Company Quick10K Filing
Quick10K
TC Pipelines
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$35.86 73 $2,630
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-31 Earnings, Regulation FD, Exhibits
8-K 2019-07-29 Officers
8-K 2019-07-23 Other Events, Exhibits
8-K 2019-07-16 Regulation FD, Exhibits
8-K 2019-05-08 Earnings, Regulation FD, Exhibits
8-K 2019-04-23 Other Events, Exhibits
8-K 2019-04-16 Regulation FD, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-02-19 Earnings, Regulation FD, Exhibits
8-K 2019-01-31 Regulation FD, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2018-12-31 Enter Agreement, Amend Bylaw, Exhibits
8-K 2018-11-29 Regulation FD, Exhibits
8-K 2018-11-27 Officers
8-K 2018-11-19 Enter Agreement, Exhibits
8-K 2018-11-09 Earnings, Regulation FD, Exhibits
8-K 2018-11-02 Regulation FD, Exhibits
8-K 2018-10-26 Regulation FD, Exhibits
8-K 2018-10-23 Other Events, Exhibits
8-K 2018-10-17 Other Events, Exhibits
8-K 2018-09-24 Regulation FD
8-K 2018-08-02 Earnings, Regulation FD, Exhibits
8-K 2018-07-26 Other Events, Exhibits
8-K 2018-07-19 Regulation FD, Exhibits
8-K 2018-05-17 Regulation FD, Exhibits
8-K 2018-05-01 Officers, Exhibits
8-K 2018-04-27 Regulation FD, Exhibits
8-K 2018-04-16 Regulation FD, Exhibits
8-K 2018-03-19 Regulation FD, Exhibits
8-K 2018-02-23 Earnings, Exhibits
8-K 2018-02-22 Officers, Exhibits
8-K 2018-02-09 Regulation FD, Exhibits
8-K 2018-01-23 Other Events, Exhibits
STE Steris 10,980
TRN Trinity Industries 2,790
KREF KKR Real Estate Finance Trust 1,190
SBBP Strongbridge Biopharma 178
IDRA Idera Pharmaceuticals 90
DIRV Directview Holdings 0
GPIC Gaming Partners International 0
TMRC Texas Mineral Resources 0
ZNGY Zenergy Brands 0
SPA Sparton 0
TCP 2019-06-30
Part I
Part I - Financial Information
Item 1. Financial Statements
Note 1 Organization
Note 2 Significant Accounting Policies
Note 3 Accounting Pronouncements
Note 4 Regulatory
Note 5 Equity Investments
Note 6 Revenues
Note 7 Debt and Credit Facilities
Note 8 Partners' Equity
Note 9 Net Income per Common Unit
Note 10 Cash Distributions Paid To Common Units
Note 11 Change in Operating Working Capital
Note 12 Related Party Transactions
Note 13 Fair Value Measurements
Note 14 Accounts Receivable and Other
Note 15 Financial Charges and Other
Note 16 Variable Interest Entities
Note 17 Subsequent Events
Item 2. Management'S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 tcp-20190630ex311bae0a4.htm
EX-31.2 tcp-20190630ex3123964fe.htm
EX-32.1 tcp-20190630ex321d17f7b.htm
EX-32.2 tcp-20190630ex322edd418.htm

TC Pipelines Earnings 2019-06-30

TCP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-35358

TC PipeLines, LP

(Exact name of registrant as specified in its charter)

Delaware

    

52-2135448

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

700 Louisiana Street, Suite 700
Houston, Texas

77002-2761

(Address of principle executive offices)

(Zip code)

877-290-2772

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes         No 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

    

Trading
Symbol(s)

    

Name of each exchange on which registered

Common units representing limited partner interests

TCP

New York Stock Exchange

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes         No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes         No

As of July 30, 2019, there were 71,306,396 of the registrant’s common units outstanding.

Table of Contents

TC PIPELINES, LP

TABLE OF CONTENTS

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (Unaudited)

7

Notes to Consolidated Financial Statements

12

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

44

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 6.

Exhibits

46

Signatures

47

All amounts are stated in United States dollars unless otherwise indicated.

