TC Energy Corp

TSX:TRP

Earnings Call Transcript 2023-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the TC Energy First Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. And the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.

[Gavin Wylie, Head of IR]

Yes, thanks very much and good morning everyone. I'd like to welcome you to TC Energy's 2023 first quarter conference call. Joining me are Francois Poirier, President and Chief Executive Officer; Joel Hunter, Chief Financial Officer along with other members of our senior leadership team. Francois and Joel will begin today with some comments on our financial and operational results. A copy of the slide presentation that will accompany their results is available on our website under the Investors section. Following the remarks, we'll take questions from the investment community. We ask that you limit yourself to two questions and if you're a member of the media please contact our media team.

Before Francois begins, I'll remind you that remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information, please see the reports filed by TC Energy with the Canadian Securities Regulators and with the U.S. Securities and Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. These measures are used to provide additional information on TC Energy's operating performance, liquidity and its ability to generate funds to finance its operations. A reconciliation of various GAAP and non-GAAP measures is contained in the appendix of the presentation.

With that, I'll now turn it over to Francois.

[Francois Poirier, CEO]

Good morning, everyone. I'm pleased to report that our strong financial performance in 2022 has continued into the first quarter of 2023. High utilization and availability across our system have enabled us to generate exceptional results in the first quarter. This is a testament to our people, the continued strong demand for our critical energy assets and the resiliency of our low risk business.

For the remainder of 2023, our priorities are clear. First, executing on our major projects and industry leading high quality secured capital program; Second, accelerating our deleveraging targets by advancing our $5 billion plus asset divestiture program, which we expect to complete throughout the year; And third, safely and reliably operating our assets that provide essential energy services across North America. We firmly believe that achieving these priorities will unlock value and maximize shareholder returns. And based on our strong start to 2023, we reaffirm our 2023 comparable EBITDA outlook of 5% to 7% higher than in 20 22.

Underpinned by our focus on strong operational performance, first quarter results had comparable EBITDA up 16% from the same period last year, while comparable earnings per share rose by 8% year-over-year. During the quarter, we placed a total of $1.4 billion of project in service and we remain on track to place $6 billion of assets in service during 2023. In Canada Gas, we brought $1.1 billion of projects into service, further adding incremental market access for our customers in the basin. In March, we also placed the Port Neches Link pipeline into service, under budget, extending our Keystone system to include last mile connectivity to the largest refinery in North America. In our U.S. Natural Gas business, 2022 was a record year in terms of compressor reliability across our fleet. And so far in 2023, we are on track to meet or even exceed that performance.

This year, we've set a multiple of all-time records for deliveries to LNG export facilities, reinforcing the criticality of our assets. And in Power and Energy Solutions, Bruce Power delivered exceptional availability of 95% and we expect 2023 to average in the low 90s. Unit 6 MCR is proceeding on schedule and on budget and is now in the final stages of the installation phase.

Execution of our major projects is our central priority for 2023. I'm pleased to share that Coastal GasLink is continuing along our revised cost and schedule and progressed through the winter on plan. We accomplished several major milestones with the overall project now 87% complete and approximately 570 of the 670 kilometers of pipeline has been backfilled and restoration activities are underway in many areas. Commissioning work on the Wilde Lake compressor station has begun and natural gas has been introduced as part of the transition of the facility to operations. More than 85% of all classified water crossings are now complete and we have safely completed the excavation of Cable Crane Hill ahead of schedule and are now installing the final pipe through this critical path section. We continue to target mechanical completion by the end of the year.

Our second offshore project in Mexico, the Southeast Gateway pipeline is also proceeding according to cost and schedule. We've achieved our first milestones with the acquisition of land for compressor stations and offshore landfalls. We've obtained key federal environmental authorizations and local permits for the project. Critical long lead items including the offshore vessel have been secured and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer. In fact, civil work has already begun and our offshore pipe installation will commence toward the end of 2023.

As a reminder approximately 70% of the total project costs are under fixed price contracts providing greater certainty around cost and schedule and we continue to target completion by mid-2025. Following the Milepost 14 incident on the Keystone System in December, we've been diligently working to restore the area to its original state. We're pleased to report that we've recovered over 98% of the release volume. A big thank you for the continued support from the Washington County community and we are dedicated to ensuring the affected area is fully restored. We've received the independent third-party root cause analysis and with these findings, we are committed to implementing a comprehensive plan to enhance our pipeline integrity program and overall safety performance.

Now looking to the future. Our North American footprint means, we have access to a diverse set of high quality growth opportunities. And this is a high grade problem to have, but we must consider both financial and human capacity when evaluating incremental projects. We recognize we are in a period of increased development spend. However, post 2024, we are committing to limiting annual sanctioned capital expenditures to $7 billion or less. In fact, we will strive to manage annual capital spending to approximately $6 billion, providing the flexibility to further reduce leverage or buyback common shares. When sanctioning new projects, a key consideration will be the timing of the capital spend and it must fit within our annual capital expenditure parameters and deleveraging targets.

