Revenue Recognition

12 Months Ended

Dec. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

Revenue Recognition

The revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.

Our revenues are primarily generated from the transportation, terminaling and storage of crude oil, refinery gas and refined petroleum products through our pipelines, terminals, storage tanks, docks, truck and rail racks. To identify the performance obligations, we considered all the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when each performance obligation is satisfied under the terms of the contract.

Each barrel of product transported or day of services provided is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and, therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on a measure of progress of volumes transported for transportation services contracts or number of days elapsed for storage and terminaling services contracts.

Product revenue related to allowance oil sales is recognized at the point in time when the control of the oil transfers to the customer.

For all performance obligations, payment is typically due in full within 30 days of the invoice date.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by service type and customer type:

	2021		2020		2019
Transportation services revenue – third parties	$	142	$	114	$	134
Transportation services revenue – related parties (1)	174		164		210
Storage services revenue – third parties	9		9		9
Storage services revenue – related parties	7		8		7
Terminaling services revenue – related parties (2)	120		103		47
Terminaling services revenue – major maintenance service – related parties (3)	11		7		—
Product revenue – third parties (4)	1		—		5
Product revenue – related parties (4)	36		19		35
Total Topic 606 revenue	500		424		447
Lease revenue – related parties	56		57		56
Total revenue	$	556	$	481	$	503

(1) Transportation services revenue – related parties for each of 2021, 2020 and 2019 includes $5 million of non-lease service component in our transportation services contract.

(2) Terminaling services revenue – related parties is comprised of the service components in our terminaling services contracts, including the operation and maintenance service components related to the Norco Assets in connection with the April 2020 Transaction. See Note 4 – Related Party Transactions for additional details.

(3) Terminaling services revenue – major maintenance service – related parties is comprised of the service components related to providing required major maintenance to the Norco Assets in connection with the April 2020 Transaction. See Note 4 – Related Party Transactions for additional details.

(4) Product revenue is comprised of allowance oil sales.

Lease revenue

Certain of our long-term transportation and terminaling services contracts with related parties are accounted for as operating leases. These agreements have both lease and non-lease service components. We allocate the arrangement consideration between the lease components and any non-lease service components based on the relative stand-alone selling price of each component. We estimate the stand-alone selling price of the lease and non-lease service components based on an analysis of service-related and lease-related costs for each contract, adjusted for a representative profit margin. The contracts have a minimum fixed monthly payment for both the lease and non-lease service components. We present the non-lease service components under the revenue standard within Transportation, terminaling and storage services – related parties in the consolidated statements of income.

Revenues from the lease components of these agreements are recorded within Lease revenue – related parties in the consolidated statements of income. Some of these agreements were each entered into for terms of ten years, with the option for the lessee to extend for two additional five-year terms. One of these contracts was amended to include an option for the lessee to extend for a fourteen-month term prior to the original extension options. However, it is reasonably certain that the original extension options of the two additional five-year terms will not be exercised for this contract. Further, we have agreements with initial terms of ten years with the option for the lessee to extend for up to ten additional one-year terms. As of December 31, 2021, future minimum payments of both the lease and non-lease service components to be received under the ten-year contract term of these operating leases were estimated to be:

	Total		Less than 1 year		Years 2 to 3		Years 4 to 5		More than 5 years
Operating leases	$	617	$	109	$	218	$	218	$	72

Transportation services revenue

We have both long-term transportation contracts and month-to-month contracts for spot shippers that make nominations on our pipelines. Some of the long-term contracts entitle the customer to a specified amount of guaranteed capacity on the pipeline. Transportation services are charged at a per barrel rate or other applicable unit of measure. We apply the allocation exception guidance for variable consideration related to market indexing for long-term transportation contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service, which is consistent with the allocation objective. Except for guaranteed capacity payments as discussed below, transportation services are billed monthly as services are rendered.

Our contracts and tariffs contain terms for the customer to reimburse us for losses from evaporation or other loss in transit in the form of allowance oil. Allowance oil represents the net difference between the tariff PLA volumes and the actual volumetric losses. We obtain control of the excess oil not lost during transportation, if any. Under the revenue standard, we include the excess oil retained during the period, if any, as non-cash consideration and include this amount in the transaction price for transportation services on a net basis. Our allowance oil revenue is valued at the average market price of the relevant type of crude oil during the month product was transported. Gains from pipeline operations that relate to allowance oil are recorded in Operations and maintenance expenses in the accompanying consolidated statements of income.

As a result of FERC regulations, revenues we collect may be subject to refund. We establish reserves for these potential refunds based on actual expected refund amounts on the specific facts and circumstances. We had no reserves for potential refunds as of December 31, 2021 and 2020.

Storage and terminaling services revenue

Storage and terminaling services are provided under short-term and long-term contracts, with a fixed price per month for committed storage and terminaling capacity, or under a monthly spot-rate for uncommitted storage or terminaling. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on the number

of days elapsed. We apply the allocation exception guidance for variable consideration related to market indexing for long-term contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service, which is consistent with the allocation objective. Storage and terminaling services are billed monthly as services are rendered.

