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Transcontinental Gas Pipe Line

Filed: 1 Nov 21, 4:36pm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 1-7584
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
(Exact name of registrant as specified in its charter)
Delaware74-1079400
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2800 Post Oak Boulevard
HoustonTexas77056
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (713) 215-2000
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer¨Non-accelerated FilerþSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  þ
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H (1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.


TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
Index
 
Forward Looking Statements
The reports, filings, and other public announcements of Transcontinental Gas Pipe Line Company, LLC may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters.
All statements, other than statements of historical facts, included in this report that address activities, events, or developments that we expect, believe, or anticipate will exist or may occur in the future are forward-looking statements. Forward-looking statements can be identified by various forms of words such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “assumes,” “guidance,” “outlook,” “in-service date,” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

Our and our affiliates’ future credit ratings;

Amounts and nature of future capital expenditures;

Expansion and growth of our business and operations;

1

Expected in-service dates for capital projects;

Financial condition and liquidity;

Business strategy;

Cash flow from operations or results of operations;

Rate case filings;

Natural gas prices, supply, and demand;

Demand for our services; and

The impact of the coronavirus (COVID-19) pandemic.
Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

The impact of operational and developmental hazards and unforeseen interruptions;

Development and rate of adoption of alternative energy sources;

The strength and financial resources of our competitors and the effects of competition;

Availability of supplies, including lower than anticipated volumes from third parties, and market demand;

Volatility of pricing including the effect of lower than anticipated energy commodity prices;

Changes in maintenance and construction costs, as well as our ability to obtain sufficient construction- related inputs, including skilled labor;

The impact of existing and future laws and regulations, the regulatory environment, environmental matters, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes;

Increasing scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance practices;

The physical and financial risks associated with climate change;

Our exposure to the credit risk of our customers and counterparties;

Our ability to successfully expand our facilities and operations;

Whether we are able to successfully identify, evaluate, and timely execute our capital projects and investment opportunities;

Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally recognized credit rating agencies, and the availability and cost of capital;
2


Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);

Our costs for defined benefit pension plans and other postretirement benefit plans sponsored by our affiliates;

The risks resulting from outbreaks or other public health crises, including COVID-19;

Changes in the current geopolitical situation;

Changes in U.S. governmental administration and policies;

Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities;

Acts of terrorism, cybersecurity incidents, and related disruptions; and

Additional risks described in our filings with the Securities and Exchange Commission (SEC).
Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 24, 2021.

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED STATEMENT OF NET INCOME
(Thousands of Dollars)
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Operating Revenues:
Natural gas sales$19,506 $21,393 $49,733 $61,373 
Natural gas transportation600,615 557,947 1,754,417 1,676,243 
Natural gas storage41,950 42,208 125,809 119,637 
Other3,814 4,407 10,942 11,761 
Total operating revenues665,885 625,955 1,940,901 1,869,014 
Operating Costs and Expenses:
Cost of natural gas sales19,506 21,393 49,733 61,373 
Operation and maintenance110,746 95,798 302,661 278,968 
Administrative and general55,085 46,793 152,262 139,728 
Depreciation and amortization122,159 115,821 357,715 343,291 
Taxes — other than income taxes23,235 20,441 72,181 64,872 
Regulatory credit resulting from tax rate changes(7,688)(7,688)(23,064)(23,064)
Other expense, net9,310 3,821 13,987 8,563 
Total operating costs and expenses332,353 296,379 925,475 873,731 
Operating Income333,532 329,576 1,015,426 995,283 
Other (Income) and Other Expenses:
Interest expense80,328 80,545 240,763 232,403 
Allowance for equity and borrowed funds used during construction (AFUDC)(7,080)2,729 (16,801)(17,518)
Miscellaneous other (income) expenses, net273 588 226 737 
Total other (income) and other expenses73,521 83,862 224,188 215,622 
Net Income$260,011 $245,714 $791,238 $779,661 


