Good morning, ladies and gentlemen. Welcome to the TransCanada Corporation 2018 Third Quarter Results Conference Call. I would now like to turn the meeting over to Mr. David Maneta, Vice President, Investor Relations. Please go ahead, Mr.
Maneta.
Thanks very much, and good morning, everyone. I'd like to welcome you to TransCanada's 2018 Q3 conference call. With me today are Russ Girling, President and Chief Executive Officer Don Marchand, Executive Vice President and Chief Financial Officer Karl Johansen, President of Canada and Mexico Natural Gas Pipelines and Energy Stan Chapman, President, U. S. Natural Gas Pipelines Paul Miller, President of our Liquids Pipelines Business and Glenn Manuse, Vice President and Controller.
Russ and Don will begin today with some opening comments on our financial results and certain other company developments. A copy of the slide presentation that will accompany their remarks is available on our website at transcanada.com. It can be found in the Investors section under the heading Events. Following their prepared remarks, we will take questions from the investment community. You are a member of the media, please contact Grady Siemens following this call and he would be happy to address your questions.
In order to provide everyone from the investment community with an equal opportunity to participate, we ask that you limit yourself to 2 questions. If you have additional questions, please reenter the queue. Also, we ask that you focus your questions on our industry, our corporate strategy, recent developments and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or your detailed financial models, Duane and I would be pleased to discuss them with you following the call. Before Russ begins, I'd like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties.
For more information on these risks and uncertainties, please see the reports filed by TransCanada with Canadian Securities Regulators and with the U. S. Securities and Exchange Commission. And finally, I'd also point out that during this presentation, we'll refer to measures such as comparable earnings, comparable earnings per share, comparable earnings before interest, taxes, depreciation and amortization or comparable EBITDA, comparable funds generated from operations and comparable distributable cash flow. These and certain other comparable measures are considered to be non GAAP measures.
As a result, they may not be comparable to similar measures presented by other entities. They are used to provide you with additional information on TransCanada's operating performance, liquidity and our ability to generate funds to finance our operations. With that, I'll turn the call over to Russ.
Thank you, David, and good morning, everyone, and thank you very much for joining us today. As highlighted in our quarterly report to shareholders released earlier today, we're very pleased to announce another quarter of strong results, which are expected to contribute to record financial performance in 2018. As outlined in the report, our $94,000,000,000 portfolio of high quality energy infrastructure assets continue to profit from strong underlying market fundamentals, and we are realizing the growth expected from our secured capital expansion program. Evidence of this can be seen in our comparable earnings of $1.2 dollars per share for the 3 9 months ended September 30, 2018, which supports our Board of Directors decision in February of this year to increase our quarterly common share dividend to $0.69 per share. That equates to $2.76 per share on an annual basis and represents a 10.4% increase over the dividend we paid in 2017.
During the quarter, we also continued to advance $36,000,000,000 of secured capital projects, which now includes Coastal GasLink, NGTL's 2022 expansion and Bruce Power's refurbishment of Unit 6, which is expected to commence in 2020. Approximately $10,000,000,000 of these projects are expected to enter service by early 2019. Those include the NGTL system expansions, Columbia's Mountaineer, WB and Gulf XPress Projects, the Sur de Texas Natural Gas Pipeline in Mexico and the Napanee gas fired power plant in Ontario. We also continue to advance over $20,000,000,000 of projects under development, including Keystone XL and the refurbishment of another 5 reactors at Bruce as part of their long term life extension program. And finally, we have made progress on funding our capital program by raising approximately $9,100,000,000 this year.
That includes $6,100,000,000 long term debt, which was issued at very compelling rates, $2,000,000,000 of common equity that has been raised through our dividend reinvestment program and the at the market equity program and approximately $1,000,000,000 in total from the sale of our 62% interest in the Cartier Wind facility and the reimbursement of approximately $400,000,000 of pre development costs associated with Coastal GasLink under the provisions in our agreements with LNG Canada's joint venture participants. Collectively, these initiatives combined with our growing internally generated cash flow means that our 2018 funding program is now complete. Looking forward, we expect our strong operating and financial performance to continue and therefore comparable earnings on a per share basis in the Q4 of 2018 are expected to be consistent with the results that we've achieved in the 1st 9 months of this year. At the same time, our overall financial position remains strong, and we believe we are well positioned to achieve our targeted credit metrics without the need for discrete common equity to fund our $36,000,000,000 secured capital program. Don will talk about our funding activity in more detail in just a moment.
But before that, I'll expand on some recent developments beginning with a brief review of our Q3 financial results. Excluding certain specific items, comparable earnings were $902,000,000 or $1 per share, an increase of $288,000,000 or $0.30 per share over the Q3 of 2017. That equates to a 43% increase on a per share basis after recognizing the effect of common shares issued in 2017 2018 under our DRIP and ATM programs. Comparable EBITDA increased $389,000,000 to approximately $2,100,000,000 while comparable funds generated from operations of 1 point $6,000,000,000 were $255,000,000 higher than the Q3 of 2017. These amounts reflect the strong performance of our legacy assets and contributions from approximately $7,000,000,000 of growth projects that were completed and placed into service over the last 12 months and the positive impact of U.
S. Tax reform. On a year to date basis, comparable earnings were $2.82 per share, an increase of $0.55 or 24% compared to the 1st 9 months of 20 17. Comparable EBITDA increased $636,000,000 to approximately $6,100,000,000 while comparable funds generated from operations of $4,600,000,000 were $450,000,000 higher than last year. Again, Don will provide more detail on the Q3 financial results in just a few moments.
But before he does, I'd like to make a few comments on recent developments in each of our business segments beginning with natural gas pipelines. 1st, in the Canadian Natural Gas Pipeline business, yesterday we announced the commercial support for NGTL's 2022 expansion program that will see us invest approximately $1,500,000,000 over the 2021, 2022 time frame. The project is underpinned by approximately 1.1 Bcf a day of new firm service contracts with terms that range from 8 to 20 years. The program, which is subject to NEB approval, is expected to be complete by April 2022. With today's announcements, we are now advancing $9,100,000,000 commercially secured growth projects on the NGTL system over the 2018 to 2022 period.
Looking forward, customer demand for access to our systems remains strong and we continue to work with industry on options to connect growing Western Canadian gas supply to markets across North America. And as I've said before, that could include the potential restoration of dormant capacity on the Canadian Mainline. At the same time, we are actively working with LNG Canada and our Coastal GasLink pipeline project following the positive final investment decision on their LNG terminal in Kitimat, DC. The $6,200,000,000 project will have an initial capacity of approximately 2.1 Bcf a day with the potential expansion capacity of up to 5 Bcf a day. All of the necessary regulatory permits have been received to allow us to proceed with construction activities on and the Coastal GasLink has signed project and community agreements with all 20 elected indigenous fans along the pipeline route, confirming the strong support from the indigenous communities across British Columbia for the project.
Construction is expected to begin in early 2019 with a planned in service date of 2023. Most of the construction spend is expected to occur in the 2020 2021 period, and we are exploring joint venture partners and project financing options for the projects. As a result, we believe that our funding needs for this project are very manageable, particularly considering the 4 year construction time horizon of the project. Moving to our U. S.
