Q1 2021 TC Energy Corp Earnings Call
And.
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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 and the conference is being recorded and.
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 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.
<unk> Bourbon worse, the president liquids pipelines, Corey has some president and power and storage and Glenn <unk>, Vice President and controller and <unk>.
Well and Don will begin today with some opening comments and our financial results and certain other company developments a copy of the slide presentation that will accompany their remarks is available on our website and it can be found and 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.
And 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.
The operating performance liquidity and its ability to generate funds to finance the operations with that ill turn the call over to Francois.
Good afternoon, everyone and thank you for joining us this afternoon.
And as outlined in our first quarter report to shareholders, our diversified portfolio of high quality long life energy infrastructure assets continued to perform very well and 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, and the first quarter and increase of 4% over the same period and 2020, while field receipts on the NGL system, and Alberta, where more than 12 Bcf per day.
And in our power and storage business Bruce power continued to produce solid operating results, while and Alberta output from our cogeneration plants and 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 and 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 and of safe and reliable manner.
Safety is one of our core values and it's embedded in the fabric of our organization and evident and our commitment to ongoing pipeline system integrity.
We've invested $150 million and pipeline inspection and research and development since 2010, and billions and pipeline system integrity, using the most sophisticated and advanced data analytics and risk evaluation methodologies and the industry.
Our strong operating performance is also reflected and our solid financial performance with comparable EBITDA comparable earnings per share and comparable funds generated from operations and the first quarter of 2021, all similar to last year's record results.
And this was achieved despite onetime sort of Texas fees and the first quarter of 2020, the sale of our Ontario of 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 debt 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 and 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 and workers, our partners the government of Alberta, and natural law of energy.
Local communities.
The pipeline building trade unions.
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 is 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 of it would have gone into service in 2023.
And you can expect to see US continue to apply this innovative approach to projects and 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 continue to advance $20 billion of secured projects that are expected to enter service by 2024 and helped power of 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 and 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 the transitions to a lower carbon energy future.
Ultimately 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 of 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.
And with 94000 kilometers or 58000 miles of existing natural gas pipelines and we are well positioned to continue to meet growing demand through highly executable and 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 represent the tremendous opportunity.
Whether it's renewables and the firming resources needed to manage their intermittency.
And electrifying our fleet.
Of our other emerging technologies.
And 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 and Ontario to advance of large pumped storage opportunity the.
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 and 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 and 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.
And assure you we will not compromise our commitment to being thoughtful and deliberate and disciplined and 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 and dividends is expected to be supported by sustainable growth and 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 and 2020.
The Francois mentioned the loss primarily stems from and after tax after the impairment charge of $2 2 billion.
Related to the formal suspension of the Keystone XL pipeline project. Following the January 2020, one relocation of the U S presidential permit the.
<unk> net of expected contractual recoveries and other contractual and legal legal obligations associated with suspension of activities. However, it does not reflect offsetting amounts with respect to the government of Alberta is investment and guarantees which are expected to be recognized through the consolidated statement of equity and future periods.
As at March 31, and those include the contribution of $394 million per class, a interest reported and redeemable non controlling interest.
And $779 million outstanding on the guaranteed credit facility reported and the current portion of long term debt.
After taking these offsets of the 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 and our first quarter 2021 report.
The specific items as well as unrealized gains and losses from changes in risk management activities are excluded from comparable earnings.
Comparable earnings and the first quarter were $1 $1 billion of $1 16 per share and generally consistent with the $1 1 billion of $1 18 per share and 2020.
Turning to our business segment results on slide 11, and the first quarter comparable EBITDA from our five operating segments of $2 5 billion was essentially in line with 2020.
The Canadian gas comparable EBITDA of $696 million was $89 million higher and the same period last year, primarily on account of increased flow through depreciation and financial charges, along with higher rate based earnings on the NGL system.
Coastal gasoline development fee revenue recognized in 2021 and.
