Q1 2020 Earnings Call
It's over to Stephanie Mimo. Please go ahead Mr. mimo.
Thanks, Lisa and good morning, everyone and welcome to Fortas's first quarter 2020 results conference call I'm joined by dairy Terry President and CEO, and Jacqueline Perry Executive Vice President 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 that the discussion will include forward looking information, which is subject to the cautionary statements contained in the supporting slideshow actual results could differ materially from the forecasts projections included in the forward looking information presented today, all non-GAAP financial measures referenced in our prepared remarks are reconciled to the relay.
The U.S. GAAP financial measures in our first quarter 2020 Mdna.
Also unless otherwise specified items financial information references in Canadian dollars without I will turn the call over to Barry.
Thank you Stephanie and good morning, everyone.
To begin today's call I wanted to take a moment to express or heart, Phil. Thanks to our 9000 employees 3 million plus customers and our local communities all of whom have been impacted by coven 19.
We are especially grateful for our local heroes on the front lines in our hospitals and are essential employees work is regard the energy that enables our economy.
Also we're thankful for our customers independent us to provide these services. Thank you.
Like many companies we've responded to the call to act half of our total employees remain in the field and continue to operate and maintain our critical infrastructure.
They have been doing an amazing job.
The remainder of essentially employees have been working from home since mid March.
Across North America, our utilities have suspended disconnections and wave late fees to help alleviate the impacts of Coburn 19 for our customers that needed most.
As a community level, our utilities have supported local charities by donating $4 million to food Bay mental health agencies and other community based organizations in their local service territories.
Our businesses are performing well with essential employees, maintaining and operating our systems.
With respect to source of supply chain, our businesses have access to the necessary supplies to operate effectively.
We will continue to monitor our supply chain for the duration of the pandemic.
And in some of our harder hit regions like Michigan, and New York Weve Sequestered control room operators to ensure we can continue to operate our networks well.
During this time weve adhere to strict health and safety guidelines, including insurance social discussing is in effect in the workplace.
For example, our work crews have only one person per truck with other employees. Following two job sites as separate vehicles crews are also maintaining good hygiene practices to protect themselves and customers.
At the onset of the pandemic, we implemented our emergency response plans.
Hosting regular calls with the Ceos of our 10 utilities.
Our leaders have tremendous operational experience and have risen to the occasion sharing best practices on an array of topics ranging from employee safety to customer solutions in real time.
The fundamentals of our business haven't changed with the pandemic, our decentralized model, where local teams have the authority to manage their businesses, coupled with our irreplaceable energy delivery assets positions us well provide customers safe and reliable service.
Plus our geographic and regulatory diversity is a major advantage of this time.
From a shareholder perspective, 82% of our annual revenues are protected by regulatory mechanisms or our from residential sales, which are expected to increase during the pandemic.
This helps the shield the majority of our utilities from changes in sales associated with the economic slowdown, which has resulted in lower commercial and industrial sales.
Our conservative approach to running the business in short we were in a strong liquidity position at the start of the pandemic.
At the end of April we had approximately $5 billion of liquidity, leaving for disposition near the top of our sector.
Kobin 19 has caused the U.S. dollar to strengthen markedly and with approximately 65% of our earnings coming from the United States. This could provide a potential tailwind to fortis.
Lastly, given the regulatory constructs in most of our utilities, we have limited pension expenses exposure.
Now turning to slide seven this slide provides a breakdown of our annual revenues approximately 63% of our revenues are protected by regulatory mechanisms from changes in sales, which is very positive.
The remaining 37% of total annual revenues are exposed to changes in sales.
This primary relates to you in EPS in Arizona, and our other electric segment.
When you break down to 30% to 37%, 19% relates to residential sales and 18% to commercial and industrial sales in other words, 82% of our revenues are either protected by regulatory mechanisms or from residential sales, which I mentioned are generally seeing an increase.
While we don't know how long the pandemic will last we've included a sensitivity table on the slide which translates every 1% change in sales broken out by jurisdiction and revenue class into an annual EPS impact.
Moving to slide eight here. We've included an overview of the local economic impacts the pandemic has had in our jurisdictions today.
Generally speaking most regions are seeing an uptick in residential sales as individual spend more time in their homes and a decline in commercial and industrial sales as businesses scaled back or close.
Some of our service territories hub as struck harder than others in southeast, Michigan for instance, where Itcs headquarters is located the community has seen a high number of Kobin 19 cases.
This has resulted in a decline in peak load of up to about 25% at times, mainly driven by manufacturing and auto suppliers being closed during this time.
Since the FERC Formula rate, Mexico mechanism allows for a true up of actual versus projected revenue requirements I.
I think see expects to recover these loss revenues associated with lower peak loads.
However to help mitigate the size of the true up ITC is working to reduce expenses to alleviate the net net impact on customers.
In contrast, as noted on the previous slide our utility in Arizona doesn't have a regulatory mechanism to protected from changes as sales.
Fortunately the Tucson area seeing fewer cobot, 19 cases compared to Michigan.
In Arizona the authorities establish a broader definition of essential services, which is somewhat muted the economic impact compared to other states.
You and SSC in an approximate 10% decline in commercial and industrial sales.
Partially offset by 7% increase in residential sales, albeit primarily due to weather.
Combined this yield an approximate 4% decline.
Overall, our utilities that are exposed to changes in sales as seen in approximately 3% decline one month into the pandemic and Thats, where the period between mid March in mid April.
Moving on to slide nine our 2020 capital plan is on track through the first quarter, we invested $1.2 billion in our energy systems or 28% of our annual plan.