Natural gas pipelines. During the Q3, we advanced US6.1 billion dollars of expansion projects, including the Columbia's Mountaineer, WP and Gulf XPress projects. All three are expected to enter service by the end of 2018 at a combined investment of approximately US4.5 billion dollars At the same time, we continue to look at other opportunities across our broader U. S. Natural gas pipeline portfolio to connect growing Marcellus and Western Canadian supply to key markets.
Finally, in U. S. Pipelines, a few comments on the recent FERC actions and their implications for our company. On July 18, FERC issued the final rule adopting certain revisions to the proposed FERC actions originally announced on March 15, 2018. As highlighted previously, we do not expect that the earnings and cash flows from our directly held U.
S. Natural gas pipelines, including ANR, Columbia Gas and Columbia Gulf will be materially impacted as a significant portion of their revenues are earned under non recourse rates. Further, as our ownership interest in TC PipeLines LP is 25%, the impact of the final FERC actions related to our MLP is not expected to be significant to our consolidated earnings or cash flow. Turning now to Mexico, where we're advancing construction on 3 pipelines at a total cost of approximately $2,900,000,000 Offshore construction of the Sur de Texas pipeline was completed in May and the project continues to progress towards an anticipated in service date at the end of 2018. The Via de Rey project and the Tula project are anticipated to be in service in 2019 2020, respectively.
While our Mexican projects have faced some delays, the CFE has approved the payment of fixed capacity charges on our pipelines in accordance with the respective transportation service agreements. Turning now to our Liquids business, which produced very strong results again in the Q3 of 2018. Keystone continued to perform well, underpinned by long haul pay per pay contracts for 550,000 barrels a day. Grand Rapids and Northern Courier were both placed into service in the second half of twenty seventeen and are now solidly contributing to EBITDA. In addition, we continue to benefit from higher contribution from the liquids marketing, largely due to favorable marketing conditions and that is expected to continue at least for the remainder of this year.
Finally, a few comments on Keystone XL. In Nebraska, the Supreme Court is in the process of hearing an appeal case against the Nebraska Public Service Commission's alternative route. Legal briefs were submitted in May and are oral arguments before the court begins today. We remain confident the public determination of the Nebraska Public Service Commission was lawful and expect the Nebraska Supreme Court could reach a decision by the Q1 of 2019. At the same time, we continue to work collaboratively with landowners in Nebraska to obtain the necessary easements for the approved route.
To date, we have obtained negotiated easements for approximately 75% of the route in the state and expect that percentage to continue to rise. Finally, on the regulatory front, the U. S. Department of State issued a draft supplemental environmental impact statement or SEIS. On September 21, the SEIS concluded that the mainline alternative route would have no significant environmental impact.
The draft SEIS is open for public comment for 45 days with the final SEIS expected to be issued sometime later this year. On the commercial front, in January, we successfully secured 500,000 barrels a day of firm 20 year commitments, which is consistent with the original level of contracting on Keystone XL prior to the denial of the presidential permit in November of 2015. The new contracts combined with existing contracts on the Keystone system that convert to long haul agreements on Keystone XL means the Keystone XL would be largely utilized by contracted shippers after factoring in the capacity we required to set aside for spot shippers by our regulators. Potential shippers continue to express interest in the limited remaining capacity available on Keystone XL as well as any capacity that could be made available on the existing Keystone system. We are very optimistic that those discussions will lead to additional long term take or pay commitments resulting in both lines being fully contracted.
Turning to our energy business. Construction on Napanee continues and is expected to be placed into service in early 2019 at a cost of $1,600,000,000 Work also continues on the Bruce Power Life Extension project with significant investments to extend the operating life of the facility to 2,000 64 scheduled to begin in 2020 and continue through 2,030 3. In late September, Bruce submitted its final cost schedule estimate for Unit 6 major component replacements to the Ontario ISO, while the ISO has up to 3 months to review and verify those estimates as both the cost and schedule duration are less than the thresholds defined in the program's life extension and refurbishment agreement, no further approvals from the ISO or the government are required to proceed with the project in early 2020. As a result, we expect to invest approximately $2,200,000,000 in nominal dollars in Bruce Power's Unit 6 major component replacement program as well as ongoing the asset management program through 2023 when the Unit 6 refurbishment is expected to be completed. Bruce Power's current contract price of $68 per megawatt hour is expected to increase into the mid-seventy dollars range in April of 2019 to reflect the capital to be invested under these programs as well as normal course inflation adjustments.
Finally, in Energy, last week, we closed the sale of our 62% interest in the Cartier Wind project for approximately $630,000,000 That sale allows us to surface significant value from a mature asset that represented approximately 5% of our generating capacity and redeploy that capital into our $36,000,000,000 secured capital program, thereby reducing our need for external capital, including common equity. In summary, the addition of the Coastal GasLink, the NGTL 20 22 capital program and the Bruce Powers Unit 6 refurbishment, we are now advancing $36,000,000,000 of secured growth projects that are expected to enter service by 2023. That 5 year plan includes approximately $5,000,000,000 of maintenance capital, 85% of which is related to our regulated natural gas pipelines and therefore is expected to be added to the rate base and generate a return on and up capital similar to what we realized on our expansion projects. To date, we've invested approximately $14,000,000,000 of the $36,000,000,000 into the program. These projects are all underpinned, as we've said before, by long term contracts or rate regulated business models.
As a result, we have a high degree of visibility to the earnings and cash flow that will be generated as they enter service. In addition, we are advancing over $20,000,000,000 of projects currently under development. And as we've said before, any one of those projects could further enhance our growth profile as well as our strong competitive position across North America. Based on our confidence in our growth plans, we expect to continue to grow our dividend at an average annual rate of 8% to 10% through 2021. As has always been our practice, the growth in dividends is expected to be supported by sustainable growth in earnings and cash flow per share and strong distributable cash flow coverage ratios.
In summary, I would leave you with the following key messages. Today, we are a leading North American energy infrastructure company with a strong track record of delivering long term shareholder value. Our assets are critical to the functioning of the North American economy and the demand for our services is ever growing. With $94,000,000,000 of high quality assets, long life, contractual and regulated terms and 7,500 talented employees, we have 5 significant platforms for continued growth: our Canadian, U. S.
And Mexico Natural Gas Pipeline divisions, Liquids Pipelines and Energy. As we advance our $36,000,000,000 secured capital program, we expect to deliver significant additional growth in earnings, cash flow and dividends per share. In addition, we have more than $20,000,000,000 projects that are in the advanced stage of development and we expect numerous other growth opportunities to emanate from our extensive asset footprint across North America. Finally, we have a history of prudently funding our capital programs and are on track to achieve our targeted credit metrics without the need for discrete common equity to fund our current $36,000,000,000 secured program. That concludes my prepared remarks.
And I'll now turn the call over to Don, who'll provide more details on our Q3 financial results. Don? Thanks Russ and good morning everyone. As outlined in our quarterly results issued earlier today, net income attributable to common shares was $928,000,000 or $1.02 per share in Q3
of 2018 compared to $612,000,000 or $0.70 per share for the same period in 2017. Excluding specific items, comparable earnings of $902,000,000 or $1 per share in Q3 2018 were $288,000,000 or $0.30 per share higher year over year. This equates to a 43% increase on a per share basis after giving effect of the dilutive impact of common shares issued under our dividend reinvestment plan and at the market program. These along with other funding activities do however have us well on track to return to long term targeted leverage metrics following the 2016 Columbia acquisition and continuing record capital program. Our positive results reflect operational strength and solid cash generation across all our businesses, particularly U.
