Partnership Profile. February 2018

Transcription

1 Partnership Profile February 2018

2 Forward-Looking Information and Non-GAAP Measures This presentation may contain forward-looking statements within the meaning of securities laws. Forward-looking statements can be identified by words such as believes, expects, intends, anticipates, forecasts, estimates and other words or expressions of similar reference to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward looking statements include but are not limited to: the potential impact of any final federal tax reform, change in customer base and contract profile; failure of announced dropdowns from TransCanada to close and anticipated dropdowns from TransCanada to materialize; failure of acquisitions to be immediately accretive to cash per common unit generated from operations; changes in availability of natural gas from existing supply basins; and other risks inherent in an investment in us as discussed in our most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Any forward-looking statement made in this presentation speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may occur from time-to-time and it is not possible to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. We use the non-gaap financial measures EBITDA and Distributable cash flow as a supplement to our GAAP financial statements. EBITDA is an approximate measure of our operating cash flow during the current earnings period. Distributable cash flow provides a measure of distributable cash generated during the current earnings period. It measures our earnings before deducting depreciation and amortization and it includes cash distribution from our equity investments less income from those equity investments. These measures are performance measures presented to assist investors in the evaluation of our business performance. We believe these measures provide additional meaningful information in evaluating our financial performance and cash generating capacity. These non-gaap financial measures are provided as a supplement to GAAP financial results and are not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A reconciliation to the most closely related GAAP measures is included in our most recent Management s Discussion and Analysis filed with the SEC. These measures do not have any standardized meaning prescribed by GAAP. They are, therefore, considered to be non-gaap measures and are unlikely to be comparable to similarly titled measures presented by other entities.

3 TC PipeLines, LP (TCP) Investment Proposition Track Record of Delivering Long-Term Value 13% average annual return since 1999 Disciplined Growth Anticipate dropdowns from TransCanada and organic growth from our portfolio of pipeline assets Low-Risk Energy Infrastructure Assets Almost entirely underpinned by long-term, ship-or-pay contracts Solid Financial Position Conservative balance sheet Investment grade credit ratings Strong History of Distribution Increases

4 TC PipeLines, LP (NYSE:TCP) Portfolio of eight natural gas pipelines Growing industry, clean fuel Serves regionally diverse basins and customer bases Limited variability FERC regulated with long-term, ship-or-pay contracts No commodity price exposure Very little volume risk Financial flexibility and liquidity Solid balance sheet Investment grade credit ratings MLP of TransCanada Corporation TransCanada views TC PipeLines as a core element of its strategy and a meaningful financing option as it executes its sizable capital growth program Broad footprint provides key links between low-cost natural gas supply and key markets

5 2017 Accomplishments Generated net income attributable to controlling interests of $252 million Generated distributable cash flow of $310 million Significant growth in our asset base with $765 million dropdown acquisition of 49.3 percent of Iroquois and 11.8 percent of PNGTS Further diversified our geographic footprint and access to key markets Achieved continued rate stability across our portfolio Obtained positive results in rate settlements at Great Lakes and Northern Border Issued $500 million of ten-year senior unsecured notes at a competitive interest rate of 3.90 percent to partially fund dropdown transaction Contracted strong volumes on GTN, Great Lakes and Northern Border Advanced Portland XPress Project Held a successful open season and proceeding with PNGTS expansion Raised net proceeds of approximately $176 million in common equity through the ATM equity issuance program and through a General Partner contribution Advanced significant growth while achieving continued stability for our pipeline assets

6 Key Focus Areas and Future Opportunities Execute Portland XPress Project Low-cost, brownfield compression to increase capacity to ~0.3 Bcf/d Capex approximately $80 million In-service dates phased-in over 3 years beginning November 2018 Near-term organic opportunities from WCSB Realize benefits from additional contracts on GTN and Great Lakes Successful open seasons at GTN for increasing capacity resulted in the sale of all available firm capacity beginning mid-2020 Seek further opportunities for growth across our natural gas business Continue to develop network of critical gas infrastructure

7 Strong GP in TransCanada (TSX, NYSE:TRP) One of North America s Largest Natural Gas Pipeline Networks 57,100 miles of pipeline 653 Bcf of storage capacity Transports approximately 25% of North America s natural gas demand Premier Liquids Pipeline System 3,000 miles of pipeline Transports 20% of Western Canadian exports One of the Largest Private Sector Power Generators in Canada 11 power plants, 6,100 MW Enterprise value ~ C$100 billion Portfolio of complementary energy infrastructure assets

