Q2 2022 Fortis Inc Earnings Call
Good morning ladies and gentlemen. Thank you for standing by. My name is Michelle and I will be your conference operator today. Welcome to the Florida's second 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 with questions should press star, followed by one on their telephone keypad.
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 Amaimo. Please go ahead, Ms. Amaimo.
Thanks, Michelle, and good morning, everyone. And welcome to Fortis' second quarter, 2022 results conference call. I'm joined by David Hutchins, President and CEO , Jocelyn Perry, Executive VP, and CFO , other members of the senior management team, as well as CEOs from certain subsidiaries.
Before we begin today's call, I want to remind you that the discussion will include Ford's 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 Ford looking information presented today. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related US GAAP financial measures in our second quarter, 2022 MDNA.
Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to David. Thanks for your time.
Thank you, and good morning, everyone. Today we are pleased to report another successful quarter underpin by our investment in the energy infrastructure needed for the provision of safe and reliable energy service to our customers. For the first half of 2022, we invested $1.9 billion in our system, placing us on track to achieve our 2022 annual capital plan and supporting our second quarter adjusted earnings of 57 cents per common share.
In today's economic environment, our utilities have been especially focused on maintaining customer affordability by proactively managing energy prices as well as other inflationary pressures through hedging programs, energy efficiency programs, and cost reduction initiatives.
Today we released our 2022 Sustainability Report, highlighting the progress made to reduce our greenhouse gas emissions and link sustainability targets to executive compensation and the corporations for evolving credit facilities.
The report also includes comprehensive diversity data on employees across the forest group of companies which will advance our DEI strategies and inform our objective
Overall, the report contains more than 35 new key performance indicators and is fully aligned with the applicable sustainability accounting standards board or SASB standards.
During the quarter we continue to make progress towards our greenhouse gas emissions reduction targets.
In June , TEP retired San Juan Unit 1, removing another 170 megawatts of coal-fired generation from its portfolio, supporting their plan to fully exit coal by 2032.
Earlier this month FortisBC announced a pilot project to produce carbon neutral hydrogen from natural gas through a partnership between FortisBC Suncor Energy and Hazergroup utilizing a new carbon capture and utilization technology that provides a marketable solid carbon byproduct. The pilot is being funded by the partner companies and the provincial government's Queen BC industry fund.
While still in the early stages, it is innovative technologies and partnerships like this that will be necessary to accelerate the transition of clean energy. The
In June , TPP filed its General Rate application with the Arizona Corporation Commission, seeking new retail rates effective September of 2023, based on a December 31, 2021 test year.
The application includes rate base of $3.6 billion US dollars, representing an increase of $900 million US dollars since the last rate case, largely driven by investments for renewable generation, such as the also Grande Wind Project and the Raptor Ridge Solar Facility.
The application requests an allowed return on equity of 10.25% and an equity layer of 54%.
DEP is proposing to modify an existing adjuster mechanism to include recovery of certain investments associated with TEP's clean energy transition. DEP's clean energy transition.
The new resource transition mechanism or RTM is intended to reduce regulatory lag between rate cases. The new resource transition mechanism or RTM
In addition, TEP is requesting to eliminate both the demand side management and the renewable energy standard adjusters and recover those costs in base rates. TEP is requesting to eliminate both the demand side management and the demand side management and the demand side management and the
The requested non-fuel increase associated with the rate application totals $159 million US dollars. As the waterfall chart highlights, the recovery and investments in rate base make up the majority of the increase.
TEP's progress in its Clean Energy Transition Plan delivers a net reduction offset to customer rates in this case due to the cost savings from the recent retirement of the San Juan coal facility.
The impact of the proposal to eliminate the two adjusters reduces the total revenue increase to $136 million.
Earlier this month, Commission staff filed a sufficiency letter indicating that TEP's rate application meets all the necessary filing requirements. A procedural schedule was also agreed to earlier this week with staff and intervener direct testimony due in January of 2023.
Today we are reaffirming our $20 billion five-year capital plan through 2026.
