Q3 2024 Fortis Inc Earnings Call
Session following the presentation.
Speaker Change: That time those have questions to press star followed by the wondering your telephone.
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Speaker Change: At this time I would like to turn the conference over to Stephanie Mimo. Please go ahead Mr. Mimo.
Stephanie Mimo: Thanks, Joanne and good morning, everyone and welcome to Florida in the third quarter 2024 results Conference call I'm joined by David Hutchens, President and CEO, Jocelyn Perry Executive VP and CFO other members of the senior management team as well as Ceos from certain subsidiaries.
Stephanie Mimo: 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.
Stephanie Mimo: Our third quarter 2024 and DNA.
Stephanie Mimo: Also unless otherwise specified all financial information referenced is in Canadian dollars with that I will turn the call over to David.
David Hutchens: Thank you and good morning, everyone. The third quarter was another solid quarter in the books for Florida's.
David Hutchens: Operationally, we continue to deliver safe and reliable service to our customers and financially our results continued to demonstrate the success of our regulated growth strategy.
David Hutchens: Through September we invested $3 6 billion and our energy systems, and we expect capital expenditures of $5 2 billion for the year during.
David Hutchens: During the quarter, we also announced our 2025 to 2029 capital plan of 26 billion supporting average annual rate base growth of six 5% through 2029.
Additionally in September our board of directors declared an increase in the fourth quarter dividend of approximately 4% and extended our 4% to 6% annual dividend growth guidance to 2029.
And beyond the plan momentum continues to build on the tranche two one projects associated with the MISO long range transmission plan as weather as well as other investment opportunities.
David Hutchens: As mentioned our annual 2024 capital program is now expected to be $5 2 billion.
David Hutchens: Our 400 million higher driven mainly by the timing of expenditures associated with the Eagle Mountain pipeline project in British Columbia.
David Hutchens: Our new five year capital plan of $26 billion is $1 billion higher than the previous five year plan driven primarily by projects associated with the MISO RTP and resiliency investments at ITC as well as growth at Florida, Alberta.
David Hutchens: The capital plan remains low risk and highly executable with nearly all being regulated investments in only 23% consistent of major capital projects.
David Hutchens: The five year plan supports our transition to cleaner energy resources and includes investments that enhance and strengthen our infrastructure and support customer growth.
David Hutchens: As we execute our capital plan, we remain keenly focused on investing in the resiliency of our energy systems, while maintaining customer affordability we continue.
David Hutchens: To control operating costs and support programs, such as energy efficiency and Bill assistance as well as secure tax credits for the benefit of our customers.
Stephanie Mimo: Over the five year horizon rate base is expected to increase by approximately $14 billion to $53 billion by 2029 supporting an average annual rate base growth of six 5%, which is up from six 3% and our prior five year plan.
Stephanie Mimo: In September MISO released its final map of the tranche $2, one LR GP projects with 24 projects totaling $21 $8 billion U S dollars. The projects are subject to MISO Board approval, which is anticipated next month.
Stephanie Mimo: ITC estimates its portion of tranche $2, one to be at least $3 billion of investment.
Stephanie Mimo: Majority of which is expected beyond 2029.
Stephanie Mimo: The estimate assumes itc's expected portions of two projects in southern Minnesota, and three projects in Michigan were rights of first refusal or an effect.
Stephanie Mimo: Other transmission investments continue to progress as they relate to customer connections.
Stephanie Mimo: Notably ITC in collaboration with Alliant Energy received approval in October under MISO is expedited review process for the Big Cedar loan expansion project in Iowa. This project relates to transmission upgrades to serve up to 600 megawatts of new data center load at the Big Cedar Industrial Center.
Stephanie Mimo: The first phase of the project would require transmission upgrades to support 800 megawatts of new load with a targeted in service date of 2027.
Stephanie Mimo: Phase II requires another 800 megawatts with an in service date of 2028.
Stephanie Mimo: The project requires franchise approvals from the Iowa Utilities Commission prior to construction.
Stephanie Mimo: <unk> project is a potential investment of up to $400 million.
Stephanie Mimo: In our view this development underscores the attractiveness of the Midwest region for future growth.
Stephanie Mimo: With ample land availability high renewable penetration competitive utility rates and overall speed to market aided by MISO is expedited review process. We see this as a positive step forward in bringing tangible load growth to the region.
Stephanie Mimo: We continue to make progress on new datacenter mining and manufacturing opportunities across several of our jurisdictions and are working to secure additional investments in Arizona related to our integrated resource plan as we transition to cleaner energy.