We've also enhanced our governance practices and placed higher standards around sanctioning large or complex projects that includes the requirement for a Class 3 estimate, as well as an independent third party assessment as was the case with the Southeast gateway. As always, we'll continue adhering to our long established risk return preferences. I'll highlight that 98% of our secured capital program is underpinned by long term take or pay contracts or rate regulation where we take no commodity price or volumetric risk.

The resiliency of our business and capital allocation strategy is supported by a long term view on energy fundamentals. Natural gas will continue to play a pivotal role in North America's energy future and that aligns well with our current portfolio, as well as our sanctioned projects. Lower carbon energy solutions will gradually increase in market share and we will intentionally migrate our portfolio composition, but gradually over time. And with an emphasis on building firm capacity in areas such as nuclear, pump storage, hydrogen, and carbon transportation and sequestration.

Renewable energy will play a complementary role in our decarbonizing of our own assets and we can also extend that service and product to our customers. However, the pace at which we allocate capital to these areas will ultimately be driven by their affordability, their reliability and their sustainability.

Thanks. And I'll now turn the time over to Joel.

[Joel Hunter, CFO]

Thanks, Francois. Building on the record results we achieved in 2022, we set a new quarterly record during first quarter 2023 that reflects high utilization, availability and continued operational performance across our asset base. First quarter 2023 comparable EBITDA was up 16% year-over-year with comparable earnings growth of 12% and 8% year-over-year increase in comparable earnings per share. We continue to demonstrate the certainty and stability of our cash flow growth that reflects our assets being over 95% rate regulated or underpinned by long term contracts.

Our strong performance during the quarter was driven by a combination of the strength in our North American natural gas pipelines along with higher contributions from our Power and Energy Solutions business. Our rate regulated Canadian Natural Gas pipelines saw a year-over-year increase in net income of 11%, primarily driven by growth in the NGTL system average investment base. Average NGTL system deliveries rose year-over-year reaching $14.5 billion cubic feet per day. 14% growth in our U.S. Natural Gas pipelines comparable EBITDA was largely due to higher earnings from ANR following the FERC approved rate case settlement, as well as contributions from growth projects placed in service.

Throughput for the quarter averaged 28.5 billion cubic feet per day with several of our assets performing at near record levels when demand was at the highest. In Mexico, comparable EBITDA increased 16% year-over-year, reflecting the North section of the Villa de Reyes pipeline and the East section of the Tula pipeline that were placed into commercial service last year. Year-to-date, the operational reliability of the Keystone System has been more than 95% supporting the safe and reliable delivery of all contracted volumes for our customers.

Power and Energy Solutions generated outstanding results with a 79% increase in comparable EBITDA year-over-year. In February, our Alberta cogeneration power fleet reached 100% peak price availability for the first time in company history, while pricing remains strong, averaging $142 per megawatt hour. Bruce Power achieved 95% availability during the quarter with fewer planned outage days and higher contract pricing relative to the first quarter 2022. We are reaffirming our expected 2023 comparable EBITDA growth of 5% to 7% compared to 2022. We also expect comparable earnings per common share to be modestly higher. We are confident in this outlook despite the environment of rising interest rates and inflation. And as a reminder, any fluctuations in these variables and other factors could impact our 2023 outlook and we will look to revise throughout the year if necessary.

Global markets have been experiencing heightened volatility and I want to take a moment to discuss the confidence I have in our outlook and ability to meet our financing requirements. The chart on the left highlights the rapid increase in rates during 2022, which were similar across the curve, driving the year-over-year increase in interest expense. However, we are beginning to see 10 year government bond yields moderate from their recent highs. We continue to demonstrate cost competitive access to capital markets as evidenced during Q1 when we executed over $6.5 billion of new issuance across a variety of maturities and geographies. The fixed rate debt tranches of these issuances have a weighted average cost of 5.6%. We have a manageable debt maturity profile with a weighted average maturity of approximately 18 years and average pre-tax coupon of approximately 5%. Roughly, 15% of our debt portfolio is exposed to floating interest rates. We have programs in place to actively manage our exposures.

Now turning to our funding program. A key priority for us is capital discipline. Without sacrificing operational safety or reliability, beyond 2024 we will manage our annual sanctioned capital spending to $7 billion or less, inclusive of maintenance capital. As Francois mentioned, we will strive to manage annual capital spending to approximately $6 billion. This enhances our financial strength, while providing optionality to further deleverage or buyback shares. I'll note that the sources and uses outlined on this chart do not include the impact of potential asset divestitures that are expected to be realized through 2023. You can expect our incremental funding requirements to be reduced as our asset divestiture program progresses, allowing us to further accelerate our deleveraging target.

With respect to the dividends declared on February 13, 2023, the participation rate in our dividend reinvestment plan was 38%, resulting in approximately $360 million reinvested in common equity under the program. The discounted dividend reinvestment plan is expected to be in place for dividends declared for the quarter ending June 30, 2023.

