Earnings Call Transcript - TRP Q1 2023

Operator, Operator

Thank you for your patience. This is the conference operator. Welcome to the TC Energy First Quarter 2023 Financial Results Conference Call. Please note that all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be a chance for questions. I will now hand the call over to Gavin Wylie, Vice President of Investor Relations. Please proceed.

Gavin Wylie, Vice President, Investor Relations

Yes, thanks very much and good morning everyone. I'd like to welcome you to TC Energy's 2023 first quarter conference call. Joining me are Francois Poirier, President and Chief Executive Officer; Joel Hunter, Chief Financial Officer along with other members of our senior leadership team. Francois and Joel will begin today with some comments on our financial and operational results. A copy of the slide presentation that will accompany their results is available on our website under the Investors section. Following the 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. Before Francois begins, I'll 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 the Canadian Securities Regulators and with the U.S. Securities and Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented 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 it over to Francois.

Francois Poirier, President and CEO

Good morning, everyone. I'm pleased to report that our strong financial performance in 2022 has continued into the first quarter of 2023. High utilization and availability across our system have enabled us to generate exceptional results in the first quarter. This is a testament to our people, the continued strong demand for our critical energy assets and the resiliency of our low-risk business. For the remainder of 2023, our priorities are clear. First, executing on our major projects and industry-leading high-quality secured capital program; Second, accelerating our deleveraging targets by advancing our $5 billion plus asset divestiture program, which we expect to complete throughout the year; And third, safely and reliably operating our assets that provide essential energy services across North America. We firmly believe that achieving these priorities will unlock value and maximize shareholder returns. Based on our strong start to 2023, we reaffirm our 2023 comparable EBITDA outlook of 5% to 7% higher than in 2022. Underpinned by our focus on strong operational performance, first-quarter results had comparable EBITDA up 16% from the same period last year, while comparable earnings per share rose by 8% year-over-year. During the quarter, we placed a total of $1.4 billion of projects in service, and we remain on track to place $6 billion of assets in service during 2023. In Canada Gas, we brought $1.1 billion of projects into service, further adding incremental market access for our customers in the basin. In March, we also placed the Port Neches Link pipeline into service, under budget, extending our Keystone system to include last-mile connectivity to the largest refinery in North America. In our U.S. Natural Gas business, 2022 was a record year in terms of compressor reliability across our fleet. And so far in 2023, we are on track to meet or even exceed that performance. This year, we've set multiples of all-time records for deliveries to LNG export facilities, reinforcing the criticality of our assets. And in Power and Energy Solutions, Bruce Power delivered exceptional availability of 95% and we expect 2023 to average in the low 90s. Unit 6 MCR is proceeding on schedule and on budget and is now in the final stages of the installation phase. Execution of our major projects is our central priority for 2023. I'm pleased to share that Coastal GasLink is continuing along our revised cost and schedule and progressed through the winter on plan. We accomplished several major milestones with the overall project now 87% complete and approximately 570 of the 670 kilometers of pipeline has been backfilled, and restoration activities are underway in many areas. Commissioning work on the Wilde Lake compressor station has begun, and natural gas has been introduced as part of the transition of the facility to operations. More than 85% of all classified water crossings are now complete, and we have safely completed the excavation of Cable Crane Hill ahead of schedule and are now installing the final pipe through this critical path section. We continue to target mechanical completion by the end of the year. Our second offshore project in Mexico, the Southeast Gateway pipeline, is also proceeding according to cost and schedule. We've achieved our first milestones with the acquisition of land for compressor stations and offshore landfalls. We've obtained key federal environmental authorizations and local permits for the project. Critical long lead items, including the offshore vessel, have been secured and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer. In fact, civil work has already begun, and our offshore pipe installation will commence toward the end of 2023. As a reminder, approximately 70% of the total project costs are under fixed-price contracts, providing greater certainty around cost and schedule, and we continue to target completion by mid-2025. Following the Milepost 14 incident on the Keystone System in December, we've been diligently working to restore the area to its original state. We're pleased to report that we've recovered over 98% of the release volume. A big thank you for the continued support from the Washington County community, and we are dedicated to ensuring the affected area is fully restored. We've received the independent third-party root cause analysis, and with these findings, we are committed to implementing a comprehensive plan to enhance our pipeline integrity program and overall safety performance. Now looking to the future, our North American footprint means we have access to a diverse set of high-quality growth opportunities. This is a high-grade problem to have, but we must consider both financial and human capacity when evaluating incremental projects. We recognize we are in a period of increased development spend. However, post-2024, we are committing to limiting annual sanctioned capital expenditures to $7 billion or less. In fact, we will strive to manage annual capital spending to approximately $6 billion, providing the flexibility to further reduce leverage or buy back common shares. When sanctioning new projects, a key consideration will be the timing of the capital spend, and it must fit within our annual capital expenditure parameters and deleveraging targets. We've also enhanced our governance practices and placed higher standards around sanctioning large or complex projects that includes the requirement for a Class 3 estimate, as well as an independent third-party assessment, as was the case with the Southeast Gateway. As always, we'll continue adhering to our long-established risk-return preferences. I'll highlight that 98% of our secured capital program is underpinned by long-term take-or-pay contracts or rate regulation where we take no commodity price or volumetric risk. The resiliency of our business and capital allocation strategy is supported by a long-term view on energy fundamentals. Natural gas will continue to play a pivotal role in North America's energy future, and that aligns well with our current portfolio, as well as our sanctioned projects. Lower carbon energy solutions will gradually increase in market share, and we will intentionally migrate our portfolio composition, but gradually over time. Our emphasis will be on building firm capacity in areas such as nuclear, pump storage, hydrogen, and carbon transportation and sequestration. Renewable energy will play a complementary role in the decarbonization of our own assets, and we can also extend that service and product to our customers. However, the pace at which we allocate capital to these areas will ultimately be driven by their affordability, reliability, and sustainability. Thanks, and I'll now turn the time over to Joel.

