EX-13.3 4 trp-12312016xfs.htm FORM 40-F FINANCIAL STATEMENTS Exhibit
EXHIBIT 13.3

Management's Report on Internal Control over Financial Reporting
The consolidated financial statements and Management's Discussion and Analysis (MD&A) included in this Annual Report are the responsibility of the management of TransCanada Corporation (TransCanada or the Company) and have been approved by the Board of Directors of the Company. The consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (GAAP) and include amounts that are based on estimates and judgments. The MD&A is based on the Company's financial results. It compares the Company's financial and operating performance in 2016 to that in 2015, and highlights significant changes between 2015 and 2014. The MD&A should be read in conjunction with the consolidated financial statements and accompanying notes. Financial information contained elsewhere in this Annual Report is consistent with the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management has designed and maintains a system of internal control over financial reporting, including a program of internal audits to carry out its responsibility. Management believes these controls provide reasonable assurance that financial records are reliable and form a proper basis for the preparation of financial statements. The internal control over financial reporting include management's communication to employees of policies that govern ethical business conduct.
Under the supervision and with the participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management concluded, based on its evaluation, that internal control over financial reporting was effective as of December 31, 2016, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.
TransCanada acquired Columbia Pipeline Group, Inc. (Columbia) on July 1, 2016. As a result, management's assessment and conclusion on the effectiveness of its internal control over financial reporting did not include internal controls over financial reporting at Columbia. These exclusions are consistent with SEC Commission Staff's guidance that the assessment of recently a acquired business may be omitted from the scope of its assessment of the effectiveness of internal control over financial reporting in the year of the acquisition. Assets attributable to Columbia represented approximately 13 per cent of TransCanada's total assets as at December 31, 2016, and revenues attributable to Columbia for the period July 1, 2016 to December 31, 2016 represented approximately 7 per cent of TransCanada's total revenues for the year ended December 31, 2016.
The Board of Directors is responsible for reviewing and approving the financial statements and MD&A and ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board of Directors carries out these responsibilities primarily through the Audit Committee, which consists of independent, non-management directors. The Audit Committee meets with management at least five times a year and meets independently with internal and external auditors and as a group to review any significant accounting, internal control and auditing matters in accordance with the terms of the Charter of the Audit Committee, which is set out in the Annual Information Form. The Audit Committee's responsibilities include overseeing management's performance in carrying out its financial reporting responsibilities and reviewing the Annual Report, including the consolidated financial statements and MD&A, before these documents are submitted to the Board of Directors for approval. The internal and independent external auditors have access to the Audit Committee without the requirement to obtain prior management approval.
The Audit Committee approves the terms of engagement of the independent external auditors and reviews the annual audit plan, the Auditors' Report and the results of the audit. It also recommends to the Board of Directors the firm of external auditors to be appointed by the shareholders.
The shareholders have appointed KPMG LLP as independent external auditors to express an opinion as to whether the consolidated financial statements present fairly, in all material respects, the Company's consolidated financial position, results of operations and cash flows in accordance with GAAP. The reports of KPMG LLP outline the scope of its examinations and its opinions on the consolidated financial statements and the effectiveness of the Company's internal control over financial reporting.
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Russell K. Girling
President and
Chief Executive Officer
 
Donald R. Marchand
Executive Vice-President and
Chief Financial Officer
 
 
 
February 15, 2017
 
 

 
TransCanada Consolidated financial statements 2016
119



Independent Auditors' Report of Registered Public Accounting Firm
To the Shareholders of TransCanada Corporation
We have audited the accompanying consolidated financial statements of TransCanada Corporation, which comprise the Consolidated balance sheets as at December 31, 2016 and December 31, 2015, the Consolidated statements of income, comprehensive income, cash flows and equity for each of the years in the three-year period ended December 31, 2016, and Notes, comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Consolidated financial statements present fairly, in all material respects, the consolidated financial position of TransCanada Corporation as at December 31, 2016 and December 31, 2015, and its consolidated results of operations and its consolidated cash flows for each of the years in the three-year period ended December 31, 2016 in accordance with U.S. generally accepted accounting principles.
Other Matter
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TransCanada Corporation’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 15, 2017 expressed an unmodified (unqualified) opinion on the effectiveness of TransCanada Corporation’s internal control over financial reporting.
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Chartered Professional Accountants
February 15, 2017
Calgary, Canada

120
 TransCanada Consolidated financial statements 2016
 



Report of Independent Registered Public Accounting Firm
To the Shareholders of TransCanada Corporation
We have audited TransCanada Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TransCanada Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, TransCanada Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
TransCanada Corporation acquired Columbia Pipeline Group, Inc. (Columbia) on July 1, 2016, and management excluded from its assessment of the effectiveness of TransCanada Corporation’s internal control over financial reporting as of December 31, 2016. Columbia's internal control over financial reporting associated with total assets of $11,496 million and total revenues of $929 million included in the consolidated financial statements of TransCanada Corporation as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of TransCanada Corporation also excluded an evaluation of the internal control over financial reporting of Columbia.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated balance sheets of TransCanada Corporation as of December 31, 2016 and 2015, and the related Consolidated statements of income, comprehensive income, cash flows, and equity for each of the years in the three-year period ended December 31, 2016 and our report dated February 15, 2017 expressed an unmodified (unqualified) opinion on those consolidated financial statements.
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Chartered Professional Accountants
February 15, 2017
Calgary, Canada


 
TransCanada Consolidated financial statements 2016
121



Consolidated statement of income
year ended December 31
 
2016

 
2015

 
2014

(millions of Canadian $, except per share amounts)
 
 
 
 
 
 
 
 
Revenues (Note 1)
 
 
 
 
 
 
Canadian Natural Gas Pipelines
 
3,682

 
3,680

 
3,557

U.S. Natural Gas Pipelines
 
2,526

 
1,444

 
1,159

Mexico Natural Gas Pipelines
 
378

 
259

 
197

Liquids Pipelines
 
1,755

 
1,879

 
1,547

Energy
 
4,164

 
4,038

 
3,725

 
 
12,505

 
11,300

 
10,185

Income from Equity Investments (Note 9)
 
514

 
440

 
522

Operating and Other Expenses
 
 
 
 
 
 
Plant operating costs and other
 
3,819

 
3,250

 
2,973

Commodity purchases resold
 
2,172

 
2,237

 
1,836

Property taxes
 
555

 
517

 
473

Depreciation and amortization
 
1,939

 
1,765

 
1,611

Goodwill and other asset impairment charges (Note 8, 11 and 12)
 
1,388

 
3,745

 

 
 
9,873

 
11,514

 
6,893

(Loss)/Gain on Assets Held for Sale/Sold (Notes 6 and 26)
 
(833
)
 
(125
)
 
117

Financial Charges
 
 
 
 
 
 
Interest expense (Note 17)
 
1,998

 
1,370

 
1,198

Allowance for funds used during construction
 
(419
)
 
(295
)
 
(136
)
Interest income and other
 
(103
)
 
132

 
45

 
 
1,476

 
1,207

 
1,107

Income/(Loss) before Income Taxes
 
837

 
(1,106
)
 
2,824

Income Tax Expense/(Recovery) (Note 16)
 
 
 
 
 
 
Current
 
156

 
136

 
145

Deferred
 
196

 
(102
)
 
686

 
 
352

 
34

 
831

Net Income/(Loss)
 
485

 
(1,140
)
 
1,993

Net Income attributable to non-controlling interests (Note 19)
 
252

 
6

 
153

Net Income/(Loss) Attributable to Controlling Interests
 
233

 
(1,146
)
 
1,840

Preferred share dividends
 
109

 
94

 
97

Net Income/(Loss) Attributable to Common Shares
 
124

 
(1,240
)
 
1,743

 
 
 
 
 
 
 
Net Income/(Loss) per Common Share (Note 20)
 
 
 
 
 
 
Basic and diluted
 

$0.16

 

($1.75
)
 

$2.46

 
 
 
 
 
 
 
Dividends Declared per Common Share
 

$2.26

 

$2.08

 

$1.92

 
 
 
 
 
 
 
Weighted Average Number of Common Shares (millions) (Note 20)
 
 
 
 
 
 
Basic
 
759

 
709

 
708

Diluted
 
760

 
709

 
710

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

122
 TransCanada Consolidated financial statements 2016
 



Consolidated statement of comprehensive income
year ended December 31
2016

2015

2014

(millions of Canadian $)
 
