Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Americas Q3, 2019 analyst call.
This time, all participants are the listen only mode.
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Thank you all for joining us this morning for Americas third quarter 20, Nike Inc. conference call in life one Guy.
Third <unk> earnings release was distributed this morning by anywhere in the financial statements management's discussion <unk> analysis and the presentation being referenced on this call.
Well on our website at <unk> Dot com.
Joining me this morning for this morning's call or stop all for parents, President and Chief Executive Officer, right Blunden, Ameris, Chief Financial Officer, and other members of America management team.
Before I begin I will take a moment to advise you that this morning discussion will include forward looking information, which is subject to the cautionary statements contained on supporting fives.
Discussion a presentation will also include references to non-GAAP financial measure.
I'd refer to the supporting slides for Definitionally information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.
Now I'll turn things over to Scott.
Hi, Karen and good morning, everyone.
This morning, we reported third quarter adjusted earnings per share, a 51 cents and year to date adjusted earnings per share of $1.99 cents.
Consolidated results are down compared to last year. The core business are continuing portfolio, what regulated utilities remain strong and performing very well delivering adjusted earnings growth of 4% during the quarter and 12% for the year to date.
We're very pleased with this level of growth.
It was primarily driven by strong earnings for example, electric and gas utilities.
But our quarterly and year to date financial results were weaker relative to 2018, specifically due to four main factors.
To these factors of course include the loss of earnings earnings contributions from our merchant gas plants that we sold in the first quarter of 2019.
Well as the nonrecurring tax benefit we recorded in the third quarter last year.
The other two factors, where the impacts from hurricane during.
And continued unfavorable weather and weak market conditions, largely in new England negatively impacting them are introduced marketing and trading operation.
Collectively you already get back to these items outweighs the growth in our utilities fourth quarter.
The fact is though the emeritus portfolio of regulated utilities is the primary driver for us.
And the underlying performance of these businesses is delivering strong earnings growth consistent with our expectations.
As we've seen this quarter adjusted earnings per share will fluctuate as a result of nonrecurring items and market driven volatility in America energy.
Well, it's sometimes creates lumpiness to our headline adjusted earnings per share.
The underlying contributions from our utilities has been steadily and predictable growth.
We continue to expect Amerisafe, Mary Energy's marketing trading results to contribute positively to earnings for the full year.
The weak market conditions over the last two quarters means results will likely fall short of the general $15 million to $30 million guidance range.
It's important to remember that the mirror energy's ability to capitalize on volatility in the energy markets enhances our utilities earnings and cash flow with limited downside risk, while providing the opportunity for significant upside as we saw in 2018.
With over 95% of earnings now coming from a regulated operations I expect our utilities will continue to drive or growth for the foreseeable future.
And the strategic reallocation of capital to our strongest in fastest growing businesses improves the growth profile our portfolio.
I remain firmly confident that our decision to sell from richer gas plant portfolio and a mirror me, what's the right long term decision for the business.
However, these asset sales will impact our near term earnings.
More specifically, we do not expect to have the earnings contributions from a mere remain in 2020, which have averaged approximately $45 million per year over the last few years or from the gas plants, which contributed $18 million in the first quarter of 2019.
This creates a period of transition as we redeploy capital into our continuing businesses to replace lost earnings contributions from the asset sales.
Reallocating our capital in this way better positioned to merit to continue to deliver long term earnings and rate based growth for investors.
Our operations and results were impacted by hurricane during during in the third quarter.
Truly historic store caused widespread damage and our Brown, Bahamas, and Nova Scotia service territories.
The response of our team was extraordinary.
I want to take this opportunity to thank you again to the to say thank you again to the mirror team, who once again demonstrated their resiliency and their commitment to safety and to our customers during the significant storm response.
And grow home Dorian made landfall at the strongest hurricane in modern records.
The hurricane coverage over the island at strong category five levels for almost two days, which resulted in significant loss of life and unprecedented damage to many homes and businesses.
Although our employees on the all in for sake, we know many experienced significant personal loss.
Our thoughts remain with the people travel hub as they continue their recovery efforts.
Stories high winds startup search and excessive rainfall caused significant damage to GBP sees assets and at the peak of the storm costs power outages for all 19000, if its customers.
Even in the face of tremendous personal loss, our employees moved quickly to restore customers [laughter] with the assistance obtained from across our business.
Today as a result of these efforts 100% of customers. They can safely proceed power have been reconnected.
And load is approximately 75% a pre hurricane levels.
As a result of lost load and corporate chair of Unrecoverable losses related to property damage I brought Mahatma Hurricane Irene negatively impacted and there is third quarter and year to date earnings by $16 million.
