Q4 2020 Canadian Utilities Ltd Earnings Call
Thank you for standing by and this is the conference operator, welcome to the year and 2020, a results conference call for a Canadian utilities limited.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be and opportunity to ask questions to join the question for you you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Mr. Myles Dougan Director Investor Relations.
And external disclosure. Please go ahead Mr Dougan.
Thank you Anastasia and good morning, everyone. We're pleased you could join us for a fourth quarter 2020 conference call.
With me today is executive Vice President and Chief Financial Officer, Dennis a champagne.
Dennis will begin today with some opening comments on his recent company developments at our financial results for.
Following his prepared remarks, we will take questions from the investment community.
Please note that a replay of the conference call and a transcript will be available on our website and Canadian utilities Dot com.
And can be found and the investors section under the heading events and presentations.
I'd like to remind you all and our remarks today will include forward looking statements that are subject to important risks and uncertainties.
For more information on these risks and uncertainties. Please see the reports filed by Canadian Securities a.
Goodbye and Canadian utilities with Canadian Securities regulators.
And finally I'd also like to point out that during this presentation and we may refer to a certain non-GAAP measures such as adjusted earnings adjusted earnings per share for him.
And is generated by operations and capital investment.
Measures do not have any standardized meaning under a high for us and as a result.
Not be comparable to similar measures presented and other entities.
And now I'll turn the call over to Dennis for his opening remarks.
Thanks, Myles and good morning, everyone. Thank you all very much for joining us today on our fourth quarter 2000, and 'twenty conference call.
I'd like to begin by talking about our performance in 2000, and 'twenty than our capital investment outlook and lastly, our sustainable growth direction for the future.
As most of you are aware our investments are largely focused on regulated utilities and long term contracted businesses with strong counterparties.
Over the years, we've created a resilient investment portfolio able to withstand turbulent economic conditions and 2020 share had its share of turbulence.
Our Australia and natural gas utility entered a regulatory reset year with a much lower approved return on equity and severe financial headwinds as a result of a slowing economy. It is a COVID-19 pandemic.
We also lowered our 2020 capital investments and the year by $300 million as a response to the slowing economic activity.
While we experienced a softening and our capital investments this year and slowing activity and some of our businesses overall Canadian utilities continued to generate strong earnings and cash flow.
Overall, the slowing global economic activity did not have a significant impact on our operations and financial performance.
On a normalized basis, excluding the foregone earnings from the businesses, we sold in 2019.
And ADT and utilities earnings in 2020 were $535 million for $14 million higher compared to 2019.
And our resilient financial performance is a testament to our business model as well as our people who remain focused on continuing to deliver reliable service to our customers.
They faced considerable operational challenges of working and these new pandemic conditions with courage and dedication and performed and an exemplary fashion.
Our 2020 earnings were buoyed by initial earnings for the Puerto Rico contract that I'll talk about more on a minute.
As well as continued excellent performance from our distribution utilities operating in their third year of <unk> five year plan.
Their performance along with continued improvements and our cost structure across all of our businesses were able to overcome the headwinds experienced in Australia, and electricity transmission, which transitioned from capital to operating activities on Alberta powerline.
Our focus on operational excellence has been a key driver and creating a more innovative culture that has empowered our people to find new and more meaningful ways to meet the needs of our customers.
And doing so we have continued to improve our overall cost structure, thereby providing premium returns on equity for our investors and long term benefits for our customers.
That commitment was a key factor and our successful 2020 bid for 50, a 15 year contract to operate Puerto Rico's electricity transmission and distribution utility.
This fits with Canadian utilities growth strategy, and the U S and Latin America and allows us to bring our core competencies of operational excellence and exceptional customer service for the benefit of Puerto Rico.
Going forward and our Australia and.
Alberta utilities, we expect to invest $3 $2 billion and capital growth projects over the next three years.
And this capital investment is expected to generate growth and our utility asset base of approximately 2% per year, which is a leading indicator of the growth trend of our utilities.
Our regulated utility operations, our largest contributor to earnings and will remain so for many years to come.
Regarding developments on a regulatory front and on.
Tober, Alberta Utilities Commission issued a niche a decision on the generic cost of capital or G. C. L. C. A.
Proving the current eight 5% return on equity and a capital structure, a 30% equity on a final basis for 2021.
