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Edited Transcript of TCP earnings conference call or presentation 7-Nov-19 4:00pm GMT

Q3 2019 TC PipeLines LP Earnings Call

DALLAS Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of TC PipeLines LP earnings conference call or presentation Thursday, November 7, 2019 at 4:00:00pm 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 - SVP

* Charles W Barber

JP Morgan Chase & Co, Research Division - Analyst

* Matthew Taylor

Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the TC PipeLines, LP 2019 Third 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. I am happy to welcome you to TC PipeLines' Third 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 Investors section under the heading Events & Presentations.

Nathan will begin the call today with a review of TC PipeLines 2019 third quarter results together with an overview of our GTN XPress project, which was announced last Friday, November 1. Janine will provide a commercial update on the partnership's assets and our growth program, following which, Chuck will provide a review of our financial results for the third 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 to the most closely related GAAP measures in our SEC filings.

With that, I'll 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 $56 million in net income during the third quarter 2019, 10% lower than the $62 million we earned in the same period in 2018 largely due to the partial payout of Bison's contracts in late 2018 together with lower rates on many of our pipelines emanating from the 2018 FERC actions.

Our EBITDA was similarly lower year-over-year at $100 million for the quarter compared to $113 million in 2018. Our distributable cash flow was $78 million for the third quarter of 2019 compared to the third quarter of 2018, where our DCF was $83 million. Primary drivers for the decrease were our lower earnings in EBITDA together with generally higher maintenance capital expenditures resulting from higher system utilization in response to sustained increased natural gas transportation volumes. These cost increases were partially offset by an increase in distributions from Iroquois related to the earnings we generated in prior periods.

As we expected, our results continue to reflect decreases from both our Bison contract payout as well as the rate decreases resulting from the 2018 FERC action and higher maintenance costs, although a drag on distributable cash flow reflect the positive environment of higher natural gas flow in our pipelines, and these costs will be added to rate base in due course and enjoy a return on and of capital for future tolls.

We paid out $47 million in distributions to our unitholders during the quarter, the same as what we paid out in the third quarter of 2018. The partnership also declared third quarter distribution of $0.65 per common unit, which is consistent with our first and second quarter 2019 distribution and for each quarter of 2018. We believe to maintain this distribution at the current level is prudent in order to continue building a healthy financial position which will allow us to self-fund our organic growth as we move forward. Chuck will discuss our financial results in more detail a little later in the call.

We continue to advance our organic growth programs and are very excited to have announced the GTN XPress project last Friday, November 1, our largest project in our 20-year history. This is an approximately $335 million integrated reliability and expansion project that will enhance market access for growing natural gas supply out of the Western Canadian Sedimentary Basin and allow additional market penetration along GTN's pipeline system. I'll get into the details of the project on the next slide. But first, let me go through the remainder of our third quarter highlights.

Also new this quarter, we are proceeding with the $13 million expansion on our Tuscarora pipeline. Tuscarora XPress is underpinned by a 20-year contract and will transport approximately 15,000 dekatherms per day of additional volumes when completed in November of 2021.

Our other organic projects are progressing well with Phase 2 of Portland XPress in service as well as Phase 1 of Westbrook XPress, both providing incremental capacity in our PNGTS pipeline system in the Northeast. Janine will discuss these and other commercial loans -- developments in more detail in a minute or 2.

During the third quarter, looking at our financial position, our bank leverage ratio was approximately 2.8x, and our distribution coverage also remained very strong at approximately 1.7x for the quarter ended September 30, 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 for our unitholders.

Turning now to Slide 5. Our GTN XPress project is an exciting development for us and for GTN and the shippers. This is an approximately $335 million project that consists of both reliability work on the GTN system together with additional firm transportation service of up to 250,000 dekatherms per day on full path from Kingsgate, Idaho to Malin, Oregon. In concert with TC Energy's upstream system expansions, GTN XPress will provide our shippers with access to high-value downstream markets as well as diversified supply sources for LDCs in the Pacific Northwest.

The project consists of both horsepower placement and other reliability work together with brownfield compression at facilities at existing stations along the system. The map on this slide shows a handful of stations that will be part of the project, and all work will be conducted in existing yards and locations. More than 3/4 of the total cost of this project relates to reliability work and is expected to be recovered in recourse rates.

The incremental firm capacity will be phased into service through November 2023 and is fully underpinned by fixed negotiated rate contracts with an average term in excess of 30 years. The additional capacity is anticipated to generate approximately $25 million in annual revenue when fully in service.

