Q1 2021 TC Energy Corp Earnings Call
Yeah.
Okay.
Okay.
[music].
Thank you for standing by this is the conference operator.
Welcome to the TC Energy first quarter 2021 results conference call.
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 2021 first quarter conference call.
Joining me today are Francois Poirier, President and Chief Executive Officer, Don Marchand Executive Vice President strategy, and corporate development and Chief Financial Officer, Tracy Robinson, President of our Canadian natural gas pipelines and coastal gas link Stan Chapman, President U S and Mexico natural gas.
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<unk> been worse for president liquids pipelines, Corey has some 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 development 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.
Before Francois 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 and finally during this presentation.
We'll refer to measures such as comparable earnings comparable earnings per share comparable EBITDA and comparable funds generated from operations. These and certain other measures are considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities. They are used to provide you with additional information on Tc Energy's.
<unk> operating performance liquidity and its ability to generate funds to finance its operations with that ill turn the call over to Francois.
Good afternoon, everyone and thank you for joining us this afternoon.
As outlined on our first quarter report to shareholders, our diversified portfolio of high quality long life energy infrastructure assets continued to perform very well in early 2021.
Despite energy market volatility weather events and the ongoing impact of COVID-19 flows and utilization levels across our network remained strong.
For example, our U S natural gas pipeline network moved nearly 29 Bcf per day in the first quarter, an increase of 4% over the same period in 2020, while field receipts on the NGL system in Alberta, where more than 12 Bcf per day.
And then our power and storage business Bruce power continued to produce solid operating results, while in Alberta output from our cogeneration plants nearly doubled.
Due to the return of service to service story of our Mackay River plant and withdrawals from our natural gas storage facilities increased by 75% over the same period last year.
Once again this highlights the central role our infrastructure plays in the functioning of the North American economy, and the wellbeing of people across the continent.
And we take this responsibility seriously and as always we conducted our business in a safe and reliable manner.
Safety is one of our core values and is embedded in the fabric of our organization and evident in our commitment to ongoing pipeline system integrity.
We've invested $150 million in pipeline inspection research and development since 2010 and billions in pipeline system integrity, using the most sophisticated and advanced data analytics and risk evaluation methodologies in the industry.
Our strong operating performance is also reflected in our solid financial performance with comparable EBITDA comparable earnings per share and comparable funds generated from operations in the first quarter of 2021, all similar to last year's record results.
And this was achieved despite onetime sort of Texas fees in the first quarter of 2020, the sale of our Ontario gas fired generation assets last April and the loss of interest during construction on Keystone XL.
Now on Keystone, we were very disappointed with the with the decision in January to revoke the presidential permit.
As a result of the decision. We subsequently agreed with our partner the government of Alberta to formally suspend the project and evaluated our investment for impairment along with certain other projects in development, including the Heartland pipeline Tc terminals and the Keystone Hardisty terminal.
This resulted in an after tax asset impairment charge of $2 2 billion, which was excluded from comparable earnings.
These costs will be shared with our partner, thereby reducing our net financial exposure at March 31 to approximately $1 billion.
I'd like to thank our customers.
American and Canadian workers, our partners, the government of Alberta, and natural law energy.
Local communities.
The pipeline building trade unions Indus.
Industry, the government of Canada, and countless others, who supported this project over the past decade, and would have shared greatly and its benefits.
And while we are all disappointed with the outcome. The experience we gained us not lost.
Through the process, we identified meaningful indigenous equity opportunities collaborated with Union labor and developed a robust plan to ensure the pipeline achieved net zero emissions from the moment it would have gone into service in 2023.
And you can expect to see US continue to apply this innovative approach to projects in the future.
Looking forward, we expect our solid operating and financial performance to continue with 2021 comparable earnings per common share anticipated to be generally consistent with the record results. We produced in 2020.
We also continued to advance $20 billion of secured projects that are expected to enter service by 2024 and help power the north American economy for decades to come.
A substantial portion of this growth is related to our natural gas pipeline network.
This infrastructure is critical to support the transition to a lower carbon world as natural gas will play a key role in both displacing higher emission coal fired power and providing the necessary backstop to the intermittency of renewable power.
All of our projects are underpinned by cost of service regulation or long term contracts, giving us visibility to the earnings and cash flow they will generate.
In addition, we are progressing $7 billion of projects under development, including the refurbishment of another five reactors at Bruce power.
The refurbishment program will run through 2032 and is underpinned by a long term contract with the Ontario, ISO that extends to 2064, providing us with stable and predictable earnings and cash flow.
