Good day, ladies and gentlemen. Welcome to the TransCanada Corporation 2017 first quarter financial results conference call. I would now like to turn the meeting over to Mr. David Moneta, Vice President, Investor Relations. Please go ahead, Mr. Moneta.
Thanks very much. Good afternoon, everyone. I'd like to welcome you to TransCanada's first quarter 2017 financial results conference call. With me today are Russ Girling, President and Chief Executive Officer; Don Marchand, Executive Vice President and Chief Financial Officer; Karl Johannson, Executive Vice President and President, Canada and Mexico Natural Gas Pipelines and Energy; Paul Miller, Executive Vice President and President, Liquids Pipelines; Glenn Menuz, Vice President and Controller. Stan Chapman, who was recently appointed Executive Vice President and President, U.S. Natural Gas Pipelines, couldn't join us today, but will participate in all future calls. Russ and Don will begin today with some opening comments on our financial results and certain other company developments. Please note that a slide presentation will accompany their remarks. A copy of the presentation is available on our website at transcanada.com.
It can be found in the investor section under the heading Events and Presentations. Following Russ and Don's remarks, we will turn the call over to the conference coordinator for questions from the investment community. If you are a member of the media, please contact Mark Cooper or James Miller following this call. They 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 two questions. If you have additional questions, please re-enter the queue. 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, Stuart 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. Finally, 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 EBITDA, comparable funds generated from operations, and comparable distributable cash flow. These and certain other comparable measures do not have any standardized meaning under GAAP and are therefore considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities. They are measures used to provide you with additional information on our operating performance, liquidity, and our ability to generate funds to finance our operations.
A reconciliation to the nearest GAAP measures is included in the appendix. With that, I'll turn the call over to Russ.
Thanks, David. Good afternoon, everyone, thank you very much for joining us on a Friday afternoon. As I've highlighted in the past, again earlier today at our annual meeting, 2016 was truly a transformational year for TransCanada. Our portfolio of high-quality energy infrastructure assets performed very well, our long-term strategy and financial discipline enabled us to undertake unprecedented growth that will reward our shareholders for many years to come. We continue to build on those accomplishments here early in 2017. Evidence of that can be seen in our first quarter record financial results, which support our board of directors' decision in February to increase our quarterly common share dividend to CAD 0.625 per share. That equates to CAD 2.50 per share on an annual basis and represents a 10.6% increase over the dividend in 2016.
During the first quarter, we also continued to advance our CAD 23 billion near-term capital program, spending approximately CAD 1.8 billion. In aggregate, this portfolio of commercially secured and rate-regulated projects remains on time and on budget. In addition, we completed the $920 million U.S. acquisition of Columbia Pipeline Partners. To help fund our capital program, we completed CAD 2.6 billion of external financing across the capital spectrum on very compelling terms and initiated a U.S. $765 million drop-down to our U.S. MLP. Finally, we continue to advance a number of other strategic initiatives that will enhance our competitiveness, and position us for additional long-term growth. I'll touch on each of these developments in the next few slides, beginning with a brief review of our first quarter financial results.
Excluding certain specific items, comparable earnings for the first quarter 2017 were CAD 698 million, or CAD 0.81 per share, an increase of CAD 204 million, or CAD 0.11 per share over the same period last year. That equates to a 16% increase on a per-share basis and reflects the strong performance across the natural gas pipeline business, including Columbia, which we acquired in mid-2016. Comparable EBITDA also increased CAD 475 million to approximately CAD 2 billion, while comparable funds generated from operations of CAD 1.5 billion was CAD 259 million higher than the first quarter of 2016. Don will provide more detail on those financial results in just a few minutes. Before he does, I'd like to offer a few comments on some of the recent developments in each of our businesses, beginning with our natural gas business.
Starting with the U.S. and Columbia, which I am happy to report was essentially fully integrated here early in April, when we added our new employees to an enterprise-wide SAP information system, effectively giving the entire organization the ability to share information and to use similar processes to carry out their work. This was the final major step in our integration process. We are on track to realize the majority of the targeted CAD 250 million in annual synergies in 2017, with the remainder showing up in 2018. On the growth side, we continue to advance Columbia's CAD 7.1 billion of near-term capital by commencing construction on the $1.4 billion U.S. Leach XPress project and the $400 million U.S. Rayne XPress project. Both of those are expected to be in service by November of this year.
We also continue to advance the WB XPress, Mountaineer XPress, and Gulf XPress projects through the various stages of regulatory approval and expect all to be in service in 2018. Turning to Canadian natural gas pipeline business, where we filed an application with the National Energy Board for a variance to the existing approvals for NGTL's CAD 1.4 billion North Montney Mainline project to remove the condition that the project could only proceed once a positive final investment decision was made on the Pacific NorthWest LNG project. North Montney is now underpinned by 20-year contracts with a broader group of shippers and is not dependent upon, but still could accommodate the LNG project. On the Canadian Mainline, we announced the successful conclusion of the long-term fixed-price open season for service from Empress to Dawn.