This highly executable and low risk capital plan is expected to increase rate base by over 10 billion dollars over the next five years supporting an average annual rate base growth of approximately 6%
Earlier this week, the MISO Board approved the first tranche of projects associated with the long-range transmission plan.
These 18 projects, which span across the MISO Midwest subregion, have total investments of approximately $10 billion US dollars.
With six of the projects located in ITC service territory, ITC estimates investments of approximately $1.4 to $1.8 billion through 2030. This is up from the previous estimate of $1 to $1.5 billion.
Once ITC finalizes the timing of these investments, we will update our capital outlook accordingly.
Next, development activities and commercial negotiations on the $1.7 billion Lake Erie Connector project were suspended earlier this week. We're suspended earlier this week.
This was driven by recent macroeconomic conditions that impacted our ability to secure a viable transmission service agreement within the required time frame.
We acknowledge the efforts by all parties to bring the project to this point. However, at this time it is a prudent and appropriate action given the circumstances. This project has never been included in our five-year capital plan.
With 48 years of consecutive dividend payment increases, we continue to target 6% average annual dividend growth guidance through 2025, underpinned by our five-year capital plan.
Now I will turn the call over to Jocelyn for an update on our second quarter financial results.
Thank you, David, and good morning, everyone.
So turning to slide 11, reported earnings for the second quarter of 2022 were $284 million or $59 per common share compared to earnings of $253 million or $54 per common share for the second quarter of 2021. The second quarter of 2021.
On a year-to-date basis, reported earnings were $634 million or $1.33 per common share compared to earnings of $608 million or $1.30 per common share last year. Reported earnings include timing differences related to mark-to-market accounting of natural gas derivatives at a concrete.
Turning to slide 12, we delivered adjusted net earnings of 272 million or 57 cents per common share in the second quarter. This is two cents higher than the second quarter of 2021.
Rate-based growth that are regulated utilities and a higher US dollar to Canadian dollar exchange rate favorably impacted the quarter. Rate-based growth that are regulated
Timing of earnings in Alberta and Arizona, as well as losses on retirement plan assets at UNS and ITC tempered earnings growth in the quarter.
As you might recall, forice benefits from limited pension exposure, given regulatory mechanisms at most of our utilities.
In the second quarter, however, broader market volatility impacted the value of certain retirement assets.
and our US utilities.
held outside our divine benefit pension plan. The quarter over quarter impact was two cents.
For the six months ended June 2022, we delivered adjusted net earnings of $641 million or $1.34 for common share, two cents higher than the same period in 2021.
Here today earnings reflect the same factors noted for the quarter, as well as higher sales in the Caribbean, along with higher operating costs at Central Hudson and lower hydroelectric production in Belize. And lower hydroelectric production in Belize.
The waterfall chart on slide 13 highlights the EPS drivers for the quarter of five segment.
We continue to see rate-based growth across our utilities supported by capital investments of nearly $2 billion a year to date.
Our Western Canadian utilities and ITC each contributed a one cent EPS increase, driven mainly by rate-based growth. At ITC, quarterly earnings growth was impacted, as I mentioned, by losses on retirement assets, while earnings growth at Fortis Alberta was impacted by timing of operating costs.
For our energy infrastructure segment, EPS increased by one cent due to higher hydroelectric production and believed.
Next, a higher US dollar to Canadian dollar foreign exchange rate favorably impacted quarterly results by approximately two cents.
At our US Electric and Gas Utilities, EPS decreased by 1 cent in the quarter. The UNS was down to cents and central hot sum was up 1.
As expected, the lower earnings and Arizona were associated with both the timing of AFU-DC recognized in 2021 during the construction of the also-gronday-win generating facility and losses on retirement assets.
UNS did benefit from higher long-term wholesale sales during the quarter, which helped offset higher operating costs and regulatory lag.
Central Hudson's EPS contribution was driven mainly by rate-based growth and the conclusion of its rate case in 2021.
