U.S. Markets open in 2 hrs 25 mins

Edited Transcript of TCP earnings conference call or presentation 2-Aug-18 9:00pm GMT

Q2 2018 TC PipeLines LP Earnings Call

DALLAS Aug 15, 2018 (Thomson StreetEvents) -- Edited Transcript of TC PipeLines LP earnings conference call or presentation Thursday, August 2, 2018 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Janine M. Watson

TC PipeLines, LP - VP & GM of TC Pipelines GP Inc.

* Nathaniel Alan Brown

TC PipeLines, LP - President & Director of TC PipeLines GP, Inc.

* Rhonda L. Amundson

TC PipeLines, LP - Manager of IR

* William C. Morris

TC PipeLines, LP - VP, Principal Financial Officer & Treasurer

================================================================================

Conference Call Participants

================================================================================

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Marc Joseph Solecitto

Barclays Bank PLC, Research Division - Research Analyst

* Shneur Z. Gershuni

UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst

* Torrey Joseph Schultz

RBC Capital Markets, LLC, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen. Welcome to the TC PipeLines, LP 2018 Second Quarter Results Conference Call.

I would now like to turn the meeting over to Ms. Rhonda Amundson. Please go ahead.

--------------------------------------------------------------------------------

Rhonda L. Amundson, TC PipeLines, LP - Manager of IR [2]

--------------------------------------------------------------------------------

Thank you, operator, and good afternoon, everyone. I would like to welcome you to TC PipeLines Second Quarter 2018 Conference Call. We do apologize for the slight delay in getting started. Our newswire service had some technical difficulties this afternoon with our news -- sorry, with our earnings release, and we hope that hasn't created too many difficulties for you.

I'm joined today by our President, Nathan Brown; our VP and General Manager, Janine Watson; and our Principal Financial Officer, Chuck Morris. Please note that a slide presentation will accompany the remarks and is available on our website at tcpipelineslp.com, or it can be found in the Investors section under the heading Events & Presentations.

Nathan will begin the call today with a review of TC PipeLines' second quarter highlights and results as well as a discussion of the recent FERC rulings impacting our partnership. Janine will provide an update on the partnership's assets and the market environment, following which Chuck will provide a more detailed review of our financial results for the second quarter. Nathan will return and wrap up our remarks and close with some key takeaways.

Following the prepared remarks, I will ask the conference operator to coordinate your questions. We will take questions from the investment community, but if you're a member of the media, please contact Grady Semmens following this call and he will be happy to address your questions.

Before we begin, I would like to remind you that certain statements made during this conference call will be forward-looking regarding future events and our future financial performance. All forward-looking statements are based on our beliefs as well as assumptions made by and information currently available to us. These statements reflect our current views with respect to future events and are subject to various risks, uncertainties and assumptions as discussed in detail in our 2017 10-K as well as our subsequent filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect, actual results may differ materially from those described in the forward-looking statements.

Please also note that we used the non-GAAP financial measures, EBITDA and distributable cash flow during our presentation. EBITDA is an approximate measure of our operating cash flow during the period and reconciles directly to net income. And distributable cash flow is presented to provide a measure of cash generated during the period to evaluate our cash distribution capability. These measures are provided as a supplement to GAAP financial results, and we provide a reconciliation to the most closely related GAAP measures in our SEC filings.

With that, I'll now turn the call over to Nathan.

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [3]

--------------------------------------------------------------------------------

Thanks, Rhonda. Good afternoon, everyone, and thanks for joining us today. As outlined this afternoon in our news release and looking at Slide 4, I'm pleased to report that TC PipeLines had a very good quarter operationally with solid results, and our portfolio of pipeline assets continued to perform as expected.

We generated $73 million of net income during the second quarter of 2018, $18 million higher than the $55 million earned during the same period in 2017. This is primarily due to higher revenues at GTN and PNGTS, together with increased equity earnings from Great Lakes as well as a full quarter of earnings from Iroquois, partially offset by higher financing costs related to additional borrowings to finance the drop-down of Iroquois and PNGTS interests, which closed on June 1 of last year.

