TCP - Earnings call transcript Q2 2018

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Operator

Good afternoon, ladies and gentlemen. Welcome to the TC PipeLines, LP 2018 Second Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Rhonda Amundson. Please go ahead.

Rhonda Amundson

good and operator, you, afternoon, everyone. Thank like quarter XXXX would to welcome second PipeLines TC to conference you I call.

Let me started. delay in do apologize for the slight getting

with the joined with Financial begin of a today and service which and key wrap their Janine new results and our will Officer, created slide Manager, and the we Chuck under our remarks, partnership’s too Newswire Please had VP the for quarter. technical our will return our with hasn’t of will market financial this Janine quarter Our the the close with highlights impacting General an our a heading, you. President, call accompany Watson; Investors TC difficulties note I'm Nathan or be on Brown; some presentation available and hope that – by environment, Principal as the earnings second will our recent provide our afternoon in sorry, tcpipelineslp.com it update Chuck Events review well a up detailed of as the partnership. many provide release today results and following difficulty our remarks takeaways. discussion and Presentations. is assets with that Pipelines second section at review found Morris. website rulings & more FERC Nathan some will the can our on Nathan in

will questions. the ask conference your coordinate prepared the Following remarks, operator I to

be please investment call following contact your member questions you're the take and happy media, a questions. address this the from if Semmens, But to will We he will community. Grady of

our performance. conference us. forward-looking remind in information I future during XX-K assumptions All currently to would as with well forward-looking certain various These prove actual based will available Exchange our these provide financial generated the reflect we capability. during to our filings. a cash-distribution and approximate to operating those flow distributable financial differ in non-GAAP and and the also With cash statements. that SEC a that, measure distributable EBITDA assumptions are financial and views the our closely presentation. measures measures beliefs like by is most subject or presented supplement one cash well regarding be as materially to described Before of forward-looking current results, during uncertainties call our that on made as period our to made you during statements results Please provided reconciliation future our as to and and underlying cash events more or note we the XXXX and will to we events are directly flow are statements flow begin, our the cash to to over statements These call used with to measure future risks, Nathan. the GAAP to of income, assumptions is or the materialize detail if an as now GAAP period incorrect, uncertainties Securities filings turn If our Commission. from and a provide respect may EBITDA and related of evaluate in discussed the as risks net in I reconciles subsequent this measures

Nathan Brown

everyone, Rhonda. joining today. us afternoon, for Thanks, Good thanks and

full during $XX higher expected. Pipelines Slide Iroquois We quarter in Great $XX $XX dropdown finance to of of PNGTS afternoon XXXX. very in This is year. from this pipeline by X, of Lakes with at from additional than as our report increased to related pleased Partially earnings perform in XXXX, generated GTN last revenues higher and same continue PNGTS. the of as equity million assets Together the a second X results. And outlined a Iroquois. borrowings and good earnings quarter release, costs earned at June primarily million our period income which had during news in the portfolio higher interests, net operationally, on to to as TC offset quarter As due to financing I’m well the solid million closed I'm looking

cash for GTN. out in quarter for a common increase or distributable quarter will million per flow detail during results Our comparable $XX with unit. together holders in an distributions The $XX with in net expenditures to million our the later second declared of was first quarter the discuss decrease XXXX, maintenance This the from the $XXX capital of in $X.XX call. common We the is due of $X.XX or paid income million on period consistent increase in Chuck financial quarter. in distribution second unit unit our also a more second partnership XXXX, XXXX.

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

MLP in natural noted our first regulated FERC all assets I quarter our XXXX call, pipelines. gas are we’re As because of relatively unique

in action while evolving these is As release around is news background guidance the The not such still and the us, issues timing detailed XX-K. the entirely clear. disposition ultimate impacted our particularly commission's in of FERC

position I see we going to FERC’s final particular last our time the the to spend As TCP rulings. I have quarter, that two covering having We response options in here want is did forward.

their include elect then could respective pipelines tax in that rates rate our First, future in and defend allowance to position XX% proceedings.

