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 second quarter conference call and webcast.
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At this time I would like to turn the conference over to Stephanie a mimo. Please go ahead Ms <unk> Mimo.
Thanks, Michelle and good morning, everyone and welcome to <unk> second quarter 2022 results Conference call I'm joined by David Hutchens, President and CEO , Jocelyn Perry Executive VP and CFO . Other members of the senior management team as well as Ceos from certain subsidiaries before we begin today's call I want to remind you that the discussion will.
Include forward looking information, which is subject to the cautionary statement contained in the supporting slide show actual results can differ materially from the forecast projections included in the forward looking information presented today are non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U S. GAAP financial measures in our second quarter 2020.
Two MD&A.
Also unless otherwise specified all financial information referenced is in Canadian dollars with that I will turn the call over to David.
Thank you and good morning, everyone.
Today, we are pleased to report another successful quarter underpinned 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 and our system, placing us on track to achieve our 2022 annual capital plan.
And supporting our second quarter adjusted earnings of <unk> 57 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 corporation's revolving credit facility.
The report also includes comprehensive diversity data on employees across the Fortis group of companies, which will advance our strategies and inform our objective setting.
Overall the report contains more than 35, new key performance indicators and is fully aligned with the applicable sustainability accounting standards board or SaaS be standards.
During the quarter, we continued to make progress towards our greenhouse gas emissions reduction targets.
In June TEP retired San Juan unit, one removing another 170 megawatts of coal fired generation from its portfolio supporting their plan to fully exit coal by 2032.
Earlier this month <unk> announced a pilot project to produce carbon neutral hydrogen from natural gas through a partnership between Fortis BC Suncor energy and Hazer group utilizing a new carbon capture and utilization technology that provides a marketable solid carbon byproduct.
<unk> is being funded by the partner companies and the provincial government's clean 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 to clean energy.
In June TEP filed its general rate application with the Arizona Corporation Commission seeking new retail rates effective September of 2023 based on the December 31, 2021 test year the.
The application includes rate base of $3 $6 billion, representing an increase of $900 million since the last rate case, largely driven by investments for renewable generation such as the also ground a wind project and the Raptor rich solar facility.
The application requests an allowed return on equity of 10, 25% and an equity layer of 54%.
D. P is proposing to modify an existing adjuster mechanism to include recovery of certain investments associated with Tep's clean energy transition.
The new resource transition mechanism or Rts is intended to reduce regulatory lag between rate cases.
In addition, TEP is requesting to eliminate both the demand side management and the renewable energy standard Adjustors and recover those costs in base rates.
The requested non fuel increase associated with the right application totals $159 million as the waterfall chart highlights the recovery of investments in rate base make up the majority of the increase.
<unk> progress and 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 increased to $136 million.
Earlier This month Commission staff filed a sufficiency letter, indicating the tep's rate application meets all of the necessary filing requirements. A procedural schedule was also agreed to earlier this week with staff and intervenor direct testimony is 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 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 plants.
These 18 projects, which span across the MISO Midwest subregion had total investments of approximately $10 billion U S dollars.
With six of the projects located in <unk> service territory, ITC estimates and investments of approximately one four to $1 8 billion U S. Dollars through 2030. This is up from the previous estimate of one to one 5 billion U S dollars.
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. This was driven by recent macroeconomic conditions that impacted our ability to secure a viable transmission service agreement within the required timeframe.
We acknowledged the efforts by all parties to bring the project to this point. However at this time it is the 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.
A <unk> 59 per common share compared to earnings of 253 million or <unk> 54 per common share for the second quarter of 2021 on.
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 Tommy differences related to mark to market accounting of natural gas derivatives at Aitken Creek.
Turning to slide 12, we delivered adjusted net earnings of 272 million or <unk> 57 per common share in the second quarter. This is <unk> <unk> higher than the second quarter of 2021.
Great base growth at our regulated utilities and a higher U S dollar to Canadian dollar exchange rates favorably impacted the quarter.
Timing of earnings in Alberta in Arizona, as well as losses on retirement plan assets at <unk> and ITC temporary earnings growth in the quarter.
As you might recall fortis benefits from limited pension exposure given regulatory mechanisms that most of our utilities.
In the second quarter.
However, broader market volatility impacted the value of certain retirement assets.
And our U S utilities.
Outside of our defined benefit pension plans the quarter over quarter impact was too.
