Q2 2020 Canadian Utilities Ltd Earnings Call

[music].

Thank you for standing by this is the conference operator welcome to the second quarter 2020, <unk> earnings Conference call for Canadian Utilities Limited as a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question to you May Press star.

Then one on your telephone keypad.

So do you need assistance during the conference call you may signal and operator by pressing star zero.

I would now like to turn the conference over to Mr Miles Dougan director Investor Relations and external disclosure. Please go ahead Mr. do again.

Thank you asked Asia and good morning, everyone. Please turn to join US for a second quarter conference call.

With me today, as President and Chief Executive Officer, Secret Keeper, and Executive Vice President and Chief Financial Officer Aster Champagne.

So, creating Dennis will begin today with some opening comments on recent company developments in our financial results. Following their prepared remarks, we'll take questions from the investment community. Please note that a replay of the conference call on a transcript will be available on our web site at Canadian utilities Dot com.

Can be found in the Investor section under the heading events and presentations.

I'd like to remind you all that our remarks today will include forward looking statements that are subject to important risks and uncertainties.

More information on these risks and uncertainties. Please see the reports filed by Canadian utilities with Canadian Securities regulators.

And finally I'd also like to point out that during this presentation. We may refer to certain non-GAAP measures such as adjusted earnings adjusted earnings per share funds generated by operations and capital investment these measures.

I don't have any standardized meeting under I have for us high for us as a result, they may not be comparable to similar measures presented in other entities.

[noise] and now I'll turn the call over six feet for his opening remarks.

[noise], Thank you miles and good morning, everyone.

Thanks, Hi, Thank all of you very much for joining us. This morning on her second quarter 2020 conference call.

I will ask Dennis to give you the second quarter financial highlights and just a minute, but I wanted to take a moment.

To begin by talking about a couple of our most recent business transactions.

On June 22nd we announced gloomy energy.

Limited liability Corporation was selected by the Puerto Rico public private partnership authority.

To modernize and operate Puerto Rico's electric transmission and distribution system over a term of 15 years.

Luma is a newly formed company owned 50% by Canadian utilities, and 50% by Quanta services.

Little bit combines Canadian utilities World class utility operations in customer service expertise with Quantus superior utility services project execution capabilities.

So on M. contract is an innovative arrangement that sees local jurisdiction continue to only utility assets well benefiting from the expertise a world class operator.

The opportunity fits with Canadian utilities growth strategy in the U.S. and Latin America and allows us to bring our core competencies of operational excellence, an exceptional customer service for the benefit of Puerto Rico.

We want to get some of the north Americas, and the worlds largest utility providers and we look forward to complementing our world class Energy energy solutions with the experience of the employees of Puerto Rico's electric power authority or print, but as its referred to.

Together, we can provide Puerto Rico.

With a modern resilient electric system that will support the broader economic development of the island.

[noise] Luma is headquartered in San Juan Puerto Rico and is in the process of relocating a team to the island.

We will is being led by cutting utilities, former managing director of our global electricity business unit Wayne stands B.

As Loomis, President and CEO Wayne will [laughter] and his team will oversee planning for the full transfer of the proper tranche transmission and distribution operations to limit.

This transition is expected to occur over the next 10 to 12 months.

We provided contract information in our second quarter, 2020, Mdna and I recommend that information to you.

[noise] now I'd like to provide an update on cutting utilities operations in relation to the cobot 19 pandemic and the slowing global economic activity.

Now that pandemic can slow down an economic activity [noise].

Did not have a material impact on many utilities adjusted earnings in the first half Twentytwenty.

Can you utilities pandemic response plan was activated in February 2020 by a crisis Management Committee and since then our teams across the globe had been responding to the ever changing situation to ensure a coordinated approach across our company with the safety of our people customers and commute.

Ladies we serve as our top priority.

As a provider of utility and energy infrastructure services around the world. We remain focused on continuing to deliver reliable service to our customers. We implemented several enhanced health and hygiene protocols and alternative work options for employees, where possible such as working from home.

[noise] I'm proud to share with you that our employees have stepped up in this challenging time and have performed in an exemplary fashion.

As you're aware our capital investment is targeted in our utilities and in our long term contracted energy infrastructure.

