Executive Summary / Key Takeaways

• Strategic Transformation Complete: TC Energy's 2024 spin-off of South Bow and Portland Natural has created a pure-play natural gas infrastructure company with 97% of EBITDA backed by regulated or long-term take-or-pay contracts, driving comparable EBITDA growth of 8% year-over-year through Q3 2025.
• Capital Returns Inflection: The sanctioned project portfolio's unlevered after-tax IRR has improved dramatically from 8.5% to approximately 12.5%, with management delivering projects 15% under budget and on schedule, demonstrating execution excellence that justifies increased capital deployment.
• Secular Demand Tailwinds: North American natural gas demand is forecast to grow 45 Bcf/d by 2035, driven by data centers (60% of U.S. growth within TRP's footprint), coal-to-gas conversions (40 GW of retirements), and LNG exports, with TC Energy uniquely positioned across all three jurisdictions.
• Financial Discipline Intact: The company maintains a 4.75x debt-to-EBITDA target while funding $31 billion in growth through 2028 with 80% internal cash flows and no equity issuance, keeping dividend growth at the low end of its 3-5% range to prioritize 12.5% IRR projects.
• Key Execution Variables: The thesis hinges on sustaining project execution as complexity increases, managing regulatory rate case outcomes beyond the Columbia Gas settlement, and capturing data center demand without overextending on the $6 billion annual capital target.

Setting the Scene: The Making of a Pure-Play Gas Infrastructure Giant

TC Energy Corporation, founded in 1951 in Calgary, Canada, and rebranded from TransCanada in 2019, has spent seven decades building one of North America's most extensive energy infrastructure networks. The story that matters today, however, began in 2024 when management completed the spin-off of its liquids business, South Bow, and divested Portland Natural, fundamentally reshaping the company into a focused natural gas pipeline and power generation powerhouse. This wasn't a simple portfolio pruning—it was a strategic recognition that the highest risk-adjusted returns now lie in regulated gas infrastructure serving power generation, LNG exports, and industrial demand.

The company operates through four segments that reflect its continental reach: Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, and Power and Energy Solutions. What distinguishes TC Energy from midstream peers is the integration of 535 Bcf of regulated natural gas storage capacity with 4,300 MW of power generation, including its significant interest in Bruce Power, one of the world's largest nuclear facilities. This creates a unique value proposition: the ability to offer bundled energy solutions that combine reliable fuel supply, storage flexibility, and baseload power to utilities and industrial customers facing unprecedented demand growth.

Industry dynamics have shifted dramatically in TC Energy's favor. Over the past 12 months, North American natural gas demand forecasts have increased by 5 Bcf/d, now projecting 45 Bcf/d of growth by 2035. The drivers are structural, not cyclical: electrification requiring 75% more electricity in Ontario by 2050, data centers consuming 9.1% of U.S. electricity by 2030, and LNG export capacity expanding by over 60 million tons per annum. TC Energy's 93,300 km natural gas network, connecting the Western Canadian Sedimentary Basin to U.S. Midwest and Northeast markets and Mexican power plants, positions it to capture a disproportionate share of this growth. The company's assets already supply 20% of Mexico's gas-to-power and will feed 80% of new public tender natural gas generation projects entering service over the next five years.

Integrated Infrastructure: The Storage and Power Differentiation

TC Energy's competitive moat extends beyond pipeline mileage. The 535 Bcf of regulated natural gas storage in Canada generates incremental EBITDA by capturing volatility in storage spreads, providing a flexibility that pure-play transporters like Kinder Morgan and Williams cannot match. This storage capacity acts as a shock absorber, allowing TC Energy to offer peak-day reliability to local distribution companies serving 80 million homes while optimizing its own asset utilization. When extreme cold triples demand, the company can withdraw from storage rather than relying solely on pipeline capacity, creating a reliability premium that justifies higher tolls.

The Power and Energy Solutions segment, anchored by Bruce Power, represents a strategic differentiation no midstream peer can replicate. Bruce Power's Major Component Replacement (MCR) program extends reactor life to at least 2064 while improving availability from historical averages of 84% to over 99% for refurbished units. The $1.1 billion Unit 5 MCR, sanctioned in April 2025, follows a proven model that management expects equity income to increase from $750 million today to $1.6 billion by 2035. This nuclear capacity becomes increasingly valuable as Ontario's electricity demand grows 75% through 2050 and nuclear requirements nearly triple. While competitors focus solely on molecules, TC Energy delivers electrons through a carbon-free baseload source, creating a dual-energy moat.

The company's AI adoption initiatives further strengthen operational efficiency. An integrity-focused AI platform automates document verification and compliance workflows, cutting review times from hours to minutes. Advanced algorithms optimize pipeline configurations and available capacity in real-time across U.S. assets, improving throughput and reliability. This isn't technology for technology's sake—it's a direct contributor to the 15% under-budget performance on $8 billion of assets placed into service in 2025, creating a cost advantage that competitors must match to compete on new project bids.

