Q4 2021 TC Energy Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the TC Energy fourth quarter 2021 results conference call.
As a reminder, I would like to remind you 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.
Star and zero I would now like to turn the conference over to David Minetta, Vice President Investor Relations. Please go ahead.
Thanks, very much and good afternoon, everyone I'd like to welcome you to TC Energy's 2021 fourth quarter conference call joining.
Joining me today are Francois Poirier, President and Chief Executive Officer, Joel Hunter Executive Vice President and Chief Financial Officer, Stan Chapman, President U S and Mexico natural gas pipelines Bevin worst executive Vice President strategy, and corporate development and group Executive Canadian natural gas.
In liquids pipelines, great Grant President Canadian natural gas pipelines, Richard Pryor, President liquids pipelines, where he has been president of our power storage and origination and Glenn <unk>, Vice President and controller.
Francois and Joel will begin today with some 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 in the investors section under events and presentations.
Following their remarks, we will take questions from the investment community in order to provide everyone with an equal opportunity to participate we ask that you limit yourself to two questions. If you remember the media. Please contact jaimie Harding after this call.
Before Francois begins I'd like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties for more information on these risks and uncertainties. Please see the reports filed by TC energy with Canadian Securities regulators and with the U S Securities Exchange Commission.
And finally during this presentation, we 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 additional information on TC Energy's operating performance liquidity and its ability to generate funds to finance its operations with that ill now turn the call over to Francois.
Thanks, David and good afternoon, everyone and thanks for joining us today.
As highlighted earlier today in our fourth quarter news release I am pleased to report that 2021 was another very successful year for Tc energy.
Alright, $100 billion portfolio of high quality long life energy infrastructure assets continued to produce strong operating and financial results.
During the year, we placed $4 $1 billion of assets into service.
And we sanctioned approximately $7 billion of new projects.
We also progressed numerous.
Long term energy transition growth initiatives in renewables hydrogen and Cc U S that will position us for future success, regardless of the pace or direction of energy transition.
We continued our focus on expanding our organizational capabilities in key areas like power and storage innovation and stakeholder relations.
And finally, we released our 2021 report on sustainability, which includes targets for all 10.
Of our sustainability commitments.
Notably, we set ambitious scope, one and scope two G H G reduction targets.
Our goal.
Is to reduce our emission intensity, 30% by 2030, the positioning and to position the company to achieve net zero emissions from our operations by 2050.
So operationally the demand for our services remains strong.
And our assets performed extremely well.
This was evidenced by the volumes transported across our network for example, our N G. T. L system in Alberta reached a decade, a level high for average export flows and set an all time record on intra basin delivery of $8. One Bcf on January 5th of 2022 .
Similar story in the U S, where we saw increased flows across most of our natural gas pipeline assets in 2021.
The robust volumes continued into early 2022, and we set an all time send out record on January 20th of 34.9 Bcf across our U S network and that represents approximately one quarter of total U S daily supply.
Same in our liquids pipelines, where our Keystone system achieved record throughput of 602000 barrels per day in 2021 up 6% from 2020.
And in power and storage the Bruce power facility delivered 86% plant availability and we also had $98, 9% peak availability on our cogeneration assets through the 2021 weather extremes.
So what does that mean it.
It means our strong operating performance translated into strong financial results.
Excluding certain specific items comparable earnings reached a record $4 $2 billion or $4 27 per common share in 2021 compared to $3 9 billion or $4.20 a year earlier.
Comparable EBITDA of $9 4 billion and comparable funds generated from operations of $7 4 billion were both similar to last year's results.
We achieved these record results despite the impact of a weaker U S dollar, which impacted comparable EBITDA by approximately $400 million.
These results reflect the strong performance of our legacy assets as well as contributions from the approximately $4 billion of new assets placed into service in 2021.
Looking forward, we are advancing a $24 billion capital program. This includes approximately $7 billion of new high quality growth opportunities that we sanctioned in 2021, including the Columbia modernization three program and the Bruce Power unit three M. C. R.
Program.
Importantly, the entire $24 billion program is consistent with our historical risk and return preferences.
It's underpinned by long term contracts or cost of service regulation and expected to deliver a weighted average unlevered after tax IRR of approximately 8% on the entirety of the portfolio.
Yeah.
Looking beyond our current capital program the opportunity set that lies ahead of us is best.
Our substantial origination capabilities position us to capture many similar high quality opportunities as we continue to deliver the energy people need while decarbonising our own assets footprint.
This includes the ongoing in corridor expansion modernization and maintenance of our regulated natural gas pipeline network.
It also includes the Bruce power life extension program and the projected 2030 upgrade initiative at Bruce to achieve peak site output of 7000 megawatts.
As we've mentioned previously we're evaluating proposals in response to our RFID for renewables to electrify the U S portion of our base Keystone system.
