Q3 2021 Fortis Inc Earnings Call
Yeah.
Yeah.
Ladies and gentlemen, thank you for standing by my name is Phyllis and I will be your conference operator today.
Welcome to the Fortis Q3, 2021 results and new five year capital outlook conference call and webcast.
During the call all participants will be in a listen only mode. There will be a question and answer session. Following the presentation.
At that time, those with questions ship Press Star followed by one on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
At this time I would like to turn the conference over to Stephanie a mimo. Please go ahead Mr. Mimo.
Thanks, Phil and good morning, everyone and welcome to Florida since third quarter 2021 results, a new five year capital outlook Conference call I'm joined by David Hudson, 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 Wonder if mind 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 third quarter 2021 M. DNA also unless otherwise specified all financial information is referenced 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 our third quarter results as we continued to deliver safe and reliable service, while navigating through the pandemic.
Financially our third quarter results reflect strong core operations moderated by a lower foreign exchange rates and cooler than normal weather in Arizona on.
On a year to date basis, we have delivered strong earnings growth absent foreign exchange. We are on track to deliver our $3 8 billion dollar capital plan for 2021 with $2 6 billion invested through September. Additionally, we recently announced a dividend increase of approximately 6% marking 48 consecutive years of.
The increases a record we are very proud of.
Before getting into our new five year plan I'd like to discuss the recent executive leadership development here at Fortis last month, we announced that Jim Laredo will retire at the end of the year from his role as executive Vice President of business development, and Chief Technology Officer.
Many of you know Jim as he has been working in our industry for many years, Jim. We appreciate your immense contributions to forest and wish you and Benita all the best in retirement and on a personal note Jim I'd like to express my sincere gratitude for the guidance advice and friendship that you've given me over these last seven years.
Also we announced the appointment of Stewart Lock Reed Senior Vice President of capital markets and business development, We welcome Stuart to the Florida family in the third quarter and look forward to his support and building on the momentum across our businesses to execute on our growth strategy.
Turning now to slide five our new five year plan calls for the investment of approximately $20 billion from 'twenty to 'twenty, two through 2020 six showing our ability once again to extend our strong underlying organic growth. This balanced low risk plan is expected to translate into average annual rate base growth of approximately.
6%.
Our plan shows we've come a long way since October of 2016, when Florida's acquired ITC and was first listed on the New York Stock Exchange after that transaction closed we rolled out our five year capital plan of $13 billion for 2017 through 2020 one.
While that seemed ambitious at the time, we're now on track to invest approximately $18 billion, an additional $5 billion over that same period translating into rate base growth of 8 billion or 6% on average annually.
Okay.
The new capital plan invests in our energy.
Our energy infrastructure and supports a cleaner energy future and includes $1 billion of incremental investments in our regulated utilities.
Drivers of the increase include customer growth enhancements to transmission reliability and capacity and investments in cleaner energy.
This growth in capital is reduced by a lower assumed exchange rate, which decreases the plan by approximately $600 million.
The new plan is highly executable with approximately 85% consisting of relatively small projects. The remainder consists of what we define as major capital projects those exceeding $200 million are just 1% of the five year capital plan.
Our plan includes 11, such projects, including the $200 million Okanagan capacity upgrade project at Fortis BC that will address customer growth in the region through expansion of the existing natural gas transmission system.
As the Pie chart on the left hand side of slide eight highlights nearly all of our new capital plan supports energy delivery and the transition to a cleaner energy future.
Our utilities are planning for cleaner energy investments of $3 $8 billion through 2026 or $500 million increase compared to our prior plan.
This increase was driven mainly by additional renewables and energy storage in Arizona and renewable interconnections at ITC.
In Arizona, Tucson electric power expects to invest in 275 megawatts of energy storage and another 90 megawatts of solar projects to support its integrated resource plan and exit coal by 2032.
T C plans to invest in transmission to interconnect renewables, including 2800 megawatts of generator interconnections in the U S Midwest and in multi value projects.
At our Western Canadian electric at our Western Canadian Electric and gas utilities clean energy initiatives include renewable and liquefied natural gas investments in British Columbia, and distributed energy resource integration investments in Alberta.
Investments in the Watson, a kidney App transmission project in Ontario, and alternative energy technology technologies and battery investments in the Caribbean also support our sustainability strategy.
Our carbon emissions reduction target is on track as we've reduced emissions by nearly 2 million tons in 2020.
With our continued investment in cleaner energy infrastructure. The planned closure of the San Juan generating station next year and the beginning of seasonal operations Springerville generating station, we are well on the path to meet our 75% carbon emissions reduction target by 2035.
Our target is balanced and ensures reliable and affordable service, while providing time and support for impacted communities.
By 2035, we expect 19, 9% of our assets will be related to energy delivery and renewable carbon free generation.
Beyond reducing scope one emissions all of our utilities are focused on improving their environmental footprint, including their scope two and three emissions.
Through investments in R&D, and LNG renewable interconnections electric vehicles energy efficiency initiatives and other efforts, we are working to reduce economy wide greenhouse gas emissions.