Stephanie Mimo: Last month Tep's 2023, ERP was acknowledged by the Arizona Corporation Commission based on modest load growth projections of one 5% per year.
Stephanie Mimo: Cynthia AARP was prepared our load growth expectations have been have increased as reflected in our current capital plans. In fact, TEP is seeing significant service requests from data centers and other large potential customers that could create substantial new energy needs above our current expectations, but at this.
Stephanie Mimo: Point it is difficult to estimate what percentage of that will come to fruition.
Stephanie Mimo: We are making progress in negotiations.
Stephanie Mimo: With one large new customer while others are at various stages of the process. We are actively developing the infrastructure options to serve this growth.
Stephanie Mimo: This new retail growth materializes that would drive significant upside to our existing capital plan and sales growth in Arizona.
Stephanie Mimo: And with TEP being a vertically integrated utility we have the ability to invest in generation transmission and distribution to serve these opportunities.
Stephanie Mimo: We expect this load growth to be met with a combination of gas renewables and storage depending on the customer's needs.
Stephanie Mimo: To advance these opportunities we expect regulatory approvals will be required outside our standard tariffs to ensure protections are in place to avoid negatively impacting our existing customers.
Stephanie Mimo: We expect more visibility into these negotiations over the next few quarters.
Stephanie Mimo: As a reminder, this new retail load would be on top of the two 5% to 5 billion U S dollars of investments expected from UNFI <unk> outside the existing plan as well as the at least $3 billion U S.
Stephanie Mimo: At ITC for tranche $2, one as well as other transmission opportunities as part of the New York Transco.
Stephanie Mimo: Overall, we remain bullish about our long capex run rate and the role we play in to support climate adaptation grid resiliency load growth in the clean energy transition across our footprint.
Stephanie Mimo: As highlighted in September our board of directors declared a four 2% increase in our fourth quarter dividend, marking 51 years of consecutive dividend increases during.
Stephanie Mimo: During the third quarter, we also extended our annual dividend growth guidance of 4% to 6% through 2029.
Speaker Change: Now I will turn the call over to Joseph <unk> for an update on our third quarter financial results.
Joseph: Thank you David and good morning, everyone for the third quarter reported and adjusted EPS for 85, 1% higher than adjusted EPS last year year to date September reported and adjusted EPS were $2 45, eight cents higher than adjusted EPS last year.
Stephanie Mimo: Key drivers of growth for the third quarter, where rate base investments across our utilities and strong earnings and Arizona underscored by new customer rates that went into effect in September 2023.
Stephanie Mimo: EPS growth quarter over quarter was impacted by timing of both the favorable cost of capital decision in British Columbia in September 2023, and the disposition of Aitken Creek in November 2023, and finally unrealized gains on total return swaps, reflecting changes in the corporation's share price.
Stephanie Mimo: Year over year were largely offset by higher finance costs.
Stephanie Mimo: The chart on slide 10 highlights the EPS drivers for the third quarter by segment, our U S electric and gas utilities contributed a <unk> <unk> EPS increase quarter over quarter, driven by Unf's energy. The increase that you announced was mainly due to new customer rates higher production tax credits associated with that also Grande wind.
Stephanie Mimo: Facility and an increase in the market value of investments that support retirement benefits.
Stephanie Mimo: Were moderated by labor related inflationary increases.
Stephanie Mimo: At Central Hudson EPS contribution was comparable to the third quarter of 2023, the favorable impact of rate base growth and a higher ROE effective July one were offset by the timing of operating costs in comparison to the related recovery in new customer rate impact of July one.
Stephanie Mimo: At ITC, the two cent EPS increase reflects rate base growth, partially offset by higher finance costs.
Stephanie Mimo: The EPS contribution from our Western Canadian Utilities segment was <unk> <unk> lower for the quarter.
Stephanie Mimo: You'll recall, we recognized a favorable five retroactive adjustment in the third quarter of last year related to the cost of capital decision.
Stephanie Mimo: Apart from this adjustment earnings for higher up for yourself or them, reflecting rate base and customer growth and a higher allowed Roe.
Stephanie Mimo: The corporate and other segment reflects the two cent EPS decreased due to the timing of the disposition of income Creek in 2023, and as mentioned the impact of unrealized gains on derivatives. During the quarter were largely offset by higher finance costs are higher average U S to Canadian dollar foreign exchange rate contributed a one cent EPS increase for the quarter.
