Q3 2020 Fortis Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by.
My name is Carol and I will be your conference operator today.
Welcome to the fourth third quarter, 2020, <unk> conference call and webcast.
During the call all participants will be analysts and only mode.
There will be a question and answer session. Following the presentation.
At that time those the question should press star followed by one on their telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
At this time I would like to turn the conference over to Stephanie Amaimo. Please go ahead Mr. mimo.
Thanks, Carol and good morning, everyone and welcome to <unk> third quarter 2020 results Conference call I'm joined by Barry Carey, President and CEO, David Hutchinson, COO 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 slide show.
Actual results can differ materially from the forecasts projections included in the forward looking information presented today, all non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our third 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.
If you participated in our virtual five year outlook conference call last month, you know it was a busy third quarter for board a few highlights from our September 23rd call included the announcement of my retirement as President and CEO at the end of this year and David Hutchens appointment as President and CEO effective January Onest 2021.
We also rolled out our new five year capital plan, and they'll say fourth quarter 2020 dividend increase and extended our 6% average annual dividend growth target through 2025.
On the sustainability front, we announced a corporate wide target to reduce our carbon emissions by 75% by 2035 compared to 2019 levels.
Maintaining safe operations remains our priority our September year to date safety results were strong with incidents tracking in excess of 30% below our three year average.
When you consider that its doors Lee we performed better than the industry averages. It's encouraging knowing we continued to improve our safety performance during the pandemic, while working on our largest capital program in history.
Operationally our teams have worked diligently to deliver reliable service and 2020 node.
Notably in August the ITC team responded to restore transmission service following the story windstorm in Iowa.
As a result, approximately 1200 miles of lines were damaged by the storm ranging from mild damage to towers laying on the ground.
In response, the ITC team mobilized nearly 800 utility workers to rebuild the grid safely and quickly.
I'm proud of our teams across the organization as they continued to deliver safe and reliable service positioning board is to finish the year strong.
With that said, let me hand, the call over to David Hutchens for an operational update and more detail on our new five year outlook.
Thanks, Barry and good morning, everyone. As Barry noted, we continue to navigate through the pandemic and our businesses are performing well.
9000 employees have risen to the occasion, what do they are working in the field or our facilities to maintain our critical infrastructure or working from home to support our operations and customers. While our employees continue to provide reliable energy delivery. They have also improves our strong safety record, which remains firmly in the top quartile relative to end.
As for the tiers employee safety and customer reliability is paramount to everything we do and we couldn't be more thankful and proud of our teams across borders.
In terms of sales you want us energy and our other electric segment have the most exposure to changes associated with the pandemic consistent with last quarter, we experienced higher residential sales, partially offset by lower commercial and industrial sales.
In total third quarter retail sales at you on us and our other electric segment increased by 3%.
Record temperatures and Arizona contributed to higher sales of human us, but excluding weather related impacts third quarter sales that you want to us were still up 1% over 2019.
For our other electric segment sales were down 1% driven by reduced tourism in the Caribbean.
Turning to slide seven our teams continue to advance our 2020 capital plan.
For the first nine months of 2020, we invested 2.9 billion and our systems, which is 300 million higher compared to the same period in 2019.
Our $4.3 billion 2020 capital plan remains on track.
Last month, we announced an ambitious corporate wide carbon emissions reduction target of 75% by 2035 compared to 2019 levels. This new target enhances our commitments to a sustainable future and provides our customers and communities with cleaner energy.
Well the majority of the target will be met through generation resource changes outlined in TPS integrated resource plan all of our utilities are developing plans to reduce their environmental footprint by 2035, Fortis expects to have approximately 99% of its assets dedicated to energy delivery and carbon.
Free generation.
Turning to slide nine last month, we rolled out our new five year capital plan of $19.6 billion.
The new plan reflects an $800 million increase from last year's plan and averages approximately 4 billion of annual investment in our utilities the.
The capital plan is virtually all regulated and consist of a diverse mix of highly executable low risk projects needed to maintain and upgrade our existing infrastructure only 15% of our plan consists of major projects, having total costs of over $200 million. The remaining 85% is.
Comprise of smaller projects required to maintain safe and reliable service to our customers.
80% of our capital plan will be spent in our electric utilities across North America and the Caribbean.
And 20% and our gas businesses in British Columbia, Arizona, and New York This.
This plan is expected to grow rate base by over 10 billion. Some 30 billion in 2020 to over 40 billion and 2025. This year yields a five year compound annual growth rate of approximately 6%.
In addition to announcing the fourth quarter dividend increase of 5.8% in September we also announced the extension of our 6% average annual dividend growth guidance through 2025, we have increased our dividend for 47 consecutive years, and our strong growth plans and low risk and.
Delivery business gives us confidence that we will continue this record.
Barry This slide has always been your favorite and I look forward to continuing to deliver on this exemplary track record as the next president and CEO and celebrating with you. When we reached a milestone of 50 consecutive years of dividend increases in 2023.
And I'd like to thank you Barry for your outstanding leadership and commitment to Florida, and our people over year 20 year career. Your accomplishments at full at Florida have been extraordinary and it has truly been an honor to be part of this incredible company under your leadership you have been a great friend and mentor to me and so.
Many on our team on behalf of myself and all the employees afford us I wish you all the best in your retirement I will now turn the call over to jostling for an update on our third quarter results.
