OTHER INCOME STATEMENT ITEMS
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt and junior subordinated notes
|
|
|
|
|
|
|
|
|
|
Canadian dollar-denominated
|
|
(178
|
)
|
|
(152
|
)
|
|
(511
|
)
|
|
(440
|
)
|
|
U.S. dollar-denominated
|
|
(324
|
)
|
|
(330
|
)
|
|
(987
|
)
|
|
(989
|
)
|
|
Foreign exchange impact
|
|
(108
|
)
|
|
(106
|
)
|
|
(350
|
)
|
|
(326
|
)
|
|
|
|
(610
|
)
|
|
(588
|
)
|
|
(1,848
|
)
|
|
(1,755
|
)
|
|
Other interest and amortization expense
|
|
(17
|
)
|
|
(33
|
)
|
|
(69
|
)
|
|
(121
|
)
|
|
Capitalized interest
|
|
68
|
|
|
48
|
|
|
219
|
|
|
129
|
|
|
Interest expense
|
|
(559
|
)
|
|
(573
|
)
|
|
(1,698
|
)
|
|
(1,747
|
)
|
TC ENERGY [24
THIRD QUARTER 2020
Interest expense decreased by $14 million and $49 million for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to the net effect of:
|
|
|
|
•
|
higher capitalized interest largely related to Keystone XL, and Coastal GasLink prior to its change to equity accounting upon completion of the sale of a 65 per cent interest in the project on May 22, 2020, partially offset by lower capitalized interest due to the completion of Napanee construction in first quarter 2020. The increase for Keystone XL is largely the result of additional capital expenditures along with the inclusion of previously impaired capital costs in the basis for calculating capitalized interest following our decision to proceed with construction of the pipeline. These prior costs were not re-capitalized but are included for determining capitalized interest in accordance with GAAP
|
|
|
|
|
•
|
lower interest rates on reduced levels of short-term borrowings
|
|
|
|
|
•
|
long-term debt issuances, net of maturities
|
|
|
|
|
•
|
foreign exchange impact from a stronger U.S. dollar on translation of U.S. dollar-denominated interest.
|
Allowance for funds used during construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollar-denominated
|
|
23
|
|
|
57
|
|
|
83
|
|
|
151
|
|
|
U.S. dollar-denominated
|
|
51
|
|
|
48
|
|
|
126
|
|
|
156
|
|
|
Foreign exchange impact
|
|
17
|
|
|
15
|
|
|
45
|
|
|
51
|
|
|
Allowance for funds used during construction
|
|
91
|
|
|
120
|
|
|
254
|
|
|
358
|
|
AFUDC decreased by $29 million and $104 million for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The decrease in Canadian dollar-denominated AFUDC is primarily due to NGTL System expansion projects placed in service since third quarter 2019. The increase in U.S. dollar-denominated AFUDC for the three months ended September 30, 2020 is mainly attributable to our Columbia Gas growth projects. The decrease in U.S. dollar-denominated AFUDC for the nine months ended September 30, 2020 is primarily the result of the suspension of recording AFUDC on Tula, effective January 1, 2020, due to ongoing construction delays on the project, partially offset by continuing construction of the Villa de Reyes project. Refer to the Recent developments section for additional information.
Interest income and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other included in comparable earnings
|
|
32
|
|
|
49
|
|
|
87
|
|
|
85
|
|
|
Specific items:
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain/(loss) – inter-affiliate loan
|
|
54
|
|
|
(37
|
)
|
|
(223
|
)
|
|
(11
|
)
|
|
Risk management activities
|
|
78
|
|
|
(31
|
)
|
|
(24
|
)
|
|
176
|
|
|
Interest income and other
|
|
164
|
|
|
(19
|
)
|
|
(160
|
)
|
|
250
|
|
TC ENERGY [25
THIRD QUARTER 2020
Interest income and other increased by $183 million for the three months ended September 30, 2020 compared to the same period in 2019 and was primarily due to:
|
|
|
|
•
|
unrealized gains in 2020 compared to unrealized losses in 2019 on risk management activities primarily reflecting the weakening and strengthening of the U.S. dollar during third quarter 2020 and 2019, respectively. These amounts have been excluded from comparable earnings
|
|
|
|
|
•
|
foreign exchange gains in 2020 compared to foreign exchange losses in 2019 related to a peso-denominated inter-affiliate loan receivable from the Sur de Texas joint venture. Our proportionate share of the offsetting foreign exchange losses and gains in Sur de Texas are reflected in Income from equity investments in the Corporate segment resulting in no impact on net income and are excluded from comparable earnings
|
|
|
|
|
•
|
lower interest income related to the peso-denominated inter-affiliate loan receivable from the Sur de Texas joint venture as a result of lower interest rates and a weaker Mexican peso in third quarter 2020 compared to 2019. Our proportionate share of the offsetting interest expense is reflected in Income from equity investments in our Mexico Natural Gas Pipelines segment.
|
Interest income and other decreased by $410 million for the nine months ended September 30, 2020 compared to the same period in 2019 and was primarily due to:
|
|
|
|
•
|
higher foreign exchange losses in 2020 compared to 2019 related to a peso-denominated inter-affiliate loan receivable from the Sur de Texas joint venture. Our proportionate share of the offsetting foreign exchange gains in Sur de Texas are reflected in Income from equity investments in the Corporate segment resulting in no impact on net income and are excluded from comparable earnings
|
|
|
|
|
•
|
unrealized losses in 2020 compared to unrealized gains in 2019 on risk management activities primarily reflecting the strengthening and weakening of the U.S. dollar in 2020 and 2019, respectively. These amounts have been excluded from comparable earnings
|
|
|
|
|
•
|
lower interest income related to the peso-denominated inter-affiliate loan receivable from the Sur de Texas joint venture as a result of lower interest rates and a weaker Mexican peso in 2020 compared to 2019. Our proportionate share of the offsetting interest expense is reflected in Income from equity investments in our Mexico Natural Gas Pipelines segment
|
|
|
|
|
•
|
unrealized foreign exchange gains, primarily on peso-denominated deferred income tax liabilities, reflecting the weakening of the Mexican peso in 2020.
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense included in comparable earnings
|
|
(184
|
)
|
|
(260
|
)
|
|
(520
|
)
|
|
(687
|
)
|
|
Specific items:
|
|
|
|
|
|
|
|
|
|
Income tax valuation allowance release
|
|
—
|
|
|
—
|
|
|
281
|
|
|
—
|
|
|
Loss on sale of Ontario natural gas-fired power plants
|
|
15
|
|
|
69
|
|
|
119
|
|
|
69
|
|
|
Gain on partial sale of Coastal GasLink
|
|
—
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
Loss on sale of Columbia Midstream assets
|
|
—
|
|
|
(154
|
)
|
|
—
|
|
|
(154
|
)
|
|
Gain on partial sale of Northern Courier
|
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
|
Alberta corporate income tax rate reduction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
Gain on sale of Coolidge generating station
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
U.S. Northeast power marketing contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Risk management activities
|
|
(21
|
)
|
|
25
|
|
|
4
|
|
|
(21
|
)
|
|
Income tax expense
|
|
(190
|
)
|
|
(274
|
)
|
|
(78
|
)
|
|
(727
|
)
|
TC ENERGY [26
THIRD QUARTER 2020
Income tax expense included in comparable earnings decreased by $76 million and $167 million for the three and nine months ended September 30, 2020 compared to the same periods in 2019. The decreases were mainly due to lower pre-tax earnings, as well as a reduction in the Alberta corporate income tax rate and decreased flow-through income taxes on Canadian rate-regulated pipelines.