 
 
 
Net Income/(Loss)
485

(1,140
)
1,993

Other Comprehensive (Loss)/Income, Net of Income Taxes
 
 
 
Foreign currency translation gains on net investment in foreign operations
3

813

517

Change in fair value of net investment hedges
(10
)
(372
)
(276
)
Change in fair value of cash flow hedges
30

(57
)
(69
)
Reclassification to net income of gains and losses on cash flow hedges
42

88

(55
)
Unrealized actuarial losses and gains on pension and other post-retirement benefit plans
(26
)
51

(102
)
Reclassification to net income of actuarial loss and prior service costs on pension and other post-retirement benefit plans
16

32

18

Other comprehensive (loss)/income on equity investments
(87
)
47

(204
)
Other comprehensive (loss)/income (Note 22)
(32
)
602

(171
)
Comprehensive Income/(Loss)
453

(538
)
1,822

Comprehensive income attributable to non-controlling interests
241

312

283

Comprehensive Income/(Loss) Attributable to Controlling Interests
212

(850
)
1,539

Preferred share dividends
109

94

97

Comprehensive Income/(Loss) Attributable to Common Shares
103

(944
)
1,442

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

 
TransCanada Consolidated financial statements 2016
123



Consolidated statement of cash flows
year ended December 31
 
2016

 
2015

 
2014

(millions of Canadian $)
 
 
 
 
 
 
 
 
Cash Generated from Operations
 
 
 
 
 
 
Net income/(loss)
 
485

 
(1,140
)
 
1,993

Depreciation and amortization
 
1,939

 
1,765

 
1,611

Goodwill and other asset impairment charges (Notes 8, 11 and 12)
 
1,388

 
3,745

 

Deferred income taxes (Note 16)
 
196

 
(102
)
 
686

Income from equity investments (Note 9)
 
(514
)
 
(440
)
 
(522
)
Distributions received from operating activities of equity investments (Note 9)
 
844

 
793

 
726

Employee post-retirement benefits expense, net of funding (Note 23)
 
(3
)
 
44

 
37

Loss/(gain) on assets held for sale/sold (Notes 6 and 26)
 
833

 
125

 
(117
)
Equity allowance for funds used during construction
 
(253
)
 
(165
)
 
(95
)
Unrealized (gains)/losses on financial instruments
 
(149
)
 
58

 
74

Other
 
55

 
47

 
22

Decrease/(increase) in operating working capital (Note 25)
 
248

 
(346
)
 
(189
)
Net cash provided by operations
 
5,069

 
4,384

 
4,226

Investing Activities
 
 
 
 
 
 
Capital expenditures (Note 4)
 
(5,007
)
 
(3,918
)
 
(3,489
)
Capital projects in development (Note 4)
 
(295
)
 
(511
)
 
(848
)
Contributions to equity investments (Note 9)
 
(765
)
 
(493
)
 
(256
)
Acquisitions, net of cash acquired (Note 5 and 26)
 
(13,608
)
 
(236
)
 
(241
)
Proceeds from sale of assets, net of transaction costs (Note 26)
 
6

 

 
196

Other distributions from equity investments (Note 9)
 
727

 
9

 
12

Deferred amounts and other
 
159

 
270

 
335

Net cash used in investing activities
 
(18,783
)
 
(4,879
)
 
(4,291
)
Financing Activities
 
 
 
 
 
 
Notes payable (repaid)/issued, net
 
(329
)
 
(1,382
)
 
544

Long-term debt issued, net of issue costs
 
12,333

 
5,045

 
1,403

Long-term debt repaid
 
(7,153
)
 
(2,105
)
 
(1,069
)
Junior subordinated notes issued, net of issue costs
 
1,549

 
917

 

Dividends on common shares
 
(1,436
)
 
(1,446
)
 
(1,345
)
Dividends on preferred shares
 
(100
)
 
(92
)
 
(94
)
Distributions paid to non-controlling interests
 
(279
)
 
(224
)
 
(178
)
Common shares issued, net of issue costs
 
7,747

 
27

 
47

Common shares repurchased (Note 20)
 
(14
)
 
(294
)
 

Preferred shares issued, net of issue costs
 
1,474

 
243

 
440

Partnership units of subsidiary issued, net of issue costs 
 
215

 
55

 
79

Preferred shares of subsidiary redeemed (Note 19)
 

 

 
(200
)
Net cash provided by/(used in) financing activities
 
14,007

 
744

 
(373
)
Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
 
(127
)
 
112

 

Increase/(Decrease) in Cash and Cash Equivalents
 
166

 
361

 
(438
)
Cash and Cash Equivalents
 
 
 
 
 
 
Beginning of year
 
850

 
489

 
927

Cash and Cash Equivalents
 
 
 
 
 
 
End of year
 
1,016

 
850

 
489

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

124
 TransCanada Consolidated financial statements 2016
 



Consolidated balance sheet
at December 31
 
2016

 
2015

(millions of Canadian $)
 
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
1,016

 
850

Accounts receivable
 
2,075

 
1,387

Inventories
 
368

 
323

Assets held for sale (Note 6)
 
3,717

 
20

Other (Note 7)
 
908

 
1,338

 
 
8,084

 
3,918

Plant, Property and Equipment (Note 8)
 
54,475

 
44,817

Equity Investments (Note 9)
 
6,544

 
6,214

Regulatory Assets (Note 10)
 
1,322

 
1,184

Goodwill (Note 11)
 
13,958

 
4,812

Intangible and Other Assets (Note 12)
 
3,026

 
3,102

Restricted Investments
 
642

 
351

 
 
88,051

 
64,398

LIABILITIES
 
 
 
 
Current Liabilities
 
 
 
 
Notes payable (Note 13)
 
774

 
1,218

Accounts payable and other (Note 14)
 
3,861

 
2,653

Dividends payable
 
526

 
385

Accrued interest
 
595

 
520

Liabilities related to assets held for sale (Note 6)
 
86

 
39

Current portion of long-term debt (Note 17)
 
1,838

 
2,547

 
 
7,680

 
7,362

Regulatory Liabilities (Note 10)
 
2,121

 
1,159

Other Long-Term Liabilities (Note 15)
 
1,183

 
1,260

Deferred Income Tax Liabilities (Note 16)
 
7,662

 
5,144

Long-Term Debt (Note 17)
 
38,312

 
28,909

Junior Subordinated Notes (Note 18)
 
3,931

 
2,409

 
 
60,889

 
46,243

Common Units Subject to Rescission or Redemption (Note 19)
 
1,179

 

EQUITY
 
 
 
 
Common shares, no par value (Note 20)
 
20,099

 
12,102

Issued and outstanding:
December 31, 2016 – 864 million shares
 
 
 
 
 
December 31, 2015 – 703 million shares
 
 
 
 
Preferred shares (Note 21)
 
3,980

 
2,499

Additional paid-in capital
 

 
7

Retained earnings
 
1,138

 
2,769

Accumulated other comprehensive loss (Note 22)
 
(960
)
 
(939
)
Controlling Interests
 
24,257

 
16,438

Non-controlling interests (Note 19)
 
1,726

 
1,717

 
 
25,983

 
18,155

 
 
88,051

 
64,398

Commitments, Contingencies and Guarantees (Note 27)
Corporate Restructuring Costs (Note 28)
Variable Interest Entities (Note 29)
The accompanying Notes to the consolidated financial statements are an integral part of these statements.
On behalf of the Board:
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Russell K. Girling
Director
Siim A. Vanaselja
Director

 
TransCanada Consolidated financial statements 2016
125



Consolidated statement of equity
year ended December 31
 
2016

 
2015

 
2014

(millions of Canadian $)
 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 
Balance at beginning of year
 
12,102

 
12,202

 
12,149

Shares issued under public offerings, net of issue costs (Note 20)
 
7,752

 

 

Shares issued under dividend reinvestment and share purchase plan (Note 20)
 
177

 

 

Shares issued on exercise of stock options (Note 20)
 
74

 
30

 
53

Shares repurchased (Note 20)
 
(6
)
 
(130
)
 

Balance at end of year
 
20,099

 
12,102

 
12,202

Preferred Shares
 
 
 
 
 
 
Balance at beginning of year
 
2,499

 
2,255

 
1,813

Shares issued under public offering, net of issue costs (Note 21)
 