See accompanying notes.
4

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

September 30,
2021
December 31,
2020
ASSETS
Current Assets:
Cash$— $— 
Receivables:
Affiliates6,402 1,011 
Advances to affiliate1,448,300 642,734 
Trade215,634 223,864 
Other16,652 14,660 
Transportation and exchange gas receivables5,816 4,627 
Inventories62,882 56,297 
Regulatory assets81,937 62,861 
Other19,254 13,847 
Total current assets1,856,877 1,019,901 
Property, Plant and Equipment:
Natural gas transmission plant17,582,511 17,123,779 
Less-Accumulated depreciation and amortization5,129,262 4,802,256 
Total property, plant and equipment, net12,453,249 12,321,523 
Other Assets:
Regulatory assets269,525 281,870 
Right-of-use assets68,345 78,899 
Other272,683 252,051 
Total other assets610,553 612,820 
Total assets$14,920,679 $13,954,244 


(continued)


See accompanying notes.
5

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)

September 30,
2021
December 31,
2020
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities:
Payables:
Affiliates$84,774 $32,676 
Trade and other192,569 128,449 
Transportation and exchange gas payables3,893 1,905 
Regulatory liabilities58,199 57,086 
Accrued liabilities255,079 242,379 
Long-term debt due within one year24,213 22,640 
Total current liabilities618,727 485,135 
Long-Term Debt5,202,681 5,217,140 
Other Long-Term Liabilities:
Asset retirement obligations478,407 397,737 
Regulatory liabilities926,582 946,774 
Deferred revenue197,107 205,030 
Lease liability67,398 78,688 
Other73,648 42,921 
Total other long-term liabilities1,743,142 1,671,150 
Contingent Liabilities and Commitments (Note 3)00
Member’s Equity:
Member’s capital4,815,499 4,543,499 
Retained earnings2,540,630 2,037,320 
Total member’s equity7,356,129 6,580,819 
Total liabilities and member’s equity$14,920,679 $13,954,244 


See accompanying notes.

6

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED STATEMENT OF MEMBER’S EQUITY
(Thousands of Dollars)
(Unaudited)
 
Three Months Ended
September 30,
20212020
Member’s Capital:
Balance at beginning of period$4,676,499 $4,428,499 
Cash contributions from parent139,000 65,000 
Balance at end of period4,815,499 4,493,499 
Retained Earnings:
Balance at beginning of period2,337,177 2,176,231 
Net income260,011 245,714 
Cash distributions to parent(56,558)(250,000)
Balance at end of period2,540,630 2,171,945 
Total Member’s Equity$7,356,129 $6,665,444 

Nine Months Ended
September 30,
20212020
Member’s Capital:
Balance at beginning of period$4,543,499 $4,428,499 
Cash contributions from parent272,000 65,000 
Balance at end of period4,815,499 4,493,499 
Retained Earnings:
Balance at beginning of period2,037,320 2,177,284 
Net income791,238 779,661 
Cash distributions to parent(287,928)(785,000)
Balance at end of period2,540,630 2,171,945 
Total Member’s Equity$7,356,129 $6,665,444 


See accompanying notes.
7

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
CONDENSED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)

