Q1 2023 Fortis Inc. Earnings Call
Good morning, everyone. Thank you for attending by my name is Brian and I'll be your conference operator today.
Welcome to reported Q1 2023 earnings 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 dose with questions should press star followed by one on dirt telephones.
During the conference you need to reach an operator, Please press star zero at this time I would now like to turn the conference over to Stephanie a Mimo. Please go ahead Mr. Michael.
Thanks, Brian and good morning, everyone and welcome to afford US as first quarter 2023 results conference call I'm joined by David Hutchens, President and CEO , Jocelyn Perry Executive VP and CFO other members of the senior management team as well as Ceos from certain subsidiaries.
Before we begin today's call I want to remind you that the discussion will include forward looking information, which is subject to the cautionary statement contained in the supporting slide show actual results can differ materially from the forecast projections included in the forward looking information presented today, all non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.
S GAAP financial measures in our first quarter 2023 M. DNA 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 before getting started I'd like to introduce Chris component to his first earnings call since being appointed President and CEO of Central Hudson in February following the retirement of Charlie friendly for those of you who don't know Chris He has been with central Hudson for over 20 years, serving for many years as Chief Financial Officer Welcome, Chris We look forward to working.
With you on this new capacity as you lead the team in New York.
Today, we are pleased to report strong first quarter results, which reflect the diversified nature of our business favorable market conditions and the continued delivery of our low risk capital plan as we've talked about in the past we remain keenly focused on meeting our clean energy goals, while investing in the resiliency of our energy systems, all in a manner that insurers.
Continued customer affordability.
For example, Florida P. C received a milestone approval in April from the British Columbia Utilities Commission for our $155 million investment supporting their energy efficiency programs. This is just one of the many ways. Our utilities are taking the lead on climate action, while offering practical options to customers to reduce.
<unk> emissions and their bills.
From a financial perspective, we invested $1 billion of capital and our energy systems and adjusted earnings per share in the quarter increased 13 cents compared to the first quarter last year, driven by strong regulated growth, which jocelyn will speak to shortly.
On the regulatory front, our applications in Arizona, and British Columbia continues to progress with decisions in both expected mid year.
On Monday, we announced that we entered into a definitive agreement with Enbridge to sell our unregulated investment in Aitken Creek for approximately $400 million. Once the sale is closed we expect to use the proceeds to pay down our corporate borrowings, which strengthens our balance sheet and provides additional funding flexibility to support our regulated.
<unk> growth strategy. The transaction is subject to approval by the BC UC as well as certain closing conditions and adjustments. The sale is expected to close in the second half of 2023.
With approximately 1 billion invested in our systems in the first quarter or $4 3 billion dollar annual capital plan remains on track our major capital projects progressed during the quarter and March Florida's P. C filed amended transportation rates schedules with the BCC in relation to the Eagle Mountain Wood fiber gas line project approval is expected in.
Made and once approved the project will be one step closer to construction.
The first tranche of projects associated with the MISO long range transmission plan are advancing with stakeholder outreach routing studies and design engineering all underway at ITC.
In total ITC estimates transmission investments of one four to $1 8 billion U S. Through 'twenty 30, with six of the 18 projects in tranche one.
As you May recall, the $22 3 billion five year capital plan consists of virtually all regulated investments and a diverse mix of highly executable low risk projects supporting rate based growth across our portfolio of utilities.
The plan also includes $5 $9 billion for investments to directly support cleaner energy.
Over the next five years, we expect rate base to increase by 12 billion from approximately 34 billion in 2022 to over 46 billion in 2027 supporting average annual rate base growth of six 2%.
With a strong track record of increasing dividends for the past 49 consecutive years, coupled with our low risk growth strategy, we remain confident in our 4% to 6% annual dividend growth guidance through 2027.
Now I will turn the call over to Jocelyn for an update on our first quarter financial results.
Thank you David and good morning, everyone Slide nine provides a summary of our first quarter results reported earnings were 437 million or <unk> 90 per common share adjusted earnings were $439 million or 91 cents per common share 13 cents higher than the first quarter of <unk>.
22 rate base growth and higher earnings in Arizona, where the key drivers of growth for the quarter, which I'll discuss shortly.