Our distributable cash flow was $101 million for the second quarter of 2018, an increase of $19 million from the comparable period in 2017 due to the increase in net income together with a decrease in maintenance capital expenditures on GTN.

We paid out $47 million in distributions or $0.65 per unit to our common unitholders during the second quarter. The partnership also declared a second quarter distribution of $0.65 per common unit. This is consistent with our first quarter 2018 distribution. Jeff will discuss our financial results in more detail a little later in the call.

On the regulatory side of our business, we're encouraged to see that the FERC issued its order on rehearing of its revised policy statement and final rulemaking on July 18. This was a follow-up to their actions in mid-March and it removed a lot of uncertainty from the market. In the ruling, they clarified certain outstanding tax positions for MLPs as well as the upcoming regulatory process for all interstate natural gas pipelines, providing a measure of flexibility for the industry. I'll take a few moments to discuss this action in more detail.

As I noted on our first quarter 2018 call, we're a relatively unique MLP as all of our assets are FERC-regulated natural gas pipelines. As such, the commission's evolving guidance around these issues are particularly impactful to us, although the timing and ultimate disposition is still not entirely clear.

The background of the FERC action is detailed in our news release and 10-Q. As I did last quarter, I want to spend our time here covering the particular position that we have in response to the FERC's final rulings.

We see TCP as having 2 options going forward: first, our pipelines could elect to include a 21% tax allowance in their respective rates and then defend that position in future rate proceedings; or second, our pipeline can choose to claim no tax allowance in their rates, and in turn, eliminate the accumulated deferred income tax, or ADIT, deduction from their cost of service rate base calculations going forward.

This second option foregoes the collection of taxes and rates, but the effective removal of deferred income tax liabilities from an entity's rate base may significantly mitigate the disallowance of previously recognized income tax cost. This impact will vary on a case-by-case basis.

Consistent with our earlier expectations, in addition to the tax allowance and ADIT issues, the final FERC rulings may also act to accelerate the time frame for previously anticipated rate proceedings on several of our pipeline systems, which could lead to additional revenue reductions. We continue to evaluate our portfolio of pipeline on a pipe-by-pipe basis and revise and lower the range of impact from these FERC rulings to a reduction in revenue of approximately $40 million to $60 million per year. This is down from our previously disclosed estimate of an impact of up to $100 million per year.

This represents an improvement from our initial analysis post-March 15 but remains a material amount. As such, we have maintained our distribution of $0.65 per common unit for the second quarter. This distribution level will allow us to utilize our retained cash to repay debt and manage our financial metrics as well as to fund ongoing capital expenditures in anticipation of the noted changes playing out over time. Consistent with past practice, we continue to review the distribution level on an ongoing basis, taking into account all information available to us.

Our general partner continues to assess if sales of assets to the partnership might be as far as competitive financing option at some point in the future. Accordingly, current policies and strategies related to distributions must allow for the partnership's longer-term financial flexibility in this new environment.

Given the revised regulatory guidance, our preferred approach may not include a significant corporate restructuring but we continue to assess strategic options for our partnership, which will best position us and our assets to maximize value over the long term.

I'll now turn the call over to Janine Watson, our VP and General Manager, to provide an update on our partnership's assets and our market outlook.

--------------------------------------------------------------------------------

Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [4]

--------------------------------------------------------------------------------

Thanks, Nathan, and good afternoon, everyone. Moving to Slide 6, you will see that TCP continues to benefit from its diverse pipeline network, connecting areas of low-cost supply with stable market from coast to coast across the U.S.

In the second quarter, our entire portfolio of assets continued to perform well, reflecting the fact that our pipelines are well positioned in key areas, are highly contracted and have seasonal opportunities to realize incremental revenue.

