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Edited Transcript of TCP earnings conference call or presentation 20-Feb-20 4:00pm GMT

Q4 2019 TC PipeLines LP Earnings Call

DALLAS Feb 27, 2020 (Thomson StreetEvents) -- Edited Transcript of TC PipeLines LP earnings conference call or presentation Thursday, February 20, 2020 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 of TC PipeLines GP, Inc.

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Conference Call Participants

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* Alexis Stephen Kania

Wolfe Research, LLC - SVP

* Marc Joseph Solecitto

Barclays Bank PLC, Research Division - Research Analyst

* Matthew Taylor

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

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Praneeth Satish

Wells Fargo Securities, LLC, Research Division - Senior Equity 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 Fourth Quarter Results Conference Call.

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

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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 Fourth 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 fourth quarter and annual highlights and results. 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 fourth quarter and the year ended December 31, 2019. Nathan will return and wrap up our remarks with a brief discussion of our growth strategies and close with some key takeaways. Following his 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 2019 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 non-GAAP financial measures, adjusted earnings, adjusted earnings per common unit, EBITDA, adjusted EBITDA and distributable cash flow during our presentation. Adjusted earnings are used to provide a more comparable earnings measure from quarter-to-quarter and exclude the impact of certain nonrecurring items. 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 share TC PipeLines' solid quarterly results, with our portfolio of pipeline assets continuing to perform as expected.

We generated $76 million of net income during the fourth quarter of 2019 and $280 million for the year, after adjusting for the noncash impairment charges for Bison and Tuscarora in Q4 2018 and provides us onetime contract termination proceeds during the same period. Our 2019 results were 12% lower than the $86 million and $317 million we earned on an adjusted basis in the same period of 2018. The decrease was largely due to lower revenue from Bison in 2019 after the partial payout of its contracts in late 2018. Revenue from our other pipeline systems was largely comparable year-over-year, with discretionary revenue from strong natural gas flows mitigating the rate decreases emanating from the 2018 FERC actions. Our adjusted EBITDA was similarly lower at $119 million for the quarter and $460 million for the full year of 2019 compared to the same periods in 2018.

We generated $76 million in distributable cash flow in the fourth quarter of 2019 and $340 million for the year compared to 2018, where our DCF was $95 million and $391 million, respectively. The primary drivers for the decrease were lower earnings and EBITDA, together with higher maintenance and integrity capital expenditures resulting from higher system utilization in response to sustained increased natural gas transportation volumes. The higher maintenance costs, although a drag on distributable cash flow, reflect the positive environment of higher natural gas flows on our pipelines, and these costs will be added to rate base and enjoy a return of and on capital through future tolls. We paid out $47 million in distributions to our unitholders during the fourth quarter and $189 million for the full year of 2019.

The Partnership also declared its fourth quarter distribution of $0.65 per common unit, which is consistent with our quarterly distributions of 2019 and for each quarter of 2018. We believe that maintaining the distribution at its 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 continue to move forward. Chuck will discuss our financial results in more detail a little later in the call.

We continue to advance our organic growth program. And work has begun on our GTN XPress project, and Tuscarora expansion is also underway. Our other PNGTS organic projects are progressing well, with Phase 2 of Portland XPress and Phase 1 of Westbrook XPress both in service on November 1, 2019, providing for incremental capacity in our PNGTS pipeline system in the Northeast. We continue to develop other projects across our portfolio, including the Iroquois Enhancement by Compression project and the North Baja XPress project. Both are low impact, compression-only projects. The North Baja project is subject to our shippers' final investment decision and the Iroquois project is in the process of obtaining regulatory and other approvals. Janine will discuss these and other commercial developments in more detail in a couple of minutes.

During the fourth quarter, looking at our financial position, our bank leverage ratio was approximately 3.4x, and our distribution coverage also remained very strong at approximately 1.6x for the quarter ended December 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. And while we're proud of our financial performance and returns we have generated for unitholders, we know our ongoing success depends on our ability to balance profitability with safety and environmental social responsibility. I want to stress that safety and reliability are critical priorities for us. We have a long history of working collaboratively with our stakeholders and adhere to the highest standards of corporate governance.

