<Page>
EXHIBIT 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis dated April 23, 2004 should be read in
conjunction with the accompanying unaudited consolidated financial statements of
TransCanada Corporation (TransCanada or the company) for the three months ended
March 31, 2004 and the notes thereto.
CONSOLIDATED RESULTS-AT-A-GLANCE
Three months ended March 31 (unaudited)
<Table>
<Caption>
(millions of dollars except per share amounts) 2004 2003
- -------------------------------------------------------- ----- -----
NET INCOME 214 208
----- -----
----- -----
NET INCOME PER SHARE - BASIC AND DILUTED $0.44 $0.43
----- -----
----- -----
</Table>
RESULTS OF OPERATIONS
CONSOLIDATED
TransCanada's net income for first quarter 2004 was $214 million or $0.44 per
share compared to $208 million or $0.43 per share for first quarter 2003. The
increase of $6 million or $0.01 per share was primarily due to lower net
expenses in the Corporate segment, partially offset by lower net earnings from
the Gas Transmission business. The decrease in net expenses of $13 million in
the Corporate segment relates primarily to income tax refunds received in first
quarter 2004. The lower net earnings of $9 million in the Gas Transmission
business for first quarter 2004 compared to the same period in the prior year
were primarily due to lower earnings from the Canadian Mainline and Alberta
System. Net earnings from the Power business for first quarter 2004 were $2
million higher than in the same quarter of 2003.
SEGMENT RESULTS-AT-A-GLANCE
Three months ended March 31 (unaudited)
<Table>
<Caption>
(millions of dollars) 2004 2003
- -------------------------------------------------------- ----- -----
Gas Transmission 149 158
Power 65 63
Corporate - (13)
----- -----
NET INCOME 214 208
----- -----
----- -----
</Table>
Funds generated from operations of $423 million for first quarter 2004 decreased
$34 million compared to first quarter 2003.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [2
GAS TRANSMISSION
The Gas Transmission business generated net earnings of $149 million for the
quarter ended March 31, 2004, compared to $158 million for the same period in
2003.
GAS TRANSMISSION RESULTS-AT-A-GLANCE
Three months ended March 31 (unaudited)
<Table>
<Caption>
(millions of dollars) 2004 2003
- ------------------------------------------------------ ---- ----
WHOLLY-OWNED PIPELINES
Alberta System 40 42
Canadian Mainline 64 71
Foothills* 6 4
BC System 2 2
---- ----
112 119
---- ----
OTHER GAS TRANSMISSION
Great Lakes 17 17
Iroquois 8 7
TC PipeLines, LP 4 3
Portland** 6 7
Ventures LP 3 2
Trans Quebec & Maritimes 2 2
CrossAlta 1 3
TransGas de Occidente 3 4
Northern Development (1) (1)
General, administrative, support and other (6) (5)
---- ----
37 39
---- ----
Net earnings 149 158
---- ----
---- ----
</Table>
* The remaining ownership interests in Foothills, previously not held by
TransCanada, were acquired on August 15, 2003.
** TransCanada increased its ownership interest in Portland to 43.4 per cent
from 33.3 per cent on September 29, 2003 and to 61.7 per cent from 43.4 per
cent on December 3, 2003.
WHOLLY-OWNED PIPELINES
Alberta System's net earnings of $40 million in first quarter 2004 decreased $2
million compared to $42 million in the same quarter of 2003, primarily due to a
lower average investment base. Earnings in first quarter 2004 reflect the
implicit return in the 2004 interim tolls approved by the Alberta Energy and
Utilities Board (EUB). The 2004 interim tolls were based on the 2003 negotiated
fixed revenue requirement of $1.277 billion plus certain adjustments. The 2003
negotiated settlement did not include an explicit rate of return on equity or
capital structure; as such, the first quarter 2004 earnings approximate a return
equivalent to a 10.9 per cent rate of return on 32 per cent deemed common equity
or alternatively an 8.7 per cent rate of return on 40 per cent deemed common
equity. The 32 per cent deemed common equity is the last approved by the EUB in
the 1995 General Rate
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [3
Application (GRA) and the 40 per cent deemed common equity is the requested
amount in the current Generic Cost of Capital (GCOC) Proceeding.
