Action Note Equity Research June 14, 2016

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1 Action Note Equity Research June 14, 2016 Pipelines, Power & Utilities TransCanada Corp. (TRP-T, TRP-N) C$54.86 US$42.83 US$2.1bln Texas-Tuxpan Pipeline Contract Announced Linda Ezergailis, P.Eng. Avery Haw, (Associate) Event TransCanada Corp. (TRP) and IEnova, Infraestructura Marina del Golfo (IMG), have been awarded a contract to build, own, and operate a US$2.1-billion pipeline from the U.S. to Mexico (Texas-Tuxpan Pipeline). Impact: SLIGHTLY POSITIVE A Likely Win: It was previously speculated that TRP and IMG were the likely winners of the pipeline contract as the few other competing bids were disqualified. Adds to Mexican Business: The announcement should help to bolster TRP's presence in the region and will add to the company's existing investments in the region. We believe that the Texas-Tuxpan Pipeline could potentially become a part of the Mexican pipeline business which TRP is planning to partially monetize to help finance its proposed acquisition of Columbia Pipeline Group (CPG). Accretive Project; Increasing Target Price by $1.00: We have updated our forecasts and valuation to reflect the pipeline project. If we assume that TRP retains a 60% ownership of the project, we estimate that it could be ~$0.09 accretive to EPS and could be worth $1.00-$2.00 a share of value. As such, we have increased our target price by $1.00 to $ TD Investment Conclusion The announcement of the Texas-Tuxpan Pipeline contract highlights TRP's presence, economies of scale, and competitive advantages in winning new project mandates in the region. Should TRP decide to monetize a portion of the project, the funds could be used to help finance the acquisition of CPG, which in turn we believe could be beneficial to TRP through its potential accretion, growth, and de-risking of its business model through diversification and reduced direct commodity exposure. Recommendation: Risk: 12-Month Target Price: 12-Month Dividend (Est.): BUY LOW C$63.00á Prior: C$62.00 C$ Month Total Return: 19.0% Market Data (C$) Current Price C$ Week Range $ $56.57 Mkt Cap (f.d.) ($mm) $44,162.3 Current Dividend $2.26 Dividend Yield 4.1% Avg. Daily Trading Vol. 3,890,245 Financial Data (C$) Fiscal Y-E December Shares O/S (f.d)(mm) Float Shares (mm) Net Debt/Total Cap 65.0% BVPS (basic) $23.17 ROE 11.4% Estimates (C$) Year 2015A 2016E 2017E 2018E EPS (f.d.) EPS (f.d.) (old) Dividend AFFO/Shr AFFO/Shr (old) EPS (f.d.) Quarterly Estimates (C$) Year 2015A 2016E 2017E 2018E Q Q Q Q Valuations Year 2015A 2016E 2017E 2018E P/E (f.d.) 22.1x 21.3x 18.8x 17.1x All figures in C$, unless otherwise specified TRP-T: Price Company Profile TransCanada Corp. (TRP-T, TRP-N) owns significant amount of energy infrastructure, including a network of natural gas pipelines (14 bcf/d and 68.5k km), natural gas storage (406 bcf), power generation (10,800 MW), and crude oil pipelines (530k bpd and 3,500 km) Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Please see the final pages of this document for important disclosure information. Page 1 of 7

2 Details Exhibit 1. Mexican Pipeline Assets and Projects Description: A 42-inch, 800 km (497 mile) underwater natural gas pipeline that runs from a border point near Brownsville, Texas to Tuxpan, in the state of Veracruz. The project will interconnect with TRP s Tamazunchale and Tuxpan-Tula pipelines as well as with other transporters in the region. Capital Cost and Ownership: Total capital cost is expected to be US$2.1 billion. TRP will contribute ~US$1.3 billion toward the project (~60% ownership), while IMG will contribute the remaining (~40% ownership). This is the first time that TransCanada is partnering with another entity upfront in Mexico, which we believe is to manage financing risk. Contractual Agreements: The project will be supported by a 25-year natural gas transportation service contract for 2.6 Bcf/d with the Comisión Federal de Electricidad (CFE), Mexico s state-owned power company. Assumed Returns: We expect the returns to be generally in line with historical agreements with CFE, although at the higher end of the range given the offshore complexity. Assumed Financing: We expect TRP to finance its share of the project on its balance sheet using a 60/40 debt/equity capitalization. Timing: The commissioning and in-service for the project is expected to be late Our forecasts assumed an October 2018 in-service date. Builds on the Mexican Footprint: The Texas-Tuxpan pipeline adds to TRP s growing Mexican presence, which currently consists of the operating Guadalajara and Tamazunchale (and extension) pipelines, along with the Topolobampo and Mazatlan pipeline projects (expected to be in-service in 2016), Tuxpan Tula pipeline (Q4/17), and Tula Villa de Reyes project (early-2018). Mexico Continues to Represent a Region of Investment: Although TRP intends to monetize a portion of its interest in its Mexican assets in order to finance the CPG acquisition, we expect that the company could pursue additional energy infrastructure opportunities in the future, although the pace of new pipeline infrastructure could slow in the medium term. Source: Company reports Page 2 of 7