For the six months ended June 2022, we delivered adjusted net earnings of $641 million or $1 34 per common share <unk> <unk> higher than the same period in 2021.
Year to date 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.
The waterfall chart on slide 13 highlights the EPS drivers for the quarter by segment.
We continue to see rate base growth across our utilities supported by capital investments of nearly $2 billion year to date.
Our western Canadian utilities, and ITC each contributed a one cent EPS increase driven mainly by rate base growth at ITC quarterly earnings growth was impacted as I mentioned by losses on retirement assets, while earnings growth at Florida, South, Florida was impacted by timing of operating costs.
For our energy infrastructure segment, EPS increased by <unk> <unk> due to higher hydro electric production in Belize.
Next a higher U S dollar to Canadian dollar foreign exchange rate favorably impacted quarterly results by approximately <unk> <unk>.
At our U S electric and gas utilities EPS decreased by <unk> in the quarter <unk> was down <unk> and central Hudson was up one.
As expected the lower earnings in Arizona that were associated with both the timing of UDC recognized in 2021 during the construction of the <unk> Grande wind generating facility and losses on retirement assets.
Did benefit from higher long term wholesale sales during the quarter, which helped offset higher operating costs and regulatory lag.
Yeah.
Central Hudson's EPS contribution was driven mainly by rate base growth and the conclusion of its rate case in 2021.
In our corporate and other segment. 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 <unk> due to higher weighted average shares outstanding.
Year to date EPS was impacted by many of the same drivers as the quarter.
Note that the losses on retirement asset that UNF and ITC was approximately four <unk> for the first half of 2022.
Year 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 costs beyond the three set 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.
With the backdrop of a rising interest environment several of our utilities accelerated debt issuances in the first half of the year locking in attractive rates to the benefit of our customers at <unk>, We recently refinanced $500 million in debt that was due in 2023 and <unk>.
Steve holding previously entered into interest rate swaps of $450 million U S. <unk>.
To mitigate refinancing risk associated with debt due later this year.
During the quarter. We also entered into a one year $500 million U S. Non revolving corporate term facility and amended our existing $1 $3 billion revolving corporate facility.
Our revolving facility was amended to extend the term to 2027 and establish sustainability linked targets related to for diversity and the reduction of scope one emissions and.
And lastly, we continue to maintain strong investment grade credit ratings in May <unk> Morningstar confirmed our alo issuer and unsecured 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 five year capital plan.
In addition to the TEP rate case that David spoke to earlier I'll spend a moment on some recent regulatory update.
First ITC continues to wait for a final rule from FERC in relation to the supplemental notice of proposed rulemaking or <unk> on transmission incentives, which proposal to eliminate the 50 basis points <unk> return on equity incentive adder.
Next FERC issued two additional no further in June addressing interconnection queue reform and grid reliability and extreme weather both of which stemmed from the initial advance note released last year.
While ITC continues to evaluate both nowforce any FERC actions that help streamline the interconnection queue will be positive for all parties involved.
<unk> also supports <unk> continued focus on grid resiliency and expects to be active in the rulemaking process reply comments on both proposals are due later this year.
Also in May the Iowa coalition for affordable transmission filed a complaint with FERC.
<unk> 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 the utility's actual capital structure for ratemaking 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% with reduced annual EPS by approximately <unk> <unk>.
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 remarks, 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.
Our local management teams will continue to work with their customers and regulators to manage through this time of high inflation in energy prices, while still making the investments needed to deliver a clean and resilient energy future.
I'll 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 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 Choy of RBC. Please go ahead.
Thank you and good morning. My first question is a follow up on your comment about MISO spending timing and specifically I'm trying to understand the moving parts in the months ahead.
The MISO staff on Monday.
Notice that on August eight we will indicate what goes through competitive bidding and the leather will be assigned to the incumbent utility.
Alison indicated the expectation that many of the 18 projects will come online by 2028, so it's a bit of a tight deadlines so to speak.
The is the classification on August what Youre waiting for in order to get a better idea of what all this means to next capex update or something else.
Yes.
Hey, good morning Maurice.
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 et cetera, 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 detail.
<unk>.
Engineering planning et cetera 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 Theyre earlier, but those are also probably a bit stale on on the dates because this process has been extended a couple of times, but don't worry we will get as soon as we get a good feel for where those dollars lay out from a capital plan.
<unk> will be putting that out.
