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TC Energy Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company has achieved significant milestones in 2024, including the best safety performance in the past five years.
- The company has successfully placed CAD 7 billion of assets into service while reducing net capital expenditures by 10% and identified an additional CAD 1.3 billion of capital reductions to be realized in 2026 and 2027.
- The company has made substantial progress on major projects, including Bruce Power's Unit 3 MCR and Southeast Gateway, which remain on cost and schedule.
- The company is making progress towards balance sheet strengthening and remains steadfast in deleveraging efforts and maintaining the long-term upper limit of 4.75 times debt-to-EBITDA.
- Interest expense was higher in Q4 due to lower capitalized interest as assets were placed into service, increased levels of short-term borrowing, one-time charges related to the spin, and the timing of the liability management program.
- The company expects to be doing Southeast Gateway by May 1.
- The company is targeting better-than-historical availability on its operational portfolio, particularly at Bruce, where Unit 3 is scheduled to return to service next year.
- The company anticipates filling the majority of the remaining project capacity by the end of 2026 with lower-risk projects that can deliver attractive build multiples of 5 to 7 times.
- The company's goal is to create significant value by maximizing the spread between its earned returns and its cost of capital.
Q&A Highlights from TC Energy Corp Earnings Call Q4 2024
- Analyst asked about the in-service date of May 1 and the potential for TC Energy to get paid by CFE.
- TC Energy has a 30-year contract with CFE and is building infrastructure that will last more than twice as long. They have a strong, mutually beneficial partnership with CFE and the in-service date of May 1 represents the lowest overall cost for CFE. CFE has received budgetary approvals sufficient to fund SGP commencing on May 1. Contractually, the in-service declaration for SGP is not tied to the availability of downstream third-party capacity, and the project is consistent with President Sheinbaum's Plan México to attract investment, build new infrastructure, and reduce emissions. TC Energy is also considering using the completed SGP pipeline for park and loan or storage service until the downstream laterals and interconnects are in place. Subject to further COFECE approval, the process for commencing CFE's additional 2% equity stake is also triggered upon in-service, providing an incentive for CFE. TC Energy went down to Mexico in January and met with the Energy Secretary and CFE leadership, and they are all aligned on a May 1 in-service date for the project.
- TC Energy has a 30-year contract with CFE and is building infrastructure that will last more than twice as long. They have a strong, mutually beneficial partnership with CFE and the in-service date of May 1 represents the lowest overall cost for CFE. CFE has received budgetary approvals sufficient to fund SGP commencing on May 1. Contractually, the in-service declaration for SGP is not tied to the availability of downstream third-party capacity, and the project is consistent with President Sheinbaum's Plan México to attract investment, build new infrastructure, and reduce emissions. TC Energy is also considering using the completed SGP pipeline for park and loan or storage service until the downstream laterals and interconnects are in place. Subject to further COFECE approval, the process for commencing CFE's additional 2% equity stake is also triggered upon in-service, providing an incentive for CFE. TC Energy went down to Mexico in January and met with the Energy Secretary and CFE leadership, and they are all aligned on a May 1 in-service date for the project.
- Analyst asked about TC Energy's perspective on behind-the-meter gas projects that some of their peers are pursuing.
- TC Energy has expertise in building laterals and power plants for power generation, but they are not interested in growing an IPP company within TC. They are, however, extremely bullish on data center demand growth, and they are advancing power demand opportunities, including coal-to-gas conversions and other electrification growth. They have vast footprint access within 15 miles to 60% of the over 350 data centers that are under development, and they connect to 8 of the top 10 utilities and over 100 power plants. They have about 10 gigawatts of requests into their business development team and have increased commercial engagement with over 20 parties across the entire data center value chain. TC Energy is focused on working with their established, high-quality utilities for larger data center loads and providing the necessary gas infrastructure to support their portfolio buildout. They will also develop direct connect behind-the-meter solutions
- TC Energy has expertise in building laterals and power plants for power generation, but they are not interested in growing an IPP company within TC. They are, however, extremely bullish on data center demand growth, and they are advancing power demand opportunities, including coal-to-gas conversions and other electrification growth. They have vast footprint access within 15 miles to 60% of the over 350 data centers that are under development, and they connect to 8 of the top 10 utilities and over 100 power plants. They have about 10 gigawatts of requests into their business development team and have increased commercial engagement with over 20 parties across the entire data center value chain. TC Energy is focused on working with their established, high-quality utilities for larger data center loads and providing the necessary gas infrastructure to support their portfolio buildout. They will also develop direct connect behind-the-meter solutions
- Analyst asked about the company's leverage and general balance sheet outlook, specifically regarding S&P's rating of BBB+/-.
- Management stated that they are in regular contact with rating agencies, including S&P, and that the focus of these conversations is on the progress of SGP. They emphasized the importance of delivering on the plan, including the CAD 6 billion to CAD 7 billion capital range, to achieve organic deleveraging and continued success with rating agencies.