In our corporate and other segments, the one cent EPS decrease was mainly due to losses on hedging contracts. And lastly, as expected with our dividend reinvestment plan, EPS decreased by one cent due to higher weighted average shares. Outstanding.
Here today, EPS was impacted by many of the same drivers as the quarter. I would note that the losses on retirement assets that UNS and ITC was approximately 4 cents for the first half of 2022.
Your to date EPS was also impacted by higher cost associated with the implementation of a new customer information system at Central Hudson. Central Hudson does not anticipate any additional significant direct cost beyond the three cent EPS impact recorded through June .
Turning to slide 15, we were once again active in the debt capital markets in the second quarter, bringing the total debt raise year-to-date to over $1.5 billion, largely in support of our capital program. Using it, entrapped to the total debt, we ordered the payment Lord had to worry about paying $1.5 billion, the capital program.
With the backdrop of a rising interest environment, several of our utilities accelerated debt issuances in the first half of the year, locking and attractive rates and the benefit of our customers. With the benefit of our customers.
At Board of Zinc, we recently refinanced $500 million in debt that was due in 2023. An ITC holding previously entered into interest rate swaps of $450 million U.S.
to mitigate refinancing risks associated with debt due later this year.
During the quarter we also entered into a one-year $500 million US non-revolving corporate term facility and amended our existing $1.3 billion dollar revolving corporate facility.
Our revolving facility was amended to extend the terms to 2027 and establish sustainability linked targets related to war diversity and the reduction of scope one emissions.
And lastly, we continue to maintain strong investment grade credit ratings. In May, DBRS Morningstar confirmed our ALO issuer and on-secure debt ratings and stable outlook.
The recent debt issuances coupled with almost 4 billion available on our credit facilities places us in a strong liquidity position supporting our $20 billion or 5-year capital plan.
In addition to the TEP rate case that David spoke to earlier, I'll spend a moment on some recent regulatory updates.
First, ITC continues to wait for a final rule from FERC in relation to the supplemental notice of proposed rulemaking or NOPEAR and transmission incentives, which proposes to eliminate the 50 basis points RTO return on equity incentive matter.
Next, for issued two additional nofers in June , addressing interconnection Q reform and grid reliability and extreme weather, both of which stem from the initial advance noper release last year.
While ITC continues to evaluate both NOPRs, any FERC actions that help streamline the interconnection queue will be positive for all parties involved. ITC also supports FERC's continued focus on grid resiliency and expects to be active in the rulemaking process. My comments on both proposals are due later this year.
Also in May, the Iowa Coalition for Affordable Transmission filed a complaint with Burke seeking to lower ITC Midwest equity ratio from 60% to 53%.
The complaint alleged that ITC Midwest no longer met the three-part test which authorizes the use of utilities actual capital structure for rate making purposes.
We believe the complaint is without merit and should be denied.
ITC filed reply comments in support of its position in June . And while the timing and outcome remains uncertain, a decrease in ITC Midwest equity ratio to 53 percent would reduce annual EPS by approximately five cents.
And lastly, in British Columbia, the generic cost of capital proceeding remains ongoing. The proceeding is expected to continue into the first part of 2023, and the effective date of any change in the cost of capital remains unknown. That concludes my remark. I'll now turn the call back to David.
Thank you, Jocelyn. With the successful execution of our capital plan, our exit from the San Juan generating facility, and key regulatory applications, we are in a strong position heading into the second half of the year to deliver on our growth and sustainability goals. The plan is to deliver on our growth and sustainability goals.
Our local management teams will continue to work with their customers and regulators to manage through this time of high inflation and energy prices, while still making the investments needed to deliver a clean and resilient energy future. 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.
Thank you.
Ladies and gentlemen, we will now conduct the question and answer period. If you would like to register a question, please press the star, followed by the one on your telephone keypad.
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One moment please for your first question.
Your first question comes from Maurice Toy of RBC. Please go ahead.
