Q2 2020 Fortis Inc Earnings Call
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Ladies and gentlemen, thank you for standing by my name is Michelle and I will be your conference operator today welcome to the Fortis Q2, 2020 conference call and webcast. During the call all participants will be in a listen only mode. There will be a questionnaire.
<unk> answer session following the presentation.
Don't time those questions should push star.
Well there by the number one on your telephone keypad if at any time during the conference you need to reach and operator. Please press star zero at this time I'd like to turn the conference over to Stephanie I Am Mimo.
Please go ahead Mr. Michael.
Thanks, Michelle and good morning, everyone and welcome to afford US the second quarter 2020 results conference call I'm joined by dairy, Harry President and CEO, and Joplin, Perry Executive VP and CFO. Other members of the senior management team as well as Ceos from 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 statement contained in the supporting flight show actual results could differ materially from the forecast projection included in the forward looking information presented today.
Non-GAAP financial measures reference in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our second quarter 2020, M. DNA also unless otherwise specified all financial information references in Canadian dollars.
With that I will turn the call over to Barry.
Thank you Stephanie and good morning, everyone.
When we spoke last quarter, we were just starting to understand the challenging impacts of the cold Nike pandemic on North America and the world.
Three months later, we continue to see the effects of the virus on our people and the communities we serve.
For the we have live with spikes in cold and lighting cases in some of our jurisdictions like New York in Michigan.
Currently the people of Arizona, our units employees and their families are facing the consequences of the spread over the disease.
Our Hearts go out everyone affected.
Our utilities remain vigilant during these uncertain time, we're focused on ensuring our employees customers and communities are safe nothing is more important to us.
We also know the responsibility we hold as an essential service provider <unk>.
I'm heartened to see the commitment of our employees at home and in the field as they keep legs on the net and the natural gas flowing thank you to each and every one up you.
From a financial perspective, the pandemic impacts I've been manageable today and relate primarily to reduce sales in the Caribbean as well as higher direct costs and credit losses.
Together. These represented about three cents a V P S. During the quarter.
Last quarter, we disclose that 82% over annual revenues are either protected by regulatory mechanisms or <unk> or our from residential sales.
Which were expected to increase during the pandemic.
As expected, we did see higher residential sales and lower commercial and industrial sales.
We recognize that the Pandemics is ongoing and we intend to continue to take the necessary measures to protect our employees customers and communities, all while delivering safe reliable and affordable service.
Now I'd like to help you update you on the progress made on several fronts in our business in the second quarter.
First on the regulatory fun FERC issued an order on the MISO base are we matter at ITC.
In British Columbia, Fortisbc, we see the final order on its multi year rate plan for 2020 to 2024.
And T. P continued to progress the rate case in Arizona.
We also will walk through these developments in more detail in her remarks.
During the quarter, we advanced our commitment to delivering cleaner energy to customers and creating a more sustainable future.
In June 2000 electric power filed its integrated resource plan with the Arizona Corporation Commission outlining an ambitious targets to reduce carbon emissions by 80% by 2035 compared to 2005 levels.
More recently, we released our 220 20 sustainability report and signed onto the Black North initiative, which is committed to remove all systemic barriers negatively affecting the black community.
Also we invested $2 billion of capital into our systems. During the first half a year supporting adjusted earnings per common share of 56 cents for the second quarter and $1.23 year to date.
Overall, our team continues to maintain operational and financial performance I missed the pandemic.
Turning to slide five here, we have provided an updated look at the year over year sales trends in our local jurisdictions during the second quarter.
Generally speaking our utilities continue to see an increase in residential sales and a decline in commercial and industrial sales as businesses continue to operate at a reduced level.
As you might recall last quarter, we identified you wouldn't us energy and our other electric segment as having exposure to changes in sales.
In fact during the quarter, we saw total sales at those segments increased by 3%.
Hi, residential sales, mainly due to warmer weather in Arizona was the main driver partially tempered by lower commercial sales due to travel restrictions halting tourism in the Caribbean.
Overall retail sales in Arizona were up 9%, while other electric sales were down 3%.
And excluding weather impacts in Arizona sales that you want us to energy were up 2% over 2019 levels, mainly due to higher residential sales.
Speaking of Arizona, we are very excited about teepees, new targets to reduce carbon emissions, 80% by 2035.
To achieve this goal.
He will require over 2400 megawatts of new wind and solar power systems, including approximately 450 megawatts that will be coming online over the next year.
In addition, TP expects to add 1400 megawatts of new energy storage systems.
Once completed T. P. We'll have more than 70% of its power source from renewable generation.
The integrated resource plan also calls for T., Peter ramped down and ultimately retire two units at the coal fired spring a real generating station in 2027 and 2032.
