CALGARY Jul 31, 2015 (Thomson StreetEvents) -- Edited Transcript of TransCanada Corp earnings conference call or presentation Friday, July 31, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David Moneta TransCanada Corporation - VP of IR * Russ Girling TransCanada Corporation - President & CEO * Don Marchand TransCanada Corporation - EVP & CFO * Paul Miller TransCanada Corporation - President Liquids Pipelines * Alex Pourbaix TransCanada Corporation - EVP, President Development * Bill Taylor TransCanada Corporation - President of Energy * Karl Johannson TransCanada Corporation - President of Natural Gas Pipelines Business ================================================================================ Conference Call Participants ================================================================================ * Paul Lechem CIBC World Markets - Analyst * Robert Catellier GMP Securities - Analyst * Andrew Kuske Credit Suisse - Analyst * Robert Kwan RBC Capital Markets - Analyst * Linda Ezergailis TD Securities - Analyst * Rob Hope Macquarie Research Equities - Analyst * Matthew Hackman Scotia Bank - Analyst * Steven Paget First Energy Capital - Analyst * Ashat Dutta Plattes - Analyst * Unidentified Participant - Analyst * Lauren Krugel Canadian Press - Analyst * Rebecca Penty Bloomberg News - Analyst * Claudia Cattaneo The National Post - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen. Welcome to the TransCanada Corporation 2015 second quarter results conference call. I would now like to turn the meeting over to Mr. David Moneta, Vice President of Investor Relations. Please go ahead, Mr. Moneta. -------------------------------------------------------------------------------- David Moneta, TransCanada Corporation - VP of IR [2] -------------------------------------------------------------------------------- Thanks very much and good morning, everyone. I would like to welcome you to TransCanada 2015 second quarter conference call. With me today are Russ Girling, President and Chief Executive Officer; Don Marchand, Executive Vice President and Chief Financial Officer; Alex Pourbaix, Executive Vice President and President of Development; Karl Johannson, President of our Natural Gas Pipelines Business; Paul Miller, President Liquids Pipelines; Bill Taylor, President of Energy; and Glenn Menuz, Vice President and Controller. 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 their prepared remarks, we will turn the call over to the conference coordinator for your questions. During the question-and-answer period we will take questions from the investment community first followed by the media. In order to provide everyone with an equal opportunity to participate, we ask that you limit yourself to two questions. If you have additional questions, please reenter the queue. Also, we ask that you focus your questions on our industry, our corporate strategy, recent developments, and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or detailed financial models, [Lee] 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 famous 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 US Securities Exchange Commission. Finally, I'd also like to point out that during the presentation we'll refer to measures such as comparable earnings, comparable earnings per share, earnings before interest, taxes, depreciation, and amortization or EBITDA, comparable EBITDA, and funds generated from operations. These and certain other comparable measures do not have any standardized meaning other GAAP and are therefore considered to be non-GAAP measures. As a result of they may not be comparable to similar measures presented by other entities. These measures are used to provide you with additional information on our operating performance, liquidity, and our ability to generate funds to finance our operations. With that, I'll turn the call over to Russ. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [3] -------------------------------------------------------------------------------- Thank you, David, and good morning, everyone, and thank you very much for joining us today. We're very pleased to report today's strong financial results for the second quarter of 2015. The results again reflect the resilience, diversity of our three core businesses through difficult business cycles. As you are well aware, low commodity prices and challenging market conditions are impacting our customers and their capital expenditure plans, and we are working closely with our customers to understand those impacts and adjust our projects to best meet their needs. During the quarter, we continue to advance a number of our key components of our capital program including construction activities on our CAD12 billion shorter term project portfolio such as the Napanee power plant, Northern Courier pipeline project, Topolobampo and Mazatlan in Mexico, and several NGTL receipt and delivery expansion projects. We advanced our CAD13 billion portfolio of projects to support the emerging liquefied natural gas business in British Columbia, and we continue to progress our long-distance crude oil pipeline initiatives. In addition, we continue to work on additional strategic opportunities in each of our three core businesses such as expansions of the NGTL system, the ANR system, Mexico opportunities, and the refurbishment of Bruce Power. As I said on a number of occasions, given the highly contracted nature or regulatory underpinning of these projects, once complete they are expected to deliver steady growth in earnings, cash flow, and dividends through the end of the decade and beyond. So, back to the quarterly numbers. TransCanada reported net income of CAD429 million or CAD0.60 per share in the second quarter. Comparable earnings for the quarter were CAD397 million or CAD0.56 per share, the 20% increase over the CAD332 million or CAD0.47 per share reported in the second quarter 2014. Cash flow has also continued to grow compared to the second quarter of last year. Comparable EBITDA was CAD1.4 billion and funds generated from operations were CAD1.1 billion. Earlier today, the Board of Directors declared a quarterly dividend at CAD0.52 per common share for the quarter ending September 30, 2015. As a result of the Company's past performance along with confidence in our future business plans, our Board of Directors has raised the dividend in each of the last 15 years from CAD0.80 in 2000 to the current rate of CAD2.08 per year. Stock appreciation combined with a steady and growing dividend has resulted in a 14% average annual total shareholder return since 2000. Looking forward, continued strong performance from our core businesses and expansions currently underway is expected to provide the foundation to continue to grow our dividend at an annual rate of 8% to 10% through 2017 and to continue to prudently fund our industry-leading CAD46 billion capital program. Our CFO, Don Marchand, will speak with you shortly and provide more details on our financial performance in the second quarter but before that I would like to speak to you about some key developments over the quarter in advancing our capital program. Starting with our gas pipeline business. As I've mentioned last quarter with nearly CAD7 billion of new supply and demand facilities under development, we are poised to almost double the rate base of our NGTL pipeline system. We continue to advance several of these facility expansions and plan to file additional facility applications with the NEB through the remainder of 2015. In addition, we continue to receive requests for firm receipt service that we anticipate will increase the overall capital spend on NGTL system beyond what we had previously announced. In-service dates for the majority of those initiatives run through 2016, 2017, and 2018. The single largest NGTL product that is been approved is our CAD1.7 billion North Montney project. In June, the government of Canada announced the decision to accept the National Energy Board's recommendation to approve the project which will expand NGTL's reach into one of the most prolific-producing regions in the Western Canadian sedimentary basin. It will consist of two large sections, Aitken Creek and Kahta sections totaling just over 300 km in length. This pipeline will connect Montney and other Western Canadian sedimentary basin supply to existing and new natural gas markets, including Pacific Northwest LNG terminal via the Prince Rupert Gas Transmission Project. We expect to have Aitken Creek operating in late 2016 and Kahta around 2017. Construction of the North Montney project will begin after final investment decision has been made on the proposed Pacific Northwest LNG project and TransCanada proceeds with construction of the Prince Rupert Gas Transmission Project. With respect to Prince Rupert Gas Transmission, we are pleased to see significant of developments over the last month. Pacific Northwest LNG reach an important milestone with a positive final investment decision subject to two conditions. Firstly, approval from the Canadian Environmental Assessment Agency and, second, the BC's legislature ratification of the project development agreement between the providence and Pacific Northwest. On the latter condition, the BC legislature ratified that agreement with Pacific Northwest just over a week ago. Pacific Northwest is proposing to build a liquefied natural gas facility and export facilities near Prince Rupert. These facilities would receive gas through our 900 km Prince Rupert Gas Transmission Project from the Montney-producing region near Fort St. John, British Columbia. PGRT, with a beneficiary of further positive news recently, receiving 6 of the 11 pipeline and facilities permits from the BC oil and gas commission needed to build and operate the pipeline. We anticipate a decision on the remaining permits in the third quarter of this year. We remain on target