TC Energy Corporation

Thank you for standing by. This is the conference operator. Welcome to the TC Energy Third Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star, then zero. I will now turn the conference over to Gavin Wiley, Vice President, Investor Relations. Please go ahead.

Thanks very much and good morning. I'd like to welcome you to TC Energy's 2023 Third Quarter Conference Call. Joining me, Francois Poirier, President and Chief Executive Officer, Joel Hunter, Executive Vice President and Chief Financial Officer, along with other members of our senior leadership team. Francois will begin with comments on our overall operational performance. Bevin will highlight progress made to date on our announced intention to spin off our liquids business. And finally, Joel will discuss our financial results and outlook. A copy of the slide presentation that will accompany the remarks is available on our website under the investor section. Following remarks, we'll take questions from the investment community. We ask that you limit yourself to two questions. And if you're a member of the media, please contact our media team. I'd like to remind you that remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information, Please see the reports filed by TC Energy, with Canadian securities regulators, and with the U.S. Securities Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures provided 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. A reconciliation of various GAAP and non-GAAP measures is contained in the impediments of this presentation. With that, I'll turn it over to Francois.

Thanks, Gavin, and good morning, everyone. I'll start by saying our team is making exceptional progress towards our 2023 priorities. Our focus on execution is paying off. Demonstrated by our strong year-over-year increase in comparable EBITDA and with our major projects remaining on track or ahead of 2023 targets, this is setting us up extremely well for 2024. So far this year, we've placed approximately $5 billion of assets into service, including the majority of our Westpath project that went into service on November 1st. Importantly, the projects placed into service so far this year have largely been on budget. On the deleveraging front, we received $5.3 billion in cash proceeds after closing the sale of a non-controlling minority equity interest in Columbia Gas and Columbia Gulf. This puts us firmly on the path to restoring our balance sheet strength and flexibility. We also continue to evaluate an additional $3 billion of asset sales. As a result, post-2024, we're committed to limiting our annual net capital expenditures to $6 to $7 billion, which will also support further organic deleveraging. We continue to see strong, sustained demand for our services, and that's maximizing the value of our assets through safety and operational efficiency. And as a result, we now expect our 2023 comparable EBITDA to be at the upper end of our 5% to 7% growth outlook compared to 2022. While our natural gas pipelines businesses do not carry any material volumetric or price risk, strong utilization rates do demonstrate the demand for our services and the criticality of our assets. On the NGTL system, for example, we continue to see strong receipts. In fact, the system achieved its highest single-day record of 14.6 BCF on August 6th. Same theme in the U.S. LNG deliveries averaged 3.1 BCF a year to date in 2023, about a 1.5% increase compared to last year's third quarter. And in July, we achieved a new all-time record for deliveries to power generators of 5.2 BCF. Additionally, on our GTN system, we achieved an all-time delivery record of 2.96 BCF. and we're pleased to see that the GTN Express project recently received FERC approval. This project will expand the GTN system to transport incremental contracted export facilitated by the Foothills West Path Delivery Program. We continue to make meaningful progress in Mexico. The lateral section of VDR has been placed into commercial service And for the last remaining portion, the south section, we expect that to be in service by the second half of 2024. In our power and energy solutions business, we achieved a significant execution milestone with Bruce Power's Unit 6, returning a service ahead of schedule and within budget. This highlights our shared commitment with the Bruce Power team on project execution excellence. In addition, Bruce Power also achieved 94% availability in the quarter, and we continue to anticipate annual availability in the low 90% range for the units that are not down for the MCR program. For reference, in 2019, before we started the MCR program, the average availability at Bruce was 84%. So what we've been able to deliver over the last several years is a 10% increase in average availability, largely due to the steady decrease in the forced loss rate and the reduction in planned outages. Following the completion of the MCR program, we expect to continue to see increases in availability. Furthermore, on our Alberta co-gen fleet, we achieved approximately a 98% peak price availability during the third quarter, and that with Alberta power prices averaging $152 per megawatt hour. And on Keystone, operational reliability was close to 94% year-to-date, and Bevan will come back to that in just a few minutes. To sum up, our operational excellence, our unparalleled asset base has been delivering strong operational results and strong availability which has translated to solid, sustainable financial results through every phase of the economic cycle. As I mentioned earlier, we've sharpened our focus on project execution. After five years of construction and 55 million hours worked, we've now achieved the monumental milestone of mechanical completion on Coastal GasLink, and we achieved this ahead of our year-end target. This means that 100% of the pipe has been welded, coated, lowered into the trenches. We've completed all 800 classified water crossings. We've hydro-tested the entirety of the pipeline. And incremental to our announcement on the project last week, we've now finished the documentation and additional engineering analysis associated with the mechanical completion milestone. Coastal Gas Link is Canada's first pipeline to the West Coast in 70 years. And once operational, it will be the first direct path for Canadian natural gas to reach global markets. The next steps on this project are introduction of natural gas, project commissioning, and the land reclamation work that has already begun across the route. As mentioned in our press release this morning, the project also remains on track with our approximately $14.5 billion cost estimate. Now turning to Southeast Gateway. Looking at progress on the onshore portion of 25 kilometres, all land has been acquired and construction at all three landfall sites is progressing on plan. In preparation for offshore work, our engineering is complete and concrete pipe coating is well underway. We are expecting the 690 kilometer offshore pipe installation to begin by the end of this year. Now we continue to see benefits from our enhanced capital allocation governance process. And on Southeast Gateway, that means that that project remains on track to be placed into service as expected in mid 2025. I want to take a moment to recognize our board chair, Seem Vanazelia, for his excellent leadership role during a time of significant change at TC Energy. By the 2024 Annual General Meeting, Seem will have served on our board for 10 years, and he's been chair for the last seven. I'm very grateful that Seem will continue to offer his knowledge and expertise as he steps down as chair but continues to serve as a member of the board in a director capacity. As part of our board's ongoing succession program, John Lowe has been designated as TC Energy's next board chair. His significant midstream and energy experience and his role as a board director of TC Energy since 2015 make him ideally suited to take on this critical role. And now I'll pass the call over to Bevan.