And the province with emission less power.
Over the mid to longer term, we expect numerous other opportunities to come to fruition as the world both consumes more energy.
And it transitions to a lower carbon energy future.
Ultimately our goal is to continue to invest $5 billion 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 growth opportunities.
With the ongoing energy transition discussion.
It's easy to forget that the world will continue to rely on large quantities of natural gas and oil for the foreseeable future.
And with 94000 kilometers or 58000 miles of existing natural gas pipelines, we are well positioned to continue to meet growing demand through highly executable in corridor expansions.
That said the energy mix of the future will evolve with renewables for example, making up a greater portion of the overall fuel mix.
Our goal is to build on our long history of success and.
And be agnostic to which form of energy will ultimately lead to a lower carbon energy future.
As a result, you will see our capital allocation shift over time to meet the energy mix of the future and to me. This is very exciting and represents a tremendous opportunity.
Whether it's renewables and the firming resources needed to manage their intermittency.
Electrifying our fleet.
Our other emerging technologies.
Our existing asset base technical capabilities innovative approach and financial strength means that we are well positioned to prosper irrespective of the pace or direction energy transition takes.
For example, we've been engaging with various stakeholders in Ontario to advance a large pumped storage opportunity.
The project is designed to store emission free electricity and to provide a backstop to the intermittency associated with the energy provided by renewables.
More recently through the issuance of a request for information, we've announced that we are seeking to identify potential contract and or investment opportunities in wind energy projects that could generate up to 620 megawatts of zero carbon energy to meet the electricity needs for a portion of our U S pipeline asset.
Net.
This is an important step in advancing our plans to leverage the power business as a platform for future growth and diversification, while lowering emissions across our north American footprint.
In summary, I believe we will be opportunity rich and our challenge will be to allocate capital to those projects that are best aligned with our capabilities, our risk preferences and our return requirements.
Can assure you we will not compromise our commitment to being thoughtful deliberate and disciplined in every investment decision we make.
Based on the continued strong performance of our base business and our organic growth plans, we expect to continue to grow our dividend at an average annual rate of 5% to 7%.
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.
I am confident that the future opportunity set combined with our capabilities. We will continue to deliver superior risk adjusted total shareholder returns well into the future.
I'll now pass the call over to Don Marchand, who will provide more details on our first quarter financial results Dan.
Thanks, Francois and good afternoon, everyone.
As outlined in our results issued earlier today, we reported a net loss attributable to common shares for the first quarter of $1 1 billion or $1 11 per share as compared to net income of $1 1 billion or $1 22 per share from the same period in 2020.
Francois mentioned the loss primarily stems from an after tax asset impairment charge of $2 2 billion related to the formal suspension of the Keystone XL pipeline project. Following the January 'twenty or 'twenty, one relocation of the us presidential permit.
<unk> net of expected contractual recoveries and other contractual and legal legal obligations associated with suspension activities. However, it does not reflect offsetting amounts with respect to the government of Alberta us investment and guarantees which are expected to be recognized through the consolidated statement of equity in future periods.
As at March 31, those include a contribution of $394 million for class a interest reported in redeemable non controlling interest.
$779 million outstanding on the guaranteed credit facility reported and the current portion of long term debt.
After taking these offsets into consideration our net financial exposure on Keystone XL is approximately $1 billion.
First quarter 2020 also included certain specific items outlined on the slide and discussed further on our first quarter 2021 report.
These specific items as well as unrealized gains and losses from changes in risk management activities are excluded from comparable earnings.
Comparable earnings in the first quarter were $1 1 billion or $1 16 per share and generally consistent with the $1 1 billion or $1 18 per share in 2020.
Turning to our business segment results on slide 11 in the first quarter comparable EBITDA from our five operating segments of $2 5 billion was essentially in line with 2020.
Canadian gas comparable EBITDA of $696 million was $89 million higher than the same period last year, primarily on account of increased flow through depreciation on financial charges, along with higher rate base earnings on the NGL system.
Coastal gas link development fee revenue recognized from 2021 and.
And higher flow through income taxes on the Canadian mainline.
This was partially offset by lower flow through income taxes on the <unk> system and financial charges on the Canadian mainline.
NGL system net income increased $17 million compared to first quarter 2020, as a result of a higher average investment base from continued system expansions and reflection on ROE of 10, 1% on 40% deemed common equity.
Net income from the Canadian mainline increased $12 million year over year, largely due to the elimination of a $20 million after tax annual Tc energy contribution under the mainline 2021 2026 settlement.
And higher incentive earnings in 2021.
