Revenue Recognition

Adoption of Topic 606

Effective January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers” and the series of related accounting standard updates that followed (collectively referred to as “Topic 606”). We utilized the modified retrospective method to adopt Topic 606, which required us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018 and (ii) revenue contracts that were not completed as of January 1, 2018. In accordance with this approach, our consolidated revenues for periods prior to January 1, 2018 were not revised. The cumulative effect of this adoption of Topic 606 as of January 1, 2018 was not material.

The impact to our consolidated financial statement line items from the adoption of Topic 606 for these changes was as follows (in millions):



	Year ended December 31, 2018
Line Item	As Reported		Amounts Without Adoption of Topic 606		Effect of Change Increase/(Decrease)
Consolidated Statement of Income
Natural gas sales	$	3,281	$	3,339	$	(58	)
Services	7,931		8,134		(203		)
Product sales and other	2,932		3,270		(338		)
Total Revenues	14,144		14,743		(599		)

Cost of sales	4,421		5,020		(599		)
Operating Income	3,794		3,794		—

The effect-of-change amounts in the table above are attributable to the non-FERC-regulated portion of our Natural Gas Pipelines business segment, which provides gathering, processing and processed commodity sales services for various producers.

In those instances where we purchase and obtain control of the entire natural gas stream in our producer arrangements, we have determined these are contracts with suppliers rather than contracts with customers, and therefore, these arrangements are not included in the scope of Topic 606. These supplier arrangements are subject to updated guidance in ASC 705, Cost of Sales and Services, whereby any embedded fees within such contracts, which historically have been reported as Services revenue, are now reported as a reduction to Cost of sales upon adoption of Topic 606.

In our natural gas processing arrangements where we extract and sell the commodities derived from the processed natural gas stream (i.e., residue gas or NGLs), we may take control of: (i) none of the commodities we sell, (ii) a portion of the commodities we sell, or (iii) all of the commodities we sell.

In those instances where we remit all of the cash proceeds received from third parties for selling the extracted commodities, less the fees attributable to these arrangements, we have determined that the producer has control over these commodities. Upon adoption of Topic 606, we eliminated recording both sales revenue (Natural gas and Product) and Cost of sales amounts and now only record fees attributable to these arrangements to Service revenues.

In other instances where we do not obtain control of the extracted commodities we sell, we are acting as an agent for the producer and, upon adoption of Topic 606, we have continued to recognize Services revenue for the net amount of consideration we retain in exchange for our service.

When we purchase and obtain control of a portion of the residue gas or NGLs we sell, we have determined these arrangements contain both a supply and a service revenue element and therefore are partially in the scope of Topic 606. In these arrangements, the producer is a supplier for the cash settled portion of the commodity we purchase and a customer with regards to the service provided to gather and redeliver the other component. Upon adoption of Topic 606, fees attributable to the supply element are recorded as a reduction to Cost of sales and fees attributable to the service element are recorded as Services revenue. Previously, we recognized Services revenue for both elements.

Nature of Revenue by Segment

Natural Gas Pipelines Segment

We provide various types of natural gas transportation and storage services, natural gas and NGL sales contracts, and various types of gathering and processing services for producers, including receiving, compressing, transporting and re-delivering quantities of natural gas and/or NGLs made available to us by producers to a specified delivery location.

Natural Gas Transportation and Storage Contracts

The natural gas we receive under our transportation and storage contracts remains under the control of our customers. Under firm service contracts, the customer generally pays a two-part transaction price that includes (i) a fixed fee reserving the right to transport or store natural gas in our facilities up to contractually specified capacity levels (referred to as “reservation”) and (ii) a per-unit rate for quantities of natural gas actually transported or injected into/withdrawn from storage. In our firm service contracts we generally promise to provide a single integrated service each day over the life of the contract, which is fundamentally a stand-ready obligation to provide services up to the customer’s reservation capacity prescribed in the contract. Our customers have a take-or-pay payment obligation with respect to the fixed reservation fee component, regardless of the quantities they actually transport or store. In other cases, generally described as interruptible service, there is no fixed fee associated with these transportation and storage services because the customer accepts the possibility that service may be interrupted at our discretion in order to serve customers who have firm service contracts. We do not have an obligation to perform under interruptible customer arrangements until we accept and schedule the customer’s request for periodic service. The customer pays a transaction price based on a per-unit rate for the quantities actually transported or injected into/withdrawn from storage.

Natural Gas and NGL Sales Contracts

Our sales and purchases of natural gas and NGL are primarily accounted for on a gross basis as natural gas sales or product sales, as applicable, and cost of sales. These customer contracts generally provide for the customer to nominate a specified quantity of commodity products to be delivered and sold to the customers at specified delivery points. The customer pays a transaction price typically based on a market indexed per-unit rate for the quantities sold.

