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.

Operator: Good morning, everyone. Thank you for standing by.

Ludi: My name is Ludi, and I will be your conference operator today. Welcome to Fortis's Q1 2024 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, those with questions should press the 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 Amaimo. Please go ahead, Ms. Amaimo.

Judy: Welcome to Fortis Q1, 2024 earnings conference call and webcast.

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.

Judy: I'd like to turn the conference over to Stephanie on Mimo. Please go ahead Mr. Nemo.

Stephanie: Thank you Rudy and good morning, everyone welcome to afford us this 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 before.

Stephanie A. Amaimo: Thank you, Ludi, and good morning, everyone. Welcome to Fortis' first quarter 2024 results conference call. I'm joined by David Hutchins, President and CEO; Jocelyn Perry, Executive VP and CFO; other members of the senior management team, as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slideshow. Actual results can differ materially from the forecast projections included in the forward-looking information presented today.

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 statement contained in the supporting slide show actual results can differ materially from the forecast projections are included in the forward looking information presented today.

Stephanie A. Amaimo: All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our first quarter 2024 MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to David.

Stephanie: non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U S. GAAP financial measures in our first quarter 2024 MD&A.

Stephanie: Unless otherwise specified all financial information referenced is in Canadian dollars with that I will turn the call over to David.

David Gerard Hutchens: Thank you and good morning everyone. Before getting started, I'd like to introduce Stephanie Raymond on her first earnings call since being appointed president of Central Hudson in April. Stephanie will serve as president until Chris Capone's retirement in October, at which time she will assume full responsibilities as president and CEO. Welcome, Stephanie.

David Gerard Hutchens: 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 Gerard Hutchens: 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 the central Hudson team.

David Gerard Hutchens: We look forward to working with you on Central Hudson. For the first quarter, we delivered strong and consistent operational and financial results as our regulated utilities continued to effectively execute their business plans. And with $1.1 billion of capital investments made in the first quarter, our $4.8 billion capital plan for 2024 is on track. Our low-risk growth outlook remains intact, and opportunities to expand and extend our plan continue to progress. On the regulatory front, ITC has been focused on the right-of-first refusal statute in Iowa.

David Gerard Hutchens: For the first quarter, we delivered strong and consistent operational and financial results is our regulated utilities continue 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 Gerard Hutchens: Our low risk growth outlook remains intact and opportunities to expand and extend our plan continue to progress.

David Gerard Hutchens: On the regulatory front I T. C has been focused on the right of first refusal statute in Iowa.

David Gerard Hutchens: 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 Gerard Hutchens: While new ROFA legislation did not advance last month, we remain confident that ITC Midwest has the legal right and obligation to construct tranche one projects in Iowa assigned through the MISO's long-range transmission plan and associated tariffs. MISO also released its Draft Tranche 2 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 Fortis is preparing for and mitigating climate-related impacts across the group of companies. We continue our long-track record of executing our capital plan.

MISO also released its draft tranche two portfolio, including our preliminary project map.

David Gerard Hutchens: While we expect further refinements, we view this as a promising step forward.

David Gerard Hutchens: 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.

David Gerard Hutchens: We continue our long track record of executing our capital plan.

David Gerard Hutchens: These investments in our energy systems support the delivery of cleaner energy and the reliability our customers expect. Our five-year capital plan of $25 billion remains on track, comprising virtually all regulated investments and a diverse mix of highly executable, low-risk projects, 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 average annual rate base growth of 6.3%.

David Gerard Hutchens: These investments and our energy systems support the delivery of cleaner energy and the 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 Gerard Hutchens: With $7 billion earmarked for cleaner energy investments, we expect to interconnect renewables to the grid.

David Gerard Hutchens: Invest in renewable generation and energy storage in Arizona, and deliver cleaner fuel solutions in British Columbia.

David Gerard Hutchens: Rate base is expected to increase by $12 billion to over 49 billion in 2028 supporting average annual rate base growth of six 3%.

David Gerard Hutchens: Beyond the plan, our utilities continued to advance additional growth opportunities with a couple of key developments during the quarter.

David Gerard Hutchens: Beyond the plan, our utilities continue to advance additional growth opportunities with a couple of key developments during the quarter. As mentioned, MISO released a preliminary map of its LRTP-TRANGE2 projects, with total transmission investments estimated in the range of $17-23 billion. 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. The preliminary map of projects includes 765 KV transmission lines.

David Gerard Hutchens: As mentioned MISO released a preliminary map of this L. RTP tranche two projects with total transmission investments estimated in the range of 17 to 23 billion U S dollars.

David Gerard Hutchens: 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 Gerard Hutchens: The preliminary map of projects includes 765 kv kv transmission lines.

David Gerard Hutchens: If approved, these investments would bolster MISO's 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. In Arizona, the team is working to advance the 2023 integrated resource plans filed by Tucson Electric Power and UNS Electric, which require incremental investments estimated at $2.5 to $5 billion U.S. dollars through 2038.

David Gerard Hutchens: If approved these investments would bolster MISO ability to facilitate the ongoing generation fleet transition.

David Gerard Hutchens: Comedy load growth and address increasingly frequent and severe weather events.

David Gerard Hutchens: We believe this is exactly the forward looking innovative planning required to deliver a reliable resilient grid of the future.

David Gerard Hutchens: 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 billion to $5 billion through 2038.

David Gerard Hutchens: In late 2023, TEP of newness electric released a joint all source RFP, calling for up to 500 megawatts of new resources aligned with their respective our IR piece.

