Q1 2024 Fortis Inc Earnings Call
Good morning, everyone. Thank you for standing by my name is Judy and I will be your conference operator today welcome to afford as Q1 2024 earnings conference call and webcast during.
Judy: 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 related questions should press star followed by the number one on their telephone if at any time during the conference you need to reach an operator, Please press star zero at this time.
I would like to turn the conference over to Stephanie a mimo. Please go ahead Mr. Nemo.
Thank you Rudy and good morning, everyone. Welcome to Florida says first quarter 'twenty 'twenty four 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.
Stephanie: 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 statements contained in the supporting slide show actual results can differ materially from the forecast projections are included in the forward looking information presented today.
non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U S. GAAP financial measures in our first quarter 2024 M D N a.
Stephanie: Unless otherwise specified all financial information referenced is in Canadian dollars with that I will turn the call over to David.
David: Thank you and good morning, everyone before getting started I'd like to introduce Stephanie Raymond to her first earnings call since being appointed President of Central Hudson in April.
David: Stephanie will serve as president until Chris coupons retirement in October at which time, she will assume full responsibilities as president and CEO welcome Stephanie we look forward to working with you on our central Hudson team.
For the first quarter, we delivered strong and consistent operational and financial results is our regulated utilities continued to effectively execute their business plans and was $1 1 billion of capital investments made in the first quarter or $4 $8 billion capital plan for 'twenty 'twenty four is on track.
David: Our low risk growth outlook remains intact and opportunities to expand and extend our plan continue to progress.
David: On the regulatory front I T. C has been focused on the right of first refusal statute in Iowa.
Well new role for legislation did not advance last month, we remain confident that ITC Midwest has the legal right and obligation to construct the tranche one projects in Iowa assigned to the MISO is long range transmission plan and associated tariffs.
David: MISO also released its draft tranche two portfolio, including a preliminary project map.
While we expect further refinements, we view this as a promising step forward.
With climate risks at the forefront of the utility sector.
The recent release of our 2024 climate report was timely highlighting how Ford is preparing for and mitigating climate related impacts across the group of companies.
We continue our long track record of executing our capital plan.
These investments and our energy systems support the delivery of cleaner energy and reliability our customers expect.
Our five year capital plan of $25 billion remains on track comprising of virtually all regulated investments and a diverse mix of highly executable low risk projects.
David: With $7 billion earmarked for cleaner energy investments, we expect to interconnect renewables to the grid.
Invest in renewable generation and energy storage in Arizona, and deliver cleaner fuel solutions in British Columbia.
Rate base is expected to increase by $12 billion to over 49 billion in 2028 supporting the average annual rate base growth of six 3%.
Beyond the plan, our utilities continued to advance additional growth opportunities with a couple of key developments during the quarter.
As mentioned MISO released a preliminary map of us L. RTP tranche two projects with total transmission investments estimated in the range of 17 to 23 billion U S dollars.
While it is too early to estimate the investment opportunities within Itc's footprint MISO Board approval is anticipated in the second half of 2024.
David: The preliminary map of projects includes 765 kv kv transmission lines.
If approved these investments would bolster MISO ability to facilitate the ongoing generation fleet transition accommodate load growth and address increasingly frequent and severe weather events. We believe this is exactly the forward looking innovative planning required to deliver a reliable resilient.
Grid of the future.
David: In Arizona the team is working to advance the 2023 integrated resource plans filed by Tucson Electric power and U S electric which requires incremental investments estimated at 2.5 to 5 billion U S dollars through 2038.
In late 2023 T. P. N S electric released a joint all source RFP, calling for up to 1500 megawatts of new resources aligned with their respective our IR piece.
David: Proposals were received in March and projects are expected to be announced later this year.
In March the BC, you see approved key elements of Florida species renewable natural gas or RMG application, requiring that natural gas deliveries to all customers include a portion of our LNG and.
In addition, the BC Youll see accepted Florida species long term gas resource plan, which outlines Florida species plant to serve customers energy needs transition to a low carbon energy future and support meeting provincial greenhouse gas targets.
