Q3 2019 Earnings Call
At that time, those with questions should press star followed by the one on their telephone if at any time during the conference you need to reach an operator. Please press star zero at this time I would like to turn the conference over to Stephanie Amaimo. Please go ahead Mr. mimo.
Thanks, Lisa and good morning, everyone and welcome to participate third quarter results Conference call I'm joined by Barry Perry, President and CEO , and Jostling Perry Executive VP and CFO . Other members of the senior management team as well as CEO some certain subsidiaries.
Before we begin today's call I want to remind you got the discussion will include forward looking information, which is subject to the cautionary statement contained in the supporting slide show all non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our 2019 third quarter Mdna also unless otherwise specified all financial information reference.
It's in Canadian dollars with that I will turn the call over to Barry.
Thank you Stephanie and good morning, everyone.
Fortis delivered another successful quarter, both operationally and financially positioning us well to achieve our goals in 2018.
Adjusted EPS was 66 cents for the third quarter, and we reported adjusted EPS of $1.93 to the end of September .
These earnings results were along with our expectations and job who will speak to this in more detail shortly.
Through September we invested 2.6 billion in our energy delivery businesses across North America to improve reliability modernize the grid and deliver cleaner energy to our customers.
On the shareholder fund our board declared a fourth quarter common share dividend of 47.75 cents per share representing a 6.1% increase in our quarterly dividend.
This increase along with growth, we're seeing in our business and the guidance. We have provided to our shareholders. We have now increased our annual dividend paid to shareholders were 46 consecutive years.
Last month was the three year anniversary of closing the ITC transaction.
That's such it was fitting that we held our Investor day. This year at the RTC headquarters near Detroit, Michigan.
Investors were able to see first hand, the culture of operational excellence at ITC due towards other critical substation its operations control room, as well to cyber security operations Center.
In addition, we showcased the motor city and the efforts underway by the transportation sector to shift to electric vehicles, and the important role of utilities to support electrification and they're lower carbon economy.
Beyond highlighting ITC and the motor City at Investor Day, We hope, we also highlighted innovation and the shift a cleaner energy across our businesses in support of our growth strategy.
For this is committed to reducing greenhouse gas emissions and increasing renewable energy use our teams are discovering innovative ways to deliver energy as clean as we can as fast as we can with customer affordability and reliability top of mind.
As you may recall for what kind of kidney at power transmission project in Northern Ontario includes building 18 owner kilometers of transmission lines to connect 17 remote communities to the Ontario grid.
We are excited about this project as it will reduce greenhouse gas emissions associated with diesel generation currently use and will provide safe and reliable service to the communities. The project continues to progress with the engineering procurement and construction contract awarded during the third quarter.
In addition, the project recently achieved a significant milestone with the for not finalization of financing and the issuance of the notice to proceed. The project is targeted to be completed 2023.
Turning to the Caribbean. So you see in Grand Cayman recently received regulatory approval for a 20 megawatt utility scale battery storage project, which will result in lower fuel usage and reduce greenhouse gas emissions. This battery storage will also enable more renewable generation to be connected to the island's power system.
In Arizona, you'll recall that Tucson electric power set a goal to deliver 30% renewable energy to its retail customers by 2030.
We are proud that we are approaching this cold sooner than expected in 2021, almost nine years ahead of schedule.
They are now working with T. community partners, including the University of Arizona to develop new targets for the utilities 2020 integrated resource plan.
Lastly, we are excited about the initiatives underway in British Columbia, that's part of its clean growth pathway.
Fortisbc set a target to reduce GHG emissions associated with its customers energy use by 30% by 2030, what's cast business with respect to Fortisbc electric business, 95% of the energy delivered to customers it's source from renewable generation.
Turning to slide six I want to spend some time. This morning. So we view a few of the exciting initiatives RBC team is working on to achieve this 30% target.
Fortisbc is clean grow pathway is focused on four key areas first as energy efficiency as you might recall early this year Fortisbc announced a significant increase in its energy conservation and if it efficiency program expenditures over the next four years. The nearly 370 million dollar program will be focused on cost.
We're initiatives to lower energy use and reduce energy bills.
These conservation and efficiency enhancements are expected to decrease carbon dioxide emissions by 50000 tons annually, which equates to taking close to 11000 gasoline powered cars off the road. Additionally, these expenditures will increase border species rate base for the four years.
Another key area of focus is renewable natural gas.
