Q1 2021 Fortis Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by.
Ms Deborah and I will be your conference operator today.
Welcome to the 40 Q1, 2021 conference call and webcast.
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At this time I would like to turn the conference over to Stephanie MMO. Please go ahead 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 in 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.
Are reconciled to the related U S. GAAP financial measures in our first quarter 2021 MD&A 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 from EPS growth was supported by our record capital investments made in 2020 and during the first quarter of this year higher earnings in Arizona also contributed to year over year earnings growth on.
On the operations from our systems continued to perform well with our people focused on delivering safe and reliable service is a good example of this in Arizona, our gas and electric utilities maintained reliable service to our customers throughout winter storm Yuri that affected so many other surrounding states. It serves as a reminder, the planning for.
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 in our circular we have 10 current directors and two nominees up for election.
Assuming all nominees are elected at our annual meeting Tomorrow. The Fortis Board will have reached gender parity for the first time in our history. This is a significant milestone in 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, 75% by 2035.
Additionally, we are happy to report that our credit ratings credit ratings were affirmed by S&P in 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 Lastly in April FERC issued a supplemental notice of proposed rulemaking uninstall 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 R. T O adder, but we are extremely disappointed.
Given the important role our T O us play in facilitating a reliable cost effective and resilient grid, while enabling clean energy goals.
Turning to slide five through.
Through the first quarter $900 million of capital was invested in our utilities to support resiliency modernization and cleaner energy projects.
For 2021 our $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 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, the Watson, a kidney transmission power project continues to progress the.
For the 18 1800 kilometer transmission project is the largest first nation's majority owned infrastructure project and Canada's history with this ownership structure at the project as a model for indigenous communities across Canada for the Springs at 39% equity interest in its utility expertise his project.
Manager to the partnership.
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 2023.
By replacing diesel fuel generation with cleaner energy from the Ontario grid.
Often a kidney GAAP project is estimated to reduce emissions by $6 6 million tons over a 40 year time frame.
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 2025 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 in 2022 over $40 billion in 2025 supporting average annual rate base growth of approximately 6% through 2025.
Beyond the base capital plan, we are focused on incremental opportunities that expand and extend growth.
First at ITC, the mid continent independent system, operator, or MISO has initiated a long range transmission planning process in March MISO outlined conceptual maps identifying potential new transmission required to enable more renewable generation in 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. Six assets are strategically located to interconnect the Midwest to cleaner energy resources.
Also at ITC the proposed Lake Erie Connector transmission project continues to progress in 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.
The project is expected to bring an estimated $100 million in annual savings to Ontario customers by connecting their grid to the P. J M connect interconnection the largest electricity market in North America. Additionally, the project is expected to reduce greenhouse gases by up to three but by up to three.
<unk> 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 of the projects would take for years to complete.
In Arizona the team is working to advance its clean energy goals, which requires investments in 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 required.
To attain Florida species target to reduce customer greenhouse gas emissions, 30% by 2030.
Lastly, the Biden 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 in Arizona and electric vehicle infrastructure in 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 in 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 in Arizona, where 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 a force that EPS increase this was driven by 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 2020 favorably impacted the quarter over quarter change.
In New York Central Hudson increased EPS by a sense, driven mainly by rate base growth and timing of operating cost.
And EPS.
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 Unfavourably impacted quarterly results by two cents all in 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 in 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 manage cost and regulatory mechanisms that served to stabilize cash flow as an earnings have operated as expected.
As David mentioned in April S&P affirmed our a minus issuer credit rating and our triple B plus unsecured debt rating and also revised our outlook to stable from negative.
And just yesterday D. B R. S Morningstar upgraded our corporate and unsecured debt ratings from Triple B high to a low bulk.
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 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 in the RTL.
Notably the commission modified the initial Noecker from March 'twenty, 'twenty, which proposed to increase the R. A T O adder to 100 basis points. However, the supplemental no pronounce seeks to eliminate the 50 base basis point, our T O adder for transmission owners that have been a part of the RTL for more.
More than three years, including T C L.
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.
I T C is revealing the supplemental node for them will be providing comments, which are due to for later this month, there's no stipulated timeframe for for to issue a final rule and any impacts would be perspective.
As a reminder, every 10 basis points change in ROE at ITC impacts Fortis as 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 in BC, including our gas and electric businesses. The proceeding is expected to set cost of capital parameters to get back to a January one 'twenty 'twenty two.
In March for to sell brought I've received a decision on the 2022 generic cost of capital proceeding current cost of capital parameters remain in place for 2022.
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 Rebased <unk> 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 of the recently proposed tax changes in infrastructure spending.