U S natural gas comparable EBITDA of 833 million U S or $1 1 billion Canadian in the quarter rose by $67 million <unk> or $23 million Canadian compared to the same periods last same period last year.
The improvement was due to increased earnings from Columbia gas following the application for higher transportation rates effective February one.
Subject to refund upon completion of its rate proceeding along.
Along with incremental earnings, resulting from greater capitalized pipeline integrity costs from 2021 compared to 2020, yes.
Yes on the contribution from growth projects placed in service, partially offset by higher property taxes associated with new projects.
In addition, the earnings across our U S gas pipeline assets were generally higher due to the cold weather events in first quarter, 2021, which had an impact on many of the markets we serve.
Mexico gas pipelines comparable EBITDA of 142 million U S or $180 million Canadian was $56 million us or 89 million Canadian below first quarter 2020.
Largely due to a $55 million U S.
So fees recognized in 2020 associated with the successful completion of a certain Texas pipelines.
Liquids pipelines comparable EBITDA declined by $52 million to $393 million of first quarter 2021, primarily due to the net effect of lower volumes on the Keystone pipeline system and an increased contribution from liquids marketing activities, mainly attributable to higher margins and volumes.
Our <unk> storage comparable EBITDA fell by $13 million year over year to $181 million on account of decrease Bruce power results, mainly attributable to the net effect of lower volumes, resulting from greater outage days, partially offset by first quarter 2021 gains on funds invested for post retirement benefits.
For all of our businesses with US dollar denominated income, including U S natural gas, Mexico gas pipelines from parts of liquids pipelines translation of results into Canadian dollars occurred as an average exchange rate of 127 in first quarter 'twenty, one compared to $1 34 in 2020.
While the weakening of the US dollar had a negative impact on comparable EBITDA year over year.
Corresponding effect on comparable earnings was not significant due to offsetting natural and economic hedges.
To recap our approach to managing foreign exchange exposure on.
The us dollar denominated EBITDA streams are partially hedged by us dollar denominated interest depreciation and taxes.
We 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 and other.
Now turning to the other income statement items on slide 12.
Depreciation and amortization of $645 million increased $15 million versus first quarter 2020, largely due to new projects placed in service in Canadian and U S natural gas pipelines.
As a reminder, depreciation Canada gas regulated pipelines is fully recoverable in tolls on a flow through basis.
Interest expense of $570 million for first quarter, 2021 was <unk> 8 million lower year over year due.
Due to the net effect of a weaker us dollar on translation of U S dollar denominated interest.
Long term debt issuances net of maturities.
Lower interest rates on reduced levels of short term borrowings and lower capitalized interest due to the completion of mapping and first quarter 2020.
The change to its equity accounting for our coastal gas link investment in second quarter 2020, and the replication of the U S presidential permit for Keystone XL pipeline in January 2021.
<unk> decreased $32 million compared to the same period in 2020, largely due to NGL expansion projects placed in service and the suspension of recording GAAP UDC on Villa de Reyes effective January one due to ongoing delays on the project.
Comparable interest income on other increased by $44 million from the first quarter versus 2020, primarily due to realized gains in 2021 compared to realized losses from 2020 on derivatives used to manage our structurally long exposure to us dollar denominated income.
Partially offset by lower unrealized foreign exchange gains on peso denominated deferred income tax liabilities net of derivatives used to manage this exposure.
Income tax expense included in comparable earnings was $204 million from first quarter 2021, compared to 211 million from the same period last year with the decrease mainly due to higher foreign tax rate differentials.
Excluding Canadian.
Canadian rate regulated pipelines, where income taxes on a flow through item and thus quite variable.
Along with equity <unk> income in U S. Natural gas pipelines, we continue to expect our 2021 full year effective tax rate to be in the mid to high teens.
Comparable net income attributable to non controlling interest of $69 million in the first quarter decreased by $27 million relative to the same period last year, primarily due to the March three 2021 acquisition of all outstanding publicly held common units of TC pipelines LP, which resulted in it becoming an indirect wholly on <unk>.
Subsidiary of Tc energy.
And finally preferred share dividends were comparable to first quarter 2020.
Now turning to slide 13.
During the first quarter, we invested approximately $1 9 billion, mainly towards expansion of the NGL system, Columbia gas projects as well as maintenance capital.
Previously mentioned in March we completed the TC pipelines LP acquisition in exchange for $38 million Tc energy common shares valued at approximately $2 1 billion.
As the pipe LP was previously fully consolidated in our accounts.
The transaction was largely recorded within the equity component of our balance sheet.
