Q1 2021 Fortis Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by my name is Deborah and I will be your conference operator today.
Welcome to the Fortis Q1, 2021 conference call and webcast.
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At this time I would like to turn the conference over to Stephanie and Nemo. Please go ahead and Miss MMO.
Thanks, Deborah and good morning, everyone and welcome to Florida says first quarter 2021 results conference call I'm joined by David Hutchens, President and CEO, Jocelyn 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 and the supporting slide show actual results can differ materially from the forecast projections included in the forward looking information presented today, all non-GAAP financial measures referenced in our prepared remarks.
<unk> are reconciled to the related U S GAAP financial measures and our first quarter 2020 one M D and E also unless otherwise specified all financial information referenced is in Canadian dollars with that I will turn the call over to David.
Thank you and good morning, everyone. Today, we are pleased to report a strong first quarter on the financial front EPS growth was supported by our record capital investments made in 2020 and during the first quarter of this year.
And your earnings and Arizona also contributed to year over year earnings growth.
On the operations front, our systems continued to perform well with our people focused on delivering safe and reliable service and.
A good example of this and Arizona, our gas and electric utilities maintain reliable service to our customers throughout winter storm Yuri that affected so many other surrounding states and <unk>.
Serves as a reminder, the planning for the long term and preserving adequate capacity is critical to the provision of energy service to our customers under an increasingly wide range of circumstances.
On the ESG front.
We continued to advance key initiatives.
As you may have read and our circular we have 10 current directors and two nominees up for election.
Assuming all nominees are elected and our annual meeting Tomorrow. The Fortis Board will have reached gender parity for the first time and our history. This is a significant milestone and our diversity and inclusion journey.
We are also strengthening our compensation metrics with the addition of new ESG related measures. The metrics are focused on carbon reduction and climate change building on our corporate wide target to reduce carbon emissions and 75% by 2035.
Additionally, we are happy to report that our credit ratings credit ratings were reaffirmed by S&P and April and our outlook was revised to stable from negative.
And yesterday D. B R. S Morningstar upgraded our credit rating from Triple B high to a low these positive developments underscore our financial strength and lastly in April FERC issued a supplemental notice of proposed rulemaking uninstalled lives.
Secondly, <unk> is proposing to eliminate the 50 basis point regional transmission organization or our T. O ROE adder for utilities that have been RTL members for more than three years, not only were we surprised and the reversal of FERC. This direction on the RT a ladder, but we are extremely disappointed.
Given the important role our T O us play and facilitating a reliable cost effective and resilient grid, while enabling and clean energy goals.
Turning to slide five through the first quarter $900 million of capital was invested in our utilities to support resiliency modernization and cleaner energy projects for 2020, one are $3 $8 billion capital plan remains on track higher forecasted capital expenditures are.
Expected to offset a lower foreign exchange rate.
Recently, we completed the also Grande wind project at Tucson Electric power. The 250 megawatt project is the company's largest renewable energy resource with enough power to energize nearly 100000 homes the.
And the project complements Tep's integrated resource plan, which calls for exit coal and add 2400 megawatts of new wind and solar power and 1400 megawatts of energy storage by 2035.
And in Ontario, and the Watson, a kidney Yep transmission power project continues to progress.
The 18 on 1800 kilometer transmission project is the largest first nation's majority owned infrastructure project and Canada's history with this ownership structure and the project as a model for indigenous communities across Canada for the springs at 39% equity interest and its utility expertise his project.
Manager to the partnership.
And at the end of the first quarter 850 transmission towers have been installed with approximately 1100 workers on site, including first nations members. The project is on track to be completed in 2020 three.
By replacing diesel fuel generation with cleaner energy from the Ontario grid.
Watson and Kenny up project is estimated to reduce emissions by $6 6 million tons over a 40 year time frame and.
Additionally, the project is expected to generate significant benefits for first nations communities, including access to reliable energy supply and economic benefits from construction.
We are very thankful for the partnership with first nations communities as we work together to realize their vision, while advancing the project during the pandemic.
As slide six highlights, we expect to invest $19 $6 billion and our systems through 2020 five with nearly all of our capital supporting energy delivery and the transition to a cleaner energy future, we have a balanced low risk plan.
Investments, including renewable generation, such as wind solar and battery storage interconnections of renewables liquefied natural gas and renewable natural gas continue to support our sustainability strategy.
The capital plan is expected to increase rate base by $10 billion from $30 5 billion and 2022 over 40 billion and 2000 and twenty-five supporting average annual rate base growth of approximately 6% through 2020 five.
Beyond the base capital plan, we are focused on incremental opportunities that expand and extend growth.
First at ITC, and the Midcontinent independent system, operator, or MISO has initiated a long range transmission planning process and March MISO outlined and conceptual maps identify and potential new transmission required to enable more renewable generation and the region.
Specific details regarding the size and location of MISO long range transmission projects remain unknown until the studies are completed but as slide seven highlights I T. Seize assets are strategically located to interconnect the Midwest to cleaner energy resources on.
Also at ITC. The proposed Lake Erie Connector transmission project continues to progress and April the Canada infrastructure Bank announced that it will fund up to 40% of the project cost.
ITC will own the transmission line and be responsible for all aspects of design engineering construction operations and maintenance.