Aaron Exchange also favorably impacted the translation of our U S denominated earnings while earnings growth was tempered by higher holding company finance costs and higher weighted average shares outstanding.
The waterfall chart on slide 10 highlights the EPS drivers for the quarter quarter by segment.
Our U S electric and gas utilities EPS increased by eight cents for the quarter with Unf's contributing nine cents and central Hudson down one cent.
A number of items impacted U S. A 's results for the quarter.
Most notably higher wholesale sales in PRC transmission revenues were mainly driven by favorable market conditions. Additionally, unf's benefited from gains on investments that support retirement benefits.
Retail sales, including the favorable impact of weather also increased earnings and lastly, lowered depreciation expense associated with the retirement of the San Juan facility last June more than offset higher operating costs.
About half of the increase in EPS contribution from U N. S is expected to moderate given timing of wholesale transmission revenues compared to 2022.
The ones that EPS decrease at Central Hudson Hudson was mainly due to higher operating costs and finance costs, partially offset by rate base growth.
ITC in our western Canadian utilities, each contributed a two cent EPS increase driven mainly by rate base growth.
At ITC earnings growth was tempered by higher holding company finance costs.
Our energy infrastructure segment contributed a two cent EPS increase for the quarter driven by higher margins and volumes at Aitken Creek and higher hydroelectric production in Belize.
A higher U S dollar to Canadian dollar foreign exchange rate favorably impacted the translation of our U S denominated earnings, which increased EPS by approximately <unk> <unk>.
The three cent decrease in EPS contribution from our corporate segment was mainly driven by higher finance costs.
And lastly, EPS by one <unk> due to higher weighted average shares outstanding standing related to our dividend reinvestment program.
So all in all a very strong quarter, even after excluding the timing of earnings at U S and foreign exchange impacts.
During the quarter, our regulated utilities raised over 600 million in long term debt largely in support of their capital programs. We also recently entered into interest rate hedges to mitigate holding company refinancing risks despite broader market volatility during the quarter associated with the banking crisis, there remains a strong.
Appetite for low risk strong credit quality issuers like Fortis.
With our recent debt issuances, coupled with $3 6 billion available on our credit facilities. We continue to maintain a strong liquidity position supporting our $22 3 billion dollar five year capital plan.
We remain comfortably position within our investment grade credit ratings, as we execute our capital plan and pursue incremental organic growth opportunities.
Turning to an update on some of our ongoing regulatory proceedings. Since we last updated the market first ITC has rights of first refusal a row first for regional transmission projects in Iowa, Michigan and Minnesota in.
In March the Iowa Supreme Court granted certain parties standing to challenge the Iowa, both FERC issued a temporary injunction and Johnson staying enforcement of the Volcker statue and remanded the issue to the district Court.
Although the timing of this proceeding and impact on future projects is unknown. The decision is not expected to impact projects already approved and awarded by my side, including tranche. One of MISO is long range transmission plant located in Iowa.
In Arizona T E. P. S case continues to progress Tep's requested rate base of $3 6 billion U S dollars and equity layer of 54% are consistent with Arizona Corporation Commission staff recommendations.
Jeff has also recommended an allowed ROE of nine 5% compared to Tep's current Roe of 9.15%.
Hearings concluded in April and a recommended order an opinion from the administrative law judge is expected mid year, we expect new rates later this year.
In New York There are no updates on the show cause order regarding the deployment of central Hudson's New customer information system Central Hudson did file a response to tune a show cause order in January and the timing and outcome of this proceeding remains unknown.
Turning to Western Canada, Fortis BC filed its final reply arguments on its generic cost of capital proceeding and a decision is expected by mid year.
At four to sell BARDA proceedings related to the generic cost of capital in the third PBR term effective in 2024 are progressing with evidenced filed.
A decision is expected from the Alberta Utilities Commission later this year in both proceedings.
With that I'll now turn the call back to David Thank.
Before entering your request and behind the request you speak loudly and slowly.
For all participants can hear your questions. One moment. Please for your first question.
First question comes from the line if more recently.
And you May proceed.
I just wanted to die a little deeper into Q1 results at UNF.
A little more on the nature of the timing of fees.