Additionally, in March we issued $500 million of junior subordinated notes at a rate of four 2%.
With the intend to redeem at par all $500 million of issued and outstanding series <unk> preferred shares on May 31.
Finally, the fully guaranteed Keystone XL nonrecourse project level credit facility currently remains in place and is expected to fund the majority of residual costs.
Now turning to slide 14.
This graphic highlights our forecasted sources and uses of funds for 2021 through 2023.
Starting on the left column the total funding requirement over the three years is projected to be approximately $29 billion.
Comprised of dividends of $11 billion capital expenditures, including maintenance capital of $15 5 billion two.
2 billion attributable attributed to the TC pipelines LP acquisition completed in March and $500 million related to the pending series <unk> preferred share redemption.
The second column highlights expected internally generated cash flow of $21 billion.
$2 billion of common shares issued pursuant to the pipe LP buying and the $500 million Junior spud subordinated notes offering completed in March.
That leaves a residual native approximately $5 5 billion to pick it in the far right column that will be funded predominantly through a combination of incremental debt commercial paper and Keystone XL project recoveries.
The program is consistent with our goal of maintaining debt to EBITDA on the high fours and <unk> to debt of 15%.
Now turning to slide 15 in closing I offer the following comments.
Our solid financial and operational results from the first quarter continue to highlight our diversified low risk business strategy and reflect the robust performance of our blue chip legacy portfolio, along with the contribution of equally high quality assets from our ongoing capital program.
While we were very disappointed by the replication of the presidential permit for Keystone XL and the resulting after tax impairment charge, our irreplaceable footprint proven organizational capabilities and vast opportunity set position us to continue to grow earnings and cash flow in the years ahead in accordance with our long standing risk preferences.
This is expected to support annual dividend growth of 5% to 7% in the future.
Our financial position remains strong with the ability to fund our $20 billion secured capital program.
On a through resilient and growing internally generated cash flow and.
And an array of attractive capital sources.
Finally, we will continue to maintain financial strength and flexibility at all points of the economic cycle.
That's the end of my prepared remarks, I'll now turn the call back over to David for the Q&A.
Thanks, Don just a reminder, before I turn it over to the conference coordinator for questions from the investment community. We ask that you limit yourself to two questions. If you have any additional questions. Please reenter the queue with that I will turn it back 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 will hear a tone acknowledging your request. If you are using a speaker phone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause from.
Moment as callers join the queue.
Our first question comes from Linda <unk> of TD Securities. Please go ahead.
Thank you.
Im wondering if you can just elaborate a little bit more on your slide seven.
Yes.
Looks like your provision for the energy evolution, but you'll be participating in and specifically here. It talks about new investments, but it does seem that some of your existing assets might be used differently.
Including.
How your pipes might be contracted by your various customers, whether it be LNG export or utilities or <unk>.
Hi, Mike.
Change the.
Attributes of U R.
Cash flows your risk profile et cetera, and also potentially creates service opportunities for example on delivering sourcing and delivering renewable natural gas increasingly as market needs evolve.
Hi, Linda its Francois that's a great question and I will get started on I'll ask Stan and then Tracey to offer some color on some proof points on Egypt.
Canada and the US first I'll start with our overall philosophy is that we.
We expect to continue to find plenty of opportunities to allocate our capital either underpinned by.
Regulation or long term contracts, so our approach with respect to.
What we're looking for for commercial sanctioning will continue to be consistent with the way we've allocated capital in the past.
It's absolutely accurate that there are some opportunities to electrify and reduce emissions on our existing fleet.
First firstly, and then secondly opportunities to invest in new technologies like hydrogen Cc U S and in <unk>.
Transportation of renewable natural gas so.
With that overarching comment I'll ask standard started then move to Tracy.
Hi, Linda this is Stan maybe just to give you some potential the perspective around your question about a 25% almost of our compression fleet is made up of flow speed units and they range in age anywhere between 40% to 70 years old. So electrifying. These units for example would reduce our scope one.
Missions by over 1 million tons, and you could think of that as about a 15% reduction of our overall emissions and then we're going to work closely with <unk> team, obviously to find a green power solution to address the scope two emissions.
With your other question. The other part of your question around who's likely to make up our pipeline holders going forward today. When we look at our profile, we have about 40% LDC customers, a little less than 40% producer customers and about 25% marketers or others I think that's a pretty well rounded mix.
And I really don't see that changing that much into the future.
And Linda I'll come over top to the Canadian it's a little bit get from perspective, we're looking at that.
