IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
Consolidated Financial Statements
March 31, 2017 and 2016
(Unaudited)
Iroquois Gas Transmission System, L.P.
Consolidated Statements of Comprehensive Income
| | | (thousands of dollars) | |
(Unaudited) for the three month ended march 31 | | 2017 | | | 2016 | |
| Operating Revenues | | $ | 53,320 | | | $ | 53,028 | |
| Operating Expenses: | | | | | | | | |
| Operation and maintenance | | | 7,309 | | | | 7,770 | |
| Depreciation and amortization | | | 7,190 | | | | 9,489 | |
| Taxes other than income taxes | | | 6,904 | | | | 6,942 | |
| Total Operating Expenses | | | 21,403 | | | | 24,201 | |
| Operating Income | | | 31,917 | | | | 28,827 | |
| Other Income / (Expenses): | | | | | | | | |
| Interest income | | | 23 | | | | 19 | |
| Allowance for equity funds used during construction | | | 548 | | | | 506 | |
| Other, net | | | (1,334) | | | | 0 | |
| Total Other Income / (Expenses) | | | (763) | | | | 525 | |
Interest Expense: | | | | | | | | |
| Interest expense | | | 4,915 | | | | 5,005 | |
| Allowance for equity funds used during construction | | | (229) | | | | (213) | |
| Total Interest Expense | | | 4,686 | | | | 4,792 | |
Net Income | | $ | 26,468 | | | $ | 24,560 | |
| Other comprehensive income – effects of retirement benefit plans | | | 27 | | | | 10 | |
| Comprehensive Income | | $ | 26,495 | | | $ | 24,570 | |
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System, L.P.
Consolidated Balance Sheets
| | | (thousands of dollars) | |
(Unaudited) Assets | | March 31, 2017 | | | December 31, 2016 | |
Current Assets: | | | | | | |
| Cash and temporary cash investments | | $ | 101,060 | | | $ | 86,322 | |
| Accounts receivable – trade, net | | | 18,092 | | | | 18,836 | |
| Prepaid property taxes | | | 10,796 | | | | 10,470 | |
| Other current assets | | | 4,402 | | | | 3,703 | |
| Total Current Assets | | $ | 134,350 | | | $ | 119,331 | |
Natural Gas Transmission Plant: | | | | | | | | |
| Natural gas plant in service | | | 1,283,969 | | | | 1,280,575 | |
| Construction work in progress | | | 43,125 | | | | 44,723 | |
| | | | 1,327,094 | | | | 1,325,298 | |
| Accumulated depreciation and amortization | | | (728,884) | | | | (721,693) | |
| Net Natural Gas Transmission Plant | | | 598,210 | | | | 603,605 | |
Other Assets and Deferred Charges: | | | | | | | | |
| Other assets and deferred charges | | | 7,879 | | | | 7,805 | |
| Total Other Assets and Deferred Charges | | | 7,879 | | | | 7,805 | |
| Total Assets | | $ | 740,439 | | | $ | 730,741 | |
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System, L.P.
Consolidated Balance Sheets
| | | (thousands of dollars) | |
(Unaudited) Liabilities and Partners' Equity | | March 31, 2017 | | | December 31, 2016 | |
Current Liabilities: | | | | | | |
| Accounts payable | | $ | 789 | | | $ | 2,615 | |
| Accrued interest | | | 6,867 | | | | 2,053 | |
| Current portion of long-term debt | | | 5,500 | | | | 5,500 | |
| Customer deposits | | | 10,684 | | | | 10,533 | |
| Other current liabilities | | | 3,344 | | | | 2,383 | |
| Total Current Liabilities | | $ | 27,184 | | | $ | 23,084 | |
Long-Term Debt | | | 329,000 | | | | 329,000 | |
Other Non-Current Liabilities: | | | | | | | | |
| Other non-current liabilities | | | 8,395 | | | | 6,792 | |
| Other Non-Current Liabilities | | | 8,395 | | | | 6,792 | |
Commitments and Contingencies (Note 2) | | | | | | | | |
| Total Liabilities | | | 364,579 | | | | 358,876 | |
| Partners' Equity | | | 375,860 | | | | 371,865 | |
| Total Liabilities and Partners' Equity | | $ | 740,439 | | | $ | 730,741 | |
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System, L.P.
