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Edited Transcript of TCP earnings conference call or presentation 8-May-19 3:00pm GMT

Q1 2019 TC PipeLines LP Earnings Call

DALLAS Jun 14, 2019 (Thomson StreetEvents) -- Edited Transcript of TC PipeLines LP earnings conference call or presentation Wednesday, May 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Janine M. Watson

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

* Nathaniel Alan Brown

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

* Rhonda L. Amundson

TC PipeLines, LP - Manager, IR

* William C. Morris

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

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Conference Call Participants

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* Alexis Stephen Kania

Wolfe Research, LLC - Utilities SVP

* Matthew Taylor

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Torrey Joseph Schultz

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the TC PipeLines, LP 2019 First Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Rhonda Amundson. Please go ahead.

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

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Thank you, operator, and good morning, everyone. Welcome to TC PipeLines' First Quarter 2019 Conference Call. 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 their remarks and is available on our website at tcpipelineslp.com, where it can be found in the Investor Section under the heading events and presentations.

Nathan will begin our call today with a review of TC PipeLines' 2019 first quarter results. Janine will provide an update on the Partnership's assets and the market environment, following which Chuck will provide a review of our financial results for the first quarter. Nathan will return and wrap up our remarks with a brief discussion of our growth strategies and close with some key takeaways.

Following the prepared remarks, I will ask the conference operator to coordinate 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 2018 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 use 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 of the most closely related GAAP measures in our SEC filings.

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

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

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

We generated $93 million in net income during the first quarter of 2019, only 3% lower than the $96 million we earned in the same period in 2018, despite the impact of 2018 FERC actions, and a decreased revenue for Bison Pipeline. This is primarily due to the strong results in GTN from increased contracting together with additional revenue for PNGTS for Phase 1 of its Portland XPress Project that came on stream late last year.

Our equity earnings for Northern Border were also higher this quarter compared to Q1 of 2018, although earnings from Great Lakes and Iroquois were not quite as strong as last year at this time.

Our EBITDA is similarly lower year-over-year at $142 million for the quarter compared to $150 million in 2018.

Our distributable cash flow was $116 million for the first quarter of 2018 (sic) [2019], a 4% increase over the comparable period in 2018.

Northern Border's strong results drove a higher distribution, which offset the lower distributions from our other equity investees and our interest expense was slightly lower this quarter as a result of our continued overall debt reductions. We paid out $47 million in distributions to our unitholders during the quarter together with $13 million to our class B units, down significantly from a total of $91 million paid in Q1 of 2018.

The Partnership also declared its first quarter distribution of $0.65 per common unit was consistent with our fourth quarter 2018 distribution and for each of the other 3 quarters in 2018.

Chuck will discuss our financial results in more detail a little later in the call.

We continue to progress a number of organic growth projects and are excited to report on their status. As I mentioned earlier, Phase 1 of our Portland XPress Project was placed in service in November of last year and is contributing to our bottom line results. Phase 2 will be in service later this year. The final Phase 3 is scheduled for late 2020.

Westbrook XPress is moving forward as well with Phase 1 expected to be in service in November of this year and Phase 2 in late 2021. We've added a third phase to this project, add an additional 18,000 dekatherms per day to PNGTS capacity such that it will -- the total PNGTS capacity will grow to almost 400,000 a day from its previous expansion capacity of 210,000 a day.

A third expansion project, North Baja XPress, is currently being advanced in response to market demand for natural gas transportation in the region. And we look forward to sharing more details in the future as this project develops.

Janine will discuss these commercial developments in more detail in a minute or 2.

During the first quarter, our regulatory progress continued. We filed uncontested rate settlements for both Iroquois and Tuscarora and received FERC approval for both in early May. These settlements mark the final step in the completion of our regulatory strategy resulting from the FERC actions in 2018.

Looking at our financial position, with the cash savings from our earnings distributions, we have continued to repay our outstanding debt balance such that we have no drawings under our Senior Credit Facility. And our bank leverage ratio is now approximately 3x. Our distribution coverage also remains very strong at approximately 2.5x for the quarter ended March 31 2019.

These results are a testament to the resiliency of our asset portfolio and the continued success of our commercial strategies, which combine to create ongoing value to our unitholders.

