TC Energy Corporation (TRP) Q4 2024 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the TC Energy Fourth Quarter 2024 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.

Thank you very much and good morning. I'd like to welcome you to TC Energy's 2024 fourth quarter 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. Following their remarks, we'll take questions from the investment community. We ask that you limit yourself to two questions and if you're a member of the media, please contact our media team. I'll remind you today that remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information, please see the reports filed by TC Energy with the Canadian Securities Regulator and with the US Securities Exchange Commission. Finally, during the presentation, we will refer to non-GAAP measures that provide additional information on TC Energy's operational and financial performance. However, these measures 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 this presentation. With that, I'll turn it over to Francois.

Thanks, Gavin, and good morning, everyone. 2024 has been a year of significant achievement and milestones for TC Energy and we're continuing to deliver on our strategic priorities. First, we're proud to report the best safety performance for our company in the past five years. As I've mentioned previously, we firmly believe that outstanding safety practices lead to superior operational performance, which of course, drives strong financial results. So in 2024, we increased comparable EBITDA from continuing operations by 6% compared to 2023. We successfully completed the spinoff of our liquids business and the declaration of commercial in-service for Coastal GasLink. We successfully placed $7 billion of assets into service while reducing our net capital expenditures by 10% and have identified an additional $1.3 billion of capital reductions to be realized in 2026 and 2027. With strong EBITDA performance, lower capital expenditures, and completed asset sales, we have significantly strengthened our balance sheet, which Sean, will address further. Finally, we're making substantial progress on our major projects, including Bruce Power's Unit 3 MCR, and of course, Southeast Gateway, that remain on cost and schedule. Our public-private partnership with CFE on Southeast Gateway has been a huge success, delivering the project 13% below our original budget by leveraging the strength of both the CFE and TC Energy. On January 20th, we completed the final golden welds and reached mechanical completion, a monumental achievement for both Mexico and TC. In mid-January, we met with the Secretary of Energy and the CFE and all parties continued to be aligned in finalizing the remaining project completion activities in order to achieve commercial in-service of Southeast Gateway on May 1st. At a macro level, President Sheinbaum recently unveiled her Plan Mexico 2030. This plan targets moving Mexico's economy from 12th largest overall to 10th spot in six years and aims to attract over US$270 billion in investments, in part through public-private partnerships such as ours. We believe there's strong alignment between the priorities of the Government and CFE and the role natural gas deliveries TC Energy enables. Our partnership with the CFE will remain a critical part of achieving the goals outlined in Plan Mexico. I want to thank our dedicated teams for their tireless efforts on the project and reiterate that this marks a material inflection point for TC Energy. Underpinned by wide-scale electrification, natural gas and electricity are projected to drive 75% of the growth in final energy consumption between now and 2035. This growth includes a threefold increase in LNG exports, strong growth in power generation driven by coal retirements and data center demand, LDC reliability needs, and a material increase in Ontario's demand for additional nuclear generation capacity that all aligns with our North American footprint. Reflecting this opportunity, we recently announced five new growth projects with build multiples in the five times to seven times range. The Pulaski and Maysville projects represent a combined investment of over US$700 million on our Columbia Gulf system and will facilitate coal-to-gas conversions at two existing power plants. The US$300 million Southeast Virginia Energy Storage Project is an LNG peaking facility that will serve an LDC's growing winter peak day load. At Bruce Power, we are progressing the Stage 3a of Project 2030, which will provide incremental capacity of 90 megawatts. When complete, Project 30 will add approximately 700 megawatts of incremental capacity, so we expect total Bruce output to reach over 7,000 megawatts post-MCR and Project 2030. Additionally, on January 31, we submitted to the Ontario IESO the final basis of estimate for Bruce Power's latest nuclear project, the Unit 5 Major Component Replacement. The refurbishment is expected to extend Unit 5's operational life by over 35 years. Let's take a closer look at Bruce Power and our Power and Energy Solutions business in Ontario. The Ontario IESO projects an approximately 69,000 megawatt shortfall in total installed capacity by year 2050 driven by industrial expansion, data center developments, and population growth. Nuclear power and storage will be essential components to meeting Ontario's demand. We are actively involved in several key projects, including not only Bruce Power's MCR program, but potential future expansion at Bruce C and the Ontario Pumped Storage Project. In January, we announced that TC Energy and the Saugeen Ojibway Nation will begin pre-development work on the Ontario Pumped Storage Project, supported by the Ontario government's investment of up to $285 million to develop a detailed cost estimate and environmental assessments to further assess its feasibility. On the next slide. This chart illustrates our growth visibility through the end of the decade and we will continue to add to this backlog. Our capacity to sanction incremental projects through the end of the decade is represented by the white space between our net CapEx limit of $6 billion to $7 billion and the colored bars. Collectively, this totals approximately $8 billion between 2026 and 2030. Given the backlog of development projects we are pursuing, we anticipate filling the majority of this remaining project capacity by the end of 2026 with lower-risk projects that can deliver attractive build multiples of five times to seven times. Looking at 2026 specifically, we will aim to fill that spare capacity through a combination of small projects that have short cycle to cash flow and we are evaluating bringing forward capital expenditures from 2027 and 2028 to create additional capacity for new growth projects in those years. We'll continue to assess projects in our pending approval bucket represented by the gray bars to ensure we have the flexibility for capital to compete for higher returning projects. Our goal is to create significant value by maximizing the spread between our earned returns and our cost of capital. Now a word on tariffs. We continue to assess the ongoing trade negotiation between the US, Canada and Mexico. There is significant energy flow between three countries making our energy markets highly interdependent. We believe the 30-day pause on potential tariffs will support increased engagement with North America's leaders in order to reach an agreement that will benefit consumers across the continent. Given that 97% of our comparable EBITDA is under regulated cost of service frameworks or take-or-pay contracts, we do not anticipate any material impact on our financial performance. Our Regulated Canadian Natural Gas Pipelines business which transports gas to be exported to the US by our shippers is protected against higher costs or loss of volumes. And our Mexico Natural Gas Pipelines business primarily receives gas from the Southern US for delivery in Mexico and our contracts are in US dollars and based on long-term take-or-pay agreements. In our Power and Energy Solutions business, Bruce Power is the most significant contributor and over 90% of its supply chain is based in Canada. Now, we recognize that prolonged tariffs could impact capital allocation decisions. However, our diverse portfolio across three jurisdictions enables us to continue allocating capital to markets with sustained energy demand. We'll continue to work with our customers across all three jurisdictions to ensure safe, reliable, and competitive service. And now I'll turn the call over to Sean.

