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TC Pipelines L P (NYSE:TCP)
Q3 2019 Earnings Call
Nov 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the TC PipeLines, LP 2019 Third Quarter Results Conference Call.

I would now like to turn the meeting over to Ms. Rhonda Amundson. Please go ahead.

Rhonda Amundson -- Investor Relations

Thank you, Operator and good morning everyone. I am happy to welcome you to TC PipeLines' third quarter 2019 conference call. I'm joined today by our President Nathan Brown; our VP and General Manager Janine Watson; and our Principal Financial Officer Chuck Morris. Please note that a slide presentation will accompany their remarks and is available on our website at tcpipelineslp.com where it can be found in the Investor Section under the heading Events and Presentations. Nathan will begin the call today with a review of TC PipeLines' 2019 third quarter results together with an overview of our GTN XPress project which was announced last Friday November 1. Janine will provide a commercial update on the Partnership's assets and our growth program. Following which Chuck will provide a review of our financial results for the third quarter. Nathan will return and wrap-up our remarks with a brief discussion of our growth strategies and close with some key takeaways. Following the prepared remarks I will ask the conference operator to coordinate your questions.

Before we begin I would like to remind you that certain statements made during this conference call before we're looking regarding future events and our future financial performance. All forward looking statements are based on our beliefs as well as assumptions made by an information currently available to us. These statements reflect our current views with respect to future events and are subject to various risks uncertainties and assumptions and discuss in detail in our 20 1810 k as well as our subsequent filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialized or if the underlying assumptions proven correct. Actual results may differ materially from those described in the forward looking statements. Please also note that we use the non GAAP financial measures EBITDA and distributable cash flows during our presentation. EBITDA is an approximate measure of our operating cash flow during the period and reconciles directly to net income. And distributable cash flow is presented to provide a measure of cash generated during the period to evaluate our cash distribution capability. These measures are provided as a supplement to GAAP financial results and we provide a reconciliation to the most closely related GAAP measures in our SEC filings.

With that I'll now turn the call over to Nathan.

Nathan Brown -- President

Thanks, Rhonda. Good morning everyone and thanks for joining us today. As outlined this morning in our news release and looking at slide 4 I'm pleased to report the TC PipeLines had a very good quarter a solid results in our portfolio pipeline assets continue to perform as expected. We generated $56 million in net income during the third quarter 2019 10% lower than the 62 million we earn in the same period of 2018 largely due to the partial payout of licensed contracts in late 2018 together with lower rates on many of our pipelines following the 2018 FERC actions. Our EBITDA was similarly lower year-over-year at $100 million for the quarter compared to $113 million in 2018. Our distributable cash flow was $78 million for the third quarter of 2019 compared to the third quarter of 2018 when our DCF was $83million. The primary drivers for the decrease for our lower earnings and EBITDA together with generally higher maintenance capital expenditures resulting from higher system utilization in response to sustained increase natural gas transportation volumes. These cost increases were partially offset by an increase in distributions from Tuscarora related to the earnings generated in prior periods.

As the expected our results continue to reflect decreases from both our pricing contract payouts as well as the rate decreases resulting from the 2018 FERC action and higher maintenance costs. Although it has a drag on distributed cash flow reflect the positive environment of higher natural gas flow in our pipelines and these costs will be added to rate days in due course and your return on enough capital produce tolls. We paid out 47 million and distribution for unit holders story in an older string of quarter the same as what we paid out in the third quarter 2018. The partnership also declared third quarter distribution and $0.65 per combination which is consistent with our first and second quarter 2019 distribution and for each quarter 2018. They believe the maintain this distribution the current level is prudent in order to continue building a healthy financial position which will allow us to still fund our bank growth as we move forward. Chuck will discuss our financial results in more detail a little later in the call. We continue to advance our growing organic growth programs and are very excited to have announced the GG and express project last Friday November 1 or largest project and our 20 year history. This is an approximately 335 million integrated reliability and expansion projects to enhance market access for growing natural gas supply out of the Western Canadian sedimentary basins and allow additional market penetration along details pipeline system and the details of the project on the next slide. But first let me go the remainder of record quarter highlights. Also I knew this quarter; we're proceeding with a $13 million expansion on our Tuscarora pipeline. Tuscarora XPess is underpinned by a 20 year contract and will transport approximately $15000 per day additional volumes when complete in November of 2021.