Finally, I want to bring to your attention two charts that truly capture the resiliency of our value proposition. First, TC's Energy Board of Directors has declared a second quarter 2023 dividend of $0.93 per common share, which is equivalent to $3.72 per share on an annual basis. Second, we have delivered strong results. This is a testament to the strength of a utility like business model, unwavering focus on safety and operational excellence and North America's increasing demand for our essential services. We've created significant shareholder value despite market volatility and macroeconomic challenges and I'm confident that we'll continue to do so.

Thank you. Now I'll pass the call back to Francois.

[Francois Poirier, CEO]

Thanks, Joel. In summary, our priorities for the year are clear. Continue to execute on our major projects, such as CGL and Southeast Gateway. Accelerate our deleveraging targets by managing our capital spending and advancing our asset divestiture program. And third, achieving safe, reliable and sustainable operations and are focused on operational excellence to drive higher returns.

To reflect our commitment to these priorities and to better align with our shareholders, we have introduced new performance measures that explicitly tie executive compensation to cash flow per share, deleveraging and greenhouse gas emission reduction targets. I'm confident that the future opportunity set combined with our capabilities and reflecting capital discipline will unlock additional value and deliver superior shareholder returns well into the future.

Thanks, and I'll now turn the call back over to the operator for questions.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from Rob Hope with Scotiabank. Please go ahead.

[Rob Hope, Scotiabank]

Good morning everyone. First question is just on capital allocation. In the prepared remarks, it was noted that sanctioning new capital must fit with the financial capacity of the organization. How does -- while small, how does the wind acquisition fit with this? Why not pursue a more capital light strategy for your renewables here just given you are selling some assets?

[Corey Hessen, EVP and President, Power & Energy Solutions]

Good morning, Rob. This is Corey Hessen. These opportunities are the product of a 2022 process that's closing in 2023 and was already in our capital plan. These are high quality operating assets with best-in-class equipment, generating immediate EBITDA for the enterprise. We have a long term service agreement in excess of 15 years with the original equipment manufacturers for both locations that include availability guarantees for both facilities. We are in advanced discussions with creditworthy counterparties for the power generation and the environmental attributes from these facilities.

In summary, the Texas Wind Farms are within our capital plan and a modest capital investment to help TC Energy execute on our decarbonization goals.

[Rob Hope, Scotiabank]

All right. Appreciate that. And then just moving over to Coastal GasLink, with the winter behind us, it looks like you had some successes on keeping the project on time and on budget here. However, as we look to the summer construction season as well as the end of 2023 in service date, what do you see as the key risk factors on keeping the cost and schedule? And how are you progressing against those?

[Bevin Wirzba, Head of Corporate Development]

Rob, it's Bevin. I'll take that question. So you're right. We made very good progress this past season. We're laser focused on safely getting this project to the finish line. And as we noted in the remarks that, we’ll reaffirm our targets on both cost and schedule here for the year. Really what we need to be looking for during the balance is no different than what we've been working on today is that, there are tremendous number of work fronts as you can appreciate on a project of this scale. We're migrating primarily from kind of mainline construction to really a focus on small discrete work scopes, whether that be creek installations or rock bluffs.

And so, we've been developing mitigation plans for any eventuality that happens on those smaller discrete work scopes. And so, while we're progressing extremely well on the entirety of the project, we've had to move to really a front foot on being proactive on having backup plans to backup plans. And so, when we provide updates, we'll be focusing mostly on how we've moved forward through these critical last areas of the project and we're necessarily implementing some of our backup.

So just to give you some proof points on that, we pre-located some equipment to allow us to work through some of the spring break up periods of time so that we can provide a bit more flow to the schedule. So, as Francois alluded to in his remarks, we've completed the trenching on Cable Crane Hill. That's three months ahead of schedule. So we're trying to wherever we can provide a significant buffer for us, because we know that any of these critical work scopes could have us really going to plan B and plan C. And so, that's really where the focus is. But we had the successful introduction gas into Wilde Lake that's on -- that was executed as planned. We had over 1 million man hours safely completed there. So we're very encouraged, but we're extremely focused on managing these final critical scopes that are in the balance of the year.

[Rob Hope, Scotiabank]

Thank you.

[Operator]

The next question comes from Theresa Chen with Barclays. Please go ahead.

[Theresa Chen, Barclays]

Good morning. Thank you for taking my questions. First, I'd love to get some more details on where you are in the asset sale process at this point. Now that has been several months in the making, do you have additional clarity on the types of assets you're looking to divest and how should we think about the valuation?

[Francois Poirier, CEO]

Thank you, Theresa, and I appreciate that there's lots of interest in our asset sale processes and our deleveraging plan. As I mentioned, it's one of our three key priorities for the year. I'll just remind everyone that we are at a very commercially sensitive point in our discussions, we have multiple processes underway at the moment. And so, we'll refrain from making any specific comments on any particular asset or on where valuations are trending.