In addition to the tax impacts of the specific items noted in the Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Liquids Pipelines, Power and Storage and Corporate segments, Income tax expense for the nine months ended September 30, 2020 and the comparative period in 2019 included the following specific items, which have been excluded from our calculation of income tax expense included in comparable earnings:
|
|
|
|
•
|
in first quarter 2020, an income tax valuation allowance release of $281 million was recorded following our reassessment of deferred tax assets that are deemed more likely than not to be realized as a result of our decision to proceed with the Keystone XL project
|
|
|
|
|
•
|
in second quarter 2019, a $32 million income tax recovery on deferred income tax balances attributable to our Canadian businesses not subject to RRA due to an Alberta corporate income tax rate reduction enacted in June 2019.
|
On June 29, 2020, the Government of Alberta proposed to accelerate the reduction of the corporate income tax rate to eight per cent to become effective July 1, 2020. While this proposed change has not yet been enacted, we do not expect it to have a material impact on our financial statements.
Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
(69
|
)
|
|
(59
|
)
|
|
(228
|
)
|
|
(217
|
)
|
Net income attributable to non-controlling interests for the three months ended September 30, 2020 increased by $10 million primarily due to higher earnings in TC PipeLines, LP and similarly increased by $11 million for the nine months ended September 30, 2020 compared to 2019 along with the positive impact of a stronger U.S. dollar in 2020 on the Canadian dollar equivalent earnings.
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
(39
|
)
|
|
(41
|
)
|
|
(120
|
)
|
|
(123
|
)
|
TC ENERGY [27
THIRD QUARTER 2020
Recent developments
CANADIAN NATURAL GAS PIPELINES
Coastal GasLink
On May 22, 2020, we completed the sale of a 65 per cent equity interest in Coastal GasLink for net proceeds of $656 million before post-closing adjustments. A pre-tax gain of $364 million ($402 million after tax) was recorded in the nine months ended September 30, 2020. The after-tax gain includes the gain on sale, utilization of previously unrecognized tax loss benefits and the required remeasurement of our 35 per cent retained ownership to fair value including a derivative instrument used to hedge the interest rate risk on the credit facilities established to finance construction of the Coastal GasLink pipeline. Under the terms of the equity purchase agreement, the net proceeds included reimbursement of the 65 per cent equity share of the project costs paid to May 22, 2020. As part of the transaction, we were contracted by Coastal GasLink to construct and operate the pipeline. Effective this date, we also commenced recognizing development fees earned during the construction of the pipeline for management and financial services provided and began accounting for our remaining 35 per cent investment using equity accounting.
In conjunction with the equity sale, Coastal GasLink entered into project-level credit facilities with a current total capacity of $6.8 billion which will be used to fund the majority of the construction costs of the Coastal GasLink pipeline. Immediately preceding the equity sale, Coastal GasLink drew down $1.6 billion on the facilities, of which approximately $1.5 billion was paid to TC Energy. Coastal GasLink has also entered into a subordinated demand revolving credit facility with TC Energy on commercial terms to provide additional short-term liquidity and funding flexibility to the project. At September 30, 2020, draws on this facility amounted to $250 million and the facility was repaid in its entirety in October 2020.
The introduction of partners, utilization of dedicated project-level credit facilities, recovery of cash payments through construction for carrying charges on costs incurred and remuneration for costs paid to close of the sale are expected to substantially satisfy our funding requirements through project completion.
Although the project continues its review of an updated baseline of cost and schedule, we expect that project costs will rise compared to the previously disclosed estimate due to scope increases, permit delays and COVID-19 impacts; however, we do not expect our future equity contributions to increase significantly following the conclusion of this process.
We continue to work with the 20 First Nations that have executed agreements with Coastal GasLink to provide them with an opportunity to invest in the project, with an option to acquire a 10 per cent interest in Coastal GasLink on similar terms to what has been agreed with existing partners.
Field activity continues along the pipeline route with crews continuing to incorporate our COVID-19 guidelines for construction safety. Ongoing work activity includes construction of roads, bridges, worker accommodations, right of way grading and mainline mechanical construction with a majority of the required pipe supply already delivered to site.
NGTL System
In the nine months ended September 30, 2020, the NGTL System placed approximately $3.0 billion of capacity projects in service.
TC ENERGY [28
THIRD QUARTER 2020
2021 NGTL System Expansion Program
On February 19, 2020, the CER issued a report recommending that the Governor in Council (GIC) approve the 2021 NGTL System Expansion Program. The GIC approved the program on October 19, 2020 and the NGTL System plans to immediately progress construction activities in accordance with regulatory requirements. Compressor station field work is expected to begin in December 2020 with pipeline construction activities planned to commence in January 2021. Once facilities are placed in service, the 2021 NGTL System Expansion Program will provide 1.59 PJ/d (1.45 Bcf/d) of incremental system capacity underpinned by long-term receipt and delivery contracts, connecting incremental supply to growing intra-basin and export markets. In-service is expected through 2021, with all program components expected to be completed by April 2022.
The NGTL System held a Capacity Optimization Open Season in second quarter 2020 soliciting requests for the deferral or advancement of pending contracts to assist customers in optimizing their transportation service needs and align system expansions with customer growth requirements. Following analysis of the results of the open season, we concluded that all proposed system expansion projects continue to be required to meet aggregate system demand, although the in-service dates for some facilities have been delayed. This will result in the deferral of a certain amount of capital spending from 2020 and 2021 to 2022 through 2024. The net impact of these deferrals, together with some expected increase in project costs on the 2021 NGTL System Expansion Program, have been incorporated into the Secured projects table in this MD&A.
North Montney
The North Montney project consists of approximately 206 km (128 miles) of new pipeline along with three compressor units and 13 meter stations. On January 31, 2020, the $1.1 billion Aitken Creek section of the North Montney project was placed in service. The final pipeline section of the project, Kahta South, went into service on May 1, 2020. All compressor stations, pipeline sections and 11 of the 13 meter stations are complete and have been placed in service, with the remaining two meter stations currently planned for 2021.
NGTL System Rate Design
In March 2019, the NGTL System Rate Design and Services Application was filed with the NEB. The application addressed rate design, terms and conditions of service for the NGTL System and a tolling methodology for the North Montney Mainline. The CER held a public hearing in fourth quarter 2019 and issued a decision on March 25, 2020 approving all elements of the application as filed.