Okay and Mike.
Second question and this is a poor muscle up.
I assume there is still limited detail so far on the inflation reduction act that was announced yesterday.
The climate portion of this bill just slimmed down version of the Bill that better initiative is something entirely different.
Any thoughts on which parts of your business might benefit from this new bill if it becomes law.
And is there any changes to the taxes might offset that.
Yes.
Yes. So it is extremely early so that crossed the wire there as we were 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 other companies in the things that we have in play.
I think probably one of the.
At least on one of the press releases that we saw on this on this bill was the reference to permitting reform.
And obviously, they they referenced transmission and that commentary and Thats always a welcome news when there can be.
Additional help for us to get some of these projects permitted because.
That's obviously the one of the bigger things that we have to do that slows down.
I was 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.
Okay. 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 I guess, what we could argue is the lake Erie costs go up we have seen.
The MISO transmission projects increase there as well.
When you are taking a look at we'll call it.
Plain vanilla transmission projects.
Much inflation are you seeing in those projects.
Which could yield a higher capital plan and then two are.
You worried that the higher capital costs could differ further investments similar to what we saw with like Gary.
Yes. Thanks.
Thanks, Rob.
So it's really hard to judge inflation on a longer term basis, because that's really what we do on our capital planning process as we obviously have to make some assumptions on where inflation.
Inflation is going and frankly, the shape of that curve. The things that we have in flight say this year's capital plan et cetera.
Typically don't see a big inflationary impact on those because they are already in flight, we have the materials et cetera.
But as we go forward, we're going to have to obviously adjust on the fly as needed in those capital projects to 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 tell you so.
Different questions right because there's the capital plan is in the total for the current projects you have.
Or is your is your budget going to get bigger and Youre going to continue to do those capital plans, meaning which is which is going to give or are you going to keep the capital plan the same or keep the number of projects the same.
We are definitely the capital projects that we have are ones that are needed for the safe and reliable service for our customers. So we're going to we're going to have to do those projects. So we will have to manage the capital budget accordingly.
And that goes to the other side of the ledger right. So as we see some of these capital cost increases as we go we will have to look for efficiencies not only in the capital.
Process and.
And in the construction process, but also look for efficiencies on the O&M side too to help mitigate some of the rate impact is as these projects go in so there shouldnt and we don't see any any any 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.
That's something that of course, we will do in the fall when we when we put out our next five year capital plan.
Alright, I appreciate the answer to that question, maybe a little bit of a narrow narrower unclear.
In Arizona, what's the initial feedback been on.
On the filing as youre, starting to engage stakeholders realizing that test.
And then be in a in a higher yield environment, our stakeholders willing to.
Agree with a higher Roe.
Yes, Rob I actually missed the first part of what we're getting there was a little garbled.
But I did catch the last part on the Ro Ro.
Ro.
It's the it's a.
The formulas that have been used in the conversations have been used for 100 years. So.
As we see interest rates increase we do expect ROE to be following that in some manner that we typically see a little bit of a lag down and we will typically see a little bit of a lag up.
But the ROE.
Particularly in Arizona.
Since I was the one on the factors Dan last time, Susan sitting next to me she gets to sit I understand this time.
You'll do better than I did on an ROE.
Arguments because.
In the middle of Covid, when we were at the end of 2020 and doing that case, we feel that we.
<unk> got a little bit of a.
Reduced ROE because of that now when you look at the situation.
Interest rate the underlying calculus again goes into the ROE.
I think we're going to come out in a better spot. So so what was the first part of your question.
Just just the initial feedback on what the rate filing has been in Arizona any feedback from stakeholders.
Yes, I'll turn that over to Susan to answer.
Hey, Robert this is Susan.
Yes.
Early to tell the intervenor testimony won't be final until January of next year, but I think our initial conversations as we were planning to file with staff and commissioners and some of the various stakeholders are very positive and I feel like.
We have a lot of support for the.
When you adjust your mechanism I think the economic situations supports a higher IRR and so we're anticipating a great outcome.
Thank you.
Your next question comes from Ben Pham of BMO. Please go ahead.
Hi, Thanks, Good morning, I wanted to.
Go back to the Lake area in <unk>.
Characterize it as you're suspending the project and I'm I'm curious where are you with conversations.
ISO is it in fact, we stopped at the state and is there really any outcome here where you.
You could start.
