Q4 2020 TC Energy Corp Earnings Call

Thank you for standing by this is the conference operator, welcome to the TC energy 2024th quarter results Conference call as.

As a reminder, all participants are in listen only mode.

On the conference is being recorded.

After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to David Moneta, Vice President Investor Relations. Please go ahead.

Thanks, very much and good afternoon, everyone I'd like to welcome you to TC Energy's 2024th quarter Conference call.

Joining me today are Francois Poirier, President and Chief Executive Officer, Don Marchand, Executive Vice President strategy, and corporate development, and our Chief Financial Officer, Tracy Robinson, President non Canadian natural gas pipelines and coastal gas link Stan Chapman, President U S and Mexico natural.

Gas pipelines Bevin worst president liquids pipelines, Corey has president power and storage and Glenn <unk>, Vice President and controller.

Francois and Don will begin today with some opening comments on our financial results and certain other company developments.

A copy of the slide presentation that will accompany their remarks is available on our website. It can be found in the investors section under the heading events and presentations. Following their prepared remarks, we will take questions from the investment community. If you are a member of the media. Please contact Jaimie Harding following this call and she'd be happy to address your questions.

In order 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 you focus your questions on our industry, our corporate strategy recent developments and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or your detailed financial models Hunter and I would be pleased to discuss them with you following the call.

Before friends, while begins I'd like to remind you that our remarks today will include forward looking statements that are 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.

Finally during this presentation will refer to measures such as comparable earnings comparable earnings per share comparable EBITDA and comparable funds generated from operations. These comparable measures are considered to be non-GAAP measures and as a result, they may not be comparable to similar measures presented by other entities. These measures are used to provide you with.

Additional information on TC Energy's operating performance liquidity and its ability to generate funds to finance its operations with that ill turn the call over to Francois.

Thanks, David and good afternoon, everyone and thanks for joining us this afternoon.

While 2020 presented some of the greatest global challenges in recent history.

We quietly and reliably continued to deliver the energy millions of people rely on every day.

Notably the services, we provide in Canada, the United States and Mexico were deemed essential.

The important role our infrastructure plays in the functioning of the North American economy, and the well being of people across the continent.

We take that responsibility seriously and as always we conducted our business in a safe and reliable manner, employing thousands of workers and supporting communities wherever we operate.

And we.

We delivered strong financial results for our shareholders.

As you're accustomed with our risk preferences, approximately 95% of our comparable EBITDA comes from regulated and our long term contracted assets largely insulating us from the short term volatility associated with the volume throughput and commodity price fluctuations.

As a result, our $100 billion portfolio of high quality long life energy infrastructure assets produced record results again in 2020.

Highlighting the resiliency of our assets and our utility like business model.

At the same time, we continued to advance our capital program that will help power the north American economy for decades to come.

More specifically, we placed five $9 billion on growth projects into service in 2020, and advanced another $20 billion of secured capital projects and that's excluding Keystone XL.

In addition, we continue to progress more than $8 billion of projects under development as well as numerous other opportunities.

Looking forward, we expect our solid operating and financial performance to continue with ongoing growth in EBITDA.

We also expect comparable earnings from common shares.

In 2021, it will be generally consistent with the record results we produced in 2020.

Finally, we know our ongoing success will depend on our ability to balance profitability with safety environmental and social responsibility.

Society expects its energy to be delivered with care for people and our planet.

And we also demand this of ourselves.

We have a 70 year track record of safe and reliable operations.

But we recognize we can always do better.

And so as a result, we are focused on continuous improvement, including potential path to reducing our <unk> emissions and understanding shifting long term fundamentals to ensure our business remains sustainable and resilient in an ever evolving energy landscape.

Now with that as an overview I'll expand on some recent developments beginning with a brief review of our 2020 results.

Excluding certain specific items comparable earnings reached a record $3 9 billion or $4 20 per common share in 2020 compared to $3 9 billion or $4 14 in.

In 2019, an increase of one 5% on a per share basis.

Comparable EBITDA of $9 4 billion was similar to last year, while comparable funds generated from operations also hit a record high of $7 4 billion, which is a 4% increase over 2019.

Each of these amounts reflect the solid performance of our legacy assets as well as contributions from the $5 9 billion of new assets, we placed into service during the year.

Based on the strength of our financial performance and our promising outlook for the future TC Energy's Board of directors declared a first quarter 2021 dividend of <unk> 87 per common share, which is the equivalent of $3 48 per share on an annual basis.

This represents a seven 4% increase over the amount declared in 2020 and is the 20 <unk> consecutive year that our board has raised the dividend.

Next a few comments on our five operating businesses.

First in Canadian natural gas pipelines customer demand for our services remained strong in 2020.

And this manifested itself and the volume is transported across our network with the NGL system field receipts, averaging 12.1 Bcf per day, and Canadian mainline deliveries, averaging four five Bcf per day, both amounts were similar to the volumes we transported in 2019.

At the same time, we placed $3 $4 billion of NGL system growth projects into service, we invested approximately $600 million in maintenance capital on our Canadian assets, which also forms part of rate base.

And we received final approval for <unk> 2021 expansion program.

As a result today, we are advancing $6 7 billion of commercially secured projects on N G T O.

That will provide an incremental $3 two bcf a day of capacity for our customers between now and 2024.

Finally in Canadian natural gas pipelines. We also continued to advance the two one bcf per day coastal gasoline project that will connect Ws CSP natural gas reserves to the LNG, Canada export facility in Kitimat BC.

Due to COVID-19 in late December the BC Provincial Health Officer issued an order restricting the number of workers on industrial project sites in the Northern Health Authority region of British Columbia.

We're working with the provincial health authorities to safely resume construction activities in accordance with that order.

We are also working with LNG, Canada on establishing a revised project plan for coastal gas link.

We expect that project costs will increase and the schedule will be delayed due to scope increases permit delays and the impact of COVID-19, including the provincial health order.

Coastal gas link will continue to mitigate these impacts to the extent possible and these incremental costs will be included in final pipeline tolls subject to certain conditions.

Turning now to our U S natural gas pipelines business, where our broad network moved record volumes, averaging approximately 25 Bcf per day in 2020.

An increase of 1% over 2019 deliveries.

Now during the polar vortex that covered most of the U S over the past week.

We experienced unprecedented sustained demand for our pipeline capacity as we set a record for coincidental three day peak deliveries.

Of over 101 Bcf from February 14th to the 16th.

Besting our prior Mark set in January of 2019 by about two and a half Bcf per day.

And I'd like to extend a big shout out to our employees, who have been managing trying personal circumstances, yet continue to ensure that we deliver the energy people need every day. Thank you.

Over the past year, we also placed U S $1 9 billion of projects in service, including the completion of the modernization II program on our Columbia gas transmission system, while adding nearly U S $1 billion of growth projects to our backlog.

Each of those projects is underpinned by long term contracts and they are great. Examples of the in corridor expansions that will allow us to meet growing demand, while also reducing our emissions.

Also in U S pipelines in late July our Columbia gas transmission system filed a section four rate case with FERC.

The rate case is progressing as expected while we continue to pursue a collaborative process to find a mutually beneficial outcome with our customers through settlement negotiations.

Finally in U S natural gas pipelines in late 2020, we entered into a definitive agreement and plan of merger to acquire all of the outstanding common units of TC pipelines LP not beneficially owned by us or our affiliates in exchange for TC energy common shares.

A vote on the plan of merger by unit holders is scheduled for February 26th.

The transaction.

It is expected to close in late first quarter.

Approval by the holders of a majority of outstanding common units of TCP is the remaining significant closing condition.

Turning now to our Mexican natural gas pipelines, where our five operating pipelines moved approximately one eight bcf per day during 2020.

In addition, we advanced the Villa de Reyes project, although a phased in service of the pipeline has been delayed due to COVID-19.

Subject to the timely reopening up government agencies, we now expect to complete construction during 2021.