In keeping with our self-funding objective, the project will be funded with new term debt at GTN together with equity contributions from the partnership. Our equity injections will come from existing cash on hand together with borrowings under our revolving credit facility. All in all, this project is a very positive development for TC PipeLines and represents the sort of brownfield, long-term, contracted, solid returning project that we can self-fund to provide long-term growth and value for our stakeholders.

I will now turn the call over to Janine Watson, our VP and General Manager, to provide additional color on our assets, our 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 6. I will provide a quick overview of the operating performance of our assets.

Our pipelines continue to provide reliable service across our footprint generating solid results during the quarter. Excepting Bison, our pipelines operated at high levels of availability and utilization, encountering no significant operational issues.

In the West, demand is strong for transportation service on our GTN pipeline. GTN is effectively sold out of firm and continues to make discretionary sales, contributing to this asset's continued consistent performance. TC Energy progressed debottlenecking activities upstream of GTN, resulting in approximately 115,000 dekatherms a day of incremental supply capacity into this pipeline coming into service as of this November 1.

In the Northeast, PNGTS successfully marketed short-term services in Q3 as hot weather in New England drove robust demand for gas to serve power load. With our PXP Phase 2 and Westbrook XPress Phase 1 projects coming into service as of the beginning of the month, all of PNGTS' firm capacity is contracted out to 2030 and beyond.

Looking to our equity investments. As has been the case for the past few years, Northern Border experienced strong demand for its capacity, operating at very high levels of throughput. Its firm capacity was once again sold out in Q3. And our commercial team took advantage of market conditions to generate incremental revenue by offering its seasonally available capacity on short-term basis. Bakken receipts continue to account for more than half of the daily receipts onto this pipeline. We remain committed to our Bison pipeline and continue to explore both a natural gas line reversal and a liquid repurposing development opportunity for this asset.

Overall, we're confident that our assets are well positioned geographically with last-mile connections into key market centers across North America. Our pipelines are highly contracted, reflecting ongoing demand for their natural gas transportation services. We have key connections out of the Western Canadian Sedimentary Basin, one of the most prolific supply basins in North America through GTN, Northern Border and Great Lakes and through Iroquois and PNGTS at the eastern end of TC Energy's mainline system. And we're very encouraged by the high utilization rates on our pipelines, which are driving solid revenues and cash flow.

Our business development team is in the process of soliciting customer interest in several potential projects across TCP's footprint, designed to meet the demand for incremental transportation at competitive costs to our customers. And I will discuss this a little further on the next slide.

Turning to Slide 7. A key focus for us is the execution of our organic growth program, where we are seeking to execute a portfolio of brownfield growth projects within our existing footprint and targeting a 5 to 7x growth multiple. Our Portland XPress project is proceeding on time with Phase 1 in service in late 2018, Phase 2 just last week and Phase 3 in service planned for November 1, 2020. This project is approximately $85 million in total capital costs and will add about [183,000 dekatherms] a day of capacity to PNGTS.

We're also proceeding with our Westbrook XPress project at PNGTS. This is an approximately $125 million multiphase 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 is supported by pressure agreements with our upstream affiliated pipeline, bringing an initial 43,000 dekatherms a day into service starting in November of this year without the need for any construction. This phase was placed into service on November 1, 2019.

Phase 2 requires the addition of a compressor and associated facilities at an existing station on the Portland system and will bring a further 69,000 dekatherms of firm capacity to this pipeline system, intended to be in service by November of 2021.

And the management committee has authorized a Phase 3 expansion for this pipeline, which will provide capacity for an additional 18,000 dekatherms per day to be in service by November of 2022. Once both these projects are fully in service, PNGTS' capacity will have almost doubled from 210,000 dekatherms per day at the beginning of 2018 to close to 400,000 dekatherms by the end of 2022.

And as Nathan mentioned earlier, we recently announced that GTN is proceeding with this GTN XPress project, which is expected to be fully in service in November of 2023. This is an integrated reliability and expansion project, underpinned by fixed negotiated rate contracts for an average term in excess of 30 years. It is both a supply-push and a demand-pull project with about 60% of the new contract supplied by -- supported by WCSB gas seeking to diversify its market access and 40% supported by Pacific Northwest utilities looking to diversify their supply portfolio.

And we are also progressing with our Tuscarora XPress project, a smaller $13 million compressor -- compression project to transport 15,000 dekatherms a day of additional volumes when completed in November of 2021. This project will service modest demand growth in and around Carson City and provide supply diversity for the area.