Electricity.
Revenue what happened during the quarter.
Items to emerge and when you say half of the year over year increase in EPS contribution.
Moderate.
Mean, you need to someone give it back about 45 cents for the remainder of the year.
Yeah, we we indicate that when you think it's gonna moderate just really based on looking at how we transacted last year for hotel sales in particular, we had done some wholesale sales and third quarter and I believe some of the fourth.
So you know it's just early in the year to make predictions of Halloween. These transactions are actually going to unfold.
Unfold, so when we don't get the timing most of the Marine Q2 last yourself with that we just advanced it forward in Q1. So we are expecting some other wholesale sales to moderate.
To make some some things for the color on that.
Want to finish off with the sale of the.
Creek gas storage facilities can.
Can you take us back to you when you first thought about selling the asset.
Why do you feel selling it as it was the right thing to do.
I was destroyed asset to sell and also why now.
Yeah. That's that's a great question more reason.
It's our job as fiduciary still look for value within our within our company and that value changes based on a lot of different inputs, one of them being market conditions into interest rates, etc. Uhm.
So given that we are always looking for finding out additional shareholder value. Some of these things are just kind of on our list to be looking at and when things Ah line. When you can find a good opportunity good value and a good counterparty to look at these assets and <unk>.
And even more value than we can find it on that's what that's what triggers a deal. It's it wasn't anything like we.
And you're trying to figure out how to sell this for years and years and years. This is just something that we were being very opportunistic with and now you know given the market conditions provides us, particularly in a in a volatile market period.
I just bet additional funding flexibility balance sheet strength et cetera. So that's just all of the right things aligned here.
You mentioned as one of the things that's on your list to look at what else is on that list and obviously, there's some other large unregulated acid in there like the hydro acid from belief.
The same logic of selling the gas storage Nathan Creek apply to this set of hydro assets or is it more complicated.
Police electricity.
Yeah normal race, you did not disappoint I figured that I would have given odds that would've been here a follow up question. So the the only other appreciable regulatory assets. We have period is believes we'd we don't we don't have you know some sort of scheduled to be looking at you know these these assets.
It again, it's just us being opportunistic.
You know across our portfolio and finding that values. So we don't we don't we don't have you know an agenda here.
Thank you very much.
Next question, we have Bravo with Scotia.
Please go ahead.
Good morning, everyone. First question is Arizona going into the hearing you were at a little confident that you can get a stipulation agreement, which didn't come to bear, but can you give us some color on how the hearings went and kind of where you see yourself more aligned or less in line with the stakeholders.
Yeah, I'll I'll I'll turn that over to Susan Gray Who's a sea of you wanted US energy and was is was just spent some time on that stand in those hearings. So definitely has been a very.
Which is hidden from speaking from someone who was sitting in that chair. It seems like it was a very straightforward a batch of hearings and and frankly places of you know kind of standard disagreement or argument across you know things like you know.
And some other odds and ends but Susan you won't provide a little color on that Sir yeah. Thank you for the question.
Yeah, I think that the the hearings were.
As expected.
Tired of the hearings, we were able to narrow that contested issues.
The other stakeholders and and intervenors and so I felt like we had a pretty straightforward hearing in terms of issues that we covered I would say a lot of discussion around.
The system reliability benefit, which is an adjuster mechanism network.
Q reduce regulatory lag for iron you clean energy investments.
<unk> conversation about the whole community transition and potential customer funding.
Which hasn't really been set as a policy by the Arizona Corporation Commission.
And then yeah that kind of the typical army fair value increment and things like that but I think that we're pretty close.
Closer than we've been in years past in terms of White staff has put forward and in what way.
Recommending and so.
I'm looking forward to the judges recommended opinion and order. This summer and then and then open meeting to decide the rate case, probably early fall.
Thanks for that and I'm sticking with the Arizona, a little bit more of a local question proposition for 12.
This is kind of normal course or is there potentially some concessions three made there.
Sure. Thanks for the follow up robbed him. So proposition for 12 is our proposition to approve a new franchise agreement with the city of Tucson, and I would say, what's new in this franchises that we have added a 0.75%.