We continue to review, our Twentytwenty capital investment plan.

In order to incorporate any potential postponement of capital projects over the near term due to customer project delays or changes to capital projects that are directly assigned to us by the ISO.

[noise], we do have considerable resiliency, given the regulatory and long term contracted nature of our earnings.

In 2019, 95% of cutting utilities adjusted earnings came from the regulated utilities.

This creates greater predictability in our earnings and cash flows.

But the long term impact on Conney utilities cannot be fully determine.

Well the depth unlike.

The current economic slowdown is no.

Earlier this month.

We were awarded funding from the emission reductions Alberta.

Natural gas challenge to advance the first of its kind hydrogen blending project in Fort Saskatchewan.

Once complete this project will allow us to inject up to 5% hydrogen into the residential gas distribution network lowering the carbon intensity for our customers.

On 29 team. We also opened their clean energy innovation hub in Perth, Australia.

This industry, leading test facility as a test bed.

For hybrid energy solutions, and integrates natural gas solar battery storage and clean hydrogen production.

Well there just two examples of our ongoing transformational journey to prepare our company for the future.

And now I'll turn the call over to Dennis for his comments on our financial performance.

Thanks, Mike freight.

Good morning, everybody.

Canadian utilities achieved adjusted earnings of $94 million in the second quarter 2020, compared to $126 million second quarter of 2019.

Lower earnings this quarter or mainly due to the sale off the Canadian electricity generation business, the third quarter of 2019, and the sale of Alberta power line in the fourth quarter of 2019.

These businesses contributed $17 million, an adjusted earnings and the second quarter of last year.

Lower earnings were also due to $15 million in prior periods adjusted earnings from electricity and natural gas transmission regulatory decisions that were received in the second quarter of 2019.

Excluding the foregone earnings impact from the 2019 business sales.

And retroactive earnings impacts from the regulatory decisions received in the second quarter 2019.

Canadian utilities earnings in the second quarter of 2020 or comparable to last year second quarter earnings.

As they treat noted.

The cobot 19 pandemic oil price decline and slowing global economic activity did not have material impact on Canadian utilities adjusted earnings in the first six months of 2020.

Perhaps the largest single impact was felt in our natural gas distribution utility in Australia.

For the financial results included the adverse impact of a lower inflation rate in the second quarter, which came hand in hand, what's the global pandemic.

Overall, our businesses continue to perform well and generate strong earnings and cash flows.

Regarding developments on the regulatory front.

In March the Alberta Utilities Commission or do you see suspended the 2021 generic cost of capital proceedings due to the called that endemic.

The main focus of the preceding that is to determine the return on equity or are we for 2021 and 2022.

Do you see acknowledged that the delay proceeding creates uncertainty regarding the utilities are we for 2021 of them beyond.

The AC therefore provided utilities with a number of options for setting their return on equity for 2021.

In order to create some level of certainty we elected to have the early continued at the current 8.5% with 37% equity thickness until until you see decision this issue.

Once they see issues that's decision.

Well, we had equity thickness will be implemented on a go forward basis and will be effective at the started the quarter. Following the date of the AC decision.

Finally.

Im pleased to inform you that on July Twentyth.

Prs affirmed its a high long term corporate credit rating and stable outlook on Canadian utility subsidiary see link.

Credit ratings are important to our financing costs and ability to raise funds.

We intend to maintain strong investment grade credit ratings in order to provide efficient cost effective access to funds required for operations and growth.

That concludes our prepared remarks ill now turn the call back over to Myles.

Thank you since victory and I'll turn the call over to the conference coordinator for now for questions.

Thank you we will now begin the question and answer session in the interest of time, we ask you to limit yourself to two questions.

You have additional questions you are welcome to rejoin the queue.

To join the question.

Brad Star then one on your telephone keypad.

Sarah tone acknowledging your request.

Our using a speakerphone please pick up your handset before pressing entities.

Mr. All year.

Thank you. Please press Star then to webcast participants are welcome to click on these said mid question Todd near the top of the webcast frame and type question. The Canadian utilities Investor Relations team follow up by email after the call. Once again anyone on the conference call wishes to ask a question.

Press Star one at this time.