I'll reiterate, however, that our tension is to maintain the quality of our portfolio. So we will be monetizing assets or interest in assets in various parts of the portfolio to maintain our cash flow composition that we view as very high quality.

[Theresa Chen, Barclays]

Thank you. And if I can ask Stan on the progress on Southeast Gateway at this point. What percentage has been done? How much capital of the $4.5 billion has been spent and what should the next milestones that we should be looking for [B] (ph)?

[Stanley Chapman]

Hey, Theresa, this is Stan. First of all, I’ll reiterate it upfront. Our Southeast Gateway pipeline continues to track toward mid-summer 2025 in service date, $4.5 billion of CapEx, both of which is unchanged from when we FID the project this summer. I would note that, we're really pleased with our partnership with CFE. They have and will continue to play a very key role for us in helping to secure both land and permits. In terms of activities that have been ongoing, steel plate is being delivered, pipe is being rolled and preparations for its concrete coating are underway, so that the subsea pipeline lake can commence at the end of this year.

Specifically to your questions, there are three key milestones that we are focused on this summer, diligently focused on, I should add. First is, commencing construction on our two compressor stations. Second is securing the right of way for our onshore pipeline, which you recall, it's relatively small at about 21 kilometers. And lastly is, commencing preparations for the onshore construction work associated with the micro tunnel, so that the micro tunneling itself can take place in early 2024.

So overall, we continue to incorporate the lessons learned from prior projects such as [indiscernible], but we're really pleased with our projects progression as of now and we'll continue to update you as the project develops over the coming months.

[Theresa Chen, Barclays]

Thank you.

[Operator]

And the next question comes from Linda Ezergailis with TD Securities. Please go ahead.

[Linda Ezergailis, TD Securities]

Thank you. Wondering if you could maybe give us some sense of what your expectation for 2024 capital expenditures specifically might look like? And what sort of magnitude of additional wind or solar power acquisitions might be embedded in your budget for this year or next year or potentially even added to what you've baked in?

[Francois Poirier, CEO]

Thanks, Linda. It's Francois. I'll take that one. As we've talked about before, once the project is in construction and we break ground, we've probably been add it for a couple of years from a perspective of permitting and project planning and having ordered long lead items. And one of the reasons why we're going to strive for building some optionality below our $7 billion capital run rate going forward is that, we do want to make sure we maintain some capacity for further debt reduction or share buybacks going forward.

It's going to take us the balance of this year and 2024 to work our way down to that $7 billion or really $6 billion run rate. And so, you can expect us to be well below the $11.5 billion to $12 billion of capital that we have in the plan for 2023, trending towards that $7 billion run rate, but not quite there yet because of the dynamic that we've identified.

With respect to plans for additional renewables or other assets in our program going forward. Remember, these are very small capital dollars, tens of millions to low hundreds of millions over time. We will be utilizing project financing and tax equity wherever possible to get our equity checks down to very modest levels. And as we have worked through our capital program and tested our ability to maintain a stable balance sheet, grow our cash flow per share, grow our dividend, have strong payout ratios, to get to a level of comfort where we can say that $6 billion to $7 billion is our run rate. We have factored in to our capital program some additional renewables as well as some additional investment in our other businesses.

[Linda Ezergailis, TD Securities]

Thank you. And just as my follow-up, just trying to round out my understanding of Coastal GasLink. Can you advise if you've used any of the contingency in your budget this year to add to your schedule buffer or for any other reason? And do you see a high likelihood of at this point of dipping into your contingency to pay for some of the buffers and the plan B contingency that you're winding up to ensure you stay on schedule?

[Bevin Wirzba, Head of Corporate Development]

Thanks, Linda. It's Bevin here. So right now, we're tracking really closely to our cost and schedule targets. Certainly as we pre-position certain work scopes, we spend some of those dollars a little ahead of plan or otherwise, but we actually incorporated that in our thinking at the time of the CSRA. And so, we look at this probabilistically and so under certain scenarios, we're certainly going to draw down on some of the contingency. But right now, we're tracking -- we're tracking where we've been or where our plan was to be at this time. So, a lot of when we're making the trade-off decisions to pre spend on different activities, those are well within the plan. We maintained access to the [indiscernible] and another critical path scope removing a ton of snow, we put that in the plan.

So we're very thoughtful when we came forward with our revised budget last quarter to make sure that we had a variety of scenarios, not just a single scenario in mind in terms of the finishing or the executing of the project.

[Linda Ezergailis, TD Securities]

Thank you.

[Operator]

The next question comes from Jeremy Tonet with JP Morgan. Please go ahead.

[Jeremy Tonet, JPMorgan]

Hi, good morning.

[Francois Poirier, CEO]

Good morning.

