Company Quick10K Filing
Quick10K
Transcontinental Gas Pipe Line Company
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 2018-08-22 Regulation FD, Exhibits
8-K 2018-08-10 Leave Agreement, Off-BS Arrangement
8-K 2018-07-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-15 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-08 Other Events, Exhibits
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TGPL 2019-06-30
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II - Other Information.
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 tgpl20190630ex-311.htm
EX-31.2 tgpl20190630ex-312.htm
EX-32 tgpl20190630ex-32.htm

Transcontinental Gas Pipe Line Company Earnings 2019-06-30

TGPL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
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 1-7584
 
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
(Exact name of registrant as specified in its charter)
 
DE
 
74-1079400
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2800 POST OAK BOULEVARD
 
 
HOUSTON
TX
 
77056
 
 
 
 
(Address of principal executive offices)
 
 
(Zip Code)
Registrant’s telephone number, including area code: (713215-2000
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)
 

Securities registered pursuant to Section 12(b) of the Act: None
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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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  þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
þ
 
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  þ
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H (1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.
 


Table of Contents

TRANSCONTINTENTAL GAS PIPE LINE COMPANY, LLC
Index
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward Looking Statements
The reports, filings, and other public announcements of Transcontinental Gas Pipe Line Company, LLC may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters.
All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will exist or may occur in the future are forward-looking statements. Forward-looking statements can be identified by various forms of words or phrases such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “assumes,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “guidance,” “outlook,” “in- service date” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:
Our and our affiliates’ future credit ratings;
Amounts and nature of future capital expenditures;
Expansion and growth of our business and operations;
Expected in-service dates for capital projects;
Financial condition and liquidity;
Business strategy;
Cash flow from operations or results of operations;
Rate case filings;

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Natural gas prices, supply and demand; and
Demand for our services.
Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by forward-looking statements include, among others, the following:
Availability of supplies, including lower than anticipated volumes from third parties, and market demand;
Volatility of pricing including the effect of lower than anticipated energy commodity prices;
Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);
The strength and financial resources of our competitors and the effects of competition;
Whether we are able to successfully identify, evaluate and timely execute our capital projects and other investment opportunities;
Our ability to successfully expand our facilities and operations;
Development and rate of adoption of alternative energy sources;
Availability of adequate insurance coverage and the impact of operational and development hazards and unforeseen interruptions;
The impact of existing and future laws and regulations, the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain necessary permits and approvals and achieve favorable rate proceeding outcomes;
Our costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates;
Changes in maintenance and construction costs, as well as our ability to obtain sufficient construction related inputs including skilled labor;
Changes in the current geopolitical situation;
Our exposure to the credit risks of our customers and counterparties;
Risks related to financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of capital;
Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities;
Acts of terrorism, cybersecurity incidents, and related disruptions; and
Additional risks described in our filings with the Securities and Exchange Commission (SEC).
Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly any revisions to any of the forward-looking statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also

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cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 21, 2019.

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PART I — FINANCIAL INFORMATION

ITEM 1.
Financial Statements.

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Thousands of Dollars)
(Unaudited)
 
 
Three months ended 
 June 30,
 
Six months ended 
 June 30,
 
 
2019
 
2018
 
2019
 
2018
Operating Revenues:
 
 
 
 
 
 
 
 
Natural gas sales
 
$
22,429

 
$
29,873

 
$
46,515

 
$
55,124

Natural gas transportation
 
526,152

 
415,708

 
1,060,312

 
842,286

Natural gas storage
 
38,472

 
33,786

 
74,557

 
68,553

Other
 
2,759

 
2,308

 
5,521

 
4,948

Total operating revenues
 
589,812

 
481,675

 
1,186,905

 
970,911

 
 
 
 
 
 
 
 
 
Operating Costs and Expenses:
 
 
 
 
 
 
 
 
Cost of natural gas sales
 
22,429

 
29,873

 
46,515

 
55,124

Cost of natural gas transportation
 
8,939

 
8,461

 
23,574

 
21,535

Operation and maintenance
 
98,135

 
93,659

 
181,583

 
180,675

Administrative and general
 
57,358

 
46,981

 
105,509

 
93,362

Depreciation and amortization
 
103,184

 
89,282

 
207,807

 
172,506

Taxes — other than income taxes
 
18,661

 
17,164

 
38,938

 
35,602

Regulatory credit resulting from Tax Reform
 
(5,248
)
 
(20,867
)
 
(6,997
)
 
(20,867
)
Other expense, net
 
12,365

 
12,564

 
25,714

 
30,405

Total operating costs and expenses
 
315,823

 
277,117

 
622,643

 
568,342

 
 
 
 
 
 
 
 
 
Operating Income
 
273,989

 
204,558

 
564,262

 
402,569

 
 
 
 
 
 
 
 
 
Other (Income) and Other Expenses:
 
 
 
 
 
 
 
 
Interest expense
 
70,989

 
53,375

 
142,080

 
98,449

Allowance for equity and borrowed funds used during construction (AFUDC)
 
(7,504
)
 
(34,895
)
 
(16,218
)
 
(61,503
)
Equity in (earnings) losses of unconsolidated affiliates
 
(823
)
 
(1,325
)
 
(1,594
)
 
265

Miscellaneous other (income) expenses, net
 
(572
)
 
(4,819
)
 
(1,607
)
 
(6,780
)
Total other (income) and other expenses
 
62,090

 
12,336

 
122,661

 
30,431

 
 
 
 
 
 
 
 
 
Net Income
 
211,899

 
192,222

 
441,601

 
372,138

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Equity interest in unrealized gain (loss) on interest rate hedges (includes $(51) and $(33) for the three months ended and $(129) and $(27) for the six months ended June 30, 2019 and June 30, 2018, respectively, of accumulated other comprehensive income reclassification for equity interest in realized gains on interest rate hedges)
 
(369
)
 
119

 
(599
)
 
524

 
 
 
 
 
 
 
 
 
Comprehensive Income
 
$
211,530

 
$
192,341

 
$
441,002

 
$
372,662


See accompanying notes.

