Q2 2020 Fortis Inc Earnings Call
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Sean I would like to turn the conference over to Stephanie I and my most.
Please go ahead Mr. Michael.
Thanks, Michelle and good morning, everyone and welcome to 40 since second quarter 2020 results Conference call I'm joined by dairy, Terry President and CEO, and Joslin Perry Executive VP and CFO other members of a 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 slide 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, Mdna 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 cobot 19 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.
At Ford is we have lived with spikes in cold conducting cases in some of our jurisdictions like New York in Michigan.
Currently the people the Arizona are you want us employees and their families are facing the consequences of the spread of the disease.
Our hearts go out to everyone effective.
Our utilities remain vigilant during these uncertain times, 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 in the Central service provider.
I'm heartened to see the commitment of our employees at home and in the field as they keep lights on that and the natural gas flowing. Thank you to each and every one of 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 vps during the quarter.
Last quarter, we disclose that 82% over annual revenues are either protected by regulatory mechanisms or from the ore 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 pandemic 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 front FERC issued an order on the MISO base are we matter at ITC.
In British Columbia, Fortisbc received a final order on its multi year rate plan for 2020 to 2024.
And T. P continued to progress the rate case in Arizona.
Josten 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.
Wanting an ambitious target 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 the 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 update it 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 this 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% well other electric sales were down 3%.
And excluding weather impacts in Arizona sales that you want us energy were up 2% over 2019 levels, mainly due to higher residential sales.
Speaking of Arizona, we are very excited about TPS, new target to reduce carbon emissions, 80% by 2035 to.
To achieve this goal T. P 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 springerville generating station in 2027 and 2032.
Upon retirement of unit, two and 2032 forward as expects to have a coal free generation mix.
These changes will result in T P awarding 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.
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 to 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 distinct directors.
Free up our 10 utility presidents and 60% of employees that our corporate head office our female.
Lastly, the report outlines how our local leaders are supporting their communities in 2019 more than $12 million in community investment was made by the afford us group of companies.
As mentioned during the first half of 2020, we invested 2 billion in our energy systems or 47% of our annual capital plan.
I 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 key regulatory approval from the Io, Iowa Utilities Board to proceed with the multi value project five.
345, Kilovolt transmission line will help expand system capacity and respond to commute 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 wattay the kidney 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 TP 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 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 their 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 game gain of 484 million from the sale of our 51% interest in the one either expansion.
Twentytwenty earnings also reflects the impact of Burke, our OE decision received in may, including a favorable earnings impact of $27 million at ITC related to the reversal of 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 at our Caribbean utilities with the decline in tourism related activities and incremental incremental kobin 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.
The weighted average shares outstanding compared to last year.
Slide 13, and 14 provide additional details on the P.S. 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 cents reduction from central Hudson.
Warmer weather and Arizona resulted in an approximate three cents EPS increased 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 benefits.
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 coal with 19 related costs in conjunction with the generic proceeding initiated by the New York Public Service Commission, although we cannot predict the timing and okay.
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 to higher U.S. dollar to Canadian dollar foreign exchange rate Favourably impacted quarterly results by one cents.
The ones that EPS decreased four other electric segment was mainly attributable to lower commercial sales in the Caribbean due to the cold 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 segment the one cent negative EPS impact was mainly due to a gain on the repayment of debt recognized in the second quarter of 2019, partially offset by lower finance charges.
And lastly, a higher number of shares contributed four cents EPS decreased EPS decreased 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 want us energy associated with rate base growth not yet included in rate.
If you will recall TP awaits the 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 the 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 2020, more recently Fortisbc issued its inaugural Green bond. 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 and total liquidity, leaving for disposition 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 are are we.
As you recall in November 2019, FERC issued an order on the MISO base are are we which resulted in an all in our OE of 10.63%, including current incentive matters. The our away was premised on a calculation using a discounted cash flow model and a capital asset pricing model.
In the most recent order for our 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 FERC did not adopt the expected earnings model in the revised methodology. The commission noted that it.
That 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 affirmed that no refunds are due for the second complaint.
In aggregate the changes may buy for result in a new MISO base, our we have 10.02%.
With incentive Adders. This implies an all in go forward or we have 10.77% compared to the 10.63% all in early 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 proceeding.
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.
The proposal could mean that ITC would be eligible for additional ROI, we adders, including project specific incentive.
Comments from stakeholders were provided to for through July on July Onest.
In Arizona, the GDP rate case remains outstanding as you may recall due to call, but 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 for October 1st through June Thirtyth 2021.
