Q1 2020 Earnings Call

Welcome decision please hold for the next available operator.

Revenue as CEO, the past don't they point to pushing up the hot though these peninsula.

[music]. Thank you for your patience. Please stay on the line for the next available operator.

Peter.

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The conference.

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Hi, or our A.I.E.R.A.

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Thank you.

To generate significant customer shareholder value over the coming here.

Our utility strategy centered on safety and reliability capital discipline.

Growing the rate base through accelerated program and we do some call.

We continue to drive towards performance based culture further enhance their capital efficiency and returns while maintaining affordable rates for our customers.

2020, we expect over 10% earnings growth and I truly cigna underpinned by approximately 8% to 10% Rebased growth.

Hi, Richie returns through Ricky settlements in 2019.

Chris utilization of accelerated replacement program.

Lower leak remediation and operating costs and improving our customer experience.

Similar to the utility.

Our strategic vision that midstream remains unchanged and we believe the market opportunity for exports has never been greater.

In times, when producers and consumers are dealing with the challenges of economic uncertainty and lower energy prices.

Back to help ease.

Impact on customers by providing much needed market rip it it's been dealt with.

Our priority for 2020 continues to be about execution at our core business.

Our midstream team had another terrific quarter.

Achieving record railcar offloading and vessel loading rates it rip it.

Despite real blockades in the global health crisis.

Hello to six ships in this quarter, keeping us on track to achieve our exportable 50000 barrels per day by yearend.

We continue to see strong and stable demand in Asia for Canadian propane exports.

With 50000 barrels per day of supply secured as of April 1st.

And approximately 33% under long term tolling agreement demonstrating that our unique value proposition to deliver on our global export strategy is resilient and sustainable.

We further expanded our integrated strategy in the first quarter with the completion of north time in towns into the expansions.

Both expansion started flowing gas in April and will continue.

To contribute to earnings in the second quarter.

And we added additional capacity for rail terminal and we're trying to handle the additional volume.

We firmly believe our strategy.

In the long term fundamentals of the Montney basin.

Strong economics of the Montney, our position to continue to attract capital once the supply and demand stabilize.

And our market diversity and access to higher valuation markets will remain critical.

The western Canadian producers.

With the significant recent growth in our supply commitments and tolling volumes and with our partnership and Petro gas. We continue to build a business focused on exporting and enhancing our complimentary northeast BC strategy.

Our ribbit terminal and our future ownership and Ferndale has the capability to provide 120000 barrels of LPG export capacity cleaner energy to Asia.

We continue to believe in the long term fundamentals of our structural shipping advantage, which provides us great confidence that our facilities remain highly utilized to connect north American production to demand in Asia.

The recent demand destruction, we have witnessed in North America highlights the need for access to global markets.

Our ability to provide producer market alternatives, including significant access to global markets further distinguishes off the gas in the Canadian midstream space.

Well the covert 19 pandemic is created significant uncertainty throughout the economy and resulted in a significant decline in energy prices.

Our midstream business is felt position to continue to deliver on its objectives and his commitment.

We do not currently expect any material financial or operational impacts as result of the pandemic.

Additionally, as a result to the actions that we took last year I referred output is 85% hedged including firm commitments for 16 cargoes and we continue to see strong demand for the remaining spot cargos.

Our midstream business is fully funded.

And we see a capital light program going forward that will position us to harvest additional cash flows into the future going forward.

Despite the current economic challenges the strength and diversity of all the gas underlying business positions.

Just to deliver on our forecasted financial results and guidance well at the same time, maintaining our investment grade ratings.

And most importantly, continuing reliable delivery service for our customers.

In summary.

All the gas remains well positioned to continue to execute both near and long term horizon.

Over the past year, you focused on building a business that is resilient.

And able to deliver operational and financial stability for our customers and shareholders.

We remain laser focused on extending that track record today and every day.

Even throughout these unprecedent time off the gas maintains ongoing access to capital, which reflects the strength of our balance sheet as well as the overall resilience of our underlying business.

We were strong diversified energy infrastructure company with strategic assets and ample investment opportunities and our utility in midstream businesses.

We offer tremendous value to our customers communities and shareholders and I'm confident that we will emerge from this current challenge on solid footing.

With that I will turn call over to James to review our financial results.

Thanks, Randy and good morning, everyone.

During the first quarter 2020 altogether to revise this reportable segments to better align with our core focus areas in utilities and midstream.

Our WGCL retail marketing business now rolls up on utilities and all remaining power assets are included in the corporate other segment.

Prior period segment information has been restated to conform to the current reportable segments.

As you can see from our financials, we saw strong first quarter results from both the utilities and midstream segments with the utility segment.

Accounting for approximately 75% of normalized EBITDA.

Consolidated normalized EBITDA came in at $499 million, approximately 4% higher than Q1, 2019, which is right in line with our expectations and gives us a solid start to 2020.

