Earnings Call Transcript - TRP Q3 2023

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the TC Energy Third Quarter 2023 Financial 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. I will now turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.

Gavin Wylie, Vice President, Investor Relations

Thanks very much and good morning everyone. I'd like to welcome you to TC Energy's 2023 third quarter conference call. Joining me is Francois Poirier, President and Chief Executive Officer; Joel Hunter, Executive Vice President and Chief Financial Officer along with other members of our senior leadership team. Francois will begin with comments on our overall operational performance. Bevin will highlight progress made to-date on our announced intention to spin-off our liquids business. And finally, Joel will discuss our financial results and outlook. A copy of the slide presentation that will accompany our remarks is available on our website under the Investors section. Following the remarks, we'll take questions from the investment community. I'd like to remind you that remarks today 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 Canadian Securities Regulators and with the U.S. Securities Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures provided by other entities. These measures are used to provide additional information on TC Energy's operating performance, liquidity and its ability to generate funds to finance its operations. A reconciliation of various GAAP and non-GAAP measures is contained in the appendix of the presentation. With that, I'll now turn over to Francois.

Francois Poirier, President and CEO

Thanks, Gavin, and good morning everyone. I'll start by saying our team is making exceptional progress towards our 2023 priorities. Our focus on execution is paying off, demonstrated by our strong year-over-year increase in comparable EBITDA and with our major projects remaining on track or ahead of 2023 targets. This is setting us up extremely well for 2024. So far this year we've placed approximately $5 billion of assets into service, including the majority of our West Path project that went into service on November 1. Importantly, the projects placed into service so far this year have largely been on budget. On the deleveraging front, we received $5.3 billion in cash proceeds after closing the sale of a non-controlling minority equity interest in Columbia Gas and Columbia Gulf. This puts us firmly on the path to restoring our balance sheet strength and flexibility. We also continue to evaluate an additional $3 billion of asset sales. As a result, post-2024, we're committed to limiting our annual net capital expenditures to $6 to $7 billion, which will also support further organic deleveraging. We continue to see strong sustained demand for our services, maximizing the value of our assets through safety and operational efficiency. As a result, we now expect our 2023 comparable EBITDA to be at the upper end of our 5% to 7% growth outlook compared to 2022. While our natural gas pipeline businesses do not carry any material volumetric or price risk, strong utilization rates demonstrate the demand for our services and the criticality of our assets. On the NGTL system, for example, we continued to see strong receipts. In fact, the system achieved its highest single-day record of 14.6 Bcf on August 6. The same theme in the U.S. LNG deliveries averaged 3.1 Bcf year-to-date in 2023, about a 1.5% increase compared to last year's third quarter. In July, we achieved a new all-time record for deliveries to power generators of 5.2 Bcf. Additionally, on our GTN system, we achieved an all-time delivery record of 2.96 Bcf. We're pleased to see that the GTN Express project recently received FERC approval. This project will expand the GTN system to transport incremental contracted export facilitated by the Foothills West Path Delivery Program. We continue to make meaningful progress in Mexico. The lateral section of VdR has been placed into commercial service, and for the last remaining portion, we expect that to be in service by the second half of 2024. In our power and energy solutions business, we achieved a significant execution milestone with Bruce Power's Unit 6 returning to service ahead of schedule and within budget. This highlights our shared commitment with the Bruce Power team on project execution excellence. Additionally, Bruce Power achieved 94% availability in the quarter, and we continue to anticipate annual availability in the low 90% range for units not down for the MCR program. For reference, in 2019, before we started the MCR program, the average availability at Bruce was 84%. Over the last several years, we have achieved a 10% increase in average availability due to the steady decrease in the forced loss rate and the reduction in planned outages. Following the completion of the MCR program, we expect to continue to see increases in availability. Furthermore, on our Alberta cogen fleet, we achieved approximately 98% peak price availability during the third quarter, and Alberta power prices averaged $152 per megawatt hour. On Keystone, operational reliability was close to 94% year-to-date, and Bevin will elaborate on that shortly. To sum up, our operational excellence and unparalleled asset base have been delivering strong results and solid, sustainable financial performance through every phase of the economic cycle. We've sharpened our focus on project execution. After five years of construction and 55 million hours worked, we've now achieved the significant milestone of mechanical completion on Coastal GasLink, ahead of our year-end target. This means that 100% of the pipe has been welded, coated, lowered into the trenches. We've completed all 800 classified water crossings and hydro tested the entirety of the pipeline. We've finished the documentation and additional engineering analysis associated with the mechanical completion milestone. Coastal GasLink is Canada's first pipeline to the West Coast in 70 years and once operational, it will be the first direct path for Canadian natural gas to reach global markets. The next steps on this project are the introduction of natural gas, project commissioning, and the land reclamation work that has already begun across the route. As mentioned in our press release this morning, the project also remains on track with our approximately $14.5 billion cost estimate. Now turning to Southeast Gateway. Progress on the onshore portion of 25 kilometers, all land has been acquired and construction at all three landfall sites is on track. In preparation for offshore work, our engineering is complete and concrete pipe coating is well underway. We're expecting the 690 kilometer offshore pipe installation to begin by the end of this year. We continue to see benefits from our enhanced capital allocation governance process. On Southeast Gateway, that means that that project remains on track to be placed into service as expected in mid-2025. I want to take a moment to recognize our Board Chair, Siim Vanaselja, for his excellent leadership role during a time of significant change at TC Energy. By the 2024 Annual General meeting, Siim will have served on our Board for 10 years, and he's been Chair for the last seven. I'm very grateful that Siim will continue to offer his knowledge and expertise as he steps down as Chair, but continues to serve as a member of the Board in a Director capacity. As part of our Board's ongoing succession program, John Lowe has been designated as TC Energy's next Board Chair. His significant midstream and energy experience, along with his role as a Board Director of TC Energy since 2015, make him ideally suited to take on this critical role. Now I'll pass the call over to Bevin.