Finally in Mexico, we completed a project to allow a bidirectional flows on our Guadalajara pipeline.

It is a good example of our ongoing collaboration with the Cfe on a project that provides access to either LNG imports from the men's and ao terminus or access to low cost continental natural gas supply I think a lot of the horror terminus for delivery to regional markets.

Turning now to our liquids pipelines business, which generated solid results. Despite extraordinary volunteer if all the volatility.

Global crude oil markets.

While the volatility had a significant impact on our market link and liquids marketing business.

The system moved on average of 555000 barrels per day last year underscoring its role as an important conduit between abundant natural gas North American reserves and key markets.

Also in liquids pipelines on January 20th the.

The U S president of revoke the existing presidential permit for the Keystone XL pipeline.

As a result of this disappointing decision we suspended the advancement of the project and ceased capitalizing costs, including interest during construction, while we assess our options along with our partners and other stakeholders.

We wish to thank our customers American and Canadian workers, our partners the government of Alberta, and natural law energy.

Labor organizations industry, the government of Canada, and countless other supporters of this project over the past decade.

Turning to our power and storage business, where Bruce power. Once again produced solid results as its strong operating performance continued.

Last January work commenced on the unit six major component replacement or MCR program. When we took the unit offline.

We expect to invest approximately $2 6 billion in the program with unit six is expected to return to service in 2023.

While COVID-19 has presented some challenges good progress is being made on the project achieving a major milestone on October one with the commencement of the fuel channel and theater replacement program.

We also continue to advance work on the refurbishment of another five reactors as part of Bruce Power's long term life extension program.

Finally in power, we continue to engage various stakeholders in an effort to advance our large pumped storage opportunity in Ontario. The project is designed to store emission free electricity and provide backstop to the intermittency associated with the energy provided by our renewable generation.

In summary today, we are advancing $20 billion of secured projects that are expected to enter enter service by 2024.

All are underpinned by cost of service regulation or long term contracts, giving us visibility to the earnings and cash flow they will generate.

Approximately $4 2 billion of these projects are expected to be completed in 2021, including $1 $7 billion of maintenance and modernization initiatives tied to our regulated pipelines.

Looking forward our goal is to continue to invest 5% to $6 billion annually to deliver on our long term growth plans.

As you can see on this slide our starting point is our $20 billion secured capital program.

Beyond that we expect to continue to invest one $5 billion to $2 billion annually and maintenance and modernization programs across our extensive pipeline network approximately 85% of which is recoverable through our rate regulated businesses.

We're also developing a significant suite of future opportunities, including several projects that will allow us to deploy capital along our extensive pipeline corridors.

And we see opportunities in the renewables and the firming resources needed to manage their intermittency.

Electrifying our fleet.

As well as emerging technologies such as hydrogen.

In summary, I believe we will continue to be opportunity rich.

And I believe that our challenge will be to allocate capital thoughtfully to those projects that are aligned with our capabilities, our risk preferences and our return requirements.

Playing a role in the evolving energy landscape.

Based on the continued strong performance of our base business combined with our organic growth plans, we expect to continue to grow our dividend at an average annual rate of 5% to 7%.

And I want to make it clear debt.

Debt there is no assumption of M&A embedded in our growth rates, nor is M&A, our current area of focus for us.

As always the growth in dividends is expected to be supported by sustainable growth in earnings and cash flow per share and strong coverage ratios.

In closing I'd like to leave you with the following key messages.

Looking forward I expect our assets will continue to provide an essential service to the functioning of the North American economy.

And demand for our services will remain strong for decades to come.

We have five significant platforms for growth, our Canadian U S and Mexico natural gas pipelines, our liquids pipelines and our power and storage business.

As we advance our $20 billion of secured capital projects and various other organic growth opportunities. We expect to build on our long term track record of growing earnings cash flows and dividends per share.

We will also continue to 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 resilient as we grow shareholder value.

I'll now turn the call over to Don who will provide more details on our financial results and outlook Dan.

Thank you Francois and good afternoon, everyone.

As outlined in our results issued earlier today net income attributable to common shares was $1 1 billion or $1 20 per share on the fourth quarter of 2020 compared to $1 1 billion or $1 18 per share from the same period in 2019.

Fourth quarter 2020 included an income tax valuation allowance release of $18 million related to reassessment of our ability to utilize certain prior year's U S tax losses.

An additional $18 million income tax recovery related to state income taxes on the sale on Columbia Midstream assets from 2019, and an incremental after tax loss of $81 million to settle the remaining post closing obligations on the sale of the Ontario natural gas fired power plants in April 2020.

Fourth quarter 2019 results also included several specific items as outlined on the slide and discussion on the fourth quarter 2020 financial highlights release.

All of these specific items as well as unrealized gains and losses from changes in risk management activities are excluded from comparable earnings which reached $1 $1 billion from fourth quarter, 2020, or $1 15 per share a $110 million or 12 cents higher than last year.

Turning to our business segment results on slide 18 in the fourth quarter comparable EBITDA from our five operating segments was approximately $2 3 billion consistent with 2019 results.

Canadian natural gas pipelines comparable EBITDA of 682 million from $64 million higher than same period last year due to the net effect of increased rate base earnings flow through depreciation on flow through financial charges on the NGL system is our investment program advanced in additional facilities were placed in service.

Coastal gas link development fee revenue recognized from 2020 and.

And lower flow through income taxes on the NGL system on the Canadian mainline.

I would note that for Canadian natural gas pipelines changes in depreciation financial charges and income taxes impact comparable EBITDA, but do not have a significant effect on net income.

Were almost entirely recovered in revenues on a flow through basis.

Net income from the NGL system increased $17 million compared to fourth quarter 2019, mainly due to a higher average investment base from continued system expansions.

Net income from the Canadian mainline decreased $2 million year over year.

U S natural gas pipelines comparable EBITDA of $706 million U S or $919 million Canadian in the quarter rose by $58 million you after $64 million Canadian compared to the same period in 2019.

The increase was mainly due to strong operating cost management across a number of our pipelines.

Mexico natural gas pipelines comparable EBITDA of 128 million U S of 166 million Canadian was consistent with results in fourth quarter 2019.

Liquids pipelines comparable EBITDA declined by $64 million to $408 million in fourth quarter 2020, primarily due to lower contribution from liquids marketing activities largely from reduced margins.

Power and storage comparable EBITDA fell by $49 million year over year to $161 million, primarily due to the net effect of the removal from service at Bruce Power unit six from January 2024, its MCR program and lower Canadian power earnings largely as a result from the sale from our Ontario natural gas fired power.

Plants in April 2020, partially offset by fewer plant outage days on the remaining Bruce units and improved results from our Alberta cogeneration plants.

For all our businesses with U S dollar denominated net income, including U S natural gas pipelines, Mexico natural gas pipelines and parts of liquids pipelines EBITDA was translated into Canadian dollars using an exchange rate of 130 from fourth quarter 2020, compared to a rate of $1 32 for the same period in 2019.

As a reminder, our U S. Dollar denominated revenue streams are in part naturally hedged by interest on U S dollar denominated debt.

Then actively manage the residual exposure on a rolling two year forward basis with realized gains and losses on this program reflected in comparable interest income on other corporate segment.

Now turning to the other income statement items on slide 19.

Depreciation and amortization of $652 million increased $27 million versus fourth quarter 2019, reflecting new assets placed in service in Canadian natural gas pipelines, which amounts are fully recoverable in tolls on a flow through basis.

Partially offset by lower depreciation and power and storage, mainly due to a 2019 reassessment of the useful life of certain components at our Alberta cogeneration plants.

Interest expense of $539 million for fourth quarter, 2020 was $56 million lower year over year, primarily due to the net effect of higher capitalized interest related to Keystone XL lower capitalized interest due to the completion of <unk> first quarter 2020, and the application of equity accounting for close to gasoline upon the sale of on <unk>.

65% interest in the project in May 2020.