We are confident in our 2020 plan however, at the pandemic evolves differently than what our Thirtys expect some of some of the capital may shift to subsequent years.
Turning to slide 10, the five year capital plan of 18.8 billion remains intact through 2024.
As you will recall the capital plan is focused on our regulated businesses and consists of a diverse mix of highly executable low risk projects needed to maintain an upgrade our existing infrastructure.
In 2019 midyear rate base was $28 billion that is projected to grow to 34.5 billion by 2022, and 38.4 billion by 2024. This yields three year and five year compound annual growth rates of approximately 7%, which is consistent with our prior rate base growth.
Guidance.
Moving forward, we continued to be focused on employee safety and customer reliability.
With our long term strategy intact, we're progressing our sustainability objectives, including clean energy initiatives.
We also continue to focus on cyber security and innovation and are pursuing growth opportunities beyond the base plan.
Overall, our growth platform is resilient and we're confident that our long term strategy will create shareholder value.
With that confidence in our long term strategy, coupled with our longstanding track record of increasing dividends for 46 consecutive years, we remain committed to our 6% average annual dividend growth guidance through 2024.
It's worth noting that about one third of our shareholder base is comprised of retail investors, who rely on our dividends as a source of income.
Our goal is to maintain a stable dividend for these investors and other shareholders throughout this crisis.
Turning now to the first quarter highlights our safety and reliability performance was very strong as we invested 1.2 billion of capital expenditures in the quarter.
This supported adjusted earnings per common share of 68 cents for the quarter.
On the regulatory front in late March FERC issued a notice of proposed rulemaking on transmission incentives demonstrating their commitment to incentivizing the construction of transmission infrastructure.
Jonathan will speak to this in more detail shortly.
And recently, both S&P and Dvrs Morningstar ever from our strong investment grade credit ratings. We're pleased with these developments now I'll turn the call over the Joslin for an update on the first quarter results as well as additional information on our cobot 19 financial impact outlook.
Thank you Barry and good morning, everyone.
Reported net earnings for the quarter up 2024, $312 million.67 per common share compared to net earnings of 311 million or 72 cents per common share for the first quarter of 2019.
On an adjusted basis earnings per common share was 68 cents for the quarter or six cents lower compared to the previous year.
Regulated utilities performed well during the quarter with strong rate base growth.
As expected EPS was tempered by a higher weighted average share count related to the equity issuance completed in late 2019.
And during the quarter EPS decreased as a result in lower earnings at you and asked energy and I'll get into the details of you announce on the next slide.
On slide 16 shows the details of the EPS drivers by each reporting segment and as you can see our regulated utilities contributed six cents increase in EPS.
For our western Canadian utilities, as well as central Hudson rate based growth was the main driver of the increase in EPS.
The increase at ITC was driven by rate base growth as well as lower development business development expenses and earnings and ITC were also tempered by a lower our OE associated with the FERC order issued in November 2019.
Our non regulated energy infrastructure segment contributed a one cents EPS increase driven by higher realized margins at the a concrete natural gas storage facility.
And that our corporate and other segment. The one cent negative EPS impact was mainly due to net unrealized losses on foreign exchange contracts, partially offset by lower finance charges and operating costs.
As noted on the previous slide lower earnings at you and has decreased dps by six cents for the quarter.
Earnings that you announced reflect higher cost associated with rate based growth not yet included in rates due to the historical test year.
TGP has requested rate.
Great that recognize approximately 700 million use some additional rate based investment and this rate case remains outstanding.
Earnings were also lower at you and ask due to a reduction in the market value of certain assets that are held in the trough to support retirement benefit.
This impact was about three cents and was the result of the financial market volatility experienced in March associated with covert 19.
The remaining decrease was due to lower retail sales in Q1, twentytwenty driven by reduced heating load compared to the first quarter of 2019.
And lastly, a higher number of shares contributed to a six cents Cps decrease for the quarter.
Now turning to updates on our regulatory proceedings at ITC, we await a decision on rehearing regarding the MISO base. Our early order issued in November 2019, as you'll recall FERC issued an order in January granting the rehearing for further consideration effectively extending fercs.
Review and there is no stipulated period for FERC to act on this.
With regard to the tune notices of inquiry issued in March 2019, FERC issued a notice of proposed rulemaking or no paper in March twentytwenty on the transmission incentives inquiry.
In the note for the commission proposed cumulative our OEM incentives of up to 250 basis points for transmission investment that meet certain criteria.
It is proposed that these incentives would not be capped by the upper end of the base, our OE zone of reasonableness.
Notably the commission proposed a 100 basis point early incentive adder for participation in a regional transmission organization or RTL compared to the 50 basis point RTL adders that ITC has today.
Partially tempering this was a proposal to eliminate the transco early incentive batter and with Itcs MISO utilities currently earned 25 basis points.
So this means if the proposals in the rule, making our approved in a final rule itcs all in eligible adders in MISO could move from 75 basis points to 100 basis points before considering other projects specific incentive.
Next steps include ITC and other stakeholders, providing comments to FERC by the first of July.
As I mentioned in Arizona, the TGP rate case remains outstanding initially TGP requested new rates, becoming effective may onest. Unfortunately, due to covert 19, the Arizona Corporation Commission has extended the procedural schedule and a decision is now expected in late Twentytwenty.
As I mentioned the current rates are not reflective of the investments made in Arizona and as a result, this delay can be expected to temper earnings in Twentytwenty.