Fortisbc is that before fourth of using renewable natural gas from landfills and agricultural sources and has established a target to obtain 15% of its gas supply from renewable sources by 2030.
We currently operate five R&D facilities NBC and two of these facilities are owned by Fortisbc.
Just last week Fortisbc announced it received regulatory approval to produce renewable natural gas at the city of Vancouver's landfill site in Delta.
This landfill will be called Ford is Pcs largest RMG project to date and the supply will support the cleaner energy goals.
Third key area includes expansion upper LNG facilities to lower greenhouse gas emissions, both locally and globally, including the establishment of the first ship to ship Marine Bunkering service on the West Coast of North America.
Last week, the provincial government announced the support for the Marine Bunkering in British Columbia delivery of clean burning LNG two vessels in the area will reduce greenhouse gas emissions through to replacement of diesel fuel.
Lastly, fortisbc is focused on the needed infrastructure to support the shift to lower carbon transportation by investing in fast charging stations across the problems utility also owns and operates five compressed natural gas stations and approximately 25% of its fleet can be fueled compressed natural gas.
These initiatives along with progress at our other utilities demonstrate our commitment to providing cleaner energy sustainability remains an important part of everything we do with Fortis.
At Investor Day, we rolled out our new five year capital plan of $18.3 billion. This new plan reflects a $1 billion increase from the prior years plan driving this increases the industry trend towards recognizing that renewables and natural gas our foundational energy sources.
Specifically itcs five year capital plan increased $400 million over the prior plan.
About half of the incremental capital was driven by customer interconnections required to connect cleaner energy sources to the good to the grid.
Over the next five years ITC expects that connect approximately 2000 megawatts of win and another 600 megawatts of solar across its footprint.
The balance of the increase was driven by changes in foreign exchange assumptions and infrastructure investments required to support reliability improvements.
At Fortisbc, the five year capital plan increased $300 million over the prior plan and is largely driven by the expansion of the Tilbury LNG facility. This project supports Pcs clean growth pathway.
That I just discussed and includes additional liquefaction and piping to the marine Jedi.
As a regulator project is already has ordering council approval for the BC government and we're currently working through the environmental assessment process for the Marine jetty.
Our business in Grand Cayman is growing nicely with 200 million of capital added to the five year plan Caribbean utility expects to invest 600 million over the next five years to enhance the grid and invest in alternative energy and utility scale solar projects. These projects were outlined in the integrated resource plan, which was approved by the regulator early.
This year.
The five year capital plan is virtually all regulated with 99% of Reinvestments expected in a regulated businesses. The plan consists of a diverse mix of body executable low risk projects, only 20% or 10 projects have a total project cost of over 200 million geographically the capital plan is weighted towards the U.S.
With 54% to be spent at our U.S. utilities. This is followed by 41% in Canada and 5% in the Caribbean operations.
Turning to slide nine capital plan will grow rate base by approximately 10 billion over the next five years $4 billion every six months.
The 28 billion to rate base in 2019 growing to 38 billion in 2024, this yield three and five year compound annual growth rate of approximately 7%.
In addition to announcing the fourth quarter dividend increase of 6.1% at Investor Day, We also announced that we extended our average annual dividend growth guidance of approximately 6% to 2024, our steady growth profile, coupled with our highly regulated transmission and distribution businesses gave us the carpet.
It's to extend our dividend guidance I'll now turn the call over to Johnston for an update on our third quarter results.
Thank you Barry and good morning, everyone.
Barry mentioned third quarter results were in line with our expectation reported earnings for the quarter of 278 million or 64 cents per common share were comparable to earnings of 276 million or 65 cents per common share last year.
On a year to date basis reported earnings of approximately 1.3 billion or $3.02 per share were significantly higher than last year.
You will recall that our second quarter 2019 earnings exclude included a 484 million dollar net gain on the sale of our 51% interest into Juanita expansion.
Adjusted EPS of 66 cents for the quarter was one cents higher compared to the previous year. This increase reflects rate based growth and a regulated businesses, partially offset by decreased production at the police hydro generating facilities due to lower rainfall.
And a higher weighted average number of common shares outstanding a year to date basis. Adjusted EPS was two cents lower than the first nine months of 2018.
Rate based growth again, driven by a regulated businesses was offset by unfavorable weather impacts in Arizona and believe as well as reduced earnings at a concrete.
Turning to slide 13, I'll walk through the EPS drivers for the quarter.