In addition to improving our already low carbon footprint. The capital plan also supports steady rate base growth across our portfolio of utilities Central Hudson continues to lead the way with average annual rate base growth of over 7% driven by investments in infrastructure upgrades and information technology, our consolidated <unk>.
Rate base growth will be mainly driven by our three largest utilities ITC Fortis BC and U S energy.
The plant is expected to increase rate base by $10 billion from approximately 31 billion in 2021 to nearly 42 billion in 2026 supporting average annual rate base growth of approximately 6% through 2026.
We have many other opportunities that could expand and extend growth at our regulated utilities, which are not reflected in our capital plan today as we have previously discussed ITC is strategically positioned in the Midwest to invest an incremental transmission required to support a renewable energy transition in the United States The Lake Erie connector transmission.
Project in the MISO long range transmission plan could be large additions to our plan and we expect to have additional clarity on these opportunities opportunities early next year.
In Arizona, Tucson Electric Power's integrated resource plan will require investments in renewables and battery storage beyond 2026 in order to exit its coal generation in 2032.
At Fortis BC, reducing customer greenhouse gas emissions continues to be a priority, whether it's LNG renewable natural gas or hydrogen the infrastructure needed to support a decarbonize. The economy will complement our organic growth strategy and support clean B c's roadmap to reduce customer greenhouse gas emissions.
In light of these opportunities as well as the potential acceleration of our clean energy transition in North America. We remain optimistic that we will be able to secure investments that will be additive to our current plan.
Next I'll spend a moment discussing recent increases in commodity prices and supply chain considerations given the impacts of the pandemic is having on the economy.
First we are seeing increases in natural gas prices, which are impacting our utilities in British Columbia, Arizona and New York.
Well hedging policies and recovery mechanisms for these costs vary by regulatory jurisdiction. They're ultimately recovered from customers. This is expected to increase our customers' rates. While these higher cost persists as prices moderate the same mechanisms will allow those rates to decrease we remain focused on mitigating customer bill.
Impacts through energy efficiency and conservation programs wherever possible. We will also continue our efforts to manage costs across our enterprise through innovation and process improvements to maintain affordable service to the communities we serve.
As it relates to the supply chain, our Fortis operating group is focused on proactively managing our supply requirements with coordinated buying and utilizing supplier alliances to maintain reliable service and ensure the execution of our capital plan.
Notably to date, we have had only minor supply chain concerns. However, we are currently doubling down on our supply chain efforts to be ready for 2022 and beyond.
Due to the length of our planning cycle and the long term nature of our capital plan. The recent price increases for commodities, such as steel and copper are not fully reflected in our five year plan, we will be evaluating these impacts going forward.
As I mentioned last month, our board of directors declared a fourth quarter dividend dividend of $53 five <unk>.
Representing an increase of approximately 6%.
Again, this marks 48 consecutive years of dividend increases.
The strength of our local energy delivery businesses, coupled with our diverse geographic and regulatory footprint positions us well to extend this record and to that end today, we are reaffirming our 6% average annual dividend growth through 2025 now.
Now I will turn the call over to Jocelyn for an update on our third quarter financial results.
Thank you David and good morning, everyone.
Turning to slide 15 reported earnings per common share for the quarter was 63 cents consistent.
Consistent with the third quarter of 2020 <unk>.
Adjusted earnings per common share was <unk> 64 cents.
A little worse than the third quarter up 2020.
During the quarter cooler weather in Arizona tempered earnings by five cents, while a lower foreign exchange rate lowered EPS by three.
Excluding these impacts our regulated utilities delivered strong results driven by rate base growth new customer rates at TEP and higher earnings at ITC for just Alberta and in the Caribbean.
For the nine months ended September 2021, adjusted EPS was $1 96 per common share eight cents higher than the same period in 2020 and this growth was despite the FX impact of 10 cents year to date.
Before getting into the specific drivers of the quarterly and year to date earnings results I wanted to touch on the recent sales trends across our utilities and similar to the previous trends. We discussed last quarter. We continue to see an increase in the commercial and industrial sales and lower residential sales.
Notably commercial and industrial sales increased 6% for the quarter.
Lower residential sales were associated with decrease in work from home practices and cooler weather in Arizona and this was partially upset by warmer than normal weather in Alberta.
Taking a further look at Arizona retail sales were down in the quarter by approximately 8% compared to the same period in 2020 due to cooler temperatures temperatures, which reduced air conditioning load in the region equating to a five cent EPS impact.
As you can see on the slide during the third quarter of 'twenty 'twenty Tucson recorded the hottest month on record.
Absent weather impacts retail sales into some were down 1% driven by lower residential sales, reflecting changes in work from home practices, partially offset by higher commercial and industrial sales.
Slide 18 highlights EPS drivers for the quarter by segment at ITC rate base growth and an adjustment related to interest rate swaps contributed to a 5% increase in EPS.
Our western Canadian regulated utilities contributed a three cent EPS increase for the quarter driven by rate base growth as well as higher sales due to favorable weather and the timing of expenditures in Alberta.
At our other electric segment EPS increased by 1% driven by higher sales in the Caribbean due to the continued recovery of the tourism industry.
