Q3 2020 AltaGas Ltd Earnings Call
Order. However, we continue working with our third party logistics partners to ensure they are not repeated in the future.
Record third quarter results were also impacted by price volatility in the Asian spot market during the quarter.
Positively Sci pricing and the FBI to Mount Belvieu spread rose throughout the quarter and the rising spot price also pulling the back end of the curves higher with the Cal 2021, EFI item Mount Belvieu strip now in the low nines are told volumes also increased more than 20% on a sequential basis due to volume ramp ups from key customers.
During the quarter.
A northeastern BC assets continue to show positive volume growth, reflecting the ramp up of custom volumes associated with the expansions that we placed into service earlier this year, which is a trend that we expect to continue into the fourth quarter and into 2021.
As we have said in the past we continue to believe that our platform is positioned for where the market is headed.
Fractionation and liquids handling volumes were up at north pine, and our northeastern BC facilities, which more than offset slightly lower inlet volumes at her mountain Yang and younger.
Gas processing volumes also increased at our towns and deep cut facility and Nick Creek, and we had higher inlet volumes at Gordondale.
These were partially offset by slightly lower volumes at younger due to a turnaround in September and slightly lower inlet volumes of Jeep and Pete.
We realized an average frac frac spread of $16 per barrel in the third quarter and had more than 10000 barrels per day hedged at an average price of approximately $27 per barrel excluding basis differentials.
During the third quarter, we reported equity earnings of $6 million from petrol gas and as we message a couple of weeks ago, we plan to consolidate petrol gas upon closing our most recent increase in our investment into the company.
Our $900 million self funding 2020 capital program remains intact with approximately 75% to 80% directed towards the utilities business.
We continue to maintain significant financial flexibility altogether as excess liquidity expected to exceed $3.6 billion at 2020 year end.
Overall, we are very pleased with our third quarter results and are reiterating 2020 guidance ranges of Approx.
Of normalized EBITDA of $1.275 billion to $1.325 billion and normalized EPS of 120 to 130 per share.
And with that I would now like to turn the call over to Randy to discuss some additional key components of our forward strategy and outlook for the coming period Randy.
Thank you Jane and good morning, everyone.
As we close the chapter on another quarter I'm proud of our COO, what we've accomplished as we execute on our near term priorities that we laid out coming into the year. Although the third quarter continued to include economic disruption due to the global pandemic and other short term challenges.
We remain steadfast refocusing and de risking the business.
We are taking purposeful steps to build a resilient and durable platform and is positioned to build a sustainable and successful future.
As James highlighted.
Our third quarter financial results continued to eliminate the resilience of our business platform and its ability to provide the predictable and reliable performance, we and our stakeholders expect.
Even with the large economic challenges, our third quarter run rate EBITDA increased by 19% year over year.
After adjusting for onetime item.
Within our utility segment, we continue to make strong progress towards our operational excellence model, while continuously evaluating the safety and reliability of our operations and attaining our allowed return.
As shown on slide eight of our third quarter earnings presentation, our utilities run rate EBITDA was up approximately 40% on a year over year basis.
Washington gas had another strong quarter of performance as we continue to deliver on cost reduction initiatives and accelerated pipeline replacement that we previously outlined.
Leaks were down double digit percentages on a year over year basis again, this quarter with year to date leaks at Washington gas down 11% versus 2019.
Our data driven predictable model has provided the ability to more intelligently deploy capital drive down operating costs and improve our overall service.
Oh nm costs came in even better than we expected across almost all categories and reflects our improved focus on system reliability ongoing upgrades in ERP spending.
We also had a large pension cost adjustment in the quarter that will also reduce pension costs modestly in the coming quarters and years.
As we have said all year, we remain focused on improving the customer value proposition by providing lower cost higher reliability and.
And we continue to expect that this strategy will continue to generate significant customer and shareholder value over the coming years.
In addition to the improvements weve seen in Washington gas.
We also witnessed steady execution at Stemco and star incidence that with our each utility providing steady operating performance that benefits our customers will providing the appropriate rates of return for our shareholders.
In our midstream segment, we achieved record volumes out of rip it by exporting an average of approximately 43000 barrels a day of Canadian propane to Asia moving.
Moving us closer towards our goal of reaching our 50000 barrels a day 2020 exit rate.
Total volumes through the facility increased more than 20% on a sequential basis.
Demonstrates our value proposition to provide access to premium LPG market in Asia, or North American producers and Aggregators.
Our northeast BC assets have continued to show positive volume and margin improvement.
Which reflect ramping customer volumes and is a trend we expect to continue over the coming period.
As we have said in the past we continue to believe in our strategy to provide producers and Aggregators increased access to global markets significantly enhances our midstream value proposition.
