Fortis Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 16 speakers on the call.

Operator

Good morning, everyone. Thank you for standing by. My name is Brian, and I will be your conference operator today. Welcome Fortis Q1 2023 Earnings Conference Call and Webcast. During the call, all participants will be in a listen only mode.

Operator

There will be a question and answer session following the presentation. The call. At this time, I would now like to turn the conference over to Stephanie Amaimo. Please go ahead, Ms. Amaimo.

Speaker 1

Thanks, Brian, and good morning, everyone, and welcome to Fortis' Q1 2023 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. The call. Before we begin today's call, I

Speaker 2

want to remind you that the discussion will include forward looking

Speaker 1

information, which is subject to the cautionary statement contained in the supporting slideshow. The call. 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.

Speaker 1

GAAP financial measures in our Q1 2023 MD and A. Also, unless otherwise the call today. With that, I will turn the call over to David.

Speaker 3

Thank you, and good morning, everyone. Before getting started, I'd like to introduce Chris Capone to his first earnings call since being appointed President and CEO of Central Hudson in February following the retirement of Charlie Freni. For those of you who don't know Chris, he has been with Central Hudson for over 20 years, serving for many years as Chief Financial Officer. Welcome, Chris. We look forward to working with you in this new capacity as you lead the team in New York.

Speaker 4

Thanks, David.

Speaker 3

Today, we are pleased to report strong first quarter results, which reflect the diversified nature of our business, favorable market conditions and the continued delivery of our low risk capital plan. The call. As we have talked about in the past, we remain keenly focused on meeting our clean energy goals, while investing in the resiliency of our energy systems, all in a manner that ensures continued customer affordability. For example, FortisBC received a milestone approval in April from the British Columbia Utilities Commission for a $155,000,000 investment supporting their energy efficiency programs. This is just one of the many ways our utilities to taking the lead on climate action while offering practical options to customers to reduce emissions and their bills.

Speaker 3

To From a financial perspective, we invested $1,000,000,000 of capital in our energy systems and adjusted earnings per share in the quarter increased $0.13 the Q1 last year, driven by strong regulated growth, which Jocelyn will speak to shortly. On the regulatory front, our applications in Arizona and British Columbia continue to progress with decisions in both expected mid year. On Monday, we announced that we entered into a definitive agreement with Enbridge to sell our unregulated investment in Aitken Creek to the call for approximately $400,000,000 Once the sale is closed, we expect to use the proceeds to pay down our corporate borrowings, which strengthens our balance sheet and provides additional funding flexibility to support our regulated utilities growth strategy. The call. The transaction is subject to approval by the BCUC as well as certain closing conditions and adjustments.

Speaker 3

The sale is expected to close in the second half the Q1 of 2023. With approximately $1,000,000,000 invested in our systems in the Q1, our $4,300,000,000 annual capital plan remains on track. Our major capital projects progressed during the quarter. In March, FortisBC filed amended transportation rate schedules with the BCUC the Eagle Mountain Wood Fiber Gas Line project. Approval is expected in May and once approved the project will be one step closer to construction.

Speaker 3

The first tranche of projects associated with the MISO long range transmission plan are advancing with stakeholder outreach, the investments of US1.4 billion dollars to US1.8 billion dollars through 2,030 with 6 of the 18 projects in tranche 1. As you may recall, the $22,300,000,000 5 year capital plan consists of virtually all regulated investments the Q1

Speaker 5

of 2019 and a diverse mix of highly executable low

Speaker 3

risk projects supporting rate based growth across our portfolio of utilities. The plan also includes $5,900,000,000 for investments to directly support cleaner energy. Over the next 5 years, we expect rate base to increase by $12,000,000,000 from approximately $34,000,000,000 in 2022 to over $46,000,000,000 in 20.27, supporting average annual rate base growth of 6.2%. With a strong track record of increasing dividends for the past 49 consecutive years, coupled with our low risk growth strategy, We remain confident in our 4% to 6% annual dividend growth guidance through 2027. Now I will turn the call over to Jocelyn for an update on our Q1 financial results.

Speaker 2

Thank you, David, and good morning, everyone. Slide 9 provides a summary of our Q1 results. Reported earnings were $437,000,000 or $0.90 per common share. Adjusted earnings were 439,000,000 our Investor Relations and Company's Q1 of 2020. Our earnings in Arizona were the Key Drivers of Growth for the Quarter, which I'll discuss shortly.

Speaker 2

Foreign Exchange also favorably impacted the translation the presentation of our U. S. Denominated earnings, while earnings growth was tempered by higher holding company finance costs and higher weighted average shares outstanding. The waterfall chart on Slide 10 highlights the EPS drivers for the quarter by segment. At our U.