Working on the project again is it inflationary.
Inputs that will drive drive that project going forward.
Yes.
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.
Situation, where.
We just have to make the prudent investments and we can't get.
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.
That doesn't mean that the project is canceled but it also.
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 suspended.
If it comes back it will it wont 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 auto which isn't that that 'twenty billing between distribution and clean energy all of that stuff.
Do you think about when you factor in tranche, one and there are some news flow on R&D and even transmission do you expect any any more.
Meaningful moves in those wedges.
As you think of the next six to 12 months.
Then youre 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 when we put all that together, we're obviously working hard behind the scenes pulling those pieces together.
I can't really divulge any of that right now.
The best part about that existing plan is how those investments are spread across transmission distribution clean energy et cetera.
That is the exact kind of capital planning you want to see a lot of a lot of little projects, a little projects that are needed by our customers to improve.
Reliability and of course, the clean energy investments that we expect to continue to increase overtime because of the trends the transition that we're doing in Arizona. The additional renewable interconnections that we're going to be doing in MISO, it's always great to see.
Darcy.
Net new number on the interconnection queue, hopefully with that once that gets sort of that log jam gets that gets freed we will start seeing a lot more interconnections in itc's footprint.
That's great. Thanks, David.
Thank you.
Your next question comes from Mark Jarvi of CIBC. Please go ahead.
Thanks, Good morning, everyone.
First one on the MISO transmission projects can you clarify whether or not the numbers you provided that one four to $1 eight is net <unk> and others any sort of partnerships and any other project and then for Dawson with these incremental investments.
Maybe it's too early at this point, but if you can comment on how they would fold into your sort of funding plan our last five years.
So.
I'll take the first part that one point.
Our new estimate for the MISO long range transmission projects.
That's our estimate for our dollars right. So it's.
It doesn't depend on someone else to come in now obviously, we have to be.
B 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.
And then with respect to the funding I believe I think I caught your question on the funding.
Particularly as it relates to bringing MISO long range transmission plans into fruition.
So that's still a bit hard to answer because we don't know.
Or timing, but.
Assuming it's over a certain period of time I mean, we do have room, even within our program, but it is something we will have to evaluate when we actually get a chance to see.
The timing so if it's a little bit.
I guess lumpier than them then we expect them, we'll have to look at other methods of funding, but right now.
It's too early to tell.
Okay, and then just turning to TTM in rate case can you just give us some sort of context in terms of when you submitted your application where anywhere on inflation expectations now since you've submitted.
Stated numbers and what is the mechanism by which you would update your application for new inflation expectation.
Yes, so since we have a historical test year in Arizona.
Don't really get too.
Update inflation as it were but what we do do.
So it's because it's based on the historical 2021 test your expenses, but what we are able to do is put in some adjustments on a 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, but we don't have.
On interest rate tracker or anything like that in Arizona. So.
That is the one.
One jurisdiction that as we see inflation increase.
Between rate cases that can have an impact but also on the on the other side, it's regulatory lag that works both ways is as inflation will come down the other side Youll see it.
Youll see higher inflation built into rates. So overall, it kind of evens out over time, so from a from a long term perspective.
Kind of gives and takes.
Throughout the years.
Yes.
And the labor and the O&M. So is there an opportunity to resubmit updated expectations for those items.
I don't know of any 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 basically on a historical basis, there's a lot of different ways that you can get that.
Consideration for that.
During the rate proceeding.
There may not be as.
As Keene.
<unk>.
<unk> expenses, when the commission and the intervenors 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 that.
I'll set the impact whatever it might be.
As we go forward.
So that there isn't.
Standard process per Se now if you get into settlement negotiations, there's that opens the doors for a lot of different conversations that are typically not available to you. If you are going through a standard fully litigated process.
That makes sense.
We're in here.
Richard I think one of the commissioners to me that's sort of a novel idea of capitalizing some of the power purchase agreement costs. So any initial thoughts on that and what that means I think from.
Cost mitigation for your customers.
Yes.
We're actually pretty happy to see that conversation take place. This was the the chair.
Mark is Peterson, who put out that letter.
It is it's a good way to look at things because ppas versus ownership have to be looked at on a bit of it has to be looked at on a level playing field.
We feel that ownership has a lot of.
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 unfettered access to the value of those of those assets.
One of the things that PPA is due is it leans on your balance sheet right, it's imputed debt and having a recognition for that to in essence level.
