MANAGEMENT ’ S DISCUSSION AND ANALYSIS TransCanada’s ownership interest in Power LP from 32.7 per cent to 41.6 per cent. In October 2001, Power LP issued approximately 5.7 million units in a public offering which decreased TransCanada’s ownership interest from 41.6 per cent to 35.6 per cent. At December 31, 2001, the Power LP units closed at $31.75 on The Toronto Stock Exchange and TransCanada owned approximately 14.0 million units. As noted, TransCanada provides management services to Power LP. This, combined with TransCanada’s own- ership share, has resulted in Power LP being a key asset in growing TransCanada’s overall power business. Power LP has experienced continuous growth since its inception in mid-1997 and will continue with this focus into the future. As a result of this growth and the expectation of sustainable cashflow, Power LP increased its quarterly dis- tributions from $0.60 per unit to $0.63 per unit in June 2001. Outlook Power represents TransCanada’s greatest opportunity for growth in the near term and will continue to be a key growth area over the long term. TransCanada is committed to growing its power business through a continued, combined approach of acquisitions, greenfield developments and further expansions of its existing businesses and footprint in the North American electricity market. This growth will continue to be focused on the company’s tar- get markets within Canada and the northern tier of the U.S. It will be undertaken by thoroughly understanding the market fundamentals in the market regions, capitalizing on opportunities as they arise and managing risks in the same manner that resulted in Power’s strong success to date. TransCanada will continue the growth of the power business in 2002 and beyond. TransCanada will continue to capitalize on opportunities presented by deregulation and other market forces as well as growth through the addition of new power supplies. Power will continue its pursuit of operational excellence as new plants are added. Expansion of the Northeastern U.S. Operations and Western Operations will continue with a balanced portfolio of short-term trading around existing operations and new opportunities combined with medium- to long-term sales to industrial customers. Power will explore additional acquisition opportunities of various sizes in target markets that are consistent with its strategy. With proven success in the Alberta and New England deregulated markets, TransCanada will be able to build on these experiences and use them to capture opportunities presented by the pending deregulation in the Ontario market expected in the first half of 2002. Power will also pursue new marketing opportunities and seek acquisition opportunities directly or through Power LP. BUSINESS RISKS Plant Availability Fluctuating Market Prices Maintaining plant availability is critical to Power’s continued success, and this risk is mitigated through a com- mitment to excellent operating performance at each of its power plants. This same commitment will be applied in 2002 and future years. Power operates in highly competitive markets that are driven mainly by price. Volatility in electricity prices is caused by market factors such as power plant fuel costs and fluctuating supply and demand which are greatly affected by weather, consumer usage and plant availability. These inherent market risks are managed through the use of long-term purchase and sales contracts for both electricity and plant fuels; control over generation output; matching physical plant contracts or PPA supply with customer demand; fee-for-service managed accounts rather than direct commodity exposure; and TransCanada’s overall risk management program with respect to general market and counterparty risks. The company’s risk management practices are described in the section on Risk Management and in Note 12 to the Consolidated Financial Statements. Much of the power industry in North America is currently undergoing deregulation, with various provinces and states at different stages in that process. TransCanada continues to monitor deregulation and seek related invest- ment opportunities as they arise. Deregulation 2001 ANNUAL REPORT  31