Gathering and Processing Contracts

We provide various types of gathering and processing services for producers, including receiving, processing, compressing, transporting and re-delivering quantities of natural gas made available to us by producers to a specified delivery location. This integrated service can be firm if subject to a minimum volume commitment or acreage dedication or non-firm when offered on an as requested, non-guaranteed basis. In our gathering contracts we generally promise to provide the contracted integrated services each day over the life of the contract. The customer pays a transaction price typically based on a per-unit rate for the quantities actually gathered and/or processed, including amounts attributable to deficiency quantities associated with minimum volume contracts.

Products Pipelines Segment

We provide crude oil and refined petroleum transportation and storage services on a firm or non-firm basis. For our firm transportation service, we typically promise to transport on a stand-ready basis the customer’s minimum volume commitment amount. The customer is obligated to pay for its volume commitment amount, regardless of whether or not it flows volumes into our pipeline. The customer pays a transaction price typically based on a per-unit rate for quantities transported, including amounts attributable to deficiency quantities. Our firm storage service generally includes a fixed monthly fee for the portion of storage capacity reserved by the customer and a per-unit rate for actual quantities injected into/withdrawn from storage. The customer is obligated to pay the fixed monthly reservation fee, regardless of whether or not it uses our storage facility (i.e., take-or-pay payment obligation). Non-firm transportation and storage service is provided to our customers when and to the extent we determine the requested capacity is available in our pipeline system and/or terminal storage facility. The customer typically pays a per-unit rate for actual quantities of product injected into/withdrawn from storage and/or transported.

We sell transmix, crude oil or other commodity products. The customer’s contracts generally include a specified quantity of commodity products to be delivered and sold to the customers at specified delivery points. The customer pays a transaction price typically based on a market indexed per-unit rate for the quantities sold.

Terminals Segment

We provide various types of liquid tank and bulk terminal services. These services are generally comprised of inbound, storage and outbound handling of customer products.

Liquids Tank Services

Firm Storage and Handling Contracts: We have liquids tank storage and handling service contracts that include a promised tank storage capacity provision and prepaid volume throughput of the stored product. In these contracts, we have a stand-ready obligation to perform this contracted service each day over the life of the contract. The customer pays a transaction price typically in the form of a fixed monthly charge and is obligated to pay whether or not it uses the storage capacity and throughput service (i.e., a take-or-pay payment obligation). These contracts generally include a per-unit rate for any quantities we handle at the request of the customer in excess of the prepaid volume throughput amount and also typically include per-unit rates for additional, ancillary services that may be periodically requested by the customer.

Firm Handling Contracts: For our firm handling service contracts, we typically promise to handle on a stand-ready basis throughput volumes up to the customer’s minimum volume commitment amount. The customer is obligated to pay for its minimum volume commitment amount, regardless of whether or not it used the handling service. The customer pays a transaction price typically based on a per-unit rate for volumes handled, including amounts attributable to deficiency quantities.

Bulk Services

Our bulk storage and handling contracts generally include inbound handling of our customers’ dry bulk material product (e.g. petcoke, metals, ores) into our storage facility and outbound handling of these products from our storage facility. These services are provided on both a firm and non-firm basis. In our firm bulk storage and handling contracts, we are committed to handle and store on a stand-ready basis the minimum throughput quantity of bulk materials contracted by the customer. In some cases, the customer is obligated to pay for its minimum volume commitment amount, regardless of whether or not it uses the storage and handling service. The customer pays a transaction price typically based on a per-unit rate for quantities handled, including amounts attributable to deficiency quantities. For non-firm storage and handling services, the customer pays a transaction price typically based on a per-unit rate for quantities handled on an as requested, non-guaranteed basis.

CO₂ Segment

Our crude oil, NGL, CO₂ and natural gas production customer sales contracts typically include a specified quantity and quality of commodity product to be delivered and sold to the customer at a specified delivery point. The customer pays a transaction price typically based on a market indexed per-unit rate for the quantities sold.

Kinder Morgan Canada Segment

On August 31, 2018, the assets comprising the Kinder Morgan Canada business segment were sold; therefore, this segment will not have revenues on a prospective basis (see Note 3). Prior to the sale of these assets, we provided crude oil and refined petroleum transportation services generally as described above for non-firm, interruptible transportation services in our Products Pipelines business segment. The TMPL regulated tariff was designed to provide revenues sufficient to recover the costs of providing transportation services to shippers, including a return on invested capital. TMPL’s revenue was adjusted according to terms prescribed in our toll settlement with shippers as approved by the National Energy Board (NEB). Differences between transportation revenue recognized pursuant to our toll settlement and actual toll receipts were recognized as regulatory assets or liabilities and settled through future tolls.