The response has been overwhelmingly positive and we expect to finalize contracts in the first half of 2022 .
Now associated with the RFID, we have identified a meaningful origination opportunity to sell.
Carbon free energy products and services to the industrial and oil and gas sectors for aggregation of load, that's proximate to our own and corridor demand, thereby enhancing our return on this renewable activity.
We're also progressing initiatives for two pumped storage.
Projects, we expect to make a final investment decision. This year on the Canyon Creek project in Alberta, which has the capital cost of approximately $300 million and.
And we continue to progress the development of the Ontario pumped storage project.
With an estimated 4 billion dollar investment that would provide 1000 megawatts of flexible.
Clean energy to Ontario's electricity system.
Beyond that we are working on numerous opportunities, including carbon transportation and sequestration with Pembina clean.
Clean energy projects with Irving oil.
And large scale hydrogen production hubs with Nicola and highs on.
As a result, we are well positioned to sanction more than $5 billion of new projects in each of the next several years.
With the risk adjusted return profiles consistent with historical levels.
Looking forward, our $24 billion secured capital program gives us line of sight to an average annual growth rate in EBITDA of 5% through 2026.
This outlook reflects our current portfolio of high quality long life assets.
And secured projects expected to enter into service in that period of time.
Having said that we continue to see the potential for incremental growth to the extent, we're able to originate and placed into service additional N corridor projects secure capital light opportunities and realize further cost savings.
So based on the strength of our financial performance and our promising outlook for the future.
TC Energy's board of directors declared a first quarter of 2022 dividend of <unk> 19 per common share.
Which is equivalent to $3 60 per share on an annual basis.
This represents a three 4% increase over the amount declared in 2021 and is the 22nd consecutive year that our board has raised the dividend.
Based on the confidence we have in our future outlook, we expect to continue to grow the dividend at an average annual rate of 3% to 5% per annum.
Now finally as I highlighted at our Investor Day in December our vision is to be the Premier energy infrastructure company in North America, now and in the future.
To help us realize our vision, we set the following priorities for 2022, which we will report against throughout the year.
First safety is our number one value we take our responsibility to safely deliver the energy people need every day very seriously.
Next our goal is to continually increase the return on invested capital we will achieve this by optimizing our existing operations through cost savings as well as innovative products and services that enhance our revenues.
We also expect to place approximately $6 $5 billion of assets into service in 2022.
And our goal is also to sanction and additional five plus billion dollars of high quality.
Growth opportunities.
As always we will fund our capital program prudently to ensure we maintain our financial strength and flexibility.
And finally, we will progress.
Our sustainability targets, including G. H G emission intensity reductions, we will also continue to enhance our organizational capabilities necessary to prosper irrespective of the pace and direction energy transition takes.
Before I turn the call over to Joel I'd like to mention a few recent management changes.
Devin worst bus role has expanded to executive Vice President strategy, and corporate development and group executive Canadian natural gas and liquids pipelines.
Reporting to Bevan will be Greg Grant President of Canadian natural gas pipelines, and Richard Pryor President of liquids pipelines.
This follows the news that Tracy Robinson has been appointed President and Chief Executive Officer of Canadian National Railway I'd like to thank Tracy for her contribution over the years and wish her well in her new role.
While we will Miss Tracy this seamless transition highlights the strength of our succession planning efforts and the depth of our organization.
Each of these individuals were identified and our leadership succession planning process over the last many years.
I'm confident that Bevan, and Greg and Richard along with the rest of our leadership team have the experience and the skills necessary to achieve our goals.
Now I'll turn the call over to Joel who will provide more detail on our fourth quarter financial results and outlook.
Thanks, Francois and good afternoon, everyone.
It's Francois mentioned, our assets continued to perform very well our strong operational and financial results continue to reflect our diversified low risk business strategy and demonstrate the criticality of our unparalleled asset footprint.
As outlined in our results issued earlier today net income attributable to common shares was $1 $1 billion or $1 14 per share in the fourth quarter compared to $1 1 billion or $1 20 per share for the same period in 2020.
Fourth quarter 2021 results as well as the corresponding period in 2020 included certain specific items, which are discussed further in our fourth quarter 2021 financial highlights release. These specific by items are excluded from comparable earnings.
Comparable earnings for the fourth quarter were $1 billion or $1 six per common share compared to $1 1 billion or $1 15 per common share in 2020.
In the fourth quarter comparable EBITDA from our five operating segments of $2 $4 billion was 3% higher compared to $2 $3 billion earned during the same period in 2020, despite currency translation headwinds.
Detailed variance explanations for each business unit can be found in our financial highlights release. So I'll just comment on a few principle changes year over year.
U S gas pipelines comparable EBITDA increased compared to fourth quarter 2020, primarily due to higher earnings from Columbia gas as a result of increased transportation rates effective February one 2021.