[Jeremy Tonet, JPMorgan]

Just wanted to come back to the CGL construction from a little a bit of a different angle. I think there might have been kind of competition for labor between CGL and TMX and I was just wondering if you could comment there and I guess how you see TMX progressing at this point if it's close to kind of winding down? Does that lead to kind of less stress, less pull on the labor pool and how would that impact CGL?

[Francois Poirier, CEO]

Jeremy, I'm not going to speak to TMX. I don't know exactly what their plans are. What we're seeing on our project is, we've had great retention of the contractor labor. We've seen increase of quality and actual productivity this year. And like I mentioned earlier, we're migrating to a very different type of scope of work. And what I can say is that scope of work looks a lot different than what TMX is focused on in this year's construction. And so we're very mindful that there is competition for labor. We will be focused on seeing how our labor force returns post the breakup, but post the Christmas break up where there was the same type of competition from TMX, we actually came back stronger.

So, we had nearly 6,500 folks on the right away through the first quarter of this year at a time when TMX ramped up their labor force significantly more than what they were last year. So, we're maintaining a pretty strong position with our labor force right now which we're thankful for and we're working really closely with our contractors to just be laser focused on retaining the right people to get this thing done by the end of the year.

[Jeremy Tonet, JPMorgan]

Got it. That's helpful there and just wanted to pivot a little bit to Columbia. There is news out there with regards to, I think, a lightning strike that might have impacted the [indiscernible] compressor station and led to a force majeure and realized this is all very kind of real-time here, but didn't know if you could help us with any color on how to think about that?

[Tina Faraca, President, U.S. Natural Gas Pipelines]

Yeah, thank you. This is Tina Faraca with the U.S. Gas Pipeline business. We did have a lightning strike this morning, very early this morning that caused a fire within our fence line at the [indiscernible] compressor station, the fire has since been extinguished, very minimal impact to facilities, we've managed through that and plan to get the station back online later this afternoon.

[Jeremy Tonet, JPMorgan]

Okay. So this is just like a one-day impact type of thing.

[Tina Faraca, President, U.S. Natural Gas Pipelines]

Yes.

[Jeremy Tonet, JPMorgan]

Thank you for that.

[Operator]

And the next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.

[Robert Kwan, RBC Capital Markets]

Great. Thank you. If I can come back to the commitment to keep the CapEx below $7 billion, just a question here. So first, does that include acquisitions? Second, the current period elevated CapEx is really -- part of it's been driven by cost overruns, so I'm just wondering how you’ll think about managing your cost risks differently going forward? And then third, just cyclically does this -- what does this mean for [indiscernible] or are you excluding project level financing from that $7 billion number?

A - Francois Poirier

Hey, Robert. It's Francois. I'll take that one. So, with respect to managing cost overruns, we have prudent project management. We have a reasonable contingency for each of the individual projects that we have in our capital program. And so, striving to work towards a $6 billion run rate program going forward and that gives us flexibility and optionality around further debt repayment and share buybacks. It also gives us additional flexibility to the extent, we have any unforeseen circumstances around any one individual project.

$6 billion or $7 billion is our sanctioned capital to the extent we have partners that would be in addition or outside of that number. With respect to the specific peculiarities of any individual project in terms of project financing that may or may not be considered depending on the project. A project like Ontario pumped storage is a significant undertaking. And so this is not only a financial equation, it's also a human capacity equation. When you think about having a very large capital program, our ability to manage a smaller program reduces execution risk and allows us to continue to grow our dividend at a -- the stated rate grow or cash flows at or above that rate and keep a stable balance sheet and maintain stable and very conservative payout ratios. So you won't see the capital program far outstrip our sanctioned capital, but for reasons of human capacity and as we move forward with different projects we'll be contracting for them differently, mitigating risks using [full RAP] (ph) EPCs where appropriate and looking for commercial mitigations to manage those outcomes, as well.

So, on all of the above-basis, you should think about that $7 billion striving for $6 as our sanctioned capital going forward.

[Robert Kwan, RBC Capital Markets]

Just on acquisitions included or excluded.

[Francois Poirier, CEO]

Thank you for reminding me of that. We don't distinguish, there is no M&A in our plan, we don't think that M&A is required for us, given our opportunity set to grow our distributable cash flow per share at a rate at above our dividend growth and maintain stable payout ratios and a stable balance sheet. It's just really not in our radar right now and if it were, Robert, it would be included in that cap.

[Robert Kwan, RBC Capital Markets]

That's great. If I can finish just on capital allocation and just back framing against the wind acquisitions. You noted that while they're in the 2023 capital program, you previously talked about just generally the ability to defer capital and this seems like something that could have been eliminated. So while they're operating, I assume you acquired it for higher than 5 times EBITDA and less than a 15% FFO yield, i.e. acquiring should be dilutive to the credit metrics. So was there something bothering you to complete these deals or can you just talk about the strategic nature of the two assets and the synergies that provides to the existing asset base.