Thanks, Francois. In July, we announced the intention to spin off our liquids pipeline business into a standalone investment-grade entity in order to maximize the commercial potential of this highly competitive corridor. We've made important progress in just three months, and I want to take a few minutes this morning to discuss some of the highlights. Today, I'm thrilled to share the name of the new liquids pipeline company, Southbowl. Southbow symbolizes the historical roots of the company established near the Bow River in Calgary. The name acknowledges the pipeline system's strategic corridor, which enables the company to deliver a premier resource southward to the strongest U.S. refining markets in both the Gulf Coast and the Midwest. Last month, we also shared the news that Hal Quisley has agreed to be appointed as the chair of Southbow's board of directors. Hal is a distinguished industry leader with extensive experience spanning a wide range of companies across the energy space. He was also TransCanada's President and CEO from 2001 to 2010, back when Keystone came into service. He knows our liquids assets and knows this business very well. We look forward to welcoming Hal's leadership and guidance in this key role at Southbow. I want to remind you of some important points around the value of this spinoff will bring to shareholders. We made this announcement last quarter. We received strong support from customers. There are a few reasons for this. The assets in our system are critical to meeting customers' needs, and we are seeing additional demand for incremental service that reflects the competitive nature of the corridor. We connect some of the largest and most resilient supply, demand, and export markets and offer the fastest, most cost-competitive pathways from the Western Canadian sedimentary basin to the Gulf Coast. We'll be able to direct cash flow flexibly without competing for capital in a company that's strategically focused on maximizing the synergies in its natural gas and power businesses. Our premium value is supported by our compelling technology and sustainable dividend yield, and low-risk, highly contracted business with competitive advantages and contract structures unlike any of our peers. Fundamental to our value proposition is that Southbow is expected to be an investment-grade entity at the time of spin. This expectation remains in the current interest rate environment. We will look to establish the capital structure in a constructive capital markets environment. Furthermore, there is no time limit for us to affect the spin. We fully expect to have the capital structure in place prior to the spin. To the extent we have not stood up the capital structure in its entirety, we have various tools available, including access to the bank term loan markets and utilizing hedging instruments, if appropriate, to allow us flexibility to optimally implement the long-term capital structure at Southbow. Our team is also committed to excellence in our operations. Throughout the third quarter, our system continued to perform exceptionally well. We are seeing strong, sustained demand in the U.S. Gulf Coast for Canadian crude. We successfully completed two open seasons on MarketLink. This system is operating well. As Francois mentioned, Keystone's system operating reliability year-to-date is approximately 94%. As a result, year-to-date comparable EBITDA of $1.1 billion from the liquids business was up approximately 8% versus the same time last year. As of this past week, we've completed the cleanup at milepost 14 and restored natural flow to Mill Creek. We thank the local community, Washington County, EPA, Kansas Department of Health and Environment, and the Army Corps of Engineers for their support and assistance as we concluded this work. We will maintain a presence at site to progress long-term reclamation activities and environmental monitoring. I invite you to look at our website for additional details. With respect to inspections across Keystone, we have completed inline inspection across 60% of the entire system. The integrity digs program is 50% complete and we anticipate being fully complete by early second quarter next year. No concerning circumstances have been identified, and we continue to deliver on our contracted volumes. You'll hear more details at our upcoming Investor Day in a few weeks. Now, I'll turn it over to Joel.