S. Natural gas pipelines and liquids pipelines and include the net benefits of U. S. Tax reform. Turning to our business segment results on Slide 15.
The Q3, comparable EBITDA from our 5 operating businesses was approximately $2,100,000,000 a 389,000,000 dollars or 23 percent increase from 2017. Canadian Natural Gas Pipelines' comparable EBITDA of $522,000,000 was $22,000,000 lower than for the same period last year. I would note that for Canadian Natural Gas Pipelines, changes in depreciation, financial charges and income taxes impact comparable EBITDA, but do not have a significant impact on net income as they are almost entirely recovered in revenues on a flow through basis. Net income for the NGTL system increased $9,000,000 compared to Q3 2017 as a result of a higher average investment base from continued system expansions, partially offset by lower incentive earnings and reflects a base ROE of 10.1% on 40% deemed equity as approved in our 20 eighteen-twenty 19 rate settlement. Net income for the Canadian Mainline decreased $9,000,000 year over year, primarily due to incentive earnings recorded in Q3 2017.
Incentive earnings have not yet been recorded in 2018 pending an NEB decision on the 2018 to 2020 tolls review. U. S. Natural Gas Pipelines' comparable EBITDA of US547 million dollars or CAD715 million in the quarter increased by CAD162 1,000,000 or CAD233 1,000,000 compared to the same period in 2017, mainly due to increased contributions from Columbia Gas and Columbia Gulf Growth Projects Placed in Service, Additional Contract Sales on ANR and Great Lakes, favorable commodity prices and throughput volumes in Midstream and increased earnings from the amortization of the regulatory liability recognized following U. S.
Tax reform. Mexico Natural Gas Pipelines' comparable EBITDA of US116 $1,000,000 or CAD153 million was CAD22 1,000,000 or CAD35 1,000,000 above Q3 2017 as a result of increased revenues from operations due to changes in timing of revenue recognition and the Q3 2017 impairment of our remaining equity investment in Transgas. Liquids Pipeline's comparable EBITDA rose by $164,000,000 to $467,000,000 in Q3 2018, driven by the full impact of Grand Rapids and Northern Courier, which began operations in the second half of twenty seventeen, higher volumes on the Keystone pipeline system and a higher contribution from liquids marketing activities. Energy comparable EBITDA decreased by $17,000,000 year over year to 207,000,000 due to a lower contribution from Eastern Power following the sale of Ontario solar assets in December 2017, narrower spreads realized by natural gas storage and exclusion of U. S.
Power marketing contracts from comparable earnings commencing in 2018. These were partially offset by higher realized prices on increased generation volumes for Western Power and higher realized prices on lower outage days at Bruce Power. For all our businesses with U. S. Dollar denominated income including U.
S. Natural gas pipelines, Mexico natural gas pipelines and parts of liquids pipelines and energy, Canadian dollar translated EBITDA benefited from a stronger U. S. Dollar compared to the same period in 2017. Conversely, year to date, the U.
S. Dollar was modestly weaker compared to the 1st 9 months of 2017. This positive foreign exchange impact at the business unit level in the 3rd quarter was largely offset by higher translated interest expense on U. S. Dollar denominated debt and realized hedging losses reported in comparable interest income and other.
As a reminder of our approach to managing foreign exchange exposure, our U. S. Dollar denominated revenue streams are partially hedged by interest in U. S. Dollar denominated debt.
We then actively manage the residual exposure on a rolling 1 year forward basis. Now turning to the other income statement items on slide 16. Depreciation and amortization of $564,000,000 increased $58,000,000 versus Q3 2017, largely because of new facilities entering service across our businesses and a higher depreciation rate on NGTL, partially offset by the sale of Ontario solar assets in 2017 as well as cessation of depreciation on our Cartier Wind Power Facilities upon their classification as held for sale assets at June 30, 2018. Interest expense included in comparable earnings of $577,000,000 for Q3 2018 was $74,000,000 higher year over year following new debt issuances net of maturities, increased translated U. S.
Dollar denominated interest due to a stronger U. S. Dollar and lower capitalized interest on liquids pipelines projects placed in service in 2017, partially offset by increased investment at Napanee and the recommencement of capitalization of Keystone XL in 2018. AFUDC for the 3 months ended September 30, 2018 was in line with the same period in 2017. Comparable interest income and other decreased by $10,000,000 in the Q3 versus 2017, primarily as a result of realized hedging losses on foreign exchange management in 2018 compared to realized gains in 2017, as well as income recorded in 2017 on termination of the Prince Rupert Gas Transmission Project.
Income tax expense included in comparable earnings was $108,000,000 in Q3 2018 compared to $163,000,000 for the same period last year, primarily on account of reduced tax rates under U. S. Tax reform and lower flow through income taxes on Canadian rate regulated pipelines, partially offset by higher pre tax comparable earnings. Excluding Canadian rate regulated pipelines, where income taxes are a flow through item and are thus quite variable, along with equity AFUDC income in U. S.
And Mexico Natural Gas Pipelines, we continue to expect our 2018 full year effective rate to be in the mid teens. Net income attributable to non controlling interests increased by $15,000,000 for the 3 months ended September 30, 2018, mostly due to higher earnings in TC PipeLines LP. And finally, preferred share dividends were comparable to Q3 2017. Now moving to cash flow and distributable cash flow on slide 17. Record comparable funds generated from operations of approximately 1 $600,000,000 in the 3rd quarter reflects an increase of $255,000,000 year over year driven largely by higher comparable earnings as outlined.
Comparable distributable cash flow in the quarter reflecting only non recoverable maintenance capital expenditures was approximately $1,400,000,000 or 1 point $5.6 per share compared to $1,200,000,000 or $1.34 per share in the Q3 of 2017, resulting in a coverage ratio of 2.3 times. As discussed on our Q2 conference call, we believe that including only non recoverable maintenance capital in the calculation of distributable cash flow conveys the best depiction of cash available for reinvestment or distribution to shareholders is our ability to recover rate regulated and liquids maintenance capital expenditures through current or future tools effectively mirrors that of growth capital. Put another way, we expect to have the opportunity to recover and earn a return on 85% of our total maintenance capital expenditures through these mechanisms. Now turning to slide 18. During the Q3, we invested approximately $2,800,000,000 in our capital program and successfully funded it through strong and growing internally generated cash flow, long term debt issuance and common equity from our dividend reinvestment plan and at the market program.
In Q3 2018, we raised CAD 1,000,000,000 through a Canadian medium term notes offering comprised of CAD 200,000,000 10 year notes at a fixed rate of 3.39 percent and $800,000,000 of 30 year notes at a fixed rate of 4.18%. After quarter end in October, we issued US1.4 billion dollars of senior unsecured notes comprised of US400 $1,000,000 of 10 year notes at a fixed rate of 4.25 percent and US1 $1,000,000,000 of 30 year notes at a fixed rate of 5.10 percent. Over the course of 2018, we have issued a total of $6,100,000,000 of long term debt in the Canadian and U. S. Capital markets on compelling terms.