And at our U S electric and gas utilities EPS decreased three cents in the quarter.
One was driven by lower earnings in Arizona due to the cooler weather I discussed earlier and this decrease was partially offset by the impact of new customer rates at TEP effective January one 2021.
In New York Central Hudson decreased EPS by <unk>, mainly driven by the timing of its pending rate decision. A decision is expected to be concluded in the fourth quarter and once the outcome is finalized earnings associated with the delay are expected to be recognized.
At our energy infrastructure segment EPS decreased three <unk>, mainly due to realized losses on natural gas contracts at Aitken Creek contracts were settled during the quarter of 2021 and consideration of market conditions and favorable forward curves.
Higher weighted average shares outstanding issued through the dividend reinvestment plan decreased EPS by one set and the U S dollar to Canadian dollar exchange rate of $1 26 for the quarter compared to $1 33 for the third quarter of 2020, and this unfavourably impacted quarterly results by three states.
Turning to slide 19, this waterfall breaks down the EPS drivers year to date through September and to not repeat myself. The EPS drivers for year to date largely reflect the same factors discussed for the quarter by segment, except that on a year to date basis earnings were higher in <unk>.
Arizona due to new customer rates at T. P, partially offset by lower sales due to cooler weather and higher operating cost.
All in all our utilities have delivered strong underlying earnings growth year to date absent foreign exchange.
Turning now to our funding plan the new five year capital plan is expected to be funded with cash from operations debt issued at our regulated utilities and our dividend reinvestment plan with no discrete equity required to fund the capital plan through 2026, the funding plan is Larry.
Actually consistent with last year's plan and our capital structure is expected to remain steady over the planning period.
Overall, we continue to take a conservative approach to running our business and our funding plan positions us comfortably within our existing credit ratings through 2026 in.
In particular, Moody's CFO to debt metric is expected to average 12% through 2026 and S&P's episodes of debt is expected to average above 11%.
Both Moody's and S&P metrics are above their respective thresholds and provide ample cushion to maintain our current ratings.
Turning to recent regulatory developments first ITC awaits the final rule from FERC in relation to the supplemental notice of proposed rule, making on transmission incentives, which proposes to eliminate the 50 basis points RTL early incentive.
Although any potential impact remains uncertain every 10 basis points change in early at ITC impacts Fortas's annual EPS by approximately one cent and would be applied prospectively.
Next month FERC will hold a technical conference in connection with the advanced notice of proposed rulemaking issued in July 2021, focusing on regional transmission planning cost allocation and generator interconnection processes.
This progress is positive and underscores the important role transmission plays in achieving the biding administration's climate goals.
At Tucson Electric power you may recall that in 2019, FERC issued an order accepting formula transmission rate, just filed including an ROE of 10, 4% and equity thickness of 54% subject to refund and settlement procedures.
A settlement in principle was reached in August 2021, and the procedural schedule was suspended to allow the settlement to be finalized.
The timeline and outcome of this proceeding remains unknown.
In New York Central Hudson filed a joint proposal in AGA seeking a three year rate plan effective July one 2021.
The proposal includes an ROE of 9% and an equity layer of 50% declining by 1% annually to 48% in the third rate year.
The proposal also reflects the use of existing regulatory balances and other measures to reduce impact bill impacts as well as initiatives to support the state's climate goals.
An order from the New York Public Service Commission is expected in the fourth quarter of this year.
And that concludes my remarks, I'll now turn the call back to David.
Thank you Jocelyn so why invest in fortis its simple with the strength of our utilities and local business model, we offer long term low risk diversified growth as demonstrated by our new five year capital plan a plan that supports our dividend growth guidance through 2025, we remain optimistic about.
The path ahead, as we pursue incremental growth opportunities that will allow us to deliver a cleaner energy future for all our stakeholders I will now turn the call back over to Stephanie.
Thank you David This concludes the presentation at.
At this time, we'd like to open the call to address questions from the investment community.
Thank you, ladies and gentlemen, we will now conduct the question and answer period. If you would like to now Register a question. Please press the star followed by the one on your telephone.
Your question has been answered and you would like to withdraw your registration. Please press the pound sign if you are using a speaker phone. Please lift your handset before answering your request and we kindly request you to speak loudly and slowly to ensure all participants can hear your question one moment. Please for the <unk>.
First question.
Your first question comes from the line of Maurice Choy with RBC capital markets.
Thanks, and good morning.
My first question.
To just pick up on the 6% rate base growth you've announced.
Any thoughts on what the rate base growth may translate to in terms of EPS growth and taking this a step further there have you seen a change in your ability to achieve a similar 6% translation.
Versus say in the past.
This hasn't really changed what has changed.
Yeah, Thanks, Maurice and good morning, good good to hear from you again as you know we don't we don't give earnings guidance and we obviously give a rate base guidance as a proxy.
Somewhat and of course on a longer term basis, we would expect.
Rate base growth and earnings guidance to converge, obviously in a business like ours, where we have different regulatory cycles, and ups and downs et cetera and investment.
It's not linear but on a longer term basis I mean, that's what that's what we would all expect.
