TC Energy - Q1 2023
April 28, 2023
Transcript
Operator (participant)
Thank you for standing by. This is the conference operator. Welcome to the TC Energy first quarter 2023 financial results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.
Gavin Wylie (VP, Investor Relations)
Yeah, thanks very much, and good morning, everyone. I'd like to welcome you to TC Energy's 2023 first quarter conference call. Joining me are François Poirier, President and Chief Executive Officer, Joel Hunter, Chief Financial Officer, along with other members of our senior leadership team. François and Joel will begin today with some comments on our financial and operational results. A copy of the slide presentation that will accompany their results is available on our website under the investors section. Following the remarks, we'll take questions from the investment community. We ask that you limit yourself to two questions. If you're a member of the media, please contact our media team. Before François begins, I'll remind you that remarks today will include forward-looking statements that are subject to important risks and uncertainties.
For more information, please see the reports filed by TC Energy with the Canadian Securities Regulators and with the US Securities Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. These measures are used to provide additional information on TC Energy's operating performance, liquidity, and its ability to generate funds to finance its operations. A reconciliation of various GAAP and non-GAAP measures is contained in the appendix of the presentation. With that, I'll turn the call over to François.
François Poirier (President and CEO)
Good morning, everyone. I'm pleased to report that our strong financial performance in 2022 has continued into the first quarter of 2023. High utilization and availability across our system have enabled us to generate exceptional results in the first quarter. This is a testament to our people, the continued strong demand for our critical energy assets, and the resiliency of our low-risk business. For the remainder of 2023, our priorities are clear. First, executing on our major projects, an industry-leading high-quality secured capital program. Second, accelerating our deleveraging targets by advancing our $5+ billion asset divestiture program, which we expect to complete throughout the year. Third, safely and reliably operating our assets that provide essential energy services across North America. We firmly believe that achieving these priorities will unlock value and maximize shareholder returns.
Based on our strong start to 2023, we reaffirm our 2023 comparable EBITDA outlook of 5%-7% higher than in 2022. Underpinned by our focus on strong operational performance, first quarter results had comparable EBITDA up 16% from the same period last year, while comparable earnings per share rose by 8% year-over-year. During the quarter, we placed a total of CAD 1.4 billion of projects in service, and we remain on track to place CAD 6 billion of assets in service during 2023. In Canada Gas, we brought CAD 1.1 billion of projects into service, further adding incremental market access for our customers in the basin. In March, we also placed the Port Neches Link pipeline into service under budget, extending our Keystone system to include last mile connectivity to the largest refinery in North America.
In our U.S. Natural Gas business, 2022 was a record year in terms of compressor reliability across our fleet. So far in 2023, we are on track to meet or even exceed that performance. This year, we've set a multiple of all-time records for deliveries to LNG export facilities, reinforcing the criticality of our assets. In Power and Energy Solutions, Bruce Power delivered exceptional availability of 95%, and we expect 2023 to average in the low nineties. Unit 6 MCR is proceeding on schedule and on budget and is now in the final stages of the installation phase. Execution of our major projects is our central priority for 2023. I'm pleased to share that Coastal GasLink is continuing along our revised cost and schedule and progressed through the winter on plan.
We accomplished several major milestones with the overall project now 87% complete. Approximately 570 of the 670 km of pipeline has been backfilled, and restoration activities are underway in many areas. Commissioning work on the Wild Lake Compressor Station has begun. Natural gas has been introduced as part of the transition of the facility to operations. More than 85% of all classified water crossings are now complete. We have safely completed the excavation of Cable Crane Hill ahead of schedule. Continue to target mechanical completion by the end of the year. Our second offshore project in Mexico, the Southeast Gateway Pipeline, is also proceeding according to cost and schedule. We've achieved our first milestones with the acquisition of land for compressor stations and offshore landfalls.
We've obtained key federal environmental authorizations and local permits for the project. Critical long lead items, including the offshore vessel, have been secured and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer. In fact, civil work has already begun, and our offshore pipe installation will commence toward the end of 2023. As a reminder, approximately 70% of the total project costs are under fixed-price contracts, providing greater certainty around cost and schedule, and we continue to target completion by mid-2025. Following the Milepost 14 incident on the Keystone system in December, we've been diligently working to restore the area to its original state. We're pleased to report that we've recovered over 98% of the released volume.
A big thank you for the continued support from the Washington County community. We are dedicated to ensuring the affected area is fully restored. We've received the independent third-party root cause analysis. With these findings, we are committed to implementing a comprehensive plan to enhance our pipeline integrity program and overall safety performance. Looking to the future. Our North American footprint means we have access to a diverse set of high-quality growth opportunities, and this is a high-grade problem to have. We must consider both financial and human capacity when evaluating incremental projects. We recognize we are in a period of increased development spend. Post-2024, we are committing to limiting annual sanctioned capital expenditures to $7 billion or less.