Lower interest rates on short term borrowings.

And the foreign exchange impact from a weaker U S. Dollar on translation of U S dollar denominated interest.

<unk> decreased $22 million to 95 million for the three months ended December 31, 2020 compared to the same period in 2019.

Primarily due to NGL system expansion projects placed in service and the suspension of reporting recording GAAP you can see on Tula effective January one 2020 due to ongoing construction delays.

This was partially offset by continued investment in our growth projects on Columbia gas.

Comparable interest income on other was $86 million in the fourth quarter up from 77 million from the same period in 2019, primarily due to realized gains in 2020 compared to realized losses from 2019 on derivatives used to manage our net exposure to foreign exchange rate fluctuations on U S dollar denominated income.

This was partially offset by lower interest income in 2020 related to the peso denominated inter affiliate loans receivable from the sur de Texas joint venture due to lower interest rates and the foreign exchange impact of a weaker peso on.

Our proportionate share of the offsetting interest expense on this loan is reflected in income from equity investments on our Mexican natural gas pipeline segment with no resulting impact on consolidated net income.

Income tax expense included in comparable earnings was $134 million from fourth quarter 2020, compared to $211 million for the same period last year.

The $77 million decrease was mainly on account of lower flow through income taxes from Canadian rate regulated pipelines and higher foreign tax rate differentials.

Comparable net income attributable to non controlling interest of $69 million from fourth quarter decreased by $7 million relative to the same period last year.

Non controlling interest primarily captures public unitholder ownership in TC pipelines LP and the government of Alberta investment in Keystone XL.

And finally preferred share dividends were comparable to fourth quarter 2019.

Now turning to slide 22.

During the fourth quarter, we invested approximately $2 $2 billion on our capital program, primarily on NGL system expansions various U S natural gas pipeline projects and Keystone XL prior to suspending its advancement.

Our investing activities were largely funded with comparable funds generated from operations of $2 $1 billion and partner equity contributions to Keystone XL.

So the full year comparable funds generated reached a record $7 $4 billion.

Our balance sheet liquidity and financial flexibility are all on their historical position of strength.

We exited 2020 with debt to EBITDA in line with the high fours and that starts on a debt of approximately 15% that we had targeted and we are well positioned to fund our $20 billion secured capital program through our strong internally generated cash flow and debt capacity without increasing share count.

As we have suspended the advance from the Keystone XL, we no longer expect to issue hybrid securities or common shares through our dividend reinvestment program for the purpose of funding the project.

Finally, we extinguished U S $2 billion of 364 day committed bilateral credit facilities, which had been established and second quarter 2020 at the onset of the pandemic as they were no longer needed.

Yeah.

Now turning to slide 21 <unk>.

This graphic highlights our forecasted sources and uses of funds for 2021 through 2023, which is similar to the slide we presented at Investor day on updated to remove Keystone XL going forward.

Starting on the left column the total funding requirement over the next three years is projected to be approximately $28 billion.

Comprised of dividends of $11 billion capital expenditures, including maintenance capital of $16 billion and $2 billion attributed to the pending Tc pipelines LP acquisition.

The second column highlights expected internally generated cash flow of $21 billion, which leaves a residual need of approximately $7 billion from far right column of which approximately 2 billion is attributed to the pipe LP share for unit exchange.

The remaining $5 billion will be funded through a combination of incremental debt commercial paper and other including capital recoveries.

The program is consistent with our goal of maintaining debt to EBITDA in the high force range and <unk> on a debt of 15%.

Now turning to slide 22 next I'd like to spend a moment on our 2021 comparable earnings outlook.

Additional information is contained in our 2020 annual management's discussion and analysis, which is being filed on SEDAR today and will be available on our website.

Overall comparable earnings per share in 2021 are expected to be generally consistent with results achieved in 2020 due to the net impact on the following.

Canadian natural gas pipelines earnings are anticipated to be higher mainly due to continued growth in the NGL system.

Incentive earnings on the Canadian mainline and increased coastal gas link development fee revenue due to an expected rise in project activity.

U S. Natural gas pipelines earnings are also expected to grow due to an increase in transportation rates on Columbia gas, which is dependent on the outcome on the section four rate case filed with FERC.

In Mexico, we forecast earnings to be lower year over year due to fees recognized in 2020 associated with the completion of certain Texas pipeline.

In liquids earnings are anticipated to be lower than 2020 due to continued challenging market conditions impacting on contracted volumes on the Keystone pipeline system and.

And margins from the liquid market liquids marketing business.

Comparable earnings for the power and storage segment are expected to decline primarily due to a lower contribution from Bruce power as the world sales have greater planned outage days and higher operating costs as well as the sale of our Ontario natural gas fired power plants in 2020.

Bruce power availability, excluding unit six was 88% from 2020 and some unexpected to be in the mid 80% range in 2021.

Other items impacting earnings include the suspension of MTBC on though with the ranch effective January one 2021, given ongoing delays and reduced capitalized interest due to the replication of the Keystone XL presidential permit which occurred on January 20th.

With respect to income taxes, excluding Canadian rate regulated pipelines, where income taxes on a flow through item and can be quite variable.

Along with equity <unk> income in U S. Natural gas pipelines, we expect our 2021 full year effective tax rate to be in the mid to high teens.

Finally, as part of the 2021 outlook I would note that our exposure to interest rate foreign exchange and commodity price variability remains quite limited in our diversified portfolio given approximately 95% of EBITDA coming from contract in the regulated assets experienced flow through and sharing mechanisms as well as natural inactive hedges in place.

<unk>.

We do expect to record an impairment charge in 2021 related to the suspension of advancement of Keystone XL and as previously noted we had stopped recording IDC for the project effective January 20th.

In terms of capital spending.

We expect to invest approximately $7 billion from 2021 on growth projects maintenance capital and contributions to equity investments with the majority attributable to NGL system expansions U S natural gas pipeline project.

The Bruce power life extension program and normal course maintenance capital.

Which approximately 85% is invested in regulated rate base or otherwise recoverable.

We do not believe disruptions related to COVID-19 will be material to our overall 2021 capital program.

Ignite is that uncertainty exists from both the short and longer term.

Lastly, turning to slide 23.

Closing I offer the follow on comments, our solid financial and operational results from the fourth quarter. Once again highlight our diversified low risk business strategy and reflect the robust performance of both our blue chip legacy portfolio, along with the incremental contribution of equally high quality assets from our ongoing capital program.

Today, we are advancing a $20 billion suite of secured projects and have five distinct platforms for future growth in Canadian U S. Mexico natural gas pipelines liquids pipelines and power and storage.

On a portfolio of critical energy infrastructure projects is poised to generate high quality long life earnings and cash flow from our shareholders as well as offer further attractive and executable in corridor opportunities.

That is expected to support annual dividend growth of 5% to 7% in the future.

Finally, we will continue to maintain financial strength and flexibility at all points of the economic cycle.

And as a proven shock absorber to unforeseen market events.

At the end of my prepared remarks, I'll now turn the call back over to David for the Q&A.

Great. Thanks, Don just a reminder, before I turn it back over to the conference coordinator for questions from the investment community. We ask that you limit yourself to two questions. If you have additional questions. Please reenter the queue and with that I'll turn it over to the conference coordinator.

Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.

If you are using a speakerphone. Please pick up your handset before pressing any teeth to withdraw your question. Please press Star then two.

We will pause for a moment as callers join the queue.

Our first question comes from Robert Kwan of RBC capital markets. Please go ahead.

Hey, good afternoon.

Recognizing you've got a lot of stakeholders. So you can't necessarily say something definitive on cash tax all but it sounds like youre not expecting a path forward.

At least one that involves any material Tc energy shareholder capital. So that's the case can you just talk about how you view liquids pipelines in general within your overall asset mix thinking about the lack of visibility.

Or infrastructure, driven growth and especially what it does to your ESG profile.

