Q3 2021 TC Energy Corp Earnings Call
Welcome to the TC Energy third quarter 2021 results conference call.
As a reminder, all participants are in listen only mode and 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 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 morning, everyone I'd like to welcome you to TC Energy's third quarter Conference call. Joining me today are Francois Poirier, President and Chief Executive Officer, Joe Hunter Executive Vice President and Chief Financial Officer, Tracy Robinson, President Canadian natural gas pipelines.
Coastal gas link Stan Chapman, President U S and Mexico natural gas pipelines segment.
<unk>.
<unk>, Vice president of strategy, and corporate development and president of our liquids pipelines business, Corey Hudson's President power and storage and Glenn <unk>, Vice President and controller.
<unk> and Joel will begin today with some opening comments on our financial results and certain other company developments a copy of the slide presentation that will accompany their remarks is available on our website.
Following their remarks, we will take questions from the investment community. If you are a member of the media. Please contact Jaimie Harding after this call.
In order to provide everyone from the investment community with an opportunity to participate we ask that you limit yourself to two questions.
Before we begin I'd like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties for more information on these risks and uncertainties. Please see the reports filed by TC energy with Canadian Securities regulators and with the U S Securities Exchange Commission.
Finally during this presentation, we may refer to measures such as comparable earnings comparable earnings per common share comparable EBITDA and comparable funds generated from operations. These and certain other comparable measures are considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities.
These measures are used to provide you with additional information on TC Energy's operating performance liquidity and our ability to generate funds to finance our operations with that I'll turn the call over to Francois.
Thank you David and good morning, everyone. Thank you for joining US today I'm told this is the busiest reporting day of the year. So we really appreciate you joining us on this very busy day.
As outlined in our third quarter report, our diversified portfolio of North American energy infrastructure assets continues to perform very well.
Societies unwavering demand for our services and the relentless focus our people place on operational excellence are reflected in our strong financial performance.
Through the first nine months of the year comparable earnings per share of $3 21.
Exceeded last year's results by 5%, while comparable funds generated from operations totaled $5 3 billion.
This is a very good outcome, especially considering the significant decline in the value of the U S dollar relative to the Canadian dollar, which had a negative impact on our Canadian dollar reported EBITDA.
Given the strong year to date performance. We now expect 2021 comparable earnings per share to be modestly higher than last year's record results.
We continue to advance our secured program, which now totals $22 billion.
This includes the U S $800 million WR project announced earlier today, which will improve reliability and expand the anr system.
This project is similar in scope to the VR project, we discussed in the second quarter at.
W. R will upgrade compressor stations to dual drive electric horsepower, reducing our <unk> emissions, while ensuring natural gas backup in case of a power disruption.
So manageable and quarter end corridor projects like these are the building blocks in the modernization and de carbonization of North America's energy infrastructure system, while maintaining reliability and we expect to realize numerous similar opportunities in the future.
Also of note as part of its life extension program Bruce Power recently launched an upgrade initiative focusing on asset optimization.
Innovation and leveraging new technology.
They call. This project 2030, and it has a goal of achieving a site peak output of 7000 megawatts by the end of the decade effectively adding the equivalent of a ninth unit at the Bruce station.
This is in addition to the major component replacement program, we've been investing in and talking about on units three through eight.
We continue to advance $22 billion of secured projects.
Excuse me.
Including $4 billion, we've already added to date in 2021.
When you factor in the continuation of Columbia's modernization program as we call it <unk> three.
And the Bruce Power unit, III, MCR, which is expected to be sanctioned before the end of the year as well as the project 2030 operate initiative, we plan to sanction a $7 billion of high quality growth opportunities by the end of this year.
Completing these projects on time and on budget will generate a weighted average after tax IRR on these new investments the.
<unk> 7 billion of sanction projects of eight 3%, which is toward the upper end of our targeted range of 7% to 9% for projects that we sanctioned annually.
Our secured capital program continues to be underpinned by cost of service regulation in long term contracts, giving us visibility to the earnings and cash flow. These projects will generate and are consistent with our long held risk preferences.
Now looking to next year and beyond we expect many similar high quality opportunities to come to fruition as we continue to reliably deliver the energy people need while decarbonising our asset footprint.
This includes the ongoing expansion modernization and maintenance of our regulated natural gas pipeline network. The refurbishment of another four Bruce power reactors and plans to use renewable energy to electrify a portion of our pipeline network and Youll hear more detail on that later on.
The RFP process, we began in the second quarter for over 1000 megawatts of renewable capacity.
To electrify our own load has had an overwhelmingly positive response negotiations have begun and we anticipate completing the process in the first quarter of 2022.