to begin construction of the Prince Rupert project following confirmation of a final investment decision from Pacific Northwest. The in-service date of PGRT is expected to be 2020, but we will align that with the Pacific Northwest LNG facility timeline. On our Coastal GasLink project we announced last month that we had signed project agreements with six BC first nations. These agreements reinforce the strong relationship TransCanada has built with first nation communities and demonstrate their willingness to participate in the many benefits and opportunities this project will bring to their communities. An estimated 30% of the CAD4.8 billion project spend will be spent locally in British Columbia, creating over 2000 jobs during construction and CAD20 million in annual property tax payments. On the permitting front, Coastal GasLink had received the majority of its permits from the BC oil and gas commission, 8 out of 10 are in hand and the remaining two permits we expect those to be issued in the third quarter of 2015. The 670 km Coastal GasLink pipeline will run from Dawson Creek to the proposed LNG Canada liquefied natural gas export facility near Kitimat, British Columbia. We anticipate construction starting in the latter part of 2016. Moving over to oil and Energy East. We announced in early April that we would not build a marine terminal at Kuna Quebec. We continue to review potential alternative export terminal options with our shippers and stakeholders. There's a possibility that only one export terminal at facility in St. John New Brunswick would be built. The other existing delivery points to refineries in Montreal, [Lebit] near Quebec City, and St. John and the export terminal in St. John are not impacted by that review. We expect that we will be in a position to offer a further update on the project in the coming weeks. During the past nine months the NEB has continued to review our October 14 filing for the project. Amendments to that application are expected to be filed with the NEB in the fourth quarter of 2015. The results of this changed project scope and further refinement of the project schedule is expected to result in an in-service date of 2020. This project will connect directly refineries in Eastern Canada allowing them to access cheaper Western Canadian crude oil instead of having to rely on 600,000 barrels a day of oil Canada imports from foreign countries today. The benefits from the multi billion-dollar project for all Canadians are quite clear. Thousands of good paying jobs and millions more in annual tax revenues to fund healthcare, build roads, schools, and fund local communities. We expect the current announced project cost of CAD12 billion to increase due to adjusting the pipelines route following feedback from communities, governments, and indigenous peoples and higher construction costs. Moving to the Keystone Pipeline System. We achieved a very important milestone just a couple of weeks ago when we announced the Keystone Pipeline System had safely delivered its one billionth barrel of oil of Canadian and US crude oil key refineries in the United States. Since 2010, when we first began transporting oil, the Keystone system has contributed to the US Energy Security and has generated close to CAD200 million in property taxes and more than 14,000 construction jobs for 11 states and provinces that it crosses. Construction continues on the Houston lateral pipeline and tank terminal which will extend Keystone to the Houston, Texas, refineries. The terminal is expected to have an initial storage capacity of 700,000 barrels of crude oil. The pipeline at terminal are anticipated to be operational in the fourth quarter of 2015. In addition, we announced the joint development agreement with Magellan Midstream in the spring to connect our Houston crude oil terminal to Magellan's East Houston terminal. TransCanada will own 50% of this CAD50 million project which will enhance connections to the Houston market for our Keystone pipeline customers. We expect that pipeline to be operational in late 2016. On Keystone XL we continue to wait for recommendation from the US Department of State as to whether the project is in the national interest of the United States. Our focus at the current time is taking part in hearings held by the South Dakota Public Utilities Commission related to our request to certify Keystone XL's existing permit authority in the state. Those hearings are expected to wrap up next week. We continue to believe Keystone XL is in the national interest of America and meets the President's climate task of not significantly exacerbating global greenhouse gas submissions, something that US State Department has concluded on numerous occasions in over 17,000 pages of scientific review since 2010. The need for the Keystone XL pipeline remains high as consumers continue to use more and more gasoline refined from barrels of crude oil. The American Energy Information Administration reported earlier this month oil consumption in the US is up by nearly half million barrels by day over last year. As a result, refineries are producing more gas for US motorists at near record levels. We believe that fundamental choice for Keystone XL remains firstly would Americans rather receive this oil if they continue demand from Venezuela or places like Iran, or would they rather use American and Canadian oil. And, second, is it safer and more environmentally sound to ship that oil in trucks, rail cars, or barges or in modern state-of-the-art pipeline buried 4 feet below the ground. We continue to believe the answers to these questions are self-evident. This CAD8 billion pipeline remains the safest least energy intensive and most secure way to supply the oil the United States needs, and TransCanada and its shippers remain 100% committed to this project. As of June 30, 2015, we had invested CAD2.5 million in the product we've also capitalized $400 million of interest. Moving over to energy. In January, we began building the 900 megawatt natural gas fired Napanee power plant at Ontario Power Generation's Lennox site in the Eastern Ontario town of the greater Napanee. The CAD1 billion plant is anticipated to begin operating in late 2017 or early 2018. Power produced at this facility is fully contracted for 20 years with the independent electric system operator in Ontario. So to conclude, our three core businesses produced another solid quarter demonstrating resiliency while facing some very challenging market conditions, comparable earnings and funds generated from operations increased to 20% and 16% respectively compared to the same period last year. This highlights the solid foundation from which we expect to grow the dividend at 8% to 10% through 2017 and fund our industry-leading CAD46 billion portfolio of new high-quality energy projects. These projects are expected to result in a significant growth in earnings, cash flow, and dividends through the end of the decade and beyond and continue to deliver shareholder value. I will now turn the call back to Don for more details about a second quarter financial performance. Don. -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [4] -------------------------------------------------------------------------------- Thanks, Russ, and good morning, everyone. As highlighted in our release this morning we again showed strong results in the second quarter. Net income attributable to common share is of CAD429 million or CAD0.60 per share compared to CAD416 million or CAD0.59 per share for the same period of 2014. Excluding a CAD34 million income tax expense adjustment resulting from the recent increase in the Alberta corporate income tax rate, an CAD8 million after-tax restructuring change related to changes in our major projects grew as well as unrealized gains from various risk management activities. Comparable earnings increased CAD65 million in the second quarter to CAD397 million or CAD0.56 share compared to CAD332 million or CAD0.47 in the same period last year. Net income in second quarter 2014 included a CAD99 million after-tax gain from the sale of Cancarb, a CAD31 million after-tax loss in the termination of a natural gas storage contract, as well as unrealized losses from various risk management activities each of which were excluded from that period's comparable earnings. A 20% year-over-year increase in second quarter comparable earnings was primarily due to higher contributions in the Canadian mainline, NGTL system, Keystone, Bruce Power, and Eastern Power partially offset by lower contributions to the US power due to timing differences on recognizing earnings as well as lower realized power prices and PPA volumes in Western Power. In terms of our business segment results at the EBITDA level, the natural gas pipelines business generated comparable EBITDA CAD807 million in the second quarter of 2015 compared to CAD759 million for the same period last year. Canadian natural gas pipelines comparable EBITDA of CAD583 million increased CAD34 million compared to 2014 primarily due to incentive earnings recorded for the Canadian mainline and a higher average investment base on NGTL partially offset by a lower allowed ROE on the mainline. Canadian Mainline earnings increased CAD9 million in the second quarter 2015 to CAD67 million. The NEB approved final tolls for the 2015-2020 tolling agreement in June allowing us to record incentive earnings in the period of CAD24 million for the six months of the year. This was partially offset by a lower allowed ROE of 10.1% versus 11.5% last year as well as a lower investment base. Given the strong volume throughput and contracting efforts in the first half of 2015, the mainline is expected to earn its base ROE of 10.1% throughout the remainder of the year with incremental short-term volume movements or additional contracting providing potential upside from this level. NGTL's net