Speaker 2

S. Electric and gas utilities, EPS increased by $0.08 for the quarter with UNS contributing 0.09 dollars Central Hudson Down 0.01 dollars A number of items impacted UNS' results for the quarter. Most notably, the Q4 of fiscal 2020. Higher wholesale sales and FERC transmission revenues were mainly driven by favorable market conditions. Additionally, U and S benefited from gains on investments that support retirement benefits.

Speaker 2

Higher retail sales including the favorable impact of weather also increased earnings. To And lastly, lower depreciation expense associated with the retirement of the San Juan facility last June more than offset higher operating costs. To About half of the increase in EPS contribution from UNS is expected to moderate given timing of wholesale and transmission revenues to the Q1 of 2019 compared to 2022. The $0.01 EPS decrease at Central Hudson was mainly due to higher operating and the financial results and finance costs, partially offset by rate base growth. ITC and our Western Canadian Utilities each contributed a $0.02 EPS increase, driven mainly by rate based growth.

Speaker 2

At ITC, earnings growth was tempered by higher holding company finance costs. Our Energy Infrastructure segment contributed a $0.02 EPS increase for the quarter, driven by higher margins and volumes at Aitken Creek the Q1 of 2019 and higher hydroelectric production in Belize. A higher U. S. Dollar to Canadian dollar foreign exchange rate favorably impacted the translation of our U.

Speaker 2

S. Denominated earnings, which increased EPS by approximately 0 point The $0.03 decrease in EPS contribution from our corporate segment was mainly driven by higher finance costs. And lastly, EPS decreased by $0.01 due to higher weighted average shares outstanding related to our dividend reinvestment program. All in all, a very strong quarter even after excluding the timing of earnings at UNS and foreign exchange impacts. During the quarter, our regulated utilities raised over $600,000,000 in long term debt, largely in support of their capital programs.

Speaker 2

The financial results. We also recently entered into interest rate hedges to mitigate holding company refinancing risks. Despite broader market volatility during the quarter the financial results associated with the banking crisis, there remains a strong appetite for low risk strong credit quality issuers like Fortis. To With our recent debt issuances coupled with $3,600,000,000 available on our credit facilities, we continue to maintain a strong liquidity the Q4 of 2018. We remain comfortably positioned within our investment grade credit ratings Turning to an update on some of our ongoing regulatory proceedings since we last updated the market.

Speaker 2

First, ITC has rights of first refusal or ROPERS Regional Transmission Projects in Iowa, Michigan and Minnesota. In March, the Iowa Supreme Court Granted certain parties standing to challenge the Iowa ROLFOUR issuing a temporary injunction staying enforcement of the ROLFOUR the statute and remanding the issue to the District Court. Although the timing of this proceeding and impact on future projects is unknown, The decision is not expected to impact projects already approved and awarded by MISO, including tranche MISO's long range transmission plant located in Iowa. In Arizona, TEP's case continues to progress. TEP's requested rate base of US3.6 billion dollars and equity layer of 54% are consistent With Arizona Corporation Commission staff recommendations.

Speaker 2

Staff has also recommended an allowed ROE of 9.5% TEP's current ROE of 9.15 percent. Hearings concluded in April and a recommended order and opinion from the administrative law the Q1 of 2019. We expect new rates later this year. In New York, there are no updates on the show cause order regarding the deployment of Hudson's new customer information system. Central Hudson did file a response to the show cause order in January And the timing and outcome of this proceeding remains unknown.

Speaker 2

Turning to Western Canada, FortisBC filed its final reply arguments on its generic cost of capital proceeding and a decision is expected by mid year. Fortis Alberta proceedings related to the generic cost of capital and the 3rd PVR term effective in 2024 our progress with evidence filed. A decision is expected from the Alberta Utilities Commission later this year on both proceedings. With that, I'll now turn the call back to David.

Speaker 3

Thank you, Jocelyn. 2023 is off to a great start,

Speaker 5

the call today,

Speaker 2

both operationally and

Speaker 3

financially, highlighting the balance and strength of our regulated utility businesses. Looking ahead, we expect to continue to provide long term value to our shareholders through the execution of our growth strategy, supporting our 4% to 6% our financial results and financial results. We are currently delivering a cleaner energy future and safe, reliable and affordable service to our customers. That concludes my remarks. I will now turn the call back over to Stephanie.

Speaker 1

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

Operator

Thank you. We will now conduct the question and answer period.

Speaker 2

The call.

Operator

The first question comes from the line of Maurice Choi. Call. You may proceed.