Thanks, Francois, and good morning, everybody. It's important to start this morning by recognizing that our team's outstanding safety and operational performance play a critical role in TC's continued strong financial results. On the left table, we highlight several operational and financial highlights from the quarter. Most notably, our natural gas assets in each country set new delivery records from last November through February of this year. Bruce Power achieved exceptional performance with 99% availability, which drove a 28% increase in quarterly EBITDA growth for our Power and Energy Solutions business unit. You may recall that Unit 6 concluded its MCR in 2023 and achieved availability of over 99% throughout calendar year '24. That's an availability trend that we hope to see as every unit concludes its MCR program over the rest of the decade. Overall, it is a remarkable accomplishment for TC to have each of our business units deliver exceptional safety performance while simultaneously setting new operational and annual EBITDA records from continuing operations. Moving to the EBITDA bridge on the right, I'll spend a moment on some of the more notable items. Canada Gas was the largest variance due to the $200 million incentive payment to Coastal GasLink at mechanical completion in the fourth quarter of 2023 that was not repeated in '24. In Mexico, we posted gains primarily related to the weakening of the peso where our revenues are paid in US dollars. And finally, our Power and Energy Solutions team realized very strong results primarily from Bruce Power's 14% improvement in availability year-over-year. Turning to Page 13, we summarize the components of our comparable earnings of $1.1 billion, which were 8% lower than the fourth quarter of 2023. Interest expense was higher in the quarter primarily due to lower capitalized interests as assets were placed into service, increased levels of short-term borrowing, one-time charges related to the spin, and the timing of our liability management program. Higher AFUDC was driven by our Southeast Gateway project that's expected to be placed into service this May, which was partially offset by higher NCI deductions. On the FX front, the EBITDA gains in Mexico are partially offset by losses in our Corporate Risk Management program where we hedge our Mexican net income from peso volatility. So to conclude the 2024 financial summary, TC delivered solid performance in the fourth quarter that was modestly ahead of our overall plan and contributed to another record year of comparable EBITDA from continuing operations which grew 6% for the year. This chart reflects how our record EBITDA from continuing operations of over $10 billion in 2024 compares to the EBITDA outlook we provided at Investor Day in November. Our base case is to deliver 2025 comparable EBITDA of $10.7 billion to $10.9 billion, which represents a 7% to 9% increase year-over-year. Looking out to 2027, we project a target of $11.7 billion to $11.9 billion, which implies a 5% to 7% three-year growth rate. It's important to note that our base case outlook uses an average US to Canadian dollar exchange rate of 1.35, which is lower than rates we're seeing today. To help investors understand the potential upside to EBITDA from exchange rates, the rule of thumb we provide on the bottom right is that every penny increase in USD/CAD roughly translates into $45 million of incremental EBITDA. As an example, if we picked an exchange rate of 1.43 that's $0.08 above plan and would result in 2025 EBITDA being approximately $350 million higher than our base case outlook. It's important to reiterate that we systematically hedge our US dollar net income to insulate our comparable earnings from FX volatility. Given our hedge strategy, we do not expect a material impact related to FX on our 2025 comparable earnings. Longer term and on an unhedged basis, a penny change in USD/CAD rates corresponds to roughly a one-penny change in comparable EPS. Moving to the right side of the page, we summarize several other factors that could impact our EBITDA outlook. For our base case planning purposes, we tend to build in conservative views on rate case settlements and other revenue enhancement and cost optimization initiatives that have the potential to drive additional upside. We're also targeting better than historical availability on our operational portfolio, particularly at Bruce, where Unit 3 is scheduled to return to service next year. And finally, a key strategic priority remains placing our growth capital projects into service ahead of budget and schedule where possible. Turning to Page 15. We have made significant progress on our deleveraging efforts. Since 2022, we've delivered a 0.6 times reduction in debt to EBITDA through asset divestitures, cost optimizations, revenue enhancements and reductions in actual capital expenditures. We have company-wide efforts ongoing in each of these areas to drive our organic deleveraging program. One observation related to the year-end 2024 leverage metric, fourth quarter was an anomaly with how quickly FX rates moved. We ended the year on December 31st with a spot rate of 1.44 USD/CAD, which was used for our balance sheet calculations versus an average rate in 2024 of 1.37, which we used for income statement purposes. That $0.07 FX timing differential resulted in a year-end 4.8 times debt to EBITDA ratio largely in line with our 4.75 times target. However, using the same average FX rate of 1.37 for our debt and EBITDA conversions would have resulted in a debt to EBITDA ratio of approximately 4.65 times. Regardless of the FX calculations, we made significant progress towards balance sheet strengthening and I want to reiterate Francois' comment that we all remain steadfast in our deleveraging efforts and maintaining our long-term upper limit of 4.75 times debt to EBITDA. To conclude, TC had an exceptional year in 2024 and I am pleased to share that our Board of Directors has declared a first quarter 2025 dividend of $0.85 per common share, which is equivalent to $3.40 per share on an annualized basis. This results in a 3.3% increase compared to TC Energy's fourth quarter dividend, which now reflects TC's proportionate dividend following the spinoff of South Bow. This represents our 25th consecutive year of dividend growth to our shareholders, which is a commitment we're proud to meet year-after-year as part of our shareholder value proposition, which is underpinned by our solid growth, low risk and repeatable performance. With that I'll pass the call back to Francois.