Nine Months Ended
September 30,
20212020
Cash flows from operating activities:
Net income$791,238 $779,661 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization357,715 343,291 
Allowance for equity funds used during construction (equity AFUDC)(12,959)(10,855)
Regulatory credit resulting from tax rate changes(23,064)(23,064)
Changes in operating assets and liabilities:
Receivables — affiliates(5,391)(296)
— trade and other6,238 39,968 
Transportation and exchange gas receivable(1,189)1,684 
Inventories(6,585)(6,065)
Payables — affiliates52,098 (7,525)
— trade24,841 (18,288)
Accrued liabilities37,400 24,460 
Reserve for rate refunds— (188,842)
Asset retirement obligations5,446 (12,105)
Deferred revenue(7,922)(7,925)
Other, net(42,867)(6,322)
Net cash provided by operating activities1,174,999 907,777 
Cash flows from financing activities:
Proceeds from long-term debt— 1,195,629 
Proceeds from other financing obligations1,790 7,248 
Payments on other financing obligations(16,663)(14,848)
Payments for debt issuance costs(59)(11,209)
Cash distributions to parent(287,928)(785,000)
Cash contributions from parent272,000 65,000 
Advances from affiliate, net— (252,549)
Net cash provided by (used in) financing activities(30,860)204,271 
Cash flows from investing activities:
Capital expenditures (1)(355,662)(504,987)
Contributions and advances for construction costs34,102 20,850 
Disposal of property, plant and equipment, net(20,545)(33,553)
Advances to affiliate, net(805,566)(581,665)
Purchase of ARO Trust investments(23,174)(46,075)
Proceeds from sale of ARO Trust investments26,706 33,382 
Net cash used in investing activities(1,144,139)(1,112,048)
Increase (decrease) in cash— — 
Cash at beginning of period— — 
Cash at end of period$— $— 
_______________________
(1)       Increase to property, plant and equipment, exclusive of equity AFUDC$(378,004)$(456,158)
  Changes in related accounts payable and accrued liabilities22,342 (48,829)
  Capital expenditures$(355,662)$(504,987)

See accompanying notes.
8

TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation

In this report, Transcontinental Gas Pipe Line Company, LLC (Transco) is at times referred to in the first person as “we,” “us” or “our.”

Transco is indirectly owned by The Williams Companies, Inc. (Williams).

General

The accompanying condensed unaudited financial statements have been prepared from our books and records. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. The condensed unaudited financial statements include all normal recurring adjustments and others which, in the opinion of our management, are necessary to present fairly our interim financial statements. These condensed unaudited financial statements should be read in conjunction with the financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed unaudited financial statements and accompanying notes. Actual results could differ from those estimates.

A reclassification within Operating Costs and Expenses in the Condensed Statement of Net Income to include Cost of natural gas transportation within Operation and maintenance of approximately $15.2 million and $42.1 million for the three and nine months ended September 30, 2020, respectively, has been made to conform to the 2021 presentation.

Note 2 – Revenue Recognition

Revenue by Category

Our revenue disaggregation by major service line includes Natural gas sales, Natural gas transportation, Natural gas storage, and Other, which are separately presented on the Condensed Statement of Net Income.

Contract Liabilities

The following table presents a reconciliation of our contract liabilities:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(Thousands)
Balance at beginning of period$210,317 $220,882 $215,596 $226,164 
Recognized in revenue(2,643)(2,643)(7,922)(7,925)
Balance at end of period$207,674 $218,239 $207,674 $218,239 

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Notes (Continued)

Remaining Performance Obligations

Our remaining performance obligations primarily include reservation charges on contracted capacity on our firm transportation and storage contracts with customers. Amounts from certain contracts included in the table below, which are subject to periodic review and approval by the Federal Energy Regulatory Commission (FERC), reflect the rates for such services in our current FERC tariffs, net of estimated reserve for refund, for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes is not currently known. This table excludes the variable consideration component for commodity charges. Certain of our contracts contain evergreen provisions for periods beyond the initial term of the contract. The remaining performance obligations, as of September 30, 2021, do not consider potential future performance obligations for which the renewal has not been exercised. The table below also does not include contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service.

The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of September 30, 2021.
Contract LiabilitiesRemaining Performance Obligations
(Thousands)
2021 (three months)$2,644 $603,677 
2022 (one year)10,566 2,317,047 
2023 (one year)10,566 2,114,147 
2024 (one year)10,568 1,886,688 
2025 (one year)10,566 1,469,382 
Thereafter 00162,764 12,280,513 
Total$207,674 $20,671,454 

Accounts Receivable

Receivables from contracts with customers are included within Receivables - Trade and Receivables - Affiliates, and receivables that are not related to contracts with customers are included within the balance of Receivables - Advances to affiliate and Receivables - Other in our Condensed Balance Sheet.
Note 3 – Contingent Liabilities and Commitments