The concept is a total carbon tax in that growing over time provides a bit of a framework for how we think about it.
First page the emissions reductions.
We have about just over 10% of our compression right now Thats electric.
And as you look at the opportunity on that we've identify kind of the next level of compressors that would be priority candidates based on utilization size age and proximity power. So the next 30% to 40% of our compression resulted candidates and we've got a subset of that that they are working on most closely.
Think about the emerging carbon tax it makes it gives us an opportunity to do that in a manner that offsets those taxes and the impact of tools on our customer. So that's kind of first level for that then from methane reduction.
Beyond that this waste heat opportunities, taking net debt, we paid off our compression and providing for a power uses and beyond that we're sitting on top of the NGL system sitting on top of the WCS be positions us perfectly for the emerging markets coming in hydrogen.
And hydrogen blending and we do see on pipe spin.
Big assets when it comes to us thinking about the future of how hydrogen can move I'll leave it there for now.
Thank you and as a follow up recognizing that there is a lot of organic growth and capability to capture that in your existing footprint.
Wondering if there might be an opportunity around the edges to accelerate.
Your energy transition evolution by us.
Considering either acquisitions divestitures Repurposing I think you alluded to on especially on the on the hydrogen plant, but also potentially.
From late stage development opportunities, maybe some capabilities.
<unk>, what you already have in house et cetera, how are you thinking about that as being a lever to accelerate.
Transformation.
Linda it's Francois, perhaps I'll ask Cory to comment as a proof point are an example.
We issued too.
Developers of wind assets.
For about 620 megawatts.
Load and then perhaps I'll ask Don to just comment generally on our efforts on the M&A side. So Corey.
Hi, Linda Yes, we recently.
Went to market with an RFP for an RFP excuse me four 620 megawatts of renewable.
<unk> energy to power.
Pipe system in.
Part of US part of our North American footprint.
We will be continuing that process with an additional rsi later on in May.
For solar energy as well, so we see that as a very interesting opportunity set to leverage our existing load and bring economic opportunity to the company that aligns with our risk and return profile I'll pass over to John.
Hi, Linda on the M&A front.
On.
And we don't.
We don't see M&A as necessary to meet our growth targets, but that said, we're always assessing the market and we're looking for.
Opportunities to fill in gaps on the portfolio consolidated ownership.
<unk> connectivity and add capabilities, which I think is what youre alluding to here.
If we.
If we look at where we might want to add capabilities that would still fall into the more of the same category in terms of our risk preferences.
What we're looking forward to contribute to our.
On a return profiles credit profiles.
No fundamental change of geographies basically long term annuity stream. So we're not looking to move up the risk curve.
If we if we do.
Look at new capabilities.
We're not particularly interested in highly speculative technologies and the like.
On any large scale so some more of the same but.
Would help us progress things like <unk> things that.
Where where the puck is going to look at the Gretzky quote in terms of.
New technologies from new businesses.
Thank you I'll jump back in the queue.
Our next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Hi, just a follow up to that.
We have a line of questioning on I'm just curious what you think is necessary in terms of policy support.
<unk>.
Tax credits or <unk>.
Some of us being looked at but and.
In order to really.
For the industry to get traction both on <unk> type investments, but also separately. If you could address that same question with respect to a pump storage.
Perhaps I'll get started Rob and Alaska on the pump storage I'll ask Cory to backfill.
First of all we we feel that the.
The proposed.
The tax incentives and the recent Canadian budget are.
A positive step by step on the right direction to have government and the private sector collaborate we need both tax incentives too.
Accelerate the development of this FCC us technology and development at scale.
We also see opportunity for direct investment from the government.
Through their accelerator fund as a big positive as well so those types of.
Tax incentives that don't pick winners and losers.
And create incentives for the private sector to innovate we view that as one key requirement. The second is that.
On the regulatory construct in our various jurisdictions follows the policy trends.
And again provide very clear rules for us to follow to be able to.
Invest in the types of equipment and technologies that reduce emissions.
Such that we can put them into rate base and earn a return on enough capital of course to.
To the extent that it's economically favorable for our customer then reduces their costs. So I think those incentives are very helpful. I think.
Regulation.
Still needs to evolve a little bit and as to your question around <unk>.
Pump storage.
I'll pass it over to Corey.
Hi, Rob.
Echo <unk>.
Francoise comments, I think the regulatory and incentive framework in the us around mature technologies, such as wind and solar and battery storage.
Set an excellent example, and it created a marketplace that is robust and competitive and clear and defined about how to participate and the opportunity set for returns and we are optimistic that the same framework can be put in place for technologies, such as pumped hydro pump.