Excluding the 34 million dollar reduction in normalized EBITDA associated with a $2.2 billion in noncore asset sales that we executed in 2019 to strengthen the balance sheet.

First quarter normalized EBITDA would have increased by over 11% compared to 29 team.

First Corp, first quarter growth was driven by strong operations at ribbit inclusive of a one time realized hedging loss of $6 million related to supply volumes, which were not sold until April.

And growth in the utility segment of $34 million for model a rate case work that was completed in 2019 as well as increased revenue from accelerated pipe replacement programs.

Normalized net income was $229 million.

79 cents per share up approximately 3% over Q1 2019.

This increase is due to the previously referenced EBITDA growth, along with lower amortization and depreciation as a result over 2019 asset sales and a 23 million dollar reduction in quarterly interest expense.

These were partially offset by higher income tax expense during the quarter.

Strong operating performance in utilities in midstream business also flow through to normalized funds from operation, which was up approximately 12% year over year to $420 million.

First quarter AFFO also benefited from lower interest expense driven by both lower average debt balances did repayment of debt and lower average interest rates.

At March 30, Onest 2020, we completed the sale of or 37% interest in Sci for cash proceeds of approximately $369 million.

This marks and another another significant milestone for altogether as the proceeds provide us greater flexibility in our ability to delever the company.

Our self funded 2020 capital program remains intact. After a strong first quarter, we're well positioned to fund our estimated 900 million dollar capital plan through internally generated cash flow and normal course borrowings and we maintained strong liquidity with approximately $4.1 billion available to us at the end of the court.

Now diving into the segmented results and drivers starting with our utility segment.

Normalized EBITDA at our utilities was $369 million for the quarter, approximately 10% higher than the same quarter last year.

The largest driver of growth year over year was at Washington, gas, which was positively impacted by the Maryland, and Virginia rate cases.

Revenues associated with air piece spending.

Lower operating expenses of $6 million that Randy mentioned earlier kind of stronger us dollar.

These positive factors were partially offset by warmer weather in DC.

Recall, we have low decoupling in Maryland, and Virginia. So the results in those jurisdictions were not impacted by the warmer weather.

Semco also contributed to higher normalized EBITDA driven by new rate cases that came into effect of the started this year.

Finally, offset by warmer weather in Michigan.

Shifting to our midstream segment normalized EBITDA was $120 million for the quarter.

Factoring in the lost EBITDA of approximately $14 million associated with a 2019 sale of Stonewall and central Penn Our core midstream business grew at approximately 5%.

With repeated being the largest contributor.

Results in our base midstream business remains strong and we continue to see healthy volumes at our plants and you volumes from the Knick Creek facility.

Favorable butane spreads provide a strong uplift to our NGL marketing business, along with higher AFUDC related to mountain Valley pipeline.

These positive factors were partially offset by lower storage spreads in transportation margins from WGN midstream assets.

The lower equity earnings from Petro guests.

In the first quarter, we exported 35141 barrels per day to markets in Asia through Rip it averaging two ships per month, despite the impact of rail blockades, which impacted deliveries into written in February.

Reference reported EBITDA was negatively impacted by $6 million realized hedge loss on supply volumes that are exported in April.

Excluding the timing impacts of the hedge loss first quarter EBITDA would've been about $33 million for approximately $10 per barrel.

That said the realized hedge loss will have a positive impact on second quarter margins through lower inventory costs.

As Randy mentioned earlier, we are achieving record railcar offloading and vessel loading rates and remain on track to hit our 50000 barrels per day export target during 2020.

We have secured the full 50000 barrels of supply as of April onest with approximately 33% now under long term tolling agreements.

Turning to our capital program and funding plan. The work we did last year to reposition the company to de lever the balance sheet is paying off.

We are well positioned to navigate through the coming quarters investing primarily in our low risk utilities business using our self funding model, while maintaining a strong balance sheet and wind and investment grade credit rating.

Our $900 million capital program for 2020 is largely invested in our utilities with approximately 70, 580% allocated to the segment.

We expect to earn immediate returns on roughly 80% of our utility capital through increased utilization of accelerated replacement programs and managing maintenance spending to align with depreciation.

The majority of midstream capital was focused on the Townsend north find expansions, which were recently put into service.

Volumes from these projects will be ramping up over the next few months and we expect to see earnings contributions in the second quarter.

As I mentioned, we maintain significant liquidity there for further minimizes our funding and capital market risk well beyond 2020.

At the end of the quarter, we had approximately $4.1 billion of liquidity available to us.

$3.8 billion and available capacity on the credit facilities and $335 million of cash on hand.

We have debt maturities of approximately $980 million in 2020 and were able to refinance approximately $780 million and debt maturities year to date.