Thanks, Sean. As I said before, we will maintain our focus on what got us here today, maximizing the value of our assets through safety and operational excellence, executing on our selective portfolio of growth projects, including bringing $8.5 billion of assets into service in 2025, and thirdly, ensuring financial strength and flexibility. By focusing on these clear priorities, we'll be able to deliver that solid growth, low risk, and repeatable performance year-after-year. I wanted to take a moment to acknowledge Stan Chapman's retirement after an exceptional career at TC Energy. While we'll continue to benefit from Stan's experience as a member of Bruce Power's Board, I want to express my gratitude for his leadership, dedication, and contribution over the years. Thank you, Stan. I'm also pleased to announce two recent appointments to our Executive Leadership team with Tina Faraca and Greg Grant. These changes are part of our deliberate and planful long-term succession plan reflecting the strength and talent of our internal leadership. We've appointed Tina to Executive Vice President and Chief Operating Officer of our Natural Gas Pipelines business. Tina has been a member of our Executive Leadership team since 2023. Bringing her on the Executive Leadership team at that time was a very intentional move to support the eventual transition of the Chief Operating Officer role. Tina has extensive experience across project development, engineering and operations, as well as expertise in commercial operations and corporate strategy. She is a 30 plus year veteran of the industry and has a strong track record of both leadership and performance. We are also very pleased to announce Greg Grant in the role of Executive Vice President, Power and Energy Solutions. Greg has successfully led our Canadian Natural Gas Pipelines portfolio for the last three years and brings extensive experience across strategy, power, corporate development, and commercial operations to his new role. I'm confident that Tina and Greg will continue to deliver exceptional results. With that, operator, we'd be pleased to answer questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Praneeth Satish with Wells Fargo. Please go ahead.

Thanks. Good morning. First, let me offer my congrats to Stan, you'll definitely be missed, but I'm sure you're glad you don't have to answer annoying questions from sell-side analysts. So let me start first with Southeast Gateway. I guess two questions here. First is, the in-service date of May 1st, is that a little earlier than prior indications? I think before the startup was expected for June 1st? And then second, maybe you can help us understand how your commercial contracts are structured to protect returns if there's any delay to some of the interconnecting pipelines like the Mayakan pipeline. And can you share any other details in your dialogue that you had with CFE around syncing up the various pieces of the network and if all parties are in agreement there?