Bevin Wirzba, Executive Vice President

Thanks, Francois. In July, we announced the intention to spin-off our Liquids Pipelines business into a standalone investment-grade entity in order to maximize the commercial potential of this highly competitive corridor. We've made important progress in just three months, and I want to take a few minutes this morning to discuss some of the highlights. Today I'm thrilled to share the name of the new Liquids Pipeline Company, South Bow. South Bow symbolizes the historical roots of the company established near the Bow River in Calgary. The name acknowledges the pipeline system's strategic corridor, which enables the company to deliver a premier resource southward to the strongest U.S. refining markets in both the Gulf Coast and the Midwest. Last month, we also shared the news that Hal Kvisle has agreed to be appointed as the Chair of South Bow's Board of Directors. Hal is a distinguished industry leader with extensive experience spanning a wide range of companies across the energy space. He was also TransCanada's President and CEO from 2001 to 2010, back when Keystone came into service. He knows our liquids assets and the business exceptionally well. We look forward to welcoming Hal's leadership and guidance in this key role at South Bow. I want to remind you of some important points around the value this spin-off will bring to shareholders. We made this announcement last quarter. We received strong support from customers. There are a few reasons for this. The assets in our system are critical to meeting customers' needs, and we are seeing additional demand for incremental service that reflects the competitive nature of the corridor. We connect some of the largest and most resilient supply, demand, and export markets, offering the fastest, most cost-competitive pathways from the Western Canadian Sedimentary Basin to the Gulf Coast. We'll be able to direct cash flow flexibly without competing for capital in a company strategically focused on maximizing the synergies in its natural gas and power businesses. Our premium value is supported by our compelling and sustainable dividend yield, low risk, highly contracted business with competitive advantages, and contract structures unlike any of our peers. Fundamental to our value proposition is that South Bow is expected to be an investment-grade entity at the time of spin. This expectation remains in the current interest rate environment. We will look to establish the capital structure in a constructive capital markets environment. Furthermore, there is no time limit for us to affect the spin. We fully expect to have the capital structure in place prior to the spin. To the extent we have not established the capital structure in its entirety, we have various tools available, including access to the bank term loan markets and utilizing hedging instruments when appropriate, to allow us flexibility to optimally implement the long-term capital structure at South Bow. Our team is also committed to excellence in our operations. Throughout the third quarter, our system has continued to perform exceptionally well. We are seeing strong, sustained demand in the U.S. Gulf Coast for Canadian crude. We successfully completed two open seasons on Marketlink. This system is operating well. As Francois mentioned, Keystone's operational reliability year-to-date is approximately 94%. As a result, year-to-date comparable EBITDA of $1.1 billion from the liquids business was up approximately 8% compared to the same time last year. As of this past week, we've completed the cleanup at Milepost 14 and restored the natural flow to Mill Creek. We thank the local community, Washington County, EPA, Kansas Department of Health and Environment, and the Army Corps of Engineers for their support and assistance as we concluded this work. We will maintain a presence on site to progress long-term reclamation activities and environmental monitoring. I invite you to look at our website for additional details. With respect to inspections across Keystone, we have completed inline inspection across 60% of the entire system. The Integrity Dates program is 50% complete, and we anticipate being fully complete by early second quarter next year. No concerning circumstances have been identified, and we continue to deliver on our contracted volumes. You'll hear more details at our upcoming Investor Day in a few weeks. Now I'll turn it over to Joel.

