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## MANAGEMENT ’ SDISCUSSIONANDANAL YSIS 

## TRANSMISSION RESULTS-AT-A-GLANCE 

Year ended December 31 (millions of dollars) 

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TransCanada’s Transmission business is strategically positioned for growth within the northern tier of North America, including transmission of northern gas reserves. As the industry and business environment change, TransCanada will seek, through customer negotiations and regulatory proceedings, changes to TransCanada’s regulatory business model combined with continued focus on operational excellence to maximize the value TransCanada delivers to its customers and shareholders. 

In 2001, net earnings from the Transmission business were $585 million, compared to $623 million and $677 mil- lion in 2000 and 1999, respectively. Excluding the impact of the sale of TransCanada’s investments in Northern Border in 1999 and Tuscarora Gas Transmission Company (Tuscarora) in 2000, net earnings in 2001 for Transmission are lower than prior years. The decrease is mainly due to the expiry at the end of 2000 of the Cost- efficiency Incentive Settlement (CEIS) on the Alberta System; a decline in the rate of return on common equity and a lower average investment base in 2001 on the Canadian Mainline; as well as higher costs related to the company’s northern development activities. 

For 1999, 2000, and 2001, certain operating, maintenance and administrative (OM&A) costs were subject to the Merger Costs and Benefits Agreement (MCBA). Under the terms of the MCBA, TransCanada’s shippers and its shareholders shared approximately pre-tax $70 million in OM&A cost savings in 2000 relative to a baseline estab- lished as of January 1999. In 2001, TransCanada achieved an additional pre-tax $30 million of OM&A cost savings, the benefit of which was shared equally between TransCanada’s shippers and shareholders under the MCBA. 

A two-year incentive settlement covering 2001 and 2002 for determination of tolls and services was reached between TransCanada and its shippers on the Alberta System. This settlement was approved in May 2001. The Alberta System settlement is a significant step in creating a more competitive natural gas pipeline environment in the Western Canada Sedimentary Basin (WCSB) through the development and implementation of services that will provide TransCanada and its customers operational and contractual flexibility. 

On the Canadian Mainline, the NEB approved a two-year incentive settlement covering 2001 and 2002 in November 2001. The settlement addressed all components of the Canadian Mainline’s cost of service, with the exception of the cost of capital. This two-year settlement provides the foundation for further discussions to ensure 