In fact, we will strive to manage annual capital spending to approximately CAD 6 billion, providing the flexibility to further reduce leverage or buy back common shares. When sanctioning new projects, a key consideration will be the timing of the capital spend, and it must fit within our annual capital expenditure parameters and deleveraging targets. We've also enhanced our governance practices and placed higher standards around sanctioning large or complex projects. That includes the requirement for a Class 3 estimate as well as an independent third-party assessment, as was the case with the Southeast Gateway. As always, we'll continue adhering to our long-established risk-return preferences. I'll highlight that 98% of our secured capital program is underpinned by long-term take-or-pay contracts or rate regulation, where we take no commodity price or volumetric risk.
The resiliency of our business and capital allocation strategy is supported by a long-term view on energy fundamentals. That aligns well with our current portfolio as well as our sanctioned projects. We will intentionally migrate our portfolio composition, gradually over time, with an emphasis on building firm capacity in areas such as nuclear, pumped storage, hydrogen, and carbon transportation and sequestration. Renewable energy will play a complementary role in our decarbonizing of our own assets. We can also extend that service and product to our customers. However, the pace at which we allocate capital to these areas will ultimately be driven by their affordability, their reliability, and their sustainability. Thanks, I'll now turn the time over to Joel.
Joel Hunter (Executive Vice-President and CFO)
Thanks, François. Building on the record results we achieved in 2022, we set a new quarterly record during first quarter 2023 that reflects high utilization, availability, and continued operational performance across our asset base. First quarter 2023 comparable EBITDA was up 16% year-over-year, with comparable earnings growth of 12% and 8% year-over-year increase in comparable earnings per share. We continue to demonstrate the certainty and stability of our cash flow growth that reflects our assets being over 95% rate regulated or underpinned by long-term contracts. Our strong performance during the quarter was driven by a combination of the strength in our North American natural gas pipelines, along with higher contributions from our Power and Energy Solutions business.
Our rate-regulated Canadian Natural Gas Pipelines saw a year-over-year increase in net income of 11%, primarily driven by growth in the NGTL system average investment base. Average NGTL system deliveries rose year-over-year, reaching 14.5 billion cubic feet per day. 14% growth in our U.S. natural gas pipelines comparable EBITDA was largely due to higher earnings from ANR following the FERC-approved rate case settlement, as well as contributions from growth projects placed in service. Throughput for the quarter averaged 28.5 billion cubic feet per day, with several of our assets performing at near record levels when demand was at the highest. In Mexico, comparable EBITDA increased 16% year-over-year, reflecting the north section of the Villa de Reyes Pipeline and the east section of the Tula Pipeline that were placed into commercial service last year.
Year-to-date, the operational reliability of the Keystone system has been more than 95%, supporting the safe and reliable delivery of all contracted volumes for our customers. Power and Energy Solutions generated outstanding results with a 79% increase in comparable EBITDA year-over-year. In February, our Alberta cogeneration power fleet reached 100% peak price availability for the first time in company history while pricing remained strong, averaging CAD 142 per megawatt-hour. Bruce Power achieved 95% availability during the quarter, with fewer plant outage days and higher contract pricing relative to first quarter 2022. We are reaffirming our expected 2023 comparable EBITDA growth of 5%-7% compared to 2022. We also expect comparable earnings per common share to be modestly higher. We are confident in this outlook despite the environment of rising interest rates and inflation.
As a reminder, any fluctuations in these variables and other factors could impact our 2023 outlook, and we will look to revise throughout the year if necessary. Global markets have been experiencing heightened volatility, and I want to take a moment to discuss the confidence I have in our outlook and ability to meet our financing requirements. The chart on the left highlights the rapid increase in rates during 2022, which were similar across the curve, driving the year-over-year increase in interest expense. However, we are beginning to see 10-year government bond yields moderate from their recent highs. We continue to demonstrate cost-competitive access to capital markets as evidenced during Q1 when we executed over CAD 6.5 billion of new issuance across a variety of maturities and geographies. The fixed rate debt tranches of these issuances have a weighted average cost of 5.6%.
We have a manageable debt maturity profile with a weighted average maturity of approximately 18 years and average pre-tax coupon of approximately 5%. Roughly 15% of our debt portfolio is exposed to floating interest rates. We have programs in place to actively manage our exposures. Turning to our funding program. A key priority for us is capital discipline. Without sacrificing operational safety or reliability, beyond 2024, we will manage our annual sanctioned capital spending to CAD 7 billion or less, inclusive of maintenance capital. As François mentioned, we will strive to manage annual capital spending to approximately CAD 6 billion. This enhances our financial strength while providing optionality to further deleverage or buy back shares. I'll note that the sources and uses outlined on this chart do not include the impact of potential asset divestitures that are expected to be realized through 2023.
You can expect our incremental funding requirements to be reduced as our asset divestiture program progresses, allowing us to further accelerate our deleveraging target. With respect to the dividends declared on February 13, 2023, the participation rate in our dividend reinvestment plan was 38%, resulting in approximately CAD 360 million reinvested in common equity under the program. The discounted dividend reinvestment plan is expected to be in place through dividends declared for the quarter ending June 30, 2023. I want to bring to your attention two charts that truly capture the resiliency of our value proposition. TC Energy's board of directors has declared a second quarter 2023 dividend of CAD 0.93 per common share, which is equivalent to CAD 3.72 per share on an annual basis. We have delivered strong results.