Also in Jones, New York Public Service Commission initiated a generic proceeding into the impacts of cobot 19 pandemic on the state's utilities customers and commission adopt a program.
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 development.
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 up 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 to 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 ways and capital structures for 2021.
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 is to set new cost of capital parameters prospectively in 2021 and for Twentytwenty too is expected to resume once the 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 decision is expected in late Twentytwenty.
And lastly wall not included on this slide new rates went into effect at Ford is TCR 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, I'll now turn the call back to Barry. Thank you Joslin.
Our decentralized 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 from the investment community.
Thank you ladies and gentlemen, we went now 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 been answered than you would like to withdraw your registration. Please press the pound sign if you are using a speaker phone please limit your hands.
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 we headed.
Actions.
Yes.
Specifically did you have any directional commentary.
Assuming current administration status.
Additionally, I would be helpful.
Yes, there is a changed administration.
She was chief things I'd be interested in your comments one.
Impacts.
Retracing.
As well as.
Initiatives to reduce carbon emissions further.
Got it could mean for you for accelerated spending and if you want to tie that to the GP.
Pete.
Well, thank you Robert and yes. It is election season in America, So clearly lots of.
Lots of chatter about that and.
Well, maybe we'll focus on if there is a switch in the government you know clearly I think some of the things that we have been pursuing whether it's in terms of the moved to a cleaner energy future I guess in Arizona or Itcs focus on I'm sort of 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 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.
But when we passed on the reductions in.
In tax rates I do believe that for holding companies like Ford is who have 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 our deductible and higher tax rate. So we did get a negative hit when tax rates.
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.
No matter, what really happens with the upcoming election.
And just as it relates to the impact.
I believe.
Sure.
Was roughly 3% negative impacts.
Earnings and cash.
Hi, number I think.
Did you change your 50 basis point negative impact from cash debt metrics than you expected to be well inside of that can you just talked about what actually.
In terms of how are you seeing that impact your business.
Robert This is jostling, yes, so with you as tax reform, we did see a couple of Penny pennies on our eat yes, with you as tax reform and for cash it was 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.
Legislation looks similar to the legislation view of tax reform Jan.
Really you would think that it would just be simply reversal of that.
Thank you Mr. Nash.
Question.
The tax.
You.
The reversal on the.
[noise] quarter My question actually knows more about.
I guess.
After tax reform when that was introduced as well as some of that.
Announcements commentary.
With that.
None of that.
Just to be material.
Just in cross border structures.
I'm just wondering what's the booking in this quarter.
You've changed on on any of that with terms of existing structures of the ability to use structures cross border.
No Robert I would say our view is still the same its not expected to be material to Florida.
Thanks very much.
Thank you Rob.
Your next question will come from Rob Hope from Scotiabank. Your line is open.
Good morning, everyone I'm, just a question on the higher in Tucson.
Do you think you could see capex starting to ramp up there and are you doing not as potentially something you could add to your backlog.
During Investor day, and doesn't it's kinda back fill the the rate base growth into the middle part of the Doctor.
So Rob let 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 dairy 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 wind and.
In solar and obviously, the battery storage as well and all of these projects also come with.
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 investments are backend loaded sort of that years 515.
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 future as we build up that 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 just to ensure that you can capture the next phase of tax reform 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. We you know when you think about in the next say 12 months.
We just we just.
Completing a case in Arizona, we just got a.
Canadian contacts obviously the case in NBC done.
Central Hudson is you know we'll be filing a case shortly I don't think that's gonna be delayed for the next next three years. So I don't I don't see that affecting any of those schedules really not 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 going to 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 the and direction in the in the US you know it's going to take some time now. 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, but 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.
Thank you Rob.
Your next question comes from Brian Greenwald from Bank of America. Your line is open.
Good morning team 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 it just Saddam indefinitely off the table at this point.
So David this one's on new man [laughter], Yes, yes, we are confident that we'll get a decision by year end in fact were.
Weak wrapping up the last bit of of written testimony that goes in which is our reply briefs. That's filed next week and then the judge they all Jay has the entire docket before her to be able to get a recommending opinion in order written up and so we see ample timeline to get a disk.
Asian 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 off different pieces 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 that but in reality is not very many people traveling at this point in time. So I think we're gonna be dealing with the slowdown in the Caribbean for probably for the right.
The this year, we might get a gradual pick up as we head to the end of the year, but nothing that significant I don't think.
