TC Energy Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 16 speakers on the call.

Operator

you for standing by. This is the conference operator. Welcome to the TC Energy Third Quarter 2024 Financial Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Mr. Gavin Wiley, Vice President and Investor Relations. Please go ahead, sir.

Speaker 1

Thanks very much, and good morning. I'd like to welcome you to TC Energy's 2024 Q3 conference call. Joining me are Francois Poirier, President and Chief Executive Officer Sean O'Donnell, Executive Vice President and Chief Financial Officer, along with other members of our senior leadership team. Francois and Sean will begin today with some comments on our financial results and operational highlights. A copy of the slide presentation that will accompany their remarks is available on our website under the Investors section.

Speaker 1

Following their remarks, we'll take questions from the investment community. We ask that you limit yourself to 2 questions. And if you're a member of the media, please contact our media team. If you have questions regarding the Liquids Pipelines business or South Bo beyond what is included in our Q3 reporting, please contact the South Bo team. I'll remind you that remarks today will include forward looking statements that are subject to important risks and uncertainties.

Speaker 1

For more information, please see the reports filed at TC Energy with the Canadian Securities Regulators and with the U. S. Securities and Exchange Commission. Finally, during our presentation, we'll refer to non GAAP measures that provide additional information on TC Energy's operational and financial performance, however, may not be comparable to similar measures presented by other entities. A reconciliation of various GAAP and non GAAP measures is contained in the appendix of the presentation.

Speaker 1

With that, I'll turn it over to Presshold.

Speaker 2

Thanks Gavin and good morning everyone. Our focus on a clear set of priorities for 2024 that includes safety, operational excellence and project execution has again delivered strong operational and financial results. In the Q3, comparable EBITDA is up 6% compared to the Q3 of last year. This positions us extremely well for the rest of 2024 where we now expect comparable EBITDA to be at the upper end of the range of our full year outlook. We've advanced multiple strategic initiatives aimed at maximizing the long term value of our assets, including successfully completing the spin off of our liquids pipelines business into South Bow on October 1.

Speaker 2

I'd like to take a moment to recognize our teams for the months of dedication, focus and collaboration from every corner of our organization to make this milestone possible. This marks the beginning of a new era for TC Energy and I'm excited to share with you our renewed vision at our upcoming Investor Day on November 19. Next, our focus on project execution is delivering meaningful results. We're making significant progress on our major projects, including Bruce Power Unit 3 MCR and Southeast Gateway, which I'll discuss in more detail on the next slide. We've placed $1,200,000,000 of projects in service year to date and expect to place approximately $7,000,000,000 of assets into service in 2024, which includes Coastal GasLink with another $8,500,000,000 coming online in 2025.

Speaker 2

Now given our strong project execution and optimization efforts, we now expect 2024 net capital expenditures to be between $7,400,000,000 $7,700,000,000 which represents a midpoint reduction of approximately 8% versus our initial outlook of $8,000,000,000 to $8,500,000,000 further enhancing our financial strength and flexibility. In combination with our strong year to date EBITDA performance, our revised outlook for capital expenditures and completed asset sales in 2024 totaling 1,600,000,000 dollars we are on track to achieve our year end debt to EBITDA target of 4.75 times. As to Southeast Gateway, this is our marine pipeline project that will supply up to 1.3 Bcf a day of natural gas to meet the growing need for reliable and affordable energy in the Southeast region of Mexico. Importantly, our strong execution and safety record have resulted in an updated estimated capital cost for the project to be between $3,900,000,000 $4,100,000,000 which is approximately 11% lower than our initial cost estimate of $4,500,000,000 and a significant driver behind our overall reduction in our 2024 capital program. We've now achieved mechanical completion on all major onshore facilities, which includes both compressor stations as well as a delivery meter station at Paraiso.

Speaker 2

Both the deepwater and onshore pipe installation has been complete and we've hydro tested approximately 500 kilometers of the offshore section. Only 1.4 kilometers of shallow water pipe installation remains and we expect to complete that work during the Q4. We continue to anticipate reaching mechanical completion in late 2024 or very early in 2025 and are on track to achieve our commercial in service no later than mid-twenty 25. Now the outlook for our business has never been stronger. Underpinned by wide scale electrification, demand for natural gas and reliable power generation continues to reach record highs.