Robert It's Francois I'll get started on this and I'll ask Kevin to provide some additional color. Our starting point is that this is irreplaceable infrastructure, it's very high quality cash flow stream underpinned by long term contracts with credit worthy Counterparties and.

Any alternative has to compete with the growth in earnings and cash flow debt that this is going to generate.

And it can play a role in TC Energy's growth irrespective of where we decided to allocate our capital going forward.

We do see a tremendous amount of opportunities.

And I'll ask Kevin to speak to what we see on the liquid side, but in our natural gas and power and storage businesses and that's.

That's going to be a high quality reliable cash flow debt, we can allocate wherever we see the best returns and how we want to manage the portfolio going forward, but.

If I could ask you to comment on the growth prospects within the liquids business.

Sure. Thank you Francois.

Or are there Robert to go after the question around the liquid.

<unk>.

The us growth outlook, certainly, we our base assets.

A link a very strategic supply base and with the highest demand.

Utilization in the Gulf Coast refining markets in the Midwest refining market, so a very strategic corridor.

That is irreplaceable and so while we were developing the Keystone XL project, we were similarly in parallel to advancing other opportunities.

To enhance our service offering for our customers.

Providing.

Different access points to delivery points and looking at as the market fundamentals shift and.

Supply sources change looking at where the arbitrage is in the market and finding ways to leverage our existing assets to it.

Enhance our our growth outlook.

Maybe I'll take care of you also mentioned our path forward.

To address that you know this is a very complex process and while we evaluate our path forward.

We have begun to immediately wind down our construction activities in both Canada, and the U S and a safe and responsible manner and then it's going to take some time to work with our partners and customers to determine what those exact next steps will look like but we will do so consistent with our values and doing and.

On the right thing so hopefully that answers both your two questions.

Great.

Finished turning to M&A and I appreciate the comments that it's not a so cash nor needed to reach the 5% to 7% growth rate.

Being said just maybe this is for Francois just now that youre on the chair.

Outline your approach your framework for let's call it opportunistic M&A.

If you can comment on the willingness to take leverage above your target over kind of a medium term period.

Execute that how you approach.

For EPS accretion and maybe just structurally.

On your interest or.

Willingness to acquire assets or platforms of scale.

Might have a non controlling or non operating interest.

Or there's lots in there to unpack, but I'll I'll do my best driver Robert.

With respect to asset M&A I think as we've mentioned in the past, we always look for high quality assets at distressed points in the cycle, where we are.

We're able to acquire assets assets that otherwise would not be available because of their quality because the.

On the existing owners are in.

In in financial distress.

We typically don't look for assets that are of a lower quality and need and need work.

And.

And deliver value from that perspective, so we do have a list of assets that are we've we would covet overtime I would characterize them as.

Enhancements and.

Directly connected to our existing footprint and two.

To this point, we have not seen any of those assets.

Available, although we have had conversations with various parties in terms of longer term M&A our.

Our value proposition from my perspective is to deliver.

On.

You know reasonable amount of growth.

In in dividends with a low risk.

Business risk profile underpinned by growth in underlying earnings and cash flow.

So as we think about M&A, whether it's near term medium term or long term.

The value proposition is that whatever assets, we acquire have to actually meet that requirement.

We.

We don't.

Feel that.

Our currency at the moment.

Given where we're trading relative to our intrinsic value lends itself to us doing anything dramatic.

It's very difficult when you're trading at a discount to intrinsic value to generate revenue and cost synergies that debt close those gaps. So we don't really think of accretion from.

Our financial accounting standpoint, we think of accretion from an intrinsic value standpoint, and so were inclined to be patient, which is why I mentioned that we're going to be focusing on our own operational excellence.

On making sure our assets are delivering the optimal amount of cash flow.

And performing well from that perspective, and then looking to organic growth opportunities from our existing corridors and those types of business opportunities. So.

From a balance sheet standpoint.

In order to be opportunistic you have to be able to maintain a strong balance sheet and have some dry powder.

And so any transaction that would see us taking on even temporarily significant amount of incremental leverage above our targeted levels is not something that we're really contemplating at this point.

Great and just on non controlling nonoperating interest in flow typically been Tc energy thing, but your approach to Oh My God, Yes.

Thank you.

Not likely.

We enjoy.

<unk>.

Having strategic control and operations of most if not all of the assets that are.

We have an ownership interest in <unk>.

You can see with be a transaction that we've.

Initiated to buy in.

The LP, that's a situation where we are the operator, where the general partner and we're very familiar with the assets and so comfortable with.

Properly assessing risk and managing risk in a situation, where you're not necessarily the operator.

Dick.

Proposition and I'm, not saying, we would never contemplate something like that but as you pointed out it's not something that we've typically done and that would not be our first approach.

Perfect. Thank you very much.

Thanks Robert.

Our next question comes from Ben Kim of BMO. Please go ahead.

Okay. Thanks, good morning.

Sorry, good afternoon.

As far as debt in terms of the year.

It's mixed now you got to excel.

Often a roster.

So you're looking at percentage of gas pipelines and in the rest of your business here, you probably got more tilted the gas and oil now.

Okay. So is there a strategic.

Long term focus for you too.

Look more towards diversifying.

That business next more on maybe balancing out overtime.

Do you think.

The way, we have thought about our portfolio composition Ben over the last number of years is that we work hard to.

Originate opportunities to allocate capital in a manner, that's consistent with our risk preferences.

And that earn a reasonable rate of return given the risk profile of the opportunity and to some extent.

On the portfolio composition has emanated from the opportunities that we've brought forward.

We do think that having a more diverse diversity going forward would be to our benefit our our our goal is to be.

On.

Able to prosper irrespective of how the energy mix transitions over time, so as we look at opportunities to allocate our capital going forward, we do see significant opportunity for us to invest capital in our existing fairways in our natural gas business and as we've talked about.

Either through firming resources or building renewables to meet our own electricity consumption from our power and storage business, we see some really interesting growth opportunities there as well and.

I think.

Also as we work towards our GHT emission reduction strategies, we do see an interesting potential for us to be electrifying some of our own footprint.

For example by replacing natural gas turbines with electric motors that some of our compressor stations, along our natural gas pipeline.

Corridors. So I think you can see the migration of our capital allocation and moving to a bit more diversity.

Perhaps more towards power and storage that has been the trajectory over the last few years as we've been monetizing some of those assets to fund our growth program along then.

Columbia system and are in the Canada gas system as well.

Okay.

And maybe.

They switched debt portfolio management.

Probably less of a need for that now you still have it in your slide deck is usually you've been able to harvest.

From that the last couple of years, whether it's oil pipelines are renewables.

And then it takes net.

On the Atmar growth going forward.

The case is there do you see any sort of arbitrage.

Managing a quick calling out between lower cost a couple of players in and you're a public equity valuations.

There could be in some circumstances I think from.

From a capital allocation standpoint, now our job is to maximize the spread between the return we earn on an investment and the underlying cost of capital to fund that investment. So we have the.

Traditional public sources through debt and equity capital markets, but we also have.

Internal equity that can generated through monetizing individual assets and we.

We keep it pretty close.

Pulse on.

Private market valuations for assets and it is something that we contemplate as we look to.

Raise capital to fund our growth program and it's something that we would look to in the future I can tell you that.

<unk>.

With the growth and capital program that Dawn walk you through.

Just earlier in the prepared remarks, we're confident in our ability to fund our existing program through internally generated funds and don't expect to have the need to raise.

Our share count on any way so.

From my perspective, I would view the need to raise external capital beyond our internally generated funds as being a very good problem to have because it means that you've got an opportunity that's sort of accretive to your base case, but right now the base case does not contemplate any monetization of our existing assets.

Yes, Ben it's Don I'll, just echo Francoise comments and just.

No. We our credit metrics are in line were largely self funded at this point.

Any time, we have we have to look at issuing shares we will look at selling things.

And everything is working through the lens of per share metrics.

But we truly are on to the core assets now.