To the right, which was previously 2.25 per cent in order to cover Undergrounding cost for any transmission line that we're building through the city of Tucson.
That would provide recovery over about a 10 year period. We've also designated 10% of those new funds to find the city's climate action and adaptation plan.
So that's the that's what the agreement that we came to you with the city and that's what's being proposed and perhaps more 12 I think.
This is fairly new for the city, so I'm not sure I'd call. It normal of course of action franchise fees are normal. This is just a little bit of a twist on it so that elections coming up I'm just in a couple of weeks here and hope to.
To get started on building that new transmission line underground.
Thank you.
Next question comes from the line is Linda.
<unk> with T D Securities. Please go ahead.
Thank you, but just wanted to step back to a very high level and get your updated.
Is on the likelihood and the relative attractiveness of potential.
Potential unregulated, but contracted energy infrastructure investments.
Call in recent history, Uhm kind of delegating a search for these types of opportunities to some of your regional heads and just wondering if the overabundance of of utility investments now has has kind of put those opportunities to the back burner or if they're less attractive or or maybe you can.
Comment on over time, how much of your overall company might be unregulated if any.
And then maybe you can also specifically comment geographically on your the opportunities you also C N B C with divestiture of a creek, but you've got your uhm wood fibre gasoline likely proceeding.
And also some orangy opportunities.
Yeah. That's that's a that's a great question or questions Linda and I. Appreciate you asking them because I think this is provides an opportunity to provide some very some clarity. One is are we interested in doing unregulated renewables answer is no we have a <unk>.
What to do in a regulated utilities and frankly, that's where we see the additional growth going forward on top of you know our current existing capital plan. So that's that's where we're focusing the others are you know backburner off the stove. However, you want us to think about it. It's that's that's.
Not not in not clearly not in our sites when we think about longer term, what we want to look like from my from a company perspective regulated vs unregulated or practically 100 per cent regulated other than that investment in in the believes hydro generation that we have we liked that we think that's what are investors like too.
That's the the right opportunity to look and and frankly.
That's where our core competency lies and that's where I think we're gonna see Ya.
Plenty of growth opportunities as we go through the clean energy.
Transition on a going forward basis can you remind me what the last part of your question was.
Just quickly.
Because you've got some orange.
Yeah, Yeah. So so.
The things that we're looking at in B C from the wood fiber pipeline regulated utility infrastructure from Tilbury, one be regulated utility infrastructure.
It is.
Don't try to read anything into asked getting out of an unregulated storage facility as as a view on our B C. The company, we'd love that V. C Company, we think that you know.
Have huge growth opportunities, we see them playing a big role in Queen B C and the strategy for Decarbonising that province and.
It's just just as simple as trading on Rag for Reg and so I think I've I think.
That provides a lot of clarity on where we're going going forward.
Thank you and just a follow up question on your capital a five year capital expenditure plan as it continues to evolve and as you layer on new opportunities, especially potentially facilitated by the I R. A and the U S Uhm might you mm.
Four alternative like not alternative financing, but like my you augment your current financing plan and and add to it or might you defer some more discretionary capital to kind of stay within the current financing uhm plans.
So that as we as we build out that capital plan I I I don't want to get ahead of our next releases were drawn up our current plans and so they'll look at what our next capital plan, which will be coming in kind of that September of call. It fall time frame that will be the time that will update anything.
Related to you know, obviously, the capital plan timing and how and how well funded and you know obviously the bacon greet gives us an extra $400 million sitting in there from a from a funding flexibility perspective as well.
Thank you.
Thank you and next question comes from the lining of Mark Jordy, We'd CIBC. Please proceed with your question.
Next corner.
You want to come back to the strong results of unison trusting you talk to me about timing.
Comparable with moderate a little bit but.
And also the results are up sorry for your plan or some sort of structural telling a little brown, the wholesale market and transmission revenues Elisa.
And was driving us if there is yeah, yeah for the most part it's it's volume and price differences are it's it's not.
Is market driven that's a very specific to you know.
Term I'll I'll say.
Shorter term market perturbations, if you wanted to think of it in that in that respect so that it isn't necessarily on the wholesale side. A you know a view that there's this longterm additional wholesale sales that can you.
We'll continue on you know.