Environmental Matters

We have had studies underway for many years to test some of our facilities for the presence of toxic and hazardous substances such as polychlorinated biphenyls (PCBs) and mercury to determine to what extent, if any, remediation may be necessary. We have also similarly evaluated past on-site disposal of hydrocarbons at a number of our facilities. We have worked closely with and responded to data requests from the U.S. Environmental Protection Agency (EPA) and state agencies regarding such potential contamination of certain of our sites. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs. At September 30, 2021, we have accrued approximately $2.6 million for the expense portion of these estimated costs, $0.7 million of which is recorded in Accrued liabilities and $1.9 million of which is recorded in Other Long-Term Liabilities - Other in the accompanying Condensed Balance Sheet. At December 31, 2020, we had a balance of approximately $2.4 million for the expense portion of these estimated costs, $0.7 million of which is recorded in Accrued liabilities and $1.7 million of which is recorded in Other Long-Term Liabilities - Other in the accompanying Condensed Balance Sheet.

10


Notes (Continued)

We have been identified as a potentially responsible party (PRP) at various Superfund and state waste disposal sites. Based on present volumetric estimates and other factors, our estimated aggregate exposure for remediation of these sites is less than $0.5 million. The estimated remediation costs for all of these sites are included in the environmental liabilities discussed above. Liability under the Comprehensive Environmental Response, Compensation and Liability Act and applicable state law can be joint and several with other PRPs. Although volumetric allocation is a factor in assessing liability, it is not necessarily determinative; thus, the ultimate liability could be substantially greater than the amounts described above.

The EPA and various state regulatory agencies routinely propose and promulgate new rules, and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, review and updates to the National Ambient Air Quality Standards, and rules for new and existing source performance standards for volatile organic compounds and methane. We continuously monitor these regulatory changes and how they may impact our operations. Implementation of new or modified regulations may result in impacts to our operations and increase the cost additions to Property, plant, and equipment, net in the Condensed Balance Sheet for both new and existing facilities in affected areas; however, due to regulatory uncertainty on final rule content and applicability timeframes, we are unable to reasonably estimate the cost of these regulatory impacts at this time.

We consider prudently incurred environmental assessment and remediation costs and the costs associated with compliance with environmental standards to be recoverable through rates. To date, we have been permitted recovery of environmental costs, and it is our intent to continue seeking recovery of such costs through future rate filings.

Other Matters

Various other proceedings are pending against us and are considered incidental to our operations.

Summary

We estimate that for all matters for which we are able to reasonably estimate a range of loss, including those noted above and others that are not individually significant, our aggregate reasonably possible losses beyond amounts accrued for all of our contingent liabilities are immaterial to our expected future annual results of operations, liquidity and financial position. These calculations have been made without consideration of any potential recovery from third parties. We have disclosed all significant matters for which we are unable to reasonably estimate a range of possible loss.

Note 4 – Debt and Financing Arrangements

Commercial Paper

Williams participates in a commercial paper program and Williams’ management considers amounts outstanding under this program to be a reduction of available capacity under the credit facility. The program allows a maximum outstanding amount at any time of $4.0 billion of unsecured commercial paper notes. At September 30, 2021, Williams had 0 outstanding commercial paper. In connection with the amended and restated credit agreement described below, Williams reduced the size of its commercial paper program to $3.5 billion.

11


Notes (Continued)

Credit Facility

In October 2021, we, along with Williams and Northwest Pipeline LLC (Northwest), the lenders named therein, and an administrative agent entered into an amended and restated credit agreement (Credit Agreement) that reduced aggregate commitments available from $4.5 billion to $3.75 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The Credit Agreement was effective on October 8, 2021. The maturity date of the credit facility is October 8, 2026. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as October 8, 2028, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $500 million. We and Northwest are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers. At September 30, 2021, and as of October 8, 2021, the effective date of the amended and restated Credit Agreement, 0 letters of credit have been issued and 0 loans were outstanding under the credit facility.

