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ANNUAL REPORT 2018 Financial Highlights

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ANNUAL REPORT 2018 Financial Highlights ANNUAL REPORT 2018 Financial Highlights ADJUSTED EARNINGS BEFORE INTEREST, TAX, DEPRECIATION 2018 DISTRIBUTABLE CASH FLOW AND AMORTIZATION (ADJUSTED EBITDA) 600 12% Iroquois 500 5% PNGTS 400 26% GTN 300 18% Northern Border 200 14% Bison 100 14% Great Lakes 0 3% Tuscarora 8% North Baja 2008(a) 2009(a) 2010 2011(a) 2012(a) 2013(a) 2014 2015(a) 2016(a) 2017 2018 (a) Recast information Year Ended December 31 2018 2017 2016 2015 2014 (millions of dollars, except unit amounts) Cash Flow Distributable cash flow (1) 391 310 313(4) 290(4) 255(4) Cash distributions paid 218 284 250 228 212 Class B Distributions paid 15 22 12 - - Income Statement Net income (loss) attributable to controlling interests (182) 252 248(4) 37(4) 195(4) Adjusted earnings (1) 317 252 248(4) 236(4) 195(4) EBITDA (1) 27 445 433(4) 223(4) 401(4) Adjusted EBITDA (1) 526 445 433(4) 422(4) 401(4) Balance Sheet Total assets (2) 2,899 3,559 3,354(4) 3,459(4) 3,343 Long-term debt (2) (including current maturities) 2,118 2,415 1,920(4) 1,980(4) 1,689 Partners’ equity 699 1,068 1,272(4) 1,391(4) 1,818(4) Common Unit Statistics (per unit) Cash distributions paid 2.95 3.88 3.66 3.46 3.30 Net income (loss) per common unit – basic and diluted (2.68) 3.16 3.21 (0.03) 2.67 Adjusted earnings per common unit – basic and diluted (1) 4.18 3.16 3.21 3.03 2.67 Common Units Outstanding (millions) Units issued (3) 0.7 3.2 3.1 0.7 1.3 Weighted average for the year (3) 71.3 69.2 65.7 63.9 62.7 End of year (3) 71.3 70.6 67.4 64.3 63.6 (1) Distributable cash flow, EBITDA, adjusted EBITDA, adjusted earnings and adjusted earnings per common unit are non-GAAP measures. Non-GAAP measures do not have any standardized meaning prescribed by U.S. generally accepted accounting principles (GAAP). For more information on non-GAAP financial measures see item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2018, filed with the Securities Exchange Commission (SEC). (2) As a result of the application of ASU No. 2015-03 “Interest-Imputation of Interest” and similar to the presentation of debt discounts, debt issuance costs previously reported as other assets in the balance sheet were reclassified as an offset against their respective debt liabilities. (3) In 2014, the Partnership launched its ATM program. Please read Note 11 – Partners’ Equity in Notes to Consolidated Financial Statements included in Part IV, Item 15. “Exhibits and Financial Statement Schedules”. (4) Recast information to consolidate PNGTS for all periods presented as a result of an additional 11.81 percent in PNGTS that was acquired from a subsidiary of TransCanada on June 1, 2017. Prior to this transaction, the Partnership owned a 49.9 percent interest in PNGTS that was acquired from TransCanada on January 1, 2016. Please read Note 2 – Significant Accounting Policies – Basis of Presentation section of the Notes to the Consolidated Financial Statements included in Part IV, Item 15. “Exhibits and Financial Statement Schedules”. This material contains forward-looking statements relating to expectations, plans or prospects for TC PipeLines, LP. These statements are based upon the current expectations and beliefs of management and are subject to certain risks and uncertainties, including market conditions and other factors beyond the Partnership’s control. Important factors that could cause actual results to differ materially from those described in the forward-looking statements herein are found in TC PipeLines, LP’s Forms 10-K and 10-Q as filed with the SEC. Letter to Unitholders The last year has been a challenging but productive time for TC PipeLines. Our competitively-priced transportation services were highly contracted and utilized by our customers to transport low-cost gas to numerous markets and we generated record revenues from our diverse portfolio of interstate pipelines. Nonetheless, the decision by our pipelines’ regulator, the Federal Energy Regulatory Commission or “FERC”, to revise some of its long-standing policies, including one that had allowed MLP pipelines to recover allowances for federal income tax in the rates they charge their customers (the “2018 FERC Actions”), cast TC PipeLines’ future revenues from our assets into doubt and Nathan Brown, impacted our unit value in the MLP market. In response, our President experienced regulatory team made submissions to FERC and TC PipeLines GP, Inc. developed a customer outreach and regulatory strategy for each of our pipeline assets that we believe has mitigated the impact of the 2018 FERC Actions down to about $30 million This is one example of how we are positioning ourselves to in annual EBITDA reduction starting in 2019. deliver maximum long-term value by pursuing a targeted growth strategy that maximizes our competitive advantages Stable Distributions while living within our means. We believe