Canadian Mainline's first quarter 2004 net earnings of $64 million are $7
million lower than net earnings for the same quarter in 2003. This decrease is
primarily due to a lower rate of return on common equity of 9.56 per cent in
2004 compared to 9.79 per cent in 2003, as well as a lower average investment
base. The common equity return of 9.56 per cent is implicit in the interim tolls
for 2004 which were approved by the National Energy Board (NEB) in December
2003. Also included in first quarter 2004 are negative earnings adjustments of
$2 million after tax related to the estimate of incentive program earnings in
2003.
Foothills' net earnings of $6 million in first quarter 2004 are $2 million
higher than the same quarter in 2003. The remaining ownership interests in
Foothills, previously not held by TransCanada, were acquired in August 2003, and
resulted in higher net earnings in first quarter 2004.
OPERATING STATISTICS
<Table>
<Caption>
Three months ended March 31 Alberta Canadian
(unaudited) System* Mainline** Foothills*** BC System
- ----------------------------------------- ------------- ------------- ------------- ------------
2004 2003 2004 2003 2004 2003 2004 2003
------- ----- ----- ----- ---- ---- ---- ----
Average investment base ($ millions) 4,762 4,966 8,314 8,692 722 748 231 238
Delivery volumes (Bcf)
Total 1,013 1,062 723 805 281 259 87 61
Average per day 11.1 11.8 7.9 8.9 3.1 2.9 1.0 0.7
- ----------------------------------------------------------------------------------------------------------
</Table>
* Field receipt volumes for the Alberta System for the three months ended
March 31, 2004 were 950 Bcf (2003 - 956 Bcf); average per day was 10.4 Bcf
(2003 - 10.6 Bcf).
** Canadian Mainline deliveries originating at the Alberta border and in
Saskatchewan for the three months ended March 31, 2004 were 510 Bcf (2003 - 592
Bcf); average per day was 5.6 Bcf (2003 - 6.6 Bcf).
*** The remaining interests in Foothills were acquired in August 2003. The
delivery volumes in the table represent 100 per cent of Foothills.
OTHER GAS TRANSMISSION
TransCanada's proportionate share of net earnings from Other Gas Transmission
was $37 million for the three months ended March 31, 2004 compared to $39
million for the same period in 2003. The $2 million decrease was primarily due
to lower earnings from CrossAlta as a result of lower storage margins from
unfavourable market conditions. Higher U.S. dollar net earnings of U.S.
pipelines in first quarter 2004 compared to first quarter 2003 were offset by
the unfavourable impact of a weaker U.S. dollar.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [4
POWER
POWER RESULTS-AT-A-GLANCE
Three months ended March 31 (unaudited)
<Table>
<Caption>
(millions of dollars) 2004 2003
- ------------------------------------------------------ ---- ----
Western operations 35 43
Eastern operations 34 25
Bruce Power investment 48 38
Power LP investment 10 11
General, administrative and support costs (25) (21)
---- ----
Operating and other income 102 96
Financial charges (2) (2)
Income taxes (35) (31)
---- ----
Net earnings 65 63
---- ----
---- ----
</Table>
Power's net earnings in first quarter 2004 of $65 million increased $2 million
compared to $63 million in first quarter 2003. Higher earnings from Bruce Power
L.P. (Bruce Power) and Eastern Operations were the primary reason for the
increase. Partially offsetting the increase were lower earnings from Western
Operations and higher general, administrative and support costs.
WESTERN OPERATIONS
Operating and other income for first quarter 2004 in Western Operations of $35
million was $8 million lower than first quarter 2003, mainly due to lower prices
achieved on the overall sale of power in first quarter 2004, lower ManChief
income in first quarter 2004 as a result of reduced dispatch levels and higher
depreciation expense and lower electricity transmission tariffs in first quarter
2003.