Our general partner, TC Energy, has a 65-year track record of safe and reliable operations, and we're committed to protecting the environment in all that we do. Our natural gas assets are critical to the quality of life and the communities they serve, and we believe that our systems will be important contributors in achieving greenhouse gas emission targets to further improve carbon footprint of North America and beyond.

I will now turn the call over to Janine Watson, our VP and General Manager, to provide additional color on our assets and 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 5. TC PipeLines' assets performed very well this quarter driven by continued strong demand for our transportation services. Commercial teams across our footprint worked hard to market short-term and interruptible transportation and discretionary services, successfully recouping nearly all revenues lost due to the 2018 FERC actions.

Turning first to our largest asset. GTN benefited from TC Energy's ongoing debottlenecking projects upstream of Kingsgate, enabling the delivery of an incremental 125,000 dekatherms a day on November 1, 2019. These increased flows, together with short-term sales, enabled GTN to largely recoup the 10% rate decrease arising from its 2018 settlement.

Looking forward, we anticipate a further 250,000 dekatherms a day of upstream capacity will become available for transportation to GPN by the end of 2020. These volume increases will bring the upstream systems capacity up to parity with GTN's current maximum capacity and are exclusive of the GTN XPress project volumes, which will be on-stream by the 2022-2023 time frame, which I will discuss in a few minutes.

Northern Border's annual equity earnings were roughly equivalent to those earned in 2018. Northern Border generated approximately $10 million higher operating revenue in 2019 compared to 2018, as this marketing team successfully sold packages of short-term forward and backhaul capacity via a series of open seasons held throughout the year, driving strong discretionary transportation sales. Operating costs were up on this asset due to high utilization and higher interest expenses.

Great Lakes continues to be a steady performer, though its annual equity earnings were down about $8 million compared to the prior year. This result is primarily due to increased OM&A costs relating to securing certain necessary land rates. Revenue at our Bison pipeline was down about $11 million in Q4 of 2019 due to the contract buyouts at the end of that year -- or sorry, at the end of 2018. We continue to conduct all necessary maintenance on this asset and are ready for potential redeployment as part of a Bakken solution, which I will discuss on the next slide.

Portland's results in fourth quarter held steady compared to Q4 of 2018 as the last of its historical contracts terminated during the summer months, and it relied on short-term sales until its new PXP and Westbrook's XPress contracts took effect November 1.

Quarterly results on our North Baja and Tuscarora transmission systems were all roughly comparable to Q4 of 2018. These assets are highly contracted on a firm basis and have the opportunity to make incremental short-term sales, which they capitalize on when market conditions are right.

Iroquois was also a steady performer with strong, firm contracting. Its transportation revenues were, however, lower than in Q4 of 2018 due to both a scheduled rate decrease and because the weather-related discretionary opportunities of 2018 did not manifest in 2019.

Finally, I will note that all of our assets operated at high levels of availability, with no significant safety or operational issues. I would like to highlight our Tuscarora operating team, who were recently recognized for outstanding performance. This team has operated their assets for an impressive 8,950 days; that's nearly 25 years without recording a single safety incident.

Turning to Slide 6. A key focus for us is the execution of our organic growth program. We began work on our GTN XPress project in Q4 with a view to having this our largest ever organic growth project, fully in service by 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.

Phase 1 of GTN XPress entails the removal of legacy compressors at 3 stations, replacing them with new state-of-the-art compression technology. Detailed engineering work is ongoing for these like-for-like replacements, which are expected to be in service by the end of the year in 2021.

Phase 2 of GTN XPress will expand the capacity of the GTN system by a total of approximately 250,000 dekatherms through the addition of a new high efficiency compressor unit added in existing compressor stations to be in service by November of 2023. We are also progressing our Tuscarora XPress project, a $13 million compression-only project at our existing compressor station at Wadsworth, Nevada. This project will add 15,000 dekatherms a day of capacity when completed in November of 2021 to service modest natural gas demand growth in its region. We anticipate making the necessary FERC filings for this project around midyear.

