LEASES

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

LEASES

LEASES

As a Lessee

The Company has operating leases for corporate offices, other various premises, equipment and land. Some leases have an option to renew for periods of one to 25 years, and some may include options to terminate the lease within one year. Payments due under lease contracts include fixed payments plus, for many of the Company's leases, variable payments such as a proportionate share of the buildings' property taxes, insurance and common area maintenance. The Company subleases some of the leased premises.

Operating lease cost was as follows:

year ended December 31
(millions of Canadian $)	2022	2021
Operating lease cost1	106	105
Sublease income	(5)	(8)
Net operating lease cost	101	97

1    Includes short-term leases and variable lease costs.

Other information related to operating leases is noted in the following tables:

year ended December 31
(millions of Canadian $)	2022	2021
Cash paid for amounts included in the measurement of operating lease liabilities	67	69
ROU assets obtained in exchange for new operating lease liabilities	49	7

at December 31	2022		2021
Weighted average remaining lease term	8 years		9 years
Weighted average discount rate	3.5	%	3.5	%

Maturities of operating lease liabilities are as follows:

(millions of Canadian $)	2022	2021
Less than one year	68	63
One to two years	65	60
Two to three years	62	58
Three to four years	60	55
Four to five years	54	54
More than five years	187	213
Total operating lease payments	496	503
Imputed interest	(63)	(74)
Operating lease liabilities	433	429

The amounts recognized on TC Energy's Consolidated balance sheet for its operating lease liabilities were as follows:

at December 31
(millions of Canadian $)	2022	2021
Accounts payable and other	54	49
Other long-term liabilities (Note 18)	379	380
	433	429

As at December 31, 2022, the carrying value of the ROU assets recorded under operating leases was $415 million (2021 – $415 million) and is included in Plant, property and equipment on the Consolidated balance sheet.

As a Lessor

Operating Leases

The Grandview and Bécancour power plants in the Power and Energy Solutions segment are accounted for as operating leases. The Company has long-term PPAs for the sale of power from these assets which expire between 2024 and 2026.

Some operating leases contain variable lease payments that are based on operating hours and the reimbursement of variable costs, and options to purchase the underlying asset at fair value or based on a formula considering the remaining fixed payments. Lessees have rights under some leases to terminate under certain circumstances.

The Company also leases liquids tanks which are accounted for as operating leases.

The fixed portion of the operating lease income recorded by the Company for the year ended December 31, 2022 was $118 million (2021 – $126 million; 2020 – $130 million).

Future lease payments to be received under operating leases are as follows:

(millions of Canadian $)	2022	2021
Less than one year	113	113
One to two years	111	111
Two to three years	94	110
Three to four years	70	94
Four to five years	—	70
	388	498

The cost and accumulated depreciation for facilities accounted for as operating leases was $802 million and $360 million, respectively, at December 31, 2022 (2021 – $812 million and $340 million, respectively).

Sales-Type Leases

On August 4, 2022, TC Energy announced a strategic alliance with Mexico’s state-owned electric utility, the Comisión Federal de Electricidad (CFE), for the development of new natural gas infrastructure in central and southeast Mexico. This alliance consolidates previous TSAs executed between TC Energy’s Mexico-based subsidiary TGNH and the CFE in connection with the Company's natural gas pipeline assets in central Mexico (including the Tamazunchale, Villa de Reyes and Tula pipelines) under a single, U.S. dollar-denominated take-or-pay TSA that extends through 2055.

The consolidated TSA contains a lease with multiple lease and non-lease components. The lease components represent the capacity available to the CFE provided by the in-service pipelines which, at December 31, 2022, included the Tamazunchale pipeline, the north section of the Villa de Reyes pipeline and the east section of the Tula pipeline. The non-lease components represent the Company’s services with respect to operation and maintenance of the TGNH pipelines in service.

The consolidated TSA provides the CFE with substantially all of the economic benefits from the use of each identified in-service asset, therefore, the lease arrangements in the consolidated TSA are classified as sales-type leases.

The Company allocated a portion of the contract consideration to non-lease components for the provision of operating and maintenance services based on the stand-alone selling price using an expected cost plus margin approach. The remaining consideration was allocated to the lease components using the residual approach due to uncertainty surrounding the stand-alone selling price.