Now looking forward, we continue to assess what other opportunities may arise to further take advantage of TCP's existing pipeline network. You can see on the map that we have highlighted 4 current opportunities being developed.

As we've noted on previous earnings calls, 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 about 495,000 dekatherms per day between Ehrenberg, Arizona and Ogilby, California. A successful open season was conducted in April of 2019 with a potential in-service date as early as 2023. The project is subject to various commercial and other conditions as we move forward. We currently anticipate an FID decision on this project in July of 2020.

Now also of note is the potential expansion project on the Iroquois system, which we refer to as the enhancement by compression or the ExC project. This project has the potential to optimize the Iroquois system to meet current and future gas supply needs of utility customers while minimizing the environmental impact through compressor enhancements at existing compressor stations along the pipeline. If successful, the project's total capacity is expected to be approximately 125,000 dekatherms per day with an estimated in-service date in November of 2023. Still in the consultation phase and subject to various approvals, the capital cost of this project is still to be determined as the optimal facility set is finalized over the course of the regulatory process. This project is intended to be 100% underpinned by contracts with 20-year terms.

Turning to the Bakken area. We note that there is a significant supply push seeking incremental takeaway capacity that could be met by our Northern Border and Bison pipeline. Our business development team is assessing several options, but the one I'll focus on today is our Bison reversal project. This is a multi-leg supply path from Northern Border state line Watford City receipt point, down Bison for delivery on to third-party pipelines and destined for ultimate delivery to Cheyenne hub. This project could provide an economic path to market for about 430,000 dekatherms a day of Bakken production by Q4 of 2022.

And finally, our business development team is focused on finding opportunities to offer seamless transportation service from Canada to U.S. markets via several paths, which include our Great Lakes pipeline. During the second quarter of 2019, Great Lakes reached an agreement on terms of new long-term transportation capacity contracts with its affiliate, ANR Pipeline Company. The contracts are for a 15-year term from late 2021 to 2036 with a total contract value of $1.3 billion. ANR continues to work to secure commercial support and regulatory approvals for its proposed service offerings.

So in summary, TCP's management is pleased with our progress as we execute on our existing growth program, and we continue to work towards new self-funded growth opportunities across TCP's footprint.

I will now turn the call over to Chuck Morris, our Principal Financial Officer, to discuss our third 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 8, I'll now review the partnership's third quarter 2019 financial results.

Net income in the third quarter was $56 million, down approximately 10% from $62 million in the third quarter of 2018. This equates to $0.76 per unit compared to $0.79 per unit in 2018. Several factors impacted our Q3 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. Second, as Nathan mentioned earlier, we saw rate reductions on several of our pipelines emanating from the 2018 FERC actions. In addition to earlier decreases on GTN, Great Lakes, Northern Border and Iroquois, Tuscarora had a scheduled 10.8% rate decrease effective August 1 of this year as part of the settlement reached with its customers in 2019. North Baja sales of short-term transportation services were also lower year-over-year as demand for natural gas transportation returned to more normal levels in California during the period.

Partially offsetting these decreases, GTN's revenue was higher in Q3 year-over-year despite the impact of its scheduled rate decrease at the start of 2019. GTN's Q3 2018 revenues were impacted by a onetime charge of $9 million related to its rate settlement. PNGTS' revenues were also higher this quarter primarily as a result of higher discretionary services sold during the unseasonably warm summer this year in addition to revenues from its PXP Phase 1 project that went into service late in 2018, partially offset by lower contracted revenue resulting from the expiry of certain of its regular -- sorry, legacy contracts. I'll discuss the other elements of our earnings on the next slide.

The partnership paid distributions of $47 million to common unitholders in the third quarter, the same amount that was paid in Q3 of 2018. As Nathan mentioned earlier, we declared our third quarter 2019 distribution of $0.65 per common unit. This is consistent with that declared for both the first and second quarters of 2019 and for each of the preceding quarters in 2018.

The partnership EBITDA was $100 million in the third quarter, 12% lower than that of the same period in 2018. And distributable cash flows were $78 million in the third quarter of 2019, $5 million lower year-over-year. The decrease was due to the same factors impacting net income together with generally higher maintenance capital expenditure on our pipeline systems during the quarter.

Turning to Slide 9. Revenues from our consolidated pipelines of $93 million were lower over the same period for last -- the same quarter last year for the reasons I've outlined on the previous slide. Equity earnings in the third quarter of 2019 were $3 million lower than the same quarter of 2018 primarily due to the increase in operating costs at Great Lakes related to its compliance programs and right-of-way work along its system combined with higher allocated costs from TC Energy, together with Iroquois scheduled rate reduction emanating from its 2019 rate settlement as a result of the 2018 FERC actions.