1,481

 
244

 
442

Balance at end of year
 
3,980

 
2,499

 
2,255

Additional Paid-In Capital
 
 
 
 
 
 
Balance at beginning of year
 
7

 
370

 
401

Issuance of stock options, net of exercises
 
6

 
8

 
3

Dilution impact from TC PipeLines, LP units issued
 
24

 
6

 
9

Redemption of subsidiary's preferred shares
 

 

 
(6
)
Impact of common shares repurchased (Note 20)
 
(8
)
 
(164
)
 

Impact of asset drop downs to TC PipeLines, LP (Note 26)
 
(38
)
 
(213
)
 
(37
)
Reclassification of additional paid-in capital deficit to retained earnings
 
9

 

 

Balance at end of year
 

 
7

 
370

Retained Earnings
 
 
 
 
 
 
Balance at beginning of year
 
2,769

 
5,478

 
5,096

Net income/(loss) attributable to controlling interests
 
233

 
(1,146
)
 
1,840

Common share dividends
 
(1,733
)
 
(1,471
)
 
(1,360
)
Preferred share dividends
 
(122
)
 
(92
)
 
(98
)
Reclassification of additional paid-in capital deficit to retained earnings
 
(9
)
 

 

Balance at end of year
 
1,138

 
2,769

 
5,478

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
Balance at beginning of year
 
(939
)
 
(1,235
)
 
(934
)
Other comprehensive (loss)/income attributable to controlling interests (Note 22)
 
(21
)
 
296

 
(301
)
Balance at end of year
 
(960
)
 
(939
)
 
(1,235
)
Equity Attributable to Controlling Interests
 
24,257

 
16,438

 
19,070

Equity Attributable to Non-Controlling Interests
 
 
 
 
 
 
Balance at beginning of year
 
1,717

 
1,583

 
1,611

Acquisition of non-controlling interests in Columbia Pipeline Partners LP
 
1,051

 

 

Net income/(loss) attributable to non-controlling interests
 
 
 
 
 
 
TC PipeLines, LP
 
215

 
(13
)
 
136

Portland Natural Gas Transmission System
 
20

 
19

 
15

Columbia Pipeline Partners LP
 
17

 

 

Preferred share dividends of TCPL
 

 

 
2

Other comprehensive (loss)/income attributable to non-controlling interests
 
(11
)
 
306

 
130

Issuance of TC PipeLines, LP units
 
 
 
 
 
 
Proceeds, net of issue costs
 
215

 
55

 
79

Decrease in TransCanada's ownership of TC PipeLines, LP
 
(40
)
 
(11
)
 
(14
)
Distributions declared to non-controlling interests
 
(279
)
 
(222
)
 
(182
)
Reclassification to common units subject to rescission or redemption (Note 19)
 
(1,179
)
 

 

Redemption of subsidiary's preferred shares
 

 

 
(194
)
Balance at end of year
 
1,726

 
1,717

 
1,583

Total Equity
 
25,983

 
18,155

 
20,653

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

126
 TransCanada Consolidated financial statements 2016
 



Notes to consolidated financial statements
1.  DESCRIPTION OF TRANSCANADA'S BUSINESS
TransCanada Corporation (TransCanada or the Company) is a leading North American energy infrastructure company which operates in three core businesses, Natural Gas Pipelines, Liquids Pipelines and Energy, each of which offers different products and services. As a result of the acquisition of Columbia Pipeline Group, Inc. (Columbia) and the pending monetization of the United States (U.S.) Northeast power business, the Company has revised its reporting segments from Natural Gas Pipelines, Liquids Pipelines, Energy and Corporate, to Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines, Energy and Corporate as at December 31, 2016. The Corporate segment is non-operational, consisting of corporate and administrative functions. The revised structure aligns with the information reviewed by the Chief Operating Decision Maker (CODM). Historical financial results for the years ended December 31, 2015 and 2014 have been adjusted to align with this change in the Company's segmented reporting.
Canadian Natural Gas Pipelines
The Canadian Natural Gas Pipelines segment consists of the Company's investments in 40,111 km (24,923 miles) of regulated natural gas pipelines.
U.S. Natural Gas Pipelines
The U.S. Natural Gas Pipelines segment consists of the Company's investments in 49,776 km (30,933 miles) of regulated natural gas pipelines, 535 Bcf of regulated natural gas storage facilities, midstream and other assets.
Acquired as part of Columbia on July 1, 2016, the Company owns and operates:
Columbia Gas – an interstate natural gas transportation pipeline and storage system, which has largely operated as a means to transport gas from the Gulf Coast, via Columbia Gulf, from various pipeline interconnects and from production areas in the Appalachian region to markets in the midwest, Atlantic, and northeast regions.
Columbia Gulf – a long-haul interstate natural gas transportation pipeline system that was originally designed to transport supply from the Gulf of Mexico to major supply markets in the U.S. Northeast. The pipeline is now transitioning and expanding to accommodate new supply from the Appalachian basin at its interconnect with Columbia Gas and other pipelines to deliver natural gas across various Gulf Coast markets.
Millennium – a 47.5 per cent ownership interest in Millennium Pipeline, which transports natural gas primarily sourced from the Marcellus shale to markets across southern New York and the lower Hudson Valley, as well as to New York City through its pipeline interconnections.
Crossroads – an interstate natural gas pipeline operating in Indiana and Ohio.
Midstream – this business provides natural gas producer services including gathering, treating, conditioning, processing, compression and liquids handling in the Appalachian Basin, and includes a 47 per cent interest in Pennant Midstream.
Mexico Natural Gas Pipelines
The Mexico Natural Gas Pipelines segment consists of the Company's investments in 1,617 km (1,005 miles) of regulated natural gas pipelines in Mexico. This segment also includes the Company's 46.5 percent interest in the TransGas pipeline located in Colombia and prior to its sale in November 2014, the Company's interest in Gas Pacifico/INNERGY in South America.
Liquids Pipelines
The Liquids Pipelines segment consists of the Company's investment in 4,324 km (2,687 miles) of crude oil pipeline systems which connect Alberta and U.S. crude oil supplies to U.S. refining markets in Illinois, Oklahoma and Texas.
Energy
The Energy segment primarily consists of the Company's investments in 18 power generation plants and 118 Bcf of non-regulated natural gas storage facilities. These include Canadian plants in Alberta, Ontario, Québec and New Brunswick, and U.S. plants in New York, New England, Pennsylvania and Arizona. At December 31, 2016, five power generation plants in New York and New England, Pennsylvania are classified as Assets held for sale. Refer to Note 6, Assets held for sale, for further information.

 
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2.  ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles (GAAP). Amounts are stated in Canadian dollars unless otherwise indicated.
Basis of Presentation
These consolidated financial statements include the accounts of TransCanada and its subsidiaries. The Company consolidates its interest in entities over which it is able to exercise control. To the extent there are interests owned by other parties, these interests are included in Non-controlling interests. TransCanada uses the equity method of accounting for joint ventures in which the Company is able to exercise joint control and for investments in which the Company is able to exercise significant influence. TransCanada records its proportionate share of undivided interests in certain assets. Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates and Judgments
In preparing these consolidated financial statements, TransCanada is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgment in making these estimates and assumptions. Significant estimates and judgments used in the preparation of the consolidated financial statements include, but are not limited to:
fair value of assets and liabilities acquired in a business combination (Note 5)
fair value and depreciation rates of plant, property and equipment (Note 8)
carrying value of regulatory assets and liabilities (Note 10)
fair value of goodwill (Note 11)
fair value of intangible assets (Note 12)
carrying value of asset retirement obligations (Note 15)
provisions for income taxes (Note 16)
assumptions used to measure retirement and other post-retirement obligations (Note 23)
fair value of financial instruments (Note 24) and
provision for commitments, contingencies, guarantees (Note 27) and restructuring (Note 28).
Actual results could differ from these estimates.
Regulation
In Canada, regulated natural gas pipelines and liquids pipelines are subject to the authority of the National Energy Board (NEB). In the U.S., natural gas pipelines, liquids pipelines and regulated natural gas storage assets are subject to the authority of the Federal Energy Regulatory Commission (FERC). In Mexico, natural gas pipelines are subject to the authority of the Energy Regulatory Commission (CRE). The Company's Canadian, U.S. and Mexican natural gas transmission operations are regulated with respect to construction, operations and the determination of tolls. Rate-regulated accounting (RRA) standards may impact the timing of the recognition of certain revenues and expenses in TransCanada's rate-regulated businesses which may differ from that otherwise expected in non-rate-regulated businesses to appropriately reflect the economic impact of the regulators' decisions regarding revenues and tolls. TransCanada's businesses that apply RRA currently include Canadian, U.S. and Mexican natural gas pipelines, regulated U.S. natural gas storage and certain of its liquids pipelines projects. RRA is not applicable to the Keystone Pipeline System as the regulators' decisions regarding operations and tolls on that system generally do not have an impact on timing of recognition of revenues and expenses.
Revenue Recognition
Natural Gas Pipelines and Liquids Pipelines
Transportation
Revenues from the Company's natural gas and liquids pipelines, with the exception of Canadian natural gas pipelines which are subject to RRA, are generated from contractual arrangements for committed capacity and from the transportation of natural gas or crude oil. Revenues earned from firm contracted capacity arrangements are recognized ratably over the contract period regardless of the amount of natural gas or crude oil that is transported. Transportation revenues for interruptible or volumetric-based services are recognized when physical deliveries of natural gas or crude oil are made.