And higher flow through income taxes on the Canadian mainline.
This was partially offset by lower flow through of 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 the higher average investment base from continued system expansions and reflects an ROE of 10, 1% and 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 main line 2021 and 2026 settlement.
And higher incentive earnings and 2021.
U S natural gas comparable EBITDA of 833 million U S or $1 1 billion Canadian and the quarter rose by $67 million U S of $23 million Canadian compared to the same periods last century 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 with incremental earnings, resulting from greater capitalized pipeline integrity costs, and 2021 compared to 2020 and.
And 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 and first quarter, 2021, which had an impact and many of the markets we serve.
And Mexico gas pipelines comparable EBITDA of 142 million U S sort of $180 million Canadian was $56 million U S or $89 million Canadian below first quarter 2020, largely due to a $55 million U S. U S and fees recognized in 2020 associated with the successful completion of the certain Texas pie.
Line.
Liquids pipelines comparable EBITDA declined by $52 million to 393 million in the 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 and 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 the U S dollar denominated income, including U S natural gas, Mexico gas pipelines and parts of the liquids pipelines translation of results into Canadian dollars occurred as an average exchange rate of the $1 27 in the first quarter 'twenty, one compared to $1 34 and 2020.
While the weakening of the U S dollar had a negative impact on comparable EBITDA year over year, the corresponding effect on comparable earnings was not significant due to offsetting natural and economic hedges.
To recap of our approach to managing foreign exchange exposure, our U S. Dollar denominated EBITDA streams are partially hedged by U S dollar denominated interest depreciation and taxes.
We then actively manage the residual exposure on the rolling two year forward basis with realized gains and losses on this program reflected and comparable interest income and other.
Now turning to the other income statement items on slide 12.
Depreciation and amortization of $645 million increase of $15 million versus first quarter 2020, largely due to new projects placed in service and Canadian and U S natural gas pipelines.
As a reminder, depreciation and Canada gas regulated pipelines is fully recoverable and tolls on the flow through basis.
Interest expense of $570 million for first quarter, 2021 was $8 million lower year over year due.
Due to the net effect of the weaker U S. Dollar on translation of U S dollar denominated interest.
Long term debt issuances net of maturities.
Lower interest rates and reduced levels of short term borrowings and lower capitalized interest due to the completion of map of knee and the first quarter 2020, the change to the equity accounting for our coastal gas link investment and second quarter 2020, and the replication of the U S presidential permit for the Keystone XL pipeline and January 2021.
And if UDC decreased $32 million compared to the same period and 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 and other increased by $44 million and 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 U S dollar denominated and 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 and first quarter 2021, compared to $211 million for the same period last year with the decrease mainly due the higher foreign tax rate differentials.
Excluding Canadian rate regulated pipelines, where income taxes are a flow through item and thus quite variable.
Along with equity and <unk> income and 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 and 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 and it becoming an indirect wholly owned 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 and exchange for $38 million Tc energy common shares valued at approximately $2 1 billion.
As the pipe LP was previously fully consolidated and our accounts the.
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 of $500 million of issued and outstanding series <unk> preferred shares on May 31.
Finally, the fully guaranteed Keystone XL nonrecourse project level credit facility current 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 and through 2023.
Starting in 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.
The $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 and subordinated notes offering completed in March.
That leaves a residual need of approximately $5 5 billion to pick it and 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 and the high fours and <unk> the debt of 15%.
Now turning to slide 15, and 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 opportunities that position us to continue to grow earnings and cash flow of the years ahead, and accordance with a longstanding risk preferences.
This is expected to support annual dividend growth of 5% to 7% and the future.
Our financial position remains strong with the ability to fund our $20 billion secured capital program.
And through resilient and growing internally generated cash flow.
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'll turn it back to the conference coordinator.
Thank you we will now begin the question and answer session.
And the question queue. You May Press Star then one on your telephone keypad and you will hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any Keith 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 Linda <unk> of TD Securities. Please go ahead.