Our dividend reinvestment plan or DRIP continues to provide incremental subordinated capital in support of our growth and credit metrics. In the Q3, the participation rate amongst common shareholders was approximately 34%, representing $213,000,000 of dividend reinvestment. Year to date, the participation rate has been approximately 35%, resulting in $655,000,000 of common equity at a 2% discount. In the Q3, 6,100,000 common shares were issued under our ATM program at an average price of $57.75 per share for gross proceeds of $354,000,000 bringing the year to date total to approximately $1,100,000,000 We have now ceased ATM issuance, but do expect to operate our DRIP for some portion of 2019. Going forward, we will continue to evaluate share count growth against further portfolio management activities as our funding plan evolves.
To that end, in October, we closed the sale of our 62% interest in the Cartier power generation assets for approximately $630,000,000 resulting in an estimated gain of $135,000,000 after tax, which we recorded in the 4th quarter. Furthermore, an additional approximately $400,000,000 is expected to be realized prior to year end pursuant to elections by certain coastal gasoline shippers to reimburse pre FID development costs incurred by TransCanada. Together, the Cartier proceeds and Coastal GasLink Capital Recovery represent more than $1,000,000,000 to be applied against our capital program, while serving to mitigate both leverage and rising share count. Now turning to slide 19. This graphic highlights our forecasted sources and uses of funds in 2018 and illustrates that our funding needs for the year have been fully met.
Our capital requirements continue to be financed in a manner consistent with achieving targeted run rate credit metrics in the range of 15% FFO to debt and debt to EBITDA in the high 4s. Starting in the left column, our dividend and non controlling interest distributions of approximately $2,800,000,000 2018 capital expenditures projected to be approximately $10,500,000,000 including maintenance capital and long term debt maturities of $2,900,000,000 bring our total funding requirement for 2018 to approximately $16,200,000,000 dollars The second column highlights aggregate sources of approximately $16,200,000,000 including forecast full year internally generated cash flow of about 6 $400,000,000 and funding effectively in place of $9,800,000,000 from long term debt, commercial paper, cash on hand, DRIP, ATM, the Cartier sale and recovery of Coastal GasLink development costs as previously described. Note that we will pursue joint venture partners and project financing toward funding the $6,200,000,000 Coastal GasLink project. The expenditure will be spread over approximately 4 years with the bulk of the spend in 2020 2021. While our external funding needs remain sizable, they will decline notably in 2019 in the absence of material new initiatives and are eminently achievable in the context of multiple financing levers available and a clear accretive and credit supportive use of proceeds.
We iterate that we do not foresee a need for discrete equity to complete our secured $36,000,000,000 capital program. Now turning to slide 20. In closing, I offer the following comments. Our solid across the board financial and operational results in the Q3 highlight our diversified low risk business strategy and reflect the strong performance of both our blue chip legacy portfolio along with the contribution of equally high quality assets from our ongoing capital program. Today, we are advancing a $36,000,000,000 suite of secured projects and have 5 distinct platforms for future growth in Canadian, U.
S. And Mexico natural gas pipelines, liquids pipelines and energy. Our overall financial position remains strong. We remain well positioned to fund our secured capital program through resilient and growing internally generated cash flow and strong access to capital markets on compelling terms, supplemented further by capital recycling and we'll continue to make all funding decisions based on per share metrics. Our portfolio of critical energy infrastructure projects is poised to generate significant growth and high quality long life earnings and cash flow for our shareholders.
That is expected to support annual dividend growth of 8% to 10% through 2021. Success in adding to our growth portfolio in the coming years could augment or extend the company's dividend growth outlook further. That's the end of my prepared remarks. I'll now turn the call back over to David for the Q and A.
Thanks, Don. Just a reminder before I turn it over to the conference coordinator for questions from the investment community, We ask that you limit yourself to 2 questions. If you have any further questions, please re enter the queue. And with that, I'll turn it back to the conference coordinator.
Thank you. We will now take questions from the telephone lines. We have a question from Linda Ezergailis from TD Securities. Please go ahead. Your line is now open.
Thank you. I appreciate
the update on Keystone XL. There's a lot of moving parts in the various work streams. I'm wondering if you could help us though distill it down to a sense of when the earliest you might get to an FID based on your expectation of when certain regulatory and legal processes can conclude? And also give us a sense of are there any sort of construction windows that you
need to hit next year
that you might miss if you don't get to FID by a certain point?
Linda, it's Paul Miller here. On the first question about the regulatory hurdles and the timing of those hurdles. There's 3 in place now. The first one is the challenge to the presidential permit in the Montana Court. The judge has indicated that he will rule on the items by December 1.
So we would anticipate a decision here over the next 2 months. The other challenge is the challenge to the approved route in Nebraska by the Public Service Commission. That is being challenged at the Nebraska Supreme Court. The written submissions are in. They were in last May.
The oral argument is being held today. At that point, it's in the court's hands, and we would anticipate a decision from them in late December or early 2019. The third area of permitting is the permits from the Bureau of Land Management, which governs the access to the federal lands and permits from the Army Corps of Engineers. The issuing agencies have indicated that with the expected issuance of the supplemental environmental impact statement here in early December that they would issue those permits in early January. So with that, we continue our construction planning and preparation in anticipation of resolution of these legal and regulatory hurdles to prepare us for a start of construction in 2019, but we'll have to reflect on the rulings that do come down from the courts as well as the federal agencies.
As far as construction activity, we have planned for a 2 year construction. That 2 year construction takes into consideration the various windows of construction we have and areas where we don't or not allowed to construct. The most significant would be in the northern part of the U. S. Where there's various windows that are close to us in that January to, let's call it, mid to late Q2 time period.
So our planning works around those windows. So to the extent that we are able to proceed to construction in that time period, we would avoid those windows. And to the extent that our resolution of the legal and regulatory hurdles is not in hand until later in that period, we would start construction in those northern tiers in that June time period.
That's helpful context. Now I'm just wondering as a follow-up, maybe this is more question for Don. I realize we might be hearing this at your upcoming Investor Day. But can you give us a sense in the meantime maybe how you're thinking of your options for financing Keystone XL? You've completed your financing requirements for 2018.
I'm wondering if you might kind of accelerate your funding for 20 19 and start thinking about the various levers for Keystone XL depending on obviously timing of construction spend?
Yes. Good morning, Linda. Yes, in terms of 2019, we're in very good shape entering sizable maturity, debt maturity in early January that I believe we've effectively prefunded with the activities we've undertaken to date. So we have a good start on 2019 already. In terms of Keystone XL, I'll reiterate the themes that we've discussed previously.
Basically, it will be an all of the above strategy. Keystone XL will bring hybrid capacity with it. As we stated previously, we can issue hybrids up to about 15% of our capital structure. So as the balance sheet grows with Keystone XL, that would be one lever there. Portfolio management would play more than a token role here.
So we do have a sizable portfolio of saleable assets contracted that we would be willing to part with to fund part of a Keystone XL program or alternatively to avoid share count growth in the future as well. We would entertain JV partners on this project and other considerations would be obviously permutations of equity in the form of DRIP ATM and discrete equity for this. So basically everything is on the table here. We work towards final costing and see what the timing is. But again, it's an all of the above strategy.
