Canadian Utilities Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 11 speakers on the call.

Operator

Welcome to the Third Quarter 2023 Results Conference Call for Canadian Utilities Limited. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity Ask questions. I would now like to turn the conference Over to Mr. Lawrence Gramson, Director, Corporate Finance.

Operator

Please go ahead, Mr. Gramson.

Speaker 1

Thank you. Good morning, everyone. We're pleased you could join us for Canadian Utilities' 3rd quarter 2023 conference call. With me today is Canadian Utilities' Executive Vice President and Chief Financial Officer, Brian Skrillbod as well as ATCO Enpower's Chief Operating Officer, Bob Miles and ATCO Energy Systems' Chief Operating Officer, Wayne Stenzby. Before we move into our formal agenda, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located.

Speaker 1

Today, we are speaking to you from EchoPark Head Office in Calgary, which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Confederacy Comprised of the Siksika, Kainai and Piikani Nations, the Chutina Nation and the Stoney Nakota Nations that include the Chiniki, Bearspaw and Good Stoney First Nations. The City of Calgary is also home to the Metis Nation of Alberta Region 3. We honor and respect the diverse history, languages, ceremonies and Brian will begin today with some opening comments on our financial results and recent company developments, including regulatory decisions. Following these prepared remarks, Brian, Bob and Wayne will take questions from the investment community.

Speaker 1

Please note that a replay of the conference call, A short supplementary presentation and a transcript will be available on our website at canadianutilities.com and can be found in the Investors section under the heading Events and Presentations. I'd like to remind you all that our remarks today will include forward looking statements, which are subject to important risks and uncertainties. For more information on these risks and uncertainties, And finally, I'd also like to point out that during this presentation, We may refer to certain non GAAP and other financial measures, such as total segment measures, adjusted earnings, adjusted earnings per share and capital investment. These measures do not have a standardized meaning under IFRS and as a result, they may not be comparable to similar measures presented in other entities. And now, I'll turn the call over to Brian for his opening remarks.

Speaker 2

Thanks, Lawrence, and good morning, everyone. Thank you all very much for joining us today for our Q3 2023 conference call. Canadian Utilities Achieved adjusted earnings of $87,000,000 or $0.32 per share in the Q3 of this year compared to $120,000,000 in the Q3 of last year. As you know, we concluded a successful 2nd cycle performance based regulation in our Alberta distribution utilities in 2022. 2023 is a single cost of service rebasing year.

Speaker 2

And in 2024, we will start the 3rd cycle of performance based regulation with final rebased rates. Performance based regulation facilitates affordability, which is important to the long As the savings and efficiencies generated in the second PBR cycle Our return to customers through the rebasing process. As expected, the impact of our Alberta distribution utilities rebasing resulted in lower year over year earnings in the Q3. On its own, this rebasing contributed to a year over year decline in earnings of approximately $17,000,000 This is a significant impact to 2023 earnings. But for anyone who has listened to our conference calls Throughout last year and this year, this is not an expected trend.

Speaker 2

It is a direct result of the exceptional performance that we drove Throughout our second PBR cycle and the savings and efficiencies that are now being returned to customers. As our utility teams continue to work hard to find new efficiencies and drive down costs, we expect to see the earnings pressure Associated with this rebasing began to soften in the Q4 of this year. Looking ahead to 2024 and beyond within our Alberta Utility businesses. I want to briefly touch on 2 key regulatory decisions that received earlier this month. First, the Alberta Utilities Commission or AUC released the parameters for Alberta's 3rd performance based regulation cycle or PBR3 for Sure.

Speaker 2

Which will be the framework in which our Alberta distribution utilities operate for the period between 20242028. Included in our MD and A for this quarter is a detailed breakdown of the differences and similarities between PBR3 and our At a high level, while PBR3 does include a tiered earnings sharing mechanism, We continue to believe that this framework would create opportunities for us to deliver strong outperformance and growth throughout the term. And importantly, this framework allows us to make investments needed to drive both efficiencies and long term stability for our energy distribution systems in the province. Also in October, the AUC delivered its decision on the generic cost of capital or GCOC for short and the parameters for 2024 and beyond. As was signaled throughout the year, the commission has adopted the use of a formula for setting ROE And this decision also reaffirmed equity thickness set at 37% for the Alberta utilities.