Joel Hunter, CFO

Thanks, Francois. Building on the record results we achieved in 2022, we set a new quarterly record during the first quarter of 2023 that reflects high utilization, availability and continued operational performance across our asset base. First-quarter 2023 comparable EBITDA was up 16% year-over-year with comparable earnings growth of 12% and an 8% year-over-year increase in comparable earnings per share. We continue to demonstrate the certainty and stability of our cash flow growth that reflects our assets being over 95% rate regulated or underpinned by long-term contracts. Our strong performance during the quarter was driven by a combination of the strength in our North American natural gas pipelines along with higher contributions from our Power and Energy Solutions business. Our rate-regulated Canadian Natural Gas pipelines saw a year-over-year increase in net income of 11%, primarily driven by growth in the NGTL system average investment base. Average NGTL system deliveries rose year-over-year, reaching 14.5 billion cubic feet per day. The 14% growth in our U.S. Natural Gas pipelines comparable EBITDA was largely due to higher earnings from ANR following the FERC-approved rate case settlement, as well as contributions from growth projects placed in service. Throughput for the quarter averaged 28.5 billion cubic feet per day with several of our assets performing at near-record levels when demand was at the highest. In Mexico, comparable EBITDA increased 16% year-over-year, reflecting the North section of the Villa de Reyes pipeline and the East section of the Tula pipeline that were placed into commercial service last year. Year-to-date, the operational reliability of the Keystone System has been more than 95%, supporting the safe and reliable delivery of all contracted volumes for our customers. Power and Energy Solutions generated outstanding results with a 79% increase in comparable EBITDA year-over-year. In February, our Alberta cogeneration power fleet reached 100% peak price availability for the first time in company history, while pricing remains strong, averaging $142 per megawatt hour. Bruce Power achieved 95% availability during the quarter with fewer planned outage days and higher contract pricing relative to the first quarter of 2022. We are reaffirming our expected 2023 comparable EBITDA growth of 5% to 7% compared to 2022. We also expect comparable earnings per common share to be modestly higher. We are confident in this outlook despite the environment of rising interest rates and inflation. As a reminder, any fluctuations in these variables and other factors could impact our 2023 outlook, and we will look to revise throughout the year if necessary. Global markets have been experiencing heightened volatility, and I want to take a moment to discuss the confidence I have in our outlook and ability to meet our financing requirements. The chart on the left highlights the rapid increase in rates during 2022, which were similar across the curve, driving the year-over-year increase in interest expense. However, we are beginning to see 10-year government bond yields moderate from their recent highs. We continue to demonstrate cost-competitive access to capital markets as evidenced during Q1 when we executed over $6.5 billion of new issuance across a variety of maturities and geographies. The fixed-rate debt tranches of these issuances have a weighted average cost of 5.6%. We have a manageable debt maturity profile with a weighted average maturity of approximately 18 years and an average pre-tax coupon of approximately 5%. Roughly, 15% of our debt portfolio is exposed to floating interest rates. We have programs in place to actively manage our exposures. Now turning to our funding program. A key priority for us is capital discipline. Without sacrificing operational safety or reliability, beyond 2024 we will manage our annual sanctioned capital spending to $7 billion or less, inclusive of maintenance capital. As Francois mentioned, we will strive to manage annual capital spending to approximately $6 billion. This enhances our financial strength while providing optionality to further deleverage or buy back shares. I'll note that the sources and uses outlined on this chart do not include the impact of potential asset divestitures that are expected to be realized through 2023. You can expect our incremental funding requirements to be reduced as our asset divestiture program progresses, allowing us to further accelerate our deleveraging target. With respect to the dividends declared on February 13, 2023, the participation rate in our dividend reinvestment plan was 38%, resulting in approximately $360 million reinvested in common equity under the program. The discounted dividend reinvestment plan is expected to be in place for dividends declared for the quarter ending June 30, 2023. Finally, I want to bring to your attention two charts that truly capture the resiliency of our value proposition. First, TC's Energy Board of Directors has declared a second-quarter 2023 dividend of $0.93 per common share, which is equivalent to $3.72 per share on an annual basis. Second, we have delivered strong results. This is a testament to the strength of a utility-like business model, unwavering focus on safety and operational excellence, and North America's increasing demand for our essential services. We've created significant shareholder value despite market volatility and macroeconomic challenges, and I'm confident that we'll continue to do so. Thank you. Now I'll pass the call back to Francois.