Liquids pipelines comparable EBITDA declined mainly due to lower volumes on the U S. Gulf Coast section of the Keystone pipeline system.
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 an average exchange rate of 126 in fourth quarter 2021, compared to $1 30 for the same period in 2020.
Therefore, while our overall U S dollar denominated comparable EBITDA increased in the fourth quarter the year over year weakening of the U S. Dollar was a considerable drag on comparative 2021 Canadian dollar reported EBITDA now that said the corresponding impact on comparable earnings was not significant as our U S. Dollar denominated revenue streams are.
Part naturally hedged with the residual exposure actively managed on a rolling three year forward basis.
Yeah.
I will now speak to a few of the primary variances below EBITDA.
Interest expense included in comparable earnings was higher year over year, largely due to the cessation of capitalized interest for the Keystone XL pipeline project and long term debt issuances, partially offset by the foreign exchange impact from a weaker U S. Dollar on translation of U S dollar denominated interest.
Income tax expense included in comparable earnings for fourth quarter increased compared to 2020, primarily due to higher flow through income taxes on Canadian rate regulated pipelines.
Yeah.
During the fourth quarter comparable funds generated from operations were $2 $1 billion, bringing the total to $7.4 billion for the year.
As we exited 2021, our liquidity position remains strong we continue to have access to capital markets on compelling terms and remain focused on bolstering our financial position over time.
Looking forward this graphic illustrates our forecasted sources and uses of funds for 2022 through 2024.
Starting in the left column, our total requirements over the three years are projected to be approximately $25 $5 billion, reflecting capital expenditures, including maintenance capital of $14 $5 billion and dividends of $11 billion.
The second column highlights expected internally generated cash flow of $22 $5 billion, leaving a residual need of approximately $3 billion depicted in the two far right columns that we expect to fund through a combination of cash on hand, commercial paper incremental debt hybrids and Keystone XL project Recut.
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Yeah.
Turning now to our outlook for 2022 additional information is contained in our 2021 annual management's discussion and analysis.
Overall, we expect 2022 comparable EBITDA to be modestly higher than 2021.
Canadian natural gas pipelines EBITDA is anticipated to be higher mainly due to the continued growth in the NGL system, partially offset by the reduction of flow through depreciation on the Canadian mainline as one segment was fully depreciated in 2021.
As a reminder, we believe earnings are a more appropriate measure then EBITA when assessing financial performance for our Canadian gas business.
U S natural gas pipelines EBITDA is expected to be consistent primarily due to an anticipated increase in transportation rates on anr subject to the outcome of this section four rate case filed with the FERC as well as expansion projects on Anr and Columbia Gulf.
These positive developments are expected to be partially offset by higher operational costs and property taxes.
In Mexico, we expect EBIT would be higher year over year due to increased contributions from the Villa de Reyes pipeline expected to be phased into service throughout the year.
In liquids EBITDA is anticipated to be lower due to continued challenging market conditions impacting volumes in the U S. Gulf Coast section of the Keystone pipeline system and decreased margins in the liquids marketing business.
Comparable EBITDA for the power and storage segment is expected to be generally consistent with 2021.
We anticipate Bruce power equity income will be similar in 2022 is the impact of its contract price increase for the unit three MCR program is expected to be offset by greater non MCR planned outage days and operating costs Bruce.
Bruce power availability, excluding unit six which continues its MCR program is expected to be in the low 80% range in 2022.
Other items impacting earnings include a lower average foreign exchange hedge rate on our 2022 U S. Dollar denominated comparable earnings along with higher anticipated interest expense on long term debt issuances net of maturities in 2022, our forecasted U S. Dollar income is largely hedged at 120 <unk>.
Six compared to $1 35 in 2021.
Excluding Canadian rate regulated pipelines, where income taxes are a flow through item and thus quite variable along with equity a PDC income in U S gas pipelines, we expect our 2022 full year normalized tax rate to be in the mid to high teens.
Our exposure to interest rates and commodity price variability remains quite limited in our diversified portfolio given approximately 95% of our EBITDA comes from contracted and regulated assets, which include various flow through and sharing mechanisms.
As a result, we expect our 2022 comparable earnings per share to be consistent with our record results in 2021.
Now in terms of capital spending we expect to invest approximately $6 $5 billion in 2022 on growth projects maintenance capital and contributions to equity investments with the majority earmarked for NGL system expansions U S natural gas pipelines projects, the Bruce power life extension program and normal course maintenance cap.
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Despite a few headwinds which include the impact of a weaker U S. Dollar we remain confident in our ability to deliver EBITDA growth of 5% through 2026 of our growth will not be linear.
