Annual Report by a Canadian Issuer — Form 40-F — SEA’34
Filing Table of Contents
Document/ExhibitDescriptionPagesSize
1: 40-F Annual Report by a Canadian Issuer HTML 839K
2: EX-13.1 Annual Information Form HTML 608K
3: EX-13.2 Management's Discussion and Analysis HTML 2.05M
4: EX-13.3 Annual Financial Statements HTML 3.46M
5: EX-23.1 Consent of Independent Registered Public HTML 48K
Accounting Firm
10: EX-97.1 Incentive Compensation Recoupment and Holdback HTML 60K
Policy
11: EX-99.1 Code of Business Ethics Policy, as Amended HTML 141K
6: EX-31.1 CEO Certificate Pursuant to Section 302 HTML 56K
7: EX-31.2 CFO Certificate Pursuant to Section 302 HTML 56K
8: EX-32.1 CEO Certificate Pursuant to Section 906 HTML 50K
9: EX-32.2 CFO Certificate Pursuant to Section 906 HTML 50K
17: R1 Cover Page HTML 116K
18: R2 Audit Information HTML 52K
19: R3 Consolidated statement of income HTML 176K
20: R4 Consolidated statement of comprehensive income HTML 102K
21: R5 Consolidated statement of cash flows HTML 163K
22: R6 Consolidated balance sheet HTML 177K
23: R7 Consolidated balance sheet (Parenthetical) HTML 52K
24: R8 Consolidated statement of equity HTML 141K
25: R9 Description of Tc Energy's Business HTML 52K
26: R10 Accounting Policies HTML 122K
27: R11 Accounting Changes HTML 60K
28: R12 Spinoff of Liquids Pipelines Business HTML 50K
29: R13 Segmented Information HTML 297K
30: R14 Revenues HTML 135K
31: R15 Keystone Xl HTML 71K
32: R16 Coastal Gaslink HTML 152K
33: R17 Other Current Assets HTML 62K
34: R18 Plant, Property and Equipment HTML 244K
35: R19 Leases HTML 244K
36: R20 Equity Investments HTML 152K
37: R21 Loans Receivable From Affiliates HTML 66K
38: R22 Rate-Regulated Businesses HTML 103K
39: R23 Goodwill HTML 77K
40: R24 Other Long-Term Assets HTML 59K
41: R25 Notes Payable HTML 83K
42: R26 Accounts Payable and Other HTML 61K
43: R27 Other Long-Term Liabilities HTML 57K
44: R28 Income Taxes HTML 142K
45: R29 Long-Term Debt HTML 278K
46: R30 Junior Subordinated Notes HTML 88K
47: R31 Foreign Exchange (Gains) Losses, Net HTML 57K
48: R32 Non-Controlling Interests HTML 82K
49: R33 Common Shares HTML 103K
50: R34 Preferred Shares HTML 101K
51: R35 Other Comprehensive Income(Loss) and Accumulated HTML 170K
Other Comprehensive Income(Loss)
52: R36 Employee Post-Retirement Benefits HTML 369K
53: R37 Risk Management and Financial Instruments HTML 399K
54: R38 Changes in Operating Working Capital HTML 60K
55: R39 Acquisitions and Dispositions HTML 51K
56: R40 Commitments, Contingencies and Guarantees HTML 77K
57: R41 Variable Interest Entities HTML 89K
58: R42 Subsequent Event HTML 48K
59: R43 Accounting Policies (Policies) HTML 205K
60: R44 Segmented Information (Tables) HTML 299K
61: R45 Revenues (Tables) HTML 130K
62: R46 Keystone Xl (Tables) HTML 65K
63: R47 Coastal Gaslink (Tables) HTML 57K
64: R48 Other Current Assets (Tables) HTML 62K
65: R49 Plant, Property and Equipment (Tables) HTML 244K
66: R50 Leases (Tables) HTML 113K
67: R51 Equity Investments (Tables) HTML 135K
68: R52 Loans Receivable From Affiliates (Tables) HTML 62K
69: R53 Rate-Regulated Businesses (Tables) HTML 89K
70: R54 Goodwill (Tables) HTML 73K
71: R55 Other Long-Term Assets (Tables) HTML 59K
72: R56 Notes Payable (Tables) HTML 85K
73: R57 Accounts Payable and Other (Tables) HTML 60K
74: R58 Other Long-Term Liabilities (Tables) HTML 57K
75: R59 Income Taxes (Tables) HTML 142K
76: R60 Long-Term Debt (Tables) HTML 286K
77: R61 Junior Subordinated Notes (Tables) HTML 84K
78: R62 Foreign Exchange (Gains) Losses, Net (Tables) HTML 55K
79: R63 Non-Controlling Interests (Tables) HTML 78K
80: R64 Common Shares (Tables) HTML 106K
81: R65 Preferred Shares (Tables) HTML 102K
82: R66 Other Comprehensive Income(Loss) and Accumulated HTML 174K
Other Comprehensive Income(Loss) (Tables)
83: R67 Employee Post-Retirement Benefits (Tables) HTML 386K
84: R68 Risk Management and Financial Instruments (Tables) HTML 437K
85: R69 Changes in Operating Working Capital (Tables) HTML 60K
86: R70 Commitments, Contingencies and Guarantees (Tables) HTML 64K
87: R71 Variable Interest Entities (Tables) HTML 90K
88: R72 Description of Tc Energy's Business (Details) HTML 73K
89: R73 Accounting Policies (Details) HTML 69K
90: R74 Spinoff of Liquids Pipelines Business (Details) HTML 50K
91: R75 SEGMENTED INFORMATION - Schedule of Segment HTML 232K
Reporting Information, by Segment (Details)
92: R76 SEGMENTED INFORMATION - Revenue from External HTML 63K
Customers by Geographic Areas (Details)
93: R77 SEGMENTED INFORMATION - Schedule of Long-Lived HTML 55K
Assets by Country (Details)
94: R78 REVENUES - Disaggregation of Revenues (Details) HTML 119K
95: R79 REVENUES - Contract Balances (Details) HTML 61K
96: R80 REVENUES - Remaining Performance Obligations - HTML 53K
Narrative (Details)
97: R81 KEYSTONE XL - Narrative (Details) HTML 137K
98: R82 KEYSTONE XL - Impairment of Long-Lived Assets Held HTML 101K
and Used (Details)
99: R83 COASTAL GASLINK - Narrative (Details) HTML 84K
100: R84 COASTAL GASLINK - Changes in Loan Balances HTML 60K
(Details)
101: R85 Other Current Assets (Details) HTML 73K
102: R86 Plant, Property and Equipment (Details) HTML 191K
103: R87 Leases - (Lessee) Narrative (Details) HTML 60K
104: R88 Leases - (Lessee) Operating Lease Cost and Other HTML 62K
Information (Details)
105: R89 Leases - (Lessee) Maturities of Operating Lease HTML 74K
Liabilities (Details)
106: R90 Leases - (Lessor) Narrative (Details) HTML 54K
107: R91 Leases - (Lessor) Future Lease Payments to be HTML 57K
Received Under Operating Leases (Details)
108: R92 Leases - Sale Type Leases Narrative (Details) HTML 56K
109: R93 LEASES - Component of Aggregate Investment in HTML 66K
Leases (Details)
110: R94 LEASES - Sales-Type Leases (Details) HTML 62K
111: R95 EQUITY INVESTMENTS - Ownership Information of HTML 107K
Equity Investments (Details)
112: R96 EQUITY INVESTMENTS - Narrative (Details) HTML 65K
113: R97 EQUITY INVESTMENTS - Schedule of Distribution HTML 62K
Received and Contribution Paid (Details)
114: R98 EQUITY INVESTMENTS - Summarized Financial HTML 109K
Information of Equity Investments (Details)
115: R99 EQUITY INVESTMENTS - Interest income and foreign HTML 48K
exchange impact (Details)
116: R100 LOANS RECEIVABLE FROM AFFILIATES - Narrative HTML 83K
(Details)
117: R101 LOANS RECEIVABLE FROM AFFILIATES - Schedule of HTML 60K
Loan Receivable Interest Income and Foreign
Exchange Impact (Details)
118: R102 RATE-REGULATED BUSINESSES - Narrative (Details) HTML 61K
119: R103 RATE-REGULATED BUSINESSES - Assets and Liabilities HTML 115K
(Details)
120: R104 GOODWILL - Acquisitions (Details) HTML 71K
121: R105 GOODWILL - Narrative (Details) HTML 69K
122: R106 OTHER LONG-TERM ASSETS - Summary (Details) HTML 66K
123: R107 Notes Payable (Details) HTML 97K
124: R108 ACCOUNTS PAYABLE AND OTHER - Schedule of Accounts HTML 66K
Payable and Other (Details)
125: R109 ACCOUNTS PAYABLE AND OTHER - Narratives (Details) HTML 71K
126: R110 Other Long-Term Liabilities (Details) HTML 62K
127: R111 INCOME TAXES - Geographic Components of HTML 56K
Income/(Loss) (Details)
128: R112 INCOME TAXES - Provision (Details) HTML 67K
129: R113 INCOME TAXES - Reconciliation of Income Tax HTML 84K
Expense (Details)
130: R114 INCOME TAXES - Deferred Assets and Liabilities HTML 88K
(Details)
131: R115 INCOME TAXES - Narrative (Details) HTML 93K
132: R116 INCOME TAXES - Reconciliation of Unrecognized Tax HTML 58K
Benefit (Details)
133: R117 LONG-TERM DEBT - Amounts Outstanding and Principal HTML 157K
Repayments (Details)
134: R118 LONG-TERM DEBT - Issued (Details) HTML 260K
135: R119 LONG-TERM DEBT - Retired/Repaid (Details) HTML 190K
136: R120 LONG-TERM DEBT - Interest Expense (Details) HTML 67K
137: R121 Junior Subordinated Notes (Details) HTML 160K
138: R122 Foreign Exchange (Gains) Losses, Net (Details) HTML 54K
139: R123 NON-CONTROLLING INTERESTS - Narrative (Details) HTML 105K
140: R124 NON-CONTROLLING INTERESTS - Business Acquisition HTML 69K
and its Effect on the Balance Sheet (Details)
141: R125 NON-CONTROLLING INTERESTS - Schedule of HTML 78K
Non-controlling Interests (Details)
142: R126 COMMON SHARES - Reconciliation and Weighted HTML 85K
Average Common Shares Outstanding (Details)
143: R127 COMMON SHARES - Common Shares Issued Under Public HTML 58K
Offering (Details)
144: R128 COMMON SHARES - Dividend Reinvestment and Share HTML 50K
Purchase Plan (Details)
145: R129 COMMON SHARES - Acquisition of TC Pipelines, LP HTML 58K
(Details)
146: R130 COMMON SHARES - Weighted Average Common Shares HTML 59K
Outstanding (Details)
147: R131 COMMON SHARES - Options (Details) HTML 87K
148: R132 COMMON SHARES - Stock Options Assumptions Used HTML 65K
(Details)
149: R133 COMMON SHARES - Summary of Additional Stock HTML 58K
Options Information (Details)
150: R134 COMMON SHARES - Shareholder Rights Plan (Details) HTML 48K
151: R135 PREFERRED SHARES - Schedule of Preferred Shares HTML 147K
(Details)
152: R136 Preferred Shares (Details) HTML 94K
153: R137 Other Comprehensive Income(Loss) and Accumulated HTML 105K
Other Comprehensive Income(LOSS) - Components
(Details)
154: R138 Other Comprehensive Income(Loss) and Accumulated HTML 107K
Other Comprehensive Income(LOSS) - Reconciliation
(Details)
155: R139 Other Comprehensive Income(Loss) and Accumulated HTML 102K
Other Comprehensive Income(LOSS) -
Reclassifications (Details)
156: R140 EMPLOYEE POST-RETIREMENT BENEFITS - Cash Payments, HTML 170K
Changes and Balance Sheet Presentation (Details)
157: R141 EMPLOYEE POST-RETIREMENT BENEFITS - Obligations, HTML 103K
Fair Value and Weighted Average Assets (Details)
158: R142 EMPLOYEE POST-RETIREMENT BENEFITS - Measured at HTML 197K
Fair Value (Details)
159: R143 EMPLOYEE POST-RETIREMENT BENEFITS - Net Change in HTML 58K
Level III Fair Value (Details)
160: R144 EMPLOYEE POST-RETIREMENT BENEFITS - Savings, HTML 154K
Payments, Future Benefits and Assumptions
(Details)
161: R145 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 65K
Derivatives Designated as a Net Investment Hedge
(Details)
162: R146 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - U.S. HTML 55K
Dollar-Denominated Debt Designated as Net
Investment Hedges (Details)
163: R147 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 60K
Counterparty Credit Risk (Details)
164: R148 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - Fair HTML 71K
Value of Non-Derivative Financial Instruments
(Details)
165: R149 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 178K
Available for Sale and Balance Sheet Presentation
(Details)
166: R150 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 58K
Derivatives in Fair Value Hedging Relationships
(Details)
167: R151 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 79K
Notional and Maturity Summary (Details)
168: R152 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 64K
Unrealized and Realized (Losses) / Gains on
Derivative Instruments (Details)
169: R153 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 55K
Derivatives in Cash Flow Hedging Relationships
(Details)
170: R154 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - Effect HTML 60K
of Fair Value and Cash Flow Hedging Relationships
(Details)
171: R155 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 94K
Offsetting of Derivative Instruments (Details)
172: R156 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - HTML 208K
Derivative Assets and Liabilities Measured on a
Recurring Basis (Details)
173: R157 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS - Net HTML 68K
Change in Fair Value of Derivative Assets and
Liabilities Classified as Level III (Details)
174: R158 Changes in Operating Working Capital (Details) HTML 59K
175: R159 Acquisitions and Dispositions (Details) HTML 94K
176: R160 COMMITMENTS, CONTINGENCIES AND GUARANTEES - HTML 86K
Narrative (Details)
177: R161 COMMITMENTS, CONTINGENCIES AND GUARANTEES - HTML 60K
Guarantees (Details)
178: R162 VARIABLE INTEREST ENTITIES - Narrative (Details) HTML 59K
179: R163 VARIABLE INTEREST ENTITIES - Assets and HTML 127K
Liabilities of Variable Interest Entities
(Details)
180: R164 VARIABLE INTEREST ENTITIES - Carrying Value of HTML 84K
Non-consolidated VIEs and Maximum Exposure
(Details)
182: XML IDEA XML File -- Filing Summary XML 347K
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181: EXCEL IDEA Workbook of Financial Report Info XLSX 487K
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Management's Report on Internal Control over Financial Reporting
The consolidated financial statements and Management's Discussion and Analysis (MD&A) included in this Annual Report are the responsibility of the management of TC Energy Corporation (TC Energy or the Company) and have been approved by the Board of Directors of the Company. The consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (GAAP) and include amounts that are based on estimates and judgments. The MD&A is based on the Company's financial
results. It compares the Company's financial and operating performance in 2023 to that in 2022, and highlights significant changes between 2022 and 2021. The MD&A should be read in conjunction with the consolidated financial statements and accompanying notes. Financial information contained elsewhere in this Annual Report is consistent with the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management has designed and maintains a system of internal control over financial reporting, including a program of internal audits to carry out its responsibility. Management believes these controls provide reasonable assurance that financial records are reliable and form a proper basis for the preparation of financial statements. The internal control over financial reporting includes management's communication to employees
of policies that govern ethical business conduct.
Under the supervision and with the participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management concluded, based on its evaluation, that internal control over financial reporting was effective as of December 31, 2023, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements and MD&A
and ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board of Directors carries out these responsibilities primarily through the Audit Committee, which consists of independent, non-management directors. The Audit Committee meets with management at least four times a year and meets independently with internal and external auditors and as a group to review any significant accounting, internal control and auditing matters in accordance with the terms of the Charter of the Audit Committee, which is set out in the Annual Information Form. The Audit Committee's responsibilities include overseeing management's performance in carrying out its financial reporting responsibilities and reviewing the Annual Report, including the consolidated financial statements and MD&A, before these documents are submitted to the Board of Directors for approval. The internal and independent external auditors have access to the Audit Committee
without the requirement to obtain prior management approval.
The Audit Committee approves the terms of engagement of the independent external auditors and reviews the annual audit plan, the Auditors' Report and the results of the audit. It also recommends to the Board of Directors the firm of external auditors to be appointed by the shareholders.
The shareholders have appointed KPMG LLP as independent external auditors to express an opinion as to whether the consolidated financial statements present fairly, in all material respects, the Company's consolidated financial position, results of operations and cash flows in accordance with GAAP. The reports of KPMG LLP outline the scope of its examinations and its opinions on the consolidated financial statements and the effectiveness of the Company's internal control over financial reporting.
TC Energy Consolidated Financial Statements 2023 | 135
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors TC Energy Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TC Energy Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2023 and 2022, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 15, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis
for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our especially challenging, subjective or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of the equity investment in Coastal GasLink LP
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company reviews equity method investments for impairment when an event or change in circumstances has a significant adverse effect on the investment’s fair value. Where the Company concludes an investment’s fair value is below its carrying value, the Company then determines whether the impairment is other-than-temporary, and if so, an impairment loss is recognized for the excess of the carrying value over the estimated
fair value of the investment, not exceeding the carrying value of the investment.
136 | TC Energy Consolidated Financial Statements 2023
With the expectation that additional equity contributions under the subordinated loan agreement between the Company and Coastal GasLink LP will be predominantly funded by TC Energy as a limited partner of Coastal GasLink LP, the Company completed valuation assessments during the first three quarters of 2023 and concluded that the fair value of its investment in Coastal GasLink LP was below its carrying value and that these were other-than-temporary
impairments. As a result, a pre-tax impairment charge of $2,100 million was recognized during the nine months ended September 30, 2023. Fair value was estimated using a 40-year discounted cash flow model and incorporated assumptions related to capital cost estimates, discount rates, and long-term financing plans (collectively, the “key assumptions”).
We identified the valuation of the equity investment in Coastal GasLink LP at September 30, 2023 as a critical audit matter. A high degree of auditor judgment was required to evaluate the key assumptions. Minor changes to the key assumptions could have had a significant effect on the Company’s determination of the fair value of the investment. In addition, the audit effort associated with this estimate required specialized skills and knowledge.
The
following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s determination of the fair value of the investment and its evaluation of the key assumptions. We recalculated the capital cost estimates by comparing the project budget to the actual costs incurred to September 30, 2023. We also compared the amounts in the project budget to project status and milestone reporting provided to the partners of Coastal GasLink LP. We compared assumptions used in the long-term financing plans to publicly available data for comparable financing transactions and financing reports provided to the partners of Coastal GasLink LP. In addition, we involved a valuation professional with specialized skills and knowledge, who assisted in:
•evaluating
the methodology used by management in the valuation by comparing it to methodologies used to value other development stage entities; and
•evaluating the discount rates used by management in the valuation by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable entities.
Valuation of goodwill for the Columbia reporting unit
As discussed in Notes 2 and 15 to the consolidated financial statements, the goodwill balance as of December 31, 2023 for the Columbia reporting unit was $9,708 million. The Company assesses goodwill for impairment testing annually or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit, including goodwill, might be impaired.
In respect of the Columbia reporting unit, the Company performed a quantitative goodwill impairment test on June 30, 2023 (the “June 30, 2023 impairment test”) in conjunction with the process leading up to the sale of a 40 per cent equity interest in Columbia Gas Transmission, LLC (Columbia Gas) and Columbia Gulf Transmission, LLC (Columbia Gulf) (the “Transaction”). The quantitative goodwill impairment assessment involves determining the fair value of a reporting unit and comparing that value to the carrying value of the reporting unit, including goodwill. Fair value is estimated using a discounted cash flow model which requires the use of assumptions related to revenue and capital expenditure projections, the valuation multiple and the discount rate (collectively, the “key assumptions”). It was determined that the fair value of the Columbia reporting
unit, inclusive of the Columbia Gas and Columbia Gulf business units, exceeded its carrying value, including goodwill, as of June 30, 2023. Although goodwill was not impaired, the estimated fair value in excess of the carrying value was less than 10 per cent.
We identified the valuation of goodwill for the Columbia reporting unit as a critical audit matter. A high degree of auditor judgment was required to evaluate the key assumptions. Minor changes to the key assumptions could have had a significant effect on the Company’s determination of the fair value of the Columbia reporting unit. In addition, the audit effort associated with this estimate required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness
of certain internal controls related to the critical audit matter. This included controls related to the Company’s determination of the fair value of the Columbia reporting unit and its evaluation of the key assumptions. We compared the Company’s historical revenue and capital expenditure projections used in the prior quantitative goodwill impairment test to 2023 actual results to assess the Company’s ability to accurately forecast. We evaluated the Company’s revenue and capital expenditure projections in the June 30, 2023 impairment test by comparing them to 2023 actual results and to assumptions used in industry publications related to North American and global energy consumption and production forecasts. We also inspected the executed agreements associated with the Transaction to assess whether the closing terms and
TC Energy Consolidated Financial Statements 2023 | 137
economic value of the Transaction were consistent with the key assumptions and the fair value determined from the discounted cash flow model. In addition, we involved a valuation professional with specialized skills and knowledge, who assisted in:
•evaluating the Company’s determination of a valuation multiple by comparing it to independently observed recent market transactions of comparable assets and publicly available market data for comparable entities
•evaluating the discount rate used by management in the valuation, by comparing it against a discount rate range that was independently developed using publicly
available market data for comparable entities
•evaluating the Company’s estimate of the fair value of the Columbia reporting unit by comparing the result of the Company’s estimate to publicly available market data and valuation metrics for comparable entities.
Qualitative goodwill impairment indicators for the Columbia and ANR reporting units
As discussed in Notes 2 and 15 to the consolidated financial statements, the goodwill balance as of December 31, 2023 for the Columbia Pipeline Group, Inc. (Columbia) and the American Natural Resources (ANR) reporting units was $9,708 million and $2,570 million, respectively. The Company assesses goodwill for impairment testing annually or more frequently if events or changes in circumstances indicate that the carrying value of a
reporting unit, including goodwill, might be impaired. The Company performed qualitative assessments to determine whether events or changes in circumstances indicate that the Columbia and ANR reporting units’ goodwill might be impaired. These qualitative assessments were performed as of December 31, 2023.
We identified the evaluation of qualitative goodwill impairment indicators, or qualitative factors, for the Columbia and ANR reporting units as a critical audit matter. The assessment of the potential impact that these qualitative factors have on a reporting unit’s fair value required the application of subjective auditor judgment. Qualitative factors include macroeconomic conditions, industry and market considerations, valuation multiples and discount rates, cost factors, historical and forecasted financial results and events specific to the reporting units, which required
a higher degree of auditor judgment to evaluate. These qualitative factors could have had a significant effect on the Company’s qualitative assessment and the potential for the need to perform a quantitative goodwill impairment test. In addition, the audit effort associated with this evaluation required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process, including controls related to the assessment of potential qualitative factors. We evaluated the Company’s assessment of identified event-specific changes against our knowledge of event-specific changes obtained through other audit procedures. We evaluated information from analyst reports in the energy and utility industries, including global energy consumption
forecasts and natural gas production forecasts, which were compared to geopolitical and market considerations used by the Company. We compared the current valuation multiples and discount rates, cost factors, historical and forecasted financial results of the reporting units, including the impact of newly approved growth projects, to assumptions used in the quantitative goodwill impairment tests performed in a previous period. In addition, we involved a valuation professional with specialized skills and knowledge, who assisted in:
•evaluating the Company’s determination of the valuation multiples by comparing them to independently observed, recent market transactions of comparable assets and using publicly available market data for comparable entities
•evaluating the discount rates used by management in the assessment, by comparing them
against a discount rate range that was independently developed using publicly available market data for comparable entities.
Chartered Professional Accountants
We have served as the Company's auditor since 1956.
138 | TC Energy Consolidated Financial Statements 2023
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors TC Energy Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited TC Energy Corporation’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 15, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting included in the Company's Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Accumulated
other comprehensive income (loss) (Note 27)
i49
i955
Controlling
Interests
i29,553
i33,990
Non-controlling
interests (Note 24)
i9,455
i126
i39,008
i34,116
i125,034
i114,348
Commitments,
Contingencies and Guarantees (Note 32)
Variable Interest Entities (Note 33)
The accompanying Notes to the consolidated financial statements are an integral part of these statements.
On behalf of the Board:
François L. Poirier,
Director
Una M. Power, Director
TC Energy Consolidated Financial Statements 2023 | 143
Consolidated statement of equity
year
ended December 31
2023
2022
2021
(millions of Canadian $)
Common Shares(Note 25)
Balance
at beginning of year
i28,995
i26,716
i24,488
Shares
issued:
Dividend reinvestment and share purchase plan
i1,003
i342
—
Exercise
of stock options
i4
i183
i165
Under
public offering, net of issue costs
—
i1,754
—
Acquisition of TC PipeLines, LP, net of transaction costs (Note 24)
—
—
i2,063
Balance
at end of year
i30,002
i28,995
i26,716
Preferred
Shares(Note 26)
Balance at beginning of year
i2,499
i3,487
i3,980
Redemption
of shares
—
(i988)
(i493)
Balance
at end of year
i2,499
i2,499
i3,487
Additional
Paid-In Capital
Balance at beginning of year
i722
i729
i2
Issuance
of stock options, net of exercises
i9
(i7)
(i6)
Disposition
of equity interest, net of transaction costs (Note 24)
(i3,537)
—
—
Reclassification of additional paid-in capital deficit to retained earnings (accumulated deficit)
i2,806
—
—
Keystone
XL project-level credit facility retirement and issuance of Class C Interests (Note 7)
—
—
i737
Acquisition of TC PipeLines,
LP (Note 24)
—
—
(i398)
Repurchase of redeemable non-controlling interest (Note 7)
—
—
i394
Balance
at end of year
i—
i722
i729
Retained
Earnings (Accumulated Deficit)
Balance at beginning of year
i819
i3,773
i5,367
Net
income (loss) attributable to controlling interests
i2,922
i748
i1,955
Common
share dividends
(i3,839)
(i3,595)
(i3,409)
Preferred
share dividends
(i93)
(i95)
(i133)
Reclassification
of additional paid-in capital deficit to retained earnings (accumulated deficit)
(i2,806)
—
—
Redemption
of preferred shares
—
(i12)
(i7)
Balance
at end of year
(i2,997)
i819
i3,773
Accumulated
Other Comprehensive Income (Loss) (Note 27)
Balance at beginning of year
i955
(i1,434)
(i2,439)
Other
comprehensive income (loss) attributable to controlling interests
(i379)
i2,389
i652
Impact
of non-controlling interest (Note 24)
(i527)
—
—
Acquisition of TC PipeLines, LP (Note 24)
—
—
i353
Balance
at end of year
i49
i955
(i1,434)
Equity
Attributable to Controlling Interests
i29,553
i33,990
i33,271
Equity
Attributable to Non-Controlling Interests
Balance at beginning of year
i126
i125
i1,682
Disposition
of equity interest (Note 24)
i9,451
—
—
Non-controlling interests on acquisition of Texas Wind Farms (Note 24)
i222
—
—
Net
income (loss) attributable to non-controlling interests
i146
i37
i90
Other
comprehensive income (loss) attributable to non-controlling interests
(i366)
i8
(i10)
Distributions
declared to non-controlling interests
(i124)
(i44)
(i74)
Acquisition
of TC PipeLines, LP (Note 24)
—
—
(i1,563)
Balance at end of year
i9,455
i126
i125
Total
Equity
i39,008
i34,116
i33,396
The
accompanying Notes to the consolidated financial statements are an integral part of these statements.