Speaker 2

Established form left for ROE utilizes a base rate of 9% and takes into account 2 variables to adjust this base rate. First, the changes in 30 year Government of Canada bond yields and changes in utility spreads. The commission will update the ROE annually and issue the following year's ROE in November of the current year. Now while the final 2024 ROE will still not be known until November of this year, current market data Suggest an ROE in the range of 9% to 9.2%, up from the current rate of 8.5%. Now as we begin to operate under these new frameworks in 2024, we will continue to apply the ownership principles that we have historically Used to drive efficiencies and operational excellence across our businesses, and we expect this to drive continued outperformance and growth for our business.

Speaker 2

Importantly, the receipt of both these critical regulatory decisions well in advance of their respective operating years further reinforces the Moving on to our natural gas distribution business in Australia. We continue to see strong growth in key operating metrics such as new connections, Tariff rates and system volumes. The narrative for this business, however, remains focused on Australia's in country inflation profile, which continues to attribute to a year over year earnings pressure. As we alluded to in our Q2 2023 conference call, It is important to remember that inflation in 2022 built rapidly in the second half of last year, with Full year inflation reaching almost 8% by the year end 2022. As a result of this building profile in the prior year, Our Q3 2022 earnings were exceptionally strong, creating a comparable that is difficult to compete with in 2023 as inflation levels This trend resulted in us reporting year over year decline of $8,000,000 for this business in the quarter.

Speaker 2

Similar to the messaging we delivered throughout this year, we continue to expect Q4 and full year earnings for this business to be lower than 2022 as the CPI trend continues to moderate in Australia. For added context, in country estimates continue to suggest full year inflation in Australia between 4% to 5%, which is consistent with the in market estimates from last quarter. Now before I move on to our ATCO and Power businesses, I want to briefly touch on the capital investments we made in the Q3. The Q3 saw us invest $331,000,000 in our business With $307,000,000 of the spending being within our existing utilities, this ongoing utility investment ensures a continued generation of stable earnings and reliable cash flows while also driving sustainable rate base growth. The remaining capital was primarily related to our ongoing renewable generation initiatives at ATCO and Power.

Speaker 2

Moving on to ATCO and Power Business, we delivered adjusted earnings of $9,000,000 compared to $12,000,000 for the same period last year. While our newly required and recently completed renewable assets contributed to earnings lower demand in our natural gas storage business, Timing of costs and seasonally low wind output pressured earnings. As we continue to drive The numerous development processes already underway to completion and these assets begin to contribute additional earnings, we're confident That the earnings power of these assets will become more pronounced. Now moving to the development side of the discussion, it's been a busy quarter And one highlighted by the creation and formalization of a number of key strategic partnerships that are paramount for us advancing growth strategy. In September, we announced our partnership with the Chiniki and Good Stoney First Nations, which saw them become joint owners of the Deerfoot and Barlow Solar Facilities.

Speaker 2

Nurturing indigenous partnerships that promote social and economic development has long been a hallmark of our method of operating, The largest solar installations in an urban setting in Western Canada, and I'm proud to say that our Barlow facility achieved full commercial operations in the Q2 of this year. And we expect our Deerfoot project to achieve the same in the Q4 of this year. This month, we also announced a virtual power purchase agreement with Lafarge Canada, which will see them receive 100% of the energy produced at our Empress Solar Facility. Again, we are proud to be at the forefront of the energy transition and providing solution to help customers like Lafarge reduce their own carbon emissions and it remains a key priority for us in our growth strategy. Agreements like this also aligned with our target of having 75% of the renewable generation portfolio contracted under long term agreements with high quality counterparties.

