Q1 2022 Fortis Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is for a while and I will be your conference operator today.
Welcome to the fourth piece, the first quarter 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 would question should press star followed by the number one on your telephone.
If at any time during the event and you need to reach an operator. Please press star zero at this time I would like to turn the conference over to MS. Stephanie on Mimo Leesville ahead me semi milk.
Thanks, and good morning, everyone and welcome to <unk> first quarter 2022 results conference call I'm joined by David Hutchens, President and CEO , Jocelyn Perry Executive VP and CFO other members of our 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 2022 M D N a.
Also unless otherwise specified all financial information references in Canadian dollars with that I will turn the call over to David.
Thank you and good morning, everyone. Our first quarter, not only demonstrated the financial strength and stability of our business, but also our commitment to delivering a cleaner energy future for our stakeholders.
During the first quarter, we successfully executed on our capital plan by investing nearly $1 billion in our energy systems supporting our adjusted EPS of <unk> 78.
There were also advancements made on the Florida P C Eagle Mountain Wood fiber gasoline project as well as the MISO long range transmission plan and Lake Erie Connector project at ITC.
Today, we are pleased to announce a 2015 net zero target that builds on our 2035, 75% greenhouse gas reduction target. This.
The announcement follows our inaugural Tcf D climate assessment report issued in March.
Today, the importance of reliable affordable and secure energy service to our customers is more obvious than any time in recent memory and at Fortis. We are ensuring that these remain core principals as we take actions to both mitigate and respond to the impacts of climate change.
While our reliability metrics continue to outperform industry averages, we must continue to make responsible investments in our energy systems to withstand the increasing frequency and severity of weather events with.
With the backdrop of inflation, reaching 40 year highs, we are laser focused on managing rising energy and material costs to limit customer bill impacts.
Shown on slide five our utilities have historically managed annual increases in controllable operating costs per customer to 1% to 2%.
As operators of critical energy infrastructure Cyber security is a key component of our risk management program with recent geopolitical political tensions in eastern Europe , increasing cyber threats, our utilities continued to enhance security protections, including working with critical industry and government partners.
As I mentioned, we made significant progress on our commitment as a tcf the support or with the release of our first climate assessment report.
The report looked at for climate related scenarios at our five largest utilities identifying risks and opportunities. The report highlights our strong governance and oversight around climate matters and explains how risks are incorporated into existing risk management long term strategy and financial planning processes. It is no surprise that policy in red.
Mulattos advancements innovation customer affordability and reliability reliability are imperative to facilitate the rapid transformation that is required to address climate change overall fortis is well positioned to mitigate these risks and realize opportunities under various scenarios.
Today, we are extending our commitment to a clean energy future with a 2015 net zero target. This step. This next step in our ESG journey builds off our 2035, 75% greenhouse gas emissions reduction target.
Having reduced our direct greenhouse gas emissions, 20% since 2019 and with plans to fully exit coal by 2032, we are committed to a net zero target by eliminating the last 25% of the recognitions by 2050.
Through technology advancements the appropriate use of low or no carbon fuels and carbon offsets. We believe we can achieve our net zero target, while preserving customer reliability and affordability.
Turning now to slide eight last year, we announced our $20 billion five year capital plan through 2026 for 'twenty 'twenty. Two we remain on track to invest $4 billion and our systems with nearly 1 billion invested through March we do not expect 2022 capital expenditures to be significantly impacted by supply chain constraints.
As our teams have taken proactive steps to properly identify and mitigate supply chain issues.
Major capital projects, which represent 15% of the five year plan continue to progress.
And April wood fiber LNG issued a notice to proceed to its prime contractor for the proposed liquefied natural gas site in Squamish British Columbia. This announcement brings Florida species Eagle Mountain Wood fiber gasoline project, one step closer to construction, though the project remains contingent on wood fiber Elena.
G, making a final investment decision.
Overall, our highly executable and low risk capital plan is expected to increase rate base by over $10 billion over the next five years supporting average annual rate base growth of approximately 6%.
Beyond our base capital plan, we have a long capex run way focused on climate adaptation innovation and a cleaner energy future in support of our stakeholders expectations. This blueprint is expected to support sustainable growth for the foreseeable future with respect to near term growth opportunities.
At ITC continues to build during the first quarter MISO advanced its long range transmission plan announcing the first tranche of projects across the MISO Midwest subregion comprised of 18 projects with total associated costs of approximately $10 billion U S D.
These projects require MISO board approval, which is currently anticipated in late July six of the projects run through ITC service territory, including Michigan in Iowa, where right of first refusal provisions exist for incumbent transmission owners other projects within this portfolio may be subject to competitive bidding depending on this.
They're located in.
Based on this preliminary information ITC estimates transmission investments of approximately 1 billion to one $5 billion U S through 'twenty 30 associated with these projects.
She is working on finalizing the timing and costs associated with these projects in the coming months, we look forward to determining which will be included in our five year capital plan.