Maintaining an investment grade credit rating is fundamental to our strategy as it provides us with greater financial flexibility at times like this we have been proactive and communicating with the raging rating agencies and have a constructive relationship with them our credit ratings remain unchanged on April threerd feature from their triple B stable.

Rick Triple B stable rating for altogether and on April 27, S&P affirmed their a minus stable rating for WGS, citing no material persistent impact from the covert 19 pandemic.

Despite this challenging environment I priorities have not changed and we continue to focus on maintaining a strong balance sheet funding organic growth and returning capital to shareholders.

Our outlook for 2020 remains unchanged with anticipated normalized EBITDA in the range of 1.275 to 1.3 to 5 billion and normalized EPS of 120 to 130 per share underpinned by increasing contributions from our core businesses and lower interest expense due to lower leverage and interest rates.

As a diversified low risk high growth utility in midstream company, we position ourselves to deliver stable and reliable results through 2020.

We expect the utility segment to contribute approximately 60% of 2020 estimated.

Normalized EBITDA.

Our rate regulated utilities provides stability and growth through their steady and growing residential customer base protected revenues and limited sensitivity to weather.

Approximately 70% of our utilities revenue comes from residential customers and having effectively delivered safe and reliable service.

Through our strongest demand quarter, we feel comfortable entering the spring and summer months, which typically represent only 20% of annual demand.

Approximately 70% of our utility revenue is protected through fix building charges decoupling and other tracking mechanisms, which helped minimize the impact of load variability associated with weather and other demand related pressures such as cobot 19.

I guess currently has decoupling or demand trackers in Maryland, and Virginia and applied for them in the district of Columbia under the current rate case.

As Randy noted, we have been actively working with regulators and DC, Maryland, Alaska, Michigan, and Virginia have all issued orders that will allow us to track and recover any incremental overhead costs, including bad debts through the establishment of regulatory assets.

In midstream our unique export strategy is underpinned by strong long term fundamentals the demand for clean burning propane in Asia is growing the long term supply demand imbalance supports the need for Canadian exports and the Montney continues to have some of those breakeven prices in North America.

We have limited direct commodity price exposure in our midstream business about a third of reports 2020 estimated volumes are contracted under long term take or pay agreements with an average remaining term of about seven years.

We have also hedged approximately 80% of Rick its 2020 volumes at prices similar to 2019.

Including contracted tolling arrangements approximately 86% Refits propane export volumes are hedged for 2020.

At our other midstream facilities, we have hedges in place for approximately 93% of our 10000 barrels per day, a fraction frac exposed NGL volumes.

In summary, we are confident in our 2020 outlook with 60% of 2020 estimated normalized EBITDA coming from utilities segment, and 80% from utilities and investment grade Counterparties.

We also expect some tailwinds with a stronger average Canadian U.S. dollar exchange rate with approximately 70% of EBITDA being supported by low risk regulated us assets.

Our strategy was designed to result in reliable attractive long term earnings and the work we have done today provides us with financial flexibility.

I believe that the combination of our strategy and strong financial stability provides us with the resilience to work through these unprecedented times.

With that I will turn the call over to the operator to facilitate the Q and recession.

Operator.

Thank you ladies and gentlemen, we will now conducts the analyst question answer session. If you'd like to ask the question Press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press the punky ill be brief pause, while we couple of Keating roster.

Your first question comes from Bob Hope from Scotiabank. Your line is open.

Good morning, everyone.

Good morning ROP.

All right.

Two questions. The first one just on.

The the visibility in the progress that you've made so far in reducing costs and WGN, which then will allow you to improve your our OE.

6 million dollar leak out $6 million reduction in leak remediation costs that you saw in Q1.

Can you just give a sense of how you see the rest of the year, playing out and wouldn't was $6 million the significant portion of what.

Cost.

A significant portion of the cost improvement that you're expecting in 2020.

Yeah, Rob.

This is Randy.

I think we're making excellent progress in our operational excellence model and we're just at the beginning.

The investments that we're making in our accelerated pipeline replacement program is reducing expenses and its reducing Lee.

More than historically.

There's clearly a correlation between its pipeline investment showing in this quarter that reduced our operating costs. So we remain on plan.

You know for our target this year in fact, we're ahead of it.

And again, you pointed out it's a combination of our operational excellence model as well as updating our rates and our jurisdictions that are going to get us to a allowed returns so.

A bit ahead of schedule, but were consistent with the guidance in the plan we put over.

And we'll continue to update.

We'll move forward through the year.

All right. That's helpful. And then just pivoting over to Rip It just want to get a sense of how many ships you did in April as well as you had 50000 barrels a day supply available to you in April but you do talk to a 50000 barrel a day kind of exit rate in terms are a bit. So it does imply that you yeah.

Could be hitting 50 sooner rather than later.

Yeah, I'll, let there maybe to comment here, but I will tell you where we are we have experienced <unk> increasing.