EASTERN OPERATIONS
Operating and other income for first quarter 2004 in Eastern Operations of $34
million was $9 million higher compared to first quarter 2003. The increase was
mainly due to increased water flows through the Curtis Palmer hydroelectric
facilities, higher net margins on power sales reflecting the growth in the
northeastern U.S. retail business with large commercial and industrial
customers, and fees earned on the demobilization of the Cobourg temporary
generation facility in Ontario. Partially offsetting these increases was the
unfavourable impact of a weaker U.S. dollar in first quarter 2004.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [5
BRUCE POWER INVESTMENT
BRUCE POWER RESULTS-AT-A-GLANCE
Three months ended March 31 (unaudited)
<Table>
<Caption>
(millions of dollars) 2004 2003
- ------------------------------------------------------ ---- ----
BRUCE POWER (100 per cent basis)
Revenues 399 398
Operating expenses (250) (194)
---- ----
Operating income 149 204
Financial charges (18) (16)
---- ----
Income before income taxes 131 188
---- ----
---- ----
TransCanada's interest in Bruce Power income
before income taxes* 41 34
Adjustments 7 4
---- ----
TransCanada's income from Bruce Power before
income taxes 48 38
---- ----
---- ----
</Table>
* TransCanada acquired its interest in Bruce Power on February 14, 2003. Bruce
Power's 100 per cent income before income taxes from February 14, 2003 to March
31, 2003 was $107 million.
Bruce Power contributed $48 million of pre-tax equity income in first quarter
2004 compared to $38 million in first quarter 2003. The increase primarily
reflects TransCanada's ownership for the entire first quarter 2004 compared to
approximately six weeks of ownership in first quarter 2003. In addition, output
was higher in first quarter 2004 as a result of the return to service of Units 3
and 4 which have increased Bruce Power's operating expenses and expanded
capacity by approximately 1,500 megawatts (MW) from first quarter 2003.
TransCanada's share of power output for first quarter 2004 was approximately
2,530 gigawatt hours (GWh) compared to 1,087 GWh in first quarter 2003. Overall
prices achieved during first quarter 2004 were approximately $49 per megawatt
hour (MWh) compared to an average realized price of $57 per MWh in first quarter
2003. Approximately 50 per cent of the output was sold into Ontario's wholesale
spot market in first quarter 2004 with the remainder being sold under longer
term contracts. This represents an increase from 45 per cent sold into the spot
market in first quarter 2003. On a per unit basis, the Bruce operating cost
increased to $31 per MWh in first quarter 2004 from $28 per MWh in first quarter
2003.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [6
Unit 3 began producing electricity to the Ontario electricity grid on January 8,
2004 and was considered commercially in-service March 1, 2004. The return to
service of Unit 3 brings Bruce Power's capacity to 4,660 MW. The Bruce units ran
at an average availability of 80 per cent in first quarter 2004, whereas average
availability during TransCanada's period of ownership ending March 31, 2003 was
100 per cent. A series of unplanned maintenance outages limited overall output
in first quarter 2004. Unit 3 was offline for more than 50 per cent of the first
two months of 2004 to perform maintenance on its heat transport system and
repair a turbine bearing. While Unit 3 was down, Bruce Power completed
additional work that had been planned for an outage later in the year. As a
result, the planned outage for Unit 3 in second quarter 2004 has been cancelled.
The maintenance outage on Unit 8, which began in third quarter 2003, was
extended until January 28, 2004 to repair support plates in three of the unit's
eight steam generators.
Equity income from Bruce Power is directly impacted by fluctuations in wholesale
spot market prices for electricity as well as overall plant availability, which
in turn, is impacted by scheduled and unscheduled maintenance. To reduce its
exposure to spot market prices, Bruce Power has entered into fixed price sales
contracts for approximately 45 per cent of planned output for the remainder of
2004. There is a planned maintenance outage at one of the Bruce A units for
approximately five weeks of second quarter 2004.
On March 12, 2004, Bruce Power was granted a five year operational license from
the Canadian Nuclear Safety Commission for its Bruce A and B generating
stations.
POWER LP INVESTMENT
Operating and other income of $10 million in first quarter 2004 from Power's
35.6 per cent investment in TransCanada Power, L.P. (Power LP) was consistent
with first quarter 2003.