I will now turn the call over to Janine Watson, our VP and General Manager, to provide additional color on our assets and these commercial developments together with our market outlook.

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

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Thanks, Nathan, and good morning, everyone. Moving on to Slide 5, I will now review the Partnership's first quarter 2019 results and drill a bit further into the continued solid operating performance of our assets. Long-term contracts continue to be the cornerstone of TCP's solid commercial fundamental, underpinning 87% of our 2018 distributable cash flow. In the West, demand is strong for transportation service on our GTN pipeline, serving energy needs in California and the Pacific Northwest.

GTN benefited from incremental Park and Loan and interruptible sales revenue in Q1 and is effectively sold out of firm capacity in and after 2020. In the northeast, PNGTS placed Phase 1 of its Portland Xpress project into service on November 1 of last year. And we, therefore, benefited from a full quarter of additional revenue in Q1.

Looking at our equity investment and as has been the case for the past few years, Northern Border continues to experience strong demand for its capacity operating at very high levels of throughput. Its firm capacity was once again sold out in Q1, and our commercial team successfully generated incremental revenue by offering its maintenance and seasonally available capacity on short-term bases. Bakken receipts have climbed as high as 1.3 to 1.4 bcf per day and now account for more than 1/2 of the daily receipts onto this line.

The remainder of our pipelines operated as expected generating solid results during the quarter. We remain committed to our Bison pipeline and continue to explore both line reversal and liquids repurposing development opportunities for this asset. There is commercial interest in both options, and we continue to advance them both, although, we have no concrete update for you at this time.

Turning to our regulatory update. As Nathan mentioned, we filed settlements for Iroquois and Tuscarora in February and March of this year and received FERC approvals for both. Also, in early April, Northern Border filed with FERC to amend its 2017 settlement agreement and incorporated the 2% rate reduction in February of this year into that amended agreement for the life of the settlement through to July 1 of 2024. The 2% reduction was part of the limited Section 4 filing made by Northern Border in late 2018.

With these actions behind us, we believe that our responses to the FERC actions initiated last year are complete. Now for your convenience, we have updated our chart of the impact of the 2018 FERC actions on each of our pipeline assets and placed it on our website on the right-hand side of our homepage.

Turning to Slide 6. As Nathan touched on earlier, we are excited to provide an update on our Portland expansion projects. Our Portland Xpress project is proceeding on time and on budget, with Phase 1 in service last November and Phases 2 and 3 planned to be in service November 1 of this year and 2020, respectfully (sic) [respectively].

This project is approximately $80 million in total capital cost and will add about 70,000 dekatherms per day of capacity to Portland.

At the same time, we're also advancing our Westbrook XPress project at Portland. This is an approximately $100 million multi-phase expansion project designed to help serve markets in northern New England and Atlantic Canada that have, until recently, been served by offshore gas production from Sable Island and Deep Panuke. Phase 1 of this project will be supported by pressure agreements with our upstream affiliated pipeline, allowing Portland to bring an initial 43,000 dekatherms a day into service in November of this year without the need for any construction.

Phase 2 requires the addition of a compressor and associated facilities at an existing station on the Portland system, and is also reliant on planned construction activities north of the border on the TQM system. This phase will bring a further 50,000 dekatherms of firm capacity to this pipeline system. These new facilities are intended to be in service by November of 2021.

We also just signed agreements with a group of shippers to add a Phase 3 expansion for an additional 18,000 dekatherms per day of capacity to be in service by November of 2022.

This final phase will be enabled by capacity enhancements north of the border on the Canadian Mainline and does not require significant capital spending on the Portland system.

The cost of these projects will be financed at PNGTS through its credit facility. Once this project is fully in service and together with Portland Xpress, PNGTS' capacity will have increased by approximately 70% from 210,000 dekatherms to almost 400,000 dekatherms per day.

Looking forward, because of the highly contracted nature of our pipeline assets, together with their generally strong market position, we expect that they will continue to perform in a predictable manner and thereby produce steady results. We continue to assess other opportunities which may arise to take further advantage of TCP's existing pipeline network. North Baja's situation is one such opportunity. We noted in our earnings release today that we are developing the North Baja XPress project, an estimated $90 million project, to transport additional volumes of natural gas along North Baja's Mainline system.