On a going forward basis not on the transmission side. There is just a lot more use of our transmission system than we've had in the past that's probably basically likely to continue I think one of the things that that folks forget is that the U N. S. M. T P. Tucson electric power in particular has.
A large portion of their rate base that is for jurisdictional transmission and we also have a forward formula right that looks just like I T. CS and we have I think about $1 billion of transmission capital.
900 million or so in the current five year capital plan that you Wanna. So some of those things will continue to grow over time.
Okay.
Hey, Jonathan going back to you in terms of you mentioned.
Putting some hedges around your interest rates going forward. So I'll just take care of some short term day here is there anything else you'd like to do in terms of managing any holding company that are very non interest expense cost.
I would say that.
[noise] you mentioned there are two big ones for US right. I mean, obviously, a can freeze up 400 million of our borrowings to give us that flexibility, but we did enter into both here and at I T. C. At the holding company level into interest rate hedges for the upcoming holding company financing that we have to do this year.
So you know, we're we're always watching the market to to you know determine a good time to go in and so but it's good to take that risk off the table right. The markets are still volatile and so where where laser focused on taking that risk off but aiken and interest rate locked certainly certainly do.
Improve our position with respect to the volatility we expect to would expect to see on our business. So we're always watching I don't see I you know I think we're gonna be looking to for a regulated utilities potentially looking at timing of their debt offering. So we're watching the market very closely.
We've seen a few more convertible note offerings from U S utilities does that something you'd <unk> right now for <unk>.
Oh definitely always looking at things, but you know the convertibles are not really in our space right now with our current five year plan, because we don't require any further equity beyond the drip that we've already outlined within the plan so but certainly as we as David mentioned as we now to our next five year capital.
Plan and as we look at you know the investment profile over the next five years will will look at all funding options, but commercial is definitely is is something that's out there. These days.
Thank you.
Thank you next question comes from the <unk>.
No.
Please ask a question.
Uhm.
I wanted to pass on the the Iowa situation with with I T C and.
One of your your thoughts on next milestones.
For your overall thoughts on a process.
A little bit and and and it turns out materiality you thinking this is more of the Capex you have in there is not gonna change or you might see some changes and it says not only impactful to your potential Capex plan.
Thanks for that question, Ben I'm Gonna pump that one right over to Linda She has all the details that you're looking for.
Yeah. Good morning. Thank you Ben Yeah, I think in terms of next steps obviously, the Supreme Court has <unk> the case back to the district Court and so obviously, there now will be sort of a a proceeding involving all the parties to litigate through the constitutionality of the road.
<unk>.
Unfortunately, we don't really have a good sense as to what the timing of that will be or the decision. As you know we stated obviously it doesn't have an impact on the transfer one projects that have already been issued and awarded but certainly as we go forward. You know there's you know there's various you know kind of I guess places.
That this issue is playing out one clearly is that S. At <unk>. This was clearly an issue there was teed up in the transmission planning number in terms of sort of questions around the continuation of sort of competitive bidding.
You know with the Rovers and so we would be hopeful that obviously would you know make some decision around the row for issue, but there. It is obviously playing Alice playing out in Texas, We now have it in Iowa, and so you know for US sitting here today, you know we're gonna.
Continue to stay focused on.
Planning the transmission system with myself.
And obviously advancing sort of both the L. R. T. P. One the L. R. P. T. Two projects you know, but I would mention that you know there are a lot of carve outs for certain types of projects that are precluded from competitive bidding certainly projects that utilize existing right of way projects that are rebuilds projects.
That are clearly, we just reliability projects and there's a lot of different categories.
Categories of projects that are not subject to competitive bidding and so much of our five year plan. Obviously as you know our base capital and you know we would continue to you know you know have the the right the responsibility to execute on those projects that are are.
Yep I would say, it's premature to know exactly or understand you know kind of how all of this plays.
Plays itself out or what the impact is but you can assure yourself that sorta. We are yeah, we will be positioned in our positions I would say to both be defensive and offensive and his front. So we are taking every step that we can to prevail on the.
Ability to have Rovers it is something that <unk> explicitly allowed in the their original while I was there a subsequent ruling them uncompetitive bidding.