We saw continued strong demand for transportation service on our GTN pipeline serving energy needs in California and the Pacific Northwest, as upstream debottlenecking on TransCanada's NGTL system brought an incremental 230 MMcf per day onto the GTN system in April. Basis differentials between the Western Canadian Sedimentary Basin and Midwest markets are very supportive of gas flow to those regions on TCP's assets. Northern Border's capacity is largely sold out until the end of 2019, and Great Lakes is benefiting from the strength of the supply push out of the WCSB, resulting in incremental short-term sales.

On the East Coast, Portland Natural Gas Transmission System benefited from incremental contracting from its Continent to Coast customers as this legacy contract matures. These are long-term transportation contracts, which, together with the Portland XPress contract, will serve to replace the expiring legacy contract on this line and expand the system to about 0.3 bps per day. And of course, TCP benefited from a full 3-month equity earnings of Iroquois this quarter compared to only 1-month benefit in Q2 of 2017. The remainder of our asset portfolio performed as expected and reported continued stable results during the second quarter.

And now turning to our outlook. Looking forward, TC PipeLines could benefit from a number of other developments. First, because of the highly contracted nature of our pipeline assets, we expect they will continue to perform in a consistent manner with past periods and thereby produce steady predictable results.

Our Portland Natural gas pipeline system provides a relatively easy expansion opportunity, serving markets in New England and Atlantic Canada. With the greenfield projects in this region taking a number of challenging -- challenges on permitting, our Portland XPress or PXP, expansion project is well underway to provide a competitive path to market with fairly minimal environmental and regulatory footprints. In fact, work on the PXP project is currently underway, on time and on budget.

Subject to certain standard regulatory approvals, we expect to bring Phase 1 of this project online in November of this year, bringing an incremental 40,000 dekatherms of flows onto Portland.

Phase 2, which will extend or recontract existing legacy volumes on this line, is expected to be in service in November of 2019. This phase of the PXP project is supported by compression facilities to be built on pipelines in Canada upstream of Portland. TransCanada has most of the regulatory approvals needed for these capacity additions in hand and construction on their facilities is set to commence.

The final phase of the project entails a fairly modest brownfield construction project involving a compressor and associated facilities on Portland's joint facilities. Permitting and preconstruction work is underway, on schedule for the planned November 2020 in-service date for these facilities. In total, these 3 phases will add an incremental 70,000 dekatherms of firm long-term contracts on the Portland system.

Furthermore, Great Lakes is well positioned to move incremental WCSB production to Eastern market. TransCanada's Canadian and U.S. pipeline groups are working in tandem to explore alternatives that optimize the use of Great Lakes' existing capacity to markets that provide value to its shippers, as with the case with the TransCanada Mainline long-term fixed price agreement that took effect in November of 2017.

We believe this continues to underscore the importance of this pipeline system from both a regional and the longer-haul effect. I will now turn this call over to Chuck Morris, our Principal Financial Officer, to discuss our second quarter financial results in more detail.

--------------------------------------------------------------------------------

William C. Morris, TC PipeLines, LP - VP, Principal Financial Officer & Treasurer [5]

--------------------------------------------------------------------------------

Thanks, Jane, and good afternoon, everyone. Moving on to Slide 7, I'll now review the partnership's second quarter 2018 results. Net income in the second quarter was $73 million, up approximately 33% over $55 million in the second quarter of 2017. This equates to $1 per unit compared to $0.73 per unit in 2017.

Several factors impacted our Q2 2018 results, the net effect of which led to the increase year-over-year. We experienced higher demand leading to higher revenues on GTN and PNGTS, together with greater equity earnings due to the inclusion of Iroquois in our asset portfolio for a full 3 months of Q2 2018 versus only 1 month in 2017. We also saw incremental seasonal sales on Great Lakes due to the cold winter weather this year.

The favorable change in revenue and equity earnings was partially offset by an increase in our financing costs related to the additional borrowing to finance our Iroquois and PNGTS acquisition in 2017.