Speaker 2

North American natural gas will play a critical role in increasing global access to reliable and sustainable energy. Our forecast highlights North America's natural gas demand will rise by about 40 Bcf a day by 2,035. And this surge in demand is driven by LNG exports, coal plant retirements, utility reliability needs, and of course, growing electricity consumption from AI and data centers. Rising demand will necessitate connections to new supply and demand centers and the maintenance and modernization of existing infrastructure to ensure its ongoing safety and reliability. Collectively, this growing demand is creating an environment that is rich with opportunities for the incremental build out of natural gas infrastructure.

Speaker 2

Now we'll be walking through these opportunities in more detail at our upcoming Investor Day on November 19. But suffice it to say, TC Energy is the only energy infrastructure company with incumbency in all three geographies in North America. And we believe that the strength of our base business combined with the vast opportunity set and disciplined capital allocation will allow us to deliver solid growth, low risk and repeatable performance. Safety and operational excellence form the foundation of everything we do at TC Energy. The Q3 was no exception.

Speaker 2

Our team's focus on these core principles combined with the demand for our vital energy assets ensured continued high utilization and availability across our asset base, including, for example, achieving 98% availability at Bruce Power. This in turn leads to increased year over year financial performance as illustrated on this slide. We will look to maintain this positive momentum through the end of 2024 and our focus remains on achieving our strategic priorities while continuing to deliver long term shareholder value. And now, I'll turn the call over to Sean.

Speaker 3

Thanks, Francois, and good morning, everyone. I wanted to start this morning by highlighting how the improvements in our cost optimization and project execution programs that Francois mentioned are contributing to our results this year. On the left chart, we show our original net CapEx outlook for the year of $8,000,000,000 to $8,500,000,000 On our Q2 call, we highlighted that our expectation was trending towards the lower end of that range. We now expect our 2024 net CapEx to be in the range of $7,400,000,000 to $7,700,000,000 This is a reduction of approximately $700,000,000 which creates dollar for dollar impact on our deleveraging plan, which I'll touch on in a moment. As you also heard from Francois, the largest driver of the CapEx savings is from the continued successful execution of our Southeast Gateway project, but there have also been project and cost optimization gains across the entire portfolio.

Speaker 3

In addition to the $700,000,000 in capital savings, we grew 3rd quarter comparable EBITDA by 6% year over year. And similar to prior quarters this year, we enjoyed contributions from across our entire asset base, as you can see on the chart to the left. Canada Gas saw higher rate base earnings from continued system expansions coming into service on both NGTL and Foothills. U. S.

Speaker 3

Gas put growth and modernization projects into service, including the Gilles Access project serving the Gulf Coast LNG markets. And results were partially offset from the closing of the Portland natural gas sale in August. In Mexico, we had higher equity earnings at Ser de Tejas, primarily from the strengthening U. S. Dollar over the peso.

Speaker 3

As a reminder, our contracts in Mexico are U. S. Dollar denominated, but we do see impacts from peso fluctuations due to equity accounting at Ser de Tejas. Our Power and Energy Solutions team saw improved contributions from Bruce Power, which achieved 98% availability in the 3rd quarter, up from 94% a year ago. Our Liquid segment decreased primarily due to lower margins from marketing activities, as a result of incremental WCSP egress capacity.

Speaker 3

Those are partially offset by higher volumes on the U. S. Gulf Coast system. Moving to the right chart, our comparable earnings of 1,100,000,000 dollars were 4% higher than the Q3 of 2023. There are some variances on the right chart worth spending a moment on.

Speaker 3

Depreciation was higher, reflecting expansion facilities and new projects being placed into service. Interest expense was lower, primarily due to reduced levels of short term borrowing and higher capitalized interest. AFUDC was higher due to continued capital spending on Southeast Gateway. And lastly, this quarter's deduction for non controlling interest increased, primarily due to the sale of the 40% interest in Colombia that closed in the Q4 last year. Our 2024 earnings outlook remains consistent with the outlook in our 2023 annual report and that our earnings per common share are expected to be lower this year than in 2023, driven largely by the NCI adjustments from the asset divestiture program.

Speaker 3

Turning to 12, we'll provide an update on our 2024 EBITDA outlook. Our focus on safety and operational excellence have contributed to yet another quarter of exceptional asset performance. If you look at the chart on the left for 2024, comparable EBITDA is expected to be at the upper end of our $11,200,000,000 to $11,500,000,000 range. When we exclude liquids EBITDA contribution in 2024, we expect TC's comparable EBITDA to be at the high end of our $9,900,000,000 to $10,100,000,000 range. For clarity, this is the range we expect to report in TC year end 2024 financials when liquids is moved to discontinued operations.