Thank you. I'll jump back in the queue.
Thanks, Linda.
Thank you. We have a question from Jeremy Tonet from JPMorgan. Please go ahead. Your line is now open.
Good morning.
Good morning, Jeremy.
I want to continue with equity here and just get a finer point on how you think about that going forward. So next year looks like it's just a drip, but just wondering under what circumstances might you do the ATM or discrete equity offering again? Is it really just if projects are above the 30 36,000,000,000 secured level? And is that kind of like the determining factor there is whether or not you would issue equity in any of those forms?
Good morning, Jeremy. It's Don. Yes. It's we will continue to look at everything on a per share basis. So if it makes sense for us to sell assets to avoid further share future share count growth, we'll do that.
Depends on the nature and the magnitude of what might come in the door in addition of $36,000,000,000 We are gravitating back here towards our historical live within your means doctrine. We want to eliminate DRIP issuance here at some point in 2019. And then we'll see what comes in the door from there. These are all levers we can pull. But again, I'll just reiterate it.
Everything's on a per share basis here. So in the absence of a major new initiative, such as the Keystone XL, we think we're in pretty good shape here. And that's kind of our philosophy going forward.
That's helpful. Thanks. And when it comes to portfolio management, just wondering if you could update it there as far as how you see the strength of that market? Has that changed at all? Or is it still kind of a strong market?
We've seen some good multiples posted recently. And with Coastal GasLink, is there kind of a targeted ownership level that you would be comfortable with? Could you go below 50% or how would you think about that if you bring partners in there?
Yes, the bid is strong for contracted assets and we're seeing that across our portfolio as we look at monetization candidates here. Some in the air, we could see $500,000,000 of contracted EBITDA as being candidates for sales. You put a reasonable multiple on that and that could be a substantial source of funding for us going forward. And again, the amount of money looking for contracted infrastructure assets is substantial. That gravitates into Coastal GasLink.
So we have seen substantial inbound interest in participating in that on a joint venture basis. In terms of where we would ultimately end up in terms of equity ownership, I'd give you a range of us retaining somewhere between 25% 49% ownership post bringing in JV Partners.
That's all very helpful. Thank you for taking my question.
Thanks, Jeremy.
Thank you. The next question is from Ben Pham from BMO. Please go ahead. Your line is now open.
Okay. Thanks. Good morning. Just continue on Coastal GasLink and with the Solu filing and the NAB looking at it in terms of jurisdiction, are you still moving forward to status quo of preparation CapEx spending, looking to sell down the JV regardless of what's going on behind the scenes of the NEV? Are you taking more of a wait and see just given that there's a difference between the pipe in service and the LNG in service?
Well, hey, Ben, this is Karl. Let me just start by saying TransCanada is at this point with the NEB decision to move forward to future jurisdictional matters here. We do know they have a job to do and we will be cooperating with the job and participating in that hearing. We are but I will say that we have valid permits from an appropriate regulatory agency If something happens in the future where jurisdiction does change before we're finished construction, then we would expect a seamless transition of the premise just like we have experienced in other jurisdictional changes through the last last history of TransCanada. So from our perspective, we will cooperate and work with this hearing that they're going to have under jurisdictional matters.
But we will also be starting our construction with the permits that we have.
Ben, it's Don here. In terms of the project financing and JV angle here, we've been working on the project financing for quite some time. And the JV side is ramping up as we speak here. Given the spend profile of CGL where the bulk of the spend is in 2020 and 2021, there is no pressing need to get all this placed in the coming quarters here. That said, we continue to move towards that.
At this point, we don't see it as materially impacting our funding plans and JV plans.
Okay. And then second question, following on some of the questions about the funding and it seems like the if you're quite sensitive to the equity side of the balance sheet, just where your stock is moving and seizing the ATM and maybe less reliance on the DRIP, maybe sell more assets. So I wanted to clarify as part of that, is there a little tweak in the dividend language in the slide? I just I don't know, 8% to 10% still quite strong industry leading. You guys can certainly grow
at those levels. But is there a little bit
of a different positioning on that versus Q2?
Yes, it's Don here. Yes, we the nuance is we the words upper end aren't there. It shouldn't be construed as we may be at the upper end and there should not be seen as any downgrade of our expectations in the future. Our commitment to 8% to 10% is certainly reaffirmed through 2021. It is affordable and it's within our long term long established payout metrics.
On balance, it provides us some latitude as we look at credit metrics, growth profiles. And philosophically on the margin, if it makes sense to not grow the dividend quite as quickly and we're talking marginal dollars here. But philosophically, to avoid share count growth at something in the low 50s, high 40s here, that's really where we're coming from on this.
Okay. Thanks for that. We generally agree with that. Thanks a lot everybody.
Thanks, Ben.
Thank you. We have a question from Robert Catellier with CIBC Capital Markets. Please go ahead. Your line is now open.
Hey, good morning, everybody. I just want to understand what level you might sell Keystone XL down to understanding that there's a lot of other levers that would result in that decision. But what level of asset sales, for example, would you have to attain in order to retain 100% of Keystone XL?
Hi, Robert. It's Don here. We really haven't landed a number at this point. This is a very attractive project. But what we're trying to convey here is we'll look at everything on a per share basis.
So we haven't landed any specific range on what we would sell down to it, maybe nothing. And we'll balance that against the equity requirement there. So as we finalize costs and what else is on our plate that will inform our decision on that front. As well, we will go to all of the rating agencies advisory services on various financing scenarios and see what the outcome is there. So quite a ways to go before we land on anything on that front.
Robert, I think as we've always approached these things, as Don mentioned, we've got several opportunities to monetize various assets in our portfolio. They're very attractive to market as is an interest in Keystone XL and will be driven by long term shareholder value. So the components of the analysis include what is the implied cost of capital. And as always, we seek to find the lowest cost of capital amongst the various levers we have in front of us. And until we get through the analysis and have conversations with people, we can't make that call.
But I think the message that we're sending today is we have several levers to rely upon. As you know, our most expensive cost of capital, especially at the current time is equity and we're very sensitive to that. So we're looking at other levers in our portfolio. And we're very comfortable with the flexibility that we have there and are comfortable in our ability to finance our programs, including Keystone XL going forward.
Okay. Thanks for that answer. And then just I'm a little curious as to why the regulated maintenance
capital expenditure
for Canadian Mainline has changed. It looks like it's down to 1.9 from 2.5? What's the main line?
Yes, Robert, it's Karl. Maybe I can just say this that we're always refining our estimates of maintenance, especially maintenance capital. You have to remember our views of equipment performance usage need on our system. So changing our maintenance capital is not all that unusual. I will say that we have been at elevated levels last few years as we've been increasing the volumes on our system.
As our system gets more full, we need to put more maintenance in. I would suggest kind of on a long term basis for the Canadian, most of this decrease that you referred to came out of the Canadian gas pipeline systems. I would suggest on the long term, we'd be looking at maybe $600,000,000 a year of maintenance capital coming out of the Canadian system. So that's down over the forecast period than what you've seen in the last couple of years. But again, I'd say $600,000,000 is a good run rate.
As our system becomes more heavily utilized, you'll see it go up a little bit temporarily, but it should always adjust back to the $600,000,000 range.