4

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TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

 
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
Cash
 
$

 
$

Receivables:
 
 
 
 
Affiliates
 
1,617

 
1,018

Advances to affiliate
 

 
33,034

Trade and other
 
223,761

 
201,198

Transportation and exchange gas receivables
 
10,361

 
4,515

Inventories
 
74,643

 
63,205

Regulatory assets
 
93,725

 
95,770

Other
 
11,868

 
12,574

Total current assets
 
415,975

 
411,314

 
 
 
 
 
Investments, at cost plus equity in undistributed earnings
 
37,268

 
26,520

 
 
 
 
 
Property, Plant and Equipment:
 
 
 
 
Natural gas transmission plant
 
16,329,890

 
15,908,878

Less-Accumulated depreciation and amortization
 
4,321,042

 
4,147,729

Total property, plant and equipment, net
 
12,008,848

 
11,761,149

 
 
 
 
 
Other Assets:
 
 
 
 
Regulatory assets
 
273,545

 
289,479

Right-of-use assets
 
91,516

 

Other
 
192,414

 
167,490

Total other assets
 
557,475

 
456,969

 
 
 
 
 
Total assets
 
$
13,019,566

 
$
12,655,952


(continued)




See accompanying notes.

5

Table of Contents

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

 
 
June 30,
2019
 
December 31,
2018
LIABILITIES AND MEMBER’S EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
Payables:
 
 
 
 
Affiliates
 
$
56,330

 
$
50,727

Advances from affiliates
 
34,345

 

Trade and other
 
253,413

 
226,911

Transportation and exchange gas payables
 
1,224

 
5,973

Reserve for rate refunds
 
85,853

 

Regulatory liabilities
 
39,652

 
5,097

Accrued liabilities
 
218,733

 
218,384

Long-term debt due within one year
 
16,904

 
15,419

Total current liabilities
 
706,454

 
522,511

 
 
 
 
 
Long-Term Debt
 
4,010,847

 
3,998,988

 
 
 
 
 
Other Long-Term Liabilities:
 

 

Asset retirement obligations
 
364,841

 
348,609

Regulatory liabilities
 
996,813

 
1,026,892

Deferred revenue
 
220,885

 
226,164

Lease liability
 
87,410

 

Other
 
8,714

 
4,188

Total other long-term liabilities
 
1,678,663

 
1,605,853

 
 
 
 
 
Contingent Liabilities and Commitments (Note 4)
 

 

 
 
 
 
 
Member’s Equity:
 

 

Member’s capital
 
4,428,499

 
4,428,499

Retained earnings
 
2,195,168

 
2,099,567

Accumulated other comprehensive income
 
(65
)
 
534

Total member’s equity
 
6,623,602

 
6,528,600

 
 
 
 
 
Total liabilities and member’s equity
 
$
13,019,566

 
$
12,655,952





See accompanying notes.


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TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(Thousands of Dollars)
(Unaudited)
 
 
 
Three months ended June 30,
 
 
2019
 
2018
Member's Capital:
 
 
 
 
Balance at beginning of period
 
$
4,428,499

 
$
4,428,499

Cash contributions from parent
 

 

Balance at end of period
 
4,428,499

 
4,428,499

Retained Earnings:
 
 
 
 
Balance at beginning of period
 
2,153,269

 
1,973,404

Net income
 
211,899

 
192,222

Cash distributions to parent
 
(170,000
)
 
(135,000
)
Balance at end of period
 
2,195,168

 
2,030,626

Accumulated Other Comprehensive Income:
 
 
 
 
Balance at beginning of period
 
304

 
742

Equity interest in unrealized gain (loss) on interest rate hedge
 
(369
)
 
119

Balance at end of period
 
(65
)
 
861

 
 
 
 
 
Total Member's Equity
 
$
6,623,602

 
$
6,459,986



 
 
Six months ended June 30,
 
 
2019
 
2018
Member's Capital:
 
 
 
 
Balance at beginning of period
 
$
4,428,499

 
$
4,088,499

Cash contributions from parent
 

 
340,000

Balance at end of period
 
4,428,499

 
4,428,499

Retained Earnings:
 
 
 
 
Balance at beginning of period
 
2,099,567

 
1,848,488

Net income
 
441,601

 
372,138

Cash distributions to parent
 
(346,000
)
 
(190,000
)
Balance at end of period
 
2,195,168

 
2,030,626

Accumulated Other Comprehensive Income:
 
 
 
 
Balance at beginning of period
 
534

 
337

Equity interest in unrealized gain (loss) on interest rate hedge
 
(599
)
 
524

Balance at end of period
 
(65
)
 
861

 
 
 
 
 
Total Member's Equity
 
$
6,623,602

 
$
6,459,986



See accompanying notes.


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TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
 
 
Six months ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
441,601

 
$
372,138

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
207,807

 
172,506

Allowance for equity funds used during construction (equity AFUDC)
 
(13,598
)
 
(45,910
)
Regulatory credit resulting from Tax Reform
 
(6,997
)
 
(20,867
)
Equity in (earnings) losses of unconsolidated affiliates
 
(1,594
)
 
265

Distributions from unconsolidated affiliates
 
2,496

 
931

Changes in operating assets and liabilities:
 
 
 
 
Receivables — affiliates
 
(599
)
 
300

— trade and other
 
(22,563
)
 
5,053

Transportation and exchange gas receivable
 
(5,846
)
 
(4,932
)
Inventories
 
(3,671
)
 
(19,794
)
Payables — affiliates
 
5,603

 
(10,686
)
   — trade
 
(20,397
)
 
(30,052
)
Accrued liabilities
 
(8,346
)
 
20,741

Reserve for rate refunds
 
85,853

 

Asset retirement obligations - non-current
 
16,897

 
19,217

Deferred revenue
 
(5,279
)
 
(5,279
)
Other, net
 
37,518

 
(17,244
)
Net cash provided by operating activities
 
708,885

 
436,387

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from long-term debt
 

 
993,440

Proceeds from other financing obligations
 
20,429

 
24,298

Retirement of long-term debt
 

 
(250,000
)
Payments on other financing obligations
 
(7,944
)
 
(758
)
Payments for debt issuance costs
 

 
(9,208
)
Cash distributions to parent
 
(346,000
)
 