Heating demand access this unique capability and we got lost strong interest from suppliers and clearly strong demand in Asia for the premium prices.

The limitation really is on the real challenges.

But the team is working every day to maximize an improved logistics.

Two weeks to maximum capacity Oliver any comment on the ships in April.

Hey, Rob it's Randy tune and we did two ships in April.

Consistent with plan and our plan is to do three ships in May.

As far as 50000 barrels so oh, we have contracted 50000 barrels or had been it doesn't show up so all at once so we refer you did about 45000 barrels through through April and our target is still to do 60000 barrels.

The rest here.

Alright, thank you.

Your next question comes from Ben Pham from BMO. Your line is open.

Okay. Thanks. Good morning, I also wanted to a follow up on on Rip It too and try and can dig into this is realized a watch you bumped in my view is six known as he basically bring higher cost inventory for it in a quarter and we took awesome Natchez. He's here that benefit in Q2 is that what was going on there.

Hey, Bill it today.

It's James Yeah, that's that's exactly right I mean, obviously, yeah, we settle those hedges and when you settle a financial derivative you basically have to realize the gain or loss associated with it the physical delivery of that inventory, though was in April so the cost of that inventory that was sitting in the tank at Rip. It was was lower as a result of that hedge loss being realized in Q1, so that.

Margins in Q2 should be better as a result of that lower inventory.

Okay, and I would assume that's that's mostly on the non calling.

Portion, which which I would assume to pulling propane costs as a pass through or is that.

That's correct correct.

Okay and then this this inventory or I know that is there something that that persist in the second half as well.

I just had to be determined.

This is a this is a timing issue just related like I said to the settlement of the financial contracts relative to the physical delivery if the if a contract had been rolled.

Financial derivative had been rolled and this would have matched into into Q2 deliveries.

So us into a one time timing issue.

Okay.

All right.

Can you maybe switching over to to the dividend and then maybe top up dividend sustainability aren't you talked about the strength and resilience hits of your business 90 may speak to that Devon and payout ratio targets and how do you think about.

Those those payout ratios and I get you to recover 19 impacts.

Yeah.

And then I'll, let other teams you touched on that but it is you know about a year half ago, we hit a substantial cut and in our dividend in lead.

From that point, we've been executing.

The plan in terms of.

Looking forward in our business plan.

And it's a key part of our business strategies I'll, let James Glen talked about the specific.

Yeah, Ben I think Randy you touched on one of the most salient points I mean, the tough decision to cut the dividend was taken in 2018 and it was cut to a level that we consider to be sustainable. If you look at a the AFFO growth that we've generated year over year, and we're reaffirming our guidance with respect to EPS growth.

At the current level of 96 cents, that's about Oh, that's about a 70% to 75% payout ratio. So we consider it sustainable from us on AFFO standpoint considered sustainable from an S T out standpoint.

And it is underpinned by by continued strong growth in the cash flows of our utilities. The utility EBITDA generation will continue to represent the majority of our business going forward and we feel that that's a strong underpinning and support.

All right that's great and it may want one last one to me and any any sort of timing update on on the put option. Petro costs is there are hard to do you have to respond back.

Yeah, well you know the stated before we're in the valuation process period, and I not really able to.

Fully discuss our strategy, but I can tell you that and taking control of interest and Patrick that will allow us to consolidated EBITDA provide my free cash flow versus our equity distributions.

Processes and they'd have a process and at this point.

No its a.

I wouldn't want to speculator provide details until we.

More certainty really a into the timeline working through the process.

Okay, that's great. Thanks, everybody.

Your next question comes from Linda Ezergailis to TD Securities. Your line is open.

Thank you.

Just a follow up onto Dan's question on the Petro gosh, what factors need to be in place for you to exercise your conversion of the crafts there to increase your ownership to 37% and make that happen I'm just before you take ownership or what are the puts and takes on that front.

Sure James I'll, let you go ahead and take that.

Yeah, Linda we do have the the ability in the right under our agreements to exercise, our crafts and convert them into into common.

We haven't crystallized, our thinking but right now the most.

The most.

<unk> desirable approach for US is the most likely do that conversion before we close the deal.

Okay. Thank you and what were the drivers for the 12 million year over year decline in Petrobras was that your crude oil marketing something else.

Yeah. It was it was predominantly a crude oil marketing side of the business and some realized hedge losses at Petro gas in Q1 relative to Q1 of 2019.

Okay. Thank you and maybe just bigger picture your discussions with the rating agencies. You know look stable clearly your business is very resilient, but I'm. Just wondering if you could give us a sense of if you're still on track to achieve a 5.5.

Times debt to EBITDA, Oh by the end of EUR, 2020, and and keep it and how much further based on your plans might you be able to de leverage in 2021, and a is that still an appropriate target or might there be some living goalpost swinging further.

Shift that.

