SecProbe.io

CORRESP
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filename1.htm

  May 13, 2005

  TransCanada Corporation

  450 - 1st Street S.W.

  Calgary, Alberta, Canada T2P

  5H1

  Michael Moran, Esq.

  Branch Chief

  tel 403.920.2000

  Division of Corporation Finance

  fax 403.920.2200

  United States Securities and Exchange Commission

  email

  450 Fifth Street, N.W.

  russ_girling@transcanada.com

  Washington, D.C. 20549

  web www.transcanada.com

Dear Sir:

  RE:

  TransCanada Corporation

  File No. 1-31690

  Form 40-F for the year ended December 31, 2004

  TransCanada PipeLines Limited

  File No. 1-08887

  Form 40-F for the year ended December 31, 2004

This letter is in response to your letter dated April 22, 2005
regarding the review of Form 40-F for the year ended December 31, 2004 of
TransCanada Corporation and TransCanada PipeLines Limited (collectively,
TransCanada).

General

1.               Where a comment below requests
additional disclosures or other revisions to be made, please show us in your
supplemental response what the revisions will look like.  In our interest to reduce the volume of
comments, we have not addressed each subsidiary of TransCanada with a separate
comment if applicable to their facts and circumstances.  These revisions should be included in your
future filings.  Please note that if you
agree to a revision, we would also expect a concurrent change be made in the
subsidiary level financial statements, including financial statements for
TransCanada PipeLines, LTD.  Please
confirm to us your agreement with this objective.

We confirm our agreement with this objective.

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Note 8. Acquisitions and Dispositions, page 83

2.               We note that you recorded a $25
million pre tax gain associated with the sales of ManChief and Curtis Palmer to
Power LP.  We further note that you have
a continuing ownership interest in Power LP of 30.6 percent.  Please explain if the gain that you recorded
takes into consideration your continuing ownership interest in Power LP.

We confirm the gain recorded took into consideration
our continuing ownership in TransCanada Power, L.P. (Power LP).  That is, in accordance with Canadian generally
accepted accounting principles (Canadian GAAP) for joint ventures (Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3055 - Interests in
Joint Ventures  — paragraph
.28), on proportionate consolidation of Power LP we eliminated the portion of
the gain that relates to our interest in Power LP, and recognized in our
consolidated income statement only that portion of the gain represented by the
interests of other non-related venturers.
For purposes of our reconciliation to United States generally accepted
accounting principles (U.S. GAAP) we followed the same general principle in
applying the equity method of accounting to our investment in Power LP, as set
forth in Interpretation No.1 of Accounting Principles Board Opinion No. 18 - The Equity Method of Accounting for Investments in Common Stock.

3.               Please describe to us, and
prospectively disclose, your accounting policy with respect to dilution gains
associated with your investment in Power LP.
In this regard we note that you had previously deferred such dilution
gains associated with your investment in Power LP.  Although it is not clear if you were
deferring such gains to equity or an unearned revenue account, as you indicate
that you were amortizing such gains to income through 2017.  In this regard, we note that in 2004, you
realized dilution and other gains of $172 million related to the issuance of
8.1 million subscription receipts.  Please
provide a complete history of all dilution transactions associated with Power
LP.  Furthermore, explain in detail how
you accounted for these transactions.
Please reference all applicable accounting literature used with respect
to this issue.  In short, based on the
limited information provided, we would view such dilution gains as analogous to
a SAB 51 transaction; if you have a dissenting opinion, please explain.  We may have further comment.

2

Accounting
Policy

It is our accounting policy
to account for dilution gains in accordance with the CICA Handbook Section
1600.46 and, for purposes of our U.S. GAAP reconciliation, SEC Staff Accounting
Bulletin No. 51 - Accounting for Sales of Stock of a Subsidiary
(SAB 51).  CICA 1600.46
states:

“.46                           Issue
by a subsidiary of its own shares to interests outside the consolidated group.  The issue by a subsidiary of its own shares to
outside interests and the sale by a parent company of its shares in a
subsidiary to outside interests have the same effect on the consolidated
financial statement treatment of non-controlling interest and goodwill.  The issue of shares by the subsidiary
increases the proportionate interest of the non-controlling interest and
decreases the proportionate interest of the parent company.  There is a deemed disposal of that amount of
goodwill that relates to the decrease.  The
change in the parent’s share of the subsidiary’s net identifiable assets as a
result of the share issue less any adjustment to goodwill is, from the point of
view of the parent company, similar to the difference that arises on the sale
by a parent of some of its holdings in a subsidiary and should therefore be
accounted for as an income item.”