Thank you.
I'm wondering if you can just elaborate a little bit more on your slide seven.
And what.
Looks like your provision for the energy evolution, and you'll be participating in and specifically here and talks about new investments, but it does seem that some of your existing assets might be used differently and.
Including.
And how your pipes might be contracted by your various customers, whether it be LNG export or utilities or <unk>.
And Mike.
Change the.
Attributes of U R.
Cash flows your risk profile et cetera, and also potentially creates service opportunities for example, the delivering sourcing and delivering renewable natural gas increasingly as the market needs of all.
Hi, Linda its Francois.
And question and I'll get started and I'll ask Stan and and Tracy to offer some color and some proof points on Egypt.
Canada and the U S first I'll start with the.
Of our overall philosophy is debt.
We expect to continue to find plenty of opportunities to allocate our capital either underpinned by.
And the regulation or long term contracts, so our approach with respect to.
And 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 the emissions on our existing fleet.
First of all firstly, and then secondly opportunities to invest in new technologies, like hydrogen and Cc U S and and transportation of renewable and natural gas so.
With that overarching comment I'll ask stand of start and then move to Tracy.
Hi, Linda this is Stan and maybe just to give you some potential of the perspective around debt. Your question about a 25% almost of our compression fleet is made up of flow speed units and they range in age of anywhere between 40% to 70 years old. So electrifying. These units for example would reduce our scope one and.
Emissions by over 1 million tons, and you could think of that as about a 15% reduction of our overall of our missions and then we're going to work closely with <unk> team, obviously defined a green power solution to address the scope two emissions.
And with your other question and the other part of your question around who is likely to make up our pipeline of holders going forward today. When we look at our profile, we have about 40% LDC customers, a little less than 40 per cent producer customers and about the 25% marketers or others I think that's a pretty well rounded mix.
And I really don't see that change and that much into the future.
And Linda I'll come over top of the Canadian and it's a little bit different perspective, we're looking at you know the concept of the federal carbon tax and that growing over time provides a bit of the framework for how we think about it at the.
The first stage the emissions reductions.
We have about just over 10% of our compression right now of its electric.
And as we look at the opportunity on that we've identify kind of the next level of compressors debt would be priority candidates based on utilization size age and proximity power. So the next 30, 40% of our compression as of the candidates and we've got a subset of that that they're working on most closely.
And 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 and on our customer. So that's kind of first level for that button and methane reduction.
Beyond that this waste heat opportunities, taking net debt, we teed off of our compression and providing it for 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 and hydrogen and.
And hydrogen blending and we do see our type of screen.
Big assets when it comes to 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 and your existing footprint.
Wondering if there might be and opportunity around the edges to accelerate.
And your energy transition evolution by Consol.
Entering either acquisitions divestitures, and Repurposing and I think.
Alluded to and especially on the on the hydrogen plant, but also potentially.
From late stage development opportunities, maybe some capabilities.
To round out what you already have in house et cetera, how are you thinking about that as being a lever to accelerate your.
And the transformation.
Linda it's Francois, perhaps I'll ask Cory to comment as a proof point or an example, the <unk>.
We issued too.
And developers of wind assets for about 620 megawatts.
Of load and then perhaps I'll ask Don to just comment generally on our efforts on the M&A side of Corey.
Hi, Linda Yes, we recently.
The winter market with an RFP for an RFP excuse me four 620 megawatts of renewable.
Wind energy to power.
The pipe system and <unk>.
Part of as part of our North American footprint.
We'll 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 it over and done.
Hi, Linda on the M&A front.
Yes.
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 and the portfolio of consolidated ownership and.
Improved 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.
Return profiles credit profiles.
The fundamental change of geographies basically long term annuity stream. So we're not looking to move up the risk curve.
If we do.
Look at new capabilities.
We're not particularly interest and a highly speculative technologies and the like.
And any large scale so some more of the same but.
And would help us progress.