Joel Hunter, Chief Financial Officer

Thanks, Bevin. During the third quarter, we continued to deliver strong performance leading to a 7% year-over-year increase in comparable EBITDA. Primary drivers include higher flow-through costs, and increased NGTL rate-based earnings in our Canadian natural gas rate-regulated pipelines business, additional assets placed into service in our Mexico natural gas pipelines business, higher long haul contracted volumes, as well as higher volumes on the U.S. Gulf Coast section of the Keystone Pipeline System and the impact of a stronger U.S. dollar. As Francois mentioned, given our strong year-to-date performance, we now expect our 2023 comparable EBITDA to be at the upper end of the 5% to 7% outlook compared to 2022. Comparable earnings per common share are expected to be generally consistent with 2022. Year-to-date, we have placed approximately $5 billion of projects into service, including capacity projects in our natural gas and liquids pipeline businesses and Bruce Power's Unit 6 MCR program. Total capital expenditures for 2023 are now expected to be approximately $12 billion to $12.5 billion. I want to note that the estimated costs of major projects remain consistent. The increase primarily relates to our decision to bring forward 2024 capital expenditures and work into 2023. This includes accelerating the timing of maintenance and growth capital expenditures to optimize efficiencies and mitigate project execution risk in our natural gas pipelines businesses, as well as the foreign exchange impact of a stronger U.S. dollar. We've also delivered meaningful progress towards our leveraging target. We have a clear path to achieving our 4.75 times debt-to-EBITDA target by the end of 2024 and will remain there beyond 2024. On October 4, we successfully completed the 40% minority equity interest sale in our Columbia Gas and Columbia Gulf systems. Cash proceeds from this transaction of $5.3 billion will be directed towards reducing our year-end 2023 debt to EBITDA metric by over 0.4 times. We're continuing to evaluate capital rotation opportunities in the range of $3 billion. This deleveraging is further supported by organic comparable EBITDA growth as we place additional assets into service. As of November 1, substantially all of the West Path delivery program on our NGTL system has been placed into service. This brings our year-to-date total to approximately $5 billion. In 2024, we expect to place approximately $7 billion of projects into service, including Coastal GasLink, GTN XPress, and the south section of the Villa de Reyes pipeline in Mexico. Looking to 2025, we expect to place $9 billion of assets into service and an average build multiple of approximately eight times. This includes our Southeast Gateway project in mid-2025, expected to contribute approximately $800 million in incremental annual comparable EBITDA, along with an additional $3 billion of assets on our U.S. natural gas pipelines business, some of which include Gillis Access Extension, Virginia Reliability, and Wisconsin Reliability projects. Now in light of volatility in the market, I want to remind you of the stability of TC Energy's low-risk business model. We have a very manageable debt maturity profile, and 89% of our long-term debt portfolio is comprised of fixed-rate debt with an average maturity of 18 years and a weighted average pre-tax coupon of just over 5%. This largely insulates us from the impact of interest rate changes. Our Canadian and U.S. natural gas businesses are also underpinned by rate-regulated frameworks that allow for the recovery of interest expenses. This means the cost of debt is a direct flow-through in our regulated Canadian business and is factored into U.S. rate cases. This, in part, has allowed us to increase the earned returns on our sanctioned capital projects over the last few years and maximize the spread versus our cost of capital. Based on our low-risk business model, combined with net capital expenditures of $6 billion to $7 billion annually post-2024, we expect to continue to grow our business commensurate with our 3% to 5% dividend growth rate. This is why, despite the challenges facing the broader market, I am confident in the sustainability of our dividend through all parts of the economic cycle, which is further bolstered by one of the lowest payout ratios amongst our midstream peers. TC Energy's Board of Directors has declared a third-quarter dividend of $0.93 per common share, equivalent to $3.72 per share on an annualized basis. Our dividend will remain foundational to the enduring value proposition of TC Energy, preferring to build upon 23 consecutive years of common share dividend increases. Thank you. I'll pass the call back to Francois.

Francois Poirier, President and CEO

Thanks, Joel. Before we turn it over to Q&A, I just want to reiterate our long-standing value proposition. Our recent strategic announcements are all in direct service of our four pillars. We take a long-term view by maximizing the synergies of our natural gas and power businesses. Simultaneously, we're unlocking the full long-term potential of our liquids business through our intended spin. We're also remaining disciplined and refocusing on our well-established conservative risk preferences. We're restoring our balance sheet strength and we're allocating capital thoughtfully to balance our ability to grow the dividend while maintaining balance sheet strength and reinvesting in the business. You'll hear a lot more about this on our upcoming Investor Day on November 28, and I hope you'll be able to join us. With that, I'll turn it over to the operator for questions.