Fantastic. Thank you.
Thank you. The next question is from Tom Abrams from Morgan Stanley. Please go ahead. Your line is now open.
Thank you. A couple of quick ones and then a little bit longer one, but the two quick ones are your balance sheet ratio that you expect at the end of the year. Let's start with that.
It's Don here. In terms of debt to EBITDA?
Debt to EBITDA, yes.
Yes. We'll be within the ranges expected by the rating agencies as we continue to delever post CPG and get those assets in service. Well, how I describe it is the run rate as we bring to $10,000,000,000 of assets as Russ outlined into service here over the coming months and with our expected cash flow from them. We should be on side with that 5 times debt to EBITDA, 15 percent FFO to debt on a run rate basis as we exit this year into early 2019.
Okay. The other quick one is, when you say the finalized cost for Bruce Power, I think you said $2,200,000,000 that's finalized with the regulators or with the or that's something you've done with the contractors?
Well, yes. So that cost that we've put out there for Unit 6 is the full cost of both the major component replacement and the asset management through to 2023. And that is a cost that we have actually, it's accumulation of costs from the contracts we've put out for all our various subcontractors and equipment suppliers. So when we put that $2,200,000,000 out there, that's the full our 50% share of the full cost of the Unit 6 replacement, both the major component replacement and the asset management. So that cost I would just point out is under the kind of threshold of that we had in the original contract.
So there is no real decision on go or no go. The ISO right now is just making sure our project is complete and they will probably be issuing sometime in November kind of their comments on that. But we're expecting to proceed as per our proposal to them. You will see the adjustment the rates for Bruce coming in at the beginning of April. We will, as Russ said in his opening notes, we will adjust our we will adjust the price per megawatt hour that we sell to them up from about $68 to the mid-70s.
You'll see that starting April 1. And Unit 6 comes off on the beginning of 2020, so in January of 2020. So we will actually be collecting the monies before the Unit 6 comes off.
Okay, thanks. And then my last question was just how you're thinking
about TCP these days?
Yes, it's Don here. There's still some regulatory process to go through for the assets in there. So we're still looking to clarify exactly what the long term cash flows are from that. I would describe TCP as neither a source or use of capital at this time and just leave it at that.
Okay. I appreciate it. We'll see you in a couple of weeks.
Okay. Thanks, Tom.
Thank you. The next question is from Robert Kwan with RBC Capital Markets. Please go ahead. Your line is now open.
Good morning. Maybe if I can come back to funding and looking out to 2019, if you just look at the secured capital program, so no KXL or any large projects that would actually add to the 2019 program. I guess, you're messaging the ATM is going to be off. The DRIP is going to be on for some portion of the year. How does portfolio management work into your base plan for 2019?
Has the decision as you look at this kind of share count metric, the decision being to leave the DRIP on or is portfolio management some amount in the 2019 numbers as well on top of the DRIP?
Yes. At this point it's Don here again. At this point, with the dividend declaration today, DRIP was will be on certainly for the January dividend payment. So as we look through the balance of the year, we will DRIP could go anywhere from a couple of quarters to the full year depending on the capital program and portfolio management. So you shouldn't take silences and activity on the portfolio management front.
And we do have a number of irons in the fire right now. But But it's really a give and take as to those processes getting to suitable finish lines and what more we might look at. But it certainly dripped for some portion of the year. The potential is for it to be there all year, but if we can truncate that with sensible attractive portfolio management, we'll do that.
Okay. And then just if I can refine the 2018 EPS outlook, and I don't know if you want to tie it back to the 2nd quarter guidance, but you're talking about Q4 looking like the 1st 9 months. So is that an annualization of the 9 month figure? Or again, if you want to tie it back to second half is going to look like the first half, just to refine the message?
Yes. It's Don here. It's the quality of what you've seen over the 1st 9 months.
There's a little bit
of seasonality in our business, particularly in the U. S. Gas Pipeline side. But I would see that the strength you've seen through 9 months here continuing into the Q4 and through 2019 as well here. So as you know, we don't give specific point EPS guidance, but is it 4 thirds of what you've seen year to date?
I won't get that granular, but factor in the seasonality and continue the strength you've seen.
Put differently though, is there nothing wrong at least as a baseline from the statements you made for Q2, second half looks like first half?
Yes.
Okay. That's great. Thank you.
Thanks, Robert.
Thank you. The next question is from Rob Hope from within Scotiabank. Please go ahead. Your line is now open.
Good morning, everyone. I want to circle back on the commentary regarding joint ventures for both Coastal and Keystone. Arguably, you've created value through the development process of these assets. Just wondering how you would look to capture that through a JV arrangement? Could you get an upfront payment?
Would it be more of a promoter? How are you thinking about JVs there?
Robert, I think as I mentioned earlier and you've just highlighted, these projects are well constructed and highly contracted and therefore very attractive in the private markets currently. And we're just going through that process right now to determine what is that value that can be created and how what's the best way to surface it for our shareholders. So I'd say at the current time, we haven't concluded. But I would say that a promote either upfront or over a period of time is wouldn't be unexpected. We think that there's considerable value in here for our shareholders and we would love to surface that.
To maximize value first is not to give up value. So how we go about doing that in any negotiation will be with that focus. And then secondly, mindful of our current financing requirements and to the extent that any upfront payments or things like that can be used to offset equity issuance, obviously, that would be consideration in our valuation of various potential partners. So as Don, I think, alluded to, a, we're very comfortable with the array of options that we have in front of us and that we'll look to optimize those options to best fit both long term shareholder value and to minimize share count growth.
Yes, it's Don here. We're always cognizant of balancing complexity, structural subordination and control of these assets as well. So there are some other qualitative factors we bear in mind here.
All right. Appreciate that. And then just I guess moving over to the NGTL system, the expansion that you've announced last night, more broadly, how are you thinking about the supply demand balance out of Western Canada now that you have LNG moving forward? Could we see less of an emphasis on longer term contracts eastwards out of the basin and more focus on westwards?
Hey, Rob. This is Karl. So I guess my feeling on that is that there's enough resource base, there's enough producibility in that resource base that we can have. It's not an either or anymore, it's both. So even though there's obviously going to be in the next 4 or 5 years a very robust Western market for the natural gas going through Coastal GasLink.
We're still working as hard as we can to move gas molecules into Eastern Canada, into the Midwest down into our U. S. Pipelines for further transport into the Gulf Coast even if that works. So I don't think I think given the nature of the resource there and just the amount sheer amount of gas and producibility of it, I think it behooves us to continue looking for markets for our producer customers. So that's what we're going to continue doing.
I'll just augment Karl's comments. There's over 1,000 Tcf recoverable reserve in the Western Sedimentary Basin. I think it's proving itself to be one of the lowest cost, most prolific basins in North America, if not the world, currently producing in the 17,000,000,000 cubic feet a day kind of range. If you kind of look at a similar basin in the Appalachian that went from 0 to 40 in a very short period of time because it had access to market as an example of where we think the basin can go long term. We believe it's only constrained by market access.
And therefore, as Carl said, that's what we're working on both to the West Coast and south to California, into the Midwest and even into the Northeast U. S. And as we've seen in recent open seasons, the Northeast U. S. Utilities and even Eastern Canadian Far Eastern Canadian utilities are interested in the Western Sedimentary Basin.