Thank you David and good morning, everyone.
Turning to slide 12 reported earnings per common share for the third quarter up 2020 was 63 cents compared to 64 cents for the third quarter of 2019 on a year to date basis reported earnings per common share was $1.89 compared to $3 in two cents last year.
Year to date reported EPS for 2019 reflect a significant onetime net gain of 484 million from the sale of our 51% interest into one either expansion. Additionally, 2020 reported EPS reflects the impact of our OE decision received in may including a favorable earnings impact.
27 million at ITC related to the reversal of prior period accruals.
On an adjusted basis EPS for the quarter was 65 cents, one cents lower compared to the previous year during the quarter EPS was tempered by a higher weighted average common share count associated with the 2019 equity issuance and lower earnings at ITC <unk>.
Partially offsetting these items was rate based growth across our regulated utilities and higher retail sales at U.S. energy, primarily due to warmer weather.
On a year to date basis, adjusted EPS was $1.88 compared to $1.93 last year, while year to date EPS was impacted by similar items noted for the quarter. The overall decrease in EPS was also driven by regulatory lag at U.S. energy and COVID-19 impacts of approximately five cents.
The COVID-19 impacts mainly relate to the decline in tourism in the Caribbean and incremental pandemic related costs.
We do recognize the dynamics and associated impacts of the pandemic could change at any time based on where we are today, we expect the impact to be manageable for the remainder of Twentytwenty.
Slides 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 two cents EPS increased for the quarter with our Arizona business and central Hudson eats contributing a one cents increase.
In Arizona Tucson experienced is hotter summer on record, which resulted in an approximate three cents EPS increase compared to last year.
The increase was partially offset by higher costs associated with rate base growth not yet included in rates.
T P await a decision on its most recent rate case, which I'll discuss shortly.
In New York Central Hudson increased EPS by two cents, driven again by rate base growth.
In our corporate and other segment. The two cents EPS increase was mainly due to lower finance charges and operating costs.
Our energy infrastructure segment contributed a one cents EPS increase driven by increased production at the believe hydro generating facilities due to higher rainfall as you might recall believe had been experiencing drought like conditions since late 2018.
Third quarter production returned to levels in line with the average production over the last decade.
EPS contribution from ITC with two cents lower compared to last year rate base growth was offset by lower a lower base are fully compared to last year and a lower effective tax rate in 2019.
And although not depicted on this slide earnings for our other electric segment were flat for the quarter higher equity income from police was offset by lower commercial sales in the Caribbean.
And lastly, a higher number coming number of common shares contributed a four cents 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 as you can see on the far right of the slide a higher weighted average share count associated with the advancement of our equity funding in late 2019 was the main contributor of the decrease lowering either.
EPS by 13 cents.
Going back over to the left our western Canadian utilities contributed a four cents EPS increase driven by strong rate base growth and lower operating expenses, partially offset by the impact of the PBR efficiency carryover mechanism recognized at Fortis, Alberta in 2019.
Energy infrastructure segment contributed a two cents EPS increase driven by increased hydroelectric production in Belize.
Next a higher U.S. dollar to Canadian dollar foreign exchange rate favorably impacted year to date results by one cents.
And at ITC. The one cents EPS increase was mainly due to rate base growth and lower business development expenses, partially offset by the impact of a lower effective tax rate in 2019, and a lower base our Rowley.
While decisions issued by FERC in November 2019, and May Twentytwenty are impacting the timing of earnings delivered by ITC as compared to 2019 earnings growth at ITC is expected to be generally in line with rate base growth.
In our corporate and other segment the one cents EPS increase was mainly due to lower finance charges.
The one cents EPS decrease for our other electric segment was mainly attributable to lower commercial sales in the Caribbean and timing of purchase power cost neutral mpower, partially offset by higher equity income from believes electricity.
Again, while not reflected on the slide EPS for our U.S. electric and gas utilities was flat for the first nine months of Twentytwenty the favorable impact a record temperatures in Arizona as Dave mentioned was largely offset by higher costs associated with rate base growth not yet included in rates.
Rate base growth at Central Hudson was offset by an increase in operating cost associated with COVID-19, as a reminder, central Hudson continues to track all COVID-19 related costs in conjunction with the generic proceeding initiated by the New York Public Service Commission if regulatory recovery is achieved this could be favorable to earnings in a few.
Sure period.
As you can see on slide 15, the bulk of our new five year capital plan is expected to be funded with cash from operations and debt issued at our regulated utilities approximately 6% of our 19.6 billion capital plan is expected to be funding through our dividend reinvestment program.
In conjunction with the release of our new five year capital plan, we did announce the reinstatement of the 2% discount on our drip, we expect participation will increase to approximately 20% annually upon the discount being reinstated.
We continue to remain strong liquidity with nearly $5 billion available on our credit facilities, our utilities have issued over $3 billion long term debt in 2020 highlighted by the issuance of our inaugural Green bonds from our two largest utilities fortisbc and TP two of our larger utilities.
Sports and funding plan and strong liquidity positions us well within our existing credit ratings as we continue to work through the COVID-19 pandemic and execute on our capital plan.
Now turning to updates on some of our ongoing regulatory proceedings in Arizona. The TP rate case continues to progress hearings concluded in June and post hearing briefs were filed in July and August we expect a decision by year end.