NGTL System Revenue Requirement Settlement
On August 17, 2020, the CER approved the NGTL System's 2020-2024 Revenue Requirement Settlement negotiated with its customers and other interested parties. The settlement, effective January 1, 2020, maintains the equity return at 10.1 per cent on 40 per cent deemed common equity, provides the NGTL System with the opportunity to increase depreciation rates if tolls fall below projected levels and includes an incentive mechanism for certain operating costs where variances from projected amounts are shared between the NGTL System and its customers. It also includes a mechanism to review the settlement should tolls exceed a pre-determined level, without affecting the equity return.
Canadian Mainline
In the nine months ended September 30, 2020, the Canadian Mainline placed approximately $0.1 billion of capacity projects in service.
On April 17, 2020, the CER approved a six-year unanimously supported negotiated settlement between the Canadian Mainline, its customers and other stakeholders. The settlement, effective January 1, 2021, sets a base equity return of 10.1 per cent on 40 per cent deemed common equity and includes an incentive to either decrease costs and/or increase revenues on the pipeline with a beneficial sharing mechanism to both the shippers and us.
TC ENERGY [29
THIRD QUARTER 2020
U.S. NATURAL GAS PIPELINES
Wisconsin Access
On October 28, 2020, we approved the Wisconsin Access project that will replace, upgrade and modernize certain facilities while reducing emissions on a highly utilized segment of the ANR pipeline system. The enhanced facilities will improve reliability of the ANR pipeline system and also allow for additional contracted transportation services of approximately 77 TJ/d (72 MMcf/d) to be provided to utilities serving the Midwestern United States under long-term contracts. The anticipated in-service date of the combined project is in the second half of 2022 with estimated costs of US$0.2 billion.
Elwood Power Project/ANR Horsepower Replacement
On July 29, 2020, we approved the Elwood Power Project/ANR Horsepower Replacement that will replace, upgrade and modernize certain facilities while reducing emissions along a highly utilized section of the ANR pipeline system. The enhanced facilities will improve reliability of the ANR pipeline system and also allow for additional contracted transportation services of approximately 132 TJ/d (123 MMcf/d) to be provided to an existing power plant near Joliet, Illinois. The anticipated in-service date of the combined project is in the second half of 2022 with estimated costs of US$0.4 billion.
Alberta XPress
On February 12, 2020, we approved the Alberta XPress project, an expansion project on the ANR pipeline system that also utilizes existing capacity on the Great Lakes and Canadian Mainline systems to connect growing supply from the WCSB to U.S. Gulf Coast LNG export markets. The anticipated in-service date is 2022 with estimated project costs of US$0.3 billion.
Columbia Gas Section 4 Rate Case
Columbia Gas filed a general Natural Gas Act Section 4 Rate Case with FERC on July 31, 2020 requesting an increase to Columbia Gas's maximum transportation rates expected to become effective February 1, 2021, subject to refund. The rate case continues to progress as expected, and we intend to pursue a collaborative process to reach a mutually beneficial outcome with our customers through settlement negotiations.
MEXICO NATURAL GAS PIPELINES
Tula and Villa de Reyes
The CFE initiated arbitration in June 2019 for the Villa de Reyes and Tula projects, disputing fixed capacity payments due to force majeure events. Arbitration proceedings are suspended until first quarter 2021 while management advances settlement discussions with the CFE.
Villa de Reyes project construction is ongoing. The project has been delayed due to COVID-19 contingency measures which impeded our ability to obtain work authorizations as a result of government administrative closures. We expect to complete construction of Villa de Reyes in the first half of 2021.
TC ENERGY [30
THIRD QUARTER 2020
LIQUIDS PIPELINES
Keystone XL
On March 31, 2020, we announced that we would proceed with construction of Keystone XL, resulting in an expected additional investment of approximately US$8.0 billion. Construction commenced in April and the pipeline is expected to be placed into service in 2023.
As part of the funding plan, the Government of Alberta has agreed to invest approximately US$1.1 billion as equity in Keystone XL which substantially covers planned construction costs through the end of 2020. The remaining capital investment of approximately US$6.9 billion is expected to be financed through the combination of a US$4.2 billion project-level credit facility to be fully guaranteed by the Government of Alberta and a US$2.7 billion investment by us. Our remaining capital contribution is expected to be funded through a combination of internally generated cash flows, hybrid securities and common equity through the activation of our DRP in 2021 and 2022. Once the project is completed and placed into service, we expect to acquire the Government of Alberta's equity investment under agreed terms and conditions and to refinance borrowings under the US$4.2 billion credit facility in the debt capital markets.
Keystone XL is underpinned by new 20-year transportation service agreements which are expected to generate approximately US$1.3 billion of EBITDA on an annual basis. Subject to terms and conditions outlined in the agreements, 50 per cent of any differences between the estimated capital cost and final cost of Keystone XL are subject to a sharing mechanism and will be reflected in the pipeline tolls.
On April 15, 2020, the U.S. District Court in Montana ruled that the U.S. Army Corps of Engineers (USACE) violated the Endangered Species Act when it reissued the Clean Water Act Nationwide Permit 12 (NWP12) in 2017. The ruling vacated NWP12 and enjoined the USACE from using it to authorize construction across wetlands and other water bodies in the U.S. The ruling was later limited to the construction of new oil and natural gas pipelines only. The U.S. Court of Appeals for the Ninth Circuit denied motions for a stay of the ruling pending appeal and a subsequent application for a stay to the U.S. Supreme Court was granted, except as it applies to Keystone XL. Keystone XL is pursuing other permitting means to gain regulatory authorization to construct the pipeline across wetlands and waterbodies.
On May 29, 2020, a complaint was filed by Indigenous groups in the U.S. District Court in Montana against the U.S. Bureau of Land Management (BLM) and the USACE seeking to set aside BLM’s grant of right of way over federal land and the USACE’s permission with respect to land at the Missouri River crossing in Montana received earlier this year. The BLM grant of right of way has also been challenged in the same Montana Court by a group of non-governmental organizations in a complaint filed July 14, 2020. We have intervened and will continue to actively manage these and other legal and regulatory matters as the project advances.
Rulings regarding challenges to the 2019 Presidential Permit brought by environmental and Indigenous groups remain pending in the U.S. District Court in Montana. On October 16, 2020, the Court denied their request for injunctive relief and ordered additional briefing on the constitutional challenge to the permit within 30 days.
TC ENERGY [31
THIRD QUARTER 2020
POWER AND STORAGE
Ontario natural gas-fired power plants
On March 13, 2020, we placed the Napanee power plant into service after we completed construction and commissioning activities.
On April 29, 2020, we completed the sale of our Halton Hills and Napanee power plants as well as our 50 per cent interest in Portlands Energy Centre to a subsidiary of Ontario Power Generation Inc. for net proceeds of approximately $2.8 billion before post-closing adjustments. Pre-tax losses of $60 million ($45 million after tax) and $321 million ($202 million after tax) were recognized in the three and nine months ended September 30, 2020, respectively. The total pre-tax loss of $600 million ($396 million after tax) on this transaction includes losses accrued during 2019 while classified as assets held for sale as well as utilization of previously unrecognized tax loss benefits. The increase in the total loss from that disclosed at December 31, 2019 is primarily the result of higher than expected costs to achieve Napanee's March 13, 2020 in-service and the accrual of post-closing obligations estimated on close as well as their subsequent revision recorded in third quarter 2020. Along with post-closing adjustments, this loss may also be further amended in the future as current estimates are revised and for items that could not be estimated on close, including the settlement of existing insurance claims.