The open season resulted in binding long-term contracts with Western Canadian producers to transport 1.5 PJ per day for a term of 10 years at a toll of CAD 0.77 per gigajoule. An application was filed with the NEB on April 26 for approval of the service, including a request to have it implemented starting November 1, 2017. These developments on NGTL and the Canadian Mainline support our belief that Western Canada's shale plays, particularly in the areas of Montney, Duvernay, and the Deep Basin, are among the lowest-cost sources of supply in North America. We believe the Western Canadian sedimentary basin gas continues to play an important role in meeting North American demand, which could lead to further growth on the NGTL system, as facilities will be needed to increase access to the main export delivery points in the province.
In Mexico, we continue to advance the Tula-Villa de Reyes Gas Pipeline project, and the Sur de Texas-Tuxpan projects that will see us invest a total of CAD 2.5 billion in three projects, with approximately CAD 900 million being spent to date on those projects. Finally, in the natural gas pipeline business, during the fourth quarter, we continued to advance our MLP strategy. First, we completed the acquisition of all the outstanding publicly held common units of Columbia Pipeline Partners for approximately $920 million U.S. This provides us with 100% ownership of Columbia's core assets and simplifies our corporate structure, leaving us with a single MLP, which is TC PipeLines, LP. Secondly, in February, we offered to sell the interests in Iroquois and PNGTS to TC PipeLines, and yesterday we announced that we had agreed to a sale for those pipelines for $765 million U.S.
That transaction is expected to close in mid-2017, subject to closing conditions. Turning now to liquids, where we continue to advance construction of the Grand Rapids and Northern Courier pipeline projects, which will see us invest a total of CAD 1.9 billion. To date, we've spent CAD 1.7 billion on these projects, with both expected to enter service before the end of the year. Also in liquids, we began to once again advance the Keystone XL project. On March 24, we received the presidential permit, which, as you know, is a significant and long-awaited milestone for this project. In February, we also filed an application with the Nebraska Public Service Commission seeking approval for the pipeline route through the state of Nebraska. The hearing on that application is scheduled in August, and a final decision is expected by the end of November 2017.
In addition, we are updating our shipping contracts for the project, and we anticipate that the core contract shipper group will be modified somewhat and include the introduction of new shippers and the reductions in volume commitments by other shippers. In energy, we continue to advance construction of the Napanee gas-fired power generation facility in Ontario. That plant is expected to be completed in 2018 and is underpinned by a 20-year contract with the Ontario Independent Electricity System Operator or the IESO. Bruce Power's long-term refurbishment program also continues to progress with work on the asset management program advancing as planned in preparation of the first major component replacement, which is scheduled to commence in 2020. Finally, in energy, we continue to advance the sale of our U.S. Northeast Power assets. We completed the sale of the Hydro assets for USD 1.065 billion in April.
The sale of Ravenswood, Ironwood, Ocean State, and Kibby Wind is expected to close in the second quarter of 2017. Proceeds from those transactions will be used to retire the remainder of the Columbia acquisition bridge facilities. In summary, during the first quarter, our high-quality portfolio of energy infrastructure assets continued to produce very strong results. We continue to advance our CAD 23 billion near-term capital program on time and on budget. In total, we invested CAD 1.8 billion during the quarter, principally in expansions of the NGTL and Columbia system, but as well on our Mexican natural gas pipeline projects, regional pipelines projects in Alberta, and the Napanee and Bruce Power projects, bringing the cumulative investment to date in the CAD 23 billion program to approximately CAD 7.5 billion.
The remaining CAD 15 billion required to complete these projects will largely be spent through the end of 2019, and we remain well-positioned to fund the rest of that capital program. To remind you, each of these projects is underpinned by long-term contracts or cost-of-service regulation, giving us good visibility to growth in earnings and cash flow as they enter service between now and the end of the decade. As a result, we expect to continue to grow the dividend at the upper end of the 8%-10% range through 2020, supported by growth in both earnings and cash flow. As a result, we also expect to maintain very strong coverage ratios. Finally, before I pass it on to Don, I'd like to make a few brief comments on our leadership team changes.
First, I'd like to thank Alex Pourbaix, our Chief Operating Officer, for his contributions to the company. He will officially retire from TransCanada on May 31st. As a result of Alex's retirement and the natural evolution of our business, I am pleased to announce that Stan Chapman, a Columbia employee who joined TransCanada in a senior role as part of the acquisition, has been promoted to Executive Vice President and President of U.S. Natural Gas Pipelines. Stan has 30 years of experience in the natural gas pipeline business, and we are very pleased to have him join our executive team. Karl Johannson will continue as President of Canada and Mexico Natural Gas Pipelines and now has additional responsibility for the energy business in place of Bill Taylor, who left the organization to pursue other opportunities.
That concludes my remarks. Now I'll turn it back to Don for some additional comments on our first quarter results. Don?