Project is expected to bring an estimated $100 million and annual savings to Ontario customers by connecting their grid to the P. J M connect interconnection the largest electricity market in North America and.
Additionally, the project is expected to reduce greenhouse gases by up to three but by up to 3 million tons per year.
While the project is fully permitted and shovel ready. It is not included in the current five year plan as we continue to negotiate transmission service agreements once finalized construction on the projects would take for years to complete.
And Arizona the team is working to advance its clean energy goals, which requires investments and the range of $4 billion to $6 billion to execute Tucson Electric Power's integrated resource plan and in British Columbia, We continue to pursue further development of the Tilbury site long term contracted LNG opportunities and additional investments require.
To attain Florida species target to reduce customer greenhouse gas emissions, 30% by 2030.
Lastly, the bite and administration recently released its proposed infrastructure plan, calling for carbon free power from the electricity sector by 2035.
This could accelerate capital investments at our U S utilities through transmission interconnections that ITC clean generation and energy storage, and Arizona and electric vehicle infrastructure and the nine U S states that we serve today.
With a strong track record of increasing dividends for the past 47 consecutive years, coupled with our low risk growth strategy, we remain confident and our 6% average annual dividend growth guidance through 2025, now I will turn the call over to Jocelyn for an update on our first quarter financial results.
Yeah.
Thank you David and good morning, everyone for the quarter adjusted net earnings for 360 million or <unk> 77 per common share nine cents higher than the first quarter of 2020 as David mentioned increased rate base at our regulated utilities and higher earnings and Arizona were the main.
Growth drivers for the quarter.
Slide 12 highlights EPS drivers for the quarter by segment, our U S electric and gas utilities provided the most significant contribution growing EPS by five cents for the quarter compared to the same period last year, our Arizona business contributed for cent EPS increase this was driven.
The new rates at Tucson Electric power effective January 1st offset by higher operating costs associated with planned generation maintenance.
Additionally, the two cent impact of losses on retirement investments recognized in March of 'twenty, and 'twenty favorably impacted the quarter over quarter change.
In New York Central Hudson and increased EPS by a sense driven mainly by rate base growth and timing of operating cost.
And the EPS.
P S increase for both ITC and our western Canadian utilities was mainly due to rate base growth.
Our energy infrastructure segment contributed a one cent EPS increase driven by production at the Belize Hydro electric generating facilities and in our corporate and other segment. The one cent EPS increase mainly reflects losses on foreign exchange contracts that were recognized in the first quarter of last year.
This increase was tempered by higher weighted average shares outstanding issued through our dividend reinvestment program and lastly, a lower U S dollar to Canadian dollar exchange rate on favorably impacted results by two cents, all and all a very strong quarter with minimal financial impact from the pandemic.
Turning now to an update on our credit ratings and liquidity earlier. This year, we highlighted the significant improvements and our cash flow to debt and holding company debt ratios over the past couple of years throughout.
Throughout the pandemic, we have maintained a strong credit profile as our utilities have managed cost and regulatory mechanisms that served to stabilize cash flows and earnings have operated as expected.
As David mentioned in April S&P affirmed our a minus issuer credit rating and our triple B plus on unsecured debt rating and also revised our outlook to stable from negative and just yesterday D. BRL.
Morningstar upgraded our corporate and unsecured debt credit ratings from Triple B high to a low.
Both rating agencies highlighted our improved credit profile and operational and financial stability throughout the pandemic.
Overall, our credit metrics, coupled with Fortis is low business risk profile positions us well within our existing investment grade credit ratings and finally, we continue to mainstream and maintain strong liquidity with over 4 billion available on our credit facilities.
Now turning to slide 14 for an update on our ongoing regulatory proceedings at ITC for issued a supplemental notice of proposed rulemaking related only to the incentive adder for participation and the RTL.
Notably the commission modified the initial Noecker from March 'twenty, and 'twenty, which proposed to increase the R. A T O adder to 100 basis points. However, the supplemental and no pronounced seeks to eliminate the 50 base basis point, our T O at or for transmission owners that have been and part of the RTL for more.
And then three years, including T C and D.
David highlighted we were disappointed with the FERC proposal given the current public policy goals to encourage investment in transmission to enhance grid reliability and transition to a cleaner energy future. We believe utility participation in and our T. O provides customers with benefits that far outweigh the cost.
ITC is revealing the supplemental known for and we'll be providing comments, which are due to FERC. Later this month and Theres no stipulated timeframe for for to issue a final rule and any impacts would be perspective.
As a reminder, every 10 basis points change and ROE at ITC impacts for this is annual EPS by approximately one cent.
In New York settlement discussions are ongoing and central Hudson's General rate application and we do expect a decision later this year.
Earlier this year, the British Columbia Utilities Commission initiated a generic cost of capital proceeding for all regulated utilities, and B C and including our gas and electric businesses. The proceeding is expected to set cost of capital parameters effective January one 2020 two and.
In March for to sell brought I've received a decision on the 2020 two generic cost of capital proceeding current cost of capital parameters remain in place for 2020 two and.
And lastly in conjunction with the exploration of Fortis, Alberta current performance based ratemaking or PBR term ending in 2022. The AUC has initiated a process to gather stakeholder feedback on how our cost of service Rebase and can be completed two established base rates after 2022.