Financial Performance: Execution Excellence as Evidence

TC Energy's Q3 2025 results validate the strategic pivot, with comparable EBITDA increasing 10% year-over-year to $2.7 billion, driven by a 13% increase in the natural gas pipelines network. The Canadian Natural Gas Pipelines segment delivered a $68 million EBITDA increase, powered by higher incentive earnings on the NGTL System and contributions from Coastal GasLink following its October 2024 in-service date. System deliveries averaged 23.0 Bcf/d, up 2% year-over-year, while NGTL receipts grew 1% to 14.0 Bcf/d. More importantly, Alberta systems have seen an 80% increase in gas-for-power volumes over five years, with data center interconnection queues tripling in the last year alone—early evidence of the demand surge that will drive future growth.

The U.S. Natural Gas Pipelines segment increased EBITDA by $60 million, with the Columbia Gas settlement providing a 26% increase in pre-filed firm transportation rates. Daily flows to LNG facilities averaged 3.7 Bcf/d, up 15% and setting a new daily record of 4.0 Bcf on August 7, 2025. This performance occurred despite daily average flows across the system remaining flat at 26.3 Bcf/d, demonstrating the value of commercial innovations and capacity monetization. The segment placed nine new projects into service in 2025, each backed by long-term contracts that underpin the 12.5% portfolio IRR.

Mexico Natural Gas Pipelines saw comparable EBITDA surge 57% in Q3 2025, driven by the first full quarter of Southeast Gateway contributions. The project reached mechanical completion on January 20, 2025, delivered 13% under its original budget, and is contracted until 2055 with the Comisión Federal de Electricidad (CFE). Daily gas imports averaged 4% higher than 2024, with a record peak of over 8 Bcf/d in August. This performance validates TC Energy's ability to execute complex cross-border projects and capture the 8 gigawatts of new natural gas capacity Mexico plans to bring online by 2030.

The Power and Energy Solutions segment's 18% EBITDA decline to C$266 million reflects the planned dual-unit MCR outage at Bruce Power, a temporary headwind that masks the long-term value creation. Bruce Power achieved 94% availability in Q3 2025, with the MCR program slightly ahead of schedule. Unregulated natural gas storage EBITDA benefited from increased volatility in Alberta spreads, demonstrating the portfolio's ability to generate value across market conditions. The segment's $1 billion annual investment in Bruce Power is expected to increase site capacity to over 7 gigawatts by 2033, with free cash flow projected to generate nearly $8 billion in net distributions by 2035.

Outlook, Guidance, and Execution Risk

Management's guidance framework reflects confidence built on consistent delivery. The 2025 comparable EBITDA outlook of $10.8 to $11.0 billion, reaffirmed and revised higher in Q2, represents 7-9% growth over 2024. The 2026 outlook anticipates 6-8% growth, while the 2028 target of $12.6 to $13.1 billion implies a 5-7% three-year growth rate from 2024. These targets are underpinned by $8.5 billion of assets expected to enter service in 2025, tracking 15% under budget, and a sanctioned portfolio with implied weighted average unlevered after-tax IRR of approximately 12.5%—a meaningful increase from 8.5% just a few years prior.

The capital allocation strategy demonstrates discipline while capturing opportunity. The three-year plan requires $31 billion in aggregate funding, with 80% expected from operating cash flows (up from 77% last year) and the remaining $6 billion from bond and hybrid issuances. No equity issuance is required, and management has committed to keeping dividend growth at the low end of the 3-5% range to direct capital toward projects generating 12.5% returns. This represents the highest and best use of capital across the system, as management explicitly stated.

Execution risks are rising as projects grow larger and more complex. While management emphasizes that new projects remain in-corridor expansions with existing customers, the average size has increased to approximately $0.5 billion, with some approaching $1 billion. The key question is whether TC Energy can maintain its 15% under-budget performance as complexity increases. Management acknowledges that "projects are getting bigger and more complex," and while they remain confident in delivering 5x to 7x EBITDA build multiples, the development timelines are extending. Human capital capacity is the most important consideration for potentially increasing capital spend above the $6 billion annual target.

Regulatory and market pressures require monitoring. While the Columbia Gas settlement provides near-term rate relief, TC Energy has filed Section 4 rate cases for ANR and Great Lakes systems, with outcomes uncertain. The company is engaged in commercial conversations with over 30 counterparties across the data center value chain, but market pressures from contractor backlogs and inflation could impact future project costs. Management believes they can hold returns in an inflationary environment since all competitors face the same pressures, but this assumption requires validation through upcoming project bids.

Risks and Asymmetries: What Could Break the Thesis

The central risk is execution failure as project complexity scales. While 23 of 25 sanctioned projects have delivered on or ahead of schedule, the larger project sizes and compressed development timelines for data center demand could strain operational capacity. If TC Energy cannot maintain its under-budget performance, the 12.5% IRR target becomes vulnerable, particularly for projects approaching $1 billion. The company is evaluating bringing forward capital from 2027-2028 to create capacity for new growth projects, a strategy that could backfire if market conditions shift.