8 Assets Highly Interconnected to TransCanada s Asset Portfolio TransCanada s NGTL System expanding to serve growing WCSB production Export capacity from Alberta and British Columbia to step up by 650 MMcf/d between 2018 and 2020 This capacity increase is approximately matched with corresponding contracts on GTN TransCanada s Mainline load attraction service TBO contract on Great Lakes for 711,000 Dth/d commenced on November 1, 2017 Potential for follow-on offerings TransCanada s Mainline capacity enhancements in Eastern Canada Portland XPress Project of ~$80 million to proceed concurrent with upstream capacity expansions Great Lakes access to Michigan natural gas storage fields Provides key connection for TransCanada s ANR system and Mainline customers TCP benefits from GP s initiatives on upstream pipelines

9 TransCanada s Funding Program Through 2020 $Billions Dividends & NCI Distributions Portfolio Management, ATM (as appropriate) & Other Hybrid Securities & Preferred Shares Senior Debt, Commercial Paper & Cash TransCanada s Outlook Numerous Levers Available to Fund Near-Term Capital Program Cash flow from operations 20 DRP Proceeds Dividend Reinvestment Plan Access to capital markets including: 15 Senior debt 10 5 Capital Program (including development costs & maintenance capital) Funds Generated from Operations Hybrid securities and preferred shares Portfolio management including possible dropdowns to TC PipeLines, LP Potential further project recoveries At-The-Market (ATM) program, as appropriate 0 TCP is a key element of TransCanada s financial strategy

10 TC PipeLines Anticipates Future Dropdowns from TransCanada TCP is TransCanada s sole MLP vehicle Expect assets to be offered to the Partnership over time $765 million acquisition of 49.3% interest in Iroquois and TransCanada s remaining 11.8% interest in PNGTS closed June 1/17 Well-positioned with access to multiple supply basins and large market centers Great Lakes benefits from WCSB production through Mainline TBO contract Millennium connects Appalachian natural gas supply to New York City market ANR benefits from rate case settlement - includes $837 million of maintenance capital for reliability and modernization projects, reflected in its rates TransCanada has a significant portfolio of potential dropdown candidates

11 Substantial North American Natural Gas Resource WCSB ,018 Tcf Tcf Reserve Estimate Rockies / San Juan Tcf Tcf Mid-Continent / Permian Tcf Tcf Appalachian Tcf Tcf Gulf Coast Tcf Tcf Reserve Estimates in the WCSB and Appalachian Basin Have Grown Significantly Source: TransCanada, U.S. Energy Information Agency, U.S. Potential Gas Committee, various Canadian Regulatory Agencies and various Canadian Professional Organizations

12 Relationship to WCSB Historical cost base significantly more competitive than greenfield development WCSB is one of the lowest cost basins in North America Rolled-in economics Quicker access to market TransCanada s Mainline fully contracted for winter 2017/2018 moving gas to eastern markets Looking to expand capacity to offer increased transportation path for growing WCSB production Increasing production connected to our GTN, Northern Border and Great Lakes pipelines Creating opportunities for continued growth Continued growth and long-term sustainability of our pipelines

13 Natural Gas Production Estimates by Major Basins WCSB Bcf/d Bcf/d Bcf/d Rockies / San Juan Bcf/d Bcf/d Bcf/d Mid-Continent Bcf/d Bcf/d Bcf/d Daily Production Appalachian Bcf/d Bcf/d Bcf/d Permian Bcf/d Bcf/d Bcf/d * Note: the production figures represented here are not inclusive of all North American producing regions Gulf Coast Bcf/d Bcf/d Bcf/d TCP s pipeline assets benefit from growing production Source: TransCanada as at June 2017

14 Relationship to U.S. Northeast Gas Supply Marcellus / Utica strong gas supply growth TransCanada s strong incumbency position in U.S. Northeast driving opportunities for our pipeline systems Westward flows moving onto the Great Lakes and ANR systems Access to high quality storage Connections to large mid-west markets Eastward flows moving to Canada, New York and New England markets Access for PNGTS and Iroquois shippers Strong winter markets High seasonal pricing Additional investment opportunities are expected to connect growing supply to market Increased natural gas at Dawn hub encouraging downstream expansion on pipelines such as PNGTS