Speaker 6

I just wanted to dive a little deeper into Q1 results at UNS. Could you elaborate a little more on the nature of timing of these wholesale electricity sales and transmission revenue? What happened during the quarter for these the Q1 of 2019. And when you say half of the year over year increase in EPS contribution were moderate, Does that mean you need to somewhat give it back about $0.04 to $0.05 over the remainder of the year?

Speaker 2

Maurice, yes, we indicate that we think it's going to moderate just really based on looking at how we transacted last year for wholesale sales in particular. We had done some wholesale sales in Q3 and I believe some in the 4th. It's just early in the year to make predictions of how and when these transactions are actually going to to Unfold. So when we look at the timing, most of them were in Q2 last year. So with that, we just advanced it forward in Q1.

Speaker 2

So we are expecting some of the wholesale sales to moderate.

Speaker 6

Got it. That makes sense and thanks for the color on that. And I to Want to finish off with the sale of the Eaton Creek Gas Storage Facility. Can you take us back to when you first thought about selling the asset? Why do you feel selling an asset was the right thing to do?

Speaker 6

Why was this right asset to sell and also why now?

Speaker 3

Yes, that's a great question Maurice. And it's our job as the Fiduciaries to look for value within our company and that value changes based on a lot of different to the inputs, one of them being market conditions and interest rates, etcetera. So given that we are always looking for finding out additional shareholder value. Some of these things are just kind of on our list to be looking at. When things align, to When you can find a good opportunity, good value and a good counterparty to look at these assets and find even more value than we can to Fine, and that's what triggers a deal.

Speaker 3

It wasn't anything like we we're sitting here trying to figure out how to sell this for years years years. This is to Something that we were being very opportunistic with. And now given the market conditions, provides us

Speaker 7

to things aligned here. Thanks. I mean, as

Speaker 6

a follow-up, you mentioned this one of the things that's on your list to look at. What else is on that list? And obviously there's some other large unregulated asset in there like the hydro assets in Belize. The same logic of selling the gas storage in the Aiken Creek apply to this set of hydro assets or is it more complicated because it's just taken belief. Me.

Speaker 3

Yes, Maurice, you did not disappoint. I figured that I would have given odds that would have been your follow-up question. So the only other appreciable regulatory assets we have period is Belize. We don't have some sort of schedule to be looking at to these assets, it again is just us being opportunistic across our portfolio and finding that value. So We don't have an agenda here.

Speaker 6

Appreciate it. Thank you very much.

Operator

Next question, we have Rob Hope with Scotiabank. Please go ahead.

Speaker 8

Good morning, everyone. First question is Arizona. Going into the hearing, you were a little confident that you could get a stipulation agreement, Rich didn't come to bear, but can you give us some color on how the hearings went and kind of where you see yourself more aligned or less aligned with the stakeholders?

Speaker 3

Yes, I'll turn that over to Susan Gray, who's the CEO of UNS Energy and to the conference call. Just spend some time on that stand in those hearings. So definitely it has been a very to I think sitting from speaking from someone who was sitting in that chair, it seems like it was a very a straightforward batch of hearings and frankly places of kind of standard disagreement or argument across to things like ROE and some other odds and ends. But Susan, you want to provide a little color on that?

Speaker 9

Sure. Yes. Thank you for the question, Rob. Yes, I think that the hearings were as expected. Prior to the hearings, we were able to narrow some of the contested issues to the conference call with the other stakeholders and interveners.

Speaker 9

And so I feel like we had a pretty straightforward hearing in terms of Issues that we covered, I would say a lot of discussion around the system reliability benefit, which is an adjuster mechanism that we're Proposing to reduce regulatory lag for our new clean energy investments. There's also some conversation about the Coal Community Transition and potential customer funding, which hasn't really been set as a policy by the Arizona Corporation Commission. To And then, yes, kind of the typical ROE fair value increment, things like that. But I think that we're pretty close, Closer than we've been in years past in terms of what staff has put forward and what we're recommending. And so Looking forward to the judge's recommended opinion in order this summer and then an open meeting to Decide the rate case probably early fall.

Speaker 8

Thanks for that. And then sticking with Arizona, a little bit more of a local question, proposition 412. Kind of Do you view this as kind of normal course or is there potentially some concessions

Operator

to be made there?