Speaker 3

On the right side of the page, I wanted to recap several of the important financial and deleveraging milestones that the team has achieved this year. We have achieved strong EBITDA performance. We've realized synergies through efficiency and integration measures. We closed on $1,600,000,000 in asset sales. And we have continued to improve our capital efficiency and CapEx cost optimization programs.

Speaker 3

The combined impact of these improvements to the business plan put us on track to achieve our 4.75 times debt to comparable EBITDA target by the end of 2024. As we look ahead to 2025, we expect to place approximately $8,500,000,000 of assets in service, which will drive EBITDA growth in the second half of twenty twenty five and full year 2026. I'll conclude my section this morning with a reflection on how our business model has delivered repeatable growth over the last 2 decades. 2024 represents a material inflection point for TC and that we are simultaneously experiencing improved capital efficiencies, repeatable low risk growth projects, the beginning of an organic deleveraging cycle and unprecedented increases in demand for natural gas and power on each of our systems. With our focused strategy as a natural gas and power company, we believe we have the lowest risk business model in this sector with a growth portfolio that offers very attractive risk adjusted returns.

Speaker 3

Given that outlook and our continued strong financial performance, TC's Board of Directors declared a 4th quarter dividend of $0.8225 per common share. This revised quarterly dividend reflects TC's proportionate allocation of the dividend pro form a for the closing of the spin off that closed on October 1. When taken together with South Bo's intended dividend for the Q4, our shareholders' combined dividends will remain whole in 2024. With that, I'll pass the call back to Francois.

Speaker 2

Thank you, Sean. In summary, our continued focus on a clear set of priorities in 2024, including safety, operational excellence and project execution excellence has delivered strong operational and financial results. Our focus for the rest of the year remains clear and we will continue executing against these three priorities. We look forward to connecting further at our Investor Day in a couple of weeks. 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. And our first question will come from Praneeth Satish with Wells Fargo. Please go ahead.

Speaker 4

Thanks. Good morning all. So maybe you'll touch on this at the upcoming Analyst Day. But I guess as you look across your portfolio here at all the various gas expansion opportunities, can you maybe break down how much of the demand you're seeing from coal to gas switching versus higher demand from power plants versus behind the meter generation? Kind of which of those categories represents the largest piece of the demand that you're seeing?

Speaker 4

And then do you see any differences in the economics across those different types of projects? Or are they all kind of clustered in that 6 to 8 times build range?

Speaker 5

Hey, good morning, Puneet. This is Stan. I could take a stab at that. I would just say that the growth across North America continues to be strong and supported by fundamentals that show that there's 40 Bcf of incremental demand between now and 2,035, which brings our total gas market to about 160 Bcf. And from us, we look at that growth as coming across 5 core drivers.

Speaker 5

The first and the biggest of them all is really LNG exports where we see a tripling of North American exports from 13 Bcf a day today to 39 Bcf a day, which is led by a more than doubling of exports in the U. S. With respect to power generation, there's lots of tailwinds across our footprint in terms of increased power demand led by coal to gas retirements and emerging demand from data centers. On the coal conversions, there are 9 plants within 15 miles of our pipes that are set to retire by 2,031 And then we think that could be an extra Bcf a day of load for us. When we look at the 300 or so data centers that are currently being contemplated across the U.

Speaker 5

S, 200 of those are located within 50 miles of our pipe. And we're currently in negotiations with various entities for up to 2 Bcf a day of that load and I expect us to compete for and win our fair share. And we're also focusing on opportunities around LDC reliability, which could be another 1 to 2 Bcf as well as supply access to make sure that producers have export capacity out of constrained market areas. And then lastly, we're going to continue to invest in modernization and maintenance capital expenditures across our systems. So big picture wise, when I add all that up, I see about 13 Bcf a day of growth opportunities that are in various stages of execution, development or origination.

Speaker 5

And in this target rich environment, I don't think we're going to have any problem filling up our $6,000,000,000 to $7,000,000,000 of capital and allocating that to the projects to give us the highest risk adjusted return and building those projects within our 5 to 7 times build multiple.

Speaker 2

And Puneet, this is Francois. Just for the last part of your question around color coding returns from each the different customer classes. We don't really think about it that way. I guess I would say, we have a finite amount of capital. We want to invest to balance balance sheet strength, dividend growth and repeatable performance.

