NOTE 5 EQUITY INVESTMENTS

The Partnership has equity interests in Northern Border, Great Lakes and, effective June 1, 2017, Iroquois. The pipeline systems owned by these entities are regulated by FERC. The pipeline systems of Northern Border and Great Lakes are operated by subsidiaries of TransCanada. The Iroquois pipeline system is operated by Iroquois Pipeline Operating Company, a wholly owned subsidiary of Iroquois. The Partnership uses the equity method of accounting for its interests in its equity investees. The Partnership's equity investments are held through our ILPs that are considered to be variable interest entities (VIEs). Refer to Note 23, Variable Interest Entities.

		Equity Earnings(b)			Equity Investments
		Year ended December 31			December 31
	Ownership Interest at December 31, 2017	Year ended December 31			December 31
(millions of dollars)	Ownership Interest at December 31, 2017	2017	2016(c)	2015	2017	2016(c)

Northern Border(a)	50.00%	67	69	66	512	444
Great Lakes	46.45%	31	28	31	479	474
Iroquois	49.34%	26	–	–	222	–

		124	97	97	1,213	918


(a)	Equity earnings from Northern Border is net of the 12-year amortization of a $10 million transaction fee paid to the operator of Northern Border at the time of the Partnership's acquisition of an additional 20 percent in April 2006.
(b)	Equity Earnings represents our share in investee's earnings and does not include any impairment charge on the equity method investment recorded as a reduction of carrying value of these investments. Accordingly, no impairment charge was recorded by the Partnership on its equity investees for all the periods presented here except the $199 million impairment recognized in 2015 on our investment in Great Lakes as discussed below.
(c)	Recast to eliminate equity earnings from PNGTS and consolidate PNGTS (Refer to Notes 2 and 7).

Distributions from Equity Investments

As a result of adoption of FASB ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, the Partnership changed its method of accounting for the classification of distributions received from equity investments from cumulative earnings approach to nature of distributions approach effective January 1, 2014, as it is more representative of the nature of the underlying activities of the investees that generated the distributions. As a result, distributions received from equity method investees in 2015, amounting to $25 million, have been reclassified from investing activities to cash generated from operations in the consolidated statement of cash flows.

Distributions received from equity investments for the year ended December 31, 2017 were $145 million (2016 – $153 million; 2015 – $119 million) of which $5 million (2016 and 2015 – none) was considered a return of capital and is included in Investing activities in the Partnership's consolidated statement of cash flows. The return of capital was related to our investment in Iroquois (see further discussion below).

Northern Border

The Partnership, through its interest in TC PipeLines Intermediate Limited Partnership owns a 50 percent general partner interest in Northern Border. The other 50 percent partnership interest in Northern Border is held by ONEOK Partners, L.P., a publicly traded limited partnership.TC PipeLines Intermediate Limited Partnership, as one of the general partners, may be exposed to the commitments and contingencies of Northern Border. The Partnership holds a 98.9899 percent limited partnership interest in TC PipeLines Intermediate Limited Partnership.

On September 1, 2017, the Partnership made an equity contribution to Northern Border amounting to $83 million. This amount represents the Partnership's 50 percent share of a $166 million capital contribution request from Northern Border to reduce the outstanding balance of its revolving credit facility to increase its available borrowing capacity.

The Partnership recorded no undistributed earnings from Northern Border for the years ended December 31, 2017, 2016 and 2015. At December 31, 2017 the Partnership had a $115 million (December 31, 2016 – $116 million) difference between the carrying value of Northern Border and the underlying equity in the net assets primarily resulting from the recognition and inclusion of goodwill in the Partnership's investment in Northern Border relating to the Partnership's April 2006 acquisition of an additional 20 percent general partnership interest in Northern Border.

Northern Border's 2013 settlement agreement required Northern Border to file for new rates no later than January 1, 2018. On December 4, 2017, Northern Border filed a rate settlement with FERC which precluded the need to file a general rate case by January 1, 2018. The 2017 Northern Border Settlement which was approved by FERC on February 23, 2018, provides for tiered rate reductions beginning January 1, 2018, with no change to the underlying rate design. The 2017 Northern Border Settlement does not contain a moratorium provision and, unless superseded by a subsequent rate case or settlement, recourse rates in effect at December 31, 2017, will decrease by 5.0% on January 1, 2018; by an additional 5.50% on April 1, 2018; and by an additional 2.0% beginning January 1, 2020 through December 31, 2023, when Northern Border will be required to establish new rates. This equates to an overall rate reduction of 12.5% by January 1, 2020 from the recourse rates in effect at December 31, 2017.

The 2017 Northern Border Settlement will provide Northern Border with rate stability over the longer term. We do not believe that the rate reduction as described above will have a material impact on the Partnership's results and, therefore, we do not believe the settlement outcome has negatively impacted the underlying value of our investment in Northern Border. The overall long-term market fundamentals of Northern Border continue to be positive due to its strategic footprint. Northern Border remains a key competitive pipeline and continues to operate at full capacity connecting major supply basins with communities in the Midwestern U.S. Accordingly, no impairment has been identified in our investment in Northern Border.

The summarized financial information provided to us by Northern Border is as follows:

December 31 (millions of dollars)		2017		2016

Assets
Cash and cash equivalents		14		14
Other current assets		36		36
Plant, property and equipment, net		1,063		1,089
Other assets		14		14

		1,127		1,153

Liabilities and Partners' Equity
Current liabilities		38		38
Deferred credits and other		31		28
Long-term debt, net(a)		264		430
Partners' equity
	Partners' capital	795		659
	Accumulated other comprehensive loss	(1	)	(2	)

		1,127		1,153

Year ended December 31 (millions of dollars)	2017		2016		2015

Transmission revenues	291		292		286
Operating expenses	(78	)	(72	)	(70	)
Depreciation	(59	)	(59	)	(60	)
Financial charges and other	(18	)	(21	)	(22	)

Net income	136		140		134


(a)	No current maturities as of December 31, 2017 or 2016.

