Q2 2024 Fortis Inc Earnings Call
Good morning, everyone. Thank you for standing by my name is constant team and I will be your conference operator today.
Welcome to <unk> second quarter, 'twenty 'twenty four earnings conference call and webcast during.
During the call all participants will be in a listen only mode.
There will be a question and answer session. Following the presentation.
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Finally, I would like to turn the conference over to Stephanie Mimo. Please go ahead Mr. Mimo.
Thanks, Constantine and good morning, everyone welcome to afford us the second 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 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 included in the forward looking information presented today, all non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U S. GAAP financial measures in our second quarter 'twenty 'twenty four M. DNA also unless otherwise specified all financial information referenced.
Is in Canadian dollars, so with that I will turn the call over to David.
Thank you and good morning, everyone. Today, we are pleased to report our second quarter results operationally our teams delivered reliable service to our customers. Despite a variety of severe weather conditions experienced during the quarter.
David: Through the end of June we invested capital of approximately $2 $3 billion focused on system reliability, and resiliency customer growth and economic development as well, it's cleaner energy investments these capital investments supported rate base and EPS growth.
On the regulatory front, we had a number of key proceedings advance, notably at ITC I was Supreme Court granted our motion filed by ITC Midwest requesting a stay of the injunction issued by the I would district court for tranche one projects in Iowa.
David: With this stay in place.
David: D. C is now permitted to advance construction of all our tranche one projects originally awarded to the company. In 2022. This is a positive development as I T C looks to invest in critical transmission infrastructure to support the clean energy transition and load growth in the region.
And today, we released our 2020 for sustainability report it includes new information on resiliency efforts by the diversity programs and actions to support energy efficiency and lower emissions.
The report also contains information regarding our progress on key sustainability targets.
Our 2024 capital plan of $4 $8 billion remains on track during.
During the quarter construction of the 1800 kilometer Watson a kidney power transmission project was completed we are proud to be a part of this project that has a majority owned by 24 first nations provides socioeconomic benefits and reduces greenhouse gas emissions associated with diesel fired generation previously used in these remote.
Locations.
We continue to execute our five year capital plan of $25 billion that is comprised of virtually all regulated investments and a diverse mix of highly executable low risk projects.
David: Rate base is expected to increase by approximately $12 billion to over 49 billion by 2028 supporting average annual rate base growth of six 3%.
David: Beyond the plan regulated growth opportunities progressed during the quarter.
Speaker Change: And I T C. MISO released a near final map of its L. R. T. P. Tranche 2.1 projects with transmission investments now estimated in the range of 23 to 27 billion U S dollars up from an earlier estimate of 17 to 23 billion U S dollars.
While it's still too early to estimate the investment opportunities within our I T. CS footprint MISO Board approval is anticipated in late 'twenty 'twenty four.
Speaker Change: And June MISO also confirmed the transmission projects included in tranche 2.1 would be insufficient to meet the demand and needs of the MISO Midwest sub region under the future to a scenario.
Speaker Change: As a result, MISO expects additional transmission will be required likely through a tranche 2.2 portfolio well MISO has not provided any firm details regarding timing or scope of this new tranche. It certainly underscores both the need and opportunity associated with transmission investments in the Midwest considering de carbonization.
Speaker Change: <unk> and load growth trends.
In British Columbia, the federal environment Mental assessment certificate was issued and in the quarter for the Tilbury Marine Jetty project. The construction of the jetty supports further expansion of Florida species Tilbury LNG facility.
Speaker Change: The site is scalable and can accommodate additional storage in liquefaction equipment and as close to international shipping lines.
Once constructed the jetty will utilize Florida species assets at the Tilbury site, including the future phase one b expansion project to serve marine Bunkering and reduce greenhouse gas and other emissions and.
Speaker Change: In addition to the developments at ITC, and Florida P. C. Our utilities across North America, our focus on expanding and extending growth opportunities in their jurisdictions, especially in the areas of clean energy continue to electrification and load growth.
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 second quarter financial results.
Thank you David and good morning, everyone for the second quarter reported and adjusted EPS was 67.
Jocelyn: Five cents higher than adjusted EPS last year year to date June reported and adjusted EPS was $1 60, resulting in an increase in adjusted EPS of seven cents year over year.