Thank you and my second question is on the dividend growth guidance reaffirm your growth guidance, which takes you to 2025 traditionally were seeing you extend this guidance in lock step with the length of your capital plan.
Is it a case of maintaining flexibility in the out year or is there something else there.
I'm motivated disposition.
Thanks Laurie.
Answered, but you answered the question yourself, but you know that four years is still a long time to be given our dividend guidance and we wanted to make sure that we were reaffirming the guidance that we had put out there.
And keeping that and obviously showing a plan that supports that which is key and that of course paired with our track record of hitting that I think is the right spot to be in but as we see it.
Half a trillion dollars of additional.
Of additional investment opportunity in government support in the U S related to the budget reconciliation Bill.
We think that theres going to be a lot of opportunities in the tail end of our five year plan as we mentioned we mentioned some of them, but there's this big bucket of what is all of these additional investments mean does it does it drive for.
Faster clean energy transition in the U S.
Translate into additional investments for us and we think that answer is yes, but we have to see how that trickles down over time, so we'd like to maintain some flexibility in the tail end of our five year forecast.
To be able to address that.
Thanks, So maybe just a quick follow up and just to tie. This first and second question together then.
Yes.
Do you expect over the long term for EPS and rate base growth to converge.
And in this case, you are hoping to have flexibility on the dividend out of you.
Is there a target.
Our dividend payout ratio.
In your mind Youre looking at as you.
Balance all of these.
Physician.
Not not really blurry. So I mean this is these are conversations we have every year with our board of directors to based on the situation in that year and how we see things on a going forward basis. So yeah. We don't we don't have a target in mind as we sit here today.
Okay. Thank you.
Yeah.
Our next question comes from the line of Ben Pham with BMO. Please proceed with your question.
Hi, Thanks, good morning.
First question on the quarter, specifically D XP.
I expect and if you're.
Segment results.
In Q3 to reverse into Q4.
What are the positive or negative or do you expect.
Most of that flow into your realized Roe.
Yes, the question I'll I'll kick over to Jocelyn was breaking up a little bit there, but whether or not we see any any earnings timing between Q3, and say Q4 do you expect any of this to reverse hi, Ben. Thanks for the question Yeah. We do have some timing we referenced central Hudson.
<unk> case, clearly that's a deferral of earnings that we expect that we would have.
Originally expected in Q3, because new rates were to be effective July 1st but now that's moved to Q4. We did have some timing of some cost also in Alberta that we did move earnings to Q3 versus Q4, but outside of that no no major other timing.
Variances that we see between the quarters.
Okay great.
Your comments around the commodity price situation not not being reflected in.
Your base plan should we read that as more as.
There's a flow to upside to your your Capex. If you start to pay 10 or is it is it more reflected that at times.
For your growth outlook.
Priced.
Prices on the commodity side.
Well, Ben we have a.
Our base capital plan, that's that's real projects. So if those projects have higher cost then those costs would be built into that capital and would end up getting pass through higher.
Higher costs and capital costs etcetera.
On a going forward basis to customers through rates. So we do have to pay attention very closely to.
Control those costs, because we want to make sure we're getting the most bang for the invested Buck for our customers, but at the end of the day. It would it would it wouldn't drop out capital projects. It would just increase the cost of them, which makes us really focus on across our entire footprint in every one of our subsidiaries.
Focus on other cost reductions that we can do for our customers to help them manage the bill impacts.
A lot of these things that you have to remember from a capital perspective, a lot of these projects don't necessarily add to customer rate. So just for an example.
In Arizona.
We are shutting down coal plants, and replacing them with solar and battery storage that actually saves our customers money. So there's there's some of that in there as well.
Okay, Great and maybe lastly, if.
If I may acquisitions would love to hear.
Updated comments on on that as you rolled over to Capex program, what are dark scaler or smaller scale.
Updated on what.
I missed the question then.
David on M&A.
Yes.
Your thoughts on appetite for M&A as you've gone through.
Budgeting process and what that upside to the planned downtime to the plan and I know you've communicated Boston had in the past, but what we would want to hear if you've maintained your past viewers there a slight change in appetite.
Yeah.
It will probably sound really familiar I mean.
This is a big capital plan is a big big deal to get that $20 billion capital plan put together it'll be a big deal to execute it.
But we are not resting on our laurels and say in $20 billion capital plans enough, so where we're gonna be out shaking the bushes looking for additional investment opportunities that are right for our customers and our stakeholders and our shareholders.
So we will continue to keep that as our number one focus that doesn't mean, we're sitting here asleep at the switch.
Not paying attention to things that are going on in the market and looking for opportunities that can add value for our shareholders as well. So we will continue to be good fiduciary is looking for opportunities to you know two to five.
Find value even outside the capital plan for our company like we always have been.
Okay. That's great. Thank you.
Yeah.
Our next question comes from the line of Linda <unk> with TD Securities.
Proceed with your question.
Yeah.
I'm wondering as you look like those opportunities or what what sort of guardrails are you.
Posing on your.
Well the possibilities as it relates to geography.
Technologies commercial attribute.
Specifically interested to hear.
Whether you see any initiatives around hydrogen whatever color or attribute.
Our carbon capture.