Hydro is an interesting opportunity as well because the initial capital costs are obviously much higher the development risk is much higher and so having a clear framework, which we can follow and have a clear view of what the outcomes.
We will be will be a priority to us and we will be most important to us as we continue our journey and are investing in these types of assets.
Okay. Thank you very much.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Great good afternoon.
Just staying with the energy transition can you just talk about your approach my financial setup perspective, do you think there is any changes you need to manage.
<unk> on the risks thinking about leverage.
And payouts as.
As well you mentioned meaningful indigenous investment opportunities on that came out of the cash process.
What's the role you see for indigenous investment.
Part of your energy transition.
Since they were looking at cash would you ever look at partial monetization.
On too.
Yeah.
I think on the indigenous question, Robert I'll ask <unk> to respond and then for the <unk>.
First part of your question I'll ask Don to take that one please.
Sure I'll lead off Francois.
Yeah in terms of energy transition and how we view it.
And how that fits from the balance sheet.
What we're looking here looking at period more of the same so no fundamental change of our risk preferences long term annuity streams credit profile.
Et cetera and returns.
So we.
We will be quite discerning as to how we progress into that space. So it would be evolution not revolution and it would look.
A lot like from a cash flow perspective, what we have today.
We engaged with the rating agencies frequently and.
We will we will test these concepts up on but.
We think the way our balance sheet is structured right now with the credit metrics, we have and the credit profile that we have.
Is where we want to be.
So we want to remain the top credit in this sector and as we as we start moving into somewhat different business lines. When you actually look at the cash on cash flow streams. They should look at screen very similar to what you've seen from the past several decades here. So so no fundamental change there.
And Robert does us Bevan I'll speak to indigenous investment with our first first and first nation and tribal nation partners and communities around our systems. We continue to look for opportunities that will benefit.
<unk> communities as well as bring them into us and active partner in our in our development and potentially as you say.
Associated gas with our base assets in that you may have saw seen our RFID seeking renewable power proposals.
Proposals.
For our assets assets in the United States.
Part of our screening criteria for working with developers of those resources.
Have have a score related to their capabilities around indigenous involvement. So we'll continue to work with our indigenous contracting strategy is across our entire Tc energy business as well as find ways too.
Continue to support through training as well as involvement in our in our base businesses are key partners.
We've learned a lot over the last year with our partnership with natural energy.
We see it as strategic and we believe that we can create even further strategic relationships.
Alongside our assets with the indigenous communities that we operate in.
Great.
If I can just finish on Keystone XL between the Alberta government and shipper reimbursements I know you've done kind of day accounting interest here.
Much aggregate cash thank.
Do you expect to receive.
Over what timeframe and then are there any ongoing.
Or is it as cash implications associated from having written off these assets.
Yes, Robert it's Don.
Pretty much straightforward as outlined on the note there the cash components here would be.
Shipper recoveries of around $700 million.
In the fairly near term here asset monetization proceeds over a.
Unmeasured sales process.
From a couple of hundred million dollars.
And against that we would see a wind down costs.
On a cash basis, probably in the neighborhood of about half a billion dollars. So net positive there and that would probably be over a a 'twenty one and into 'twenty two timeframe on the tax side.
We've reflected the tax benefits here as ordinary income rather than capital.
So.
Far more usable from our perspective and far more valuable.
That would be recognized over seven several years and it depends on which jurisdiction.
Those tax losses are related to.
Given the amount of capital spend we have in Canada, and all of the accelerated tax shelter we have here.
Probably a more elongated period to realized Canadian ordinary income tax benefits in the us.
It would be a shorter time horizon on that I can't give you a specific.
A number of years, but.
Certainly not within two years, but not as long as 10 years and states.
Thank you.
Our next question comes from <unk> <unk> of Wells Fargo. Please go ahead.
Good afternoon with respect to the RFID that you announced seeking 620 megawatts of wind power.
It might be early but can you comment just so far on how the bidding process has gone.
And based on what you see so far do you think there'll be an opportunity for for TRP to invest a meaningful amount of capex in this build out or do you think it'll be mostly handled by third party renewable companies.
Hi. This is Corey it is early days, so im going to be measured in my response I will tell you that to date, we sent out over a 100.
Nda's for folks too.
Participating on the processing we've had.
Well over 50% response, so we feel really good about the number of respondents thus far and we specifically asked for an RFID because.
Our approach to this process will not be limited to simply.
Price it will be a combination of.
Very specific <unk>.
Qualifications that align with us.