Beyond that we're also progressing initiatives, including the Ontario pumped Hydro project. The Canyon Creek pumped Hydro project in Alberta, carbon transportation and sequestration in partnership with Pembina and.
And clean energy projects with Irving oil and also large scale hydrogen production hubs with Nikola Motors.
As a result.
We expect to sanction more than $5 billion of new projects annually over the next several years and we hope to exceed that.
With risk adjusted returns consistent with historical levels.
Our teams origination capabilities.
Our demonstrated.
Quite visibly during 2021 and the opportunity set that lies ahead as fast.
Now.
In order to Judiciously fund, that's attractive suite of growth opportunities maintain a strong financial position and enhance our conservative utility like payout ratios, we have modified our near term dividend growth outlook.
We now expect to increase our common share dividend at an average annual rate of 3% to 5%.
While our previous outlook remains affordable.
While our previous outlook remains affordable and.
And supported by the strong performance of our business. We believe this modest change is prudent given the generational opportunity for growth we have before us.
It will allow us to fund a larger portion of our future capital programs through internally generated cash flow moderate our leverage and continue to deliver superior total long term shareholder returns.
As you know we are committed to delivering these returns while growing our business.
Sustainably.
That's why I am proud that last week, we released our 2021 report on sustainability or ESG data sheet, and our GHT emissions reduction plan.
These reports outline the next step in our sustainability journey.
With detail on our 10 sustainability commitments that come with 32 specific measurable targets, we've set to support them.
This includes targets to lower our emissions intensity by 30% by 30% by 2030 and positioned the company to achieve net zero emissions from our operations by 2050.
We also advanced our commitments in the areas of innovation diversity indigenous reconciliation and safety, which for US includes mental and psychological health.
I am confident that our talented team has the technical capabilities, the innovative mindset and the commitment required to advance our work in these areas.
And I encourage you to read these documents, which can be found at TC energy Dot com to learn how we are holding ourselves accountable to protect the planet empower people and create shared prosperity.
In summary.
Excuse me.
In summary, we are committed.
We are committed.
So our vision of being the Premier energy infrastructure company in North America, not just now but in the future.
As I've said on numerous occasions, we will achieve that by prospering irrespective of the pace or direction of energy transition.
Our business decisions continue to support our goals to reliably meet societies energy needs, while decarbonising our assets.
Looking forward, our $22 billion secured capital program, which we expect to grow to $25 billion by year's end.
Is poised to grow substantially over the years and as always we will fund our capital programs prudently to maintain our solid financial position.
Ultimately our goal is to continue to grow earnings cash flow and dividends per share and build on our long track record of delivering superior total shareholder returns.
Now I'll turn it over to Joel for some comments on our third quarter results.
Thanks, Francois and good morning, everyone.
As outlined in our results issued earlier today net income attributable to common shares was $779 million or <unk> <unk> per share in the third quarter compared to $904 million or <unk> 96 per share for the same period in 2023rd quarter results include an after tax expense of $55 million related to transition payments associated with the one time voluntary.
Retirement program offered to eligible employees earlier, this year and $11 million after tax charge associated with Keystone XL preservation and other costs.
Corresponding period in 2020 also included certain specific items as outlined on the slide and discussed further in our third 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 for the third quarter were $972 million or 99.
Per common share compared to $893 million or <unk> 95 per common share in 2020 year to date comparable earnings per common share up 5% supported by the strong underlying performance of our business turning to our business segment results on slide 11 in the third quarter comparable EBITDA from our five operating segments of $2 2 billion.
But similar to 2020, despite strong currency translation headwinds.
Detailed variance explanations in each business unit can be found in our third quarter 2021 report, but I will comment on the principal changes year over year Canadian gas pipelines comparable EBITDA of $631 million was $35 million lower than third quarter 2020, mainly due to decreased flow through depreciation following the full depreciation of one sex.
Key mainline as well as lower pull through financial charges, partially offset by higher incentive earnings the cessation of depreciation does not impact net income, which increased by $12 million for the Canadian mainline.
U S gas pipelines comparable EBITDA increased by $59 million U S to $706 million U S compared to the third quarter 2020, primarily due to an increase in earnings from Columbia gas. Following its application for higher transportation rates effective February one 2021, and the resulting settlement that was filed with the FERC on October 29th we.
FERC approval of the settlement during Q1, 2022 liquids pipelines' comparable EBITDA declined by $28 million to $387 million in the third quarter due to reduced contribution from liquids marketing activities, primarily due to lower margins.
Power and storage comparable EBITDA in the third quarter fell by $19 million, primarily due to lower earnings at Bruce power due to greater plant outage days and higher operating expenses, partially offset by higher realized power prices for all our businesses with U S. Dollar denominated income, including U S and Mexico gas pipelines and parts of liquids pipelines EBITDA was translated into Canadian dollars.