Yeah, I mean, if we look at our if we look at our current outlook for the year that what we're reaffirming here today, we feel that we can get to the 5.5 times target by by the end of this year just given the stability in the utility business and obviously the the fact that we've hedged a big portion of our of our midstream.

Cash flow. So we do feel comfortable that five and a half times as possible looking beyond 2020, obviously, we continue to have at our disposal noncore assets that a that we'd like to continue to monetize and that's going to help us to further strengthen the balance sheet.

Moving forward beyond 2020 sold so we still feel that those are achievable and with a better macro backdrop can move forward with what some of those asset monetizations that we still have on our our disposal on the power side.

That's helpful context, and I realize that you're busy with some I'm sharing everyone's safe and your continued operations during a pandemic, but as you look beyond that I'm just wondering from a strategic perspective. If you can comment on you know what factors might need to be in.

Place to consider potentially a deepening your relationship with you limit to and your joint venture in the past there's been using sit down further petrochemical investments are clearly a there's a valuation disconnect between propane.

Your your leveraging trip it and I'm just wondering.

If there might be any sort of possibility of further investments down the road and what attributes we need to be in place for those to be compelling to altogether.

Well into from a strategic they're an excellent partner and we're very fortunate a limited to have them as an excellent partner in right now we're staying the course, hey, we certainly are you know, we're looking always being opportunistic my view more macro on partnership.

If you can get one that is one plus one equals three then you've got some real value what you're doing so we'll continue to look at ways.

Into the future to expand.

But you know right now you know he said.

We've got our.

Laser focused on executing the plan that we put in place maximizing utilization with it.

Ultimately integrating petro gas that so your points or a well taken.

And we'll be opportunistic but at this point, we're pretty well focused on.

Task at hand.

Okay and just fine.

Jump in acute amount, but just another kind of strategic updated thoughts from you on you know what sort of synergies do you still see between your midstream and utilities businesses and at what point might there be more benefit and focused a separate operations.

Because those two platforms.

I just got since before Linda and a in overall, we have two excellent businesses and we are leveraging synergies with around operational excellence gas control I, usually just excellent job managing its product each and every day and then in in the logistics associated with moving our people.

And our product every day and their operationally on what they do similar to our midstream business and we're building a world class midstream business and leveraging a lot of those capabilities and infrastructure is that go across both businesses a combined two businesses running under excellence around engineering and construction.

But as we continue to add scale and grow those businesses you know we'll look at it.

Future or whether it makes sense after those businesses.

There are large enough to be separate but at this point, that's way down the road and we see real value right now.

Combined at altogether.

Okay. Thank you I'll jump back into queue.

Your next question comes from Robert Catellier licensee I'd see your line is open.

Hi, Youve answered most of my question when I did want to go back to Petro gas for a minute given the extreme volatility any in the energy market. It seems.

Quite possible that there's going be a divergence of opinion on a valuation.

So I'm wondering a in that context, what options do either as a parties have slot to for a potential transaction.

Well with respect to your.

Water point.

Agreements are pretty clear has we go through a variety of.

Independent valuation I don't know stages within as I said that when you get into the details of that and I'm confident that.

Uh huh.

Okay and accretive transaction.

Obviously.

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Sounds good luck.

Around drilling our export capabilities.

So the process will go forward, we will be operating.

It down the road and up but it's a significant amount of time in process. It goes through with independent expert valuations.

[noise] more to come.

Okay. Thank you that's a that's helpful and maybe a one question for Randy.

Randy Ted I'm, just curious on the the trends you're seeing on the customer behavior, the gathering and processing business.

And what type of impacts that might have lumpy for surface volume.

Hi, so yeah.

The.

Luckily, we like Randy said, we have a capital like program. So we built out or are processing capacity.

Through.

2017 to 2019, a little bit in 2020.

In that and that processing capacity is very valuable 'cause it to the very integrated.

Midstream offering and so we do see volumes coming into our facilities and we do take or pays behind that but there's no doubt that there is going to be a pullback or given what's going on in a.

In meeting Tomorrow, you burn Mitch, but you know long term commodities one of the best resources.

In the World and we and it will be developed and we think we have great assets in the response of the money so.

Okay. Thank you.

Your next question comes from Robert Kwan from RBC capital markets. Your line is open.

Good morning.

If I can you just high level, just digging a little bit.

The guidance that you've got.

In the.

Last quarter.

Good weather as well as Debbie on midstream as being a drag.

Uncovered 19, you've got the regulatory protection and seasonality health second could you tell me should probably be okay, unless you have other comments, but.

Clubs. Other factors can you comment to that unregulated <unk> retail business customer demands on that might look like as well as Randy.

Commented on the midstream volumes, but it sounded a little more longer term schuchat real time, what you're seeing in volumes for.

Let's say Q1, and if there's any expectation.

Peter.

Yeah, well I'll take it first one on the retail business. It's a very small part of our overall because this is around our utility and and we obviously stress test all of those related to volume. So you know from the gas side of the business.

