Q2 2020 TC Energy Corp Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the TC energy 2022nd quarter results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to David Moneta, Vice President Investor Relations. Please go ahead.
[laughter], thanks, very much and good morning, everyone I'd like to welcome you to T Energy's 2022nd quarter Conference call.
Joining me today, our rest girly, President and Chief Executive Officer, Don Marchand Executive Vice President strategy, a corporate development and Chief Financial Officer, Francois <unk>, Chief operating officer, Unprecedent power and storage and Mexico, Tracy Robinson, President Canadian natural gas pipelines.
Stand Schottlandt, President U.S. natural gas pipelines, Oh, Miller, President liquids pipelines Babin worst spot senior Vice President liquids pipelines and Glemba News Vice President controller.
Ross and Don will begin today with some opening comments on our financial results and certain other company development a copy of the slide presentation that will accompany their remarks is available on our website. It can be found in the investor section under the heading events and presentations.
Following their prepared remarks, we will take questions from the investment community. If you remember the media. Please contact Jamie Harding following this call and she'd be happy to address your questions.
To provide everyone from the investment community with an equal opportunity to participate we ask that you limit yourself to two questions. If you have additional questions. Please reenter the queue.
Also we ask that your focus your questions on or industry, our corporate strategy recent developments and key elements of our financial performance. If you had detailed questions relating to some of our smaller operations or your detailed financial models Hunter and I'd be pleased to discuss I'm with you following the call.
Before rust begins I'd like to remind you that our remarks today will include forward looking statements, they're subject to important risks and uncertainties for more information on these risks and uncertainties. Please see the reports filed by TC energy with Canadian Securities regulators and with the U.S. Securities Exchange Commission and finally during this presentation well refer.
The measures such as comparable earnings comparable earnings per share comparable earnings before interest taxes, depreciation and amortization or comparable EBITDA and comparable funds generated from operations. These and certain other comparable measures are considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented.
My other entities. They are used to provide you with additional information on T.C. energies operating performance liquidity and its ability to generate funds to finance operations with that I'll turn the call over to Ross. Thank you, David and Dan Good morning, everyone and thank you all for joining us today.
Clearly we live in unprecedented times with Cobot 19, having had a significant impact on people around the world.
When the World Health organization declared get a global endemic in early March our business continuity continuity plants were put in place across our whole organization, allowing us to continue to effectively operate or assets and execute on all our capital programs.
All of the services, we provide were deemed a central are critical in Canada, the United States in Mexico, given the important role our infrastructure plays and delivering energy to people across this continent.
It's a central designation included both are daily operations and our construction projects, we take that responsibility extremely seriously I'm proud to say hey, we've continued to deliver the energy that millions of people rely on every day and continue to advance all of our construction projects that are vital to powering industries and institutions for many decades yet to come.
As we've always done over the past few months, we've continued to conduct our business in a safe and reliable manner, while maintaining our workforce employing thousands of construction workers filling your obligations to suppliers and supporting the communities in which we're working.
This would not have been possible without the dedication of all of our employees and I want to acknowledge and thank them and their families for their ongoing efforts to ensure the energy that is vital to the daily life to so many continues to be delivered seamlessly across North America I can tell you that your efforts continue to make a big difference.
Turning now to our second quarter financial results and other recent developments across our three core businesses. Despite the challenges brought by Cobot 19, our operations have largely been I named packet.
With a few exceptions flows and utilizations levels remain in line with historic in seasonal norms underscoring the critical nature of our energy energy infrastructure assets with approximately 95% at the comparable EBITDA in our company coming from regulated or long term contracted assets. We continued to be largely insulated from the short term volatility.
Associated with volume throughput and commodity prices as a result as highlighted in our second quarter report our hundred billion dollar portfolio of high quality long like energy infrastructure assets.
You need to produce solid results, we continue to realize the growth expected from our industry, leading add capital expansion program and today, we are advancing $37 billion secured capital projects.
Addition, we continue to advance $11 billion a projects under development, including the refurbish net refurbishment of another five reactors at Bruce power as part of their long term life extension program.
Over the last six months, we took significant steps to find their 2020 capital expenditure program and maintain our strong financial position. Despite the challenging capital market conditions that were experiencing.
More specifically, we enhanced our liquidity by more than $11 billion through the issuance of long term debt in both Canada and the United States at very attractive rates establishment of an incremental committed credit facility and various portfolio management activities, including the sale of three Ontario natural gas fired power plants and the 65% interest in the coastal gaslink.
Project.
Combined with our predictable and growing cash flow from operations, we believe that we're well positioned to fund our capital program and meet all of our other obligations.
Looking forward, we expect our solid operating and financial performance to continue and as a result, our outlook for the full year 2020 is essentially unchanged with comparable earnings per share still anticipated to be similar to the record results. We produced in 29 gene.
Well, we're extremely proud or financial performance and the significant returns that we've generated for our shareholders. We know that our ongoing success depends on our ability to balance profitability with safety and environmental and social responsibility [noise].
We have 65 year track record of safe and reliable operations, but we recognize that we can always do better as a result, we remain focused on continuous improvement as well as long term fundamentals to ensure our business remain sustainable and resilient in an ever evolving energy landscape.
With that as an overview I'll expand on some recent developments beginning with a brief review of our second quarter financial results Don will provide more detail on our results and liquidity in just a few moments.
So excluding certain specific items comparable earnings were $863 million or 92 cents per common share for the three months ended June thirtyth compared to $924 million or about a dollar per share in 29 gene comparable EBITDA of $2.2 billion and well comparable funds generated from operations were about $1.5 billion.
For the six months ended June Thirtyth comparable earnings for $2 billion or to 10 per common share compared to $1.9 billion or two point or $2.07 per share in the same period in 2019.
