently exists in North America. In
2009, the Company will continue to implement its strategy and grow the Pipelines and Energy businesses as discussed in the "TransCanada's Strategy" section of this MD&A.

The
current economic slowdown is not expected to have a significant impact on TransCanada's near-term earnings as the majority of TransCanada's operations are underpinned by
either long-term contracts or earn a regulated return. In addition, TransCanada's continued focus on risk management is expected to further lessen the negative impact of the current economic slowdown
to TransCanada.

The
Company's results in 2009 may be affected positively or negatively by a number of factors and developments as discussed throughout this MD&A, including without
limitation, the factors and developments discussed in the "Forward-Looking Information", "Pipelines  Business Risks" and
"Energy  Business Risks" sections. Refer to the "Pipelines  Outlook",
"Energy  Outlook" and "Corporate  Outlook" sections of this MD&A for further discussion of
outlook.

MANAGEMENT'S DISCUSSION AND ANALYSIS17

---





GRAPHIC

CANADIAN MAINLINEOwned 100 per cent by TransCanada, the Canadian Mainline is a 14,101 km (8,762 miles) natural
gas transmission system in Canada that extends from the Alberta/Saskatchewan border east to the Québec/Vermont border and connects with other natural gas pipelines in Canada and
the U.S.

ALBERTA SYSTEMOwned 100 per cent by TransCanada, the Alberta System is a 23,705 km (14,730 miles) natural gas
transmission system in Alberta. One of the largest transmission systems in North America, it gathers natural gas for use within the province and delivers it to provincial boundary points for
connection with the Company's Canadian Mainline and Foothills natural gas pipelines and with the natural gas pipelines of other companies.

ANROwned 100 per cent by TransCanada, ANR is a 17,000 km (10,563 miles) transmission system that transports
natural gas from producing fields located primarily in Texas and Oklahoma on its southwest leg and in the Gulf of Mexico and Louisiana on its southeast leg. The system extends to markets located
mainly in Wisconsin, Michigan, Illinois, Ohio and Indiana. ANR's natural gas pipeline also connects with other natural gas pipelines providing access to diverse sources of North American supply
including Western Canada and the Rocky Mountain supply basin, and a variety of markets in the midwestern and northeastern U.S. ANR also owns and operates regulated underground natural gas
storage facilities in Michigan with a total capacity of 250 Bcf.

18MANAGEMENT'S DISCUSSION AND ANALYSIS

---



GTN SYSTEMOwned 100 per cent by TransCanada, the GTN System is a 2,174 km (1,351 miles) natural gas
transmission system that links Foothills with Pacific Gas and Electric Company's California Gas Transmission System, with Williams Companies, Inc.'s Northwest Pipeline in Washington and Oregon,
and with Tuscarora.

FOOTHILLSOwned 100 per cent by TransCanada, the 1,241 km (771 miles) Foothills transmission system in Western
Canada carries natural gas for export from central Alberta to the U.S. border to serve markets in the U.S. Midwest, Pacific Northwest, California and Nevada.

NORTH BAJAOwned 100 per cent by TransCanada, the North Baja natural gas transmission system extends 129 km
(80 miles) from Ehrenberg in southwestern Arizona to a point near Ogilby, California on the California/Mexico border and connects with the Gasoducto Bajanorte natural gas pipeline system
in Mexico.

VENTURES LPOwned 100 per cent by TransCanada, Ventures LP is comprised of a 161 km (100 miles)
pipeline and related facilities that supply natural gas to the oil sands region near Fort McMurray, Alberta as well as a 27 km (17 miles) pipeline that supplies natural gas to a
petrochemical complex at Joffre, Alberta.

TAMAZUNCHALEOwned 100 per cent by TransCanada, the 130 km (81 miles) Tamazunchale natural gas pipeline in east
central Mexico extends from the facilities of Pemex Gas near Naranjos, Veracruz, to an electricity generating station near Tamazunchale, San Luis Potosi.

TUSCARORAOwned 100 per cent by PipeLines LP, Tuscarora is a 491 km (305 miles) pipeline system
transporting natural gas from the GTN System at Malin, Oregon, to Wadsworth, Nevada, with delivery points in northeastern California and northwestern Nevada. TransCanada operates Tuscarora and
effectively owns 32.1 per cent of the system through its 32.1 per cent interest in PipeLines LP.

NORTHERN BORDEROwned 50 per cent by PipeLines LP, the 2,250 km (1,398 miles) Northern Border natural
gas transmission system serves the U.S. Midwest from a connection with Foothills near Monchy, Saskatchewan. TransCanada operates Northern Border and effectively owns 16.1 per cent
of the system through its 32.1 per cent interest in PipeLines LP.

GREAT LAKESOwned 53.6 per cent by TransCanada and 46.4 per cent by PipeLines LP, the 3,404 km
(2,115 miles) Great Lakes natural gas transmission system connects with the Canadian Mainline at Emerson, Manitoba, and serves markets in Central Canada and the midwestern
U.S. TransCanada operates Great Lakes and effectively owns 68.5 per cent of the system through its 53.6 per cent direct ownership interest and its indirect
ownership, which it has through its 32.1 per cent interest in PipeLines LP.

IROQUOISOwned 44.5 per cent by TransCanada, the 666 km (414 miles) Iroquois pipeline system connects with the
Canadian Mainline near Waddington, New York, and delivers natural gas to customers in the northeastern U.S.

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

PORTLANDOwned 61.7 per cent by TransCanada, Portland is a 474 km (295 miles) pipeline that connects with TQM
near East Hereford, Québec and delivers natural gas to customers in the northeastern U.S. Portland is operated by TransCanada.

BISONThe Bison pipeline project is a proposed 480 km (298 miles) pipeline from the Powder River Basin in Wyoming to the
Northern Border system in North Dakota.

KEYSTONEKeystone is an oil pipeline consisting of 3,456 km (2,147 miles) of pipe under construction that will initially
transport crude oil from Hardisty, Alberta to U.S. Midwest markets at Wood River and Patoka in Illinois, and to Cushing, Oklahoma. In addition, an expansion to the U.S. Gulf Coast is
under development, which is expected to add approximately 2,720 km (1,690 miles) of pipe to the system. Commissioning of the segment to Wood River and Patoka is expected to begin in late
2009. Commissioning of the segment to Cushing is expected to begin in late 2010. The expansion to the U.S. Gulf Coast is expected to be commissioned in 2012, subject to regulatory approvals. In
2008, TransCanada agreed to increase its ownership interest in Keystone up to 79.99 per cent. At December 31, 2008, TransCanada owned 62 per cent of Keystone.

TRANSGASOwned 46.5 per cent by TransCanada, TransGas is a 344 km (214 miles) natural gas pipeline system
extending from Mariquita in the central region of Colombia to Cali in southwestern Colombia.

GAS PACIFICO/INNERGYOwned 30 per cent by TransCanada, Gas Pacifico is a 540 km (336 miles) natural gas
pipeline extending from Loma de la Lata, Argentina to Concepción, Chile. TransCanada also has a 30 per cent ownership interest in INNERGY, an industrial natural gas
marketing company based in Concepción that markets natural gas transported on Gas Pacifico.

MANAGEMENT'S DISCUSSION AND ANALYSIS19

---





PIPELINES  HIGHLIGHTS

---

PIPELINES RESULTSYear ended December 31(millions of dollars)

|                                                        |                                                  | 2008 |     | 2007 |     | 2006 |    
|------------------------------------------------------- | ------------------------------------------------ | ---- | --- | ---- | --- | ---- | ---
|                                                        |                                                 
|Wholly Owned Pipelines                                  |                                                  |      |     |      |     |      |    
|                                                        | Canadian Mainline                                |      | 278 |      | 273 |      | 239
|                                                        | Alberta System                                   |      | 145 |      | 138 |      | 136
|                                                        | ANR(1)                                           |      | 132 |      | 104 |      | n/a
|                                                        | GTN                                              |      | 65  |      | 58  |      | 46 
|                                                        | Foothills                                        |      | 24  |      | 26  |      | 27 
|                                                        |                                                 
|                                                        |                                                  | 644  |     | 599  |     | 448  |    
|                                                        |                                                 
|Other Pipelines                                         |                                                  |      |     |      |     |      |    
|                                                        | Great Lakes(2)                                   |      | 44  |      | 47  |      | 44 
|                                                        | PipeLines LP(3)                                  |      | 25  |      | 18  |      | 4  
|                                                        | Iroquois                                         |      | 18  |      | 15  |      | 15 
|                                                        | Tamazunchale(4)                                  |      | 16  |      | 10  |      | 2  
|                                                        | Other(5)                                         |      | 34  |      | 46  |      | 51 
|                                                        | Northern Development                             |      | (9  | )    | (7  | )    | (5 
|                                                        | General, administrative, support costs and other |      | (32 | )    | (42 | )    | (30
|                                                        |                                                 
|                                                        |                                                  | 96   |     | 87   |     | 81   |    
|                                                        |                                                 
|Comparable Earnings(6)                                  |                                                  | 740  |     | 686  |     | 529  |    
|Calpine bankruptcy settlements(7)                       |                                                  | 152  |     |     |     |     |    
|GTN lawsuit settlement                                  |                                                  | 10   |     |     |     |     |    
|Bankruptcy settlement with Mirant                       |                                                  |     |     |     |     | 18   |    
|Gain on sale of Northern Border Partners, L.P. interest |                                                  |     |     |     |     | 13   |    
|                                                        |                                                 
|Net Earnings                                            |                                                  | 902  |     | 686  |     | 560  |    
|                                                        |                                                 

20MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Net earnings from the Pipelines business were $902 million in 2008 compared to $686 million in 2007 and
$560 million in 2006. Comparable earnings from the Pipelines business of $740 million in 2008 excluded the $152 million after-tax ($279 million
pre-tax) gains received by Portland and the GTN System from the bankruptcy settlements with Calpine and $10 million after-tax ($17 million pre-tax)
proceeds received by GTN from a lawsuit settlement with a software supplier. The $54 million increase in comparable earnings in 2008 from 2007 was primarily due to a full year of earnings from
ANR, the Alberta System rate settlement and higher earnings for the Canadian Mainline. Comparable earnings in 2006 were $529 million and excluded an $18 million bankruptcy settlement
with Mirant and a $13 million gain on sale of TransCanada's general partner interest in Northern Border Partners, L.P. The increase in comparable earnings in 2007 compared to 2006 was
primarily due to the acquisitions of ANR and additional interest in Great Lakes, higher earnings as a result of rate settlements for Canadian Mainline and the GTN System, and an increased ownership in
PipeLines LP.

PIPELINES  FINANCIAL ANALYSIS

Canadian Mainline

The
Canadian Mainline is regulated by the NEB, which sets tolls that provide TransCanada with the opportunity to recover projected costs of transporting natural gas, including a return on the Canadian
Mainline's average investment base. The NEB also approves new facilities before construction begins. Net earnings from the Canadian Mainline are affected by changes in the investment base, the rate of
return on common equity (ROE), the level of deemed common equity and potential incentive earnings.

The
Canadian Mainline currently operates under a five-year tolls settlement effective from 2007 to 2011. The cost of capital reflects an ROE as determined by the
NEB's ROE formula on deemed common equity of 40 per cent. The remaining capital structure consists of short- and long-term debt, following the agreed upon redemption of the
US$460 million 8.25 per cent Preferred Securities in 2007.

The
settlement also established certain elements of the Canadian Mainline's fixed operating, maintenance and administration (OM&A) costs for each of the five years. The
variance between actual and agreed-upon OM&A costs accrues entirely to TransCanada from 2007 to 2009, and will be shared equally between TransCanada and its customers in 2010 and 2011. All
other cost elements of the revenue requirement are treated on a flow-through basis. The settlement also allows for performance-based incentive arrangements that the Company believes are
mutually beneficial to both TransCanada and its customers.

Net
earnings of $278 million in 2008 were $5 million higher than $273 million in 2007 primarily due to higher performance-based incentives earned and
increased OM&A cost savings and an ROE of 8.71 per cent in 2008, as determined by the NEB, compared to 8.46 per cent in 2007. These increases were partially offset by a
lower average investment base.

Net
earnings of $273 million in 2007 were $34 million higher than $239 million in 2006. The increase primarily reflected the positive impact of the
increase in deemed common equity ratio to 40 per cent from 36 per cent as a

MANAGEMENT'S DISCUSSION AND ANALYSIS21

---



result
of the Canadian Mainline tolls settlement, performance-based incentives earned and OM&A cost savings. These increases were partially offset by a lower allowed ROE of 8.46 per cent
in 2007 (2006  8.88 per cent) and a lower average investment base.

GRAPHIC

Alberta System

Construction and operation of the Alberta System's facilities and the terms and conditions of its services, including rates, are regulated by the AUC, primarily under the
provisions of theGas Utilities Act (Alberta)and thePipeline Act (Alberta).

In
December 2008, the AUC approved TransCanada's 2008-2009 Revenue Requirement Settlement Application, as discussed further in the
"Pipelines  Opportunities and Developments" section of this MD&A.

The
Alberta System's net earnings of $145 million in 2008 were $7 million higher than in 2007. The increase was due to the recognition of earnings related to
the revenue requirement settlement. Earnings in 2007 reflected an ROE of 8.51 per cent on deemed common equity of 35 per cent.

Net
earnings of $138 million in 2007 were $2 million higher than in 2006. The increase was primarily due to OM&A cost savings, partially offset by a lower
allowed ROE and a lower investment base in 2007. The allowed ROE prescribed by the Alberta Energy and Utilities Board, the AUC's predecessor, was 8.51 per cent in 2007 compared with
8.93 per cent in 2006 on deemed common equity of 35 per cent.

GRAPHIC

ANR

TransCanada completed the acquisition of ANR in February 2007. The operations of ANR are regulated primarily by the U.S. Federal Energy Regulatory Commission (FERC). ANR
provides natural gas transportation, storage and various capacity-related services to a variety of customers in both the U.S. and Canada. ANR's transmission system has a peak-day capacity
of 6.8 billion cubic feet per day (Bcf/d). Due to the seasonal nature of its business, ANR's volumes and revenues are generally expected to be higher in the winter months. ANR also owns
and operates 250 Bcf of underground natural gas storage facilities in Michigan. ANR's regulated natural gas storage and transportation services operate under current FERC-approved
tariff rates. These tariffs include maximum and minimum rate levels for services and permit ANR to discount or negotiate rates on a non-discriminatory basis.

22MANAGEMENT'S DISCUSSION AND ANALYSIS

---



ANR
Pipeline Company's (ANR Pipeline) rates were established pursuant to a settlement approved by the FERC effective November 1997. ANR Storage Company's rates
were established pursuant to a settlement approved by the FERC effective June 1990. None of ANR's FERC-regulated operations are required to file for new rates at any time in the
future, nor are any of the operations prohibited from filing a rate case.

Net
income for 2008 was $132 million compared to $104 million for the period from the date of acquisition on February 22, 2007 to December 31,
2007. The increase in 2008 was primarily due to a full year of earnings in 2008 and increased revenues from new growth projects, partially offset by higher OM&A costs, including remediation
expenditures for damage caused by Hurricane Ike.

GTN

Both of GTN's systems, the GTN System and North Baja (collectively, GTN), are subject to FERC-approved tariffs that establish maximum and minimum rates for various
services. GTN's pipeline rates were established pursuant to a settlement approved by the FERC in January 2008, and these rates became effective January 1, 2007. Under the settlement, a
five-year moratorium was established during which the GTN System and the settling parties are prohibited under theNatural Gas Act of 1938from taking certain actions, including any filings to adjust rates. The settlement also requires the GTN System to file a rate case within seven years of the effective date. The systems are
permitted to discount or negotiate these rates on a non-discriminatory basis. GTN's earnings are affected by variations in contracted volume levels, volumes delivered and prices charged
under the various service types, as well as by variations in the costs of providing services.

GTN's
comparable earnings were $65 million in 2008, an increase of $7 million compared to 2007 primarily due to decreased OM&A expenses. An increase in
revenues for North Baja was offset by a decrease in revenues for the GTN System.

Comparable
earnings were $58 million in 2007, a $12 million increase from 2006. The increase was primarily due to the positive impact of the rate case
settlement in 2007, partially offset by lower long-term firm contracted volumes, a higher provision taken for non-payment of contract revenues from Calpine and a weaker
U.S. dollar in 2007.

Other Pipelines

TransCanada's direct and indirect investments in various natural gas pipelines and its project development activities relating to natural gas and oil transmission opportunities
throughout North America are included in Other Pipelines.

TransCanada's
comparable earnings from Other Pipelines were $96 million in 2008 compared to $87 million in 2007. The increase was primarily due to lower
general, administrative and support costs, and higher earnings from PipeLines LP, Tamazunchale and Iroquois, partially offset by lower earnings from Gas Pacifico/INNERGY, TransGas, Portland and
Great Lakes.

Comparable
earnings from Other Pipelines were $87 million in 2007, a $6 million increase compared to 2006. The increase was primarily due to higher
PipeLines LP earnings resulting from TransCanada's increased ownership interests in PipeLines LP and Great Lakes, and a full year of earnings in 2007 from Tamazunchale. These increases
were partially offset by higher project development and support costs associated with growing the Pipelines business, the effects of a weaker U.S. dollar in 2007 and proceeds of a bankruptcy
settlement received by Portland in 2006.

At
December 31, 2008, Other Assets included $74 million and $42 million for capitalized costs related to the Keystone expansion to the U.S. Gulf Coast
and the Bison pipeline project, respectively.

PIPELINES  OPPORTUNITIES AND DEVELOPMENTS

Keystone

Keystone is expected to deliver crude oil from Hardisty, Alberta, to U.S. Midwest markets at Wood River and Patoka in Illinois, and to Cushing, Oklahoma.

MANAGEMENT'S DISCUSSION AND ANALYSIS23

---



In
March 2008, the U.S. Department of State issued a Presidential Permit to Keystone authorizing construction, maintenance and operations of facilities at the
U.S./Canada border for the transportation of crude oil between the two countries. Construction of Keystone began in May 2008 in both Canada and the U.S. Commissioning of the Wood River
and Patoka segment is expected to commence in late 2009 with commercial operations to follow in early 2010. Commissioning of the Cushing segment is expected to commence in late 2010.

In
June 2008, Keystone received approval from the NEB to add new pumping facilities to accommodate an increase to approximately 590,000 Bbl/d from
435,000 Bbl/d in volumes to be delivered to the Cushing markets.

After
an open season conducted during third quarter 2008, Keystone secured additional firm, long-term contracts totaling 380,000 Bbl/d for an average term
of approximately 17 years. With these shipper commitments, Keystone will proceed with the necessary regulatory applications in Canada and the U.S. for approvals to construct and operate
an expansion of the pipeline system that will provide additional capacity from Western Canada to the U.S. Gulf Coast in 2012 and will increase the total commercial capacity of Keystone to
approximately 1.1 million Bbl/d. With the additional contracts, Keystone now has secured long-term commitments for 910,000 Bbl/d for an average term of approximately
18 years. This includes commitments made by shippers to sign transportation service agreements for 35,000 Bbl/d of capacity in an open season to be held in 2009. The commitments
represent approximately 83 per cent of the commercial design of the system.

The
entire Keystone project is currently expected to cost approximately US$12 billion between 2008 and 2012. In 2008, the Keystone partnerships made capital
expenditures of approximately $1.7 billion on the entire project, of which $1.0 billion was contributed by TransCanada.

TransCanada
has agreed to increase its equity ownership in the Keystone partnerships up to 79.99 per cent from 50 per cent with ConocoPhillips' equity
ownership being reduced concurrently to 20.01 per cent. In accordance with this agreement, TransCanada will fund 100 per cent of the construction expenditures until the
participants' project capital contributions are aligned with the revised ownership interests. At December 31, 2008, TransCanada's equity ownership in the Keystone partnerships was approximately
62 per cent. Certain parties that have made volume commitments to the Keystone expansion have an option to acquire up to a combined 15 per cent equity ownership in the
Keystone partnerships by the end of first quarter 2009. If all of the options are exercised, TransCanada's equity ownership would be reduced to 64.99 per cent.

Keystone's
tolls, tariffs and facilities are regulated by the NEB in Canada and the FERC in the U.S., and have been approved for the segments shipping to Wood River, Patoka
and Cushing. The Company
expects the tolls and tariffs to remain in place for the term of the initial shipper contracts, which comprise approximately 83 per cent of Keystone's commercial capacity.

Canadian Mainline

In December 2008, the NEB announced that, pursuant to its formula, the 2009 allowed ROE for NEB-regulated pipelines, including the Canadian Mainline, will be
8.57 per cent, a decrease from 8.71 per cent in 2008.

Alberta System

In December 2008, the AUC approved the Alberta System's 2008-2009 Revenue Requirement Settlement Application. As part of the settlement, fixed costs were
established for ROE, income taxes and OM&A costs. Any variances between actual costs and those agreed to in the settlement accrue to TransCanada, subject to an ROE and income tax adjustment mechanism,
which accounts for variances between actual and settlement rate base, and income tax assumptions. The other cost elements of the settlement are treated on a flow-through basis.

In
November 2008, an NEB hearing concluded on TransCanada's application to establish Federal jurisdiction over the Alberta System. A decision is expected from the NEB at the
end of February 2009. Changing from AUC to NEB jurisdiction will allow the expansion of the Alberta System beyond Alberta provincial borders.

24MANAGEMENT'S DISCUSSION AND ANALYSIS

---



In
October 2008, the AUC approved TransCanada's application for a permit to construct the North Central Corridor expansion at a cost of approximately $925 million.
The expansion comprises a 300 km (186 miles) natural gas pipeline and associated compression facilities on the northern section of the Alberta System.

On
September 8, 2008, TransCanada reached a proposed agreement with Canadian Utilities Limited (ATCO Pipelines) to provide seamless natural gas transmission service
to customers. If approved by regulatory authorities, the arrangement will see the two companies combine physical assets under a single rates and services structure with a single commercial interface
for customers but with each company separately managing assets within distinct operating territories in the province. TransCanada continues to work with all stakeholders to finalize
this agreement.

In
February 2008, the AUC initiated a Generic Cost of Capital proceeding to review the generic ROE and capital structures of AUC regulated utilities. In November
2008, TransCanada filed an application requesting an 11 per cent ROE on 40 per cent deemed common equity for the Alberta System in 2009. The hearing is scheduled to begin
on May 19, 2009.

ANR

In 2008, ANR completed its STEP 2008 project, which added 14 Bcf of storage and 200 million cubic feet per day (mmcf/d) of withdrawal capacity to the Cold
Springs 1 storage field located in Northern Michigan, and increased ANR's total storage capacity to 250 Bcf. The project was completed under budget and service was provided on schedule.
Supply on ANR's southwest leg was increased as a result of an interconnect with the Rockies Express natural gas pipeline, which commenced service in January 2008. There is strong potential for
new supply on the southeast leg from shale gas in the mid-continent region, and another interconnect with the Rockies Express pipeline is planned for the southeast leg in Indiana in
mid-2009. ANR is also pursuing other supply additions on both its southwest and southeast legs.

In
September 2008, certain portions of the Company's Gulf of Mexico offshore facilities were impacted by Hurricane Ike. The Company estimates its total exposure to
damage costs to be approximately US$30 million to US$40 million, mainly to replace, repair and abandon capital assets, including the estimated cost to abandon an offshore platform. At
December 31, 2008, capital expenditures of US$2 million and OM&A costs of US$6 million had been incurred. The remaining costs are primarily expected to be capital expenditures.
Service on the majority of the offshore facilities has been restored and related throughput volumes have returned to near pre-hurricane levels. The timing of the remaining facilities'
return to service is primarily dependent upon decisions to be made by upstream producers regarding their damaged facilities in the Gulf of Mexico.

Palomar

In December 2008, Palomar Gas Transmission LLC filed with the FERC for a certificate to build a pipeline extending from the GTN System in central Oregon, to the
Columbia River northwest of Portland. The proposed pipeline is expected to be capable of transporting up to 1.3 Bcf/d of natural gas. The project is a 50/50 joint venture of GTN and
Northwest Natural Gas Co.

North Baja

In September 2008, the FERC approved North Baja's application to build a natural gas pipeline to serve the Yucca Power Plant owned by Arizona Public Service Company.
Three miles of the proposed pipeline are expected to be in the U.S. and owned by North Baja, and another three miles in Mexico are owned by Gasoducto Bajanorte. Pending final approval by the
U.S. Government, construction is expected to commence in first quarter 2009 with a projected in-service date of May 2009.

Portland

On April 1, 2008, Portland filed a general rate case with the FERC proposing a rate increase of approximately six per cent as well as other changes to its
tariffs. In accordance with a FERC order dated May 1, 2008, the proposed tariffs went into effect on September 1, 2008, subject to refund. The hearing is scheduled to begin on
July 13, 2009.

MANAGEMENT'S DISCUSSION AND ANALYSIS25

---



TQM

In December 2008, the NEB concluded a proceeding with respect to TQM's Cost of Capital application for 2007 and 2008. The application sought an ROE of
11 per cent on deemed equity of 40 per cent. The proceeding also provided an opportunity for TQM to propose alternatives to the current ROE formula. A decision from the NEB
is expected in first quarter 2009.

U.S. Rockies Pipeline Projects

The Bison pipeline project is a proposed pipeline from the Powder River Basin in Wyoming to the Northern Border system in North Dakota. The project has shipping commitments for
approximately 405 mmcf/d and is expected to be in service in fourth quarter 2010. The capital cost of the Bison pipeline project is estimated at US$500 million to US$600 million.
TransCanada continues to work with Bison shippers to finalize the size and design of this project.

In
addition, TransCanada is proposing the Pathfinder pipeline project, a 1,006 km (625 miles) pipeline from Meeker, Colorado to the Northern Border system in
North Dakota. A portion of the Pathfinder pipeline may share a common route with the Bison pipeline and may also share some common facilities. TransCanada continues to work with prospective Pathfinder
shippers to advance this project.

TransCanada
and Williams Gas Pipeline Company, LLC (Williams) are evaluating the development of the Sunstone pipeline, a proposed pipeline from Wyoming to Stanfield,
Oregon. This project would provide Pacific Northwest and California markets with access to incremental Rockies supply. TransCanada and its partner continue to work with customers to determine the
appropriate size, time and route for this project.

Mackenzie Gas Pipeline Project

The MGP is a proposed 1,200 km (746 miles) natural gas pipeline to be constructed from a point near Inuvik, Northwest Territories to the northern border of
Alberta, where it is expected to connect to the Alberta System.

TransCanada's
involvement with the MGP arises from a 2003 agreement between the Mackenzie Valley Aboriginal Pipeline Group (APG) and the MGP, whereby TransCanada agreed to
finance the APG's one-third share of the pre-development costs associated with the project. Cumulative advances made by TransCanada totaled $140 million at
December 31, 2008 and are included in Other Assets. These amounts constitute a loan to the APG, which becomes repayable only after the natural gas pipeline commences commercial operations. The
total amount of the loan is expected to form part of the rate base of the pipeline and to subsequently be repaid from the APG's share of future natural gas pipeline revenues or from alternate
financing. If the project does not proceed, TransCanada has no recourse against the APG for recovery of advances made. Accordingly, TransCanada's ability to recover its investment through loan
repayments and/or equity ownership in the project depends upon a successful outcome of the project.

Under
the terms of certain MGP agreements, TransCanada holds an option to acquire up to a five per cent equity ownership in the natural gas pipeline at the time of
the decision to construct it. In addition, TransCanada gains certain rights of first refusal to acquire 50 per cent of any divestitures by existing partners and an entitlement to obtain
a one-third interest in all expansion opportunities once the APG reaches a one-third ownership share, with the other natural gas pipeline owners and the APG sharing
the balance.

TransCanada
and the other co-venture companies involved in the MGP continue to pursue approval of the proposed project, focusing on obtaining regulatory approval
and the Canadian government's support of an acceptable fiscal framework. Project timing continues to be uncertain. Detailed discussions with the Canadian government have taken place and have resulted
in a proposal in January 2009 from the government to the MGP. The co-venture group is considering the proposal and is expected to respond to the government in the near future. In
the event the co-venture group is unable to reach an agreement with the government on an acceptable fiscal framework, the parties will need to determine the appropriate next steps for the
project. For TransCanada, this may result in a reassessment of the carrying amount of the APG advances.

26MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Alaska Pipeline Project

In November 2007, TransCanada submitted an application to the State of Alaska for a license to construct the Alaska Pipeline Project under the AGIA. In
January 2008, Alaska Governor Sarah Palin's administration determined that TransCanada's application was the only proposal that met all of the state's requirements and in December 2008
the State
of Alaska issued the AGIA license to TransCanada. Under the AGIA, the State of Alaska has agreed to reimburse a share of TransCanada's eligible pre-construction costs to a maximum of
US$500 million.

The
Alaska Pipeline Project will be a 4.5 Bcf/d natural gas pipeline extending approximately 2,760 km (1,715 miles) from a new natural gas treatment
plant at Prudhoe Bay, Alaska to Alberta. This pipeline will integrate with the Alberta System to provide access to diverse markets across North America. The application included provision for
expansions up to 5.9 Bcf/d through the addition of compressor stations in Alaska and Canada. TransCanada estimated the total capital cost of the entire project to be approximately
US$26 billion in 2007 dollars.

Since
the AGIA license was awarded, TransCanada has moved forward with developing the project, which involves engineering, environmental, aboriginal relations and commercial
work to conclude an initial binding open season by mid-2010. TransCanada continues its efforts to align with potential shippers and if sufficient firm contracts are secured in the open
season, construction would begin following regulatory approvals, with an anticipated in-service date of 2018.

PIPELINES  BUSINESS RISKS

Supply, Markets and Competition

TransCanada faces competition at both the supply and market ends of its systems. This competition comes from other natural gas pipelines accessing the increasingly mature WCSB
and markets served by TransCanada's pipelines. In addition, the continued expiration of long-term firm contracts has resulted in significant reductions in long-term firm
contracted capacity and shifts to short-term firm and interruptible contracts on the Canadian Mainline, the Alberta System, Foothills and the GTN System.

In
2008, the gas supply environment changed. Production out of the WCSB declined while supply in the U.S. grew. Previously it had been expected that
U.S. supply would decline. Furthermore, with lower natural gas prices, lower cost U.S. gas developments may hinder the further development of WCSB gas supplies.

TransCanada's
primary source of natural gas supply is the WCSB. The WCSB has remaining discovered natural gas reserves of approximately 57 trillion cubic feet
and a reserves-to-production ratio of approximately nine years at current levels of production. Historically, sufficient additional reserves have been discovered on an ongoing
basis to maintain the reserves-to-production ratio at close to nine years, however, supply from the WCSB has declined in recent years due to a continued reduction in levels of
drilling activity in the basin. The reduced drilling activity is a result of lower prices, higher supply costs, which include higher royalties in Alberta, and competition for
capital from other North American basins that have lower exploration costs. Drilling levels in the WCSB are expected to reach a low point in 2009 and then should begin to recover in the ensuing years
assuming that gas prices stabilize at $6 to $7 per gigajoule (GJ) and that finding and development costs become more economical. TransCanada anticipates there will be excess natural gas pipeline
capacity out of the WCSB in the foreseeable future as a result of capacity expansions on its wholly owned and partially owned natural gas pipelines over the past decade, competition from other
pipelines, and significant growth in natural gas demand within Alberta driven by oil sands and electricity generation requirements.

TransCanada's
Alberta System is the major natural gas gathering and transportation system for the WCSB, connecting most of the natural gas processing plants in Alberta to
domestic and export markets. Despite reduced overall drilling levels, activity remains robust in certain areas of the WCSB, which has resulted in the need for new transmission infrastructure. The
primary areas of high activity have been deeper conventional drilling in western Alberta and in the foothills region of B.C., and coalbed methane development in central Alberta. Recently, shale gas
production in B.C. has emerged as a potentially significant natural gas supply source.

MANAGEMENT'S DISCUSSION AND ANALYSIS27

---



Historically,
TransCanada's eastern natural gas pipeline system has been supplied by long-haul flows from the WCSB and by short-haul volumes received
from storage fields and interconnecting pipelines in southwestern Ontario. Over the last few years, the Canadian Mainline has experienced reductions in long-haul flows, which have been
partially offset by increases in short-haul volumes, resulting in an increase in Canadian Mainline tolls.

Demand
for natural gas in TransCanada's key eastern markets, which are served by the Canadian Mainline, is expected to continue to increase, particularly to meet the
expected growth in natural gas-fired power generation. However, the Company believes the current environment could reverse this trend in the short term given sufficient levels of erosion
of market demand. Although there are opportunities to increase market share in Canadian domestic and U.S. export markets, TransCanada faces significant competition in these regions. Consumers
in the northeastern U.S. generally have access to an array of natural gas pipeline and supply options. Eastern markets that historically received Canadian supplies only from TransCanada are now
capable of receiving supplies from new natural gas pipelines that source U.S. and Atlantic Canadian supplies.

The
source of oil supply for Keystone is located primarily in Alberta, which produces approximately 79 per cent of the oil in the WCSB. In 2008, the WCSB
produced a total of approximately 2.4 million Bbl/d, comprised of 1.2 million Bbl/d of conventional crude oil and condensate, and 1.2 million Bbl/d of oil from the oil sands area
of Alberta. The production of conventional oil has been declining but has been offset by increases in production of oil from the Alberta oil sands. The Alberta Energy Resources Conservation Board has
estimated that there are 173 billion barrels of remaining established reserves in the Alberta oil sands.

A
decline in oil prices in late 2008 has resulted in announcements of delays in oil sands projects and upgraders, however, in December 2008, the Canadian Association
of Petroleum Producers forecast WCSB oil supply would increase from 2.4 million Bbl/d in 2008 to 3.5 million Bbl/d by 2015 and 4.1 million Bbl/d by 2020.

Keystone
has 910,000 Bbl/d of contracts for capacity, on a ship or pay basis, with an average contract life of 18 years, which the Company believes will
provide incentive for contract shippers to ship on Keystone. However, Keystone must compete for spot throughput with other oil pipelines from Alberta.

Keystone's
markets for crude oil are refiners in the U.S. Midwest and Gulf Coast regions. A competing pipeline can also deliver WCSB crude oil to the Midwest markets
supplied by Keystone. Currently, competing pipelines can deliver oil to the U.S. Gulf Coast, through interconnections with other pipelines. Keystone must also compete with
U.S. domestically produced oil and imported oil for markets in the Midwest and Gulf Coast regions.

ANR's
natural gas supply is primarily sourced from the Gulf of Mexico and mid-continent U.S. regions, which are also served by competing natural gas
pipelines. ANR also has competition from other natural gas pipelines and storage operations in its primary markets in the U.S. Midwest. The Gulf of Mexico region is extremely competitive given
its extensive natural gas pipeline network. ANR is one of many interstate and intrastate pipelines in the region competing for new and existing production as well as for new supplies from shale
production in the mid-continent, from the Rockies Express natural gas pipeline originating in the Rocky Mountain region, and from LNG. Several new natural gas pipelines are proposed or
under construction to connect new supplies to the numerous pipelines in the Gulf of Mexico region. ANR competes with other natural gas pipelines in the region to attract supply to its pipeline for
alternative markets and storage. In addition to pipeline competition for market and supply, current difficult economic conditions are expected to reduce energy demand and may put future ANR capacity
renewals at risk as the North American economy slows or potentially contracts in key markets in the upper U.S. Midwest. As lower natural gas prices reduce drilling activity, the supply growth
that has been fuelling the growth in pipeline infrastructure in the mid-continent could slow down but is still expected to exceed demand requirements in the near term. These factors could
negatively affect pipeline capacity value as transportation capacity becomes more abundant.

The
GTN System must compete with other pipelines to access natural gas supplies and markets. Transportation service capacity on the GTN System provides customers in the
U.S. Pacific Northwest, California and Nevada with access to supplies of natural gas primarily from the WCSB. These three markets may also access supplies from other basins. In the Pacific
Northwest market, natural gas transported on the GTN System competes with the Rocky Mountain natural gas

28MANAGEMENT'S DISCUSSION AND ANALYSIS

---



supply
and with additional western Canadian supply transported by other pipelines. Historically, natural gas supplies from the WCSB have been competitively priced in relation to supplies from the
other regions serving these markets. The GTN System has experienced significant contract non-renewals since 2005 as the natural gas it transports from the WCSB competes for the California
and Nevada markets against supplies from the Rocky Mountain and southwestern U.S. basins. Recently, Pacific Gas and Electric Company, the GTN System's largest customer, received California
Public Utilities Commission approval to commit to capacity on a proposed competing project out of the Rocky Mountain basin to the California border.

Regulatory Financial Risk

Regulatory decisions continue to have a significant impact on the financial returns from existing investments in TransCanada's Canadian wholly owned pipelines and are expected
to have a similarly significant impact on financial returns from future investments. TransCanada remains concerned that current financial returns approved by regulators are not as competitive as
returns from other assets with similar risk profiles. In recent years, TransCanada applied to the NEB and the AUC for an ROE of 11 per cent on 40 per cent deemed common
equity for both the Canadian Mainline and the Alberta System. The NEB has reaffirmed its ROE formula and the AUC has established a generic ROE that is largely aligned with the NEB formula. Through
rate applications and negotiated settlements, TransCanada has been able to improve the common equity components of its Canadian wholly owned pipeline capital structures, but there is no assurance that
this success can be repeated.

Most
recently, TransCanada has continued to address concerns about financial returns on the Alberta System in the AUC's 2009 Generic Cost of Capital Proceeding. In
November 2008, TransCanada filed an application requesting an ROE of 11 per cent on 40 per cent deemed common equity for the Alberta System. TQM filed an application
with the NEB in December 2007 requesting a fair return on capital, consisting of an ROE of 11 per cent on 40 per cent deemed common equity. The outcome of these
proceedings may influence the regulators' view of fair financial returns on equity associated with TransCanada's other Canadian wholly owned pipelines.

Throughput Risk

As transportation contracts expire, TransCanada's U.S. natural gas pipelines are expected to become more exposed to the risk of reduced throughput and their revenues
more likely to experience increased variability. Throughput risk is created by supply and market competition, gas basin pricing, economic activity, weather variability, natural gas pipeline
competition and pricing of alternative fuels.

Execution and Capital Cost Risk

Capital costs related to the construction of Keystone are subject to a capital cost risk- and reward-sharing mechanism with its customers. This mechanism allows
Keystone to adjust its tolls by a factor based on the percentage change in the capital cost of the project. Tolls for the portion of Keystone to Wood River, Patoka and Cushing will be adjusted by a
factor equal to 50 per cent of the percentage change in capital cost. Tolls on the expansion to the U.S. Gulf Coast will be adjusted by a factor equal to 75 per cent
of the percentage change in capital cost.

Refer
to the "Risk Management and Financial Instruments" section of this MD&A for information on managing risks in the Pipelines business.

PIPELINES  OUTLOOK

TransCanada assumes that its operations in 2009 will be materially consistent with those in 2008 except for the impact of those factors discussed in this section.

Although
demand for natural gas and crude oil has declined and is expected to further decline in North America in 2009 due to the current economic downturn, the Company
expects demand to increase in the long term. TransCanada's Pipelines business will continue to focus on the delivery of natural gas to growing markets, connecting new supply, progressing development
of new infrastructure to connect natural gas from the north and unconventional supplies such as shale gas, coalbed methane and LNG, and construction and expansion of Keystone.

MANAGEMENT'S DISCUSSION AND ANALYSIS29

---



TransCanada
expects producers will continue to explore and develop new fields in Western Canada, particularly in northeastern B.C. and the west and central foothills regions
of Alberta. There is also expected to be significant exploration and development activity aimed at unconventional resources such as coalbed methane and shale gas.

In
2008, TransCanada filed an application with the NEB to establish federal jurisdiction for the Alberta System. If the application is approved, the Alberta System will
switch from AUC regulation to NEB regulation, allowing it to construct and operate pipeline extensions into other provinces and allowing it to provide direct integrated Alberta System natural gas
transmission service to gas production locations outside of Alberta. Extensions of the Alberta System beyond Alberta's borders are currently prohibited under provincial regulation. An NEB jurisdiction
decision is expected in first quarter 2009.

Most
of TransCanada's current expansion plans in Canadian natural gas transmission are focused on the Alberta System. TransCanada recently concluded a binding open season
process for natural gas transmission service for the Montney shale gas region located in northeastern B.C. Five shippers have committed to firm gas transportation contracts on the Groundbirch pipeline
that will serve the Montney region. Volumes associated with these commitments will reach 1.1 Bcf/d by 2014. The Groundbirch pipeline is expected to commence service in fourth
quarter 2010, subject to receipt of necessary approvals.

In
addition, TransCanada is finalizing details associated with a binding open season and pipeline extension project to service the Horn River shale gas region located in
northeastern B.C. Five shippers have committed to firm gas transportation contracts for a total volume of 378 mmcf/d by second quarter 2012. Subject to concluding a successful binding open
season, the Horn River project is expected to commence operation in second quarter 2011, subject to receipt of necessary approvals.

Both
the Groundbirch and Horn River projects are proposed as extensions to the Alberta System, which will provide B.C. producers with direct integrated gas transmission
service from receipt points in B.C. These pipeline projects will increase netbacks to producers and increase the throughput on the Alberta System and on its downstream pipelines that serve markets
located throughout North America, as well as increase usage of the Nova Inventory Transfer commercial hub that is used by buyers and sellers of natural gas throughout North America.

In
addition to extensions into B.C., new facilities are required to expand the integrated Alberta System in response to changes in the distribution of supply and in markets
across the Alberta System.

In
the U.S., TransCanada expects unconventional production will continue to be developed from shale gas reservoirs in east Texas, northwest Louisiana, Arkansas, and
southwest Oklahoma. Supplies from coalbed methane and tight gas sands in the Rocky Mountain region are also expected to grow. Additionally, in the medium to long term, some level of incremental supply
is anticipated from LNG imports into the U.S., particularly in the summer months. The resulting growth in supply will provide additional commercial opportunities for TransCanada. In particular, the
southwest leg of ANR is expected to continue to remain fully subscribed for the foreseeable future, and new transport routes are being developed to move the additional Rocky Mountain and shale gas
production to midwestern and eastern U.S. markets, including interconnections with ANR. As mid-continent supplies develop, the southeast leg of ANR has capacity to transport
additional volumes of Rocky Mountain and mid-continent shale production, as well as LNG.

Producers
continue to develop new oil supply in Western Canada. There are several new oil sands projects under construction that will begin production in 2009 and 2010. By
2015, oil sands production is expected to double from 1.2 million Bbl/d in 2008 and total Western Canada oil supply is projected to grow over the same period to approximately 3.5 million
Bbl/d from 2.4 million Bbl/d. The primary market for new oil production extends from the U.S. Midwest to the U.S. Gulf Coast and contains a large number of refineries that are
well equipped to handle Canadian light and heavy crude oil blends. Incremental western Canadian crude oil production is expected to replace declining U.S. imports of crude oil from other
countries.

This
increase in WCSB crude oil exports requires new pipeline capacity, including Keystone and further expansions to the U.S. Gulf Coast. TransCanada will continue to
pursue additional opportunities to move crude oil from Alberta to U.S. markets.

30MANAGEMENT'S DISCUSSION AND ANALYSIS

---



TransCanada
will continue to focus on operational excellence and on collaborative efforts with all stakeholders to achieve negotiated settlements and service options that
will increase the value of the Company's business to customers and shareholders.

Earnings

The Company expects continued growth on its Alberta System. The Company also anticipates a modest level of investment in its other existing Canadian natural gas pipelines,
resulting in an expected continued net decline in the average investment base due to annual depreciation. A net decline in the average investment base has the effect of reducing
year-over-year earnings from these assets. Under the current regulatory model, earnings from Canadian pipelines are not affected by short-term fluctuations in the
commodity price of natural gas, changes in throughput volumes or changes in contract levels.

Reduced
firm transportation contract volumes due to customer defaults, lower supply available for export from the WCSB and expiry of long-term contracts could
have a negative impact on short-term earnings from TransCanada's U.S. natural gas pipelines, unless the available capacity can be recontracted. The ability to recontract available
capacity is influenced by prevailing market conditions and competitive factors, including competing natural gas pipelines and supply from other natural gas sources in markets served by TransCanada's
U.S. pipelines. Earnings from Pipelines' foreign operations are also impacted by changes in foreign currency exchange rates.

Capital Expenditures

Total capital spending for all pipelines in 2008 was $1.8 billion. Capital spending for the wholly owned pipelines in 2009 is expected to be approximately
$1.1 billion. In addition, capital spending for TransCanada's share of constructing Keystone is expected to be approximately $3.6 billion in 2009.

---

NATURAL GAS THROUGHPUT VOLUMES(Bcf)

|                     |  | 2008  |  | 2007  |  | 2006 
|-------------------- |  | ----- |  | ----- |  | -----
|                    
|Canadian Mainline(1) |  | 3,467 |  | 3,183 |  | 2,955
|Alberta System(2)    |  | 3,800 |  | 4,020 |  | 4,051
|ANR(3)               |  | 1,655 |  | 1,210 |  | n/a  
|GTN System           |  | 783   |  | 827   |  | 790  
|Foothills            |  | 1,292 |  | 1,441 |  | 1,403
|North Baja           |  | 104   |  | 90    |  | 95   
|Great Lakes          |  | 784   |  | 829   |  | 816  
|Northern Border      |  | 731   |  | 800   |  | 799  
|Iroquois             |  | 376   |  | 394   |  | 384  
|TQM                  |  | 170   |  | 207   |  | 158  
|Ventures LP          |  | 165   |  | 178   |  | 179  
|Gas Pacifico         |  | 73    |  | 71    |  | 52   
|Portland             |  | 50    |  | 58    |  | 52   
|Tamazunchale(4)      |  | 53    |  | 29    |  | n/a  
|Tuscarora            |  | 30    |  | 28    |  | 28   
|TransGas             |  | 26    |  | 24    |  | 22   

MANAGEMENT'S DISCUSSION AND ANALYSIS31

---





GRAPHIC

BEAR CREEKAn 80 MW natural gas-fired cogeneration plant, Bear Creek is located near Grande Prairie, Alberta.

MACKAY RIVERA 165 MW natural gas-fired cogeneration plant, MacKay River is located near Fort McMurray, Alberta.

REDWATERA 40 MW natural gas-fired cogeneration plant, Redwater is located near Redwater, Alberta.

SUNDANCE A&BTransCanada has the rights to 100 per cent of the generating capacity of the 560 MW Sundance A
coal-fired power generating facility under a PPA, which expires in 2017. TransCanada also has the rights to 50 per cent of the generating capacity of the 706 MW
Sundance B facility under a PPA that expires in 2020. The Sundance facilities are located in south-central Alberta.

SHEERNESSTransCanada has the rights to 756 MW of generating capacity from the Sheerness coal-fired plant under a PPA, which expires
in 2020. The Sheerness plant is located in southeastern Alberta.

CARSELANDAn 80 MW natural gas-fired cogeneration plant, Carseland is located near Carseland, Alberta.

32MANAGEMENT'S DISCUSSION AND ANALYSIS

---



CANCARBA 27 MW facility fuelled by waste heat from TransCanada's adjacent thermal carbon black (a natural gas by-product) facility,
Cancarb is located in Medicine Hat, Alberta.

BRUCE POWERBruce Power is a nuclear generating facility located northwest of Toronto, Ontario. TransCanada owns
48.9 per cent of Bruce A, which has four 750 MW reactors, two of which are currently being refurbished and are expected to restart in 2010. TransCanada owns
31.6 per cent of Bruce B, which has four operating reactors with a combined capacity of approximately 3,200 MW.

HALTON HILLSA 683 MW natural gas-fired power plant, Halton Hills is under construction near the town of Halton Hills,
Ontario, and is expected to be in service in third quarter 2010.

PORTLANDS ENERGYA 550 MW high-efficiency, combined-cycle natural gas generation power plant, Portlands Energy is under
construction near the downtown area of Toronto, Ontario. The plant is 50 per cent owned by TransCanada and is expected to be commissioned in its combined-cycle mode in first
quarter 2009.

BÉCANCOURA 550 MW natural gas-fired cogeneration power plant, Bécancour is located near
Trois-Rivières, Québec.

CARTIER WINDThe 740 MW Cartier Wind farm consists of six wind power projects located in Québec. Cartier Wind is
62 per cent owned by TransCanada. Three of the projects, Baie-des-Sables, Anse-á-Valleau and Carleton have generating
capacities of 110 MW, 101 MW and 109 MW, respectively. Planning and construction of the remaining three projects will continue, subject to future approvals.

GRANDVIEWA 90 MW natural gas-fired cogeneration power plant, Grandview is located in Saint John, New Brunswick.

KIBBY WINDThe 132 MW Kibby Wind power project is under construction and will include 44 turbines located in Kibby and
Skinner Townships in Maine. Construction began in July 2008 and commissioning of the first phase is expected to begin in fourth quarter 2009.

TC HYDROWith a total generating capacity of 583 MW, TC Hydro comprises 13 hydroelectric facilities, including stations and
associated dams and reservoirs, on the Connecticut and Deerfield rivers in New Hampshire, Vermont and Massachusetts.

OSPA 560 MW natural gas-fired, combined-cycle facility, OSP is located in Burrillville, Rhode Island.

RAVENSWOODIn August 2008, TransCanada acquired the 2,480 MW multiple unit generating facility in Queens, New York
employing dual-fuel capable steam turbine, combined cycle and combustion turbine technology.

COOLIDGEA 575 MW simple-cycle, natural gas-fired peaking power generation station, Coolidge is under development in
Coolidge, Arizona. Detailed engineering, geotechnical and regulatory work began in 2008 and commissioning of the facility is expected in 2011.

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

CROSSALTAAn underground natural gas storage facility, CrossAlta is connected to the Alberta System and is located near Crossfield,
Alberta. TransCanada owns 60 per cent of CrossAlta, which has a working natural gas capacity of 54 Bcf with a maximum capability of delivering 480 mmcf/d.