Thanks, Bevan. During the third quarter, we continued to deliver strong performance, leading to a 7% year-over-year increase in comparable EBITDA. Primary drivers include... higher flow-through costs and increased NGTL rate-based earnings in our Canadian natural gas rate-regulated pipelines business, additional assets placed into service in our Mexico natural gas pipelines business, higher long-haul contracted volumes, as well as higher volumes on the U.S. Gulf Coast section of the Keystone Pipeline System, and the impact of a stronger U.S. dollar. As Francois mentioned, given our strong year-to-date performance, We now expect our 2023 comparable EBITDA to be at the upper end of the 5% to 7% outlook compared to 2022. Comparable earnings per common share are expected to be generally consistent with 2022. Year-to-date, we have placed approximately $5 billion of projects into service, including capacity projects in our natural gas and liquids pipeline businesses and Bruce Power's Unit 6 MCR program. Total capital expenditures for 2023 are now expected to be approximately $12 to $12.5 billion. I want to note that the estimated costs of major projects remain consistent. The increase primarily relates to our decision to bring forward 2024 capital expenditures and work into 2023. This includes accelerating the timing of certain maintenance and growth capital expenditures to optimize efficiencies and mitigate project execution risk in our natural gas pipelines businesses. as well as the foreign exchange impact of a stronger U.S. dollar. We've also delivered meaningful progress towards our leveraging target. We have a clear path to achieving our 4.75 times debt-to-EBITDA target by the end of 2024 and remain there beyond 2024. On October 4th, we successfully completed the 40% minority equity interest sale in our Columbia Gas and Columbia Gulf systems, Cash proceeds from this transaction of $5.3 billion will be directed towards reducing our year-end 2023 debt to EBITDA metric by over 0.4 times. We're continuing to evaluate capital rotation opportunities in the range of $3 billion. Our deleveraging is further supported by organic comparable EBITDA growth as we place additional assets into service. As of November 1st, substantially all the west path delivery program on our NGTL system has been placed into service. This brings our year-to-date total to approximately $5 billion. In 2024, we expect to place approximately $7 billion of projects into service, including Coastal GasLink, GTN Express, and the south section of the Velo de Reyes pipeline in Mexico. Looking to 2025, we expect to place $9 billion of assets into service, and an average build multiple of approximately eight times. This includes our Southeast Gateway project in mid-2025, expected to contribute approximately $800 million in incremental annual comparable EBITDA, along with an additional $3 billion of assets on our U.S. natural gas pipelines business, some of which include Gillis Access Extension, Virginia Reliability, and Wisconsin Reliability projects. Now in light of volatility in the market, I want to remind you of the stability of TC Energy's low-risk business model. We have a very manageable debt maturity profile and 89% of our long-term debt portfolio is comprised of fixed-rate debt with an average maturity of 18 years and a weighted average pre-tax coupon of just over 5%. This largely insulates us from the impact of interest rate changes. Our Canadian and U.S. natural gas businesses are also underpinned by rate regulated frameworks that further allow for the recovery of interest expense in tools. This means the cost of debt is a direct flow through in our regulated Canadian business and is factored into U.S. rate cases. This, in part, has allowed us to increase the earned returns on our sanctioned capital projects over the last few years and maximize the spread versus our cost of capital. Based on our low-risk business model, in combination with net capital expenditures of $6 to $7 billion annually post-2024, we expect to continue to grow our business commensurate with our 3% to 5% dividend growth rate. This is why, despite the challenges facing the broader market, I am confident in the sustainability of our dividend through all parts of the economic cycle, which is further bolstered by one of the lowest payout ratios amongst our midstream peers. TC Energy's Board of Directors has declared a third quarter dividend of $0.93 per common share, equivalent to $3.72 per share on an annualized basis. Our dividend will remain foundational to the enduring value proposition of TC Energy to further build upon 23 consecutive years of common share dividend increases. Thank you. I'll pass the call back to Francois.

Thanks, Joel. Before we turn it over to Q&A, I just want to reiterate our long-standing value proposition. Our recent strategic announcements are all in direct service of our four pillars. We take a long-term view by maximizing the synergies of our natural gas and power businesses. Simultaneously, we are unlocking the full long-term potential of our liquids business through our intended spin. We're also remaining disciplined and refocusing on our well-established conservative risk preferences. We're restoring our balance sheet strength and we're allocating capital thoughtfully and in a manner that balances our ability to grow the dividend while maintaining balance sheet strength and reinvesting in the business. You'll hear a lot more about this on our upcoming Investor Day on November 28th, and I hope you'll be able to join us. With that, I'll turn it over to the operator for questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. Please limit your questions to two, and if you should have additional questions, please re-enter the queue. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. Our first question comes from Theresa Chen of Barclays. Please go ahead.

Good morning, and thank you for taking my questions. First, I'd like to ask about the plans to manage Mexico exposure. Proforma asset sales and the South both spin, given that you already have cash-flowing assets there. And come May 2025, once Southeast Gateway starts up and contributes EBITDA, you're likely to be above that 10% exposure. How are you thinking about managing this and any comments related to asset sales specifically within that segment would be great. Thank you.

Thanks, Theresa. It's Francois. I'll take that one on. I'll just reiterate our commitment and our goal is to execute on an incremental $3 billion of divestitures and realize the cash proceeds thereof within 2024. Part of that program may include some discrete asset sales in the U.S., but in terms of entering into joint ventures as we have with GIP on our Columbia assets, we can look to our Canadian assets and our Mexico assets for those types of transactions being contemplated. Obviously, we're going to be in conversations with investors around our Mexico projects, balancing valuations with where we are and the progress we're making around construction. And we've made the commitment to reduce our exposure to a more manageable level. And over time, we'll be giving you all a little bit more clarity and granularity around the percentage post spin, as well as a percentage of what is it EBITDA, is it net assets, Because we are looking at tools like project financing. We've actually raised nearly $4 billion of non-recourse debt over the course of the last year to fund about two-thirds of the Southeast Gateway project financing. So more to come there. And as I said, we'll be looking to joint ventures in Mexico and Canada as potential tools to execute on our $3 billion divestiture program. Our goal is to reduce our exposure in Mexico as a percentage of the overall average. And given the sensitivities of our conversations, we're going to, I guess, leave it at that at this point.