Francois Poirier, President and CEO

Thanks, Joel. In summary, our priorities for the year are clear. Continue to execute on our major projects, such as CGL and Southeast Gateway. Accelerate our deleveraging targets by managing our capital spending and advancing our asset divestiture program. And third, achieving safe, reliable and sustainable operations and are focused on operational excellence to drive higher returns. To reflect our commitment to these priorities and to better align with our shareholders, we have introduced new performance measures that explicitly tie executive compensation to cash flow per share, deleveraging, and greenhouse gas emission reduction targets. I'm confident that the future opportunity set combined with our capabilities and reflecting capital discipline will unlock additional value and deliver superior shareholder returns well into the future. Thanks, and I'll now turn the call back over to the operator for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question comes from Rob Hope with Scotiabank. Please go ahead.

Rob Hope, Analyst

Good morning everyone. The first question is about capital allocation. In the prepared remarks, it was mentioned that approving new capital should align with the organization's financial capacity. How does the wind acquisition, although small, fit into this? Why not consider a more capital-light approach for your renewables, especially since you are selling some assets?

Corey Hessen, Analyst

Good morning, Rob. This is Corey Hessen. These opportunities are the product of a 2022 process that's closing in 2023 and was already in our capital plan. These are high-quality operating assets with best-in-class equipment, generating immediate EBITDA for the enterprise. We have a long-term service agreement in excess of 15 years with the original equipment manufacturers for both locations that include availability guarantees for both facilities. We are in advanced discussions with creditworthy counterparties for the power generation and the environmental attributes from these facilities. In summary, the Texas Wind Farms are within our capital plan and a modest capital investment to help TC Energy execute on our decarbonization goals.

Rob Hope, Analyst

All right. Appreciate that. And then just moving over to Coastal GasLink, with the winter behind us, it looks like you had some successes on keeping the project on time and on budget here. However, as we look to the summer construction season as well as the end of 2023 in-service date, what do you see as the key risk factors on keeping the cost and schedule? And how are you progressing against those?

Bevin Wirzba, Senior Project Manager

Rob, it's Bevin. I'll take that question. So you're right. We made very good progress this past season. We're laser-focused on safely getting this project to the finish line. As we noted in the remarks, we’ll reaffirm our targets on both cost and schedule here for the year. Really what we need to be looking for during the balance is no different than what we've been working on today is that, there are a tremendous number of work fronts as you can appreciate on a project of this scale. We're migrating primarily from kind of mainline construction to really a focus on small discrete work scopes, whether that be creek installations or rock bluffs. And so, we've been developing mitigation plans for any eventualities that happen on those smaller discrete work scopes. While we're progressing extremely well on the entirety of the project, we've had to move to really a front foot on being proactive on having backup plans to backup plans. And so, when we provide updates, we'll be focusing mostly on how we've moved forward through these critical last areas of the project and we're necessarily implementing some of our backup. So just to give you some proof points on that, we pre-located some equipment to allow us to work through some of the spring breakup periods of time so that we can provide a bit more flow to the schedule. So, as Francois alluded to in his remarks, we've completed the trenching on Cable Crane Hill. That's three months ahead of schedule. So we're trying to wherever we can provide a significant buffer for us because we know that any of these critical work scopes could have us really going to plan B and plan C. And so, that's really where the focus is. But we had the successful introduction of gas into Wilde Lake that was executed as planned. We had over 1 million man-hours safely completed there. So we're very encouraged, but we're extremely focused on managing these final critical scopes that are in the balance of the year.

Rob Hope, Analyst

Thank you.

