Table of Contents




UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

For the quarterly period ended June 30, 2019

2020

or

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

For the transition period from                to

Commission File Number:  001-35358

TC PipeLines, LP

(Exact name of registrant as specified in its charter)

Delaware

52-2135448

Delaware

52-2135448
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

700 Louisiana Street,, Suite 700

Houston,, Texas

77002-2761

(Address of principleprincipal executive offices)

(Zip code)

877-290-2772

(Registrant’s telephone number, including area code)

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

Yes ý                    No o

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

Title of each class

Trading Symbol(s)

Trading
Symbol(s)

Name of each exchange on which registered

Common units representing limited partner interests

TCP

TCP

New York Stock Exchange

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

Yesý                    No o

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

Large accelerated filer

x

Accelerated filer

Large accelerated

Non-accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

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

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

Yes No ý

As of July 30, 2019,August 4, 2020, there were 71,306,396 of the registrant’s common units outstanding.

outstanding



Table of Contents




TC PIPELINES, LP

TABLE OF CONTENTS

Page No.

PART I

FINANCIAL INFORMATION

Page No.

PART I

FINANCIAL INFORMATION
Item 1.

Consolidated Financial Statements (Unaudited)

Condensed Notes to Consolidated Financial Statements

Item 2.

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

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

44

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 6.

Exhibits

Signatures

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

2







Table of Contents

DEFINITIONS

DEFINITIONS

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

2013 Term Loan Facility

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

2017 Tax Act

AFUDC

Allowance for funds used during construction

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

2018 FERC Actions

ANR

ANR Pipeline Company

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

2019 Iroquois Settlement

ASC

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

2019 Tuscarora Settlement

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

ADIT

Accumulated Deferred Income Tax

ASC

Accounting Standards Codification

ATM program

AOCI

Accumulated other comprehensive income

At-the-market equity issuance program

Bison

Bison Pipeline LLC

Class B Distribution

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

Class B Reduction

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

DOT

COVID-19

Coronavirus 2019

DOT

U.S. Department of Transportation

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortization

EPA

U.S. Environmental Protection Agency

FASB

ExC Project

Iroquois Enhancement by Compression project that involves upgrading its compressor stations along the pipeline and provides approximately 125,000 Dth/day of additional firm transportation service to meet current and future gas supply needs of utility customers

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

GAAP

U.S. generally accepted accounting principles

General Partner

TC PipeLines GP, Inc.

Great Lakes

Great Lakes Gas Transmission Limited Partnership

GTN

Gas Transmission Northwest LLC

IDRs

GTN XPress

GTN’s project to both increase the reliability of existing transportation service on GTN and to provide for 250,000 Dth/day of incremental transportation volumes, primarily through facility replacements and additions of existing brownfield compression sites.

IDRs

Incentive Distribution Rights

ILPs

Iroquois

Intermediate Limited Partnerships

Iroquois

Iroquois Gas Transmission System, L.P.

LIBOR

London Interbank Offered Rate

LNG

Liquified natural gas
MLPMaster Limited Partnership
North Baja

North Baja Pipeline, LLC

Northern Border

Northern Border Pipeline Company

NYMEX

New York Mercantile Exchange
Our pipeline systems

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

Partnership

TC PipeLines, LP including its subsidiaries, as applicable

3





Partnership Agreement

Fourth Amended and Restated Agreement of Limited Partnership of the Partnership

PNGTS

PHMSA

The Pipeline and Hazardous Materials Safety Administration

PNGTS

Portland Natural Gas Transmission System

PXP

Portland XPress Project

3

Table of Contents

ROU

Right-of-use

SEC

Securities and Exchange Commission

Senior Credit Facility

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

TC Energy

TC Energy Corporation formerly known as TransCanada Corporation

Tuscarora

Tuscarora Gas Transmission Company

U.S.

Tuscarora XPress

Tuscarora's Expansion project to transport additional 15,000 Dth/Day of natural gas supplies through additional compression capability at Tuscarora's existing facility

U.S.

United States of America

VIEs

Variable Interest Entities

WCSB

Western Canadian Sedimentary Basin
Westbrook XPress

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

Wholly-owned subsidiaries

GTN, Bison, North Baja, and Tuscarora

WHOWorld Health Organization

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

4







PART I


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

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

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results predicted. These risks and uncertainties include, among other things, factors like various risks and uncertainties associated with the current extraordinary market environment and impacts resulting from the Coronavirus 2019 (COVID-19) pandemic and market disruptions relating to global supply and demand for oil and natural gas.
Factors that could cause actual results and our financial condition to differ materially from those contemplated in forward-looking statements include, but are not limited to:

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

the ability of our pipeline systems to sell available capacity on favorable terms and renew expiring contracts which are affected by, among other factors:

demand for natural gas;
changes in relative cost structures and production levels of natural gas producing basins;
natural gas prices and regional differences;
weather conditions;
availability and location of natural gas supplies in Canada and the United States (U.S.) in relation to our pipeline systems;
competition from other pipeline systems;
natural gas storage levels;
rates and terms of service;
the refusal or inability of our customers, shippers or counterparties to perform their contractual obligations with us, whether justified or not and whether due to financial constraints ( such as reduced creditworthiness, liquidity issues or insolvency), market constraints, legal constraints (including governmental orders or guidance), the exercise of contractual or common law rights that allegedly excuse their performance (such as force majeure or similar claims) or other factors;
the outcome and frequency of rate proceedings or settlement negotiations on our pipeline systems;
other potential changes in the taxation of master limited partnership (MLP) investments by state or federal governments such as the elimination of pass-through taxation or tax deferred distributions;
increases in operational or compliance costs resulting from changes in laws and governmental regulations affecting our pipeline systems, particularly regulations issued by the Federal Energy Regulatory Commission (FERC), U.S. Environmental Protection Agency (EPA) and U.S. Department of Transportation (DOT);
our ongoing ability to grow distributions through acquisitions, accretive expansions or other growth opportunities, including the timing, structure and closure of further potential acquisitions;
potential conflicts of interest between TC PipeLines GP, Inc., our general partner (General Partner), TC Energy Corporation and us;
failure of the Partnership or our pipeline systems to comply with debt covenants, some of which are beyond our control;
the ability to maintain secure operation of our information technology including management of cybersecurity threats, acts of terrorism and related distractions;
the implementation of future accounting changes and ultimate outcome of commitments and contingent liabilities, if any;
the impact of any impairment charges;
changes in political environment;
operating hazards, casualty losses and other matters beyond our control;
5






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

the level of our indebtedness (including the indebtedness of our pipeline systems), increases in interest rates, our level of operating cash flows and the availability of capital;

the impact of a potential slowdown in construction activities or a delay in the completion of our capital projects including increases in costs and availability of labor, equipment and materials;
the impact of downward changes in oil and natural gas prices, including any effects on the creditworthiness of our shippers or the availability of associated gas in low oil price environment;
the impact of litigation and other opposition proceedings on our ability to begin work on projects and the potential impact of an ultimate court or administrative ruling to a project schedule or viability; and
uncertainty surrounding the impact of global health crises that reduce commercial and economic activity, including the COVID-19 pandemic, on our business.
These are not the only factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. Other factors described elsewhere in this document, or factors that are unknown or unpredictable, could also have material adverse effects on future results. These and other risks are described in greater detail in Part II, Item 1A. “Risk Factors” of this report and in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20182019 (2019 Annual Report) as filed with the SECSecurities and Exchange Commission (SEC) on February 21, 2019.2020. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. All forward-looking statements are made only as of the date made and except as required by applicable law, we undertake no obligation to update any forward-looking statements to reflect new information, subsequent events or other changes.

6


PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

TC PIPELINES, LP

CONSOLIDATED STATEMENTS OF INCOME

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars, except per common unit amounts)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

93

 

111

 

206

 

226

Equity earnings (Note 5)

 

30

 

36

 

84

 

95

Operation and maintenance expenses

 

(17)

 

(17)

 

(33)

 

(33)

Property taxes

 

(6)

 

(7)

 

(13)

 

(14)

General and administrative

 

(2)

 

(1)

 

(4)

 

(2)

Depreciation and amortization

 

(19)

 

(24)

 

(39)

 

(48)

Financial charges and other (Note 15)

 

(21)

 

(23)

 

(43)

 

(46)

Net income before taxes

 

58

 

75

 

158

 

178

Income taxes

(1)

(1)

(1)

Net income

57

75

157

177

Net income attributable to non-controlling interest

2

2

9

8

Net income attributable to controlling interests

 

55

 

73

 

148

 

169

Net income attributable to controlling interest allocation (Note 9)

Common units

 

54

 

72

 

145

 

166

General Partner

 

1

 

1

 

3

 

3

 

55

 

73

 

148

 

169

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

$

0.75

$

1.00

$

2.03

$

2.33

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

71.3

 

71.3

71.3

 

71.2

Common units outstanding, end of period (millions)

71.3

71.3

71.3

71.3

 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars, except per common unit amounts)2020201920202019
Transmission revenues95  93  196  206  
Equity earnings (Note 5)
29  30  84  84  
Operation and maintenance expenses(16) (17) (32) (33) 
Property taxes(7) (6) (13) (13) 
General and administrative(2) (2) (3) (4) 
Depreciation and amortization(19) (19) (39) (39) 
Financial charges and other (Note 15)
(18) (21) (37) (43) 
Net income before taxes62  58  156  158  
Income taxes(1) (1) (1) (1) 
Net income61  57  155  157  
Net income attributable to non-controlling interest  10   
Net income attributable to controlling interests57  55  145  148  
Net income attributable to controlling interest allocation (Note 9)
Common units56  54  142  145  
General Partner    
 57  55  145  148  
Net income per common unit (Note 9) basic and diluted
$0.78  $0.75  $1.99  $2.03  
Weighted average common units outstanding basic and diluted (millions)
71.3  71.3  71.3  71.3  
Common units outstanding, end of period (millions)
71.3  71.3  71.3  71.3  
The accompanying notes are an integral part of these consolidated financial statements.

7






TC PIPELINES, LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Net income

57

75

157

177

Other comprehensive income

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

 

(9)

 

(1)

 

(14)

 

6

Amortization of realized loss on derivative financial instruments

2

2

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

1

3

1

3

Comprehensive income

 

49

 

79

 

144

 

188

Comprehensive income attributable to non-controlling interests

2

3

9

9

Comprehensive income attributable to controlling interests

47

76

135

179

 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Net income61  57  155  157  
Other comprehensive income    
Change in fair value of cash flow hedges (Note 13)
(2) (9) (15) (14) 
Reclassification to net income of (gains) and losses on cash flow hedges (Note 13)
    
Comprehensive income61  49  142  144  
Comprehensive income attributable to non-controlling interests  10   
Comprehensive income attributable to controlling interests57  47  132  135  
The accompanying notes are an integral part of these consolidated financial statements.


8


TC PIPELINES, LP

CONSOLIDATED BALANCE SHEETS

(unaudited)  
(millions of dollars)June 30, 2020December 31, 2019
ASSETS  
Current Assets  
Cash and cash equivalents215  83  
Accounts receivable and other (Note 14)
34  43  
Distribution receivable from Iroquois—  14  
Inventories10  10  
Other  
 262  156  
Equity investments (Note 5)
1,082  1,098  
Property, plant and equipment
(Net of $1,218 accumulated depreciation; 2019 - $1,187)
1,598  1,528  
Goodwill71  71  
TOTAL ASSETS3,013  2,853  
LIABILITIES AND PARTNERS’ EQUITY  
Current Liabilities  
Accounts payable and accrued liabilities49  28  
Accounts payable to affiliates (Note 12)
  
Accrued interest10  11  
Current portion of long-term debt (Note 7)
350  123  
 415  170  
Long-term debt, net (Note 7)
1,762  1,880  
Deferred state income taxes  
Other liabilities43  36  
 2,226  2,093  
Partners’ Equity  
Common units593  544  
Class B units (Note 8)
95  103  
General partner15  14  
Accumulated other comprehensive income (loss) (AOCI)(18) (5) 
Controlling interests685  656  
Non-controlling interests102  104  
 787  760  
TOTAL LIABILITIES AND PARTNERS’ EQUITY3,013  2,853  

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Current Assets

Cash and cash equivalents

 

45

 

33

Accounts receivable and other (Note 14)

 

33

 

48

Inventories

 

9

 

8

Other

3

8

 

90

 

97

Equity investments (Note 5)

 

1,118

1,196

Property, plant and equipment

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

 

1,520

 

1,529

Goodwill

 

71

 

71

Other assets

 

 

6

TOTAL ASSETS

 

2,799

 

2,899

LIABILITIES AND PARTNERS' EQUITY

Current Liabilities

Accounts payable and accrued liabilities

 

26

 

36

Accounts payable to affiliates (Note 12)

 

6

 

6

Accrued interest

 

11

 

12

Current portion of long-term debt (Note 7)

 

101

 

36

 

144

 

90

Long-term debt, net (Note 7)

 

1,892

 

2,072

Deferred state income taxes

9

9

Other liabilities

 

34

 

29

 

2,079

 

2,200

Partners’ Equity

Common units

514

462

Class B units (Note 8)

 

95

 

108

General partner

 

14

 

13

Accumulated other comprehensive income (loss) (AOCI)

 

(5)

 

8

Controlling interests

 

618

 

591

Non-controlling interests

102

108

720

699

TOTAL LIABILITIES AND PARTNERS' EQUITY

 

2,799

 

2,899

Subsequent Events

Variable Interest Entities (Note 16)

Subsequent Events (Note 17)

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


9


TC PIPELINES, LP

CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended

(unaudited)

June 30, 

(millions of dollars)

    

2019

    

2018

Cash Generated from Operations

Net income

 

157

 

177

Depreciation and amortization

 

39

 

48

Amortization of debt issue costs reported as interest expense

1

1

Amortization of realized losses

2

Equity earnings from equity investments (Note 5)

(84)

(95)

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

112

96

Change in other long-term liabilities

(1)

Equity allowance for funds used during construction (AFUDC equity)

(1)

Change in operating working capital (Note 11)

 

4

 

(5)

 

228

 

223

Investing Activities

Investment in Great Lakes (Note 5)

(5)

(4)

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

5

5

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

50

Capital expenditures

(29)

(9)

Customer advances for construction

1

 

22

 

(8)

Financing Activities

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

 

(95)

 

(123)

Distributions paid to Class B units (Note 8)

(13)

(15)

Distributions paid to non-controlling interests

(15)

(3)

Common unit issuance, net

40

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

 

20

 

130

Long-term debt repaid (Note 7)

 

(135)

 

(225)

Debt issuance costs

(1)

 

(238)

 

(197)

Increase in cash and cash equivalents

 

12

 

18

Cash and cash equivalents, beginning of period

 

33

 

33

Cash and cash equivalents, end of period

 

45

 

51

 Six months ended
(unaudited)June 30,
(millions of dollars)20202019
Cash Generated from Operations  
Net income155  157  
Depreciation and amortization39  39  
Amortization of debt issue costs reported as interest expense  
Equity earnings from equity investments (Note 5)
(84) (84) 
Distributions received from operating activities of equity investments (Note 5)
115  112  
Equity allowance for funds used during construction(3) (1) 
Change in operating working capital (Note 11)
  
Other(1) —  
 228  228  
Investing Activities  
Investment in Great Lakes (Note 5)
(5) (5) 
Distribution received from Iroquois as return of investment (Note 5)
  
Distribution received from Northern Border as return of investment (Note 5)
—  50  
Capital expenditures(87) (29) 
Customer advances for construction(1)  
 (88) 22  
Financing Activities  
Distributions paid to common units, including the General Partner (Note 10)
(95) (95) 
Distributions paid to Class B units (Note 8)
(8) (13) 
Distributions paid to non-controlling interests(12) (15) 
Long-term debt issued, net of discount (Note 7)
207  20  
Long-term debt repaid (Note 7)
(100) (135) 
 (8) (238) 
Increase in cash and cash equivalents132  12  
Cash and cash equivalents, beginning of period83  33  
Cash and cash equivalents, end of period215  45  
The accompanying notes are an integral part of these consolidated financial statements.


10


TC PIPELINES, LP

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ EQUITY

 Limited Partners
 Common UnitsClass B UnitsGeneral Partner
Accumulated
Other
Comprehensive
Income (Loss) (a)
Non-
Controlling
Interest
Total
Equity
(unaudited)millions
of units
millions
of dollars
millions
of units
millions of
dollars
millions of
dollars
millions of
dollars
millions of
dollars
millions of
dollars
Partners’ Equity at December 31, 201971.3  544  1.9  103  14  (5) 104  760  
Net income—  142  —  —   —  10  155  
Other comprehensive income (loss)—  —  —  —  —  (13) —  (13) 
Distributions—  (93) —  (8) (2) —  (12) (115) 
Partners’ Equity at June 30, 202071.3  593  1.9  95  15  (18) 102  787  
(a)Gain (loss) related to cash flow hedges reported in AOCI and expected to be reclassified to Net income in the next 12 months is estimated to be $(8) million. These estimates assume constant interest rates over time; however, the amounts reclassified will vary based on actual value of interest rates at the date of settlement.

Accumulated

Other

Non-

Limited Partners

General

Comprehensive

Controlling

Total

Common Units

Class B Units

Partner

Income (Loss) (a)

Interest

 Equity

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

    

millions

(unaudited)

of units

of dollars

of units

of dollars

of dollars

of dollars

of dollars

of dollars

Partners' Equity at December 31, 2018

71.3

462

1.9

108

13

8

108

699

Net income

145

3

9

157

Other comprehensive income (loss)

(13)

(13)

Distributions (Note 10)

(93)

(13)

(2)

(15)

(123)

Partners' Equity at June 30, 2019

71.3

514

1.9

95

14

(5)

102

720


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

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

11







TC PIPELINES, LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1ORGANIZATION

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


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

NOTE 2SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements and related notes have been prepared in accordance with United States generally accepted accounting principles (GAAP) and amounts are stated in U.S. dollars. The results of operations for the three and six months ended June 30, 20192020 and 20182019 are not necessarily indicative of the results that may be expected for the full fiscal year.

The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 20182019 included in our 2019 Annual Report on Form 10-K.Report. That report contains a more comprehensive summary of the Partnership’s significant accounting policies. In the opinion of management, the accompanying consolidated financial statements contain all of the appropriate adjustments, which are normally recurring adjustments unless otherwise noted, and considered necessary to present fairly the financial position of the Partnership, the results of operations and cash flows for the respective periods. Our significant accounting policies are consistent with those disclosed in our 2019 Annual Report, on Form 10-K for the year ended December 31, 2018, except those that became effective in 2020 as described in full under Note 3, Accounting"Accounting Pronouncements.