Understood. Thank you. And on the remaining asset sales in general to execute, how are you thinking about the economics in today's environment in light of the recent announcements by some of your competitors in the market to also put their assets up for sale and some of the recent valuations paid for similar assets within the valuations that you operate in?

Yeah, you look at some of the announced transactions, I would suggest that there's a pretty wide range of risk profile, and therefore the expected returns that buyers need to be able to realize, and that translates into purchase price. What I tell you is we are still in the same interest rate environment as we were a few months ago when we announced our transaction with GIP. We did make the objective of announcing a very sizable transaction at that time. I do believe that since we are proceeding with multiple transactions to achieve the balance of the $3 billion, that smaller bundles will garner more competitive tension. And so despite the fact that we are in a similar interest rate environment, smaller assets, more competitive tension, and then you have to account for the fact that the assets that we would make available either for partial or full interests are at very low risk, highly contracted, no commodity volumetric or price risk, and that will be factored into what... how people value the assets. But again, as I said, we're still in the same interest rate environment as we were a few months ago. And so, you know, I think we have fairly conservative expectations in our plan.

Thank you.

Thank you, Teresa.

Our next question comes from Praneet Satish of Wells Fargo. Please go ahead.

Hi, good morning. With capital here, CapEx being constrained in the six to $7 billion range in 24 and beyond, I'd imagine that you're becoming more selective on what projects you bring to FID and maybe turning down some of the lower return projects. So can you maybe help us understand whether there's been a shift here in terms of your corporate return target, which has historically been in the seven to 9% range and whether that's trending higher?

Thanks for that question, Praneeth. The answer is we have definitely seen an upward trend in the IRRs for projects we've sanctioned. Clearly, as we'll be high grading, we have an opportunity set that is well in excess of the $6 to $7 billion a year. We are resolute in living within that number. So that allows us, as you said, to be a bit more selective. And one of the important criteria is going to be the risk-adjusted returns. If you look back to 2019 or thereabouts, The projects we sanctioned in that year were in that 7% to 8% range, and that has gradually crept up over time to the point that in 2022 we saw sanctioning projects in that 9% to 10% range. And in the environment we're in today, we do continue to see sanctioning projects in that range. That will be adjusted up or down depending on the proportion of the portfolio that goes, for example, in Canada Gas, where the returns are a bit lower, versus in something like Bruce Power, where the returns are higher. So on an average basis, we have seen those returns increase, and we've been able to, in our conversations commercially with our customers, to sustain levels as we've seen over the last year or so.

That's helpful. And then switching gears, I wanted to ask about the next rate case for Columbia Gas in 2025. As we calculated, the ROE on Columbia Gas was only 10% based on the 2022 filings. So it seems like there's some headroom there to maybe boost the revenue in 2025. So I guess how should we think about the magnitude of the next rate case on Columbia Gas versus the last rate case where you got, I think, a $200 million step up.

Yeah, I'll ask Tina to cover that one.

Good morning. We have a moratorium currently on new rates going into effect prior to April 2025, and you may recall we also have a comeback for new rates effective April 1, 2026. So we'll be working within those bounds for filing of our next rate case. Obviously, we'll be striving for a balance of recovering our capital and earning a fair return and maintaining competitive rates with our customers.

What I would add also here, Praneeth, just to remind you of the point Joel made before, this is the way in the US by which we mitigate interest rate risk. Every time we go back for a rate case, we can incorporate the current cost of our debt into our rates. The reason why you're seeing us increase the frequency of our rate case filings across our U.S. system is because we want to reflect the capital, the interest rate environment that we're operating in, but also because we're investing a considerable amount of maintenance capital, which we want to make sure we're earning a return on and of that incremental capital as well.

Thank you.

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

Thank you. I'm wondering with Coastal GasLink mechanically complete ahead of schedule, how might we think of your discussions with LNG Canada in terms of maybe them recognizing that early completion with some sort of financial incentives and phase two, how might the commercial attributes differ for coastal gas length in Phase 1 and just broader thoughts around timing to get to FID on that and what might be the sticking points including maybe how compression is powered on your system.

Thanks for that question, Linda. I'll ask Bevan to cover the items around the early completion of Phase 1 and then Greg to address your questions around Phase 2.

Thanks, Linda. This is Bevan. So first of all, we're tremendously proud to achieve this milestone. It's a testament to the team's relentless focus on safety and protecting the environment and collaborating with our contractors, indigenous and local communities and government to get to this point. So we're really proud to have achieved this early mechanical completion, something that we didn't anticipate, but we're really proud we've got there. With respect to the next steps, we obviously have ongoing commercial dialogue with our contractors to make sure that we close out those contracts effectively. We have about 100 plus kilometers of reclamation work to be done next year. The team is busy right now introducing natural gas into the system to become ready for LNGC to call for that gas. We look forward to achieving that milestone here by year end where we're ready for our customer when they need it. As it pertains to Phase 2 and those discussions, I'll turn it over to Greg. Yeah, thank you.