The project was initiated in response to market demand to provide firm transportation service of up to approximately 495,000 dekatherms per day between Ehrenberg, Arizona and Ogilby, California. A successful open season was concluded in April of 2019 with a potential in-service date in 2023. The project is subject to various commercial and regulatory conditions as we move forward.

I will now turn the call over to Chuck Morris, our Principal Financial Officer, to discuss our first quarter financial results in more detail.

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

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Thanks, Janine, and good morning, everyone. Moving on to Slide 7. I'll now review the Partnership's first quarter 2019 results.

Net income in the first quarter was $93 million, down approximately 3% from $96 million in the first quarter of 2018. This equates to $1.28 per unit compared to $1.32 per unit in 2018. Several factors impacted our Q1 2019 results, the net effect of which led to the decrease year-over-year. First, revenue from Bison was markedly lower as a result of the election of 2 of its customers in Q4 of 2018 to pay out their transportation agreements.

This decrease was offset, however, by higher demand at GTN leading to higher revenues on that system, together with the additional revenue from Phase 1 of PNGTS' Portland XPress project that went into service in November of 2018. Equity earnings were lower by $5 million in Q1 of 2019 compared to 2018, as the 2019 winter months were not as cold as in 2018, leading to lower earnings at both Iroquois and Great Lakes.

Northern Border, however, was able to sell additional short-term firm services during the quarter and generate higher earnings, which partially offset the low results from our other 2 equity investments.

The Partnership paid distributions of $47 million to common unitholders in the first quarter and $13 million to our class B unitholder, the latter of which related to the cash flow from 30% of GTN for the year ended December 31, 2018. The $29 million decrease in common unit distributions that was paid in Q1 of 2018 was primarily due to the decrease in quarterly distributions of $0.35 per common unit paid beginning in May of 2018 as a result of our response to the 2018 FERC actions.

During Q1 of 2019, the 30% portion of GTN associated with the class B units generated $12 million, none of which was allocated to the class B units as the annual threshold of $20 million had not been exceeded.

As Nathan mentioned earlier, we declared our first quarter 2019 distribution of $0.65 per common unit. This is consistent with that declared in the fourth quarter of 2018 and for each preceding quarter in 2018. The Partnership's EBITDA was $142 million in the first quarter, 5% lower than that of the same period in 2018. And distributable cash flows were $116 million in the first quarter of 2019, $4 million higher year-over-year. The increase was due to the same factors impacting net income together with a decrease in interest expense due to the repayment of our $170 million term loan in the fourth quarter of 2018 and the continued repayment of our Senior Credit Facility in the first quarter of 2019.

Turning to Slide 8. Revenues from our consolidated pipelines of $113 million were slightly lower than those in the same quarter for last year for the same reasons as impacted our earnings. Equity earnings in the first quarter of 2019 were $5 million lower than in the same quarter of 2018 primarily due to winter -- warmer winter weather temperatures this year impacting Iroquois and Great Lakes offset by the higher earnings coming from Northern Border.

Operating maintenance and administrative expenses during the first quarter were comparable to those in the same quarter of 2018. Depreciation expense was lower by approximately 17% resulting from the asset impairment on Bison that we recognized during the fourth quarter of 2018.

Financial charges were slightly lower in the first quarter of 2019 versus the same period in 2018 due to the repayment of our $170 million term loan in Q4 of 2018, and further reductions in the outstanding balance of our Senior Credit Facility during the first quarter of this year.

Moving on to our financial position on Slide 9. Our investment grade credit ratings provide us with the financial flexibility as we look to organically grow our portfolio in the future. We believe our ratings reflect our solid financial condition and outlook. The Partnership's liquidity position remains strong. The Partnership has $500 million of undrawn and available borrowing capacity under its Senior Credit Facility as of May 8, 2019.

Consistent with our self-funding model, in order to build capacity for organic growth, we continue to execute on our deleveraging program. In that regard, we have used available cash to repay our indebtedness during the quarter, including the repayment of our Senior Credit Facility resulting in a bank leverage ratio of approximately 3x. We anticipate that we will continue to repay a portion of our outstanding floating rate debt with available cash balances going forward with the end goal of maintaining our conservative leverage profile.