David: Overall, we are pleased with this decision as it recognizes the key role that the gas system will play in meeting British Columbia is energy future.
Also in March the province of British Columbia issued an environmental assessment certificate for the Tilbury Marine Jetty project. The construction of the jetty supports the expansion of the Tilbury LNG facility, which is uniquely positioned to meet customer demand for natural gas.
David: The site is scalable and can accommodate additional storage in liquefaction equipment and as close to the international shipping lines.
David: Once constructed the jetty would make use of Florida species assets at the Tilbury site to service Marine Bunkering.
In the U S. We are seeing momentum build around load growth opportunities and ITC Midwest footprint, Google recently announced plans for a data center to be built in Cedar Rapids, Iowa with a goal of coming on line in 2026. The data center will support initial load growth of 300 megawatts and is expected to increase.
The 600 megawatts overtime and.
In Michigan, and Arizona, we are seeing an increase in inquiries related to manufacturing facilities and data centers also in Arizona, South 32 continues construction of the zinc and manganese her most of mine, which is expected to become one of the U S. U S is largest customers. These developments can provide.
Strong economic growth for our communities and favorably impacts customer rates.
During the quarter, we released the 'twenty 'twenty four climate report, which assesses the impact of climate on our priority assets over multiple scenarios.
The report identifies key risks related to climate change report it says mitigation activities to address those risks and future opportunities to advance the resilience of our utilities.
With a strong track record of increasing dividends for the past 50 consecutive years, coupled with our low risk growth strategy, we remain confident in our 4% to 6% annual dividend growth guidance through 2028.
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 reported and adjusted earnings per common share for the first quarter of 2024, we're ninety-three adjust.
Adjusted EPS was two cents higher than the first quarter of 2023 and key drivers of EPS growth related to rate base growth across our group of companies and the timing of earnings associated with the new cost of capital parameters at Fortis BC.
Regulated utility growth was tempered by higher corporate costs and weighted average shares outstanding the.
The disposition of Aitken Creek, which occurred in November 2023, also impacted EPS in the quarter by three cents.
Well negative for the quarter on an annual basis, the disposition of Aitken Creek will be neutral to EPS.
The chart on slide 10 highlights the EPS drivers for the quarter by segment, our Western Canadian utilities contributed a 6% EPS increase related to the timing of the new cost of capital parameters at Fortis BC approved by the B C. U C. In September 2023, and retroactive to January.
<unk> 2023 growth also reflected rate base growth and a higher allowed early at Fortis, Alberta effective January 1st.
At our largest utility ITC. The two cent EPS increase was mainly driven by rate base growth lower stock based compensation for ITC was offset by higher holding company finance costs.
EPS was one cent higher quarter over quarter for our U S electric and gas utilities, largely driven by rate base growth and the timing of operating costs at central Hudson.
In Arizona earnings were largely consistent with the first quarter of 2023.
David: The favorable impacts of new customer rates and higher margins on wholesale sales were offset by higher depreciation and operating costs and lower retail revenue associated with milder weather.
David: Due to the seasonality of sales the favorable impact of new customer rates at T. P is expected to be higher in the second and third quarters.
David: At our other electric segment rate base growth and higher sales contributed a one cent increase in EPS and for our corporate and other segment. The decrease mainly reflects the disposition of Aitken Creek, which I mentioned earlier, the remaining decrease reflects higher holding company finance costs and unrealized losses on derivative contracts.
David: And lastly, higher weighted average shares reflect shares issued under our dividend reinvestment plan to date, we have not used the ATM program as participation under the drip remains strong.
Through April we have raised approximately $400 million of debt to repay short term borrowings and fund our capital program.
On this slide we have limited nonregulated debt maturing in 2024, and our 600 million series M preference shares are scheduled to reset at the end of this year.
David: Overall, we remain in a strong liquidity position as we execute our five year capital plan.
David: Our investment grade credit ratings with Moody's S&P and D. B R. S. Morningstar remain unchanged. We are on track to achieve an average cash flow to debt metrics up 12% over the next five years and we continue to engage with S&P on our physical risk around climate change.