D C commenced a new G C O C process and early 2021 to address the ROE and equity thickness for 2022 and beyond.
And our hope and quite frankly expectation is that this will be resolved. This year. So we maintain prospectively and avoid regulatory lag heading into 2022.
We are waiting on to regulatory decisions addressing our electricity transmission and natural gas transmission and general rate applications.
We expect decisions on both proceedings later in this first quarter of 2021.
Natural gas transmission also entered into an agreement in September to acquire 100 kilometers of the pioneer pipeline and here in Alberta for a net purchase price of $200 million.
<unk> and is subject to regulatory approvals by the AUC and the Alberta energy regulator, which are expected and the second quarter a 2021.
While we continue to invest and our core utility businesses to generate stable earnings and reliable cash flows we recognize that a collaborative and long term approach to minimizing our environmental footprint is vital.
We continue to explore new and more efficient ways to generate distribute and conserve energy.
Most notably in 2019, we divested our entire Canadian fossil fuel based electricity generation business to eliminate coal fired electricity from our portfolio and significantly reduced our greenhouse gas emissions by almost 90% from 2019 to 2000 and <unk>.
'twenty.
We see a shift a cleaner energy and we are well positioned to participate in a development of clean fuels such as hydrogen and.
And renewable energy infrastructure investment.
And Australia, we're focused on the shift to renewables. We also believe that we can have a meaningful role and that transmission and interconnection of renewable energy to the grid as Australia expands its renewable generation capacity.
And Latin America, we're focused on energy infrastructure, particularly renewable generation.
We also continue to pursue various other business development opportunities with long term potential here on our home market of Alberta, as well as and our other target markets.
To achieve this growth strategy, we're focused on three aspects first we.
And we will continue investing and our rate regulated business to generate stable reliable cash flow and adapt to changing utility customer preferences.
Second.
We will drive forward renewables and clean fuels is clean growth priorities to supplement our base regulated business.
And third we may use smaller scale acquisitions to accelerate growth opportunistically, but we do not intend to invest and transformational M&A and the near term.
That concludes my prepared remarks, and I'll turn the call back over and a mouse.
Well, thanks, very much Dennis and.
And I will turn the call over to the conference coordinator for Investor questions.
Thank you we will now begin the question and answer session and the interest of time, we ask you to limit yourself to two questions. If you have additional questions you're welcome to rejoin the queue.
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Canadian utilities Investor Relations team will follow up with you by email after the call.
Once again and you want on a conference call who wishes to ask a question May Press star one at this time.
The first question comes from Linda is there a guy a lease with TD Securities. Please go ahead.
Thank you congratulations for navigating a challenging year very successfully.
And I'm wondering if you can help us understand.
On the decision making behind them.
The Master services agreement with IBM, a the onetime charge to terminate your prior a agreement with your prior or your current vendor.
And what how that might translate into innovative new.
Efficiencies process changes and and when and where we might see that and your operations.
Thank you Linda.
The decision to terminate the contract with a Wipro was was definitely not done lightly we really do believe that this new arrangement with IBM gifts is the right path terrific to meet the needs of our business moving forward, we really do require an it solution that provides a platform for growth and innovation.
Increase.
Increasing our use of cloud.
Artificial intelligence as well as automation, so that's the strategic rationale behind a switch.
On one time charge you you see and.
And the.
Accounts are backed out for adjusted earnings.
And in terms of your a of the innovation.
A question and timeframe there is a a six month.
Transition from a pro over to IBM and commenced February one so IBM and essence will get the keys.
Two the operating systems.
In August of this year, that's the plan and when will we when do we expect to see.
Performance from that from that change in vendor and we really do believe that that acceleration to cloud will result, and tangible benefits will be hard to see them in 2021, but they should start to appear in 2022.
That's helpful context, Thank you and may be switching over to your utility distribution businesses can you talk about now that you've seen a full year.
And you know a how the a industrial and commercial customer base volumes were impacted by the pandemic and whether or not that might trigger some sort of M. A.
Mitigation through at a filing for a Z factor event.
Yes, we do have thanks, it's a great question Linda I mean, we do have the a both volumes and the and the EIF I don't have them at my fingertips.