The Credit Agreement contains the following terms and conditions:

Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets in certain circumstances, make certain distributions during an event of default, and each borrower and each borrower’s respective material subsidiaries’ ability to enter into certain restrictive agreements.

If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of the loans of the defaulting borrower under the credit facility and exercise other rights and remedies.

Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternative base rate as defined in the Credit Agreement plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. Williams is required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin is determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings and the commitment fee is determined by reference to a pricing schedule based on Williams’ senior unsecured long-term debt ratings. The Credit Agreement also includes customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.

The ratio of debt to capitalization (defined as net worth plus debt), each as defined in the Credit Agreement, must be no greater than 65 percent for each of Transco and Northwest Pipeline.

At September 30, 2021, we are in compliance with this covenant.

Other Financing Obligations

Dalton Expansion Project

At September 30, 2021, the amount included in Long-Term Debt on our Condensed Balance Sheet for this financing obligation is $252.5 million, and the amount included in Long-term debt due within one year on our Condensed Balance Sheet for this financing obligation is $2.5 million.

12


Notes (Continued)

Atlantic Sunrise Project

During the first nine months of 2021, we received an additional $1.8 million of funding from a co-owner for its proportionate share of construction costs related to its undivided ownership interest in certain parts of the project. This additional funding is reflected in Long-Term Debt on our Condensed Balance Sheet. At September 30, 2021, the amount included in Long-Term Debt on our Condensed Balance Sheet for this financing obligation is $812.4 million, and the amount included in Long-term debt due within one year on our Condensed Balance Sheet for this financing obligation is $21.7 million.

Leidy South Project

During the construction of our Leidy South project, we received funding from a co-owner for its proportionate share of construction costs related to an undivided ownership interest in certain parts of the project. Amounts received were recorded in Other Long-Term Liabilities: Other and 100 percent of the costs associated with construction were capitalized on our Condensed Balance Sheet. Upon placing the applicable portion of the project in service during October 2021, we began leasing this co-owner’s undivided interest in the facilities, including the associated pipeline capacity, and reclassified approximately $69.0 million of funding previously received from our co-owner from Other Long-Term Liabilities: Other to debt to reflect the financing obligation payable to our co-owner over an expected term of 20 years.

Note 5 – ARO Trust

We are entitled to collect in rates the amounts necessary to fund our asset retirement obligations (ARO). We deposit monthly, into an external trust account (ARO Trust), the revenues specifically designated for ARO. The ARO Trust carries a moderate risk portfolio. The Money Market Funds held in our ARO Trust are considered investments. We measure the financial instruments held in our ARO Trust at fair value. However, in accordance with the ASC Topic 980, Regulated Operations, both realized and unrealized gains and losses of the ARO Trust are recorded as regulatory assets or liabilities.

Pursuant to the approved stipulation and agreement in Docket No. RP18-1126 the annual funding obligation effective March 1, 2020 is approximately $16.0 million, with deposits made monthly.

Investments within the ARO Trust at fair value were as follows (in millions): 

September 30, 2021December 31, 2020
Amortized
Cost Basis
Fair
Value
Amortized
Cost Basis
Fair
Value
Money Market Funds$3.4 $3.4 $5.8 $5.8 
U.S. Equity Funds52.6 111.6 59.9 108.0 
International Equity Funds31.7 42.9 34.2 43.7 
Municipal Bond Funds87.5 89.9 74.9 78.0 
Total$175.2 $247.8 $174.8 $235.5 

Note 6 – Fair Value Measurements

The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of short-term financial assets (advances to affiliate) that have variable interest rates, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
 
13


Notes (Continued)