[Corey Hessen, EVP and President, Power & Energy Solutions]

Hi, Robert. It's Corey. I would say that, yes, this was in our plan. And what I would emphasize is that, we have decarbonization goals for our enterprise. These are critical in nature for us to meet our decarbonization goals, which are long-term commitments to our shareholders and constituents across our jurisdictions.

[Robert Kwan, RBC Capital Markets]

Okay, thanks very much.

Operator

The next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.

[Robert Catellier, CIBC Capital Markets]

Hey, good morning. I know you're trying to avoid discussing any particular asset, but I wonder if you can discuss as an asset class the merchant power. Alberta power prices have been quite strong over the last year or so. So how does this influence your view on this asset class as a candidate for portfolio management? In other words, the market support a stronger valuation or would you rather retain them for their currently strong cash flow?

[Francois Poirier, CEO]

Robert, it's Francois. What I would tell you is, divestitures -- the purpose of our divesture program is to deleverage. And so, we call that raising internal equity and internal equity is driven by the valuation in excess of 5 times debt to EBITDA. And so, as we choose which assets to monetize we consider what the EBITDA multiple is above that 5 times amount, because we have to have to maximize that spread over 5 times EBITDA to maximize our deleveraging. So to the extent our Alberta assets could achieve multiples well in excess of 5 times debt to EBITDA, we would be open to proceeding and I'll leave it at that.

[Robert Catellier, CIBC Capital Markets]

Okay. Maybe a question here for Stan. It looks like the volumes were pretty good on the deliveries to LNG facilities again, I'm wondering if you can provide us some progress update on any additional positioning you have for the U.S. gas portfolio and development projects to address additional LNG opportunities.

[Stanley Chapman]

Hi, Robert. This is Stan, and as you heard me say before, our best-in-class pipeline footprint has and it’s going to continue to provide us with more than ample growth opportunities at attractive build multiples. Our challenge today, as you heard is, less with originating new projects and it's making sure that we have a way to fund them. So given that, our origination efforts are highly selective and focused on strategic opportunities will be to leverage our existing footprint, specifically in regions where projects can be permitted and constructed at attractive build multiples.

So these opportunities today exist with respect to additional LNG exports, particularly in Louisiana, as you noted. And increasing the connectivity that we have to our [LDC] (ph) customers, which are backed by long-term 20 year contracts. So in some instances where appropriate, we also may consider taking on a strategic joint venture partner. But equally important, I just want to point out that we are laser-like focused on ensuring operational excellence and reducing our costs and doing so without sacrificing the safety or the integrity of our assets and ensuring that we place our projects in service on time and on budget.

[Francois Poirier, CEO]

And Robert, it's Francois. I'll just add to Stan's comment. As we look to sanction capital going forward, the timing of the spend will be a critical factor in our assessment. We are laser-like focused on staying below that $7 billion and actually $6 billion run rate of capital spend. And so, as you look to sanctioning projects in the future and given the size of our capital program to date, really as we sanction projects going forward they will have significant -- the significant capital spend will be in later years.

That's fine. It typically takes a couple of years to permit and -- permit a project and get the long lead items in place. And so, projects we're looking at developing right now and competing for have spent in that 25%, 26%, 27% timeframe where we do have additional capacity to sanction projects and stay within that $6 billion annual limit.

[Robert Catellier, CIBC Capital Markets]

Yes. That's very helpful color. Thanks everyone.

[Operator]

The next question comes from Ben Pham with BMO. Please go ahead.

[Ben Pham, BMO]

All right. Thanks. Just wanted to go back to the renewables side of things and your strategy there. I think for some time what was holding you back bit on expansion is more of the lofty multiples on renewable power assets and you have the aggregation model as well that you've introduced last year. Can you talk about now the trends you're seeing, is it better to buy versus build. How does it compare to aggregating power? And maybe an update on strategy there?

[Francois Poirier, CEO]

Ben, it’s Francois. I'll take this one. As we talked about before, we're focused on sanctioning capital over the long run, on the basis of affordability, reliability and sustainability. Renewables will be a complementary asset class in our portfolio to help achieve our own decarbonization goals, while at the same time helping our customers decarbonize their own energy consumption.

Where possible, we will adopt a capital-light approach. We talked about the aggregation activities last year which are continuing to proceed. In some instances where we see value and it fits within our capital plan, underscore that it fits within the capital plan and the $6 billion per year limit will consider ownership in projects.

But, as Stan mentioned, in the context of our U.S. gas business, across our whole portfolio one of the things we're going to be looking at is joint ventures and partnerships with financial firms and other strategics to make sure we can advance our decarbonization goals, our market share aspirations and in the U.S. LNG market, but still stay within our annual a sanctioned capital limitations going forward.

[Ben Pham, BMO]

Okay. Maybe next on [flexibility] (ph) for share buybacks, maybe you can expand on that a little bit. How do you see into your calculus? Where do you need to be less leverage to think about that?