Speaker 2

The fact that there are 6 or 7 different sources of demand competing for our capacity directionally increases the likelihood of us being able to sanction projects at higher returns going forward than we've been able to sanction projects at in the past. And given the fact that we see our cost of capital heading in a favorable direction over the next year or 2, that means that we see the spread between our earned returns and our cost of capital, widening in a meaningful way over the next couple of years, which gets us really excited.

Speaker 4

No, that's helpful. At the risk of this being maybe too early to ask, but I'll ask it anyway. There's a lot of opportunities obviously across the gas pipeline footprint. You have a CapEx limit in place for 2025. But I mean do you view yourself as CapEx constrained where you need to high grade projects?

Speaker 4

Because the way we see it, most of this demand pull most of these demand pull gas projects have long lead times in the 4 year range. And so even if you sanction the projects today, that spending doesn't really hit until the 2027, 2028 timeframe when your leverage is much lower. So how do you think about the long term CapEx trajectory of the company given all these opportunities?

Speaker 2

Yes. What I'd say, Praneeth, is that directionally, we are now entering sort of an organic deleveraging phase of our evolution. The beauty of our business and the strength of our franchise means that we have visibility that where we're going to allocate capital and our confidence in being able to allocate that $6,000,000,000 to $7,000,000,000 of capital all the way out to the end of the decade. And we're going to give you more color on that on November 19 at our Investor Day. Right now, we feel it's a priority to build a little bit of cushion or room to maneuver below that 4.75 debt to EBITDA leverage.

Speaker 2

And until we see that manifest itself, we're not likely to be considering increasing the size of our capital program. But as you said, we still have plenty of capital in the outer years of the decade within which to allocate capital, and that's our primary area of focus right now.

Speaker 6

Got it. Thanks all.

Operator

Your next question will come from Rob Hope with Scotiabank. Please go ahead.

Speaker 6

Good morning, everyone. Good to see you progress on the cost optimization on the capital expenditure front. Can you give a little bit more color on what key drivers have been there? And then also I guess on the expense side, has there been any progress been made to improve EBITDA there as well?

Speaker 5

Yes. This is Stan again. I could take a start. We did announce that we are reducing our capital guidance from $8,000,000 to $8,500,000 to $7,400,000 to $7,700,000 And you can think about that in a couple of different tranches. One is coming from our focus initiative that we talked to you about historically, roughly $270,000,000 or so of that savings are directly tied back to initiatives associated with our focus program.

Speaker 5

So we're really pleased with respect to that. A big part of the balance is just due to really good execution on our project and our maintenance capital expenditures and reducing those costs going forward.

Speaker 6

And then maybe just as a follow-up there. Aside from the capital side of the business, what about the operating cost side of the business? Has the focus project yielded any incremental improvements there? And can you help us quantify that?

Speaker 5

Yes, it has. With respect to the focus initiatives about 30% of the value that we created was tied to expense reductions, O and M expense reductions. And again, we'll be uploading those through to customers as we have various toll and rate cases in the future. But what it does is puts an emphasis on cash and makes us more efficient going forward.

Speaker 7

Thank you.

Operator

The next question will come from Theresa Chin with Barclays. Please go ahead.

Speaker 8

Good morning. I wanted to touch on the CapEx question a bit more, specifically related to Southeast Gateway. Can you provide a little bit more color on the project cost downtick? What drove that? And it's related to that, what is the probability that commercial service may start earlier than the mid-twenty 20 time 2025 timeframe since mechanical completion is earlier?

Speaker 8

Can you remind us what the status is of the downstream power gen assets please?

Speaker 5

Yes. There's a lot there and I'll try to unpack that for you. First of all, with respect to the cost savings, it's just really good project execution and you could think of about $140,000,000 in savings on the procurement side. So we were able to buy materials and equipment for less. There's about $230,000,000 in savings associated with more efficient construction and civil works activities.

Speaker 5

And those two things allowed us to release additional contingency of about $130,000,000 With respect to the power plants, I would just say that CFE's power plants generally remain on track. And the 2 that we're most focused on are the Meridia and Valadola plants and both of those are tracking for Q1 2025 in service. With respect to in service, I would just say that we're meeting with CFD on a consistent basis to ensure that we have alignment around the various project completion activities, which include both the favorable impact on tolls due to the lower costs as well as the potential for an accelerated project completion date and payment date. And those discussions are continuing and we'll have better line of sight on that with respect to the timing of in service and payment once we get a little further down the road with the project construction activities.

Speaker 8

Great. Thank you. And as we look to 2025 beyond, would love to get an update on how what your views are on how you're going to thread the needle with leverage. So will this be more of a self help organic growth focus, organic CapEx focused endeavor? Or are you contemplating additional asset sales from here to complement that?

