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 September 30, 20202021
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)
| | | | | | | | | | | | | | |
Delaware | | 74-1079400 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
2800 Post Oak Boulevard | | |
Houston | Texas | | | 77056 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (713) 215-2000
(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 and post 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.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
Index
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 such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “assumes,” “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;
•Natural gas prices, supply, and demand;
•Demand for our services; and
•The impact of the novel coronavirus (COVID-19) pandemic.
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 the forward-looking statements include, among others, the following:
•The impact of operational and developmental hazards and unforeseen interruptions;
•Development and rate of adoption of alternative energy sources;
•The strength and financial resources of our competitors and the effects of competition;
•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;
•Changes in maintenance and construction costs, as well as our ability to obtain sufficient construction- related inputs, including skilled labor;
•The impact of existing and future laws and regulations, the regulatory environment, environmental liabilities,matters, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes;
•Increasing scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance practices;
•The physical and financial risks associated with climate change;
•Our exposure to the credit risk of our customers and counterparties;
•Our ability to successfully expand our facilities and operations;
•Whether we are able to successfully identify, evaluate, and timely execute our capital projects and investment opportunities;
•Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally recognized credit rating agencies, and the availability and cost of capital;
•Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);
•Our costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates;
•The risks resulting from outbreaks or other public health crises, including COVID-19;
•Changes in the current geopolitical situation;
•Changes in U.S. governmental administration and policies;
•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 announce publicly the result of 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 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 for the year ended December 31, 2020, as filed with the SEC on February 24, 2020, as supplemented by the disclosure in Part II, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q filed with the SEC on May 4, 2020.2021.
PART I — FINANCIAL INFORMATION
| | | | | |
ITEM 1. | Financial Statements. |
Item 1. Financial Statements
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVENET INCOME
(Thousands of Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Operating Revenues: | | | | | | | | |
Natural gas sales | | $ | 21,393 | | | $ | 41,547 | | | $ | 61,373 | | | $ | 88,062 | |
Natural gas transportation | | 557,947 | | | 566,240 | | | 1,676,243 | | | 1,626,552 | |
Natural gas storage | | 42,208 | | | 35,194 | | | 119,637 | | | 109,751 | |
Other | | 4,407 | | | 2,735 | | | 11,761 | | | 8,255 | |
Total operating revenues | | 625,955 | | | 645,716 | | | 1,869,014 | | | 1,832,620 | |
| | | | | | | | |
Operating Costs and Expenses: | | | | | | | | |
Cost of natural gas sales | | 21,393 | | | 41,547 | | | 61,373 | | | 88,062 | |
Cost of natural gas transportation | | 15,175 | | | 15,395 | | | 42,100 | | | 38,970 | |
Operation and maintenance | | 80,623 | | | 92,706 | | | 236,868 | | | 274,289 | |
Administrative and general | | 46,793 | | | 49,997 | | | 139,728 | | | 155,506 | |
Depreciation and amortization | | 115,821 | | | 112,296 | | | 343,291 | | | 320,103 | |
Taxes — other than income taxes | | 20,441 | | | 19,316 | | | 64,872 | | | 58,253 | |
Regulatory credit resulting from Tax Reform | | (7,688) | | | (12,247) | | | (23,064) | | | (19,244) | |
Other (income) expense, net | | 3,821 | | | (6,263) | | | 8,563 | | | 19,451 | |
Total operating costs and expenses | | 296,379 | | | 312,747 | | | 873,731 | | | 935,390 | |
| | | | | | | | |
Operating Income | | 329,576 | | | 332,969 | | | 995,283 | | | 897,230 | |
| | | | | | | | |
Other (Income) and Other Expenses: | | | | | | | | |
Interest expense | | 80,545 | | | 71,980 | | | 232,403 | | | 214,059 | |
Allowance for equity and borrowed funds used during construction (AFUDC) | | 2,729 | | | (12,640) | | | (17,518) | | | (28,857) | |
Equity in earnings of unconsolidated affiliates | | 0 | | | (847) | | | 0 | | | (2,441) | |
Miscellaneous other (income) expenses, net | | 588 | | | 194 | | | 737 | | | (1,414) | |
Total other (income) and other expenses | | 83,862 | | | 58,687 | | | 215,622 | | | 181,347 | |
| | | | | | | | |
Net Income | | 245,714 | | | 274,282 | | | 779,661 | | | 715,883 | |
| | | | | | | | |
Other comprehensive loss: | | | | | | | | |
Equity interest in unrealized loss on interest rate hedges (includes $(24) for the three months ended September 30, 2019 and $(153) for the nine months ended September 30, 2019, respectively, of accumulated other comprehensive loss reclassification for equity interest in realized gains on interest rate hedges) | | 0 | | | (93) | | | 0 | | | (692) | |
| | | | | | | | |
Comprehensive Income | | $ | 245,714 | | | $ | 274,189 | | | $ | 779,661 | | | $ | 715,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | | |
Operating Revenues: | | | | | | | | | | | | |
Natural gas sales | | $ | 19,506 | | | $ | 21,393 | | | $ | 49,733 | | | $ | 61,373 | | | | | |
Natural gas transportation | | 600,615 | | | 557,947 | | | 1,754,417 | | | 1,676,243 | | | | | |
Natural gas storage | | 41,950 | | | 42,208 | | | 125,809 | | | 119,637 | | | | | |
Other | | 3,814 | | | 4,407 | | | 10,942 | | | 11,761 | | | | | |
Total operating revenues | | 665,885 | | | 625,955 | | | 1,940,901 | | | 1,869,014 | | | | | |
| | | | | | | | | | | | |
Operating Costs and Expenses: | | | | | | | | | | | | |
Cost of natural gas sales | | 19,506 | | | 21,393 | | | 49,733 | | | 61,373 | | | | | |
| | | | | | | | | | | | |
Operation and maintenance | | 110,746 | | | 95,798 | | | 302,661 | | | 278,968 | | | | | |
Administrative and general | | 55,085 | | | 46,793 | | | 152,262 | | | 139,728 | | | | | |
Depreciation and amortization | | 122,159 | | | 115,821 | | | 357,715 | | | 343,291 | | | | | |
Taxes — other than income taxes | | 23,235 | | | 20,441 | | | 72,181 | | | 64,872 | | | | | |