144 | TC Energy Consolidated Financial Statements 2023
Notes to consolidated financial statements
1. iDESCRIPTION
OF TC ENERGY'S BUSINESS
TC Energy Corporation (TC Energy or the Company) is a leading North American energy infrastructure company which operates in ifive business segments: Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines and Power and Energy Solutions. These segments offer different products and services, including certain natural gas, crude oil and electricity marketing and storage services. The Company also has a Corporate segment, consisting of corporate and administrative functions that provide governance,
financing and other support to the Company's business segments.
Canadian Natural Gas Pipelines
The Canadian Natural Gas Pipelines segment primarily consists of the Company's investments in i40,596 km (i25,226
miles) of regulated natural gas pipelines currently in operation.
U.S. Natural Gas Pipelines
The U.S. Natural Gas Pipelines segment primarily consists of the Company's investments in i50,088 km (i31,123
miles) of regulated natural gas pipelines, i532 Bcf of regulated natural gas storage facilities and other assets currently in operation.
Mexico Natural Gas Pipelines
The Mexico Natural Gas Pipelines segment primarily consists of the Company's investments in i2,895
km (i1,798 miles) of regulated natural gas pipelines currently in operation.
Liquids Pipelines
The Liquids Pipelines segment primarily consists of the Company's investments in i4,865
km (i3,024 miles) of crude oil pipeline systems currently in operation which connect Alberta and U.S. crude oil supplies to U.S. refining markets in Illinois, Oklahoma and Texas.
Power and Energy Solutions
The Power and Energy Solutions segment primarily consists of the Company's investments in approximately i4,600
MW of power generation facilities and i118 Bcf of non-regulated natural gas storage facilities. These assets are located in Alberta, Ontario, Québec, New Brunswick and Texas. In addition, TC Energy has physical and virtual power purchase agreements (PPAs) in Canada and the U.S. to buy and/or sell power from wind and solar facilities. These PPAs have the potential to be leases, derivatives or revenue arrangements depending on the contractual terms of the agreement.
TC
Energy Consolidated Financial Statements 2023 | 145
2. iACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles. Amounts are stated in Canadian dollars unless otherwise indicated.
i
Basis
of Presentation
These consolidated financial statements include the accounts of TC Energy and its subsidiaries. The Company consolidates variable interest entities (VIEs) for which it is considered to be the primary beneficiary as well as voting interest entities in which it has a controlling financial interest. To the extent there are interests owned by other parties, these interests are included in non-controlling interests. TC Energy uses the equity method of accounting for joint ventures in which the Company is able to exercise joint control and for investments in which the Company is able to exercise significant influence.
Certain prior year amounts have been reclassified to conform to current year presentation.
i
Use
of Estimates and Judgments
In preparing these consolidated financial statements, TC Energy is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgment in making these estimates and assumptions.
Certain estimates and judgments have a material impact where the assumptions underlying these accounting estimates relate to matters that are highly uncertain at the time the estimate or judgment is made or are subjective. These estimates and judgments include, but are not limited to:
•fair value of TC Energy’s equity investment in Coastal GasLink LP (Note 8)
•assessment
of goodwill impairment indicators and fair value of reporting units that contain goodwill (Note 15)
•estimates and judgments used in measuring the fair value of Columbia Gas Transmission, LLC (Columbia Gas) and Columbia Gulf Transmission, LLC (Columbia Gulf) (Note 15).
Some of the estimates and judgments the Company has to make have a material impact on the consolidated financial statements, but do not involve significant subjectivity or uncertainty. These estimates and judgments include, but are not limited to:
•valuation of Keystone XL assets and Class C Interests (Note 7)
•recoverability and depreciation rates of plant, property and equipment (Note 10)
•allocation of consideration
to lease and non-lease components in a contract that contains a lease (Note 11)
•assumptions used to measure the carrying amount of and expected credit losses on net investment in leases and certain contract assets (Notes 11 and 29)
•fair value of equity investments not otherwise noted above (Note 12)
•carrying value of regulatory assets and liabilities (Note 14)
•assumptions used to measure the environmental remediation liability from the Keystone pipeline rupture (Note 18)
•recognition of asset retirement obligations (Note 19)
•provisions for income taxes, including valuation
allowances and releases as well as tax positions that may be reviewed as part of an audit by tax authorities (Note 20)
•assumptions used to measure retirement and other post-retirement benefit obligations (Note 28)
•fair value of financial instruments (Note 29)
•fair value of Fluvanna Wind Farm and Blue Cloud Wind Farm (Texas Wind Farms) assets (Note 31)
•commitments and provisions for contingencies and guarantees (Note 32).
TC Energy continues to assess the impact of climate change on the consolidated financial statements. There are ongoing developments in the ESG frameworks and regulatory initiatives that could further impact accounting estimates and judgments including,
but not limited to, assessment of asset useful lives, goodwill valuation, impairment of plant, property and equipment, accrued environmental costs and asset retirement obligations. The impact of these changes is continuously assessed to ensure any changes in assumptions that would impact estimates listed above are adjusted on a timely basis.
Actual results could differ from these estimates.
146 | TC Energy Consolidated Financial Statements 2023
i
Regulation
Certain
Canadian, U.S. and Mexico natural gas pipeline and storage assets are regulated with respect to construction, operations and the determination of tolls. In Canada, regulated natural gas pipelines and liquids pipelines are subject to the authority of the Canada Energy Regulator (CER), the Alberta Energy Regulator or the B.C. Oil and Gas Commission. In the U.S., regulated interstate natural gas pipelines and liquids pipelines as well as regulated natural gas storage assets are subject to the authority of the Federal Energy Regulatory Commission (FERC). In Mexico, regulated natural gas pipelines are subject to the authority of the Energy Regulatory Commission (CRE). Rate-regulated accounting (RRA) standards may impact the timing of the recognition of certain revenues and expenses in TC Energy's rate-regulated businesses which may differ from that otherwise recognized in non-rate-regulated businesses to reflect the economic impact of the regulators' decisions regarding
revenues and tolls. Regulatory assets represent costs that are expected to be recovered in customer rates in future periods and regulatory liabilities represent amounts that are expected to be returned to customers through future rate-setting processes. An operation qualifies for the use of RRA when it meets three criteria:
•a regulator must establish or approve the rates for the regulated services or activities
•the regulated rates must be designed to recover the cost of providing the services or products
•it is reasonable to assume that rates set at levels to recover the cost can be charged to and collected from customers because of the demand for services or products and the level of direct or indirect competition.
TC Energy's
businesses that apply RRA currently include natural gas pipelines in Canada, U.S. and Mexico and regulated U.S. natural gas storage. RRA is not applicable to the Company's liquids pipelines as the regulators' decisions regarding operations and tolls on those systems generally do not have an impact on timing of recognition of revenues and expenses.
i
Revenue Recognition
The total consideration for services and products to which the Company expects to be entitled can include fixed and variable amounts. The Company has variable revenue that is
subject to factors outside the Company's influence, such as market prices, actions of third parties and weather conditions. The Company considers this variable revenue to be "constrained" as it cannot be reliably estimated and, therefore, recognizes variable revenue when the service is provided.
Revenues from contracts with customers are recognized net of any commodity taxes collected from customers which are subsequently remitted to governmental authorities. The Company's contracts with customers include natural gas and liquids pipelines capacity arrangements and transportation contracts, power generation contracts, natural gas storage and other contracts.
Revenues from non-lease components associated with a lease arrangement are recognized systematically over the term of the contract.
The majority of income earned from marketing activities,
as it relates to the purchase and sale of crude oil, natural gas and electricity, is recorded on a net basis in the month of delivery.
Canadian Natural Gas Pipelines
Capacity Arrangements and Transportation
Revenues from the Company's Canadian natural gas pipelines are generated from contractual arrangements for committed capacity and from the transportation of natural gas. Revenues earned from firm contracted capacity arrangements are recognized ratably over the term of the contract regardless of the amount of natural gas that is transported. Transportation revenues for interruptible or volumetric-based services are recognized when the service is performed.
Revenues from the Company's Canadian natural gas pipelines under federal jurisdiction are subject to regulatory decisions by the CER. The tolls charged
on these pipelines are based on revenue requirements designed to recover the costs of providing natural gas capacity for transportation services, which includes a return of and on capital, as approved by the CER. The Company's Canadian natural gas pipelines are generally not subject to earnings volatility related to variances in revenues and costs. These variances, except as related to incentive arrangements, are generally subject to deferral treatment and are recovered or refunded in future tolls. Revenues recognized prior to a CER decision on rates for that period reflect the CER's last approved return on equity (ROE) assumptions. Adjustments to revenues are recorded when the CER decision is received. Canadian natural gas pipelines' revenues are invoiced and received on a monthly basis. The Company does not take ownership of the natural gas that it transports for customers.
TC Energy Consolidated
Financial Statements 2023 | 147
Other
The Company is contracted to provide pipeline construction services to a partially-owned entity for a development fee. The development fee is considered variable consideration due to refund provisions in the contract. The Company recognizes its estimate of the most likely amount of the variable consideration to which it will be entitled. The development fee is recognized over time as the services are provided based on the input method using an estimate of activity level.
U.S. Natural Gas Pipelines
Capacity Arrangements and Transportation
Revenues from the Company's U.S. natural gas pipelines are generated from contractual arrangements
for committed capacity and from the transportation of natural gas. Revenues earned from firm contracted capacity arrangements are generally recognized ratably over the term of the contract regardless of the amount of natural gas that is transported. Transportation revenues for interruptible or volumetric-based services are recognized when the service is performed.
The Company's U.S. natural gas pipelines are subject to FERC regulations and, as a result, a portion of revenues collected may be subject to refund if invoiced during an interim period when a rate proceeding is ongoing. Allowances for these potential refunds are recognized using management's best estimate based on the facts and circumstances of the proceeding. Any allowances that are recognized during the proceeding process are refunded or retained at the time a regulatory decision becomes final. U.S. natural gas pipelines' revenues are invoiced and received
on a monthly basis. The Company does not take ownership of the natural gas that it transports for customers.
Natural Gas Storage and Other
Revenues from the Company's regulated U.S. natural gas storage services are generated mainly from firm committed capacity storage contracts. The performance obligation in these contracts is the reservation of a specified amount of capacity for storage including specifications with regard to the amount of natural gas that can be injected or withdrawn on a daily basis. Revenues are recognized ratably over the contract period for firm committed capacity regardless of the amount of natural gas that is stored, and when gas is injected or withdrawn for interruptible or volumetric-based services. Natural gas storage services revenues are invoiced and received on a monthly basis. The Company does not take ownership of the natural gas that it stores for customers.
The
Company owns mineral rights associated with certain natural gas storage facilities. These mineral rights can be leased or contributed to producers of natural gas in return for a royalty interest which is recognized when natural gas and associated liquids are produced.
Mexico Natural Gas Pipelines
Capacity Arrangements and Transportation
Revenues from certain of the Company's Mexico natural gas pipelines are primarily collected based on CRE-approved negotiated firm capacity contracts and are generally recognized ratably over the term of the contract. Transportation revenues related to interruptible or volumetric-based services are recognized when the service is performed. Mexico natural gas pipelines' revenues are invoiced and received on a monthly basis. The Company does not take ownership of the natural gas that it transports for customers.
Other
The
Company generates revenues from operating and maintenance services provided on certain leased pipelines. Revenues earned from these services are recognized ratably over the term of the contract.
Liquids Pipelines
Capacity Arrangements and Transportation
Revenues from the Company's liquids pipelines are generated mainly from providing customers with firm capacity arrangements to transport crude oil. The performance obligation in these contracts is the reservation of a specified amount of capacity together with the transportation of crude oil on a monthly basis. Revenues earned from these arrangements are recognized ratably over the term of the contract regardless of the amount of crude oil that is transported. Revenues for interruptible or volumetric-based services are recognized when the service is performed. Liquids pipelines' revenues are invoiced
and received on a monthly basis. The Company does not take ownership of the crude oil that it transports for customers.
148 | TC Energy Consolidated Financial Statements 2023
Power and Energy Solutions
Power
Revenues from the Company's Power and Energy Solutions business are primarily derived from long-term contractual commitments to provide power capacity to meet the demands of the market and from the sale of electricity to both centralized markets and to customers. Power generation revenues also include revenues from the sale of steam to customers. Revenues and capacity payments are recognized as the services are provided and as electricity and steam
is delivered. Power generation revenues are invoiced and received on a monthly basis.
Natural Gas Storage and Other
Non-regulated natural gas storage contracts include park, loan and term storage arrangements. Revenues are recognized as the services are provided. Term storage revenues are invoiced and received on a monthly basis. Revenues from ancillary services are recognized as the service is provided. The Company does not take ownership of the natural gas that it stores for customers.
i
Cash and Cash Equivalents
The
Company's Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair value.
i
Inventories
Inventories primarily consist of materials and supplies including spare parts and fuel, proprietary crude oil in transit, proprietary natural gas inventory in storage and emissions allowances and credits not held for compliance. The Company purchases certain emissions allowances and credits as part of bundled arrangements that also include the purchase of electricity for a fixed price. The cost allocated to
emissions allowances and credits under such arrangements is based on observable market prices. Inventories are carried at the lower of cost and net realizable value.
i
Assets Held for Sale
The Company classifies assets as held for sale when management approves and commits to a formal plan to actively market a disposal group and expects the sale to close within the next 12 months. Upon classifying an asset as held for sale, the asset is recorded at the lower of its carrying amount or its estimated fair value, net of selling costs and any losses are recognized in net income. Gains related to
the expected sale of these assets are not recognized until the transaction closes. Once an asset is classified as held for sale, depreciation expense is no longer recorded.
i
Plant, Property and Equipment
Natural Gas Pipelines
Plant, property and equipment for natural gas pipelines is carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Pipeline and compression equipment are depreciated at annual rates ranging from i0.75
per cent to i6.67 per cent and metering and other plant equipment are depreciated at various rates reflecting their estimated useful lives. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. The cost of regulated natural gas pipelines includes an allowance for funds used during construction (AFUDC) consisting of a debt component and an equity component based on the rate of return on rate base approved by regulators. AFUDC is reflected as an increase in the cost of the assets in Plant, property and equipment with a corresponding credit recognized in Allowance
for funds used during construction in the Consolidated statement of income. The equity component of AFUDC is a non-cash expenditure. Interest is capitalized during construction of non-regulated natural gas pipelines.
Natural gas pipelines' linepack and natural gas storage base gas are valued at cost and are maintained to ensure adequate pressure exists to transport natural gas through pipelines and deliver natural gas held in storage. Linepack and base gas are not depreciated.
When rate-regulated natural gas pipelines retire plant, property and equipment from service, the original book cost is removed from the gross plant amount and recorded as a reduction to accumulated depreciation with no amount recorded to net income. Costs incurred to remove plant, property and equipment from service, net of any salvage proceeds, are also recorded in accumulated depreciation.
/
TC
Energy Consolidated Financial Statements 2023 | 149
Other
The Company participates as a working interest partner in the development of certain Marcellus and Utica acreage. The working interest allows the Company to invest in drilling activities in addition to receiving a royalty interest in well production. The Company uses the successful efforts method of accounting for natural gas and crude oil resulting from its portion of drilling activities. Capitalized well costs are depleted based on the units of production method.
Liquids Pipelines
Plant, property and equipment for liquids pipelines is carried at cost. Depreciation is calculated on a straight-line basis once the assets
are ready for their intended use. Pipeline and pumping equipment are depreciated at annual rates ranging from itwo per cent to i2.5 per cent and other plant and equipment are depreciated at various rates reflecting their estimated useful lives. The
cost of these assets includes interest capitalized during construction. When liquids pipelines retire plant, property and equipment from service, the original book cost and related accumulated depreciation are derecognized and any gain or loss is recorded in net income.
Power and Energy Solutions
Plant, property and equipment for Power and Energy Solutions assets are recorded at cost and, once the assets are ready for their intended use, depreciated by major component on a straight-line basis over their estimated service lives at average annual rates ranging from itwo
per cent to i20 per cent. Other equipment is depreciated at various rates reflecting their estimated useful lives. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. Interest is capitalized on facilities under construction. When these assets are retired from plant, property and equipment, the original book cost and related accumulated depreciation are derecognized and any gain or loss is recorded in net income.
Natural gas storage base gas, which is valued at original cost, represents gas volumes that are maintained
to ensure adequate reservoir pressure exists to deliver gas held in storage. Base gas is not depreciated.
Corporate
Corporate plant, property and equipment is recorded at cost and depreciated on a straight-line basis over its estimated useful life at average annual rates ranging from ifour per cent to i20
per cent.
Capital Projects in Development
The Company capitalizes project costs once advancement of the project to construction stage is probable or costs are otherwise likely to be recoverable. The Company capitalizes interest costs for non-regulated projects in development and AFUDC for regulated projects in development. Capital projects in development are included in Other long-term assets on the Consolidated balance sheet. These represent larger projects that generally require regulatory or other approvals before physical construction can begin. Once approvals are received, projects are moved to plant, property and equipment under construction.
i
Leases
The
Company determines if a contract contains a lease at inception of a contract by using judgment in assessing the following aspects: 1) the contract specifies an identified asset which is physically distinct or, if not physically distinct, represents substantially all of the capacity of the asset; 2) the contract provides the customer with the right to obtain substantially all of the economic benefits from the use of the asset and 3) the customer has the right to direct how and for what purpose the identified asset is used throughout the period of the contract.
If the contract is determined to contain a lease, further judgment is required to identify separate lease components of the arrangement by assessing whether the lessee can benefit from the right of use either on its own or together with other resources that are readily available to the lessee, as well as if the right of use is neither highly dependent on, nor
highly interrelated, with the other rights to use the underlying assets in the contract.
The Company considers non-lease components as distinct elements of a contract that are not related to the use of the leased asset. A good or service that is provided to a customer is distinct if: 1) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and 2) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company applies the practical expedient to not separate lease and non-lease components for all lessee contracts and facilities and liquids tank terminals for which the Company is the lessor in an operating lease.
150 | TC Energy Consolidated Financial Statements
2023
Lessee Accounting Policy
Operating leases are recognized as right-of-use (ROU) assets and included in Plant, property and equipment while corresponding liabilities are included in Accounts payable and other and Other long-term liabilities on the Consolidated balance sheet.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date of the lease agreement. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. As the Company's lease contracts do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term and included in Plant operating costs and other in the Consolidated statement of income.
The Company applies the practical expedient to not recognize ROU assets or lease liabilities for leases that qualify for the short-term lease recognition exemption.
i
Lessor Accounting Policy
The Company provides transportation and other services on certain assets to customers according to long-term service agreements through
sales-type and operating leases.
In a sales-type lease, the Company measures the total consideration within the contract at lease commencement. When a lease arrangement contains more than one lease and/or non-lease component, a portion of the contract consideration is allocated to each component based on the stand-alone selling price for each distinct service. The Company applies judgment to determine reasonable estimates of the expected future cost of satisfying the performance obligations of each service. The payments associated with lease components are apportioned between a reduction in the lease receivable and sales-type lease income.
At lease commencement, the Company recognizes a net investment in lease represented by the present value of both the future lease payments and the estimated residual value of the leased asset. The plant, property and equipment of the leased asset
is derecognized, with related gains/losses, if any, recognized in the Consolidated statement of income. Sales-type lease income is determined using the rate implicit in the lease and is recorded in Revenues.
The Company is the lessor within certain other contracts, including PPAs, that are accounted for as operating leases. In an operating lease, the leased asset remains capitalized in Plant, property and equipment on the Consolidated balance sheet and is depreciated over its useful life, while lease payments are recognized as revenue over the term of the lease on a straight-line basis. Variable lease payments are recognized as income in the period in which they occur.
i
Impairment
of Long-Lived Assets
The Company reviews long-lived assets such as plant, property and equipment and capital projects in development for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows for an asset within plant, property and equipment, or the estimated selling price of any long-lived asset is less than the carrying value of an asset, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the asset.
i
Impairment
of Equity Method Investments
The Company reviews equity method investments for impairment when an event or change in circumstances has a significant adverse effect on the investment's fair value. Where the Company concludes an investment's fair value is below its carrying value, the Company then determines whether the impairment is other-than-temporary, and if so, an impairment loss is recognized for the excess of the carrying value over the estimated fair value of the investment, not exceeding the carrying value of the investment.
i
Acquisitions and Goodwill
The
Company accounts for business combinations using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair values at the date of acquisition. The excess of the fair value of the consideration transferred over the estimated fair value of the net assets acquired is classified as goodwill. Goodwill is not amortized and is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired.
TC Energy Consolidated Financial Statements 2023 | 151
The annual review for goodwill impairment is performed at the reporting unit level which is one level below the Company's
operating segments. The Company can initially assess qualitative factors to determine whether events or changes in circumstances indicate that goodwill might be impaired. The factors the Company considers include, but are not limited to, macroeconomic conditions, industry and market considerations, current valuation multiples and discount rates, cost factors, historical and forecasted financial results and events specific to that reporting unit.
If the Company concludes that it is not more likely than not that the fair value of the reporting unit is greater than its carrying value, the Company will then perform a quantitative goodwill impairment test. The Company can elect to proceed directly to the quantitative goodwill impairment test for any of its reporting units. If the quantitative goodwill impairment test is performed, the Company compares the fair value of the reporting unit to its carrying value, including its goodwill.
If the carrying value of a reporting unit exceeds its fair value, goodwill impairment is measured at the amount by which the reporting unit’s carrying value exceeds its fair value. The fair value of a reporting unit is determined by using a discounted cash flow analysis which requires the use of assumptions that may include, but are not limited to, revenue and capital expenditure projections, valuation multiples and discount rates. The Company has elected to allocate goodwill impairment charges first to goodwill that is non-deductible for income tax purposes, with any remaining charge allocated to tax-deductible goodwill.
When a portion of a reporting unit that constitutes a business is disposed, goodwill associated with that business is included in the carrying amount of the business in determining the gain or loss on disposal. The amount of goodwill disposed is determined based on the relative fair values of the business to
be disposed and the portion of the reporting unit that will be retained. A goodwill impairment test will be completed for both the goodwill disposed and the portion of the goodwill that will be retained.
i
Non-Controlling Interests
Non-controlling interests (NCI) represent third-party ownership interests in certain consolidated subsidiaries of the Company.
Partial dispositions which result in a change in the Company's ownership interest, but do not result in a change in control, of a subsidiary that constitutes a business are accounted for as equity transactions.
No gain or loss is recognized in earnings. At the time of partial disposition, NCI is recorded as the third-party's ownership interest in the Company's carrying value of the net assets of the subsidiary. Any difference between the amount by which the NCI is adjusted and the fair value of the consideration paid or received is recognized in additional-paid-in capital and/or retained earnings (accumulated deficit).
i
Loans and Receivables
Loans receivable from affiliates and accounts receivable are measured at amortized cost.
Impairment of Financial Assets
The
Company reviews financial assets, inclusive of net investment in leases and certain contract assets, carried at amortized cost for impairment using the lifetime expected loss of the financial asset at initial recognition and throughout the life of the financial asset. An expected credit loss (ECL) is calculated using a model and methodology based on assumptions and judgment considering historical data, current counterparty information as well as reasonable and supportable forecasts of future economic conditions.
The ECL is recognized in Plant operating costs and other in the Consolidated statement of income, and is presented on the Consolidated balance sheet as a reduction to the carrying value of the related financial asset.
i
Restricted
Investments
The Company has certain investments that are restricted as to their withdrawal and use. These restricted investments are classified as available for sale and are recorded at fair value on the Consolidated balance sheet.
As a result of the CER’s Land Matters Consultation Initiative (LMCI), TC Energy is required to collect funds to cover estimated future pipeline abandonment costs for larger CER-regulated Canadian pipelines. Funds collected are placed in trusts that hold and invest the funds and are accounted for as restricted investments (LMCI restricted investments). LMCI restricted investments may only be used to fund the abandonment of the CER-regulated pipeline facilities, therefore, a corresponding regulatory liability is recorded on the Consolidated balance sheet. The Company also has other restricted investments that have been set aside to fund insurance claim losses
to be paid by the Company's wholly-owned captive insurance subsidiary.
152 | TC Energy Consolidated Financial Statements 2023
i
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates at the balance sheet date that are anticipated to apply to taxable income in the years in which temporary differences are expected to be reversed or settled. Changes to these balances are recognized in net income in the period in which they occur, except for changes in balances related to regulated natural gas pipelines which are deferred until they are refunded or recovered in tolls, as permitted by the regulator. Deferred income tax assets and liabilities are classified as non-current on the Consolidated balance sheet. The Company’s exposure to uncertain tax positions is evaluated and a provision is made where it is more likely than not that this exposure will materialize.
Canadian income taxes are not provided for on the unremitted earnings of foreign investments
that the Company does not intend to repatriate in the foreseeable future.
Any interest and/or penalty incurred related to tax is reflected in income tax expense.
i
Asset Retirement Obligations
The Company recognizes the fair value of a liability for asset retirement obligations (ARO) in the period in which it is incurred, when a legal obligation exists and a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset and the liability is accreted through charges to Plant operating costs and other in the
Consolidated statement of income.
In determining the fair value of ARO, the following assumptions are used:
•the expected retirement date
•the scope and cost of abandonment and reclamation activities that are required
•appropriate inflation and discount rates.
The Company's AROs are substantively related to its power generation facilities. The scope and timing of asset retirements related to the Company's natural gas and liquids pipelines and storage facilities are indeterminable because the Company intends to operate them as long as there is supply and demand. As a result, the Company has not recorded an amount for ARO related to these assets.
i
Environmental
Liabilities and Emission Allowances and Credits
The Company records liabilities on an undiscounted basis for environmental remediation efforts that are likely to occur and where the cost can be reasonably estimated. These estimates, including associated legal costs, are based on available information using existing technology and enacted laws and regulations and are subject to revision in future periods based on actual costs incurred or new circumstances. TC Energy evaluates recoveries from insurers and other third parties separately from the liability and, when recovery is probable, it records an asset separately from the associated liability. These recoveries are presented, along with environmental remediation costs, on a net basis in Plant operating costs and other in the Consolidated statement of income. Variations in one or more of the categories described above could result in additional costs such as fines, penalties
and/or expenditures associated with litigation and settlement of claims with respect to environmental liabilities.
