NOTE 9 NET INCOME PER COMMON UNIT

Net income per common unit is computed by dividing net income attributable to controlling interests, after deduction of net income attributable to PNGTS’ former parent, amounts attributable to the General Partner and Class B units, by the weighted average number of common units outstanding.

The amount allocable to the General Partner equals an amount based upon the General Partner’s effective two percent general partner interest, plus an amount equal to incentive distributions. Incentive distributions are paid to the General Partner if quarterly cash distributions on the common units exceed levels specified in the Partnership Agreement.

The amount allocable to the Class B units in 2018 equals 30 percent of GTN’s distributable cash flow during the year ended December 31, 2018 less $20 million and is further reduced by the estimated Class B Reduction for 2018 (December 31, 2017 — less the $20 million threshold and the Class B Reduction was not required). During the three and nine months ended September 30, 2018, $4 million was allocated to the Class B units (2017 - $8 million).

Net income per common unit was determined as follows:

	Three months ended						Nine months ended
(unaudited)	September 30,						September 30,
(millions of dollars, except per common unit amounts)	2018			2017			2018			2017

Net income attributable to controlling interests	62			54			231			186
Net income attributable to PNGTS’ former parent (a)	—			—			—			(2		)

Net income attributable to General and Limited Partners	62			54			231			184
Incentive distributions allocated to the General Partner (b)	—			(3		)	—			(9		)
Net income attributable to the Class B units (c)	(4		)	(8		)	(4		)	(8		)

Net income attributable to the General Partner and common units	58			43			227			167
Net income attributable to General Partner’s two percent interest	(1		)	(1		)	(5		)	(3		)

Net income attributable to common units	57			42			222			164
Weighted average common units outstanding (millions) — basic and diluted	71.3			69.4			71.3			68.9
Net income per common unit — basic and diluted	$	0.79		$	0.61		$	3.11		$	2.38

^(a)

Net income allocable to General and Limited Partners excludes net income attributed to PNGTS’ former parent as it was allocated to TransCanada and was not allocable to either the general partner, common units or Class B units.

^(b)

Under the terms of the Partnership Agreement, for any quarterly period, the participation of the incentive distribution rights (IDRs) is limited to the available cash distributions declared. Accordingly, incentive distributions allocated to the General Partner are based on the Partnership’s available cash during the current reporting period, but declared and paid in the subsequent reporting period.

^(c)

During the nine months ended September 30, 2018, 30 percent of GTN’s total distributable cash flow was $31 million. After applying the $20 million annual threshold and the estimated Class B Reduction for 2018, $4 million of net income attributable to controlling interests was allocated to the Class B units for both the three and nine months ended September 30, 2018. During the nine months ended September 30, 2017, 30 percent of GTN’s total distributable cash flow was $28 million. After applying the $20 million annual threshold, $8 million of net income attributable to controlling interests was allocated to the Class B units for both the three and nine months ended September 30, 2018 (Refer to Note 8). The Class B Reduction did not apply in 2017.