Bruce Power – Life Extension
In late March 2020, as a result of COVID-19 impacts, Bruce Power declared force majeure under its contract with the Independent Electricity System Operator. This force majeure notice covers the Unit 6 MCR and certain Asset Management work. On May 11, 2020, work on the Unit 6 MCR and Asset Management programs was restarted with additional prevention measures in place for worker safety related to COVID-19 and progress continuing on critical path activities. The impact of the force majeure will ultimately depend on the extent and duration of disruptions resulting from the pandemic and their ability to implement mitigation measures.
On October 1, 2020, the Unit 6 MCR project achieved a major milestone with the completion of the preparation phase and the commencement of the Fuel Channel and Feeder Replacement Program. Operations on the remaining units continue as normal with scheduled outages on Units 3, 4 and 5 successfully completed in second quarter 2020 and the Unit 8 outage, currently underway, is progressing as expected.
CORPORATE
Retirement of our President and CEO, Russ Girling
On September 21, 2020, we announced the retirement of Russ Girling as President and CEO of TC Energy and from our Board of Directors effective December 31, 2020. François Poirier, currently Chief Operating Officer and President, Power & Storage, will succeed Mr. Girling as President and CEO and will join the Board on January 1, 2021. Mr. Girling will assist Mr. Poirier with the transition through February 28, 2021.
Proposed acquisition of common units of TC PipeLines, LP
On October 5, 2020, we announced a non-binding offer to acquire all of the publicly-held outstanding common units of our master limited partnership (MLP), TC PipeLines, LP, in exchange for TC Energy common shares. Under the proposal, TC PipeLines, LP common unitholders would receive 0.65 common shares of TC Energy for each issued and outstanding publicly-held TC PipeLines, LP common unit. The proposed exchange ratio reflected a value for all the publicly held common units of TC PipeLines, LP of approximately US$1.48 billion, or 35.2 million TC Energy common shares based on the price of our common shares on October 2, 2020. The transaction is subject to the review and favourable recommendation by an independent conflicts committee of the Board of Directors of the general partner of TC PipeLines, LP (the TC PipeLines, LP Board), approvals by the TC PipeLines, LP Board and the TC Energy Board of Directors, along with the holders of a majority of the outstanding common units of TC PipeLines, LP, as well as customary regulatory approvals.
TC ENERGY [32
THIRD QUARTER 2020
Financial condition
We strive to maintain financial strength and flexibility in all parts of the economic cycle. We rely on our operating cash flows to sustain our business, pay dividends and fund a portion of our growth. In addition, we access capital markets and engage in portfolio management to meet our financing needs, manage our capital structure and to preserve our credit ratings.
We continued to enhance our financial position in 2020 through:
|
|
|
|
•
|
The Government of Alberta’s commitment to Keystone XL comprised of US$1.1 billion of equity contributions and the guarantee of US$4.2 billion project-level debt financing
|
|
|
|
|
•
|
Completion of the sale of the Ontario natural gas-fired power plants for net proceeds of approximately $2.8 billion
|
|
|
|
|
•
|
Completion of the sale of a 65 per cent equity interest in Coastal GasLink for net proceeds of $656 million
|
|
|
|
|
•
|
Establishment of seven-year senior secured project-level credit facilities for Coastal GasLink with current capacity of $6.8 billion. Immediately preceding the equity sale, $1.6 billion was drawn on these facilities of which approximately $1.5 billion was paid to TC Energy
|
|
|
|
|
•
|
TransCanada PipeLines Limited’s issuance of $2.0 billion of seven-year Medium Term Notes at a fixed rate of 3.80 per cent per annum and US$1.25 billion of 10-year Senior Unsecured Notes at a fixed rate of 4.10 per cent per annum
|
|
|
|
|
•
|
Arrangement of an additional US$2.0 billion of 364-day committed bilateral credit facilities.
|
These transactions demonstrate our continued ability to access capital markets under all market conditions, including during periods of stress such as those recently resulting from COVID-19. Combined with our predictable and growing cash flows from operations, cash on hand, substantial committed credit facilities and various other financing levers available to us, we believe we are well positioned to continue to fund our obligations, capital program and dividends, including in the event similarly challenging market conditions re-emerge. We do not expect COVID-19 or the volatility in commodity prices to date in 2020 to have a material impact on our operating cash flows as a significant majority of our revenues are derived from long-term contracts and/or regulated cost of service business models; however, counterparty credit risk has heightened. Refer to the Financial risks and financial instruments section for additional information.
At September 30, 2020, our current assets totaled $5.1 billion and current liabilities amounted to $10.1 billion, leaving us with a working capital deficit of $4.9 billion compared to $5.2 billion at December 31, 2019. Our working capital deficiency is considered to be in the normal course of business and is managed through:
|
|
|
|
•
|
our ability to generate predictable and growing cash flows from operations
|
|
|
|
|
•
|
a total of $13.0 billion of committed revolving credit facilities of which $11.5 billion of incremental short-term borrowing capacity remains available, net of $1.5 billion backstopping outstanding commercial paper balances. We also have arrangements in place for a further $2.4 billion of demand credit facilities of which $1.1 billion remains available as of September 30, 2020
|
|
|
|
|
•
|
our access to capital markets, including through portfolio management activities, DRP and Corporate ATM programs, if deemed appropriate.
|
TC ENERGY [33
THIRD QUARTER 2020
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
1,783
|
|
|
1,585
|
|
|
5,119
|
|
|
5,256
|
|
|
(Decrease)/increase in operating working capital
|
|
(120
|
)
|
|
(140
|
)
|
|
187
|
|
|
(329
|
)
|
|
Funds generated from operations
|
|
1,663
|
|
|
1,445
|
|
|
5,306
|
|
|
4,927
|
|
|
Specific items:
|
|
|
|
|
|
|
|
|
|
Current income tax expense on sale of Columbia Midstream assets
|
|
—
|
|
|
357
|
|
|
—
|
|
|
357
|
|
|
U.S. Northeast power marketing contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Comparable funds generated from operations
|
|
1,663
|
|
|
1,802
|
|
|
5,306
|
|
|
5,292
|
|
NET CASH PROVIDED BY OPERATIONS
Net cash provided by operations increased by $198 million for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to higher funds generated by operations. Net cash provided by operations decreased by $137 million for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to the amount and timing of working capital changes, partially offset by higher funds generated by operations.
COMPARABLE FUNDS GENERATED FROM OPERATIONS
Comparable funds generated from operations, a non-GAAP measure, helps us assess the cash generating ability of our businesses by excluding the timing effects of working capital changes as well as the cash impact of our specific items.
Comparable funds generated from operations decreased by $139 million for the three months ended September 30, 2020 compared to the same period in 2019 primarily due to lower comparable earnings adjusted for non-cash items and lower distributions from our equity investments.