And finally, as we have been highlighting for the last several quarters, our Portland XPress project is proceeding on-time and on-budget, with Phase 1 in service in late 2018, Phase 2 in last November and Phase 3 in service plan for November 1, 2020. This project is approximately $85 million in total capital costs and will add approximately 183,000 dekatherms per day of capacity to Portland. We're also proceeding with our Westbrook XPress project at Portland. This is an approximately $125 million multiphase expansion project, designed to help serve markets in Northern New England and Atlantic Canada. Phase 1 of this project came into service November of 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 per day of firm capacity to this pipeline system by November of 2021.

The Phase 3 expansion for this pipeline is supported by work to be done on TC Energy's assets upstream of Portland and will provide [for rised] capacity for an additional 18,000 dekatherms per day to be in service by November of 2022. Once both 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 a day by the end of 2020 -- sorry, 2022.

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 was noted on previous earnings calls, we are developing the North Baja XPress project, an estimated $90 million project to transport an additional 495,000 dekatherms per day of natural gas along North Baja's mainline system between Ehrenberg, Arizona and Ogilby, California. This project contemplates a single compressor will be added to our existing compressor station at Ehrenberg.

In December of 2019, North Baja filed an application with FERC to authorize the construction of the project. Sempra LNG International has filed an intervention in this process, identifying itself as the anchor shipper for this project. We anticipate an FID decision on the project from this shipper by July of 2020, with the potential in-service date as early as November 2022. Also of note is the potential expansion project on the Iroquois system, which we refer to as Enhancement by Compression, or the ExC project. Iroquois provides service in the Northeast, a region that is at the forefront of advocating for reduced dependency on fossil fuels and development of renewables, enabled by a shift from higher to lower emitting energy resources, including the mandated phase out of fuel oil.

The ExC project has the potential to optimize the Iroquois system to meet the current and future gas supply needs of utility customers Con Edison and National Grid, while minimizing the environmental impact through compressor enhancements at existing compressor stations along the pipeline, facilitating a rational and orderly transition to a renewable energy future. If successful, the project's total capacity is estimated to be approximately 125,000 dekatherms per day with an estimated in-service date in November of 2023.

Earlier this year, Iroquois filed an application with FERC to authorize the construction of the project. The capital cost is estimated to be $250 million, and it will be 100% underpinned by contracts with 20-year term. It remains subject to various regulatory and other approvals.

Now turning to the Bakken area. We know that there is a significant supply push in the order of up to 0.5 Bcf per day seeking incremental takeaway capacity that could be met by our Northern Border and Bison pipeline. Our business development team continues to progress a potential project that would leverage our existing footprint to provide a cost-effective incremental market outline for Bakken gas via a reversal of the Bison system.

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. TC Energy just announced last week its Alberta Express project, an ANR expansion project that will utilize existing capacity on the Great Lakes and Canadian mainline systems to connect growing supply from the WCSB to the U.S. Gulf Coast LNG export markets. This project will result in 155,000 dekatherms per day of long-term maximum rate transportation by others contract between ANR and Great Lakes, for an average contract tenure of 19 years. The anticipated in-service date is 2022. We don't foresee any material capital spending on Great Lakes in relation to Alberta XPress. As we've noted before, Great Lakes continues to be a valuable conduit for natural gas and is a critical link in moving gas from producing basins to key markets.

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-funding growth opportunities across our footprint.

Turning now to Slide 7. This is a new slide for us. Our organic growth program is much more significant than it has ever been, given our shift in strategic focus to identify sustainable self-funding growth opportunities across our portfolio. The chart on this slide illustrates our CapEx outlook for our major projects over the 2020 to 2023 period. The bars represent TC PipeLines' proportionate share of estimated CapEx based on our ownership levels. North Baja and Iroquois projects are, as mentioned earlier, subject to further approvals that we have included them given their stages of development. The CapEx for our GTN XPress project is included in the chart as growth CapEx. This is essentially a modernization program designed to replace and upgrade aging compressor infrastructure, increase reliability and integrate cutting-edge technology at sites along its route. It will modernize the existing system and also grow capacity, so it's more like growth capital than maintenance capital. We will self-fund the capital during this period through a combination of debt at asset levels and contributions from TC PipeLines. The latter funded from cash from operations, together with our revolving facility as required. No new equity issuances are anticipated.