GENERAL, ADMINISTRATIVE AND SUPPORT COSTS
General, administrative and support costs increased $4 million compared to first
quarter 2003, mainly reflecting higher support costs as part of the company's
increased investment in Power.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [7
POWER SALES VOLUMES
Three months ended March 31 (unaudited)
<Table>
<Caption>
(GWh) 2004 2003
- ------------------------------------------------------- ----- -----
Western operations* 2,876 3,091
Eastern operations 1,611 1,685
Bruce Power investment** 2,530 1,087
Power LP investment 572 563
----- -----
Total 7,589 6,426
----- -----
----- -----
</Table>
* Sales volumes include TransCanada's share of the Sundance B power purchase
arrangement (50 per cent).
** Acquired on February 14, 2003. Sales volumes reflect TransCanada's 31.6
per cent share of Bruce Power output.
WEIGHTED AVERAGE PLANT AVAILABILITY*
<Table>
<Caption>
Three months ended March 31 (unaudited) 2004 2003
- ------------------------------------------------------- ----- -----
Western operations 99% 98%
Eastern operations 98% 84%
Bruce Power investment** 80% 100%
Power LP investment 99% 98%
All plants 90% 96%
</Table>
* Plant availability represents the percentage of time in the year that the
plant is available to generate power, whether actually running or not and is
reduced by planned and unplanned outages.
** Acquired February 14, 2003. Bruce A Unit 3 is included effective March 1,
2004.
CORPORATE
Net expenses were nil and $13 million for the three months ended March 31, 2004
and 2003, respectively. The $13 million decrease in net expenses is almost
entirely due to income tax refunds and refund interest received in first quarter
2004 relating to prior years.
LIQUIDITY AND CAPITAL RESOURCES
FUNDS GENERATED FROM OPERATIONS
Funds generated from continuing operations were $423 million for the three
months ended March 31, 2004 compared with $457 million for the same period in
2003.
TransCanada expects that its ability to generate sufficient amounts of cash in
the short term and the long term, when needed, and to maintain financial
capacity and flexibility to provide for planned growth is adequate and remains
substantially unchanged since December 31, 2003.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [8
INVESTING ACTIVITIES
In the three months ended March 31, 2004, capital expenditures, excluding
acquisitions, totalled $101 million (2003 - $76 million) and related primarily
to construction of new power plants and maintenance and capacity capital in the
Gas Transmission business. Acquisitions for the three months ended March 31,
2004 were nil (2003 - $409 million).
FINANCING ACTIVITIES
TransCanada retired long-term debt of $476 million in the quarter ended March
31, 2004. In February 2004, the company issued $200 million of five year notes
bearing interest at 4.1 per cent. In March 2004, the company issued US$350
million of 30 year senior unsecured notes bearing interest at 5.6 per cent. For
the quarter ended March 31, 2004, outstanding notes payable decreased by $229
million, while cash and short-term investments increased by $57 million.
DIVIDENDS
On April 23, 2004, TransCanada's Board of Directors declared a quarterly
dividend of $0.29 per share for the quarter ending June 30, 2004 on the
outstanding common shares. This is the 162nd consecutive quarterly dividend paid
by TransCanada and its subsidiary on the common shares. It is payable on July
30, 2004 to shareholders of record at the close of business on June 30, 2004.
CONTRACTUAL OBLIGATIONS
There have been no material changes to TransCanada's contractual obligations,
including payments due for each of the next five years and thereafter, since
December 31, 2003. For further information on these contractual obligations,
refer to Management's Discussion and Analysis in TransCanada's 2003 Annual
Report.
FINANCIAL AND OTHER INSTRUMENTS
The following represents the material changes to the company's risk management
and financial instruments since December 31, 2003. The tables reflect the impact
of hedge accounting changes adopted prospectively, effective January 1, 2004, as
further discussed under Accounting Changes - Hedging Relationships.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [9
FOREIGN EXCHANGE AND INTEREST RATE MANAGEMENT ACTIVITY
The company manages the foreign exchange risk of U.S. dollar debt, U.S. dollar
expenses and the interest rate exposures of the Alberta System, the Canadian
Mainline and the Foothills System through the use of foreign currency and
interest rate derivatives. These derivatives are comprised of contracts for
periods up to eight years. Certain of the realized gains and losses on interest
rate derivatives are shared with shippers on predetermined terms.