| | | | | | | | | | | | |
Regulatory credit resulting from tax rate changes | | (7,688) | | | (7,688) | | | (23,064) | | | (23,064) | | | | | |
Other expense, net | | 9,310 | | | 3,821 | | | 13,987 | | | 8,563 | | | | | |
Total operating costs and expenses | | 332,353 | | | 296,379 | | | 925,475 | | | 873,731 | | | | | |
| | | | | | | | | | | | |
Operating Income | | 333,532 | | | 329,576 | | | 1,015,426 | | | 995,283 | | | | | |
| | | | | | | | | | | | |
Other (Income) and Other Expenses: | | | | | | | | | | | | |
Interest expense | | 80,328 | | | 80,545 | | | 240,763 | | | 232,403 | | | | | |
Allowance for equity and borrowed funds used during construction (AFUDC) | | (7,080) | | | 2,729 | | | (16,801) | | | (17,518) | | | | | |
| | | | | | | | | | | | |
Miscellaneous other (income) expenses, net | | 273 | | | 588 | | | 226 | | | 737 | | | | | |
Total other (income) and other expenses | | 73,521 | | | 83,862 | | | 224,188 | | | 215,622 | | | | | |
| | | | | | | | | | | | |
Net Income | | $ | 260,011 | | | $ | 245,714 | | | $ | 791,238 | | | $ | 779,661 | | | | | |
See accompanying notes.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
ASSETS | | | | |
| | | | |
Current Assets: | | | | |
Cash | | $ | 0 | | | $ | 0 | |
Receivables: | | | | |
Affiliates | | 965 | | | 669 | |
Advances to affiliate | | 581,665 | | | 0 | |
Trade and other | | 213,298 | | | 253,266 | |
Transportation and exchange gas receivables | | 4,676 | | | 6,360 | |
Inventories | | 71,057 | | | 64,992 | |
Regulatory assets | | 62,407 | | | 69,440 | |
Other | | 14,506 | | | 11,240 | |
Total current assets | | 948,574 | | | 405,967 | |
| | | | |
Property, Plant and Equipment: | | | | |
Natural gas transmission plant | | 17,201,803 | | | 16,764,904 | |
Less-Accumulated depreciation and amortization | | 4,730,876 | | | 4,438,077 | |
Total property, plant and equipment, net | | 12,470,927 | | | 12,326,827 | |
| | | | |
Other Assets: | | | | |
Regulatory assets | | 294,481 | | | 290,923 | |
Right-of-use assets | | 80,526 | | | 84,979 | |
Other | | 227,642 | | | 210,017 | |
Total other assets | | 602,649 | | | 585,919 | |
| | | | |
Total assets | | $ | 14,022,150 | | | $ | 13,318,713 | |
(continued) | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
ASSETS | | | | |
| | | | |
Current Assets: | | | | |
Cash | | $ | — | | | $ | — | |
Receivables: | | | | |
Affiliates | | 6,402 | | | 1,011 | |
Advances to affiliate | | 1,448,300 | | | 642,734 | |
Trade | | 215,634 | | | 223,864 | |
Other | | 16,652 | | | 14,660 | |
Transportation and exchange gas receivables | | 5,816 | | | 4,627 | |
Inventories | | 62,882 | | | 56,297 | |
Regulatory assets | | 81,937 | | | 62,861 | |
Other | | 19,254 | | | 13,847 | |
Total current assets | | 1,856,877 | | | 1,019,901 | |
| | | | |
Property, Plant and Equipment: | | | | |
Natural gas transmission plant | | 17,582,511 | | | 17,123,779 | |
Less-Accumulated depreciation and amortization | | 5,129,262 | | | 4,802,256 | |
Total property, plant and equipment, net | | 12,453,249 | | | 12,321,523 | |
| | | | |
Other Assets: | | | | |
Regulatory assets | | 269,525 | | | 281,870 | |
Right-of-use assets | | 68,345 | | | 78,899 | |
Other | | 272,683 | | | 252,051 | |
Total other assets | | 610,553 | | | 612,820 | |
| | | | |
Total assets | | $ | 14,920,679 | | | $ | 13,954,244 | |
(continued)
See accompanying notes.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
LIABILITIES AND MEMBER’S EQUITY | | | | |
| | | | |
Current Liabilities: | | | | |
Payables: | | | | |
Affiliates | | $ | 40,215 | | | $ | 47,740 | |
Advances from affiliate | | 0 | | | 252,549 | |
Trade and other | | 128,000 | | | 183,968 | |
Transportation and exchange gas payables | | 1,883 | | | 3,961 | |
Reserve for rate refunds | | 0 | | | 188,842 | |
Regulatory liabilities | | 57,423 | | | 57,359 | |
Accrued liabilities | | 217,222 | | | 199,128 | |
Long-term debt due within one year | | 21,604 | | | 20,180 | |
Total current liabilities | | 466,347 | | | 953,727 | |
| | | | |
Long-Term Debt | | 5,221,827 | | | 4,044,790 | |
| | | | |
Other Long-Term Liabilities: | | | | |
Asset retirement obligations | | 393,664 | | | 426,505 | |
Regulatory liabilities | | 947,424 | | | 966,961 | |
| | | | |
| | | | |
Deferred revenue | | 207,673 | | | 215,598 | |
Lease liability | | 80,085 | | | 84,528 | |
Other | | 39,686 | | | 20,821 | |
Total other long-term liabilities | | 1,668,532 | | | 1,714,413 | |
| | | | |
Contingent Liabilities and Commitments (Note 3) | | | | |
| | | | |
Member’s Equity: | | | | |
Member’s capital | | 4,493,499 | | | 4,428,499 | |
Retained earnings | | 2,171,945 | | | 2,177,284 | |
Total member’s equity | | 6,665,444 | | | 6,605,783 | |
| | | | |
Total liabilities and member’s equity | | $ | 14,022,150 | | | $ | 13,318,713 | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
LIABILITIES AND MEMBER’S EQUITY | | | | |
| | | | |
Current Liabilities: | | | | |
Payables: | | | | |
Affiliates | | $ | 84,774 | | | $ | 32,676 | |
Trade and other | | 192,569 | | | 128,449 | |
Transportation and exchange gas payables | | 3,893 | | | 1,905 | |
Regulatory liabilities | | 58,199 | | | 57,086 | |
Accrued liabilities | | 255,079 | | | 242,379 | |
Long-term debt due within one year | | 24,213 | | | 22,640 | |
Total current liabilities | | 618,727 | | | 485,135 | |
| | | | |
Long-Term Debt | | 5,202,681 | | | 5,217,140 | |
| | | | |
Other Long-Term Liabilities: | | | | |
Asset retirement obligations | | 478,407 | | | 397,737 | |
Regulatory liabilities | | 926,582 | | | 946,774 | |
Deferred revenue | | 197,107 | | | 205,030 | |
Lease liability | | 67,398 | | | 78,688 | |
Other | | 73,648 | | | 42,921 | |
Total other long-term liabilities | | 1,743,142 | | | 1,671,150 | |
| | | | |
Contingent Liabilities and Commitments (Note 3) | | 0 | | 0 |
| | | | |
Member’s Equity: | | | | |
Member’s capital | | 4,815,499 | | | 4,543,499 | |
Retained earnings | | 2,540,630 | | | 2,037,320 | |
Total member’s equity | | 7,356,129 | | | 6,580,819 | |
| | | | |
Total liabilities and member’s equity | | $ | 14,920,679 | | | $ | 13,954,244 | |
See accompanying notes.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(Thousands of Dollars)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2020 | | 2019 | | |
Member’s Capital: | | | | | | |
Balance at beginning of period | | $ | 4,428,499 | | | $ | 4,428,499 | | | |
Cash contributions from parent | | 65,000 | | | 0 | | | |
| | | | | | |
| | | | | | |
Balance at end of period | | 4,493,499 | | | 4,428,499 | | | |
Retained Earnings: | | | | | | |
Balance at beginning of period | | 2,176,231 | | | 2,195,168 | | | |
Net income | | 245,714 | | | 274,282 | | | |
Cash distributions to parent | | (250,000) | | | (213,000) | | | |