The first question comes from Murray's Troy with RBC capital markets. Please go ahead.

Thank you and good morning. My first question is on capital deployment opportunities and pipeline within those opportunities.

Obviously, you now have the NCB in your two box and I'll be reviewing your capital investment plan.

As far 20 to 20.

Can you discuss those options how those pecking order now it looks like just had been a shift.

Away from deployment of capital.

Towards buybacks or keeping the cash on the balance sheet.

Hi, Mris, thanks very much for your question. This is Dennis.

Yes, we did.

File and then see I'd with.

With the exchange.

The primary purpose for that NC IP will be to offset dilution.

Arising from stock options.

At the moment, we don't see.

A compelling need to.

Buyback.

Many shares at all our focus right now is on maintaining.

Put at eight and Optionality in light up the current circumstances.

I think everyone realizes where or not out of the woods yet on on coal that.

And Im sorry, Maurice you're breaking up on our end.

Of the line here and I couldn't quite hear your entire question I apologize if I didn't didnt hit everything.

I guess, just a follow up and clarification. So I guess, if you look at the next say six to 12 months as the economy slowly emerged out of covert 19.

We should expect Directionally that the cash will probably stay on the balance sheet for time being.

Right now those are plants Maurice I mean, we continue to look for for other opportunities I think has.

As most of you know all of you are aware the.

The activity has slowed down greatly over the last six months.

We continue to.

Monitor the situation will respond accordingly.

Thank you and the second question relates to Puerto Rico, and the Duma contract.

Given the continuing news headlines on cobot cases in Puerto Rico.

How does covert 19.

As as the endemic continues.

Play towards the transition from say the 60 million dollar.

This in the period into to 70 to 90 million.

Our one year to contract period, specifically, if there's a billion this transition Utica, but 19.

Bye.

Allowing you to transition within 10 to 12 month Hewitt.

How this all get factored in.

Schirmer is maybe maybe I'll start and then secrete can can chime in.

If required.

We.

As part of the part of the bid we provided comprehensive plans going forward as to what we would be doing during this front end transmission period.

It is impacting operations of course.

I did speak with.

Wayne Stenz be CEO from them out. This morning, we have about 60 people on island right now kind of implementing those plans that that we developed.

There is.

Those guys, especially have become extremely proficient on Microsoft teams are zones or whatever in order to keep progressing.

So we're on island, we do have the plans and we're executing those plans.

As as we speak.

From my perspective.

We're still looking good for achieving an exit from that front end transition period, although it's early days, we've only been up in it for a month.

I don't know secrete if theres anything you'd like to had no I think Dennis that's exactly right. We've got our team on the ground we are supplementing it with work from.

Far.

And at the moment those teams are being able to access.

The prep of employees either directly on site at their offices or through teams. So at the moment, we're not seeing a slowdown in the work.

To advance the transition.

Deliverables in order to be able to take over operations.

Just to remind everyone. The second key element of moving into full operations is the emergence of prep from bankruptcy and as outlined in the agreement there is a supplemental arrangement.

That would allow us to advance our work.

In the event.

Bankruptcy emergence isn't achieved and allow us to commence albeit on a more limited basis the operational element.

But that would essentially just be for that interim period until they do emerge.

Great. Thank you very much.

The next question comes from Linda as regards.

With TD Securities. Please go ahead.

Thank you recognizing that you're still assessing your capital expenditures for this year Nevermind beyond this year I'm just wondering how you're thinking has evolved since the first quarter call in terms of them.

Your thoughts around.

What might be deferred what might be a delayed or shelved indefinitely and the book ends of of of potential outcome in terms of magnitude.

On that front for the next few years.

Thanks, Linda all of them I'll focus my reply on on 2020.

Or.

We're pretty much in.

Same situation as we were in Q1.

We're continuing to read reviews, our plans and we're definitely not out of whats yet on a pandemic.

If you take a look at our first half of 2020, the capital spend compared to last year.

After you normalize for for the businesses that what that were sold in 2019, we are pretty much bang on those levels or at about 450 million for the first half of this year versus last year of $440 million.

I'm going to say the only.

Bait major project or the largest project that we executed over the past 12 18 months, it's dependent not to keep hills pipeline transmission line.