income increased by CAD8 million in the second quarter compared to the same period last year, primarily as a result of its growing investment base and no OM&A incentive losses realized in 2015. US and international pipelines comparable EBITDA was up CAD26 million to CAD238 million in the second quarter 2015 primarily as a result of the positive impact of the stronger US dollar. Business development costs have risen for the three- and a six-month periods in natural gas pipelines mainly due to increased business activity. In liquids, the Keystone Pipeline System generated CAD320 million of comparable EBITDA in the second quarter, an increase of CAD64 million from last year. This was a result of higher uncontracted volume throughput in the favorable impact of the stronger US dollar. Turning to energy, comparable EBITDA CAD272 million in the second quarter represented an increase of CAD41 million versus the same period in 2014. Bruce Power equity income increased CAD42 million is a result of fewer outage days. Strong operating performance in the A units, which achieved 98% availability, was the primary factor in Bruce's strong results. Bruce B conducted its planned 30 day backend building out is slightly ahead of schedule and also completed an extended planned outage on unit 6 during the quarter. An additional scheduled outage on unit 4 at Bruce A began in mid July and expected to continue for approximately 90 days. This work on unit 4 will substantially complete the planned major maintenance events at Bruce for the remainder of the year. Eastern Power comparable EBITDA was up CAD21 million over year-over-year due to incremental earnings in solar facilities acquired in the second half of 2014 and increased power generation from Cartier Wind. Western Power comparable EBITDA decreased CAD12 million due to lower realized prices are lower purchase PPA volumes. We continue to expect Western Power earnings in 2015 to be lower in comparison to last year as the Alberta power market is currently well supplied and demand growth has slowed as weakening economic conditions leading to lower prices. US power comparable EBITDA of CAD79 million decreased CAD17 million in the second quarter compared to 2014, primarily due to the timing of earnings recognition on certain contracts in the power marketing business and lower realized capacity prices in New York, partially offset by a stronger US dollar and stronger margins in sales to wholesale customers. Now turning to the other income statement items on slide 19. Comparable interest expense of CAD331 million in the second quarter increased CAD34 million compared to the same period last year. This was primarily due to interest charges and recent US debt issues and higher foreign exchange on interest denominated in US dollars partially offset by Canadian and US debt maturities and higher capitalized interest. Comparable interest income and other rose CAD22 million compared to the second quarter 2014 principally due to increased AFUDC related to our rate-regulated projects, including Mexican pipelines and Energy East. Partially offsetting the increase in AFUDC, the higher realized losses on derivatives used to manage our net exposure to foreign exchange rate fluctuations on US dollar income and the impact of the strengthening US dollar on translating for currency denominated working capital value. Our exposure to US dollar income was largely offset with US dollar denominated interest expense and financial derivatives. As a result, we saw minimal effect from the strengthening US dollar in our second quarter due to our hedging activity, however, going forward we should the future results positively impacted should these currency levels persist. Comparable income tax expense of CAD185 million represented an increase of CAD23 million versus the same period last year due to higher pretax earnings and changes in the proportion of income earned in higher tax jurisdictions, partially offset by lower flow-through taxes and Canadian regulated pipelines. Net income attributable to non-controlling interest is CAD[9] million compared to the same in 2014 primarily due to the sale of our remaining 30% interest in GTN to TC Pipelines in April 2015 and [Visnor] in late 2014 along with the foreign currency translation impact of the US dollar minority interest in the LP. Now moving on to cash flow and investing activities. Cash flow remained robust with funds generated from operations of approximately CAD1.1 billion in the quarter, representing a 16% increase year-over-year. Capital spending, which includes projects under development, totaled CAD1.1 billion in the second quarter driven principally by NGTL system expansions, construction activities on Mexican pipelines, Northern Courier and Napanee, along with ongoing expansion work at ANR to accommodate new contracted shale gas volumes. Equity investments of approximately CAD100 million reflect activities related to the Grand Rapids pipeline and Bruce Power. Turning next to slide 21. Our liquidity, financial position, and access to capital markets remain strong. On June 30, our consolidated capital structure consisted of 36% common equity, 5% preferred shares, 4% junior subordinated notes, and 55% debt net of cash. From a liquidity perspective, we had approximately CAD600 million of cash on hand, CAD5 billion of committed non-drawn revolving bank lines available with our high-quality bank group, as well as two wells supported commercial paper programs. Being one of a very small group of pipeline or midstream companies in North America with A grade credit, we believe our financial strength and flexibility provides us with competitive advantage, particularly during stressed market conditions and positions us commercially as a counterparty of choice. Access to capital markets at all points of the economic cycle is imperative to ensure we can execute on our growth plans and act when opportunities arise. In terms of financing activity, to date in 2015 we've raised in excess of CAD4 billion on attractive terms in order to fund our capital program and refinance scheduled debt maturities. Over the past several months we closed the sale of our remaining interest in GTN to TC Pipelines LP, issued US CAD759 million of 60 year junior subordinated notes that will be accorded the track of equity credit from our rating agencies, and place CAD750 million of medium term notes in Canada to fund the growing system NGTL system rate base. At the end of June we also reset the rate on our Series 3 preferred shares from 4% to 2.15% for the next five years. At that time, holders elected to convert 5.5 million of our 14 million outstanding Series 3 shares into floating rate Series 4 preferred shares which will pay a floating quarterly dividend for the same five-year period at a yield of 90 Canada T-bills plus 128 (technical difficulty) for a rate setting was at 1.95% per anum. In closing, the Company produced very strong results from its diverse portfolio of [typical] energy infrastructure assets in what are challenging energy market conditions. Comparable earnings per share and funds generated from operations were up 20% and 16% respectively compared to the same period of 2014. With a solid foundation in the form of high-quality and diversified suite of assets and a sizable portfolio of small to medium-size growth products under development, we remain committed to continue with increase in the dividend of an annual rate of 8% to 10% through 2017. Our strong internally generated cash flow from our three core businesses is expected to provide a significant source of funding for our capital program in addition to underpinning a growing dividend. Given our financial strength, we remain well positioned to finance our capital needs throughout various market conditions. Finally, we also continue to advance a number of attractive opportunities in addition to our CAD46 billion of commercially secured projects that will lead to sustained growth in earnings, cash flow, and dividends for our shareholders over the remainder of the decade. That's the end of my prepared remarks. I'll now turn the call back over to David for the Q&A. -------------------------------------------------------------------------------- David Moneta, TransCanada Corporation - VP of IR [5] -------------------------------------------------------------------------------- Thanks, Don. Just a reminder before I turn it over to the conference coordinator, we'll take questions from the financial community first and once we've completed that, we will then turn it over to the media. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Paul Lechem from CIBC. -------------------------------------------------------------------------------- Paul Lechem, CIBC World Markets - Analyst [2] -------------------------------------------------------------------------------- Thank you. Good morning. Question on commentary in your written materials on your internal Alberta oil pipeline experiencing a slowly paced growth. I'm just wondering if you can elaborate on that and what that means in terms of in-service dates and cost (technical difficulty), Grand Rapids, Heartland, and Northern Courier -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [3] -------------------------------------------------------------------------------- Sure, Paul, it's Paul Miller here. I'll start with Northern Courier. We are preceding with the construction of Northern Courier and it's proceeding well, targeting a 2017 in-service date. On our Heartland pipeline, we continue to enjoy solid commercial support and we've elected to proceed with the project at a time when the committed volumes require transportation. We continue to contract up Heartland, but we are aligning the in-service date with Heartland when we need to move those of volumes to the marketplace. On Grand Rapids, we are proceeding with the in-service for Grand Rapids for initial volumes in 2016, and we will follow up with the full system deliveries in 2017. We do anticipate, however, a slowing growth of (inaudible) and the buildout of the Grand Rapids system to align with the slowing pace of growth of oil production that was seen in Alberta. -------------------------------------------------------------------------------- Paul Lechem, CIBC World Markets - Analyst [4] -------------------------------------------------------------------------------- If I'm reading you that Heartland now has no fixed in-service dates, is what you're saying? -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [5] -------------------------------------------------------------------------------- That's correct. A lot of the commercial underpinning for Heartland is tied to Energy East and Keystone XL. And as we get better visibility to the in-service date those 2 ex-Alberta pipelines, we'll look at the in-service date for Heartland, or as we contract independent volumes on Heartland. -------------------------------------------------------------------------------- Paul Lechem, CIBC World Markets - Analyst [6] -------------------------------------------------------------------------------- Okay. Thanks. And if I could just as a couple of questions on PRGT. You haven't yet given an updated cost for that, but the pipeline from when it was initially announced, the route increased by about 25% in additional kilometers -- 20% I guess. Some of that is underwater. So, should we be thinking about on an order of magnitude here the costs have gone up at least 20% and potentially significantly more? Is that how we should be thinking about it? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [7] -------------------------------------------------------------------------------- Paul, it's Alex. As Russ mentioned, we are seeing cost pressures on that largely for some of the reasons that you've identified, which is increased scope and some more complexity in the project. Our plan when this project is finally sanctioned, we will give an update. Our customer is fully apprised of where we are and we don't think it's going to be very much longer before we can give a bit of an update, but I don't think we're going to speculate at this point. -------------------------------------------------------------------------------- Paul Lechem, CIBC World Markets - Analyst [8] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Robert Catellier from GMP Securities. -------------------------------------------------------------------------------- Robert Catellier, GMP Securities - Analyst [10] -------------------------------------------------------------------------------- Just some additional clarity on the internal Alberta slowing. This is a question of just moving out the in-service dates and there is no deferral or makeup for the impact to TransCanada? -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [11] -------------------------------------------------------------------------------- Robert, it's Paul Miller here. If I understand your question, so on Grand Rapids we're proceeding with the construction of Grand Rapids, the dual pipeline system. We have in place an anchor shipper who requires the dual system and we're targeting the 2017 in-service. Beyond the anchor shipper, we would anticipate billing out the system through laterals, et cetera, to attach to incremental production. That build out and the bringing on of additional volumes beyond the anchor shipper will continue, but we believe at a slower pace than initially anticipated. -------------------------------------------------------------------------------- Robert Catellier, GMP Securities - Analyst [12] -------------------------------------------------------------------------------- Okay. And then can I get an update on Bruce Power to see if there's been any advancement in bringing that to a final investment decision? -------------------------------------------------------------------------------- Bill Taylor, TransCanada Corporation - President of Energy [13] -------------------------------------------------------------------------------- Sure, Robert. It is Bill Taylor here. The status of discussions between Bruce Power management and the ISO on the potential transaction associated with the refurbishments of units 3 through 8 are continuing. I can report that they are progressing well. We haven't reached any definitive agreement at this point, but we are quite encouraged with the progress. -------------------------------------------------------------------------------- Robert Catellier, GMP Securities - Analyst [14] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Andrew Kuske from Credit Suisse. -------------------------------------------------------------------------------- Andrew Kuske, Credit Suisse - Analyst [16] -------------------------------------------------------------------------------- Thank you. Good morning. The question just relates to a bit of the capital flexibility that you've got and how are you thinking about your balance sheet right now and the bit of the interest rate dynamics across the border where you've got an environment in the US with rising rates, Canada more compression, and then obviously what also falls into the mix is a little bit of what we've seen in the MLP market in the US where that's really come back in pretty dramatically, where you've seen raising about a 20% decline in the lot of the names. -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [17] -------------------------------------------------------------------------------- In terms of the balance sheet strength, it really doesn't very at any point in the cycle here. It's a solid A grade credit and allows us to act on whatever might arise. In terms of interest rate exposure here, we're predominantly fixed rate finance, so in terms of a rise in US rate environments shouldn't have any significant impact on us. In general, we have an average turnover of about 16 years and we're over 90% fixed rate funded. And a rising interest rate environment as well. We have a significant cost pass through ability on several of our projects and assets. So, the things we can control in interest front, we think we're pretty good shape there. We'll see what the FX dynamic here is. If we do see rate diversions (technical difficulties) United States. Just from an FX perspective, for every $0.10 move in the currency is about a $0.10 impact on earnings. We do hedge on a rolling one-year forward basis here. So, not seeing much impact from this very sizable shift in the currency over the past 12 months coming through yet, but we should start seeing that come through in future quarters and years here. In terms of the overall environment, looking at assets and the like, we're being who we are. We see pretty much everything that transacts in North America. So we're, as always, interested observers. If anything comes loose that might be of interest and fits our criteria, but there's really no change at this point in the cycle from any other point in the cycle other than we will see what, if anything, does arise. -------------------------------------------------------------------------------- Andrew Kuske, Credit Suisse - Analyst [18] -------------------------------------------------------------------------------- That's helpful. And then maybe just a followup moving away from just interest-rate movements themselves, on spreads. Are you seeing less movement with the A credits like herself versus the BBB and BB credits that are in the market place right now? -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [19] -------------------------------------------------------------------------------- Pretty broad spectrum of credits out there, but generally it's when you do see stress market conditions where the A diverges from a lower rate of credit more dramatically. That's the environment we appear to be headed into. So, the benefits of the A are probably more pronounced in these choppy market conditions than when things are robust across the complex. Okay. That's very helpful. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [20] -------------------------------------------------------------------------------- Thanks, Andrew. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Robert Kwan from RBC Capital Markets -------------------------------------------------------------------------------- Robert Kwan, RBC Capital Markets - Analyst [22] -------------------------------------------------------------------------------- Morning. If I can just start with Keystone. Just wondering if you're part of the better results as well. Are you seeing a trend to any shippers bypassing Steel City and sending more crude into the Gulf Coast? -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [23] -------------------------------------------------------------------------------- Robert, it's Paul Miller here. The Gulf Coast market is seeing increased activity on Keystone, Keystone seeing increased activity down in the Gulf Coast largely sourced at Cushing. The Cushing market from Hardisty-based barrels continues to be the market of choice, it seems. We saw this spreads pretty strong here between Hardisty and Cushing in the first quarter. They collapsed into the first part of the second quarter, but they seem to have rebounded a bit here, so we're seeing good flows into the Cushing market and then from the Cushing market down to the Gulf Coast -------------------------------------------------------------------------------- Robert Kwan, RBC Capital Markets - Analyst [24] -------------------------------------------------------------------------------- So there a financial benefit to you with the way you're picking up volumes on the southern part of the system? -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [25] -------------------------------------------------------------------------------- There