MANAGEMENT ’ SD I S CU S I O NAN DANAL Y S I Canadian Mainline The Canadian Mainline generated net earnings of $274 million in 2001, a decrease of $7 mil- lion compared to 2000. The decrease in net earnings in 2001 as compared to 2000 is primarily due to a decline in the NEB approved rate of return on common equity, from 9.90 per cent in 2000 to 9.61 per cent in 2001, combined with a lower average investment base. This decrease is partially offset by the impact of incentive earnings realized in 2001 under the terms of the Mainline Service and Pricing Settlement (S&P Settlement). The 2001 net earn- ings are based on interim tolls approved by the NEB. Any adjustments to the interim tolls will be recorded in accordance with the NEB decision in the Fair Return Application proceedings. Annual deliveries of natural gas on the Canadian Mainline totalled 2,450 Bcf in 2001, com- pared to deliveries of 2,675 Bcf in 2000 and 2,684 Bcf in 1999. In 2001, export deliveries comprised approximately 50 per cent of total deliveries, relatively unchanged from 2000 and 1999. The Canadian Mainline is regulated by the NEB. The NEB sets tolls which allow TransCanada to recover projected costs of transporting natural gas and provide a return on the Canadian Mainline average investment base. New facilities are approved by the NEB before construction begins. Changes in investment base, the return on common equity and incentive earnings affect the net earnings of the Canadian Mainline. In 2001, with the exception of incentive items implicit in the S&P Settlement, most of the operating and financing costs of the Canadian Mainline are recovered from customers. TransCanada’s wholly-owned natural gas pipelines are strategically positioned within the northern tier of North America. The strength of this business is derived from its ability to serve major North American gas markets, oper- ating efficiency, capability to respond to requests for connection to new supply and markets, and the expertise of its people. This puts TransCanada in a unique position as the major transporter of Canadian gas both within the WCSB and across the continent. WHOLLY-OWNED PIPELINES – OUTLOOK TRANSCANADA 20 2000 1999 2001 2,109 2,195 2,141 Canadian Mainline Revenues (millions of dollars) 2000 1999 2001 9,386 9,443 9,176 Canadian Mainline Average Investment Base (millions of dollars) 2000 1999 2001 643 137 97 Canadian Mainline Capital Expenditures (millions of dollars) CANADIAN MAINLINE T ransCanada’s 100 per cent owned natural  gas transmission system in Canada extends 14,900 kilometres  from the Alberta/ Saskatchewan border to the Québec/Vermont border and connects with other natural gas pipelines in Canada and the United States.