As such we believe that we are well positioned for where the market is headed over the next three to five years.
Our midstream business also added.
Two notable long term customers during the subsequent to the quarter, including the addition of Chronicle Philip through its acquisition of Kelk explorations, INGAA firewood and started asset.
Canadian natural resources through its acquisition of pain and Pony petroleum.
In new agreements with global Energy company that is focused on LNG exports, the Townsend and North Park.
Conoco Canadian natural in the global energy company or industry leaders that have long track record for relentless execution.
We are fortunate to add them as long term customers and we look forward to working alongside them to achieve their long term goals in the montney.
Following these transactions approximately 87% of our expected normalized 2020, EBITDA will be generated from our regulated utilities and investment grade Counterparties.
As we said two weeks ago at the time of the announcement.
We're also excited with the opportunity to continue the advancement of our global export strategy through our planned increase in our ownership and Petro gap.
The acquisition is aligned with our midstream strategy and complements off the gas existing operations.
The transaction provides off the gas with operational responsibility strategic assets that along with rip it and our existing midstream assets provide scale and the ability to focus on the best of both businesses to capture efficiency and improved gross margins that will accrue to shareholders and customers.
It also advances our corporate focus on building a diverse I low risk high growth utilities and midstream businesses.
And he's building, a resilient durable and compound the value to our stakeholders.
On a run rate basis, we anticipate that this transaction will be approximately 10% accretive to earnings per share approximately 15% to create a cash flow per share while improving our pro forma run rate leverage metrics, despite being entirely debt finance.
The acquisition will consolidate off the gas ownership and strategic assets that we know well and are positioned to optimize for the benefit of our company and the broader North American energy industry.
We also remain constructive on the outlook for LPG is in Asia, although.
Although there was some choppiness in the spot market at points in the third quarter prices for propane and butane had been on a steady rise over the past few months and are pulling in the backend of the respective strips higher.
Mark demand increases are being seen across the Asian market over the past few months as these economies reopened economic.
Activity returns and population mobility right.
Global petrochemical feedstock demand will also rise sharply in the second half of 20.
Which will again be led by Asia and these poor demand trends should remain positive in the 2021.
As we approach the final month of 2020, we remain confident in achieving the goals. We set out in December of 2019, despite the macro headwinds throughout the year.
We are maintaining our 2020 outlook for expected normalized EBITDA in the range of $1.275 billion to $1.325 billion and normalized net income of $1.20 to $1.30 per share.
We believe this is a testament to the resiliency of our diversified business and the purposeful actions we've taken over the past 18 to 24 month and you can expect the same from us in the years ahead.
Now before we open the lines to queue in a I wanted to take the opportunity to discuss one item that we received several inbound over the past couple of months and we believe it is appropriate to address them in an open and candid manner.
This is the idea around all the gas potentially evaluating a corporate split into one pure play utilities entity and then other pure play midstream platform.
The acquisition of petrol gas further positions the company for those auctions.
Since joining off the gap I have always said that we would be focused on creating value and to be clear in some ways. We're agnostic to how we achieve that Pete.
And you'll find that same view is shared with the entire senior management team.
We are unwavering in our view that we need to do the right thing for our shareholders and brought her stakeholders.
However, we are still in the early days of executing the strategy that we laid out last year.
It is critical that we integrate this business with our own.
Until we do we are not going to consider that option there.
There is no doubt that the increased ownership in petrol gas further distinguishes off the gap.
It makes us larger and more attractive due to our unique value chain.
Once we have fully integrated petrol gas in the world returns to somewhat of a sense of normalcy. It is certainly an option that is worth consideration.
But what we want to avoid right now is allowing any sort of poverty of attention to arrive on the task at hand.
We are excited to take operational responsibility for the petrol gas assets in conjunction with all the gas.
The opportunities and options are plentiful and the ability to grow the midstream into something even more unique is our number one priority.
There's simply no better way to generate for our shareholders then improving returns on that money that has already been spent.
And while we are immensely proud of what we have accomplished in the past 18 to 24 months more work is left to be done in.
And everyone here looks forward to finishing that work.
There are also not of the view that the discount in our valuation is entirely underpinned by a single factor.
We need to de risk the business in multiple ways, including continuing to de leverage the balance sheet.
We believe there's a uniqueness in our diversified model in that despite the industry leading rate base growth that's in front of us we.
We believe that we are in a position to be able to internally fund the equity portion of this growth on a self funded basis.
The harvesting of the excess free cash flow that will come from our strong midstream business.
This is unique as operating a self funding model is a rarity are most growing utilities.
So hopefully that gives you some idea how we are thinking about the path forward.