In August Central Hudson filed a general rate application with the New York Public Service Commission as the current three year plan concludes on June Thirtyth Twentytwenty. One we expect a decision on this case mid 2021.
In Alberta, we received the decision on the generic cost of capital proceeding in October in the most recent decision currently approved cost to capital parameters will remain in place on a final basis for 2021.
Hey, you see is expected to commence a new proceeding and 2020 one to approve new parameters for future periods.
And lastly, fortisalberta await the decision by the way you see with respect to the Alberta electric system operators customer contribution policy related to transmission investment and we continue to expect a decision later this year.
With that I'll now turn the call back to Barry.
Thank you Joslin.
So why invest in Florida it.
Simple for us as a high quality portfolio of utility businesses across North America, providing regulatory and geographic diversity.
With our focus on energy delivery, coupled with our strong DSG profile, our growth platform is stronger than ever supporting our 6% average annual dividend guidance through 2025.
To wrap up my last official earnings conference call I'd like to close by saying, it's been an honor and privilege to have served afford us group over the last 20 years.
Now to our employees, both past and present.
Thank you for all your contributions through the years to make forward is the strong company. It is today.
To say I am proud of the success afford us would be an understatement. Thank you again and I look forward to watching the company continue this success I'll now turn the call back over to Stephanie.
Thank you Barry This concludes the presentation at this time, we'd like to open the call to address questions from the investment community.
Thank you.
Ladies and gentlemen, we will now conduct the question and answer period.
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Our first question comes from Robert Kwan from RBC capital markets. Please go ahead.
Good morning.
On the the rollout conference call. You gave you used the term Gale force Tailwinds and you talked a little bit more about what it means for potential regulated investment I guess, what I'm wondering is.
What's your appetite to take on unregulated investments can you talk about whether you see that standalone or would it have to be connected to your two utilities do you see those types of investments is.
Enablers for utilities, and if you're willing to take on unregulated what types of contract terms that would you be able to keep score.
Yes.
Yes, Thanks, Robert I'll, just jump right in and answer that very.
Yes, those are things that we're always looking at that and we would hope we would obviously prefer the types of projects that are tied to our regulated utilities in one manner or another.
Purely unregulated con.
Contracted energy infrastructure situation, obviously, we'd be looking for.
The right kind of turns to two but to put together a deal.
That manages the risk of the of a project like that.
Things like one deal where you have the fully contracted offtake by creditworthy counterparty come to mind, so things like that will always be looking at but we're not going to go out and take any.
Undue risk on projects like that.
And geographically, where they need to be either in the French are contiguous and would they those investments would you want to see them being directly related to your utilities or could you get your head wrapped around being something that's standalone in a different geography, if that makes sense contractual.
I think all of the above I think it is there are situations, where standalone and geography outside of our utility footprints could make sense. That's that's obviously something we would have to look at very closely but if you look at our footprint consider an ITC covering the Midwest us and Arizona BC, Alberta the.
Caribbean.
New York or the the Atlantic area, we have a pretty broad footprint I can't imagine us probably not doing one within at least an area that we have that expertise going out there going outside the areas, where we have the expertise or really especially when you're talking about development projects you need to have other developed.
And expertise so that you can get it through the permitting process and regulatory processes in those areas.
Got it.
We finished the question on on M&A, historically, you've had a consistent message and.
Last several years really backing off larger scale.
Transformational M&A, but just with the deal in your backyard I'm just wondering if there's any additional commentary you can give is and if you did decide to transact at some point do you have a different approach. She utility is as it relates to gas versus electric in light of the U.S.G. slosh.
Just sustainability seems that are out there in the market right now.
That's a that's a great question, Robert and I know I've covered this a couple times in conversations both on the last call and what the individual conversations with analysts over the past month or so and you know M&A is obviously always a part of everybody's portfolio to look at from a.
From a.
Fiduciary perspective, and that's something we'll continue to do and keep in the background, but we're really going to be laser focused on growing our utilities organically and we think that we have a lot of opportunity to not only be successful in the 6% CAGR forecast that we put out from a rate base perspective.
But we think we have opportunities to grow that even more over the next five years.
So I would say from a from a gas and electric perspective, it all depends it depends on the jurisdiction it depends on the resources.
LDC.
Investments like that you know our great great PC gas business out in British Columbia, those are really solid rock solid investments.
So we we would look at we look we would look at everything but not shy away from gas.
Gas or electric based on the SG, obviously, that's a consideration but that will also come down evaluations and pick the particular jurisdictions that those assets are in.
Okay, great. Thanks for the answers and very.
The best in retirement and congratulations on on your last call having to deal with us.
Hey, Robert.
Our next question comes from Ben Pham from BMO. Please go ahead.
Hi, Thanks, Good morning, Hi, Doug question, there's some commentary around the belief equity income at that exiting the quarter and so yes, the hydrology in and Nonregulated wondering if you can share some context on on on really what's what's driving that I think.
Good results and believe our trusted.
So bad that maybe this will be the only question I'll answer today.
Just where everyone listening on the call we have two businesses and believes one is our our nonregulated hydro business. That's called B call, you know and up until this last quarter. They were really struggling through or some drought conditions that sort of got.
Got it got much better in the past quarter and and then what we also own one third of the electric.
The electric distribution utility in believes we used to own 70%, but as you know a lot of history, there, but would we actually do on one third of that so we are picking up a a share of our earnings from that business in the quarter.