Our outlook is underpinned by our $24 billion secured capital program is expected to produce unlevered. After tax returns of approximately 8%. We also have numerous other leavers to build on that growth rate in each of our business units similar to today approximately 95% of our EBITDA will continue to come from regulated and long term contracted.
Assets.
So in closing our strong operational and financial results continue to reflect our diversified low risk business strategy and demonstrate the criticality of our unparalleled asset footprint are enduring business model financial flexibility organizational capabilities and extensive portfolio of assets.
<unk> to capitalize on a vast opportunity set which will continue to allow us to serve todays needs in the evolving energy mix of the future.
Now looking forward, we're well equipped to fund our current capital program with a combination of internally generated cash flow and debt capacity, which will allow us to maintain our solid financial position and flexibility.
Our expected growth in EBITA of 5% or more or provide us with the ability to enhance our already conservative payout ratios moderate our leverage and continue to deliver superior long term total shareholder returns that's.
That'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 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.
Youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then Q, we will pause for a moment as callers join the queue.
Our first question comes from Ben Pham of BMO. Please go ahead.
Okay. Thanks, good morning.
Hi, good afternoon.
On a couple of questions on the par business, you mentioned with the the RFID and the renewable procurement and you add in some some additional origination I'm I'm I'm wondering how how does that.
Results in high returns and impact on your EBIT does that does that only under the assumption that traps are investors equity how.
How long side. These are are these power companies.
Thanks, Pat and his friends, while kicked us off in Alaska Korea to provide a little bit of additional detail.
By virtue of our ability to aggregate load in the area.
Of our pump stations on the base Keystone system.
One we can create economies of scale for them being able to deliver a power at all at a lower cost for everyone's benefit secondly.
We're able as Tc energy without having necessarily ownership in the assets as the PPA counterparty to.
Partial off a different amount of load to the different counterparties on a on the purchasing side. So we might be the counterparty on 100 megawatt wind farm and find three different counterparties are that each one let's say 25 megawatts.
For their own purposes, and where the intermediary that stands in between so without allocating any long term capital, but you're utilizing working capital.
We can create some margin for ourselves to enhance our returns in addition to.
Meeting our own demand.
We will in some instances have the option to acquire equity in the facilities themselves at C. O D and we won't be taking any construction risk.
And we will consider those on a case by case basis.
As you know those types of investments will have to compete for capital with other parts of our of our business Cory I'll throw it over to you for some additional detail on proof points on the scale of what we've seen in terms of aggregation.
Hi, Ben Corey here. Thanks for the questions just two points to make real briefly number one.
One of the most expensive parts of the process development or renewable assets. As you know is to find and contract with with customers and because we have those customers already in corridor, we're able to reduce our cross costs pretty dramatically as we think about reaching those customers in and.
Closing out transaction opportunities for us and also helping our customers on there.
De carbonization journey the second.
<unk> point that I'd sort of lay out to you there is because we are in.
In this in this sector in the industrial sector. Many of our customers already have long standing relationships with us. So we understand the t's and c's and some of the other unique parts of their business, that's going to make the transactions move a little bit more smoothly and just as a proof point you know right now we have approximately one.
Three gigawatts of offtake secured are in LOI stage, and we are now in definitive negotiations with those Counterparties. In addition to the internal load that we've already worked on.
Okay I got it so is it.
Some some extent said similar to the Sumner.
Some of the contracts in Alberta that we will continue to engage in I mean is that correct.
Yes, Okay and then my follow up is there anything you need to do and on a par marketing side I mean in terms of expanding it or did you run any everything out of Alberta.
Hey, Ben It's Corey again, we currently and have historically done our power marketing out of bolt, Alberta in Houston to service, our our Canadian and U S customers those should be plenty sufficient for our continued operations moving forward and.
Continuing to.
Service the load that we have internally with our existing customers.
Okay, Great. That's very helpful. Thank you.
Thanks Vince.
Our next question comes from Linda <unk> of TD Securities. Please go ahead.
Thank you.
Just wondering if you could help me understand.
The status of and White space in your business, an update on where it is in your pipeline network and how might any sort of increasing costs.
On the operating side I'm kind of offset from a margin perspective, how much are left we might see in the next couple of years is that white space filled up.
Thanks, Linda I'll ask Joel to take the inflation part of that question first and then I'll come back around to white spaces. So thanks, Linda for the question.
With regard to inflation, because we get asked this a lot you know the key takeaway is that the impact and inflation remains quite limited and that's a result of 95% of our EBITDA is underpinned, obviously by contracted and regulated assets.
This obviously includes various flow through and cautionary mechanisms. So what we see is that about 20% of our operating costs would be subject to inflation in the near term and so the key sensitivity to use is for every 100 basis point change in the inflation rate it.
It results in approximately less than $10 million pre tax impact to our bottom line.
And that's the second part of your question Linda So what do you know what you hear from Joel is that we have very little exposure to to inflation in terms of our operating costs.