Within the range of possibilities and how they might manifest.
In leveraging your competencies and we're booking that footprint.
Yeah, Linda we don't really have any guardrails around looking at some of these investment opportunities because we are going to probably cast a pretty.
A wide net but they have to fit within our risk return profile right. So if we're going to do an investment. It has to look like a lot like a regulated investment always has looked for to us.
So whether it's looking at things like hydrogen or or carbon capture utilization storage I mean, each one of our jurisdictions has different pieces that theyre looking at for some of these new technologies.
Columbia renewable natural gas hydrogen opportunities, that's where we're going to probably be looking at that and testing the water, but if the investments don't meet our risk and the risk return appetite and we won't do them.
But we don't have any really guardrails on those types of.
Investments that we don't start with any guardrails on that we want out, but we've got a great sustainability picture as we sit here today with 93% of our assets being T&D and we will always have in the back of our mind the fit on investments and how that how that impacts or effects or ESG.
Profile as well.
Okay. Thank you.
Maybe just.
Some thoughts around when you are considering new projects are.
Our opportunities how you might approach.
The.
The financing.
Part of the equation.
In the past you have looked at our partners for various reasons.
Those tend to not have come to the top of the list now you might have some like sustainability financing linked.
Opportunities as well can you just talk about how you think you might approach financing any additional opportunities.
Thanks, Linda this is Jocelyn yeah, hi.
With additional capital above and beyond the base plan I've said this before and this may also sound like an old story, but you know everything that goes on the table. We have used partners. We typically like to do it ourselves, but we have used partners depends on the size of the project.
Youre, absolutely correct that youre going to see more sustainability linked financing associated with our investments because the investments are likely to be in this space.
The Green energy investments with what's happening, particularly in the U S.
But at a very high level everything goes back on the table because it depends on the amount of growth and the timing of growth we will look at everything from.
From an asset sale to equity to partner and everything in between so I think everything goes back on the table.
Okay. Thank you and just as a follow up given the expectation that interest rates might be going up.
<unk>.
How might you think about potentially pre funding.
A more conservative approach to.
Kind of lock in any sort of financing cost associated with the capital spend that you have certain will come.
Yes, Linda I think you've hit it we did the same thing in 2020 as well when Covid hit we advanced a lot of financing. So I know what across the organization now we are looking at all of our financing.
Where it's appropriate to do interest rate locks or whether it's appropriate to advance so all of us sometimes looking at this most of our financings within the regulated utilities as you would know them.
And then some of those utilities, we do have mechanism whereby the interest costs arising interest costs are actually.
Included in record regulatory deferral mechanism or a part of the PBR structural were shared with customers, but but yes. It is something that we're always looking at and advancing financings is certainly one of the options.
Okay. Thank you I'll jump back in the queue.
Our next question comes from the line of Rob Hope with Scotiabank. Please proceed with your question.
Good morning, everyone just wanted to.
First focus on kind of some of the potential additions to the capital plan.
Lake Eire connector, the government kind of.
Looking at that plan can you maybe comment on kind of your discussions with.
Off takers, there as well as kind of what next steps and when that could be put in the capital plan.
Yes, Theres only one off taker and that is the ISO so that that's those contract negotiations that we are currently in the midst of theres not not really much to tell you in the middle of the of contract negotiations, obviously turned in term sheets back and forth in trying to come to the to the agreement of the deal structure.
We do expect the.
And the minister of energy in Ontario is requesting that.
That report back it by the end of this year. So we are going as fast as we can to make sure we get that done by the end of the by the end of the year and get that report back to the minister.
Alright, that's helpful. And then just taking a look at <unk>, we saw some capex move and this plan can you kind of give us an update on some of the larger opportunities there including additional.
LNG as well as kind of the wood fiber project connection and where are these all stand.
Yes, certainly I'm actually going to turn that one over to Roger Don Antonio Who's the CEO of BC and he's on the line Roger do you want to address that.
Yeah. Good morning, everyone. Thanks for the question, Rob So on wood fiber.
Continuing to work closely with wood fiber they are.
Looking to make F E.
Potentially as early as of lately.
At the end of the year, so progressing that project, but nothing.
Cheering you on the.
The expectation that we later I think last quarter as far as other opportunity focus dresses LNG bunkering right now.
Working closely with.
Components and the government on.
The.
E process on the Tilbury Marine jetty and once that is hand in hand, we would look to an expansion of the opportunity for LNG bunkering.
Alright, Thank you I appreciate the color.
Yeah.
Our next question comes from the line of Michael Sullivan with Wolfe Research.
Yes.
Hey, everyone. Good morning.
Morning, Michael.
My first question was just can we get a little more of an update on.
Latest expectations for timing around the MISO long range transmission planning.
Any additional color on expectations there.
Yes.
The timing has slipped as I think we were kind of radio and earlier.
Earlier this year that it was going to be quite a feat to get those projects in front of the board before the end of the year.
And indeed now MISO has publicly saying that that study basically the first mover project should be out.
In February of 2022, with the hope of getting those before the MISO board for approval.
In March of 2022, so it has it has slid which as you know we.