Speaker 2

This portfolio view to attractiveness helps ensure a stable and secure cash flow stream for the long term, While ensuring that we obtain the needed flexibility to maximize value within the portfolio and to capture near term economic benefits as they arise. For our Empress project, we expect to see achieve full commercial operations in the Q4 of this year. Looking ahead to our development pipeline, I think it's also valuable to briefly touch on the AUC's decision to pause approvals So the new renewable electrician generation projects until February of next year. 1st and foremost, this announcement does not impact our projects under construction, which are the upgrading of the 40 Mile Wind asset or the near term development of our 40 Mile Solar Project. For our renewables development pipeline more broadly, We continue to progress our near term projects and our development timelines did not contemplate a need to file any new AUC applications in advance We also continue to be focused on developing the 40 Mile Solar Project and we do not expect the project delays related to this government pause.

Speaker 2

I would say that throughout this process, we've been working collaboratively with AUC to ensure that the importance of developing these assets Finally, we remain committed Hydrogen project within Alberta's industrial heartland and continue to move development of that project forward. Since last quarter, we've actively reengaged discussions with both financial and strategic partners, along with the off takers that are We continue to believe that demand of this area exceeds the facility capacity. These negotiations are in advanced stages and we expect to be able to provide further clarity on timing and next steps in the coming months. Now on the topic of hydrogen, earlier this week, it was also announced that our ATCO Australia business was named a preferred partner in the delivery of the South Australian Government's Hydrogen Jobs Plan. Under this plan, we will work as part of a consortium with our partner to deliver a strategy and development program for a 250 Megawatt Hydrogen Production Facility along With the 200 Megawatt hydrogen fueled electricity generation facility and related hydrogen storage.

Speaker 2

While this project is in its early days, Projects like this further cement our global hydrogen strategy and our position as leaders in the global transition to cleaner energy. So summing up overall, our Q3 results were in line with our expectations for a rebasing year. The earnings pressures that we expected related to rebasing And Australia inflation were evident in the quarter, but we expected this rebasing pressure to begin to ease in the 4th quarter. Now looking again ahead to 2024, our Alberta utilities now have prospectively following the regulatory decisions on PBR3 and the GCOC that was received earlier this month. As I said in the past, no matter what the regulatory environment we operate in, we remain I look forward to sharing our full 2023 performance and providing further updates on the progress of our numerous growth initiatives questions from the analyst community, I just want to give everyone a chance to hear from both Bob Miles on our AQUO and Power business and Wayne Stenzby on our AQUO Energy Systems business.

Speaker 2

Bob, the Aquent Power business has made numerous strides in 2023 towards the achievement of its renewable generation and clean fuels growth objectives. In light of this progress, could you comment on the growth you're seeing in the business and where you expect things to go from in the near term?

Speaker 3

Thanks, Brian. It's hard to talk about where we're going without looking at what we've done in 2023. I'm I'm proud to say that we have fully integrated the acquisition that we acquired earlier this year for The Suncor Renewables acquisition, we have fully integrated our 2 wind assets that are operating. So that's a great accomplishment. And we've also completed pretty well completed all of the construction on our 3 solar projects here in Alberta, As you indicated a little earlier, so I think that was a great accomplishment as well.

Speaker 3

The next project that we're pursuing right now is our 40 Mile Solar Project. You touched on that. And that's a 220 Megawatt solar project also in Alberta. And so that's fairly far along. We hope to make FID on Later this year or early into 2024.

Speaker 3

On the clean fuel side, you did indicate that we're Progressing quite nicely on our hydrogen project, both domestically and with regards to export. So definitely a busy time right now. So Lots on the go. Thanks, Bob.

Speaker 2

A lot of great opportunities on the horizon, as we said, and exciting to see these initiatives convert to strong earnings contributions. Wayne, in a similar vein, the 3rd quarter saw your Acoenergy Systems business receive 2 key regulatory decisions, The generic cost of capital and the formalization of the framework for the 3rd year PBR cycle. Now that you're back in Canada And refocused on our Canadian based businesses for the utilities. Can you comment on how you're thinking of Acoenergy Systems This business is moving forward and what can we expect in the coming years?