And it is something that fork recognize that states have the right and the ability to.
To to have state Rovers and so we will be actively pursuing defending the ability for states to.
To maintain the decision around who builds in their respective states.
In the forefront in terms of.
Fundamentally don't believe competitive bidding you know is is is is a success story. It's the opposite it takes more time, there's no evidence that suggests that it's cheaper.
And I will give you. An example, right now even in the L. R. T. P. Traunch. One we are off you know often running in terms of sighting engineering preparing a regulatory applications. Meanwhile, a couple of projects that are subject to competitive bidding probably won't even had a bit decision on who builds those for at least another year.
And so how this.
Uhm is compatible with the overall sort of national federal goals for carbon reduction in the need for investment in transmission.
Is really a serious question that I think all the parties need to seriously consider I. Just don't think that's I think this was a failed experiment quite frankly, and we will be continuing to defend vigorously as well as be proactive on this front.
That's that's really good color, but maybe just just sticking with uhm I.
D C M.
The remaining.
20 per cent.
<unk> can you clarify.
If hypothetically if you were to.
<unk> spell that proportion through just whether it's a fun life ending or some other reason.
The sport is have a <unk>.
On that and and also sending any thoughts on I T C. Just more strategically.
I'm checking around the room and yeah. So apparently we do have those rights of GIC was to was a self or other.
I don't know if it's the rights of first offer fights.
Right right to first refusal, but I I totally wouldn't expect Gee I seem to be interested in selling that that part of I T C.
I can't speak for them of course, but they they they do like that investment.
Okay perfect.
<unk> closed off on an asset sales particular.
<unk> I'm not sure did you and your prepared remarks that your comment on how.
How how how to value compared to your hold value or your your current trading multiple an.
Impact on.
Future EPS.
No we didn't put jocelyn can apply in on it.
Yeah been so we paid around 266 U S. I believe and 350 Canadian so it's a little bit of a higher value than what we paid a coupla years ago with respect to multiples.
Yeah, I would say as <unk> as you can.
Recall, we talk about Aiken quite frequently on the calls because the earning some other more variable given pricing and volumes, but over the last five years. The average break and it's been about four pennies a year. So if you you know if you do the math on 400, you're gonna get the mid twenties multiple for for this trend.
Action, So it's David talked about earlier.
Yeah. It was a good time to to do this transaction for us.
Okay. That's great. Thank you.
Thank you and next question comes from the line cause that'll be Raymond James.
Proceed with your question.
Oh, Thanks morning, everyone, maybe just starting with the the billing system at Central Hudson any any news update you can share their like how far away you are correct and those issues and.
Any expectations around higher O&M costs related to that.
Yeah. So the the the system is is sending out bills correctly now and as far as additional costs. We we are spending some additional money to higher customer service folks additional billing people et cetera.
To make sure that where you know fully recovered and on a going forward basis, we we see those bills going out correctly. So it's still still a little bit of mop up here and there from the <unk> from the from the blip that we had when we put it in service, but those are getting towards the the very tail end here.
Then you know we're just going.
Going through the process of making sure that we're getting out there with our customers or regulators are you know government officials and tell them that story and and getting everything back on track.
Excellent thanks for that and maybe there's one more for me I understand there have been some news reports, suggesting pretty big renewable energy plan in the Mexican state of Sonora with some plan to export that to the U S including into Arizona, just curious if that's something that could ultimately be factored into the the I O P.
For your for you in a survey if that if that affects your business here in any way.
So given that neither Susan nor I are familiar with that I would probably say no but when we when we look at our integrated resource plan that the T. P and are smaller units electric company are both doing here later this year, we do look across a broad swath of different projects that would just be.
Whether or not projects like that if they showed up they would likely showed up show up in one of our all source RFP. There is very unlimited transmission capacity from Sonora up to Arizona and believe me that the transmission to build transmission from Mexico too.
To the U S, particularly connect into our system. We we tried that about 25 years ago and gave up after about 15 years I think of of trying to get that built but that could actually be an opportunity for us to extend transmission that could be an opportunity for us to look for cheaper renewables, but there's there's plenty of us.