The partnership paid distributions of $47 million to common unitholders in the second quarter. The $21 million decrease over Q2 2017 was primarily due to the $0.35 decrease in the first quarter distribution paid in May of 2018.

As Nathan mentioned earlier, we declared our second quarter 2018 distribution of $0.65 per common unit. This represents a decrease of 35% to that declared in the second quarter of 2017 but is consistent with our first quarter distribution. The partnership's EBITDA was $124 million in the second quarter, 24% higher than that of the same period in 2017. And distributable cash flows were $101 million in the second quarter of 2018, $19 million higher year-over-year. The increase was due to the same factors impacting net income, together with the decrease in maintenance capital expenditures on GTN, our major compression equipment overhauls in 2017 were not required in 2018 as well as reduced distributions allocated to our general partner.

Turning to Slide 8. Revenues from our consolidated pipelines of $111 million were approximately 10% higher than those in the same quarter of last year. The increase was the result of the incremental contracting of both GTN and PNGTS. Equity earnings in the second quarter of 2018 were $12 million higher than the same quarter in 2017, primarily due to the addition of Iroquois to our portfolio of assets for the full 3 months of the quarter, together with the increased results at Great Lakes.

Operating, maintenance and administrative expenses and depreciation during the second quarter were all comparable to those in the same quarter of 2017.

Financial charges were $4 million higher in the second quarter of 2018 versus the same period in 2017. As mentioned earlier, this was due to the increase in interest expense related to the additional borrowings to fund a portion of the Iroquois and PNGTS acquisition.

Moving now to our financial position on Slide 9. Our investment-grade credit ratings provide us with financial flexibility as we continue to fund our organic growth. We recently received reaffirmations of our credit ratings from both Moody's and S&P at Baa2 and BBB-, respectively, both with stable outlooks, indicative of our high-quality assets and solid business position.

Our liquidity position remains strong. The partnership has $410 million of undrawn and available borrowing capacity under our senior credit facility as of August 2, 2018. Our increasing liquidity and coverage capacity is a function of us executing on our debt repayment program, paying down a revolving credit facility in advance of the anticipated reductions in future cash flows. As a result, our bank leverage ratio is just under 4.3x as of June 30, 2018.

That concludes my remarks for the second quarter financial results. I'll now turn the call back over to Nathan.

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [6]

--------------------------------------------------------------------------------

Thanks, Chuck. I'll now refer to Slide 10. And this has been another interesting quarter. We are pleased to receive more clarity from the FERC a couple of weeks ago and believe the impact us and our assets provide for additional flexibility as compared to the initial guidance present at the end of the first quarter.

Aside from the current regulatory focus and some uncertainty around the initial outcome, we're confident that our assets are well situated to benefit from solid underlying market fundamentals that generate value for our unitholders well into the future. These recent FERC actions have altered our path and we are no longer a drop-down MLP or at least not under the current set of circumstances. And our strategies will need to be in response to this condition.

But notwithstanding these developments, our focus remains on the optimization of our asset portfolio, and they include organic growth over time such as our current Portland XPress Project. We'll continue to advance business opportunities that fit within our geographic footprint as we move forward. And we believe our portfolio of solid pipeline infrastructure assets continue to be critical in our markets and that we will continue to serve our North America stakeholders.

I'll now turn the call back over to Rhonda.

--------------------------------------------------------------------------------

Rhonda L. Amundson, TC PipeLines, LP - Manager of IR [7]

--------------------------------------------------------------------------------

Thanks, Nathan. I'd like to now open the call up for questions. Operator, please go ahead.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from Jeremy Tonet from JPMorgan.