We want to we want to hear the outcome of that probably more than anyone else and as soon as we hear it we will make sure that we get that out to you all as well.
Okay, great. Thanks, and my second question was just can you quantify the.
Earnings pickup that we should expect from from the New York rate order in Q4, if it's the settlement is approved as is.
As a follow on to that just remind us how that address.
Colgate and in New York and any potential recovery there.
Michael This is jocelyn.
I would say a couple of penny to penny that you'll see a pickup from what should have probably been recorded earlier rather than later, so youll see that pick up in Q4.
And then on the details around the pieces that are included in the settlement from a COVID-19 perspective. The other half of your question Charlie you want to provide any color on that.
So.
In relation to cope with a couple of things were addressed for central Hudson, even though the generic proceeding in New York continues.
So for central Hudson.
Part of our revenue requirement comes through finance charges, and obviously finance charges have been put on hold throughout COVID-19.
So we did get treatment related to the loss revenue associated with finance charges and we also were able to get.
Deferral treatment for bad debts as well so both of those.
Our elements that are part of the generic proceeding but were dressed directly in our settlement discussions.
Got it.
Well thanks, everyone.
Our next question comes from the line of Mark Jarvi with CIBC capital markets. Please proceed with your question.
Thanks, Good morning, everyone.
For it to come back to investments like the Lake Erie Connector project or if there's something some or did you do tend to really like that that might not be in rate base. How would you think the frame that in terms of growth and impact if.
If it's not Canadian rate base, and your hesitation to provide dps growth.
Yeah I think.
Well the way that we you should think of that as it should look like a kind of a rate base asset I mean, it's basically what we're trying to do is make this look like a contracted asset that mimics a rate base. So you know obviously the levels of return on equity all of that stuff are part of the negotiation. So we really can't give you that level of detail.
Now, but that's how we're viewing it and that's.
How you should view it as well.
So if you were to sign a document on that an agreement you would kind of quote unquote, putting in as sort of rate base spending in your growth forecast.
Would we put it in as well as rate base in our capital forecast.
It would be in the capital, but not in a rate base number got it okay.
And then obviously there are a lot of headlines around Arizona.
That's another utility in the state maybe you can take this opportunity to kind of give us European Union contrast, compare how do you guys see yourself positioned versus ASP, obviously, you've already done your rate case.
But sort of updated view just given all the headlines going on there.
Mark I'm glad you asked.
Amazed that this question fell so far down in the Q I thought that it was on everybody's mind, given some of the analysis around the case.
Aps's case recently and I'll start out by saying that this is definitely a utility specific situation. This isn't a systemic issue or problem from a regulatory perspective.
And the state of Arizona.
And I think if you listen to and you probably did as I did listen to some of the the hearing I think youll see that that that's how these issues are being.
Addressed in and the rhetoric around them from the commission is a utility specific situations.
Now do you on us.
And the utilities that we have in Arizona have.
Have a very good working relationship with the commission, we do everything that we possibly can to make sure that we build that trust with our regulators and we do that through May.
Making sure that we're transparent and we have integrity, when we with everything and every interaction that we have with that commission that's been our ammo.
Then testifying in front of that commission for almost 20 years and can tell you that we we make sure that we have we always do the things.
Because we know that we've got to do the things that maintain that trust because we know as hard it is to to build that it can go away pretty quickly and I think the most important part of our business structure from a Florida perspective is the fact that we have a business model that has the people on the ground and in our.
Actions managing these relationships that's absolutely critical to make sure that we maintain them and know exactly where those regulatory.
Outcomes are going to come and speaking of regulatory outcomes. You mentioned this was just I can't believe it was less than a year ago, so less than a year ago in December of 2020, we actually got a very constructive rate outcome from from.
From the Corporation Commission for TEP and <unk>.
I think as indication that nothing as it was in the middle of Covid, We're still in the middle of Covid, there's not a lot of things that are different but we.
We obviously got quite a bit of a different treatment in quite a bit different outcome than what youre seeing so I.
I guess, that's a long way of saying.
The situation there shouldnt be projected through to other utilities in the state.
Including ours.
Got it thanks for those comments and then just coming back to the supply chain question and rising Capex cost.
Can you remind us again like on the PDR base utility like out West, Canada, I assume that there is capital trackers and things.
That is it just the utilities of the historical test year, whether it be regulatory lag, where you might feel like a temporary pressure from higher capex cost.
Comment on in terms of any sort of.
Transient impacts around that.
Yeah that would be yes.
You hit the nail on the head there the western Canadian utilities have P. B are they actually have inflation built into their rates as well capital trackers et cetera, ITC as a forward test years, so that gets to that all gets true up.
So yeah.
It's really probably only Arizona that would see a little bit of a drag.
Increased costs from an O&M and capital perspective.
And central Hudson.
Central Hudson Charlie.
I have to say that that's the right structure I don't know quite as well as the rest Charlie you want to opine on that.
So we have approved capital budgets and net plan targets with in our rate structure. So if we experience higher cost what it would typically do its nuts knuckle it would not increase our capital budget in a particular year, but it would really kind of extend out our projects over longer periods of times because it may displace another project.