Using the average exchange rate of $1 26 in third quarter 2021, compared to $1 33 for the same period in 2020, while overall U S. Dollar denominated comparable EBITDA increased by $53 million U S. The year over year weakening of the currency was a considerable drag on comparative 2021 Canadian dollar reported EBITA that said the <unk>.
Corresponding impact on comparable earnings was not significant as our U S. Dollar denominated revenue streams are in part naturally hedged with the residual exposure actively managing on a rolling two year forward basis now turning to slide 12, I'll speak to a few of the primary variances below EBITDA depreciation and amortization was $63 million lower compared to third quarter 2000.
'twenty, primarily due to one section of the Canadian mainline being fully depreciated.
<unk> expense included in comparable earnings was $37 million higher year over year, largely due to the cessation of capitalized interest for the Keystone XL pipeline project comparable interest income and other rose $59 million in the third quarter, mainly due to realized gains in 2021 compared to realized losses in 2020 on derivatives used to manage our net exposure to foreign exchange.
Rate movements on U S dollar denominated income and.
Income tax expense included in comparable earnings for the third quarter was similar to 2020, excluding Canadian rate regulated pipelines, where income taxes are a flow through item and thus quite variable along with equity <unk> income in U S. Gas pipelines. We continue to expect our 2021 full year normalized tax rate to be in the mid to high teens comparable net income.
Attributable to Noncontrolling interests decreased by $61 million relative to the same period last year, primarily as a result of the TC pipelines LP buying completed early this year now turning to slide 13.
During the third quarter comparable funds generated from operations totaled $1 $6 billion, and we invested $1 7 billion and our capital program in October we issued a combined $2 $5 billion U S of senior unsecured notes comprised of $1 $25 billion U S. A three year fixed rate notes at 1% and $1 billion U S. A 10 year fixed rate.
Notes at two 5%.
Now turning to slide 14, this graphic illustrates our forecasted sources and uses of funds for 2021 through 2023, starting in the left column our total requirements over the three years is projected to be approximately $30 billion.
Reflecting dividends and other of $11 billion capital expenditures, including maintenance capital of $16 5 billion.
$2 billion attributed to the TC pipelines acquisition completed in March and the series <unk> preferred share redemption of $500 million in May the second column highlights expected internally generated cash flow of $21 billion.
$2 billion of common shares issued pursuant to the TC pipelines buying approximately 3 billion Canadian equivalent of senior unsecured notes issued in October $1 5 billion medium term notes issued in June and the $500 million Junior subordinate notes offering completed in March that leaves a residual need of approximately $2 billion depicting the far right column that we expect to fund.
Through a combination of incremental debt commercial paper and Keystone XL project recoveries that program excludes normal course refinancing of scheduled debt maturities and is consistent with maintaining our strong financial position.
Now turning to slide 15 in closing our strong operational financial results continued to reflect a resilient low risk business strategy and demonstrate the criticality of our extensive asset footprint along with a robust growing capital program, our enduring business model financial strength organizational capabilities and unparalleled.
Work of assets position us to capitalize on a vast opportunity set which will allow us to serve todays needs as well as the evolving energy mix of the future looking forward as Francois mentioned in order to fund our sizeable capital programs. During this period of growth maintain a strong financial position and enhance our already conservative utility like dividend payer.
Ratios, we have modified our near term dividend growth outlook, we now expect to increase our common share dividend at an average annual rate of 3% to 5%, which will allow us to fund a larger portion of our future capital programs through internally generated cash flow moderate our leverage and continued to deliver superior long term total shareholder returns.
It's the end of my prepared remarks, I will now turn the call back over to David for the Q&A.
Thanks, Joel 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 do have some 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 to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys 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 Ben Pham of BMO. Please go ahead.
Okay.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Great Good morning.
If I can just start on the dividend rate change and recognizing what you've got to start somewhere but on an absolute basis.
Not really that much.
Safe to fund things so.
As you just think about the stepped up plan.
Can you just confirm that.
Discrete equity has or drip ATM has no role in that but as you step it up what is the role of asset monetization as well.
To take advantage of private market valuation.
Okay.
Hi, Robert It's Joel here.
So first answer your question with respect to the need for equity or ATM, we'd say there is no need given our $22 billion capital program, along with us announcing today.
Thanks to $7 billion of projects. This year, so far this year and we expect it to at least $5 billion annually in the coming years. So we see no need for common equity.
If there are opportunities in access of this we would consider equity. However, we have to we look at everything through per share lens. So it has to be accretive to shareholders and add long term value.
I think to add to that excuse me Robert your question with respect to monetizing.