Growth in our regulated utility businesses was led by ITC, which contributed a two cents increase in EPS during the quarter and largely reflects rate base growth.
Next you announced energy increased EPS by one set in the quarter, which reflects higher revenues due to operational regulatory recovery.
Set by higher costs associated with rate based growth that have not yet included in rate due to the historical test year.
Weather was not a significant driver of results for the third quarter.
At our non regulated energy infrastructure businesses EPS decreased by one cents for the quarter.
This was mainly driven by lower production in believes as the country continues to experience drought condition with a lower rainfall production in the third quarter was 11 gigawatt hours compared to 59 gigawatt hours in the previous year.
Lastly, the one cents EPS decreased in the corporate another segment was driven by a higher number weighted average common share partially offset by lower corporate cost higher average common shares with like the shares issued under the company's dividend reinvestment plan and our aftermarket equity program or ATM.
The sale of the Juanita expansion did not have an impact net impact on earnings during the quarter as the earnings loss from no longer having the one need expansion was offset by reduced corporate finance charges.
Results of all of our other regulated utilities were comparable to last year rate based growth that those utilities was offset by timing differences in the quarter, including a 5 million dollar favorable capital tracker true up recognize that Fortis, Alberta in the third quarter of last year.
Moving to slide 14.
Adjusted year to date earnings per share for the first nine months of 2019 decreased two cents compared to the same period in 2018.
The key driver of this decrease was weather in believes and Arizona, which I'll discuss shortly.
ITC, our largest utility improve dps by five cents compared to last year again, driven by strong rate base growth, partially offset by the reduce independent incentive at or.
Higher U.S. dollar to Canadian dollar foreign exchange rate for the first nine months of 2019 resulted in a four cents EPS increase.
The year to date average rate was $1.33 compared to $1.29 last year.
At Central Hudson, EPS increased 1% driven by higher delivery rates and lower storm restoration costs.
Our western Canadian utilities improve dps by one cents, largely reflecting rate based growth at our gas business NBC.
The non regulated energy infrastructure businesses reduced EPS by six cents year to date again lower rainfall in believes resulting in lower production reduced EPS by four cents for the first nine months of the year.
As I noted earlier believes it has been experiencing drought conditions production for the first nine months of 2019 was 50 gigawatt hours compared to 179 gigawatt hours in 2018.
Lower realized margins and he can creek in 2019 also negatively impacted EPS for this segment.
EPS contribution from you and asked was five cents lower for the first nine months of 2019 compared to last year.
This was largely driven by cooler temperatures in Arizona during the second quarter as well as higher costs associated with rate base growth not yet im rate due again due to those aurico test year.
And lastly, EPS was lowered by two cents.
Reflecting a higher number of weighted average common shares partially offset by lower corporate costs and the decrease in corporate costs was mainly driven by lower financing costs and timing of tax expense.
Turning now to our regulatory outlook.
At ITC, we await a final decision from FERC on the MISO base early and next steps on to notice of inquiry issued in March the first analyzed <unk> comment on for policies for determining the ROI, we used in setting rates.
And the second on how to improve its transmission incentive policy to ensure it appropriately encourages the development of needed infrastructure to the benefit of our customers.
You'll also recall FERC issued an order in 2018, which determined ITC was no longer fully independent and subsequently reduce the incentive at are included in rates of Itcs utilities operating in the MISO region to 25 basis points down from the approximate 50 basis points that ITC was earning them right.
Do you see has appealed this decision to the U.S. Court of Appeals and there's no designated time for the court to decide on this matter.
Tucson Electric power filed its rate case on April one using 2018 as the test year TPS current rates are based on a mid 2015 test year and therefore, when Chris we've crust of rates include approximately 700 million U.S. of additional rate base investments that have.
Been made since then.
Additional requests in the rate filing include our only increase of 60 basis points to 10.35% an increased equity thickness to 53%.
Intervenor testimony, including the ADCC staff testimony was filed in October next steps in the rate case include TP falling rebuttal testimony later this month with hearings expected to commence in early 2020 and we anticipate a decision in the second quarter of next year.
As discussed during the last quarter Fortisbc filed its multi year rate plan earlier this year as the current term expires at the end of 2019. The proposed plan seeks approval for a rate setting framework for 2020 through 2020 for.
As we do not anticipate a decision until next year. The utility has filed for interim rates to be effective January onest 2020 and to remain in place until the rate plan is approved.