Next the $1 7 billion dollar Lake Erie Connector project continues to advance in March the province of Ontario issued an order in an order in council and ministerial directive to the ISO to negotiate with ITC on finalizing a transmission service agreement on or before August 15th 2022.
Pose 1000 megawatt direct current underwater transmission line will provide the first direct interconnection between the wholesale electricity markets operated by the ISO in Ontario, and the PJM interconnection in the United States. This project will be additive to our growth outlook.
With a strong track record of increasing dividends for the past 48 consecutive years, coupled with our low risk growth strategy, we remain confident in our 6% average annual dividend growth guidance through 2025 now.
Now I will turn the call over to Jocelyn for an update on our first quarter financial results.
Thank you David and good morning to everyone.
Turning to slide 13, and looking at the first quarter results.
Adjusted net earnings of $369 million or 78 cents per common share was one cent higher than the first quarter of 2021, we continue to see earnings growth driven by rate base growth across the group and the recovery of the tourism industry and the Caribbean.
I draw electric production was lower and believes this quarter and central Hudson also experienced higher operating costs.
The waterfall chart on slide 14 highlights the EPS drivers for the quarter by segment.
As mentioned, we continued to see rate base growth across our utilities supported by investments of nearly $1 billion during the quarter.
Combined our western Canadian utilities, and ITC contributed a three cent EPS increase driven mainly by rate base growth.
At our other electric segment EPS increased one cent driven by sales growth in the Caribbean as a result of the tourism related activities with first quarter sales up 3% from pre pandemic levels.
At Central Hudson earnings were favorably impacted by rate base growth and the conclusion of its rate case in 2021. However, they did experience higher operating costs associated with the implementation of a new customer information system and restoration costs associated with winter storms decreasing.
E P S by one cents for the quarter.
For our energy infrastructure segment EPS decreased by one due to lower hydro electric production in Belize production in the first quarter of 2022 was 17 gigawatt hours compared to 53 gigawatt hours in the first quarter of 2021, and this was due to lower rainfall.
As expected with our dividend reinvestment plan EPS decreased by one due to higher weighted average shares outstanding.
And finally, while not depicted on this slide earnings that Unf's were broadly consistent with the first quarter of 2021 and in line with our expectations Unf's benefited from higher long term wholesale sales transmission revenues customer growth and lower planned maintenance costs earnings in the quarter were offset.
By the timing of earnings associated with the wholesale Grande wind generating facility.
Turning to slide 15, we were once again active in the debt capital markets with our regulated utilities raising over 900 million in long term debt largely in support of their capital programs with.
With the backdrop of a rising interest rate environment several of our utilities accelerated debt issuances in the first quarter locking in attractive rate ITC.
ITC also entered into additional interest rate swaps to mitigate refinancing risk.
Our recent debt issuances, coupled with over 3 billion available on our credit facilities places us in a strong liquidity position supporting our $20 billion five year capital plan that David referred to earlier.
We continue to maintain strong investment grade credit ratings in March S&P confirmed our a minus issuer credit rating and triple B, plus unsecured debt rating and stable outlook, we're comfortably position within our existing investment grade credit ratings, providing financial flexibility as we pursue incremental growth opportunities.
Yes.
Turning to recent regulatory updates first ITC continues to await a final rule from FERC in relation to the supplemental notice of proposed rulemaking or no firm on transmission incentives, which proposes to eliminate the 50 basis points or a T O return on equity incentive.
Or.
Next for issued a note or in late April addressing regional transmission planning and cost allocation stemming from the initial advance nope her released last year.
The notes were contained several constructive proposals, including a requirement that transmission planning regions conduct long term plans are formal role for states and developing the cost allocation for projects and the reinstatement of federal rights of first refusal under certain certain circumstances.
Initial comments on the proposal are do 75 days from the date of publication.
And earlier this week T. P submitted a notice of intent with the Arizona Corporation Commission or ACC to file a general rate application in June 2022 requesting new rates to become effective no later than September one 2023 the.
The application will seek new rates using a 2021 test year that addresses infrastructure investments made since the last rate case as well as changes in fuel and non fuel operating expenses.
The filing will also include proposals to eliminate certain adjuster mechanisms as well as modify an existing adjuster to provide more timely recovery of clean energy investments.
In British Columbia, the generic cost of capital proceeding continues this year and the effective date of any changes in the cost of Campbell cap cost of capital parameters remain unknown.
In March the Alberta Utilities Commission issued a decision on the 20th twenty-three generic cost of capital proceedings Fortis Alberto's current cost of capital parameters were extended for 2023.
The AUC also confirmed it will begin a separate process later this year for cost of capital for 'twenty, 'twenty, four and beyond including the consideration of a formula based approach.
That concludes my remarks, I'll now turn the call back to David.
Thank you Jocelyn we.
We're pleased with the progress our teams made in the first quarter to advance our sustainability and growth initiatives with the 2015 net zero target. We are building on our commitment to deliver a clean energy future, while ensuring the affordable and reliable energy service our customers demand.