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

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

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Thanks, Chuck. I'll now refer to Slide 10. As I mentioned at the outset, we had a very good quarter this year and our assets continue to perform well proving out their resilience and strong competitive position. Going forward, our cash flow will continue to be derived from our portfolio of critical natural gas pipeline infrastructure assets underpinned by long term ship-or-pay contracts with credit-worthy shippers.

We continue to prudently manage our financial positions such that our bank leverage ratio is current -- excuse me, currently approximately 3x and our distribution coverage is close to a very healthy 2.5x. Longer term, we're targeting to maintain our bank leverage ratio in the high 3x to low 4x times area and a distribution coverage ratio of approximately 1.3x to 1.4x.

With this solid financial position, we reiterate that we do not need to access the equity capital markets to fund our current growth program.

Our focus remains on the optimization of our asset portfolio, including organic growth over time such as our current Portland and Westbrook XPress projects. We continue to advance our business opportunities and our geographic footprint. Our North Baja XPress project is a good example of the type of development projects, in which we will advance.

All of these will be progressed in a very disciplined manner with near-term opportunities sized and sequenced so that we're in a position to be self-funding. We believe our portfolio of solid pipeline infrastructure assets will continue to be critical in their markets and we will continue to serve our North American stakeholders.

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

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

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from TJ Schultz from RBC Capital Markets.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I think first on North Baja XPress, does that in-service need to coincide, essentially, with LNG Export Phase 1? Just want to understand the commercial conditions that have to be met to hit that 2023 in-service. And then if I understand the LNG right, is there an opportunity to expand further and supply into a larger Phase 2? It seems there may be some various options to supply that second phase.

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

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Yes. Thanks for your question, TJ. I'll say, for now, in terms of further details that we've got around North Baja XPress, we're pretty much stopped at what we've already disclosed. There's -- across our asset footprint with a lot of these development opportunities, we certainly have conditions, perhaps, that have to be met before they go forward. So we'll watch those and update them as we have information come available.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Okay. Fair enough. And then -- so Westbrook XPress, looks like Phase 3 was added with no change to the cost of the overall scope, so some better returns. Is there more to flex into that project to improve that any further? And then I guess that kind of broadly or more broadly as you allude to that next wave of growth projects, what options do you have similar to that Phase 3 on Westbrook? Or are there kind of larger scale/newbuild type projects that you are also scoping?

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [5]

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With regards to Westbrook XPress, I think that the limiting factor is going to be the availability of incremental capacity on TQM north of the border. So I would say that, that for these kinds of projects, we're getting -- there might be a little bit more of room that they could find, but we are getting to the end of the -- shall I say, the easier compression-only adds in that respect.

Speaking to our larger sort of portfolio of what we're looking at, no, we don't have any large greenfield projects on the horizon. We are looking at this type of expansion across our entire footprint, the kinds of things we can do in the geographies we're in already with relatively minimal environmental footprints just to see what we can do to link the -- our existing markets up to the sources of supply that we've already got.

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Operator [6]

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The next question is from Matthew Taylor from Tudor, Pickering, Holt.

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Matthew Taylor, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research [7]

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I think you said you didn't have anything concrete to say on Bison, but I'm just thinking through this out loud. If contracts starts to roll at the end of next year, when do you think that you're going to have to update the market with -- if there is a path forward there? I'm just thinking in terms of construction time lines.

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [8]

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And I hear you on that. The thing is that the solution for Bison will be market driven, not really driven by the expiration dates of our contracts. So we continue to work with the commercial interests that we've got, and we'll continue to explore that.

As far as construction costs, that will be obviously dependent on the path we ultimately choose, and we do have these 2 competing -- well, these 2 potential paths we can go. A line reversal is, of course, a simpler path and requires less construction and less construction time.

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Matthew Taylor, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research [9]

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Okay. Great. Thanks for the color there. And then I'm just thinking, so TC Energies talked about doing a supply push GTN project. It might be announced later this year. Obviously, still early days there, but can you give us some sense of expandability on that pipe and even just financing of that project?