Great Lakes

The Partnership, through its interest in TC GL Intermediate Limited Partnership, owns a 46.45 percent general partner interest in Great Lakes. TransCanada owns the other 53.55 percent partnership interest. TC GL Intermediate Limited Partnership, as one of the general partners, may be exposed to the commitments and contingencies of Great Lakes. The Partnership holds a 98.9899 percent limited partnership interest in TC GL Intermediate Limited Partnership.

The Partnership recorded no undistributed earnings from Great Lakes for the years ended December 31, 2017, 2016, and 2015.

The Partnership made equity contributions to Great Lakes of $4 million and $5 million in the first and fourth quarter of 2017, respectively. These amounts represent the Partnership's 46.45 percent share of a $9 million and $10 million cash call from Great Lakes to make scheduled debt repayments.

During the fourth quarter of 2015, we recorded an impairment charge of $199 million on our investment in Great Lakes. The impairment charge was the result of our determination that our investment in Great Lakes' long-term value had been adversely impacted by the changing natural gas flows in its market region and that other strategic alternatives to increase its utilization or revenue were no longer feasible. The impairment charge reduced the difference between the carrying value of our investment in Great Lakes and the underlying equity in the net assets, to $260 million and the difference represented the equity method goodwill remaining in our investment in Great Lakes relating to the Partnership's February 2007 acquisition of a 46.45 percent general partner interest in Great Lakes.

On October 30, 2017, Great Lakes filed a rate settlement with FERC to satisfy its obligations from its 2013 rate settlement for new rates to be in effect by January 1, 2018. The 2017 Great Lakes Settlement does not contain a moratorium provision and Great Lakes will be required to file for new rates no later than March 31, 2022, with new rates to be effective October 1, 2022. The 2017 Great Lakes Settlement, which was approved by FERC on February 22, 2018, decreased Great Lakes' maximum transportation rates by 27 percent effective October 1, 2017. At December 31, 2017, the estimation of fair value on the remaining equity investment in Great Lakes was completed and we concluded the fair value of our investment in Great Lakes has not materially changed from 2015.

The assumptions we used in the analysis related to the estimated fair value of our remaining equity investment in Great Lakes included the reduction in Great Lakes' rates effective October 1, 2017. The reduction in rates was offset by expected cash flows from the long-term transportation contract with the TransCanada other revenue opportunities on the system and the settlement's elimination of the revenue sharing mechanism with its customers. Although evolving market conditions and other factors relevant to Great Lakes' long term financial performance have remained positive, there is a risk that reductions in future cash flow forecasts or adverse changes in other key assumptions could result in an additional future impairment of the carrying value of our investment in Great Lakes.

Our key assumptions could be negatively impacted by near and long-term conditions including:


•	future regulatory rate action or settlement,
•	valuation of Great lakes in future transactions,
•	changes in customer demand at Great Lakes for pipeline capacity and services,
•	changes in North American natural gas production in the major producing basins,
•	changes in natural gas prices and natural gas storage market conditions,
•	discount rates and multiples used, and
•	changes in other long-term strategic objectives.

The summarized financial information provided to us by Great Lakes is as follows:

December 31 (millions of dollars)	2017	2016

Assets
Current assets	107	66
Plant, property and equipment, net	701	714

	808	780

Liabilities and Partners' Equity
Current liabilities	75	40
Long-term debt, net(a)	259	278
Other long term liabilities	1	–
Partners' equity	473	462

	808	780

Year ended December 31 (millions of dollars)	2017		2016		2015

Transmission revenues	181		179		177
Operating expenses	(66	)	(69	)	(59	)
Depreciation	(29	)	(28	)	(28	)
Financial charges and other	(20	)	(21	)	(23	)

Net income	66		61		67


(a)	Includes current maturities of $19 million as of December 31, 2017 (December 31, 2016 – $19 million).

Iroquois

On June 1, 2017, the Partnership, through its interest in TC PipeLines Intermediate Limited Partnership acquired a 49.34 percent interest in Iroquois. For the year ended December 31, 2017, The Partnership received distributions from Iroquois amounting to $27 million which includes the Partnership's 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $5 million (Refer to Note 7). This amount is reported as distributions received as return of investment in the Partnership's consolidated statement of cash flows.

The Partnership recorded no undistributed earnings for the period from June 1, 2017, acquisition date through December 31, 2017. At December 31, 2017, the Partnership had a $41 million difference between the carrying value of Iroquois and the underlying equity in the net assets primarily from TransCanada's carrying value and is due to their fair value assessment of Iroquois' assets at the time of its acquisition of interests from third parties (refer to Note 2-Acquisitions and Goodwill for our accounting policy on acquisitions from TransCanada)

The summarized financial information provided to us by Iroquois for the period from the June 1, 2017 acquisition date through December 31, 2017 is as follows:

(millions of dollars)		At December 31, 2017

ASSETS
Cash and cash equivalents		86
Other current assets		36
Plant, property and equipment, net		591
Other assets		8

		721

LIABILITIES AND PARTNERS' EQUITY
Current liabilities		17
Net long-term debt, including current maturities(a)		329
Other non-current liabilities		9
Partners' equity		366

		721

Period of 7 months ended December 31 (millions of dollars)		2017

Transmission revenues		110
Operating expenses		(32)
Depreciation		(17)
Financial charges and other		(9)

Net income		52


(a)	Includes current maturities of $4 million as of December 31, 2017.