[Francois Poirier, CEO]

Yes. Look, over the next couple of years, that's not an option. Our priority for 2023 and 2024 is to deleverage. Our goal is to get at or below 5 times debt to EBITDA as quickly as we can without compromising shareholder value and then remain there. What I wanted to convey in my comments is, it's very difficult to stop a project once it's been committed to, just because your stock price is at a level that you think is attractive in terms of share buyback. By the time you break ground on a project you can just tell your customer that they're not going to receive the transportation service they've been planning on and waiting on for many years.

So by building flexibility and the flexibility would come from the gap between $7 billion and $6 billion into our program on an annual basis, we will have the option in each and every year with that incremental capital to live within our means to either pay back debt or to buy back shares. But to be clear, we don't see that as an option until we get at or below our 5 times debt to EBITDA and we're confident that we're going to remain below.

[Ben Pham, BMO]

Okay, got it. Thank you.

[Francois Poirier, CEO]

You’re welcome.

[Operator]

The next question comes from Andrew Kuske with Credit Suisse. Please go ahead.

[Andrew Kuske, Credit Suisse]

Thanks, good morning. The question is really for Francois and the emphasis on the limiting the CapEx post 2024 to the $7 billion and then, getting it down to the $6 billion. Does that effectively allow you to high grade your capital allocation process to higher returning projects?

[Francois Poirier, CEO]

I would say most definitely, Andrew. It's not just about unlevered after-tax IRRs. We do want to migrate the portfolio, we think about having a high quality and diverse portfolio with low volatility, that's part of our value proposition. But there's no question, as I've said in the past, we see way more opportunity to deploy capital then we have financial and human capital to execute. And what that's going to allow us to do actually is to high grade projects. And in fact, when you look at what we sanctioned in 2022, unlevered after-tax IRR is in the 10% range and that's above the weighted average IRR of what we sanction in 2021, which was, I think, in that 8.5% to 9% range.

So we're seeing an upward trend in the returns on the projects that we’ve sanctioned over the last couple of years, and clearly by limiting our capital spend to living within our means, it's going to give us the opportunity to high grade to our higher returns. But we also are going to consider having a proper diversity and migrating the portfolio to an appropriate supply mix.

[Andrew Kuske, Credit Suisse]

Appreciate that. And then maybe not to [indiscernible] but the trend of high grading returns, your earlier comments on bringing on partners, whether they'd be financial, strategic or otherwise? Does that allow you to engage in some kind of asset management model, get a promote on a project? How do you just sort of conceptualize and think about it?

[Francois Poirier, CEO]

First and foremost, Andrew, that's a great question is, we're going to focus on our human capacity. We have an ability to manage a capital program of a certain size. And we are going to make sure that we have the capacity and the capability to adequately manage the capital program we have underway. And asset management model would suggest developing and building projects for others and we're going to be very mindful of maintaining a size of capital program that's within the capacity of our team.

[Andrew Kuske, Credit Suisse]

Thank you very much for that.

[Francois Poirier, CEO]

You're welcome.

[Operator]

The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

[Patrick Kenny, National Bank Financial]

Thank you. Good morning. Just on Keystone here, as you look to implement your enhanced integrity program going forward. Can you provide a little bit more detail with respect to the cadence of these additional in-line inspections and excavation work that needs to be completed across the system? And I guess what the total cost of this program might do to your prior maintenance CapEx guidance, as well as the process for recovering these costs through your total structure or other means?

[Richard Prior, Director of TC Energy]

Yes, sure. This is Richard Prior. I'll take that. And so, as we mentioned in our release, there's additional remediation work that we need to do. So we need to work through our remedial work plants with respective to Milepost 14, as well as the FINSA corrective action order. That is going to include additional excavations as you mentioned and in-line inspection runs. So we've already started that work, and to date, we've actually run 300 miles of tool runs on the pipeline adjacent to the incident site and we've not found evidence of similar features.

In addition to this, we're also going to be completing engineering assessments. So this time we did just received the root cause failure analysis last week, as did FINSA. And so there is going to be some more work to do to continue to study that and develop the details of this program. And I don't have a timeline I can provide to work these remedial work plans and results of corrective action order, but I can say that we are fully committed to expediting this work. I also don't have a cost estimate for this integrity scope I can share at this time. However, this work -- it would form part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tools.

[Patrick Kenny, National Bank Financial]

Okay, great. Thanks for that. And then just in terms of, I guess, an update on the egress picture out of Western Canada. And I guess in light of where natural gas prices are at currently. Can you comment on where you're seeing customer demand for incremental market access for California, Gulf Coast, East Coast. And I guess what this mean for near to medium term debottlenecking activity across GTN, Mainline, ANR and so on?