There
is no alternative treatment permitted under Canadian GAAP for “dilution gains”.
 Accordingly, we have not previously
disclosed this policy in the Accounting Policies note to our consolidated
financial statements.  We agree to add disclosure
of our accounting policy for dilution gains in our 2005 annual financial
statements.  Our accounting policy with respect to dilution gains
associated with our investments in limited partnerships shall be disclosed as
follows:  “Dilution gains which result
from the sale of units by limited partnerships in which TransCanada has an
ownership interest are recognized immediately in net income.”

3

History
and Accounting Rationale

Power LP was formed in 1997.  Subsequently, TransCanada transferred assets
into the limited partnership which then did a public offering with 50% of the
units being sold pursuant to an initial public offering (IPO).  The partnership agreement included a clause
that required Power LP to redeem all outstanding limited partnership units, not
held by TransCanada, on a fixed date, being June 30, 2017.  The units would be redeemed on June 30, 2017
at their then fair value as determined by independent valuators.  The redemption price would be satisfied, at
the election of TransCanada, in cash or by the delivery of common shares of
TransCanada or by a combination of cash and shares.  TransCanada was required to fund the
redemption.

We did not believe that it
was appropriate to recognize the full amount of the gain at the time of the IPO
because the transfer of the assets and subsequent IPO did not, in our opinion,
represent the culmination of the earnings process, due to the requirement that
we would fund the redemption of the limited partnership units held by the
public.  Rather, we concluded that the
substance of this transaction was the sale of a portion of the net revenues of Power
LP for a twenty-year period.  We believe
that the U.S. accounting literature that most closely reflected our
circumstances was EITF 88-18 - Sale of Future Revenues.  In our opinion, the guidance in this abstract
provided support for our accounting conclusion that the gain should be deferred.  The key overriding factor was the fact that
TransCanada was required to fund the redemption of the units held by the public
at a fixed and ascertainable date.  Effectively
TransCanada had sold an interest in the net revenues of Power LP for a fixed
term.  The deferred gain was, therefore,
amortized to income over the period to 2017.  We believed that EITF 88-18 more closely
reflected our circumstances at the time than treatment as a dilution gain under
SAB 51.

Subsequently, Power LP
issued additional units which resulted in further gains to TransCanada (see
table below).  TransCanada’s interest in
Power LP at December 31, 2004 was 30.6%.
The original accounting was consistently followed.

At a special meeting in
April 2004, the unitholders of Power LP, other than TransCanada, approved the
elimination of the requirement for Power LP to redeem all units not held by
TransCanada in 2017.  The approval for
Power LP to acquire the ManChief and Curtis Palmer facilities from TransCanada was
obtained at the same unitholder meeting.

4

When the redemption
requirement was removed in April 2004, we concluded that we had no longer sold
a future net revenue stream for a defined period.  The earnings process had culminated and the
unamortized deferred gains were recognized in income at that time.

Prior to the elimination of
the requirement of Power LP to redeem all units not held by TransCanada in
2017, the deferred credit was included in deferred amounts in the liabilities
section of the balance sheet.  As noted
above, all of the unamortized deferred credits were released into income in
April 2004.  The release of the deferred
credits was not as a result of the issuance of the 8.1 million subscription
receipts but rather was due to the elimination of the requirement of Power LP
to redeem all units not held by TransCanada in 2017.  The proceeds from the issuance of the subscription
receipts were used to partially fund the acquisition of the ManChief and Curtis
Power facilities by Power LP from TransCanada.

The history of gains
associated with Power LP is as follows (amounts in Cdn $ million):

  Original

  Gain

  Gain Recognized

  Deferred

  in 2004

  Second quarter
  1997: Gain resulting from IPO of Power LP

  103

  69

  First quarter
  1998: Gain resulting from Power LP offering at time of Tunis plant
  acquisition

  34

  23

  Fourth quarter
  1999: Gain resulting from Power LP offering at time of Williams Lake plant
  acquisition

  20

  14

  Fourth quarter
  2001: Gain resulting from Power LP offering

  30

  26

  Unamortized
  deferred gain

  132

  Second quarter
  2004: Dilution gain resulting from Power LP offering at time of ManChief and
  Curtis Palmer plant acquisitions

  40

  172

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TransCanada’s
auditors, KPMG, provided unqualified audit opinions on the TransCanada
consolidated financial statements for each of the years in the period 1997 to
2004. As a result of the SEC letter to TransCanada dated April 22, 2005, upon
further consideration of the accounting treatment and based on current
information, KPMG determined that the accounting for these gains in the period
1997 to 2004 was incorrect for U.S. GAAP purposes only.  Accordingly, KPMG has now advised TransCanada
they no longer support the accounting treatment under U.S. GAAP for these
transactions which they had previously supported in the performance of their
audits for the period 1997 to 2004.  KPMG
also advised TransCanada they continue to support the accounting treatment for
Canadian GAAP purposes.