Speaker 3

Good morning, Theresa. It's Sean. I'll take a stab at that one. Great question. I think maybe let me start just with the 2024 plan to give you context to what the levers that we have been pulling on the deleveraging plan and we'll give you a sense for what 2025 and forward looks like.

Speaker 3

As we enter 2024 with 4.75 squarely in mind for year end, we were relying on EBITDA performance, capital efficiency and CapEx and asset sales. And we were guiding kind of our internal planning conservatively on EBITDA, conservatively on CapEx and we targeted about $3,000,000,000 worth of asset sales for this year. What you're seeing in today's quarterly results, yes, we're at the high end of EBITDA, a couple of 100,000,000 ahead on EBITDA, $700,000,000 ahead on CapEx. That's $1,000,000,000 And as Francois mentioned, dollars 1,000,000,000 in savings, it's a 2 for 1. It's almost the value of $2,000,000,000 worth of asset sales.

Speaker 3

So we have gotten to our leverage target in 2024 through the least cost or highest value retention path possible really through these CapEx savings that Stan talked about. So a little bit of a preview of Investor Day, the $700,000,000 we're talking to you about today is a component of about $2,500,000,000 worth of CapEx savings that we have across the next couple of years of our development portfolio. In addition to some of the savings that are hitting EBITDA in the next couple of years. So we're going to get into the composition and the timing of all of that at Investor Day, but that is to say our 25 leverage target in particular is going to benefit from the same trend on EBITDA and CapEx as we're talking about today. But we'll unpack that further for you in 2 weeks.

Speaker 8

Thank you.

Operator

The next question will come from Maurice Choe with RBC. Please go ahead.

Speaker 9

Thanks and good morning everyone. So let me come back to a comment Dan mentioned about being target rich and not having any troubles filling up the CapEx plan. Just philosophically speaking, like do you tend to want to high grade some of these or and max out at $6,000,000,000 to $7,000,000,000 Or would you prefer to find alternative non equity funding like sales or even JV partners to build more and keep it within $6,000,000 to $7,000,000 net? But with that specifically, would you bring in the partners first and then build? Or would you build and then look for funding solution later?

Speaker 2

Maybe I'll take a crack at that one, Maurice. It's Francois. Yes, absolutely. We've talked about the benefit of having partners like GIP on our TECO system, allowing us on a gross basis to continue to allocate the full amount of capital that the system needs in order to maintain its incumbency position, while at the same time allowing us to manage to our $6,000,000,000 to $7,000,000,000 capital spend on a net basis. To the extent we see opportunities to bring in additional partners, or to rotate capital from mature assets down the road, in order to improve our EBITDA growth and improve our return on invested capital on our existing assets, we will absolutely contemplate those.

Speaker 2

For the time being, however, we are resolute on the $6,000,000,000 to $7,000,000,000 We think it's important for us to continue to organically delever over time and build some cushion below that 4.75 metric. And because we see the spread between our earned return and our cost of capital widening over the next couple of years, we really are very confident in our ability to continue to grow EBITDA, grow cash flow per share and therefore grow the dividend in a commensurate manner.

Speaker 9

Thanks. And just to finish up on a question on Southeast Gateway. You mentioned that there remains 1.4 kilometers of shallow water construction. Is that the only material construction risk item left? Or are there other work items that you're watching that might derail your cost or timing?

Speaker 9

And in particular, given that you have savings from this overall cost structure, I assume that there is no change to your expected EBITDA and there's no share in the wealth here?

Speaker 5

With respect to the work, the 1400 meters we have left for the most part is the last of the major work. After that, we're really going to turn our attention to pre commissioning activities and then commissioning activities and then in service date no later than mid-twenty 25. There is cost sharing in the agreement that we have with CFE and we will be adjusting the totals accordingly once we know what

Speaker 3

the final capital expenditures are.

Speaker 2

And Maurice, you'll see in our forecast and our outlook for EBITDA for 2025 and beyond, we will have adjusted for the revised capital spend. We thought that was the cost sharing basically on a fifty-fifty basis when CFE only owns 13% currently of the common equity was provided us with good downside protection. We have a happy customer. We've reduced our capital spend by $600,000,000 So I think it's a happy day for everybody.

Speaker 9

Thank you very much.

Operator

Your next question will come from Keith Stanley with Wolfe Research. Please go ahead.