Speaker Change: E. P. S growth was mainly driven by rate based investments across our utilities, new customer rates and warmer weather in Arizona as well as new cost of capital parameters in British Columbia, which were approved in late 2023 and retroactive to January one 2023.
Speaker Change: The chart on slide nine highlights the EPS drivers for the second quarter by segment.
Speaker Change: Our U S electric and gas utilities contributed a five cent EPS increase quarter over quarter in Arizona E. P. S was up seven cents due to the favorable impacts of new customer rates and higher retail revenues due to warmer weather weather impacts were two cents quarter over quarter.
Speaker Change: At Central Hudson EPS decreased to <unk> quarter over quarter, largely due to a one time impact of a regulatory settlement associated with the C. I S implementation, which I'll discuss later as well as the recognition of a regulatory performance target in the second quarter of 2023.
Speaker Change: But I do you see the two cent EPS increase was mainly driven by rate base growth tempered by higher holding company finance costs.
Speaker Change: Our western Canadian utilities increased EPS by two cents the increase largely related to the due to the timing of the new cost of capital parameters in B C.
Speaker Change: Allowed return in Alberta for 2024 was tempered by the timing of operating costs and the recognition of income tax expenses.
Speaker Change: In our other electric segment EPS decreased one mainly due to higher costs and lower equity income.
Speaker Change: For the corporate and other segment. The decrease mainly reflects the disposition of any can creek in 2023, and higher holding company finance costs, and lastly, higher weighted average shares reflect shares issued under our dividend reinvestment plan. We have not used the ATM program to date is participation under the drip remains strong.
Speaker Change: Turning to slide 10, many of the factors discussed for the quarter are the same for the year to date period. There are a few items to note for the year to date results.
Speaker Change: For our western Canadian utilities, specifically at Ford, a subpart out higher demand charges in customer additions also favorably impacted the year to date results.
Speaker Change: In Arizona in addition to the new customer rates at T P and higher retail revenue driven by warmer weather higher margins on wholesale sales tempered by higher operating costs also impacted EPS in the first half of the year.
Speaker Change: And our corporate and other segment the disposition of Aitken Creek unrealized losses on derivative contracts compared to the gains in the first half of 2020, three and higher holding company finance costs were the main drivers of E. P. S.
Speaker Change: And while negative for the quarter and year to date periods on an annual basis. The disposition of Aitken Creek will be neutral to EPS.
Speaker Change: And finally higher weighted average shares outstanding reduced E. P. S. Three.
Speaker Change: Three year to date you.
Speaker Change: Through June we have raised approximately $1 4 billion of debt to repay borrowings and to fund our capital program. We remain a strong liquidity position as we execute our five year capital plan and maintain our investment grade credit ratings.
Speaker Change: As I mentioned last quarter, we expect to have further engagement with S&P and the fall, particularly on Florida says mitigation plans around physical and climate risk.
Speaker Change: Looking ahead, we are on track to achieve average cash flow to debt metrics up 12% over the five year period.
Speaker Change: As David noted earlier this is not the Iowa Supreme Court granted a stay of the injunction issue by the Iowa District Court with respect to construction of the MISO long range transmission plan tranche one projects in Iowa.
Speaker Change: With the stay of the injunction in place by T. C is permitted to advance construction on all Iowa tranche one projects originally awarded to the company in 2022.
Speaker Change: Certain complaint dense have requested that the judge's order be reviewed by a full quorum of the Iowa Supreme Court.
Speaker Change: Regardless of any Crumb review by the Iowa Supreme Court, approximately 70% of the Iowa tranche, one projects are upgrades to itc's facilities, along existing rights away, which under MISO tariff grants ITC the option to construct the upgrades.
Speaker Change: Further most of.
Speaker Change: Is conducting a variance analysis for the tranche one projects in Iowa, and we believe the process should reaffirm the initial award of the projects in 2022.
Speaker Change: In Arizona, the generic regulatory lag docket continues to advance the Arizona Corporation Commission will host workshops in the third quarter to further assess the possibility of abusing formulaic rates or forward looking test years instead of the historical test year currently in use.
Speaker Change: While the timing and outcome remain unknown. We are encouraged by these efforts to evaluate regulatory construct that may reduce regulatory lag.
Speaker Change: In June the New York Public Service Commission issued an order concluding the investigation into the implementation of central Hudson's billing system.