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Revenues from Canadian natural gas pipelines subject to RRA are recognized in accordance with decisions made by the NEB. The Company's Canadian natural gas pipeline tolls are based on revenue requirements designed to recover the costs of providing natural gas transportation services, which include a return of and return on capital, as approved by the NEB. The Company's Canadian natural gas pipelines generally are not subject to risks related to variances in revenues and most costs. These variances are generally subject to deferral treatment and are recovered or refunded in future rates. The Company's Canadian natural gas pipelines, at times, are subject to incentive mechanisms, as negotiated with shippers and approved by the NEB. These mechanisms can result in the Company recognizing more or less revenue than required to recover the costs that are subject to incentives. Revenues are recognized on firm contracted capacity ratably over the contract period. Revenues from interruptible or volumetric-based services are recorded when physical delivery is made. Revenues recognized prior to an NEB decision on rates for that period reflect the NEB's last approved rate of return on common equity (ROE) assumptions. Adjustments to revenue are recorded when the NEB decision is received.
The Company's U.S. natural gas pipelines are subject to FERC regulations and, as a result, revenues collected may be subject to refund during a rate proceeding. 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 at the time a regulatory decision becomes final.
Revenues from the Company's Mexican natural gas pipelines are primarily collected based on CRE-approved negotiated firm capacity contracts and recognized ratably over the contract period. Other volumes shipped on these pipelines are subject to
CRE-approved tariffs.
The Company does not take ownership of the gas that it transports for others.
Regulated Natural Gas Storage
Revenues from the Company's regulated natural gas storage services are recognized ratably over the contract period for firm committed capacity regardless of the amount of natural gas that is stored, and when gas is injected or withdrawn for interruptible or volumetric-based services. The Company does not take ownership of the gas that it stores for others.
Midstream and Other
Revenues from the Company's midstream natural gas services, including gathering, treating, conditioning, processing, compression and liquids handling services, are generated from volumetric based contractual arrangements and are recognized ratably over the contract period regardless of the amount of natural gas that is subject to these services. The Company also owns mineral rights in association with certain storage facilities. These mineral rights can be leased or contributed to producers of natural gas in return for a royalty interest. Royalties from mineral interests are recognized when product is produced.
Energy
Power
Revenues from the Company's Energy business are primarily derived from the sale of electricity and from the sale of unutilized natural gas fuel, which are recorded at the time of delivery. Revenues also include capacity payments and ancillary services, as well as gains and losses resulting from the use of commodity derivative contracts. The accounting for derivative contracts is described in the Derivative instruments and hedging activities policy in this note.
Non-Regulated Natural Gas Storage
Revenues earned from providing non-regulated natural gas storage services are recognized in accordance with the terms of the natural gas storage contracts, which is generally over the term of the contract. Revenues earned on the sale of proprietary natural gas are recorded in the month of delivery. Derivative contracts for the purchase or sale of natural gas are recorded at fair value with changes in fair value recorded in Revenues.
Cash and Cash Equivalents
The Company's Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair value.
Inventories
Inventories primarily consist of natural gas inventory in storage, crude oil in transit, materials and supplies including spare parts and fuel. Inventories are all carried at the lower of weighted average cost or market.

 
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Plant, Property and Equipment
Natural Gas Pipelines
Plant, property and equipment for natural gas pipelines are carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Pipeline and compression equipment are depreciated at annual rates ranging from one per cent to six per cent, and metering and other plant equipment are depreciated at various rates reflecting their estimated useful lives. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. The cost of regulated natural gas pipelines includes an allowance for funds used during construction (AFUDC) consisting of a debt component and an equity component based on the rate of return on rate base approved by regulators. AFUDC is reflected as an increase in the cost of the assets in plant, property and equipment and the equity component of AFUDC is a non-cash expenditure with a corresponding credit recognized in Allowance for funds used during construction in the Consolidated statement of income. Interest is capitalized during construction of non-regulated natural gas pipelines.
Natural gas storage base gas, which is valued at cost, represents storage volumes that are maintained to ensure that adequate well pressure exists to deliver current gas inventory. Natural gas storage base gas is not depreciated.
When regulated natural gas pipelines retire plant, property and equipment from service, the original book cost is removed from the gross plant amount and recorded as a reduction to accumulated depreciation. Costs incurred to remove a plant from service, net of any salvage proceeds, are also recorded in accumulated depreciation.
Midstream and Other
Plant, property and equipment for midstream assets are carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Gathering and processing facilities are depreciated at annual rates ranging from
1.7 per cent to 2.5 per cent, and other plant and equipment are depreciated at various rates. When these assets are retired from plant, property and equipment, the original book cost and related accumulated depreciation and amortization are derecognized and any gain or loss is recorded in net income.
The Company participates as a working interest partner in the development of Marcellus and Utica acreage. The working interest allows the Company to invest in the drilling activities in addition to a royalty interest in well production. The Company uses the successful efforts method of accounting for natural gas and crude oil resulting from its portion of drilling activities. Capitalized well costs are depleted based on the units of production method.
Liquids Pipelines
Plant, property and equipment for liquids pipelines are carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Pipeline and pumping equipment are depreciated at annual rates ranging from two per cent to 2.5 per cent, and other plant and equipment are depreciated at various rates. The cost of these assets includes interest capitalized during construction for non-regulated liquids pipelines and AFUDC for regulated pipelines. When liquids pipelines retire plant, property and equipment from service, the original book cost and related accumulated depreciation and amortization are derecognized and any gain or loss is recorded in net income.
Energy
Power generation and natural gas storage plant, equipment and structures are recorded at cost and, once the assets are ready for their intended use, depreciated by major component on a straight-line basis over their estimated service lives at average annual rates ranging from two per cent to 20 per cent. Other equipment is depreciated at various rates. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. Interest is capitalized on facilities under construction. When these assets are retired from plant, property and equipment, the original book cost and related accumulated depreciation and amortization are derecognized and any gain or loss is recorded in net income. Natural gas storage base gas, which is valued at original cost, represents storage volumes that are maintained to ensure that adequate well pressure exists to deliver current gas inventory. Natural gas storage base gas is not depreciated.
Corporate
Corporate plant, property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives at average annual rates ranging from three per cent to 20 per cent.