We are all about adding value.
The timing is important.
And we will be purposeful and the actions we choose and.
Any actions also need to follow a well defined strategy that we have laid out.
But over the journey to achieving operational excellence, we will continuously be evaluating what other levers you may want to pull and when what sequence any best the actuated.
And with that.
Turn the call back to the operator to open the lines of Keybanc.
Thank you ladies and gentleman, we went well now conducted the analyst question and answer session. If you would like to ask a question Press Star then the number one on your telephone keypad. If he would like to withdraw your question press. The pound key there will be a brief pause while we compile the <unk> roster.
Your first question comes from the line of David because I don't with Raymond James. Please go ahead.
My My first question here just on Rip. It wondering if there's any color you can provide on the supply chain issues and I know you mentioned they they moved into the Fourq you a little bit have they are you are you able to comment if they've been dealt with now and then just maybe what needs to happen to hit that so.
80000 barrels a day target by the end of the year.
Sure. Thank you for the question.
David obviously the team is doing an excellent job we reached a record volumes.
Yeah, but we clearly working with the with the CNN and some of our logistics or your partners is a big key driver to improving productivity and maximizing volumes I'm going let Randy addressed the question more directly.
However, I you know I will continue to point out that now with the acquisition of petrol gas, creating more optionality were becoming much more of a logistics company and that is obviously going to help with some of these you know particular operational challenges. This quarter, maybe you want to comment on that.
Sure. Thanks, Randy Yeah. So Q3, we did have record volumes going through through a rip it. Despite some of these disruptions we've had both on Splunk, So on rail and Marine ER, we feel that we've got a plan in place to rectify those and so our goal is to get.
After three cargoes out in November three cargoes out of December which will be a 50000 barrels a day.
You know that's you know we're going into winter. So we have to kill resilience into that value chain, but we are doing that well working with their third party service providers.
Great. Thank you for that and then maybe just one more from me a broader question as you continue to de leverage and you've got the cash flow lift from petrol gas do you see that providing the opportunity to increase spending in the utility business a year since you want to be a remain so.
Funded I'm just wondering if there's any upside to that that capital spending plan in the future as a result of that.
Sure David I, you know you know our priorities haven't changed right maintaining a strong balance sheet additional approach to capital allocation was a key and critical to our long term strategy and we have one of the highest rate base growth between 8% to 10% and our utility which is quite attractive.
So I think that overall, we're going to just focus on prioritizing the capital, earning the returns on the investment.
And to the extent that a we increased that to over them particular years. It's the driver is really going to be about availability of crews and opportunities to continue to improve the existing infrastructure. James do you have any other comments that she would like to make today on that subject.
I'm just to just to put some of the debt metrics into [laughter] into context, obviously, if you look at where we expect to end up with year end debt and the midpoint of our range we expect.
EBITDA ought to be about five and a half times and we said on the petrol gas called it a once you layer in the additional EBITDA from from petrol gas acquisition with without any asset Monetizations just to draw down of our mind to find answers that'll that'll come down by another 0.15 to <unk> 0.2 turns from a debt to EBITDA standpoint, So we are seeing progress towards.
That stated goal that we've made in the past to get to to get the size times debt to EBITDA.
Excellent. Thank you very much I'll get back in the queue.
Your next question comes from Rob help, especially bank. Please go ahead. Your line is open.
Hi, Good morning, everyone. Randy. Thank you for all the color on kind of the longer term strategic value just wanted to dive into that a little deeper when you say you want to execute the strategy and looking at 2021. What does this include and how would you view it to be executed I guess from my C. and it looks like ramping up for it.
Pat maybe expanding read that.
And integrating petrol gas or the key issues on the midstream side that you're looking to maximize value and then I guess de lever in the overall balance sheet.
Yeah, No I absolutely wrong. Thank you for the question and I think he characterized it right we want to integrate this maximize volumes at rip it in both Ferndale I continue to provide our customers access to our overall global market.
Integrate this asset execute dissynergies and create the value.
And then we can look at other opportunities to our priorities are focused right on Michigan is principal centered EM are focused entirely on executing as key drivers that you described and then I said in my prepared remark.
And then as a follow up there when you take a look at improving the balance sheet. You know, we could see an M.B.P. sale, maybe a blind sale you know what about the midstream business are there any assets or partial assets you know something like Townsend that you could evaluate does the I say I love to to improve the balance sheet.
You know good fair question like we're always looking at our assets, how they fit into our overall strategy right and the integration of our midstream business model. So again, we think most of those are focused on an integrated platform a little early to tell as I said in the past around petrol gas. We think the most of those assets are all an integrated platform that add value.
Our customers and to our shareholders.