Emission allowances or credits purchased for compliance are recorded on the Consolidated balance sheet at historical cost and derecognized when they are utilized or cancelled/retired by government agencies. Compliance costs are expensed when incurred. Allowances granted to or internally generated by TC Energy are not attributed a value for accounting purposes. When required, TC Energy accrues emission liabilities on the Consolidated balance sheet using the best estimate of the amount required to settle the compliance obligation. Allowances and credits not used for compliance are sold and any gain or loss is recorded in Revenues within the Power and Energy Solutions segment in the Consolidated statement of income. The Company records allowances and credits held for compliance in Other current assets and Other long-term
assets on the Consolidated balance sheet. Allowances and credits not held for compliance are classified as Inventories on the Consolidated balance sheet.
TC Energy Consolidated Financial Statements 2023 | 153
i
Stock Options and Other Compensation Programs
TC Energy's Stock Option Plan permits options for the purchase
of common shares to be awarded to certain employees, including officers. Stock options granted are recorded using the fair value method. Under this method, compensation expense is measured at the grant date based on the fair value as calculated using a binomial model and is recognized on a straight-line basis over the vesting period with an offset to Additional paid-in capital. Forfeitures are accounted for when they occur. Upon exercise of stock options, amounts originally recorded against Additional paid-in capital are reclassified to Common shares on the Consolidated balance sheet.
The Company has medium-term incentive plans under which payments are made to eligible employees. The expense related to these incentive plans is accounted for on an accrual basis. Under these plans, benefits vest when certain conditions are met, including the employees' continued employment during a specified period and achievement of specified
corporate performance targets.
i
Employee Post-Retirement Benefits
The Company sponsors defined benefit pension plans (DB Plans), defined contribution plans (DC Plans), savings plans and other post-retirement benefit plans (OPEB Plans). Contributions made by the Company to the DC Plans and savings plans are expensed in the period in which contributions are made. The cost of the DB Plans and OPEB Plans received by employees is actuarially determined using the projected benefit method pro-rated based on service and management's best estimate of expected plan investment performance, salary
escalation, retirement age of employees and expected health care costs.
The DB Plans' assets are measured at fair value at December 31 of each year. The expected return on the DB Plans' assets is determined using market-related values based on a ifive-year moving average value for all of the DB Plans' assets. Past service costs are amortized over the expected average remaining service life (EARSL) of the employees. Adjustments arising from plan amendments are amortized on a straight-line basis over the EARSL
of employees active at the date of amendment. The Company recognizes the overfunded or underfunded status of its DB Plans as an asset or liability, respectively, on its Consolidated balance sheet and recognizes changes in that funded status through Other comprehensive income (loss)(OCI) in the year in which the change occurs. The excess of net actuarial gains or losses over i10 per cent of the greater of the benefit obligation and the market-related value of the DB Plans' assets, if any, is amortized out of Accumulated other
comprehensive income (loss)(AOCI) and into net income over the EARSL of the active employees. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement.
For certain regulated operations, post-retirement benefit amounts are recoverable through tolls as benefits are funded. The Company records any unrecognized gains or losses or changes in actuarial assumptions related to these post-retirement benefit plans as either regulatory assets or liabilities. The regulatory assets or liabilities are amortized on a straight-line basis over the EARSL of active employees.
/i
Foreign
Currency Transactions and Translation
Foreign currency transactions are those transactions whose terms are denominated in a currency other than the currency of the primary economic environment in which the Company or reporting subsidiary operates. This is referred to as the functional currency. Transactions denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the rate of exchange in effect at the balance sheet date whereas non-monetary assets and liabilities are translated at the historical rate of exchange in effect on the date of the transaction. Exchange gains and losses resulting from translation of monetary assets and liabilities are recorded in net income except for exchange gains and losses on any foreign currency debt
related to Canadian regulated natural gas pipelines, which are deferred until they are refunded or recovered in tolls, as permitted by the CER.
Gains and losses arising from translation of foreign operations' functional currencies to the Company's Canadian dollar reporting currency are reflected in OCI until the operations are sold, at which time the gains and losses are reclassified to net income. Asset and liability accounts are translated at the rate of exchange in effect at the balance sheet date while revenues, expenses, gains and losses are translated at the exchange rate prevailing at the date of the transaction. The Company's U.S. dollar-denominated debt and certain derivative hedging instruments have been designated as a hedge of the net investment in foreign subsidiaries and, as a result, the unrealized foreign exchange gains and losses on the U.S. dollar-denominated debt and derivatives are also reflected in OCI.
154 | TC Energy Consolidated Financial Statements 2023
i
Derivative Instruments and Hedging Activities
All derivative instruments are recorded on the Consolidated balance sheet at fair value, unless they qualify for and are designated under a normal purchase and normal sales exemption, or are considered to meet other permitted exemptions.
The Company applies hedge accounting to arrangements
that qualify for and are designated for hedge accounting treatment. This includes fair value and cash flow hedges as well as hedges of foreign currency exposures of net investments in foreign operations. Hedge accounting is discontinued prospectively if the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, expiry, sale, termination, cancellation or exercise.
In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the hedged risk and these changes are recognized in net income. Changes in the fair value of the hedged item, to the extent that the hedging relationship is effective, are offset by changes in the fair value of the hedging item, which are also recorded in net income. Changes in the fair value of foreign exchange and interest rate fair value hedges are recorded in Interest income
and other and Interest expense, respectively. If hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to net income over the remaining term of the original hedging relationship.
In a cash flow hedging relationship, the change in the fair value of the hedging derivative is recognized in OCI. When hedge accounting is discontinued, the amounts recognized previously in AOCI are reclassified to Revenues, Interest expense and Interest income and other, as appropriate, during the periods when the variability in cash flows of the hedged item affects net income or as the original hedged item settles. Gains and losses on derivatives are reclassified immediately to net income from AOCI when the hedged item is sold or terminated early, or when it becomes probable that the anticipated transaction will
not occur. Termination payments on interest rate derivatives are classified as a financing activity in the Consolidated statement of cash flows.
In hedging the foreign currency exposure of a net investment in a foreign operation, the foreign exchange gains and losses on the hedging instruments are recognized in OCI. The amounts recognized previously in AOCI are reclassified to net income in the event the Company reduces its net investment in a foreign operation.
In some cases, derivatives do not meet the specific criteria for hedge accounting treatment. In these instances, the changes in fair value are recorded in net income in the period of change.
Gains and losses arising from changes in the fair value of derivatives accounted for as part of RRA, including those that qualify for hedge accounting treatment, are refunded or recovered through
the tolls charged by the Company. As a result, these gains and losses are deferred as regulatory assets or liabilities and are refunded to or collected from ratepayers in subsequent periods when the derivative settles.
Derivatives embedded in other financial instruments or contracts (host instrument) are recorded as separate derivatives. Embedded derivatives are measured at fair value if their economic characteristics are not clearly and closely related to those of the host instrument, their terms are the same as those of a stand-alone derivative and the total contract is not held for trading or accounted for at fair value. When changes in the fair value of embedded derivatives are measured separately, they are included in net income.
i
Long-Term
Debt Transaction Costs and Issuance Costs
The Company records long-term debt transaction costs and issuance costs as a deduction from the carrying amount of the related debt liability and amortizes these costs using the effective interest method except those related to the Canadian natural gas regulated pipelines, which continue to be amortized on a straight-line basis in accordance with the provisions of regulatory tolling mechanisms.
i
Guarantees
Upon issuance, the Company records the fair value of certain guarantees entered into
by the Company on behalf of a partially-owned entity or by partially-owned entities for which contingent payments may be made. The fair value of these guarantees is estimated by discounting the cash flows that would be incurred by the Company if letters of credit were used in place of the guarantees as appropriate in the circumstances. Guarantees are recorded as an increase to Equity investments or Plant, property and equipment and a corresponding liability is recorded in Other long-term liabilities. The release from the obligation is recognized either over the term of the guarantee or upon expiration or settlement of the guarantee.
TC Energy Consolidated Financial Statements 2023 | 155
i
Variable
Interest Entities
A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the gains and losses of the entity. The assessment of whether an entity is a VIE and, if so, whether the Company is the primary beneficiary, is completed at the inception of the entity or at a reconsideration event.
Consolidated VIEs
The Company's consolidated VIEs consist of legal entities where the Company has a variable interest and for which it is considered the primary beneficiary. As the primary beneficiary, the Company has the power, through voting or similar rights, to direct the activities
of the VIE that most significantly impact economic performance including: purchasing or selling significant assets; maintenance and operations of assets; incurring additional indebtedness; or determining the strategic operating direction of the entity. In addition, the Company has the obligation to absorb losses or the right to receive benefits from the consolidated VIE that could potentially be significant to the VIE.
Non-Consolidated VIEs
The Company’s non-consolidated VIEs consist of legal entities where the Company has a variable interest but is not the primary beneficiary as it does not have the power (either explicit or implicit), through voting or similar rights, to direct the activities that most significantly impact the economic performance of these VIEs or where this power is shared with third parties. The Company contributes capital to these VIEs and receives ownership interests
that provide it with residual claims on assets after liabilities are paid. Non-consolidated VIEs are accounted for as equity investments.
The Company’s maximum exposure to loss is the maximum loss that could potentially be recorded through net income in future periods as a result of the Company’s variable interest in a VIE.
156 | TC Energy Consolidated Financial Statements 2023
3. iiACCOUNTING
CHANGES/
Future Accounting Changes
Income Taxes
In December 2023, the FASB issued new guidance to enhance the transparency and decision usefulness of income tax disclosures through improvements to the rate reconciliation and income taxes paid information. The guidance also includes certain other amendments to improve the effectiveness of income tax disclosures. This new guidance is effective for the annual period beginning January 1, 2025. The guidance is applied prospectively with retrospective application permitted. Early adoption is permitted for annual financial statements not yet issued. The Company does not
expect this guidance to have a material impact on the Company's consolidated financial statements.
i
Segment Reporting
In November 2023, the FASB issued new guidance to improve disclosures about a public entity's reportable segments and address requests from investors for additional, more detailed information about a reportable segment's expenses. The guidance is effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025. Early adoption is permitted and the
guidance is applied retrospectively. The Company is currently assessing the impact of the standard on the Company's consolidated financial statements.
Leases
In March 2023, the FASB issued new guidance that clarified the accounting for leasehold improvements associated with common control leases. The guidance requires all lessees to amortize leasehold improvements associated with common control leases over their useful life to the common control group and account for them as a transfer of assets between entities under common control at the end of the lease. Additional disclosures are required when the useful life of leasehold improvements to the common control group exceeds the related lease term. This new guidance is effective January 1, 2024 and can be applied either prospectively or retrospectively, with early application
permitted. The Company will adopt the guidance on a prospective basis starting January 1, 2024, and it is not expected to have a material impact on the Company's consolidated financial statements.
4. iSPINOFF OF LIQUIDS PIPELINES BUSINESS
On July 27, 2023, TC Energy announced plans to separate into two independent, investment-grade, publicly listed
companies through the proposed spinoff of its Liquids Pipelines business (the spinoff Transaction) and on November 8, 2023 the Company communicated that the name of the new Liquids Pipelines business would be South Bow Corporation (South Bow). In addition to TC Energy shareholder and court approvals, the spinoff Transaction is subject to receipt of favourable tax rulings from Canadian and U.S. tax authorities, receipt of necessary regulatory approvals, and satisfaction of other customary closing conditions. TC Energy expects that the spinoff Transaction will be completed in the second half of 2024.
Under the spinoff Transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in South Bow. The determination of the number of common shares in South Bow to be distributed to TC Energy shareholders
will be determined prior to the closing of the spinoff Transaction. The spinoff Transaction is expected to be tax free to TC Energy’s Canadian and U.S. shareholders.
For the year ended December 31, 2023, the Company incurred pre-tax Liquids Pipelines business separation costs of $i40 million ($i34
million after tax) with respect to the spinoff Transaction, which included internal costs related to separation activities, legal, tax, audit and other consulting fees recorded in Plant operating costs and other in the Consolidated statement of income.
TC Energy Consolidated Financial Statements 2023 | 157
Net
(income) loss attributable to non-controlling interests
(i146)
Net Income (Loss) Attributable
to Controlling Interests
i2,922
Preferred share dividends
(i93)
Net
Income (Loss) Attributable to Common Shares
i2,829
Capital
Spending3
Capital expenditures
i2,953
i2,536
i2,292
i49
i144
i33
i8,007
Capital
projects in development
i—
i—
i—
i—
i142
i—
i142
Contributions
to equity investments
i3,231
i124
i—
i—
i794
i—
i4,149
i6,184
i2,660
i2,292
i49
i1,080
i33
i12,298
1Includes
intersegment eliminations.
2The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3Included in Investing activities in the Consolidated statement of cash flows.
/
158 | TC
Energy Consolidated Financial Statements 2023
Net
(income) loss attributable to non-controlling interests
(i37)
Net Income (Loss) Attributable to
Controlling Interests
i748
Preferred share dividends
(i107)
Net
Income (Loss) Attributable to Common Shares
i641
Capital
Spending4
Capital expenditures
i3,274
i2,137
i1,027
i106
i93
i41
i6,678
Capital
projects in development
i—
i—
i—
i—
i49
i—
i49
Contributions
to equity investments5
i1,445
i—
i—
i37
i752
i—
i2,234
i4,719
i2,137
i1,027
i143
i894
i41
i8,961
1Includes
intersegment eliminations.
2The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3Income (loss) from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange gains and losses on the peso-denominated loans from affiliates which are fully offset in Foreign exchange gains (losses), net by the corresponding foreign exchange losses and gains on the affiliate receivable balance until March
15, 2022, when it was fully repaid upon maturity. Refer to Note 13, Loans receivable from affiliates, for additional information.
4Included in Investing activities in the Consolidated statement of cash flows.
5Contributions to equity investments in the Corporate segment of $i1.2 billion are offset by the equivalent amount in Other distributions from equity investments, although they are reported on a gross basis
in the Company’s Consolidated statement of cash flows. Refer to Note 13, Loans receivable from affiliates, for additional information.
TC Energy Consolidated Financial Statements 2023 | 159
Net
(income) loss attributable to non-controlling interests
(i91)
Net Income (Loss) Attributable to
Controlling Interests
i1,955
Preferred share dividends
(i140)
Net
Income (Loss) Attributable to Common Shares
i1,815
Capital
Spending4
Capital expenditures
i2,629
i2,611
i129
i488
i32
i35
i5,924
Contributions
to equity investments
i108
i209
i—
i83
i810
i—
i1,210
i2,737
i2,820
i129
i571
i842
i35
i7,134
1Includes
intersegment eliminations.
2The Company records intersegment sales at contracted rates. For segmented reporting, these transactions are included as Intersegment revenues in the segment providing the service and Plant operating costs and other in the segment receiving the service. These transactions are eliminated on consolidation. Intersegment profit is recognized when the product or service has been provided to third parties or otherwise realized.
3Income (loss) from equity investments includes the Company's proportionate share of Sur de Texas foreign exchange gains and losses on the peso-denominated loans from affiliates which are fully offset in Foreign exchange gains (losses), net by the corresponding foreign exchange losses and gains on the affiliate receivable balance. Refer to Note 13, Loans receivable from affiliates, for additional
information.
4Included in Investing activities in the Consolidated statement of cash flows.
160 | TC Energy Consolidated Financial Statements 2023
at December 31
2023
2022
(millions
of Canadian $)
Total Assets by Segment
Canadian Natural Gas Pipelines
i29,782
i27,456
U.S.
Natural Gas Pipelines
i50,499
i50,038
Mexico Natural Gas Pipelines
i12,003
i9,231
Liquids
Pipelines
i15,490
i15,587
Power and Energy Solutions
i9,525
i8,272
Corporate
i7,735
i3,764
i125,034
i114,348
Geographic
Information
i
year ended December 31
2023
2022
2021
(millions
of Canadian $)
Revenues
Canada – domestic
i5,360
i4,942
i4,603
Canada – export
i1,403
i1,322
i1,226
United States
i8,325
i8,025
i6,953
Mexico
i846
i688
i605
i15,934
i14,977
i13,387
/i
at
December 31
2023
2022
(millions of Canadian $)
Plant, Property and Equipment
Canada
i28,583
i27,232
United States
i44,609
i43,505
Mexico
i7,377
i5,203
i80,569
i75,940
/
TC
Energy Consolidated Financial Statements 2023 | 161
1Includes
$i31 million of fee revenues from an affiliate related to the development and construction of the Coastal GasLink pipeline project which is i35 per cent owned by TC Energy.
2Includes $i97 million
of revenues generated from non-lease components for the provision of operating and maintenance services with respect to sales-type leases on the in-service TGNH pipelines. Refer to Note 11, Leases, for additional information.
3Represents the sales-type lease income on the in-service TGNH pipelines. Refer to Note 11, Leases, for additional information.
4Other revenues include income from the Company's operating lease arrangements, marketing activities and financial instruments. Refer to Note 11, Leases, and Note 29, Risk management and financial instruments, for additional information.
1Includes
$i68 million of fee revenues from an affiliate related to the development and construction of the Coastal GasLink pipeline project which is i35 per cent owned by TC Energy.
2Includes $i37 million
of revenues generated from non-lease components for the provision of operating and maintenance services with respect to sales-type leases on the in-service TGNH pipelines. Refer to Note 11, Leases, for additional information.
3Represents the sales-type lease income on the in-service TGNH pipelines. Refer to Note 11, Leases, for additional information.
4Other revenues include income from the Company's operating lease arrangements, marketing activities and financial instruments. Refer to Note 11, Leases, and Note 29, Risk management and financial instruments, for additional information.
5Other revenues from U.S. Natural Gas Pipelines include the amortization of the net regulatory liabilities resulting from H.R.1, the Tax Cuts and Jobs Act (U.S. Tax Reform). Refer
to Note 14, Rate-regulated businesses, for additional information.
/
162 | TC Energy Consolidated Financial Statements 2023
1Includes
$i87 million of fee revenues from an affiliate related to the development and construction of the Coastal GasLink pipeline project which is i35 per cent owned by TC Energy.
2Other revenues include income from the Company's operating lease
arrangements, marketing activities and financial instruments. Refer to Note 11, Leases, and Note 29, Risk management and financial instruments, for additional information.
3Other revenues from U.S. Natural Gas Pipelines include the amortization of the net regulatory liabilities resulting from U.S. Tax Reform. Refer to Note 14, Rate-regulated businesses, for additional information.
i
Contract Balances
at
December 31
2023
2022
Affected line item on the Consolidated balance sheet
(millions of Canadian $)
Receivables from contracts with customers
i1,832
i1,907
Accounts
receivable
Contract assets (Note 9)
i151
i155
Other
current assets
Long-term contract assets (Note 16)
i457
i355
Other
long-term assets
Contract liabilities1 (Note 18)
i69
i62
Accounts
payable and other
Long-term contract liabilities1 (Note 19)
i12
i32
Other
long-term liabilities
1During the year ended December 31, 2023, $i64 million (2022 – $i51
million) of revenues were recognized that were included in contract liabilities and long-term contract liabilities at the beginning of the year.
/
Contract assets and long-term contract assets primarily relate to the Company’s right to revenues for services completed but not invoiced at the reporting date on long-term committed capacity natural gas pipelines contracts. The change in contract assets is primarily related to the transfer to Accounts receivable when these rights become unconditional and the customer is invoiced, as well as the recognition of additional revenues that remain to be invoiced. Contract liabilities and long-term contract liabilities primarily represent unearned revenue for contracted services. Under the terms of the consolidated Transportation
Service Agreement (TSA), the contract liability relating to current and future in-service TGNH pipelines is netted against certain contract asset balances. The resulting net contract liability is settled against net investment in leases on the Consolidated balance sheet when the pipeline enters into service.
TC Energy Consolidated Financial Statements 2023 | 163
Future Revenues from Remaining Performance Obligations
As at December 31, 2023, future revenues from long-term pipeline capacity arrangements and transportation as well as natural gas storage and other contracts extending through 2055 are approximately $i22.9 billion,
of which approximately $i4.9 billion is expected to be recognized in 2024.
A significant portion of the Company's revenues are considered constrained and therefore not included in the future revenue amounts above as the Company uses the following practical expedients:
•right to invoice practical expedient – applied to all U.S. and certain Mexico rate-regulated natural gas pipeline capacity arrangements and flow-through revenues
•variable
consideration practical expedient – applied to the following variable revenues:
◦interruptible transportation service revenues as volumes cannot be estimated
◦liquids pipelines capacity revenues based on volumes transported
◦power generation revenues related to market prices that are subject to factors outside the Company's influence
•contracts for a duration of one year or less. In addition, future revenues from the Company's Canadian natural gas pipelines' regulated firm capacity contracts include fixed revenues only for the time periods that approved tolls under current rate settlements are in effect and certain. Future revenues exclude lease income from the Company's Mexico natural
gas pipelines on projects that have not been placed into service.
7. iKEYSTONE XL
Asset Impairment Charge and Other
Following the revocation of the Presidential Permit for the Keystone XL pipeline project on January 20, 2021, the Company terminated the Keystone XL pipeline project and evaluated the Keystone XL investment for impairment in 2021. As a result, the Company determined that
the carrying amount of these assets within the Liquids Pipelines segment was no longer fully recoverable and recognized an asset impairment charge, net of expected contractual recoveries and other contractual and legal obligations related to termination activities, of $i2,775 million ($i2,134
million after tax) for the year ended December 31, 2021. The asset impairment charge was based on the excess of the carrying value of $i3,301 million over the estimated fair value of $i175 million.
Estimated Fair Value of Plant, Property and Equipment
Asset impairment charge and other
(millions of Canadian $)
Pre tax
After tax
Asset impairment charge
Plant
and equipment
i175
i412
i312
Related
capital projects in development
i—
i230
i175
Other
capitalized costs
i—
i2,158
i1,642
Capitalized
interest
i—
i326
i248
i175
i3,126
i2,377
Other
Contractual
recoveries
n/a
(i693)
(i525)
Contractual
and legal obligations related to termination activities
n/a
i342
i282
i175
i2,775
i2,134
/
The
estimated fair value of $i175 million at December 31, 2021 related to plant and equipment was based on the price that was expected to be received from selling these assets in their current condition and is updated as required. The initial key assumptions used in the determination of selling price included an estimated two-year disposal period and current energy market demand. The valuation considered a variety of potential selling prices based on various markets that could be used to dispose of these assets and required the use of unobservable inputs. As a result,
the fair value is classified in Level III of the fair value hierarchy.
164 | TC Energy Consolidated Financial Statements 2023
In 2023, the Company received $i10 million (2022 – $i571 million)
towards its contractual recoveries, resulting in a remaining balance of $i117 million at December 31, 2023 (December 31, 2022 – $i130 million).
In
2022, the Company revised its estimate of contractual and legal obligations related to termination activities based on a review of costs and commitments incurred, which resulted in a $i54 million reduction to the asset impairment charge. No revision to the estimate was made in 2023. The Company paid $i2 million
in 2023 (2022 – $i24 million; 2021 – $i192 million) towards contractual and legal obligations related to termination activities. At December
31, 2023, the remaining balance accrued was $i45 million (December 31, 2022 – $i48 million).
In 2023, the Company sold plant and equipment
with a carrying value of approximately $i63 million (2022 – $i25 million; 2021 – $i16 million),
resulting in a gain of $i36 million (2022 – $i64 million; 2021 – inil)
recorded in Goodwill and asset impairment charges and other in the Consolidated statement of income.
As part of the Keystone XL impairment charge and other, the Company recorded a $i14 million income tax recovery in 2023 (2022 – $i96 million
expense) in relation to the termination of the Keystone XL pipeline project.
Redeemable Non-Controlling Interest and Long-Term Debt
In March 2020, the Company announced that it would proceed with construction of the Keystone XL pipeline. As part of the funding plan, the Government of Alberta invested $i1,033 million in the form of Class A Interests in the year ended December 31, 2020.
On
January 4, 2021, the Company put in place a US$i4.1 billion project-level credit facility to support construction of the Keystone XL pipeline, that was fully guaranteed by the Government of Alberta and non-recourse to the Company. On January 8, 2021, the Company exercised its call right with the Government of Alberta in accordance with contractual terms and paid $i633 million
(US$i497 million) to repurchase the Government of Alberta Class A Interests in certain Keystone XL subsidiaries. This transaction was funded by draws on the project-level credit facility. For the year ended December 31, 2021, the Company made draws under the Keystone XL project-level credit facility totaling $i1,028 million
(US$i849 million). Following the cancellation of the Keystone XL pipeline project, the Government of Alberta repaid the full outstanding balance in June 2021 in accordance with the terms of the guarantee, and the credit facility was subsequently terminated. Additionally, in June 2021, the Company repurchased the remaining Government of Alberta Class A Interests for a nominal amount, which was accounted for as an equity transaction and resulted in $i394 million
recognized in Additional paid-in capital. As part of this arrangement, TC Energy issued $i91 million of Class C Interests in the Keystone XL subsidiaries which entitled the Government of Alberta to future liquidation proceeds from specified Keystone XL project assets. The entire $i91 million
was recorded (net of distributions) in Accounts payable and other on the Consolidated balance sheet. During 2023, it was determined that the Company would exceed the $i91 million of Class C distributions and the Company increased the Class C Interests carrying value by $i32 million
with a corresponding amount recorded in Goodwill and asset impairment charges and other in the Consolidated statement of income. Termination of the project-level credit facility, net of the issuance of Class C Interests, resulted in $i937 million ($i737 million
after tax) recorded to Additional paid-in capital in 2021. For the year ended December 31, 2023, the Company made Class C distributions to the Government of Alberta of $i49 million (2022 – $i43
million; 2021 – $i16 million).
TC Energy Consolidated Financial Statements 2023 | 165
8. iCOASTAL
GASLINK
Impairment of Equity Investment in Coastal GasLink LP
In July 2022, amended agreements were executed between Coastal GasLink LP, LNG Canada, TC Energy and its Coastal GasLink LP partners (collectively, the July 2022 agreements). These amendments revised the commercial terms between LNG Canada and Coastal GasLink LP, as well as funding provisions between the partners of Coastal GasLink LP.
With the expectation that additional equity contributions under a subordinated loan agreement between TC Energy and the Coastal GasLink LP partners will be predominantly funded by TC Energy as limited partner of Coastal GasLink LP, in accordance with the July 2022 agreements, the Company completed valuation assessments during the first three quarters of 2023 and concluded that, for each period an assessment was performed, the fair value of its
investment in Coastal GasLink LP was below its carrying value and that these were other-than-temporary impairments. As a result, a pre-tax impairment charge of $i2,100 million ($i1,943
million after tax) was recognized during the year ended December 31, 2023 in Impairment of equity investment in the Consolidated statement of income in the Canadian Natural Gas Pipelines segment (2022 – $i3,048 million; $i2,643 million
after tax). The carrying value of the investment in Coastal GasLink LP was $i294 million at December 31, 2023 (2022 – inil), which reflects the balance of amounts, net of impairments, drawn on the subordinated loan to date at December 31,
2023 and other changes to TC Energy's equity investment. The impairment charge reflected the net impact of $i2,020 million drawn on and a $i250 million repayment of the subordinated loan for the nine months
ended September 30, 2023, along with TC Energy’s proportionate share of unrealized gains and losses on interest rate derivatives in Coastal GasLink LP and other changes to the equity investment. The cumulative pre-tax impairment charge recognized at December 31, 2023 is $i5,148 million ($i4,586 million
after tax).