Speaker 4

Thanks, Brian. And let me start by just saying I'm very excited to be back and leading the utilities portfolio. Luma is in a good place We're in a good position with Juan Saka stepping into the CEO role and I'm very confident that the more than 3,500 hardworking women and men Who are in Puerto Rico in Luma will continue to build on the substantial early progress that we were all able to make. So as you say, it may be a little closer to home here in Alberta. And as you mentioned, a number of regulatory decisions have now been received.

Speaker 4

And I look forward to working with our teams to build on what really is phenomenal progress that the utilities have made Through the first two PBR cycles or periods in the distribution businesses and also the strong progress in the transmission businesses, These past periods have yielded great efficiencies for our customers and I see them as providing a very strong foundation as We now move to invest and perhaps get a little more oriented on growth to serve our customers' Growing and evolving needs in the province.

Speaker 2

Thanks, Gwen. That's great insight. Thank you. We'll now turn the call back to Lawrence bring us to the formal Q and A component of the call.

Speaker 1

Thank you, Brian. In the interest of time, we ask you to limit yourself to 2 questions. If you have additional questions, you're welcome to rejoin the queue. I'll now turn it over to the conference coordinator for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Linda Ezergailis with TD Securities. Please go ahead.

Speaker 5

Thank you. Very interested to hear your updated thoughts on what sort of optimization and Cost efficiencies you're working on so that your utilities, your distribution utilities can meet or beat Any sort of productivity factors that they're working towards? And I guess the second part of that question is We are still seeing some inflationary pressures in various cost buckets. And I'm just wondering, In your view, how well the inflation indices reflect your true underlying Inflation or Mike, there'll be some mismatches for better or worse on that front.

Speaker 2

Thanks, Linda. Appreciate your question. Yes, in terms of outperformance, as I've indicated on previous calls, and We have a long track record of finding new and creative ways to drive down our costs for our customers. And We continue to see that throughout this year, although we've had the expected rebasing. I would say that the teams I've done a great job in the 1st part of 2023 to define some additional savings throughout our business And that's throughout, whether it's through some tax efficiencies, whether it's through our operations, of The wildfire also diverted some of our from our teams on to that response effort.

Speaker 2

So Overall, I guess, I would kind of give guidance that we are confident that we can drive that continued efficiencies. As we mentioned, maybe it's in the 1 to 200 Basis points range for this year. Obviously, we'll have another resetting in PBR3 when we get into 2024. But for this year, the teams are doing extremely well. In terms of inflationary pressures, like I would say in the past, We've done really well to kind of work with our vendors and suppliers to maintain our expected cost increases in line with The general inflation has been sometimes improved.

Speaker 2

We've had a little bit of delay over a period of time on some of our materials, Especially some of our long leads, we've just changed our practices going forward to make sure that we get well ahead of ordering long Term expected supplies for some of our projects and we did that on our solar facilities getting ahead and ordering all the panels. So Bob, as you mentioned, can So overall, I think we're not expecting any inflationary pressures that are outside of what we're seeing, I guess generally in the market.

Speaker 5

Thank you. And maybe just moving to Australia, Just trying to understand kind of what the financial benefit might be on this hydrogen project beyond just Leveraging the learnings for future projects, is there some sort of Revenue model here or is it driving business through your existing assets? Can you comment on kind of what the end game is and the magnitude of any sort of Economic participation given that my understanding is the Australian government will own the facilities.

Speaker 2

Yes, maybe I'll start and then I'll ask Bob to help chip in here. And so first of all, I would just kind of comment that it's very early days. And yes, we're very excited to work with the South Australian government on this project. And it really See is kind of the benefit of kind of our outward approach to the hydrogen strategy globally and how we're recognized in the jurisdictions that we operate in. And again, it's too early to talk about the funding model and how big this project will be.