Sunshine in in Arizona, and in our neck of the woods. It connects to our existing transmission system, where would lead a need a much less infrastructure to to attached to our to our grid.
Thank you I was coming to appreciate it.
You bet.
Thank you next question comes from the line, that's Andrew Husky with Credit Suisse. Please proceed with your question.
Thanks, Good morning, I'm, maybe considering where the transmission Fame. Obviously, you have a lot of skin in the game given I T C and just the other assets you've got.
There's transmission has always been difficult to build but there's obviously increased emphasis given the energy transition and there's a lot of talk on transmission cues and the interconnection problems. So I guess, how do you think is the best way to resolve it I noticed like a big question, but what what what steps can you take or should the industry take overall just a <unk>.
Tackled the problems that exist.
Yeah, there's there's multiple fronts that you have to address this on and and <unk> is is addressing several of them was you know one primarily that you mentioned is the interconnection queue and that nope or as of last week. We here. It's you know it should be pretty soon where they get to a.
Final ruling on how to how to in essence, untangle, the interconnection cue and and I think that.
Dress cost allocation on those interconnections would that would be the next thing that we would look at there's a lot of conversations at first there's a lot of conversations and the federal government and the U S. That's really focused on trying to <unk>.
Reduce the amount of time red tape et cetera associated with permitting inciting we're very hopeful that something gets done there it feels to me.
That's a very bipartisan topic, everybody sees the need for transmission for the clean energy transition Uhm, it's obviously going to be needed for building the additional capacity that we'd like to build not just to support the inflation reduction act in in the amount of renewable but also the manufacturing.
It is is trying to be brought back into the United States that can actually help provide some of those batteries in renewables et cetera. So I think it's it's on everybody's to do list, which is a good spot to be but we definitely need to be pushing through all of the industry groups that we in in particular I T C U.
Works with them to try to find a better way to do this the federal government and you know that one of the main things that they're focused on is trying to figure out how to.
Create a little bit of a easier path through all the different agencies would have to approve uhm site and then of course Burke has a role there too with their backstop authority, and whether or not or how they choose to use that to redefine it.
Okay I appreciate that color and then I guess, let's just assume we landed us in a positive spot and somebody industries to get Untangled to use your language.
How much upside you think exists to the growth that you've already got.
That's so stay tuned for September .
At least we still have the you know there's there's no number I can put their obviously, it's it's really about the ability to execute and to get it done faster at this point it would probably be more of a conversation around timing versus dollars.
Okay, some were bringing forward things versus a much larger number.
Yeah, I'd like to use it in specific specifically tranche too, which you know we expect to be looked at over the next year or so and my so that the timing on that could change you know hopefully significantly not the timing on when the projects get awarded but the timing on <unk>.
The projects can actually get built if we can figure out how to how to tighten up some of these permitting inciting requirements.
Okay I appreciate the time thank you.
Thank you Andrew.
Thank you and the next question comes from Berlin Smith few weeks with I can repeat though please proceed with your question.
Good morning, Thanks for taken my questions just wanted to get your sort of high level thoughts you know directionally on the Canadian Federal budget, just wondering if anything specifically kind of stands out to their how you sort of looking at different opportunities right.
Now I've just general comments on that.
Yeah. Thanks, Matthew it's it's kind of like a it's a bit of a many inflation reduction act a lot of a lot of the same pieces are in that there's two in particular, one is related to tax credits for new clean energy projects. The other is tax credits related to manufacturing.
And those those two things are are are very good from our economic and clean energy transit or economy, and clean energy transmission standpoint, they don't necessarily have a direct impact for us and our businesses, which are mostly.
G delivery in Canada. However, the indirect impact is this is all gonna mean that we need additional transmission and distribution, which is our business to deliver those quaint clean energy into supply new manufacturing opportunities across Canada. So it's it's more of an indirect view.
From a Canadian perspective on that and and plus there's there's still a lot T. B D, particularly around hydrogen and what that credit might look like that might be the one opportunity where we have more of a direct benefit say, an and fortis B C for us to look at the different hydrogen uhm development opportunities within the regulated construct there.