| | | | | | |
Balance at end of period | | 2,171,945 | | | 2,256,450 | | | |
Accumulated Other Comprehensive Loss: | | | | | | |
Balance at beginning of period | | 0 | | | (65) | | | |
Equity interest in unrealized loss in interest rate hedge | | 0 | | | (93) | | | |
Balance at end of period | | 0 | | | (158) | | | |
| | | | | | |
Total Member’s Equity | | $ | 6,665,444 | | | $ | 6,684,791 | | | |
| | | Nine Months Ended September 30, | | Three Months Ended September 30, |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Member’s Capital: | Member’s Capital: | | | | | | Member’s Capital: | | | | | |
Balance at beginning of period | Balance at beginning of period | | $ | 4,428,499 | | | $ | 4,428,499 | | | Balance at beginning of period | | $ | 4,676,499 | | | $ | 4,428,499 | | |
Cash contributions from parent | Cash contributions from parent | | 65,000 | | | 0 | | | Cash contributions from parent | | 139,000 | | | 65,000 | | |
| Balance at end of period | Balance at end of period | | 4,493,499 | | | 4,428,499 | | | Balance at end of period | | 4,815,499 | | | 4,493,499 | | |
Retained Earnings: | Retained Earnings: | | | | | | Retained Earnings: | | | | | |
Balance at beginning of period | Balance at beginning of period | | 2,177,284 | | | 2,099,567 | | | Balance at beginning of period | | 2,337,177 | | | 2,176,231 | | |
Net income | Net income | | 779,661 | | | 715,883 | | | Net income | | 260,011 | | | 245,714 | | |
Cash distributions to parent | Cash distributions to parent | | (785,000) | | | (559,000) | | | Cash distributions to parent | | (56,558) | | | (250,000) | | |
| Balance at end of period | Balance at end of period | | 2,171,945 | | | 2,256,450 | | | Balance at end of period | | 2,540,630 | | | 2,171,945 | | |
Accumulated Other Comprehensive Income (Loss): | | | | | | |
Balance at beginning of period | | 0 | | | 534 | | | |
Equity interest in unrealized loss in interest rate hedge | | 0 | | | (692) | | | |
Balance at end of period | | 0 | | | (158) | | | |
| Total Member’s Equity | Total Member’s Equity | | $ | 6,665,444 | | | $ | 6,684,791 | | | Total Member’s Equity | | $ | 7,356,129 | | | $ | 6,665,444 | | |
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 | | |
Member’s Capital: | | | | | | |
Balance at beginning of period | | $ | 4,543,499 | | | $ | 4,428,499 | | | |
Cash contributions from parent | | 272,000 | | | 65,000 | | | |
| | | | | | |
| | | | | | |
Balance at end of period | | 4,815,499 | | | 4,493,499 | | | |
Retained Earnings: | | | | | | |
Balance at beginning of period | | 2,037,320 | | | 2,177,284 | | | |
Net income | | 791,238 | | | 779,661 | | | |
Cash distributions to parent | | (287,928) | | | (785,000) | | | |
| | | | | | |
Balance at end of period | | 2,540,630 | | | 2,171,945 | | | |
| | | | | | |
Total Member’s Equity | | $ | 7,356,129 | | | $ | 6,665,444 | | | |
See accompanying notes.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 2020 | | 2019 |
Cash flows from operating activities: | | | | |
Net income | | $ | 779,661 | | | $ | 715,883 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | |
Depreciation and amortization | | 343,291 | | | 320,103 | |
Allowance for equity funds used during construction (equity AFUDC) | | (10,855) | | | (22,926) | |
Regulatory credit resulting from Tax Reform | | (23,064) | | | (19,244) | |
Equity in earnings of unconsolidated affiliates | | 0 | | | (2,441) | |
Distributions from unconsolidated affiliates | | 0 | | | 3,744 | |
Changes in operating assets and liabilities: | | | | |
Receivables — affiliates | | (296) | | | (25) | |
— trade and other | | 39,968 | | | (26,239) | |
Transportation and exchange gas receivable | | 1,684 | | | 259 | |
Inventories | | (6,065) | | | 6,584 | |
Payables — affiliates | | (7,525) | | | 3,781 | |
— trade | | (18,288) | | | (21,844) | |
Accrued liabilities | | 24,460 | | | (18,575) | |
Reserve for rate refunds | | (188,842) | | | 130,752 | |
Asset retirement obligations | | (12,105) | | | 7,615 | |
| | | | |
Deferred revenue | | (7,925) | | | (7,922) | |
Other, net | | (6,322) | | | 15,264 | |
Net cash provided by operating activities | | 907,777 | | | 1,084,769 | |
| | | | |
Cash flows from financing activities: | | | | |
Proceeds from long-term debt | | 1,195,629 | | | 0 | |
Proceeds from other financing obligations | | 7,248 | | | 35,709 | |
| | | | |
Payments on other financing obligations | | (14,848) | | | (12,581) | |
Payments for debt issuance costs | | (11,209) | | | 0 | |
Cash distributions to parent | | (785,000) | | | (559,000) | |
Cash contributions from parent | | 65,000 | | | 0 | |
Advances from affiliate, net | | (252,549) | | | 169,908 | |
| | | | |
Net cash provided by (used in) financing activities | | 204,271 | | | (365,964) | |
| | | | |
Cash flows from investing activities: | | | | |
Capital expenditures* | | (504,987) | | | (702,634) | |
Contributions and advances for construction costs | | 20,850 | | | 22,690 | |
Disposal of property, plant and equipment, net | | (33,553) | | | (37,014) | |
Advances to affiliate, net | | (581,665) | | | 33,034 | |
Contribution to unconsolidated affiliate | | 0 | | | (12,250) | |
Purchase of ARO Trust investments | | (46,075) | | | (52,272) | |
Proceeds from sale of ARO Trust investments | | 33,382 | | | 29,641 | |
Net cash used in investing activities | | (1,112,048) | | | (718,805) | |
| | | | |
Increase (decrease) in cash | | 0 | | | 0 | |
Cash at beginning of period | | 0 | | | 0 | |
Cash at end of period | | $ | 0 | | | $ | 0 | |
| | | | |
* Increase to property, plant and equipment, exclusive of equity AFUDC | | $ | (456,158) | | | $ | (686,270) | |
Changes in related accounts payable and accrued liabilities | | (48,829) | | | (16,364) | |
Capital expenditures | | $ | (504,987) | | | $ | (702,634) | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
Cash flows from operating activities: | | | | |
Net income | | $ | 791,238 | | | $ | 779,661 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | |
Depreciation and amortization | | 357,715 | | | 343,291 | |
Allowance for equity funds used during construction (equity AFUDC) | | (12,959) | | | (10,855) | |
Regulatory credit resulting from tax rate changes | | (23,064) | | | (23,064) | |
Changes in operating assets and liabilities: | | | | |
Receivables — affiliates | | (5,391) | | | (296) | |
— trade and other | | 6,238 | | | 39,968 | |
Transportation and exchange gas receivable | | (1,189) | | | 1,684 | |
Inventories | | (6,585) | | | (6,065) | |
Payables — affiliates | | 52,098 | | | (7,525) | |
— trade | | 24,841 | | | (18,288) | |
Accrued liabilities | | 37,400 | | | 24,460 | |
Reserve for rate refunds | | — | | | (188,842) | |