Currently, we are progressing early development to Phase 2 as requested by LNGC to assess that expansion opportunity is So early engineering, we're looking at different potential electrification options, but still a lot of work to do there, engagement with our local communities and indigenous partners. So it's quite early. You might know that CEDAR is actually a little more timely in terms of the process on completion of phase one, where we have been working diligently with our CEDAR partners which include the Haisla. This will be Canada's first Indigenous majority-owned LNG facility. We were targeting FID at the end of this year. We think that may slip a little bit as we head into Q1. But just I wanted to leave a reminder with you that as it pertains to our $6 billion to $7 billion capital commitment, our FID is conditional on TC achieving project financing That combined with our 35% equity ownership would ultimately require a fairly small amount of capital from TC.

That's a helpful context. And just as a follow-up, in terms of your CapEx, recognizing that we'll probably get a more fulsome update later this month, but it would be helpful in updating our model to understand kind of with some of the 2024 capital accelerated into 2023, And, you know, but there's probably some headwinds on the FX front for 2024 CapEx. How might we think of your current outlook for 2024 growth CapEx on a growth basis before netting out any sort of asset sales?

Yeah, good morning, Linda. It's Joel here. I would just say to offer to wait until our investor day here on November 28th as it relates to our 2024 cap. outlook for our capital spend, both on a gross and net basis. But I will remind you, post-2024, as we've been saying all along, that we adhere to capital discipline in maintaining the $6 billion to $7 billion per year post-2024. But we'll have more for you here at Investor Day on November 28th as it relates to our outlook for 2024.

And what I might add to that, Linda, is... Our plan and the capital program that we've got in the works for 2024 does allow us to achieve getting below 4.75 debt to EBITDA by the end of the year and then staying there on a go-forward basis. But as Joel said, there'll be more color here in just a few weeks, but I appreciate the question.

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

Good morning. During the Q2 call, a number of organizational changes were announced. Just want to get an update of how the reorganization of the organization has changed as well as where we are in terms of the $750 million of synergies and how they're tracking overall as well as in 2023.

Thanks, Rob. It's Francois. I'll just start with a little bit of context and then pass it over to Stan to address the specifics of your question. Just to remind you that these initiatives and thinking around this has been in the works for a couple of years in terms of initiatives on focus. We're really in the implementation phase. The consolidation of our gas businesses into one entity, as well as the spin. These are things that have been stood up and the teams have been working on for quite a long time. So over to you, Stan.

Hey, Rob. Our focus project, as we refer to the $750 million initiative, if you recall, is about fundamentally changing how we do our work, particularly around safety, operational excellence, and our capital and cost management in order to ensure that we're deploying our cash as efficiently as possible and to maintain our competitiveness against our peers. So just to give you a couple of proof points with respect to things like operational excellence and safety, we have simplified our operational management system by reducing over 1,400 historical requirements down to less than 100. This frees up the time for our field employees to increase tool and hand time and make them more productive amongst other things. On the cost of the capital management side, by combining our three gas businesses under one leader, we have identified about $750 million in run rate synergies to be realized by the end of 2025. And you can think of the value that's linked to these synergies as materializing in a couple different ways. It could be capital reductions, it could be expense reductions, or even revenue enhancements. And generically, you could think about 50 percent of the savings is going to come from capital reductions, 40 percent from O&M reductions, and about 10 percent from revenues. But do keep in mind that as we file rate cases in our respective jurisdictions, a lot of this value is going to flow back to our customers. If you want a little bit more detail around how we get to $750 million, I can offer a couple proof points for you. For this year, for calendar year 23, we're on track to generate $130 million of in-year savings, which on an annual basis equates to about $185 million. And we did this by things like reducing our IS spend by $50 million to eliminate redundant or low-value projects. We've eliminated or combined our technical center into the business. That saved $30 million. We reduced our legal and our insurance costs by $30 million, so a lot of optimization on that front. Over the next two years, in 2024 and 2025, we see another $200 million of savings, primarily in our growth capital programs, but by changing the way we're engineering our facilities, for example, and reducing our footprints. There's another $85 million of reductions associated with our pipe integrity program, $90 million of reductions in our maintenance capital projects, which will materialize starting in 2024 and is already baked into our 2024 forecast. And as you think about the optimization from the organizational structure design, we think that there's probably about $50 million worth of synergies as we go through and integrate and optimize our gas businesses under one umbrella.

Thanks for that. And then maybe just moving over to the NGTL system. There's a toll settlement through the end of 2024. When do you expect to kind of engage customers there? Could we see a higher ROE there? And then how does that balance with the potential for a partner?

I'll ask Greg to take that one.

Yeah, thanks, Rob. So, yeah, as a reminder, the NGTL settlement will end the end of December 31st, 2024. Discussions with customers have started with the objective of defining a clear path towards another settlement mid-2024. While we are watching the market and ROE, I just mentioned ROE is not the only measure of value that we look at. We are looking to optimize the return on and of capital. There are many levers to do this. While we can maintain a competitive toll on service offerings, so Things like project focus are helping us minimize toll increases, which will allow us to enhance that return on and of capital. Obviously, we won't get into the details of confidential negotiation, but highly confident we can find win-win here with our customers, and likely won't be able to share more details on that until Q1, Q2. Thank you.

Our next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.

Thanks. Good morning. I'm going to start with the business. So you highlighted on the GAAP system strong deliveries and record deliveries on a number of the systems. You've got a bunch of projects under construction. You've got some new regulatory approvals. I'm just wondering as we look forward, as you look at the volumes on the system, are there new projects? that are taking shape and if there are, can you just talk about the magnitude of what that spending might look like and over what timeframe the spending might unfold?