Thanks, Russ, and good afternoon, everyone. As outlined in our quarterly report to shareholders issued earlier today, we reported net income attributable to common shares in the first quarter of CAD 643 million, or CAD 0.74 per share, compared to net income of CAD 252 million or CAD 0.36 per share for the same period in 2016. Per share amounts include the dilutive effect of issuing 161 million common shares in 2016, plus additional shares issued through the dividend reinvestment program in the first quarter. Our results include a CAD 24 million after-tax charge for integration-related costs associated with the Columbia acquisition, a CAD 10 million after-tax charge for costs related to the monetization of our U.S. Northeast Power business, a CAD 7 million after-tax charge for maintenance of Keystone XL assets, and a CAD 7 million income tax recovery related to the realized loss on a third-party sale of Keystone XL assets.
First quarter 2016 results included a CAD 176 million after-tax impairment charge on the carrying value of our Alberta PPAs, a CAD 26 million after-tax charge related to costs associated with the acquisition of Columbia, a CAD 6 million after-tax charge related to Keystone XL costs for the maintenance and liquidation of project assets, and a CAD 3 million after-tax loss on the sale of TC Offshore, which closed in March 2016. Excluding these items and specific risk management activities, comparable earnings for first quarter 2017 rose by CAD 204 million to CAD 698 million, or CAD 0.81 per share, compared to CAD 494 million or CAD 0.70 per share for the same period last year, a 16% increase on a per share basis. Turning to our business segment results on slide 13. In the first quarter, comparable EBITDA from our five business segments was approximately CAD 2 billion, CAD 475 million higher than the same period in 2016.
The increase was largely driven by the following factors. Canadian Natural Gas Pipeline EBITDA of CAD 504 million rose CAD 16 million. As outlined in the quarterly report, net income for the NGTL System increased CAD 9 million in the first quarter compared to the same period last year, mainly due to a higher investment base and incentive earnings on O&M costs, while net income for the Canadian Mainline increased CAD 2 million due to higher incentive earnings, partially offset by a lower investment base. U.S. Natural Gas Pipelines EBITDA of CAD 720 million increased by CAD 382 million or $292 million, mainly due to the acquisition of Columbia on July 1st, 2016, and higher ANR transportation revenues resulting from higher rates that went into effect on August 1, 2016, as part of its rate settlement.
Mexico Natural Gas Pipelines EBITDA of CAD 140 million increased CAD 87 million or $67 million, primarily due to incremental earnings from Topolobampo and Mazatlan, which began collecting revenue in July and December 2016, respectively. Liquids Pipelines EBITDA rose by CAD 16 million to CAD 312 million, primarily as a result of a higher contribution from Liquids Marketing, partially offset by higher business development costs to advance the Keystone XL project. These positives were partially offset by a CAD 23 million decrease in Energy EBITDA to CAD 305 million. This was primarily a result of lower earnings from Bruce Power, mainly due to lower gains from contracting activities and higher interest expense, and a lower contribution from U.S. Power, largely due to lower realized capacity prices in N.Y. and higher fuel costs and lower generation volumes at our N.Y. and New England facilities.
These negative energy variances were partially offset by a higher contribution from Western Power due to the termination of the Alberta PPAs in first quarter 2016, as well as higher earnings from natural gas storage due to an increase in realized gas storage price spreads. Note that first quarter 2017 Energy EBITDA include a CAD 72 million or $54 million contribution from our U.S. Northeast power assets. As assets held for sale, the generating facilities will continue to contribute to comparable earnings and funds generated from operations through to the date that their sales are completed. Turning to the other income statement items on slide 14. Depreciation and amortization of CAD 510 million in the first quarter increased by CAD 56 million, largely due to the acquisition of Columbia, as well as new assets placed into service.
This was partially offset by the discontinuation of depreciation expense effective November 1st, 2016, on our U.S. Northeast power assets upon their classification as held for sale. Interest expense of CAD 500 million increased by CAD 80 million compared to the same period in 2016, mainly due to debt assumed as part of the Columbia acquisition, along with new long-term debt issuances, including amounts outstanding on the acquisition bridge facilities, partially offset by Canadian and U.S. dollar-denominated debt maturities. Allowance for funds used during construction, or AFUDC, was unchanged year-over-year.
Comparable interest income and other decreased by CAD 42 million in the first quarter compared to the same period in 2016, due to the net effect of realized losses in 2017 compared to realized gains in 2016 on derivatives used to manage our net exposure to foreign exchange rate fluctuations on U.S. dollar-denominated income and the impact of currency fluctuations on the translation of foreign currency-denominated working capital. With respect to sensitivity to foreign exchange rates, our U.S. dollar-denominated assets, including our interest in Mexico, are predominantly hedged with U.S. dollar-denominated debt and the associated interest expense. We actively manage the residual exposure on a rolling one-year forward basis. Comparable income tax expense of CAD 244 million in first quarter 2017 was CAD 64 million higher than last year.