Asset retirement obligations | | 5,446 | | | (12,105) | |
Deferred revenue | | (7,922) | | | (7,925) | |
Other, net | | (42,867) | | | (6,322) | |
Net cash provided by operating activities | | 1,174,999 | | | 907,777 | |
| | | | |
Cash flows from financing activities: | | | | |
Proceeds from long-term debt | | — | | | 1,195,629 | |
Proceeds from other financing obligations | | 1,790 | | | 7,248 | |
| | | | |
Payments on other financing obligations | | (16,663) | | | (14,848) | |
Payments for debt issuance costs | | (59) | | | (11,209) | |
Cash distributions to parent | | (287,928) | | | (785,000) | |
Cash contributions from parent | | 272,000 | | | 65,000 | |
Advances from affiliate, net | | — | | | (252,549) | |
| | | | |
Net cash provided by (used in) financing activities | | (30,860) | | | 204,271 | |
| | | | |
Cash flows from investing activities: | | | | |
Capital expenditures (1) | | (355,662) | | | (504,987) | |
Contributions and advances for construction costs | | 34,102 | | | 20,850 | |
Disposal of property, plant and equipment, net | | (20,545) | | | (33,553) | |
Advances to affiliate, net | | (805,566) | | | (581,665) | |
Purchase of ARO Trust investments | | (23,174) | | | (46,075) | |
Proceeds from sale of ARO Trust investments | | 26,706 | | | 33,382 | |
Net cash used in investing activities | | (1,144,139) | | | (1,112,048) | |
| | | | |
Increase (decrease) in cash | | — | | | — | |
Cash at beginning of period | | — | | | — | |
Cash at end of period | | $ | — | | | $ | — | |
_______________________ | | | | |
(1) Increase to property, plant and equipment, exclusive of equity AFUDC | | $ | (378,004) | | | $ | (456,158) | |
Changes in related accounts payable and accrued liabilities | | 22,342 | | | (48,829) | |
Capital expenditures | | $ | (355,662) | | | $ | (504,987) | |
See accompanying notes.
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATIONNote 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)(Transco) 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 accompanying 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. Effective December 31, 2019, we distributed to our parent four wholly owned subsidiaries, two of which had equity method investments. The equity method investments prior to December 31, 2019 consisted 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 $3.7 million in the nine months ended September 30, 2019. We made a $12.3 million contribution to Pine Needle in the nine months ended September 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 20192020 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 Costs and Expenses in the Condensed Statement of Net 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 incometo include Cost 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 that govern a process to establish the rates that we are permitted to charge customers for natural gas salestransportation within Operation and services, includingmaintenance of approximately $15.2 million and $42.1 million for the transportationthree 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) contract and volume throughput assumptions.
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. (See Note 3)
Northeast Supply Enhancement
As ofnine months ended September 30, 2020, Property, plant, and equipment in our Condensed Consolidated Balance Sheet includes approximately $215 million of capitalized project development costs for the Northeast Supply Enhancement project. Approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project.
The customer precedent agreements remain in effect and the project’s FERC certificate remains active. As such, we do not believe this project is probable of abandonment at this time and consider the carrying amount to be recoverable; thus no impairment chargerespectively, has been recognized. It is reasonably possible that further adverse developments inmade to conform to the near future could change this determination, resulting in a future impairment charge of a substantial portion of the capitalized costs.2021 presentation.
Accounting Standards Issued and Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changed 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 are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. We adopted ASU 2016-13 effective January 1, 2020, which primarily applied to our short-term trade receivables. There was no cumulative effect adjustment to retained earnings upon adoption.
The majority of our trade receivable balances are due within 30 days. We monitor the credit quality of our counterparties through review of collection trends, credit ratings, and other analysis, such as bankruptcy monitoring. Financial assets are evaluated as one pool. Changes in counterparty risk factors could lead to reassessment of the composition of our financial assets as one pool. We calculate our allowance for credit losses incorporating an aging method. In estimating our expected credit losses, we utilized historical loss rates over many years. Our expected credit loss estimate considered both internal and external forward-looking commodity price expectations, as well as counterparty credit ratings, and factors impacting their near-term liquidity.
Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. We do not have a material amount of significantly aged receivables at September 30, 2020.
2. REVENUE RECOGNITIONNote 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 ComprehensiveNet Income.
Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | |
| (Thousands) |
Balance at beginning of period | $ | 210,317 | | | $ | 220,882 | | | $ | 215,596 | | | $ | 226,164 | | | | | |
Recognized in revenue | (2,643) | | | (2,643) | | | (7,922) | | | (7,925) | | | | | |
Balance at end of period | $ | 207,674 | | | $ | 218,239 | | | $ | 207,674 | | | $ | 218,239 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (Thousands) |
Balance at beginning of period | $ | 220,882 | | | $ | 231,451 | | | $ | 226,164 | | | $ | 236,730 | |
Payments received and deferred | 0 | | | 0 | | | 0 | | | 0 | |
Recognized in revenue | (2,643) | | | (2,644) | | | (7,925) | | | (7,923) | |
Balance at end of period | $ | 218,239 | | | $ | 228,807 | | | $ | 218,239 | | | $ | 228,807 | |
Remaining Performance Obligations
Our remaining performance obligations 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 periodic review and approval by the FERC,Federal Energy Regulatory Commission (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. Certain of our contracts contain evergreen provisions for periods beyond the initial term of the contract. The remaining performance obligations, as of September 30, 2020,2021, 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.