So as we look forward, I think as I mentioned in my opening remarks, Coastal GasLink has the ability to expand to 5 Bcf a day. And we fully expect that over time that that's an economic proposition for Shell and its partners, that's a probability going forward. The open seasons that we've had downstream as well. I think as we noted in our release, growing intra basin markets, the growth in power generation as we convert from coal fired generation to gas fired generation, increased gas fired generation, industrial development that's coming with petrochemical development as we look to value add products here in the province of Alberta. All of those things are new markets, which will bolster growth.
So we actually don't view the basin as being limited in that 20 Bcf a day range. If we can create market access, there's no reason why the basin can't grow considerably more than that. So as Carl said, primary focus for our Canadian gas business right now is around developing markets for our customers to allow them to continue to increase production.
Just to give you a feeling for this latest expansion, 2 thirds of that expansion kind of physical volume wise is for new intra basin market and 1 third will be receipt. Of the cost of that expansion, probably 80% to 90% of it is will be to go look up that intra basin market and about 10% to 20% of it will be for the receipt. So most of this expansion that we brought forward is actually is market expansion for production.
All right. Thank you.
Thank you. The next question is from Andrew Kuske from Credit Suisse. Please go ahead.
Thank you. Good morning. I think the question is probably for Paul and it just relates to the liquids unit and the marketing numbers that you posted this quarter, which were impressive. If you could just maybe give us a little bit of color and context around what happened in the quarter and then expectations on a go forward basis?
Certainly, Andrew. We did see strong results from our marketing entity in the Q3. A marketing entity has capacity on various pipes and with that capacity they hedge their position. And the vehicle they hedged their position largely is around the Brent TI spread. And what we saw in the Q3 and let's call it the Q3 business cycle, which precedes, if you wish, calendar quarters, we saw a significant increase in those differentials coming in at May timeframe.
And we're able to pick up some of that value before the decline. And then after the decline, the market came back. So I would expect see our marketing results in Q4 to be similar, maybe even an increase to what we saw in Q3. When we look forward to the forward curves on the various differentials, I would anticipate similar results for our marketing entity into calendar 2019.
Okay. That's very helpful. And then maybe just a follow-up, just operationally on Keystone, what are you running the volumes at and have you managed to eke out any extra capacity either by way of scheduling, batching, DRA?
Certainly. So I'll answer it from 2 perspectives. The X Elbrador Keystone system has capacity of 590,000 barrels per day and that's our authorized capacity. And of that capacity, we've contracted up 555,000 barrels per day and that's about 94%, and we are required to set aside 6% for spot. And with the differentials we're seeing out of Alberta, there's a high demand for that spot.
So we are effectively running full on the Keystone system. On the Southern Lake, our Market Link system, which runs south of Cushing, that's a pipe that has run probably in that 300,000 to 400,000 barrel per day range historically. But over the course of the last year, we have looked to increase the capacity on the capability of that line. We've increased that capability to probably the mid-six hundred range. And with again the differentials we're seeing between Brent and TI, we're flowing in that range in that low to mid 600,000 barrel per day range.
Now of that capacity, our strategy has always been and will continue to be pursue sustainability and pursue quality. So we take the opportunities as the capacity increases and as the market demand increases to term out some of these volumes. So on the market linked system of that capacity, we're probably running about 80% contracted. So again, I see a sustainability for the Keystone system as well through Q4 and into calendar 2019.
That's great. Thank you very much.
You're welcome. Thanks, Andrew.
Thank you. The next question is from Pernice Satish, Wells Fargo. Please go ahead.
Hi, good morning. I was just wondering if you could provide a general update on Mexico, I guess, just what you're seeing there and how gas demand is tracking relative to your expectations?
Hi, it's Karl. So maybe I can just kind of update a little bit on our construction program. The Sur de Texas, which is the large offshore pipeline that we're working on, we're in pretty good shape on that actually. We've had some rough seas the last few weeks. So we've got our boats in dock, but it's really we have one more area of tie in, land to see tie in to do and then we'll start calling for gas.
So we're still predicting in the year in service with the rough weather we've had maybe it slipped, but I'm talking days and maybe a few weeks, not anything longer than that. So we're right now the Cesar calm and we'll be moving our pipeline offshore to get it interconnected. So that'll happen over the next couple of weeks. Hopefully, without barring any unusual weather patterns. Our Village Array has come along fine.
As you know, the Village Array is the pipeline that has run into all the artifacts. I think we ran into 90 archaeological finds as we're doing that pipeline. That doesn't stop the pipeline indefinitely, but it does slow it down as we have to wait for the government of Mexico to investigate all these archaeological finds. So it has been delayed. We are I will point out that because of these because of the force majeures that we've had on all pipelines to the city of Texas and those arrays, we are collecting actually our revenue on them right now.
We have contracts that say if the delays are not if they're not from TransCanada is doing that, that we can collect our revenues on. So we are collecting revenues on them even though they haven't gone into service. We expect the Villator A to be in service in the end of 2019 as we clear up all the archaeological sites and we move on, we will bring that in next year. Tula is a pipeline that we have actually demobilized on. We have actually pretty much finished everything we can construct on there.
And we have 1 90 kilometer section of aboriginal issues, which is a Government of Mexico obligation to sort out. We're still hopeful they'll get that sorted out sometime in 2019 and we can finish. We are hoping that we can put it partially in service before then. And again, we are collecting all of our revenue on that pipeline because that is a force majeure that fits the definition of that allows us to collect our revenue. So I think our projects are going fine in Mexico.
We are looking forward to next year completing them, say for Tula, completing them all, putting them all in physical service. We did put the top of Bambu in service this year after similar indigenous issue. It is flowing gas right now. So we're looking forward to next year to get the system operationalized and flowing gas.
Okay. Thanks for that. And then just turning to the balance sheet quickly. If you pursue project financing for Coastal GasLink, will the rating agencies treat that debt as completely off balance sheet or will they consider your proportionate ownership of that debt?
It's Don here. To be determined and again as I mentioned for KXL and what we do with Colombia, we will engage the agency's rating advisory services as we look through that. Depends how it's structured, obviously commercially and what covenants and conditions are on that. But we would be hopeful to achieve proportionate consolidation of that debt.
Thank you.
Thank you. The next question is from Patrick Kenny from National Bank. Please go ahead.
Yes. Good morning, guys. I wanted to get your thoughts on East Coast LNG.
Now that
Pierde looks to be closing in on FID, what this could mean for new long term contracts down the mainline over the near term as well as what the expansion opportunities might look like for TQM and PNGTS?
Hi, it's Karl here. Yes, we have been in discussion with several developers on the East Coast of Canada. I will say that the developers there, both Perde and others, they have been they seem to be well financed. They seem to be progressing. They seem to be progressing in their project development.
To date, we do not have any transportation agreements with any of them. So we are still discussing with all of them kind of what services that we can offer. Obviously, if the East Coast LNG does go ahead, we are interested in expanding our system to accommodate that. Right now, most proponents are looking to use our system up to Portland's and then going through Portland's and then maybe utilizing the Maritime's Northeast infrastructure until that is full. So that's kind of the path most we're looking at.