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Capitalized Project Costs
The Company capitalizes project costs once advancement to a construction stage is probable or costs are otherwise likely to be recoverable. The Company also capitalizes interest for non-regulated projects in development and AFUDC for regulated projects. Capital projects in development are included in Intangible and other assets. These represent larger projects that generally require regulatory or other approvals before physical construction can begin. Once approvals are received, projects are moved to Plant, property and equipment under construction. When the asset is ready for its intended use and available for operations, capitalized project costs are depreciated in accordance with the Company's depreciation policies.
Assets Held For Sale
The Company classifies assets as held for sale when management approves and commits to a formal plan to actively market a disposal group and expects the sale to close within the next twelve months. Upon classifying an asset as held for sale, the asset is recorded at the lower of its carrying amount or its estimated fair value, reduced for selling costs, and any losses are recognized in Net income. Depreciation expense is no longer recorded once assets are classified as held for sale.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as Plant, property and equipment and Intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows or the estimated sale price is less than the carrying value of an asset, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the asset.
Acquisitions and Goodwill
The Company accounts for business acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair values at the date of acquisition. The excess of the fair value of the consideration transferred over the estimated fair value of the net assets acquired is classified as goodwill. Goodwill is not amortized and is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it might be impaired. The annual review for goodwill impairment is performed at the reporting unit level which is one level below the Company's operating segments. The Company initially assesses qualitative factors to determine whether events or changes in circumstances indicate that goodwill might be impaired. If the Company concludes that it is not more likely than not that the fair value of the reporting unit is greater than its carrying value, the first step of the two-step impairment test is performed by comparing the fair value of the reporting unit to its carrying value, which includes goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment is indicated and a second step is performed to measure the amount of the impairment. In the second step, the implied fair value of goodwill is calculated by deducting the recognized amounts of all tangible and intangible net assets of the reporting unit from the fair value determined in the initial assessment. If the carrying value of goodwill exceeds the calculated implied fair value of goodwill, an impairment charge is recorded in an amount equal to the difference.
Power Purchase Arrangements
A power purchase arrangement (PPA) is a long-term contract for the purchase or sale of power on a predetermined basis. TransCanada has PPAs for the sale of power that are accounted for as operating leases. Prior to their termination, substantially all the PPAs under which TransCanada purchased power were also accounted for as operating leases, and initial payments to acquire these PPAs were recognized in Intangible and other assets and amortized on a straight-line basis over the term of the contracts. A portion of these PPAs were subleased to third parties under terms and conditions similar to the PPAs, and were also accounted for as operating leases with the margin earned from the subleases recorded in Revenues. During 2016, the Company terminated these PPAs and recorded an impairment charge. Refer to Note 12, Intangible and other assets, for further information.
Restricted Investments
The Company has certain investments that are restricted as to their withdrawal and use. These restricted investments are classified as available for sale and are recorded at fair value on the Consolidated balance sheet.

 
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As a result of the NEB’s Land Matters Consultation Initiative (LMCI), TransCanada is required to collect funds to cover estimated future pipeline abandonment costs for all NEB regulated Canadian pipelines. Funds collected are placed in trusts that hold and invest the funds and are accounted for as restricted investments. LMCI restricted investments may only be used to fund the abandonment of the NEB regulated pipeline facilities; therefore, a corresponding regulatory liability is recorded on the Consolidated balance sheet. The Company also has other restricted investments that have been set aside to fund insurance claim losses to be paid by the Company's wholly-owned captive insurance subsidiary.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates at the balance sheet date that are anticipated to apply to taxable income in the years in which temporary differences are expected to be reversed or settled. Changes to these balances are recognized in net income in the period during which they occur except for changes in balances related to the Canadian regulated natural gas pipelines which are deferred until they are refunded or recovered in tolls, as permitted by the NEB. Deferred income tax assets and liabilities are classified as non-current on the Consolidated balance sheet.
Canadian income taxes are not provided on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future.
Asset Retirement Obligations
The Company recognizes the fair value of a liability for asset retirement obligations (ARO) in the period in which it is incurred, when a legal obligation exists and a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset and the liability is accreted through charges to Operating and other expenses.
The Company has recorded ARO related to its non-regulated natural gas storage operations, mineral rights and certain power generation facilities. The scope and timing of asset retirements related to most of the Company's natural gas pipelines, liquids pipelines and hydroelectric power plants is indeterminable. As a result, the Company has not recorded an amount for ARO related to these assets, with the exception of certain abandoned facilities and certain facilities expected to be retired as part of an ongoing modernization program that will improve system integrity and enhance service reliability and flexibility on Columbia Gas.
Environmental Liabilities
The Company records liabilities on an undiscounted basis for environmental remediation efforts that are likely to occur and where the cost can be reasonably estimated. The estimates, including associated legal costs, are based on available information using existing technology and enacted laws and regulations. The estimates are subject to revision in future periods based on actual costs incurred or new circumstances. Amounts expected to be recovered from other parties, including insurers, are recorded as an asset separate from the associated liability.
Emission allowances or credits purchased for compliance are recorded on the Consolidated balance sheet at historical cost and expensed when they are utilized. Compliance costs are expensed when incurred. Allowances granted to or internally generated by TransCanada are not attributed a value for accounting purposes. When required, TransCanada accrues emission liabilities on the Consolidated balance sheet upon the generation or sale of power using the best estimate of the amount required to settle the obligation. Allowances and credits not used for compliance are sold and any gain or loss is recorded in Revenues.
Stock Options and Other Compensation Programs
TransCanada's Stock Option Plan permits options for the purchase of common shares to be awarded to certain employees, including officers. Stock options granted are recorded using the fair value method. Under this method, compensation expense is measured at the grant date based on the fair value as calculated using a binomial model and is recognized on a straight-line basis over the vesting period with an offset to Additional paid-in capital. Upon exercise of stock options, amounts originally recorded against Additional paid-in capital are reclassified to Common shares.

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The Company has medium-term incentive plans, under which payments are made to eligible employees. The expense related to these incentive plans is accounted for on an accrual basis. Under these plans, benefits vest when certain conditions are met, including the employees' continued employment during a specified period and achievement of specified corporate performance targets.
Employee Post-Retirement Benefits
The Company sponsors defined benefit pension plans (DB Plans), defined contribution plans (DC Plans), a savings plan and other post-retirement benefit plans. Contributions made by the Company to the DC Plans and savings plan are expensed in the period in which contributions are made. The cost of the DB Plans and other post-retirement benefits received by employees is actuarially determined using the projected benefit method pro-rated based on service and management's best estimate of expected plan investment performance, salary escalation, retirement age of employees and expected health care costs.
The DB Plans' assets are measured at fair value at December 31 of each year. The expected return on the DB Plans' assets is determined using market-related values based on a five-year moving average value for all of the DB Plans' assets. Past service costs are amortized over the expected average remaining service life of the employees. Adjustments arising from plan amendments are amortized on a straight-line basis over the average remaining service life of employees active at the date of amendment. The Company recognizes the overfunded or underfunded status of its DB Plans as an asset or liability, respectively, on its Consolidated balance sheet and recognizes changes in that funded status through Other comprehensive income/(loss) (OCI) in the year in which the change occurs. The excess of net actuarial gains or losses over 10 per cent of the greater of the benefit obligation and the market-related value of the DB Plans' assets, if any, is amortized out of Accumulated other comprehensive income/(loss) (AOCI) and into Net income over the average remaining service life of the active employees. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement.
For certain regulated operations, post-retirement benefit amounts are recoverable through tolls as benefits are funded. The Company records any unrecognized gains or losses or changes in actuarial assumptions related to these post-retirement benefit plans as either regulatory assets or liabilities. The regulatory assets or liabilities are amortized on a straight-line basis over the expected average remaining service life of active employees.
Foreign Currency Transactions and Translation
Foreign currency transactions are those transactions whose terms are denominated in a currency other than the currency of the primary economic environment in which the Company or reporting subsidiary operates, referred to as the functional currency. Transactions denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the rate of exchange in effect at the balance sheet date whereas non-monetary assets and liabilities are translated at the historical rate of exchange in effect on the date of the transaction. Exchange gains and losses resulting from translation of monetary assets and liabilities are recorded in Net income except for exchange gains and losses of the foreign currency debt related to Canadian regulated natural gas pipelines, which are deferred until they are refunded or recovered in tolls, as permitted by the NEB.
Gains and losses arising from translation of foreign operations' functional currencies to the Company's Canadian dollar reporting currency are reflected in OCI until the operations are sold at which time, the gains and losses are reclassified to Net income. Asset and liability accounts are translated at the period-end exchange rates while revenues, expenses, gains and losses are translated at the exchange rates in effect at the time of the transaction. The Company's U.S. dollar-denominated debt and certain derivative hedging instruments have been designated as a hedge of the net investment in foreign subsidiaries and, as a result, the unrealized foreign exchange gains and losses on the U.S. dollar denominated debt are also reflected in OCI.
Derivative Instruments and Hedging Activities
All derivative instruments are recorded on the Consolidated balance sheet at fair value, unless they qualify for and are designated under a normal purchase and normal sales exemption, or are considered to meet other permitted exemptions.
The Company applies hedge accounting to arrangements that qualify and are designated for hedge accounting treatment, which includes fair value and cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Hedge accounting is discontinued prospectively if the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, expiry, sale, termination, cancellation or exercise.