Assets as an alternative we look at all sources of.
<unk>.
Equity capital, whether they are internal or external and they have to compete with one another and to the extent, we can monetize a mature asset and rotate capital into growth.
You've seen us do in the past through funding Columbia.
Growth program, and something we would absolutely consider and be prepared to do in the future.
Okay. So just to clarify because Joel your answers it sounded like it was maybe just a little bit more of an absolute test of accretion, but France. Why are you trying to say, though that you've got these different options and theyre all going to get weighed against each other.
And the best option.
Is how youre going to proceed.
Yes, I think the way you characterized it Robert is exactly that we are going to weigh all of our options and that's how we're going to make the choice as to how we fund our program going forward I think where Joel was going with this is.
We always retain the option to issue equity, but it's.
<unk>.
We guard share count jealously and to the extent, we have an internal option to rotate capital I think that will always be our preferred course of action.
Perfect and then just yet the VR project last quarter, you guys <unk> project this quarter.
Or just a little under U S $1 billion, you got lots of other systems that are.
Full with with compressor stations can you just talk about that.
The total potential opportunity and look you've had kind of one each quarter here what type of.
Pace can we expect to see additional announcements.
That's a great question, Robert I'll give I'll give that to start and then I'll ask <unk> to provide some some proof points and add some color as we talked about and publish our GSE reduction plan last week.
We identified five levers for us to achieve our objectives and one of them was modernizing our existing infrastructure.
And assets and I think the WR project and the VR project, which.
Memory serves me are about a 1 billion and a half dollars of.
Sanction projects are really good examples of that and I think we will see more of those going forward. So over to you stand for the additional color.
Thanks, Brad Hello, Robert and team.
Let's start by saying this now given the size and breadth of our assets in the U S. I've said before that in any given year. My expectation is we should be originating about $1 billion of growth capital and I expect that to continue for the next several years.
One way, we're going to look at doing that is by continuing to electrify our compression fleet give you some data points today about 5% of our compression fleet is electric driven all things equal that probably drives down our reduces our seo to emissions by about 500000 tons, here's the opportunity set going forward, though about 'twenty.
4% of our compressor fleet today is what we call older slow speed units. These units could be up to 70 years old. So as we continue to mine for other like for like compression reliability projects like we've done with our Elwood project, Wisconsin access VR and W. Are we're going to look to replace this older inefficient gas.
Compression with with newer compression that may well be electric driven or this dual drive technology.
The main driver for all this from a strategy standpoint may very well be linked to the retirement of coal fire generation across our footprint and just to give you a data point as we sit here today. There are 16 coal plants that generate about 15 gigawatts of capacity that are scheduled for retirement between now and 2000.
<unk> and these coal plants fit within 15 miles of the Anr are the Columbia system. So that's exactly what we've seen happen with respect to our WR project that we announced today across the Midwest. We've recently seen about 800 megawatts of coal fire generation fee retired a majority of that is going to be.
<unk> replaced with renewables, but a portion of that is going to be firmed up with new gas fired load and Thats. Whats you are project does expand our system to the tune of about 157000 deck of terms and gives us the ability to replace these older inefficient units with newer electric drive that not only drive down our emissions and.
Expand our capacity for our customers, but allow us to do it in conjunction with Coreys team, who ultimately will be the provider of this green power going forward. So again when you look at the opportunity set I can't tell you specifically how much of that $1 billion a year that we're going to originate in any given year is going to be electric driven but I would say that we're in a bit of a target rich environment right.
Now.
That's great. Thank you very much.
Okay. Thanks Robert.
Our next question comes from Ben Pham of BMO. Please go ahead.
Hi, Thanks, Good morning, I wanted to also check your temperature your dividend growth guidance to a new range.
But are you reaffirming that that's part of the 7%.
And EBITDA cash flow or are more of a.
Longer term business growth rate.
Thanks for that question Ben.
<unk>.
Directionally.
Absolutely accurate, what we said in our in our.
Prepared remarks is that the 5% to 7% dividend growth is affordable.
And that we.
Sure.
Considered moderating the dividend growth for really two reasons, one is to retain more cash flow to invest in our growth programs and the second is too.
Overtime grow into a slightly lower leverage targets so by definition.
What's implicit in that is that earnings and cash flow are expected to grow at a rate that is above.
Our targeted.
Dividend growth rate of 3% to 5%.
Okay, that's what I thought I just wanted to clarify that Anthony.
You've been pretty consistent with some of your payout ratio targets, even cash flow between that 60%, 40% I mean is there.
Sure.
And any.
Any change in that or maybe a more fulsome update at Investor day.
I think.
We see value in having utility utility like.