2

Table of Contents

DEFINITIONS

The abbreviations, acronyms, and industry terminology used in this quarterly report are defined as follows:

2013 Term Loan Facility

    

TC PipeLines, LP's term loan credit facility under a term loan agreement as amended, dated September 29, 2017

2017 Tax Act

Public Law No. 115-97, commonly known as the Tax Cuts and Jobs Act, enacted on December 22, 2017

2018 FERC Actions

FERC's 2018 issuance of Revised Policy Statement on Treatment of Income Taxes (Revised Policy Statement) and a Final Rule that established a schedule by which interstate pipelines must either (i) file a new uncontested rate settlement or (ii) file a one-time report, called FERC Form No. 501-G, that quantified the rate impact of the 2017 Tax Act on FERC-regulated pipelines and the impact of the Revised Policy Statement on pipelines held by an MLP

2019 Iroquois Settlement

An uncontested settlement filed by Iroquois with FERC to address the issues contemplated by the 2017 Tax Act and 2018 FERC Actions via an amendment to its prior 2016 settlement approved by FERC on May 2, 2019

2019 Tuscarora Settlement

An uncontested settlement filed by Tuscarora with FERC to address the issues contemplated by the 2017 Tax Act and 2018 FERC Actions via an amendment to its prior 2016 settlement approved by FERC on May 2, 2019

ADIT

Accumulated Deferred Income Tax

ASC

Accounting Standards Codification

ATM program

At-the-market equity issuance program

Bison

Bison Pipeline LLC

Class B Distribution

Annual distribution to TC Energy based on 30 percent of GTN's annual distributions as follows: (i) 100 percent of distributions above $20 million through March 31, 2020; and (ii) 25 percent of distributions above $20 million thereafter

Class B Reduction

Approximately 35 percent reduction applied to the estimated annual Class B Distribution beginning in 2018, which is equivalent to the percentage by which distributions payable to the common units were reduced in 2018. The Class B Reduction will continue to apply for any particular calendar year until distributions payable in respect of common units for such calendar year equal or exceed $3.94 per common unit

DOT

U.S. Department of Transportation

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortization

EPA

U.S. Environmental Protection Agency

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

GAAP

U.S. generally accepted accounting principles

General Partner

TC PipeLines GP, Inc.

Great Lakes

Great Lakes Gas Transmission Limited Partnership

GTN

Gas Transmission Northwest LLC

IDRs

Incentive Distribution Rights

ILPs

Intermediate Limited Partnerships

Iroquois

Iroquois Gas Transmission System, L.P.

LIBOR

London Interbank Offered Rate

North Baja

North Baja Pipeline, LLC

Northern Border

Northern Border Pipeline Company

Our pipeline systems

Our ownership interests in GTN, Northern Border, Bison, Great Lakes, North Baja, Tuscarora, PNGTS and Iroquois

Partnership

TC PipeLines, LP including its subsidiaries, as applicable

Partnership Agreement

Fourth Amended and Restated Agreement of Limited Partnership of the Partnership

PNGTS

Portland Natural Gas Transmission System

PXP

Portland XPress Project

3

Table of Contents

ROU

Right-of-use

SEC

Securities and Exchange Commission

Senior Credit Facility

TC PipeLines, LP's senior facility under revolving credit agreement as amended and restated, dated September 29, 2017

TC Energy

TC Energy Corporation formerly known as TransCanada Corporation

Tuscarora

Tuscarora Gas Transmission Company

U.S.

United States of America

VIEs

Variable Interest Entities

Westbrook XPress

Westbrook XPress Project of PNGTS that is part of a coordinated offering to transport incremental Western Canadian Sedimentary Basin natural gas supplies to the Northeast U.S. and Atlantic Canada markets through additional compression capability at an existing PNGTS facility

Wholly-owned subsidiaries

GTN, Bison, North Baja, and Tuscarora

Unless the context clearly indicates otherwise, TC PipeLines, LP and its subsidiaries are collectively referred to in this quarterly report as “we,” “us,” “our” and “the Partnership.” We use “our pipeline systems” and “our pipelines” when referring to the Partnership’s ownership interests in Gas Transmission Northwest LLC (GTN), Northern Border Pipeline Company (Northern Border), Bison Pipeline LLC (Bison), Great Lakes Gas Transmission Limited Partnership (Great Lakes), North Baja Pipeline, LLC (North Baja), Tuscarora Gas Transmission Company (Tuscarora), Portland Natural Gas Transmission System (PNGTS) and Iroquois Gas Transmission System, LP (Iroquois).

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PART I

FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes certain forward-looking statements. Forward-looking statements are identified by words and phrases such as: “anticipate,” “assume,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “forecast,” “should,” “predict,” “could,” “will,” “may,” and other terms and expressions of similar meaning. The absence of these words, however, does not mean that the statements are not forward-looking. These statements are based on management’s beliefs and assumptions and on currently available information and include, but are not limited to, statements regarding anticipated financial performance, future capital expenditures, liquidity, dropdown opportunities, market or competitive conditions, regulations, organic or strategic growth opportunities, contract renewals and ability to market open capacity, business prospects, outcome of regulatory proceedings and cash distributions to unitholders.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results predicted. Factors that could cause actual results and our financial condition to differ materially from those contemplated in forward-looking statements include, but are not limited to:

the ability of our pipeline systems to sell available capacity on favorable terms and renew expiring contracts which are affected by, among other factors:
demand for natural gas;
changes in relative cost structures and production levels of natural gas producing basins;
natural gas prices and regional differences;
weather conditions;
availability and location of natural gas supplies in Canada and the United States (U.S.) in relation to our pipeline systems;
competition from other pipeline systems;
natural gas storage levels;
rates and terms of service;
the performance by the shippers of their contractual obligations on our pipeline systems;
the outcome and frequency of rate proceedings or settlement negotiations on our pipeline systems;
the impact of Public Law No. 115-97, commonly known as the Tax Cuts and Jobs Act (“2017 Tax Act”) enacted on December 22, 2017 on our future operating performance;
other potential changes in the taxation of master limited partnership (MLP) investments by state or federal governments such as the elimination of pass-through taxation or tax deferred distributions;
increases in operational or compliance costs resulting from changes in laws and governmental regulations affecting our pipeline systems, particularly regulations issued by the Federal Energy Regulatory Commission (FERC), U.S. Environmental Protection Agency (EPA) and U.S. Department of Transportation (DOT);
the impact of downward changes in oil and natural gas prices, including the effects on the creditworthiness of our shippers;
our ongoing ability to grow distributions through acquisitions, accretive expansions or other growth opportunities, including the timing, structure and closure of further potential acquisitions;
potential conflicts of interest between TC PipeLines GP, Inc., our general partner (General Partner), TransCanada Corporation, now known as TC Energy Corporation and us;
failure to comply with debt covenants, some of which are beyond our control;
the ability to maintain secure operation of our information technology including management of cybersecurity threats, acts of terrorism and related distractions;
the implementation of future accounting changes and ultimate outcome of commitments and contingent liabilities (if any);
the impact of any impairment charges;
changes in political environment;
operating hazards, casualty losses and other matters beyond our control;

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the overall increase in the allocated management and operational expenses to our pipeline systems for services performed by TC Energy Corporation;
ability of our pipeline systems to renew rights-of-way at a reasonable cost; and
the level of our indebtedness, including the indebtedness of our pipeline systems, increase of interest rates, and the availability of capital.

These are not the only factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Other factors described elsewhere in this document, or factors that are unknown or unpredictable, could also have material adverse effects on future results. These and other risks are described in greater detail in Part II, Item 1A. “Risk Factors” of this report and in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on February 21, 2019. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. All forward-looking statements are made only as of the date made and except as required by applicable law, we undertake no obligation to update any forward-looking statements to reflect new information, subsequent events or other changes.

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PART I — FINANCIAL INFORMATION

Item 1.        Financial Statements

TC PIPELINES, LP

CONSOLIDATED STATEMENTS OF INCOME

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars, except per common unit amounts)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

93

 

111

 

206

 

226

Equity earnings (Note 5)

 

30

 

36

 

84

 

95

Operation and maintenance expenses

 

(17)

 

(17)

 

(33)

 

(33)

Property taxes

 

(6)

 

(7)

 

(13)

 

(14)

General and administrative

 

(2)

 

(1)

 

(4)

 

(2)

Depreciation and amortization

 

(19)

 

(24)

 

(39)

 

(48)

Financial charges and other (Note 15)

 

(21)

 

(23)

 

(43)

 

(46)

Net income before taxes

 

58

 

75

 

158

 

178

Income taxes

(1)

(1)

(1)

Net income

57

75

157

177

Net income attributable to non-controlling interest

2

2

9

8

Net income attributable to controlling interests

 

55

 

73

 

148

 

169

Net income attributable to controlling interest allocation (Note 9)

Common units

 

54

 

72

 

145

 

166

General Partner

 

1

 

1

 

3

 

3

 

55

 

73

 

148

 

169

Net income per common unit (Note 9)basic and diluted

$

0.75

$

1.00

$

2.03

$

2.33

Weighted average common units outstanding – basic and diluted (millions)

71.3

 

71.3

71.3

 

71.2

Common units outstanding, end of period (millions)

71.3

71.3

71.3

71.3

The accompanying notes are an integral part of these consolidated financial statements.

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TC PIPELINES, LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Net income

57

75

157

177

Other comprehensive income

Change in fair value of cash flow hedges (Note 13)

 

(9)

 

(1)

 

(14)

 

6

Amortization of realized loss on derivative financial instruments

2

2

Reclassification of net income of gains and losses on cash flow hedges

1

3

1

3

Comprehensive income

 

49

 

79

 

144

 

188

Comprehensive income attributable to non-controlling interests

2

3

9

9

Comprehensive income attributable to controlling interests

47

76

135

179

The accompanying notes are an integral part of these consolidated financial statements.