In the in the first half of 2020, we've incurred expenditures of about $50 million, which is double over that same time period last year.

As your.

Likely recall that that project really ramped up in the back half of 2019.

Right the majority of those.

Expenditures where work incurred.

We continue to see a good activity on the on our electricity distribution front with customers continuing to apply for and get hooked up with service so that is.

That.

Hung in there I'm going to say over the over the second quarter and or or very carefully monitoring that to see how that progresses over the over the next six months.

That's that's about all I can can tell you'll then to embark on a going through our plans for 2021 and beyond and well be presenting those plans to to our board and in the fourth quarter here for approval on will will come out and.

2000 or in our year end mdna.

We'll be able to give you a better idea as to where we are going forward at that point in time.

Thank you that's helpful context, maybe as my second question.

I am wondering having seen the filing for the your natural gas transmission GRA in June for that period of 2021 to 2023, and what do you view as being kind of the most important elements and can you talk about the range of possible outcomes on that front and.

Yeah.

And how it might to evolve versus your prior Jerry.

[noise] when I'm asked about the range I.

My immediate reply as well they never approved more than what you file for so [laughter] at the top end.

We would get absolutely everything in the and the application and that Oh I'll say.

Early occurs I hope that regulators and listening.

In terms of the most important impact.

The rates that were filed in that application are relatively flat. The biggest impact is from the malls say that pembina to keep hills.

The increase in enter into rate base.

So as the as the prudence of those costs get tested.

That will that will drive the majority of that update up the impact.

Sure.

Knock on wood, we have not.

Realized any material disallowance from any of the prudence and the execution of our capital programs.

To date.

There's always that possibility, but more.

We are going and pretty confident with the execution.

Project on the over the timelines.

That's helpful context, I'll jump back in the Q.

Thank you Amanda.

The next question comes from Mark Jarvis.

Capital markets. Please go ahead.

Hi, good morning.

Maybe ill start with.

Maybe eventually we'll get back to the GRC, but just curious in your mindset as you think about that resuming.

Center second phase of PVR now when you ever envisage moving to cost of service and if that's something you think that might happen highlighting that goes into the proceeding to the discussion around the allowed or are we going forward.

Good morning, Mark Thanks for the question the.

Generic cost of capital is as looking out the returns for 2021 in 2022 and the end of that GCL seem kind of time period also aligns with the end of PBR too that five year period ends in.

2022.

When we went into PBR and PPR one there wasn't any change in the in the returns are at the capital structure.

Moving from a cost of service regime.

The PBR time sets so given that I think just moving.

From a PBR to into a PBR three if there is one or moving from PBR to into a cost of service regime.

As we sit right now I wouldn't expect that to have a major impact on the business risk and the way Alberta has been adjusting for business risk is through the equity thickness.

And then taking the the market's view on return on equity. So I don't really see that next stage of regulation for our.

Distribution utilities here in Alberta to impact the.

Next GC, you'll see or.

Whatever.

Processes are raised at that time to determine returns on equity thickness.

That makes sense and then.

Sounds like your bid on hold on maybe deploying that capital.

Sam on the balance sheet.

I think for and maybe reengage and their preference.

For a electric or gas infrastructure for you guys now are sort of agnostic and it's just sort of the best opportunity in the best returns or is it whether you've seen things like gas moratorium in U.S. electrification trends.

I mean, you're thinking at all right now in terms of where you would prioritize your efforts going forward.

Yes, we look at a electricity well say versus gas I mean comes it comes down to energy if you believe in the electrification.

Kind of the.

Expanding electrification.

Our our world.

There would presumably be market demand on the.

Electricity side, we are relatively balanced rate right now we've got a large investment in electricity transmission here in Alberta.

We wait those factors.

We may not be going after more call it.

Natural gas in a low load environment similar to what we have in Perth.

In terms of heating content it's.

It's.

Pretty integral for.

Cold weather climates.

Here and here in Alberta to have that natural gas as a as a fuel for energy in order to in order to cheat sheet, our homes and businesses the cost to replace the gas system with an electrification of that would it.

Be enormous.

And kind of not in the a and then in the near or medium term in my view. So I think gas is still around for for awhile.

All right am I missing there John glass.