"

Basis of Presentation

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

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

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

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

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

12

Use of Estimates

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

12






NOTE 3ACCOUNTING PRONOUNCEMENTS

Changes in Accounting Policies effective January 1, 2019

Leases

2020

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

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

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

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

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

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

13

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

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

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

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

Fair Value Measurement

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

Future accounting changes

Measurement of credit losses on financial instruments

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

Consolidation

In October 2018, the FASB issued new guidance for determining whether fees paid to decision makers and service providers are variable interests for indirect interests held through related parties under common control. This new guidance isbecame effective January 1, 2020, and will bewas applied on a retrospective basis, however earlybasis. The adoption is permitted.of this new guidance did not have a material impact on the Partnership’s consolidated financial statements.

Reference rate reform
In March 2020, in response to the expected cessation of LIBOR, the FASB issued new optional guidance that eases the potential burden of accounting for reference rate reform. The new guidance provides optional expedients for contracts and hedging relationships that are affected by reference rate reform, if certain criteria are met. Each of the expedients can be applied as of January 1, 2020 through December 31, 2022. For eligible hedging relationships existing as of January 1, 2020 and prospectively, the Partnership has determinedapplied the optional expedient allowing an entity to assume that the hedged forecasted transaction in a cash flow hedge is probable of occurring. As reference rate reform is still an ongoing process, the Partnership will continue to evaluate the timing and potential impact of adoption of other optional expedients when deemed necessary.

NOTE 4GOODWILL
Under U.S. GAAP, we evaluate our goodwill related to Tuscarora and North Baja for impairment at least annually and if any indicators of impairment are evident.
In 2019, based on our analysis of Tuscarora and North Baja’s current market conditions, we believed there was a greater than 50 percent likelihood that Tuscarora and North Baja’s estimated fair value exceeded their carrying value. As a result, at December 31, 2019, we did not identify an impairment on the $71 million of goodwill related to the Tuscarora ($23 million) and North Baja ($48 million) reporting units.
On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic. While there are continuing concerns around the decline in energy demand related to the pandemic, we believe the current state of the macroeconomic environment does not represent a permanent shift. However, it is nostill difficult to predict with any certainty the severity of the impact of these events or how long any disruptions are likely to its consolidated financial statements ascontinue.
The following additional factors were considered in our analysis specific to the Partnership's Tuscarora and North Baja reporting units:
the long-term natural gas price futures relevant to gas transported on Tuscarora and North Baja do not reflect material differences from what was forecast in 2019;
at least 90 percent of Tuscarora's and North Baja's revenue is tied to long-term take-or-pay, fixed-price contracts which have a low correlation to short-term changes in demand;
Tuscarora and North Baja have not experienced any material customer defaults to date and have significant collateral in support of their contracts;
multiples and discount rate assumptions used in our quantitative model are reflective of the long-term outlook for Tuscarora and North Baja, in line with their underlying asset lives, versus the shorter-term nature of the current situation;
13





Tuscarora's expansion project, Tuscarora XPress, is materially on track, and we do not anticipate any significant changes in outlook or delay or inability to proceed due to financing requirements; and
Tuscarora and North Baja's businesses are broadly considered essential in the United States given the important role their infrastructures play in delivering energy to the market areas they serve.

As a result of this new guidance.

NOTE 4     REGULATORY

Iroquois, Tuscarora,these factors, we concluded during our first quarter 2020 analysis that there was a greater than 50 percent likelihood that both Tuscarora’s and Northern Border took the actions listed belowNorth Baja’s estimated fair values would continue to concludeexceed their carrying values. Therefore, no impairment exists on our goodwill. While the issues impacting their pipelines as contemplated bydescribed above persist in the 2017 Tax Actcurrent quarter, we continue to believe these conditions remain temporary and certain FERC actionsare not aware of any other conditions or triggering events in the second quarter that beganwould require us to change the conclusion reached during the first quarter. Adverse changes to our key considerations could,however, result in March of 2018, namely FERC’s Revised Policy Statementfuture impairments on Treatment of Income Taxes (Revised Policy Statement) and a Final Rule that established a schedule

14

our goodwill.

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

Iroquois

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

Tuscarora

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

Northern Border

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

NOTE 5EQUITY INVESTMENTS

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

Ownership

Equity Earnings

Equity Investments

Interest at

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

June 30, 

June 30, 

December 31, 

(millions of dollars)

    

2019

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

Northern Border

50

%  

14

 

15

35

 

32

431

497

Great Lakes

46.45

%  

9

12

29

36

484

489

Iroquois

49.34

%  

7

 

9

20

 

27

203

210

 

30

 

36

84

 

95

1,118

1,196

15

 OwnershipEquity EarningsEquity Investments
 Interest atThree months endedSix months ended  
(unaudited)June 30,June 30,June 30,June 30,December 31,
(millions of dollars)2020202020192020201920202019
Northern Border50.00%13143535412422
Great Lakes46.45%992929489491
Iroquois49.34%772020181185
  293084841,0821,098

Distributions from Equity Investments

Distributions received from equity investments in the three and six months ended June 30, 2020 totaled $49 million and $120 million, respectively (June 30, 2019 were- $108 million and $167 million, respectively ).
During the six months ended June 30, 2020, $5 million of the total $120 million distributions received from equity investments (June 30, 20182019 - $56 million and $101 million, respectively)$55 million), of which $52.6 million and $55.2 million, respectively (June 30, 2018 - $2.6 million and $5.2 million, respectively), werewas considered return of capital and included in “Investing Activities”"Investing Activities" in the Partnership’s consolidated statement of cash flows. The return of capital was related to our investment in Northern Border and Iroquois (see further discussion below).

Northern Border

During the three and six months ended June 30, 2019,2020, the Partnership received distributions from Northern Border amounting to $18 million and $45 million, respectively (June 30, 2019 - $72 million and $100 million, respectively (June 30, 2018 - $17 million and $39 million, respectively) which includes the Partnership’s 50 percent share of the Northern Border’s $100 million distribution on June 26, 2019. The $100 million was 100 percent financed by borrowing on its $200 million revolving credit facility. The $50 million cash the Partnership received did not represent a distribution of operating cash flow during the period and therefore it was reported as a return of investment in the Partnership’s consolidated statement of cash flows.

.

The Partnership did not have undistributed earnings from Northern Border for the three and six months ended June 30, 20192020 and 2018.

2019.

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

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Cash and cash equivalents

 

26

 

10

Other current assets

 

33

 

36

Property, plant and equipment, net

 

1,008

 

1,037

Other assets

 

13

 

13

 

1,080

 

1,096

LIABILITIES AND PARTNERS’ EQUITY

Current liabilities

 

46

 

34

Deferred credits and other

 

37

 

35

Long-term debt, net (a)

 

365

 

264

Partners’ equity

Partners’ capital

 

633

 

764

Accumulated other comprehensive loss

 

(1)

 

(1)

 

1,080

 

1,096

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

67

 

68

 

148

 

140

Operating expenses

 

(20)

 

(19)

 

(40)

 

(38)

Depreciation

 

(16)

 

(15)

 

(31)

 

(30)

Financial charges and other

 

(4)

 

(4)

 

(8)

 

(7)

Net income

 

27

 

30

 

69

 

65

14
(a)No current maturities as of June 30, 2019 and December 31, 2018. At June 30, 2019, Northern Border is in compliance with all its financial covenants.

16




(unaudited)  
(millions of dollars)June 30, 2020December 31, 2019
ASSETS  
Cash and cash equivalents17  21  
Other current assets38  37  
Property, plant and equipment, net978  989  
Other assets12  12  
 1,045  1,059  
LIABILITIES AND PARTNERS’ EQUITY  
Current liabilities42  42  
Deferred credits and other41  39  
Long-term debt, net (a)
369  364  
Partners’ equity
Partners’ capital594  615  
Accumulated other comprehensive loss(1) (1) 
 1,045  1,059  
 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Transmission revenues66  67  149  148  
Operating expenses(19) (20) (39) (40) 
Depreciation(16) (16) (31) (31) 
Financial charges and other(5) (4) (9) (8) 
Net income26  27  70  69  

Great Lakes,

a variable interest entity

The Partnership is considered to have a variable interest in Great Lakes, which is accounted for as an equity investment as we are not its primary beneficiary. A variable interest entity is a legal entity that either does not have sufficient equity at risk to finance its activities without additional subordinated financial support, is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains or losses of the entity.
The Partnership made an equity contribution to Great Lakes of $5 million induring the first quarter of 2019six months ended June 30, 2020 (June 30, 20182019 - $4$5 million). This amount represents the Partnership’s 46.45 percent share of an $11 million cash call from Great Lakes to make a scheduled debt repayment.

During the three and six months ended June 30, 2020, the Partnership received distributions from Great Lakes amounting to $21 million and $37 million, respectively (June 30, 2019 - $23 million and $39 million, respectively).
The Partnership did not have undistributed earnings from Great Lakes for the three and six months ended June 30, 20192020 and 2018.

2019.


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

(unaudited)

 

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

Current assets

 

56

 

75

Property, plant and equipment, net

 

687

 

689

 

743

 

764

LIABILITIES AND PARTNERS’ EQUITY

Current liabilities

 

26

 

26

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

 

229

 

240

Other long term liabilities

4

4

Partners' equity

 

484

 

494

 

743

 

764

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

51

 

53

 

123

 

134

Operating expenses

 

(19)

 

(15)

 

(35)

 

(32)

Depreciation

 

(8)

(8)

 

(16)

 

(16)

Financial charges and other

 

(5)

 

(5)

 

(9)

 

(9)

Net income

 

19

 

25

 

63

 

77

15
(a)




(unaudited)  
(millions of dollars)June 30, 2020December 31, 2019
ASSETS  
Current assets58  72  
Property, plant and equipment, net684  685  
 742  757  
LIABILITIES AND PARTNERS’ EQUITY  
Current liabilities34  33  
Net long-term debt, including current maturities (a)
208  219  
Other long term liabilities  
Partners’ equity493  499  
 742  757  
 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Transmission revenues50  51  122  123  
Operating expenses(19) (19) (35) (35) 
Depreciation(8) (8) (16) (16) 
Financial charges and other(3) (5) (7) (9) 
Net income20  19  64  63  
(a)  Includes current maturities of $31 million as of June 30, 2020 (December 31, 2019 - $21 million). At June 30, 2020, Great Lakes was in compliance with all its financial covenants.
Iroquois
Includes current maturities of $21 million as of June 30, 2019 and as of December 31, 2018. At June 30, 2019, Great Lakes is in compliance with all its financial covenants.

Iroquois

During the three and six months ended June 30, 2019,2020, the Partnership received distributions from Iroquois amounting to $14$10 million and $28$38 million, respectively (June 30, 20182019 - $14 million and $28 million, respectively), which includes the Partnership’s 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 millionNaN and $5.2 million, respectivelyrespectively. (June 30, 20182019 - $2.6 million and $5.2 million, respectively). The unrestricted cash did not represent a distribution of Iroquois’ cash from operations during the period and therefore it was reported as a return of investment in the Partnership’s consolidated statement of cash flows.

Iroquois declared its second quarter 2019 distribution of $28 million on July 24, 2019, of which the Partnership received its 49.34 percent share or $14 million on August 1, 2019. The distribution includes our 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 million.

The Partnership did not have undistributed earnings from Iroquois for the three and six months ended June 30, 20192020 and 2018.

2019.

17

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

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS

 

  

 

  

Cash and cash equivalents

 

73

 

80

Other current assets

 

25

 

32

Property, plant and equipment, net

 

573

 

581

Other assets

 

14

 

8

 

685

 

701

LIABILITIES AND PARTNERS’ EQUITY

 

 

Current liabilities

 

15

 

19

Long-term debt, net (a)

 

319

 

325

Other non-current liabilities

 

21

 

14

Partners' equity

 

330

 

343

 

685

 

701

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Transmission revenues

 

40

44

92

105

Operating expenses

 

(13)

(14)

(28)

(28)

Depreciation

 

(8)

(7)

(15)

(15)

Financial charges and other

 

(4)

(4)

(7)

(7)

Net income

 

15

19

42

55

(unaudited)
(millions of dollars)June 30, 2020December 31, 2019
ASSETS  
Cash and cash equivalents35  43  
Other current assets72  36  
Property, plant and equipment, net513  570  
Other assets19  16  
 639  665  
LIABILITIES AND PARTNERS’ EQUITY  
Current liabilities14  34  
Long-term debt, net (a)
316  317  
Other non-current liabilities22  20  
Partners’ equity287  294  
 639  665  
16
(a)




Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Transmission revenues41  40  93  92  
Operating expenses(14) (13) (29) (28) 
Depreciation(7) (8) (15) (15) 
Financial charges and other(6) (4) (9) (7) 
Net income14  15  40  42  
(a)   Includes current maturities of $4 million as of June 30, 2020 (December 31, 2019 - $3 million). At June 30, 2020, Iroquois was in compliance with all of its financial covenants.

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

NOTE 6REVENUES

Disaggregation of Revenues

For the three and six months ended June 30, 20192020 and 2018,2019, effectively all of the Partnership’s revenues were from capacity arrangements and transportation contracts with customers as discussed in more detail below.

Capacity Arrangements and Transportation Contracts

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

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

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

18

the time a regulatory decision becomes final. As of June 30, 2019,2020, the Partnership does not have any outstanding refund obligations related to any rate proceedings. Revenues are invoiced and paid on a monthly basis. The Partnership’s pipeline systems do not take ownership of the natural gas that is transported for customers. Revenues from contracts with customers are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Contract Balances

All of the Partnership’s contract balances pertain to receivables from contracts with customers amounting to $31$32 million at June 30, 20192020 (December 31, 20182019 - $44$37 million) and are recorded as Tradetrade accounts receivable and reported as “Accounts"Accounts receivable and other”other" in the Partnership’s consolidated balance sheet (Refer to Note 14)14, "Accounts Receivable and Other").

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

Future revenue from remaining performance obligations

When the right

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

Additionally, in

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

17





NOTE 7DEBT AND CREDIT FACILITIES

    

    

Weighted Average

    

    

Weighted Average

Interest Rate for the

Interest Rate for the

(unaudited)

Six Months Ended

December 31, 

Year Ended

(millions of dollars)

June 30, 2019

June 30, 2019

2018

December 31, 2018

TC PipeLines, LP

Senior Credit Facility due 2021

 

 

3.61

%  

40

3.14

%  

2013 Term Loan Facility due 2022

 

450

 

3.73

%  

500

3.23

%  

4.65% Unsecured Senior Notes due 2021

 

350

 

4.65

%  

(a)

350

4.65

%  

(a)

4.375% Unsecured Senior Notes due 2025

350

4.375

%  

(a)

350

4.375

%  

(a)

3.90 % Unsecured Senior Notes due 2027

500

3.90

%  

(a)

500

3.90

%  

(a)

GTN

5.29% Unsecured Senior Notes due 2020

 

100

 

5.29

%  

(a)

100

5.29

%  

(a)

5.69% Unsecured Senior Notes due 2035

 

150

 

5.69

%  

(a)

150

5.69

%  

(a)

Unsecured Term Loan Facility due 2019

35

2.93

%  

PNGTS

Revolving Credit Facility due 2023

29

3.74

%  

19

3.55

%  

Tuscarora

Unsecured Term Loan due 2020

24

3.62

%  

24

3.10

%  

North Baja

Unsecured Term Loan due 2021

50

3.56

%  

50

3.54

%  

 

2,003

 

 

2,118

Less: unamortized debt issuance costs and debt discount

10

10

Less: current portion

 

101

 

36

 

1,892

 

 

2,072

(a)Fixed interest rate

19

(unaudited)
(millions of dollars)
June 30, 2020Weighted Average
Interest Rate for the
Six Months Ended
June 30, 2020
December 31, 2019Weighted Average
Interest Rate for the
Year Ended 
December 31, 2019
TC PipeLines, LP    
Senior Credit Facility due 2021
2013 Term Loan Facility due 20224502.34%4503.52%
4.65% Unsecured Senior Notes due 20213504.65%
(a)
3504.65%
(a)
4.375% Unsecured Senior Notes due 20253504.375%
(a)
3504.375%
(a)
3.90% Unsecured Senior Notes due 20275003.90%
(a)
5003.90%
(a)
GTN    
3.12% Series A Senior Notes due 20301753.12%
(a)
5.29% Unsecured Senior Notes due 2020
(a)
1005.29%
(a)
5.69% Unsecured Senior Notes due 20351505.69%
(a)
1505.69%
(a)
PNGTS    
Revolving Credit Facility due 2023712.36%393.47%
Tuscarora    
Unsecured Term Loan due 2021232.22%233.39%
North Baja
Unsecured Term Loan due 2021502.17%503.34%
 2,119 2,012 
Less: unamortized debt issuance costs and debt discount7 9 
Less: current portion (b)
350 123 
 1,762 1,880 
(a)       Fixed interest rate


TC PipeLines, LP

The Partnership’s Seniorsenior facility under revolving credit agreement as amended and restated, dated September 29, 2017 (Senior Credit FacilityFacility) consists of a $500 million senior revolving credit facility with a banking syndicate, maturing November 10, 2021. In March 2019, the Partnership repaid all amounts outstanding under its Senior Credit Facility and there was no0 outstanding balance at either June 30, 2019 (December 31, 2018 - $40 million).

The LIBOR-based interest rate applicable to the Senior Credit Facility was 3.77 percent at2020 or December 31, 2018.

On June 26, 2019, the Partnership repaid $50 million of the principal balance under its 2013 Term Loan Facility using proceeds from Northern Border's special distribution (see Note 5). Additionally, in conjunction with this repayment, the Partnership also terminated an equivalent amount in interest rate swaps that were used to hedge this facility at a rate of 2.81 percent. 2019.

As of June 30, 2019,2020, the variable interest rate exposure related to the 2013term loan facility under a term loan agreement, as amended, dated September 29, 2017 (2013 Term Loan FacilityFacility) was hedged using interest rate swaps at an average rate of 3.26 percent (December 31, 2018 –3.262019 - 3.26 percent). Prior to hedging activities, the LIBOR-basedLondon Interbank Offered Rate based (LIBOR) interest rate on the 2013 Term Loan Facility was 3.691.42 percent at June 30, 20192020 (December 31, 20182019 - 3.602.94 percent).

The Senior Credit Facility and the 2013 Term Loan Facility require the Partnership to maintain a certain leverage ratio (debtdebt to adjusted cash flow [net income plus cash distributions received, extraordinary losses, interest expense, expense for taxes paid or accrued, and depreciation and amortization expense less equity earnings and extraordinary gains])leverage ratio of no greater than 5.00 to 1.00 for each fiscal quarter, except for the fiscal quarter and the two following fiscal quarters in which one or more acquisitions have been executed, in which case the leverage ratio is to be no greater than 5.50 to 1.00. The leverage ratio was 2.783.90 to 1.00 as of June 30, 2019.