On retirement of unit two in 2032, Florida's expects to have a coal free generation mix.
These changes will result in T P avoiding more than 50 million tons of Cotwo emissions over the next 15 years.
Equivalent to taking approximately 700000 passenger vehicles off the road on an annual basis.
I want to congratulate Dave Hutchens, and the team and Arizona for bringing forth. This impressive plan, which continues our progress on a clean energy future for customers in Arizona.
As we continue to focus on our core business a regulated energy delivery sustainability is front and center and all that we do.
Beyond TPS, new carbon emission targets, our newly released sustainability report highlights some of our other initiatives, including Fortisbc 30 by 30 goal, which aims to reduce greenhouse gas emissions associated with customer energy energy use by 30% by 2030.
This target at Fortisbc, which is primarily a natural gas distribution company is one of the most ambitious reduction targets among Canadian utilities.
The report also showcases our investments dedicated to asset resiliency modernization and cleaner energy initiatives in total these investments represent represent about 70% of our 4.3 billion dollar 2020 capital plan.
In addition report highlights some of our recent disclosure enhancements, including our alignment with the recommendations of the task force on climate related financial disclosures and expansion of various metrics.
Report also emphasizes our new inclusion and diversity framework, which solidifies our commitment to take an active role on this front.
Today, 40% over four to think directors.
Three of our 10 utility presidents and 60% of employees at our corporate head office our female.
Lastly, the report outlines how our local leaders are supporting their communities in 2019 more than $12 million and community investment was made but afford us group of companies.
As mentioned during the first after 2020, we invested 2 billion in our energy systems or 47% of our annual capital plan.
We remain committed to our 4.3 billion dollar capital expenditure suspended your plan in 2020.
Major capital projects are progressing as planned.
You see we see the T regulatory approval from the Io, Iowa Utilities Board to proceed with the multi value project five.
The 345 kilovolt transmission line will help expand system capacity and respond to can move consumer demands for more cost effective renewable energy sources in the region.
And in Northern Ontario, We recently raised the first tower in the 1800 kilometer why payment to the AEP transmission power project a milestone we're very proud off.
Finally, the 250 megawatt also grown wind project at T. P is progressing as planned in fact, all 62 towers and turbines were installed during the first half the 2020 and T. P is in the process of installing the final remaining turbine blades.
Turning to slide nine the five year capital plan of 18.8 billion remains unchanged as.
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 mid year rate base was $28 billion and is projected to grow the 34.5 billion by 2022 and 38.4 billion by 2024.
This yields three year and five year compound annual growth rate of approximately 7%, which is consistent with our prior rate base growth guidance.
For 46 consecutive years, we have increased our dividend this track record positions us as a leader in dividend growth.
Our low risk energy delivery business gives us confidence to continue this record.
I'll now turn the call over to Joslin for an update on our second quarter results.
Thank you Barry and good morning, everyone.
Turning to slide 12 reported earnings for the second quarter of Twentytwenty were 274 million or 59 cents per common share compared to earnings of 720 million or $1.66 per common share for the second quarter of 2019.
On a year to date basis reported earnings were 586 million or $1.26 per common share compared to earnings of approximately 1 billion or $2.39 per common share last year.
Reported earnings for both the second quarter and year to date 2019 reflect a significant one time net gain gain of 484 million from the sale of our 51% interest into benita expansion.
Twentytwenty earnings also reflect the impact of Burke, our OE decision received in May including a favorable earnings impact of 27 million at ITC related to the reversal prior period accruals and I'll get into that order in more detail in a couple of slide.
On an adjusted basis EPS for the quarter was 56 cents two cents higher compared to the previous year.
During the second quarter EPS was favorably impacted by strong rate based growth at our regulated utilities and higher retail sales that you announced energy primarily due to warmer weather.
EPS was tempered by lower earnings that are Caribbean utilities with the decline in tourism related activities and incremental incremental cobot related costs, mainly at central Hudson, a higher weighted average common share count also tempered.
EPS for the quarter.
On a year to date basis, adjusted EPS was $1.23 five cents lower than the previous year, while year to date EPS was favorably impacted by similar items noted for the quarter. The overall decrease in year to date EPS was driven by lower earnings at units due to regulatory lag and a further impact of higher.
Our weighted average shares outstanding compared to last year.
Slide 13, and 14 provide additional details on the EPS drivers for the quarter and year to date.
First on slide 13, our U.S. electric and gas utilities contributed a four cents EPS increase for the quarter, Arizona business contributed five cents offset by one cent reduction from central Hudson.
Warmer weather in Arizona resulted in an approximate three cents EPS increase compared to last year.
As you May recall in 2019, Tucson experienced its coolest second quarter in the last 20 years.
Additionally, in the second quarter, you announced realized partial recovery in the market value of certain assets that are held in trust to support retirement benefit.