the financial strength and flexibility we have built up will enable us to Despite our best efforts, we did not deliver the type of self-fund these near-term growth opportunities without distributions in 2018 that, you, our unitholders, were accustomed needing to access the equity capital markets. to, and that we expected to deliver to you. We believe that, with the 2018 FERC Actions behind us, and our financial metrics more Portfolio Performance in line with a self-funding business model, we will again be able to deliver stable distributions going forward. We have a clear Our 2018 financial highlights are summarized as follows: business advantage in developing pipeline capacity additions • Generated adjusted earnings of $317 million and and enhancements across our assets’ existing broad geographic adjusted EBITDA of $526 million footprint and we are seeking organic growth opportunities that fit the low-risk, reliable value proposition that TC PipeLines has • Paid cash distributions of $218 million to the stood for over the past 20 years. common unitholders and the General Partner; declared cash distribution of $2.60 per common unit Near-Term Growth Opportunities or $0.65 per quarter The North American gas market outlook continues to unfold • Generated distributable cash flow of $391 million as a story of plentiful, low cost supply in search of connection to growing market demand. The New England and Atlantic • Reduced long-term debt balance by $295 million Canada markets are experiencing a supply gap due to the • Incurred a net loss attributable to controlling interests rapid decline in off-shore production and LNG import activity, of $182 million after accounting for non-cash creating multiple opportunities for growth at PNGTS. PNGTS is impairment charges on Bison and Tuscarora partially half way through implementing its Portland XPress (PXP) project offset by Bison’s contract buy-out proceeds recognized which has re-contracted this asset for 20 years and is set to in revenue increase its historical capacity by 25 percent in three phases between 2018 and 2020. Our success on PXP has sparked • Commenced Phase 1 of Portland XPress expansion further market interest, resulting in PNGTS signing precedent contracts on November 1, 2018 agreements to proceed with a second expansion project on its system, Westbrook XPress, subject to customary conditions • Finalized regulatory approaches to the 2018 FERC precedent and approvals. Westbrook XPress would, once Actions for all assets, and obtained FERC approvals completed, further expand this asset’s firm capability by another where applicable 100-140,000 Dth/day in the 2019-2021 timeframe, effectively • Received approval from the FERC on GTN rate doubling the size of this asset over four years. settlement on November 30, 2018 The Westbrook project entails compressor additions and • Reached rate settlements on both Tuscarora and modifications at an existing compressor station, a relatively low- Iroquois with their respective customers and filed risk development with a modest social and environmental impact documents with FERC in January 2019 and can be funded at the asset level. TC PipeLines, LP Annual Report 2018 1 Page 1 Dashed Line=Trim Solid Line=Bleed Allowance Job Number: 588911 Output Date: Mar_04_2019 Looking forward, we will seek out new innovative business for investment along our footprint. We are exploring ways strategies to capture the maximum transportation value to optimize these assets through potential expansion from our pipelines and optimize distributable cash flow projects or commercial, regulatory and operational changes and annual EBITDA. We will strive to replenish growth in in response to positive supply fundamentals. We are also our asset base with new development opportunities and working together with TransCanada to explore opportunities capital additions that will provide stable cash distributions to facilitate further WCSB market penetration through while maintaining a low-risk profile. At the same time, we potential integrated Canadian-U.S. system offerings to will maintain financial discipline and promote a self-funded maximize economic access to market. business model. Finally, and most importantly, we will prioritize safety and reliability across our operations. Delivering Value The cornerstone of TC PipeLines’ strategy is to deliver stable, Non-Cash Write-downs long-term value to our unitholders through all phases of the At the end of 2018, two of Bison’s customers elected to economic cycle. This reflects the value of our high-quality, pay out the remaining terms of their firm transportation long-life asset footprint that has safely and reliably delivered contracts, releasing Bison from providing further service and energy to our customers throughout our 20-year history. resulting in $97 million available to reduce debt and repay Natural gas transportation service remains essential to a one of our term loans.
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