**Exhibit13.1**

**TRANSCANADACORPORATION**

**RESTATED RECONCILIATION TO UNITED STATES GAAP**

December 31, 2006

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**AUDITORS’ REPORT ON RESTATEDRECONCILIATION TO UNITED STATES GAAP**

**To the Board of Directors ofTransCanada Corporation**

On February 22, 2007, wereported on the consolidated balance sheets of TransCanada Corporation as atDecember 31, 2006 and 2005 and the consolidated statements of income, retainedearnings and cash flows for each of the years in the three-year period endedDecember 31, 2006, which are included in the annual report on Form 40-F.

In connection with ouraudits conducted in accordance with Canadian generally accepted auditingstandards of the aforementioned consolidated financial statements and also inaccordance with the standards of the Public Company Accounting Oversight Board(United States), we also have audited the related supplemental note entitled“Restated Reconciliation to United States GAAP” included in the Form 40-F/AAmendment No.1. This supplemental note is the responsibility of the Company’smanagement. Our responsibility is to express an opinion on this note based onour audits.

In our opinion, suchrestated supplemental note, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

Our previous report datedFebruary 22, 2007 on the “Reconciliation to United States GAAP” has beenwithdrawn and the supplemental note has been restated as explained in note 5 tothe “Restated Reconciliation to United States GAAP”.
| /s/ KPMG LLP                                                           |   |
|------------------------------------------------------------------------|--------|
|                                                                   |
| Chartered Accountants                                                  |
| Calgary, Canada                                                        |
|                                                                   |
| February 22, 2007 (except as to note 5 which is as  of March 15, 2007) |

 

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**TRANSCANADA CORPORATION**

**RESTATEDRECONCILIATION TO UNITED STATES GAAP**

 

The 2006 audited consolidated financial statements of TransCanadaCorporation (TransCanada or the Company) have been prepared in accordance withCanadian generally accepted accounting principles (GAAP), which in somerespects, differ from U.S. GAAP. The effects of these differences on theCompany’s consolidated financial statements for the year ended December 31,2006 are provided in the following restated U.S. GAAP condensed consolidatedfinancial statements which should be read in conjunction with TransCanada’s2006 audited consolidated financial statements prepared in accordance withCanadian GAAP.

 

**Restated Condensed Statement of ConsolidatedIncome and Comprehensive Income in Accordance with U.S. GAAP(1)**

 
| ** **                                                                                                                  | ** ** | **2006**        | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------|------------|------------|------------|
| **Year ended December 31 (millions of dollars except per share amounts)** | ** ** | **Restated(5)** | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|                                                                                                                        |       |            |       |       |       |       |       |
| Revenues                                                                                                                    | ** ** | **5,997**       |       | 5,333      |       | 5,014      |       |
| Plant operating costs  and other                                                                                            | ** ** | **1,922**       |       | 1,730      |       | 1,618      |       |
| Commodity purchases  resold                                                                                                 | ** ** | **1,369**       |       | 904        |       | 777        |       |
| Depreciation                                                                                                                | ** ** | **897**         |       | 924        |       | 857        |       |
|                                                                                                                        | ** ** | **4,188**       |       | 3,558      |       | 3,252      |       |
|                                                                                                                        | ** ** | **1,809**       |       | 1,775      |       | 1,762      |       |
| Other (income)/expenses                                                                                                     |       |            |       |       |       |       |       |
| Income from  equity investments(1)                                                                                          | ** ** | **(478**        | **)**      | (458       | )          | (402       | )          |
| Other  expenses(2)(3)                                                                                                       | ** ** | **764**         |       | 422        |       | 872        |       |
| Dilution gain(3)                                                                                                            | ** ** | **—**      |       | **—** |       | (40        | )          |
| Income taxes                                                                                                                | ** ** | **473**         |       | 607        |       | 490        |       |
|                                                                                                                        | ** ** | **759**         |       | 571        |       | 920        |       |
|                                                                                                                        |       |            |       |       |       |       |       |
| Income from continuing  operations - U.S. GAAP                                                                              | ** ** | **1,050**       |       | 1,204      |       | 842        |       |
| Net income from  discontinued operations - U.S. GAAP                                                                        | ** ** | **28**          |       | —     |       | 52         |       |
| **Net Income in Accordance with  U.S. GAAP**                                                                                | ** ** | **1,078**       |       | 1,204      |       | 894        |       |
| Adjustments affecting  comprehensive income under U.S. GAAP                                                                 |       |            |       |       |       |       |       |
| Foreign currency  translation adjustment, net of tax                                                                        | ** ** | **(1**          | **)**      | (18        | )          | (31        | )          |
| Changes in  minimum pension liability, net of tax(4)                                                                        | ** ** | **63**          |       | (51        | )          | 72         |       |
| Unrealized  (loss)/gain on derivatives, net of tax(6)                                                                       | ** ** | **(24**         | **)**      | (54        | )          | 1          |       |
| **Comprehensive Income in  Accordance with U.S. GAAP**                                                                      | ** ** | **1,116**       |       | 1,081      |       | 936        |       |
|                                                                                                                        |       |            |       |       |       |       |       |
| **Net Income Per Share in  Accordance with U.S. GAAP**                                                                      |       |            |       |       |       |       |       |
| Continuing  operations                                                                                                      | ** ** | **$2.15**       |       | $2.48      |       | $1.74      |       |
| Discontinued  operations                                                                                                    | ** ** | **0.06**        |       | —     |       | 0.11       |       |
| Basic                                                                                                                       | ** ** | **$2.21**       |       | $2.48      |       | $1.85      |       |
| Diluted(7)                                                                                                                  | ** ** | **$2.20**       |       | $2.46      |       | $1.84      |       |
|                                                                                                                        |       |            |       |       |       |       |       |
| **Net Income Per Share in  Accordance with Canadian GAAP**                                                                  |       |            |       |       |       |       |       |
| Basic                                                                                                                       | ** ** | **$2.21**       |       | $2.49      |       | $2.13      |       |
| Diluted                                                                                                                     | ** ** | **$2.20**       |       | $2.47      |       | $2.12      |       |
| Dividends per common  share                                                                                                 | ** ** | **$1.28**       |       | $1.22      |       | $1.16      |       |
|                                                                                                                        |       |            |       |       |       |       |       |
| **Common Shares Outstanding**(millions)                                                                                     |       |            |       |       |       |       |       |
| Average for the  period – Basic                                                                                        | ** ** | **488.0**       |       | 486.2      |       | 484.1      |       |
| Average for the period  - Diluted                                                                                           | ** ** | **490.6**       |       | 489.1      |       | 486.7      |       |