This is a testament to the strength of our utility-like business model, our unwavering focus on safety and operational excellence, and North America's increasing demand for our essential services. We have created significant shareholder value despite market volatility and macroeconomic challenges. I'm confident that we'll continue to do so. Thank you. I'll now pass the call back to François.
François Poirier (President and CEO)
Thanks, Joel. In summary, our priorities for the year are clear. Continue to execute on our major projects, such as CGL and Southeast Gateway. Accelerate our deleveraging targets by managing our capital spending and advancing our asset divestiture program. Third, achieving safe, reliable, and sustainable operations and our focus on operational excellence to drive higher returns. To reflect our commitment to these priorities and to better align with our shareholders, we have introduced new performance measures that explicitly tie executive compensation to cash flow per share, deleveraging, and greenhouse gas emission reduction targets. I'm confident that the future opportunity set, combined with our capabilities and reflecting capital discipline, will unlock additional value and deliver superior shareholder returns well into the future. Thanks. I'll now turn the call back over to the operator for questions.
Joel Hunter (Executive Vice-President and CFO)
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad.
Operator (participant)
You will hear a tone acknowledging your request. Please limit your questions to two. If you should have additional questions, please re-enter the queue. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Rob Hope with Scotiabank. Please go ahead.
Rob Hope (Managing Director, Equity Research)
Good morning, everyone. First question is just on capital allocation. In the prepared remarks, it was noted that, you know, sanctioning new capital must fit with the financial capacity of the organization. You know, while small, how does the wind acquisition fit with this? Why not pursue a more capital-light strategy for your renewables here, just given you are selling some assets?
Corey Hessen (SVP and President, Power and Storage)
Good morning, Rob. This is Corey Hessen. These opportunities are the product of a 2022 process that's closing in 2023 and was already in our capital plan. These are high-quality operating assets with best-in-class equipment, generating immediate EBITDA for the enterprise. We have a long-term service agreement, in excess of 15 years with the original equipment manufacturers for both locations that include availability guarantees for both facilities. We're in advanced discussions with creditworthy counterparties for the power generation and the environmental attributes from these facilities. In summary, the Texas wind farms are within our capital plan and a modest capital investment to help TC Energy execute on our decarbonization goals.
Rob Hope (Managing Director, Equity Research)
All right. Appreciate that. Just moving over to Coastal GasLink, you know, with the winter behind us, it looks like you had some successes on keeping the project on time and on budget here. However, as we look to the summer construction season as well as the end of 2023 in service date, what do you see as the key risk factors on keeping the cost and schedule, and how are you progressing against those?
Corey Hessen (SVP and President, Power and Storage)
Rob, it's Bevin. I'll take that question. You're right, we made very good progress this past season. We're laser-focused on safely getting this project to the finish line. As we noted in the remarks that, you know, we reaffirm, you know, our targets on both cost and schedule here for the year. Really what we need to be looking for during the balance is no different than what we've been working on today, is that there are a tremendous number of work fronts, as you can appreciate, on a project of this scale. We're migrating primarily from kind of mainline construction to really a focus on small, discrete work scopes, whether that be creek installations or rock bluffs.
We've been developing mitigation plans for any eventuality that happens on those smaller, discrete work scopes. You know, while we're progressing extremely well on the entirety of the project, you know, we've had to move to really a front foot on being proactive on having backup plans to backup plans. You know, when we provide updates, we'll be focusing mostly on, you know, how we've moved forward through these critical last areas of the project and we're necessarily implementing, you know, some of our backups.
Just to give you some proof points on that, you know, we've pre-relocated some equipment to allow us to work through some of the spring breakup periods of time, so that we can provide a bit more flow to the schedule. You know, as François alluded to in his remarks, you know, we've completed the trenching on Cable Crane Hill. That's 3 months ahead of schedule. We're trying to, wherever we can, provide a significant buffer for us because we know that any of these critical work scopes could have us really going to plan B and plan C. That's really where the focus is. You know, we had the successful introduction of gas into Wild Lake. That was executed to plan.
We had over 1 million man-hours, safely completed there. We're very encouraged, but we're extremely focused on managing these final critical scopes that are in the balance of the year.
Rob Hope (Managing Director, Equity Research)
Thank you.
Operator (participant)
The next question comes from Theresa Chen with Barclays. Please go ahead.
Theresa Chen (Managing Director and Senior Equity Analyst)
Good morning. Thank you for taking my questions. First, I'd love to get some more details on where you are on the asset sale process at this point. Now that it's been several months in the making, do you have additional clarity on the types of assets you're looking to divest, and how should we think about the valuation?
Corey Hessen (SVP and President, Power and Storage)
Thank you, Theresa. I appreciate that there's lots of interest in our asset sale processes and our deleveraging plan. As I mentioned, it's one of our three key priorities for the year. I'll just remind everyone that we are at a very commercially sensitive point in our discussions. We have multiple processes underway at the moment, we'll refrain from making any specific comments on any particular asset or on where valuations are trending.