15 Diversified Sources of Cash Flow 2017 Distributable Cash Flow * Diversified cash flow base Eight pipelines in multiple markets 93% of cash flow from long-term contracts * Distributable Cash Flow is a non-gaap measure. Includes Iroquois cash distribution for nine months ended December 31. Premium, geographically diverse natural gas pipeline network

16 Maintenance Capital $ Millions TCP s share of maintenance capital ~$63 million in 2017 and currently expected to range between ~$50 million and $60 million in 2018 and 2019 Expenditures are the result of: Increased utilization due to higher natural gas flows Pipeline integrity work Capital spend expected to become part of rate base and earn a return on and of capital E 2019E Maintenance capital expected to be recovered in future rate cases

17 Strong and Diverse Customer Mix Transportation Customers by Credit Quality * 74% 17% 9% Investment Grade Non-investment Grade Unrated Diverse customer mix includes utilities, large producers, marketers and power generators * As of December 31, 2017

18 Solid Financial Position Investment grade credit ratings Solid capital structure Indicative of quality assets within portfolio Recent reaffirmation of credit ratings; Baa2/Stable from Moody s and BBB-/Stable from S&P Liquidity and flexibility Credit facility of $500 million; $330 million available as at February 23, 2018 Right to request increase in credit facility by $500 million Closed $500 million 10-year public debt offering at 3.90% on May 25, 2017 Solid distribution coverage

19 TC PipeLines, LP Value Attributes What we have Broad geography Multiple basins Aggregation of supply WCSB and Marcellus/Utica supply our significant pipelines Historic cost base vs expensive new builds What this means Not dependent on one field, basin, market or producer Competitive supply growth Rolled in gathering and transportation costs Benefit of lower Canadian dollar for Canadian natural gas Our assets are more competitive in all of our markets Well positioned in the market

20 TC PipeLines, LP Value Attributes What we have Ship or pay contracts What this means No commodity risk Very little volume risk Diversified, creditworthy customer base LDCs, utilities, major producers Minimal counterparty exposure Revenue security Last mile advantage Minimal bypass risk Enduring contracts and value creates long-term value

21 Well Positioned for Growth Stable cash flow from pipeline asset base Reliable and resilient infrastructure Disciplined investment approach Execute opportunities within our footprint with focus on long-life critical energy infrastructure Develop or acquire assets that provide stable cash distributions with a low-risk profile Growth opportunities Dropdowns from TransCanada Organic growth / recontracting opportunities Third party acquisitions Current portfolio Pipeline System TC PipeLines, LP Ownership (%) Bison 100 GTN 100 Great Lakes Iroquois 49.3 North Baja 100 Northern Border 50 PNGTS 61.7 Tuscarora 100

22 TC PipeLines, LP Investment Proposition Track Record of Growing Cash Distributions 18 consecutive years of distribution increases 6% increase in quarterly distribution in July, 2017 Low-Risk Energy Infrastructure Assets Diverse portfolio of FERC-regulated interstate natural gas pipelines Substantially backed by long-term, ship-or-pay contracts with strong counterparties Investment grade credit ratings Growth Opportunities MLP of industry leader TransCanada Corporation Dropdowns from TransCanada and organic expansions provide future growth opportunities Core holding for long-term investors