In terms of white spaces I think.
If you look at our natural gas pipeline footprint for example.
You know, we have plenty of N corridor growth that'll be derived from our leading position in the WCS b and the Appalachian basins, we don't see them.
Great imperative for us to be looking to serve other basins. Those are the two basins for example through.
Covid and some of the demand destruction that occurred that performed very well through throughout.
But that period of time, so we're very confident in those basins ability to deliver on the power side I think you'll see us growing our contractual.
Our position and our Ah you know long term capital investments in the U S. A we have a terrific footprint and opportunity to electrify our own consumption on the gas pipeline side, the regulatory construct in the U S is more conducive to us.
Investing in electrifying, our own compressor stations in the U S. In the near term that may change in Canada, as well, but for the for the time being I think we'll be focusing our capital investment in and pairing storage.
With respect to renewables in the U S and that's the compliment you know the roughly $1 billion a year, we're going to spend.
At Bruce power.
Thank you and just as a quick follow up on your Ontario pumped storage opportunity.
Have there been any recent discussions with anyone or any activity on that front or might there be a bit of a pause this year, given the pending provincial and municipal elections that will be seen in Ontario.
Yeah.
Hi, Linda it's Corey again.
We are in process and in the province, we are working on a number of major fronts.
We have begun discussions with the ISO.
In accordance with phase two of their they used assessment process and we are working with.
With the D M D.
The continued site assessment work.
In Myford and then finally, we are working with our other indigenous stakeholders and partners such as the Sun to finalize our partnership going forward on this project.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Hey, good afternoon.
I can just ask about your capital allocation around the balance sheet and leverage and you've talked about your balance sheet as being a strategic enabler for either large projects or acquisitions and I'm. Just wondering how do you envision getting there as you think about the likelihood.
At least that you're putting forward to bringing in five plus billion dollars of new projects.
A year in terms of getting to that position, where you can use that balance sheet.
Domestically.
Is it either or do you see other levers you can pull to get to whatever that target might be.
I think Robert it's Francois here you know our plan is to as you see the sources and uses over the next several years and we'll be keeping debt our total debt relatively steady and using internally generated cash to fund both the dividend and our capital program. So in essence, youll see us growing into the targeted.
Our long term leverage of 475 debt to EBITDA.
Looking at the materials, we presented at our Investor Day.
And ascribing, a the average 5% EBITDA growth over that period of time, we'd get well below $4 75 by the end of that five year period, but we did also say that we expect to be able to sanction additional project as we go I can't I cannot tell you that there's a specific number at which we'll say okay. We've got.
We've got dry powder and when an opportunity comes along we will be able to act on it I would tell you that generally speaking.
Retaining more free cash to invest in whether it's M&A or I would argue.
You know, it's really important to be agile and nimble around energy transition as we compete to help our customers lower their their own emissions.
You know, having a strong balance sheet and an ability to respond quickly to their needs is really important. So it's not just with respect to M&A. It's also in terms of developing.
<unk> Ah Ah projects around energy transition and.
So you know again I think it's just a directional preference and.
As I said, we do expect to be adding projects over the next few years and are we sort of see $5 billion is a reasonable run rate for us.
To be able to live within our means going forward.
That's great if I can finish with a topic related to the reselling of power and that being like an asset light strategy. I'm. Just wondering is that a specific strategy to this business.
Or when you pair it with your 2022 priority of improving the return on invested capital. That's the strategy that you might consider more broadly.
Whether that's something like monetizing portions of your existing assets that remain in the operator, and say, you're taking back management and other fees.
Yeah, I think that's a that's a great observation Robert you know.
When it comes to the decisions, we will make in the future around investing equity and some of their renewal renewable projects that we're sanctioning.
Those projects are gonna have to compete with.
Other uses of capital within our capital stack so.
You know looking to aggregate and parcel out N. Gen to load match load for third parties as a way for us to improve our returns and and take a little bit of an asset light approach.
If you look at what we're doing in Mexico. If you look at what we're doing with our liquids business. We've got capital in the ground you know in in V. D. R. A T.
<unk> completion this year.
With the southern portion of our Keystone system from from Cushing down to the Gulf Coast. The capital has already been deployed and our job now is actually to incur.
Increase the utilization through commercial means and I'm, you know marketing means as well. So if we're able to do that we are going to be able to improve their return on invested capital on on the existing capital that's been invested.
And that's.
That's a theme that we're going to be focusing on over the next couple of years to you know help us.
Across all of the different metrics and improve our leverage retain more cash in.
And invest in our in the energy transition.
Our next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Yeah.
Turning to our walk me through the strategy and pricing the next day so.
Bruce M C R.
On one hand, you'd probably like the COVID-19 impact on cost and schedule contingency agreement sucks.