2020.


18





GTN

On June 1, 2020, GTN’s $100 million 5.29% Unsecured Senior Notes became due and were refinanced through a Note Purchase and Private Shelf Agreement whereby GTN issued $175 million of 10-year Series A Senior Notes with a coupon of 3.12% per annum and entered into a 3-year private shelf agreement for an additional $75 million of Senior Notes (Private Shelf Facility). The new Series A Senior Notes do not require any principal payments until maturity on June 1, 2030. Proceeds from the Series A Senior Note issuance were used to repay the outstanding balance of the 5.29% Unsecured Senior Notes and the remaining proceeds will be used to fund the GTN XPress capital expenditures for the balance of 2020. GTN expects to draw the remaining $75 million available under the Private Shelf Facility by the end of 2023, the estimated completion date of GTN XPress. The Private Shelf Agreement and the Unsecured Senior Notes contain a covenant that limits total debt to no greater than 65 percent and 70 percent of GTN’s total capitalization.capitalization, respectively. GTN’s total debt to total capitalization ratio at June 30, 20192020 was 44.5 percent.

39.9 percent.

During the three months ended June 30, 2019, GTN's Unsecured Term Loan Facility matured and was fully repaid using the Partnership's funds from operations. The LIBOR-based interest rate applicable to GTN’s Unsecured Term Loan Facility was 3.30 percent at December 31, 2018.

PNGTS

PNGTS’ $125 million Revolving Credit Facility requires PNGTS to maintain a leverage ratio notof no greater than 5.00 to 1.00. The leverage ratio was 0.51.15 to 1.00 as of June 30, 2019.

2020. During the six months ended June 30, 2020, PNGTS borrowed an additional $32 million on its Revolving Credit Facility to fund its expansion projects.

The LIBOR-based interest rate applicable to PNGTS’PNGTS’s Revolving Credit Facility was 3.691.42 percent at June 30, 20192020 (December 31, 20182019 - 3.602.99 percent).


Tuscarora

Tuscarora’s $23 million variable rate Unsecured Term Loan due August 21, 2020 (Unsecured Term Loan) contains a covenant that requires Tuscarora to maintain a debt service coverage ratio (cash available from operations divided by athe sum of interest expense and principal payments) of greater than or equal to 3.00 to 1.00. As of June 30, 2019,2020, the ratio was 9.449.14 to 1.00.

The LIBOR-based interest rate applicable to Tuscarora’s Unsecured Term Loan Facility was 3.571.30 percent at June 30, 20192020 (December 31, 20182019 - 3.472.82 percent).

On July 23, 2020, Tuscarora's Unsecured Term Loan was amended to extend the maturity date to August 20, 2021 under generally the same terms.
North Baja

North Baja’s $50 million Term Loan Facility contains a covenant that limits total debt to no greater than 70 percent of North Baja’s total capitalization. North Baja’s total debt to total capitalization ratio at June 30, 20192020 was 39.0640.50 percent.

20

The LIBOR-based interest rate applicable to North Baja’s Term Loan Facility was 3.521.25 percent at June 30, 20192020 (December 31, 20182019 - 3.542.77 percent).


Partnership (TC PipeLines, LP and its subsidiaries)

At June 30, 2019,2020, the Partnership was in compliance with all terms and conditions including its financial covenants in addition to theand its other covenants which includeincluding restrictions on entering into mergers, consolidations and sales of assets, granting of liens, material amendments to the Fourth Amended and Restated Agreement of Limited Partnership, as amended to date (Partnership Agreement), incurring additional debt and distributions to unitholders.

The principal repayments required of the Partnership on its debt are as follows:

(unaudited) 
(millions of dollars) Principal Payments
2020—  
2021423  
2022450  
202371  
2024—  
Thereafter1,175  
 2,119  
19


(unaudited)

(millions of dollars)

    

Principal Payments

2019

 

1

2020

 

123

2021

 

400

2022

 

450

2023

29

Thereafter

 

1,000

 

2,003





NOTE 8PARTNERS’ EQUITY

ATM equity issuance program (ATM program)

During the six months ended June 30, 2019, no common units were issued under this program.

Class B units issued to TC Energy

The Class B units entitle TC Energy to an annual distribution based on 30 percent of GTN’s annual distributions as follows: (i) 100 percent of distributions above $20 million for the year ending Decemberthrough March 31, 2019;2020 and (ii) 25 percent of distributions above $20 million thereafter, which equates to 43.75 percent of distributions above $20 million for the year ending December 31, 2020; and (iii) 25 percent of distributions above $20 million thereafter2020 (Class B Distribution). Additionally, the Class B Distribution will be further reduced by 35 percent, which is equivalent to the percentage by which distributions payable to the common units were reduced in 2018 (Class B Reduction). The Class B Reduction was implemented during the first quarter of 2018 following the Partnership’s common unit distribution reduction of 35 percent. The Class B Reduction will continue to apply to any particular calendar year until distributions payable in respect of common units for such calendar year equal or exceed $3.94 per common unit.

For the year endedending December 31, 2019,2020, the Class B units’ equity account will be increased by the Class B Distribution, less the Class B Reduction, until such amount is declared for distribution and paid in the first quarter of 2020.2021. During the six months ended June 30, 2019,2020, the 2020 annual Class B Distribution threshold was not exceeded.

For the year ended December 31, 2018,2019, the Class B distributionDistribution was $13$8 million and was declared and paid in the first quarter of 2019.

2020.


NOTE 9NET INCOME PER COMMON UNIT

Net income per common unit is computed by dividing net income attributable to controlling interests, after deduction of amounts attributable to the General PartnerTC PipeLines GP., Inc. (General Partner) and Class B units, by the weighted average number of common units outstanding.

21

The amount allocable to the General Partner equals an amount based upon the General Partner’s two2 percent general partner interest, plus an amount equal to incentive distributions. Incentive distributions are paid to the General Partner if quarterly cash distributions on the common units exceed levels specified in the Partnership Agreement.

Agreement.

The amount allocable to the Class B units in 2019 equals2020 will equal 30 percent of GTN’s distributable cash flow during the year endedending December 31, 20192020 less $20 million, andthe residual of which is further multiplied by 43.75 percent. This amount is further reduced by the estimated Class B Reduction for 20192020, an approximately 35 percent reduction applied to the estimated annual Class B Distribution (December 31, 2018-$202019 - $20 million less Class B Reduction). During the three and six months ended June 30, 20192020 and 2018,2019, no amounts were allocated to the Class B units as the annual threshold was not exceeded.

Net income per common unit was determined as follows:

(unaudited)Three months ended June 30,Six months ended June 30,
(millions of dollars, except per common unit amounts)2020201920202019
Net income attributable to controlling interests57  55  145  148  
Net income attributable to the General Partner(1) (1) (3) (3) 
Net income attributable to common units56  54  142  145  
Weighted average common units outstanding (millions) — basic and diluted
71.3  71.3  71.3  71.3  
Net income per common unit — basic and diluted$0.78  $0.75  $1.99  $2.03  

(unaudited)

Three months ended June 30, 

Six months ended June 30, 

(millions of dollars, except per common unit amounts)

    

2019

    

2018

    

2019

    

2018

Net income attributable to controlling interests

 

55

73

 

148

169

Net income attributable to the General Partner

(1)

(1)

(3)

(3)

Net income attributable to common units

54

72

145

166

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

 

71.3

71.3

 

71.3

71.2

Net income per common unit – basic and diluted

$

0.75

$

1.00

$

2.03

$

2.33

NOTE 10    CASH DISTRIBUTIONS PAID TO COMMON UNITS

2019

During both the three and six months ended June 30, 2020 and 2019, the Partnership distributed $0.65 and $1.30 per common unit, respectively for a total distribution of $47 million and $95 million, respectively.

The total distribution paid above includes our General Partner’sPartner's share duringfor its 2 percent general partner interest for both the three and six months ended June 30, 2020 and 2019 for its two percent general partner interest, which wastotaling $1 million and $2 million,respectively. The General Partner did not receive any

20





distributions in respect of its IDRs duringIncentive Distribution Rights (IDRs) in either of the three andor six months ended June 30, 2019.

2018

During the three2020 and six months ended June 30, 2018, the Partnership distributed $0.65 and $1.65 per common unit, respectively, for a total of $47 million and $123 million, respectively.

2019.


The total distribution paid above includes our General Partner’s share during the three and six months ended June 30, 2018 for its two percent general partner interest, which was $1 million and $3 million, respectively. The distributions paid to our General Partner in respect of IDRs during the three and six months ended June 30, 2018 were nil and $3 million, respectively.

NOTE 11    CHANGE IN OPERATING WORKING CAPITAL

(unaudited)

Six months ended June 30, 

(millions of dollars)

    

2019

    

2018

Change in accounts receivable and other

 

15

 

2

Change in inventories

(1)

Change in other current assets

3

(1)

Change in accounts payable and accrued liabilities

 

(12)

(6)

Change in accrued interest

 

(1)

 

Change in operating working capital

 

4

 

(5)

22

(unaudited)Six months ended June 30,
(millions of dollars)20202019
Change in accounts receivable and other (a)
 15  
Change in inventories—  (1) 
Change in other current assets  
Change in accounts payable and accrued liabilities (a)
—  (12) 
Change in accounts payable to affiliates(2) —  
Change in accrued interest(1) (1) 
Change in operating working capital  
(a)Excludes certain non-cash items primarily related to capital accruals and credits.
21


NOTE 12    RELATED PARTY TRANSACTIONS

The Partnership does not have any employees. The management and operating functions are provided by the General Partner. The General Partner does not receive a management fee in connection with its management of the Partnership. The Partnership reimburses the General Partner for all costs of services provided, including the costs of employee, officer and director compensation and benefits, and all other expenses necessary or appropriate to conduct the business of, and allocable to, the Partnership. Such costs include (i) overhead costs (such as office space and equipment) and (ii) out-of-pocket expenses related to the provision of such services. The Partnership Agreement provides that the General Partner will determine the costs that are allocable to the Partnership in any reasonable manner determined by the General Partner in its sole discretion. For both the three and six months ended June 30, 20192020 and 2018,2019, total costs charged to the Partnership by the General Partner were $1 million and $2 million, respectively.

As operator of our pipelines, except Iroquois and a certain portion of the PNGTS facilities, TC Energy’s subsidiaries provide capital and operating services to our pipeline systems. TC Energy’s subsidiaries incur costs on behalf of our pipeline systems, including, but not limited to, employee salary and benefit costs, and property and liability insurance costs. Iroquois does not receive any capital and operating services from TC Energy (Refer to Note 5)5, "Equity Investments").

Capital and operating costs charged to our pipeline systems, except for Iroquois, for the three and six months ended June 30, 20192020 and 20182019 by TC Energy’s subsidiaries and amounts payable to TC Energy’s subsidiaries at June 30, 20192020 and December 31, 20182019 are summarized in the following tables:

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Capital and operating costs charged by TC Energy’s subsidiaries to:

Great Lakes (a)

12

16

23

24

Northern Border (a)

 

10

 

9

 

19

 

18

GTN

 

11

 

8

 

21

 

16

Bison

 

 

1

 

1

 

3

North Baja

 

2

 

1

 

3

 

2

Tuscarora

 

1

 

1

 

2

 

2

PNGTS (a)

1

2

3

4

Impact on the Partnership’s net income:

Great Lakes

 

5

 

7

 

10

 

11

Northern Border

 

5

 

4

 

9

 

8

GTN

 

8

 

7

 

16

 

14

Bison

 

 

1

 

1

 

3

North Baja

 

1

 

1

 

2

 

2

Tuscarora

1

1

2

2

PNGTS

1

1

2

2

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

Net amounts payable to TC Energy’s subsidiaries are as follows:

Great Lakes (a)

 

5

 

3

Northern Border (a)

 

4

 

3

GTN

 

4

 

4

Bison

1

North Baja

 

1

 

Tuscarora

 

 

1

PNGTS (a)

1

1

 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Capital and operating costs charged by TC Energy’s subsidiaries to:  
Great Lakes (a) 
11  12  22  23  
Northern Border (a)
10  10  20  19  
GTN12  11  24  21  
Bison —    
North Baja    
Tuscarora    
 PNGTS (a)
    
Impact on the Partnership’s income (b):
  
Great Lakes   10  
Northern Border    
GTN  15  16  
Bison —    
North Baja    
Tuscarora    
PNGTS

    
22
(a)Represents 100 percent of the costs.

23




(unaudited)  
(millions of dollars)June 30, 2020December 31, 2019
Net amounts payable to TC Energy’s subsidiaries are as follows:  
Great Lakes (a)
  
Northern Border (a)
  
GTN  
Bison—  —  
North Baja—   
Tuscarora—  —  
PNGTS (a)
  

(b)Represents the Partnership's proportionate share based ownership percentage of these pipelines.


Great Lakes

Great Lakes earns significant transportation revenues from TC Energy and its affiliates, some of which are provided at discounted rates and some at maximum recourse rates. For the three and six months ended June 30, 2019,2020, Great Lakes earned 7375 percent and 74 percent, respectively of its transportation revenues from TC Energy and its affiliates (June 30, 20182019 - 7273 percent and 70 percent, respectively)for both periods).

At June 30, 2019,2020, $13 million was included in Great Lakes’ receivables with regard to the transportation contracts with TC Energy and its affiliates (December 31, 20182019 - $18$19 million).

During the second quarter of

In 2018, Great Lakes reached an agreement on the terms of newexecuted long-term transportation capacity contracts with its affiliate, ANR Pipeline Company.Company (ANR) in anticipation of specific possible future needs. The contracts are for a term of 15 years from November 2021 to October 31, 2036 with aoriginal total contract value of these contracts was approximately $1.3 billion over a 15-year period. These contracts were subject to certain conditions and provisions, including a reduction option up to the full contract quantity if exercised up to a certain date. During the first quarter of 2020, several amendments were made to these contracts and ANR exercised the right to terminate a significant portion of the contracts amounting to approximately $1.1 billion. The contracts containremaining maximum rate contract, which has a total capacity of approximately 168,000 Dth/Day and total contract value of $182 million over a term of 20 years, is expected to begin in late 2022. This contract, which has a full quantity reduction options (i)option at any time before October 1, 2022, is dependent on or before April 1, 2019 for any reason and (ii) any time before April 2021, if TC Energy is notANR being able to secure the required regulatory approval related to anticipated expansion projects. Duringapprovals and other requirements of the first quarter of 2019,project associated with these volumes. Any remaining unsubscribed capacity on Great Lakes reached an agreementwill be available for contracting in response to amend volume reduction “for any reason” option by extending the period “on or before” April 1, 2019 to “on or before” April 1, 2020. All the other terms remained the same.

developing marketing conditions.


PNGTS

PNGTS earns transportation revenues from TC Energy and its affiliates. For the three and six months ended June 30, 2019, PNGTS earned approximately nil of its transportation revenues from TC Energy and its affiliates (June 30, 2018 - $1 million).

At June 30, 2019, nil was included in PNGTS' outstanding receivables with regard to the transportation contracts with TC Energy and its affiliates (December 31, 2018 – nil).

In connection with the Portland XPress expansion project (PXP), which was designed to be phased in over a three year time period, PNGTS has entered into an arrangement with its affiliates regarding the construction of certain facilities on their systems that will beare required to fulfill future contracts on the PNGTS system. PXP Phases I and II were placed into service on November 1, 2018 and November 1, 2019, respectively. Phase III is anticipated to be in service on November 1, 2020. In the event the anticipated developments do not proceed,expansions are terminated prior to their in-service dates, PNGTS will be required to reimburse its affiliates for any costs incurred related to the development of thesetheir facilities. At June 30, 2019,As a result of placing the totalTC Energy facilities associated with the Phase II volumes in service, PNGTS' obligation for Phase II costs has been extinguished. PNGTS' remaining potential obligation to reimburse costs incurred by these affiliatesTC Energy in relation to Phase III, which was approximately $99 million.

$3.8 million at June 30, 2020 and estimated to be approximately $9.1 million by November 1, 2020, will be terminated when Phase III goes into service.



23






NOTE 13    FAIR VALUE MEASUREMENTS

(a) Fair Value Hierarchy

Under Accounting Standards Codification (ASC) 820, Fair Value Measurements andDisclosures, fair value measurements are characterized in one of three levels based upon the inputs used to arrive at the measurement. The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
When appropriate, valuations are adjusted for various factors including credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

24

(b) Fair Value of Financial Instruments

The carrying value of “cash"cash and cash equivalents”, “accountsequivalents,""accounts receivable and other”, ”accountsother,""accounts payable and accrued liabilities”, “accountsliabilities,""accounts payable to affiliates”affiliates" and “accrued interest”"accrued interest" approximate their fair values because of the short maturity or duration of these instruments, or because the instruments bear a variable rate of interest or a rate that approximates current rates. The fair value of the Partnership’s debt is estimated by discounting the future cash flows of each instrument at estimated current borrowing rates. The fair value of interest rate derivatives is calculated using the income approach, which uses period-end market rates and applies a discounted cash flow valuation model.

The Partnership has classified the fair value of natural gas imbalances as a Level 2 of the fair value hierarchy for fair value disclosure purposes, as the valuation approach includes quoted prices in the market index and observable volumes for the imbalance.

Long-term debt is recorded at amortized cost and classified as Level 2 of the fair value hierarchy for fair value disclosure purposes. Interest rate derivative assets and liabilities are classified as Level 2 for all periods presented where the fair value is determined by using valuation techniques that refer to observable market data or estimated market prices. The estimated fair value of the Partnership’s debt as at June 30, 20192020 and December 31, 20182019 was $2,064$2,223 million and $2,101$2,111 million, respectively.

Market risk is the risk that changes in market interest rates may result in fluctuations in the fair values or cash flows of financial instruments. The Partnership’s floating rate debt is subject to LIBOR benchmark interest rate risk. The Partnership uses derivatives to manage its exposure to interest rate risk. We regularly assess the impact of interest rate fluctuations on future cash flows and evaluate hedging opportunities to mitigate our interest rate risk.

The Partnership’s interest rate swaps mature on October 2, 2022 and are2022. The interest rate swaps were structured such that the cash flows of the derivative instruments match those of the variable rate of interest on the 2013 Term Loan Facility. The fixed weighted average interest rate on these instruments is 3.26 percent. On June 26, 2019, in conjunction with the Partnership’s $50 million repayment on its 2013 Term Loan Facility, the Partnership also terminated an equivalent amount in interest rate swaps that were used to hedge this facility at an unwind rate of 2.81% (See also Note 7).