 

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**Reconciliation of Income from ContinuingOperations**
| **Year ended December 31 (millions of dollars)** | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------|------------|------------|------------|------------|------------|----------|------------|
| **Net Income from Continuing  Operations in Accordance with Canadian GAAP**    | ** ** | **1,051**  |       | 1,209      |       | 980      |       |
| U.S. GAAP adjustments                                                          |       |       |       |       |       |     |       |
| Unrealized  gain/(loss) on energy contracts(6)                                 | ** ** | **(6**     | **)**      | (14        | )          | 10       |       |
| Tax impact of unrealized  gain/(loss) on energy contracts                      | ** ** | **3**      |       | 5          |       | (3       | )          |
| Equity  investment gain/(loss) (8)(9)                                          | ** ** | **1**      |       | 5          |       | (2       | )          |
| Tax impact of  equity investment gain/(loss)                                   | ** ** | **—** |       | (1         | )          | —   |       |
| Unrealized  gain/(loss) on foreign exchange and interest rate derivatives(6)   | ** ** | **1**      |       | 1          |       | (12      | )          |
| Tax impact of  gain/(loss) on foreign exchange and interest rate derivatives   | ** ** | **—** |       | (1         | )          | 4        |       |
| Amortization of  deferred gains related to Power LP(3)                         | ** ** | **—** |       | **—** |       | (3       | )          |
| Deferred gains  related to Power LP(3)                                         | ** ** | **—** |       | **—** |       | (132     | )          |
| **Income from Continuing  Operations in Accordance with U.S. GAAP**            | ** ** | **1,050**  |       | 1,204      |       | 842      |       |

 