Our regulated transmission and distribution business highly executable capital plan and Capex runway, we are in a strong position to support our dividend growth guidance through 2025, I will now turn the call back over to Stephanie.
Thank you David This concludes the presentation at this time I'd like to open the call to address questions from the investment community.
Thank you, ladies and gentlemen, we will now conduct a question and answer answer session. If you would like to register a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw your registration. Please press the pound sign.
If you are using a speakerphone. Please lift your handset before entering your request.
We kindly request to speak loudly and slowly to ensure all participants again. Your question one moment. Please put a quick question.
Your first question comes from the line of Maurice Choy from RBC capital markets. Your line is now open.
Thank you and good morning. My first question is a follow up on the MISO L. T. P E.
Got it to one to one and a half billion U S dollars of investment in tranche one.
Retract.
10% to 15% share of the overall cost.
Was this in line with your expectation and as a follow up besides the MISO board approval what are some of the variables that remain unknown right. Now if you had better visibility you'd be able to biologics with <unk>.
And the timing of the capital spend.
Yes, Thanks, Marissa and thanks for that question I should start off by letting everybody know that we actually are in person for the first time with this entire team for an investor call in three years, so it'll it'll be great to be able to send some of the details of these questions to our team that's actually sitting right here in the same room and St. John So I wanted to start out.
Let people know that but on the MISO long range transmission plan, yeah. The one to one $5 billion U S that we've put out there is our is our current best estimate based on the projects and based obviously on the on the initial cost projection that that MISO has put out there.
As you know as you noted it's tranche one of future ones. So what's going to happen you know.
Further in the future related to the remaining tranches and whether or not we go into the future two and three scenarios as well remains to be seen obviously timing around the MISO board approval of the project getting those details figuring out the timing of construction and of course doing our own.
Our project cost estimates will will all be things that will go into the mix as we go forward and what we expect to get more visibility on that with you know each stuff.
So it takes going forward. So I think you asked about expectations. We're pleased that it is a $1 billion. So we forget how much money a $1 billion is the 111 to one 5 billion U S. A of additional projects that aren't currently in our in our forecast.
It is a pretty big chunk and then of course these things are going to come in in varying as you do these tranches will come in I'll say kind of at a very in areas. So we're not sure how to really project. What the next tranches might be was this maybe lighten our footprint.
Well the next one.
A different weighting in our footprint that that stuff is really hard to get clear visibility on.
And maybe I'd just pick them.
Alright.
Suppose the spending occurs within the next five years.
Do you see yourselves managing the funding for the spend.
Yeah, Maurice I am I think its early eat two to talk about specific funding for for this I think we need to get visibility of the timing because we do expect some of it.
Good thing to extend beyond the five years or so so when we firm up the timing will firm up the funding, but I've said a number of times that you know we've been pleased with where we've moved the balance sheets. So not looking to move that backwards to materially or forward to materially. So I don't expect them to be a complicated funding.
<unk> plan, but stay tuned and we'll firm that up as we firm the timing of these capital expenditures.
Thanks.
My final question is on the net zero in 2015 targeting congrats on that.
I assume if I look at slide seven many of the initiatives you've shown in there.
Late two initiatives that get you to your 2035 mid term target.
I assume much of what gets you to net zero by 2050 relate to Arizona and if so what are some of the post 2035 initiatives there and your thoughts on navigating through the affordability.
That's high on the Regulators' agenda in Arizona.
Yes.
The last of all the the majority of that last 25% is related to gas generation in Arizona and that that's the part that we're going to have time to figure out exactly how we address that and remember this is a net zero target. We've got a really solid and defined plan of how we get from.
You know the 2019 emissions to that 75% reduction as laid out in that slide and most of that's activities related to the generation.
In Arizona that last 25% will will need you know new technology. We believe we do have gas generation down there.
We'll need cleaner fuels things possibilities like hydrogen renewable natural gas carbon capture and storage, it's hard to say where of which technology will win but we wanted to make sure that we've got.
We've got a view on on all of those so the path after 2035.
Is obviously less clear at this point, because it's so far out and so much to be done from a technology perspective, but we will make sure I mean that that as you mentioned, our guardrails and it might sound like we talk about these words, so often that we forget how meaningful they are but the affordability and reliability of our service to our customers is going to be most important.
It is right in the and in the visibility of our regulators and customers as we sit here today more so than probably any time in the past as well at least in recent memory.
So we will make sure that the things that we do are in line with that.
So we'll keep an eye on it in an obvious obviously our industry is keeping an eye on this looking for those technologies that they can help us accelerate what we're doing.
And continue what we're doing down to the efforts of net zero and I should say that when you get out there to offsets are an option as well, we don't need offsets to get to that 75% greenhouse gas reduction goal that we currently have.
In 2035, but that's got to come into play in the future.
Great. Thank you very much.
Your next question is from the line of lean Diazo dailies from TD Securities. Your line is now open.
Thank you I'm wondering if you could give us some more thoughts on the Lake Erie connector.