Thank you and good morning. My first question is a full up on your comment about my so spending timing. And specifically I'm trying to understand the moving parts in a month ahead. I know that the my so staff on Monday noticed that on August 8th, they will indicate what goes through competitive bidding and what will be assigned to incumbent utilities. But they also indicated their expectation that many of the 18 projects. And many of the 18 projects.
will come online by 2028. So it's a little bit of a tight deadline, so to speak. It's the classification of August 8th, what you're waiting for in order to get a better idea of what all this means to your next graphics update or just something else.
Yeah, thanks and good morning Maurice. Yeah, so we still have to figure out the exact timing. Obviously there's estimates of timing of those projects that are part of the original filings, etcetera, but there's still a fair bit of process to go through working with the other transmission owners because some of these projects we actually are splitting with other transmission owners. So lots more detailed, you know, engineering, planning..
etc. that needs to go in to our calculus here before we can put it into our capital plan. I do appreciate that some of those projects look like they're earlier, but those are also probably a bit stale on the dates because this process has been extended a couple times. But don't worry, we'll get as soon as we get a good feel for where those dollars lay out from the capital plan perspective, we'll be putting that out.
Great. And my second question, and this is a follow-up, not follow-up, but I assume there are still limited details so far on the Inflation Reduction Act that was announced yesterday. Whether the climate portion of this bill is a slimmed-down version of the Build Back Better initiative or something entirely different, any thoughts on which parts of your business might benefit from this new bill if it becomes law and if any changes to the taxes might offset that?
Yeah, yeah, so it is extremely early. So that crossed the wire there as we were all finishing up our notes for today. We do like the fact that it includes $370 billion of investments in energy and climate. We're not exactly sure what that breakdown is yet. So we'll be looking at that today and going forward to see how that might apply to our companies and the things that we have in play.
I think probably one of the, you know, at least on one of the press releases that we saw on this bill was the reference to permitting reform. So that's, and obviously they referenced transmission in that commentary. And that's always a welcome news when there can be additional help for us to get some of these projects permitted. Because that's obviously one of the bigger things that we have to do that slows down.
us doing the transmission projects is getting through the siting and permitting processes. But we haven't been able to digest that completely yet, but we will very soon.
Thank you very much.
Your next question comes from Robert Hope of Scotiabank. Please go ahead.
Good morning, everyone. Thanks for taking the questions. Maybe a broader question. We've seen, you know, I guess what we could argue is the Lake Erie Costco app. We've seen the MISO transmission projects increase there as well. When you're taking a look at, you know, we'll call it, you know, plain vanilla transmission projects. How much inflation are you seeing in those projects, which could yield a higher capital plan? And then two, you know, are you worried that the higher capital costs could defer?
on those because they're already in flight. We have the materials, et cetera. But as we go forward, we're going to have to, you know, obviously adjust on the fly as needed in those capital projects to, you know, bring them in on budget as best we can. We don't see long-term inflationary pressures that would cause us to adjust our, I'll say, so that there's two different questions, right, because there's the capital plan as in the total for the current project.
goes to the other side of the ledger, right? So as we see some of these capital costs increases, as we go, we'll have to look for efficiencies, not only in the capital process and in the construction process, but also look for efficiencies on the O&M site to help mitigate some of the rate impact as these projects go in. So there shouldn't, and we don't see any reduction in the number of projects, but we still are continually updating those capital plans to make sure we're capturing inflation as best we can.
And that's something that of course we'll do in the fall when we when we put out our next five-year capital plan
I appreciate the answer to that question. Maybe a little bit of a narrower one here. In Arizona, what's the initial feedback been on the filing as you're starting to engage stakeholders, you know, realizing that testing is not due for quite some time here? And then in a higher yield environment, are stakeholders willing to agree with the higher RRE? Yeah, Rob, I actually missed the first part of what we're getting.
Arizona since I was the one on the stand last time. Susan's sitting next to me, she gets to sit on the stand this time. She'll do better than I did in the ROE arguments because I think in the middle of COVID when we were at the end of 2020 and doing that case, we feel that we got a little bit of a reduced ROE because of that. Now when you look at the situation from an interest rate to underlying calculus, again, goes into the ROE.
