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TC Pipelines L P (NYSE:TCP)
Q2 2020 Earnings Call
Aug 5, 2020, 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 2020 Second 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 would like to welcome you to TC PipeLines' Second Quarter 2020 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 Investors section under the heading events and presentations. Nathan will begin the call today with a review of TC PipeLines' 2020 second quarter results. 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 second quarter. Nathan will return and wrap up our remarks 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 will be forward-looking regarding future events and our future financial performance. All forward-looking statements are based on our beliefs as well as assumptions made by and 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 as discussed in detail in our 2019 10-K as well as our subsequent filings with the Securities and Exchange Commission.

F one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, 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, adjusted EBITDA and distributable cash flow during our presentation. EBITDA and adjusted EBITDA are approximate measures of our operating cash flow during the current earnings period and reconcile directly to net income. 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 the reconciliations to the most closely related GAAP measures in our SEC filings.

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

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Thanks, Rhonda. Good morning, everyone, and thank you for joining us today. Clearly, we continue to limit extraordinary times with the COVID-19 pandemic persisting and having a significant impact on people around the world. We truly hope that you and your families continue to stay healthy and safe during these uncertain times. TC PipeLines' business continuity plans have been in place across our company since early March when the World Health Organization declared COVID-19 a global pandemic allowing us to continue safely and effectively to operate our assets and execute on our capital programs. The services we provide are broadly considered essential or critical given the important role our infrastructure plays in delivering energy to people and businesses across the United States. We take this responsibility seriously and have continued to deliver the energy and advanced projects vital to industries and institutions as well as meeting the needs of millions of Americans.

We've done this in a safe and reliable manner following rigorous health, hygiene and distancing protocols. These actions ensure energy that is vital to the daily lives of so many, continues to be delivered seamlessly across our country. I'll now turn to our second quarter financial results. As outlined in our news release and looking at slide four, I'm pleased to report TC PipeLines' solid quarterly results, with our portfolio of pipeline assets continuing to perform as expected with approximately 90% of our cash flow coming from long-term take-or-pay contracts, we are insulated to a great degree from the recent volatility associated with volume throughput. Commodity prices has been experienced by many others in the energy business. Customer demand for our services remained strong despite the impact of COVID-19 on the broader North American economy.

Aside from the impact of normal maintenance activities, planned regulatory adjustments and seasonal factors, to date, we have not seen any meaningful change in utilization of our assets, which further reinforces the resilience and stability of our natural gas midstream business. We generated $57 million in net income during the second quarter of 2020, slightly more than the $55 million in the same period of 2019. EBITDA was $103 million for the second quarter, and adjusted EBITDA was $110 million compared to $99 million and $113 million, respectively, generated in 2019 over the same period. The results were largely comparable year-over-year. We generated $55 million in distributable cash flow in the second quarter of 2020 compared to 2019, where DCF was conservatively higher at $70 million. The decrease is largely a result of higher maintenance and integrity capital expenditures.

The higher maintenance costs, although a drag on distributable cash flow, with what the positive environment of higher natural gas flows. And these costs will be added to rate base and enjoy a return on and of capital for future tolls. We paid out $47 million in distributions to our unitholders during the second quarter, the same as was paid in the same period in 2019. The partnership also declared a second quarter distribution of $0.65 per common unit, which is consistent with our quarterly distribution since the first quarter of 2018. The stability of our low-risk business model, which is underpinned by long-term take-or-pay contracts and strong demand for our essential energy services has provided the basis for our solid financial performance and our ability to maintain the distribution to our unitholders even in periods of economic stress and uncertainty. Chuck will discuss our financial results in more detail later in the call.

We also continue to advance our organic growth program. We're continuing on both our GTN XPress project and our Tuscarora expansion. Our PNGTS organic projects are progressing well and will provide for incremental capacity in our PNGTS pipeline system in the Northeast. We anticipate the changes to work practices and other restrictions put in place by government and health authorities in response to the COVID-19 pandemic could have an impact on construction time lines but generally believe this will not be material to our operations. Janine will discuss these and other commercial developments more detail in a minute or 2. During the second quarter, we also completed some notable financings. We successfully refinanced $100 million of maturing debt at GTN and upsized the transaction to allow for a necessary capital required for our GTN XPress project. We also extended the maturity date of Tuscarora's long-term loan by one year to August 2021.