Comparable EBITDA of $4.7 billion and comparable funds generated from operations of $3.6 billion were similar to the amount that we reported last year.
Each of those amounts reflects this solid performance of our legacy assets as well as contributions from $3 billion of new long term contracted and rate regulated assets placed into service in the first half of 2020. This was partially offset by lower contributions from our liquids marketing business due to lower margins and as I was lower equity income from Bruce power due to the unit six.
NCR program that we commenced at the beginning of year and the sale of certain assets that will help fund our secured capital program for many years to calm.
I'll make a few comments on our three core businesses.
First the international gas pipelines business.
Customer demand for our services remains extremely strong despite the Kobe 19 impacts on the broader North American economy evidence of this can be seen in the volumes transported across our systems with the NGL NGL field system receipts, averaging about 12.3 billion cubic feet a day it Canadian mainline western receipts average.
I think 3.1 billion cubic feet today, our broader U.S. pipeline network, moving about 25 billion cubic feet, a day and our Mexican pipelines moving approximately 1.6 billion cubic feet to date for the first six months of this year each of those amounts are similar to our greater to the volumes. We moved over the same period last year at the same time, we can.
You need to advance approximately $22 billion of capital projects associated with our natural gas business.
That program includes significant expansions of our NGL system capacity additions on our USA network deviate array and chula projects in Mexico, and our coastal Gaslink pipeline project in British Columbia, which will play a very important role and delivering clean Canadian natural gas Asian markets that will displace call.
During the second quarter, the NGL system, how the capacity optimization open season to assist customers and optimizing their transportation service needs and a line system expansions with customer growth requirements. The open season confirmed that all of our proposed system expansion projects will continue to be required to meet aggregate system demand.
Although the in service dates for some of those facilities has has moved.
As a result.
Certain amount of the capital spending plan for 2020, and 2021, well we made in 2022 to 2020 tore the net impact of these deferrals together with some expected increasing costs on the 2021 expansion program, we'll see us invest a total of about $9.9 billion up from $9.4 billion on that too.
Anyone program. These changes have been reflected.
And this security to add capital projects table in our quarterly report.
Turning to our U.S. natural gas pipeline business, where our expansion plans now include an incremental investment of approximately $400 million you asked to replace upgraded modernized certain facilities on the highly utilized section of the and our pipeline system program, which is known as the Atwood power and our horsepower replacement project will reduce emissions along the system.
And is another good example of an IND corridor expansion to meet growing demand utilizing our existing facilities and our existing right of ways.
Also in the U.S. pipelines business in the coming days, our Columbia gas transmission system intends to file a section for rate case with FERC requesting an increase in its maximum transportation rates effective February Onest 2021, It's Columbia's first rate case filing in over 20 years, and we'll seek to recover our prudently incurred operating costs.
As well as a fair return on and our historical and future capital investments.
In this expansive system that provides our customers with reliable access to low cost natural gas at the same time, we will continue to pursue a collaborative process to find a mutually beneficial outcome with the Columbia gas transmission convert customers through settlement negotiations.
Finally in natural gas pipelines construction activities continue on the 2.1 billion cubic TJ coastal Gaslink project that will connect abundant western Canadian sedimentary basin natural gas reserves to the LNG, Canada, Platts and add to export.
From Kitimat, British Columbia field activity continues to increase along the route following spring saw as we wrap up construction our focus will remain on the health and safety for our employees our contractors in the communities through strict adherence to our cobot 19 protocols.
Ongoing work includes the construction of roads bridges worker accommodations and grading by delivery also continues with more than 50% of the required pipes applied to site and the mainline mechanical construction activities planned for the balance of the summer.
In May as you know we completed the sale, 65% interest in the coastal Gaslink project and entered into a secured long term project financing credit facility to fund the majority of the construction costs. This resulted in combined net proceeds of approximately $2.1 billion looking forward. We will continue to work with the 21st nations that.
Executed agreements with the coastal Gaslink project to provide them with an opportunity to invest in the project with an option to acquire a 10% interest on similar terms and conditions.
Turning now to our liquids business, which also generated solid results. During the first half of 2020, despite extraordinary volatility in global crude oil markets.
Well the volatility has had an impact on our market link and liquids marketing businesses.
Keystone continued to produce solid results as answers important markets in the U.S. Midwest and Gulf Coast and is underpinned by long term take or pay contracts with very strong counterparties.
We're very pleased with yesterday's decision by President Trump sign a new presidential permit for the based Keystone system. The new permit will allow us to respond to market demand and few fully utilize the Keystone pipeline system to safely deliver additional crude oil from Canada to refining centers in the U.S. Midwest and the Gulf Coast.
This new presidential permit will allow us to utilize or to realize the benefits from the 50000 barrel a day open season conducted in June 2019, and would enter into anticipate starting to increase the flows in 2021.
The additional crude oil there will be delivered by the Keystone pipeline will increase the secure and reliable source of Canadian oil.
Got to meet growing demand from refineries end markets in the United States.
Also in the liquids business, we continue to advance construction on Keystone XL during the second quarter, while managing the various legal and regulatory matters in Canada construction activities at our pump stations and along more than 100 kilometers of the mainline right away.
We continue to advance in the US we're making progress on a revised 2020 construction plan, which is focused in areas, where all of our permits and approvals are in place and includes facilities and preconstruction activities.
At the same time, we continue to seek authorizations from the US Army Corps of engineers for the necessary permits and approvals to reconvene us pipeline mainline mainline pipeline construction in 2021.
Keystone XL continues to be in a very important project for both candidates in United States. It will create thousands of high paying union jobs and advanced energy security in both nations in an environmentally sustainable and responsible way.