You know, our initial conversations as we were planning to file with staff and commissioners and some of the various stakeholders were very positive. And I feel like we have a lot of support for the new adjuster mechanism. I think the economic situation supports a higher ROE. And so we're anticipating a great outcome. And so we're anticipating a great outcome.
Thank you.
Your next question comes from Ben FAM of BMO. Please go ahead.
Hi, thanks, good morning. I wanted to go back to the like area and you've characterized as your suspending the project. And I'm curious, where are you with conversations with the ISO? Is it effectively stopped at this stage? And is there really any outcome?
here where you can start.
working on the project again, is it inflationary inputs that would drive that project going forward?
Yeah, thanks for the question Ben. And I got to tell you, this is a tough time for us to try to lock down a project. We probably couldn't have picked a more volatile, three to six months of inflation, interest rates, et cetera, for FX in order for us to try to lock in the economics that we would need to go forward. So we obviously have had very close conversations with ISO through this process.
And it's just, it's the timing. It's a situation where, you know, we just, we have to make the prudent investments and we can't get the, you know, the return that we need for this type of project in the current environment absent in essence sort of restarting those negotiations. So we have told the ISO that we are suspending the negotiations and, you know, that doesn't mean that the project is canceled but it also, you know,
it means that we would have to have a pretty big restart for us to get moving again. That doesn't say that it might not happen, but right now our view is it's suspended. And if it comes back, it won't be soon, and it will take a lot of things to align again.
Okay, that's great. And then maybe on your capital plan and looking at the one where you show all the wedges and that 20 billing between distribution and cleaning and you all that stuff. And I mean, how do you think about when you factor in Tranche one and there's some useful on RNG and even transmission? Do you expect any... any...
Meaning for moves and those wedges.
I just think of the next 6 to 12 months.
Oh, Ben, you're trying to get a little preview into our capital plan that will release here in the fall. I'll save the answer for that when we put all that together. We're obviously working hard behind the scenes, pulling those pieces together, but I can't really divulge any of that right now. I mean, the best part about that existing plan is how those investments are spread across transmission distribution, clean energy, et cetera. That's the exact kind of capital plan you want to see. A lot of learning doesn't definitely seem right about it.
Hopefully, once that logjam gets freed, we'll start seeing a lot more interconnections in ITC's footprint.
That's great, thanks David.
Thank you.
Our next question comes from Mark Jarvey of CIBC. Please go ahead.
Thanks. Good morning, everyone. First, on the MISO transmission projects, can you clarify whether or not the numbers you've provided, the 1.4 to 1.8 is net ITC or whether or not there's any sort of partnerships on any of those projects? And then for Jocelyn, with these incremental investments, I'm not sure it's too early at this point, but you can comment on how they would fold into your funding plan over the next five years.
So I'll take the first part. At one point, our new estimate for the MISO long-range transmission projects, that's our estimate for our dollars, right? So it doesn't depend on someone else to come in. Now obviously we have to be discussing the overall projects with the partners that we are going to be splitting some of these with, but those are our dollars and our portion. In more details come join our discussion about MISO
And, Mark, with respect to the funding, I believe, I think I caught your question on the funding, particularly as it relates to, you know, bringing the Mysore long-range transmission plans into fruition. So that's still a bit hard to answer because we don't know the full timing, but, you know, assuming it's over a certain period of time. I mean, we do have room even within our drip program, but it is something we'll have to evaluate when we actually get a chance to see.
some of the updated numbers and what is the mechanism by which you would update your application for a new inflation expectation?
Yeah, so we since we have a historical test year in Arizona, we don't really get to update inflation as it were. But what we do do so it's because it's based on the historical 2021 test year expenses. But we what we are able to do is put in some adjustments that are going forward basis for labor and some other known O&M with things that are known and measurable that go into that into that calculation. You'll have some time to think about what we did what we did how we it what we did we added some parameters and things like that.