Yeah, Robert Francois, thanks for that question. I'll take that one. Just remind you that we're laser focused on our six to $7 billion a year going forward post 2024 on a net basis. And as, you know, in our business, we have the benefit of a fair bit of visibility into capital spend all the way out really to the end of the decade. When you think about the fact it takes a couple of years to commercially sanction a project and then a couple of years to get the requisite permitting and regulatory approvals, and then you have to order the long lead items, and then, you know, you're a year or two in the field doing construction. So as we look out to the end of the decade, Our goal is not only to live within our six to seven billion, but also not to have more than one large project at a time. It's something, one of the key learnings for us here over the last couple of years is to manage the aggregate risk of the capital program annually, not just the risk of the individual projects. As we look at that program, and our performance, and case in point, as I mentioned, we've got $5 billion we've put into service so far this year, largely on budget, and that means singles and doubles, and those are very manageable from a risk standpoint. We know the regulators, we have relationships in the communities, we know the ground, and so look to us executing as many of those singles and doubles as possible going forward, organic projects in corridor, and a very select few of those larger projects that would span many, many years and large dollar amounts.

Got it. I guess just thinking about The CapEx shift and the FX impact, have you talked to the rating agencies yet about this, just with respect to if FX rates hold, you're going to get your debt marked this year, December 31st, that your EBITDA is going to be trailing. So do you think that just with some of the outlook, you know, I get that 2024, you're still 4.75, but does it change anything here for you around the funding plan in the near term?

Yes, Robert, it's Jewell here. I had conversations with all four agencies as we do every quarter just to provide them with an update and we provided them with this update as well. They're looking through really to the end of next year as it relates to getting our leverage metrics on-site to that 4.75 as we've mentioned and we do have a path to get there and we're sticking to that plan. despite that the cost being slightly higher here. And what we're talking here is about a 4% increase from the midpoint when you think about the increase in our outlook for this year. But we're also seeing a stronger EBITDA. As you've seen us guide our EBITDA to be 7% higher year over year at the upper end of the 5% to 7% range that we highlighted. So, you know, as we go into year end, we don't have a, you know, we can't say where the debt EBITDA will land because there are still some moving parts with EBITDA. where the CapEx ultimately lands and where FX lands, but really the objective here, Robert, is to get to the 4.75 as we exit 2024. We clearly have a plan to get there and the agencies know what our plan is and we'll stick to it.

Okay, so in short, you don't expect any rating agency actions off of the change today?

No, we can't speak to the agencies, obviously, but, you know, based on our discussions, they They're very pleased with some of the things that we've accomplished this year. You think about where we started the year with our priorities being $5 billion of asset sales. We completed $5.3 billion advancing major projects like CGL, having that mechanically complete, Southeast Gateway moving along, and still continued strong operational and financial results. So we've hit on all of our priorities for the year, and that's not lost on them. That's great. Thank you very much.

Yeah, again, Robert, I just want to underscore the increase in our capital program was because part of the benefit of merging our gas businesses is that we're looking holistically at our portfolio and where there's opportunities to bundle work together to deliver it at a lower cost and more efficiently, we're going to do that. And that's the decision we made. That's the visibility that having an integrated gas business affords us. And And so Coastal Gas Link, we're delivering on our outcome $5 billion of assets on plan as well. So this is really about doing more work in 2023 than we were planning on doing, as opposed to any inflationary impacts on our projects. or FX driving the capital. Our US dollar program is our US dollar program, so there's no inflationary effect because of foreign exchange translation rate, and the rating agencies are aware of that.

Got it. Thanks, Francois. Yep.

Our next question comes from Jeremy Tonnet of JP Morgan. Please go ahead.

Hi. Good morning. Morning. Morning, Jeremy. Just wanted to start off with the asset sale program, if we could turn back there for a minute. With regards to the $3 billion being discussed, is there the chance there could be a number larger than that? And if so, what would be the number of that? And if you think about asset sale or capital recycling in the future, is it largely just a function of rates of return that could be garnered through incremental new growth projects relative to the, you know, what returns are lost on asset sales. I was wondering if you could give us holistically more thoughts on, you know, how the asset sale program looks at this point.

Thanks, Jeremy. As I said before, you know, we're going to stick to the $3 billion here in 2024. We're not going to be looking to one transaction to realize the proceeds. We'll be looking to multiple transactions to do that. I think it's a good practice for us on an ongoing basis to have the discipline to mark our assets to market and rotate capital to the extent that creates value for our shareholders. Beyond the $3 billion, you could see us selectively over time if we have an opportunity to invest capital to proactively ahead of time monetize assets that we think are more mature or where we see some value. So it is going to be an ongoing tool in our toolkit. But for 2024, the focus is on $3 billion.

Got it. That's helpful there. Thanks. And just looking forward to the analyst day, wondering if you could provide any thoughts at this juncture as far as key updates that we should be looking for or any other thoughts you could share at this point?

I would say wait and see. Look, our goal here going forward is returning to no surprises. Just execute well, live within our means, demonstrate project execution excellence, demonstrate operational excellence. And we're very proud of what we've accomplished here in 2023. We'll be talking to you about what our 2024 priorities will be, but trust me, they will be around balance sheet integrity, operational excellence, and project execution excellence. And it shouldn't be any more exciting than that, if I'm honest, Jeremy.