But you also seeking recovery for the poorest merger provisions what level of certainty for a recovery of those costs that gives you the confidence in the final cost and schedule want somebody that's for unit three and same thing for the preliminary cause somebody to premium before.
Hi, Robert Coury.
As we think about the Bruce power you know I I think about it is it's definitely being you know the poster child for our high quality long life assets and so when we go through the process of the MCR, we use a very systematic approach to determining each one of those factors we work.
Closely with all of our stakeholders, including the ISO to make sure that we are adequately evaluating each phase of the NC ours, and making sure that we are inclusive of a ball.
Reasonable outcomes and cost that it will be part of that I feel like our relationship with the ISO and the stakeholders is quite good and we have included each each component of the risks that were presented as a function of COVID-19 as part of that going forward now that being said.
The folks at at Bruce Power has done a great job of being able to.
Planned well in advance this isn't a process that just kicked off last year in December it's actually a process that takes many years and most of the work that went into this has been a longtime coming so I feel like we're in the right spot will be in the right spot for the next years to come and we have a really strong relationship with the.
ISO to ensure that the citizens of Ontario received.
The most fairly priced carbon free electrons available to them.
Corey if you might also help Robert with.
The status of units six where we are with respect to cost and schedule and the status of the the forced measure.
You know applications that we made at the beginning of Covid.
Yeah. Thanks Francois.
First we are on schedule and on budget for unit six we expect that to.
Come in on schedule in the in 2023 as per plan and with regards to the force majeure.
Some middle those are being <unk>.
Tabulated and we keep a very close Ah Ah Ah Ah records of all of the impacts and then we.
Submit those to the ISO in accordance with the terms and conditions of the bacteria. So there'll be more to come on that in the coming months as we sort of exit exit. This this phase of the project, but right now I would reinforce we are on schedule and on budget for unit six.
Okay. That's helpful and just maybe a quick one on the phone it slides for August one.
I understand the status of the ATM, Okay, which I believe that program is expired.
Whether or not you have any clients to renew it.
Thanks, Robert Yeah, we have no plans to renew it we put the ATM in place originally for Keystone XL and we just left it there we have not used it but it will expire and we have no intentions to to replace it.
Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, This is David Magee stepping in for Jeremy.
<unk> really only one question for me guys early last month, we took a closer look at the Bakken.
When you find out with increasing doors and reduce flaring N V. P. L is running near full nameplate capacity at least on a content perspective.
And seeing as how ethane rejection extraction dynamics play a larger role on the egress.
Kind of wanted to get your thoughts on the M. B P. L pipeline based on egress and just general views on the base and so thank you.
Yeah. Stephen this is Stan I could address that and you kind of hit some of the high points already.
<unk> production is now pushing close to three Bcf a day, which is what it was prior to the pandemic.
And if you look at the mix between Bakken volumes versus Canadian volumes coming into the northern border system, It's about that 72% Bakken weighted which is the highest ratio. It's been in the past that 345 years or so we have seen an increase in processing and ethane extraction capacity in the region, which is not unexpected given the fact that.
Prices are somewhere in the 40, a gallon right now range. So given all of that given the fact that our production is up layering is down.
We're actually very bullish on the need for there to be additional takeaway capacity out of the Bakken are probably to the tune of about a half a bcf a day give or take and again, they're not actively engaged with the with the Bakken producers. We think our bison pipeline is uniquely situated for a takeaway solution and don't be surprised if you see something coming.
Along those lines later this spring with respect to an open season.
Got it I appreciate it thank you guys.
Thanks, David.
Our next question comes from Rob Hope of Scotiabank. Please go ahead.
Afternoon, everyone I wanted to circle back on the renewable power energy transition business, where do you see Tc Energy's optimal place to enter the development process there.
Do you think it.
Is the expectation that moving forward, you'll you'll want to focus on that asset light like youre doing in the middle part of the U S or could we see more of a historical development focus similar to what Youre doing in Ontario, and Alberta.
Hey, Rob it's Corey I think that the answer to your question is yes, I think we would taken all of the above strategy.
It's really more focused on the jurisdiction that the opportunity presents and the customers that we are trying to serve so we you see us with an early stage development with some of our renewable assets.
Specific Lee Canyon Creek or me for pump storage in in in Ontario.
Because of a number of different reasons, not the least of which is our is our our assets in that particular jurisdiction in the United States I would think about it through the following lens and that is the market has a great number of organizations that are very good at early stage development.
It would be difficult for Tc energy to replicate that those development skills, but what we can do and where we can bring our expertise to bear is in contracting t's and c's and connecting the load with our customers in both internal and long term customers of our other businesses and so I think it's going to be even.
Variety.
Of the variety of different choices, there, but we do believe that we will own assets or portions of assets over time and there will be assets, we will take the asset light approach as it meets our needs in that jurisdiction.