**Condensed Statement ofConsolidated Cash Flows in Accordance with U.S. GAAP(1)**
| Year ended December 31 (millions of dollars)      | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Cash  Generated from Operations(10)**                                         | ** ** | ** ** |       |     |       |     |       |
| Net cash provided  by operating activities                                      | ** ** | **1,885**  |       | 1,628    |       | 1,620    |       |
|                                                                            |       |       |       |     |       |     |       |
| **Investing  Activities**                                                       | ** ** | ** ** |       |     |       |     |       |
| Net cash used in  investing activities                                          | ** ** | **(1,920** | **)**      | (1,171   | )          | (1,356   | )          |
|                                                                            | ** ** | ** ** |       |     |       |     |       |
| **Financing  Activities**                                                       | ** ** | ** ** |       |     |       |     |       |
| Net cash  provided by/(used in) financing activities                            | ** ** | **233**    |       | (514     | )          | (343     | )          |
|                                                                            | ** ** | ** ** |       |     |       |     |       |
| **Effect  of Foreign Exchange Rate Changes on Cash and Short-Term Investments** | ** ** | **7**      |       | 13       |       | (87      | )          |
| **Increase/(Decrease)  in Cash and Short-Term Investments**                     | ** ** | **205**    |       | (44      | )          | (166     | )          |
| **Cash  and Short-Term Investments**                                            | ** ** | ** ** |       |     |       |     |       |
| Beginning of  year                                                              | ** ** | **83**     |       | 127      |       | 293      |       |
| **Cash  and Short-Term Investments**                                            | ** ** | ** ** |       |     |       |     |       |
| End of year                                                                     | ** ** | **288**    |       | 83       |       | 127      |       |

 

**Condensed Balance Sheet inAccordance with U.S. GAAP(1)**
| December 31 (millions of dollars) | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------|------------|
| Current  assets(11)                                   | ** ** | **1,551**  |       | 1,058    |       |
| Long-term investments(4)(8)(9)                        | ** ** | **2,922**  |       | 2,168    |       |
| Plant, property  and equipment                        | ** ** | **17,430** |       | 17,348   |       |
| Regulatory  asset(4)(12)                              | ** ** | **2,199**  |       | 2,601    |       |
| Other  assets(4)(8)                                   | ** ** | **1,720**  |       | 2,028    |       |
|                                                  | ** ** | **25,822** |       | 25,203   |       |
|                                                  |       |       |       |     |       |
| Current  liabilities(4)(13)                           | ** ** | **2,541**  |       | 2,754    |       |
| Deferred  amounts(4)(6)(9)                            | ** ** | **987**    |       | 1,298    |       |
| Long-term  debt(6)                                    | ** ** | **10,913** |       | 9,675    |       |
| Deferred income  taxes(4)(12)                         | ** ** | **2,734**  |       | 3,102    |       |
| Preferred  securities                                 | ** ** | **536**    |       | 536      |       |
| Non-controlling  interests                            | ** ** | **755**    |       | 783      |       |
| Shareholders’  equity(4)                         | ** ** | **7,356**  |       | 7,055    |       |
|                                                  | ** ** | **25,822** |       | 25,203   |       |

 

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**Statement of Accumulated OtherComprehensive Income in Accordance with U.S. GAAP**
| **(millions of dollars)**                                                  | ** ** | **Under-  funded   Postretire  ment Plan   Liability   (SFAS No.   158)** | ** ** | **Cumulative   Translation   Account** | ** ** | **Minimum   Pension   Liability   (SFAS No.   87)** | ** ** | **Cash Flow   Hedges   (SFAS No.   133)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------|------------|
| Balance at January 1,  2004                                                          |       | —                                                                                                  |       | (40                                              | )          | (98                                                                          | )          | (5                                                                 | )          | (143      | )          |
|                                                                                 |       |                                                                                                    |       |                                             |       |                                                                         |       |                                                               |       |      |       |
| Changes in minimum  pension liability, net of tax of $(39)(4)                        |       | —                                                                                                  |       | —                                           |       | 72                                                                           |       | —                                                             |       | 72        |       |
| Unrealized gain on  derivatives, net of tax of $(3)(6)                               |       | —                                                                                                  |       | —                                           |       | —                                                                       |       | 1                                                                  |       | 1         |       |
| Foreign currency  translation adjustment, net of tax of $(44)                        |       | —                                                                                                  |       | (31                                              | )          | —                                                                       |       | —                                                             |       | (31       | )          |
| Balance at December 31,  2004                                                        |       | —                                                                                                  |       | (71                                              | )          | (26                                                                          | )          | (4                                                                 | )          | (101      | )          |
|                                                                                 |       |                                                                                                    |       |                                             |       |                                                                         |       |                                                               |       |      |       |
| Changes in minimum  pension liability, net of tax of $27(4)                          |       | —                                                                                                  |       | —                                           |       | (51                                                                          | )          | —                                                             |       | (51       | )          |
| Unrealized loss on  derivatives, net of tax of $28(6)                                |       | —                                                                                                  |       | —                                           |       | —                                                                       |       | (54                                                                | )          | (54       | )          |
| Foreign currency  translation adjustment, net of tax of $(21)                   |       | —                                                                                                  |       | (18                                              | )          | —                                                                       |       | —                                                             |       | (18       | )          |
| Balance at December 31,  2005                                                        |       | —                                                                                                  |       | (89                                              | )          | (77                                                                          | )          | (58                                                                | )          | (224      | )          |
|                                                                                 |       |                                                                                                    |       |                                             |       |                                                                         |       |                                                               |       |      |       |
| Change in minimum  pension liability, net of tax of $(35)(4)                         | ** ** | —                                                                                                  | ** ** | —                                           | ** ** | **63**                                                                       | ** ** | —                                                             | ** ** | **63**    | ** ** |
| Reversal of minimum  pension liability, due to adoption of  SFAS 158            | ** ** | **(14**                                                                                                 | **)**      | —                                           | ** ** | **14**                                                                       | ** ** | —                                                             | ** ** | —    | ** ** |
| Change in funding of  postretirement plan liability, net of tax of  $35(4) | ** ** | **(78**                                                                                                 | **)**      | —                                           | ** ** | —                                                                       | ** ** | —                                                             | ** ** | **(78**   | **)**      |
| Change in equity  investment postretirement plan liability, net of tax of $70(4)     | ** ** | **(154**                                                                                                | **)**      | —                                           | ** ** | —                                                                       | ** ** | **—**                                                         | ** ** | **(154**  | **)**      |
| Unrealized gain on  derivatives, net of tax of $11(6)                                | ** ** | —                                                                                                  | ** ** | —                                           | ** ** | —                                                                       | ** ** | **(24**                                                            | **)**      | **(24**   | **)**      |
| Foreign currency  translation adjustment, net of tax of $1                           | ** ** | —                                                                                                  | ** ** | **(1**                                           | **)**      | —                                                                       | ** ** | —                                                             | ** ** | **(1**    | **)**      |
| **Balance at December 31, 2006**                                                     | ** ** | **(246**                                                                                                | **)**      | **(90**                                          | **)**      | —                                                                       | ** ** | **(82**                                                            | **)**      | **(418**  | **)**      |