(190,000
)
Cash contributions from parent
 

 
340,000

Advances from affiliate, net
 
34,345

 

Net cash provided by (used in) financing activities
 
(299,170
)
 
907,772

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Capital expenditures*
 
(412,561
)
 
(1,463,600
)
Contributions and advances for construction costs
 
17,481

 
337,874

Disposal of property, plant and equipment, net
 
(17,077
)
 
(7,477
)
Advances to affiliate, net
 
33,034

 
(193,886
)
Contribution to unconsolidated affiliate
 
(12,250
)
 

Purchase of ARO Trust investments
 
(42,632
)
 
(36,807
)
Proceeds from sale of ARO Trust investments
 
26,636

 
19,737

Other, net
 
(2,346
)
 

Net cash used in investing activities
 
(409,715
)
 
(1,344,159
)
 
 
 
 
 
Increase (decrease) in cash
 

 

Cash at beginning of period
 

 

Cash at end of period
 
$

 
$

 
 
 
 
 
*       Increase to property, plant and equipment, exclusive of equity AFUDC
 
$
(446,594
)
 
$
(1,434,519
)
Changes in related accounts payable and accrued liabilities
 
34,033

 
(29,081
)
Capital expenditures
 
$
(412,561
)
 
$
(1,463,600
)
See accompanying notes.

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TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In this report, Transco (which includes Transcontinental Gas Pipe Line Company, LLC and, unless the context otherwise requires, all of our majority-owned subsidiaries) is at times referred to in the first person as “we,” “us” or “our.”
Transco is indirectly owned by The Williams Companies, Inc. (Williams).
General
The condensed consolidated unaudited financial statements include our accounts and the accounts of the subsidiaries we control. Companies in which we and our subsidiaries own 20 percent to 50 percent of the voting common stock or otherwise exercise significant influence over operating and financial policies of the company are accounted for under the equity method. The equity method investments as of June 30, 2019 and December 31, 2018 consist of Cardinal Pipeline Company, LLC (Cardinal) with an ownership interest of approximately 45 percent and Pine Needle LNG Company, LLC (Pine Needle) with an ownership interest of 35 percent. We received distributions associated with our equity method investments totaling $2.5 million and $0.9 million in the six months ended June 30, 2019 and June 30, 2018, respectively. We made a $12.3 million contribution to Pine Needle in the six months ended June 30, 2019.
The condensed consolidated unaudited financial statements have been prepared from our books and records. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. The condensed consolidated unaudited financial statements include all normal recurring adjustments and others which, in the opinion of our management, are necessary to present fairly our interim financial statements. These condensed consolidated unaudited financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2018 Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated unaudited financial statements and accompanying notes. Actual results could differ from those estimates.
A reclassification within operating activities in the Condensed Consolidated Statement of Cash Flows between Accrued liabilities and Other, net of $5.0 million for the six months ended June 30, 2018, has been made to conform to the 2019 presentation.
Income Taxes
We generally are not a taxable entity for federal or state and local income tax purposes. The tax on net income is generally borne by our parent, Williams. Net income for financial statement purposes may differ significantly from taxable income of Williams as a result of differences between the tax basis and financial reporting basis of assets and liabilities.
Revenue Subject to Refund
Federal Energy Regulatory Commission (FERC) regulations promulgate policies and procedures which govern a process to establish the rates that we are permitted to charge customers for natural gas sales and services, including the transportation and storage of natural gas. Key determinants in the ratemaking process are (1) costs of providing service, including depreciation expense, (2) allowed rate of return, including the equity component of the capital structure and related taxes, and (3) volume throughput assumptions.

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As a result of the ratemaking process, certain revenues collected by us may be subject to refund upon the issuance of final orders by the FERC in pending rate proceedings. We record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel and estimated total exposure, as well as collection and other risks. Depending on the results of these proceedings, the actual amounts allowed to be collected from customers could differ from management's estimate. In addition, as a result of rate orders, tariff provisions or regulations, we are required to refund or credit certain revenues to our customers. At June 30, 2019, we have accrued approximately $85.9 million related to Docket No. RP18-1126, which we believe is adequate for any refunds that may be required.
Accounting Standards Issued and Adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 establishes a comprehensive new lease accounting model. ASU 2016-02 modifies the definition of a lease, requires a dual approach to lease classification similar to prior lease accounting, and causes lessees to recognize operating leases on the balance sheet as a lease liability measured as the present value of the future lease payments with a corresponding right-of-use asset, with an exception for leases with a term of one year or less. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU 2018-01 “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” (ASU 2018-01). Per ASU 2018-01, land easements and rights-of-way are required to be assessed under ASU 2016-02 to determine whether the arrangements are or contain a lease. ASU 2018-01 permits an entity to elect a transition practical expedient to not apply ASU 2016-02 to land easements that exist or expired before the effective date of ASU 2016-02 and that were not previously assessed under the previous lease guidance in Accounting Standards Codification (ASC) Topic 840 “Leases.”
In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. We prospectively adopted ASU 2016-02 effective January 1, 2019, and did not adjust prior periods as permitted by ASU 2018-11 (See Note 3).
We completed our review of contracts to identify leases based on the modified definition of a lease and implemented changes to our internal controls to support management in the accounting for and disclosure of leasing activities upon adoption of ASU 2016-02. We implemented a financial lease accounting system to assist management in the accounting for leases upon adoption. The most significant changes to our financial statements as a result of adopting ASU 2016-02 relate to the recognition of a $91.3 million lease liability and offsetting right-of-use asset in our Condensed Consolidated Balance Sheet for operating leases. We also evaluated ASU 2016-02’s available practical expedients on adoption. We generally elected to adopt the practical expedients, which includes the practical expedient to not separate lease and non-lease components by both lessees and lessors by class of underlying assets and the land easements practical expedient.
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019. We plan to adopt as of January 1, 2020. We anticipate that ASU 2016-13 will primarily apply to our trade receivables. While we do not expect a significant financial impact, we are currently developing additional processes, procedures and internal controls in order to make the necessary credit loss assessments and required disclosures.