Specifically, how confident are you in your $1 7 billion cost estimate maybe you can give us a sense of how much contingency is in there or is that estimated future costs or how much that might go up and then.
What would be the key gating factors.
Beyond this August 15th deadline to get to an F D and have its Christine.
And I guess my final question related to Lake Erie connector is around the Ontario provincial election, and how that might affect the timing or potentially the outcome of that.
This project.
Yeah. So.
You mentioned the OFC the order in council that we received in.
They did give.
They gave the ISO a deadline of August 15th to get a transmission service agreement signed up that is the next big gating item now as far as costs go that's the things that we're working on is to finalize that we don't have anything that we can.
As publicly as we.
Tried to finalize all of the details within that negotiation process, obviously cost is a big one we're gonna need.
EPC contracts out there et cetera. So all of those pieces will will be filled in over the next few months and that obviously has to be known before we get to that TSA. So that that's the big gating item obviously besides.
Our own internal approvals as well as isos approval, which you referenced there from a from an election perspective.
With that.
The plan that we have here in the TSA timeline here, we don't see that that would be affected by.
You know the timing of the elections in Ontario. This is Ed.
To be Frank this is a great project. So it will stand on its own merits, we think no matter who's looking at it and that's always been the goal for a project like this is to show those those the benefits of the cost benefit ratio that we have.
It's a good product. So we're not we're not concerned about from an electric perspective.
Thank you.
And maybe just a bigger picture conceptual question around build pressure for your customers and just.
Inflationary environment that we're seeing.
How are you thinking across your jurisdictions around mitigating that impact on customer bills.
Might you see regulators potentially he tried to dial back capital expenditures.
Two.
Mitigate.
The operating expense pressures.
You see more deferral account or potentially.
Changes in depreciation rate to the extent that certain asset.
It could have a longer life than initially anticipated or.
Might there be also some.
Friction around.
Are we going out even as interest rates and inflation much of that can you can you talk about how you're thinking about approaching that and what youre hearing from other stakeholders.
Yeah, you hit on I think every single category that I would list, but it is obviously right in the center of every conversation that we have with our regulators and with our customers is making sure that we are particularly in this in this inflationary environment as well as high natural gas and purchase power costs.
Across North America across the world for the most part.
Those are things that we have to really be paying attention to because.
Not only does it matter to our customers.
And our regulators it matters to us that our customers.
Or having to pay that much. So we're looking at ways of helping us helping them mitigate their bills.
We do the standard stuff only in in much more rigor things around promoting energy efficiency Conservation Bill management level is building things like that.
We do know and recognize that when there are big spikes in the pass through costs. Because these are these are costs that we don't make any money on in our regulated utilities that we look at ways of helping our customers and some of those as you mentioned the.
Deferrals that we have at a couple of our utilities now that are spreading out the cost recovery. So the the current impact isn't so severe we have to make sure that we're paying attention to that and watching.
Not just the bill impact on the customers, but of course that if that affects our cash flow.
Which means we really have to be focused on other ways of reducing costs across our organization O&M operations and maintenance et cetera. Those those are those are some of the the big the big ones up Bill assistance I think another one that we've been steering our customers too because there are federal.
Building programs that can help by at least one in the U S that can help people pay their bills.
So those those are most of the items as far as the regulators.
How are they seeing.
Nobody likes.
Increasing costs and rates no matter how justifiable they are.
I don't see or don't hear any conversations related to <unk>.
All went down Capex because this capex is needed for a variety of very.
Strong policy requirements.
Reliability for one as I mentioned earlier, making sure we're making the investments in our systems that can manage the increasing severity of storms et cetera, but also shifting to clean energy some of the ways that we do that like in Arizona.
Even save our customers money. So that's good that's a no brainer capital expenditure.
Expenditure, but some of the other ones on resiliency at adaptation things like that we have to make sure that we're doing those.
In the most responsible manner that we can and then the timing that we can too.
So those the overall bill impact.
Thank you I'll jump back in the queue.
Thanks Linda.
Our next question is from the line of Rob Hope from Scotiabank. Please proceed with your question.
Good morning, everyone. Just wanted to touch on the Tucson electric rate filing that we should be expecting next month. What are the key things that are you looking for in the new rates, whether it be sort of a higher ROE clean energy track for can you just kind of add a little bit of color there.
Yeah, We've got a we've got a batch of normal stuff in what I'll call normal stuff in a in a rate case. So you look at things like rate design and cost allocation, obviously, we have.
Hunk of rate base that is increase that will be asking for we will look for high ROE. We think we've got a pretty low one in that last rate case. It was you know it does.
And of all the end of 2019, so it was.
End of 2019 is that right yes.
<unk> thousand 20.
And that was obviously right in the middle of Covid, and we think that we have a good argument for getting a bit of a.
Stronger Roe in that jurisdiction, particularly with the backdrop of where we see interest rates right now.
As far as the clean energy tracker, Susan and her team are doing a great job of looking at how we can.