We've been saying all along and there is really no change on gas distribution, we don't expect a Z factor on the electricity side, we are kind of a bumping our heads right up to that.
About a three and 5 million dollar a trigger.
A trigger for Z factor, but where we stand right now it doesn't look like we'll be filing a Z factor. There is no recovery in 2020 associated with that but I can say, it's doubtful that we will be recovering our will be applying for and he said factor for electricity distribution and they haven't completed the final analysis.
And yet but.
Yeah.
In any event it would be a relatively small dollars.
So the those volumes really really hung in there on the electricity distribution side we.
And not maybe not surprising, but we did think that the capital would come off more than what it did but we'll continue to see a customers.
Come to us looking for.
Hookup to the electricity system.
And it.
And we really did weather that a.
Covid I'll say waves, one and two.
On extremely well.
Thank you and just as a another follow up a question looking at a the next couple of years.
I see that your incentive fees.
And kind of escalate a over a year Linda contract energy contract I'm wondering what the.
What the performance hurdles are.
And to get to the maximum amount and a what is the performance hurdle to get any amount and I guess, the bookends of when you might realize and incentive and when you might book it.
Yeah.
These are performance.
Metrics, they're all outlined in the in the contract the parameters. However have not been finalized yet we just launched our.
Filings, we'll call them, the cotton and the big three filings with the Puerto Rico Electricity Bureau, or the prab there.
One of one of them is initial budgets were applying for no rate increase.
Next one is on a system remediation plan that we have for a for the island's electricity system and a.
A third one is on those performance metrics, where we've submitted the Bose.
Amounts that we believe where the bar should be set that's going to go through a.
Approximately a 90 day process and then we'll will be and a better position to be able to answer.
Answered a question as to the.
The quantum and timing for any.
Incentive fees coming out of that that contract.
On a regulatory decision from the prab and they're on they're kind of on a 90 day clock now is a condition precedent for coming out of a transition.
Timeline and moving into a into the contract years.
That's helpful context, Thank you I'll jump back in the queue.
Thanks Linda.
The next question comes from Mark Jarvi with CIBC. Please go ahead.
Great. Thanks, Good morning Irwin.
I wanted to talk about Australia, maybe Dennis and comment a little bit about that pumped hydro project that you seem to be involved and now and maybe you can dovetail that with your comments around looking at opportunities around electric transmission and Australia in terms of a pad size scope style and the economic framework for trends and Michelle change might be.
Thanks Mark.
Yes.
And I'm going to say, it's a very very early days on that that pumped hydro project.
It's a yeah.
And a clear signals farming and the market that this type of product is going to be required as renewables a.
Penetrate and escalate their share of a generation is there as a coal.
Comes off.
We were I can say a couple a years out for making a final investment decision and know that we're anticipating early 2023.
And a commercial operations pending.
<unk> would be a few years after that so we're looking at 2026 is too.
And when that.
That could.
Dilip.
<unk> deliver earnings it's a.
325 megawatts, approximately 500 million dollar.
On development.
So we believe that.
Okay.
And are in our wheelhouse as we as we move a sorry as we after we disposed of our Canadian fossil fuel and moving into.
The renewable electricity generation.
You also mentioned the transmission.
And that.
Is is firmly in our.
Expertise coming off a successful projects like the west Fort Mcmurray transmission development Eagle and before that a Hanna region transmission development. So we've.
I think we've really honed our craft with respect to that long transmission.
On.
Linear projects and.
And to help get that.
Renewable energy to market and eastern Australia.
We've been we've been we've got our critical mass, we'll say and western Australia, with our gas business and Perth, but we do have our structures business on a kind of on the east coast with a.
Manufacturing facilities and Brisbane so.
And operations down and the Sydney area as well so.
Looking to expand that utilities and energy infrastructure portion out from the west into a into the eastern Australia. So we're we're very excited about the project and its a very early days with a with a long ways to go but.
And we're working on and honor and.
And just a follow up in terms of debt.
And we need obviously and some sort of long term offtake, so pumped hydro to move forward and then on the transmission will be more like a concession type projects or actual ownership of.
Sort of a permanent a regulated utility assets.
Yeah on on the on.
On the off take for the for the pumped hydro.
And our business development and sales teams and we'll be looking to contract for a significant portion.
Of that.