Our proportionate share of maintenance CapEx is expected to be $113 million in 2020, again, self-funded. And as Nathan mentioned earlier, this CapEx is expected to be added to our pipeline systems' respective rate bases and recovered through fixed negotiated rate contracts and/or recourse rates over time.

I will now turn the call over to Chuck Morris, our Principal Financial Officer, to discuss our fourth quarter and annual final results in more detail.

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

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Thanks, Janine, and good morning, everyone. Moving on to Slide 8. I'll now review the Partnership's fourth quarter and annual 2019 financial results.

Net income in the fourth quarter was $76 million or $0.95 per unit compared to a loss of $413 million or $5.80 per unit in the fourth quarter of 2018. After adjusting for nonrecurring items in Q4 of 2018, adjusted earnings of $76 million were 12% lower year-over-year. This decrease is primarily reflective of the lower revenues at Bison, given the termination and buyout of the 60% of its contracts at the end of 2018, partially offset by lower depreciation and financial charges.

Our adjusted earnings for the full year were similarly lower by 12% to $280 million in 2019 versus $317 million in 2018 for the same factors. Adjusted EBITDA of $119 million in the fourth quarter of 2019 was lower than the same quarter in 2018 by 15%, again, primarily due to the lower revenue at Bison and also from higher operating and maintenance expenses in 2019 due to the increase in integrity and compliance costs as well as higher corporate support costs.

On an annual basis, adjusted EBITDA was $460 million in 2019 compared to $526 million in 2018. The partnership paid distributions of $47 million to common unitholders in the fourth quarter, the same amount that was paid in Q4 of 2018. For the full year of 2019, the Partnership paid $189 million in distributions compared to $218 million in 2018. The decline was due to the decrease in the quarterly distribution of $0.35 per common unit declared beginning in the Q1 of 2018.

We also paid $13 million to our Class B units in 2019, $2 million lower than that was paid in 2018. The reduction year-over-year was as a result of higher maintenance CapEx at GTN, which reduced the distributable cash flows generated.

As Nathan mentioned earlier, we declared our fourth quarter 2019 distribution of $0.65 per common unit. This is consistent with that declared in the previous quarters in 2019 and for each quarter in 2018. And distributable cash flows were $76 million in the fourth quarter of 2019, $19 million lower year-over-year. For the full year, distributable cash flow was $340 million in 2019 compared to $391 million in 2018. The decrease in both instances was due to the same factors impacting net income, together with generally higher maintenance capital expenditures on our pipeline systems during the quarter, offset by lower interest expense due to our ongoing debt repayments.

Going forward, as noted by Janine, GTN XPress costs are going to be classified as growth capital and will therefore not be netted against our distributable cash flow.

Turning to Slide 9. Revenues from our consolidated pipelines of $104 million in the fourth quarter of 2019 were lower than those in the same quarter last year by approximately 50%, and our full year results showed a decrease of over 25%.

As we mentioned earlier, this was primarily the result of the onetime contract termination payments for Bison in Q4 of 2018, together with lower Bison revenue going forward, starting in 2019 due to the lower contracting base. Overall, revenue from our other consolidated pipelines in 2019 was comparable to that in 2018. The scheduled rate decreases on our systems emanating from the 2018 FERC actions were largely mitigated by increased discretionary revenue as a result of strong natural gas flows across our portfolio and solid contracting on our systems.

Equity earnings in the fourth quarter of 2019 were $1 million higher than that in the same quarter of 2018. On an annual basis, the $13 million decline was primarily due to weather impacts on Iroquois and Great Lakes, where the incremental seasonal sales during the cold winter of 2018 were not achieved in the same period in 2019. Iroquois also had a rate decrease related to its 2019 rate settlement with the shippers, resulting from the 2018 FERC actions. And Great Lakes' compliance and corporate support costs were higher year-over-year. Operating, maintenance and administrative expenses during the fourth quarter were comparable to those in the same quarter of 2018.