Concurrently the AUC is evaluating the effectiveness of past and current PBR plan to determine whether a third PBR term should be established reports on the findings are expected in mid 2021.
Yeah.
Before wrapping up my remarks, I would like to discuss the potential implications on the recently proposed tax changes and infrastructure spending.
For my U S tax perspective, the proposed increase and the corporate tax rate from 21% to 28%. If past is expected to increase earnings and cash flow as it will have some of the reverse the effects of the 2017 U S tax reform.
The made in America tax plan also includes proposals to introduce transmission and best investment.
Investment tax credits. This is expected to encourage large regional projects, while the newly proposed department of energy grid development authority should streamline permitting and planning of regional and interregional transmission investment.
Well not depicted on this slide the made in America tax plan also introduces the minimum tax on book income, which could impact timing of cash flows as well as changes to international and taxation, the federal and the Canadian Federal Government also released its budget last month, including proposed changes to interest deductibility.
Which could also impact on me of cash flow and changes and international taxation draft legislation and both countries has not yet been released we will continue to assess and we'll provide further information as more details become available.
With respect to infrastructure spending while we recognize the America job plan requires final approval. We are pleased to see a strong focus on the critical role transmission plays and facilitating new renewable generation and grid resiliency. This emphasis on investments and clean energy and lines with Fortis is focus on improve.
And our low carbon footprint and our goal to deliver a cleaner energy future.
That concludes my remarks, and I'll now turn the call back to David.
Thank you Jocelyn and summary, we remain steadfast and providing safe and reliable service with the safety of our employees and customers top of mind, we have a strong five year growth outlook supporting our 6% average annual dividend growth guidance through 2025, and as we look forward we are optimistic.
The growth prospects and our business, including the heightened focus on the clean energy transition across North America, I will now turn the call back over to Stephanie.
Thank you David This concludes the presentation at this time I'd like to open the call to address questions from the investment community.
Thank you, ladies and gentlemen, we will conduct a question and answer period.
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Your first question comes from the line of Maurice Choy with RBC capital markets. Please proceed with your question.
Thank you and good morning, My first question relates to the FERC no for <unk>.
Recognizing that the <unk> adder was obviously the main topic of the supplemental <unk>, but can you discuss the potential upside to our ROE.
From other matters and the March 2020, no for such as the cost benefit reliability and also how do you see disposition and April impacting do you try and school independent better.
Yeah, Thanks, Maurice and good morning, and glad you could make it on the call today as you know the March 2020 incentives and Oprah that came out had on several different categories and it actually it's as you mentioned on the R. T O at her side of things. It actually was increasing that 50 basis point current pad or 200.
That was part of that original proposal, which is why we are so surprised with that switch of going from 50 to 100, and then and then to zero, but it also included a another 100 basis points for reliability projects.
Third our basis points for new technology, and then another 50 basis points for projects that are improved efficiency and reduce costs. So overall there was there was 350 basis points of additional incentive opportunities there on a project by project basis, although within that and Oprah did cap the total of any one.
<unk> it.
250 basis points. So we.
We obviously.
Our very strong proponents of looking at ways to incentivize new transmission on a on a going forward basis again surprised at that.
T O reduction but.
But you know frankly that it's early days and it is just a note for basically we have.
Of the original no per and the supplemental over and over sitting here at basically a bid ask spread of zero and 100. So we don't know where that will end up and we will obviously make comments accordingly on the importance of the R. T O at or for trends for for.
And for basically for getting people inside those are T OS.
It is extremely important to recognize that the bigger the markets are are the lower the costs or the higher the reliability and the more renewable energy that we can integrate into the system. So we really think that that was the wrong direction to send on the independents adder. We've been we've been fighting those for a while and I don't think this provides us any.
For additional insight on where that might go.
Great and maybe related to that and my second question. Your outlook comment noted that they were all the fee for the expansion and <unk>.
And I'm sort of electric transmission grid, and the U S and that visibility on and Michelle projects could be as early as this year can you elaborate a bit more about this visibility what where do you see.
This growth coming from and also timing in terms of how a potential projects could fall within our board and just look at upside on what your five year plan.
Yeah. So I'll turn this over to to Linda Apsey, the CEO of ITC here and the second just a real high level.
MISO is and that planning process and they put on it there's a ton of great information on their website related to the these basically basically these three different futures that they're analyzing that have different percentages and renewable integration as well as different growth scenarios.
I'd point out, though that when you look at those futures.
And even the even the most aggressive one might seem a little bit stale. These days as we have it.
We have cranked up our level of greenhouse gas reductions and the United States at least the targets that we're putting out there from the from the Baidu and administration, so even even that might be.
I would say I wouldn't say conservative, but might not be as aggressive as what we might see over the next 20 years, because just because it is that that 20 year outlook I would I would suggest that there might be the need for a future for to see if the if we actually followed.
And the bite and energy plan and had those you know that 50% $50 to 52 per cent greenhouse gas reductions by 2030, and what that would look like.
And I'll turn it over to Linda so that she can tell us about the timeframe and expectations there.
Great Thanks, Dave and good morning Maurice.
And as Dave mentioned I would characterize MISO was perhaps the most advanced.
And their long range planning efforts and as Dave outlined.