 

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(1)               In accordance withU.S. GAAP, the Condensed Statement of Consolidated Income, Statement ofConsolidated Cash Flows, Consolidated Balance Sheet and Statement of OtherComprehensive Income of TransCanada are prepared using the equity method ofaccounting for joint ventures.

 

(2)               Other expensesinclude an allowance for funds used during construction of $9 million for theyear ended December 31, 2006 (2005 - $3 million; 2004 - $3 million).

 

(3)               TheCompany recorded its investment in TransCanada Power, L.P. (Power LP) using theproportionate consolidation method for Canadian GAAP purposes and as an equityinvestment for U.S. GAAP purposes. During the period from 1997 to April 2004,the Company was obligated to fund the redemption of Power LP units in 2017. Asa result, under Canadian GAAP, TransCanada accounted for the issuance of unitsby Power LP to third parties as a sale of a future net revenue stream and theresulting gains were deferred and amortized to income over the period to 

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2017. The redemption obligation was removed in April 2004 and theunamortized gains were recognized as income. Under U.S. GAAP, any such gains inthe period from 1997 to April 2004 are characterized as dilution gains and,because the Company was committed to fund the redemption of the units, thegains are recorded, on an after-tax basis, as equity transactions inshareholders’ equity.

The Company’s accounting policy for dilution gains is to record them asincome for both Canadian and U.S. GAAP purposes, however, U.S. GAAP requiressuch gains to be recorded directly in equity if there is a contemplation ofreacquisition of units. With the removal of the redemption obligation in April2004, subsequent issuances of units by Power LP are accounted for as dilutiongains in income for both Canadian and U.S. GAAP purposes.

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(4)               InSeptember 2006, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards (SFAS) No. 158 “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans” whichamended FASB Statements No. 87, 88, 106 and 132(R). For the Company’s U.S. GAAPfinancial statements, SFAS No. 158 became effective as at December 31, 2006. Retrospectiveapplication of SFAS No. 158 is not permitted.