But we don't have an interest rate tracker, anything like that in Arizona. So, you know, that is the one jurisdiction that, as we see, inflation increase, you know, between rate cases, that can have an impact, but also on the other side, it's, you know, regulatory lag that works both ways. As as inflation will come down the other side, you'll see it, you'll see the higher inflation built in the rate. So, overall, it kind of evens out over time. So, from a long-term perspective,
It kind of gives and takes...
kind of gives and takes throughout the years.
I guess I was most interested in the labor and the O&M stuff. So is there an opportunity to resubmit updated expectations for those items?
I don't know of any way of doing that, but we also have never been in an environment like this. So when you have high inflation and it changes from the time, you know, basically on a historical basis, there's a lot of different ways that you can get that consideration for that during the rate proceeding. So there may not be as, you know, as a...
keen ion expenses when the commission and the interveners realize that inflation has increased. But there's also ways of managing it, right? So Susan and her team down in Arizona will be managing O&M expenses as best they can to offset the impact, whatever it might be, as we go forward. So that's, there isn't a standard process per se. Now, if you get in a settlement negotiations, there's, you know, that opens the doors for a lot of...
happy to see that conversation take place. This was the chair, Mark as Peterson, who put out that letter. It's a good way to look at things because PPAs versus ownership have to be looked at on a bit of a, you know, have to look at it on a level field. We feel that ownership has a lot of, you know, not just financial but intangible benefits related to the ability for us to dispatch, say, renewable energy.
battery storage, et cetera, exactly how we need to instead of trying to figure out how to get a contract price right to give you the full flexibility and uttered access to the value of those of those assets. So one of the things that PPAs do is that lean on your balance sheet, right? It's a good adept and to have in a recognition of that to in essence you know level that playing field I think is helpful. Now all that being said I'm looking at Susan and Zinichi nods we have no idea where this is gonna go because it was just a
a proposal by one commissioner. And, you know, we don't know if this will get any traction at least to others.
and she accepted an agreement.
That's good. Okay. Thank you.
Your next question from Andrew Cusk of Credit Suisse. Please go ahead.
Thanks, good morning. Maybe if we could just look back at UNF and Arizona more oddly, obviously there's a wealth of Arizona-related experience on the call today.
The regulatory environment, it's ebbed and flowed at times. And maybe just give them perspective on where you see the dynamics right now from.
positive standpoint versus maybe less instructive in and of itself or the history of Arizona. And then also just as you see it versus other jurisdictions where you have exposed or just more broadly.
So I'll turn this over to Susan to talk about the current situation and if you want a history of the world, I can give you the last 27 years that I've been in Arizona as well. But I think the most important piece to answer here is the current situation and Susan's got her pulse on that.
Yeah, I think that, you know, our three companies have had some positive outcomes, regulatory outcomes, just even this year. If you look at our last case, other than maybe a lower ROE, we did have some positive outcomes out of that case. So we're feeling like there is regulatory support for UNS. I think some of the more extreme negative outcomes have been directed more at one company, and we feel like that is unique just to the company. We don't expect that to...
to be the case for UNS or for this TEP rate case. And really how it compares across the rest of the footprint, which was in your question there. I mean, you know, I might be biased because I came from Arizona, but, you know, I always thought that it's a very constructive environment. When you get past, you know, some of the headlines and some of the, you know, kind of one-offs, you know, we have a very good relationship with a very strong woman andumi, I'd rather, you know, graduate from
staff up there and that's really the that's the group that you know is there from year to year to year to year and having those relationships building up that trust through transparency is how we've operated and so you know there's there might be a little you know rulings etc that you know that we might not be fond of as Susan mentioned you know I guess that the ROE in the last case but I mean you have to realize
in the scheme of things that it's still a very, in my opinion, a very constructive environment. And as we go forward, I think others will start seeing that as well. And as we go forward, I think others will start seeing that as well.
Okay, appreciate that. I'm going to refrain from naming that one company. But when you look at the… How fast did we!?
That was noted. If you maybe look at just the drivers within Arizona, and you mentioned the 27 years, when you think about economic growth potential that has been robust on a historic basis.
