TC Energy Corporation Q2 FY2025 earnings call

• Safety: Exceptional safety record with incident rates at 5-year lows, driving operational excellence.
• Financial Results: Delivered 12% Y/Y increase in comparable EBITDA, raising 2025 comparable EBITDA outlook to $10.8 billion to $11 billion, a ~9% increase over 2024. Settlement in principle with Columbia Gas customers led to a 26% increase in pre-filed FTS rates.
• Projects: Completed or placed ~$5.8 billion of capacity projects, including Southeast Gateway and East Lateral XPress. Multiple projects under construction, tracking below budget or ahead of schedule.
• Bruce Power: Investments enhancing nuclear fleet reliability, availability expected in low 90s in 2025, equity income expected to nearly double by 2035 based on Project 2030.
• Sustainability: Reduced methane emissions by 12% over 5 years, introduced new methane intensity reduction target of 40% to 55% by 2035.

TC Energy's segment performance showed strong results across various units. Canada gas EBITDA increased due to Coastal GasLink's in-service date and higher flow-through regulated costs. In the U.S., EBITDA rose mainly from the Columbia Gas settlement and new projects placed into service. Mexico's EBITDA increased due to higher earnings in TGNH, partially offset by lower equity earnings from Sur de Texas. The Power and Energy Solutions business had higher contributions from Bruce due to increased generation output and a higher average realized price. Revenue contribution details were not explicitly broken down by percentage in the provided transcript but focus was on absolute financial performance across segments.

• 2025 comparable EBITDA is expected to be $10.8 billion to $11 billion, reflecting strong operational results and confidence in execution for the remainder of the year.
• Target to further deleveraging to approximately 4.75x by the end of 2026 based on full-year contributions of Southeast Gateway and other projects.
• 2027 EBITDA target is $11.7 billion to $11.9 billion, implying a 5% to 7% 3-year growth rate.

Q: Congrats on a strong quarter here. Maybe I'll start with the Columbia Gas settlement filing. So I think in the filing, it mentions the establishment of rates over three defined periods. Can you maybe just provide more details on the rates during these periods? What are the conditions to see a step-up in rate? What's the magnitude? And I understand it's not conditional on CapEx investments. So I guess what are the gating factors there to step the rate higher over the next few years.

A: This is Tina Faraca. We're really excited about the outcome of the PUCO or the Columbia Gas rate settlement in principle. We've had a constructive agreement with our customers that resolved all major issues in the case. As you're probably familiar, the settlement in principle established interim rates that were put into effect that reflects about a 26% increase to our pre-filed firm transportation rates. The rates obviously are subject to final settlement once we have filed and seen approval by FERC. There were several key issues that were addressed by the settlement in principle, including the establishment of rates for three defined periods, also 3-year moratorium and a required comeback in 6 years and roll-in treatment for a couple of our recent reliability projects. Related to your question on the step-up in rates, that is not detailed in the settlement at this stage, and the step-up in that detail of rates is going to be provided in the final filing. So at this case, we can only communicate. There are three defined periods established and more details will come in the final filing.

Q: Just wanted to pick up a bit on the visibility into a steady cadence of project announcements in the back half of '25 and into '26 here. And wanted to dial in a little bit more in Pennsylvania here, given the recent Pennsylvania Energy and Innovation Summit. It seems like your pipelines are nicely positioned around some of those assets there. I was just wondering if you could elaborate a bit more, I guess, on TRP's ability to maintain or gain market share as far as logistics opportunities in that area based off announcements at that summit.

A: Thanks, Jeremy. I'll start and Tina will provide some detail. I'll just focus on the macro picture here. As I mentioned in my prepared remarks, we've seen an increase in our long-term forecast of natural gas demand growth out to 2035 from 40 Bcf a day to 45. You see the Pulaski and Maysville capacity increases despite the fact that those projects were sanctioned last year. Essentially, what's happening is when a utility or a data center developer announces energy supply, it's attracting other demand to that location. And that dynamic is going to manifest itself not only in those two projects, but you could potentially see us upsizing other projects that we've recently announced over the coming months. So just a really good picture in terms of our ability to be competitive. And as to Pennsylvania and the Appalachian Basin in general, I'll pass it over to Tina.

Q: Just curious if you've met with S&P since you've received payment on Southeast Gateway. Just any thoughts on when you think they might deal with a very long 29-month negative outlook.

A: Burke, it's Sean. I'm happy to take that one. Look, let me just say we're in constant contact every quarter, every agency and they kind of move through their review cycles, obviously, independent of one another. So without speaking specifically about any recent conversation, that report has been 29 months, as you say. S&P was pretty clear in that February report as to what they were looking for this year. SGP obviously coming online on time and under budget was an important one. And the second element of the conversation with the S&P team and candidly, all of the agencies was maintaining the capital discipline and the project delivery kind of 5 to 7x. We've done everything that we said we were going to do. We've completed everything that the agencies kind of had on their watch list. So as it relates to each agency's review period from here towards probably the fall, I'm not at liberty to say it, I don't know. So we stay in constant contact.