920The increase was mainly a result of higher pre-tax earnings in 2017 compared to 2016 and changes in the proportion of income earned between Canadian and foreign jurisdictions. Net income attributable to non-controlling interests increased by CAD 10 million for the three months ended March 31, 2017, compared to the same period in 2016, primarily due to the acquisition of Columbia, which included a non-controlling interest in CPPL. As Russ noted, on February 17th, 2017, we acquired all outstanding publicly held common units of CPPL for $920 million. Finally, preferred share dividends increased by CAD 19 million for the three months ended March 31, 2017, compared to the same period in 2016, primarily due to the issuance of Series 13 and Series 15 preferred shares in April and November 2016, respectively. Now moving to cash flow and distributable cash flow coverage ratios on slide 15.
Comparable funds generated from operations of approximately CAD 1.5 billion in the first quarter increased by CAD 259 million compared to the same period in 2016, primarily due to the increase in comparable earnings. For the first quarter, comparable distributable cash flow was CAD 1.2 billion, or CAD 1.41 per common share, compared to just under CAD 1 billion, or CAD 1.39 per common share in 2016. Again, note that comparable distributable cash flow per share in 2017 included the dilutive effect of issuing 161 million common shares in 2016, as well as drip participation in Q1 2017. Maintenance capital expenditures were CAD 167 million in the first quarter, or CAD 23 million less than the level of spend last year. This amount includes CAD 49 million related to our Canadian regulated natural gas pipelines, which is largely consistent with first quarter 2016 and is reflected in the NGTL and Canadian Mainline rate basis, which positively impacts net income.
Maintenance capital of CAD 70 million on our U.S. natural gas pipelines was similar year-over-year. A reminder that ANR maintenance capital is expected to be at elevated levels through the balance of 2017, and we'll earn a return on and of capital per last year's rate settlement. While our first quarter DCF coverage ratio of 2.3 times was very robust, looking forward, we expect our maintenance capital spend to increase over the coming quarters, primarily in our regulated natural gas pipelines in both Canada and the U.S. As a result, we continue to expect our full-year 2017 distributable cash flow coverage ratio to be in line with our outlook provided on the fourth quarter call in February. Finally, a few words on the progress we have made in financing our CAD 23 billion capital program.
We believe our funding needs are manageable and will be met through our predictable and growing internally generated cash flow, as well as a variety of financing levers available to us across the capital spectrum. As I mentioned, comparable funds generated from operations continues to grow. In the first quarter, we generated CAD 1.5 billion of FGFO and exited the period with approximately CAD 900 million of cash on hand. We also completed a significant amount of external financing on compelling terms. In March, we raised USD 1.5 billion through an offering of 60-year junior subordinated notes. These notes have a fixed interest rate of 5.3% for their first 10 years, converting to a floating rate thereafter. Interest expense on these notes is fully deductible, and they are accorded 50% equity credit in the calculation of our key credit metrics.
Also in the quarter, Bruce Power issued seven and 10-year senior unsecured notes and subsequently distributed CAD 362 million from this financing activity to us. As highlighted in previous calls, TC PipeLines, LP remains a core element of TransCanada's strategy, and future drop-downs of stable, mature assets are expected to play a role in meeting our consolidated financing needs. Consistent with this, in February, we made an offer to sell a 49.3% interest in Iroquois and our remaining 11.8% interest in the PNGTS system to TC PipeLines, LP. Yesterday, we announced that we reached agreements to sell these interests for a total transaction value of USD 765 million and expect to close mid-year 2017. Proceeds, net of proportionate debt assumed, are expected to be USD 597 million. As Russ indicated, subsequent to quarter end, we closed the sale of our U.S. Northeast hydro assets for USD 1.065 billion.
Proceeds were applied to the Columbia acquisition bridge facilities. The remaining balance on these lines of approximately USD 2.1 billion will be retired once we close the sale of the remainder of the U.S. Northeast Power thermal and wind assets, which is expected to be completed in the second quarter. Our dividend reinvestment plan also continues to provide incremental subordinated capital in support of our growth and credit metrics. We are currently seeing approximately 40% of common dividends being reinvested into common shares under the program. Looking forward, we expect to continue to access the senior debt hybrid and preferred share markets in a manner that is consistent with achieving targeted A-grade credit metrics in 2018. We also continue to assess the potential introduction of an at-the-market equity program.
Use of an ATM would allow us to opportunistically issue common shares in a very cost-effective, efficient manner, and as necessary, provide additional bespoke subordinated capital to support an A-grade credit rating and our capital expenditure program over the next two years. We have successfully used an ATM at TC PipeLines, LP since 2014, and in the first quarter raised an additional USD 69 million at that entity. Use of an ATM program will be shaped by our spending profile as well as the availability and relative cost of the other funding mechanisms discussed. In summary, while our external funding needs are sizable, they are viewed as eminently achievable given the clear, accretive, and credit-supportive use of proceeds.