Speaker 10

Hi, good morning. I wanted to ask on data center linked opportunities. Are you thinking at all about vertical integration and potentially even getting into behind the meter gas fired power plants? I know the company used to build gas power plants. And then relatedly, how are you thinking about the EPA 111D rule eventually requiring CCS for new gas plants and how that's impacting discussions with customers?

Speaker 11

So I'll take the first part of your question around gas fired generation. So we are not as part of our Power and Energy Solutions strategy looking to build standalone gas fired power generation. We clearly see benefits across our existing portfolio to increase electricity demand as a result of the tailwinds in the sector. It doesn't necessarily preclude us looking at gas fired generation to the extent it was supportive of investment we were looking to make on our gas transmission side of the business. However, it would have to compete with capital across the portfolio.

Speaker 11

So we would be looking at those projects only to the extent we saw returns that were competitive with the other opportunities that we have in the portfolio.

Speaker 2

And with respect, Keith, to the second part of your question around the EPA rule, look, obviously, we comply with regulations at all times. That rule, if applied, would be applied uniformly across the industry, meaning that every form of or every developer and operator of gas fired generation would have to comply with it. We'll see what policy changes come from a new administration in the United States. And as I said, when it comes to natural gas, for power generation, the data centers have high ambitions around developing their projects. It's not only economics.

Speaker 2

It's time to in service. And we feel that natural gas fired power generation is going to be the broad solution to meet their electricity requirements. There are only so many nuclear plants that you can be mothball. And they need the reliability that natural gas provides. So we're not concerned about regulation materially impairing the competitiveness of gas fired generation going forward.

Speaker 10

Thank you for that. Second question, just curious if there's any update on discussions with stakeholders for a sell down of NGTL, if you're optimistic on that and potential timeline?

Speaker 2

So there's kind of 2 parts to that question, Keith. I'll answer the first part and then I'll ask Sean to pick up the second part. And I want to underscore that we do continue to work with our indigenous partners to find a pathway forward. We think indigenous economic participation is really important. But I'm going to limit my comments on these ongoing discussions out of respect for the 72 communities and all of those involved in the process.

Speaker 2

We will, of course, provide material updates as they come available. But there is a question behind that one, which is our need and reliance on that transaction for deleveraging. And I'll pass that over to Sean.

Speaker 3

Yes. Thanks, Francois. Good morning, Keith. Look, generally, just a question about our asset sales required for our 4.75 target. The answer there, broadly speaking, is no.

Speaker 3

And that is good news, right? Our EBITDA outperformance and the CapEx savings, not only the $700,000,000 today, but the $2,500,000,000 that we'll talk about in a couple of weeks takes the pressure off, really removes the pressure of selling assets and as we're going into this organic deleveraging phase. So we are pleased to not have to look specifically at asset sales solely for the purpose of hitting our leverage targets going forward.

Speaker 7

Thank you.

Operator

The next question will come from Manav Gupta with UBS. Please go ahead.

Speaker 12

Good morning. Thanks for all the positive updates on the Southeast Gateway. I just wanted to talk about the other growth projects, which are also coming on in the next 12 to 18 months, whether it's Colombia Gulf expansion or NGTL system Phase 2. Can you give us an update on the progress you are making on the other key growth projects expected to come online in the next 12 to 18 months?

Speaker 5

Yes. Over the next 12 months or so, we have about $8,500,000,000 of capital coming into service, largely led by SGP, which as you heard is trending very positively. And then we have 2 big projects in the U. S, both of which are trending on time and on budget. So very much a good news story overall.

Speaker 12

Perfect. And then how should we think about expansion plans in Bruce? And how does that fit into your overall portfolio?

Speaker 11

So for Bruce Power, we continue to progress the refurbishment program and it is going exceptionally well. As you likely are aware, the Unit 3 MCR outage began in Q1 of 2023 with expected completion in Q2 of 2026. Costs and schedule are tracking to plan with the fuel channel assembly removal series complete and the inspection series well underway. And the next MCR is Unit 4. We received the ISO approval to proceed in February and there is a refurbishment outage start date planned for Q1 of 2025.

Speaker 11

So all of the preparation work is well underway and we are now transitioning to get ready for construction start early next year. So we continue to be very pleased with the capital that we continue to invest in Bruce Power. It allows us ongoing opportunity as part of our $6,000,000,000 to $7,000,000,000 capital program of about $1,000,000,000 per year at very good returns through to the end of the decade.

Speaker 12

Thank you so much. I'll turn it over.