A deferred income tax recovery was recognized on the pre-tax impairment charge, net of certain unrealized tax losses not recognized. The impairment of the subordinated loan resulted in unrealized non-taxable capital losses that are not recognized. Refer to Note 20, Income taxes, for additional information.
At December 31, 2023, TC Energy expects to fund an additional $i0.9 billion related to the capital cost estimates to complete the
Coastal GasLink pipeline, which is consistent with the capital cost profile that was included in the September 30, 2023 impairment calculation. At December 31, 2023, there were no events or changes in circumstances since September 30, 2023 indicating a significant adverse impact on the estimated fair value of the Company’s investment in Coastal GasLink LP.
The fair value of TC Energy’s investment in Coastal GasLink LP at September 30, 2023 and December 31, 2022 was estimated using a i40-year
discounted cash flow model and is classified as a Level III fair value measurement.
The discounted cash flow is most sensitive to assumptions related to the capital cost estimates for the Coastal GasLink pipeline of approximately $i14.5 billion (2022 – $i14.5 billion),
discount rate and long-term financing plans.
Other assumptions included in the discounted cash flow model include contractually agreed upon terms and extension provisions in the TSAs between Coastal GasLink LP and the LNG Canada participants, potential expansion projects and estimated completion date.
Subordinated Loan Agreement
In 2021, TC Energy entered into a subordinated loan agreement with Coastal GasLink LP. This loan agreement was amended as part of the July 2022 agreements, and subsequent draws on this loan by Coastal GasLink LP will be provided through an interest-bearing loan, subject to a floating market-based interest rate to fund the capital cost to complete the Coastal GasLink pipeline. Committed capacity under the subordinated loan agreement between TC Energy and Coastal GasLink LP was $i3.4
billion, with $i2.5 billion drawn on the loan at December 31, 2023.
Any amounts outstanding on the loan will be repaid by Coastal GasLink LP to TC Energy once final project costs are known, which will be determined after the pipeline is placed into service. Coastal GasLink LP partners, including TC Energy, will contribute equity to Coastal GasLink LP to ultimately fund Coastal GasLink LP’s repayment of this subordinated loan to TC Energy. The Company expects that these
additional equity contributions will be predominantly funded by TC Energy. Amounts drawn on this loan subsequent to amended agreements executed in July 2022 are accounted for as in-substance equity contributions and are presented as Contributions to equity investments on the Company’s Consolidated statement of cash flows. Interest and principal repayments on this loan, which are expected to be predominantly funded by TC Energy, will be accounted for as an equity investment distribution to the Company once received.
166 | TC Energy Consolidated Financial Statements 2023
i
The
table below reflects the changes in this loan receivable balance.
at December 31
(millions of Canadian $)
2023
2022
Outstanding balance at beginning of year
i250
i238
Issuances
i2,520
i112
Repayments
(i250)
(i100)
Outstanding
balance at end of year
i2,520
i250
Impairment during the year
(i2,020)
(i250)
Carrying
value at end of year
i500
i—
/
9. iOTHER
CURRENT ASSETS
i
at December 31
2023
2022
(millions of Canadian $)
Fair
value of derivative contracts (Note 29)
i1,285
i614
Current
portion of net investment in leases (Note 11)
i306
i291
Contract
assets (Note 6)
i151
i155
Current
portion of Keystone environmental provision recovery (Note 18)
i150
i410
Cash
provided as collateral
i120
i106
Emissions
credits
i94
i36
Prepaid expenses
i92
i118
Keystone
XL contractual recoveries (Note 7)
i83
i86
Regulatory
assets (Note 14)
i76
i67
Keystone XL assets held for sale
i58
i122
Other
i88
i147
i2,503
i2,152
/
TC
Energy Consolidated Financial Statements 2023 | 167
10. iPLANT, PROPERTY AND EQUIPMENT
i
at
December 31
2023
2022
Cost
Accumulated Depreciation
Net
Book Value
Cost
Accumulated Depreciation
Net
Book Value
(millions
of Canadian $)
Canadian Natural Gas Pipelines
NGTL System
Pipeline
i20,232
i6,855
i13,377
i18,119
i6,285
i11,834
Compression
i6,603
i2,349
i4,254
i6,265
i2,224
i4,041
Metering
and other
i1,589
i830
i759
i1,518
i769
i749
i28,424
i10,034
i18,390
i25,902
i9,278
i16,624
Under
construction
i787
i—
i787
i1,552
i—
i1,552
i29,211
i10,034
i19,177
i27,454
i9,278
i18,176
Canadian
Mainline
Pipeline
i10,729
i7,996
i2,733
i10,472
i7,852
i2,620
Compression
i4,437
i3,354
i1,083
i4,328
i3,247
i1,081
Metering
and other
i729
i308
i421
i692
i285
i407
i15,895
i11,658
i4,237
i15,492
i11,384
i4,108
Under
construction
i147
i—
i147
i269
i—
i269
i16,042
i11,658
i4,384
i15,761
i11,384
i4,377
Other
Canadian Natural Gas Pipelines1
Other
i2,846
i1,682
i1,164
i1,984
i1,624
i360
Under
construction
i23
i—
i23
i455
i—
i455
i2,869
i1,682
i1,187
i2,439
i1,624
i815
i48,122
i23,374
i24,748
i45,654
i22,286
i23,368
U.S.
Natural Gas Pipelines
Columbia Gas
Pipeline
i12,952
i1,247
i11,705
i12,471
i1,069
i11,402
Compression
i5,310
i559
i4,751
i5,190
i495
i4,695
Metering
and other
i4,074
i372
i3,702
i4,026
i346
i3,680
i22,336
i2,178
i20,158
i21,687
i1,910
i19,777
Under
construction
i771
i—
i771
i659
i—
i659
i23,107
i2,178
i20,929
i22,346
i1,910
i20,436
ANR
Pipeline
i2,117
i657
i1,460
i2,066
i641
i1,425
Compression
i3,928
i773
i3,155
i3,785
i734
i3,051
Metering
and other
i1,625
i458
i1,167
i1,666
i440
i1,226
i7,670
i1,888
i5,782
i7,517
i1,815
i5,702
Under
construction
i404
i—
i404
i328
i—
i328
i8,074
i1,888
i6,186
i7,845
i1,815
i6,030
/
168 | TC
Energy Consolidated Financial Statements 2023
at December 31
2023
2022
Cost
Accumulated Depreciation
Net
Book Value
Cost
Accumulated Depreciation
Net
Book Value
(millions of Canadian $)
Other U.S. Natural Gas Pipelines
Columbia
Gulf
i3,600
i256
i3,344
i3,511
i224
i3,287
GTN
i2,992
i1,295
i1,697
i2,964
i1,239
i1,725
Great
Lakes
i2,359
i1,401
i958
i2,367
i1,387
i980
Other2
i2,071
i800
i1,271
i1,928
i760
i1,168
i11,022
i3,752
i7,270
i10,770
i3,610
i7,160
Under
construction
i584
i—
i584
i328
i—
i328
i11,606
i3,752
i7,854
i11,098
i3,610
i7,488
i42,787
i7,818
i34,969
i41,289
i7,335
i33,954
Mexico
Natural Gas Pipelines3
Pipeline
i2,280
i387
i1,893
i2,299
i348
i1,951
Compression
i370
i79
i291
i374
i59
i315
Metering
and other
i482
i123
i359
i487
i113
i374
i3,132
i589
i2,543
i3,160
i520
i2,640
Under
construction
i4,823
i—
i4,823
i2,547
i—
i2,547
i7,955
i589
i7,366
i5,707
i520
i5,187
Liquids
Pipelines
Keystone Pipeline System
Pipeline
i9,569
i2,212
i7,357
i9,777
i2,056
i7,721
Pumping
equipment
i1,096
i312
i784
i1,064
i288
i776
Tanks
and other
i3,658
i913
i2,745
i3,723
i859
i2,864
i14,323
i3,437
i10,886
i14,564
i3,203
i11,361
Under
construction
i54
i—
i54
i96
i—
i96
i14,377
i3,437
i10,940
i14,660
i3,203
i11,457
Intra-Alberta
Pipelines
i203
i25
i178
i199
i19
i180
i14,580
i3,462
i11,118
i14,859
i3,222
i11,637
Power
and Energy Solutions
Natural Gas Power Generation
i1,239
i637
i602
i1,260
i642
i618
Natural
Gas Storage and Other
i845
i256
i589
i820
i238
i582
Renewable
Power Generation
i581
i19
i562
i—
i—
i—
i2,665
i912
i1,753
i2,080
i880
i1,200
Under
construction
i153
i—
i153
i80
i—
i80
i2,818
i912
i1,906
i2,160
i880
i1,280
Corporate
i909
i447
i462
i900
i386
i514
i117,171
i36,602
i80,569
i110,569
i34,629
i75,940
1Includes
Foothills, Ventures LP and Great Lakes Canada.
2Includes Portland, North Baja, Tuscarora, Crossroads and mineral rights business.
3During the year ended December 31, 2023, the Company derecognized $i407 million (2022 – $i2,319
million) of Plant, property and equipment and recorded a corresponding asset for net investment in leases for the in-service TGNH pipelines. Refer to Note 11, Leases, for additional information.
TC Energy Consolidated Financial Statements 2023 | 169
11. iiiLEASES//
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 i25 years, and some may include options to terminate the lease within ione year or when certain conditions are met. 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.
i
Operating lease cost was as follows:
year ended December 31
(millions
of Canadian $)
2023
2022
Operating lease cost1
i118
i106
Sublease
income
(i4)
(i5)
Net operating lease cost
i114
i101
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 $)
2023
2022
Cash paid for amounts included in the measurement of operating lease liabilities
i72
i67
ROU
assets obtained in exchange for new operating lease liabilities
i84
i49
at
December 31
2023
2022
Weighted average remaining lease term
i13 years
i8
years
Weighted average discount rate
i3.3
%
i3.5
%
/i
Maturities
of operating lease liabilities are as follows:
at December 31
(millions of Canadian $)
2023
2022
Less than one year
i72
i68
One
to two years
i68
i65
Two
to three years
i66
i62
Three
to four years
i59
i60
Four
to five years
i58
i54
More
than five years
i225
i187
Total
operating lease payments
i548
i496
Imputed interest
(i89)
(i63)
Operating
lease liabilities
i459
i433
/
170 | TC
Energy Consolidated Financial Statements 2023
The amounts recognized on TC Energy's Consolidated balance sheet for its operating lease liabilities were as follows:
at December 31
(millions of Canadian $)
2023
2022
Accounts
payable and other
i58
i54
Other long-term liabilities (Note 19)
i401
i379
i459
i433
As
at December 31, 2023, the carrying value of the ROU assets recorded under operating leases was $i437 million (2022 – $i415 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, 2023 was $i116 million (2022 – $i118 million; 2021 – $i126
million).
i
Future lease payments to be received under operating leases are as follows:
at December 31
(millions of Canadian $)
2023
2022
Less
than one year
i113
i113
One
to two years
i94
i111
Two
to three years
i70
i94
Three
to four years
i—
i70
i277
i388
/
The
cost and accumulated depreciation for facilities accounted for as operating leases was $i796 million and $i370
million, respectively, at December 31, 2023 (2022 – $i802 million and $i360
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, 2023, included the Tamazunchale pipeline, the north and lateral sections 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.
TC Energy Consolidated Financial Statements 2023 | 171
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.
During 2023, the Company recognized an additional $i407 million in net investment in leases (2022 – $i2,319 million)
to reflect sales type-leases placed into service. At the inception of the lease term, the Company applied judgment to determine that the fair value of the underlying assets approximated the carrying value and residual value of the lease based on the rate-regulated nature of the assets within the TGNH system.
i
The following table lists the components of the aggregate net investment in leases reflected on the Company's Consolidated balance sheet:
at
December 31
(millions of Canadian $)
2023
2022
Net Investment in Leases
Minimum lease payments
i9,627
i9,457
Unearned
lease income
(i7,006)
(i7,132)
Lease
receivable
i2,621
i2,325
Expected
credit loss provision1
(i76)
(i150)
Present
value of unguaranteed residual value
i24
i11
i2,569
i2,186
Current
portion included in Other current assets (Note 9)
Future
lease payments to be received under the existing sales-type leases are as follows:
at December 31
(millions of Canadian $)
2023
2022
Less than one year
i305
i291
One
to two years
i305
i291
Two
to three years
i305
i291
Three
to four years
i305
i291
Four
to five years
i305
i291
More
than five years
i8,102
i8,002
i9,627
i9,457
/
Future
lease payments will increase as assets associated with sales-type leases come into service.
For the year ended December 31, 2023, the Company recorded $i279 million (2022 – $i127
million) of sales-type lease income in Mexico Natural Gas Pipelines revenues.
For the year ended December 31, 2023, the Company recorded a $i73 million ECL recovery (2022 – an expense of $i149 million;
2021 – inil) in Plant operating costs and other relating to net investment in leases. Refer to Note 29, Risk management and financial instruments, for additional information.
172 | TC Energy Consolidated Financial Statements 2023
1Classified
as a VIE. Refer to Note 33, Variable interest entities, for additional information.
2Classified as a VIE in 2021.
3In December 2023, TC Energy sold a i20.1 per cent equity interest in Port Neches Link LLC.
4In November 2021, TC Energy sold its remaining i15
per cent equity interest in Northern Courier. Refer to Note 31, Acquisitions and dispositions, for additional information.
/
Coastal GasLink Incentive Payment
The Coastal GasLink project reached mechanical completion in November 2023 and was ready to deliver commissioning gas to the LNG Canada facility by the end of 2023. These milestones entitle Coastal GasLink LP to receive a $i200 million incentive payment
from LNG Canada. In accordance with the contractual terms between the Coastal GasLink LP partners, the amount accrues in full to TC Energy as the project developer and was settled through a cash distribution on February 12, 2024. The Company recognized the incentive payment as Income (loss) from equity investments in the Consolidated statement of income for the year ended December 31, 2023 and recorded a corresponding amount in Accounts receivable on the Consolidated balance sheet.
Impairment of Equity Investment
In the fourth quarter of 2022, the Company announced that a material increase in the Coastal GasLink pipeline project costs was expected. On February 1, 2023, Coastal GasLink LP announced an increase in the revised capital cost
of the Coastal GasLink pipeline project. The increase in project costs and the Company's corresponding funding requirements were indicators that a decrease in the value of the Company's equity investment had occurred. As a result, the Company completed a valuation assessment and concluded that the fair value of TC Energy's investment was below its carrying value at December 31, 2022. The Company completed valuation assessments at each of the first three quarters of 2023 and concluded that an other-than-temporary impairment of its investment had occurred. This resulted in a pre-tax impairment charge of $i2,100
million ($i1,943 million after tax) and $i3,048 million
($i2,643 million after tax) recorded in the year ended December 31, 2023 and 2022, respectively. Refer to Note 8, Coastal GasLink, for additional information.
TC
Energy Consolidated Financial Statements 2023 | 173
Distributions and Contributions
i
Distributions received from equity investments and contributions made to equity investments for the years ended December 31, 2023, 2022 and 2021
were as follows:
year ended December 31
2023
2022
2021
(millions of Canadian $)
Distributions
Distributions
received from operating activities of equity investments
i1,254
i1,025
i975
Sur
de Texas debt repayments1,2
i—
i2,404
i73
Other1
i23
i228
i—
i1,277
i3,657
i1,048
Contributions1
Contributions
to Coastal GasLink
i3,231
i1,414
i92
Sur
de Texas debt financing2
i—
i1,199
i—
Contributions
made to other equity investments
i918
i820
i1,118
i4,149
i3,433
i1,210
1Included
in Investing activities in the Consolidated statement of cash flows.
2Represents TC Energy's proportionate share of the Sur de Texas debt financing requirements and subsequent repayments. Refer to Note 13, Loans receivable from affiliates, for additional information.
/
Summarized Financial Information of Equity Investments
year
ended December 31
2023
2022
2021
(millions of Canadian $)
Income
Revenues
i6,425
i5,891
i5,447
Operating
and other expenses
(i3,450)
(i3,390)
(i3,293)
Net
income
i2,584
i2,147
i1,859
Net
income attributable to TC Energy
i1,377
i1,054
i898
at
December 31
2023
2022
(millions of Canadian $)
Balance Sheet
Current assets
i3,526
i3,414
Non-current
assets
i42,933
i37,713
Current liabilities
(i2,431)
(i2,856)
Non-current
liabilities
(i21,895)
(i17,690)
At December 31,
2023, the cumulative carrying value of the Company’s equity investments was $i183 million (2022 – $i299 million)
lower than the cumulative underlying equity in the net assets primarily due to the impairment of the equity investment in Coastal GasLink LP, partially offset by fair value adjustments at the time of acquisition or partial disposition as well as interest capitalized during construction. Refer to Note 8, Coastal GasLink, for additional information.
174 | TC Energy Consolidated Financial Statements 2023
13. iLOANS
RECEIVABLE FROM AFFILIATES
Related party transactions are conducted in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Coastal GasLink Pipeline Limited Partnership
TC Energy holds a i35 per cent equity interest in Coastal GasLink LP and has been contracted to develop and operate the Coastal GasLink pipeline.
Subordinated Demand Revolving
Credit Facility
The Company has a subordinated demand revolving credit facility with Coastal GasLink LP to provide additional short-term liquidity and funding flexibility to the project. The facility bears interest at a floating market-based rate and has a capacity of $i100 million (2022 – $i100 million)
with ino outstanding balance at December 31, 2023 and 2022. This revolver was not impacted by the impairment charges recognized to date.
Subordinated Loan Agreement
In 2021, TC Energy entered into a subordinated loan agreement with Coastal GasLink LP, which was amended on July 28, 2022. At December 31, 2023, the total capacity committed by TC Energy under this
subordinated loan agreement was $i3.4 billion (2022 – $i1.3 billion) with an outstanding balance of $i2,520
million (2022 – $i250 million). In the year ended December 31, 2023, $i2,020 million (2022 – $i250 million)
was impaired. Refer to Note 8, Coastal GasLink, for additional information.
Sur de Texas
TC Energy holds a i60 per cent equity interest in a joint venture with IEnova to own the Sur de Texas pipeline, for which TC Energy is the operator. In 2017, TC Energy entered into a MXN$i21.3
billion unsecured revolving credit facility with the joint venture, which bore interest at a floating rate and was fully repaid upon maturity on March 15, 2022 in the amount of $i1.2 billion.
i
The Company's
Consolidated statement of income reflects the related interest income and foreign exchange impact on this loan receivable until its repayment on March 15, 2022, which were fully offset upon consolidation with corresponding amounts included in TC Energy’s proportionate share of Sur de Texas equity earnings as follows:
year ended December 31
Affected
line item in the Consolidated statement of income
(millions of Canadian $)
2023
2022
2021
Interest income1
i—
i19
i87
Interest
income and other
Interest expense2
i—
(i19)
(i87)
Income
(loss) from equity investments
Foreign exchange losses1
i—
(i28)
(i41)
Foreign
exchange (gains) losses, net
Foreign exchange gains1
i—
i28
i41
Income
from equity investments
1Included in the Corporate segment.
2Included in the Mexico Natural Gas Pipelines segment.
/
On March 15, 2022, as part of refinancing activities with the Sur de Texas joint venture, the peso-denominated inter-affiliate loan discussed above was replaced with a new U.S. dollar-denominated inter-affiliate loan of an equivalent $i1.2 billion
(US$i938 million) with a floating interest rate. On July 29, 2022, the Sur de Texas joint venture entered into an unsecured term loan agreement with third parties, the proceeds of which were used to fully repay the U.S. dollar-denominated inter-affiliate loan with TC Energy.
TC Energy Consolidated Financial Statements 2023 | 175
14. iRATE-REGULATED
BUSINESSES
TC Energy's businesses that apply RRA currently include almost all of the Canadian, U.S. and Mexico natural gas pipelines and certain U.S. natural gas storage operations. Rate-regulated businesses account for and report assets and liabilities consistent with the resulting economic impact of the regulators' established rates, provided the rates are designed to recover the costs of providing the regulated service and the competitive environment makes it probable that such rates can be charged and collected. Certain revenues and expenses subject to utility regulation or rate determination that would otherwise be reflected in the statement of income are deferred on the balance sheet and are expected to be recovered from or refunded to customers in future service rates.
Canadian Regulated Operations
The majority of TC Energy's
Canadian natural gas pipelines are regulated by the CER under the Canadian Energy Regulator Act (CER Act). The Impact Assessment Agency of Canada continues to assess designated projects.
The CER regulates the construction and operation of facilities and the terms and conditions of services, including rates, for the Company's Canadian regulated natural gas transmission systems under federal jurisdiction.
TC Energy's Canadian natural gas transmission services are supplied under natural gas transportation tariffs that provide for cost recovery, including return of and on capital as approved by the CER. Rates charged for these services are typically set through a process that involves filing an application with the regulator wherein forecasted operating costs, including a return of and on capital, determine the revenue requirement for the upcoming year or multiple years. To the extent actual
costs and revenues are more or less than forecasted costs and revenues, the regulator generally allows the difference to be deferred to a future period and recovered or refunded in rates at that time. Differences between actual and forecasted costs that the regulator does not allow to be deferred are included in the determination of net income in the year they occur. The Company's most significant regulated Canadian natural gas pipelines, based on total operated pipe length, are described below.
NGTL System
The NGTL System is operating under the 2020-2024 Revenue Requirement Settlement which includes an approved ROE of i10.1
per cent on i40 per cent deemed common equity. This settlement provides the NGTL System the opportunity to increase depreciation rates if tolls fall below specified levels and an incentive mechanism for certain operating costs where variances from projected amounts are shared with its customers.
Canadian Mainline
The Canadian Mainline currently operates under the terms of the 2015-2030 Tolls Application approved in 2014 (the 2014 Decision). In April 2020, the CER approved the six-year unanimous negotiated settlement (2021-2026 Mainline Settlement)
effective January 1, 2021. Similar to the previous settlement, the 2021-2026 Mainline Settlement maintains a base equity return of i10.1 per cent on i40 per cent deemed common equity and includes an incentive to either achieve cost efficiencies and/or increase revenues on the
pipeline with a beneficial sharing mechanism to both customers and TC Energy.
Toll stabilization is achieved using deferral accounts, including the toll-stabilization account and the short-term adjustment accounts (STAA), which capture the surplus or shortfall between system revenues and cost of service each year under the 2021-2026 Mainline Settlement. A portion of the STAA commenced amortization in 2023 according to the terms outlined in the 2021-2026 Mainline Settlement as predetermined thresholds per the settlement agreement were met. Similar to the STAA, the long-term adjustment account (LTAA) and bridging account were used to capture the surplus or shortfall between the Company's revenues and cost of service during the previous settlement and are amortized over the life of 2021-2026 Settlement and the 2014 Decision respectively.
176 | TC
Energy Consolidated Financial Statements 2023
U.S. Regulated Operations
TC Energy's U.S. regulated natural gas pipelines operate under the provisions of the Natural Gas Act of 1938 (NGA), the Natural Gas Policy Act of 1978 and the Energy Policy Act of 2005, and are subject to the jurisdiction of FERC. The NGA grants FERC authority over the construction, acquisition and operation of pipelines and related facilities, including the regulation of tariffs which incorporates maximum and minimum rates for services and allows U.S. regulated natural gas pipelines to discount or negotiate rates on a non-discriminatory basis. The Company's most significant regulated U.S. natural gas pipelines, based on effective ownership and total operated pipe length, are described
below.
Columbia Gas
Columbia Gas' natural gas transportation and storage services are provided under a tariff at rates subject to FERC approval. Columbia Gas reached a settlement with its customers effective February 2021 and received FERC approval in
February 2022. As part of the settlement, there is a moratorium on any further rate changes until April 1, 2025. Columbia Gas must file for new rates with an effective date no later than April 1, 2026. Previously accrued rate refund liabilities were refunded to customers, including interest, in second quarter 2022.
Additionally, Columbia Gas maintains a FERC-approved modernization program allowing for the cost recovery and return on additional investment up to US$i1.2 billion
over a ifour-year period through 2024 to modernize the Columbia Gas system, thereby improving system integrity and enhancing service reliability and flexibility.
ANR Pipeline
ANR Pipeline operated under rates established through a 2016 FERC-approved rate settlement until July 31, 2022. To meet terms of the 2016 settlement, in January 2022, ANR Pipeline filed a Section 4 Rate Case with FERC requesting an increase to maximum transportation rates. In December 2022 ANR Pipeline filed a Stipulation and Agreement of Settlement (2022
ANR Settlement) with FERC. The 2022 ANR Settlement reflects the agreement of ANR Pipeline, its customers and FERC staff to resolve all outstanding issues pertaining to the original rate case filing in January 2022 and was effective August 2022. The 2022 ANR Settlement received FERC approval on April 11, 2023. As part of the settlement, there is a moratorium on any further rate changes until November 1, 2025. ANR must file for new rates with an effective date no later than August 1, 2028. In second quarter 2023, previously accrued rate refund liabilities, including interest, were refunded to customers.
Columbia Gulf
Columbia Gulf operates under a settlement approved by FERC in December 2019 (2019 Columbia Gulf Settlement), which requires
Columbia Gulf to file a general rate case under Section 4 of the NGA no later than January 31, 2027. The 2019 Columbia Gulf Settlement included a moratorium that expired in August 2022. In July 2023 Columbia Gulf, in advance of its obligation to file a general rate case from the 2019 Columbia Gulf Settlement, reached a settlement with its customers effective March 1, 2024 and received FERC approval in August 2023 (2023 Columbia Gulf Settlement). As part of the 2023 Columbia Gulf Settlement, there is a moratorium on any further rate changes through February 28, 2027 and Columbia Gulf must file for new rates no later than March 1, 2029.
Great Lakes
Great Lakes operates under a settlement
approved by FERC in February 2018, which does not include a moratorium; however, Great Lakes was required to file for new rates no later than March 31, 2022.
In March 2022, Great Lakes filed a rate settlement (2022 Great Lakes Settlement) with FERC that satisfies the obligations from the 2017 settlement that Great Lakes file for rates to become effective no later than October 2022. The 2022 Great Lakes Settlement, approved by FERC in April 2022, maintains Great Lakes' existing maximum transportation rates through October 31, 2025. The 2022 Great Lakes Settlement contains a moratorium until October 31, 2025. Great Lakes will be required to file for new rates no later than April 30, 2025, with such new rates effective no later than
November 1, 2025.
Tuscarora
Tuscarora operates under rates established as part of the FERC-approved rate settlement effective August 2019. Under the terms of this settlement, Tuscarora was required to file for new rates to be effective no later than February 1, 2023. Tuscarora filed a general NGA Section 4 Rate Case with FERC in July 2022, requesting an increase to its maximum rates effective February 1, 2023, subject to refund. On March 24, 2023, Tuscarora filed a Stipulation and Agreement of Settlement with FERC, which was approved on September 6, 2023.