David: In March the Iowa District Court issued an order denying our motion for reconsideration of its decision in related to that in relation to the eye Liberal firm. This includes itc's request for reconsideration with respect to the scope of the injunction for tranche tranche one projects in Iowa that were previous.
David: Lee awarded to ITC Midwest by myself.
ITC has appealed the district court's decision to the Iowa Supreme Court.
David: As discussed last quarter under the MISO tariff approximately 70% of the Iowa tranche. One projects are upgrades to itc's facilities, along existing rights of way, which under MISO tariff grants I T C. The option to construct the upgrades regardless of the outcome of the appeal.
David: For any portion of the tranche, one projects and I want to be competitively bid. We believe a federal decision that significantly departs from existing rules under the MISO tariff is required.
Until there is more certainty around the resolution of this matter, we cannot predict the impact on the timing of the capital expenditures related to tranche one projects located in Iowa.
David: In New York Central Hudson is one year general rate application is progressing hearings concluded in the first quarter and we anticipate a decision from the New York Public Service Commission in July.
David: Last month Fortis BC filed its 2025 through 2027 rate framework proposal with the base you see the right framework builds upon the current multiyear rate plan and includes a prescribed approach for operating expenses and capital and innovation fund for cleaner energy and continued earning.
David: Sharing mechanisms the regulatory process will continue throughout 'twenty 'twenty four.
David: And with that I'll now turn the call back to David.
David: To conclude Florida is off to a solid start in 2024, we continue to advance our low risk sustainable growth strategy underpinned by our diverse regulated energy delivery businesses across North America.
Initiatives like our 'twenty 'twenty four climate report as well as our integrated resource plans in Arizona show, our proactive approach on behalf of our customers and identifying and mitigating climate risk and pursuing opportunities to ensure reliable and resilient service.
With preliminary visibility on tranche two of the MISO long range transmission plan ITC is well positioned to advance investments in its footprint.
And with load growth opportunities on the horizon. We are so focused on investments that keep energy affordable for our customers.
David: We remain confident in our five year capital plan, which supports average annual rate base growth of approximately 6% and our 4% to 6% annual dividend growth guidance through 2028.
That concludes my remarks, I will now turn the call back over to Stephanie.
Stephanie Raymond: Thank you David This concludes the presentation at this time, we'd like to open the call to address questions from the investment community.
Thank you we will now conduct a question and answer for you yet if you would like to register a question. Please press the star followed by the number one on your telephone. If your question has been answered and you would like to would you like a registration. Please press star followed by the number two if you're using a speaker phone.
Stephanie Raymond: Please keep your handset before entering your request and we kindly request you to speak loudly and slowly to ensure all participants can hear your questions My mom and please for your first question.
Stephanie Raymond: And your first question comes from the line up Maurice Choy from RBC capital markets. Your line is open.
Maurice Choy: And good morning, everyone.
Maurice Choy: Maybe I'll just kick off with a comment you made earlier just about how you've engaged the S&P credit rating agency.
Maurice Choy: Physical asset risk as we head into I guess cause a pause this year with potential for higher wildfire risk can you just compare and contrast the.
Regulatory and legislative setup.
But of course, you're you attend utilities or even just areas where you feel.
Maurice Choy: It could be higher versus lower risk.
So Morris I'll I'll start off so yes, we have engaged with S&P and we continue to do so and I would characterize up to this stage, we've been sharing information around that in terms of what we're doing from a mitigation point of view you know engagements, we're having with regulators.
Maurice Choy: How were working with E. On so right now we're just continuing to information share with S. N P. M S.
Maurice Choy: As you can appreciate a lot of our jurisdictions are different with respect to how things are treated from a regulatory perspective.
We don't have specific.
Regulatory mechanisms that specifically address wildfires, but we've had wildfires in the past like in Alberta last year, we had around $10 million of cost in one particular fire and that will be.
I'm a data through the current rate structure that they have.
I will say that a given I'd say the attention I'm wildfires.
Our subsidiaries are having more conversations and more interactions with regulators so that they fully understand our plans and that.