3 Exhibit 2. Map of the Pipeline and Surrounding Geography from CFE RFP Document Source: Company reports Valuation Exhibit 3. Valuation Pipeline & Midstream Companies Curr. Shares Market Ind. EPS (f.d.) AFFO Per Shr (f.d.) P/E AFFO Yield Symbol Price O/S (mm) Cap (mm) Div. Yield 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E 2015A 2016E 2017E TransCanada Corp. TRP $ $44,162 $ % $2.48 $2.58 $2.92 $5.00 $4.80 $ x 21.3x 18.8x 9.1% 8.7% 9.2% AltaGas Ltd. ALA $ $4,949 $ % $0.96 $0.99 $1.16 $2.78 $2.98 $ x 30.9x 26.5x 9.0% 9.7% 10.4% Enbridge Inc. ENB $ $49,656 $ % $2.17 $2.41 $2.52 $3.68 $4.05 $ x 22.5x 21.5x 6.8% 7.5% 8.2% Enbridge Income Fund Hlds ENF $ $24,509 $ % $1.86 $2.14 $2.29 $2.91 $2.49 $ x 14.9x 13.9x 9.1% 7.8% 8.3% Gibson Energy Inc. GEI $ $2,179 $ % $0.07 $0.04 $0.56 $1.75 $1.44 $1.63 n.a. n.a. 27.5x 11.4% 9.3% 10.6% Inter Pipeline Ltd. IPL $ $9,316 $ % $1.38 $1.35 $1.41 $2.02 $2.04 $ x 20.5x 19.6x 7.3% 7.4% 7.6% Keyera Corp. KEY $ $6,792 $ % $1.19 $1.70 $1.81 $2.84 $2.74 $ x 21.9x 20.6x 7.6% 7.4% 8.0% Pembina Pipeline Corp. PPL, PBA $ $15,546 $ % $1.03 $1.21 $1.39 $2.53 $2.42 $ x 33.3x 28.9x 6.3% 6.0% 7.2% Veresen Inc. VSN $ $3,245 $ % $0.21 $0.02 $0.35 $1.06 $1.00 $1.04 n.a. n.a. n.a. 10.0% 9.4% 9.8% Average 5.9% 26.6x 23.6x 22.2x 8.5% 8.1% 8.8% Source: Thomson, TD Securities Inc. estimates Page 3 of 7

4 Justification of Target Price Our $63.00 target price is predicated on our 2017 financial estimates, as follows: Exhibit 4. Target Price Derivation EBITDA ($ mln) (25% Weight) (25% Weight) (50% Weight) 1. EV / EBITDA 2. Relative Dividend Yield 3. Free Cash Flow Yield EV / EBITDA Resultant Share Price Dividend Relative Dividend Yield Resultant Share Price AFFO/shr FCF Yield Resultant Share Price Blended Target Price 7, x $ $ % $ $ % $ $ (prior 13.0x) (prior 275%) (prior 8.5%) 10-Year Government of Canada Bond Yield Assumption 1.50% Note: Our target EV is based off balance sheet items at the end of 2017 to incorporate the US Northeast power and Mexican pipeline sales. Source: TD Securities Inc. estimates Key Risks to Target Price Key risks to target price include: 1) Higher-than-expected long-bond yields; 2) acquisitions and divestitures that do not create shareholder value; 3) operational disruptions; 4) surprise regulatory decisions; 5) higher-than-expected debt and equity capital costs; 6) capital project cost overruns; 7) WCSB and Appalachian Basin risk; 8) access to capital markets; and 9) successful close of the CPG transaction and execution of the financing plan as expected. Page 4 of 7