So I think that you know, we'll clearly look at assets along that line, but I think the primary focus on improving the balance sheet is to get a return on these assets generating the cash flows that we expect and look at our noncore asset sales, which we described as you point out lifestyle and the mountain Valley pipeline are key drivers that will get.
So to the targets that James that in India, and we hope to overachieve and are cheating and that doesn't need a guy that is below five overtime with that execution and and quite frankly, we work well with our rating agencies in ER and working to get an upgrade is continues to be a priority.
I appreciate all the color. Thank you.
Your next question comes from Jeremy Tonet with JP Morgan. Please go ahead.
Hi, This is Joe on for Jeremy.
Just wanted to ask [laughter] I first wanted to ask kind of looking at where results have been so far this year and compared to guidance I'm seems like results have been strong in and kind of.
Basically the kind of the midpoint or the lower end of the guidance would would indicate kind of a step down year over year that but that's not really consistent with what we've seen thus far so I guess anything I'm talking EBITDA here I guess are you is it fair to think you know after I know the guide it is more likely than the lower.
Indoors or anything else, we should consider for the fourth quarter.
You know John I would tell you that we are you know we stick to our guidance, we've been pretty consistent and performing on that you look at the results in the third quarter and throughout the year and really then the excellent progress that bloom and his team have continued to.
To perform at the utility.
You know, we we I wouldn't I would be a expecting that we would be above the mid point frankly with the last fourth quarter ahead of us.
Our guidance.
Okay. Thank you yeah that makes sense and then second question for me I just wondering if you could talk more about the China.
Longer term Richard volume progression I know does the guidance for 50000 barrels per day by year end at 2020, but I guess beyond that how should we think about about side increasing.
Sure you know as we've said John we would capacity at little bit of 80000 barrels a day, we've gotten a worthington.
Worthy to move that level of product to our certificate and we continue to work on some of the logistics operations as surrounding that so that we can do we have the best market in Canada.
Open season, our judgment and we'll put them getting excellent access to our customers both to domestic markets, but frankly, it into the global markets, which and we see robust demand in Asia, it's coming back.
So again I think that as we look forward with the integration of petrol gas and we look at the logistics optimizations that we expect to achieve you know what we'll stick to our guidance that we've had about the 50000 barrels but in the long run you know given the supply and demand and the excellent markets in Asia.
I think you'll continue to see a us progress toward that 8000, and I'm not prepared to give you a specific timeline at this point.
Yeah that makes sense. That's helpful. That's all for me. Thank.
Thank you John.
Your next question comes from Julien Dumoulin Smith Bank of America. Please go ahead.
Wanted to follow up on on the last question on volumes that Britt said and also more broadly at Ferndale, Randy I know you previously articulated a strategy or a plan to move to <unk>, I think 60% toll volumes and rip it by the year end.
21 there.
Wondering if you could comment or I speak to sort of how you see that progressing at Ferndale.
Yeah. Good morning, John Nice nice to hear nothing yeah. I. Appreciate the question Yeah, absolutely. We continue to see all the progress a you know three this quarter sequentially up 20% for our tolling volumes and I think that's a really a statement about the value proposition of what we're providing to our customers and access to the mark.
So I think you'll you know it's it's a journey you know what we're looking at you know continuing.
Continuing to de risk the platform at Ferndale as well so I think as we get the integration and close the assets I'll be able to give you a bit more better clarity around that guidance as they said his last call that you know about 40% of that EBITDA is already a fixed through tolling and longer term agreements that petrol gas.
Broadly so again I think that at the end of the day, providing open access you know, giving our producer customers access to a really valued markets that they have not been able to access that previously which is going to be critical for them to increase volumes. So you know the shift that's going on until either in northeast BC with some of the larger.
Upstream players through the consolidation I think is going to be a lever that we'll be working with to provide them access to more tolling. So early discussions around butane and propane, but directionally I'm I'm upbeat and positive.
Okay excellent. Thank you and just shifting gears to the utility business. If I can it's part of the I think you reported a 16 million up lift at WGN and year over year can you quantify or speak to what what proportion of that was due to the lower operating cost that you reported and.
Then also maybe speak to the composition of those operating costs, where you saw the most savings in where potentially you see those as being sustainable going forward.
Yeah, It's really excellent performance as you saw this quarter with the utility as you as you look at the components of those those values are about $10 million in the quarter was operating cost reductions or the others, where the impact of a previous rate cases or.
Offset by some late fee revenues that we were not allowed to bill obviously to cope with it in terms of sustainability. It primarily here, where we're investing our smart capital investments into our infrastructure, that's driven down the.
Incoming leak rate the outstanding loan balances, so that's contributing about 20% of that value or overall.
