RELIABLE ENERGY, DELIVERING VALUE.

Transcription

1 RELIABLE ENERGY, DELIVERING VALUE. September 2018

2 Highlights Solid performance in Second Quarter 2018 EBITDA of $124 million Assets well positioned to benefit from weatherdriven demand Strong demand from shippers looking to access valuable markets Continued strong contracting levels Portland XPress Project ( PXP ) providing recontracting and organic expansion GTN continuing to benefit from upstream debottlenecking activities Potential for additional Great Lakes contracting Clarification on 2018 FERC actions Maintaining distribution of $0.65 per common unit for second quarter Preserving ongoing value and financial flexibility Financial highlights for the second quarter of 2018 (Unaudited) (Millions of dollars, except per common unit amounts) Net income Net income attributable to controlling interests Net income per common unit basic and diluted (a) Three months ended June 30, $ $0.73 Cash distributions paid Cash distribution declared per common unit (47) $0.65 (68) $1.00 Earnings before interest, taxes, depreciation and amortization (EBITDA) (b) Distributable cash flow (b) Weighted average common units outstanding basic and diluted (millions) (c) Common units outstanding, end of period (millions) (c) a. 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. b. EBITDA and Distributable cash flow are nongaap financial measures. Refer to the description of these nongaap financial measures in the section below entitled NonGAAP Measures and the Supplemental Schedule for further detail. c. Under the ATM program, the Partnership issued 732, 973 units during the six months ended June 30, 2018 (none during the three months ended June 30, 2018). Forward Looking Information and NonGAAP Measures This presentation may include forwardlooking statements regarding future events and the future financial performance of TC PipeLines, LP. Words such as believes, expects, intends, forecasts, projects, and similar expressions identify forwardlooking statements. All forwardlooking statements are based on the Partnership s current beliefs as well as assumptions made by and information currently available to the Partnership. These statements reflect the Partnership s current views with respect to future events. The Partnership assumes no obligation to update any such forwardlooking statement to reflect events or circumstances occurring after the date hereof. Important factors that could cause actual results to materially differ from the Partnership s current expectations include the impact of the Tax Cuts and Jobs Act of 2017 (the Tax Act) and the FERC orders issued on March 15, 2018 and July 18, 2018 (2018 FERC Actions) on our pipelines rates and the Partnership s revenues, cash flow and cash available for distributions and debt payments and covenant compliance, ability to mitigate the impact of the Tax Act and 2018 FERC Actions, initiation of Section 5 proceedings or other acceleration of rate resets, availability of drop downs, nonrenewal or replacement of expiring transportation agreements, ability to identify, negotiate and finance potential business opportunities, market conditions, and other risks inherent in an investment in us as discussed in the Partnership s filings with the Securities and Exchange Commission, including the Partnership s Annual Report on Form 10K for the year ended December 31, 2017, Quarterly Reports on Form 10Q and Current Reports on Form 8K. We use the nongaap 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. 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 nongaap 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. 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 quarterly earnings releases. These measures do not have any standardized meaning prescribed by GAAP. They are, therefore, considered to be nongaap measures and are unlikely to be comparable to similarly titled measures presented by other entities. 2

3 TC PipeLines, LP 2017 Distributable Cash Flow 93% Under Longterm Contracts 21% 9% 26% 17% 8% 4% 5% 10% Northern Border Great Lakes GTN Bison North Baja Tuscarora PNGTS Iroquois GTN Tuscarora Bison Northern Border Great Lakes PNGTS Iroquois North Baja Pipeline System Bison GTN Great Lakes Iroquois North Baja Northern Border PNGTS Tuscarora TC PipeLines, LP Ownership (%)

4 TC PipeLines Actions in Response to FERC s July 18, 2018 Rulings U.S. Tax Reform and FERC Pronouncements FERC clarification provides two options: (1) include 21% tax allowance in a pipeline s rates and defend that position in future rate proceeding, or (2) claim no tax allowance and eliminate the ADIT deduction from a pipeline s costofservice calculation May accelerate the reset of pipeline rates Potential to significantly reduce cash flow from some of our pipeline assets Growth as a dropdown vehicle for TransCanada not currently economically viable TC PipeLines actions Proactively maximize regulatory outcomes for our pipeline assets to protect value for the Partnership Maintain quarterly cash distributions to unitholders of $0.65 per unit Utilize retained cash to facilitate a selffunding strategy, manage leverage metrics and fund ongoing capital expenditures, given potential future cash flow decreases Assessing strategic options to best position the Partnership for the long term 4 Preferred approach may not include the need for corporate restructuring