Level that playing field I think is helpful. Now all that being said I'm looking at Susan and seeing if she needs. We have no idea where this is going to go because it was just a <unk>.
Proposal by one commissioner.
And.
We don't know if this will get any traction with at least two others.
An agreement.
Okay great.
Your next question comes from Andrew Kuske of Credit Suisse. Please go ahead.
Thanks, Good morning, maybe.
Maybe if we could just look back at UNF and Arizona more broadly because obviously, there's a wealth of Arizona related experience on the call today.
The regulatory environment I've been flowed at times.
Maybe just give us some perspective on where you see the dynamics right now from.
Positive standpoint versus maybe less constructive.
And in of itself have a history of Arizona and then also just as you see it versus other jurisdictions, where you have exposure or just more broadly.
So I'll turn this over to Susan to talk.
The kind of the current situation is if you want to the 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 kind of the current situation and Susan's got a pulse on that.
Yes, I think that.
Our three companies have had some positive outcomes regulatory outcome just even this year.
And if you look at our last rate case other than maybe a lower ROE we did have some positive outcomes.
Out of that case. So we are feeling like there is regulatory support for you and US I think some of the more extreme negative outcomes have been directed more at one company and we feel like that's on that.
That is unique just to that company and we don't expect that to be the case for you and ask for this TEP rate case, and then really how it compares across the rest of the footprint, which was and it was in your question there I mean.
I might be might be biased because I came from Arizona, but.
I always thought that.
Very constructive environment, when you get past some of the headlines and some of the kind of one offs.
We have a very good relationship with a very strong start.
Staff up there and that's really the that's the group that.
Is there from year to year to year to year, and having those relationships building up.
The trust through transparency.
Is how we've operated and so.
There might be a little.
Rulings et cetera.
We might not be fond of as Susan mentioned.
I guess 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.
I think others will start seeing that as well.
Okay appreciate that I'm going to refrain from naming that one company.
Yes.
But when you did we.
That was noted.
If you would maybe look at just the drivers within Arizona.
You mentioned the 2007 years, when you think about economic growth potential that has been robust on a historic basis.
How do you think about the growth drivers.
Even in the event of a negative outcome or something thats less favorable from a regulatory standpoint, because the overall growth environment.
Arizona really support the business there.
Yes.
That's really.
One of the key underlying principles in any jurisdiction is that.
We serve.
Our regulated utilities, we serve lines load within lines on a map and it's really important for our growth.
The lines on the map with which we serve are growing and in Arizona, Arizona has always been one of the highest growth states I won't say always but for.
I think it's out of the last four or five decades, there was only one decade.
Arizona was in the top four fastest growing states.
So even in economic downturns.
Gration into the state.
The business environment that we have.
Constructive business environment from a tax.
Friendly perspective.
Just flat out.
It's a good place to live and people like us to move there.
Whether whether it is a consistent positive in Arizona and that does bring net migration to the state. So the underlying growth is.
Is there and I think youll see that within the within the overall numbers when you look at Arizona versus the other states and we expect that to continue.
It is something that.
Except for that big downturn in 2008, it was only for a few years after that that we didn't we didn't land in and one of those top spots for first statewide growth.
Second sneak one more and then its an area, we don't talk about that much more whether or not as positive as Arizona, but theres a lot of percolating positives in Atlantic Canada.
Maybe just talk about that.
Emerging opportunities that could surprise to the upside in the portfolio.
And Canada is that what you asked really in Atlantic, Canada Atlantic Canada.
Yes, yes.
Sure.
<unk>.
While we're all sitting here in Alberta today.
When I was in St. Johns just a month or so ago and seen the economic vibe and.
In Newfoundland related to some some new projects, particularly in the oil and gas, which is a big part of that economy over there a couple of big projects that were announced both in expansion and a new project.
That was a big deal and I think.
I think that 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.
Atlantic Canada, you kind of have to look at as well if you get something like the Atlantic loop you have to look at it like an integrated.
Yes.
Integrated resource plan for the region and that means all of us need to do a little bit different resource planning and it's going to include transmission renewables, maybe some additional hydro et cetera, Theres a lot of development opportunities. It's a resource rich area you've been there.
When do you can it can be so.
Wind is definitely going to be a component going forward.
We may be able to even invest in some of that wind.
As you also might know solar will not.
Okay. Thank you for that.
