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TC PipeLines, LP reported third quarter 2018 net income attributable to controlling interests of $62 million and distributable cash flow of $83 million.
"During the third quarter of 2018, our portfolio of high quality, natural gas pipelines performed very well, generating 30 percent higher net income per common unit than in the same quarter last year," said Nathan Brown, president of TC PipeLines, GP, Inc.
"Our strategically located pipelines continue to benefit from increased natural gas flows, largely out of the Western Canadian Sedimentary Basin, and from additional contracting, both of which are contributing to our current results."
"We have a healthy balance sheet and strong coverage ratios." continued Brown. "We have made significant progress in our response to the actions of the FERC earlier this year, and look forward to finalizing our regulatory strategy by year's end. Our reliable and diversified pipeline assets are in high demand and we are pursuing further appropriately sized, well-placed and well-timed organic expansion opportunities. Our Portland XPress project is a good example of our ability to economically and efficiently expand our existing infrastructure."
Third Quarter Highlights (All financial figures are unaudited)
- Generated net income attributable to controlling interests of $62 million
- Paid cash distributions of $47 million
- Declared cash distribution of $0.65 per common unit, consistent with the first and second quarter 2018 distributions
- Generated EBITDA of $113 million and distributable cash flow of $83 million
- Reached an uncontested rate settlement between GTN and its customers to address the requirements of the Federal Energy Regulatory Commission's (FERC) Final Rule
- PNGTS, Bison and North Baja filed their respective Form 501-Gs to address the requirement of the FERC's Final Rule and Iroquois filed a request for a waiver of the requirement based on its existing moratorium
Results of Operations
For the three months ended September 30, 2018, we generated net income attributable to controlling interests of $62 million, an $8 million increase compared to the same period in 2017. The increase was primarily due to higher revenues and higher equity earnings of $3 million and $7 million, respectively.
The increase in our revenues was largely due to the net effect of:
- Higher revenue from PNGTS primarily due to incremental contracting from PNGTS' Continent-to-Coast contracts for approximately 82,000 Dth/day for a term of 15 years;
- Lower net revenue from GTN primarily due to the $9 million provision recorded during the third quarter of 2018 as part of the 2018 GTN settlement whereby GTN agreed to refund $10 million to its recourse rate customers from January 1 through October 31, 2018. Additionally, GTN generated lower revenues from its short-term discretionary services compared to the prior period. These decreases, however, were partially offset by higher incremental long-term services sold by GTN associated with the increased available upstream capacity following debottlenecking activities on pipelines owned by TransCanada, the ultimate parent company of our General Partner;
- Increase in short-term firm transportation services sold by North Baja.
The $7 million increase in equity earnings was primarily due to higher equity earnings from Great Lakes as a result of the elimination of Great Lakes' revenue sharing mechanism beginning in 2018 as part of the 2017 Great Lakes settlement. Additionally, there was a slight increase in Great Lakes' incremental short-term sales during the current period.
Our EBITDA was $10 million higher for the third quarter of 2018 compared to the same period in 2017 mostly due to higher equity earnings and the increase in our revenues during the period as discussed above.
Distributable cash flow increased by $18 million in the third quarter of 2018 compared to the same period in 2017 due to the increase in EBITDA as described above and reduced distributions allocated to both our General Partner and Class B unitholders as a result of lower declared common share distributions. These gains were partially offset by an increase in maintenance capital expenditures of $2 million, largely attributable to the timing of pipeline reliability projects on GTN.
Cash Flow Analysis
The Partnership's net cash provided by operating activities increased by $43 million for the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to the net effect of (i) higher cash flow from operations at PNGTS and North Baja due to their increased revenues, (ii) the addition of quarterly distributions from Iroquois for the full nine months in 2018 as compared to the period from June 1 to the end of September in 2017, and (iii) higher distributions received from Great Lakes due to an increase in its revenue related to its increased contract levels.
Net cash used in investing activities decreased by $732 million for the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to the net effect of:
- $646 million total cash payment to TransCanada in 2017 for the Partnership's acquisition of the 49.34 percent interest in Iroquois and TransCanada's remaining 11.81 percent interest in PNGTS (2017 Acquisition);
- $83 million equity contribution to Northern Border in the third quarter of 2017 representing our 50 percent share of a requested capital contribution to reduce the outstanding balance of its revolving credit facility; and
- $8 million unrestricted cash distribution received from Iroquois during the nine months ended September 30, 2018 representing a return of investment, which was $5 million higher than the unrestricted cash distribution received during the nine months ended September 30 2017.
The Partnership's net cash from financing activities decreased by $769 million in the nine months ended September 30, 2018 compared to the same period in 2017 due to the net effect of:
- $157 million in net debt repayments in 2018 compared to $568 million net debt issuance in 2017 primarily due to the issuance of $500 million 3.90 percent Senior Notes on May 25, 2017 to partially finance the 2017 Acquisition and efforts to reduce outstanding debt in 2018;
- $86 million decrease in ATM equity issuances in the first nine months of 2018 as compared to the same period in 2017;
- $39 million decrease in distributions paid on our common units including our General Partner's effective two percent share and its related incentive distributions rights as a result of the lower distribution declared for the first two quarters of 2018 as compared to the first two quarters of 2017;
- $7 million decrease in distributions paid to Class B units; and
- $6 million increase in distributions paid to non-controlling interests due to higher distributions from PNGTS in 2018.
As of September 30, 2018, our cash and cash equivalents totaled $48 million, an increase of $15 million or 45 percent, from December 31, 2017. In 2018 to the end of the third quarter, we reduced the outstanding balance of our credit facility by 68 percent, from $185 million at December 31, 2017 to $60 million at September 30, 2018. As of November 9, 2018 the available borrowing capacity on our credit facility was $430 million. We believe our cash position, remaining borrowing capacity on our credit facility and operating cash flows are adequate to fund our liquidity requirements over the next twelve months, including distributions to our unitholders, ongoing capital expenditures and required debt repayments.
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