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TC PIPELINES, LP

CONSOLIDATED BALANCE SHEETS

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Current Assets

Cash and cash equivalents

 

45

 

33

Accounts receivable and other (Note 14)

 

33

 

48

Inventories

 

9

 

8

Other

3

8

 

90

 

97

Equity investments (Note 5)

 

1,118

1,196

Property, plant and equipment

(Net of $1,145 accumulated depreciation; 2018 - $1,110)

 

1,520

 

1,529

Goodwill

 

71

 

71

Other assets

 

 

6

TOTAL ASSETS

 

2,799

 

2,899

LIABILITIES AND PARTNERS' EQUITY

Current Liabilities

Accounts payable and accrued liabilities

 

26

 

36

Accounts payable to affiliates (Note 12)

 

6

 

6

Accrued interest

 

11

 

12

Current portion of long-term debt (Note 7)

 

101

 

36

 

144

 

90

Long-term debt, net (Note 7)

 

1,892

 

2,072

Deferred state income taxes

9

9

Other liabilities

 

34

 

29

 

2,079

 

2,200

Partners’ Equity

Common units

514

462

Class B units (Note 8)

 

95

 

108

General partner

 

14

 

13

Accumulated other comprehensive income (loss) (AOCI)

 

(5)

 

8

Controlling interests

 

618

 

591

Non-controlling interests

102

108

720

699

TOTAL LIABILITIES AND PARTNERS' EQUITY

 

2,799

 

2,899

Variable Interest Entities (Note 16)

Subsequent Events (Note 17)

The accompanying notes are an integral part of these consolidated financial statements.

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TC PIPELINES, LP

CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended

(unaudited)

June 30, 

(millions of dollars)

    

2019

    

2018

Cash Generated from Operations

Net income

 

157

 

177

Depreciation and amortization

 

39

 

48

Amortization of debt issue costs reported as interest expense

1

1

Amortization of realized losses

2

Equity earnings from equity investments (Note 5)

(84)

(95)

Distributions received from operating activities of equity investments (Note 5)

112

96

Change in other long-term liabilities

(1)

Equity allowance for funds used during construction (AFUDC equity)

(1)

Change in operating working capital (Note 11)

 

4

 

(5)

 

228

 

223

Investing Activities

Investment in Great Lakes (Note 5)

(5)

(4)

Distribution received from Iroquois as return of investment (Note 5)

5

5

Distribution received from Northern Border as return of investment (Note 5)

50

Capital expenditures

(29)

(9)

Customer advances for construction

1

 

22

 

(8)

Financing Activities

Distributions paid to common units, including the General Partner (Note 10)

 

(95)

 

(123)

Distributions paid to Class B units (Note 8)

(13)

(15)

Distributions paid to non-controlling interests

(15)

(3)

Common unit issuance, net

40

Long-term debt issued, net of discount (Note 7)

 

20

 

130

Long-term debt repaid (Note 7)

 

(135)

 

(225)

Debt issuance costs

(1)

 

(238)

 

(197)

Increase in cash and cash equivalents

 

12

 

18

Cash and cash equivalents, beginning of period

 

33

 

33

Cash and cash equivalents, end of period

 

45

 

51

The accompanying notes are an integral part of these consolidated financial statements.

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TC PIPELINES, LP

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ EQUITY

Accumulated

Other

Non-

Limited Partners

General

Comprehensive

Controlling

Total

Common Units

Class B Units

Partner

Income (Loss) (a)

Interest

 Equity

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

(unaudited)

of units

of dollars

of units

of dollars

of dollars

of dollars

of dollars

of dollars

Partners' Equity at December 31, 2018

71.3

462

1.9

108

13

8

108

699

Net income

145

3

9

157

Other comprehensive income (loss)

(13)

(13)

Distributions (Note 10)

(93)

(13)

(2)

(15)

(123)

Partners' Equity at June 30, 2019

71.3

514

1.9

95

14

(5)

102

720

(a)Gain (loss) related to cash flow hedges reported in AOCI and expected to be reclassified to Net income in the next 12 months is estimated to be $2 million. These estimates assume constant interest rates over time; however, the amounts reclassified will vary based on actual value of interest rates at the date of settlement.

The accompanying notes are an integral part of these consolidated financial statements.

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TC PIPELINES, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1     ORGANIZATION

TC PipeLines, LP and its subsidiaries are collectively referred to herein as the Partnership. The Partnership was formed by TransCanada PipeLines Limited, a wholly owned subsidiary of TC Energy Corporation (TC Energy Corporation together with its subsidiaries collectively referred to herein as TC Energy), to acquire, own and participate in the management of energy infrastructure assets in North America.

