TC Energy Corp. Q3 FY2026 earnings call

Strategic Positioning and Growth:

• TC Energy is a pure-play natural gas and power company with unrivaled geographic diversification across Canada, the US, and Mexico.
• The portfolio is uniquely positioned at the intersection of molecules and electrons, capturing growth from both natural gas transmission and power generation.
• Management announced $3 billion in new projects, bringing the total sanctioned and pending approval project spend through 2031 to $30 billion.
• The opportunity set in origination has increased to more than $40 billion, reflecting rising power demand.

Operational Excellence and AI Integration:

• Execution excellence remains a core competitive advantage, with 95% of projects on or ahead of schedule and delivered at more than 10% under budget since 2025.
• AI and innovation are being embedded into operations, with AI-enabled capacity management initiatives generating approximately $65 million of incremental EBITDA year-to-date.
• The company aims to achieve a $100 million run rate of AI-driven comparable EBITDA in 2026, targeting an additional $100 million in 2027.

Key Project Announcements:

• Crossroads: A $1.8 billion US project adding 1.4 BCF/day of capacity, connecting Appalachian supply to Midwest demand.
• American Midwest Project: Modifies existing facilities to add up to 1 BCF/day east-to-west capacity on Northern Border for ~$400 million total cost.
• Coastal GasLink Phase 2: An investment advancing LNG connectivity, nearly doubling capacity to ~4.5 BCF/day for LNG Canada.
• Bruce Power: Unit 3 completed MCR seven months ahead of schedule; Unit 4 expected back online by end of 2027, four months ahead of plan.

Commercial Strategy:

• Achieved eight consecutive win-win settlements with customers and regulators since 2024.
• Focus on long-term take-or-pay contracts with quality counterparties, maintaining risk-return preferences.
• Canadian LNG connectivity and power demand are key drivers, with gas-fired generation forecast to grow 83% between 2015 and 2035.

The company reported strong financial performance across its four business segments. Natural Gas Pipelines delivered record EBITDA, with U.S. natural gas pipeline comparable quarterly EBITDA up 17% year-over-year, driven by $2 billion of new assets placed into service and commercial settlements. Power and Energy Solutions saw EBITDA increase 35%, supported by Bruce Power achieving 97% availability and full quarter contributions from Unit 3 following its early completion. Overall, the firm generated over $3 billion in third-quarter comparable EBITDA (up 13% YoY) and $9 billion year-to-date (up 13%). Comparable earnings per share rose 22% to $0.94.

• Raised 2026 Comparable EBITDA outlook to $11.8–12.0 billion, representing a $200 million increase versus the previous range.
• Revised 2027 Comparable EBITDA expectation to $12.3–12.5 billion, up from the prior $11.7–11.9 billion range.
• Extended long-term outlook to 2031, projecting comparable EBITDA growth of 5%–7% annually over the next five years.
• Low end of the 5%–7% growth range is underpinned by sanctioned and pending approval projects ($6 billion annual run rate).
• Midpoint to high end assumes $8–9 billion of annual net capital spending from 2029 through 2031, requiring a ~15% conversion ratio of the $40 billion origination pipeline.
• Debt-to-EBITDA leverage is expected to exit 2026 at 4.55–4.6 times, well below the long-term target of 4.75 times.
• Dividend growth targeted at 3%–5% annually.

• Regulatory and Permitting Risk: Management highlights permitting as a core competency and primary triage factor for capital allocation, noting that political shifts (e.g., midterm elections) can impact local governance and project timelines.
• Execution Risk: While execution has been strong, scaling capital spending beyond the $6–7 billion range requires continued organizational capacity and disciplined project delivery.
• Market and Contractual Risk: Power projects involve varying contract durations (as short as 10 years); management mitigates this by ensuring return of capital within the contract period, avoiding terminal value risk.
• Supply Chain Constraints: Securing equipment and construction crews for rapid power project deployment requires strategic alliances and careful supply chain management.
• Capital Allocation Risk: Balancing investments between natural gas pipelines, power solutions, and Bruce Power’s future nuclear expansion (Bruce C.) while maintaining leverage targets.

Q: Rob Hope asked about the composition of the upper end of the 5%-7% EBITDA growth outlook through 2031, specifically regarding the role of new pipeline vs. power investments and the risk-reward framework for power contracts.

A: CFO Sean O'Donnell clarified that the low end is fully supported by sanctioned/pending projects (~$6B annual CapEx). The midpoint/high end relies on converting $6-$12 billion from the $40B origination backlog, likely involving significant power components. CEO Francois Poirier and EVP Greg Grant confirmed that even shorter-duration power contracts (10 years) are accepted provided they ensure full return of capital within the term, adhering to strict risk-return thresholds.

Q: Praneet Satish inquired about the drivers behind the doubling of the origination funnel to $40 billion, the nature of the $15 billion power opportunity, and technology choices for these projects.

A: CEO Francois Poirier broke down the funnel into $25 billion for natural gas and $15 billion for power, all located in Canada. EVP Greg Grant explained that despite some 10-year contract durations, the company avoids terminal value risk by structuring deals for full capital recovery. He emphasized strategic supply chain alliances to secure turbines and equipment quickly, enabling speed-to-market for grid-connected and behind-the-meter projects.

Q: Ben Pham asked about the NGTL investment framework beyond the current $3.3 billion program, the funding source for the $2-$3 billion annual Bruce Power cash flow unlock in the early 2030s, and potential capital spending increases beyond $10 billion.

A: CEO Francois Poirier noted discussions with NGTL customers are progressing toward a post-2029 framework, aiming for higher returns via shared risk/reward. CFO Sean O'Donnell confirmed Bruce Power’s free cash flow will be reinvested into TC Energy’s broader programs independent of Bruce C. decisions. CEO Poirier stated that if Bruce C. proceeds and execution remains excellent, annual CapEx could exceed $10 billion, leveraging Bruce’s management capacity.

Q: Jeremy Tonet sought updates on Appalachian production opportunities, specifically Gulf Coast access, and potential monetization of mature Mexican assets like Guadalajara.

A: EVP Tina Faraca highlighted Columbia Gas’s dominant position in Appalachia, transporting 20% of basin supply, with Crossroads extending reach to the Midwest. She noted readiness to serve Gulf Coast via Columbia Gulf assets when market conditions align. CFO Sean O'Donnell addressed capital rotation, citing the recent Guadalajara sale as an example of high-value asset monetization, but stressed the current five-year plan does not require further rotations.