--------------------------------------------------------------------------------

Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

Thanks for the color on the FERC actions there. That's helpful. Just want to expand a bit more there. With the $40 million to $60 million estimated impact that you guys put out there, recognizing there's still a lot of uncertainties to be seen, I was just wondering if that anticipates kind of the pipes hitting the 12% ROE threshold that FERC has established and that's baked into that there. And I don't know if you're able to share kind of portfolio-wide where ADIT stands as a percentage of the portfolio or just anything else. Any other color you provide for us there as we try to think through these variables?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [3]

--------------------------------------------------------------------------------

Okay, so this is Nathan. So the 40% to 60% -- or excuse me, $40 million to $60 million reduction that we're forecasting on, it's not keying necessarily off that 12% threshold. That's one that the FERC concluded to get filers to an automatic 3-year moratorium, I believe. So we're planning on going through the process and we're analyzing all the other steps and flexibility available to us and kind of that portfolio approach of different strategies is where we're getting the $40 million to $60 million. So it doesn't necessarily key off of that.

--------------------------------------------------------------------------------

Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

Got you. And...

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [5]

--------------------------------------------------------------------------------

And the -- sorry. To get to your other part of your question, the ADIT per pipe. There's not really a rule of thumb, I would say. We've got those within our ratemaking book. So it differs pipe by pipe. And the exact impact kind of one approach versus another would be different versus if you pick one pipe over another. But certainly, we're watching that and taking a regulatory strategy and a legal strategy to hold up across the board.

--------------------------------------------------------------------------------

Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

--------------------------------------------------------------------------------

Great. And I was just wondering, if you'd seen the recent MRT filing and if there was any applicable read-throughs to TCP?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [7]

--------------------------------------------------------------------------------

We've seen those filings, both with MRP and Trailblazer, I believe, that came through yesterday. And there's nothing that really surprises, I don't think, nothing that's changing our thinking. Every pipeline certainly has unique facts and circumstances and different legal approaches that are more applicable to them and their filings. I will say that those filings appear to have been initiated prior to the July 18 rulings that came out. So there's a bit of a different ballgame that those pipes are going to have to react to. And again, I'm not too familiar with their individual facts and circumstances, but we didn't see anything that's really headline-grabbing that changes our thinking post-July 18.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question is from TJ Schultz from RBC Capital.

--------------------------------------------------------------------------------

Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [9]

--------------------------------------------------------------------------------

I guess, just following up on the $40 million to $60 million. And I know you said some rate proceedings could get accelerated. Is there any change to when you might start to realize cash flow impacts? Is it still kind of fourth quarter of this year and then the full impact potentially in 2019?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [10]

--------------------------------------------------------------------------------

Yes, I'd say that's fair. We'd see initial cash impacts potentially at the -- toward the end of the year here, with those kind of feathering in across the board into the first quarter of 2019.

--------------------------------------------------------------------------------

Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Okay. And then you discussed kind of further options to mitigate the FERC actions. Is the C Corp conversion now less likely? And then what types of other options are you still considering to minimize the impacts?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [12]

--------------------------------------------------------------------------------

I'd say overall, the C-Corp conversion option is still something we're considering. But with the revised guidance that came through on July 18 and now the known treatment of ADIT with an MLP on pipeline, that seemed a more direct path. Still early days coming off of that, but I would say the corporate conversion option is one that's not as appealing, given the other alternatives that we have.

--------------------------------------------------------------------------------

Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Okay. And then I guess, the comment in your press release on further evaluating the distribution level. Just with the current estimated impact on cash flow from the FERC actions, what would cause you to reassess the current payout as a standalone action? Just any clarity on that specific point in the press release.

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [14]

--------------------------------------------------------------------------------

I'd say once we have more assurance on the specific impact. As I mentioned, we've got a range of possible impacts coming out of this. Once we have some assurance of that, we're going to have to do a full evaluation of what our cash flow situation looks like and how we need to manage strategically going forward. So at a minimum, it will be through that time period when we make that decision. But just to make the point, the previous estimate that we had of possible impact of up to $100 million wasn't completely addressed by our distribution reduction prior quarter. We were calibrated to something lower than that, so a better outcome than we had mentioned as our kind of -- it's kind of the worst possible outcome in the prior quarter. So we still see that the cash flow position, the position we're going to be on our financial metrics is prudent and in the -- allowing us the flexibility to move forward with other things in the meantime.