Good morning, Praneeth. This is Stan and thank you for the comments and it's always a joy talking to you and your comrades on the call. With respect to May 1, I would just say that's very consistent with the guidance that we've given around the earnings related to SGP. To your broader statement, with respect to the status of the plants and the timing around payment from CFE, here's what I could share with you. Our understanding is that the Merida and the Valladolid plants, which are the two, which are both most relevant to SGP, are both now mechanically complete and will be placed in-service as gas supply becomes available. CFE is looking at rebalancing its overall supply portfolio to get gas to the Merida plant by Q4 2025 when the first phase of the Mayakan expansion is complete and that first phase is a compression only expansion. Gas to the other plant, Valladolid, is likely to commence around Q3 2027 when the Phase 2 expansion of the Mayakan Pipeline is complete and it's the Phase 2 expansion that will include the physical connectivity with SGP. In the meantime, CFE is continuing to talk to both us and other third parties about the potential to build short laterals off of SGP that could amongst other things get gas into the Cenagas system for example to deliver gas to the plants perhaps a little bit earlier. I know many of you have questions around our in-service date of May 1 and the potential for us to get paid by CFE and here's a couple things that I would offer up for your consideration. At first, we have 30-year contracts with CFE and we're building infrastructure that's going to last more than twice as long. We have a strong mutually beneficial partnership with CFE and they understand that a May 1 in-service date represents the lowest overall cost for them, and in support of that, our understanding is that CFE has received budgetary approvals sufficient to fund SGP commencing on May 1. Secondly, contractually, the in-service declaration for SGP is not tied to the availability of downstream third-party capacity and our project is consistent with President Sheinbaum's Plan Mexico to attract investment to build new infrastructure and to reduce emissions. Thirdly, given the limited amount of storage capacity across Mexico and in order to provide some level of utility upon in-service, we've been discussing with CFE the potential to use the completed SGP pipeline for park and loan or storage service until the downstream laterals and interconnects are in place. Fourth, subject to further COFECE approvals, the process for commencing CFE's additional 2% equity stake is also triggered upon in-service, so there's an incentive from CFE for that perspective. But most importantly, what I want to leave you with is the comment that Francois made earlier. Francois, myself, and our team went down to Mexico in January. We met with the Energy Secretary, we met with the CFE leadership and we are all aligned on a May 1 in-service date for the project.

Perfect. That's very comprehensive. I want to switch gears and maybe ask conceptually how you think about some of these potential behind the meter gas projects that some of your peers are pursuing, would you be open to developing an integrated gas to power project where you provide both the pipeline infrastructure and potentially build the power generation assets too? I know you have favorable slots in the order book for gas, simple cycle gas turbines, so there's speed to market benefit here if you decide to do the projects, but just curious for your views on that.

Praneeth, it's Francois. I'll start on that specific strategy, but then I'll ask Tina to give you an overall picture on how bullish we are on data center demand growth based on the dozens of conversations we're having. What I would call sort of a fully bundled or complementary solution where we're building a lateral and also building the power plant for power generation, this is expertise that we've had for over 30 years in the company. We're an owner and operator today of gas fired power plants in Alberta as well as in New Brunswick. We are in fact a large purchaser of gas turbines, but I would point out that those are primarily for the purpose of compression. They tend to be smaller units. We do not have any preferential position in the queue for larger turbines that would be used for power generation, but we are absolutely in conversations with a number of parties around direct connections where we would offer a combination of the two. We're not really interested in growing an IPP, independent IPP company within TC anymore and we would only really contemplate new power generation in a sort of complementary, fully bundled type of product offering. But again we are extremely bullish on data center demand and I'll ask Tina to expand on that.

Thanks, Francois, and Praneeth. Maybe I'll give you a holistic picture of how we're thinking about data centers. Data centers are one component of our power demand opportunities that we're advancing in addition to coal-to-gas conversions and other electrification growth, but when it's speaking specific to the data center sector, our vast footprint gives us access within 15 miles to 60% of the over 350 data centers that are under development. Additionally, we connect to eight of the top 10 utilities and over 100 power plants which is another competitive advantage for ours in serving data center demand. We have about 10 gigawatts of requests into our business development team right now. We've increased commercial engagement with over 20 parties across the entire data center value chain. About $2 billion of potential opportunities within that sector and across several of our systems Wisconsin, Ohio, Virginia, Kansas, Indiana, Louisiana and Nevada. Interestingly, the customer needs differ and they vary among developers. So our focus strategy is to work with our established high-quality utilities for the larger data center loads and provide the necessary gas infrastructure to support their portfolio build out. Additionally, we will develop the direct connect behind the meter solutions where it makes sense and fits our risk preferences. Let me give you a few key proof points and data set here. Our ANR Heartland project that we announced and sanctioned last year, about a $900 million project, five times to seven times multiple, will now be serving data center demand alongside overall economic development demand in Wisconsin. We're going to be filing that project with FERC in the coming weeks and targeting a November 2027 in-service. We've been tracking to sanction another data center driven project anchored by some of our utility customers in the first half of 2024. And interestingly, we're now in discussions with those counterparties to potentially upsize that particular project and that might add a couple of months to our timeline but be a more meaningful expansion related to serving data center demand. We've developed a behind the meter solution to a data center in Loudoun County, Virginia, that we placed in-service last year and we're in active discussion on several similar direct connect opportunities. We also recently completed an open season on Columbia Gas that resulted in 60,000 decotherms a day being placed with a customer to supply gas to data center load behind the meter in the New Albany area in Ohio. And additionally we're advancing new power plant interconnect projects totaling about 4.7 gigawatts of generation that would be serving growing electricity demand including data centers. And as we advance all these projects, our approach will be consistent with our strategy of low risk, repeatable performance, long-term take-or-pay commitments and attractive build multiples in the five times to seven times range.