Maurice Choy: We're just having more engagement generally with the regulators. So I don't know if I see any one particular area, that's having more risk than the others. What we one of the benefits afforded isn't that we're substantially regulated we have really good regulatory jurisdictions, we have historically done well in front of the regulator.
Maurice Choy: With respect to how we've managed our utilities and recovered our cost so I'm not expecting any issue there, but it is evolving as time progressed.
Speaker Change: Yeah, just to add a little color there Maurice.
Speaker Change: Ah the virus does vary by jurisdiction and.
Speaker Change: The focus areas have historically been but I will say currently even have been on the Western North America side of.
Speaker Change: The continent here and that's primarily puts our focus on Alberta, BC, and Arizona and that order, but.
Speaker Change: I think one of the things that.
Speaker Change: With that folks have to understand too is the very different.
Speaker Change: Legal liability and regulatory structures between say, BC, and Alberta, and their structures, which are much more favorable much more regulated much more defined on how things are handled from a from a liability perspective different legal construct.
Speaker Change: All of those things are a very different risk profile than say in the U S and in the U S. Our exposures at Arizona, which is has.
Speaker Change: It has very limited exposure just because of the nature of the assets that we that we own we own the majority of our assets are in the Tucson Metro area, which don't have a huge wildfire risk because of that.
Speaker Change: [laughter] frankly, there's not a lot of trees and into the Tucson metro area or things that necessarily burn.
Speaker Change: So it is a very different.
Speaker Change: I'll say risk outlook, and we have been spending a lot of time with our teams across all of our subsidiaries not just those three to make sure. We're taking the best practices that we see not just across our own utilities, but across the entire industry and finding ways of mitigating that risk and then get out there in explaining.
Speaker Change: The great the great job that we're already doing but also making sure that we're explaining that to folks like our rating agencies.
Speaker Change: Got it thanks, okay. Thanks.
Speaker Change: Thanks for that and does it make sense, then moving quickly over to D C with our luxuries.
Speaker Change: I guess is that there were a number of items that.
Speaker Change: D C propose to keep and continue as part of the REIT framework and I Wonder if you could share if there's anything in there that's materially different from the current framework. It's clearly a three year plan not a five year. One and then there is this more of a holding pattern.
Speaker Change: Request until we get clarity on how the province will rollout.
Speaker Change: MPC rules.
Speaker Change: Yeah, so so maurice they're there.
Speaker Change: Work that they filed.
Speaker Change: I understand and I'll kick it over here to Roger but it seemed like almost the exact same.
Speaker Change: The mechanisms that we had in the prior maybe it was just a little fine tuning other than as you mentioned, it's not a five year plan. It's a three year plan, but Roger to anything to describe this sort of a a little bit more out of the ordinary or are slightly different from the last MRP.
Roger: Thanks, David Thanks salaries for the question.
Roger: I think David is.
Roger: Characterized it correctly. It is a it is a multiyear rate plan three years versus five we've continued to pursue.
Roger: What we call performance based structure, where our delivery rate or controllable O&M increases by.
Roger: Our inflation minus the productivity improvement factors, so that subsidy is saying.
Roger: We've focused again on control O&M and they have a proposed all the flow through items for the non controllable O&M.
Roger: I think one area of difference, whereas we had escalated.
Roger: Base capital or sustaining capital by Formula instead here for utilities.
Roger: This three year, our sustaining capital forecast.
Roger: However, we have maintained a similar structure on the growth capital that underpins.
Roger: For us, we see energy inc's customer additions so.
Roger: Overall.
Roger: The last time, we had the PBR plan DRP plan was quite successful.
Roger: No reason to very significantly I think the one area that we are putting a bit more focus is on things like energy transition.
Roger: How do we undertake innovative investments things like that but more in relation to the.
Roger: The policy drivers not really much different on the underlying rate setting for to see the basic rates.
Roger: And then the other the other piece Roger too as the you know the fan.
Roger: That we can still file for CPC ads for large projects, which is obviously important for us to do things above and beyond what the.
Roger: Underlying MRP structure would put to.
Roger: Allow for.
Roger: Yeah.
Speaker Change: Perfect makes sense. Thank you very much.