Jonathan I in terms of the amount of the pending it's about a penny a share for the for the quarter. So.
Okay and then.
Maybe a broader question.
I want to look project being kicked around but the federal government.
It's probably early days have discussions a lot, but does that is that something you guys get involved directly or even indirectly downstream through somebody there your utilities.
It's possible ban you know I think it's really early days a year, you think about Atlantic, Canada, we own the utility and principally or Ireland or we also own new plan power. So so were going to you know where we're going to have to be a part of this this project and we're open to that and but it's still it's still pretty early.
[music].
Right.
Okay I'll leave it there and also very wanted to extend my congratulations you're early retirement the track record speaks for itself I mean, thanks. Thanks for your candor your discipline you proactive approach.
Well surely Nash, Michigan and David Congratulations.
Next year invited me to your your VIP party, not that 50 or didn't increase [laughter], everybody, but well do bank fad.
Our next question comes from Linda Ezergailis from TD Securities. Please go ahead.
Thank you before I ask my bigger picture question I'm wondering if you have a sense of kind of what the load trends are looking for.
Including weather for the balance of this year and you mentioned that the cobot impact for the balance of this year is manageable, but I'm wondering what your thoughts are including economic fallout of coded for the outlook for 2021 modes in your key you.
Tilly's.
So David maybe I'll start you can you can have a.
Follow behind.
So Linda you know fourth quarter is a bit of a strange quarter in a way because youre in Arizona. It's the shoulder periods you know so so it's not typically a.
A big quarter for that that business.
You'll have to October was a little hotter than normal I think but even that its still a in terms of load. It's it's down substantially. So so I don't see I'm just its bit early but I, probably don't see whether having a big big impact on the quarter is worrisome about the trends.
In terms of co bid and the amount of cases and the real possibility of maybe at a minimum targeted shutdowns and the possible impact related to that.
I would say that's why so were so.
I guess fortunate to have these regulatory mechanisms that that protect the revenues of the company and we add those together with the.
Residential sales were at were 80 plus percent protected so compared to many businesses. Obviously, that's a very strong position. So I think you know the impact on the company will still be muted even if there are really negative economic impacts in 2021.
David Yeah, I, just I just pile on on a couple of points there buried as particularly down here in Arizona and what we've seen at our other electric utilities and.
And I think we'll see it more in the gas utilities as we go through the winter, but the increase residential sales volumes due to so many people working from home still I think we'll continue to offset that commercial and industrial reduction like it has for the first I guess seven or eight months of the other pandemic. So I would expect.
That's sort of theme to it can to continue on through 2021, and then it's really all about the commercial and industrial recovery and how the economy recovers stimulus packages et cetera, so that remains to be seen and as far as the weather in Arizona goes very is right. It was it was hot again in October.
As everyone is probably following the weather down here.
But when we get into November and December it the weather really doesn't become much of a factor because again, it cant really get too hot and alpha or or cold enough to either turn on your air conditioner or or you're either when it gets to when I guess those nice months, we have down there. Although it is quite pleasant to live here at that time.
[laughter] they'll Robert M., David <unk> [laughter], you can move there Barry [laughter].
So maybe moving onto next week, how might we think of any sort of changes in the White House administration, and how that might affect.
Kirk potentially there is and outstanding notice of proposed rulemaking on transmission incentive policy I'm wondering at the very least if that might be delayed in terms of the resolution or de railed entirely and wondering your thoughts on how priorities might shift.
Hi, there with the.
The current administration thing and the White house or any sort of change. If you can talk to some of those scenarios would be appreciated.
Maybe I'll just offer a comment David in Joplin, you can jump in as well. It's just you know Linda when we look at it you know how we've been really focused in the business of folks and cleaner energy our energy delivery business transmission and distribution, we feel that we are.
Positioned well, no matter, who who wins the white house, frankly and we've.
We've been doing well under the President Trumps administration, we've been growing growing the business weve been hooking up more renewables.
Its own a business is now laid out a pretty major move to to shutdown and exit coal and move to renewables and storage, but that being said if a if the Democrats win the White House you know there is a.
Appears to be a real focus on maybe a faster adoption of renewables that that's going to drive.
Renewable investment and transmission investment. So I think overall, we're really positioned probably one of the best in the sector to or to have a good a good upside no matter what happens here I don't think you're going to see a lot of change out of FERC, you know I think that.
Transmission is needed right for if we have a a democratic white house.
You know they're not my belief is they are not going to slow down on making transmission.
Less attractive so so I I really believe if anything they may accelerate some of the some of the policies on transmission to make sure. We can do some of the bigger lies interconnecting. The RTL shows solving some of the same issues and all that so I I think were really really well position.
David you want to add some thought yeah, I I would add or just a a couple of things there Barry I agree 100% on the view from a FERC perspective, because I think either wet weather.
Either administration when they come in is going to be looking to stimulate the economy and it may be slightly different how they do it if it's a if it's if it's a democratic administration than pushing clean energy is I think going to really push what Barry was talking about is the FERC to really address a transmission.
In incentives to be able to get the renewable energy both built and then connected and deliver to that essentially all of our customers and obviously haven't transmission and distribution companies across the U.S. that really is going to play into into our hands quite well. So I I look at it from you.