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2. REVENUE RECOGNITION
Revenue by Category
Our revenue disaggregation by major service line includes Natural gas sales, Natural gas transportation, Natural gas storage, and Other, which are separately presented on the Condensed Consolidated Statement of Comprehensive Income.

Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
 
Quarter to Date June 30, 2019
 
Year to Date June 30, 2019
 
(Thousands)
Balance at beginning of period
$
234,092

 
$
236,730

Payments received and deferred

 

Recognized in revenue
(2,641
)
 
(5,279
)
Balance at end of period
$
231,451

 
$
231,451



The following table presents the amount of the contract liabilities balance as of June 30, 2019, expected to be recognized as revenue in each of the next five years as performance obligations are expected to be satisfied:
 
(Thousands)
2019 (remainder)
$
5,287

2020
10,568

2021
10,566

2022
10,566

2023
10,566

Thereafter
183,898

Total
$
231,451


Remaining Performance Obligations
The following table presents the transaction price allocated to the remaining performance obligations under certain contracts as of June 30, 2019. These primarily include reservation charges on contracted capacity on our firm transportation and storage contracts with customers. Amounts from certain contracts included in the table below, which are subject to the periodic review and approval by the FERC, reflect the rates for such services in our current FERC tariffs, net of estimated reserve for refund, for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes is not currently known. This table excludes the variable consideration component for commodity charges. It also excludes consideration that will be recognized in future periods (see above for Contract Liabilities and the expected recognition of those amounts within revenue). Certain of our contracts contain evergreen provisions for periods beyond the initial term of the contract. The remaining performance obligations as of June 30, 2019, do not consider potential future performance obligations for which the renewal has not been exercised. The table below also does not include contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service.

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(Thousands)
2019 (remainder)
$
1,110,171

2020
2,115,390

2021
1,994,257

2022
1,766,701

2023
1,447,332

Thereafter
13,545,469

Total
$
21,979,320


Accounts Receivable
Receivables from contracts with customers are included within Receivables - Trade and other and Receivables - Affiliates and receivables that are not related to contracts with customers are included with Receivables - Advances to affiliate in our Condensed Consolidated Balance Sheet. At June 30, 2019 and December 31, 2018, Receivables - Trade and other includes $12.6 million and $10.4 million, respectively, of receivables not related to contracts with customers.
3. LEASES
We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of buildings, land, vehicles, and equipment used in both our operations and administrative functions. We recognize a lease liability with an offsetting right-of-use asset in our Condensed Consolidated Balance Sheet for operating leases based on the present value of the future lease payments. As an accounting policy, we have elected to combine lease and non-lease components for all classes of leased assets in our calculation of the lease liability and the offsetting right-of-use asset.
Our lease agreements require both fixed and variable periodic payments, with initial terms typically ranging from one year to 15 years, but a certain land lease has a term of 108 years. Payment provisions in certain of our lease agreements contain escalation factors which may be based on stated rates or a change in a published index at a future time. The amount by which a lease escalates based on the change in a published index, which is not known at lease commencement, is considered a variable payment and is not included in the present value of the future lease payments, which only includes those that are stated or can be calculated based on the lease agreement at lease commencement. In addition to the noncancellable periods, many of our lease agreements provide for one or more extensions of the lease agreement for periods ranging from one year in length to an indefinite number of times following the specified contract term. Other lease agreements provide for extension terms that allow us to utilize the identified leased asset for an indefinite period of time so long as the asset continues to be utilized in our operations. In consideration of these renewal features, we assess the term of the lease agreements, which includes using judgment in the determination of which renewal periods and termination provisions, when at our sole election, will be reasonably certain of being exercised. Periods after the initial term or extension terms that allow for either party to the lease to cancel the lease are not considered in the assessment of the lease term. Additionally, we have elected to exclude leases with an original term of one year or less, including renewal periods, from the calculation of the lease liability and the offsetting right-of-use asset.
We used judgment in determining the discount rate upon which the present value of the future lease payments is determined. This rate is based on a collateralized interest rate corresponding to the term of the lease agreement using company, industry, and market information available.


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Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
(Thousands)
Lease Cost:
 
 
 
Operating lease cost
$
2,664

 
$
5,166

Short-term lease cost

 

Variable lease cost
2,732

 
4,124

Total lease cost
$
5,396

 
$
9,290

 
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
2,896

 
$
5,284

 
 
 
 
 
June 30, 2019
 
 
(Thousands)
Other Information:
 
 
Right-of-use assets
 
$
91,516

Operating lease liabilities:
 
 
Current (included in Accrued liabilities in our Condensed Consolidated Balance Sheet)
 
$
3,051

Lease liability
 
$
87,410

Weighted-average remaining lease term - operating leases (years)
 
16

Weighted-average discount rate - operating leases
 
5
%

As of June 30, 2019, the following table represents our operating lease maturities, including renewal provisions that we have assessed as being reasonably certain of exercise, for each of the years ended December 31:
 
(Thousands)
2019 (remainder)
$
3,987

2020
7,615

2021
9,644

2022
9,625

2023
9,628

Thereafter
92,848

Total future lease payments
133,347

Less amount representing interest
42,886

Total obligations under operating leases
$
90,461



4. CONTINGENT LIABILITIES AND COMMITMENTS
Rate Matters
General rate case (Docket No. RP18-1126) On August 31, 2018, we filed a general rate case with the FERC for an overall increase in rates and to comply with the terms of the settlement in our prior rate case to file a rate case no later than August 31, 2018. On September 28, 2018, the FERC issued an order accepting and suspending our general rate filing to be effective March 1, 2019, subject to refund and the outcome of a hearing, except that rates for certain services that were proposed as overall rate decreases were accepted, without suspension, to be effective October 1, 2018. The decreased rates will not be subject to refund but may be subject to decrease prospectively under Section 5 of the Natural Gas Act of 1938, as amended. On March 18, 2019, the FERC accepted our motion to place the rates that were suspended by the September 28, 2018 order into effect on March 1, 2019, subject to refund. As of June 30,