23 Appendix

24 Fourth Quarter 2017 Financial Results (unaudited, millions of dollars except per common unit amounts) Three months ended Twelve months ended 31-Dec 31-Dec Net income attributable to controlling interests (a) (a) Net income per common unit basic and diluted (b) $0.77 $0.70 (c) $3.16 $3.21 (c) Cash distributions paid (74) (66) (284) (250) Class B distributions paid - - (22) (12) Cash distributions declared per common unit $1.00 $0.94 $3.94 $3.71 EBITDA (d) (a) (a) Distributable cash flow (d) (a) (a) Weighted average common units outstanding (millions) (e) Common units outstanding, end of period (millions) (e) (a) (b) (c) (d) (e) Recast information to consolidate PNGTS for all periods presented as a result of the additional percent interest in PNGTS that was acquired from TransCanada on June 1, 2017, increasing the Partnership s ownership in PNGTS to percent (2017 Acquisition). Prior to this transaction, the Partnership owned a 49.9 percent interest in PNGTS that was acquired from TransCanada on January 1, Net income per common unit is computed by dividing net income attributable to controlling interests, after deduction of net income attributed to PNGTS former parent and amounts attributable to the General Partner and Class B units, by the weighted average number of common units outstanding. Net income per common unit prior to recast. Distributable cash flow and EBITDA are non-gaap financial measures. The reconciliations of these measures to the most directly comparable GAAP measure, Net Income, are available on our website under the supplemental schedules published as part of our fourth quarter earnings release. Under the ATM program, the Partnership issued 953,430 and 3,118,592 units during the three and twelve months ended December 31, 2017, respectively.

25 Fourth Quarter 2017 Financial Results (unaudited, millions of dollars) Three months ended Twelve months ended 31-Dec 31-Dec (a) (a) Transmission revenues Equity earnings from unconsolidated affiliates Operating, maintenance and administrative (29) (25) (103) (92) Depreciation (24) (25) (97) (96) Financial charges and other (23) (18) (82) (71) Net income Income taxes - - (1) (1) Net income attributable to non-controlling interests Net income attributable to controlling interests (a) Financial information was recast to consolidate PNGTS for all periods presented. Prior to the recast associated with the 2017 Acquisition, our net income attributable to controlling interests was $60 million and $244 million for the three and twelve months ended December 31, 2016, respectively, reflecting our 49.9 percent ownership in PNGTS. After the recast, net income attributable to controlling interests was $61 million and $248 million for the three and twelve months ended December 31, 2016, respectively, reflecting our 61.7 percent ownership in PNGTS. Net income attributable to PNGTS former parent of $1 million and $4 million, reflecting the percent interest not then owned by the Partnership, for the three and twelve months ended December 31, 2016, respectively, reconciles the net income as previously reported with that after the recast.

26 TC PipeLines, LP Unit Performance % Average Annual Return * Assumes initial investment at May 25, 1999; distributions reinvested on payment date

27 North American Natural Gas Demand Bcf/d History Forecast Electric Generation Industrial 40 Commercial 20 Residential 0 Pipe/Plant Fuel Source: TransCanada 27 Bcf/d of demand growth over the next decade driven by LNG exports, gas-fired power generation and industrial demand

28 Regional Demand Growth Over the Next Decade Natural gas demand forecast to grow significantly Across the spectrum, including LNG along the Gulf Coast and potentially in British Columbia Opportunity for TransCanada and TC PipeLines to provide a seamless connection along our pipelines to growing markets Gulf Coast Central and Northeast U.S. West coast Mexico Growing market demand creates opportunities for growth All in Bcf/d Source: TransCanada

29 West Coast Pipelines (100% TCP Ownership) Stable, consistent financial position Revenues underpinned by long-term, ship-or-pay contracts GTN: substantially supported by long-term contracts through 2023 and beyond North Baja: contracts maturing between 2022 and 2031 Tuscarora: fully contracted through 2020 Potential growth from power generation, LNG export and delivery of natural gas into Mexico TransCanada s NGTL expansion plans create downstream opportunities for GTN without need for extensive capital outlay Additional contracts of ~650 MMcf/d to step up between 2018 and 2020 Sold all available firm capacity beginning mid-2020

30 Mid-West: Northern Border and Bison (50% and 100% TCP Ownership respectively) Northern Border Revenues substantially contracted through end of 2020 Ongoing success in longer-term contract renewals Filed settlement agreement with FERC on December 4, 2017; not expected to have a material financial impact to TCP Corporate credit rating affirmed by S&P at BBB+ with a stable outlook Emerging Bakken shale play creates valuable opportunities Bison Revenues fully contracted through January 2021 Ship-or-pay contracts paid for transportation service regardless of volume of natural gas shipped Assessing future opportunities post initial contract expiration in 2021

