Despite strong performance by TransCanada’s transmissionbusiness, like most everyone else the company took a hit toyear-end earnings due to flagging commodity prices. TransCanadareported net earnings before unusual charges of $575 million 1998,down 8% from $620 million for fiscal 1997. Net earnings afterunusual charges, for the year ended Dec. 31, 1998 were $355 millioncompared to $522 million for the year ended Dec. 31, 1997.

TransCanada recorded unusual charges in the fourth quarter forintegration costs of $162 million, after tax, related to its mergerwith NOVA Corp. and a $54 million after-tax write-down of its U.S.gas gathering and processing assets.

Solid performance from TransCanada’s Energy Transmission andInternational businesses, when compared to 1997, was more thanoffset by a decreased contribution from Energy Processing. Thedecreased Energy Processing contribution, before a charge for assetimpairments, reflects the impact of reduced margins due to thedownward pressure on oil prices and relatively high gas pricesthroughout 1998.

Energy Transmission 1998 net earnings of $571 million representa 4% increase over 1997 net earnings. The Canadian Mainlinecontributed net earnings of $278 million in 1998 compared to $258million in 1997 and was the primary contributor to the higher netearnings generated by the energy transmission businesses. The $20million increase results from earnings on the growth of theCanadian Mainline’s rate base which more than offsets the declinein the allowed rate of return on common equity. Net earnings fromthe Alberta System for 1998 were $201 million, comparable to 1997.

TransCanada’s energy marketing activities generated net earningsof $13 million for 1998. These results are comparable to netearnings, before an unusual charge of $98 million, for 1997. Netearnings from the Energy Marketing segment reflect improved resultsfrom the petroleum and products marketing business in 1998 comparedto 1997, offset by lower net earnings from the gas marketingbusiness. Higher inventory levels in the marketplace and theabsence of significant weather impact on demand during 1998 werekey factors influencing the reduced contribution from TransCanada’sgas marketing business.

Energy Processing before unusual charges generated net earningsof $11 million in 1998 compared to $70 million in 1997. Thereduction is attributable to market conditions on the gas gatheringand processing business in the United States and, to a lesserextent, in Canada. In the United States, losses were incurred as aresult of the very narrow fractionation spread throughout 1998. Thereduced spread has been a factor in the marketplace for some timeand, with the further downward pressure on crude oil prices in thefourth quarter, there appears to be no relief in the short term.Consequently, TransCanada assessed the value of its U.S.-based gasgathering and processing assets and found impairments of $54million, after tax. In Canada, net earnings are less than 1997 dueto lower prices for gas liquids and reduced throughput volumesassociated with lower producer activity.

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