François Poirier (President and CEO)
I'll reiterate, however, that our intention is to maintain the quality of our portfolio. We will be monetizing assets in, or interest in assets in various parts of the portfolio to maintain our cash flow composition that we view as very high quality.
Theresa Chen (Managing Director and Senior Equity Analyst)
Thank you. If I can ask Stan on the progress on Southeast Gateway at this point. What percentage has been done? How much capital of the $4.5 billion has been spent, and what should the next milestones that we should be looking for be?
Speaker 17
Hey, Theresa, this is Stan. As François reiterated up front, our Southeast Gateway Pipeline continues to track to a mid-summer 2025 in-service date, four and a half billion dollars of CapEx, both of which is unchanged from when we FID the project this summer. I would note that we're really pleased with our partnership with CFE. They have and will continue to play a very key role for us in helping to secure both land and permits. In terms of activities that have been ongoing, steel plate is being delivered, pipe is being rolled, and preparations for its concrete coating are underway so that the subsea pipeline lay can commence at the end of this year. Specifically to your questions, there are 3 key milestones that we are focused on this summer. Diligently focused on, I should add. First is commencing construction on our 2 compressor stations.
Second is securing the right of way for our onshore pipeline, which you recall is relatively small at about 21 km. Lastly is commencing preparations for the onshore construction work associated with the microtunnel, so that the microtunneling itself can take place in early 2024. Overall, we continue to incorporate the lessons learned from prior projects such as Sur de Texas, we're really pleased with our project's progression as of now, and we'll continue to update you as the project develops over the coming months.
Theresa Chen (Managing Director and Senior Equity Analyst)
Thank you.
Operator (participant)
The next question comes from Linda Ezergailis with TD Securities. Please go ahead.
Linda Ezergailis (Managing Director, Equity Research)
Thank you. Wondering if you could maybe give us some sense of what your expectation for 2024 capital expenditures specifically might look like, and what sort of magnitude of additional wind or solar power acquisitions might be embedded in your budget for this year or next year, or potentially even added to what you've baked in?
François Poirier (President and CEO)
Thanks, Linda. It's François. I'll take that one. You know, as we've talked about before, once a project is in construction and we break ground, we've probably been at it for a couple of years from a perspective of permitting and project planning and having ordered long lead items. One of the reasons why we're going to strive for building some optionality below our CAD $7 billion capital run rate going forward is that we do want to make sure we maintain some capacity for further debt reduction or share buybacks going forward. It's gonna take us the balance of this year and 2024 to work our way down to that CAD $7 billion or really CAD $6 billion run rate.
You can expect us to be well below the $11.5 billion-$12 billion of capital that we have in the plan for 2023 trending towards that $7 billion run rate, but not quite there yet because of the dynamic that we've identified. With respect to plans for additional renewables or other assets in our program going forward. Remember, these are very small capital dollars, tens of millions to low hundreds of millions over time. We will be utilizing project financing and tax equity wherever possible to get our equity checks down to very modest levels.
As we have worked through our capital program and tested our ability to maintain a stable balance sheet, grow our cash flow per share, grow our dividend, have strong payout ratios to get to a level of comfort where we can say that CAD 6 billion-CAD 7 billion is our run rate. We have factored in to our capital program, some additional renewables as well as some additional investment in our other businesses.
Linda Ezergailis (Managing Director, Equity Research)
Thank you. This is my follow-up. Just trying to round out my understanding of Coastal GasLink. Can you advise if you've used any of the contingency in your budget this year to add to your schedule buffer or for any other reason? Do you see a high likelihood about this point of dipping into your contingency to pay for some of the buffers and the plan B's contingencies that you're lining up to ensure you stay on schedule?
Speaker 17
Yeah. Thanks, Linda. Bevin here. Right now we're tracking really closely to our cost and schedule targets. You know, certainly as we pre-position certain work scopes, we spend some of those dollars a little ahead of plan or otherwise, but we actually incorporated that in our thinking at the time of the CSRA. You know, we're
Corey Hessen (SVP and President, Power and Storage)
We look at this probabilistically. Under certain scenarios, we're certainly going to draw down on some of the contingency. Right now, we're tracking where we've been, or where our plan was to be at this time. You know, a lot of when we're making the trade-off decisions to pre-spend on different activities, those are well within the plan. You know, we've maintained access to the head wall, another critical path scope, removing a ton of snow. We put that in the plan. You know, we're very thoughtful when we came forward with our revised budget last quarter to make sure that we had, you know, a variety of scenarios, not just a single scenario in mind in terms of the finishing or the executing of the project.
Tina Faraca (EVP and COO, Natural Gas Pipelines)
Thank you.
Operator (participant)
The next question comes from Jeremy Tonet with J.P. Morgan. Please go ahead.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Hi. Good morning.
Corey Hessen (SVP and President, Power and Storage)
Morning.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Just want to come back. The CGL construction from a little bit of a different angle. I think there might have been kind of competition for labor between CGL and TMX. Was just wondering if you could comment there and I guess, you know, how you see TMX progressing at this point, if it's close to kind of winding down, does that lead to kind of less stress, less pull on the labor pool? How would that impact CGL?