How do you think about the growth drivers and even in the event of a negative outcome or something that's less favorable from a regulatory standpoint, does the overall growth environment in Arizona really support the business there?
Yeah, that's really one of the key underlying principles in any jurisdiction is that we serve, we're regulated utilities, we serve load within lines on a map. And it's really important for our growth that the lines on the map within which we serve are growing. And in Arizona, Arizona has always been one of the...
you know, highest growth states. I wouldn't say always, but for, I think it's out of the last, you know, four or five decades, there was only one decade where Arizona wasn't the top four fastest growing states. So even in economic downturns, that migration into the state, the business environment that we have, you know, constructive business environment from a tax, you know, business friendly perspective, and, you know, just flat out, it's a good place to live and...
in 2008. It was only for a few years after that that we didn't land in one of those top spots for statewide growth.
If I can sneak one more in and it's an area we don't talk about that much more, whether or not it's positive is Arizona, but there's a lot of percolating positives in Atlanta.
maybe just talk about any kind of emerging opportunities that could surprise to the upside and the perhaps even one way to why this doesn't look like the food lose pride is thanks to the
in Canada's at just really an Atlantic Canada. I would like to get an Atlantic Canada. I would like to get
Yeah, yeah, so, you know, there's, it's, while we're all sitting here in Alberta today, you know, it's, when I was in St. John's just a month or so ago, and seeing the economic vibe in Newfoundland related to some new projects, particularly in the oil and gas, which, you know, is a big part of that economy over there, you know, a couple big projects that were announced both in expansion and a new project.
That was a big deal. And I think that that has given a little bit of boost to people in Newfoundland in particular. I think probably the broader conversation around, say the Atlantic loop and the opportunities that that might bring wind development that's being talked about in Newfoundland and Labrador. All of those things are additional positives for growth opportunities in our sector.
you know how windia can be so wind wind is definitely going to be a component going forward and you know we may be able to even invest in some of that wind as you also might know solar will not.
Thank you for that.
Your next question comes from Matthew Weeks of IA Capital. Please go ahead.
Good morning, thanks for taking my questions. I think I just have one and just wanted to ask if you could provide sort of any comments at this point on progress on the GCOC proceeding in BC just in terms of developments, how that's been progressing, timing and maybe how those conversations are going with the regulator at this point.
Sure, I'll turn that over to Roger Delantonia. He's easier as well. Thanks, Matthew. The proceeding.
We're through the information request process for the most part. We just had a procedural conference.
Early in July , we are waiting in the order for additional process. There is a potential for an oral hearing in November , and should the oral hearing proceed that we likely be getting?
Early 2023 with the decision to follow but we're waiting for that as far as the process Nothing Surprising we did put forth request for higher ROE and capital structure The interveners of course are suggesting something less than that and we're really no No surprises so far what we're seeing in the
Okay, thank you. I appreciate the updates. I'll turn that on. Thanks. Thank you.
you
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one at this time. Please press star one at this time.
Your next question comes from Michael Sullivan of Wolf Research. Go ahead.
A round of morning.
My first question was just around the FERC complaint on the equity ratio. I understand that you're pretty confident that you ultimately prevail here. But just in terms of process, would it be surprising if FERC at least took it up and set it to hearing? I think when this came up a number of years ago, they just outright it denied it. Is that the expectation this time? Or would it be not surprising if they did at least take it up?
Well, our desire would be for them to outright deny it, which we think would be the right process, but I'll turn it over to Linda Apsi to answer that one. Yeah, good morning. Thank you, Michael. Absolutely, Dave said we certainly would hope that FERC would dismiss the complaint outright, just given that how we set our capital structures.
directly according to the FERC's three-pronged test. And so this would be a significant departure from FERC precedent if they were to grant the complaint. So certainly our hope and desire that they dismiss it outright. And certainly the comments that we have provided in the docket certainly lay out our case. And we are hopeful that FERC will take the appropriate action. I would note that there are no time frame required.
for FERC to act, so we don't really have any visibility into when we might get a decision from FERC.