Asset as we move and move forward to making a F I D.
On the transmission side.
It's looking more like a and ownership model that a that.
We would charge a kind of a.
And a capacity charger a based on a on a regulated rate.
Okay and then.
One question in terms of other results on a quarter the natural gas distribution utility.
Performed quite well and really strong year over year. There is some commentary about.
Timing a cost can you just maybe outline on what drove the strong year on their performance and it's a timing of causes.
Because you already and credit and in prior quarters, Oregon deferred this quarter on and you'll have to incur those and in subsequent quarters.
A lot a lot of the.
The boost to the earnings and are a natural gas distribution business.
And I will say, it's a combination of operating and and.
Capital efficiencies.
Recall the PBR two.
The revenue baked and a notional $300 million a.
Per year and capital.
And lower operating safely and reliably at a.
Lower capex.
Those.
Savings compound and a really starting to deliver a I'll call. It Tom kind of material in year savings of course, when we go to Rebase.
And being out of PBR two into a.
<unk> three or the next version of a regulatory.
That lower rate base will a well.
Will result in lower charges, which flow through to customers.
There's a lot of a a lot of the upsides are associated with the capital.
<unk> and then also on the operating and Covid I'm going to say there is a.
Numerous small initiatives that are amounting to the.
To those costs or cost savings.
The timing element.
Okay.
We are.
Really catching up.
And on a second where am I going here.
Yes.
Yeah.
Sorry, I have a.
Blanked out here on on a mark for the for the timing of the operating costs.
That's all right and we can follow up and you want there Dennis or you can come back for me later on the call that those other questions go ahead and now.
That'd be great. Thanks, Mark.
Okay.
The next question comes from Ben Pham with BMO. Please go ahead.
Hi, Thanks, good morning.
You have some comments on.
How do you expect to achieve growth and one of your comments was not look to transformational and.
And then and I'm just curious is that.
And that's just really a reflection of where your stock is trading today, it's hard to do M&A and in a big way.
Or is it is it more you feel confident and those other two pillars that that 2% rate base growth will start to gain some traction as a.
And as your core business. It says in Alberta in particular are going on and ramp up a couple of years ahead.
Yeah.
Good morning, and thanks Ben.
A.
And if youre looking at the stock price, maybe it's a kind of like our price relative to the price that a.
Utilities are going for for going for up to two times rate base, it's really a kind of in absolute and relative terms, they're pretty expensive right now so we're not looking too.
To go that way.
A regulated pillars as you referred to them with that 2% a rate base growth well.
Not at the a not at the levels. We saw during the transmission big build that was that drove a lot of the net increase.
We really see that.
That growth is.
And kind of our anchor tenant and order to help drive.
Growth in the energy.
Infrastructure and renewables non regulated.
A side of the business and there's a very little I don't think it makes the rounding on the $3 $2 billion of Capex for the next three years.
Pretty much entirely on the utility side.
We haven't put anything and that capital commitment for things like a.
And the Australia, a pumped hydro or other.
On capital associated with some of our other irons in the fire that we have given that or not.
We haven't announced those projects.
Okay, and then maybe.
And when he.
And it was a small scale acquisition day, and thank you and that's more part pioneer and.
And maybe your input on pipe and wondering if that's more a development okay.
Can you share that really thought process around is that mostly just a core geographies here.
Looking at you need it to be accretive and a first year, maybe context on on size and what's your definition of a small scale.
Well the pioneers, we will say that just like a.
A natural extension to our utility assets and while that's a cash.
On the acquisition.
A.
I don't I don't want to say, it's a it's a.
And no brainer I mean, because we are looking to.
Diversify geographically this is a gas asset in Alberta.
And it comes with a zero premium.
And we just pulled that into our existing operating footprint.
So the 100 kilometers is and our operating footprint.
So we are we believe that that's a rightfully falls to the gas our gas transmission.
Hi day based on the integration agreement that we have with Nova.
Hum.
So that's.
Whether that's a small acquisition or just an extension of our utility growth.
In terms of a.
Opportunistic M&A.
Not necessarily looking for guidance.
And you are accretive we are looking to build for the long term.
We acquired the pump hydro for Reits.
For a small undisclosed amount of money.