5 Key Focus Areas and Future Opportunities GTN Bison Great Lakes Iroquois Portland Tuscarora Northern Border North Baja Execute Portland XPress Project Lowcost, brownfield compression to increase capacity to about 0.3 Bcf/d Capex approximately $80 million Inservice dates phasedin over 3 years beginning November 2018 Nearterm organic opportunities from WCSB Realize benefits from additional contracts on GTN and Great Lakes Successful GTN open seasons for increasing capacity resulted in the sale of all available firm capacity beginning mid2020 Pursuing further opportunities for growth across our broad geographic footprint 5

6 Gas Transmission Northwest (100% TCP Ownership) Inservice Date 1961 GTN Tuscarora Length 1,377 Miles Capacity 2.9 Bcf/d Primary Supply Source Kingsgate interconnect Primary Markets Served Pacific Northwest Malin interconnect North Baja Contracts, Customers, and Details Contract Profile Approx. 2.3 Bcf/d contracted for 2018 About 7 year weighted average contract length Currently, about 95% at max firm rate and 5% at negotiated rates Customer Profile Approximately 50% of the total contract portfolio is contracted by residential/commercial LDCs and power generators Approximately 35% contracted by marketers Approximately 10% contracted by industrial load Approximately 5% contracted by producers Other Details Upstream debottlenecking on TransCanada s NGTL system brought an incremental 230 MMcf/d onto the GTN system in April 2018 Potential for incremental revenue generation from ambient transport opportunities, as weather effects on demand will drive basis spread between Kingsgate and Malin Recently signed 700 MMcf/d (incremental 348 MMcf/d) for inservice dates with terms of at least 15 years, about half at negotiated rates 6 Notes: All contract data subject to change based on contract additions and expirations

7 Tuscarora Gas Pipeline Company (100% TCP Ownership) Inservice Date 1995 GTN Tuscarora Length 305 Miles Capacity 230 MMcf/d Primary Supply Source Malin interconnect Primary Markets Served Northeast California Northwest Nevada North Baja Contracts, Customers, and Details Contract Profile Approximately fully contracted through 2020 Approximately 4 year weighted average contract length 100% at max firm rate Customer Profile Approximately 90% of the total contract portfolio is contracted by residential/commercial LDCs and power generators Approximately 10% contracted by industrial load and marketers Other Details Serves a stable market Notes: All contract data subject to change based on contract additions and expirations 7

8 Northern Border Pipeline Company (50% TCP Ownership) Inservice Date 1982 Bakken Bison U.S. Rockies Northern Border Length 1,412 Miles Capacity 2.5 Bcf/d Primary Supply Source Monchy (Port of Morgan) interconnect Williston, Bakken, Powder River basins Primary Markets Served Ventura interconnect Chicago Citygates Contracts, Customers, and Details Contract Profile Fully contracted for 2018 and substantially contracted to 2020 About 95% firm service About 3.5 year weighted average contract length, generally with 5 year ROFRs About 90% at max firm rate and 10% at negotiated rates Customer Profile Approximately 65% of the total contract portfolio is contracted by marketers Approximately 25% contracted by utilities and industrial load Approximately 10% contracted by producers Other Details WCSB production competes for pipeline capacity with the Bakken basin currently flowing about 1.1 Bcf/d of Bakken receipts Operationally available maintenance capacity (230 MMcf/d) offered through open seasons Potential for incremental revenue generation from ambient transport opportunities as weather effects on demand will drive basis spread between Port of Morgan, Ventura, and Chicago Citygates 8 Notes: All contract data subject to change based on contract additions and expirations