Operator, Operator

Thank you. Our first question comes from Theresa Chen of Barclays. Please go ahead.

Theresa Chen, Analyst

Good morning, and thank you for taking my questions. First, I'd like to ask about the plans to manage Mexico exposure pro forma asset sales and the South Coast spin given that you already have cash-flowing assets there and come mid-2025 when Southeast Gateway starts up and contributes EBITDA, it would likely be above that 10% exposure. How are you thinking about managing this and any comments related to asset sales specifically within that segment would be great. Thank you.

Francois Poirier, President and CEO

Thanks, Theresa. It's Francois. I'll take that one on. I'll just reiterate, our commitment and our goal is to execute an incremental $3 billion of divestitures and realize the cash proceeds thereof within 2024. Part of that program may include some discrete asset sales in the U.S., but in terms of entering into joint ventures as we have with GIP on our Columbia assets, we can look to our Canadian assets and our Mexico assets for those types of transactions being contemplated. Obviously, we're going to be in conversations with investors around our Mexico projects, balancing valuations with where we are and the progress we're making around construction. We've made the commitment to reduce our exposure to a more manageable level. Over time, we'll be giving you all a little bit more clarity around the percentage post-spin as well as a percentage of what is EBITDA, what is net assets? Because we are looking at tools like project financing. We've actually raised nearly $4 billion of non-recourse debt over the course of the last year to fund about two-thirds of the Southeast Gateway project financing. More to come there, and as I said, we'll be looking at joint ventures in Mexico and Canada as potential tools to execute our $3 billion divestiture program. Our goal is to reduce our exposure in Mexico as a percentage of the overall average given the sensitivities of our conversations.

Theresa Chen, Analyst

Understood. Thank you. And on the remaining asset sales in general to execute, how are you thinking about the economics in today's environment in light of the recent announcements by some of your competitors in the market to also put their assets up for sale and some of the recent valuations paid for similar assets within the valuations that you operate in.

Francois Poirier, President and CEO

Yes. If you look at some of the announced transactions, I would suggest that there's a pretty wide range of risk profile and therefore the expected returns that buyers need to realize, and that translates into purchase price. What I'll tell you is we are still in the same interest rate environment as we were a few months ago when we announced our transaction with GIP. We did make the objective of announcing a very sizable transaction at that time; I do believe that since we are proceeding with multiple transactions to achieve the balance of the $3 billion, that smaller bundles will garner more competitive tension. Despite being in a similar interest rate environment, smaller assets will create more competitive tension. You also have to account for the fact that the assets we would make available, either for partial or full interests are at very low risk, highly contracted, and have no commodity volumetric or price risk. That will be factored into how people value the assets. But again, as I said, we're still in the same interest rate environment as we were a few months ago, and I think we have fairly conservative expectations in our plan.

Theresa Chen, Analyst

Thank you.

Operator, Operator

Our next question comes from Praneeth Satish of Wells Fargo. Please go ahead.

Praneeth Satish, Analyst

Hi, good morning. With capital, CapEx being constrained in the $6 billion to $7 billion range in '24 and beyond. I'd imagine that you're becoming more selective on what projects you bring to FID and maybe turning down some of the lower return projects. So can you maybe help us understand whether there's been a shift here in terms of your corporate return target, which has historically been in the 7% to 9% range and whether that's trending higher?

Francois Poirier, President and CEO

Thanks for that question, Praneeth. The answer is we have definitely seen an upward trend in the IRRs for projects we've sanctioned. Clearly, as we'll be high grading, we have an opportunity set that is well in excess of the $6 billion to $7 billion a year. We are resolute in living within that number. So that allows us to be a bit more selective. One of the important criteria will be the risk-adjusted returns. Looking back to 2019, the projects we sanctioned in that year were in that 7% to 8% range, and that has gradually crept up over time to the point that in 2022 we were sanctioning projects in that 9% to 10% range. In the environment we're in today, we continue to sanction projects in that range. That will be adjusted up or down depending on the proportion of the portfolio, for example, in Canadian Gas where the returns are a bit lower versus in something like Bruce Power where the returns are higher. Overall, we have seen returns increase as we've been able to sustain levels in our commercial conversations with our customers over the last year or so.

Praneeth Satish, Analyst

That's helpful. And then switching gears, I wanted to ask about the next rate case for Columbia Gas in 2025. As we calculated, the ROE on Columbia Gas was only 10% based on the 2022 filings. It seems like there's some headroom there to maybe boost the revenue in 2025. So I guess how should we think about the magnitude of the next rate case on Columbia Gas versus the last rate case where you got, I think, a $200 million step up?

Francois Poirier, President and CEO

Yes, I'll ask Tina to cover that one.

