EX-13.2 3 trp-09302020xfinstmts.htm THIRD QUARTER FINANCIAL STATEMENTS Exhibit
EXHIBIT 13.2
THIRD QUARTER 2020

THIRD QUARTER 2020


Condensed consolidated statement of income
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $, except per share amounts)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Canadian Natural Gas Pipelines
 
1,162

 
1,016

 
3,281

 
2,939

U.S. Natural Gas Pipelines
 
1,186

 
1,176

 
3,745

 
3,691

Mexico Natural Gas Pipelines
 
156

 
151

 
562

 
455

Liquids Pipelines
 
606

 
694

 
1,827

 
2,233

Power and Storage
 
85

 
96

 
287

 
674

 
 
3,195

 
3,133

 
9,702

 
9,992

Income from Equity Investments
 
200

 
334

 
934

 
695

Operating and Other Expenses
 
 

 
 

 
 

 
 

Plant operating costs and other
 
976

 
982

 
2,829

 
2,819

Commodity purchases resold
 

 

 

 
365

Property taxes
 
174

 
178

 
549

 
546

Depreciation and amortization
 
673

 
610

 
1,938

 
1,839

 
 
1,823

 
1,770

 
5,316

 
5,569

Net (Loss)/Gain on Assets Sold/Held for Sale
 
(66
)
 
(112
)
 
43

 
(44
)
Financial Charges
 
 

 
 

 
 

 
 

Interest expense
 
559

 
573

 
1,698

 
1,747

Allowance for funds used during construction
 
(91
)
 
(120
)
 
(254
)
 
(358
)
Interest income and other
 
(164
)
 
19

 
160

 
(250
)
 
 
304

 
472

 
1,604

 
1,139

Income before Income Taxes
 
1,202

 
1,113

 
3,759

 
3,935

Income Tax Expense
 
 

 
 

 
 

 
 

Current
 
100

 
452

 
287

 
724

Deferred
 
90

 
(178
)
 
(209
)
 
3

 
 
190

 
274

 
78

 
727

Net Income
 
1,012

 
839

 
3,681

 
3,208

Net income attributable to non-controlling interests
 
69

 
59

 
228

 
217

Net Income Attributable to Controlling Interests
 
943

 
780

 
3,453

 
2,991

Preferred share dividends
 
39

 
41

 
120

 
123

Net Income Attributable to Common Shares
 
904

 
739

 
3,333

 
2,868

Net Income per Common Share
 
 

 
 

 
 

 
 

Basic and diluted
 

$0.96

 

$0.79

 

$3.55

 

$3.09

Weighted Average Number of Common Shares (millions)
 
 

 
 

 
 

 
 

Basic
 
940

 
932

 
940

 
927

Diluted
 
940

 
933

 
940

 
928

 
See accompanying notes to the Condensed consolidated financial statements.


TC ENERGY [46
THIRD QUARTER 2020

Condensed consolidated statement of comprehensive income
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Net Income
 
1,012

 
839

 
3,681

 
3,208

Other Comprehensive (Loss)/Income, Net of Income Taxes
 
 

 
 

 
 

 
 

Foreign currency translation gains and losses on net investment in foreign operations
 
(491
)
 
225

 
417

 
(530
)
Reclassification to net income of foreign currency translation gains on disposal of foreign operations
 

 
(4
)
 

 
(13
)
Change in fair value of net investment hedges
 
26

 
(9
)
 
(6
)
 
24

Change in fair value of cash flow hedges
 
(1
)
 
(26
)
 
(578
)
 
(85
)
Reclassification to net income of gains and losses on cash flow hedges
 
10

 
4

 
480

 
10

Reclassification to net income of actuarial gains and losses on pension and other post-retirement benefit plans
 
4

 
3

 
1

 
8

Other comprehensive income/(loss) on equity investments
 
14

 
3

 
(6
)
 
7

Other comprehensive (loss)/income
 
(438
)
 
196

 
308

 
(579
)
Comprehensive Income
 
574

 
1,035

 
3,989

 
2,629

Comprehensive income attributable to non-controlling interests
 
35

 
74

 
263

 
151

Comprehensive Income Attributable to Controlling Interests
 
539

 
961

 
3,726

 
2,478

Preferred share dividends
 
39

 
41

 
120

 
123

Comprehensive Income Attributable to Common Shares
 
500

 
920

 
3,606

 
2,355

See accompanying notes to the Condensed consolidated financial statements.



TC ENERGY [47
THIRD QUARTER 2020

Condensed consolidated statement of cash flows
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Cash Generated from Operations
 
 
 
 
 
 
 
 
Net income
 
1,012

 
839

 
3,681

 
3,208

Depreciation and amortization
 
673

 
610

 
1,938

 
1,839

Deferred income taxes
 
90

 
(178
)
 
(209
)
 
3

Income from equity investments
 
(200
)
 
(334
)
 
(934
)
 
(695
)
Distributions received from operating activities of equity investments
 
277

 
339

 
802

 
888

Employee post-retirement benefits funding, net of expense
 
(22
)
 
3

 
(6
)
 
(27
)
Net loss/(gain) on assets sold/held for sale
 
66

 
112

 
(43
)
 
44

Equity allowance for funds used during construction
 
(63
)
 
(76
)
 
(168
)
 
(225
)
Unrealized (gains)/losses on financial instruments
 
(76
)
 
100

 
10

 
(78
)
Foreign exchange (gains)/losses on Loan receivable from affiliate
 
(54
)
 
37

 
223

 
11

Other
 
(40
)
 
(7
)
 
12

 
(41
)
Decrease/(increase) in operating working capital
 
120

 
140

 
(187
)
 
329

Net cash provided by operations
 
1,783

 
1,585

 
5,119

 
5,256

Investing Activities
 
 

 
 

 
 

 
 

Capital expenditures
 
(2,063
)
 
(1,818
)
 
(6,049
)
 
(5,411
)
Capital projects in development
 

 
(184
)
 
(122
)
 
(565
)
Contributions to equity investments
 
(187
)
 
(133
)
 
(498
)
 
(453
)
Proceeds from sale of assets, net of transaction costs
 

 
1,807

 
3,407

 
2,398

Other distributions from equity investments
 

 

 

 
186

Loan to affiliate
 
(250
)
 

 
(250
)
 

Deferred amounts and other
 
(137
)
 
(73
)
 
(359
)
 
(154
)
Net cash used in investing activities
 
(2,637
)
 
(401
)
 
(3,871
)
 
(3,999
)
Financing Activities
 
 

 
 

 
 

 
 

Notes payable issued/(repaid), net
 
338

 
(2,584
)
 
(2,765
)
 
(688
)
Long-term debt issued, net of issue costs
 
35

 
1,994

 
5,571

 
3,015

Long-term debt repaid
 

 
(1
)
 
(2,241
)
 
(1,835
)
Junior subordinated notes issued, net of issue costs
 

 
1,441

 

 
1,441

Loss on settlement of financial instruments
 

 

 
(130
)
 

Dividends on common shares
 
(761
)
 
(459
)
 
(2,226
)
 
(1,344
)
Dividends on preferred shares
 
(39
)
 
(40
)
 
(121
)
 
(120
)
Distributions to non-controlling interests
 
(54
)
 
(50
)
 
(167
)
 
(164
)
Contributions from redeemable non-controlling interest
 
524

 

 
578

 

Common shares issued, net of issue costs
 
3

 
83

 
86

 
242

Net cash provided by/(used in) financing activities
 
46

 
384

 
(1,415
)
 
547

Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
 
(19
)
 
15

 
16

 
(1
)
(Decrease)/Increase in Cash and Cash Equivalents
 
(827
)
 
1,583

 
(151
)
 
1,803

Cash and Cash Equivalents
 
 

 
 

 
 

 
 

Beginning of period
 
2,019

 
666

 
1,343

 
446

Cash and Cash Equivalents
 
 

 
 

 
 

 
 

End of period
 
1,192

 
2,249

 
1,192

 
2,249

See accompanying notes to the Condensed consolidated financial statements.


TC ENERGY [48
THIRD QUARTER 2020

Condensed consolidated balance sheet
(unaudited - millions of Canadian $)
 
September 30, 2020

 
December 31, 2019

 
 
 
 
 
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
1,192

 
1,343

Accounts receivable
 
2,056

 
2,422

Inventories
 
501

 
452

Assets held for sale
 

 
2,807

Other
 
1,375

 
627

 
 
5,124

 
7,651

Plant, Property and Equipment
net of accumulated depreciation of $29,340 and $27,318, respectively
 
70,544

 
65,489

Loan Receivable from Affiliate
 
1,259

 
1,434

Equity Investments
 
7,190

 
6,506

Restricted Investments
 
1,832

 
1,557

Regulatory Assets
 
1,737

 
1,587

Goodwill
 
13,245

 
12,887

Intangible and Other Assets
 
931

 
2,168

 
 
101,862

 
99,279

LIABILITIES
 
 

 
 

Current Liabilities
 
 

 
 

Notes payable
 
1,772

 
4,300

Accounts payable and other
 
4,219

 
4,544

Dividends payable
 
773

 
737

Accrued interest
 
651

 
613

Current portion of long-term debt
 
2,653

 
2,705

 
 
10,068

 
12,899

Regulatory Liabilities
 
4,145

 
3,772

Other Long-Term Liabilities
 
1,512

 
1,614

Deferred Income Tax Liabilities
 
5,791

 
5,703

Long-Term Debt
 
36,881

 
34,280

Junior Subordinated Notes
 
8,814

 
8,614

 
 
67,211

 
66,882

Redeemable Non-Controlling Interest
 
719

 

EQUITY
 
 

 
 

Common shares, no par value
 
24,483

 
24,387

Issued and outstanding:
September 30, 2020  940 million shares
 
 

 
 

 
December 31, 2019  938 million shares
 
 

 
 

Preferred shares
 
3,980

 
3,980

Additional paid-in capital
 

 

Retained earnings
 
5,025

 
3,955

Accumulated other comprehensive loss
 
(1,286
)
 
(1,559
)
Controlling Interests
 
32,202

 
30,763

Non-controlling interests
 
1,730

 
1,634

 
 
33,932

 
32,397

 
 
101,862

 
99,279

Commitments, Contingencies and Guarantees (Note 14)
Variable Interest Entities (Note 15)
See accompanying notes to the Condensed consolidated financial statements.