Fair Value Measurements Using
Carrying
Amount
Fair ValueQuoted
Prices In
Active
Markets for
Identical
Assets
(Level  1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Millions)
Assets (liabilities) at September 30, 2021:
Measured on a recurring basis:
ARO Trust investments$247.8 $247.8 $247.8 $— $— 
Additional disclosures:
Long-term debt, including current portion(5,226.9)(6,700.8)— (6,700.8)— 
Assets (liabilities) at December 31, 2020:
Measured on a recurring basis:
ARO Trust investments$235.5 $235.5 $235.5 $— $— 
Additional disclosures:
Long-term debt, including current portion(5,239.8)(6,949.0)— (6,949.0)— 

Fair Value Methods

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

ARO Trust investments — We deposit a portion of our collected rates, pursuant to the terms of the Docket No. RP18-1126 rate case settlement, into the ARO Trust, which is specifically designated to fund future asset retirement obligations. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and are reported in Other Assets-Other in the Condensed Balance Sheet. However, both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities. (See Note 5 ARO Trust for more information regarding the ARO Trust.)

Long-term debt, including current portion — The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair value of the financing obligations associated with our Dalton and Atlantic Sunrise expansions, which are included within long-term debt, were determined using an income approach (See Note 4 Debt and Financing Arrangements).

Note 7 – Transactions with Affiliates

We are a participant in Williams’ cash management program, and we receive advances from and make advances to Williams. At September 30, 2021 and December 31, 2020, our advances to Williams totaled approximately $1,448.3 million and $642.7 million, respectively. These advances are classified as Receivables - Advances to affiliate in the accompanying Condensed Balance Sheet. Advances are stated at the historical carrying amounts. The interest rate on these intercompany demand notes is based upon the daily overnight investment rate paid on Williams’ excess cash at the end of each month. At September 30, 2021, the interest rate was 0.01 percent.

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Notes (Continued)

Included in Operating Revenues in the accompanying Condensed Statement of Net Income are revenues received from affiliates of $15.4 million and $20.1 million for the three and nine months ended September 30, 2021, respectively, and $2.8 million and $8.0 million for the three and nine months ended September 30, 2020, respectively. The rates charged to provide sales and services to affiliates are the same as those that are charged to similarly-situated nonaffiliated customers.

Included in Cost of natural gas sales in the accompanying Condensed Statement of Net Income are costs of gas purchased from affiliates of $1.4 million and $5.5 million for the three and nine months ended September 30, 2021, respectively, and $0.8 million and $3.8 million for the three and nine months ended September 30, 2020, respectively. All gas purchases are made at market or contract prices.

We have no employees. Services necessary to operate our business are provided to us by Williams and certain affiliates of Williams. We reimburse Williams and its affiliates for all direct and indirect expenses incurred or payments made (including salary, bonus, incentive compensation and benefits) in connection with these services. Employees of Williams also provide general, administrative and management services to us, and we are charged for certain administrative expenses incurred by Williams. These charges are either directly identifiable or allocated to our assets. Direct charges are for goods and services provided by Williams at our request. Allocated charges are based on a three-factor formula, which considers revenues; property, plant and equipment; and payroll. In management’s estimation, the allocation methodologies used are reasonable and result in a reasonable allocation to us of our costs of doing business incurred by Williams. In the accompanying Condensed Statement of Net Income, we have recorded approximately $82.1 million and $237.8 million for the three and nine months ended September 30, 2021, respectively, and $68.7 million and $214.5 million for the three and nine months ended September 30, 2020, respectively, for these service expenses, which are primarily included in Operation and maintenance and Administrative and general expenses.

We provide services to certain of our affiliates. We recorded reductions in operating expenses for services provided to and reimbursed by our affiliates of $1.9 million and $5.4 million for the three and nine months ended September 30, 2021, respectively, and $1.6 million and $3.8 million for the three and nine months ended September 30, 2020, respectively.

We made cash distributions totaling $287.9 million and $785.0 million during the nine months ended September 30, 2021 and 2020, respectively. During October 2021, we made a distribution of $55.8 million. Our parent made contributions to us totaling $272.0 million and $65.0 million during the nine months ended September 30, 2021 and 2020, respectively, to fund a portion of our expenditures for additions to property, plant, and equipment. During October 2021, our parent made an additional $145.0 million contribution to us.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion should be read in conjunction with the Financial Statements, Notes and Management’s Discussion and Analysis contained in Items 7 and 8 of our 2020 Annual Report on Form 10-K and with the Condensed Financial Statements and Notes contained in this Form 10-Q.