Stephanie Mimo: <unk> and lastly, higher weighted average shares reflect shares issued under our dividend reinvestment plan.
Stephanie Mimo: Many of the drivers discussed for the corner are the same for the year to date period I do have a few notable comments first at the U S electric and gas segment C. EPS drivers that unf's are substantially the same as the quarter also reflect higher margins on wholesale sales.
Stephanie Mimo: Central Hudson was down 1% year to date, driven by higher operating funds, including timing of costs relative to recovery and new rates effective July one 2024.
Stephanie Mimo: So there was a favorable regulatory adjustment recognized in 2023.
Stephanie Mimo: For the Western Canadian utilities segment, unlike the quarter the impact of the 2023 cost of capital decision in British Columbia was not a driver on a year to date basis. The <unk> <unk> EPS increase reflects rate base growth and higher returns in Alberta.
Stephanie Mimo: And in the corporate and other segments to disposition of Aitken Creek accounted for approximately a five cent EPS decrease year to date.
Stephanie Mimo: As stated previously this is timing as the disposition of Aitken Creek will be neutral to EPS on an annual basis. The remaining <unk> <unk> EPS decrease in this segment is driven by higher finance costs, which are somewhat offset by higher unrealized gains on derivatives overall year to date earnings are in line with expectations and primarily.
Stephanie Mimo: Reflect new rates and rate base growth across our utilities.
Stephanie Mimo: Through September we have raised approximately $2 6 billion of debt repay borrowings and to fund our capital program in terms of our preference share rate resets, our 600 million series and what we said on December 1st with an annual dividend rate of five 5%.
Stephanie Mimo: Earlier this fall we met with the rating agencies ahead of releasing our new five year capital plan and we continue to engage particularly with S&P and forced as mitigation plans around physical and climate risk in October S&P did reaffirm our rating and maintained a negative outlook.
Stephanie Mimo: Italy, we update on a new funding plan, which remains largely consistent with the previous plan. It is comprised of cash from operations and regulated debt as well as equity proceeds from our dividend reinvestment plan and we expect the corporations $500 million at the market common equity program to remain available and provide funding flexibility as required.
Stephanie Mimo: Our new funding plan supports average cash flow to debt metrics of over 12% through 2029.
Stephanie Mimo: Turning now to recent regulatory activity last month issued an order lowering the base MISO early by four basis points to 998%, bringing itc's MISO all in a row, including incentive adders to 10, 73% essentially the order removed the use of the risk pre.
Stephanie Mimo: <unk> model and establishing the base Roe.
Stephanie Mimo: I'm going forward, we anticipate this reduction in base Roe to impact EPS by less than one cent annually.
Stephanie Mimo: The order also direct certain refunds by December 2025, the refunds for ITC are estimated to be approximately $26 million, which will be recognized in the fourth quarter.
Stephanie Mimo: In August MISO also concluded its variance analysis reaffirming the original allocation of tranche, one projects, including the allocation of ITC as a result, more gone all ITC tranche one projects in Iowa has resumed.
Stephanie Mimo: In October the Arizona Corporation Commission held a second workshop on the generic regulatory lag docket as you'll recall the ACC is looking at the possibility of using formulaic rates or forward looking test year incentive historical test years currently in use.
Stephanie Mimo: There is a potential the commission will provide guidance in late 2024 or early next year, we remain encouraged by the prospect of improving rates stability for our customers, while concurrently reducing regulatory lag.
Stephanie Mimo: In August Central Hudson filed its 2025 general rate application with the New York Public Service Commission requesting an increase in its electric and gas delivery rates effective July one 2025, the application seeks a 10% allowed ROE and 48% common equity component of the capital structure.
Stephanie Mimo: Find me an outcome of this proceeding remain unknown.
Stephanie Mimo: In October the New York Public Service Commission issued a show cause order directing central Hudson to explain why a proceeding should not commence in connection with the gas related explosion that will occur in November 2023, when a third party contractor struck a gas line, while performing work on central Hudson behalf Central Hudson will file.
Stephanie Mimo: Response within 30 days of the order.
Speaker Change: And while not on the slide we expect for the Subpart F 2025 allowed ROE to be set at approximately 9% and with that I'll now turn the call back to David.
David Hutchens: Thank you Jocelyn.
David Hutchens: We are very pleased with our operational and financial results. So far in 2024, and the advancements made on the regulatory front, particularly at ITC looks.
David Hutchens: Looking ahead, we are focused on executing on our new five year capital plan as well as securing growth opportunities beyond the plan.