TC
Energy Consolidated Financial Statements 2023 | 177
Gas Transmission Northwest
Gas Transmission Northwest (GTN) operates under rates established as part of the FERC-approved rate settlement effective November 18, 2021 (2021 GTN Settlement). The 2021 GTN Settlement satisfies the obligations from the 2015 and 2018 rate settlements that GTN file for rates to become effective no later than January 1, 2022 and extends existing maximum transportation rates at their current levels. GTN’s annual depreciation rates remain unchanged. The 2021 GTN Settlement contains a moratorium until December 31, 2023. Additionally,
the 2021 GTN Settlement authorizes GTN to recover payments that it incurs in the states of Oregon and Washington for carbon/greenhouse gas-related taxes. GTN is required to file for new rates to become effective no later than April 1, 2024. Accordingly, GTN filed a general NGA Section 4 Rate Case with FERC on September 29, 2023, requesting an increase to GTN's maximum rates to become effective April 1, 2024, and subject to refund.
Mexico Regulated Operations
TC Energy's Mexico natural gas pipelines are regulated by CRE and operate in accordance with CRE-approved tariffs. The rates in effect on TC Energy's Mexico natural gas pipelines are in compliance with CRE economic regulations that provide for cost recovery, including a return of
and on invested capital.
178 | TC Energy Consolidated Financial Statements 2023
Regulatory Assets and Liabilities
i
at
December 31
Remaining
Recovery/
Settlement
Period
(years)
2023
2022
(millions of Canadian $)
Regulatory Assets
Deferred
income taxes1
n/a
i2,204
i1,817
Operating
and debt-service regulatory assets2
i1
i29
i2
Pensions
and other post-retirement benefits1,3
n/a
i54
i28
Foreign
exchange on long-term debt1,4
i1-i6
i11
i19
Other
n/a
i108
i111
i2,406
i1,977
Less:
Current portion included in Other current assets (Note 9)
i76
i67
i2,330
i1,910
Regulatory
Liabilities
Pipeline abandonment trust balances5
n/a
i2,355
i2,014
Deferred
income taxes – U.S. Tax Reform6
n/a
i1,137
i1,197
Canadian
Mainline short-term adjustment and toll-stabilization accounts7,8
n/a
i437
i284
Canadian
Mainline bridging amortization account7
i7
i376
i429
Cost
of removal9
n/a
i351
i337
Deferred
income taxes1
n/a
i198
i181
Canadian
Mainline long-term adjustment account7,10
i3
i111
i149
ANR
post-employment and retirement benefits other than pension11
n/a
i42
i43
Operating
and debt-service regulatory liabilities2
i1
i23
i50
Pensions
and other post-retirement benefits3
n/a
i6
i10
Other
n/a
i54
i99
i5,090
i4,793
Less:
Current portion included in Accounts payable and other (Note 18)
i284
i273
i4,806
i4,520
1These
regulatory assets and liabilities are underpinned by non-cash transactions or are recovered without an allowance for return as approved by the regulator. Accordingly, these regulatory assets or liabilities are not included in rate base and do not yield a return on investment during the recovery period.
2Operating and debt-service regulatory assets and liabilities represent the accumulation of cost and revenue variances to be included in determination of rates in the following year.
3These balances represent the regulatory offset to pension plan and other post-retirement benefit obligations to the extent the amounts are expected to be collected from or refunded to customers in future rates.
4Foreign exchange on long-term debt of the NGTL System represents the variance
resulting from revaluing foreign currency-denominated debt instruments to the current foreign exchange rate from the historical foreign exchange rate at the time of issue. Foreign exchange gains and losses realized when foreign debt matures or is redeemed early are expected to be recovered or refunded through the determination of future tolls.
5This balance represents the amounts collected in tolls from customers and included in the LMCI restricted investments to fund future abandonment of the Company's CER-regulated pipeline facilities.
6The U.S. corporate income tax rate was reduced from 35 per cent to 21 per cent in 2017 as a result of H.R.1, the Tax Cuts and Jobs Act (U.S. Tax Reform). This U.S. regulated operations balance, where applicable, represents established regulatory liabilities driven by 2018 FERC prescribed changes
related to U.S. Tax Reform being amortized over varying terms that approximate the expected reversal of the underlying deferred tax liabilities that gave rise to the regulatory liabilities.
7These regulatory accounts are used to capture revenue and cost variances plus toll-stabilization adjustments during the 2015-2030 settlement term.
8Under the terms of the 2021-2026 Mainline Settlement, a portion of the STAA account commenced amortization in 2023 as predetermined thresholds were met, over the terms outlined per the settlement agreement.
9This balance represents anticipated costs of removal that have been, and continue to be, included in depreciation rates and collected in the service rates of certain rate-regulated operations for future costs to be incurred.
10Under the terms of the 2021-2026 Mainline Settlement, $i223 million is amortized over the isix-year settlement term.
/
11This
balance represents the amount ANR estimates it would be required to refund to its customers for post-retirement and post-employment benefit amounts collected through its FERC-approved rates that have not been used to pay benefits to its employees. Pursuant to a FERC-approved rate settlement, the $i42 million (US$i32 million)
balance at December 31, 2023 is subject to resolution through future regulatory proceedings and, accordingly, a settlement period cannot be determined at this time.
TC Energy Consolidated Financial Statements 2023 | 179
15. iGOODWILL
i
The
Company's Goodwill balance on the Consolidated balance sheet is comprised of the following amounts:
As part of the annual goodwill impairment assessment at December 31, 2023, the Company evaluated qualitative factors impacting the fair value of the underlying reporting units for all reporting
units other than for the Tuscarora and North Baja reporting units. It was determined that it was more likely than not that the fair value of these reporting units exceeded their carrying amounts, including goodwill.
180 | TC Energy Consolidated Financial Statements 2023
Columbia
On October 4, 2023, as part of the asset divestiture program announced in 2022, the Company successfully completed the sale of a i40
per cent non-controlling equity interest in Columbia Gas and Columbia Gulf. In conjunction with the process leading up to the sale, the Company performed a quantitative goodwill impairment test at June 30, 2023.
The estimated fair value measurements used in the Company's goodwill impairment analysis are classified as Level III of the fair value hierarchy. In the determination of the fair value utilized in the quantitative goodwill impairment test for the Columbia reporting unit, the Company performed a discounted cash flow model analysis using projections of future cash flows and applied a risk-adjusted discount rate and value multiple which involved significant estimates and judgments. It was determined that the fair value of the Columbia reporting unit, inclusive of the Columbia Gas and Columbia Gulf business units, exceeded its carrying value, including goodwill. Although
goodwill was not impaired, the estimated fair value in excess of the carrying value was less than 10 per cent. There is a risk that reductions in future cash flow forecasts and adverse changes in other key assumptions could result in a future impairment of a portion of the goodwill balance relating to Columbia.
The Company evaluated qualitative factors impacting the fair value of the Columbia reporting unit from June 30, 2023 to December 31, 2023 and determined that it was more likely than not that the fair value remains higher than the carrying amount, including goodwill.
North Baja and Tuscarora
The Company elected to proceed directly to a quantitative annual impairment test at December 31, 2023
for the $i63 million of goodwill related to the North Baja reporting unit due to the passage of time from the previous quantitative test at December 31, 2018. The Company also elected to proceed directly to a quantitative annual impairment test for the $i30 million of goodwill related to the
Tuscarora reporting unit due to the passage of time from the previous quantitative test at December 31, 2018, and subsequent to the Tuscarora Section 4 rate case settlement in 2023. It was determined that the fair values of North Baja and Tuscarora exceeded their carrying values, including goodwill, at December 31, 2023.
Great Lakes
In March 2022, Great Lakes reached a pre-filing settlement with its customers and filed an unopposed rate case settlement with FERC by which Great Lakes and the settling parties agreed to maintain existing recourse rates through October 31, 2025. Management performed a quantitative impairment test which evaluated a range of assumptions through a discounted cash flow model analysis using a risk-adjusted discount
rate. It was determined that the estimated fair value of the Great Lakes reporting unit no longer exceeded its carrying value, including goodwill, and that an impairment charge was necessary. As a result, the Company recorded a pre-tax goodwill impairment charge of $i571 million ($i531 million
after tax) for the year ended December 31, 2022 within the U.S. Natural Gas Pipelines segment that is included in Goodwill and asset impairment charges and other in the Company's Consolidated statement of income. The remaining goodwill balance related to Great Lakes was US$i122 million at December 31, 2022. There is a risk that continued reductions in future cash flow forecasts and adverse changes in other key assumptions could result in a future impairment of the goodwill balance relating to Great Lakes. The majority of the Great Lakes goodwill impairment
charge was allocated to non-deductible goodwill and the income tax recovery of $i40 million was attributable to the portion of the goodwill that was deductible for income tax purposes. The estimated fair value measurements used in the Company's goodwill impairment analysis is classified as Level III of the fair value hierarchy. In the determination of the fair value utilized in the quantitative goodwill impairment test for each reporting unit, the Company used its projections of future cash flows and applied a risk-adjusted discount rate which
involved significant estimates and judgments.
Asset Divestiture Program
TC Energy is progressing the asset divestiture program announced in 2022, which may involve the divestiture of reporting units, or portions thereof. These divestitures could include assets that have associated goodwill. To the extent that a sale transaction indicates a value lower than previously estimated, goodwill could be impaired. In the event of a partial sale of such assets, the anticipated proceeds will be considered in management’s assessment of fair value of the retained interest and any associated goodwill. The Company will continue to evaluate incremental capital rotation opportunities.
TC Energy Consolidated Financial Statements 2023 | 181
182 | TC
Energy Consolidated Financial Statements 2023
17. iNOTES PAYABLE
i
at
December 31
2023
2022
(millions of Canadian $, unless otherwise noted)
Outstanding
Weighted
Average
Interest Rate
per Annum
Outstanding
Weighted
Average
Interest Rate
per
Annum
Canada1
i—
i—
i5,971
i4.9
%
Mexico
(2023 – inil; 2022 – US$i215)2
i—
i—
i291
i6.0
%
i—
i6,262
1At
December 31, 2023, Notes payable consisted of Canadian dollar-denominated notes of inil (2022 – $i2,810 million) and U.S. dollar-denominated
notes of inil (2022 – US$i2,336 million).
2In January 2023, the Company's Mexico subsidiary fully repaid the outstanding
balance and terminated its MXN$i5.0 billion demand senior unsecured revolving credit facility.
/
On August 25, 2023, TransCanada PipeLines Limited (TCPL) fully repaid and retired its 364-day $i1.5 billion
senior unsecured term loan bearing interest at a floating rate entered into on November 22, 2022.
At December 31, 2022, Notes payable reflects short-term borrowings in Canada by TCPL and in Mexico by a wholly-owned Mexican subsidiary.
At December 31, 2023, total committed revolving and demand credit facilities were $i11.6 billion (2022 – $i12.9
billion). When drawn, interest on these lines of credit is charged at negotiated floating rates of Canadian and U.S. banks, and at other negotiated financial bases. iThese unsecured credit facilities included the following:
Supports the issuance of letters of credit and provides additional liquidity; TCPL USA facility guaranteed by TCPL
Demand
i2.0
3
i1.0
i2.1
3
Mexico
subsidiary
For Mexico general corporate purposes, guaranteed by TCPL
Demand
i—
i—
MXN
i5.0
3
1Unused capacity is net of commercial paper outstanding and facility draws.
2Provisions of various trust indentures and credit arrangements with the Company's subsidiaries can restrict their ability to declare and pay dividends or make distributions under certain circumstances. If such restrictions apply, they may, in turn, have an impact on the Company's ability to declare and pay dividends on common
and preferred shares. These trust indentures and credit arrangements also require the Company to comply with various affirmative and negative covenants and maintain certain financial ratios. At December 31, 2023, the Company was in compliance with all financial covenants.
3Or the U.S. dollar equivalent.
For the year ended December 31, 2023, the cost to maintain the above facilities was $i14
million (2022 – $i14 million; 2021 – $i17 million).
TC Energy Consolidated Financial Statements
2023 | 183
18. iACCOUNTS PAYABLE AND OTHER
i
at
December 31
2023
2022
(millions of Canadian $)
Trade payables
i4,832
i4,330
Fair
value of derivative contracts (Note 29)
i1,143
i871
Regulatory
liabilities (Note 14)
i284
i273
Keystone environmental provision
i122
i650
Contract
liabilities (Note 6)
i69
i62
Class
C Interests (Note 7)
i19
i37
Coastal GasLink contractual
contribution (Notes 8, 12 and 33)
i—
i537
Other
i518
i389
i6,987
i7,149
/
Keystone
Environmental Provision
In December 2022, a pipeline incident occurred in Washington County, Kansas on the Keystone Pipeline System. At December 31, 2022, the Company accrued an environmental liability of $i650 million, before expected insurance recoveries and not including potential fines and penalties which continue to be indeterminable. At June 30, 2023, the cost estimate for the incident was adjusted to
$i794 million based on a review of costs and commitments incurred and, at December 31, 2023, remains unchanged. Amounts paid for the environmental remediation liability were $i676
million at December 31, 2023 (December 31, 2022 – inil). The remaining balance reflected in Accounts payable and other and Other long-term liabilities on the Company’s Consolidated balance sheet was $i122
million and $i9 million, respectively at December 31, 2023 (December 31, 2022 – $i650 million and inil,
respectively).
The expected recovery of the remaining estimated environmental remediation costs recorded in Other current assets and Other long-term assets were $i150 million and $i33 million,
respectively at December 31, 2023 (December 31, 2022 – $i410 million and $i240 million,
respectively). An additional $i36 million was accrued during the year, which is expected to be recoverable from TC Energy's wholly-owned captive insurance subsidiary. This amount was recorded as an expense in Interest income and other in the Consolidated statement of income. During the year, the Company received $i575
million (2022 – inil) from its insurance policies related to the costs for environmental remediation. Restoration activities are ongoing and expected to continue into 2024.
19. iOTHER
LONG-TERM LIABILITIES
i
at December 31
2023
2022
(millions of Canadian $)
Operating
lease obligations (Note 11)
i401
i379
Fair value
of derivative contracts (Note 29)
i106
i151
Employee post-retirement
benefits (Note 28)
i97
i111
Asset
retirement obligations
i64
i79
Long-term
contract liabilities (Note 6)
i12
i32
Other
i335
i265
i1,015
i1,017
/
184 | TC
Energy Consolidated Financial Statements 2023
20. iINCOME TAXES
i
Geographic
Components of Income before Income Taxes
year ended December 31
2023
2022
2021
(millions of Canadian $)
Canada
(i446)
(i2,154)
(i292)
Foreign
i4,456
i3,528
i2,458
Income
before Income Taxes
i4,010
i1,374
i2,166
/
Provision
for Income Taxes
i
year ended December 31
2023
2022
2021
(millions
of Canadian $)
Current
Canada
i73
i43
i29
Foreign
i858
i372
i276
i931
i415
i305
Deferred
Canada
(i39)
(i467)
(i327)
Foreign
i50
i641
i142
i11
i174
(i185)
Income
Tax Expense
i942
i589
i120
/
Reconciliation
of Income Tax Expense
i
year ended December 31
2023
2022
2021
(millions
of Canadian $)
Income before income taxes
i4,010
i1,374
i2,166
Federal
and provincial statutory tax rate
i23.0
%
i23.0
%
i23.0
%
Expected
income tax expense
i922
i316
i498
Income
tax differential related to regulated operations
(i260)
(i174)
(i139)
Foreign
income tax rate differentials
(i174)
(i271)
(i230)
Income
from non-controlling interests and equity investments
(i56)
(i54)
(i70)
Valuation
allowance (release)
i197
i199
(i8)
Non-taxable
capital (gains) and losses
i196
i173
i—
Mexico
foreign exchange exposure
i132
i9
i10
Impact
of Mexico inflationary adjustments
i1
i24
i32
Settlement
of Mexico prior years' income tax assessments
i—
i196
i—
U.S.
minimum tax
(i14)
i96
i—
Non-deductible
goodwill impairment
i—
i91
i—
Other
(i2)
(i16)
i27
Income
Tax Expense
i942
i589
i120
/
TC
Energy Consolidated Financial Statements 2023 | 185
Deferred Income Tax Assets and Liabilities
i
at December 31
2023
2022
(millions
of Canadian $)
Deferred Income Tax Assets
Tax loss and credit carryforwards
i1,833
i1,519
Regulatory
and other deferred amounts
i569
i571
Unrealized
foreign exchange losses on long-term debt
i206
i333
Other
i73
i193
i2,681
i2,616
Less:
Valuation allowance
i730
i640
i1,951
i1,976
Deferred
Income Tax Liabilities
Difference in accounting and tax bases of plant, property and equipment
i6,816
i6,686
Equity
investments
i1,115
i1,152
Taxes
on future revenue requirement
i493
i397
Financial
instruments
i160
i126
Other
i160
i193
i8,744
i8,554
Net
Deferred Income Tax Liabilities
i6,793
i6,578
The
above deferred tax amounts have been classified on the Consolidated balance sheet as follows:
at December 31
2023
2022
(millions of Canadian $)
Deferred Income Tax Assets
Other
long-term assets (Note 16)
i1,332
i1,070
Deferred
Income Tax Liabilities
Deferred income tax liabilities
i8,125
i7,648
Net
Deferred Income Tax Liabilities
i6,793
i6,578
/
At
December 31, 2023, the Company has recognized the benefit of non-capital loss carryforwards of $i6,593 million (2022 – $i5,429 million) for federal and provincial purposes in Canada, which expire from 2030 to 2043.
The Company has not yet recognized the benefit of capital loss carryforwards of $i478 million (2022 – $i251 million) for federal and provincial purposes
in Canada which have no expiry date. The Company also has Ontario corporate minimum tax (CMT) credits of $i140 million (2022 – $i126 million), which expire from 2026 to 2043. As of December 31, 2023,
the Company has not recognized the benefit of CMT credits of $i22 million (2022 – $i22 million).
At
December 31, 2023, the Company has recognized the benefit of net operating loss carryforwards of US$i47 million (2022 – US$i69 million) in Mexico, which expire from 2024 to 2033.
186 | TC
Energy Consolidated Financial Statements 2023
TC Energy recorded an income tax valuation allowance of $i730 million and $i640
million against the deferred income tax asset balances at December 31, 2023 and 2022, respectively. The increase in the valuation allowance is primarily a result of the foreign exchange movement on unrecognized capital losses and the unrealized non-taxable capital losses on the Coastal GasLink equity investment. At December 31, 2023, the Company recorded a total of $i358 million (2022 – $i173 million)
in valuation allowance as a result of the Coastal GasLink equity investment impairment that resulted in a portion of the impairment having unrealized non-taxable capital losses. These losses have not been recognized as of December 31, 2023. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As at December 31, 2023, the Company determined there was sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized.
Unremitted Earnings of Foreign Investments
Income taxes have not been provided on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future.
Deferred income tax liabilities would have increased at December 31, 2023 by approximately $i1,629 million (2022 – $i1,216
million) if there had been a provision for these taxes.
Income Tax Payments
Income tax payments of $i836 million, net of refunds, were made in 2023 (2022 – payments, net of refunds, of $i394 million; 2021 – payments,
net of refunds, of $i371 million).
Reconciliation of Unrecognized Tax Benefit
i
Below is the reconciliation of the annual changes in the total unrecognized tax benefit:
at
December 31
2023
2022
2021
(millions of Canadian $)
Unrecognized tax benefit at beginning of year
i91
i80
i52
Gross
increases – tax positions in prior years
i9
i6
i5
Gross
decreases – tax positions in prior years
(i1)
i—
(i1)
Gross
increases – tax positions in current year
i16
i7
i26
Lapse
of statutes of limitations
(i30)
(i2)
(i2)
Unrecognized
Tax Benefit at End of Year
i85
i91
i80
/
TC
Energy's practice is to recognize interest and penalties related to income tax uncertainties in Income tax expense. Income tax expense for the year ended December 31, 2023 reflects $i3 million interest expense (2022 – $i6
million; 2021 – $i1 million). At December 31, 2023, the Company had accrued $i21 million in interest
expense (2022 – $i18 million; 2021 – $i12 million). The Company incurred iiino//
penalties associated with income tax uncertainties related to income tax expense for the years ended December 31, 2023, 2022 and 2021 and iiino//
penalties were accrued as at December 31, 2023, 2022 and 2021.
Subject to the results of audit examinations by taxing authorities and other legislative amendments, TC Energy does not anticipate further adjustments to the unrecognized tax benefits during the next 12 months that would have a material impact on its financial statements.
TC Energy and its subsidiaries are subject to either Canadian federal and provincial income tax, U.S. federal, state and local income tax or the relevant income tax in other international jurisdictions. The Company has substantially concluded all Canadian federal and provincial income tax matters for the years through 2015. Substantially all material U.S. federal, state and local income tax matters have been
concluded for years through 2015. Substantially all material Mexico income tax matters have been concluded for years through 2017.
TC Energy Consolidated Financial Statements 2023 | 187
Mexico Tax Audit
In 2019, the Mexican tax authority, the Tax Administration Services (SAT), completed an audit of the 2013 tax return of one of the Company’s subsidiaries in Mexico. The audit resulted in a tax assessment that denied the deduction for all interest expense and an assessment of additional tax, penalties and financial charges totaling less than US$i1 million.
The Company disagreed with this assessment and commenced litigation to challenge it. In January 2022, TC Energy received the tax court’s ruling on the 2013 tax return, which upheld the SAT assessment. From September 2021 to February 2022, the SAT issued assessments for tax years 2014 through 2017 which denied the deduction of all interest expense as well as assessed incremental withholding tax on the interest. These assessments totaled approximately US$i490 million in income and withholding taxes, interest, penalties and other financial charges.
During 2022,
TC Energy settled with the SAT on all of the above matters for the tax years 2013 through 2021 and recorded $i196 million (US$i153 million) of income tax expense, inclusive of withholding taxes, interest, penalties and other financial
charges for the year ended December 31, 2022.
188 | TC Energy Consolidated Financial Statements 2023
21. iLONG-TERM DEBT
i
at
December 31
2023
2022
Maturity Dates
Outstanding
Interest
Rate1
Outstanding
Interest
Rate1
(millions
of Canadian $, unless otherwise noted)
TRANSCANADA PIPELINES LIMITED
Medium
Term Notes
Canadian
2024 to 2052
i15,466
i4.6
%
i13,966
i4.5
%
Senior
Unsecured Notes
U.S. (2023 – US$i16,167; 2022 – US$i15,542)
2024
to 2049
i21,349
i5.0
%
i21,032
i4.9
%
i36,815
i34,998
NOVA
GAS TRANSMISSION LTD.
Debentures and Notes
Canadian
2024
i100
i9.9
%
i100
i9.9
%
U.S.
(2023 – inil; 2022 – US$i200)
i—
i—
i271
i7.9
%
Medium
Term Notes
Canadian
2025 to 2030
i504
i7.4
%
i504
i7.4
%
U.S.
(2023 and 2022 – US$ii33/)
2026
i43
i7.5
%
i44
i7.5
%
i647
i919
COLUMBIA
PIPELINE GROUP, INC.
Senior Unsecured Notes2
U.S. (2023 – inil;
2022 – US$i1,500)
i—
i—
i2,030
i4.9
%
COLUMBIA
PIPELINES OPERATING COMPANY LLC
Senior Unsecured Notes2
U.S. (2023 – US$i6,100;
2022 – inil)
2025 to 2063
i8,055
i6.1
%
i—
i—
COLUMBIA
PIPELINES HOLDING COMPANY LLC
Senior Unsecured Notes2
U.S. (2023 – US$i1,000;
2022 – inil)
2026 to 2028
i1,320
i6.2
%
i—
i—
ANR
PIPELINE COMPANY
Senior Unsecured Notes
U.S. (2023 and 2022 – US$ii1,172/)
2024
to 2037
i1,548
i4.1
%
i1,587
i4.1
%
TC
PIPELINES, LP
Senior
Unsecured Notes
U.S. (2023 and 2022 – US$ii850/)
2025
to 2027
i1,122
i4.2
%
i1,150
i4.2
%
/
TC
Energy Consolidated Financial Statements 2023 | 189
at December 31
2023
2022
Maturity
Dates
Outstanding
Interest
Rate1
Outstanding
Interest
Rate1
(millions of Canadian $, unless otherwise noted)
GAS TRANSMISSION NORTHWEST LLC
Senior
Unsecured Notes
U.S. (2023 – US$i375; 2022 – US$i325)
2030
to 2035
i495
i4.4
%
i440
i4.3
%
PORTLAND
NATURAL GAS TRANSMISSION SYSTEM
Senior Unsecured Notes
U.S. (2023 and
2022 – US$ii250/)
2030 to 2031
i330
i2.8
%
i338
i2.8
%
GREAT
LAKES GAS TRANSMISSION LIMITED PARTNERSHIP
Senior Unsecured Notes
U.S. (2023 – US$i125;
2022 – US$i146)
2028 to 2030
i165
i7.6
%
i198
i7.6
%
TUSCARORA
GAS TRANSMISSION COMPANY
Unsecured Term Loan
U.S. (2023 – inil;
2022 – US$i34)
i—
i—
i46
i6.5
%
TC
ENERGÍA MEXICANA, S. DE R.L. DE C.V.
Senior Unsecured Term Loan
U.S. (2023 – US$i1,800;
2022 – inil)
2028
i2,377
i7.7
%
i—
i—
Senior
Unsecured Revolving Credit Facility
U.S. (2023 – US$i185; 2022 – inil)
2028
i244
i7.7
%
i—
i—
i2,621
i—
i53,118
i41,706
Current
portion of long-term debt
(i2,938)
(i1,898)
Unamortized
debt discount and issue costs
(i312)
(i239)
Fair
value adjustments3
i108
i76
i49,976
i39,645
1Interest
rates are the effective interest rates except for those pertaining to long-term debt issued for the Company's Canadian regulated natural gas operations, in which case the weighted average interest rate is presented as approved by the regulators. The effective interest rate is calculated by discounting the expected future interest payments, adjusted for loan fees, premiums and discounts. Weighted average and effective interest rates are stated as at the respective outstanding dates.
2On August 8, 2023, US$i1.5 billion
senior unsecured notes were assigned from Columbia Pipelines Group, Inc. to Columbia Pipelines Operating Company LLC in advance of the October 4, 2023 sale of a i40 per cent non-controlling equity interest in Columbia Gas and Columbia Gulf. Preceding this sale, US$i5.6 billion
of senior unsecured notes were issued. Refer to Note 24, Non-controlling interests, for additional information.
3The fair value adjustments include $i119 million (2022 – $i140 million)
related to the acquisition of Columbia Pipeline Group, Inc. These adjustments also include a decrease of $i11 million (2022 – $i64 million)
related to hedged interest rate risk. Refer to Note 29, Risk management and financial instruments, for additional information.