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2019, we have accrued a reserve for rate refunds of approximately $85.9 million, which we believe is adequate for any refunds that may be required.
Notice of Inquiry (Docket No. PL19-4-000) On March 21, 2019, the FERC issued a Notice of Inquiry (NOI) in Docket No. PL19-4-000, seeking comments regarding whether and, if so, how FERC should revise its policies for determining the base return on equity (ROE) used in setting rates charged by jurisdictional public utilities. FERC also seeks comment on, among other things, whether FERC should change its ROE policies for interstate natural gas and oil pipelines to align with is policy for electric public utilities. FERC's action follows a decision from the United States Court of Appeals for the District of Columbia Circuit, which vacated and remanded a series of earlier FERC orders establishing a new base ROE for certain electric transmission owners. Following that decision, FERC proposed in the remanded proceedings that it rely on four financial models to establish ROEs for the affected utilities rather than rely primarily on its long-used, two-step Discounted Cash Flow model. In the NOI, FERC poses a series of questions and invited comments on this proposed new approach, including whether it should apply the new approach to future proceedings involving interstate natural gas and oil pipeline ROEs. We are currently monitoring this proceeding.
Station 62 Incident
On October 8, 2015, an explosion and fire occurred at our Compressor Station No. 62 in Gibson, Louisiana. At the time of the incident, planned facility maintenance was being performed at the station and the facility was not operational. The incident was related to maintenance work being performed on the slug catcher at the station. Four contractor employees were killed in the incident and others were injured.
In responding to the incident, we cooperated with local, state and federal authorities, including the Louisiana State Police, Terrebonne Parish, the Louisiana Department of Environmental Quality, the U.S. Environmental Protection Agency (Region 6), the Occupational Safety and Health Administration, and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA). On July 29, 2016, PHMSA issued a Notice of Probable Violation (NOPV), which includes a $1.6 million proposed civil penalty to us in connection with the incident. This penalty was accrued in the second quarter of 2016 and would not be covered by our insurance policies. We filed a response to the NOPV on August 25, 2016, and on July 14, 2017, PHMSA held a hearing on the NOPV. On December 20, 2018, the PHMSA issued a Final Order, which made findings of violation, reduced the civil penalty to $1.4 million, and specified actions that need to be taken by us to comply with pipeline safety regulations.
The incident did not cause any rupture of the gas pipeline or any damage to the building containing the compressor engines. In anticipation of the planned maintenance, our Southeast Louisiana Lateral was taken out of service on October 4, 2015, which affected approximately 200 MMcf/d of natural gas production. The lateral was restored to service in early 2016 after repairs were made to the facilities damaged in the incident.
We, with the insurer of one of our contractors, have settled all claims against us for wrongful death and all but one of the claims for personal injury. In addition, we are a defendant in other lawsuits seeking damages for off-site property damages. We believe it is reasonably possible that losses will be incurred on some of these remaining lawsuits. However, in management's judgment, the ultimate resolution of these matters will not have a material effect on our financial condition, results of operations, or cash flows. While we also have claims for indemnification, we continue to believe that it is probable that any ultimate losses incurred will be covered by our contractors' insurance and our insurance.
Environmental Matters
We have had studies underway for many years to test some of our facilities for the presence of toxic and hazardous substances such as polychlorinated biphenyls (PCBs) and mercury to determine to what extent, if any, remediation may be necessary. We have also similarly evaluated past on-site disposal of hydrocarbons at a number of our facilities. We have worked closely with and responded to data requests from the U.S. Environmental Protection Agency (EPA) and state agencies regarding such potential contamination of certain of our sites. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs. At June 30, 2019, we had a balance of approximately $3.1 million for the expense portion of these estimated costs, $1.3 million recorded in Accrued liabilities and $1.8 million recorded in Other Long-Term Liabilities - Other in the accompanying Condensed Consolidated Balance Sheet. At December 31, 2018, we had a balance of

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approximately $3.5 million for the expense portion of these estimated costs, $1.5 million recorded in Accrued liabilities and $2.0 million recorded in Other Long-Term Liabilities - Other in the accompanying Condensed Consolidated Balance Sheet.
We have been identified as a potentially responsible party (PRP) at various Superfund and state waste disposal sites. Based on present volumetric estimates and other factors, our estimated aggregate exposure for remediation of these sites is less than $0.5 million. The estimated remediation costs for all of these sites are included in the environmental liabilities discussed above. Liability under the Comprehensive Environmental Response, Compensation and Liability Act and applicable state law can be joint and several with other PRPs. Although volumetric allocation is a factor in assessing liability, it is not necessarily determinative; thus, the ultimate liability could be substantially greater than the amounts described above.
The EPA and various state regulatory agencies routinely promulgate and propose new rules, and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Total property, plant and equipment, net in the Condensed Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
We consider prudently incurred environmental assessment and remediation costs and the costs associated with compliance with environmental standards to be recoverable through rates. To date, we have been permitted recovery of environmental costs, and it is our intent to continue seeking recovery of such costs through future rate filings.
Other Matters
Various other proceedings are pending against us and are considered incidental to our operations.
Summary
We estimate that for all matters for which we are able to reasonably estimate a range of loss, including those noted above and others that are not individually significant, our aggregate reasonably possible losses beyond amounts accrued for all of our contingent liabilities are immaterial to our expected future annual results of operations, liquidity and financial position. These calculations have been made without consideration of any potential recovery from third parties. We have disclosed all significant matters for which we are unable to reasonably estimate a range of possible loss.
5. DEBT AND FINANCING ARRANGEMENTS
Credit Facility
We, along with Williams and Northwest Pipeline LLC (Northwest) (the “borrowers”), are party to a Credit Agreement with aggregate commitments available of $4.5 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. We and Northwest are each subject to a $500 million borrowing sublimit. Letter of credit commitments of $1.0 billion are, subject to the $500 million borrowing sublimit applicable to us and Northwest, available to the borrowers. At June 30, 2019, no letters of credit have been issued and no loans were outstanding under the credit facility.
Williams participates in a commercial paper program and Williams management considers amounts outstanding under this program to be a reduction of available capacity under the credit facility. The program allows a maximum outstanding amount at any time of $4.0 billion of unsecured commercial paper notes. At June 30, 2019, Williams had no outstanding commercial paper.