is. We're flowing about 450,000 barrels per day on the southern part of the system. That's up from about 400,000 barrels a day late last year into the first quarter. On Keystone, we've seen our flows increase into about the 550,000 barrel per day range and that's been fairly sustained over the course of 2015. -------------------------------------------------------------------------------- Robert Kwan, RBC Capital Markets - Analyst [26] -------------------------------------------------------------------------------- If I can just look at around more capital allocation and the dividend, you've got two upside options here, one around the value of all the projects you've got and then also around doing something on the dividend. I recognize you don't want to do anything to jeopardize the value of the projects by painting yourself into a corner on funding. When you look at the delays in Alberta and look at how energy has been pushed back and Keystone XL has been pushed back, it kind of feels like if that's to come together regardless it's just going to be a size that you can't finance out of your cash flow. So, is there an ability to move the payout ratio up a little bit just to get that dividend growth that you have at 8% to 10% to something north of 10% to be a little more competitive with the North American peers? -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [27] -------------------------------------------------------------------------------- It's Don here. The capital program is still in that $6 billion for the next couple of years here as well, so it's not entirely hinged on the large projects. There is quite a sizable portfolio of the small to mid size stuff that we continue to finance. We expect to add to that portfolio here over time. So, it's a balancing act in terms of prudency, and we recognize fully the value that our shareholders place on the dividend and the growth in that dividend. We think earnings do matter, so that is a metric that factors into it. But, yes, this 8% to 10% range is our comfort level right now based on what we have in front of us and with the A grade credit and the like and we continue to revisit that as we see our portfolio develop [in terms here]. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [28] -------------------------------------------------------------------------------- I will just add to that, Robert. It's Russ. As we said before, the 8% to 10% was predicated on our projects that we've got underway to get us into that range, into the higher range would be greater confidence around the future of those capital projects. So, as we see greater visibility of those actually coming to fruition, whether that be our West Coast LNG projects or the long haul oil projects, or even some of the other projects that we're working on in our portfolio right now that are substantial. If we see a direct line of sight to that long-term earnings and cash flow growth, we don't have major issue with increasing our payout ratio in the short run. As we said, to get to above that 8% to 10% level, we want to have some greater visibility around those longer term projects and certainly that's what we're working on. -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [29] -------------------------------------------------------------------------------- We're not going to hold back dividend growth to store up capital for these large projects, and the magnitude of them aside they are all heavily or fully contracted for decades. So we're pretty comfortable in the financibility of those projects. We view it as a high-grade problem if we did have to get out in the marketplace and finance them, but if that's the dynamic we're looking at right now, we're not going to hold back dividend growth. And we may augment it if we have greater clarity on earnings and cash flow growth going forward. -------------------------------------------------------------------------------- Robert Kwan, RBC Capital Markets - Analyst [30] -------------------------------------------------------------------------------- Okay. So any step up in dividend growth is really tied larger projects. Is there anything else that you might be considering that could develop that would cause you to want to move the payout ratio up? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [31] -------------------------------------------------------------------------------- I think as we said, these long-term projects are greater visibility of growth in our base business. As we've said, there's several organic projects on our horizon. Greater visibility of build out to the NGTL system, the ANR system bringing Marcellus gas moving south in the expansions of those kinds of systems. As we see our base business continue to grow as well, that gives us greater confidence. As Don said, earnings do matter to us but visibility of the growth in that and the payout ratio in the short run isn't a major sort of factor. It's where we think things are going over the long term. So, there's obviously those shorter term organic projects, greater efficiencies that we can gain in our base businesses along with those greater visibility future opportunities will be the things that drive our dividend decisions over the coming quarters and years. -------------------------------------------------------------------------------- Robert Kwan, RBC Capital Markets - Analyst [32] -------------------------------------------------------------------------------- That's great. Thank you very much. -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [33] -------------------------------------------------------------------------------- Thanks, Robert. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Linda Ezergailis from TD Securities. -------------------------------------------------------------------------------- Linda Ezergailis, TD Securities - Analyst [35] -------------------------------------------------------------------------------- Thank you. Wondering on your NGTL project, what is the scale of possibilities in terms of further requests. I am assuming it's somewhat constrained by your ability to develop in that region? Can you talk about if this is more back-end loaded this decade, or if there is some potential in some way to accelerate some of your expansions there? -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [36] -------------------------------------------------------------------------------- For the NGTL system -- it's Karl, Linda. Right now, as you know, we're undergoing about $2.7 billion expansion of that system. We have our regulatory applications in for about $2 billion of that and we're working on the rest right now. We're seeing very little slowdown in that expansion. Our customers are asking that we proceed on it and although we may see some of it extend into 2018, we're expecting the vast majority to be completed in 2017. Aside from that, we have closed the queue recently on NGTL. We have more receipt service requests for transportation on NGTL right now in front of us. We're just going through the system design for that request and we will hopefully, in the next couple of months, be able to determine what type of expansion that will be. Probably won't be as big as the $2.7 billion expansion that we are undertaking right now, but there is a reasonable amount of received service requests in front of us right now for that people are asking for. So we will have some expansion coming for 2018 and beyond. -------------------------------------------------------------------------------- Linda Ezergailis, TD Securities - Analyst [37] -------------------------------------------------------------------------------- Thank you. And to follow up, Karl. Your sort of the pressure restrictions you're seeing right now, do you see that being on schedule to get result with the NEB? -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [38] -------------------------------------------------------------------------------- Yes. We're expecting -- the NEB issues, the rates from the NEB we're still expecting September, maybe late September, to have them all lifted. The pressure restrictions you're seeing right now is really on the western side -- Western Alberta, Northeast BC, are both from our integrity work. Both our normal integrity work and integrity work we've requested from the NEB and our regular maintenance process right now. This part of our system is extremely full and we have been cutting interruptible transportation quite significantly over the last few months and hopefully by the end of Q3 we'll have most of the maintenance integrity done and we'll have some are interruptible transportation for our customers, but really most of the tests we have done have been interruptible transmission. We have seen some firm service cuts, but they've generally been isolated on short duration, but we do hope by the end of Q3 that we'll have re-established that interruptible capacity for our customers back again. -------------------------------------------------------------------------------- Linda Ezergailis, TD Securities - Analyst [39] -------------------------------------------------------------------------------- Great. Thank you. Just a followup on your Alberta power hedging philosophies and approach. I realize the competitive dynamics and sensitivities, but can you comment on how much you have been dispatching your PPA contracts and to the extent that that has maybe come down in expectations, as well, for the next year or two, is there a bias towards less to no contracting to ensure you're not long-powered during these lower price times? Or can you comment on how you're approaching the Alberta fleet? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [40] -------------------------------------------------------------------------------- Yes, you're correct in that we don't typically like to discuss the approach we're taking to the Alberta market in any detail for competitive reasons, but I can tell you that we approach it cautiously as it relates to you saw some of the activity in late May and into June that impacted the quarter as it related to some outages in the Alberta market. So, we approach our program pretty carefully as it relates to ensuring that we're well-positioned to not only capitalize on those kinds of opportunities, but also to ensure that we don't find ourselves on the wrong side of events like that. In terms of going forward, the market, as Don mentioned in his opening remarks, is at present pretty well supplied. We've seen some reductions in overall demands with the general economic climate in Alberta at the moment. So, we're cautiously optimistic that there may still be so be some opportunities in the latter half of the year. Prices have obviously been quite low other than the adjustments that occurred in June due to some outages. That's about all I guess I can say on that. -------------------------------------------------------------------------------- Linda Ezergailis, TD Securities - Analyst [41] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [42] -------------------------------------------------------------------------------- Thanks, Linda. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- Rob Hope from Macquarie. -------------------------------------------------------------------------------- Rob Hope, Macquarie Research Equities - Analyst [44] -------------------------------------------------------------------------------- Thank you and good morning, everyone. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [45] -------------------------------------------------------------------------------- Good morning, Rob. -------------------------------------------------------------------------------- Rob Hope, Macquarie Research Equities - Analyst [46] -------------------------------------------------------------------------------- Most of my questions have been answered, but maybe just a few clarifications. On the Grand Rapids, can you maybe comment on how much anchor volumes you have on the system and what is an expected ramp in returns would be on there. -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [47] -------------------------------------------------------------------------------- Hi, Rob. It's Paul Miller here. We haven't released the anchor volume commitments. Grand Rapids has the capability of moving 900,000 barrels per day of blend southbound and diluent northbound. The anchor shipper in itself provides us with the threshold volumes to proceed and with a suitable return will probably start the capacity of Grand Rapid out of the gate at a lower amount in that 500,000 to 600,000 barrel range and then add power as we go. But we haven't disclosed the shipper's commitment and it's inappropriate for us to do so. But it is enough to proceed with the project and then attract additional barrels as the production growth. -------------------------------------------------------------------------------- Rob Hope, Macquarie Research Equities - Analyst [48] -------------------------------------------------------------------------------- Alright. Thanks for that. And then maybe just shifting east. I just noticed that the Eastern mainline and service date shifted to 2019 from 2017 in your disclosure versus Q1. Is that just to run it up in terms of the energy oil project? -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [49] -------------------------------------------------------------------------------- Yes. Rob, It's Karl. Yes, that's just lining up with the energy East project. -------------------------------------------------------------------------------- Rob Hope, Macquarie Research Equities - Analyst [50] -------------------------------------------------------------------------------- Alright. Good to hear. Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- [Matthew Hackman] from Scotia Bank. -------------------------------------------------------------------------------- Matthew Hackman, Scotia Bank - Analyst [52] -------------------------------------------------------------------------------- Thanks. Good morning. A couple of questions just around the triggers for construction on Pac Northwest LNG. Obviously the permitting is going very well at the provincial level and on the other hand some of the First Nation is a little more choppy. So I'm just wondering, let's say we get an FID, would TransCanada begin construction on the pipeline even if some of these first nations legal challenges persist? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [53] -------------------------------------------------------------------------------- Hey, Matthew. It's Alex. I think we've also always said with this project we seek to reach agreements with all of the affected first nations and I think if you'd seen our disclosure over the last couple of months you've seen we've been making a significant amount of progress in signing project agreements with a number of the bans on both of the projects. From our perspective, we believe we will, by the time this project is ultimately sanctioned, reach agreement with the vast majority of affected first nations. It has never been a criteria for us that we reach -- that we get 100% of those. That's obviously what we strive for, but we think we're well on the way of getting a significant base of support for this project to proceed. -------------------------------------------------------------------------------- Matthew Hackman, Scotia Bank - Analyst [54] -------------------------------------------------------------------------------- Could you just please confirm, Alex, that any risk related to any legal challenges or tolling issues on North Montney on the project are at the risk of Petronas and not TransCanada? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [55] -------------------------------------------------------------------------------- Sorry, on the North Montney -- -------------------------------------------------------------------------------- Matthew Hackman, Scotia Bank - Analyst [56] -------------------------------------------------------------------------------- First on the Pac Northwest LNG, if there's any risk related to legal challenges following construction commencement, whose responsibility is that, TransCanada or Petronas? -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [57] -------------------------------------------------------------------------------- It's Karl. I can talk about the North Montney and that's an NGTL project, so that would be the risk of building that infrastructure would be part of the NGTL infrastructure. So I guess if we had any delay or whatnot that would be between NGTL and our customers then. -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [58] -------------------------------------------------------------------------------- With respect to PGRT in the way that it's constructed, Matthew, is that when we're building this on behalf of our customer and for the most part all of the risks pass through to that customer, it's a hypothetical question that you're asking that's got a myriad of potential outcomes, which I wouldn't want to speculate at this point in time as Alex said. Our intent is to get as many first nation agreements as we can and we believe that our agreements well protect our shareholders, but I don't think I can share with you much more than that at this point in time. -------------------------------------------------------------------------------- Matthew Hackman, Scotia Bank - Analyst [59] -------------------------------------------------------------------------------- Okay. Thanks. Those are my questions. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- Steven Paget from First Energy Capital. -------------------------------------------------------------------------------- Steven Paget, First Energy Capital - Analyst [61] -------------------------------------------------------------------------------- Thank you and good morning. Karl, could you please update us on progress at Clearwater and what we can expect in the remainder of the third quarter at that station? -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [62] -------------------------------------------------------------------------------- For the outage that we have there? -------------------------------------------------------------------------------- Steven Paget, First Energy Capital - Analyst [63] -------------------------------------------------------------------------------- Units 1 and 5, yes. -------------------------------------------------------------------------------- Karl Johannson, TransCanada Corporation - President of Natural Gas Pipelines Business [64] -------------------------------------------------------------------------------- So we're making good progress. We are expecting it to be able to re-establish our firm service here before the end of the third quarter. So that's about all I can say right now. It's a recent issue that we've had, but we are working on getting it back up. -------------------------------------------------------------------------------- Steven Paget, First Energy Capital - Analyst [65] -------------------------------------------------------------------------------- Thank you. Second question. The Magellan announcement looks like it gives some optionality to the Houston delivery and to Keystone XL. Is there an opportunity to add similar connectivity to the Port Arthur end or is that pretty much got all the connectivity it needs? -------------------------------------------------------------------------------- Paul Miller, TransCanada Corporation - President Liquids Pipelines [66] -------------------------------------------------------------------------------- Him, Steven. It's Paul Miller here. So, you're