Our other organic projects are progressing well with phase two of Portland Xpress and service as well as phase one of Westbrook Xpress both providing incremental capacity in our PNGGS pipeline system in the northeast. Janine will discuss these and other commercial zones developments in more detail in a minute or two. During the third quarter look at our financial position our bank leverage ratio was approximate 2.8 times and our distribution coverage also remained very strong and possibly 1.7 times for the quarter and in September 30 2019. These results are a testament to the resiliency of our portfolio and the continued success of our commercial strategies. This combined and to create ongoing value for you. Turning now to slide 5. Our GTN XPress project is an exciting development for us and for GTN and shippers. This is an approximately $335 million project that consistent both reliability work on the GTN system together with additional firm transportation service up to 250000 dekatherms per day on full path from Kingsgate Idaho Malin Oregon. In concert with TC Energy's upstream system expansion GTN XPress will provide our shippers with access to high value downstream markets as well as diversifying supply sources for all bases at Pacific Northwest.

The project consists of both horsepower replacement and other reliability work together with Brownfield compression and facilities and existing stations along the system. The map on this slide shows a handful of stations I'll be part of the project and I'll work will be conducted in existing yards and locations. More than three quarters of the total cost of this project relates to reliability working as expected we recover in recourse rates. Incremental firm capacity will be phased into service through November 2023 as fully underpinned by fixed negotiating contracts with an average term in excess of 30 years. It has no capacity anticipated generate approximately 25 million in annual revenue when fully and service. In keeping with our sole funding objective the project will be funded with new term debt as UTM. Together with equity contributions from partnership or equity injections will come from existing cash on hand together with borrowings under our revolving credit facility. All this project is very positive self RTC pipelines and represents the sort of Brownfield long term contract good solid returning project that we can sell fund to provide long term growth and value for our stakeholders

I'll now turn the call over to Janine Watson our VP and General Manager to provide additional color on assets our commercial developments together with our market outlook.

Janine Watson -- Vice President and General Manager

Thanks Nathan, and good morning everyone. Moving on to slide 6 I will provide a quick overview of the operating performance of our assets. Our pipeline will continue to provide on reliable services across our footprint generating solid results during quarter. Accepting Bison our pipelines operated at high levels of availability and utilization encountering no significant operational issues. In the west demand is strong for transportation service in our GTN pipeline. GTN is effectively sold out of firm and continues to make discretionary sales contributing to this assets continue to consistent performance. TC Energy's progress is the bottlenecking activities upstream of GTN resulting in approximately 150000 dekatherms a day of incremental supply capacity into this pipeline coming into service as of this November 1. In the Northeast PNGTPS successfully marketed short-term services in Q3 as hot weather in New England drove robust demand for gas to serve power load. With our PXP Phase II and Westbrook XPress Phase I projects coming into service as of the beginning of the month all of PNGTS its firm capacity is contracted out to 2030 and beyond.

Looking to our equity investments as it's been the case for the past few years Northern Border experienced strong demand for its capacity operating at very high levels of throughput. Its firm capacity was once again sold out in Q3 and our commercial team took advantage of market conditions to generate incremental revenue by offering it seasonally available capacity on short-term basis. Bakken receipts continue to account for more than half of the daily receipts on to this pipeline. We've remained committed to our Bison Pipeline and continue to explore both the natural gas line reversal and liquids repurposing development opportunities for this asset. Overall we're confident that our assets are well-positioned geographically with last mile connection to the key market centers across North America. Our pipelines are highly contracted reflecting ongoing demand for their natural gas transportation services. We have key connections out of the Western Canadian sedimentary basins one of the most prolific supply bases in North America through GTN Northern Border and Great Lakes and through Iroquois and PNGTS at the Eastern end of TC Energy's mainline system. And we're very encouraged by the high utilization rates on our pipelines which are driving solid revenues and cash flow.