From a U S tax perspective, the proposed increase in 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 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 a 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 taxation. The federal the Canadian Federal Government also released its budget last month, including proposed changes to interest deductibility.
Which could also impact timing of cash flow and changes in international taxation draft legislation in both countries has not yet been released we will continue to assess and we will 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 in facilitating new renewable generation and grid resiliency. This emphasis on investments in clean energy aligns with Fortis is focus unimproved.
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 in summary, we remain steadfast in 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 in 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.
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Yeah.
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 them.
Recognizing that the <unk> adder.
<unk> was obviously the main topic of the supplemental loper, 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 this decision in April impacting your Transco independent data.
Yeah, Thanks, Maurice and good morning, glad you could make it on the call today as you know the March 'twenty 'twenty incentives and Oprah that came out had a had a several different categories. It actually is as you mentioned on the RTL ladder 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, a 100 basis points for new technology, and then another 50 basis points for projects that are improved deficiency or <unk>.
<unk> costs. So overall there was there was 350 basis points of additional incentive opportunities there on a project by project basis, although within that know for it to cap. The total of any one project at a 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.
You know frankly that it's early days and it is just a note for basically we have of the.
The original no per in the supplemental Oh no for sitting here at basically a bid ask spread is 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 <unk> T O adder for trends for for.
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 them on the independence adder, we've been we've been fighting those for a while and I don't think this provides us any additional insight on where that might go.
Great and maybe related to that my second question. Your outlook comment noted that they were all the feed for the expansion.
In terms of electric transmission grid in the U S and that visibility on the initial projects could be earlier. This year can you elaborate a little bit more about this visibility what where do you see.
This growth coming from and also timing in terms of how potential projects could fall within or just a little bit about your fee.
Five year plan.
Yeah. So I'll turn this over to to Linda Apsey, the CEO of ITC here in a second just a real high level.
<unk> is in that planning process and they put out if 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 of renewable integration as well as different growth scenarios I would point out though that when you look at those futures.
Even the even the most aggressive one might seem a little bit stale. These days as we have.
We have cranked up our level of greenhouse gas reductions in the United States at least the targets that we're putting out there from the from the Baidu 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 it because it is that that 20 year outlook I would I would suggest that there might be the need for a future for us to see if the if we actually followed the.
Biden energy plan and had those you know that 50%, 50% to 52% greenhouse gas reductions by 2030, and what that would look like.
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.
Yeah, as Dave mentioned I would characterize MISO was perhaps the most advanced.
In their long range planning efforts and as Dave I think outlined.
Outlined in terms of the different features 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 the hope is that there would be a sort of as a set of projects. These first mover projects.
That would be included in MISO.
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 in 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 cost allocation.
That would be coincident with the that 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 coordination, but certainly also are having a cost allocation methodology that Ken.
You know realize the projects that are put forth. So we.
We are very optimistic given I would say a lot of the activity. The conversation the collaboration are the engagement across MISO and so.
Certainly I think as Dave as Dave suggested.
I think as we move forward, we will 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 a in a long term transmission planning effort not quite the same visibility at this point in time in <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, but looking at some of the 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.
Five infrastructure plan some of the proposed tax changes in Canada and U S is a few moving parts and I'm just wondering how that's reflected in their base outlook and scenarios.
Yeah.
Hi, Linda it's Jocelyn, yeah with respect to Moody's.
Next update I would suspect it will be over the next couple of months. We have recently met with all three rating agencies D. B R. S S&P and Moody's just to give them an update on our annual 2020 results for a lot of those discussions went very well and as you can see in this quarter. We did receive an 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 can't predict a.
The outcome of that but I'm, 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 in our balance sheet over the last couple of years. So we had good discussions with respect to how they reflect the no per you've probably seen I think it was S&P came out with some kind of.
Ontario round of 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.
If that is the only thing that's approved and isolation of everything else.
So that they recognize that they're all aware of the no further all aware of the Barton our infrastructure plan, they're all aware of the the tax but as you say there are moving pieces and it's hard to nail down exactly what any of them are potentially mean and fortis has worked through this in the past lives.
Envision 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 S y D. This year what are the thoughts on how they might be optimally financed.
For the Tilbury.
Well, just generally adding like added additive to your already pretty robust rate base growth outlook, just wondering what the incremental capital might come.
I'm from.
Yeah, No sorry, Linda Yeah, no you're right.
We've also stated that when we looked at a $19 $6 billion capital plan, we were expecting that the <unk> would be a little bit of a lower participation, but as you know participation as backup to understate pre 1919, 2019 levels going back up to that 35 per cent 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.