The project will require an additional investment of approximately $8 billion and it is underpinned by new 20 year take or pay contracts that are expected to generate approximately $1.3 billion us of incremental EBITDA on an annual basis. Once the pipeline has placed into service in 2023, two thats. The project, we have partnered with the government of Alberta, who.
We'll invest approximately $1.1 billion you asked of equity into the project and fully guarantee a 14 4.2 billion dollar U.S. project level credit facility.
The project is completed and placed into service, we expect to acquire the government developer is equity investment and refinance the credit facility moving forward. We will continue to carefully managed various legal and regulatory matters matters. As we construct this pipeline, which will have the capacity to move approximately 830000 barrels a day of responsibly produced energy from China.
In oil sands to the continent largest refining market, which is in the us Gulf coast.
Turning now to our parent storage business for Bruce power continues to produce solid results through the first six months of this year also after years of preparation in January Bruce power commenced work on the made on the unit six major component replacement or MCR project as we call it.
When they ticket offline here in January.
We expect to invest approximately $2.4 billion in that program as well as ongoing asset management program through 2023, when the unit six refurbishment is targeted for completion and to come back online.
Fortunately because of Cobot 19 in late March Bruce Power declared a force Miss your under its contract with the independent Electric system. Operator is force majeure covered the unit six MCR as well as certain asset management work.
That said haven't pleased to report that in early May work on the unit six MCR resumed with additional prevention measures in place for worker safety related to covert 19 progress is being made on critical path activities as Bruce works to isolate unit six from the remaining units in preparation for the removal of fuel channels.
In late third quarter.
The impact of force majeure continues to be evaluated and will ultimately depend on extending duration of this global pandemic.
Operations and plant outage activities on all other units continued as expected in the second quarter. Finally empower in late April we did complete the sale of three natural gas fired power plants, and Ontario, Napanee plant Helton Hills, and our 50% interest in the Portland's energy Senators.
Net proceeds from that disposition netted approximately $2.8 billion and that we used to find our industry leading capital program.
So in summary today, we are advancing $37 billion secured growth projects that are largely expected to enter service between now and 2023, we've invested approximately $11 billion into this program to date with approximately $5 billion of those projects expected to be completed by the end of 2020, notably all of these projects are.
Underpinned by cost of service regulation or long term contracts, giving as visibility to the earnings and cash flow they will generate as they enter service.
Based on the strength and our financial performance and the promising outlet for the future earlier. This year Tcs Energy's board of directors increased the quarterly dividends 81 cents per common share, which is equivalent to $3 in 24 cents per share on an annual basis. This represents an 8% increase over the math declared.
In 2019 and is the 12 twentyth consecutive year that our board has raised the dividend.
Over that same timeframe, we have maintained consistently strong coverage ratios for their dividend on average representing a payout of approximately 80% of comparable earnings and 40% of comparable funds generated from operations, leaving us with significantly internally generated cash flow to reinvest in our core businesses.
Based on the continued strong performance of our base businesses and the organic organic growth, we expect to realize as we advance our 37 billion dollar secured capital program. We expect to continue to grow our dividend at an average annual rate of 8% to 10% through 2021 in 5% to 7% thereafter.
So in summary, BD with following key points today, we are a leading north American energy infrastructure company with a very strong track record of delivering long term shareholder value our assets provide essential service to the functioning of North American Society, and the economy and the demand for our services remains strong.
We have five significant platforms for growth Canadian us Mexican and natural gas pipelines liquids pipelines and our power and storage business.
As we advance our $37 billion secured capital program, we expect to build on our long track record of growing earnings cash flow and dividends per share. We also have $11 billion of projects in advanced stages of development and expect numerous other inc. corridor organic growth opportunities like the 400 million dollar Elwood power.
And and our horsepower replacement project that we announced today emanate from our extensive critical asset footprint looking forward, we remain disciplined continuing to our focus on safety sustainability working according to our values and responding quickly to market signals and sign posts to ensure we remain industry, leading and reserve.
And as we grow shareholder value I'll now turn the call over to Don Overbuy do more details on our second quarter.
Results and our financial position Don over to you.
Thanks, Ross and good morning, everyone.
As outlined in our results issued earlier today net income attributable to common shares as $1.3 billion or $1.36 per share in the second quarter 2020, compared to $1.1 billion or $1.21 per share for the same period in 2019.
Six months ended June Thirtyth 2020, net income attributable to common shares was $2.4 billion or $2.59 per share compared to net income of $2.1 billion or $2 30 per share in 2019.
Second quarter results included a $408 million after tax gain on the sale of 65% interest in coastal Gaslink, along with an incremental 80 million dollar after tax loss on the disposition of the Antero natural gas fired power plants.
Second quarter 2019 also included certain specific items as outlined on the slide and discuss further in our second quarter 2020 report to shareholders.
These specific items as well as unrealized gains and losses from changes in risk management activities are excluded from comparable earnings.
Comparable earnings for the second quarter were $863 million or 92 cents per common share compared to $924 million or one dollar per common share in 2019.
For the six months ended June Thirtyth 2020, comparable earnings were $2 billion or $2.10 per share compared to $1.9 billion or $2.07 per share in 2019.
Turning to our business segment results on slide 15.
In the second quarter comparable EBITDA from our five operating segments was $2.2 billion 125 million dollar decrease compared to 2019.
I'd natural gas pipelines comparable EBITDA of 621 million was $93 million higher than second quarter 2019, primarily on account of increased rate base earnings as well as closer depreciation and financial charges on the NGL system from additional facilities placed in service.
NGL system net income increased $21 million compared to the same period in 2019 as a result of a higher average investment base from continued system expansions and reflects an ROE of 10.1% on 40% deemed common equity will net income for the Canadian mainline decreased $3 million largely due to lower incentive earnings.