At lease commencement, the Company recognized an aggregate net investment in sales-type leases. The TGNH pipelines are rate-regulated and the tolls are designed to recover the cost of providing service. On this basis, the Company applied judgment to determine that, at the inception of the lease arrangement, the fair value of the underlying assets approximated the carrying value and the residual value approximated the remaining carrying value at the end of the lease term.

The following table lists the components of the aggregate Net investment in leases reflected on the Company's Consolidated balance sheet:

(millions of Canadian $)	December 31, 2022
Net Investment in Leases
Minimum lease payments	9,457
Unearned lease income	(7,132)
Lease receivable	2,325
Expected credit loss provision1	(150)
Present value of unguaranteed residual value	11
	2,186
Current portion included in Other current assets (Note 8)	(291)
	1,895

1Includes $1 million of foreign currency translation losses.

Future lease payments to be received under the existing sales-type leases are as follows:

(millions of Canadian $)	December 31, 2022
Less than one year	291
One to two years	291
Two to three years	291
Three to four years	291
Four to five years	291
More than five years	8,002
	9,457

Future lease payments will increase as assets associated with sales-type leases come into service.

For the year ended December 31, 2022, the Company recorded $127 million of sales-type lease income in Mexico Natural Gas Pipelines revenues.

For the year ended December 31, 2022, the Company recorded a $149 million (2021 and 2020 – nil) ECL provision in Plant operating costs and other relating to net investment in leases. Refer to Note 28, Risk management and financial instruments, for additional information.

LEASES

LEASES

As a Lessee

The Company has operating leases for corporate offices, other various premises, equipment and land. Some leases have an option to renew for periods of one to 25 years, and some may include options to terminate the lease within one year. Payments due under lease contracts include fixed payments plus, for many of the Company's leases, variable payments such as a proportionate share of the buildings' property taxes, insurance and common area maintenance. The Company subleases some of the leased premises.

Operating lease cost was as follows:

year ended December 31
(millions of Canadian $)	2022	2021
Operating lease cost1	106	105
Sublease income	(5)	(8)
Net operating lease cost	101	97

1    Includes short-term leases and variable lease costs.

Other information related to operating leases is noted in the following tables:

year ended December 31
(millions of Canadian $)	2022	2021
Cash paid for amounts included in the measurement of operating lease liabilities	67	69
ROU assets obtained in exchange for new operating lease liabilities	49	7

at December 31	2022		2021
Weighted average remaining lease term	8 years		9 years
Weighted average discount rate	3.5	%	3.5	%

Maturities of operating lease liabilities are as follows:

(millions of Canadian $)	2022	2021
Less than one year	68	63
One to two years	65	60
Two to three years	62	58
Three to four years	60	55
Four to five years	54	54
More than five years	187	213
Total operating lease payments	496	503
Imputed interest	(63)	(74)
Operating lease liabilities	433	429

The amounts recognized on TC Energy's Consolidated balance sheet for its operating lease liabilities were as follows:

at December 31
(millions of Canadian $)	2022	2021
Accounts payable and other	54	49
Other long-term liabilities (Note 18)	379	380
	433	429

As at December 31, 2022, the carrying value of the ROU assets recorded under operating leases was $415 million (2021 – $415 million) and is included in Plant, property and equipment on the Consolidated balance sheet.

As a Lessor

Operating Leases

The Grandview and Bécancour power plants in the Power and Energy Solutions segment are accounted for as operating leases. The Company has long-term PPAs for the sale of power from these assets which expire between 2024 and 2026.

Some operating leases contain variable lease payments that are based on operating hours and the reimbursement of variable costs, and options to purchase the underlying asset at fair value or based on a formula considering the remaining fixed payments. Lessees have rights under some leases to terminate under certain circumstances.

The Company also leases liquids tanks which are accounted for as operating leases.

The fixed portion of the operating lease income recorded by the Company for the year ended December 31, 2022 was $118 million (2021 – $126 million; 2020 – $130 million).

Future lease payments to be received under operating leases are as follows:

(millions of Canadian $)	2022	2021
Less than one year	113	113
One to two years	111	111
Two to three years	94	110
Three to four years	70	94
Four to five years	—	70
	388	498

The cost and accumulated depreciation for facilities accounted for as operating leases was $802 million and $360 million, respectively, at December 31, 2022 (2021 – $812 million and $340 million, respectively).