SFAS No. 158 requires an employer to recognize the overfunded orunderfunded status of a defined benefit postretirement plan as an asset orliability in its statement of financial position and to recognize changes inthat funded status, through comprehensive income, in the year in which the changesoccur. The amounts recognized in the Company’s balance sheet as at December 31,2006 are as follows.
| December 31 (millions of dollars) | ** ** | **2006** | ** ** |
|-------------------------------------------------------|------------|----------|------------|
| Non-current  assets                                   | ** ** | **10**   | ** ** |
| Current  liabilities                                  | ** ** | **5**    | ** ** |
| Non-current  liabilities                              | ** ** | **220**  | ** ** |
|                                                  | ** ** | **215**  | ** ** |

 

Pre-tax amounts recognized in accumulated other comprehensive incomeare as follows.
| December 31 (millions of dollars) | ** ** | **Pension   Benefits   2006** | ** ** | **Other   Benefits   2006** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| Net loss                                              | ** ** | **92**                                  | ** ** | **14**                                | ** ** |
| Prior service  cost (credit)                          | ** ** | **11**                                  | ** ** | **(4**                                | **)**      |
|                                                  | ** ** | **103**                                 | ** ** | **10**                                | ** ** |

 

The funded status based on the accumulated benefit obligation for alldefined benefit pension plans as at December 31, 2006 is as follows.
| December 31 (millions of dollars) | ** ** | **2006**  | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|-----------|------------|----------|------------|
| Accumulated  benefit obligation                       | ** ** | **1,167** |       | 1,123    |       |
| Fair value of  plan assets                            | ** ** | **1,264** |       | 1,096    |       |
| Funded Status –  surplus/(deficit)               | ** ** | **97**    |       | (27      | )          |

 

Included in the above accumulated benefit obligation and fair value ofplan assets as at December 31, 2006 are the following amounts in respect of plansthat are not fully funded.
| December 31 (millions of dollars) | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Accumulated  benefit obligation                       | ** ** | **67**   |       | 1,105    |       |
| Fair value of  plan assets                            | ** ** | **65**   |       | 1,075    |       |
| Funded status –  (deficit)                       | ** ** | **(2**   | **)**      | (30      | )          |

 

The estimated net loss and prior service cost for the defined benefitpension plans that will be amortized from accumulated other comprehensiveincome into net periodic benefit cost over the next fiscal year are $9 millionand $1 million, respectively. The estimated prior service credit for the otherdefined benefit postretirement plans that will be amortized from accumulatedother comprehensive income into net periodic benefit cost over the next fiscalyear is $1 million.

Incremental Effect of Applying SFAS No. 158 on Individual Line Items inthe Balance Sheet
| December 31, 2006 (millions of dollars) | ** ** | **Before   Application   of SFAS 158** | ** ** | **Adjustments** | ** ** | **After   Application   of SFAS 158** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------|------------|-----------------------------------------------------------|------------|
| Long-term  investments                                           | ** ** | **3,076**                                                  | ** ** | **(154**        | **)**      | **2,922**                                                 | ** ** |
| Regulatory asset                                                 | ** ** | **1,961**                                                  | ** ** | **238**         | ** ** | **2,199**                                                 | ** ** |
| Other assets                                                     | ** ** | **1,945**                                                  | ** ** | **(225**        | **)**      | **1,720**                                                 | ** ** |
| Current  liabilities                                             | ** ** | **2,536**                                                  | ** ** | **5**           | ** ** | **2,541**                                                 | ** ** |
| Deferred amounts                                                 | ** ** | **866**                                                    | ** ** | **121**         | ** ** | **987**                                                   | ** ** |
| Deferred income  taxes                                           | ** ** | **2,769**                                                  | ** ** | **(35**         | **)**      | **2,734**                                                 | ** ** |
| Accumulated  other comprehensive income                          | ** ** | **(186**                                                   | **)**      | **(232**        | **)**      | **(418**                                                  | **)**      |
| Total shareholders’  equity                                 | ** ** | **7,588**                                                  | ** ** | **(232**        | **)**      | **7,356**                                                 | ** ** |

 

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Pursuant to Statement of Financial Accounting Standards (SFAS) No. 87“Employers’ Accounting for Pensions”, a net loss recognized as an additionalpension liability and not yet recognized as net period pension cost must berecorded as a component of comprehensive income. As a result of recording anadditional pension liability, the amounts recognized in the Company’s balancesheet as at December 31, 2005 are as follows. The loss for 2006 is included inthe amounts in the table above.
| December 31 (millions of dollars) | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|----------|------------|
| Prepaid benefit  cost                                 |       | 6        |       |
| Regulatory asset                                      |       | 107      |       |
| Other assets                                          |       | 37       |       |
| Accounts payable                                      |       | (70      | )          |
| Deferred amounts                                      |       | (17      | )          |
| Accumulated  other comprehensive income               |       | 118      |       |
| Net amount recognized                                 |       | 181      |       |

 

The accumulated benefit obligation for the Company’s defined benefitpension plans was $1,167 million at December 31, 2006 (2005 - $1,123 million).