Payout ratio is both on an earnings and cash flow basis, and again, given the fact that we see growth opportunity.
<unk> very robust going forward revolving around energy transition and lowering our emissions. We thought it was prudent for us to be retaining more cash flow.
And by virtue of.
Continuing to grow earnings and cash flow at a rate on a long term basis above that 3% to 5% range. We expect to see our payout ratio is lower over time as well from the level the targeted levels that you mentioned Ben.
Okay, Great that was my two questions. Thank you.
Thanks, Dan.
Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, good morning.
Just wanted to pick up with kind of some elements of the last question there and just as far as the analyst day is concerned should we be thinking about any other type of new messaging or major developments.
As far as how you think about TC energy going forward with the strategy we have.
<unk> New management team in the seat here just wondering if theres anything that you can share with us.
Jeremy I think what Youll see from US is the same consistency that we've exhibited over the last couple of decades, which is.
We view our value proposition is to provide stable and steady dividend growth underpinned by growth in cash flow and earnings to maintain a strong balance sheet and industry best payout ratios and to continue with a.
Set a very disciplined and conservative risk preferences.
What youll hear from Us on Investor Day is more detail on the opportunity set that we see going forward again energy transition provides a vast opportunity for Tc energy to prosper.
The opportunity to reduce our emissions will create opportunities for us to invest capital as well and when you combine that with the underlying growth in our existing businesses as Dan talked about.
For example, in our U S gas business.
And I'll ask Cory to provide in a little bit more detail on where we are with our RFID here a program in here just a minute in terms of electrifying our own consumption, what youre going to hear from US is more detail around the robustness of that growth program going forward and Corey if I could ask you to provide that a bit more update on that one thank you Francois.
Hi, Jeremy.
Glad to have you calling in today appreciate you taking the time.
As I've mentioned in previous calls we are systematically going through a process too.
To electrify our liquids assets in the U S and we've reached the stage now where we have.
Exclusive negotiations for as promised 1000 megawatts of RIN.
Our renewable generation and we expect in Q1 to be able to announce.
Our selections in our choices and then the schedule and the price of each one of those projects and how they're going to serve our load more specifically.
Got it that makes sense I didn't think Tc energy would be changing a ton, but just wanted to check.
Separately, just wanted to kind of build off of I guess, the Nikola announcement that you had made during the quarter here and wanted to get any more color you're willing to share with regards to I guess the pace of opportunity as it relates to hydrogen going forward in.
And do you see these type of opportunities as far as more repurposing existing assets or building new logistics, just any color you could share there would be helpful.
I'll start and I'll ask Cory to provide a little bit more detail using nickel as an example, one of the things we've learned Jeremy over the course of the last year is how critical our assets and infrastructure is to moving forward with energy transition.
With respect to hydrogen it's about generating.
Producing storing and transporting a gaseous molecule, which is exactly what we do everyday primarily through natural gas transportation and our company.
So our skill sets and our asset base really lend themselves very well to those kinds of opportunities and youre going to see more of these type of joint development agreements that we have with Nikola with other counterparties going forward, but with respect to Nicola <unk> Cory if you could sort of frame up the size of the opportunity for Jeremy.
Yes, that'd be great.
I think the way to think about it is that <unk>.
<unk> provides us a unique opportunity to bring our core skill sets our core capabilities to a team as we.
Investigate.
How hydrogen can be part of the new energy economy, and so specifically, we think about it from a power and storage point of view that it matches, our view of participating in agenda load match view, a normal 150 ton per day hub.
Requires about a gigawatt of power and so we foresee that we can participate by.
Hi.
Building and operating.
Renewable energy assets, which include storage wind and solar to power those Electrolyze yours, and then be able to systematically evaluate our existing infrastructure such that we can participate in the transmission side of those.
Hydrogen molecules from point to point to service the load, but once again I'd like to reinforce that the most important part of this is a we can bring our capabilities to a wider team and learn together and b, we can leverage our existing <unk>.
Asset base to participate with our partners in this opportunity.
Got it that's very helpful. Thank you.
Thanks, Jeremy.
Our next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Thank you I'd like to go back to the dividend growth announcement for a minute.
Thank you characterized.
Those statements.
Near term.
Changed for dividend growth outlook, and I Wonder if there is a specific metric such as leverage.
To see at a certain level or is it really under constant evaluation.
And sounds like carbon so given this morning.
Really a long term reduction in the leverage and the payout ratio as opposed to really a near term change in in.
And the growth rate.
Thanks for that Robert I'll get started and I'll ask Joe to provide additional comments.
Certainly we see ourselves.
Growing cash flow and earnings at a rate that's above the 3% to 5% dividend rate.
This is something we're going to constantly evaluate over time, it's a dynamic evaluation process within the company.