At Central Hudson, an increase in operating cost was driven by certain direct pandemic cost, including the sequestering of key operational staff.
And as a reminder, central Hudson's revenues are protected by regulatory mechanisms. However, the incremental operating costs are expensed as incurred central Hudson is tracking all cobot 19 related cost in conjunction with the generic proceeding initiated by the New York Public Service Commission, although we cannot predict the timing and.
Some of this proceeding if regulatory recovery is achieved this could add to earnings in the future period.
Combined our western Canadian regulated utilities, an ITC contributed a three cents EPS increased during the quarter.
The increase was primarily attributable to rate base growth and lower business development cost at ITC.
Lower operating expenses at our Western Canadian Utilities also contributed to the increase and that was mainly due to timing associated with the recent decision on fortisbc multi year rate plan.
Next a higher U.S. dollar to Canadian dollar foreign exchange rate Favourably impacted quarterly results by one cents.
The ones that EPS decreased for our other electric segment was mainly attributable to lower commercial sales in the Caribbean due to the covert 19 pandemic as Barry discussed sales in our other electric segment were down 3% in the quarter driven by lower commercial sales in the Caribbean.
Excluding eastern Canadian sales the Caribbean experienced a decrease in electric sales of approximately 9% during the quarter, mainly due to the impact of travel restrictions on tourism.
In our corporate and other segments. The one cent negative EPS impact was mainly due to a gain on the repayment of debt recognized in the second quarter 2019, partially offset by lower finance charges.
And lastly, a higher number of shares contributed four cents EPS decreased EPS decrease for the quarter.
Turning to slide 14, adjusted year to date EPS decreased by five cents compared to the same period in 2019.
Year to date EPS was impacted by many of the same drivers for the quarter rate base growth at our regulated utilities and warmer weather in Arizona Favourably impacted EPS for the first half of Twentytwenty.
Year to date EPS was tempered by higher cost that you announced energy associated with rate base growth not yet included in rate.
If you will recall TP awaits a decision on its most recent rate case, which I'll discuss shortly.
Earnings were also lower at you and that's due to a reduction in the market value of certain assets that are held in a trust to support retirement benefits. This impact for the first six months was about two cents and was the result, the financial market volatility associated with Cobot 19.
In addition to these items the impact of a FERC order at ITC tempered year to date earnings EPS by approximately one cents.
And lastly, a higher weighted average number of common shares lowered EPS by nine cents for the first half of Twentytwenty compared to the same period in 2019.
As you can see on slide 15, our utilities were active in the debt capital markets issuing approximately $2 billion in debt since March twentytwenty.
More recently Fortisbc issued its inaugural Green bonds. The first green bond for a natural gas utility in Canada. The offering received strong investor demand and final pricing reflected the lowest long dated Canadian corporate coupon on record.
We have approximately 5 billion in total liquidity, leaving for physician near the top of our sector, our conservative approach to running the business, including the equity issuance and sale of the Juanita expansion in 2019 strongly positions us as we continue to work through the cobot 19 pandemic and execute on our capital plan.
In May we received an order from FERC regarding Itcs MISO base Arlene.
As you'll recall in November 2019, FERC issued an order on the MISO base, our OE, which resulted in an all in our OE of 10.63%, including current incentive Adders zero, we was premised on a calculation using a discounted cash flow model and a capital asset pricing model.
In the most recent order park adjusted its our OE methodology to include a modified risk premium model. In addition to the discounted cash flow and capital asset pricing models.
Although first and not adopt the expected earnings model in the revised methodology. The commission noted that is.
And it's you could be considered in future proceedings, if certain conditions surrounding its use were addressed.
We're also denied the request for rehearing on complaint number two and affirm that no refunds are due for the second complaint in aggregate. The changes made by FERC result in a new MISO base, our OE of 10.02%.
With incentive Adders. This implies an all in go forward, our ROE of 10.77% compared to the 10.63% all in our OE that ITC was previously collecting.
The incremental 14 basis points is expected to increase annual EPS by one to two cents on a go forward basis. The recalibration of prior period net accruals for our OE refunds resulted in a favorable EPS impact of six cents reflected in reported earnings for the second quarter.
Now turning to updates on some of our additional regulatory proceedings.
With regard to the to notice of inquiry issued in March 2019, FERC issued a notice of proposed rulemaking or no for in March 2020 on the transmission incentive inquiry.
Proposal could mean that ITC would be eligible for additional ROI, we adders, including project specific incentive.
Comments from stakeholders work provided to for through July on July Onest.
In Arizona, the TP rate case remains outstanding as you may recall due to cover 19, The Arizona Corporation Commission extended the procedural schedule.
Hearings concluded in June and post hearing briefs are scheduled for July and August we continue to expect a decision in late Twentytwenty.