Corey Hessen (SVP and President, Power and Storage)
Yeah. Jeremy, I'm not gonna speak to TMX. I don't know exactly what their plans are. What we're seeing on our project is we've had great retention of the contractor labor. We've seen increase of quality and actual productivity this year. Like I mentioned earlier, we're migrating to a very different type of scope of work. What I can say is that scope of work looks a lot different than what TMX is focused on in this year's construction. You know, we're very, very mindful that there is competition for labor. We'll be focused on seeing how our labor force returns post the breakup. Post the Christmas breakup, where there was the same type of competition from TMX, we actually came back stronger.
We had nearly 6,500 folks on the right of way through the 1st quarter of this year at a time when TMX ramped up their labor force more than significantly more than what they were last year. We're maintaining a pretty strong position with our labor force right now, which we're thankful for, and we're working really closely with our contractors to be just laser-focused on retaining the right people to get this thing done by the end of the year.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Got it. That's helpful there. Just wanted to pivot a little bit to Columbia. There's news out there with regards to, I think, a lightning strike that might have impacted the Corinth compressor station and led to a force majeure and realized this is all very kind of real-time here, but didn't know if you could help us with any color on how to think about that.
Tina Faraca (EVP and COO, Natural Gas Pipelines)
Thank you. This is Tina Faraca with the US Gas Pipeline Business. We did have a lightning strike this morning, very early this morning that caused a fire within our fence line at the Corinth compressor station. The fire has since been extinguished. Very minimal impact to facilities. We've managed through that and plan to get the station back online later this afternoon.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Okay. This is just like a one-day impact type of thing.
Tina Faraca (EVP and COO, Natural Gas Pipelines)
Yes.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Thank you for that.
Operator (participant)
The next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.
Robert Kwan (Managing Director, Head of Global Power, Utilities and Infrastructure Research)
Okay. Thank you. If I can come back to the commitment to keep CapEx below CAD 7 billion, just some questions here. First, does that include acquisitions? Second, the current period of elevated CapEx is really, or part of it's been driven by cost overruns. Just wondering how you'll think about managing your cost risk differently going forward? Third, just specifically, what does this mean for Meaford or are you excluding project-level financing from that CAD 7 billion number?
Corey Hessen (SVP and President, Power and Storage)
Hey, Robert. It's François. I'll take that one. With respect to managing cost overruns, we have, you know, in prudent project management, we have a reasonable contingency for each of the individual projects that we have in our capital program. Striving to work towards a $6 billion run rate program going forward, that gives us flexibility and optionality around further debt repayment and share buybacks. It also gives us additional flexibility to the extent we have any unforeseen circumstances around any one individual project. $6 billion or $7 billion is our sanctioned capital. To the extent we have partners, that would be in addition or outside of that number.
With respect to the specific peculiarities of any individual project in terms of project financing, that may or may not be considered depending on the project. A project like Ontario Pumped Storage is a significant undertaking. You know.
François Poirier (President and CEO)
This is not only a financial equation, it's also a human capacity equation. When we think about having a very large capital program, our ability to manage a smaller program reduces execution risk and allows us to continue to grow our dividend at a, you know, at a, the stated rate, grow our cash flows at or above that rate and keep a stable balance sheet and maintain stable and very conservative payout ratios. You know, you won't see the capital program far outstrip our sanctioned capital, but for reasons of human capacity. You know, as we move forward with different projects, we'll be contracting for them differently, mitigating risk using full wrap EPCs where appropriate, and looking for commercial mitigations to manage those outcomes as well.
On all of the above basis, you should think about that, CAD 7 billion, striving for 6 as our sanctioned capital, going forward.
Robert Kwan (Managing Director, Head of Global Power, Utilities and Infrastructure Research)
Just on acquisitions, included or excluded?
François Poirier (President and CEO)
Thank you for reminding me of that. We don't distinguish. There's no M&A in our plan. We don't think that M&A is required for us, given our opportunity set to grow our distributable cash flow per share at a rate above our dividend growth and maintain stable payout ratios and a stable balance sheet. It's just really not on our radar right now. If it were, Robert, it would be included in that cap.
Robert Kwan (Managing Director, Head of Global Power, Utilities and Infrastructure Research)
Okay. That's great. If I can finish just on capital allocation and just that framing against the wind acquisitions. You noted that while they're in the 2023 capital program, you previously talked up about just generally the ability to defer capital, and this seems like something that could have been eliminated. While they're operating, I assume you acquired it for higher than 5x EBITDA and less than a 15% FFO yield, i.e., acquiring should be delivered to the credit metric. Was there something binding you to complete these deals, or can you just talk about the strategic nature of the two assets and the synergies they provide to the existing asset base?
Speaker 17
Hi, Robert, it's Corey. I would say that, yes, this was in our plan, and what I would emphasize is that we have decarbonization goals for our enterprise. These are critical in nature for us to meet our decarbonization goals, which are long-term commitments to our shareholders and constituents across our jurisdictions.