TC ENERGY [49
THIRD QUARTER 2020

Condensed consolidated statement of equity
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 
 
Balance at beginning of period
24,480

 
23,795

 
24,387

 
23,174

Shares issued:
 
 
 
 
 
 
 
On exercise of stock options
3

 
93

 
96

 
270

Under dividend reinvestment and share purchase plan

 
240

 

 
684

Balance at end of period
24,483

 
24,128

 
24,483

 
24,128

Preferred Shares
 
 
 
 
 

 
 

Balance at beginning and end of period
3,980

 
3,980

 
3,980

 
3,980

Additional Paid-In Capital
 
 
 
 
 

 
 

Balance at beginning of period

 
5

 

 
17

Issuance of stock options, net of exercises
2

 
(8
)
 
(1
)
 
(20
)
Reclassification of additional paid-in capital deficit to retained earnings
(2
)
 
3

 
1

 
3

Balance at end of period

 

 

 

Retained Earnings
 
 
 
 
 

 
 

Balance at beginning of period
4,880

 
3,534

 
3,955

 
2,773

Net income attributable to controlling interests
943

 
780

 
3,453

 
2,991

Common share dividends
(762
)
 
(701
)
 
(2,284
)
 
(2,090
)
Preferred share dividends
(38
)
 
(41
)
 
(98
)
 
(102
)
Reclassification of additional paid-in capital deficit to retained earnings
2

 
(3
)
 
(1
)
 
(3
)
Balance at end of period
5,025

 
3,569

 
5,025

 
3,569

Accumulated Other Comprehensive Loss
 
 
 
 
 

 
 

Balance at beginning of period
(882
)
 
(1,300
)
 
(1,559
)
 
(606
)
Other comprehensive (loss)/income attributable to controlling interests
(404
)
 
181

 
273

 
(513
)
Balance at end of period
(1,286
)
 
(1,119
)
 
(1,286
)
 
(1,119
)
Equity Attributable to Controlling Interests
32,202

 
30,558

 
32,202

 
30,558

Equity Attributable to Non-Controlling Interests
 
 
 
 
 

 
 

Balance at beginning of period
1,753

 
1,618

 
1,634

 
1,655

Net income attributable to non-controlling interests
67

 
59

 
229

 
217

Other comprehensive (loss)/income attributable to non-controlling interests
(34
)
 
15

 
35

 
(66
)
Distributions declared to non-controlling interests
(56
)
 
(49
)
 
(168
)
 
(163
)
Balance at end of period
1,730

 
1,643

 
1,730

 
1,643

Total Equity
33,932

 
32,201

 
33,932

 
32,201

 
See accompanying notes to the Condensed consolidated financial statements.


TC ENERGY [50
THIRD QUARTER 2020

Notes to Condensed consolidated financial statements
(unaudited)
1. Basis of presentation
These Condensed consolidated financial statements of TC Energy Corporation (TC Energy or the Company) have been prepared by management in accordance with U.S. GAAP. The accounting policies applied are consistent with those outlined in TC Energy’s annual audited Consolidated financial statements for the year ended December 31, 2019, except as described in Note 2, Accounting changes. Capitalized and abbreviated terms that are used but not otherwise defined herein are identified in the 2019 audited Consolidated financial statements included in TC Energy’s 2019 Annual Report.
These Condensed consolidated financial statements reflect adjustments, all of which are normal recurring adjustments that are, in the opinion of management, necessary to reflect fairly the financial position and results of operations for the respective periods. These Condensed consolidated financial statements do not include all disclosures required in the annual financial statements and should be read in conjunction with the 2019 audited Consolidated financial statements included in TC Energy’s 2019 Annual Report. Certain comparative figures have been reclassified to conform with the current period’s presentation.
Earnings for interim periods may not be indicative of results for the fiscal year in certain of the Company’s segments primarily due to:
Natural gas pipelines segments the timing of regulatory decisions and seasonal fluctuations in short-term throughput volumes on U.S. pipelines 
Liquids Pipelines fluctuations in throughput volumes on the Keystone Pipeline System and marketing activities
Power and Storage the impact of seasonal weather conditions on customer demand and market pricing in certain of the Company’s investments in electrical power generation plants and Canadian non-regulated gas storage facilities.
USE OF ESTIMATES AND JUDGMENTS
In preparing these financial statements, TC Energy 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. In the opinion of management, these Condensed consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the Company’s significant accounting policies included in the annual audited Consolidated financial statements for the year ended December 31, 2019, except as described in Note 2, Accounting changes.


TC ENERGY [51
THIRD QUARTER 2020

2. Accounting changes
CHANGES IN ACCOUNTING POLICIES FOR 2020
Measurement of credit losses on financial instruments
In June 2016, the FASB issued new guidance that changes how entities measure credit losses for most financial assets and certain other financial instruments that are not measured at fair value through net income. The new guidance amends the impairment model of financial instruments, basing it on expected losses rather than incurred losses. These expected credit losses will be recognized as an allowance rather than as a direct write-down of the amortized cost basis. The new guidance was effective January 1, 2020 and was applied using a modified retrospective approach. The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements. Refer to Note 12, Risk management and financial instruments, for additional information related to the Company's updated accounting policy on impairment of financial assets.
Implementation costs of cloud computing arrangements
In August 2018, the FASB issued new guidance requiring an entity in a hosting arrangement that is a service contract to follow the guidance for internal-use software to determine which implementation costs should be capitalized as an asset and which costs should be expensed. The guidance also requires the entity to amortize the capitalized implementation costs of a hosting arrangement over the term of the arrangement. This guidance was effective January 1, 2020 and was applied prospectively. The adoption of this new guidance did not have an impact on the Company's consolidated financial statements.
Consolidation
In October 2018, the FASB issued new guidance for determining whether fees paid to decision makers and service providers are variable interests for indirect interests held through related parties under common control. This new guidance was effective January 1, 2020 and was applied on a retrospective basis. The adoption of this new guidance did not have an impact on the Company's consolidated financial statements.
Reference rate reform
In response to the expected cessation of LIBOR, in March 2020, the FASB issued new optional guidance that eases the potential burden in accounting for reference rate reform. The new guidance provides optional expedients for contracts and hedging relationships that are affected by reference rate reform if certain criteria are met. Each of the expedients can be applied as of January 1, 2020 through December 31, 2022. For eligible hedging relationships existing as of January 1, 2020 and prospectively, the Company has applied the optional expedient allowing an entity to assume that the hedged forecasted transaction in a cash flow hedge is probable of occurring. As reference rate reform is still an ongoing process, the Company will continue to evaluate the timing and potential impact of adoption for other optional expedients when deemed necessary.
FUTURE ACCOUNTING CHANGES
Defined benefit plans
In August 2018, the FASB issued new guidance which amends and clarifies disclosure requirements related to defined benefit pension and other post-retirement benefit plans. This new guidance is effective for annual disclosure requirements at December 31, 2020 and is expected to be applied on a retrospective basis. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.
Income taxes
In December 2019, the FASB issued new guidance that simplified the accounting for income taxes and clarified existing guidance. This new guidance is effective January 1, 2021 and is not expected to have a material impact on the Company's consolidated financial statements.


TC ENERGY [52
THIRD QUARTER 2020

3. Segmented information
three months ended
September 30, 2020
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
Power and Storage

 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
 
Corporate1
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
1,162

 
1,186

 
156

 
606

 
85

 

 
3,195

Intersegment revenues
 

 
41

 

 

 

 
(41
)
2 

 
 
1,162

 
1,227

 
156

 
606

 
85

 
(41
)
 
3,195

Income/(loss) from equity investments
 

 
65

 
26

 
19

 
144

 
(54
)
3 
200

Plant operating costs and other
 
(423
)
 
(352
)
 
(12
)
 
(178
)
 
(45
)
 
34

2 
(976
)
Property taxes
 
(73
)
 
(77
)
 

 
(23
)
 
(1
)
 

 
(174
)
Depreciation and amortization
 
(326
)
 
(219
)
 
(28
)
 
(82
)
 
(18
)
 

 
(673
)
Net loss on sale of assets
 
(6
)
 

 

 

 
(60
)
 

 
(66
)
Segmented Earnings/(Losses)
 
334

 
644

 
142

 
342

 
105

 
(61
)
 
1,506

Interest expense
 
(559
)
Allowance for funds used during construction
 
91

Interest income and other3
 
164

Income before Income Taxes
 
1,202

Income tax expense
 
(190
)
Net Income
 
1,012

Net income attributable to non-controlling interests
 
(69
)
Net Income Attributable to Controlling Interests
 
943

Preferred share dividends
 
(39
)
Net Income Attributable to Common Shares
 
904

1
Includes intersegment eliminations.
2
The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3
Income/(loss) from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange losses on the peso-denominated loans from affiliates which are fully offset in Interest income and other. Refer to Note 6, Loans receivable from affiliates, for additional information.




TC ENERGY [53
THIRD QUARTER 2020

three months ended
September 30, 2019
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
Power and Storage

 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
 
Corporate1
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
1,016

 
1,176

 
151

 
694

 
96

 

 
3,133

Intersegment revenues
 

 
40

 

 

 
4

 
(44
)
2 

 
 
1,016

 
1,216

 
151

 
694

 
100

 
(44
)
 
3,133

Income from equity investments
 
4

 
60

 
12

 
18

 
203

 
37

3 
334

Plant operating costs and other
 
(380
)
 
(393
)
 
(11
)
 
(185
)
 
(53
)
 
40

2 
(982
)
Property taxes
 
(68
)
 
(86
)
 

 
(22
)
 
(2
)
 

 
(178
)
Depreciation and amortization
 
(289
)
 
(192
)
 
(27
)
 
(83
)
 
(19
)
 

 
(610
)
Net gain/(loss) on assets sold/held for sale
 

 
21

 

 
69

 
(202
)
 

 
(112
)
Segmented Earnings
 
283

 
626

 
125

 
491

 
27

 
33

 
1,585

Interest expense
 
(573
)
Allowance for funds used during construction
 
120

Interest income and other3
 
(19
)
Income before Income Taxes
 
1,113

Income tax expense
 
(274
)
Net Income
 
839

Net income attributable to non-controlling interests
 
(59
)
Net Income Attributable to Controlling Interests
 
780

Preferred share dividends
 
(41
)
Net Income Attributable to Common Shares
 
739

1
Includes intersegment eliminations.
2
The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3
Income from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange gains on the peso-denominated loans from affiliates which are fully offset in Interest income and other. Refer to Note 6, Loans receivable from affiliates, for additional information.