MANAGEMENT'S DISCUSSION AND ANALYSIS33

---





ENERGY  HIGHLIGHTS

---

ENERGY RESULTSYear ended December 31(millions of dollars)

|                                                                              |  | 2008 |   | 2007 |   | 2006 |  
|----------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|                                                                              | 
|Western Power                                                                 |  | 426  |   | 308  |   | 297  |  
|Eastern Power                                                                 |  | 338  |   | 255  |   | 187  |  
|Bruce Power                                                                   |  | 201  |   | 167  |   | 235  |  
|Natural Gas Storage                                                           |  | 135  |   | 136  |   | 93   |  
|General, administrative, support costs and other                              |  | (168 | ) | (158 | ) | (144 | )
|                                                                              | 
|Operating income                                                              |  | 932  |   | 708  |   | 668  |  
|Financial charges                                                             |  | (23  | ) | (22  | ) | (23  | )
|Interest income and other                                                     |  | 6    |   | 10   |   | 5    |  
|Income taxes                                                                  |  | (274 | ) | (237 | ) | (221 | )
|                                                                              | 
|Comparable Earnings(1)                                                        |  | 641  |   | 459  |   | 429  |  
|Writedown of Broadwater costs                                                 |  | (27  | ) |     |   |     |  
|Gain on sale of land                                                          |  |     |   | 14   |   |     |  
|Fair value adjustments of natural gas storage inventory and forward contracts |  |     |   | 7    |   |     |  
|Income tax adjustments                                                        |  |     |   | 34   |   | 23   |  
|                                                                              | 
|Net Earnings                                                                  |  | 614  |   | 514  |   | 452  |  
|                                                                              | 

|GRAPHIC |  | Energy's net earnings in 2008 of $614 million increased $100 million compared to $514 million in 2007. Comparable earnings of $641 million in 2008 increased $182 million compared to 2007 and excluded a $27 million
writedown of costs previously capitalized for Broadwater. The increases in comparable and net earnings were due to higher operating income in Western Power, Eastern Power and Bruce Power. Comparable earnings of $459 million for 2007 excluded net
unrealized gains of $7 million resulting from changes in fair value of proprietary natural gas storage inventory and natural gas forward purchase and sale contracts, a $14 million gain on sale of land and $34 million of favourable
income tax adjustments.
Energy's net earnings in 2007 were $514 million compared to $452 million in 2006. Comparable earnings were $459 million in 2007, an increase of $30 million from 2006. The increase was due
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34MANAGEMENT'S DISCUSSION AND ANALYSIS

---



|to higher operating income in Eastern Power, Natural Gas Storage and Western Power, partially offset by a reduced contribution from Bruce Power. Comparable earnings excluded net unrealized gains of
$7 million resulting from natural gas storage fair value changes, a $14 million gain on sale of land, $34 million of favourable income tax adjustments in 2007 as well as a $23 million favourable impact in 2006 from future income
taxes as a result of reductions in Canadian federal and provincial corporate income tax rates.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

POWER PLANTS  NOMINAL GENERATING CAPACITY AND FUEL TYPE

|                                     |                     | MW     |       | Fuel Type
|------------------------------------ | ------------------- | ------ | ----- | ---------
|                                    
|Western Power                        |                     |        |       |          
|                                     | Sheerness           |        | 756   |          
|                                     | Coolidge(1)         |        | 575   |          
|                                     | Sundance A          |        | 560   |          
|                                     | Sundance B(2)       |        | 353   |          
|                                     | MacKay River        |        | 165   |          
|                                     | Carseland           |        | 80    |          
|                                     | Bear Creek          |        | 80    |          
|                                     | Redwater            |        | 40    |          
|                                     | Cancarb             |        | 27    |          
|                                    
|                                     |                     | 2,636  |       |          
|                                    
|Eastern Power                        |                     |        |       |          
|                                     | Ravenswood(3)       |        | 2,480 |          
|                                     | Halton Hills(1)     |        | 683   |          
|                                     | TC Hydro            |        | 583   |          
|                                     | OSP                 |        | 560   |          
|                                     | Bécancour           |        | 550   |          
|                                     | Cartier Wind(4)     |        | 458   |          
|                                     | Portlands Energy(5) |        | 275   |          
|                                     | Kibby Wind(1)       |        | 132   |          
|                                     | Grandview           |        | 90    |          
|                                    
|                                     |                     | 5,811  |       |          
|                                    
|Bruce Power(6)                       |                     | 2,480  |       | Nuclear  
|                                    
|Total nominal generating capacity(1) |                     | 10,927 |       |          
|                                    

ENERGY  FINANCIAL ANALYSIS

Western Power

As at December 31, 2008, Western Power owns or has the rights to approximately 2,600 MW of power supply in Alberta and the western U.S. from its three
long-term power purchase arrangements (PPA), six natural gas-fired cogeneration facilities and a peaking facility under development in Arizona. The power supply portfolio of
Western Power in Alberta comprises approximately 1,700 MW of low-cost, base-load coal-fired generation supply through the three long-term PPAs
and approximately 400 MW of natural gas-fired cogeneration assets. This supply portfolio includes

MANAGEMENT'S DISCUSSION AND ANALYSIS35

---



some
of the lowest cost, most competitive generation in the Alberta market area. The Sheerness and Sundance B PPAs have remaining terms of 12 years, while the Sundance A PPA has a remaining
term of nine years. In 2008, the Salt River Project Agricultural Improvement and Power District (Salt River Project), a utility based in Phoenix, Arizona, entered into a 20-year PPA to
secure 100 per cent of the output from TransCanada's planned Coolidge generating station. The simple-cycle natural gas-fired peaking power facility to be located in Coolidge,
Arizona is expected to be commissioned in 2011 and have a nominal generating capacity of 575 MW.

Western
Power relies on its two integrated functions, marketing and plant operations, to generate earnings. The marketing function, based in Calgary, Alberta, purchases and
resells electricity sourced from the PPAs, markets uncommitted volumes from the cogeneration facilities, and purchases and resells power and natural gas to maximize the value of the cogeneration
facilities. The marketing function is integral to optimizing Energy's return from its portfolio of power supply and to managing risks associated with uncontracted volumes. A portion of Energy's power
is sold into the spot market for operational reasons and the amount of supply volumes eventually sold into the spot market is dependent upon the ability to transact in forward sales markets at
acceptable contract terms. This approach to portfolio management helps to minimize costs in situations where TransCanada would otherwise have to purchase electricity in the open market to fulfil its
contractual sales obligations. To reduce exposure to spot market prices on uncontracted volumes, Western Power had, as at December 31, 2008, fixed-price power sales contracts to sell
approximately 8,800 gigawatt hours (GWh) in 2009 and 5,500 GWh in 2010.

Plant
operations in Alberta consist of five natural gas-fired cogeneration power plants with an approximate combined output capacity of 400 MW ranging
from 27 MW to 165 MW per facility. A portion of the expected output is sold under long-term contracts and the remaining output is subject to fluctuations in the price of
power and natural gas. Market heat rate is an economic measure for natural gas-fired power plants and is determined by dividing the average price of power per megawatt hour (MWh) by the
average price of natural gas per GJ for a given period. To the extent power is not sold under long-term contracts and plant fuel gas has not been purchased under long-term
contracts, the profitability of a natural gas-fired generating facility rises in proportion to an increase in the market heat rate and declines in proportion to a decrease in the market
heat rate. Market heat rates in Alberta increased in 2008 by approximately six per cent as a result of an increase in average power prices, partially offset by an increase in spot market
natural gas prices. Market heat rates averaged approximately 12.05 GJ/MWh in 2008 compared to approximately 11.40 GJ/MWh in 2007.

Western
Power's plants operated with an average plant availability of approximately 87 per cent in 2008 compared to 90 per cent in 2007. The
decrease was primarily due to an extended outage at the Cancarb power plant.

---

Western Power ResultsYear ended December 31(millions of dollars)

|                                | 2008     |       | 2007  |       | 2006  |      
|------------------------------- | -------- | ----- | ----- | ----- | ----- | -----
|                                |         
|Revenues                        |          |       |       |       |       |      
|                                | Power    | 1,140 |       | 1,045 |       | 1,185
|                                | Other(1) | 130   |       | 89    |       | 169  
|                                |         
|                                | 1,270    |       | 1,134 |       | 1,354 |      
|                                |         
|Commodity purchases resold      |          |       |       |       |       |      
|                                | Power    | (575  | )     | (608  | )     | (767 
|                                | Other(2) | (64   | )     | (65   | )     | (135 
|                                |         
|                                | (639     | )     | (673  | )     | (902  | )    
|                                |         
|Plant operating costs and other | (180     | )     | (135  | )     | (135  | )    
|Depreciation                    | (25      | )     | (18   | )     | (20   | )    
|                                |         
|Operating income                | 426      |       | 308   |       | 297   |      
|                                |         

36MANAGEMENT'S DISCUSSION AND ANALYSIS

---



---

Western Power Sales VolumesYear ended December 31(GWh)

|                    |            | 2008                              |        | 2007   |        | 2006  
|------------------- | ---------- | --------------------------------- | ------ | ------ | ------ | ------
|                   
|Supply              |            |                                   |        |        |        |       
|                    | Generation |                                   | 2,322  |        | 2,154  |       
|                    | Purchased  |                                   |        |        |        |       
|                    |            | Sundance A & B and Sheerness PPAs |        | 12,368 |        | 12,199
|                    |            | Other purchases                   |        | 807    |        | 1,433 
|                   
|                    |            | 15,497                            |        | 15,786 |        | 16,876
|                   
|Contracted vs. Spot |            |                                   |        |        |        |       
|                    | Contracted |                                   | 11,284 |        | 11,998 |       
|                    | Spot       |                                   | 4,213  |        | 3,788  |       
|                   
|                    |            | 15,497                            |        | 15,786 |        | 16,876
|                   

Operating income was $426 million in 2008, an increase of $118 million from $308 million in 2007. The increase
was primarily due to increased margins from a combination of higher overall realized power prices and market heat rates on uncontracted volumes of power sold, as well as a $23 million increase
from sales of sulphur at significantly higher prices in 2008. In 2008, the Company sold the remainder of its sulphur stock pile, which it has been selling in modest quantities on a
break-even basis since 2005.

Revenues
increased in 2008 primarily due to the higher overall power sales prices. Commodity purchases resold decreased in 2008 compared to 2007 primarily due to a decrease
in volumes purchased and the expiry of certain retail contracts. Plant operating costs and other, which includes fuel gas consumed in generation, increased in 2008 as a result of higher volumes of gas
purchased at higher prices. Purchased power volumes in 2008 decreased primarily due to the expiry of certain retail contracts, partially offset by increased utilization from the Alberta PPAs.
Approximately 27 per cent of power sales volumes were sold in the spot market in 2008 compared to 24 per cent in 2007.

Operating
income was $308 million in 2007, an increase of $11 million from $297 million in 2006. The increase was primarily due to lower PPA costs,
partially offset by slightly lower overall realized power prices. Revenues decreased in 2007 compared to 2006 due mainly to the lower overall power sales prices realized in 2007 as well as lower
volumes purchased and generated. Commodity purchases resold decreased in 2007 compared to 2006 primarily due to lower PPA costs, a decrease in volumes purchased and the expiry of certain retail
contracts. Purchased power volumes in 2007 decreased compared to 2006 mainly as a result of an increase in outage hours at the Sundance
A facility and the expiry of certain retail contracts. Approximately 24 per cent of power sales volumes were sold into the spot market in 2007, which was consistent with 2006.

Eastern Power

Eastern Power owns approximately 5,800 MW of power generation capacity, including facilities under construction or in the development phase. Eastern Power's current
operating power generation assets are Ravenswood, TC Hydro, OSP, Bécancour, the Cartier Wind farms and Grandview. Ravenswood, acquired in August 2008, is a 2,480 MW gas
and oil-fired generating facility consisting of multiple units employing steam turbine, combined-cycle and combustion turbine technology. Ravenswood, located in Queens, has the capacity to
serve approximately 21 per cent of the overall peak load in New York City. The TC Hydro assets include 13 hydroelectric stations housing a total of 39 hydroelectric
generating units in New Hampshire, Vermont and Massachusetts.

MANAGEMENT'S DISCUSSION AND ANALYSIS37

---



OSP,
a natural gas-fired combined-cycle facility, is the largest power plant in Rhode Island. Bécancour, a natural gas-fired
cogeneration plant located near Trois Rivières, Québec, was placed into service in September 2006. The entire power output is supplied to
Hydro-Québec under a 20 year power purchase contract. Steam from this facility is sold to an industrial customer for use in commercial processes. Cartier has a combined generating
capacity of 320 MW and consists of three wind farms, Carleton, Anse-á-Valleau, and Baie-des-Sables, which were placed into service
in November 2008, November 2007 and November 2006, respectively. Output from these three wind farms is supplied to Hydro-Québec under 20 year power purchase
contracts. Grandview is a natural gas-fired cogeneration facility on the site of the Irving Oil Refinery (Irving) in Saint John, New Brunswick. Under a 20 year tolling arrangement
which will expire in 2025, Irving supplies fuel for the plant and contracts for 100 per cent of the plant's heat and electricity output.

Eastern
Power conducts its business primarily in the deregulated New England and New York power markets and in Eastern Canada. In the New England
market, TransCanada has established a marketing operation through its wholly owned subsidiary, TransCanada Power Marketing Ltd. (TCPM). TCPM is located in Westborough, Massachusetts, and
effective January 1, 2009, also markets the output from the Ravenswood facility. To reduce exposure to spot market prices on uncontracted volumes, Eastern Power had, as at December 31,
2008, fixed price sales contracts to sell forward approximately 13,000 GWh in 2009 and 15,000 GWh in 2010, although certain contracted volumes are dependant on customer usage levels.
Actual amounts contracted in future periods will depend on market liquidity and other factors. Fixed price sales contracts in 2009 exclude approximately 4,300 GWh of generation from the
Bécancour power plant as a result of a suspension of electricity generation that began in January 2008 and continues through December 2009. The suspension of the
Bécancour power facility is discussed further in the "Energy  Opportunities and Developments" section of this MD&A.

TCPM
focuses on selling power under short- and long-term contracts to wholesale, commercial and industrial customers while managing a portfolio of power supplies
sourced from both its own generation and wholesale power purchases. In 2008, TCPM continued to expand its marketing presence and customer base in the New England market.

The
Forward Capacity Market (FCM) in the New England power pool is intended to promote investment in new and existing power resources needed to meet growing consumer
demand and maintain a reliable power system. Under the FCM, Independent System Operator New England (ISO-NE) projects the needs of the power system three years in advance, following
which it holds an annual auction to purchase power resources to satisfy future needs. Prior to the auction period, certain transition payments are made to capacity suppliers in New England that
were in existence at June 2006.

ISO-NE
has undertaken two Forward Capacity Auctions (FCA) under the FCM framework for procurement of installed capacity; FCA1 for the 2010-2011 period and
FCA2 for the 2011-2012 period. All of Eastern Power's existing and planned power assets in the New England market were entered into both FCA1 and FCA2. Both auctions resulted in
significant amounts of qualifying capacity resulting in decreased prices. The clearing prices in these auctions were US$4.25 and US$3.12 per kilowatt-month, respectively. Future auction results will
be affected by actual demand growth and the pace of progress in the development of new qualifying resources that bid into these auctions, as well as other factors.

The
New York Independent System Operator (NYISO) relies on a locational capacity market intended to promote investment in new and existing power resources needed to
meet growing consumer demand and maintain a reliable power system. Currently, a series of voluntary forward auctions and a mandatory spot demand curve price setting process is used to determine the
price that is paid to capacity suppliers. There are separate demand curves for each of the three capacity zones: Long Island, New York City and the rest of the state. Ravenswood's capacity is
located in the New York City capacity zone. Energy and capacity prices for Ravenswood are affected by circumstances that have an impact on supply and demand within this zone, certain NYISO
market rules impacting both buyers and suppliers of capacity in this zone, and certain reliability criteria set out by the NYISO and the New York State Reliability Council. There is currently
surplus capacity within this zone, however, TransCanada expects capacity will tighten after 2009 as a result of the expected retirement of a power station owned by the New York Power Authority.

38MANAGEMENT'S DISCUSSION AND ANALYSIS

---



---

Eastern Power Results(1)
Year ended December 31(millions of dollars)

|                                |          | 2008  |       | 2007  |       | 2006  |     
|------------------------------- | -------- | ----- | ----- | ----- | ----- | ----- | ----
|                                |         
|Revenues                        |          |       |       |       |       |       |     
|                                | Power    |       | 1,254 |       | 1,481 |       | 789 
|                                | Other(2) |       | 350   |       | 239   |       | 292 
|                                |         
|                                |          | 1,604 |       | 1,720 |       | 1,081 |     
|                                |         
|Commodity purchases resold      |          |       |       |       |       |       |     
|                                | Power    |       | (519  | )     | (755  | )     | (379
|                                | Other(3) |       | (324  | )     | (208  | )     | (257
|                                |         
|                                |          | (843  | )     | (963  | )     | (636  | )   
|                                |         
|Plant operating costs and other |          | (342  | )     | (454  | )     | (226  | )   
|Depreciation                    |          | (81   | )     | (48   | )     | (32   | )   
|                                |         
|Operating income                |          | 338   |       | 255   |       | 187   |     
|                                |         

---

Eastern Power Sales Volumes(1)
Year ended December 31(GWh)

|                    |            | 2008   |        | 2007   |        | 2006 
|------------------- | ---------- | ------ | ------ | ------ | ------ | -----
|                   
|Supply              |            |        |        |        |        |      
|                    | Generation |        | 5,043  |        | 8,095  |      
|                    | Purchased  |        | 6,183  |        | 6,986  |      
|                   
|                    |            | 11,226 |        | 15,081 |        | 7,791
|                   
|Contracted vs. Spot |            |        |        |        |        |      
|                    | Contracted |        | 10,990 |        | 14,505 |      
|                    | Spot       |        | 236    |        | 576    |      
|                   
|                    |            | 11,226 |        | 15,081 |        | 7,791
|                   

Operating income was $338 million in 2008, $83 million higher than the $255 million earned in 2007. The increase
was primarily due to increased water flows from the TC Hydro generation assets and higher realized prices on sales to commercial and industrial customers in New England, incremental income from
the first full year of operations from the Anse-à-Valleau wind farm and the start-up of the Carleton wind farm in November 2008. On
December 31, 2008, Ravenswood fulfilled its obligation under a tolling agreement with Hess Corporation that was in place at the time of acquisition. In 2009, TCPM will manage the marketing
output of the Ravenswood plant in a manner consistent with its other U.S. northeast portfolio of assets. The agreement to temporarily suspend generation at the Bécancour facility
beginning January 2008 resulted in decreases to power revenues, plant operating costs and other, generation volumes and contracted sales in 2008. The temporary suspension agreement has not
materially affected Eastern Power's

MANAGEMENT'S DISCUSSION AND ANALYSIS39

---



operating
income due to capacity payments received pursuant to the agreement with Hydro-Québec. The agreement to suspend generation at the Bécancour facility was extended
for one year to December 31, 2009.

Eastern
Power's power revenues were $1,254 million in 2008, a decrease of $227 million from $1,481 million in 2007. This was primarily due to the
temporary suspension of generation at the Bécancour facility and decreased sales to commercial and industrial customers in the New England market, partially offset by higher
realized prices in New England, increased water flows through the TC Hydro generation assets, and incremental revenue from Ravenswood. Other revenue and other commodity purchases resold
increased year-over-year as a result of an increase in the quantity of natural gas purchased and resold under OSP's and TCPM's natural gas supply contracts. Power commodity
purchases resold and purchased power volumes were lower in 2008 due to the impact of decreased sales volumes to commercial and industrial customers, lower overall cost per GWh on purchased power
volumes and increased power generation from the TC Hydro assets, which reduced the requirement to purchase power to fulfill contractual sales obligations. Plant operating costs and other, which
includes fuel gas consumed in generation, were lower in 2008 primarily due to the temporary suspension of generation at the Bécancour facility, partially offset by incremental operating
costs from Ravenswood.

Operating
income was $255 million in 2007, $68 million higher than the $187 million earned in 2006. The increase was primarily due to incremental income
from the first full year of operations from the Bécancour facility and the Baie-des-Sables wind farm, as well as the start-up of the
Anse-à-Valleau wind farm in November 2007. Also contributing to the increase were payments received under the start-up of the FCM in
New England and higher sales volumes to commercial and industrial customers in 2007. Partially offsetting these increases was the impact of reduced water flows from the
TC Hydro generation assets in 2007, compared to the above-average water flows experienced in 2006 following higher precipitation in the surrounding area.

Bruce Power

As at December 31, 2008, TransCanada and BPC Generation Infrastructure Trust (BPC), a trust established by the Ontario Municipal Employees Retirement System, each owned
a 48.9 per cent interest in Bruce A (2007  48.7 per cent). The remaining 2.2 per cent interest in Bruce A
is owned by the Power Workers' Union Trust, the Society of Energy Professionals Trust and Bruce Power Employee Investment Trust. The Bruce A partnership subleases Bruce A Units 1 to
4 from the Bruce B partnership. TransCanada continues to own 31.6 per cent of Bruce B, which consists of Units 5 to 8 and the supporting site infrastructure.

The
following Bruce Power financial results reflect the operations of six of the eight Bruce Power units:

40MANAGEMENT'S DISCUSSION AND ANALYSIS

---



---

Bruce Power ResultsYear ended December 31(millions of dollars)

|                                                | 2008                                             |                               | 2007   |        | 2006   |       
|----------------------------------------------- | ------------------------------------------------ | ----------------------------- | ------ | ------ | ------ | ------
|                                                |                                                 
|Bruce Power (100 per cent basis)                |                                                  |                               |        |        |        |       
|                                                | Revenues                                         |                               |        |        |        |       
|                                                |                                                  | Power                         | 2,064  |        | 1,920  |       
|                                                |                                                  | Other(1)                      | 96     |        | 113    |       
|                                                |                                                 
|                                                | 2,160                                            |                               | 2,033  |        | 1,932  |       
|                                                |                                                 
|                                                | Operating expenses                               |                               |        |        |        |       
|                                                |                                                  | Operations and maintenance(2) | (1,066 | )      | (1,051 | )     
|                                                |                                                  | Fuel                          | (139   | )      | (104   | )     
|                                                |                                                  | Supplemental rent(2)          | (174   | )      | (170   | )     
|                                                |                                                  | Depreciation and amortization | (151   | )      | (151   | )     
|                                                |                                                 
|                                                | (1,530                                           | )                             | (1,476 | )      | (1,312 | )     
|                                                |                                                 
|                                                | 630                                              |                               | 557    |        | 620    |       
|                                                |                                                 
|TransCanada's proportionate share:              |                                                  |                               |        |        |        |       
|                                                | Bruce A (48.9%)                                  | 62                            |        | 24     |        | 91    
|                                                | Bruce B (31.6%)                                  | 158                           |        | 161    |        | 137   
|                                                |                                                 
|                                                | 220                                              |                               | 185    |        | 228    |       
|Adjustments                                     | (19                                              | )                             | (18    | )      | 7      |       
|                                                |                                                 
|TransCanada's operating income from Bruce Power | 201                                              |                               | 167    |        | 235    |       
|                                                |                                                 
|Bruce Power  Other Information                 |                                                  |                               |        |        |        |       
|Plant availability                              |                                                  |                               |        |        |        |       
|                                                | Bruce A                                          | 82%                           |        | 78%    |        | 81%   
|                                                | Bruce B                                          | 87%                           |        | 89%    |        | 91%   
|                                                | Combined Bruce Power                             | 86%                           |        | 86%    |        | 88%   
|Planned outage days                             |                                                  |                               |        |        |        |       
|                                                | Bruce A                                          | 91                            |        | 121    |        | 81    
|                                                | Bruce B                                          | 100                           |        | 93     |        | 65    
|Unplanned outage days                           |                                                  |                               |        |        |        |       
|                                                | Bruce A                                          | 27                            |        | 17     |        | 37    
|                                                | Bruce B                                          | 65                            |        | 32     |        | 31    
|Sales volumes (GWh)                             |                                                  |                               |        |        |        |       
|                                                | Bruce A  100 per cent                           | 10,580                        |        | 10,180 |        | 10,650
|                                                | Bruce A  TransCanada's proportionate share      | 5,159                         |        | 4,959  |        | 5,158 
|                                                | Bruce B  100 per cent                           | 24,680                        |        | 25,290 |        | 25,820
|                                                | Bruce B  TransCanada's proportionate share      | 7,799                         |        | 7,992  |        | 8,159 
|                                                | Combined Bruce Power  100 per cent              | 35,260                        |        | 35,470 |        | 36,470
|                                                | TransCanada's proportionate share                | 12,958                        |        | 12,951 |        | 13,317
|Results per MWh                                 |                                                  |                               |        |        |        |       
|                                                | Bruce A power revenues                           | $62                           |        | $59    |        | $58   
|                                                | Bruce B power revenues                           | $57                           |        | $52    |        | $48   
|                                                | Combined Bruce Power revenues                    | $59                           |        | $55    |        | $51   
|                                                | Combined Bruce Power fuel                        | $4                            |        | $3     |        | $3    
|                                                | Combined Bruce Power total operating expenses(3) | $42                           |        | $41    |        | $35   
|Percentage of output sold to spot market        | 23%                                              |                               | 45%    |        | 35%    |       

MANAGEMENT'S DISCUSSION AND ANALYSIS41

---



TransCanada's operating income from Bruce Power was $201 million in 2008 compared to $167 million in 2007.
TransCanada's proportionate share of operating income in Bruce A increased $38 million to $62 million in 2008 compared to 2007 primarily due to higher realized prices and higher
volumes associated with a decrease in outage days in 2008. TransCanada's proportionate share of operating income in Bruce B decreased $3 million to $158 million in 2008 compared
to 2007 primarily due to higher operating costs and lower volumes associated with an increase in outage days in 2008, and unrealized gains in 2007 from changes in the fair value of power swaps and
forwards. Partially offsetting these decreases were higher realized prices reflecting a higher proportion of volumes sold at higher contract prices.

Combined
Bruce Power prices, which are based solely on power revenues, were $59 per MWh in 2008 compared to $55 per MWh in 2007, reflecting higher prices on both contracted
volumes and
uncontracted volumes sold into the spot market. Bruce Power's combined operating expenses (net of fuel cost recoveries) increased to $42 per MWh in 2008 from $41 per MWh in 2007 primarily due
to higher operating costs in 2008.

The
Bruce units ran at a combined average availability of 86 per cent in 2008, which was consistent with the average availability in 2007.

TransCanada's
operating income from its combined investment in Bruce Power was $167 million in 2007 compared to $235 million in 2006. The decrease of
$68 million was primarily due to lower output and higher operating costs associated with an increase in planned outage days, partially offset by higher overall realized prices.

Adjustments
to TransCanada's interest in Bruce Power's income before income taxes were lower in 2008 and 2007 than in 2006 primarily due to lower positive purchase price
amortizations related to the expiry of power sales agreements.

The
overall plant availability percentage in 2009 is expected to be in the low 90s for the four Bruce B units and the mid-80s for the two operating
Bruce A units. An approximate six week maintenance outage of Bruce B Unit 8 is scheduled to begin in mid-April 2009 and an approximate six week maintenance outage of
Bruce B Unit 6 is scheduled to begin in early October 2009. An approximate six week maintenance outage of Bruce A Unit 4 is scheduled to start in early
March 2009 and an approximate one-month outage of Bruce A Unit 3 is expected to commence in mid-March 2009.

Bruce A

Income from Bruce A is affected by overall plant availability, which in turn is affected by planned and unplanned maintenance. As a result of a contract with the
Ontario Power Authority (OPA), all of the output from Bruce A is effectively sold at a fixed price per MWh, adjusted for inflation annually on April 1. In addition, fuel costs are
recovered from the OPA. In accordance with a 2007 contract amendment, effective April 1, 2008, the fixed price for output from Bruce A was $63.00 per MWh, an increase of $2.11 per
MWh, subject to inflation adjustments from October 31, 2005.

Bruce A Fixed Price

|                               |  | per MWh
|------------------------------ |  | -------
|                              
|April 1, 2008  March 31, 2009 |  | $63.00 
|April 1, 2007  March 31, 2008 |  | $59.69 
|April 1, 2006  March 31, 2007 |  | $58.63 

Support payments received pursuant to the OPA contract are equal to the difference between the fixed prices under the OPA contract
and spot market prices and are capped at $575 million for the period ending on the commercial in-service date of the later of the restarted Unit 1 and Unit 2. As at
December 31, 2008, Bruce A had received $368 million towards this cap. Post-refurbishment prices will also be adjusted for capital cost variances associated with the
refurbishment and restart projects.

42MANAGEMENT'S DISCUSSION AND ANALYSIS

---





Bruce B

Income from Bruce B is directly affected by fluctuations in wholesale spot market prices for electricity and overall plant availability, which in turn is affected by planned
and unplanned maintenance.

As
part of Bruce Power's contract with the OPA, sales from the Bruce B Units 5 to 8 are subject to a floor price adjusted annually for inflation on April 1.

Bruce B Floor Price

|                               |  | per MWh
|------------------------------ |  | -------
|                              
|April 1, 2008  March 31, 2009 |  | $47.66 
|April 1, 2007  March 31, 2008 |  | $46.82 
|April 1, 2006  March 31, 2007 |  | $45.99 

Payments received pursuant to the Bruce B floor price mechanism may be subject to a recapture payment dependent on annual spot prices
over the term of the contract. Bruce B net earnings to date have not included any amounts received pursuant to this floor mechanism. To further reduce its exposure to spot market prices, as at
December 31, 2008, Bruce B had entered into fixed price sales contracts to sell forward approximately 12,460 GWh for 2009 and 7,100 GWh for 2010.

Plant Availability

|GRAPHIC |  | Weighted average power plant availability for all plants, excluding Bruce Power, was 79 per cent in 2008 compared to 93 per cent in 2007 and 2006. Plant availability represents the percentage of time in a year that the plant is
available to generate power whether actually running or not. Western Power's plant availability was affected negatively throughout 2008 and in late 2007 by an outage at the Cancarb power plant. Eastern Power achieved plant availability of
78 per cent in 2008, 18 per cent lower than 2007 as a result of outages experienced on Units 10 and 30 at Ravenswood throughout fourth quarter 2008 and a longer than expected outage at OSP in late 2008. Additionally,
Bécancour, which had an availability of 97 per cent in 2007, is not included in Eastern Power's 2008 availability measurement as a result of a temporary suspension of power generation from the plant throughout 2008.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Weighted Average Plant AvailabilityYear ended December 31

|                                  |  | 2008 |  | 2007 |  | 2006
|--------------------------------- |  | ---- |  | ---- |  | ----
|                                 
|Western Power                     |  | 87%  |  | 90%  |  | 88% 
|Eastern Power                     |  | 78%  |  | 96%  |  | 95% 
|Bruce Power                       |  | 86%  |  | 86%  |  | 88% 
|All plants, excluding Bruce Power |  | 79%  |  | 93%  |  | 93% 
|All plants                        |  | 83%  |  | 91%  |  | 91% 

Natural Gas Storage

TransCanada owns or has rights to 120 Bcf of natural gas storage capacity in Alberta, including a 60 per cent ownership interest in CrossAlta, an
independently operated storage facility. TransCanada also has contracts for long-term, Alberta-based storage capacity from a third party, which expire in 2030, subject to early termination
rights in 2015.

MANAGEMENT'S DISCUSSION AND ANALYSIS43

---



---

Natural Gas Storage Capacity

|                    |  | Working Gas
Storage Capacity
(Bcf) |  | Maximum Injection/
Withdrawal Capacity
(mmcf/d) | 
|------------------- |  | ---------------------------------- |  | ----------------------------------------------- | 
|                   
|Edson               |  | 50                                 |  | 725                                             | 
|CrossAlta(1)        |  | 32                                 |  | 288                                             | 
|Third-party storage |  | 38                                 |  | 630                                             | 
|                   
|                    |  | 120                                |  | 1,643                                           | 
|                   

TransCanada believes the market fundamentals for natural gas storage remain unchanged. The Company's gas storage capability helps
balance seasonal and short-term supply and demand, and adds flexibility to the delivery of natural gas to Alberta and the rest of North America. The increasing seasonal imbalance in North
American natural gas supply and demand has increased natural gas price volatility and the demand for storage services. Alberta-based storage will continue to serve market needs and could play an
important role should additional gas supplies be connected to North American markets. Energy's natural gas storage business operates independently from TransCanada's regulated natural gas transmission
business and from ANR's regulated storage business, which is included in TransCanada's Pipelines segment.

TransCanada
manages the exposure of its non-regulated natural gas storage assets to seasonal natural gas price spreads by economically hedging storage capacity
with a portfolio of third-party storage capacity contracts and proprietary natural gas purchases and sales.

TransCanada
offers a broad range of injection and withdrawal storage alternatives tailored to customer needs in short-term to multi-year contracts.
Market volatility frequently creates arbitrage opportunities and TransCanada's storage operations offer solutions to capture value from these short-term price movements. Earnings from
third-party storage capacity contracts are recognized over the term of the contract. At December 31, 2008, TransCanada had contracted approximately 70 per cent of the total
120 Bcf of working gas storage capacity in 2009 and 57 per cent of storage capacity in 2010.

Proprietary
natural gas storage transactions are comprised of a forward purchase of natural gas to be injected into storage and a simultaneous forward sale of natural gas
for withdrawal at a later period, typically during the winter withdrawal season. By matching purchase and sales volumes on a back-to-back basis, TransCanada locks in future
positive margins, thereby effectively eliminating its exposure to natural gas seasonal price spreads.

These
forward natural gas contracts provide highly effective economic hedges but do not meet the specific criteria for hedge accounting and, therefore, are recorded at their
fair values based on the forward market prices for the contracted month of delivery. Changes in the fair value of these contracts are recorded in Revenues. Effective April 2007, TransCanada
adopted an accounting policy to record proprietary natural gas inventory held in storage at its fair value using the one-month forward price for natural gas. Changes in the fair value of
inventory are recorded in Revenues. Changes in the fair value of proprietary natural gas inventory in storage and natural gas forward purchase and sales contracts are excluded in determining
comparable earnings as they are not representative of amounts that will be realized on settlement.

Natural
Gas Storage operating income was $135 million in 2008, a decrease of $11 million compared to 2007. The decrease was primarily due to lower average
storage values realized by CrossAlta, partially offset by higher earnings from the sale of proprietary natural gas at Edson in 2008. There were no net unrealized gains or losses in 2008 from changes
in the fair value of proprietary natural gas forward purchase and sales contracts compared to net unrealized gains of $10 million in 2007.

44MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Natural
Gas Storage operating income was $146 million in 2007, an increase of $53 million compared to 2006. The increase was primarily due to income earned
from the first full year of operations from the Edson facility.

ENERGY  OPPORTUNITIES AND DEVELOPMENTS

RavenswoodIn August 2008, TransCanada acquired the multiple-unit Ravenswood generating facility located in
Queens, New York, which employs dual-fuel capable steam turbine, combined-cycle and combustion turbine technology. During 2008, Ravenswood operated under a tolling arrangement that
existed at the date of acquisition and expired on December 31, 2008. Under the tolling arrangement, all energy generated from the facility was provided to Hess Corporation for a fixed operating
fee. In January 2009, Ravenswood commenced earning revenues from the sale of energy generated from the facility into the New York market. TransCanada's marketing operation located in
Westborough, Massachusetts manages the marketing of output from Ravenswood.

The
integration into TransCanada's operations of the Ravenswood generating station, acquired in August 2008, is now complete. Shortly after closing the acquisition,
TransCanada experienced a forced outage event affecting one of the larger multiple generating units. The unit is currently undergoing repair and it is expected that the event will be insured both for
physical damage and business interruption. Other refurbishment work is being undertaken at the station while the repair work is being completed and as a result, unit availability is expected to
improve in the future.

Bruce PowerUnder a long-term agreement reached in 2005 between Bruce Power and the OPA, Bruce A has
committed to refurbish and restart the currently idle Units 1 and 2, extend the operating life of Unit 3 with a full refurbishment and replace the steam generators on Unit 4. Bruce Power and
the OPA amended the Bruce A refurbishment agreement in 2007 to allow for a full refurbishment of Unit 4, which will extend the expected operating life of the unit. Under the 2007 amendment, the OPA
had the option to elect, prior to April 1, 2008, to proceed with a three-unit refurbishment and restart program instead of the revised four-unit program. The OPA chose
to not exercise this option and instead elected to proceed with the four-unit refurbishment and restart program.

In
fourth quarter 2008, Bruce Power completed a review of the operating life estimates for Units 3 and 4. Unit 3 is now expected to remain in commercial service until
2011, which provides the benefit of nearly two additional years of power generation before the unit commences an expected 36 month refurbishment. After the refurbishment, the operating life of
Unit 3 is expected to be extended to 2038 from 2037. In addition, Unit 4 is now expected to remain in commercial service until 2016, providing nearly seven years of generation before the
unit
commences a similar refurbishment period, after which, the estimated operating life of Unit 4 is expected to be extended to 2042 from 2036.

The
capital cost for the refurbishment and restart of Bruce A Units 1 and 2 is expected to be approximately $3.4 billion, based on a comprehensive review in
January 2008 of the estimated costs to complete the project, which is an increase from the original cost estimate of $2.75 billion. TransCanada's share is expected to be approximately
$1.7 billion, compared to an original estimate of $1.4 billion. The project cost increases are subject to the capital cost risk- and reward-sharing mechanism under
TransCanada's agreement with the OPA. Bruce A Units 1 and 2 are expected to produce an additional 1,500 MW of power when completed in 2010.

As
at December 31, 2008, Bruce A had incurred $2.6 billion in costs with respect to the refurbishment and restart of Units 1 and 2 and approximately
$200 million for the refurbishment of Units 3 and 4.

Portlands EnergyConstruction continued in 2008 on Portlands Energy. The facility was operational in
single-cycle mode in the summer of 2008 and is expected to be fully commissioned in its combined-cycle mode in first quarter 2009. Portlands Energy will provide power under a 20-year
Accelerated Clean Energy Supply contract with the OPA. The expected capital cost is $730 million, of which TransCanada's portion is 50 per cent.

CoolidgeIn May 2008, the Phoenix, Arizona-based utility, Salt River Project, signed a
20-year power purchase contract to secure 100 per cent of the output from the simple-cycle natural gas-fired peaking power facility currently

MANAGEMENT'S DISCUSSION AND ANALYSIS45

---



under
development. In December 2008, the Arizona Corporation Commission granted a Certificate of Environmental Compatibility approving construction of the facility. Construction is expected to
begin in the summer of 2009 and the facility is expected to be commissioned in 2011.

Halton HillsConstruction of Halton Hills continued in 2008. The project includes the construction and operation
of a natural gas-fired power plant near the town of Halton Hills, Ontario. TransCanada expects to invest approximately $670 million in the project, which is anticipated to be in
service in third quarter 2010. Power from the facility will be sold to the OPA under a 20-year Clean Energy Supply contract.

Cartier WindThe Carleton wind farm commenced commercial operation in November 2008, providing up to
109 MW of power to the Hydro-Québec grid. Carleton is the third phase of the six-phase, multi-year Cartier Wind project, located in the
Gaspé region of Québec. The first two phases, Baie-des-Sables and Anse-á-Valleau, went into service in
November of 2006 and 2007, respectively, generating up to 110 MW and 101 MW of power, respectively. The remaining phases of Cartier Wind are expected to be constructed through 2012,
subject to the necessary approvals.
Capacity is expected to total 740 MW when all six phases are complete. TransCanada has a 62 per cent ownership interest in these wind farms.

Kibby WindIn July 2008, the State of Maine's Land Use Regulation Commission approved the final
development plan submitted by TransCanada to build, own and operate a wind farm, located in the Kibby and Skinner townships in Maine. Construction of the facilities at a cost of approximately
US$320 million began in July 2008 and commissioning of the first phase is expected to begin in fourth quarter 2009.

BécancourTransCanada entered into an agreement with Hydro-Québec in
November 2007 to temporarily suspend all electricity generation from the Bécancour power plant during 2008. In 2008, the agreement was extended through to December 2009.
In 2009, TransCanada will continue to receive payments under the agreement similar to those that would have been received under the normal course of operation.

Power Transmission Line ProjectsTransCanada is pursuing proposals to build, own and operate power transmission
lines, including the Zephyr and Chinook transmission line projects. The projects are each proposed 500 kilovolt (kV) high voltage direct current (HVDC) transmission lines originating in Wyoming
and Montana, respectively, and terminating in Nevada. If constructed, each project would cost approximately US$3 billion and be capable of delivering 3,000 MW of power. In December 2008,
TransCanada filed applications for both projects requesting approval from the FERC to charge negotiated rates and to proceed with an open season in the spring of 2009, with 50 per cent
of the capacity of each line already pre-subscribed for a period of 25 years. In February 2009, the FERC approved both applications. Pending successful completion of the open
seasons, regulatory work could commence later in 2009, followed by construction commencing in 2012 and a potential in-service date of late 2014.

TransCanada
is pursuing a proposal to build NorthernLights, a 500 kV HVDC electric transmission line running from central Alberta to a terminal in southern Alberta
and interconnecting with the Pacific Northwest. NorthernLights is expected to cost approximately $2 billion and provide up to 3,000 MW of power.

Broadwater LNGIn March 2008, the FERC authorized the construction and operation of Broadwater, subject
to conditions. In April 2008, the New York Department of State determined that construction and operation of the project would not be consistent with the State's coastal zone policies.
As a result of this unfavourable decision, TransCanada wrote down $27 million after tax ($41 million pre-tax) of costs for Broadwater that had been capitalized to
March 31, 2008. TransCanada has appealed the determination of the New York Department of State to the U.S. Department of Commerce and a decision is expected in early 2009.

46MANAGEMENT'S DISCUSSION AND ANALYSIS

---



ENERGY  BUSINESS RISKS

Fluctuating Power and Natural Gas Market Prices

TransCanada operates in competitive power and natural gas markets in North America. Volatility in power and natural gas prices is caused by market forces such as fluctuating
supply and demand, which are greatly affected by weather events. Energy's earnings from the sale of uncontracted volumes are subject to price volatility. Although Energy commits a significant portion
of its supply to medium- to long-term sales contracts, it retains an amount of unsold supply in order to provide flexibility in managing the Company's portfolio of wholly
owned assets.

Uncontracted Volumes

Energy has uncontracted power sales volumes in Western Power and Eastern Power and through its investment in Bruce Power. In addition, with the acquisition of Ravenswood, at
December 31, 2008, Eastern Power significantly increased its level of uncontracted sales volumes, which are subject to price volatility. Sale of uncontracted power volumes into the spot market
is subject to market price volatility, which directly impacts earnings. Bruce B has a significant amount of uncontracted volumes subject to a floor price mechanism that are sold into the wholesale
power spot market under contract price terms with the OPA, while 100 per cent of the Bruce A output is sold into the Ontario wholesale power spot market under fixed contract price terms
with the OPA. The natural gas storage business is subject to fluctuating natural gas seasonal spreads generally determined by the differential in natural gas prices in the traditional summer injection
and winter withdrawal seasons. As a result, the Company hedges capacity with a portfolio of contractual commitments containing varying terms.

Liquidity Risk

A decrease in the number and credit quality of counterparties with which to transact may increase the Company's exposure to spot prices by reducing its ability to lock in
forward sale prices at acceptable contract terms.

Plant Availability

Maintaining plant availability is essential to the continued success of the Energy business. Plant operating risk is mitigated through a commitment to TransCanada's operational
excellence strategy, which is to provide low-cost, reliable operating performance at each of the Company's facilities. Unexpected plant outages and the duration of outages could result in
lower plant output and sales revenue, reduced margins and increased
maintenance costs. At certain times, unplanned outages may require power or natural gas purchases at market prices to ensure TransCanada meets its contractual obligations.

Weather

Extreme temperature and weather events in North America and the Gulf of Mexico often create price volatility and demand for power and natural gas. These same events may also
restrict the availability of power and natural gas. Seasonal changes in temperature can also affect the efficiency and output capability of natural gas-fired power plants. Variability in
wind speeds may impact the earnings of the Cartier Wind assets.

Hydrology

TransCanada's power operations are subject to hydrology risk arising from the ownership of hydroelectric power generation facilities in the northeastern U.S. Weather
changes, weather events, local river management and potential dam failures at these plants or upstream facilities pose potential risks to the Company.

Execution and Capital Cost

Energy's new construction programs in Ontario, Québec, Maine and Arizona, including its investment in Bruce Power, are subject to execution and capital cost
risks. At Bruce Power, Bruce A's four unit refurbishment and restart project is also subject to a capital cost risk- and reward-sharing mechanism with the OPA.

MANAGEMENT'S DISCUSSION AND ANALYSIS47

---



Asset Commissioning

Although all of TransCanada's newly constructed assets go through rigorous acceptance testing prior to being placed in service, there is a risk that these assets may have lower
than expected availability or performance, especially in their first year of operations.

Regulation of Power Markets

TransCanada operates in both regulated and deregulated power markets. As electricity markets evolve across North America, there is the potential for regulatory bodies to
implement new rules that could negatively affect TransCanada as a generator and marketer of electricity. These may be in the form of market rule changes, price caps, emission controls, unfair cost
allocations to generators and attempts by others to take out-of-market actions to build excess generation that negatively affects the price for capacity or energy, or both. In
addition, TransCanada's development projects rely on an orderly permitting process and any disruption to that process can have negative effects on project schedule and cost. TransCanada continues to
monitor regulatory issues and regulatory reform and participate in and lead discussions around these topics.

Refer
to the "Risk Management and Financial Instruments" section of this MD&A for information on additional risks and managing risks in the Energy business.

ENERGY  OUTLOOK

TransCanada assumes that its operations in 2009 will be materially consistent with those in 2008 and includes the positive impact of a full year of earnings from Ravenswood,
incremental earnings from Portlands Energy, which is expected to be commissioned in first quarter 2009, and a decrease in planned outages at Bruce Power. These positive impacts are expected to be
partially offset by a return to more normal hydrology levels at TC Hydro from the record levels experienced in 2008. In addition, the current economic climate is negatively affecting demand,
liquidity and prices in commodity markets in which TransCanada operates.

Although
TransCanada has sold forward significant output from its power plants and Alberta PPAs, as well as capacity from its natural gas storage facilities, operating
income in 2009 can be affected by changes in the spot market price of power, market heat rates, hydrology, forward capacity payments, natural gas storage spreads and unplanned outages. Operating
income from Energy's U.S. operations is affected by changes in the U.S./Canadian dollar exchange rates.

Other
factors such as plant availability, regulatory changes, weather, currency movements, and overall stability of the energy industry can also affect 2009 operating
income. Refer to the "Energy  Business Risks" section of this MD&A for a complete discussion of these factors.

Following
the expiry of the Ravenswood tolling arrangement with Hess Corporation on December 31, 2008, TransCanada will manage the ongoing marketing of the Ravenswood
plant output in the same manner as it does with other generation assets in the U.S. Northeast. Dependent on market liquidity and other factors, a significant portion of the electricity
generated by the Ravenswood facility in 2009 and beyond may be sold at spot prices. As noted in the "Energy  Business Risk" section of this MD&A, spot prices for
electricity are subject to change depending on underlying energy commodity prices, available supply, demand and other factors.

Capital Expenditures

Energy's total capital expenditures in 2008 were $4.3 billion, including the acquisition of Ravenswood for $3.1 billion. Energy's overall capital spending in 2009
is expected to be approximately $1.4 billion, including cash calls for the Bruce A refurbishment and restart project and continued construction at Coolidge, Cartier Wind, Kibby Wind and
Halton Hills.

48MANAGEMENT'S DISCUSSION AND ANALYSIS

---





CORPORATE

---

CORPORATE RESULTSYear ended December 31(millions of dollars)

|                                                         |  | 2008 |   | 2007 |   | 2006 |  
|-------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|                                                         | 
|Indirect financial charges and non-controlling interests |  | 291  |   | 248  |   | 136  |  
|Interest income and other                                |  | (9   | ) | (83  | ) | (31  | )
|Income taxes                                             |  | (180 | ) | (120 | ) | (72  | )
|                                                         | 
|Comparable Expenses(1)                                   |  | 102  |   | 45   |   | 33   |  
|Income tax reassessments and adjustments                 |  | (26  | ) | (68  | ) | (72  | )
|                                                         | 
|Net Expenses/(Earnings), after income taxes              |  | 76   |   | (23  | ) | (39  | )
|                                                         | 

Corporate reflects net expenses not allocated to specific business segments, including:

CORPORATE  FINANCIAL RESULTS

Net expenses in Corporate were $76 million in 2008 compared to net earnings of $23 million and $39 million in 2007 and 2006, respectively.

Corporate's
net expenses in 2008 included favourable income tax reassessments and adjustments of $26 million compared to $68 million in 2007. Excluding these
income tax adjustments, Corporate's comparable expenses increased $57 million in 2008 compared to 2007. The increase in comparable expenses was primarily due to net unrealized losses of
$39 million after tax from changes in the fair value of derivatives, which are used to manage the Company's exposure to rising interest rates but do not qualify as hedges for accounting
purposes. The fair value of these derivatives was negatively impacted as interest rates dropped to historic lows late in fourth quarter 2008. In addition, higher financial charges resulting from
financing the Company's 2008 capital program, including the Ravenswood acquisition, and higher losses from the change in fair value of derivatives used to manage the Company's exposure to foreign
exchange rate fluctuations were partially offset by increased capitalization of interest to finance a larger capital spending program. The losses from the foreign exchange derivatives were partially
offset by the positive impact of a stronger U.S. dollar reported in the Pipelines and Energy businesses.

Corporate's
net earnings in 2007 and 2006 included favourable income tax reassessments and adjustments of $68 million and $72 million, respectively. Excluding
these income tax adjustments, Corporate's comparable expenses increased $12 million in 2007 compared to 2006. Net unrealized gains from the change in fair value of derivatives used

MANAGEMENT'S DISCUSSION AND ANALYSIS49

---



to
manage the Company's exposure to foreign exchange rate fluctuations and the impact of positive tax rate differentials were more than offset by higher financial charges resulting primarily from
financing the ANR acquisition and additional ownership interest in Great Lakes.

CORPORATE  OUTLOOK

Corporate's net expenses in 2008 included certain favourable income tax reassessments and other impacts, including the $39 million net unrealized losses on interest rate
derivatives, that are not expected to recur in 2009. Financing costs associated with debt issued in 2008 and 2009, and together with additional debt expected to be issued in 2009 to partially finance
the Company's capital programs are expected to increase financial charges in Corporate in 2009. However, the increased charges are expected to be primarily offset by capitalized interest for projects
under construction. Corporate's results could also be affected by debt levels, interest rates, foreign exchange rates and income tax refunds and adjustments. The performance of the Canadian dollar
relative to the U.S. dollar will influence Corporate's results, although this impact is primarily mitigated by offsetting U.S.-dollar exposures in certain of TransCanada's other businesses and
by the Company's hedging activities.

DISCONTINUED OPERATIONS

The $28 million income from discontinued operations in 2006 reflected bankruptcy settlements with Mirant related to TransCanada's Gas Marketing business, which was sold
in 2001.

LIQUIDITY AND CAPITAL RESOURCES

Global financial markets are in turmoil, however, TransCanada's financial position and ability to generate cash from its operations in the short and long term to provide
liquidity and to maintain financial capacity and flexibility to provide for planned growth remains sound and consistent with recent years. TransCanada's liquidity position remains solid, underpinned
by highly predictable cash flow from operations, significant cash balances on hand from recent securities issues, as well as committed revolving bank lines of US$1.0 billion,
$2.0 billion and US$300 million, maturing in November 2010, December 2012 and February 2013, respectively. To date, no draws have been made on these facilities as
TransCanada has continued to have largely uninterrupted access to the Canadian commercial paper market on competitive terms. An additional $50 million and US$320 million of capacity
remains available on committed bank
facilities at TransCanada-operated affiliates with maturity dates from 2010 through 2012. TransCanada further strengthened its liquidity and financial position through additional financing
transactions in 2008 and early 2009, as discussed below. TransCanada's liquidity, market and other risks are discussed further in the "Risk Management and Financial Instruments" section of
this MD&A.