Both of these transactions were accomplished amid the uncertainty in the financial markets and represent the continued confidence in our credit by the investment community. Two more notable credit events transpired during the quarter: Standard & Poor's upgraded Great Lakes credit rating by two notches to BBB+/Stable and Fitch awarded PNGTS a one notch upgrade, BBB+/stable, both the result of improvements in their financial risk profiles. Looking at our financial position during the quarter, our bank leverage ratio was approximately 3.9 times and our distribution coverage is approximately 1.2 times. Our liquidity position is likewise very strong. With no outstanding borrowings, we have full availability of our $500 million revolving credit facility.

And while we're proud of our financial performance and the returns we had generate for our unitholders, we know our ongoing success depends on our ability to balance the profitability with safety, environmental and social responsibility. I want to stress that safety and reliability are critical priorities for us. Our general partner, TC Energy, has a 65-year track record of safe and reliable operations, and we're committed to protecting the environment in all that we do. Our natural gas assets are critical to the quality of life in the communities they serve, and we believe that our systems will be important contributors in achieving greenhouse gas emission targets to further improve our carbon footprint in North America and beyond.

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

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

Thanks, Nathan, and good morning, everyone. Moving on to slide five. TCP's assets are highly contracted, critical infrastructure, as was evidenced in their steady performance this past quarter. As Nathan noted, these pipeline systems have firm take-or-pay contract structures that largely insulate them from volatility associated with fluctuations in markets or throughput. Despite the slowdown of economic activities due to COVID-19, we saw no meaningful change in utilization of our assets in Q2 when compared to our expectations based on prior year's experience, other than those we expect to see that are tied to our maintenance activity. And our assets encountered no material credit issues during this period, nor were there any noteworthy contract expirations or nonrenewals. Turning first to GTN. I'm happy to report that TC Energy's West path expansion work upstream of this asset came online in two phases on June and July 1.

This work facilitates an incremental 270,000 decatherms a day of natural gas to flow down the foothills pipeline for delivery onto GTN and is fully supported by long-term contracts that commence service on those dates. In Q2, GTN undertook a series of planned overhauls at several of its compressor stations and continued its scheduled program of automation upgrades and pipe replacement, largely recovering the minor scheduling delays seen in Q1 as our crews prepared to perform this work as per our new COVID-19 safety protocol. These activities helped prepare GTN to commence work on the GTN XPress project as planned in late summer and early fall this year. Looking to the Midwest. Operationally, Northern Border had a strong quarter experiencing no outages that required a restriction to firm and contracted capacity. However, due to market factors, we saw a decline in this asset, typically high utilization rate, operating at an average of 79% load factor through Glenn Owen for the quarter.

Bakken receipts averaged about 1.34 Bcf per day, down about 0.5 Bcf from Q1. At the same time, the WCSB flowed about 0.66 Bcf per day, down marginally from Q1. Northern Border's firm capacity is largely sold out, and the take-or-pay nature of those arrangements means that revenues from this asset are largely insulated from fluctuations in utilization rates. Furthermore, the strategy Northern Border undertook in Q1 of locking up its seasonal capacity for longer term provided a natural defense to the market dynamics that developed in Q2 as the collapse of oil prices and low demand drove down production of associated gas in the Bakken. At the same time, storage fields in the WCSB entered their injection seasons at historically low levels, creating a drive-to-fill storage in Canada and knit prices strengthened and significantly tightened the Alberta venture spread for most of the quarter. As a result, Northern Border's short-term and interruptible capacity went largely unfold for most of the quarter.

Interestingly, Rockies Gas responded to this opportunity, starting with about 10,000 to 15,000 decatherms a day and leveling off at about 95,000 decatherms a day of gas flowing on to Northern border at Glenn Owen. These flows are utilizing the remaining long-term capacities on our Bison pipeline, which expire in January of 2021. We think that this resumption of flows out of the Rockies illustrates the strength of a market pull dynamic on Northern Border down into the markets that serve. Now toward the end of Q2, as the price of oil stabilized and Alberta storage fills, utilization rates on Northern Border began to trend back to normal levels in the month of July. Looking forward, we think that strong market demand in the Midwest will keep Northern Border highly utilized and support contract renewals on this asset. So the supply mix between the Bakken, WCSB and Rockies may continue to be in flux. Turning briefly to regulatory matters.