TC ENERGY [54
THIRD QUARTER 2020

nine months ended
September 30, 2020
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
Power and Storage

 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
 
Corporate1
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
3,281

 
3,745

 
562

 
1,827

 
287

 

 
9,702

Intersegment revenues
 

 
126

 

 

 
7

 
(133
)
2 

 
 
3,281

 
3,871

 
562

 
1,827

 
294

 
(133
)
 
9,702

Income from equity investments
 
5

 
196

 
99

 
56

 
355

 
223

3 
934

Plant operating costs and other
 
(1,183
)
 
(1,099
)
 
(41
)
 
(498
)
 
(138
)
 
130

2 
(2,829
)
Property taxes
 
(219
)
 
(249
)
 

 
(77
)
 
(4
)
 

 
(549
)
Depreciation and amortization
 
(941
)
 
(612
)
 
(88
)
 
(249
)
 
(48
)
 

 
(1,938
)
Net gain/(loss) on sale of assets
 
364

 

 

 

 
(321
)
 

 
43

Segmented Earnings
 
1,307

 
2,107

 
532

 
1,059

 
138

 
220

 
5,363

Interest expense
 
(1,698
)
Allowance for funds used during construction
 
254

Interest income and other3
 
(160
)
Income before Income Taxes
 
3,759

Income tax expense
 
(78
)
Net Income
 
3,681

Net income attributable to non-controlling interests
 
(228
)
Net Income Attributable to Controlling Interests
 
3,453

Preferred share dividends
 
(120
)
Net Income Attributable to Common Shares
 
3,333

1
Includes intersegment eliminations.
2
The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3
Income from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange gains on the peso-denominated loans from affiliates which are fully offset in Interest income and other. Refer to Note 6, Loans receivable from affiliates, for additional information.




TC ENERGY [55
THIRD QUARTER 2020

nine months ended
September 30, 2019
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
Power and Storage

 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
 
Corporate1
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
2,939

 
3,691

 
455

 
2,233

 
674

 

 
9,992

Intersegment revenues
 

 
123

 

 

 
15

 
(138
)
2 

 
 
2,939

 
3,814

 
455

 
2,233

 
689

 
(138
)
 
9,992

Income from equity investments
 
8

 
196

 
22

 
46

 
412

 
11

3 
695

Plant operating costs and other
 
(1,085
)
 
(1,127
)
 
(37
)
 
(518
)
 
(178
)
 
126

2 
(2,819
)
Commodity purchases resold
 

 

 

 

 
(365
)
 

 
(365
)
Property taxes
 
(206
)
 
(258
)
 

 
(77
)
 
(5
)
 

 
(546
)
Depreciation and amortization
 
(862
)
 
(565
)
 
(86
)
 
(260
)
 
(66
)
 

 
(1,839
)
Net gain/(loss) on assets sold/held for sale
 

 
21

 

 
69

 
(134
)
 

 
(44
)
Segmented Earnings/(Losses)
 
794

 
2,081

 
354

 
1,493

 
353

 
(1
)
 
5,074

Interest expense
 
(1,747
)
Allowance for funds used during construction
 
358

Interest income and other3
 
250

Income before Income Taxes
 
3,935

Income tax expense
 
(727
)
Net Income
 
3,208

Net income attributable to non-controlling interests
 
(217
)
Net Income Attributable to Controlling Interests
 
2,991

Preferred share dividends
 
(123
)
Net Income Attributable to Common Shares
 
2,868

1
Includes intersegment eliminations.
2
The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3
Income from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange gains on the peso-denominated loans from affiliates which are fully offset in Interest income and other. Refer to Note 6, Loans receivable from affiliates, for additional information.
TOTAL ASSETS BY SEGMENT
(unaudited - millions of Canadian $)
 
September 30, 2020

 
December 31, 2019

 
 
 
 
 
Canadian Natural Gas Pipelines
 
22,386

 
21,983

U.S. Natural Gas Pipelines
 
44,480

 
41,627

Mexico Natural Gas Pipelines
 
7,628

 
7,207

Liquids Pipelines
 
17,130

 
15,931

Power and Storage
 
5,163

 
7,788

Corporate
 
5,075

 
4,743

 
 
101,862

 
99,279

 


TC ENERGY [56
THIRD QUARTER 2020

4. Revenues
DISAGGREGATION OF REVENUES
The following tables summarize total Revenues for the three and nine months ended September 30, 2020 and 2019:
three months ended September 30, 2020
Canadian
Natural
Gas
Pipelines

U.S.
Natural
Gas
Pipelines

Mexico
Natural
Gas
Pipelines

Liquids Pipelines

Power and Storage

Total

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Revenues from contracts with customers
 
 
 
 
 
 
Capacity arrangements and transportation
1,135

1,005

150

537


2,827

Power generation




40

40

Natural gas storage and other1
27

165

6


15

213

 
1,162

1,170

156

537

55

3,080

Other revenues2,3

16


69

30

115

 
1,162

1,186

156

606

85

3,195

1
Includes $27 million of fee revenues from an affiliate related to construction of the Coastal GasLink pipeline which is 35 per cent owned by TC Energy as at September 30, 2020. Refer to Note 13, Dispositions, for additional information.
2
Other revenues include income from the Company's marketing activities, financial instruments and lease arrangements. These arrangements are not in the scope of the revenue guidance. Refer to Note 12, Risk management and financial instruments, for additional information on financial instruments.
3
Includes $33 million of operating lease income.
three months ended September 30, 2019
Canadian
Natural
Gas
Pipelines

U.S.
Natural
Gas
Pipelines

Mexico
Natural
Gas
Pipelines

Liquids Pipelines

Power and Storage

Total

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Revenues from contracts with customers
 
 
 
 
 
 
Capacity arrangements and transportation
1,016

1,008

149

614


2,787

Power generation




58

58

Natural gas storage and other

147

2

1

13

163

 
1,016

1,155

151

615

71

3,008

Other revenues1,2

21


79

25

125

 
1,016

1,176

151

694

96

3,133

1
Other revenues include income from the Company's marketing activities, financial instruments and lease arrangements. These arrangements are not in the scope of the revenue guidance. Refer to Note 12, Risk management and financial instruments, for additional information on financial instruments.
2
Includes $38 million of operating lease income.



TC ENERGY [57
THIRD QUARTER 2020

nine months ended September 30, 2020
Canadian
Natural
Gas
Pipelines

U.S.
Natural
Gas
Pipelines

Mexico
Natural
Gas
Pipelines

Liquids Pipelines

Power and Storage

Total


(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Revenues from contracts with customers
 
 
 
 
 
 
  Capacity arrangements and transportation
3,242

3,194

458

1,670


8,564

  Power generation




143

143

  Natural gas storage and other1
39

494

104

2

54

693

 
3,281

3,688

562

1,672

197

9,400

Other revenues2,3

57


155

90

302

 
3,281

3,745

562

1,827

287

9,702

1
Includes $116 million of fee revenues from affiliates, of which $77 million is related to the construction of the Sur de Texas pipeline which is 60 per cent owned by TC Energy and $39 million is related to construction of the Coastal GasLink pipeline which is 35 per cent owned by TC Energy as at September 30, 2020. Refer to Note 13, Dispositions, for additional information.
2
Other revenues include income from the Company's marketing activities, financial instruments and lease arrangements. These arrangements are not in the scope of the revenue guidance. Refer to Note 12, Risk management and financial instruments, for additional information on financial instruments.
3
Includes $98 million of operating lease income.
nine months ended September 30, 2019
Canadian
Natural
Gas
Pipelines

U.S.
Natural
Gas
Pipelines

Mexico
Natural
Gas
Pipelines

Liquids Pipelines

Power and Storage

Total

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Revenues from contracts with customers
 
 
 
 
 
 
  Capacity arrangements and transportation
2,939

3,140

451

1,824


8,354

  Power generation




599

599

  Natural gas storage and other

481

4

3

55

543

 
2,939

3,621

455

1,827

654

9,496

Other revenues1,2

70


406

20

496

 
2,939

3,691

455

2,233

674

9,992

1
Other revenues include income from the Company's marketing activities, financial instruments and lease arrangements. These arrangements are not in the scope of the revenue guidance. Refer to Note 12, Risk management and financial instruments, for additional information on income from financial instruments.
2
Includes $149 million of operating lease income.
CONTRACT BALANCES
 
(unaudited - millions of Canadian $)
September 30, 2020

 
December 31, 2019

 
Affected line item on the Condensed consolidated balance sheet
 
 
 
 
 
 
 
 
 
Receivables from contracts with customers
1,371

 
1,458

 
Accounts receivable
 
Contract assets
302

 
153

 
Other current assets
 
Long-term contract assets
212

 
102

 
Intangible and other assets
 
Contract liabilities1
84

 
61

 
Accounts payable and other
 
Long-term contract liabilities
234

 
226

 
Other long-term liabilities
1
During the nine months ended September 30, 2020, $10 million (2019 $6 million) of revenues were recognized that were included in contract liabilities at the beginning of the period.


TC ENERGY [58
THIRD QUARTER 2020

Contract assets and long-term contract assets primarily relate to the Company’s right to revenues for services completed but not invoiced at the reporting date on long-term committed capacity natural gas pipelines contracts. The change in contract assets is primarily related to the transfer to Accounts receivable when these rights become unconditional and the customer is invoiced, as well as the recognition of additional revenues that remain to be invoiced. Contract liabilities and long-term contract liabilities primarily relate to force majeure fixed capacity payments received on long-term capacity arrangements in Mexico.    
FUTURE REVENUES FROM REMAINING PERFORMANCE OBLIGATIONS
Capacity Arrangements and Transportation
As at September 30, 2020, future revenues from long-term pipeline capacity arrangements and transportation contracts extending through 2046 are approximately $25.0 billion, of which approximately $1.5 billion is expected to be recognized during the remainder of 2020.
Power Generation
The Company has long-term power generation contracts extending through 2028. Revenues from power generation contracts have a variable component related to market prices that are subject to factors outside the Company’s influence. These revenues are considered to be fully constrained and are recognized on a monthly basis when the Company satisfies the performance obligation.
Natural Gas Storage and Other
As at September 30, 2020, future revenues from long-term natural gas storage and other contracts, including fee revenues from affiliates, extending through 2044 are approximately $1.3 billion, of which approximately $0.2 billion is expected to be recognized during the remainder of 2020.
5. Income taxes
Effective Tax Rates
The effective income tax rates were two per cent and 18 per cent for the nine months ended September 30, 2020 and 2019, respectively. The decline in the effective income tax rate in 2020 was primarily due to the release of an income tax valuation allowance related to Keystone XL, the non-taxable portion of capital gains and income tax valuation allowance releases associated with the sale of a 65 per cent equity interest in Coastal GasLink Pipeline Limited Partnership (Coastal GasLink) and the sale of the Ontario natural gas-fired power plants, discussed below, along with lower pre-tax earnings, a reduction in the Alberta corporate income tax rate and decreased flow-through income taxes on Canadian rate-regulated pipelines.
TC Energy recorded an income tax valuation allowance of $673 million against deferred income tax asset balances at December 31, 2019. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In the nine months ended September 30, 2020, the Company recorded the following income tax valuation allowance releases:
on March 31, 2020, $281 million following management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized due to the Company’s decision to proceed with construction of the Keystone XL pipeline
on April 29, 2020, $21 million related to the sale of the Ontario natural gas-fired power plants
on May 22, 2020, $89 million related to the sale of a 65 per cent equity interest in Coastal GasLink.
Refer to Note 13, Dispositions, for additional information on the sale of the Ontario natural gas-fired power plants and Coastal GasLink equity sale.