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Table of Contents

Other Financing Obligations
Dalton Expansion Project
During the first six months of 2019, we received an additional $0.7 million of funding from a co-owner for its proportionate share of construction costs related to its undivided ownership interest in the Dalton lateral. This additional funding is reflected in Long-Term Debt on our Condensed Consolidated Balance Sheet. At June 30, 2019, the amount included in Long-Term Debt on our Condensed Consolidated Balance Sheet for this financing obligation is $257.8 million, and the amount included in Long-term debt due within one year on our Condensed Consolidated Balance Sheet for this financing obligation is $2.0 million.
Atlantic Sunrise Project
During the first six months of 2019, we received an additional $19.7 million of funding from a co-owner for its proportionate share of construction costs related to its undivided ownership interest in certain parts of the project. This additional funding is reflected in Long-Term Debt on our Condensed Consolidated Balance Sheet. At June 30, 2019, the amount included in Long-Term Debt on our Condensed Consolidated Balance Sheet for this financing obligation is $805.0 million, and the amount included in Long-term debt due within one year on our Condensed Consolidated Balance Sheet for this financing obligation is $14.9 million.
Long-Term Debt Due Within One Year
The long-term debt due within one year at June 30, 2019 is associated with the previously described other financing obligations.
6. ARO TRUST
We are entitled to collect in rates the amounts necessary to fund our asset retirement obligations (ARO). We deposit monthly, into an external trust account (ARO Trust), the revenues specifically designated for ARO. The ARO Trust carries a moderate risk portfolio. The Money Market Funds held in our ARO Trust are considered investments. We measure the financial instruments held in our ARO Trust at fair value. However, in accordance with the ASC Topic 980, Regulated Operations, both realized and unrealized gains and losses of the ARO Trust are recorded as regulatory assets or liabilities.
Effective March 1, 2019, the annual funding obligation is approximately $35.9 million, with deposits made monthly.
Investments within the ARO Trust at fair value were as follows (in millions): 
 
June 30, 2019
 
December 31, 2018
 
Amortized
Cost Basis
 
Fair
Value
 
Amortized
Cost Basis
 
Fair
Value
Money Market Funds
$
19.0

 
$
19.0

 
$
21.7

 
$
21.7

U.S. Equity Funds
54.7

 
75.8

 
46.4

 
56.8

International Equity Funds
25.4

 
27.6

 
21.9

 
21.4

Municipal Bond Funds
59.3

 
60.4

 
50.1

 
49.6

Total
$
158.4

 
$
182.8

 
$
140.1

 
$
149.5



7. FAIR VALUE MEASUREMENTS
The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of short-term financial assets (advances to and from affiliate) that have variable interest rates, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
 

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Fair Value Measurements Using
 
 
Carrying
Amount
 
Fair Value
 
Quoted
Prices In
Active
Markets for
Identical
Assets
(Level  1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
(Millions)
Assets (liabilities) at June 30, 2019:
 
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
 
ARO Trust investments
 
$
182.8

 
$
182.8

 
$
182.8

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Additional disclosures:
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
 
(4,027.8
)
 
(5,177.1
)
 

 
(5,177.1
)
 

 
 
 
 
 
 
 
 
 
 
 
Assets (liabilities) at December 31, 2018:
 
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
 
ARO Trust investments
 
$
149.5

 
$
149.5

 
$
149.5

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Additional disclosures:
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
 
(4,014.4
)
 
(4,785.5
)
 

 
(4,785.5
)
 


Fair Value Methods
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
ARO Trust investments — We deposit a portion of our collected rates, pursuant to the terms of the Docket No. RP18-1126 rate case, into the ARO Trust which is specifically designated to fund future asset retirement obligations. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and are reported in Other Assets-Other in the Condensed Consolidated Balance Sheet. However, both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities. See Note 6 for more information regarding the ARO Trust.
Long-term debt — The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair value of the financing obligations associated with our Dalton and Atlantic Sunrise expansions, which are included within long-term debt, were determined using an income approach (See Note 5).
Reclassifications of fair value between Level 1, Level 2, and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter. No transfers between Level 1 and Level 2 occurred during the six months ended June 30, 2019 or 2018.
8. TRANSACTIONS WITH AFFILIATES
We are a participant in Williams' cash management program, and we receive advances from and make advances to Williams. At June 30, 2019, our advances from Williams totaled approximately $34.3 million and are classified as Payables - Advances from affiliates in the accompanying Condensed Consolidated Balance Sheet. At December 31, 2018, our advances to Williams totaled approximately $33.0 million and are classified as Receivables - Advances to affiliate in the accompanying Condensed Consolidated Balance Sheet. Advances are stated at the historical carrying amounts. Interest income and expense are recognized when chargeable and collectability is reasonably assured. The interest rate on these intercompany demand notes is based upon the daily overnight investment rate paid on Williams' excess cash at the end of each month. At June 30, 2019, the interest rate was 2.27 percent.
Included in Operating Revenues in the accompanying Condensed Consolidated Statement of Comprehensive Income are revenues received from affiliates of $2.3 million and $5.6 million for the three and six months ended June 30,