The lingering effects of hurricane during a ground bahama are expected to modestly impact for America's fourth quarter earnings.
Electric load is expected to remain below pre hurricane levels for the balance of the year and the team is continuing to assess the best way forward for reconnecting the remaining 3000 customers to the grid.
In addition, GPC continues to work with insurance companies to assess the damage to a generation assets.
In Nova Scotia during with the largest restoration efforts in Nova Scotia powers history.
The Hurricane force wins caused over 8000 down trees, and approximately 500 damaged pools, resulting in outages for over 80% of our customers.
What do we seek to do so a team of 1400 powerline technicians forestry tax damages lessors and customer care represented.
Worked tirelessly to restore power to bulk customers.
The cost of the restoration in Nova Scotia is expected to be approximately $39 million, including $16 million, if only GE expense.
These costs were absorbed by some of the excess Nonfuel revenues that were recorded in the first half of 29 team.
As a result, Doreen had no impact on Nsps earnings for the quarter.
There's no question the Dorian came at a cost tour business.
He also served to highlight the strength and resiliency of our teams and their dedication to our customers.
The dedication of all our employees in responding to Dorian, but particularly in Brown, Bahamas, and Nova Scotia.
Something that makes our entire leadership team and our board incredibly proud.
Now moving on to talk about the future.
I'm pleased to announce it over the next three years, we expect to invest over $6.9 billion to grow the rate base of a regulated utilities.
At a growth rate of over 7%.
We expect to invest approximately $2.3 billion in renewable and cleaner generation and infrastructure modernization and its customer focused technologies.
As in the past this baseline capital plan only contains committed projects that we're highly confident we'll proceed over the forecast period.
This now includes $650 million of the expected capital related to further investments in solar and storage pardon me.
Because we were confident that both these projects will proceed over the forecast period included 300 million U.S. dollars of capital for scalable solar development.
And a conservative estimate of 100 U.S. million dollars in 2021, and 2022 four storm hardening investments.
Although these projects have been included in the baseline capital forecast, we do see incremental upside that will provide additional on 0.5 to $1 billion of investment opportunities and we look forward to providing a further update or investment investor day on February 20 cents.
Tampa.
Our capital program is heavily weighted towards regulated investments to support our strategy and growth in earnings.
Over the next three years, almost 80% for capital will be deployed in our electric utilities, where investments in renewable and cleaner generation grid resiliency and smart meters will continue to form the foundation of our capital program.
The remaining 20% will be invested in or gas utilities, where the focus is on system expansion to support customer growth and enhance reliability, along with identifying opportunities to attract new types of commercial customers.
Notably over 70% cover capital investment program is expected to be invested in the state of Florida, where we continue to see strong customer growth and where the regulatory environment remains constructive.
As they look at beyond 2022, I'm confident we'll continue to deliver the competitive rate based growth profile our shareholders expect.
I believe that our portfolio includes some of the highest quality rated.
Right.
With a high quality regulated investments in North America.
At our proven strategy, which is rooted in the transition from higher to lower carbon energy is expected to drive significant growth for years to come.
In Florida, we see further opportunities to transition the generation mix to invest in reliability and to invest in gas storage.
Here in Atlanta, Canada, we still have work to do in the transition from coal to clean which in time could lead to opportunities for further regional transmission development.
Our primary focus continues to be on optimizing or existing portfolio to generate future investment opportunities.
However from time to time, we will assess acquisition and greenfield opportunities for their strategic and financial fits.
We have learned that participating in process is often the best way to learn new markets and at times can lead to additional opportunities for the business. Let me assure you when assessing financial fifth we will remain disciplined with respect to our balance sheet and investment hurdles.
We will not make investments the takes off track.
Our strategy.
To safely deliver cleaner affordable and reliable energy has served us well for almost 15 years and we've been delivering on its been making meaningful contributions to national provincial and state level responses to climate change, reducing greenhouse gas emissions from our operations and strengthening the resiliency of our energy systems.
Since 2005, we've reduced our greenhouse gas emissions by 24% and installed over 1100 megawatts of renewable generation.
Nova Scotia power is the leader with 17% of its energy coming from when one of the highest penetrations of wind energy in North America.
In 2018, 30% of notes pushes energy came from renewable resources and we're on track to increase that to 40% in 2020.
In addition, Nova Scotia power has reduced its GHG emissions by 35% from 2005 levels already exceeding the commitments made by Canada at the Cop 21 form.
In Florida, Tampa Electric is leading the way with the highest penetration of solar energy of any investor owned utility in the same. It also became the first utility to offer customers community solar earlier this year.
2023 type electric customers will receive more their energy from the Sun that coal.