TC ENERGY [59
THIRD QUARTER 2020

U.S. Tax Reform
In late 2017, proposed income tax regulations were issued as part of U.S. Tax Reform. The U.S. Treasury and the U.S. Internal Revenue Service issued final base erosion and anti-abuse tax (BEAT) regulations in 2019 and final anti-hybrid rules on April 7, 2020. The finalization of these regulations did not have a material impact on the Company's consolidated financial statements as at September 30, 2020.
Alberta Rate Reduction
On June 29, 2020, the Government of Alberta proposed to accelerate the reduction of the corporate income tax rate to eight per cent to now become effective July 1, 2020. While this proposed change has not yet been enacted, the Company does not expect it to have a material impact on its consolidated financial statements.
6. Loans receivable from affiliates
Related party transactions are conducted in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Coastal GasLink
In conjunction with the equity sale on May 22, 2020, the Company entered into a subordinated demand revolving credit facility with Coastal GasLink, which had a capacity of $1.0 billion at September 30, 2020. This facility provides additional short-term liquidity and funding flexibility to the project and bears interest at a floating market-based rate. At September 30, 2020, Other current assets on the Company's Condensed consolidated balance sheet included a $250 million current loan receivable from Coastal GasLink. The entire outstanding balance was repaid in October 2020. Refer to Note 13, Dispositions, for additional information.
Sur de Texas
At September 30, 2020, Loan receivable from affiliate on the Company's Condensed consolidated balance sheet reflected a MXN$20.9 billion or $1.3 billion (December 31, 2019MXN$20.9 billion or $1.4 billion) loan receivable from the Sur de Texas joint venture which represents TC Energy's 60 per cent proportionate share of long-term debt financing to the joint venture. The Company's Condensed consolidated statement of income reflects the related interest income and foreign exchange impact on this loan receivable which are fully offset upon consolidation with corresponding amounts included in TC Energy’s 60 per cent proportionate share of Sur de Texas equity earnings as follows:
(unaudited - millions of Canadian $)
 
three months ended
September 30
 
nine months ended
September 30
 
Affected line item in the Condensed consolidated statement of income
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
 
 
 
Interest income1
 
25

 
38

 
87

 
110

 
Interest income and other
Interest expense2
 
(25
)
 
(38
)
 
(87
)
 
(110
)
 
Income from equity investments
Foreign exchange gains/(losses)1
 
54

 
(37
)
 
(223
)
 
(11
)
 
Interest income and other
Foreign exchange (losses)/gains1
 
(54
)
 
37

 
223

 
11

 
Income from equity investments
1
Included in the Corporate segment.
2
Included in the Mexico Natural Gas Pipelines segment.


TC ENERGY [60
THIRD QUARTER 2020

7. Long-term debt
LONG-TERM DEBT ISSUED
Long-term debt issued by the Company in the nine months ended September 30, 2020 included the following:
(unaudited - millions of Canadian $, unless otherwise noted)
 
 
 
 
 
 
 
 
 
 
Company
 
Issue date
 
Type
 
Maturity date
 
Amount

 
Interest rate

 
 
 
 
 
 
 
 
 
 
 
TRANSCANADA PIPELINES LIMITED
 
 
 
 
 
 
 
 
 
 
April 2020
 
Senior Unsecured Notes
 
April 2030
 
US 1,250

 
4.10
%
 
 
April 2020
 
Medium Term Notes
 
April 2027
 
2,000

 
3.80
%
GAS TRANSMISSION NORTHWEST LLC
 
 
 
 
 
 
 
 
 
 
June 2020
 
Senior Unsecured Notes
 
June 2030
 
US 175

 
3.12
%
COASTAL GASLINK PIPELINE LIMITED PARTNERSHIP1
 
 
 
 
 
 
 
 
April 2020
 
Senior Secured Credit Facilities
 
April 2027
 
1,603

 
Floating

1
On May 22, 2020, TC Energy completed the sale of a 65 per cent equity interest in Coastal GasLink and subsequently accounts for its remaining 35 per cent interest using the equity method. In conjunction with the equity sale, Coastal GasLink entered into secured long-term project financing credit facilities and, immediately preceding the equity sale, made an initial draw of $1.6 billion, of which approximately $1.5 billion was paid to TC Energy. Refer to Note 13, Dispositions, for additional information.
LONG-TERM DEBT RETIRED/REPAID
Long-term debt retired/repaid by the Company in the nine months ended September 30, 2020 included the following:
(unaudited - millions of Canadian $, unless otherwise noted)
 
 
 
 
 
 
 
 
Company
 
Retirement/Repayment date
 
Type
 
Amount

 
Interest rate

 
 
 
 
 
 
 
 
 
TRANSCANADA PIPELINES LIMITED 1
 
 
 
 
 
 
 
 
March 2020
 
Senior Unsecured Notes
 
US 750

 
4.60
%
COLUMBIA PIPELINE GROUP, INC.
 
 
 
 
 
 
 
 
June 2020
 
Senior Unsecured Notes
 
US 750

 
3.30
%
GAS TRANSMISSION NORTHWEST LLC
 
 
 
 
 
 
 
 
June 2020
 
Senior Unsecured Notes
 
US 100

 
5.29
%
1
Related unamortized debt issue costs of $8 million were included in Interest expense in the Condensed consolidated statement of income for the nine months ended September 30, 2020.
On October 1, 2020, TransCanada PipeLines Limited repaid US$1.0 billion of Senior Unsecured Notes bearing interest at a fixed rate of 3.80 per cent.
CAPITALIZED INTEREST
In the three and nine months ended September 30, 2020, TC Energy capitalized interest related to capital projects of $68 million and $219 million, respectively (2019$48 million and $129 million, respectively).





TC ENERGY [61
THIRD QUARTER 2020

8. Redeemable non-controlling interest
On March 31, 2020, TC Energy announced that it will proceed with construction of the Keystone XL pipeline. As part of the funding plan, the Government of Alberta has agreed to invest approximately US$1.1 billion as equity in Keystone XL subsidiaries of TC Energy.
In conjunction with this agreement, the Company’s Keystone XL subsidiaries issued Class A Interests amounting to $720 million to the Government of Alberta in the nine months ended September 30, 2020 and recognized corresponding notes receivable amounting to $133 million as at September 30, 2020 and due by December 31, 2020. These Class A Interests rank above TC Energy’s equity investment in the Keystone XL project and have certain voting rights.
TC Energy has a call right exercisable at any time to repurchase the Class A Interests from the Government of Alberta. In turn, the Government of Alberta has a put right to sell its Class A Interests to the Company exercisable upon and following the in-service date of the Keystone XL pipeline if certain conditions are met. As a result of these redemption features, the Company classified the Class A Interests as Redeemable non-controlling interest outside of equity on the Condensed consolidated balance sheet.
Class A Interests are entitled to a return in accordance with contractual terms. The return accrues on a quarterly basis and adjusts the carrying value of the Class A Interests accordingly.
The changes in Redeemable non-controlling interest are as follows:

(unaudited - millions of Canadian $)
 
three months ended
September 30, 2020

 
nine months ended
September 30, 2020

 
 
 
 
 
Balance at beginning of period
 
325

 

Class A Interests issued
 
392

 
720

Net income/(loss) attributable to redeemable non-controlling interest1
 
2

 
(1
)
Balance at end of period
 
719

 
719

1
Includes a return accrual and a foreign currency translation loss on Class A Interests, both presented within Net income attributable to non-controlling interests in the Condensed consolidated statement of income.


TC ENERGY [62
THIRD QUARTER 2020

9. Common shares and preferred shares
The Board of Directors of TC Energy declared dividends as follows:
 
 
three months ended September 30
 
nine months ended September 30
(unaudited - Canadian $, rounded to two decimals)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
per common share
 
0.81

 
0.75

 
2.43

 
2.25

 
 
 
 
 
 
 
 
 
per Series 1 preferred share
 
0.22

 
0.20

 
0.65

 
0.61

per Series 2 preferred share
 
0.14

 
0.23

 
0.58

 
0.68

per Series 3 preferred share
 
0.11

 
0.13

 
0.37

 
0.40

per Series 4 preferred share
 
0.10

 
0.19

 
0.46

 
0.56

per Series 5 preferred share
 
0.14

 
0.14

 
0.42

 
0.42

per Series 6 preferred share
 
0.11

 
0.20

 
0.42

 
0.60

per Series 7 preferred share
 
0.24

 
0.24

 
0.73

 
0.74

per Series 9 preferred share
 
0.24

 
0.27

 
0.71

 
0.80

per Series 11 preferred share
 
0.24

 
0.24

 
0.48

 
0.48

per Series 13 preferred share
 
0.34

 
0.34

 
0.69

 
0.69

per Series 15 preferred share
 
0.31

 
0.31

 
0.61

 
0.61

PREFERRED SHARES
On June 30, 2020, 401,590 Series 3 preferred shares were converted, on a one-for-one basis, into Series 4 preferred shares and 1,865,362 Series 4 preferred shares were converted, on a one-for-one basis, into Series 3 preferred shares.