Terminaling services revenue - Norco Assets

In April 2020, the Partnership closed the April 2020 Transaction pursuant to which the Norco Assets were transferred from SOPUS and Shell Chemical to Triton. In connection with closing the April 2020 Transaction, Triton entered into terminaling service agreements with SOPUS and Shell Chemical related to the Norco Assets. These terminaling service agreements were entered into for an initial term of fifteen years, with the option to extend for additional five-year terms. The transfer of the Norco Assets, combined with the terminaling services agreements, were accounted for as a failed sale leaseback under the lease standard. The Partnership receives an annual net payment of $140 million, which is the total annual payment pursuant to the terminaling service agreements of $151 million, less $11 million, which primarily represents the allocated utility costs from SOPUS related to the Norco Assets. Both payments are subject to annual CPI adjustments pursuant to an inflation escalation clause in each of the agreements, which provides that the annual payments increase on July 1 of each year commencing on July 1, 2021. On July 1, 2021, the annual payments were escalated by applying a CPI adjustment of 4.86%. After such escalation, the Partnership receives an annual net payment of $147 million, which is the total annual payment of $158 million, less $11 million related to the allocated utility costs from SOPUS.

These agreements have components related to financing receivables, for which the interest income is recognized in the consolidated statements of income and principal payments are recognized as a reduction to the financing receivables in the consolidated balance sheet. Revenue related to the operation and maintenance service components and major maintenance service components are presented within Transportation, terminaling and storage services – related parties in the consolidated statements of income.

The operation and maintenance service components consist of the Partnership’s obligation to operate the Norco Assets over the life of the agreements. It is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and, therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on the number of days elapsed.

The major maintenance service components consist of the Partnership’s obligation to provide major maintenance on the Norco Assets such that the current capacity available to the customers is maintained over the life of the agreements. It is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and, therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time using the input method (cost-to-cost method) based on the ratio of actual major maintenance costs incurred to date to the total forecasted major maintenance costs over the contract term.

We allocate the arrangement consideration between the components based on the relative stand-alone selling price of each component in accordance with the revenue standard. The Partnership established the stand-alone selling price for the financing components based off an expected return on the assets being financed. The Partnership established the stand-alone selling price for the service components using expected cost-plus margin approach based on the Partnership’s forecasted costs of satisfying the performance obligation plus an appropriate margin for the service. The key assumptions include forecasts of the future operation and maintenance costs and major maintenance costs and the expected margin with respect to the service components and the expected return on the assets with respect to the financing components. Index-based inflation escalations represent variable consideration. In the period when index-based inflation escalations become effective, such escalations will be allocated based on the relative standalone selling prices established at the inception of the terminaling service agreements.

In the third quarter of 2021, a force majeure was declared under the terminaling service agreements as a result of Hurricane Ida when the Norco Assets were shut down following the hurricane. This event resulted in a combined decrease to terminaling service revenue and interest income of approximately $3 million for the year ended December 31, 2021.

Deferred revenue

Our FERC-approved transportation services agreements on Zydeco entitle the customer to a specified amount of guaranteed capacity on the pipeline. This capacity cannot be pro rated even if the pipeline is oversubscribed. In exchange, the customer makes a specified monthly payment regardless of the volume transported. If the customer does not ship its full guaranteed volume in a given month, it makes the full monthly cash payment (i.e., deficiency payments) and it may ship the unused volume in a later month for no additional cash payment for up to 12 months, subject to availability on the pipeline. The cash payment received is recognized as deferred revenue, a contract liability under the revenue standard. If there is insufficient capacity on the pipeline to allow the unused volume to be shipped, the customer forfeits its right to ship such unused volume. We do not refund any cash payments relating to unused volumes.

Under the revenue standard, we are required to estimate the likelihood that unused volumes will be shipped or forfeited at each reporting period based on additional data that becomes available and only to the extent that it is probable that a significant reversal of revenue will not occur. In some cases, this estimate could result in the earlier recognition of revenue.

We also recognize deferred revenue on the major maintenance service components of the terminaling service agreement related to Norco Assets when we invoice SOPUS and Shell Chemical for the minimum volume commitment. Please refer to the Terminaling services revenues - Norco Assets section above for additional revenue recognition discussion.

Reimbursements from customers

Under certain transportation, terminaling and storage service contracts, we receive reimbursements from customers to recover costs of construction, maintenance or operating costs either under a tariff surcharge per volume shipped or under separate reimbursement payments. Because we consider these amounts as consideration from customers associated with ongoing services to be provided to customers, we defer these payments in deferred revenue and recognize amounts in revenue over the life of the associated revenue contract as performance obligations are satisfied under the contract. We consider these payments to be revenue because control of the long-lived assets does not transfer to our customer upon completion. Our financial statements were not materially impacted by adoption of the revenue standard related to reimbursements from customers.