Operator

The next question will come from Olivia Hafferty with Goldman Sachs. Please go ahead.

Speaker 13

Hi, good morning. Thank you for taking our questions. I wanted to go back to the CapEx budget for next year onward. How much of that $6,000,000,000 to $7,000,000,000 annual CapEx budget is already committed over the next few years? And on the other side, how much is uncommitted and therefore open to add natural gas demand growth related projects?

Speaker 2

Thanks for the question, Olivia. Again, I think because of the strength of our franchise and the visibility we have in terms of the development projects going forward, The lion's share of our capital for 2025 is committed. We've got a little bit of room, and we'll show you more data on this at the coming Investor Day on the 19th November. We got a little bit of room in some of the other years, but we're already looking to fill and sanction projects with spend and service dates in the latter part of the decade. Again, we're, I think, a little bit unique in our ability to provide you with a fairly high degree of visibility on where the capital is going to be allocated.

Speaker 2

And we know the return profiles are right to the end of the decade.

Speaker 13

Got it. Thank you. And one more. Following the spin off of the liquids business and as you near completion of Southeast Gateway, how are you thinking of balancing the broader opportunity set in Mexico from here versus managing total business exposure in the region?

Speaker 2

So I think perhaps the one exception to the divestiture or deleveraging being organic and divestiture program being done would be in Mexico. But it's not really anymore for deleveraging purposes. This would be about managing our customer concentration risk and our Mexico exposure overall. We are still working on either bringing in a either bringing in a partner or some other way to reduce our exposure. That's good news because we see additional growth opportunities in country once the backbone of the infrastructure is built.

Speaker 2

Adding fingers and toes to that infrastructure is are very attractive risk adjusted returns. But in order for us to be contemplating any additional capital, we're going to have to reduce our exposure. Pro form a for Southeast Gateway going into service will be at about 15% of consolidated EBITDA. We'd like to see that come down. We believe that derisking and putting into service all of the cash flow streams we have in Mexico before doing that is really the way to maximize shareholder value.

Speaker 13

Okay, great. Thanks for the time.

Operator

The next question will come from Robert Catellier with CIBC. Please go ahead.

Speaker 14

Hey, good morning. You've answered most of my questions already. So maybe just a couple of quick project updates. First of all, on the Coastal GasLink, it sounds like that first phase will be in service before too long. Do you have any sense of where we are with Phase 2?

Speaker 5

Yes, this is Stan. Really no new updates with respect to Phase 2 since we last spoke. We're continuing to do early development work as requested by LNGC and assess the Phase 2 expansion opportunities and obviously the final investment decision rests with them.

Speaker 14

And a similar question for the Ontario pump storage. Are there any updates on the progress there getting the required commercial framework?

Speaker 11

Yes, thanks. It's Ansley. We continue to remain very excited about the project. We continue to see significant economic benefits for the province, our partnership with the Saugeen Ojibwe Nation and the benefits that the long duration storage nature of the project can bring to the province's nuclear ambition. There was a new Minister of Energy and Electrification appointed in Ontario in June.

Speaker 11

And there's been a renewed focus on moving the project to the next phase, which is simply some development work that will allow us to narrow the project capital cost estimates. So we are working on an agreement that would take the form likely of a cost recovery agreement so that we will be in a position to be able to advance the project to that next stage. So the discussions continue and we hope to be able to come to some conclusion from a commercial perspective that allows us to continue that project.

Speaker 14

Okay. Thank you.

Operator

The next question will come from Bin Sam with BMO. Please go ahead.

Speaker 7

Hi, thanks. Good morning. May I start off with Bruce Power and the high availability during the quarter? I think it's a record from what I can see historically. Can you talk about what was driving that utilization?

Speaker 7

Was it something also externally driven? And then can you follow-up the availability of your units on a post MCR basis?

Speaker 11

Yes. Thanks very much for the question. So Bruce Power did have record availability in the quarter. It was not an externally driven factor. It was because there were no planned outages in the quarter for Bruce Power.

Speaker 11

And so that just allowed a much higher availability for the units. And we only have one unit under MCR right now. And so that's how we were able to achieve the output that we did for the quarter. Heading into the 4th quarter, it will be similar because again, we'll only have 1 unit under MCR and we will we don't have any planned outages for the quarter. However, it will not continue into 2025.

Speaker 11

We expect to go back to having that availability factor around low 90s as has been the case. And that's just because we will continue to have planned outages as we have historically.