TC ENERGY [63
THIRD QUARTER 2020

10. Other comprehensive (loss)/income and accumulated other comprehensive loss
Components of other comprehensive (loss)/income, including the portion attributable to non-controlling interests and related tax effects, are as follows: 
three months ended September 30, 2020
 
Before Tax Amount

 
Income Tax Recovery/(Expense)

 
Net of Tax Amount

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Foreign currency translation losses on net investment in foreign operations
 
(489
)
 
(2
)
 
(491
)
Change in fair value of net investment hedges
 
34

 
(8
)
 
26

Change in fair value of cash flow hedges
 
(1
)
 

 
(1
)
Reclassification to net income of gains and losses on cash flow hedges
 
13

 
(3
)
 
10

Reclassification to net income of actuarial gains and losses on pension and other post-retirement benefit plans
 
6

 
(2
)
 
4

Other comprehensive income on equity investments
 
18

 
(4
)
 
14

Other Comprehensive Loss
 
(419
)
 
(19
)
 
(438
)
three months ended September 30, 2019
 
Before Tax Amount

 
Income Tax Recovery/(Expense)

 
Net of Tax Amount

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Foreign currency translation gains on net investment in foreign operations
 
219

 
6

 
225

Reclassification to net income of foreign currency translation gains on disposal of foreign operations
 
(4
)
 

 
(4
)
Change in fair value of net investment hedges
 
(12
)
 
3

 
(9
)
Change in fair value of cash flow hedges
 
(34
)
 
8

 
(26
)
Reclassification to net income of gains and losses on cash flow hedges
 
5

 
(1
)
 
4

Reclassification to net income of actuarial gains and losses on pension and other post-retirement benefit plans
 
4

 
(1
)
 
3

Other comprehensive income on equity investments
 
3

 

 
3

Other Comprehensive Income
 
181

 
15

 
196

nine months ended September 30, 2020
 
Before Tax Amount

 
Income Tax Recovery/(Expense)

 
Net of Tax Amount

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
Foreign currency translation gains on net investment in foreign operations
 
347

 
70

 
417

Change in fair value of net investment hedges
 
(8
)
 
2

 
(6
)
Change in fair value of cash flow hedges
 
(766
)
 
188

 
(578
)
Reclassification to net income of gains and losses on cash flow hedges
 
639

 
(159
)
 
480

Reclassification to net income of actuarial gains and losses on pension and other post-retirement benefit plans
 
2

 
(1
)
 
1

Other comprehensive loss on equity investments
 
(8
)
 
2

 
(6
)
Other Comprehensive Income
 
206

 
102

 
308



TC ENERGY [64
THIRD QUARTER 2020

nine months ended September 30, 2019
 
Before Tax Amount

 
Income Tax Recovery/(Expense)

 
Net of Tax Amount

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Foreign currency translation losses on net investment in foreign operations
 
(516
)
 
(14
)
 
(530
)
Reclassification to net income of foreign currency translation gains on disposal of foreign operations
 
(13
)
 

 
(13
)
Change in fair value of net investment hedges
 
32

 
(8
)
 
24

Change in fair value of cash flow hedges
 
(108
)
 
23

 
(85
)
Reclassification to net income of gains and losses on cash flow hedges
 
13

 
(3
)
 
10

Reclassification to net income of actuarial gains and losses on pension and other post-retirement benefit plans
 
11

 
(3
)
 
8

Other comprehensive income on equity investments
 
1

 
6

 
7

Other Comprehensive Loss
 
(580
)
 
1

 
(579
)
The changes in AOCI by component are as follows:
three months ended September 30, 2020
 
Currency
Translation Adjustments

 
Cash Flow Hedges

 
Pension and OPEB Plan Adjustments

 
Equity Investments

 
Total1

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
AOCI balance at July 1, 2020
 
64

 
(151
)
 
(317
)
 
(478
)
 
(882
)
Other comprehensive (loss)/income before reclassifications2
 
(428
)
 
(1
)
 

 
11

 
(418
)
Amounts reclassified from AOCI
 

 
7

 
4

 
3

 
14

Net current period other comprehensive (loss)/income
 
(428
)
 
6

 
4

 
14

 
(404
)
AOCI balance at September 30, 2020
 
(364
)
 
(145
)
 
(313
)
 
(464
)
 
(1,286
)
1
All amounts are net of tax. Amounts in parentheses indicate losses recorded to OCI.
2
Other comprehensive (loss)/income before reclassifications on currency translation adjustments, cash flow hedges and equity investments are net of non-controlling interest losses of $37 million, nil and nil, respectively.
nine months ended September 30, 2020
 
Currency Translation Adjustments

 
Cash Flow Hedges

 
Pension and OPEB Plan Adjustments

 
Equity Investments

 
Total1

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
AOCI balance at January 1, 2020
 
(730
)
 
(58
)
 
(314
)
 
(457
)
 
(1,559
)
Other comprehensive income/(loss) before reclassifications2
 
366

 
(562
)
 

 
(15
)
 
(211
)
Amounts reclassified from AOCI3
 

 
475

 
1

 
8

 
484

Net current period other comprehensive income/(loss)
 
366

 
(87
)
 
1

 
(7
)
 
273

AOCI balance at September 30, 2020
 
(364
)
 
(145
)
 
(313
)
 
(464
)
 
(1,286
)
1
All amounts are net of tax. Amounts in parentheses indicate losses recorded to OCI.
2
Other comprehensive income/(loss) before reclassifications on currency translation adjustments, cash flow hedges and equity investments are net of non-controlling interest gains of $45 million, losses of $16 million and gains of $1 million, respectively.
3
Losses related to cash flow hedges reported in AOCI and expected to be reclassified to net income in the next 12 months are estimated to be $32 million ($24 million, net of tax) at September 30, 2020. These estimates assume constant commodity prices, interest rates and foreign exchange rates over time, however, the amounts reclassified will vary based on the actual value of these factors at the date of settlement.



TC ENERGY [65
THIRD QUARTER 2020

Details about reclassifications out of AOCI into the Condensed consolidated statement of income are as follows: 
 
 
Amounts Reclassified From AOCI
 
Affected line item
in the Condensed
consolidated statement of income
1
 
 
three months ended
September 30
 
nine months ended
September 30
 
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
Commodities
 

 
(4
)
 

 
(4
)
 
Revenues (Power and Storage)
Interest rate
 
(10
)
 
(3
)
 
(21
)
 
(10
)
 
Interest expense
Interest rate
 

 

 
(613
)
 

 
Net (loss)/gain on assets sold/held for sale2
 
 
(10
)
 
(7
)
 
(634
)
 
(14
)
 
Total before tax
 
 
3

 
1

 
159

 
3

 
Income tax expense2
 
 
(7
)
 
(6
)
 
(475
)
 
(11
)
 
Net of tax3
Pension and other post-retirement benefit plan adjustments
 
 
 
 

 


 


 
 
Amortization of actuarial losses
 
(6
)
 
(4
)
 
(2
)
 
(11
)
 
Plant operating costs and other4
 
 
2

 
1

 
1

 
3

 
Income tax expense
 
 
(4
)
 
(3
)
 
(1
)
 
(8
)
 
Net of tax
Equity investments
 
 
 
 
 
 
 
 
 
 
Equity income
 
(4
)
 
(3
)
 
(11
)
 
(9
)
 
Income from equity investments
 
 
1

 

 
3

 

 
Income tax expense
 
 
(3
)
 
(3
)
 
(8
)
 
(9
)
 
Net of tax
Currency translation adjustments
 
 
 
 
 
 
 
 
 
 
Foreign currency translation gains on disposal of foreign operations
 

 
4

 

 
13

 
Net (loss)/gain on assets sold/held for sale
 
 

 

 

 

 
Income tax expense
 
 

 
4

 

 
13

 
Net of tax
1
All amounts in parentheses indicate expenses to the Condensed consolidated statement of income.
2
Represents a loss of $613 million ($459 million, net of tax) related to a contractually required derivative instrument used to hedge the interest rate risk associated with project-level financing for the Coastal GasLink pipeline construction. The derivative instrument was derecognized as part of the sale of a 65 per cent equity interest in Coastal GasLink. Refer to Note 13, Dispositions, for more information.
3
Amounts reclassified from AOCI on cash flow hedges are net of non-controlling interest losses of $3 million and $5 million for the three and nine months ended September 30, 2020, respectively (2019gains of $2 million and $1 million, respectively).
4
These AOCI components are included in the computation of net benefit cost. Refer to Note 11, Employee post-retirement benefits, for additional information.


TC ENERGY [66
THIRD QUARTER 2020

11. Employee post-retirement benefits
The net benefit cost recognized for the Company’s pension benefit plans and other post-retirement benefit plans is as follows:
 
 
three months ended September 30
 
nine months ended September 30
 
 
Pension benefit plans
 
Other post-retirement benefit plans
 
Pension benefit plans
 
Other post-retirement benefit plans
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost1
 
39

 
31

 
1

 
1

 
116

 
95

 
4

 
4

Other components of net benefit cost1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest cost
 
32

 
36

 
3

 
5

 
100

 
107

 
11

 
13

Expected return on plan assets
 
(58
)
 
(55
)
 
(3
)
 
(4
)
 
(173
)
 
(167
)
 
(11
)
 
(12
)
Amortization of actuarial losses
 
5

 
3

 

 
1

 
16

 
9

 
1

 
2

Amortization of regulatory asset
 
7

 
3

 
1

 

 
19

 
10

 
2

 
1

 
 
(14
)
 
(13
)
 
1

 
2

 
(38
)
 
(41
)
 
3

 
4

Net Benefit Cost
 
25

 
18

 
2

 
3

 
78

 
54

 
7

 
8

 
1
Service cost and other components of net benefit cost are included in Plant operating costs and other in the Condensed consolidated statement of income.
12. Risk management and financial instruments 
RISK MANAGEMENT OVERVIEW
TC Energy has exposure to market risk and counterparty credit risk, and has strategies, policies and limits in place to manage the impact of these risks on earnings, cash flows and shareholder value.
COUNTERPARTY CREDIT RISK
TC Energy’s maximum counterparty credit exposure with respect to financial instruments at September 30, 2020, without taking into account security held, consisted of cash and cash equivalents, accounts receivable, available-for-sale assets, the fair value of derivative assets and loans receivable.
The combination of the COVID-19 pandemic along with unparalleled energy demand and supply disruption has led to significant commodity price volatility and restricted capital market access impacting a certain number of TC Energy's customers. While the majority of the Company's credit exposure is to large creditworthy entities, TC Energy has increased its monitoring of and communication with those counterparties experiencing greater financial pressures due to recent market events and the challenging business environment. Refer to TC Energy's 2019 Annual Report for more information about the factors that mitigate the Company's counterparty credit risk exposure.
The Company reviews financial assets carried at amortized cost for impairment using the lifetime expected loss of the financial asset at initial recognition and throughout the life of the financial asset. TC Energy uses historical credit loss and recovery data, adjusted for management's judgment regarding current economic and credit conditions, along with supportable forecasts to determine any impairment, which is recognized in Plant operating costs and other. At September 30, 2020, there were no significant credit losses, no significant credit risk concentration and no significant amounts past due or impaired.