At June 30, 2019,2020, the fair value of the interest rate swaps accounted for as cash flow hedges was a liabilityof $5$19 million (both on a gross and net basis) (December 31, 20182019 - assetliability of $8$6 million).

The, the net change in fair value of interest rate derivative instrumentswhich is recognized in other comprehensive income was a loss of $9 million and $14 million forincome. For both the three and six months ended June 30, 2019, respectively (June 30, 2018 - loss of $1 million and gain of $6 million, respectively). During the three and six months ended June 30, 2019, a gain of $1 million was reclassified from other comprehensive income to net income (June 30, 2018 - gain of $3 million). For the three and six months ended June 30, 2019,2020, the net realized gainloss related to the interest rate swaps was nil and $1$2 million respectively, and was included in “financial"financial charges and other”other" (June 30, 20182019 - gain of $1 millionNaN and $2gain of $1 million, respectively) (Refer to Note 15)15, "Financial Charges and Other').

The Partnership has no master netting agreements; however, it has derivative contracts containing provisions with rights of offset. The Partnership has elected to present the fair value of derivative instruments with the right to offset on a gross basis in the consolidated balance sheet. Had the Partnership elected to present these instruments on a net basis, there would be no effect on the consolidated balance sheet as of June 30, 20192020 and December 31, 2018.

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2019.

NOTE 14    ACCOUNTS RECEIVABLE AND OTHER

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

Trade accounts receivable, net of allowance of nil

 

31

 

44

Imbalance receivable from affiliates

1

2

Other

 

1

 

2

 

33

 

48

24





(unaudited)  
(millions of dollars)June 30, 2020December 31, 2019
Trade accounts receivable, net of allowance of nil32  37  
Other  
 34  43  

NOTE 15    FINANCIAL CHARGES AND OTHER

Three months ended

Six months ended

(unaudited)

June 30, 

June 30, 

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Interest expense (a)

22

24

 

45

 

48

PNGTS' amortization of loss on derivative instruments

2

2

Net realized gain related to the interest rate swaps

 

(1)

 

(1)

 

(2)

Other income

(1)

(2)

(1)

(2)

 

21

23

 

43

46

 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Interest expense (a)
20  22  40  45  
Net realized loss (gain) related to the interest rate swaps —   (1) 
Other income(4) (1) (5) (1) 
 18  21  37  43  
(a)(a)Includes amortization of debt issuance costs and discount costs.

NOTE 16     VARIABLE INTEREST ENTITIES

In the normal course of business, the Partnership must re-evaluate its legal entities under the current consolidation guidance to determine if those that are considered to be VIEs are appropriately consolidated or if they should be accounted for differently under GAAP. A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains or losses of the entity. A VIE is appropriately consolidated if the Partnership is considered to be the primary beneficiary. The VIE’s primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly impact the VIEs economic performance and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

As a result of its analysis, the Partnership continues to consolidate all legal entities in which it has a variable interest and for which it is considered to be the primary beneficiary. VIEs where the Partnership is not the primary beneficiary, but has a variable interest in the entity, are accounted for as equity investments.

Consolidated VIEs

The Partnership’s consolidated VIEs consist of the intermediate partnerships and mainly the Partnership’s ILPs that hold interests in the Partnership’s pipeline systems. After considering the purpose and design of the ILPs and the risks that they were designed to create and pass through to the Partnership, the Partnership has concluded that it is the primary beneficiary of these ILPs because of the significant amount of variability it absorbs from the ILPs’ economic performance.

The assets and liabilities held through these VIEs that are not available to creditors of the Partnership and whose investors have no recourse to the credit of the Partnership are held through GTN, Tuscarora, Northern Border, Great

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Lakes, PNGTS, Iroquois and North Baja due to their third party debt. The following table presents the total assets and liabilities of these entities that are included in the Partnership’s consolidated balance sheets:

(unaudited)

(millions of dollars)

    

June 30, 2019

    

December 31, 2018

ASSETS (LIABILITIES) (a)

Cash and cash equivalents

14

16

Accounts receivable and other

29

39

Inventories

9

8

Other current assets

3

6

Equity investments

1,118

1,196

Property, plant and equipment, net

1,240

1,240

Other assets

1

1

Accounts payable and accrued liabilities

(22)

(33)

Accounts payable to affiliates, net

(87)

(40)

Accrued interest

(2)

(2)

Current portion of long-term debt

(101)

(36)

Long-term debt

(251)

(341)

Other liabilities

(28)

(27)

Deferred state income tax

(9)

(9)

(a)Bison, an asset held through our consolidated VIEs, is excluded at June 30, 2019 and at December 31, 2018 as the assets of this entity can be used for purposes other than the settlement of the VIE’s obligations.

NOTE 1716    SUBSEQUENT EVENTS

Management of the Partnership has reviewed subsequent events through August 1, 2019,5, 2020, the date the consolidated financial statements were issued, and concluded there were no events or transactions during this period that would require recognition or disclosure in the consolidated financial statements other than what is disclosed here and/or those already disclosed in the preceding notes.

On July 23, 2019,2020, the board of directors of the General Partner declared the Partnership’s second quarter 20192020 cash distribution in the amount of $0.65 per common unit payable on August 14, 20192020 to unitholders of record as of August 2, 2019.3, 2020. The declared distribution totaled $47 million and is payable in the following manner: $46 million to common unitholders (including $4 million to the General Partner as a holder of 5,797,106 common units and $7 million to another subsidiary of TC Energy as holder of 11,287,725 common units) and $1 million to the General Partner for its two2 percent general partner interest. The General Partner did not receive any distributions in respect of its IDRs for the second quarter of 2019.

2020.

Northern Border declared its June 20192020 distribution of $15$11 million on July 8, 2019,9 2020, of which the Partnership received its 50 percent share or $7$5 million on July 31, 2019.

2020.

Great Lakes declared its second quarter 20192020 distribution of $20$24 million on July 16, 2019,15, 2020, of which the Partnership received its 46.45 percent share or $9$11 million on August 1, 2019.

July 31, 2020.

Iroquois declared its second quarter 20192020 distribution of $28$21 million on July 24, 2019,August 4, 2020, of which the Partnership receivedwill receive its 49.34 percent share or $14$10 million on August 1, 2019. The $14 million includes our proportionate share of Iroquois’ unrestricted cash amounting to $2.6 million (Refer to Note 5).

September 29, 2020.

PNGTS declared its second quarter 20192020 distribution of $7$14 million on July 12, 2019,8, 2020, of which $3$5 million was paid to its non-controlling interest owner on July 31, 2020.
On August 1, 2019.

2020, GTN, Great Lakes, Tuscarora and North Baja entered into a purchase agreement with a TC Energy affiliate to purchase an internally developed customer-facing commercial natural gas transmission IT application that maintains and manages customer contracts, natural gas capacity release, customer nominations, metering and billings. The total value of the transaction was $51 million and the Partnership's proportionate share of the cost was $38 million. Prior to the transaction close, GTN, Great Lakes, Tuscarora and North Baja paid the affiliate for the use of this system and the costs are included in the "Impact on Partnership's income" tabular summary under Note 12.

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Item 2.   Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes included in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our 2019 Annual ReportReport.

RECENT BUSINESS DEVELOPMENTS
OUTLOOK

On March 11, 2020, the WHO declared COVID-19, a global pandemic. As primary operator of our pipelines, TC Energy’s business continuity plans remain in place across the organization and TC Energy continues to effectively operate our assets, conduct commercial activities and execute on Form 10-Kprojects with a focus on health, safety and reliability. Our business is broadly considered essential in the United States given the important role our infrastructure plays in providing energy to North American markets. We believe that TC Energy’s robust continuity and business resumption plans for critical teams including gas control and commercial and field operations, will continue to ensure the safe and reliable delivery of energy that our customers depend upon. We anticipate that changes to work practices and other restrictions put in place by government and health authorities in response to the COVID-19 pandemic will have an impact on certain projects. While we generally believe this will not be material to our operations, we also recognize that the ultimate impact remains uncertain at this time.

Our pipeline assets are largely backed by long-term, take-or-pay contracts resulting in revenues that are materially insulated from short-term volatility associated with fluctuations in volume throughput and commodity prices. More importantly, a significant portion of our long-term contract revenue is with investment-grade customers and we have not experienced any material collection issues on our receivables to date. Aside from the impact of maintenance activities and normal seasonal factors, to date we have not seen any material changes in the utilization of our assets. Additionally, to date, we have not experienced any significant impacts on our supply chain. While it is too early to ascertain any long-term impact that the COVID-19 pandemic may have on our capital growth program, we note that we could experience some delay in construction and other related activities.

Capital market conditions in 2020 have been significantly impacted by COVID-19 resulting in periods of extreme volatility and reduced liquidity. Despite these challenges, our liquidity remains strong, underpinned by stable cashflow from operations, cash on hand and full access to our $500 million Senior Credit Facility. During the second quarter of 2020, GTN's $100 million Senior Notes due in June 2020 were refinanced through a Note Purchase Agreement whereby GTN issued $175 million of 10-year Series A Senior Notes with the incremental $75 million of proceeds to be used to fund the GTN XPress project through the balance of 2020. Additionally, GTN entered into a 3-year Private Shelf Agreement for an additional $75 million which will be used to finance a portion of the GTN XPress project into 2023. This refinancing demonstrates our continued access to the debt capital markets at attractive levels. Additionally, on July 23, 2020, we extended Tuscarora's $23 million Unsecured Term Loan due in August 2020 for one year to August 2021 under generally the same terms. PNGTS is also working on increasing its borrowing capacity to accommodate the financing required for the year ended Decemberbalance of both the PXP and Westbrook XPress projects. We continue to conservatively manage our financial position, self-fund our ongoing capital expenditures and maintain our debt at prudent levels and we believe we are well positioned to fund our obligations through a prolonged period of disruption, should it occur. Based on current expectations, we believe our business will continue to deliver consistent financial performance going forward and support our current quarterly distribution level of $0.65 per common unit.

The full extent and lasting impact of the COVID-19 pandemic on the global economy is uncertain but to date has included extreme volatility in financial markets and commodity prices, a significant reduction in overall economic activity and widespread extended shutdowns of businesses along with supply chain disruptions. The degree to which COVID-19 has a more significant impact on our operations and growth projects will depend on future developments, policies and actions which remain highly uncertain. Additional information regarding risks and impacts on our business can be found throughout this section, including Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" and Part II-Item 1A - "Risk Factors."

Impairment considerations:
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Consistent with GAAP, we evaluate our goodwill related to Tuscarora and North Baja for impairment at least annually to determine if any indicators of impairment are evident. Our long-lived assets and equity investments in Northern Border, Great Lakes and Iroquois, including intangible assets with finite useful lives, are evaluated whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
We believe the current state of the macroeconomic environment described above does not represent a permanent shift although it is difficult to predict the severity of the impact of these events or how long any disruptions are likely to continue. Additionally, the following factors were considered in our analysis specific to the Partnership:

the long-term natural gas price futures relevant to gas transported on our pipelines do not reflect material differences from what was forecast in 2019;
a significant amount of our pipeline assets’ revenue is tied to long-term take-or-pay, fixed-price contracts which have a low correlation to short-term changes in demand;
we have not experienced any material customer defaults to date and we have significant collateral supporting our contracts;
multiples and discount rate assumptions used in our quantitative models are reflective of the long-term outlook for our assets, in line with their underlying asset life, versus the shorter-term nature of the current situation;
while we may experience a slowdown in some of our construction activities, our current growth projects are materially on track, and we do not anticipate any significant changes in outlook, delays or inability to proceed due to financing requirements; and
Our businesses are broadly considered essential in the United States given the important role these pipeline infrastructure assets play in delivering energy to the market areas we serve.

While the issues described above persist in the current quarter, we continue to believe these conditions remain temporary and as a result, we continue to believe no impairment exists on our goodwill, equity investments or long-lived assets. However, future adverse changes to our key considerations could change our conclusion.
Other notable business developments:
PNGTS’ Portland XPress Project- Phases I and II of this project are in service, and on March 5, 2020, FERC granted PNGTS’ request to begin construction of Phase III of the project. Construction activities are in progress and PXP is currently on track to be fully in service on November 1, 2020. Once fully in service, all three phases of PXP in aggregate are expected to generate approximately $50 million of annual revenue for PNGTS.

PNGTS’ Westbrook XPress Project- Phase I of this project is in service, and on June 18, 2020, FERC issued a certificate of public convenience and necessity for this project. Phases II and III have estimated in-service dates of November 2021 and 2022, respectively. Once fully in service, all three phases of Westbrook XPress in aggregate are expected to generate approximately $35 million of annual revenue for PNGTS.

ANR's Alberta XPress project-On February 12, 2020, TC Energy approved the Alberta XPress project, an expansion project on its ANR Pipeline system with an estimated in-service date of 2022. This project utilizes existing capacity on our Great Lakes and TC Energy’s Canadian Mainline systems to connect growing natural gas supply from the Western Canadian Sedimentary Basin (WCSB) to U.S. Gulf Coast Liquified Natural Gas (LNG) export markets. In 2018, Great Lakes entered into long-term transportation capacity contracts with ANR for approximately 900,000 Dth/day of aggregate capacity for a term of 15 years. In connection with the approval of the Alberta XPress project, such contracts have been reduced to provide for approximately 168,000 Dth/day of aggregate capacity for a term of 20 years at maximum rates for a total contract value of $182 million starting in 2022. The contract contains reduction options (i) at any time on or before October 1, 2022 for any reason and (ii) at any time, if ANR is not able to secure the required regulatory approval related to its anticipated expansion projects. Please read Note 12 within Item 1. “Financial Statements” for information regarding Great Lakes and ANR.
Northern Border complaint - On March 31, 2018.

RECENT BUSINESS DEVELOPMENTS

Cash Distributions

2020, BP Canada Energy Marketing Corp., Oasis Petroleum Marketing LLC and Tenaska Marketing Ventures (the “Alliance for Open Markets”) filed a complaint with FERC (Docket No. RP20-745-000) against Northern Border Pipeline Company alleging that Northern Border violated Sections 4 and 5 of the Natural Gas Act, FERC policy and other regulations by (i) failing to post capacity as available on a long-term basis before entering into a prearranged transaction for six agreements with ONEOK Rockies Midstream, L.L.C.; and (ii) structuring the prearranged transaction open season in a manner that denied other shippers a meaningful opportunity to bid on the capacity. On April 2, 2020, ConocoPhillips Company, Shell Energy North America (US), L.P. and XTO

27





Energy Inc. (the “Indicated Shippers”, together with the Alliance for Open Markets, the “Complainants”) filed a second complaint with FERC (Docket No. RP20-767-000) against Northern Border containing similar allegations regarding the prearranged transaction open season.  The Complainants have requested that FERC (a) unwind the six prearranged contracts; (b) require Northern Border to hold an open season for the capacity such that all interested parties are on equal footing; and (c) direct Northern Border to cease from engaging in prearranged transactions where the unsubscribed capacity has not been publicly posted as generally available. 
The prearranged contracts range in volume from 40,000 to 269,732 Dth/day for terms ranging from 10 months to 10 years, two of which were scheduled to begin June 1, 2020. Northern Border filed a motion to consolidate the two complaint dockets and filed its response to the complaints on May 1, 2020.

On June 1,2020 updated tariff sheets reflecting the contract price were filed by Northern Border with FERC for the two contracts set to begin June 1, 2020. On July 1, 2020, FERC issued an order and accepted the tariff sheets, subject to the outcome of complaint proceedings.

Great Lakes 501-G Proceeding-On May 11, 2020, FERC terminated Great Lakes’ 501-G proceeding and ruled that Great Lakes has complied with the one-time reporting requirement, designated as FERC Form No. 501-G related to the rate effect of Tax Act and Jobs Act. Additionally, FERC also stated that rate reductions provided for in its 2017 settlement and the 2.0% rate reduction from the Limited Section 4 Rate Reduction proceeding have provided substantial rate relief for Great Lakes’ shippers and as a result, it will not exercise its right to institute a Natural Gas Act Section 5 investigation to determine if Great Lakes is over-recovering on its current tariff rates.

Great Lakes' Credit Rating upgrade - On June 21, 2020, Standard & Poor's (S&P) upgraded Great Lakes' credit rating by two-notches from BBB-/Stable to BBB+/Stable primarily due to an improvement in Great Lakes' financial risk profile resulting from its increased long-term contracting levels.

PNGTS Credit Rating upgrade - On July 24, 2020, Fitch upgraded PNGTS' credit rating by one-notch from BBB/Stable to BBB+/Stable primarily due to an improvement in PNGTS' financial risk profile resulting from placing is PXP Phase II project in-service on November 1, 2019.

GTN financing - On June 1, 2020, GTN’s $100 million 5.29 percent Senior Notes matured and were refinanced through a Note Purchase and Private Shelf Agreement whereby GTN issued $175 million of 10-year Series A Senior Notes with a fixed rate coupon of 3.12 percent per annum and entered into a 3-year Private Shelf Facility for an additional $75 million. The new Series A Senior Notes do not require any principal payments until maturity on June 1, 2030. Proceeds from the Series A Senior Note issuance were used to repay the outstanding balance of the 5.29 percent Senior Notes and to fund the GTN XPress capital expenditures through the balance of 2020. GTN expects to draw the remaining $75 million available under the Private Shelf Facility by the end of 2023, the estimated completion date of GTN XPress. The Private Shelf Agreement contains a covenant that limits total debt to no greater than 65 percent of GTN’s total capitalization.

Tuscarora financing- On July 23, 2020, Tuscarora's $23 million Unsecured Term Loan due August 21, 2020, was amended to extend the maturity date to August 20, 2021 under generally the same terms.

Commercial system purchase- On August 1, 2020, GTN, Great Lakes, Tuscarora and North Baja entered into a purchase agreement with a TC Energy affiliate to purchase an internally developed customer-facing commercial natural gas transmission IT application that maintains and manages customer contracts, natural gas capacity release, customer nominations, metering and billings. The total value of the transaction was $51 million and the Partnership's proportionate share of the cost was $38 million. Prior to the transaction close, GTN, Great Lakes, Tuscarora and North Baja paid the affiliate for the use of this system. As a result of the capital purchase, the amount paid by each pipeline will be added to its respective rate base and utilized in the calculation of maximum allowable rates.

Pacific Gas and Electric Company- In early 2019, GTN’s largest customer, Pacific Gas and Electric Company (Pacific Gas), filed for Chapter 11 bankruptcy protection. Pacific Gas accounts for less than 10 percent Partnership’s consolidated revenues in 2019. On July 1, 2020, Pacific Gas emerged from its bankruptcy proceedings. To date, GTN
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has not experienced any collection issues on its receivable from Pacific Gas and we continue to expect this going forward during the duration of its contracts with GTN.