- Management stated that they are in regular contact with rating agencies, including S&P, and that the focus of these conversations is on the progress of SGP. They emphasized the importance of delivering on the plan, including the CAD 6 billion to CAD 7 billion capital range, to achieve organic deleveraging and continued success with rating agencies.
- Analyst asked about the company's commitment to its CAD 6 billion to CAD 7 billion target, given the potential for Canadian energy projects and the onset of tariffs.
- Management responded that they are committed to their target, but that the company's focus is on delivering on the plan and executing within the CAD 6 billion to CAD 7 billion range. They also mentioned that the company is evaluating the timing, cost, and potential capacity of restoring Line 2, which is currently not available for service, subject to upstream and downstream constraints.
- Management responded that they are committed to their target, but that the company's focus is on delivering on the plan and executing within the CAD 6 billion to CAD 7 billion range. They also mentioned that the company is evaluating the timing, cost, and potential capacity of restoring Line 2, which is currently not available for service, subject to upstream and downstream constraints.
- Analyst asked about adjustments to capital allocation and the impact of US tariffs on TC Energy's projects.
- TC Energy's capital allocation is primarily focused on the US, with limited investments in Canada. The company has a diverse supplier base and has already procured pipe for its US projects from US mills. Any market volatility that vendors face will not impact TC Energy's projects. The company expects modest impacts on materials for Canadian and US projects, primarily fittings and flanges. No impacts to Mexico projects. The company takes regular action to address and mitigate cost escalation risks across its portfolio.
- TC Energy's capital allocation is primarily focused on the US, with limited investments in Canada. The company has a diverse supplier base and has already procured pipe for its US projects from US mills. Any market volatility that vendors face will not impact TC Energy's projects. The company expects modest impacts on materials for Canadian and US projects, primarily fittings and flanges. No impacts to Mexico projects. The company takes regular action to address and mitigate cost escalation risks across its portfolio.
- Analyst asked about the upward pressure on the guide.
- The company is watching its rolling hedge program carefully to think about what it might do differently to capture some impact. The company is also watching the curve very carefully to think about what it might do differently in the medium- to longer-term. The company has a multifaceted plan that includes rate case strategies, EBITDA, and overall cost reduction. The company is a solid year into making this plan work.
- The company is watching its rolling hedge program carefully to think about what it might do differently to capture some impact. The company is also watching the curve very carefully to think about what it might do differently in the medium- to longer-term. The company has a multifaceted plan that includes rate case strategies, EBITDA, and overall cost reduction. The company is a solid year into making this plan work.
- Analyst asked about the data center opportunities and the coal-to-gas switching opportunity.
- Tina V. Faraca stated that the company has announced three projects, two of which are coal-to-gas conversion projects located off of their Columbia Gulf system and a Virginia project to support their local distribution company's reliability needs with LNG peaking supply. These projects are progressing nicely, and the company is in the early stages of developing their FERC application and landowner notifications. The company continues to see many opportunities across their footprint, with 42 operating plants within 15 miles of their assets that are coal, and nine of those plants are planned to retire by 2031. Combined capacity, about 9 gigawatts. Additionally, the company is seeing about 19 gigawatts within 50 miles of their pipelines expected to retire through 2033. The company is pursuing all conversion opportunities that adhere to their CAD 6 billion to CAD 7 billion capital plan and achieve the 5 to 7 times build multiple.
- Tina V. Faraca stated that the company has announced three projects, two of which are coal-to-gas conversion projects located off of their Columbia Gulf system and a Virginia project to support their local distribution company's reliability needs with LNG peaking supply. These projects are progressing nicely, and the company is in the early stages of developing their FERC application and landowner notifications. The company continues to see many opportunities across their footprint, with 42 operating plants within 15 miles of their assets that are coal, and nine of those plants are planned to retire by 2031. Combined capacity, about 9 gigawatts. Additionally, the company is seeing about 19 gigawatts within 50 miles of their pipelines expected to retire through 2033. The company is pursuing all conversion opportunities that adhere to their CAD 6 billion to CAD 7 billion capital plan and achieve the 5 to 7 times build multiple.
- Analyst asked about the power gen being 56% now versus 32% in the investor deck.
- François Poirier stated that the color coding might just be picking up a little bit different in the slides and provided a clarification after the call.
- François Poirier stated that the color coding might just be picking up a little bit different in the slides and provided a clarification after the call.
- Analyst asked about the Columbia rate case, specifically about customer feedback and expected timing.
- Tina V. Faraca provided an update on the Columbia rate case, stating that they filed the rate case last year, and rates are set to go into effect in April of this year. They are currently waiting for top sheets from FERC, which will outline their position on the rate case. Negotiations with customers are expected to ramp up towards settlement discussions, likely in Q3 or Q4 of this year.
- Tina V. Faraca provided an update on the Columbia rate case, stating that they filed the rate case last year, and rates are set to go into effect in April of this year. They are currently waiting for top sheets from FERC, which will outline their position on the rate case. Negotiations with customers are expected to ramp up towards settlement discussions, likely in Q3 or Q4 of this year.