Principal Repayments
i
At December 31, 2023, principal repayments for the next five years on the Company's long-term debt are approximately as follows:
(millions
of Canadian $)
2024
2025
2026
2027
2028
Principal repayments on long-term debt
i2,938
i2,779
i5,287
i3,096
i6,232
/
190 | TC
Energy Consolidated Financial Statements 2023
Long-Term Debt Issued
The Company issued long-term debt over the three years ended December 31, 2023 as follows:
(millions
of Canadian $, unless otherwise noted)
Company
Issue Date
Type
Maturity Date
Amount
Interest Rate
TRANSCANADA PIPELINES
LIMITED
May 2023
Senior Unsecured Term Loan1
May 2026
US i1,024
Floating
March
2023
Senior Unsecured Notes
March 20262
US i850
i6.20
%
March
2023
Senior Unsecured Notes
March 20262
US i400
Floating
March 2023
Medium Term Notes
July
2030
i1,250
i5.28
%
March
2023
Medium Term Notes
March 20262
i600
i5.42
%
March
2023
Medium Term Notes
March 20262
i400
Floating
May 2022
Medium Term Notes
May
2032
i800
i5.33
%
May
2022
Medium Term Notes
May 2026
i400
i4.35
%
May
2022
Medium Term Notes
May 2052
i300
i5.92
%
October
2021
Senior Unsecured Notes
October 2024
US i1,250
i1.00
%
October
2021
Senior Unsecured Notes
October 2031
US i1,000
i2.50
%
June
2021
Medium Term Notes
June 2024
i750
Floating
June 2021
Medium Term Notes
June
2031
i500
i2.97
%
June
2021
Medium Term Notes
September 2047
i250
i4.33
%
3
COLUMBIA
PIPELINES OPERATING COMPANY LLC
August 2023
Senior Unsecured Notes
November 2033
US i1,500
i6.04
%
August
2023
Senior Unsecured Notes
November 2053
US i1,250
i6.54
%
August
2023
Senior Unsecured Notes
August 2030
US i750
i5.93
%
August
2023
Senior Unsecured Notes
August 2043
US i600
i6.50
%
August
2023
Senior Unsecured Notes
August 2063
US i500
i6.71
%
COLUMBIA
PIPELINES HOLDING COMPANY LLC
August 2023
Senior Unsecured Notes
August 2028
US i700
i6.04
%
August
2023
Senior Unsecured Notes
August 2026
US i300
i6.06
%
GAS
TRANSMISSION NORTHWEST LLC
June 2023
Senior Unsecured Notes
June 2030
US i50
i4.92
%
TC
ENERGÍA MEXICANA, S. DE R.L. DE C.V.
January 2023
Senior Unsecured Term Loan
January 2028
US i1,800
Floating
January
2023
Senior Unsecured Revolving Credit Facility
January 2028
US i500
Floating
ANR PIPELINE COMPANY
May 2022
Senior
Unsecured Notes
May 2032
US i300
i3.43
%
May
2022
Senior Unsecured Notes
May 2034
US i200
i3.58
%
May
2022
Senior Unsecured Notes
May 2037
US i200
i3.73
%
May
2022
Senior Unsecured Notes
May 2029
US i100
i3.26
%
PORTLAND
NATURAL GAS TRANSMISSION SYSTEM
October 2021
Senior Unsecured Notes
October 2031
US i125
i2.68
%
TC
Energy Consolidated Financial Statements 2023 | 191
(millions of Canadian $, unless otherwise noted)
Company
Issue Date
Type
Maturity Date
Amount
Interest Rate
TUSCARORA GAS TRANSMISSION COMPANY
August 2021
Unsecured Term Loan
August 2024
US i13
Floating
KEYSTONE
XL SUBSIDIARIES4
Various
Project-Level Credit Facility
June 2021
US i849
Floating
COLUMBIA
PIPELINE GROUP, INC.5
January 2021
Unsecured Term Loan
June 2022
US i4,040
Floating
1This
loan was fully repaid and retired in September 2023. Related unamortized debt issue costs of $i3 million were included in Interest expense in the Consolidated statement of income.
2Callable at par in March 2024 or at any time thereafter.
3Reflects coupon rate on re-opening of a pre-existing Medium Term Notes (MTN) issue. The MTNs were issued at a premium to par, resulting in a re-issuance yield of i4.19
per cent.
4In January 2021, the Company established a US$i4.1 billion project-level credit facility to support the construction of the Keystone XL pipeline, which was fully guaranteed by the Government of Alberta and non-recourse to TC Energy. The availability of this credit facility was subsequently reduced to US$i1.6 billion
and all amounts outstanding were fully repaid by the Government of Alberta in June 2021. Refer to Note 7, Keystone XL, for additional information.
5In December 2020, Columbia entered into a US$i4.2 billion Unsecured Term Loan agreement. In January 2021, US$i4.0 billion
was drawn on the Unsecured Term Loan and the total availability under the loan agreement was reduced accordingly. The loan was fully repaid and retired in December 2021.
On January 9, 2024, Columbia Pipelines Holding Company LLC issued US$i500 million senior unsecured notes due January 2034, bearing interest at a fixed rate of i5.68
per cent.
192 | TC Energy Consolidated Financial Statements 2023
Long-Term Debt Retired/Repaid
i
The Company retired/repaid long-term debt over the three years ended December 31, 2023 as follows:
(millions
of Canadian $, unless otherwise noted)
Company
Retirement/Repayment Date
Type
Amount
Interest Rate
TRANSCANADA
PIPELINES LIMITED
October 2023
Senior Unsecured Notes
US i625
i3.75
%
September
2023
Senior Unsecured Notes1
US i1,024
Floating
July 2023
Medium Term
Notes
i750
i3.69
%
December
2022
Medium Term Notes
i25
i9.95
%
August
2022
Senior Unsecured Notes
US i1,000
i2.50
%
November
2021
Medium Term Notes
i500
i3.65
%
January
2021
Debentures
US i400
i9.88
%
TUSCARORA
GAS TRANSMISSION COMPANY
November 2023
Unsecured Term Loan
US i32
Floating
NOVA
GAS TRANSMISSION LTD.
April 2023
Debentures
US i200
i7.88
%
TC
ENERGÍA MEXICANA, S. DE R.L. DE C.V.
Various
Senior Unsecured Revolving Credit Facility
US i315
Floating
COLUMBIA
PIPELINE GROUP, INC.
December 2021
Unsecured Term Loan2
US i4,040
Floating
NORTH
BAJA PIPELINE, LLC
December 2021
Unsecured Term Loan
US i50
Floating
TC
PIPELINES, LP
November 2021
Unsecured Term Loan
US i450
Floating
March
2021
Senior Unsecured Notes
US i350
i4.65
%
ANR
PIPELINE COMPANY
November 2021
Senior Unsecured Notes
US i300
i9.63
%
GREAT
LAKES GAS TRANSMISSION LIMITED PARTNERSHIP
November 2021
Senior Unsecured Notes
US i10
i9.09
%
PORTLAND
NATURAL GAS TRANSMISSION SYSTEM
October 2021
Unsecured Loan Facility
US i93
Floating
KEYSTONE
XL SUBSIDIARIES3
June 2021
Project-Level Credit Facility
US i849
Floating
1In
May 2023, the Company entered into a US$i1,024 million senior unsecured term loan and the full amount was drawn. The loan was fully repaid and retired in September 2023. Related unamortized debt issue costs of $i3 million were included in Interest expense in the Consolidated statement
of income.
2In December 2020, Columbia entered into a US$i4.2 billion Unsecured Term Loan agreement. In January 2021, US$i4.0 billion was drawn on the Unsecured Term Loan and the total availability
under the loan agreement was reduced accordingly. The loan was fully repaid and retired in December 2021. Related unamortized debt issue costs of $i5 million were included in Interest expense in the Consolidated statement of income for the year ended December 31, 2021.
3In June 2021, in accordance with the terms of the guarantee, the Government of Alberta repaid the US$i849 million
outstanding balance under the Keystone XL project-level credit facility bearing interest at a floating rate, subsequent to which it was terminated, resulting in no cash impact to TC Energy. Refer to Note 7, Keystone XL, for additional information.
/
In March 2021, the Company's subsidiary, TC PipeLines, LP, terminated its US$i500 million Unsecured Loan Facility bearing interest at a floating rate on which ino
amount was outstanding.
TC Energy Consolidated Financial Statements 2023 | 193
i
Interest Expense
year
ended December 31
2023
2022
2021
(millions of Canadian $)
Interest on long-term debt
i2,562
i1,883
i1,841
Interest
on junior subordinated notes
i617
i543
i453
Interest
on short-term debt
i165
i153
i10
Capitalized
interest
(i187)
(i27)
(i22)
Amortization
and other financial charges1
i106
i36
i78
i3,263
i2,588
i2,360
1Amortization
and other financial charges include amortization of transaction costs and debt discounts calculated using the effective interest method and losses on derivatives used to manage the Company's exposure to changes in interest rates.
/
The Company made interest payments of $i2,931 million in 2023 (2022 – $i2,478
million; 2021 – $i2,299 million) on long-term debt, junior subordinated notes and short-term debt, net of interest capitalized.
194 | TC Energy Consolidated Financial Statements 2023
22. iJUNIOR
SUBORDINATED NOTES
i
at December 31
2023
2022
Maturity Date
Outstanding
Effective
Interest
Rate1
Outstanding
Effective
Interest Rate1
(millions of Canadian $, unless otherwise noted)
TRANSCANADA PIPELINES LIMITED
US$i1,000
issued 2007at i6.35%2
2067
i1,320
i6.5
%
i1,353
i6.2
%
US$i750
issued 2015 at i5.88%3,4
2075
i990
i7.8
%
i1,015
i7.4
%
US$i1,200
issued 2016 at i6.13%3,4
2076
i1,585
i8.3
%
i1,624
i8.0
%
US$i1,500
issued 2017 at i5.55%3,4
2077
i1,981
i7.5
%
i2,030
i7.1
%
$i1,500
issued 2017 at i4.90%3,4
2077
i1,500
i7.0
%
i1,500
i6.8
%
US$i1,100
issued 2019 at i5.75%3,4
2079
i1,453
i8.0
%
i1,488
i7.6
%
$i500
issued 2021 at i4.45%3,5
2081
i500
i5.7
%
i500
i5.7
%
US$i800
issued 2022 at i5.85%3,5
2082
i1,056
i7.1
%
i1,083
i7.2
%
i10,385
i10,593
Unamortized
debt discount and issue costs
(i98)
(i98)
i10,287
i10,495
1The
effective interest rate is calculated by discounting the expected future interest payments using the coupon rate and any estimated future rate resets, adjusted for issue costs and discounts.
2Junior subordinated notes of US$i1.0 billion were issued in 2007 at a fixed rate of i6.35
per cent and converted in 2017 to bear interest at a floating rate.
3The Junior subordinated notes were issued to TransCanada Trust (the Trust), a financing trust subsidiary wholly-owned by TCPL. While the obligations of the Trust are fully and unconditionally guaranteed by TCPL on a subordinated basis, the Trust is not consolidated in TC Energy's financial statements since TCPL does not have a variable interest in the Trust and the only substantive assets of the Trust are junior subordinated notes of TCPL.
4The coupon rate is initially a fixed interest rate for the first i10
years and converts to a floating rate thereafter.
5The coupon rate is initially a fixed interest rate for the first i10 years and resets every ifive years thereafter.
/
The
Junior subordinated notes are subordinated in right of payment to existing and future senior indebtedness or other obligations of TCPL.
In March 2022, TransCanada Trust (the Trust) issued US$i800 million of Trust Notes – Series 2022-A to investors with a fixed interest rate of i5.60
per cent per annum for the first i10 years and resetting on the 10th anniversary and every ifive years thereafter. All of the proceeds of the issuance by the Trust were loaned to TCPL for US$i800 million
of junior subordinated notes of TCPL at an initial fixed rate of i5.85 per cent per annum, including a i0.25 per cent administration charge. The rate on the junior subordinated notes of TCPL will reset
every ifive years commencing March 2032 until March 2052 to the then iFive-Year Treasury Rate, as defined in the document governing the subordinated notes, plus i4.236
per cent per annum; from March 2052 until March 2082, the interest rate will reset every five years to the then iFive-Year Treasury Rate plus i4.986 per cent per annum. The junior subordinated notes are callable at TCPL's option at
any time from December 7, 2031 to March 7, 2032 and on each interest payment and reset date thereafter at i100 per cent of the principal amount plus accrued and unpaid interest to the date of redemption.
In March 2021, the Trust issued $i500 million
of Trust Notes – Series 2021-A to investors with a fixed interest rate of i4.20 per cent
per annum for the first i10 years and resetting on the 10th anniversary and every ifive
years thereafter. All of the proceeds of the
issuance by the Trust were loaned to TCPL for $i500 million of junior subordinated notes of TCPL at an initial fixed rate of
i4.45 per cent per
annum, including a i0.25 per cent administration charge. The rate on the junior subordinated notes of TCPL will
reset every ifive years commencing March 2031 until March 2051 to the then iFive-Year
Government of Canada Yield, as defined in
the document governing the subordinated notes, plus i3.316 per cent per annum; from March 2051 until March 2081, the interest
rate will reset every five years to the then iFive-Year
Government of Canada Yield plus i4.066 per cent per annum. The junior
subordinated notes are callable at TCPL's option at any time from December 4, 2030 to March 4, 2031 and on each interest
payment and reset date thereafter at i100
per cent of the principal amount plus accrued and unpaid interest to the date of
redemption.
TC Energy Consolidated Financial Statements 2023 | 195
Pursuant to the terms of the notes issued between the Trust and TCPL (the Trust Notes) and related agreements, in certain circumstances: 1) TCPL may issue deferral preferred shares to holders of the Trust Notes in lieu of interest; and 2) TC Energy and TCPL would be prohibited from declaring or paying dividends on or redeeming their outstanding preferred shares (or, if none are outstanding, their respective common shares) until all deferral preferred shares are redeemed by TCPL. The Trust Notes may also be automatically exchanged for
preferred shares of TCPL upon certain kinds of bankruptcy and insolvency events. All of these preferred shares would rank equally with any other outstanding first preferred shares of TCPL.
23. iFOREIGN EXCHANGE (GAINS) LOSSES, NET
i
year
ended December 31
2023
2022
2021
(millions of Canadian $)
Derivative instruments held for trading (Note 29)
(i401)
i151
(i37)
Other
i81
i34
i27
(i320)
i185
(i10)
/
24. iNON-CONTROLLING
INTERESTS
Disposition of Equity Interest
Columbia Gas and Columbia Gulf
On October 4, 2023, TC Energy completed the sale of a i40 per cent non-controlling equity interest in Columbia Gas and Columbia Gulf to Global Infrastructure Partners (GIP) for proceeds of $i5.3
billion (US$i3.9 billion). The Company continues to have a controlling interest in these companies and will remain the operator of the pipelines. TC Energy and GIP will each fund their proportionate share of annual maintenance, modernization and sanctioned growth capital expenditures through internally generated cash flows, debt financing within the Columbia entities, or from proportionate contributions from TC Energy and GIP.
The sale was accounted for as an equity transaction of which $i9.5 billion
(US$i6.9 billion) was recorded as Non-controlling interests to reflect the i40 per cent change in the Company’s ownership interest in Columbia Gulf and Columbia Gas. The difference between the
non-controlling ownership interest recognized and the consideration received was recorded as a reduction to Additional paid-in capital of $i3.5 billion (US$i3.0 billion),
net of tax and transaction costs.
Preceding the close of the equity sale, on August 8, 2023, Columbia Pipelines Operating Company LLC and Columbia Pipelines Holding Company LLC issued US$i4.6 billion and US$i1.0 billion
of long-term, senior unsecured debt, respectively, with all proceeds paid to TC Energy. The net proceeds from the offerings and equity sale were used to repay existing intercompany and third-party debt. Refer to Note 21, Long-term debt, for additional information.
Acquisitions
Texas Wind Farms
On March 15, 2023 and June 14, 2023, TC Energy acquired i100 per cent
of the Class B Membership Interests in Fluvanna Wind Farm (Fluvanna) and Blue Cloud Wind Farm (Blue Cloud), respectively. Each of these operating assets has a tax equity investor which owns i100 per cent of the Class A Membership Interests, to which a percentage of earnings, tax attributes and cash flows are allocated. The tax equity investors' interests were recorded as non-controlling interests at their aggregate estimated fair value of $i222 million
(US$i167 million).
TC Energy has determined that the use of the Hypothetical Liquidation at Book Value (HLBV) method of allocating earnings between the Company and the tax equity investors is appropriate as the earnings, tax attributes and cash flows from Fluvanna and Blue Cloud are allocated to its Class A and Class B Membership Interest owners on a basis other than ownership percentages. Using the HLBV method, the Company's earnings from the projects is calculated based on how the projects would
allocate and distribute cash if the net assets were sold at their carrying amounts on the reporting date under the provisions of the tax equity agreements.
TC Energy determined it has a controlling financial interest in both projects and has consolidated the acquired entities as voting interest entities. The tax equity investors’ interests were recorded as Non-controlling interests at their estimated fair values of $i106 million (US$i80
million) for Fluvanna and $i116 million (US$i87 million) for Blue Cloud. These transactions are accounted for as asset acquisitions and therefore did
not result in the recognition of goodwill.
196 | TC Energy Consolidated Financial Statements 2023
TC PipeLines, LP
On March 3, 2021, the Company acquired all the outstanding common units of TC PipeLines, LP not beneficially owned by TC Energy or its affiliates in exchange for TC Energy common shares. Under this transaction, TC PipeLines, LP common unitholders received i0.70
TC Energy common shares for each issued and outstanding publicly-held TC PipeLines, LP common unit representing, in aggregate, i37,955,093 TC Energy common shares. As a result, TC PipeLines, LP became an indirect, wholly-owned subsidiary of TC Energy.
i
As
the Company controlled TC PipeLines, LP, this acquisition was accounted for as an equity transaction with the following impact reflected on the Consolidated balance sheet:
The Company's Net income (loss) attributable to non-controlling interests included in the Consolidated statement of income and Non-controlling interests included on the Consolidated balance sheet were as follows:
1Net
of underwriting commissions and deferred income taxes.
/
Common Shares Issued and Outstanding
The Company is authorized to issue an unlimited number of common shares without par value.
Common Shares Issued Under Public Offering
On August 10, 2022, TC Energy issued i28,400,000
common shares at a price of $i63.50 each for total gross proceeds of approximately $i1.8 billion.
Dividend Reinvestment and Share Purchase Plan
Under the Company's
Dividend Reinvestment and Share Purchase Plan (DRP), eligible holders of common and preferred shares of TC Energy can reinvest their dividends and make optional cash payments to obtain additional TC Energy common shares. From August 31, 2022 to July 31, 2023, common shares were issued from treasury at a discount of itwo per cent to market prices over a specified period.
For
the periods between January 1, 2021 and August 31, 2022 and after July 31, 2023, common shares purchased with reinvested cash dividends under TC Energy's DRP are acquired on the open market at i100 per cent of the weighted average purchase price.
Acquisition of TC PipeLines, LP
On March
3, 2021, TC Energy issued i37,955,093 common shares to acquire all the outstanding publicly-held common units of
TC PipeLines, LP. Refer to Note 24, Non-controlling interests, for additional information.
Basic and Diluted Net Income (Loss) per Common Share
Net income (loss) per common share is calculated by dividing Net income (loss) attributable to common shares by the weighted
average number of common shares outstanding. The weighted average number of shares for the diluted earnings per share calculation includes options exercisable under TC Energy's Stock Option Plan and, from August 31, 2022 to July 31, 2023, common shares issuable from treasury under the DRP.
i
Weighted
Average Common Shares Outstanding
(millions)
2023
2022
2021
Basic
i1,030
i995
i973
Diluted
i1,030
i996
i974
/
198 | TC
Energy Consolidated Financial Statements 2023
At
December 31, 2023, an additional i2,267,871 common shares were reserved for future issuance from treasury under TC Energy's Stock Option Plan. The contractual life of options granted is iseven
years. Options may be exercised at a price determined at the time the option is awarded and vest equally on the anniversary date in each of the ithree years following the award. Forfeiture of stock options results from their expiration and, if not previously vested, upon resignation or termination of the option holder's employment.
i
The
Company used a binomial model for determining the fair value of options granted and applied the following weighted average assumptions:
year ended December 31
2023
2022
2021
Weighted
average fair value
$i7.88
$i8.24
$i7.39
Expected
life (years)1
i5.1
i5.4
i5.4
Interest
rate
i2.9
%
i1.6
%
i0.5
%
Volatility2
i24
%
i22
%
i25
%
Dividend
yield
i6.3
%
i5.5
%
i6.0
%
1Expected
life is based on historical exercise activity.
2Volatility is derived based on the average of both the historical and implied volatility of the Company's common shares.
/
The amount expensed for stock options, with a corresponding increase in Additional paid-in capital, was $i9 million in 2023 (2022
– $i10 million; 2021 – $i12 million). At December 31, 2023, unrecognized compensation costs related to non-vested stock options were $i12
million. The cost is expected to be fully recognized over a weighted average period of itwo years.
i
The
following table summarizes additional stock option information:
year ended December 31
2023
2022
2021
(millions of Canadian $, unless otherwise noted)
Total
intrinsic value of options exercised
i—
i33
i28
Total
fair value of options that have vested
i76
i89
i110
Total
options vested
i1.5 million
i1.6
million
i1.9 million
/
As at December 31, 2023, the aggregate intrinsic values of the total options exercisable and the total options outstanding were iinil/.
Shareholder
Rights Plan
TC Energy's Shareholder Rights Plan is designed to provide the Board of Directors (Board) with sufficient time to explore and develop alternatives for maximizing shareholder value in the event of a takeover offer for the Company and to encourage the fair treatment of shareholders in connection with any such offer. Attached to each common share is ione right that, under certain circumstances, entitles certain holders to purchase an additional common share of the
Company.
TC Energy Consolidated Financial Statements 2023 | 199
1Each
of the even-numbered series of preferred shares, if in existence, will be entitled to receive floating rate cumulative quarterly preferential dividends per share at an annualized rate equal to the i90-day Government of Canada Treasury bill rate (T-bill rate) plus i1.92
per cent (Series 2), i1.28 per cent (Series 4), i1.54 per cent
(Series 6), i2.38 per cent (Series 8), i2.35 per cent (Series
10), or i2.96 per cent (Series 12). These rates reset quarterly with the then current T-Bill rate.
2The odd-numbered series of preferred shares, if in existence, will be entitled to receive fixed rate cumulative quarterly preferential dividends, which will reset on the redemption and conversion option date and every fifth year thereafter, at an annualized rate equal to the then iFive-Year
Government of Canada bond yield plus i1.92 per cent (Series 1), i1.28
per cent (Series 3), i1.54 per cent (Series 5), i2.38 per cent
(Series 7), i2.35 per cent (Series 9), or i2.96 per cent (Series
11).
3Net of underwriting commissions and deferred income taxes.
4The floating quarterly dividend rate for the Series 2 preferred shares is i6.96 per cent for the period starting December 29, 2023 to, but excluding, March 28, 2024. The floating quarterly dividend rate for the Series 4 preferred shares is i6.32
per cent for the period starting December 29, 2023 to, but excluding, March 28, 2024. The floating quarterly dividend rate for the Series 6 preferred shares is i6.69 per cent for the period starting October 30, 2023 to, but excluding, January 30, 2024. These rates will reset each quarter going forward.
5The fixed rate dividend for Series 5 preferred shares decreased
from i2.26 per cent to i1.95 per cent on January 30, 2021 and is due to reset on every fifth anniversary thereafter.
/
The
holders of preferred shares are entitled to receive a fixed cumulative quarterly preferential dividend as and when declared by the Board with the exception of Series 2, Series 4 and Series 6 preferred shares. The holders of Series 2, Series 4 and Series 6 preferred shares are entitled to receive quarterly floating rate cumulative preferential dividends as and when declared by the Board. The holders will have the right, subject to certain conditions, to convert their first preferred shares of a specified series into first preferred shares of another specified series on the conversion option date and every fifth anniversary thereafter as indicated in the table above.
TC Energy may, at its option, redeem all or a portion of the outstanding preferred shares for the redemption price per share, plus all accrued and unpaid dividends on the applicable redemption option date and on every fifth anniversary thereafter. In addition, Series
2, Series 4 and Series 6 preferred shares are redeemable by TC Energy at any time other than on a designated date for $i25.50 per share plus all accrued and unpaid dividends on such redemption date.
On May 31, 2022, TC Energy redeemed all i40,000,000
issued and outstanding Series 15 preferred shares at a redemption price of $i25.00 per share and paid the final quarterly dividend of $i0.30625 per Series 15 preferred share, for the period up to but excluding May
31, 2022. The Company used the proceeds from the March 2022 issuance of US$i800 million of junior subordinated notes through the Trust to finance this preferred share redemption.
200 | TC Energy Consolidated Financial Statements 2023
In May 2021, TC Energy redeemed all i20,000,000
issued and outstanding Series 13 preferred shares at a redemption price of $i25.00 per share and paid the final quarterly dividend of $i0.34375 per Series 13 preferred share for the period up to but excluding May
31, 2021. The Company used the proceeds from the March 2021 issuance of $i500 million of junior subordinated notes through the Trust to finance this preferred share redemption.
In February 2021, i818,876
Series 5 preferred shares were converted, on a ione-for-one basis, into Series 6 preferred shares and i175,208 Series 6 preferred shares were converted, on a ione-for-one
basis, into Series 5 preferred shares.
27. iOTHER COMPREHENSIVE INCOME(LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)
i
Components
of other comprehensive income (loss), including the portion attributable to non-controlling interests and related tax effects, were as follows:
1Other
comprehensive income(loss) before reclassifications on currency translation adjustments, cash flow hedges and equity investments are net of non-controlling interest loss of $i366 million (2022 – gains of $i8
million; 2021 – losses of $i12 million), inil (2022 – inil;
2021 – gains of $i1 million), and inil (2022 – inil;
2021 – gains of $i1 million), respectively.
2Represents the AOCI attributable to non-controlling interests of TC PipeLines, LP which was reclassified to AOCI on the Consolidated balance sheet upon completion of the acquisition of all the outstanding publicly-held common units of TC PipeLines, LP on March 3, 2021. Refer to Note 24, Non-controlling interests, for additional information.
3Losses
related to cash flow hedges reported in AOCI and expected to be reclassified to net income in the next 12 months are estimated to be $i4 million ($i3
million, net of tax) at December 31, 2023. These estimates assume constant commodity prices, interest rates and foreign exchange rates over time; however, the amounts reclassified will vary based on the actual value of these factors at the date of settlement.
4Represents the AOCI attributable to the i40 per cent non-controlling equity interest in Columbia Gas and Columbia Gulf upon its sale on October
4, 2023. Refer to Note 24, Non-controlling interests, for additional information.
/
202 | TC Energy Consolidated Financial Statements 2023
i
Details about reclassifications out of AOCI into the Consolidated
statement of income were as follows:
year ended December 31
Amounts Reclassified
From AOCI
Affected Line Item in the Consolidated Statement of Income1
2023
2022
2021
(millions
of Canadian $)
Cash flow hedges
Commodities
(i85)
(i47)
(i22)
Revenues
(Power and Energy Solutions)
Interest rate
(i12)
(i16)
(i46)
Interest
expense
(i97)
(i63)
(i68)
Total
before tax
i23
i21
i13
Income
tax (expense) recovery
(i74)
(i42)
(i55)
Net
of tax
Pension and other post-retirement benefit plan adjustments
Amortization of actuarial gains (losses)
i—
(i11)
(i22)
Plant
operating costs and other2
Settlement gain (loss)
i—
i2
i2
Plant
operating costs and other2
i—
(i9)
(i20)
Total
before tax
i—
i3
i6
Income
tax (expense) recovery
i—
(i6)
(i14)
Net
of tax
Equity investments
Equity income (loss)
i22
i4
(i37)
Income
(loss) from equity investments
(i6)
(i1)
i9
Income
tax (expense) recovery
i16
i3
(i28)
Net
of tax
1Amounts
in parentheses indicate expenses to the Consolidated statement of income.