And you totally will produce 45% less GHG emissions than it did in 2005.
Well, we're proud of our accomplishments so far we still have work to do as we continue to transition to a lower comp to a lower carbon economy.
Investments in renewable and cleaner generation and transmission to bring renewables to market will remain a central part of our strategy for years to come well never losing sight of the costs for our customers.
We're also very proud of our performance on social and governance aspects of our business. We've continued to make progress in our journey to workplace safety and being an employer of choice and we've been recognized consistently for a good governance practices.
In October we published our third annual sustainability update which provides a complete picture over performance on environment, social and governance matters throughout 2018.
We've included any SG scorecard in your update for the first time this year and we look forward to building on this critical disclosure in the years ahead.
Our regulated utility business continues to perform extremely well and as they reflect on the performance in the quarter and year to date I am in fact, very pleased with the growth that we deliver FERC for shareholders.
Our earnings are in a period of transition as we continue to reposition our portfolio, but I remain confident and our ability to deliver long term earnings growth for our shareholders.
A refresh to baseline capital program provides significant opportunities to execute our strategy of reducing our carbon footprint and increasing reliability.
In addition to the baseline capital program or teams continued to advance development opportunities that we look forward to discussing in greater detail at our Investor day in tap in February .
Our proven strategy and our strong capital plan combined with proven ability to execute on complex projects gives me confidence in a mere as long term rate base and earnings growth.
Before I pass the call to Greg I'll, just take the opportunity to highlight some important leadership changes in our business.
In October we announced that we know caught it would become the new president and CEO no push power and Karen Hot would return to a mirror SDDP strategy and business development.
Karen and Wayne are both exceptional leaders, who have had several leadership roles drove the MYR group of companies and I know they will continue to provide value for customers and shareholders in the new roles Congratulations care and Wayne.
With that I'll turn it over to Greg to take you through the financial results.
Thank you Scott and thank you all for joining us this morning.
[noise] Three Q2 019 was not typical quarter for America has got highlighted in our financial results included the negative earnings impact of asset sale weaker marketing trading conditions, and nonrecurring items, including the impact of Hurricane Doreen.
As a result or headline adjusted earnings per share for the quarter and year to date period are lower than in 2018 and for the quarter floor expectations.
However, we continue to be very pleased with the earnings growth has been delivered from a regulated portfolio.
I will walk you through in a moment strong growth from regular utilities as fully offset years eight earnings impact of asset sales and we expect a regulated earnings to continue to grow in the fourth quarter.
This strong growth combined with the opportunities identified it or new capital program reinforces our confidence that we will continue to deliver long term earnings growth to our shareholders.
Well, we expected regulated earnings will continue to grow in the fourth quarter. This growth will not be sufficient to replace the third quarter earnings impacts of hurricane Dorian and weaker marketing trading conditions.
As a result, we now expect their 2019 annual adjusted earnings per share you over the 2018.
Without these negative impacts we would expect adjusted earnings per share for the year to be consistent with the normalized 2018 results.
Year to date operating cash flow before changes in that working capital was down modestly compared to the 2018 period due to the impact of hurricane oriented and lower marketing and trading margins at a mirror energy.
Well operating cash flow was down modestly this year, we have continued to improve the quality of these cash flows operating cash flow from a regulated businesses grew by 6% year to date by Tampa Electric which grew cash flows by 54 million.
40% increase over these nine months.
Now, let's get into details with quarter.
The third quarter of 2018, and very deliberate adjusted earnings per share features that.
Keep in mind. This included net earnings contribution for a mere energy's gas generation portfolio in a nonrecurring benefit from change in our Florida state tax appointment factors.
As a reference point removing these earnings contributions from 2018 would reduce do threetwenty inc. adjusted EPS to 64 cents.
Growth from the normalized 2018 basis 64 cents was largely driven by very strong performances by Tampa electric and gas utilities.
During the quarter Tampa electric into contributed 116 million U.S. of earnings an increase of 6% over the third quarter of 2018.
Growth in the quarter was driven by higher base revenues related to in service solar projects and customer growth of 2%, partially offset by higher interest and depreciation costs related to capital investment.
There was not a material factor quarter over quarter.
Typically electric will continue to see increases increases in its older based revenues in 2020 in October the Florida Public Service Commission approved 26, and a half million use of additional revenues for the two solar projects totaling approximately 150 megawatt. These projects are scheduled to be in service in early 2020.
Earnings growth in the gas utilities and infrastructure segment was largely driven by a supportive regulatory decision in new Mexico, resulting in the 5 million dollar U.S. adjustment for the quarter.