Overall, you know cost that we're looking at it in every aspect of our business, while focusing on reliability.
Is that you know employee you activities staffing is down some of the planned additions that we have had because of the activity levels being we do so I will tell you that you know we see these are sustainable and repeatable.
And we're going to build on that you couple that with some successful resolutions in our Washington D.C. rate case in our Maryland rate case that we would expect a into next year.
Really positions us well that coupled with our ongoing cost and customer service improvements to earn our allowed return as we've guided in the past so excellent.
Excellent job by Blue and all the team, they're renovating the reinventing and they're really driving innovation at the utility and focused on improving service levels for our customers I couldn't be more excited about the results. So I see them is sustainable over the long run.
Okay, Great. That's it for me thank you very much.
Your next question comes from Ben Pham Piano. Please go ahead.
Hi, Thanks, good morning.
I wanted to ask.
Ask that your commentary around the Counterparties. So clearly this is a big positive on your cash flow quality as you look forward here in your guidance into next year.
I was wondering is there anything you can share on any sort of high level incremental.
Differences, maybe with respect to your anticipated growth rate, Jeremy Metz, you're going into it there is this your question.
Oh, sorry, it's been found here can you hear me okay.
Well.
Hey, Ben Yeah. We can you repeat your question I don't know if we Oh, we still have Randy on we you might have lost him, but if you can repeat that question, we'll deal with it.
Oh sure. Okay. So my question is on the counter party at commentary you had you had a nice a nice boost there we've seen came a bunch of other folks and that.
Improvements in Cosco quality percent contracts. He goes out but I was wondering if there's any sort of impact yeah.
And you can maybe share in terms of your future growth rate, but change here on midstream projects is there more JV to consider and then is there anything on maybe any sort of friction on recurring here anything outside of that that you're thinking there long term are fairly mature in business.
Yeah, I mean, we haven't seen any any friction on returns I think the one salient point you touched on that we expect will could could potentially accelerate growth in some of our facilities in northeastern BC as the consolidation that's going on in the basin right now right. Obviously some of the somebody acreages have been consolidated in the hands of a better capitalized.
Producers and we would expect that they they are better positioned to move forward with development plans to satisfy take or pay commitments that a that they've inherited through that consolidation and obviously continue to to grow production. So that's what we're excited about with a with the consolidation that we've seen so far.
Okay.
Maybe I'm just kind of how happy here.
The accounting policy to the pension plan, yet I'm a bit of detail in there you are booking into 20 million, bringing back some of the benefits.
From future years, it seems like what's going on is there anything I think one in terms of you train pack and the P. S or is it or do you see utilities have have trackers that that mitigate or or pass through that and they they any out or I like that and you can make on.
These other utilities you had a similar test expansion plan I like that yeah.
Yeah, maybe I'll provide a little context for the change for some in and then kind of answer your questions around enduring benefit and.
So when we looked at when we looked at our pension plan W. Jolie B asset. The plan assets are heavily skewed towards fixed income products and as a result, we decided to make this accounting change because obviously if interest rates go up or down and that impacts your discount rate and in turn impacts the play.
Nine liabilities. This is a a more effective hedge in terms of how were treating the increase in those plan assets. So its an offset to changes in discount rate and that's what reduces the volatility in our pension expense going forward we.
We expect there to be a benefit and Randy you touched on it of about $3 million to $4 million. The pension expense into 2021, so that the reduced volatility and the lower pension expense will benefit our customers and then you talked about trackers, we don't have any trackers in place for pension expense fees or expenses that are calculated when we go into rate cases through actuarial.
Studies and that's how we set the the recovery for those expenses in our rates going forward.
Does she discount rates are on a liability that is also true it up each quarter. Two then is that.
Now, what's going on as well no. It it'll be it'll be based on an annual actuarial study that will calculate those expenses.
Okay.
All right that's it for me thank you very much.
Thank you.
Next question comes from Linda Ezergailis with TD Securities. Please go ahead. Your line is open.
So asset sales for 2021, and 2022, and specifically I see that you've got about a billion dollars of debt maturing.
Assuming that a lot of that would be repaid, but I'm wondering what your thoughts are about the merits of refinancing that you know extending the term potentially et cetera.
And then I'm going to apologize to you because I think we're having some technical issues here and I and I did not catch the first part of your question only the last couple of sentences do you mind, just repeating that because we are having some technical difficulties here.
Sure. It's just around in summary, I'm, just trying to get a sense of your EPS based financing plans for 2021 and 2022 beyond just stop potentially selling assets I see you've got about a billion dollars of debt maturing and I'm wondering about how you balance the benefits of refinancing at low rates for a potentially longer term.