In September the Alberta Utilities Commission issued an order proposing to change how the Alberta electric system operators customer contribution policy is accounted for between distribution owners, including Fortis, Alberta and transmission owners.
The decision prevent these transmission related investments by the utility in the future and direct step on amortized balance, which forms part of forest, Alberta rate base.
Transferred to the transmission facility owners.
Currently Fortis, Alberta has approximately 400 million of rate base associated with these investments.
We were surprised and disappointed with the decision and immediately filed for a review and Varian.
The file the filing is currently being reviewed by the you see and we will continue to contest both the agencies unprecedented treatment of the M unamortized balance as well as future ongoing customer contribution.
Before concluding I wanted to review the funding plan associated with the five year capital plan that Barry just discussed.
Most of the required funding is coming from cash from operations and regulated debt at the subsidiaries a small portion of the funding or 3% will come from our ATM program as you'll recall. We currently have a 500 million dollar ATM program and commence using the program in the second quarter to fund the increase into 2019.
Capital.
Through the end of September we have issued 3.5 million shares under the ATM program equating to gross proceeds of approximately 181 million.
For us is well positioned to execute on the new five year capital plan and improve the credit profile of the company.
Specifically, we expect to improve CFO to debt to an average of 12% over the next five years and decrease the ratio of Holdco debt to total debt to low seventys by 20 to 24.
We remain committed to our investment grade credit ratings and are focused on improving our credit profile.
This concludes my remarks, I'll now turn the call back to Barry.
Thank you talked when.
We believe orders as a strong value propositions supported by our organic growth strategy.
Improving credit profiles unique business model and long track record of delivering on our plans.
Another year wraps up and we look ahead to 2020, we're optimistic about our growth trajectory and the important role our business. This play and shifting to cleaner energy in the communities. We serve sustainable practices remain front and center and we're committed to doing even more in the future.
Now I'll turn the call back over to Stephanie.
Thank you very this concludes the presentation at this time, we'd like to open the call does that address questions from the investment community.
Thank you ladies and gentlemen, we will now conducts the question and answer period. If he would like to now Register a question. Please press star followed by the one on your telephone. If your question has been answered and you would like to withdraw your registration. Please press the pound sign if you were using a speaker phone. Please lift your handset before entering your recall.
Yes, one moment please for the first question.
[noise].
And our first question comes from the line of Robert Kwan from RBC capital markets. Your line is open.
Good morning.
Hi, can maybe start with key Youd mentioned.
The other filings that are gone and particularly the staff recommendation I'm. Just wondering if you could give some kind of higher level thoughts.
On on what the staff put forward, particularly just on the cost to capital parameters or are we serve value return on equity thickness and alike.
Thank you Robert.
Yes, David.
To comment on that David.
Yes. This is a this is Dave hutchens good morning, Robert.
Yes, the without getting too much into the details of what will be putting in our rebuttal here at the.
We ended the month.
We are a little disappointed with the with the our OE that staff came out with as well as a little bit lower fair value increment than what we were expecting but those are other things that we're going to address and I rebuttal testimony and obviously in the hearings itself so or were generally pretty positive about overall, where we're at from a.
Process perspective, but we've got some work to do.
Okay.
Maybe just turning to.
The Alberta side and the the decision from the you see just wondering how are you accounting for this.
While you've got the RMB outstanding.
Jonathan.
But we've not done anything different with respect to recording these transmission investments until we get an order and further clarity, but particularly an order we will not be making changes to how we account for our transmission investment.
Got it and I guess, maybe just to follow in at a higher level on the Viasat side, It's obviously not good.
I know, losing and having to transfer it I guess netbook value but.
In some ways, though how would you look at this with respect to then.
Actively being an asset sale and boxing out common equity needs.
Another way to think about it as you're reducing capital in a low return and question more regulatory jurisdiction and being able to redeploy that capital into say U.S. utilities with better returns on invested capital.
Robert seems like you can find a silver lining in anything we can right now on this decision frankly.
You know clearly yes, if the contrast for did happen at book value, we kept the proceeds and that would create a dividend from afford us Alberta backup the fortis.
And we'd have to pay down some debt fortis, Alberta, as well would probably make whole costs associated with it and these are some of the.
Things, we've identified for the commission to consider or that were not part of their deliberations and.
In making this decision. These these issues generate other other impacts and so our focus is to.
Is to work to get this decision reverse.
And we have filed I think some strong arguments to do that.