Speaker 2

I think that's part of this project, it's part of what we've been engaged to do is to provide that preliminary review. But I do think it's great for And kind of builds on some of the work that we've been doing across our various business units. And maybe Bob, I'll turn it over to you to Maybe provide some further color.

Speaker 3

Yes. Maybe Tony, other things by the way, hi, Linda. The only thing I'd add to what Brian said Is this project, I would say it could be one of 3 things. It could be engineering procurement construction, It could be engineering, procurement, construction and operation and there's the potential of equity ownership as well. So as Brian indicated, it is early days, but all of three of those scenarios have all been discussed with the South Australia government as well.

Speaker 5

Thank you. I appreciate the context.

Operator

The next question comes from Rob Hope with Scotiabank. Please go ahead.

Speaker 6

Good morning, everyone. Wanted to circle back on the in power business. It's been a little choppy out there in terms of valuations, the pause. And on the Q2 call, you had talked about the potential for looking at other Financing opportunities for this business, whether it be a number of outcomes there. So just wonder if you could give us an update on how you're thinking about Financing the Renewable Power Business.

Speaker 2

Yes. Maybe I'll start off and On the financing side, yes, like as we talked about in the Q2, we're looking at the long term, How we're going to fund the business and we must consider how we best optimize the value for CWL's shareholders and each step of the way. Well, in the immediate term, our funding needs are tied to the continued development of our renewables pipelines in the pre FID hydrogen work. So to support this need, we're continuing to consider partnerships options, particularly in the short term. Longer term, though, we'll We'll continue to evaluate these opportunities through the lens of shareholder value creation and the long term growth and stability of this business.

Speaker 2

Any further comments, Bob, you want to make?

Speaker 3

Rob, the other thing is on the larger projects in Enpower, Specifically the large hydrogen projects, it's not just a matter of the financing. We're also looking at who we partner with Strategically, with regards to strong operating partners, strong offtake partners, and with that, they also bring the financing site as well. So that's all very much part of the strategy as we build out PATCO Enpower.

Speaker 6

I appreciate that. And then maybe more broadly, with the strong balance sheet, you were able to access capital A little over a month ago at attractive rates, as well as kind of the choppiness we're seeing in the market. Have you thought or kind of what are your views on Acquiring assets a little counter cyclically in this environment and using your balance sheet to maybe buy some sort

Speaker 2

of values. Yes. Thanks, Rob. And yes, I would say that we're constantly evaluating opportunities, Whether it's through MRA or other parts of business and that doesn't change. Yes, there's some volatility in the cycle right now And appreciate that where the capital markets are today.

Speaker 2

But yes, like I'd say that we're constantly evaluating all of our Aspects of our business and geographic locations opportunities. And if there is something out there that is attractive and accretive, we'll certainly look at it.

Speaker 7

Thank you.

Operator

The next question comes from Maurice Choi with RBC Capital Markets. Please go ahead. Good morning. Your line is open.

Speaker 8

Sorry about that. Either myself, good morning, everyone. Just wanted to follow-up on the ATCO MPOWER. Sorry if I missed this, but when are we expecting to provide when are we expecting to hear A meaningful update on this, if not a decision. And also I know that you've been doing some market feedback on the potential options on this.

Speaker 8

So any thoughts on what you've been hearing recognizing obviously as my colleague mentioned the market is choppy?

Speaker 2

Sorry, Maurice, just to clarify, update on some of our projects or update on How we look to fund this?

Speaker 8

Well, Empower's potential separation specifically. I don't recognize how you respond to the previous question, but Timing wise, when can we have clarity on it?

Speaker 2

Yes. Like in terms of timing, again, we're not rushing in We said that we would evaluate as we cut away through the previous question. As we look to build out and some of these bigger projects come online, We'd be evaluating all options. Where the capital markets are today, as Bob kind of alluded to, certainly partnerships is Kind of a key probably near term solution and focus. But over the long term, as a previous comment on the quarter, we're going to All opportunities in alternatives, including the public and private markets.