Term versus repaying and how you know any sort of other sources. So time, you know oh capital, whether it be through Jvs et cetera, My inform your plans.
Yeah, you know what in terms of the maturities that we've got coming due in 2021, I mean, we've been very successful in refinancing maturities throat 2019, and 2020 [noise] any.
Any MTN market and that'll be our primary source you know we've said on petrol gas that we're going to obviously draw down on the facility when it closes and we will use the proceeds from any asset monetizations to repay those drawings, but with respect to regular or scheduled maturities, we will most likely at.
That's the the MTN markets to be able to deal with those because we have seen attractive pricing and we'd like to a different tenors and we'd like to position ourselves to continue to take advantage of that.
On a on future funding and Jvs I mean, we we like our footprint we've already got some very strong JV partners within our existing.
Existing investments I wouldn't say that there's any short term plans for us to to change that approach at this point.
That's helpful and I'm wondering when you think about your retiring and plans at your utility level.
If there were an increase in corporate tax rates in the U.S. out what are your thoughts about potentially when and how you might recover that in your utility rates.
Yeah, I think that we've talked about this on past calls in terms of what the expected benefit is to made to some of our debt metrics and we've estimated those to be in the 4% to 5% range in terms of future recovery, though.
No. We would we would probably move forward with a with rate filings and try to try to recover those to the expenses it does lead to.
The higher deferred deferred taxes, but that would permit us to recover them when when the tax rates went the other way obviously.
Some jurisdictions dealt with them as special filings and other jurisdictions dealt with them in the context of a rate filing. So I would anticipate that we would follow the same approach.
That's helpful context, Thank you and I just I detailed modeling question and for your maintenance Capex is it it was trending a little bit light I'm wondering if there might be higher activity in Q4, and what an appropriate run rate for your midstream business might be prospectively in 2021 and beyond.
Yeah. So typically a weak Q4 tends to be a very heavy capex quarter for us both on a expansion and maintenance in terms of a run rate you know for the midstream business, we think the $20 million for maintenance capital is a it is.
There's an annual number that you can use for modeling purposes.
That's that's very helpful. Thank you I'll jump back in the queue.
Your next question comes from Andrew Kuske Credit Suisse. Please go ahead.
Thank you good morning, So I guess the question is really where do you see yourselves and ER and the transformation of the utilities and what inning are we.
At this stage across the entire portfolio and then if you looked at the spectrum of the utilities you on what are the better performers versus the worst performers and then what's the spectrum of the respective endings that they're individually.
<unk>.
Yeah, I'll I'll start and then maybe I'll ask a blue to jump in as well I mean, if you look at the jurisdictions that were in.
Alaska in Michigan, those utilities have been performing at their regulated returns for quite some time and they've been there consistently in W.G. Allen I think Randy touched on this already we've made tremendous progress from where we were in 2019 through a combination of operational.
Operational excellence initiatives on Opex, obviously focused capital allocation and are executing on our ERP capital spend and then obviously getting caught up in rates. So we have made progress of about 150 to 280 basis points from where we were in 2019 and improving our always there but.
But but there's still some work left to do and we anticipate that we can continue to move the needle in 2021, and 2022 and that that will be through a combination of Oh additional rate cases that are currently being litigated in different jurisdictions, and obviously a continued focus on on Opex and capital allocation.
He was there anything that but you want to add.
No James I think you hit the highlight I think we're well underway at the jurisdictions covered by Washington gas.
A lot of opportunity, we think still in front of us, but we believe we have a really solid base and we've got good momentum and we expect to see that carry forward you know, it's all speculative on our third fourth and you know who knows but you know there's still some ball to play, but we're very happy as James points out with the progress we've made and then to his point I would reiterate the other journey.
Fictions, Alaska, and Michigan are performing very well and at their allowed return. So we're very happy with where they are and expect to see that performance to continue.
And then maybe as a follow up how do you facilitate the exchange of information between the jurisdictions just to share best practices among other things.
Yeah, you bet I'm happy to take that so this is books.
So what we have is we're organized obviously at the utilities Division, we have individuals with accountability that reaches across all of those utilities. So our operations. Our COO role for example has accountability across the utilities and so we see that there. We also have that same structure across our regular.
Tory group, so that we take what we're learning and best practices and and try to push that across so it's a great question. I think we are structured and have processes in place to account for that and then take advantage of those opportunities.
Okay. That's great. Thank you very much.
Uh huh.
Your next question comes from Robert Kwan with RBC capital markets. Please go ahead.
Good morning.
Just wanted to go back to statements that you made earlier in the call and <unk> and <unk>.
The pendulum teaching huge swing towards splitting up utilities and midstream.