But right now we do have some current flexibility with our drip program, giving us extra above than what we thought when we set that $19 $6 billion plans.
Thank you and just.
A question around your cash flow from operations I noticed that your accounts receivable. It is creeping up a little bit recognizing that there's been some relief provided to customers during the pandemic, what's the outlook in a trend or whether that might continue to grow through the year, whether that might be recur.
Covered through regulatory mechanisms over time or potentially stay flat for a while how might we think of that trending.
Linda that's 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.
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 point.
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 is and we're in a good position from a how we provided for that in 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 C. H.
I'd 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.
Positive recovery too.
Obviously impact us in 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.
Yeah. Good morning, everyone. First question just on the Lake Erie connector. So it looks like the feds are onboard 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 are precursor to to contracts, there or or maybe more broadly where are we in 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 in Ontario, there related to this project, but having the federal government involved in having the Canada infrastructure Bank come out in support of this project I think is all very positive.
For us to progress that project, it's a great project, but it does I mean, just to lay it out there. It's got a it's got a great savings story has got a great greenhouse gas reduction story, it's got a great reliability story. It is a really really good project that says this is kind of the things that when you think about big <unk>.
Transmission projects and interconnect markets that we should be focused on longer term. In fact. This is this is one of them that's called out specifically in 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 the positive conversations among government, whether it's at the state or provincial level are going to do nothing other than help us get this project moving get you know TSA is finalized.
And get a I was going to say Wow wires in the air, but it's actually wired underwater. So that we're looking forward to starting 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 of the note for you.
You didn't need an incentive to be part of an RTL. 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 than kind of once again lead to another.
Wholesome review of the row for ITC.
Yeah, Rob I don't I don't think I don't I wouldn't go that far on the tail end of your question there on this basically.
Brings up the base ROE conversation again, but I.
I'll point out a couple of things first.
Reading the dissent from Dan Lee and chatter Commissioner Stanley and Commissioner chatter G.
Related to this our T O adder removal.
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 is more renewable energy we can integrate.
That should be that should be the key focus which is the leads me to the second point, which it both commissioners Dalian chatter you bring up is legally the federal Power Act requires that there is an incentive to participate in the RT 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 the focus of the supplemental <unk>.
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 when commissioner Glick opinion that this is this is a.
A different mechanism than the project incentives.
Our answer is yes, but you need both one is for projects and the other is for RTL participation. Those are two very different incentives and you got to make sure you have both especially given the accelerated 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.
Just wanted to go to the transition tax cuts I'm wondering if it hasnt gone through them.
For your understanding of how broadly applicable to my team.
Like they come into the fold in terms of Lake Erie project.
And then any idea in terms of lucid quantifying what it could impact you said it could be positive to EPS and cash flow.
Yes. So the question there is or isn't.
Around the investment tax credits for transmission projects on a going forward basis, because they are there is a lot of.
Incentives and a lot of attention being paid on transmission, obviously, the you know.
When you look at the infrastructure plan in the $100 billion of of of of set aside basically for grid upgrades to improve both regional and interregional transmission. There's loan guarantees. There's obviously structural changes theyre, making to try to get things permitted quick more quickly partnerships between D O.
And in D O T down down here in the U S. A lot of that stuff in it and obviously our tax credits are going to be part of that overall, our 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.
To fruition 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.
Yes, Dave not not a whole lot of additional color I mean, certainly we're still awaiting sort of further clarity or insight in terms of specifically how you know how would those projects that may be eligible for the investment tax credit how would they how would they come to fruition.
There's talk about sort of you can sort of make some some options around.
And taking advantage of the tax benefit.
I think the positive news is that we see all of these things not only a positive from a tax perspective, but certainly we do not view them as eroding any pay the rate base of the project.
But more to come on the details I think are still prudent.
Pretty a grade 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, you know from our perspective, whether that'd be true sort of the sort of the FERC Avenue in perspective, or whether it be true tax incentives. So I think more to come.
As the sort of the legislative proposals get more substantive.
Vehicles I think.
Can you share more information on that.
But just based on those comments it seems like from based on what <unk> seen is contemplated in within Europe, but it wouldnt be allowed to be more on the fringe as opposed to a lot of your core investment.
Yeah, that's correct I mean, we would envision that the you know the typical what I would call regional.
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.
Perhaps legislation specify and perhaps those could be.
You know they could take advantage of the the tax credit, but as we sit here right now.
Our belief is that most of the.
So do I 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.
That meet certain criteria that may be eligible for certain tax benefits, but like I said 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.
Kind of flush those details out.