The New York Public Service Commission approved Central Hudson's request to delay the implementation of the previously approved July 1st electric and gas rate increase for three months to help customers through the financial challenges of Cobot 19, the revenues will be deferred and collected over the remaining nine months of the rate year from October through June.
Thirtyth Twentytwenty one.
Also in June the New York Public Service Commission initiated a generic proceeding into the impact of Cobot 19 pandemic on the state's utilities customers and commission adopter programs.
Central Hudson as part of a coalition of utilities filed initial comments in July we cannot predict the timing or outcome, but view this as a positive developments.
Shifting to our western Canadian utilities in June the British Columbia Utilities Commission issued a final order approving fortisbc multi year rate plan. The order sets the rate setting framework for Twentytwenty through 2024, and as a reminder of the cost of capital was not a part of this proceeding and.
The order was in line with management's expectations.
During the quarter Fortisbc also received a final order on its cobot 19 customer recovery fund the order established a rate base deferral account for bill credits credit losses, and payment deferral ups to June Thirtyth twentytwenty associated with the pandemic.
The recovery method will be determined through a future falling once the financial impacts of the pandemic are known.
As discussed last quarter, the ongoing generic cost of capital proceeding for Alberta utilities, including Fortis, Alberta was suspended in March as a result of the pandemic.
As part of the proceeding the agency offered the utilities five options for setting allowed our always and capital structures for Twentytwenty one.
In July four to support a notify the you see that it had selected the third option. The extension of the currently approved cost of capital parameters on a final basis for 2021, one full quarter at a time and continuing until the end of the quarter in which the commission makes a decision which is expected sometime in 2000.
21.
The formal proceeding as to set new cost of capital parameters prospectively in 2021 and for Twentytwenty too is expected to resume wants to financial market effects on the cobot 19 pandemic stabilizes.
Fortisalberta awaits a decision by the way you see in the review and variants and stay on implementation of the September 2019, order, which significantly change the Alberta electric system operators customer contribution policy related to transmission investment.
For just Alberta filed additional evidence in July and additional procedural steps are expected to conclude in September and decision is expected in late Twentytwenty.
And lastly wall not included on this slide new rates went into effect at Ford is Tc in July following the delayed rate increase originally scheduled for April the new rates include the recovery of hurricane related cost incurred in 2017.
Overall, a busy yet constructive quarter on the regulatory front. This concludes my remarks, we'll now turn the call back to Barry. Thank you Joslin.
Our de centralized model, where local teams have the authority to manage their businesses.
Allows us to navigate through the pandemic with an acute focus on employee safety and reliable service.
Lastly, with 93% over assets dedicated to energy delivery.
We have a light carbon footprint and a strong sustainability profile.
And now with the ambitious emission reduction targets set at TGP and Fortisbc.
Our teams have an opportunity to advance to advance a low carbon future for generations to come all while supporting our growth strategy over the long run.
This concludes my remarks, 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 on the investment community.
Thank you ladies and gentlemen, we went out connect question and answer period, if youd like to now but just your question. Please press star followed by the one on your telephone. If your question has finance your can you would like to withdraw your registration Peach press. The pound sign if you are using a speaker phone please limit your hands.
Check before entering your request one moment. Please for the first question.
Our first question comes from Robert Kwan from RBC capital markets. Your line is open.
Good morning.
Hi, guys. The first question I got.
Can you just.
Collections.
Yeah.
Did you have any directional commentary.
Assuming current administration status quo.
I would be helpful.
Yes, there is a changed administration.
She things I'd be interested in your comments one.
Impacts potential impact retracing.
Actually perform.
Well as.
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Initiatives to reduce carbon emissions further and what do you still got could mean for accelerated spending and if you want to tie that to the TPH.
Hi, RP that that would be helpful as well.
Well, thank you Robert and I'll hit his election season in America. So clearly have lots of lots of chatter about that and maybe.
So maybe we'll focus on if there is a switch in the government as you know clearly I think some of the things that we have been pursuing whether it is in terms of the.
Moved to a cleaner energy future I guess in Arizona or Itcs focus on onto the renewable energy and hooking up the wind in the Midwest I think all of that really is supported by by the Democrats and and I do believe that that.
That would that we'll continue to be a positive backdrop for Ford is going forward clearly a reversal of the tax reductions.
I would see an increase in tax rates and that's an increase in cost for delivery of our services to our customers. We would expect that our regulators would allow those those cost we passed on to to our customers like like the you know that when we passed on the reductions in.
And to in tax rates I do believe that for holding companies like orders, who as you know incurred some debt to acquire businesses in the us.
Hi.
Sort of funny, but a higher tax rate actually is a is a positive from an EPS perspective, because our interest cost or deductible and higher tax rate. So we did get a negative hit when tax rate.