The rate used to discount pension and other post-retirement benefitplan obligations was based on a yield curve from Moody’s corporate AA bondyields at December 31, 2006 developed by our third party actuary. This yieldcurve is used to develop spot rates that vary based on the duration of theobligations. The estimated future cash flows for the pension and other post retirementobligations were matched to the corresponding rates on the yield curve toderive a weighted average discount rate.

(5)               Restatement

At December 31, 2006, the Company recorded the transitional impact ofimplementing SFAS No. 158 to comprehensive income and accumulated othercomprehensive income. The amount should have been recorded directly toaccumulated other comprehensive income without impacting comprehensive income. Thisrestatement increases comprehensive income by $232 million from $884 million to$1,116 million for the year ended December 31, 2006. This restatement does notimpact any other items in 2006 and does not impact any prior years.

(6)               Allforeign exchange and interest rate derivatives are recorded in the Company’sconsolidated financial statements at fair value under Canadian GAAP. Under theprovisions of SFAS No. 133 “Accounting for Derivatives and Hedging Activities”,all derivatives are recognized as assets and liabilities on the balance sheetand measured at fair value. For derivatives designated as fair value hedges,changes in the fair value are recognized in earnings together with an equal orlesser amount of changes in the fair value of the hedged item attributable tothe hedged risk. For derivatives designated as cash flow hedges, changes in thefair value of the derivative that are effective in offsetting the hedged riskare recognized in other comprehensive income until the hedged item isrecognized in earnings. Any ineffective portion of the change in fair value isalso recognized in earnings each period. Substantially all of the amountsrecorded in 2006, 2005 and 2004 as differences between U.S. and Canadian GAAP,for income from continuing operations, relate to the differences in accountingtreatment with respect to the hedged item and, for comprehensive income, relateto cash flow hedges.

During 2006, under the provisions of SFAS 133, net gains of $6 million(2005 - $8 million; 2004 - $10 million) from the hedges of changes in the fairvalue of long-term debt, and net losses of $5 million (2005 – $8 million; 2004- $18 million) in the fair value of the hedged item were included in earningsfor U.S. GAAP purposes as an adjustment to interest expense and foreignexchange losses. No amounts of the derivatives' gains or losses were excludedfrom the assessment of hedge effectiveness in fair value hedging relationships.

No significant amounts were included in income in 2006, 2005 and 2004with respect to ineffectiveness of cash flow hedges. For amounts included inother comprehensive income at December 31, 2006, nil (2005 - $4 million; 2004 -$(4) million) relates to the hedging of interest rate risk; $(1) million (2005- $(1) million; 2004 - $3 million) relates to the hedging of foreign exchangerate risk; and $(23) million (2005 - $(57) million; 2004 - $2 million) relatesto the hedging of energy price risk. In 2007, $(66) million is expected to berecorded in earnings.

At December 31, 2006, assets of $160 million (2005 - $175 million) andliabilities of $69 million (2005 - $110 million) were reduced for U.S. GAAPpurposes to reflect the fair value of derivatives and the corresponding changein the fair value of hedged items.

(7)               Dilutednet income per share in accordance with U.S. GAAP for the year ended December31, 2006 consists of continuing operations - $2.14 per share (2005 - $2.46 pershare; 2004 - $1.73 per share), and discontinued operations - $0.06 per share(2005 - nil; 2004 - $0.11).

(8)               UnderCanadian GAAP, pre-operating costs incurred during the commissioning phase of anew project are deferred until commercial production levels are achieved. Aftersuch time, those costs are amortized over the estimated life of the project. UnderU.S. GAAP, such costs are 

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expensed as incurred. Certain start-up costs incurred by Bruce PowerL.P. (Bruce B), an equity investment, were expensed under U.S. GAAP. Under bothCanadian GAAP and U.S. GAAP, interest is capitalized on expenditures relatingto construction of development projects actively being prepared for theirintended use. In Bruce B, under U.S. GAAP, the carrying value of developmentprojects against which interest is capitalized is lower due to the expensing ofcertain pre-operating costs.

(9)             FinancialInterpretation (FIN) 45 requires the recognition of a liability for the fairvalue of certain guarantees that require payments contingent on specified typesof future events. The measurement standards of FIN 45 are applicable toguarantees entered into after January 1, 2003. For U.S. GAAP purposes, the fairvalue of guarantees recorded as a liability at December 31, 2006 was $17million (2005 - $17 million) and relates to the Company’s equity interest inBruce B and Bruce Power A L.P. The net income impact with respect to theguarantees for the year ended December 31, 2006 was $1 million (2005 - $1million; 2004 - nil).

(10)       In accordance with U.S.GAAP, all current taxes are included in cash generated from operations.