<unk> outlined in terms of the different futures and the different scenarios, we are expecting MISO to announce kind of their what I would call their their basket our portfolio. Our first mover projects later this year, probably in the October timeframe and.
And the hope is that there would be a sort of as a set of projects. These first mover projects.
And that would be included in MISO.
And there are untapped plan that's their annual transmission expansion plan that goes to their board of directors for approval.
So if I'm if all goes as planned and as indicated we could anticipate seeing a portfolio of projects and the latter part of this year.
I would say consistent with that there is a group of MISO transmission owners that is also advancing principles around our cost allocation.
That would be coincident with the the projects that are put force I think as we have talked about previously the biggest sort of hurdles. If you will to realizing these regional transmission projects, obviously, the planning collaboration and coordination, but certainly also on having a cost allocation methodology that Ken.
And you'll realize other projects that are put forth. So.
We are very optimistic given I would say a lot of the activity the conversation and the collaboration.
Engagement across MISO and so.
Certainly I think as Dave as Dave suggested.
I think as we move forward, we'll continue to see MISO refine.
Their future studies based on assumptions around penetration of renewable levels, but overall very optimistic on the MISO planning process and Meanwhile, SPP. They too are actively engaged and involved in it and a long term transmission planning effort not quite the same on visibility at this point and time and <unk>.
A timing, but again I would say all of this is in a very constructive positive direction.
Great. Thank you very much.
And your next question comes from the line of Linda ever Gamers with TD Securities. Please proceed with your question.
Thank you and looking at some other recent positive actions from some of the debt rating agencies I'm wondering when you expect to next get an update from Moody's and what.
What sort of changes if any might come on that front and I guess as a follow up question I'm just wondering how the debt rating agencies.
Reflect some of the uncertainties around the FERC no per.
The recently the.
Site and infrastructure plan and some of the proposed tax changes and Canada and U S is a few moving parts and I'm just wondering how that's reflected in their base and look and scenarios.
Okay.
And then diets Jocelyn, yeah with respect to Moody's net.
Next update I would suspect it will be over the next couple of months. We have recently met with all three rating agencies D. Brs S&P and Moody's just to give them and update on our annual 2020 results for a lot of those discussions went very well and as you can see and this quarter, we did receive and upgrade from D Brs and.
The negative outlook was removed from S&P, which we were pleased about.
Our conversations with Moody's were good and I cant predict.
The outcome of that but on you know I'm not anticipating a much change there are like I said I think all rating agencies. We're pleased with the improvements that we've made and our balance sheet over the last couple of years. So we had good discussions with respect to how they reflect the notebook you've probably seen and I think it was S&P came out with some comp.
And Terry round and no per that suggested that that they would expect the note for <unk> if approved would temper cash flow metrics for for that's down to the lower end of the range, but not drive us down below the range, which is which is a fair point and if.
If that is the only thing that's approved and isolation of everything else.
And so that they recognize that they're all aware of and no further all aware of the bite and infrastructure plan, they're all aware of the the tax but as you say theyre moving pieces and it's hard to nail down exactly what any of them potentially.
Potentially mean and Fortis has worked through this and the past life I envision and we're going to work through all of this going forward. So no no real red flags here with with the credit rating agencies, and we will continue to communicate with them and keep them apprised of any developments.
Thank you and as a follow up with respect to some of these.
Additional potential opportunities Tilbury Lake Erie connector et cetera.
If they were to reach a positive F y D. This year what are the thoughts on how they might be optimally financed.
For the Tilbury.
Well, just generally adding like added additives, you're already pretty robust rate base growth outlook, just wondering what the incremental capital and they might come from.
Yeah, no sorry, and Linda Yeah, No you're right and we've also stated that when we looked at on $19 $6 billion capital plan, and we were expecting that that would be a little bit of a lower participation, but as you know participation as backup to I'm going to say pre and 19 92019 levels go back.
Up to that 35% participation. So we'll have some extra capacity under our drip and I've always said that if we're if we're in a position where we're growing even faster than that then I'm I say this to David all the time everything goes back on the table from a funding perspective, but right now we do have some current flex.
Ability with our drip program, giving us extra above than what we thought when we set that $19 6 billion dollar plan.
Thank you and just.
On a question around your cash flow from operations and noticed that your accounts receivable is creeping up a little bit.
Recognizing that there's been some relief provided to customers during the pandemic, what's the outlook and a trend or whether that might continue to grow through the year, whether that might be recovered through regulatory mechanisms over time or potentially stay flat for awhile and how might we think of.
That trending.
Linda and is a great question and last year, certainly with the start of the pandemic. It was an area that a lot of companies focused on no doubt, including focusing including Fortis. We did see an increase in receivables last year I do feel like we've done you.
And it's hard to predict entirely but I do feel that we're in a good place right now we adjusted our reserves to reflect the fact that our receivables were increasing feel that we've hit a plateau and that we're in a good spot and we're not seeing it worsen, which I think is very a very good.
Clint.
Clearly, we're all looking for this pandemic could be over and to get back to more normal normal operations and we're not going to take our eye off of this but I would say that yes. You are correct. We did see an increase but we're starting to see it level lives and we're in a good position from a how we provide them for that and the previous year.
I would just add to that probably the two utilities that are most exposed to that that don't have the the regulatory mechanisms.