Speaker Change: Thanks Morris.
Speaker Change: Thank you and your next question comes from the line of Rob Hope from Scotiabank. Your line is open.
Robert Hope: Good morning, everyone, maybe first off on the transmission.
Robert Hope: Doesn't seem like various levels of government are very supportive of incremental transmission investments. However, we continue to see challenges on the permitting.
Robert Hope: As well as the legal side there. So when you take a look at the tranche, one and tranche two.
Robert Hope: And the challenges that we've had there.
Robert Hope: What is the path forward such that we could see an acceleration of transmission investment at ITC and some of the other kind of afforded us subsidiaries.
Robert Hope: Well I think for sure we're seeing some good positive results.
Robert Hope: From one from the fiscal responsibility act as Youll recall that they.
Robert Hope: Did some.
Robert Hope: <unk> reforms as part of that which.
Robert Hope: It will simplify and expediate the.
Robert Hope: Our expedite I should say the ability to to permit transmission I think some of the focus on timelines and coordination were really brought home last week when the department of energy.
Robert Hope: It's.
Robert Hope: Syed Tab program, which stands for a coordinated in our agency transmission.
Robert Hope: Authorization and permitting and the whole focus there is to cut the timeline for permitting.
Robert Hope: Federal projects in <unk>.
Robert Hope: Paas two two years. So those are those are good positive signals.
Robert Hope: I should say that an ITC is footprint, it's not typically a lot of federal land that they have to get permits on so it won't necessarily have a huge.
Robert Hope: Packed at least as we look backwards on a forward going basis.
Robert Hope: It's a good signal and hopefully he can.
Robert Hope: Expedite those types of permits.
Robert Hope: But also there needs to be additional.
Robert Hope: Legislation to because the probably the biggest issue we get in and delays is the fact that we get all these legal challenges and the legal challenges can be brought up you know for very insignificant reasons and those types of delays and hopefully some level of legislative solution for that will be.
Robert Hope: What's going to be key for us for us and everybody else, who is developing transmission in the U S to be able to get that done faster.
Speaker Change: Thanks for that and then just maybe moving over like a number of your utility peers. So far in Q1 are really been talking about kind of increasing load growth in their jurisdictions.
Speaker Change: When you take a look at your asset base, where are you seeing the the greatest uptick in terms of load.
Speaker Change: Yeah. So it's.
Speaker Change: Mostly in the U S and mostly in the ITC and you on us.
Speaker Change: So service territories. If you look at hotspot map of where data centers are looking to locate youll.
Speaker Change: Youll see Arizona is one of those spots you'll see a couple of spots in the Midwest I mentioned in the prepared remarks.
Speaker Change: Data centers that are going in.
Speaker Change: Sure.
Speaker Change: If you've listened to other utilities calls like D G and CMS and how theyre getting a lot of data center interest in Michigan, while that's our transmission that needs to be built to serve that type of load. So all of those.
Speaker Change: That data center load has is different I mean, we respond to it differently like in Arizona, we would be looking to supply any datacenter that came in one of our utilities. There since we're vertically integrated utilities, we'd be looking at generation transmission and distribution all three functions to serve them.
Speaker Change: ITC, it's obviously only transmission, but there's there's still a lot of of growth opportunity out there not just in data centers, but I think we're starting to see a lot of conversations around manufacturing and citing again good good areas for that are at the Midwest that ITC serves and Arizona are both big they are.
Speaker Change: Good strong growth economic development outlooks on a going forward basis.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Ben Pham from BMO. Your line is open.
Benjamin Pham: Hi, Thanks, Good morning, maybe.
Benjamin Pham: And maybe to continue on the last question around.
Benjamin Pham: Load growth increasing on AI.
Benjamin Pham: AI and data centers.
Benjamin Pham: Do you expect that to have.
Benjamin Pham: Uh huh.
Benjamin Pham: A meaningful impact on rate base growth going forward.
Benjamin Pham: Think about that.
Benjamin Pham: Set up and then.
Benjamin Pham: He also comment I know you mentioned that it's more U S.