We see simply put.
Tremendous opportunity for us to allocate capital above our free cash flow, even through energy transition and emissions reductions over the next several years and want to make sure that we're balancing appropriately providing.
Income growth to our shareholders.
But also.
Maintaining a very strong balance sheet, because we think there will be situations, where we can be opportunistic and capture opportunities that others don't to the extent, we have a strong balance sheet and continue to maintain dry powder.
So the idea here is to grow into.
Stronger metrics.
Joel I'll throw to you for additional comments, yes. Thanks Francois. Thanks, Robert for the question is Francois mentioned, we will grow over time into the stronger metrics, particularly when you look at our leverage.
Over time, we want to get that down.
To see us more in that four and three quarters debt to EBITA range over time I think it's important for US is Francois said to just have that additional capacity that dry powder. If you will.
Bolsters our balance sheet so.
So I think it's really important for us to be focused on that but again it will take time and it will depend really on the cadence of spend as to how long it will take to get there I would know Robert do you think about the last two years our debt to EBITDA. We ended the year at $4 nine we're very happy with that so.
So it's not like this is that far out of reach but it will take some time, but that's kind of a stated target that we have is around that four and three quarters area of debt to EBITDA.
Okay. Thank you.
Full color then my next question is on Bruce power the operate there.
Can you maybe provide a little bit more detail.
Sort of a contrast to what's going on with the MCR program.
Is the higher capacity, you're going to be achieved through operational means our reserves some capex.
Then spend development that you can speak to.
Hi, Robert it's Corey.
<unk>.
The way I would think about it is the number one the uprate is a three phase project, that's going to take the remainder of the decade Bruce.
Bruce power refers to as project 2030.
Phase one is under construction right now and we just approved phase III, which is approximately $300 million of capital.
The execution is all on what we would refer to as the cold side of the of the of the plant, meaning there is no risk to nuclear operations. So it's primarily through improvements in the non nuclear side of the facility.
Each phase will has been funded and approved in a phase by phase process.
And we expect that by 2030 the goal of.
7000 megawatts.
It can be obtained based on year to date progress of meeting their goals and objectives for cost and schedule for phase one.
Our next question comes from Linda is a gearless of TD Securities. Please go ahead.
Thank you Don.
Want to.
Spend too.
Too much time belaboring your deliberations on the dividend, but it is of high interest so I'm just wondering.
How much of a factor if any conversations with rating agencies, and considering and converging upon an appropriate dividend growth rate and maybe also where there any other factors that were potentially secondary but a consideration as well for example, any sort of pending tax changes.
And any of your jurisdictions or anything like that.
Thanks, Linda it's Joel here.
First I would say that there was no discussions with the <unk>. There is no pressure on our on our metrics. This was a decision that we made on our own that we found it was prudent to retain more cash flow to redeploy into our business. So I just wanted to emphasize there is no ratings pressure whatsoever here.
We did mentioned to the ratings. So we do have net we had regular update call with them, but again.
This is no pressure from them whatsoever as.
As it relates to tax changes I mean, it's early days in that Linda I mean, theres a lot a lot of moving parts here, where they look at tax changes in the U S. Canada. So it came in it would come out of the OECD.
Wait till the final legislation actually comes through before we can actually make any kind of determination. If there is any impact at all on our tax position. So again very early days on that and we don't want to speculate but that did not factor into your decision here on the 3% to 5% dividend nor did the agencies.
Do we have any pressure from them whatsoever.
I appreciate that context and maybe.
Moving on to the outlook for inflation and a lot of moving parts, there as well, but I'm wondering if you can just remind us what the update is on what percentage of your earnings or EBITDA.
Might have protections in place and when we think of.
The net tailwind versus headwinds, we might see next year and beyond if you can provide any context for us that would be very helpful.
Thanks, Linda it's Francois I'll take that one.
As as.
As you're very well aware.
We have very little exposure to commodity price risk are volumetric risk and in terms of the rates established.
In our various jurisdictions, we have a settlement in Canada gas.
And our mainline for five years and six years, respectively.
Charge negotiated rates predominantly on our systems.
In the U S on the natural gas side, and our liquids business as well so.
Our exposure in terms of revenues.
Two.
Interest rate risk is very low.
The vast majority of our capital is under fixed rate.
From a borrowing standpoint, and so where we see some inflation pressures is on our projects and the cost of our projects going forward.
Something that we manage either through cost sharing mechanisms with our.
Our customers to the extent that those are available, but it's something we see.
Take a very close eye on in terms of managing our operating and capital costs going forward. So.
Not really any pressures in terms of allowed rates of return.
In terms of.
Revenues.
<unk>.
Going forward from inflation, but again.
Our.