I think.

The energy landscape is clearly evolving around the world and there is a.

A desire to move to non hydrocarbon.

Forms of energy and so electricity, depending on how it's generated is clearly.

Clean form of energy at the consumption point.

The.

And as such I think that would be something that we would certainly look at for future investment on a preferable preferable bases to additional hydrocarbons [noise].

The challenges that natural gas is a fuel electricity is manufactured energy and how you manufacture it is really a challenge around the world and whilst we have some emerging.

Forms of non hydrocarbon electricity manufacturer solar wind et cetera. The.

The challenge will be how how did you meet the needs of the energy demand.

On an exclusive basis, if hydrocarbons and not a part of that and.

I agree with Dennis and colder climates.

The natural gas fuel is an integral part of meeting the energy demands here in Canada.

But as we look across the world clearly emerging trends are to see more energy investments happening in the non hydrocarbon space.

Okay that makes sense and then maybe last question mentioned, Dennis just digging a little bit of the electric utility results in a little bit of a step up and on and this year versus last year any details in terms of what out that sell more at the distribution or the transmission and whether or not that's just timing related or brokers and incremental.

Costs have been coming.

Over the last couple of quarters.

I'm just looking at my Handy Dandy cheat sheet here Mark.

There isn't there isn't anything that that that jumps out on the on M. Oh operating costs, our controllable costs. The the best businesses are continuing their focus on increasing the efficiencies.

Any any bumps, there's there's always timings that we timing of costs that we see from.

Ah quarter for corridor as we as we progress through the years.

But.

The the teams and the in the utilities.

Really have they're out there eyeballs on their efficient operations and are continuing to drive that total cost down.

As much as possible any any blips in there wasn't a would likely be timing.

Okay. That's helpful. Thanks, Although my questions.

The next question comes from Patrick Kennedy with National Bank Financial. Please go ahead.

Hey, Good morning, guys dentists are you able to quantify the or what the demand destruction looks like in the quarter for your customers.

I guess within electric distribution Oh.

And with the financial impact was there.

I agree with your statement that were four out of the woods far from out of the woods, but.

You know with oil prices recovering somewhat production levels as well are you starting to see more normalized.

And levels across the distribution utilities released over the past 30 days or so.

I guess, how far off four we today from from pre covert levels.

[noise] all Oh I'll give you the straight answer first and then tell tell story.

For the first six months electricity distribution is down about $2 million after tax from commercial and industrial.

Commercial industrial customers.

The the ISO on their website they show what the impact to the Alberta load has been like you know as a result of coal that.

And up to the beginning of June the the load in the province dropped by about 8% versus they're not kind of normalized benchmark of February.

The Fort MC Murray area.

ER has dropped about 13%.

Quite up quite a quite a more of a drop and in the central East part of the province, where there are still have the oil and a lot of services that's dropped by 20%.

And.

I haven't seen an update from the ice so as to where the the loads have been been coming back but since may They said that the just the overall system load not load from behind the fence for that major industrials. The system load has been a slight uptick.

Since may so if that continues I would suspect that we would have the worst behind us.

And.

Two.

To the impact on electricity distribution, it's not material.

So when you when we say cope it's not material. There are there are impacts throughout a throughout all of our businesses, but on the electricity distribution side, it's $2 million for the first half year.

Okay, that's great and then on the residential front I guess with respect to the utility Bill for all program.

Looks like there wasn't a material impact there as well on earnings.

Through Q2, I just wondering if you can confirm that you don't expect any legs, you know a any impact on say Q3 year Q4 cash flows.

And if so how any shortfall there might be recovered and in future rate filings.

Yeah.

When when the province announced that to utility bills deferral in mid March.

I.

All of the details for not ironed out as they as they were flushed out a lot of the backstop from those bills were taken on bye.

Other agencies and departments, whether it's the ISO loans or loans what have you.

The amount that did come back to the utilities.

Right it to.

The natural gas transmission component of our distribution charges.

And I think the D.

Port end of our estimate would have been into that a potential impact to cash flows of about $30 million and that would have don't need cash flows from that one month deferral or for the following 12 months into re collection.

Our estimate was.

Of the potential impact.