A
Canadian — U.S. GAAP difference for periods prior to 2005 would result from
amending the U.S. GAAP reported amounts related to the Power LP gains.  However, as all gains related to Power LP
transactions had been recorded in shareholders’ equity at December 31, 2004, this
Canadian — U.S. GAAP difference, prospectively, has no impact on TransCanada’s condensed
consolidated financial statements reported under U.S. GAAP.  Given these considerations, amending the
disclosure may not serve any useful purpose.
TransCanada requests the opportunity to meet in person with the SEC to
discuss how we should proceed given the current circumstances.

.

Note 21.  Discontinued Operations, page 101

4.               Please explain how you reached
the conclusion to classify your gas marketing business as discontinued
operations when you disclosed a significant contingent liability associated
with this entity.  In this regard, you
indicate that net income from discontinued operations was $52 million and $50
million for 2004, and 2003, respectively.
Please explain in detail the transaction that lead to the deferred gain,
and discuss how you accounted for the subsequent recognition of this gain.  For US GAAP reconciliation purposes you may
consult EITF 03-13.  In this regard,
please explain the cash flows of the transaction.  We may have further comment.

Classification
of the Gas Marketing Business as Discontinued Operations

The gas marketing business
was a separate operating segment and was subject to a formal plan of disposal.  We do not believe that the existence of the
significant contingencies discussed below negate our ability to classify these
operations as discontinued under U.S. GAAP.

6

For U.S. GAAP reconciliation
purposes we relied on the guidance in APB 30.  Paragraph 8 of APB 30 states that: “the term discontinued operations refers to the operations of a
segment of a business as defined in paragraph 13 that has been sold, abandoned,
spun off, or otherwise disposed of or, although still operating, is the subject
of a formal plan for disposal (see paragraph 14).”  Paragraph 13 states that: “For purposes of
this Opinion, the term segment of a business
refers to a component of an entity whose activities represent a separate major
line of business or class of customer.”
We concluded that our gas marketing segment constituted a segment of a
business for purposes of APB 30.
Lastly, we reviewed the criteria in paragraph 14 for a formal plan of
disposal and concluded that our plans to dispose of our gas marketing segment met
these criteria in 2001.

On the sale of a substantial
portion of the gas marketing operations to Mirant in late 2001, we also
considered the guidance in SEC Staff Accounting Bulletin Topic 5.E — Accounting for Divestiture of a Subsidiary Or Other Business Operation
— and concluded that, under that guidance, it was appropriate to account for
the disposal of these operations to Mirant (as discussed below) as a divestiture,
and hence classification of these operations as discontinued was appropriate at
the end of 2001.  TransCanada’s auditors,
KPMG, agreed this was the appropriate treatment for both Canadian and U.S. GAAP
purposes.  The remainder of the gas
marketing business not sold to Mirant was disposed of through other means.

We did not consider EITF
03-13, as it was not available at the time we classified these operations as
discontinued.  Further, we believe that
EITF 03-13 basically clarifies the interpretation of criteria contained in
paragraph 42 of FASB Statement No. 144 — Accounting for the
Impairment or Disposal of Long-Lived Assets — and was not applicable
to APB 30 in 2001 and 2002.

Deferred
Gain

TransCanada
sold a substantial portion of its gas marketing business to Mirant in fourth
quarter 2001.  We received approximately $220
million in cash which resulted in an after tax gain of $102 million.  The operations sold to Mirant included gas
marketing contracts that had been entered into by TransCanada and for which
certain contracts had been guaranteed by TransCanada.  TransCanada was not involved in the
operations or cash flows of these contracts subsequent to the sale but

7

remained
contingently liable for the performance of these contracts after they were sold
to Mirant as a result of the TransCanada guarantees.

After
the sale to Mirant closed, Mirant’s credit rating was downgraded to non-investment
grade status and its shares were trading at near 52 week lows.  Also, in late 2004, after the closing of the
sale to Mirant, Enron filed for bankruptcy protection.  In a business that was dependent on strong
credit, Mirant’s credit rating downgrade was viewed as serious enough to impact
their future ability to do business.
Although the operations had been sold to Mirant, TransCanada was unable
at the time to assign and novate certain of its associated contractual
obligations.  Although TransCanada had mitigated
the