Either way this is almost like a heads I when tales I win where the stimulus that even though continue Trump administration that would bring in would also I think have to have a large part of that are focused on clean energy and so I I think either way were like Barry said, we're situated perfectly.
To take advantage of that.
Thank you and maybe just one more question around your financing plans recognizing that the capital markets could be volatile over the next little while and you've got the liquidity in the balance sheet to kind of weather that storm I'm.
I'm wondering what factors might be in place for you to consider adjusting your financing plans, whether it be prefunding in anticipation of that accelerated opportunities or maybe even other considerations driving a decision to look.
Looking at divesting certain less core assets, whether it be because of their E.S.G. attributes something you know, maybe some that fall more into and heavier hydrocarbon side et cetera, but how might you think about either prefunding or on the flipside adjusting your plans.
Anything plans, if you have more and that's an opportunity.
Well in the first I am going to restate that I'm, just glad that we decide to advance our funding in 2019 for the plan that we see.
If the plan that we see a unfold, which we're pretty certain about then I don't see any change in the funding plan right now with respect because we've done a significant piece of the equity funding for it again im quite pleased about what could change it potentially is if we were successful in securing some projects.
To say the Lake Erie connector project or further projects NBC, Yeah, we as we get closer to though if we see that they are getting over the finish line. Then we will definitely be having conversations about how to incrementally fund those extra capital projects, but I can't see a based on what we know today any real change.
In the in the funding plan that you see we're set up quite nicely with.
With the progress that we've made on our balance sheet and that so I don't really see any change.
And we'll funding be the main driver of considering asset divestitures or might there be other considerations.
Well in the reality is as a big public company anytime David talked about M&A, obviously, not been our priority right now focusing on organic growth I think he said laser focused on.
Organic growth, but you know if M&A did come back on the table at you know the Fortis.
Our mindset is that we really have to look at everything in terms of the funding for that for that opportunity and that could mean, some further divestitures if that made sense if the value at that point in time.
Was attractive in the market when we sold the one that you'd ask that last year. It wasn't because we didn't like the asset we love the asset, but when you're getting like 35 times earnings for the for the asset. There was no question that we were going to sell it right. So so is it really is about what what the need is what they are.
Kinda, you're pursuing is and what the conditions in the market at that point in time for all forms of capital. So rest assured I think for US will continue to be a good steward of capital and we'll continue to look at all opportunities when we when we when we get the opportunity.
Thank you Mary I, just I'd just add a Linda that there's this is exactly the situation we want to be and we want our Ceos across the organization looking for growth opportunities. So we keep joslin busy on the funding side. That's that's what a growing organically is all about so hopefully we keep her busy.
[laughter] sounds like you're going to be busy as well, David and I want to Echo everyone said congratulations to add to that Barry on your retirement and I wish you all the best and.
All the best to David as you embark on this new adventure over the next for a while for a great company.
Thank you very much.
Our next question comes from Rob from Scotiabank. Please go ahead.
Good morning, everyone.
Uh huh.
I have a broader question you know looking back over your five years as CEO, we saw some upside related to M&A, we saw some upside related to renewables.
I guess the questions for David when you look at the base plan you have in front of you where do you see as the greatest opportunities for upside surprises versus the capital plan.
I think probably the biggest upside as is a is a couple of big projects that are sitting there on the back burner like the Lake Erie connector I think the transmission integration, particularly around the corner next year Theres starts to be as we talked about earlier strong stimulus and clean energy there'll be a lot of wind.
In the Midwest large solar projects that need to be interconnected to the grid through itcs system big growth opportunities there.
And also in Arizona, we have laid out our integrated resource plan that really looks over 15 years and the vast majority of those investments are in the in the last 10 years not in this first five years, but there are some things that can happen that can either accelerate that or allow us to invest in additional earlier renewables in store.
That can add to the plan as well.
All right. That's helpful. And then maybe just a more kind of a regulatory focus question. You know with continued low interest rates benefiting the valuations of your utilities, but how do you potentially pushed back against the action and are are we is that we're seeing there or could you see.
The lower are we it's offset by a push for greater equity thickness is through the businesses.
So Robert My I guess, my advice or I won't be here, but my advice. If we just keep doing our jobs right, we keep delivering cleaner energy investing in our systems I think regulators I realize that utilities in North America have been really progressing of these big issues.
And making are making great progress frankly.
We continue to see our ways, especially in the U.S. being settled or around 975 for the state are we levels equity thickness.
50, plus percent. So there is no there is a little bit of pressure I guess, a few basis points here and there, but but you know even even in the last two or three months here. It has been cases settled like at 9.9% with 50, 354% equity. So so we're not a we're not seeing that but that massive pressure right.
At this point in time.
All right and then yes, Barry Thank you and congratulations on the retirement, all the best and David Oh.
All the best in the future as well so thank you everyone. Thanks, Rob.
Our next question comes from Mark journey from CBC capital markets. Please go ahead.
Yeah, good morning, and one maybe.
Maybe this question for David just curious with the the D. Our district energy resource water for [noise] head.
Had been in place when you guys did your RP, how that might impact and what we put in place for T. or how does that impact you guys in terms of how you're thinking about have been carbonization processing in Arizona.
The market it doesn't really impact us because we're not in an R. T. O. We are in the process of joining the California, Isos energy imbalance market, which is kind.