Results of Operations

Operating Income and Net Income

Operating Income for the nine months ended September 30, 2021 was $1,015.4 million compared to $995.3 million for the same period in 2020. The increase in Operating Income of $20.1 million (2.0 percent) was primarily due to higher Natural gas transportation revenues in the first nine months of 2021 compared to the same period in 2020, partially offset by an unfavorable change in Operating Costs and Expenses, as discussed below.

Net Income for the nine months ended September 30, 2021 was $791.2 million compared to $779.7 million for the same period in 2020. In addition to the impacts to Operating Income mentioned above, the increase in Net Income of $11.6 million (1.5 percent) was further unfavorably impacted by Other (Income) and Other Expenses, as discussed below.

Operating Revenues

Natural gas sales decreased $11.6 million (19.0 percent) for the nine months ended September 30, 2021 compared to the same period in 2020. The decrease was primarily due to lower cash out sales, partially offset by higher prices. Cash out sales are offset in operating costs and expenses and therefore have no impact on our operating income or results of operations.

Natural gas transportation for the nine months ended September 30, 2021 increased $78.2 million (4.7 percent) over the same period in 2020. The increase was primarily attributable to:

$51.8 million from our Southeastern Trail project placed in service in November 2020;
$16.5 million from our Leidy South project partially placed in service in November 2020;
$13.1 million higher electric power costs. Electric power costs are recovered from our customers through transportation rates and are offset in operating costs and expenses resulting in no net impact on our operating income or results of operations;
$9.7 million higher revenues related to a cash out surcharge (offset in operating costs and expenses resulting in no net impact on our operating income or results of operations); and
$7.9 million from our Hillabee 2 project placed in service in May 2020.
Partially offset by a decrease of $13.8 million primarily resulting from the implementation of lower rates for certain services coincident with the effective date of our last rate case settlement; and
$6.0 million lower revenue due to one less billable day.

Natural gas storage increased $6.2 million (5.2 percent) for the nine months ended September 30, 2021 compared to the same period in 2020. The increase was primarily due to an increase in rates effective in the second quarter of 2020.

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Management’s Discussion and Analysis (Continued)
Operating Costs and Expenses

Excluding the Cost of natural gas sales, which is directly offset in operating revenues, our operating costs and expenses increased $63.4 million (7.8 percent) for the nine months ended September 30, 2021 compared to the same period in 2020. This increase was primarily attributable to:

$23.7 million (8.5 percent) unfavorable change in Operation and maintenance costs primarily resulting from (i) higher electric power costs of $13.1 million (electric power costs are recovered from customers through transportation rates and are offset in operating revenues resulting in no net impact on our operating income or results of operations), (ii) employee labor and related benefit costs of $5.5 million, including charges associated with higher expected performance under the Williams incentive compensation plan and (iii) a $5.1 million increase in corporate allocations;
$14.4 million (4.2 percent) increase in Depreciation and amortization primarily as a result of additional assets placed into service and, to a lesser extent, an increase in ARO asset depreciation due to revisions in expected timing of abandonment and expected future costs;
$12.5 million (9.0 percent) unfavorable change in Administrative and general costs primarily due to an increase in employee labor and related benefit costs;
$5.4 million unfavorable change in Other expense, net driven by $9.7 million associated with a cash out surcharge, partially offset by lower deferred other postretirement benefits costs of $3.4 million. Such amounts are offset in operating revenues resulting in no net impact on our operating income or results of operations; and
$7.3 million (11.3 percent) increase in Taxes — other than income taxes primarily due to an increase in estimated property taxes.