Okay got it and then talk from a question 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 as being potentially more impactful as it is at the U S changes on minimum taxes international tax treatment.
Or any kind of comments in terms of the relative impact of what you've seen so far from those proposals.
So mark it is a tough question because we have limited information both in the U S and in Canada, but you know when you look at the the impacts for Fortis. The increase in taxes is a pretty is a simpler one because we're going to likely see partial reversal reversal of what we had seen with U S tax reform. So we will.
For an increase in taxes the increase in cash flow.
When it comes to the like interest deductibility limits in Canada, and a 15% minimum tax in the U S. Both of those are going to be driven by how they define you know tax EBITDA or the minimum book a book income So and we don't really have clarity on that just cash flow on that particular, one but still.
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 the no per day. It was passed as it's been proposed to day would there be any retroactive adjustments or just solely on a go forward.
Basis in terms of impact on your rates in that range, yes.
Yes, it's only on a go going forward basis.
Okay got it thank you.
Youre welcome Mark.
Your next question comes from the line of Michael Sullivan with Wolfe Research. Please proceed with your question.
Hey, everyone. Good morning.
Michael.
I first wanted to just ask on the <unk>.
The Capex plan you guys noted for for the year debt.
Higher capex could potentially.
Offset FX headwinds.
Or would that be coming from and how material could that be.
That's coming from a couple of different places this year some has to do with the timing of also Grande.
Investments that we have made basically something that leaked over from 2020 into into 2021 and getting that project.
Completed a theres a little bit additional at AR at the <unk> project as well.
And also there's a scotiabank at our Florida cell burden. So right now those are those three pieces are basically covering the FX delta between what we had in the what we used for the $19 $6 billion.
Our capital budget and this year's capital budget and what the current.
Current ratios.
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.
Supplemental know for where to go forward as proposed.
Are there any potential offsets that you guys would have there to I guess nickel or so of downside.
Yeah, I mean, it's the it's the offset in the growth that we're always looking for this is this is really about not just focusing on on the ROE adders incentives all of that stuff that that obviously is extremely important in and definitely the topic de jure that's for sure, but what we have to look at too is long.
Or term, how we're gonna be growing that transmission business and as I mentioned.
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 even to have a prayer of becoming too of getting close to.
Meeting the clean energy transition targets that we're putting out in 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 in 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.
Transmission planning process MISO is in the middle of it Spp's getting after it obviously a lot of independent transmission.
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 in.
And then put that whole story together and unfortunately, your you'll probably chomping at the 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, any better sensor or clarity on how long the TSA could take like what is within the balance of the year.
Reasonable.
Would you guys getting a few D C on that once it starts construction.
Yeah.
I would've pine on that but I don't want to get in trouble with Linda on putting out a date that she doesn't agree with 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.
You know within.
Day coming months by the end of the year, but certainly as you can imagine with any type of negotiation into two party negotiation. It takes two of US obviously to come to terms. So are we hopeful is that possible absolutely.
And I'm, sorry, I I cannot specifically answer the F. D. C question I don't know, maybe perhaps jocelyn can.
No. That's all part of volume, let's say negotiations of the whole project cost and how we finance that but it's a nonregulated business as you know Michael.
Got it okay. Thanks, so much.
Your next question comes from the line of Andrew <unk> with Credit Suisse. Please proceed with your question.
Thanks, Good morning, maybe if we could just focus a little bit on Arizona.
Obviously, some pretty big capital plans there from.
Intel TSMC among others is just naturally happens in the state but for.
For those two semi manufacturers, it's very 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.
For capital flows into the states.
Yeah.
That's a great question and in a lot of times when you look at some of the economic data in Arizona, It's obviously driven mostly around the Phoenix area Miracle per county, which is which is obviously one of the fastest growing if not the fastest growing county.
And all in all of the U S. Some of that does leak out too.
Areas around the Phoenix area down into Arizona, we have seen.
An increase in.
And economic development inquiries in southern Arizona, we have a an 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 into that.
And we do see that we're gonna. It's it is Arizona I mean 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 from a utility standpoint, that's what brings in customer growth that actually brings in 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 in some of these larger customers like the Roes.
<unk> mine, that's still sitting out there waiting to get through its legal hurdles 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 any opportunities to do renewable generation outside of your existing rate base activity.
You may be support corporate customers that are seeking to help cleaner power.
Yeah, we actually are.
Just announced this week when we brought our when we brought the.
Solar project at Nextera built for US 100 megawatt project with a 30 megawatt battery and of course, though so ground day project as well, we actually earmarked some of those some.