Kind of like being having a toll and in RTL, but only on a very short term market. So when it doesn't really apply to our jurisdiction now, but just the overall things that that can provide or do from a market perspective, allowing.
The aggregation of distributed energy resources, whether it be a electric vehicles rooftop solar you name. It I think that overall, that's going to be it's going to be good because it will add to the efficiency of integrating a larger number of resources into the system, which I think will end up flattened.
In out our load curves over time, which I think for any utilities is always a goal because a flatter yield curve is the better costs you can provide to your customers. So at the end of the day, if if things like FERC order 20 to 22 provides the market with better price signals better competition that fly.
The ones that price curve and load curve is going to be good for everybody.
Okay.
And then moving to IP and.
Some of the things that the things studying when all integration activity and.
Hi, guys I was just wondering where you guys think in terms of what can be the outcome for that and you know whether or not that you know.
And then I'll go from new investments or what the role as I guess, just rising sea and helping facilitate some of the hour.
Linda you there Linda did you get that question yes.
Yes, I did yeah, Oh, Thank you Mark Yeah, as I've mentioned before I mean, we see a lot of opportunity in terms of the both the generation here at MISO and SPP somewhat the recent odd to you know sort of announcements by both SPP and MISO to study the seams issue in both.
Our T. O is I guess are suffering from the same problem and that is they have over 200 gigawatts a generation within their Q.
It needs to access to the market. It's part of the problem is the process and how the study process is conducted.
But ultimately the bigger problem is that there's just a lack of adequate transmission and transmission capacity and so standing back I think it's premature to specifically know or say.
How that translates in terms of potential capital investment. However, I think it's also safe to say that there is no doubt the only way to fundamentally solved the generation Q issue.
It's to have substantial increase in transmission investments so from that perspective, I, yeah definitely I see that as you know kind of a you know one of those longer term upsides in terms of how we think about our investment our footprint both in ITC Midwest.
And certainly in Michigan, as well as Kansas and so we would see those all as positive.
Okay, and then just one of their comp question is just on.
If there is a a sort of a flu season, and Biden administration and they move towards incentives tax incentive for stores like that and incentives and head for wind and solar just wondering when they think the impact would be across many instances like Tucson electric and central Hudson in ITC in terms of any storage incentives.
Yeah sure I'll jump in there I think the storage incentives that would be a much preferred to incentives related to that so.
Sales of solar and wind because it is something that needs to get moving a little bit quicker. It would provide us as as I mentioned earlier on things that could accelerate some of the investments that we're looking at from a integrated resource plan perspective down here in Arizona Summer.
Some of those could be accelerated because batteries are getting cheaper quicker through the use of incentives. So.
I think that could provide an additional growth opportunity for us distributed.
Storage I think is also a big play from that for 20 to 22 conversation that we just had as well and by distributors. The storage I mean things that we can put within our distribution grid as investments on the utility that can balance or the load on the on our distribution theaters, which we're going to need more and more of a as we.
Go forward, so I think that it would be a very positive outcome, if we had incentives related to storage.
Okay. Thanks for those answers and how the retirement their humor.
Our next question comes from Alaska from Industrial Alliance. Please go ahead.
Good morning.
Two questions <unk> first games.
Sort of following up on the theme of laser focus to organic growth.
Kind of word this properly.
What would be the the probability or.
The chance that we could see one of the two major projects are moving forward over the next.
Yeah, and if you don't want to answer that maybe what could we look at to give us a feel that that might be but those might be progressing.
Yeah, what was that it's probably a little early to comment on those too much but when you when you're talking about over the next year and obviously the focus on stimulus across.
Across both north across North America, both the U S and Canada. Some of those projects I think and I hope, we'll get pushed to the front of the Q. There you know particular lake Erie connector being fully permitted and and basically ready to go just needing contracts and for us to finish out how we're going to actually.
Actually you know build that and have a have an off taker. If we get that solved then we're ready to go when we got to a three year construction period and that drops right into the next five year capital plan. So we're continuously looking and we'll we'll update those and keep you updated every quarter.
On the progress on.
On on those big projects that we have in the Hopper and I think it will be really interesting once we get past this election and see what the next administration. Prior administrations priorities are going to be I think we'll have a better view of that come Q1 of next year.
Great I appreciate that color.
One you know I'm going to commit this may be a micro question people ask it anyway. If we look at you when asked and we tried to separate the warmer weather from the costs associated with the increased assets is it possible.
Maybe in a sense per share or millions of dollars to quantify that.
<unk>.
Joslin do you want to answer that I can but I don't like want me to answer it.
[laughter] and when you looked at lag as we said we had about.
We had 700 million U.S. of assets that are not included in T. P's right. So for the quarter. We said the fancy. The three cents was offset by a by lag or was that a penny for the quarter.
When you look at on a year to date basis are built annually I think if you do the math you take your 700 million U.S. you funded 50% you're running 9.5% return you can come up with probably five penny it.
Well I would qualify as regulatory lag. So that's everything else remaining equal of course alive, but that's sort of how we look at what the lag is for you on that.
Yeah. The key I would say my only addition, there as you know everyday that goes by keeps increasing right. Because you are you are continuing under the historical test year approach or continue to invest in the business and so this this past year as 2018 right. So so this is resetting rates.
And and we do have some post test year adjustments and stuff like that but but.