Okay that makes sense. Thank you and just one more from the Navy and I think I know the answer to that is obviously plenty of opportunities to grow within your regulated portfolio that you've highlighted you know organically just wondering if there's any kind of place for for M&A, you know opportunistically, whether if anything you know a large or small scale or just any.
Kind of sort of sort of room for that and the growth plan. Thanks.
Yeah as you mentioned, we got a pretty healthy capital budget that we're really focused on and we're we're gonna spend most of our energy focused on finding out how to take that to the next level and then execute it that next level. So that's that's what our main main focus is here, obviously is as fiduciaries, where we keep our eyes and ears open but.
That's that's that's not a priority for us.
Okay. Thank you I'll I'll turn the call back next week.
Thank you and next question comes from the line, if Michael Sullivan with books.
Research. Please ask your question.
Good morning.
Or I'm Michael.
The Scot S earlier, but I just wanted to be really direct on it can you just explain why you think you were unable to.
Unable to reach a settlement in Arizona, and what kind of changed from when you were kind of indicating that that may be the case on the last call.
Yeah, It's it's just getting a bunch of people in a in a room to agree and and frankly, you know you've got a short timeframe to do that and it just it just didn't happen I mean, it's it's one of those things that you try to get done, but you can't control.
The different Counterparties and I'll I'll say I was extremely pleased with Susan and the and the team at T P and their ability to get it down to just those couple.
Couple issues to be really disgusted in in earnest and and the hearings when you're sitting here at.
Nine five at 97975 from a <unk> perspective on staff versus versus ours.
And the rest of the pieces that have come in in the conversations have all been constructive. It didn't you know at the end of the day. It didn't really bother us because we had to go through a couple of weeks I hear it didn't bother me cause I didn't have to testify, but you know it it's always better if you can get a settlement just from an expeditious standpoint, but this was the.
Next best thing because in the end of it there wasn't a lot of topics here that we were that would that work for me.
Okay <unk> appreciate the color there and also just related to sticking with Arizona specifically the.
Renewables writer request in and then discussion around the system improvement benefit mechanism.
Maybe just where where where does that stand where where do you see that going in Kent cannot be resolved within the rate case or or outside and it becomes longer data, just where where are we out on that.
Yeah, I'll turn turn that over to Susan for color on that new that new track of that we're talking about sure. So the tracker as their system reliability benefit and that was it changed from what we had originally proposed it was actually suggested by the staff does.
That we look at something that was more similar to an existing a gesture that used for water companies and so we we did submit a plan of administration through the testimony process in the hearing staff offered to work with us too.
[noise] right cases actually decided.
Okay very clear thank you very much.
Thanks, Michael.
Bank of America. Please proceed with your question.
Hey, good morning. Thank you for taking my question just to.
Follow up on <unk> P. S drivers that you guys reported you call out that at at both U N as in I T see an increase in the market value of some looks like its assets and some of your retirement plans as an upside driver for both you and S. M. I T C.
A way to maybe just quantify that like what.
Proportion of the 12th sets up so that you guys realize in Q1 was related to that.
<unk>.
Yeah. There is it is an U N S. M. I T. C is about a penny each and each of those utilities.
Okay. Thank you and just coming back to the discussion on wholesale sales in both Q1, but also prospectively. It sounded I think from Jonathan's comments earlier that it might be a negative driver in Q2, I think you mentioned the last your the majority of those sales were in queue too so.
Could you maybe just comment on that as far as the shaping of that for the balance of the year would you expect that to maybe be a modest negative and Q2.
Yeah, that's probably too much in the weeds, because the the timing quarter to quarter and year over year is different. So I think we did it in a couple of different quarters last year and so it might the two quarters. This year I don't know if I could.
Pick out of a hat, but overall, we expected to you know kind of obviously moderate year over year. So I'd wait we can't we can't really put that kind of a quarter over quarter.
Clarity there.
Okay Fair enough. Thank you very much and I'll pass it along here.
Okay. Thank you. Thank you are there.
Alright is there are no further questions I would now like to turn the call back to me on my email.
Thank you Brian we have nothing further at this time. Thank you for participating in our first quarter 20 twenty-three resolve conference call. Please contact Investor Relations should you need anything further thank you for your time and have a great day.
Thank you for participating this concludes today's conference call you may now disconnect.