The transaction Midwest earlier recently here you got your comments you want to.
Great businesses as well as de risk on the midstream side of things and it's something that a little bit more.
You.
You've got $30 million synergies that you put forwards and there were some.
Some comments earlier about trying to get used to record volumes sheer targets I guess in the Grand scheme of things what do you see boss beyond that 30 million gifting.
No not super material number you know I guess you were thinking about a transaction. So what is the revenue synergy upside that you see.
And then whats the rest is actually getting to your target volumes on written such that you have somebody where it sounds like it's getting to your assets that they want to do for us.
Yeah, Rob there's a lotta, there's a lot to unpack there I mean in terms of a in terms of additional upsides on the midstream platform. You know, we've always talked about additional volumes at rip it and obviously optimizing a ferndale with very very little capital investment that we feel that we can capture there's also.
No other ball.
Volume growth within the basin and additional product offerings that we can bring to producers potentially a condensate solution that a that we're excited about and we want to continue to focus on to be able to grow that business.
So I I think that we've made steady progress in terms of getting our volumes up and at Rip It and we think that we can make continued progress in 2021. So that's that's where we want to focus on optimizing those two platforms and you know we got a question earlier about progress at the utilities, we still think that there is a lot of efficiencies and.
And improvements we can drive there, but that will help to drive shareholder value.
[noise] Yeah. Many like you are you able to similar to what you did on natural gas.
30 million dollar level are you able to kind of quantify some of the other opportunities that you just mentioned.
Well no not at this point I mean, you know we'd like to be a if we'd like to focus as Randy said, a little earlier on the call on the integration of petrol gas and capturing capturing those synergies and once we are once we had.
Once we assume operational responsibility of that we would be in a better position to continue to update the markets on on whether or not there's additional upside in terms of integrating that asset, but we do see continued opportunities in western Canada to grow volumes that are at our existing facilities.
[laughter] you back and finish with a question on on the Ldcs.
And.
Overarching you made some comments earlier about.
Trying or wanting to be not self funding position and not being just a cold with how strong the growth there as well as reducing risk and.
What are your thoughts about.
He was saying accelerated amortization for this.
Businesses trading off your arithmetic that would moderate rate base, but some that very strong numbers or something.
The above average can you improve the cash flow profile and presumably de risk with some of the thoughts out there or concerns in the market around the existential risks.
Josh infrastructure <unk>.
Yeah you.
Well I just want to clarify your your opening comment I don't think we ever said that we would be ER stress to self fund the use the growth that we're seeing in our utilities that 8% to 10% rate based growth, but I think we've been able to to.
To do that this year and when we look out over the next five years, we feel that we can continue to self fund the growth that we're seeing within our jurisdictions being driven by ERP spending and obviously new meter growth.
In terms of your broader question on on.
Accelerating depreciation I mean, each and every jurisdiction in the context of its rate case filings has depreciation studies that need to be updated and ER and once we make those updates and.
And if we think that the useful lives have to change as a result, and it results in more depreciation recovery will deal that with we'll deal with that in each individual rate case that we filed.
Is there any change in thought though just at the management level that <unk>.
No not at this point <unk>.
No.
Your next question comes from Robert Cavalier lets see I'd see capital markets. Please go ahead.
Hey, good morning, and thanks for the presentation, particularly the comments you made about Oh, a corporate split.
I really only have one question left at this point you did point to Randy pointed to the strengthening.
Curve with respect to a <unk> propane.
And that export business.
Can we assume that you're going to continue to watch.
Hi aggressively seek to all the business or is there a point at which it makes more sense to their economics are strong enough to keep the spot business and.
And hedge it.
Hey, Robert Randy's back on that so thank you for the question and sorry, I apologize for being cut off there for a bit but to your question. They certainly every company, we'd like to eliminate risk from its portfolio and that's what we're going to balance our primary approach will be to balance there.
Recently, you know related tolling contract with them, it's UN hedged merchant activity that that really provides upside for the company.
So our propane and butane export terminals.
Terminals right, coupled with our storage that that creates optionality. So now we'll plan to position the business to capture short term arbitrage right to the capture this option value and augment the revenues you know surrounding the export business.
But at the same time right, we're going to continue the toll and increase or tolling to de risk the assets because just like with <unk> that we have 50000, a day that we're going to be moving and we have 80000 barrels a day of capacity. So again, there will always be that a opportunity to continue to capture a short term arbitrage a couple.
With our increased totaling over the next few years.
Right, that's a understandable answer it now that you're back on the line.
I want to get back to the corporate support and just one quick question.
I'm wondering if there were any observation or take away from the recent D.T. announcement.