Comparable funds generated from operations increased by $14 million for the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to the recognition of fees related to the construction of Sur de Texas and Coastal GasLink, lower current income taxes and the recovery of higher depreciation on the NGTL System's investment base, partially offset by lower distributions from our equity investments.
TC ENERGY [34
THIRD QUARTER 2020
CASH USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital spending
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(2,063
|
)
|
|
(1,818
|
)
|
|
(6,049
|
)
|
|
(5,411
|
)
|
|
Capital projects in development
|
|
—
|
|
|
(184
|
)
|
|
(122
|
)
|
|
(565
|
)
|
|
Contributions to equity investments
|
|
(187
|
)
|
|
(133
|
)
|
|
(498
|
)
|
|
(453
|
)
|
|
|
|
(2,250
|
)
|
|
(2,135
|
)
|
|
(6,669
|
)
|
|
(6,429
|
)
|
|
Proceeds from sale of assets, net of transaction costs
|
|
—
|
|
|
1,807
|
|
|
3,407
|
|
|
2,398
|
|
|
Other distributions from equity investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186
|
|
|
Loan to affiliate
|
|
(250
|
)
|
|
—
|
|
|
(250
|
)
|
|
—
|
|
|
Deferred amounts and other
|
|
(137
|
)
|
|
(73
|
)
|
|
(359
|
)
|
|
(154
|
)
|
|
Net cash used in investing activities
|
|
(2,637
|
)
|
|
(401
|
)
|
|
(3,871
|
)
|
|
(3,999
|
)
|
Capital expenditures in 2020 were incurred primarily for the expansion of the NGTL System and Columbia Gas projects, construction of Keystone XL, construction of the Coastal GasLink pipeline prior to the sale of a 65 per cent equity interest, as well as maintenance capital expenditures. Higher capital spending in 2020 compared to 2019 reflects increased spending on Keystone XL and Columbia Gas projects, partially offset by lower spending on the NGTL System and Napanee.
Costs incurred on capital projects in development in 2020 and 2019 were mostly attributable to spending on Keystone XL prior to our March 31, 2020 decision to proceed with construction of the pipeline.
Contributions to equity investments increased in 2020 compared to 2019 mainly due to contributions to Coastal GasLink subsequent to the sale of a 65 per cent interest on May 22, 2020 and higher contributions to Bruce Power, partially offset by our proportionate share of debt financing in 2019 for the Sur de Texas project which went into service in September 2019.
In second quarter 2020, we closed the sale of our Ontario natural gas-fired power plants for net proceeds of approximately $2.8 billion, and the sale of a 65 per cent equity interest in Coastal GasLink for net proceeds of $656 million.
Other distributions from equity investments in 2019 reflect Bruce Power financings undertaken to fund its capital program and to make distributions to its partners. There were no such distributions in 2020.
TC Energy and Coastal GasLink established a subordinated demand revolving credit facility to provide additional short-term liquidity and funding flexibility to the project. During the three months ended September 30, 2020, $250 million was drawn on this facility, which was repaid in its entirety in October 2020. Refer to Note 6, Loans receivable from affiliates, of our Condensed consolidated financial statements for additional information.
TC ENERGY [35
THIRD QUARTER 2020
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued/(repaid), net
|
|
338
|
|
|
(2,584
|
)
|
|
(2,765
|
)
|
|
(688
|
)
|
|
Long-term debt issued, net of issue costs
|
|
35
|
|
|
1,994
|
|
|
5,571
|
|
|
3,015
|
|
|
Long-term debt repaid
|
|
—
|
|
|
(1
|
)
|
|
(2,241
|
)
|
|
(1,835
|
)
|
|
Junior subordinated notes issued, net of issue costs
|
|
—
|
|
|
1,441
|
|
|
—
|
|
|
1,441
|
|
|
Loss on settlement of financial instruments
|
|
—
|
|
|
—
|
|
|
(130
|
)
|
|
—
|
|
|
Dividends and distributions paid
|
|
(854
|
)
|
|
(549
|
)
|
|
(2,514
|
)
|
|
(1,628
|
)
|
|
Contributions from redeemable non-controlling interest
|
|
524
|
|
|
—
|
|
|
578
|
|
|
—
|
|
|
Common shares issued, net of issue costs
|
|
3
|
|
|
83
|
|
|
86
|
|
|
242
|
|
|
Net cash provided by/(used in) financing activities
|
|
46
|
|
|
384
|
|
|
(1,415
|
)
|
|
547
|
|
In May 2020, Coastal GasLink drew down $1.6 billion on its secured long-term project financing credit facilities, of which approximately $1.5 billion was paid to TC Energy prior to the sale of a 65 per cent equity interest in the pipeline. Refer to the Recent developments section for more information.
In April 2020, we issued $2.0 billion of Medium Term Notes bearing interest at a fixed rate of 3.80 per cent per annum and US$1.25 billion of Senior Unsecured Notes at a fixed rate of 4.10 per cent per annum.
In June 2020, we repaid US$750 million of Senior Unsecured Notes bearing interest at a fixed rate of 3.30 per cent per annum. In March 2020, we repaid US$750 million of Senior Unsecured Notes bearing interest at a fixed rate of 4.60 per cent per annum. Further details related to our long-term debt are discussed in Note 7, Long-term debt, of our Condensed consolidated financial statements.
Financial instruments used to manage the interest rate exposure related to the issuance of U.S. dollar-denominated debt in second quarter 2020 were settled at fair value resulting in a total payment of $130 million.
In the nine months ended September 30, 2020, our Keystone XL subsidiaries issued Class A Interests amounting to $720 million to the Government of Alberta through $578 million of cash contributed under its equity commitment to the project plus $133 million of Canadian dollar equivalent notes receivable due by December 31, 2020. The U.S. dollar component of the notes receivable balance is translated to Canadian dollars at each reporting date. Refer to Note 8, Redeemable non-controlling interest, of our Condensed consolidated financial statements for additional information.
DIVIDEND REINVESTMENT PLAN
Commencing with the dividends declared in October 2019, common shares purchased with reinvested cash dividends under TC Energy's DRP are no longer satisfied with shares issued from treasury at a discount, but rather acquired on the open market at 100 per cent of the weighted-average purchase price. The DRP is available for dividends payable on TC Energy's common and preferred shares.
TC ENERGY [36
THIRD QUARTER 2020
DIVIDENDS
On October 28, 2020, we declared quarterly dividends on our common shares of $0.81 per share payable on January 29, 2021 to shareholders of record at the close of business on December 31, 2020.
TC ENERGY'S CORPORATE ATM PROGRAM
We intend to file a $1.0 billion equity shelf prospectus in fourth quarter 2020 to enable an at-the-market equity issuance program which will be utilized if and as deemed appropriate.
SHARE INFORMATION
At October 23, 2020, we had 940 million issued and outstanding common shares and 9 million outstanding options to buy common shares, of which 5 million were exercisable.
On June 30, 2020, 401,590 Series 3 preferred shares were converted, on a one-for-one basis, into Series 4 preferred shares and 1,865,362 Series 4 preferred shares were converted, on a one-for-one basis, into Series 3 preferred shares.