Over the past few years the impact of delayed rates has been reduced by higher sales associated with warmer than expected weather and a strong economy in Tucson. As you can appreciate it's difficult to predict the impact whether we'll have on earnings in Twentytwenty, but I will note is pretty hot there today I understand the temperature of around one.
Great and five degrees Fahrenheit, so pretty warm there.
Beginning in today's ADCC open meeting the commission is expected to consider various issues related to covert 19, including the financial impacts on customers and utilities as potential deferral and recovery of pandemic related costs.
We cannot predict the timing or outcome, but view this as a positive developments.
And as discussed last quarter Fortisbc filed its 2020 to 2024 multiyear rate plan last March as the prior term expired at the end of 2019 currently we have interim rates and expect final rates by a written order by mid Twentytwenty.
During the quarter Fortisbc filed an initial project description with regulators to begin a little impact assessment and an environmental assessment to further expand the Tilbury site. This expansion, which is not included in our current capital plan considers the potential increase in storage capacity to improve resiliency.
We have the gas system and additional liquefaction for export opportunities.
Fortis, Alberta await the decision by the Alberta Utilities Commission or you see in the review and variance and stay on implementation of the September 2019 order, we significantly change the Alberta electric system operators transmission customer contribution policy, we received notice in December that.
These decisions wouldn't be delayed into twentytwenty to allow the regulator to gather additional information.
This information was provided in January but given the current circumstances. We think there may be further delays before this matter gets resolved.
And lastly expert evidenced once filed and agencies ongoing generic cost of capital proceeding in January this proceeding what's supposed to establish the allowed our always and capital structures for 2021 and 2022, but was suspended in March as a result, the pandemic the AMC will occur.
Reassess the suspension every 30 to 60 days going forward.
On April 23rd the Commission ask participants to file comments on whether the proceeding could be resumed and if so when and on what terms.
As you May recall, we strengthened our liquidity in 2019 using proceeds from the equity issuance and sale of the one EDA expansion to repay fixed term debt and credit facility borrowings.
We have approximately 5 billion and total liquidity would we strongly position supported as we continue to work through the cold with 19 pandemic and execute on our capital plan.
This includes a 1.3 billion dollar on utilized corporate credit facility and an additional 500 million one year revolving term corporate facility secured in April.
Most of our credit facilities or unsecured committed facilities with maturities ranging from 2020 to 2025.
And as you can see on slide 19, our utilities remain active in the debt capital markets ITC issued 275 million us term loans in the first quarter. Additionally, TGP and Newfoundland power successfully issued 30 and 40 your debt in April Twentytwenty.
Despite broader market volatility the debt capital markets remain attractive for strong credit quality issuers like Fortis.
Our financial flexibility is further supported by manageable fixed term debt maturities with approximately 1.1 billion due on average annually over the next five years with approximately 500 million maturing in Twentytwenty.
In 2019, we met all credit rating agency thresholds and significantly improved our cash flow to debt and holding company debt metrics.
This improvement was reflective of our funding plan again, including the sales of one expansion and the equity issuance.
And you also recall, we terminated both our ATM program and the 2% discount previously offered under our dividend reinvestment plan concurrently with the equity issuance.
In late March S&P affirmed our a modest issuer rating and our triple B plus unsecured debt rating S&P recognize the execution of our funding plan in 2019, while maintaining the negative outlook due to concerns around cobot 19.
The negative outlook is consistent with our peers as S&P revised its outlook for the entire north American regulated utility industry to negative from stable in early April due to covert 19.
And on May four DBRS Morningstar affirmed our triple B high issuer rating and senior unsecured debt rating with a positive trend up from stable.
For this is low business risk profile improved credit metrics and ample liquidity support our investment grade credit rating.
Before I wrap up my remarks, I wanted to discuss some of the potential financial implications of Covance 19.
Despite capital market volatility associated with the pandemic Fortis benefits from limited pension exposure.
At the end of last year, our defined benefit pension plans were almost 90% funded with just under half of the plan assets invested in fixed income our pension expenses further mitigated by regulatory mechanisms covering approximately 80% of our plan assets.
The remaining 20% relates primarily to you and App, where the exposure is largely attributable to the historical test year.
As a reminder, the impact of asset valuations on pension expense and funding requirements is dependent on December 30, Onest asset valuations. So consequently, any valuation impact will not be reflected in our financial results until 2021.
And with regard to other retirement benefit our us utilities fund certain benefit through trust and are subject to market changes each quarter outside of you on asked most assets are heavily weighted towards fixed income investments and bus have minimal volatility.
In total units has approximately 30 million us interest assets.
Turning now to the implications of the recent strengthening of the U.S. dollar approximately two thirds of our earnings come from the us and a similar amount for our five year capital plan is expected to be invested in the U.S.
As stronger us dollar could be a tailwind for borders and Twentytwenty every five cents change in the U.S dollar to Canadian dollar exchange rate impact annual EPS by approximately six cents on average and would result in an approximately 400 million dollar change in our five year capital plan.
And as a reminder, our capital plan is based on a foreign exchange rate of 1.32.
Lastly, we remain committed to working with our customers to alleviate some of the financial impacts associated with coal that 19.
Although it is too early to quantify the impact we continue to evaluate potential credit credit losses.
And depending on the amount some of our utilities may seek future rate recovery of credit losses associated with this pandemic.
Additionally, some of our utilities are somewhat insulated from credit losses for instance, ITC important Alberta did not interface with end use customers for billing purposes. Instead, ITC is primarily paid by MISO, which collects revenue from the local distribution utilities and Fortisalberta is mainly paid by the retail energy provider core.