Consolidated Statements of Cash Flows
| (Unaudited) | | (thousands of dollars) | |
| | | | | | |
| for the three months ended march 31 | | 2017 | | | 2016 | |
| | | | | | | |
| Cash Flows From Operating Activities: | | | | | | |
| Net Income | | $ | 26,468 | | | $ | 24,560 | |
| Adjusted for the following: | | | | | | | | |
| Depreciation and amortization | | | 7,190 | | | | 9,489 | |
| Allowance for equity funds used during construction | | | (548) | | | | (506) | |
| Other assets and deferred charges | | | (1,148) | | | | (1,211) | |
| Other non-current liabilities | | | 2,704 | | | | (305) | |
| Changes in working capital: | | | | | | | | |
| Accounts receivable | | | 744 | | | | (60) | |
| Prepaid property taxes | | | (326) | | | | (266) | |
| Other current assets | | | 473 | | | | 474 | |
| Accounts payable | | | (1,701) | | | | 472 | |
| Customer deposits | | | 151 | | | | 210 | |
| Accrued interest | | | 4,814 | | | | 4,894 | |
| Other current liabilities | | | (211) | | | | (1,929) | |
| Net Cash Provided by Operating Activities | | | 38,610 | | | | 35,822 | |
| Cash Flows From Investing Activities: | | | | | | | | |
| Capital expenditures | | | (1,372) | | | | (2,134) | |
| Net Cash Used For Investing Activities | | | (1,372) | | | | (2,134) | |
| Cash Flows From Financing Activities: | | | | | | | | |
| Partner distributions | | | (22,500) | | | | (22,500) | |
| Net Cash Used For Financing Activities | | | (22,500) | | | | (22,500) | |
| Net increase in Cash and Temporary Cash Investments | | | 14,738 | | | | 11,188 | |
| Cash and Temporary Cash Investments at Beginning of Year | | | 86,322 | | | | 77,192 | |
| Cash and Temporary Cash Investments at End of Period | | $ | 101,060 | | | $ | 88,380 | |
| Supplemental Disclosure of Cash Flow Information: | | | | | | | | |
| Cash paid for interest | | $ | 4 | | | $ | 8 | |
| Accounts payable accruals for capital expenditures | | $ | 182 | | | $ | 318 | |
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System, L.P.Statement of Changes in Partners' Equity
(thousands of dollars)
| | | | | | | | | | | | | | | |
| (Unaudited) | | Net Income | | | Distributions to Partners | | | Contributions by Partners | | | Accumulated Other Comprehensive Income/(Loss) | | | Total Partners' Equity |
| December 31, 2016 | | | | | | | | | | | | | | |
| Balance | | $ | 1,502,244 | | | $ | (1,406,544 | ) | | $ | 279,381 | | | $ | (3,216 | ) | | $ | 371,865 |
| Net Income | | | 26,468 | | | | —0 | | | | — | | | | — | | | | 26,468 |
| Equity Distributions to Partners | | | — | | | | (22,500) | | | | — | | | | — | | | | (22,500 |
| Other Comprehensive Income | | | — | | | | — | | | | — | | | | 27 | | | | 27 |
| March 31, 2017 | | | | | | | | | | | | | | | | | | | |
| Balance | | $ | 1,528,712 | | | $ | (1,429,044 | ) | | $ | 279,381 | | | $ | (3,189 | ) | | $ | 375,860 |
The accompanying notes are an integral part of these financial statements.
Notes To ConsolidatedFinancial Statements
(UNAUDITED)
Description of Partnership:
Iroquois Gas Transmission System, L.P., (the Partnership or Iroquois) is a Delaware limited partnership that owns and operates a natural gas transmission pipeline that extends from the Canada-United States border near Waddington, New York through the states of New York (NY) and Connecticut to South Commack, NY on Long Island and Hunts Point, NY in the Bronx. In accordance with the limited partnership agreement, the Partnership shall continue in existence until October 31, 2089, and from year to year thereafter, until the partners elect to dissolve the Partnership and terminate the limited partnership agreement.
As of March 31, 2017, the partners consist of TransCanada Iroquois Ltd. (TransCanada PipeLines) (29.0%), Iroquois GP Holding Company, LLC (Dominion Midstream) (25.93%), Dominion Iroquois, Inc. (Dominion Resources) (24.07%), TCPL Northeast Ltd. (TransCanada PipeLines) (21.0%). Iroquois Pipeline Operating Company, a wholly-owned subsidiary, is the administrative operator of the pipeline. IGTS, Inc. of Connecticut is an additional wholly owned subsidiary formed to hold title to certain Connecticut property interests.