(11)       Current assets at December31, 2006 include derivative contracts of $18 million (2005 - $49 million) and hedgingdeferrals of $131 million (2005 - $93 million).

(12)       Under U.S. GAAP, theCompany is required to record a deferred income tax liability for itscost-of-service regulated businesses. As these deferred income taxes arerecoverable through future revenues, a corresponding regulatory asset isrecorded for U.S. GAAP purposes.

(13)       Current liabilities atDecember 31, 2006 include dividends payable of $162 million (2005 - $154million), current taxes payable of $71 million (2005 - $251 million),derivative contracts of $133 million (2005 - $95 million) and hedging deferralsof $15 million (2005 - $44 million).

**Income Taxes**

The income tax effects ofdifferences between the accounting value and the tax value of assets andliabilities are as follows.
| December 31 (millions of dollars)                                       | ** ** | **2006**   | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| **Deferred  Tax Liabilities**                                                               | ** ** | ** ** |       |     |       |
| Difference in  accounting and tax bases of plant, equipment and power purchase arrangements | ** ** | **1,478**  |       | 1,718    |       |
| Taxes on future  revenue requirement                                                        | ** ** | **606**    |       | 874      |       |
| Investments in  subsidiaries and partnerships                                               | ** ** | **683**    |       | 561      |       |
| Pension Benefit                                                                             | ** ** | **25**     |       | 15       |       |
| Other                                                                                       | ** ** | **127**    |       | 143      |       |
|                                                                                        | ** ** | **2,919**  |       | 3,311    |       |
| **Deferred  Tax Assets**                                                                    | ** ** | ** ** |       |     |       |
| Deferred amounts                                                                            | ** ** | **71**     |       | 140      |       |
| Other  Post-employment benefits                                                             | ** ** | **16**     |       | 13       |       |
| Other                                                                                       | ** ** | **112**    |       | 70       |       |
|                                                                                        | ** ** | **199**    |       | 223      |       |
| Less: Valuation  allowance                                                                  | ** ** | **14**     |       | 14       |       |
|                                                                                        | ** ** | **185**    |       | 209      |       |
| Net deferred tax  liabilities                                                               | ** ** | **2,734**  |       | 3,102    |       |

 

**Other**

In December 2004, theFinancial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004)“Share-Based Payment” which requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values. The pro forma disclosures previouslypermitted under SFAS No. 123 will no longer be an alternative to financialstatement recognition. In 2002, TransCanada adopted accounting for itsstock-based compensation plans using the fair value recognition provisionsunder Canadian GAAP. Therefore, adopting the provisions under SFAS No 123(revised 2004) had no impact on the U.S. GAAP financial statements of theCompany.

In March 2005, FASBissued a Staff Position (FSP) on a previously issued FIN. The provisions of FSPFIN 46 (R)-5 “Implicit Variable Interests under revised FIN 46(R),Consolidation of Variable Interest Entities” require that a reportingenterprise consider consolidating implicit variable interests when applying theprovisions of FIN 46(R). Adopting these provisions had no impact on the U.S.GAAP financial statements of the Company.

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In March 2005, FASBissued FIN 47 “Accounting for Conditional Asset Retirement Obligations – aninterpretation of FASB No.143”. FIN 47 clarifies that the term “conditionalasset retirement obligation” as used in SFAS No. 143, refers to a legalobligation to perform an asset retirement activity in which the timing and/ormethod of settlement are conditional on a future event that may or may not bewithin the control of the entity. It also clarifies when an entity would havesufficient information to reasonably estimate the fair value of an assetretirement obligation. Adopting the clarification under this interpretation hadno impact on the U.S. GAAP financial statements of the Company.

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In May 2005, FASB issuedSFAS No. 154 “Accounting Changes and Error Corrections – a replacement of APBOpinion No. 20 and SFAS No. 3” which was effective for fiscal years beginningafter December 15, 2005. SFAS No. 154 changes the requirements for theaccounting for and reporting of a change in accounting principle and errorcorrection. It establishes, unless impracticable, retrospective application asthe required method for reporting a change in accounting principle in theabsence of explicit transition requirements specific to the newly adoptedaccounting principle. Adopting the provisions under SFAS No. 154 asof January 1, 2006 had no impact on the U.S. GAAP financial statements of theCompany.

In February 2006, FASBissued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments - anamendment of SFAS No. 133 and 140” which is effective for fiscal yearsbeginning after September 15, 2006. SFAS No. 155 permits fair valueremeasurement of any hybrid instrument that contains an embedded derivativethat otherwise would require bifurcation. TransCanada is in the process ofassessing the impact of the application of SFAS 155 on its U.S. GAAP financialstatements.