Cash Distributions to Common Units and our General Partner
On April 21, 2020, the board of directors of our General Partner declared the Partnership'sPartnership’s first quarter 20192020 cash distribution in the amount of $0.65 per common unit, payable on May 13, 201912, 2020 to unitholders of record as of May 3, 2019.1, 2020. The declared distribution totaled $47 million and was payable in the following manner: $46 million to common unitholders (including $4 million to the General Partner as a holder of 5,797,106 common units and $7 million to another subsidiary of TC Energy as a holder of 11,287,725 common units) and $1 million to our General Partner for its two percent general partner interest.


On July 23, 2019,2020, the board of directors of our General Partner declared the Partnership'sPartnership’s second quarter 20192020 cash distribution in the amount of $0.65 per common unit, payable on August 14, 20192020 to unitholders of record as of August 2, 2019.3, 2020. The declared distribution totaled $47 million and was payable in the following manner: $46 million to common unitholders (including $4 million to the General Partner as a holder of 5,797,106 common units and $7 million to another subsidiary of TC Energy as a holder of 11,287,725 common units) and $1 million to our General Partner for its two percent general partner interest. The General Partner did not receive any distributions in respect of its IDRs in 2019 year-to-date.

2018 FERC Actions Updates from our 2018 Annual Report on Form 10-K:

Iroquois, Tuscarora, and Northern Border took the actions listed below to conclude the issues impacting their pipelines as contemplated by the 2017 Tax Act and the 2018 FERC Actions. FERC has now closed all 501-G dockets for our pipeline systems with the exception of Great Lakes.

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

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

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

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Financing Updates:

Northern Border - In June 2019, Northern Border borrowed an additional $100 million under its $200 million revolving credit facility to finance a cash distribution of $100 million, of which $50 million was received by the Partnership. Northern Border's outstanding balance under this facility amounted to $115 million at June 30, 2019.

Iroquois Financing - On May 9, 2019, Iroquois refinanced its 6.63% $140 million and 4.84% $150 million Senior Notes due in 2019 and 2020, respectively, by issuing new 15-year 4.12% $140 million and new 10-year 4.07% $150 million Senior Notes. The debt covenants require Iroquois to maintain a debt to capitalization ratio below 75 percent and a debt service coverage ratio of at least 1.25 times for the four preceding quarters, which covenants are unchanged from those governing the refinanced Senior Notes.

Partnership’s 2013 $500 Million Term Loan Facility - In June 2019, the Partnership repaid $50 million of outstanding borrowings under its 2013 $500 Million Term Loan Facility using the proceeds received from the Northern Border distribution on the same date. Additionally, the Partnership terminated an equivalent amount in interest rate swaps that were used to hedge this facility at a rate of 2.81%.

Partnership’s Senior Credit Facility and Overall Debt Level - We continue to deleverage our balance sheet. At June 30, 2019 and August 1, 2019, there was no outstanding balance under the Partnership's Senior Credit Facility. Additionally, the Partnership's overall consolidated debt was reduced by $115 million from $2,118 million at December 31, 2018 to $2,003 million at June 30, 2019 as a result of (a) $40 million net repayment from cash flow of the outstanding balance under the Partnership's Senior Credit facility; (b) $50 million partial repayment of the Partnership's 2013 $500 Million Term Loan Facility;and (c) the repayment of $35 million due upon maturity of GTN's $75 million Unsecured Term Loan Facility offset by $10 million of additional borrowings on PNGTS's revolving credit facility.

Credit Rating Upgrade - On July 23, 2019, Standard & Poor's upgraded the Partnership’s credit rating to BBB/Stable from BBB-/Stable primarily due to the improvement in our financial risk profile resulting from our ongoing deleveraging efforts.

Growth Projects:

North Baja XPress Project (North Baja XPress) - North Baja XPress is an estimated $90 million project to transport additional volumes of natural gas along North Baja's mainline system. The project was initiated in response to market demand to provide firm transportation service of up to approximately 495,000 Dth/day between Ehrenberg, Arizona and Ogilby, California. The binding open season for the project was concluded in April of 2019 and the estimated in-service date is November 1, 2022, subject to the satisfaction or waiver of certain conditions precedent.

PNGTS’ Portland XPress (PXP) Project - Our Portland XPress Project or “PXP” was initiated in 2017 in order to expand deliverability on the PNGTS system to Dracut through re-contracting and construction of incremental compression within PNGTS’ existing footprint in Maine. The PXP project was designed to be phased in over a three-year period which began November 1, 2018 (Phase I). Phases II and III of the project are expected to be in-service on November 1, 2019 and 2020, respectively. Beginning 2021, the project is expected to generate approximately $50 million in annual revenue for PNGTS. During 2018, PNGTS filed the required applications with FERC for all three phases of the project, which included an amendment to its Presidential Permit and an increase in its certificated capacity through the addition of a compressor unit at its jointly owned facility with Maritimes and Northeast Pipeline LLC to bring additional natural gas supply to New England. The total final volume of the project is approximately 183,000 Dth/ day; 40,000 Dth/day from Phase I, 118,400 Dth/day from Phase II, which includes re-contracting and renewal of expiring contracts, and 24,600 Dth/day from Phase III. We continue to advance this project and have received all approvals for filings to date. We intend to file with FERC for approval to proceed with construction of Phase III of the project in early 2020.

The PXP project is secured by long-term agreements and when all phases of the project are in service, PNGTS will be effectively fully contracted until 2032.

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PNGTS' Westbrook XPress Project (Westbrook XPress) - Westbrook XPress is an estimated $125 million multi-phase expansion project that is expected to generate approximately $35 million in revenue for PNGTS on an annualized basis when fully in service. It is part of a coordinated offering to transport incremental Western Canadian Sedimentary Basin natural gas supplies to the Northeast U.S. and Atlantic Canada markets through additional compression capability at an existing PNGTS facility. Westbrook XPress is designed to be phased in over a four-year period with Phases 1, 2 and 3 estimated in-service dates of November 2019, 2021, and 2022, respectively. These three Phases will add incremental capacity of approximately 43,000 Dth/day, 69,000 Dth/day, and 18,000 Dth/day, respectively. Westbrook XPress, together with Portland XPress, will increase PNGTS' capacity by 90 percent from 210,000 Dth/day to approximately 400,000 Dth/day.

FERC issued an Order Granting Certificate on July 2, 2019, approving PNGTS' request to increase its certificated capacity under Westbrook Phase1, effective November 1, 2019.

Iroquois Gas Transmission ExC Project (Iroquois ExC Project) - In May 2019, one of Iroquois' customers, Consolidated Edison, Inc., announced that they had reached a precedent agreement to develop and permit incremental pipeline delivery capacity into New York City. Iroquois' "Expansion through Compression" or ExC Project would optimize the Iroquois system to meet current and future gas supply needs of utility customers while minimizing environmental impact through enhancements at existing compressor stations along the pipeline. If successful, the project's total capacity is expected to be approximately 125,000 Dth/day with an estimated in-service date in November 2023. The capital cost of this project is still to be determined as the optimal facility set is finalized during the course of the regulatory process for this potential expansion. This project would be 100% underpinned with 20-year contracts.

HOW WE EVALUATE OUR OPERATIONS

We use certain non-GAAP financial measures that do not have any standardized meaning under GAAP as we believe they enhance the understanding of our operating performance.  We use the following non-GAAP measures:

EBITDA

We define EBITDA as our net income before deducting interest, depreciation and amortization and taxes. We use EBITDA as a proxy of our operating cash flow and current operating profitability.

Adjusted EBITDA
Adjusted EBITDA is our EBITDA, less (1) earnings from our equity investments, plus (2) distributions from our equity investments, and plus or minus (3) certain non-recurring items (if any) that are significant but not reflective of our underlying operations. We provide Adjusted EBITDA as an additional performance measure of the current operating profitability of our assets.
Distributable Cash Flows

Total distributable cash flow and distributable cash flow provide measures of distributable cash generated during the current earnings period.

Please see “Non-GAAP Financial Measures: EBITDA, Adjusted EBITDA and Distributable Cash Flow” for more information.

30

RESULTS OF OPERATIONS

Our ownership interests in eight pipelines were our only material sources of income during the period. Therefore, our results of operations and cash flows were influenced by, and reflect the same factors that influenced, our pipeline systems.

Three months ended

Six months ended

(unaudited)

June 30,

$

%

June 30,

$

%

(millions of dollars)

    

2019

    

2018

    

Change (a)

    

Change (a)

    

2019

    

2018

    

Change (a)

    

Change (a)

Transmission revenues

 

93

 

111

(18)

(16)

 

206

 

226

(20)

(9)

Equity earnings

 

30

 

36

(6)

(17)

 

84

 

95

(11)

(12)

Operating, maintenance and administrative costs

 

(25)

 

(25)

 

(50)

 

(49)

(1)

(2)

Depreciation

 

(19)

 

(24)

5

21

 

(39)

 

(48)

9

19

Financial charges and other

 

(21)

 

(23)

2

9

 

(43)

 

(46)

3

7

Net income before taxes

 

58

 

75

(17)

(23)

 

158

 

178

(20)

(11)

Income taxes

 

(1)

 

(1)

 

(1)

 

(1)

Net income

 

57

 

75

(18)

(24)

 

157

 

177

(20)

(11)

Net income attributable to non-controlling interests

 

2

 

2

 

9

 

8

1

(13)

Net income attributable to controlling interests

 

55

 

73

(18)

(25)

 

148

 

169

(21)

(12)

29
(a)Positive number represents a favorable change; bracketed or negative number represents an unfavorable change.






 Three months ended  
(unaudited)June 30,$%
(millions of dollars)20202019Change
Change (a)
Transmission revenues95  93    
Equity earnings29  30  (1) (3) 
Operating, maintenance and administrative costs(25) (25) —  —  
Depreciation(19) (19) —  —  
Financial charges and other(18) (21)  14  
Net income before taxes62  58    
Income taxes(1) (1) —  —  
Net income61  57    
Net income attributable to non-controlling interests   (100) 
Net income attributable to controlling interests57  55    
(a)    Positive number represents a favorable change; bracketed or negative number represents an unfavorable change.


Three Months Ended June 30, 2019 compared2020 Compared to the Same Period in 2018

2019

The Partnership'sPartnership’s net income attributable to controlling interests decreasedincreased by $18$2 million in the three months ended June 30, 20192020 compared to 2018,the same period in 2019, mainly due to the following:

Transmission revenues - Revenues were lower dueThe $2 million increasein transmission revenues was largely to the decrease in revenue from Bison. During the fourth quarter of 2018, two of Bison's customers elected to pay out the remainder of their contracted obligations on Bison and terminate the associated transportation agreements. Revenues were also reduced by the following:

lower revenue on GTN due to its scheduled 10 percent rate decrease effective January 1, 2019 as part of the settlement reached with its customers in 2018; and
lower revenue from PNGTS primarily due to the expiration of its legacy recourse rate firm contracts partially offset by revenues from Phase 1 of its Portland XPress (PXP) project that went into service November 1, 2018.

Equity Earnings - The $6 million decrease was primarily due to the following:

decrease in Great Lakes’ and Northern Border’s equity earnings as a result of rate reductions in early 2019 related to the 2018 FERC actions, together with an increase in operating costs related to compliance programs and allocated management and operational expenses from TC Energy; and
decrease in Iroquois’ equity earnings as a result of the scheduled reduction of its existing rates as part of the 2019 Iroquois Settlement.

Depreciation - The decrease in depreciation expense was a direct result of the long-lived asset impairment recognized duringfollowing:

higher revenue from PNGTS as a result of new revenues from PXP Phase II and Westbrook XPress Phase I. both of which entered service on November 1, 2019; partially offset by
lower revenue at GTN due to (i) its scheduled 6.6 percent rate decrease effective January 1, 2020, and (ii) lower opportunity for the fourth quartersale of 2018 discretionary services given the increased natural gas storage injection rates upstream of GTN; and
lower revenueon Bison which effectively eliminated the depreciable base of the pipeline.

Tuscarora due to its scheduled 10.8 percent rate decrease effective August 1, 2019

31


Financial charges and other - The $2$3 million decrease was primarily attributable to the repaymenthigher Allowance For Funds Used During Construction (AFUDC) which served to offset interest charges and thereby caused a decline. AFUDC increased as a result of continued spending on our $170 million Term Loan during the fourth quarter of 2018expansion projects and the net $40 million repayment of borrowings under our Senior Credit Facility during the first quarter of 2019.

higher maintenance capital spending.


30





Six months ended
(unaudited)June 30,$%
(millions of dollars)20202019Change
Change (a)
Transmission revenues196  206  (10) (5) 
Equity earnings84  84  —  —  
Operating, maintenance and administrative costs(48) (50)   
Depreciation(39) (39) —  —  
Financial charges and other(37) (43)  14  
Net income before taxes156  158  (2) (1) 
Income taxes(1) (1) —  —  
Net income155  157  (2) (1) 
Net income attributable to non-controlling interests10    (11) 
Net income attributable to controlling interests145  148  (3) (2) 

(a)    Positive number represents a favorable change; bracketed or negative number represents an unfavorable change.


Six Months Ended June 30, 2019 compared2020 Compared to the Same Period in 2018

2019

The Partnership’s net income attributable to controlling interests decreased by $21$3 million in the six months ended June 30, 20192020 compared to 2018,the same period in 2019, mainly due to the following:

Transmission revenues - The $10 million decrease - Revenues were in transmission revenues was largely the net result of the following:

lower due largely to the decrease in revenue from Bison. During the fourth quarter of 2018, two of Bison’s customers elected to pay out the remainder of their contracted obligations on Bison and terminate the associated transportation agreements. The decrease was alsoGTN due to the following:

increased contracting from GTN, offset by its scheduled 10(i) its scheduled 6.6 percent rate decrease effective January 1, 2019 as part of the settlement reached with its customers in 2018; and
additional revenue from PNGTS from Phase 1 of its PXP project that went into service November 1, 2018 and higher discretionary revenues, offset by the expiration of its legacy recourse rate firm contracts.

Equity Earnings - The $11 million decrease waseffective January 1, 2020, (ii) lower discretionary services sold primarily due to moderate weather conditions in early 2020 compared to colder weather experienced in early 2019, (iii) additional sales in 2019 related to regional supply constraints from a force majeure event experienced by a neighboring pipeline that were not repeated in 2020; and (iv) lower opportunity for the net effectsale of discretionary services during the following:

second quarter given the increased natural gas storage injection rates upstream of GTN;;

decrease in Iroquois’ equity earningslower revenueon Tuscarora due to its scheduled 10.8 percent rate decrease effective August 1, 2019;
higher revenue at PNGTS as a result of new revenues from its PXP Phase II and Westbrook XPress Phase I projects which both entered into service on November 1, 2019, partially offset by lower discretionary services sold by PNGTS in 2020 to date compared to the same period in 2019 due to more moderate weather conditions in early 2020;
lower revenue from short-term discretionary services sold by North Baja; and
lower revenue on Bison as a result of decrease in its revenue. The sustained cold temperatures in the first quarter of 2018 resulted in incremental seasonal winter sales that were not achieved in the same period of 2019. Additionally, there was a scheduled reduction of Iroquois’ existing rates as part of the 2019 Iroquois Settlement;
decrease in Great Lakes’ equity earnings as a result of decrease in its revenue and increase in its operating costs. The sustained cold temperatures in the first quarter of 2018 resulted in incremental seasonal winter sales for Great Lakes that were not achieved in the same period of 2019. Additionally, there was an increase in its operating costs related to its compliance programs and allocated management and operational expenses from TC Energy; and
higher earnings from Northern Border resulting from an increase in its revenue from short-term firm services, partially offset by its scheduled rate reduction that became effective April 1, 2018 and an increase in its operating costs related to its compliance programs and allocated management and operational expenses from TC Energy.

Depreciation - The decrease in depreciation expense during the six months ended June 30, 2019 was a direct result of the long-lived asset impairment recognized duringexpiration of one of its legacy contracts at the fourth quarterend of 2018 on Bison which effectively eliminated the depreciable base of the pipeline.

January 2019.

Financial charges and other - The $3$6 million decrease was primarily attributable to the repayment offollowing:

generally lower weighted average interest costs despite an increase on our $170 million Term Loan during the fourth quarter of 2018overall debt balance; and repayment of borrowings under
higher AFUDC primarily due to continued spending on our Senior Credit Facility during the first quarter of 2019.

expansion projects and higher maintenance capital spending.

Net Income Attributable to Common Units and Net Income per Common Unit

As discussed in Note 9 within Item 1. “Financial Statements,” we will allocate a portion of the Partnership'sPartnership’s income to the Class B units after the annual threshold is exceeded which will effectively reduce the income allocable to the common units and net income per common unit. Currently,Beginning in 2020 and beyond, we expect to allocate a portionthe impact of the Partnership's income to the Class B unitsdistribution on our cashflows to be significantly lower compared to previous periods due to TC Energy's reduced share of GTN's distributable cashflows beginning at the end of March 2020 as part of the fourth quarter of 2019.Class B agreement. Please also read Note 8 within Item 1. “Financial Statements,” for additional disclosures on the Class B units.

32

31





LIQUIDITY AND CAPITAL RESOURCES

Overview

The Partnership strives to maintain financial strength and flexibility in all parts of the economic cycle. Our principal sources of liquidity and cash flows currently include distributions received from our equity investments, operating cash flows from our subsidiaries public offerings of debt and equity, term loans and our Senior Credit Facility.credit facilities. The Partnership funds its operating expenses, debt service and cash distributions (including those distributions made to TC Energy through our General Partner and as holder of all our Class B units) primarily withfrom operating cash flow.

Overall Current Financial Condition
Cash and Debt position

At June 30, 2019,- Our overall long-term debt balance increased by approximately $107 million primarily as result of the financing put in place during the period for our expansion projects. The increase included an incremental $75 million of liquidity from GTN's issuance of Series A Senior Notes at a fixed rate of 3.12 percent which effectively secured the funding required for GTN XPress for the balance of 2020. The $75 million also resulted in an increase in the balance of our cash and cash equivalents, was higher thanwhich totaled $215 million at June 30, 2020 compared to our position at December 31, 2018 by2019 of approximately $12$83 million.

Working capital position-At June 30, 2020, our current assets totaled $262 million and current liabilities amounted to $415 million, leaving us with a working capital deficit of $153 million compared to a deficit of $14 million at December 31, 2019. Our working capital deficiency is considered normal course for our business and is managed through:
our ability to generate predictable and growing cash flows from operations;
cash on hand and full access to our $500 million Senior Credit Facility; and
our access to debt balance was lowercapital markets, facilitated by $115 million. our strong investment grade ratings, allowing us the ability to renew and/or refinance the current portion of our long-term debt.
We continue to usebe financially disciplined by using our available cash to fund ongoing capital expenditures and the repayment ofmaintaining debt at prudent levels and we believe we are well positioned to levels that prudently managefund our financial metrics.

obligations as required.