---

SUMMARIZED CASH FLOWYear ended December 31(millions of dollars)

|                                                 |  | 2008  |   | 2007  |  | 2006  |  
|------------------------------------------------ |  | ----- | - | ----- |  | ----- | -
|                                                 | 
|Funds generated from operations(1)               |  | 3,021 |   | 2,621 |  | 2,378 |  
|(Increase)/decrease in operating working capital |  | (181  | ) | 215   |  | (303  | )
|                                                 | 
|Net cash provided by operations                  |  | 2,840 |   | 2,836 |  | 2,075 |  
|                                                 | 

50MANAGEMENT'S DISCUSSION AND ANALYSIS

---



HIGHLIGHTS

Investing Activities

Dividend

Funds Generated from Operations

|GRAPHIC |  | Funds Generated from Operations were $3.0 billion in 2008 compared to $2.6 billion and $2.4 billion, in 2007 and 2006, respectively. The increase in 2008 compared to 2007 was primarily due to proceeds from
higher operating earnings and the Calpine bankruptcy settlements. The Energy business was the primary source of the increase in 2008 compared to 2007, partially offset by a reduced contribution from Corporate. The Pipelines business and growth in
Energy's operations were the main drivers for the increase in 2007 compared to 2006.
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investing Activities

Capital expenditures totalled $3,134 million in 2008 compared to $1,651 million in 2007 and $1,572 million in 2006. Expenditures in 2008 and 2007 related
primarily to the refurbishment and restart at Bruce Power, development of new pipelines, including Keystone, construction of new power facilities, expansion of existing pipelines and maintenance and
capacity projects in the Pipelines business. Expenditures in 2006 were related primarily to construction of new power plants and natural gas storage facilities in Canada and maintenance and capacity
projects in the Pipelines business.

TransCanada
acquired Ravenswood from National Grid plc on August 26, 2008 for US$2.9 billion, subject to certain post-closing adjustments.

|GRAPHIC |  | In accordance with TransCanada's agreement to increase its ownership interest in Keystone up to 79.99 per cent from 50 per cent, TransCanada has funded $362 million of Keystone cash calls since September 30, 2008. This
has resulted in an acquisition of an incremental 12 per cent ownership interest for $176 million, bringing TransCanada's ownership interest to 62 per cent at December 31, 2008. The Keystone agreement is discussed further
in the "Pipelines" section of this MD&A.
In 2007, TransCanada acquired ANR and an additional 3.6 per cent interest in Great Lakes from El Paso Corporation for US$3.4 billion, including US$491 million of assumed long-term debt. PipeLines LP acquired the
remaining 46.4 per cent of Great Lakes from El Paso Corporation for US$942 million, including US$209 million of assumed long-term debt. In 2007, PipeLines LP purchased Sierra Pacific Resources' remaining one
per cent ownership interest in Tuscarora for approximately $2 million. In a separate transaction in 2007, PipeLines LP also purchased TransCanada's one per cent ownership interest in Tuscarora for approximately $2 million. As
a result of these transactions, PipeLines LP owns 100 per cent of Tuscarora.
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2006, PipeLines LP acquired an additional 49 per cent interest in Tuscarora for US$100 million and
also assumed US$37 million of debt. PipeLines LP also acquired an additional 20 per cent general partnership interest in Northern Border for US$307 million, in
addition to indirectly assuming US$122 million of debt. TransCanada sold its 17.5 per cent general partner interest in Northern Border Partners, L.P. for proceeds of
$35 million, net of current tax.

MANAGEMENT'S DISCUSSION AND ANALYSIS51

---



Financing Activities

In 2008, TransCanada issued Long-Term Debt of $2.2 billion and increased Notes Payable by $1.3 billion. Its proportionate share of
Long-Term Debt issued by joint ventures was $173 million. Also in 2008, the
Company reduced its Long-Term Debt by $840 million and its proportionate share of the Long-Term Debt of Joint Ventures by $120 million.

At
December 31, 2008, total unsecured revolving and demand credit facilities of $4.2 billion were available to support the Company's commercial paper programs
and for general corporate purposes. These credit facilities include the following:



Short-Term Debt Financing Activities

In June 2008, TransCanada executed an agreement with a syndicate of banks for a US$1.5 billion committed, unsecured, one-year bridge loan facility, at
a floating interest rate based on London Interbank Offered Rate (LIBOR) plus 30 basis points. The facility is extendible at the option of the Company for an additional six-month
term at LIBOR plus 35 basis points. In August 2008, the Company used US$255 million from this facility to fund a portion of the Ravenswood acquisition and cancelled the remainder
of the commitment. At December 31, 2008, the US$255 million remained outstanding on the facility.

In
February 2007, the Company established a US$2.2 billion, committed, unsecured, one-year bridge loan facility and utilized $1.5 billion
and US$700 million to partially finance its acquisition
of ANR and its increased ownership of Great Lakes. At December 31, 2008, this facility had been fully repaid and cancelled.

2009 and 2008 Long-Term Debt Financing Activities

On February 17, 2009, the Company completed the issuance of Medium-Term Notes of $300 million and $400 million maturing in February 2014
and February 2039, respectively, and bearing interest at 5.05 per cent and 8.05 per cent, respectively. The proceeds are expected to be used to fund the Alberta
System and Canadian Mainline rate bases. These notes were issued under a $1.5 billion debt shelf prospectus filed in Canada in March 2007.

On
January 9, 2009, the Company issued Senior Unsecured Notes of US$750 million and US$1.25 billion maturing in January 2019 and
January 2039, respectively, and bearing interest at 7.125 per cent and 7.625 per cent, respectively. The proceeds from these notes are expected to be used to
partially fund TransCanada's capital projects and retire mature debt obligations, and for general corporate purposes. These notes were issued under a US$3.0 billion debt shelf prospectus filed
in January 2009. Following these issues, the Company has unutilized capacity of US$1.0 billion remaining under its January 2009 U.S. debt shelf prospectus.

In
August 2008, TransCanada issued $500 million of Medium-Term Notes maturing in August 2013 and bearing interest at
5.05 per cent. The proceeds from these notes were used to partially fund the Alberta System's capital program and for general corporate purposes. These notes were issued under the debt
shelf prospectus filed in Canada in March 2007.

52MANAGEMENT'S DISCUSSION AND ANALYSIS

---



In
August 2008, TransCanada issued US$850 million and US$650 million of Senior Unsecured Notes maturing in August 2018 and August 2038,
respectively, and bearing interest at 6.50 per cent and 7.25 per cent, respectively. The proceeds from these notes were used to partially fund the Ravenswood acquisition
and for general corporate purposes. These notes were issued under the September 2007 debt shelf prospectus filed in the U.S. Following these issuances, the Company had fully utilized the
capacity of its September 2007 U.S. debt shelf prospectus.

In
June 2008, the Company retired $256 million of 5.84 per cent Medium-Term Notes and a $100 million
11.85 per cent debenture. In January 2008, the Company retired $105 million of 6.0 per cent Medium-Term Notes.

2007 Long-Term Debt Financing Activities

In 2007, TransCanada issued Long-Term Debt of $2.6 billion and Junior Subordinated Notes of US$1.0 billion, and its proportionate share of
Long-Term Debt issued by joint ventures was $142 million. The Company also reduced its Long-Term Debt by $1.1 billion, its Notes Payable by $46 million and
its proportionate share of the Long-Term Debt of Joint Ventures by $157 million.

In
October 2007, TransCanada issued US$1.0 billion of Senior Unsecured Notes under a US$2.5 billion debt shelf prospectus filed in the U.S. in
September 2007. These notes mature on October 15, 2037 and bear interest at a rate of 6.20 per cent.

In
July 2007, TransCanada exercised its rights to redeem the US$460 million 8.25 per cent Preferred Securities due 2047. The Preferred Securities
were redeemed for cash, at par, as part of a settlement on the Canadian Mainline. The foreign exchange gain realized on redemption of the securities will flow through to Canadian Mainline shippers
over the five-year period of the settlement.

In
April 2007, the Company issued US$1.0 billion of Junior Subordinated Notes, maturing in 2067 and bearing interest of 6.35 per cent per year
until May 15, 2017, when interest will convert to a floating interest rate of three-month LIBOR plus 221 basis points. The Junior Subordinated Notes are subordinated to all existing and
future senior indebtedness, are effectively subordinated to all indebtedness and obligations of the Company and are callable at the Company's option at any time on or after May 15, 2017 at the
principal amount plus accrued and unpaid interest.

In
April 2007, Northern Border increased its five-year bank facility to US$250 million from US$175 million. A portion of the bank facility
was drawn to refinance US$150 million of Senior Notes that matured on May 1, 2007, with the balance available to fund Northern Border's ongoing operations.

In
March 2007, ANR Pipeline voluntarily withdrew the New York Stock Exchange listing of its 9.625 per cent debentures due 2021,
7.375 per cent debentures due 2024, and 7.0 per cent debentures due 2025. With the delisting, ANR Pipeline deregistered these securities with the SEC.

In
February 2007, the Company established a US$1.0 billion committed, unsecured credit facility, consisting of a US$700 million five-year
term loan and a US$300 million five-year, extendible revolving facility. The Company utilized US$1.0 billion from this facility and an additional US$100 million from
an existing demand line to partially finance the ANR acquisition and increased ownership in Great Lakes, as well as its additional investment in PipeLines LP. The revolving portion of the
committed facility and the draw on the demand line were subsequently repaid. In 2008, the maturity date of the revolving portion of the facility was extended to February 2013.

In
February 2007, PipeLines LP increased the size of its syndicated revolving credit and term loan facility in connection with its Great Lakes acquisition. The
amount available under the facility increased to US$950 million from US$410 million and consisted of a US$700 million senior term loan and a US$250 million senior revolving
credit facility, with US$194 million of the available senior term loan amount being terminated upon closing of the Great Lakes acquisition.

In
October 2007, the Company retired $150 million of 6.15 per cent Medium-Term Notes. In February 2007, the Company retired
$275 million of 6.05 per cent Medium-Term Notes.

MANAGEMENT'S DISCUSSION AND ANALYSIS53

---



2006 Long-Term Debt Financing Activities

In 2006, the Company issued Long-Term Debt of $2.1 billion and reduced its Long-Term Debt by $729 million, its Notes Payable by
$495 million and its proportionate share of the Long-Term Debt of Joint Ventures by a net amount of $14 million. In January 2006, the Company issued
$300 million of 4.3 per cent five-year Medium-Term Notes due 2011. In March 2006, the Company issued US$500 million of
5.85 per cent Senior Unsecured Notes due 2036. In October 2006, TransCanada issued $400 million of 4.65 per cent Medium-Term Notes
due 2016.

In
April 2006, PipeLines LP borrowed US$307 million under its unsecured credit facility to finance the cash portion of its acquisition of an additional
20 per cent interest in Northern Border. In December 2006, the credit facility was repaid in full and replaced with a US$410 million syndicated revolving credit and term
loan agreement, a portion of which was utilized to finance the acquisition of additional interests in Tuscarora. In February 2007, PipeLines LP increased the size of this facility, as
discussed above.

2008 Equity Financing Activities

In July 2008, the Company filed a short form base shelf prospectus in Canada and the U.S. qualifying for issuance $3.0 billion of common shares, preferred
shares and/or subscription receipts in Canada and the U.S. until August 2010. This shelf replaced the base shelf prospectus filed in January 2007.

In
fourth quarter 2008, the Company completed a public offering of common shares at a purchase price of $33.00 per share. The entire issue of 35.1 million common
shares, including the full exercise of a
15 per cent over-allotment option by the underwriters, resulted in gross proceeds of $1.2 billion. The proceeds of the offering were used by TransCanada to partially
fund its capital projects, including Keystone, for general corporate purposes and to repay short-term indebtedness. These common shares were issued under the base shelf prospectus filed in
July 2008.

In
May 2008, the Company completed a public offering of common shares at a purchase price of $36.50 per share. The entire issue of 34.7 million common shares,
including the full exercise of a 15 per cent over-allotment option by the underwriters, resulted in gross proceeds of $1.3 billion. These proceeds were used to
partially fund the Ravenswood acquisition and the Company's capital projects, and for general corporate purposes. These common shares were issued under the base shelf prospectus filed in
January 2007.

Commencing
in 2007, TransCanada's Board of Directors authorized the issuance of common shares from treasury at a discount to participants in the Company's DRP. Under this
plan, eligible shareholders may reinvest their dividends and make optional cash payments to obtain additional TransCanada common shares. The DRP shares are provided to the participants at a discount
to the average market price in the five days before dividend payment. The discount was set at two per cent commencing with the dividend payable in April 2007 and was increased to three
per cent for the dividend payable in January 2009. Prior to the April 2007 dividend, TransCanada purchased shares on the open market and provided them to DRP participants
at cost. The Company reserves the right to alter the discount or return to purchasing shares on the open market at any time. Dividends of $218 million were paid in 2008 through the
issuance of six million common shares from treasury in accordance with the DRP.

2007 Equity Financing Activities

In first quarter 2007, the Company issued 45.4 million common shares at a purchase price of $38.00 per share under a base shelf prospectus filed in Canada and the
U.S. in January 2007, resulting in gross proceeds of $1.7 billion. The proceeds were used towards financing the acquisition of ANR and Great Lakes.

In
February 2007, PipeLines LP completed a private placement offering of 17.4 million common units at a purchase price of US$34.57 per unit. TransCanada
acquired 50 per cent of the units for US$300 million and invested an additional US$12 million to maintain its general partnership ownership interest in PipeLines LP.
The total private placement plus TransCanada's additional investment resulted in gross proceeds to PipeLines LP of US$612 million, which were used to partially finance its Great Lakes
acquisition.

54MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Dividends

Cash dividends on common shares amounting to $577 million were paid in 2008 compared to $546 million in 2007 and $617 million in 2006. The increase in
dividends in 2008 compared to 2007 was primarily due to a greater number of shares outstanding and an increase in the dividend per share amount in 2008, partially offset by the issuance of
$218 million of common shares under the DRP, in lieu of cash dividends. The reduction in 2007 compared to 2006 was primarily due to the Company's issuance of $157 million of common
shares from treasury under the DRP, which more than offset the impact of the higher dividend per share amount.

In
January 2009, TransCanada's Board of Directors approved an increase in the quarterly common share dividend payment to $0.38 per share from $0.36 per share for the
quarter ending March 31, 2009. This was the ninth consecutive year in which the dividend was increased beginning with the dividend of $0.20 per share declared in fourth quarter 2000 and
represents a 90 per cent increase in the dividend over this period.

Issuer Ratings

TransCanada's issuer rating assigned by Moody's Investors Service (Moody's) is Baa1 with a stable outlook. TransCanada PipeLines Limited's (TCPL) senior unsecured debt
is rated A with a stable outlook by DBRS, A3 with a stable outlook by Moody's, and A- with a stable outlook by Standard and Poor's.

CONTRACTUAL OBLIGATIONS

Obligations and Commitments

At December 31, 2008, the Company had $16.2 billion of total Long-Term Debt and $1.2 billion of Junior Subordinated Notes, compared to
$12.9 billion of total Long-Term Debt and $1.0 billion of Junior Subordinated Notes at December 31, 2007. TransCanada's share of the total debt of joint ventures,
including capital lease obligations, was $1.1 billion at December 31, 2008, compared to $903 million at December 31, 2007. Total Notes Payable, including TransCanada's
proportionate share of the notes payable of joint ventures, were $1.7 billion at December 31, 2008, compared to $421 million at December 31, 2007. TransCanada has provided
certain pro-rata guarantees related to the capital lease obligations of Bruce Power and to the performance obligations of Bruce Power and certain other partially owned entities.

---

CONTRACTUAL OBLIGATIONSYear ended December 31(millions of dollars)

|                                                           |  |        |  | Payments Due by Period
|---------------------------------------------------------- |  | ------ |  | ----------------------
|                                                           |  |        |  |                       
|                                                           |  | Total  |  | Less than
one year    
|                                                          
|Long-term debt(1)                                          |  | 18,208 |  | 980                   
|Capital lease obligations                                  |  | 235    |  | 13                    
|Operating leases(2)                                        |  | 403    |  | 28                    
|Purchase obligations                                       |  | 12,246 |  | 3,926                 
|Other long-term liabilities reflected on the balance sheet |  | 610    |  | 12                    
|                                                          
|Total contractual obligations                              |  | 31,702 |  | 4,959                 
|                                                          

MANAGEMENT'S DISCUSSION AND ANALYSIS55

---



TransCanada's commitments under the Alberta PPAs are considered to be operating leases and a portion of these PPAs have been
subleased to third parties under similar terms and conditions. Future payments
under these PPAs have been excluded from the above table, as these payments are dependent upon plant availability, among other factors. The amount of power purchased under the PPAs in 2008 was
$471 million (2007  $440 million; 2006  $499 million).

At
December 31, 2008, scheduled principal repayments and interest payments related to long-term debt and the Company's proportionate share of the
long-term debt of joint ventures were as follows:

---

PRINCIPAL REPAYMENTSYear ended December 31(millions of dollars)

|                                 |  |        |  | Payments Due by Period
|-------------------------------- |  | ------ |  | ----------------------
|                                 |  |        |  |                       
|                                 |  | Total  |  | Less than
one year    
|                                
|Long-term debt(1)                |  | 16,154 |  | 786                   
|Junior subordinated notes        |  | 1,213  |  |                      
|Long-term debt of joint ventures |  | 841    |  | 194                   
|                                
|Total principal repayments       |  | 18,208 |  | 980                   
|                                

---

INTEREST PAYMENTSYear ended December 31(millions of dollars)

|                                                      |  |        |  | Payments Due by Period
|----------------------------------------------------- |  | ------ |  | ----------------------
|                                                      |  |        |  |                       
|                                                      |  | Total  |  | Less than
one year    
|                                                     
|Interest payments on long-term debt                   |  | 14,508 |  | 1,072                 
|Interest payments on junior subordinated notes        |  | 662    |  | 78                    
|Interest payments on long-term debt of joint ventures |  | 328    |  | 61                    
|                                                     
|Total interest payments                               |  | 15,498 |  | 1,211                 
|                                                     

56MANAGEMENT'S DISCUSSION AND ANALYSIS

---





At December 31, 2008, the Company's approximate future purchase obligations were as follows:

---

PURCHASE OBLIGATIONS(1)
Year ended December 31(millions of dollars)

|                                 |  |        |  | Payments Due by Period
|-------------------------------- |  | ------ |  | ----------------------
|                                 |  |        |  |                       
|                                 |  | Total  |  | Less than
one year    
|                                
|Pipelines                        |  |        |  |                       
|Transportation by others(2)      |  | 931    |  | 260                   
|Capital expenditures(3)(4)       |  | 2,317  |  | 2,092                 
|Other                            |  | 6      |  | 3                     
|Energy                           |  |        |  |                       
|Commodity purchases(5)           |  | 6,711  |  | 945                   
|Capital expenditures(3)(6)       |  | 1,049  |  | 509                   
|Other(7)                         |  | 1,133  |  | 88                    
|Corporate                        |  |        |  |                       
|Information technology and other |  | 99     |  | 29                    
|                                
|Total purchase obligations       |  | 12,246 |  | 3,926                 
|                                

TransCanada and its affiliates have long-term natural gas transportation and natural gas purchase arrangements as well as
other purchase obligations, all of which are transacted at market prices and in the normal course of business.

In
2009, TransCanada expects to make funding contributions to the Company's pension and other post-retirement benefit plans in the amount of approximately
$140 million and $27 million, respectively. This represents an increase from total funding contributions of $90 million in 2008 and is attributable primarily to significantly
reduced investment performance and plan experience being different than expectations. TransCanada's proportionate share of funding contributions expected to be made by joint ventures to their
respective pension and other post-retirement benefit plans in 2009 is approximately $37 million and $4 million, respectively, compared to actual total contributions of
$42 million in 2008.

The
next actuarial valuation for the Company's pension and other post-retirement benefit plans is expected to be carried out as at January 1, 2010.
Primarily as a result of the significantly lower performance of the pension plan assets in 2008, it is expected that funding requirements for these plans could continue at the anticipated 2009 level
for the next

MANAGEMENT'S DISCUSSION AND ANALYSIS57

---



several
years to amortize solvency deficiencies in addition to normal costs. The Company's net benefit cost is expected to remain at 2008 levels. However, the net benefit cost and the amount of
funding contributions received will be dependent on various factors, including future investment returns achieved on plan assets, the level of interest rates, changes to plan design and actuarial
assumptions, actual plan experience versus projections and amendments to pension plan regulations and legislation. Increases in the level of required plan funding are not expected to have a material
impact on the Company's liquidity.

Bruce Power

Bruce A has signed commitments to third-party suppliers related to refurbishing and restarting Units 1 and 2 and refurbishing Units 3 and 4 to extend their operating life.
TransCanada's share of these signed commitments, which extend over the three-year period ending December 31, 2011, are as follows:

Year ended December 31(millions of dollars)

|2009 |  | 204
|---- |  | ---
|2010 |  | 49 
|2011 |  | 2  
|    
|     |  | 255
|    

Aboriginal Pipeline Group

Under its agreement with the APG, TransCanada agreed to finance the APG's one-third share of the MGP project's predevelopment costs. These costs are currently
forecast to be between $150 million and $200 million, on a cumulative basis, depending on the pace of project development. As at December 31, 2008, the Company had
advanced $140 million of this total. This agreement is discussed further in the "Pipelines  Opportunities and Developments" section of this MD&A.

Contingencies

In April 2008, the Ontario Court of Appeal dismissed an appeal filed by the Canadian Alliance of Pipeline Landowners' Associations (CAPLA). CAPLA filed the appeal as a
result of a decision by the Ontario Superior Court in November 2006 to dismiss CAPLA's class action lawsuit against TransCanada and Enbridge Inc. for damages alleged to have arisen from
the creation of a control zone within 30 metres of a pipeline pursuant to Section 112 of theNational Energy Board Act. The Ontario Court
of Appeal's decision is final and binding as CAPLA did not seek any further appeal within the time frame allowed.

TransCanada
is subject to laws and regulations governing environmental quality and pollution control. At December 31, 2008, the Company had recorded liabilities of
approximately $86 million representing the Company's estimate of the amount it expects to expend to remediate certain sites. However, additional liabilities may be incurred as more assessments
occur and remediation efforts continue.

TransCanada
and its subsidiaries are subject to various legal proceedings and actions arising in the normal course of business. While the final outcome of such legal
proceedings and actions cannot be predicted with certainty, it is the opinion of management that the resolution of such proceedings and actions will not have a material impact on the Company's
consolidated financial position or results of operations.

Guarantees

TransCanada, Cameco Corporation and BPC have severally guaranteed one-third of certain contingent financial obligations of Bruce B related to power sales
agreements, operator licenses, a lease agreement and contractor services. The guarantees have terms ranging from one year ending in 2010 to perpetuity. In addition, TransCanada and BPC have severally
guaranteed one-half of certain contingent financial obligations related to an agreement with the OPA to refurbish and restart Bruce A power generation units. The guarantees were provided
as part of the reorganization of Bruce Power in 2005 and have terms ending in 2019. TransCanada's share of the potential exposure under these Bruce A and Bruce B guarantees was estimated at
December 31, 2008 to range from $711 million to a maximum of $750 million. The fair value of these guarantees is estimated to be $17 million.

58MANAGEMENT'S DISCUSSION AND ANALYSIS

---





The Company and its partners in certain jointly owned entities have severally as well as jointly and severally guaranteed the financial performance of these entities related
primarily to construction projects, redelivery of natural gas, PPA payments and the payment of liabilities. TransCanada's share of the potential exposure under these guarantees was estimated at
December 31, 2008 to range from $688 million to a maximum of $1.4 billion. For certain of these entities, any payments made by TransCanada under these guarantees in excess of its
ownership interest are to be reimbursed by its partners. Deferred Amounts includes $9 million for the fair value of these joint and several guarantees.

TransCanada
has guaranteed a subsidiary's equity undertaking to support the payment, under certain conditions, of principal and interest on US$43 million of the
public debt obligations of TransGas. The Company has a 46.5 per cent interest in TransGas. Under the terms of a shareholder agreement, TransCanada and another major multinational company
may be required to severally fund more than their proportionate share of debt obligations of TransGas in the event that the minority shareholders fail to contribute. Any payments made by TransCanada
under this agreement would convert into share capital of TransGas. The Company's potential exposure is contingent on the impact any change of law would have on the ability of TransGas to service the
debt. There has been no change in applicable law since the issuance of debt in 1995 and, thus, no exposure for TransCanada. The debt matures in 2010. The Company has made no provision related to
this guarantee.

RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
FINANCIAL RISKS AND FINANCIAL INSTRUMENTS

Risk Management Overview

TransCanada has exposure to market risk, counterparty credit risk, and liquidity risk. TransCanada engages in risk management activities with the primary objective being to
protect earnings, cash flow and, ultimately, shareholder value.

Risk
management strategies, policies and limits are designed to ensure TransCanada's risks and related exposures are in line with the Company's business objectives and risk
tolerance. Risks are managed within limits ultimately established by the Company's Board of Directors, implemented by senior management and monitored by risk management and internal audit personnel.
The Board of Directors' Audit Committee oversees how management monitors compliance with risk management policies and procedures, and oversees management's review of the adequacy of the risk
management framework. Internal audit personnel assist the Audit Committee in its oversight role by performing regular and ad-hoc reviews of risk management controls and procedures, the
results of which are reported to the Audit Committee. The Board of Directors also has a Governance Committee that assists in overseeing the risk management activities of TransCanada. The Governance
Committee monitors, reviews with management and makes recommendations related to TransCanada's risk management programs and policies on an ongoing basis.

Market Risk

The Company constructs and invests in large infrastructure projects, purchases and sells commodities, issues short-term and long-term debt, including
amounts in foreign currencies, and invests in foreign operations. These activities expose the Company to market risk from changes in commodity prices, foreign exchange rates and interest rates, which
affect the Company's earnings and the value of the financial instruments it holds.

The
Company uses derivatives as part of its overall risk management policy to manage exposure to market risk that results from these activities. Derivative contracts used to
manage market risk generally consist of the following:

MANAGEMENT'S DISCUSSION AND ANALYSIS59

---



Commodity Price Risk

The Company is exposed to commodity price movements as part of its normal business operations, particularly in relation to the prices of electricity, natural gas and oil
products. A number of strategies are used to mitigate these exposures, including the following:

TransCanada
manages its exposure to seasonal natural gas price spreads in its natural gas storage business by economically hedging storage capacity with a portfolio of
third-party storage capacity contracts and proprietary natural gas purchases and sales. TransCanada simultaneously enters into a forward purchase of natural gas
for injection into storage and an offsetting forward sale of natural gas for withdrawal at a later period, thereby locking in future positive margins and effectively eliminating exposure to price
movements of natural gas. Fair value adjustments recorded each period on proprietary natural gas storage inventory and these forward contracts may not be representative of the amounts that will be
realized on settlement.

Natural Gas Inventory Price Risk

At December 31, 2008, $76 million (2007  $190 million) of proprietary natural gas inventory was included in
Inventories. TransCanada measures its proprietary natural gas inventory held in storage at the one-month forward price for natural gas less selling costs. The Company did not have any
proprietary natural gas inventory held in storage prior to April 2007. In 2008, the net change in fair value of proprietary natural gas held in inventory was a net unrealized loss of
$7 million (2007  nil), which was recorded as a decrease to Revenue and Inventory. In 2008, the net change in fair value of natural gas forward purchases
and sales contracts was a net unrealized gain of $7 million (2007  $10 million) which was included in Revenues.

Foreign Exchange and Interest Rate Risk

Foreign exchange and interest rate risk is created by fluctuations in the fair value or cash flow of financial instruments due to changes in foreign exchange rates and/or
market interest rates.

A
portion of TransCanada's earnings from its Pipelines and Energy operations is generated in U.S. dollars and is subject to currency fluctuations. The performance of
the Canadian dollar relative to the U.S. dollar can affect TransCanada's earnings. This foreign exchange impact is offset by certain related debt and financing costs being denominated in
U.S. dollars and by the Company's hedging activities. Due to its increased U.S. operations, TransCanada has a greater exposure to U.S. currency fluctuations than in
prior years.

60MANAGEMENT'S DISCUSSION AND ANALYSIS

---



The
Company uses foreign currency and interest rate derivatives to manage the foreign exchange and interest rate risks related to its debt and other
U.S. dollar-denominated transactions, and to manage the interest rate exposure of the Canadian Mainline, Alberta System and Foothills operations. Certain of the realized gains and losses on
these derivatives are shared with shippers on predetermined terms. These gains and losses are deferred as regulatory assets and liabilities until they are recovered from or paid to the shippers in
accordance with the terms of the shipping agreements.

TransCanada
has floating interest rate debt, which subjects it to interest rate cash flow risk. The Company uses a combination of forwards, interest rate swaps and options
to manage its exposure to this risk.

Net Investment in Self-Sustaining Foreign Operations

The Company hedges its net investment in self-sustaining foreign operations (on an after-tax basis) with U.S. dollar-denominated debt,
forward foreign exchange contracts, cross-currency interest rate swaps and foreign exchange options. At December 31, 2008, the Company had designated as a net investment hedge
U.S. dollar-denominated debt with a carrying value of $7.2 billion (US$5.9 billion) (2007  $4.7 billion (US$4.7 billion)) and
a fair value of $5.9 billion (US$4.8 billion) (2007  $4.8 billion (US$4.8 billion)). In January 2009, the Company issued an
additional US$2.0 billion of long-term debt and designated it as a hedge of the net U.S. dollar investment in foreign operations. At December 31, 2008,
$254 million was included in Deferred Amounts for the fair value of the forwards, swaps and options used to hedge the Company's net U.S. dollar investment in foreign operations.

The
fair values and notional or principal amount for the derivatives designated as a net investment hedge were as follows:

|                                                   |                         | 2008       |      | 2007                         |            |           
|-------------------------------------------------- | ----------------------- | ---------- | ---- | ---------------------------- | ---------- | ----------
|Asset/(Liability)December 31 (millions of dollars) |                         | Fair Value |      | Notional or
Principal
Amount |            | Fair Value
|                                                  
|U.S. dollar cross-currency swaps                   |                         |            |      |                              |            |           
|                                                   | (maturing 2009 to 2014) |            | (218 | )                            | U.S. 1,650 |           
|U.S. dollar forward foreign exchange contracts     |                         |            |      |                              |            |           
|                                                   | (maturing 2009)         |            | (42  | )                            | U.S. 2,152 |           
|U.S. dollar options                                |                         |            |      |                              |            |           
|                                                   | (maturing 2009)         |            | 6    |                              | U.S. 300   |           
|                                                  
|                                                   |                         | (254       | )    | U.S. 4,102                   |            | 76        
|                                                  

Counterparty Credit Risk

Counterparty credit risk represents the financial loss the Company would experience if a counterparty to a financial instrument failed to meet its obligations in accordance
with the terms and conditions of its contracts with the Company.

Counterparty
credit risk is managed through established credit management techniques, including conducting financial and other assessments to establish and monitor a
counterparty's creditworthiness, setting exposure limits, monitoring exposures against these limits, using master netting arrangements and obtaining financial assurances where warranted. In general,
financial assurances include guarantees, letters of credit and cash. The Company monitors and manages its concentration of counterparty credit risk on an ongoing basis. The Company believes these
measures minimize its counterparty credit risk but there is no certainty that these processes will protect it against all losses.

TransCanada
has significant credit and performance exposures to financial institutions as they provide committed credit lines and cash deposit facilities, critical liquidity
in the foreign exchange derivative, interest rate derivative and energy wholesale markets, and letters of credit to mitigate TransCanada's exposure to non-credit worthy counterparties.

MANAGEMENT'S DISCUSSION AND ANALYSIS61

---



During
the deterioration of global financial markets in 2008, TransCanada continued to closely monitor and reassess the creditworthiness of its counterparties, including
financial institutions. This has resulted in TransCanada reducing or mitigating its exposure to certain counterparties where it is deemed warranted and permitted under contractual terms. As part of
its ongoing operations, TransCanada must balance its market risk and counterparty credit risk when making business decisions.

Certain
subsidiaries of Calpine filed for bankruptcy protection in both Canada and the U.S. in 2005. Gas Transmission Northwest Corporation (GTNC) and Portland
Natural Gas Transmission System (PNGTS) reached agreements with Calpine for allowed unsecured claims in the Calpine bankruptcy. In February 2008, GTNC and PNGTS received initial distributions
of 9.4 million common shares and 6.1 million common shares of Calpine, respectively, which represented approximately 85 per cent of their agreed-upon claims. In
2008, these shares were subsequently sold into the open market and resulted in total pre-tax gains of $279 million. Claims by NOVA Gas Transmission Limited and Foothills Pipe Lines
(South B.C.) Ltd. for $32 million and $44 million, respectively, were received in cash in January 2008 and will be passed on to shippers on these systems. At
December 31, 2008, $22 million remained in regulatory liabilities for these claims.

Liquidity Risk

Liquidity risk is the risk that TransCanada will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure
that, under both normal and stressed conditions, it always has sufficient cash and credit facilities to meet its obligations when due without incurring unacceptable losses or damage to the Company's
reputation.

Management
forecasts cash flows for a period of 12 months to identify financing requirements. These requirements are then managed through a combination of committed
and demand credit facilities and access to capital markets. The Company's liquidity and cash flow management is also discussed in the "Liquidity and Capital Resources" and "Contractual Obligations"
sections of this MD&A.

Fair Values

The fair value of financial instruments included in Cash and Cash Equivalents, Accounts Receivable, Other Assets, Notes Payable, Accounts Payable, Accrued Interest and Deferred
Amounts approximates their carrying amounts due to the nature of the item and/or the short time to maturity. The fair value of foreign exchange and interest rate derivatives has been calculated using
year-end market rates. The fair value of power, natural gas and oil products derivatives has been calculated using quoted market prices where available. In the absence of quoted market
prices, third-party broker quotes are used. Credit risk has been taken into consideration when calculating fair values.

Valuation
techniques that refer to observable market data or estimated market prices may also be used to calculate fair value. These include comparisons with similar
instruments that have observable market prices, option pricing models and other valuation techniques commonly used by market participants. Fair values determined using valuation models require the use
of assumptions about the amount and timing of estimated future cash flows and discount rates. In making these assumptions, the Company looks primarily to readily observable external market input
factors such as interest rate yield curves, currency rates and price and rate volatilities, as applicable.

The
fair value of the Company's Long-Term Debt was estimated based on quoted market prices for the same or similar debt instruments and, when such information
was not available, was estimated by discounting future payments of interest and principal at estimated interest rates that were made available to the Company.

62MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Non-Derivative Financial Instruments Summary

The carrying and fair values of non-derivative financial instruments were as follows:

|                                                 |  | 2008            |  | 2007       |  |                
|------------------------------------------------ |  | --------------- |  | ---------- |  | ---------------
|                                                 |  |                
|December 31 (millions of dollars)                |  | Carrying Amount |  | Fair Value |  | Carrying Amount
|                                                
|Financial Assets(1)                              |  |                 |  |            |  |                
|Cash and cash equivalents                        |  | 1,308           |  | 1,308      |  | 504            
|Accounts receivable and other assets(2)(3)       |  | 1,404           |  | 1,404      |  | 1,231          
|Available-for-sale assets(2)                     |  | 27              |  | 27         |  | 17             
|                                                
|                                                 |  | 2,739           |  | 2,739      |  | 1,752          
|                                                
|Financial Liabilities(1)(3)                      |  |                 |  |            |  |                
|Notes payable                                    |  | 1,702           |  | 1,702      |  | 421            
|Accounts payable and deferred amounts(4)         |  | 1,372           |  | 1,372      |  | 1,193          
|Accrued interest                                 |  | 359             |  | 359        |  | 261            
|Long-term debt and junior subordinated notes     |  | 17,367          |  | 16,152     |  | 13,908         
|Long-term debt of joint ventures                 |  | 1,076           |  | 1,052      |  | 903            
|Other long-term liabilities of joint ventures(4) |  |                |  |           |  | 60             
|                                                
|                                                 |  | 21,876          |  | 20,637     |  | 16,746         
|                                                

MANAGEMENT'S DISCUSSION AND ANALYSIS63

---



Derivative Financial Instruments Summary

Information for the Company's derivative financial instruments is as follows:

|                                                                 |                            | 2008      |       |            
|---------------------------------------------------------------- | -------------------------- | --------- | ----- | -----------
|                                                                 |                            |          
|December 31
(all amounts in millions unless otherwise indicated) |                            | Power     |       | Natural
Gas
|                                                                
|Derivative Financial Instruments Held for Trading                |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $132  |            
|                                                                 | Liabilities                |           | $(82  | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 4,035      
|                                                                 |                            | Sales     |       | 5,491      
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Japanese yen (in billions) |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net unrealized gains/(losses) in the year(3)                     |                            | $24       |       | $(23       
|Net realized gains/(losses) in the year(3)                       |                            | $23       |       | $(2        
|Maturity dates                                                   |                            | 2009-2014 |       | 2009-2011  
|Derivative Financial Instruments in Hedging Relationships(4)(5)  |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $115  |            
|                                                                 | Liabilities                |           | $(160 | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 8,926      
|                                                                 |                            | Sales     |       | 13,113     
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net realized (losses)/gains in the year(3)                       |                            | $(56      | )     | $15        
|Maturity dates                                                   |                            | 2009-2014 |       | 2009-2011  
|                                                                

64MANAGEMENT'S DISCUSSION AND ANALYSIS

---





The anticipated timing of settlement of the derivative contracts assumes no changes in commodity prices, interest rates and foreign exchange rates from December 31,
2008. Actual settlements will vary based on changes in these factors. The anticipated timing of settlement of these contracts is as follows:

|(millions of dollars)                                     |  | Total |   | 2009 |   | 2010
and 2011 |   | 2012
and 2013 |   | 2014 and
Thereafter |   | 
|--------------------------------------------------------- |  | ----- | - | ---- | - | ------------- | - | ------------- | - | ------------------- | - | 
|                                                         
|Derivative financial instruments held for trading         |  | (30   | ) | 38   |   | (46           | ) | (14           | ) | (8                  | ) | 
|Derivative financial instruments in hedging relationships |  | (199  | ) | (68  | ) | (65           | ) | (43           | ) | (23                 | ) | 
|                                                         
|                                                          |  | (229  | ) | (30  | ) | (111          | ) | (57           | ) | (31                 | ) | 
|                                                         

Derivative Financial Instruments Summary

Information for the Company's derivative financial instruments is as follows:

|                                                                 |                            | 2007      |       |            
|---------------------------------------------------------------- | -------------------------- | --------- | ----- | -----------
|                                                                 |                            |          
|December 31
(all amounts in millions unless otherwise indicated) |                            | Power     |       | Natural
Gas
|                                                                
|Derivative Financial Instruments Held for Trading                |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $55   |            
|                                                                 | Liabilities                |           | $(44  | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 3,774      
|                                                                 |                            | Sales     |       | 4,469      
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Japanese yen (in billions) |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net unrealized gains/(losses) in the year(3)                     |                            | $16       |       | $(10       
|Net realized (losses)/gains in the year(3)                       |                            | $(8       | )     | $47        
|Maturity dates                                                   |                            | 2008-2016 |       | 2008-2010  
|Derivative Financial Instruments in Hedging Relationships(4)(5)  |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $135  |            
|                                                                 | Liabilities                |           | $(104 | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 7,362      
|                                                                 |                            | Sales     |       | 16,367     
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net realized (losses)/gains in the year(3)                       |                            | $(29      | )     | $18        
|Maturity dates                                                   |                            | 2008-2013 |       | 2008-2010  
|                                                                

MANAGEMENT'S DISCUSSION AND ANALYSIS65

---



Balance Sheet Presentation of Derivative Financial Instruments

The fair value of the derivative financial instruments in the Company's Balance Sheet was as follows:

|December 31 (millions of dollars) |                      | 2008 |      | 2007 |      |  
|--------------------------------- | -------------------- | ---- | ---- | ---- | ---- | -
|                                 
|Current                           |                      |      |      |      |      |  
|                                  | Other current assets |      | 318  |      | 160  |  
|                                  | Accounts payable     |      | (298 | )    | (144 | )
|Long-term                         |                      |      |      |      |      |  
|                                  | Other assets         |      | 191  |      | 204  |  
|                                  | Deferred amounts     |      | (694 | )    | (205 | )

OTHER RISKS

Development Projects and Acquisitions

TransCanada continues to focus on growing its Pipelines and Energy operations through greenfield development projects and acquisitions. TransCanada capitalizes costs incurred
on certain of its projects during the development period prior to construction when the project meets specific criteria and is expected to proceed through to completion. The related capital costs of a
project that does not proceed through to completion would be expensed at the time it is discontinued. There is a risk with respect to TransCanada's acquisition of assets and operations that certain
commercial opportunities and operational synergies may not materialize as expected and would subsequently be subject to an impairment writedown.

Health, Safety and Environment Risk Management

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

TransCanada
is committed to ensuring compliance with its internal policies and regulated requirements. The HS&E Committee of TransCanada's Board of Directors monitors
compliance with the Company's HS&E corporate policy

66MANAGEMENT'S DISCUSSION AND ANALYSIS

---



through
regular reporting. TransCanada's HS&E management system is modeled on the International Organization of Standardization's (ISO) standard for environmental management systems, ISO 14001,
and focuses resources on the areas of significant risk to the organization's HS&E business activities. Management is informed regularly of all important HS&E operational issues and initiatives through
formal reporting processes. TransCanada's HS&E management system and performance are assessed by an independent outside firm every three years. The most recent assessment occurred in
November 2006. The HS&E management system also is subject to ongoing internal review to ensure that it remains effective as circumstances change.

In
2008, employee and contractor health and safety performance continued to be a top priority. TransCanada's assets were highly reliable and there were no incidents that
were material to TransCanada's operations.

The
safety and integrity of the Company's pipelines is a top priority. The Company expects to spend approximately $185 million in 2009 for pipeline integrity on its
wholly owned pipelines, which is higher than the amount spent in 2008 primarily due to increased levels of in-line pipeline inspection on all systems. Under the approved regulatory models
in Canada, pipeline integrity expenditures on NEB- and AUC-regulated pipelines are treated on a flow-through basis and, as a result, have no impact on TransCanada's
earnings. Expenditures on the GTN System are also recovered through a cost recovery mechanism in its rates. Pipeline safety in 2008 continued to be very good, as TransCanada experienced only one
small-diameter pipeline failure in a remote part of east central Alberta. The break resulted in minimal impact with no injuries or property damage. Spending associated with public safety on the Energy
assets is focused primarily on the Company's hydro dams and associated equipment, and is consistent with previous years.

Environment

TransCanada's facilities are subject to various federal, provincial, state and local statutes and regulations, including requirements to establish compliance and remediation
obligations. Compliance obligations can result in significant costs associated with installing and maintaining pollution controls, fines and penalties resulting from any failure to comply, and
potential limitations on operations. Remediation obligations can result in significant costs associated with the investigation and remediation of contaminated properties, some of which have been
designated as Superfund sites by the U.S. Environmental Protection Agency under theComprehensive Environmental Response, Compensation and Liability
Act, and with damage claims arising out of the contamination of properties or impact on natural resources. It is not
possible for the Company to estimate exactly the amount and timing of all future expenditures related to environmental matters due to:

Environmental
risks from TransCanada's operating facilities typically include: air emissions, such as nitrogen oxides, particulate matter and greenhouse gases; potential
impacts on land, including land reclamation or restoration following construction; the use, storage or release of chemicals or hydrocarbons; the generation, handling and disposal of wastes and
hazardous wastes; and water impacts such as uncontrolled water discharge. Environmental controls including physical design, programs, procedures and processes are in place to effectively manage these
risks. TransCanada has ongoing inspection programs designed to keep all of its facilities in compliance with environmental requirements and the Company is confident that its systems are in material
compliance with the applicable requirements.

In
2008, TransCanada conducted environmental risk assessments and remediation work, resulting in total costs of approximately $7 million and US$6 million for
work conducted on TransCanada's Canadian and U.S. facilities, respectively. TransCanada also conducted various retirement, reclamation and restoration work in 2008, which resulted

MANAGEMENT'S DISCUSSION AND ANALYSIS67

---



in
total costs of approximately $7 million. At December 31, 2008, TransCanada had recorded liabilities of approximately $86 million for compliance and remediation obligations. The
Company believes it has considered all necessary contingencies and established appropriate reserves for environmental liabilities, however, there is the risk that unforeseen matters may arise
requiring the Company to set aside additional amounts.

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

North
American climate change policy continues to evolve at regional and national levels. While recent political and economic events may significantly affect the scope and
timing of new measures that are put in place, TransCanada anticipates that most of the company's facilities in Canada and the U.S. will be captured under future regional and/or federal climate
change regulations to manage industrial greenhouse gas (GHG) emissions.

In
2008, the Company owned assets in three regions affected by climate change policy measures related to industrial emissions. In Alberta, the Specified Gas Emitters
Regulation, which came into effect in 2007, requires industrial facilities to reduce GHG emissions intensities by 12 per cent. TransCanada's Alberta-based pipeline and power facilities
are subject to this regulation, as are the Sundance and Sheerness coal-fired power facilities with which TransCanada has commercial arrangements. The Company's total cost of compliance
incurred by the Alberta-based facilities for the period from July 2007 to December 2007 was approximately $12 million. Costs for 2008 compliance are estimated to be
$28 million and will be finalized when compliance reports are submitted in March 2009. Compliance costs of the Alberta System are recovered through tolls paid by customers. Recovery of
compliance costs for the Company's power generation facilities and interests in Alberta is partially achieved through contracts and the impact of increased operating costs on Alberta power
market prices.

The
hydrocarbon royalty in Québec is collected by the natural gas distributor on behalf of the Québec government via a green fund contribution
charge on gas consumed. In 2008, the cost pertaining to the Bécancour facility arising from the hydrocarbon royalty was less than $1 million as a result of an agreement between
TransCanada and Hydro-Québec to temporarily suspend the facility's power generation. The cost is expected to increase when the plant returns to service in 2010.

B.C.'s
carbon tax, which came into effect in mid-2008, applies to carbon dioxide (CO2) emissions arising 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 for 2008 were $1 million. This
cost is expected to increase over the next four years as the tax charge per tonne of CO2 increases by $5 per tonne annually from the initial tax rate of $10 per tonne.

TransCanada
has assets located in Ontario and Manitoba, where the provincial governments have announced climate change strategies that will impact industrial sources of GHG
emissions. The details of these programs and how they will align with the Canadian government's climate change policies are still uncertain.

The
Canadian government has expressed interest in pursuing the development of a North American cap and trade system for GHG emissions. In April 2007, the Government
of Canada released the Regulatory Framework for Air Emissions (Framework). The Framework outlines short-, medium- and long-term objectives for managing both GHG emissions and air
pollutants in Canada. TransCanada expects a number of its facilities will be affected by pending federal climate change regulations that will be put in place to meet the Framework's objectives. It is
not known at this time whether the impacts from the pending regulations will be material as the draft regulations have not yet been released. It is uncertain how the Framework will fit within a North
American cap and trade system and what the specific requirements for industrial emitters will be.

Climate
change is a strategic issue for the new U.S. government administration and federal policy to manage domestic GHG emissions is expected to be a priority. Seven
western states and four Canadian provinces are focused on the implementation of a cap and trade program under the Western Climate Initiative (WCI). Northeastern states that are members of the Regional
Greenhouse Gas Initiative (RGGI) implemented a CO2 cap and trade program for electricity

68MANAGEMENT'S DISCUSSION AND ANALYSIS

---



generators
effective January 1, 2009. Participants in the Midwestern Greenhouse Gas Reduction Accord, which involves six states and one province, are developing a regional strategy for reducing
members' GHG emissions that will include a multi-sector cap and trade mechanism.

The
Company anticipates a number of its facilities will be affected by these legislative initiatives. Under the RGGI, both the Ravenswood and OSP facilities will be required
to submit allowances by December 31, 2011. It is expected that the costs will be recovered from the market and the net impact to TransCanada will be minimal. Company assets located in regions
affected by the WCI and Midwestern Greenhouse Gas Reduction Accord and in California are most likely to be covered by GHG reduction measures put in place, however, the level of impact is uncertain as
key policy details remain outstanding.

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

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with, or submitted to, securities
regulatory authorities is recorded, processed, summarized and reported within the time periods specified under Canadian and U.S. securities laws. The information is accumulated and communicated
to management, including the President and Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

As
at December 31, 2008, an evaluation of the effectiveness of TransCanada's disclosure controls and procedures as defined under the rules adopted by the Canadian
securities regulatory authorities and by the SEC was carried out under the supervision and with the participation of management, including the President and Chief Executive Officer and the Chief
Financial Officer. Based on this evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of TransCanada's disclosure controls and
procedures were effective as at December 31, 2008.

Management's Annual Report on Internal Control over Financial Reporting

Internal control over financial reporting is a process designed by or under the supervision of senior management and effected by the Board of Directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial reporting and preparation of consolidated financial statements for external purposes in accordance with Canadian GAAP,
including a reconciliation to U.S. GAAP.

Management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, no matter how well
designed, has inherent limitations and can only provide reasonable assurance with respect to the preparation and fair presentation of published financial statements. Under the supervision and with the
participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company
acquired Ravenswood in August 2008 and began consolidating the operations of Ravenswood from that date. Management has excluded this business from its evaluation of the effectiveness of the
Company's internal control over financial reporting as of December 31, 2008. The net income attributable to this business represented less than one per cent of the Company's consolidated
net income for the year ended December 31, 2008, and its aggregate total assets represented approximately nine per cent of the Company's consolidated total assets as at
December 31, 2008.

MANAGEMENT'S DISCUSSION AND ANALYSIS69

---



Based
on this evaluation, management concluded that internal control over financial reporting is effective as at December 31, 2008, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.

In
2008, there was no change in TransCanada's internal control over financial reporting that materially affected or is reasonably likely to materially affect TransCanada's
internal control over financial reporting.

CEO and CFO Certifications

TransCanada's President and Chief Executive Officer and Chief Financial Officer have filed with the SEC and the Canadian securities regulators certifications regarding the
quality of TransCanada's public disclosures relating to its fiscal 2008 reports filed with the SEC and the Canadian securities regulators.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

To prepare financial statements that conform with Canadian GAAP, TransCanada is required to make estimates and assumptions that affect both the amount and timing of recording
assets, liabilities, revenues and expenses. The Company uses the most current information available and exercises careful judgment in making these estimates and assumptions. The Company believes the
following accounting policies and estimates require it to make assumptions about highly uncertain matters and changes in these estimates could have a material impact to the Company's financial
information.

Regulated Accounting

The Company accounts for the impacts of rate regulation in accordance with GAAP. Three criteria must be met to use these accounting principles:

The
Company's management believes all three of these criteria have been met with respect to each of the regulated natural gas pipelines accounted for using regulated
accounting principles. The most significant impact from the use of these accounting principles is that the timing of recognition of certain expenses and revenues in the regulated businesses may differ
from that otherwise expected under GAAP in order to appropriately reflect the economic impact of the regulators' decisions regarding the Company's revenues and tolls.

Effective
January 1, 2009, the Company's accounting for its future income taxes recorded on rate-regulated operations will change as discussed in the
"Accounting Changes" section of this MD&A.

Financial Instruments and Hedges

Financial Instruments

Effective January 1, 2007, the Company adopted the accounting requirements for the Canadian Institute of Chartered Accountants (CICA) Handbook Sections 1530
"Comprehensive Income", 3855 "Financial Instruments  Recognition and Measurement", and 3865 "Hedges". Effective December 31, 2007, the Company adopted the
accounting requirements for CICA Handbook Sections 3862 "Financial Instruments  Disclosure", 3863 "Financial
Instruments  Presentation", and 1535 "Capital Disclosures". Adjustments to the consolidated financial statements for 2007 were made on a prospective basis.

The
CICA Handbook requires that all financial instruments initially be included on the balance sheet at their fair value. Subsequent measurement of the financial instruments
is based on their classification. Financial assets are classified into the following categories: held for trading, available for sale, held-to-maturity investments and loans
and receivables.