Operator, Operator

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

Theresa Chen, Analyst

Good morning. Thank you for taking my questions. First, I'd love to get some more details on where you are in the asset sale process at this point. Now that has been several months in the making, do you have additional clarity on the types of assets you're looking to divest and how should we think about the valuation?

Francois Poirier, President and CEO

Thank you, Theresa, and I appreciate that there's lots of interest in our asset sale processes and our deleveraging plan. As I mentioned, it's one of our three key priorities for the year. I'll just remind everyone that we are at a very commercially sensitive point in our discussions, we have multiple processes underway at the moment. And so, we'll refrain from making any specific comments on any particular asset or on where valuations are trending. I'll reiterate, however, that our intention is to maintain the quality of our portfolio. So we will be monetizing assets or interest in assets in various parts of the portfolio to maintain our cash flow composition that we view as very high quality.

Theresa Chen, Analyst

Thank you. And if I can ask Stan on the progress on Southeast Gateway at this point. What percentage has been done? How much capital of the $4.5 billion has been spent and what should the next milestones that we should be looking for?

Stanley Chapman, Senior Project Manager

Hey, Theresa, this is Stan. First of all, I’ll reiterate it upfront. Our Southeast Gateway pipeline continues to track toward mid-summer 2025 in-service date, $4.5 billion of CapEx, both of which is unchanged from when we FID the project this summer. I would note that we're really pleased with our partnership with CFE. They have and will continue to play a very key role in helping to secure both land and permits. In terms of activities that have been ongoing, steel plate is being delivered, pipe is being rolled and preparations for its concrete coating are underway, so that the subsea pipeline lake can commence at the end of this year. Specifically to your questions, there are three key milestones that we are focused on this summer, diligently focused on, I should add. First is commencing construction on our two compressor stations. Second is securing the right-of-way for our onshore pipeline, which you recall, is relatively small at about 21 kilometers. And lastly, is commencing preparations for the onshore construction work associated with the micro tunnel, so that the micro tunneling itself can take place in early 2024. So overall, we continue to incorporate the lessons learned from prior projects, but we're really pleased with our project's progression as of now, and we'll continue to update you as the project develops over the coming months.

Theresa Chen, Analyst

Thank you.

Operator, Operator

And the next question comes from Linda Ezergailis with TD Securities. Please go ahead.

Linda Ezergailis, Analyst

Thank you. Wondering if you could maybe give us some sense of what your expectation for 2024 capital expenditures specifically might look like? And what sort of magnitude of additional wind or solar power acquisitions might be embedded in your budget for this year or next year, or potentially even added to what you've baked in?

Francois Poirier, President and CEO

Thanks, Linda. It's Francois. I'll take that one. As we've talked about before, once the project is in construction, and we break ground, we've probably been at it for a couple of years from a perspective of permitting and project planning and having ordered long lead items. One of the reasons why we're going to strive for building some optionality below our $7 billion capital run rate going forward is that we do want to make sure we maintain some capacity for further debt reduction or share buybacks going forward. It's going to take us the balance of this year and 2024 to work our way down to that $7 billion or really $6 billion run rate. You can expect us to be well below the $11.5 billion to $12 billion of capital that we have in the plan for 2023, trending towards that $7 billion run rate, but not quite there yet because of the dynamic that we've identified. With respect to plans for additional renewables or other assets in our program going forward. Remember, these are very small capital dollars, tens of millions to low hundreds of millions over time. We will be utilizing project financing and tax equity wherever possible to get our equity checks down to very modest levels. As we have worked through our capital program and tested our ability to maintain a stable balance sheet, grow our cash flow per share, grow our dividend, have strong payout ratios, to get to a level of comfort where we can say that $6 billion to $7 billion is our run rate. We have factored in to our capital program some additional renewables as well as some additional investment in our other businesses.

Linda Ezergailis, Analyst

Thank you. And just as my follow-up, just trying to round out my understanding of Coastal GasLink. Can you advise if you've used any of the contingency in your budget this year to add to your schedule buffer or for any other reason? And do you see a high likelihood of at this point of dipping into your contingency to pay for some of the buffers and the plan B contingency that you're winding up to ensure you stay on schedule?

Bevin Wirzba, Senior Project Manager

Thanks, Linda. It's Bevin here. So right now, we're tracking really closely to our cost and schedule targets. Certainly, as we pre-position certain work scopes, we spend some of those dollars a little ahead of plan or otherwise, but we actually incorporated that in our thinking at the time of the CSRA. We look at this probabilistically and so under certain scenarios, we're certainly going to draw down on some of the contingency. But right now, we're tracking where we've been or where our plan was to be at this time. A lot of when we're making the trade-off decisions to pre-spend on different activities, those are well within the plan. We maintained access to the construction and another critical path scope removing a ton of snow; we put that in the plan. We're very thoughtful when we came forward with our revised budget last quarter to make sure that we had a variety of scenarios, not just a single scenario in mind in terms of the finishing or executing of the project.