So why we continue to look at our Canadian business in a positive light we have work to do on the regulatory compact in Canada, I know that but.
Not redirecting capital from Canada to the us.
We're not doing that.
Okay. That's great. Thank you.
And our next question comes from the line of felt Ben Pham from BMO. Your line is open.
Okay. Thanks, good morning I.
I wanted to follow up.
On.
The customer contributions and Puerto suffered a.
And I wanted to clarify.
Isn't isn't the 400 million, that's that's always and no cost of capital.
I don't see you guys and really this is.
I really think about I really it's just.
Capex recovery or depreciation rate recovery, maybe some cash tax impact.
So no been in the case of this investment is like any other rate base investment, we actually funded with equity and debt and.
Earn on it.
So it's not it's not a no cost investment like that so so that's what.
Fairly unique about.
The decision to ask one utility be transfers rate base to another utility I.
Presumably book value you know, that's where we have the start.
They should never happened at book value, if it's going to happen. It's got to be happened Thats fair market value. We paid 1.51 0.6 rate base by by Fortis, Alberta, and all the regulators asking us to transfer 12% of the rate base at book, So presumably book value. That's just that's just not not.
I think it's a precedent setting kind of.
Request, frankly, and one that so we do have the challenge.
Okay. So does this isn't though the one where you are you basically get.
Some contributions from.
Transmission customers are not that cash goes and then at UGI deduction that Capex. When you you bucket that's a separate item.
No. This is Ben its joslin no. This is rate base similar to any other at rate base that we have so we are confident.
Okay I got you, Okay and then on.
On the police hydro thanks, thanks for providing some of that.
The generation whatnot I can probably trying to calculate the earnings impact, but can you can you share probably just just the earnings.
Impact on that for the quarter.
Yes, so be calls that due to the low rainfall was about a penny in the quarter and we outlined that in the presentation.
To date, I mean be call is down about four pennies over last year for us so and all attributable to the lower rainfall yes.
All last year as well, yeah, I would say since I've been involved with Fortis as is the Darius year that we've had in that jurisdiction. They really haven't not had any rain and.
We need we need to have a good tropical storm go through there to fill the reservoirs soon so.
Okay.
All right that's it thank you.
Our next question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open.
Hey, good morning, Tim.
Good morning morning, Howdy so.
Perhaps just a to backfill on these eight you see questions can you talk a little bit more about that just a simple process that you talked about with this appeal I mean, what kind of timeline for when you're looking at with which you would be making this decision ultimately you take it out at the 400 at at net book or otherwise just just understanding and thinking about how this could match for next year's update anyway.
So Julian we have Michael Mosher around the phone our CEO from Alberta, So I'm going to ask Michel to talk a little bit about process from here.
Michael.
Looking forward to mute button.
[laughter].
We've lost.
Okay and has granted that.
And and hearing you might want to start from the beginning.
I'm, sorry, Barry I.
So you might well it seems like you cut in there maybe start again.
Okay can you hear me yes.
Okay. Good morning, Julian as Barry said about the process, we filed for review and variance as well was a requesting a state of the order immediately upon receipt of the order.
The commission on their own motion has granted the review in variance.
And has set forth in expedited schedule, which essentially has a closing of the record in their review by November 7th.
And they have indicated is their intent.
Issue were revised decision prior to year end.
Got it so maybe just to think about this way I mean, how does how does this mentioned to the longer term update that you'll probably do as you roll forward next year anywhere I mean, this isn't that material against the overall outlook across the range of utilities that you own and especially if you have other moving factors in in that rate base outlook.
That's right Julien this is not really.
Immaterial thing for Florida, it's a disturbing thing but.
Not material for the company and.
Obviously.
Thats the benefit of.
Afford us in terms of being diversified business that we that we are that not having a poor decision in any one jurisdiction really doesn't show up on a consolidated basis, but it doesn't lessen our resolve to to work to get it reverse that's for sure.
Well and then if we can talk a little bit further about the the common made earlier around Canada. Just briefly how do you think about further asset sales more broadly you have some degree of future equity needs.
I don't want to put a number out there for say, but certainly it's pretty clear cut how do you think about the the fungibility NASA sales versus future equity and making decisions given this outcome and others.
Well Julian we're always looking at asset sales you know, it's part of any big public companies processes. These days and.
We're always open to folks who are who are interested in in our in some of our assets you know what they want to make us an awkward and can go ahead, frankly, and we'll have the we'll have to consider it.