The Partnership owns its pipeline assets through an intermediate general partnership, TC PipeLines Intermediate GP, LLC and three intermediate limited partnerships (ILPs), TC GL Intermediate Limited Partnership, TC PipeLines Intermediate Limited Partnership and TC Tuscarora Intermediate Limited Partnership.

NOTE 2     SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements and related notes have been prepared in accordance with United States generally accepted accounting principles (GAAP) and amounts are stated in U.S. dollars. The results of operations for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of the results that may be expected for the full fiscal year.

The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in our Annual Report on Form 10-K. That report contains a more comprehensive summary of the Partnership’s significant accounting policies. In the opinion of management, the accompanying consolidated financial statements contain all of the appropriate adjustments, which are normally recurring adjustments unless otherwise noted, and considered necessary to present fairly the financial position of the Partnership, the results of operations and cash flows for the respective periods. Our significant accounting policies are consistent with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, except as described in Note 3, Accounting Pronouncements.

Basis of Presentation

The Partnership consolidates its interests in entities over which it is able to exercise control. To the extent there are interests owned by other parties, these interests are included as non-controlling interests. The Partnership uses the equity method of accounting for its investments in entities over which it is able to exercise significant influence.

Acquisitions by the Partnership from TC Energy are considered common control transactions. If businesses are acquired from TC Energy that will be consolidated by the Partnership, the historical consolidated financial statements are required to be recast, except net income per common unit, to include the acquired entities for all periods presented.

If the Partnership acquires an asset or an investment from TC Energy, which will be accounted for by the equity method, the financial information is not required to be recast and the transaction is accounted for prospectively from the date of the acquisition.

U.S. federal and certain state income taxes are the responsibility of the partners and are not reflected in these consolidated financial statements. The tax effect of the Partnership's activities accrues to its partners. The Partnership’s taxable income or loss, which may vary substantially from the net income or loss reported in the consolidated statement of operations, is includable in the U.S. federal income tax returns of each partner.

In instances where the Partnership’s consolidated entities are subject to state income taxes, the asset-liability method is used to account for taxes. This method requires recognition of deferred tax assets and liabilities for future tax consequences attributable to the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are classified as non-current on our consolidated balance sheets.

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Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ from these estimates.

NOTE 3     ACCOUNTING PRONOUNCEMENTS

Changes in Accounting Policies effective January 1, 2019

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for leases. The new guidance amends the definition of a lease such that, in order for an arrangement to qualify as a lease, the lessee is required to have both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset. The new guidance also establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of income. The new guidance does not make extensive changes to previous lessor accounting.

Under the new guidance, the Partnership determines if an arrangement is a lease at inception. Operating leases are recognized as ROU assets and included in Property, plant and equipment while corresponding liabilities are included in “Accounts payable and other”, and “Other long-term liabilities” on the consolidated balance sheet.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Partnership’s leases do not provide an implicit rate, the Partnership uses an incremental borrowing rate that approximates its borrowing cost based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Partnership will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term and included in “Operation and maintenance expenses” in the consolidated statements of income.

The new guidance was effective January 1, 2019 and was applied using optional transition relief which allowed entities to initially apply the new lease standard at adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This transition option allowed us to not apply the new guidance, including disclosure requirements, to the comparative periods presented.

We elected available practical expedients and exemptions upon adoption which allowed us:

not to reassess prior conclusions on existing leases regarding lease identification, lease classification and initial direct costs under the new standard;
to carry forward the historical lease classification and our accounting treatment for land easements on existing agreements;
to not recognize ROU assets or lease liabilities for leases that qualify for the short-term lease recognition exemption;
to not separate lease and non-lease components for all leases for which we are the lessee; and
to use hindsight in determining the lease term and assessing ROU assets for impairment.

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In the application of the new guidance, assumptions and judgments are used to determine the following:

whether a contract contains a lease and the duration of the lease term including exercising lease renewal options. The lease term for all of the Partnership’s leases includes the non-cancellable period of the lease plus any additional periods covered by either the Partnership’s option to extend (or not to terminate) the lease that the Partnership is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor; and
the discount rate for the lease.

The standard did not impact our previously reported results and did not have a material impact on the Partnership's consolidated balance sheets, consolidated statements of income or consolidated statement of cash flows at the date of adoption.

The most significant change as a result of the adoption was the recognition of ROU assets and lease liabilities for operating leases which was approximately $0.6 million at January 1, 2019 and $0.5 million at June 30, 2019. For the three and six months ended June 30, 2019, the Partnership’s operating lease cost was not material to the Partnership’s consolidated results. The weighted average remaining term and discount rate of the Partnership’s operating leases was approximately 2.41 years and 3.57 percent, respectively.