Perfect. Thank you. Appreciate it.

The next question comes from Theresa Chen with Barclays. Please go ahead.

Good morning. First, would also like to offer my congratulations to Stan on his retirement. We wish you well and congratulations as well to Tina and Greg on your new roles. Maybe pivoting to the nuclear portion of your portfolio, in relation to Bruce C, while early on, what are the next steps towards FID? Do you have a timeline in mind and could it be subject to accelerated cost recovery similar to NCR?

Thanks, Teresa. It's Francois. Given the fundamentals in Ontario with a projected 69 gigawatt shortfall of capacity by 2050, we're very bullish on the role nuclear will play. Nuclear is the way Ontario will be serving data center demand as well as other industrial demand as Ontario looks to reshore manufacturing. For the MCR program, we bear the cost and schedule risk on those projects. We have demonstrated with the successful return to service of Unit 6 and Unit 3 being on time and on budget as well that we are very effectively managing that risk. On Bruce C, it's still early days. We have many years of development work and assessment work to assess the potential for that project including what technologies we would use, supply chain impacts, labor, et cetera. What I would say there is you're unlikely to see us bearing a significant amount of cost and scheduled risk on new build. It simply does not fit our low-risk value proposition and we would look to be taking on a more traditional cost of service rate making model in the case of Bruce C. Maybe one way to think about this from a timing standpoint is, nuclear sites have a huge competitive advantage in terms of nuclear growth. First is, you have got an operating license. Second, you have a community in the surrounding area that's comfortable with having nuclear operations nearby. Third, in the case of Bruce Power, we have footprint to put Bruce C and Bruce D on the site going forward. And fourth, we have, I believe, one of the most competent, if not the most competent, management team in the nuclear space. The existing units are both operating at very high levels of efficiency now with INPO 1 ratings. So Bruce was very strategic. They invested in training, building trades and labor to do the refurbishment work and a natural timeline would be to evolve from the MCR projects which will wrap up in 2031 or '32 into new build at that time. So there's a lot of planning work to do. But as you pointed out, we're very excited about the long-term potential for nuclear. It is going to be a significant growth wedge for this company over the long-term.

Thank you. And looking to your leverage and general balance sheet outlook, what is the path forward with S&P at this point after it reaffirmed your BBB plus negative outlook rating late last month? What do you think it will take to improve that outlook?

Hey, Theresa, it's Sean. Good morning. Look, without speaking to S&P specifically, we don't like to speak to what any one rating agency may do, I'll offer that. We're in regular contact with all the agencies. They've previewed the Investor Day materials and each of them have gone through their annual review, and as you noted, S&P recently, in the last two or three weeks completed it. And look the dialogue with each of the agencies, there's a major focus on SGP coming on time and on budget, you heard from Stan today, that's probably the most frequent conversation we have with each of the agencies. And then as it relates to the balance of the year, it's more or less just delivering on the plan and that $6 billion to $7 billion capital range, right, that we execute on time and on budget within that $6 billion to $7 billion range. I really think that's the recipe for our organic deleveraging and continued success with each of the agencies.

Thank you so much.

You're welcome.

The next question comes from Maurice Choy with RBC. Please go ahead.

Thank you, and good morning, everyone. I wanted to turn our sight to Canada, and the question here is about mainline and how much mothball capacity is there on the system and what would it take to bring it back including cost and timing? And as part of that, there's obviously a lot of Canadian energy projects that are being discussed right now given the onset of potential tariffs, some of these costs are pretty massive. So to the extent that the company is involved, how committed are you to your $6 billion to $7 billion target?