On our O&M in our project, it's something that we watch very carefully, but we don't see that as inflation, that's being really a significant impact on our earnings and cash flow volatility going forward.
Thank you.
Thanks Linda.
Our next question comes from Rob Hope of Scotiabank. Please go ahead.
Good morning, everyone.
Just a first question on the coastal gas link can you update us on the path forward and how youre thinking about capital light risk regarding the kind of.
Slipping schedule, there as well as the higher capital cost.
Yes happy to do that good morning listen then.
We continue on cost of gasoline to work very closely with our customer LNG, Canada as we advance towards completion.
As we work through this project we.
We are working very closely with them to ensure that the pipeline comes in a timeline.
Consistent with their needs.
Utility.
Sure.
We are 100% aligned with LNG, Canada on the importance.
The project and the need to continue to move. This forward. We're committed of question doing that we're more than halfway there with.
We've passed our 50% completion and more than I think 5000 people out there working right at right now.
Achieving new milestones every day. So we think this project is on track.
To come in in a timeline that works for our customers and we're committed to making sure that that happens.
So there is no contemplation of any pauses like was previously discussed.
We have right now.
All of the authorities that we need to proceed and we are 100% alignment with LNG, Canada importance that construction is not disrupted.
Well they are doing it and we don't expect a disruption in construction.
Alright.
And then shifting over to Alberta, Alberta carbon grid Tcs got we'll call it high pressure pipelines from the large emitter sources to the potential.
Disposition for carbon areas. There. So when you are taking a look at your capital plan and taking a look at how the potential <unk> opportunity comes.
Along how are you thinking about your assets and the path forward for this project.
Thanks, Rob it's Kevin here.
One great aspect of this opportunity as it is an industry solution.
With both our partner permanent ourselves as well as potentially other parties in the western Canadian sedimentary basin, leveraging our long life assets re looking at Repurposing or our assets to provide a more competitive solution for for the industry is what we're focused on but it's early.
Early days, Rob where this is a multiyear effort, we're getting feedback from industry and not only the energy industry, but other point source.
Folks as well that have submissions to deal with and looking at a solution set that.
It could really be competitive for a broader industry approach.
Thank you.
Thanks, Rob.
Our next question comes from Andrew Kuske of Credit Suisse. Please go ahead.
Thank you good morning, maybe just on the growth opportunity that lies ahead.
If you could delineate a little bit of it.
In corridor growth.
Potentially having higher returns versus maybe more competitive opportunities that you really foresee.
I'm happy to start and then I'll ask Stan and Tracy to provide some proof points.
I would say going forward, Andrew that our opportunity set is going to be much more driven by in corridor growth than not.
Simply put.
We find the risks and managing.
External.
Processes.
Permitting.
And the like to be much more manageable and corridor, we have very strong relationships. We're a trusted operator, our employees work and live in the communities in which we operate we have a strong safety record and we have a strong commercial relationships with organizations in those areas and with policymakers so from.
Our perspective going forward from US you can see.
Much more what I call using a baseball analogy singles and doubles than swinging for the fences and we're very happy to be able to.
Backfill.
The $8 billion, we lost earlier this year with the permit ratification we've done our job this year.
We've sanctioned $7 billion.
Our including projects that'll be sanction before the end of the year, we sanctioned $7 billion of projects with an unlevered IRR of eight 3%.
To me is.
Strong execution on our part.
And thats being done with smaller and corridor projects.
Projects related to energy transition and reducing our own emissions, but thats going to be the trend going forward and I see the execution risk and the permitting risk.
Around our capital projects going forward, reducing because we're going to take that approach.
So, perhaps we'll start with Dan and then Tracy.
Hey, Andrew This is Dan maybe I'll see if I can't paint a little picture for you for my view of growth within the U S natural gas business and I guess I would start by saying the best type of growth. We can achieve is one that doesn't require any capital spending and given the current regulatory environment that we're in where the time and complexity around building new projects is increasing.
Truly believed that the value of pipe in the ground is going to continue to grow over time and therefore, our margins on every deck of thermal capacity would be sell are going to increase so whether we are focusing on cost reductions generating new capacity with sales or even taking advantage of artificial intelligence and machine learning like we've recently done with our autonomous pipeline project, we think.
We're going to be able to grow our margins going forward second thing I would point out too is our modernization program as part of our of our rate case that we recently settled and filed at FERC.
Columbia rate case settlement does include a continuation of Columbia gas modernization program, which we refer to as March three it's a $1 2 billion dollar investment over four years and as with our prior.
Proposals.
Every bit of capital that we put in service at the end of October I'll be given year starts to earn recovery effective April of the following year. So theres relatively short period of dead capital. If you will and I should note that if youre trying to trace back to our capital table that we included in our Q3 disclosures the $1 $2 billion.