In order to cover those costs.
Got it that's very helpful. Thanks, everyone.
Thank you. Our next question comes from the line of Andrew to stick with Credit Suisse. You May proceed with your question.
Thank you good morning.
Probably a question to start off with David and it's really about your I guess your last home state.
And in the U S in Arizona.
You know their U N S few standalone and really under the <unk> umbrella not really impacted by a lot of the regulatory noise and I guess, that's a bigger broader question just from a regulatory philosophy.
Whats your thought on jurisdictional concentration, where you're the only utility in a region versus having.
We could call it a foil a competitor or comparable within a certain jurisdiction that you can effectively play off as you've done in Arizona over the years.
Yes, Andrew.
Interesting question I think really we.
We don't really look necessarily to have a foil or hide behind other utilities.
We just want to be the best utility that we can be and let our record and and and and.
The transparency that we give to our regulator stand on its own and create that relationship. So we're not necessarily looking.
For for our foil as it were.
We just we are focused on doing regulation.
We're focused on having that relationship again.
With the regulators and making sure that we stay on side and everything that we do.
There's a lot of.
Yeah.
There's a lot of competing interests that show up in our regulatory.
It is proceeding and we want to make sure that we have those relationships.
Not just built around that.
The commission, but around all of those stakeholders and I think a great example of that is the process that we went through down in Arizona to get the integrated resource plan done.
And it was that broad stakeholder process that brought everyone together and thats the kind of atmosphere that regulators are looking for these days. They have obviously agenda as they have plans and policies they want to implement and we got to show up and help them implement those policies.
Okay. That's helpful color and context, and I guess the next question.
It's along the lines of regulation, but it's probably also a more directed towards Roger and it's really just on <unk>.
RMG.
And obviously, it's been it's important.
It's a small part of the overall business, but if you could just give us some color and context on just your R&D activities in D C and really beyond.
Yeah, Roger you want to take that.
Yeah, Thanks, Andrew so.
The LNG story is developing.
Right nicely NBC back in the summer.
The BC government amended the.
Greenhouse gas regulation.
Around.
R&D. So we had previously at 5%.
Renewable portfolio allowance, if you will and that got moved to 15% and included additional renewable gases such as green.
Green hydrogen.
<unk> based fuels from the forestry industry. So we started.
We announced our 30 <unk> three which included 15% of our natural gas portfolio coming from renewable gases by 2030.
Probably a third of the way there with signed contracts I think for.
Just under just over eight pad of jewels approved by the BCC. We have a couple more contracts that we still have to file so were approaching 10 jewels in the first two years.
I'll be announcing our plans to increase R&D, so we're well on track to get to the.
Yes.
The target we set for ourselves in 2030, BC government, just announced clean D C, which is a very ambitious plan on carbon reduction.
So we expect further opportunities on the on the R&D front to come.
And if I can maybe just one follow up on that and then you Roger how broad based are your procurement activities as we talked to a number of utilities that.
Increasingly have R&D goals and aspirations, but theres only so much of it out there. So how broad based are your acquisition activities at this stage.
Right now were.
Signing procurement deals across North America. So we've got I think now two contracts approved from U S projects, we have a handful of contracts prove approved outside of BC, Alberta, and Ontario, So we're really looking at R&D.
The North American grid perspective, anything that we can.
Tie into the grid that can be delivered.
Two two Bcf is what we're pursuing so we have a pretty big footprint your comment on.
More utilities chasing R&D do you think is a fair one it's why hydrogen overtime will become an increasingly important part of the mix won't simply just be the landfill.
Waste.
Water treatment plants for agricultural that'll still be important, but I think hydrogen.
Blue Green or otherwise will be an increasing part of the renewable gas mix.
Okay. Thank you very much.
Our next question comes from the line of David because data with Raymond James. Please proceed with your question.
Thanks, Good morning, everyone.
So my first question here just on the topic of of inter regional transmission planning as it relates I guess to ITC I understand first because had some discussion with.
With the industry on on the right for a writer first refusal for incumbent utilities.
There's been some discussion around that as well as potential requirements for more in depth I guess into regional transmission planning just curious how how those concepts how you see them developing and how that could affect things at ITC, maybe in the longer term.
Yeah. Thanks for that David is that question, David I'll turn that over to Linda to to address.
Great. Thank you and good morning, Thanks, David for the question, Yeah look I think it's hard to specifically know or understand how FERC will specifically address the ROE for issue I can tell you that it's definitely on the radar screen I think there was significant amount of comments.
Were made around the world for as it should say competitive the competitive provisions of order 1000.
In the <unk> comments that were filed so I mean, there have been some comments made by this.
Curious can I'm over various points in time that have indicated.
They also believes that.
You know those competitive provisions of order 1000 has stood in the way.
Im realizing sort of these regional transmission projects, so from our perspective at ITC.
We have actively been pursuing broker legislation in our various states.
We have brokers in Iowa, we have a roper in Minnesota and we are in the process of pursuing along with other utilities are ROE for in Michigan.
So to the extent that we can reinstate the writer first refusal in our footprints.
Certainly would protect us in terms of any future regional transmission projects.