Speaker 8

And just to be clear, as Bob mentioned partnerships On the hydrogen project specifically, when it comes to the entire ATCO Npower entity, Are you suggesting that this was a partnership for the entity or more like on a project by project basis?

Speaker 2

It's more of a project by project basis, Maurice. And again, like we're going to evaluate all of those as those come up. And you've seen us just announce a partnership on some of our renewables. And so that's kind of evidence of what we're looking at.

Speaker 8

So is it fair to say that at CommPower, at least from a base case, will remain within CU And with the C Partnerships from this point onwards?

Speaker 2

Again, listen, We will evaluate all opportunities, but for now, yes, we were considering the partnerships and as we grow up the business, I'm not going to suggest at all. Any options are Not on the table, but certainly we see partnerships within CU as being a meaningful way to fund the near term projects of this nature.

Speaker 8

Great. That makes sense. Maybe I just want to finish off on the government's review of the electricity pricing market, Including reducing T and D costs. I know in the last call, you mentioned that you weren't expecting anything negative from this review. But obviously, cost of capital is higher, notwithstanding that your RE now looks to rise next year.

Speaker 8

So as you look at the cost structure for T and D For customer bills, where would you see costs coming down for the government to achieve this T and D cost reduction?

Speaker 2

Yes. Like I it's a great question. And I think as I alluded to in prior calls, What we can directly do in our business is what we try to focus on. And certainly, as we've We've worked really hard to drive down our costs for our customers, and we've seen a rate reduction both in our transmission business And our distribution business with PBR rebasing. So that is the meaningful thing that we can do as a utility company.

Speaker 2

That said, we continue to work with the ISO and in terms of project designs and market studies to help how we best Source and do the right pricing those to get the most efficient way of connecting new generation, but also how do we Sure that our distribution and transmission grids can provide continue to provide the safety and reliability of the energy delivery. I don't know Wayne, anything else You'd want to offer?

Speaker 4

Maybe what I would kind of just add, Brian, is We completely recognize the challenges of affordability here in Alberta and across Canada, right? And So we're well aware of that. We empathize with our customers as they have seen cost increases. The cost on the bill is, of course, the sum of the transmission and distribution or the delivery costs and the generation costs. And As you would recognize, there's been some volatility in all of that in the last few months and even years.

Speaker 4

As Brian indicated, as we move forward, I think our emphasis is going to be on how do we continue to invest in those networks And bring reliability improvements and the climate adaptation and resiliency improvements that our customers are really demanding. So I see it as far more than just a cost conversation. And I think that's very important in our role As we have these distribution and transmission utilities here in Alberta and our role as a broader energy provider.

Speaker 8

Great. Thanks for the color.

Operator

The next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.

Speaker 9

Yes, thanks. Good morning, everyone. So just coming to the decisions, the How would you think that all shakes out? Obviously, the base ROE is going higher, but you didn't move into an earning sharing mechanism on about 200 basis points. Do you think the all in earned ROE Changes at all under the new construct relative to what you're operating under previously?

Speaker 2

Yes. Thanks, Mark. Yes, great question. And overall, I think we're in terms of generic cost of capital decision, As a kind of expected commission move to a formula with the goal of reducing regulatory lag. That said, We're thankful that the base ROE has gone up.

Speaker 2

That said, it's probably below what We'd like it to be, but it's still going in the right direction. In terms of the earnings sharing mechanism, at least The first 200 basis points is on the count of shareholders and above that there starts to become in a sharing, Which I think is a balance of the commission struck at the end of the day providing a supportive framework. I'm sorry, I'm kind of mixing that with the PBR, but because I do think they're both tied in terms of the ability Share and having a proper ROE. So I do think that it's kind of in line with what we would have expected. And I think as a supportive framework, I think on the PBR side, in terms of having the formula way approved it is, Having some capital tracker mechanisms allow us to pursue decarb Opportunities is supportive and they even put in some creative mechanism on the pilot project to say if we could We have a capital versus an O and M decision to make to extent that we could prove that it's benefited of customers to have an O and M solution That we're allowed to earn on that program.