Our business development team is in the process of soliciting customer interest in several potential projects across TCP's footprint designed to meet the demand for incremental transportation at competitive costs to our customers. And I will discuss those a little bit further on the next slide. Turning to slide 7. A key focus for us is the execution of our organic growth program where we are seeking to execute a portfolio of Brownfield growth projects within our existing footprint and targeting a five to seven times growth multiple. Our Portland XPress project is proceeding on time with Phase 1 in service in late 2018 Phase 2 just last week and Phase 3 in service plans for November1 of 2020. This project is approximately $85 million in total capital costs and will add about 183000 dekatherms per day of capacity to PNGTS. We're also proceeding with our Westbrook XPress at PNGTS. This is an approximately $125 million multi-phase expansion project designed to help serve markets in Northern New England and Atlantic Canada but have until recently been served by offshore gas production from Sable Island and Deep Panuke. Phase 1 of this project will be supported by pressure agreements with our upstream affiliated pipelines bring an initial 43000 dekatherms a day into service starting in November of this year without the need for any construction. This phase was phased into service on November 1st 2019.

Phase II requires the addition of a compressor and associated facilities at an existing station on the Portland system and will bring up further 59000 dekatherms of firm capacity to this pipeline system intended to be in service by November of 2021. And the Management Committee has authorized a Phase III expansion for this pipeline which will provide capacity for an additional 18000 dekatherms per day to be in service by November of 2022. Once both these projects are fully in service PNGTS's capacity will have almost doubled from 210000 dekatherms per day at the beginning of 2018 to close to 400000 dekatherms by the end of 2022. And as Nathan mentioned earlier we recently announced that GTN is proceeding with this GTN Express project which is expected to be fully in service in November of 2023. This is an integrated reliability and expansion project underpinned by fixed negotiated rate contracts for an average term in excess of 30 years. It is both a supply push and demand pull project with about 60% of the new contracts supplied by -- supported by WCSD gas seeking to diversify its market access and 40% supported by Pacific Northwest utilities looking to diversify their supply portfolio.

And we're also progressing with our Tuscarora Express project a smaller 13 million compressor -- compression project to transport 15000 dekatherms per day of additional volumes when completed in November of 2021. This project will service modest demand growth in and around Carson City and provides supplier diversity for the area. Now looking forward we continue to assess what other opportunities may arise to further take advantage of TCPs existing pipeline network. You can see on the map that we have highlighted four current opportunities being developed. As we've noted on previous earning calls we are developing the North Baja Express project an estimated $90 million project to transport additional volumes of natural gas along North Baja mainline system. The progress was initiated in response to market demand to provide firm transportation service of up to about 495000 dekatherms per day between Ehrenberg Arizona and Ogilby California. A successful open season was conducted in April of 2019 with a potential in service date as early as 2023. The project is subject to various commercial and other conditions as we move forward. We currently anticipating an FID decision on this project in July of 2020. Also of note is the potential expansion project on our Iroquois system which we are refer to as the Enhancement by Compression or the ExC project. This project has the potential to optimize the Iroquois system to meet current and future gas supply needs of utility customers while minimizing the environmental impact to compressor enhancements and existing compressor stations along the pipeline is successful. The project total capacity is expected to be approximately 125000 dekatherms per day with an estimated in service date in November of 2023. Still in the consultation phase and subject to various approvals the capital cost of this project is still to be determined as the optimal facility set is finalized over the course of the regulatory process. This project is intended to be 100% underpinned by contracts with 20 year term.

Turning to the Bakken area. We note that there is a significant supply push seeking incremental takeaway capacity that could be met by our Northern Border and Bison pipeline. Our business development teams assessing several options but the one-off focus on today is our Bison reversal project. This is a multi leg supply path from northern border state line Watford City receipt point down license for delivery on to third party pipelines and destined for ultimate delivery to Cheyenne. This project could provide an economic path to market for about 430000 dekatherms a day of Bakken production by Q4 of 2022. And finally our business development team is focused on finding opportunities to offer seamless transportation service from Canada to US markets via several paths which include our Great Lakes pipeline. During the second quarter of 2019 Great Lakes reached an agreement on terms of new long term transportation capacity contracts with its affiliate in our pipeline coming The contracts are for 15 years term from late 2021 to 2036 with a total contract value of $1.3 billion and are continues to work to secure commercial support and regulatory approvals for its proposed service offerings. So in summary TCPs management is pleased with our progress as we execute on our existing growth program and we continue to work toward new self funded growth opportunities across the TCPs footprint.

I will now turn the call over to Chuck Morris our Principal Financial Officer to discuss our third quarter financial results in more detail.