The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of September 30, 2020.2021.
| | | | | | | | | | | |
| Contract Liabilities | | Remaining Performance Obligations |
| (Thousands) |
2020 (remainder) | $ | 2,643 | | | $ | 558,969 | |
2021 | 10,566 | | | 2,152,826 | |
2022 | 10,566 | | | 2,019,417 | |
2023 | 10,566 | | | 1,775,468 | |
2024 | 10,568 | | | 1,344,581 | |
Thereafter | 173,330 | | | 11,879,187 | |
Total | $ | 218,239 | | | $ | 19,730,448 | |
| | | | | | | | | | | |
| Contract Liabilities | | Remaining Performance Obligations |
| (Thousands) |
2021 (three months) | $ | 2,644 | | | $ | 603,677 | |
2022 (one year) | 10,566 | | | 2,317,047 | |
2023 (one year) | 10,566 | | | 2,114,147 | |
2024 (one year) | 10,568 | | | 1,886,688 | |
2025 (one year) | 10,566 | | | 1,469,382 | |
Thereafter 00 | 162,764 | | | 12,280,513 | |
Total | $ | 207,674 | | | $ | 20,671,454 | |
Accounts Receivable
Receivables from contracts with customers are included within Receivables - Trade and Receivables - Affiliates, and receivables that are not related to contracts with customers are included within the balance of Receivables - Advances to affiliate and Receivables - Other in our Condensed Consolidated Balance Sheet.
3. CONTINGENT LIABILITIES AND COMMITMENTSNote 3 – Contingent Liabilities and Commitments
Rate
Environmental 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. On December 31, 2019, we filed a stipulation and agreement with the FERC to resolve all issues in this proceeding without the need for a hearing. On March 24, 2020, the FERC approved the settlement, which became effective on June 1, 2020. Refunds of $284.3 million were issued on July 1, 2020.
Notice of Inquiry (Docket No. PL19-4-000). On May 21, 2020, the FERC issued a “Policy Statement on Determining Return on Equity for Natural Gas and Oil Pipelines” (Policy Statement) in Docket No. PL19-4-000 adopting changes to its policies concerning the calculation of a public utility return on equity (ROE). In this Policy Statement, the FERC revised its ROE policy for natural gas pipelines and oil pipelines to provide that the FERC will determine a pipeline’s ROE by averaging the results of the Discounted Cash Flow model and the Capital Asset Pricing Model, with each weighted equally. The FERC declined to adopt any additional policy changes at this time and will address all other issues concerning the determination of a pipeline’s ROE as they arise in future proceedings.
Our next general rate case must be filed no later than August 30, 2024.
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 September 30, 2020,2021, we have accrued approximately $2.5$2.6 million for the expense portion of these estimated costs, $0.7 million of which is recorded in Accrued liabilities and $1.8$1.9 million of which is recorded in Other Long-Term Liabilities - Other in the accompanying Condensed Consolidated Balance Sheet. At December 31, 2019,2020, we had a balance of approximately $2.5$2.4 million for the expense portion of these estimated costs, $1.2$0.7 million of which is recorded in Accrued liabilities and $1.3$1.7 million of which is 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 promulgatepropose and proposepromulgate 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,review 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 regardingupdates to the National Ambient Air Quality Standards, and rules for ground-level ozone.new and existing source performance standards for volatile organic compounds and methane. We are monitoring the rule’s implementation as it will trigger additional federalcontinuously monitor these regulatory changes and state regulatory actions thathow they may impact our operations. Implementation of thenew or modified regulations is expected tomay result in impacts to our operations and increase the cost of additions to Total property,Property, plant, and equipment, net in the Condensed Consolidated Balance Sheet for both new and existing facilities in affected areas. Weareas; however, due to regulatory uncertainty on final rule content and applicability timeframes, we are unable to reasonably estimate the cost of additions that may be required to meet the regulationsthese regulatory impacts at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.time.
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.
4. DEBT AND FINANCING ARRANGEMENTS
Credit FacilityNote 4 – Debt and Financing Arrangements
We, along with Williams and Northwest Pipeline LLC (Northwest), 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 billion are subject to the $500 million borrowing sublimit applicable to us and Northwest. At September 30, 2020, 0 letters of credit have been issued and 0 loans were outstanding under the credit facility.
Commercial Paper
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$4.0 billion of unsecured commercial paper notes. At September 30, 2020,2021, Williams had $40 million of0 outstanding commercial paper. In connection with the amended and restated credit agreement described below, Williams reduced the size of its commercial paper program to $3.5 billion.
Credit Facility
In October 2021, we, along with Williams and Northwest Pipeline LLC (Northwest), the lenders named therein, and an administrative agent entered into an amended and restated credit agreement (Credit Agreement) that reduced aggregate commitments available from $4.5 billion to $3.75 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The Credit Agreement was effective on October 8, 2021. The maturity date of the credit facility is October 8, 2026. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as October 8, 2028, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $500 million. We and Northwest are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers. At September 30, 2021, and as of October 8, 2021, the effective date of the amended and restated Credit Agreement, 0 letters of credit have been issued and 0 loans were outstanding under the credit facility.
The Credit Agreement contains the following terms and conditions:
•Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets in certain circumstances, make certain distributions during an event of default, and each borrower and each borrower’s respective material subsidiaries’ ability to enter into certain restrictive agreements.
•If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of the loans of the defaulting borrower under the credit facility and exercise other rights and remedies.
•Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternative base rate as defined in the Credit Agreement plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. Williams is required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin is determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings and the commitment fee is determined by reference to a pricing schedule based on Williams’ senior unsecured long-term debt ratings. The Credit Agreement also includes customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.
The ratio of debt to capitalization (defined as net worth plus debt), each as defined in the Credit Agreement, must be no greater than 65 percent for each of Transco and Northwest Pipeline.
At September 30, 2021, we are in compliance with this covenant.
Other Financing Obligations
Dalton Expansion Project
At September 30, 2020,2021, the amount included in Long-Term Debt on our Condensed Consolidated Balance Sheet for this financing obligation is $255.1$252.5 million, and the amount included in Long-term debt due within one year on our Condensed Consolidated Balance Sheet for this financing obligation is $2.2$2.5 million.
Atlantic Sunrise Project
During the first nine months of 2020,2021, we received an additional $7.2$1.8 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 September 30, 2020,2021, the amount included in Long-Term Debt on our Condensed Consolidated Balance Sheet for this financing obligation is $831.6$812.4 million, and the amount included in Long-term debt due within one year on our Condensed Consolidated Balance Sheet for this financing obligation is $19.4$21.7 million.
Leidy South Project
During the construction of our Leidy South project, we received funding from a co-owner for its proportionate share of construction costs related to an undivided ownership interest in certain parts of the project. Amounts received were recorded in Other Long-Term Debt Due Within One Year
The long-term debt due within one year at September 30, 2020 isLiabilities: Other and 100 percent of the costs associated with construction were capitalized on our Condensed Balance Sheet. Upon placing the previously described other financing obligations.