accurate on the Magellan opportunity. We're excited about being able to team up with Magellan and allow us to essentially access the 2 million barrels per day plus refining capacity in the Houston, Texas, city marketplace and that's a business model we like where we can team up with folks downstream of us to encourage flows on the Keystone system. So, we'll continue to look for similar opportunities in all the markets we serve, including the Port Arthur marketplace and I do think there are opportunities in Port Arthur. -------------------------------------------------------------------------------- Steven Paget, First Energy Capital - Analyst [67] -------------------------------------------------------------------------------- Opportunities there. Thank you. Final question if I might. Are we looking at any further drop downs to TC pipelines LP in the remainder of the year? -------------------------------------------------------------------------------- Don Marchand, TransCanada Corporation - EVP & CFO [68] -------------------------------------------------------------------------------- It's Don here. Yes, we can't give you a specific timing, but we're still on path to bend the rest of our US gas pipes into that vehicle on a systematic basis. There's been no change to our thinking. -------------------------------------------------------------------------------- Steven Paget, First Energy Capital - Analyst [69] -------------------------------------------------------------------------------- Thank you. Those are my questions. -------------------------------------------------------------------------------- Operator [70] -------------------------------------------------------------------------------- Thank you. We'll now take questions from the media. (Operator Instructions) [Ashat Dutta] from [Plattes]. -------------------------------------------------------------------------------- Ashat Dutta, Plattes - Analyst [71] -------------------------------------------------------------------------------- Hi, good morning. Two very for quick questions if I may. When or at what stage will you take a call on the single export terminal at Energy East? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [72] -------------------------------------------------------------------------------- Hi, Ashat, it's Alex Pourbaix. As Russ said in his prepared remarks, we are well advanced in the process of determining the ultimate configuration for Energy East. We stated that our plan is to file an amendment with the National Energy Board prior to the end of the year. I think we're still on that path and we are relatively close to making that decision. -------------------------------------------------------------------------------- Ashat Dutta, Plattes - Analyst [73] -------------------------------------------------------------------------------- Okay. And the second question in that case, in case there is only one terminal, how would refineries in Quebec be served? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [74] -------------------------------------------------------------------------------- Even in the event that we were to proceed without a marine terminal in Quebec, all options that we are considering would continue to have the pipeline direct connected to the Quebec refineries. So under any scenario energies will be able to serve the overwhelming need of those refineries in Quebec. -------------------------------------------------------------------------------- Ashat Dutta, Plattes - Analyst [75] -------------------------------------------------------------------------------- Okay. Lovely. Thanks. -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [76] -------------------------------------------------------------------------------- You're welcome. -------------------------------------------------------------------------------- Operator [77] -------------------------------------------------------------------------------- [Julien] (inaudible). -------------------------------------------------------------------------------- Unidentified Participant, - Analyst [78] -------------------------------------------------------------------------------- Thanks for taking my questions. Regarding the possibility of another terminal in Quebec, how has been the evaluation process right now? Has it been more difficult that you thought and have you had discussions with some towns regarding this possibility? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [79] -------------------------------------------------------------------------------- They for the question, Julien. Once again, Alex Pourbaix here. We have undergone really comprehensive review of all of our options and as those go from living at alternative sites along the St. Lawrence within Quebec to, as we mentioned, potentially just going with one marine terminal in New Brunswick. And in all of those cases we have engaged with stakeholders and will make an informed decision based on all of those discussions and the information we gathered from that. -------------------------------------------------------------------------------- Unidentified Participant, - Analyst [80] -------------------------------------------------------------------------------- Okay. And second question. I wanted to get your thoughts on TransCanada. For the last month and a half the tone of the prime minister of Quebec seems to have changed regarding and Energy East. He now says that the financial impact is not sufficient enough in Quebec for the government to give approval to the project. What do you make of that change of tone from the last month and a half? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [81] -------------------------------------------------------------------------------- I'm not sure there's been a significant change in tone. I think from the very early days both the Quebec government and the Ontario government have indicated that their conditions for support include looking at the economic benefits of the project to the respective provinces, and one of the -- I think something that is often lost in this discussion is whether or not you talk about a marine terminal. There is already an extraordinary economic benefit for those provinces. I think that my recollection is that just through the reconstruction period and operation period in Quebec alone we and our consultants are estimating GDP impact in excess of $6 billion. We're going to employ 4000 people alone full-time equivalent through the development and construction stage. But on top of that we really do take seriously that these projects have to provide long-term benefits in the provinces in which they're situated. You might've seen, several months ago we announced in Peterborough with GE that as a result of Energy's proceeding, GE has been able to make a commitment to move their large industrial motor production global Center of Excellence to Peterborough. That's totally based on the energies project proceeding. And I would just suggest that everybody should stay tuned because over the next several months as we get more clarity on Energy East, on the scope and the alignment of the project we also intend to roll a lot more positive affirmation about benefits of this project to the provinces. We're not at all concerted at the end of the day that this project will pass the criteria providing economic benefit for the provinces. -------------------------------------------------------------------------------- Unidentified Participant, - Analyst [82] -------------------------------------------------------------------------------- Okay, thanks. Was that Mr. Pourbaix who answered my question? Not sure of the voice. -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [83] -------------------------------------------------------------------------------- Yes, it was Alex Pourbaix. -------------------------------------------------------------------------------- Unidentified Participant, - Analyst [84] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Operator [85] -------------------------------------------------------------------------------- Lauren Krugel from the Canadian press. -------------------------------------------------------------------------------- Lauren Krugel, Canadian Press - Analyst [86] -------------------------------------------------------------------------------- Good morning. I'm just looking at the capital program chart and the figures for the cost estimate and how much has been sent and I see about $700 million for Energy East. I'm just wondering at this stage in the process what that figure would have been spent on given that it is so early on. -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [87] -------------------------------------------------------------------------------- I think the first thing that you have to look at is first of all this is a 4500 km project, it has 75 pump stations. This project has very, very significant scale and scope. Where the regulatory process has gone in order to make a regulatory filing, a very significant amount of field work, environmental studies, technical studies, engineering reports needs to be prepared along with preliminary engineering. All of this is required just to inform the application. On top of that, there is a real significant obligation in something that TransCanada would do in any event, but to work with stakeholders in the regions and to give you an idea, we have held somewhere in the range of 120 open houses. We've worked with the better part of 8000 or 9000 individuals in terms of our stakeholder outreach. The last I saw, we've already held 1600 meetings with affected first nations along the route, and as you can imagine all of that work has costs associated with it. The one thing I would say is that where we are right now terms of cost for the project, there's very little incremental cost required to get us to