I appreciate the color and then I have a follow up and maybe a little early just given where we are in the year.
If the annual goal is to sanction a $5 billion worth of projects as we look out to 2022, what buckets or business lines are you seeing the greatest opportunities and you know how much do you have high visibility that you'll be able to get into the secured bucket in 2022.
Rob It's Francois I'll take that one recall that Oh, we have a 1 billion and a half to 2 billion annually of maintenance capital that are on which we can earn a return on enough capital.
Because we're investing in our regulated businesses and so I think you can expect that to.
To to continue we've got good visibility on that occurring every year really throughout the balance of the decade, and then it's well diversified across our various jurisdictions. I think you can expect a $1 billion mm plus of new projects in our gas Fran.
[noise] sizes combined between Canada, and the U S simply around electrification of our own assets, reducing our own emissions.
And a meeting a natural gas demand growth I think one of the things I talked about in my prepared remarks is that you know the evidence and the facts indicate that demand for natural gas in North America continues to grow and we've benefited from that so and then in our power <unk>.
<unk> you know we've talked about the RFP process and the fact that we're aggregating incremental load in and we're going to do some gen to load matching and you know the the opportunities on for Canyon Creek will be looking at sanctioning that $300 million project. This year.
As well as a number of other smaller projects are in different parts of the company. So it's spread around a little bit where which is good we feel comfortable about the fact that we're not heavily reliant on any of our businesses to actually deliver that $5 billion per year, having said that we have a couple of large.
Sizable opportunities out there for us to sanction a potentially a phase two of C. G. L. A the Ontario pump storage project a $4 billion.
And then of course.
Our efforts in Mexico working with.
In partnership with the Cfe to potentially sanction additional infrastructure so.
We've got lots of small in corridor opportunities across our entire footprint than when you add them together that $5 billion is pretty visible and then some larger opportunities on top of that.
Yeah.
Our next question comes from Puneet Satish of Wells Fargo. Please go ahead.
Thanks, Good afternoon.
In our rate case, it looks like the requested ROE is 16% if I'm seeing it correctly I'm just wondering how much of that is based on the regulatory environment and the increase in perceived risks I guess what are the factors behind that number is I think it's a bit higher than normal.
Yes. This is Stan actually when we look at our our proxy group. It's in the upper third range. So it's in that higher here, but that does reflect the fact that all things equal amongst our proxy group has a little bit more exposure to producers and therefore commodity prices and probably has a little bit more exposure to the gas on gas competition.
With respect to deliveries of volumes into the mid continent area. So I'm not an outlier by any stretch, but it isn't that upper third tier of our proxy group.
Got it.
And then in terms of the bridge loan that's being provided to the coastal gas link can you comment on the timeframe for when that would be repaid in and I guess I'm. Just wondering why you elected to provide funding yourself versus using additional bank debt and then maybe also if you'd give us an update on the status of coastal gaps like that would be great.
So puneet I'll start with that it's Joel here, then I'll turn it over to two bevin.
Mentioned before the $3 $3 billion bridge loan is just to.
Proved that there's sufficiency of funding for the project as we highlighted back in Q3, we viewed as being temporary to.
To the extent that we can actually get an increase in guarantees. So that we can then subsequently increased the credit facility that we have at <unk> at this point in time. So once again, we view it as being temporary the $3 $3 billion and as we've highlighted we do earn a mark.
Return, if we do land funds into into C. G. L. At year end, there was $238 million I believe outstanding on that $3 $3 billion of facility. So it will be in place until we get an increase in the in the credit facility and then whatever is needed to get the bridge. The funding if you will to the project completion.
We will be determined.
Yeah Puneet. This is bevin you know, we're making great progress in the field on the right away at the beginning of the year were nearly at 60% complete and the field. What is what is really clear to us is that the fundamentals that underpin the need for coastal gas link and the LNG Canada.
LNG facility have.
They need needs for that was projects have never been more robust and so we've been working very closely with our with our customers' LNG see Canada and also with our equity partners to position the project to for a safe execution and be ahead of the LNG facilities. So discussions are ongoing.
Boeing and we're making great progress so happy with the direction that the project has taken.
Yeah.
Our next question comes from Michael Lapidus of Goldman Sachs. Please go ahead.
Yeah, Hey, guys. Thank you for taking my questions just curious on coastal gas link.
Should we think about the potential cost increase as being a significant or material number or is it just the disclosure you're giving of hey, there's going to be costs, but it's not going to be in the billions of dollars range.
And if it is a pretty sizable number call. It I don't know anything north of $1 billion, how does that impact. The return you guys would earn on the project.
Yeah, Michael This is bevin again.
You know the.
Our shared objective with our customers is to deliver deliver the pipeline safely and get it in ahead of the LNG.
That's being constructed right now.