Speaker 9

Sure. Thanks for the follow-up, Rob. So Proposition 412 is our proposition to approve a new franchise the agreement with the City of Tucson. And I would say what's new in this franchise is that we have added a 0.75% the increase to the rate, which was previously 2.25 percent. In order to cover, the undergrounding costs to the Q1 of 2019

Speaker 10

for a new transmission line that we're

Speaker 9

building through the City of Tucson and that would provide recovery over about a 10 year period. We've also designated 10% of those new funds to fund the city's climate action and adaptation plan. To So that's the agreement that we came to with the city and that's what's being proposed in Prop 412. I think This is fairly new for the city, so I'm not sure I would call it normal course of action. I mean franchisees are normal.

Speaker 9

This is just a little bit of a twist on it. So the the next question. Election is coming up, just in a couple of weeks here and hope to get started on building that new transmission line underground.

Speaker 5

To Thank you.

Operator

Next question comes from the line of Linda Ezergailis TD Securities. Please go ahead.

Speaker 11

Thank you. Just wanted to step back to a very high level to and get your updated views on the likelihood and the relative attractiveness of potential unregulated but contracted energy infrastructure investments. I recall in recent history kind of delegating a search for these types of opportunities to some of your regional heads and just wondering if the the overabundance of utility investments now has kind of put those opportunities to the back burner or if they're less attractive Or maybe you can comment on over time how much of your overall company might be unregulated if any? And then maybe you can also specifically comment geographically on your the opportunities you also see in B. With the divestiture of Aitken Creek, but you've got your Woodfiber gas line likely proceeding and also some RNG opportunities?

Speaker 3

To Yes, that's a great question or questions Linda and appreciate to the call. You're asking them because I think this is a provides an opportunity to provide some very some clarity. One is, are we interested in to unregulated renewables, the answer is no. We have a lot to do in our regulated utilities. And frankly, that's Where we see the additional growth going forward on top of our current existing capital plan.

Speaker 3

So that's where we're focusing. To the call. The others are back burner off the stove, however you want to think about it. It's that's not in clearly not in our sights. To When we think about longer term what we want to look like from a company perspective, regulated versus unregulated, we're Practically 100% regulated other than that investment in the Belize hydro generation that we have.

Speaker 3

We like that. We think that's what our investors like too. We think that's the right opportunity to look. And frankly, that's where our core competency lies, and that's where I think we're going to see Plenty of growth opportunities as we go through the clean energy transition on a going forward basis. Can you remind me what the last part of your question was?

Speaker 2

Just thinking specifically, because you've

Speaker 11

got some RNG related opportunity.

Speaker 3

Yes. So to the The things that we're looking at in BC from the Wood Fiber Pipeline, regulated utility infrastructure to the Q1 of 2019. From Tilbury 1B, Regulated Utility Infrastructure. It is don't try to read anything into us getting out of an unregulated storage facility as a view on our BC to the company. We'd love that BC company.

Speaker 3

We think that they have huge growth opportunities. We see them playing a big role in Clean BC and the strategy for decarbonizing that province. And we were it's just as simple as trading to REG for REG. And so I think that provides a lot of clarity on where we're going forward.

Speaker 11

To Thank you. And just a follow-up question on your capital 5 year capital expenditure plan. As it continues to evolve And as you layer on new opportunities, especially potentially facilitated by the IRA in the U. S, might you Look for alternative, like not alternative financing, but like might you augment your current financing plan and add to it Or might you defer some more discretionary capital to kind of stay within the current financing plans?

Speaker 3

To So as we build out that capital plan, I don't want to get ahead of our next release as we're drawing up our current plans. To And so the look at what our next capital plan, which will be coming in kind of that September, call it, fall timeframe, to That will be the time that we'll update anything related to, obviously, the capital plan timing to And how we'll fund it. And obviously, the Bacon Creek gives us an extra $400,000,000 sitting in there to from a funding flexibility perspective as well.

Speaker 11

Thank you.

Operator

Thank you. Our next question comes from the line of Mark Chardy with CIBC. Please proceed with your question.

Speaker 5

Thanks, good morning everyone. I just wanted to come back to the strong results at UNS. And Jocelyn, you talked a bit about timing and how we might see that year over year Comparable moderate a little bit, but kind of implying also that results are up. So are you implying there's some sort of structural tailwind around the wholesale market and transmission revenues?

Speaker 3

To Yes. For the most part, it's volume and price to It's not that it's market driven. It's very specific to shorter term. To I'll say shorter term market perturbations if you want to think of it in that respect. So that it isn't necessarily on the wholesale side a view that there's this long term additional wholesale to sales that can that will continue on on a going forward basis.