And that that has the potential to drive earnings as I mentioned earlier in the back half of this decade. So we're really focused on a long term growth.
Being driven from the renewables side of the house.
Okay.
Oh, sorry.
Sorry, Ben for the other element is Lula, Joe we have a half year worth of earnings in 2021 and <unk>.
A contract amounts are included in the and the M DNA and as we ramp up to a full operations that will help to support the increased growth and earnings.
Yes.
And that basically the two per cent rate base and he got that day.
So penetrate earnings drivers.
And maybe just to close off on that.
M&A.
And would you have used the Atco gas Australia acquisition.
A large scale.
<unk> and 10 years ago, I mean is that.
Would you characterize that as a large scale for you.
Yeah, a $1 billion 10 years ago would have been large scale for us.
Okay.
Alright got it okay. Thank you.
Thanks Pat.
Okay.
The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Yeah, Good morning, Dennis.
I was just curious what you are hoping to see commodity Alberta hydrogen roadmap. This spring.
What near term opportunities you might be looking to sanction within.
Within the energy infrastructure segment.
As well as potentially any upside to the capital outlook for the distribution business and I.
Related to that is.
Curious if you think it makes sense to build a blue hydrogen production facilities.
Secondly on site of the power plant so.
And I guess at the end of the natural gas pipelines, such as you're you're Pembina keep hills mine.
Or do you think over time, it makes more sense to build more of a production hub closer to the storage caverns and Fort Saskatchewan and that no bill.
Dedicated hydrogen pipelines to the power plants and other and users.
Yeah.
Thanks, Pat and good morning.
Think in terms of what a kind of would make more sense would probably be that a lot.
Later scenario that you're a that you referred to and Fort Saskatchewan.
They're a hydrogen production there we are.
It would be the.
And we'd like to think that weird.
Natural storage and transmission provider.
Of that.
Of that blue hydrogen.
And we've got a four caverns and the operational one under construction.
And room for a.
For for dozens more.
And so we are exploring that.
A hydrogen development here in and Alberta kind, a very seriously. So we really do see that as a.
Non-GAAP.
Potential not only for a hydrogen.
Hydrogen blending into the.
The distribution system a.
A lower the greenhouse gases.
Which we do have that a pilot project that we're that we're doing right now and that force for SaaS area.
But also to a greater extent throughout a throat actual gases footprint. So.
Okay, No that's great color.
And then maybe switching over to Luna.
Net of your Counterparties.
Debt restructuring there can you just clarify how your contract.
It might be backstopped by the.
Emergency funding that was approved by.
The previous U S administration last fall and.
And just if you have any insights into that funding has been reaffirmed by the new administration.
Yeah, I don't think.
And I don't think it's been a reaffirmed by the guidance.
Administration.
I do know that.
FEMA has a is never a back down on its committed funding.
Even with changes and and.
And the presidency.
That's a.
Net.
A roughly $10 billion.
And from from FEMA goes to reconstruction of the Puerto Rican electric system that was damaged by a by the hurricanes that that.
But that money necessarily isn't a kind of backstop our agreement, but one of the conditions for that to receive that money is that a private operator needs to be and.
And the chair.
The federal oversight management Board F. O M. D are very supportive of us and.
You know.
Having that private operator go away and two really remediate that system and a and.
And get it to a approaching world class and that's going to take a number of number of years given a state of disrepair that that system is and right now.
Okay. That's helpful. Thanks, Dennis.
Thanks Pat.
The next question comes from Andrew <unk> with Credit Suisse. Please go ahead.
Thanks, Good morning, Dennis I think you mentioned earlier on on the call that you spent many years really honing your craft a long linear infrastructure and.
If we look back over the last week and pick on a timeframe time 2030 years.
And all the heavy lifting you did and Alberta to really keep up with a pace of growth on the province.
And now you're at this juncture, where growth looks like it's flattening out and I guess I was a bit of a duality of a question are you seeing any signs of green shoots in Alberta.
And then maybe the other aspect of this question is given what you did and Alberta over all those years is that a great calling card for a go to execute and certain projects on Rfps like you did with Puerto Rico.
Yeah.
Great question, Andrea you can see and in the MD&A over the over the next few years, we are forecasting our transmission.
From a big build of just over $5 billion and assets.