<Table>
<Caption>
Asset/(Liability) March 31, 2004
(millions of dollars) (unaudited) December 31, 2003
- ------------------------------------- ------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
FOREIGN EXCHANGE
Cross-currency swaps (21) (21) (26) (26)
INTEREST RATE
Interest rate swaps
Canadian dollars 23 23 2 15
U.S. dollars 9 9 - 8
- ---------------------------------------------------------------------------------------------------
</Table>
At March 31, 2004, the principal amount of cross-currency swaps was US$282
million (December 31, 2003 - US$282 million). Notional principal amounts for
interest rate swaps were $769 million (December 31, 2003 - $964 million) and
US$100 million (December 31, 2003 - US$100 million).
The company manages the foreign exchange risk and interest rate exposures of its
other U.S. dollar debt through the use of foreign currency and interest rate
derivatives. These derivatives are comprised of contracts for periods up to nine
years. The fair values of the interest rate derivatives are shown in the table
below.
<Table>
<Caption>
Asset/(Liability) March 31, 2004
(millions of dollars) (unaudited) December 31, 2003
- ------------------------------------- ------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
INTEREST RATE
Interest rate swaps
U.S. dollars 44 44 2 37
FORWARD FOREIGN EXCHANGE CONTRACTS
U.S. dollars (4) (4) - -
- ---------------------------------------------------------------------------------------------------
</Table>
At March 31, 2004, the notional principal amount for interest rate swaps was
US$550 million (December 31, 2003 - US$500 million) and the principal amount of
forward foreign exchange contracts was US$200 million (December 31, 2003 - nil).
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [10
RISK MANAGEMENT
With respect to continuing operations, TransCanada's market, financial and
counterparty risks remain substantially unchanged since December 31, 2003. For
further information on risks, refer to Management's Discussion and Analysis in
TransCanada's 2003 Annual Report.
CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly report, TransCanada's
management, together with TransCanada's President and Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of the design and
operation of the company's disclosure controls and procedures. Based on this
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer of TransCanada have concluded that the disclosure controls and
procedures are effective.
There were no changes in TransCanada's internal control over financial reporting
during the most recent fiscal quarter that have materially affected or are
reasonably likely to materially affect TransCanada's internal control over
financial reporting.
CRITICAL ACCOUNTING POLICY
TransCanada's critical accounting policy, which remains unchanged since December
31, 2003, is the use of regulatory accounting for its regulated operations. For
further information on this critical accounting policy, refer to Management's
Discussion and Analysis in TransCanada's 2003 Annual Report.
CRITICAL ACCOUNTING ESTIMATES
Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of the company's consolidated
financial statements requires the use of estimates and assumptions which have
been made using careful judgment. TransCanada's critical accounting estimates
from December 31, 2003 continue to be depreciation expense and certain deferred
after-tax gains and remaining obligations related to the Gas Marketing business.
For further information on these critical accounting estimates, refer to
Management's Discussion and Analysis in TransCanada's 2003 Annual Report.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [11
ACCOUNTING CHANGES
ASSET RETIREMENT OBLIGATIONS
Effective January 1, 2004, the company adopted the new standard of the Canadian
Institute of Chartered Accountants (CICA) Handbook Section "Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with asset retirement costs. This section requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The fair value is added to the carrying amount of the associated asset.
The liability is accreted at the end of each period through charges to operating
expenses. This accounting change was applied retroactively with restatement of
prior periods.
The plant, property and equipment of the regulated natural gas transmission
operations consist primarily of underground pipelines and above ground
compression equipment and other facilities. No amount has been recorded for
asset retirement obligations relating to these assets as it is not possible to
make a reasonable estimate of the fair value of the liability due to the
indeterminate timing and scope of the asset retirements. Management believes
it is reasonable to assume that all retirement costs associated with the
regulated pipelines will be recovered through tolls in future periods.