Regulatory uncertainty in Canada poses a structural risk. While Bill C-5 is viewed positively, the Canadian industry needs clear, predictable regulatory frameworks for timely infrastructure approvals to spur further LNG development. Management's focus has been "more westbound than eastbound," but competitive projects in other jurisdictions must compete for capital allocation. Currently, risk-adjusted returns in the U.S. are "meaningfully higher than in Canada," which could starve Canadian growth if regulatory delays persist. This creates a geographic concentration risk in the U.S. market, where TC Energy faces intense competition from larger players like Kinder Morgan and Williams .

The Mexico business, while performing exceptionally with Southeast Gateway, carries political and currency risks. The 2055 contract with CFE provides long-term visibility, but the strengthening peso has already reduced equity earnings from certain payoffs. Mexico's Plan Mexico 2030 aims to attract $270 billion in investment, but political transitions could alter energy policy. The company's commitment to "look at alternatives" for the Mexico business in 2026, including capital market and partnership opportunities, suggests management is evaluating whether the risk-return profile justifies continued expansion.

Data center demand, while a powerful tailwind, could create a boom-bust cycle. Nearly 60% of U.S. data center growth is expected within TC Energy's footprint, but if AI infrastructure buildout slows or shifts to regions outside the company's network, the anticipated demand may not materialize. The company is in commercial discussions with over 30 counterparties, but these conversations have not yet converted to sanctioned projects at the scale needed to fill the $6 billion annual capital target through 2030.

Valuation Context: Positioning Among Peers

Trading at $54.68 per share, TC Energy's valuation reflects a market that recognizes its strategic transformation but remains cautious about execution risks. The company's P/E ratio of 21.02 sits below Enbridge's 25.70 but above Kinder Morgan's 21.91, reflecting its improved growth profile relative to traditional midstream peers. The enterprise value of $99.99 billion and EV/EBITDA multiple of 14.86 compare favorably to Williams' 16.02, though Enbridge's 14.39 suggests similar risk pricing despite its larger scale.

Key financial metrics demonstrate TC Energy's competitive positioning. The 23.91% profit margin exceeds all major peers mentioned, including Williams (20.46%), and significantly outperforms Enbridge (9.38%) and Kinder Morgan (16.61%). Return on equity of 11.34% lags Williams' 16.90% but exceeds Enbridge's 9.12% and Kinder Morgan's 8.88%, reflecting the capital intensity of TC Energy's growth program. The 4.41% dividend yield, while attractive, is kept at the low end of the 3-5% range to fund 12.5% IRR projects—a trade-off that enhances long-term value but may disappoint income-focused investors.

Balance sheet strength provides a foundation for growth. The 1.63 debt-to-equity ratio is higher than Kinder Morgan's 1.02 but lower than Williams' 1.88, while the 4.75x debt-to-EBITDA target remains achievable by end of 2026 based on full-year contributions from Southeast Gateway and seven other projects. The company's ability to fund 80% of its $31 billion three-year plan through operating cash flows, without equity issuance, represents a significant competitive advantage over peers that have relied more heavily on external capital.

Peer comparisons reveal TC Energy's unique positioning. Enbridge's (ENB) larger scale ($178.16 billion enterprise value) and liquids diversification provide stability but lower margins, while Kinder Morgan's (KMI) U.S.-centric gas focus offers faster growth in the Permian but lacks TC Energy's cross-border integration and power generation capabilities. Williams' (WMB) strong position in Appalachian and Gulf Coast markets delivers higher ROE, but its pure-play gas model misses the storage and nuclear synergies that differentiate TC Energy. ONEOK's (OKE) NGL focus generates higher asset returns (6.28% ROA vs. TC Energy's 3.09%) but exposes it to commodity volatility that TC Energy's regulated model avoids.

Conclusion: The Infrastructure Moat Meets the AI Power Surge

TC Energy has engineered a strategic transformation that positions it to capture the most compelling growth opportunity in North American energy infrastructure: the convergence of data center demand, power generation needs, and LNG exports. The company's ability to improve project returns from 8.5% to 12.5% while delivering $8 billion of assets 15% under budget demonstrates an execution excellence that transforms capital deployment from a risk into a competitive moat. This performance, combined with 97% EBITDA contracted through regulated or take-or-pay agreements, creates a rare combination of growth and predictability in the midstream sector.

The central thesis hinges on whether TC Energy can maintain this execution velocity as projects scale toward $1 billion and data center customers demand faster timelines. The company's integrated model—combining pipelines, storage, and nuclear power—provides a defensible advantage that pure-play transporters cannot replicate, but it also increases complexity. Management's commitment to the 4.75x leverage target while funding growth internally signals discipline, but it limits financial flexibility if major opportunities require accelerated investment.

For investors, the two variables that will determine success are project execution consistency and regulatory rate case outcomes. If TC Energy continues delivering under budget and on schedule while capturing the Columbia Gas-type settlements across its U.S. portfolio, the 12.5% IRR portfolio will compound value for decades. If execution falters or regulatory frameworks become less supportive, the company's geographic concentration in U.S. gas markets could expose it to intensifying competition from larger, more agile peers. The stock's valuation at $54.68 appears to price in continued execution success, leaving little margin for error but significant upside if management delivers on its $12.6 to $13.1 billion EBITDA target by 2028.