David Gerard Hutchens: In late 2023, TEP and UNS Electric released a joint all-source RFP calling for up to 1500 megawatts of new resources aligned with their respective IRPs. Proposals were received in March, and projects are expected to be announced later this year. In March, the BCUC approved key elements of FortisBC's Renewable Natural Gas, or RNG, application, requiring that natural gas deliveries to all customers include a portion of RNG. In addition, the BCUC accepted FortisBC's long-term gas resource plan, which outlines FortisBC's plan to serve customers' energy needs, transition to a low-carbon energy future, and support meeting provincial greenhouse gas targets.

David Gerard Hutchens: Proposals were received in March and projects are expected to be announced later this year.

David Gerard Hutchens: 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.

David Gerard Hutchens: In addition, the BC UC accepted Florida species long term gas resource plan, which outlines <unk> planned to serve customers energy needs transition to a low carbon energy future and support meeting provincial greenhouse gas targets.

David Gerard Hutchens: Overall, we are pleased with this decision as it recognizes the key role that the gas system will play in meeting British Columbia's energy future. Also in March, the province of British Columbia issued an environmental assessment certificate for the Tilbury Marine Jetty project.

David Gerard Hutchens: Overall, we are pleased with this decision as it recognizes the key role that the gas system will play in meeting British Columbia's energy future.

David Gerard Hutchens: 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 Gerard Hutchens: The construction of the jetty supports the expansion of the Tilbury LNG facility, which is uniquely positioned to meet customer demand for natural gas. The site is scalable and can accommodate additional storage and liquefaction equipment and is close to international shipping lanes. Once constructed, the jetty would make use of Fortis BC's assets at the Tilbury site to service marine bunkering. In the U.S., we are seeing momentum build around load growth opportunities. In the ITC Midwest footprint, Google recently announced plans for a data center to be built in Cedar Rapids, Iowa, with a goal of coming online in 2026.

David Gerard Hutchens: The site is scalable and can accommodate additional storage in liquefaction equipment and as close to international shipping lines.

David Gerard Hutchens: Once constructed the jetty would make use of Florida species assets at the Tilbury site to service Marine Bunkering.

David Gerard Hutchens: 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 online in 2026. The data center will support initial load growth of 300 megawatts and is expected to increase.

David Gerard Hutchens: The data center will support initial load growth of 300 megawatts and is expected to increase to 600 megawatts over time. In Michigan and Arizona, we are seeing increasing inquiries related to manufacturing facilities and data centers. Also, in Arizona, South 32 continues construction of the zinc and manganese Hermosa mine, which is expected to become one of UNS's largest customers.

David Gerard Hutchens: The 600 megawatts overtime.

David Gerard Hutchens: 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 or most of mine, which is expected to become one of the U S. U S is largest customers. These developments can provide.

David Gerard Hutchens: These developments can provide strong economic growth for our communities and favorably impact customer rates. During the quarter, we released the 2024 Climate Report, which assesses the impact of climate on our priority assets under multiple scenarios. The report identifies key risks related to climate change, Fortis' 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 4-6% annual dividend growth guidance through 2028. Now, I will turn the call over to Jocelyn for an update on our first quarter financial results.

David Gerard Hutchens: Strong economic growth for our communities and favorably impacts customer rates.

David Gerard Hutchens: During the quarter, we released the 'twenty 'twenty four climate report, which assesses the impact of climate on our priority assets over multiple scenarios.

David Gerard Hutchens: 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.

David Gerard Hutchens: 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.

David Gerard Hutchens: Now I will turn the call over to Jocelyn for an update on our first quarter financial results.

Jocelyn H. Perry: Thank you, David. And good morning, everyone.

Jocelyn H. Perry: Thank you David and good morning, everyone reported and adjusted earnings per common share for the first quarter of 2024 93.

Jocelyn H. Perry: Reported and adjusted earnings per common share for the first quarter of 2024 were $0.93. Adjusted EPS was $0.02 higher than the first quarter of 2023, and key drivers of EPS growth related to rate-based growth across our group of companies and the timing of earnings associated with the new cost-to-capital parameters at FortisBC. Regulated utility growth was tempered by higher corporate costs and weighted average shares outstanding. The disposition of Aitkin Creek, which occurred in November 2023, also impacted EPS in the quarter by three cents. While negative for the quarter, on an annual basis, the disposal of concrete will be neutral to ETS.

Jocelyn H. Perry: Adjusted EPS was <unk> 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.

Jocelyn H. Perry: The disposition of Aitken Creek, which occurred in November 2023, also impacted EPS in the quarter by three cents.

Jocelyn H. Perry: Well negative for the quarter on an annual basis, the disposition of Aitken Creek will be neutral to EPS.

Jocelyn H. Perry: The chart on slide 10 highlights the EPS drivers for the quarter by segment, our Western Canadian utilities contributed six cent EPS increase related to the timing of the new cost of capital parameters at Fortis BC approved by the BC you see in September 2023, and retroactive to January.

Jocelyn H. Perry: The chart on slide 10 highlights the EPS drivers for the quarter by section. Our Western Canadian utilities contributed a $0.06 EPS increase, $0.04 related to the timing of the new cost of capital parameters at FortisBC, approved by the BCUC in September 2023 and retroactive to January 2023. Growth also reflected rate-based growth and a higher allowed ROE at FortisAlberta effective January 1st. At our largest utility, ITC, the two-cent EPS increase was mainly driven by rate-based growth.

Jocelyn H. Perry: 2023 growth also reflected rate base growth and a higher allowed ROE Lee at Fortis, Alberta effective January 1st.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: Lower SOC-based compensation for ITC was offset by higher holding company finance. EPS was one cent higher quarter over quarter for our U.S. electric and gas utilities, largely driven by rate-based growth and the timing of operating costs at Central Hudson. In Arizona, earnings were largely consistent with the first quarter of 2023.

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.

Jocelyn H. Perry: In Arizona earnings were largely consistent with the first quarter of 2023.