With the dividend reinvestment plan, access to preferred share and hybrid security markets, LP drop-downs, and the potential selective use of an ATM program, we do not foresee the need for additional discrete equity to finance our current CAD 23 billion portfolio of near-term growth projects. Turning now to slide 17. In closing, I would offer the following comments. Our positive financial and operational performance in the first quarter continued to build upon our transformational 2016. Today, we are advancing a CAD 23 billion near-term capital program and have five distinct platforms for future growth in Canadian, U.S., and Mexico natural gas pipelines, liquids pipelines, and energy. Our overall financial position remains strong, supported by our A-grade credit ratings and a simple, understandable corporate structure. We remain well-positioned to fund our near-term capital program through resilient and growing internally generated cash flow and strong access to capital markets on compelling terms.
Our suite of critical energy infrastructure projects is poised to generate significant growth and high-quality earnings and cash flow for our shareholders. That is expected to support annual dividend growth at the upper end of an 8%-10% range through 2020. Success in adding to our growth portfolio in the coming years could augment or extend the company's dividend growth outlook through 2020 and beyond. That's the end of my prepared remarks. I'll now turn the call back over to David for the Q&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 two questions, and if you have additional questions, please reenter the queue. With that, I'll turn it back to the conference coordinator.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Robert Hope of Scotiabank. Please go ahead.
Yes. Good afternoon. Thank you for taking my calls. I was hoping Or my questions. I was hoping we could first touch on Keystone XL. Could you provide an update on the key work streams there and how your discussions have been going with potential shippers there, especially in the light of a uncertain D.C. election?
Rob, it's Paul Miller here. The key work streams, I guess there's two primary work streams, that being securing the commercial support for Keystone XL and the Nebraska Public Service Commission approval for the route through that state. In regard to the shipping contracts, we are making progress with our existing shipping group as well as new entrants as they work through their analysis and the documentation. A lot has changed since we were first denied the permits here in 2015 in regard to crude oil pricing and supply and various competitive alternatives. They continue to work through that, and I anticipate it'll take a couple of months yet before we firm up our commercial support. On the Nebraska Public Service Commission, we filed our application back in February. We are going through various open houses. One most recent here was on Wednesday of this past week.
I was very encouraged by the format and the structure and the organization of the process by the Public Service Commission. We saw participants from both sides respectfully convey their positions. I think it'll be a very robust exercise. I would anticipate a second open house here in the next month or so. Finally, we would see the hearings conducted in early August in Nebraska, with the decision received by the end of November.
All right. That's helpful. Then I believe the messaging on the Q4 call was that even with a Nebraska decision late in 2017, the project may not necessarily start construction until well into 2018. Is that still the expected timeline there, or could you move that forward or backwards?
No, that continues to be the timeline. We will work through Nebraska. We will work through our commercial negotiations with the shippers. Once we have certainty on both, in early 2018, I would anticipate we would start staging the project as far as securing what material we still have to secure as well as the contractors. That exercise will take upwards of 6 to 9 months. I would not see construction starting until that sort of Q3 time frame of 2018, and construction would take probably a little over two years.
All right. That's helpful. Thank you.
Thank you.
Thank you.
Next.
The following question is from Linda Ezergailis of TD Securities. Please go ahead.
Thank you. Just wanted to maybe shift focus a little bit on some of the elements of your financing strategy. With respect to your U.S. power marketing business, will that be sold in Q2 as well? If not, how might we see it run down over time? Is it still about a CAD 400 million value that will be kind of realized over the next couple of years?
Hi, Linda, it's Don here. Yeah, it's under a couple paths here. We continue to actively look at a sale process as well as full monetization over time as a dual path here. We expect to realize proceeds, as we had indicated before, in that CAD 400 million range, and that will crystallize over time. We have seen a little bit of that come through now that has been applied to the bridge loan. Generally, really no change from what we indicated earlier. We don't have a definitive line of sight to whether that will be a monetization over time or a single point sale.
Okay. Thank you. Maybe just a question on the CAD 23 billion of projects. For some of the larger initiatives, what would be kind of some of the key potential bottlenecks? I guess I'm specifically thinking of with some of the changes going on at FERC, how long can that drag on before that starts to affect the timeline of the projects?
Linda, it's Karl. I think we talked about on this previous call that with the lack of quorum there. I see they've lost another board member, the lack of quorum is not getting better. We have what I'd call three significant projects in the queue that are going through the regulatory process right now. Our expectation, we were expecting earlier to get the FERC approvals by the end of June. Realistically, if we can get them by the end of summer, I think we're in pretty good shape. Quite frankly, if they can't get a quorum we can't get them by the end of summer, we're going to have to start revisiting the in-service dates on those. We still have several months yet to get them, we're still optimistic we'll be able to get them by the end of the summer here.
Great. Thank you.
Thanks, Linda.
Thank you. The following question is from Praneeth Satish of Wells Fargo. Please go ahead.
Thanks. Just one quick question from me. Can you just remind us again your ability to recover development costs for the West Coast LNG projects? I think in the past, you talked about CAD 900 million in total. I guess just given recent announcements, would you expect to collect this? If so, what's the timing?