 
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In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the hedged risk and these changes are recognized in Net income. Changes in the fair value of the hedged item, to the extent that the hedging relationship is effective, are offset by changes in the fair value of the hedging item, which are also recorded in Net income. Changes in the fair value of foreign exchange and interest rate fair value hedges are recorded in Interest income and other and Interest expense, respectively. If hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to Net income over the remaining term of the original hedging relationship.
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative is initially recognized in OCI, while any ineffective portion is recognized in Net income in the same financial statement category as the underlying transaction. When hedge accounting is discontinued, the amounts recognized previously in AOCI are reclassified to Revenues, Interest expense and Interest income and other, as appropriate, during the periods when the variability in cash flows of the hedged item affects Net income or as the original hedged item settles. Gains and losses on derivatives are reclassified immediately to Net income from AOCI when the hedged item is sold or terminated early, or when it becomes probable that the anticipated transaction will not occur.
In hedging the foreign currency exposure of a net investment in a foreign operation, the effective portion of foreign exchange gains and losses on the hedging instruments is recognized in OCI and the ineffective portion is recognized in Net income. The amounts recognized previously in AOCI are reclassified to Net income in the event the Company reduces its net investment in a foreign operation.
In some cases, derivatives do not meet the specific criteria for hedge accounting treatment. In these instances, the changes in fair value are recorded in Net income in the period of change.
The recognition of gains and losses on derivatives for Canadian natural gas regulated pipelines exposures is determined through the regulatory process. Gains and losses arising from changes in the fair value of derivatives accounted for as part of RRA, including those that qualify for hedge accounting treatment, are refunded or recovered through the tolls charged by the Company. As a result, these gains and losses are deferred as Regulatory assets or Regulatory liabilities and are refunded to or collected from the ratepayers, in subsequent years when the derivative settles.
Derivatives embedded in other financial instruments or contracts (host instrument) are recorded as separate derivatives. Embedded derivatives are measured at fair value if their economic characteristics are not clearly and closely related to those of the host instrument, their terms are the same as those of a stand-alone derivative and the total contract is not held for trading or accounted for at fair value. When changes in the fair value of embedded derivatives are measured separately, they are included in Net income.
Long-Term Debt Transaction Costs
The Company records long-term debt transaction costs as a deduction from the carrying amount of the related debt and amortizes these costs using the effective interest method for all costs except those related to the Canadian natural gas regulated pipelines, which continue to be amortized on a straight-line basis in accordance with the provisions of regulatory tolling mechanisms.
Guarantees
Upon issuance, the Company records the fair value of certain guarantees entered into by the Company or partially owned entities for which contingent payments may be made. The fair value of these guarantees is estimated by discounting the cash flows that would be incurred by the Company if letters of credit were used in place of the guarantees as appropriate in the circumstances. Guarantees are recorded as an increase to Equity investments, Plant, property and equipment, or a charge to Net income, and a corresponding liability is recorded in Other long-term liabilities. The release from the obligation is recognized either over the term of the guarantee or upon expiration or settlement.

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3.  ACCOUNTING CHANGES
Changes in Accounting Policies for 2016
Extraordinary and unusual income statement items
In January 2015, the Financial Accounting Standards Board (FASB) issued new guidance on extraordinary and unusual income statement items. This update eliminates the concept of extraordinary items from GAAP. This new guidance was effective
January 1, 2016, was applied prospectively and did not have an impact on the Company’s consolidated financial statements.
Consolidation
In February 2015, the FASB issued new guidance on consolidation. This guidance requires that entities re-evaluate whether they should consolidate certain legal entities and eliminates the presumption that a general partner should consolidate a limited partnership. This new guidance was effective January 1, 2016, was applied retrospectively and did not result in any change to the Company's consolidation conclusions. Disclosure requirements outlined in the new guidance are included in Note 29, Variable interest entities.
Imputation of interest
In April 2015, the FASB issued new guidance on simplifying the accounting for debt issuance costs. This guidance requires that debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability consistent with debt discounts or premiums. This new guidance was effective January 1, 2016, was applied retrospectively and resulted in a reclassification of debt issuance costs previously recorded in Intangible and other assets to an offset of their respective debt liabilities on the Company’s Consolidated balance sheet.
Business combinations
In September 2015, the FASB issued guidance which intends to simplify the accounting measurement period adjustments in business combinations. The amended guidance requires an acquirer to recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. In the period the adjustment was determined, the guidance also requires the acquirer to record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This new guidance was effective January 1, 2016, was applied prospectively and did not have a material impact on the Company's consolidated financial statements.
Classification of certain cash receipts and cash payments
In August 2016, the FASB issued new guidance to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. This new guidance is effective January 1, 2018, however, since early adoption is permitted, the Company elected to retrospectively apply this guidance effective December 31, 2016. The application of this guidance did not have a material impact on the classification of debt pre-payments or extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and proceeds from the settlement of corporate owned life insurance. The Company has elected to classify distributions received from equity method investments using the nature of distributions approach as it is more representative of the nature of the underlying activities of the investments that generated the distributions. As a result, certain comparative period distributions received from equity method investments have been reclassified from investing activities to cash generated from operations in the Consolidated statement of cash flows.
Future Accounting Changes
Revenue from contracts with customers
In 2014, the FASB issued new guidance on revenue from contracts with customers. Current guidance allows for revenue recognition when certain criteria are met. The new guidance requires that an entity recognize revenue in accordance with a five-step model. This model is used to depict the transfer of promised goods or services to customers in an amount that reflects the total consideration to which it expects to be entitled during the term of the contract in exchange for those goods or services. The Company will adopt the new standard on the effective date of January 1, 2018. There are two methods in which the new standard can be applied: (1) retrospectively to each prior reporting period presented, or (2) retrospectively with the cumulative effect recognized at the date of initial application.





 
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The Company is evaluating both methods of adoption as it works through its analysis. The Company has identified all existing customer contracts that are within the scope of the new guidance and has begun to analyze individual contracts or groups of contracts to identify any significant differences and the impact on revenues as a result of implementing the new standard. As the Company continues its contract analysis, it will also quantify the impact, if any, on prior period revenues. The Company will address any system and process changes necessary to compile the information to meet the disclosure requirements of the new standard. As the Company is currently evaluating the impact of this standard, it has not yet determined the effect on its consolidated financial statements.
Inventory
In July 2015, the FASB issued new guidance on simplifying the measurement of inventory. The new guidance specifies that an entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This new guidance is effective January 1, 2017 and will be applied prospectively. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.
Financial instruments
In January 2016, the FASB issued new guidance on the accounting for equity investments and financial liabilities. The new guidance will change the income statement effect of equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The new guidance also requires the Company to assess valuation allowances for deferred tax assets related to available for sale debt securities in combination with their other deferred tax assets. This new guidance is effective January 1, 2018. The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.
Leases
In February 2016, the FASB issued new guidance on leases. The new guidance requires lessees to recognize most leases, including operating leases, on the balance sheet as lease assets and lease liabilities. In addition, lessees may be required to reassess assumptions associated with existing leases as well as to provide expanded qualitative and quantitative disclosures. The new standard does not make extensive changes to lessor accounting. The new guidance is effective January 1, 2019, however, the Company is evaluating the option to early adopt. The Company is currently identifying existing lease agreements that may have an impact on the Company's consolidated financial statements as a result of adopting this new guidance.
Derivatives and hedging
In March 2016, the FASB issued new guidance that clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The new guidance requires only an assessment of the four-step decision sequence outlined in GAAP to determine whether the economic characteristics and risks of call or put options are clearly and closely related to the economic characteristics and risks. This new guidance is effective January 1, 2017 and the Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.
Equity method investments
In March 2016, the FASB issued new guidance that simplifies the transition to equity method accounting. In these situations, when an increase in ownership interest in an investment qualifies it for equity method accounting, the new guidance eliminates the requirement to retroactively apply the equity method of accounting. This new guidance is effective January 1, 2017 and will be applied prospectively. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.
Employee share-based payments
In March 2016, the FASB issued new guidance that simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also permits entities to make an accounting policy election either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur. This new guidance is effective January 1, 2017 and the Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.