Combined ITC enforced Albert I represent approximately 30% of our annual revenues.
So to summarize we are effectively managing the financial impact of Cobot 19 on our operations, our diverse business, coupled with positive regulatory mechanisms and constructive regulatory relationships place us in a good position today.
This concludes my remarks, and I will now turn the call back to Barry.
Thank you joslin to wrap up I want to reiterate our heartfelt thanks to frontline workers, especially those in healthcare and our own essential personnel as.
As reporters our fundamentals haven't changed we are strong and stand United with our 10 utilities across North America to deliver the essential service that our customers count on by keeping the lights on in the natural gas flowing we are optimistic that we can navigate back to a sense of normalcy, keeping the health and safety of employees and customers top of my.
Hi.
I'll now turn the call back over to Stephanie.
Thank you Barry This concludes the presentation at this time, we'd like to open the call to address questions from the investment community.
Thank you, ladies and gentlemen, we will now conduct the question and answer period, if he would like to now Register a question. Please press the star followed by 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 are using a speakerphone. Please lift your handset.
Before entering your request one moment please for the first question.
And our first question today comes from the line of Robert Kwan from RBC capital markets. Your line is open.
Good morning.
I can just start with.
92 packs and you've got the sensitivity.
3% production holds.
On an annual basis, so thats truck into Q3 cents share.
You also noted.
Scott holds as well are you looking at.
Everything in its entirety.
And.
Thats kind of that commentary about it seems to be just net positives.
Robert certainly this is also Len, yeah, I mean, right now we're seeing an overall, 3% decrease and.
About three pennies so one could potentially argue that the tailwind with FX could certainly new each the impact of any variance that we see as a result of lower sales in those jurisdictions, yes, you're correct.
And just to be clear, though.
You focused on the sales reductions and not any of the other to 19 responses that you outlined including the returns.
In Arizona.
The rate deferral in Turks and any detailed deferrals is not just.
And your expectation cash timing and and everything.
Earnings perspective will be swept up underrate regulator to county.
I think a Robert those are fairly minor overall I I don't think third large enough.
To to show up.
The one in Arizona I don't think has an impact Turks, obviously delaying the rate in implementation does have some some impact on bottom line, but but do not significant in any way so.
Got it and if I can just finished with funding.
Removing the drip discount looks like it's had a pretty big impact on participations show.
If that continues to hold can you just talked about your.
I'm sorry, your approach to funding given chief.
Being on.
Key hires and where you are was was targets.
The plan going forward.
The rubber I'm going to jump in because I, obviously based on our.
Actions last year to exit the one need a plan for a $1 billion and then billion to of equity done in December is almost like we predicted the pandemic was coming you know you really got out ahead of this thing and created a strong position, but if you think back to what we did the equity we talk about pre funding our capital.
Plan.
So yeah, we got lower participation in the drip, which we expected, but we have really no need to go do it equity for some time here and we create a lot of room for the company, if we get some more growth which.
It's very possible as we as we look at some of the initiatives. We have on a go in the company then yes, we would probably be looking at some more equity but.
So where we are now it's nothing that I'd be worried about to anytime soon.
Just to be clear.
Absent new gross.
Yes, well over participation rate was what has already been factored into the existing capital plan. It doesn't require material new equity going forward. Yes. We have had we did assume lower drip participation. It is a little lower than what we anticipated, but its system one quarter right. So I think we need to go through to two.
Two or three quarters of Robert to really see what the actual drip participation is where leveling off at what we're finding is the banks are doing synthetic drips. You noted that there is there's a lot of shareholders actually participating scripts were just not before to strip right to the banks are doing there.
Our own back office drip and buying shares in the open market, which I think a lot of us weren't really aware off so so once the discount went away. This is what's occurring so we're looking at that and seeing if there's anything we can do about that.
Thank you very much.
And our next question comes from the line then Tom from BMO. Your line is open.
Okay. Thanks, good morning, Thanks, a lot for all the detail on uncovered 19.
Wondering as you've gone through this this work from home and and remotes and whatnot is there any sort of.
Potential permanent cost savings coming out of this that has popped up tropo and you have a dozen different board meetings and competing look has anything there that.
Yes, it could be sustainable on I know you mentioned cost reductions RTC wasn't sure that sounds that reference to that.
Yes.
And with Great question, and I would say first of all off the top the transition to work from home is gone remarkably well you know if you had asked me.
Three months ago could we put 5000 people.
At home working and have a very effective system and communication system and all that stuff I would have said Gee, that's going to be big challenge, but our team, especially stepped up and it's working so well and we actually are communicating.
We are committed getting better I think at this point in terms of the senior team, especially in and how we're monitoring each other's businesses and and re learning from each other that so that's all going well I would say is a little early to say what the savings are associated with this.
And whether it some of it becomes permanent you know we're learning or were just I would think in the last couple of weeks here with sort of starting to feel more comfortable about how the current system is working but definitely we'll be looking at opportunities too.
To really see if this stuff here that we can keep once we get through the crisis and.
Clearly travels down all that kind of stuff thats that that's evident at this point in time, but may maybe they're bigger things around some portion of our workforce may be able to stay working from home you know and that could let lessens the need for office space that kind of thing. So so we're going to be looking at that but at this point little early to.
Hey, how much is is and what the real benefit could be.
Alright, great Sam.
On the you announced that the hearing scheduled and this summer.
Do you do you know already approved well for virtual hearing and submissions or is a situation where this could keep can onto it down.
To the future.
David Hutchens did you get that question, Yeah, I got that question. Thanks Ben.