As we discussed last quarter, a request was filed on May one for an 11,000 Btu heat content safe harbor provision for the natural gas that Northern Border received into its many receipt points across the system. On May 29, the FERC accepted and suspended Northern Border's request to change its tariff, subject to refund and the results of a technical conference scheduled for tomorrow, August 6. And before moving on, I will note that we remain committed to working toward an economical expansion project to provide approximately 0.5 BCf of takeaway capacity out of the Bakken, a potential project that could include reverse in Bison or making it flows bidirectional. The recent collapse in oil prices and resulting Bakken producer announcements have impacted progress on this effort. However, we believe that the Bakken is a prolific basin, and its producers and operators are highly resilient. We continue to look for opportunities to progress our Bison XPress project.

So its in-service date is being retargeted for early 2024, subject to factors like Bakken producer recovery timing and the resolution of the DAPL shutdown uncertainty. Now moving on. Great Lakes continues to be a steady performer, with equity earnings roughly on par with Q2 of 2019. FERC closed the 501-G docket for this asset in Q2, noting that Great Lakes had voluntarily reduced its rates by 2% in Q1 of 2019 and had a comeback provision by Q3 of 2022. This was the last of our outstanding 501-G dockets and, therefore, we believe there will be no further impact to flow from first 2018 actions affecting TC PipeLines. Iroquois equity earnings were slightly ahead of its Q2 2019 results, largely due to successful hedging and incremental firm capacity sales and lower property taxes. In Q1, Iroquois received notice that the Constitution pipeline was terminating the precedent agreement for Iroquois' right interconnect project in accordance with its terms.

On July 30, Iroquois signed a reimbursement agreement with Constitution and its guarantor, Williams Partners LP, for $48.5 million as payments for costs incurred. And a bill of sale was signed, transferring the product assets to Constitution. Payment was received July 31. GCP expects that its share will be distributed as a return of and on capital in Q3. Quarterly results on the remainder of our transmission systems were all roughly comparable to Q2 of 2019. Now turning to slide six. This chart illustrates our capital outlook for our major projects over the 2020 to 2023 period. It is largely unchanged from what we presented in May. To date, we have experienced no significant slowdown in our permitting, pre-construction or construction activities nor material changes to our planned capital expenditures as our operator, TC Energy has successfully implemented business continuity plans across our footprint. However, it's still too early to determine whether the pandemic will have any long-term impact on our capital program. We continue to monitor the impact that COVID-19 may have on productivity as we execute our projects.

The bars on the graph represent TC PipeLines' proportionate share of estimated capex based on our ownership level. Looking first at GTN Xpress, work continues on this project. The planned demolition work in support of Phase I's horsepower enhancement is expected to commence on schedule starting in late summer and early fall. Phase two calls for a news a new compression at existing stations with a planned in-service date of November 1, 2023. Work is under way to prepare the necessary regulatory filings for that matter. Looking at Portland's projects, the PXP project continues as planned. Phases one and two came into service on November 1, 2018 and 2019, respectively. Construction on Phase three continues without incidents, as our contractors COVID-19 mitigation plan has been successful in keeping the project on time while maintaining all the necessary safety protocols. Phase three gas flows are also contingent on the successful completion of a small scope of work upstream at a TQM compressor station.

We continue to monitor the progress of this work closely and currently anticipate that PXP will be fully in service on November one this year as planned. Turning to Westbrook XPress, Phase one came into service on November one last year, and Phases two and three are still estimated to be in service November 2021 and 2022, respectively. FERC issued certificates for both Phase two and three on June 18 of this year. Looking to North Baja Express, you will recall that this was a potential 495,000 decatherm expansion project along this asset's mainline designed to transport supply for IEnova's proposed Costa Azul LNG facility. IEnova noted on their recent analyst call that COVID-19 in Mexico has impacted the Mexican government's ability to issue permits. IEnova also said there have been no objections to its request for export permits so far as they are aware and indicated they expect to receive them once the Mexican government restarts its permitting processes.