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

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Yes. In terms of physical expandability, there's design constraints and different specific planning that has to be done all up and down the delivery chain there. So GTN's a link in that chain.

We think the -- depending on the scope and scale of the volumes that are required, GTN can be manageably handled within what we can finance here at the -- at either the asset level or with additional -- traditional borrowing at TCP but again, to reiterate, we're not anticipating any moves into the equity capital markets at this time.

So I think it's too early to say precisely what kind of facility or the capital outlay would be required on GTN-specific because, again, it would be part of a multi-phase type of deal. If we get a supply-push situation, that's going to the premium market that we've got on GTN.

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Matthew Taylor, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research [11]

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Okay. Just to be clear, does it require looping and more pipe or could you still -- is there still room to do compression adds on that pipe?

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

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It's compression adds and localized build, would give us a measure of expansion on GTN. So it's not -- we're not contemplating a complete loop.

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Matthew Taylor, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research [13]

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Okay. And then just moving over to FERC impact. I know you mentioned in the guidance that was previously disclosed, but can you give us just some color on how you're thinking about that, the amount of impact and time line of that guidance in light of recent settlements?

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

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So our bid chart has all the details. So I won't step through it pipe by pipe, but we still say on the other side of what we had, prior to the FERC actions, the $30 million number on an annualized run rate is still fairly -- is fairly accurate.

I say as things develop and we get back into our normal commercial situations, it's really kind of hard to -- or hard to keep track of the specific impact of any 1 change. But we've been successful at engaging our customers reaching positive settlements that will keep us going forward, and then we'll be able to just sort of roll that into normal operations.

The full impact of the $30 million, I would say, would come in later this year in -- as the settlements as we list on our chart on the website kind of click into place and then we move into the other pre-existing terms of our settlements that we've got that may or may not have been adjusted, as we move through the years.

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Matthew Taylor, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Analyst of Midstream Research [15]

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Okay. Great. One last one. It's my understanding that 2017 revenues were used for those 501-G filings. Just thinking about the large uptick in revenues like on some of the pipes, like Great Lakes, GTN, Northern Border, that benefited from additional contracts and even Canadian volumes with -- maybe those are ROEs tracking ahead of the 12% threshold. Are you guys risking that at all in your guidance, especially on Northern Border and Great Lakes that have no rate moratorium?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [16]

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Well, the 501-G process was -- it did use 2017 numbers but it was a -- it was an exercise to quantify the impact of the tax changes. And for purposes of whatever the FERC may do going forward, it was really isolated to that. So to the extent the FERC has an initiative in place to look at other aspects or our customers are engaging with our pipes, we're treating that as a normal commercial condition we always look at and we always evaluate.

So I think we've moved past whatever was specifically quantified in the 501-G process and are moving into what we're going to see going forward. And certainly, the settlements that we entered into contemplated the full commercial position of each of our assets. And certainly, the risks that we disclosed continue to be there, and we continue to manage those as prudently as we can.

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Operator [17]

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The next question is from Alex Kania from Wolfe Research.

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Alexis Stephen Kania, Wolfe Research, LLC - Utilities SVP [18]

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I guess the question is just with respect to the leverage targets and coverage. I guess that Q1 was kind of -- it was very strong relative to those targets. Do you feel like as you look over the course of the year that you need to do anything different as you kind of roll in the FERC settlements and get maybe to more normal seasonality, and you find yourself in the targets you want right now? Or do you need to do anything additional beyond as you'd mentioned before, paying down some of the floating-rate debt?

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William C. Morris, TC PipeLines, LP - VP, Principal Financial Officer & Treasurer [19]

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Yes. Alex, it's Chuck here. I'll speak to the leverage ratio. And I guess the leverage that we are pointing to in terms of the kind of the target range going forward is relative to our bank leverage ratio. So the calculation there is debt over adjusted cash flow.

And there are some nuances in terms of the calculation with respect to property tax associated with that calculation but -- so ultimately, we see ourselves as we roll through 2019 here, the calculation is based on a last 12 months' basis where we're still having the impact of the Bison buyout at the end of Q4 of 2018. So as we roll through 2019, we see ourselves migrating up to that high 3s, low 4s area as we go through the year here. So the target still is looking to, like I said, migrate to that sort of high 3s, low 4s.