Benjamin Pham: But I mean any comment on the Canadian opportunity for AI as well. Thank you.
Speaker Change: I mean I'll answer this in reverse on the Canadian side, we're not really seeing that same kind of conversation.
Speaker Change: From a data center.
Speaker Change: Hi.
Speaker Change: Perspective, we're not we're not hearing a lot of additional load growth or announcements in our service territories at least and in Canada.
Speaker Change: Also probably much less chatter around.
Benjamin Pham: Manufacturing, although theres there are in some areas quite a bit in Ontario.
Benjamin Pham: We serve the slope, but where we're seeing some of that economic development around electric vehicle plants and things like that.
Benjamin Pham: There's just a lot more incentives to do it in the U S. Because of the inflation reduction act and the incentives. It has for local content. So there's there's some additional drivers in the U S that are pushing us so what what the impact will be is still this is still early days there. So there's obviously a lot of.
Benjamin Pham: Asian Theres a lot of.
Benjamin Pham: Different data centers, these hyperscale or who are going around looking for places to.
Benjamin Pham: Site their datacenters, which you know they they have siting requirements. They wanted to be by fiber that they need power right. So that's the that's I think the biggest conversation right now is.
Benjamin Pham: Finding the power.
Benjamin Pham: Are there areas that have power to be able to supply them.
Benjamin Pham: It is early days I think that they look at multiple sites before they decide on it. So it's too early for us to really have a good feel for that load growth opportunities and the capital that will come with it and actually it might you know frankly be able to.
Benjamin Pham: A bit more time.
Benjamin Pham: Through the end of this year, even just to figure out where some of that stuff will land. So it'll it'll be a while before we see that making its way through.
Benjamin Pham: Our resource planning process within our utilities and through other processes like L. Rtp's et cetera that we that MISO.
Benjamin Pham: MISO goes through.
Speaker Change: Okay. Thank you for that.
Speaker Change: And then.
Speaker Change: Secondly, maybe on the tranche.
Speaker Change: To the.
Speaker Change: The product Capex.
Speaker Change: And anything you can provide directionally in terms of magnitude of that pie and.
Speaker Change: I'm wondering if you can maybe put into capex and potential in service states.
Speaker Change: Yeah, no. It's it's too early days I mean, we're still working with draft portfolios. The portfolio is absolutely finalized <unk> be approved there are still things moving around there still studies to be done. So it's it's a it's far too early for us to be putting numbers out there yet.
Speaker Change: Okay got it thank you.
Speaker Change: Thank you and once again, if you would like to ask a question. Please press the star followed by the number one on your telephone.
Speaker Change: Your next question comes from the line of Linda Andrew Dailies from TD Cowen Your line is open.
Speaker Change: Sure I'm just.
Speaker Change: I'm wondering.
Speaker Change: Your P P or three appeal in Alberta.
Speaker Change: Can you comment on any sort of ability to defer capital expenditures until there's more certainty on whether a more prospective approach to capital programs can be taken or how to kind of mitigate some of the uncertainty.
Speaker Change: There and maybe just talk more generally about some of the inflationary pressures and your capital program and whether they're anticipating.
Speaker Change: Yeah. So it was it was a bit disappointing and that are in that latest P. B or that we were using that historical look back of the prior year's capital to set the forward rate, which is what we do well were appealing and what we got to leave to appeal. So I think that was a that was a good result.
Speaker Change: Because it is important for us to make sure that we have that baseline capital set up that is that at the right level on a going forward basis.
Speaker Change: I'll I'll I'll kick it to Janine to add some conversation around.
Janine: Inflationary impacts and some other things, but you know that the team there understands.
Speaker Change: No.
Janine: What their current situation is the capital plan that they have submitted.
Janine: Obviously that doesn't mean, we don't look at additional opportunities and invest in additional infrastructure.
Janine: It means that they they may have to trade off different capital within their plan they might have to prioritize it a little bit different and worst case.
Janine: As the World I lived in Arizona was every once in a while you get a little regulatory lag because you don't get immediate recovery for it but if there if they are investments that need to be done and need to be made on behalf of our customers to provide reliable power to do whatever we might need to do from a rig.