Yeah, you know why its Oh P.T. is an excellent company with an excellent midstream footprint I think each company has a particular drivers.
There are no structure.
Moving forward. So it's difficult for me to comment that particularly on on on on their approach, but because I think we're a bit unique insight into what we're attempting to accomplish.
But clearly you know consolidation is occurring it's occurring in the upstream space. We think that's good right and that's the way we're very comfortable.
Working with some of the larger major players I think that's right in our sweet spot in terms of we know what it takes to develop these world class resources, and we have something that we bring a value disconnect producers to value market itself will continue to exercise that for us with respect to the D.T. and that demand.
Yes, I think each one is a specific case on their own.
Yeah, great. Thanks very much.
Thank you Robert.
Before we move on to the last question I would like to remind participants that if you have any further question simply press star and then the number one on your telephone.
This last question comes from Ali, Yes, fully with Industrial Alliance. Please go ahead.
Hi, Good morning, I've got a couple of questions to ask.
First one is it's rather minor, but I just want to understand something in terms of seven and a half shifts rip that.
For the quarter can you confirm that that half ship was an operational issue I just find it to be a strange number.
Sure Rick Radio James you want to address that.
Typically.
Hi, just a it wasn't operational or wouldn't operational issue with our terminal. It was more logistics or we had some disruptions with there are supply chain and so we we we feel good the Uh huh pulled the ship and then we are we to be burst and then we brought it back to burst when we had enough product.
Two.
Philadelphia.
And you get a lot okay I appreciate that clarity yeah.
So Elias I wouldn't mind, just adding those <unk> Randy tunes comments that when we're when we're loading ships, we recognize revenue when we transfer product from the tank onto the ship.
So there are there are going to be situations, where we're not getting a full shift in a quarter like just based on the way we recognize revenue because if if we're if we're loading and we don't completely filled a ship by the thirtyth or 30 Onest of every month and some of that will slip into the next quarter.
Okay I appreciate that clarity the the next question.
And this will probably do with utilities and maybe this was answered, but maybe I didnt hear it quite correctly. It was 10 to 11 11 million of all of the cost reduction, daniel lifestyle or or or quarter over quarter.
So can can we sort of draw the line that somewhere between 30 and 40 million in sort of the run rate number that would happen after that.
Seems like a pretty impressive.
Piece of work.
[noise] I look I think it is quite an impressive work if you even look at the overall utility results year over year increase or at least attributed to even in the first and second quarter as well we've been.
Anything along those lines and of course, you know in terms of my return on equity, we have quite a bit of room and that's part of our operational excellence strategies going forward and so you know again, we're gonna have to continue the effective and productive deployment of capital.
A P programs accelerated pipeline replacement and we would expect to continue to drive down costs, but thank you for the comment it is quite impressive and blue and the team have been accomplishing and well focusing again on improving customer service.
Proving the safety and reliability of the infrastructure, which is obviously one of our key and most important driver safety.
Safety and reliability. So as you continue to be you know put smart capital to work you should continue to see improved efficiencies on the cost structure.
Okay.
Oh, one last question directed toward James I guess.
I'm going to try to word this correctly I understand on a consolidated basis, we should see an improvement and in credit metrics, which is debt to EBITDA.
But understanding petrol gas as a separate entity for the rest of the Alta Ghassan and some of the regulated utilities.
Ah I think you said on the previous Petro gas call you discussed this with the credit rating agencies I just want to confirm that this isn't going to cause any stress on the credit rating given that you're now I understand the consolidated number but we do have separate entities.
Well I mean, our conversations with the rating agencies have been constructive for all the reasons that we highlighted on on the early earlier petrol gas color. If you look at our net debt to EBITDA metrics. They are improving as a result of this but more importantly, the EPS that FFO to debt metrics are improving as well in the past we would only include distributions or.
Dividends that we got from petrol gas into our AFFO metrics. When we're consolidating we're obviously, including the EBITDA off from that subsidiary because we've got operational responsibility and and we own greater than 51%. So we are treating it consistently with how the rating agencies.
Would treat this acquisition and it would improve our credit metrics and we don't anticipate any issues with the rating agencies as a result of that.
Great that was that.
In fact, DBRS, just sorry, just a clever DBRS has already come out with a.
A report on on the AFS affirming the ratings.
Okay, great. Thank you very much.
Thank you.
This concludes the Q and a portion of today's call I will now turn the call back to Mr. Mcknight.
Thanks, Kenzie and thank you everyone. Once again for joining our call today and for your interest in altogether US as a reminder, the investor relations team will be available after the call for any follow up questions that you might have.
That concludes our call. This morning, I hope you enjoy the rest of your day and you may now disconnect your phone lines.
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