70MANAGEMENT'S DISCUSSION AND ANALYSIS

---



Financial
liabilities are classified as held for trading or other financial liabilities. The Company does not have any held-to-maturity investments.

Held-for-trading
derivative financial assets and liabilities consist of swaps, options, forwards and futures. Commodity
held-for-trading financial instruments are initially recorded at their fair value and changes to fair value are included in Revenues. Changes in the fair value of interest rate
and foreign exchange rate held-for-trading instruments are recorded in Financial Charges and in Interest Income and Other, respectively.

The
available-for-sale classification includes non-derivative financial assets that are designated as available for sale or are not
included in the other three classifications. These instruments are accounted for initially at their fair value and changes to fair value are recorded through Other Comprehensive Income. Trade
receivables, loans and other receivables with fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables" and are measured at amortized cost using
the effective interest method, net of any impairment. Other financial liabilities consist of liabilities not classified as held for trading. Items in this financial instrument category are recognized
at amortized cost using the effective interest method.

The
recognition of gains and losses on the derivatives for the Canadian Mainline, Alberta System and Foothills exposures is determined through the regulatory process. The
gains and losses on derivatives accounted for as part of rate-regulated accounting are deferred in regulatory assets or regulatory liabilities.

Hedges

The CICA Handbook specifies the criteria that must be satisfied in order to apply hedge accounting and the accounting for each of the permitted hedging strategies, including:
fair value hedges, cash flow hedges and hedges of foreign currency exposures of net investments in self-sustaining foreign operations. Hedge accounting is discontinued prospectively when
the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, expiry, sale, termination, cancellation or exercise.

In
a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the hedged risk. The changes in fair value
are recognized in Net Income. Changes
in the fair value of the hedged item, to the extent that the hedging relationship is effective, are offset by changes in the fair value of the hedging item, which are also recorded in
Net Income.

In
a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative is recognized in Other Comprehensive Income, while any
ineffective portion is recognized in Net Income in the same financial category as the underlying transaction. When hedge accounting is discontinued, the amounts recognized previously in Accumulated
Other Comprehensive Income are reclassified to Net Income during the periods when the variability in cash flows of the hedged item affects Net Income. Gains and losses on derivatives are reclassified
immediately to Net Income from Accumulated Other Comprehensive Income when the hedged item is sold or terminated early, or when a hedged anticipated transaction is no longer expected to occur.

The
Company also enters into cash flow hedges and fair value hedges for activities subject to rate regulation. The gains and losses arising from the changes in fair value of
these hedges can be recovered through the tolls charged by the Company. As a result, these gains and losses are deferred as rate-regulated assets or liabilities on behalf of the
ratepayers. When the hedges are settled, the realized gains or losses are collected from or refunded to the ratepayers in subsequent years.

In
hedging the foreign currency exposure of a net investment in a self-sustaining foreign operation, the effective portion of foreign exchange gains and losses
on the hedging instruments is recognized in Other Comprehensive Income and the ineffective portion is recognized in Net Income. The amounts recognized previously in Accumulated Other Comprehensive
Income are reclassified to Net Income in the event the Company settles or otherwise reduces its investment in a foreign operation.

MANAGEMENT'S DISCUSSION AND ANALYSIS71

---



The
fair value of financial instruments and hedges is primarily derived from market values adjusted for credit risk, which can fluctuate greatly from period to period. These
changes in fair value can result in variability in net income as a result of recording these changes in fair value through earnings. The risks associated with fluctuations to earnings and cash flows
for financial instruments and hedges are discussed further in the "Risk Management and Financial Instruments" section of this MD&A.

Depreciation and Amortization Expense

TransCanada's plant, property and equipment are depreciated on a straight-line basis over their estimated useful lives. Pipeline and compression equipment are
depreciated at annual rates ranging from one per cent to 25 per cent. Metering and other plant equipment are depreciated at various rates. Major power generation and natural gas
storage plant, equipment and structures in the Energy business are depreciated on a straight-line basis over estimated service lives at average annual rates ranging from two
per cent to ten per cent. Nuclear power generation
assets under capital lease are initially recorded at the present value of minimum lease payments at the inception of the lease and amortized on a straight-line basis over the shorter of
their useful life and the remaining lease term. Other equipment is depreciated at various rates. Corporate plant, property and equipment are depreciated on a straight-line basis over
estimated useful lives at average annual rates ranging from three per cent to 20 per cent.

Depreciation
expense in 2008 was $1,189 million (2007  $1,179 million) and is recorded in Pipelines and Energy. In
Pipelines, depreciation rates are approved by regulators when applicable and depreciation expense is recoverable based on the cost of providing the services or products. If regulators permit recovery
through rates, a change in the estimate of the useful lives of plant, property and equipment in the Pipelines segment will have no material impact on TransCanada's net income but will directly affect
funds generated from operations.

Impairment of Long-Lived Assets and Goodwill

The Company reviews long-lived assets such as property, plant and equipment, and intangible assets for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the assets, an impairment loss is recognized for the
excess of the carrying value over the fair value of the assets.

Goodwill
is tested in the Pipelines and Energy segments for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be
impaired. An initial assessment is made by comparing the fair value of the operations, which includes goodwill, to the book values of each reporting unit. If this fair value is less than book value,
an impairment is indicated and a second test is performed to measure the amount of the impairment. In the second test, the implied fair value of the goodwill is calculated by deducting the fair value
of all tangible and intangible net assets of the reporting unit from the fair value determined in the initial assessment. If the carrying value of the goodwill exceeds this calculated implied fair
value of the goodwill, an impairment charge is recorded.

These
valuations are based on management's projections of future cash flows and, therefore, require estimates and assumptions with respect to:

Significant
changes in these assumptions could affect the Company's need to record an impairment charge.

72MANAGEMENT'S DISCUSSION AND ANALYSIS

---



ACCOUNTING CHANGES

FUTURE ACCOUNTING CHANGES

Rate-Regulated Operations

Effective January 1, 2009, the temporary exemption from CICA Handbook Section 1100 "Generally Accepted Accounting Principles", which permits the recognition and
measurement of assets and liabilities arising from rate regulation, was withdrawn. In addition, Section 3465 "Income Taxes" was amended to require the recognition of future income tax assets
and liabilities for rate-regulated entities. The Company has chosen to adopt accounting policies consistent with the U.S. Financial Accounting Standards Board's Financial Accounting
Standard (FAS) 71 "Accounting for the Effects of Certain Types of Regulation". Accordingly, TransCanada will retain its current method of accounting for its rate-regulated operations,
except that TransCanada will be required to recognize future income tax assets and liabilities instead of using the taxes payable method, and will record an offsetting adjustment to regulatory assets
and liabilities. If the Company had adopted FAS 71 at December 31, 2008, additional future income tax liabilities and a regulatory asset in the amount of $1,434 million would have
been recorded and would have been recoverable from future revenue. These changes will be applied retrospectively without restatement beginning January 1, 2009.

Intangible Assets

The CICA Handbook implemented revisions to standards dealing with intangible assets effective for fiscal years beginning on or after October 1, 2008. The revisions are
intended to align the definition of an intangible asset in Canadian GAAP with that in International Financial Reporting Standards (IFRS) and U.S. GAAP. CICA Handbook Section 1000
"Financial Statement Concepts" was revised to remove material that permitted the recognition of assets that might not otherwise meet the definition of an asset and to add guidance from the
International Accounting Standards Board's (IASB) "Framework for the Preparation and Presentation of Financial Statements" that helps distinguish assets from expenses. CICA Handbook
Section 3064 "Goodwill and Intangible Assets", which replaced CICA Handbook Section 3062 "Goodwill and Other Intangible Assets", gives guidance on the recognition of intangible assets as
well as the recognition and measurement of internally developed intangible assets. In addition, CICA Handbook Section 3450 "Research and Development Costs" will be withdrawn from the Handbook.
The Company does not expect these changes to have a material effect on its financial statements.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

CICA Handbook Section 1582 "Business Combinations" is effective for business combinations with an acquisition date after January 1, 2011. This standard was
amended to require additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure. Adopting this standard is expected to have a material effect
on the way the Company accounts for future business combinations. Entities adopting Section 1582 will also be required to adopt CICA Handbook Sections 1601 "Consolidated Financial
Statements" and 1602 "Non-Controlling Interests". These standards will require a change in the measurement of non-controlling interest and will require the change to be
presented as part of shareholders' equity on the balance sheet. In addition, the income statement of the controlling parent will include 100 per cent of the subsidiary's results and
present the allocation between the controlling interest and non-controlling interest. These standards will be effective January 1, 2011, with early adoption permitted. The changes
resulting from adopting Section 1582 will be applied prospectively and the changes from adopting Sections 1601 and 1602 will be applied retrospectively.

International Financial Reporting Standards

The CICA's Accounting Standards Board announced that Canadian publicly accountable enterprises are required to adopt IFRS, as issued by the IASB, effective January 1,
2011. In June 2008, the Canadian Securities Administrators proposed that Canadian public companies that are SEC registrants, such as TransCanada, retain the option to prepare their financial
statements under U.S. GAAP instead of IFRS. In November 2008, the SEC issued for public comment a recommendation that, beginning in 2014, U.S. issuers be required to adopt IFRS
using a phased-in approach based on market capitalization.

MANAGEMENT'S DISCUSSION AND ANALYSIS73

---



TransCanada
is currently considering the impact a conversion to IFRS or U.S. GAAP would have on its accounting systems and financial statements. TransCanada's
conversion project planning includes an analysis of project structure and governance, resources and training, analysis of key GAAP differences and a phased approach to the assessment of current
accounting policies and implementation. The current status of the key elements of TransCanada's conversion project is as follows:

Project Structure and Governance

A Steering Committee and an Implementation Committee have been established to provide directional leadership for the conversion project and to assist in developing accounting
policy recommendations. These are multi-disciplinary committees and include representatives from Accounting, Information Technology, Treasury, Investor Relations, Human Resources and Operations.
Management updates the Audit Committee at least quarterly on the status of the project.

Resources and Training

TransCanada's conversion project team has been assembled and will support the conversion effort through project leadership, training, issue identification, technical research,
policy recommendations, work group leadership and implementation support.

TransCanada's
IFRS training plan was developed and introduced in 2008. The first stage of the training has been completed and included IFRS project awareness sessions and a
comprehensive IFRS immersion course. Later phases of the project will include more directed technical and implementation training relating to new accounting policies, procedures and processes.
Throughout the project, IFRS training will be offered on a regular basis to ensure that TransCanada staff remains current with respect to new IFRS developments.

Analysis of Significant GAAP Differences

The project team is currently assessing the differences between Canadian GAAP and IFRS. TransCanada's conversion project is being executed using a risk-based
methodology focusing on the significant differences between Canadian GAAP and IFRS. A high-level diagnostic was completed in 2008 outlining the significant differences and rating each option based on
its significance to TransCanada. In making this assessment, the technical accounting complexity, availability of policy choices, estimated need for conversion resources and impact on systems were
considered. The differences between Canadian and US GAAP have already been identified in the Company's U.S. GAAP reconciliation. The most significant differences under the IFRS and
U.S. GAAP conversion options were identified as follows:

IFRS

Converting to IFRS would have a significant impact on TransCanada's rate-regulated operations, property plant and equipment, employee benefits, income taxes,
financial statement disclosure and the initial adoption of IFRS in accordance with IFRS 1 "First-Time Adoption of IFRS".

Project
work groups are currently conducting a detailed analysis of the significant differences identified to date and assessing the impact they could have on TransCanada's
financial reporting, information systems and internal controls over financial reporting. Less significant differences will be assessed starting in 2009. Under existing Canadian GAAP, TransCanada
follows specific accounting policies unique to rate-regulated businesses. TransCanada is actively monitoring ongoing discussions and developments at the IASB regarding potential future
guidance to clarify the applicability of certain aspects of rate-regulated accounting under IFRS. The IASB is expected to issue a proposed standard for rate-regulated businesses
in 2009.

Several
IFRS standards are in the process of being amended by the IASB. Amendments to existing standards are expected to continue until the transition date of
January 1, 2011. TransCanada actively monitors the IASB's schedule of projects, giving consideration to any proposed changes, where applicable, in its assessment of differences between IFRS and
Canadian GAAP.

At
the current stage of the project, TransCanada cannot reasonably determine the full impact that adopting IFRS would have on its financial position and future results. In
addition, developments with respect to specific rate-regulated

74MANAGEMENT'S DISCUSSION AND ANALYSIS

---



accounting
guidance under IFRS could have a significant effect on the scope of the project and on TransCanada's financial results.

U.S. GAAP

As an SEC registrant, TransCanada is currently required to prepare and file a reconciliation from Canadian GAAP to U.S. GAAP. The differences that have the most
significant impact on TransCanada, as outlined in the reconciliation, include valuation of proprietary natural gas inventory held in storage, measurement of the deficit or surplus of defined benefit
pension plans and recognition of deferred tax liabilities for TransCanada's rate-regulated business. As previously noted, effective January 1, 2009, the U.S. GAAP difference
with respect to recognition of deferred tax liabilities for TransCanada's rate-regulated businesses will be eliminated.

---

SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA(1)

|                                                           |                                    | 2008  
|---------------------------------------------------------- | ---------------------------------- | ------
|                                                           |                                    |       
|(unaudited)
(millions of dollars except per share amounts) |                                    | Fourth
|                                                          
|Revenues                                                   |                                    | 2,332 
|Net Income                                                 |                                    | 277   
|Share Statistics                                           |                                    |       
|                                                           | Net income per share  Basic       |       
|                                                           | Net income per share  Diluted     |       
|                                                           | Dividend declared per common share |       
|                                                          

|
|

|                                                           |                                    | 2007  
|---------------------------------------------------------- | ---------------------------------- | ------
|                                                           |                                    |       
|(unaudited)
(millions of dollars except per share amounts) |                                    | Fourth
|                                                          
|Revenues                                                   |                                    | 2,189 
|Net Income                                                 |                                    | 377   
|Share Statistics                                           |                                    |       
|                                                           | Net income per share  Basic       |       
|                                                           | Net income per share  Diluted     |       
|                                                           | Dividend declared per common share |       
|                                                          

Factors Impacting Quarterly Financial Information

In Pipelines, which consists primarily of the Company's investments in regulated pipelines and regulated natural gas storage facilities, annual revenues and net earnings
fluctuate over the long term based on regulators' decisions and negotiated settlements with shippers. Generally, quarter-over-quarter revenues and net earnings during any
particular fiscal year remain relatively stable with fluctuations resulting from adjustments being recorded due to regulatory decisions and negotiated settlements with shippers, seasonal fluctuations
in
short-term throughput volumes on U.S. pipelines, acquisitions and divestitures, and developments outside of the normal course of operations.

In
Energy, which consists primarily of the Company's investments in electrical power generation plants and non-regulated natural gas storage facilities,
quarter-over-quarter revenues and net earnings are affected by seasonal weather conditions, customer demand, market prices, planned and unplanned plant outages, acquisitions
and divestitures, and developments outside of the normal course of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS75

---



Significant
developments that affected quarterly net earnings in 2008 and 2007 were as follows:

76MANAGEMENT'S DISCUSSION AND ANALYSIS

---



FOURTH QUARTER 2008 HIGHLIGHTS

---

CONSOLIDATED RESULTS OF OPERATIONS
Reconciliation of Comparable Earnings to Net Income

|(unaudited)
(millions of dollars except per share amounts) |                                                | 2008                                                                          |       | 2007  |      
|---------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------------------------------------- | ----- | ----- | -----
|                                                           |                                               
|Pipelines                                                  |                                                | 210                                                                           |       | 202   |      
|                                                           |                                               
|Energy                                                     |                                                |                                                                               |       |       |      
|                                                           | Comparable earnings(1)                         |                                                                               | 147   |       | 104  
|                                                           | Specific items (net of tax, where applicable): |                                                                               |       |       |      
|                                                           |                                                | Fair value adjustments of natural gas storage inventory and forward contracts |       | 6     |      
|                                                           |                                                | Gain on sale of land                                                          |       |      |      
|                                                           |                                                | Income tax adjustments                                                        |       |      |      
|                                                           |                                               
|                                                           | Net income                                     |                                                                               | 153   |       | 158  
|                                                           |                                               
|Corporate                                                  |                                                |                                                                               |       |       |      
|                                                           | Comparable expenses(1)                         |                                                                               | (86   | )     | (9   
|                                                           | Specific item:                                 |                                                                               |       |       |      
|                                                           |                                                | Income tax reassessments and adjustments                                      |       |      |      
|                                                           |                                               
|                                                           | Net (expenses)/income                          |                                                                               | (86   | )     | 17   
|                                                           |                                               
|Net Income                                                 |                                                | 277                                                                           |       | 377   |      
|                                                           |                                               
|Net Income Per Share                                       |                                                |                                                                               |       |       |      
|                                                           | Basic                                          |                                                                               | $0.47 |       | $0.70
|                                                           |                                               
|                                                           | Diluted                                        |                                                                               | $0.46 |       | $0.70
|                                                           |                                               
|Comparable Earnings(1)                                     |                                                | 271                                                                           |       | 297   |      
|                                                           | Specific items (net of tax, where applicable): |                                                                               |       |       |      
|                                                           |                                                | Fair value adjustments of natural gas storage inventory and forward contracts |       | 6     |      
|                                                           |                                                | Gain on sale of land                                                          |       |      |      
|                                                           |                                                | Income tax reassessments and adjustments                                      |       |      |      
|                                                           |                                               
|Net Income                                                 |                                                | 277                                                                           |       | 377   |      
|                                                           |                                               
|Comparable Earnings Per Share(1)                           |                                                | $0.46                                                                         |       | $0.55 |      
|                                                           | Specific items  per share:                    |                                                                               |       |       |      
|                                                           |                                                | Fair value adjustments of natural gas storage inventory and forward contracts |       | 0.01  |      
|                                                           |                                                | Gain on sale of land                                                          |       |      |      
|                                                           |                                                | Income tax reassessments and adjustments                                      |       |      |      
|                                                           |                                               
|Net Income Per Share                                       |                                                | $0.47                                                                         |       | $0.70 |      
|                                                           |                                               

TransCanada's net income in fourth quarter 2008 was $277 million or $0.47 per share compared to $377 million or $0.70
per share in fourth quarter 2007. Net income decreased primarily due to increased net expenses from Corporate, which included unrealized losses of $39 million after tax or $0.07 per share in
fourth quarter 2008, for changes in the fair value of derivatives, which are used to manage the Company's exposure to rising interest rates but do not qualify as hedges for

MANAGEMENT'S DISCUSSION AND ANALYSIS77

---



accounting
purposes. Corporate's net expenses also increased in fourth quarter 2008 compared to fourth quarter 2007 as a result of higher charges for financing the Company's 2008 capital program,
including the Ravenswood acquisition, and higher unrealized gains in 2007 for changes in the fair value of derivatives used to manage the Company's exposure to foreign exchange rate fluctuations.
Earnings from the Pipelines business increased in fourth quarter 2008 compared to fourth quarter 2007 primarily due to earnings recognized from a 2008 revenue requirement settlement for the Alberta
System and increased earnings for PipeLines LP, partially offset by the inclusion in earnings in fourth quarter 2007 for a rate case settlement for GTN. Earnings from the Energy business were
slightly lower in fourth quarter 2008 compared to fourth quarter 2007 as increases in Western Power, Eastern Power and Bruce Power were more than offset by a decrease in earnings from Natural Gas
Storage in 2008 and favourable income tax adjustments that were included in fourth quarter 2007. Western Power earnings increased significantly in fourth quarter 2008 compared to fourth quarter 2007
primarily due to increased margins from the Alberta power portfolio. Energy's earnings in fourth quarter 2008 and 2007 included $6 million after tax ($7 million pre-tax) and
$10 million after tax ($15 million pre-tax), respectively, of net unrealized gains resulting from changes in the fair value of proprietary natural gas storage inventory and
natural gas forward purchase and sale contracts. Energy's earnings in fourth quarter 2007 also included a $14 million after-tax ($16 million pre-tax) gain on the
sale of land. Net income for fourth quarter 2007 included $56 million ($30 million in Energy and $26 million in Corporate) of favourable income tax adjustments as a result of
changes in Canadian federal income tax legislation. On a per share basis, the $0.23 decrease in earnings in fourth quarter 2008 compared to fourth quarter 2007 was also due to an increased number of
shares outstanding following the Company's share issuances in 2008.

Comparable
earnings in fourth quarter 2008 were $271 million or $0.46 per share compared to $297 million or $0.55 per share for the same period
in 2007. Comparable earnings in fourth quarter 2008 and 2007 excluded the $6 million and $10 million, respectively, of net unrealized gains resulting from changes in fair value of
proprietary natural gas storage inventory and natural gas forward purchase and sale contracts. Comparable earnings in fourth quarter 2007 also excluded the $56 million of favourable income tax
adjustments and $14 million gain on the sale of land.

The
Pipelines business generated net income and comparable earnings of $210 million in fourth quarter 2008, an increase of $8 million compared to net income
and comparable earnings of $202 million in fourth quarter 2007.

Canadian
Mainline's net income for fourth quarter 2008 increased $2 million, compared to the same period in 2007 primarily due to higher performance-based incentives
earned, increased OM&A cost savings and a higher ROE, as determined by the NEB, of 8.71 per cent in 2008 compared to 8.46 per cent in 2007. These increases were partially
offset by a lower average investment base.

The
Alberta System's net income in fourth quarter 2008 was $48 million compared to $41 million in fourth quarter 2007. Earnings increased primarily due to the
recognition of earnings related to the revenue requirement settlement in fourth quarter 2008. Earnings in 2007 reflected an approved ROE of 8.51 per cent on a deemed common equity of
35 per cent.

ANR's
net income in fourth quarter 2008 was $38 million compared to $35 million in fourth quarter 2007. The increase in fourth quarter 2008 was primarily due
to higher revenues from new growth projects and the positive impact of a stronger U.S. dollar. These increases were partially offset by higher OM&A costs, including Hurricane Ike remediation
costs.

GTN's
comparable earnings in fourth quarter 2008 decreased $16 million compared to the same period in 2007. The decrease was primarily due to the positive impact of
the rate case settlement included in fourth quarter 2007, partially offset by decreased OM&A expenses.

TransCanada's
proportionate share of net income from Other Pipelines was $29 million for the three months ended December 31, 2008 compared to
$16 million for the same period in 2007. Other Pipelines' earnings increased in fourth quarter 2008 primarily due to lower support costs, higher PipeLines LP and Tamazunchale earnings,
and a stronger U.S. dollar, partially offset by lower TransGas, Gas Pacifico/ INNERGY and Portland earnings.

Energy's
net income of $153 million in fourth quarter 2008 decreased $5 million compared to $158 million in fourth quarter 2007. Comparable earnings in
fourth quarter 2008 of $147 million increased $43 million compared to $104 million for the same period in 2007. Comparable earnings excluded the net unrealized gains of
$6 million after tax and $10 million after

78MANAGEMENT'S DISCUSSION AND ANALYSIS

---



tax
in fourth quarter 2008 and 2007, respectively, resulting from changes in fair value of proprietary natural gas storage inventory and natural gas forward purchase and sale contracts. In addition,
comparable earnings in fourth quarter 2007 excluded the $14 million gain on sale of land and $30 million of favourable income tax adjustments.

Western
Power's operating income of $106 million in fourth quarter 2008 increased $48 million compared to $58 million in fourth quarter 2007 primarily
due to increased margins from the Alberta power portfolio, which resulted from higher overall realized power prices and market heat rates on both contracted and uncontracted volumes of power sold in
Alberta. The market heat rate is determined by dividing the average price of power per MWh by the average price of natural gas per GJ for a given period.

Eastern
Power's operating income of $73 million in fourth quarter 2008 increased $7 million compared to $66 million in fourth quarter 2007. The increase
was due to higher realized prices on sales to commercial and industrial customers in New England, the positive impact of the stronger U.S. dollar in fourth quarter 2008 and incremental
earnings from the Carleton wind farm, which went into service in November 2008. On December 31, 2008, Ravenswood fulfilled its obligation under a tolling agreement with Hess Corporation
that was in place at the time of
acquisition. In 2009, TransCanada's marketing operation will manage marketing of the Ravenswood plant output in a manner consistent with its other U.S. Northeast portfolio of assets.

TransCanada's
combined operating income of $50 million from its investment in Bruce Power increased $7 million in fourth quarter 2008 compared to fourth
quarter 2007 primarily due to higher revenues resulting from higher realized prices. TransCanada's proportionate share of operating loss in Bruce A increased $1 million to $6 million in
fourth quarter 2008 compared to fourth quarter 2007 as a result of lower revenues due to decreased output, partially offset by higher contract prices and lower operating costs. TransCanada's
proportionate share of operating income in Bruce B increased $8 million to $61 million in fourth quarter 2008 compared to fourth quarter 2007 primarily due to higher realized prices
achieved during fourth quarter 2008, as well as increased output. The increase in realized prices was due to higher contract prices on a larger proportion of volumes sold under contract in the three
months ended December 31, 2008 compared to the same period in 2007.

Natural
Gas Storage operating income of $40 million in fourth quarter 2008 decreased $17 million compared to $57 million in fourth quarter 2007. The
decrease was due to lower realized seasonal natural gas price spreads at the Edson facility compared to the same period in 2007. Operating income in fourth quarter 2008 included net unrealized gains
of $7 million for changes in the fair value of proprietary natural gas inventory in storage and natural gas forward purchase and sale contracts compared to net unrealized gains of
$15 million for the same period in 2007.

Corporate's
net expenses for the three months ended December 31, 2008 were $86 million compared to net income of $17 million for the same period in
2007. Excluding the $26 million of favourable income tax adjustments in fourth quarter 2007, Corporate's comparable expenses increased $77 million in fourth quarter 2008 compared to
fourth quarter 2007. The increase in comparable expenses in fourth quarter 2008 was primarily due to net unrealized losses of $39 million after tax from changes in the fair value of
derivatives, which are used to manage the Company's exposure to rising interest rate rates but do not qualify as hedges for accounting purposes. In addition, higher financial charges resulting from
financing the Ravenswood acquisition and higher losses from the change in fair value of derivatives used to manage the Company's exposure to foreign exchange rate fluctuations were partially offset by
increased capitalization of interest to finance a larger capital spending program.

SHARE INFORMATION

At February 23, 2009, TransCanada had 619 million issued and outstanding common shares. In addition, there were 8 million outstanding options to purchase
common shares, of which 7 million were exercisable as at February 23, 2009.

OTHER INFORMATION

Additional information relating to TransCanada, including the Company's Annual Information Form and other continuous disclosure documents, is available on SEDAR at
www.sedar.com under TransCanada Corporation.

Other
selected consolidated financial information for 2000 to 2008 is found under the heading "Nine Year Financial Highlights" in the Supplementary Information section of
the Company's Annual Report.

MANAGEMENT'S DISCUSSION AND ANALYSIS79

---





GLOSSARY OF TERMS

AFUDC

Allowance for funds used during constructionAGIA

Alaska Gasline Inducement ActAlaska Pipeline Project

A proposed natural gas pipeline extending from a new natural gas treatment plant at Prudhoe Bay, Alaska to AlbertaAlberta System

A natural gas transmission system in AlbertaAmerican Natural Resources (ANR)

A natural gas transmission system extending from producing fields located primarily in Oklahoma, Texas, Louisiana and the Gulf of Mexico to markets located primarily in Wisconsin, Michigan, Illinois, Ohio and Indiana, and
regulated underground natural gas storage facilities in MichiganANR Pipeline

ANR Pipeline CompanyAPG

Aboriginal Pipeline GroupAUC

Alberta Utilities CommissionB.C.

British ColumbiaBbl/d

Barrels per dayBcf

Billion cubic feetBcf/d

Billion cubic feet per dayBear Creek

A natural gas-fired cogeneration plant near Grande Prairie, AlbertaBécancour

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

A proposed pipeline from the Powder River Basin in Wyoming to the Northern Border system in North DakotaBPC

BPC Generation Infrastructure TrustBroadwater

A proposed offshore LNG project located in the New York waters of Long Island SoundBruce A

A partnership interest in the nuclear power generation facilities of Bruce Power A L.P.Bruce B

A partnership interest in the nuclear power generation facilities of Bruce Power L.PBruce Power

Bruce A and Bruce B, collectivelyCalpine

Calpine CorporationCameco

Cameco CorporationCanadian Mainline

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

A waste-heat fuelled power plant at the Cancarb thermal carbon black facility in Medicine Hat, AlbertaCAPLA

Canadian Alliance of Pipeline Landowners' AssociationsCarseland

A natural gas-fired cogeneration plant located near Carseland, AlbertaCartier Wind

Six wind farms in Gaspé, Québec, three of which have been builtChinook

A proposed HVDC transmission project that will originate in Montana and terminate in NevadaCICA

Canadian Institute of Chartered AccountantsCO2

Carbon dioxideCoolidge

A simple-cycle, natural gas-fired peaking power generation station under development in Coolidge, ArizonaCrossAlta

An underground natural gas storage facility near Crossfield, AlbertaDRP

Dividend Reinvestment and Share Purchase PlanEdson

A natural gas storage facility near Edson, AlbertaFAS

Financial Accounting StandardFCM

Forward Capacity MarketFERC

U.S. Federal Energy Regulatory CommissionFoothills

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

Regulatory Framework for Air EmissionsGAAP

Generally accepted accounting principlesGas Pacifico

A natural gas transmission system extending from Loma de la Lata, Argentina to Concepción, ChileGHG

Greenhouse gasGJ

GigajouleGrandview

A natural gas-fired cogeneration plant near Saint John, New BrunswickGreat 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.Gas Transmission Network (GTN)

GTN System and North Baja, collectivelyGTNC

Gas Transmission Northwest CorporationGTN System

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

Gigawatt hoursHalton Hills

A natural gas-fired, combined-cycle power plant near Toronto, OntarioHS&E

Health, Safety and EnvironmentHVDC

High voltage direct current


80MANAGEMENT'S DISCUSSION AND ANALYSIS

---



IASB

International Accounting Standards BoardIFRS

International Financial Reporting StandardsINNERGY

An industrial natural gas marketing company based in Concepción, ChileIroquois

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

International Organization of StandardizationISO-NE

Independent System Operator New EnglandKeystone

A pipeline under construction that will transport crude oil from Hardisty, Alberta, to U.S. markets at Wood River and Patoka in Illinois, and to Cushing, OklahomaKeystone partnerships

TransCanada Keystone Pipeline Limited Partnership and TransCanada Keystone Pipeline, LP, collectivelyKibby Wind

A wind power project located in Kibby and Skinner Townships in northwestern Franklin County, Mainekm

KilometreskV

KilovoltLIBOR

London Interbank Offered RateLNG

Liquefied natural gasMacKay River

A natural gas-fired cogeneration plant located near Fort McMurray, AlbertaMD&A

Management's Discussion and AnalysisMackenzie Gas Pipeline (MGP)

A proposed natural gas pipeline to be constructed from a point near Inuvik, Northwest Territories to the northern border of AlbertaMirant

Mirant Corporation and certain of its subsidiariesmmcf/d

Million cubic feet per dayMoody's

Moody's Investors ServiceMW

MegawattMWh

Megawatt hoursNEB

National Energy Board of CanadaNet earnings

Net income from continuing operationsNorth Baja

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

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

A proposed HVDC electric transmission line running from central Alberta to a terminal in southern Alberta and interconnecting with the Pacific NorthwestNYISO

New York Independent System OperatorOM&A

Operating, maintenance and administrationOPA

Ontario Power AuthorityOcean State Power (OSP)

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

A proposed pipeline extending from the GTN System to the Columbia River northwest of PortlandPathfinder

A proposed pipeline from Meeker, Colorado to the Northern Border system in North DakotaPipeLines LP

TC PipeLines, LPPNGTS

Portland Natural Gas Transmission SystemPortland

A natural gas transmission system that extends from a point near East Hereford, Québec to the northeastern U.S.Portlands Energy

A combined-cycle natural gas cogeneration plant near downtown Toronto, OntarioPPA

Power purchase arrangementRavenswood

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 YorkRedwater

A natural gas-fired cogeneration plant located near Redwater, AlbertaRGGI

Regional Greenhouse Gas InitiativeROE

Rate of return on common equitySalt River Project

Salt River Project Agricultural Improvement and Power DistrictSEC

U.S. Securities and Exchange CommissionSempra

Sempra Pipelines and StorageSheerness

A coal-fired power generating facility located near Hanna, AlbertaSTEP 2008

Storage enhancement projectSundance A

A coal-fired power generating facility located near Wabamun, AlbertaSundance B

A coal-fired power generating facility located near Wabamun, AlbertaSunstone

A proposed pipeline from Wyoming to Stanfield, Oregon


MANAGEMENT'S DISCUSSION AND ANALYSIS81

---



Tamazunchale

A natural gas transmission system in Mexico extending from Naranjos, Veracruz to Tamazunchale, San Luis PotosiTC Hydro

Hydroelectric generation assets located in New Hampshire, Vermont and MassachusettsTCPL

TransCanada PipeLines LimitedTCPM

TransCanada Power Marketing Ltd.Trans Québec & Maritimes (TQM)

A natural gas transmission system that connects with the Canadian Mainline and transports natural gas in Québec, from Montreal to the Portland system and to Québec CityTransCanada or the Company

TransCanada CorporationTransGas

A natural gas transmission system, extending from Mariquita in the central region of Colombia to Cali in the southwest region of ColombiaTuscarora

A natural gas transmission system extending from Malin, Oregon to Wadsworth, NevadaU.S.

United StatesVaR

Value-at-Risk methodologyVentures LP

Natural gas transmission systems in Alberta that supply natural gas to the oil sands region of northern Alberta and to a petrochemical complex at Joffre, AlbertaWCI

Western Climate InitiativeWCSB

Western Canada Sedimentary BasinWilliams

Williams Gas Pipeline Company, LLCZephyr

A proposed HVDC transmission project that will originate in Wyoming and terminate in Nevada


82MANAGEMENT'S DISCUSSION AND ANALYSIS

---





|Report of Management |  | The consolidated financial statements included in this Annual Report are the responsibility of TransCanada Corporation's (TransCanada or the Company) management and have been approved by the Board of Directors of the
Company. These consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles (GAAP) in Canada and include amounts that are based on estimates and judgements. Financial information
contained elsewhere in this Annual Report is consistent with the consolidated financial statements.Management's Discussion and Analysis in this Annual Report has been prepared by management based on the Company's financial results prepared in accordance with Canadian GAAP. It compares the Company's financial and operating performance
in 2008 to that in 2007 and should be read in conjunction with the consolidated financial statements and accompanying notes. In addition, it highlights significant changes between 2007 and 2006.
Management has designed and maintains a system of internal accounting controls, including a program of internal audits. Management believes that these controls provide reasonable assurance that financial records are reliable and
form a proper basis for the preparation of financial statements. The internal accounting control process includes management's communication to employees of policies that govern ethical business conduct.
Under the supervision of, and with the participation of, the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. TransCanada acquired the Ravenswood Generating Station (Ravenswood) in 2008 and began
consolidating the operations of Ravenswood from the date of acquisition. Management has excluded this business from its evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. The net
income attributable to this business represented less than one per cent of the Company's consolidated net income for the year ended December 31, 2008 and its aggregate total assets represented approximately nine per cent of the
Company's consolidated total assets as at December 31, 2008.Based on their evaluation, management concluded that internal control over financial reporting is effective as of December 31, 2008 to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes.
The Board of Directors has appointed an Audit Committee consisting of independent, non-management directors. The Audit Committee meets with management at least six times a year and meets independently with the internal and external
auditors and as a group to review any significant accounting, internal control and auditing matters in accordance with the terms of the Charter of the Audit Committee, which is set out in the Annual Information Form. The Audit Committee reviews the
Annual Report, including the consolidated financial statements, before the consolidated financial statements are submitted to the Board of Directors for approval. The internal and independent external auditors are able to access the Audit Committee
without the requirement to obtain prior management approval.The Audit Committee approves the terms of engagement of the independent external auditors and reviews the annual audit plan, the Auditors' Report and the results of the audit. It also recommends to the Board of Directors the firm of
external auditors to be appointed by the shareholders.
The shareholders have appointed KPMG LLP as independent external auditors to express an opinion as to whether the consolidated financial statements present fairly, in all material respects, the Company's consolidated financial
position, results of operations and cash flows in accordance with Canadian GAAP. The report of KPMG LLP outlines the scope of its examination and its opinion on the consolidated financial statements.
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

| |  | SIG                                   |  | SIG                                                 
| |  | ------------------------------------- |  | ----------------------------------------------------
| |  | Harold N. Kvisle                      |  | Gregory A. Lohnes                                   
| |  | President and
Chief Executive Officer |  | Executive Vice-President and
Chief Financial Officer
| |  | February 23, 2009                     |  |                                                     

TRANSCANADA
CORPORATION83

---





|Auditors'
Report |  | To the Shareholders of TransCanada CorporationWe have audited the consolidated balance sheets of TransCanada Corporation as at December 31, 2008 and 2007 and the consolidated statements of income, comprehensive income, accumulated other comprehensive income, shareholders'
equity and cash flows for each of the years in the three-year period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2008 in accordance with Canadian generally accepted accounting principles.
|---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

| |  | GRAPHIC                              
| |  | -------------------------------------
| |  | Chartered Accountants
Calgary, Canada
| |  | February 23, 2009                    

84CONSOLIDATED
FINANCIAL STATEMENTS

---





TRANSCANADA CORPORATIONCONSOLIDATED INCOME

|Year ended December 31
(millions of dollars except per share amounts)                |                         | 2008  |       | 2007  |       | 2006  |       | 
|------------------------------------------------------------------------------------ | ----------------------- | ----- | ----- | ----- | ----- | ----- | ----- | 
|                                                                                    
|Revenues                                                                             |                         | 8,619 |       | 8,828 |       | 7,520 |       | 
|Operating Expenses                                                                   |                         |       |       |       |       |       |       | 
|Plant operating costs and other                                                      |                         | 3,062 |       | 3,030 |       | 2,411 |       | 
|Commodity purchases resold                                                           |                         | 1,511 |       | 1,959 |       | 1,707 |       | 
|Depreciation                                                                         |                         | 1,189 |       | 1,179 |       | 1,059 |       | 
|                                                                                    
|                                                                                     |                         | 5,762 |       | 6,168 |       | 5,177 |       | 
|                                                                                    
|                                                                                     |                         | 2,857 |       | 2,660 |       | 2,343 |       | 
|                                                                                    
|Other Expenses/(Income)                                                              |                         |       |       |       |       |       |       | 
|Financial charges (Note 10)                                                          |                         | 943   |       | 943   |       | 825   |       | 
|Financial charges of joint ventures (Note 11)                                        |                         | 72    |       | 75    |       | 92    |       | 
|Interest income and other                                                            |                         | (92   | )     | (168  | )     | (179  | )     | 
|Calpine bankruptcy settlements (Note 17)                                             |                         | (279  | )     |      |       |      |       | 
|Writedown of Broadwater LNG project costs (Note 7)                                   |                         | 41    |       |      |       |      |       | 
|                                                                                    
|                                                                                     |                         | 685   |       | 850   |       | 738   |       | 
|                                                                                    
|Income from Continuing Operations before Income Taxes and Non- Controlling Interests |                         | 2,172 |       | 1,810 |       | 1,605 |       | 
|                                                                                    
|Income Taxes(Note 18)                                                                |                         |       |       |       |       |       |       | 
|                                                                                     | Current                 |       | 526   |       | 432   |       | 301   | 
|                                                                                     | Future                  |       | 76    |       | 58    |       | 175   | 
|                                                                                    
|                                                                                     |                         | 602   |       | 490   |       | 476   |       | 
|Non-Controlling Interests(Note 15)                                                   |                         | 130   |       | 97    |       | 78    |       | 
|                                                                                    
|Net Income from Continuing Operations                                                |                         | 1,440 |       | 1,223 |       | 1,051 |       | 
|Net Income from Discontinued Operations(Note 24)                                     |                         |      |       |      |       | 28    |       | 
|                                                                                    
|Net Income                                                                           |                         | 1,440 |       | 1,223 |       | 1,079 |       | 
|                                                                                    
|Net Income per Share(Note 16)                                                        |                         |       |       |       |       |       |       | 
|Basic                                                                                |                         |       |       |       |       |       |       | 
|                                                                                     | Continuing operations   |       | $2.53 |       | $2.31 |       | $2.15 | 
|                                                                                     | Discontinued operations |       |      |       |      |       | 0.06  | 
|                                                                                    
|                                                                                     |                         | $2.53 |       | $2.31 |       | $2.21 |       | 
|                                                                                    
|Diluted                                                                              |                         |       |       |       |       |       |       | 
|                                                                                     | Continuing operations   |       | $2.52 |       | $2.30 |       | $2.14 | 
|                                                                                     | Discontinued operations |       |      |       |      |       | 0.06  | 
|                                                                                    
|                                                                                     |                         | $2.52 |       | $2.30 |       | $2.20 |       | 
|                                                                                    

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CONSOLIDATED FINANCIAL
STATEMENTS85

---



TRANSCANADA CORPORATIONCONSOLIDATED CASH FLOWS

|Year ended December 31
(millions of dollars)                                 |  | 2008   |   | 2007   |   | 2006   |   | 
|---------------------------------------------------------------------------- |  | ------ | - | ------ | - | ------ | - | 
|                                                                            
|Cash Generated from Operations                                               |  |        |   |        |   |        |   | 
|Net income                                                                   |  | 1,440  |   | 1,223  |   | 1,079  |   | 
|Depreciation                                                                 |  | 1,189  |   | 1,179  |   | 1,059  |   | 
|Future income taxes (Note 18)                                                |  | 76     |   | 58     |   | 175    |   | 
|Non-controlling interests (Note 15)                                          |  | 130    |   | 97     |   | 78     |   | 
|Employee future benefits funding lower than/(in excess of) expense (Note 21) |  | 17     |   | 43     |   | (31    | ) | 
|Writedown of Broadwater LNG project costs (Note 7)                           |  | 41     |   |       |   |       |   | 
|Other                                                                        |  | 128    |   | 21     |   | 18     |   | 
|                                                                            
|                                                                             |  | 3,021  |   | 2,621  |   | 2,378  |   | 
|(Increase)/decrease in operating working capital (Note 22)                   |  | (181   | ) | 215    |   | (303   | ) | 
|                                                                            
|Net cash provided by operations                                              |  | 2,840  |   | 2,836  |   | 2,075  |   | 
|                                                                            
|Investing Activities                                                         |  |        |   |        |   |        |   | 
|Capital expenditures                                                         |  | (3,134 | ) | (1,651 | ) | (1,572 | ) | 
|Acquisitions, net of cash acquired (Note 9)                                  |  | (3,229 | ) | (4,223 | ) | (470   | ) | 
|Disposition of assets, net of current income taxes (Note 9)                  |  | 28     |   | 35     |   | 23     |   | 
|Deferred amounts and other                                                   |  | (168   | ) | (340   | ) | (97    | ) | 
|                                                                            
|Net cash used in investing activities                                        |  | (6,503 | ) | (6,179 | ) | (2,116 | ) | 
|                                                                            
|Financing Activities                                                         |  |        |   |        |   |        |   | 
|Dividends on common shares (Note 16)                                         |  | (577   | ) | (546   | ) | (617   | ) | 
|Distributions paid to non-controlling interests                              |  | (141   | ) | (88    | ) | (72    | ) | 
|Notes payable issued/(repaid), net (Note 19)                                 |  | 1,293  |   | (46    | ) | (495   | ) | 
|Long-term debt issued, net of issue costs (Note 10)                          |  | 2,197  |   | 2,616  |   | 2,107  |   | 
|Reduction of long-term debt                                                  |  | (840   | ) | (1,088 | ) | (729   | ) | 
|Long-term debt of joint ventures issued (Note 11)                            |  | 173    |   | 142    |   | 56     |   | 
|Reduction of long-term debt of joint ventures                                |  | (120   | ) | (157   | ) | (70    | ) | 
|Common shares issued, net of issue costs (Note 16)                           |  | 2,384  |   | 1,711  |   | 39     |   | 
|Junior subordinated notes issued, net of issue costs (Note 12)               |  |       |   | 1,094  |   |       |   | 
|Preferred securities redeemed                                                |  |       |   | (488   | ) |       |   | 
|Partnership units of subsidiary issued (Note 9)                              |  |       |   | 348    |   |       |   | 
|                                                                            
|Net cash provided by financing activities                                    |  | 4,369  |   | 3,498  |   | 219    |   | 
|                                                                            
|Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents         |  | 98     |   | (50    | ) | 9      |   | 
|                                                                            
|Increase in Cash and Cash Equivalents                                        |  | 804    |   | 105    |   | 187    |   | 
|Cash and Cash Equivalents                                                    |  |        |   |        |   |        |   | 
|Beginning of year                                                            |  | 504    |   | 399    |   | 212    |   | 
|                                                                            
|Cash and Cash Equivalents                                                    |  |        |   |        |   |        |   | 
|End of year                                                                  |  | 1,308  |   | 504    |   | 399    |   | 
|                                                                            

The accompanying notes to the consolidated financial statements are an integral part of these statements.

86CONSOLIDATED
FINANCIAL STATEMENTS

---





TRANSCANADA CORPORATIONCONSOLIDATED BALANCE SHEET

|December 31
(millions of dollars)                             |  | 2008   |  | 2007   |  | 
|------------------------------------------------------------- |  | ------ |  | ------ |  | 
|                                                             
|ASSETS                                                        |  |        |  |        |  | 
|Current Assets                                                |  |        |  |        |  | 
|Cash and cash equivalents                                     |  | 1,308  |  | 504    |  | 
|Accounts receivable                                           |  | 1,280  |  | 1,116  |  | 
|Inventories                                                   |  | 489    |  | 497    |  | 
|Other                                                         |  | 523    |  | 188    |  | 
|                                                             
|                                                              |  | 3,600  |  | 2,305  |  | 
|Plant, Property and Equipment(Note 5)                         |  | 29,189 |  | 23,452 |  | 
|Goodwill(Note 6)                                              |  | 4,397  |  | 2,633  |  | 
|Other Assets(Note 7)                                          |  | 2,228  |  | 1,940  |  | 
|                                                             
|                                                              |  | 39,414 |  | 30,330 |  | 
|                                                             
|LIABILITIES AND SHAREHOLDERS' EQUITY                          |  |        |  |        |  | 
|Current Liabilities                                           |  |        |  |        |  | 
|Notes payable (Note 19)                                       |  | 1,702  |  | 421    |  | 
|Accounts payable                                              |  | 1,876  |  | 1,767  |  | 
|Accrued interest                                              |  | 359    |  | 261    |  | 
|Current portion of long-term debt (Note 10)                   |  | 786    |  | 556    |  | 
|Current portion of long-term debt of joint ventures (Note 11) |  | 207    |  | 30     |  | 
|                                                             
|                                                              |  | 4,930  |  | 3,035  |  | 
|Deferred Amounts(Note 13)                                     |  | 1,719  |  | 1,107  |  | 
|Future Income Taxes(Note 18)                                  |  | 1,223  |  | 1,179  |  | 
|Long-Term Debt(Note 10)                                       |  | 15,368 |  | 12,377 |  | 
|Long-Term Debt of Joint Ventures(Note 11)                     |  | 869    |  | 873    |  | 
|Junior Subordinated Notes(Note 12)                            |  | 1,213  |  | 975    |  | 
|                                                             
|                                                              |  | 25,322 |  | 19,546 |  | 
|                                                             
|Non-Controlling Interests(Note 15)                            |  | 1,194  |  | 999    |  | 
|Shareholders' Equity                                          |  | 12,898 |  | 9,785  |  | 
|                                                             
|                                                              |  | 39,414 |  | 30,330 |  | 
|                                                             
|Commitments, Contingencies and Guarantees(Note 23)            |  |        |  |        |  | 

The accompanying notes to the consolidated financial statements are an integral part of these statements.

On
behalf of the Board:

|SIG                      |  | SIG                    
|------------------------ |  | -----------------------
|Harold N. KvisleDirector |  | Kevin E. BensonDirector

CONSOLIDATED FINANCIAL
STATEMENTS87

---



TRANSCANADA CORPORATIONCONSOLIDATED COMPREHENSIVE INCOME

|Year ended December 31
(millions of dollars)                                                                                               |  | 2008  |   | 2007  |   | 2006  |   | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- | - | ----- | - | ----- | - | 
|                                                                                                                                          
|Net Income                                                                                                                                 |  | 1,440 |   | 1,223 |   | 1,079 |   | 
|                                                                                                                                          
|Change in foreign currency translation gains and losses on investments in foreign operations(1)                                            |  | 571   |   | (350  | ) | 6     |   | 
|Change in gains and losses on hedges of investments in foreign operations(2)                                                               |  | (589  | ) | 79    |   | (6    | ) | 
|Change in gains and losses on derivative instruments designated as cash flow hedges(3)                                                     |  | (60   | ) | 42    |   |      |   | 
|Reclassification to net income of gains and losses on derivative instruments designated as cash flow hedges pertaining to prior periods(4) |  | (23   | ) | 42    |   |      |   | 
|Change in gains and losses on available-for-sale financial instruments(5)                                                                  |  | 2     |   |      |   |      |   | 
|                                                                                                                                          
|Other Comprehensive Income/(Loss)                                                                                                          |  | (99   | ) | (187  | ) |      |   | 
|                                                                                                                                          
|Comprehensive Income                                                                                                                       |  | 1,341 |   | 1,036 |   | 1,079 |   | 
|                                                                                                                                          

The accompanying notes to the consolidated financial statements are an integral part of these statements.

88CONSOLIDATED
FINANCIAL STATEMENTS

---





TRANSCANADA CORPORATIONCONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME

|(millions of dollars)                                                                                                                         |  | Currency
Translation
Adjustment |   | Cash Flow
Hedges
and Other |   | Total |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | - | -------------------------- | - | ----- | - | 
|                                                                                                                                             
|Balance at December 31, 2005                                                                                                                  |  | (90                             | ) |                           |   | (90   | ) | 
|Change in foreign currency translation gains and losses on investments in foreign operations(1)                                               |  | 6                               |   |                           |   | 6     |   | 
|Change in gains and losses on hedges of investments in foreign operations(2)                                                                  |  | (6                              | ) |                           |   | (6    | ) | 
|                                                                                                                                             
|Balance at December 31, 2006                                                                                                                  |  | (90                             | ) |                           |   | (90   | ) | 
|Transition adjustment resulting from adopting new financial instruments standards(3)                                                          |  |                                |   | (96                        | ) | (96   | ) | 
|Change in foreign currency translation gains and losses on investments in foreign operations(1)                                               |  | (350                            | ) |                           |   | (350  | ) | 
|Change in gains and losses on hedges of investments in foreign operations(2)                                                                  |  | 79                              |   |                           |   | 79    |   | 
|Change in gains and losses on derivative instruments designated as cash flow hedges(4)                                                        |  |                                |   | 42                         |   | 42    |   | 
|Reclassification to net income of gains and losses on derivative instruments designated as cash flow hedges pertaining to prior periods(5)(6) |  |                                |   | 42                         |   | 42    |   | 
|                                                                                                                                             
|Balance at December 31, 2007                                                                                                                  |  | (361                            | ) | (12                        | ) | (373  | ) | 
|Change in foreign currency translation gains and losses on investments in foreign operations(1)                                               |  | 571                             |   |                           |   | 571   |   | 
|Change in gains and losses on hedges of investments in foreign operations(2)                                                                  |  | (589                            | ) |                           |   | (589  | ) | 
|Change in gains and losses on derivative instruments designated as cash flow hedges(4)                                                        |  |                                |   | (60                        | ) | (60   | ) | 
|Reclassification to net income of gains and losses on derivative instruments designated as cash flow hedges pertaining to prior periods(5)(6) |  |                                |   | (23                        | ) | (23   | ) | 
|Change in gains and losses on available-for-sale financial instruments(7)                                                                     |  |                                |   | 2                          |   | 2     |   | 
|                                                                                                                                             
|Balance at December 31, 2008                                                                                                                  |  | (379                            | ) | (93                        | ) | (472  | ) | 
|                                                                                                                                             

The
accompanying notes to the consolidated financial statements are an integral part of these statements.