And with the portfolio effect of what you see on a map and hardly hiving off.

Arms and legs of that is a more difficult proposition, but we feel we're in the sweet spot right now.

When we look at simplicity of structure, we look at the Optionality embedded in these assets and also the tax consequences serves.

Of monetizing anything but.

So at this point in time, there is there's no pressing need to sell anything and.

We're pretty enamored with with our portfolio at this stage.

Okay. That's great. Thank you.

Thanks Ben.

Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.

Hi, good afternoon.

Hi, Jerry.

A couple of higher level questions here.

I was just thinking with energy transition a larger focus and the stock market. These days I was just wondering if your thought process has evolved from investor I guess conversations on.

Capital stock rotation overall just.

The pace of that and at a high level, how do you see the TRP or portfolio advancing overtime.

Recognize you kind of touch on that in some of the questions before but you know thinking about energy transition capital stock rotation.

I think as.

As we discussed in our on our Investor Day in November and you look at some of the tenants are fundamental beliefs that sort of drive our views on.

Asset allocation and portfolio composition, we believe that.

Energy demand globally will continue to grow I think the demographics are just such that that's going to be the case. We also believe that natural gas will continue to gain market share.

Honestly on a percentage basis, but in absolute terms on an energy equivalent it will be significant growth.

So we do see.

On opportunity for us to allocate incremental capital into our natural gas businesses. The two basins that we serve the western Canadian sedimentary basin in the Appalachian Basin are extremely competitive and resilient and as a matter of fact, we expect that over time that they will gain market share and so we feel like we're serving the right basins.

With respect to other parts of our portfolio. The other area of interest and growth for us will be in our power and storage business and.

As I mentioned.

We see an opportunity to electrify our own consumption our consumption on base Keystone is about 800 megawatts and on the national natural gas pipeline side of our system about 10% of our.

On compressor stations in Canada are driven by electric Motors.

And about 5% of those in the United States. So we do see an opportunity to allocate more capital and our pipeline businesses to electrify.

Those compressor stations and then beyond that once the electricity demand has been created and build the renewable generation.

That will be required to actually meet that consumption. So.

Over and above that as we think about.

Other growth opportunities we look at.

Our solar and battery projects, we have in development in Alberta.

Our announced Siemens in conjunction with Siemens and new waste heat technology that will generate emission free power from waste heat at our compressor sites.

At a pilot installation in Alberta, but we see about 300 megawatts of potential for that across our system. So.

We're very confident in our ability to meet our internal goal of finding $5 to $6 billion a year of opportunity to allocate our capital and I think as you mentioned Jeremy are intimated that.

That allocation is likely to shift more towards the theme of our investments to electrify our asset base and reduce our emissions and also the.

Reflecting the increased percentage of renewable generation and the generation mix overall.

Yeah.

Understood Yeah, sure seems themed events in Texas with highlight the value of natural gas flow so understand at that point and then.

Maybe just kind of pivoting to.

Separate question here and don't have asked this before but just curious for your thoughts on what the right level of payout ratio.

For TRP here, if you see if your belief is that trp's trading below intrinsic value.

Makes sense to lower the payout ratio or.

Little bit to enable more buybacks to take advantage of that situation you can see that I see that debt.

<unk> 'twenty 'twenty, one growth ticked down a little bit there. So just wondering your current thoughts on that.

Yeah. Thanks for the question Jeremy.

It's a balancing act all the time, but we have a multi decade model that has delivered pretty significant.

GSR overtime.

On.

We we think in the longer term in terms of the capital allocation.

Model that we have never flavor of the day, but I'd say, we're we're not also not tone deaf as to what's going on out there.

The building blocks, we start started looking at the base business has anything fundamentally changed and we're pretty comfortable.

At the base business is resilient and we scenario and stress tested that AD nauseum. So.

We think the cash flow will be there as we look out on a decade debt coming decades here. So.

Looking at the dividend is it affordable when is it values.

When we look at the interest rate backdrop right now.

We would think that.

Over time the market.

Marco will come back and appreciate the yield that is associated with <unk>.

With our with our shares right now.

On the opportunity set to reinvest cash flow is.

As robust as we've seen it.

For a decade plus here so.

As Francois has alluded to the.

On.

So nothing has fundamentally changed here so.

So we stepped back and we.

We try not to make any decisions on on a short term basis here on the knee jerk basis, but we work on our payout ratios. They are largely in line on a comparable EPS basis, we've historically targeted 80% to 90%.

We're certainly well within those parameters, which equates to about 40% of cash flow so as.

As we guide to 5% to 7% dividend growth.

We see the payout staying within those.

On those metrics going forward.

Do you look at the share price from time to time, we look at it every day every every hour.

On the can be frustrating at times, but we've seen this movie before and if we continue to do.

Deliver on this model.

And we think that the valuation will ultimately reflect that so.

Very long winded way of saying.

Nothing has fundamentally changed in terms of base business the opportunity set.

And I on.

On a bit strange to figure out why are you on.

6% yield right now when interest rates are 1% or lower.

Is not reflected in the share price, but again, we've been through these air pockets before and if they persist for a very long time, we'll revisit it.

But fundamentally all the building blocks, we have historically seen are in place.

Understood I'll stop there. Thank you for the thoughts.

Yeah.

Thanks, Jeremy.

Our next question comes from Rob Hope of Scotiabank. Please go ahead.

Good afternoon.

I wanted to follow up on some prior comments on the on the opportunities for growth in this environment.

The potential loss of Keystone XL puts a bit of a dent in the middle part of the decade's growth.

Growth outlook, how do you think about back filling your growth.

To offset this or is that even required just given the fact that you do have about $50 million of backlog right now which is at the lower end of your 5% to six per year.

I think the way we look at it Rob.

Is what's our degree of confidence in being able to build up to that five to six every year and right out of the gate, we have a 1 billion and a half to $2 billion a year of maintenance capital that's required 85% to 90% of that goes into rate base.

And given the very high utilization rates on our pipelines, we're expecting that that level of capital spend will be required going forward.

And over and above that you look at the.

Bruce Power MCR program I think as we included into some of our slides we are.

Approaching a decision on MCR unit three in the fourth quarter of this year.

I think in our.

Our MD&A we have from.

From 2024 through 2031, the end of the program in $2018 its about $6 billion of capital spend in actual dollars, let's call that $1 billion a year. So that gets you to pretty close to $3 billion right. There and then looking at in corridor expansions in our U S and Canadian natural gas pipeline business.

<unk>.

Each of our Canadian and U S businesses delivered about $1 billion of new growth projects in 2020, and as we look at.

The next few years and each of those businesses, we think that debt is a good and reasonable run rate. So that gets you to close to five right there and thats before we start thinking about.

Opportunities on the on the power side to invest capital in meeting our own consumption and it's even before looking at other things like electrifying, our own load and other capital investment opportunities that come from.

Reducing our emissions so.

We actually see ourselves as opportunity rich.

And if we want to live within our means we're actually going to have to make some choices between all of the different items I just laid out for you in terms of priorities not only thinking about hurdle rates and risk return and the underlying.

Commercial underpinnings, but also what we want the portfolio to look like over time.

Alright, Thanks for that and then the follow up I wasn't gonna be on hurdle rates. So how do you think about kind of your hurdle rates.

Keystone pushed on the liquids hurdle rate up you know you have.

Our robust row, asking the Columbia rate filing and on the other side, our hurdle rates coming down on the on the power side.

Don do you want to take that one yeah, yeah I'll start.

We're looking at it holistically.

We're not going to.

Our hurdle rates have not really budged much over the years.

And we're not going to chase.

Projects down below what we feel is an acceptable return so we see some aspects of saying the renewable space right now that while we would like to invest capital in that in that business in that space.

It just doesn't meet our return hurdles.

In terms of the liquid side.

<unk> outlined some of the opportunities here, there's a lot of bolt on stuff that debt.

Could be reasonably high return low execution risk stuff.