David Hutchens: Delivering reliable and affordable energy is at the heart of what we look to do for our customers, while providing dependable yet strong total returns for our shareholders.
David Hutchens: That concludes my remarks, I will now turn the call back over to Stephanie.
Stephanie Mimo: Thank you David This concludes the presentation and at this time, we'd like to open the call to address questions from the investment community.
Speaker Change: Thank you we will now conduct a question and answer period, if he would like to register a question. Please press star followed by the one on your telephone. If your question has been answered and you would like to withdraw your registration. Please press star two if.
Speaker Change: If youre using a speakerphone. Please if I have said before.
Speaker Change: During your request and we will kindly request you to speak louder and floated to ensure all participants can hear your question. One moment. Please for the first question.
Speaker Change: Your first question comes from Rob Hope with Scotiabank. Your line is now open.
Rob Hope: Good morning, everyone.
Rob Hope: I wanted to talk about the potential upside believers on the capital plan that you highlighted specifically in Arizona, It looks like more in the near term and longer term and myself.
Rob Hope: Do you think about funding it just given where you are on the balance sheet and if you do see uptick in near term capital requirements. So it could then push more on the ATM could you look at asset sales or can you maybe broadly about how youre going to finance it.
Speaker Change: Sure, Rob let me kick that over to Jocelyn Yeah, Rob.
Jocelyn Perry: It's hard to say right in terms of how we're specifically going to fund these because it all depends on timing of when these projects come into play but.
Rob Hope: The one thing we have said for a while now is that we are we're committed to keeping our balance sheet in the.
Rob Hope: Position that it's in today, we've done a lot to bring it to where it is today. So we don't plan to work that backwards.
Rob Hope: Youre right I mean, we do have the ATM available to us and I guess I'll say, what I always say, which is it all goes back on the table and and I hope that that's the problem that we have is in terms of trying to fund incremental capital, but everything goes back on the table, but.
Rob Hope: And first before we.
Rob Hope: We do have the ATM available it could give us immediate flexibility.
Rob Hope: But we don't need it we don't need it right now.
Speaker Change: Alright I appreciate it.
Speaker Change: And then sticking with the theme of upside growth.
Rob Hope: Dave You mentioned, Arizona, a number of large kind of well call it potential demanding.
Speaker Change: And electrical load when you think about the data center opportunity or even large users of electricity. There. How are you thinking about adding new capacity versus just the poles and wires and investment and could you see some of these large users of electricity potentially co located some of their own generation there.
Speaker Change: Or would that be something that you'd prefer to be done on the broader system.
Speaker Change: So I would say generally no and the footprint here in Arizona, and others, probably very limited.
Speaker Change: Co location type opportunity, so and plus when you think about how condensed our TEP system is down in southern Arizona, It would probably make more sense to just.
Speaker Change: Connected to the grid and supply it from a grid perspective then.
Speaker Change: Co location.
Speaker Change: Are you really remote.
Rob Hope: So we have that you can consider co location or a couple of combined cycles, one in new Mexico.
Rob Hope: And another one in Arizona that isn't necessarily all that conducive to co location and then of course, the coal plants that we have already.
Speaker Change: Already shutdown time frames for.
Speaker Change: So overall, we're looking at resources and every spot that we currently have resources to replace them like.
Rob Hope: For like generation may be and where where you could have some of the coal renewables storage et cetera that we can add across the entire grid.
Rob Hope: So we're looking at it more from a portfolio perspective than sort of what you're seeing in these conversations around co location. Because obviously the generation has to have the things that we need which are you know.
Rob Hope: Depending on the type of Jack the generation, obviously land transmission interconnection benefits natural gas generation, we also need.
Rob Hope: Water and gas pipelines and then of course, you throw on top of that the the fiber access this data for data centers or new.
Rob Hope: Kind of define that part of available sites, but keeping it wide open right now for sure.
Speaker Change: Alright, I appreciate that thank you.
Speaker Change: Your next question comes from Maurice Choy with RBC capital markets. Your line is now open.
Maurice Choy: Because the data center theme and ask for a little bit more elaboration on your prepared remarks at TEP and ITC. So at TEP I know that there is firm resource capacity of about 3000 megawatts of today could you see a situation where it doubled.
Maurice Choy: So maybe even triples, if data center low rise and at ITC, how many of these big Cedar in those expansion projects out there do you think.
Speaker Change: So yes.
Speaker Change: Yes, Theres a lot in the queue to speculate as to how much of that is actually.