Our our customers needs with the investment criteria for TC energy and also for the local communities that we serve so there'll be much more to come on this be the actual process closes the RFID closes on may the 10th on Monday.
Hey, so.
I'm going to be a bit measured and leave that maybe to come back to you on our on our next earnings call.
Okay got it and then just switching gears a bit I wanted to ask about northern border and the plan to potentially cap the heat content on the pipeline I guess first if you could review the rationale for that and then second.
Where does that stand today on the regulatory process and when could the btu limit take effect.
Yes. This is Stan we filed.
Second half of last year to impose a safe harbor for a certain btu limit and the driver. There is really an operational requirement once you get to high Btu factor it could do damage to the downstream LDC facility. So this is all about safety and the operational integrity of our assets where we're at.
Somewhat stop itself at least for the short term flows on the northern border system quarter over quarter are down about 10% and what we've seen is that capacity on the border system with backfill with with gas of a lower btu quality that came in from from Canada.
For the past several months at least for the foreseeable future.
Theres not a btu issue to deal with at the moment now to the extent that the situation changes over time, and we see the btu content creep up we're going to have to circle back with us with our customers on the producer side as well as the LDC side because again the issue here is we're trying to establish a safe harbor limit on that.
If you go above a certain level then we would have the right to cut back production into the pipe given those safety and operational integrity issues.
Great. Thank you.
Our next question comes from Jeremy Tonet from Jpmorgan. Please go ahead.
Hi, good afternoon.
Yes.
Jeremy just wanted to make sure you're coming through okay, great I wanted to touch on Bruce power a bit here.
Given the ambitious carbon reduction goals on the northeastern us dates as well as proposed transmission to bring Canadian power supply into the US do you see the potential to incorporate Bruce refurbishments into creating power supply to feed into the northeast U S and could there be a transmission opportunity for TRP here and then separately is there.
<unk> hydrogen opportunity with Bruce power, we've heard about cost savings using steam in the production process.
Corey.
Yes. This is cory sorry about that on a little slow on the on the button.
Thanks, Jeremy.
As far as the transmission opportunity I don't know that we're in any position to comment on the viability of that at this stage.
On.
Not really.
Aware of.
What steps need to be taken I do know, though on your second question that Bruce power.
Is a partner in the nuclear innovation Institute, which is actively evaluating along with the partners in the Institute.
Items, such as producing hydrogen.
Along with evaluating small modular reactors.
As a function of.
Their business.
Going forward. So I think there is more to come the site is using a systematic approach to really evaluate what options are available and then how they can participate in the market.
Got it and just to be clear on the first part don't see any opportunity for Bruce refurbishment feeding supply.
And to the northeast U S.
Maybe I'll take that one Jeremy it's Francois and just say that when we look at the integrated resource plan for Ontario.
They are calling for a net need for additional power.
Particularly as the Bruce in Darlington units are going through their life extension programs and even beyond then.
In the late <unk> and into the early <unk>. So.
Given the cost profile of nuclear and it's Baseload nature on its emission less nature.
On.
Our view is that at least for the time being that.
There'll be a home for that load are for that for that at.
Supply in Ontario.
And.
So that's our base case assumption right now.
Got it that makes sense and then <unk>.
Shifting to Mexico, just wondering if you might be able to provide some updated thoughts as far us.
Organic growth overall, a potential down in Mexico, and I guess, the what do you think of the right size of your Mexican presence within your kind of portfolio overall.
Yes. This is Stan I think.
In the context of the question and growth out of Mexico in the first thing we're going to focus on us getting beat array is built and in service here by the end of the year consistent with our prior guidance at the same point in time, we're still hopeful that along that same timeline will have a revised right away path to start construction again on the Tuxpan Tula line and.
Get that in service again, two years or so after we start construction a po.
Post that I think that there is a potential need for additional demand into the southeast portion of Mexico into the Yucatan Peninsula, and we're somewhat uniquely situated to potentially serve that via an extension of our <unk> to pay us pipeline as well as on on the West Coast now the potential for West Coast, Mexico LNG exports.
Probably on a little bit longer timeline. However, so.
Look at the investment opportunity.
Fits and starts bite sizes.
There are a couple of hundred million dollars a year over the next several years doesn't seem out of line.
Got it that's helpful. Thanks.
Our next question comes from Michael <unk> of Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my question I actually I have a couple of them first can you is there a way to quantify for coastal gas link and maybe for the MCR unit six at Bruce what the potential cost inflation may be whether it was due to permitting issues and other at coastal gas.