Tina Faraca, Analyst

Good morning. We have a moratorium currently on new rates going into effect prior to April 2025. You may recall, we also have a comeback for new rates effective April 1, 2026. We'll be working within those bounds for the filing of our next rate case. Obviously, we strive for a balance of recovering our capital, earning a fair return, and maintaining competitive rates with our customers.

Francois Poirier, President and CEO

What I would add is that, as Joel mentioned before, this is how we mitigate interest rate risk in the U.S. Each time we go back for a rate case, we can incorporate the current cost of our debt into our rates. The increase in our rate case filings across our U.S. system is because we want to reflect the capital and interest rate environment we're operating in while also investing considerable maintenance capital, which we want to earn a return on.

Praneeth Satish, Analyst

Thank you.

Operator, Operator

Our next question comes from Linda Ezergailis of TD Securities. Please go ahead.

Linda Ezergailis, Analyst

Thank you. I'm wondering with Coastal GasLink mechanically complete ahead of schedule. How might we think of your discussions with LNG Canada in terms of them recognizing that early completion with some sort of financial incentives? And regarding Phase 2, how might this commercial asset differ for Coastal GasLink in Phase 1? Additionally, any thoughts around the timing to get to FID on that and what might be the sticking points including how compression is powered on your system?

Francois Poirier, President and CEO

Thank you for that question, Linda. I'll ask Bevin to cover the items around the early completion of Phase 1, and then Greg to address your questions regarding Phase 2.

Bevin Wirzba, Executive Vice President

Thanks, Linda. This is Bevin. First of all, we're tremendously proud to achieve this milestone. It's a testament to the team's relentless focus on safety, protecting the environment, and collaborating with our contractors, indigenous and local communities, and government to get to this point. With respect to the next steps, we are obviously in ongoing commercial dialogue with our contractors to effectively close out those contracts. We have about 100 kilometers of reclamation work to be done next year. The team is busy right now introducing natural gas into the system to become ready for LNG Canada to call for that gas. We look forward to achieving that milestone by year-end, where we're ready for our customer when they need it. As it pertains to Phase 2 and those discussions, I'll turn it over to Greg.

Greg Grant, Analyst

Yes. Thank you, Linda. Currently, we are progressing early development on Phase 2 at the request of LNG Canada to assess that expansion opportunity. Early engineering involves looking at different potential electrification options. But still, there is a lot of work to do there, including engagement with our local communities and indigenous partners. It is quite early. You might know that SEDAR is actually a little more timely in terms of the process on completion of Phase 1, and we have been working diligently with our SEDAR partners, including the Heisla. This will be Canada's first indigenous majority-owned LNG facility. We were targeting FID at the end of this year; we think that may slip a little bit as we head into Q1. Just as a reminder, the FID is conditional on TC achieving project financing. This combined with our 35% equity ownership would ultimately require a fairly small amount of capital from TC.

Linda Ezergailis, Analyst

That's helpful context. And just as a follow-up regarding your CapEx. Recognizing that we'll probably get a more detailed update later this month, it would be helpful in updating our model to understand the current outlook for 2024 growth CapEx on a growth basis before netting out any sort of asset sales?

Joel Hunter, Chief Financial Officer

Yes, good morning, Linda. It's Joel here. I would just say, in regard to our 2024 outlook for capital spending, both on a gross and net basis, we will provide more details at our Investor Day on November 28. However, I would remind you that post-2024, we maintain our capital discipline with the $6 billion to $7 billion per year target. More to come for you at Investor Day regarding 2024.

Francois Poirier, President and CEO

What I might add is our plan and the capital program we have for 2024 allows us to achieve getting below 4.75 debt/EBITDA by the end of the year and then staying there on a go-forward basis. But as Joel mentioned, there will be further color to come in just a few weeks, and I appreciate the question.

Operator, Operator

Our next question comes from Rob Hope of Scotiabank. Please go ahead.

Rob Hope, Analyst

Good morning. During the Q2 call, a number of organizational changes were announced. I'd like to get an update on how the reorganization has changed, as well as where we are in terms of the $750 million of synergies and how they're tracking overall as well as in 2023.

Francois Poirier, President and CEO

Thanks, Rob. It's Francois. I'll provide a little context and then pass it over to Stan. Just to remind you, these initiatives and thinking around this have been in the works for a couple of years in terms of initiatives on focus. We're really in the implementation phase. The consolidation of our gas businesses into one entity, as well as the spin. These are things that have been established and the teams have been working on for quite a long time. So over to you, Stan.

