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TransCanada Business Model

TransCanada Business Model. International Pipeline Conference November 12, 2009. Agenda. About TransCanada TransCanada’s North America Business Model Guadalajara Pipeline Project. Natural Gas Pipelines. 59,000 km (36,500 mi) of wholly owned natural gas pipeline

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TransCanada Business Model

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  1. TransCanada Business Model • International Pipeline Conference • November 12, 2009

  2. Agenda • About TransCanada • TransCanada’s North America Business Model • Guadalajara Pipeline Project

  3. Natural Gas Pipelines • 59,000 km (36,500 mi) of wholly owned natural gas pipeline • Interests in an additional 7,800 km (4,800 mi) of natural gas pipeline • 250 Bcf of regulated natural gas storage capacity • Unparalleled connectionsfrom traditional and emerging basins to growing markets • Average daily volume of approximately 15 Bcf

  4. Power Generation • 19 plants, 10,900 megawatts • Diversified portfolio consists primarily of: • Long-term power purchase arrangements with stable, predictable earnings • Low-cost, base-load generation • Key power infrastructure assets in attractive markets

  5. TransCanada’s History in Mexico Tijuana Mexicali CD Juarez Naco Nogales Chihuahua Guaymas Reynosa Topolobampo Monterrey Mazatlán Altamira El Bajío Pipeline Cancun Mérida Legend Guadalajara Pemex Pipeline Private Open Access Pipeline Tamazunchale Pipeline Proposed LNG Terminal Tuxpan Valladolid Mayakan Pipeline Toluca Mexico City Manzanillo Lázaro Cárdenas Acapulco 1998, built the first privately owned pipeline in Mexico, the Energia Mayakan pipeline 1999, built the El Bajio pipeline in Bajio region 2006, built the Tamazunchale pipeline in eastern Mexico

  6. TransCanada’s North American Business Model

  7. The Natural Gas Transportation System Source: AGA

  8. Natural Gas Value Chain – Considerations of Participants Producers Marketers Pipelines Local Utility Consumers Independent, Major Shell, BP, Exxon, ConocoPhilips Gas well gas Oil well gas No Product reserves, Generate cash Affiliated, Independent JP Morgan, Encana Supply aggregation, Logistics management No Margin on gas, Margin on services Interstate, Intrastate TransCanada Transportation, Storage Yes Fee for service,Return on capital Investor owned, Municipal Pacific Gas & Electric, Oneok Supply aggregation, Transportation Yes Fee for service,Return on capital Residential, Industrial, Commercial Homes, stores, plants Market for gas,Market for services No Secure supply,Minimum cost Type Example Contribution Price Regulated Objectives

  9. Natural Gas Value Chain – Activities of Participants Producers Marketers Pipelines Local Utility Consumers • Generate cash flow • Ensure access to market • Obtain best price • Match supplies to market • Avoid imbalance penalties • Cost vs benefit of selling further down the channel • Seasonal arbitrage • Commodity price risk (hedging) • Achieve margin (spread) • Avoid imbalance penalties • Manage price risks • Seasonal arbitrage • Geographic arbitrage • Profit opportunities in managing risks for others • Generate transport/storage revenue • Extract value for service provided (swing) • Impose discipline on shippers (receipt vs delivery imbalances) • Account for ownership of gas in pipeline custody • Optimize system operations • Commodity sales • Service obligation • Supply security/cost • Transport revenue • Pipeline/storage capacity access • Pipeline imbalances • Imbalances on local distribution company • Commodity price risk • Type of service (sale or transport, firm or interruptible) • Supply security • Commodity price • Access to alternatives • Hedging • Imbalances Source: AGA

  10. Broad Trends – Gas Demand Bcf/d History Forecast Electric Generation Residential &Commercial Industrial Other • Demand led by Electric Generation sector

  11. Broad Trends – Gas Supply Bcf/d History Forecast Eastern Canada Demand LNG North BC Unconv. WCSB U.S. Rockies U.S. Shale Gulf of Mexico + U.S. Other Mexico • Domestic North America gas supply to remain strong

  12. Building for Tomorrow: Developing a Portfolio of Future Growth Opportunities • Our Approach: • Maintain complete analysis of market conditions • Capitalize on the need for new and more efficient energy infrastructure in North America • Focus on regions and businesses where we can build genuine competitive advantage • Carefully select opportunities with long-term upside • Maintain long list of project opportunities • Pursue projects when conditions are right • Negotiate contract structure acceptable to our risk tolerance

  13. Building for Tomorrow: Risk / Return Trade off • Project Risks • Construction cost • Contract Term • Counterparty Exposure • Regulatory/Political • Required Return • Capital Structure • External Financing • Financial Market situation • Corporate Strength

  14. Track Record of Investing in Attractive Low-Risk Assets $19 Billion*(1999 – 2008) CanadianRegulatedPipelines $2.6 (14%) Power – Long-term PPAs / Capacity Payments$4.7 U.S. RegulatedPipelines $8.7 (45%) (25%) Power – Low-cost Base-load $2.1 Other$0.9 (11%) (5%) * Includes acquisitions and completed greenfield projects

  15. Current Projects Project Pipelines Keystone Canadian Regulated U.S. Regulated Bison Guadalajara Energy Bruce Power Units 1 & 2 (50%) Halton Hills Kibby Wind Cartier Wind Phases 4 – 6 (62%) Coolidge Capital CostEstimate* ($Billions) 13.2 2.5 0.7 0.6 0.3 17.3 1.7 0.7 0.4 0.4 0.6 3.8 21.1 In-Service Date 2010 – 2012 2009 – 2011 2009 – 2011 2010 – 2011 2011 2010 2010 2009 – 2010 2010 – 2012 2011 RevenueStream Contracted and Spot Cost of service Contracted and Spot Contracted and Spot Contracted Fully contracted Fully contracted Contracted and Spot Fully contracted Fully contracted * TransCanada share in CAD dollars. Assumes a US$ to CAD$ exchange rate of 1.1. Approximately $3.5 billion was spent by the end of 2008 on multi-year projects.