Reduce some of the trackers and transition away from from them things related to things like DSM demand side management energy efficiency.
Et cetera, and replace those and even the renewable energy tracker and replace those with a new clean energy tracker and I know I've talked about that with the with you all in the past and that's a real important part of our of our rate filing because that will allow us to invest and accelerate our investments in clean energy and.
Able to get a more.
More prompt recovery of those investments through a tracker mechanism.
Alright, that's helpful. I appreciate the color and then just as a follow up just on the Lake Erie Connector project, let's assume that we get a contract in.
Q3, Q4 for that when when do you expect to mobilize on that project and kind of when would cap will start to be put out the door there.
Yeah, so I'm going to I'm going to kick that one over to Linda Apsey CEO of ITC and she's got those details yeah, great. Thanks.
Thanks, Dave and thanks, Rob for the question.
With respect to obviously presuming everything goes as we would anticipate if we were to happen all the agreements in place.
Yet this year, we would anticipate that we would be.
Pairing and readying for construction start.
In the first half of next year and I think as we have mentioned before it is a four year anticipated construction, so that would put us into the first half of 2027.
Assuming all of them.
As anticipated between now and getting these agreements in place.
Alright, thank you for the color.
Thanks, Rob.
Your next question is from the lineup Ben Pham from BMO. Please proceed with your question.
Alright, Thanks, Doug Good morning, Mitch.
Let's start off with the recent rising interest rates.
And maybe could you remind us what percentage of your utilities you can.
Seamlessly pass through higher.
First expand some maybe comment on your debt.
And then you also mentioned the.
The low Roe yet.
P J any other utilities, we have automatic adjustments to the ROA or do you see the base.
Moving out to take a chance to meet.
With more aggressively.
On that area.
Yeah, I'll I'll talk a little bit about the inflationary impacts from a rate perspective at the subs and kick it over to Jos on the talk about the impact that timing et cetera.
But.
But I suppose I should first say, we don't really have a like a good thumb rule for what.
The percentage of our costs that would be able to be pass through on a.
Ford is wide basis, because we have different regulatory.
Construction in our jurisdictions everything from Itc's, which is basically just a matter of timing, but we'll get it can pass through all of their costs with their forward formula transmission rates.
Two P. B R methods that vary in the level of <unk>.
Interest and how that's treated on the annual true ups.
Different in BC, and Alberta, and Ontario, but they all generally have a mechanism for for capturing at least a good portion of that.
The higher costs from inflation et cetera.
Then.
Of course in Arizona.
It's a historical test year. So those are those are risks that we would bear and then recover in the next case I mean, it's just one of those things that kind of go up and down based on the rate case timing.
Ill turn it over to Jocelyn to answered the interest rate question, Yeah, Ben with respect to your question on the rising interest rates.
Not that we're not doing all the right things to manage rising interest rates for customer affordability, because we're doing that but we do have a number of various regulatory mechanisms in each of our utilities that actually does provide for a rising interest rate environment. So ITC would have an annual true up and we have other various mechanisms in each.
Father utilities with the exception as David talked about with you and ask because they're on a historical test year. So obviously they play catch up with interest rates rising interest rates when they go to set rates, which they will do with this particular test year that they are about to file I would say so the most exposure outside of the U and that's what clearly be in.
The holding company and within our disclosures. This quarter is we've identified that we.
We have entered into a further interest rate swaps to actually mitigate some of that refinancing risk. So we are doing the right things and even at the regulated utilities I would say we were pretty active this quarter in terms of advancing some of the debt issuances, regardless of the regulatory mechanisms that we have we're doing the right things in terms of getting in front of the curve so that we.
Can actually try to combat some of the the impact on our customers.
Okay, and then on the ROE is there any.
Obvious outliers, there where it is.
All below North American.
Utility operators are relative to the cap.
As Tony when you put it in the 30 year.
Yes, we don't we don't have any tracking ROE is the track.
<unk>. So there is a general or generic cost of capital going on in D. C. Obviously, the case in Arizona will go through its own.
The calculation to determine the right ROE when we do that rate filing.
Alberta is push there.
The existing capital structure and ROE out another year.
And then we will start a generic cost of capital later this year that will be in effect in 2024 other than that there's not any.
Any adjustment mechanisms that would be it would be a change in it.
On the interim basis.
Okay, Great and then.
Maybe switching to what fiber.
Article.
Around.
The second quite plain being.
Being proposed through a tunnel and there were some references to that costs gone up I think three I got annoying.
Question is so I'm just wondering if you can comment on that.
That cost if Thats correct and then you can recover that in rate base.
Yes, so I'll give a give you a roger here for the details but it is good to see the progress is being made on that project in general.
Wood fiber did put out a notice to proceed in April to its main contractor. That's obviously the the LNG facility contractor. We are we're building the pipeline, which that tunnel is part of and I'll, let Roger give you the details on that.
Good morning, Ben Thanks for the question. So the two tunnel issue is a bit of a I think confusion.
From a reporter.