Hey, Maurice, I can take the first part of that. This is Stan and Francois can answer the second piece. With respect to spare capacity on the mainline, I would just say that given the strong demand that we've seen for natural gas, the amount of spare capacity that we have is very different today than it was 10 years ago, back in 2015. For example, the restoration work that we did on the western mainline was completed in 2023 and 2024 and our contracts since then have increased from around 3 Bcf a day to 5 Bcf a day, which has resulted in all the available mainline capacity being fully contracted. We do have one line that we refer to as line two that is currently not available for service. And as market demand for this capacity continues to mature, we're going to reevaluate things like the timing, the cost, and the potential capacity that could be optimized and perhaps restored subject to any upstream and downstream constraints. So just bear with us and give us time to complete that work as the market needs to materialize.

And, Maurice, with respect to what I would call, an energy corridor from coast to coast to coast, lots of inquiries on the liquid side, I would refer those to our friends and former colleagues at South Bow. On the natural gas side, there is absolutely demand for more LNG export and market opportunity for us to prosecute. We're very bullish about the prospects for CGL Phase 2 happening. That, of course, is only an input into the FID decision that our customer LNG Canada will make in due course. And looking at other infrastructure in Canada, it's going to have to compete for capital in our company as it has for the last few years with projects in other jurisdictions. Right now, we see the highest risk adjusted returns being in the United States. The vast majority of our discretionary capital is going and we expect that it will continue to go into the United States. However, there is an interesting data center opportunity in Alberta. We've been working closely with a number of stakeholders to understand where there may be spare capacity in our system in Alberta. And we see some very exciting opportunities there. There are 10,000 gigawatts, pardon me, 10 gigawatts of interconnection requests within Alberta. It's a very natural market for data center development and we feel we'll be very well positioned for that. It would not necessarily be within our NGTL entity. It may be in separate unregulated entities where the return -- the risk return profile is different than for NGTL.

Understood. And maybe just finishing up on capital allocation as you alluded to here. You mentioned in the press release that prolonged tariffs could impact capital allocation decisions. And I wonder if you could just elaborate a little bit more on that, recognizing as you say, that the US is already your largest geography for near-term CapEx with limited investments in Canada thus far. So just curious what other adjustments you could make to capital allocation.

So I'll start and I'll ask Tina to talk a little bit about our supply chains right now and where we are with respect to capital cost impacts. Simply, Maurice, that was a reflection of the fact that we will reflect any changes in prices of key raw materials and inputs and any future capital allocation decisions with the vast majority of the future discretionary capital going into the US for projects that would transport molecules from US production to US demand centers, there would be no tariff impacts. We feel that there's plenty of domestic capacity for steel production and pipe fabrication in the United States to meet our projects, but we would of course have the benefit of how things transpire and factor those into our projects. Maybe, Tina, you can expand on our current supply chain situation.

Sure. Thanks, Francois. We expect very modest impacts on materials for our Canadian and US projects, primarily fittings and flanges, no impacts to Mexico projects. We take regular action to address and mitigate any cost escalation risks across our entire portfolio. For the US, for all of our sanction projects, pipe has already been procured for those projects and were sourced from US mills. Those pipe orders are firm pricing, so any market volatility is a vendor's risk. We also deploy a very diverse supplier base for all of our materials and primarily procure large-scale materials in advance, focused on a subset of proven suppliers in exchange for mutually beneficial commercial benefit.

So just to maybe come back around to that, Maurice, what I would say, is as we look out to the end of the decade, as I mentioned in my prepared remarks, we expect to be filling the balance of our incremental capital capacity by the end of next year and we still see build multiples in the five times to seven times EBITDA range for the projects we are looking to sanction between now and then.

Okay. That makes sense and thanks for the question. Thanks for responses and obviously my congrats to Stan for your upcoming retirement and Tina and Greg for your new roles. Thank you.

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

Hi. Good morning.

Good morning.

I just want to echo that. Stan, congrats on a great career. You will certainly be missed and want to send a Happy Valentine's Day to everyone as well. But maybe just the first question here, if you could quantify, I guess maybe upside to the plan, at least as we see it, it seems like business operations are going well as far as nuclear operating rates and possibly what you get in some of these rate settlements here and just seems like there's some upward pressure on the guide, but I was wondering if you could kind of provide more thoughts there?

Hey, Jeremy, good morning. It's Sean. Yes, look in my section we gave you a couple of different things that we pay attention to that can impact the outlook arguably either way, but to your specific question, Bruce just continues to perform incredibly well at levels at least in the fourth quarter above what we discount in the plan for conservatism kind of low 90s is how we think about it. You've asked me in the past about FX rates, we provided a little bit of clarity there. And for benefit of just perspective, we've got kind of a high, medium, low rolling hedge program over three years and we're watching that curve very carefully to think about what we might do differently kind of in the medium to longer term to capture some impact there. And look some of the proven recipe about upsides that you saw in '24 continue, right, in terms of rate case strategy, EBITDA, and overall cost reduction. So it's a multifaceted plan that we're a solid year into making work. So I appreciate the question.