Robert Kwan (Managing Director, Head of Global Power, Utilities and Infrastructure Research)
Okay. Thanks very much.
Operator (participant)
The next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.
Robert Catellier (Executive Director and Energy Infrastructure Analyst)
Hey, good morning. I know you're trying to avoid discussing any particular asset, but I wonder if you can discuss as an asset class the merchant power. Alberta power prices have been quite strong over the last year or so. How does this influence your view on this asset class as a candidate for portfolio management? In other words, does the market support a stronger valuation, or would you rather retain them for their currently strong cash flow?
François Poirier (President and CEO)
Robert, it's François. What I would tell you is, divestitures. The purpose of our divesture program is to deleverage. We call that raising internal equity. Internal equity is driven by the valuation in excess of 5 times debt to EBITDA. As we choose which assets to monetize, we consider what the EBITDA multiple is above that 5 times amount, because we have to have to maximize that spread over 5 times EBITDA to maximize our deleveraging. To the extent our Alberta assets could achieve multiples well in excess of 5 times debt to EBITDA, we would be open to proceeding, and I'll leave it at that.
Robert Catellier (Executive Director and Energy Infrastructure Analyst)
Okay. maybe a question here for Stan. It looks like the volumes were pretty good on the deliveries to LNG facilities again. I'm wondering if you can provide us some progress update on any additional positioning you have for the U.S. gas portfolio and development projects to address additional LNG opportunities.
Speaker 17
Yeah, Robert, this is Stan. As you heard me say before, our best-in-class pipeline footprint has and is going to continue to provide us with more than ample growth opportunities at attractive build multiples. Our challenge today, as you heard, is less with originating new projects, and it's making sure that we have a way to fund them. Given that our origination efforts are highly selective and focused on strategic opportunities where we can leverage our existing footprint, specifically in regions where projects can be permitted and constructed at attractive build multiples. These opportunities today exist with respect to additional LNG exports, particularly in Louisiana, as you noted, and increasing the connectivity that we have to our LDC customers, which are backed by long-term 20-year contracts.
In some instances, where appropriate, we also may consider taking on a strategic joint venture partner. You know, equally important, I just want to point out that we are laser-like focused on ensuring operational excellence and reducing our costs, and doing so without sacrificing the safety or the integrity of our assets and ensuring that we place our projects in service on time and on budget.
François Poirier (President and CEO)
Robert, it's François. I'll just add to Stan's comment. As we look to sanction capital going forward, the timing of the spend will be a critical factor in our assessment. Laser-like focused on staying below that $7 billion and actually $6 billion run rate of capital spend. As you look to us sanctioning projects in the future and given the size of our capital program to date, really as we sanction projects going forward, you know, they will have the significant capital spend will be in later years. That's fine. It typically takes a couple of years to permit and permit a project and get the long lead items in place.
Projects we're looking at developing right now and competing for, have spend in that 2025, 2026, 2027 time frame, where we do have additional capacity to sanction projects and stay within that CAD 6 billion annual limit.
Robert Catellier (Executive Director and Energy Infrastructure Analyst)
Yeah, that's very helpful color. Thanks, everyone.
François Poirier (President and CEO)
Yep.
Operator (participant)
The next question comes from Ben Pham with BMO. Please go ahead.
Ben Pham (Managing Director, Pipelines and Utilities Analyst)
All right. Thanks. Just wanted to go back to the renewables side of things and your strategy there. I think for some time, what was holding you back a bit on expansion is more of the lofty multiples on renewal power assets. You've had the aggregation model as well that you've introduced last year. Can you talk about now the trends you're seeing? Is it better to buy versus build? How does it compare to aggregating power? Maybe an update on strategy there.
François Poirier (President and CEO)
Ben, it's François. I'll take this one. You know, as we talked about before, we're focused on sanctioning capital over the long run on the basis of affordability, reliability, and sustainability. Renewables will be a complementary asset class in our portfolio to help achieve our own decarbonization goals while at the same time helping our customers decarbonize their own energy consumption. Where possible, we will adopt a capital-light approach. We talked about the aggregation activities last year, which are continuing to proceed. In some instances where we see value and it fits within our capital plan, underscore that it fits within the capital plan and the CAD 6 billion per year limit, we'll consider ownership in projects.
As Stan mentioned in the context of our U.S. gas business, across our whole portfolio, one of the things we're gonna be looking at is joint ventures and partnerships with financial firms and other strategics to make sure we can advance our decarbonization goals, our market share aspirations in the, in the U.S. LNG market, but still stay within our annual sanction capital limitations going forward.
Ben Pham (Managing Director, Pipelines and Utilities Analyst)
Okay. Maybe next on flexibility for sure, buybacks. Maybe you can expand on that a little bit? How do you feed into your calculus? Where do you need to be with leverage to think about that?
François Poirier (President and CEO)
Yeah. Look, over the next couple of years, that's not an option. Our priority for 2023 and 2024 is to deleverage. Our goal is to get at or below 5 times debt to EBITDA as quickly as we can without compromising shareholder value and then remain there. What I wanted to convey in my comments is it's very difficult to stop a project once it's been committed to. Just because your stock price is at a level that you think is attractive in terms of share buyback, by the time you break ground on a project, you can't just tell your customer that they're not gonna receive the transportation service they've been planning on and waiting on for many years.