Defined as clearly as others would be you on us and and C H and and I would add that as we're coming out of the pandemic here. Those are two of the states that are probably coming out pretty quick here. So we would expect that that positive.
Recovery too.
And obviously impact us and a positive manner from a from a customer payment perspective.
Thank you I'll jump back in the queue.
And your next question will come from the line of Rob Hope with Scotiabank.
Please proceed with your ROE next year.
Yes. Good morning, everyone. First question just on on the Lake Erie connector. So it looks like the Feds are on board with the project. However, we still need the offtake, which we expect will be driven by the provincial government.
You know our the fed is talking to the provincial government is the Canadian infrastructure bank kind of actions.
A precursor to to contracts, there or or maybe more broadly where are we on that project right now.
Yes, so we can't really tell exactly what's going on behind the scenes, but we were obviously, having a lot of conversations with the provincial government and Ontario, there related to this project, but having the federal government involved and having the Canada infrastructure bank come out and support of this project I think is all very positive.
For us to progress that project, it's a great project.
Just to lay it out there and it's got it's got a great savings story has got a great and should be a greenhouse gas reduction story, it's got a great reliability story and it is a really really good project that says this is kind of the things that when you think about.
Big transmission projects and interconnect markets that we should be focused on longer term and fact us as this is one of them that's called out specifically and and one of the most recent studies that show all these basically shovel ready projects that are Raring to go Lake Erie connector was on that list.
So, yes, we think that the positive momentum and the positive conversations among government, whether it's at the state and provincial level are going to do nothing other than help us get this project move and get you know TSA is finalized.
And get a I was going to say Wow wires and the air but it's actually wired underwater. So that we're looking forward to start on this project.
Alright. Thank you and then I just want to go back to the note for.
Liquid yesterday, saying he was baffled by the criticism of the changes other than Doper and.
You didn't need and incentive to be part of and our T. O. However, you know you also mentioned that.
If you need to Incent transmission, there would be kind of other ways to do it including a higher base Roe. So.
Because there's no per change and then kind of you know once again lead to another.
Wholesome review of the row for ITC.
Yeah, Rob I don't I don't think and I don't I wouldn't go that far on on the tail end of your question there on this basically.
Brings up the base ROE conversation again, but.
I'll point out a couple of things first.
Reading the sense from Dan Lee and chatter G Commissioner Stanley and Commissioner chatter G.
Related to this our T O adder removal.
And is very insightful.
There's a couple of points one one day, obviously you argue that the reason for having this our T O at or from a market perspective, we need bigger markets as I mentioned before that is the solution to integrating renewables, we need bigger markets, we need more participants the bigger the market the better.
Cost allocation is the better reliability as the more renewable energy we can integrate.
And that should be that should be the key focus which is the leads me to the second point, which it both commissioners downward and chatter you bring up is legally the federal Power Act requires that there is and incentives to participate in the T. O and there is 14 years of precedent that is related to exactly doing that.
So it is it's it's odd that this would be a focus on the supplemental and over.
And we obviously will make comments that I think will sound a lot like the defense from from those to the two minority commissioners there. So we.
Well it is I understand the commissioners and commissioner Glick opinion that this is this is a.
For a different mechanisms and the project and incentives.
Our answer is yes, but you need both one is for projects and the other is for RTL participation and those are two very different incentives and you got to make sure you have both especially given the accelerated a renewable energy transition that we're trying to push across the United States under the current by the administration.
Alright, I appreciate the color. Thank you.
And your next question comes from the line of Mark Jarvi with CIBC capital markets. Please proceed with your question.
Thanks for everyone.
I just wanted to go to the transition tax credits and wondering if it hasnt gone through them and your understanding of how broadly applicable there might be for things like they come and to hold in terms of Lake Erie project.
And then and any idea in terms of loosely quantify and what it could impact you said it could be positive to EPS and cash flow.
Yes. So the question there is.
There is around the investment tax credits for transmission projects on a going forward basis, because there is a lot of incentives and a lot of attention being paid on on transmission. Obviously, the you know like when you look at the infrastructure plan and the $100 billion of of of of set aside basically for.
Grid upgrades to improve both regional and interregional transmission and Theres loan guarantees and Theres, obviously structural changes theyre, making to try to get things permitted quick.
On a more quickly partnerships between <unk> and.
And D O T down down here and the U S. A lot of that stuff and it and obviously our tax credits are going to be part of that overall push towards a new transmission projects as well I'm going to I'm going to kick that to Linda to talk a little bit about but generally what we see from a from a tax credit perspective.
From a from a transmission perspective is this will hopefully bring some of those projects that might be around the edges into.
Into fruition and it might be the thing that puts some of these projects over the edge from an economic standpoint, do you have any additional color on that Linda.
Yeah, Dave.
A whole lot of additional color I mean, certainly you know.
And we're still awaiting sort of further clarity or insight in terms of specifically how.
How would those projects that may be eligible for the investment tax credit and how would they how would they come to fruition.
There's talk about sort of you can sort of make some some options around that.
Kind of and taking advantage of the tax benefit.
I think the positive news is that we see all of these things not only are positive for my tax perspective, but certainly we do not view them as eroding and you pay the rate base of the project.
But more to come on the details I think are still prudent.