2These AOCI components are included in the computation of net benefit cost. Refer to Note 28, Employee post-retirement benefits, for additional information.
/
TC Energy Consolidated Financial Statements 2023 | 203
28. iEMPLOYEE
POST-RETIREMENT BENEFITS
The Company sponsors DB Plans for certain employees. Pension benefits provided under the DB Plans are generally based on years of service and highest average earnings over three to five consecutive years of employment. Effective January 1, 2019, there were certain amendments made to the Canadian DB Plan for new members. Subsequent to that date, and up until the Canadian DB Plan was closed to new entrants on January 1, 2024, benefits provided for these new members are based on years of service and highest average earnings over five consecutive years of employment. Upon commencement of retirement, pension benefits in the Canadian DB Plan increase annually by a portion of the increase in the Consumer Price Index for employees hired prior to January
1, 2019. In 2023, TC Energy announced a plan amendment to the Canadian OPEB Plan. This plan will be closed for any eligible active employees that do not retire by December 31, 2024. All active employees who no longer meet the eligibility for the OPEB Plan will be eligible for a new plan that provides an annual health spending account to retirees and their dependents from retirement to age 65.
The Company's U.S. DB Plan is closed to non-union new entrants and all non-union hires participate in the DC Plan. Net actuarial gains or losses are amortized out of AOCI over the EARSL of Plan participants, which was approximately inine
years at December 31, 2023 (2022 – inine years; 2021 – i10
years).
The Company also provides its employees with savings plans in Canada and Mexico, DC Plans consisting of a 401(k) Plan in the U.S. and post-employment benefits other than pensions, including termination benefits and life insurance and medical benefits beyond those provided by government-sponsored plans. Net actuarial gains or losses for the plans are amortized out of AOCI over the EARSL of employees, which was approximately i12 years at December 31, 2023 (2022
– i12 years and 2021 – i11 years). In 2023, the Company expensed $i64
million (2022 – $i64 million and 2021 – $i58 million) for the savings and DC Plans.
i
Total
cash contributions by the Company for employee post-retirement benefits were as follows:
year ended December 31
2023
2022
2021
(millions of Canadian $)
DB
Plans
i28
i78
i105
Other
post-retirement benefit plans
i9
i8
i8
Savings
and DC Plans
i64
i64
i58
i101
i150
i171
/
Current
Canadian pension legislation allows for partial funding of solvency requirements over a number of years through letters of credit in lieu of cash contributions, up to certain limits. Total letters of credit provided to the Canadian DB plan at December 31, 2023 was $i244 million (2022 – $i322 million;
2021 – $i322 million).
The most recent actuarial valuation of the pension plans for funding purposes was as at January 1, 2023 and the next required valuation is at January 1, 2024.
In 2022, a settlement occurred for the U.S. DB Plan as a result of lump sum payments made during the year. The impact of the settlement was determined using actuarial assumptions consistent with those employed at December
31, 2022. The settlement gain decreased the U.S. DB Plan's unrealized actuarial gain by $i2 million which was included in OCI, and was recorded in net benefit cost in 2022.
In mid-2021, the Company offered a one-time Voluntary Retirement Program (VRP) to eligible employees. Participants in the program retired by December 31, 2021 and received a transition payment along with existing retirement benefits. In 2021, the
Company expensed $i81 million mainly related to VRP transition payments which were included in Plant operating costs and other. In addition, $i18
million was recorded in Revenues related to costs that are recoverable through regulatory and tolling structures on a flow-through basis.
As a result of employee participation in the VRP in 2021, a settlement and curtailment occurred for the U.S. DB Plan and a curtailment occurred in the U.S. OPEB Plan. The impact of these amounts was determined using actuarial assumptions consistent with those employed at December 31, 2021. The settlement gain decreased the U.S. DB Plan's unrealized actuarial gain by $i2
million which was included in OCI, while the curtailment gain decreased the U.S. DB Plan's benefit obligation by $i5 million, both of which were recorded in net benefit cost in 2021. The curtailment loss decreased the OPEB Plan's unrealized actuarial gain by $i3
million which was included in OCI and increased the OPEB Plan obligation by $i3 million, resulting in no adjustment to net benefit cost in 2021.
204 | TC Energy Consolidated Financial Statements 2023
i
The
Company's funded status was comprised of the following:
at December 31
Pension Benefit Plans
Other Post-Retirement Benefit Plans
(millions of Canadian $)
2023
2022
2023
2022
Change
in Benefit Obligation1
Benefit obligation – beginning of year
i3,081
i4,027
i310
i419
Service
cost
i93
i145
i3
i5
Interest
cost
i158
i125
i16
i13
Employee
contributions
i7
i6
i2
i2
Benefits
paid
(i185)
(i324)
(i44)
(i24)
Actuarial
(gain) loss
i219
(i949)
i2
(i120)
Foreign
exchange rate changes
(i17)
i51
(i4)
i15
Benefit
obligation – end of year
i3,356
i3,081
i285
i310
Change
in Plan Assets
Plan assets at fair value – beginning of year
i3,481
i4,145
i354
i431
Actual
return on plan assets
i385
(i483)
i24
(i89)
Employer
contributions2
i28
i78
i9
i8
Employee
contributions
i7
i6
i2
i2
Benefits
paid
(i185)
(i324)
(i23)
(i24)
Foreign
exchange rate changes
(i19)
i59
(i8)
i26
Plan
assets at fair value – end of year
i3,697
i3,481
i358
i354
Funded
Status – Plan Surplus
i341
i400
i73
i44
1The
benefit obligation for the Company’s pension benefit plans represents the projected benefit obligation. The benefit obligation for the Company’s other post-retirement benefit plans represents the accumulated post-retirement benefit obligation.
2The Company reduced letters of credit by $i78 million in the Canadian DB Plan (2022 – inil)
for funding purposes.
/
The actuarial loss realized on the defined benefit plan obligation is primarily attributable to a decrease in the weighted average discount rate from i5.15 per cent in 2022 to i4.75
per cent in 2023.
The actuarial loss realized on the OPEB Plan obligation is primarily due to a decrease in the weighted average discount rate from i5.45 per cent in 2022 to i5.10
per cent in 2023.
i
The amounts recognized on the Company's Consolidated balance sheet for its DB Plans and other post-retirement benefits plans were as follows:
at
December 31
Pension Benefit Plans
Other Post-Retirement Benefit Plans
(millions of Canadian $)
2023
2022
2023
2022
Other long-term assets (Note 16)
i341
i400
i177
i163
Accounts
payable and other
i—
i—
(i7)
(i8)
Other
long-term liabilities (Note 19)
i—
i—
(i97)
(i111)
i341
i400
i73
i44
/
TC
Energy Consolidated Financial Statements 2023 | 205
i
Included in the above benefit obligation and fair value of plan assets were the following amounts for plans that were not fully funded:
at
December 31
Pension Benefit Plans
Other Post-Retirement Benefit Plans
(millions of Canadian $)
2023
2022
2023
2022
Projected benefit obligation1
i—
i—
(i104)
(i119)
Plan
assets at fair value
i—
i—
i—
i—
Funded
Status – Plan Deficit
i—
i—
(i104)
(i119)
1The
projected benefit obligation for the pension benefit plans differs from the accumulated benefit obligation in that it includes an assumption with respect to future compensation levels.
/i
The funded status based on the accumulated benefit obligation for all DB Plans was as follows:
at
December 31
2023
2022
(millions of Canadian $)
Accumulated benefit obligation
(i3,090)
(i2,880)
Plan
assets at fair value
i3,697
i3,481
Funded
Status – Plan Surplus
i607
i601
/
The
Company's DB Plans with respect to accumulated benefit obligations and the fair value of plan assets were fully funded as at December 31, 2023 and December 31, 2022.
i
The Company pension plans' weighted average asset allocations and target allocations by asset category were as follows:
at
December 31
Percentage of Plan Assets
Target Allocations
2023
2022
2023
Fixed income securities
i41
%
i38
%
i30%
to i50%
Equity securities
i44
%
i44
%
i30%
to i55%
Other investments
i15
%
i18
%
i10%
to i25%
i100
%
i100
%
/i
Fixed
income and equity securities include the Company's debt and common shares as follows:
at December 31
Percentage of Plan Assets
(millions of Canadian $)
2023
2022
2023
2022
Fixed
income securities
i7
i7
i0.2
%
i0.2
%
Equity
securities
i2
i3
i0.1
%
i0.1
%
/
Pension
plan assets are managed on a going concern basis, subject to legislative restrictions, and are diversified across asset classes to maximize returns at an acceptable level of risk. Asset mix strategies consider plan demographics and may include traditional equity and debt securities as well as alternative assets such as infrastructure, private equity, real estate and derivatives to diversify risk. Derivatives are not used for speculative purposes and may be used to hedge certain liabilities.
All investments are measured at fair value using market prices. Where the fair value cannot be readily determined by reference to generally available price quotations, the fair value is determined by considering the discounted cash flows on a risk-adjusted basis and by comparison to similar assets which are publicly traded. In Level I, the fair value of assets is determined by reference to quoted prices in active markets for identical
assets that the Company has the ability to access at the measurement date. In Level II, the fair value of assets is determined using valuation techniques such as option pricing models and extrapolation using significant inputs which are observable directly or indirectly. In Level III, the fair value of assets is determined using a market approach based on inputs that are unobservable and significant to the overall fair value measurement.
206 | TC Energy Consolidated Financial Statements 2023
i
The
following table presents plan assets for DB Plans and OPEB Plans measured at fair value, which have been categorized into the three categories based on a fair value hierarchy. Refer to Note 29, Risk management and financial instruments, for additional information.
at
December 31
Quoted Prices in Active Markets (Level I)
Significant Other Observable Inputs (Level II)
Significant Unobservable Inputs (Level III)
Total
Percentage of Total Portfolio
(millions of Canadian $)
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Asset
Category
Cash and Cash Equivalents
i68
i55
i1
i1
i—
i—
i69
i56
i2
i1
Equity
Securities:
Canadian
i121
i117
i—
i—
i—
i—
i121
i117
i3
i3
U.S.
i965
i897
i—
i—
i—
i—
i965
i897
i24
i24
International
i167
i172
i187
i172
i—
i—
i354
i344
i9
i9
Global
i—
i—
i74
i75
i—
i—
i74
i75
i2
i2
Emerging
i54
i50
i140
i127
i—
i—
i194
i177
i5
i5
Fixed
Income Securities:
Canadian Bonds:
Federal
i—
i—
i266
i221
i—
i—
i266
i221
i7
i6
Provincial
i—
i—
i314
i249
i—
i—
i314
i249
i8
i6
Municipal
i—
i—
i16
i12
i—
i—
i16
i12
i—
i—
Corporate
i—
i—
i143
i108
i—
i—
i143
i108
i4
i3
U.S. Bonds:
Federal
i185
i177
i240
i158
i—
i—
i425
i335
i10
i9
Municipal
i—
i—
i1
i1
i—
i—
i1
i1
i—
i—
Corporate
i312
i345
i74
i94
i—
i—
i386
i439
i10
i11
International:
Government
i4
i5
i11
i6
i—
i—
i15
i11
i—
i—
Corporate
i—
i—
i83
i58
i—
i—
i83
i58
i2
i1
Mortgage
backed
i43
i36
i17
i1
i—
i—
i60
i37
i1
i1
Net
forward contracts
i—
i—
(i131)
(i78)
i—
i—
(i131)
(i78)
(i4)
(i2)
Other
Investments:
Real estate
i—
i—
i—
i—
i283
i336
i283
i336
i7
i9
Infrastructure
i—
i—
i—
i—
i269
i296
i269
i296
i7
i8
Private
equity funds
i—
i—
i—
i—
i10
i—
i10
i—
i—
i—
Funds
held on deposit
i138
i144
i—
i—
i—
i—
i138
i144
i3
i4
i2,057
i1,998
i1,436
i1,205
i562
i632
i4,055
i3,835
i100
i100
/i
The
following table presents the net change in the Level III fair value category:
TC
Energy Consolidated Financial Statements 2023 | 207
In 2024, the Company's expects to make funding contributions of $i6 million for the other post-retirement benefit plans, approximately $i70
million for the savings plans and DC Plans and ino contributions for the DB Plans. The Company is not expecting to issue any additional letters of credit for the funding of solvency requirements to the Canadian DB plan in 2024.
i
The
following are estimated future benefit payments, which reflect expected future service:
at December 31
Other Post-Retirement Benefits
(millions of Canadian $)
Pension Benefits
2024
i204
i23
2025
i207
i23
2026
i211
i23
2027
i214
i22
2028
i216
i22
2029
to 2033
i1,127
i104
/
The
rate used to discount pension and other post-retirement benefit plan obligations was developed based on a yield curve of primarily corporate AA bond yields at December 31, 2023. This yield curve is used to develop spot rates that vary based on the duration of the obligations. The estimated future cash flows for the pension and other post-retirement benefit obligations were matched to the corresponding rates on the spot rate curve to derive a weighted average discount rate.
i
The significant weighted
average actuarial assumptions adopted in measuring the Company's benefit obligations were as follows:
at December 31
Pension Benefit Plans
Other Post-Retirement Benefit Plans
2023
2022
2023
2022
Discount
rate
i4.75
%
i5.15
%
i5.10
%
i5.45
%
Rate
of compensation increase
i3.20
%
i3.30
%
i—
i—
/
iThe significant weighted average actuarial assumptions adopted in measuring the Company's net benefit plan costs were as follows:
year
ended December 31
Pension Benefit Plans
Other Post-Retirement Benefit Plans
2023
2022
2021
2023
2022
2021
Discount
rate
i5.15
%
i3.05
%
i2.70
%
i5.45
%
i3.10
%
i2.80
%
Expected
long-term rate of return on plan assets
i6.45
%
i6.10
%
i6.15
%
i4.50
%
i3.25
%
i3.00
%
Rate
of compensation increase
i3.25
%
i3.00
%
i2.60
%
i—
i—
i—
208 | TC
Energy Consolidated Financial Statements 2023
The overall expected long-term rate of return on plan assets is based on historical and projected rates of return for the portfolio in aggregate and for each asset class in the portfolio. Assumed projected rates of return are selected after analyzing historical experience and estimating future levels and volatility of returns. Asset class benchmark returns and asset mix are also considered in determining the overall expected rate of return. The discount rate is based on market interest rates of high-quality bonds that match the timing and benefits expected to be paid under each plan.
A i5.95
per cent weighted-average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2024 measurement purposes. The rate was assumed to decrease gradually to i4.80 per cent by 2030 and remain at this level thereafter.
i
The
net benefit cost recognized for the Company’s pension benefit plans and other post-retirement benefit plans was as follows:
year ended December 31
Pension Benefit Plans
Other
Post-Retirement Benefit Plans
(millions of Canadian $)
2023
2022
2021
2023
2022
2021
Service
cost1
i93
i145
i171
i3
i5
i6
Other
components of net benefit cost1
Interest cost
i158
i125
i119
i16
i13
i12
Expected
return on plan assets
(i234)
(i239)
(i234)
(i16)
(i14)
(i13)
Amortization
of actuarial loss
i—
i10
i23
i—
i1
i2
Amortization
of regulatory asset
i—
i12
i27
i—
i1
i2
Curtailment
gain
i—
i—
(i5)
i—
i—
i—
Settlement
gain – AOCI
i—
(i2)
(i2)
i—
i—
i—
(i76)
(i94)
(i72)
i—
i1
i3
Net
Benefit Cost Recognized
i17
i51
i99
i3
i6
i9
1 Service
cost and other components of net benefit cost are included in Plant operating costs and other in the Consolidated statement of income.
/i
Pre-tax amounts recognized in AOCI were as follows:
at
December 31
2023
2022
2021
Pension Benefits
Other Post- Retirement Benefits
Pension Benefits
Other Post- Retirement Benefits
Pension Benefits
Other
Post- Retirement Benefits
(millions of Canadian $)
Net
loss
i71
i6
i38
i24
i147
i5
/i
Pre-tax
amounts recognized in OCI were as follows:
year ended December 31
2023
2022
2021
Pension Benefits
Other
Post- Retirement Benefits
Pension Benefits
Other Post- Retirement Benefits
Pension Benefits
Other Post- Retirement Benefits
(millions of Canadian $)
Amortization
of net gain (loss) from AOCI to net income
i—
i—
(i10)
(i1)
(i23)
(i2)
Curtailment
i—
i—
i—
i—
i—
i3
Settlement
i—
i—
i2
i—
i2
i—
Funded
status adjustment
i33
(i18)
(i101)
i20
(i190)
(i18)
i33
(i18)
(i109)
i19
(i211)
(i17)
/
TC
Energy Consolidated Financial Statements 2023 | 209
29. iRISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Risk Management Overview
TC Energy has exposure to various financial risks and has strategies, policies and limits in place to manage the impact of these risks on its earnings,
cash flows and, ultimately, shareholder value.
Risk management strategies, policies and limits are designed to ensure TC Energy's risks and related exposures are in line with the Company's business objectives and risk tolerance. TC Energy's risks are managed within limits that are established by the Company's Board, implemented by senior management and monitored by the Company's risk management, internal audit and business segment groups. The Board's Audit Committee oversees how management monitors compliance with risk management policies and procedures and oversees management's review of the adequacy of the risk management framework.
Market Risk
The Company constructs and invests in energy infrastructure projects, purchases and sells commodities, issues short- and long-term debt, including amounts in foreign currencies and invests in foreign
operations. Certain of these activities expose the Company to market risk from changes in commodity prices, foreign exchange rates and interest rates, which may affect the Company's earnings, cash flows and the value of its financial assets and liabilities. The Company assesses contracts used to manage market risk to determine whether all, or a portion, meets the definition of a derivative.
Derivative contracts the Company uses to assist in managing exposure to market risk may include the following:
•forwards and futures contracts – agreements to purchase or sell a specific financial instrument or commodity at a specified price and date in the future
•swaps – agreements between two parties to exchange streams of payments over time according to specified terms
•options – agreements
that convey the right, but not the obligation of the purchaser to buy or sell a specific amount of a financial instrument or commodity at a fixed price, either at a fixed date or at any time within a specified period.
Commodity price risk
The following strategies may be used to manage the Company's exposure to market risk resulting from commodity price risk management activities in the Company's non-regulated businesses:
•in the Company's natural gas marketing business, TC Energy enters into natural gas transportation and storage contracts as well as natural gas purchase and sale agreements. The Company manages exposure on these contracts using financial instruments and hedging activities to offset market price volatility
•in the Company's liquids marketing business,
TC Energy enters into pipeline and storage terminal capacity contracts as well as crude oil purchase and sale agreements. The Company fixes a portion of the exposure on these contracts by entering into financial instruments to manage variable price fluctuations that arise from physical liquids transactions
•in the Company's power businesses, TC Energy manages the exposure to fluctuating commodity prices through long-term contracts and hedging activities including selling and purchasing electricity and natural gas in forward markets
•in the Company's non-regulated natural gas storage business, TC Energy's exposure to seasonal natural gas price spreads is managed with a portfolio of third-party storage capacity contracts and through offsetting purchases and sales of natural gas in forward markets to lock in future positive margins.
Lower
natural gas, crude oil and electricity prices could lead to reduced investment in the development, expansion and production of these commodities. A reduction in the demand for these commodities could negatively impact opportunities to expand the Company's asset base and/or re-contract with TC Energy's shippers and customers as contractual agreements expire.
The physical and transition risks related to climate change could impact commodity prices and fossil fuel supply and demand dynamics which could affect the Company's financial performance. TC Energy evaluates the financial resilience of the Company’s asset portfolio against a range of future pricing and supply and demand outcomes as part of the Company’s strategic planning process. TC Energy’s exposure to climate change-related transition risks and resulting policy changes is managed through the Company’s business model, which is based on a long-term, low-risk strategy whereby
the majority of TC Energy’s earnings are underpinned by regulated cost-of-service arrangements and/or long-term contracts. The Company factors physical and transition risks into capital planning, financial risk management and operational activities and is working towards reducing the GHG emissions intensity of existing operations.
210 | TC Energy Consolidated Financial Statements 2023
Interest rate risk
TC Energy utilizes short- and long-term debt to finance its operations which exposes the Company to interest rate risk. TC Energy typically pays fixed rates of interest on its long-term debt and floating rates on short-term debt including its commercial paper programs and amounts drawn on
its credit facilities. A small portion of TC Energy's long-term debt bears interest at floating rates. In addition, the Company is exposed to interest rate risk on financial instruments and contractual obligations containing variable interest rate components. The Company actively manages its interest rate risk using interest rate derivatives.
Foreign exchange risk
Certain of TC Energy's businesses generate all or most of their earnings in U.S. dollars and, since the Company reports its financial results in Canadian dollars, changes in the value of the U.S. dollar against the Canadian dollar can affect its net income. As the Company's U.S. dollar-denominated operations continue to grow, this exposure increases. A portion of this risk is offset by interest expense on U.S. dollar-denominated debt. The balance of the exposure is actively managed on a rolling basis up to three years in advance
using foreign exchange derivatives; however, the natural exposure beyond that period remains.
A portion of the Company's Mexico Natural Gas Pipelines monetary assets and liabilities are peso-denominated, while TC Energy's Mexico operations' financial results are denominated in U.S. dollars. These peso‑denominated balances are revalued to U.S. dollars and, as a result, changes in the value of the Mexican peso against the U.S. dollar can affect the Company's net income. In addition, foreign exchange gains or losses calculated for Mexico income tax purposes on the revaluation of U.S. dollar‑denominated monetary assets and liabilities result in a peso‑denominated income tax exposure for these entities, leading to fluctuations in Income from equity investments and Income tax expense. These exposures are actively managed using foreign exchange derivatives, although some unhedged exposure remains.
Net
investment in foreign operations
The Company hedges a portion of its net investment in foreign operations (on an after-tax basis) with U.S. dollar‑denominated debt, cross-currency interest rate swaps and foreign exchange options as appropriate.
i
The fair values and notional amounts for the derivatives designated as a net investment hedge were as follows:
at
December 31
2023
2022
Fair Value1,2
Notional Amount
Fair Value1,2
Notional Amount
(millions of Canadian $, unless otherwise noted)
U.S.
dollar foreign exchange options (maturing 2024)
i8
US i1,000
(i22)
US
i3,600
U.S. dollar cross-currency interest rate swaps (maturing 2024 to 2025)3
i2
US
i200
(i5)
US i300
i10
US
i1,200
(i27)
US i3,900
1Fair
value equals carrying value.
2No amounts have been excluded from the assessment of hedge effectiveness.
3In 2023, Net income (loss) includes net realized gains of less than $i1 million (2022 – gains of $i1
million) related to the interest component of cross-currency swap settlements which are reported within Interest expense.
The notional amounts and fair value of U.S. dollar-denominated debt designated as a net investment hedge were as follows:
at December 31
2023
2022
(millions of Canadian $, unless otherwise noted)
Notional
amount
i27,800 (US i21,100)
i32,500
(US i24,000)
Fair value
i26,600 (US i20,200)
i30,800
(US i22,700)
/
TC Energy Consolidated Financial Statements 2023 | 211
Counterparty Credit Risk
TC Energy's exposure to counterparty credit risk includes its cash
and cash equivalents, accounts receivable and certain contractual recoveries, available-for-sale assets, the fair value of derivative assets, net investment in leases and certain contract assets in Mexico.
At times, the Company's counterparties may endure financial challenges resulting from commodity price and market volatility, economic instability and political or regulatory changes. In addition to actively monitoring these situations, there are a number of factors that reduce TC Energy's counterparty credit risk exposure in the event of default, including:
•contractual rights and remedies together with the utilization of contractually-based financial assurances
•current regulatory frameworks governing certain TC Energy operations
•the competitive
position of the Company's assets and the demand for the Company's services
•potential recovery of unpaid amounts through bankruptcy and similar proceedings.
The Company reviews financial assets carried at amortized cost for impairment using the lifetime expected loss of the financial asset at initial recognition and throughout the life of the financial asset. TC Energy uses historical credit loss and recovery data, adjusted for management's judgment regarding current economic and credit conditions, along with reasonable and supportable forecasts to determine any impairment, which is recognized in Plant operating costs and other.
The Company’s net investment in leases and certain contract assets are financial assets subject to ECL. TC Energy’s methodology for assessing the ECL regarding these financial assets includes
consideration of the probability of default (the probability that the customer will default on its obligation), the loss given default (the economic loss as a proportion of the financial asset balance in the event of a default) and the exposure at default (the financial asset balance at the time of a hypothetical default) with one-year forward-looking information that includes assumptions for future macroeconomic conditions under three probability-weighted future scenarios.
The macroeconomic factors considered most relevant to the Company's net investment in leases and contract assets include Mexico's GDP, Mexico's government debt to GDP and Mexico's inflation. The ECL amount is updated at each reporting date to reflect changes in assumptions and forecasts for future economic conditions.
For the year ended December 31, 2023, the
Company recorded a $i73 million ECL recovery (2022 – an expense of $i149 million; 2021 – inil)
with respect to the net investment in leases associated with the in-service TGNH pipelines and a $i10 million ECL recovery (2022 – $i14 million expense; 2021 – inil)
for contract assets related to certain other Mexico natural gas pipelines.
Other than the ECL provision noted above, the Company had iino/
significant credit losses at December 31, 2023 and 2022. At December 31, 2023 and 2022, there were iino/
significant credit risk concentrations and iino/ significant amounts past due
or impaired.
TC Energy has significant credit and performance exposure to financial institutions that hold cash deposits and provide committed credit lines and letters of credit that help manage the Company's exposure to counterparties and provide liquidity in commodity, foreign exchange and interest rate derivative markets. TC Energy's portfolio of financial sector exposure consists primarily of highly-rated investment grade, systemically important financial institutions.
Non-Derivative Financial Instruments
Fair value of non-derivative financial instruments
Available-for-sale assets are recorded at fair value which is calculated using quoted market prices where available. Certain non-derivative financial instruments included in Cash and cash equivalents, Accounts receivable, Other current assets,
Restricted investments, Net investment in leases, Other long-term assets, Notes payable, Accounts payable and other, Dividends payable, Accrued interest and Other long-term liabilities have carrying amounts that approximate their fair value due to the nature of the item or the short time to maturity. Each of these instruments are classified in Level II of the fair value hierarchy, except for the Company's LMCI equity securities which are classified in Level I of the fair value hierarchy.
Credit risk has been taken into consideration when calculating the fair value of non-derivative financial instruments.