Operating, maintenance and administrative expenses during the third quarter were slightly higher than in the same quarter of 2018 as a result of ongoing pipeline compliance programs and increased allocated costs from TC Energy. Depreciation expense was lower by approximately 24%, resulting from the asset impairment on Bison which we recognized during the fourth quarter of 2018.

Financial charges were 13% lower in the third quarter of 2019 versus the same period of 2018 due to the full repayment of our $170 million term loan in Q4 of 2018 and further reductions in our outstanding debt balance during the year.

Moving now on to our financial position on Slide 10. Our healthy financial position is reflective of our proactive measures that we have taken over the last 1.5 years. Our balance sheet is strong with a solid capital structure, underpinned by our high-quality energy infrastructure pipeline assets. Our investment-grade credit ratings, including our recent 1-notch upgrade from S&P from BBB- to BBB flat provide us with the financial flexibility as we look to organically grow our portfolio in the future. And we believe our ratings reflect our solid financial condition and outlook. We look forward to executing on our suite of organic growth projects on a self-funded basis without the need to access the equity capital markets.

Our liquidity position remains strong. The partnership has $500 million of undrawn and available borrowing capacity under our senior credit facility as of November 7, 2019.

Consistent with our self-funding model, in order to build capacity for future organic growth, we have continued to prudently manage our outstanding debt balance. In that regard, we have reduced our overall debt by $115 million this year-to-date, resulting in a bank leverage ratio of 2.8x. The bank leverage ratio is expected to migrate to the high 3s to low 4x area over time as the impact of onetime items, including the Bison contract buyout, roll through the calculation.

In response to the 2018 FERC actions, we rightsized our distribution in 2018 and have maintained it in 2019, resulting in a solid distribution coverage ratio of 1.7x for the quarter ended September 30, 2019. As Janine and Nathan has -- have mentioned earlier, we continue to execute on our organic growth program, announcing both the GTN XPress and Tuscarora XPress projects this quarter with both PXP and Westbrook XPress projects proceeding on time and on budget as we continue to use our steel in the ground advantage across our pipeline systems to explore additional growth opportunities.

This concludes my remarks on the third 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 11. As I mentioned at the outset, we had a very good quarter this year and our assets have continued to perform well, proving out the resilience and strong competitive position.

We're very excited with the announcement of our GTN XPress project a week ago. This project is reflective of the potential organic growth across our suite of assets and fits our strategy of developing accretive projects that we can self-fund to provide ongoing value for our stakeholders. 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 creditworthy shippers.

We continue to prudently manage our financial position and believe our actions have resulted in a strong balance sheet. Our bank leverage ratio is currently approximately 2.8x, and our distribution coverage this quarter is a very healthy 1.7x. These healthy metrics are enabling us to self-fund our organic growth, as I outlined earlier, in each of our GTN, Tuscarora and PNGTS projects.

Longer term, we are targeting to maintain our bank leverage ratio in the high-3 to low-4x area and distribution coverage ratio of approximately 1.3 to 1.4x. We reiterate that we do not need to access the equity capital markets to fund our current growth program. As Chuck noted, consistent with our self-funding model and in order to build capacity for organic growth, we have continued to pay down debt levels this year and execute on our delevering program.

Our focus remains on the optimization of our asset portfolio and will include organic growth over time such as our current portfolio of projects on GTN, Tuscarora, PNGTS and our North Baja and Iroquois development opportunities. And we continue to advance other options that fit within our geographic footprint and meet our return expectations. Bottom line is that our metrics are healthy and we're focused on executing our current potential growth projects in order to drive long-term growth and continued value to our 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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Thank you, Nathan. And now I would 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) Our first question is from Jeremy Tonet from JPMorgan.

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Charles W Barber, JP Morgan Chase & Co, Research Division - Analyst [2]

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This is Charlie on. Congrats on GTN XPress. I wanted to just ask about the EBITDA contribution there, just given a large chunk of that is associated with the reliability work. Should we kind of expect to see disproportionate step-up in, I guess, it would be late '21, early '22 and then the residual in '23? And this 5 to 7x, is that kind of a good multiple piece for this project?

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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 the question. I'd say that's generally what we're guiding to. We obviously are looking through our regulatory strategy. I think we've got a good basis there, and that's when we do have the rate reset on GTN in late '21, Jan 1, '22. So that's when that's going to roll through. We anticipate it, and yes, we're targeting at 5 to 7x.