the regulatory hearing stage. So, a lot of the number that you saw we don't expect that number to get significantly larger prior to the hearing. The other issue that I should also mention is in order to make the application we also have to satisfy our regulator that the existing gas pipe that we are proposing will be converted to oil usage. We have to do a significant amount of integrity work on those pipes and that work has been done once again to inform our application and give comfort to the regulator. -------------------------------------------------------------------------------- Lauren Krugel, Canadian Press - Analyst [88] -------------------------------------------------------------------------------- Okay. Thanks for the clarity on that and that sounded like Alex answering the question? -------------------------------------------------------------------------------- Alex Pourbaix, TransCanada Corporation - EVP, President Development [89] -------------------------------------------------------------------------------- Yes. Sorry, Alex answering again. -------------------------------------------------------------------------------- Lauren Krugel, Canadian Press - Analyst [90] -------------------------------------------------------------------------------- Okay. Great. Thanks so much. -------------------------------------------------------------------------------- Operator [91] -------------------------------------------------------------------------------- Rebecca Penty from Bloomberg News. -------------------------------------------------------------------------------- Rebecca Penty, Bloomberg News - Analyst [92] -------------------------------------------------------------------------------- Thanks for taking my question. It's about Keystone XL. As you guys are well aware, there's been also recently regarding the potential for Obama to reject Keystone XL in August when the Senate leaves. I'm just wondering in terms of the possibility of a NAFTA challenge and an investor state disputed settlement, as it's called. I'm wondering how TransCanada is looking at the potential of that and any remedy that the Company would have in the event that Obama (technical difficulty)? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [93] -------------------------------------------------------------------------------- I think as we've said before, Rebecca, TransCanada will employ whatever means necessary to protect its shareholders and its shareholder value, but that's not our focus at the current time. As I said, our focus is on the regulatory proceedings, as you know, in South Dakota and working through those issues, working through the outstanding Supreme Court issues in Nebraska and getting ourselves in a position so that we can construct this facility upon a positive decision by the Department of State with respect to rumors and things like that. We've been at this for seven years now and there's been lots of rumors of lots of different things. We continue to just sort of focus on the things that we're good at, which is trying to get a safe and reliable pipeline built. I don't want to speculate on what happened post any scenarios or outcomes. At this point in time, it's not our focus. -------------------------------------------------------------------------------- Rebecca Penty, Bloomberg News - Analyst [94] -------------------------------------------------------------------------------- Would you comment at all on how you see that -- like whether it could be successful, any NAFTA challenge? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [95] -------------------------------------------------------------------------------- At this point in time it's not a focus that we have. No decisions have been made, so it would be premature to speculate on anything like that. -------------------------------------------------------------------------------- Rebecca Penty, Bloomberg News - Analyst [96] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [97] -------------------------------------------------------------------------------- Claudia Cattaneo from The National Post. -------------------------------------------------------------------------------- Claudia Cattaneo, The National Post - Analyst [98] -------------------------------------------------------------------------------- Hi. Thanks for taking my question. Actually, I would just like to follow-up on the last one. I know that you're focus is not on what other options you might have on Keystone XL, but if it does get rejected would you just refile a new application under a new administration, and would a re-filing basically involve -- like can you use some of the work that you've already done, or it would have to be a complete re-filing of an application for Keystone XL? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [99] -------------------------------------------------------------------------------- Claudia, as I said no decision has been made. It's difficult to speculate on that. What I can tell you that the demand for the project is greater than it was when we made the application. I think you've heard me say before the production is up in Canada. We're moving more barrels by rail. Production is up in the US coming out of the Bakken. They're moving that production by rail. Demand is up in the US. So, the need for the pipeline remains. All of our shippers remain 100% supportive even through the declining commodity price here that we've seen. We've gone back to all of our shippers. As I said, we continually work with them on all of our projects to understand what changes in commodity prices will have on their future needs. They have reiterated their need for Keystone pipeline and their commitment to the contracts, so it would be our intent to continue to press to build that pipeline because the demand doesn't change. Obviously that will be our intent under any scenario is to continue to press for the approval of building this pipeline. What that would require in the event that you outlined, we can't speculate on what that is because we don't know what that looks like at the current time. But certainly we don't see that there's any rationale at the current time for a negative decision. As I said in my prepared remarks, the greenhouse gas admissions question has been answered several times by the Department of State and its environmental review. The question of safety has been answered, and at the current time we see no rationale for anything but a positive decision, so that's when we continue to press and provide information to the Department of State that could help them augment the current record and drive us towards making a positive decision. -------------------------------------------------------------------------------- Claudia Cattaneo, The National Post - Analyst [100] -------------------------------------------------------------------------------- If I may, just a followup. You highlighted in a recent letter to the State Department the fact that Alberta has implemented more stringent climate change regulations. Have you heard in a response at all about that? -------------------------------------------------------------------------------- Russ Girling, TransCanada Corporation - President & CEO [101] -------------------------------------------------------------------------------- No, we haven't. We filed that information, as we do on a continuous basis, with the Department of State, any material updates and given the greenhouse gas emissions question has gathered so much attention, we wanted to ensure that the record was as full as possible and had indicated, A, the conclusion that had already been come to that the pipeline won't have an impact on greenhouse gas emissions. The EPA had indicated on several occasions that Canada could be doing more. So, we updated the Department of State with, as you pointed out, the most recent changes in Alberta emission regulations, which increase the stringency on a per-barrel basis in terms of reduction emission targets and increase the penalties, if you will, if emissions are above those levels. That's a significant incentive for the industry to continue to reduce greenhouse gas emissions; they continue that. At the same time we updated the Department of State on Canada's commitment to greenhouse gas reductions. They had made certain statements with respect to their position going into Paris, the 30% reduction by 2030, their 2050 reduction targets, and the 2100 reduction targets, as well. So in terms of the greenhouse gas emissions questions, what our intent there was up for us to ensure that the record was up to date as much as possible, again to indicate that the Canadian production continues to be a leader and Canadian jurisdictions continue to be a leader in greenhouse gas emissions reductions standards relative to why they are producing countries around the world. -------------------------------------------------------------------------------- Claudia Cattaneo, The National Post - Analyst [102] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [103] -------------------------------------------------------------------------------- Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Moneta. -------------------------------------------------------------------------------- David Moneta, TransCanada Corporation - VP of IR [104] -------------------------------------------------------------------------------- Thanks very much and thanks to all of you for participating this morning. We very much appreciate your interest in TransCanada and we look forward to talking to you again soon. Bye for now. -------------------------------------------------------------------------------- Operator [105] -------------------------------------------------------------------------------- Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.
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