212 | TC Energy Consolidated Financial Statements 2023
Balance sheet presentation of
non-derivative financial instruments
i
The following table details the fair value of non-derivative financial instruments, excluding those where carrying amounts approximate fair value, and would be classified in Level II of the fair value hierarchy:
at
December 31
2023
2022
Carrying
Amount
Fair
Value
Carrying Amount
Fair Value
(millions of Canadian $)
Long-term
debt, including current portion (Note 21)1,2
(i52,914)
(i52,815)
(i41,543)
(i39,505)
Junior
subordinated notes (Note 22)
(i10,287)
(i9,217)
(i10,495)
(i9,415)
(i63,201)
(i62,032)
(i52,038)
(i48,920)
1Long-term
debt is recorded at amortized cost, except for US$i2.0 billion (2022 – US$i1.6 billion) that is attributed to hedged risk and recorded at fair value.
2Net income (loss) for 2023 included unrealized losses of $i53
million (2022 – unrealized gains of $i64 million) for fair value adjustments attributable to the hedged interest rate risk associated with interest rate swap fair value hedging relationships on US$i2.0
billion of long-term debt at December 31, 2023 (2022 – US$i1.6 billion). There were no other unrealized gains or losses from fair value adjustments to the non-derivative financial instruments.
Available-for-sale assets summary
The following tables summarize additional information about the Company's restricted investments that were classified as available-for-sale assets:
at
December 31
2023
2022
LMCI Restricted Investments
Other Restricted Investments1
LMCI Restricted Investments
Other Restricted Investments1
(millions of Canadian $)
Fair
value of fixed income securities2,3
Maturing within 1 year
i1
i35
i—
i54
Maturing
within 1-5 years
i8
i291
i—
i106
Maturing
within 5-10 years
i1,340
i—
i1,153
i—
Maturing
after 10 years
i102
i—
i77
i—
Fair
value of equity securities2,4
i883
i—
i749
i—
i2,334
i326
i1,979
i160
1Other
restricted investments have been set aside to fund insurance claim losses to be paid by the Company's wholly-owned captive insurance subsidiary.
2Available-for-sale assets are recorded at fair value and included in Other current assets and Restricted investments on the Company's Consolidated balance sheet.
3Classified in Level II of the fair value hierarchy.
4Classified in Level I of the fair value hierarchy.
/ii
year
ended December 31
2023
2022
2021
(millions of Canadian $)
LMCI Restricted Investments1
Other Restricted Investments2
LMCI Restricted Investments1
Other Restricted Investments2
LMCI
Restricted Investments1
Other Restricted Investments2
Net unrealized gains (losses)
i190
i13
(i244)
(i7)
i45
(i2)
Net
realized gains (losses)3
(i34)
i—
(i32)
i—
i3
i—
1Unrealized
and realized gains (losses) arising from changes in the fair value of LMCI restricted investments impact the subsequent amounts to be collected through tolls to cover future pipeline abandonment costs. As a result, the Company records these gains and losses as regulatory liabilities or regulatory assets.
2Unrealized and realized gains (losses) on other restricted investments are included in Interest income and other in the Company's Consolidated statement of income.
3Realized gains (losses) on the sale of LMCI restricted investments are determined using the average cost basis.
//
Derivative
Instruments
Fair value of derivative instruments
The fair value of foreign exchange and interest rate derivatives has been calculated using the income approach which uses year-end market rates and applies a discounted cash flow valuation model. The fair value of commodity derivatives has been calculated using quoted market prices where available. In the absence of quoted market prices, third-party broker quotes or other valuation techniques have been used. The fair value of options has been calculated using the Black-Scholes pricing model. Credit risk has been taken into consideration when calculating the fair value of derivative instruments. Unrealized gains and losses on derivative instruments are not necessarily representative of the amounts that will be realized on settlement.
TC Energy Consolidated
Financial Statements 2023 | 213
In some cases, even though the derivatives are considered to be effective economic hedges, they do not meet the specific criteria for hedge accounting treatment or are not designated as a hedge and are accounted for at fair value with changes in fair value recorded in net income in the period of change. This may expose the Company to increased variability in reported earnings because the fair value of the derivative instruments can fluctuate significantly from period to period.
The recognition of gains and losses on derivatives for Canadian natural gas regulated pipeline exposures is determined through the regulatory process. Gains and losses arising from changes in the fair value of derivatives accounted for as part of RRA, including those
that qualify for hedge accounting treatment, are expected to be refunded or recovered through the tolls charged by the Company. As a result, these gains and losses are deferred as regulatory assets or regulatory liabilities and are refunded to or collected from the rate payers in subsequent years when the derivative settles.
Balance sheet presentation of derivative instruments
The balance sheet classification of the fair value of derivative instruments was as follows:
2Includes purchases and sales of power, natural gas and liquids.
The majority of derivative instruments held for trading have been entered into for risk management purposes and all are subject to the Company's risk management strategies, policies and limits. These include derivatives that have not been designated as hedges or do not qualify for hedge accounting treatment but have been entered into as economic hedges to manage the Company's exposures to market risk.
Derivatives in fair value hedging relationships
i
The
following table details amounts recorded on the Consolidated balance sheet in relation to cumulative adjustments for fair value hedges included in the carrying amount of the hedged liabilities:
at December 31
Carrying Amount
Fair Value Hedging Adjustments1
(millions
of Canadian $)
2023
2022
2023
2022
Long-term debt
(i2,630)
(i2,101)
i11
i64
1At
December 31, 2023 and 2022, adjustments for discontinued hedging relationships included in these balances were iinil/.
/
TC
Energy Consolidated Financial Statements 2023 | 215
Notional and maturity summary
The maturity and notional amount or quantity outstanding related to the Company's derivative instruments excluding hedges of the net investment in foreign operations was as follows:
1Volumes for power, natural gas and liquids derivatives are in GWh, Bcf and MMBbls, respectively.
2In 2023, the Company entered into contracts to sell i50
MW of power commencing in 2025 with terms ranging from i15 to i20 years and provided from specified renewable sources in the Province of Alberta.
1Volumes
for power, natural gas and liquids derivatives are in GWh, Bcf and MMBbls, respectively.
Unrealized and Realized Gains (Losses) on Derivative Instruments
The following summary does not include hedges of the net investment in foreign operations:
year ended December 31
2023
2022
2021
(millions
of Canadian $)
Derivative Instruments Held for Trading1
Unrealized gains (losses) in the year
Commodities
i96
i14
i9
Foreign
exchange (Note 23)
i246
(i149)
(i203)
Realized
gains (losses) in the year
Commodities
i811
i759
i287
Foreign
exchange (Note 23)
i155
(i2)
i240
Derivative
Instruments in Hedging Relationships2
Realized gains (losses) in the year
Commodities
(i2)
(i73)
(i44)
Interest
rate
(i43)
(i3)
(i32)
1Realized
and unrealized gains (losses) on held-for-trading derivative instruments used to purchase and sell commodities are included on a net basis in Revenues. Realized and unrealized gains (losses) on foreign exchange held-for-trading derivative instruments are included on a net basis in Foreign exchange (gains) losses, net.
2In 2023, there were ino gains or losses included in Net Income (loss) relating
to discontinued cash flow hedges where it was probable that the anticipated transaction would not occur (2022 – inil; 2021 – realized loss of $i10 million).
216 | TC
Energy Consolidated Financial Statements 2023
Derivatives in cash flow hedging relationships
i
The components of OCI (Note 27) related to the change in fair value of derivatives in cash flow hedging relationships before tax and including the portion attributable to non-controlling interests were as follows:
year
ended December 31
2023
2022
2021
(millions of Canadian $, pre-tax)
Gains (losses) in fair value of derivative instruments recognized in OCI1
Commodities
i—
(i94)
(i35)
Interest
rate
i—
i36
i22
i—
(i58)
(i13)
1No
amounts have been excluded from the assessment of hedge effectiveness.
/
Effect of fair value and cash flow hedging relationships
The following table details amounts presented in the Consolidated statement of income in which the effects of fair value or cash flow hedging relationships were recorded:
year
ended December 31
2023
2022
2021
(millions of Canadian $)
Fair Value Hedges
Interest
rate contracts1
Hedged items
(i98)
(i30)
i—
Derivatives
designated as hedging instruments
(i43)
(i1)
i—
Cash
Flow Hedges
Reclassification of gains (losses) on derivative instruments from AOCI to Net income (loss)2,3
Commodity contracts4
(i85)
(i47)
(i22)
Interest
rate contracts1
(i12)
(i16)
(i46)
1Presented
within Interest expense in the Consolidated statement of income.
2Refer to Note 27, Other comprehensive income (loss) and accumulated other comprehensive income (loss), for the components of OCI related to derivatives in cash flow hedging relationships including the portion attributable to non-controlling interests.
3There are no amounts recognized in earnings that were excluded from effectiveness testing.
4Presented within Revenues (Power and Energy Solutions) in the Consolidated statement of income.
Offsetting of derivative instruments
The Company enters into derivative contracts with the right to offset in the normal course of business as well as in the event of default. TC Energy
has no master netting agreements; however, similar contracts are entered into containing rights to offset.
The Company has elected to present the fair value of derivative instruments with the right to offset on a gross basis on the Consolidated balance sheet.
TC Energy Consolidated Financial Statements 2023 | 217
ii
The
following tables show the impact on the presentation of the fair value of derivative instrument assets and liabilities had the Company elected to present these contracts on a net basis:
1Amounts
available for offset do not include cash collateral pledged or received.
//
With respect to the derivative instruments presented above, the Company provided cash collateral of $i149 million and letters of credit of $i83
million at December 31, 2023 (2022 – $i138 million and $i68 million, respectively) to its counterparties. At December 31,
2023, the Company held less than $i1 million in cash collateral and $i15 million in letters of credit (2022 – less than $i1 million
and $i10 million, respectively) from counterparties on asset exposures.
Credit-risk-related contingent features of derivative instruments
Derivative contracts entered into to manage market risk often contain financial assurance provisions that allow parties to the contracts to manage credit risk. These provisions may require collateral to be provided if a credit-risk-related contingent event occurs, such as a downgrade in the Company's credit rating to non-investment grade. The Company
may also need to provide collateral if the fair value of its derivative financial instruments exceeds pre-defined exposure limits.
Based on contracts in place and market prices at December 31, 2023, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $i3 million (2022 – $i19
million), for which the Company has provided no collateral in the normal course of business. If the credit-risk-related contingent features in these agreements were triggered on December 31, 2023, the Company would have been required to provide collateral equal to the fair value of the related derivative instruments discussed above. Collateral may also need to be provided should the fair value of derivative instruments exceed pre-defined contractual exposure limit thresholds. The Company has sufficient liquidity in the form of cash and undrawn committed revolving credit facilities to meet these contingent obligations should they arise.
218 | TC Energy Consolidated Financial Statements 2023
Fair
Value Hierarchy
The Company's financial assets and liabilities recorded at fair value have been categorized into three categories based on a fair value hierarchy.
Levels
How Fair Value Has Been Determined
Level I
Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. An active market is a market in which frequency and volume of transactions provides pricing information on an ongoing basis.
Level
II
This category includes interest rate and foreign exchange derivative assets and liabilities where fair value is determined using the income approach and commodity derivatives where fair value is determined using the market approach.
Inputs include published exchange rates, interest rates, interest rate swap curves, yield curves and broker quotes from external data service providers.
Level III
This category includes long-dated commodity transactions in certain markets where liquidity is low. The Company uses the most observable inputs available or alternatively long-term broker quotes or negotiated commodity prices that have been contracted for under similar
terms in determining an appropriate estimate of these transactions. Where appropriate, these long-dated prices are discounted to reflect the expected pricing from the applicable markets.
There is uncertainty caused by using unobservable market data which may not accurately reflect possible future changes in fair value.
i
The fair value of the Company's derivative assets and liabilities measured on a recurring basis, including both current and non-current
portions, were categorized as follows:
1There
were no transfers from Level II to Level III for the year ended December 31, 2023.
In 2023, the Company entered into contracts to sell i50 MW of power commencing in 2025 with terms ranging from i15 to i20
years and provided from specified renewable sources in the Province of Alberta. The fair value of these contracts is classified in Level III of the fair value hierarchy and is based on the assumption that the contract volumes will be sourced approximately i80 per cent from wind generation, i10 per
cent from solar generation and i10 per cent from the market.
/
TC Energy Consolidated Financial Statements 2023 | 219
1There
were no transfers from Level II to Level III for the year ended December 31, 2022.
i
The following table presents the net change in fair value of derivative assets and liabilities classified in Level III of the fair value hierarchy:
(millions
of Canadian $, pre-tax)
2023
2022
Balance at beginning of year
(i11)
(i6)
Net
gains (losses) included in Net income (loss)
(i2)
(i10)
Net
gains (losses) included in OCI
i—
(i3)
Transfers
out of Level III
i2
i7
Settlements
i—
i1
Balance
at End of Year1
(i11)
(i11)
1Revenues
include unrealized losses of $i2 million attributed to derivatives in the Level III category that were still held at December 31, 2023 (2022 – unrealized losses of $i10
million).
/
30. iCHANGES IN OPERATING WORKING CAPITAL
i
year
ended December 31
2023
2022
2021
(millions of Canadian $)
(Increase) decrease in Accounts receivable
(i394)
(i575)
(i925)
(Increase)
decrease in Inventories
(i56)
(i190)
(i93)
(Increase)
decrease in Other current assets
i618
i118
(i141)
Increase
(decrease) in Accounts payable and other
(i206)
(i83)
i890
Increase
(decrease) in Accrued interest
i245
i91
(i18)
(Increase)
Decrease in Operating Working Capital
i207
(i639)
(i287)
/
220 | TC
Energy Consolidated Financial Statements 2023
31. iACQUISITIONS AND DISPOSITIONS
U.S. Natural Gas Pipelines
Disposition of Equity Interest
On October
4, 2023, the Company completed the sale of a i40 per cent non-controlling equity interest in Columbia Gas and Columbia Gulf for $i5.3 billion (US$i3.9 billion).
The sale was accounted for as an equity transaction of which $i9.5 billion (US$i6.9 billion) was recorded as Non-controlling interests to reflect the i40
per cent change in the Company’s ownership interest in Columbia Gulf and Columbia Gas. The difference between the non-controlling ownership interest recognized and the consideration received was recorded as a reduction to Additional paid-in capital of $i3.5 billion (US$i3.0 billion),
net of tax and transaction costs.
Liquids Pipelines
Northern Courier
In November 2021, TC Energy completed the sale of its remaining i15 per cent equity interest in Northern Courier to a third party for gross proceeds of approximately $i35
million resulting in a pre-tax gain of $i13 million ($i19 million after tax). The pre-tax gain was included in
Net gain(loss) on sale of assets in the Consolidated statement of income.
Power and Energy Solutions
Texas Wind Farms
On March 15, 2023, TC Energy closed the acquisition of i100 per cent of the Class B Membership Interests in the i155
MW Fluvanna Wind Farm located in Scurry County, Texas for US$i99 million, before post-closing adjustments. On June 14, 2023, the Company closed the acquisition of i100
per cent of the Class B Membership Interests in the i148 MW Blue Cloud Wind Farm located in Bailey County, Texas for US$i125 million, before post-closing adjustments. The Fluvanna and Blue Cloud assets have tax equity investors that own i100 per cent
of the Class A Membership Interests, to which a percentage of earnings, tax attributes and cash flows are allocated.
32. iCOMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments
TC Energy and its affiliates have long-term natural gas transportation and natural gas purchase arrangements as well as other purchase obligations, all of which are transacted at market prices and in the
normal course of business. Purchases under these contracts in 2023 were $i397 million (2022 – $i362 million; 2021 – $i239
million).
The Company has entered into PPAs with solar and wind-power generating facilities ranging from 2024 to 2038 that require the purchase of generated energy and associated environmental attributes. At December 31, 2023, the total planned capacity secured under the PPAs is approximately i800 MW with the generation subject to operating availability and capacity factors. These PPAs do not meet the definition of a lease or derivative. Future payments and their timing cannot be reasonably estimated as they are dependent on when certain
underlying facilities are placed into service and the amount of energy generated. Certain of these purchase commitments have offsetting sale PPAs for all or a portion of the related output from the facility.
Capital expenditure commitments include obligations related to the construction of growth projects and are based on the projects proceeding as planned. Changes to these projects, including cancellation, would reduce or possibly eliminate these commitments as a result of cost mitigation efforts. At December 31, 2023, TC Energy had approximately $i2.1 billion
of capital expenditure commitments, primarily consisting of:
•$i0.3 billion for its U.S. natural gas pipelines, primarily related to construction costs associated with ANR and other pipeline projects
•$i1.3
billion for its Mexico natural gas pipelines related to construction of the Southeast Gateway pipeline.
Contingencies
TC Energy is subject to laws and regulations governing environmental quality and pollution control. At December 31, 2023, the Company had accrued approximately $i19 million (2022 – $i20
million) related to operating facilities, which represents the present value of the estimated future amount it expects to spend to remediate the sites. However, additional liabilities may be incurred as assessments take place and remediation efforts continue.
TC Energy Consolidated Financial Statements 2023 | 221
TC Energy and its subsidiaries are subject to various legal proceedings, arbitrations and actions arising in the normal course of business. The amounts involved in such proceedings are not reasonably estimable as the final outcome of such legal proceedings cannot be predicted with certainty. The Company assesses all legal matters on an ongoing basis, including those of its equity investments, to determine if they meet the
requirements for disclosure or accrual of a contingent loss. With the potential exception of the matters discussed below, for which the claims are material and there is a reasonable possibility of loss, but have not been assessed as probable and a reasonable estimate of loss cannot be made, it is the opinion of management that the ultimate resolution of such proceedings and actions will not have a material impact on the Company's consolidated financial position or results of operations.
Coastal GasLink LP
Coastal GasLink LP is in dispute with a number of contractors related to construction of the Coastal GasLink pipeline. Material legal matters pertaining to Coastal GasLink are summarized as follows:
SA Energy Group
Coastal GasLink LP is in arbitration with SA Energy Group (SAEG), which is one of the prime
construction contractors on the Coastal GasLink pipeline. While still engaged as prime contractor, SAEG filed a request to arbitrate in February 2022, seeking damages for incremental costs resulting from alleged project delays. In order to mitigate cost, schedule and environmental risk while the project was in active construction, Coastal GasLink LP advanced without prejudice payments to SAEG which Coastal GasLink LP now seeks to recover via set off. By agreement among the parties, the scope of the arbitration is limited to damages for project work completed prior to December 29, 2022. In November 2023, SAEG filed materials purporting to seek damages in excess of $i1.1 billion.
Coastal GasLink LP continues to dispute the merits of SAEG’s claims and to assert its right to set off. Arbitration is scheduled to proceed in late 2024. At December 31, 2023, the final outcome of this matter cannot be reasonably estimated.
Pacific Atlantic Pipeline Construction Ltd.
Coastal GasLink LP is in arbitration with one of its previous prime contractors, Pacific Atlantic Pipeline Construction Ltd. (PAPC). Coastal GasLink LP terminated its contract with PAPC for cause, due to the failure of PAPC to complete work as scheduled and made a demand on the parental guarantee for payment of the guaranteed obligations. Following Coastal GasLink LP’s demand on the guarantee, in August 2022, PAPC initiated arbitration. As of November 2023, PAPC purports to seek at least $i428 million
in damages for wrongful termination for cause, termination damages and payments alleged to be outstanding. Coastal GasLink LP disputes the merits of PAPC’s claims and has counterclaimed against PAPC and its parent company and guarantor, Bonatti S.p.A., citing delays and failures by PAPC to perform and manage work in accordance with the terms of its contract. Coastal GasLink LP estimates its damages to be $i1.2 billion. Arbitration is scheduled to proceed in late 2024. At December 31, 2023, the final outcome of this matter cannot be reasonably estimated.
Separately, Coastal GasLink LP has sought to draw down on a $i117 million irrevocable standby letter of credit (LOC) provided by PAPC based on a bona fide belief that Coastal GasLink LP’s damages are in excess of the face value of the LOC. PAPC has applied for an injunction restraining Coastal GasLink LP from drawing on the LOC pending the completion of the arbitration between Coastal GasLink LP, PAPC, and Bonatti, which is the subject of further court proceedings.
Keystone XL
In 2021,
TC Energy filed a Request for Arbitration to formally initiate a legacy North American Free Trade Agreement (NAFTA) claim to recover economic damages resulting from the revocation of the Presidential Permit for the Keystone XL pipeline project. In 2022, the International Centre for Settlement of Investment Disputes formally constituted a tribunal to hear TC Energy's request for arbitration under NAFTA. In April 2023, the tribunal suspended the proceeding, granting a request from the U.S. Department of State to decide the jurisdictional grounds of the case as a preliminary matter. A hearing on the jurisdictional matter is set to occur in second quarter of 2024. In April 2023, the Government of Alberta filed its own request for arbitration, which will proceed separately from the Company's claim. Termination activities undertaken in 2023, including asset dispositions and preservation, will continue through the first half of 2024. The Company will continue to coordinate
with regulators, stakeholders and Indigenous groups to meet its environmental and regulatory commitments.
222 | TC Energy Consolidated Financial Statements 2023
2016 Columbia Pipeline Acquisition Lawsuit
In 2023, the Delaware Chancery Court issued its decision in the class action lawsuit commenced by former shareholders of Columbia Pipeline Group Inc. (CPG) related to the acquisition of CPG by TC Energy in 2016. The Court found that the former CPG executives breached their fiduciary duties, that the former CPG Board breached its duty of care in overseeing the sale process and that TC Energy aided and abetted those breaches. The Court awarded US$i1
per share in damages to the plaintiffs and total damages, which is presently estimated at US$i400 million plus statutory interest. Post-trial briefing and argument has concluded and a decision from the Court allocating liability as between TC Energy and the CPG executives is expected sometime in the first half of 2024. Until the allocation of damages is known, the amount that TC Energy is liable for cannot be reasonably estimated, therefore, the Company has not accrued a provision for this claim at December 31, 2023. Management expects to proceed
with an appeal following the Court’s determination of total damages and TC Energy’s allocated share.
Guarantees
TC Energy and its partner on the Sur de Texas pipeline, IEnova, have jointly guaranteed the financial performance of the entity which owns the pipeline. Such agreements include a guarantee and a letter of credit which are primarily related to the delivery of natural gas.
TC Energy and its joint venture partner on Bruce Power, BPC Generation Infrastructure Trust, have each severally guaranteed certain contingent financial obligations of Bruce Power related to a lease agreement and contractor and supplier services.
The Company and its partners in certain other jointly-owned entities have either: i) jointly and severally; ii) jointly or iii) severally guaranteed the financial performance
of these entities. Such agreements include guarantees and letters of credit which are primarily related to construction services and the payment of liabilities. For certain of these entities, any payments made by TC Energy under these guarantees in excess of its ownership interest are to be reimbursed by its partners.
i
The carrying value of these guarantees has been recorded in Other long-term liabilities on the Consolidated balance sheet. Information regarding the Company’s guarantees were as follows:
at
December 31
2023
2022
Term
Potential Exposure1
Carrying Value
Potential Exposure1
Carrying Value
(millions of Canadian $)
Sur
de Texas
Renewable to 2053
i97
i—
i100
i—
Bruce
Power
Renewable to 2065
i88
i—
i88
i—
Other
jointly-owned entities
to 2043
i80
i3
i81
i3
i265
i3
i269
i3
1TC
Energy's share of the potential estimated current or contingent exposure.
/
TC Energy Consolidated Financial Statements 2023 | 223
33. iVARIABLE
INTEREST ENTITIES
Consolidated VIEs
A significant portion of the Company’s assets are held through VIEs in which the Company holds a i100 per cent voting interest, the VIE meets the definition of a business and the VIE’s assets can be used for general corporate purposes. iThe
consolidated VIEs whose assets cannot be used for purposes other than for the settlement of the VIE’s obligations, or are not considered a business, were as follows:
at December 31
(millions of Canadian $)
20231
2022
ASSETS
Current
Assets
Cash and cash equivalents
i190
i60
Accounts
receivable
i476
i98
Inventories
i90
i32
Other
current assets
i49
i14
i805
i204
Plant,
Property and Equipment
i27,649
i3,997
Equity
Investments
i823
i748
Regulatory Assets
i12
i—
Goodwill
i439
i449
i29,728
i5,398
LIABILITIES
Current
Liabilities
Accounts payable and other
i1,135
i234
Accrued
interest
i210
i18
Current portion of long-term debt
i28
i31
i1,373
i283
Regulatory
Liabilities
i280
i78
Other Long-Term Liabilities
i56
i1
Deferred
Income Tax Liabilities
i22
i16
Long-Term
Debt
i11,388
i2,136
i13,119
i2,514
1Columbia
Gas and Columbia Gulf were classified as a VIE upon TC Energy's sale of a i40 per cent non-controlling equity interest on October 4, 2023. Refer to Note 24, Non-controlling interests, and Note 31, Acquisitions and dispositions, for additional information.
224 | TC Energy Consolidated Financial Statements 2023
Non-Consolidated
VIEs
The carrying value of these VIEs and the maximum exposure to loss as a result of the Company's involvement with these VIEs were as follows:
at December 31
(millions of Canadian $)
2023
2022
Balance
Sheet Exposure
Equity investments
Bruce Power
i6,241
i5,783
Pipeline
equity investments and other
i1,411
i1,148
Off-Balance
Sheet Exposure1
Bruce Power
i1,538
i2,025
Coastal
GasLink2
i855
i3,300
Pipeline
equity investments
i58
i58
Maximum
exposure to loss
i10,103
i12,314
1Includes
maximum potential exposure to guarantees and future funding commitments.
2TC Energy is contractually obligated to fund the capital costs to complete the Coastal GasLink pipeline by funding the remaining equity requirements of Coastal GasLink LP through incremental capacity on the subordinated loan agreement with Coastal GasLink LP until final costs are determined. At December 31, 2023, the total capacity committed by TC Energy under this subordinated loan agreement was $i3,375
million (December 31, 2022 – $i1,262 million). In the year ended December 31, 2023, $i2,520 million was drawn on the subordinated loan, reducing
the Company's funding commitment under the subordinated loan agreement to $i855 million. Refer to Note 8, Coastal GasLink, for further information.
In July 2022, the Company entered into revised project agreements relating to its investment in Coastal GasLink LP and committed to make additional equity contributions, which did not result in a change in the Company’s i35
per cent ownership. These revisions and additional equity contributions were determined to be a VIE reconsideration event for TC Energy’s investment in Coastal GasLink LP. The Company performed a re-assessment of control and determined that Coastal GasLink LP continued to meet the definition of a VIE in which the Company held a variable interest. The re-assessment further determined that TC Energy was not the primary beneficiary of Coastal GasLink LP as the Company does not have the power, either explicit or implicit through voting rights or otherwise, to direct the activities that most significantly impact the economic performance of Coastal GasLink LP. Accordingly, the Company continued to account for its investment using the equity method of accounting. Refer to Note 8, Coastal GasLink, for additional information.
TC Energy Consolidated Financial Statements
2023 | 225
Dates Referenced Herein and Documents Incorporated by Reference