Issuanceapplicable portion of Long-Term Debt
On May 8, 2020,the project in service during October 2021, we issued $700began leasing this co-owner’s undivided interest in the facilities, including the associated pipeline capacity, and reclassified approximately $69.0 million of 3.25 percent senior unsecured notes due 2030 and $500 millionfunding previously received from our co-owner from Other Long-Term Liabilities: Other to debt to reflect the financing obligation payable to our co-owner over an expected term of 3.95 percent senior unsecured notes due 2050 to investors in a private debt placement. As part of the issuance, we entered into a registration rights agreement with the initial purchasers of the unsecured notes. We are obligated to file and consummate a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. We are required to provide a shelf registration20 years.
statement to cover resales of the notes under certain circumstances. If we fail to fulfill these obligations, additional interest will accrue on the affected securities. The rate of additional interest will be 0.25 percent per annum on the principal amount of the affected securities for the first 90-day period immediately following the occurrence of a registration default, increasing by an additional 0.25 percent per annum with respect to each subsequent 90-day period thereafter, up to a maximum amount for all such registration defaults of 0.5 percent annually. Following the cure of any registration defaults, the accrual of additional interest will cease.
5.Note 5 – ARO TRUSTTrust
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 ARO funding obligation based on the Docket No. RP18-1126 rate case filing was approximately $35.9 million.
Pursuant to the approved stipulation and agreement in Docket No. RP18-1126 the newannual funding obligation (1) effective March 1, 2019 is approximately $23.8 million, and (2) effective March 1, 2020 is approximately $16.0 million.million, with deposits made monthly.
Investments within the ARO Trust at fair value were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Amortized Cost Basis | | Fair Value | | Amortized Cost Basis | | Fair Value |
Money Market Funds | $ | 17.1 | | | $ | 17.1 | | | $ | 15.8 | | | $ | 15.8 | |
U.S. Equity Funds | 59.5 | | | 94.2 | | | 55.3 | | | 83.3 | |
International Equity Funds | 34.2 | | | 37.7 | | | 31.8 | | | 35.4 | |
Municipal Bond Funds | 68.9 | | | 71.3 | | | 64.7 | | | 66.1 | |
Total | $ | 179.7 | | | $ | 220.3 | | | $ | 167.6 | | | $ | 200.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Amortized Cost Basis | | Fair Value | | Amortized Cost Basis | | Fair Value |
Money Market Funds | $ | 3.4 | | | $ | 3.4 | | | $ | 5.8 | | | $ | 5.8 | |
U.S. Equity Funds | 52.6 | | | 111.6 | | | 59.9 | | | 108.0 | |
International Equity Funds | 31.7 | | | 42.9 | | | 34.2 | | | 43.7 | |
Municipal Bond Funds | 87.5 | | | 89.9 | | | 74.9 | | | 78.0 | |
Total | $ | 175.2 | | | $ | 247.8 | | | $ | 174.8 | | | $ | 235.5 | |
6. FAIR VALUE MEASUREMENTSNote 6 – 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 September 30, 2020: | | | | | | | | | | |
Measured on a recurring basis: | | | | | | | | | | |
ARO Trust investments | | $ | 220.3 | | | $ | 220.3 | | | $ | 220.3 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | |
Additional disclosures: | | | | | | | | | | |
Long-term debt, including current portion | | (5,243.4) | | | (6,689.2) | | | 0 | | | (6,689.2) | | | 0 | |
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Assets (liabilities) at December 31, 2019: | | | | | | | | | | |
Measured on a recurring basis: | | | | | | | | | | |
ARO Trust investments | | $ | 200.6 | | | $ | 200.6 | | | $ | 200.6 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | |
Additional disclosures: | | | | | | | | | | |
Long-term debt, including current portion | | (4,065.0) | | | (5,251.4) | | | 0 | | | (5,251.4) | | | 0 | |
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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 September 30, 2021: | | | | | | | | | | |
Measured on a recurring basis: | | | | | | | | | | |
ARO Trust investments | | $ | 247.8 | | | $ | 247.8 | | | $ | 247.8 | | | $ | — | | | $ | — | |
Additional disclosures: | | | | | | | | | | |
Long-term debt, including current portion | | (5,226.9) | | | (6,700.8) | | | — | | | (6,700.8) | | | — | |
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Assets (liabilities) at December 31, 2020: | | | | | | | | | | |
Measured on a recurring basis: | | | | | | | | | | |
ARO Trust investments | | $ | 235.5 | | | $ | 235.5 | | | $ | 235.5 | | | $ | — | | | $ | — | |
Additional disclosures: | | | | | | | | | | |
Long-term debt, including current portion | | (5,239.8) | | | (6,949.0) | | | — | | | (6,949.0) | | | — | |
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 settlement, 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(See Note 5 – ARO Trust for more information regarding the ARO Trust.)
Long-term debt, including current portion — 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 4)4 –Debt and Financing Arrangements).
7. TRANSACTIONS WITH AFFILIATESNote 7 – Transactions with Affiliates
We are a participant in Williams’ cash management program, and we receive advances from and make advances to Williams. At September 30, 2021 and December 31, 2020, our advances to Williams totaled approximately $581.7 million.$1,448.3 million and $642.7 million, respectively. These advances are classified as Receivables - Advances to affiliate in the accompanying Condensed Consolidated Balance Sheet. At December 31, 2019, our advances from Williams totaled approximately $252.5 million. These advances are classified as Payable - Advances from affiliate in the accompanying Condensed Consolidated Balance Sheet. Advances are stated at the historical carrying amounts. 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 September 30, 2020,2021, the interest rate was 0.01 percent.
Included in Operating Revenues in the accompanying Condensed Consolidated Statement of ComprehensiveNet Income are revenues received from affiliates of $15.4 million and $20.1 million for the three and nine months ended September 30, 2021, respectively, and $2.8 million and $8.0 million for the three and nine months ended September 30, 2020, respectively, and $2.8 million and $8.4 million for the three and nine months ended September 30, 2019, 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 ComprehensiveNet Income are costs of gas purchased from affiliates of $1.4 million and $5.5 million for the three and nine months ended September 30, 2021, respectively, and $0.8 million and $3.8 million for the three and nine months ended September 30, 2020, respectively, and $0.8 million and $3.0 million for the three and nine months ended September 30, 2019, respectively. All gas purchases are made at market or contract prices.
We have 0no 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 $91.0In the accompanying Condensed Statement of Net Income, we have recorded approximately $82.1 million and $269.5$237.8 million for the three and nine months ended September 30, 2021, respectively, and $68.7 million and $214.5 million for the three and nine months ended September 30, 2020, respectively, and $110.7 million and $315.4 million for the three and nine months ended September 30, 2019, respectively, for these services. Suchservice expenses, which are primarily included in Operation and maintenance and Administrative and general expenses in the accompanying Condensed Consolidated Statement of Comprehensive Income.expenses.