Sales-Type Leases

On August 4, 2022, TC Energy announced a strategic alliance with Mexico’s state-owned electric utility, the Comisión Federal de Electricidad (CFE), for the development of new natural gas infrastructure in central and southeast Mexico. This alliance consolidates previous TSAs executed between TC Energy’s Mexico-based subsidiary TGNH and the CFE in connection with the Company's natural gas pipeline assets in central Mexico (including the Tamazunchale, Villa de Reyes and Tula pipelines) under a single, U.S. dollar-denominated take-or-pay TSA that extends through 2055.

The consolidated TSA contains a lease with multiple lease and non-lease components. The lease components represent the capacity available to the CFE provided by the in-service pipelines which, at December 31, 2022, included the Tamazunchale pipeline, the north section of the Villa de Reyes pipeline and the east section of the Tula pipeline. The non-lease components represent the Company’s services with respect to operation and maintenance of the TGNH pipelines in service.

The consolidated TSA provides the CFE with substantially all of the economic benefits from the use of each identified in-service asset, therefore, the lease arrangements in the consolidated TSA are classified as sales-type leases.

The Company allocated a portion of the contract consideration to non-lease components for the provision of operating and maintenance services based on the stand-alone selling price using an expected cost plus margin approach. The remaining consideration was allocated to the lease components using the residual approach due to uncertainty surrounding the stand-alone selling price.

At lease commencement, the Company recognized an aggregate net investment in sales-type leases. The TGNH pipelines are rate-regulated and the tolls are designed to recover the cost of providing service. On this basis, the Company applied judgment to determine that, at the inception of the lease arrangement, the fair value of the underlying assets approximated the carrying value and the residual value approximated the remaining carrying value at the end of the lease term.

The following table lists the components of the aggregate Net investment in leases reflected on the Company's Consolidated balance sheet:

(millions of Canadian $)	December 31, 2022
Net Investment in Leases
Minimum lease payments	9,457
Unearned lease income	(7,132)
Lease receivable	2,325
Expected credit loss provision1	(150)
Present value of unguaranteed residual value	11
	2,186
Current portion included in Other current assets (Note 8)	(291)
	1,895

1Includes $1 million of foreign currency translation losses.

Future lease payments to be received under the existing sales-type leases are as follows:

(millions of Canadian $)	December 31, 2022
Less than one year	291
One to two years	291
Two to three years	291
Three to four years	291
Four to five years	291
More than five years	8,002
	9,457

Future lease payments will increase as assets associated with sales-type leases come into service.

For the year ended December 31, 2022, the Company recorded $127 million of sales-type lease income in Mexico Natural Gas Pipelines revenues.

For the year ended December 31, 2022, the Company recorded a $149 million (2021 and 2020 – nil) ECL provision in Plant operating costs and other relating to net investment in leases. Refer to Note 28, Risk management and financial instruments, for additional information.

LEASES

LEASES

As a Lessee

The Company has operating leases for corporate offices, other various premises, equipment and land. Some leases have an option to renew for periods of one to 25 years, and some may include options to terminate the lease within one year. Payments due under lease contracts include fixed payments plus, for many of the Company's leases, variable payments such as a proportionate share of the buildings' property taxes, insurance and common area maintenance. The Company subleases some of the leased premises.

Operating lease cost was as follows:

year ended December 31
(millions of Canadian $)	2022	2021
Operating lease cost1	106	105
Sublease income	(5)	(8)
Net operating lease cost	101	97

1    Includes short-term leases and variable lease costs.

Other information related to operating leases is noted in the following tables:

year ended December 31
(millions of Canadian $)	2022	2021
Cash paid for amounts included in the measurement of operating lease liabilities	67	69
ROU assets obtained in exchange for new operating lease liabilities	49	7

at December 31	2022		2021
Weighted average remaining lease term	8 years		9 years
Weighted average discount rate	3.5	%	3.5	%

Maturities of operating lease liabilities are as follows:

(millions of Canadian $)	2022	2021
Less than one year	68	63
One to two years	65	60
Two to three years	62	58
Three to four years	60	55
Four to five years	54	54
More than five years	187	213
Total operating lease payments	496	503
Imputed interest	(63)	(74)
Operating lease liabilities	433	429

The amounts recognized on TC Energy's Consolidated balance sheet for its operating lease liabilities were as follows:

at December 31
(millions of Canadian $)	2022	2021
Accounts payable and other	54	49
Other long-term liabilities (Note 18)	379	380
	433	429

As at December 31, 2022, the carrying value of the ROU assets recorded under operating leases was $415 million (2021 – $415 million) and is included in Plant, property and equipment on the Consolidated balance sheet.