Jocelyn H. Perry: 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. Due to the seasonality of sales, the favorable impact of new customer rates at TEP is expected to be higher in the second and third quarters. At our other electric segment, rate-based 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 Aiken Creek, which I mentioned earlier. The remaining decrease reflects higher holding company finance costs and unrealized losses on derivative contracts.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: At our other electric segment rate base growth and higher sales contributed a <unk> increase in EPS.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: 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. As shown on the slide, we have limited non-regulated debt maturing in 2024, and our $600 million Series M preference shares are scheduled to reset at the end of this year.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: Through April we have raised approximately $400 million of debt to repay short term borrowings and fund our capital program.

Jocelyn H. Perry: As shown 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.

Jocelyn H. Perry: Overall, we remain a strong liquidity position as we execute our five year capital plan are.

Jocelyn H. Perry: Overall, we remain in a strong liquidity position as we execute our five-year capital plan. Our investment grade credit ratings with Moody's, S&P, and DBRS Morningstar remain stable. We are on track to achieve an average cash flow to debt metrics of 12% over the next five years, and we continue to engage with S&P on our physical risk around climate change.

Jocelyn H. Perry: 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 of 12% over the next five years and we continue to engage with S&P on our physical risks around climate change.

Jocelyn H. Perry: 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 Io Eberle 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 previously.

Jocelyn H. Perry: In March, the Iowa District Court issued an order denying all motions for reconsideration of its decision in relation to the Iowa ROFR. This includes ITC's request for reconsideration with respect to the scope of the injunction for Tranche 1 projects in Iowa that were previously awarded to ITC Midwest by MISO. ITC has appealed the District Court's decision to the Iowa Supreme Court. As discussed last quarter, under the MISIL tariff, approximately 70% of the Iowa Trans1 projects are upgrades to ITC's facilities along existing rights-of-way, which, under MISIL's tariff, grants ITC the option to construct the upgrades regardless of the outcome of the appeal.

Jocelyn H. Perry: [noise] awarded to ITC Midwest by myself ITC has appealed the district court's decision to the Iowa Supreme Court.

Jocelyn H. Perry: 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.

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.

Jocelyn H. Perry: For any portion of the TRANCH 1 projects in Iowa 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 Tranch 1 projects located in Iowa.

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.

Jocelyn H. Perry: 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.

Jocelyn H. Perry: In New York, Central Hudson's 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. Last month, FortisBC filed its 2025 through 2027 rate framework proposal with the BCUC. The rate framework builds upon the current multi-year rate plan and includes a prescribed approach for operating expenses and capital, an innovation fund for cleaner energy, and continued earnings sharing mechanisms. The regulatory process will continue throughout 2024. And with that, I'll now turn the call back to David.

Jocelyn H. Perry: Last month Fortis BC filed its 2025 through 2027 rate framework proposal with the B C. 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 Ernie.

Jocelyn H. Perry: Sharing mechanisms the regulatory process will continue throughout 'twenty 'twenty four.

Jocelyn H. Perry: And with that I'll now turn the call back to David.

David Gerard Hutchens: To conclude, Fortis 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 2024 climate report, as well as our integrated resource plans in Arizona, show our proactive approach on behalf of our customers in identifying and mitigating climate risks 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.

David Gerard Hutchens: 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 <unk>.

David Gerard Hutchens: 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 risks 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.

David Gerard Hutchens: And with load growth opportunities on the horizon. We are so focused on investments that keep energy affordable for our customers.

David Gerard Hutchens: And with load growth opportunities on the horizon, we are focused on investments that keep energy affordable for our customers. We remain confident in our five-year capital plan, which supports average annual rate-based growth of approximately 6% and our 4 to 6% annual dividend growth guidance through 2028.

David Gerard Hutchens: 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.

Stephanie A. Amaimo: That concludes my remarks. I will now turn the call back over to Stephanie. Thank you, David.

David Gerard Hutchens: That concludes my remarks, I will now turn the call back over to Stephanie.

Operator: Thank you, David. This concludes the presentation. At this time, we'd like to open the call to address questions from the investment community.

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.

Stephanie Raymond: 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 withdraw your registration. Please press star followed by the number two if you're using a speaker phone.

Operator: Thank you. We will now conduct the question and answer period. 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 withdraw your registration, please press the star followed by the number two. If you're using a speakerphone, please keep your hands up before entering your request. And we kindly request you speak loudly and slowly to ensure all participants can hear your questions. One moment, please for your first question. And your first question comes from the line of Maurice Choy from RBC Capital Markets. Your line is open.

Stephanie Raymond: Please keep your handset before entering your request and we kindly request you 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 lineup Maurice Choy from RBC capital markets. Your line is open.

Maurice Choy: And good morning, everyone.

Maurice Choy: And good morning, everyone. Let's kick off with a comment you made earlier, Jocelyn, about how you've engaged the S&P Credit Rating Agency on physical asset risk. As we head into, I guess, the later part of this year with the potential for higher wildfire risk, can you just compare and contrast the regulatory and legislative setup across your 10 utilities, or even just areas where you feel that there could be higher versus lower risk?

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.

Maurice Choy: This year with potential for higher wildfire risk can you just compare and contrast the.

Our regulatory and legislative setup.

Maurice Choy: Of course, you attend utilities or even just areas where you feel.

Maurice Choy: It could be higher versus lower risk.

Speaker Change: 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.

David Gerard Hutchens: So Maurice, I'll start off by saying 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, engagements we're having with, you know, regulators, how we're working with EEI. So right now, we're just continuing to share information with S

Speaker Change: How were working with E. On so right now, we're just continuing to information share with S&P.

Speaker Change: 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.