--------------------------------------------------------------------------------

Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [15]

--------------------------------------------------------------------------------

Okay. Just lastly, just switching gears on Great Lakes. Can you just expand on the potential for further contracting with the mainline as you further optimize that system? Just any additional detail on that process and potential cash flow benefits for TCP.

--------------------------------------------------------------------------------

Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [16]

--------------------------------------------------------------------------------

Sure. I'll answer that one, TJ. It's Janine speaking. We see -- there's quite a supply push and we're seeing quite elevated flows over the summer on Great Lakes. We do expect that supply push to continue for the foreseeable future. Both the mainline and the U.S. pipeline groups are looking at different ways that they can serve their customer groups and also serve WCSB producers with some access to some new markets that -- involving Great Lakes. So there was a joint XPress Project that was tried out about 1 month or 2 ago that unfortunately didn't get taken out in its open season. But we continue to talk to potential shippers for projects like that, and we think there's a fair bit of interest there. So we think that there's potential over the coming months or even perhaps year to see further long-term contracting of that type. It may not be with the mainline but we'll see what comes.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from Christine Cho from Barclays.

--------------------------------------------------------------------------------

Marc Joseph Solecitto, Barclays Bank PLC, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

This is Marc on for Christine. With respect to the revised $40 million to $60 million impact that you've cited, is that assuming the collection of an income tax allowance or is that based on the elimination of ADIT? Or do you view the impact of each option is relatively neutral?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [19]

--------------------------------------------------------------------------------

Right now, we're proceeding along our analysis in a lot of detail. This first estimate is based on a case where we're following the new guidance that removes the ADIT balances from MLP on pipelines. So that's the way we modeled that $40 million to $60 million. Coincidentally, in some cases, you can get to about the same place, but it does vary pipe by pipe if you include a tax allowance. So a lot more to come on that, especially as we get into the individual filings for the pipes that are going to commence here in the fourth -- early in the fourth quarter. So that's the strategy that's being worked out currently, but in general, the ADIT approaches will calibrate that.

--------------------------------------------------------------------------------

Marc Joseph Solecitto, Barclays Bank PLC, Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

Got it. And then, assuming shares remain at current levels and drop-downs remain out of the picture, how are you thinking about the outlook for the MLP? Would you focus on organic growth in existing assets? Or assuming again, the share price sees at current levels were to roll up by the parent and be on the table?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [21]

--------------------------------------------------------------------------------

I believe in the call this morning, TransCanada mentioned that they do not see us as a viable financing alternative at the moment. So we're going to continue to defer to them as to what the climate is for any potential rollup into that -- into our general partner. But yes, as you mentioned, we're focusing on internal growth opportunities where we have them. We do see those business as more opportunities come along similar to PXP, where our assets' valuable paths to market are being looked at for possible expansion. So for the foreseeable future, that's what we're engineering our financial facility to handle and we'll be focused on that.

--------------------------------------------------------------------------------

Marc Joseph Solecitto, Barclays Bank PLC, Research Division - Research Analyst [22]

--------------------------------------------------------------------------------

Understood. And then just lastly, would you be able to disclose which of your pipelines are consolidated on the tax returns of your C-Corp parent, if there are any?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [23]

--------------------------------------------------------------------------------

Well, it's a -- a bit of a technical accounting question there but it's -- luckily, I'm a technical accountant so I can help you. The -- none of the earning -- if you look at any of the pipelines that we own, a portion of their earnings come through to TC PipeLines LP, and then a portion of them, approximately 25% of those earnings go up to our parent, TransCanada, 75% go to independent unitholders. And so in terms of a consolidated tax return, none of our investments' earnings are consolidated at 100% into a tax return of a corporate parent.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

The next question is from Shneur Gershuni from UBS.