Thus, North Baja has agreed to extend the date for an FID decision in its precedent agreement with this shipper to the third quarter of this year. The estimated project cost remains $90 million, excluding AFUDC. And we believe we can still achieve an in-service date as early as November 2022. North Baja filed for its Section 7C application for this project at the end of last year, and FERC has issued a schedule for environmental review for the project, which targets release of FERC's environmental assessment by September 8. Looking to Tuscarora. Tuscarora Section 7C filing was made on June 24, and FERC has solicited input into its environmental assessment project, comments on which are due by September 3. This project will increase firm capacity on Tuscarora by replacing an existing compressor unit with a larger capacity unit near Wadsworth, Nevada. This project has a cost of about $13 million, with a planned in-service date of November 1, 2021. And finally, Iroquois' EXC project continues to progress through its regulatory route.

FERC issued the notice of intent to prepare the environmental assessment on March 26 and has garnered about 70 comments of about 50 individuals and group. FERC continues to be on schedule to issue the EA by September 30. Iroquois is also making some progress on state and local approvals. For example, the project has received a successful coastal zone consistency review from Connecticut. In summary, work toward FERC's decision authorizing construction of this project is still anticipated in early 2021. And we continue to plan to self-fund the capital during this period through a combination of debt at the asset level and contributions from TC PipeLines, the latter funded with cash from operations together with our revolving credit facility, if required. And looking finally at maintenance capex. Though a small portion of our planned maintenance activities have been shifted to subsequent periods as a result of our business continuity planning, our proportionate share of normal course maintenance is expected to be $151 million in 2020, inclusive of a $38 million third quarter acquisition of a commercial IT system, again, all self-funded.

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

William Morris -- Vice President, Principal Financial Officer and Treasurer of TC PipeLines GP, Inc.

Thanks, Janine, and good morning, everyone. Moving on to slide seven, I'll now review the partnership's second quarter financial results. Net income attributable to controlling interest in the second quarter was $57 million or $0.78 per common unit compared to $55 million or $0.75 per unit in the second quarter of 2019. This represents a 4% increase year-over-year and was primarily reflective of higher revenues at PNGTS from its expansion projects and lower financial charges, partially offset by scheduled rate reductions on certain of our pipelines. EBITDA was $103 million in Q2 of 2020 versus $99 million in the year previous, with the increase again primarily the result of higher revenues at PNGTS. Our adjusted EBITDA for the second quarter of 2020 was $110 million compared to $113 million in 2019, approximately 3% lower.

The decrease was largely a result of higher maintenance spending at Northern Border, together with a lower distribution from our equity investment in Iroquois. Iroquois had been making quarterly payments to its owners of surplus cash on its balance sheet from the date of our investment in Iroquois. And the Q4 2019 installment marked the final payment associated with that obligation. The partnership paid distributions of $47 million to common unitholders in the second quarter, the same amount that was paid in Q2 of 2019. As Nathan mentioned earlier, we declared our second quarter 2020 distribution of $0.65 per common unit. This is consistent with that declared in each quarter since Q1 of 2018. And distributable cash flow was $55 million in the second quarter of 2020, $15 million lower year-over-year.

The primary drivers of the decrease were our lower adjusted EBITDA together with higher normal course maintenance and integrity capital expenditures on GTN, resulting from higher system utilization in response to sustained increased natural gas transportation volumes. The higher maintenance costs on our systems, although a drag on distributable cash flow, reflect the positive environment of higher natural gas flows. And these costs will be added to our pipeline's respective rate bases and will attract the return on and of capital through future tolls. Turning to slide eight. Revenues in our consolidated pipelines of $95 million in the second quarter of 2020 were $2 million higher than those of the same quarter last year. This was primarily the result of new revenues from PNGTS' growth projects that went into service on November 1, 2019.

The increase was partially offset by a scheduled rate reduction of 6.6% on GTN effective January one this year and a 10.8% decrease on Tuscarora effective August 1, 2019, together with lower opportunities for the sale of discretionary services by GTN during the period given the increased natural gas storage injections upstream of GTN in Western Canada. Equity earnings in the second quarter of 2020 were comparable year-over-year. And second quarter OM&A and depreciation expenses were also comparable to last year. Financial charges and other were $3 million or 14% lower in the second quarter of 2020 versus the same period of 2019, primarily attributable to higher allowance for funds used during construction, or AFUDC, which more than offset higher interest charges, resulting in the decrease. AFUDC increased primarily as a result of our continued spending on our expansion projects as well as higher maintenance capital spending.