You know we need to get these rates in place get if we get our rates spot a little more current but even then you know there will be some additional leg Ah already because we've we've been investing capital since that period of time as well.
Great I appreciate that color I'll leave it at cost and Uh Huh.
Closing off were shows both did you Oh congratulations on your respective pounds, that's very much.
It was.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Hey, good morning, Thanks for the time and I see that go at the outset here congratulations once more kudos indeed.
Bank, maybe if I can hear you. So I want to go back to kind of started some of the conversation to be repurposed throughout.
We've seen nextera get larger with respect to grid lines right. It really started to push the bigger call. It the busy mega transmission that from here on.
Obviously, it goes hand in hand with their specific renewable efforts. How do you think about leveraging the agency platform for potentially larger projects were outside of the traditional planning processes in SPP and MISO look at something beyond admittedly, what you're already talking about lake Erie and it actually if I can empathize.
Hi, good how does that fit he says when you're done with some of the illusions made to earlier about investing are these being open to contracted renewables as a further venue for growth.
So Julien imitation is the best form of flattery right so that the.
Nextera wants to own lots of transmission and see it as a big growth engine in the future. Just makes makes me smile, because we do own the best Damn transmission company in the U.S. and.
I'm really proud of that and so I, you know I, but I agree with Jim Robo, you know I think Ah I think transmission is going to be a fuse.
To use a common term huge going forward. So Oh, you know Lynn Lynn Linda has described some of the reasons why that is the case and are you.
Clearly I can only Marvel at the success of Nextera, and all that but but when it comes to transmission were far ahead, and we're proud of that so so yeah, no I agree a grid alliance clearly.
As a collection of some small assets I and you know they they will I'm sure do well under under Nexteras leadership, We will continue David and I know, we'll continue to look for opportunities on transmission, but you know we have an amazing footprint with 16000 miles of transmission in the U.S.
Midwest.
I keep reminding folks you know that's enough to go across Canada from here in St. John's Newfoundland to Victoria, British Columbia Five times, if you think about the the massive piece of infrastructure that is so you'll that's going to continue to drive itcs growth and four does this growth for a long long.
Time into the future.
Got it maybe you can address just how.
To the extent to which you see opportunities beyond the typical the planning process easier to leverage larger projects on the transmission side to enable renewables is that something you would see the dimmer on what you're saying about a huge opportunity I'm just curious if that's something in the near future, which we were watching for.
Linda do you want to add some color.
Yes, sure. Thanks, Julien look yeah, I mean, we talk about it often in terms of our investor materials in terms of sort of where the sort of future or potential incremental capital opportunities lie in and you know well.
I always say you know if we want we want to move to more and more renewable we have got to harvest. The wins, you know from where the wind blows and harvest the solar firm with Sunshine.
And you know those are predominantly two parts of the country that does not have significant transmission investment. So if you look at a lot of the planning efforts that are ongoing both within SPP as well, it's Mike So.
Essentially they all sort of come back to the same principle and that is you know taking a longer term outlook in terms of where are the future resources and in part that's informed by the significant generation Q and both of those Archie out.
And you know sort of looking at what type of transmission investment infrastructure, you know do we need in order to facilitate interconnect all of those renewable resources and.
And ultimately mean that the answer is not a couple of projects here and there its significant transmission project.
That are essentially interconnected that essentially would build if you will you know the equivalent to regional transmission infrastructure. So those are by definition will be large transmission projects.
And so we are very optimistic given kind of the current situation. What I think is going to be I continued movement towards more and more renewables.
As well as much of the planning efforts and the dialogue and the discussion within the RTL and perks as a matter of fact.
That opportunity is there you know I think just as we know transmission policies and changes take time and you know, but I don't think its a matter of if it will happen I think its a matter of when it will happen and so we are pretty confident that we will realize future investment.
In transmission around the context of large transmission infrastructure projects.
Alright fair enough, thanks, guys and again best of luck.
Thanks.
Our next question comes from David <unk> from Raymond James. Please go ahead.
Thanks morning, everyone. Maybe just one quick one for me I understand there's an election coming up if the C.C. in Arizona I'm just wondering.
It certainly seems like renewables or a bipartisan support kind of topic, but is there any potential for shifting priorities there depending on how those elections to shape up.
Yeah, David the good good to hear from you know yeah I'll take that one Barry it's in my backyard here I I don't I don't really think that there will be any loss emphasis on shifting to renewables weather what based on the outcome of the HCC election, and who's who's who's in.
The commission seats I think at the end of the day, we're all pulling in the same direction. We've got the energy rules that are really close to getting approved by the current sitting commission, which was.
For Republicans and one Democrat and I think when we round the corner into next year. The energy rules that does commission puts in place and maybe they'll get them done by the end of this year. They are getting very close will be both a reasonable and ER and doable, so that to us as utilities and the state are able to.
Manage a a reasonable transition to a cleaner energy future here in Arizona. So I don't I don't see that changing <unk> based on our integrated resource plan to to be really to really be really direct our our integrated resource plan won't change based on who's Who's at the commission and I think.
They'll look at it the same and think it's a great plan.
And we will approve it and help us execute it.
Excellent Thanks, David and all that go everyone's best wishes to yourself and Barry going forward here. Thank you. Thanks, David David.
Our next question comes from Andrew Kuske from Credit Suisse. Please go ahead.