Chuck Morris -- Principal Financial Officer

Thanks Janine and good morning everyone. Moving on to slide 8 I'll now review the partnerships third quarter 2019 financial results. Net income in the third quarter was $56 million dollars down approximately 10% from $62 million in the third quarter of 2018. This equates to $0.76 per unit compared to $0.79 per unit in 2018. Several factors impacted our Q3 2019 results the net effect of which led to the decrease year-over-year. First revenue from Bison was marketably lower as a result of the election of two of its customers in Q4 of 2018 to payout their transportation agreements. Second as Nathan mentioned earlier we saw rate reductions on several of our pipelines emanating from the 2018 FERC actions. In addition to earlier decreases on GTN Great Lakes Northern Border and Iroquois Tuscarora had a scheduled 10.8% rate decrease effective August 1st of this year as part of the settlement reach for this customers in 2019. North Baja sales and short-term transportation services were also lower year-over-year as demand for natural gas transportation returned to more normal levels in California during the period partially offsetting these decreases GTNs revenue was higher in Q3 year-over-year despite the impact of its schedule rate decrease at the start of 2019.

GTNs Q3 2018 revenues were impacted by a one-time charge of $9 million related to its rate settlement. PNGTSs revenues were also higher this quarter primarily as a result of higher discretionary services sold during the unseasonably warm summer this year. In addition to revenues from its PXP Phase I project that went into service leads in 2018 partially offset by lower contracted revenue resulting from the expiry of certain of its legacy contracts. I'll discuss the other elements of earnings on the next slide. The partnership paid distributions of 47 millions of common unit holders in the third quarter the same amount that was paid in Q3 of 2018. As Nathan mentioned earlier which could we declared our third quarter 2019 distribution of $0.65 per common unit. This is consistent with that declared for both of first and second quarters of 2019 and for each of the preceding quarters in 2018. The partnership EBITDA was $100 million in the third quarter 12% lower than that of the same period in 2018. And distributable cash flows were $78 million in the third quarter of 2019 $5 million lower year-over-year.

The decrease was due to the same factors impacting that income together with generally higher maintenance capital expenditure on our pipeline systems during the quarter. Turning to slide nine revenues from our consolidated pipelines of $93 million were lowered over the same period for last -- the same quarter for last year for the reasons I've outlined on the previous slide. Equity earnings in the third quarter of 2019 were $3 million lower than the same quarter of 2018 primarily due to the increasing operating costs to Great Lakes related to its compliance programs and right away work alongside system combined with higher allocated costs from TC energy together with it was scheduled rate reduction emanating from its 2019 rate settlement as a result of the 2018 productions. Operating maintenance and administrative expenses during the third quarter were slightly higher than in the same quarter of 2018. As a result of ongoing pipeline compliance programs and increased allocated costs from TC Energy. Depreciation expense was lower by approximately 24% resulting from the asset impairment on Bison which we recognized during the fourth quarter of 2018. Financial charges were 13% lower in the third quarter of 2019 versus the same period of 2018 due to the full repayment of $170 million term loan in Q4 of 2018. And further reductions in our outstanding debt balance during the year.

Moving now on to our financial position on Slide 10. Our healthy financial position is reflective of our proactive measures that we have taken over the last year and a half. Our balance sheet is strong with a solid capital structure underpinned by our high quality energy infrastructure pipeline assets. Our investment grade credit ratings including our recent one notch upgrade from S&P from triple B minus to triple B flat provide us with the financial flexibility as we look to organically grow our portfolio in the future. And we believe our ratings reflect our solid financial condition and outlook. We look forward to executing on our suite of organic growth projects on a self funded basis without the need to access the equity capital markets. Our liquidity position remains strong. The partnership has $500 million of undrawn and available borrowing capacity under our senior credit facility as of November 7 2019. Consistent with our self funding model in order to build capacity for future organic growth we have continued to prudently manage our outstanding debt balance. In that regard we have reduced our overall debt by $150 million this year-to-date resulting in a bank leverage ratio of 2.8 times.