The second the second pace for one panel two pipes are.
Relates to the design under the school allow lung squamous estuary, there's about a nine kilometer tunnel, we're building under the estuary.
We're gonna be back filling that tunnels will be very difficult to access the pipe. So we're putting in a second pipe for redundancy and reliability, so that would not be disruptive to the service.
And now it's just an evolution of design I think it was reported that there was two times two pipe serving with fiber it's one.
Overall pipeline system that we're expanding Mr wood fiber, but a second pipe for redundancy in the tunnel portion as far as cost.
Number of the.
Costs are being finalized we are seeing a little bit of pressure.
But not significant at this stage.
Okay. So you would say that the reported cost reference may not be.
And why buckets wintertime.
For the for the pipeline or for the wood fibers.
G facility.
That's fair enough pipeline.
We are seeing some costing.
Cost increases on on pipe, but as far as the overall costs, we're still finalizing our cost estimates.
Okay.
Great. Thank you.
Our next question is from the line of Mark <unk> from CIBC capital markets. Please proceed with your question.
Thanks, Good morning, everyone.
Let me come back to the topic of affordability is there any discussions or have you heard anything in terms of either a federal level or state level in terms of either it's like.
Subsidy or some other way to help alleviate customer bill pressure, while still allowing utilities to make the needed investments are on C. Carbonization on Mike obviously at the federal level. There was talk of the CPP.
Getting traction was there anything else in the state level or anything else to a federal level, you think can be done to help.
Manage affordability, while still doing it right.
Decarbonization.
Yes, none that we know of other than the pieces of the build back better plan, if those come back and those tax credits start.
And that kept that can really help.
But nothing from a state level that I'm aware of.
Across our jurisdictions anyway.
Okay.
And just obviously on the <unk> that went through a FERC a couple of weeks ago, just any sort of initial thoughts on that the federal over.
Cost allocation in terms of bringing in the state and is there any chance that involvement of state utility commissions what was the processes at all I'm just sort of what your sort of initial thoughts are on that is as you've digested.
Yeah, we're we're still digesting all the details obviously, it's out there for her comments.
But overall it's constructive.
Just to get a better more defined planning process to get more transparency in the planning process to have these cost allocation discussions and bring in the states and that that I think is probably where you get most of the rub is if you can get states involved early.
It should help out the process I wouldn't think it would slow it down and then of course the.
Federal ROFO rights for certain projects.
And situations.
That's a positive for us as well with the withdrawal for Reits in three states in the Midwest.
Okay last question.
I think there's a.
Refund has to go for Tucson electric in terms of some of the peak prices that happened in the summer 'twenty 'twenty can you comment on like how much that is and whether or not that's going to flow through adjusted earnings.
Wait say that to say that again.
I believe there was like a <unk>.
<unk> seen that it has to be a refund from a handful of utilities and couldn't believe TEP back to some high commodity charges in the summer.
Thousand 20, I'm just curious if you guys, if that's right and how much it is and whether or not theres an earnings impact.
First I heard of it and we're looking quizzical here, so I don't that's okay.
So we don't we don't know anything about that one.
Sorry about that yeah.
No problem.
Our next question is from the line of Richard Sunderland from J P. Morgan. Please proceed with your question.
Hi, Good morning. Thank you for the time today, maybe just circling back to the TEP rate case, I'm thinking about it.
Our external regulatory backdrop more broadly youre, obviously, you have some activity in the state and then a big one coming with TEP here any sense on kind of reading the tea leaves on now.
Now.
Do you stand from a regulatory backdrop, maybe you versus other peers in the state given some of the noise issue in the state over the past few years.
Yeah.
I've said repeatedly that we've got a good relationship with our regulators in Arizona.
Even though it might be a bit more of a tango tango relationship for.
For others in that jurisdiction.
As I mentioned earlier, the 2020 rate case, we got we got a good outcome I told you I wasn't a fan of the hourly but other than that a very very constructive outcome on post test year plant.
Getting to new trackers, all of those all of those things really.
We're positive and constructive from our view so we're taking that long history of working with trust and transparency with our regulators.
Every time, we go up there and that will give us the ability to get good outcomes you know good reasonable outcomes and we know it's.
That's the way we have to manage these relationships and it's how we continue to do it.
Okay Fair enough. That's very helpful. And then apologies if I missed this earlier, but just thinking about the net to your outlook in the long term environmental goals just in light of today's update can you speak to how R&D fits into the larger picture here.
Yeah, our RMG can fit into the larger picture out specifically in this goal we're talking about scope, one emissions and that can fit into a piece of let's say the gas generation in Arizona, which will be that 25% is left after 2035. So it does play a role there it's hard to say how much of a role as well.
Sit here today versus hydrogen et cetera.
It also plays a role in us focusing on say scope three emissions that we do up in British Columbia, We do have a strong.
The goal of getting 15% of our supply from renewable gases in British Columbia.
That's a big chunk of natural gas in and RMG is playing a big part of that.