Depreciation expense was also lower by 17% as a result of the asset impairment on Bison that we recognized during the fourth quarter of 2018. Financial charges were 9% lower in the fourth quarter of 2018 versus the same period in 2018 and 10% lower than the full year due to the ongoing reductions in our outstanding debt balance, which amounted to $106 million for the full year of 2019.

Moving now to our financial position on Slide 10. Our healthy financial position is reflective of the proactive measures that we have taken over the past few years. Our balance sheet is strong and our solid capital structure is underpinned by our high quality energy infrastructure pipeline assets. Our investment-grade credit ratings, including our recent one notch upgrade from S&P from BBB- to BBB flat, provide us with the financial flexibility as we look to organically grow the portfolio in the future, and we believe our ratings reflect our solid financial condition and outlook. We will execute 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 a senior credit facility as of February 20, 2020. Consistent with our self-funding model, in order to build capacity for future organic growth, we continue to prudently manage our outstanding debt balance. We reduced our overall debt balance by $106 million in 2019, resulting in a bank leverage ratio of approximately 3.4x. As we've noted in previous earnings calls, the bank leverage ratio is expected to migrate to the high 3s to low 4x area as the impact of onetime items, including the Bison contract buyout are reflected in the calculation.

We maintained our distribution in 2019 at $0.65 per common unit, resulting in a solid distribution coverage ratio of 1.6x for the quarter ended December 31, 2019. And as Janine and Nathan mentioned earlier, we continue to execute on our organic growth program, including GTN XPress, Tuscarora XPress and PNGTS' projects with both PXP and Westbrook XPress proceeding on time and on budget. And we continue to use our steel in the ground advantage across our pipeline system to explore additional growth opportunities.

That concludes my remarks on the fourth 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 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 take-or-pay contracts with creditworthy shippers. In aggregate, our systems are 91% contracted on a long-term basis.

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 3.4x and our distribution coverage this quarter is a very healthy 1.6x. These healthy metrics are enabling us to self-fund our organic growth, as we outlined earlier in each of our GTN, Tuscarora and PNGTS projects. Longer-term, we're targeting to maintain our bank leverage ratio in the high 3, 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 mall and in order to build capacity for organic growth, we continue 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. We're very excited for -- to keep pursuing approximately $700 million of growth projects across our suite of assets. These include our current GTN, Tuscarora and PNGTS XPress projects, together with our North Baja and Iroquois development opportunities, and we'll continue to advance other options that fit within our geographic footprint and meet our return expectations.

The bottom line is that our metrics are robust, and we're focused on executing our current potential growth projects in order to drive long-term growth and continued value for 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. We'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 Praneeth Satish from Wells Fargo.

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Praneeth Satish, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [2]

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I'm just curious, on Northern Border, when do you think gas on that pipeline will hit the Btu limit that exists on downstream pipes? Is that something that you see happening later this year?

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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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Well, we're not pinpointing any sort of a time frame. We see limitations being hedged. As far as that goes, we're working with folks on both ends of the pipe to make sure that we're delivering the product they expect and it's to our specs. But in terms of when that's changing operationally or where those numbers are going, we're handling that within the direct contact of our customers and their customers and making sure everything stays as expected.

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Praneeth Satish, Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst [4]

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Okay. And then I'm just curious in the Northeast whether there's been any thought about offering shorter-duration contracts for new projects like Iroquois versus the 20-year contracts that are currently being considered. I guess this would be in the context of providing a bridge towards the renewable future.

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

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Well, we certainly evaluate all the opportunities as they come through. I'd say the nature of all the different expansion projects that Janine walked through today are a lot longer duration than that. So I think the market as it sits right now sees a longer duration to the value that we can offer. Certainly, as opportunities come to us, we'll evaluate them discretely. But for right now, what we're executing on has been significantly longer duration than that.