David Gerard Hutchens: As you can appreciate, a lot of our jurisdictions are different with respect to how things are treated from a regulatory perspective. For example, 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 ten million dollars in costs for one particular fire. And that will be accommodated through the current rate structure that they have. I will say that given the attention on wildfires, that our subsidiaries are having more conversations and more interactions with regulators so that they fully understand our plans, and that, you know, we're just having more engagement generally with the regulators.

Speaker Change: Our regulatory mechanisms that specifically address wildfires.

Speaker Change: 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 then that will be accommodated through the current rate structure that they have.

Speaker Change: We'll say that a given I say the attention on wildfires.

Speaker Change: That our subsidiaries are having more.

<unk> and more interactions with regulators so that they fully understand our plans and that.

Speaker Change: 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 us is that we're substantially regulated we are in good regulatory jurisdictions, we have historically done well in front of the.

David Gerard Hutchens: So, I don't know if I see any one particular area as having more risk than the others. We, one of the benefits of Fortis, is that we're substantially regulated. We are in good regulatory jurisdictions. We've historically done well in front of the regulator with respect to how we've managed our utilities and recovered our costs. So, I'm not expecting any issue there, but it is evolving as time progresses. Thank you,

Speaker Change: With respect to how we've managed our utilities then recovered our cost so I'm not expecting any issue there, but it is evolving as time progressed.

David Gerard Hutchens: Yeah, just to add a little color there, Maurice, obviously the fire risk does vary by jurisdiction, and the focus areas have historically been, well, I'll say currently even, been on the western North America side of the continent here, and that primarily puts our focus on Alberta, B.C. and Arizona in that order, but I think one of the things that folks have to understand too is the very different legal, liability, and regulatory structures between, say, B.C.

Speaker Change: Yeah, just to add a little color there Maurice.

Speaker Change: Obviously, the virus does vary by jurisdiction and.

Speaker Change: The focus areas have historically been well I'll say currently even have been on the Western North America side of.

Speaker Change: The continent here and that's primarily puts our.

Speaker Change: Focus on Alberta, BC, and Arizona and that order, but.

David Gerard Hutchens: and Alberta and their structures which are much more favorable, much more regulated, much more defined on how things are handled from a liability perspective, different legal construct, all of those things are a very different risk profile than say in the U.S. and in the U.S. our exposure is at Arizona which has very limited exposure just because of the nature of the assets 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, well frankly there are not a lot of trees in the Tucson metro area or things that necessarily burn, so it is a very different 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 getting out there and explaining the great job that we're already doing, but also making sure that we're explaining that to folks like our rating agents.

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 all of those things are a very different risk profile.

Speaker Change: Say in the U S and in the U S. Our exposures at Arizona, which is.

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 treason 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 I'm.

Speaker Change: Not just across our own utilities, but across the entire industry and finding ways of mitigating that risk and then getting 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.

Maurice Choy: Thanks. Thanks for that. And that makes sense.

Speaker Change: So that just makes sense, then moving quickly over to D C with our luxuries.

Maurice Choy: Moving quickly over to BC with our lotteries, I gather that there were a number of items that Forest BC proposed to keep and continue as part of the rate 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 if it's more of a holding pattern request until you get clarity on how the province will roll out. PMPC rules

Speaker Change: I gather that there were a number of items that.

Speaker Change: Fortis BC proposed to keep and continue as part of the REIT framework and I Wonder if you could share if there's anything in there.

Speaker Change: Clearly different from the current framework, it's clearly a three year plan not a five year. One and then there is this is more of a holding pattern.

Speaker Change: Request until we get clarity on how the province will rollout.

Speaker Change: D C rules.

Speaker Change: Yeah, so so maurice they're there.

David Gerard Hutchens: Yeah, so Maurice, the framework that they filed, as I understand it, and I'll kick it over here to Roger, but it seemed like almost the exact same mechanisms that we had in the previous, maybe with 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, anything to describe that's sort of a little bit more out of the ordinary or slightly different from the last MRP?

Speaker Change: Same work that they filed.

Speaker Change: As I understand it I'll kick it over here to Roger but it seemed like almost the exact same.

Speaker Change: Mechanisms that we had in the prior maybe with just a little fine tuning other than as you mentioned is that a five year plan. It's a three year plan, but roger to anything to describe that as sort of a little bit more out of the ordinary or are slightly different from the last MRP.

Roger A. DallAntonia: Thanks, David. Thanks, Maurice, for the question. I think David has characterized it correctly.

Speaker Change: Thanks, David Thanks salaries for the question.

Speaker Change: I think David is.

Speaker Change: Characterize it correctly. It is a it is a multiyear rate plan three years versus five we've continued to pursue.

Roger A. DallAntonia: It is a multiyear rate plan, three years versus five. We've continued to pursue what we call a performance-based structure where our delivery rate, our controllable O&M, increases by Thank you very much. I think one area of difference is whereas we had escalated base capital or sustaining capital by formula, we instead here for the utilities did a 3-year sustaining capital forecast. However, we've maintained a similar structure on the growth capital that underpins FortisBC Energy Inc.'s customer addition.

Roger: What we call performance based structure, where our delivery rate or controllable O&M increases by.

Roger: Inflation minus a productivity improvement factors without subsidies.

Roger: We've focused again on control O&M and have 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 the utilities.

Roger: This three year sustaining capital forecast.

Roger: However, we have maintained a similar structure on the growth capital that underpins.

Roger: Fortis BC energy inc's customer additions so overall.

Roger: Finally, we have the PBR plan the MRP plan was quite successful.

Roger A. DallAntonia: So overall, the last plan we had, the TBR plan, the MRP plan, was quite successful. There is no reason to vary significantly. I think the one area that we are putting a bit more focus on things like energy transition, how do we undertake innovative investments, things like that, but more in relation to the policy drivers, not really much different on the underlying rate setting for the basic rates.