Thanks, Good morning, obviously, you've had longer term involvement and smaller scale hydro, but really stayed away from mass renewables for for quite a period of time.
So I'm just wondering if you get to this tipping point, where you know the costs don't really need subsidies at this point in time does that change the mindset and you go more into renewables wind solar or other things or is your horse in the race really on the transmission side.
Hi, guys.
Yes, I'll take that one thanks, Barry Yeah, I think it's it's all of the above I think we're we're we're going to focus on large renewables and we'll have to focus on large renewables down here in Arizona. That's a key part of our integrated resource plan. When you think of that in order to have a thousand megawatts of renewables on our system by the end of next year need to add.
2000, more and a thousand or 1400 megawatts of energy storage and we are going to have to go big we're hoping to get as much of that is possible into the regulated rate base.
As we become more familiar and in not just building renewables, but integrating them, we will be looking at ways that we can do that across the rest of our utilities and like I mentioned earlier, if there's the right opportunity for contracted in energy infrastructure and renewable storage.
Sandra.
You know that's not something that's off the table.
Okay, Great and then maybe just a Nit picky question, whether it's for for Joslin or for Wendy just on ITC and.
You I noticed that the opex.
It is down.
What's just happening on that front, if you could just give some color that'd be great.
Linda why don't you offer your thoughts on that.
Sure Yeah, Yeah, I mean, our our own I'm expenses down and then we took some early actions early on.
In the pandemic a when we saw the significant economic downturn back in March and April.
When you put it essentially all businesses were down as you know our regulatory construct is a pass through.
All of our own amick fan, saying that given the economic impact of certainly the impact that that may have on our customers and ratepayers [noise].
We took early action to significantly curtail our own m. spending for the benefit of our customers.
And I'm happy to say that you know we have no I believe year to date, we were about 33 million dollar reduction in our own M. expenses and as you know that's just a straight pass through every dollar we don't spend as a dollar we don't collect but essentially it has no no earnings impact offer for ITC.
Okay. That's great. Thank you very much.
Yep.
Our next question comes from Patrick Kenny from National Bank Financial. Please go ahead.
Yeah. Good morning, just afford us Alberta your main peer in the provinces experiencing step down in their capital budget.
This year to the tune of about 25%, but.
But it looks like your capital plan is holding quite steady. So maybe you could just share your thoughts on why your Alberta rate base growth profile will.
It will be 3%.
And the lowest cagar in the portfolio.
Still relatively resilient. Despite the continued pressure on the the local economy.
Thanks, Pat Michael mode here is on the call I'm, Mike can offer some thoughts on that I always remind people how large of a system we own in Alberta, you know, we it's a like 100000 kilometers of line mill a million Poles. The system itself. You know does require a significant amount of annual investment to make sure.
It operates in a reliable way.
So that drives a lot of that Capex, but Mike can you offer your thoughts.
Sure Barry Thanks, and I would totally agree when just while we have seen short of reductions in customer growth, we still have customer growth and as Barry said, we operate a massive distribution system.
And we are just the obviously the only distribution only company in Alberta. So as we serve that was from while we still have lots of investment to make and sort of modernizing our infrastructure, we're still deploying a lot of sort of distribution automation schemes.
Our delivering significant reliability benefits to our customer we've improved reliability by 25% over the last five years. So the capital that we have while the growth has subsided or we still have quite a runway.
<unk>.
Okay. That's great. Thanks for that and then shifting over to be seen.
Following their provincial election I'm, just wondering if you see the majority government you know really putting his shoulder into various clean energy policies going forward.
And if on the back that you know we might see any near term capex upside related to whether it be investing in more electrolyzers or perhaps other landfill infrastructure related boosting our LNG production.
Oh, Thanks, Pat Roger Oh, I'm Gonna have football pitch. This one over to you, but Pat just to again offer some comments he'll premier Oregon is a very familiar with our our space and are you know even when he was in opposition. He was the energy critic and he understands the value of our of the gas.
Distribution business, we haven't British Columbia, So I'm I'm hopeful that we can continue to work with the provincial government. There you know on on their clean energy pathway and I know Roger and his team have got some really exciting opportunities that can or they can really help us get the economy going as well in British Columbia Roger.
Thanks Barry.
Yeah that further.
Further buried.
Response to the trend for the NDP will be more renewables guy.
They were pretty clear in their election, a platform that they are going to be looking at the net and your target that you've talked about federal lease. So I don't think of any less being able to focus we've.
We've had some good discussions with the government or last couple of years aren't advancing a marine bunkering as as a clean.
Investment strategy for the Green sector we.
We are in discussions with them on a real natural gas and hydrogen so I think from that perspective, it will be business as usual I see.
Any change in there. So I think we will have some opportunity as far as near term capital I think these things take quite a bit of time as far as the the planning and the execution. So while we'll see continued and increased support for the trajectory. We're on I'm not sure. It's a near term capital that definitely over the long term.
[noise], Okay, thanks, everybody and all the best in retirement, Barry Congrats Thanks, Patrick.
As there are no further questions I'd like to turn the call back to Ms. Mimo for any closing remarks.
Thank you we have nothing further at this time, thank you for participating in our third quarter 2020 results call.
Please contact Investor Relations should you need anything further thank you for your time and have a great day.
Thank you for participating ladies and gentlemen. This concludes today's conference and you may now disconnect.