TC ENERGY [67
THIRD QUARTER 2020

NET INVESTMENT IN FOREIGN OPERATIONS
The Company hedges a portion of its net investment in foreign operations (on an after-tax basis) with U.S. dollar-denominated debt, cross-currency swaps, foreign exchange forwards and foreign exchange options.
The fair values and notional amounts for the derivatives designated as a net investment hedge were as follows:
 
 
September 30, 2020
 
December 31, 2019
(unaudited - millions of Canadian $, unless otherwise noted)

Fair value1,2


Notional amount

Fair value1,2


Notional amount
 
 
 
 
 
 
 
 
 
U.S. dollar cross-currency swaps (maturing 2020 to 2025)

(1
)
 
US 400
 
3

 
US 100
U.S. dollar foreign exchange options (maturing 2020 to 2021)

14

 
US 2,800
 
10

 
US 3,000
 

13

 
US 3,200
 
13

 
US 3,100
1
Fair value equals carrying value.
2
No amounts have been excluded from the assessment of hedge effectiveness.
The notional amounts and fair values of U.S. dollar-denominated debt designated as a net investment hedge were as follows:
(unaudited - millions of Canadian $, unless otherwise noted)
 
September 30, 2020
 
December 31, 2019
 
 
 
 
 
Notional amount
 
28,700 (US 21,500)
 
29,300 (US 22,600)
Fair value
 
33,600 (US 25,200)
 
33,400 (US 25,700)


TC ENERGY [68
THIRD QUARTER 2020

FINANCIAL INSTRUMENTS
Non-derivative financial instruments
Fair value of non-derivative financial instruments
Available-for-sale assets are recorded at fair value which is calculated using quoted market prices where available. Certain non-derivative financial instruments included in Cash and cash equivalents, Accounts receivable, Other current assets, Loan receivable from affiliate, Restricted investments, Intangible and other assets, Notes payable, Accounts payable and other, Accrued interest and Other long-term liabilities have carrying amounts that approximate their fair value due to the nature of the item or the short time to maturity. Each of these instruments are classified in Level II of the fair value hierarchy, except for the Company's LMCI equity securities which are classified in Level I.
Credit risk has been taken into consideration when calculating the fair value of non-derivative instruments.
Balance sheet presentation of non-derivative financial instruments
The following table details the fair value of the Company's non-derivative financial instruments, excluding those where carrying amounts approximate fair value, which are classified in Level II of the fair value hierarchy: 
 
 
September 30, 2020
 
December 31, 2019
(unaudited - millions of Canadian $)
 
Carrying
amount

 
Fair
value

 
Carrying
amount

 
Fair
value

 
 
 
 
 
 
 
 
 
Long-term debt including current portion1,2
 
(39,534
)
 
(47,659
)
 
(36,985
)
 
(43,187
)
Junior subordinated notes
 
(8,814
)
 
(8,707
)
 
(8,614
)
 
(8,777
)
 
 
(48,348
)
 
(56,366
)
 
(45,599
)
 
(51,964
)
1
Long-term debt is recorded at amortized cost except for US$200 million at December 31, 2019 that was attributed to hedged risk and recorded at fair value.
2
Net income for the three and nine months ended September 30, 2020 includes unrealized gains of nil and $1 million, respectively (2019 – unrealized gains of $1 million and losses of $4 million, respectively) for fair value adjustments attributable to the hedged interest rate risk associated with interest rate swap fair value hedging relationships on US$200 million of long-term debt that matured in March 2020 (December 31, 2019US$200 million). There were no other unrealized gains or losses from fair value adjustments to the non-derivative financial instruments.


TC ENERGY [69
THIRD QUARTER 2020

Available-for-sale assets summary
The following tables summarize additional information about the Company's restricted investments that are classified as available-for-sale assets:
 
September 30, 2020
 
December 31, 2019
(unaudited - millions of Canadian $)
LMCI restricted investments

 
Other restricted investments1

 
LMCI restricted investments

 
Other restricted investments1

 
 
 
 
 
 
 
 
Fair values of fixed income securities2,3
 
 
 
 
 
 
 
Maturing within 1 year

 
26

 

 
6

Maturing within 1-5 years

 
109

 
26

 
100

Maturing within 5-10 years
948

 

 
801

 

Maturing after 10 years
78

 

 
61

 

Fair value of equity securities2,4
679

 

 
556

 

 
1,705

 
135

 
1,444

 
106

1
Other restricted investments have been set aside to fund insurance claim losses to be paid by the Company's wholly-owned captive insurance subsidiary.
2
Available-for-sale assets are recorded at fair value and included in Other current assets and Restricted investments on the Company's Condensed consolidated balance sheet.
3
Classified in Level II of the fair value hierarchy.
4
Classified in Level I of the fair value hierarchy.
 
 
September 30, 2020
 
September 30, 2019
(unaudited - millions of Canadian $)
 
LMCI restricted investments1

 
Other restricted investments2

 
LMCI restricted investments1

 
Other restricted investments2

 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) in the period
 
 
 
 
 
 
 
 
three months ended
 
27

 

 
(57
)
 

nine months ended
 
88

 
3

 
22

 
3

Net realized gains in the period
 
 

 
 

 
 
 
 
three months ended
 
5

 

 
48

 

nine months ended
 
15

 

 
59

 

1
Gains and losses arising from changes in the fair value of LMCI restricted investments impact the subsequent amounts to be collected through tolls to cover future pipeline abandonment costs. As a result, the Company records these gains and losses as regulatory assets or liabilities.
2
Gains and losses on other restricted investments are included in Interest income and other in the Condensed consolidated statement of income.
Derivative instruments
Fair value of derivative instruments
The fair value of foreign exchange and interest rate derivatives has been calculated using the income approach which uses period-end market rates and applies a discounted cash flow valuation model. The fair value of commodity derivatives has been calculated using quoted market prices where available. In the absence of quoted market prices, third-party broker quotes or other valuation techniques have been used. The fair value of options has been calculated using the Black-Scholes pricing model. Credit risk has been taken into consideration when calculating the fair value of derivative instruments. Unrealized gains and losses on derivative instruments are not necessarily representative of the amounts that will be realized on settlement.


TC ENERGY [70
THIRD QUARTER 2020

In some cases, even though the derivatives are considered to be effective economic hedges, they do not meet the specific criteria for hedge accounting treatment or are not designated as a hedge and are accounted for at fair value with changes in fair value recorded in net income in the period of change. This may expose the Company to increased variability in reported earnings because the fair value of the derivative instruments can fluctuate significantly from period to period.
Balance sheet presentation of derivative instruments
The balance sheet classification of the fair value of derivative instruments is as follows:
at September 30, 2020
Cash Flow Hedges

 
Net Investment Hedges

 
Held for Trading

 
Total Fair Value of Derivative Instruments1

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
Commodities2
1

 

 
245

 
246

Foreign exchange

 
16

 
56

 
72

 
1

 
16

 
301

 
318

Intangible and other assets
 
 
 
 
 
 
 
Commodities2

 

 
2

 
2

Foreign exchange

 
6

 
4

 
10

 

 
6

 
6

 
12

Total Derivative Assets
1

 
22

 
307

 
330

Accounts payable and other
 
 
 
 
 
 
 
Commodities2
(3
)
 

 
(229
)
 
(232
)
Foreign exchange

 
(4
)
 
(22
)
 
(26
)
Interest rate3
(22
)
 

 

 
(22
)
 
(25
)
 
(4
)
 
(251
)
 
(280
)
Other long-term liabilities
 
 
 
 
 
 
 
Commodities2
(3
)
 

 
(4
)
 
(7
)
Foreign exchange

 
(5
)
 
(4
)
 
(9
)
Interest rate3
(59
)
 

 

 
(59
)
 
(62
)
 
(5
)
 
(8
)
 
(75
)
Total Derivative Liabilities
(87
)
 
(9
)
 
(259
)
 
(355
)
Total Derivatives
(86
)
 
13

 
48

 
(25
)
1
Fair value equals carrying value.
2
Includes purchases and sales of power, natural gas and liquids.    
3
In the nine months ended September 30, 2020, financial instruments fair valued at $130 million were settled with the payment included in Net cash provided by/(used in) financing activities in the Condensed consolidated statement of cash flows.




TC ENERGY [71
THIRD QUARTER 2020

at December 31, 2019
Cash Flow Hedges

 
Fair Value Hedges

 
Net Investment Hedges

 
Held for Trading

 
Total Fair Value of Derivative Instruments1

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
 
Commodities2

 

 

 
118

 
118

Foreign exchange

 

 
10

 
61

 
71

Interest rate

 
1

 

 

 
1

 

 
1

 
10

 
179

 
190

Intangible and other assets
 
 
 
 
 
 
 
 
 
Foreign exchange

 

 
5

 

 
5

Interest rate
2

 

 

 

 
2

 
2

 

 
5

 

 
7

Total Derivative Assets
2

 
1

 
15

 
179

 
197

Accounts payable and other
 
 
 
 
 
 
 
 
 
Commodities2
(4
)
 

 

 
(104
)
 
(108
)
Foreign exchange

 

 
(1
)
 
(3
)
 
(4
)
Interest rate
(3
)
 

 

 

 
(3
)
 
(7
)
 

 
(1
)
 
(107
)
 
(115
)
Other long-term liabilities
 
 
 
 
 
 
 
 
 
Commodities2
(6
)
 

 

 
(11
)
 
(17
)
Foreign exchange

 

 
(1
)
 

 
(1
)
Interest rate
(63
)
 

 

 

 
(63
)
 
(69
)
 

 
(1
)
 
(11
)
 
(81
)
Total Derivative Liabilities
(76
)
 

 
(2
)
 
(118
)
 
(196
)
Total Derivatives
(74
)
 
1

 
13

 
61

 
1

1
Fair value equals carrying value.
2
Includes purchases and sales of power, natural gas and liquids.
The majority of derivative instruments held for trading have been entered into for risk management purposes and all are subject to the Company's risk management strategies, policies and limits. These include derivatives that have not been designated as hedges or do not qualify for hedge accounting treatment but have been entered into as economic hedges to manage the Company's exposures to market risk.
Derivatives in fair value hedging relationships
The following table details amounts recorded on the Condensed consolidated balance sheet in relation to cumulative adjustments for fair value hedges included in the carrying amount of the hedged liabilities:
 
Carrying amount
 
Fair value hedging adjustments1
(unaudited - millions of Canadian $)
September 30, 2020

 
December 31, 2019

 
September 30, 2020

 
December 31, 2019

 
 
 
 
 
 
 
 
Long-term debt

 
(260
)
 

 
(1
)
1
At September 30, 2020 and December 31, 2019, adjustments for discontinued hedging relationships included in these balances were nil.