Linda Ezergailis, Analyst

Thank you.

Operator, Operator

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

Jeremy Tonet, Analyst

Hi, good morning.

Francois Poirier, President and CEO

Good morning.

Jeremy Tonet, Analyst

Just wanted to come back to the CGL construction from a little bit of a different angle. I think there might have been kind of competition for labor between CGL and TMX and I was just wondering if you could comment there and I guess how you see TMX progressing at this point if it's close to kind of winding down? Does that lead to kind of less stress, less pull on the labor pool and how would that impact CGL?

Francois Poirier, President and CEO

Jeremy, I'm not going to speak to TMX. I don't know exactly what their plans are. What we're seeing on our project is we've had great retention of the contractor labor. We've seen an increase in quality and actual productivity this year. And like I mentioned earlier, we're migrating to a very different type of scope of work. That scope of work looks a lot different than what TMX is focused on in this year's construction. We're very mindful that there is competition for labor. We will be focused on seeing how our labor force returns post the breakup, but post the Christmas breakup where there was the same type of competition from TMX, we actually came back stronger. We had nearly 6,500 folks on the right-of-way through the first quarter of this year at a time when TMX ramped up their labor force significantly more than what they were last year. So, we're maintaining a pretty strong position with our labor force right now which we're thankful for, and we're working really closely with our contractors to just be laser-focused on retaining the right people to get this thing done by the end of the year.

Jeremy Tonet, Analyst

Got it. That's helpful there and just wanted to pivot a little bit to Columbia. There is news out there with regards to, I think, a lightning strike that might have impacted the compressor station and led to a force majeure. I realize this is all very real-time here, but didn't know if you could help us with any color on how to think about that?

Tina Faraca, U.S. Gas Pipeline Business

Yeah, thank you. This is Tina Faraca with the U.S. Gas Pipeline business. We did have a lightning strike this morning, very early this morning that caused a fire within our fence line at the compressor station; the fire has since been extinguished, with minimal impact to facilities, we've managed through that and plan to get the station back online later this afternoon.

Jeremy Tonet, Analyst

Okay. So this is just like a one-day impact type of thing.

Tina Faraca, U.S. Gas Pipeline Business

Yes.

Operator, Operator

And the next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.

Robert Kwan, Analyst

Thank you. I would like to return to the commitment to keep the CapEx below $7 billion. I have a few questions. First, does this figure include acquisitions? Second, the current elevated CapEx has been partly driven by cost overruns, so how do you plan to manage cost risks differently in the future? Lastly, considering cyclical factors, what does this mean for project financing, or is project-level financing excluded from that $7 billion figure?

Francois Poirier, President and CEO

Hey, Robert. It's Francois. I'll take that one. With respect to managing cost overruns, we have prudent project management. We have a reasonable contingency for each of the individual projects that we have in our capital program. Striving to work towards a $6 billion run rate program going forward gives us flexibility and optionality around further debt repayment and share buybacks. It also gives us additional flexibility to the extent we have any unforeseen circumstances around any one individual project. $6 billion or $7 billion is our sanctioned capital; to the extent we have partners that would be in addition or outside of that number. With respect to the specific peculiarities of any individual project in terms of project financing that may or may not be considered depending on the project. A project like Ontario pumped storage is a significant undertaking. This is not only a financial equation but also a human capacity equation. When you think about having a very large capital program, our ability to manage a smaller program reduces execution risk and allows us to continue to grow our dividend at the stated rate, grow our cash flows at or above that rate, keep a stable balance sheet, and maintain stable and very conservative payout ratios. So you won't see the capital program far outstrip our sanctioned capital, but for reasons of human capacity and as we move forward with different projects we'll be contracting for them differently, mitigating risks using full RAP EPCs where appropriate and looking for commercial mitigations to manage those outcomes, as well. So, on all of the above-basis, you should think about that $7 billion striving for $6 as our sanctioned capital going forward.

Robert Kwan, Analyst

Just on acquisitions included or excluded.

Francois Poirier, President and CEO

Thank you for reminding me of that. We don't distinguish; there is no M&A in our plan. We don't think that M&A is required for us, given our opportunity set to grow our distributable cash flow per share at a rate above our dividend growth and maintain stable payout ratios and a stable balance sheet. It's just really not on our radar right now and if it were, Robert, it would be included in that cap.