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Operator [6]

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The next question is from Michael Lapides from Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [7]

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Congrats on a good year. Real quickly, can you walk us back through in the Bakken solutions, just how specifically that project would work? Kind of how should we think about origin and termination points and whether other assets not owned by TCP would need to be brought into this to bring an integrated solution for producers?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [8]

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Michael, I think we've -- yes. We've probably gone about as far as to with any specifics as we sit right now. As we've mentioned in the past, with the Bakken solution, there's a lot of different moving parts. Kind of on both sides of a Northern Border or a Bison, they need to get aligned before the market can kind of agree on how that's going to work through. Our BD teams are hard at work on that, and we look forward to getting through exactly those kind of specifics as soon as we can.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [9]

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Got it. And when you think about the North Baja XPress expansion and the anchor customer on that, are you thinking about it as a, hey, this is gas that's going to flow into California and be used by one of the gas utilities in California, or is this a mechanism or a way to get gas down into Mexico for potential LNG expansion there?

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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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Through some of the interventions in the filings that we've had, Sempra LNG was identified as the customer, the anchor shipper on this project. So presumably, they've got their plans and you can put that together. But it's -- as far as takeaway capacity and needs and uses for the Mexican market there in Baja, California, I think there's an argument to be made for all those uses. We're certainly kind of watching that and [the trade are responded] as it calls us into a commercially viable project.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [11]

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And to turn that into a viable project, do you need pipeline capacity that touches or comes into Western Arizona, meaning think about some of the -- some of the big long-haul pipes that go out of the Permian there. Do you need those to get upsized as well? And are they integrated into this process?

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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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Well, clearly, the supply would have to come from those areas. That's where -- that's when Baja hooks in at Ehrenberg. So those supply pipes will have to work kind of the upstream challenges as it goes. But again, as far as specific goes, it's -- we're working those through.

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Operator [13]

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The next question is from Marc Solecitto from Barclays.

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Marc Joseph Solecitto, Barclays Bank PLC, Research Division - Research Analyst [14]

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I think you mentioned elevated O&M expense on Great Lakes in 2019. Just curious if we should expect O&M to moderate in 2020, or is 2019 a good run rate to use going forward?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [15]

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Well, we're pretty hesitant to give that specific a guidance. I'd say 2019 wasn't overly anomalous, but we do have timing changes and program fluctuations here and there that we certainly look to optimize and then meet our regulatory and operational requirements. So I hesitate to say run rate. But there wasn't anything specifically anomalous, I would say, that popped out, but you do have normal fluctuations year-to-year.

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Operator [16]

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(Operator Instructions) The next question comes from Matt Taylor from Tudor, Pickering, Holt.

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

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Just a follow-up on Northern Border and Bison. Are you looking to add capacity there ahead of a reversal on Northern Border? Or does that -- is it still dependent on doing a reversal? Just a clarification would be helpful.

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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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So the reversal will be on Bison, what we would contemplate as a gas delivery solution toward a Cheyenne hub. So that's -- by geographic necessity, that's a reversal there. But on Bison, the physical reversal work is -- would be fairly nominal. It does not have any compression of its own. And Northern Border's been running full for quite some time right now in certain periods. So additional capacity would be needed to get that additional gas to flow down toward Bison. So that type of work is what's being engineered now and where our BD guys are working through with all the players in the market.

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

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I guess my question is, could you go ahead and just expand Northern Border without Bison and move more gas into the Midwest? Or are you thinking that you need a reversal in order to provide more end-market optionality? I'm just curious, like if the reversal is absolutely necessary or you could add capacity on Border.

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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. There are several options there that we could undertake, and that have varying costs and varying competitiveness to different markets as you sort it out. But kind of, as I mentioned earlier, it really depends on where the market wants to go, what makes the most sense and whether there's overutilized assets in places and underutilized assets in others. All that in the mix to make sure that we get to get the gas to market where the producers and customers can use it.

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

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And then on Great Lakes, that Alberta XPress announcement, is that incremental contracted capacity on top of what you guys announced back in Q2 of, I think, I believe it was 800,000 a day on ANR. I'm just curious whether that was included or whether to think of that as on top of the 800,000?