Janine: William C perspective, we make those investments and then we'll we'll get it we'll get it on the next round, but Jay do you want to add a little color on the.
Jay: The impact of interest and how you guys would be managing that.
Jay: Actually thanks, Dave you've covered it quite nicely.
Speaker Change: We are planning to execute our 2020 for our capital plan as we come to understand the various components of the PBR three plan as they were determined last year. So you know there's a lot to digest with respect to where we have levered, where we can manage costs in certain areas to address the shortfall potentially.
Speaker Change: Capital funding, we do plan on bringing or utilizing some elements of the plan with respect to type one capital where we go for it with very specific requests to.
Speaker Change: The AUC a while this reconsideration of the methodology that they use to establish capital funding is also ongoing so certainly all steam ahead, just continuing to deploy capital as we can and managing our costs as we do so until we see some of these other mechanisms start to occur.
Speaker Change: Hi.
Speaker Change: Thanks, Tony.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Mike Michael Sullivan from Wolfe Research. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Hey, Mike.
Speaker Change: Hey, Dave I'll just try another one on the on the MISO tranche to map I know, it's a little early but maybe just relative to.
Speaker Change: How you were feeling when you saw the draft Mab for tranche one does this feel like.
Michael P. Sullivan: Better opportunity set or worse.
Dave: Oh, yeah, Yeah, I can I can provide some directional color there.
Dave: There's a lot more light on the map and they are different color lines right. So the 765 kv.
Dave: It is exciting those are obviously big projects.
Dave: On the <unk>.
Dave: Size of the overall portfolio. The estimates are in essence twice the size of tranche. One so directionally, it's looking pretty good obviously, we don't know where those lines will fall down exactly we're not sure what the final package will look like but I think we're all very.
Dave: Comfortable and confident in saying, it's a lot bigger.
Dave: How that allocates to ITC.
Speaker Change: Okay I appreciate it that's really helpful.
Speaker Change: Any chance you could also just give a little color on more color on just how the legislative session in Iowa I ended up playing out and was it was it just a matter of time or not not enough support can you give us another shot next year, yeah, just more color on that would be helpful.
Speaker Change: Yeah, I think the short answer is.
Speaker Change: Politics are always a little.
Speaker Change: Hard to hard to call exactly how the process is going to work I think the team did a fantastic job.
Speaker Change: Getting up there in front of the.
Speaker Change: The legislators getting the support that's needed but at some.
Speaker Change: Periodical you just can't get the things to to be brought up and debated and when that happens you just say, okay, well give it will give it a go next time and I think that's one of our others. There obviously as Joseph mentioned in her prepared comments at what we think about our existing tranche one and.
Speaker Change: Why those.
Speaker Change: Our and it should still be allocated to us in the 70% us and our rights of way and we've still got layers and layers of.
Speaker Change: Appeal to boot.
Speaker Change: It's really so what do we do next and I think the conversation around looking again next year from from an <unk> perspective.
Speaker Change: And also as we talk about tranche, two and we still have our Ah roper's in Minnesota and Michigan.
Speaker Change: Also you know you never know where those lives of land in relation to our existing rights of way and as we sit here today or just around the corner from FERC, putting out their planning and cost allocation rule.
Speaker Change: Rule that will.
Speaker Change: Which could address some at least on a limited basis some of the federal role for us that they at least tossed out there in the notebook. So we'll see where that goes and we'll take.
Speaker Change: Whatever I don't think I listed about seven different teams working on related to this and we'll just you know stack them up and go through them.
Speaker Change: Okay.
Speaker Change: Last one for me if you could just update us on the Arizona.
Speaker Change: Process in our workshops, there that I think have kicked off on trying to improve regulatory lag how how you see that going so far.
Speaker Change: Yeah, it's positive I mean very positive that's got two different options that they're looking at their whether its a formula rate or a forward test year. Each comes with a different sort of batch of questions and issues within the Arizona.
Speaker Change: Regulatory.
Speaker Change: And legislative construct but it at the end of the day, it's it's all positive as well.