Things like the RFID things of that.
Where where the puck is going to look at the Gretzky quote in terms of.
New technologies and 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 the.
And a line of questioning and Im just curious what you would think of as necessary in terms of policy support.
And the <unk>.
Tax credits or some of its being looked at but.
In order to really.
For the industry to get traction both on the <unk> type of investments, but also separately. If you could address the same question with respect to of pumped storage.
Yeah.
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 <unk>.
<unk>.
The tax incentives and the recent Canadian budget are.
A positive step the step in the right direction to have government and the private sector collaborate we need those tax incentives too.
Accelerate the development of the FCC U S technology and develop it 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 debt.
And the regulatory construct and 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 and off capital of course too.
To the extent that it economically favorable for our customer then reduces their costs. So I think those incentives are very helpful. I think.
Regulation.
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> comments, I think the regulatory and incentive framework in the U S around mature technologies, such as wind and solar and battery storage and set an excellent example, and and 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.
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.
Will be will be of a <unk>.
Priority to us and will be most important to us as we continue our journey and 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.
And just staying with the energy transition can you just talk about your approach from a financial setup perspective, and you think there's any changes you need to manage.
Most of the opportunities and the risks thinking about leverage and.
Payouts.
As well you mentioned meaningful indigenous investment opportunities and find that came out of the cash.
And so.
Mike what's the role of you see for indigenous investment.
As part of your energy transition.
The thing is since they were looking at cash would you ever look at partial monetization Keystone too.
And.
I think on the indigenous question, Robert I'll ask <unk> to respond and then for the the first part of your question and I'll ask Don to take that one please.
Sure I'll lead off Francois.
And in terms of energy transition and how we view it.
And how that fits and the balance sheet.
What we're looking here and looking at here is more of the same so no fundamental change of our risk preferences long term annuity streams and 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 with them but.
We think the way our balance sheet of structured right now with the credit metrics, we have and the credit profile of the half.
And as where we want to be.
So we want to remain the top credit and the sector and as we as we start moving into somewhat different business lines. When you actually look at the cash the cash flow streams. They should look ex screen very similar to what you've seen for the past several decades here. So so no fundamental change there.
And Robert does the Bourbon and I'll speak to indigenous investment with our first and first and first nation and tribal nation partners and communities around our systems. We continue to look for opportunities that will benefit.
Their communities as well as bring them into us and active partner and our and our developments and.
And potentially as you say.
Associated I guess with our base of assets in that May of saw seen.
<unk> seen our RFID seeking renewable power.
Proposals.
For our asset assets and 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 to.
Continue to support through training as well as involvement and are in our base businesses are key partners.
And we've learned a lot over the last year with our partnership with the natural energy.
And we see it as strategic and we believe that we can create even further strategic relationships.
Alongside of our assets with the indigenous communities that we operate and.
Great.
I can just finish on Keystone XL between the Alberta government and the shipper reimbursements I know you've done kind of the accounting interest here and how.
Aggregate cash.
And do you expect to receive.
Over what timeframe and then are there any ongoing.
Positive cash implications associated from having written off of these assets.
Yes, Robert of Sonic.
And.
Pretty much straightforward as outlined in the note there the the cash components here would be.
Shipper recoveries of around $700 million.
And the fairly near term here asset monetization proceeds over a.
Our measured sales process.
Of a couple of hundred million dollars.
And the gains that we would see wind down costs.
On a cash basis, probably of the neighborhood of about half of $1 billion.
Net positive there and that would probably be over a a 'twenty one and into 'twenty two time frame.
The the tax side.
And 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 and several years and it depends on whats jurisdiction.
Tax losses are related to.
And given the amount of capital spend we have and Canada and all of the accelerated tax shelter we have here.
And probably a more elongated period to realized Canadian ordinary income tax benefits in the U S.
It would be a shorter time horizon on that I can't give you a specific.
Number of years, but.
Certainly not within two years, but not as long as 10 years and states.