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Charles W Barber, JP Morgan Chase & Co, Research Division - Analyst [4]

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And how much are you putting at the project level that was incremental?

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

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Yes. It's Chuck here. We'll look to fund that, I guess, opportunity set with, I guess, the way to think of it is about 50% debt at the asset level and 50% of the contribution coming from TC Pipelines again through cash flow. And if needed, you saw the revolver at TCP.

We would note that from a GTN perspective, it does carry a stand-alone rating at A-. So again, from a ratings perspective, it's highly financeable at the asset level.

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Charles W Barber, JP Morgan Chase & Co, Research Division - Analyst [6]

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Okay. Great. And then second question on Northern Border. Can you just comment on BTU levels? Are those continuing to push higher? I think your partner noted a tariff change associated with BTU levels coming next year. I'm not sure if that's correct.

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

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Yes. We can confirm that. We're obviously working closely with ONEOK on that. We note that we are working on tariff changes to address it and are working with the point operators on the other side to address the issue. So yes, moving forward, kind of stay tuned on that, but it's not impactful just yet. But we definitely have it as a focus and we are coordinating with ONEOK.

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Charles W Barber, JP Morgan Chase & Co, Research Division - Analyst [8]

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Okay. Great. And the last one on -- in respect to Bison reversal there. I guess what -- how much would need to be greenfield pipe, would need to be added there to kind of complete that reversal down to Cheyenne hub?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [9]

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Yes. In terms of pure greenfield pipe, good question. It's an interconnected system for us. We have Bison connected directly into Northern Border. So insofar as this is a market solution with [other players in that], I can't really speak to any off-system activity that may be done to complete it. But as far as we're concerned, we don't see any greenfield within our assets.

And sorry, operator, we're hearing a chiming noise. I don't know if that's anything that you can control.

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Operator [10]

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I'm trying to locate the noise. Our following question is from Matt Taylor from Tudor, Pickering, Holt & Co.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [11]

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Just one more on the Bakken there. Has the project time line slipped a little bit there into 2022? Or is this still what you're expecting? I thought the previous guidance was '21.

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [12]

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Yes. I think it has slipped a little bit. There is an option for an early in service that may not be -- the window may be closing on that.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [13]

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And can you provide just more color there?

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [14]

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And so currently, we're looking at 2022.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [15]

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This seems to be like producers clearly need to take away -- I mean we've talked about BTU content, et cetera, and you guys have the pipe to do it. Can you just speak to what seems to be the holdup?

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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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Yes. It's certainly within the commercial discussions and ongoing detailed stuff there that we're not going to really comment on here. But yes, your point is well taken and certainly something we're focused on with the need for takeaway capacity there. And just getting all the commercial terms lined up is -- the block and tackle is getting done. It may be pushing schedule just a little bit, but we're still working very hard to get that papered up.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [17]

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Yes. And then moving on to 2020 here, it'd be helpful just -- how are you guys looking at EBITDA? How is it shaping up versus 2019 with -- you had mentioned there's PXP Phase 1, Phase 2 and Westbrook Phase 1 now into service. And then obviously there's some offsets there with FERC action impacts that I think the previous guidance was $20 million to $30 million. So I'm just curious how 2020 is shaping up.

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [18]

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With that, I'll say the guidance that we had on the impact from the FERC actions is in the rearview mirror, and it's blending in with the -- all the other activities that we've got. So as those changes came through our rates, we've had additional contracting. We've got additional kind of commercial optimization of our different systems that it's really hard to sort of separate that impact out on a rolling basis going forward. As you know, we don't give any kind of specific guidance on what we're going to be beginning in the future.

But working through all of that, I think we've got a good run rate here for 2020. And as we've got the PXP projects and -- excuse me, Westbrook XPress coming into the revenue immediately, that will have the uplift from that. And then looking forward in 2021, we'll have the remainder of the Bison projects falling off as we work through the rest of development portfolio.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [19]

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Is it the right way to think about it -- you mentioned it's immediately. So 2/3 basically of PXP, 1/3 of Westbrook, some additional volumes on GTN. And then you had mentioned some of the FERC action is blended in there. Is that the right way to be thinking about this?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [20]

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Yes. Yes, that's fair.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [21]

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And then one last one. Just what types of projects are you guys planning for -- you had mentioned the fourth one on the bullet point there on the slide of incremental projects of more market access for the WCSB. Is that on top of the Great Lakes recontracting? Or are you looking at doing more capacity on Great Lakes? Just curious on your thoughts.

