TC Energy (TRP) Q2 FY25 earnings call: guidance and Q&A

Can you provide more details on the three defined periods for rates and the conditions/magnitude of rate step-ups in the Columbia Gas settlement?

The interim settlement reflects a 26% increase in pre-filed FTS rates, effective April 1. While three defined periods are established, specific details on rate step-ups will be provided in the final filing, which is subject to FERC approval.

“The rates obviously are subject to final settlement once we have filed and seen approval by FERC. There were several key issues that were addressed by the settlement in principle, including the establishment of rates for three defined periods, also 3-year moratorium and a required comeback in 6 years and roll-in treatment for a couple of our recent reliability projects. Related to your question on the step-up in rates, that is not detailed in the settlement at this stage, and the step-up in that detail of rates is going to be provided in the final filing.”

asked by Praneeth Satish · answered by Tina Faraca

How much available capacity does TC Energy have upstream of the New Albany interconnect point to serve significant gas demand growth from Meta's expansion?

TC Energy has many pipelines in the New Albany area and is well-positioned to serve demand. They have conducted recent open seasons and can optimize existing capacity or expand if necessary, leveraging utility connections.

“In that region, Praneeth, we obviously have a lot of pipelines that run through the New Albany area, and we're in a very strong position as these opportunities develop to serve capacity or transport capacity into that region. We have had some recent open seasons in that area. that were secured by various entities. We'll continue to see how we can optimize capacity in that region.”

asked by Praneeth Satish · answered by Tina Faraca

Given the increased 2025 outlook and positive trends, how should investors think about potential upside to the 2027 EBITDA guide?

Management is confident in the $11.7 billion to $11.9 billion range for 2027. They note that current 2025 performance reflects projects sanctioned 2-3 years ago, and new, higher-return projects will take time to come online. A detailed long-term plan update will be provided in the fall.

“Look, it's still a little bit early. We're very confident in that 11.7% to 11.9% range. We have a handful of rate cases in flight this year that I'm sure Tina could talk about. And importantly, and what Francois mentioned in his Slide 8, that IRR slide, what you're seeing right now in terms of '25 EBITDA performance, this is really the vintage of projects we're bringing online right now were sanctioned 2 and even 3 years ago. So when you look at that slide and see the projects we're sanctioning now and kind of the 12% range, it will take 2 or 3 years for them to come online. So we want to give it just a little bit more time for these projects to season and for the backlog projects to kind of get up and running from a sanctioned basis. We'll have more for you on that in the fall with a fully detailed long-term plan update.”

asked by Aaron MacNeil · answered by Sean O'Donnell

Following the Alliance settlement, is there a risk of negative toll revisions for the Canadian Mainline when its settlement expires at the end of 2026?

Francois Poirier and Tina Faraca stated that the Canadian Mainline is an incumbent system with robust subscriptions and a need for expansion. They expect to carry forward elements of the current incentive sharing mechanism, which has resulted in lower tolls for customers and strong returns, and do not foresee downward pressure on returns.

“So it's not really an apples-to-apples comparison, and I don't really see any concern or potential for us to have downward pressure in returns. But over to you, Tina. ... It's been a real win-win, and that has driven commencement returns for the mainline. So as we look forward to post 2026 settlement discussions, we're going to look to carry forward elements of this approach with the goal of maximizing return of and on capital in our business while continuing to provide competitive tolls for our customers.”

asked by Aaron MacNeil · answered by Francois Poirier

Can you elaborate on TRP's ability to maintain or gain market share for logistics opportunities in Pennsylvania, given recent energy summit announcements?

Francois Poirier and Tina Faraca highlighted the increased natural gas demand forecast and the upsizing of projects like Pulaski and Maysville. They are engaged in over 30 conversations with data center developers and aim to select high-grade projects with compelling returns, focusing on working with utility customers in the U.S.

“Our assets sit on top of some of the largest demand centers in North America and -- whether that's data centers, power demand or the like. So that really gives us optionality across our footprints. I won't speak to any specific projects in Pennsylvania, but we do have a number of conversations underway. Those are continuing to progress well.”

asked by Jeremy Tonet · answered by Tina Faraca

How does TC Energy plan to continue bringing projects under budget, and what is the incremental ability to add projects given balance sheet capacity?

Francois Poirier stated that project execution excellence is driven by better preparation and deploying more development capital upfront. The forward pipeline consists of brownfield, in-corridor expansions averaging $450 million. Increased competition for capacity gives pipeline companies more negotiating leverage, leading to improved returns. The company will carefully manage human and financial capacity, making it challenging to consider a larger program until 2028 or beyond.

“I think our performance on project execution demonstrates a huge focus within the organization on achieving project execution excellence. That comes with better preparation, deploying more development capital at risk prior to sanctioning so that we have -- we're able to deliver outcomes consistent with Board approval and what we've communicated to the marketplace. And we expect that to continue.”

asked by Jeremy Tonet · answered by Francois Poirier

Can you provide an update on the path to achieving the 4.75x deleveraging target?

Sean O'Donnell confirmed that 2025 is a peak year for capital and leverage, with leverage expected around 4.9x due to Southeast Gateway's partial-year contribution. The company is on track for 4.75x by the end of 2026, driven by full-year contributions from Southeast Gateway and seven other projects coming online by end of 2025, leading to organic deleveraging.

“We're bringing $8.5 billion of projects into service this year. This is really a peak year for us from a capital and service standpoint. We're going into our $6 billion to $7 billion range from here forward. So we're at a peak kind of delivery this year at $8.5 billion. We're also at our peak leverage. I think we've been pretty clear that 2025 will be in the 4.9 range in large part due to SGP, right, kind of only really getting a half years' worth of cash flow out of that. So it's really full year 2026 that we talked about in our prepared remarks that we are on track for our 4.75 in large part due to the 10 projects that Francois highlighted all coming into service by the end of 2025 and then converting to cash flow and organic deleveraging over the course of 2026.”

asked by Theresa Chen · answered by Sean O'Donnell

What is the cadence of project announcements for the NGTL multiyear growth plan, and how does capital allocation to NGTL compare to U.S. gas projects with potentially higher returns?

Tina Faraca stated that the NGTL multiyear growth program will continue with a cadence of projects to provide egress from the basin, honoring commitments. Francois Poirier added that while commitments will be honored, discretionary capital will predominantly be allocated to the U.S. due to meaningfully higher risk-adjusted returns compared to Canada.

“The multiyear growth program obviously was completed as part of a multiyear settlement we have on NGTL. And as we are evaluating the need for egress, we'll continue to have a cadence of how those projects will be supported. We have recently announced the Program 1 and Program 2, and we'll continue on a cadence through the next several years. Nothing really prescriptive about that, but the opportunity will be there to continue to provide egress from that.”

asked by Olivia Halferty · answered by Tina Faraca

What is TC Energy's willingness to pursue projects with partners versus independently, and where are partnership opportunities most interesting across its footprint?

Sean O'Donnell noted that for average brownfield projects ($400M-$500M), partners are not needed. However, partnerships are considered for value-add or larger projects, or to enhance capital efficiency. Greg Grant highlighted existing partnerships (OPS with SON, CGL, Bruce with OMERS) and strategic opportunities where capabilities or financial contributions are beneficial, particularly in Canada.

“Look, as Francois mentioned, our average project size is $400 million to $500 million, and its brownfield on our current systems. We do not need partners for projects of that type. That being said, right, as part of our capital efficiency, capital rotation partnership, always looking for partners that can either add value through capabilities, through cost of capital.”

asked by Olivia Halferty · answered by Sean O'Donnell