The challenge we have is finding a larger scale liquids opportunities that meet our risk preferences.

Are they out there and how significant are a day, but generally what we.

Pointed to is.

Unlevered after tax IRR is kind of in that mid to high single digit range.

With variability for political risk in places like Mexico.

Unique nature of nuclear refurbishment and the like but generally the pipeline space you end up on that 7% to 8%.

Range and.

And we still see a lot of opportunity coming certainly on the gas side and we expect that will bring.

Some bolt on stuff on the liquid side and that range is maybe not multibillion dollar stuff.

Thank you.

Yeah.

Yeah.

Our next question comes from Linda <unk> of TD Securities. Please go ahead.

Yeah.

Thank you congratulations for a resilient and a strong year certainly a different year than we all expected.

I'm I'm wondering if you can help us understand recognizing that this is another dynamic situation. The recent cold weather and polar vortex in Texas and the Southern U S. And can you talk about what sort of impact it's having on your operations and how might we think of any financial impact.

If any recognizing that there's that.

Force majeure clauses that we might not be available.

And I guess the second part of my question is you know lessons learned.

You know at some point is it just going to be business as usual. After you regroup then recover or might you rethink cotton devalue connectivity, maybe there's some.

On the possibility of storm hardening, becoming even more resilient and making those investments that.

That customers might ask for or.

Maybe Mike you rethink also the extent and pace of electrifying the tightened up pipeline network.

Our electric power might not be.

Yeah.

Eligible as a backup if the solar or any other investments you make.

I can't provide power to your compressors.

So Linda this is Stan I could address the first part of your question and then I'll, let my colleagues to jump in at the at the rest are both our pipelines and our people performed extraordinarily well during the I guess, what I would call the ongoing cold snap that really ramped across much of the U S.

And yet again just shows the the really valuable role that we play in providing energy to millions of individuals and businesses. When it is needed most yet again, we saw record throughput levels.

Our <unk> pipeline network.

Francois I already mentioned that we had a coincidental 30 day peak between February 14, 15, and 16, where we delivered over 101 Bcf of gas.

On February 15th or Columbia Gulf pipeline set a new peak day delivery record spending out over three three Bcf and also on February 15th across our combined <unk> owned and operated pipelines. We delivered just over 34 Bcf of gas, which was our second highest single day ever so net this.

And most impressive accomplishment from my perspective, and it doesn't happen by accident and I'd like to Echo <unk> comments at the beginning of the call on recognized literally the thousands of employees across the U S from our field operations teams, who are the ones that brave. These late night callouts in freezing temps.

Who are our gas control teams, who we optimized literally every single decker therm of capacity to ensure not only that we were meeting our customer obligations, which we did but also creating value for the company and lastly, our office workers and especially those in Houston, who worked at most of the past week without any electricity heat or even.

Sometimes water in their homes with respect to your comment around electrification and does this impact in Texas make us rethink that for a relatively minor investment.

It's likely that we would install dual drives that will have the opportunity to switch back and forth between electric or gas drives debt. We don't have outages at the time of this branch will I believe mentioned that we have about 240000 horsepower of electric compression across our system. Today, we are going to continue to look to add additional electric where it makes.

As a matter of fact I just a few weeks ago, we spent that approved.

Approved the capital project of about $100 million too.

To expand a project into Virginia, where were going to.

Basically replace some older inefficient gas compression with new electric drives maybe even a dual drive that will help us serve incremental load at the same time driving down our greenhouse gas footprint, so with that I'll pause and I'll just invite others to jump in if they want to.

Yes, Dan this is Kevin so Linda with respect to our liquids pipelines.

Certainly first and foremost on I acknowledge the teams too.

On our customers who had to work through some fairly horrendous.

Circumstances to get us to a spot where a very safe and secure with all our assets.

We needed to.

Within the liquids business unit, while the demand actually cratered in that many of the refineries that we provide deliveries too.

Didn't have power couldnt receive shipments and so we're in the midst of a number of circumstances, where both our delivery points were under force measure.

And as such even though our assets were very operational.

And functioning well we had two similarly.

Make a force measure.

And.

In that we needed to park securely those volumes that were in our in our pipe we see that this.

This will clear up.

Fairly quickly, we don't see it being material to our overall revenue for the year at all.

Nor should it impact on.

Our customers in any material way.

That's helpful.

And I guess, just 10000 foot view, maybe a follow up question from small or the team.

Considering.

You are on geography currently.

You mentioned previously that there is a benefit to diversification certainly asset diversification benefit it's beneficial geographic.

Diversification is beneficial.

How do you see your geographic mix potentially.

Shifting over the next decade.

Given some of that.

Political change we're seeing.

Given some of the policy changes, we're seeing and specifically I'm wondering if maybe there's a bit more of a tilt to Canada and what.

Might prompt if at all any consideration of any investments outside of North America, and what would the criteria need to be to that to consider that.

Thanks for the question Linda It's interesting we do regularly at least annually ask ourselves. The question is the opportunity set in our current footprint, Canada U S and Mexico sufficiently large and.

Does it intersected with our core competencies well enough that we have an opportunity set that's sizable enough not to.

Cause us to want to look further afield geographically.

To this point in the last several years and we've asked ourselves that question. We've said that we believe there is plenty of opportunity for us in our existing.

On a footprint.

To grow the business in a manner that we want to.

Our experience has been that.

Where you have commercial relationships you have.

Political relationships with state governors.

Or with the with members of Parliament are members of provincial Parliament, where you have relationships with the regulators with commercial.

You'll organizations, it's just much easier to manage what we we all know is a.

And increasingly demanding standard from our stakeholders and how we develop energy infrastructure.

So anytime you think about going further afield.

You're flying a bit blind in terms of <unk>.

Your ability to assess.

How well you can manage some of those stakeholders. So.

For the time being again as we look at our opportunities. We are opportunity rich. We are we're very confident in our ability to originate $5 billion to $6 billion a year of opportunity.

In North America, with the set of core competencies and capabilities, where we can manage risk and earn a reasonable return so.

It's not to say that we won't contemplate.

Expanding further afield in the future, but those issues, particularly around having key stakeholder relationships in those new geographies is something that's bearing more and more weight in our assessments.

Thank you for the context, I will jump back on queue.

Our next question comes from Robert <unk> of <unk>.

<unk> capital markets. Please go ahead.

Hey, good afternoon.

Basically touched on most of my questions at this point on on the capital allocation.

How are you adapting the investment process to account for the uncertainty related both to the energy transition and also on the pandemic, which.

Both of those seem to have on uncertain.

Okay.

Personally in terms of.

Timing. So maybe you can address thoughts on what you've already addressed it really from the hurdles.

Returns point of view, but maybe you can address it from the risk transfer point of view.

Yeah.

Maybe I'll get started and I'll ask Don to supplement our correct me where I stray.

I guess, a couple of things come to mind, Robert The first is we do scenario analysis, we run our models too.

Our end of life.

Sure.

All of our capital investment opportunities and we do look at various scenarios for how energy transition might occur.

With the impact might be on supply and demand in prices for all of the all of the different forms of commodities.

Whether it's the underlying commodity for that particular investment opportunity or competing commodities that might affect our ability to re contract and manage some of the residual risk.

So running all of our investment opportunities through those scenarios does allow us to assess the resiliency of.

When we make investments.

I'll point out debt with most of our capital being allocated anywhere regulated businesses, particularly on the gas side in Canada and the U S.

On the the regulated construct does allow us to earn a return on and of capital.

For when we make those investments and so to the extent they you.

Useful life of the basin, we're too.

Jordan.

Inside of the remaining <unk>.

Here's a depreciation we'd have the ability to to apply to the regulator to accelerated depreciation and recover our capital we don't we don't.

Foresee that happening anytime in the near future, but just to point out that there is that regulatory mechanism there that to mitigate the other is.

With respect to carbon emissions and how do we factor in what I call carbon competitiveness into our capital allocation model and.