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2019, respectively, and $1.5 million and $3.3 million for the three and six months ended June 30, 2018, respectively. The rates charged to provide sales and services to affiliates are the same as those that are charged to similarly-situated nonaffiliated customers.
Included in Cost of natural gas sales in the accompanying Condensed Consolidated Statement of Comprehensive Income are cost of gas purchased from affiliates of $0.6 million and $2.2 million for the three and six months ended June 30, 2019, respectively, and $1.8 million and $3.7 million for the three and six months ended June 30, 2018, respectively. All gas purchases are made at market or contract prices.
We have no employees. Services necessary to operate our business are provided to us by Williams and certain affiliates of Williams. We reimburse Williams and its affiliates for all direct and indirect expenses incurred or payments made (including salary, bonus, incentive compensation and benefits) in connection with these services. Employees of Williams also provide general, administrative and management services to us, and we are charged for certain administrative expenses incurred by Williams. These charges are either directly identifiable or allocated to our assets. Direct charges are for goods and services provided by Williams at our request. Allocated charges are based on a three-factor formula, which considers revenues; property, plant and equipment; and payroll. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to us of our costs of doing business incurred by Williams. We were billed $112.4 million and $204.6 million in the three and six months ended June 30, 2019, respectively, and $99.3 million and $190.8 million in the three and six months ended June 30, 2018, respectively, for these services. Such expenses are primarily included in Operation and maintenance and Administrative and general expenses in the accompanying Condensed Consolidated Statement of Comprehensive Income. The amount billed to us for the six months ended June 30, 2019, includes $12.9 million recognized in the second quarter for estimated severance and related costs driven by a voluntary separation program associated with a review of Williams' enterprise cost structure.
We provide services to certain of our affiliates. We recorded reductions in operating expenses for services provided to and reimbursed by our affiliates of $1.1 million and $2.3 million for the three and six months ended June 30, 2019, respectively, and $1.2 million and $2.2 million for the three and six months ended June 30, 2018, respectively.
We made equity distributions totaling $346.0 million and $190.0 million during the six months ended June 30, 2019 and 2018, respectively. During July 2019, we made an additional distribution of $213.0 million. Our parent made contributions to us totaling $340.0 million in the six months ended June 30, 2018, to fund a portion of our expenditures for additions to property, plant and equipment.

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ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion should be read in conjunction with the Consolidated Financial Statements, Notes and Management’s Discussion and Analysis contained in Items 7 and 8 of our 2018 Annual Report on Form 10-K and with the Condensed Consolidated Financial Statements and Notes contained in this Form 10-Q.
Filing of Rate Case
On August 31, 2018, we filed a general rate case with the FERC for an overall increase in rates and to comply with the terms of the settlement in our prior rate case to file a rate case no later than August 31, 2018. On September 28, 2018, the FERC issued an order accepting and suspending our general rate filing to be effective March 1, 2019, subject to refund and the outcome of a hearing, except that rates for certain services that were proposed as overall rate decreases were accepted, without suspension, to be effective October 1, 2018. The decreased rates will not be subject to refund but may be subject to decrease prospectively under Section 5 of the Natural Gas Act of 1938, as amended. On March 18, 2019, the FERC accepted our motion to place the rates that were suspended by the September 28, 2018 order into effect on March 1, 2019, subject to refund. We have provided a reserve for rate refunds which we believe is adequate for any refunds that may be required.
Critical Accounting Estimates
In December 2017, Tax Reform was enacted, which, among other things, reduced the corporate income tax rate from 35 percent to 21 percent. Rates charged to our customers are subject to the rate-making policies of the FERC, which have historically permitted the recovery of an income tax allowance that includes a deferred income tax component. As a result of the reduced income tax rate from Tax Reform and the collection of historical rates that reflected historical federal income tax rates, we expect that we will be required to return amounts to certain customers through future rates and have accordingly established a regulatory liability totaling $422.2 million as of June 30, 2019 and $450.2 million as of December 31, 2018. Effective March 1, 2019, we began amortizing this regulatory liability. The timing and actual amount of such return will be subject to the outcome of the rate case proceeding filed in Docket No. RP18-1126.
RESULTS OF OPERATIONS
Operating Income and Net Income
Operating Income for the six months ended June 30, 2019 was $564.3 million compared to $402.6 million for the six months ended June 30, 2018. The increase in Operating Income of $161.7 million (40.2 percent) was primarily due to higher Operating Revenues in the first six months of 2019 compared to the same period in 2018, as discussed below, partly offset by an increase in Operating Costs and Expenses, as discussed below. Net Income for the six months ended June 30, 2019 was $441.6 million compared to $372.1 million for the six months ended June 30, 2018. The increase in Net Income of $69.5 million (18.7 percent) was mostly attributable to the increase in Operating Income partially offset by an unfavorable change in net expenses in Other (Income) and Other Expenses, as discussed below.
Operating Revenues
Natural gas sales decreased $8.6 million (15.6 percent) for the six months ended June 30, 2019 compared to the same period in 2018. The decrease was primarily due to $4.3 million of lower cash out sales and $4.3 million of lower system management gas sales. Cash out sales and system management gas sales are offset in our cost of natural gas sold and therefore have no impact on our operating income or results of operations.
Natural gas transportation for the six months ended June 30, 2019 increased $218.0 million (25.9 percent) over the same period in 2018. The increase was primarily attributable to:
$218.9 million increase in transportation reservation revenues related to new incremental projects primarily attributable to:
$194.6 million from our Atlantic Sunrise project placed in full service in October 2018;
$17.8 million from our Gulf Connector project placed in service in January 2019; and
$4.8 million from our Garden State project placed in full service in March 2018.
$6.1 million higher recoveries of electric power costs. Electric power costs are recovered from customers through transportation rates resulting in no net impact on our operating income or results of operations.
$4.7 million higher commodity revenue.