9 Great Lakes Gas Transmission (46.4% TCP Ownership) Inservice Date 1967 Length 2,115 Miles Great Lakes Capacity 2.4 Bcf/d Primary Supply Source Emerson 2 interconnect Primary Markets Served Union Dawn interconnect Minnesota, Wisconsin, and Michigan Storage Facilities Contracts, Customers, and Details Contract Profile Highly contracted for 2018 Approximately 4 year weighted average contract length 75% at max firm rate and 25% at negotiated rates Customer Profile Approximately 90% of the total contract portfolio is contracted by transportation by others with affiliates and residential/commercial LDCs Approximately 10% contracted by marketers, producers, and industrial load Other Details Mix of shorterterm, shorthaul contracts with longterm contracts including 10 year TransCanada Mainline agreement for 711 Mmcf/d (TBO for TransCanada s Long Term Fixed Price offering) Gas storage interconnections with total regional storage capacity of roughly 650 Bcf drives most demand in summer seasons Significant backhaul capabilities Multiple ANR interconnects; provides an essential link between WCSB gas and U.S. markets Notes: All contract data subject to change based on contract additions and expirations 9

10 Iroquois Gas Transmission System (49.3% TCP Ownership) Inservice Date 1992 Length 416 Miles Iroquois Capacity 1.5 Bcf/d Primary Supply Source Iroquois/Waddington interconnect Primary Markets Served Iroquois Zone 2 interconnect New York/Long Island, and Connecticut Contracts, Customers, and Details Contract Profile Highly contracted for 2018 Approximately 3 year weighted average contract length About 60% at max firm rate and 40% at negotiated rates Customer Profile Approximately 70% of the total contract portfolio is contracted by residential/commercial LDCs and power generators Approximately 20% contracted by marketers Approximately 10% contracted by producers and industrial load Other Details Discretionary transportation opportunities can generate incremental revenue (shortterm firm and interruptible transportation) Approximately 10% of revenues are from discretionary services Steel in the ground advantage Notes: 10 All contract data subject to change based on contract additions and expirations

11 Portland Natural Gas Transmission System (61.7% TCP Ownership) Inservice Date 1999 Length 295 Miles PNGTS Capacity 210 MMcf/d Primary Supply Source East Hereford interconnect Primary Markets Served Dracut interconnect New England, Vermont, and New Hampshire Contracts, Customers, and Details Contract Profile Highly contracted for 2018 Currently approximately 6.5 year weighted average contract length, trending to longer average term when Portland XPress contracts come into service Currently about 75% at max firm rate and 25% at negotiated rates, trending to 100% negotiated rates Customer Profile 50% of the total contract portfolio is contracted by residential/commercial LDCs and power generators 45% contracted by marketers 5% contracted by industrial load Other Details Continenttocoast commitments commenced December 1, 2017 maturing in 2032; all negotiated contracts Portland XPress capacity expansion (~70 MMcf/d) inservice dates will be phased in over three years commencing November 1, 2018; 100% negotiated rates 107 miles of PNGTS is jointly owned with MN&E extending south to Dracut interconnect Steel in the ground advantage in Northeast US; also serves Atlantic Canada s gas needs Notes: All contract data subject to change based on contract additions and expirations 11

12 Bison Pipeline (100% TCP Ownership) Bison Bakken U.S. Rockies Northern Border Inservice Date 2011 Length 303 Miles Capacity 407 MMcf/d Primary Supply Source Powder River Basin Wyoming Primary Markets Served Ventura interconnect via NBPL Chicago Citygates via NBPL Contracts, Customers, and Details Contract Profile Highly contracted for 2018 Contracted until January % at negotiated rates Customer Profile 4 creditworthy shippers with active contracts Other Details Natural gas is currently not flowing on this pipeline in response to relative cost advantages in the WCSB and Bakken basins Revenues are fully contracted on a take or pay basis through January of 2021 Business development activities underway to determine the best use for Bison in future, including if the asset can be reversed, redirected or repurposed Notes: 12 All contract data subject to change based on contract additions and expirations

13 North Baja Pipeline (100% TCP Ownership) GTN Tuscarora Inservice Date 2002 Length 86 Miles Capacity 600 MMcf/d North 500 MMcf/d South Primary Supply Source El Paso Pipeline interconnect Gasoducto pipeline interconnect North Baja Primary Markets Served Southwest California SoCal LDC Contracts, Customers, and Details Contract Profile Highly contracted for 2018 About 8.5 year weighted average contract length About 90% at negotiated rates and 10% at max firm rates Customer Profile Approximately 75% of the total contract portfolio is contracted by marketers Approximately 20% contracted by industrial load Approximately 5% contracted by utilities Other Details Opportunities to capture incremental revenue generation as makeup transportation is required in the region Sources supply from U.S. basins and Mexican LNG imports Notes: All contract data subject to change based on contract additions and expirations 13