Okay. Thank you.
Our next question comes from <unk> Satish of Wells Fargo. Please go ahead.
Good afternoon with respect to the RFID that you announced seeking 620 megawatts of wind power.
Recognize it might be early but can you comment just so far and how the bidding process has gone.
And based on what you see so far do you think there'll be an opportunity for four of TRP to invest a meaningful amount of capex and this buildout 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 and my response I will tell you that to date, we've sent out over a 100.
And the ace for folks to.
Participating in the process and we've had.
The.
Well over 50% response, so we feel really good about the number of respondents thus far and we specifically asked for and RFID because of.
Our approach to this process will not be limited to simply.
Price it will be a combination of.
Very specific qual.
Qualifications that align with.
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 RFA closes on may the 10th on month.
Day so.
And I'm going to be a bit measured and and leave that maybe to come back to you on our and our next earnings call.
Okay got it and then just switching gears a bit I wanted to ask about northern border and.
And the plan to potentially capped the heat content on the pipeline and I guess first if you could review the rationale for that and then second.
Where does that stand today, and the regulatory process and when could the btu limit take effect.
Yes. This is Stan.
While the.
The second half of last year to impose a safe harbor for a certain btu limit and of the driver there is really and operational requirement. Once you get too high of a btu factor it could do damage to the downstream LDC facility. So this is all about safety and the operational integrity of our assets and where we're at is the problem somewhat south of itself at least per the shore.
Term of flows on the northern border system quarter over quarter are down about 10% and what we've seen is debt capacity on the border system with backfill with with gas of of lower Btu quality that came in from from Canada.
For the past several months at least for the foreseeable future. There is not a btu issue to deal with at the moment now to the extent debt the situation changes over time, and we see the Btu content creep up we're going to have the circle back with our with our customers on the producer side as well as the LDC side because again the issue here is we are.
Trying to establish a safe harbor limit.
And that says if you go above a certain level then we would have the right to cut back production into the pipe of given those safety and operational integrity issues.
Great. Thank you.
Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, good afternoon.
Jeremy just wanted to make sure you come through okay, great I wanted to touch on Bruce power of bit here.
Given the ambitious carbon reduction goals and the other northeastern U S states as well as proposed transmission to bring Canadian power supply and to the U S. D. C of the potential to incorporate Bruce refurbishment and creating power supply to feed into the northeast U S and could there be of transmission opportunity for TRP here and then separately is there.
Green hydrogen and opportunity with Bruce power and we've heard about cost savings using steam and the production process.
Corey do you take that one.
How are you.
Yes. This is cory sorry about that and will slow on the on the.
[laughter].
Thanks, Jeremy as far as the the transmission opportunity I don't know that we're in any position to comment on the viability of that at this stage.
And.
Not really.
Aware of of what what steps need to be taken I do know, though on your second question that Bruce power.
And is a partner in the nuclear innovation Institute, which is actively evaluating along with the partners and the Institute.
The items such as producing hydrogen.
Along with evaluating small modular reactors.
As a function of the they're.
And 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 and the market.
Got it and just to be clear and the first part don't see any opportunity for Bruce refurbishment feeding supply.
Into the northeast U S.
Maybe I'll take that one the 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.
And particularly as the Bruce and Darlington units are going through their life extension programs and even beyond then.
In the late <unk> and into the early <unk>. So.
<unk>.
Given the cost profile of nuclear and it's Baseload nature and its emission less nature.
Our view is the at least for the time being that.
There'll be a home for that load for that for that.
Supply and Ontario.
And.
And so.
And 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 as.
Organic growth overall of the potential down and 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 and I think and.
And the context of the question and growth out of Mexico and of the first thing we're going to focus on is getting the at array is built and in service here by the end of the year consistent with our prior guidance at the same point and time, we're still hopeful debt along that same time line will have a revised right of way path to start construction again on the Tuxpan Tula line and.