Reduce there would be a positive.
Contribution to as if tax rates rose as well I think our cash flows as a business would improve as you know we're not really expected to be tax payable for a number of years. So to increases in tax collections from customers would contribute to our annual cash flow and bolster our credit.
Metrics on a go forward basis. So I think we're in a good spot no matter, what really happens with the of upcoming election.
And just as it relates to the impact.
I believe last disclosure.
Roughly 3% negative impacts.
Earnings and cash.
Hi numbers.
Did you change your 50 basis point negative impact.
Patrick can you expected to be well inside of that can you just talk about what actually.
In terms of how you see that impact your business.
Robert This is Josh on the also with US tax reform, we did see a couple of penny pending on our Ats with you as tax reform and for cash. It was yeah, a little over 100 basis points I would say to our CFO to debt metrics. So Barry Barry is right, we would expect everything else being equal and if the ledgers.
Relation looks similar to the legislation you'll tax reform Chen.
Really you would think that it would just be simply reversal of that.
Thank you Mr. Nash.
Question.
So much attached.
You.
A reversal on the [noise].
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Quarter My question actually knows more about.
I guess.
Back to tax reform when that was introduced as well as some of the.
Now it's mens commentary.
Yeah.
No no.
Just to be material to your existing cross border structures shoot me I'm just wondering what's the booking in this quarter.
You changed on on any of that with terms of existing structures.
Doctors elsewhere.
No Robert I would say our view is still the same its not excitements be material to Florida.
Thanks very much.
Thank you Rob.
Your next question will come from Bob Hope from Scotiabank. Your line is open.
Good morning, everyone I'm just a question on the higher in Tucson. When do you think you could see capex starting to ramp up there and are you hearing that is potentially something you could add to your backlog.
During Investor day, and doesn't it's going to backfill the the rate base growth into the middle part of the Doctor.
So rob good with David Hutchens respond to that but I will say you know we're just in the early innings really we filed the IR p. and we're going to work through some processes with a regulator in Arizona on this and make sure that we have.
Support for for the plans I think there's a little early but David maybe you can offer your thought.
Yeah, Rob good good good to hear from me. This morning, you're spot on very what we're looking at now is trying to lay in all of those projects that we would need that.
2400 megawatts of renewables in the form of Wyndham and solar and obviously those the battery storage as well and all of these projects also come with the transmission interconnections and other investments that we need to make on our side. So we're in the process of laying out a timeline I would note that a lot of these invest.
Since our backend loaded sort of back years.
Through 15.
But we do have some that were trying to lay in the next five years. So you will definitely hear more about that in the futures, we build up that the capital plan for the next five years and then have a have a good look out for that following Ken.
Alright, Thanks, and then a follow up on Robert's question on tax reform as you look for as you look forward to the kind of the next round of rate filings.
You see yourself potentially delaying some of them interest to ensure that you can capture the next phase of tax reform as if it does come to bear.
Or rather than a.
Rather than wait to see if it's on a standalone proceeding.
I see Rob we don't really have many filings in front of US real when you think about in the next say 12 months or you know we're just we're just we're completing a case in Arizona, we just got a.
Canadian contracts, obviously, the case in NBC done.
Central Hudson is yeah, we'll be filing a case shortly I don't think thats going to be delayed for the next next three years. So I don't I don't see that affecting any of those schedules really because I think we're really in fact, we probably entering a period of somewhat.
No regulatory stability here for a little while now so that's that's a good place to be because it gave us it'll give us some time to sort of.
Figure out what what this new tax plan is going to be if there is a change and in directionally in the US you know it's going to take some time. We're just you just think about we're just now reporting on the final remnants of use tax reform and there's another presidential election underway right. So the I guess taken us.
Basically three and a half years to get to this point right now. So so these things take awhile to figure out and we're fortunate that we we have a I think a good runway now to digest. This if it does come.
I appreciate the color. Thank you.
Thanks, Rob.
Your next question comes from Brian Greenwald from Bank of America. Your line is open.
Good morning, Tim Thanks for taking my questions.
Good morning, Ryan.
Can you just talk a little bit more about your confidence on getting the rate case that you announced this year and there's a saddam indefinitely off the table at this point.
So David this was our new man [laughter], Yes, yes, we are confident that we'll get a decision by year end. In fact were this week wrapping up the last bit of of written testimony that goes in which is our reply briefs that's filed next week.
The the judge sale Jay has the entire docket before her to be able to get a recommending opinion in order a written up and so we see ample timeline to get a decision later this year as far as a settlement. It's we're we're done with the process. So it wouldn't make sense to backtracking and try trading.
All different features at this point.
