## MANAGEMENT ’ SDISCUSSIONANDANALYSIS 

## CANCARB 

The 27 MW Cancarb facility began full commercial operation in January 2001. The Cancarb power plant is fuelled by waste heat from the adja- cent thermal carbon black facility. 

## CUR TIS PALMER 

In July 2001, T ransCanada acquired the 60 MW Curtis Palmer facility near Corinth, New York, which represents the company’ s first hydro- electric facility. All output from this facility is sold through fixed-priced, long- term agreement. 

between market regions. The ability to trade electricity in the spot market is critical to capitaliz- ing on market opportunities as they arise and is fundamental to managing a portfolio of power assets and long-term supply contracts efficiently. 

## Plant Operations 

TransCanada acts as manager for Power LP. In this capacity, TransCanada manages the operations and maintenance requirements of Power LP and minimizes its exposure to gas price fluctuations by locking in much of the required gas supply under fixed-price, long-term contracts. In addition, when market conditions warrant, TransCanada enhances the overall operating profits of Power LP by curtailing certain plants during off-peak hours and selling the displaced gas at attractive mar- ket prices, resulting in increased overall net earnings for Power LP. 

TransCanada again proved to be a successful power plant operator in 2001 as evidenced by the 96 per cent average plant availability across all operating plants in the year. TransCanada will apply this same commitment to operational excellence at the two new Alberta plants commis- sioned in late 2001, being the 40 MW Redwater and the 80 MW Carseland power plants. These plants are the result of a strategic power development model that meets the long-term desires of both TransCanada and its customers. Under this model, TransCanada is able to expand its portfolio of power plants while avoiding excessive price risk through the use of long-term sales contracts to industrial customers for a significant portion of the plant output while, at the same time, retaining a certain amount of merchant capacity. In addition, because these plants gener- ate electricity and steam, the industrial customers obtain a long-term, dependable supply of both electricity and steam/heat for use at their adjacent facility or other facilities in the region. 

The success of this model led to the announcement of construction of two new Alberta power plants in 2001. The Bear Creek plant, scheduled for completion in late 2002, will be an 80 MW cogeneration facility near Grande Prairie, Alberta and will sell power to Weyerhaeuser at its Grande Prairie Pulp Mill, as well as Weyerhaeuser’s other Alberta facilities. The MacKay River plant, which is currently expected to be in commercial operation in 2003, will be a 165 MW cogeneration facility near Fort McMurray, Alberta and will provide electricity and steam to Petro- Canada’s adjacent in-situ oil sands operations. Similar to the Redwater and Carseland plants, 100 per cent of the heat/steam output and a significant portion of the electricity output from these plants will be sold to industrial customers on a long-term basis. The Bear Creek project was one of the proposals selected by the Province of Alberta’s Transmission Administrator, ESBI Alberta Ltd., under the “Location-Based Credits Standing Offer” process to attract new power generation to the Grande Prairie area to resolve transmission constraints in the area’s transmission system. Upon expected completion in 2003, the MacKay River plant will be TransCanada’s largest power plant in Alberta, and will increase TransCanada’s directly controlled output in the province to more than 1,300 MW. 

In 2001, TransCanada successfully began full commercial operation of its Cancarb power plant, which is adja- cent to TransCanada’s thermal carbon black manufacturing facility. The facility is similar to TransCanada’s other Alberta cogeneration facilities, except both the power plant and the industrial host are TransCanada’s businesses. The power plant produces electricity, which is sold under a long-term contract to the City of Medicine Hat, and is 100 per cent fuelled by waste heat from the Cancarb facility. 

## POWER LP 

Power LP includes the earnings generated from holding TransCanada’s investment in TransCanada Power, L.P. which is Canada’s largest publicly-held, power-based income fund. Power LP owns six power plants in Canada and one in the U. S. that are fuelled by natural gas, waste heat, waste wood or a combination of the three. 

Operating income from TransCanada’s investment in Power LP increased $6 million or 18 per cent compared to 2000 as a result of an increased ownership interest throughout the majority of 2001 compared to 2000. In exchange for construction of the Calstock plant, TransCanada received 4.4 million Power LP units, which became eligible for distribution in October 2000 when the plant was completed and put into service. This increased 

