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.


	Ownership
	Interest at		Equity Earnings (b)			Equity Investments
	December 31,		Year ended December 31			December 31
(millions of dollars)	2018		2018	2017	2016(c)	2018	2017
Northern Border(a)	50.00	%	68	67	69	497	512
Great Lakes	46.45	%	59	31	28	489	479
Iroquois	49.34	%	46	26	—	210	222
			173	124	97	1,196	1,213

^(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.

^(c)

Recast to eliminate equity earnings from PNGTS and consolidate PNGTS (Refer to Notes 2 and 8).

Distributions from Equity Investments

Distributions received from equity investments for the year ended December 31, 2018 were $198 million (2017 - $145 million; 2016 - $153 million) of which $10 million (2017 - $5 million and 2016 - 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 a subsidiary of ONEOK, Inc. TC PipeLines Intermediate Limited Partnership, as one of the general partners, may be exposed to the commitments and contingencies of Northern Border. The Partnership effectively holds a 100% percent 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, 2018, 2017 and 2016. At December 31, 2018 the Partnership had a $115 million (December 31, 2017 - $115 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.

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


December 31 (millions of dollars)	2018	2017

Assets
Cash and cash equivalents	10	14
Other current assets	36	36
Property, plant and equipment, net	1,037	1,063
Other assets	13	14
	1,096	1,127

Liabilities and Partners’ Equity
Current liabilities	34	38
Deferred credits and other	35	31
Long-term debt, net (a)	264	264
Partners’ equity
Partners’ capital	764	795
Accumulated other comprehensive loss	(1)	(1)
	1,096	1,127


Year ended December 31 (millions of dollars)	2018	2017	2016

Transmission revenues	289	291	292
Operating expenses	(78)	(78)	(72)
Depreciation	(60)	(59)	(59)
Financial charges and other	(15)	(18)	(21)
Net income	136	136	140

^(a)

No current maturities as of December 31, 2018 or 2017.

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 effectively holds a 100 percent partnership interest in TC GL Intermediate Limited Partnership.

The Partnership recorded no undistributed earnings from Great Lakes for the years ended December 31, 2018, 2017, and 2016.

The Partnership made equity contributions to Great Lakes of $4 million and $5 million in the first and fourth quarter of 2018, 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.

At December 31, 2018, the equity method goodwill balance related to Great Lakes amounted to $260 million (December 31, 2017 - $260 million). The equity method goodwill relates to the Partnership’s February 2007 acquisition of a 46.45 percent general partner interest in Great Lakes and is the difference between the carrying value of our investment in Great Lakes and the underlying equity in Great Lakes’ net assets.

During the fourth quarter of 2018, Great Lakes finalized its regulatory approach in response to the 2018 FERC Actions and elected to make a limited NGA section 4 filing with FERC to reduce its maximum rates and eliminate its tax allowance and deferred income tax balances previously used for rate setting. As a result of this action, and because the estimated fair value of our investment in Great Lakes exceeded its carrying value by less than 10 percent in its 2017 valuation, we performed a quantitative test to determine if there was other than temporary decline in Great Lakes’ fair value. At December 31, 2018, the estimation of the fair value of our remaining equity investment in Great Lakes was completed and we concluded the fair value of our investment exceeded its current carrying value by more than 10 percent.

The assumptions we used in the analysis related to the estimated fair value of our equity investment in Great Lakes included expected results from its limited NGA Section 4 filing, revenue opportunities on the system as well as changes to other valuation assumptions responsive to Great Lakes’ commercial environment, which includes estimates related to discount rates and earnings multiples. Although our analysis indicated that evolving market conditions and other factors relevant to Great Lakes’ long-term financial performance have been positive, there is a risk that reductions in future cash flow forecasts or adverse changes in other key assumptions could result in an impairment of the carrying value of our investment in Great Lakes.

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


December 31 (millions of dollars)	2018	2017

Assets
Current assets	75	107
Property, plant and equipment, net	689	701
	764	808

Liabilities and Partners’ Equity
Current liabilities	26	75
Long-term debt, net (a)	240	259
Other long-term liabilities	4	1
Partners’ equity	494	473
	764	808


Year ended December 31 (millions of dollars)	2018	2017	2016

Transmission revenues	246	181	179
Operating expenses	(68)	(66)	(69)
Depreciation	(32)	(29)	(28)
Financial charges and other	(18)	(20)	(21)
Net income	128	66	61

^(a)

Includes current maturities of $21 million as of December 31, 2018 (December 31, 2017 - $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, 2018, The Partnership received distributions from Iroquois amounting to $56 million (2017 - $27 million) which includes the Partnership’s 49.34 percent share of the Iroquois unrestricted cash distribution amounting to approximately $10 million (2017 - $5 million) (Refer to Note 8). 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 year ended December 31, 2018 and for the period from June 1, 2017, acquisition date, through December 31, 2017. At December 31, 2018 and 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, 2018 is as follows:


December 31 (millions of dollars)	2018	2017

ASSETS
Cash and cash equivalents	80	86
Other current assets	32	36
Property, plant and equipment, net	581	591
Other assets	8	8
	701	721

LIABILITIES AND PARTNERS’ EQUITY
Current liabilities	19	17
Net long-term debt, net (a)	325	329
Other non-current liabilities	14	9
Partners’ equity	343	366
	701	721


		Period of 7 months
	Year ended	ended December 31,
(millions of dollars)	December 31, 2018	2017
Transmission revenues	194	110
Operating expenses	(57)	(32)
Depreciation	(29)	(17)
Financial charges and other	(14)	(9)
Net income	94	52

^(a)

Includes current maturities of $146 million as of December 31, 2018 (December 31, 2017 - $4 million).