136
 TransCanada Consolidated financial statements 2016
 



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 instruments that are not measured at fair value through net income. 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 a direct write down of the amortized cost basis. The new guidance is effective
January 1, 2020 and will be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.
Consolidation
In October 2016, the FASB issued new guidance on consolidation relating to interests held through related parties that are under common control. The new guidance amends the consolidation requirements such that if a decision maker is required to evaluate whether it is the primary beneficiary of a variable interest entity (VIE), it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The new guidance is effective January 1, 2017 and the Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.
Income taxes
In October 2016, the FASB issued new guidance on income tax effects of intra-entity transfers of assets other than inventory. The new guidance requires the recognition of deferred and current income taxes for an intra-entity asset transfer when the transfer occurs. The new guidance is effective January 1, 2018 and will be applied on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.
Restricted cash
In November 2016, the FASB issued new guidance on restricted cash and cash equivalents on the statement of cash flows. The new guidance requires that the statement of cash flows explain the change during the period in the total cash and cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amounts of restricted cash and cash equivalents will be included in Cash and cash equivalents when reconciling the beginning of year and end of year total amounts on the statement of cash flows. This new guidance is effective January 1, 2018 and will be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.

 
TransCanada Consolidated financial statements 2016
137



4.  SEGMENTED INFORMATION
As a result of the acquisition of Columbia and the pending monetization of the U.S. Northeast power business, the Company has changed its reporting segments. TransCanada has six reportable segments, namely, Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines, Energy and Corporate. The Corporate segment is non-operational, consisting of corporate and administrative functions. This provides information that is aligned with the CODM's review of business performance and how decisions about business segments are made. Historical financial results for the years ended December 31, 2015 and 2014 have been adjusted to align with this change in the Company's segmented reporting.
year ended December 31, 2016
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
3,682

 
2,526

 
378

 
1,755

 
4,164

 

 
12,505

Income from equity investments
12

 
214

 
(3
)
 
(1
)
 
292

 

 
514

Plant operating costs and other
(1,181
)
 
(1,000
)
 
(42
)
 
(554
)
 
(834
)
 
(208
)
 
(3,819
)
Commodity purchases resold

 

 

 

 
(2,172
)
 

 
(2,172
)
Property taxes
(267
)
 
(120
)
 

 
(88
)
 
(80
)
 

 
(555
)
Depreciation and amortization
(873
)
 
(397
)
 
(43
)
 
(285
)
 
(293
)
 
(48
)
 
(1,939
)
Goodwill and other asset impairment charges

 

 

 

 
(1,388
)
 

 
(1,388
)
Loss on assets held for sale/sold

 
(4
)
 

 

 
(829
)
 

 
(833
)
Segmented earnings/(losses)
1,373

 
1,219

 
290

 
827

 
(1,140
)
 
(256
)
 
2,313

Interest expense
 

 
 
 
 
 
 

 
 

 
 

 
(1,998
)
Allowance for funds used during construction
 
 
 
 
 
 
 
 
 
 
 
 
419

Interest income and other
 

 
 
 
 
 
 

 
 

 
 

 
103

Income before income taxes
 

 
 
 
 
 
 

 
 

 
 

 
837

Income tax expense
 

 
 
 
 
 
 

 
 

 
 

 
(352
)
Net income
 

 
 
 
 
 
 

 
 

 
 

 
485

Net income attributable to non-controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
(252
)
Net income attributable to controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
233

Preferred share dividends
 

 
 
 
 
 
 

 
 

 
 

 
(109
)
Net income attributable to common shares
 

 
 
 
 
 
 

 
 

 
 

 
124

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
1,372

 
1,517

 
944

 
668

 
473

 
33

 
5,007

Capital projects in development
153

 

 

 
142

 

 

 
295

 
1,525

 
1,517

 
944

 
810

 
473

 
33

 
5,302



138
 TransCanada Consolidated financial statements 2016
 



year ended December 31, 2015
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
3,680

 
1,444

 
259

 
1,879

 
4,038

 

 
11,300

Income from equity investments
12

 
162

 
5

 

 
261

 

 
440

Plant operating costs and other
(1,162
)
 
(555
)
 
(49
)
 
(491
)
 
(786
)
 
(207
)
 
(3,250
)
Commodity purchases resold

 

 

 

 
(2,237
)
 

 
(2,237
)
Property taxes
(272
)
 
(77
)
 

 
(79
)
 
(89
)
 

 
(517
)
Depreciation and amortization
(845
)
 
(243
)
 
(44
)
 
(266
)
 
(336
)
 
(31
)
 
(1,765
)
Asset impairment charges

 

 

 
(3,686
)
 
(59
)
 

 
(3,745
)
Loss on assets held for sale/sold

 
(125
)
 

 

 

 

 
(125
)
Segmented earnings/(losses)
1,413

 
606

 
171

 
(2,643
)
 
792

 
(238
)
 
101

Interest expense
 

 
 
 
 
 
 

 
 

 
 

 
(1,370
)
Allowance for funds used during construction
 
 
 
 
 
 
 
 
 
 
 
 
295

Interest income and other
 

 
 
 
 
 
 

 
 

 
 

 
(132
)
Loss before income taxes
 

 
 
 
 
 
 

 
 

 
 

 
(1,106
)
Income tax expense
 

 
 
 
 
 
 

 
 

 
 

 
(34
)
Net loss
 

 
 
 
 
 
 

 
 

 
 

 
(1,140
)
Net income attributable to non-controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
(6
)
Net loss attributable to controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
(1,146
)
Preferred share dividends
 

 
 
 
 
 
 

 
 

 
 

 
(94
)
Net loss attributable to common shares
 

 
 
 
 
 
 

 
 

 
 

 
(1,240
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
1,366

 
534

 
566

 
1,012

 
376

 
64

 
3,918

Capital projects in development
230

 
3

 

 
278

 

 

 
511

 
1,596

 
537

 
566

 
1,290

 
376

 
64

 
4,429



 
TransCanada Consolidated financial statements 2016
139



year ended December 31, 2014
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
3,557

 
1,159

 
197

 
1,547

 
3,725

 

 
10,185

Income from equity investments
12

 
143

 
8

 

 
359

 

 
522

Plant operating costs and other
(1,028
)
 
(467
)
 
(41
)
 
(439
)
 
(934
)
 
(64
)
 
(2,973
)
Commodity purchases resold

 

 

 

 
(1,836
)
 

 
(1,836
)
Property taxes
(266
)
 
(68
)
 

 
(62
)
 
(77
)
 

 
(473
)
Depreciation and amortization
(821
)
 
(211
)
 
(31
)
 
(216
)
 
(309
)
 
(23
)
 
(1,611
)
Gain on assets held for sale/sold

 

 
9

 

 
108

 

 
117

Segmented earnings/(losses)
1,454

 
556

 
142

 
830

 
1,036

 
(87
)
 
3,931

Interest expense
 

 
 
 
 
 
 

 
 

 
 

 
(1,198
)
Allowance for funds used during construction
 
 
 
 
 
 
 
 
 
 
 
 
136

Interest income and other
 

 
 
 
 
 
 

 
 

 
 

 
(45
)
Income before income taxes
 

 
 
 
 
 
 

 
 

 
 

 
2,824

Income tax expense
 

 
 
 
 
 
 

 
 

 
 

 
(831
)
Net income
 

 
 
 
 
 
 

 
 

 
 

 
1,993

Net income attributable to non-controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
(153
)
Net income attributable to controlling interests
 

 
 
 
 
 
 

 
 

 
 

 
1,840

Preferred share dividends
 

 
 
 
 
 
 

 
 

 
 

 
(97
)
Net income attributable to common shares
 

 
 
 
 
 
 

 
 

 
 

 
1,743

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
814

 
237

 
717

 
1,469

 
206

 
46

 
3,489

Capital projects in development
327

 
40

 
1

 
480

 

 

 
848

 
1,141

 
277

 
718

 
1,949

 
206

 
46

 
4,337



140
 TransCanada Consolidated financial statements 2016
 



at December 31
2016

 
2015

(millions of Canadian $)
 
 
 
 
Total Assets
 
 
 
Canadian Natural Gas Pipelines
15,816

 
15,038

U.S. Natural Gas Pipelines
34,422

 
12,207

Mexico Natural Gas Pipelines
5,013

 
3,787

Liquids Pipelines
16,896

 
16,046

Energy
13,169

 
15,614

Corporate
2,735

 
1,706

 
88,051

 
64,398

Geographic Information
year ended December 31
2016

 
2015

 
2014

(millions of Canadian $)
 