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 <unk>.

Roger: See 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 is the.

David Gerard Hutchens: And then the other piece, Roger, too, is the fact that we can still file for CPCNs for large projects, which is obviously important for us to do things above and beyond what the underlying MRP structure would allow for.

Roger: The fact 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 MLP structure would allow.

Roger: Allow for.

Roger: Yeah.

Speaker Change: Perfect makes sense. Thank you very much.

Maurice Choy: Perfect. It makes sense. Thank you very much.

Speaker Change: Thanks Mark.

Speaker Change: Thank you and your next question comes from the line of Rob Hope from Scotiabank. Your line is open.

Operator: Thank you. And your next question comes from the line of Rob Hope from Scotiabank. Your line is open.

Rob Hope: Good morning, everyone.

Rob Hope: Good morning everyone. Maybe first off on transmission. It does seem like various levels of government are very supportive of incremental transmission investments. However, we continue to see challenges on the permitting as well as the legal side there. So when you take a look at tranche one and tranche two and the challenges that we've had there, what is the path forward such that we could see an acceleration of transmission investment at ITT and some of the other Fortis subsidiaries?

Rob Hope: Maybe first off on the transmission.

Rob Hope: It does seem like various levels of government are very supportive of the incremental transmission investments. However, we continue to see challenges on the permitting.

Rob Hope: As well as the legal side there. So when you take a look at tranche, one and tranche two and the.

Rob Hope: <unk> that we've had there.

Rob 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 cordless subsidiaries.

Rob Hope: Well I think for sure we're seeing some good positive results.

David Gerard Hutchens: Well, I think for sure we're seeing some good positive results from one from the Fiscal Responsibility Act, as you'll recall, they did some NEPA reforms as part of that, which will simplify and expedite or expedite, I should say, the ability to permit transmission. I think some of the focus on timelines and coordination was really brought home last week when the Department of Energy announced its CITAP program, which stands for Coordinated Interagency Transmission Authorization and Permitting.

Rob Hope: From one from the fiscal responsibility act as you'll recall that they.

Rob Hope: Did some.

Rob Hope: Lipa reforms as part of that which.

Rob Hope: We will simplify and expediate.

Rob 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 announced its.

Rob Hope: <unk> program, which stands for a coordinated in our agency transmission.

Rob Hope: Authorization and permitting and the whole focus there is to cut the timeline for permitting.

David Gerard Hutchens: And the whole focus there is to cut the timeline for permitting on federal projects in half to two years. So those are good positive signals. I should say that, you know, in ITC's 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 impact, at least as we look backwards on a forward basis. It's a It's a good signal.

Rob Hope: Federal projects in <unk>.

Rob Hope: Past two two years. So those are those are good positive signals.

Rob Hope: I should say that an ITC.

Rob Hope: 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 impact at least as we look backwards on a forward going basis. It's a it's a good signal and hopefully can.

Rob Hope: Expedite those types of permits.

Rob Hope: But also there needs to be additional.

Rob Hope: And hopefully, can expedite those types of permits. But also, there needs to be additional legislation, too, because probably the biggest issue we get in 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 what's going to be key for us, for us and everybody else who's developing transmission in the US, to be able to get that done faster.

Rob 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.

Rob Hope: For very insignificant reasons, and those types of delays and hopefully some level of legislative solution for that will be what's going to be key for us for us and everybody else who is developing transmission.

Rob Hope: 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 up kind of increasing load growth in their jurisdictions. When you take a look at your asset base, where are you seeing the.

David Gerard Hutchens: Thanks for that. And then maybe, just maybe, moving over, a number of your utility peers so far in Q1 have really been talking about kind of increasing load growth in their jurisdictions. You know, when you take a look at your asset base, where are you seeing the greatest uptick in terms of load? Yeah, so it's

Speaker Change: <unk>.

Rob Hope: The greatest uptick in terms of load.

Speaker Change: Yeah. So it's.

David Gerard Hutchens: Yeah, so it's mostly in the U.S. and mostly in ITC and UNS service territories. If you look at the hotspot map of where data centers are looking to locate, you'll see Arizona is one of those spots. You'll see a couple of spots in the Midwest.

Speaker Change: Mostly in the U S and mostly in 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.

David Gerard Hutchens: I mentioned in my prepared remarks the data centers that are going in in Iowa. If you've listened to other utilities' calls like DT and CMS and how they're getting a lot of data center interest in Michigan, well, that's our transmission that needs to be built to serve that type of load. So all of those, you know, that data center load has different characteristics. I mean, we respond to it differently. Like in Arizona, we would be looking to supply any data center that came in contact with one of our utilities there.

Speaker Change: Data centers that are going in.

Speaker Change: Sure.

Speaker Change: If you've listened into other utilities calls like D G and CMS and how theyre getting a lot of data center interest.

Speaker Change: Michigan Wells Thats, 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.

David Gerard Hutchens: Since we're vertically integrated utilities, we would be looking at generation, transmission, and distribution, you know, all three functions to serve them. In ITC, it's obviously only transmission, but there's still a lot 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 siting. Again, good areas for that are the Midwest that ITC serves and Arizona. Both big, good, strong growth, economic development outlooks on a going forward basis.

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 in Arizona both big.

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.

Operator: And your next question comes from the line of Ben Pham from BMO. Your line is open.

Ben Pham: Hi, thanks, good morning. Maybe to continue on the last question around low growth increasing on AI and data centers. Do you expect that to have a meaningful impact on rate-based growth going forward when you think about that, that setup, and then? Could you also comment, I know you mentioned it's more U.S., but any comment on the Canadian opportunity for AI as well? Thank you.

Ben Pham: Hi, Thanks, Good morning, maybe.