14 MLP of TransCanada Corporation (TSX, NYSE:TRP) Natural Gas Pipeline Liquids Pipeline Power Facilities Natural Gas Storage 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 60 year history of safe, reliable operatorship Premier liquids pipeline system 3,000 miles of pipeline Transports approximately 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 14

15 TC PipeLines, LP Key Takeaways WORKING QUICKLY TO MAXIMIZE THE LONGTERM VALUE OF OUR ASSETS AND GENERATE STABLE, PREDICTABLE RESULTS Critical energy infrastructure assets Geographically diverse portfolio of interstate natural gas pipelines Substantially backed by longterm, shiporpay contracts with strong counterparties Investment grade credit ratings Proactively managed to maximize value over the long term Actively assessing strategies to mitigate effects of FERC pronouncements Organic growth opportunities Pursue organic growth on our pipelines and leverage the value of steelintheground serving critical markets TCP s assets are highly connected to TransCanada s asset portfolio; benefit from TransCanada projects up and downstream of TCP s pipelines NGTL System debottlenecking Portland XPress project in development 15

16 TC PipeLines, LP Supplemental Schedule NonGAAP Measures Reconciliations of Net income to Distributable Cash Flow (Unaudited) (Millions of dollars) Three months ended June 30, Six months ended June 30, Net income Add: Interest expense (a) Depreciation and amortization Income taxes EBITDA Add: Distributions from equity investments (b) Northern Border Great Lakes Iroquois (c) Less: Equity earnings: Northern Border Great Lakes Iroquois Less: Interest expense (a) Income taxes Distributions to noncontrolling interests (d) Distributions to TransCanada as PNGTS former parent (e) Maintenance capital expenditures (f) (15) (12) (9) (36) (25) (2) (5) (32) (15) (6) (3) (24) (20) (3) (7) (30) (32) (36) (27) (95) (48) (1) (9) (10) (68) (34) (23) (3) (60) (37) (1) (8) (1) (17) (64) Total Distributable Cash Flow General Partner distributions declared (g) Distributions allocable to Class B units (h) Distributable Cash Flow 102 (1) (5) (2) (8) 174 a. Interest expense as presented includes net realized loss related to the interest rate swaps and amortization of realized loss on PNGTS derivative instruments. b. Amounts are calculated in accordance with the cash distribution policies of each of our equity investments. Distributions from our equity investments represent our respective share of these entities quarterly distributable cash during the current reporting period. c. This amount represents our proportional percent share of the distribution declared by our equity investee Iroquois during the current reporting period and includes our percent share of the Iroquois unrestricted cash distribution amounting to approximately $2.6 million and $5.2 million, repsectively, for the three and six months ended June 30, 2018 (2017 $2.6 million for both periods). d. Distributions to noncontrolling interests represent the respective share of our consolidated entities distributable cash not owned by us during the periods presented. e. Distributions to TransCanada as PNGTS former parent represent TransCanada s respective share of PNGTS distributable cash not owned by us during the periods presented. f. The Partnership s maintenance capital expenditures include cash expenditures made to maintain, over the long term, the operating capacity, system integrity and reliability of our pipeline assets. This amount represents the Partnership s and its consolidated subsidiaries maintenance capital expenditures and does not include the Partnership s share of maintenance capital expenditures for our equity investments. Such amounts are reflected in Distributions from equity investments as those amounts are withheld by those entities from their quarterly distributable cash. g. Distributions declared to the General Partner for the three and six months ended June 30, 2018 did not trigger any incentive distribution (2017 $3 million and $5 million). h. Durring the six months ended June 30, 2018 and 2017, no distributions were allocated to the Class B units as the annual threshold had not been exceeded. We expect the 2018 threshold will be exceeded at the end of the third quarter of For Information: investor_relations@tcpipelineslp.com NYSE: TCP Rhonda Amundson rhonda_amundson@transcanada.com