The plant, property and equipment in the power business consists primarily of
power plants in Canada and the United States. The impact of this accounting
change resulted in an increase of $6 million and $7 million in the estimated
fair value of the liability for the power plants and associated assets as at
January 1, 2003 and December 31, 2003, respectively. The asset retirement cost,
net of accumulated depreciation that would have been recorded if the cost had
been recorded in the period in which it arose, is recorded as an additional cost
of the assets as at January 1, 2003. The estimated fair value of the liability
as at March 31, 2004 was $9 million. The company has no legal liability for
asset retirement obligations with respect to its investment in Bruce Power and
the Sundance A and B power purchase arrangements.
The impact of this accounting change resulted in an increase of $2 million in
the estimated fair value of the liability for TransCanada's Other Gas
Transmission assets as at January 1, 2003 and December 31, 2003. The estimated
fair value of this liability as at March 31, 2004 was $2 million.
The impact of this change on TransCanada's net income in first quarter 2004 and
prior periods was nil.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [12
HEDGING RELATIONSHIPS
Effective January 1, 2004, the company adopted the provisions of the CICA's new
Accounting Guideline "Hedging Relationships" that specifies the circumstances in
which hedge accounting is appropriate, including the identification,
documentation, designation and effectiveness of hedges, and the discontinuance
of hedge accounting. In accordance with the provisions of this new guideline,
TransCanada has recorded all derivatives on the Consolidated Balance Sheet at
fair value.
This new guideline was applied prospectively and resulted in a decrease to first
quarter 2004 net income of $2 million. The significant impact of the accounting
change on the Consolidated Balance Sheet as at January 1, 2004 is as follows.
<Table>
<Caption>
(unaudited - millions of dollars) Increase/(Decrease)
- ------------------------------------------------- -------------------
Current Assets
Other 8
Other Assets 123
-------------------
Total Assets 131
-------------------
Current Liabilities
Accounts Payable 8
Deferred Amounts 132
Long-Term Debt (7)
Future Income Taxes (1)
-------------------
Total Liabilities 132
-------------------
</Table>
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Effective January 1, 2004, the company adopted the new standard of the CICA
Handbook Section "Generally Accepted Accounting Principles" that defines primary
sources of generally accepted accounting principles (GAAP) and the other sources
that need to be considered in the application of GAAP. The new standard
eliminates the ability to rely on industry practice to support a particular
accounting policy.
This accounting change was applied prospectively and there was no impact on net
income in first quarter 2004. In prior periods, in accordance with industry
practice, certain assets and liabilities related to the company's regulated
activities, and offsetting deferral accounts, were not recorded on the balance
sheet. The impact of the change on the consolidated balance sheet as at January
1, 2004 is as follows.
<Table>
<Caption>
(unaudited - millions of dollars) Increase/(Decrease)
- ------------------------------------------------- -------------------
Other Assets 153
-------------------
Deferred Amounts 80
Long-Term Debt 76
Preferred Securities (3)
-------------------
Total Liabilities 153
-------------------
</Table>
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [13
OUTLOOK
In 2004, the outcome of the proposed acquisition of Gas Transmission Northwest
Corporation (GTN) could have a positive impact on the expected results of the
Gas Transmission segment. In addition, the sale of the ManChief and Curtis
Palmer power facilities to Power LP could have a significant positive impact on
Power's 2004 expected results. For further information on the acquisition and
sale, please refer to Other Recent Developments. Excluding these impacts and the
receipts of income tax refunds and refund interest in first quarter 2004, the
company's outlook is relatively unchanged since December 31, 2003. For further
information on outlook, refer to Management's Discussion and Analysis in
TransCanada's 2003 Annual Report.
The company's net earnings and cash flow combined with a strong balance sheet
continue to provide the financial flexibility for TransCanada to make
disciplined investments in its core businesses of Gas Transmission and Power.
Credit ratings on TransCanada PipeLines Limited's senior unsecured debt assigned
by Dominion Bond Rating Service Limited (DBRS), Moody's Investors Service
(Moody's) and Standard & Poor's are currently A, A2 and A-, respectively. DBRS
and Moody's both maintain a `stable' outlook on their ratings and Standard &
Poor's maintains a 'negative' outlook on its rating.