It's a bit more.

Straightforward to do.

For example, in Canada, where the federal government has proposed a mechanism on an escalation for for carbon taxes going forward, we can ascribe economic value to those emissions.

Either with respect to the emissions of the actual opportunity or to create other opportunities to actually reduce our emissions on what the economic return will be for those I would say, it's early days for us on how to apply the concept of carbon competitiveness in our capital allocation, but it.

It is something that we are beginning to more formally incorporate into our into our capital allocation going forward.

It's John here I'll, just maybe speak to.

Covid.

And really if any other.

Event risk.

Debt might might be dependent upon us.

Through permitting your execution on any large project.

We do restrict the amount of capital we expose that they are at.

Early stages of any project and we.

We look to towards mindful risk sharing with other stakeholders.

Boxing risks that we don't necessarily have the ability to control or more.

Or on the magnitude potentially that debt.

Overly impactful to us so.

Sure.

That's really the way you've seen us change our approach here is.

Particularly on the large scale projects on.

On the cash sales the coastal gas link.

And are like us.

So it's not COVID-19 specific interest any event debt.

We can't foresee our control I'm, just trying to limit how much capital we have exposure how much of a grind it could be to our returns.

Yes. Thank you that does stay on terms looking for thanks.

Our next question comes from Michael Lapidus of Goldman Sachs. Please go ahead.

Hi, guys. Thank you for taking my question.

Appreciate you taking the amount of time on the on the fourth quarter call.

I actually have two one is coastal gasoline.

Can you remind us what is the lag in cash flow. So like the Capex is going to go up on coastal gas link.

The tolls go up from here.

Your reflective of what the Capex levels. So if capex in a given year on the forecast is up 500 mill or a bill with a toll in that year go up as well to reflect that change in that year's capex with cash.

There are lagging cash Hello, and so it has an impact on kind of credit metrics stepped up on the debt et cetera.

Maybe I'll start with that one micro and then Don may have some comments on on as well so of course.

As we spend on coastal gas link if capex goes up and in all cases, we attempt to mitigate any impact on on Capex is as we encounter issues.

That capital flows into tools add in service.

And all of the Capex flows into tools at the same time. So the toll recovery begins as soon as we are adding service.

So.

But we do from the perspective of operating cash we do achieve <unk> on this right.

As we progress and we have cash of PDC from the joint venture partners as we go and I hope that answers. The question Don May have some comments to add to that.

Sure.

From the way coastal gas link is structured it as an equity investment from our perspective on our on our financial statements.

There is significant project financing in place at the project level.

That will be shaped to the ultimate size of the project with significant leverage their debt.

Does not hit our balance sheet.

It's the plant supplemented by as Tracy mentioned cash carry costs from the shippers over the course of the project and equity contributions from ourselves plus a KKR and Aimco are partners and.

Hopefully ultimately first nations.

So the.

The impact on Tc energy.

Is the cost increase there is relatively insignificant.

On our balance sheet and on our credit metrics.

As we noted in our disclosure, we don't expect the cost increase or the schedule delay to have any significant impact on the equity contributions we ultimately make to the project. So.

Meaningful at the project level, but in terms of the consolidated impact on the company.

Don't see it as being material.

Got it and then one just kind of coming back to capital allocation, a little bit capex stays in the four and a half to $5 billion a year range.

That's up though the debt will continue to improve over time, even if dividend growth is up 6% or so.

<unk>.

In your in your three and therefore that implies you're calling absolutely deleveraging.

So unless there's some other headwind or some other use of cash on the cash flow statement do you think you're positioning yourself, where there's not incremental growth projects like the hydro project or something else where debt by year, three or four year likely buying back stock.

Sure.

It's Don here again I'm on.

Not sure if we're buying back stock, but we do have we do have financial capacity that grows over time.

So it's beyond just the cash.

The 40% or 60% of cash flow debt.

Somewhere near tend to reinvest each year youre debt capacity as you pointed out with you on your credit metrics on a debt to EBITDA on the high force an episode on the 15% area.

Does give you the ability to to grow that investment base without.

No tripping any of your credit metrics over time, whether its share buyback or additional investment in similar kind of initiatives that we have going forward remains to be seen.

Got it. Thank you much appreciate it.

Our next question comes from Patrick Kenny of National Bank Financial. Please go ahead.

Hello, Good morning, everybody I know youre looking to establish your emission reduction targets at some point this year.

Just curious how far away you still might be from setting those targets.

Maybe some initial thoughts around pledging net zero or sitting absolute versus intensity targets by say 2030.

Yes, just how youre thinking internally about aligning those emission targets with broader government policies out there.

And your overall, 5% to 7% growth objectives.

Okay.

Patrick It's Francois thanks for the question we.

We did mentioned at our Investor day that our intention is well first of all we did establish.

Some policy initiatives and our sustainability and climate change report here in 2020.

Indicating that we believe we do have a responsibility as a.

Irresponsible.

On an operator of infrastructure to reduce our emissions to every extent possible.

As a company decided to take the additional time to come back with a more granular answer not only with respect to what.

Interim targets might be and ultimately what our 2050 type.

The timeframe targets would be but also the strategies that we would be employing to get there. We think it's important to have a credit credible plan one that not only we can communicate to you all and others in the financial community, but our other stakeholders indigenous communities governments policymakers et cetera.

I would say.

You can expect us to be providing some clarity on that in the second half of the year are sustainable climate change report.

As published in October in 2020.

We might be ready too.

Publish.

Our conclusions on our findings a bit earlier than that but it would be no later than that and that type of timeframe. We think it's an important document.

To get out.

To our stakeholders as early as possible.

Given our culture, and our propensity to be disciplined and under promise and over deliver I won't provide any hints as to where we think we might land. The good news is that from our perspective.

The technology exists today in order for us to.

Significant reductions in our emissions because.

A good a good percentage I would say the vast majority of our emissions come from burning gas.

At our compressor stations on our pipeline systems and simply by replacing those with electric Motors you reduce your scope one emissions.

Immediately.

Scope two emissions matter of course, and so if you're replacing a gas turbine EDA compressor station with.

Electricity generated from gas fire generation like for example.

Currently be the case in Alberta doesn't make a whole lot of sense to do that so.

We think it's going to take some time for us to achieve those targets based on particularly around scope two emissions, how the underlying generation mix evolves over time.

Also as I think Linda alluded.

An earlier question you have to consider reliability.

And.

A lot of our compressor stations are in very remote areas, where there are no transmission lines and so from a reliability on our safety and redundancy standpoint.

It's not going to be applicable everywhere, but so I think we'll be able to get part of the way there at least with.

On a pretty well defined set of strategies. The other important thing is how quickly.

This takes place.

We think it's very important to have a vibrant and healthy.

Energy.

Energy system with all participants in the energy value chain, having financial health and so the natural opportunity for us to rotate capital to lower emitting technologies is when a piece of equipment reaches the end of its useful life to the extent, you're replacing it earlier than that somewhat.

It has to absorb that cost and we're very cognizant of not creating significant rate shock for our customers. So we think this is a strategy that's going to be pretty straightforward, but it will take some time to execute if you want to minimize rate shock and we will see what poly policymakers provide in terms of incentives for us to ask.

Celebrate the rotation of that capital stock.

There's not a ton of clarity from policymakers yet on what those mechanisms might look like and I think those would.

Affect our ability to.

Reduce our emissions more quickly than would otherwise be the case through natural attrition.

That's great appreciate the comments there.

And also just with respect to balancing the strategic plan.

To achieve your ESG goals with your financial Girl schools as well just looking at your power portfolio.

Clearly it's been a strong first couple months of the year, the Alberta power market.

I'm sure. The main focus right now is beefing up your renewables footprint. So just wanted to get your thoughts on how you view the relative attractiveness of allocating more capital towards the Alberta market to capture more of a of an immediate.

<unk> financially versus building on some of your larger scale contracted renewables overtime, which again might might fit well with achieving your ESG goals.