As Scott discussed the Q3 results were negatively impacted by the impacts the hurricane Doreen as a result of lot flow to the corporate share of all recoverable losses mirrors earnings were negatively impacted by $16 million or seven cents in the quarter.
Third quarter earnings for America, Energy's, Mark and training business were a negative $20 million Canadian.
Eight cents lower than in Q3 2018.
Q2, Q3, generally not profitable for a mere energy.
And as was the case in Q2 of this year, particularly weak market conditions in higher cost commitments related to transportation storage resulted in reduction or means quarter over quarter.
To elaborate the Q3 summer season, generally see generally low demand volatility sensors, not heating load momentum on gas prices, resulting in minimal opportunity.
As you are aware from your energy operate the physical natural gas marketing business and invest in transport patient and storage to enable it to arbitrage market spreads between trading points and through seasons and over time, while maintaining a fixed and limited downside financial exposure.
The short term fixed cost commitments for transportation storage for allocated evenly over the contract terms.
But the related revenue generating opportunities are primarily in the winter season. So transport deal can be highly profitable overall, but not look that way over the summer.
It is difficult to forecast earnings from marketing brain, especially since last two months of the or Optum material contributors to the total that's that at this point as a result, a weak market conditions experienced in both Q2 in Q3 of this year. We believe we will fall short of the low end of the normal earnings range of 15 to 30 billion U.S. this year, but still expect.
Profitable.
To give you some contracts for that I will note that over the last five years. We've earned an average of 12 million U.S. from Q4, assuming we earned this average in the fourth quarter, we will get to 5 million U.S. dollar earnings for the year.
How does it this importing you're certainly but we believe our normal earnings guidance range is still valid and opportunities for upside will continue to present themselves going forward.
Drivers for the year to date period are largely consistent with the quarter with strong growth in our U.S. utilities.
Largely offset by lower marketing for your margins and the impact of Hurricane story.
For the year to date period Camp Electric is increased earnings by 25 million U.S. for 11%.
Similar to Q3 this increases from higher base revenues related to in service solar generation and customer growth.
Total degree days and tap electric service area in Q3, 2019 were 6% above normal and 2% above the 28 2018 period for the year to date.
Premier gas utilities, Recallable peoples gas in new Mexico gas and strong first quarter.
New-mexico's results benefited from favorable weather regulatory rulings and incremental earnings from an asset management agreement.
And the peoples gas earnings benefited from lower depreciation rate increase earnings related to ongoing cast iron bare steel investments' annual.
Annual customer growth peoples gas continues to be stronger at 3%.
Okay and.
Obviously this customer energy experienced a similar marketing trading conditions in Q3 of this year.
Similar to Q2 of this year for the year to date marketing trading has experienced losses of 7 million U.S., but based on our experience. We would expect the business to return to profitability in Q4.
We continue to expect modest full years earnings growth for Mccain utilities and from there remain in Canada knows what's your power expects to repeat to grow modestly delivery in a similar modest increase in earnings.
As a pilot the past the timing of regulatory hurdles causes earnings.
Quarterly earnings volatility for Nova Scotia power, while the full year results are more predictable. Similarly, we expect our full year combined equity earnings from Maritime late and loved dryly investments will be modestly higher in 2019 than in 2018.
And then mean, we expect your 2019 rate base to grow modestly due to ongoing transmission distribution investments, resulting in a modest increase in earnings.
As highlighted we're pleased that are 6.9 billion dollar capital program and the growth that this will generate in rate base and future earnings from Europe .
I'd like to through your funding plan, we outlined last November which included a detailed.
Planned asset sales programs the meter funding requirements. We view the current funding plan as a return to normal course business.
With the sale of our emerging gas plants behind us and they remain transaction nearing completion or 2020 to 2022 funding requirements are relatively straightforward.
No I remain transaction continues to progress as expected and we're working collaboratively with ENMAX.
We are continuing to advance towards the final regulatory approval from the main PC and depending on the pass through a decision I mean, we anticipate the transaction will close late this year or very early in 2020.
We've always managed or funding program to maintain or targeted capital structure of 55% that 35% common equity and 10% hybrid and preferred equity.
Our funding program allows us to maintain or targeted capital structure, while minimizing our equity requirements.
My first maximizes reinvesting operating cash flows and data the operating companies and the supported by common and hybrid equity capital issued by American.
Alright requirement over the next three years is modest and we expect the majority of the required equity will be raised our dividend reinvestment plan, which is expected to raise 200 $250 million per year.
The remainder room rates as funded as needed basis through a combination of hybrid capital from common equity from our ATM program.
We remain committed to an investment grade credit rating and continually engage with credit rating agencies with the sale the gas plants behind us and the pending completion of the remain transaction, we will reach or targeting capital structure.