Link or whether it was due to COVID-19 at Bruce six just kind of how material dollar wise how these.
I can start that on.
Coastal gas link its Tracy just where as you know.
We are coming out of.
In the process of coming out of construction shutdown March he did at spring breakup and previous to that.
On the northern health in ordering.
How quarter coming out of British Columbia.
That really reduced the workforce that was in northern.
The major capital projects coming up for a period of time that candidly kind of treat on March April.
Thats all had us put us in a position us important to us.
Net.
Can start construction, it's important to us that we do that in a safe manner, because we've implemented some very strict.
Protocols for COVID-19 in conjunction with northern health in New mountain bike clearance to fully mobilized coming on spring breakup.
So all of that has.
<unk> us to take a look at the plan, how we optimize construction as we go forward. We're in the midst of doing that with LNG, Canada to make sure that we meet all of their requirements on schedule and we mitigate whatever costs. We can all falling from that so it's early to say on <unk>.
Where that will all fall out but.
We are in the midst of it now.
Got it.
Bruce six.
Hi, Michael it's Corey.
<unk> is on schedule and on budget got.
Got it.
And then can you remind me your your results at the liquids business really Keystone market link et cetera.
Highlighted both a little bit of volumetric hit us as well as pricing differential can you just remind me.
How contracted is Keystone, how contracted us market Lincoln are those take or pay contracts or throughput dependent.
Yes, Thank you Michael Theres a bourbon.
Our systems are under strong strong utilization, particularly on ex hardisty on our base Keystone asset out of Western Canada, it's been fully utilized.
And we actually had our highest utilization through Q1 that we've had and it's in its history.
In terms of its operational performance as well.
With respect to and of all of those volumes. So we're required to leave.
Certain percentage for spot volumes, but otherwise, where we're fully contracted take or pay on the Keystone base system.
When it comes to our market link asset that was created as a pre build for <unk>.
Keystone XL and.
And we contracted that again under a take or pay nature with a number of parties.
But that contract profile, we struck contracts on a much shorter tenure in order to ensure that they they would kind of wind off.
By the time, we would get to an in service date of the XL assets given that were not advancing excel, we're looking to re contract.
And we use that spare capacity that we do have on market link.
Currently we're on our market link asset where.
Affectively.
Hold on here one second I think it's 45.
Our U S Gulf Coast system is about 45% contracted.
That is lower compared to last year, when we would've been in that 62%, but that reduction is.
Is reflected of some contracts rolling off.
With that Gulf Coast market link system. They fundamentally are driven by the differential between <unk>.
Cushing and the Gulf Coast and as a result of that.
The pandemic and reduced demand and increased supplies globally on the water.
We've seen those that are but between Cushing on the Gulf coast weaken.
And as such we have been making up.
Revenue utilizing our marketing affiliate by moving more barrels through that system, albeit at a lower margin than what our historical totals would have been.
But we've been able to optimize that asset effectively utilizing our marketing affiliate.
Got it and then the remaining 45% of market link that's contracted when did those contracts roll off.
Well there is they are staggered.
Michael.
I'm not going to rollout, they're all on a confidential basis with those customers.
But you could appreciate that those would trend our in service date was intended to be.
In 2023.
So you can anticipate that the vast majority of those contracts legacy contracts would it be rolling off at that period of time, but we're well on hand on back filling and filed the final.
Finding.
<unk> contracting opportunities in this environment now that are our path forward is clear.
Got it. Thank you guys much appreciate it you all have a good weekend.
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Ladies and gentlemen, this concludes the question and answer session.
Are there any further questions. Please contact investor relations at TC Energy I will now turn the call over to Francois Poirier. Please go ahead.
Thanks, very much and thanks for all of you who joined US. This afternoon. I know this is a busy day with a number of companies in your coverage universe.
<unk> results. So we appreciate.
Your interest and 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 the demand for our services will remain strong for decades to come as.
As we advance our $20 billion secured program and various other organic growth opportunities, we expect to build on our long term track record of growing earnings cash flow and dividends per share.
With an irreplaceable asset footprint extensive technical expertise, our strong financial position and our commitment to innovation, we have the right ingredients to prosper irrespective of the pace of our direction of energy transition.
Looking forward, we will be deliberate and disciplined in every investment decision. We make 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 a leading north American energy infrastructure company today and in the future.
<unk>.
So that concludes my closing remarks, thanks, very much for joining us today and we appreciate your ongoing interest and support and look forward to talking to you again soon.
This concludes today's conference call you may disconnect your lines. Thank.
You for participating and have a pleasant day.