Stanley Chapman, Analyst

Hi, Rob. Our focus project, as we refer to the $750 million initiative, is about fundamentally changing how we do our work, particularly around safety, operational excellence, and our capital and cost management. We want to ensure we deploy our cash as efficiently as possible, maintaining competitiveness against our peers. To give you proof points regarding operational excellence and safety, we've simplified our operational management system, reducing over 1,400 historical requirements down to fewer than 100. This frees up time for our field employees to increase their time on tasks that matter and make them more productive. On the cost of capital management side, by combining our three gas businesses under one leader, we've identified about $750 million in run-rate synergies to be realized by the end of 2025. The value linked to these synergies will materialize in various ways: capital reductions, expense reductions, or even revenue enhancements. About 50% of the savings will come from capital reductions, 40% from O&M reductions, and about 10% from revenue. For this year, we are on track to generate $130 million in-year savings, which on an annual basis equates to about $185 million. We've achieved this by reducing our IS spend by $50 million by eliminating redundant or low-value projects, combining our technical centers, which saved $30 million, and reducing our legal and insurance costs by $30 million. A lot of optimizations on that front. In 2024 and 2025, we see another $200 million worth of savings, primarily in our growth capital programs by changing the way we engineer our facilities. We believe there's another $85 million of reductions associated with our HIPE integrity program and about $90 million in reductions in our maintenance capital projects that will materialize starting in 2024, already baked into our 2024 forecast. Regarding the optimization from the organizational structure design, we estimate about $50 million worth of synergies as we go through and integrate and optimize our gas businesses under one umbrella.

Rob Hope, Analyst

Thanks for that. Moving over to the NGTL system, there's a toll settlement through the end of 2024. When do you expect to engage customers there? Could we see a higher ROE there? How does that balance with the potential for a partner?

Francois Poirier, President and CEO

I'll ask Greg to take that one.

Greg Grant, Analyst

Yes, thanks, Rob. As a reminder, the NGTL settlement will end on December 31, 2024. Discussions with customers have started with the objective of defining a clear path towards another settlement by mid-2024. While we are watching the market and ROE, ROE is not the only measure of value that we look at. We aim to optimize the return on and of capital, and we're focused on maintaining competitive toll and service offerings. Details of confidential negotiations will follow as we progress, but I am highly confident we can find mutual benefits with our customers. We likely won't be able to share more details until Q1 and Q2.

Rob Hope, Analyst

Thank you.

Operator, Operator

Our next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.

Robert Kwan, Analyst

Thanks. Good morning. I'm going to start with the business. You highlighted the gas system's strong and record deliveries on several systems. You've got a bunch of projects under construction; you've got some new regulatory approvals. As we look forward, are there new projects taking shape? If there are, can you discuss the magnitude of what that spending might look like and over what timeframe?

Francois Poirier, President and CEO

Yes, Robert, it's Francois. Thanks for the question. Just as a reminder, we're laser-focused on our $6 billion to $7 billion a year going forward post-2024. We have significant visibility into capital spending all the way to the end of the decade. We recognize it usually takes a couple of years to commercially sanction a project and then a couple of years to obtain the requisite permitting and regulatory approvals, and then order the long lead items followed by a year or two in the field for construction. As we look at our program performance, we aim to execute singles and doubles. They are manageable from a risk standpoint. We know our regulators, have established relationships in the communities, and are familiar with the ground conditions. We are set up for a manageable program moving forward, focusing on organic projects in our corridor, with very few large projects that would span many years.

Robert Kwan, Analyst

Got it. Just thinking about the CapEx shift and the FX impact, have you talked to the rating agencies yet about this? With respect to your FedEx rates hold, you're going to get your debt marks this year at December 31, but your EBITDA is going to be trailing. Do you think that changes anything with your funding plan in the near term?

Joel Hunter, Chief Financial Officer

Yes, Robert. It's Joel here. I can say we have had conversations with all four agencies as we do every quarter to provide them with an update. We have offered the update regarding our path towards reaching the 4.75 debt-to-EBITDA target by the end of 2024, and they are looking through to the end of next year as it relates to getting our leverage metrics in line. Despite the increased costs, we also see stronger EBITDA, guiding our EBITDA to be 7% higher year-over-year at the upper end of the 5% to 7% range. As we proceed into year-end, we don’t have a definitive EBITDA number, but we maintain our plan to achieve that 4.75 target, and the agencies are aware of our strategy.

Robert Kwan, Analyst

Alright, so you don't expect any rating agency actions off the changes today?

Joel Hunter, Chief Financial Officer

Based on our discussions, they have been very pleased with our accomplishments this year. Consider our priorities at the start of the year, such as the $5 billion of asset sales, which we have successfully completed. Advancing major projects like CGL, achieving mechanical completion, and maintaining strong operational and financial results have all been accomplished. Those efforts have not gone unnoticed by the agencies.

Robert Kwan, Analyst

That's great. Thank you very much.