  16. Keystone Oil Pipeline • Approx. US$12 billion • Keystone 3,456 km • Gulf Coast Expansion 3,200 km • Capacity 1,090,000 Bbl/d • 910,000 Bbl/d committed for an average term of 18 years (83% of total capacity) • Strong counterparties operating in upstream and downstream segments of the oil business

  17. Alberta System Pipelines Proposed Pipelines Gas Storage Facilities North Central Corridor • 300 km of 42-inch pipe • 26 MW of compression • Approximately $925 million • In-service 2010 Groundbirch Pipeline Project • Commitments for 1.1 Bcf/d by 2014 • 77 km 36-inch pipe • Approximately $250 million • Expected in-service Q4 2010 Horn River Pipeline Project • Commitments for 378 MMcf/d in 2013 • 155 km combination of NPS 30 and existing pipe • Approximately $340 million • Expected in-service 2012

  18. Bison Pipeline • 297-mile natural gas pipeline • 407 MMcf/d contracted • Initial capacity 400 MMcf/d to 500 MMcf/d • Future expansion up to 1.0 Bcf/d and extension potential • Approximately $US610 million • Connects growing Rockies supply to Northern Border Pipeline with access to Chicago and area markets • Expected in-service date late 2010

  19. Mexico Assets • Guadalajara Pipeline • 310 km, 30-inch diameter • Expected in-service Q2 2011 • Initial capacity 500 MMcf/d • Future expansion up to 900 MMcf/d • Approximately US$320 million • 25-year ship or pay contract with CFE • Tamazunchale Pipeline • 130 km, 36-inch diameter • Initial capacity 170 MMcf/day • Future expansion up to 430 MMcf/day • In-service late 2006 • 26-year ship or pay contract with CFE

  20. TransCanada’s Guadalajara Pipeline

  21. Guadalajara Pipeline • Awarded in May, 2009 • Approximately 300 km in length • 30” diameter pipeline • Will deliver up to: • 500 MMcf/d of natural gas to CFE’s Manzanillo power plant; • 320 MMcf/d of natural gas to the Pemex system near Guadalajara • In-service: March 2011

  22. Project Summary • The pipeline project is part of a larger energy infrastructure program undertaken by CFE • LNG Supply acquisition (2007) (supplies from Peru) • LNG Regasification (2008) (owned by Korea Gas and Mitsui) • Refurbishment of Manzanillo Power plant to natural gas (CFE) • Gas for new power plants in Guadalajara and for power generation in central Mexico (through the Pemex pipeline) • Pipeline linking LNG terminal to power plant and Pemex pipeline system • The overall program will • Serve Mexico’s growing electric demand • Diversify Mexico’s natural gas supply • Improve efficiency of CFE’s power generation • Ensure natural gas supply in Central and Western Mexico

  23. CFE Multi-Phase ProgramLNG Terminal • To guarantee the future supply of natural gas to thermoelectric power plants through means of purchasing liquefied natural gas (LNG). This LNG will be stored and regasified in a newly constructed Storage and Regasification Terminal in the state of Colima.

  24. CFE Multi-Phase ProgramManzanillo Power Plant Upgrade • Upgrade and improve the thermoelectric power plant in Manzanillo

  25. CFE Multi-Phase ProgramGuadalajara Pipeline • Transport natural gas from the Storage and Regasification Terminal through the construction of the Guadalajara Pipeline • This gas pipeline links natural gas between the states of Colima and Jalisco, and also increases the security of natural gas supply to Central and Western Mexico

  26. Project Timeline – Key Dates • LNG Gas Supply Contract September 28, 2007 • LNG Regasification Contract Awarded March 7, 2008 • Guadalajara Pipeline • CFE ITB Issued October 14, 2008 • Bid Submission April 14, 2009 • Contract Award May 4, 2009 • Contract Execution May 20, 2009 • Construction Commencement Q1, 2010 • Target Completed Q1, 2011 • Commercial In-service March 30, 2011 22 months from date of contract to commercial operations

  27. Guadalajara PipelineConstruction Challenges • Congested Rights of Way • Fibre optics • Overhead power lines • Highways • Urban structures

  28. Guadalajara PipelineConstruction Challenges Difficult construction areas with limited alternatives to reroute

  29. Guadalajara PipelineConstruction Challenges Difficult crossings of canyons and gorges

  30. Guadalajara PipelineConstruction Challenges Anticipating future highway expansion plans

  31. Guadalajara PipelineConstruction Challenges Working in and around environmental protected areas

  32. Guadalajara PipelineConstruction Challenges Active nearby volcanic and seismic activity

  33. TransCanada’s Formula for Success • Long History of Construction • Experienced Project Teams • Extensive database of past projects including costs, risk variables • Well developed project management tools and expertise • Strong supplier and contractor base • Disciplined Approach to Business • Market Intelligence • Risk Analysis • Comprehensive Due Diligence • Financial Structuring

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