OTHER RECENT DEVELOPMENTS
GAS TRANSMISSION
WHOLLY-OWNED PIPELINES
ALBERTA SYSTEM
In July 2003, TransCanada, along with other utilities, filed evidence in the
GCOC Proceeding with the EUB. TransCanada has requested a return on equity of 11
per cent based on a deemed common equity of 40 per cent in its GCOC application.
The EUB expects to adopt a standardized approach to determining the rate of
return and capital structure for all utilities under its jurisdiction at the
conclusion of this proceeding. The oral portion of the hearing was completed on
January 16, 2004 with written argument and reply argument filed on February 23,
2004 and April 5, 2004, respectively. An EUB decision is expected in third
quarter 2004.
In September 2003, TransCanada filed Phase I of the 2004 GRA with the EUB,
consisting of evidence in support of the applied for rate base and revenue
requirement. The company applied for a composite depreciation rate of 4.13 per
cent compared to the current depreciation rate of 4.00 per cent. Phase II of the
application, dealing primarily with rate design and services, was filed in
December 2003. The EUB hearing to consider the GRA Phase I
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [14
application began, in Calgary, on April 5, 2004, with the evidentiary portion
concluding on April 14, 2004. Final argument and reply are due May 5, 2004 and
May 26, 2004 respectively. A decision is expected in third quarter 2004. The
Phase II hearing is scheduled to commence on June 8, 2004.
In December 2003, the EUB approved TransCanada's application to charge interim
tolls for transportation service, effective January 1, 2004. Final tolls for
2004 will be determined based on the EUB decisions in the GCOC proceeding and in
both phases of the proceeding regarding the GRA.
CANADIAN MAINLINE
In April 2004, the Federal Court of Appeal dismissed TransCanada's appeal of the
NEB's decision to deny TransCanada's Fair Return Review and Variance
Application, while endorsing TransCanada's view of the law relating to the
determination of a fair return by the NEB. The judgment has no impact on
reported earnings for 2001, 2002 and 2003.
In December 2003, the NEB approved interim tolls effective January 1, 2004 for
the Canadian Mainline. The 2004 Tolls and Tariff Application for the Canadian
Mainline was filed on January 26, 2004 and includes a request for an 11 per cent
return on a 40 per cent deemed common equity component. Phase I of the hearing
will consider all issues raised by the application, with the exception of cost
of capital, and is expected to commence June 14, 2004 in Ottawa. The procedures
for Phase II of the hearing, which will address cost of capital, have not yet
been announced.
OTHER GAS TRANSMISSION
IROQUOIS
In February 2004, the Iroquois pipeline began commercial operation of its
Eastchester expansion. Iroquois' Eastchester expansion is the first major
natural gas transmission pipeline to be built into New York City in
approximately 40 years.
NORTHERN DEVELOPMENT
TransCanada has been engaged in renewed discussions with the State of Alaska
(the State) relating to the Alaskan portion of the Alaska Highway Pipeline
Project. Further to these discussions, TransCanada is prepared to assume a
leadership position with respect to the development of an independently-owned
pipeline project in Alaska, in addition to the company's long-standing
leadership of the Canadian portion of the project. TransCanada is open to the
potential participation of Alaska Native corporations and other Alaskan
entities.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [15
In April 2004, TransCanada announced that it had signed a memorandum of
understanding (MOU) with the State. In the MOU, TransCanada has committed to
file an application under the State's Stranded Gas Development Act, and the
State will resume processing of TransCanada's long-pending application for a
right-of-way lease on State lands. TransCanada holds the complementary
rights-of-way on federal lands in the State. In the MOU, the State and
TransCanada recognize the critical importance of upstream fiscal negotiations
between the State and the North Slope producers.
Once a right-of-way lease has been issued by the State and commercial
arrangements adequate to support financing are in place, TransCanada would be
prepared to convey the Alaska right-of-way lease to the corporation or
partnership that would undertake construction of the project within Alaska. Such
corporation or partnership could be owned in part by TransCanada. A conveyance
would be subject to an exclusive interconnection agreement with TransCanada at
the Alaska/Yukon border.