--------------------------------------------------------------------------------

Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [25]

--------------------------------------------------------------------------------

I just kind of wanted to follow up on some of the -- of TJ's questions. First off, the language around kind of -- it sort of sounds like you're reviewing the distribution policy again. And you sort of answered the question that you would sort of -- you had a better case outcome versus what you originally thought with respect to the FERC. I guess, my question is when you set that -- when you cut the distribution and you sort of looked at your worst-case scenarios, I mean, did you also take into account the potential for the loss of revenue from Bison over time? And if you're reviewing it now, would you then consider it if you hadn't considered it at that point?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [26]

--------------------------------------------------------------------------------

So a good question. I'd say the calibration that we did, I believe we mentioned this as much last quarter, but the calibration for the 35% cut was to get us on the other side of these FERC actions. And so that solved for our particular financial metric that we didn't want to trip and in anticipation of the revenue reduction that was kicked off by the tax changes. So as I mentioned earlier, it did not account for that worst-case scenario. We accounted for a mitigated scenario that we now think is achievable with perhaps less risk but still within the same ballpark on a cash flow reduction. So coming out of the other side of the FERC actions where we're calibrated, we may have a bit more breathing room, but then again, maybe not, given other factors in terms of accounts. So to Dan's question for the Bison contracts expiring in 2021, that's going to take additional planning and additional actions on our part to address. So any future distribution adjustment and strategic planning for that is going to have to take that type of thing into account. But we'll manage that when it comes and we have a little bit more precision on what the actual outcome of these FERC things -- that FERC filing is going to be, which, as we say, should have a lot more clarity and by the -- say, the end of the first quarter of next year.

--------------------------------------------------------------------------------

Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [27]

--------------------------------------------------------------------------------

Okay. I appreciate the color there. And as a follow-up question, with respect to the future of TCP and I understood you did kind of did defer to TransCanada for the ultimate decision there or at least from a funding vehicle perspective. It sounds like in your response to TJ, that you basically -- a big corp, ticking the box basically wasn't necessarily as interesting as it was previously. What other options would you be looking at right now? Like can you talk about what, let's say, your top 2 options that you're thinking about? And then secondly as part of that, can you give us kind of a time frame as to how you're thinking about it? I would assume there's no further impediments that you need to have in place now that the FERC has moved forward. Or is there another impediment that we need to be thinking about as well, too, that sort of plays into your thought process?

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [28]

--------------------------------------------------------------------------------

I'd say our focus right now is on executing the regulatory strategy that works through on a pipe-by-pipe basis to get us kind of optimized and on the other side of this new revised guidance that the FERC is putting out. Certainly, things are still subject to appeals at certain levels, and there will be pushback and there's still a large measure of disagreement on the way things ought to play out among all the interested parties. So our focus really right now is to get that through. I think the good upside, the path forward that we see does include paying attention to what our options are with the removal of ADIT liabilities from our rate base, what that means for the rates we file and our regulatory strategy that proceeds from that.

--------------------------------------------------------------------------------

Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [29]

--------------------------------------------------------------------------------

I get that, but I'm saying like in terms of deciding whether to roll it up, whether to try and pursue a drop-down strategy or like, sort of like kind of move forward, are there any impediments from making that type of decision at this point right now? Because you were willing to act quickly in terms of cutting the distribution initially. So I'm trying to understand this hesitancy of moving forward.

--------------------------------------------------------------------------------

Nathaniel Alan Brown, TC PipeLines, LP - President & Director of TC PipeLines GP, Inc. [30]

--------------------------------------------------------------------------------

Yes, I understand your question and that's completely a TransCanada strategy question. So that will be something that they work through within their kind of portfolio approach, and we'll see where they see us and come forward.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

The call has now concluded. If there are any further questions, please contact Investor Relations at TC PipeLines' LP. I will now turn the call over to Rhonda Amundson.

--------------------------------------------------------------------------------

Rhonda L. Amundson, TC PipeLines, LP - Manager of IR [32]

--------------------------------------------------------------------------------

Great. Thank you, everyone, for your participation today. We appreciate your interest in TC PipeLines and we look forward to speaking with you again soon.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.