We believe our (1) cash position, remainingon hand, (2) operating cash-flows (3) $500 million available borrowing capacity onunder our Senior Credit Facility (see table below),at August 5, 2020, and our operating cash flows(4) if needed, and subject to customary lender approval upon request, an additional $500 million capacity that is available under the Senior Credit Facility's accordion feature, are sufficient to fund our short-term liquidity requirements, including distributions to our unitholders, ongoing capital expenditures, and required debt repayments.

repayments and other financing needs such as capital contribution requests from our equity investments without the need for additional common equity.


Our Pipeline Systems' Current Financial Condition

The following table sets forth the available borrowing capacity under the Partnership's Senior Credit Facility:

source of operating cashflows emanates from (1) operating cash generated by GTN, North Baja, Tuscarora, PNGTS and Bison, our consolidated subsidiaries, and (2) distributions received from our equity investments in Great Lakes, Northern Border and Iroquois.


(unaudited)

    

    

(millions of dollars)

June 30, 2019

December 31, 2018

Total capacity under the Senior Credit Facility

 

500

 

500

Less: Outstanding borrowings under the Senior Credit Facility

 

 

40

Available capacity under the Senior Credit Facility

 

500

 

460

The

Our pipeline systems’ principal sources of liquidity on our pipeline systems are cash generated from operating activities, long-term debt offerings, bank credit facilities and equity contributions from their owners. OurExcept as noted below, our pipeline systems have historically fundedexpect to fund their respective expansion projects primarily with debt. Except as noted below, our pipeline systems' normal recurring operating expenses, maintenance capital expenditures, debt service and cash distributions toare primarily funded with their owners primarily with operating cash flow. However, sinceflows.

Since the fourth quarter of 2010, Great Lakes has funded its debt repayments with cash calls to its owners. Additionally,We contributed approximately $10 million in June 2019 Northern Border borrowedand expect our 2020 contribution to be approximately the same.

In August 2019, the Partnership made an equity contribution to Iroquois of approximately $4 million. This amount represented the Partnership’s 49.34 percent share of a $7 million capital call from Iroquois to cover regulatory costs related to the ExC Project. In 2020, we expect to make an additional $100contribution of approximately $2 million under its $200to support the ExC Project.

32





Bison’s remaining contracts will continue to be in effect until January of 2021. In 2019, Bison generated revenues of $32 million revolving credit facilityand is expected to finance a cash distributionproduce comparable results in 2020. We continue to explore alternative transportation-related options for Bison and we believe commercial potential exists to reverse the direction of $100natural gas flow on Bison for deliveries onto third party pipelines and ultimately connect into the Cheyenne hub. In any event, Bison will continue to incur costs related to property tax and operating and maintenance costs of approximately $6 million of which $50 million was received by the Partnership. The Partnership used the $50 million proceeds to partially pay its 2013 Term Loan Facility due in 2021.

per year.


Capital


Maintenance and expansion capital expenditures of our pipeline systems are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, issuance of senior unsecured notes or equity contributions from our pipeline systems' owners.as noted above. The ability of our pipeline systems to access the debt capital markets under reasonable terms depends onupon their financial positioncondition and generalprevailing market conditions.

conditions


The Partnership'sPartnership’s pipeline systems monitor the creditworthiness of their customers and have credit provisions included in their tariffs which, although limitedgoverned by FERC, allow them to request a certain amount of credit support as circumstances dictate.

33




Cash Flow Analysis for the Six Months Ended June 30, 2020 Compared to the Same Period in 2019
 Six months ended
(unaudited)June 30,
(millions of dollars)20202019
Net cash provided by (used in):  
Operating activities228  228  
Investing activities(88) 22  
Financing activities(8) (238) 
Net increase in cash and cash equivalents132  12  
Cash and cash equivalents at beginning of the period83  33  
Cash and cash equivalents at end of the period215  45  

Operating Cash Flows
The Partnership's operating cashflows for the six months ended June 30, 20192020 compared to Same Periodthe same period in 20182019 were comparable due to the net effect of:

the timing of receipt of Iroquois' third quarter 2019 distributions from its operating activities, which we would ordinarily have received during the fourth quarter of 2019 but were instead received early in the first quarter of 2020; offset by

Six months ended

(unaudited)

June 30,

(millions of dollars)

    

2019

    

2018

Net cash provided by (used in):

 

  

 

  

Operating activities

 

228

 

223

Investing activities

 

22

 

(8)

Financing activities

 

(238)

 

(197)

Net increase in cash and cash equivalents

 

12

 

18

Cash and cash equivalents at beginning of the period

 

33

 

33

Cash and cash equivalents at end of the period

 

45

 

51

Operatinglower distributions from operating activities of our equity investment in Northern Border and Great Lakes largely due to higher maintenance capital spending at both entities.

Investing Cash Flows

The Partnership's

During the six months ended June 30, 2020, the cash used in our investing activities was a net cash provided by operating activities increased by $5outflow of $88 million compared to a net inflow of $22 million in the six months ended June 30, 2019 compared to the same period in 2018 primarily due to the net effect of:

amount and timing of earnings and cash distributions received from equity investments as a result of:
olower capital spending related to compressor maintenance costs on Northern Border;
onet higher earnings generated by Northern Border and Great Lakes from the fourth quarter of 2018 to first quarter of 2019 compared to the same period in the prior year;
ohigher distributions from our equity investments;
lower net cash flow from operations of our consolidated subsidiaries primarily due to the decrease in Bison’s and GTN's revenues partially offset by an increase in PNGTS’ revenue; and
positive impact from amount and timing of operating working capital changes.

Investing Cash Flows

During

higher maintenance capital expenditures at GTN for its overhaul projects together with continued capital spending on our GTN XPress, PXP and Westbrook XPress projects; and
$50 million distribution received from Northern Border during the six months ended June 30,second quarter of 2019 the cash provided by our investing activitiesthat was considered   a net cash inflowreturn of $22 million compared to a net outflow of $8 million in the same period in 2018 primarily due to the net impact of the following:

$50 million distribution received from Northern Border that was considered as a return of investment during the second quarter of 2019; partially offset by
higher capital maintenance expenditures on our consolidated subsidiaries and continued capital spending on our PXP project.
investment

Financing Cash Flows

The Partnership's netchange in the cash used for financing activities was approximately $41primarily due to the net debt issuance of $107 million higher in the six months ended June 30, 20192020 compared to a net debt repayment of $115 million for the same period in 2018the prior year, primarily due to financing executed for the net effect of:

$20 million increase in net debt repayments;
$28 million decrease in distributions paid primarily due to the $0.35 per common unit reduction in distribution payments during the second quarter of 2019 related to performance during the first quarter of 2019 as compared to the same period in 2018 in response to the 2018 FERC Actions;
$2 million decrease in distributions paid to Class B units in 2019 as compared to 2018;
no ATM equity issuances in 2019 year-to-date; and
$12 million increase in distributions paid to non-controlling interests during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 resulting from PNGTS' higher revenue in the first quarter of 2019 compared to its revenue in the first quarter of 2018.
capital expenditures on our GTN XPress, PXP and Westbrook XPress expansion projects.



34



Short-Term Cash Flow Outlook

Operating Cash Flow Outlook

Northern Border declared its June 20192020 distribution of $15$11 million on July 8, 2019,9, 2020, of which the Partnership received its 50 percent share or $7 million. The distribution was paid$5 million on July 31, 2019.

2020.

Great Lakes declared its second quarter 20192020 distribution of $20$24 million on July 16, 2019,15, 2020, of which the Partnership received its 46.45 percent share or $9 million. The distribution was paid$21 million on August 1, 2019.

July 31, 2020.

Iroquois declared its second quarter 20192020 distribution of $28$21 million on July 24, 2019,August 4, 2020, of which the Partnership receivedwill receive its 49.34 percent share or $14$10 million on August 1, 2019.

September 29, 2020.

Investing Cash Flow Outlook

The Partnership made an equity contribution to Great Lakes of $5 million in the first quarter of 2019.2020. This amount represents the Partnership’s 46.45 percent share of an $11 million cash call from Great Lakes to make a scheduled debt repayment. The Partnership expects to make an additional $5 million equity contribution to Great Lakes in the fourth quarter of 20192020 to further fund debt repayments. This is consistent with prior years.

Our equity investee, Iroquois, has $3$1.5 million of scheduled debt repayments for the remainder of 2019 and2020. Iroquois’ debt repayments are expected to be funded through cash flow from operations.

Our consolidated entities have commitments of $20$100 million as of June 30, 20192020 in connection with various maintenance and general plant projects.

In

Commercial system purchase effective August 1, 2020
On August 1, 2020, four of our pipelines jointly purchased an internally developed customer-facing commercial natural gas IT application system from a TC Energy affiliate. The total price of the transaction was $51 million and the Partnership's proportionate share was $38 million. The purchase, which is considered a maintenance capital cost, was funded primarily from cash generated from each pipeline's cash from operations. See Note 16 of the “Financial Statements” within Item 1.

Except for the commercial system purchase described above, we do not anticipate any other material changes to our expected 2020 growth and maintenance capital expenditures from what was disclosed in our 2019 our pipeline systemsAnnual Report. However, those estimates are subject to cost and timing adjustments due to weather, market conditions, permitting conditions and timing of regulatory permits, among other factors, as well as additional uncertainty presented by the COVID-19 pandemic. We expect to invest approximately $91 million in maintenancecontinue funding these expenditures from a combination of existing facilities(1) cash from operations and approximately $40 million in growth projects, of which(2) debt at both the Partnership’s share would be $73 millionasset and $23 million, respectively.

Partnership levels.

Financing Cash Flow Outlook

Distributions to unitholders
On July 23, 2019,2020, the board of directors of our General Partner declared the Partnership’s second quarter 20192020 cash distribution in the amount of $0.65 per common unit payable on August 14, 20192020 to unitholders of record as of August 2, 2019.3, 2020. Please see Note 1716 of the "Financial Statements" within Item 1 and “Recent���Recent Business Developments” within Item 2 for additional disclosures.
Debt refinancing:

WePNGTS is currently intendnegotiating an increase in its borrowing capacity to refinance GTN’s $100include the balance of the financing required for its PXP and Westbrook XPress expansion projects; and

The Partnership's $350 million 5.29%aggregate principal amount 4.65 percent Unsecured Senior Notes and $500 million Senior Credit Facility are both due June 1, 2020, in full2021 and we expect that both will be refinanced or at an amount based on our preferred capitalization levels.

extended prior to maturity.


Non-GAAP Financial Measures: EBITDA, Adjusted EBITDA and Distributable Cash Flow

EBITDA is an approximate measure of our operating cash flow during the current earnings period and reconciles directly to the most comparable measure of net income. It measures our earnings before deducting interest, depreciation and amortization, taxes,income, which includes net income attributable to non-controlling interests, and includes earnings from our equity investments.

It measures our net income before deducting interest, depreciation and amortization and taxes.

35





Adjusted EBITDA is our EBITDA, less (1) earnings from our equity investments, plus (2) distributions from our equity investment, and plus or minus (3) certain non-recurring items (if any) that are significant but not reflective of our underlying operations.
Beginning the first quarter of 2020, the Partnership revised its calculation of Adjusted EBITDA to include distributions from our equity investments, net of equity earnings from our investments as described above, which were previously excluded from such measure. The presentation of Adjusted EBITDA for the three months and six months ended June 30, 2019 was recast to conform with the current presentation. The Partnership believes the revised presentation more closely aligns with similar non-GAAP measures presented by our peers and with the Partnership’s definitions of such measures.

Total distributable cash flow and distributable cash flow provide measures of distributable cash generated during the current earnings period and reconcile directly to the net income amounts presented.

Total distributable cash flow includes EBITDA plus:

Distributions from our equity investments

less:

Earnings from our equity investments,
Equity allowance for funds used during construction (if any),
Adjusted EBITDA:

35

less:

Interest expense,
Income taxes,
Distributions to non-controlling interests, and
Maintenance capital expenditures from consolidated subsidiaries.

Interest expense;

Current income taxes;
Distributions to non-controlling interests; and
Maintenance capital expenditures from consolidated subsidiaries.
Distributable cash flow is computed net of distributions declared to the General Partner and any distributions allocable to Class B units. Distributions declared to the General Partner are based on its two percent interest plus, if applicable, an amount equal to incentive distributions. Distributions allocable to the Class B units in 20192020 equal 30 percent of GTN'sGTN’s distributable cash flow less $20 million, the residual of which is further multiplied by 43.75 percent and is further reduced by the Class B Reduction. Distributions allocable to the Class B units in 2019 equaled 30 percent of GTN’s distributable cash flow less $20 million and the Class B Reduction.

Distributable cash flow, EBITDA and Adjusted EBITDA are performance measures presented to assist investors in evaluating our business performance. We believe these measures provide additional meaningful information in evaluating our financial performance and cash generating capacity.

The non-GAAP financial measures described above are provided as a supplement to GAAP financial results and are not meant to be considered in isolation or as substitutes for financial results prepared in accordance with GAAP. Additionally, these measures as presented may not be comparable to similarly titled measures of other companies.

36

Reconciliations of Net Income to EBITDA, Adjusted EBITDA and Distributable Cash Flow

The following table represents a reconciliation of the non-GAAP financial measures of EBITDA, total distributable cash flow and distributable cash flow, to the most directly comparable GAAP financial measure of Net Income:

Three months ended

Six months ended

(unaudited)

June 30,

June 30,

(millions of dollars)

    

2019

    

2018

    

2019

    

2018

Net income

 

57

 

75

 

157

 

177

Add:

 

  

 

  

 

  

 

  

Interest expense (a)

 

22

 

25

 

44

 

48

Depreciation and amortization

 

19

 

24

 

39

 

48

Income taxes

 

1

 

 

1

 

1

EBITDA

 

99

 

124

 

241

 

274

Add:

 

  

 

  

 

  

 

  

Distributions from equity investments (b) (f)

 

  

 

  

 

  

 

  

Northern Border (c)

 

21

 

18

 

48

 

37

Great Lakes

 

9

 

14

 

32

 

39

Iroquois (d)

 

14

 

14

 

28

 

28

 

44

 

46

 

108

 

104

Less:

 

  

 

  

 

  

 

  

Equity earnings:

 

  

 

  

 

  

 

  

Northern Border

 

(14)

 

(15)

 

(35)

 

(32)

Great Lakes

 

(9)

 

(12)

 

(29)

 

(36)

Iroquois

 

(7)

 

(9)

 

(20)

 

(27)

 

(30)

 

(36)

 

(84)

 

(95)

Less:

 

  

 

  

 

  

 

  

AFUDC equity

(1)

(1)

Interest expense (a)

 

(22)

 

(25)

 

(44)

 

(48)

Income taxes

 

(1)

 

 

(1)

 

(1)

Distributions to non-controlling interest (e)

 

(3)

 

(2)

 

(10)

 

(9)

Maintenance capital expenditures (f)

 

(15)

 

(5)

 

(21)

 

(10)

 

(42)

 

(32)

 

(77)

 

(68)

Total Distributable Cash Flow

 

71

 

102

 

188

 

215

General Partner distributions declared (g)

 

(1)

 

(1)

 

(2)

 

(2)

Distributions allocable to Class B units (h)

 

 

 

 

Distributable Cash Flow

 

70

 

101

 

186

 

213

net income:
36
(a)Interest expense as presented includes net realized loss or gain related to the interest rate swaps.
(b)Amounts are calculated in accordance with the cash distribution policies of each of our equity investments. Distributions from our equity investments represent our respective share of these entities' quarterly distributable cash for the current reporting period.
(c)Excludes the $50 million additional distribution we received from Northern Border. The entire proceeds were used by us to partially paydown our 2013 Term Loan Facility.
(d)This amount represents our proportional 49.34 percent share of the distribution declared by our equity investee, Iroquois, for the current reporting period and includes our 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2 million and $5 million, respectively, for both




 Three months endedSix months ended
(unaudited)June 30,June 30,
(millions of dollars)2020201920202019
Net income61  57  155  157  
Add:  
Interest expense (a)
22  22  42  44  
Depreciation and amortization19  19  39  39  
Income taxes    
EBITDA103  99  237  241  
Less:  
Equity earnings:  
Northern Border(13) (14) (35) (35) 
Great Lakes(9) (9) (29) (29) 
Iroquois(7) (7) (20) (20) 
 (29) (30) (84) (84) 
Add:  
Distributions from equity investments (b)
  
Northern Border15  21  42  48  
Great Lakes11   32  32  
Iroquois (c)
10  14  21  28  
 36  44  95  108  
Adjusted EBITDA110113248265
Less:  
AFUDC(2) (1) (3) (1) 
Interest expense (a)
(22) (22) (42) (44) 
Current income taxes(1) (1) (1) (1) 
Distributions to non-controlling interest (d)
(5) (3) (11) (10) 
Maintenance capital expenditures (e)
(24) (15) (46) (21) 
 (54) (42) (103) (77) 
Total Distributable Cash Flow56  71  145  188  
General Partner distributions declared (f)
(1) (1) (2) (2) 
Distributions allocable to Class B units (g)
—  —  —  —  
Distributable Cash Flow55  70  143  186  
(a)Interest expense as presented includes net realized loss or gain related to interest rate swaps.
(b)Amounts are calculated in accordance with the cash distribution policies of each of our equity investments. Distributions from our equity investments represent our respective share of these entities’ quarterly distributable cash for the current reporting period.
(c)This amount represents our proportional 49.34 percent share of the distribution declared by our equity investee, Iroquois, for the current reporting period. For the three and six months ended June 30, 2019 and 2018.
(e)Distributions to non-controlling interests represent the respective share of our consolidated entities' distributable cash not owned by us for the periods presented.

37

(f)The Partnership's maintenance capital expenditures include expenditures made to maintain, over the long term, the operating capacity, system integrity and reliability of our pipeline assets. This amount represents the Partnership's and its consolidated subsidiaries' maintenance capital expenditures and does not include the Partnership's share of maintenance capital expenditures for our equity investments. Such amounts are reflected in “Distributions from equity investments” as those amounts are withheld by those entities from their quarterly distributable cash.
(g)No incentive distributions were declared to the General Partner for both the three and six months ended June 30, 2019 and 2018.
(h)For the six months ended June 30, 2019 and 2018, no distributions were allocated to the Class B units as the threshold was not exceeded. We expect the 2019 threshold will be exceeded during the fourth quarter of 2019. Please read Notes 8 and 9 within Item 1. “Financial Statements” for additional disclosures on the Class B units.