By building flexibility, and the flexibility would come from the gap between 7 and 6 into our program on an annual basis, we will have the option in each and every year with that incremental capital to live within our means to either pay back debt or to buy back shares. To be clear, we don't see that as an option until we get at or below our 5 times debt to EBITDA, and we're confident that we're going to remain below.
Ben Pham (Managing Director, Pipelines and Utilities Analyst)
Okay. Got it. Thank you.
François Poirier (President and CEO)
You're welcome.
Operator (participant)
The next question comes from Andrew Kuske with Credit Suisse. Please go ahead.
Andrew Kuske (Managing Director, Equity Research)
Thanks. Good morning. The question is really for François and, you know, the emphasis on limiting the CapEx post 2024 to CAD 7 billion and then getting it down to CAD 6 billion. Does that effectively allow you to high grade your capital allocation process to higher returning projects?
François Poirier (President and CEO)
I would say most definitely, Andrew. you know, it's not just about unlevered after-tax IRRs. We do wanna migrate the portfolio. We think about having a high quality and diverse portfolio with low volatility. That's part of our value proposition. There's no question, as I've said in the past, we see way more opportunity to deploy capital than we have financial and human capital to execute. What that's gonna allow us to do actually is to high grade projects. In fact, when you look at what we sanctioned in 2022
Richard Poirier (SVP, Projects and Commercial / President, Liquids Pipelines)
The unlevered after-tax IRR is in the 10% range, and that's above the weighted average IRR of what we sanctioned in 2021, which was, I think, in that 8.5%-9% range. We're seeing an upward trend in the returns on the projects that we've sanctioned over the last couple of years. Clearly, by limiting our capital spend to living within our means, it's gonna give us the opportunity to high grade to our higher returns. We also are going to consider having a proper diversity and migrating the portfolio to an appropriate supply mix.
Andrew Kuske (Managing Director, Equity Research)
Appreciate that. Then maybe not to be greedy, but when the trend of high grading returns, your earlier comments on bringing on partners, whether they be financial, strategic, or otherwise, does that allow you to engage in some kind of, you know, asset management model, get a promote on a project? How do you just sort of conceptualize that and think about it?
Richard Poirier (SVP, Projects and Commercial / President, Liquids Pipelines)
First and foremost, Andrew, that's a great question, is we're gonna focus on our human capacity. You know, we have an ability to manage a capital program of a certain size, we are going to make sure that we always have the capacity and the capability to adequately manage the capital program we have underway. An asset management model would suggest, you know, developing and building projects for others, we're gonna be very mindful of maintaining a size of capital program that's within the capacity of our team.
Andrew Kuske (Managing Director, Equity Research)
Thank you very much for that.
Richard Poirier (SVP, Projects and Commercial / President, Liquids Pipelines)
You're welcome.
Patrick Kenny (Analyst)
The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Thank you. Good morning. Just on Keystone here, as you look to implement your enhanced integrity program going forward, can you provide a little bit more detail with respect to the cadence of these additional inline inspections and excavation work that needs to be completed across the system? I guess what the total cost of this program might do to your prior maintenance CapEx guidance, as well as, you know, the process for recovering these costs through your toll structure or other means.
Richard Poirier (SVP, Projects and Commercial / President, Liquids Pipelines)
Yeah, sure. This is Richard Prior. I'll take that. So, you know, as we mentioned in our release, just there's additional remediation work that we need to do. We need to work through our remedial work plans with respect to Milepost 14 as well as the PHMSA Corrective Action Order. You know, that is gonna include additional excavations, as you mentioned, and inline inspection runs. We've already started that work, and to date, we've actually run 300 miles of tool runs on the pipeline adjacent to the incident site, and we've not found evidence of similar features. In addition to this, we're also gonna be completing engineering assessments.
This time, you know, we did just receive the root cause failure analysis last week, as did PHMSA. There is going to be, you know, some more work to do to continue to study that and develop the details of this program. I don't have a timeline I can provide to work these remedial work plans and resolve the Corrective Action Order, but I can say that we are fully committed to expediting this work. I also don't have a cost estimate for this integrity scope I can share at this time. However, you know, this work, it would form part of our operating maintenance and integrity scope for the system, and that would be recoverable through our variable tolls.
Patrick Kenny (Analyst)
Okay, great. Thanks for that. Just in terms of, I guess, an update on the egress picture out of Western Canada, and I guess in light of where natural gas prices are at currently, can you comment on where you're seeing customer demand for incremental market access, you know, California, Gulf Coast, East Coast, and I guess what this could mean for near to medium-term debottlenecking activity across GTN, Mainline, ANR, and so on?