Okay, but if they don't outright deny it, should we be worried or it's still possible that you can ultimately prevail?
Well I think if FERC does not, FERC would have to take action. You know if they don't deny it or dismiss it there are two other possible paths. One, they could grant the complaint.
and yield their own decision through an order or through an order they could set the matter for hearing, which would ultimately sort of take us off into a different track before an ALJ and we would certainly be down the hearing path, which would presumably the expectation that there would be some settlement or at least attempt at settlement. So I think it's far too soon to know or tell what the outcome's like be. Again, we're hopeful that this will be an outright dismissal.
of the complaint given that we follow FERC precedent. And again, you know, I think as we've mentioned before, you know, this would have broader industry impacts as other utilities have similar equity components in their capital structure. So this would certainly have much broader concern from the industry's perspective. And that's why I think there were other interveners in the docket to that effect, reminding FERC that their precedent.
Nothing has changed. There's no change in facts or circumstances. So again, we remain hopeful that this will be an outright dismissal.
Okay, great, that's super helpful, thank you. And wanted to also just shift gears to the quarter and the trust asset performance drag. If so, it looks like it's been about two cents a quarter. So far this year, I mean, if the market continues to kind of hold where it is, obviously that's a big if, but should we expect that to be like a sustainable drag through the remainder of the year? Yeah, Michael, that's right. So the market holds, then we shouldn't see any further.
impact of these assets, but as you know the market still moving around, but if the market holds where it is today then we probably would keep the 4 cent impact that we would have.
Okay, so no incremental year-over-year impact in future quarters.
Not expecting, no.
Okay, great. Thank you.
depends on the market of course. Depends on the market. Thank you.
Your next question comes from Darius Lozny of Bank of America. Please go ahead. Hey, good morning. Thank you for taking my questions. Just a quick one on your sales trend that you reported for the quarter. Looks like Central Hudson came in fairly robust, double digit increase on residential. Can you talk a little bit about what kind of trends you're seeing there? It looks like you're not going out weather specifically. It looks like that might be organic growth, but just just
Curious if you could unpack that a little bit. Yeah, let me turn that over to Charlie Frenie. He'll have some more details on You know on the you know the load impacts in this quarter. Charlie you there?
I am here Dave, thanks for the question. In our service territory, North New York City is really prospered with, I want to say, the migration exit from the city. So we're seeing pretty robust housing development. More housing development I've seen in a long, long time. So people are moving to the area. And obviously when mortgage rates were low, a lot of starts.
and purchases were taking place. So from a residential perspective, we're seeing that rough thing, you know, a fair amount of conversion to heat pumps. The heat pump programs in our service territory, as well as some of the other service territories in New York have been for the most part, in a strip of all their funding, because there's been such strong demand for the heat pumps. And, you know, more and more electric vehicles are in the area.
as well. So, you know, I think there's a number of drivers there that have supported the residential growth.
Great, thank you for that. One more if I can, and this is just a follow-up to a response that you gave to another question. I think you said that in response to seeing some of the pressures on capital costs and things like that, you might look to efficiencies on the O&M side. And I'm just curious if you'd be in a position to perhaps quantify those expected O&M efficiencies on any future updates.
Yeah, in the future we will. This is something that we've been having conversations throughout really the past year on ways for us to find ways of reducing costs to allow us the headroom to make the needed investments we need and the infrastructure that our customers need. So we're continually trying to figure out how to best gather and display that information for our investors.
and for ourselves. So we'll continue to do that and continue to refine that and get it in some of our IAR materials and decks and conversations going forward. Dover Field."
Great, thank you. I'll turn it back here. Thank you, Ders. If you have further questions, I would like to turn the call back to Ms. Amimal for closing remarks. Please go ahead.
Thank you Michelle. We have nothing further at this time. Thank you for participating in our second quarter 2022 results conference call. Please contact investor relations should you need anything further. Thank you for your time and have a great day.
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everyone for participating and ask you to please disconnect your lines.