There’s still uncertainty surrounding TC PipeLines’ (TCP) future. The company slashed its 1Q18 distributions 35%. The company’s shares closed 29% down on May 2 following its earnings and distribution cut announcement. TC PipeLines stock fell significantly in March 2018 after a FERC (Federal Energy Regulatory Commission) ruling didn’t allow income tax allowance cost recoveries for FERC-regulated interstate MLP pipeline rates. TC PipeLines has fallen 53% in 2018.
Earlier, TC PipeLines said that the policy change wasn’t expected to have a material impact on its earnings in the near term. However, the company changed its stance significantly in the latest earnings release.
What has changed?
According to TC PipeLines, proceedings requiring it to reset rates on certain pipelines could begin “as early as late 2018.” Previously, the company didn’t think it would reset the rates until 2022. Now, TC PipeLines expects the FERC policy change to have a material impact on its cash flows. In the current form, the policy change might result in an ~$100 million annualized reduction in the company’s cash flows.
To add to TC PipeLines’ woes, TransCanada (TRP) has announced that it doesn’t consider a drop-down of assets to TC PipeLines as a “viable funding option at this time.” The announcement limits TC PipeLines’ growth opportunities.
According to TC PipeLines, the 35% distribution cut is a proactive step to manage its leverage and conserve capital. TC PipeLines is considering various strategic options including a change in its legal structure. According to the company, it might consider more changes in its distribution in the future.
TC PipeLines reported an EBITDA (earnings before interest, tax, depreciation, and amortization) of $150 million in 1Q18—compared to $125 million in 1Q17. The distributable cash flow rose to $112 million from $92 million in 1Q17.