Speaker Change: As part of the order the independent third party monitor reported that the C. I S system was deemed stable and critical issues were resolved.
Speaker Change: The order also stipulate certain costs are not to be recovered from customers, including 4 million U S dollars for a contribution to a customer benefit fun, which was recognized in the second quarter.
Speaker Change: The vast majority of the remaining costs were previously recognized in prior periods future impacts are not expected to be material.
Speaker Change: And earlier this month, the New York Public Service Commission also issued an order on central Hudson's 'twenty 'twenty four general rate application. The decision retroactive to July 1st includes an allowed ROE of nine 5% 50 basis points higher than the previous allowed return.
Speaker Change: On the.
David: Central Hudson expects to file its 2025 general rate application in the third quarter and with that I'll now turn the call back to David.
David: Thank you Jocelyn the first half of the year continued our long track record of executing our growth strategy. We continued to implement our $4 8 billion dollar annual capital plan made progress on opportunities beyond the plan and advanced our regulatory proceedings. This is an exciting time to be a regulated transmission and distribution.
Speaker Change: The company and we continue to pursue additional growth opportunities that deliver a cleaner energy future, while continuing to prioritize safety reliability and affordability for our growing customers needs.
Speaker Change: That concludes my remarks, I will now turn the call back over to Stephanie.
Stephanie A. Amaimo: Thank you David This concludes the presentation at this time, we'd like to open the call to address questions from the investment community.
Speaker Change: Okay.
Speaker Change: Thank you we will now conduct the question and answer period. If you would like to register a question. Please press star followed by the number one on your telephone.
Speaker Change: Western has been answered then you would like to withdraw your registration. Please press star two if you.
Speaker Change: We're using a speaker phone please lift your handset before entering your request and we kindly request you speak loudly and slowly to ensure all participants can hear your questions.
Speaker Change: One moment please for the first question.
Speaker Change: Our first question comes from the line of Maurice Choy from RBC capital markets. Please proceed with your questions.
Maurice Choy: Thank you and good morning, everyone. If I could start with your updated view of the electric and gas demand outlooks across your utilities there.
Maurice Choy: There's obviously, a broad anticipation for higher load due to a number of reasons and that it could also lead to higher gas fired power and potentially some changes some future IR piece, but can you speak to which utilities, you're seeing no notable change in demand outlook versus a year ago, and how utilities might respond to this.
Speaker Change: Okay.
Maurice Choy: Yeah. Thanks Maurice.
Speaker Change: I'll start with kind of a broad overview and if you want to dig down into.
Speaker Change: Any of the individual utilities.
Speaker Change: Actually we have everybody in the same room for for once does this call. So I can I can pinging over to them.
Speaker Change: You'd be but.
Speaker Change: I think probably the especially from the gas generation perspective really the the only.
Speaker Change: A big utility that we have that we're considering additional gas generation right now is that a U N S.
Speaker Change: As you know the two different utilities or T. P. A newness electric and as part of the integrated resource plans that they filed last year were adding a total of 600 megawatts 400, a T. P. N 200 megawatts at a U S electric.
Speaker Change: Combustion turbines to help fill in the variability associated with adding quite a bit more renewable energy into the portfolio. So that's a that that was what we filed last year, obviously that.
Speaker Change: That was based on.
Speaker Change: Prior information on load growth et cetera. So we are seeing a lot of potential for additional load growth related to manufacturing and data centers in that footprint, but at this point, we haven't changed our integrated resource plan or changed any timing or additions to it although we do it.
Speaker Change: Data center growth, there and just due to the comments of the government up there. They are receptive to to siding data centers up there, but they have what I'm, calling a BYOB bring your own power sort.
Speaker Change: Sort of a philosophy to make sure that folks who come up they're going to.
Speaker Change: Come in and either build generation or contract with it to make sure that they're not pulling it all out of the market.
Speaker Change: So that's if you wanted to go into any more details just let me know.
Speaker Change: Maybe just a quick follow up on that and obviously, there's a lot of discussion about sharing the transmission costs and any other costs relate to.
Speaker Change: This new load.
Speaker Change: How are you seeing or which which part of your portfolio are you seeing.
Speaker Change: The greatest.
Speaker Change: Progression and policy, making and.
Speaker Change: Anticipating all the other jurisdictions to follow suit.