Speaker Change: Youre going to come down to getting customers to locate here.
Speaker Change: There is there is probably a fair bit.
Speaker Change: Gotten argue that are in other People's Skus.
Speaker Change: There is obviously a bit of a an early rush to get the data centers.
Speaker Change: In places that have existing capacity and that that I think gives you a bit of a leg up for longer term potential growth. So yeah. There is big potential I wouldn't want to put it in like the multiple of current system system peak, but it's pretty darn substantial.
Speaker Change: So we and then of course on a on a smaller system like TEP larger data center would have a bigger impact than maybe on a on a broader on a on a much larger system from a percentage perspective, but I guess, that's just obvious baton Rouge, sorry about that but.
Rob Hope: But it does change the way that we have to operate the system too when you get a big load on that but I also got to emphasize that when we talk about these data center opportunities always data data centers or other manufacturing opportunities that we see in the Q. These are the potential not just in good investment opportunities but on over.
Rob Hope: A good story for the rest of our retail customers right. Because this is bringing in a big large facility that take that uses a lot of energy to spread those fixed costs that we have in our system across much more megawatt hours. So that allows us to hopefully have a downward impact on our on our customer.
Rob Hope: Right. So that's that's what we're shooting for.
Rob Hope: And as far as ITC, Linda will probably have a little bit better view than me on the the rest of the potentials like we see it big Cedar.
Linda: I will but we have seen not just go from the little bit of conversation that we had at the beginning of the year around the data center that was had two phases going from 300 up to 600 and now we're talking about one of these but having a 600 megawatt type sites. Those are the ones that really can dramatically.
Rob Hope: Change the view of some of the smaller utilities in the footprints Linda you got any color on additional opportunities up there.
Speaker Change: Yeah, I would just say I mean, I think similar theme I think it's it's it's difficult to specifically say what the.
Rob Hope: Kind of opportunity set is however.
Rob Hope: There is no doubt right both whether it's in Iowa are here in Michigan.
Rob Hope: Obviously, theres a lot of different potential prospective customers.
Rob Hope: You know that we are working with we're knocking on that are knocking on doors.
Rob Hope: It's it's one of those things that obviously, they they have they.
Rob Hope: They have multiple options some of them are waiting for a potential legislation and so it's premature to specifically say or quantify what those are but I would say directionally speaking.
Rob Hope: There is no doubt there are some other significant load potentials that exist, but we're just not at a point that we can specifically identify them or announced that they are confirmed.
Rob Hope: Understood.
Rob Hope: Maybe just to finish up.
Speaker Change: I'm sure someone's going to ask you about your selection so I want to turn your attention to.
Rob Hope: The election that just finished how much finished here in BC.
Rob Hope: Slender majority for the NDP Green Party may or may not have some kind of influence.
Rob Hope: Any thoughts on Fortis BC gas distribution growth prospects under this new political landscape.
Rob Hope: Well go next coming four years.
Rob Hope: Well Maurice Roger's sitting right next to me, who is our expert from from BC to answer that question.
Rob Hope: Murray.
Rob Hope: The BC election.
Rob Hope: Just as important as the one happening today for some requests.
Maurice Roger: I'd say that.
Maurice Roger: And if there was a minority.
Maurice Roger: With the Greens, having more influence it might have been a bit of a different answer but.
Maurice Roger: The ADP still maintains an.
Maurice Roger: Majority, obviously a reduced majority.
Rob Hope: <unk>.
Rob Hope: Think there was a focus on.
Rob Hope: Portability on other issues.
Rob Hope: Less than a climate given past election, so I would say that we don't see much change going forward.
Rob Hope: I think if you look at the power in D C.
Rob Hope: Energy environment plan that was published in July.
Rob Hope: That would be my best guess as to the near term roadmap, where theyre going to go on energy there'll be still a focus on expansion of electrification opportunities.
Rob Hope: We launched our own request for energy.
Rob Hope: Our electric service territory, following BC hydro's call for power.
Rob Hope: Don't see a near term change to the direction of the gas infrastructure opportunity. We just filed our Tilbury storage facility planned last week.
Rob Hope: And.
Rob Hope: The expectation is that they were going to be focused on.
Rob Hope: Promoting their powering DC plan, which they published in the summer.
Rob Hope: Yeah.
Speaker Change: Great. Thanks for the color.
Speaker Change: Thanks Marty.
Speaker Change: Your next question comes from Ben Pham with BMO. Your line is now open.
Ben Pham: Yeah. Thanks, good morning.