I'll say potential impact of real impact was a fraction of that amount. So let's say, it's a it's a very small component of an immaterial amount that are that our cash flows are being impacted and that would all should all be trued up by.

The end of June next year.

The end no impact on adjusted earnings.

Okay. That's perfect. Thanks for the color Dennis.

Thank you got.

Once again, if you have a question. Please press Star then one.

Our next question comes from Andrew Caskey with Credit Suisse. Please go ahead.

Thank you good morning that I think the first questions for Dan that's that's probably a bit more on the technical regulatory front.

This relates to your PBR mechanism.

If we look at just broadly on their economy, there's clearly been.

Several deflationary pressures that's not just part of that's really globally.

So if you think about the deflationary pressures and then the other potential the prospects or inflation in the future.

Maybe an elevated rate how do you think about those dynamics as far as you PBR girls.

Well in terms of PBR, two or kind of the locked in to the to the there formula.

Take a.

A little bit a trailing views so the inflation factor for 2021.

Actually.

The inflation that's experience from July one of 2019 to June Thirtyth of 2020, and that's that same a little bit of a lag on the inflation for PBR to felt was taken for PBR one.

It is consistent.

Between the two generations.

The inflation index, though that we haven't in PBR here has is a mix between.

Kindle labor dollars through the average weekly earnings index in Alberta that represents 55% of the of the overall inflation and Alberta CP is the remaining 45%.

We haven't seen let's say a material disconnect between the inflation rate that's being used for PBR. That's what we're seeing in our operations we have in the past seen disconnects.

For the cost of contractors during the big build far exceeded what the I'm kind of like the headline inflation rates or in the province.

So you can get.

Large disconnects.

One of the disconnect said that we see right now in Australia, and their cpis that childcare during that pandemic is down 95% and that's contributing to a very little CPR.

Doesn't have a lot to do with a provision for safe reliable gas delivery. So there can be those large disconnects.

But as long as that index, a fairly reflects the ongoing impact to our operations, which it has then I'll say, where we're okay with it the minute it does get to be disconnected than we would be looking to.

Fine tune that formula such that it better reflects the ongoing costs that were experiencing and our companies.

Okay. That's very helpful. I appreciate that that detail and then maybe just a broader question as it was a second question and it really relates to.

When you think about M&A and.

He was clearly gone through a bunch of efforts of de carbonization and of course, the utilities portfolio.

It really pronounced in allows for a couple of years. So you think about that dynamic de carbonization and broader industry trends if you work to see.

Great regulated utility assets that had.

Coal generation attached to it within a rate base construct.

Is that something that's worth exploring and is it really worth exploring at the first instance, or is it exploring from a de carbonization prospect I know, it's all hypothetical but I'm just curious as to how you think about that dynamic.

Thanks, Andrew Hypothetically, then we wouldn't hypothetically look at that.

One of the.

One of the programs that we had with our Canadian generation business.

We were well balanced in the coal to gas conversions. So hypothetically if there was a a coal fired.

Integrated utility or sorry, and integrated utility with coal fire generation.

And there was an avenue to de Carbonites it.

You know, we what we would take a look at it but again that that's that's one factor out of many that would need to be considered in in any kind of.

M&A targets that we would be looking at US we continue to look for a geographic diversification.

Out of Alberta, secrete alluded to earlier the de carbonization.

Into the renewable energy so.

Uh huh.

I'll say ever everything's on the on the table before it goes through our our filters to see if it ticks all the boxes or not.

Okay, Great I appreciate.

The response to the hypothetical question.

[laughter].

Our next question comes from Elliott plus close with Industrial Alliance Securities. Please go ahead.

Hi, good morning, and thanks for taking my question.

I want to focus on the balance sheet, because I see that as the sort of the biggest optionality.

Indeed, focusing in Puerto Rico.

Yeah, I see the current contract, it's sort of a optionality to to get into.

Expanding sort of the power asset base and the reason I'm I'm focused on that in please confirm its true or not.

That I believe in the bid process the Lima joint venture with would be interested in providing secure debt financing would that be sort of a correct interpretation or in correct interpretation.

Sorry could you.

Peter Rephrase the question.

Okay boom lumos, so what's going in without any capital requirements.