Robert Kwan, Analyst

That's great. If I can finish just on capital allocation and just back framing against the wind acquisitions. You noted that while they're in the 2023 capital program, you previously talked about just generally the ability to defer capital and this seems like something that could have been eliminated. So while they're operating, I assume you acquired it for higher than five times EBITDA and less than a 15% FFO yield, i.e., acquiring should be dilutive to the credit metrics. So was there something bothering you to complete these deals or can you just talk about the strategic nature of the two assets and the synergies that provide to the existing asset base?

Corey Hessen, Analyst

Hi, Robert. It's Corey. I would say that, yes, this was in our plan. What I would emphasize is that we have decarbonization goals for our enterprise. These are critical in nature for us to meet our decarbonization goals, which are long-term commitments to our shareholders and constituents across our jurisdictions.

Operator, Operator

The next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.

Robert Catellier, Analyst

Hey, good morning. I know you're trying to avoid discussing any particular asset, but I wonder if you can discuss as an asset class the merchant power. Alberta power prices have been quite strong over the last year or so. So how does this influence your view on this asset class as a candidate for portfolio management? In other words, does the market support a stronger valuation or would you rather retain them for their currently strong cash flow?

Francois Poirier, President and CEO

Francois here. The aim of our divestiture program is to reduce debt levels. We refer to this as raising internal equity, which is influenced by valuations exceeding five times debt to EBITDA. When selecting assets to sell, we assess the EBITDA multiple relative to that five times threshold to enhance our deleveraging efforts. If our Alberta assets can achieve multiples significantly above five times debt to EBITDA, we would be open to selling them. I'll leave it at that.

Robert Catellier, Analyst

Okay. Maybe a question here for Stan. It looks like the volumes were pretty good on the deliveries to LNG facilities again, I'm wondering if you can provide us some progress update on any additional positioning you have for the U.S. gas portfolio and development projects to address additional LNG opportunities.

Stanley Chapman, Senior Project Manager

Hi, Robert. This is Stan. As you heard me say before, our best-in-class pipeline footprint has and will continue to provide us with more than ample growth opportunities at attractive build multiples. Our challenge today, as you heard, is less with originating new projects and it's making sure that we have a way to fund them. Given that, our origination efforts are highly selective and focused on strategic opportunities that will be to leverage our existing footprint, specifically in regions where projects can be permitted and constructed at attractive build multiples. These opportunities today exist with respect to additional LNG exports, particularly in Louisiana, as you noted. Increasing the connectivity that we have to our customers, which are backed by long-term 20-year contracts. In some instances where appropriate, we also may consider taking on a strategic joint venture partner. But equally important, I just want to point out that we are laser-focused on ensuring operational excellence and reducing our costs and doing so without sacrificing the safety or the integrity of our assets and ensuring that we place our projects in service on time and on budget.

Francois Poirier, President and CEO

And Robert, it's Francois. I'll just add to Stan's comment. As we consider authorizing capital expenditures moving forward, the timing of the spending will be a key factor in our evaluation. We are dedicated to keeping our capital expenditures below $7 billion and ideally around a $6 billion run rate. Looking ahead to the sanctioning of projects, given the scale of our capital program so far, the major capital expenditures will primarily occur in the later years. This is acceptable, as it generally takes a couple of years to obtain the necessary permits and prepare for long lead items. The projects we are currently examining and pursuing have expenditures occurring in the 25%, 26%, and 27% timeframe, which allows us additional capacity to approve projects and adhere to the $6 billion annual limit.

Robert Catellier, Analyst

Yes. That's very helpful color. Thanks everyone.

Operator, Operator

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

Ben Pham, Analyst

All right. Thanks. Just wanted to go back to the renewables side of things and your strategy there. I think for some time what was holding you back bit on expansion is more of the lofty multiples on renewable power assets, and you have the aggregation model as well that you've introduced last year. Can you talk about now the trends you're seeing, is it better to buy versus build? How does it compare to aggregating power? And maybe an update on strategy there?