We're excited to turn the page and focus on the significant growth available to us. Although there has been a period of transition as we reallocate capital from asset sales to our utilities. We remain confident that are highly regulated diversified portfolio is well positioned to capitalize on the investment opportunities. We see in front of us and to continue to provide above average long term investors.
Turns.
With that ill turn the presentation back over the air.
Thank you Greg. This concludes the presentation I like to open up the comps your questions from analysts.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question comes to Paul Heskey.
Your first question comes from the line Julien.
From Bank of America. Your line is open.
Hey, good morning him.
Good morning drilling drilling.
Hey, good morning, So, let's let's just address the white elephant in the room.
Can we talk a little bit about your commentary on M&A and especially some of the public disclosures around Jay EA. When you guys were making the comments in your prepared remarks.
Are you alluding specifically to some of the dynamics and learning more about Florida or are you thinking more holistically I just want to put the M&A context or comments in more of a specific context. If you don't mind just want to understand exactly how you're thinking about this and then at the same time, if you can comment about how you're thinking about financing.
Just given the fact that we've I suppose where on the verge of getting to a much better balance sheet quality to begin with.
Yes, yes, Julian so thanks, Thanks for your question so.
Look I mean, the causes a commentary that to the made in my remarks is.
His commentary that frankly would apply generally has always applied for us in terms of how we think about.
M&A and really just looking to reassure investors that if that continues to be to be our focus as it relates to.
I'm thinking about the strategic and financial aspects of of M&A. The fact is it doesn't for US. It doesn't work if it's just a strategic fit it did also needs to fit financially.
And to and look we recognize it in this market. That's a that's a that's a difficult to help to climb and so we're we're in a good spot where frankly, we've got a very robust.
Set of.
Organic growth opportunities in front of us that continues to be a primary focus but but as it has before we continue to look at opportunity to continue to expand the portfolio and where opportunities exist, where it's both strategic and financial fit as good without taking this off track to.
To maintain our credit metrics to continue to maintain our balance sheet at our target capital structure.
When we find things that fit through that.
That's that's small box, we we will look at them, but in the meantime, we're just really focused on executing or organic growth portfolio.
Got it so there wasn't nothing no specific reason to put that commentary and then also just to be extra transparent about the things because they can be sensitive.
When you're talking about maintaining balance sheet quality would you contemplate a transaction that would once more re lever the balance sheet.
And when you're contemplating transactions that are not accretive.
From an EPS perspective, just to be extra dollar.
No.
So we as I say, we're focused on maintaining or Terry capital structure.
And and look at the time when we we took on extra extra leverage to acquire temple electric at CECO, We did have some excess leverage capacity.
Today today that is clearly less true so.
We continue to focus on on the things that I think that I mentioned.
And in respect of the specific.
Situation Julian that you referenced.
Just in a place where out of respect for the process, we're not going to comment.
Got it sorry and back to regularly scheduled a question if I. If you don't mind I'm just with respect to the 15% than you guys have historically allocated for for an equity raise broadly in the current organic plan. How do you think about the combination of of common versus hybrid versus other sort of lingering financing needs.
Yes, Julie's Craig.
If you take the capital plan of 6.9 billion Canadian.
With that kind of 15% to 20% range of equity, let's take the top end to 20 that will give you around a one 1.4 billion.
As I indicated my remarks about half of that would be to our existing dividend reinvestment plan over the over that three year period, which would leave you with around 700 million Canadian which will be some combination of the existing ATM program that we have in place and I think as you've heard us say or me say before we still have some Roman.
Our capital structure for some additional preferred shares a little that market is a market. This I'd always open but over the next three years.
Vision, putting some more preferred shares in our capital structure as well so that's kind of how we're thinking about it.
Totality.
Awesome are an excellent guys. Thanks for the patients appreciate the clarity.
Thanks Julie.
Your next question comes on line of Roth Ho from Scotiabank. Your line is open.
Good morning, everyone.
Thanks for taking my call or want to focus in on need 6.9 billion dollar capital plan. So.
It includes $650 million of storm hardening and solar investments based on your comments. It seems like 200 million as is hardening and 450 is.
Solar just want to get a sense of how you are thinking about that solar.
In the existing capital plan and then I guess the second question would be what's in that you'll have to $1 billion of other opportunities.
Hi, Rob This is Craig it first of all those those numbers of 650.
And 200 Prostar those are all in us dollars as well so keep in mind, there's a foreign exchange adjustment there really the balance of of the half a billion to ability and.
We think there we have conservative estimates at this point a storm hardening.
So what.