That being said I think we do have a very effective funding strategy, you know with our with our drip program or ATM and and we are we're showing pretty strong improvement in our balance sheet over over the next the number of years and I think you think about Fortis and simple folks with say you guys could have great wires business.
Only thing that rubs is a little badly as you're maybe your credit side of thing, but I can tell you that you over the next number of years, that's going to go away as well so you're going to see this company with adding $10 billion rate base over the next few years with a very much improving balance sheet over that period, and if that generates more value there.
And then we'll capture it.
Got it but nothing no commitment as of yet.
No okay.
Okay excellent well thanks for the time all about thanks.
Our next question comes from the line of David costs out of from Raymond James Your line is open.
Thanks morning, My first question, you're just fortisbc on the LNG Marine Bunkering topic does the most recent proposal and I guess the government's apparent support of it.
Change your timing or or or maybe just color on the next steps for a decision on further expansion of Tilbury.
I'll just make a comment again all have Roger our CEO VC jump in but.
I don't think it changes the timing, we do have an inner five year plan to the Bunkering facility, you know I would say, having the province issue a press release supporting the project was a very positive development and we were very much appreciated that and.
It gives us strong confidence that this project will move will move forward.
Roger you you, maybe you could provide some more flavor.
Okay. Thanks, Gerry morning, David.
Not much more to add to with various said timing hasn't changed.
To moves LNG Bunkering business.
It's going to need a number of layers of Finch government support a fortune Vancouver federally regulated obviously the province has a role.
In in permitting things like that so you've seen the.
VC government.
Supportive it really helps us.
Yes, the broader levels for it and put in place the various initiatives and approvals we need to get there the timing there hasn't changed so because the announcement it just really an indication of growing support for what's going to be hopefully an exciting part of the business.
Great. Thank you appreciate those comments my other question here I'm just a on the general topic of renewable that gas so somebody could could be really interesting opportunity for you guys any comments on.
The scope and scale that opportunity and if you could deploy it.
Or or.
Kinda capitalize on that opportunity outside of BC at some point.
Well I would say from my perspective, it's big Big News and pay a big opportunity and that takes a lot to to get to 15% and and Roger maybe you could comment on this ability to procure outside of British Columbia.
Yeah, Thanks again very.
So the the 15% target will be about security Penta Jules.
Hi, natural gas displacement by 2030.
The the fine for us.
We anticipate probably a third of that hot in province, future, it's coming from either out of progress.
Ah contracts or.
Other forms renewable GAAP, especially as hydrogen.
The as far as a what's the shape of that portfolio looks like it's still indeterminant weve planned to invest in facilities like we have already and the city Vancouver.
Phil but the way we envision the program, it's really going to be a supply purchase arrangement where.
Offering long term contracts renewable natural gas will allow third parties such as a agricultural sites landfills to build the facility and then we would enter into long term contracts with those facilities and those would be NBC, but as well.
Oh the province.
Great. Thank you appreciate those comments.
Our next question comes from the line of Rob Hope from Scotiabank. Your line is open.
Good morning, everyone I'm, just wondering cleanup question.
Just on the backdrop of a you know wood fiber inching forward as well as the government being a more supportive of LNG Bunkering, specifically can you update us on your talks with the regulator on kind of gas security and lower mainland and if there's something fortisbc could do there longer term.
Well, Robert we continue to work on that and I think it will form a part of our plans going forward. We're not we're not there yet in terms of that Roger again, maybe you could you could update on.
Exactly where we are at this point.
Hi, Thanks can vary I appreciate the question Robert we are having a high level discussions.
On the issue.
Driven obviously by the the Enbridge situation.
A year so go.
No specific plans, we are looking at various options.
Looking at additional on system storage, we are looking at potential.
Tight expansion.
Hi, it's one of those things where there is interest from the central government. We've had some initial discussions or the regulator bite.
You know there's significant work still needs to go before we have any kind of plants are blue sharing with the regulator.
So it's a it's an ongoing discussion but.
It's a new topic or new area of interest from the government regarding the resiliency of the system.
Alright, thank you.
Our next question comes from the line of Mark RV from T.I.B.C. capital markets. Your line is open.
Thanks, Good morning, everyone. I just wanted to go back quickly to Alberta, and just one kind of kind of question was around what the expectation around rate base growth for that a transmission business, where they're going to it's gonna grow in line with the broader expectation for Albert or any kind of commentary around how much capital you thought you get deployed there.