Speaker 7

Okay. Got it. I mean, low-nine percent is still pretty good. And then maybe the second question on EBITDA growth guidance, maybe thinking about through the end of the decade, if you're hypothetically spending $6,000,000,000 to $7,000,000,000 self funded, returns are still pretty good. What do you expect in terms of EBITDA growth on a CAGR basis through the end of the decade?

Speaker 2

I think what we'd like to do, Ben, with great respect for the question is to give you insights along with a whole bunch of information to support the credibility of that range at our Investor Day in a couple of weeks. So if I could ask you to be patient until then, we'll be able to answer that question in a very fulsome manner.

Speaker 7

Okay. No problem. Okay. Thank you.

Speaker 5

Thank you.

Operator

The next question will come from Jeremy Tonet with JPMorgan. Please go ahead.

Speaker 15

Hi, good morning.

Speaker 5

Good morning.

Speaker 15

I just wanted to come back to Southeast Gateway, if I could, a little bit of different angle here. Just wondering, everything you're saying here, it sounds like mechanical completion is imminent in service, all the commissioning very quick as well. Just wondering if it does reach in service early, is it the potential to serve other customers in that market if it's available before the agreed start date? And just specifically as it relates to leverage, how much deleveraging does this project in service deliver?

Speaker 5

Yes. Jeremy, I'll take the first part of that. We still have a little bit of work to do with respect to pre commissioning and commissioning activities. We should get to mechanical completion sometime around year end or slightly thereafter. And again, we're working towards a contractual in service date mid year 2025 and if we can improve upon that, we will.

Speaker 5

With respect to serving markets, again CFU is our customer and this gas is destined to serve power generation facilities in the Yucatan Peninsula.

Speaker 4

And as far as the Jeremy

Speaker 3

yes, sorry. Jeremy, it's Sean. Thanks for the question. Look, we're going to give you all sorts of kind of modeling metrics for this here in the next 2 weeks. But look, round numbers, full year basis, what SGP is going to deliver us, $750,000,000 kind of CAD EBITDA.

Speaker 3

So you can kind of just on a full year basis depending on how you're modeling kind of debt numbers for us. It's a it will be a point kind of 0.0 5 to plus or minus 1, but we'll have all that model detail for you at Investor Day.

Speaker 15

Got it. Interesting. And fingers and toes in Mexico, it sounds like data center opportunities there potentially. But I want to shift a little bit. I think the appetite for nuclear in Ontario kind of stands out versus other areas, I think, and we see the BRUCE study there.

Speaker 15

You've described yourself as the best intersection of electron molecules here. Could you walk us through how the portfolio enables you to capitalize in the current environment, specifically the nuclear side? Granted it could be a little bit later dated, but what do you see as potential there on your site?

Speaker 11

Why don't I I'll start with Bruce Power specifically. And so our Power and Energy Solutions strategy with respect to nuclear is really focused on our investment in Bruce Power, and that's because we have an incredibly strong power purchase agreement that goes all the way out to 2,064 and allows us to continue to invest meaningful capital through that agreement with very good returns. And so we're committed to continuing the refurbishment program for Bruce C. As I think we've shared, it's still in the very early stages with a site impact assessment being done. But it demonstrates that we see there's the potential for even further commitment to nuclear further out.

Speaker 11

But it gives us ample opportunity to really maximize the value of our existing investments to deploy capital at really strong returns.

Speaker 2

And Jeremy, as to more broadly our interest, look, the secret sauce in nuclear is in terms of growth potential is you have a good site. You have an operating license because those licenses are very expensive and time consuming to achieve. And then you have a management team that has a strong track record of operational and project execution excellence. We believe that our team at Bruce has demonstrated that amply with bringing in Unit 6 MCR in the middle of COVID on budget and a month early. So with those three factors being critical to us allocating capital into nuclear, we don't really see the need for us to expand beyond the Bruce Power site.

Speaker 2

We think there's ample opportunity for us to invest capital as part of our $6,000,000,000 to $7,000,000,000 going into really into the 2030s.

Speaker 15

Got it. I'll leave it there. Thank you.

Speaker 2

Thank you.

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 would now like to turn the call back over to Mr. Gavin Wiley for any closing remarks. Please go ahead, sir.

Speaker 1

Well, thank you for your interest in TC Energy and joining us this morning. As you heard from Francois, we'll be holding our 2024 Investor Day on November 19, and we look forward to seeing you in person and providing you with a more detailed update at that time. Thanks again.

Operator

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

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Earnings Conference Call
TC Energy Q3 2024
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