As a Lessor

Operating Leases

The Grandview and Bécancour power plants in the Power and Energy Solutions segment are accounted for as operating leases. The Company has long-term PPAs for the sale of power from these assets which expire between 2024 and 2026.

Some operating leases contain variable lease payments that are based on operating hours and the reimbursement of variable costs, and options to purchase the underlying asset at fair value or based on a formula considering the remaining fixed payments. Lessees have rights under some leases to terminate under certain circumstances.

The Company also leases liquids tanks which are accounted for as operating leases.

The fixed portion of the operating lease income recorded by the Company for the year ended December 31, 2022 was $118 million (2021 – $126 million; 2020 – $130 million).

Future lease payments to be received under operating leases are as follows:

(millions of Canadian $)	2022	2021
Less than one year	113	113
One to two years	111	111
Two to three years	94	110
Three to four years	70	94
Four to five years	—	70
	388	498

The cost and accumulated depreciation for facilities accounted for as operating leases was $802 million and $360 million, respectively, at December 31, 2022 (2021 – $812 million and $340 million, respectively).

Sales-Type Leases

On August 4, 2022, TC Energy announced a strategic alliance with Mexico’s state-owned electric utility, the Comisión Federal de Electricidad (CFE), for the development of new natural gas infrastructure in central and southeast Mexico. This alliance consolidates previous TSAs executed between TC Energy’s Mexico-based subsidiary TGNH and the CFE in connection with the Company's natural gas pipeline assets in central Mexico (including the Tamazunchale, Villa de Reyes and Tula pipelines) under a single, U.S. dollar-denominated take-or-pay TSA that extends through 2055.

The consolidated TSA contains a lease with multiple lease and non-lease components. The lease components represent the capacity available to the CFE provided by the in-service pipelines which, at December 31, 2022, included the Tamazunchale pipeline, the north section of the Villa de Reyes pipeline and the east section of the Tula pipeline. The non-lease components represent the Company’s services with respect to operation and maintenance of the TGNH pipelines in service.

The consolidated TSA provides the CFE with substantially all of the economic benefits from the use of each identified in-service asset, therefore, the lease arrangements in the consolidated TSA are classified as sales-type leases.

The Company allocated a portion of the contract consideration to non-lease components for the provision of operating and maintenance services based on the stand-alone selling price using an expected cost plus margin approach. The remaining consideration was allocated to the lease components using the residual approach due to uncertainty surrounding the stand-alone selling price.

At lease commencement, the Company recognized an aggregate net investment in sales-type leases. The TGNH pipelines are rate-regulated and the tolls are designed to recover the cost of providing service. On this basis, the Company applied judgment to determine that, at the inception of the lease arrangement, the fair value of the underlying assets approximated the carrying value and the residual value approximated the remaining carrying value at the end of the lease term.

The following table lists the components of the aggregate Net investment in leases reflected on the Company's Consolidated balance sheet:

(millions of Canadian $)	December 31, 2022
Net Investment in Leases
Minimum lease payments	9,457
Unearned lease income	(7,132)
Lease receivable	2,325
Expected credit loss provision1	(150)
Present value of unguaranteed residual value	11
	2,186
Current portion included in Other current assets (Note 8)	(291)
	1,895

1Includes $1 million of foreign currency translation losses.

Future lease payments to be received under the existing sales-type leases are as follows:

(millions of Canadian $)	December 31, 2022
Less than one year	291
One to two years	291
Two to three years	291
Three to four years	291
Four to five years	291
More than five years	8,002
	9,457

Future lease payments will increase as assets associated with sales-type leases come into service.

For the year ended December 31, 2022, the Company recorded $127 million of sales-type lease income in Mexico Natural Gas Pipelines revenues.

For the year ended December 31, 2022, the Company recorded a $149 million (2021 and 2020 – nil) ECL provision in Plant operating costs and other relating to net investment in leases. Refer to Note 28, Risk management and financial instruments, for additional information.