<unk> program is not included in that just yet, but we will update the capital table when the settlement is approved.
<unk> Q1, 2022, but third and perhaps really to your question and with respect to new projects again, given the depth and breadth of our system My expectation as we originated about $1 billion of projects each year and these will be largely in corridor compression related expansions that are permissible and construct the ball and we'll continue.
<unk> to have the 5% to seven times EBITDA multiple build if you will I should point out that not only are we originating about $1 billion of new growth projects. A year. We're also putting into service about $1 billion of growth projects per year. This year, we're going to put in about $900 million of capital into service next year. We are on track to do about the same.
Just under $8 billion.
Again, it's difficult for me to give you a specific breakout of where the growth is going to come from we're going to look for continued organic growth amongst utilities and we've had some success in that particularly on the east coast of the U S.
As application opportunities like VR and W are we've already talked about.
Opportunities with respect to coal retirements again, I think our bound LNG growth that second or third wave is going to come particularly as we see these $50 type LNG prices in Asia and record LNG send outs to places like China, and also I wouldn't discount and element of producer push.
For example, we are seeing increased capacity increased production out of the Bakken higher gas to oil ratios pressure on reducing flaring, all thats going to require additional pipeline capacity and again, we're uniquely situated to do that I think with our bison pipeline all of that I would characterize as traditional growth and on top of that there is all of these transitional off.
Opportunities that we have around renewable natural gas carbon capture hydrogen and the like so with that I'll pause and maybe turn it over to Tracy.
Thanks, Dan Hey, Andrew Thanks for the question.
Canada as you know we're in the middle of what is a fairly.
Large expansion program.
On the NGL system. It is positioning the NGL system.
Within that Montney area to ensure that the basin and the gas that's up there some of the most competitive North America has access to the system and we're increasing the access that gas into market by two this program more than 30%. So youll see that program come to an end in 2024.
And that we see about $1 billion 1 billion in half.
Organic like investments such as we continue to make sure that that the system is positioned properly in the basin.
To help us succeed and we look at opportunities too.
Optimize our system.
Looking at opportunities to Decarbonize.
We see that carbon price is starting to increase opportunities to electrify and as we look forward.
Leverage our assets since we as we look at all of the activity around.
Energy transition. So this is a tremendous resource base, we have right now.
We're starting to see the benefit subsea expansion that we've done already if you look at some pretty strong financial results. You can see that continue and I think as we look forward, we're going to leverage all of that to make sure that the basin is positioned to succeed to drive more gas down our kind of strategic asset in the mainline into eastern Canada the mid <unk>.
On a U S pipe and.
Participate fully in the in the growth that we're all seeing in gas.
I appreciate the Three's company approach on the answering the question it's very helpful.
But maybe my second question if I cabs.
Is really related maybe it brings it back to the baseball analogy Francois.
Singles and doubles and just all the capital comments that standard Tracy made.
Do you see yourselves in a position where you've got effectively the singles and doubles that Earl on corridor that allow you to.
Certain sense run up the score and really put a lot of capital to work.
Short period of time to accelerate on energy transition and just greater offerings to your customers.
And really benefit the overall growth story for Tc itself.
Very much so Andrew I think you characterized it well and if you look at the $7 billion.
Projects that we have sanctions or expect to sanction for the rest of the year.
The majority of those projects have a component of emissions reduction or energy transition or emission less energy built into it so from our perspective as we look at our responsibility and the commitments we've made around reducing our emissions as we look at the direction policy is taking as we look at.
Talking to our customer base about what their objectives are.
More and more of our capital going forward is going to be associated with either reducing our emissions reducing their emissions are moving us along energy transition and as you quite rightly pointed out.
A larger number of smaller projects brings less permitting risk for us less execution risk for us and.
In many instances, where we are the incumbent we are able to attract above average returns for that capital. So all told I think as you pointed out very well I think it bodes very well for us going forward in terms of our ability to achieve our targeted 700.
9% Unlevered after tax IRR on newly sanctioned projects every year and.
As I mentioned in my prepared remarks, we're at the upper end of that $4 7 billion, we plan on having sanctioned in 2021.
Okay. Thank you very much.
Thanks, Andrew.
Our next question comes from Michael Lapidus of Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my question.
I'm looking at your sources and uses on your sources and uses of funds for the next couple of years one of the items that stood out a little bit was the expected source of funds from recovery of Keystone XL costs can you just remind us a.
What's the dollar amount that's assumed in that bar b, what's the process for getting recovery of those funds and kind of the timeline for it and see what's the backfill strategy in case that gets pushed out or delayed or doesn't get what comfort.