Moving now to our financial position on slide nine. Our healthy financial position is reflective of the proactive measures that we have taken over the past two years. 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 those of our subsidiary companies, 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. As mentioned earlier, Great Lakes' credit rating was upgraded by two notches by S&P to BBB+, and PNGTS' rating was also upgraded by one notch to BBB+ by Fitch, both with stable outlooks. Both upgrades were primarily the result of ongoing improvement of their financial risk profiles due to the increase in long-term contracting levels including PNGTS' successful November 2019 on time and on budget in service of the Phase two of the PXP project.

A significant portion of our long-term contract revenues is with investment-grade customers. And we have not experienced any collection issues on our receivables to date. We continue to execute our suite of organic growth projects on a self-funded basis without the need to access the equity capital markets. Capital market conditions in 2020 have been significantly impacted by the COVID-19 pandemic, resulting in periods of heightened volatility and reduced liquidity. Despite this, our liquidity position remains strong, underpinned by our stable cash flow from operations, cash on hand and full access to our $500 million senior revolving credit facility. Turning now to some of our financing activities in the quarter. GTN successfully executed a $175 million 10-year private placement financing in June at an attractive rate of 3.12%. Proceeds were used to refinance its maturing $100 million 5.29% senior notes, with the additional $75 million to be utilized to fully fund the debt component of our GTN XPress project through the rest of 2020.

We also executed a $75 million private shelf facility, which will allow for draws over time to fund the remaining debt capital for the GTN XPress project through to completion in 2023. Additionally, we are successful in extending the maturity date of Tuscarora's $23 million unsecured term loan to August 2021 under generally the same terms. And lastly, we are well advanced in our activities to secure term financing at PNGTS to fully fund the capital cost associated with the Portland XPress and Westbrook Xpress projects. Consistent with our self-funding model, we continue to prudently manage our overall average debt balance, resulting in a bank leverage ratio of 3.9 times. This ratio has increased from now to the previous quarter due to the funding of our ongoing capital expansion program and is expected to migrate to the low to mid four times area.

We maintained our quarterly distribution of $0.65 per common unit, resulting in a solid distribution coverage ratio of 1.2 times for the quarter ended June 30, 2020. Although lower than previous quarters, we expect our distribution coverage on a run-rate basis to be in the 1.3 to 1.4 times area. As Nathan and Janine outlined earlier, we continue to execute on our organic growth program with our projects proceeding on time and on budget. And we continue to use our steel-in-the-ground advantage across our pipeline system to explore additional growth opportunities. That concludes my remarks on the second quarter financial results.

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

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Thanks, Chuck. I'll now refer to slide 10. As I mentioned at the outset, we had another good quarter this year, and our assets continue to perform well proving out their resilience and strong low-risk business model. Going forward, our cash flow will continue to be derived from our portfolio of critical natural gas pipeline infrastructure assets, underpinned by long-term take-or-pay contracts with creditworthy shippers. In aggregate, our systems are approximately 90% contracted on a long-term take-or-pay basis. We continue to prudently manage our financial position and believe our actions resulted in a strong balance sheet. Our bank leverage ratio is currently approximately 3.9 times, and our distribution coverage this quarter is a solid 1.2 times.

These healthy metrics are enabling us to self-fund our organic growth, as we outlined earlier, for each of our GTN, Tuscarora and PNGTS projects. Longer term, we're targeting to maintain a bank leverage ratio in the high three, low four times area and distribution coverage of approximately 1.3 to 1.4 times. As Chuck mentioned, our leverage is expected to migrate up to the mid four times as we progress through our capital program, but we anticipate it will settle back down to the long-term target range when the expansions are completed. We reiterate that we do not need to access the equity capital markets to fund our current growth program. Our focus remains on the provision of essential energy services together with the optimization of our asset portfolio that will include organic growth over time.

We're very excited to be pursuing approximately $700 million of growth projects across our suite of assets. These include our current GTN, Tuscarora and PNGTS Xpress projects, together with our North Baja and Iroquois development opportunities. We continue to conservatively manage our financial position, self-fund our ongoing capital expenditures and maintain our debt at prudent levels. And we believe we are well positioned to fund our obligation through a prolonged period of disruption should it occur. Based on all available information we know to us today, we expect to deliver a consistent financial performance going forward in our business to support our current good quarter to lead distribution level of $0.65 per common unit.