Speaker 3

Now on the transmission side, to There is just a lot more use of our transmission system than we've had in the past. That's probably likely to continue. I think One of the things that folks forget is that UNS and TEP, Tucson Electric Power in particular, Has a large portion of their rate base that is for jurisdictional transmission. And we also have a forward formula rate that looks Just like ITCs and we have I think about $1,000,000,000 of transmission capital and about $900,000,000 or so In the current 5 year capital plan at UNS. So some of those things will continue to grow over time.

Speaker 5

Okay. Thanks for that, Dave. Hey, Jocelyn, coming back to you in terms of you mentioned putting some hedges around interest rates going forward. The acreage

Speaker 3

Thank you.

Speaker 2

Thank you.

Speaker 5

Thank you.

Speaker 2

Thank you. Thank you. Thank you.

Speaker 5

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 5

Thank you.

Speaker 12

Thank you.

Speaker 5

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 5

Thank you. Thank you. Thank you.

Speaker 2

Mark, I would say that the 2 you mentioned are 2 big ones for us, right? I mean, obviously, Aitken frees up $400,000,000 of our borrowings to give us that flexibility, but we did enter into both here and at ITC at the holding company level to the Q1 of 2019. So we're always watching the market to the next question. To determine a good time to go in and so but it's good to take that risk off the table, right? The markets are still to Volatile and so we're laser focused on taking that risk off.

Speaker 2

But Aitken and interest rate lock to the Q1. We certainly do improve our position with respect to the volatility we expect to would expect to So, but we're always watching. I don't see I think we're going to be looking to for our regulated utilities, Potentially looking at timing of their debt offerings. So we're watching the market very closely.

Speaker 5

We've seen a few more convertible note offerings from Is that something you contemplate or is we not a fit right now for Fortis?

Speaker 2

So definitely always looking at things, but the convertibles are not really in our space right now with our current 5 year plan because we don't require any further equity beyond the DRIP that we've the next question. So, but certainly as we as David mentioned, as we now look to our next the 5 year capital plan. And as we look at the investment profile over the next 5 years, we'll look at all funding options, but Commercial definitely is something that's out there these days.

Speaker 5

Okay. Thanks a lot.

Speaker 2

Thank you.

Operator

To Thank you. Next question comes from the line of Ben Pham with BMO. Please ask your question.

Speaker 13

Hi, thanks. I wanted to ask on the Iowa situation ITC and what are your thoughts on next milestones to look for your overall thoughts on the process a little bit. And in terms of materiality, are you thinking this is more of the CapEx you have in there is not going to change or to you might see some changes and it's not overly impactful to your potential CapEx plan.

Speaker 3

Thanks for that question, Ben. I'm going to punt that one right over to Linda. She has all the details that you're looking for.

Speaker 10

Yes, good morning. Thank you, Ben. Yes, I think in terms of next steps, obviously, the Supreme Court has remanded to the case back to the District Court. And so obviously there now will be sort of a proceeding involving all the parties to litigate to the question and answer session. Through the constitutionality of the ROFR, unfortunately, we don't really have a good sense as to what the timing of that will be or the decision.

Speaker 10

As we stated, obviously, it doesn't have an impact on the tranche 1 projects that have already been issued and awarded. But certainly as we go forward, there's various kind of I guess places that this Issue is playing out. 1 clearly is at FERC. This was clearly an issue that was teed up in the transmission planning NOPR to the Q and A. In terms of sort of questions around the continuation of sort of competitive bidding, to the ROFRs.

Speaker 10

And so we would be hopeful that FERC obviously would make some decision around the ROFR issue. But there it is obviously playing out, it's playing out in Texas. We now have it in Iowa. MISO. And so for us sitting here today, we're going to continue to stay focused on planning the transmission system with MISO to And obviously advancing sort of both the LRTP-one, the LRPT-two projects.

Speaker 10

But I would mention that there are a lot of carve outs the Q1 of 2019. We are pleased to announce that we are in the Q1 of 2019. We are pleased to announce that we are in the Q1 of 2019. We are pleased to announce that

Speaker 2

we are in the Q1

Speaker 10

of 2019. We are pleased to announce that we are in the Q1 of 2019. We are pleased to announce that we are in the Q1 of 2019. We are pleased to announce that we are in the Q1 of 2019. We are pleased to announce that we are

Speaker 2

in the Q1 of 2019.

Speaker 10

To projects that are clearly just reliability projects. There's a lot of different categories of projects that are not subject to competitive bidding. And so much of our 5 year plan obviously is our base capital And we would continue to have the right, the responsibility to execute the next question. On those projects that are ours, I would say it's premature to know exactly or understand kind of how all of this to place itself out or what the impact is, but you can sort of assure yourself that sort of we are We will be positioned and are positioned, I would say to both be defensive and offensive on this front. So We're taking every step that we can to prevail on the ability to have ROFRs.