Ben Pham: Maybe continuing on the last question around.

Ben Pham: Load growth increasing on AI.

Ben Pham: AI and data centers.

Ben Pham: Do you expect that to have.

Ben Pham: Uh huh.

Ben Pham: A meaningful impact on rate base growth going forward.

Ben Pham: Think about that.

Ben Pham: Set up and then.

Ben Pham: You also comment I know you mentioned that it's more U S. A.

Ben Pham: But any comment on the Canadian opportunity for AI as well. Thank you.

Speaker Change: I'll answer this in reverse on the Canadian side, we're not really seeing that same kind of conversation.

David Gerard Hutchens: I'll answer this in reverse. On the Canadian side, we're not really seeing that same kind of conversation from a data center AI perspective. We're not hearing a lot of additional load growth or announcements in our service territories, at least in Canada. Also, probably much less chatter around manufacturing, although there is in some areas quite a bit. In Ontario, not that we serve this load, but we're seeing some of that economic development around electric vehicle plants and things like that. There are 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.

Speaker Change: From a data center AI.

Ben Pham: Perspective, we're not we're not hearing a lot of additional load growth or announcements in our service territories at least in in Canada also probably much less chatter around.

Ben Pham: Manufacturing, although if theres there are in some areas quite a bit in Ontario.

Ben Pham: That's what we serve this load, but where we're seeing some of that economic development around electric vehicle plants and things like that.

Ben Pham: Theres just a lot more incentives to do it in the U S. Because of the inflation reduction act and the incentives that 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 theres, obviously a lot of.

David Gerard Hutchens: So there are some additional drivers in the U.S. that are pushing this. So what the impact will be is still early days, but there's obviously a lot of conversation. There are a lot of different data centers, these hyperscalers who are going around looking for places to site their data centers, which they have siting requirements. They want to be by fiber. They need power, right?

Ben Pham: <unk>, there's a lot of.

Ben Pham: Different data centers, these hyperscale or who are going around looking for places to.

Ben Pham: Site their datacenters, which you know they they have siting requirements they want to be by fiber.

Ben Pham: <unk> power right. So that's the that's I think the biggest conversation right now is.

David Gerard Hutchens: So that's, I think, the biggest conversation right now is finding the areas that have power to be able to supply them. It is early days, I think, that they are looking at multiple sites before they decide on one. So it's too early for us to really have a good feel for those load growth opportunities and the capital that will come with them. And actually, it might, frankly, be a bit more time through the end of this year, even just to figure out where some of this stuff will land. So it'll be a while before we see that making its way through our resource planning process within our utilities and through other processes like LRTPs, et cetera, that MISO goes through.

Ben Pham: Finding the power.

Ben Pham: Are there areas that have power to be able to supply them.

Ben 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.

Ben Pham: That load growth opportunities and the capital that will come with it and actually it might you know frankly be.

Ben Pham: That's a bit more time.

Ben Pham: Through the end of this year or even just to figure out where some of the stuff will land. So it'll it'll be a while before we see that making its way through.

Ben Pham: Our resource planning process within our utilities.

Ben Pham: <unk> through other processes like L rtp's et cetera that we had that.

Ben Pham: MISO goes through.

Ben Pham: Okay, thank you for that. And secondly, maybe on the tranche to the product, CAPEX, opportunity, anything you can provide directly in terms of Macon to the pie, and when do you think you can maybe put in the CapEx and potential service dates? Yeah.

Speaker Change: Okay. Thank you for that and secondly.

Speaker Change: Secondly, maybe on the tranche two.

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: Wondering if you can maybe put into capex and potential in service states.

Speaker Change: Yeah, No. It's too early days I mean, we're still working with draft portfolios. The portfolios has to be finalized <unk> be approved there are still things moving around there still studies to be done so.

David Gerard Hutchens: Yeah, no, it's too early days. I mean, we're still working with draft portfolios, you know? The portfolios have to be finalized, they have to be approved. There are still things moving around, there's still studies to be done. So it's far too early for us to be putting numbers out there yet.

Speaker Change: So 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 star followed by the number one on your telephone.

Operator: Thank you. And once again, if you would like to ask a question, please press star followed by the number one on your telephone. Your next question comes from the line of Linda Ezergailis from TD Cowen. Your line is open.

Speaker Change: Your next question comes from the line of Linda Andrew Dailies from TD Cowen Your line is open.

Speaker Change: Sure just.

Linda Ezergailis: Sure. I'm just wondering about your PBR3 appeal in Alberta. Can you comment on any sort of ability to defer capital expenditures until there's more certainty whether a more prospective approach to capital programs can be taken or how to kind of mitigate some of the uncertainty there and maybe just talk more generally about some of the inflationary pressures in your capital programs and whether they're dissipating?

Speaker Change: Wondering.

Speaker Change: Or PBR three appeal in Alberta.

Speaker Change: Can you comment on any sort of ability to defer capital expenditures until there's more certainty.

Speaker Change: Other are more prospective approach to capital programs can be taken or how to kind of mitigate some of the uncertainty 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 PBR 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.

David Gerard Hutchens: Yeah, so it was a bit disappointing in that in that latest PBR, we were using that historical look back at the prior year's capital to set the forward rate, which is what we're appealing for and what we have got to leave to appeal. So I think that was a good result because it is important for us to make sure that we have that baseline capital set at that set at the right level on a going forward basis. You know, I'll I'll I'll kick it to Janine to add some conversation around, you know, inflationary impacts and some other things.

Speaker Change: A good result, 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 the team there understands.

Janine Sullivan: But, you know, the team there understands what their current situation is, the capital plan that they have submitted. Obviously, that doesn't mean we don't look at, you know, additional opportunities and invest in additional infrastructure. It just means that, you know, they may have to trade off different capital within their plan. They might have to prioritize it a little bit differently. And, you know, worst case scenario, this is the world I lived in in Arizona. Every once in a while, you get a little regulatory lag because you don't get immediate recovery for it.

