RELIABLE ENERGY, DELIVERING VALUE. May 2018
Highlights Solid performance in First Quarter 2018 Record EBITDA of $150 million Assets well positioned to benefit from weather-driven demand Strong demand from shippers looking to access valuable markets Continued strong contracting levels Portland XPress Project ( PXP ) providing re-contracting and organic expansion Looking forward, Joliet XPress open season has potential for long-term benefits to Great Lakes Mitigation strategy to address 2018 FERC actions 35% distribution reduction to proactively manage leverage metrics Preserving ongoing value and financial flexibility Financial highlights for the first 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 (b) Three months ended March 31, 2018 2017 102 96 $1.32 83 (a) 77 (a) $1.05 (e) Cash distributions paid Class B distributions paid Cash distribution declared per common unit (76) (15) $0.65 (68) (22) $0.94 Earnings before interest, taxes, depreciation and amortization (EBITDA) (c) Distributable cash flow (c) Weighted average common units outstanding basic and diluted (millions) (d) Common units outstanding, end of period (millions) (d) 150 112 71.2 71.3 125 (a) 92 (a) 68.3 68.6 a. Recast information to consolidate PNGTS for all periods presented as a result of the additional 11.81 percent interest in PNGTS that was acquired from TransCanada Corporation (TransCanada) on June 1, 2017, increasing the Partnership s ownership in PNGTS to 61.71 percent. Prior to this transaction, the Partnership owned a 49.9 precent interest in PNGTS that was acquired from TransCanada on January 1, 2016. For more information, refer to our Quarterly Report on Form 10-Q for the period ended March 31, 2018, as filed with the Securities Exchange Commission. b. 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. c. EBITDA and Distributable cash flow are non-gaap financial measures. Refer to the description of these non-gaap financial measures in the section below entitled Non-GAAP Measures and the Supplemental Schedule for further detail. d. Under the ATM program, the Partnership issued 732, 973 units during the period ended March 31, 2018. e. Net income per common unit prior to recast. Forward Looking Information and Non-GAAP Measures This presentation may include forward-looking 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 forward-looking statements. All forward-looking 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 forward-looking 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 response of the Federal Energy Regulatory Commission (FERC) to our request for rehearing regarding its March 15, 2018 orders (the FERC Actions), the final rules adopted by FERC related to the FERC actions, the impact of the FERC actions on revenues, cash flow and cash available for distributions and debt payments and covenant compliance, impact of tax reform on our pipelines rates, availability of drop downs, 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 10-K for the year ended December 31, 2017 and the Partnership s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018. 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. 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. 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 non-gaap measures and are unlikely to be comparable to similarly titled measures presented by other entities. 2
TC PipeLines, LP 2017 Distributable Cash Flow 93% Under Long-term 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 (%) 100 100 46.4 49.3 100 50 61.7 100 3
TC PipeLines Actions in Response to FERC s March 15, 2018 Pronouncements U.S. Tax Reform and FERC Pronouncements Accelerate the reset of pipeline rates Potential to significantly reduce cash flow from our pipeline assets MLPs no longer desirable structure in which to hold interstate pipelines 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 Reduce quarterly cash distributions to unitholders by 35% to $0.65 per unit Utilize retained cash to facilitate a self-funding strategy, manage leverage metrics and fund ongoing capital expenditures, given potential future cash flow decreases Assessing strategic alternatives, including reorganization of legal structure 4 Continue to participate in the FERC process; we expect FERC to respond to comments and implement final order on its NOPR and NOI in due course Determine optimal form and timing for corporate restructuring, taking into account all relevant considerations including FERC s expected clarifications concerning corporate structure and pass-through entities If pursued, a corporate conversion would take approximately 4-5 months Unitholder approval expected to be required for conversion to a corporate structure
Key Focus Areas and Future Opportunities GTN Bison Great Lakes Iroquois Portland Tuscarora Northern Border North Baja Execute Portland XPress Project Low-cost, brownfield compression to increase capacity to about 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 GTN open seasons for increasing capacity resulted in the sale of all available firm capacity beginning mid-2020 Joliet XPress open season ANR has secured up to 800,000 Dth/day on Great Lakes in support of this project if successful, expected to be in service November 1, 2021 Pursuing further opportunities for growth across our broad geographic footprint 5
Gas Transmission Northwest (100% TCP Ownership) In-service 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 7.4 year weighted average contract length Currently, about 95% at max firm rate and 5% at negotiated rates Customer Profile Approximately 65% of the total contract portfolio is contracted by residential/commercial LDCs and power generators Approximately 15% contracted by marketers Approximately 15% 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 2018-2020 in-service 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
Tuscarora Gas Pipeline Company (100% TCP Ownership) In-service Date 1965 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 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
Northern Border Pipeline Company (50% TCP Ownership) In-service Date 1982 Bakken Bison U.S. Rockies Northern Border Length 1,412 Miles Capacity 2.4 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 2.7 year weighted average contract length, generally with 5 year ROFRs About 85% at max firm rate and 15% at negotiated rates Customer Profile Approximately 50% of the total contract portfolio is contracted by marketers Approximately 40% 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