Fair Value Measurement

In August 2018, the FASB issued new guidance that amends certain disclosure requirements for the fair value measurements as part of its disclosure framework project. This new guidance is effective January 1, 2020, however, early adoption of certain or all requirements is permitted. The Partnership elected to adopt this guidance effective first quarter 2019. The guidance was applied retrospectively and did not have a material effect on the Partnership’s consolidated financial statements.

Future accounting changes

Measurement of credit losses on financial instruments

In June 2016, the FASB issued new guidance that significantly changes how entities measure credit losses for most financial assets and certain other financial instruments that are not measured at fair value through net income (loss). The new guidance amends the impairment model of financial instruments basing it on expected losses rather than incurred losses. These expected credit losses will be recognized as an allowance rather than as a direct write down of the amortized cost basis. The new guidance is effective January 1, 2020 and will be applied using a modified retrospective approach. We have determined which of our assets are within the scope of the new standard and have started to compile historical credit loss information. We are also assessing our current process to determine if any changes are required as a result. We continue to evaluate the impact of the adoption of this guidance and have not yet determined the effect on our consolidated financial statements.

Consolidation

In October 2018, the FASB issued new guidance for determining whether fees paid to decision makers and service providers are variable interests for indirect interests held through related parties under common control. This new guidance is effective January 1, 2020, and will be applied on a retrospective basis, however early adoption is permitted. The Partnership has determined that there is no impact to its consolidated financial statements as a result of this new guidance.

NOTE 4     REGULATORY

Iroquois, Tuscarora, and Northern Border took the actions listed below to conclude the issues impacting their pipelines as contemplated by the 2017 Tax Act and certain FERC actions that began in March of 2018, namely FERC’s Revised Policy Statement on Treatment of Income Taxes (Revised Policy Statement) and a Final Rule that established a schedule

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by which interstate pipelines must either (i) file a new uncontested rate settlement or (ii) file a one-time report, called FERC Form No. 501-G, that quantified the rate impact of the 2017 Tax Act on FERC-regulated pipelines and the impact of the Revised Policy Statement on pipelines held by an MLP (collectively “2018 FERC Actions”).

Iroquois

On February 28, 2019, Iroquois filed an uncontested settlement with FERC to address the issues contemplated by the 2017 Tax Act and 2018 FERC Actions via an amendment to its prior 2016 settlement (2019 Iroquois Settlement). Among the terms of the 2019 Iroquois Settlement, Iroquois agreed to reduce its existing maximum system rates by 6.5 percent to be implemented in two phases, (i) effective March 1, 2019, a 3.25 percent rate reduction and (ii) effective April 1, 2020, an additional 3.25 percent rate reduction, which will conclude the total 6.5 percent rate reduction from the 2016 settlement rates. The 2019 Iroquois Settlement, which was approved by FERC on May 2, 2019, preserved the 2016 settlement moratorium on further rate changes until September 1, 2020. Unless superseded by a subsequent rate case or settlement, Iroquois will be required to have new rates in effect on March 1, 2023.

Tuscarora

On March 15, 2019, Tuscarora filed an uncontested settlement with FERC to address the issues contemplated by the 2017 Tax Act and 2018 FERC Actions via an amendment to its prior 2016 settlement (2019 Tuscarora Settlement). Among the terms of the 2019 Tuscarora Settlement, Tuscarora agreed to reduce its existing maximum system rates by 1.7 percent effective February 1, 2019 through to July 31, 2019. The existing maximum rates will decrease by an additional 10.8 percent for the period August 1, 2019 through the term of the settlement. Tuscarora is required to have new rates in effect on February 1, 2023. Tuscarora and its customers also agreed on a moratorium on further rate changes until January 31, 2023. The 2019 Tuscarora Settlement, which was approved by FERC on May 2, 2019, will also reflect an elimination of the tax allowance previously recovered in rates along with accumulated deferred income taxes (ADIT) for rate-making purposes.

Northern Border

On May 24, 2019, Northern Border's amended settlement agreement filed with the FERC for approval on April 4, 2019, was approved and its 501-G proceeding was terminated. Until superseded by a subsequent rate case or settlement, effective January 1, 2020, the amended settlement agreement extends the two percent rate reduction implemented on February 1, 2019 to July 1, 2024.

NOTE 5     EQUITY INVESTMENTS

The Partnership has equity interests in Northern Border, Great Lakes and Iroquois. The pipeline systems owned by these entities are regulated by FERC. The pipeline systems of Northern Border and Great Lakes are operated by subsidiaries of TC Energy. The Iroquois pipeline system is operated by Iroquois Pipeline Operating Company, a wholly owned subsidiary of Iroquois. The Partnership uses the equity method of accounting for its interests in its equity investees. The Partnership’s equity investments are held through our ILPs that are considered to be variable interest entities (VIEs) (Refer to Note 16).