That is helpful. Thank you very much. I'll leave it there.

You bet.

Our next question comes from Robert Cotillier of CIBC Capital Markets. Please go ahead.

Good morning. I wonder if you could describe the agreement TC Energy entered into with the SI-LSM's LNG partnership to work on the Prince Rupert gas transmission project. And what the company's appetite is like to undertake another major project like that and how that might fit within your deleveraging goals?

Thanks, Robert. It's Francois. I'll take that one. Look, we have a permitted path. We recognize there's value in that path. We've been asked by the Silism's group to preserve those permits. That is our contractual obligation. We're happy to do that, first of all, because it's an opportunity to create value for our Indigenous partners. Secondly, it's an opportunity to create value for our customers. And as we increase egress out of the basin, it increases value for our NGTL system. Those are all things that are to the benefit of TC Energy. I want to be very clear, however, that we are resolute around our $6 to $7 billion, and to the extent we cannot fit a PRGT project, or any project for that matter, within our portfolio, number one, and number two, to manage to have less large, ambitious projects going forward. To the extent we can't fit... a project like PRGT within those, there won't be any allocation of capital.

Okay, that's pretty clear. I just wanted to move on to a question for Joel here. How do you see hybrids fitting into your funding plan, both in 2023 as well as reaching your 2024 goals? Sort of your appetite there and what you're seeing in the market.

Yes, thanks, Rob. So as we think about hybrids, we're not seeing anything. We don't have any plans in the near term. We're running, you know, close to that 15% cap as it relates to our capital structure for this year and into 2024. As we do see the balance sheet grow post-2024, there will be capacity for future hybrid issuance. But as we think about our 4.75 target for next year, you know, it doesn't contemplate any additional hybrids in that plan at this point in time. Where we'll look to hybrids, though, is we'll work, you know, in conjunction with the liquids team here, or I guess the southpaw team, as we call it now, to look at their capital structure, where there might be a need for them there. As it relates to pricing right now, it's kind of in the high eights, so it's about 200 basis points back of where we would issue 10-year senior unsecured at this point in time.

Okay, thank you.

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

All right, thanks. Good morning. Does that open up a way for new NGTL opportunities in that post-2025 time frame?

Thanks, Ben. I'll ask Greg to take that one.

Yeah, sure. Thanks, Ben, for the question. As you're aware, we have done a substantial... Hello. We'll carry on. As you're aware, we've done a substantial build on the NGTL system over the last few years. We delivered 1.3 BCF last year. Similarly, we're going to add about the same this year. And just a shout-out to the team that was talked about earlier, but on time and on budget performance again this year. So a great opportunity there. Going forward, however, I would say you should see a more normalized level of spend on NGTL. We think we're set up for the next few years with the expansions that we've already done. And we're doing a lot of work through project focus and optimizing the system to see what extra capacity we can get over the existing assets without capital. But we're in a great spot to handle the expansions going forward.

Okay, my follow-up question on, I know you mentioned there's a question around returns and maximizing your returns in the NGO system. Is there any thoughts or motivation on pushing the de-equity portion of the pipeline where you can capture more cash and de-leverage at the same time?

Ben, we're in the front end of a negotiation process with our customers. As Greg mentioned, we'll be providing some feedback and colour as next year proceeds. It's too early at this point to provide any indication as to where those discussions are heading, but whenever we can, we will be sure to provide some colour to our shareholders and to other stakeholders.

Our next question comes from Brian Reynolds of UBS. Please go ahead.

Hi, good morning, everyone. Maybe to follow up on Coastal GasLink, good news on the mechanical completion. So maybe as we look ahead towards earnings expectations next year, just kind of curious how we should think about EPS or EBITDA contribution as it relates to this asset, just given that LNG Canada won't be online. Does LNG Canada reimburse TC for maintenance costs, or is there kind of a regulated return framework embedded in there. Just wondering how we should think about coastal gasoline earnings before LNG Canada comes online, hopefully in 2025.

Thanks, Brian. I'll kick it off. This is Bevan. So there's, as you would appreciate, even in the Gulf Coast, LNG projects take a while to commission and bring into service. So we've done our part by bringing the project in on time, and by the end of the year, and we'll have to wait and see how LNGC progresses. They're making strong progress, but I'd anticipate that a good part of next year is in commissioning process.

Brian, I would just add, it's Joel here. When we think about the returns from CGL, first of all, we own 35% today. That could go down to 25% if First Nations pick up their 10%. options so we don't have significant ownership in the project. When we look at the amount that we've had to impair as it relates to this project, roughly $3 billion last year and just over $2 billion this year, you can read into that that there's not going to be a significant return for us here on this project going forward. The key was really to get the project completed on schedule with a revised budget. That was critical to us and safely, obviously, but as we look at the amount of incremental equity income that we would generate from this investment, it's not going to be that significant.

Great. I appreciate other color. Maybe to pivot to the South Bow Corp two-part question, if you could just discuss how, one, conversations are going with the agencies around being investment grade. On the slide deck, you kind of allude to managing some floating interest rate exposure and just kind of curious if five times is still what the agencies are looking for. And then second part of the question for the spin co, you know, it looks like you have 2% to 3% of DPS growth reaffirmed from the spin, but only roughly $200 million in secured capital backlog at this time. So, you know, clearly the companies are going to separate and be able to pursue different opportunities. So just kind of curious if you can sensitize, you know, what that secured capital backlog at the liquids company could look like post-spin. Thanks.