What the implications are for us or team is working through that in Florida.
And we think we'll have more visibility on that as we go through growth in time and really.
Probably up on a half a billion dollars of projects across all of our regulated businesses that is just too early at this point to be able to be more definitive on whether or not we're going to move forward or when we're going to move forward, but I can't say there is anything specific there not individual projects more of a collection of projects kind of in and around 100 million dollar range.
And I think and Robert Scott and I think as it relates to the solar side of things we've been we've been talking for sometime about the.
The opportunity and the end of value for customers of looking to continue to build more solar in inhabit service territory and.
We're excited about the 600 megawatts that.
That we're on a path to complete in the in less than a year and a half with about two thirds of that already in service, but as we've said we think there is the opportunity for core more we think that Oh, there's a cost profile its end customers interested to add to to do that and so while the full.
The scope of that program is still working its way through we've we've got confidence that we will could be continuing to build solar and tap and thats why we built to a component of that into the.
Into the baseline forecast and we'll look to update and refine those numbers further in.
In February at our Investor Day.
Thank you for that and then just a clarification so sober a four which you'll file in June 2020 would that would that include the next tranche.
No. So the so the fourth the fourth.
Phases. So we hope we'll have another another 100 megawatts in.
Early 2020, and the final 50 megawatts in early 2021.
Okay, great. Thank you for the color.
Thanks.
Your next question comes from lines have been San from BMO. Your line is open.
Okay. Thanks, Good morning, I wanted to go back to the emanates discussion and I guess because I've been hearing this this right here.
We're highly focused on hi, Dan cardiac relevant to high growth rate.
But your balance sheets in better shape now you could be opportunistic with.
Acquisitions, and then inject Saxon goes in your backyard, so make sense it looked at it but I'm curious how how broad would you guys go with M&A geographically and.
I guess with a 7% growth rate I mean, it's not really difficult to find anything outside of Florida, that's grown at 7% of Ya.
Yes, I think.
That is we as I mentioned in my call, we're really happy with the portfolio of of asset that we have we think.
That.
We've got some really really high quality assets across the business, but particularly.
In a in Florida, but also it Acadian context also in a in Atlanta, Canada, and and we're really happy with that and therefore.
You know, it's it's why when we think about strategic fit.
You know, where we're pretty fussy about above that and how we think about it and and that's an important consideration.
Central element that that I mentioned earlier that to us as got work anything that we do have to be in what we see as both the.
Good strategic fit for the business, but frankly in the.
Financial interest of shareholders and.
And obviously.
Path to doing that is to make sure that we continue to have a strong balance sheet that we continue to maintain are investment grade credit ratings and to make sure that anything that we would do would would be accretive to earnings. So you know unless and until we can find something that does those things were very happy to stay and remain focused on organic growth opportunities.
Okay.
And then maybe been ground bahama or just some impacts you saw churn quarter.
Gee looking for it so I'm looking at recovering a portion of some of those costs.
Can you speak to historically has had been.
Some historical precedent and grant bomb went the regulator that.
Okay and whatnot that you can lead to or is this really just a new processes going to work with.
Well so we've got a regulatory process that is a mechanism that's already in place for the recovery of costs relating to hurricane Michael that.
Matthew I'm sorry.
Hurricane Matthew that occurred in 2016.
And.
And the costs to ground Bahama at at this point for a for recovery look to be less frankly than than what those costs were for for hurricane Hurricane Matthew So the team there is working with the with the regulator.
And and we've seen in case of Oh, Matthew at times before that.
Constructive approach to making sure that the recovery of those costs without putting undue pressure on customers and we're confident we'll end up in the same place again.
Okay. That's that's great. Thanks for your.
Sure.
Thanks Ben.
Again this would like to ask a question press Star one on your telephone. Your next question comes from the line of Robert Kwan from RBC capital markets. Your line is open.
Hey, good morning, when you're talking about the 650 million you catch kind highly confident about and then you've got the 500 million to a belly on it sounds like those are projects that have names in some amount of advancement.
Is it fair to say that you're kind of giving those numbers conservatively and whether that's in February at Investor day or in kind of the years ahead that that there could be upside to this capital plan.
[noise], Robert It's Craig I mean, I think if you think of our track record. We traditionally have shown a baseline capital forecast with.
With some projects under development in every year as we get closer and closer more of those projects under development tend to get more certain and so we would expect that to continue over this period as well. So I guess not so sort of use were conservative I think it's.
It's a confident baseline that we have but we're not stopping there we see some other opportunities across all of our regulated businesses that were pursuing is just a little bit too early to be that definitive on.
Got it so so the upside there is on the growth, but maybe kind of been turning to the other side of how do you then think about financing not or even within this current capital plan.
