Privileged & Confidential
Without Prejudice
	tel 403.920.2011
fax 403.920.2412
email dennis_mcconaghy@transcanada.com
web www.transcanada.com	
Company
Address

Attention:	First Name, Last Name
		Job Title

Dear Mr. (Last Name)

Re:	Alaskan Northwest Natural Gas Transportation Company

This Memorandum of Understanding sets forth the principal terms on which TransCanada PipeLines Limited (“TransCanada”), Westcoast Energy Inc. (“Westcoast”) and Foothills Pipe Lines Ltd. (“Foothills”) propose to resolve all outstanding issues between Alaskan Northwest Natural Gas Transportation Company (the “ANNGTC Partnership”) and the parties who have withdrawn from the ANNGTC Partnership (the “Withdrawn Partners”) pursuant to the provisions of Section 15 of the General Partnership Agreement dated January 31, 1978 (as amended, the “Partnership Agreement”).
1.	In exchange for releasing any and all potential claims against the ANNGTC Partnership (both on its own behalf and on behalf of any assignee of its interest in the ANNGTC Partnership) arising either under (a) Section 4.4.4 of the Partnership Agreement, or (b) any other provision of the Partnership Agreement with respect to periods prior to the effective time of an amended and restated Partnership Agreement executed in accordance with paragraph 9 hereof, each of the Withdrawn Partners, or a permitted transferee Affiliate pursuant to Section 10.3 of the Partnership Agreement, willwould be allowed to rejoin the ANNGTC Partnership with the percentage interest outlined in Table 1 and the Partnership Agreement would be amended to allow each Withdrawn Partner or permitted transferee Affiliate to transfer its interest in the ANNGTC Partnership to a controlled, creditworthy Affiliate; provided, in the event of such a transfer, nothing herein shall relieve the transferor of its obligations under the Partnership Agreement.  Assuming that each Withdrawn Partner elects to rejoin the ANNGTC Partnership in this manner (each such Withdrawn Partner hereinafter referred to as a “Rejoining Partner”), the percentage interest of TransCanada PipeLine USA Ltd. (“TCPL-USA”), a wholly owned subsidiary of TransCanada, and United Alaska Fuels Corporation (“UAFC-Foothills”), a wholly owned indirect subsidiary of Foothills, and each Rejoining Partner in the ANNGTC Partnership, giving effect to said exchange  (in each case, the “New Percentage Interest” of TCPL-USA, UAFC-Foothills, or a Rejoining Partner), willwould be as shown in Table 1 and the accompanying footnotes:

Table 1
Percentage Ownership of the ANNGTC Partnership
(assuming no ANS Producer ownership)	

Name of Partner	
Current Percentage Interest	Designated 
Percentage of Historical Capital Contributions*	
New
Percentage Interest**	
Current Partners:				
UAFC-Foothills	61.6	9.5	9.5	
TCPL-USA	38.4	7.7	7.7	
Rejoining Partners:				
Williams		20.9	20.9	
Duke		17.1	17.1	
El Paso		9.0	9.0	
Enron		9.4	9.4	
PG&E		9.4	9.4	
Sempra /CPUC 		9.5	9.5	
NiSource		7.5	7.5	
	100.0	100.0	100	

*	Based on capital contributions from the inception of the ANNGTC Partnership in January 1978 through May 2001, without AFUDC. 
**	Assuming each of the Rejoining Partners has full ownership of, or full authority over, the claims relating to the Designated Percentage of Historical Capital Contributions set forth opposite its name in Table 1.  New Percentage Interests willwould be increased pro rata for all partners if any Withdrawn Partner does not rejoin.  New Percentage Interests willwould be revised to reflect any capital contributions through the endeffective time of 2001an amended and restated Partnership Agreement in accordance with paragraph 9 hereof and decreased pro rata for all partners in the event that any Alaskan North Slope Producers join the ANNGTC Partnership.