Hi. Yeah, it's Karl again. We have provisions in our agreements with the sponsors of those projects that we can collect all of those monies. There are certain dates in which we can call them back from the companies, which we haven't done at this time. We are quite confident that we can get those monies back in due course. Having said that, I would just say that both of our sponsors are still quite optimistic that they will ultimately provide an FID. We still are doing a little bit of work on the projects. The work has slowed down quite a bit. Your number of CAD 900 is approximately right.
Okay, great. Thank you.
Thanks.
Thank you. The following question is from Ben Pham of BMO. Please go ahead.
Okay, thanks. Good afternoon. This question is for Russ Girling. Just thinking about some of your comments about the organizational structure, you've had some pretty dramatic changes at the VP director level last year and the senior levels more recently. I'm just curious, as you've gone through that process and seeing Alex leave here, I'm more curious about how you got to the decision of not needing a replacement for him. Is this company now that structure, that position, you're pretty comfortable with it for over the next few years?
I guess maybe to start with, yeah, I'm very comfortable with the structure of the organization. All of these things are natural evolutions at a company that's grown as considerably as we have over the last number of years. Today, as I mentioned in my prepared remarks, we have five significant platforms for growth. These are all sizable businesses that produce CAD 1 billion to CAD 2 billion each of EBITDA. Each of those has a President in charge of it that has now responsibility for all aspects of its business. We reorganized and decentralized here over the last 24 months. They're responsible for operations in all of their embedded services as well as capital projects. A bit different sort of approach than we've taken in the past.
As the company's grown, we've decentralized to put decision rights and accountability in the hands of folks that are closer to the action and can make better and more efficient decisions. The changes that have been made are what I call natural evolution. We have a very strong bench and depth in our organization. We will continue to evolve our organization as our business changes. As I look at it today, the change that we announced here most recently with Stan Chapman being promoted to Executive Vice President and President of U.S. Gas is just a reflection of the size of that business. Half of our employees are now in the U.S., half of our EBITDA, half of our revenues. It's natural that we need a person based in Houston that is part of our executive leadership team.
Stan Chapman, as I said, has got 30 years of experience. Deep bench and natural evolution of management. I guess in terms of looking forward, you can expect us to continue to evolve our management team to meet our business. As I said, I'm very proud of the accomplishments of the folks that have left, but equally proud of the bench that we have and the strength of our team to evolve with our business.
Okay. Great. Maybe this question is for Don Marchand and some of the commentary on the TCP pipes and the strategy there. I'm just wondering, beyond the CAD 1 billion target you've highlighted, just curious what just some other things that you look at when considering drops going forward. Is it looking at accretion at the drop, or can it be liquids rather than just gas drops? Maybe just share what else that you look at when considering drops to TCP.
The inventory's pretty deep. When you look at what's left of the legacy TransCanada assets that are qualifying assets, including the balance of Great Lakes, some of the stuff that's come in with Columbia, such as Millennium, the Columbia portfolio itself as it is built out. The inventory of gas assets is very large. Liquids pipes are a qualifying asset for MLPs. That said, I'm not sure they would be fully described as mature assets given the opportunity to potentially build out XL here. We don't have any specific color coding of what sequencing or when this might happen. The first point I'd make is that there's a huge inventory of stuff that could ultimately go into TCP Pipe LP. Our thought process as to when and what goes in, there's a number of factors that go into that.
Firstly, it's driven by our financing needs at big TransCanada. It is a financing vehicle. I'll speak about other growth possibilities for it in a second here, but the financing needs at the parent company are a pretty important component of this. In terms of the price at which we set these drops, it is a balancing act. We don't want to be transferring value from one shareholder base to the other at any point in time. It is always a balancing act. In terms of moving forward on that, the Pipe LP drops, what we do is we compare them to other forms of capital that we can raise, and things in that camp would be, say, preferred shares here in Canada, probably something in the mid 4s after tax right now.
Hybrid securities, which is a very attractive vehicle right now for us, probably something in the five area pre-tax, 3%, high 3% area after tax, additional portfolio management, and the like. An LP dropdown would be weighed against those factors. Other key things in that would be what is the unit price of the LP and what is the capacity of the LP. Probably a long-winded way of saying there's a whole lot of moving parts here. We do see it as an important vehicle going forward from a financing perspective. As well, we'd like to grow the LP through high quality but smaller scale acquisitions, if we could, going forward. We will do that on a disciplined basis. Stuff that may not move the dial at the parent company that might be a real good fit for the LP is what we'd be focused on there.
Okay. Can I follow up? Are you always looking at accretion at the TCP level, but then when you bring it back to the corporate side, maybe on paper it's neutral to EPS, but then when you factor in opportunity cost of financing, maybe it's accretive to you overall?
Yeah, that's a fair comment. We're always looking at share count at the parent company. If the LP issues third-party equity, that is treated as dollar-for-dollar equity in calculating our credit metrics at the parent company. It's avoided cost of equity and avoided share count increase at the parent. That's a pretty important factor here.