significantly revenue earlier previously with will cost. may income base in the which may by the also their going act turn can claim systems, deferred our eliminate tax ADIT claim in Consistent from or impact in to and FERC pipelines cost income allowance case expectations income an our choose from This lead accumulated the our the grow recognized choose rate rates rates removal anticipated excuse entity issues reductions. of case to option the forward. tax of This previously basis. final to to on vary tax for rules – second tax to addition Second, effect me, rate ADIT deduction rate mitigate on and pipeline disallowance the no liabilities of their calculations of the and but timeframe tax several proceedings for of taxes of base a service could additional collection to deferred allowance the accelerate

up continue rulings basis our and revenue impacts a year. of per lower a and disclosed We the impact million year. amount. improvement remained a This pipe $XX of represents our to these FERC is portfolio to but $XXX approximately analysis on per of evaluate estimate an million from XX of material in previously $XX reduction an from our to initial pipeline to million by This down range from post pipe revise March

into such us our quarter. level cash and as the distribution repay As retained second the changes the utilize financial available to of ongoing per allow out manage to expenditures distribution capital basis for common over on taking unit $X.XX all debt with to in to maintained practice, our will This account an we Consistent time. playing as distribution level past our metrics us. we noted anticipation ongoing information well have fund review to continue

partnerships Accordingly in to Our assess future. financial options longer-term competitive as have continues some distributions general point this the might partner the at to in partnership strategies the to and new access current financing sales, related referred allow flexibility be must environment. policies

Manager revised our continue assess us partnership, Watson, regulatory guidance to corporate and which maximize call the market options for assets preferred and approach the include may partnerships over update significant Given to over will VP our our best a Janine but our on to our turn assets now strategic provide restructuring and long-term. an we to the outlook. not our value position General I’ll

Janine Watson

afternoon Nathan. everyone. good Thanks, And

supply MMcf positioned pipeline reflecting coast debottlenecking portfolio stable TCP realize day strength the strong from coast needs areas per out very Western in the Slide Moving an contracted the Those X, demand with TransCanada’s was incremental pipeline, you'll benefit and Midwest basin between the Canadian our diverse XXXX from California markets GTN XXX April. of Basis assets to to Pacific that U.S. flows. serving gas out from connecting is entire for our to term to quarter, see seasonal on well Northwest, continued TCP’s of saw push our the capacity and brought service continued transportation Great supply probably network and short an a second differential energy as supportive regions to low-cost are sold of Border markets In are system continues areas We WCSB, perform opportunity the incremental key System revenue. are fact in asset. sale. have NGTL and that highly of to benefiting pipelines the upstream GTN are Lakes sedimentary of well Northern in largely on the developing across incremental of end in on

mature. the quarter. switch stable XPress together full compared X.X Continent-to-Coast expand equity contract turning reported of On as customers, per Dip] legacy continued clear QX three benefited XXXX. And about quarter course, the this system and transportation the remainder the only Portland And expected to outlook. System The its long day. from now legacy to asset from our contract contracts earnings as of east replace month month coast, expiring to second TCP Portland benefited Iroquois with Transmission These one portfolio benefit performed in will during from incremental of and contracting Natural Gas results from our to are contract Bcf its term [Audio the the

could a Pipelines TC of forward number Looking from other benefit developments.

past thereby they steady nature results. the assets, a consistent to and of because we predictable expect of highly perform manner continue contracted periods will pipeline with our in First, produce

Gas expansion markets relatively Canada. Atlantic Natural Portland serving opportunity, Pipeline and in a England System easy New provides Our

our With expansion the project is or well projects fairly on region footprints. facing a provide regulatory Xpress market competitive and to greenfield look environmental and challenges in – permitting Portland path of number challenging minimal a underway PXP this

PXP XXXX with these Lakes for tandem WCSB extend to will three its In the this November XX,XXX on capacity phase to fixed service in the work be underscore on positioned service U.S. on facility incremental Lakes compressor XXXX. in value in which to incremental their this XX,XXX to production capacity on project construction case state the regulatory this Phase of November Mainline underway now on existing Chuck these is Great Canada, online detail. add TransCanada November most November in to and or of ordered bring upstream pipelines capacity perspective. flows needed of the project of Morris, pipeline of the are in Principal budget. in system on haul hand that explore approval a move will working and to line, I'll shippers, final Portland. our on expected XXXX. Great to recontract PXP schedule market. the this use the Financial Portland We expected longer the built on planned agreement X fairly as facility in that financial to the alternatives pre-construction joint of price expect a standard continues of is and turn in. TransCanada certain and has be Canadian decatherm with on phase pipeline with modest for long for both regulatory fact, groups over second in Portland. optimize an to underway more we by in incremental on and the contract in with currently total, phase eastern X, to believe this entails the come of Portland compression this ground volumes phases associated provide term long-term In project quarter bring the Permitting Officer, TransCanada’s time is is Furthermore, involving call approval, to of additions these our firm, results facilities to the for year, importance well in discuss work facilities. Subject the to legacy construction markets and the field facility. regional The existing of onto This that system. project project decatherm