Speaker Change: So I think we're testing out a lot of stuff and I think.
Speaker Change: Big Testbed disposes in Arizona, because we are a vertically integrated utility and we can offer a different kind of options for customers that come in there from special contracts to.
Speaker Change: Special rates et cetera, there's there's one principle that I think everyone. Every utility this isn't just unique to us we will be following in that as these this load has to pay for itself and in fact, we think that it should have and will have a positive impact on customer affordability because of the additional high level of utilization that these.
Speaker Change: High load factor customers bring so overall, we think it's a it's a good story both from a growth perspective, and a customer affordability perspective.
Speaker Change: That's great if.
Speaker Change: If I can just finish up on ITC to just better understand.
Speaker Change: The district Court the Supreme Court judges.
Speaker Change: Order here.
Speaker Change: Yes.
Speaker Change: Can the stay of the injunction continue endlessly for so long as a full quorum to Supreme Court not view this judge disorder.
Speaker Change: Okay.
Speaker Change: Yes, I'll turn that over to Linda Apsey.
Linda H. Blair Apsey: ITC, yes. Good morning, Thank you Maurice.
Speaker Change: I I suppose.
Linda H. Blair Apsey: Yes, it could there's no requirement that the Supreme Court Act.
Speaker Change: Any certain timeline they do act at their discretion. So to the extent that there was never any ruling or further decision or determination then yes. The stay of the injunction would remain in place.
Speaker Change: And then I guess, just go up and that if we have a position on tranche 2.1, and I suppose ITC is going to proceed with investments in tranche one to one.
Speaker Change: How should we think about them.
Speaker Change: These investments if one day, let's say months years and decades from now.
Speaker Change: M D.
Speaker Change: The original.
Speaker Change: Position has reverted back.
Speaker Change: Is there any risk of any stranded risk trying to asset risk.
Speaker Change: Do you have an worries.
Speaker Change: Note that we have no concern of any stranded asset risk. Obviously, we are continuing to pursue and invest in these projects. According to the MISO tariff.
Speaker Change: And so the associated expenses are related to that we'd all be under the premise that these projects were awarded to us.
Speaker Change: And we have continued to pursue and develop under all of the provisions of the MISO tariff.
Speaker Change: Great. Thanks for the color.
Laurie: Thanks Laurie.
Speaker Change: Our next question comes from the line of Rob Hope from Scotia Capital. Please proceed with your question.
Robert Hope: Good morning, everyone I just want to take a.
Speaker Change: The cost of home ownership as well as just kind of the incremental load that we're seeing a pop up for electrical demand there as well like could we is this the beginning of a.
Speaker Change: Change in sentiment are on the gas side.
Speaker Change: So marissa I think that change in sentiment has been around and in almost every one of our jurisdictions.
Speaker Change: But maybe the slight exception of British Columbia, which now I think is is coming around the impact.
Marissa: Impact on affordability.
Marissa: Has to be.
Speaker Change: Topline conversation and as we look at the different pathways for.
Speaker Change: The energy service from our electric and gas perspective, we do believe that there is a necessity to have both of those contribute and supply of energy in order for us to do it both affordably and reliably so we do see some of those.
Speaker Change: Some of the LDC changes is as we've seen in D. C. We see we see our role being a little bit different and maybe more of a capacity roll on a going forward basis, but the necessity for that capacity is getting clearer and clearer across every jurisdiction. So I do think people are recognizing.
Speaker Change: <unk> seen that and I think also one of the main things we have to remember is we're still we're still marching towards.
Speaker Change: The clean energy future here and we I think are also getting people to understand the ability for us as LDC as again as gas companies to.
Speaker Change: To be able to supply clean molecules.
Speaker Change: Huge.
Speaker Change: Thing that we need to need to remind people of an end to end to focus on.
Speaker Change: As you probably well know that.
Speaker Change: Coover, we also got a good approval from.
Speaker Change: <unk> you see for RMG to be a part of the portfolio for every one of our customers that was a big win for Roger and his team out there in BC and something that I think.
Speaker Change: Compound that with the decision to allow natural gas in new buildings again.
Speaker Change: New construction.
Speaker Change: We're starting to see how we can make this blend work and cost effectively affordable affordably, but still hitting some clean energy targets.