 
 
 
 
 
Revenues
 
 
 
 
 
Canada – domestic
3,655

 
3,877

 
3,956

Canada – export
1,177

 
1,292

 
1,314

United States
7,295

 
5,872

 
4,718

Mexico
378

 
259

 
197

 
12,505

 
11,300

 
10,185

at December 31
2016

 
2015

(millions of Canadian $)
 
 
 
 
Plant, Property and Equipment
 
 
 
Canada
20,531

 
19,287

United States
29,414

 
21,899

Mexico
4,530

 
3,631

 
54,475

 
44,817


 
TransCanada Consolidated financial statements 2016
141



5.  ACQUISITION OF COLUMBIA
On July 1, 2016, TransCanada acquired 100 per cent ownership of Columbia for a purchase price of US$10.3 billion in cash, based on US$25.50 per share for all of Columbia's outstanding common shares as well as all outstanding restricted and performance stock units. The acquisition was financed through proceeds of approximately $4.4 billion from the sale of subscription receipts, draws on acquisition bridge facilities in the aggregate amount of US$6.9 billion and existing cash on hand. The sale of the subscription receipts was completed on April 1, 2016 through a public offering, and upon closing of the acquisition were exchanged into approximately 96.6 million common shares of TransCanada. Refer to Note 17, Long-term debt for additional information on the acquisition bridge facilities and Note 20, Common shares for additional information on the subscription receipts.
Columbia operates a portfolio of approximately 24,500 km (15,200 miles) of regulated natural gas pipelines, 285 Bcf of natural gas storage facilities and midstream and other assets in various regions in the U.S. TransCanada acquired Columbia to expand the Company’s natural gas business in the U.S. market, positioning the Company for additional long-term growth opportunities.
The goodwill of $10.1 billion (US$7.7 billion) arising from the acquisition principally reflects the opportunities to expand the Company’s U.S. Natural Gas Pipelines segment and to gain a stronger competitive position in the North American natural gas business. The goodwill resulting from the acquisition is not deductible for income tax purposes.
The acquisition has been accounted for as a business combination using the acquisition method where the acquired tangible and intangible assets and assumed liabilities are recorded at their estimated fair values at the date of acquisition. The purchase price equation reflects management’s estimate of the fair value of Columbia’s assets and liabilities as at July 1, 2016.
 
 
July 1, 2016
(millions of $)
 
U.S.

 
Canadian1

 
 
 
 
 
Purchase Price Consideration
 
10,294

 
13,392

Fair Value of Net Assets Acquired
 
 
 
 
Current assets
 
658

 
856

Plant, property and equipment
 
7,560

 
9,835

Equity investments
 
441

 
574

Regulatory assets
 
190

 
248

Intangibles and other assets
 
135

 
175

Current liabilities
 
(597
)
 
(777
)
Regulatory liabilities
 
(294
)
 
(383
)
Other long-term liabilities
 
(144
)
 
(187
)
Deferred income tax liabilities
 
(1,613
)
 
(2,098
)
Long-term debt
 
(2,981
)
 
(3,878
)
Non-controlling interests
 
(808
)
 
(1,051
)
Fair Value of Net Assets Acquired
 
2,547

 
3,314

Goodwill (Note 11)
 
7,747

 
10,078

1
At July 1, 2016 exchange rate of $1.30.
The fair values of current assets including cash and cash equivalents, accounts receivable, and inventories and the fair values of current liabilities including notes payable and accrued interest approximate their carrying values due to the short-term nature of these items. Certain acquisition-related working capital items resulted in an adjustment to accounts payable.

142
 TransCanada Consolidated financial statements 2016
 



Columbia’s natural gas pipelines are subject to FERC regulations and, as a result, their rate bases are expected to be recovered with a reasonable rate of return over the life of the assets. These assets, as well as related regulatory assets and liabilities, have fair values equal to their carrying values. The fair value of mineral rights included in Columbia's plant, property and equipment was determined using a discounted cash flow approach which resulted in a fair value increase of $241 million (US$185 million). The fair value of base gas included in Columbia’s plant, property and equipment was determined by using a quoted market price multiplied by the volume of gas in place which resulted in a fair value increase of $840 million (US$646 million). The fair value of base gas is based on preliminary information obtained and is subject to change as the Company completes it's work on the volume acquired. An adjustment to the fair value of base gas would impact the purchase price equation.
The fair value of Columbia’s long-term debt was estimated using an income approach based on observable market rates for similar debt instruments from external data service providers. This resulted in a fair value increase of $300 million (US$231 million).
The following table summarizes the acquisition date fair value of Columbia's debt acquired by TransCanada.
(millions of $)
 
Maturity Date
 
Type
 
Fair Value

 
Interest Rate

 
 
 
 
 
 
 
 
 
COLUMBIA PIPELINE GROUP INC.
 
 
 
 
 
 
 
 
June 2018
 
Senior Unsecured Notes (US$500)
 
US$506

 
2.45
%
 
 
June 2020
 
Senior Unsecured Notes (US$750)
 
US$779

 
3.30
%
 
 
June 2025
 
Senior Unsecured Notes (US$1000)
 
US$1,092

 
4.50
%
 
 
June 2045
 
Senior Unsecured Notes (US$500)
 
US$604

 
5.80
%
 
 
 
 
 
 
US$2,981

 
 
The fair values of Columbia's DB plan and other post-retirement benefit plans were based on an actuarial valuation report as of the acquisition date. The fair value representing the funded status of the plans on the acquisition date resulted in an increase of
$15 million (US$12 million) and $5 million (US$4 million) to Regulatory assets and Other long-term liabilities, respectively, and a decrease of $14 million (US$11 million) and $2 million (US$2 million) to Intangible and other assets and Regulatory liabilities, respectively.
Temporary differences created as a result of the fair value changes described above resulted in deferred income tax assets and liabilities that were recorded at the Company's U.S. effective tax rate of 39 per cent.
The fair value of Columbia’s non-controlling interest was based on the approximately 53.8 million Columbia Pipeline Partners LP (CPPL) common units outstanding to the public as of June 30, 2016, and valued at the June 30, 2016 closing price of US$15.00 per common unit.
Acquisition expenses of approximately $36 million are included in Plant operating costs and other in the Consolidated statement of income.
Upon completing the acquisition, the Company began consolidating Columbia. Columbia’s significant accounting policies are consistent with TransCanada’s and continue to be applied. Columbia contributed $929 million to the Company's Revenues and $132 million to the Company's Net income from the acquisition date to December 31, 2016.
The following supplemental pro forma consolidated financial information of the Company for the years ended December 31, 2016 and 2015 includes the results of operations for Columbia as if the acquisition had been completed on January 1, 2015.
year ended December 31
 
 
 
 
 
(millions of Canadian $)
 
 
2016

 
2015

 
 
 
 
 
 
Revenues
 
 
13,404

 
13,007

Net Income/(Loss)
 
 
627

 
(820
)
Net Income/(Loss) Attributable to Common Shares
 
 
234

 
(971
)


 
TransCanada Consolidated financial statements 2016
143



6.  ASSETS HELD FOR SALE
U.S. Northeast Power Assets
The Company’s planned monetization of its U.S. Northeast power business, for the purposes of permanently financing the Columbia acquisition, includes the sale of Ravenswood, Ironwood, Kibby Wind, Ocean State Power, TC Hydro and the marketing business, TransCanada Power Marketing (TCPM).
On November 1, 2016, the Company entered into agreements to sell all of these assets except TCPM.
The sale of Ravenswood, Ironwood, Kibby Wind and Ocean State Power to a third party for proceeds of approximately
US$2.2 billion is expected to close in the first half of 2017. As a result, a loss of approximately $829 million ($863 million after tax) was recorded in 2016 and was included in (Loss)/gain on assets held for sale/sold in the Consolidated statement of income and included the impact of an estimated $70 million of foreign currency translation gains to be reclassified from AOCI to Net income on close. At December 31, 2016, the related assets and liabilities were classified as held for sale in the Energy segment and were recorded at their fair values less costs to sell based on the proceeds expected on the close of this sale.
The sale of TC Hydro to another third party for proceeds of approximately US$1.1 billion is also expected to close in the first half of 2017, and is expected to result in an estimated gain of $710 million