With respect to coverage ratio, again, it is a bit of an artifact of the quarter here. We still see ourselves, again, migrating to that 1.3x to 1.4x on an average kind of run rate basis going forward.

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Operator [20]

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(Operator Instructions) The next question is from Michael Lapides from Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [21]

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Can you talk about volume trends that you saw year-over-year in the quarter relative to kind of what your expectations were? Which specific pipes may have surprised to the upside in terms of volume? Which ones may have surprised the other direction? And then how are you thinking about which ones could have the biggest upticks for the rest of the year?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [22]

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Yes. Thanks for the question. I'd say we weren't really surprised too much by volumes. We certainly have some upside that come when we have weather events that capitalize on services such as Park and Loan to a greater extent in some years versus others. But our big pipes primarily GTN, Northern Border are performing very well, running essentially full. So no real surprises there. Our commercial guys can optimize things on some margins with some services to customers. But really, in terms of volume flows, no real surprises.

The swing pipe can be Great Lakes. Sort of varies from season to season, precisely how much volume once you get into or out of the Michigan storage area or go around the -- kind of go around underneath the lakes to serve markets toward Dawn, Ontario. But that said, Great Lakes has had a good couple of years and our marketing departments have done well there. So no real anomalies, no real surprises, I wouldn't say.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [23]

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Got it. And then when you think about the Northeast U.S. and the PNGTS system, how -- once you get done with Westbrook, how much more incremental capacity could you physically add to it? When does just the outright size of the system become a constraint kind of keeping you from using more compression to keep adding capacity there?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [24]

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Yes. So as Janine mentioned, I think the first constraint we have to really pay attention to is upstream. But once those volumes come to the border where PNGTS could pick them up, there's an additional expandability of potentially another 400 a day, but that's kind of, theoretically, an early days, definitely, to say.

PNGTS continues to not have any midpoint compression of its own. Runs off of compression north of the border as well as compression on shared facilities that are being modified now for both PXP and Westbrook. But midpoint compression being added along could add potentially around another 350, 400 a day, but it's early days.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [25]

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Got it. And then last thing. I just want to make sure I'm following all the various rate changes and revenue changes tied to the 501-G. Are any of the pipes -- have all of them -- are all of the revenue changes that are coming from 2019 over the next couple years, the ones that are known, are they all offshoots now of the 501-G process, or there are some legacy settlements that still have revenue changes, revenue reductions, potentially, that will kick in that were unrelated to the 501-Gs?

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

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That's [sort of] the latter. So we've modified some of the terms of the existing legacy settlements in places. And in other places, we sort of blend right into the original rate changes that were previously agreed upon. We step through it in the chart as well as our discussion that we've got in our 10-Q. So there's a blend.

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Operator [27]

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Your next question is from Jeremy Tonet from JPMorgan. Please go ahead.

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Unidentified Analyst [28]

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This is [Tran] on for Jeremy. Most of our questions have been asked. I just wanted to do 1 quick follow-up on the last question related to kind of pipe activity. Last quarter, there was more short-term activity in North Baja. It's a smaller pipe for you, but it seemed like the dynamics that would've been driving some of that didn't change a whole lot, so I was just curious if you could provide any color on that and maybe what you're seeing this quarter.

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [29]

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On North Baja, specifically, it has some flexibility and capacity available when the Southern California market needs some additional volumes. And in quarters past, we've seen it been optimized for that when -- I don't want to misquote and say the wrong system, but there's some disruptions in the normal system that a lot of those customers used. North Baja can serve as a bit of a relief valve for that commercial situation. So that has happened.

As that ebbs and flows, as those maintenance activities get completed, that can come back off. But as for right now, I'd say Baja is going back to its steady state that we're used to over history.

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Operator [30]

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Ladies and gentlemen, this concludes the question-and-answer session. If there are any further questions, please contact Investor Relations at TC PipeLines LP. I will now turn the call over to Rhonda Amundson.

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Rhonda L. Amundson, TC PipeLines, LP - Manager, IR [31]

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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. Thanks.

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Operator [32]

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