I think as well, Ben, if you Don, those are our criteria, but all the transactions that we've done to date have been accretive to the parent. The other piece that you have to take into consideration is the distribution splits at the LP level in calculating the accretion of the dropdown to parent. Overall, we look for accretion, but as Don said, primarily driven off of our financing need and how that cost of capital compares to other costs of capital. To date, we've been pretty fortunate. Everything that we've done in our view has been accretive.
Okay. All right. Thanks, guys. Thanks, Don.
Thanks, Ben.
Thank you. The following question is from Robert Kwan of RBC Capital Markets. Please go ahead.
Good afternoon. If I can just ask about some potential on the NGTL expansion first, whether there's some color you can give on the West Pass open season, as well as it relates to the Mainline LTFP deal. What do you see in terms of additional investment as you think about expansion for delivery service as well as expansion upstream of James River?
Robert, it's Karl. As you obviously noticed that this week we put out a new open season for our West Pass deliveries, up to 400 million a day. We'll see how that open season comes. We do have two things. We've got customers asking for more delivery service, which this open season is meant to take care of. We have a queue of customers looking for receipt services still upstream in the Montney area and in the oil or the gas shale area. We will assess the response to the open season we put out, we will assess the amount of receipt services that we need to put in, and we'll be back to the market shortly thereafter with our plans.
I can say it's probably if we have success on this particular open season and with the resulting new receipt service that brings on, it'll be a billion-plus type of expansion, construction starting in probably late 2018, early 2019.
Okay. Sorry, Karl, was that just for the West Pass, or did that include the upstream James River as well as any delivery expansion you might need into Empress?
Yeah, no. That would include the West Pass and any resulting new receipt services that comes on for the West Pass. That would not be an expansion to the East Gate at this time.
Okay. Do you need anything on the East Gate to serve the LTFP deal?
No, not at this time. We have capacity for the East Gate. Our volumes are growing large enough that I would expect at some point in the future we might need some extra compression support for the East Gate, but we certainly have enough right now for long-term fixed price and some future growth of East Gate deliveries beyond that.
Got it. Okay. If I can just finish here with Keystone XL. The commentary about substantially similar customer support, I'm just wondering, is that both volumes and toll? As for cost, Russ, you mentioned at the AGM that the cost could actually be a little bit lower. I'm just wondering, was that a statement around the gross cost, or is that net inclusive of the write-down?
I'll start with the first one is, it would be on the gross cost. Certainly, my job is to push our team to make this as economic as possible for our shippers. Certainly, that's the directive that I've given to Paul and his team, and they're working hard to make that happen. I'm optimistic it can occur. With respect to the contract, I'll turn it over to Paul, and he can talk about where we're at on the contract.
Sure, Robert. We do anticipate ultimately, while we are targeting to secure the contracted volume we had previously as we potentially move forward with Keystone XL, I do anticipate some of the current shippers will increase their commitments. I also anticipate some of the current shippers may decrease their commitments as they look at their total transportation requirement. I would also anticipate that we will introduce new parties into the shipper group. The net result of this is we do anticipate to have contractual support similar to what we enjoyed previously, albeit amongst a different shipper group.
Okay. Just to be clear, roughly speaking, 90% of the capacity at a very similar toll to what you had prior?
That's what we'd be targeting. Our goal is to fully contract XL. As you know, we have to set aside some capacity for the spot shippers, and we'll certainly do that. Our toll remains competitive, notwithstanding the delay. With the good CapEx cost management Russ talked about, we will keep our toll in line.
That's great. Thank you very much.
Thanks, Robert.
Thank you. The following question is from Robert Catellier of CIBC World Markets. Please go ahead.
Hi. I was just hoping to get a little bit of follow-up on West Coast LNG. Let's start with the North Montney request for variance. Do you see anything getting in the way there? What are sort of the milestones when you expect an outcome there? Just secondly, with respect to the success of Canadian LNG projects, can you comment on that both in an environment with an NDP government and without? In other words, what's really holding these projects back? Is it simply a question of the proponents getting comfortable with the market?
Hi, this is Karl again. Maybe I'll start with the North Montney. We have put in our application for a variance review. What we are trying to do is ask the board to release a condition on our approval we have already received for it, and that condition is that the LNG goes ahead. When we originally submitted that application for approval, we had one shipper, and that gas was deemed to go into the LNG terminals. Today, we have 11 shippers, one of which is the LNG proponent. We have 11 shippers that want to move gas into the markets right now, and they've all signed very long-term agreements. We believe the circumstances have changed enough that this facility is not necessarily dedicated to any LNG facility, and we're asking the NEB to recognize that. To lift that condition.
The process for it right now is the NEB has come out and asked for comments on the process to looking at it. That process can be another hearing, or it can be just the NEB opining on it by themselves as to whether they want to accept the variance or not. They have suggested that through May and the first half of June, interested parties can submit their questions and concerns and positions, and that the board should respond as to what the process will be by the end of June. That's about as much as we know about the process right now. On Canadian LNG projects with whatever government it is, I would remind you that both of these LNG projects have very strong support from both the Aboriginal communities and local communities that they're in right now, and they're both fully permitted.