Great Lakes Gas Transmission (46.4% TCP Ownership) In-service 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 3 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 shorter-term, short-haul contracts with long-term 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, as demonstrated in the recent Joliet XPress offering Notes: All contract data subject to change based on contract additions and expirations 9
Iroquois Gas Transmission System (49.3% TCP Ownership) In-service 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 (short-term 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
Portland Natural Gas Transmission System (61.7% TCP Ownership) In-service 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 Continent-to-coast commitments commenced December 1, 2017 maturing in 2032; all negotiated contracts Portland XPress capacity expansion (~70 MMcf/d) in-service 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
Bison Pipeline (100% TCP Ownership) Bison Bakken U.S. Rockies Northern Border In-service Date 2011 Length 303 Miles Capacity 427 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 2021 100% at negotiated rates Customer Profile 4 credit-worthy 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, re-directed or re-purposed Notes: 12 All contract data subject to change based on contract additions and expirations
North Baja Pipeline (100% TCP Ownership) GTN Tuscarora In-service 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 85% at negotiated rates and 15% at max firm rates Customer Profile Approximately 70% of the total contract portfolio is contracted by marketers Approximately 20% contracted by industrial load Approximately 10% contracted by utilities Other Details Opportunities to capture incremental revenue generation as make-up 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
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 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
TC PipeLines, LP Key Takeaways WORKING QUICKLY TO MAXIMIZE THE LONG-TERM VALUE OF OUR ASSETS AND GENERATE STABLE, PREDICTABLE RESULTS Critical energy infrastructure assets Geographically diverse portfolio of interstate natural gas pipelines Substantially backed by long-term, ship-or-pay 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 steel-in-the-ground 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 Joliet XPress open season underway 15
TC PipeLines, LP Supplemental Schedule Non-GAAP Measures Reconciliations of Net income to Distributable Cash Flow (Unaudited) (Millions of dollars) Three months ended March 31, Twelve months ended December 31, 2018 2017 (a) Net income 102 83 2017 2016 (a) 263 263 Add: Interest expense (b) Depreciation and amortization Income taxes 23 24 1 17 24 1 84 97 1 73 96 1 EBITDA 150 125 445 433 Add: Distributions from equity investments (c) Northern Border Great Lakes Iroquois (d) Less: Equity earnings: Northern Border Great Lakes Iroquois Less: Interest expense (b) Income taxes Distributions to non-controlling interests (e) Distributions to TransCanada as PNGTS former parent (f) Maintenance capital expenditures (g) 19 26 14 59 (17) (24) (18) (59) (23) (1) (7) - (6) (37) 20 20-40 (19) (17) - (36) (17) (1) (5) (1) (10) (34) 82 38 41 161 (67) (31) (26) (124) (84) (1) (14) (2) (38) (139) 91 34-125 (69) (28) - (97) (73) (1) (18) (6) (16) (114) Total Distributable Cash Flow General Partner distributions declared (h) Distributions allocable to Class B units (i) Distributable Cash Flow 113 (1) - 112 95 (3) - 92 343 (18) (15) 310 347 (12) (22) 313 a. Information was recast to consolidate PNGTS. b. Interest expense as presented includes net realized loss related to the interest rate swaps and amortization of realized loss on PNGTS derivative instruments. c. 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. d. These amounts represent our proportional 49.34 percent share of the distribution declared by our equity investee Iroquois for the first quarter of 2018 and from the second to fourth quarter of 2017. The amounts include our 49.34 percent share of the Iroquois unrestricted cash distributions amounting to approximately $2.6 million for the three months ended March 31, 2018 and $8 million for the seven months ended December 31, 2017. e. Distributions to non-controlling interests represent the respective share of our consolidated entities distributable cash not owned by us during the periods presented. f. Distributions to TransCanada as PNGTS former parent represent TransCanada s respective share of PNGTS distributable cash not owned by us during the periods presented. g. 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. h. Distributions declared to the General Partner for the three months ended March 31, 2018 did not include an incentive distribution (2017 $2 million). For the twelve months ended December 31, 2017 the distribution included an incentive distribution of approximately $10 million (December 31, 2016 $2 million). i. During the three months ended March 31, 2018 and 2017, 30 percent of GTN s total eligible distributions was $10 million, therefore, no distributions were allocated to the Class B units as the threshold level had not been exceeded. Currently, we expect the 2018 threshold will be exceeded at the end of the third quarter of 2018. During the twelve months ended December 31, 2017, 30 percent of GTN s total distributions amounted to $35 million. As a result of exceeding the $20 million threshold since the third quarter of 2017, $15 million was allocated to the Class B units for the twelve months ended December 31, 2017, of which $8 million was allocated for the three months ended December 31, 2017. During the twelve months ended December 31, 2016, 30 percent of GTN s total distributions amounted to $42 million. As a result of exceeding the $20 million threshold since the end of the second quarter of 2016, $22 million was allocated to the Class B units at December 31, 2016, of which $1 million, $11 million and $10 million were allocated during the three months ended June 30, 2016, September 30, 2016 and December 31, 2016, respectively. On January 23, 2018, the board of directors of our General Partner declared distributions to Class B unitholders in the amount of $15 million which was paid on February 13, 2018. The 2016 Class B distribution amounting to $22 million was paid by the Partnership on February 14, 2017. For Information: 1.877.290.2772 investor_relations@tcpipelineslp.com www.tcpipelineslp.com NYSE: TCP Rhonda Amundson 1.877.290.2772 rhonda_amundson@transcanada.com