It's built and with the depreciation burn it's pretty much offsetting the capex. So you see that flat over the next few years. So while there is a.
Green shoots.
And in Alberta.
Don't really see too much of that impacting the <unk>.
Our electricity transmission business, which it for.
<unk> five out of 13 for R.
Our utility rate base share in Alberta, that's a.
That's a that's a big anchor it's <unk>.
Spinning off great cash flows right now, but we don't anticipate a.
Meaningful.
On transmission development and over for the next 10 years, because the growth has been built to accommodate.
No.
Interconnection of renewables.
And so on.
We do see a.
Some pickup on our customer requests coming from our gas business for us on the distribution side. It really seems to track with a GDP so as the as the Alberta GDP goes.
That's what we would expect to see our electricity and gas business.
Growing by all else being equal.
Not including hydrogen for for a gas or kind of like the the grid modernization and strategic improvements that we need to do to the <unk>.
Electricity grid to enable a.
Distributed systems, a smart energy networks and what have you. So we've got the GDP, but we also have some a we'll call them strategic investments that we need to do on the on the distribution side.
And that goes to two our calling card and and you're and you're Bang on our performance.
Over the last number of decades, where we continually.
Improve on our operations our efficiencies.
Now that.
Was a great for the resume that.
We think helped to put us over the top on a on the Puerto Rico contract. So we're digesting that right now and a it's a lot of heavy lifting to get through the transition agreement and then what a sorry the transition time frame.
And then we can we can look to apply those operator ship type skills to other potential opportunities whether they exist now or whether we can go out and create zone.
That's very helpful. And then maybe just following up on the operator ship side of things with what we've seen in Alberta, a year to date weighted.
A cold weather the market transitioning to a different kind of a market versus a PPA at the legacy P. P. A system could.
Could you maybe talk a little bit about just the resiliency of the system and how things held up and were there any surprises with just a new market construct and the opening up this market again.
On the electricity side.
So you're talking about yeah yeah.
Everything held in a held up really really well I was reading on the ISO website. The other day there is a.
And kind of a and outage on one of the timelines coming in for a B C and they said don't worry it's not like Texas.
So if a <unk>.
Per compare us I mean, we were built for a we're built for the for the cold weather.
The system held up a pool prices, obviously went went up.
But but but it held up very well our distribution system.
Electricity transmission there wasn't a hitch.
And given that we're built for it it's kind of in our DNA on the gas distribution side as well where are.
Our people are.
Performed fantastically and all day.
There are a lot a lot a pride and admiration for a further our focus on the tools in order to keep the compression up all of the system planning and response that we have.
Kind of really.
Sean through a.
Under the radar I'm going to say because it's a it's come to be expected.
And our homes will be heated and and that's exactly what we continue to deliver.
It's a bit of a raw callout shout out for our gas distribution guys. They are.
And I'm glad I wasn't out there and the minus 40.
Hey, guys.
On the heroes on the op side, but thank you for the comments.
Thanks, Andrew.
Once again, if anyone on a conference call who wishes to ask a question you May press star one at this time.
The next question comes from Maurice Choy with RBC capital markets. Please go ahead.
Thanks, and good morning, My first question, just going back to the capital deployment.
But if you look back at last year, there was obviously a benefit of maintaining financial flexibility and midst of pandemic.
Do you see yourself tilting more now on to a deployment or.
Is there still quite a considerable benefit a keeping that flexibility and if it.
It is indeed, a more towards deployment is it fair to.
Say that many of your initiatives on.
More towards sowing the seeds for future deployment like the pump hydro a hydrogen rather than investing and operational assets today.
Hi, good morning, Thanks, Thanks Maurice.
Yeah.
I don't know.
Or I don't know if anyone's ever out of the woods from from Covid.
We are we do still have the and on the <unk>.
Global economic turmoil, that's a that left and its in its wake.
We are.
I love the financial flexibility at a it helps us on the credit metrics sides.
You are correct in noting the kind of a low longer term.
Project view, if we have a long track record of our a greenfield developments.
We built up our our international power generation business.
Most of it a disposed of and.
And 2019, there, but we still have that a greenfield development.
A.
A record sorry, a recognition that the Greenfield development will lead to a probably.
Higher long term value for our shareowners.
We're not turning our back on a.