I'm just wondering if there's some color as to why asset Monetizations, we're not consider just given how much success, you've had and valuation wise on on those.
Robert I think the way, we think it but we don't need to sell any assets to to fund the capital program to focus obviously, if we start to see a material.
The increase in the opportunities in front of this in a regulated businesses over the next few years.
Like we always do we'll sit back and say what is the best in most optimal way to fund that.
But at this point in time, we're really pleased with the portfolio that we have your business.
Okay.
If I can just finished kind of coming back to.
M&A and within you've kind of outlined the EPS accretion side and I don't have you were alluding to us with the long term side of things but.
Do you need to look for assets that are accretive to your growth rate I, either those assets are growing faster than say, the 70% rate base growth.
I think.
When you think about M&A.
Robert I mean, obviously, there's a bunch of lenses to to look through and certainly we look for things that are accretive to credit metrics accretive to two earnings growth accretive to cash flow accretive to our ability to.
To sustain and grow our dividend.
As well as a as well as strategic fit clearly mix within that obviously is growth and.
And and certainly is we've thought about our portfolio optimization optimization efforts and the allocation of capital clearly, we've been Ali allocating capital towards our highest higher growth investments and so so yes growth rates are.
And the opportunity for growth are important considerations, when we think about how we allocate capital and and that's true as it relates to.
The portfolio businesses that we have the organic growth that we have and obviously as relevant when when you think of M&A and trying to find those opportunities that fit that narrow box that oh that we look for in terms of both the strategic fit and financial there.
Robert I was just yeah, sorry, I would just add that to is is it's also important where that rate based growth is coming from so for us, we're very fortunate and 70% of its coming into say, Florida, because not all rate base growth is equal because you also have to look at the relative equity thicknesses of where that rate based growth is being invested in the early use associated.
The weather so.
Which is why the capital play we have in front of is attractive because of the.
A higher equity segments is nor are we were in jurisdictions, where we're focusing our capital investment.
Got it I can finish you've mentioned strategic fit a number of times. There was the question earlier about geography, but I'm also wondering how much is you're actually really matter I tend to think about tico.
Yeah.
Strategic fit to you a lot as well about the ability to execute your core strategies and kind of coming back to take out. The success you had at NSPI in the field assets, and just being able to rinse and repeat at Teekay.
Yes, it's an excellent point to integrate example.
Robert and clearly that ability to to invest in the transition from higher to lower lower carbon has been what has been driving a mirrors growth Nova Scotia powers growth and now in over the last over the last three years growth within the CECO businesses as well and.
So.
So yes, that's that's a that's one of the key factors, we look out in terms of strategic fit.
That's great thank very much.
Sure.
Your next question comes from the line of Patrick can you from National Bank Financial Your line is [noise].
Hey, guys just on the capital plan I know, it's relatively small in the overall context, but.
There's a bit of a step down capex profile for the Mexico over the three year period. He just remind us what's driving that decline and I think you just answered it Greg, but specifically to new Mexico.
As a way to think about it that it's still a core utility today, but could be a candidate or source of cash for redeployment incremental organic growth or new M&A going forward.
Yeah, I think Patrick it's Greg.
I wouldn't necessarily characterizes stepped out of the capital program.
For say, there's a couple of projects with the timing has been moving around a little bit in particular, we had an IP project that looks like we're going to push a little bit.
The percentage growth rate may have come down a little bit only because we had some of those projects were more front end loaded up from the last version, but in general there is nothing really material from the new Mexico perspective.
Well, we can follow up with you later from new business up enough stuff.
Yeah.
Okay, Great and then just in terms of new Mexico, specifically I'm still a core utility today, but.
Again could be a source of cash going forward for incremental opportunities.
Yes.
Patrick could we see.
I think the performance that we're seeing in new Mexico, you don't reaffirms the the value of that a up that assets and yes. It is a is.
An important business for us we're seeing some growth we've is seeing the seen some support to address.
Some issues within that business, including the implementation of a weather tracker.
They're now that that helps to provide more.
Helped to reduce the volatility, let's say if the financial performance for new Mexico gas relating to a weather.
We're seeing the economic climate in the states.
Improve and.
And we think that bodes well for.
For the utility overtime as well so I'd say, we're cautiously optimistic as it relates to.
Future for a four new Mexico gas of course as we.
Acquired Teco we.
We agreed with the regulator to make a commitment as it relates to.
That that business day part of the portfolio for a period of time and and we take those kinds of commitments seriously.
Okay, that's great thanks for that.
Okay. Great go wondering if we get your thoughts on.
How are you thinking about timing in terms of accessing the hybrid market just.