Speaker 10

It is something that FERC explicitly allowed in the their original well, their subsequent ruling on competitive bidding And it is something that FERC recognized that states have the right and the ability to have state ROFRs. To the call. And so we will be actively pursuing, defending the ability for states to maintain the decision to Around who builds in the respective states. And I would just say, I mean, we have been pretty vocal through all of our comments to the FERC front, in terms of we fundamentally don't believe competitive bidding to the Q1. It's a success story.

Speaker 10

It's the opposite. It takes more time. There's no evidence to suggest that it's cheaper. The Q1 of 2019. And I will give you an example right now even in the LR2P tranche 1, we are off and running in terms of citing, engineering, preparing our regulatory applications.

Speaker 10

Meanwhile, the couple of projects that are subject to competitive bidding probably won't even have a decision on who builds those for at least another year. And so how this is compatible with the overall sort of national federal goals for carbon reduction and the need for investment in transmission is really a serious question that I think all the parties need to Seriously consider, I just don't think this I think this is a failed experiment, quite frankly, and we will be continuing to defend vigorously, As well as be proactive on this front.

Speaker 13

That's really good color, Linda. And maybe just sticking with ITC and the remaining 20% minority interest. Can you clarify, if hypothetically, if GSE were to sell that portion through to whether it's a fun life ending or some other reason, does Fortis have a ROFR on that? And also just any thoughts on ITC just more strategically?

Speaker 3

To I'm checking around the room and yes, apparently we do have those rights if GIC was to sell for us to I don't know if it's a rights of first offer or rights of first refusal, but I totally wouldn't expect GIC to be interested in selling that part of ITC. I can't speak for them of course, but to They do like that investment.

Speaker 13

Perfect. And maybe to close off on asset sales, Aiken in particular. I'm not sure, did you in your prepared remarks, did you comment on how the value compared to your hold value or your current trading multiple and

Speaker 3

to No, we didn't, but Jocelyn can opine on it.

Speaker 2

Yes, Ben. So we paid around US2.66 dollars I believe and US3.50 dollars So It's a little bit of a higher value than what we have paid a couple of years ago. With respect to multiples, I would say as you can Recall, we talk about Aiken quite frequently on the calls because the earnings somewhat are more variable given pricing and volumes. But over the last 5 years, the average for Aiken has been about $0.04 a year. So if you do the math on $400,000,000 you're going to get the mid-twenty multiple for this transaction.

Speaker 2

So as David talked about earlier, to Yes, it was a good time to do this transaction for us.

Speaker 13

Okay, that's great. Thank you.

Operator

Thank you. Next question comes from the line of David Quezada with Raymond James. The call. Please proceed with your question.

Speaker 4

Thanks. Good morning, everyone. Maybe just starting with the billing system at Central Hudson, any news or updates you can share there, like how far away you are from correcting those issues and Any expectations around higher O and M costs related to that?

Speaker 3

Yes. So the system is sending out bills to Correctly now. And as far as additional costs, we are spending some additional the next question. I'll take the money to hire customer service folks, additional billing people, etcetera, to make sure that we're to fully recovered and on a going forward basis, we see those bills going out correctly. So it's still a little bit of mop up here and there to From the blip that we had when we put it in service, but those are getting towards the very tail end here.

Speaker 3

To the call. And then we're just going through the process of making sure that we're getting out there with our customers, our regulators, our to government officials and telling that story and getting everything back on track.

Speaker 4

To Excellent. Thanks for that. And maybe just one more for me. I understand there have been some news reports suggesting pretty big renewable energy plans in the to the U. S.

Speaker 4

Including into Arizona. Just curious if that's something that could ultimately Maybe factored into the IRP for UNS or if that affects your business there in any way.

Speaker 3

So given that neither Susan nor I are familiar with that, I would probably say no. But when we look at our integrated resource plan to the TEP and our smaller UNS Electric Company are both doing here later this year. We do look across a broad swath of different projects. It would to the whether or not projects like that, if they showed up, they would likely show up in one of our all source RFP. There is very to the next question.

Speaker 3

I And believe me that the transmission to build transmission from Mexico to the U. S, particularly to connect into our system, We tried that about 25 years ago and gave up after about 15 years, I think, of trying to get that built. To But that could actually be an opportunity for us to extend transmission. It could be an opportunity for us to look for cheaper renewables. But there's plenty of sunshine in Arizona and our neck of the woods that connects to our existing transmission system or would to I need much less infrastructure to attach to our grid.

Speaker 4

Thanks for those comments, Dave. Appreciate it.