The team up there has done a great job in pulling together.
Contracts for a good portion of that already and has the eye on being able to figure out the last percentage a few percentages there that they need by 2030 deadline that they have for that 15%.
Got it thank you for your time today.
You bet Richard.
Our next question is from the line of Andrew <unk> from Credit Suisse. Please proceed with your question.
Thanks, Good morning.
We're in an interesting position because you've got transmission opportunities in both Canada and the U S.
And maybe the question is directed to Linda but how do you think about the.
The benefits associated with either of those jurisdictions.
So obviously, it's intertwined given youre connecting the two countries.
Yeah. Yeah go ahead, Linda Okay, great. Thanks, Yeah.
Maybe just from a little bit of downside history.
Certainly we do think our geography is strategic and if you think back to actually what ITC stands for international transmission company and it was.
Originally developed on the premise to take advantage of our unique geography, and our close geography to Ontario, certainly as we continue to develop the Lake Erie project I think it sort of brings us back to our roots.
In terms of how we envision the business and that strategic geography. So I think we are well positioned certainly as markets evolve.
Both in the U S, particularly the Midwest ISO as well as how the Ontario market evolves. He did evolve in different directions, and so certainly we are in.
I I think very pleased from a strategic perspective that we are able to leverage the geography and I think it does give us.
Some further.
I don't I don't want to call them opportunities that would be premature, but I think just in terms of thinking and thinking about taking advantage of the border.
And certainly a project like the Lake Erie project, but it certainly gives us.
But with experience in terms of undersea cable technology, certainly we certainly view. This project is something that we hope that we can leverage into the future.
Okay. That's helpful and then cyber.
Ciber was mentioned earlier on the call and obviously thats critical apparel, the normal course of business operations.
The cyber capabilities, you've got especially at.
D C.
The immensely capable do you see this as a competitive advantage at this point in time to maybe roll up other utilities into the future that don't have that kind of capability or is it really just a competitive necessity at this stage.
I think it's just a flat out of necessity at this stage I don't think we would look at the.
Put that as a maybe a competitive advantage from a from an acquisition standpoint, but the competitive advantages is the fact that we had such a great. We have great teams across our entire footprint, but ITC given their huge transmission footprint and how big their systems are they had really strong depth in there.
Well, that's why our CIO from our Florida St perspective, we stolen from ITC and brought them up to Florida, St to help coordinate that across the entire organization and that's that type of double layer of skills that we have across our organization and are able to share that scale is a competitive advantage for us because we were able to take that.
Practices and push them across the entire organization.
And obviously, that's just one of one of many ways, we are working our business model.
Okay. Thank you that's very helpful. Thanks.
Thanks, Andrew.
Our next question is from the line of David Quezada from Raymond James. Please proceed with your question.
Thanks, Good morning, everyone. Just one for me and it just relates to.
Your your I guess near term planning horizon, two renewables at TEP.
Just curious.
If you can give provide any color on what youre looking to procure over that period and if the department of commerce investigation into into solar panels from southeast Asia and any related tariffs there.
Could cause you to juggle any kind of type of projects between wind and solar in that area.
Yes, we don't really have much of an impact yet.
The tariff issue.
Both TEP and <unk> and our smaller subsidiary of U S Electric in Arizona put out Rfps last month.
And.
Looking for a good chunk of renewables that can be ppas, a build own transfer et cetera.
Both for renewables and for firm capacity, which can be in the form of battery.
Batteries are other generation alternatives. So, we'll we'll have better answers for that when we get a mid year when we start seeing the results of those.
Of that RFP and then later in the year when we when we used to actually analyze them and assign or or.
Enter into contracts related to that process.
Excellent thanks for that.
Our next question is from the line of Matthew Weekes from a capital market. Please.
Please proceed with your question.
Yes.
Good morning, Thanks for taking my question I think I was just going to ask about.
The quarter end and some of those those costs.
To central Hudson, just wondering if those are really.
Transitory kind of one time cost to implement those those systems or if you're expecting any more going forward and then on the other side looking at I think some commentary and afford it.
See about some lower expenses there were there any sort of timing related impacts there or was that just due to too.
<unk> cost management and productivity savings on the <unk> side there.
Yes first on the CH I'll answer these pretty quick first on the CH they are transitory, but related to that to the system implementation.
So we're not expecting.
Repeated repeated.
Cost impacts on a going forward basis and of course, Charlie and his team are working hard to figure out how to offset some of those cost impacts as we go throughout the remaining part of this year.
On the BC one I think that is just good old strong O&M management by the team up there in that.
Timing.
Okay. Thanks, I appreciate the color on that that's it for me I'll turn it back.
Our next question is from the line of Michael Sullivan from Wolfe Research. Your line is now open.
Hey, Ron Good morning morning.
Michael.
Wanted to circle back to this upcoming rate case filing that you have in Arizona can you just remind us how much you've added to rate base in that jurisdiction since the last case and then.
On the fuel power side, just how we should be thinking about.