And I get that and service again, two years or so after we started construction of post that I think that there is a potential need for additional demand into the southeast portion of Mexico and to the Yucatan Peninsula, and we're somewhat uniquely situated to potentially serve debt via and extension of our sort of payoffs pipeline as well as on the West coast.
And the potential for the West Coast Mexican LNG exports, probably on a little bit longer timeline. However, so.
I look at the investment opportunity.
<unk> fits and starts bite sizes and.
Another couple of hundred million dollars of 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 and I actually of a couple of them first can you is there a way to quantify.
For coastal gas link and maybe for the MCR and unit six at Bruce what the potential cost inflation may be whether it was due to permitting issues and other at coastal gasoline or whether it was due to COVID-19 at Bruce six just kind of how material dollar wise of these.
And can start that ton cost of gas tank, it's tasty and were just for you.
And as you know we are coming out of.
And the process of coming out of <unk>.
Construction shutdown March did at spring breakup and and previous to that.
And the northern health in ordering and whether and how it sort of coming out of British Columbia.
That really reduced the workforce.
That was in the northern.
The major capital projects coming out of period of time that candidly kind of three of the March April. So that's all had put us in a position and important to us that debt.
And that we can start construction, it's important to us that we do that and the safe manner, and we have implemented very strict protocols.
Protocols for COVID-19 and in conjunction with northern health and the now by the clearance to fully mobilized coming out of spring breakup.
So all of that has.
<unk> got to take a look at the plan, how we optimize the construction as we go forward. We're in the midst of doing that with LNG, Canada and make sure that we meet all of their requirements from schedule and we mitigate whatever constitute can of falling from that so it's early to say.
That will all fall out but.
We are in the midst of it now.
Got it and on Bruce.
Six.
Hi, Michael it's Corey.
<unk> is on schedule and on budget.
Got it.
And then can you remind me your your result set at the liquids business really Keystone, Mark and linking et cetera.
Highlighted both the little bit of volumetric has as well as pricing differential can you just remind me.
How contracted is Keystone, how contracted as market link and are those take or pay contracts of ore throughput dependent.
Yes, Thank you Michael Theres the Bourbon.
Our systems are under strong strong utilization and particular 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 and.
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 the prebuilt for Keystone XL.
And we contracted that again under a take or pay nature with the number of parties.
And but that contract profile, we struck contracts on a much shorter tenure and order to ensure that they.
Kind of wind off.
By the time, we would get to and in service date of the XL assets given that were not advancing excel, we're looking to re contract.
And re use of that spare capacity that we do have on market link.
Currently we're on our market link asset where the.
Affectively.
Hold on here one second I think it's 45.
Yes, our U S Gulf Coast system is about 45% contracted.
That's lower compared to last year, where and we would've been in that 62%, but that reduction is.
And is reflected of some contracts rolling off.
With that Gulf Coast and market link system. They fundamentally are driven by the differential between the <unk>.
Cushing and the Gulf Coast and as a result of the.
And the pandemic and reduced demand and increased supplies globally on the water.
We've seen those that are but between Cushing and 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 tools would have been.
But we've been able to optimize that asset effectively utilizing our marketing affiliate.
Got it and 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 there all of a lot of 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 in hand on back filling and five of the funnel and finding.
Re contracting opportunities in this environment now that are our path forward is clear.
Got it. Thank you guys much appreciate it and you'll have a good weekend.
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Ladies and gentlemen, this concludes the question and answer session.
There are 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 the number of companies and and your coverage universe announcing results.
So we appreciate your interest and in closing I'd like to leave you with the following key messages and 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 and.
We advanced our $20 billion secured the 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.
Within the irreplaceable asset footprint extensive technical expertise, our strong financial position and our commitment to innovation.
And have the right ingredients the prosper irrespective of the pace of our direction of energy transition.
Looking forward, we will be deliberate and disciplined and every investment decision and we make we will also continue to focus on safety and 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.
Sure.
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.