Other (Income) and Other Expenses

Other (income) and other expenses for the nine months ended September 30, 2021 had an unfavorable change of $8.6 million (4.0 percent) compared to the same period in 2020 driven by an increase of $8.4 million in interest expense primarily due to interest incurred on new debt issued May 2020, which was partially offset by the absence of interest expense associated with our rate reserve liability for Docket No. RP18-1126.

Recent Developments

COVID-19

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We continue to monitor the COVID-19 pandemic and have taken steps intended to protect the safety of our customers, employees and communities, and to support the continued delivery of safe and reliable service to our customers and the communities we serve. Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19.

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Management’s Discussion and Analysis (Continued)
Pipeline Expansion Projects

Leidy South

The Leidy South Project involves an expansion of our existing natural gas transmission system and an extension of our system through a capacity lease with National Fuel Gas Supply Corporation that will enable us to provide incremental firm transportation from Clermont, Pennsylvania and from the Zick interconnection on Transco’s Leidy Line to the River Road regulating station in Lancaster County, Pennsylvania. In July 2020, we received approval from the FERC for the project. We placed 125 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and in September and October of 2021, we placed approximately 382 Mdth/d of additional capacity into service. We plan to place the remainder of Transco’s facilities under the project into service by year-end 2021. The project is expected to increase capacity by 582 Mdth/d.

Regional Energy Access

The Regional Energy Access Expansion involves an expansion of our existing natural gas transmission system to provide incremental firm transportation capacity from receipt points in northeastern Pennsylvania to multiple delivery points in Pennsylvania, New Jersey, and Maryland. We filed our certificate application for the project with the FERC on March 26, 2021. We plan to place the project into service as early as the fourth quarter of 2023, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 829 Mdth/d.
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Item 4. Controls and Procedures

Our management, including our Senior Vice President and our Vice President and Chief Accounting Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) (Disclosure Controls) or our internal control over financial reporting (Internal Controls) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls and Internal Controls will be modified as systems change and conditions warrant.

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Senior Vice President and our Vice President and Chief Accounting Officer. Based upon that evaluation, our Senior Vice President and our Vice President and Chief Accounting Officer concluded that these Disclosure Controls are effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

On July 1, 2021, our parent implemented a new enterprise resource planning (ERP) system on a company-wide basis. We will continue to evaluate and test control changes in order to provide certification on the effectiveness, in all material respects, of our internal controls over financial reporting for the year ending December 31, 2021.

Other than as set forth above, there have been no changes during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our Internal Control over Financial Reporting.
PART II — OTHER INFORMATION.

Item 1. Legal Proceedings

Environmental

While it is not possible for us to predict the final outcome of any pending legal proceedings involving governmental authorities under federal, state, and local laws regulating the discharge of materials into the environment, we do not anticipate a material effect on our financial position if we were to receive an unfavorable outcome in any one or more of such proceedings. Our threshold for disclosing material environmental legal proceedings involving a governmental authority where potential monetary sanctions are involved is $1 million.

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Other

The additional information called for by this item is provided in Note 3. Contingent Liabilities and Commitments, included in the Notes to Financial Statements included under Part 1, Item 1. Financial Statements of this Form 10-Q, which information is incorporated by reference into this item.

Item 1A. Risk Factors
    
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 includes certain risk factors that could materially affect our business, financial condition, or future results. Those Risk Factors have not materially changed. 








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Item 6. Exhibits

The following instruments are included as exhibits to this report.
 
Exhibit
Number
Description
2
3.1
3.2
10.1
31.1*
31.2*
32**
101.INS*XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH*XBRL Taxonomy Extension Schema.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*XBRL Taxonomy Extension Definition Linkbase.
101.LAB*XBRL Taxonomy Extension Label Linkbase.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase.
104*Cover Page Interactive Data File. The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document (contained in Exhibit 101).
*Filed herewith.
**Furnished herewith.

 

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
TRANSCONTINENTAL GAS PIPE LINE COMPANY, LLC
(Registrant)
Dated:November 1, 2021By:/s/ Billeigh W. Mark
Billeigh W. Mark
Controller
(Principal Accounting Officer)