That impact on the overall, bill and how that fits into the case filing.
So we don't want to front run the filing so we're putting all those numbers together because theres a lot of stuff that goes into that not just the the test year that we've obviously already closed but also post test year adjustments and other things that we may need to be looking at so don't don't Wanna.
The number one thing about.
Your regulators is don't surprise them by saying stuff before they know it so well, we'll save that for the for the for the June filing.
Okay, well, maybe on the on the fuel and purchase power.
So you just got an order on what what sort of bill impacts there was there and then.
How to factor that into.
Into the future.
Yeah. So it was it was only I think around 3% was the overall bill impact of the purchase power and fuel adjustment clause that we just got approved and that's a 3% was for historical costs. It will be then collect over the next 18 months.
Got it okay and shifting over to the MISO transmission.
Can you clarify that the 1% to one 5 billion is that.
Just in the role for states that that you're in or that's across your footprint in the role for states is a piece of that.
Yeah, I'll I'll turn that over to Linda to answer.
Yes, the projects that comprise the one to one 5 billion on.
Those projects are either in Michigan, or Iowa, and we have state <unk> and both of those states.
So I think in answer to your question the projects that have been identified that our ITC.
Would be enrolled for state are there no other projects identified that would be outside of those states for ITC.
Okay.
Could you maybe just give a high level view of your thoughts on how things may go in the non ROFO stages is it still going to be.
The incumbents largely winning as a as I think we've seen historically or are you sensing.
Maybe there's more openness to competition now.
Yeah, I I would really hesitate I think to speculate on kind of what's going to happen in those other states with respect to competitive bidding.
And as you May know FERC recent nope her.
On transmission planning included some provisions that suggest that they may be open to reinstating federal rights of first refusal.
If projects are jointly owned and while we don't specifically truly know or understand what FERC might be thinking or certainly where they might make a decision, but certainly if that proceeding where to proceed and there was a decision and I'm using a lot of it yes, if there was a decision.
Hap whenever it may come out of that in <unk> and a final order, perhaps could apply back to these projects and non real per state.
You know I'm I'm talking pretty high level off the cost because I think really the best answer is we don't know yet.
What might happen in those other states and how incumbent utilities.
My position themselves or how developers are people, who are participating potentially in that competitive solicitation process.
We don't know where they might fit or how they would then really deeply partner with so I think there's a lot of unknowns.
Unknown at this point in time to truly understand what that means but what I would say just as it relates back to E C.
I just had maybe perhaps a little bit of our own horn I think sort of anticipation of the tangible tranche one portfolio process. I think that's why we were so focused on securing the rights of first refusal in the states, where we have predominantly most of our assets and so.
The timing, we just completed our getting our state real freeing Michigan lately.
Late last year, and so certainly from our perspective.
Timing, what's critical so that we can secure the rights to.
To these projects that have been identified.
I appreciate the thoughts thank you.
Your next question is from the line of <unk> <unk> from Bank of America. Please proceed with your question.
Hi, good morning, and thank you for the time.
Just wanted to touch on the Arizona rate case filing briefly can you maybe just talk a little bit about what your.
I guess, what the strategy is number one behind the timing of filing mid year I think.
One of the other utilities in the state also.
He is looking to file probably around the same time and then secondarily in terms of the goal of reducing the number of writers out there.
Anything strategically you are trying to accomplish as part of that or is it just trying to align with the commission.
David Gold with having fewer writers out there. Thank you.
Yes, I think the law.
Last part first it's yeah, it's aligning with goals of both the commission and other stakeholders looking to simplify the number of riders isn't it helps it helps us as well.
So that we don't have so many different proceedings going on all the time so getting.
The fewer good straightforward riders is better than having a bunch of small ones and as far as the rate case timing when we make the decisions based on what we need to do not what other utilities may or may not do so.
We were using the last test year end.
Last year full year that we have as a test year and this is the time that we could get all the numbers together and the time that we need to go in and and and.
<unk> addressed that.
The rate shortfall, we havent really changed.
Okay. Thank you and one more quick one if I can just on the quarter. It looked like sales at central Hudson ticked down about 3%.
Was that a weather driven number or was there anything else attributable to that.
Charlie do you have the details on that.
It's probably more weather driven than anything else I mean, certainly pricing.
Tilted in customers cutting cutting back as well.
But we have revenue decoupling so.
I think ultimately that works through through the course of the year.
Typically as we work through them.
Sales unbilled sales as well.
Thanks Sharon.
Okay. Thank you for the time this morning.
Thank you Jerry.
Thank you.
There is no further question I would like to turn the call back over to me some of them all.
Thank you well we have nothing further at this time. Thank you for participating in our first quarter 2022 results Conference call. Please contact Investor Relations should you need anything further thank you for your time and have a great day.
Yeah.
Thank you for participating ladies and gentlemen. This concludes today's conference call you may disconnect.
Okay.
[music].
Yes.
Sure.
Yes.
Okay.
Okay.
Okay.
[music].
Okay.