CONSOLIDATED FINANCIAL
STATEMENTS89

---



TRANSCANADA CORPORATIONCONSOLIDATED SHAREHOLDERS' EQUITY

|Year ended December 31
(millions of dollars)                                                 |  | 2008   |   | 2007  |   | 2006  |   | 
|-------------------------------------------------------------------------------------------- |  | ------ | - | ----- | - | ----- | - | 
|                                                                                            
|Common Shares                                                                                |  |        |   |       |   |       |   | 
|Balance at beginning of year                                                                 |  | 6,662  |   | 4,794 |   | 4,755 |   | 
|Proceeds from shares issued under public offering, net of issue costs (Note 16)              |  | 2,363  |   | 1,683 |   |      |   | 
|Shares issued under dividend reinvestment plan (Note 16)                                     |  | 218    |   | 157   |   |      |   | 
|Proceeds from shares issued on exercise of stock options (Note 16)                           |  | 21     |   | 28    |   | 39    |   | 
|                                                                                            
|Balance at end of year                                                                       |  | 9,264  |   | 6,662 |   | 4,794 |   | 
|                                                                                            
|Contributed Surplus                                                                          |  |        |   |       |   |       |   | 
|Balance at beginning of year                                                                 |  | 276    |   | 273   |   | 272   |   | 
|Issuance of stock options (Note 16)                                                          |  | 3      |   | 3     |   | 1     |   | 
|                                                                                            
|Balance at end of year                                                                       |  | 279    |   | 276   |   | 273   |   | 
|                                                                                            
|Retained Earnings                                                                            |  |        |   |       |   |       |   | 
|Balance at beginning of year                                                                 |  | 3,220  |   | 2,724 |   | 2,269 |   | 
|Net income                                                                                   |  | 1,440  |   | 1,223 |   | 1,079 |   | 
|Common share dividends                                                                       |  | (833   | ) | (731  | ) | (624  | ) | 
|Transition adjustment resulting from adopting new financial instruments accounting standards |  |       |   | 4     |   |      |   | 
|                                                                                            
|Balance at end of year                                                                       |  | 3,827  |   | 3,220 |   | 2,724 |   | 
|                                                                                            
|Accumulated Other Comprehensive Income, Net of Income Taxes                                  |  |        |   |       |   |       |   | 
|Balance at beginning of year                                                                 |  | (373   | ) | (90   | ) | (90   | ) | 
|Other comprehensive income/(loss)                                                            |  | (99    | ) | (187  | ) |      |   | 
|Transition adjustment resulting from adopting new financial instruments accounting standards |  |       |   | (96   | ) |      |   | 
|                                                                                            
|Balance at end of year                                                                       |  | (472   | ) | (373  | ) | (90   | ) | 
|                                                                                            
|                                                                                             |  | 3,355  |   | 2,847 |   | 2,634 |   | 
|                                                                                            
|Total Shareholders' Equity                                                                   |  | 12,898 |   | 9,785 |   | 7,701 |   | 
|                                                                                            

The accompanying notes to the consolidated financial statements are an integral part of these statements.

90CONSOLIDATED
FINANCIAL STATEMENTS

---





TRANSCANADA CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1    DESCRIPTION OF TRANSCANADA'S BUSINESS

TransCanada Corporation (TransCanada or the Company) is a leading North American energy company. TransCanada operates in two business segments, Pipelines and Energy, each
of which offers different products and services.

Pipelines

The Pipelines segment consists primarily of the Company's investments in regulated pipelines and regulated natural gas storage facilities. Through its Pipelines segment,
TransCanada owns and operates:

TransCanada
owns but does not operate:

TransCanada
has a 62 per cent interest in a pipeline under construction that will transport crude oil from Hardisty, Alberta, to U.S. markets at Wood
River and Patoka in Illinois, and at Cushing, Oklahoma (Keystone).

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS91

---



Energy

The Energy segment consists primarily of the Company's investments in electrical power generation plants and non-regulated natural gas storage facilities. Through
its Energy segment, the Company also sells electricity and holds interests in liquefied natural gas (LNG) regasification projects in North America. Through its Energy segment, TransCanada owns
and operates:

TransCanada
owns but does not operate:

TransCanada
also has long-term power purchase arrangements (PPA) in place for:

TransCanada
has interests in the following projects under construction:

NOTE 2    ACCOUNTING POLICIES

The Company's consolidated financial statements have been prepared by management in accordance with Canadian GAAP. Amounts are stated in Canadian dollars unless otherwise
indicated. Certain comparative figures have been reclassified to conform with the current year's presentation.

In
preparing these financial statements, TransCanada is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities,
revenues and expenses as the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgement in making these
estimates and assumptions. In the opinion of management, these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the
significant accounting policies summarized below.

Basis of Presentation

The consolidated financial statements include the accounts of TransCanada and its subsidiaries. The Company consolidates its 32.1 per cent ownership interest in
PipeLines LP and its 61.7 per cent interest in the Portland Natural Gas Transmission System (Portland) as the Company is able to exercise control over these assets. The other
partners' interests are included in Non-Controlling Interests. TransCanada proportionately consolidates its share of the accounts of joint ventures in which the Company is able to exercise
joint control. TransCanada uses the equity method of accounting for investments over which the Company is able to exercise significant influence.

92NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Regulation

The Canadian Mainline, Foothills Pipe Lines Ltd. (Foothills) and Trans Québec & Maritimes System (TQM) are subject to the authority of the National
Energy Board (NEB) of Canada. The Alberta System is regulated by the Alberta Utilities Commission (AUC). The GTN System and North Baja (collectively, GTN), the ANR Pipeline Company, the ANR Storage
Company and the other natural gas pipelines in the U.S. are subject to the authority of the U.S. Federal Energy Regulatory Commission (FERC). These natural gas transmission operations
are regulated with respect to construction, operations and the determination of tolls. The timing of recognition of certain revenues and expenses in these regulated businesses may differ from that
otherwise expected under GAAP to appropriately reflect the economic impact of the regulators' decisions regarding revenues and tolls. The impact of rate regulation on TransCanada is provided in
Note 14 of these financial statements.

Revenue Recognition

Pipelines

In the Pipelines segment, revenues from Canadian operations subject to rate regulation are recognized in accordance with decisions made by the NEB and AUC. Revenues from
U.S. operations subject to rate regulation are recorded in accordance with FERC rules and regulations. The Company's natural gas pipeline revenues are generally based on quantity of gas
delivered or contracted capacity. Revenues are recognized on firm contracted capacity over the contract period. For interruptible or volumetric-based services, revenues are recorded when physical
delivery is made. As the majority of the Company's natural gas pipelines are subject to rate regulation, revenues collected that are subject to rate proceedings may have to be refunded. Revenues from
non-regulated operations are recorded when products have been delivered or services have been performed.

Energy

i)      Power

Revenues from the Company's Power business are primarily derived from the sale of electricity from energy marketing activities and from the sale of unutilized natural gas fuel,
which are recorded in the month of delivery. Revenues also include capacity payments and ancillary services earned as well as the impact of energy derivative contracts, the accounting for which is
described in the Financial Instruments section of this note.

ii)     Natural Gas Storage

Revenues earned from providing natural gas storage services are recognized in accordance with the terms of the natural gas storage contracts. Revenues earned on the sale of
proprietary natural gas are recorded in the month of delivery. Forward contracts for the purchase or sale of natural gas, as well as proprietary natural gas inventory, are recorded at fair value with
changes in fair value recorded in Revenues.

Cash and Cash Equivalents

The Company's cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less and are recorded at
cost, which approximates fair value.

Inventories

Effective April 1, 2007, the Company adopted the accounting requirements for the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3031
"Inventories". Inventories primarily consist of materials and supplies, including spare parts, and are carried at the lower of average cost and net realizable value. The Company values its proprietary
natural gas inventory held in storage at fair value, as measured
by the one-month forward price for natural gas, less selling costs. To record inventory at fair value, TransCanada has designated its natural gas storage business as a broker/trader
business that purchases and sells natural gas on a back-to-back basis. The Company records its net proprietary natural gas storage sales and purchases in Revenues. All changes
in the fair value of the proprietary natural gas inventories are reflected in Inventories and Revenues.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS93

---



Plant, Property and Equipment

Pipelines

Plant, property and equipment of the Pipelines segment are carried at cost. Depreciation is calculated on a straight-line basis. Pipeline and compression equipment
are depreciated at annual rates ranging from one per cent to 25 per cent and metering and other plant equipment are depreciated at various rates. The cost of regulated
pipelines includes an allowance for funds used during construction (AFUDC) consisting of a debt and an equity component based on the rate of return on rate base approved by regulators. This allowance
is reflected as an increase in the cost of the assets on the balance sheet. Interest is capitalized during construction of non-regulated pipelines. The equity component of AFUDC is a
non-cash expenditure.

When
regulated pipelines retire plant, property and equipment from service, the original book cost is removed from the gross plant amount and recorded as a reduction to
accumulated depreciation. Costs incurred to remove a plant from service, net of any salvage proceeds, are also recorded in accumulated depreciation.

Energy

Major power generation and natural gas storage plant, equipment and structures in the Energy segment are recorded at cost and depreciated on a straight-line basis
over estimated service lives at average annual rates ranging from two per cent to ten per cent. Nuclear power generation assets under capital lease are recorded initially at the
present value of minimum lease payments at the inception of the lease and amortized on a straight-line basis over the shorter of their useful life and the remaining lease term. Other
equipment is depreciated at various rates. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives. Interest is capitalized on facilities under
construction.

Corporate

Corporate plant, property and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives at average annual rates ranging
from three to 20 per cent.

Impairment of Long-Lived Assets

The Company reviews long-lived assets such as property, plant and equipment, and intangible assets for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the assets, an impairment loss is recognized for the
excess of the carrying value over the fair value of the assets.

Acquisitions and Goodwill

The Company accounts for business acquisitions using the purchase method of accounting and, accordingly, the assets and liabilities of the acquired entities are recorded at
their estimated fair values at the date of acquisition. Goodwill is not amortized and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the
asset might be impaired. An initial assessment is made by comparing the fair value of the operations, which includes goodwill, to the book values of each reporting unit. If this fair value is less
than book value, an impairment is indicated and a second test is performed to measure the amount of the impairment. In the second test, the implied fair value of the goodwill is calculated by
deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value determined in the initial assessment. If the carrying value of the goodwill exceeds the
calculated implied fair value of the goodwill, an impairment charge is recorded.

Power Purchase Arrangements

A PPA is a long-term contract for the purchase or sale of power on a predetermined basis. The initial payments for a PPA are deferred and amortized on a
straight-line basis over the term of the contract, with remaining terms ranging from nine to 12 years. The PPAs under which TransCanada buys power are accounted for as operating
leases. A portion of these PPAs has been subleased to third parties under similar terms and conditions. The subleases are accounted for as operating leases and TransCanada records the margin earned
from the subleases as a component of Revenues.

Stock Options

TransCanada's Stock Option Plan permits options to be awarded to certain employees, including officers, to purchase common shares. The contractual life of options granted in
2003 and thereafter and options granted prior to 2003 is seven years and ten years, respectively. The Company uses the Black-Scholes model to determine fair value of the options on their grant date.
Options may be exercised at a price determined at the time the option is awarded and vest 33.3 per cent on the anniversary date in each of the three years following the award.
Forfeitures of stock options result from their expiration or from the resignation, retirement or termination of the option holder. Stock options become null and void upon forfeiture. The Company
records compensation expense over the three-year vesting period, assuming a

94NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



15 per cent
forfeiture rate, with an offset to Contributed Surplus. This charge is reflected in the results of the Pipelines and Energy segments. Upon exercise of stock options, adjusted
for stock options forfeited, amounts originally recorded against Contributed Surplus are reclassified to Common Shares.

Income Taxes

The taxes payable method of accounting for income taxes is used for tollmaking purposes for Canadian regulated natural gas transmission operations, as prescribed by regulators.
It is not necessary to provide for future income taxes under the taxes payable method. As permitted by Canadian GAAP at December 31, 2008, this method is also used for accounting purposes,
since there is reasonable expectation that future taxes payable will be included in future costs of service and recorded in revenues at that time. The liability method of accounting for income taxes
is used for all of the Company's other operations. Under the liability method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively
enacted tax rates anticipated to apply to taxable income in the years in which temporary differences are anticipated to be recovered or settled. Changes to these balances are recognized in income in
the period during which they occur.

Canadian
income taxes are not provided on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future.

Foreign Currency Translation

The Company's foreign operations are self-sustaining and are translated into Canadian dollars using the current rate method. Under this method, assets and
liabilities are translated at period-end exchange rates and items included in the consolidated statements of income, shareholders' equity, comprehensive income, accumulated other
comprehensive income and cash flows are translated at the exchange rates in effect at the time of the transaction. Translation adjustments are reflected in Other Comprehensive Income.

Exchange
gains or losses on monetary assets and liabilities are recorded in income except for exchange gains or losses on the principal amounts of foreign currency debt
related to the Alberta System, Foothills and Canadian Mainline, which are deferred until they are refunded or recovered in tolls, as permitted by regulatory bodies.

Financial Instruments

Effective January 1, 2007, the Company adopted the accounting requirements for CICA Handbook Sections 1530 "Comprehensive Income", 3855 "Financial
Instruments  Recognition and Measurement", and 3865 "Hedges". Effective December 31, 2007, the Company adopted the accounting requirements for CICA
Handbook Sections 3862 "Financial Instruments  Disclosure", 3863 "Financial Instruments  Presentation", and 1535
"Capital Disclosures". Adjustments to the consolidated financial statements for 2007 were made on a prospective basis.

The
CICA Handbook requires that all financial instruments initially be included on the balance sheet at their fair value. Subsequent measurement of the financial instruments
is based on their classification. Financial assets are classified into the following categories: held for trading, available for sale, held-to-maturity investments and loans
and receivables. Financial liabilities are classified as held for trading or other financial liabilities.

Held-for-trading
derivative financial assets and liabilities consist of swaps, options, forwards and futures. A financial asset or liability may be
designated as held for trading if it is entered into with the intention of generating a profit. The Company has not designated any non-derivative financial assets or liabilities as held
for trading. Commodity
held-for-trading financial instruments are initially recorded at their fair value and changes to fair value are included in Revenues. Changes in the fair value of interest rate
and foreign exchange rate held-for-trading instruments are recorded in Financial Charges and in Interest Income and Other, respectively.

The
available-for-sale classification includes non-derivative financial assets that are designated as available for sale or are not
included in the other three classifications. TransCanada's available-for-sale financial instruments include fixed-income securities held for self-insurance. These
instruments are accounted for initially at their fair value and changes to fair value are recorded through Other Comprehensive Income. Income from the settlement of
available-for-sale financial assets will be included in Interest Income and Other.

The
held-to-maturity classification consists of non-derivative financial assets that are accounted for at their amortized cost using the
effective interest method. The Company does not have any held-to-maturity financial assets.

Trade
receivables, loans and other receivables with fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables" and are
measured at amortized cost using the effective interest method, net of any impairment. Loans and receivables include primarily trade accounts receivable and non-interest-bearing
third-party loans receivable. Interest and other income earned from these financial assets are recorded in Interest Income and Other.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS95

---



Other
financial liabilities consist of liabilities not classified as held for trading. Items in this financial instrument category are recognized at amortized cost using the
effective interest method. Interest expense is included in Financial Charges and in Financial Charges of Joint Ventures.

The
Company uses derivatives and other financial instruments to manage its exposure to changes in foreign currency exchange rates, interest rates and energy commodity
prices. The Company also uses a combination of derivatives and U.S. dollar-denominated debt to manage the foreign currency exposure of its foreign operations.

All
derivatives are recorded on the balance sheet at fair value, with the exception of non-financial derivatives that were entered into and continue to be held
for the purpose of receipt or delivery in accordance with the Company's expected purchase, sale or usage requirements. Changes in fair value of derivatives that are not designated in a hedging
relationship are recorded in Net Income. Derivatives used in hedging relationships are discussed further in the Hedges section of this note.

Derivatives
embedded in other financial instruments or contracts (host instrument) are recorded as separate derivatives and are measured at fair value if the economic
characteristics of the embedded derivative are not closely related to the host instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative and the total contract
is not held for trading or accounted for at fair value. Changes in the fair value of embedded derivatives that are recorded separately are included in Net Income.

The
recognition of gains and losses on the derivatives for the Alberta System, Foothills and Canadian Mainline exposures is determined through the regulatory process. The
gains and losses on derivatives accounted for as part of rate-regulated accounting are deferred in regulatory assets or regulatory liabilities.

Transaction
costs are defined as incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. The Company offsets
long-term debt transaction costs against the associated debt and amortizes these costs using the effective interest method for all costs except those related to the Canadian regulated
pipelines, which continue to be amortized on a straight-line basis in accordance with the provisions of tolling mechanisms.

The
Company records the fair values of material joint and several guarantees. The fair value of these guarantees is estimated by discounting the cash flows that would be
incurred by the Company if letters of credit were used in place of the guarantees. Guarantees are recorded as an increase to an investment account, Property, Plant and Equipment or a charge to Net
Income, and a corresponding liability is recorded in Deferred Amounts.

Hedges

The CICA Handbook specifies the criteria that must be satisfied in order to apply hedge accounting and the accounting for each of the permitted hedging strategies, including:
fair value hedges, cash flow hedges and hedges of foreign currency exposures of net investments in self-sustaining foreign operations. Hedge accounting is discontinued prospectively when
the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, expiry, sale, termination, cancellation or exercise.

Documentation
must be prepared at the inception of the hedging arrangement in order to qualify for hedge accounting treatment. In addition, the Company must perform an
assessment of effectiveness at inception of the contract and at each reporting date.

In
a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the hedged risk. The changes in fair value
are recognized in Net Income. Changes in the fair value of the hedged item, to the extent that the hedging relationship is effective, are offset by changes in the fair value of the hedging item, which
are also recorded in Net Income. Changes in the fair value of foreign exchange and interest rate fair value hedges are recorded in Interest Income and Other and Financial Charges, respectively. When
hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to Net
Income over the remaining term of the original hedging relationship.

In
a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative is recognized in Other Comprehensive Income, while any
ineffective portion is recognized in Net Income in the same financial category as the underlying transaction. When hedge accounting is discontinued, the amounts recognized previously in Accumulated
Other Comprehensive Income are reclassified to Net Income during the periods when the variability in cash flows of the hedged item affects Net Income. Gains and losses on derivatives are reclassified
immediately to Net Income from Accumulated Other Comprehensive Income when the hedged item is sold or terminated early, or when a hedged anticipated transaction is no longer expected to occur.

The
Company also enters into cash flow hedges and fair value hedges for activities subject to rate regulation. The gains and losses arising from the changes in fair value of
these hedges can be recovered through the tolls charged by the Company. As a result, these gains and losses are deferred as rate-regulated assets or liabilities on behalf of the
ratepayers. When the hedges are settled, the realized gains or losses are collected from or refunded to the ratepayers in subsequent years.

In
hedging the foreign currency exposure of a net investment in a self-sustaining foreign operation, the effective portion of foreign exchange gains and losses
on the hedging instruments is recognized in Other Comprehensive Income and the ineffective portion is recognized in Net

96NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Income.
The amounts recognized previously in Accumulated Other Comprehensive Income are reclassified to Net Income in the event the Company settles or otherwise reduces its investment in a foreign
operation.

Asset Retirement Obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred, when a legal obligation to do so exists and a
reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset and the liability is accreted at the end of each period through charges to
operating expenses.

It
is not possible to determine the scope and timing of asset retirements related to regulated natural gas pipelines and, therefore, it is not possible to make a reasonable
estimate of the fair value of the associated liability. As a result, the Company has not recorded an amount for asset retirement obligations related to regulated natural gas pipelines, with the
exception of certain abandoned facilities. Management believes it is reasonable to assume that all retirement costs associated with its regulated pipelines will be recovered through tolls in
future periods.

Similarly,
it is not possible to determine the scope and timing of asset retirements related to hydroelectric power plants and, therefore, it is not possible to make a
reasonable estimate of the fair value of the associated liability. As a result, the Company has not recorded an amount for asset retirement obligations related to hydroelectric power plants. With
respect to the nuclear assets leased by Bruce Power, the Company has not recorded an amount for asset retirement obligations, as Bruce Power leases the assets and the lessor is responsible for
decommissioning liabilities under the lease agreement.

Environmental Liabilities

The Company records liabilities on an undiscounted basis for environmental remediation efforts that are likely to occur and where the cost can be reasonably estimated. The
estimates, including associated legal costs, are based on available information using existing technology and enacted laws and regulations. The estimates are subject to revision in future periods
based on actual costs incurred or new circumstances. Any amounts expected to be recovered from other parties, including insurers, are recorded as an asset separate from the associated liability.

Employee Benefit and Other Plans

The Company sponsors defined benefit pension plans (DB Plans), defined contributions plans (DC Plans), a Savings Plan and other post-employment plans.
Contributions made by the Company to the DC Plans and Savings Plan are expensed as incurred. The cost of the DB Plans and other post-employment benefits earned by employees is actuarially
determined using the projected benefit method pro-rated based on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of
employees and expected health care costs.

The
DB Plans' assets are measured at fair value. The expected return on the DB Plans' assets is determined using market-related values based on a five-year
moving average value for all of the DB Plan's assets. Past service costs are amortized over the expected average remaining service life of the employees. Adjustments arising from plan amendments are
amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. The excess of net actuarial gains or losses over
10 per cent of the greater of the benefit obligation and the market-related value of the DB Plans' assets, if any, is amortized over the average remaining service period of the active
employees. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement.

The
Company has medium-term incentive plans, which are payable in cash to eligible employees. The expense related to these incentive plans is accounted for on an
accrual basis. Under these plans, units vest when certain conditions are met, including the employees' continued employment during a specified period and achievement of specified corporate performance
targets.

Certain
of the Company's joint ventures sponsor DB Plans. The Company records its proportionate share of expenses, funding contributions and accrued benefit assets and
liabilities related to these plans.

NOTE 3    ACCOUNTING CHANGES

Future Accounting Changes

Rate-Regulated Operations

Effective January 1, 2009, the temporary exemption from CICA Handbook Section 1100 "Generally Accepted Accounting Principles", which permits the recognition and
measurement of assets and liabilities arising from rate regulation, was withdrawn. In addition, Section 3465 "Income Taxes" was amended to require the recognition of future income tax assets
and liabilities for rate-regulated entities. The Company has chosen to adopt accounting policies consistent with the U.S. Financial Accounting Standards Board's Financial Accounting
Standard (FAS) 71 "Accounting for the Effects of Certain Types of Regulation". Accordingly, TransCanada will retain its current method of accounting for its

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS97

---



rate-regulated
operations, except that TransCanada will be required to recognize future income tax assets and liabilities instead of using the taxes payable method, and will record an
offsetting adjustment to regulatory assets and liabilities. If the Company had adopted FAS 71, at December 31, 2008, additional future income tax liabilities and a regulatory asset in
the amount of $1,434 million would have been recorded and would have been recoverable from future revenue. These changes will be applied retrospectively without restatement beginning
January 1, 2009.

Intangible Assets

The CICA Handbook implemented revisions to standards dealing with intangible assets effective for fiscal years beginning on or after October 1, 2008. The revisions are
intended to align the definition of an intangible asset in Canadian GAAP with that in International Financial Reporting Standards (IFRS) and U.S. GAAP. CICA Handbook Section 1000
"Financial Statement Concepts" was revised to remove material that permitted the recognition of assets that might not otherwise meet the definition of an asset and to add guidance from the
International Accounting Standards Board's (IASB) "Framework for the Preparation and Presentation of Financial Statements" that helps distinguish assets from expenses. CICA Handbook
Section 3064 "Goodwill and Intangible Assets", which replaced CICA Handbook Section 3062 "Goodwill and Other Intangible Assets", gives guidance on the recognition of intangible assets as
well as the recognition and measurement of internally developed intangible assets. In addition, CICA Handbook Section 3450 "Research and Development Costs" will be withdrawn from the Handbook.
The Company does not expect these changes to have a material effect on its financial statements.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

CICA Handbook Section 1582 "Business Combinations" is effective for business combinations with an acquisition date after January 1, 2011. This standard was amended
to require additional use of fair value measurements, recognition of additional assets and liabilities, and increased disclosure. Adopting this standard is expected to have a material effect on the
way the Company accounts for future business combinations. Entities adopting Section 1582 will also be required to adopt CICA Handbook Sections 1601 "Consolidated Financial Statements"
and 1602 "Non-Controlling Interests". These standards will require a change in the measurement of non-controlling interest and will require the change to be presented as
part of shareholders' equity on the balance sheet. In addition, the income statement of the controlling parent will include 100 per cent of the subsidiary's results and present the
allocation between the controlling interest and non-controlling interest. These standards will be effective January 1, 2011, with early adoption permitted. The changes resulting
from adopting Section 1582 will be applied prospectively and the changes from adopting Sections 1601 and 1602 will be applied retrospectively.

International Financial Reporting Standards

The CICA's Accounting Standards Board announced that Canadian publicly accountable enterprises are required to adopt IFRS, as issued by the IASB, effective January 1,
2011. In June 2008, the Canadian Securities Administrators proposed that Canadian public companies that are also U.S. Securities and Exchange Commission (SEC) registrants, such as TransCanada,
retain the option to prepare their financial statements under U.S. GAAP instead of IFRS. In November 2008, the SEC issued for public comment a recommendation that, beginning in 2014,
U.S. issuers be required to adopt IFRS using a phased-in approach based on market capitalization.

TransCanada
is currently considering the impact a conversion to IFRS or U.S. GAAP would have on its accounting systems and financial statements. TransCanada's
conversion project planning includes an analysis of project structure and governance, resources and training, analysis of key GAAP differences and a phased approach to the assessment of current
accounting policies and implementation.

Under
existing Canadian GAAP, TransCanada follows specific accounting policies unique to rate-regulated businesses. TransCanada is actively monitoring ongoing
discussions and developments at the IASB regarding potential future guidance to clarify the applicability of certain aspects of rate-regulated accounting under IFRS. The IASB is
expected to issue a proposed standard for rate-regulated businesses in 2009.

98NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---





NOTE 4    SEGMENTED INFORMATION

NET INCOME(1)

|Year ended December 31, 2008 (millions of dollars) |  | Pipelines |   | Energy |   | Corporate |   |  | Total  |   | 
|-------------------------------------------------- |  | --------- | - | ------ | - | --------- | - |  | ------ | - | 
|                                                  
|Revenues                                           |  | 4,650     |   | 3,969  |   |          |   |  | 8,619  |   | 
|Plant operating costs and other                    |  | (1,732    | ) | (1,326 | ) | (4        | ) |  | (3,062 | ) | 
|Commodity purchases resold                         |  |          |   | (1,511 | ) |          |   |  | (1,511 | ) | 
|Depreciation                                       |  | (989      | ) | (200   | ) |          |   |  | (1,189 | ) | 
|                                                  
|                                                   |  | 1,929     |   | 932    |   | (4        | ) |  | 2,857  |   | 
|Financial charges                                  |  | (674      | ) |       |   | (269      | ) |  | (943   | ) | 
|Financial charges of joint ventures                |  | (49       | ) | (23    | ) |          |   |  | (72    | ) | 
|Interest income and other                          |  | 73        |   | 6      |   | 13        |   |  | 92     |   | 
|Calpine bankruptcy settlements                     |  | 279       |   |       |   |          |   |  | 279    |   | 
|Writedown of Broadwater LNG project costs          |  |          |   | (41    | ) |          |   |  | (41    | ) | 
|Income taxes                                       |  | (548      | ) | (260   | ) | 206       |   |  | (602   | ) | 
|Non-controlling interests                          |  | (108      | ) |       |   | (22       | ) |  | (130   | ) | 
|                                                  
|Net Income                                         |  | 902       |   | 614    |   | (76       | ) |  | 1,440  |   | 
|                                                  

|
|

|Year ended December 31, 2007 (millions of dollars) |  |        |   |        |   |      |   |  |        |   | 
|-------------------------------------------------- |  | ------ | - | ------ | - | ---- | - |  | ------ | - | 
|                                                  
|Revenues                                           |  | 4,712  |   | 4,116  |   |     |   |  | 8,828  |   | 
|Plant operating costs and other                    |  | (1,670 | ) | (1,353 | ) | (7   | ) |  | (3,030 | ) | 
|Commodity purchases resold                         |  | (72    | ) | (1,887 | ) |     |   |  | (1,959 | ) | 
|Depreciation                                       |  | (1,021 | ) | (158   | ) |     |   |  | (1,179 | ) | 
|                                                  
|                                                   |  | 1,949  |   | 718    |   | (7   | ) |  | 2,660  |   | 
|Financial charges                                  |  | (718   | ) | 1      |   | (226 | ) |  | (943   | ) | 
|Financial charges of joint ventures                |  | (52    | ) | (23    | ) |     |   |  | (75    | ) | 
|Interest income and other                          |  | 52     |   | 10     |   | 90   |   |  | 152    |   | 
|Gain on sale of assets                             |  |       |   | 16     |   |     |   |  | 16     |   | 
|Income taxes                                       |  | (470   | ) | (208   | ) | 188  |   |  | (490   | ) | 
|Non-controlling interests                          |  | (75    | ) |       |   | (22  | ) |  | (97    | ) | 
|                                                  
|Net Income                                         |  | 686    |   | 514    |   | 23   |   |  | 1,223  |   | 
|                                                  

|
|

|Year ended December 31, 2006 (millions of dollars) |  |        |   |        |   |      |   |  |        |   | 
|-------------------------------------------------- |  | ------ | - | ------ | - | ---- | - |  | ------ | - | 
|                                                  
|Revenues                                           |  | 3,990  |   | 3,530  |   |     |   |  | 7,520  |   | 
|Plant operating costs and other                    |  | (1,380 | ) | (1,024 | ) | (7   | ) |  | (2,411 | ) | 
|Commodity purchases resold                         |  |       |   | (1,707 | ) |     |   |  | (1,707 | ) | 
|Depreciation                                       |  | (927   | ) | (131   | ) | (1   | ) |  | (1,059 | ) | 
|                                                  
|                                                   |  | 1,683  |   | 668    |   | (8   | ) |  | 2,343  |   | 
|Financial charges                                  |  | (711   | ) |       |   | (114 | ) |  | (825   | ) | 
|Financial charges of joint ventures                |  | (69    | ) | (23    | ) |     |   |  | (92    | ) | 
|Interest income and other                          |  | 100    |   | 5      |   | 51   |   |  | 156    |   | 
|Gain on sale of assets                             |  | 23     |   |       |   |     |   |  | 23     |   | 
|Income taxes                                       |  | (410   | ) | (198   | ) | 132  |   |  | (476   | ) | 
|Non-controlling interests                          |  | (56    | ) |       |   | (22  | ) |  | (78    | ) | 
|                                                  
|Net income from continuing operations              |  | 560    |   | 452    |   | 39   |   |  | 1,051  |   | 
|                                                   |  |        |  
|                                                   |  |        |   |        |   |      |   |  |        |   | 
|Net income from discontinued operations            |  |        |   |        |   |      |   |  | 28     |   | 
|                                                   |  |        |   |        |   |      |   |  |       
|Net Income                                         |  |        |   |        |   |      |   |  | 1,079  |   | 
|                                                   |  |        |   |        |   |      |   |  |       

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS99

---



TOTAL ASSETS

|December 31 (millions of dollars) |  | 2008   |  | 2007   |  |  |  | 
|--------------------------------- |  | ------ |  | ------ |  |  |  | 
|                                  |  |       
|Pipelines                         |  | 25,020 |  | 22,024 |  |  |  | 
|Energy                            |  | 12,006 |  | 7,037  |  |  |  | 
|Corporate                         |  | 2,388  |  | 1,269  |  |  |  | 
|                                  |  |       
|                                  |  | 39,414 |  | 30,330 |  |  |  | 
|                                  |  |       

GEOGRAPHIC INFORMATION

|Year ended December 31 (millions of dollars) |  | 2008  |  | 2007  |  | 2006  |  | 
|-------------------------------------------- |  | ----- |  | ----- |  | ----- |  | 
|                                            
|Revenues(1)                                  |  |       |  |       |  |       |  | 
|Canada  domestic                            |  | 4,599 |  | 5,019 |  | 4,956 |  | 
|Canada  export                              |  | 1,125 |  | 1,006 |  | 972   |  | 
|United States and other                      |  | 2,895 |  | 2,803 |  | 1,592 |  | 
|                                            
|                                             |  | 8,619 |  | 8,828 |  | 7,520 |  | 
|                                            

|December 31 (millions of dollars) |  | 2008   |  | 2007   |  |  |  | 
|--------------------------------- |  | ------ |  | ------ |  |  |  | 
|                                  |  |       
|Plant, Property and Equipment     |  |        |  |        |  |  |  | 
|Canada                            |  | 18,041 |  | 16,741 |  |  |  | 
|United States                     |  | 10,973 |  | 6,564  |  |  |  | 
|Mexico                            |  | 175    |  | 147    |  |  |  | 
|                                  |  |       
|                                  |  | 29,189 |  | 23,452 |  |  |  | 
|                                  |  |       

CAPITAL EXPENDITURES

|Year ended December 31 (millions of dollars) |  | 2008  |  | 2007  |  | 2006  |  | 
|-------------------------------------------- |  | ----- |  | ----- |  | ----- |  | 
|                                            
|Pipelines                                    |  | 1,854 |  | 564   |  | 560   |  | 
|Energy                                       |  | 1,266 |  | 1,079 |  | 976   |  | 
|Corporate                                    |  | 14    |  | 8     |  | 36    |  | 
|                                            
|                                             |  | 3,134 |  | 1,651 |  | 1,572 |  | 
|                                            

100NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 5    PLANT, PROPERTY AND EQUIPMENT

|                                  |                                 | 2008   | 2007 
|--------------------------------- | ------------------------------- | ------ | -----
|                                  |                                 |       
|December 31 (millions of dollars) |                                 | Cost   |      
|                                 
|Pipelines(1)                      |                                 |        |      
|Canadian Mainline                 |                                 |        |      
|                                  | Pipeline                        |        | 8,740
|                                  | Compression                     |        | 3,373
|                                  | Metering and other              |        | 344  
|                                 
|                                  |                                 | 12,457 |      
|                                  | Under construction              |        | 16   
|                                 
|                                  |                                 | 12,473 |      
|                                 
|Alberta System                    |                                 |        |      
|                                  | Pipeline                        |        | 5,518
|                                  | Compression                     |        | 1,552
|                                  | Metering and other              |        | 846  
|                                 
|                                  |                                 | 7,916  |      
|                                  | Under construction              |        | 354  
|                                 
|                                  |                                 | 8,270  |      
|                                 
|ANR                               |                                 |        |      
|                                  | Pipeline                        |        | 976  
|                                  | Compression                     |        | 579  
|                                  | Metering and other              |        | 686  
|                                 
|                                  |                                 | 2,241  |      
|                                  | Under construction              |        | 31   
|                                 
|                                  |                                 | 2,272  |      
|                                 
|GTN                               |                                 |        |      
|                                  | Pipeline                        |        | 1,482
|                                  | Compression                     |        | 562  
|                                  | Metering and other              |        | 134  
|                                 
|                                  |                                 | 2,178  |      
|                                  | Under construction              |        | 30   
|                                 
|                                  |                                 | 2,208  |      
|                                 
|Great Lakes                       |                                 | 1,875  |      
|Foothills                         |                                 | 1,655  |      
|Northern Border                   |                                 | 1,530  |      
|Keystone  under construction     |                                 | 1,361  |      
|Other(2)                          |                                 | 2,078  |      
|                                 
|                                  |                                 | 8,499  |      
|                                 
|                                  |                                 | 33,722 |      
|                                 
|Energy                            |                                 |        |      
|                                  | Nuclear(3)                      |        | 1,604
|                                  | Natural gas/oil  Ravenswood(4) |        | 1,977
|                                  | Natural gas  Other(6)          |        | 1,702
|                                  | Hydro                           |        | 628  
|                                  | Wind                            |        | 391  
|                                  | Natural gas storage             |        | 374  
|                                  | Other                           |        | 156  
|                                 
|                                  |                                 | 6,832  |      
|                                  | Under construction(7)           |        | 2,687
|                                 
|                                  |                                 | 9,519  |      
|                                 
|Corporate                         |                                 | 74     |      
|                                 
|                                  |                                 | 43,315 |      
|                                 

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS101

---



NOTE 6    GOODWILL

The Company has recorded the following goodwill on its acquisitions in the U.S.:

|(millions of dollars)                              |  | Pipelines |   | Energy |  | Total |   | 
|-------------------------------------------------- |  | --------- | - | ------ |  | ----- | - | 
|                                                  
|Balance at January 1, 2007                         |  | 281       |   |       |  | 281   |   | 
|Acquisition of ANR                                 |  | 2,235     |   |       |  | 2,235 |   | 
|Acquisition of additional interests in Great Lakes |  | 573       |   |       |  | 573   |   | 
|Acquisition of additional interest in Tuscarora    |  | 3         |   |       |  | 3     |   | 
|Foreign exchange and adjustments                   |  | (459      | ) |       |  | (459  | ) | 
|                                                  
|Balance at December 31, 2007                       |  | 2,633     |   |       |  | 2,633 |   | 
|Acquisition of Ravenswood                          |  |          |   | 949    |  | 949   |   | 
|Foreign exchange and adjustments                   |  | 749       |   | 66     |  | 815   |   | 
|                                                  
|Balance at December 31, 2008                       |  | 3,382     |   | 1,015  |  | 4,397 |   | 
|                                                  

NOTE 7    OTHER ASSETS

|December 31 (millions of dollars)           |  | 2008  |  | 2007  |  |  |  | 
|------------------------------------------- |  | ----- |  | ----- |  |  |  | 
|                                            |  |      
|PPAs(1)                                     |  | 651   |  | 709   |  |  |  | 
|Prepaid operating lease(2)                  |  | 369   |  | n/a   |  |  |  | 
|Pension and other benefit plans(Note 21)    |  | 234   |  | 234   |  |  |  | 
|Regulatory assets(Note 14)                  |  | 201   |  | 336   |  |  |  | 
|Fair value of derivative contracts(Note 17) |  | 191   |  | 204   |  |  |  | 
|Loans and advances(3)(Note 23)              |  | 140   |  | 137   |  |  |  | 
|Deferred project development costs(4)       |  | 116   |  | 40    |  |  |  | 
|Equity investments(5)                       |  | 85    |  | 63    |  |  |  | 
|Other                                       |  | 241   |  | 217   |  |  |  | 
|                                            |  |      
|                                            |  | 2,228 |  | 1,940 |  |  |  | 
|                                            |  |      

2008

2007December 31
(millions of dollars)

Cost

Accumulated
Amortization

Net
Book Value

Cost

Accumulated
Amortization

Net
Book ValuePPAs

915

264

651

915

206

709




102NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 8    JOINT VENTURE INVESTMENTS

|                       |  |                                            |     | TransCanada's Proportionate Share                        |   |                       
|---------------------- |  | ------------------------------------------ | --- | -------------------------------------------------------- | - | ----------------------
|                       |  |                                            |     |                                                         
|                       |  |                                            |     | Income/(Loss) Before Income Taxes
Year ended December 31 |   | Net Assets
December 31
|                       |  |                                            |     |                                                         
|(millions of dollars)  |  | Ownership
Interest as at
December 31,
2008 |     | 2008                                                     |   | 2007                  
|                      
|Pipelines              |  |                                            |     |                                                          |   |                       
|Northern Border(1)     |  |                                            |     | 59                                                       |   | 67                    
|Iroquois               |  | 44.5%                                      |     | 32                                                       |   | 25                    
|TQM                    |  | 50.0%                                      |     | 12                                                       |   | 11                    
|Keystone               |  | 61.9%                                      | (2) | (7                                                       | ) | n/a                   
|Great Lakes(3)         |  |                                            |     |                                                         |   | 13                    
|Other                  |  | Various                                    |     | 15                                                       |   | 13                    
|Energy                 |  |                                            |     |                                                          |   |                       
|Bruce A                |  | 48.9%                                      |     | 46                                                       |   | 8                     
|Bruce B                |  | 31.6%                                      |     | 136                                                      |   | 140                   
|CrossAlta              |  | 60.0%                                      |     | 44                                                       |   | 59                    
|Cartier Wind           |  | 62.0%                                      | (4) | 12                                                       |   | 10                    
|TC Turbines            |  | 50.0%                                      |     | 9                                                        |   | 5                     
|Portlands Energy       |  | 50.0%                                      |     |                                                         |   |                      
|ASTC Power Partnership |  | 50.0%                                      | (5) |                                                         |   |                      
|                      
|                       |  |                                            |     | 358                                                      |   | 351                   
|                      

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS103

---



Summarized Financial Information of Joint Ventures

|Year ended December 31 (millions of dollars)                    |  | 2008  |   | 2007  |   | 2006  |   | 
|--------------------------------------------------------------- |  | ----- | - | ----- | - | ----- | - | 
|                                                               
|Income                                                          |  |       |   |       |   |       |   | 
|Revenues                                                        |  | 1,264 |   | 1,305 |   | 1,382 |   | 
|Plant operating costs and other                                 |  | (683  | ) | (736  | ) | (686  | ) | 
|Depreciation                                                    |  | (154  | ) | (150  | ) | (163  | ) | 
|Financial charges and other                                     |  | (69   | ) | (68   | ) | (84   | ) | 
|                                                               
|Proportionate share of joint venture income before income taxes |  | 358   |   | 351   |   | 449   |   | 
|                                                               

|
|

|Year ended December 31 (millions of dollars)                                              |  | 2008   |   | 2007 |   | 2006 |   | 
|----------------------------------------------------------------------------------------- |  | ------ | - | ---- | - | ---- | - | 
|                                                                                         
|Cash Flows                                                                                |  |        |   |      |   |      |   | 
|Operating activities                                                                      |  | 1,067  |   | 420  |   | 645  |   | 
|Investing activities                                                                      |  | (2,031 | ) | (761 | ) | (641 | ) | 
|Financing activities(1)                                                                   |  | 952    |   | 409  |   | (31  | ) | 
|Effect of foreign exchange rate changes on cash and cash equivalents                      |  | 23     |   | (8   | ) | 9    |   | 
|                                                                                         
|Proportionate share of increase/(decrease) in cash and cash equivalents of joint ventures |  | 11     |   | 60   |   | (18  | ) | 
|                                                                                         

|December 31 (millions of dollars)                   |  | 2008  |   | 2007  |   |  |  | 
|--------------------------------------------------- |  | ----- | - | ----- | - |  |  | 
|                                                    |  |      
|Balance Sheet                                       |  |       |   |       |   |  |  | 
|Cash and cash equivalents                           |  | 181   |   | 170   |   |  |  | 
|Other current assets                                |  | 159   |   | 343   |   |  |  | 
|Plant, property and equipment                       |  | 6,341 |   | 4,283 |   |  |  | 
|Other assets/(deferred amounts), net                |  | 45    |   | (69   | ) |  |  | 
|Current liabilities                                 |  | (793  | ) | (293  | ) |  |  | 
|Long-term debt                                      |  | (871  | ) | (873  | ) |  |  | 
|Future income taxes                                 |  | (2    | ) | (2    | ) |  |  | 
|                                                    |  |      
|Proportionate share of net assets of joint ventures |  | 5,060 |   | 3,559 |   |  |  | 
|                                                    |  |      

104NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 9    ACQUISITIONS AND DISPOSITIONS

Acquisitions

Pipelines

Keystone

In 2008, TransCanada agreed to increase its equity ownership in the Keystone partnerships up to 79.99 per cent from 50 per cent, with ConocoPhillips'
equity ownership being reduced concurrently to 20.01 per cent. The increase in ownership is expected to occur as TransCanada funds 100 per cent of the construction
expenditures until the participants' project capital contributions are aligned with the revised ownership interests. In accordance with the agreement, TransCanada funded $362 million of cash
calls, resulting in the acquisition of an incremental 12 per cent ownership interest for $176 million, bringing TransCanada's ownership interest to 62 per cent at
December 31, 2008. TransCanada continues to proportionately consolidate the Keystone partnerships.

During
2008, Keystone purchased pipeline facilities located in Saskatchewan and Manitoba from the Canadian Mainline for use in the construction of the Keystone oil pipeline.
The sale was completed in three phases for total proceeds of $65 million, with no gain recognized on the sale.

ANR and Great Lakes

On February 22, 2007, TransCanada acquired from El Paso Corporation 100 per cent of American Natural Resources Company and ANR Storage Company
(collectively, ANR) and an additional 3.6 per cent interest in Great Lakes Gas Transmission Limited Partnership (Great Lakes) for a total of US$3.4 billion, including
US$491 million of assumed long-term debt. The acquisitions were accounted for using the purchase method of accounting. TransCanada began consolidating ANR and Great Lakes in the
Pipelines segment after the acquisition date. The purchase price was allocated as follows:

Purchase Price Allocation

|(millions of US dollars)      |  | ANR   |   | Great Lakes |   | Total |   | 
|----------------------------- |  | ----- | - | ----------- | - | ----- | - | 
|                             
|Current assets                |  | 250   |   | 4           |   | 254   |   | 
|Plant, property and equipment |  | 1,617 |   | 35          |   | 1,652 |   | 
|Other non-current assets      |  | 83    |   |            |   | 83    |   | 
|Goodwill                      |  | 1,945 |   | 32          |   | 1,977 |   | 
|Current liabilities           |  | (179  | ) | (3          | ) | (182  | ) | 
|Long-term debt                |  | (475  | ) | (16         | ) | (491  | ) | 
|Other non-current liabilities |  | (357  | ) | (19         | ) | (376  | ) | 
|                             
|                              |  | 2,884 |   | 33          |   | 2,917 |   | 
|                             

TC PipeLines, LP Acquisition of Interest in Great Lakes

On February 22, 2007, PipeLines LP acquired from El Paso Corporation a 46.4 per cent interest in Great Lakes for US$942 million, including
US$209 million of assumed long-term debt. The acquisition was accounted for using the purchase method of accounting. TransCanada began consolidating Great Lakes in the Pipelines
segment after the acquisition date. As of February 2007, TransCanada's effective ownership interest in Great Lakes was 68.5 per cent, comprising its direct ownership interest and
its indirect ownership interest through PipeLines LP. The purchase price was allocated as follows:

Purchase Price Allocation

|(millions of US dollars)      |  |      |   |  |  |  |  | 
|----------------------------- |  | ---- | - |  |  |  |  | 
|                              |  |      |   | 
|Current assets                |  | 42   |   |  |  |  |  | 
|Plant, property and equipment |  | 465  |   |  |  |  |  | 
|Other non-current assets      |  | 1    |   |  |  |  |  | 
|Goodwill                      |  | 457  |   |  |  |  |  | 
|Current liabilities           |  | (23  | ) |  |  |  |  | 
|Long-term debt                |  | (209 | ) |  |  |  |  | 
|                              |  |      |   | 
|                              |  | 733  |   |  |  |  |  | 
|                              |  |      |   | 

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS105

---



The
allocation of the purchase price for these transactions was made using the fair value of the net assets at the date of acquisition. Tolls charged by ANR and Great Lakes
are subject to rate regulation based on historical costs. As a result, the regulated net assets, other than ANR's gas held for sale, were determined to have a fair value equal to their
rate-regulated value.

Factors
that contributed to goodwill included the opportunity to expand in the U.S. market and to gain a stronger competitive position in the North American gas
transmission business. Goodwill related to TransCanada's ANR and Great Lakes transactions is not amortizable for tax purposes. Goodwill related to PipeLines LP's Great Lakes transaction is
amortizable for tax purposes.

TC PipeLines, LP Private Placement Offering

In February 2007, PipeLines LP completed a private placement offering of 17,356,086 common units at a price of US$34.57 per unit. TransCanada acquired
50 per cent of the units for US$300 million. TransCanada also invested an additional US$12 million to maintain its general partnership interest in PipeLines LP. As a
result of these additional investments, TransCanada's ownership in PipeLines LP increased to 32.1 per cent on February 22, 2007. The total private placement, together with
TransCanada's additional investment, resulted in gross proceeds to PipeLines LP of US$612 million, which were used to partially finance its acquisition of a 46.4 per cent
ownership interest in Great Lakes.

Tuscarora

In December 2007, PipeLines LP exercised its option to purchase Sierra Pacific Resources' remaining one per cent interest in Tuscarora Gas Transmission
Company (Tuscarora) for US$2 million. In addition, PipeLines LP purchased TransCanada's one per cent interest in Tuscarora for US$2 million. Beginning December 2007,
PipeLines LP owned 100 per cent of Tuscarora, resulting in TransCanada's effective ownership of 32.1 per cent, net of non-controlling interests.

In
December 2006, PipeLines LP acquired an additional 49 per cent controlling general partner interest in Tuscarora for US$100 million in
addition to indirectly assuming US$37 million of debt. The purchase price was allocated US$79 million to Goodwill, US$37 million to Long-Term Debt, and the balance
primarily to Plant, Property and Equipment. Factors that contributed to goodwill included opportunities for expansion and a stronger competitive position. The goodwill recognized on this transaction
is amortizable for tax purposes. PipeLines LP began consolidating its investment in Tuscarora in December 2006.

Northern Border

In April 2006, PipeLines LP acquired an additional 20 per cent general partnership interest in Northern Border Pipeline Company (Northern Border) for
US$307 million, in addition to indirectly assuming US$122 million of debt. The purchase price was allocated US$114 million to Goodwill, US$122 million to
Long-Term Debt and the balance primarily to Plant, Property and Equipment. Factors that contributed to goodwill included opportunities for expansion and a stronger competitive position.
The goodwill recognized on this transaction is amortizable for tax purposes. As of April 2006, PipeLines LP owned 50 per cent of Northern Border, giving TransCanada
effective ownership of 16.1 per cent, net of non-controlling interests.

Energy

Ravenswood

On August 26, 2008, TransCanada acquired from National Grid plc 100 per cent of the 2,480 MW Ravenswood power facility for
US$2.9 billion, subject to certain post-closing adjustments. The acquisition was accounted for using the purchase method of accounting. TransCanada began consolidating Ravenswood in
the Energy segment subsequent to the acquisition date. The preliminary allocation of the purchase price at December 31, 2008 was as follows:

Purchase Price Allocation

|(millions of US dollars)      |  |       |   |  |  |  |  | 
|----------------------------- |  | ----- | - |  |  |  |  | 
|                              |  |       |   | 
|Current assets                |  | 149   |   |  |  |  |  | 
|Plant, property and equipment |  | 1,666 |   |  |  |  |  | 
|Other non-current assets      |  | 305   |   |  |  |  |  | 
|Goodwill                      |  | 835   |   |  |  |  |  | 
|Current liabilities           |  | (19   | ) |  |  |  |  | 
|Other non-current liabilities |  | (20   | ) |  |  |  |  | 
|                              |  |       |   | 
|                              |  | 2,916 |   |  |  |  |  | 
|                              |  |       |   | 

A
preliminary allocation of the purchase price, subject to certain post-closing adjustments, has been made using fair values of the net assets at the date of
acquisition. Factors that contributed to goodwill included the opportunity to expand the Energy segment further in the U.S. market and to gain a stronger competitive position in the North
American power generation business. The goodwill recognized on this transaction is amortizable for tax purposes.

106NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---





Dispositions

Pipelines

Northern Border Partners, L.P. Interest

In April 2006, TransCanada sold its 17.5 per cent general partner interest in Northern Border Partners, L.P., generating net proceeds of
$33 million (US$30 million) and recognizing an after-tax gain of $13 million. The net gain was recorded in the Pipelines segment and the Company recorded a
$10 million income tax charge on the transaction, including $12 million of current income tax expense.

Energy

Ontario Land Sale

In November 2007, TransCanada's Energy segment sold land in Ontario that had previously been held for development, generating net proceeds of $37 million and
recognizing an after-tax gain of $14 million on the sale.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS107

---



NOTE 10    LONG-TERM DEBT

|                                                                          |                                                     |                |              | 2008                    |       | 2007 |                  |      
|------------------------------------------------------------------------- | --------------------------------------------------- | -------------- | ------------ | ----------------------- | ----- | ---- | ---------------- | -----
|                                                                          |                                                     |                |              |                        
|Outstanding loan amounts (millions of
dollars unless otherwise indicated) |                                                     | Maturity Dates |              | Outstanding
December 31 |       |      | Interest
Rate(1) |      
|                                                                         
|TRANSCANADA PIPELINES LIMITED                                             |                                                     |                |              |                         |       |      |                  |      
|Debentures                                                                |                                                     |                |              |                         |       |      |                  |      
|                                                                          | Canadian dollars                                    |                | 2009 to 2020 |                         | 1,251 |      |                  | 10.8%
|                                                                          | U.S. dollars (2008 and 2007  US$600)(2)            |                | 2012 to 2021 |                         | 734   |      |                  | 9.5% 
|Medium-Term Notes                                                         |                                                     |                |              |                         |       |      |                  |      
|                                                                          | Canadian dollars(3)                                 |                | 2009 to 2031 |                         | 3,653 |      |                  | 5.3% 
|Senior Unsecured Notes                                                    |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$4,723; 2007   US$3,223)(4) |                | 2009 to 2038 |                         | 5,751 |      |                  | 6.3% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|                                                                          |                                                     |                |              | 11,389                  |       |      |                  |      
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|NOVA GAS TRANSMISSION LTD.                                                |                                                     |                |              |                         |       |      |                  |      
|Debentures and Notes                                                      |                                                     |                |              |                         |       |      |                  |      
|                                                                          | Canadian dollars                                    |                | 2010 to 2024 |                         | 439   |      |                  | 11.5%
|                                                                          | U.S. dollars (2008 and 2007  US$375)               |                | 2012 to 2023 |                         | 457   |      |                  | 8.2% 
|Medium-Term Notes                                                         |                                                     |                |              |                         |       |      |                  |      
|                                                                          | Canadian dollars                                    |                | 2025 to 2030 |                         | 502   |      |                  | 7.4% 
|                                                                          | U.S. dollars (2008 and 2007  US$33)                |                | 2026         |                         | 39    |      |                  | 7.5% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|                                                                          |                                                     |                |              | 1,437                   |       |      |                  |      
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|TRANSCANADA PIPELINE USA LTD.                                             |                                                     |                |              |                         |       |      |                  |      
|Bank Loan                                                                 |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$700; 2007   US$860)        |                | 2012         |                         | 857   |      |                  | 2.4% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|ANR PIPELINE COMPANY                                                      |                                                     |                |              |                         |       |      |                  |      
|Senior Unsecured Notes                                                    |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008 and 2007  US$444)               |                | 2010 to 2025 |                         | 541   |      |                  | 9.1% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|GAS TRANSMISSION NORTHWEST CORPORATION                                    |                                                     |                |              |                         |       |      |                  |      
|Senior Unsecured Notes                                                    |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. Dollars (2008 and 2007  US$400)               |                | 2010 to 2035 |                         | 488   |      |                  | 5.4% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|TC PIPELINES, LP                                                          |                                                     |                |              |                         |       |      |                  |      
|Unsecured Loan                                                            |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$475; 2007   US$507)        |                | 2011         |                         | 580   |      |                  | 2.7% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP                          |                                                     |                |              |                         |       |      |                  |      
|Senior Unsecured Notes                                                    |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$430; 2007  US$440)         |                | 2011 to 2030 |                         | 526   |      |                  | 7.8% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|TUSCARORA GAS TRANSMISSION COMPANY                                        |                                                     |                |              |                         |       |      |                  |      
|Senior Unsecured Notes                                                    |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$64; 2007   US$69)          |                | 2010 to 2012 |                         | 78    |      |                  | 7.4% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|PORTLAND NATURAL GAS TRANSMISSION SYSTEM                                  |                                                     |                |              |                         |       |      |                  |      
|Senior Secured Notes                                                      |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$196; 2007   US$211)(5)     |                | 2018         |                         | 236   |      |                  | 6.1% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|OTHER                                                                     |                                                     |                |              |                         |       |      |                  |      
|Senior Notes                                                              |                                                     |                |              |                         |       |      |                  |      
|                                                                          | U.S. dollars (2008  US$18; 2007  US$17)           |                | 2011         |                         | 22    |      |                  | 7.3% 
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|                                                                          |                                                     |                |              | 16,154                  |       |      |                  |      
|Less: Current Portion of Long-Term Debt                                   |                                                     |                |              | 786                     |       |      |                  |      
|                                                                          |                                                     |                |              |                         |       |      |                  |      
|                                                                          |                                                     |                |              | 15,368                  |       |      |                  |      
|                                                                          |                                                     |                |              |                         |       |      |                  |      

108NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Principal Repayments

Principal repayments on the long-term debt of the Company for the next five years are approximately as follows:
2009  $786 million; 2010  $531 million; 2011  $1,014 million;
2012  $1,370 million; and 2013  $1,180 million.

Debt Shelf Programs  TransCanada PipeLines Limited

In January 2009, the Company filed a debt shelf prospectus in the U.S. qualifying for issuance US$3.0 billion of debt securities.

In
March 2007, the Company filed debt shelf prospectuses in Canada and the U.S. qualifying for issuance $1.5 billion of Medium-Term Notes
and US$1.5 billion of debt securities, respectively. Subsequent to the February 2009 debt issue discussed below, the Company had $300 million of remaining capacity available under
the Canadian shelf prospectus.

In
September 2007, the Company replaced the March 2007 U.S. debt shelf prospectus with a US$2.5 billion U.S. debt shelf prospectus. At
December 31, 2008, the Company had fully utilized its capacity under the September 2007 U.S. shelf prospectus.

TransCanada PipeLines Limited

On February 17, 2009, TransCanada completed the issuance of Medium-Term Notes of $300 million and $400 million maturing in February 2014 and
February 2039, respectively, and bearing interest at 5.05 per cent and 8.05 per cent, respectively. These notes were issued under the $1.5 billion debt shelf prospectus
filed in Canada in March 2007.

On
January 9, 2009, TransCanada issued US$750 million and US$1.25 billion of Senior Unsecured Notes maturing in January 2019 and
January 2039, respectively, and bearing interest at 7.125 per cent and 7.625 per cent, respectively. These notes were issued under the January 2009
U.S. debt shelf prospectus.

In
August 2008, TransCanada issued $500 million of Medium-Term Notes maturing in August 2013, and bearing interest at
5.05 per cent under the March 2007 Canadian debt shelf prospectus.

In
August 2008, TransCanada issued US$850 million and US$650 million of Senior Unsecured Notes maturing in August 2018 and August 2038,
respectively, and bearing interest at 6.50 per cent and 7.25 per cent, respectively. These notes were issued under the September 2007 U.S. debt shelf
prospectus.

In
October 2007, TransCanada issued US$1.0 billion of Senior Unsecured Notes under the U.S. debt shelf filed in September 2007.

NOVA Gas Transmission Ltd.

Debentures issued by NOVA Gas Transmission Ltd. (NGTL) in the amount of $225 million have retraction provisions that entitle the holders to require redemption of
up to eight per cent of the then outstanding principal plus accrued and unpaid interest on specified repayment dates. No redemptions were made to December 31, 2008.

TransCanada PipeLine USA Ltd.

In February 2007, TransCanada PipeLine USA Ltd. established a US$1.0 billion committed, unsecured, syndicated credit facility, consisting of a
US$700-million five-year term loan and a US$300-million five-year, extendible revolving facility. There was an outstanding balance of
US$700 million and US$860 million on the credit facility at December 31, 2008 and 2007, respectively. In 2008, the maturity date of the revolving portion of the facility was
extended to February 2013.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS109

---



TC PipeLines, LP

In February 2007, PipeLines LP increased its syndicated revolving credit and term loan facility in connection with its acquisition of a 46.4 per cent
interest in Great Lakes. The amount available under the facility increased to US$950 million from US$410 million and consisted of a US$700-million senior term loan and a
US$250-million senior revolving credit facility, with US$194 million of the senior term loan amount terminated upon closing of the Great Lakes acquisition. During 2008, an
additional US$13 million
(2007  US$18 million) of the senior term loan was terminated due to principal repayments. There was an outstanding balance of US$475 million and
US$507 million on the credit facility at December 31, 2008 and 2007, respectively.

Sensitivity

A one per cent change in interest rates would have the following effect assuming all other variables were to remain constant:

|(millions of dollars)                                     |  | Increase |   | Decrease |   | 
|--------------------------------------------------------- |  | -------- | - | -------- | - | 
|                                                         
|Effect on fair value of fixed interest rate debt          |  | (895     | ) | 1,014    |   | 
|Effect on interest expense of variable interest rate debt |  | 2        |   | (2       | ) | 

Financial Charges

|Year ended December 31 (millions of dollars) |  | 2008 |   | 2007 |   | 2006 |   | 
|-------------------------------------------- |  | ---- | - | ---- | - | ---- | - | 
|                                            
|Interest on long-term debt                   |  | 970  |   | 948  |   | 846  |   | 
|Interest on junior subordinated notes        |  | 68   |   | 43   |   | n/a  |   | 
|Interest on short-term debt                  |  | 32   |   | 48   |   | 23   |   | 
|Capitalized interest                         |  | (141 | ) | (68  | ) | (60  | ) | 
|Amortization and other financial charges(1)  |  | 14   |   | (28  | ) | 16   |   | 
|                                            
|                                             |  | 943  |   | 943  |   | 825  |   | 
|                                            

The
Company made interest payments of $833 million in 2008 (2007  $966 million;
2006  $771 million).

110NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 11    LONG-TERM DEBT OF JOINT VENTURES

|                                                          |                                |                |              | 2008                       |     | 2007 |                  |     
|--------------------------------------------------------- | ------------------------------ | -------------- | ------------ | -------------------------- | --- | ---- | ---------------- | ----
|                                                          |                                |                |              |                           
|Outstanding loan amounts
(millions of dollars)            |                                | Maturity Dates |              | Outstanding
December 31(1) |     |      | Interest
Rate(2) |     
|                                                         
|NORTHERN BORDER PIPELINE COMPANY                          |                                |                |              |                            |     |      |                  |     
|Senior Unsecured Notes                                    |                                |                |              |                            |     |      |                  |     
|                                                          | (2008  US$225; 2007  US$232) |                | 2009 to 2021 |                            | 275 |      |                  | 7.7%
|Bank Facility                                             |                                |                |              |                            |     |      |                  |     
|                                                          | (2008  US$96; 2007  US$83)   |                | 2012         |                            | 116 |      |                  | 3.4%
|IROQUOIS GAS TRANSMISSION SYSTEM, L.P.                    |                                |                |              |                            |     |      |                  |     
|Senior Unsecured Notes                                    |                                |                |              |                            |     |      |                  |     
|                                                          | (2008  US$160; 2007  US$165) |                | 2010 to 2027 |                            | 195 |      |                  | 7.6%
|Bank Loan                                                 |                                |                |              |                            |     |      |                  |     
|                                                          | (2007  US$7)                  |                |              |                            |    |      |                  |     
|BRUCE POWER L.P. AND BRUCE POWER A L.P.                   |                                |                |              |                            |     |      |                  |     
|Capital Lease Obligations                                 |                                | 2018           |              | 235                        |     |      | 7.5%             |     
|Term Loan                                                 |                                | 2031           |              | 95                         |     |      | 7.1%             |     
|TRANS QUÉBEC & MARITIMES PIPELINE INC.                    |                                |                |              |                            |     |      |                  |     
|Bonds                                                     |                                | 2009 to 2010   |              | 137                        |     |      | 6.0%             |     
|Term Loan                                                 |                                | 2011           |              | 18                         |     |      | 1.9%             |     
|OTHER                                                     |                                | 2009 to 2010   |              | 5                          |     |      | 5.5%             |     
|                                                          |                                |                |              |                            |     |      |                  |     
|                                                          |                                |                |              | 1,076                      |     |      |                  |     
|Less: Current Portion of Long-Term Debt of Joint Ventures |                                |                |              | 207                        |     |      |                  |     
|                                                          |                                |                |              |                            |     |      |                  |     
|                                                          |                                |                |              | 869                        |     |      |                  |     
|                                                          |                                |                |              |                            |     |      |                  |     

The
long-term debt of joint ventures is non-recourse to TransCanada, except that TransCanada has provided certain pro-rata guarantees
related to the capital lease obligations of Bruce Power. The security provided with respect to the debt of each joint venture is limited to the rights and assets of the joint venture and does not
extend to the rights and assets of TransCanada, except to the extent of TransCanada's investment. TQM's bonds are secured by a first interest in all TQM real and immoveable property and rights, a
floating charge on all residual property and assets, and a specific interest on bonds of TQM Finance Inc. and on rights under all licenses and permits relating to the TQM pipeline system and
natural gas transportation agreements.

Subject
to meeting certain requirements, the Bruce Power capital lease agreements provide for renewals commencing January 1, 2019. The first renewal is for a period
of one year and each of 12 renewals thereafter is for a period of two years.

The
Company's proportionate share of principal repayments for the next five years resulting from maturities and sinking fund obligations of the non-recourse
joint venture debt is approximately as follows: 2009  $194 million; 2010  $212 million;
2011  $30 million; 2012  $126 million; and 2013  $8 million.

The
Company's proportionate share of principal payments for the next five years resulting from the capital lease obligations of Bruce Power is approximately as follows:
2009  $13 million; 2010  $13 million; 2011  $15 million;
2012  $18 million; and 2013  $20 million.

In
September 2008, Bruce A entered into a $193 million unsecured term loan, maturing December 2031 and bearing interest at 7.12 per cent.

In
April 2007, Northern Border established a US$250-million five-year unsecured bank facility. A portion of the bank facility was drawn to
refinance US$150 million of the Senior Unsecured Notes that matured on May 1, 2007.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS111

---



Sensitivity

A one per cent change in interest rates would have the following effects assuming all other variables were to remain constant:

|(millions of dollars)                                     |  | Increase |   | Decrease |   | 
|--------------------------------------------------------- |  | -------- | - | -------- | - | 
|                                                         
|Effect on fair value of fixed interest rate debt          |  | (39      | ) | 44       |   | 
|Effect on interest expense of variable interest rate debt |  | 1        |   | (1       | ) | 

Financial Charges of Joint Ventures

|Year ended December 31 (millions of dollars)    |  | 2008 |  | 2007 |  | 2006 |  | 
|----------------------------------------------- |  | ---- |  | ---- |  | ---- |  | 
|                                               
|Interest on long-term debt                      |  | 45   |  | 50   |  | 67   |  | 
|Interest on capital lease obligations           |  | 18   |  | 18   |  | 19   |  | 
|Short-term interest and other financial charges |  | 7    |  | 4    |  | 3    |  | 
|Deferrals and amortization                      |  | 2    |  | 3    |  | 3    |  | 
|                                               
|                                                |  | 72   |  | 75   |  | 92   |  | 
|                                               

The
Company's proportionate share of the interest payments of joint ventures was $50 million in 2008 (2007  $45 million;
2006  $73 million).

The
Company's proportionate share of interest payments from the capital lease obligations of Bruce Power was $18 million in 2008
(2007  $18 million; 2006  $20 million).

NOTE 12    JUNIOR SUBORDINATED NOTES

|                                              |                                         |                |      | 2008                    |       | 2007
|--------------------------------------------- | --------------------------------------- | -------------- | ---- | ----------------------- | ----- | ----
|                                              |                                         |                |      |                        
|Outstanding loan amount
(millions of dollars) |                                         | Maturity Dates |      | Outstanding
December 31 |       |     
|                                             
|TRANSCANADA PIPELINES LIMITED                 |                                         |                |      |                         |       |     
|                                              | U.S. dollars (2008 and 2007  US$1,000) |                | 2017 |                         | 1,213 |     
|                                              |                                         |                |      |                         |       |     

In
April 2007, TransCanada PipeLines Limited (TCPL) issued US$1.0 billion of Junior Subordinated Notes, maturing in 2067 and bearing interest of
6.35 per cent per year until May 15, 2017, when interest will convert to a floating rate, reset quarterly to the three-month London Interbank Offered Rate (LIBOR) plus
221 basis points. The Company has the option to defer payment of interest for periods of up to ten years without giving rise to a default and without permitting acceleration of payment under
the terms of the Junior Subordinated Notes. The Company would be prohibited from paying dividends during any deferral period. The Junior Subordinated Notes are subordinated in right of payment to
existing and future senior indebtedness and are effectively subordinated to all indebtedness and obligations of TCPL. The Junior Subordinated Notes are callable at the Company's option at any time on
or after May 15, 2017 at 100 per cent of the principal amount of the Junior Subordinated Notes plus accrued and unpaid interest to the date of redemption. The Junior Subordinated
Notes are callable earlier, in whole or in part, upon the occurrence of certain events and at the Company's option at an amount equal to the greater of 100 per cent of the principal
amount of the Junior Subordinated Notes plus accrued and unpaid interest to the date of
redemption and an amount determined by a specified formula in accordance with the terms of the Junior Subordinated Notes. The Junior Subordinated Notes were issued under the U.S. debt shelf
prospectus filed in March 2007.

Sensitivity

A one per cent change in interest rates would have the following effects assuming all other variables were to remain constant:

|(millions of dollars)                             |  | Increase |   | Decrease |  | 
|------------------------------------------------- |  | -------- | - | -------- |  | 
|                                                 
|Effect on fair value of Junior Subordinated Notes |  | (45      | ) | 49       |  | 

112NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 13    DEFERRED AMOUNTS

|December 31 (millions of dollars)           |  | 2008  |  | 2007  |  |  |  | 
|------------------------------------------- |  | ----- |  | ----- |  |  |  | 
|                                            |  |      
|Fair value of derivative contracts(Note 17) |  | 694   |  | 205   |  |  |  | 
|Regulatory liabilities(Note 14)             |  | 551   |  | 525   |  |  |  | 
|Employee benefit plans(Note 21)             |  | 219   |  | 196   |  |  |  | 
|Asset retirement obligations(Note 20)       |  | 114   |  | 88    |  |  |  | 
|Other                                       |  | 141   |  | 93    |  |  |  | 
|                                            |  |      
|                                            |  | 1,719 |  | 1,107 |  |  |  | 
|                                            |  |      

NOTE 14    REGULATED BUSINESSES

TransCanada's regulated businesses include Canadian and U.S. natural gas pipelines. Regulatory assets and liabilities represent future revenues that are expected to be
recovered from or refunded to customers. They arise from certain costs and revenues generated in the current period or in prior periods that may be collected from or refunded to shippers if, through
the rate-setting process, it is found that revenues were over-or under-collected. Regulatory assets and liabilities are only recognized when approved by the applicable regulatory authorities. In
addition to GAAP financial reporting, TransCanada's regulated pipelines file financial reports using accounting regulations required by their respective regulators.

Canadian Regulated Operations

Canadian natural gas transmission services are supplied under gas transportation tariffs that provide for cost recovery, including return of and return on capital as approved by
the applicable regulatory authorities.

Rates
charged by TransCanada's wholly owned and partially owned Canadian regulated pipelines are set typically through a process that involves filing an application with the
regulators for a change in rates. Regulated rates are underpinned by the total annual revenue requirement, which comprises specified annual return on capital, including debt and equity, and all
necessary operating expenses, taxes and depreciation.

TransCanada's
Canadian regulated pipelines have generally been subject to a cost-of-service model wherein forecasted costs, including a return on
capital, equal the revenues for the upcoming year. To the extent that actual costs and revenues are more or less than the forecasted costs and revenues, the regulators generally allow the
difference to be deferred to a future period and recovered or refunded in rates at that time. Costs for which the regulator does not allow the difference between actual and forecast to be deferred are
included in the determination of net income in the year they are incurred.

The
Canadian Mainline, Foothills and TQM pipelines are regulated by the NEB under theNational Energy Board Act (Canada). The
Alberta System is regulated by the AUC primarily under the provisions of theGas Utilities Act (Alberta)and thePipeline Act
(Alberta). The AUC regulates the construction and operation of facilities, and the terms and conditions of services, including rates for the Alberta System. The NEB regulates
the construction and operation of facilities, and the terms and conditions of services, including rates, for the Company's other Canadian regulated natural gas transmission systems. The Alberta System
has filed an application with the NEB to change its regulatory jurisdiction from the AUC to the NEB. The NEB's decision is expected in first quarter 2009.

Canadian Mainline

The Canadian Mainline currently operates under a five-year tolls settlement, which is effective January 1, 2007, to December 31, 2011. Canadian
Mainline's cost of capital for establishing tolls under the settlement reflects a rate of return on common equity (ROE) as determined by the NEB's ROE formula, on a deemed common equity ratio of
40 per cent. The allowed ROE in 2008 for Canadian Mainline was 8.71 per cent (2007  8.46 per cent). The remaining
capital structure consists of short- and long-term debt following the agreed-upon redemption of US$460 million of Preferred Securities in 2007.

The
settlement also establishes the Canadian Mainline's fixed operations, maintenance and administrative (OM&A) costs for each year of the five years. Any variance between
actual OM&A costs and those agreed to in the settlement accrue to TransCanada from 2007 to 2009. Variances in OM&A costs will be shared equally between TransCanada and its customers in 2010 and 2011.
All other cost elements of the revenue requirement are treated on a flow-through basis. There are also performance-based incentive arrangements that provide mutual benefits to both
TransCanada and its customers.

Alberta System

In March 2008, NOVA Gas Transmission Ltd. (NGTL) reached a revenue requirement settlement with interested stakeholders for 2008 and 2009 on the Alberta System. In
December 2008, the AUC approved the 2008-2009 Revenue Requirement Settlement Application, which is effective for the full two-year period.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS113

---



As
part of the settlement, fixed costs were established for certain operating costs, ROE and income taxes. Any variances between actual costs and those agreed to in the
settlement accrue to TransCanada, subject to ROE and income tax adjustment mechanisms. All other costs of the revenue requirement are treated on a flow-through basis.

Other Canadian Pipelines

The NEB approves pipeline tolls on an annual cost of service basis for Foothills and TQM. The NEB allows each pipeline to charge a schedule of tolls based on the estimated cost
of service. This schedule of tolls is used for the current year until a new toll filing is made for the following year. Differences between the estimated cost of service and the actual cost of service
are calculated and reflected in the subsequent year's tolls.

The
ROE for Foothills, which is based on the NEB-allowed ROE formula, was 8.71 per cent in 2008
(2007  8.46 per cent) on a deemed equity component of 36 per cent.

In
September 2008, the NEB approved TQM's application for a three-year partial negotiated settlement with interested parties concerning all cost of
service matters, with the exception of cost of capital and associated income taxes, for the years 2007 to 2009. In December 2007, TQM filed a cost of capital application with the NEB for the
years 2007 and 2008, which requests approval of an 11 per cent return on deemed common equity of 40 per cent. An NEB hearing on the application concluded in
October 2008 and a decision from the NEB is expected in early 2009. TQM currently is subject to the NEB ROE formula on deemed common equity of 30 per cent. TQM tolls remain in
effect on an interim basis pending a decision on the application. Any adjustments to the interim tolls will be recorded in accordance with the decision.

U.S. Regulated Operations

TransCanada's wholly owned and partially owned U.S. pipelines are 'natural gas companies' operating under the provisions of theNatural Gas Act of
1938,theNatural Gas Policy Act of 1978and theEnergy Policy Act of 2005, and are
subject to the jurisdiction of the FERC. TheNatural Gas Act of 1938grants 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 in interstate commerce.

ANR

ANR's operations are regulated primarily by the FERC. ANR's natural gas storage and transportation services regulated by the FERC also operate under approved tariff rates. ANR
Pipeline's rates were established pursuant to a settlement approved by a FERC order issued in February 1998 and became effective in November 1997. These tariffs include maximum and
minimum rate levels for services and permit ANR to discount or negotiate rates on a non-discriminatory basis. ANR Storage Company's rates were established pursuant to a settlement approved
by the FERC in April 1990 and became effective in June 1990. None of ANR's FERC-regulated operations are required to file for new rates at any time in the future, nor are any
of the operations prohibited from filing a case for new rates.

GTN

GTN is regulated by the FERC. Both of GTN's natural gas pipeline systems, the GTN System and North Baja, operate in accordance with FERC-approved tariffs that
establish maximum and minimum rates for various services. The pipelines are permitted to discount or negotiate these rates on a non-discriminatory basis. The GTN System and its customers
reached a rate case settlement in November 2007 that was approved by the FERC in January 2008. GTN's financial results in 2007 reflected the terms of the settlement. In 2008, the GTN
System refunded to customers amounts collected above the settlement rates for the period from January 1, 2007 through October 31, 2007. Under the settlement, a five-year
moratorium was established during which the GTN System and the settling parties are
prohibited from taking certain actions under theNatural Gas Act of 1938, including any filings. The GTN System is also required to file a rate
case within seven years. Rates for capacity on North Baja were established in 2002 in the FERC's initial order certifying construction and operations of North Baja.

Great Lakes

Great Lakes' rates and tariffs are regulated by the FERC. In 2000, Great Lakes negotiated an overall rate settlement with its customers that established the rates currently in
effect. The settlement expired October 31, 2005, with no requirement to file for new rates at any time, nor is Great Lakes prohibited from filing such a rate case. Great Lakes' services are
provided pursuant to its FERC-approved tariff, which includes, among other factors, maximum and minimum rate levels for services and permits Great Lakes to negotiate or discount rates on a
non-discriminatory basis.

Portland

In April 2008, Portland filed a general rate case under theNatural Gas Act of 1938, in accordance with the terms of its
previous settlement approved by the FERC in 2003. The proposed tariffs, which included a rate increase of approximately six per cent, became effective September 1, 2008, subject to
refund, in accordance with a FERC order dated May 1, 2008. The rate case hearing is scheduled to begin in July 2009.

Northern Border

Northern Border and its customers reached a settlement in September 2006 that was approved by the FERC in November 2006. The settlement established maximum
long-term mileage-based rates and charges for transportation on Northern Border's system. The settlement provided for seasonal rates, which vary on a monthly basis, for
short-term transportation services. It also included a three-year moratorium on filing rate cases and on participants filing challenges to rates, and required that Northern
Border file a general rate case within six years. Northern Border is required to provide services under negotiated and discounted rates on a non-discriminatory basis.

114NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---





Regulatory Assets and Liabilities

|Year ended December 31 (millions of dollars)    |                                                                                                                       | 2008 |     | 2007 |     |  |  | Remaining
Recovery/
Settlement
Period |        | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---- | --- | ---- | --- |  |  | ------------------------------------- | ------ | 
|                                               
|
|Regulatory Assets                               |                                                                                                                       |      |     |      |     |  |  |                                       |        | 
|                                                | Unrealized losses on derivatives(1)                                                                                   |      | 67  |      | 106 |  |  |                                       | 1 - 5  | 
|                                                | Foreign exchange on long-term debt principal(2)                                                                       |      | 32  |      | 34  |  |  |                                       | 21     | 
|                                                | Deferred income tax on carrying costs capitalized during construction of utility plant(3)                             |      | 26  |      | 20  |  |  |                                       | n/a    | 
|                                                | Unamortized issue costs on Preferred Securities(4)                                                                    |      | 18  |      | 19  |  |  |                                       | 18     | 
|                                                | Phase II preliminary expenditures(5)                                                                                  |      | 16  |      | 18  |  |  |                                       | 7      | 
|                                                | Transitional other benefit obligations(6)                                                                             |      | 15  |      | 16  |  |  |                                       | 8      | 
|                                                | Unamortized post-retirement benefits(7)                                                                               |      | 11  |      | 13  |  |  |                                       | 3 - 5  | 
|                                                | Operating and debt-service regulatory assets(8)                                                                       |      |    |      | 85  |  |  |                                       | n/a    | 
|                                                | Other                                                                                                                 |      | 16  |      | 25  |  |  |                                       | n/a    | 
|                                                |                                                                                                                       |      |     |     
|Total Regulatory Assets (Other Assets)          |                                                                                                                       | 201  |     | 336  |     |  |  |                                       |        | 
|                                                |                                                                                                                       |      |     |     
|Regulatory Liabilities                          |                                                                                                                       |      |     |      |     |  |  |                                       |        | 
|                                                | Operating and debt-service regulatory liabilities(8)                                                                  |      | 234 |      | 3   |  |  |                                       | 1      | 
|                                                | Foreign exchange gain on redemption of Preferred Securities, net of income tax of $10 million (2007  $15 million)(4) |      | 101 |      | 150 |  |  |                                       | 3      | 
|                                                | Foreign exchange on long-term debt(9)                                                                                 |      | 70  |      | 266 |  |  |                                       | 4 - 21 | 
|                                                | Post-retirement benefits other than pension(10)                                                                       |      | 58  |      | 38  |  |  |                                       | n/a    | 
|                                                | Unamortized gains on derivatives(1)                                                                                   |      | 24  |      | n/a |  |  |                                       | 4      | 
|                                                | Fuel tracker(11)                                                                                                      |      | 23  |      | 29  |  |  |                                       | n/a    | 
|                                                | Negative salvage(12)                                                                                                  |      | 16  |      | 17  |  |  |                                       | n/a    | 
|                                                | Other                                                                                                                 |      | 25  |      | 22  |  |  |                                       | n/a    | 
|                                                |                                                                                                                       |      |     |     
|Total Regulatory Liabilities (Deferred Amounts) |                                                                                                                       | 551  |     | 525  |     |  |  |                                       |        | 
|                                                |                                                                                                                       |      |     |     

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS115

---



As
prescribed by regulators, the taxes payable method of accounting for income taxes is used for toll-making purposes on Canadian regulated natural gas
transmission operations. As permitted by GAAP at December 31, 2008, this method is also used for accounting purposes. Consequently, future income tax liabilities have not been recognized, as it
is expected they will be recovered through future rates when the amounts become payable. In the absence of rate-regulated accounting, GAAP would have required the recognition of future income tax
liabilities. If the liability method of accounting had been used, additional future income tax liabilities would have been recorded at December 31, 2008 and would have been recoverable from
future revenues. The liability method of accounting is used for both accounting and toll-making purposes for the U.S. natural gas transmission operations. Under this method, future
income tax assets and liabilities are recognized based on the differences between financial statement carrying amounts and the tax basis of the assets and liabilities. This method is also used for
toll-making purposes for the U.S. natural gas transmission operations. As a result, current year's revenues include a tax provision that is calculated based on the liability method
of accounting and there is no recognition of a related regulatory asset or liability. Effective January 1, 2009, the Company will be adopting policies consistent with FAS 71 to
account for its rate-regulated pipelines, as discussed in Note 3.

116NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



NOTE 15    NON-CONTROLLING INTERESTS

The Company's non-controlling interests included in the consolidated balance sheet were as follows:

|December 31 (millions of dollars)        |  | 2008  |  | 2007 |  |  |  | 
|---------------------------------------- |  | ----- |  | ---- |  |  |  | 
|                                         |  |      
|Non-controlling interest in PipeLines LP |  | 721   |  | 539  |  |  |  | 
|Preferred shares of subsidiary           |  | 389   |  | 389  |  |  |  | 
|Non-controlling interest in Portland     |  | 84    |  | 71   |  |  |  | 
|                                         |  |      
|                                         |  | 1,194 |  | 999  |  |  |  | 
|                                         |  |      

The
Company's non-controlling interests included in the consolidated income statement are as follows:

|Year ended December 31 (millions of dollars) |  | 2008 |  | 2007 |  | 2006 |  | 
|-------------------------------------------- |  | ---- |  | ---- |  | ---- |  | 
|                                            
|Non-controlling interest in PipeLines LP     |  | 62   |  | 65   |  | 43   |  | 
|Preferred share dividends of subsidiary      |  | 22   |  | 22   |  | 22   |  | 
|Non-controlling interest in Portland         |  | 46   |  | 10   |  | 13   |  | 
|                                            
|                                             |  | 130  |  | 97   |  | 78   |  | 
|                                            

The
non-controlling interests in PipeLines LP and Portland as at December 31, 2008 represented the 67.9 per cent and
38.3 per cent interest, respectively, not owned by TransCanada (2007  67.9 per cent and 38.3 per cent, respectively).

TransCanada
received revenues of $2 million from PipeLines LP in 2008 (2007  $2 million;
2006  $1 million) and $7 million from Portland in 2008 (2007  $7 million;
2006  $6 million) for services it provided.

Preferred Shares of Subsidiary

|December 31                                     | Number of
Shares |  | Dividend Rate
Per Share |  | Redemption
Price Per Share |  | 2008                  |  | 2007                  |  | 
|----------------------------------------------- | ---------------- |  | ----------------------- |  | -------------------------- |  | --------------------- |  | --------------------- |  | 
|                                               
|                                                | (thousands)      |  |                         |  |                            |  | (millions of dollars) |  | (millions of dollars) |  | 
|Cumulative First Preferred Shares of Subsidiary |                  |  |                         |  |                            |  |                       |  |                       |  | 
|Series U                                        | 4,000            |  | $2.80                   |  | $50.00                     |  | 195                   |  | 195                   |  | 
|Series Y                                        | 4,000            |  | $2.80                   |  | $50.00                     |  | 194                   |  | 194                   |  | 
|                                                |                  |  |                         |  |                            |  |                      
|                                                |                  |  |                         |  |                            |  | 389                   |  | 389                   |  | 
|                                                |                  |  |                         |  |                            |  |                      

The
authorized number of preferred shares of TCPL issuable in series is unlimited. All of the cumulative first preferred shares of TCPL are without par value.

On
or after October 15, 2013, TCPL may redeem the Series U shares at $50 per share and on or after March 5, 2014, TCPL may redeem the
Series Y shares at $50 per share.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS117

---



NOTE 16    COMMON SHARES

|                                 |                                               | Number of Shares |        | Amount                |       | 
|-------------------------------- | --------------------------------------------- | ---------------- | ------ | --------------------- | ----- | 
|                                
|                                 |                                               | (thousands)      |        | (millions of dollars) |       | 
|Outstanding at January 1, 2006   |                                               | 487,236          |        | 4,755                 |       | 
|                                 | Exercise of options                           |                  | 1,739  |                       | 39    | 
|                                
|Outstanding at December 31, 2006 |                                               | 488,975          |        | 4,794                 |       | 
|                                 | Issuance of common shares(1)                  |                  | 45,390 |                       | 1,683 | 
|                                 | Dividend reinvestment and share purchase plan |                  | 4,147  |                       | 157   | 
|                                 | Exercise of options                           |                  | 1,253  |                       | 28    | 
|                                
|Outstanding at December 31, 2007 |                                               | 539,765          |        | 6,662                 |       | 
|                                 | Issuance of common shares(1)                  |                  | 69,805 |                       | 2,363 | 
|                                 | Dividend reinvestment and share purchase plan |                  | 5,976  |                       | 218   | 
|                                 | Exercise of options                           |                  | 925    |                       | 21    | 
|                                
|Outstanding at December 31, 2008 |                                               | 616,471          |        | 9,264                 |       | 
|                                

Common Shares Issued and Outstanding

The Company is authorized to issue an unlimited number of common shares without par value.

In
July 2008, TransCanada filed a final short form base shelf prospectus in Canada and the U.S. to allow for the offering of up to $3.0 billion of
common shares, preferred shares and/or subscription receipts in Canada and the U.S. until August 2010. This shelf prospectus replaced the previous base shelf prospectus filed in
January 2007. The Company issued the following equity under the July 2008 prospectus:

In
January 2007, TransCanada filed a short form base shelf prospectus in Canada and the U.S. to allow for the offering of up to $3.0 billion of common
shares, preferred shares and/or subscription receipts in Canada and the U.S. until February 2009. The Company issued the following equity under the January 2007 prospectus:

Net Income per Share

During the year, the weighted average number of common shares of 569.6 million and 571.5 million (2007  529.9 million
and 532.5 million; 2006  488.0 million and 490.6 million) were used to calculate basic and diluted earnings per share, respectively. The
increase in the weighted average number of shares for the diluted earnings per share calculation is due to the options exercisable under TransCanada's Stock Option Plan.

118NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Stock Options

|                                 |  | Number of
Options |   |  |  | Weighted
Average
Exercise Prices |  | Options
Exercisable |  | 
|-------------------------------- |  | ----------------- | - |  |  | -------------------------------- |  | ------------------- |  | 
|                                
|                                 |  | (thousands)       |   |  |  |                                  |  | (thousands)         |  | 
|Outstanding January 1, 2006      |  | 8,714             |   |  |  | $22.67                           |  | 6,300               |  | 
|Granted                          |  | 1,841             |   |  |  | $34.48                           |  |                     |  | 
|Exercised                        |  | (1,739)           |   |  |  | $21.44                           |  |                     |  | 
|Forfeited                        |  | (17)              |   |  |  | $30.98                           |  |                     |  | 
|                                 |  |                   |   |  |  |                                  |  |                    
|Outstanding at December 31, 2006 |  | 8,799             |   |  |  | $25.37                           |  | 5,888               |  | 
|Granted                          |  | 1,083             |   |  |  | $38.10                           |  |                     |  | 
|Exercised                        |  | (1,253)           |   |  |  | $22.77                           |  |                     |  | 
|Forfeited                        |  | (20)              |   |  |  | $35.08                           |  |                     |  | 
|                                 |  |                   |   |  |  |                                  |  |                    
|Outstanding at December 31, 2007 |  | 8,609             |   |  |  | $27.32                           |  | 6,118               |  | 
|Granted                          |  | 872               |   |  |  | $39.75                           |  |                     |  | 
|Exercised                        |  | (925              | ) |  |  | $22.26                           |  |                     |  | 
|Forfeited                        |  | (55               | ) |  |  | $35.23                           |  |                     |  | 
|                                 |  |                   |   |  |  |                                  |  |                    
|Outstanding at December 31, 2008 |  | 8,501             |   |  |  | $29.10                           |  | 6,461               |  | 
|                                 |  |                   |   |  |  |                                  |  |                    

Stock
options outstanding at December 31, 2008, were as follows:

|                         |  | Options Outstanding |  | Options Exercisable
|------------------------ |  | ------------------- |  | -------------------
|                         |  |                    
|Range of Exercise Prices |  | Number of
Options   |  |                    
|                        
|                         |  | (thousands)         |  |                    
|$10.03 to $20.58         |  | 1,242               |  |                    
|$20.59 to $21.86         |  | 927                 |  |                    
|$22.33 to $24.49         |  | 766                 |  |                    
|$24.61 to $26.85         |  | 971                 |  |                    
|$30.09 to $33.08         |  | 1,527               |  |                    
|$35.23                   |  | 1,106               |  |                    
|$36.67 to $38.10         |  | 983                 |  |                    
|$38.14 to $39.75         |  | 979                 |  |                    
|                         |  |                     |  |                    
|                         |  | 8,501               |  |                    
|                         |  |                     |  |                    

An
additional 4.0 million common shares were reserved for future issuance under TransCanada's Stock Option Plan at December 31, 2008. In 2008, TransCanada
issued 871,733 options to purchase common shares at an average price of $39.75 under the Company's Stock Option Plan and the weighted average fair value of each option was determined to be
$3.27 (2007  $4.22; 2006  $3.53). The Company used the Black-Scholes model for determining the fair value of options
granted applying the following weighted average assumptions for 2008: four years of expected life (2007 and 2006  four years); 1.5 per cent
interest rate (2007 and 2006  4.1 per cent); 28 per cent volatility
(2007  15 per cent; 2006  14 per cent); and
4.5 per cent dividend yield (2007  3.6 per cent; 2006  3.7 per cent). The amount
expensed for stock options, with a corresponding increase in contributed surplus, was $4 million in 2008 (2007  $4 million;
2006  $3 million).

The
total intrinsic value of options exercised in 2008 was $15 million. As at December 31, 2008, the aggregate intrinsic value was $48 million for each
of the total currently exercisable options and the total outstanding options. In 2008, the 1.4 million shares that vested had a fair value of $45 million.

Shareholder Rights Plan

TransCanada's Shareholder Rights Plan is designed to encourage the fair treatment of shareholders in connection with any takeover offer for the Company. Under certain
circumstances, each common share is entitled to one right that entitles certain holders to purchase two common shares of the Company for the price of one.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS119

---



Dividend Reinvestment and Share Purchase Plan

Commencing in 2007, TransCanada's Board of Directors authorized the issuance of common shares from treasury at a discount to participants in the Company's Dividend
Reinvestment and Share Purchase Plan (DRP). Under the DRP, eligible shareholders may reinvest their dividends and make optional cash payments to obtain additional TransCanada common shares. The
discount was set at two per cent commencing with the dividend payable in April 2007 and was increased to three per cent for the dividend payable in January 2009. The
Company reserves the right to alter the discount or return to purchasing shares on the open market at any time. In accordance with the DRP, dividends of $218 million were paid in 2008 by the
issuance from treasury of 6.0 million common shares. In 2007, dividends of $157 million were paid by the issuance from treasury of 4.1 million common shares. Prior to the
April 2007 dividend, TransCanada purchased shares on the open market and provided them to DRP participants at cost.

NOTE 17    RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

Risk Management Overview

TransCanada has exposure to market risk, counterparty credit risk, and liquidity risk. TransCanada engages in risk management activities with the primary objective being to
protect earnings, cash flow and, ultimately, shareholder value.

Risk
management strategies, policies and limits are designed to ensure TransCanada's risks and related exposures are in line with the Company's business objectives and risk
tolerance. Risks are managed within limits ultimately established by the Company's Board of Directors, implemented by senior management and monitored by risk management and internal audit personnel.
The Board of Directors' Audit Committee oversees how management monitors compliance with risk management policies and procedures, and oversees management's review of the adequacy of the risk
management framework. Internal audit personnel assist the Audit Committee in its oversight role by performing regular and ad-hoc reviews of risk management controls and procedures, the
results of which are reported to the Audit Committee. The Board of Directors also has a Governance Committee that assists in overseeing the risk management activities of TransCanada. The Governance
Committee monitors, reviews with management and makes recommendations related to TransCanada's risk management programs and policies on an ongoing basis.

Market Risk

The Company constructs and invests in large infrastructure projects, purchases and sells commodities, issues short-term and long-term debt, including
amounts in foreign currencies, and invests in foreign operations. These activities expose the Company to market risk from changes in commodity prices, foreign exchange rates and interest rates, which
affect the Company's earnings and the value of the financial instruments it holds.

The
Company uses derivatives as part of its overall risk management policy to manage exposure to market risk that results from these activities. Derivative contracts used to
manage market risk generally consist of the following:

Commodity Price Risk

The Company is exposed to commodity price movements as part of its normal business operations, particularly in relation to the prices of electricity, natural gas and oil
products. A number of strategies are used to mitigate these exposures, including the following:

120NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



The
Company assesses its commodity contracts and derivative instruments used to manage commodity risk to determine the appropriate accounting treatment. Contracts, with the
exception of leases, have been assessed to determine whether they or certain aspects of them meet the definition of a derivative. Certain commodity purchase and sale contracts are derivatives but are
not within the scope of CICA Handbook Section 3855 "Financial Instruments  Recognition and Measurement", as they were entered into and continue to be held
for the purpose of receipt or delivery in accordance with the Company's expected purchase, sale or usage requirements exemption. Certain other contracts are not within the scope of Section 3855
as they are considered to meet other exemptions.

TransCanada
manages its exposure to seasonal natural gas price spreads in its natural gas storage business by economically hedging storage capacity with a portfolio of
third-party storage capacity contracts and proprietary natural gas purchases and sales. TransCanada simultaneously enters into a forward purchase of natural gas for injection into storage and an
offsetting forward sale of natural gas for withdrawal at a later period, thereby locking in future positive margins and effectively eliminating exposure to price movements of natural gas. Fair value
adjustments recorded each period on proprietary natural gas storage inventory and these forward contracts may not be representative of the amounts that will be realized on settlement.

Natural Gas Inventory Price Risk

At December 31, 2008, $76 million (2007  $190 million) of proprietary natural gas inventory was included in
Inventories. Effective April 2007, TransCanada began valuing its proprietary natural gas inventory held in storage at fair value, as measured by the one-month forward price for
natural gas less selling costs. The Company did not have any proprietary natural gas inventory held in storage prior to April 2007. In 2008, the net change in fair value of proprietary natural
gas held in inventory was a net unrealized loss of $7 million (2007  nil), which was recorded as a decrease to Revenue and Inventory. In 2008, the net
change in fair value of natural gas forward purchases and sales contracts was a net unrealized gain of $7 million (2007  $10 million) which was
included in Revenues.

Foreign Exchange and Interest Rate Risk

Foreign exchange and interest rate risk is created by fluctuations in the fair value or cash flow of financial instruments due to changes in foreign exchange rates and/or market
interest rates.

A
portion of TransCanada's earnings from its Pipelines and Energy operations is generated in U.S. dollars and is subject to currency fluctuations. The performance of
the Canadian dollar relative to the U.S. dollar can affect TransCanada's earnings. This foreign exchange impact is offset by certain related debt and financing costs being denominated in
U.S. dollars and by the Company's hedging activities. Due to its increased U.S. operations, TransCanada has a greater exposure to U.S. currency fluctuations than in
prior years.

The
Company uses foreign currency and interest rate derivatives to manage the foreign exchange and interest rate risks related to its debt and other
U.S. dollar-denominated transactions, and to manage the interest rate exposure of the Canadian Mainline, Alberta System and Foothills operations. Certain of the realized gains and losses on
these derivatives are shared with shippers on predetermined terms. These gains and losses are deferred as regulatory assets and liabilities until they are recovered from or paid to the shippers in
accordance with the terms of the shipping agreements.

TransCanada
has floating interest rate debt, which subjects it to interest rate cash flow risk. The Company uses a combination of forwards, interest rate swaps and options
to manage its exposure to this risk.

Net Investment in Self-Sustaining Foreign Operations

The Company hedges its net investment in self-sustaining foreign operations (on an after-tax basis) with U.S. dollar-denominated debt,
forward foreign exchange contracts, cross-currency interest rate swaps and foreign exchange options. At December 31, 2008, the Company had designated as a net investment hedge
U.S. dollar-denominated debt with a carrying value of $7.2 billion (US$5.9 billion) (2007  $4.7 billion (US$4.7 billion)) and
a fair value of $5.9 billion (US$4.8 billion) (2007  $4.8 billion (US$4.8 billion)). In January 2009, the Company issued an
additional US$2.0 billion of long-term debt and designated it as a hedge of the net U.S. dollar investment in foreign operations. At December 31, 2008,
$254 million was included in Deferred Amounts for the fair value of the forwards, swaps and options used to hedge the Company's net U.S. dollar investment in foreign operations.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS121

---





The
fair values and notional or principal amount for the derivatives designated as a net investment hedge were as follows:

|                                                   |                         | 2008       |      | 2007                         |            |           
|-------------------------------------------------- | ----------------------- | ---------- | ---- | ---------------------------- | ---------- | ----------
|                                                   |                         |           
|Asset/(Liability)December 31 (millions of dollars) |                         | Fair Value |      | Notional or
Principal
Amount |            | Fair Value
|                                                  
|U.S. dollar cross-currency swaps                   |                         |            |      |                              |            |           
|                                                   | (maturing 2009 to 2014) |            | (218 | )                            | U.S. 1,650 |           
|U.S. dollar forward foreign exchange contracts     |                         |            |      |                              |            |           
|                                                   | (maturing 2009)         |            | (42  | )                            | U.S. 2,152 |           
|U.S. dollar options                                |                         |            |      |                              |            |           
|                                                   | (maturing 2009)         |            | 6    |                              | U.S. 300   |           
|                                                  
|                                                   |                         | (254       | )    | U.S. 4,102                   |            | 76        
|                                                  

VaR Analysis

TransCanada uses a Value-at-Risk (VaR) methodology to estimate the potential impact resulting from its exposure to market risk. VaR estimates the
potential change in pre-tax earnings over a given holding period for a specified confidence level. The VaR number calculated and used by TransCanada reflects the 95 per cent
probability that the daily change resulting from normal market fluctuations in its liquid positions will not exceed the reported VaR. The VaR methodology is a statistically-calculated,
probability-based approach that takes into consideration market volatilities as well as risk diversification by recognizing offsetting positions and correlations among products and markets. Risks are
measured across all products and markets, and risk measures are aggregated to arrive at a single VaR number.

There
is currently no uniform industry methodology for estimating VaR. The use of VaR has limitations because it is based on historical correlations and volatilities in
commodity prices, interest rates and foreign exchange rates, and assumes that future price movements will follow a statistical distribution. Although losses are not expected to exceed the
statistically estimated VaR on 95 per cent of occasions, losses on the other five per cent of occasions could be substantially greater than the estimated VaR.

TransCanada's
estimation of VaR includes wholly owned subsidiaries and incorporates relevant risks associated with each market or business unit. The calculation does not
include the Pipelines segment as the rate-regulated nature of the
pipeline business reduces the impact of market risks. The Company's Board of Directors has established a VaR limit, which is monitored on an ongoing basis as part of the Company's risk management
policy. TransCanada's consolidated VaR was $23 million at December 31, 2008 (2007  $8 million). The increase from December 31, 2007
was primarily due to the Ravenswood acquisition.

Counterparty Credit Risk

Counterparty credit risk represents the financial loss the Company would experience if a counterparty to a financial instrument failed to meet its obligations in accordance with
the terms and conditions of its contracts with the Company.

Counterparty
credit risk is managed through established credit management techniques, including conducting financial and other assessments to establish and monitor a
counterparty's creditworthiness, setting exposure limits, monitoring exposures against these limits, using master netting arrangements and obtaining financial assurances where warranted. In general,
financial assurances include guarantees, letters of credit and cash. The Company monitors and manages its concentration of counterparty credit risk on an ongoing basis. The Company believes these
measures minimize its counterparty credit risk but there is no certainty that these processes will protect it against all losses.

TransCanada's
maximum counterparty credit exposure with respect to financial instruments at the balance sheet date consisted primarily of the carrying amount, which
approximates fair value, of non-derivative financial assets, such as accounts receivable, as well as the fair value of derivative financial assets.