Richard Poirier (SVP, Projects and Commercial / President, Liquids Pipelines)
Sure. Thanks a lot, Patrick. It's Greg Grant from the Canadian gas business, and I'll start and then hand it off back to the US gas business. First, it's been great to see, both from an operational perspective and from our capital programs. We continue to get assets in the ground, and we actually we're a few weeks ahead of time on coming out of our 2021 program and some of our NC build this spring. Last year, you would've known we put about 1.3 Bcf of intrabasin and egress, this quarter, added over 700 Mcf and soon to be another 500 here. That's been great to see the team and the performance there. That hasn't soft up the demand, I would say.
We still have significant demand coming in on all parts of all points of egress, I would say, and intrabasin. You would've seen we're about a Bcf again on the supply side. That's year-over-year. Two years we've been over a Bcf added to the system. While we've added that capacity, we are still at high utilization levels. You will see probably in the next couple of weeks, months, we did announce some open seasons will be coming, the team are looking at ways that we can continually optimize the system and create additional capacity where we can. That includes both existing and some new opportunities, which we'll talk about in the following quarter.
Joel Hunter (Executive Vice-President and CFO)
On the U.S. side, just think of us as the big catcher's mitt. Greg throws the ball and we try to catch it. We have an expansion project, as you're aware, on the GTN system right now, our GTN XPress, which is currently pending before FERC, and we're anxiously awaiting our certificate so we can get that capacity constructed and in service either later this year or early 2024. We also have the ability to attract volumes in on our Great Lakes system and again, working closely with Greg's team as they submit open seasons on their side of the border to get additional capacity down to the U.S.
Another thing I would point out of late is, there seems to be some interest from the LNG market, in Louisiana to have additional exposure to Canadian volumes as well. We're pursuing opportunities to expand our ANR systems as appropriate to get more Canadian gas down to the LNG terminals.
Brian Reynolds (Analyst)
Okay, great. Thanks for that update, guys. I'll leave it there.
Operator (participant)
The next question comes from Brian Reynolds with UBS. Please go ahead.
Brian Reynolds (Analyst)
Hi. Good morning. Thanks for sneaking me in. Maybe as a follow-up on some of the prior labor questions, you mentioned that you're at, you know, 6,500 on the job now. Curious, just what's the assumption for peak labor in project for the projects for Coastal GasLink this summer to reach completion goals for mechanical completion, you know, as labor starts to roll off on CGL, TMX this summer? Thanks.
Corey Hessen (SVP and President, Power and Storage)
Yeah. Thanks, Brian. We're effectively at peak, and we'll be winding down now. Coming back from spring, freshet, we'll not be bringing back the same level of crews, but a significant number of folks will be coming back. As I mentioned, we're at some discrete scopes now. We're effectively finishing off any of the traditional kind of mainlining activities where we have significant number of crews. I would say come to the fall, we'll be in a much more significant ramp down of folks out there in the fields.
You know, our, you know, our ability to continue to successfully manage and mitigate all our risks during the summer and the fall construction will be the key determinant in our ability to meet our cost and schedule goals. We're, we're more focused on managing the risks, and inclusive of that is the labor front, but we feel that we're in a good position there.
Joel Hunter (Executive Vice-President and CFO)
I think we've got time for just 1 last question, if you don't mind.
Speaker 17
Yeah. Great. Thanks. Just on, just touching on the credit rating, you know, TransCanada has been put on negative outlook, by S&P. My first part of my question is, you know, is TransCanada committed to defending that credit rating at any cost, perhaps in the context of M&A sales? Second, you know, how does TransCanada handle asset sales versus perhaps, you know, impacting its earnings mix? Thanks.
Joel Hunter (Executive Vice-President and CFO)
Thanks, Brian. Joel here. It's the last question of the day, and I finally get to respond. With regard to the credit ratings, we do value the credit ratings. As you've highlighted, we are a negative outlook right now with three of the agencies being S&P, Moody's and DBRS. We were downgraded following the announcement on the CGL cost overruns by Fitch. We put a lot of value on the rating. We believe with our plan here to sell CAD 5+ billion of assets, that we will be able to get our leverage down to our target, as François mentioned, to that 5 times in the near term, and then ultimately down to 4.75 times. That's our objective.
With the plan that we have right now with $5+ billion of asset sales, with our growing EBITDA, you just saw us today mentioning we had a 16% year-over-year increase in our EBITDA, that the combination of those two that we believe that we can get down to the 5 times and ultimately get the negative outlook removed from the agencies and reaffirmed our ratings going forward. I think your question around asset sales and I think you said with perhaps, if I'm not mistaken, we balance both. We've got the $5+ billion of asset sales, as we mentioned.
In our plan, we always factor around 15% of our capital structure being comprised of hybrid securities and preferred shares, and that won't change going forward.
Speaker 17
Great. I'll leave it there. Enjoy the rest of your morning.
Operator (participant)
Ladies and gentlemen, this concludes the question and answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wylie. Please go ahead, Mr. Wylie.
Gavin Wylie (VP, Investor Relations)
Yeah. Thanks everybody for your participation this morning. For the questions that we didn't get to, please reach out to Investor Relations and the team was happy to have discussions later this morning. We thank you very much for your interest in TC Energy, and we look forward to our next update. Have a great day.
Operator (participant)
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.