A great at this point in time, but I think overall and most importantly, I think it's just all of the positive momentum around incentivizing transmission.
Obviously from our perspective, whether that be through sort of the sort of the FERC Avenue and perspective or whether it be through our tax incentives. So I think more to come on.
As the on the legislative proposals on gets more substantive.
Vehicles I think.
Share more information on that.
And just based on those comments and it seems like it's from based on what <unk> seen is contemplated and within Europe, but it wouldn't be a lot and be more on the fringe as opposed to a lot on your core investments.
Yes, that's correct I mean, we would envision that the you know the typical what I would call regional on.
Transmission projects would continue to go through the RTL planning process will be included in a rate base I suppose if there were some projects that meet certain criteria.
And that perhaps legislation and specify and perhaps those could be.
You know they could take advantage of the tax credit, but as we sit here right now.
Our belief is that most of the.
What I would call traditional regulated transmission projects will continue to go through the RTL planning process and that perhaps there will be sort of other definition or categories of transmission projects that.
And that meet certain criteria that may be eligible for certain tax benefits, but like I said on all of those details have not been developed yet so we're going to have to continue to work.
With congressional folks the administration to help.
And kind of flush those details out.
Okay got it and then tossed on other questions for you I know you're still looking for a lot more details around some of the proposed tax changes here in Canada and the U S. But if you had the same day, one versus the other thing and potentially and more impactful as it is at the U S changes on minimum taxes international tax treatment.
Or any kind of comments in terms on the relative impact of what you've seen so far for those proposals.
So mark and it is a tough question because we have limited information both he and the U S and in Canada, but you know when you look at the impacts for Ford is the increase in taxes is a pretty it's a simpler one because we're going to likely see partial reversal reversal of what we had seen with you and tactical and so we will.
And increase in taxes and increasing cash flow.
When it comes to the like interest deductibility limits, and Canada, and a 15% minimum tax and the U S. Both of those are going to be driven by how they define and tax EBITDA or the minimum book and book income So and we don't really have clarity on that just cash flow and that particular, one but still.
And it will be timing of cash flow, but it's hard for us to say.
Which one is really going to be more impactful because it's going to depend on the definitions I think.
Okay, and then just one last question around them and no per day it.
It was passed as it's been proposed to day would there be any retroactive adjustments or and just solely on a go forward.
Basis in terms of impact on on your rates and in other words, yes.
And it's only on a go going forward basis.
Okay got it thank you.
Youre welcome on and you.
Your next question comes from the line of Michael Sullivan with Wolfe Research. Please proceed with your question.
Hey, everyone. Good morning on them.
Michael.
And.
First wanted to just ask on the.
The Capex plan you guys noted for for the year debt.
Higher capex could potentially.
Offset FX headwinds.
Would that be coming from and how material could that be.
And it's coming from a couple of different places. This year. Some has to do with the timing of also Grande and.
Investments that we have made basically something that leaked over from 2020 and into 2021 and getting that project.
<unk> Ah Theres, a little bit additional at and to what the Mckinney and project as well and.
And also.
Scotiabank at for to sell Berta. So right now those are those three pieces are basically cover and the FX Delta between what we had and the what we used for the $19 $6 billion.
<unk> capital budget, and and this year's capital budget and what the current.
The current rate is.
Gotcha Okay.
And then kind of similarly, its the no per dose and sorry to beat a dead horse on this but if the number were too.
It's simple.
Momentum and over where to go forward as proposed.
Are there any potential offsets that you guys would have there to I guess, a nickel or so of downside.
Yeah, I mean, it's the it's the offset and the growth that we're always looking for this is this is really about not just focusing on on the ROE adders and incentives all of that stuff that that obviously is extremely important and and and definitely the topic de jure that's for sure, but what we have to look at too as long.
Longer term, how we're gonna be growing that transmission business and as I mentioned previously.
Previously just all of the effort around building out the transmission system everybody.
As in in <unk>.
Alignment on the need for additional transmission infrastructure for us to even have even to have a prayer of becoming too of getting close to.
On meeting the clean energy transition targets that we're putting out and the United States. So.
It's really there's two different.
Topics. That's the that's the return side of things, but the other is what we call. The Pi side of things and this pie is going to be growing enormously. So we got to see basically how those two are going to balance out and as we've talked about from a.
On transmission planning process, MISO and the middle of it Spp's and getting after and obviously a lot of independent transmission.
And the investments are going on throughout the United States, we have to take a look at that bigger broader picture see how that applies to things that we can invest and.
And then put that whole story together and unfortunately, your you would probably jump on it a bit like like we are trying to figure out how much of this is out there, but it will take some time for us to figure. This out and then we'll have a better balance of that growth and return pick.
Picture on a going forward basis.
Okay I appreciate the color there and then my last question was.
Thanks for the Lake Erie project, and better sensor or clarity on on how long the TSA could take like what is within the balance of the year.
Reasonable and.
Would you guys get if you do see on that once it starts construction.
Yeah.
I would apply and on that but I don't want to get in trouble with Linda on on putting out a date that she doesn't agree with and so I'm going to I'm going to shoot straight debt or to to answer that one.
Yeah. Thanks, Dave.
Certainly we're hopeful.
That we can continue to see progress and debt we can reach an agreement.
Within.
Day coming months by the end of the year.