Use natural gas pipelines comparable EBITDA of $595 million us or $824 million Canadian in the second quarter fell by $46 million you asked for $33 million Canadian compared to 2019, mainly due to the sale of certain Columbia midstream assets in August 2019.
As well as increased operating cost on Columbia gas.
Mexico natural gas pipelines comparable EBITDA of $130 million us per 181 million Canadian.
Rose $23 million, you asked for $40 million Canadian versus second quarter 2019, primarily due to start to Texas equity income, resulting from the commencement of transportation services in September 2019, and lower interest expense attributable to the weakening of the Mexican peso.
Liquids pipelines comparable EBITDA declined by $150 million to $432 million in the second quarter driven by lower on contracted volumes on Keystone decreased margins from liquids marketing activities and the sale of an 85% equity interest in northern Courier in July 2019.
Power and storage comparable EBITDA in the second quarter fell by $84 million year over year, primarily due to the plan removed from service of Bruce Power unit six in January for its MCR program, along with lower Canadian power earnings largely as a result of the sales over Ontario natural gas fired power plants in April 2020, and Coolidge in May.
2019, as well as an outage at our Mcarthur River cogeneration facility in 2020.
For all our businesses with U.S. dollar denominated income, including Us natural gas pipelines, Mexico natural gas pipelines in parts of liquids pipelines EBITDA was translated into Canadian dollars using an average exchange rate of $1.39 and second quarter 2020 compared to $1.34 for the same period in 2019.
As a reminder, our U.S. dollar denominated revenue streams are in part naturally hedged by interest on us dollar denominated debt.
We then actively manage the residual exposure on a rolling to your forward basis with realized gains and losses on this program reflected in comparable interest income and other.
Now turning to the other income statement items on slide 16.
Depreciation and amortization of $635 million increased $14 million versus second quarter 2019, largely due to new projects placed in service in Canadian natural gas pipelines, which is fully recoverable and tolls on a flow through basis.
Interest expense of 561 million in the quarter was $27 million lower year over year, primarily due to higher capitalized interest related to Keystone XL on coastal gaslink up to it stayed at partial sale in may.
Subsequent to which CGS now accounted for under the equity method versus previous full consolidation.
The increase the Keystone XL as a result of additional capital expenditures along with the inclusion of previously impaired capital costs and the basis for calculating capitalized interest following our decision to proceed with construction of the project.
This is partially offset by new long term debt issuances SNET maturities.
Hey, AFUDC decreased $18 million compared to the same period in 2019, largely due to NGL system expansion projects placed in service as well as the suspension of recording AFUDC on to effective January 2020.
Comparable interest income and other was $7 million in the second quarter and consistent with 2019.
Income tax expense included in comparable earnings was $125 million in second quarter 2020, compared to $199 million for the same period last year.
$74 million decrease was mainly due to lower pre tax earnings and a lower Alberta income tax rate.
Excluding Canadian rate regulated pipelines for income taxes RF flow through item and are therefore quite variable along with equity AFUDC income in the us in Mexico natural gas pipelines, we expect our 2024 your effective tax rate on comparable income to be in the mid to high teens.
Comparable net income attributable to non controlling interest of 63 million in the quarter.
Increased by $6 million relatively the same period last year, primarily due to higher earnings Tc pipelines LP.
And finally preferred share dividends of $40 million were in line with second quarter 2019.
Now turning to slide 17 during the second quarter comparable funds generated from operations totaled $1.5 billion, and we invested approximately $2.2 billion and our capital program, which as noted reflects equity accounting for our remaining 35% investment in coastal Gaslink post the closing thats partial.
Equity sale.
Our capital market conditions in 2020 of seem periods of extreme stress and volatility during the second quarter, we took significant actions that meaningfully enhanced our liquidity and financial position.
In April we issued $2 billion and medium term notes and you asked $1.25 billion of senior unsecured notes and the Canadian and us debt capital markets, respectively on compelling terms.
In addition, we arranged you asked $2 billion of incremental committed credit facilities and closed the sale of our Antero natural gas fired power plants for net proceeds of approximately $2.8 billion.
In May we completed the sale of 65% equity interest in coastal Gaslink as well as the initial draw on a newly established secured long term project credit facility, resulting in combined proceeds of approximately $2.1 billion.
Finalizing these arrangements on coastal Gaslink, along with secured government of Alberta support for Keystone XL in the form of US 1.1 billion dollar equity contribution and US 4.2 billion dollar loan guarantee means that a substantial portion of the funding required to advance. These two large initiatives is now in place.
Now turning to slide 18.
This graphic illustrates our forecast and sources and uses of funds in 2020.
So left column details total funding requirements and approximately $17.5 billion comprised of long term debt maturities and redemptions 3.9 billion.
Dividend and non controlling interest distributions of approximately 3.3 billion.
Capital expenditures of approximately $10.3 billion, reflecting 100% of coastal gaslink cost up to the date of its partial sale and only equity contributions to the project thereafter.
Funding sources are shown in the second column and include forecast internally generated cash flow of approximately $7 billion proceeds from the disposition of or Antero natural gas fired power plants sale of 65% interest in coastal Gaslink and associated project level financing at CGS, which together generated approximately 4.9 billion.
Others.
The government of Alberta is equity investment in Keystone XL of you ask $1.1 billion.
And $4.1 billion comprised of long term debt that was issued in April along with movements and balances of cash held and commercial paper outstanding.
Taken together, we are effectively fully funded for 2020 and along with more than $13 billion of committed credit facilities in place and well. Some are supported commercial paper programs in both Canada and the U.S.