Although that path can accommodate a lot of gas, it can probably accommodate it can't probably work with 1 of the projects. But as I said, to date, we don't have any transportation agreements with any of them. So we'll continue working with them. And as their projects progress and get more mature, we'll be dealing with their request for transportation services at that time.
All right. Sounds good. And then maybe just a quick follow-up on your comments on the NGTL expansion announced yesterday from an Alberta demand pull perspective. Just based on your internal forecasts, do the expansions announced yesterday fully cover what's needed for coal to gas, power conversions, petrochemical growth, oil sands growth into next decade? Or do we expect the Phase 2 expansion on NGTL related to these Alberta customers at some point in service beyond 2022?
That's a good question. That's something obviously we ask ourselves all the time. So let me say this, we've for the inter basin demand, I think these are the requirements that were in our queue at this time. These should I think a portion of it obviously is for coal to gas and a portion is for chemical. These are what proponents have come and asked us right now if you're willing to sign up for.
We do have ongoing discussions with other potential increases in inter basin market that we're working outside of this and that may or may not come to fruition in the future. So I would find it hard to say that this will take care of us for a long period of time because it is this is a growing inter basin market. But this is all we have right now. This is all these are the people that we're willing to set up and sign contracts for us.
All right. That's great. Thanks, Carl.
Thanks, Pat.
Thank you. The next question is from Alex Kania from Wolfe Research. Please go ahead.
Great. Thanks very much. This is just a follow-up on Mexico. You would just see a little bit of volatility in the markets down there over the past week or so with respect to the airport decision by Obrador. Is there anything that we should read through to that on the existing projects?
I know that you don't have a lot of incremental capital to be able to put there, but just kind of considering what your thoughts are on that?
Yes, sure. It's Karl. And I'm aware of the issue that you're talking about. But I guess I can say this, we haven't had a lot of exposure to this new administration. They will be kind of in place here late this year in the New Year and we do expect to become more involved with them and to get into all the ministry offices and whatnot and have more thorough conversations with them.
And I might be able to answer this a little bit more directly at that time. But from what I said right now, the natural gas their natural gas strategy and just natural gas into Mexico is very important for the future growth of the Mexico economy. It's important for the power plants. There's a great strategy to replace oil with gas and sell the oil internationally. There's a great strategy to put in to get industrials using cheaper natural gas rather than fuel oil.
Important
important element of the future growth of their economy. And I would expect our infrastructure plays a very critical part of that important role. So my expectation is that the government will work with us to make sure that this infrastructure is this infrastructure plays an important part in this economy. And my expectation is that once they're in place, we will be working well with the government to make sure that these gas pipelines are fully utilized and the benefits to Mexico are realized so the work we do. So for right now, I just it's so important for the next economy.
I just can't envision anything other than us working together to make sure that we get the full use both Mexico and TransCanada gets the full use of these assets.
Great. Thanks so much.
Thanks, Alex.
Thank you. The next question is from Shneur Gershuni from UBS. Please go ahead.
Hello. This is actually Aga for Shneur. So my first question is, do you see a need to twin or expand market link to handle incremental volumes from Keystone XL? Could you please talk about the market dynamics there? Thank you.
Certainly, Ed, it's Paul here. Where we're focused right now is advancing our various projects, including Keystone XL. But part of our opportunities around both the legacy systems and Keystone XL kind of revolves around the footprint we have. We have a very good footprint, which starts in Northern Alberta and moves straight from the Mid Continent to the U. S.
Gulf Coast. So we're always looking for opportunities to secure additional and growing supplies and deliver them to market. And at this point, the market dynamics on the Gulf Coast look quite attractive. There are they indicated earlier there's some high differentials. We do see 2 or 3 dip and pipe proposals in play now and under construction.
So we'll see how that market dynamic plays out here over the next year to determine what our go forward is going to be. Our approach to business development is to always secure long term contracts for our infrastructure. And on Keystone XL, which will use a portion of that market linked capacity, we have these 20 year contracts. To the extent that the marketplace requires an additional pipe flowing from Pershing down the Gulf Coast and we can secure long term contracts for that infrastructure, that's certainly business weakness.
Perfect. That's very helpful. I have also one more question on funding. So do you have some color around funding plans should Keystone XL be FID ed? And when you think about your long term target, what's your willingness to consider leverage ratio below 5 times and say 4.35 times?
Thank you.
Yes. It's Don here. I did address that earlier in terms of how we would approach Keystone XL Funding. So I'd refer you to that answer. In terms of the credit metrics, as I mentioned, we will engage the rating advisory services of the credit rating return to high fours debt to EBITDA ratios as a run rate and minimum 15% FFO to debt.
How that works through a construction period is pursuant to discussions between us and the rating agencies.
We have a question from Harry Mateer from Barclays. Please go ahead.
Hey guys, good morning. Just a follow-up to the last question, Not to split hairs, but Moody's has viewed sort of 5 times and above, 5.0 and above as a potential downgrade trigger. So it sounds like maybe a bit of a shift to high 4s, although you're still consistent with 15% FFO to debt. Can you just talk about how you view the value of that A3 rating in Moody's? Is it important or less important given S and P took you guys down early this year and you still have access to low cost debt capital?
Yes. The A rating is important to us, but we'll take a balanced approach to it. If there is a significant moving of the goalpost, there's we need to factor in both equity and debt holders as to how we look at that. The high 4s guidance that we're giving here, we're not going to redline this. The intent is to give us some headroom there.
And it is a very predictable business model. So we can see these cash flows for a very long period of time. So the intent is to be on side with that and the metrics that have been outlined for us. I wouldn't say split rating between S and P and Moody's has changed our philosophy on this at all. So we'll just continue to fund this company the way we've done it for the past 15, 20 years here.
And the right hand side, we put substantial subordinated capital on the books here since the Columbia acquisition. I would say the left hand side of the balance sheet has never been stronger in terms of the asset base and the longevity of the cash flows there.
Okay. Thank you. Thanks, Harry.
Thank you. We have a question from Joe Gamaino from The Morningstar. Please go ahead.
Thank you. I have
a quick question regarding any thoughts that you may have on Enbridge's mainline. If you could expand a little more on what you think about them pursuing long term bigger pay contracts and what impact that may have on the Keystone and Keystone XL?
Because I wouldn't want to comment on projects and pipelines that we're not involved in. What I can tell you, I guess, just to reiterate both my comments and Paul's is the demand for our existing system and for Keystone XL has never been greater. Obviously, you can see by the differentials in the marketplace that the producers want access to markets and are willing to sign long term contracts. So the guidance that we've given you with respect to both fully contracting base Keystone and Keystone XL are consistent with that as we believe that we'll our current operating results would I guess indicate the demand for our system is great today. And what we're seeing from shippers, both producers and refiners that want to contract on a 20 year basis is that, that demand remains strong as well.
And we expect to fully contract. I can't really comment on anybody else's projects though.
All right.
I appreciate that. Thank you.
Okay.
Thanks, Joe.
Thank you. Ladies and gentlemen, the call has now concluded. If there's any further questions, please contact Trans Canada Investor Relations. I would now like to turn back the meeting over to Mr. Morera.
Please go ahead, sir.
Thanks very much and thanks to all of you for participating this morning. We very much appreciate your interest in TransCanada and look forward to speaking with you again soon. Bye for now.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.