2.	Each Rejoining Partner will make the following payments for the ultimate account of TCPL-USA and UAFC-Foothills:

a.	A cash payment, payable uponat the executioneffective time of the revisedan amended and restated Partnership Agreement by  TCPL-USA, UAFC-Foothills, and the Rejoining Partnersexecuted in accordance with paragraph 9 hereof, in an amount equal to such Rejoining Partner’s pro rata share (based on its New Percentage Interest multiplied by the sum of (i)  of US$10 million, being the Rejoining Partners’ aggregate share of the costs incurred by TCPL-USA and UAFC-Foothills in connection with the ANNGTC Partnership during the years 2000 and 20012001, and (ii) such additional sums incurred by TCPL-USA and UAFC-Foothills in connection with the ANNGTC Partnership from January 1, 2002 to such effective time; and

b.	A success payment/distribution equal to such Rejoining Partner’s pro rata share (based on its New Percentage Interest) of multiplied by US$40 million, payable upon the commencement of construction pursuant to a certificate of public convenience and necessity issued by the Federal Energy Regulatory Commission for a pipeline with total volumes equal to or greater than 2.4 Bcf/d.

3.	For purposes of both the ANNGTC Partnership’s accounts and, FERC Form No. 2,2 and the ANNGTC Partnership willderivation of initial rates, the ANNGTC Partnership would, as part of a commercial agreement with the initial shippers on the pipeline to be constructed by the ANNGTC Partnership and subject to acceptable tax treatment which is satisfactory to TCPL-USA, UAFC-Foothills and the Rejoining Partners, write down, effective on the in-service date of the pipeline to be constructed by the ANNGTC Partnership, all AFUDC and interest on the historical capital contributions made by Rejoining Partners, TCPL-USA and UAFC-Foothills through an agreed  trigger date, currently contemplated to be December 31, 2001; provided2001, with such write down to be effective on the in-service date of the pipeline to be constructed by the ANNGTC Partnership; provided, the ANNGTC Partnership Accounts and the FERC Form No. 2 shall reflect, for each of TCPL-USA, UAFC-Foothills, and each Rejoining Party, a credit for the principal amount of such party’s historical capital contributions through the effective time of an amended and restated Partnership Agreement in accordance with paragraph 9 hereof; provided further, the parties hereto recognize that the recovery of and on any such historical capital contributions willwould be dependent upon the level of tariffs negotiated with ANS Producers, other future shippers and regulatory approvals.

4.	If TCPL-USA, UAFC-Foothills or any Rejoining Partner subsequently withdraws from the ANNGTC Partnership, it  will would have no entitlement to reimbursement of any of its capital contributions (or AFUDC or interest thereon) made after the date it rejoined the ANNGTC Partnership, and each then-existing partner shallwould have the right at its election to purchase its pro rata share of such partner’s New Percentage Interest for $1.00.

5.	In the event that TCPL-USA, UAFC-Foothills, or a Rejoining Partner wishes to sell its interest to a third party after the date it rejoins the ANNGTC Partnership, the remaining partners will have a right of first refusal to acquire the selling partner’s interest on a pro rata basis at a price equal to any bona fide offer received by such Partner from such third party.

6.5.	Section 11.2 of the Partnership Agreement, which currently provides for the nondiscriminatory admission of new partners, willwould be amended to provide that admission of new partners shall require approval of a specified percentage of partnership interests.

7.6.	The governance provisions of the Partnership Agreement willwould be amended in order to modernize provisions for the management of the ANNGTC Partnership (including without limitation the provisions relating to the appointment and removal of the Chairman and the Executive Committee of the Board of Partners) and to implement voting rights based on partners’ percentage interests.

8.7.	The capital contribution provisions of the Partnership Agreement willwould be amended to provide that capital contributions commencing January 1, 2002the effective time of an amended and restated Partnership Agreement executed in accordance with paragraph 9 hereof shall be made pro rata in accordance with partners’ New Percentage Interests and to eliminate the obligation of “equalizing partners” to make equalization contributions.

8.	The parties agree to use commercially reasonable efforts to negotiate and execute by March 31, 2002 such an amended and restated Partnership Agreement with such provisions as would be necessary or appropriate to effect the foregoing changes to the structure of the ANNGTC Partnership.