Francois Poirier, President and CEO

Yes, again, Robert, I want to emphasize that the increase in our capital program is because merging our gas businesses allows us to look at our portfolio holistically. We find opportunities to bundle work together to deliver it at a lower cost, and we will be selecting projects smartly. We are committed to meeting our goals for 2024 and achieving success on all fronts.

Operator, Operator

Our next question comes from Jeremy Tonet of JPMorgan. Please go ahead.

Jeremy Tonet, Analyst

Hi, good morning.

Joel Hunter, Chief Financial Officer

Good morning.

Francois Poirier, President and CEO

Good morning, Jeremy.

Jeremy Tonet, Analyst

I wanted to start off with the asset sale program. Is there a chance it could exceed the $3 billion being discussed? If so, what would that number look like? When thinking about asset sales or capital recycling in the future, is it largely just based on the rates of return that could be garnered through incremental new growth projects relative to what returns are lost on asset sales? I just wondered if you could give us more thoughts on how the asset sale program is coming along.

Francois Poirier, President and CEO

Thanks, Jeremy. I maintain that we will stick to the $3 billion for 2024. We are looking at multiple transactions rather than one large transaction to realize those proceeds. It’s essential to have the discipline to evaluate our assets and rotate capital in a manner that creates shareholder value. Over time, we may see certain opportunities to monetize more mature assets where we believe there's value.

Jeremy Tonet, Analyst

Got it. That's helpful there. Thanks. Looking forward to the Analyst Day, any thoughts on key updates that we should expect?

Francois Poirier, President and CEO

I would say wait and see. Our goal here is to return to no surprises, execute well, live within our means, and demonstrate project execution excellence. We're proud of our accomplishments this year, and we'll discuss our 2024 priorities at the meeting in due time.

Operator, Operator

Our next question comes from Robert Catellier of CIBC Capital Markets. Please go ahead.

Robert Catellier, Analyst

Hi, good morning. I wonder if you could describe the agreement TC Energy entered into with the SI-LSM's LNG partnership to work on the Prince Rupert Gas Transmission project. What is the company's appetite like to undertake another significant project like that and how might that fit within your deleveraging goals?

Francois Poirier, President and CEO

Thanks Robert. It's Francois. Look, we have a permitted path. We recognize the value in that path and have been asked by the SI-LSM's Group to preserve those permits. That is our contractual obligation, and we're happy to do this. It's an opportunity to create value for our indigenous partners and our customers. As we increase egress out of the basin, it also adds value to our NGTL system. However, I want to be clear that we remain steadfast around our $6 billion to $7 billion goal. If we cannot integrate the PRGT project or any project into that portfolio, we will not allocate capital to it.

Robert Catellier, Analyst

Okay, that's clear. Regarding hybrids, how do you see that fitting into your funding plan, both in 2023 as well as achieving your 2024 goals? What appetite do you have there, and what signals are you seeing in the market?

Joel Hunter, Chief Financial Officer

As we think about hybrids, we're not seeing a need, and we don't have plans in the near term. We're running close to our 15% cap in terms of our capital structure this year and into 2024. As we reach the balance sheet growth post-2024, we'll have room for future hybrid issuance, but our 4.75 target for next year does not rely on any additional hybrids at this point. We will work closely with the South Bow team to assess where hybrid financing may apply in their capital structure.

Robert Catellier, Analyst

Okay. Thank you.

Operator, Operator

Our next question comes from Ben Pham of BMO. Please go ahead.

Ben Pham, Analyst

Alright. Thanks. Good morning. With the Coastal GasLink project not complete, does that open up opportunities for you in NGTL at the post-2025 timeframe?

Francois Poirier, President and CEO

Thanks, Ben. I'll ask Greg to take that one.

Greg Grant, Analyst

Yes. As you're aware, we've done significant building on the NGTL system over the last few years, delivering 1.3 Bcf last year and about the same this year. I want to commend the team on their performance regarding on-time and on-budget deliveries. Going forward, I would say you should expect a more normalized level of spend on NGTL. We have a solid foundation set up for the next few years with the expansions done. We aim to optimize existing assets without needing additional capital.

Ben Pham, Analyst

Okay. My follow-up question concerns the discussion around maximizing returns in the NGTL system. Is there any motivation to push equity of the pipeline to capture more cash and reduce debt at the same time?

Francois Poirier, President and CEO

Ben, we're in the early stages of negotiations with our customers. It’s too soon to provide any insight into where those discussions may lead. However, we will provide updates to our shareholders and stakeholders as we proceed.

Operator, Operator

Our next question comes from Brian Reynolds of UBS. Please go ahead.