Chuck Morris

good and everyone. Janine, Thanks, afternoon,

impacted led which or with our XXXX unit earnings Slide quarter to now in of the PNGTS, million, the the only in $X.XX of of results. together second XXXX the greater X, $XX XXXX. on equates XX% our per the QX Moving increase XXXX. of month per GTN quarter inclusion the demand asset income to due Iroquois the there was factors to approximately QX This second Net net compared I’ll in quarter on Several XXXX, the to partnership's higher higher year-over-year. to in our million review for unit to up XXXX. leading the $XX equity $X results, effect full months We and experienced portfolio revenues one is three in second

May $X.XX of The million paid We saw revenue in to weather decrease the on sales QX over year. equity million additional $XX seasonal by in the partnership the in and offset in due distribution due this earnings borrowing XXXX. was also of in incremental The acquisition decrease cold change Lakes $XX finance to common distributions favorable quarter winter Great related was our financing costs PNGTS to our Iroquois to quarter. XXXX. The unitholders first an primarily XXXX increase in partially to and made second

As XXXX quarter, in per cash expenditures in factors quarter second distribution distribution. maintenance of distributions that partnership's required with equipment the unit. to together as $XXX distributable XX% a the same were higher as the second period in the increase common declared million $X.XX The where major second well quarter was GTN, than XXXX same in general but EBITDA Nathan in of the just And reduce of XXXX, impacting allocated the in This mentioned decrease quarter first capital our with The that income, higher million quarter our XXXX. it’s $XXX represents decrease earlier, consistent our of of not we partner. compression XX% flows year-over-year. overhauls net XXXX, due in was of $XX to XXXX on million were second declared

of our were from than $XX XX% contracting addition result expenses were period XXXX. portfolio in second quarter in pipelines maintenance quarter primarily same during Great all million for Equity versus quarter charges Revenues incremental X. same second earnings a three last Iroquois were assets increased the was and full second together the in $X PNGTS. our quarter than year, million the of XXXX Lakes. those and the in million and the quarter or consolidated approximately $XXX the higher Slide at those XXXX. on XXXX to same comparable same quarter XXXX, of of Turning to in GTN increase the of higher of due the the the to depreciation Financial of the Operating, the months the with results quarter of of administration in higher to

the due was to the expense acquisition. increase this earlier, mentioned to fund As in interest a borrowings to the PNGTS additional of portion and related Iroquois

to now Slide X. on position our financial Moving

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

and our senior borrowing facility August of million strong. X, available as Our XXXX. has capacity The remains credit undrawn of $XXX liquidity position partnership under

as flows. and us in a Our paying of future our down program capacity function on anticipated debt facility advance the of coverage executing and credit reductions repayment increasing revolving liquidity cash

a X.X call our leverage to June Nathan. ratio as under financial just the As quarter XX the turn times XXXX. now result, second for That back results. is concludes bank I'll my of over remarks of

Nathan Brown

as this first additional to quarter. in of the And been assets from end the of us guidance ago. pleased for is quarter. to receive compared We're to more at flexibility weeks an to clarity XX. Thanks, I'll initial our the to now with couple refer impact Chuck. the Slide another provided And presented interesting FERC

that this to solid value and fundamentals our our path, that we're the assets in I'll that's response and our circumstances. And benefit portfolio underlying withstanding advance drop-down situated markets, outcome, need back our recent portfolio not FERC our near These the the current may been actions continue organic footprint as regulatory will not under believe the to will unexpected we to geographic forward. Project. around optimization But the our future. to into well condition. MLP of our of uncertainty we solid asset Xpress or and longer have developments, generate set continue Aside from some then focus confident infrastructure at time, continue current our and a move stakeholders. in And We'll include focus critical we market no strategies least to well altered and assets Rhonda. our serve pipeline are American as growth these the current we're over of be from remains to Portland eventual unitholders our for opportunities such will turn on now to business North call

Rhonda Amundson

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

Operator

Thank telephone We'll is Instructions] Please The you. lines. from Jeremy question first [Operator Tonet ahead. JPMorgan. the from take now from questions go