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [22]

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I think it's inclusive of that.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [23]

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Okay. And then can you give us an update there on Great Lakes in terms of -- I believe that's the last FERC settlement that's outstanding? And do you guys have some sort of expectation of an EBITDA impact 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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No. We don't really -- as you know, it's still an open item. So we continue to watch it closely. But in terms of what next steps might be, we don't have anything to disclose on that.

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Matthew Taylor, Tudor, Pickering, Holt & Co., LLC - Director of Midstream Research [25]

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Great. And then one last one, if I may. Looks like the spread between your stock and your parents is near the widest it's ever been. Has anything changed there on how parent views TCP going forward? Or is it still status quo?

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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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Yes. We're -- as far as this management team goes, we're focused on operating the suite of assets we've got. As far as TRP strategy goes, we'll defer to them.

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Operator [27]

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The next question is from Alex Kania from Wolfe Research.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [28]

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I guess a couple of questions. The first is just on the -- I guess with respect to the North Baja project, you mentioned a potential in-service date of November -- as early as, I guess, November 2022. Is that for the [eco] -- project itself, your expectations or the pipeline? Just kind of curious about how you think about when the pipeline needs to be in service in front of an in-service date of the project at the end of the pipe?

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Janine M. Watson, TC PipeLines, LP - VP & GM of TC Pipelines GP Inc. [29]

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That's an in-service date for our asset. So clearly, there could be some coordination between the 2. But that's how early we could have that in service.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [30]

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Great. And then on the maintenance CapEx outlook that you gave for 2020. It looks like it is a step-up from 2019 and 2018. I'm just wondering if that's a -- if it would be appropriate to assume that's kind of a new sort of run rate number that we should be looking at going forward? Or is there specific items that just happen to be kind of in the maintenance plan that would represent some elevation versus previous years?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [31]

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Yes. Again, I kind of go back to the prior question on O&M on Great Lakes is that we have programs that ebb and flow in some cyclicality in there. So any one year doesn't necessarily represent a trend. That said, there's plenty of utilization across all of our systems. So on the whole, if you look back to 10 years, 10 years ago certainly, we're running our systems harder and that requires more maintenance, more upkeeps that we're able to reinvest back into the pipes. So a long way of saying, we're not going to be able to say we've got a trend here or we're going to give you guidance on it. I think what we do is we optimize that spend where we can, and where we prudently invest in the reliability of our systems, we roll that back into rates and structure our commercial strategies around that as well.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [32]

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Great. And then just last one for me, if I could. I think that we've seen in California and in the Northeast states, maybe a little bit more of a policy push for greater electrification of -- previously was used for residential heating and such. Just wondering if -- as you're talking with your -- having commercial discussions with a lot of the shippers that are in those areas, are you hearing any discussions about what that might mean for them over time? Or what your thoughts are with respect to those discussions?

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Nathaniel Alan Brown, TC PipeLines, LP - President, Principal Executive Officer & Director of TC PipeLines GP, Inc. [33]

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Certainly, the policies around whether it's hydrocarbons in general or electrification and different fuel switching and that type of thing is very much in the overall broader strategy of TC PipeLines and TC Energy as a whole. So we keep our fingers on the pulse of that to make sure we're paying attention to relevant trends in the areas where we serve. I wouldn't say that we've got any immediate near-term concern just given the push of projects that we have coming to us on each of our assets. So we're pretty heart into that. As far as any energy transition goes, the competitiveness of natural gas is really playing out in a real good -- real strong contributor to what all the needs are in all of our markets. As we had the GTN XPress project, there is a good case in point where when we had our open season, we had 30-year contracts bid in from the Pacific Northwest from regulated utilities in that area. So it shows us that the -- everyone sees the value that's there for the foreseeable future. As things transition, I think we'll certainly stay on top of that and make sure we're utilizing our assets to the highest extent possible.

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Operator [34]

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Thank you. 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 Ms. Rhonda Amundson. Please go ahead.

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Rhonda L. Amundson, TC PipeLines, LP - Manager, IR [35]

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

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Operator [36]

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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.