Got it and then can you guys just provide a bit more color on mode trends. So far in July kind of given the evolving situation at the pandemic and what you're seeing in Arizona in the Caribbean specifically.
So I would say Ryan is pretty similar to what we experienced in Q2, you know we have continued with some warm weather in Arizona.
I think David it's like a 108 there today I think you you mentioned so.
We're not really seeing any pickup in the Caribbean. They have started to open up the borders in the Caribbean and allowing tourists to come in you know that but in reality is not very many people traveling at this point in time. So I think we're going to be dealing with the slowdown in the Caribbean for probably for the right.
So this year, we might get a gradual pick up as we head to the end of year, but nothing that too significant I don't think.
Great appreciate the time.
Thank you Ron.
Your next question comes from Mark Geography for machine Happy She capital markets. Your line is open.
Hi, good morning, everyone.
Then just two questions on the.
He replaced decision so far I know, how far out as yet, but maybe any commentary in terms of things or so.
In the filings around revisiting 2023, 2024, capex in certain investments just maybe give us some context on what that is and if there's anything around the earnings sharing mechanism are going on and off that you guys feel you need to sort of fight around.
Sorry, Mark the first party what you said that we lost it was it related afford us PC that you're describing yes. That's correct I think there were some comments in the decision around Capex for 2023 and 2024.
I think I'd have to resubmit around I'm, just wondering what I could mean for rate based growth in those utilities.
Roger can you offer your thoughts on that.
Sure I can you hear me Okay Mark.
Yep.
So.
The Murphy decision on capital.
Unlike the previous PVR, where we are capital escalated on formula based off of a base here.
We see a change here, where we forecast what we call our base capital, which is all capital not requiring a CPCN.
And instead of trying to forecast a little five years, we've got approval for our base capital.
For the on the first three years and become vacant come back and Reforecast years, four or five and not ensures that we're not going to have a situation where were outside of forecast either above or below.
Which gives us a bit more Kerry I think as we move through what we call or based capital it doesn't impact a major projects that requires CPCN, though.
Okay and anything around the sharing mechanism.
In terms for the incentive rate, making that surprise yours learning within the scope not notching there yet.
No surprise on the earnings sharing mechanism, that's that's more or less consistent and not is the incentive to extend that we share.
Savings or with our customers I think a couple of a surprises.
In the application we had just come out of a foreign staged remaining structure for both utilities.
We delivered significant savings out of those.
Constructs, we had previously dealt with a 1% a 1.2 or 3% on electric in a 1.10% on gas fired had it backwards, but basically 1% productivity improving factor.
Hi annually. So we were.
You know productivity improvement doctors said, we've got a 0.5% I'm not sure not not insignificant, but something we can manage but that was bit of as price having come out with PBR, but no concerns with the mechanism itself. It it's going to work as we expected.
Similar to the last few years.
Okay. That's great. Thanks corridor, and then kind of going back to to potentially change administration, you had talked about timelines higher paying TPV, maybe just anything incremental on ITC, whether it's continuing support whether it's faster permitting.
For transmission if its support for more renewables in the requirement for transmission and this terms of how quickly things that it would take to roll out from positively impacting itcs investment often.
Well Mark with Great question on ITC, and I will have to say a ITC to continue support performed very well for us and.
When I think about our afford us footprint of where we where our investments are.
So happy that we own the largest independent owner of transmission in the United States, you know that that that footprint that ITC owns a is very very valuable and is right in a sweet spot of everything that's happening in our sector as we push for more clean energy a more resilient grid. So.
So yeah, we're really looking forward to what the ITC is going to going to be doing for orders over the next number of years. Linda maybe you can offer some detailed comments on how you see Oh, you see serve the change in possible change in government and Itcs evolution over the next few years.
Yeah. Thanks.
Eric and I think you're spot on Barry, but no I would just say this is you know we have been very fortunate in that regardless of the sort of the administration and the controlling party.
We've consistently had particularly FERC strong used towards the need for continued investment transmission.
Typically.
Time today and as to what's happening to the future in order to facilitate the transition to more renewables.
I think we feel pretty comfortable and confident that regardless of its a democratic and Republican administration.
Yes.
<unk> Horton her that I would say however, we have seen recently.
So in terms of some of the current.
Policy.
Sort of draft legislation.
Circulating in Congress, whether it be mastered the moving forward to act find that.
Yeah, we're starting to use the incorporation.
Concepts around the need for regional or intra regional transmission and or were in order to realign sort of this future state of renewables and so from a macro perspective I think this is probably one of the first time.
Mm Hmm, where there is actually bought her own you bye.
I think we could say, it's probably at this point coming out of more into Democrat aside.
Certainly indication that you know in terms of and future environmental legislation that definitely appears that they want.