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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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Well, we always look for solutions on Great Lakes to effectively fill it up. It has some term left on the volume for its existing kind of nameplate capacity that can come as another kind of an integrated project. Whether it requires any additional capital spend on the other side will remain to be seen, but it's -- we remain a good path out of Western Canada for gas with that pipe in the ground and access to Dawn and other storage markets. So it continues to be an appealing path once those modules need to find a market.

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Operator [23]

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Our following question is from Michael Lapides from Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [24]

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Can you walk me a little bit through GTN XPress? I just want to make sure I follow what's going on here. It seems like a great project, by the way, especially if you kind of track what's happened in the Pacific Northwest gas prices a couple of times over the last year or so.

But if I look at the capital, it's $335 million of capital when you talk about that the new firm capacity is getting $25 million. But I assume there's incremental revenue in addition to that $25 million that will be recovered in the kind of the recourse rates. Is there a way to kind of back into what that amount level would be?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [25]

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Well, I think everybody's got their models in. From our perspective, we have to work that through our regulatory execution strategy and how we get that calculated through our recourse rates. So we don't publish what we think that's going to be. But I'd say in terms of our execution on regulatory recovered pulls, that's what we're kind of -- we're guiding toward an execution similar to what we've been able to accomplish in that.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [26]

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Okay. And am I right in thinking about this that the first year that you'll have a full year of run rate on the project would actually be 2024 because you've got commercial phase in November of '22 and '23?

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [27]

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Yes. That would be correct.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [28]

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Great. Can you talk about the process a little bit for Iroquois and just kind of what has to happen to actually get that project done and just kind of the regulatory steps through that?

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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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It's a very measured project certainly with the concerns in the region with different permits that are required and regulators that have a say in construction, scale and scope of the project. It's a very iterative project, I'd say, going a little more measured pace than what might have been prototypical in the past. So that's how we're sort of more notably hesitant to give timelines and more definite around it. I think the case for it is very compelling. The need for additional capacity into the market is obvious. And this is one that makes a whole lot of sense. And we're working with customers as well as the regulators to make sure this is optimized in a way that is positive for everybody.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [30]

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Got it. And then last question. When you think about 2020, do you think your net debt balance during the course of the year kind of stays flat at the current level, expands a little bit to help finance some of the growth? I'm just trying to think about what the balance sheet 12 months out may look like.

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William C. Morris, TC PipeLines, LP - VP, Principal Financial Officer & Treasurer [31]

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Yes. That's a good way to think of it in terms of the debt reduction that we're going to be seeing over the course, but also the ramp-up, if you will, in terms of the funding that we're going to be doing for some of the growth projects. So a flattening of the debt for a period here is really what we're seeing as we look at the curve, the first couple of years of the growth portfolio program.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [32]

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Meaning you're basically going to fund a lot of the growth out of the existing cash flow that's left over after you pay the distribution?

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William C. Morris, TC PipeLines, LP - VP, Principal Financial Officer & Treasurer [33]

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That's correct. I guess the way to think of it is that for each of the expansion opportunities that we're looking at here, as a general rule, we'll be looking for 50% of the debt to be at the asset level and 50% to be contributed by, I guess, if you want to call it equity from TCP. But that equity is really in the form of cash available from operations as well as, if needed, we'd be borrowing on the revolver at TCP.

So again, just to reiterate, we're not looking at any equity to be raised in the market, if you will, relative to the expansion program here. The exception to that would be we see debt capacity for 100% to be able to fund that PNGTS as well as the smaller (inaudible) with respect to Tuscarora.

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Operator [34]

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(Operator Instructions) Our following question is from Alex Kania from Wolfe Research.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [35]

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I guess a question just on the kind of Baja opportunities there. On the kind of simpler side, I guess there was a sense of a potential kind of delay in permitting. Is there kind of any kind of movement that you could see just based on the timing of your project? Or is it just kind of a fixed in-service date that doesn't really move depending on what's going on further downstream?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [36]

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Yes. We're just waiting for the FID that we've got that we mentioned in next year to see if that moves any -- if we have a renegotiation of that, at this point, we don't. So until we get anything firmer, we wouldn't say we're going to move anything at this point. But we're certainly waiting for all the conditions to come together for that one before we get to more -- into too many more specifics.

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Operator [37]

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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.

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Rhonda L. Amundson, TC PipeLines, LP - Manager, IR [38]

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

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Operator [39]

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