Given your $1 billion due in 2026, I believe would you be more inclined to wait until the back half of the three year capital program to tap the hybrid market or.
Are you more inclined to perhaps take advantage of the current low interest rate environment.
Well, it's a good question Patrick is what we're experiencing in current interest rate environment Hasnt translated into the preferred share market in Canada. So.
I think the short answer is I don't know.
Certainly we have no what our capital structure due to do another preferred share offering in Canada, probably consistent with what we did last year think of it as a few hundred million dollar offering.
It's just the pricing that we're seeing the for sure preferred share market now in the terms and conditions that are being attached to it doesn't make as the most appealing.
The other financing right now, but we're going to continue to watch it and as you know as a market that has windows, where it opens up and this is more conducive or for participating in.
But again, we don't have a sense of urgency to do it but it is likely going to more part of our plan over the next three years.
Okay got it and.
And then lastly, just on your discussions with S&P.
But they just waiting for the main transaction to officially close before the reassessed the negative outlook or.
Do they really want to see you fully execute on.
One other hybrid deal or fully execute the ATM before going back to a stable outlook.
Yeah, I mean, if we if we.
If we focus on what they've said publicly.
They are negative outlook was primarily around uncertainty around the asset sale program, we have closed.
The sale of the merchant gas plants in Q1 of a of this year well under way to close Maine.
So again given what their report said in December of last year.
We believe we closed the main will address their concerns that.
They had in terms of the negative alone.
Okay, that's great thanks very much.
Thanks, Patrick.
Your next question comes line of Julien Dumoulin Smith from Bank of America.
This open.
Hey can you guys here Megan.
Yes, maybe by Julie.
Hey, sorry, I just wanted to clarify Super quickly because again I know these things requires shouldn't have any clarity when you say earnings before in the M&A contacts you mean earnings per share in terms of <unk> per share metrics and then secondly can you elaborate a little bit on how you think about per share in the context of just made it management a comp and.
Indoor targets, just again to the to reaffirm investors here.
So yes to the first question. It's ER, our our goal is to grow earnings for earnings per share and and that also is aligned with the with the incentive compensation structure of the performance based compensation structure for where the executive team.
So any deal would need to be accretive per share.
That's right.
And sorry, just one other nuance wanted to clarify here just the timeline and the main transaction itself just given some of the updates I believe that were expected. This week have it nets and I know, we're Friday, so having this they translate it just confidence on the timeline itself.
With respect to the main transaction.
Yes, so affiliate I I.
The way characterize is kind of progressing as planned we have had a number of settlement.
Conferences with stakeholders, there's another one scheduled I think in the next week or two.
You told exact date November 18th Thank you.
And we also in the event that were not able to reach a settlement December 10th and 11th I believe our 11th and Twelveth. Those couple of days Theres already date set aside to have litigated hearing.
We're hopeful and optimistic that that will be required and so we're really ought to pass right now I'm, hoping and expecting that will reach a settlement, which would probably get us to closing by year end. If we go to litigate route that would probably leak into early 2020, depending on how fast that commission could turn around their decision but.
At this point, we don't see anything that would prohibit the closing over the next month or two.
Yes, nailing I'd add to that Julian is it to yeah, we firmly believe that.
The filing as part of the formal regulated process has indeed met the net benefit tests.
And it's because of all of that and as well as.
The efforts to add to settle that gives us confidence that we're clearly on a path to close the only thing it's not quite certain yet is timings are going to be just before the end of the year might it might appear in early 2020.
Okay excellent guys. Thanks for the clarity.
Thanks Julie.
Your next question comes from the line as David you sign up from Raymond James Your line is open.
Thanks morning, guys that just just one quick question for me I. Just wondering if you provide any recent thoughts on the retail choice a ballot initiative for Florida seems like there's a slim chance they get the number of signatures there, but just wondering if you have any updated thoughts there.
Yes, David Thanks for the question. So so we're still waiting for a decision from the Supreme Court as to the their approval or notch up the proposed language from going on the ballot. We believe that there are reasons why the answer to that will be no.
But obviously, we're waiting for that that decision as with others and then to the point that the that you make yes that proponent does need to secure.
A specific number of signatures 770000 approved signatures.
And to have those reviewed firmly as part of the process before the end of January and and certainly at this point they have not met that threshold thats not to say that it's impossible for that too to happen but.
But but at this point that that they have not yet met that threshold and and obviously there is.
Too much time left before they need to.
Achieved that threshold before the end of January .
Great. Thanks.
There are no further questions at this time.
Great well thing that I think Albert Giants warning on cartoon you're going next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for free.
You may now disconnect.
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