The
Company does not have significant concentrations of counterparty credit risk with any individual counterparties and the majority of counterparty credit exposure is with
counterparties who are investment grade. At December 31, 2008, there were no significant amounts past due or impaired.

TransCanada
has significant credit and performance exposures to financial institutions as they provide committed credit lines and cash deposit facilities, critical liquidity
in the foreign exchange derivative, interest rate derivative and energy wholesale markets, and letters of credit to mitigate TransCanada's exposure to non-credit worthy counterparties.

During
the deterioration of global financial markets in 2008, TransCanada continued to closely monitor and reassess the creditworthiness of its counterparties, including
financial institutions. This has resulted in TransCanada reducing or mitigating its exposure to certain counterparties where it is deemed warranted and permitted under contractual terms. As part of
its ongoing operations, TransCanada must balance its market risk and counterparty credit risk when making business decisions.

122NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Certain
subsidiaries of Calpine Corporation (Calpine) filed for bankruptcy protection in both Canada and the U.S. in 2005. Gas Transmission Northwest Corporation
(GTNC) and Portland Natural Gas Transmission System (PNGTS) reached agreements with Calpine for allowed unsecured claims in the Calpine bankruptcy. In February 2008, GTNC and PNGTS received
initial distributions of 9.4 million common shares and 6.1 million common shares of Calpine, respectively, which represented approximately 85 per cent of their
agreed-upon claims. In 2008, these shares were subsequently sold into the open market and resulted in total pre-tax gains of $279 million. Claims by NGTL and Foothills
Pipe Lines (South B.C.) Ltd. for $32 million and $44 million, respectively,
were received in cash in January 2008 and will be passed on to shippers on these systems. At December 31, 2008, $22 million remained in regulatory liabilities for
these claims.

Liquidity Risk

Liquidity risk is the risk that TransCanada will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure
that, under both normal and stressed conditions, it always has sufficient cash and credit facilities to meet its obligations when due, without incurring unacceptable losses or damage to the Company's
reputation.

Management
forecasts cash flows for a period of 12 months to identify financing requirements. These requirements are then managed through a combination of committed
and demand credit facilities and access to capital markets, as discussed under the heading Capital Management in this note.

At
December 31, 2008, the Company had committed revolving bank lines of US$1.0 billion, $2.0 billion and US$300 million maturing in
November 2010, December 2012 and February 2013, respectively. As of December 31, 2008, no draws were made on these facilities as the Company has continued to have largely
uninterrupted access to the Canadian commercial paper market on competitive terms. In January 2009, TransCanada filed a new US$3.0 billion debt shelf in the U.S. to supplement the
$1.8 billion and $1.0 billion of capacity available under its existing equity and Canadian debt shelves, respectively. The Company has US$1.0 billion of capacity remaining
available under its January 2009 U.S. debt shelf.

The
following tables detail the remaining contractual maturities for TransCanada's non-derivative financial liabilities, including both the principal and
interest cash flows at December 31, 2008:

Contractual Repayments of Financial Liabilities(1)

|                                             |  |        |  | Payments Due by Period
|-------------------------------------------- |  | ------ |  | ----------------------
|                                             |  |        |  |                       
|(millions of dollars)                        |  | Total  |  | 2009                  
|                                            
|Notes payable                                |  | 1,702  |  | 1,702                 
|Long-term debt and junior subordinated notes |  | 17,367 |  | 786                   
|Long-term debt of joint ventures             |  | 1,076  |  | 207                   
|                                            
|Total contractual repayments                 |  | 20,145 |  | 2,695                 
|                                            

Interest Payments on Financial Liabilities

|                                             |  |        |  | Payments Due by Period
|-------------------------------------------- |  | ------ |  | ----------------------
|                                             |  |        |  |                       
|(millions of dollars)                        |  | Total  |  | 2009                  
|                                            
|Long-term debt and junior subordinated notes |  | 15,170 |  | 1,150                 
|Long-term debt of joint ventures             |  | 328    |  | 61                    
|                                            
|Total interest payments                      |  | 15,498 |  | 1,211                 
|                                            

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS123

---



Capital Management

The primary objective of capital management is to ensure TransCanada has strong credit ratings to support its businesses and maximize shareholder value. In 2008, this overall
objective and policy for managing capital remained unchanged from the prior year.

TransCanada
manages its capital structure in a manner consistent with the risk characteristics of the underlying assets. The Company's management considers its capital
structure to consist of net debt, Non-Controlling Interests and Shareholders' Equity. Net debt is comprised of Notes Payable, Long-Term Debt and Junior Subordinated Notes less
Cash and Cash Equivalents. Net debt only includes obligations that the Company controls and manages. Consequently, it does not include Cash and Cash Equivalents, Notes Payable and
Long-Term Debt of TransCanada's joint ventures.

The
capital structure at December 31 was as follows:

|(millions of dollars)     |  | 2008   |   | 2007   |   | 
|------------------------- |  | ------ | - | ------ | - | 
|                         
|Notes payable             |  | 1,685  |   | 407    |   | 
|Long-term debt            |  | 16,154 |   | 12,933 |   | 
|Junior subordinated notes |  | 1,213  |   | 975    |   | 
|Cash and cash equivalents |  | (1,117 | ) | (333   | ) | 
|                         
|Net debt                  |  | 17,935 |   | 13,982 |   | 
|                         
|Non-controlling interests |  | 1,194  |   | 999    |   | 
|Shareholders' equity      |  | 12,898 |   | 9,785  |   | 
|                         
|Total equity              |  | 14,092 |   | 10,784 |   | 
|                         
|Total capital             |  | 32,027 |   | 24,766 |   | 
|                         

Fair Values

The fair value of financial instruments included in Cash and Cash Equivalents, Accounts Receivable, Other Assets, Notes Payable, Accounts Payable, Accrued Interest and Deferred
Amounts approximates their carrying amounts due to the nature of the item and/or the short time to maturity. The fair value of foreign exchange and interest rate derivatives has been calculated using
year-end market rates. The fair value of power, natural gas and oil products derivatives has been calculated using quoted market prices where available. In the absence of quoted market
prices, third-party broker quotes are used. Credit risk has been taken into consideration when calculating fair values.

Valuation
techniques that refer to observable market data or estimated market prices may also be used to calculate fair value. These include comparisons with similar
instruments that have observable market prices, option pricing models and other valuation techniques commonly used by market participants. Fair values determined using valuation models require the use
of assumptions about the amount and timing of estimated future cash flows and discount rates. In making these assumptions, the Company looks primarily to readily observable external market input
factors such as interest rate yield curves, currency rates and price and rate volatilities, as applicable.

The
fair value of the Company's Long-Term Debt was estimated based on quoted market prices for the same or similar debt instruments and, when such information
was not available, was estimated by discounting future payments of interest and principal at estimated interest rates that were made available to the Company.

124NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Fair Value of Long-Term Debt and Other Long-Term Securities

The carrying and fair values of long-term debt and other long-term securities were as follows:

|                                                 |  | 2008            |  | 2007       |  |                
|------------------------------------------------ |  | --------------- |  | ---------- |  | ---------------
|                                                 |  |                
|December 31 (millions of dollars)                |  | Carrying
Amount |  | Fair
Value |  | Carrying
Amount
|                                                
|Long-Term Debt                                   |  |                 |  |            |  |                
|TransCanada PipeLines Limited(1)                 |  | 11,389          |  | 10,583     |  | 8,519          
|NOVA Gas Transmission Ltd.                       |  | 1,437           |  | 1,534      |  | 1,508          
|TransCanada PipeLine USA Ltd.                    |  | 857             |  | 857        |  | 850            
|ANR Pipeline Company                             |  | 541             |  | 570        |  | 435            
|Gas Transmission Northwest Corporation           |  | 488             |  | 393        |  | 399            
|TC PipeLines, LP                                 |  | 580             |  | 580        |  | 499            
|Great Lakes Gas Transmission Limited Partnership |  | 526             |  | 496        |  | 434            
|Tuscarora Gas Transmission Company               |  | 78              |  | 80         |  | 67             
|Portland Natural Gas Transmission System         |  | 236             |  | 220        |  | 205            
|Other                                            |  | 22              |  | 24         |  | 17             
|                                                
|                                                 |  | 16,154          |  | 15,337     |  | 12,933         
|Junior Subordinated Notes                        |  | 1,213           |  | 815        |  | 975            
|                                                
|                                                 |  | 17,367          |  | 16,152     |  | 13,908         
|                                                
|Long-Term Debt of Joint Ventures                 |  |                 |  |            |  |                
|Northern Border Pipeline Company                 |  | 391             |  | 391        |  | 311            
|Iroquois Gas Transmission System, L.P.           |  | 195             |  | 181        |  | 169            
|Bruce Power L.P. and Bruce Power A L.P.          |  | 330             |  | 318        |  | 243            
|Trans Québec & Maritimes Pipeline Inc.           |  | 155             |  | 157        |  | 165            
|Other                                            |  | 5               |  | 5          |  | 15             
|                                                
|                                                 |  | 1,076           |  | 1,052      |  | 903            
|                                                
|                                                 |  | 18,443          |  | 17,204     |  | 14,811         
|                                                

Non-Derivative Financial Instruments Summary

The carrying and fair values of non-derivative financial instruments were as follows:

|                                                 |  | 2008            |  | 2007       |  |                
|------------------------------------------------ |  | --------------- |  | ---------- |  | ---------------
|                                                 |  |                
|December 31 (millions of dollars)                |  | Carrying
Amount |  | Fair
Value |  | Carrying
Amount
|                                                
|Financial Assets(1)                              |  |                 |  |            |  |                
|Cash and cash equivalents                        |  | 1,308           |  | 1,308      |  | 504            
|Accounts receivable and other assets(2)(3)       |  | 1,404           |  | 1,404      |  | 1,231          
|Available-for-sale assets(2)                     |  | 27              |  | 27         |  | 17             
|                                                
|                                                 |  | 2,739           |  | 2,739      |  | 1,752          
|                                                
|Financial Liabilities(1)(3)                      |  |                 |  |            |  |                
|Notes payable                                    |  | 1,702           |  | 1,702      |  | 421            
|Accounts payable and deferred amounts(4)         |  | 1,372           |  | 1,372      |  | 1,193          
|Accrued interest                                 |  | 359             |  | 359        |  | 261            
|Long-term debt and junior subordinated notes     |  | 17,367          |  | 16,152     |  | 13,908         
|Long-term debt of joint ventures                 |  | 1,076           |  | 1,052      |  | 903            
|Other long-term liabilities of joint ventures(4) |  |                |  |           |  | 60             
|                                                
|                                                 |  | 21,876          |  | 20,637     |  | 16,746         
|                                                

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS125

---



Derivative Financial Instruments Summary

Information for the Company's derivative financial instruments is as follows:

|                                                                 |                            | 2008      |       |            
|---------------------------------------------------------------- | -------------------------- | --------- | ----- | -----------
|                                                                 |                            |          
|December 31
(all amounts in millions unless otherwise indicated) |                            | Power     |       | Natural
Gas
|                                                                
|Derivative Financial Instruments Held for Trading                |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $132  |            
|                                                                 | Liabilities                |           | $(82  | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 4,035      
|                                                                 |                            | Sales     |       | 5,491      
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Japanese yen (in billions) |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net unrealized gains/(losses) in the year(3)                     |                            | $24       |       | $(23       
|Net realized gains/(losses) in the year(3)                       |                            | $23       |       | $(2        
|Maturity dates                                                   |                            | 2009-2014 |       | 2009-2011  
|Derivative Financial Instruments in Hedging Relationships(4)(5)  |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $115  |            
|                                                                 | Liabilities                |           | $(160 | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 8,926      
|                                                                 |                            | Sales     |       | 13,113     
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net realized (losses)/gains in the year(3)                       |                            | $(56      | )     | $15        
|Maturity dates                                                   |                            | 2009-2014 |       | 2009-2011  

The
anticipated timing of settlement of the derivative contracts assumes no changes in commodity prices, interest rates and foreign exchange rates from December 31,
2008. Actual settlements will vary based on changes in these factors. The anticipated timing of settlement of these contracts is as follows:

|(millions of dollars)                                     |  | Total |   | 2009 |   | 2010 and
2011 |   | 2012 and
2013 |   | 2014 and
Thereafter |   | 
|--------------------------------------------------------- |  | ----- | - | ---- | - | ------------- | - | ------------- | - | ------------------- | - | 
|                                                         
|Derivative financial instruments held for trading         |  | (30   | ) | 38   |   | (46           | ) | (14           | ) | (8                  | ) | 
|Derivative financial instruments in hedging relationships |  | (199  | ) | (68  | ) | (65           | ) | (43           | ) | (23                 | ) | 
|                                                         
|                                                          |  | (229  | ) | (30  | ) | (111          | ) | (57           | ) | (31                 | ) | 
|                                                         

126NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Derivative Financial Instruments Summary

Information for the Company's derivative financial instruments is as follows:

|                                                                 |                            | 2007      |       |            
|---------------------------------------------------------------- | -------------------------- | --------- | ----- | -----------
|                                                                 |                            |          
|December 31
(all amounts in millions unless otherwise indicated) |                            | Power     |       | Natural
Gas
|                                                                
|Derivative Financial Instruments Held for Trading                |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $55   |            
|                                                                 | Liabilities                |           | $(44  | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 3,774      
|                                                                 |                            | Sales     |       | 4,469      
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Japanese yen (in billions) |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net unrealized gains/(losses) in the year(3)                     |                            | $16       |       | $(10       
|Net realized(losses)/gains in the year(3)                        |                            | $(8       | )     | $47        
|Maturity dates                                                   |                            | 2008-2016 |       | 2008-2010  
|Derivative Financial Instruments in Hedging Relationships(4)(5)  |                            |           |       |            
|Fair Values(1)                                                   |                            |           |       |            
|                                                                 | Assets                     |           | $135  |            
|                                                                 | Liabilities                |           | $(104 | )          
|Notional Values                                                  |                            |           |       |            
|                                                                 | Volumes(2)                 |           |       |            
|                                                                 |                            | Purchases |       | 7,362      
|                                                                 |                            | Sales     |       | 16,367     
|                                                                 | Canadian dollars           |           |      |            
|                                                                 | U.S. dollars               |           |      |            
|                                                                 | Cross-currency             |           |      |            
|Net realized (losses)/gains in the year(3)                       |                            | $(29      | )     | $18        
|Maturity dates                                                   |                            | 2008-2013 |       | 2008-2010  

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS127

---



Balance Sheet Presentation of Derivative Financial Instruments

The fair value of the derivative financial instruments in the Company's Balance Sheet was as follows:

|December 31 (millions of dollars) |                      | 2008 |      | 2007 |      |  
|--------------------------------- | -------------------- | ---- | ---- | ---- | ---- | -
|                                 
|Current                           |                      |      |      |      |      |  
|                                  | Other current assets |      | 318  |      | 160  |  
|                                  | Accounts payable     |      | (298 | )    | (144 | )
|Long-term                         |                      |      |      |      |      |  
|                                  | Other assets         |      | 191  |      | 204  |  
|                                  | Deferred amounts     |      | (694 | )    | (205 | )

Derivative Financial Instruments of Joint Ventures

Included in the Balance Sheet Presentation of Derivative Financial Instruments table above are amounts related to power derivatives used by one of the Company's joint ventures
to manage commodity price risk. The Company's proportionate share of the fair value of these power sales derivatives was $75 million at December 31, 2008
(2007  $75 million). These contracts mature from 2009 to 2014. The Company's proportionate share of the notional sales volumes of power associated with
this exposure was 7,600 gigawatt hours (GWh) at
December 31, 2008 (2007  7,300 GWh). The Company's proportionate share of the notional purchased volumes of power associated with this exposure was
47 GWh at December 31, 2008 (2007  50 GWh).

NOTE 18    INCOME TAXES

Provision for Income Taxes

|Year ended December 31 (millions of dollars) |  | 2008 |   | 2007 |  | 2006 |  | 
|-------------------------------------------- |  | ---- | - | ---- |  | ---- |  | 
|                                            
|Current                                      |  |      |   |      |  |      |  | 
|Canada                                       |  | 383  |   | 367  |  | 264  |  | 
|Foreign                                      |  | 143  |   | 65   |  | 37   |  | 
|                                            
|                                             |  | 526  |   | 432  |  | 301  |  | 
|                                            
|Future                                       |  |      |   |      |  |      |  | 
|Canada                                       |  | (1   | ) | 12   |  | 104  |  | 
|Foreign                                      |  | 77   |   | 46   |  | 71   |  | 
|                                            
|                                             |  | 76   |   | 58   |  | 175  |  | 
|                                            
|                                             |  | 602  |   | 490  |  | 476  |  | 
|                                            

Geographic Components of Income

|Year ended December 31 (millions of dollars)                                        |  | 2008  |  | 2007  |  | 2006  |  | 
|----------------------------------------------------------------------------------- |  | ----- |  | ----- |  | ----- |  | 
|                                                                                   
|Canada                                                                              |  | 1,234 |  | 1,228 |  | 1,161 |  | 
|Foreign                                                                             |  | 938   |  | 582   |  | 444   |  | 
|                                                                                   
|Income from continuing operations before income taxes and non-controlling interests |  | 2,172 |  | 1,810 |  | 1,605 |  | 
|                                                                                   

128NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



Reconciliation of Income Tax Expense

|Year ended December 31 (millions of dollars)                                        |  | 2008  |   | 2007  |   | 2006  |   | 
|----------------------------------------------------------------------------------- |  | ----- | - | ----- | - | ----- | - | 
|                                                                                   
|Income from continuing operations before income taxes and non-controlling interests |  | 2,172 |   | 1,810 |   | 1,605 |   | 
|Federal and provincial statutory tax rate                                           |  | 29.5  | % | 32.1  | % | 32.5  | % | 
|Expected income tax expense                                                         |  | 641   |   | 581   |   | 522   |   | 
|Income tax differential related to regulated operations                             |  | 44    |   | 69    |   | 72    |   | 
|Lower effective foreign tax rates                                                   |  | (5    | ) | (39   | ) | n/a   |   | 
|Tax rate and legislated changes                                                     |  |      |   | (72   | ) | (33   | ) | 
|Income from equity investments and non-controlling interests                        |  | (45   | ) | (34   | ) | (27   | ) | 
|Change in valuation allowance                                                       |  | (9    | ) |      |   |      |   | 
|Other(1)                                                                            |  | (24   | ) | (15   | ) | (58   | ) | 
|                                                                                   
|Actual income tax expense                                                           |  | 602   |   | 490   |   | 476   |   | 
|                                                                                   

Future Income Tax Assets and Liabilities

|December 31 (millions of dollars)                                   |  | 2008  |  | 2007  |  | 
|------------------------------------------------------------------- |  | ----- |  | ----- |  | 
|                                                                   
|Deferred amounts                                                    |  | 119   |  | 43    |  | 
|Other post-employment benefits                                      |  | 69    |  | 57    |  | 
|Unrealized losses on derivatives                                    |  | 62    |  | 22    |  | 
|Unrealized foreign exchange losses on long-term debt                |  | 77    |  | n/a   |  | 
|Non-capital loss carryforwards                                      |  | 24    |  | n/a   |  | 
|Other                                                               |  | 137   |  | 77    |  | 
|                                                                   
|                                                                    |  | 488   |  | 199   |  | 
|Less: valuation allowance(1)                                        |  | 77    |  | 13    |  | 
|                                                                   
|Future income tax assets, net of valuation allowance                |  | 411   |  | 186   |  | 
|                                                                   
|Difference in accounting and tax bases of plant, equipment and PPAs |  | 1,464 |  | 1,073 |  | 
|Investments in subsidiaries and partnerships                        |  | 28    |  | 61    |  | 
|Pension benefits                                                    |  | 55    |  | 50    |  | 
|Unrealized foreign exchange gains on long-term debt                 |  | 14    |  | 110   |  | 
|Unrealized gains on derivatives                                     |  | 19    |  | 27    |  | 
|Other                                                               |  | 54    |  | 44    |  | 
|                                                                   
|Future income tax liabilities                                       |  | 1,634 |  | 1,365 |  | 
|                                                                   
|Net future income tax liabilities                                   |  | 1,223 |  | 1,179 |  | 
|                                                                   

Unremitted Earnings of Foreign Investments

Income taxes have not been provided on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future. Future income tax
liabilities would have increased by approximately $102 million at December 31, 2008 (2007  $72 million) if there had been a provision for
these taxes.

Income Tax Payments

Income tax payments of $491 million were made during the year ended December 31, 2008 (2007  $442 million;
2006  $494 million).

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS129

---



NOTE 19    NOTES PAYABLE

|                                            |  | 2008                    |  | 2007 |  |                                                        
|------------------------------------------- |  | ----------------------- |  | ---- |  | -------------------------------------------------------
|                                            |  |                        
|                                            |  | Outstanding
December 31 |  |      |  | Weighted
Average
Interest Rate
Per Annum at
December 31
|                                           
|                                            |  | (millions of dollars)   |  |      |  |                                                        
|Canadian dollars                            |  | 1,250                   |  |      |  | 1.8%                                                   
|U.S. dollars (2008  US$369; 2007  US$370) |  | 452                     |  |      |  | 3.3%                                                   
|                                            |  |                         |  |      |  |                                                        
|                                            |  | 1,702                   |  |      |  |                                                        
|                                            |  |                         |  |      |  |                                                        

Notes
payable consists of commercial paper outstanding and drawings on bridge and line-of-credit facilities. Unsecured revolving and demand credit
facilities totaled $4.2 billion at December 31, 2008 to support the Company's commercial paper program and for general corporate purposes. These credit facilities included
the following:



In
June 2008, TransCanada executed an agreement with a syndicate of banks for a US$1.5 billion, committed, unsecured, one-year bridge loan
facility, at a floating interest rate based on LIBOR plus 30 basis points. The facility is extendible at the option of the Company for an additional six-month term at LIBOR plus
35 basis points. In August 2008, the Company used US$255 million from this facility and cancelled the remainder of the commitment. At December 31, 2008,
US$255 million remained outstanding on the facility.

In
February 2007, the Company established a US$2.2 billion committed, unsecured one-year bridge facility and utilized $1.5 billion and
US$700 million to partially finance the acquisition of ANR and an increased ownership in Great Lakes. The facility had a floating interest rate based on the one-month LIBOR plus
25 basis points. The outstanding balance at December 31, 2007 of US$370 million was repaid on January 7, 2008. The undrawn balance of this facility has been cancelled and
is no longer available to the Company.

130NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---





NOTE 20    ASSET RETIREMENT OBLIGATIONS

The estimated undiscounted cash flows required to settle the asset retirement obligations with respect to the regulated and non-regulated operations in the Pipelines
segment were $69 million at December 31, 2008 (2007  $65 million), calculated using an inflation rate ranging from two per cent to
four per cent per annum. The estimated fair value of these liabilities was $31 million at December 31, 2008 (2007  $25 million) after
discounting the estimated cash flows at rates ranging from 5.4 per cent to 8.0 per cent. At December 31, 2008, the expected timing of payment for settlement of the
obligations ranged from one year to 27 years. Management believes it is reasonable to assume that all retirement costs associated with its regulated pipelines will be recovered through
future tolls and, therefore, typically only records asset retirement obligations for its non-regulated pipelines.

The
estimated undiscounted cash flows required to settle the asset retirement obligations with respect to the Energy segment were $427 million at December 31,
2008 (2007  $216 million), calculated using an inflation rate ranging from two per cent to three per cent per annum. The estimated fair
value of this liability was $85 million at December 31, 2008 (2007  $63 million), after discounting the estimated cash flows at rates
ranging from 5.4 per cent to 8.0 per cent. At December 31, 2008, the expected timing of payment for settlement of the obligations ranged from 10 years to
33 years.

Reconciliation of Asset Retirement Obligations(1)

|(millions of dollars)                                 |  | Pipelines |  | Energy |  | Total |  | 
|----------------------------------------------------- |  | --------- |  | ------ |  | ----- |  | 
|                                                     
|Balance at January 1, 2006                            |  | 4         |  | 29     |  | 33    |  | 
|New obligations and revisions in estimated cash flows |  | 4         |  | 6      |  | 10    |  | 
|Accretion expense                                     |  | 1         |  | 1      |  | 2     |  | 
|                                                     
|Balance at December 31, 2006                          |  | 9         |  | 36     |  | 45    |  | 
|New obligations and revisions in estimated cash flows |  | 14        |  | 25     |  | 39    |  | 
|Accretion expense                                     |  | 2         |  | 2      |  | 4     |  | 
|                                                     
|Balance at December 31, 2007                          |  | 25        |  | 63     |  | 88    |  | 
|New obligations and revisions in estimated cash flows |  | 4         |  | 18     |  | 22    |  | 
|Accretion expense                                     |  | 2         |  | 4      |  | 6     |  | 
|                                                     
|Balance at December 31, 2008                          |  | 31        |  | 85     |  | 116   |  | 
|                                                     

NOTE 21    EMPLOYEE FUTURE BENEFITS

The Company sponsors DB Plans that cover substantially all employees. Pension benefits provided under the DB Plans are based on years of service and highest average earnings
over three consecutive years of employment, and increase annually in the Canadian pension plan by a portion of the increase in the Consumer Price Index (CPI). Past service costs are amortized over the
expected average remaining service life of employees, which is approximately nine years.

Effective
January 1, 2008, the Company also provides its employees with a Savings Plan in Canada, a 401(k) Plan in the U.S. and post-employment benefits
other than pensions, including termination benefits and defined life insurance and medical benefits beyond those provided by government-sponsored plans. Past service costs are amortized over the
expected average remaining life expectancy of former employees, which was approximately 11 years at December 31, 2008. Contributions to the Savings Plan and 401(k) Plan are expensed
as incurred.

Total
cash payments for employee future benefits, consisting of cash contributed by the Company to the DB Plans and other benefit plans, was $90 million in 2008
(2007  $61 million; 2006  $104 million), including $21 million in 2008
(2007  $8 million; 2006  $2 million) related to retirement savings plans.

The
Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. The most recent
actuarial valuation of the pension plans for funding purposes was as at January 1, 2009, and the next required valuation will be as at January 1, 2010.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS131

---



|                                                                     |                                               | Pension Benefit Plans |       | Other Benefit Plans |       |     
|-------------------------------------------------------------------- | --------------------------------------------- | --------------------- | ----- | ------------------- | ----- | ----
|                                                                     |                                               |                      
|(millions of dollars)                                                |                                               | 2008                  |       | 2007                |       | 2008
|                                                                    
|Change in Benefit Obligation                                         |                                               |                       |       |                     |       |     
|                                                                     | Benefit obligation  beginning of year        |                       | 1,462 |                     | 1,378 |     
|                                                                     | Current service cost                          |                       | 52    |                     | 45    |     
|                                                                     | Interest cost                                 |                       | 80    |                     | 73    |     
|                                                                     | Employee contributions                        |                       | 3     |                     | 4     |     
|                                                                     | Benefits paid                                 |                       | (68   | )                   | (65   | )   
|                                                                     | Actuarial (gain)/loss                         |                       | (261  | )                   | (22   | )   
|                                                                     | Foreign exchange rate changes                 |                       | 35    |                     | (16   | )   
|                                                                     | Plan amendment                                |                       |      |                     |      |     
|                                                                     | Acquisition                                   |                       | 29    |                     | 65    |     
|                                                                    
|                                                                     | Benefit obligation  end of year              |                       | 1,332 |                     | 1,462 |     
|                                                                    
|Change in Plan Assets                                                |                                               |                       |       |                     |       |     
|                                                                     | Plan assets at fair value  beginning of year |                       | 1,358 |                     | 1,264 |     
|                                                                     | Actual return on plan assets                  |                       | (222  | )                   | 33    |     
|                                                                     | Employer contributions                        |                       | 62    |                     | 46    |     
|                                                                     | Employee contributions                        |                       | 3     |                     | 4     |     
|                                                                     | Benefits paid                                 |                       | (68   | )                   | (65   | )   
|                                                                     | Foreign exchange rate changes                 |                       | 32    |                     | (17   | )   
|                                                                     | Acquisition                                   |                       | 28    |                     | 93    |     
|                                                                    
|                                                                     | Plan assets at fair value  end of year       |                       | 1,193 |                     | 1,358 |     
|                                                                    
|Funded status  plan deficit                                         |                                               | (139                  | )     | (104                | )     | (118
|Unamortized net actuarial loss                                       |                                               | 340                   |       | 299                 |       | 33  
|Unamortized past service costs                                       |                                               | 25                    |       | 28                  |       | (1  
|                                                                    
|Accrued benefit asset/(liability), net of valuation allowance of nil |                                               | 226                   |       | 223                 |       | (86 
|                                                                    

The
accrued benefit asset/(liability) net of valuation allowance of nil in the Company's balance sheet was as follows:

|                      |  | Pension Benefit Plans |  | Other Benefit Plans |  |     
|--------------------- |  | --------------------- |  | ------------------- |  | ----
|                      |  |                      
|(millions of dollars) |  | 2008                  |  | 2007                |  | 2008
|                     
|Other Assets          |  | 226                   |  | 223                 |  |    
|Deferred Amounts      |  |                      |  |                    |  | (86 
|                     
|Total                 |  | 226                   |  | 223                 |  | (86 
|                     

Included
in the above benefit obligation and fair value of plan assets at December 31 were the following amounts for plans that are not fully funded:

|                             |  | Pension Benefit Plans |   | Other Benefit Plans |   |     
|---------------------------- |  | --------------------- | - | ------------------- | - | ----
|                             |  |                      
|(millions of dollars)        |  | 2008                  |   | 2007                |   | 2008
|                            
|Benefit obligation           |  | (1,317                | ) | (1,324              | ) | (144
|Plan assets at fair value    |  | 1,178                 |   | 1,198               |   | 26  
|                            
|Funded status  plan deficit |  | (139                  | ) | (126                | ) | (118
|                            

The
Company's expected contributions in 2009 are approximately $140 million for the pension benefit plans and approximately $27 million for the other
benefit plans.

132NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



The
following are estimated future benefit payments, which reflect expected future service:

|(millions of dollars) |  | Pension
Benefits |  | Other
Benefits |  | 
|--------------------- |  | ---------------- |  | -------------- |  | 
|                     
|2009                  |  | 77               |  | 8              |  | 
|2010                  |  | 81               |  | 9              |  | 
|2011                  |  | 84               |  | 9              |  | 
|2012                  |  | 88               |  | 10             |  | 
|2013                  |  | 91               |  | 10             |  | 
|2014 to 2018          |  | 510              |  | 59             |  | 

The
significant weighted average actuarial assumptions adopted in measuring the Company's benefit obligations at December 31 were as follows:

|                              |  | Pension Benefit Plans |  | Other Benefit Plans |  |      
|----------------------------- |  | --------------------- |  | ------------------- |  | -----
|                              |  |                      
|                              |  | 2008                  |  | 2007                |  | 2008 
|                             
|Discount rate                 |  | 6.65%                 |  | 5.30%               |  | 6.50%
|Rate of compensation increase |  | 3.65%                 |  | 3.50%               |  |      

The
significant weighted average actuarial assumptions adopted in measuring the Company's net benefit plan cost for years ended December 31 were as follows:

|                                                 |  | Pension Benefit Plans |  | Other Benefit Plans |  |      
|------------------------------------------------ |  | --------------------- |  | ------------------- |  | -----
|                                                 |  |                      
|                                                 |  | 2008                  |  | 2007                |  | 2006 
|                                                
|Discount rate                                    |  | 5.30%                 |  | 5.05%               |  | 5.00%
|Expected long-term rate of return on plan assets |  | 6.95%                 |  | 6.90%               |  | 6.90%
|Rate of compensation increase                    |  | 3.60%                 |  | 3.50%               |  | 3.50%

The
overall expected long-term rate of return on plan assets is based on historical and projected rates of return for the portfolio in aggregate and for each
asset class in the portfolio. Assumed projected rates of return are selected after analyzing historical experience and estimating future levels and volatility of returns. Asset class benchmark
returns, asset mix and anticipated benefit payments from plan assets are also considered in determining the overall expected rate of return. The discount rate is based on market interest rates of high
quality bonds that match the timing and benefits expected to be paid under each plan.

A
nine per cent annual rate of increase in the per-capita cost of covered health care benefits was assumed for 2009 measurement purposes. The rate was
assumed to decrease gradually to five per cent in 2018 and remain at this level thereafter. A one percentage point change in assumed health care cost trend rates would have the following
effects:

|(millions of dollars)                                   |  | Increase |  | Decrease |   | 
|------------------------------------------------------- |  | -------- |  | -------- | - | 
|                                                       
|Effect on total of service and interest cost components |  | 1        |  | (1       | ) | 
|Effect on post-employment benefit obligation            |  | 11       |  | (10      | ) | 

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS133

---



The
Company's net benefit cost is as follows:

|                                                                                                                   |  | Pension Benefit Plans |   | Other Benefit Plans |   |     
|------------------------------------------------------------------------------------------------------------------ |  | --------------------- | - | ------------------- | - | ----
|                                                                                                                   |  |                      
|Year ended December 31 (millions of dollars)                                                                       |  | 2008                  |   | 2007                |   | 2006
|                                                                                                                  
|Current service cost                                                                                               |  | 52                    |   | 45                  |   | 39  
|Interest cost                                                                                                      |  | 80                    |   | 73                  |   | 65  
|Actual return on plan assets                                                                                       |  | 222                   |   | (33                 | ) | (134
|Actuarial (gain)/loss                                                                                              |  | (261                  | ) | (22                 | ) | 53  
|Plan amendment                                                                                                     |  |                      |   |                    |   |    
|                                                                                                                  
|Elements of net benefit cost prior to adjustments to recognize the long-term nature of net benefit cost            |  | 93                    |   | 63                  |   | 23  
|                                                                                                                  
|Difference between expected and actual return on plan assets                                                       |  | (316                  | ) | (51                 | ) | 63  
|Difference between actuarial loss/(gain) recognized and actual actuarial loss/(gain) on accrued benefit obligation |  | 280                   |   | 47                  |   | (27 
|Difference between amortization of past service costs and actual plan amendments                                   |  | 4                     |   | 4                   |   | 4   
|Amortization of transitional obligation related to regulated business                                              |  |                      |   |                    |   |    
|                                                                                                                  
|Net benefit cost recognized                                                                                        |  | 61                    |   | 63                  |   | 63  
|                                                                                                                  

The
Company pension plans' weighted average asset allocations and target allocations by asset category were as follows:

|December 31       |  | Percentage of Plan Assets |  | Target Allocations |  | 
|----------------- |  | ------------------------- |  | ------------------ |  | 
|                  |  |                          
|Asset Category    |  | 2008                      |  | 2007               |  | 
|                 
|Debt securities   |  | 48%                       |  | 42%                |  | 
|Equity securities |  | 52%                       |  | 58%                |  | 
|                  |  |                           |  |                    |  | 
|                  |  | 100%                      |  | 100%               |  | 
|                  |  |                           |  |                    |  | 

Debt
securities included the Company's debt of $3 million (0.3 per cent of total plan assets) and $4 million (0.3 per cent of total
plan assets) at December 31, 2008 and 2007, respectively. Equity securities included the Company's common shares of $4 million (0.3 per cent of total plan assets) and
$6 million (0.4 per cent of total plan assets) at December 31, 2008 and 2007, respectively.

The
assets of the pension plans are managed on a going concern basis subject to legislative restrictions. The plans' investment policies are to maximize returns within an
acceptable risk tolerance. Pension assets are invested in a diversified manner with consideration given to the demographics of the plans' participants.

Employee Future Benefits of Joint Ventures

Certain of the Company's joint ventures sponsor DB Plans as well as post-employment benefits other than pensions, including defined life insurance and medical
benefits beyond those provided by government-sponsored plans. The obligations of these plans are non-recourse to TransCanada. The following amounts in this note, including those in the
accompanying tables, represent TransCanada's proportionate share with respect to these plans.

Total
cash payments for employee future benefits, consisting of cash contributed by the Company's joint ventures to DB Plans and other benefit plans was $42 million
in 2008 (2007  $34 million; 2006  $25 million).

The
Company's joint ventures measure the benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. The most recent
actuarial valuations of the pension plans for funding purposes were as at January 1, 2009, and the next required valuations will be as at January 1, 2010.

134NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---





|                                                                     |                                               | Pension Benefit Plans |      | Other Benefit Plans |     |     
|-------------------------------------------------------------------- | --------------------------------------------- | --------------------- | ---- | ------------------- | --- | ----
|                                                                     |                                               |                      
|(millions of dollars)                                                |                                               | 2008                  |      | 2007                |     | 2008
|                                                                    
|Change in Benefit Obligation                                         |                                               |                       |      |                     |     |     
|                                                                     | Benefit obligation  beginning of year        |                       | 789  |                     | 807 |     
|                                                                     | Current service cost                          |                       | 27   |                     | 28  |     
|                                                                     | Interest cost                                 |                       | 42   |                     | 40  |     
|                                                                     | Employee contributions                        |                       | 6    |                     | 5   |     
|                                                                     | Benefits paid                                 |                       | (37  | )                   | (23 | )   
|                                                                     | Actuarial gain                                |                       | (229 | )                   | (34 | )   
|                                                                     | Foreign exchange rate changes                 |                       | 1    |                     | (3  | )   
|                                                                     | Acquisition                                   |                       |     |                     | (31 | )   
|                                                                     | Plan amendment                                |                       |     |                     |    |     
|                                                                    
|                                                                     | Benefit obligation  end of year              |                       | 599  |                     | 789 |     
|                                                                    
|Change in Plan Assets                                                |                                               |                       |      |                     |     |     
|                                                                     | Plan assets at fair value  beginning of year |                       | 626  |                     | 666 |     
|                                                                     | Actual return on plan assets                  |                       | (78  | )                   | (1  | )   
|                                                                     | Employer contributions                        |                       | 38   |                     | 32  |     
|                                                                     | Employee contributions                        |                       | 6    |                     | 5   |     
|                                                                     | Benefits paid                                 |                       | (37  | )                   | (23 | )   
|                                                                     | Foreign exchange rate changes                 |                       | 1    |                     | (5  | )   
|                                                                     | Acquisition                                   |                       |     |                     | (48 | )   
|                                                                    
|                                                                     | Plan assets at fair value  end of year       |                       | 556  |                     | 626 |     
|                                                                    
|Funded status  plan deficit                                         |                                               | (43                   | )    | (163                | )   | (133
|Unamortized net actuarial loss/(gain)                                |                                               | 51                    |      | 169                 |     | (3  
|Unamortized past service costs                                       |                                               |                      |      |                    |     | 3   
|                                                                    
|Accrued benefit asset/(liability), net of valuation allowance of nil |                                               | 8                     |      | 6                   |     | (133
|                                                                    

The
accrued benefit asset/(liability), net of valuation allowance of nil in the Company's balance sheet was as follows:

|                      |  | Pension Benefit Plans |  | Other Benefit Plans |  |     
|--------------------- |  | --------------------- |  | ------------------- |  | ----
|                      |  |                      
|(millions of dollars) |  | 2008                  |  | 2007                |  | 2008
|                     
|Other Assets          |  | 8                     |  | 6                   |  |    
|Deferred Amounts      |  |                      |  |                    |  | (133
|                     
|Total                 |  | 8                     |  | 6                   |  | (133
|                     

The
following amounts were included at December 31 in the above benefit obligation and fair value of plan assets for plans that are not fully funded:

|                             |  | Pension Benefit Plans |   | Other Benefit Plans |   |     
|---------------------------- |  | --------------------- | - | ------------------- | - | ----
|                             |  |                      
|(millions of dollars)        |  | 2008                  |   | 2007                |   | 2008
|                            
|Benefit obligation           |  | (594                  | ) | (786                | ) | (133
|Plan assets at fair value    |  | 551                   |   | 623                 |   |    
|                            
|Funded status  plan deficit |  | (43                   | ) | (163                | ) | (133
|                            

The
expected total contributions of the Company's joint ventures in 2009 are approximately $37 million for the pension benefit plans and approximately
$4 million for the other benefit plans.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS135

---



The
following are estimated future benefit payments, which reflect expected future service:

|(millions of dollars) |  | Pension
Benefits |  | Other
Benefits |  | 
|--------------------- |  | ---------------- |  | -------------- |  | 
|                     
|2009                  |  | 39               |  | 4              |  | 
|2010                  |  | 43               |  | 5              |  | 
|2011                  |  | 46               |  | 6              |  | 
|2012                  |  | 50               |  | 7              |  | 
|2013                  |  | 54               |  | 7              |  | 
|2014 to 2018          |  | 325              |  | 49             |  | 

The
significant weighted average actuarial assumptions adopted in measuring the benefit obligations of the Company's joint ventures at December 31 were
as follows:

|                              |  | Pension Benefit Plans |  | Other Benefit Plans |  |      
|----------------------------- |  | --------------------- |  | ------------------- |  | -----
|                              |  |                      
|                              |  | 2008                  |  | 2007                |  | 2008 
|                             
|Discount rate                 |  | 6.70%                 |  | 5.25%               |  | 6.40%
|Rate of compensation increase |  | 3.50%                 |  | 3.50%               |  |      

The
significant weighted average actuarial assumptions adopted in measuring the net benefit plan costs of the Company's joint ventures for years ended December 31
were as follows:

|                                                 |  | Pension Benefit Plans |  | Other Benefit Plans |  |      
|------------------------------------------------ |  | --------------------- |  | ------------------- |  | -----
|                                                 |  |                      
|                                                 |  | 2008                  |  | 2007                |  | 2006 
|                                                
|Discount rate                                    |  | 5.25%                 |  | 5.00%               |  | 5.25%
|Expected long-term rate of return on plan assets |  | 7.00%                 |  | 7.00%               |  | 7.30%
|Rate of compensation increase                    |  | 3.50%                 |  | 3.50%               |  | 3.50%

A
one percentage point change in assumed health care cost trend rates would have the following effects:

|(millions of dollars)                                   |  | Increase |  | Decrease |   | 
|------------------------------------------------------- |  | -------- |  | -------- | - | 
|                                                       
|Effect on total of service and interest cost components |  | 3        |  | (2       | ) | 
|Effect on post-employment benefit obligation            |  | 17       |  | (14      | ) | 

The
Company's proportionate share of net benefit cost of joint ventures is as follows:

|                                                                                                                   |  | Pension Benefit Plans |   | Other Benefit Plans |   |     
|------------------------------------------------------------------------------------------------------------------ |  | --------------------- | - | ------------------- | - | ----
|                                                                                                                   |  |                      
|Year ended December 31 (millions of dollars)                                                                       |  | 2008                  |   | 2007                |   | 2006
|                                                                                                                  
|Current service cost                                                                                               |  | 27                    |   | 28                  |   | 24  
|Interest cost                                                                                                      |  | 42                    |   | 40                  |   | 37  
|Actual return on plan assets                                                                                       |  | 78                    |   | 1                   |   | (68 
|Actuarial (gain)/loss                                                                                              |  | (229                  | ) | (34                 | ) | 77  
|Plan amendment                                                                                                     |  |                      |   |                    |   |    
|                                                                                                                  
|Elements of net benefit cost prior to adjustments to recognize the long-term nature of net benefit cost            |  | (82                   | ) | 35                  |   | 70  
|                                                                                                                  
|Difference between expected and actual return on plan assets                                                       |  | (122                  | ) | (44                 | ) | 26  
|Difference between actuarial loss/(gain) recognized and actual actuarial loss/(gain) on accrued benefit obligation |  | 239                   |   | 44                  |   | (70 
|Difference between amortization of past service costs and actual plan amendments                                   |  |                      |   |                    |   |    
|                                                                                                                  
|Net benefit cost recognized related to joint ventures                                                              |  | 35                    |   | 35                  |   | 26  
|                                                                                                                  

136NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



The
weighted average asset allocations and target allocations by asset category in the pension plans of the Company's joint ventures were as follows:

|December 31       |  | Percentage of Plan Assets |  | Target Allocations |  | 
|----------------- |  | ------------------------- |  | ------------------ |  | 
|                  |  |                          
|Asset Category    |  | 2008                      |  | 2007               |  | 
|                 
|Debt securities   |  | 44%                       |  | 43%                |  | 
|Equity securities |  | 56%                       |  | 57%                |  | 
|                 
|                  |  | 100%                      |  | 100%               |  | 
|                 

Debt
securities included the Company's debt of $1 million (0.2 per cent of total plan assets) and $1 million (0.2 per cent of total
plan assets) at December 31, 2008 and 2007, respectively. Equity securities included the Company's common shares of $3 million (0.6 per cent of total plan assets) and
$3 million (0.5 per cent of total plan assets) at December 31, 2008 and 2007, respectively.

The
assets of the pension plans are managed on a going concern basis subject to legislative restrictions. The plans' investment policies are to maximize returns within an
acceptable risk tolerance. Pension assets are invested in a diversified manner with consideration given to the demographics of the plans' participants.

NOTE 22    CHANGES IN OPERATING WORKING CAPITAL

|Year ended December 31 (millions of dollars) |  | 2008 |   | 2007 |   | 2006 |   | 
|-------------------------------------------- |  | ---- | - | ---- | - | ---- | - | 
|                                            
|(Increase)/decrease in accounts receivable   |  | (197 | ) | 51   |   | (188 | ) | 
|Decrease/(increase) in inventories           |  | 82   |   | (6   | ) | (108 | ) | 
|(Increase)/decrease in other current assets  |  | (146 | ) | 118  |   | (6   | ) | 
|(Decrease)/increase in accounts payable      |  | (18  | ) | 61   |   | (42  | ) | 
|Increase/(decrease) in accrued interest      |  | 98   |   | (9   | ) | 41   |   | 
|                                            
|                                             |  | (181 | ) | 215  |   | (303 | ) | 
|                                            

NOTE 23    COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

Operating leases

Future annual payments, net of sub-lease receipts, under the Company's operating leases for various premises, services and equipment are approximately
as follows:

|Year ended December 31 (millions of dollars) |  | Minimum
Lease Payments |  | Amounts Recoverable
under Sub-leases |   | Net
Payments |  | 
|-------------------------------------------- |  | ---------------------- |  | ------------------------------------ | - | ------------ |  | 
|                                            
|2009                                         |  | 40                     |  | (12                                  | ) | 28           |  | 
|2010                                         |  | 39                     |  | (12                                  | ) | 27           |  | 
|2011                                         |  | 39                     |  | (10                                  | ) | 29           |  | 
|2012                                         |  | 38                     |  | (5                                   | ) | 33           |  | 
|2013                                         |  | 37                     |  | (4                                   | ) | 33           |  | 
|2014 and thereafter                          |  | 260                    |  | (7                                   | ) | 253          |  | 
|                                            
|Total                                        |  | 453                    |  | (50                                  | ) | 403          |  | 
|                                            

The
operating lease agreements for premises, services and equipment expire at various dates through 2035, with an option to renew certain lease agreements for periods of one
year to ten years. Net rental expense on operating leases in 2008 was $52 million (2007  $34 million;
2006  $25 million).

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS137

---



TransCanada's
commitments under the acquired Alberta PPAs are considered to be operating leases and a portion of these PPAs have been subleased to third parties under
similar terms and conditions. Future payments under these PPAs have been excluded from the above table, as these payments are dependent upon plant availability, among other factors. The amount of
power purchased under the PPAs in 2008 was $471 million (2007  $440 million; 2006  $499 million). The
generating capacities and expiry dates of the PPAs are as follows:

|           |  | Megawatts |  | Expiry Date       |  | 
|---------- |  | --------- |  | ----------------- |  | 
|          
|Sundance A |  | 560       |  | December 31, 2017 |  | 
|Sundance B |  | 353       |  | December 31, 2020 |  | 
|Sheerness  |  | 756       |  | December 31, 2020 |  | 

TransCanada
and its affiliates have long-term natural gas transportation and natural gas purchase arrangements as well as other purchase obligations, all of
which are transacted at market prices and in the normal course of business.

Bruce Power

Bruce A has signed commitments to third-party suppliers related to refurbishing and restarting Units 1 and 2 and refurbishing Units 3 and 4 to extend
their operating life. TransCanada's share of these signed commitments, which extend over the three-year period ending December 31, 2011, are as follows:

|Year ended December 31 (millions of dollars) |  |     |  | 
|-------------------------------------------- |  | --- |  | 
|                                            
|2009                                         |  | 204 |  | 
|2010                                         |  | 49  |  | 
|2011                                         |  | 2   |  | 
|                                            
|                                             |  | 255 |  | 
|                                            

Loan-Aboriginal Pipeline Group

On June 18, 2003, the Mackenzie Delta gas producers, the APG and TransCanada reached an agreement governing TransCanada's role in the Mackenzie Gas Pipeline (MGP)
project. The project would result in a natural gas pipeline being constructed from Inuvik, Northwest Territories, to the northern border of Alberta, where it would connect with the Alberta System.
Under the agreement, TransCanada agreed to finance the APG for its one-third share of project pre-development costs. These costs, on a cumulative basis, are currently forecast to be
between $150 million and $200 million, depending upon the pace of project development. As at December 31, 2008, the Company had advanced $140 million to the APG.

TransCanada
and the other co-venture companies involved in the MGP continue to pursue approval of the proposed project, focusing on obtaining regulatory approval
and the Canadian government's support of an acceptable fiscal framework. Detailed discussions with the Canadian government are continuing, and project timing continues to be uncertain. In the event
the co-venture group is unable to reach an agreement with the government on an acceptable fiscal framework, the parties will need to determine the appropriate next steps for the project,
including a review by TransCanada of the carrying value of advances to the APG.

Other Commitments

TransCanada is committed to capital expenditures totalling approximately $2.3 billion related to its share of the construction costs of Keystone, North Central Corridor
and other pipeline projects.

The
Company is committed to capital expenditures totalling approximately $1.0 billion related to its share of the construction costs of Coolidge, Bruce Power, the
remaining Cartier Wind projects, Halton Hills and Portlands Energy.

Contingencies

On April 3, 2008, the Ontario Court of Appeal dismissed an appeal filed by the Canadian Alliance of Pipeline Landowners' Associations (CAPLA). CAPLA filed the appeal as a
result of a decision by the Ontario Superior Court in November 2006 to dismiss CAPLA's class action lawsuit against TransCanada and Enbridge Inc. for damages alleged to have arisen from
the creation of a control zone within 30 metres of a pipeline pursuant to Section 112 of theNational Energy Board Act. The Ontario Court of
Appeal's decision is final and binding as CAPLA did not seek any further appeal within the time frame allowed.

TransCanada
is subject to laws and regulations governing environmental quality and pollution control. At December 31, 2008, the Company accrued approximately
$83 million related to operating facilities and $3 million related to discontinued operation sites. The accrued amount represents the Company's estimate of the amount it expects to
expend to remediate the sites. However, additional liabilities may be incurred as assessments occur and remediation efforts continue.

138NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

---



TransCanada
and its subsidiaries are subject to various legal proceedings and actions arising in the normal course of business. While the final outcome of such legal
proceedings and actions cannot be predicted with certainty, it is the opinion of management that the resolution of such proceedings and actions will not have a material impact on the Company's
consolidated financial position or results of operations.

Guarantees

TransCanada, Cameco Corporation and BPC Generation Infrastructure Trust (BPC) have severally guaranteed one-third of certain contingent financial obligations of
Bruce B related to power sales agreements, operator licenses, a lease agreement and contractor services. The guarantees have terms ranging from one year ending in 2010 to perpetuity. In addition,
TransCanada and BPC have severally guaranteed one-half of certain contingent financial obligations related to an agreement with the Ontario Power Authority to refurbish and restart Bruce A
power generation units. The guarantees were provided as part of the reorganization of Bruce Power in 2005 and have terms ending in 2019. TransCanada's share of the potential exposure under these Bruce
A and Bruce B guarantees was estimated at December 31, 2008 to range from $711 million to a maximum of $750 million. The fair value of these guarantees is estimated to be
$17 million.