Yes, they have got extremely comfortable with virtual opened meetings.
And and I'm sure, we'll be able to do a virtual.
Hearing for this particular circumstances not a very complicated one it's a single issue theres not a whole bunch of.
Of intervenors for this particular issue. So I think this will easily be done in the June timeframe virtually.
Okay, great and one loss.
Question.
On the lease you mentioned a lease in your commentary iOS, let's let's probably a couple pennies hit last year that.
Is that because conditions have improved or is it because year over year, it's still.
Balancing.
The the water situation and believes is definitely still challenging.
We've got actually holding back a little bit of water as we as we go into the into dry season to make sure we have some some.
Amount of water to provide the energy to the to the country and.
So actually above the rule curve right now, but we're holding back on generation at the at the request of the utility there.
So I think on ban really we got to wait now until August September October for the for the.
Rainy season to start again.
I remind everyone. It only takes one big tropical storm to fill that that reservoir in believe so we're all dancing on Fort Wayne at this point, but.
Right now we are still struggling through a very severe drought. There we did pick up a little bit earnings from our interest in believes electricity we.
Bottom folks maybe have forgotten is where we do or own one third of the of the utility there.
And we did pick up I think a little bit from that in the quarter.
Okay. That's great. Thank you.
And our next question comes from the line of Rob Hope from Scotiabank. Your line is open.
Yes.
Hi, everyone.
Two questions first one's just can you add a little bit more color on the air the three cents to you and US what type of assets are included in noninterest just given that the three cents looks relatively large versus ugly Johnson said.
The trust had $30 million of assets, there and I guess subsequently could we see a room.
A reverse of the our personal and versus the charge into Q2.
Yes, Bob Yes, they do have about $30 million invested 60, 40, I'm gonna say between equity and fixed income did take it did take a bit of being hit.
This quarter.
Well, we also had a slight gain in the fourth quarter over previous years. So two pennies actually on I guess happened in this quarter, but it was coupled with the positive.
The in the first quarter of last year, we don't typically see big movements it never ever reaches a penny for Florida.
But where the market for little bit of on a drop at the end of March there clearly it added up to the through pennies for Florida, Yes.
Market volatility Rob with.
It's interesting you know you're thinking about what happened in the last couple of weeks for the quarter on on the stock markets.
And on on foreign exchange for Canada, I'd like you know, we were even on foreign exchange, where like averaging for the quarter like $1.34, but the dollar ended up at the end of quarter I'd like a buck 40 or something like that so so we have the mark to market our contract at the end of the quarter, but only earned during the quarter at one.
34 sort of the mismatch. So this sort of acute movement in the market near the end of the quarter introduced a little bit of volatility for us.
The markets have bounced back so so I know David's team they recovered a bit of all that.
That's for the trust.
Account already and.
Markets continue to improve that we'll we'll get that back. So it's really I'd say not sort of like part of the normal businesses. It's definitely something we have the due to fund retirement benefits, but but this market Q market volatility has caused some some issues with those those accounts.
Alright Thats helpful.
Then just.
Our longer term question, just how you're thinking about the eagle pipeline in PC, and where they're conversations with the developer there. It looks like you pushed up to 20 to 24 from late 2023.
Oh, you home, Rob I would say that we're still including that project in our five year plan, we're still spending money on behalf of that developer their funding work that we're doing so as long as we continue to see that progress from the from the customer ultimately that is building the the plant we.
Well, we have included I am very excited about the profits in BC generally you know the.
Our natural gas system. There is very large system, we're looking at some exciting opportunities.
To expand our Tilbury site Joslin mentioned that in her and her offline comments, you know to add more more tank storage for resiliency, maybe some more liquefaction for bunkering and export opportunities. We don't have those things in our five year plan, yet, but they are starting to advance and im getting more and more optimistic I know Rogers on the call in.
And.
During the beauty great work for us in British Columbia, So, we think about governments and looking towards shovel ready projects coming out of this.
Prices were hopeful that some of the work we're doing a BC will be on that list and we'll be able to grow the business even faster in British Columbia.
Alright, Thank you for the Cohen.
And our next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open.
Yeah, Hey, Ron good morning overall well.
Hi.
Sort of question I wanted to dig a little deeper on on the Arizona sales growth trends.
Do you happen to have any of those data points on on a weather normal basis, just given I think that was had a pretty.
Pretty big impact in Q1, and then in April as well.
Im going to David Hutchens is on the line going to throw it over to David I will say this period that we have in that slide Michael is.
The period mid March the mid April is does the shoulder period for for that for the business in Arizona. So is the toughest period, the predict trends, but David you have all the details on that obviously.
I'd just add Barry that on the weather normalized basis residential is flat to slightly up and remember also that weather normalization is quite a bit more of a of an art than science and there's a lot of things moving around particularly as we as we see a commercial businesses change how they're they're taken and.
Gee as well as the residential load shape et cetera. So our models aren't really is as great as we'd like them because we've never seen a load shape really quite like this.
But given given that if you take out the weather normalization on an overall.
Perspective, I would say it probably takes out of per cent or may be two at most.
On that 4% that we're looking at as net down for that.
That last 30 day.
I'll book or have been look back so the other thing to keep in mind to though.
Is that these are shoulder months and we don't see a ton of weather typically in the March April time period, as we get into the summer, we'll see a lot more sensitivity to weather, particularly with that many more people working from home so whether those the weather on and going forward basis will will be something to watch for sure.
Great. Thanks, and then also just sticking with with Arizona.
The the impact of the delayed rate case.