Physician to assuredly navigate any prolong period disruptions should that occur.
Now turning to slide 19.
In closing, our solid financial and operational results in what has been a rather momentous first half of 2020 highlight our long standing diversified low risk business strategy. The criticality of are essential energy infrastructure.
As well as the contribution of our new high quality assets from our ongoing capital programs.
Our overall financial position remains robust today, we are advancing at $37 billion suite of secured projects through resilience internally generated cash flow and an array of attractive funding options.
Our portfolio of critical energy infrastructure projects is poised to generate high quality long rifles earnings and cash flow for our shareholders underpinned by strong fundamentals solid counterparties and premium service offerings, we're offering numerous distinct platforms for future attractive and executable and corridor organic investments.
That is expected to support annual dividend growth of 8% to 10% in 2021 in 5% to 7% thereafter.
Finally, we will continue to maintain our historic financial strength and flexibility at all points of the economic cycle.
That sand in my prepared remarks, I'll now turn the call back over to David for the Q in a.
Thanks, Don just a reminder, before I turn it over to the conference coordinator for questions.
Yes, the limit yourself to two questions. If you have any additional questions. Please reenter the queue with that I'll turn it back to the conference coordinator.
Thank you.
We'll now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.
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Our first question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, good morning.
Good morning journalists.
Thanks, just wanted to start off with K Excel and wanted to see I guess.
Hit the 2023 in service as you envision it now.
How do you see the kind of legal hurdles or legal challenges going at this point just trying to get a feeling for how much contingency is built in there and what milestones we should be looking forward try to get a better feeling for how how does the breadth and I guess what type of.
Outcomes. There would have you guys kind of step away from the project legal talent.
Thanks, Jeremy this is.
Thanks, Jeremy this is bevan.
With respect to the legal challenges there are two lawsuits that first of which challenging the residential permits and the balance John challenging our ability to advance construction in certain areas that have wetlands, our schedule and plans can accommodate our we're still targeting our 2023 in sir.
Service stayed at this point.
And we anticipate resolving.
These issues through the balance of this year and into next.
Got it.
And just wanted to I guess pivot if I could towards what type of appetite you guys might have for what might be thought of as kind of like greener investments if you will.
The pumped hydro storage there was wondering if you might build to update us on thoughts and that an appetite for projects like that and then I guess also down the line hydrogen logistics could fit into your plans at all or any thoughts given that's kind of leader data at this point.
Thanks, Jeremy its francoise with respect to our appetite for.
Those types of investments and the pump storage project being a great example, as we've talked about.
Our strategy for our power in storage business, we expect to be looking to invest and diversify.
Fuel type into other types of fuels other than our traditional natural gas fired businesses investing.
Along with theme affirming resources as renewables increase as a percentage of the of the.
You will mix Adobe a need for more storage.
Across various systems. So as Weve mentioned, we've got the deferred project in Ontario, Thats a thousand megawatt.
Pump storage project, that's been proposed it's still early days on that one were.
Continuing with extensive consultations with with the communities.
We've made significant design changes to the project to address.
There their feedback and.
Hi Fi de on that project is not expected to take place until that 2023 timeframe. The next step is really to.
Continue with the conducting environmental assessments once.
We've gained permission from the department of National Defense to access the land.
On a longer term basis. We also have another pump storage project. That's under development that we've invested in Alberta, that's fully permitted and we're expecting to make Ed fight the on that when hopefully by the end of.
Twentytwenty, so you'll see us.
Looking to.
Invest.
In a manner, that's consistent with our risk preferences focusing on either.
Investments underpinned by regulation or long term contracts, that's never going to change for us and as we see opportunities to do that as part of on different points of the electric value chain, we're going to continue to be looking at those as to hydrogen. It's an interesting concept will continue to monitor these and other technological advancements.
We're always looking for ways to optimize our asset base and from our perspective, we've got a very strong asset base to economically and safely connect growing sources of renewable natural gas or hydrogen or any other types of products when they do become economic and as it.
Relates to hydrogen.
It can be blended with methane flowing through our existing pipelines and neither lift commingled or extracted through downstream separation process closer to the and and you source. So I think the takeaway. There is we believe that we're very well situated to take advantage of these opportunities in the coming decades.
Should the Technolog technologies advance.
That's very helpful. Thank you for that.
Thanks, Jeremy.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Hi, good morning.
Just start with the Columbia rate cases, some extra details.
Specifically just around.
Are there some parallels that we can to auto.
Within our as well where you included.
Definitely is there a bunch of modernization capital or any capital included as part of the rate case can you really need to recover that.
Kind of as part of the new rates rather than having to wait.
Ultimately as well just how far behind are you on rates with respect to earned ROE and any other recoveries of costs.
Hey, Good morning, Robert This is Dan we're planning on filing our Columbia rate case tomorrow actually.
While there were some limited great reviews that were done in conjunction with our prior modernization settlements as Russ mentioned this is going to be the first rate case on Colombia and over 20 years. So.
So in addition to recovering our prudently incurred cost a fair return on our historical capital investment. The filing does also proposed a third base to our modernization program, whereby we're proposing to invest $3 billion over a seven year period to further and third the safety.
The reliability of the integrity of our asset and to your 0.8 have the ability to recover these costs without further rate cases, as we do now with our existing modernization program. So basically all the modernization capital that we spend at the end of it given year, we would start recovering those costs starting February onest.
Following year.
I should note that the rate case establishes rate for our base system customers and is not going to adjust any of the demand charges for our express projects, which were recently placed in service as they will continue to be incrementally price and subject to negotiated rate.
Yes, I should point out that the rates are going to take effect on February onest of 2021 subject to refund. So there is not going to the impact 2020 earnings.