Speaker 2

So I think the commission has taken a positive step forward And yes, I think we're now that we have the rules unknown and again, go back to our previous Tried and true ability to find ways to generate value for our shareholders throughout any PBR or generic cost

Speaker 9

And just a follow-up on the comments made earlier about the annual updates. You've gotten the clarity that Under either distribution utilities operate under PBR that there'll be an annual ROE update? Because I know in some jurisdictions they said at The beginning of the 5 year window and then you kind of operate under that base ROE. And I guess if you do have annual updates, does that make it harder to manage Through PBR in terms of how you think about timing and working through cost savings through the 5 year period?

Speaker 2

No, like in terms of the annual update for the generic cost of capital rate flowing through, is that you're referring to Mark?

Speaker 9

Yes, yes.

Speaker 2

Yes, no. Yes. And no, that's not it doesn't change thing in terms of our formal normal compensation for inflation and That is a typical thing through a PBR framework, but the update to ROEs, instead of being flat, yes, they will change Maybe up or maybe down depending on kind of online parameters, those 2. But I don't think it's going to materially change throughout the 5 year period And it will be set November each year. And like I said on my opening remarks, we expect that to be north of 9% for the For 2024.

Speaker 9

Okay. And then just one last question for me is just as you look into the medium term, particularly your Alberta utilities, are you seeing anything Change in terms of the outlook, demand, regional needs, technology changes, any sort of factoring into what you think the rate base outlook looks like for any of the utilities in Alberta, maybe on a 3 to 5 year outlook?

Speaker 2

Yes, maybe I'll let Wayne kind of answer this one. I think he kind of hit it off In terms of what our outlook looks like and certainly all of those factors are something that are currently on our radar. Maybe Wayne, do you want to get your views on that?

Speaker 4

Yes. And I think you hit the kind of key elements in a way, but I'm almost building on the affordability conversation from a couple of questions ago, but we are seeing Strong demand growth from our customers across the province. In Alberta, the Alberta economy is doing well And in an inflationary situation, right? So we are seeing customer growth. We are seeing, I would say ever increasing needs from our customers or wants from our customers from their utilities.

Speaker 4

And so we are building strong plans as we move forward to invest and support Those growing customer needs and growing numbers of customers. So we see the next 3 to 5 years It was very positive for our Fort Elber Utilities.

Speaker 9

And was that expected to manifest itself into higher rate base growth when you look at maybe in a 5 year horizon?

Speaker 7

Yes.

Speaker 9

Okay. I'll leave it there. Thanks.

Operator

The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

Speaker 10

Thank you. Good morning. You guys touched on the on Luma in your prepared remarks, but any update or guidance on When we might see a transition from the supplemental to the O and M agreement?

Speaker 2

I'll pass that one to Wayne.

Speaker 4

Good morning, Patrick. Yes, It is the question we've been facing, I suppose, for 2 or 3 years at this point in time. But maybe I can offer you a little more kind of color there. It's in the public Markets that the court dates or the confirmation hearing dates have been set for the 1st 2 weeks of March Of next year. It's possible those are delayed, but I think it's highly unlikely at this point in time.

Speaker 4

That's a U. S. Federal bankruptcy court, and so the judge will hold those confirmation hearings. If you follow then kind of Conventional thinking from March, I think that plan will take there will have to be The hearing or the trial, I guess, then the evidence, then the eventual ruling, that will probably take you all the way till the middle of next And then there's the implementation of the plan. So and on broad strokes, we would imagine that PREPA emerges from bankruptcy perhaps Towards the end of 2024.

Speaker 4

That said, as you know, Luma extended the supplemental period with no deadline roughly a year ago. And so if it takes longer, it takes longer. I think our real focus Organizationally is to continue to build on what we were hired to do, which is fundamentally transform the electric in Puerto Rico and rebuild and improve that system. And so that's where I would tell you the vast Majority of the focus is as we follow through the bankruptcy. I guess I should have added, of course, as you know, Once we move out of the supplemental period, we move into the 15 year term of the contract.