Got it. That's helpful. Thanks. And if I kind of look through the deck a little bit here, Slide 7, 9, it just seems like there's a lot of things cooking right now and so as you think about the potential for new projects here with levers kind of really falling off both Southeast Gateway, how do you think about the cadence of how these projects could materialize over kind of like the 2026, 2030 timeframe? Just trying to get a feel for what's possible.

Well, as we mentioned in the prepared remarks, Jeremy, in the near-term we're tackling the white space we have in 2026. We are working on a number of different proposals to deploy smallish amounts of capital in short-cycle projects to cash flow. We're looking at opportunities to bring forward some capital spend from 2027 and 2028 in order to create some additional capacity in those years as well. For us to sanction in aggregate approximately $8 billion of remaining capital to the end of the year, by the end of 2026, you're going to see a regular cadence throughout the next several quarters. Submitting the basis of estimate on Unit 5 as we did on January 31st, the basis of estimate was within the range contemplated inside the contract. The IESO of course has assurance and verification rights on the validity of the estimates, but given the fact that the estimate was inside the range contemplated in the contract, we have a very high degree of confidence that we'll be making an FID on yet another unit at Bruce Power in the very near future. So we're seeing opportunities not only in our gas business with coal-to-gas conversion with data centers, but also on the nuclear side with the shortfall and the signals we're getting from the Ontario government with a shortfall in supply. That's part of the reason why they were agreeable to provide us with $285 million of incremental capital to advance the development on Ontario Pumped Storage. So we're really bullish about where our footprint sits and the growth prospects that come with the fundamentals in each of those markets. And so, again, our goal is a large number of small projects, low risk inside our corridors, and so you're going to see a regular cadence throughout the next seven or eight quarters, and that's how we're going to be filling the remaining amount of our backlog. And I would argue that our focus, which is on extending the duration of our capital program, is a little bit unique among our peers. We feel it's very important in the near-term to manage and maintain capital discipline and stay at or below that $6 billion to $7 billion range. We are not losing out on any opportunities right now and but we're also able to sanction projects within service all the way through the end of the decade.

Got it. That's helpful. I'll leave it there. Thanks.

Thanks, Jeremy.

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

Good morning. I have two questions and I'll just ask them up front. First of all, at your Analyst Day, you announced four new projects and we got some more updates today. Can you help us with some more details on how those four projects that you did announce are progressing? And the second one, you talked in detail about the data center opportunities, can you also talk a little bit about the coal-to-gas switching opportunities that you're seeing out there?

I'll take the first question about our announced projects and also roll into your second question. We announced in the US three projects, two of those are the coal-to-gas conversion projects, located off of our Columbia Gulf System and a Virginia project to support our local distribution company's reliability needs with LNG peaking supply. Those projects are progressing nicely. We're in early stages of developing our FERC applications. Landowner notifications progressing that well and those will be delivered in the timelines noted in our disclosures, so those are going really well. From a coal-to-gas perspective, we continue to see many opportunities across our footprint. We've got 42 operating plants within 15 miles of our assets that are coal. Nine of those plants are planned to retire by 2031, combined capacity about 9 gigawatts and there's about 19 gigawatts within 50 miles of our pipelines expected to retire through 2033. We're seeing many of those come to fruition. For example, in the Midwest, we have a couple of different projects, our Wisconsin Reliability and our upcoming ANR Heartland Project that are supporting coal-to-gas conversions. We are also in active discussions on about 7.5 gigawatts of generation of additional conversion opportunities and we'll continue to pursue all those that adhere to our $6 billion to $7 billion capital plan and achieve the five times to seven times build multiple.

Thank you.

The next question comes from John Mackay with Goldman Sachs. Please go ahead.

Hey, good morning. Thanks for the time. I just wanted to circle back to Mexico in the context of everything we've talked through today in the context of tariff noise et cetera. Can you just give us an update on the potential separation or sell down or however you want to frame it for the Mexico business today?

Thanks, John. It's Francois. As we mentioned at our Investor Day, our goal is to get all of the pipes flowing gas and then get all of the pipes flowing cash, if you will. We expect to be doing that, of course, on Southeast Gateway by May 1st. On Tula-Villa de Reyes, we're expecting to have that done by the end of the year as well. So we'd like to see that behind us, have all of our projects complete and in-service and then we'll be turning our attention to that opportunity. As we mentioned, we'll be considering both capital market solutions, an IPO of sorts, as well as a minority interest sale to a buyer along the same style of transaction as we did with GIP on Columbia. Timeline for that, think of it as the first half of 2026. We think that is the manner in which we'll maximize value for our shareholders and establish a positive mark for the balance of the portfolio. And we also see so much growth outside of Mexico that not only selling down our interest is not the only tool to work down our exposure, the other tool will be growing our businesses in Canada and the US. And the other way we're thinking about managing and mitigating risk in Mexico is you can expect us, once SGP is in-service, to start looking at some Mexico level or perhaps even asset level financing to help reduce our equity capital at risk in Mexico. So stay tuned for that.