I think showed up in.
The quarter as.
Two cents.
Just any sense of.
How big that ensure impact should be over the course of the year given it's looking like.
Great start going to be in effect until late 2020.
Michael I try to say simple on this stuff, we got 700 million rate base.
That's that we're trying to get into rate no real issues with that lot of all the he'll River unit reciprocating engines is sort of like good start.
You apply 50% equity to that.
Maybe just use some some estimate of our Lee that you feel comfortable with and and for the remaining time period for the year.
Due to do the math, it's it's pretty simple and that's that's sort of what we're seeing for the rest of the year at this point, it's unfortunate you know that.
It's been that long cities that set rates, we've done a great job investing in the in Arizona, We're looking forward to getting our our new rates, there and continuing to do their jobs, but but there will be a.
Lingering impact on.
On the earnings in Arizona until we get get those rates secured at the end of the year.
Okay, Great and then then just last one for me I know you said a little.
Early to talk about.
Credit losses, but just.
Any any historical perspective, what those have looked like.
Yes, economic downturns and how much of that you ultimately to.
Where versus covered by by riders.
I would say first of all of Canadian perspective, like if you look back to away or nine we really didnt have.
The U.S. businesses back then gives you a sense how much we've grown.
So in the Canadian customers pay their bills frankly.
And we've not seen historically large bad debts even in crisis.
I know that.
The U.S. utilities, maybe there's a little more of that but the work we've done joslin, we havent like Theres. Nothing this has not been a material issue at historically right certainly not material and I do know in New York during the last financial crisis that that they actually did apply for a regulatory deferral than they did get it but again nothing.
Material to afford us in terms of the dollar amount, we're talking about but.
I suspect in this case, depending on the amounts of credit losses that we are that the utilities may see.
They very well may file for the regulator for deferrals of these amounts as well, but nothing material that we expect that Michael your we're we're on alert for we are monitoring it but it's a little early also to say that there's any trend or anything at this point.
Awesome, Thanks again quicker.
Your next question comes from Julien Dumoulin Smith from Bank of America. Your line is open.
Good morning, everyone. This actually Ryan greenwald onto Julien.
Good morning right.
Good morning, appreciate all the new disclosures and sensitivity. So I was hoping you guys, who kind of give us color I now.
The data that you guys provided there as you alluded to the shoulder months, but can you kind of talk about your internal assumption for mode on the weather normalized basis in the summer specifically in Arizona.
Ryan It's pretty tough you know I know the industry I think what we're hearing is about 4% met low between your commercial being down say 10 and and.
Residential being up six seven that kind of saying, we're seeing about the same stuff at borders.
The the business in Arizona, such a wildcard you know with with temperatures at the levels were seeing it even today like 105 degrees you can quickly overcome any decline in.
In sales on the commercial side by an uptick on the residential side. So.
On a day like today, we're we're our sales are probably up in Arizona.
You know.
Even factoring in the crisis. So so thats active new afford it is trying to predict where the weather is going to be in Arizona. So so the last two or three years last year, maybe it was a little more normal but the prior two years, we have warm weather in that overtime.
Aim all the regulatory lag that we were experiencing or most of it in the jurisdiction right.
Yes fair enough and then in terms of kind of so yes mechanisms in place.
All right that you have this rate lag in areas.
Please.
[laughter] levers that you can pull and cross your jurisdiction just in terms of mitigating any mode impact.
Sorry can you we lost the first part of your question can you tell you we stated.
Yes that you have to mechanism in certain jurisdictions, but then you have the rate lag in Arizona, but just broadly can you kind of talk about them levers that you can pull in terms of cost cuts in order to kind of mitigate any mode impact.
No I don't think there's a lot we can do Ryan really you know we are doing some obviously ITC were load is down probably more than.
Than some of other jurisdictions largely related to the auto plants on Olin and her team are really focused on cost reductions.
To really mitigate.
The impact on customers there, but it's not a bottom line issue you know is more about making sure we do the right thing.
So in the other businesses you know we are focused really is mainly around making sure. The grades are operational that were very reliable that the service we're providing is.
Is there for our customers and we've always done a great job of monitoring our.
Operating cost as we come into a frequent rate cases, especially in our Canadian jurisdictions. So I don't think that a lot opportunity to cut costs in the business.
To to sort of create more earnings in one part of the business offset you know an impact in another part of the business. That's that's sort of not the way we operate the business overall from other companies like do that way, but.
But for US you know our businesses are our independent businesses that you know.
Alright, implementing their business plans executing on our capital.
And currently going to really good job, we haven't really seen any because I think some of the early practices around how we approach the work and safety of our employees, we really haven't seen much much at all in terms of decline in our and the work we're doing in the field.
Got it appreciate the time.
Thank you.
Our next question comes from a line of Mark Jeremy from C.I.B.C. capital markets. Your line is open.
Great Good morning.
Just following up my question. When you said you you couldn't actually do a lot on Opex one of those given there's a slight push out in a in the TP rate case of though.
Managing Capex, just as a regulatory line here this accident.
I don't think we're going to do that you know we the capex, we're putting in the ground and TGP as required by the fact is as we Havent historical test year, there the crisis happen it's.
Not unusual that the commission would have delayed and as soon as circumstance.
The the the process that we're seeing that happen.
Across many jurisdictions, so we knew coming in that it wasn't historical test year look I would hope listen I'd hope over time, and you know I'm always encourage and David and the team try to find ways.
To improve.
Both the regulatory compact in Arizona. The recently with this case you know were our equity looks like our equity is going to move up from 50 to 53, so that the positive development, but but I don't see ourselves really.