Ben Pham: On your Capex program.
Ben Pham: Part of that increase was for us a brighter and I'm just wondering if you can provide.
Ben Pham: Provide us an update on.
Rob Hope: I see.
Rob Hope: How have you seen rate base growth trend.
Ben Pham: Trending.
Rob Hope: And the near term and long term outlook on.
Rob Hope: Of course, Alberta franchise.
Speaker Change: Yes, we're seeing some good upward growth projections.
Rob Hope: In the short term here when you look at our five year capital plan for Florida, Alberta, We see a five little over 5% five 2% rate base, CAGR, which is which is stronger than it's been in the past not as strong as it's been in a very.
Rob Hope: Say 10 years ago.
Rob Hope: It's always been a good strong growth jurisdictions. So we're seeing customer growth there, we're seeing additional investment opportunities and obviously in the distribution system to connect those customers, we're hoping to see some knock on impacts from things like datacenter growth that will well, we typically want to have.
Rob Hope: On serve data centers from a generation or transmission perspective, but dependent on what voltage they hook up at and then also some overall growth opportunities that economic growth in that area.
Rob Hope: <unk> will have some kind of secondary impacts and then we're also seeing growth opportunities in some of the other kind of bigger projects that we're focused on like our Ami project up there as well as additional investments in and wildfire technology from a from a rate base perspective.
Speaker Change: Okay, that's good to hear.
Speaker Change: And then maybe on the RTC.
Speaker Change: The MISO ROE is is that pretty much in terms of incrementals going forward or is that a pretty much great to us.
Rob Hope: Then.
Speaker Change: Are you hearing anything on the incentive adders in timing from FERC.
Speaker Change: Yeah, so it's a bit TBD to see who's who will throw in for rehearing on that order and I think we're pretty darn happy with it.
Speaker Change: I think it landed in the right spot they pulled out the risk premium left everything else intact. It was.
Speaker Change: Not a not a big delta to the ROE for us so that was definitely.
Rob Hope: Positive flows the second part of your question.
Rob Hope: Incentive matters. So second I understand that's still yes, that's still the back burner, we haven't heard anything from FERC on any scheduled discussion on that as well. So we have not seen anything.
Rob Hope: With that we would.
Rob Hope: Concern us about that.
Speaker Change: Okay got it thanks David.
Rob Hope: Okay.
Speaker Change: Your next question comes from Mark Jarvi with CIBC capital markets. Your line is now open.
Mark Jarvi: Yes, good morning, just going back to the emerging <unk>.
Rob Hope: Retail load increases in Arizona.
Rob Hope: When you guys have clarity in terms of being able to define the scope and timing of that and then I think Dave you said something about requiring sort of.
Rob Hope: Ah different tariff structure to protect existing customers.
Rob Hope: Is this going to be a little bit of a longer process. Before you can put this into the backlog and growth Capex until you have that sort of regulatory clarity.
Rob Hope: It'll take us some time I think once we get to the stage of getting.
Rob Hope: Agreements in principle.
Rob Hope: That's the first step that you would hear from us on Okay. We got this customer we've got.
Rob Hope: Mou. This is in essence, what we what we plan broader from a from a big picture perspective, and then starts.
Rob Hope: Figuring out what the Capex would be required and I don't know.
Rob Hope: Very high level basis, and then draw sort of that timeline of what we would need to do to bring that deal.
Rob Hope: Kind of a final status ready to start.
Rob Hope: Start building.
Rob Hope: That would require not just the contractual agreements between us and that counterparty, but typically and I'm expecting that we would have.
Rob Hope: Maybe.
Rob Hope: Our specials.
Rob Hope:
Rob Hope: For serving them because these we don't have we don't have a specific data center type.
Rob Hope: Service tariff.
Rob Hope: So we would want to make sure that we.
Rob Hope: Got.
Rob Hope: An agreement that covered the costs.
Rob Hope: We've done this for large customers in the past and we've done it not just in Arizona, but in BC, where we create.
Rob Hope: These sort of one off tariffs to make sure that we have the protections needed, especially if we're if we're building a large amount of infrastructure for them so that can be.
Rob Hope: Regulatory process, but I wouldn't expect it to be a very long run because it feels that Arizona and our regulators are very supportive of this type of.
Rob Hope: Growth in our area and obviously when it has a positive impact for our customers. We can get stuff done extremely quickly so.
Rob Hope: I don't expect it to be like a long drawn out regulatory process, but it wouldn't be a processed on the less but that would also be done.