Can you just come out.

We're in the seasonal isn't there so.

Less volumes in the second and third quarter, a little bit of power exposure, but overall.

We expect those to be down, but not I mean.

Not a material impact over onto our guidance.

For.

Your second question was with respect to the volume growth behind our system.

Got right.

Okay, Yeah, it's Randy you only had though.

Yeah. So oh, we disclose we just started up or challenging expansion. So we we've added the deep cuts.

Ah capability to towns in and that's what was going through to wrap up.

Over the next few months or our customers are a you know they've had drilled those wells is falling behind pipe in the plan on bringing those wells on a you know they do you see the value of the gas price right now.

Some are customers have shut in their oil wells.

That have little very little gas are searching associated gas behind them. So we do you still feel confident that that even near term or the volumes will be there.

We have seen some shut ins or <unk> or under her mountain gas plant, but it's it's not material to the overall midstream business.

And I can say we are long term, we think the montney is gonna be develops.

Yeah, and I know Chad.

We fully believe that the export is the future for North America, propane butane and we're well positioned for that and in that area of our business. You know just continues to grow and we've experienced that increasing demand for that you need capability and and while our integrated approach will continue to grow as Randy said it made it may move.

At a rate we're an excellent position as we did not.

Excellent.

Many of these businesses and we feel that the growth in <unk>, which is generating significant cash.

And we feel good about the Asian demand and the margins. This business. So you know that structural advantage in the access to global markets is where we're going to continue to grow.

We've got a lot of interest from large aggregator so again.

Not.

Everything will come through our facilities, but we'll continue to see a demand coming from across the base.

So maybe if I can just summarize I think about or where you were sandy in December when you set the guidance, whether <unk> first quarter is headwinds which also.

<unk> midstream.

And then a little bit on the unregulated retail it doesn't sound like just a lot happening on midstream volumes amend the tailwind being color on <unk> are there any other key changes can you mention in December.

Burst within guidance.

Oh, well James can cover the FX.

Obviously, a tailwind as well right now.

Yeah. That's a I mean that is that is a material factor I mean, if you look at the sensitivities in our Mdna you know a five five cents changes about a 35 million dollar.

Upside from a an EBITDA standpoint, so the tailwinds there are significant Robert but I I want to go back to your comments on.

The retail side of business that is a an extremely small piece of the overall business. So even if we had a you know and I'm throwing this out there as a as an example, even if we had a 20% pullback in demand there I don't think that that really moves the needle it represents about 3% of our consolidated EBITDA.

[noise] <unk> [noise].

Turning to get leverage.

You've got to find in half times target I'm. Just wondering what are you seeing right now on incremental [noise].

Since and any temporary payment deferrals, so even though you've got regulatory jasek treatment I'm just wondering you.

He said material enough to impact your ability.

Okay.

Yeah. It's a it's a good question. So I, we have not seen at this point or any material spike in ER or slowdown in collections I mean, if I you saw obviously in Q1, we had a working capital unwind. That's continued into the entire month of April So we haven't seen anything material there.

You know if we go back to.

The global financial crisis, I think they back and we all nine I think timeframe they saw about a.

10 million dollar a spike in bad debt side. So I don't think that that puts pressure on I think from a coverage ratio standpoint, the regulatory asset accounts are going to provide some assistance for us.

Not take any of that a piano hit on on those ratios, but obviously a working capital would would have to obviously grow a little bit and we'll have to take off a little more leverage but that's all been discussed with.

The rating agencies, when we reached out were proactive and we continue to feel comfortable with the.

Most salient metrics, but they track, especially a S&P and that's our FFO to debt metric.

Yeah, I think I guess.

Well I just wanted to add on this is Randy I would imagine we're entering the lower usage month at the utility like we had said you know the six month the weather to weather the storm before there's really any any impact. So I think we're an excellent position.

When this gets under control and we only get back to normal.

Quarter.

And just last still on the leverage what do you think is an appropriate level for your company longer terms just given.

The five in house.

I can that's kind of your calculations <unk> from the rating agencies.

Right.

You don't see a lot as utilities up at that level and certainly see midstream companies.

Why would you like to be longer term.

Well, we know we've said consistently and both Randy aside it that Randy and I have said it since Ah since joining that we'd like to be.

Under under five times, there and if you exclude the press, that's probably somewhere a little higher than if you include the process somewhere a little higher than five but if you look at some of the Canadian utilities, they've got they've got leverage that but it's in the high fives from a debt to EBITDA standpoint, but I'll go back to what we said last year and we continue to manage towards we've got.

Got enough in the way of noncore assets still available to us to monetize as things get better and we get a better macro backdrop that allow us to get under five times that either.

Medium to long term.

I mean its green.