Rate base growth in Alberta is tracking around.
4%, which is a little low I think compared to what the industry.
Fourth America is growing at right now, but to your lots of business that we've seen strong growth over the years, but right now we're looking at about 4% growth.
I guess more specific I'm, just wondering on those transmission assets that might be transferred it would they grow in line with your broader expectations for Alberto is there like how much capex was expected to be invested in not transmission assets. Yes. Mark. This is jostling, yeah, there there's actually a minimal future in our next five years, we don't have a lot for transmission investments in our plan.
It's actually less than 100 million. Okay. That's helpful. Thanks, and then turn into ITC, which has been performing really strong here anything you'd call out into either short term tailwinds or something then maybe less recurring like when do you flagged as the effective tax rate just trying to help us understand if this sort of pace year of earnings growth right. You see it can be sustained if there's anything that's kind of.
We should in the near term.
Well put Linda the spot and but no I I would say ITC is growing dealing in sort of in relation to the investment that is making in rate base and.
Oh, yes, we do still see a strong from five years with them or in terms of the capital they've laid out.
Linda you know.
Maybe you could add some flavor, but there's still being driven by the renewables push in the Midwest and and sort of the the integrity of the infrastructure overall I would think but maybe you could add two comments.
Yeah. Thanks, Barry Yeah, that's absolutely right I mean, primarily our growth is being driven by a strong rate base growth.
Certainly both in terms of last year, we had a strong rate base a additions I hear and obviously, we're seeing the reflection of that in our earnings this year.
And in addition to that so far this year, we're continuing to have a strong a year as it relates to capital additions. We also had the benefit this year, we acquired some assets from the Dearborn industrial generation facility. Those are now reflected in rates. A we've also closed and the acquisition of assets from CMS enter.
Gee as well as we acquired some assets a from a joke Carol co-operative ITC Midwest.
So those are all helping our rate base growth, but I think more importantly, as Barry indicated we are just continuing to see a lot of different need is drivers.
On our system, both in terms of sort of baseline reliability projects interconnections, both load interconnections.
That are primarily driven by our customers, particularly DT energy, we've got a lot of load interconnections to respond to the growth in shifting growth the enough is southeast Michigan area.
And then ultimately the I continued generator interconnection Saab, both wind and solar I, we're starting to see quite a large pick up.
In solar projects and obviously, we are working with our the various developers and utilities to you know sort of work out the plans to build they needed transmission offer the generator interconnections and then I think long term. We just continue to see the ongoing shift to more and more renewables, which I think long.
In terms going to continue to drive.
Needed capital investment in transmission, so we're very optimistic.
Okay, that's great. Thanks.
Our next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.
Thank you good morning, maybe to see it varies voice sold well last jostling. The question just on the ITC iterate. Thank you Andrew I think you detect that I have a very bad head coal [laughter] I couldn't hear your struggling but I'll, probably asking somebody and follow up but first first with joslin just on the I do see out or.
I think you mentioned Theres no timeline on the process and your core processes are seldom quick, but if you looked at past precedence.
To what degree do you believe you got the decision would then is it 2020 events Oh wait 20, 2021, what what's the kind of ballpark to sink.
Yeah, It's a very difficult question, Andrew you never can pinpoint exactly when the regulators are going to offer. These final decisions and you know we're still hopeful we're going to get a decision on the Oh, we side of ITC by the end of year on the independence adder. It it's a tough call a there has been.
Noise and movement at FERC and so so again that all adds to the uncertainty as when we're going to get it. So you know we're hopeful that it's coming soon but you never can tell with when things go to the U.S. a court of appeal and with FERC [noise].
The uncertainty is obviously more.
Okay I appreciate the color and then I will ask Barry as the next question and it's really just in the context of what we saw yesterday with the Encana announcement of Redomiciling or company.
When you look at the valuation delta across the border and then a lot of the questions on this call or been about what's happened in Alberta for you.
What do you think about.
Redomiciling intercompany at some point in time or is this effectively.
Move where you can actually push greater regulatory change in Canada in a positive fashion, because you've talked about Todd for multiple years now.
Great Great question Andrew.
We're not we're not considering where we Domiciling Corporation.
But I will say our focus as you know over the last couple of years, it's been reducing the discount that we trade at versus a typical U.S. utility and and I think we've had a lot of success at that we'd probably trade today at the level of the average U.S. utility <unk>.