9.9.	The ANNGTC Partnership will execute aThe parties confirm that the Alaskan portion of the Alaska Natural Gas Transportation System (“ANGTS”), to be constructed by the ANNGTC Partnership, is intended to be part of a single international gas transportation system and to connect with and deliver Alaskan gas to facilities of subsidiaries of Foothills and agree to use commercially reasonable efforts to cause the ANNGTC Partnership to enter into an exclusive joint development and coordination agreement between the ANNGTC Partnership andwith Foothills by March 31, 2002 to coordinate the development of ANGTS in Alaska and project management of the Alaska Northwest Natural Gas Transportation System (“ANGTS”) in Alaska and Canada.10.	Each of the Rejoining Partners agrees, on behalf of itself and all affiliates (including its parent company) that it will not participate in the construction or use of any gas transportation facilities downstream of the Alaska Northwest Natural Gas Transportation System facilities in Alaska that would bypass the associated facilities of the Foothills project in Canada to be located in the Yukon, northeastern British Columbia, and north of Boundary Lake in Alberta (or any other TransCanada/Westcoast vehicle that may be constructed in lieu of that system) except for volumes in excess of 4 Bcf/d of firm transportation dedicated to such facilities.

11.	The Partnership Agreement will be amended as necessary and appropriate to effect the foregoing changes.

12.	10.	Each of the foregoing steps will be structured in a tax-efficient manner.

13.11.	Subject to applicable law and the requirements of any stock exchange, any press release or public announcement relating to the transactions contemplated by this Memorandum of Understanding will be mutually agreed upon and jointly made by TransCanada, Westcoast and the Withdrawn Partners, and such press or public announcement shall, at the minimum, disclose the fact that this Memorandum of Understanding has been executed and the provisions of paragraphs 1 and 3 hereof.  The foregoing and the provisions of paragraph 1412 shall not prohibit any party from disclosing this Memorandum of Understanding or its contents to its attorneys, accountants or other advisors.

14.12.	Except for the use of such information in connection with the transactions contemplated hereby or as otherwise required by law or regulations of any stock exchange, each party agrees to keep confidential any information obtained by it from the other parties in connection with its investigations or otherwise in connection with the transactions contemplated by this Memorandum of Understanding, provided that the foregoing shall not apply to information which is available to the public or is obtained from a third party (who does not breach an obligation of confidentiality in so disclosing such information) or is developed independently without any reliance on information provided in connection with this Memorandum of Understanding or the transactions contemplated hereby.  If the transactions contemplated by this Memorandum of Understanding are not consummated, each party, at the request of the disclosing party, shall return to the disclosing party any documents and copies thereof received or obtained by it in connection with the proposed transactions and any analyses prepared based upon any confidential information.

15.13.	Each party will bear its own expenses in connection with the transactions contemplated hereby, including, but not limited to, the fees of attorneys and financial advisors.

16.14.	This Memorandum of Understanding and the confidentiality letter executed in connection with the distribution of this Memorandum of Understanding (the “Confidentiality Letter”) set forth the entire present understanding of the parties concerning the transactions herein described.  Notwithstanding anything to the contrary contained herein, the Confidentiality Letter shall remain in full force and effect.

17.14.	The governing law of this Memorandum of Understanding shall be the internal laws of the State of New York without giving effect to the principles of conflicts of laws thereof.

18.15.	This Memorandum of Understanding may be executed in any number of counterparts, and each counterpart shall be deemed an original, but all such counterparts together shall constitute one instrument.

19.16.	Except for paragraphs 1311 through 18,15, which are intended to be binding, the parties agree that this Memorandum of Understanding is not intended to be, and is not, a binding agreement among the parties but merely an expression of their good faith intent with regard to the transactions described herein, and each party covenants never to contend to the contrary.  This Memorandum of Understanding shall not be assignable by any Withdrawn Partner without the prior written consent of TransCanada and Westcoast and shall not be construed to confer upon any other person any rights or benefit.

If the foregoing correctly sets forth the agreements and understandings we have reached, please execute a copy of this Memorandum of Understanding and return it to the attention of Dennis McConaghy at TransCanada by no later than October 31, 2001.  
TransCanada PipeLines Limited				Westcoast Energy Inc.
Per:	_______________________				Per:	________________________
	Dennis McConaghy						Michael Stewart
	Executive Vice President					Executive Vice President
	Business Development					Business Development

Foothills Pipe Lines Ltd.
Per:	_______________________	
	John Ellwood
	Executive Vice President 
	and Chief Operating Officer

ACKNOWLEDGED AND AGREED TO BY:
(Name of Withdrawn PartnerPartners)