Speaker 6

To You bet.

Operator

Thank you. Next question comes from the line of Andrew Kuske with Credit Suisse. Please proceed with your question.

Speaker 7

Thanks. Good morning. Maybe continuing with the transmission theme. Obviously, a lot of skin in the game given ITC and just the other assets to Scott. There's transmission has always been difficult to build, but there's obviously increased emphasis given the energy transition and there's a lot of talk on the transmission queues and the interconnection problems.

Speaker 7

So I guess, how do you think is the best way to resolve it? I know that's like a big question, to What steps can you take or should the industry take overall just to sort of tackle the problems that exist ahead?

Speaker 3

To Yes, there's multiple fronts that you have to address this on. And FERC is addressing several of them. 1 to Primarily that you mentioned is the interconnection queue and that Noper as of last week we hear it's it should be pretty soon to where they get to a final ruling on how to in essence untangle the interconnection queue. And I think that They're definitely doing it in the right manner, which is 1st ready, 1st served. And if they if that goes through and we can get to that queue cleaned up and start getting more of those interconnections done.

Speaker 3

Obviously, that's a big uptick for ITC in our business there. I should note that there that Noper doesn't address cost allocation on those interconnections, but that would be the the first thing that we would look at. There's a lot of conversations at FERC. There's a lot of conversations in the federal government and the U. S.

Speaker 3

That's really focused on trying to the next question. To reduce the amount of time, red tape, etcetera, associated with permitting and citing, we're very hopeful that something gets done there. To the call. It feels to me like that's a very bipartisan topic. Everybody sees the need for transmission to the Q1 of 2019.

Speaker 3

For the clean energy transition, it's obviously going to be needed for building the additional capacity that we'd like to build, not just to support the Inflation Reduction Act and the amount of renewables, but also the manufacturing that is trying to be brought back into the United States to the call. That can actually help provide some of those batteries and renewables, etcetera. So I think it's on everybody's to do list, Which is a good spot to be. But we definitely need to be pushing through all of the industry groups that we, to And in particular, ITC works with, to try to find a better way to do this. The federal government and that one of the main things that they're focused on to is trying to figure out how to create a little bit of an easier path through all the different agencies that have to approve Citing.

Speaker 3

And then of course FERC has a role there too with their backstop authority and whether or not or how they choose to use that or redefine it.

Speaker 7

Okay. I appreciate that color. And then I guess just let's just assume we land this in a positive spot and some of the industries do get untangled to use your language. How much upside do you think exists to the growth that you've already got?

Speaker 3

That's Stay tuned for September. We still have to there's no number I can put there obviously. It's really about the ability to execute and to get it done faster. At this point, it would probably be more of a conversation around timing to Versus Dollars.

Speaker 7

Okay. So more bringing forward things versus a much larger number?

Speaker 3

To Yes, I'd like to and specifically tranche 2, which we expect to be looked at over the next year or so to the Q and A. Not the timing on when the projects get awarded, but the timing on when the projects can actually get built, if we can figure out how to tighten up some of these permitting and siting requirements.

Speaker 7

Okay. Appreciate the time. Thank you.

Speaker 3

Thank you, Andrew.

Operator

Thank you. To the next question comes from the line of Matthew Weekes with IA Capital. Please proceed with your question.

Speaker 14

Good morning. Thanks for taking my questions. Just wanted to get your sort of high level thoughts directionally to the Canadian federal budget, just wondering if anything specifically kind of stands out to you there, how you're sort of looking at different opportunities right now and just general comments on that. Thanks.

Speaker 3

Yes. Thanks, Matthew. It's kind of like it's a bit of a mini inflation reduction act. A lot of the same pieces are in that. To There's 2 in particular.

Speaker 3

One is related to tax credits for new clean energy projects. The other is tax credits related to Manufacturing. And those two things are very good from an economic to the economy and clean energy transmission standpoint, they don't necessarily have a direct impact for us and our businesses, which are mostly to Energy delivery in Canada. However, the indirect impact is this is all going to mean that we need additional the transmission and distribution, which is our business to deliver those clean energy and to supply new manufacturing opportunities across Canada. So it's more of an indirect view from a Canadian perspective on that.

Speaker 3

And plus there's still a lot TBD, Particularly around hydrogen and what that credit might look like, that might be the one opportunity where we have more of a direct benefit say in Fortis, BC for us to look at to different hydrogen development opportunities within the regulated construct there.

Speaker 13

Okay, that makes sense.