TC ENERGY [72
THIRD QUARTER 2020

Notional and maturity summary
The maturity and notional amount or quantity outstanding related to the Company's derivative instruments excluding hedges of the net investment in foreign operations is as follows:
at September 30, 2020
Power

 
Natural Gas

 
Liquids

 
Foreign Exchange

 
Interest Rate

(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases1
181

 
14

 
36

 

 

Sales1
1,873

 
20

 
40

 

 

Millions of U.S. dollars

 

 

 
3,894

 
1,100

Millions of Mexican pesos

 

 

 
1,550

 

Maturity dates
2020-2024

 
2020-2027

 
2020-2021

 
2020-2022

 
2020-2026

1
Volumes for power, natural gas and liquids derivatives are in GWh, Bcf and MMBbls, respectively.
at December 31, 2019
Power

 
Natural
Gas

 
Liquids

 
Foreign Exchange

 
Interest Rate

(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases1
492

 
14

 
39

 

 

Sales1
2,089

 
22

 
53

 

 

Millions of U.S. dollars

 

 

 
3,153

 
1,600

Millions of Mexican pesos

 

 

 
800

 

Maturity dates
2020-2024

 
2020-2027

 
2020

 
2020

 
2020-2030

1
Volumes for power, natural gas and liquids derivatives are in GWh, Bcf and MMBbls, respectively.
Unrealized and realized gains/(losses) on derivative instruments
The following summary does not include hedges of the net investment in foreign operations:
 
 
three months ended September 30
 
nine months ended September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Derivative Instruments Held for Trading1
 
 
 
 
 
 
 
 
Amount of unrealized (losses)/gains in the period
 
 
 
 
 
 
 
 
Commodities
 
(2
)
 
(69
)
 
14

 
(98
)
Foreign exchange
 
78

 
(31
)
 
(24
)
 
176

Amount of realized gains/(losses) in the period
 
 
 
 
 
 
 
 
Commodities
 
68

 
132

 
146

 
319

Foreign exchange
 
(11
)
 
(9
)
 
(62
)
 
(68
)
Derivative Instruments in Hedging Relationships2
 
 
 
 
 
 
 
 
Amount of realized gains/(losses) in the period
 
 
 
 
 
 
 
 
Commodities
 
2

 
1

 
4

 
(8
)
Interest rate
 
(6
)
 
1

 
(10
)
 
1

1
Realized and unrealized gains and losses on held-for-trading derivative instruments used to purchase and sell commodities are included on a net basis in Revenues. Realized and unrealized gains and losses on foreign exchange held-for-trading derivative instruments are included on a net basis in Interest income and other.
2
In the three and nine months ended September 30, 2020 and 2019, there were no gains or losses included in Net income relating to discontinued cash flow hedges where it was probable that the anticipated transaction would not occur.


TC ENERGY [73
THIRD QUARTER 2020

Derivatives in cash flow hedging relationships
The components of OCI (Note 10) related to the change in fair value of derivatives in cash flow hedging relationships before tax and including the portion attributable to non-controlling interests are as follows: 
 
 
three months ended September 30
 
nine months ended September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Change in fair value of derivative instruments recognized in OCI1
 
 
 
 
 
 
 
 
Commodities
 
(1
)
 
1

 
5

 
(13
)
Interest rate
 

 
(35
)
 
(771
)
 
(95
)
 
 
(1
)
 
(34
)
 
(766
)
 
(108
)
1
No amounts have been excluded from the assessment of hedge effectiveness. Amounts in parentheses indicate losses recorded to OCI.    
Effect of fair value and cash flow hedging relationships
The following table details amounts presented in the Condensed consolidated statement of income in which the effects of fair value or cash flow hedging relationships are recorded:
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
 
 
 
Interest rate contracts1
 
 
 
 
 
 
 
 
Hedged items
 
2

 
(5
)
 
(3
)
 
(16
)
Derivatives designated as hedging instruments
 

 
1

 
1

 

Cash Flow Hedges
 
 
 
 
 
 
 
 
Reclassification of losses on derivative instruments from AOCI to net income2,3
 
 
 
 
 
 
 
 
Interest rate contracts1
 
(13
)
 
(1
)
 
(639
)
 
(9
)
Commodity contracts4
 

 
(4
)
 

 
(4
)
1
Presented within Interest expense in the Condensed consolidated statement of income, except for a loss of $613 million related to a contractually required derivative instrument used to hedge the interest rate risk associated with project-level financing for the Coastal GasLink pipeline construction. The derivative instrument was derecognized as part of the sale of a 65 per cent equity interest in Coastal GasLink. The loss is included in Net (loss)/gain on assets sold/held for sale. Refer to Note 13, Dispositions, for additional information.
2
Refer to Note 10, Other comprehensive (loss)/income and accumulated other comprehensive loss, for the components of OCI related to derivatives in cash flow hedging relationships including the portion attributable to non-controlling interests.
3
There are no amounts recognized in earnings that were excluded from effectiveness testing.
4
Presented within Revenues (Power and Storage) in the Condensed consolidated statement of income.    



TC ENERGY [74
THIRD QUARTER 2020

Offsetting of derivative instruments
The Company enters into derivative contracts with the right to offset in the normal course of business as well as in the event of default. TC Energy has no master netting agreements, however, similar contracts are entered into containing rights to offset. The Company has elected to present the fair value of derivative instruments with the right to offset on a gross basis on the Condensed consolidated balance sheet. The following table shows the impact on the presentation of the fair value of derivative instrument assets and liabilities had the Company elected to present these contracts on a net basis:
at September 30, 2020
 
Gross derivative instruments

 
Amounts available for offset1

 
Net amounts

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Derivative instrument assets
 
 
 
 
 
 
Commodities
 
248

 
(220
)
 
28

Foreign exchange
 
82

 
(29
)
 
53

 
 
330

 
(249
)
 
81

Derivative instrument liabilities
 
 

 
 

 
 

Commodities
 
(239
)
 
220

 
(19
)
Foreign exchange
 
(35
)
 
29

 
(6
)
Interest rate
 
(81
)
 

 
(81
)
 
 
(355
)
 
249

 
(106
)
1
Amounts available for offset do not include cash collateral pledged or received.
at December 31, 2019
 
Gross derivative instruments

 
Amounts available for offset1

 
Net amounts

(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Derivative instrument assets
 
 
 
 
 
 
Commodities
 
118

 
(76
)
 
42

Foreign exchange
 
76

 
(5
)
 
71

Interest rate
 
3

 
(1
)
 
2

 
 
197

 
(82
)
 
115

Derivative instrument liabilities
 
 

 
 

 
 

Commodities
 
(125
)
 
76

 
(49
)
Foreign exchange
 
(5
)
 
5

 

Interest rate
 
(66
)
 
1

 
(65
)
 
 
(196
)
 
82

 
(114
)
1
Amounts available for offset do not include cash collateral pledged or received.
With respect to the derivative instruments presented above, the Company provided cash collateral of $27 million and letters of credit of $15 million at September 30, 2020 (December 31, 2019$58 million and $25 million, respectively) to its counterparties. At September 30, 2020 and December 31, 2019, the Company held no cash collateral and no letters of credit from counterparties on asset exposures.


TC ENERGY [75
THIRD QUARTER 2020

Credit-risk-related contingent features of derivative instruments
Derivative contracts entered into to manage market risk often contain financial assurance provisions that allow parties to the contracts to manage credit risk. These provisions may require collateral to be provided if a credit-risk-related contingent event occurs, such as a downgrade in the Company’s credit rating to non-investment grade. The Company may also need to provide collateral if the fair value of its derivative financial instruments exceeds pre-defined exposure limits.
Based on contracts in place and market prices at September 30, 2020, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $4 million (December 31, 2019$4 million), for which the Company has provided no collateral in the normal course of business. If the credit-risk-related contingent features in these agreements were triggered on September 30, 2020, the Company would have been required to provide collateral equal to the fair value of the related derivative instruments discussed above. Collateral may also need to be provided should the fair value of derivative instruments exceed pre-defined contractual exposure limit thresholds.
The Company has sufficient liquidity in the form of cash and undrawn committed revolving credit facilities to meet these contingent obligations should they arise.
FAIR VALUE HIERARCHY
The Company’s financial assets and liabilities recorded at fair value have been categorized into three categories based on a fair value hierarchy.
Levels
How fair value has been determined
 
 
Level I
Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. An active market is a market in which frequency and volume of transactions provides pricing information on an ongoing basis.
Level II
This category includes interest rate and foreign exchange derivative assets and liabilities where fair value is determined using the income approach and commodity derivatives where fair value is determined using the market approach.
Inputs include published exchange rates, interest rates, interest rate swap curves, yield curves and broker quotes from external data service providers.
Level III
This category mainly includes long-dated commodity transactions in certain markets where liquidity is low and the Company uses the most observable inputs available or, if not available, long-term broker quotes to estimate the fair value for these transactions.
There is uncertainty caused by using unobservable market data which may not accurately reflect possible future changes in fair value.