Great appreciate the time.
Thank you Ron.
Your next question comes from Mark Jarvi for machine RPC capital markets. Your line is open.
Thanks, Good morning, everyone.
Then just two questions on the.
Q3 decision so far.
Finally, as yet, but maybe any commentary in terms of thing Theres some.
And 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 in on costs that you guys feel you need to sort of fight around.
Sorry, Mark the first party what you said, we lost it was it related to Fortisbc that you're just describing yes. That's correct I think there were some comments on the decision around Capex for 2020, 320 24 and.
I think I'd have to resubmit around I'm, just wondering what that could mean for rate base growth in those utilities.
Roger can you offer your thoughts on that.
Yeah.
Sure I can you hear me Okay Mark.
Yeah.
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 out in the first three years and become vacant come back end report cashiers, four and five or not.
Ensures that we're knocking out of the situation where were outside of forecast either above or below which gives us a bit more.
Harry I think as we move through what we call or based capital it doesn't impact the major projects that requires CPCN, though.
Okay, and then anything around the sharing mechanism and in terms of incentive rate, making that surprise yours learning within the scope not.
Yeah.
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 surprises.
In the application we had just come out of a performance based right making structure for both utilities.
We delivered significant savings out of those.
Constructs, we had previously dealt with a 1% a 1.03% on electric in a 1.10% on gas might had it backwards, but basically 1% productivity improving factor.
Annually. So we were.
You know productivity improvements doctors said, we've got a 0.5%.
Not sure not insignificant, but something we can manage but that was a bit of as price having come I'll go PBR, but no concerns with the mechanism itself. It it's going to work as we expect that.
Similar to the loss PDR.
Okay. That's great. Thanks, water and then kind of going back to potentially change administration, you guys 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 quick we think that it would take to rollout.
Positively impacting itcs investment opportunities.
Well Mark with Great question on ITC, you know I will have to say a ITC to continues to perform very well for us and.
When I think about our afford us footprint of where we you know where our investments are.
So happy that we own the largest independent owner of transmission in the United States, you know that that.
So 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 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 sort of the change in part will change and government and Itcs evolution over the next few years.
Yeah, Thanks, Barry and I think you're spot on Barry.
No I, what you're saying 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 for strong towards the need for continued investment transmission.
Obviously.
Time today, and as we look out into the future in order to continue 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>.
Her that I would say however, we have seen recently.
Yes in terms of some of the current.
Policy initiatives sort of draft legislation.
Circulating in Congress, whether it's either.
Moving forward to act find that.
Yeah, we're starting the incorporation concepts around the need for regional or intra regional transmission and or were in order to realize 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 indications that in terms of and future environmental legislation that definitely tears that they want.
You know language.
Around type of transmission and so from that perspective, I think that's constructor, certainly for us and our business and as Barry said, we're strategically located in so we do see that as constructive positive, but I don't think you know.
Kurt Democrats or Republicans active we still believe the.
On both sides of the Iowa strong interest.
Uh huh.
Okay. Thanks, and then maybe last question around alper animals 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 maybe transferring those all the link or that you guys still feel like you can put out of those assets.
Well you know I think we're still Oh, I'm going to Michael weight in here, but we still have the view that this should not happen.
And.
The order.
You know did not you know wasn't based on the appropriate evidence and we supplemented the our filings with more evidence.
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 how this goes forward but.
Will you know, where we've done or filing and we're hopeful that we've made our case, Michael maybe you can add some color.
No spot on Barry the only other thing or where does that the record during the preceding schedule is now expected to close.
September setting up for decision then in late 2020, So I'm just continue to file the additional tax evidence with respect to the contribution than waiting.
In action.
Okay, we'll keep an eye on that thanks.
Thank you Mark.
Your next question comes from Matthew weeks from Industrial Alliance Securities. Your line is open.
Hi, 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 and that was positive in terms of achieving a low cost of capital and reinforcing the 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 the 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.
Can you imagine that's just and 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 yes. It will 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 would like to ask a question. Please press star one on your telephone keypad and not as star one on your telephone keypad.
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 notice of proposed rulemaking around transmission incentives can you maybe provide some more context around a notable comments from various stakeholders, including industry groups in Florida.
And how might we think of the timing of resolving this and the bookends of of what might be a possible as an outcome.
Linda you want to Linda Linda.
Huh.
Sure. Thanks, very thankful to answer the question, yes, So I think people probably familiar and I think its joslin luncheon did we as well as all the younger sequel to Harden just filed 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.