Brian, it's Joel here. I'll take the first part of that question before handing it over to Bevan. Again, we are working closely with Bevan's team to support their financing. I would say to you that nothing has changed since the last update here at the end of July when we went to the agencies with our deemed capital structure and got indicative ratings at that point, which would be investment grade. based on roughly five turns of a leverage, so nothing has changed up until now. We would expect to go back to the agencies here sometime kind of late winter, early spring as we finalize things here as it relates to the capital structure for South Bow and to get firmed up ratings as South Bow would then look to after the spin has been approved. to start establishing the capital structure at that point in time. But I'll remind you what is fundamental to this is that South Pole will have an investment grade rating no matter what.

And Brian, I'll answer your second part. This is Bevan. So just a reminder, our value proposition is a total shareholder return that we're seeking double digits for our shareholders. That's made up of a high yield component through a very sustainable dividend. underpinned by best-in-class contracts and the connectivity of our corridor from the best supply basin to the strongest demand. That dividend, coupled with the 2% to 3% growth that you've articulated, that comes from two points. First, it comes from operational and commercial excellence on our current systems. You've heard us move the bar on our system operating factor over the last three years by nearly 10%. There's a tremendous amount of additional opportunity we see in growing our EBITDA through our existing systems without capital. And a proof point to that is that we've delivered all our contracts, even subject to the D-rate this past year. The second lever that we have on growth are very low capital investment opportunities that surround our corridor. A great example of that is the Port Nantius Link project. asset that we put into service this year on time and on budget, that has attracted a tremendous amount of flow, enhancing the value, again, of our market link system. So we believe we have line of sight to a number of those types of capital opportunities that more than underpin our 2% to 3% growth, but with very low execution risk. The third part of our value proposition, though, is that in our outflows of capital, we're going to reserve the ability, which ties to your first question around our balance sheet strength, the ability to continue to delever. It is critical that we maintain a very strong balance sheet at South Bow. So hopefully that addresses your question.

Yeah, thanks. Sounds like a lot of low multiple build type projects looking forward. So looking forward to hear some more at the end. I'll stay here in a few weeks. Have a great rest of your morning.

Thanks, Brian.

So I think we have time for just one more question, please.

Our next question comes from John McKay from Goldman Sachs. Please go ahead.

Hey, good morning. Thanks for the time. I wanted to maybe just start on the success in bringing Unit 6 at Bruce online kind of faster than scheduled. Any read-through for the rest of the MCR program and maybe anything that could mean any learnings for potentially moving forward with Bruce Site C. Okay, it's Francois.

I'll start and then I'll ask Ansley to fill in the question. Just first of all, we're very proud of the execution on Unit 6. That included over 100 force majeure days during COVID. So that asset was brought in ahead of schedule and on plan. And very proud of the execution. And of course, We're in a good place also on Unit 3, which is in the early part of its program, but over to Ansley for more detail.

Sure. So in the near term, we certainly are very focused on the continued really strong execution of all six of the major component replacement projects. Seeing where Unit 6 has come in ahead of schedule and on budget certainly gives us more confidence in the project execution for all the remaining units. They are largely the same scope of work and so being able to have one fully complete and back in service gives us a lot more insight into planning and optimizing the execution on the remaining projects. With respect to your question around future new build at the Bruce site, it is still extremely early days. As we've talked about, our focus over the near term will be on executing the existing refurbishment program, and that's where the capital spend will be focused. We are supportive of Bruce Power starting initial investigations into what a new build would look like, Bruce C., and that's on the back of extremely strong policy support in Ontario. and so we're working closely with the government really just to explore what the possibilities might be at this stage.

And I will remind you, John, and the rest of our listeners, as we laid out at our Sustainability Day at Bruce earlier this year, through the combination of price increases as well as bringing incrementally through the end of the decade more units back into service, We're expecting to see a fairly significant growth in the profit before tax from Bruce that is consolidated into our EBITDA.

I appreciate that update. Maybe just one last quick one staying on maybe later dated projects. It looks like Ontario Pump Storage, FID timing maybe 25 versus 24 prior. And I think we were looking for a kind of regulatory update end of this month. Maybe you could just comment on those two. Thanks.

Thanks for the question. It's Ansley. So the development of the Ontario Pump Storage Project is continuing. It's a project that we are excited about. Again, there's very strong policy support for it in Ontario. We also anticipate, and it would be a condition of us going ahead, a commercial model that would be rate regulated, which will provide us with a strong framework going forward. If we do move ahead, and you're right, we do anticipate feedback from the government before the end of this year. An FID date would likely not be before sometime in 2025, and major CAPEX would be even post that date by the time we get into any significant construction.

I appreciate that, Bates. Thank you. Thanks, John.

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 Gavin Wiley. Please go ahead, Mr. Wiley.

Thank you, and thanks, everyone, for participating this morning. As Ariel mentioned, if you have any questions or if we didn't get to your question, please contact the Investor Relations team. We're always happy to help. We very much appreciate your interest in TC Energy, and we look forward to our next update. Thanks again.

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