Jeremy Tonet

of established. there threshold where setting FERC ROE ADIT that’s Any kind you color, to baked afternoon. through Thanks good I portfolio wide seen. recognizing you a the the as share to was can into and estimate there lot bit to provide want stands of Hi, variables? uncertainty a think I guys pipe that more on or there us be with out million know, I if impact FERC expand million of kind the $XX anything portfolio has else? XX% able these anticipates you're That's $XX action the still that don't for as the or other just for wondering, you color tried just a that there, helpful. if that of And just put there. percentage

Nathan Brown

Okay. Nathan. This is

that now, included forecasting to it’s if that an reduction XX% inventory the threshold. three not me year more – excuse came – were I to XX%, was get $XX believe. automatic to So FERC one I off necessarily That's million, XX% $XX million the that

So process us. analyzing is we're through $XX we're available we’re flexibility where planning getting all going approach million. steps different portfolio is the And million on that and other strategies the of to $XX to kind in the

So it doesn't necessarily of key that. off

Jeremy Tonet

Got it.

Nathan Brown

– question got a books. not really your for rule that In making there's to part other wouldn't within the rate thumb aided get We've pipe those our and sorry, I of say.

kind that the different approach and over by would regulatory board. certainly, you versus watching across in taking if versus the one pipe pick strategy So of impact But and another. pipe legal we're differs up strategy another be exact it's out pipe that will hold one

Jeremy Tonet

that. seen the wondering, there Great. I recent just and applicable if And filing this read through MRT any was a you've Thanks if was for TCP. to

Nathan Brown

filings. with our there's pipeline Trailblazer, We've the changing unique and I believe facts that have other nothing came their initiated that don't prior filings. approaches certainly seen those different and July I came will to Both our us, Every really MRT yesterday. are and filings applicable circumstances those through has more not surprised think, appear XXXX that’s it than And thinking. them legal rulings say to I and that, out. that been of

different So circumstances and I'm changes with those are headline their going And react ballgame to too we facts not again, to familiar pipes but post individual are there's that's that grabbing really a XXXX. July bit and that a see too. thinking of anything didn't

Jeremy Tonet

Thank that. for you. all Thanks my That’s Great. question.

Operator

Schultz Thank from Please from ahead. you. The go next TJ question RBC is Capital.

TJ Schultz

XXXX? realize full Is some this good I change on to work it $XX accelerated. potentially cash impact afternoon. rate the then get still as Great. kind could then million to you following million. guess might there you of any year start said the flow And when impact $XX and in just Thanks, order of up proceedings to

Nathan Brown

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

TJ Schultz

mitigate what kind conversion to you then further that C-corp impacts? to the there FERC options, types are of actions, of then less And likely other now considering Okay. option discussed is still you minimize and

Nathan Brown

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

TJ Schultz

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

Nathan Brown

impact we our forward. evaluation I'd going impacts a say, do we more like mentioned, this. specific out possible situation we looks have how assurance cash of we to the to some going need coming manage have assurances of got to range we're once we've full Once what flow that of strategically on as and a have

So that we to minimum, We make will the completely wasn't than $XXX that estimate we addressed of previous just had But a impact point by quarter. the period, at were it prior up calibrated that make that something to to decision. when time lower million our that. through be distribution reduction the of possible

better than the in it’s – had a of quarter. mentioned, prior outcome as possible our worst So kind the outcome we

with position prudent, – the forward that So us the we the metrics still flexibility going beyond allowing flow other position, we're the and the meantime. move things we’re to financial our – in be is to cash see in

TJ Schultz

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

Janine Watson

expect in producer also they the their can that Both It’s Lakes. to for that customer to and Sure. Lakes Janine access quite WCSB groups different see there on seeing U.S. are I'll we're and quite TJ. pipeline future. Mainline some foreseeable at and push as answer market supply Great do We speaking. group the have looking new supply the with over the involving ways and continue flows elevated push Great that the we – the summer there's one

or a out that didn't we Joliet unfortunately of season. XPress shippers that in tried ago like projects there's it's fair project for bit potential continue a open But month that think a out get was taken talk was there. about interest we to two to there So and

So that we it long Mainline. the see type. may to further contracting over or It that we there's the But come. months even not see would term with will perhaps potential think coming year of be

TJ Schultz

Okay. Great. you. Thank

Operator

Thank you. Cho is from ahead. The next question Barclays. from Christine Please go

Marc Solecitto

this the Hi, that respect With relatively each revise stated, do $XX you the for fact million that collection on impact assuming million, view on of an income is Marc is to of is or that Christine. $XX the you to in tax options ADIT is of based balance elimination the neutral? or