Three months ended June 30, 2019, the amount includes our 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 million and $5.2 million, respectively (three and six months ended June 30, 2020 - none).

(d)Distributions to non-controlling interests represent the respective share of our consolidated entities’ distributable cash not owned by us for the periods presented.
(e)The Partnership’s maintenance capital expenditures include expenditures made to maintain, over the long term, the operating capacity, system integrity and reliability of our pipeline assets. This amount represents the Partnership’s and its consolidated subsidiaries’ maintenance capital expenditures and does not include the Partnership’s share of maintenance capital expenditures for our equity investments. Such amounts are reflected in “Distributions from equity investments” as those amounts are withheld by those entities from their quarterly distributable cash.
(f)No incentive distributions were declared to the General Partner for both the three and six months ended June 30, 2020 and 2019.
(g)For the three and six months ended June 30, 2020 and 2019, no distributions were allocated to the Class B units. Please read Notes 8 and 9 within Item 1. “Financial Statements” for additional disclosures on the Class B units.
37






Three Months Ended June 30, 2020 Compared to the Same Period in 2018

2019

Our EBITDA was lowerhigher for the second quarter of 2019three months ended June 30, 2020 compared to the same period in 2018.2019. The $25$4 million decreaseincrease was primarily due to lowerhigher revenue and equity earnings during the periodfrom consolidated subsidiaries as discussed in more detail under the “Results of Operations” section.

section within Item 2.

Our Adjusted EBITDA was lower for the three months ended June 30, 2020 compared to the same period in 2019. The $3 million decrease was primarily due to the net effect of the following:
higher earnings from consolidated subsidiaries as discussed in more detail under the “Results of Operations” section within Item 2;
lower distributions from Northern Border primarily due to higher maintenance capital spending for its major equipment overhauls; and
lower distribution from Iroquois as it satisfied its final surplus cash distribution obligation of $2.6 million per quarter in the fourth quarter of 2019 and the surplus cash payments are no longer applicable.
Our distributable cash flow decreased by $31$15 million in the second quarter of 2019three months ended June 30, 2020 compared to the same period in 20182019 due to the net effect of:

lower EBITDA from our consolidated subsidiaries;
higher maintenance capital expenditures related to major compression equipment overhauls on GTN and pipe integrity costs on Tuscarora, North Baja and GTN, all the result of higher transportation volumes of natural gas;
lower interest expense due to repayment of the $170 million Term Loan during the fourth quarter of 2018 and the repayment of borrowings under our Senior Credit Facility in the first quarter of 2019;
higher distributions from our equity investment in Northern Border primarily due to lower capital spending related to compressor station maintenance costs partially offset by a decrease in its earnings as explained in the “Results of Operations” section; and
lower distributions from our equity investment in Great Lakes primarily due to an increase in its capital spending on its compliance and integrity programs and decreased earnings as explained in the “Results of Operations” section.
lower Adjusted EBITDA; and

higher normal-course maintenance capital expenditures at GTN as a result of increased spending on major equipment overhauls at several compressor stations and certain system upgrades.
Six months endedMonths Ended June 30, 20192020 Compared to the Same Period in 2018

Both our2019

Our EBITDA and Distributable cash flowwas lower for the six months ended June 30, 2019 were lower2020 compared to the same period in 2018 and were impacted by2019. The $4 million decrease was primarily due to lower revenue from consolidated subsidiaries as discussed in more detail under the same factors that impacted our“Results of Operations” section within Item 2.
Our Adjusted EBITDA and Distributable cashflowwas lower for the threesix months ended June 30, 20192020 compared to threethe same period in 2019. The $17 million decrease was primarily due to:
lower revenue from consolidated subsidiaries as discussed in more detail under the “Results of Operations” section within Item 2;
lower distributions from Northern Border primarily due to higher maintenance capital spending on its major equipment overhauls and certain system upgrades; and
lower distributions from Iroquois as it satisfied its final surplus cash distribution obligation of $2.6 million per quarter in the fourth quarter of 2019 and the surplus cash payments are no longer applicable.
Our distributable cash flow decreased by $43 million in the six months ended June 30, 2018.

2020 compared to the same period in 2019 due to the net effect of:

38


lower Adjusted EBITDA; and
higher maintenance capital expenditures at GTN as a result of increased spending on major equipment overhauls at several compressor stations and certain system upgrades.

Contractual Obligations

The Partnership'sPartnership’s Contractual Obligations

The Partnership'sPartnership’s contractual obligations as of June 30, 20192020 included the following:

Payments Due by Period

    

    

    

    

    

    

Weighted Average

Interest Rate for

the Six Months

(unaudited)

Less than

13

45

More than 5

Ended June 30,

(millions of dollars)

Total

1 Year

Years

Years

Years

2019

TC PipeLines, LP

 

  

 

  

 

  

 

  

 

  

 

  

Senior Credit Facility due 2021

 

 

 

 

 

 

3.61 %

2013 Term Loan Facility due 2022

 

450

 

 

 

450

 

 

3.73 %

4.65% Senior Notes due 2021

 

350

 

 

350

 

 

 

4.65%(a)

4.375% Senior Notes due 2025

 

350

 

 

 

 

350

 

4.375%(a)

3.90% Senior Notes due 2027

 

500

 

 

 

 

500

 

3.9%(a)

GTN

 

 

  

 

  

 

  

 

  

 

  

5.29% Unsecured Senior Notes due 2020

 

100

 

100

 

 

 

 

5.29%(a)

5.69% Unsecured Senior Notes due 2035

 

150

 

 

 

 

150

 

5.69%(a)

PNGTS

 

  

 

  

 

  

 

  

 

  

 

  

Revolving Credit Facility due 2023

 

29

 

 

 

29

 

 

3.74%

North Baja

 

  

 

  

 

  

 

  

 

  

 

  

Unsecured Term Loan due 2021

 

50

 

 

50

 

 

 

3.56%

Tuscarora

 

  

 

  

 

  

 

  

 

  

 

  

Unsecured Term Loan due 2020

 

24

 

1

 

23

 

 

 

3.62%

Partnership (TC PipeLines, LP and its subsidiaries)

 

  

 

  

 

  

 

  

 

  

 

  

Interest on Debt Obligations(b)

 

488

 

89

 

145

 

93

 

161

 

  

Operating Leases

 

1

 

 

1

 

 

 

  

Right of Way commitments

 

4

 

1

 

 

1

 

2

 

  

 

2,496

 

191

 

569

 

573

 

1,163

38
(a)Fixed interest rate.
(b)Future interest payments on our fixed rate debt are based on scheduled maturities. Future interest payments on floating rate debt are estimated using debt levels and interest rates at June 30, 2019 and are therefore subject to change.






 Payments Due by Period
(unaudited)
(millions of dollars)
TotalLess
than
1 Year
1-3
Years
4-5
Years
More
than 5
Years
Weighted Average
Interest Rate for
the Six Months
Ended June 30, 2020
TC PipeLines, LP     
Senior Credit Facility due 2021
2013 Term Loan Facility due 20224504502.34%
4.65% Senior Notes due 20213503504.65%
(a)
4.375% Senior Notes due 20253503504.375%
(a)
3.90% Senior Notes due 20275005003.90%
(a)
GTN
3.12% Series A Senior Notes due 20301751753.12%
(a)
5.69% Unsecured Senior Notes due 20351501505.69%
(a)
PNGTS 
Revolving Credit Facility due 202371712.36%
North Baja
Unsecured Term Loan due 202150502.17%
Tuscarora 
Unsecured Term Loan due 202123232.22%
Partnership (TC PipeLines, LP and its subsidiaries)
Interest on Debt Obligations(b)
4367911494149
Operating Leases11
Right of Way commitments4112 
2,560431709444976
(a)Fixed interest rate.
(b)Future interest payments on our fixed rate debt are based on scheduled maturities. Future interest payments on floating rate debt are estimated using debt levels and interest rates at June 30, 2020 and are therefore subject to change.
The Partnership'sPartnership’s long-term debt results in exposures to changing interest rates. The Partnership uses derivatives to assist in managing its exposure to interest rate risk. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding our derivatives.

The fair value of the Partnership'sPartnership’s long-term debt is estimated by discounting the future cash flows of each instrument at estimated current borrowing rates. The estimated fair value of the Partnership'sPartnership’s debt at June 30, 20192020 was $2,064$2,223 million.

Please read Note 7 within Item 1. “Financial Statements” for additional information regarding the Partnership'sPartnership’s debt.

39

Summary of Northern Border'sBorder’s Contractual Obligations

Northern Border'sBorder’s contractual obligations as of June 30, 20192020 included the following:

Payments Due by Period (a)

    

    

    

    

    

    

Weighted Average

Interest Rate for the

(unaudited)

Less than

13

45

More than 5

Six Months Ended

(millions of dollars)

Total

1 Year

Years

Years

Years

June 30, 2019

$200 million Credit Agreement due 2020

 

115

 

 

115

 

 

 

3.70%

7.50% Senior Notes due 2021

 

250

 

 

250

 

 

 

7.50%(b)

Interest payments on debt (c)

 

44

 

11

 

33

 

 

 

  

Right of way commitments

 

47

 

2

 

5

 

5

 

35

 

  

 

456

 

13

 

403

 

5

 

35

39
(a)Represents 100 percent of Northern Border's debt obligations.
(b)Fixed interest rate.
(c)Future interest payments on our fixed rate debt are based on scheduled maturities. Future interest payments on floating rate debt are estimated using debt levels and interest rates at June 30, 2019 and are therefore subject to change.






 
Payments Due by Period (a)
(unaudited)
(millions of dollars)
TotalLess
than
1 Year
1-3
Years
4-5
Years
More
than 5
Years
Weighted Average
Interest Rate for
the Six Months Ended June 30, 2020
$200 million Credit Agreement due 20241201202.21%
7.50% Senior Notes due 20212502507.50%
(b)
Interest payments on debt (c)
292072
Other commitments (d)
4736632
4462326312832
(a)   Represents 100 percent of Northern Border’s debt obligations.
(b)   Fixed interest rate.
(c) Future interest payments on our fixed rate debt are based on scheduled maturities. Future interest payments on floating rate debt are estimated using debt levels and interest rates at June 30, 2020 and are therefore subject to change.
(d) Future minimum payments for office space and rights-of-way commitments.


As of June 30, 2019, $1152020, $120 million was outstanding under Northern Border'sBorder’s $200 million revolving credit agreement, leaving $85$80 million available for future borrowings. At June 30, 2019,2020, Northern Border was in compliance with all of its financial covenants.

If needed, and subject to customary lender approval upon request, an additional $200 million of capacity is available under Northern Border's revolving credit agreement accordion feature.

Northern Border has commitments of $8$11 million as of June 30, 20192020 in connection with compressor station overhauls and other capital projects.

Summary of Great Lakes'Lakes’ Contractual Obligations

Great Lakes'Lakes’ contractual obligations as of June 30, 20192020 included the following:

 
Payments Due by Period (a)
(unaudited)
(millions of dollars)
TotalLess
than
1 Year
1-3
Years
4-5
Years
More
than 5
Years
Weighted Average
Interest Rate for
the Six Months
Ended June 30, 2020
9.09% series Senior Notes due 2020 to 20212010109.09%
(b)
6.95% series Senior Notes due 2020 to 202888112222336.95%
(b)
8.08% series Senior Notes due 2021 to 2030100102020508.08%
(b)
Interest payments on debt (c)
7416241717
Right of Way commitments11
283477659101
(a)   Represents 100 percent of Great Lakes’ debt obligations.

Payments Due by Period (a)

    

    

    

    

    

    

Weighted Average

Interest Rate for the

(unaudited)

Less than

13

45

More than 5

Six Months Ended

(millions of dollars)

Total

1 Year

Years

Years

Years

June 30, 2019

9.09% series Senior Notes due 2019 to 2021

 

30

 

10

 

20

 

 

 

9.09%(b)

6.95% series Senior Notes due 2020 to 2028

 

99

 

11

 

22

 

22

 

44

 

6.95%(b)

8.08% series Senior Notes due 2021 to 2030

 

100

 

 

20

 

20

 

60

 

8.08%(b)

Interest payments on debt (c)

 

91

 

17

 

29

 

20

 

25

 

  

Right of way commitments

 

1

 

 

 

 

1

 

  

 

321

 

38

 

91

 

62

 

130

(b)   Fixed interest rate.
(c) Future interest payments on our fixed rate debt are based on scheduled maturities.

(a)Represents 100 percent of Great Lakes' debt obligations.
(b)Fixed interest rate.
(c)Future interest payments on our fixed rate debt are based on scheduled maturities.

Great Lakes is required to comply with certain financial, operational and legal covenants. Under the most restrictive covenants in the senior note agreements, approximately $123$112 million of Great Lakes' partners'Lakes’ partners’ capital was restricted as to distributions as of June 30, 20192020 (December 31, 2018 — $1292019 - $118 million). Great Lakes was in compliance with all of its financial covenants at June 30, 2019.

2020.

40

Great Lakes has commitments of $11$12 million as of June 30, 20192020 in connection with pipeline integrity program spending, major overhaul projects, and right of way renewals.


Summary of Iroquois'Iroquois’ Contractual Obligations

Iroquois'

Iroquois’ contractual obligations as of June 30, 20192020 included the following:

Payments Due by Period (a)

    

    

    

    

    

    

Weighted Average

Interest Rate for the

(unaudited)

Less than

13

45

More than 5

Six Months Ended

(millions of dollars)

Total

1 Year

Years

Years

Years

June 30, 2019

4.12% series Senior Notes due 2034

 

140

 

 

 

 

140

 

4.12%(b)

4.07% series Senior Notes due 2030

 

150

 

 

 

 

150

 

4.84%(c)

6.10% series Senior Notes due 2027

 

32

 

5

 

7

 

8

 

12

 

6.1%(b)

Interest payments on debt (d)

 

103

 

15

 

15

 

14

 

59

 

  

Transportation by others (e)

 

11

 

3

 

7

 

1

 

 

  

Operating leases

 

5

 

1

 

1

 

1

 

2

 

  

Pension contributions (f)

 

1

 

1

 

 

 

 

  

 

442

 

25

 

30

 

24

 

363

40
(a)Represents 100 percent of Iroquois' debt obligations.
(b)Fixed interest rate.
(c)The refinancing agreement for 4.07% $150 million Senior Notes has a delay feature where Iroquois will not be paying any interest on the new 4.07% $150 million Senior Notes until the funds are drawn to repay the existing 4.84% $150 million Senior Notes in 2020. Iroquois will continue to pay the current interest rate of 4.84 percent until April 2020 when interest rate of 4.07 percent becomes effective.
(d)Future interest payments on our fixed rate debt are based on scheduled maturities.
(e)Future rates are based on known rate levels at June 30, 2019 and are therefore subject to change.
(f)Pension contributions cannot be reasonably estimated by Iroquois beyond 2019.






 
Payments Due by Period (a)
 
(unaudited)
(millions of dollars)
TotalLess
than
1 Year
1-3
Years
4-5
Years
More
than 5
Years
Weighted Average
Interest Rate for
the Six Months
Ended June 30, 2020
 
4.12% series Senior Notes due 20341401404.12%
(b)
4.07% series Senior Notes due 20301501504.07%

6.10% series Senior Notes due 20272848886.10%
(b)
Interest payments on debt (c)
14814262583
Transportation by others (d)
734
Operating leases111253
484224038384
(a)  Represents 100 percent of Iroquois’ debt obligations.
(b)  Fixed interest rate.
(c) Future interest payments on our fixed rate debt are based on scheduled maturities.
(d) Future rates are based on known rate levels at June 30, 2020 and are therefore subject to change.

Iroquois has no capital commitments of $53 million as of June 30, 2019 related to procurement of materials on its expansion project.

On May 9, 2019, Iroquois refinanced its 6.63% $140 million and 4.84% $150 million Senior Notes due in 2019 and 2020, respectively, by issuing new 15-year 4.12% $140 million and new 10-year 4.07% $150 million Senior Notes.

2020.

Iroquois is restricted under the terms of its note purchase agreement from making cash distributions to its partners unless certain conditions are met, which remained unchanged with the refinancing transaction.met. Before a distribution can be made, the debt/debt to capitalization ratio must be below 75 percent and the debt service coverage ratio must be at least 1.25 times for the four preceding quarters. At June 30, 2019,2020, the debt/debt to capitalization ratio was 49.252.6 percent and the debt service coverage ratio was 5.386.29 times; therefore, Iroquois was not restricted from making any cash distributions.


RELATED PARTY TRANSACTIONS

Please read Note 12 within Item 1. “Financial Statements” for information regarding related party transactions.


Item 3.Quantitative and Qualitative Disclosures About Market Risk

OVERVIEW

The Partnership and our pipeline systems are exposed to market risk, counterparty credit risk, and liquidity risk. Our exposure to market risk discussed below includes forward-looking statements and is not necessarily indicative of actual results, which may not represent the maximum possible gains and losses that may occur, since actual gains and losses will differ from those estimated, based on actual market conditions.

41

Our primary risk management objective is to mitigate the impact of these risks on earnings and cash flow, and ultimately, unitholder value. We do not use financial instruments for trading purposes.

We record derivative financial instruments on the consolidated balance sheet as assets and liabilities at fair value. We estimate the fair value of derivative financial instruments using available market information and appropriate valuation techniques. Changes in the fair value of derivative financial instruments are recognized in earnings unless the instrument qualifies as a hedge and meets specific hedge accounting criteria. Qualifying derivative financial instruments'instruments’ gains and losses may offset the hedged items'items’ related results in earnings for a fair value hedge or be deferred in accumulated other comprehensive income for a cash flow hedge.


MARKET RISK

From time to time, and in order to finance our business and that of our pipeline systems, the Partnership and our pipeline systems issue debt to invest in growth opportunities and provide for ongoing operations. The issuance of floating rate debt exposes the Partnership and our pipeline systems to market risk from changes in interest rates which affect earnings and the value of the financial instruments we hold.

41





Market risk is the risk that changes in market interest rates may result in fluctuations in the fair values or cash flows of financial instruments. We regularly assess the impact of interest rate fluctuations on future cash flows and evaluate hedging opportunities to mitigate our interest rate risk.

LIBOR, which is set to be phased out at the end of 2021, is used as a reference rate for certain of our financial instruments, including the Partnership'sPartnership’s term loans, revolving credit facilities and the interest rate swap agreements that we use to manage our interest rate exposure. We are reviewing how the expected LIBOR phase-out will affect the Partnership, but weincluding the possibility of a delay in adopting a new benchmark due to the uncertainty surrounding the COVID-19 pandemic. We currently do not expect the impact to be material.