Speaker 14

Thank you. And just one more from me, maybe, and I think I know the answer to this. Obviously, plenty of opportunities to grow in your regulated portfolio that you've highlighted Organically, just wondering if there's any kind of place for M and A, opportunistically, whether it's anything larger or small scale or just any to Sort of room for that in the growth time. Thanks.

Speaker 3

Yes. As you mentioned, we got a pretty healthy capital a budget that we're really focused on and we're going to spend most of our energy focused on finding out how to take that to the next level and then execute at that next level. So That's where our main focus is here. Obviously, as fiduciaries, we keep our eyes and ears open, but that's not a priority for us.

Operator

The question comes from the line of Michael Sullivan with Wolfe Research. Please ask your question.

Speaker 15

Hey, good morning.

Speaker 7

To Good morning, Michael.

Speaker 15

Hey, Dave. This got asked earlier, but I just wanted to be really direct on it. Can you just explain why you think you were unable to reach a settlement in Arizona and what kind of changed from the one you were kind of indicating that that may be the case on the last call.

Speaker 3

Yes, it's just getting a bunch of people in a room to agree. To the call. And frankly, you've got a short timeframe to do that. And It just didn't happen. I mean, it's one of those things that you try to get done, but you can't control the different counterparties.

Speaker 3

And I'll say I was extremely pleased with Susan and the team at TEP and their ability to get it down to just those to the call. Couple issues to be really discussed in earnest in the hearings. When you're sitting here at 95 at 975 from a ROE perspective on staffs versus ours, and the rest to the pieces that have come in and the conversations have all been constructive. It didn't at the end of the day, it didn't really bother us that we had to go through a Couple of weeks I hear, it didn't bother me because I didn't have to testify. But it's always better if you can get a settlement just from an expeditious Sandpoint, but this was the next best thing because in the end there wasn't a lot of topics here that we were that were thorny.

Speaker 15

Okay. Appreciate the color there. And also just related to sticking with Arizona, specifically the renewables rider request and then discussion around the system improvement benefit mechanism. Maybe just where does that stand? Where do you see that going?

Speaker 15

And can that be resolved within the rate case or outside and it becomes longer dated? Just

Speaker 3

to I'll turn that over to Susan for color on that new tracker that we're talking about.

Speaker 9

Sure. So the tracker is the system reliability benefit and that was a change from what we had originally proposed, It was actually suggested by the staff that we look at something that was more similar to an existing adjuster that's used to the Q4 Water Companies. And so we did submit a plan of administration through the testimony process. To plan of administration should look like. So at this point, we're waiting for the judge to put it in her recommended opinion and order And then for the commissioners to say, yes, we do want you to work on that plan of administration.

Speaker 9

So we wouldn't actually have one in place until after to The rate case is actually decided.

Speaker 15

Okay, very clear. Thank you very much.

Speaker 3

Thanks,

Operator

Michael. Stone Phone. Next question we have at Argus Losni with Bank of America. Please proceed with your question.

Speaker 12

Hey, good morning. Thank you for taking my question. Just to maybe follow-up on the Q1 EPS drivers that you guys reported. You call out that at both UNS and ITC an increase in the market value of some Looks like its assets in some of your retirement plans as an upside driver for both Q and S and ITC. Any way to maybe just quantify that like what proportion of the $0.12 upside that you guys realized in Q1 was related to That mark to market impact?

Speaker 2

Yes, Darius, it is in UNS and ITC. It's about a penny each in each of those utilities. To

Speaker 12

Okay. Thank you. And just coming back to the discussion on wholesale to sales in both Q1 but also prospectively. It sounded I think from Jocelyn's comments earlier that it might be a negative driver in Q2. I think you mentioned that last year, the majority of those sales were in Q2.

Speaker 12

So can you maybe just comment on that as far as the shaping of that for the balance of the year? Would you expect that to maybe be a modest negative in Q2?

Speaker 3

Yes, that's probably too much in the weeds because the timing to quarter to quarter and year over year is different. So I think we did it in a couple of different quarters, last year and so we might the 2 quarters this year. I don't know if I could pick out of a hat, but overall, we expect it to kind of obviously moderate year over year. So We can't really put that kind of quarter over quarter clarity there.

Speaker 12

Okay, fair enough. Thank you very much. I'll pass it along here.

Speaker 7

Okay, thank you.

Operator

Thank you. All right. As there are no further questions, I would now like to turn the call back to Ms. Amaylo.

Speaker 1

Thank you, Brian. We have nothing further at this Thank you for participating in our Q1 2023 results conference call. Please contact Investor Relations should you need anything further. Thank you for your time and have a great day.

Powered by Quartr
Earnings Conference Call
Fortis Q1 2023
00:00 / 00:00