Speaker 3

Right. Okay.

Speaker 10

That's perfect. Thank you for the update. And then maybe just shifting gears to the balance sheet. Brian, you issued some 30 year paper late in the quarter. Can you just provide maybe an update on your funding needs for the remainder of the year and maybe into 2024?

Speaker 10

Are there any other upcoming maturities or CapEx spend that you might be able to pre fund and maybe take some additional market risk off the table?

Speaker 2

Yes. Thanks, Patrick, for your question. Yes, you mentioned our issue that we did earlier in the year and very, very I was very happy with the outcome of that debt issue, got very favorable rates and well oversubscribed. And it's also the kind of the first issue since withdrawing from our ratings from S and P. And so in terms of the rest of the year, no, we don't Expect to have to access the market for the remainder of this year.

Speaker 2

And then to the next year, I'd see that We have some definitely some flexibility there. And based on the CU Inc. Side, we expect to be probably around the same range of this year for our needs, but with some flexibility.

Speaker 10

Got it. Thanks for that. I'll leave it there, guys.

Operator

The next question comes from Ben Pham with BMO. Please go ahead.

Speaker 7

Hi, good morning. I wanted to go back to the operator basing. I know you mentioned that it's tracking in line with your expectations to rebase and Where earnings are going for 2023. I wanted to reconcile that with some of your comments Early in the year, I think you mentioned Q3 was going to be a peak rebase and then you would see growth in Q4. Is that still the trend because it looks like Q3 ended up not being as bad as Q2?

Speaker 2

Yes. No, thanks, Ben, for the comments. And I'd say generality in terms of the seasonality of that's typically the case. And I would say there's all that said, there's always some timing of costs and initiatives that happened throughout the year. And I would say for the Q3 here, We did have some time, especially in our electric distribution business, timing of some costs, which probably improved us Versus we're kind of above the normal seasonality would be.

Speaker 2

So I guess, yes, overall, we would expect, but with that kind of That we do have on a typical year some timing of operating issues from 1 year to the next. And whether it's us working on well for Restoration that changes some of our timing of our O and M costs. Those are kind of examples which could from A typical year over year comparison can cause some noise.

Speaker 7

And that Q3 timing and some of that Maintenance work is that pushing to Q4 then that maybe you won't see growth year over year?

Speaker 2

Yes, I think, I'd say we're still back in line with what we expect for when we communicated Listen, we know we're coming off a 2022 outperformance and I think you've seen the regulatory filings and the significant outperformance We achieved we do expect to come back down to kind of that 100 to 200 basis point range by the end of the year. So I do see a little bit of that aversion to Q4, but again, I do think it's in line with the guidance that we've already provided into that 1 to 200 basis point range.

Speaker 7

Understood. And then I know usually with the second question is on CapEx. No news means there's no change in that utility CapEx budget. I wanted to check there's some reference to maybe rate base Growth fee moving better than expected. Is that more reference to your beyond your guidance timeframe?

Speaker 2

Yes. That's a great question, Ben. I think Wayne kind of alluded to in kind of his comments, like we do see Again, growth in our jurisdictions here and certainly be mindful of the affordability of our customers, We are seeing pressures from the growth and evolving demands from our customers. And also, We recognize there's a little bit of a pause on the renewables, but reality is we do need to connect and make sure that we continue to provide a network Which has safe and reliable energy in serving our needs. So I think this is evolving.

Speaker 2

We expect to give an update. Typically, we provide a further update at the end of the year. So in February, we'll provide kind of a more refined guidance In terms of what our expectations and outlook is for the next say 3 to 5 years.

Speaker 7

That's great. Thank you.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Mr. Lawrence Grandson for any closing remarks.

Speaker 1

Thank you, operator, and thank you all for participating today. We appreciate your interest in Canadian Utilities and we look forward to speaking with you again soon.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr
Earnings Conference Call
Canadian Utilities Q3 2023
00:00 / 00:00