All right. That's helpful. Thank you. And then, second one, this is probably quick, but just looking at your breakdown of kind of forward growth projects on Slide 9, the breakdown looks pretty different from the Analyst Day. Is that new projects coming in? Is that just a re-bucketing of existing ones? Maybe just walk us through that.

Did you have a particular year? We may have changed the color scheme on you a little bit, but that pipeline hasn't changed much. A few minor additions particularly in the --

Yes, I guess, I'm looking at the power gen being 56% now versus 32% in the investor deck, it might be re-bucketing, but want to see if that's new projects coming in.

I think it's just the color coding that might just be picking up a little bit different in your slides. I can provide a clarification after the call.

Sure. We can follow up on that. Thank you.

Thanks, John.

The next question comes from Ben Pham with BMO. Please go ahead.

Hey, thanks. May I start off on the Columbia rate case, could you update us on any recent customer feedback and expected timing?

Yes, we'd be happy to give you a brief update. As you're familiar, we filed our rate case for our Columbia gas system last year. Rates do go into effect in April of this year. Right now, we are waiting for what we call top sheets from FERC which will outline their position of our rate case. And typically, after you see those top sheets, the negotiations with our customers ramp up in earnest towards settlement discussions and so we would continue to plan to settle that rate case mutually beneficial to our customers and our company here likely in the third or fourth quarter of this year.

Okay, thanks for that. And maybe a second question, the data center is more specifically Alberta, you mentioned Francois maybe look at non-reg part of things. Is that a reference to your gas plants you have there or you're referencing something else?

No, it would be unregulated or pipelines, I should say not regulated by NGTL but by the Alberta energy regulator. So there's no reference there to power gen.

Okay. I got it. Okay. Thank you.

Thanks, Ben.

I understand there's time for one last question. That will come from Jessica Hoyle from Scotiabank. Please go ahead.

Great. Thanks. Good morning and thanks for taking my questions. So just starting with the power segment, can you talk a little bit more about the path forward for the Ontario Pumped Storage project, just given the recent support from the government?

Thanks, Jessica, for that question. The funding from the Ontario government is to advance the development of that project, including the requisite environmental assessments, getting us to a point where we could make a final investment decision. That timeline is 2028. There is a considerable amount of work to do on continuing the work around contracting geotechnical work, et cetera, we would not proceed with a project like that without having a very high-quality Class 3 estimate, and of course, the environmental work will take a couple of years when you look at both the federal and provincial requirements. And then, of course, it would be a four or five year construction period beyond then. So there's lots of work continuing. It's a 1,000 megawatts of effectively a 12-hour battery. The Ontario government just recently announced a ban on Chinese parts, and of course, that makes this project more attractive to them for firming resources compared to the battery alternatives where much of the supply chain is reliant on China. So, we're very interested in the project. Our intention at the end of the day would be not to sanction this unless it was with cost of service regulation. We will not take cost and schedule risk on a project of that nature. And then, again, it will have to compete with the balance of our investment opportunities in the capital stack for an allocation of capital.

Appreciate that color. And then can you talk a little bit more about how you're thinking about the next wave of LNG and how TC Energy's pipelines could serve and support that?

Yes, I'll start with the US and we have a great footprint in Louisiana in particular with our Columbia Gulf and our ANR assets and have quite a bit of connectivity already with several of the LNG export terminals in that area. We're now progressing a project called East Lateral Xpress that will come into service later this year to supply capacity to one of the LNG export terminals in Louisiana. We also have an intra-state project called Gillis that will be extending to serve additional load in Louisiana as well as in the Gulf Coast with LNG exports. And I'll turn it over to Stan for any Canadian and Mexico updates.

So big picture wise in Canada, you all are aware that the CGL pipeline is currently in-service and we are currently now waiting for the in-service of the terminal itself. We are continuing to advance scope and other work products with respect to Phase 2 and again that FID decision rests with LNGC as well.

Thanks very much.

Ladies and gentlemen, this concludes the question-and-answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wylie for any closing remarks.

Well, thanks, everybody for joining. I know everybody out there today as a very busy day with several of our peers reporting. So thank you for your time for joining the call. Thank you for your interest in TC Energy. As Drew mentioned here, if there are any additional questions, please do feel free to contact the investor relations team at any time, we're always happy to help and we look forward to our next update following the first quarter. So we'll talk to you then.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.