CREDIT FACILITIES
At October 23, 2020, we had a total of $12.9 billion of committed revolving credit facilities of which $8.7 billion of incremental short-term borrowing capacity remains available, net of $4.2 billion backstopping outstanding commercial paper balances. We also have arrangements in place for a further $2.4 billion of demand credit facilities of which $1.1 billion remains available, and our operated affiliates had an additional $0.8 billion of undrawn capacity on committed credit facilities.
Refer to Financial risks and financial instruments for more information about liquidity, market and other risks.
CONTRACTUAL OBLIGATIONS
Our capital expenditure commitments have decreased by approximately $2.7 billion from those reported at December 31, 2019 mainly due to the sale of a 65 per cent equity interest in Coastal GasLink completed on May 22, 2020. Subsequent to the sale, Coastal GasLink is predominantly funded by project-level financing, recovery of cash payments for carrying charges on costs incurred and contributions from equity partners, of which we represent 35 per cent, and accounted for under the equity method. Capital expenditure commitments were also adjusted for normal course fulfillment of construction contracts along with new commitments on capital projects, primarily Keystone XL.
There were no other material changes to our contractual obligations in third quarter 2020 or to payments due in the next five years or after. Refer to the MD&A in our 2019 Annual Report for more information about our contractual obligations.
TC ENERGY [37
THIRD QUARTER 2020
Financial risks and financial instruments
We are exposed to market risk and counterparty credit risk and have strategies, policies and limits in place to manage the impact of these risks on our earnings, cash flows and, ultimately, shareholder value. Risk management strategies, policies and limits are designed to ensure our risks and related exposures are in line with our business objectives and risk tolerance.
Refer to our 2019 Annual Report for more information about the risks we face in our business which have not changed substantially since December 31, 2019, other than as noted within this MD&A. Refer to the COVID-19 section of this MD&A for further information regarding its impact on our financial risks.
INTEREST RATE RISK
We utilize short-term and long-term debt to finance our operations which exposes us to interest rate risk. We typically pay fixed rates of interest on our long-term debt and floating rates on our commercial paper programs and amounts drawn on our credit facilities. A small portion of our long-term debt bears interest at floating rates. In addition, we are exposed to interest rate risk on financial instruments and contractual obligations containing variable interest rate components. We actively manage our interest rate risk using interest rate derivatives.
Many of our financial instruments and contractual obligations with variable rate components reference LIBOR. This rate will cease to be published at the end of 2021 and may be replaced by a secured overnight financing rate. We will continue to monitor developments and the impact, if any, on our business.
FOREIGN EXCHANGE RISK
We generate revenues and incur expenses and capital expenditures that are denominated in currencies other than Canadian dollars. As a result, our earnings and cash flows are exposed to currency fluctuations.
A significant portion of our businesses generate earnings in U.S. dollars, but since we report our financial results in Canadian dollars, changes in the value of the U.S. dollar against the Canadian dollar can affect our net income. As our U.S. dollar-denominated operations continue to grow, this exposure increases. A portion of this risk is offset by interest expense on U.S. dollar-denominated debt. The balance of the exposure is actively managed on a rolling two-year basis using foreign exchange derivatives, however, the natural exposure beyond that period remains.
Average exchange rate – U.S. to Canadian dollars
The average exchange rate for one U.S. dollar converted into Canadian dollars was as follows:
|
|
|
|
|
|
|
three months ended September 30, 2020
|
1.33
|
|
|
three months ended September 30, 2019
|
1.32
|
|
|
|
|
|
|
|
|
nine months ended September 30, 2020
|
1.35
|
|
|
nine months ended September 30, 2019
|
1.33
|
|
The impact of changes in the value of the U.S. dollar on our U.S. and Mexico operations is partially offset by interest on U.S. dollar-denominated debt as set out in the table below. Comparable EBIT is a non-GAAP measure.
TC ENERGY [38
THIRD QUARTER 2020
Significant U.S. dollar-denominated amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of US$)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Natural Gas Pipelines comparable EBIT
|
|
483
|
|
|
459
|
|
|
1,556
|
|
|
1,550
|
|
|
Mexico Natural Gas Pipelines comparable EBIT1
|
|
125
|
|
|
122
|
|
|
455
|
|
|
349
|
|
|
U.S. Liquids Pipelines comparable EBIT
|
|
187
|
|
|
306
|
|
|
580
|
|
|
894
|
|
|
Interest on U.S. dollar-denominated long-term debt and junior subordinated notes
|
|
(324
|
)
|
|
(330
|
)
|
|
(987
|
)
|
|
(989
|
)
|
|
Capitalized interest on U.S. dollar-denominated capital expenditures
|
|
38
|
|
|
9
|
|
|
89
|
|
|
24
|
|
|
U.S. dollar-denominated allowance for funds used during construction
|
|
51
|
|
|
48
|
|
|
126
|
|
|
156
|
|
|
U.S. dollar comparable non-controlling interests and other
|
|
(56
|
)
|
|
(46
|
)
|
|
(178
|
)
|
|
(174
|
)
|
|
|
|
504
|
|
|
568
|
|
|
1,641
|
|
|
1,810
|
|
|
|
|
|
1
|
Excludes interest expense on our inter-affiliate loan with Sur de Texas which is fully offset in Interest income and other.
|
Net investment hedges
We hedge a portion of our net investment in foreign operations (on an after-tax basis) with U.S. dollar-denominated debt, cross-currency swaps, foreign exchange forwards and foreign exchange options.
COUNTERPARTY CREDIT RISK
We have exposure to counterparty credit risk in the following areas:
|
|
|
|
•
|
cash and cash equivalents
|
|
|
|
|
•
|
available-for-sale assets
|
|
|
|
|
•
|
the fair value of derivative assets
|
The combination of the COVID-19 pandemic along with unparalleled energy demand and supply disruption has led to significant commodity price volatility and restricted capital market access impacting a certain number of our customers. While the majority of our credit exposure is to large creditworthy entities, we have increased our monitoring of and communication with those counterparties experiencing greater financial pressures due to recent market events and the challenging business environment. Although counterparty credit risk has heightened, we are not expecting any material negative impact to our 2020 earnings or cash flows. Refer to our 2019 Annual Report for more information about the factors that mitigate our counterparty credit risk exposure.
We review financial assets carried at amortized cost for impairment using the lifetime expected loss of the financial asset at initial recognition and throughout the life of the financial asset. We use historical credit loss and recovery data, adjusted for our judgment regarding current economic and credit conditions, along with supportable forecasts to determine any impairment, which is recognized in Plant operating costs and other. At September 30, 2020, we had no significant credit losses, no significant credit risk concentration and no significant amounts past due or impaired.
We have significant credit and performance exposure to financial institutions because they hold cash deposits and provide committed credit lines and letters of credit that help manage our exposure to counterparties and provide liquidity in commodity, foreign exchange and interest rate derivative markets.
TC ENERGY [39
THIRD QUARTER 2020
LIQUIDITY RISK
We manage our liquidity risk by continuously forecasting our cash flows and ensuring we have adequate cash balances, cash flows from operations, committed and demand credit facilities and access to capital markets to meet our operating, financing and capital expenditure obligations under both normal and stressed economic conditions. As discussed previously, there have been periods of heightened global market volatility and reduced liquidity during 2020 but we have taken steps to further strengthen our financial condition and mitigate our exposure to these risks.