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 itself is the biggest deal like that with a public university in the 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 in and that we can get.
A long term contract it points back to those resources, we're always looking at things like that always have been and always will be theres. A 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 not something we.
Have a laser focus on but I'll always looking to help help out our customers and look for investments around the edges, even if they are unregulated.
Later, we like to call contracted in energy infrastructure.
Deals.
Very helpful. Thank you.
And 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 in the rate base.
Well, that's a that's a great question.
There's you know there's a combination of impacts when we look at our capital plan well every year, we locked down the capital plan show to our investors and then and then of course, we're already working on the next one.
There will be as we go forward.
And when you look at this next capital plan that will rollout in the fall for the next five year period.
It'll be a it'll be a combination of things that go in there related.
It 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.
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 probably don't have a have a.
Clear view on where that might go from an inflationary pressure perspective, whether that drives that capital up.
Of course, there's FX impacts as well and then when you look at it from a funding perspective is Jocelyn noted.
We have the drip program that we're getting really strong participation and so all of those pieces will go back in to tell that story when we roll. It out later this fall.
Okay, but no it wasn't an easy question, but it was one that I wanted to to ask them.
And you kind of alluded to this so I'll 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 youre moving outside those boundaries is there a possibility that we might get an update earlier and I'll leave it at that yes.
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 in 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 the stuff that we do is.
As infrastructure right. So its copper it's 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.
The details behind the scenes are rolling up a capital plan.
Probably don't want us to be giving you too too often have updates on that.
No 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 you are welcome.
And your next question comes from the line of Patrick Kenny with National Bank. Please proceed with your question.
Yes, thanks, good morning, everybody I'm.
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 RMG hydrogen.
Given some of the carbon capture initiatives that are.
Starting to.
Come for the surface here.
I know, 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 kick that to Roger for some of the details I was just actually.
On a.
How is the Commons natural resource Subcommittee on this topic last week about from a from a Canadian perspective, the opportunities for looking at a clean fuels and of course, our topic was was around the use of both hydrogen and renewable natural gas in our in our GAAP.
<unk> systems in Florida, as PC, which is which is a leader in this area has really been doing some great work that we probably don't tout.
Loud enough on what we're doing from one from the RMG perspective, and the projects that we have in the queue. There and then also.
The R&D and the behind the scenes things that we're looking at from a hydrogen perspective, I'll turn that over to Roger to add a little bit of color there.
Thanks, David Good morning, everyone. I appreciate the question so on the LNG front.
We've got good line of sight to the.
15% R&D target.
2030, we now have.
<unk> six per jewels.
I have agreements that are signed and approved by the BCC those have to be built where the off taker on those agreements, but there.
Signed and approved and we have another three pending BCC approvals so.
We have a boat.
He had a jules.
Ready to go.
With a number of projects that we have.
And then applied and are in negotiations to sign so we feel that we've got a very good start on the 2030 target for R&D and.
And continue to make good progress there.
<unk> is a little bit.
For more now what I would say is the development of phase, we've got a number of projects underway.
We have a joint initiative.
With other utilities on technical feasibility study for the hydrogen blending in BC.
We have a pilot project with a large industrial site T use renewable hydrogen production to blend into the gas side the gas supply for that industrial site.
And we are looking at some northern BC blue hydrogen carbon capture.
Can you use to decarbonize, the GAAP system, so quite a bit of activity.
In this area.
The BC government.
Is helping too.
Find with that industry a hydrogen study, we're also working carefully with our industry peers on advancing hydrogen standards and development as well so.
Quite a bit of progress on that front. Thanks.
Okay, great. Thanks for that update.
And then maybe just sticking with western Canada, given the headlines here in Alberta and the challenges.
Controlling the case numbers.
Yes, your peers for 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 Janine Sullivan who's the new president and CEO of afford us Alberta. So yeah, we obviously recognize with our folks on the ground there and in Alberta, just the tough time that the provinces having.
Several fronts.
And obviously I was just hearing yesterday on another call that.
That Alberta has I think if this is right that day.
They currently have the highest per capita number of cases are in North America and so that's obviously a concern of ours.
Nothing more important than 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 taking all the precautions.
Cautions that we need to as a company to not just keep providing our service, but making sure that our.
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 in different time periods into different expense 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 in Alberta, right now, particularly as COVID-19 continues to.
Wrap up and I'm really close finishes for our customers.
Really cognizant of the heightened focus on our cost of delivered electricity in 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 in later.
For Oh on specific circumstances, and working on proposals as to how we might approach it in 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 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.
As there are no further questions in 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. Thank you everyone for participating in our first quarter 2021 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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