Janine: What that 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.

Janine: And worst case.

Janine: This is 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.

Janine Sullivan: But if they're 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 resiliency perspective, we make those investments. And then we'll we'll we'll get it, we'll get it on the next round. But you need to want to add a little color on the impact of interest and how you guys would be managing that. Actually, thanks, Dave, you've covered it quite nicely.

Janine: 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.

Janine: Our to do whatever we might need to do from a resiliency perspective, we make those investments and then we'll we'll get it we'll get it out in the next round, but Jay do you want to add a little color on the.

Jay: Impact of interest and how you guys would be managing that.

Jay: Actually thanks, Dave you've covered it quite nicely.

Jay: 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 in <unk>.

Janine Sullivan: So, you know, there's a lot to digest with respect to where we have levers, where we can manage costs in certain areas to address the shortfall, potentially, in capital funding. We do plan on bringing or utilizing some elements of the plan with respect to type one capital, where we go forward with very specific requests to the AUC while this reconsideration of the methodology that they use to establish capital funding is also ongoing. So certainly, all the 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 apply.

Jay: Capital funding.

Jay: You 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.

Jay: Two the AUC a while this reconsideration of the methodology that they use to establish capital funding is also ongoing so certainly up.

Jay: All steam ahead.

Jay: <unk> to deploy capital as we can and managing our costs as we do so until we see some of these other mechanisms start to apply.

Speaker Change: Thanks, Tony.

Speaker Change: Thank you.

Michael P. Sullivan: And your next question comes from the line of Mike Michael Sullivan from Wolfe Research. Your line is open.

Operator: And your next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open.

Speaker Change: Hey, good morning.

Michael P. Sullivan: Hey, Michael.

Michael P. Sullivan: Hey, Michael. Yeah. Hey, Dave. I'll just try another one on the MISO-TRANCH2 map.

Michael P. Sullivan: Hey, Dave.

Speaker Change: 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.

David Gerard Hutchens: I know it's a little early, but maybe just relative to... Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay, how were you feeling when you saw the draft map for Tronch 1? Does this feel like, you know, better opportunities said or worse?

Speaker Change: How you were feeling when you saw the draft Mab for tranche one does this feel like.

Speaker Change: Better opportunity set or worse.

Dave: Oh, yeah, Yeah, I can I can provide some directional color there.

David Gerard Hutchens: Oh yeah, I can provide some directional color there, there's a lot more lines on the map, and they're different color lines, right, so the 765 KV is exciting; those are obviously big projects, you know, the size of the overall portfolio, the estimates are, in essence, twice the size of Tronch 1. 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 comfortable and confident in saying it's a lot bigger. All right. Thank you.

Speaker Change: There's a lot more lines on the map and they're different colored lines right. So the 765 kv.

Speaker Change: As exciting those are obviously big projects.

Speaker Change: The the <unk>.

Speaker Change: 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.

Speaker Change: We're not sure what the final package will look like but I think we're all very comfortable and confident in saying, it's a lot bigger.

Speaker Change: How that allocates to ITC.

Speaker Change: Well.

Speaker Change: That'll come out in the wash as we go through the process the rest of this year.

Michael P. Sullivan: Okay, I appreciate that. That's really helpful.

Speaker Change: I appreciate it that's really helpful.

Speaker Change: Yeah.

Speaker Change: So you can also just give a little color on more color on just how the legislative session.

Speaker Change: I ended up playing out and was it just a matter of time or not not enough support can you give us another shot next year.

Speaker Change: Just more color on that would be helpful.

David Gerard Hutchens: And any chance you could also just give a little color on, more color on just how the legislative session in Iowa ended up playing out, and was it just a matter of time or not enough support? Can you give us another shot next year? Yeah, just more color on that would be helpful.

Speaker Change: Yes.

Speaker Change: The short answer is.

Speaker Change: Politics are always a little.

Speaker Change: Hard to hard to call exactly how the processes is going to work I think the team did a fantastic job.

David Gerard Hutchens: Yeah, I think the short answer is, you know, politics are always a little hard to call exactly how the process is going to work. I think the team did a fantastic job getting up there in front of the legislators, getting the support that's needed, but it's some, you know, periodically you just can't get the things to be brought up and debated, and when that happens, you just say, okay, well, we'll give it a go next time, and I think that's, you know, one of our, there's, you know, obviously, as Jocelyn mentioned in her prepared comments that what we think about our existing tranche one and, you know, why those are and should still be allocated to us and the 70% that's in our rights of way, and I mean, we've still got, you know, layers and layers of arguments and appeal to boot on those tranche one projects.

Speaker Change: Getting up there in front of us.

Speaker Change: The legislators getting the support that's needed but at some.

Speaker Change: Reata Corey you just can't get the things to to be brought up.

Speaker Change: And debated in.

Speaker Change: When that happens you just say, okay, well give it will give it a go next time.

Speaker Change: 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 why those.

Speaker Change: Our and it should still be allocated to us in the 70% us and our rights of way and I mean, we've still got layers and layers of.

Speaker Change: Of arguments.

Speaker Change: Appeal to boot.

Speaker Change: On those tranche one projects so.

David Gerard Hutchens: So, it's really, so what do we do next, and I think the conversation around, you know, looking again next year from an Iowa perspective, recalling also as we talk about tranche two, we still have our rovers in Minnesota and Michigan. Also, you know, you never know where those lines will land in relation to our existing rights of way, and as we sit here today, we're, you know, just around the corner from FERC putting out their planning and cost allocation rule that will, you know, which could address some, at least on a limited basis, some of the federal rovers that they at least tossed out there in the NOBR, so we'll see where that goes, and we'll take, you know, that, whatever, I think I listed about seven different things that that team's working on related to this, and we'll just, you know, stack them up and go through them.