LIQUEFIED NATURAL GAS
In a referendum held on March 9, 2004, the residents of Harpswell, Maine voted
against leasing a town-owned site to build the Fairwinds liquefied natural gas
(LNG) regasification facility. As a result, TransCanada and its partner
ConocoPhillips Company suspended further work on this LNG project.
GAS TRANSMISSION NORTHWEST CORPORATION
As described in Management's Discussion and Analysis in TransCanada's 2003
Annual Report, TransCanada executed a Stock Purchase Agreement with National
Energy & Gas Transmission, Inc., and certain of its subsidiaries (collectively,
NEGT) to acquire GTN for US$1.7 billion, including US$0.5 billion of assumed
debt, subject to closing adjustments. GTN owns and operates two pipeline
systems - the Gas Transmission Northwest Pipeline System and the North Baja
Pipeline System.
On March 25, 2004, the bankruptcy court issued an order approving certain
bidding procedures in connection with this sale. If, after the auction process
contemplated by the Stock Purchase Agreement and the bidding procedures order,
it is determined that TransCanada's bid for GTN is the highest and otherwise
best bid, the bankruptcy court shall hold a hearing, currently scheduled for May
12, 2004, to consider approval of the Stock Purchase Agreement.
<Page>
FIRST QUARTER REPORT 2004
TRANSCANADA [16
POWER
SALE OF POWER FACILITIES TO TRANSCANADA POWER, L.P.
On March 29, 2004, TransCanada entered into an agreement to sell the ManChief
and Curtis Palmer power facilities for US$402.6 million to Power LP. TransCanada
expects to recognize a gain of approximately $10 million after tax on the sale
of these assets. The sale is subject to certain post closing adjustments,
approval by Power LP's unitholders on April 29, 2004 and applicable regulatory
approvals. TransCanada expects to complete the sale of these assets on or about
May 5, 2004. A wholly owned subsidiary of TransCanada manages Power LP and the
operation of the assets owned by Power LP, and currently owns 35.6 per cent of
Power LP.
Power LP expects to fund the transaction through an offering of 8.11 million
subscription receipts which closed April 15, 2004 and a bridge loan facility
from a Canadian chartered bank. As part of the subscription receipts offering,
TransCanada purchased 540,000 subscription receipts for an aggregate purchase
price of approximately $20 million. Subsequent to the transaction being
completed, TransCanada's ownership interest in Power LP will be reduced to
approximately 30.6 per cent.
Power LP's unitholders will be asked at a special meeting to be held on April
29, 2004 to approve the acquisition and remove Power LP's obligation to redeem
all units not owned by TransCanada in 2017. As a result of the removal of the
redemption obligation and the reduction in ownership interest, upon closing,
TransCanada expects to recognize a gain of approximately $165 million after tax.
This amount primarily reflects the recognition of unamortized gains on previous
Power LP transactions.
MACKAY RIVER
The MacKay River cogeneration plant, situated at Petro-Canada's MacKay River
oilsands development, was declared contractually commercially in-service on
February 1, 2004. However, normal commercial operations have not occurred on a
sustained basis due to unresolved integration issues with the host site. The
issues preventing normal commercial operations are expected to be resolved in
second quarter 2004.
SHARE INFORMATION
As at March 31, 2004, TransCanada had 483,923,583 issued and outstanding common
shares. In addition, there were 10,962,623 outstanding options to purchase
common shares, of which 8,204,452 were exercisable as at March 31, 2004.
- -------------------------------------------------------------------------------
FORWARD-LOOKING INFORMATION
Certain information in this quarterly report is forward-looking and is subject
to important risks and uncertainties. The results or events predicted in this
information may differ from actual results or events. Factors which could cause
actual results or events to differ materially from current expectations include,
among other things, the ability of TransCanada to successfully implement its
strategic initiatives and whether such strategic initiatives will yield the
expected benefits, the availability and price of energy commodities, regulatory
decisions, competitive factors in the pipeline and power industry sectors, and
the prevailing economic conditions in North America. For additional information
on these and other factors, see the reports filed by TransCanada with Canadian
securities regulators and with the United States Securities and Exchange
Commission. TransCanada disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.