<unk> always a kid my team a little bit and say, we should trade at a premium given that we're a.
The wires business 18, the business very diversified all that but but we've made a lot of progress close the gap.
There's no I have a lot of sympathy for the things that were out one yesterday by by the CEO of in Canada in terms of some of the logic that that they're using you know there is a giant sucking sound of capital towards the U.S. you know it's a this issue around passive investing is a big issue typically.
U.S. utility as a desktop for shareholders are.
Passive investors they own they own about 30% of those businesses in comparison, you know for US we have about 15% maybe up or stock that's held by by passive funds. So we have to go find more institutions to old our stock. So we have the almost be better than the typical us utility and you know.
Said for some time that capital in our in our sector in North America.
Flows from Canada to the U.S., there was no capital coming from from U.S. up the Canada, and that's primarily because of Canadian regulation and I think that that is not sustainable over time. So so we will have to have a change.
In in some point in in the quality of Canadian regulation, the Alberta situation here I suppose isn't isn't added item to that the says geez you know that's and that's another wrinkle now and so that's not that great now I will say Gee, we have some positive no. We have a good retail following in our stock.
In Canada.
30% of our stock is help at retail shareholders and in the U.S.A. you at U.S. utility might only have 10 or 15%. So that it's not all negative but but this this issue around passive investing is a big issue I will say in Canada. We also have another issue in some of our very large pension.
Bonds and almost abandoned the Canadian capital markets will be and they've used diversity.
As a reason, but if you're one of your biggest pools of capital or not investing in Canadian stock. Then that's also a big headwind for Canadian public companies right. So do we have some problems at home that we can solve before we start focusing in other places frankly as well. So so I think he's issues will continue to be very much.
In the center in Canada, So we're going to have the figure them out to two allow these great companies in Canada. The prosper overtime now frankly, the other thing is strategy afford US has always had a good strategy and and I think fundamental to a business success is execution strategy. So the over the long term, we've done well by moving into the U.S. add.
And.
You know we've executed well so I can't argue that what we created is is wrong because it isn't it is an amazing corporation. That's on both sides of the border listed in both places. So I don't think we should be taking with that we should just be trying to fix some of these more macro issues that we have in Canada.
Okay I appreciate the color. Thank you.
Our next question comes from the line as Patrick Kenny from National Bank Financial Your line is open.
Hey, good morning, guys I'm, just on TGP approaching 30% renewables, but 2021.
Obviously, that's a big accomplishments, but if we Sony and specifically on cool as a percentage of GPS generation mix.
Correct me, if I'm wrong here, but still over 40% or at least one third.
Can you remind me if there's a goal to bring down the percentage of cool to a specific target at some point over the next five to 10 years.
David what you want to just jump in on that one.
There is not currently a goal for that we're in the middle of doing our integrated resource plan.
Some of those goals may come out of that process, but right now I'm. The only actually only stay goal is to get to 15% renewables by 2025, or obviously doubling that in our efforts, but a lot of that still to be determined.
Okay great.
And then just switching over to be seeing and Youll look here for your gas storage business Operation Creek.
I was just curious if the recent change from NGL with respect to you know priority access into a British storage might have any impact on the outlook for the the profitability gas storage up in northern B C and at least on the 50% that isn't utilized by for the species.
I will let Roger job being well make a comment about generally that that plan you know I think as we think about all that's going to happen in that market in the next decade or so on the LNG export and the amount of gas, it's going to move move through the system in BC and out you know I think that asset just can.
Can use to get more and more valuable.
Going forward and we should see improving improving earnings from it over time.
Roger.
Just that's the challenge right. So maybe you can add some color on that.
Thanks, Gary Thanks, Patrick I and the short answer is no no real.
Impact I think out was addressing a what's going on in that producer.
Segment in Alberta that decision.
Really had to support the or the Alberta government from what I understand.
From our perspective, given the nature of.
Our business, we think it might help a little bit with activity, but not sure is going to make a big difference in the near term on now on profitability.
Okay. That's great. That's it for me thanks, guys.
Is there no further questions I'd like to turn the call back to Stephanie Mimo for closing remarks.
Thank you Lisa we have nothing further at this time. Thank you everyone for participating in our third quarter 2019 results call.
Contact Investor Relations should you need anything further thank you for your time and have a great day [noise].
Thank you for participating ladies and gentlemen. This concludes today's conference call you may now disconnect.
[noise].