The
Company and its partners in certain jointly owned entities have severally as well as jointly and severally guaranteed the financial performance of these entities related
primarily to construction projects, redelivery of natural gas, PPA payments and the payment of liabilities. TransCanada's share of the potential exposure under these guarantees was estimated at
December 31, 2008 to range from $688 million to a maximum of $1.4 billion. For certain of these entities, any payments made by TransCanada under these guarantees in excess of its
ownership interest are to be reimbursed by its partners. Deferred Amounts includes $9 million for the fair value of these joint and several guarantees.

TransCanada
has guaranteed a subsidiary's equity undertaking to support the payment, under certain conditions, of principal and interest on US$43 million of the
public debt obligations of TransGas de Occidente S.A. (TransGas). The Company has a 46.5 per cent interest in TransGas. Under the terms of a shareholder agreement, TransCanada and
another major multinational company may be required to severally fund more than their proportionate share of debt obligations of TransGas in the event that the minority shareholders fail to
contribute. Any payments made by TransCanada under this agreement would convert into share capital of TransGas. The Company's
potential exposure is contingent on the impact any change of law would have on the ability of TransGas to service the debt. There has been no change in applicable law since the issuance of debt in
1995 and, thus, no exposure for TransCanada. The debt matures in 2010. The Company has made no provision related to this guarantee.

NOTE 24    DISCONTINUED OPERATIONS

The $28 million income from discontinued operations in 2006 reflected settlements received from bankruptcy claims related to TransCanada's Gas Marketing business, which
was sold in 2001.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS139

---





SUPPLEMENTARY INFORMATION

SELECTED QUARTERLY AND ANNUAL CONSOLIDATED FINANCIAL DATA

|Toronto Stock Exchange(Stock trading symbol TRP)  |  | First |  | Second |  | Third |  | Fourth |  | Annual | 
|------------------------------------------------- |  | ----- |  | ------ |  | ----- |  | ------ |  | ------ | 
|                                                 
|2008 (Canadian dollars)                           |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 40.97 |  | 40.71  |  | 40.65 |  | 39.26  |  | 40.97  | 
|Low                                               |  | 36.21 |  | 35.98  |  | 35.95 |  | 29.42  |  | 29.42  | 
|Close                                             |  | 39.55 |  | 39.50  |  | 38.17 |  | 33.17  |  | 33.17  | 
|Volume (millions of shares)                       |  | 86.1  |  | 134.0  |  | 114.0 |  | 159.7  |  | 493.8  | 
|                                                 
|2007 (Canadian dollars)                           |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 41.35 |  | 40.29  |  | 39.83 |  | 40.73  |  | 41.35  | 
|Low                                               |  | 36.75 |  | 35.77  |  | 35.43 |  | 36.47  |  | 35.43  | 
|Close                                             |  | 38.35 |  | 36.64  |  | 36.47 |  | 40.54  |  | 40.54  | 
|Volume (millions of shares)                       |  | 88.7  |  | 78.7   |  | 91.4  |  | 77.2   |  | 336.0  | 
|                                                 
|2006 (Canadian dollars)                           |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 37.15 |  | 34.93  |  | 36.49 |  | 40.90  |  | 40.90  | 
|Low                                               |  | 33.60 |  | 30.77  |  | 31.70 |  | 33.87  |  | 30.77  | 
|Close                                             |  | 33.67 |  | 31.85  |  | 35.15 |  | 40.61  |  | 40.61  | 
|Volume (millions of shares)                       |  | 71.9  |  | 74.1   |  | 61.6  |  | 61.0   |  | 268.6  | 
|                                                 
|New York Stock Exchange(Stock trading symbol TRP) |  |       |  |        |  |       |  |        |  |        | 
|                                                 
|2008 (U.S. dollars)                               |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 41.53 |  | 40.64  |  | 39.29 |  | 36.33  |  | 41.53  | 
|Low                                               |  | 35.60 |  | 35.33  |  | 34.01 |  | 23.52  |  | 23.52  | 
|Close                                             |  | 38.53 |  | 38.77  |  | 36.15 |  | 27.14  |  | 27.14  | 
|Volume (millions of shares)                       |  | 8.7   |  | 8.8    |  | 9.8   |  | 17.2   |  | 44.5   | 
|                                                 
|2007 (U.S. dollars)                               |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 35.30 |  | 37.21  |  | 38.06 |  | 43.94  |  | 43.94  | 
|Low                                               |  | 31.33 |  | 32.91  |  | 32.92 |  | 36.68  |  | 31.33  | 
|Close                                             |  | 33.28 |  | 34.41  |  | 36.61 |  | 40.93  |  | 40.93  | 
|Volume (millions of shares)                       |  | 8.2   |  | 5.7    |  | 9.0   |  | 7.9    |  | 30.8   | 
|                                                 
|2006 (U.S. dollars)                               |  |       |  |        |  |       |  |        |  |        | 
|High                                              |  | 32.14 |  | 31.36  |  | 32.85 |  | 35.40  |  | 35.40  | 
|Low                                               |  | 28.66 |  | 27.40  |  | 28.23 |  | 29.82  |  | 27.40  | 
|Close                                             |  | 28.93 |  | 28.68  |  | 31.44 |  | 34.95  |  | 34.95  | 
|Volume (millions of shares)                       |  | 5.8   |  | 9.0    |  | 5.6   |  | 7.3    |  | 27.7   | 
|                                                 

140SUPPLEMENTARY
INFORMATION

---





NINE-YEAR FINANCIAL HIGHLIGHTS

|(millions of dollars except where indicated)       | 2008                    |           | 2007   |        | 2006   |        | 2005   |        | 2004   |        | 2003   |        | 2002   |        | 2001   |        | 2000   |        |       
|-------------------------------------------------- | ----------------------- | --------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------
|                                                  
|Income Statement                                   |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|Revenues                                           | 8,619                   |           | 8,828  |        | 7,520  |        | 6,124  |        | 5,497  |        | 5,636  |        | 5,225  |        | 5,285  |        | 4,384  |        |       
|Net income from continuing operations              | 1,440                   |           | 1,223  |        | 1,051  |        | 1,209  |        | 980    |        | 801    |        | 747    |        | 686    |        | 628    |        |       
|Net income/(loss) by segment                       |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|                                                   |                         | Pipelines | 902    |        | 686    |        | 560    |        | 679    |        | 584    |        | 625    |        | 639    |        | 572    |        | 613   
|                                                   |                         | Energy    | 614    |        | 514    |        | 452    |        | 566    |        | 398    |        | 217    |        | 160    |        | 181    |        | 95    
|                                                   |                         | Corporate | (76    | )      | 23     |        | 39     |        | (36    | )      | (2     | )      | (41    | )      | (52    | )      | (67    | )      | (80   
|                                                   | Continuing operations   | 1,440     |        | 1,223  |        | 1,051  |        | 1,209  |        | 980    |        | 801    |        | 747    |        | 686    |        | 628    |       
|                                                   | Discontinued operations |          |        |       |        | 28     |        |       |        | 52     |        | 50     |        |       |        | (67    | )      | 61     |       
|Net income                                         | 1,440                   |           | 1,223  |        | 1,079  |        | 1,209  |        | 1,032  |        | 851    |        | 747    |        | 619    |        | 689    |        |       
|Cash Flow Statement                                |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|Funds generated from operations                    | 3,021                   |           | 2,621  |        | 2,378  |        | 1,951  |        | 1,703  |        | 1,822  |        | 1,843  |        | 1,625  |        | 1,484  |        |       
|(Increase)/decrease in operating working capital   | (181                    | )         | 215    |        | (303   | )      | (49    | )      | 29     |        | 93     |        | 92     |        | (487   | )      | 437    |        |       
|                                                  
|Net cash provided by operations                    | 2,840                   |           | 2,836  |        | 2,075  |        | 1,902  |        | 1,732  |        | 1,915  |        | 1,935  |        | 1,138  |        | 1,921  |        |       
|Capital expenditures and acquisitions              | 6,363                   |           | 5,874  |        | 2,042  |        | 2,071  |        | 2,046  |        | 965    |        | 851    |        | 1,082  |        | 1,144  |        |       
|Disposition of assets, net of current income taxes | 28                      |           | 35     |        | 23     |        | 671    |        | 410    |        |       |        |       |        | 1,170  |        | 2,233  |        |       
|Cash dividends paid on common shares               | 577                     |           | 546    |        | 617    |        | 586    |        | 552    |        | 510    |        | 466    |        | 418    |        | 423    |        |       
|Balance Sheet                                      |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|Assets                                             |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|Plant, property and equipment                      |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|                                                   |                         | Pipelines | 20,700 |        | 18,280 |        | 17,141 |        | 16,528 |        | 17,306 |        | 16,064 |        | 16,158 |        | 16,562 |        | 16,937
|                                                   |                         | Energy    | 8,435  |        | 5,127  |        | 4,302  |        | 3,483  |        | 1,421  |        | 1,368  |        | 1,340  |        | 1,116  |        | 776   
|                                                   |                         | Corporate | 54     |        | 45     |        | 44     |        | 27     |        | 37     |        | 50     |        | 64     |        | 66     |        | 111   
|Total assets                                       |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|                                                   | Continuing operations   | 39,414    |        | 30,330 |        | 25,909 |        | 24,113 |        | 22,415 |        | 20,876 |        | 20,416 |        | 20,255 |        | 20,238 |       
|                                                   | Discontinued operations |          |        |       |        |       |        |       |        | 7      |        | 11     |        | 139    |        | 276    |        | 5,007  |       
|                                                  
|Total assets                                       | 39,414                  |           | 30,330 |        | 25,909 |        | 24,113 |        | 22,422 |        | 20,887 |        | 20,555 |        | 20,531 |        | 25,245 |        |       
|Capitalization                                     |                         |           |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |       
|Long-term debt                                     | 15,368                  |           | 12,377 |        | 10,887 |        | 9,640  |        | 9,749  |        | 9,516  |        | 8,899  |        | 9,444  |        | 10,008 |        |       
|Junior subordinated notes                          | 1,213                   |           | 975    |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       
|Preferred securities                               |                        |           |       |        | 536    |        | 536    |        | 554    |        | 598    |        | 944    |        | 950    |        | 1,208  |        |       
|Non-controlling interests                          | 1,194                   |           | 999    |        | 755    |        | 783    |        | 700    |        | 713    |        | 677    |        | 675    |        | 646    |        |       
|Common shareholders' equity                        | 12,898                  |           | 9,785  |        | 7,701  |        | 7,206  |        | 6,565  |        | 6,091  |        | 5,747  |        | 5,426  |        | 5,211  |        |       

SUPPLEMENTARY
INFORMATION141

---



|Per Common Share Data (dollars)                  |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|------------------------------------------------ | ----------------------------- | --------------------------- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | -----
|Net income  Basic                               |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 | Continuing operations         | $2.53                       |        | $2.31 |        | $2.15 |        | $2.49 |        | $2.02 |        | $1.66 |        | $1.56 |        | $1.44 |        | $1.32 |      
|                                                 | Discontinued operations       |                            |        |      |        | 0.06  |        |      |        | 0.11  |        | 0.10  |        |      |        | (0.14 | )      | 0.13  |      
|                                                
|                                                 | $2.53                         |                             | $2.31  |       | $2.21  |       | $2.49  |       | $2.13  |       | $1.76  |       | $1.56  |       | $1.30  |       | $1.45  |       |      
|                                                
|Net income  Diluted                             |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 | Continuing operations         | $2.52                       |        | $2.30 |        | $2.14 |        | $2.47 |        | $2.01 |        | $1.66 |        | $1.55 |        | $1.44 |        | $1.32 |      
|                                                 | Discontinued operations       |                            |        |      |        | 0.06  |        |      |        | 0.11  |        | 0.10  |        |      |        | (0.14 | )      | 0.13  |      
|                                                
|                                                 | $2.52                         |                             | $2.30  |       | $2.20  |       | $2.47  |       | $2.12  |       | $1.76  |       | $1.55  |       | $1.30  |       | $1.45  |       |      
|                                                
|Dividends declared                               | $1.44                         |                             | $1.36  |       | $1.28  |       | $1.22  |       | $1.16  |       | $1.08  |       | $1.00  |       | $0.90  |       | $0.80  |       |      
|Book value(1)(6)                                 | $20.92                        |                             | $18.13 |       | $15.75 |       | $14.79 |       | $13.54 |       | $12.61 |       | $11.99 |       | $11.38 |       | $10.97 |       |      
|Market price                                     |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 | Toronto Stock Exchange ($Cdn) |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 |                               | High                        | 40.97  |       | 41.35  |       | 40.90  |       | 37.90  |       | 30.35  |       | 28.49  |       | 23.91  |       | 21.13  |       | 17.25
|                                                 |                               | Low                         | 29.42  |       | 35.43  |       | 30.77  |       | 28.94  |       | 25.37  |       | 20.77  |       | 19.05  |       | 14.85  |       | 9.80 
|                                                 |                               | Close                       | 33.17  |       | 40.54  |       | 40.61  |       | 36.65  |       | 29.80  |       | 27.88  |       | 22.92  |       | 19.87  |       | 17.20
|                                                 |                               | Volume (millions of shares) | 493.8  |       | 336.0  |       | 268.6  |       | 238.0  |       | 280.1  |       | 277.9  |       | 280.6  |       | 288.2  |       | 400.7
|                                                 | New York Stock Exchange ($US) |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 |                               | High                        | 41.53  |       | 43.94  |       | 35.40  |       | 32.41  |       | 24.91  |       | 21.88  |       | 15.56  |       | 13.41  |       | 11.50
|                                                 |                               | Low                         | 23.52  |       | 31.33  |       | 27.40  |       | 23.36  |       | 18.75  |       | 14.16  |       | 11.89  |       | 9.88   |       | 6.75 
|                                                 |                               | Close                       | 27.14  |       | 40.93  |       | 34.95  |       | 31.48  |       | 24.87  |       | 21.51  |       | 14.51  |       | 12.51  |       | 11.50
|                                                 |                               | Volume (millions of shares) | 44.5   |       | 30.8   |       | 27.7   |       | 31.6   |       | 33.0   |       | 21.2   |       | 16.3   |       | 16.8   |       | 21.2 
|Shares outstanding (millions)                    |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|                                                 | Average for the year          | 569.6                       |        | 529.9 |        | 488.0 |        | 486.2 |        | 484.1 |        | 481.5 |        | 478.3 |        | 475.8 |        | 474.6 |      
|                                                 | End of year                   | 616.5                       |        | 539.8 |        | 489.0 |        | 487.2 |        | 484.9 |        | 483.2 |        | 479.5 |        | 476.6 |        | 474.9 |      
|Registered common shareholders(1)                | 33,681                        |                             | 34,204 |       | 35,522 |       | 30,533 |       | 31,837 |       | 33,133 |       | 34,902 |       | 36,350 |       | 30,758 |       |      
|Financial Ratios                                 |                               |                             |        |       |        |       |        |       |        |       |        |       |        |       |        |       |        |       |      
|Return on average common shareholders' equity(2) | 12.7%                         |                             | 14.0%  |       | 14.5%  |       | 17.6%  |       | 16.3%  |       | 14.4%  |       | 13.4%  |       | 11.6%  |       | 13.6%  |       |      
|Dividend yield(3)                                | 4.3%                          |                             | 3.4%   |       | 3.2%   |       | 3.3%   |       | 3.9%   |       | 3.9%   |       | 4.4%   |       | 4.5%   |       | 4.7%   |       |      
|Price/earnings multiple(4)(5)                    | 13.1                          |                             | 17.5   |       | 18.4   |       | 14.7   |       | 14.0   |       | 15.8   |       | 14.7   |       | 15.3   |       | 11.9   |       |      
|Price/book multiple(4)(6)                        | 1.6                           |                             | 2.2    |       | 2.6    |       | 2.5    |       | 2.2    |       | 2.2    |       | 1.9    |       | 1.7    |       | 1.6    |       |      
|Debt to debt plus shareholders' equity(7)        | 57%                           |                             | 59%    |       | 61%    |       | 59%    |       | 63%    |       | 64%    |       | 64%    |       | 67%    |       | 69%    |       |      
|Total shareholder return(8)                      | (15%                          | )                           | 3%     |       | 15%    |       | 28%    |       | 11%    |       | 27%    |       | 21%    |       | 21%    |       | 48%    |       |      
|Earnings to fixed charges(9)                     | 2.7                           |                             | 2.6    |       | 2.5    |       | 2.9    |       | 2.5    |       | 2.3    |       | 2.3    |       | 2.1    |       | 1.9    |       |      

142SUPPLEMENTARY
INFORMATION

---





INVESTOR INFORMATION

STOCK EXCHANGES, SECURITIES AND SYMBOLS

TransCanada Corporation

Common shares are listed on the Toronto and New York stock exchanges under the symbol: TRP

TransCanada PipeLines Limited (TCPL)*

Preferred shares are listed on the Toronto Stock Exchange under the following symbols:

Cumulative
redeemable first preferred Series U: TCA.PR.X and Series Y: TCA.PR.Y

* TCPL
is a wholly owned subsidiary of TransCanada Corporation.

Annual MeetingThe annual meeting of shareholders is scheduled for May 1, 2009 at 10:00 a.m. (Mountain Daylight Time) at the
Roundup Centre, Calgary, Alberta.

Dividend Payment DatesScheduled common share dividend payment dates in 2009 are January 30, April 30, July 31 and
October 30.

Dividend Reinvestment and Share Purchase PlanTransCanada's dividend reinvestment and share purchase plan (Plan) allows common shareholders
of TransCanada and preferred shareholders of TCPL to purchase additional common shares by reinvesting their cash dividends without incurring brokerage or administrative fees. Participants in the Plan
may also buy additional common shares, up to $10,000 (US$7,000) per quarter. Please contact our Plan agent, Computershare Trust Company of Canada, for more information on the Plan or visit us at
www.transcanada.com.

TRANSFER AGENTS, REGISTRARS AND TRUSTEE

TransCanada Corporation Common SharesComputershare Trust Company of Canada (Montréal, Toronto, Calgary and Vancouver) and
Computershare Trust Company, N.A. (Golden)

TCPL Preferred SharesComputershare Trust Company of Canada (Montréal, Toronto, Calgary and Vancouver)

TCPL Debentures

Canadian
Series: CIBC Mellon Trust Company (Halifax, Montréal, Toronto, Calgary and Vancouver)

|11.10% series N |  | 10.50% series O |  | 10.50% series P |  | 10.625% series Q |  |               
|--------------- |  | --------------- |  | --------------- |  | ---------------- |  | --------------
|11.85% series R |  | 11.90% series S |  | 11.80% series U |  | 9.80% series V   |  | 9.45% series W

U.S. Series: The Bank of New York (New York) 9.875% and 8.625%

TCPL Canadian Medium-Term NotesCIBC Mellon Trust Company (Halifax, Montréal, Toronto, Calgary
and Vancouver)

TCPL U.S. Medium-Term Notes and Senior NotesThe Bank of New York (New York)

TCPL U.S. Junior Subordinated NotesThe Bank of Nova Scotia Trust Company of New York

TRANSCANADA
CORPORATION143

---



NOVA Gas Transmission Ltd. (NGTL) Debentures

Canadian
Series: CIBC Mellon Trust Company (Halifax, Montreal, Toronto, Calgary and Vancouver)

|11.95% series 13 |  | 11.70% series 15 |  | 11.20% series 18 |  | 12.625% series 19 |  | 
|---------------- |  | ---------------- |  | ---------------- |  | ----------------- |  | 
|12.20% series 20 |  | 12.20% series 21 |  | 9.90% series 23  |  |                   |  | 

U.S. Series: U.S. Bank Trust National Association (New York) 8.50% and 7.875%

NGTL Canadian Medium-Term NotesCIBC Mellon Trust Company (Halifax, Montreal, Toronto, Calgary and Vancouver)

NGTL U.S. Medium-Term NotesU.S. Bank Trust National Association (New York)

REGULATORY FILINGS

Annual Information FormTransCanada's 2008 Annual Information Form, as filed with Canadian securities commissions and as filed under
Form 40-F with the SEC, is available on our website at www.transcanada.com.

A
printed copy may be obtained from:

Corporate
Secretary, TransCanada Corporation, 450 1st Street SW, Calgary, Alberta, Canada T2P 5H1

144TRANSCANADA
CORPORATION

---



SHAREHOLDER ASSISTANCE

If you are a registered shareholder and have questions regarding your account, please contact our transfer agent in writing, by telephone or e-mail at:

Computershare
Trust Company of Canada, 100 University Avenue, 9th Floor, North Tower, Toronto, Ontario, Canada M5J 2Y1

|Toll-free: 1 (800) 340-5024 |  | 
|--------------------------- |  | 
|Telephone: 1 (514) 982-7959 |  | 

E-mail: transcanada@computershare.com

www.computershare.com

If
you hold your shares in a brokerage account (beneficial shareholder), questions should be directed to your broker on all administrative matters.

If
you would like to receive quarterly reports, please contact Computershare or visit our website at www.transcanada.com.

Electronic Proxy Voting and Delivery of DocumentsTransCanada is pleased to offer registered and beneficial shareholders the ability to
receive their documents (annual report, management information circular, notice of meeting and view-only proxy form) and vote online.

In
2009, registered shareholders who opt to receive their documents electronically will have a tree planted on their behalf through eTree. For more information and to sign
up online, registered shareholders can visit www.etree.ca/transcanada.

Shareholders
who do not have access to e-mail, or who still prefer to receive their proxy materials by mail also have the ability to choose whether to receive
TransCanada's annual report by regular mail. Each year, shareholders are required to renew their option and will receive a notification for doing so. The annual report is available on the TransCanada
website at www.transcanada.com/investor/financial.html at the same time that the report is mailed to shareholders.

Electronic
delivery and the ability to opt out of receiving the annual report by mail, provides increased convenience to shareholders, benefits to the environment and
reduced mailing and printing costs for the company.

TransCanada in the CommunityTransCanada's annual Corporate Social Responsibility Report is available at www.transcanada.com. If you would
like to receive a copy of this report by mail, please contact:

Communications450 1st Street SW, Calgary, Alberta T2P 5H1, 1.403.920.2000 or 1.800.861.3805 or
Communications@transcanada.com

Visit
our website at www.transcanada.com to access TransCanada's corporate and financial information, including quarterly reports, news releases, real-time
conference call webcasts and investor presentations.

Si
vous désirez vous procurer un exemplaire de ce rapport en français, veuillez consulter notre site web ou vous adresser par
écrit à TransCanada Corporation, bureau du secrétaire.

TRANSCANADA
CORPORATION145

---





BOARD OF DIRECTORS

(as at December 31, 2008)

|S. Barry Jackson*
Chairman
TransCanada Corporation
Calgary, Alberta Harold N. KvislePresident and CEO
TransCanada Corporation
Calgary, Alberta Kevin E. Benson(1)
Corporate Director
Wheaton, Illinois Derek H. Burney, O.C.(2)(3)
Senior Strategic Advisor
Ogilvy Renault LLP
Ottawa, Ontario Wendy K. Dobson(4)(7)
Professor, Rotman School
of Management and Director,
Institute for International Business
University of Toronto
Uxbridge, Ontario |  | E. Linn Draper(5)(7)
Former Chairman, President and CEO
American Electric Power Co., Inc. (AEP)
Lampasas, Texas The Hon. Paule Gauthier, P.C., O.C., O.Q., Q.C.(2)(6)
Senior Partner
Stein Monast L.L.P.
Québec, Québec Kerry L. Hawkins(6)(7)
Retired President
Cargill Limited
Winnipeg, Manitoba Paul L. Joskow(2)(3)
President
Alfred P. Sloan Foundation
New York, New York |  | John A. MacNaughton(2)(3)
Chairman
Business Development Bank of Canada
Toronto, Ontario David P. O'Brien, O.C.(3)(7)
Chairman
EnCana Corporation
Royal Bank of Canada
Calgary, Alberta W. Thomas Stephens(6)(8)
Former Chairman and Chief Executive Officer
Boise Cascade, LLC
Greenwood Village, Colorado D. Michael G. Stewart(3)
Corporate Director
Calgary, Alberta
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CORPORATE GOVERNANCE

Please refer to TransCanada's Notice of 2009 Annual Meeting of Common Shareholders and Management Proxy Circular for the company's statement of corporate governance.

TransCanada's
Corporate Governance Guidelines, Board charter, Committee charters, Chair and CEO terms of reference and codes of business conduct and ethics are available on
our website at www.transcanada.com. Also available on our website is a summary of the significant ways in which TransCanada's corporate governance practices differ from those required to be followed
by U.S. domestic companies under the New York Stock Exchange's listing standards.

Additional
information relating to the company is filed with securities regulators in Canada on SEDAR at www.sedar.com and in the United States on EDGAR at
www.sec.gov. The documents referred to in this Annual Report may be obtained free of charge by contacting TransCanada's Corporate Secretary at 450 1st Street SW, Calgary, Alberta, Canada
T2P 5H1, or by telephoning 1.800.661.3805.

Ethics Help-LineThe Audit Committee of the Board of Directors has established an anonymous and confidential
toll-free telephone number for employees, contractors and others to call with respect to accounting irregularities and ethical violations. The Ethics Help-Line number is
1.888.920.2042.

146TRANSCANADA
CORPORATION

---



Visit our
  website for more information on: Our Pipelines and Energy businesses Projects
  and initiatives Corporate responsibility Corporate governance Investor
  services www.transcanada.com  TransCanada
  welcomes questions from shareholders and investors. Please contact: David
  Moneta, Vice-President, Investor Relations and Corporate Communications 1.800.361.6522
  (Canada and U.S. Mainland) contact information executive officers Hal Kvisle President
  and Chief Executive Officer Russ Girling President, Pipelines Alex Pourbaix President,
  Energy Greg Lohnes Executive Vice-President, and Chief Financial Officer Dennis
  McConaghy Executive Vice-President, Pipeline Strategy and Development Sean
  McMaster Executive Vice-President, Corporate and General Counsel Sarah Raiss Executive
  Vice-President, Corporate Services Don Wishart Executive Vice-President,
  Operations and Engineering TransCanada Corporation TransCanada Tower 450 1st
  Street SW Calgary, Alberta T2P 5H1 1.403.920.2000 1.800.661.3805


TransCanada
  will 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 advantage. our
  vision Please recycle Printed in Canada March 2009




TRANSCANADA CORPORATION    RECONCILIATION TO UNITED STATES GAAP

December 31,
2008

---



AUDITORS' REPORT ON RECONCILIATION TO UNITED STATES GAAP

To
the Board of Directors of TransCanada Corporation

On
February 23, 2009, we reported on the consolidated balance sheets of TransCanada Corporation as at December 31, 2008 and 2007, and the consolidated statements of income, comprehensive
income, accumulated other comprehensive income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2008, which are included in the annual report on Form 40-F. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related supplemental note entitled "Reconciliation to United States GAAP" as included in Form 40-F. This supplemental note is
the responsibility of the Company's management. Our responsibility is to express an opinion on this supplemental note based on our audits.

In
our opinion, such supplemental note, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein.

/s/KPMG LLPChartered Accountants
Calgary, Canada

February 23,
2009

2

---





TRANSCANADA CORPORATION  RECONCILIATION TO UNITED STATES GAAP

The 2008 audited consolidated financial statements of TransCanada Corporation (TransCanada or the Company) have been prepared in accordance with Canadian generally accepted
accounting principles (GAAP), which in some respects, differ from United States (U.S.) GAAP.

The
effects of significant differences between Canadian and U.S. GAAP on the Company's consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 are
described below and should be read in conjunction with TransCanada's audited consolidated financial statements prepared in accordance with Canadian GAAP.

Reconciliation of Net Income and Comprehensive Income

|Year Ended December 31 (millions of dollars, except per share amounts) |                                                                                          | 2008 |       | 2007 |   | 2006  |     
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---- | ----- | ---- | - | ----- | ----
|Income from Continuing Operations in Accordance with Canadian GAAP     |                                                                                          |      | 1,440 |      |   | 1,223 |     
|U.S. GAAP adjustments:                                                 |                                                                                          |      |       |      |   |       |     
|                                                                       | Unrealized loss/(gain) on natural gas inventory held in storage(1)                       |      |       | 32   |   |       | (25 
|                                                                       | Tax impact of unrealized loss/(gain) on natural gas inventory held in storage            |      |       | (11  | ) |       | 8   
|                                                                       | Unrealized gain/(loss) on energy contracts(2)                                            |      |       |     |   |       | 13  
|                                                                       | Tax impact of unrealized gain/(loss) on energy contracts                                 |      |       |     |   |       | (5  
|                                                                       | Tax recovery due to a change in tax legislation substantively enacted in Canada(3)       |      |       |     |   |       | (12 
|                                                                       | Other(4)(5)                                                                              |      |       |     |   |       | (2  
|                                                                       |                                                                                          |      |       |      |   |       |     
|Income from Continuing Operations in Accordance with U.S. GAAP         |                                                                                          |      | 1,461 |      |   | 1,200 |     
|Net Income from Discontinued Operations  U.S. and Canadian GAAP       |                                                                                          |      |      |      |   |      |     
|                                                                       |                                                                                          |      |       |      |   |       |     
|Net Income in Accordance with U.S. GAAP                                |                                                                                          |      | 1,461 |      |   | 1,200 |     
|Other Comprehensive Income (Loss) in Accordance with Canadian GAAP     |                                                                                          |      | (99   | )    |   | (187  | )   
|U.S. GAAP adjustments:                                                 |                                                                                          |      |       |      |   |       |     
|                                                                       | Change in funded status of postretirement plan liability(6)                              |      |       | (49  | ) |       | (48 
|                                                                       | Tax impact of change in funded status of postretirement plan liability                   |      |       | 10   |   |       | 8   
|                                                                       | Change in equity investment funded status of postretirement plan liability(6)            |      |       | 158  |   |       | 32  
|                                                                       | Tax impact of change in equity investment funded status of postretirement plan liability |      |       | (51  | ) |       | (11 
|                                                                       | Unrealized loss on derivatives(2)(4)                                                     |      |       |     |   |       | (22 
|                                                                       | Tax impact of unrealized loss on derivatives                                             |      |       |     |   |       | 8   
|                                                                       | Changes in minimum pension liability(6)                                                  |      |       |     |   |       |    
|                                                                       | Tax impact of changes in minimum pension liability                                       |      |       |     |   |       |    
|                                                                       | Foreign currency translation adjustment                                                  |      |       |     |   |       |    
|                                                                       |                                                                                          |      |       |      |   |       |     
|Comprehensive Income in Accordance with U.S. GAAP                      |                                                                                          |      | 1,430 |      |   | 980   |     
|                                                                       |                                                                                          |      |       |      |   |       |     
|Net Earnings Per Share in Accordance with U.S. GAAP:                   |                                                                                          |      |       |      |   |       |     
|                                                                       | Continuing Operations                                                                    |      | $     | 2.57 |   | $     | 2.26
|                                                                       | Discontinued Operations                                                                  |      |       |     |   |       |    
|                                                                       |                                                                                          |      |       |      |   |       |     
|                                                                       | Basic                                                                                    |      | $     | 2.57 |   | $     | 2.26
|                                                                       |                                                                                          |      |       |      |   |       |     
|                                                                       | Diluted                                                                                  |      | $     | 2.56 |   | $     | 2.25
|                                                                       |                                                                                          |      |       |      |   |       |     

3

---



Condensed Balance Sheet in Accordance with U.S. GAAP

|(millions of dollars)                           |  | December 31,
2008 |   | December 31,
2007 |  
|----------------------------------------------- |  | ----------------- | - | ----------------- | -
|Current assets(1)                               |  | 3,399             |   | 1,766             |  
|Long-term investments(2)(5)(6)(7)               |  | 5,221             |   | 3,568             |  
|Plant, property and equipment                   |  | 22,901            |   | 19,225            |  
|Goodwill                                        |  | 4,258             |   | 2,521             |  
|Other assets(6)(8)(9)                           |  | 3,418             |   | 3,448             |  
|                                                |  |                   |   |                   |  
|                                                |  | 39,197            |   | 30,528            |  
|                                                |  |                   |   |                   |  
|Current liabilities(3)                          |  | 4,264             |   | 2,774             |  
|Deferred amounts(6)(7)                          |  | 1,789             |   | 1,158             |  
|Deferred income taxes(1)(2)(5)(6)(8)            |  | 2,602             |   | 2,693             |  
|Long-term debt and junior subordinated notes(9) |  | 16,664            |   | 13,423            |  
|Non-controlling interests                       |  | 1,194             |   | 999               |  
|                                                |  |                   |   |                   |  
|                                                |  | 26,513            |   | 21,047            |  
|                                                |  |                   |   |                   |  
|Shareholders' equity:                           |  |                   |   |                   |  
|Common shares                                   |  | 9,265             |   | 6,662             |  
|Contributed surplus                             |  | 279               |   | 276               |  
|Retained earnings(1)(2)(3)(4)(5)                |  | 3,809             |   | 3,181             |  
|Accumulated other comprehensive income(6)(10)   |  | (669              | ) | (638              | )
|                                                |  |                   |   |                   |  
|                                                |  | 12,684            |   | 9,481             |  
|                                                |  |                   |   |                   |  
|                                                |  | 39,197            |   | 30,528            |  
|                                                |  |                   |   |                   |  

4

---



Statement of Accumulated Other Comprehensive Income in Accordance with U.S. GAAP(10)

|(millions of dollars)                                                                                            |  | Under-funded
Postretirement
Plan Liability
(SFAS No. 158) |   | Cumulative
Translation
Account |   | Minimum
Pension
Liability
(SFAS No. 87) |   | Cash Flow
Hedges
and Other
(SFAS No. 133) |   | Total |  
|---------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- | - | ------------------------------ | - | --------------------------------------- | - | ----------------------------------------- | - | ----- | -
|Balance at January 1, 2006                                                                                       |  |                                                          |   | (89                            | ) | (77                                     | ) | (58                                       | ) | (224  | )
|Change in minimum pension liability, net
    of tax expense of $35(6)                                            |  |                                                          |   |                               |   | 63                                      |   |                                          |   | 63    |  
|Reversal of minimum pension liability, due to
    adoption of SFAS 158, net of tax
    recovery of $6(6)         |  | (14                                                       | ) |                               |   | 14                                      |   |                                          |   |      |  
|Change in funding of postretirement plan
    liability, net of tax recovery of $35(6)                            |  | (78                                                       | ) |                               |   |                                        |   |                                          |   | (78   | )
|Change in equity investment postretirement
    plan liability, net of tax recovery
    of $70(6)                 |  | (154                                                      | ) |                               |   |                                        |   |                                          |   | (154  | )
|Unrealized gain on derivatives, net of tax
    expense of $11(2)                                                 |  |                                                          |   |                               |   |                                        |   | (24                                       | ) | (24   | )
|Foreign currency translation adjustment, net
    of tax recovery of $1                                           |  |                                                          |   | (1                             | ) |                                        |   |                                          |   | (1    | )
|                                                                                                                 |  |                                                           |   |                                |   |                                         |   |                                           |   |       |  
|Balance at December 31, 2006                                                                                     |  | (246                                                      | ) | (90                            | ) |                                        |   | (82                                       | ) | (418  | )
|Foreign currency translation adjustment, net
    of tax expense of $101                                          |  |                                                          |   | (350                           | ) |                                        |   |                                          |   | (350  | )
|Change in gains and losses on hedges of
    instruments in foreign operations, net of    tax expense of $41      |  |                                                          |   | 79                             |   |                                        |   |                                          |   | 79    |  
|Change in funded status of postretirement
    plan liability, net of tax recovery of $8(6)                       |  | (40                                                       | ) |                               |   |                                        |   |                                          |   | (40   | )
|Change in equity investment funded status of
    postretirement plan liability, net of tax
    expense of $11(6) |  | 21                                                        |   |                               |   |                                        |   |                                          |   | 21    |  
|Unrealized loss on derivatives, net of tax
    expense of $42(2)(4)                                              |  |                                                          |   |                               |   |                                        |   | 70                                        |   | 70    |  
|                                                                                                                 |  |                                                           |   |                                |   |                                         |   |                                           |   |       |  
|Balance at December 31, 2007                                                                                     |  | (265                                                      | ) | (361                           | ) |                                        |   | (12                                       | ) | (638  | )
|Foreign currency translation adjustment, net
    of tax recovery of $104                                         |  |                                                          |   | 571                            |   |                                        |   |                                          |   | 571   |  
|Change in gains and losses on hedges of
    instruments in foreign operations, net of
    tax recovery of $303   |  |                                                          |   | (589                           | ) |                                        |   |                                          |   | (589  | )
|Change in funded status of postretirement
    plan liability, net of tax recovery
    of $10(6)                  |  | (39                                                       | ) |                               |   |                                        |   |                                          |   | (39   | )
|Change in equity investment funded status of
    postretirement plan liability, net of tax
    expense of $51    |  | 107                                                       |   |                               |   |                                        |   |                                          |   | 107   |  
|Unrealized gain on derivatives, net of tax
    recovery of $60                                                   |  |                                                          |   |                               |   |                                        |   | (83                                       | ) | (83   | )
|Change in gains and losses on available for
    sale financial instruments, net of tax
    of nil                |  |                                                          |   |                               |   |                                        |   | 2                                         |   | 2     |  
|                                                                                                                 |  |                                                           |   |                                |   |                                         |   |                                           |   |       |  
|Balance at December 31, 2008                                                                                     |  | (197                                                      | ) | (379                           | ) |                                        |   | (93                                       | ) | (669  | )
|                                                                                                                 |  |                                                           |   |                                |   |                                         |   |                                           |   |       |  

5

---



December 31 (millions of dollars)

2008

2007Non-current assets



20Non-current liabilities

259

(251
)(259
)
(231
)


2008

2007

2006December 31 (millions of dollars)

Pension
Benefits

Other
Benefits

Total

Pension
Benefits

Other
Benefits

Total

Pension
Benefits

Other
Benefits

TotalNet loss

173

22

195

120

15

135

92

14

106Prior service cost (credit)

11

4

15

12

14

26

11

(4
)
7184

26

210

132

29

161

103

10

113


2008

2007December 31 (millions of dollars)

Pension
Benefits

Other
Benefits

Total

Pension
Benefits

Other
Benefits

TotalAmortization of net loss from AOCI to net income

(1
)
(1
)
(2
)
(9
)
(1
)
(10
)Amortization of prior service cost (credit) from AOCI to net income

(2
)
(1
)
(3
)
(1
)


(1
)Funded status adjustment

56

(2
)
54

38

21

5953

(4
)
49

28

20

48


December 31 (millions of dollars)

2008

2007Accumulated benefit obligation

1,136

1,244Fair value of plan assets

1,164

1,358Funded Status  surplus

28

114


December 31 (millions of dollars)

2008

2007Accumulated benefit obligation

149

Fair value of plan assets

133

Funded Status  (deficit)

(16
)



6

---



The
rate used to discount pension and other post-retirement benefit plan obligations was based on a yield curve from Moody's corporate AA bond yields at December 31, 2008 developed
by the Company's third party actuary. This yield curve is used to develop spot rates that vary based on the duration of the obligations. The estimated future cash flows for the pension and other post
retirement obligations were matched to the corresponding rates on the yield curve to derive a weighted average discount rate.

Fair Value Measurements

The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS No. 157) for its
financial assets and liabilities measured at fair value on a recurring basis effective January 1, 2008. The statement defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. In February 2008, the U.S. Financial Accounting Standards Board (FASB) issued FASB Staff Position No. 157-2,
"Effective Date of FASB Statement No. 157", which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities that are measured at fair
value on a non-recurring basis, until fiscal years beginning after November 15, 2008. These non-financial items include assets and liabilities such as
non-financial assets and liabilities assumed in a business combination, reporting units measured at fair value in a goodwill impairment test and asset retirement obligations initially
measured at fair value.

Under
SFAS No. 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the 'exit price') in an orderly transaction
between market participants at the measurement date.

The
Company's financial assets and liabilities that are recorded at fair value on a recurring basis have been categorized into one of three categories based upon a fair value hierarchy in accordance
with SFAS No. 157. Fair values of assets and liabilities included in Level I are determined by reference to quoted prices in active markets for identical assets and liabilities.
Assets and liabilities in Level II include valuations using inputs other than quoted prices for which all significant outputs are observable, either directly or indirectly. This includes
comparisons with similar instruments that have observable market prices, option pricing models and other valuation techniques commonly used by market participants, which may require the use of
assumptions about the amount and timing of estimated future cash flows and discount rates. In making these assumptions, the Company looks primarily to readily observable external market input factors
such as interest rate yield curves, currency rates, and price and rate volatilities as applicable. Level III valuations are based on inputs that are unobservable and significant to the overall
fair value measurement. TransCanada does not have any assets or liabilities that are included in Level III.

7

---



Assets
and liabilities measured at fair value on a recurring basis as of December 31, 2008 are categorized in accordance with SFAS No. 157 as follows:

|(millions of dollars)                                      |             | Quoted
prices in
active
markets
(Level I) |      | Significant
other
observable
inputs
(Level II) |      | Significant
unobservable
inputs
(Level III) |   | Total |     
|---------------------------------------------------------- | ----------- | ----------------------------------------- | ---- | ---------------------------------------------- | ---- | ------------------------------------------- | - | ----- | ----
|Derivative Financial Instruments Held for Trading:         |             |                                           |      |                                                |      |                                             |   |       |     
|                                                           | Assets      |                                           | 130  |                                                | 254  |                                             |  |       | 384 
|                                                           | Liabilities |                                           | (127 | )                                              | (347 | )                                           |  |       | (474
|Derivative Financial Instruments in Hedging Relationships: |             |                                           |      |                                                |      |                                             |   |       |     
|                                                           | Assets      |                                           | 42   |                                                | 150  |                                             |  |       | 192 
|                                                           | Liabilities |                                           | (100 | )                                              | (545 | )                                           |  |       | (645
|Non-Derivative Financial Instruments Available for Sale:   |             |                                           |      |                                                |      |                                             |   |       |     
|                                                           | Assets      |                                           | 24   |                                                |     |                                             |  |       | 24  
|                                                           | Liabilities |                                           |     |                                                |     |                                             |  |       |    
|                                                           |             |                                           |      |                                                |      |                                             |   |       |     
|Total                                                      |             | (31                                       | )    | (488                                           | )    |                                            |   | (519  | )   
|                                                           |             |                                           |      |                                                |      |                                             |   |       |     

Income Taxes

The income tax effects of differences between the accounting value and the tax value of assets and liabilities are as follows:

|December 31 (millions of dollars)                                                          |  | 2008  |  | 2007 
|------------------------------------------------------------------------------------------ |  | ----- |  | -----
|Deferred Tax Liabilities                                                                   |  |       |  |      
|Difference in accounting and tax bases of plant, equipment and power purchase arrangements |  | 2,182 |  | 1,763
|Taxes on future revenue requirement                                                        |  | 387   |  | 433  
|Investments in subsidiaries and partnerships                                               |  | 313   |  | 443  
|Unrealized foreign exchange gains on long-term debt                                        |  | 14    |  | 110  
|Pension benefit                                                                            |  | 6     |  | 11   
|Other comprehensive income                                                                 |  |      |  | 8    
|Other                                                                                      |  | 81    |  | 81   
|                                                                                           |  |       |  |      
|                                                                                           |  | 2,983 |  | 2,849
|                                                                                           |  |       |  |      
|Deferred Tax Assets                                                                        |  |       |  |      
|Deferred amounts                                                                           |  | 119   |  | 45   
|Other post-employment benefits                                                             |  | 38    |  | 25   
|Other comprehensive income                                                                 |  | 62    |  | 22   
|Non-capital loss carry-forwards                                                            |  | 24    |  |     
|Unrealized foreign exchange losses on long-term debt                                       |  | 77    |  |     
|Other                                                                                      |  | 138   |  | 77   
|                                                                                           |  |       |  |      
|                                                                                           |  | 458   |  | 169  
|Less: Valuation allowance                                                                  |  | 77    |  | 13   
|                                                                                           |  |       |  |      
|                                                                                           |  | 381   |  | 156  
|                                                                                           |  |       |  |      
|Net deferred tax liabilities                                                               |  | 2,602 |  | 2,693
|                                                                                           |  |       |  |      

TransCanada
adopted FASB Financial Interpretation 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), January 1, 2007. The implementation of the provisions under
FIN 48 did not have a material impact on the U.S. GAAP financial statements of the Company and no adjustment to the beginning balance of retained earnings was required due to the
adoption of FIN 48.

8

---



Below
is the reconciliation of the annual changes in the total unrecognized tax benefit.

|December 31 (millions of dollars)              |  | 2008 |   | 2007 |  
|---------------------------------------------- |  | ---- | - | ---- | -
|Unrecognized tax benefits, beginning of year   |  | 70   |   | 80   |  
|Gross increases  tax positions in prior years |  | 13   |   | 9    |  
|Gross decreases  tax positions in prior years |  | (1   | ) | (11  | )
|Gross increases  current year positions       |  | 20   |   | 9    |  
|Settlements                                    |  | (19  | ) | (6   | )
|Lapses of statute of limitations               |  | (3   | ) | (11  | )
|                                               |  |      |   |      |  
|Unrecognized tax benefits, end of year         |  | 80   |   | 70   |  
|                                               |  |      |   |      |  

TransCanada
expects the enactment of certain Canadian Federal tax legislation in the next twelve months which is expected to result in a favourable income tax adjustment of
approximately $12 million. Otherwise, subject to the results of audit examinations by taxing authorities and other legislative amendments, TransCanada does not anticipate further adjustments to
the unrecognized tax benefits during the next twelve months that would have a material impact on its financial statements.

TransCanada
and its subsidiaries are subject to either Canadian federal and provincial income tax, U.S. federal, state and local income tax or the relevant income tax in other international
jurisdictions. The Company has substantially concluded all Canadian federal and provincial income tax matters for the years through 2003. Canadian federal income tax returns for years 2004 and 2005
are currently under examination by the Canada Revenue Agency, which has not proposed any significant adjustments. Substantially all material U.S. federal income tax matters have been concluded
for years through 2004 and U.S. state and local income tax matters through 2002.

TransCanada's
continuing practice is to recognize interest and penalties related to income tax uncertainties in income tax expense. Included in net tax expense for the year ended December 31,
2008 is $10 million for interest and nil for penalties (December 31, 2007  $1 million for interest and nil for penalties). At
December 31, 2008, the Company had $24 million accrued for interest and nil accrued for penalties (December 31, 2007  $14 million
accrued for interest and nil accrued for penalties).

Other

In February 2007, FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of FASB Statement No. 115", which allows an entity to choose to measure many financial instruments and certain other
items at fair value for fiscal years beginning on or after November 15, 2007. TransCanada's U.S. GAAP financial statements were not materially impacted by SFAS No. 159.

In
December 2007, FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB
No. 51" and SFAS No. 141(R) "Business Combinations" both of which are effective for annual periods beginning after December 15, 2008. SFAS No. 160 requires that
third party ownership interests in subsidiaries be presented separately in the equity section of the balance sheet. In addition, the income attributable to the noncontrolling interest will now be
included in consolidated net income and will be deducted separately at the bottom of the income statement. SFAS No. 141(R) requires that most identifiable assets, liabilities (including
obligations for contingent consideration), noncontrolling interests and goodwill be recorded at "full fair value". Also, for step acquisitions, the acquirer will be required to re-measure
its noncontrolling equity investment in the acquiree at fair value as of the date control is obtained and recognize any gain or loss in income. The Company will adopt these standards on
January 1, 2009.

In
March 2008, FASB issued SFAS No. 161 "Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement
No. 133", which is effective for fiscal years beginning after November 15, 2008. SFAS No. 161 expands the disclosure requirements for derivative instruments and hedging
activities with respect to how and why entities use derivative instruments, how they are accounted for under SFAS No. 133

9

---



and the
related impact on financial position, financial performance and cash flows. TransCanada does not expect a material affect on its financial disclosures as a result of adopting this
standard on January 1, 2009.

In
May 2008, FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted Accounting Principles" which codifies the sources of accounting principles and the related framework to
be utilized in preparing financial statements in conformity with U.S. GAAP. TransCanada's U.S. GAAP financial statements are not expected to be impacted by this standard.

In
October 2008, FASB issued Staff Position No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active", which clarifies the
application of SFAS No. 157 in a market that is not active. This Staff Position is effective upon issuance and the Company's U.S. GAAP financial statements were not impacted by
this standard.

In
December 2008, FASB issued Staff Position No. 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets", which requires more detailed disclosures
regarding the employers' plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. This Staff Position will be effective for fiscal
years ending after December 15, 2009. The Company will adopt these standards for its 2009 year-end reporting.

10

---



MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal control over financial reporting is a process designed by or under the supervision of senior management of TransCanada Corporation ("TransCanada" or the "Company"),
and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and preparation of consolidated financial
statements for external purposes in accordance with Canadian generally accepted accounting principles, including a reconciliation to U.S. GAAP.

Management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent
limitations and can only provide reasonable assurance with respect to the preparation and fair presentation of published financial statements. Under the supervision and with the participation of the
President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework
in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company acquired
Keyspan-Ravenswood, LLC ("Ravenswood") in August 2008 and began consolidating the operations of Ravenswood from that date. Management has excluded this business from its evaluation of the
effectiveness of the Company's internal control over financial reporting as of December 31, 2008. The net income attributable to this business represented less than one per cent of the
Company's consolidated net income for the year ended December 31, 2008, and its aggregate total assets represented approximately nine per cent of the Company's consolidated total assets
as at December 31, 2008.

Based
on this evaluation, management concluded that internal control over financial reporting is effective as at December 31, 2008, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes.

In
2008, there was no change in TransCanada's internal control over financial reporting that materially affected or is reasonably likely to materially affect TransCanada's internal control over
financial reporting.

KPMG LLP,
the independent auditors appointed by the shareholders of TransCanada, who have audited the consolidated financial statements of TransCanada, have also audited the effectiveness of
TransCanada's internal control over financial reporting as of December 31, 2008 and have issued the report entitled "Report of Independent Registered Public Accounting Firm".

February 23,
2009

|                                                                          |  |                                                                                           
|------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------
|/s/HAROLD N. KVISLEHarold N. Kvisle President and
Chief Executive Officer |  | /s/GREGORY A. LOHNESGregory A. Lohnes Executive Vice-President and
Chief Financial Officer

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors of TransCanada Corporation

We
have audited TransCanada Corporation's internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We
also have conducted our audits on the consolidated financial statements in accordance with Canadian generally accepted auditing standards and in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our report dated February 23, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/KPMG LLPChartered Accountants
Calgary, Canada

February 23,
2009

---





COMMENTS BY AUDITORS FOR UNITED STATES READERS ON CANADA  UNITED STATES REPORTING DIFFERENCES

To
the Board of Directors of TransCanada Corporation

In
the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) that refers to the audit report on the Company's
internal control over financial reporting. Our report to the shareholders dated February 23, 2009 is expressed in accordance with Canadian reporting standards, which do not require a reference
to the audit report on the Company's internal control over financial reporting in the financial statement auditors' report.

/s/KPMG LLPChartered Accountants
Calgary, Canada

February 23,
2009

---



QuickLinks