Ownership

Equity Earnings

Equity Investments

Interest at

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

June 30, 

June 30, 

December 31, 

(millions of dollars)

    

2019

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

Northern Border

50

%  

14

 

15

35

 

32

431

497

Great Lakes

46.45

%  

9

12

29

36

484

489

Iroquois

49.34

%  

7

 

9

20

 

27

203

210

 

30

 

36

84

 

95

1,118

1,196

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Distributions from Equity Investments

Distributions received from equity investments in the three and six months ended June 30, 2019 were $108 million and $167 million, respectively (June 30, 2018 - $56 million and $101 million, respectively), of which $52.6 million and $55.2 million, respectively (June 30, 2018 - $2.6 million and $5.2 million, respectively), were considered return of capital and included in “Investing Activities” in the Partnership’s consolidated statement of cash flows. The return of capital was related to our investment in Northern Border and Iroquois (see further discussion below).

Northern Border

During the three and six months ended June 30, 2019, the Partnership received distributions from Northern Border amounting to $72 million and $100 million, respectively (June 30, 2018 - $17 million and $39 million, respectively) which includes the Partnership’s 50 percent share of the Northern Border’s $100 million distribution on June 26, 2019. The $100 million was 100 percent financed by borrowing on its $200 million revolving credit facility. The $50 million cash the Partnership received did not represent a distribution of operating cash flow during the period and therefore it was reported as a return of investment in the Partnership’s consolidated statement of cash flows.

The Partnership did not have undistributed earnings from Northern Border for the three and six months ended June 30, 2019 and 2018.

The summarized financial information provided to us by Northern Border is as follows:

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Cash and cash equivalents

 

26

 

10

Other current assets

 

33

 

36

Property, plant and equipment, net

 

1,008

 

1,037

Other assets

 

13

 

13

 

1,080

 

1,096

LIABILITIES AND PARTNERS’ EQUITY

Current liabilities

 

46

 

34

Deferred credits and other

 

37

 

35

Long-term debt, net (a)

 

365

 

264

Partners’ equity

Partners’ capital

 

633

 

764

Accumulated other comprehensive loss

 

(1)

 

(1)

 

1,080

 

1,096

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

67

 

68

 

148

 

140

Operating expenses

 

(20)

 

(19)

 

(40)

 

(38)

Depreciation

 

(16)

 

(15)

 

(31)

 

(30)

Financial charges and other

 

(4)

 

(4)

 

(8)

 

(7)

Net income

 

27

 

30

 

69

 

65

(a)No current maturities as of June 30, 2019 and December 31, 2018. At June 30, 2019, Northern Border is in compliance with all its financial covenants.

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Great Lakes

The Partnership made an equity contribution to Great Lakes of $5 million in the first quarter of 2019 (June 30, 2018 - $4 million). This amount represents the Partnership’s 46.45 percent share of an $11 million cash call from Great Lakes to make a scheduled debt repayment.

The Partnership did not have undistributed earnings from Great Lakes for the three and six months ended June 30, 2019 and 2018.

The summarized financial information provided to us by Great Lakes is as follows:

(unaudited)

 

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Current assets

 

56

 

75

Property, plant and equipment, net

 

687

 

689

 

743

 

764

LIABILITIES AND PARTNERS’ EQUITY

Current liabilities

 

26

 

26

Net long-term debt, including current maturities (a)

 

229

 

240

Other long term liabilities

4

4

Partners' equity

 

484

 

494

 

743

 

764

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

51

 

53

 

123

 

134

Operating expenses

 

(19)

 

(15)

 

(35)

 

(32)

Depreciation

 

(8)

(8)

 

(16)

 

(16)

Financial charges and other

 

(5)

 

(5)

 

(9)

 

(9)

Net income

 

19

 

25

 

63

 

77

(a)Includes current maturities of $21 million as of June 30, 2019 and as of December 31, 2018. At June 30, 2019, Great Lakes is in compliance with all its financial covenants.

Iroquois

During the three and six months ended June 30, 2019, the Partnership received distributions from Iroquois amounting to $14 million and $28 million, respectively (June 30, 2018 - $14 million and $28 million, respectively), which includes the Partnership’s 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 million and $5.2 million, respectively (June 30, 2018 - $2.6 million and $5.2 million, respectively). The unrestricted cash did not represent a distribution of Iroquois’ cash from operations during the period and therefore it was reported as a return of investment in the Partnership’s consolidated statement of cash flows.