Cutting capex or anything like that you know there maybe some way of moving capital around a few months here or there that that helps a little bit we'll take advantage of that but but from a from overall direction.
We are how we look at Arizona is that if it's a really fast growing jurisdiction.
Typically leads the nation you know in the top one two or three states in terms of economic growth over the long haul we have tremendous investment opportunities there and over over time, we're going to see that earnings growth. It's just that we'll have these periods of flatness and between rate cases and.
Fortunately.
They are both 20 plus percent afford us overall, we can absorb that but.
But we're not looking at severe changes in terms of how we run the business that's for sure.
Okay, and then just trying to DC can you clarify whether or not there actually is cutting in place and an interim rates are that comes in often gets you. This rate case and then can they are kind of saying there's quick revenue protection. There what is that from the electric utilities, because I, just a higher fixed charge component.
So it was a question about BC British Columbia, Yes, Yes, that's correct, yes, we have Roger maybe you can describe the mechanism, but I think it's pretty.
Pretty strong mechanism that protects volume right.
Yes, so theres two metrics, we've had be completely for decades on our residential and commercial that protection usage.
And then under the PVR that ended in the at the end of 2019, we had a revenue flow through it captured all other revenue variances, we've applied in the and RP there were waiting for on the decision.
Of applied to a continuation of that revenue flow through.
Hi, guys, who currently we're using the revenue flow through and we expected to be approved or when we get to rate order, but absent that we've always had the decoupling going back years that covers our residential and commercial customer classes.
Okay. Thanks for clarifying and then I know, it's a small segment of your earnings but the Caribbean given the drop in tourism, maybe to sneak two what can be done sort of mitigate some of the drop in the low there how severe can to earnings impact the.
I don't see immaterial earnings impact coming out of the Caribbean and in fact in in Grand Cayman right now, we're not seeing a lot of sales related changes.
It's not a.
Grand Cayman is not is subject to the tourism trade as Turks and Caicos is Turks and Caicos is a little a little down we we we made a hypos, we really made headway in Turks and Caicos, just before the crisis by getting.
Great.
Settled for the recovery of Hurricane cost and.
Sourcing when the crisis happened, we did have the delay the implementation of that.
That rate increase.
So overall I remind everyone. The Caribbean at total is 3% of the company. So so really it's not it's not significant.
And it may be a penny or something like that overall afford us, but but not significant.
Okay. Okay.
And again, if you'd like to ask a question that star one on your telephone. Our next question comes from the line of Linda Ezergailis from TD Securities. Your line is open.
Thank you.
I'm wondering if you've put any thought to maybe.
Reassessing youre rate or your revenue revenue allocation across customer classes to the extent that potentially industrial load doesn't recover in certain jurisdictions.
Very quickly and maybe even some impact from means for commercial customers.
What what how quickly could that be done in various jurisdictions and do you think the regulator would be open to that and or potentially increasing your fixed charges as well.
Good question Linda Linda.
I hope you're well.
I think first of on industrial class, we don't get a lot of margin from industrial customers are usually that large volume.
Customer that got the lowest power rates and we don't get a lot of volume. So a lot of lot of margin I should say, but if you extend your questions come commercial customers is obviously more margin there I think.
We'd have to see this.
This sort of pandemic last a little longer here to to start thinking about.
Rate design, you know and customer allocation customer costs wherever requirement allocation I guess between customer classes.
I think we will probably learn something from this.
But I think is a bit early to say, we're going to be filing new applications to try to try to allocate.
Our cost to different classes based on what we're seeing now.
The pandemic, so, but I interact and thought for sure.
Okay, and I know, it's early days and you're focused on a safe operations.
For your customers and your employees.
But you did mentioned this possibility that if gross were added.
Your your equity needs might change I'm, just wondering if you can comment on.
At what point at organization would be open to looking at.
Maybe opportunistically acquisitions, and what factors would need to be in place.
I would.
Make you.
I'm more interested in capitalizing on those opportunities.
Yes, we have this sort of situation that we're fortunate we have a strong organic growth story, great great bunch of businesses now that that have we this rate base growth.
Of around 7% that's using exchange rate 132, if we believe the Canadian dollars going to be at 139 that rate base number growth I think the next three years were eight plus.
Percent rate based growth. So so we had to be tailwind there, but the Lynn.
No with buying anything in the middle This crisis I missed the company is really in trouble.
In our sector I don't think any transaction happened in this crisis, so really coming out of it into next year you might see some some companies.
Trade.
Im not anxious still to get back at that I really am I think we got to you've got a great.
Great company, Great portfolio businesses that are growing well at this point in time acquisitions our risky.
I won't rule it out because we always got to look at the opportunities to create shareholder value.
We've got a great business model afford us and that's showing up here in this crisis you know in terms of our local management teams can imagine centrally managing a crisis like this across multiple jurisdictions in Canada, Canada you ask like go back we have this business model that we have is working out so well for Ford is so.
So I do know that we can we can add another company to that in the future is just that that's something we're focused on right now.
Thank you and I realize you're drip participation rate has has gone down with elimination of the discount and I'm just wondering.
What options you might have to turn it off and.
What factors would have to evolve or change for you to.
Consider turning off entirely.
I think to some some shareholders alike. The fact that theres the drip so I'm not thinking we'll turn it off.
I mentioned earlier on the call that the participation rate did decline a little more than what we were expecting and what we're learning is the fact that.
A lot of the banks are are doing their own drifts.
Now there is no discount on hours they don't I guess.