15 year on M. agreement whereby.

There is no change in ownership of the assets there is no capital infusion required by the parents.

Nor bar Louie.

There are in line for a significant funding from FEMA in order to help rebuild and ER and fund the modernization of their electricity system [noise].

So.

If I missed anything in the question maybe you could.

Come back with the supplemental.

Yeah, I mean, I do believe in the bid process. There was a criteria that wasn't weighed upon a debt financings. So.

I'm asking is the balance sheet.

Actually saved for that or is that completely not something to even.

Look out.

That was [noise].

Excuse me that was considered early early on in the process. It's been taken off the table and as a result, there is no requirement for capital infusion under the current deal.

Yes, I might just I might just at Dennis I think part of the devaluation of the bidders was whether or not they knew how to structure a utility such that its debt financing would be.

Seen attractive in the marketplace I think it goes more to kind of rate setting cost management and the.

The go forward positioning of the owners balance sheet, if you will to be able to be credit worthy.

Okay, Thanks for that clarification and.

Just just again on the balance sheet and sort of last question did you talk about growth within the U.S. and Latin America.

Does this investment encompass both of those or just is that in the Latin America bucket as you look at in other words.

Should I keep my eyes out on the U.S.

Yeah, It's a Latin America embedded in the U.S.

[laughter] so okay, I mean I mean.

For us I mean, it really does some you know checked that diversification box as we're looking to get the earnings not I'm not as dependent on the Alberta resource based economy, Alberta is making strides to diversify.

Its economy, so as as that progress is that well that will help us, but as we look at it.

In two diversifying into higher growth markets.

Being the U.S. or like down then and then Puerto Rico checks the box.

Internally, we thought we've had it in both camps, but not at the same time so.

Okay, I think that's sort of clarifies in my mind, what direction you could still go and that's it for me thanks very much.

Thank you.

The next question comes from Mark therapy.

I'd be seed capital markets. Please go ahead.

Yes, I was getting at a cost one of the.

Fit in that question on structured in logistics here.

Pretty strong results this quarter, just trying to understand as transitioning LNG project for manufacturing installation now what happens certain area. Its profile in the margins and then sort of expectation is for that business. As you go through the back half the year, whether or not there sort of a lag.

Some of these covert impacts flow through and Dismays commentary and from that LNG contract.

Yeah. Thanks.

Thanks, Mark the.

Matt manufacturing kind of wound up in early Q2, we are continuing on with the lower margin installation activities over the remainder of this year and spilling into 2021 we've.

Weve shown the.

The rental fleet status in the M. DNA and you can see that an increase in the global space rentals fleet utilization is hanging in there, which is which is great and the a and the margins are are increasing slightly.

Our workforce housing units, there's been a small contraction of those units, which are which helps with the with the cash flows as we continue to ensure that the fleet is right sized for the for the markets that we operate in.

And we've said in the past that you know absent any major announcement for kind of large but large camps large workforce housing.

Good.

I recommend you looking at that to kinda based business to see what kind of earnings and cash flow set the that structures would contribute.

But.

And there is taking those comments, but really nothing where you're seeing a lot of negative pressure and you competition on pricing like and it does feel like they're pretty rational market right now.

I've been the transition from manufacturing cancellation.

Not seeing a lot of downward pressure on margins.

[noise] well, we've we've we've shown that our average rental rate for our space rentals units is up 32%.

Kind of year over year for the three months ended June thirtyth and over the six months that's up 5% so.

It depends on the markets in which you're operating and a construction activity largely that as driving those those rates.

Okay.

Alright, thanks, guys.

Thank you Mark.

This concludes the question and answer session I would like to turn the conference back over to Mr miles Dougan for any closing remark.

Thanks, Anastasia and thank you all for participating today. We appreciate your interest income utilities, and we look forward speaking with you again soon.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

[music].

[noise] <unk>.

Uh huh.

[music].

[noise] <unk> <unk>.

[music].

[noise] <unk>.

[music].

[noise] [noise] [noise] <unk>.

[music].

No.

Mm Hmm.

Oh no.

No.

[music].

Mm Hmm.

[music].

HM.

Mm Hmm.

HM.

HM.

HM.

[music].

Mm mm mm.