Speaker Change: Thank you I'll hop back in the queue.
Speaker Change: Okay.
Robin: What can I tell you I'm more east Robin.
Robin: If I heard you Maurice I'm, I'm, I'm, sorry, but I know who you are.
Robin: But very clearly.
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to register a question. Please press star followed by the number one on your telephone if you are using a speaker phone. Please make sure to lift your handset before entering your request.
Speaker Change: Our next question comes from the line of Mark <unk> from CIBC capital market. Please proceed with your question.
Mark Thomas Jarvi: Hey, good morning, everyone.
Speaker Change: And then just coming back to the iron ore situation.
Speaker Change: Relief on the injunction.
Speaker Change: I guess still of uncertainty on how this all plays out.
Speaker Change: How does that impact your thinking and activity around procurement and moving out of the projects that might come through in 2025 and six are.
Speaker Change: Or are you being a bit more cautious pushing things out a little bit and then.
Speaker Change: Those projects that maybe it wouldn't fit under the right away that 30%. How are you managing those projects in terms of permitting or trying to advance them quite a bit before you have to put capex to work.
Speaker Change: Thanks, Mark I'll have Linda asked that it was a question.
Speaker Change: Question related to both how do we manage the risk in this from a from a supply chain perspective.
Speaker Change: Obviously, we are in the early stages of advancing all of the <unk> One project as you recall, obviously there's significant.
Speaker Change: The work that has to go into siting permitting regulatory applications. So as it relates to the Iowa tranche one projects, we're still in the early stages.
Speaker Change: And so we we havent even received the IU be a regulatory approval for those projects yet and in fact, we haven't even begun the franchise a process that's required under state law and so I would say you know there is no you know.
Speaker Change: There's no immediate effect or impact and how we can in terms of how we think about supply chain, we have a strategic relationships with all of our major vendors. So we have Q capacity for all of our major components of our infrastructure.
Speaker Change: Our Q capacity for the L. R. T P tranche, one projects as well as our other projects as well in hand, we don't anticipate any supply.
Speaker Change: Supply constraints related to this project or.
Speaker Change: Or others and so you know that's for us not a risk or.
Speaker Change: Or anything that we're concerned about we are keenly focused obviously in in sort of the legal.
Speaker Change: Issues the regulatory process those are the and the landowner issues. Those are the primary areas of focus for us at this stage Oh those allergy P projects.
Speaker Change: Can you remind us again, what the planned spending would have been for next year.
Speaker Change: And whether or not that could be impacted here as he has worked through these issues.
Speaker Change: Oh.
Speaker Change: Planned spending for next year, yes.
Speaker Change: <unk> work and we're continuing obviously, there's no change at this point in time in terms of our planned spend we obviously will continue to reassess that as we release our next.
Speaker Change: Some are behind us. So they can say you think something will come to fruition and you won't have any roadblocks, where this falls out.
Speaker Change: We're we're optimistic.
Speaker Change: Okay.
Speaker Change: And with the completion of the Joaquin project, what would be that sort of long term vision around your ownership. There is their strategic benefits to stay invested in did you think there's potential projects or investments around that.
Speaker Change: That ownership position that you can pursue or is it just becomes sort of a a cash flowing asset that you hold them potentially monetize if and when the opportunity presents itself.
Speaker Change: No I think we've always seen that as a as a bit of a entry point into the Ontario market I mean, it gives us a good anchor for looking at additional projects and additional transmission development. We obviously created a tremendous relationship with the first nations up there.
Speaker Change: So yeah, we'd always love to build more transmission in Ontario, but frankly anywhere within our within our footprint.
Speaker Change: So is it we would we would look at you know we don't have any plans.
Speaker Change: On a going forward basis other than owning that asset.
Speaker Change: Okay. Thanks, everyone.
Mark: Thanks Mark.
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to register a question. Please press star followed by the number one on your telephone.
Speaker Change: If you are using a speaker phone please lift your handset before entering your request.
Speaker Change: As there are no further questions I would like to turn the call back to Mr. Mimo.
Mr. Mimo: Thank you Constantine we have nothing further at this time. Thank you everyone for participating in our second quarter 2024 results Conference call. Please contact Investor Relations should you need anything further and thank you for your time and have a great day.
Speaker Change: Thank you for participating this concludes today's conference call you may now disconnect.
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