Disaggregation of Revenues

The following tables present our revenues disaggregated by revenue source and type of revenue for each revenue source (in millions):



	Year ended December 31, 2018
	Natural Gas Pipelines		Products Pipelines		Terminals		CO₂			Kinder Morgan Canada		Corporate and Eliminations			Total
Revenues from contracts with customers(a)
Services
Firm services(b)	$	3,215	$	566	$	976	$	2		$	—	$	(13	)	$	4,746
Fee-based services	860		791		581		67			167		—			2,466
Total services revenues	4,075		1,357		1,557		69			167		(13		)	7,212
Sales
Natural gas sales	3,319		—		—		2			—		(11		)	3,310
Product sales	1,333		216		18		1,222			—		(1		)	2,788
Other sales	8		—		—		—			—		—			8
Total sales revenues	4,660		216		18		1,224			—		(12		)	6,106
Total revenues from contracts with customers	8,735		1,573		1,575		1,293			167		(25		)	13,318
Other revenues(c)	280		140		444		(38		)	3		(3		)	826
Total revenues	$	9,015	$	1,713	$	2,019	$	1,255		$	170	$	(28	)	$	14,144

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(a)	Differences between the revenue classifications presented on the consolidated statements of income and the categories for the disaggregated revenues by type of revenue above are primarily attributable to revenues reflected in the “Other revenues” category above (see note (c) below).


(b)	Includes non-cancellable firm service customer contracts with take-or-pay or minimum volume commitment elements, including those contracts where both the price and quantity amount are fixed. Excludes service contracts with indexed-based pricing, which along with revenues from other customer service contracts are reported as Fee-based services.


(c)	Amounts recognized as revenue under guidance prescribed in Topics of the Accounting Standards Codification other than in Topic 606 and primarily include leases and derivatives. The majority of our lease revenues are from certain firm service contracts that are accounted for as operating leases. See Note 14 for additional information related to our derivative contracts.

Contract Balances

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. We recognize contract assets in those instances where billing occurs subsequent to revenue recognition, and our right to invoice the customer is conditioned on something other than the passage of time. Our contract assets are substantially related to breakage revenue associated with our firm service contracts with minimum volume commitment payment obligations and contracts where we apply revenue levelization (i.e., contracts with fixed rates per volume that increase over the life of the contract for which we record revenue ratably per unit over the life of the contract based on our performance obligations that are generally unchanged over the life of the contract). Our contract liabilities are substantially related to (i) capital improvements paid for in advance by certain customers generally in our non-regulated businesses, which we subsequently recognize as revenue on a straight-line basis over the initial term of the related customer contracts; (ii) consideration received from customers for temporary deficiency quantities under minimum volume contracts that we expect will be made up in a future period, which we subsequently recognize as revenue when the customer makes up the volumes or the likelihood that the customer will exercise its right for deficiency volumes becomes remote (e.g., there is insufficient capacity to make up the volumes, the deficiency makeup period expires); and (iii) contracts with fixed rates per volume that decrease over the life of the contract where we apply revenue levelization for amounts received for our future performance obligations.

The following table presents the activity in our contract assets and liabilities (in millions):



	Year ended December 31, 2018
Contract Assets
Balance at January 1, 2018	$	32
Additions	59
Transfer to Accounts receivable	(67		)
Balance at December 31, 2018(a)	$	24
Contract Liabilities
Balance at January 1, 2018	$	206
Additions	453
Transfer to Revenues	(360		)
Other(b)	(7		)
Balance at December 31, 2018(c)	$	292

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(a)	Includes current and non-current balances of $14 million and $10 million reported within “Other current assets” and “Deferred charges and other assets,” respectively, in our accompanying consolidated balance sheet at December 31, 2018.


(b)	Includes 2018 foreign currency translation adjustments associated with the balances at December 31, 2017.


(c)	Includes current and non-current balances of $80 million and $212 million reported within “Other current liabilities” and “Other long-term liabilities and deferred credits,” respectively, in our accompanying consolidated balance sheet at December 31, 2018.

Revenue Allocated to Remaining Performance Obligations

The following table presents our estimated revenue allocated to remaining performance obligations for contracted revenue that has not yet been recognized, representing our “contractually committed” revenue as of December 31, 2018 that we will invoice or transfer from contract liabilities and recognize in future periods (in millions):



Year	Estimated Revenue
2019	$	4,881
2020	4,182
2021	3,528
2022	3,011
2023	2,497
Thereafter	14,138
Total	$	32,237

Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to service or commodity sale customer contracts which have fixed pricing and fixed volume terms and conditions, generally including contracts with take-or-pay or minimum volume commitment payment obligations. Our contractually committed revenue amounts generally exclude, based on the following practical expedients that we elected to apply, remaining performance obligations for: (i) contracts with index-based pricing or variable volume attributes in which such variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a series of distinct services; (ii) contracts with an original expected duration of one year or less; and (iii) contracts for which we recognize revenue at the amount for which we have the right to invoice for services performed.