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

Rhonda Amundson -- Investor Relations

Thank you, Nathan. I'd now like to open the call up for questions. Operator, please go ahead.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Hello, operator, are you available?

Rhonda Amundson -- Investor Relations

Hello, everyone. If you can still hear us, we are reestablishing contact with our operators.

Operator

I apologize for the interruption. Are we ready for the question-and-answer session?

Rhonda Amundson -- Investor Relations

Yes. We are. If you could go ahead, that would be great.

Operator

Perfect. I'm sorry, have the instructions already been relayed?

Rhonda Amundson -- Investor Relations

Yes.

Questions and Answers:

Operator

So the first question is from Matt Taylor from Tudor Pickering, please go ahead, your line is now open.

Matt Taylor -- Tudor Pickering -- Analyst

Hey, thanks for taking my questions here on Bison, were those supply push or demand pull volumes? And I'm just wondering if you collected interruptible on those volumes? Or were they just existing shippers utilizing their take-or-pays?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

It was this is Nathan. The volumes were transported under the existing contracts. So it was a capacity released by the existing contract holders. I think it's probably fair to look at it as a demand pull. Just like we said, underscoring the value of the delivery markets that Rockies gas was looking to find. But yes, there's an element of supply push there too.

Matt Taylor -- Tudor Pickering -- Analyst

And then I was just thinking because I believe you've now referenced the Bison XPress being in 2024. Is there an opportunity here that you could do some recontracting in the interim? I'm just trying to think if this is just a short-term occurrence or if there's some more to read through here if there is some demand pull coming out of the Rockies.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Well, certainly, it's an opportunity we're watching. And to the extent that sort of dynamic would persist beyond January 2021 when the existing contracts run out, we would be looking at a marginal upside of what we kind of had in our plans with the expectation of some downtime before a Bakken XPress could materialize or excuse me, a Bison XPress.

The Bakken outflows and the down potential bidirectional flow on Bison is one that we see as a longer-term persistent market structure. But in the meantime, yes, we have the infrastructure there in place to service that Rockies gas, trying to find a home in the value market. So we'll be looking forward to that in our marketing opportunities going forward.

Matt Taylor -- Tudor Pickering -- Analyst

Yes. It's a nice segue over to Northern Border. You mentioned you expect recontracting to be robust there or to be resilient. How much is up for recontracting in 2020 and 2021 here if, in fact, Bakken flows take some time to normalize?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

I don't have that committed to memory. I'll let Janine kind of chime in here as soon as I'm done, but in terms of a longer-term look on the value for Northern Border, we see it being very strong. The recourse rate contracts on border have a five year right of first refusal feature in them.

So if we see a market condition providing the value that it has historically here for the last decade at anywhere near those levels, that value is going to pop out for all the people who are going to want to bid for that capacity. So as that capacity becomes available on a sort of a rolling basis, we don't see any real pressure on that recontracting.

Matt Taylor -- Tudor Pickering -- Analyst

Yes. Is it material in 2020, 2021? Or is it just a couple of hundred million here and a couple of hundred million there?

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

Are you asking about the cadence of contract renewal?

Matt Taylor -- Tudor Pickering -- Analyst

Yes. Exactly, yes.

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

Typically, on Northern Border, it's got about a five it's got a contract structure that drives five year renewals. And generally about 20% of these contracts come up every year. It changes a little bit year-to-year but not by much. But this is still very economic transportation on that path. So we do anticipate that all those contracts will renew.

Matt Taylor -- Tudor Pickering -- Analyst

Great. That's helpful. And then one last one. With FERC risk now behind you, I'm wondering, are you guys thinking of ways to attract incremental shareholders to garner a higher multiple? Like one way I'm thinking about specifically is converting to a C-corp or something else. I'm just curious if you can address that now as you've effectively put some of these risks behind you, you're looking at growth and now you're utilizing a self-funding model.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Yes. Sure. It's a question we get fairly often. I'd say it's something that we look at from a strategic perspective as far as corporate formation or electing to be taxed as a C-corp. And all of those are compelling from certain angles, but they also have costs. So we give those a thorough look on a fairly regular basis and run it through with our the rest of our GTN and our Board as something that we look at. It does have some selling aspects to it, but again, not costless.