You can clear about that and we want to be down well that we will be you know the environments that clearly enough with asset sales, but we're not desperate to selling in the long run you know we have excellent many noncore assets.

Oh, Yeah will work out in the long term throughout this year to continue to monetize those and a.

And be able to meet those metrics.

Okay.

Thanks very much.

Your next question comes from Julian do not named Smith from Bank of America. Your line is open.

Hey, good morning. Thank you so much so perhaps following up on the last set of questions. On so these can you can you elaborate a little bit I mean, obviously, you continue to articulate cost savings targets and obviously you're entering in.

Low season of utilization with respect to gas. So these but that being said are you still on track.

Any.

Think about.

Sales impacts in aggregate through the course acumen of course of the year do you see any pressure relative to your ability or your plans to achieve your earned arteries, you've already articulated fun to make sure that you feel good hey against the sales in the to the kids, which necessary to raise a those cost target.

To Austin mitigate those.

Yeah. Good luck.

Confident we're going we're going to hit those targets I'm going to let the we've taken a it gives you a bit more detail because he and the management team that is in place is getting excellent job and is on track so well, let you comment on Julien.

Yeah, Thanks, Randy Julie and good question no as as you recall and you can see it in the presentation. So they are are we process will continue improvement on the return will continue this year and into 2021. So we don't see anything both near term as result of covert or anything else that would impact that problem.

As you saw in Q1, we are able to drive our cost down a bit better than budget. We have a plan to continue to do that through the course of the year. So I think the actions, we're taking I think given the revenue conversation that we've had earlier in terms of the rate cases in some protection that exists.

I think we will get there by the end of 21 and it still feels pretty good from where we sit today.

Excellent welcome if I can follow up here are going back to the midstream instead of the business and you talked about.

Here around Rip it will probably you talk or the actions you're taking out a de risk the business prospectively beyond the current year for about the outlook in the especially because there's a looking at rip it more specifically your confidence level in sustaining cash flows and more importantly, probably scaling the color.

You can still given the backdrop.

Yeah, I mean, the simple answer is yes, I feel pretty good about it because we have consistently being approached by large aggregators, who want access to our unique capability. So from a volume perspective and from a tolling perspective on our targets and de risking of these assets I I feel very good about that and that we're in.

In a strong position to continue to meet the objective. It's a very unique capability when you're in a point as I said in my prepared remarks, or when you know there's a reduction in north American demand access to global markets are absolutely.

Central and we're seeing strong demand strong demand on the supply side and strong demand on on it on the Asian market. So that gives me great feel confident.

Got your commentaries multi year there right.

I'm sorry Q.

Your commentary applies beyond 21 or beyond 20 to 21 hour right on schedule.

Yes. It does it it is my comment is related to 2020 M.B. on.

Okay.

I'll leave it there thank you guys.

Your next question comes from Patrick <unk> National Bank Financial your line is open.

Hey, guys Ah. Thanks for all the updates this morning, Yeah, just sticking with the midstream business here I.

I guess outside of lower fee for service volumes.

Just curious if you've had or expect to have any further discussions with your non investment grade customers with respect to restructuring any of the the take or pay commitments across the portfolio.

Or you know, perhaps any other form of support for your customers Netbacks just until.

Commodity prices recover or do you believe that the.

You know the recent government support that was announced through the D.C. loans will be enough to see them through to the to the other side of this.

Yeah, I think yeah.

It's certainly a challenging time from any of it you know our decision to create the ability to export propane easier through with it.

The unique value proposition is really.

Helping our customers and that that the role that we're playing the benefits that creating a new demand for Canadian producers.

Helping them get better Netbacks and help them position better to recover from the storm.

There are encountering so no we will continue to work with them, we don't see any material.

Definitely talking to all of our customers, but as I said, you know we continue to expand our supply mix and customers are increasing with larger in diversified high quality aggregators.

So.

[noise], Okay I'm just switching gears you guys touched on Blake just to clarify you know as it relates to pursuing.

Central sale about asset at some point now that the the new tolling agreement was approved in the quarter.

Or is that process simply just not feasible in this environment.

No I think we I wouldn't say, it's not not feasible, where we've got process is underway, we're looking towards that but as I've mentioned that we're a you know we do believe.

We're not going to sell assets that but less than in their markets in evaluating and we're in a strong position. We don't have to do that so you can imagine this environment that transactions right asset sales or that talent.

But that's a short run I think in the medium to long term.

Well be able to execute and get fair value.

Before.

Okay Fair enough and then.

Last one here, maybe for James or you touched on the credit ratings just wanted to confirm that your corporate I'd rating and stable outlook has been recently reaffirmed by the rating agencies or.

Is that just for WGCL.

And also you mentioned the funding that's been executed year to date.

I wanted to confirm that.

Do you see the need to be in the debt markets over the remainder of 2020 I believe is a small 200 million dollar note. That's due in June or is the plan to wait until the economy reopens.