Nathan Brown

now we're our lot Right along proceeding detail. in a analysis of

guidance a estimate case based is following from on pipeline. balances that removes first The new the MLP where we're ADIT the on

So Coincidentally that to get include to if allowance. but cases it about in that's million. does million way you $XX the you $XX tax the we pipe same place modeled a by some can very pipe

going commence that on especially individual we get more in for the fourth that in – the to come early the into the quarter. are filings So to here as pipes lot a fourth

general So being but out specifics that's strategy ADIT approaches that. are currently – calibrate the worked in the to the

Marc Solecitto

would organic And about Would growth focus by on – current for beyond the current see price parent out of roll the again dropdowns, thinking up and MLP? How the assuming the table. levels a levels sure it. remain mean, are or in the at the existing assuming Got they assets you picture. then then you I outlook the share

Nathan Brown

as morning TransCanada that not alternative in a they mentioned this the I moment. at call believe see viable the Yes. financing do us

So But, roll growth as the we're you – we're the on going we where them, to opportunities somewhere is come what to defer see development general mentioned internal opportunities do up them yes, in PXP. into business continue focusing any our to along climate potential have partner. to those for we as

market being possible assets Our at expansion. are looked for the pass valuable

the future to financial on handle what we'll For we're flexibility and that's foreseeable that. our be focused engineering

Marc Solecitto

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

Nathan Brown

we a a – any them our earnings that Pipelines, those it's own a a counting at to independent you. come technical earning Well that portion XX% I there unit pipelines appropriately look holders. then of if go and other XX% of – parent technical go question of I'm so TC it's but bit of help can TransCanada, portion count, None you of a earnings up through look LP their to to

terms in return, none into corporate parent. tax XXX% tax of return are a investments of so a And consolidated our of at a earnings consolidated

Marc Solecitto

Got it. Thank you very much.

Operator

The from go Please you. next is Thank Shneur Gershuni ahead. from question UBS.

Shneur Gershuni

guys. just to of on the Hi. wanted some Good afternoon follow-up questions. I TJ’s

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

Nathan Brown

So, good the last the for I these say mentioned that was The cut other actions. on of calibration us believe much get calibration we quarter. FERC XX% side did – as the we question. I'd to

want trip and anticipation the kicked we solved changes. particular that was the So revenue of reduction that in by metrics off didn't financial our that for tax to

perhaps scenario, ballpark still we accounted on a reduction. achievable a is less So, cash we mitigated yes, as I same worst that the account for with mentioned within that earlier, not for it scenario now think did risk but flow case

to the room coming take actions planning breathing we're the address. XXXX, to additional that's given other side it question FERC calibrated may part as but or additional other not in actions more So factors Bison have expire out contract then To come. on a where maybe going and bit will again the our of that we for

filings have comes when any planning on things these to that future end that precision But have and more outcome FERC say the take So the lot into the FERC should is the – what a the to by a adjustment are be of year. first we'll distribution more going manage account. of going for and see – clarity we – have which quarter it of strategic which and actual to next we bit little they

Shneur Gershuni

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

Nathan Brown

subject on on on a of now pipe the executing focus guidance side this strategy get kind revised the that I’d optimize by that measure through the certain the our basis on of still regulatory that pipe to ought us the interested large out. will say, and are levels right Certainly among new way all and be is appeal and other pushback there's works of putting out a still play disagreement things to things there parties. FERC

in see for to So the we ADIT strategy get with through include the forward our our now our of attention regulatory are right really liabilities path and rates file focus the good upside does I what removal our proceeds to base. think the that that What that that from means that. rate is paying we from options

Shneur Gershuni

willing So this it saying because terms or sort right decision I of terms roll understand, move making of you of cutting forward. in point forward. strategy there whether like quickly to from that pursue type were and the I'm distribution act try get to initially? to – Are see doesn’t that moving of in impediments whether it kind dropdown now to deciding trying a of at up, like any but I'm like

Nathan Brown

and Yes, strategy I that’s a understand completely question question. TransCanada your

And that their where they of we'll see they comfort. through see that be will approach. fitting something So within work us portfolio in kind

Shneur Gershuni

you, fair enough. guys. I appreciate the Thank Okay, color.

Operator

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

Rhonda Amundson

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

Operator

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

TC Pipelines (TCP) 2 Aug 182018 Q2 Earnings call transcript