[Greg Grant, President of the Canadian Gas Business]

Sure. Thanks a lot, Patrick. It's Greg Grant from the Canadian Gas business. I'll start and then hand it back to the U.S. gas business. First, it's been great to see both from an operational perspective and from our capital programs, we continue to get assets in the ground and we're actually -- we're a few weeks ahead of time on coming out of our 21 program and some of our [NCE] (ph) build this spring. So last year, you would have normally we put about 1.3 bcf of intra-basin in egress, this quarter added over 700 mcf and soon to be another 500 here.

So that's been great to see the team and the performance there. That hasn't stopped up the demand, I would say, we still have significant demand coming in on all parts of -- all points of egress, I would say, and intra basin. You would have seen, we’re about a bcf again on the supply side. So that's year-over-year, two years we've been over bcf added to the system. So while we've added that capacity we are still at high utilization levels. So, you will see probably in the next couple of weeks, months, we did announce some open seasons will be coming. So the team are looking at ways that we can continually optimize the system and create additional capacity where we can, that includes both existing and some new opportunities which we'll talk about in the following quarter.

[Francois Poirier, CEO]

On the US side, just think of us as a big catcher's mitt. Greg those fall and we try to catch it. We have an expansion project. As you're aware, on the GTN system right now, our GTN XPress which is currently pending before FERC and we’re anxiously awaiting our certificates. We can get that capacity constructed and in service either later this year or early 2024. We also have the ability to attract volumes in on our Great Lakes system. And again, working closely with Greg's team as they submit open seasons on their side of the border to get additional capacity down to the U.S.

And the other thing I would point out of late is, there seems to be some interest from the LNG market in Louisiana to have additional exposure to Canadian volumes as well. So we're pursuing opportunities to expand our ANR systems as appropriate and get more Canadian gas down to the LNG terminals.

[Patrick Kenny, National Bank Financial]

Okay, great. Thanks for that update, guys. I'll leave it there.

[Operator]

The next question comes from [Brian Bennett] (ph) with UBS. Please go ahead.

[Unidentified Participant]

Good morning. Thanks for sneaking me in. Maybe as a follow-up on some of the prior labor questions, you mentioned that you're at 6,500 on the job now. So curious just what's the assumption for peak labor and project -- for the projects for Coastal GasLink this summer to reach completion goals for mechanical completion as labor starts to roll on TMX this summer. Thanks.

[Francois Poirier, CEO]

Yes. Thanks, Brian. We're effectively at peak and will be winding down now. So coming back from spring fresh at will not be bringing back the same level of crews, but a significant number of folks will be coming back. As I mentioned, we're at some discrete scopes now were effectively finishing off any of the traditional kind of mainlining activities where we have significant number of crews. So I would say come to the fall will be in a much more significant ramp down of folks out there in the field. But our ability to continue to successfully manage and mitigate all our risks during the summer and the fall construction will be the key determinant in our ability to meet our cost and schedule goals. So we're more focused on managing the risks and inclusive of that is the labor front, but we feel that we're in a good position there.

[Gavin Wylie, Head of IR]

So, I think we've got time for just one last question if you don’t mind.

[Unidentified Participant]

Yes. Great, thanks. And just on -- just touching on the credit rating. TransCanada has been put on negative outlook by S&P. So my first part of my question is, is TransCanada committed to defending that credit rating at any cost, perhaps in the context of M&A sales? And then second, how does TransCanada handle asset sales versus perhaps impacting its earnings mix? Thanks.

[Joel Hunter, CFO]

Thanks, Brian. And it’s Joel here. It's that last question for the day I finally get to respond. With regard to the credit ratings. We do value the credit ratings, as you've highlighted, we are negative outlook right now with three of the agencies being S&P, Moody's and DBRS, we were downgraded following the announcement on the CGL cost overruns by Fitch. We put a lot of value on the rating, we believe with our plan here to sell plus $5 billion of assets that we will be able to get our leverage down to our target as Francois has mentioned, that 5 times in the near term and then ultimately down to 4.75 times. That's our objective.

And so with the plan that we have right now with plus $5 billion of asset sales with a growing EBITDA, you just saw us today's mentioned we had a 60% year-over-year increase in our EBITDA. The combination of those two that we believe that we can get down to the 5 times and ultimately get the negative outlook removed from the agencies and reaffirmed our ratings going forward.

With regard to -- I think your question around asset sales. And I think you said with perhaps if I’m not mistaken, we balanced both here. We've got the plus $5 billion of asset sales, as we mentioned. And in our plan, we always factor around 15% of our capital structure be comprised of hybrid securities and preferred shares and that won't change going forward.

[Patrick Kenny, National Bank Financial]

Great I'll leave it there. Enjoy the rest of the morning.

[Operator]

Ladies and gentlemen, this concludes the question-and-answer session. If there are any further questions please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wylie. Please go ahead, Mr. Wylie.

[Gavin Wylie, Head of IR]

Yes. Thanks everybody for your participation this morning. For the questions that we didn't get to, please reach out to Investor Relations and the team is happy to have discussions later this morning. We thank you very much for your interest in TC Energy, and we look forward to our next update. Have a great day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.