Certainly as you can imagine with any type of negotiation and two two party on negotiation. It takes two of US obviously to come to terms. So are we hopeful is that possible absolutely.
And on and I'm, sorry, I I cannot specifically answer the F. D. C question I don't know, maybe perhaps Jocelyn Ken.
And their lives that's all part of volume and say negotiations of the whole project cost and how we finance that but it's the nonregulated business as you know and Michael.
Got it okay. Thanks, so much.
Your next question comes from the line of Andrew Kuske with Credit Suisse. Please proceed with your question.
Thanks, Good morning, maybe if we could just focus a little bit on Arizona and all.
Obviously, some pretty big capital plans there for them.
Intel and TSMC among others is just naturally happens and the state but for.
And those two semi manufacturers and it's rare.
Capital It looks like it falls outside of your service territory.
Could you maybe give us a little bit of color and context on opportunities you think will happen just from the capital flows into the states.
Yeah, Andrew that's a great question and and a lot of times when you look at some of the economic data and Arizona, It's obviously driven.
Mostly around the Phoenix area Miracle, Polk County, which is which is obviously one of the fastest growing if not the fastest growing county.
And all and all of the U S. Some of that does leak out to areas around the Phoenix area down and into Arizona, we have seen.
And increase in AR.
And economic development inquiries, and and southern Arizona, we have and economic development.
Organization that both me and Susan Grey, the the new President and CEO of our U S. Energy are both part of so we are seeing some visibility on to that.
And we do see that we're going to and it is Arizona and this is a this is a strong growth state.
And we will continue to be a strong growth stayed on a going forward basis.
And we obviously are looking to attract as much business as we can economic development as is the best of all things for me utility standpoint, that's what brings and customer growth that actually brings and kwh with it so that when.
You're investing to add these customers, you're adding the usage to the to the formula as well and some of these larger customers like the Roes.
The Rosemont mine, that's still sitting out there waiting to get through its legal hurdles and and get started those big customers like that are beneficial for our overall customer base and our rates because we can spread those costs out among more customers and more kilowatt hours.
That's helpful context, and then maybe just still staying within let's say do you foresee and the opportunities to do renewable generation outside of your existing rate based on activities.
And we support corporate customers that are seeking to help cleaner power.
Yeah, we actually are just.
And just announced this week when we brought on it when we brought the.
Solar project and Nextera Bill for US 100 megawatt project with a 30 megawatt battery and of course, though so Grande project as well, we actually earmarked some of those some.
And some of those kilowatt hours for not.
For our University of Arizona, we entered into a long term contract with them to provide them with a 100% renewable energy, which was one of the.
Biggest it's though is the biggest deal like that with a public University and in United States. So we're really proud of that deal. We're always looking at ways to meet our customers' needs and if theres additional renewable energy.
They're looking for and that we can invest and and that we can get.
On a long term contract it points back to those resources, where we're always looking at things like that always have been and always will be and theres not theres also other utilities within our footprint and our control area smaller municipalities co ops et cetera that you know are always opportunities for that as well.
But.
Those are things, we look at and not something we.
Have a laser focus on but I'll always looking to help.
How about our customers and look for investments around the edges, even if they are unregulated.
Later, we like to call and contracted and energy infrastructure.
Deals.
Very helpful. Thank you.
And on your next question comes from the line of Elia Lascala with IAA capital. Please proceed with your question.
Good morning.
Just wanted to focus on the capital plan and potential inflationary pressure that you might see on it.
So I was wondering if you could provide some color on that and just also comment on the ability to absorb any sort of increases and and the rate base.
Well, that's a that's a great question.
There's there's a combination of impacts when we look at our capital plan well and every year, we we locked down on our capital plan show to our investors and then and then of course, we're already working on the next one.
And there will be as we go forward.
And when you look at this next capital plan that will rollout in the and the fall for the next five year period.
It'll be a it'll be a combination of things that go in there related.
Related to inflationary we redo budgets on these all the time, obviously the shorter term contracts are much more known some of that exposure might be hedged on.
Tracks or commodity et cetera, but on a going forward basis that goes all back into the part with the additional.
Fine tuning of project definitions and of course. The addition of new projects as we go. So we I probably don't have a have a clear view on where that might go from an inflationary pressure perspective on whether that drives that capital up.
And of course, there's FX impacts as well.
And then when you look at it from a funding perspective as jostle and noted.
We have the drip program that we're getting really strong participation and so all of those pieces will go back and to tell that story when we roll. It out later this fall.
Okay, and you know it wasn't an easy question, but it was one that I wanted.
To ask and.
And you kind of alluded to this so I will just make this for last follow up you probably have some internal tolerances on on the capital plan should we really expect one about six months from now or if you think you're moving outside those boundaries and is there a possibility that we might get and update earlier and I'll leave it at that.
Yes, there's always there's always a.
There's always the option to give an update early if something big happens right. I mean, we wouldnt completely redo a five year forecast, but if let's just say if lake Erie connector, which is not and our five year capital plan.
Drops in and we can get that thing moving we're going to tell you we're not going to wait until September October whenever we're going to do our our investor day to let that cat out of the bag.
More of the pieces behind it.
Inflationary changes to commodity price changes remember a lot of other stuff that we do is.