Iroquois declared its second quarter 2019 distribution of $28 million on July 24, 2019, of which the Partnership received its 49.34 percent share or $14 million on August 1, 2019. The distribution includes our 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 million. The Partnership did not have undistributed earnings from Iroquois for the three and six months ended June 30, 2019 and 2018.

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The summarized financial information provided to us by Iroquois is as follows:

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

 

  

 

  

Cash and cash equivalents

 

73

 

80

Other current assets

 

25

 

32

Property, plant and equipment, net

 

573

 

581

Other assets

 

14

 

8

 

685

 

701

LIABILITIES AND PARTNERS’ EQUITY

 

 

Current liabilities

 

15

 

19

Long-term debt, net (a)

 

319

 

325

Other non-current liabilities

 

21

 

14

Partners' equity

 

330

 

343

 

685

 

701

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

40

44

92

105

Operating expenses

 

(13)

(14)

(28)

(28)

Depreciation

 

(8)

(7)

(15)

(15)

Financial charges and other

 

(4)

(4)

(7)

(7)

Net income

 

15

19

42

55

(a)Includes current maturities of $4 million as of June 30, 2019 (December 31, 2018 - $146 million). At June 30, 2019, Iroquois is in compliance with all its financial covenants.

NOTE 6     REVENUES

Disaggregation of Revenues

For the three and six months ended June 30, 2019 and 2018, effectively all of the Partnership’s revenues were from capacity arrangements and transportation contracts with customers as discussed in more detail below.

Capacity Arrangements and Transportation Contracts

The Partnership’s performance obligations in its contracts with customers consist primarily of capacity arrangements and natural gas transportation contracts.

The Partnership’s revenues are generated from contractual arrangements for committed capacity and from transportation of natural gas which are treated as a bundled performance obligation. Revenues earned from firm contracted capacity arrangements are recognized ratably over the term of the contract regardless of the amount of natural gas that is transported. Transportation revenues for interruptible or volumetric-based services are recognized when the service is performed. The Partnership has elected to utilize the practical expedient of recognizing revenue as invoiced.

The Partnership's pipeline systems are subject to FERC regulations and, as a result, a portion of revenues collected may be subject to refund if invoiced during an interim period when a rate proceeding is ongoing. Allowances for these potential refunds are recognized using management's best estimate based on the facts and circumstances of the proceeding. Any allowances that are recognized during the proceeding process are refunded or retained, as applicable, at

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the time a regulatory decision becomes final. As of June 30, 2019, the Partnership does not have any outstanding refund obligations related to any rate proceedings. Revenues are invoiced and paid on a monthly basis. The Partnership’s pipeline systems do not take ownership of the natural gas that is transported for customers. Revenues from contracts with customers are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Contract Balances

All of the Partnership’s contract balances pertain to receivables from contracts with customers amounting to $31 million at June 30, 2019 (December 31, 2018 - $44 million) and are recorded as Trade accounts receivable and reported as “Accounts receivable and other” in the Partnership’s consolidated balance sheet (Refer to Note 14).

Additionally, our accounts receivable represent the Partnership’s unconditional right to consideration for services completed which includes billed and unbilled accounts.

Future revenue from remaining performance obligations

When the right to invoice practical expedient is applied, the guidance does not require disclosure of information related to future revenue from remaining performance obligations, therefore, no additional disclosure is required.

Additionally, in the application of the right to invoice practical expedient, the Partnership’s revenues from regulated capacity arrangements are recognized based on rates specified in the contract. Therefore, the amount invoiced, which includes the capacity contracted and variable volume of natural gas transported, corresponds directly to the value the customer received. These revenues are recognized on a monthly basis once the Partnership’s performance obligation to provide capacity has been satisfied.

NOTE 7     DEBT AND CREDIT FACILITIES

    

    

Weighted Average

    

    

Weighted Average

Interest Rate for the

Interest Rate for the

(unaudited)

Six Months Ended

December 31, 

Year Ended

(millions of dollars)

June 30, 2019

June 30, 2019

2018

December 31, 2018

TC PipeLines, LP

Senior Credit Facility due 2021

 

 

3.61

%  

40

3.14

%  

2013 Term Loan Facility due 2022

 

450

 

3.73

%  

500

3.23

%  

4.65% Unsecured Senior Notes due 2021

 

350

 

4.65

%  

(a)

350

4.65

%  

(a)

4.375% Unsecured Senior Notes due 2025

350

4.375

%  

(a)

350

4.375

%  

(a)

3.90 % Unsecured Senior Notes due 2027

500

3.90

%  

(a)

500

3.90

%  

(a)

GTN

5.29% Unsecured Senior Notes due 2020

 

100

 

5.29

%  

(a)

100

5.29

%  

(a)

5.69% Unsecured Senior Notes due 2035

 

150

 

5.69

%  

(a)

150