No.
In terms of our primary comment I'm obviously.
Offered comments supporting some of the proposals that that the commission identified when issues. There are no for and so those around obviously increases archeo participation incentive at EUR 200 basis points, obviously, we fully supported bass and strong case that's why.
We also offered additional commentary around.
To create incentives around driving economic.
Benefits.
Some more spot project specific incentives, we also courage them to continue to read one sort of what we call. It's on some of the non are set up so that would be around food.
Plants are those types of things and that's a really strong push for creating incentives are around the context of certain transmission technology security assessment.
Those are sorts of concepts or ideas and so I think is as most of you know the commission in there no per indicator that people are willing to provide up to 200 basis points. That's one center.
And essentially a significant that they were no at least they were no longer.
Sort of if you will containing the incentive up to the upper end, but there are so for example in there.
We really two arm the didnt know for on incentives as a real opportunity to try to team additional incentives that are really going to drive benefits for customers that was certainly when I think.
It was started to pick a shift in sort of how FERC is thinking about.
And that she is.
Aligned incentives with actual senator that are for and type of investment or projects. So we're really encouraged by the the Commission's proposal I would say, what's a pretty active docket in pretty active case in terms of the parties that filed comments, though.
Varied from state commissions industrial user groups Super for.
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 Kirk will take action.
Before the end of year of we are encouraged I think buys a quick action.
But its mission took in terms of their timeline for when they want to comments and so we are.
We see some sort of decision and prior to the end of year, However, I would know.
There is no timeline or requirement for action and.
Somewhat.
Yes.
Mark I guess I can come to some.
Perspective short order, but we remain hopeful.
Thank you for the context and on a slightly separate note maybe.
From a natural gas distribution perspective would it be possible to get an update on how your evolving some of the initial initiatives on renewable natural gas and potentially or 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 push forward with more a 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 nicely question Linda short answer is yes in BC we've been.
Advance 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 over the last number months gotten approval for a number of.
A new contracts for supply we were successful in 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 what do you biomass project in BC, which is.
A significant because if we can get scale orangeade for what do you biomass and the BC context, that's a very large supply basin.
With that one is we're watching carefully.
We have now there.
For a projects that are in the Hopper is that will increase R&D supply on the hydrogen side.
Part of a working teams with other 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 in closed loop systems for large industrial sites to displace natural gas use Oh. 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 drop in fuels renewable gases, both traditional R&D as well as hydrogen or as an X number of years.
I'm sorry to contact.
Thank you.
I do in the.
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 IR P. in Arizona.
David mentioned that you'll need transmission, obviously into a two.
The problem into renewables 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 coal to it to me wherever they renewables might be cited.
Well I, probably would give you a number but it'd be wrong, so David yes.
David Hutchens I know that it's not small you know, but I know, it's probably not in the billions, but in the hundreds of millions over the over the plan. So Dave any thoughts you could give.
Yeah. David. This is this is David hutchens, yet, it's it's a hard too.
To the to estimate that now because right now we're not 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 lines, where we're shutting down coal plants, and maybe even focusing on developing those renewable projects up there, where we're shutting down coal plants in those communities. It's mostly I would say, it's mostly interconnection dollars at this point.
There is the ability to get more wind out of the also Bromday project and so that would require some additional transmission investments that we've been talking about southline, mainly so.
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.
And Dave just okay, great. Thank you that's David there's just a reminder, that our transmission in Arizona has also regulated by FERC as well so.
Great. That's that's good color. Thank you and then maybe just one more follow up there.
The storage capacity, you're contemplating there I'm wondering.
Does that all makes 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 feet process, we do have a technology term baked in what reduces those prices overtime, which is one of the main reason you will see storage a little bit more backloaded.
But that also has to do a former shutting down our coal plants as well, but it's not a really steep curve is not super aggressive. So we think we're we're right in that right kind of 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 on realistic timelines prices et cetera, and technology that we knows no today and isn't betting.
But some brand new technology coming in and helping us out so that that so thats a big point there.
Great. Thank you very much all we get back in Q.
Thanks, Dave.
Your next question comes from Brian Greenwald from Bank of America. Your line is hoping.
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 so.
Okay. Thank you.
Thank you I.
There are no further questions during Q I would like to turn the call back over to Stephanie Mimo for closing remarks.
Thank you Michelle we have nothing further at this time. Thank you for participating in our second quarter 2020 results call. Please.
Please contact investor relationship you need anything further thank you for your time can 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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