The bank leverage ratio is expected to migrate to the high threes to little four times area over time as the impact of one-time items including the Bison contract buyout go through the calculation. In response to the 2018 productions we rightsized our distribution in 2018 and have maintained it in 2019 resulting in a solid distribution coverage ratio of 1.7 times for the quarter ended September 30 2019. As Janine and Nathan have mentioned earlier we continue to execute on our organic growth program announcing both the GTN Express and Tuscarora Express projects this quarter with both TXP and Westport Express projects proceeding on budget. As we continue to use our steel undergrounded advantage across our pipeline systems to explore additional growth opportunities.

This concludes my remarks on the third quarter financial results. I'll now turn the call back over to Nathan.

Nathan Brown -- President

Thanks Jeff. On our first slide 11 as I mentioned at the outset we had a very good quarter this year and our assets continue to perform well proving out the resilience and strong position. We're very excited with the announcement of our GTN Express project a week ago. This project is reflective of potential organic growth across our suite of assets and fits our strategy to develop creative projects that we could sell fund to provide ongoing value for our stakeholders. Going forward our cash flow will continue to be derived from our portfolio of critical natural gas pipeline infrastructure assets underpinned by long-term shipper pay contracts with credit worthy shippers.We continue to prudently manage our financial positions and believe our actions have resulted in a strong balance sheet. Our bank leverage ratio is currently approximate 2.8 times and our distribution coverage this quarter is very healthy 1.7 times.

These healthy metrics are enabling us to self fund organic growth as outlined earlier in each of our GTN Tuscarora NB GTN projects. Longer term we are targeting to maintain our bank leverage ratio in the high-3 and low-4 times area and distribution coverage ratio of approximately 1.3 to 1.4 times. We reiterate that we do not need to access the equity capital markets to fund our current growth program as Jeff noted. Consistent with our self funding model and in order to build capacity for organic growth we have continued to pay down debt levels this year and execute our delivering program. Our focus remains on the optimization of our asset portfolio and will include organic growth over time such as our current portfolio projects on GTN Tuscarora NB GTN and our North Baja and Iroquois development opportunities. We continue to advance other options that fit within our geographic footprint and be our return on expectations. Bottom line is that our metrics are healthy and we're focused on executing our current and potential growth projects in order to drive long-term growth and continued value to our stakeholders.

I'll now turn the call back over to Rhonda.

Rhonda Amundson -- Investor Relations

Thank you Nathan and now Id like to open the call up for questions. Operator please go ahead.

Questions and Answers:

Operator

Thank you. Well now take questions from the telephone lines. [Operator instructions] Our first question is from Jeremy Tonet from JP Morgan. Please go ahead.

Unidentified Participant

Hey, good morning. This is Charlie and congrats on GTN Express. I wanted to just ask about the EBITDA contribution. Just given a lot of chunk of that is associated with the reliability work. Should we kind of expect to see a proportion step up in I guess would be late 21 early 22 and then the residual in 23. And it's five to seven times is that kind of a good multiple figures for this project?

Nathan Brown -- President

Yeah. Thanks for question. I'd say that that's generally what we're getting to. We obviously are looking through our regulatory strategy. I think we've got a good basis there. And that's when we do have the right reset on GTN in late 2021 Jan 1 2022. So that's when that's going to roll through we anticipated and yes we're targeting at 5 to 7 times.

Unidentified Speaker

And how much are you putting at the project level that was incremental?

Chuck Morris -- Principal Financial Officer

Yes. It's Chuck here. We'll look to fund that this opportunity set with -- I guess the way to think of it is about 50% debt at the asset level and 50% of the contribution coming from TC PipeLines again through cash flow. And if needed use of the revolver at TCP. We would note that from a GTN perspective it does carry a stand-alone rating at 8 points. So again from a ratings perspective is highly financeable at the asset level.

Unidentified Speaker

Okay great, And then second question on a Northern Border can you just comment on BT [Phonetic]levels are just continue to push higher? I think your partner noted a tariff change associated with BT levels coming next year. I'm not sure if that's correct.

Chuck Morris -- Principal Financial Officer

Yeah. Well we can confirm that. We're obviously working closely with ONEOK on that. We note that we are working on tariff changes to address it and are working with point operators on the other side to address the issue. So yes moving forward we kind of stay tuned on that but it's not impactful just yet. But we definitely have it as a focus and we are coordinated with ONEOK.

Unidentified Speaker

Okay great. And then the last one on -- with in respect to Bison a reversal there I guess how much would need to be greenfield pipe would need to be added there to kind of complete that reversal down to Cheyenne hub?