As of June 30, 2019,2020, the Partnership'sPartnership’s interest rate exposure resulted from our floating rate on North Baja'sBaja’s Unsecured Term Loan Facility, PNGTS'sPNGTS’ Revolving Credit Facility and Tuscarora'sTuscarora’s Unsecured Term Loan Facility, under which $103$144 million, or 57 percent, of our outstanding debt was subject to variability in LIBOR interest rates (December 31, 2018- $1682019 - $112 million or 86 percent).

As of June 30, 2019,2020, the variable interest rate exposure related to our 2013 Term Loan Facility was hedged by fixed interest rate swap arrangements and our effective interest rate was 3.26 percent. If interest rates hypothetically increased (decreased) on these facilities by one percent (100 basis points), compared with rates in effect at June 30, 2019,2020, our annual interest expense would increase (decrease) and net income would decrease (increase) by approximately $1 million.

As of June 30, 2019, $1152020, $120 million, or 32 percent, of Northern Border'sBorder’s outstanding debt was at floating rates. If interest rates hypothetically increased (decreased) by one percent (100 basis points), compared with rates in effect at June 30, 2019,2020, Northern Border'sBorder’s annual interest expense would increase (decrease) and its net income would decrease (increase) by approximately $1 million.

GTN's Unsecured Senior Notes,

Northern Border'sBorder’s and Iroquois'Iroquois’ Senior Notes, and all of Great Lakes'Lakes’ and PNGTS'GTN's Notes represent fixed-rate debt;debt, and are therefore they are not exposed to market risk due to floating interest rates. Interest rate risk does not apply to Bison, as Bison does not have any debt.

The Partnership and our pipeline systems use derivatives as part of our overall risk management policy to assist in managing exposures to market risk resulting from these activities within established policies and procedures. We do not enter into derivatives for speculative purposes. Derivative contracts used to manage market risk generally consist of the following:

Swaps — contractual agreements between two parties to exchange streams of payments over time according to specified terms.

42

Swaps - contractual agreements between two parties to exchange streams of payments over time according to specified terms.
Options - contractual agreements to convey the right, but not the obligation, for the purchaser to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed date or at any time within a specified period.

Options — contractual agreements to convey the right, but not the obligation, for the purchaser to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed date or at any time within a specified period.

The Partnership'sPartnership and our pipeline systems enter into interest rate swaps mature on October 2, 2022 and are structured such thatoption agreements to mitigate the cash flowsimpact of the derivative instruments match those of the variable rate of interest on the 2013 Term Loan Facility. The fixed weighted average interest rate on these instruments is 3.26 percent. On June 26, 2019, in conjunction with the Partnership's $50 million repayment on its 2013 Term Loan Facility, the Partnership also terminated an equivalent amountchanges in interest raterates. For details regarding our current interest swaps that were usedand other agreements related to hedge this facility at a ratemitigation of 2.81% (See alsoimpact on changes in interest rates, see Note 13 within Part I, Item 1. "Financial Statements").

“Financial Statements,” which information is incorporated herein by reference.


At June 30, 2019, the fair value of the interest rate swaps accounted for as cash flow hedges was a liability of $5 million (both on a gross and net basis) (December 31, 2018 - asset of $8 million). The change in fair value of interest rate derivative instruments recognized in other comprehensive income was a loss of $9 million and $14 million for the three and six months ended June 30, 2019, respectively (June 30, 2018 - loss of $1 million and gain of $6 million). During the three and six months ended June 30, 2019, a gain of $1 million was reclassified from other comprehensive income to net income (June 30, 2018 - gain of $3 million). For the three and six months ended June 30, 2019, the net realized gain related to the interest rate swaps was nil and a gain of $1 million, respectively, and was included in financial charges and other (June 30, 2018 - gain of $1 and gain of $2 million).

The Partnership has no master netting agreements; however, it has derivative contracts containing provisions with rights of offset. The Partnership has elected to present the fair value of derivative instruments with the right to offset on a gross basis in the consolidated balance sheet. Had the Partnership elected to present these instruments on a net basis, there would be no effect on the consolidated balance sheet as of June 30, 2019 and December 31, 2018.

COMMODITY PRICE RISK

The Partnership is influenced by the same factors that influence our pipeline systems. None of our pipeline systems own any of the natural gas they transport; therefore, they do not assume any of the related natural gas commodity price risk with respect to transported natural gas volumes.

COUNTERPARTY CREDIT RISK AND LIQUIDITY RISK

Counterparty credit risk represents the financial loss that the Partnership and our pipeline systems would experience if a counterparty to a financial instrument failed to meet its obligations in accordance with the terms and conditions of the financial instruments with the Partnership or its pipeline systems.
The Partnership has exposure to counterparty credit risk in the following areas:
cash and cash equivalents;
accounts receivable and other receivables; and
the fair value of derivative assets

42





At June 30, 2020, we had no significant credit losses, no significant credit risk concentration and no significant amounts past due or impaired. As noted in our 2019 Annual Report, a significant portion of our long-term contract revenues are with counterparties who have an investment grade rating or who have provided guarantees from investment grade parties. Additionally, during the three months ended June 30, 2020 and at June 30, 2020, no counterparty accounted for more than 10 percent of either our consolidated revenue or accounts receivable.
The Partnership and our pipeline systems have significant credit exposure to financial institutions as they hold cash deposits and provide committed credit lines and critical liquidity in the interest rate derivative market, as well as letters of credit to mitigate exposures to non-creditworthynon-credit worthy customers.
The Partnership closely monitors the creditworthiness of our counterparties, including financial institutions. However, we cannot predict to what extent our business would be impacted by uncertainty in energy commodity prices, including possible declines in our customers' creditworthiness.

Our maximum counterparty credit exposure with respect to financial instruments at the consolidated balance sheet date consists primarily of the carrying amount, which approximates fair value, of non-derivative financial assets, such as accounts receivable as well as the fair value of derivative financial assets. We review ourinstitutions, reviews accounts receivable regularly and, recordif needed, requests financial assurances in accordance with our pipeline tariffs and records allowances for doubtful accounts using the specific identification method. At June 30, 2019,However, we hadare not incurred any significantable to predict with certainty the extent to which our business could be impacted by the uncertainty surrounding the COVID-19 pandemic or the prolonged impact of low oil prices, including possible declines in our counterparties' creditworthiness.

The factors described above have been incorporated by the Partnership as part of the Measurement of credit losses and had no significant amounts past due or impaired. Additionally, duringon financial instruments accounting standard that became effective on January 1, 2020 as described in more detail under Note 3 within Item 1. “Financial Statements.” The Partnership believes the three and six months ended June 30, 2019 and at June 30, 2019, no customer accounted for more than 10 percentfactors as described above are considered to have a negligible impact considering the portfolio of counterparties held by our consolidated revenue and accounts receivable, respectively.

pipeline assets.

LIQUIDITY RISK
Liquidity risk is the risk that the Partnership and our pipeline systems will not be able to meet our financial obligations as they become due. We manage our liquidity risk by continuously forecasting our cash flow on a regular basis to ensure we have adequate cash balances, cash flow from operations and credit facilities to meet our operating, financing and

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capital expenditure obligations when due, under both normal and stressed conditions. ReferAs discussed previously, global market volatility has heightened and liquidity has tightened but we have taken steps to “Liquiditymitigate our risk. Please see "Liquidity and Capital Resources” sectionResources" within Item 2 for more information about our liquidity.


Item 4.Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) the management of our General Partner, including the principal executive officer and principal financial officer, evaluated as of the end of the period covered by this report the effectiveness of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. The Partnership'sPartnership’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon and as of the date of the evaluation, the management of our General Partner, including the principal executive officer and principal financial officer, concluded that the Partnership'sPartnership’s disclosure controls and procedures as of the end of the period covered by this quarterly report were effective to provide reasonable assurance that the information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act, is (a) recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms and (b) accumulated and communicated to the management of our General Partner, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2019,2020, there was no change in the Partnership'sPartnership’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.


PART II — OTHER INFORMATION


Item 1. Legal Proceedings

We are involved in various legal proceedings that arise in the ordinary course of business, as well as proceedings that we consider material under federal securities regulations. For additional information on other legal and environmental proceedings affecting the Partnership, please refer to Part 1 - Item 3 of the Partnership'sour 2019 Annual Report on Form 10-K for the year ended December 31, 2018.

and Part I-Other Recent

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Business Developments-Northern Border within Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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Item 1A. Risk Factors

The following updated risk factors should be read in conjunction with the risk factors disclosed in Part I, Item 1A. “Risk Factors,” in our 2019 Annual Report.

We face various risks and uncertainties beyond our control, such as recent public health concerns related to the COVID-19 pandemic, which could have a materially adverse impact on our business, financial condition and results of operation.
On March 11, 2020, the WHO declared COVID-19, a global pandemic. In addition, the spread of the COVID-19 virus across the globe has impacted financial markets and global economic activity. These impacts include supply chain disruptions, massive unemployment and a decrease in commercial and industrial activity around the world. The impact of the COVID-19 pandemic, compounded by the recent collapse in crude oil markets, has resulted in significant market disruption.
Our ability to access the debt market or borrowings under our debt agreements to fund our significant capital expenditures could be negatively impacted due to uncertainty in the current market environment. The COVID-19 pandemic could also lead to a general slowdown in construction activities related to our capital projects. However, there is no information available at this time that would allow us to quantify the impact such delay may have on the completion of our capital projects. Finally, if COVID-19 were to impact a location where we have a high concentration of business and resources, our local workforce could be affected by such an occurrence or outbreak which could also significantly disrupt our operations and decrease our ability to service our customers.

While we have not seen any material impact of the COVID-19 pandemic on our business to date, it is difficult to predict how significant the impact of the COVID-19 virus, including any responses to it, will be on the global economy and our business or for how long any disruptions are likely to continue. The extent of such impact will depend on future developments, which are highly uncertain, including new information which may emerge concerning the severity of the COVID-19 pandemic and additional actions which may be taken to contain the further spread of the COVID-19 virus. Even after the COVID-19 pandemic has subsided, our business may be adversely impacted by the economic downturn or a recession that has occurred or may occur in the future. The COVID-19 pandemic could also increase or trigger other risks discussed in our Annual Report on Form 10-K for the year endedyear-ended December 31, 2018.

We do not own the majority2019, any of the landwhich could have a materially adverse impact on which our pipeline systems are located, whichbusiness, financial condition and results of operation.



Prolonged low oil and natural gas prices could result in higher costssupply and disruptionsdemand imbalances that impact availability of natural gas for transportation on our pipeline systems.
In early March 2020, the market experienced a precipitous decline in crude oil prices in response to our operations, particularly with respectoil oversupply and demand concerns due to easements and rights-of-way across Indian tribal lands.

We do not own the majorityeconomic impacts of the land on which our pipeline systems are located. We obtain easements, rights-of-wayCOVID-19 pandemic. Additionally, in April 2020, extreme shortages of transportation and other rightsstorage capacity caused the New York Mercantile Exchange (NYMEX) West Texas Intermediate oil futures price to constructgo as low as approximately negative $37. This negative pricing resulted from the holders of expiring front month oil purchase contracts being unable or unwilling to take physical delivery of crude oil and operate our pipeline systemsaccordingly forced to make payments to purchasers of such contracts in order to transfer the corresponding purchase obligations.

Although oil prices have partially recovered from individual landowners, Native American tribes, governmental authoritieswhat was experienced in April, the COVID-19 pandemic and other third parties. Some of these rights expire aftereconomic downturn could further negatively impact domestic and international demand for crude oil and natural gas and a specifiedprolonged period of time. As a result, we are subjectlow crude oil and natural gas prices would negatively impact exploration and development of new crude oil and natural gas supplies. In response to the possibilitysharp decline in oil and natural gas prices, many producers have announced cuts or suspension of more onerous termsexploration and increased costsproduction activities and some state regulators are considering mandating the proration of production of hydrocarbons. A drilling reduction could impact the availability of natural gas to renew expiring easements, rights-of-waybe transported by our pipelines. Sustained low oil and other land use rights. While we are generally able to obtain these rights through agreement with land owners or legal process if necessary, rights-of-way across Indian tribal land require approval of the applicable tribal governing authority and the Bureau of Indian Affairs. If efforts to retain existing land use rights on tribal land at a reasonable cost are unsuccessful, our pipeline systemsnatural gas prices could also be subject to a disruption of operationsimpact counterparties’ creditworthiness and increased costs to re-route the applicable portion of our pipeline system located on tribal land. Increased costs associated with renewing or obtaining new easements or rights-of-way and any disruption of operations could negatively impact the results of operations and cash available for distribution from our pipeline systems.

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Our Great Lakes pipeline system had rights-of-way that expired during the second quarter of 2018 on approximately 7.6 miles of pipeline across tribal land located within the Fond du Lac Reservation and Leech Lake Reservation in Minnesota and the Bad River Reservation in Wisconsin. We are negotiating to renew the rights-of-way with the tribal authorities and expect to continue operating the Great Lakes pipeline while continuing good faith negotiations with the tribal authorities to obtain the necessary rights.

On April 1, 2019, Great Lakes received notice from the Fond du Lac Tribal Chairman to immediately cease operations of the Great Lakes pipeline and begin the process of removing all infrastructure from the tribal land to which Great Lakes responded in an effort to negotiate a mutually acceptable renewal agreement. On May 23, 2019, the Fond du Lac tribe provided Great Lakes with a Memorandum of Agreement (“MOA”) establishing a process to compensate the tribe for its negotiation expenses. Great Lakes continues to negotiate with Fond du Lac, Bad River and Leech Lake to resolve the lease issues for all three tribes.

If discussions with any of the three tribes ultimately are unsuccessful or the cost of renewal is significantly high, we could be required or choose to remove and relocate a portion or portions of the Great Lakes pipeline system from the tribal lands at a significant cost. While the outcome of these negotiations or thetheir ability to reach agreements is uncertain, the impact of a disruption of operations andmeet their transportation service cost of relocating a portion of the Great Lakes pipeline or significantly increased costs to renew the rights-of-wayobligations. Such developments could have a materialan adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flows.

Chemical substances in the natural gas our pipeline systems transport could cause damage or affect the ability of our pipeline systems' or third-party equipment to function properly, which may result in increased preventative and corrective action costs.

GTN identified the presence of a chemical substance, dithiazine, at several facilities on the GTN system and those of some upstream and downstream connecting pipeline facilities. Dithiazine is a byproduct of triazine which is a liquid chemical scavenger known to be used in natural gas processing to remove hydrogen sulfide from natural gas. It has been determined that dithiazine may drop out of gas streams, under certain conditions, in a powdery form at some points of pressure reduction (for example, at a regulator). In incidents where a sufficient quantity of the material accumulates in certain appurtenances, improper functioning of equipment can occur resulting in increased preventative and corrective action costs.

While we believe that the presence of dithiazine on our pipeline systems is from upstream sourced gas, we have advised stakeholders of potential risks, mitigation efforts and safety measures. We are following appropriate inspection and maintenance protocols to minimize any safety issues to people, equipment or the environment on our pipeline system. At least one over pressure incident potentially related to dithiazine has been reported on a customer's system. Until more information is gathered, we cannot speculate on the impact to customers, some of which may not have adequate overpressure protection. Additionally, our pipeline systems are also working with customers, and other stakeholders, gathering information on the substance, seeking potential options to address the issue, and have informed federal and state regulators, trade associations, and other stakeholders of this information. Additionally, we are currently evaluating interim and long-term solutions to address the presence of dithiazine and, at this time, GTN continues to make capital expenditures to address the matter. In 2018, we incurred capital expenditures of approximately $5 million and, unless the issue is resolved, we expect to spend approximately $10 million to $12 million in 2019 and 2020 in aggregate to further mitigate the matter. There can be no assurance that significant additional costs will not be incurred in the future or that dithiazine or other substances will not be identified on our other pipeline systems.

The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units, may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress have proposed and considered substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships including legislative proposals that would have eliminated

flow.




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the qualifying income exception we rely upon; thus, treating all publicly traded partnerships as corporations for U.S. federal income tax purposes. For example, the "Clean Energy for America Act", which is similar to legislation that was proposed during the Obama Administration, was introduced in the Senate on May 2, 2019. If enacted, this proposal would, among other things, repeal Section 7704(d)(1)(E) of the Internal Revenue Code, upon which we rely for our status as a partnership for U.S. federal income tax purposes.


In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. There can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department's interpretation of the qualifying income rules in a manner that could impact our ability to qualify as a publicly traded partnership in the future. We believe the income that we treat as qualifying satisfies the requirements under current regulations.


Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any changes or other proposals will ultimately be enacted. Any future legislative changes could negatively impact the value of an investment in our common units. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.


Item 6.Exhibits

Exhibits designated by an asterisk (*) are filed herewith and those designated with asterisks (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.

3.1

3.2

4.1

Indenture, dated as of June 17, 2011, between the Partnership and The Bank of New York Mellon, as trustee2018) (Incorporated by reference to Exhibit 4.13.2 to TC PipeLines, LP's Annual Report on Form 8K filed on June 17, 2011)10-K for the year ended December 31, 2019).

4.2

31.1*

4.3

Specimen of 4.65% Senior Notes due 2021 (Incorporated by reference to Exhibit A to the Supplemental Indenture filed as Exhibit 4.2 to TC PipeLines, LP's Form 8K filed on June 17, 2011).

4.4

Form of indenture for senior debt securities (Incorporated by reference to Exhibit 4.1 to TC PipeLines, LP's Form 8K filed on June 14, 2011).

4.5

Second Supplemental Indenture, dated March 13, 2015, between TC PipeLines, LP and The Bank of New York Mellon (incorporated by reference from Exhibit 4.1 to TC PipeLines, LP's Form 8K filed March 13, 2015).

4.6

Third Supplemental Indenture, dated as of May 25, 2017, relating to the issuance of $500,000,000 aggregate principal amount of 3.900% Senior Notes due 2027 (Incorporated by reference from Exhibit 4.2 to TC PipeLines, LP's Form 8K filed May 25, 2017).

31.1*

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

32.1**

32.2**

101

101

The following materials from TC Pipelines, LP's Quarterly Report on Form 10-Q for the period ended June 30, 20192020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statement of Cash Flows, (v) the Consolidated Statement of Changes in Partners' Equity, and (vi) the Condensed Notes to Consolidated Financial Statements (Unaudited).


104Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 15stth day of August 2019.

2020.

TC PIPELINES, LP

(A Delaware Limited Partnership)

by its General Partner, TC PipeLines GP, Inc.

By:

/s/ Nathaniel A. Brown

Nathaniel A. Brown

President

TC PipeLines GP, Inc. (Principal Executive Officer)

By:

/s/ William C. Morris

William C. Morris

Vice President and Treasurer

TC PipeLines GP, Inc. (Principal Financial Officer)

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