LOANS RECEIVABLE FROM AFFILIATES
Coastal GasLink
In conjunction with the equity sale on May 22, 2020, we entered into a subordinated demand revolving credit facility with Coastal GasLink, which had a capacity of $1.0 billion at September 30, 2020. This facility provides additional short-term liquidity and funding flexibility to the project and bears interest at a floating market-based rate. At September 30, 2020, Other current assets on our Condensed consolidated balance sheet included a $250 million current loan receivable from Coastal GasLink. The entire outstanding balance was repaid in October 2020.
Sur de Texas
At September 30, 2020, our Condensed consolidated balance sheet reflected a MXN$20.9 billion or $1.3 billion (December 31, 2019 – MXN$20.9 billion or $1.4 billion) loan receivable from the Sur de Texas joint venture which represents our 60 per cent proportionate share of long-term debt financing to the joint venture. Our Condensed consolidated statement of income reflects the related interest income and foreign exchange impact on this loan receivable which are fully offset upon consolidation with corresponding amounts included in our 60 per cent proportionate share of Sur de Texas equity earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
Affected line item in the Condensed consolidated statement of income
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income1
|
|
25
|
|
|
38
|
|
|
87
|
|
|
110
|
|
|
Interest income and other
|
|
Interest expense2
|
|
(25
|
)
|
|
(38
|
)
|
|
(87
|
)
|
|
(110
|
)
|
|
Income from equity investments
|
|
Foreign exchange gains/(losses)1
|
|
54
|
|
|
(37
|
)
|
|
(223
|
)
|
|
(11
|
)
|
|
Interest income and other
|
|
Foreign exchange (losses)/gains1
|
|
(54
|
)
|
|
37
|
|
|
223
|
|
|
11
|
|
|
Income from equity investments
|
|
|
|
|
1
|
Included in our Corporate segment.
|
|
|
|
|
2
|
Included in our Mexico Natural Gas Pipelines segment.
|
FINANCIAL INSTRUMENTS
With the exception of Long-term debt and Junior subordinated notes, our derivative and non-derivative financial
instruments are recorded on the balance sheet at fair value unless they were entered into and continue to be held for
the purpose of receipt or delivery in accordance with our normal purchase and sales exemptions and are documented as
such. In addition, fair value accounting is not required for other financial instruments that qualify for certain accounting
exemptions.
Derivative instruments
We use derivative instruments to reduce volatility associated with fluctuations in commodity prices, interest rates and foreign exchange rates. Derivative instruments, including those that qualify and are designated for hedge accounting treatment, are recorded at fair value.
TC ENERGY [40
THIRD QUARTER 2020
The majority of derivative instruments that are not designated or do not qualify for hedge accounting treatment have been entered into as economic hedges to manage our exposure to market risk and are classified as held for trading. Changes in the fair value of held-for-trading derivative instruments are recorded in net income in the period of change. This may expose us to increased variability in reported operating results since the fair value of the held-for-trading derivative instruments can fluctuate significantly from period to period.
Balance sheet presentation of derivative instruments
The balance sheet presentation of the fair value of derivative instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
(millions of $)
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Other current assets
|
|
318
|
|
|
190
|
|
|
Intangible and other assets
|
|
12
|
|
|
7
|
|
|
Accounts payable and other
|
|
(280
|
)
|
|
(115
|
)
|
|
Other long-term liabilities
|
|
(75
|
)
|
|
(81
|
)
|
|
|
|
(25
|
)
|
|
1
|
|
Unrealized and realized gains/(losses) on derivative instruments
The following summary does not include hedges of our net investment in foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months ended
September 30
|
|
nine months ended
September 30
|
|
(millions of $)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments held for trading1
|
|
|
|
|
|
|
|
|
|
Amount of unrealized (losses)/gains in the period
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
(2
|
)
|
|
(69
|
)
|
|
14
|
|
|
(98
|
)
|
|
Foreign exchange
|
|
78
|
|
|
(31
|
)
|
|
(24
|
)
|
|
176
|
|
|
Amount of realized gains/(losses) in the period
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
68
|
|
|
132
|
|
|
146
|
|
|
319
|
|
|
Foreign exchange
|
|
(11
|
)
|
|
(9
|
)
|
|
(62
|
)
|
|
(68
|
)
|
|
Derivative instruments in hedging relationships2
|
|
|
|
|
|
|
|
|
|
Amount of realized gains/(losses) in the period
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
2
|
|
|
1
|
|
|
4
|
|
|
(8
|
)
|
|
Interest rate
|
|
(6
|
)
|
|
1
|
|
|
(10
|
)
|
|
1
|
|
|
|
|
|
1
|
Realized and unrealized gains and losses on held-for-trading derivative instruments used to purchase and sell commodities are included on a net basis in Revenues. Realized and unrealized gains and losses on foreign exchange held-for-trading derivative instruments are included on a net basis in Interest income and other.
|
|
|
|
|
2
|
In the three and nine months ended September 30, 2020 and 2019, there were no gains or losses included in Net income relating to discontinued cash flow hedges where it was probable that the anticipated transaction would not occur.
|
For further details on our financial instruments, including classification assumptions made in the calculation of fair value and additional discussion of exposure to risks and mitigation activities, refer to Note 12, Risk management and financial instruments, in our Condensed consolidated financial statements.
TC ENERGY [41
THIRD QUARTER 2020
Other information
CONTROLS AND PROCEDURES
Management, including our President and CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures as at September 30, 2020, as required by the Canadian securities regulatory authorities and by the SEC, and concluded that our disclosure controls and procedures are effective at a reasonable assurance level.
There were no changes in third quarter 2020 that had or are likely to have a material impact on our internal control over financial reporting.
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICY CHANGES
When we prepare financial statements that conform with U.S. GAAP, we are required to make estimates and assumptions that impact the timing and amounts we record for our assets, liabilities, revenues and expenses because these items may be affected by future events. We base the estimates and assumptions on the most current information available, using our best judgment. We also regularly assess the assets and liabilities themselves. A summary of our critical accounting estimates is included in our 2019 Annual Report.
Accounting Changes
Our significant accounting policies have remained unchanged since December 31, 2019 other than as described in Note 2, Accounting changes, in our Condensed consolidated financial statements. A summary of our significant accounting policies is included in our 2019 Annual Report.