Brian Reynolds, Analyst

Hi. Good morning. To follow up on Coastal GasLink, great news on the mechanical completion. Looking at earnings expectations for next year, how should we think about the EPS or EBITDA contribution from this asset, given that LNG Canada won't be online? Does LNG Canada reimburse TC for maintenance costs? Is there a regulated return framework embedded?

Francois Poirier, President and CEO

Thanks, Brian. I'll start off. This is Bevin. Even in the Gulf Coast, LNG projects typically take time to commission and bring online. We’ve met our responsibility by bringing this project in on time and budget. The LNG Canada team is making good progress; however, I would anticipate that a significant portion of next year will involve commissioning processes.

Joel Hunter, Chief Financial Officer

As we consider returns from CGL, we currently own 35%, which could reduce to 25% if First Nations exercise their option. Based on the impairments we’ve recognized regarding this project, approximately $3 billion last year and just over $2 billion this year, it's clear that significant returns will not be realized for us moving forward. The crucial aspect was meeting the revised budget and timeline for completion.

Brian Reynolds, Analyst

Great. Appreciate the color. Pivoting to the South Bow COO. If you could discuss the ongoing conversations with the agencies regarding the investment grade status. You mentioned managing floating interest rate exposure. Is 5x still the benchmark the agencies are looking for? Secondly, it looks like you have 2% to 3% of DPS growth reaffirmed from the spin, but only about $200 million in secured capital backlog. What could that secured capital backlog look like for the liquids company post-spin?

Joel Hunter, Chief Financial Officer

Brian, it's Joel here. We continue to work with Bevin's team to support financing efforts. Nothing has changed since we last discussed capital structures with the agencies at the end of July. We received indicative ratings based on a capital structure roughly around five turns of leverage. We plan to return to agencies soon to finalize the capital structure following the spin approval.

Bevin Wirzba, Executive Vice President

Just to answer the second part of your question, our value proposition focuses on total shareholder return. We're looking for double-digit returns for our shareholders, combining a sustainable dividend with a strong growth rate. Our 2% to 3% growth is generated from operational excellence and opportunities with very low capital investment surrounding our corridor. An example of this is the Port Neches Link asset we put into service early this year on time and budget, increasing the flow through our Marketlink system. We believe we can capture substantial growth through those types of projects while maintaining a strong balance sheet at South Bow.

Francois Poirier, President and CEO

We've really leveraged our knowledge to identify low multiple build opportunities while ensuring that our strong balance sheet is maintained. We look forward to providing further updates at the Analyst Day.

Operator, Operator

I believe we have time for one more question, please.

John Mackay, Analyst

Good morning. Thanks for the opportunity. I wanted to start with the success of bringing Unit 6 at Bruce online ahead of schedule. What implications does this have for the rest of the MCR program? Any learnings that can be applied to the remaining projects?

Francois Poirier, President and CEO

Yes. It's Francois. I'll start, and then I'll ask Annesley to provide further detail. We’re extremely proud of the execution on Unit 6, which was completed on schedule and plan, especially considering over 100 force majeure days during COVID. It's a significant accomplishment, and we have good progress with Unit 3 during its MCR program. Over to Annesley for more details.

Annesley Wallace, Analyst

In the near term, we are focused on ensuring strong execution on all six of the major component replacement projects. Seeing Unit 6 come in ahead of schedule provides us with confidence for upcoming projects. The scope of work is largely the same, and having one unit successfully completed gives us a deeper understanding of planning and execution functions for remaining projects. Regarding any potential new builds at Bruce, we're still in early stages, but there's strong policy support in Ontario, and we're working closely with the government to explore future developments.

Francois Poirier, President and CEO

I also want to remind you all that we expect to see significant growth in profit before tax from Bruce, which will positively impact our EBITDA in the coming years.

John Mackay, Analyst

I appreciate the update. Lastly, could you comment on the Ontario Pump Storage project’s FID timing? It seems it may push to 2025 versus the previously expected timeline, along with a regulatory update coming later this month?

Annesley Wallace, Analyst

Thanks for the question. The Ontario Pump Storage project is one we are excited about, with strong policy support in Ontario. We expect that any commercial model would need to include a rate-regulated framework, which would establish a robust financial setup. However, if we pursue this project, it likely won't be until 2025 until we see a definitive date for major CapEx. We expect government feedback before the end of the year.

Francois Poirier, President and CEO

I appreciate the updates, John. We'll keep you informed as details progress.

Operator, Operator

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. Please go ahead.

Gavin Wylie, Vice President, Investor Relations

Yes. Thank you, and thanks, everyone, for participating this morning. If you have any questions or if we didn't get to your question, please contact the Investor Relations team. We're always happy to help. We very much appreciate your interest in TC Energy, and we look forward to our next update. Thanks again.

Operator, Operator

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