We provide services to certain of our affiliates. We recorded reductions in operating expenses for services provided to and reimbursed by our affiliates of $1.9 million and $5.4 million for the three and nine months ended September 30, 2021, respectively, and $1.6 million and $3.8 million for the three and nine months ended September 30, 2020, respectively, and $1.2 million and $3.5 million for the three and nine months ended September 30, 2019, respectively.
We made equitycash distributions totaling $785$287.9 million and $559$785.0 million during the nine months ended September 30, 20202021 and 2019,2020, respectively. During October 2020,2021, we made an additionala distribution of $235$55.8 million. Our parent made contributions to us totaling $65$272.0 million and $65.0 million during the nine months ended September 30, 2021 and 2020, respectively, to fund a portion of our expenditures for additions to property, plant, and equipment. During October 2020,2021, our parent made an additional $50$145.0 million contribution to us.
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ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 20192020 Annual Report on Form 10-K and with the Condensed Consolidated Financial Statements and Notes contained in this Form 10-Q.
Critical Accounting Estimates
Property, Plant, and Equipment and Other Identifiable Intangible AssetsResults of Operations
As of September 30, 2020,
Property, plant, and equipment in our Condensed Consolidated Balance Sheet includes approximately $215 million of capitalized project development costs for the Northeast Supply Enhancement project. Approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project.
The customer precedent agreements remain in effect and the project’s Federal Energy Regulatory Commission (FERC) certificate remains active. As such, we do not believe this project is probable of abandonment at this time and consider the carrying amount to be recoverable; thus no impairment charge has been recognized. It is reasonably possible that further adverse developments in the near future could change this determination, resulting in a future impairment charge of a substantial portion of the capitalized costs.
RESULTS OF OPERATIONS
Operating Income and Net Income
Operating Income for the nine months ended September 30, 20202021 was $995.3$1,015.4 million compared to $897.2$995.3 million for the same period in 2019.2020. The increase in Operating Income of $98.1$20.1 million (10.9(2.0 percent) was primarily due to higher Natural gas transportation revenues in the first nine months of 20202021 compared to the same period in 2019, and a favorable2020, partially offset by an unfavorable change in Operating Costs and Expenses, as discussed below.
Net Income for the nine months ended September 30, 20202021 was $779.7$791.2 million compared to $715.9$779.7 million for the same period in 2019. The2020. In addition to the impacts to Operating Income mentioned above, the increase in Net Income of $63.8$11.6 million (8.9(1.5 percent) was mostly attributable to the increase infurther unfavorably impacted by Operating IncomeOther (Income) and Other Expenses, as discussed below.
Operating Revenues
Natural gas sales decreased $26.7$11.6 million (30.3(19.0 percent) for the nine months ended September 30, 20202021 compared to the same period in 2019.2020. The decrease was primarily due to $26.6 million of lower cash out sales.sales, partially offset by higher prices. Cash out sales are offset in our cost of natural gas soldoperating costs and expenses and therefore have no impact on our operatingoperating income or net income.results of operations.
Natural gas transportation for the nine months ended September 30, 20202021 increased $49.7$78.2 million (3.1(4.7 percent) over the same period in 2019.2020. The increase was primarily attributable to:
•$16.051.8 million from our Rivervale South to MarketSoutheastern Trail project placed in service in September 2019;
•$12.3 million from our Gateway project placed in service in December 2019;
•$10.1 million from our Hillabee 2 project placed in service in MayNovember 2020;
•$5.616.5 million due to one more billable dayfrom our Leidy South project partially placed in service in November 2020;
•$5.1 million from revenues related to short-term firm transportation;
•$1.7 million from our St. James project placed in service in April 2019; and
•$1.213.1 million higher electric power costs. Electric power costs are recovered from our customers through transportation rates and are offset in operating costs and expenses resulting in no net impact on our operating income or results of operations.operations;
•$9.7 million higher revenues related to a cash out surcharge (offset in operating costs and expenses resulting in no net impact on our operating income or results of operations); and
•$7.9 million from our Hillabee 2 project placed in service in May 2020.
•Partially offset by $2.6a decrease of $13.8 million primarily resulting from the implementation of lower rates for certain services coincident with the effective date of our last rate case settlement; and
•$6.0 million lower commodity revenue.revenue due to one less billable day.
Natural gas storage increased $6.2 million (5.2 percent) for the nine months ended September 30, 2021 compared to the same period in 2020. The increase was primarily due to an increase in rates effective in the second quarter of 2020.
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Management’s Discussion and Analysis (Continued) | |
Operating Costs and Expenses
Excluding the Cost of natural gas sales, which is directly offset in operating revenues, our operating costs and expenses decreased $34.9increased $63.4 million (4.1(7.8 percent) for the nine months ended September 30, 20202021 compared to the same period in 2019.2020. This decreaseincrease was primarily attributable to:
•$37.423.7 million (13.6(8.5 percent) favorableunfavorable change in Operation and maintenance costs primarily resulting from $31.3(i) higher electric power costs of $13.1 million decrease(electric power costs are recovered from customers through transportation rates and are offset in directoperating revenues resulting in no net impact on our operating income or results of operations), (ii) employee labor and related benefits due tobenefit costs of $5.5 million, including charges associated with higher expected performance under the voluntary separation programWilliams incentive compensation plan and restructuring initiated by Williams(iii) a $5.1 million increase in 2019, $6.7 million decrease due to the absence of costs transferred from capital in 2019, and $6.5 million decrease in contracted services mainly related to general maintenance and other testing on our pipeline, partly offset by a $8.6 million unfavorable change in capitalized labor;corporate allocations;
•$15.814.4 million (10.1(4.2 percent) favorableincrease in Depreciation and amortization primarily as a result of additional assets placed into service and, to a lesser extent, an increase in ARO asset depreciation due to revisions in expected timing of abandonment and expected future costs;
•$12.5 million (9.0 percent) unfavorable change in Administrative and general costs primarily due to $9.5 million favorable changean increase in direct employee labor and related benefits due to the voluntary separation program and restructuring initiated by Williams in 2019, $4.8 million favorable change in corporate allocations, and $1.5 million lower insurance expense;benefit costs;
•$10.95.4 million (56.0 percent) favorableunfavorable change in Other expense, netprimarily due to $11.7 driven by $9.7 million additional deferral of ARO related depreciation and $7.5 million favorable change related to the absence of costs transferred from capital in 2019,associated with a cash out surcharge, partially offset by $3.9 million unfavorable changelower deferred other postretirement benefits costs of $3.4 million. Such amounts are offset in the amortization of certain regulatory liabilities, and $3.3 million unfavorable change in project costs; and
•$3.8 million (19.9 percent) favorable change in Regulatory credit resulting from Tax Reform primarily related to general rate case Docket No. RP18-1126.