Matt Taylor -- Tudor Pickering -- Analyst

Great, thanks for taking my questions.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

With offering thank you.

Operator

The next question is from Jeremy Tonet from JPMorgan. Please go ahead.

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good morning. Glad we got the operator back here. Just wanted to start off with Iroquois enhancement by compression. If you could just provide a little bit more detail, I guess, how that regulatory process is proceeding here. And ultimately, how much capacity could be sent to New York City seeing that there's not really going to be any new pipelines built to send more gas in there?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Thanks for the question. I'd say we're moving at a measured pace. As I mentioned in the remarks, the process is going at pace. The interveners that have chimed in at this stage with the FERC permit processing have I have mentioned they're $0.02, but nothing that we would say is unexpected or unusual. Kind of just kind of waiting in due course to let that keep moving down the critical path. But it's we're taking a measured pace. Blinds in with the ultimate customers VXC to make sure we address the stakeholders, and we're taking that kind of one jurisdiction at the time, as mentioned, with the Connecticut water survey that we did.

So that's it's going on pace. Nothing unexpected there. I think it's positive. As you mentioned, there's a limited capacity of physical assets that are going to be reaching New York metro area. And we're looking to optimize that with this one as a first step. There's certainly other opportunities to expand Iroquois via more midpoint compression, but exactly what how that would pencil out what the limits are of the engineering don't really have anything in hand to reference. But there's certainly that opportunity there. I don't know, Janine, if you have anything else to add.

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

Well, I think that's it. I think that any expansion needs to fit within the sort of legislative framework as well in New York. And I think that Iroquois' EXC project really does that. So that would be another dimension we'd be looking at down the road if there was to be another opportunity.

Jeremy Tonet -- JPMorgan -- Analyst

That's very helpful. And then wanted to come back to Bison and ask a little bit of a different question here. There seems to be a risk that Dakota Access Pipeline could be faced with a shutdown. At some point and if for some reason that were to happen for a period of time, it seems like there could be a call on the Bison pipeline to provide crude oil egress.

And if sufficient, I guess, demand materialized there and contracts met, what you guys were looking for. How does that how do you stack up those two different opportunities, I guess, as far as the gas service, bidirectional, the Bison project as you talked about it versus potential crude oil takeaway ease?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Yes. That's a good question, and that's a it's a moving it's kind of a moving target on how the Bakken outlook is going to look. I think everybody has looked at the basin. I can see that things change from kind of year-to-year on what may be the solution for its needs. As we've mentioned in the past, a liquids conversion option for Bison has been on the table. It's clearly more kind of technically intensive to get it done, but it's definitely possible. So our general partner, TC Energy, has converted gas lines to liquids in the past and so have others in the industry. So it's certainly not unprecedented.

And if the market were to play out to support that option better than a gas reversal case, and we've got kind of commercial commitments to do it, that's the type of project that we that does fit into our risk profile and something we'd be willing to invest in but waiting for the market to mature, make sure it's something executable and we can work through all the relevant stakeholders as we go. So, yes, it's an interesting opportunity, one that we've looked at in the past and have some plans to work through and actualize it, but it's early days.

Jeremy Tonet -- JPMorgan -- Analyst

That's very helpful. And just turning over to North Baja expansion real quick here. If eco were ever to be upsized to large-scale at some point in the future, would North Baja be able to be expanded further there? What type of project might that look like if the demand materialized?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

So similar to sort of our pipes in the Northeast with Iroquois PNGTS, the compression on North Baja is fairly limited as it's sitting right now. And there's some ability for additional midpoint compression, at least kind of on the drawing board. Getting that completed and what physical limits are there to the pipe is one question. The other one is where it's being sourced from and other infrastructure down south of the border that will be receiving it. But again, all of those opportunities are being considered in concert.

We know that, as we mentioned, the steel in the ground is the advantage that we've got, the avoidance of further greenfield, linear construction is of a premium. So we see things just like that additional upside in potentially by compression loan or enhancement of other existing facilities is one that's really kind of leading the charge in our industry as far as in corridor expansion and development.