Chuck Morris -- Principal Financial Officer

Yes. In terms of pure greenfield pipe good question. It's an interconnected system for us. We have Bison connected directly into northern border. So insofar as this is a market solution with all the movements [Phonetic] in that. Can't really speak to any off system activated maybe going to complete it but as far as we're concerned we don't see any greenfield within our assets.

Unidentified Speaker

Perfect. Thank you.

Chuck Morris -- Principal Financial Officer

And sorry operator we're hearing a chiming noise. I don't know if that anything that you can control.

Operator

I'm trying to locate the noise. Thank you.

Okay.

Our following question is from Matt Taylor from Tudor Pickering Holt & Co. Please go ahead.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Yes. Thanks for taking my questions. Just one more on the Bakken in there. Has the project timeline slipped a little bit there into 2022? Or is this still what you're expecting? In thought the previous guidance was 2021?

Janine Watson -- Vice President and General Manager

Yes. I think it has slipped a little bit. There is an option for an early end service that may or may not be -- the window may be closing on that.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

You keep driving it some further.

Janine Watson -- Vice President and General Manager

So currently we're looking at 2022.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

It seems to be like producers clearly need to take away I mean we've talked about BTU content etc. and you guys have the pipe to do it? Can you just speak to what seems to be the hold-up?

Chuck Morris -- Principal Financial Officer

Yeah its certainly within the commercial discussions and ongoing detailed stuff there that we're we are not going to really comment on here but your points well taken. And certainly something we're focused with the new build capacity there. Just getting all the commercial terms lined up is the Bakken type getting done? May be pushing schedule just a little bit but we're still working very hard to get that paper done.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Yeah thanks for that. And then moving on to 2020 here it'd be helpful just how are you guys looking at EBITDA how is it shaping up versus 2019 with you had mentioned there's PXP Phase 1 Phase 2 and Westbrook Phase 1 now into service and then obviously there's some offsets there with FERC action impacts that I think the previous guidance was 20 million to 30 million. So just curious how 2020 is shaping up?

Chuck Morris -- Principal Financial Officer

With that I'll say the act of the dent we had on the impact from FERC actions is is in the rearview mirror. And it's blending in with the all the other activities that we've done. So as those changes came through our rates we have -- we've had additional contracting we've got additional commercial optimization of our different systems that it's really hard to sort of separate that impact out on a rolling basis going forward. As you know we don't give any kind of specific guidance on what we're going to be hitting in the future. But -- working through all of that I think we've got a good run rate here for 2020. And as we get the PXP projects and -- excuse me Westbrook spread coming into revenue immediately that will have the uplift from that. And then looking forward in 2021 will have the remainder of the Bison projects falling off as we work through the rest of the zone.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Is it think but as you mentioned it's immediately so two-thirds basically of PXP one-third of Westbrook some additional volumes on GTN and then you`ve mentioned some of the FERC action is blended in there. Is that the right way to be thinking about this?

Chuck Morris -- Principal Financial Officer

Yeah yes. It`s correct.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Then one last one just what types of projects are you guys planning for? You had mentioned the fourth one on the bullet point there on the slide of incremental projects of more market access for the WCSB? Is that on top of the Great Lakes recontracting? You are looking at doing more capacity in Great Lakes just curious on your thoughts?

Chuck Morris -- Principal Financial Officer

Well we always look for solutions on Great Lakes to typically fill it up. It has some term left on the volume for its existing kind of name plate capacity that can come with another kind of an integrated project where it requires any additional capital spent on the other side will remain to be seen but it's -- we remained a good path out of Western Canada for gas with that type in the ground and access to dawn and other storage markets. So it continues to be an appealing path for those modules need to buy in market.

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Great. Thanks for taking my questions.

Operator

Thank you. Our following question is from Michael Lapides from Goldman Sachs Please go ahead.

Michael Lapides -- Goldman Sachs -- Analyst

Hey guys, can you walk me a little bit through GTN Express; I just want to make sure I follow what's going on here? It seems like a great project by the way especially if you kind of track what's happening to Pacific Northwest gas prices a couple of times over the last year or so. But if I look at the capital it's $335 million of capital when you talk about that the new firm capacity is getting $25 million but I assume there's incremental revenue in addition to that $25 million that will be recovered in the kind of the recourse rate. Is there a way to kind of back into what that amount level would be?