Yes, perhaps I'll get started on I'll ask Cory to provide further comment just at a high level, our strategy and our power business.

As we wanted to invest in more fuel diversification. So we like our co Gen business in Alberta.

Been doing well and operating extremely well under severe cold temperatures over the last.

A few weeks so we've been very pleased with the operating and financial performance of those we do want to have more of a balance in terms of fuel diversity again are our goal is to is to be prosperous as a company irrespective of the pace and direction of energy transition over time, so that speaks to having more.

<unk> in our fuel mix.

But having said that.

Perhaps I'll ask Cory to add.

Add some commentary on how he's thinking about the Alberta marketplace.

Hi, Thank you Francois.

That we would approach the Alberta marketplace and the entire power platform. The way we approach the rest of our business. We are looking for long term contracted relationships that meet our hurdle rates or for.

For our power assets and I think we will go on to stick to our knitting and really stay focused on that being a core business I think we want to avoid merchant exposure.

And avoid adding that.

To our portfolio and I think as <unk> said in his comment the firming.

Firming assets on just pumped hydro long term contracted assets such as renewables, both in the province and in the lower 48.

Provide opportunities as well as serving our existing load.

Okay. That's great. Thank you very much.

Our next question comes from Andrew Kuske of Credit Suisse. Please go ahead.

Thank you good afternoon on probably a question for Doug on to start and its religious on some of the legacy asset positioning your habit hardesty around our base Keystone.

And then what you have already built for really for what was the cat XL project in really in relation to pipeline connectivity and then the terminal positioning you have in hardisty.

Thanks, Andrew.

Certainly.

Hardesty is the origination point for the Keystone system.

And it is as it is strategically connected on the Interconnects.

On that or with other parties terminalling assets.

<unk> C J equipped with how you how you manage those assets so we've been generating a.

Longer term plan for those assets.

That originally was based primarily off of the Keystone XL project, but there still is very strategic use.

For our investments in hardesty and an extension to that.

Is that the.

Assets that have already been.

Constructed or put on surface we were on.

Our project teams are actively looking for ways to utilize that equipment.

It is strategically positioned again.

In our in our core corridor and as such we would look to find ways to recover value on those assets.

Okay. That's very helpful and then.

Maybe also just a reference to another legacy business being on the power business, where you've been for many years.

Especially with renewables exposure on on waste heat.

Pumper 20, some odd years ago, you started there.

Could you give us just some color and context, and there's probably close from ortho Francois just on the.

Your internal capabilities for scaling the renewables business or just associated power efforts with your in quarter assets. If you chose to go that route.

Yeah excellent question and.

Ill.

I'll point out debt at various points in time over the last 20 years, well, we either currently or have operated nuclear.

Wind.

Natural gas we dispatched coal.

From geothermal as well I believe our run of river hydro so.

And.

For the most part those people are still strewn about our organization.

One of the reasons for bringing.

Cory on board with 20 years plus of experience in the electric utility sector and developing in generation business for a couple of our competitors over those two decades.

<unk> was two reconsolidation.

And reform.

Our team.

<unk>.

Build back our origination capabilities around those types of opportunities. So we can prosecute what we see as the opportunity set going forward and Corey.

Invite you to add any comment you want to make there.

Yeah. Thank you very much I would think that debt.

An excellent point.

We are as as Francois said, we are have been how we are opportunity rich with the with the choices for investing and we are equally as opportunity which with our.

Personnel on our team members that have a long history in this sector. So we have a high level of confidence that we can execute systematically and effectively and within our risk profile.

For this sector and I think as you would.

I've heard from many folks on this call we are very focused on.

Staying in corridor with what we do best and so we will manage those projects safely and effectively and and and really use the expertise that we've gained over the last 20 plus years in this sector.

That's great. Thank you.

Our next question comes from <unk> Satish of Wells Fargo. Please go ahead.

Thanks, I have two quick questions first on cash. So if you decided not to proceed with the project.

Kim of steel that was ordered to be reused for future projects are sold and if so is there any way to quantify it.

Those savings.

71 on grab that one.

Yeah, absolutely sorry, I had myself on mute.

Certainly our project team <unk> is evaluating what we can do with all of our equipment.

And its uses the value of steel.

In some cases has increased and certainly there is a market.

For some of our spare materials, if that if we evolve to that point here. So our team is looking at the the best strategy to wind down and work closely with our partners.

To do so and well.

We'll provide further updates.

Once once those plans are in place.

Okay got it and then.

It looks like Youre still in settlement negotiations on Columbia gas, but but the rates became effective on February one. So I'm just wondering how this will be accounted for I guess, specifically with your EBITDA in Q1 reflect the higher proposed rate on Columbia gas.

So pretty standard.

I could start and Don you could supplement as necessary, but yes. So we did put the motion rates into effect on February one and we will continue to collect those until a settlement is finalized at that point in time, we're basically go back and restate.

Our revenues back to February one so you can kind of think of each month will be we'll be preserving the difference between what our filed rates are and what our expected. Her final settlement rate is and hope to have more clarity on the whole rate case process for you in the May conversation, but I would just say at this point in time debt debt things.

Are progressing as expected we've had two settlement conferences, so far a third one scheduled for next week and again just going to ask for your patience.

Process play out a little further.

Yes, it's Todd here there yes.

The the progress on the that the process will inform us as to what kind of an estimate we make in terms of recognition in the quarter idle I'll get smoothed out over time is as.

The settlement is either reached or we ended up going through litigation and get the outcome of that but it'll be a point in time estimate.

Got it thank you.

Our next question comes from Harry Mateer of Barclays. Please go ahead.

Hi, good afternoon.

Two from me the first just on hybrid securities. So I appreciate the comment earlier that with cash sale out of the budget no longer an intention to issue those for funding I guess I'm just wondering if we can.

Expand that.

Given you seem content with your leverage metric trajectory as the plan for any debt financing really just to be straight senior unsecured or hybrid still play a role in sort of your base case in the next couple of years.

Yes, it's on here.

We have a limitation on 15% of our capital structure being in preferred shares and hybrid securities.

We're bumping up against that right now.

So on the absence of balance sheet growth.

Di.

I wouldn't expect any any change upward on that.

So that.

Like what you see on the slide in terms of debt financing is has generally senior debt.

Okay.

And then second question more just financial policy, but away from hitting a specific credit ratings target.

Have you spent any time thinking about weather just with the energy transition, which I think carry some inherent uncertainty does that alone warrant, bringing leverage down further than your current target just a natural embed.

Somatic cushion for the company.

We're we're in continuous dialog with the rating agencies.

Get a sense of where their heads are at.

We're pretty satisfied with the strength of the portfolio right now as you look at the left hand side of the balance sheet, it's really never been stronger it's long term annuity streams.

The crown jewel assets and portfolios so.

From our perspective, it's very utility like in that sense.

If the rating agencies start attributing more risk to that portfolio was France, where I mentioned earlier, we have mechanisms such as accelerating depreciation to address that so.

Because there is uncertainty out there it doesn't.

At this point doesn't.

Make us move to reduce leverage we're quite comfortable with with where our metrics are at and.

Just the stability of our cash flow here.

On.

So if the goalposts you start changing we will have to.

We'll have to assess that and see where to from there but at this point, we're quite comfortable in the rating agency rating agencies seem quite comfortable as well.

With the business risks and how it's funded how its financing.

Okay. Thank you for that.

Ladies and gentlemen. This concludes the question and answer session. If there are any further questions. Please contact Tc energy Investor Relations I will now turn the call over to Mr. Moneta. Please go ahead.

Oh, Thank you and thanks to all of you for participating today, we very much appreciate your ongoing interest in TC energy and we look forward to talking to you again soon in the meantime, we wish you and your families. Good health.

Thank you goodbye.

Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Yeah.

Uh huh.

Yeah.

[music].

Okay.

[music].

Okay.

[music].