Yeah, I know that's a good so just so the first part of your question pads on on the rating agencies.

Fitch came out and a affirmed the the rating of Ulta gas and the entire a group of companies that they rates. So so that was inclusive of the utilities and W. Joe holdings as well.

Pete put out a specific report on WGCL and had no issues with with Eylea. So they left the rating where it is for Eylea, So triple B minus stable outlook and a in our conversations with DBRS. They they didn't take any any rating actions either so they left a they left the ratings as they were when we they all came out in December as.

Part of our annual review on on the the refinancing in the $980 million and maturity $780 million of that was at the WGN holdings and central level than those deals would close at the end of April you know the 200 million dollar maturity that we have coming up at Eylea or we have enough capacity on the line to to be able to.

We pay that on maturity and if we if we see credit spreads tightened and we see a window in the market. A then we will we will access it that the favorable pricing, we have seen people access to markets, and especially utilities and infrastructure companies with stable cash flows and we feel that we've got those characteristics. So we're just going to monitor things in India.

Side, when the right time is to do that refinancing longer term.

Got it okay. Thanks again guys.

Thank you.

Your next question comes from Andrew Whisky from Credit Suisse. Your line is open.

Thanks, Good morning, up obviously was a volatile quarter, but could you maybe give us some context on just how your risk management systems performed amidst the volatility and then any tweaks you made to your systems in light of what happened.

Sure. Thanks, I'll, let you go ahead and Randy you want me to take that yeah.

I mean, I I, just before I talk about some of the specific risk management practices and I just want to take the chance to reiterate that when you look at our trailing 12 month revenue, where at 70% to 75% investment grade at the midstream business right and if you layer in utilities, we're we're well north of 80%.

But in terms of a risk management practices and things, we do short term a with what some of the Counterparties that we have that are below investment grade I mean, we've always been.

Marketing Ngls and and gas for for some of these entities and as a result, we similar tolls first and if there's any a our balances remaining at a month ended the quarter end, we typically have letters of credit that backstop those exposures to our customers and obviously from a medium to longer terms.

Tom point, you know, we still feel confident that the assets that we have are positioned in a very prolific basin and and as a result of that it gets a desirable basin when consolidation happens in some of the some of the stronger producers look consolidate those positions we feel that we're well positioned for those volumes to flow to our plants. So that's.

You know, we've always been very active on the risk management front and those are some of the examples of things that we do through this through this period.

And then any substantial changes to the policies are really steady as she goes and everything held up really well with the volatility we saw.

Well I mean, we've always had appropriate policies to deal with a a credit risk assessment of of our of our customers. So I mean, if your question is how we become more more aggressive on l. sees that we've always been I think we've always been aggressive when it comes to dealing with sub investment grade Counterparties.

Based on market demands to for them to post l. fees I mean, even on cargoes that we shipped to a to Asia. If there are sub investment grade than than we demand l. sees the backstop those exposures to us.

Yeah, I just thought we have a very robust process from the mid upon off of that but we have our a risk committee and policies and it's a this is a low risk high but until the mid spring company. So it's a key part of how we manage this business every day so.

This is just a testament to when you stressed the system and as it with many companies how well we have held up in the quality of our risk management tool.

Yeah, I guess, that's with just a bit as you had a six sigma advance and everything held up really well.

Got it exactly thank you for that question. Okay. That's great. Thank you.

Your last question comes from a life Boscolo some industrialized securities. Your line is open.

Hi, Good morning, just one quick question.

Probably directed to one or two of the Randy's I believe Randy in your opening remark you said 120000 barrels a day of [noise].

Buying to propane and butane export capability off the west coast.

I guess I recall rip it having a maximum capacity of 80 and Ferndale facility. It's 30. So was there some optimization that you can see.

Yeah, I know that's it look the optimization really is around the logistic right in the rail and the optimization. These facilities can do you know those.

Capability, but like a limiting factor.

It's really the logistics around getting the number of that ship out and being able to get to supply. There. So what I was referencing was that was underlying capability in the amount of ships that that could be there, but the key driver is going to need on the rail logistics and to get the product to maximize then as I said, yes.

The team is working on that each and every day.

And work towards the logistics maximizing supply and export volumes.

Randy I don't have any.

Yeah, Randy or is there any to nuts and.

We repeat is capable of 80000 barrels a day and Ferndale is actually capable.

The 40000 barrels a day not 30, so that's where we get to 120.

Okay, then thanks for that clarification.

Okay.

This concludes the Q any portion of today's call I'll now turn the call back to Mr. Mcknight.

Thanks, Julianne and thank you everyone. Once again for joining our call. This morning and for your interest in all the gas just as a reminder, yeah investor relations team will be available after the call. If you've got a follow up questions and that concludes our call. This morning, I Hope you enjoy the rest of your day and you may now disconnect your phone lines.

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