Francois Poirier, President and CEO

Ben, it’s Francois. I'll take this one. As we talked about before, we're focused on sanctioning capital over the long run on the basis of affordability, reliability, and sustainability. Renewables will be a complementary asset class in our portfolio to help achieve our own decarbonization goals while at the same time helping our customers decarbonize their own energy consumption. Where possible, we will adopt a capital-light approach. We talked about the aggregation activities last year, which are continuing to proceed. In some instances where we see value, and it fits within our capital plan, underscore that it fits within the capital plan and the $6 billion per year limit, we'll consider ownership in projects. But, as Stan mentioned, across our whole portfolio, one of the things we're going to be looking at is joint ventures and partnerships with financial firms and other strategics to make sure we can advance our decarbonization goals, our market share aspirations, in the U.S. LNG market, but still stay within our annual sanctioned capital limitations going forward. Yes. Look, over the next couple of years, that's not an option. Our priority for 2023 and 2024 is to deleverage. Our goal is to get at or below 5 times debt to EBITDA as quickly as we can without compromising shareholder value and then remain there. What I wanted to convey in my comments is, it's very difficult to stop a project once it's been committed to just because your stock price is at a level that you think is attractive in terms of share buyback. By the time you break ground on a project, you can't just tell your customer that they're not going to receive the transportation service they've been planning on and waiting on for many years. By building flexibility, and the flexibility would come from the gap between $7 billion and $6 billion into our program on an annual basis, we will have the option in each and every year with that incremental capital to live within our means to either pay back debt or to buy back shares. But to be clear, we don't see that as an option until we get at or below our 5 times debt to EBITDA and we're confident that we're going to remain below.

Ben Pham, Analyst

Okay, got it. Thank you.

Francois Poirier, President and CEO

You’re welcome.

Operator, Operator

The next question comes from Andrew Kuske with Credit Suisse. Please go ahead.

Andrew Kuske, Analyst

Thanks, good morning. The question is really for Francois and the emphasis on limiting the CapEx post-2024 to the $7 billion and then getting it down to the $6 billion. Does that effectively allow you to high-grade your capital allocation process to higher returning projects?

Francois Poirier, President and CEO

I would say most definitely, Andrew. It's not just about unlevered after-tax IRRs. We do want to migrate the portfolio; we think about having a high-quality and diverse portfolio with low volatility, that's part of our value proposition. There's no question, as I've said in the past, we see way more opportunity to deploy capital than we have financial and human capital to execute. What that's going to allow us to do actually is to high-grade projects. When you look at what we sanctioned in 2022, unlevered after-tax IRR is in the 10% range, and that's above the weighted average IRR of what we sanctioned in 2021, which was, I think, in that 8.5% to 9% range. So we're seeing an upward trend in the returns on the projects that we’ve sanctioned over the last couple of years, and clearly by limiting our capital spend to living within our means, it's going to give us the opportunity to high-grade to our higher returns. We are also going to consider having a proper diversity and migrating the portfolio to an appropriate supply mix.

Andrew Kuske, Analyst

Appreciate that. And then maybe not to get into specifics, but the trend of high-grading returns and your earlier comments on bringing on partners, whether they'd be financial, strategic, or otherwise? Does that allow you to engage in some kind of asset management model, get a promote on a project? How do you just sort of conceptualize and think about it?

Francois Poirier, President and CEO

First and foremost, Andrew, that's a great question. We're going to focus on our human capacity. We have an ability to manage a capital program of a certain size. We're going to make sure that we have the capacity and capability to adequately manage the capital program we have underway. The asset management model would suggest developing and building projects for others, and we're going to be very mindful of maintaining a size of capital program that's within the capacity of our team.

Operator, Operator

The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

Patrick Kenny, Analyst

Thank you. Good morning. Just on Keystone here, as you look to implement your enhanced integrity program going forward. Can you provide a little bit more detail with respect to the cadence of these additional in-line inspections and excavation work that needs to be completed across the system? And I guess what the total cost of this program might do to your prior maintenance CapEx guidance, as well as the process for recovering these costs through your total structure or other means?

Richard Prior, Integrity Program Manager

Yes, sure. This is Richard Prior. I'll take that. As we mentioned in our release, there's additional remediation work that we need to do. We need to work through our remedial work plans with respect to Milepost 14, as well as the FINSA corrective action order. That is going to include additional excavations, as you mentioned, and in-line inspection runs. So we've already started that work. To date, we've actually run 300 miles of tool runs on the pipeline adjacent to the incident site, and we've not found evidence of similar features. In addition to this, we're also going to be completing engineering assessments. This time we did just receive the root cause failure analysis last week, as did FINSA. There is going to be some more work to do to continue to study that and develop the details of this program. I don't have a timeline I can provide to work these remedial work plans and results of the corrective action order, but I can say that we are fully committed to expediting this work. I also don't have a cost estimate for this integrity scope I can share at this time. However, this work would form part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tools.

Patrick Kenny, Analyst

Okay, great. Thanks for that. And then just in terms of, I guess, an update on the egress picture out of Western Canada. In light of where natural gas prices are at currently, can you comment on where you're seeing customer demand for incremental market access for California, Gulf Coast, East Coast? What does this mean for near to medium-term debottlenecking activity across GTN, Mainline, ANR, and so on?