TC ENERGY [42
THIRD QUARTER 2020
Quarterly results
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
(millions of $, except
per share amounts)
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
3,195
|
|
|
3,089
|
|
|
3,418
|
|
|
3,263
|
|
|
3,133
|
|
|
3,372
|
|
|
3,487
|
|
|
3,904
|
|
|
Net income attributable to common shares
|
|
904
|
|
|
1,281
|
|
|
1,148
|
|
|
1,108
|
|
|
739
|
|
|
1,125
|
|
|
1,004
|
|
|
1,092
|
|
|
Comparable earnings
|
|
893
|
|
|
863
|
|
|
1,109
|
|
|
970
|
|
|
970
|
|
|
924
|
|
|
987
|
|
|
946
|
|
|
Share statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share – basic and diluted
|
|
|
$0.96
|
|
|
|
$1.36
|
|
|
|
$1.22
|
|
|
|
$1.18
|
|
|
|
$0.79
|
|
|
|
$1.21
|
|
|
|
$1.09
|
|
|
|
$1.19
|
|
|
Comparable earnings per common share
|
|
|
$0.95
|
|
|
|
$0.92
|
|
|
|
$1.18
|
|
|
|
$1.03
|
|
|
|
$1.04
|
|
|
|
$1.00
|
|
|
|
$1.07
|
|
|
|
$1.03
|
|
|
Dividends declared per common share
|
|
|
$0.81
|
|
|
|
$0.81
|
|
|
|
$0.81
|
|
|
|
$0.75
|
|
|
|
$0.75
|
|
|
|
$0.75
|
|
|
|
$0.75
|
|
|
|
$0.69
|
|
FACTORS AFFECTING QUARTERLY FINANCIAL INFORMATION BY BUSINESS SEGMENT
Quarter-over-quarter revenues and net income fluctuate for reasons that vary across our business segments.
In our Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines and Mexico Natural Gas Pipelines segments, except for seasonal fluctuations in short-term throughput volumes on U.S. pipelines, quarter-over-quarter revenues and net income generally remain relatively stable during any fiscal year. Over the long term, however, they fluctuate because of:
|
|
|
|
•
|
negotiated settlements with shippers
|
|
|
|
|
•
|
newly constructed assets being placed in service
|
|
|
|
|
•
|
acquisitions and divestitures
|
|
|
|
|
•
|
developments outside of the normal course of operations.
|
In Liquids Pipelines, annual revenues and net income are based on contracted and uncommitted spot transportation, as well as liquids marketing activities. Quarter-over-quarter revenues and net income are affected by:
|
|
|
|
•
|
newly constructed assets being placed in service
|
|
|
|
|
•
|
acquisitions and divestitures
|
|
|
|
|
•
|
demand for uncontracted transportation services
|
|
|
|
|
•
|
liquids marketing activities and commodity prices
|
|
|
|
|
•
|
developments outside of the normal course of operations
|
|
|
|
|
•
|
certain fair value adjustments.
|
In Power and Storage, quarter-over-quarter revenues and net income are affected by:
|
|
|
|
•
|
newly constructed assets being placed in service
|
|
|
|
|
•
|
acquisitions and divestitures
|
|
|
|
|
•
|
market prices for natural gas and power
|
|
|
|
|
•
|
capacity prices and payments
|
|
|
|
|
•
|
planned and unplanned plant outages
|
|
|
|
|
•
|
developments outside of the normal course of operations
|
|
|
|
|
•
|
certain fair value adjustments.
|
TC ENERGY [43
THIRD QUARTER 2020
FACTORS AFFECTING FINANCIAL INFORMATION BY QUARTER
We calculate comparable measures by adjusting certain GAAP and non-GAAP measures for specific items we believe are significant but not reflective of our underlying operations in the period.
Comparable earnings exclude the unrealized gains and losses from changes in the fair value of certain derivatives used to reduce our exposure to certain financial and commodity price risks. These derivatives generally provide effective economic hedges, but do not meet the criteria for hedge accounting. As a result, the changes in fair value are recorded in net income. As these amounts do not accurately reflect the gains and losses that will be realized at settlement, we do not consider them part of our underlying operations.
In third quarter 2020, comparable earnings also excluded:
|
|
|
|
•
|
an incremental after-tax loss of $45 million related to the sale of the Ontario natural gas-fired power plants
|
|
|
|
|
•
|
a $6 million reduction in the after-tax gain related to the sale of a 65 per cent equity interest in Coastal GasLink.
|
In second quarter 2020, comparable earnings also excluded:
|
|
|
|
•
|
an after-tax gain of $408 million related to the sale of a 65 per cent equity interest in Coastal GasLink
|
|
|
|
|
•
|
an incremental after-tax loss of $80 million related to the sale of the Ontario natural gas-fired power plants.
|
In first quarter 2020, comparable earnings also excluded:
|
|
|
|
•
|
an income tax valuation allowance release of $281 million following our reassessment of deferred tax assets that are deemed more likely than not to be realized as a result of our decision to proceed with the Keystone XL project
|
|
|
|
|
•
|
an incremental after-tax loss of $77 million related to the Ontario natural gas-fired power plant assets held for sale.
|
In fourth quarter 2019, comparable earnings also excluded:
|
|
|
|
•
|
an income tax valuation allowance release of $195 million related to certain prior years' U.S. tax losses resulting from our reassessment of deferred tax assets that are more likely than not to be realized
|
|
|
|
|
•
|
an incremental after-tax loss of $61 million related to the Ontario natural gas-fired power plant assets held for sale
|
|
|
|
|
•
|
an additional $19 million expense related to state income taxes on the sale of certain Columbia Midstream assets.
|
In third quarter 2019, comparable earnings also excluded:
|
|
|
|
•
|
an after-tax loss of $133 million related to the Ontario natural gas-fired power plant assets held for sale
|
|
|
|
|
•
|
an after-tax loss of $133 million related to the sale of certain Columbia Midstream assets
|
|
|
|
|
•
|
an after-tax gain of $115 million related to the partial sale of Northern Courier.
|
In second quarter 2019, comparable earnings also excluded:
|
|
|
|
•
|
an after-tax gain of $54 million related to the sale of our Coolidge generating station
|
|
|
|
|
•
|
a deferred tax benefit of $32 million related to the impact of an Alberta corporate income tax rate reduction on our Canadian businesses not subject to rate-regulated accounting
|
|
|
|
|
•
|
an after-tax gain of $6 million related to the remainder of our U.S. Northeast power marketing contracts.
|
In first quarter 2019, comparable earnings also excluded:
|
|
|
|
•
|
an after-tax loss of $12 million related to our U.S. Northeast power marketing contracts.
|
TC ENERGY [44
THIRD QUARTER 2020
In fourth quarter 2018, comparable earnings also excluded:
|
|
|
|
•
|
a $143 million after-tax gain related to the sale of our interests in the Cartier Wind power facilities
|
|
|
|
|
•
|
a $115 million deferred income tax recovery from an MLP regulatory liability write-off as a result of the 2018 FERC Actions
|
|
|
|
|
•
|
a $52 million recovery of deferred income taxes as a result of finalizing the impact of U.S. Tax Reform
|
|
|
|
|
•
|
a $27 million income tax recovery related to the sale of our U.S. Northeast power generation assets
|
|
|
|
|
•
|
$25 million of after-tax income recognized on the Bison contract terminations
|
|
|
|
|
•
|
a $140 million after-tax impairment charge on Bison
|
|
|
|
|
•
|
a $15 million after-tax goodwill impairment charge on Tuscarora
|
|
|
|
|
•
|
an after-tax net loss of $7 million related to our U.S. Northeast power marketing contracts.
|