At the process is that once our filings made FERC will offset a procedural schedule that schedule will include a hearing before and administrative law judge likely sometime towards the end of next year.
However, as is typical with rate cases in the us that we intend to work collaboratively with our customers our regulators and other stakeholders to settle this day in a mutually satisfactory matter and in that regard will likely will kick off settlement discussions sometime in the fourth quarter. This year.
They would most likely continue into maybe first quarter second quarter into 2021.
And Thats helpful. Stan.
Just to follow up that's 3 billion over seven years, that's new and incremental modernization capital that you're already showing your tables is that correct.
Yes, Thats correct that would be new incremental capital and again Thats what were proposing so we're going to have to go through the process.
Could change over time, but thats the proposal as it fits with our filings and what proportion of Columbia right now is on recourse rates versus contracted rates.
Good question, if memory is correct, probably somewhere around 50% or so but I should actually follow up with David gives you an exact number.
Maybe just finished with.
Sungy question, just you mentioned that you'll be filing the ATM this quarter.
And that had been specifically earmarked for can't sell is that include you still the case or do you have any anticipation to needed for.
Non cat Xol purposes.
Yes, hi, Robert it sets Don here.
We we announced along with CAG so.
We don't have any intention to use it it's not part of our based funding plan for Keystone XL.
It's really an acknowledgment of the volatile times, we're in right now and the size of the capital program again gives us.
Financial flexibility as we enter.
On KXOL.
As another lever, but the base funding plan.
And then there is no issuance under the ATM factored into that so.
Treated more as belts and suspenders given the current environment and the magnitude of the capital program that we have in front of us.
Thank you much.
Okay. Thanks Robert.
Our next question comes from Robert Catellier.
Capital markets. Please go ahead.
Hi, Good morning can you just elaborate and plan to achieve higher Sam Keystone.
Allowed in that presidential permit.
So say.
DRA only solution or will it be pump stations and looping so really I'm trying to get a sense of rather work you might have to do on the permitting and it's good also address cost and timing.
Thanks, Robert its bevan, the incremental 50000 barrels a day that we contracted through the open season made last year is available to the system.
Based on using increased.
DRA as use as you suggest no further pump stations or other capital is required to.
Accommodate that increase.
Okay and just.
Just bigger picture here as or you are looking.
To the flock to 7% long term.
Growth.
Growth rate.
How much of that is contemplating from.
Just the existing footprint or.
Stated another way how important is it to develop another platforms such as the Green energy that was discussed earlier or other.
So the value chain or other jurisdictions that are less complicated in permitting compared to.
North American pipelines.
Yes, it's a it's done here.
Beyond K XL and coastal Gaslink.
It doesn't factor in any what we would consider mega projects and.
Even even with those projects.
We look at our 100000 kilometers of pipe right away right now.
With the opportunities that just organically come off of that you've seen some today with our would you.
I heard from stand on potentially a modernization three program. These are just examples of that.
Singles and doubles with lower execution risk that can come off of that I'd also point to additional five units at Bruce.
That need refurbishment going forward, so where we land in that 5% to 7% range will depend on on the mix of projects that that comes out of.
Comes out of our organic programs here, how we execute on them and the cadence of those I think we indicated that at Investor day.
So it it's not necessarily predicated on large scale, new platforms coming coming into service here in building off of those so we get about three years visibility on projects that sort of takes four.
For landing from that of the commercial landing of these two I'm getting through the regulatory permitting process and getting shovels in the ground. So we're we're starting to look at stuff.
Mid decade, now we might get greater visibility on things like that.
Francoise alluded to the pump storage projects that were looking at in Ontario. These are the kind of.
Longer tail opportunities that that that maybe not in that that capex, our CG, all kind of footprint range, but could could meaningfully contribute to that growth going forward.
Maybe I'll just add two to Don's comments.
Yes, I think what we've always said is it if we can reinvest or free cash flow.
On the 60% that and that has generated on an annual basis.
Into into our core businesses.
And get a return in that sort of 78% kind of range, we can generate that kind of 5% to 7% growth rate pick a number that number happens to be about $5 billion on an annual basis that we're looking for right now and as we look at the portfolio as Don said.
It's not a big stretch for us to say that we can find four to $5.4 billion to $5 billion being core to our expansion, we'll always look for other platforms for growth, but as we think about our platform you just think about your this this quarter.
We brought on the Atwood project for example, $500 million Canadian.
In a sense is any we've done that sort of quarter on quarter here over the last watts or getting to a $5 billion of of.
Capital investment in our quarters doesn't seem to be a stretch as Don said, our maintenance capital, which is for the most part ray regulated and.
Is it a couple billion dollars a year that we get return on capital on.
As as.
Dan pointed out is modernization programs going forward will be over over and above that.
Add to that these in court or expansions that we're talking about Bruce power on an annual basis, if we do complete.
Yes, the balance of the five more unit replacements on average that's a billion dollars year over the next day next decade, or so and you think about the expansions that we've talked about across the system you into Mexico and other places.
You quickly add up to numbers that can exceed $4 billion to $5 billion year. So it will be I think continuing to be in capital rationing mode, and making sure that we allocate capital the very best projects and what we found is the very best projects are smaller ones 500 million $2 billion. They generally give us higher returns and we don't.
And have the same resistance as that as we do two to large large scale multi jurisdictional projects that are greenfield. So were I guess from from my perspective over the last 20 years or so you can see that we've reinvested $100 billion.
Into our core businesses and generated that sort of 7% growth rate in earnings and cash flow per share I'd expect that to continue looking forward I'd say our visibility.
Opportunities to reinvest our free cash flow are probably greater now than at any time in our history and it's primarily related to.
Continued increasing demand for energy and at the same time and difficult.