Rob Hope: In parallel with the development and supply chain and the rest of the things that you would have to do to bring it to bring it online.
Speaker Change: Is the expectation that you'd be able to put them on the table and provide some clarity at some point in 'twenty 'twenty five in it.
Rob Hope: With this many investments in rate base growth within the current five year period.
Speaker Change: Yes. So I think 2025 is a reasonable period, mostly because thats a pretty broad target there.
Rob Hope: Youre asking me to pick a quarter in 2025 would be a bit tougher, but yes. I think this would be something that we would have a fair level of clarity in 2025 for sure that would be.
Rob Hope: That would be that would be our goal.
Speaker Change: And then in terms of the timeline to put capital to work and its impact to the actual growth.
Speaker Change: The current five year, yes.
Speaker Change: Yes, so we would see probably we would see some this.
Rob Hope: Given how fast these data centers that want to move.
Rob Hope: And given of course with a caveat them getting the things that we need from a supply chain perspective. This would definitely have some impact in the five year period, and I can't swear that it would have it.
Rob Hope: It would have a complete impact of the five year period, but probably a significant impact within because thats. You know if we have if we have an agreement one year from now and then.
Rob Hope: That would be probably looking at a two to three year type timeframe from their construction standpoint, I think they typically put out about a two year.
Rob Hope: I am frame for them to be able to stand up the data center, so we'd be really rushing to get that done.
Rob Hope: But again that has to do with all the rest of the timing related to supply chain permitting and siting. If you have to put in a new generation of support them et cetera.
Speaker Change: And Jonathan just a follow up on Rob's question about funding.
Speaker Change: Even absent new investments this year, some higher spend pull forward FX.
Speaker Change: How are you thinking where you are in terms of balance sheet buffer.
Speaker Change: And is there something where you have to maybe tap the ATM a little bit sooner just given how the timing of capex is flowing through the business. This year.
Speaker Change: No we don't see any need to do anything different than what we've outlined with the changes that we're seeing I mean, the pull forward of the.
Rob Hope: The wood fiber project is not not changing our funding plan. So right now its steady with the plan that we have in place. The ATM is available, but there is no.
Rob Hope: The expectation that we need to tap that for anything we see today or anything understood today.
Rob Hope: Paul.
Rob Hope: Okay. Thanks, everyone.
Rob Hope: Okay.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star One. Your next question comes from Patrick Kenny with National Bank Financial Your line is now open.
Patrick Kenny: Oh, thank you.
Patrick Kenny: Maybe just to dive a little bit deeper into the Alberta.
Patrick Kenny: Alberta footprint.
Patrick Kenny: And as you mentioned, even though you don't have the same vertically integrated model.
Patrick Kenny: In Arizona.
Rob Hope: Given the some of the big numbers, we've seen thrown around in terms of the opportunity set around.
Rob Hope: Co location opportunities.
Rob Hope: Coming into the province.
Rob Hope: Just how should we be thinking about the.
Rob Hope: The rate base upside.
Rob Hope: As you look at.
Rob Hope: With some of these behind the meter customers for their redundant power needs.
Speaker Change: Yes, let me I'll kick that over to Janine to add a little color. Obviously is as you know.
Speaker Change: Alberta has been extremely receptive to the conversation around data centers, they've got their bring your own power.
Speaker Change: Policy up there, but as far as the transmission and distribution investments surgeon and you want to opine on that a little bit.
Janine: Sure. It's certainly an evolving story here in Alberta as the provinces very vocal in terms of wanting to attract them yet.
Speaker Change: So going through the process of understanding how we're going to support them. So we've been certainly on a bit of an education journey as to the importance of interconnecting. These loans to the grid to ensure the reliability of power that a lot of these customers will require so you know clearly there's a balance between.
Speaker Change: Supporting a fossil fuel based economy, which gives province would still want to do in life references.
Speaker Change: Using gas for example is backup power supplies for these types of data centers, but also looking at their reliability.
Speaker Change: The liability aspect the interconnection with the grid and its another consideration and that's where we've been focused in terms of understanding how we can best support the customer from a distribution perspective.
Speaker Change: And understanding what the implications for those behind the meter types of generation can mean in terms of accessibility and reliability. So lots of conversation going on our certainly front and center with discussions with customers as well as with the government in terms of how policies might be determined around these and.
Speaker Change: And waiting to see how some of these might actually interconnect and what they might brain when they decided to come to Alberta.
Speaker Change: Okay. That's great color. Thank you and then maybe for Jocelyn and I know you touched on it already but.