•Partially offset by $23.2 million (7.2 percent) increase in Depreciation and amortization costs primarily resulting from $11.7 million increase in ARO asset depreciation and $10.5 million increase in asset depreciation;
•$6.6 million (11.4 percent) increase in Taxes - other than income taxes related to an increase in property taxes in 2020; and
•$3.1 million (8.0 percent) increase in Cost of natural gas transportation primarily due to $1.2 million higher electric power costs and $1.1 million due to a fuel cost adjustment. Electric power costs are recovered from customers through transportation ratesoperating revenues resulting in no net income impact on our operating income or results of operations.operations; and
•$7.3 million (11.3 percent) increase in Taxes — other than income taxes primarily due to an increase in estimated property taxes.
Other (Income) and Other Expenses
Other (income) and other expenses for the nine months ended September 30, 20202021 had an unfavorable change of $34.3$8.6 million (18.9(4.0 percent) compared to the same period in 2019. This is mostly due to2020 driven by an unfavorable changeincrease of $18.3$8.4 million in interest expense primarily due to interest incurred on new debt issued May 2020, andwhich was partially offset by the Docket No. RP18-1126absence of interest expense associated with our rate reserve liability and an unfavorable change of $11.3 million in Allowance for equity and borrowed funds used during construction (AFUDC)Docket No. RP18-1126.
.
Recent Developments
COVID-19
The outbreak of novel coronavirus (COVID-19)COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We are monitoringcontinue to monitor the COVID-19 pandemic and are takinghave taken steps intended to protect the safety of our customers, employees and communities, and to support the continued delivery of safe and reliable service to our customers and the communities we serve. We are continuing to monitor developments with respect to the outbreak and note the following:
•Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19.
•We believe we have the ability to access the debt market if necessary, as evidenced by the successful completion of our debt offerings during second-quarter 2020, and continue to have significant levels of unused capacity on our revolving credit facility with no significant debt maturities in the near future.
•We continue to monitor and adapt our remote working arrangements and limit business-related travel. Implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business.
•Our remote working arrangements have not significantly impacted our internal controls over financial reporting and disclosure controls and procedures.
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Management’s Discussion and Analysis (Continued) | |
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 an 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. We placed Phase II into service on May 1, 2020. Together, the first two phases of the project increased capacity by 1,025 Mdth/d.
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. However, approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection were denied in May 2020. We have not refiled our applications for those approvals. The project would increase capacity by 400 Mdth/d. See further discussion in Critical Accounting Estimates.
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. In October 2019, we received approval from the FERC for the project. We plan to place up to 230 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and we plan to place the remainder of the project capacity into service in the first quarter of 2021. In total, 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. In July 2020, we received approval from the FERC for the project. We plan to place up toplaced 125 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and in September and October of 2021, we placed approximately 382 Mdth/d of additional capacity into service. We plan to place the remainder of Transco’s facilities under the project into service as early as the fourth quarter of 2021, assuming timely receipt of all necessary regulatory approvals.by year-end 2021. The project is expected to increase capacity by 582 Mdth/d.
Regional Energy Access
The Regional Energy Access Expansion involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from receipt points in northeastern Pennsylvania to multiple delivery points in Pennsylvania, New Jersey, and Maryland. In June 2020, the FERC approved our request to use the FERC’s pre-filing review process for the project. We anticipate filingfiled our certificate application for the project with the FERC in the fourth quarter of 2020.Weon March 26, 2021. We plan to place the project into service as early as the fourth quarter of 2023, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity up to 760by 829 Mdth/d.
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ITEMItem 4. Controls and Procedures
| 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 amendedamended) (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
On July 1, 2021, our parent implemented a new enterprise resource planning (ERP) system on a company-wide basis. We will continue to evaluate and test control changes in order to provide certification on the effectiveness, in all material respects, of our internal controls over financial reporting for the year ending December 31, 2021.
Other than as set forth above, there have been no changes during the third quarter of 20202021 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
Environmental
While it is not possible for us to predict the final outcome of any pending legal proceedings involving governmental authorities under federal, state, and local laws regulating the discharge of materials into the environment, we do not anticipate a material effect on our financial position if we were to receive an unfavorable outcome in any one or more of such proceedings. Our threshold for disclosing material environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.
Environmental
On September 2, 2020, we entered into a Consent Assessment of Civil Penalty with the Commonwealth of Pennsylvania, Department of Environmental Protection resolving permit violations observed by the Department and County Conservation Districts during the construction of our Atlantic Sunrise Project. The violations were largely attributable to the severe rain events we experienced during construction of the project. Pursuant to the Consent Assessment, we paid $736,294 as a civil penalty and contributed $100,000 to fund a community environmental project.
On May 5, 2017, we entered into a Consent Order with the Georgia Department of Natural Resources, Environmental Protection Division (GADNR) pertaining to alleged violations of the Georgia Water Quality Control Act and associated rules arising from a permit issued by GADNR for construction of Transco’s Dalton expansion project. Pursuant to the Consent Order, we paid a fine of $168,750 and agreed to a Corrective Action Plan. On March 26, 2020, the GADNR issued a closure letter to Transco approving the final Corrective Action Plan implementation and acknowledging that all conditions of the Consent Order have been achieved.Other
Other
The additional information called for by this item is provided in Note 3 of3. Contingent Liabilities and Commitments, included in the Notes to Condensed Consolidated Financial Statements included under Part I,1, Item 1. Financial Statements of this report,Form 10-Q, which information is incorporated by reference into this item.
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ITEM 1A. | Item 1A. Risk Factors |
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by the disclosure Part II, Item 1A. in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 includes certain risk factors that could materially affect our business, financial condition, or future results. Those Risk Factors have not materially changed.
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ITEMItem 6. Exhibits
| Exhibits |
The following instruments are included as exhibits to this report.
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Exhibit Number | | Description |
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2 | | |
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3.1 | | |
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3.2 | | |
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10.1 | | Credit Agreement dated as of October 8, 2021, between The Williams Companies, Inc., Northwest Pipeline LLC, and Transcontinental Gas Pipe Line Company, LLC, as co-borrowers, the lenders named therein, and Wells Fargo Bank, National Association, as Administrative Agent (filed on October 8, 2021 as Exhibit 10.1 to The Williams Companies, Inc.’s Current Report on Form 8-K (File No. 001-04174) and incorporated herein by reference). |
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31.1* | | |
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31.2* | | |
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32** | | |
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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. |
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101.SCH* | | XBRL Taxonomy Extension Schema. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase. |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase. |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase. |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase. |
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104* | | Cover Page Interactive Data File. The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document (contained in Exhibit 101). |
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* | Filed herewith. |
** | Furnished herewith. |
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.
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| | TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC (Registrant) |
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Dated: | November 2, 20201, 2021 | By: | | /s/ Billeigh W. Mark |
| | | | Billeigh W. Mark |
| | | | Controller |
| | | | (Principal Accounting Officer) |