Your next question comes from Matthew Weekes of IAA 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 on progress on the COC preceding NBC just in terms of developments, how thats been progressing timing and maybe how those conversations.
Patients are going with the regulator at this point.
Sure ill turn that over to Roger Dell Antonio easier.
Easier as well.
Thanks Matthew.
Proceeding.
We're through.
The information request process for the most part we just had a procedural conference.
Early in July we are waiting the order for additional process. There is a potential for an oral hearing.
In November and should the oral hearing.
<unk>, then we'd likely be gain.
Yes.
For the 2023 with the decision to follow but we're waiting for that as far as the process nothing.
A surprising we did put forth.
Request for higher Roe.
Capital structure.
Hi.
The intervenors of course are suggesting something less than that.
And we're really no.
Surprises, so far and what we're seeing in our <unk>.
And we look forward to.
Fairly soon here.
Okay. Thank you I appreciate that.
Turn the call back.
Thank you Matthew.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one at this time.
Your next question comes from Michael Sullivan of Wolfe Research. Please go ahead.
Hey, Ron good morning.
My first question was just around the FERC complaint on the equity ratio and understand that you are pretty confident that you ultimately prevail here, but just in terms of process.
Would it be surprising if FERC leaves took it off and set it to hearing I think.
When this came up a number of years ago. They just outright denied that is is that the expectation at 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 denial, which we think could be the right process, but I'll I'll turn it over to Linda Apsey to answer that one yes. Good morning. Thank you Michael.
And as Dave said, we certainly.
Got it.
We'd hope that FERC with dismissed the complaint outright.
Given that how we.
Set our capital structure.
Directly according to the FERC 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 dismissed outright and certainly the comment.
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 timeframe 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 denial should we be worried or it is still possible you can.
Ultimately prevail.
Well I think if FERC does not FERC would have to take action.
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 with previous suitably expectation that there would be some settlement or at least attempted settlement. So I think it's far too soon to know or Tao.
What the outcomes might be again, we're hopeful that this will be an outright dismissal of the complaint given that we follow a FERC precedent and again I think as we've mentioned before.
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 so or there were other.
Intervenors in the docket.
To that to that effect.
Finding FERC.
That.
There are precedents nothing has changed there is no big change 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.
Wanted to also just shift gears to the quarter end.
Trust asset performance drag.
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.
But should.
Should we expect that to be like a sustainable drag through the remainder of the year.
Yes, Michael that's right. So if there is if the market holds then we shouldnt see any further.
The 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 <unk> impact that we would have.
Okay, So no no incremental year over year impact in future quarters.
Expecting no okay. It depends on the Mic give of course depends on the market.
Thank you.
Your next question comes from Darius <unk> of Bank of America. Please go ahead.
Hey, good morning, Thank you for taking my question.
Just a quick one on your sales trends that you reported for the 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 youre seeing there it looks like youre, not calling out whether it's specifically it looks like that might be organic growth, but just curious if you could unpack that a little bit.
Yes, let me, let me turn that over to Charlie <unk>, who will have some more details on.
On the.
The load impacts in this quarter.
Charlie you there.
I am here, Dave Thanks for the question.
Our service territory, Northern New York City is really.
Prospered with I want to say the migration exit.
From the city.
So we're seeing a 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 when mortgage rates were low a lot of starts and purchases were taking place.
So from a residential perspective, we're seeing that we're all seeing.
Fair amount of.
Conversion to heat pumps.
The heat pump programs in our service territory as well as some of the other service territory in New York.
<unk> been for the most part strip.
Stripped of all of the funding because theres been such strong demand for the heat pumps.
And more and more electric vehicles are in the area as well. So I think there's a number of drivers in there.
That has supported the residential growth.
Great. Thank you for that one more if I can and this is just a follow up to 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.
Yes.
You'd be in a position to perhaps quantify those expected O&M.
Efficiencies on any future updates.
Yes in the future and the future. We will this is this is something that we've been.
Having conversations throughout really the past year.
<unk> for us to to find ways of reducing costs.
Allow us to the headroom to make the needed investments we need in the infrastructure that our customers need.
So we will.
We're continually trying to figure out how to how to best to 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 IR materials index in conversations going forward.
Great. Thank you I'll turn it back here.
Thank you <unk>.
As there are no further questions I would like to turn the call back to MS. <unk> Mimo 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.