5 Exhibit 5. Summary Model Ticker TRP-T, N Market Cap ($mm) $44,162 Debt-to-Capitalization 65.0% Recent Share Price $54.86 EV ($mm) $82,752 BVPS Week Range $40.58 $56.57 Shares O/S (mm) 805 Ex-div date 06/28/16 Dividend $2.26 Float O/S (mm) 800 Fiscal Year-End December Dividend Yield 4.1% Company Profile: TransCanada owns a network of natural gas pipelines (69k km growing to 91k km with CPG), natural gas storage (350 bcf growing to 636 bcf with CPG), power generation (6,914 MW post asset sales), and crude oil pipelines (4,247 km). Key Metrics 2015A 2016E 2017E 2018E Valuation 2015A 2016E 2017E 2018E EBITDA 5,908 6,604 7,836 8,563 EV/EBITDA 14.0x 12.5x 10.6x 9.7x Operating EPS (f.d.) P/E 22.1x 21.3x 18.8x 17.1x Free Cash Flow Per Share (AFFO) AFFO Yield 9.1% 8.7% 9.2% 9.7% Dividend Per Share Dividend Yield 3.8% 4.1% 4.4% 4.8% Seg. Income Statement ($mm) 2015A 2016E 2017E 2018E Ratios 2015A 2016E 2017E 2018E EBIT 4,143 4,695 5,960 6,270 Payout Ratio (EPS) 84% 88% 84% 82% Net Interest Expense & Other (1,186) (1,581) (1,873) (1,784) Payout Ratio (AFFO) 42% 47% 48% 50% Income Taxes (903) (872) (1,226) (1,211) Debt-to-Capitalization 66% 65% 59% 56% Non-Controlling Interests (205) (240) (267) (270) Net Debt to EBITDA 5.8x 7.1x 5.4x 5.0x Preferred Share Dividends (94) (128) (222) (327) Operating Income 1,755 1,875 2,372 2,678 Growth 2015A 2016E 2017E 2018E One Time Items & Weather (2,995) (278) - - EBITDA 7.0% 11.8% 18.7% 9.3% Net Income (1,240) 1,597 2,372 2,678 Operating EPS (f.d.) 2.5% 4.0% 13.2% 9.9% AFFO/Shr 4.0% -4.0% 5.6% 4.9% Cash Flow Statement ($mm) 2015A 2016E 2017E 2018E Dividend Per Share 8.3% 8.7% 8.0% 8.2% Net Income (1,140) 1,964 2,861 3,275 Segmented EBIT ($mm) 2015A 2016E 2017E 2018E Other Items Not Involving Cash 5,653 2,834 2,446 2,549 Natural Gas Pipelines 2,345 2,864 3,986 4,268 Change in Non-cash Working Capital (398) Oil Pipelines 1,056 1,045 1,207 1,199 Cash from Operations 4,115 4,923 5,306 5,824 Energy Corporate (202) (152) (91) (19) Capital Expenditures & Acquisitions (5,158) (21,631) (9,538) (6,497) Total EBIT 4,143 4,695 5,960 6,270 Other 548 1,459 9, Cash from Investing (4,610) (20,172) (68) (6,347) Business Mix ( % of EBIT) 2015A 2016E 2017E 2018E Gas Pipelines 54% 59% 66% 68% Dividends Paid (1,762) (1,999) (2,435) (2,767) Liquids Pipelines 24% 21% 20% 19% Common Share Offering 27 4,265 1,494 1,361 Power 22% 19% 14% 13% Common Shares Repurchased (294) (14) - - Natural Gas Storage 0% 0% 0% 0% Preferred Share Offering 1,160 1,500 2,700 2, % 100% 100% 100% Change in Debt 1,558 10,768 (6,690) 76 Other Free Cash Flow 2015A 2016E 2017E 2018E Cash from Financing ,519 (4,931) 670 Cash Provided by Operations 4,513 4,798 5,306 5,824 Foreign Exchange (Losses) Gains Minority Interest (224) (235) (259) (266) Total cash flow 361 (730) Maintenance Capital (937) (1,242) (941) (943) Distribution in Excess of Equity Earnings Balance Sheet ($mm) 2015A 2016E 2017E 2018E Preferred Share Dividends Paid (92) (128) (222) (327) Cash and Cash Equivalents Other Property, Plant and Equipment 44,817 64,264 71,726 75,730 Comparable Free Cash Flow 3,546 3,492 4,114 4,438 Other 18,816 20,964 24,113 24,965 Total Assets 64,483 85,349 96, ,269 Degree of Regulation Highly Regulated Debt 29,037 30,911 31,959 35,031 Loosely Regulated Other Liabilities 17,291 29,163 34,192 31,926 Unregulated Preferred Shares 2,499 3,999 6,699 8,699 Non-Controlling Interest 1,717 2,751 2,518 2,280 Total Shareholders' Equity 13,939 18,525 20,899 23,332 Total Liabilities & Equity 64,483 85,349 96, ,269 Source: TD Securities Inc. estimates Page 5 of 7

6 Action Note Equity Research June 14, 2016 June 14, 2016 TD Securities Equity Research Disclosures Distribution of Research Ratings^ Investment Services Provided* 75% REDUCE - 4.7% 63.35% BUY % 50% 33.51% 25% HOLD % 0% 3.14% BUY HOLD REDUCE Definition of Research Ratings ACTION LIST BUY: The stock's total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months and it is a top pick in the Analyst's sector. BUY: The stock s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months. SPECULATIVE BUY: The stock's total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with the investment that could result in significant loss. HOLD: The stock s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months. 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