Income and expenses are allocated to the partners and credited to their respective equity accounts in accordance with the partnership agreements and their respective percentage interests. Distributions to partners are made concurrently to all partners in proportion to their respective partnership interests. The Partnership made cash distributions to the partners of $22.5 million during the first quarter of 2017 and 2016, respectively.
Reclassifications:
Certain prior year amounts have been reclassified to conform with current year classifications.
Subsequent Events:
A Partner distribution in the amount of $22.5 million was approved April 27, 2017 and paid on May 1, 2017.
On June 1, 2017, TCPL Northeast Ltd. and TransCanada Iroquois Ltd sold its 21 percent and 28.34 percent interest in the Partnership, respectively, to its affiliate, TC Pipelines Intermediate Limited Partnership (TCILP) for a total 49.34 percent interest in the Partnership. TransCanada's Master Limited Partnership, TC PipeLines, LP is TCILP's parent.
Subsequent events have been assessed through June 30, 2017, which is the date the financial statements were issued, and management of the Partnership has concluded there were no events or transactions during this period that would require recognition or disclosure in the financial statements other than those already reflected.
Commitments and Contingencies:
Wright Interconnect Project
In December of 2012, the Partnership entered into a Precedent Agreement (PA) with Constitution Pipeline (Constitution). The PA requires the Partnership to expand its current compression station located in Wright, New York. The expansion, which consists of adding two new compressor units in addition to new metering facilities, will enable the Partnership to accept up to 650,000 Dth/d of gas from the proposed Constitution pipeline and deliver this gas into either the Partnership's currently existing mainline or into the Tennessee Gas Pipeline. Pursuant to the PA, Constitution and the Partnership will enter into a capacity lease agreement in which Constitution leases the transmission capacity made available on the new compressor units. This lease agreement is for a period of fifteen years with an option for Constitution to extend the lease an additional five years. This project will require FERC and other regulatory approvals. On June 13, 2013, the Partnership and Constitution filed for FERC approval of the project. On December 2, 2014, the Partnership received its 7(c) Certificate Order from FERC granting approval for the project, but the approval was conditioned on the Partnership obtaining all outstanding permits. The Partnership continues to work with State and Local authorities to obtain all required permits.
On April 22, 2016, the New York State Department of Environmental Conservation (DEC) issued a denial to Constitution's application for a water quality certification under Section 401 of the Clean Water Act. Constitution had applied for the 401 certificate in order to construct their 124 mile pipeline. On May 16, 2016, Constitution filed an appeal of the denial to the Second Circuit Court of Appeals arguing that the DEC's denial was arbitrary and capricious. Constitution's brief, in this appeal, was filed on July 12, 2016 and response briefs were filed on September 12, 2016. Oral arguments were conducted on November 16, 2016. An order in this case is not expected until the second quarter of 2017.
The Partnership is required to obtain a Title V Facility Permit (Permit), under the Clean Air Act, for the construction and operations of the WIP facilities. On July 26, 2013, the Partnership filed a Permit application with the DEC, and the DEC subsequently published a Notice of Complete Application (NOCA) on December 24, 2014. The DEC and the Environmental Protection Agency regulations implementing the Clean Air Act, state that final action on a Title V Permit must be taken within eighteen months of publishing the NOCA. However, the DEC failed to submit the Permit to the Environmental Protection Agency on or before June 24, 2016, thus violating the eighteen month requirement of the Clean Air Act. Therefore, the Partnership filed an appeal with the DC Circuit Court on July 13, 2016 regarding the DEC's failure to timely submit the Permit to the Environmental Protection Agency. On October 6, 2016, the Partnership and the DEC executed and filed a Stipulation of Settlement and a Joint Motion to Hold Petition in Abeyance Pending Performance of Stipulation of Settlement. Among other provisions, the Stipulation requires the DEC to submit the Permit to the Environmental Protection Agency in the event that Constitution prevails in its litigation with the DEC which litigation is described in the preceding paragraph. It is anticipated that, once the Permit is submitted to the EPA, final action on the Permit will be taken.
As of March 31, 2017 the Partnership has incurred approximately $42.1 million of expenditures primarily related to engineering and procurement of materials and has made approximately $2.4 million in additional project related commitments. Due to contractual agreements in place with a third party, the Partnership does not believe it is at financial risk for these expenditures.
A description of the Partnership's other regulatory and legal proceedings is contained in the Partnership's 2016 Consolidated Financial Statements.