Jeremy Tonet -- JPMorgan -- Analyst

Great. And just the last one, if I could. Just a quick question, hydrogen. While it's pretty early in the development at this point and has some way to go, being an energy infrastructure company, and if opportunities materialize to meet your investment criteria with long-term take-or-pay contracts with good counterparties, would you consider the possibility of providing hydrogen logistics or blending?

And for things like hydrogen or renewable natural gas, how much are you looking at those sorts of fields right now? And how could that be a part of your future mix?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Yes. Absolutely. That's the type of thing that you stepped it up pretty well. You've been listening to the way we evaluate our projects very closely. If we've got the right kind of risk profile and can utilize our assets to meet that, we're welcoming to that. And to the extent it's seen as a more green or more renewable option, we're certainly looking into those types of advancements as well. Small-scale stuff is already included in some of the work that we do on across our assets.

We've got bio manufactured gas facilities, small-scale looking indoor GTN pipe. We've got waste heat recovery systems on our Northern Border pipe. And we see this as normal course stuff. So it's part of the stewardship, part of what we can do to meet the needs and demands that are out there. And when you get something that's economic and uses our steel, we're happy to do it.

Jeremy Tonet -- JPMorgan -- Analyst

Great, that's very helpful. Thank you.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Thanks, Jeremy.

Operator

Thank you. [Operator Instructions] The next question is from Michael from Goldman Sachs. Please go ahead.

Michael -- Goldman Sachs -- Analyst

Hey, guys. Thank you for taking my question. I have really an easy one, although it's more about something I'm not sure I understood. Could you walk us through what happened with the Iroquois and Constitution that you talked about in the prepared remarks. How should we think about that if at all in terms of cash between the two entities as well as any ongoing, if any, earnings or EBITDA impact for TC PipeLines?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Yes. Thanks for the question, Michael. That's fair. I'm going to let Janine take it. She's kind of on the frontlines of that one. So she can give you a more precise answer than I could.

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

If I I'm hoping I heard you correctly. You were asking about the Iroquois WIP project, Wright Interconnect?

Michael -- Goldman Sachs -- Analyst

Yes. Apologies if you can't hear me. Just kind of you touched on a little bit with Constitution. And I'm just trying to yes. Can you explain that a little more in detail? And just how to think about the cash flow and earnings impact in the quarter and then going forward.

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

I think that the impact will be a return of and on capital on that original project. The WIP, or Wright Interconnect Project, was something Iroquois entered into more than five years ago with Constitution. And of course, it was terminated after some of the equipment had been purchased and had been stored for many years. So as part of the unraveling of that, there was a need to make Iroquois whole for loss of the project.

Which was done on an amical basis here just sort of weeks or so ago. So the cash has been paid to Iroquois, and Iroquois will give the equipment or has given the equipment to over to Constitution. And the cash will flow from Iroquois to each of its partners in Q3.

Michael -- Goldman Sachs -- Analyst

Got it. Much much much appreciated. And just can you remind us, I know you've wrapped up all the FERC related revenue actions post-tax reform. Can you remind us over the next two to three years, so between now and kind of 2022, where you have requirements for where you have to come back in for a FERC rate case?

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Yes. Sure. So we have a pretty steady cadence out there into the future, but fortunately, where we sit right now is pretty set. Our first rate reset is on GTN with new rates set to go into effect Jan 1, 2022, follow after that with both Great Lakes and Northern Border in fairly quick succession. Beyond that, it's going to be less material.

Michael -- Goldman Sachs -- Analyst

Got it. Great, thank you guys. Much appreciated.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Thank you.

Operator

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 Amundson.

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Okay. Well, we may have a technical difficulty with Rhonda. Thank you, everybody, for joining today. Appreciate your interest and hope that you and your families are staying safe and healthy now. Thanks. Goodbye.

Operator

[Operator Closing Remarks].

Duration: 50 minutes

Call participants:

Rhonda Amundson -- Investor Relations

Nathan Brown -- President and Director of TC PipeLines GP, Inc.

Janine Watson -- Vice President and General Manager of TC Pipelines GP Inc.

William Morris -- Vice President, Principal Financial Officer and Treasurer of TC PipeLines GP, Inc.

Matt Taylor -- Tudor Pickering -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Michael -- Goldman Sachs -- Analyst

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