Environment to build new Greenfield things in which has pointed us back to leading corridor expansions and maybe I can go through numerous finds the GTN expansionary acquire expansion.
And the.
Our BHP expansion in the us attaching to LNG facilities is that the inked corridor expansions are are things that can get Don and and our customers know that and they're looking at us for for solutions to continue to to meet their growing growing energy demands.
Okay. Thank you for those documents.
Thanks, Rob.
Our next question comes from Linda is gallon of TD.
Please go ahead.
Thank you I've a question for Kevin as a follow up to Robert Catellier question on your Keystone Debottlenecking Im just wondering beyond the initial 50000 barrels today that you've already commercially underpinned how might we think as the timing and the ramp.
And the.
Commercial attributes of the remaining hundred 20000 barrels per day that Lisa I believe also on the amended presidential permit.
Yes, thanks, Linda so we've been making excellent progress as you're aware last year, we had an incident at Edinburgh again, we've been working on our pipeline integrity projects to reestablish and.
Expand the capacity on our base system the new.
Ended permit allows us to bring on and ramp up that growth of 50000 barrels a day in the 2021 timeframe. Once we've established that we can safely deliver deliver our product.
So the balance we still remain 35000 barrels a day of spot on the system in any incremental increase thereafter, we'll determine whether or not there as market demand and capability to use that incremental capacity.
And that would require some sort of additional pumping and looping or or what would be the scope and scale and any sort of investments required to add beyond that.
No again that would.
The initial as I mentioned on the 50000 that is purely through DRA any other incremental will list look at optimizing the base system. It may have some modest capital requirements, but we'll we'll look at those in the future.
That's helpful. Thank you.
And I'll follow up question with respect to the gas rate filing I.
I guess, we'll we'll see it filed tomorrow, but how can we think of if you were to get everything that was applied for what was.
The linked to be in EBITDA for the company potentially.
Yes lender that stand up fair question, but.
With all due respect having not yet file the case I don't want to front run the process Theres lots of discussion that we have had with our customers regulators and stakeholders.
And until we do.
Really just not in that position to provide guidance on any ultimate outcome. So what I would suggest is that David and his IR team are in the loop and I'm sure that they'll follow up with you as appropriate.
Thank you I appreciate that are you able to share any attributes beyond this scale of the modernization.
That would be new and significant step changes in kind of the current run rate of how youre running an oversight Colombia.
Yes.
I guess just that respect for the profits I'd, rather not give us any details because we have not yet you're at all this with our customers. So if I can just asking if you may be held at question, maybe a follow up with you in the not too distant future.
Okay. Thanks, so much Stan.
Thanks Linda.
Our next question comes from US It Sen of Bank of America. Please go ahead.
Thanks, Good morning, just coming back to the key energy transition topic.
As you look into the future scenarios, just wondering how you're thinking about the financial framework discount rate terminal value.
For these green projects to attract capital just broadly how you're thinking about.
Yes, I'll start out its Don here.
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We would look at them similar to our existing our existing investments.
We're we're not not working to deploy capital.
Below our cost of capital looking for a decent return on it then factored into that is exactly what you've outlined what is your cash flows during the project during the contract lengths or.
Within rate base and.
Depends on the technology and the contractual structure and the regulatory structure that that that is behind these things how much residual risk or how much residual value is associated with the post contract period.
Thanks, Gil generally speaking I would say that we'll continue to look at fundamentals.
From a financial perspective is there demand for four for that project and evidence of that usually is in somebody willing to pay for that and monitor under some sort of contractual rate regulated structure.
Say that what we'd be seeking used units projects that are within kind of what we've had this historical risk preferences and now expected our discount rates will be better therefore, similar to our discount rates that we would apply to you to existing projects.
One of the cornerstones of sustainability is obviously financial sustainability and attraction of capital and that you need to have the stability of revenue to attract capital I mean in a manner that we've attracted capital on a historic basis. So I think what do you can expect from US is the same discipline and rigor and what we know is that based on.
Growth in demand for these projects those kinds of situations will exist you've seen us invest in.
In renewables in the past we've been in hydro we've been in.
And we've been in that and solar and all of us situations.
We came through with the same sort of investment criteria that we have.
For all of our other assets. So that's where you think spectrum is going forward and I guess bottomlines, we do see substantial opportunity out there that's emerging in this transition and one of the biggest ones that we see right. Now is is the is the intermittency issue with respect to renewable energy.
Year to through batteries or pump storage or some way, we're going to have to sort of feel that intermittency and then through things like our investment in Bruce power annual bring on base load power to augment.
The the renewable energy in Ontario has been to integrate mix and we figured out a way to operate in Ontario.
That balances the system on a daily basis and that appears to be value. Both you.
The Ontario system, operator, and two Ontario resident so.
The returns that were getting there are consistently reinsurance we would achieved in other parts of our business. So we see lots of promise on the horizon and we'll just continue to be careful and disciplined us as we allocate capital that direction, yes physically the assets may look different but financially they should.
The stream should look very familiar to our investors.
Very helpful. Helpful. Appreciate the color.
If I could shift in Mexico in a post good world.
Could you update us on your views in Mexico.
Obviously, the Volumetrics looked pretty good at $1.6 billion anybody does look good but.
Just opportunities and risk in that market. Please.
Sure it's Francois so.
I think we take a long term.
Perspective on Mexico, we think that the.
Growth and introduction of low cost natural gas from the us Gulf coast into the Mexican economy is a strong strategic imperative for the country it'll be a strong driver of macroeconomic growth going forward and is consistent with.
The Mexican government and the cfcs ambitions with respect to.
Power generation and its own market share ambitions, the way theyre going to achieve.