Most complex parts of the project.
In terms of the civil works are behind us.
We're advancing very carefully with our with our contracting plans. So that the balance of the project received very strong line of sight to being able to be executed.
In a matter that mitigates the risk that are ahead, I'm, not saying that those risks don't exist.
But we have plans in place to ensure that we can deliver the project for our customer.
Got it and what's the process.
The annual report disclosure in your press release today kind of talked about how there was kind of the ongoing negotiation or discrete over I think it was cost and timeline I don't remember off the top of my head whats the formal process for that getting resolved or is it just the negotiation is that arbitration or or some other methodology.
Yeah, we're we're in very constructive dialogue with our LNG C. Right now and that is just a process of commercial discussions with our customers to ensure that we maintain that alignment going forward on the project.
Got it thank you guys much appreciated.
Thanks, Michael.
Our next question comes from Brian Reynolds of UBS. Please go ahead.
Hi.
Good evening, everyone, maybe to follow up on coastal gas link it appears that the project continues to progress.
Canada, plus no previously about partnering with further with the first nations.
A small part of my question is is transcanada's still interested in divesting some of the equity ownership into you know what would the first nations and I'd like to see before committing to become an equity partner. Thanks.
Yeah, Thanks, Bryan it's above and again.
We've had a unprecedented support from the indigenous communities along the route and our team is doing.
A real good job progressing construction.
As I just mentioned in response to the previous question.
And we've got 20 agreements successfully implemented.
With with the nations along the right away and we're still moving forward and progressing our our.
Our negotiations around bringing in indigenous communities and an equity participation participation mode.
The reason for that is you know we share the same values as our indigenous partners and we believe have working alongside them in an equity participation role.
<unk> is the right thing to do for the project.
Great. Thanks, and maybe just to follow up on capital location and some balance sheet that I talked about previously.
Slide that you guys provided kind of implies you know a couple of billion you know need.
And debt issuances over the coming years through 2025.
Curious you know post 'twenty twenty-five should we see a free cash flow in fact inflection after dividends and then maybe just on the cash recoveries can provide us there.
Currently a reserve on the balance sheet as a contingent asset or just kind of curious if you could provide a quantified quantifiable range of potential expected outcomes.
Forget Glenn to start on the second of those questions and then it's Francois I'll take the first part of that go ahead Glen.
Thanks, Brian Yeah as far as the contractual recoveries are on Keryx L. They are sitting on our balance sheet as an asset as a receivable.
And.
We will realize those are under the terms.
And with respect to inflection points.
I think at the moment, our view of our desired steady state for our balance sheet metrics as a debt to EBITDA of $4 75.
And you know it's also important for us to be living within our means and so we think of that as a run rate of capital expenditures of a five a $5 billion a year after as servicing our dividends from our free cash will have a very stable.
Long term debt. Some if we proceed on that basis, and you'll see us sort of grow into that leverage over time.
To the extent, we are comfortable in the future with that steady state and opportunities present.
Present themselves for us to return capital to our shareholders well.
Those against the opportunities to invest additional capital I can tell you right now we are very bullish on the opportunity set that's in front of US as we've said before we believe we can maintain our risk preferences and our historical rates of return.
Even in allocating capital to energy transition.
And if we're able to do that we think we are creating value for our shareholders and would be very comfortable allocating that capital at that point in time.
Ladies and gentlemen. This concludes the question and answer session. If 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 Mr. <unk>.
Thank you very much I want to appreciate it I want to say thanks to everyone for your attention today were working feverishly to try and tighten up our prepared remarks and shorten our calls going forward. So I appreciate all the all of the good feedback we've gotten.
In closing a couple of things and then I'm going to pass it over to Joel for or just a quick minute. Firstly I'm. Just you know we will continue our disciplined approach around capital allocation.
And adhere to our risk preferences, we see no reason for us to be relaxing our risk preferences to be able to allocate our $5 billion a year of free cash flow and secondly, as I said that the opportunity set is substantial and we are really well positioned are the more we speak to our customers about how to help them reduce.
Their emissions the more opportunity, we see for ourselves to play a role in an energy transition.
Joel over to you for a few closing remarks sure. Thanks, Francois So last fall David Minetta informed us are informed us of his plans to retire at the end of March of this year.
David has been with the company for over 38 years, beginning in our Toronto Office and has been an investor relations for the past 26 years, David based on my math. This means that you participate in over 100 quarterly calls, including today during your wonderful career here and I can't count the number of meetings with investors well into the thousands throughout Europe .
Career.
David unwavering professionalism dedication and reputation not only here at TC energy, but obviously in the investment community is just unparalleled so on behalf of our current and past management, David I want to say, thank you for a wonderful career and we wish you all the best in your well deserved retirement, well then that's great. Thanks, Joel much appreciate it.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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