And kind of operating assets, where we can use that to accelerate a market entry into a into a region.
And well acquiring late stage development projects.
And that have been somewhat derisked, but not all the way through can help a we'll call that a.
The middle ground, where we can have some <unk>.
Near term earnings maybe not a instant.
Instant accretive operational earnings, but would come with a much shorter development timeline.
And we've talked about earlier with the Australia and pumped Hydro example.
Yes.
Great and then if I could just switch gears to Puerto Rico.
A recognize all the comments and all the questions earlier about.
The contract, but could you.
Sure and your thoughts on what a perhaps a steering committee formed by the Governor Canadian Governor to review the O&M contract could lead to be engaged discussions with.
With that.
Yeah, I mean, a governor issued an executive order in January.
That supports the contract.
And it did establish that steering committee to.
To help Shepherd luma into commencement so looking at things like a insuring some fundamental a couple a fundamental principles like stable utility rates and.
And.
You mentioned earlier on the call that we filed our application with the prep that that didn't have any increase and to and the utility rates along with a system remediation plan that.
That will help to drive down costs long term.
For for our customers. So that was a one fundamental principles stable rates and second one was continued employment of the utility workers.
And we are we are and the process.
On our recruitment drive.
As a employees would move from a.
PREPA into Zumba.
The affected employees that choose or are not offered an opportunity with Luna.
Do have a.
And yes by law.
Employment with the government of Puerto Rico, So and we think that continued employment.
As a as a check as well.
And given all of a.
On an all day.
A legal and political.
The charts that we've charted waters that we need to go through the steering Committee we are.
And we really view as on ally to help get us to our targeted June one commencement.
Fantastic Great color. Thank you very much.
Thanks Morris.
The next question comes from L. A S Fsck Lewis with Industrial Alliance Securities. Please go ahead.
Good morning.
Just two questions.
You are.
Applied to defer the rate increases in Alberta.
And I realize that's not going to have that and earnings impact it will have a cash flow or on flow impact can you.
And I guess confirm that this is really not going to be that material and it would impact our credit metrics.
Okay.
Thanks, a lot for the question I mean.
We oh.
We didn't take it lightly you know our customers and Alberta right now are hurting as a result of Covid and.
Given the rate increases that were facing our electricity and gas distribution utilities.
We believe that it was the right thing to do for our customers long term.
Youre right that it will not affect earnings, but it does affect cash flow, we will be filing our application.
Next week.
And outlining the the quantum's and potential recovery periods for for that cash deferral. It is not.
Overly material.
At our a cash flow from operations and a well.
And for C 161, $7 billion range.
So it's a it's less than a materiality and my mind. The hurdle is 10% it'll be less and 10% I suspect of our overall cash flows.
And we've.
And discussions with the rating agencies.
It is a it would be a timing issue purely so we don't think that we'd be unduly penalized and in one year for a.
For something where we have the.
The remaining balance sheet strength in order to backup.
And kind of a range a credit metrics, where we're where we're at right now.
Okay.
Very much for that color I appreciate it and.
And yes, I agree it's a.
Well it was just a one year thing like that.
A clear line of sight to catch up.
For the last question and focusing a bit on on Mark's question earlier about natural gas distribution.
I'll just try to simplify it a bit.
Because it caught me off guard.
You can expect to see a tailwind.
From.
You know the efficiencies.
Into 2021 with that likely dissipate and by 2022, what would that be a good way to view it.
So I think those.
Uh huh.
If you're talking about tailwind and timings to Mark's question I mean, some of some of those costs.
Client programs that we had in 2020 some of those got deferred so we're not I don't want to say kicking costs down the road, but there are some elements of our O&M programs that we werent able to get to in 2020, which we would see.
See coming through in 2000 and.
'twenty one so on so a little bit of a a little bit of headwinds.
For gas distribution in 2021 compared to where they were in 2020.
Okay. Thank you very much for that clarity because I, maybe wasn't listening to a correct. That's it for me. Thank you very much.
Alright, thanks very much loss.
This concludes the question and answer session I would like to turn the conference back over to Mr. Myles Dougan for any closing remarks.
Thank you Anastasia and thank you all for participating today, we appreciate your interest and Canadian utilities and.
And we look forward to speaking with you again soon.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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Yes.
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