Those.
Targets is through.
Increase supply of natural gas into into the country. So.
Our asset position there.
Again, once again long term contracts 20 years or longer U.S. dollar denominated.
With the creditworthy counterparty.
Our consistent with.
With our risk preferences, we're comfortable with our investments in the country and to the extent theres opportunity and we do see some opportunity for us to increase conductivity.
We have built the backbone now and we're completing work on the backbone of the infrastructure in Mexico.
There will be an opportunity for us to increase asset utilization through connecting with additional power plants with additional.
Industrial load, the petrochemical or otherwise and so in the medium term, that's what I think you'll see from us in terms of.
Incremental capital investment those tend to be along the corridor lower risk and and reasonable returns and to the extent there are opportunities to expand or extend that backbone into other markets as the economy grows we'll be ready to do so.
Thank you.
Okay.
Thanks It.
Our next question comes from Rob will hope of Scotia Bank. Please go ahead.
Good morning, everyone on just one for me good to see the 400 million dollar us expansion and are just want to get a sense of how discussions are going for similar and further kind of singles and doubles of yours.
Pipeline expansion project have we seen a shift away from we'll call it supply push projects.
The focus now more on the demand Poland.
Yeah, Hey, Rob This is Dan I could answer that.
As I noted on some of our prior calls this given the size and extent of our footprint I expect us to originate anywhere between a half a billion $2 billion.
Jack each year with the output of the Elwood project today were it not only on track meet that in 2020, but we're clearly trending towards the high side. So going forward I do see a little bit of a shift from the supply push to demand pull that for example from a macro perspective gas fired power Gen.
As expected to grow by three Bcf a day between now and 2023 at about seven Bcf a day between now and 2030 and ahead of the expectation that will compete for and win our fair share of that as matter of fact, we're currently pursuing.
A couple of other gas fired power Gen project right now on the and are in Colombia system, one of which is very similar to the Elwood project and I think we'll have at least one of them closed out by year end.
Still remain well positioned to capture wrote in the LNG export market.
We await the opening of economies due to that pad Dentek and then lastly, I would just point out that while it's unfortunate that Dominion lager pursuing it's HCP project I should note that theres still at there's still a need to get incremental gas supply down to those markets in the southeast.
We have a little bit more hallmark, yet to do but that very well maybe in a position to serve at least a portion of that load through upgrades and modifications to our existing infrastructure and to do so perhaps without any filled through the Appalachian trail or the National Park or so little more work to do there.
So stay tuned.
Maybe the one thing that's left on the supply side at least in the short term.
The Bakken Express project the impact of Toby 19.
On oil prices definitely had us hit the pause button on that but I do remain optimistic that were ultimately going to get that project done too, although our origination timeline for doing such an in service dates are likely going to be pushed back a bit so get as you can see there's still a lot. Many many growth opportunities left that we are pursuing and we're.
Going to continue to focus on constructed ball permissible quarter expansions that are primarily compression related.
Rob Let me add a little bit to that this is Tracy I'll add some on the at Canadian gas pipes system. As you know we're in the middle of quite a large program right now that program.
Both supply and demand driven and I think as we see following come through that.
The WCS be is the depletion rate on our system is about two Bcf a day per year. So we will look to reconnect that amount of gas each year and just to keep our supply going into quest for connecting that in the Montney region on an increasing basis, 80% environment supply now comes from that area, but we also see opportunities for rifles.
Shot at connections within the Alberta system from an industrial perspective, and we look to use kind of that remaining kind of capacity on the mainline.
Can you just need to make sure that the WCS be volumes are getting into the continental North American markets kind of effectively and competitively. We will always look we think tw CSP gases very economic and competitive and we think it should when the LNG markets right themselves that should.
Taking place in.
In those markets as well, that's all that to longer term basis, but we're looking for all of that so we have we see past. The current program that we haven't place right. Now is close to 2023 2024, we do see.
Continued expansion organically fr of our existing right away.
I appreciate all pillar. Thank you.
Okay. Thanks, Rob.
Once again, if you have other question. Please press Star then one.
Our next question comes from Praneeth Satish of Wells Fargo. Please go ahead.
Good morning, just just one question for me you, maybe providing more details on the capacity optimization open season on NGL and I guess, specifically how your customers are thinking about growth in the current environment and then maybe in the context of that how much capacity in total was deferred relative to your.
Prior outlook.
Hi, I'm happy to do that is you are where we've got a very large nine nine almost 10 billion dollar expansion program underway on and GTL.
And we believe all that con all that of course is based on contracted demand and we believe strongly in the fundamentals the WCS pricing.
I have been stable the summer their strong if you look out the curve.
It's very competitive basin, but we didn't want given all of the announcements early in the air around any changes to capital investments on the producer side, we wanted just to check and see how much that.
For the was needed so the open season given opportunity.
For those who had contracted on the expansion to advance contracts to defer contracts. It turned back on track under certain circumstances, and so is that all netted out.
What we learn through that is that all of that capacity is still required.
Some of it.
Is required in different Timeframes. So we did see we will see some.
Advancing some contracts will advance we're seeing some capacity.
Deferred buys season or up to a year and we're just putting together the new capital program that will reflect that but the good news in this and the strong you expect it was that the our customers want this capacity and they see the same fundamentals in this space in that we did.
Great. Thank you.
Thanks for me.
Ladies and gentlemen, this concludes the question and answer session. If there any further questions. Please contact PC energy Investor Relations I.
Ill now turn the call over to Mr. Moneta.
Go ahead.
Great. Thanks, very much and thanks very much to all of you for participating this morning.
We recognized so busy time. So we appreciate your interest in TC energy and we very much look forward to talking to you again soon thanks and have a great.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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