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, recalling also as we talk about tranche two and we still have our our ropers 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 can elicit about seven different teams working on related to this and we'll just stack them up and go through them.

Speaker Change: Okay.

Michael P. Sullivan: Okay, thanks. And last one for me, if you could just update us on the Arizona process and the workshops there that I think have kicked off on trying to improve regulatory lag, how do you see that going so far?

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.

David Gerard Hutchens: Yeah, positive. I mean, very positive. It's got two different options that they're looking at there, whether it's a formula rate or a forward test year. Each comes with a different sort of batch of questions and issues within the Arizona regulatory and legislative construct. But at the end of the day, it's all positive.

Speaker Change: Regulatory and legislative.

Speaker Change: Legislative construct but at the end of the day, it's all positive.

David Gerard Hutchens: Either one of those is better than a regulatory lag basis that we're working on now. You know, obviously, we got the SRB, the System Reliability Benefit mechanism that allows us to basically a capital tracker that we got at UNS Electric. We expect that next time we file a rate case at TEP, we'll file for one as well. That's a great sort of second home for something like a formula rate. But so again, we've got a couple different options there, and we're just glad to see that it is getting traction, and after the first workshops, they are looking at continuing them. So that's all positive.

Speaker Change: Well, yeah on either one of those is better than a regulatory lag basis that we're working on now.

Michael P. Sullivan: Thanks so much.

Speaker Change: Obviously, we got the.

Speaker Change: The SRP does system reliability benefit mechanism that allows us basically a capital tracker that we got at U S. Electric we expect that next time, we file a rate case at TEP will file for one as well.

Speaker Change: That's great.

Speaker Change: Sort of second place for something like a formula rate, 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.

Operator: 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: Yeah, thanks, everyone, just with not full clarity on the role for issue legislation, the court process, haven't played out 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, you know, once the lines are drawn and you see the allocation for the Challenge 2 projects in light of the role for issues not being settled, do you hold back in adding those to the five-year plan? I appreciate 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: Not full clarity on the rule for issues Legislative process. The court process haven't played out 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 can 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.

David Gerard Hutchens: Yeah, so as far as timing on tranche one, you might recall that we only have about 1.2 billion out of the 1.4 to 1.8, and this is U.S. dollars of 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 moving some of those in-service dates around a little bit. I don't think that it's going to be substantial.

Mark Thomas Jarvi: Yeah, 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 $1 eight and this is U S dollars of 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 in that into the next two years. So.

Mark Thomas Jarvi: Really what's happened so far is just kind of delaying or.

Mark Thomas Jarvi: Moving some of those in.

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: We 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 length that we <unk>.

Mark Thomas Jarvi: And our and our capital runway.

David Gerard Hutchens: It's not going to be – right now, we're not changing our capital plan based on it because we still fully expect that those will be our projects to build. And so, it's not necessarily even something that we'll bake into the next – this next five-year capital plan because we don't expect those projects to be approved and assigned or allocated until late this year, and of course, we like to update our capital plan in the fall.

Mark Thomas Jarvi: And 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.

David Gerard Hutchens: So, it's – well, we'd love to have quicker and sooner clarity on that, but it's going to take some time. And you know us. We don't put it in the capital plan until we really know it's coming. And so, we are a bit conservative from that standpoint, but if we can give any color around the expectations when we put out our capital plan and as we get towards the end of this year, we'll do that.

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.

Mark Thomas Jarvi: You know us we don't put it in the capital plan until we really know what's coming.

Mark Thomas Jarvi: And so we are.

Mark Thomas Jarvi: Conservative from that standpoint, but if we can give any color around.

Mark Thomas Jarvi: The expectations when we put out our capital plan and as 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.

David Gerard Hutchens: But as always, we want to make sure that we maintain the strong credibility that we have with you all that what we put out in those capital plans is what we're going to go out and do. So, we'll make sure that we still live by those principles.

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: And any updated views on just in terms of the mix, again, the right-of-way assets in terms of the amounts that you've carved there at the 1.2 that's in the budget now, just any refined numbers around how you think that would shake out if the roofer was not reinstated?

Mark Thomas Jarvi: Any updated views in just in terms of the mix again right away assets in terms of the amount that you.

Mark Thomas Jarvi: Theres a one 2% is in the budget now just any refined numbers around how you think that would shake out if the broker was not reinstated.

David Gerard Hutchens: So in the 1.2 or the, you know, or the 1418 total package there, we talk about that 70%. I think that would be, you know, if everything went against us, I think that's the minimum that we would have. That would be the floor. So that's what we would be thinking right now. But as it stands, we don't think that will be the case. We think we'll have all of it. Got it. Okay. Thanks for your time this morning.

Mark Thomas Jarvi: So it in and the one point to are the or the 1418 total package there.

Mark Thomas Jarvi: We talk about that 70% I think I think that would be.

Mark Thomas Jarvi: Got it. Okay.

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.

Mark Thomas Jarvi: That's what we would be thinking right now, but as it stands we don't think that will be the case, we think we will have all of those projects.

Speaker Change: Got it okay. Thanks for the time this morning.

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.

Operator: Thank you. As there are no further questions, I would like to turn the call back to Ms. Amaimo.

Mimo: Thank you Lee 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.

Stephanie A. Amaimo: Thank you, Ludi. 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.

Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Operator: Thank you for your time, and have a great day. Thank you, presenters, and ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Thank you for watching.

Speaker Change: Okay.

Speaker Change: Okay.

Operator: Yeah.

Operator: Okay.

Speaker Change: Yeah.