31 Mid-West: Great Lakes (46.45% TCP Ownership) Critical regional infrastructure Mix of shorter-term, short-haul contracts with longterm contracts including 10-year TransCanada Mainline transportation agreement for 711,000 Dth/d which commenced November 1, 2017 Gas storage interconnections with total regional storage capacity of ~650 Bcf Competitive path for WCSB natural gas volumes in a changing market environment FERC approved rate settlement on February 22, % rate reduction expected to be more than offset by revenues from increased contracting Provides long-term rate stability Positioned for future WCSB growth and potential TransCanada Mainline expansion Opportunities with Marcellus and Utica gas

32 U.S. Northeast: PNGTS (61.7% TCP Ownership) FERC-regulated interstate natural gas pipeline Operated by TransCanada Steel-in-the-ground advantage and a critical link in meeting New England and Atlantic Canada s energy needs Supported by long-term contracts Increased certificated capacity by ~25% to 210,000 Dth/d effective December 1, 2017 Well positioned for expansion Portland XPress Project (~$80 million) to proceed concurrent with upstream capacity expansions on TransCanada s Canadian pipelines Signed Precedent Agreements with several LDCs in New England and Atlantic Canada to renew expiring capacity and expand the system up to 0.3 Bcf/d; subject to regulatory approvals Project in-service dates are being phased in over a three-year period beginning November 1, 2018

33 U.S. Northeast: Iroquois (49.3% TCP Ownership) FERC-regulated interstate natural gas pipeline Transports gas from a number of supply areas: WCSB via TransCanada s Mainline Marcellus via various pipeline interconnects Dawn hub Key market connections into New York City Serves LDCs and electric power plants Strategically positioned to transport Marcellus gas Potential expansion opportunities Supported by long-term contracts 98% investment grade rated based on Iroquois top ten customers on a firm transportation basis Rate certainty to September 2020

34 TransCanada s ANR Pipeline System One of the largest FERC-regulated interstate natural gas pipeline systems in the U.S. Owns significant capacity in strategic natural gas storage facilities in Michigan Wholly owned by TransCanada Transports natural gas from Texas and Oklahoma on its southwest leg to the upper midwest and bi-directional between the Gulf of Mexico / Louisiana and the upper midwest on its southeast leg Approximately 2.0 Bcf/d of long-term contracts at maximum rates on southeast portion of system ANR benefits from rate case settlement which includes $837 million of maintenance capital for reliability and modernization projects reflected in ANR s rates Key connection to Great Lakes and other of TransCanada s Canadian pipelines

35 TransCanada s Columbia Pipeline Network Competitively positioned over Appalachian basin 96% of revenues are derived from firm transportation contracts TCO Pool TCO pool provides access to liquid trading hub Columbia Gas Transmission Strong base business undergoing significant expansion to connect growing Marcellus/Utica supply Columbia Gulf Transmission System reversal and expansion offers path to the Gulf Coast Millennium Pipeline (47.5% interest) Connects Pennsylvania supply to New York market Midstream Business State-regulated pipelines and mineral rights

36 TransCanada s West Coast LNG Project In Development Coastal GasLink Fully permitted No development cost risk and minimal capital cost risk In 2017, restructured provisions in the project development agreement Received ~$80 million payment in September 2017 and expect to receive quarterly payments of ~$7 million for carrying charges on an ongoing basis Continue to work with LNG Canada towards a Final Investment Decision

37 TransCanada s Keystone Pipeline System Existing Liquids Pipelines Terminal Facilities Northern Courier Grand Rapids Keystone pipeline system Transports ~20% of Western Canadian crude oil exports Market access to ~6 million bbl/d of refining capacity Significantly contracted Alberta regional pipelines Keystone Entered service in 2017 Cushing 0.8 Mbbl/d Houston/Texas City 2.3 Mbbl/d Cushing Houston Wood River Lake Charles Port Arthur Patoka Lake Charles 0.8 Mbbl/d Patoka 0.5 Mbbl/d Port Arthur 1.5 Mbbl/d Crude oil pipeline gathering systems Diluent delivery systems Market access for Athabasca region Long-term contracts

38 TransCanada s Keystone XL Project NEB approval received U.S. permits received U.S. Presidential Permit Montana, South Dakota and Nebraska state approvals Working collaboratively with landowners to obtain the necessary easements in Nebraska for the approved route Commercial support confirmed Secured 20-year commitments underpinning return of and on total capital Significantly contracted Construction preparation has commenced Primary construction is expected to begin in 2019 and will take approximately two years to complete

39 Partnership Profile February 2018