Which included around type of transmission and so from that perspective, I think that's constructor certainly for us and our business and as Barry said, you know where we're strategically located in so we do see that is constructed and positive but I don't think you know.
Kurt Democrats or Republicans that concludes.
Well, we see.
On both sides of the Iowa strong interest.
<unk>.
Okay. Thanks, and then maybe last question around Alberto transmission assets.
Anything we can infer from the filings around things around the tax implications that point toward the going one way or the other that will be transferring those all the link or that you guys still feel like you can quote unquote out of those houses.
Well you know I think we're still Oh, I'm going to Michael weight in here, but we were still up a view that this should not happen.
And Ah you know the order.
You know did not you know wasn't based on the appropriate evidence and we supplemented the our filings with more evidence. So hopefully the commission. It's interesting I think all the five commissioners that were involved in the original decision. None of them are left at the commission at this point in time, so that there may be a wrinkle as out how this goes forward but.
Will work, we've done or filing and we're hopeful that we've made our case Michael It maybe you can add some color.
No spot on Barry the only other thing or where does it the rucker Jordan proceeding schedule. What is now expected to close mid September setting up for decision then in late 2020. So I'm just continued far over the additional tax evident with respect to the contribution in a way using Uh huh.
Commercial action.
Okay, we'll keep an eye on a thanks.
Thank you Mark.
Your next question comes from Matthew weeks from Industrial Alliance Securities. Your line is open.
Sure.
Good morning can you guys hear me okay.
Perfectly Matthew good morning.
Great. Thanks, So just I just have one question regarding the.
Oh, the green bond issuance and Fortisbc amount was positive in terms of achieving a low cost of capital and reinforcing the a investment plan for a first the same sustainable energy is this something that you're seeing more interest in in the market going forward and is this something you'll be looking at.
Doing more out and possibly in other jurisdictions as well.
Yes, there is more interest, yes, we'll do more of it.
And I'm, just so damn proud that Roger and his team could have issued the lowest price piece of long dated corporate debt in Canadian history.
Like can you imagine that system. That's just incredible third I think 30 year debt a bullet with 2.54% interest rate like that it's just that's incredible and so yeah, we'll definitely look at doing more of this not just in Canada.
In the U.S. as well.
Great. Thanks, that's it for me I'll turn it back. Thank you. Thank you Matthew.
I can't if anybody wed like to ask a question. Please press star one on your telephone keypad I cannot estar one on your telephone keypad. Your next question comes from Linda Africa less from TD Securities. Your line is open.
Thank you good morning.
Oh I'm wondering if you can give us some more color around the FERC I notice of proposed rulemaking around transmission incentives can you maybe provide some more context around a notable comments from out of various stakeholders, including industry groups in Florida.
And how might we think of the timing of resolving this and the bookends of what might be a hospitals and outcome.
Linda you want to Linda Linda.
Huh.
Sure. Thanks, Barry anything from instead of question, just so I think people familiar and I think as Jonathan mentioned, we did we as long as all the others take hold of Harden just final comments on the analyze our and I'm sorry on the know for back on July 1st. We then subsequently filed some high comment on July.
HM.
In terms of our primary comment I'm, obviously, we offer comments supporting some of the proposals that that the commission had identified when she's been an over and so those around obviously, increasing RTL participation incentive at EUR 200 basis points.
So we fully supported fast and strong clinical supply.
We also offered additional commentary around <unk> to create incentives around driving economic right it would be benefits.
No more spot project specific insensitive, we also courage them to continue to reach nine sort of what we call. It's on some of the non are set up so that would be around quickly great food.
Plant or those types of things and that.
Really made a strong push for creating incentives are around the context of certain transmission technology.
Security assessment.
And those sorts of concepts or ideas and so I think is as most of you know the commission in there no per indicators that people are willing to provide up to 200 basis points to the one center.
And essentially I signaled that they were no you know at least they were no longer.
Sort of if you will containing the incentive up to the upper end.
Our retail reasonableness.
So we really do the Didnt know for on incentives as a real opportunity to try to a team additional incentives that are really going to drive benefits for customers that was sort of when I think.
It was started to pick a shift in sort of how FERC is thinking about why that she's sort of aligned incentives with actual benefits that are food and it's something that's no. Procter. So we're really encouraged by E. The Commission's proposal I would say you know what's a pretty active.
Socket in pretty active case in terms of pardon the final comments those varied from state commissions that industrial user groups Super.
Well as.
Other industry and transmission owning entities and so there was I would say a wide variance in the comments, but we remain hopeful that the FERC will take action.
Before we ended the year.
We're encouraged I think buys a quick action.
Ah that its mission took in terms of their timeline for when they want to comments and so we are hopeful that we see some sort of decision prior to the end of year. However, I would know.
There is no timeline or requirement for action.
Somewhat.