Nathan Brown -- President

Well I think everybody's got their models and from our perspective we have to work that through our regulatory execution strategy and how we get that calculates through our recourse rates. So we don't publish what we think that's going to be. But I'd say in terms of our execution on regulatory recovered pulls it's what we're kind of -- we're guiding toward an execution similar to what we've been able to accomplish from that.

Michael Lapides -- Goldman Sachs -- Analyst

Okay, and am I right thinking about this that the first year that you'll have a full year run rate on the project would actually be 2024 so you've got commercial phase ins in November of 2022 and 2023?

Janine Watson -- Vice President and General Manager

Yes that would be correct.

Michael Lapides -- Goldman Sachs -- Analyst

Great. Can you talk about the process a little bit for Iroquois and just kind of what has to happen to actually get that project done and just kind of the regulatory steps through that?

Chuck Morris -- Principal Financial Officer

It's a very measured project and certainly with the concerns in the region with the different departments that are required and regulators that have a construction scale and scope the project it's a very iterative project I'd say going a little more measured pace than what might have been difficult in the past. So that's why we're sort of more notably hesitant to get timelines and more depth around it I think the case for it is very compelling. The need for additional capacity into the market is obvious. And this is one that makes a whole lot of sense and we're working with customers as well as the regulators to make sure this is optimized in a way that is positive for everybody.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you. And then last question when you think about 2020 do you think your net debt balance during the course of the year kind of stays flat at the current level expands a little bit to help finance some of the growth. I'm just trying to think about what the balance sheet 12 months out may look like?

Nathan Brown -- President

Yeah, that's a good way to think of it in terms of. The debt reduction that we're going to be seeing over the course but also the ramp up if you will in terms of the funding that we're going to be doing for some of the growth projects. So flattening of the debt for a period here is is really what we're seeing as we work with the curve the first couple of years of the growth portfolio program

Michael Lapides -- Goldman Sachs -- Analyst

Meaning you're basically going to fund a lot of the growth out of the existing cash flow that's left over after you pay the distribution?

Nathan Brown -- President

That's correct. I guess the way to think of it is that for each of the expansion opportunities that we're looking at here as a general rule we'll be looking for 50% of the debt to be at the asset level and 50% to be contributed by like I guess if you want to call it equity from TCP but that equity is really in the form of cash available from operations as well as if needed would be borrowing on the revolver at TCP. So again just to reiterate we're not looking at any equity to be raised in the market if you will relative to the expansion program here. The exception to that would be we see debt capacity for 100% to be able to fund that PNGTS as well as the smaller to go with respect to Tuscarora.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you guys. Much appreciate it.

Operator

Thank you. [Operator Instructions] The following question is from Alex Kania from Wolfe Research. Please go ahead.

Alex Kania -- Wolfe Research -- Analyst

Thanks. I guess question just on the kind of opportunities there is has there been any I guess there was a sense of a potential kind of delay in permitting. Is there any kind of movement that you could see just based on the timing of your project? Or is it just a fix in service date that doesn`t really move depending on what's going on for their downstream?

Chuck Morris -- Principal Financial Officer

Yeah we've got that we mentioned in next year to see that moves any -- if we have a negotiation at this point we don`t. So until we do anything far more we wouldn't say we're going to move anything at this point. But we're sort of waiting for all the conditions to come together for that one before we get into too many more specifics.

Alex Kania -- Wolfe Research -- Analyst

Great. Thanks.

Operator

Thank you. Ladies and gentlemen this concludes the question-and answer-session. If there are any further questions please contact Investor Relations at TC Pipelines LP. I will now turn the call over to Rhonda.

Rhonda Amundson -- Investor Relations

Great. Thank you everyone for your participation today. We certainly appreciate your interest in TC Pipelines and look forward to speaking with you again soon. Bye.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Rhonda Amundson -- Investor Relations

Nathan Brown -- President

Janine Watson -- Vice President and General Manager

Chuck Morris -- Principal Financial Officer

Unidentified Speaker

Unidentified Participant

Matt Taylor -- from Tudor Pickering Holt & Co. -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Alex Kania -- Wolfe Research -- Analyst

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