Speaker Change: Either one of those is better than a regulatory lag basis that we're working on now.
Speaker Change: Obviously, we got the.
Speaker Change: The SRP does the system reliability benefit mechanism that allows us basically a capital tracker.
Speaker Change: We got a U S electric we expect that next time, we file a rate case at TEP will file for one as well that that's a that's a great.
Speaker Change: Sort of second place for something like a formula.
Speaker Change: But again, we've got a couple of different options there and we're just we're just glad to see that it was getting traction that after the first workshops that they are looking at continuing them. So that's a that's all that's all positive.
Speaker Change: Thanks, so much I appreciate it.
Speaker Change: Thank you. Your next question comes from the line of Mark Jarvi from CIBC capital markets. Your line is open.
Mark Thomas Jarvi: Yes, thanks, good morning, everyone.
Mark Thomas Jarvi: Just was not full clarity on the rule for issues legislative process the court process.
Mark Thomas Jarvi: Play Doh in your favor yet what does that mean in terms of keeping certain projects in the five year plan, what would you need to see or what would happen for you to withdraw that and then.
Mark Thomas Jarvi: Once the lines are drawn and you see the allocation on the tranche two projects in light of the brokerage fees not being settled do you hold back and adding those to a five year plan I. Appreciate there's a lot of that comes maybe beyond the five year plan, but anything that is within the five year plan does that preclude you from adding in the near term.
Mark Thomas Jarvi: Yes, so as far as timing on tranche one.
Mark Thomas Jarvi: You might recall that we only have about $1 2 billion out of the one four to 108 and this is U S dollars.
Mark Thomas Jarvi: The total capital expenditure in the current five year plan. So most of these are probably finishing up on the tail end of that five year capital plan already and then into the next two years. So really what's happened. So far is just kind of delaying or.
Mark Thomas Jarvi: Moving some of those.
Mark Thomas Jarvi: In service states around a little bit I don't think that's going to be substantial that's not going to be right. Now we're not changing our capital plan based on that because we still fully.
Mark Thomas Jarvi: I expect that those will be our projects to build.
Mark Thomas Jarvi: And then when we get into the tranche two conversation like you mentioned, yeah. Those are probably at best a note.
Mark Thomas Jarvi: Five of of the next five year capital plan and then we'll go on from there that's more of a conversation about looking at the the length that we <unk>.
Mark Thomas Jarvi: And our and our capital runway.
Mark Thomas Jarvi: So it's not necessarily even something that will make it into the next this next five year capital plan, because we don't expect those projects to be approved and assigned or allocate it until late this year and of course, we'd like to update our capital plan in the fall so.
Mark Thomas Jarvi: It's a well we'd love to have us quicker and sooner clarity on that.
Mark Thomas Jarvi: It's going to it's going to take some time and <unk>.
Mark Thomas Jarvi: Know us we don't put it in the capital plan until we really know what's coming and so we are a bit conservative from that standpoint, but if we can give any color.
Mark Thomas Jarvi: Around the expectations when we put out our capital plan and it was when we get towards the end of this year, we will do that but as always we want to make sure that we maintain the strong credibility that we have.
Mark Thomas Jarvi: With you all that what we put out in those capital plans, we're going to go out and do so we'll make sure that we still live by those principles.
Mark Thomas Jarvi: Any updated views in just in terms of the mix again right away assets in terms of the amount that you've incurred.
Mark Thomas Jarvi: Theres, a one 2% in the budget now just any refined numbers around how you think that would shake out if the rover was not reinstated.
Mark Thomas Jarvi: So it and are in the one point to where the floor. The 1418 total package there.
Mark Thomas Jarvi: We talk about that 70% I think I think that would be.
Mark Thomas Jarvi: If everything went against US I think that's the that's the minimum that we would have that would be the floor. So I.
Speaker Change: You bet.
Mr. Mimo: Thank you as there are no further questions I would like to turn the call back to Mr. Mimo.
Mimo: Thank you Rudy we have nothing further at this time. Thank you everyone for participating in our first quarter 2024 results Conference call. Please contact Investor Relations should you need anything further thank you for your time and have a great day.
Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.