FERC I guess I can't come to some.
Even perspective short order, but we remain hopeful.
Thank you for the context as on a slightly separating out maybe.
From a natural gas distribution perspective would it be possible to get an update on how your involving some of the initial initiatives on renewable natural gas and potentially are you are exploring opportunities related to that green hydrogen and.
Anything on that front would be appreciated.
Well. Thank you Linda I have to say, there's so much so many exciting things going on in our British Columbia business and you know this sort of pushed forward with more renewable gas is definitely one of those and and exploring the hydrogen the opportunity as well so Roger maybe maybe you can give them a atlanta.
A little more details around some of the things that have been going on in the last a little while.
Yeah. Thanks, very actually question Linda short answer is yes in BC we've been.
Dan seen specifically renewable natural gas the traditional landfill.
Or agricultural waste renewable natural gas that we have put into our system.
We've just recently so we lost never mind scrutton approval for a number of.
A new contracts for supply we were successful on getting a couple of out of province contracts approved which is good sign and we just started.
We just signed an agreement for our first bio or what do you biomass project in B C, which is a.
Significant because if we can get scale Orange you for what do you biomass and the BC context, that's a very large supply basins.
So that when there's a we're watching carefully or we have another number of projects that are in the hopper is that will increase our energy supply on the hydrogen side.
We part of a working teams with natural gas utilities in the key in context, who are looking at both green and blue hydrogen and we're looking at hydrogen in a couple of different avenues. One is inclusive systems for large industrial sites to displace a natural gas use.
We're also looking at blending of natural gas directly into the system, which is happening in other jurisdictions. So.
We see a significant rule of what we're calling dropped in fuels renewable gosh is both traditional R&D as well as hydrogen over the next number of years.
I'm sorry, the content.
Thank you.
Linda.
Your next question comes from David Quesada from Raymond James Your line is open.
Thanks morning, everyone. Maybe a first question here just a follow up on the ERP in Arizona.
David mentioned that you'll need transmission, obviously into a two.
The problem and the renewable that you intend to.
Develop there.
Are you able to just say I'd give us an out of some color around the magnitude of the transmission.
Investment that may be required there as you move from kind of that centralized cool or to a two new wherever they renewables might decided.
Well I, probably would give you a number but it'd be wrong, so David yes.
Hi.
David Hutchens I know that it's not small you know, but I know, it's probably not in the billions, but in a hundreds of millions over the over the plan. So David any thoughts you could give.
Yeah. David. This is this is David Hutchings, yet, it's it's a hard to.
The two estimates that now because right now we're not so obviously sure where we're going to put all the renewables, where they're going to come from et cetera, we're going to try to use as much of our existing transmission system as possible to bring in wind and solar the the lines, where we're shutting down coal plants or maybe even focusing on device.
Well up in those renewable projects up there, where we're shutting down coal plants in those communities. It's mostly I was just mostly interconnection dollars at this point there is the ability to get more wind out of the also gone day project and so that would require some additional transmission investments that we've been.
Looking about southline, mainly so.
It's it's really too early to tell at this point, but you can bet, we're gonna be looking at that very carefully over the next well balance of this year and then as we go forward.
David This okay, great. Thanks for that David There's just a reminder, that our transmission in Arizona is also regulated by FERC as well so.
Great. That's that's good color. Thank you and then maybe just well one more follow up there just little the storage capacity, you're contemplating there I'm wondering.
Does that all make sense from a cost perspective with current technology or you kind of baking in some kind of.
Technological improvement as you roll it out.
We do have been in our IP process, we do have a technology for a baked in that reduces those pricing overtime, which is one of the main reasons, you will see storage a little bit more backloaded.
But that also has to do a form of shutting down or coal plants as well, but it's not a really steep curve, it's not a super aggressive. So we think we're we're right in that right kinda fairway of where the technology will actually go and I think that's really important from our integrated resource plan perspective, because this is all built.
Realistic timelines prices et cetera, and technology that we knows no today and isn't study now I'm somewhat some brand new technology coming in and helping us out so that that's what that's a big point there.
Great. Thank you very much all we get back in Q.
Thanks, Dave.
Your next question comes from Brian Green wrong from Bank of America. Your line is open.
Appreciate the follow up are you guys able to provide more granular color and breakout specific impact for the quarter for commercial and then separately for industrial in Arizona.
I don't think though.
Okay. Thank you.
Thank you want.
I'm showing no further questions during Q I would like to turn the call back over to Stephanie I'm I'm all for closing remarks.
Thank you Michelle we have nothing further at this time thinking for participating in our second quarter 2020 results call. Please.
His contact Investor Relations should you need anything further thank you for your time didn't have a great day.
Thank you for participating ladies and gentlemen. This concludes today's conference call you may now disconnect.
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