I think they're both relying on FID decisions from the sponsors. It's really difficult for me to comment on what a sitting government of any particular party would want to do with those approvals, but it strikes me that this is more of an economic situation right now that the proponents are looking for and not a political one.
Okay. Thanks for that answer.
Thanks, Rob.
Thank you. Once again, please press star one at this time if you have a question. The following question is from Patrick Kenny of National Bank Financial. Please go ahead.
Good afternoon, guys. A quick question for Karl here on the gas storage margins. Now three relatively strong quarters in a row. Just wondering if you can remind us of some of the positive market dynamics that are at play right now, helping out contributions, and then maybe to the extent you can, how you see the market for storage and spreads through the summer and into next winter.
A couple of things that's happening. We have had some good quarters on storage margins both in Alberta and down in the U.S. I would say that this warm winter probably hasn't helped them a lot. We have quite a lot to fill in Alberta, for example. We have a lot of gas leaving Alberta with the long-term fixed price deal come the fall. We may not get that storage filled up again. I would suggest that what we've seen is probably what we're going to get, maybe not better, but it's not going to be a lot worse. We do have a little bit of headwinds on that just because of the warm winter and the extra gas we're taking out of Alberta with the long-term fixed price. In the U.S., a bit of a different situation.
The storage in the U.S. is highly contracted with LDCs. It tends to be a little bit more consistent. Certainly, on the ex-Columbia assets, it's very full with LDC contracts. Even on the old TransCanada assets, ANR specifically, still a lot of LDC contracting. Probably less volatility there, less price-sensitive storage there. The fundamentals that I think on storage right now that is important is the surplus gas production. As the gas production does go up, you do need more storage. There is more of a need to manage volume swings, long metric swings, because the gas is coming at you every day. We're still pretty satisfied with the storage business at TransCanada. We still think there's a need for storage. Then with the increasing gas price, we see the utility storage staying the same, if not getting better in the long term.
All right. Thanks for those comments. Just maybe a cleanup question on Columbia. I know, Russ, you mentioned that synergies are on track here as expected, but are you at the full $125 million run rate coming out of Q1, or do you still need a couple of quarters to get there?
Actually, it's Don here. We're not at the full $125 right now, but we got a healthy chunk of that in the first half of this year. It'll still be a ramp-up through the rest of the year, but we're on track for $125 for the year, but not at a full run rate yet.
Got it. Thank you very much.
Thanks, Pat.
Thank you. The following question is from Nick Raza of Citi. Please go ahead.
Thank you, guys. Just a couple of quick follow-up questions. The Great Lakes rate case, how will the rate case go with TransCanada contracting what's essentially a fairly large chunk of capacity on the system? Do you have any views on that?
A couple of things. Karl again. A couple of things on that. First of all, as you've obviously seen, we have filed with the NEB that we have completed a contract with Great Lakes to move approximately half of the volumes from the LTFP through Great Lakes. We did that because taking that volume over the northern part of our Mainline system and into the triangle could not accommodate all of that volume going into Dawn through the triangle. That's why we've done that. Both the Mainline and Great Lakes are in rate cases right now. The Mainline obviously has to go get approval for the service that we're offering, and as part of that service, the board will be interested in the prudence of how we're splitting the volumes between our Mainline and Great Lakes.
Great Lakes is in a rate case, the regular five-year rate case, so to speak, right now. It's very difficult for us to say right now what those approvals will ultimately look like and what the rate cases on Great Lakes or the settlements on Great Lakes will look like as well. It's a little premature to start speculating on how we're going to come out of both of those rate cases. We'll have to wait and see as both of those rate cases get settled or litigated.
Okay. Thank you, guys. Just one final question. In terms of expansions for Iroquois and Portland Natural Gas, are there plans to do anything as now the assets are completely in TC PipeLines, LP?
Well, it's Karl again. I think the short answer is yes. I don't think the fact that they're in TC PipeLines, LP has any bearing on whether there's plans on expanding them or not. Certainly, if there is a demand for extra capacity going down those facilities, us and TC PipeLines, LP will be anxious to fill that demand. I can tell you, we have been in the market with PNGTS, with the Portland system, marketing some capacity there, some increased capacity there for when the contracts roll off in 2018. We have gotten significant interest. Not enough yet to get contracts signed and announce anything, but there is significant interest there. Of course, once we sell PNGTS, we will see we will need more capacity going down the Mainline and TQM and Eastern Triangle of the Mainline. I think it's pretty much business as usual there.
If we can find more capacity, more customers willing to ship on our systems, we will accommodate them.
That's all I have. Thank you, guys.
Thank you. If there are no further questions registered at this time, I'd like to turn the meeting back over to Mr. Moneta.
Great. Thanks very much, and thanks to all of you. We very much appreciate your interest in TransCanada, and we look forward to speaking to you again soon. Have a great weekend. Bye for now.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.