As infrastructure right. So its copper and steel it's all of those things and we're gonna have to take a hard look at what those how those have changed and what that does to our capital budget on a going forward basis, but anything big we'll let you know the stuff that's kind of the.
On the details behind the scenes are rolling up a capital plan.
Probably don't want us to be giving you too too often and updates on that.
And I appreciate that and I think I've got a good understanding of the boundaries and how you look at it with all of these moving parts. So I'll leave it at that thank you very much youre welcome.
And your next question comes from the line of Patrick Kenny with National Bank. Please proceed with your question.
Yeah. Thanks, good morning, everybody.
Just looking at the long term Decarbonising plan for Fortis BC.
I'm wondering if you could provide just an update on your progress to integrate our and G. Hydrogen given some of the carbon capture initiatives that are.
Starting to come.
For the surface here.
And we still got a ways to go to for 2030, but would you say things are tracking on pace with your original targets or has there been any variance either way.
Yeah, I'll I'll Oh.
Kicked out to Roger for some of the details I was just actually on a.
On a.
And.
The house of Commons, a natural resource subcommittee on this topic last week about from a from a Canadian perspective, the opportunities for looking at a clean fuels and and of course, our topic was was around the use of <unk>.
Both hydrogen and renewable natural gas and our and our gas systems, and Florida, BC, which is which is a leader in this area has really been doing some great work that we probably don't tout.
A loud enough on what we're doing from one from the RMG perspective, and and the projects that we have and the queue. There and then also.
The R&D and the behind the scenes things that we're looking at from a hydrogen perspective, and I'll turn that over to Roger to add a little bit of color there.
Thanks, David Good morning, and Brian I appreciate the question so on the LNG front.
We've got good line of sight to the.
<unk> 15 per cent R&D target.
2030, we now have on.
About six Petter jewels.
Of agreements that are signed and approved by the BCC those have to be built for the off taker on those agreements, but there.
Signed and approved and we have another three pending BCC approvals so.
We have a boat.
<unk> had a jules.
Ready to go.
And with a number of projects that we have.
Identified and are in negotiations to sign and so we feel that we've got a very good start on the 2030 target for R&D and.
And continue and made good progress there.
Hydrogen is a little bit.
For more and now it seems and did all of that phase, we've got a number of projects underway.
We have a joint initiative.
With other utilities on technical feasibility studies and hydrogen blending in BC.
We have a pilot project with a large industrial site T use renewable hydrogen production to blend into the gas site and the gas supply for that industrial site.
And we are looking at.
Some are in northern BC blue hydrogen and carbon capture.
Can you use to decarbonize, the GAAP system, so quite a bit of activity.
And this area.
And you see government.
Is helping too.
Find with that industry, a hydrogen and study. We're also working a federally with our industry peers on advancing and hydrogen standards and development as well so.
Quite a bit and progress on that front and things.
Okay, great. Thanks for that update.
And then maybe just sticking with western Canada, given the headlines here in Alberta, and the challenges and.
Controlling the case numbers and I.
Yes, your peers and implementing a rate freeze over the next couple of years.
Not sure. If you guys are considering the same or perhaps looking at other opportunities more on the social side too to help out your Alberta customers.
Yes.
I'll turn that over and actually introduce Ginnie and Sullivan who's the new President and CEO of Fortis, Alberta. So yeah, we obviously recognize with other folks on the ground, there and and Alberta, just the tough time that the provinces having on on several fronts.
And obviously I was just hearing yesterday on a on another call that.
And that Alberta has I think if this is right that day.
They currently have the highest per capita number of cases in North America and so that's that's obviously a concern of ours and theirs.
Nothing more important and making sure that our employees and customers and communities are safe and that we're doing everything we possibly can to protect protect them and taken.
All the precautions that we need to as a company to not just keep providing our service, but making sure that our.
And our employees and customers are safe and are taking those right precautions, obviously economic impacts from COVID-19.
From these shutdowns and you know Theres a lot of.
Every one of our jurisdictions has gone through it and different time periods and to different extents and for to sell Berta seems to be the tip of the spear on where that's focused now so I'll turn that over to Janine and.
Have her explain what we may be looking at doing there for our Alberta and customers.
Thanks, Dave and yes, we're certainly very cognizant of the challenges that are going on and Alberta, right now, particularly as COVID-19 continues to.
Wrap up and and really close finishes for our customers.
Really cognizant of the heightened focus on our cost to deliver electricity and the province, and the conversation that our customers are having with the regulator and with government and we've been a part of those conversations and we're staying close to them. There had been some proposals as to how it can be addressed and of course, we're watching how those play out and are assessing those and later.
And on specific circumstances and working on proposals as to how we might approaches and the coming months, particularly as we work through this.
<unk> approach to resetting rates for 2023 at the end of this PBR term, so theres some opportunities coming.
Well, we will continue to work through options available to us and seeing how those have been put out on already play out and how they are received and how they might might work too to address the issues at hand.
Okay. Thank you very much for your comments.
Thanks, Patrick.
And there are no further questions and the queue I would now like to turn the conference over to Mr. <unk> for closing remarks.
Thank you Debra we have nothing further at this time and thank you everyone for participating on our first quarter 2020 one 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 and ladies and gentlemen. This concludes today's conference you may disconnect your lines.
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