TC ENERGY [76
THIRD QUARTER 2020

The fair value of the Company’s derivative assets and liabilities measured on a recurring basis, including both current and non-current portions, are categorized as follows:
at September 30, 2020
 
Quoted prices in active markets (Level I)


Significant other observable inputs (Level II)1 


Significant unobservable inputs
(Level III)
1




(unaudited - millions of Canadian $)
 



Total

 
 
 
 
 
 
 
 
 
Derivative instrument assets
 
 
 
 
 
 
 
 
Commodities
 
222

 
26

 

 
248

Foreign exchange
 

 
82

 

 
82

Derivative instrument liabilities
 
 

 
 

 
 

 
 

Commodities
 
(212
)
 
(23
)
 
(4
)
 
(239
)
Foreign exchange
 

 
(35
)
 

 
(35
)
Interest rate
 

 
(81
)
 

 
(81
)
 
 
10

 
(31
)
 
(4
)
 
(25
)
1
There were no transfers from Level II to Level III for the nine months ended September 30, 2020.
at December 31, 2019
 
Quoted prices in active markets (Level I)

 
Significant other observable inputs (Level II)1

 
Significant unobservable inputs
(Level III)1

 
 
(unaudited - millions of Canadian $)
 
 
 
 
Total

 
 
 
 
 
 
 
 
 
Derivative instrument assets
 
 
 
 
 
 
 
 
Commodities
 
81

 
37

 

 
118

Foreign exchange
 

 
76

 

 
76

Interest rate
 

 
3

 

 
3

Derivative instrument liabilities
 
 
 
 
 
 
 
 
Commodities
 
(77
)
 
(41
)
 
(7
)
 
(125
)
Foreign exchange
 

 
(5
)
 

 
(5
)
Interest rate
 

 
(66
)
 

 
(66
)
 
 
4

 
4

 
(7
)
 
1

1
There were no transfers from Level II to Level III for the year ended December 31, 2019.
The following table presents the net change in fair value of derivative assets and liabilities classified as Level III of the fair value hierarchy:
 
 
three months ended September 30
 
nine months ended September 30
(unaudited - millions of Canadian $)
 
2020

 
2019

 
2020

 
2019

 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(4
)
 
(7
)
 
(7
)
 
(4
)
Total gains/(losses) included in Net income
 
1

 

 
4

 
(3
)
Total losses included in OCI
 
(1
)
 

 
(1
)
 

Balance at end of period1
 
(4
)
 
(7
)
 
(4
)
 
(7
)
1
For the three and nine months ended September 30, 2020, Revenues included unrealized gains of $1 million and $4 million, respectively, attributed to derivatives in the Level III category that were still held at September 30, 2020 (2019 unrealized gains of less than $1 million and losses of $3 million, respectively).


TC ENERGY [77
THIRD QUARTER 2020

13. Dispositions
Ontario Natural Gas-Fired Power Plants
On April 29, 2020, the Company completed the sale of the Halton Hills and Napanee power plants as well as its 50 per cent interest in Portlands Energy Centre to a subsidiary of Ontario Power Generation Inc. for net proceeds of approximately $2.8 billion before post-closing adjustments. Pre-tax losses of $60 million ($45 million after tax) and $321 million ($202 million after tax) were recognized in the three and nine months ended September 30, 2020, respectively. The total pre-tax loss of $600 million ($396 million after tax) on this transaction includes losses accrued during 2019 while classified as an asset held for sale while the after-tax loss also reflects the utilization of previously unrecognized tax loss benefits. The increase in the total loss from that disclosed at December 31, 2019 is primarily the result of higher than expected costs to achieve Napanee's March 13, 2020 in-service and the accrual of post-closing obligations estimated on close as well as their subsequent revision recorded in the three months ended September 30, 2020. Along with post-closing adjustments, this loss may also be further amended in the future as current estimates are revised and for items that could not be estimated on close, including the settlement of existing insurance claims. The pre-tax loss is included in Net (loss)/gain on assets sold/held for sale in the Condensed consolidated statement of income.
Coastal GasLink
On May 22, 2020, TC Energy completed the sale of a 65 per cent equity interest in Coastal GasLink to third parties for net proceeds of $656 million before post-closing adjustments. A $6 million reduction to both the pre-tax and after-tax gain was recorded in the three months ended September 30, 2020 resulting in a pre-tax gain of $364 million ($402 million after tax) recorded in the nine months ended September 30, 2020. The pre-tax gain includes $231 million related to the required remeasurement of the Company’s retained 35 per cent equity interest to fair value which was based on the proceeds realized for the 65 per cent equity interest, and also incorporates the reclassification from AOCI to income the fair value of a derivative instrument used to hedge the interest rate risk associated with project-level financing for the Coastal GasLink pipeline construction. The $402 million after-tax gain reflects the utilization of previously unrecognized tax loss benefits. The pre-tax gain is included in Net (loss)/gain on assets sold/held for sale in the Condensed consolidated statement of income.
In conjunction with the equity sale, Coastal GasLink entered into secured long-term project financing credit facilities with a current total capacity of $6.8 billion to fund the majority of the construction costs of the Coastal GasLink pipeline. Immediately preceding the equity sale, Coastal GasLink drew down $1.6 billion on the facilities, of which approximately $1.5 billion was paid to TC Energy.
TC Energy has been contracted by Coastal GasLink to construct and operate the pipeline and is using the equity method to account for its remaining 35 per cent equity interest in the Company's consolidated financial statements.
Along with this sale, TC Energy has provided an option to the 20 First Nations that have executed agreements with Coastal GasLink to acquire a 10 per cent equity interest in Coastal GasLink on similar terms.


TC ENERGY [78
THIRD QUARTER 2020

14. Commitments, contingencies and guarantees
COMMITMENTS
TC Energy’s capital expenditure commitments at December 31, 2019 included 100 per cent of the construction costs associated with the Coastal GasLink pipeline. As a result of the completed sale of a 65 per cent equity interest in Coastal GasLink on May 22, 2020, the capital commitments for the Company's Canadian natural gas pipelines have been reduced by approximately $3.3 billion. Subsequent to the sale, construction of the Coastal GasLink pipeline is expected to be predominantly funded by project-level financing, recovery of cash payments through construction for carrying charges on costs incurred, and equity partners' contributions. Refer to Note 13, Dispositions, for additional information. 
CONTINGENCIES
TC Energy and its subsidiaries are subject to various legal proceedings, arbitrations and actions arising in the normal course of business. While the final outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of management that the resolution of such proceedings and actions will not have a material impact on the Company’s consolidated financial position or results of operations.
GUARANTEES
As part of its role as operator of the Northern Courier pipeline, TC Energy has guaranteed the financial performance of the pipeline related to delivery and terminalling of bitumen and diluent and contingent financial obligations under sub-lease agreements.
TC Energy and its partner on the Sur de Texas pipeline, IEnova, have jointly guaranteed the financial performance of the entity which owns the pipeline. Such agreements include a guarantee and a letter of credit which are primarily related to the delivery of natural gas.
TC Energy and its joint venture partner on Bruce Power, BPC Generation Infrastructure Trust, have each severally guaranteed certain contingent financial obligations of Bruce Power related to a lease agreement and contractor and supplier services.
The Company and its partners in certain other jointly-owned entities have either (i) jointly and severally, (ii) jointly or (iii) severally guaranteed the financial performance of these entities. Such agreements include guarantees and letters of credit which are primarily related to construction services and the payment of liabilities. For certain of these entities, any payments made by TC Energy under these guarantees in excess of its ownership interest are to be reimbursed by its partners.
The carrying value of these guarantees has been included in Accounts payable and other and Other long-term liabilities on the Condensed consolidated balance sheet. Information regarding the Company’s guarantees is as follows:
 
 
 
 
September 30, 2020
 
December 31, 2019
(unaudited - millions of Canadian $)
 
 
Term
 
Potential
exposure
1

 
Carrying
value

 
Potential
exposure
1

 
Carrying
value

 
 
 
 
 
 
 
 
 
 
 
Northern Courier
 
to 2055
 
300

 
26

 
300

 
27

Sur de Texas
 
to 2021
 
112

 

 
109

 

Bruce Power
 
to 2021
 
88

 

 
88

 

Other jointly-owned entities
 
to 2043
 
79

 
4

 
100

 
10

 
 
 
 
579

 
30

 
597

 
37

1
TC Energy's share of the potential estimated current or contingent exposure.


TC ENERGY [79
THIRD QUARTER 2020

15. Variable interest entities
A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity.
In the normal course of business, the Company consolidates VIEs in which it has a variable interest and for which it is considered to be the primary beneficiary. VIEs in which the Company has a variable interest but is not the primary beneficiary are considered non-consolidated VIEs and are accounted for as equity investments.
Consolidated VIEs
The Company's consolidated VIEs consist of legal entities where the Company is the primary beneficiary. As the primary beneficiary, the Company has the power, through voting or similar rights, to direct the activities of the VIE that most significantly impact economic performance including purchasing or selling significant assets; maintenance and operations of assets; incurring additional indebtedness; or determining the strategic operating direction of the entity. In addition, the Company has the obligation to absorb losses or the right to receive benefits from the consolidated VIE that could potentially be significant to the VIE.
A significant portion of the Company’s assets are held through VIEs in which the Company holds a 100 per cent voting interest, the VIE meets the definition of a business and the VIE’s assets can be used for general corporate purposes. The consolidated VIEs whose assets cannot be used for purposes other than the settlement of the VIE’s obligations, or are not considered a business, are as follows:
(unaudited - millions of Canadian $)
 
September 30, 2020

 
December 31, 2019

 
 
 
 
 
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
337

 
106

Accounts receivable
 
55

 
88

Inventories
 
28

 
27

Other
 
7

 
8

 
 
427

 
229

Plant, Property and Equipment
 
3,396

 
3,050

Equity Investments
 
751

 
785

Goodwill
 
443

 
431

 
 
5,017

 
4,495

LIABILITIES
 
 
 
 
Current Liabilities
 
 
 
 
Accounts payable and other
 
144

 
70

Accrued interest
 
28

 
21

Current portion of long-term debt
 
538

 
187

 
 
710

 
278

Regulatory Liabilities
 
60

 
45

Other Long-Term Liabilities
 
15

 
9

Deferred Income Tax Liabilities
 
8

 
9

Long-Term Debt
 
2,590

 
2,694

 
 
3,383

 
3,035



TC ENERGY [80
THIRD QUARTER 2020

Certain consolidated VIEs have a redeemable non-controlling interest that ranks above the Company's equity interest. Refer to Note 8, Redeemable non-controlling interest, for additional information.
Non-Consolidated VIEs
The Company’s non-consolidated VIEs consist of legal entities where the Company is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the economic performance of these VIEs or where this power is shared with third parties. The Company contributes capital to these VIEs and receives ownership interests that provide it with residual claims on assets after liabilities are paid.
The carrying value of these VIEs and the maximum exposure to loss as a result of the Company's involvement with these VIEs are as follows:
(unaudited - millions of Canadian $)
 
September 30, 2020

 
December 31, 2019

 
 
 
 
 
Balance sheet
 
 
 
 
Equity investments1
 
4,919

 
4,720

Current loan receivable from affiliate2
 
250

 

Off-balance sheet exposure3
 
1,681

 
1,946

Maximum exposure to loss
 
6,850

 
6,666

1
Includes equity investment in Portlands Energy Centre classified as Assets held for sale as at December 31, 2019. Refer to Note 13, Dispositions, for additional information.
2
Refer to Note 6, Loans receivable from affiliates, for additional information.
3
Includes maximum potential exposure to guarantees and future funding commitments.