Greg Grant, Canadian Gas Business Manager

Sure, thank you, Patrick. This is Greg Grant from the Canadian Gas business. I'll start and then pass it back to the U.S. gas business. It's been encouraging to observe that, from an operational standpoint and regarding our capital programs, we are successfully introducing assets and are ahead of schedule in completing our 21 program and some of our projects this spring. Last year, we typically added about 1.3 bcf of intra-basin egress, and this quarter we have already added over 700 mcf, with another 500 mcf expected soon. The team's performance has been impressive. Despite this progress, there remains strong demand across all egress points and intra-basin. On the supply side, we are maintaining about a bcf, which reflects a year-over-year increase; we have added over a bcf to the system for two consecutive years. Even with this increased capacity, we are still experiencing high utilization levels. In the coming weeks and months, we will announce some open seasons. The team is exploring ways to optimize the system and create additional capacity, including both existing and new opportunities, which we will discuss in the next quarter.

Francois Poirier, President and CEO

On the U.S. side, just think of us as a big catcher's mitt. Greg, those fall and we try to catch it. We have an expansion project. As you're aware, on the GTN system right now, our GTN XPress which is currently pending before FERC and we’re anxiously awaiting our certificates. We can get that capacity constructed and in service either later this year or early 2024. We also have the ability to attract volumes in on our Great Lakes system. Again, working closely with Greg's team as they submit open seasons on their side of the border to get additional capacity down to the U.S. The other thing I would point out of late is, there seems to be some interest from the LNG market in Louisiana to have additional exposure to Canadian volumes as well. So we're pursuing opportunities to expand our ANR systems as appropriate and get more Canadian gas down to the LNG terminals.

Patrick Kenny, Analyst

Okay, great. Thanks for that update, guys. I'll leave it there.

Operator, Operator

The next question comes from Brian Bennett with UBS. Please go ahead.

Unidentified Participant, Analyst

Good morning. Thank you for including me. As a follow-up to the earlier labor questions, you mentioned that you currently have 6,500 workers on the job. I'm curious about the expected peak labor numbers and project timelines for Coastal GasLink this summer to meet the mechanical completion goals, especially as labor begins to mobilize on TMX this summer. Thank you.

Francois Poirier, President and CEO

Yes. Thanks, Brian. We're effectively at peak and will be winding down now. Coming back from spring fresh, we will not be bringing back the same level of crews, but a significant number of folks will be coming back. As I mentioned, we're at some discrete scopes now were effectively finishing off any of the traditional kind of mainlining activities where we have a significant number of crews. I would say, come to the fall we'll be in a much more significant ramp down of folks out there in the field. But our ability to continue to successfully manage and mitigate all our risks during the summer and the fall construction will be the key determinant in our ability to meet our cost and schedule goals. We're more focused on managing the risks and inclusive of that is the labor front, but we feel that we're in a good position there.

Gavin Wylie, Vice President, Investor Relations

So, I think we've got time for just one last question if you don’t mind.

Unidentified Participant, Analyst

Yes, thank you. Regarding the credit rating, S&P has placed TransCanada on a negative outlook. My first question is whether TransCanada is committed to defending that credit rating at any cost, possibly in relation to mergers and acquisitions or asset sales. Secondly, how does TransCanada approach asset sales in terms of its impact on the earnings mix? Thank you.

Joel Hunter, CFO

Thanks, Brian. It's Joel here, and I appreciate the chance to respond to that last question. Regarding credit ratings, we do attach great importance to them. Currently, we are on a negative outlook from S&P, Moody's, and DBRS, and we were downgraded by Fitch after the announcement of the CGL cost overruns. We value our ratings highly, and we believe that with our plan to sell over $5 billion in assets, we can reduce our leverage to our target of five times in the short term and eventually down to 4.75 times. That's our goal. With our current strategy involving $5 billion in asset sales and a growing EBITDA, which has seen a 60% year-over-year increase, we are confident that we can achieve the five times leverage and remove the negative outlook from the agencies, thus reaffirming our ratings moving forward. In response to your question about asset sales, we aim to balance both aspects. We have planned for $5 billion in asset sales and will continue to factor in that roughly 15% of our capital structure will consist of hybrid securities and preferred shares, which we intend to maintain.

Patrick Kenny, Analyst

Great. I'll leave it there. Enjoy the rest of the morning.

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, Mr. Wylie.

Gavin Wylie, Vice President, Investor Relations

Yes. Thanks everybody for your participation this morning. For the questions that we didn't get to, please reach out to Investor Relations and the team is happy to have discussions later this morning. We thank you very much for your interest in TC Energy, and we look forward to our next update. Have a great day.

Operator, Operator

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