In March 2006, FASBissued SFAS No. 156 “Accounting for Servicing of Financial Assets - anamendment of FASB Statement No. 140” which is effective for fiscal yearsbeginning after September 15, 2006. SFAS No. 156 requires recognition of aservicing asset or liability when an entity enters into arrangements to servicefinancial instruments in certain situations. Such servicing assets or servicingliabilities are required to be initially measured at fair value, if practicable.SFAS No. 156 also allows an entity to subsequently measure its servicing assetsor servicing liabilities using either an amortization method or a fair valuemethod. Adopting the provisions under SFAS No. 156 as of January 1, 2007 is notexpected to have an impact on the U.S. GAAP financial statements of theCompany.

In July 2006, FASB issuedFIN 48 “Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109” which is effective for fiscal years beginning after December15, 2006. This Interpretation provides guidance for the financial statementrecognition, measurement, presentation and disclosure of uncertain taxpositions taken or expected to be taken in income tax returns. Adopting theprovisions under FIN 48 as of January 1, 2007 is not expected to have amaterial impact on the U.S. GAAP financial statements of the Company.

In September 2006, FASBissued SFAS No. 157 “Fair Value Measurements” which is effective for fiscalyears beginning after November 15, 2007. This statement defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements. TransCanada is in the process of assessing the impactof the application of SFAS No. 157 on its U.S. GAAP financial statements.

In September 2006, FASBissued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106and 132(R)”, which is effective for fiscal years ending after December 15, 2006.This statement requires an employer to recognize the overfunded or underfundedstatus of a defined benefit postretirement plan (other than a multiemployerplan) as an asset or liability on its balance sheet and to recognize changes inthe funded status in the year in which the changes occur through comprehensiveincome. The plan assets and benefit obligations will be measured as of thebalance sheet date. The impact of adopting SFAS No. 158 is shown in thefootnotes to the Statement of Other Comprehensive Income in Accordance withU.S. GAAP.

In September 2006, theSEC staff issued SAB Topic 1N, “Financial Statements - Considering the Effectsof Prior Year Misstatements When Quantifying Misstatements in Current YearFinancial Statements” (SAB No. 108), which addresses how to quantify the effectof an error on the financial statements. SAB No. 108 is effective for fiscalyears ending December 31, 2006. Adopting these provisions did not have animpact on the U.S. GAAP financial statements of the company.

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**Summarized Financial Information of Long-TermInvestments**

The following summarizedfinancial information of long-term investments includes those investments thatare accounted for by the equity method under U.S. GAAP (including those thatare accounted for by the proportionate consolidation method under CanadianGAAP).
| Year ended December 31 (millions of dollars) | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| **Income**                                                                 | ** ** | ** ** |       |     |       |     |       |
| Revenues                                                                   | ** ** | **1,450**  |       | 1,233    |       | 1,249    |       |
| Plant operating costs  and other                                           | ** ** | **(697**   | **)**      | (508     | )          | (594     | )          |
| Depreciation                                                               | ** ** | **(175**   | **)**      | (173     | )          | (173     | )          |
| Financial charges and  other                                               | ** ** | **(100**   | **)**      | (94      | )          | (80      | )          |
| Proportionate share of income before income taxes of long-term investments | ** ** | **478**    |       | 458      |       | 402      |       |

 
| December 31 (millions of dollars)       | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------|------------|
| **Balance  Sheet**                                          | ** ** | ** ** |       |     |       |
| Current assets                                              | ** ** | **446**    |       | 456      |       |
| Plant, property  and equipment                              | ** ** | **4,177**  |       | 3,365    |       |
| Other assets  (net)                                         | ** ** | **198**    |       | —   |       |
| Current  liabilities                                        | ** ** | **(445**   | **)**      | (319     | )          |
| Deferred amounts  (net)                                     | ** ** | **(235**   | **)**      | (73      | )          |
| Non-recourse  debt                                          | ** ** | **(1,266** | **)**      | (1,236   | )          |
| Deferred income  taxes                                      | ** ** | **47**     |       | (25      | )          |
| Proportionate share of  net assets of long-term investments | ** ** | **2,922**  |       | 2,168    |       |

 

The distributed earningsfrom long-term investments for the year ended December 31, 2006 were $494million (2005 - $371 million; 2004 - $258 million). The undistributed earningsfrom long-term investments for the year ended December 31, 2006 were $836million (2005 - $820 million; 2004 - $767 million).

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