They can figure out how to do that would out.
Creating too much risk for themselves and and them offer. These reinvestment program. So we don't get issue shares and Treasury. There just bought in the market by the bank. So we're not seeing that that sort of cash flow coming in we're looking at that and see if there is a way that you know that we can we can change that maybe you know maybe the past.
Ability as we even go back to adding a little discount on the drip began to sort of normalize the participation. So that that's one possibility. So I guess, what I'm, saying is I do value the drip do value what it brings to retail shareholders and I'm was a little surprise that that the mechanics behind this into Canadian.
Market that allow drift to continue without the company's involvement basically.
Thank you.
And again, if you'd like to ask a question press star in the number one on your telephone keypad. Our next question comes from the line of Patrick Kenny from National Bank Financial Your line is open.
Hi, good morning.
On the rehearing, so the base or are we at ITC.
Any thoughts on how this recent volatility.
Capital markets and the overall economy.
Might help support your case in commencing the FERC to maintain a methodology that supports higher base or are we.
If I recall.
Eight or nine has somewhat of a positive impact on base are always after the dust settles. So I'm just wondering if you're expecting similar outcome. This time around with the for today do you see.
And maybe perhaps across some of your other utilities as well.
Patrick Great question I'd have to say this list will use all the tools available to us and I don't lenders on the call and she can wait in here, but.
The messaging is consistency at FERC and the are we need to be enough to and set the building a transmission and that early means it's got to be higher than state level.
Our lease and.
So I believe.
FERC understands that we just got to figure out how to get to the other end of all these processes that that that we havent place at this point, we are I think seeing some positive commentary coming out of the commission chair and I'm hopeful that.
Over the next maybe 12 18 months here, we will get the we'll get some of these matters resolved and.
Get back to that.
Knowing what the are we going to be so that we can make the decisions necessary to to build out the transition transmission system in the U.S., such a marvelous asset and its facilitated such such improvement in renewable energy and all those things. So so I think burke understands the importance of at all and we're hopeful that will come out with the right end of it then anything you can talk.
As far as well on.
Current volatility and how sort of plays into everything.
Well Perry I think you stated that very very well and just to kind of repeat what Barry said long financing.
Work.
Kirk has been I think.
Keeping a close eye on sort of what is happening in the market.
I think they understand very well the impact of the economic downturn and co bids and sorry, just how important the habit sustainable health Aro is.
Can you track.
So while we don't happen.
In terms that you know what actions that Mike when I think we you should use that as a.
A reminder to FERC about how important stable sustainable ROI, our and aspect we remain hopeful that we will see some action some decision.
Before the ended the year on ROI on the aerospace up it certainly and we we don't really Burnside on timing. So we are hopeful and optimistic.
Okay. That's great. Thank you.
And then maybe just for Joslin on to go back to the FX tailwind.
I've touched on it but.
Can you confirm if you're thinking about locking in no. Perhaps your next 12 to 24 months of U.S. dollar cash flow here at current rates of cold It over 40 just to.
Good luck in some of that tailwind to offset the impact of covert.
Yeah, Patrick when thinking about an everyday and we're on top of it and we have done some extra hedging.
We've seen the rate increase so.
You're right, you're you're right on the map there a lot that's something that we look at every day.
More of it.
Sure.
Maybe can you just remind us on the negative outlook from S&P.
Outside of the covert uncertainties and whatnot.
What needs to be achieved to get back to the stable outlook.
Perhaps your internal expectations on when you might hit those targets.
I think for S&P for off.
You know the negative outlook similar to the industry outlook and is all related to them getting comfort with the how are the short term cash flows are impact and then how we.
Set up potential regulatory mechanisms to deal with them and how long it's going to take to recover some of those costs over time. So I think they just want to get comfort that the regulatory mechanisms are working as intended which we have a number of these mechanisms and and to have some visibility for the sort of the long term recovery cashflow pleasant once I think right.
Leaders get through.
Sort of solidifying these mechanisms and implementing these mechanisms in middle of coal, but I think that S&P philosophy will get confident on our cash flow.
In any comment on when you might decide to file for future rate recoveries due to credit losses.
No back after 2020 process and perhaps.
What's the time like for those.
Recoveries to start showing up and the results.
Yes, it has a bit of a tough question because all of our utilities will be impacted differently and and it will be either material for some are not material for others again, we're not expecting it to be material for board of watching it quite closely clearly.
But I suspect that we will have to have a little bit more time to assess credit losses before any of the utilities as stand in front of the regulators looking for recovery.
Okay. That's great that's it for me keep well everybody.
Thanks, Patrick.
We have no further questions at this time I would like to turn the call back over to Stephanie I'm, a mimo for any closing remarks.
Thank you we thought we had enough.
He is Barry I, just want to maybe add a closing comment.
Before we go I just want to say to everyone. You I'm. So proud of my team and all the employees afford us and how we responded to this crisis.
We're doing our darn is to make sure we can deliver safe reliable energy right now and I'm also proud of the industry. Generally this industry has responded so well to this crisis and obviously knock on wood that hopefully we can keep doing that and also a tip my hat to regulators. Your regulators are working with us with the customer.
As to try to make sure we come through this in a in a good spot where we're taking care of customers will also taking care of utilities and.
We're very optimistic that that will come through this crisis.
In good shape and get back to normal business, what's it once you get the other side of it. So thank you very much back to use definitely.
Thank you Barry and thank you everyone for participating on our first quarter 2020 result call.
Please contact Investor Relations should you need anything further thank you for your time.
Thanks and have a great. Thank you.