Product revenue

We generate revenue by selling accumulated allowance oil inventory to customers. The sale of allowance oil is recorded as product revenue, with specific cost based on a weighted average price per barrel recorded as cost of product sold.

Joint tariff

Under a certain joint tariff, we record revenues on a gross basis within Transportation, terminaling and storage services – third parties or related parties because we control the transportation service before it is transferred to the customer and are therefore the principal.

Contract Balances

We perform our obligations under a contract with a customer by providing services in exchange for consideration from the customer. The timing of our performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer goods or services to a customer and contractually bill an amount which is less than the revenue allocated to the related performance obligation. We recognize deferred revenue (contract liability) when the customer’s payment of consideration precedes our performance. The following table provides information about receivables and contract liabilities from contracts with customers:

	January 1, 2021		December 31, 2021
Receivables from contracts with customers – third parties	$	19	$	13
Receivables from contracts with customers – related parties	18		35
Contract Assets - related parties	233		218
Deferred revenue – third parties	4		2
Deferred revenue – related parties (1)	19		31

	January 1, 2020		December 31, 2020
Receivables from contracts with customers – third parties	$	11	$	19
Receivables from contracts with customers – related parties	24		18
Contract Assets - related parties	—		233
Deferred revenue – third parties	—		4
Deferred revenue – related parties (1)	—		19

(1) Deferred revenue - related parties is related to deficiency credits from certain minimum volume commitment contracts and certain components of our terminaling service contracts on the Norco Assets.

In connection with the April 2020 Transaction, we also recorded contract assets based on the difference between the consideration allocated to the Norco Transaction and the recognized financing receivables. The contract assets represent the excess of the fair value embedded within the terminaling services agreements transferred by the Partnership to SOPUS and Shell Chemical as part of entering into the terminaling services agreements. The contract assets balance is amortized in a pattern consistent with the recognition of revenue on the service components of the contract. The portion of the contract assets related to operations and maintenance is amortized on a straight-line basis over a fifteen-year period, and the portion related to major maintenance is amortized based on the ratio of actual major maintenance costs incurred to the total projected major maintenance costs over the fifteen year term. We recorded amortization as a component of Transportation, terminaling and storage services – related parties of $15 million and $11 million for the year ended December 31, 2021 and 2020, respectively. We had $218 million and $233 million contract assets recognized from the costs to obtain or fulfill a contract as of December 31, 2021 and 2020, respectively.

The estimated future amortization related to the contract assets for the next five years is as follows:

	2022		2023		2024		2025		2026
Amortization	$	17	$	17	$	18	$	19	$	16

Significant changes in the deferred revenue balances with customers during the period are as follows:

	December 31, 2020		Additions (1)		Reductions (2)		December 31, 2021
Deferred revenue – third parties	$	4	$	4	$	(6)	$	2
Deferred revenue – related parties	19		27		(15)		31

(1) Deferred revenue additions resulted from $21 million deficiency payments from minimum volume commitment contracts and $10 million of deferred revenue related to the major maintenance service components of our terminaling service contracts on the Norco Assets.

(2) Deferred revenue reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.

	December 31, 2019		Additions (1)		Reductions (2)		December 31, 2020
Deferred revenue – third parties	$	—	$	8	$	(4)	$	4
Deferred revenue – related parties	—		21		(2)		19

(1) Deferred revenue additions resulted from $24 million deficiency payments from minimum volume commitment contracts and $5 million of deferred revenue related to the major maintenance service components of our terminaling service contracts on the Norco Assets.

(2) Deferred revenue reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.

Remaining Performance Obligations

The following table includes revenue expected to be recognized in the future related to performance obligations exceeding one year of their initial terms that are unsatisfied or partially unsatisfied as of December 31, 2021:

	Total		2022		2023		2024		2025		2026 and beyond
Revenue expected to be recognized on multi-year committed shipper transportation contracts	$	410	$	63	$	63	$	57	$	50	$	177
Revenue expected to be recognized on other multi-year transportation service contracts (1)	29		6		6		6		5		6
Revenue expected to be recognized on multi-year storage service contracts	18		10		4		4		—		—
Revenue expected to be recognized on multi-year terminaling service contracts (1)	281		47		47		47		48		92
Revenue expected to be recognized on multi-year operation and major maintenance terminaling service contracts(2)	1,481		113		119		123		127		999
Total	$	2,219	$	239	$	239	$	237	$	230	$	1,274

(1) Relates to the non-lease service components of certain of our long-term transportation and terminaling service contracts which are accounted for as operating leases.

(2) Relates to the operation and maintenance service components and the major maintenance service components of our terminaling service contracts on the Norco Assets in connection with the April 2020 Transaction.

As an exemption under the revenue standard, we do not disclose the amount of remaining performance obligations for contracts with an original expected duration of one year or less or for variable consideration that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.