But I do think FERC needs to address the issue more holistically.
Because I think right now.
<unk> half of the states in the U S are covered under kind of role first or are they.
Competitive provisions don't apply because their members or not and then our T. O. So it's not a holistic proposal the way at least as currently structured and we're hopeful that FERC understands that these competitive provisions have really sit in the way of realizing they.
They needed investment in transmission to facilitate searching for.
The new Green economy.
That's great color. Thank you for that Linda and then maybe just one other one for me I saw a comment I guess in the presentation about keep IPP interconnections in Western Canada, I'm, just curious if what nature of projects those or would that be your share of transmission investments in Alberta or something.
Brent.
Yes. Those are those are just connect connections to Alberta distribution system that we own out there. So there is a lot of activity in Alberta related to distributed resources and of course that needs us to interconnect them and Thats, what thats what that references.
Understood. Thank you very much.
Again, if you would like to ask a question. Please press Star then the number one on your telephone.
Our next question comes from the line of Matthew Weekes with I E Capital markets. Please proceed with your question.
Good morning, Thanks for taking my question I think some of the kind of downside to earnings on Central Hudson was quantified a little bit I was wondering if you'd be able to provide some color or quantify how much maybe of a positive impact of one time events might've hard ITC in terms of the interest rate swap adjustment at the time.
<unk> of expenditures in Alberta, and maybe some one time adjustments there as well.
Matthew with respect to the.
Swap adjustment that we made at ITC this related to a swap that had been executed previously and this was just truing up some amortization related to a swap that they had and that was pushing two pennies in the quarter you won't see that again, that's just more of like a onetime thing with respect to Alberta.
I would say from a timing from Q3 to Q4 potentially with respect to expenses, probably about a penny I mean, that's all we're talking about it's not material in terms of what we're seeing between one quarter and the other but.
That's about the extent of it.
The changes between the quarters.
Okay. Thank you that's helpful I'll leave it there and turn the call back.
Our next question comes from the line of Darius Larceny with Bank of America. Please proceed with your question.
Yes.
Hi, Good morning, and thank you for taking my question most of them have been answered already but just to come back to COVID-19 as it relates to the central Hudson settlement I just wanted to clarify there was some language in there about I believe at central Hudson potentially convening.
Discussions to specifically discuss the resolution of arrears that are related to Covid and I'm just curious absent.
Updates in the generic New York Docket have those discussions taken place.
If so can you give any.
Any update there.
I'll turn that one right over to Charlie.
Thank you Dave.
So.
The.
New Public Service Commission staff had put out a white paper associated with arrears management programs.
Related to Covid, specifically and then there is and so that is essentially been rolled into the generic proceeding.
So in our settlement discussions there was a lot of conversation around our risk management programs and we felt that it was best not to try to address that.
As an individual utility recognizing it is within the generic proceeding.
So rather than come to a conclusion on how we're going to handle in arrears management program. We agreed that we following the.
The agreement being approved that we would participate in conversations about the different options associated with it now as I mentioned earlier within our settlement. We did come to agreement related to finance charges. We did come to agreement related to bad debt and we did come to an agreement related to some of our COVID-19 costs.
But the concept of a reader's management, it's a little bit more complicated and a number of different ideas that have been thrown around which is why we agreed to.
Tie up our individuals' settlement when it was also being handled through generic proceeding.
That answers your question.
Okay.
Yes, that's very helpful. Thank you very much if I could ask one more quickly.
Alberta, It looks like I realize it's a smaller piece of the overall pie, but it looks like on a percentage basis from last year's plan to this one.
The plant Capex over five years increased.
Substantially can you just talk a little bit as far as.
Is that a relative determination for that jurisdiction versus others or just maybe specific opportunities that youre seeing there that perhaps you didn't.
One year ago, when you when you put out the other plans just curious about the puts and takes there.
Yeah. Thanks for that question and its really a bit all over the map in Florida as Alberta, because it's it's not like one big project or anything it's it's customer growth in sustainment investments in new.
New technology et cetera, so there's a little bit of everything and that part I think probably what happened on a year over year basis from a plan perspective is last year. When we were sitting here at this time, we were we were basically had.
At oil at $40 a barrel now its at $80 a barrel, we're probably at the doldrums of the economy in Alberta as.
As well as in the throws the deep throes of called it out although we're still there.
And so probably from a from a forecast perspective, we werent seen.
Lot of that growth opportunity opportunity going forward.
Now we do we see some of that growth coming back, we see oil and gas coming back and frankly, we have looked at the capital budget.
Quite a more.
A closer eye and looking for opportunities and investing in resiliency is also a big add there that the team has done since last year. So it's all of those things combined so it's not one specific like project to point to.
Okay. That's very helpful color, Thank you and I'll turn it back.
Thank you.
As there are no further questions I would like to turn the call back to Mr. My mouth.
Thank you Phil that we have nothing further at this time. Thank you everyone for participating in our third quarter 2021 results a new five year capital hour Conference call. Please contact Investor Relations should you need anything further thank you for your time and have a great day.
Thank you for participating ladies and gentlemen. This concludes today's conference you may disconnect.
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