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Partially offset by $11.7 million lower revenues related to Docket No. RP18-1126 rate decreases effective October 1, 2018.
Natural gas storage increased $6.0 million (8.7 percent) for the six months ended June 30, 2019 compared to the same period in 2018. The increase was primarily due to the implementation of new rates in March 2019.
Operating Costs and Expenses
Excluding the Cost of natural gas sales, which is directly offset in revenues, of $46.5 million for the six months ended June 30, 2019 and $55.1 million for the comparable period in 2018, our operating costs and expenses for the six months ended June 30, 2019 increased $62.9 million (12.3 percent) from the comparable period in 2018. This increase was primarily attributable to:
$35.3 million (20.5 percent) increase in Depreciation and amortization costs primarily resulting from additional assets placed into service;
$13.9 million (66.5 percent) unfavorable change in Regulatory credit resulting from Tax Reform;
$12.1 million (13.0 percent) increase in Administrative and general costs primarily due to a $7.6 million increase in employee labor and related benefits costs mainly due to estimated severance and related costs driven by a voluntary separation program (VSP) associated with a review of Williams' enterprise cost structure, and a $2.4 million higher allocated corporate expenses;
$3.3 million (9.3 percent) increase in Taxes - other than income taxes primarily due to higher ad valorem taxes as a result of additional assets placed into service;
$2.1 million (9.8 percent) increase in Cost of natural gas transportation costs primarily resulting from $6.1 million higher electric power costs, partly offset by $4.1 million lower fuel costs. Electric power costs are recovered from customers through transportation rates resulting in no net impact on our operating income or results of operations; and
$0.9 million (0.5 percent) increase in Operation and maintenance costs primarily resulting from a $10.7 million increase in employee labor and related benefit costs ($5.1 million due to estimated severance and related costs driven by a VSP associated with a review of Williams' enterprise cost structure, and $4.8 million due to lower capitalized labor as a result of fewer capital projects ongoing in 2019) and a $9.4 million increase in contracted services related to costs transferred from capital, mostly offset by a $17.8 million decrease in contracted services mainly related to general maintenance and other testing on our pipeline.
Partially offset by $4.7 million (15.5 percent) decrease in Other expenses, net primarily due to a $13.2 million favorable change in costs associated with pension and other postretirement benefits related to Docket No. RP18-1126, partly offset by a $6.6 million unfavorable change related to costs transferred from capital and certain other charges.
Other (Income) and Other Expenses
Other (income) and other expenses for the six months ended June 30, 2019 had an unfavorable change of $92.3 million (303.6 percent) over the same period in 2018. This is mostly due to an unfavorable change of $45.3 million in Allowance for equity and borrowed funds used during construction (AFUDC) primarily associated with reduced capital expenditures on projects and a $43.7 million increase in Interest expense primarily due to other financing obligations.
Pipeline Expansion Projects
Hillabee
The Hillabee Expansion Project involves an expansion of our existing natural gas transmission system from our Station 85 Pooling Point in Choctaw County, Alabama to a new interconnection with the Sabal Trail pipeline in Tallapoosa County, Alabama. The project is being constructed in phases, and all of the project expansion capacity is dedicated to Sabal Trail pursuant to a capacity lease agreement. Phase I was completed in 2017 and it increased capacity by 818 Mdth/d. The in-service date of Phase II is planned for the second quarter of 2020. Together, the first two phases of the project are expected to increase capacity by 1,025 Mdth/d.
Gulf Connector
The Gulf Connector Expansion Project involved an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from Station 65 in Louisiana to delivery points in Wharton and San Patricio Counties, Texas. We placed the project into service on January 4, 2019. The project increased capacity by 475 Mdth/d.


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Northeast Supply Enhancement
The Northeast Supply Enhancement Project involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from Station 195 in Pennsylvania to the Rockaway Delivery Lateral transfer point in New York. In May 2019, we received approval from the FERC for the project. Approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection remain pending, with each such agency having denied, without prejudice, Transco's applications for such approvals. We have refiled our applications for those approvals and are addressing certain technical issues identified by the agencies. We plan to place the project into service in the fourth quarter of 2020, assuming timely receipt of these remaining approvals. The project is expected to increase capacity by 400 Mdth/d.
Rivervale South to Market
The Rivervale South to Market Project involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from the existing Rivervale interconnection with Tennessee Gas Pipeline on our North New Jersey Extension to our existing Central Manhattan meter station in New Jersey and our Station 210 Pooling Point in New Jersey. In August 2018, we received approval from the FERC for the project. The project was placed into partial service on July 1, 2019. We plan to place the remaining portion of the project into service by the fourth quarter of 2019, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 190 Mdth/d.
Gateway
The Gateway Project involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from PennEast Pipeline Company's proposed interconnection with our mainline south of Station 205 in New Jersey to our existing Ridgefield meter station in Bergen County, New Jersey and our existing Paterson meter station in Passaic County, New Jersey. In December 2018, we received approval from the FERC for the project. We plan to place the project into service in the first half of 2020, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 65 Mdth/d.
Southeastern Trail
The Southeastern Trail Project involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from the Pleasant Valley interconnect with Dominion's Cove Point Pipeline in Virginia to the Station 65 Pooling Point in Louisiana. We filed an application with the FERC in April 2018 for approval of the project. We plan to place the project into service in late 2020, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 296 Mdth/d.
Leidy South
The Leidy South Project involves an expansion of our existing natural gas transmission system and an extension of our system through a capacity lease with National Fuel Gas Supply Corporation that will enable us to provide incremental firm transportation from Clermont, Pennsylvania and from the Zick interconnection on Transco's Leidy Line to the River Road regulating station in Lancaster County, Pennsylvania. We filed an application with the FERC in July 2019 for approval of the project. We plan to place the project into service in the second half of 2022, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 582 Mdth/d.
South Louisiana Market
The South Louisiana Market Project involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from Station 65 in Louisiana to a new interconnection with a proposed chemical plant in St. James Parish, Louisiana. We expect to file an application with the FERC in August 2019 for approval of the project. We plan to place the project into service in the fourth quarter of 2022, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 202 Mdth/d.


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ITEM 4.
Controls and Procedures
Our management, including our Senior Vice President and our Vice President and Chief Accounting Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended) (Disclosure Controls) or our internal control over financial reporting (Internal Controls) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls and Internal Controls will be modified as systems change and conditions warrant.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Senior Vice President and our Vice President and Chief Accounting Officer. Based upon that evaluation, our Senior Vice President and our Vice President and Chief Accounting Officer concluded that these Disclosure Controls are effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes during the second quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our Internal Control over Financial Reporting.

PART II — OTHER INFORMATION.

ITEM 1.
Legal Proceedings
The information called for by this item is provided in Note 4 of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1. Financial Statements of this report, which information is incorporated by reference into this item.

ITEM 1A.
Risk Factors

Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018, includes risk factors that could materially affect our business, financial condition, or future results. Those risk factors have not materially changed.






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ITEM 6.
Exhibits
The following instruments are included as exhibits to this report.
 
Exhibit
Number
 
Description
 
 
 
2
 
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32**
 
 
 
 
101.INS*
 
XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema.
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase.
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase.
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase.
 
 
 
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase.
*
Filed herewith.
**
Furnished herewith.

 


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
(Registrant)
 
 
 
 
 
Dated:
August 1, 2019
By:
 
/s/ Kathleen R. Hambleton
 
 
 
 
Kathleen R. Hambleton
 
 
 
 
Controller
 
 
 
 
(Principal Accounting Officer)