Speaker Change: With this rate base or capital plan upfront.
Speaker Change: The potential for an even weaker Canadian dollar outlook going forward.
Speaker Change: So if there's been any change to your thoughts.
Speaker Change: And to lock in the longer term cash flows at a higher FX rate as well or is it just status quo on that.
Speaker Change: The currency hedging policy for now.
Speaker Change: Is never status call pantry, and we're always looking at the market. We did extend our hedging program to be two years out for our U S cash flows a little while ago and we are still there, but it's something we are looking at and we are definitely taking.
Speaker Change: He has stepped up quite significantly in terms of just locking in the current rate. So it's an evolving.
Speaker Change: Item that we're always evaluating but right now we're two years out our U S cash flows.
Speaker Change: Okay.
Speaker Change: Okay. Thank you I'll leave it there.
Speaker Change: Yes.
Speaker Change: Your next question comes from Michael Sullivan with Wolfe Research. Your line is now open.
Michael Sullivan: Hey, good morning.
Speaker Change: Hey, Michael.
Michael Sullivan: Hey, Dave.
Michael Sullivan: Couple more questions on an Arizona, just how do we think about the timeline for implementation of whatever may come off the remainder of these workshops.
Michael Sullivan: Yes.
Michael Sullivan: What is the process from here.
Speaker Change: Yeah, Let me turn it over to Susan since we're in Arizona. This week for for their board meetings. We've got that are but your personal answer that yeah. Good morning, Michael Thanks for the question. So as you probably know on October 3rd we had a recent workshop.
Speaker Change: <unk> brought in a couple of FERC Representatives, just talk about how the formula works for FERC and.
Michael Sullivan: And so the commission may hold another one to two workshops, but I think they're motivated to get something done fairly soon I would say late this year or early next year. So I think that I think we're getting pretty close to a solution and I think that's going to be good for our customers in terms of a more gradual.
Speaker Change: Will impact on rate increases and obviously good for us in terms of regulatory lag, but I think I think we're narrowing in on installation pretty quick here.
Speaker Change: Okay, Great and then I think just in the spirit of elections here I think there's one in Arizona as well.
Speaker Change: How do you think about the range of candidates there and just what that could mean for regulation in the state.
Speaker Change: Okay.
Speaker Change: Go ahead Sir.
Speaker Change: Three open seats the.
Speaker Change: Chairman is rerunning.
Speaker Change: That's a Republican open seat.
Speaker Change: Commissioner Marcus Peterson is running for reelection and then commissioner Tovar is not running for reelection. So three open seats three candidates on each party. Your guess is as good as mine on how that's going to turn out today.
Speaker Change: Okay, and then just pivoting to <unk>.
Speaker Change: Iowa.
Speaker Change: Theres been some talks out there of potentially the Duane Arnold nuclear plant coming back would you all have any involvement with that if that were to happen.
Speaker Change: On the nuclear side no.
Speaker Change: And Linda.
Linda: I'm not sure if that would have any impact on.
Speaker Change: The LR TPS basically then the $2 two phase because obviously, we would be putting a big additional.
Speaker Change: Generation back online, which might have to go back into the calculus of whats.
Speaker Change: What's needed from a transmission perspective, but Linda.
Speaker Change: Linda have you guys thought about if that's got any impact on you all.
Speaker Change: Yeah, I mean, obviously, we're tracking and monitoring some of the conversation remember they existing there's existing transmission infrastructure.
Speaker Change: It's still there and in place.
Speaker Change: Was there to serve be the Duane Arnold facility when it was in operation, but as Dave mentioned, certainly on a going forward basis as we continue to invest.
Speaker Change: Invest and build out the regional transmission infrastructure, certainly, bringing new generation back online certainly has an impact on system dynamics and so it's certainly something that we would have to study.
Speaker Change: To determine what impacts if any.
Speaker Change: It has on the power flows.
Speaker Change: Obviously, you're delivering load and so I would say, it's a TBD, but I would say there is some pretty robust transmission infrastructure that currently serves that that location.
Speaker Change: Okay, and just to be clear, that's your transmission infrastructure or someone else's.
Speaker Change: That is ours ITC, okay. Okay. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thanks, Michael.
Speaker Change: Thank you as there are no further questions I would like to turn the call back over to MS. I'm emo.
Speaker Change: Yeah.
Speaker Change: Thank you al we have nothing further at this time. Thank you for participating in our third quarter 2000, Tony Park results Conference call. 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.