Canadian Utilities Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 29, 2026

Key Takeaways

  • Positive Sentiment: Adjusted earnings rose 16% year over year to CAD 140 million in Q2 2026, driven by rate-base growth, inflation indexing and higher rates at ATCO Gas Australia. Operating cash flow increased by CAD 160 million year over year.
  • Positive Sentiment: The Central East Transfer-Out project was completed ahead of schedule, below expected spending and with zero lost-time injuries. The fully contracted Yellowhead Pipeline received final regulatory approval, with construction expected to begin in August and service targeted for Q4 2027.
  • Positive Sentiment: Management reaffirmed a CAD 12 billion five-year capital program supporting an expected 6.9% compound annual growth rate, while highlighting potential upside from additional transmission, pipeline, carbon-storage and data-center infrastructure opportunities.
  • Neutral Sentiment: Natural-gas storage expansions at the Carbon Storage Hub and Alberta Hub are expected to enter commercial operations in Q3 2026, increasing total portfolio capacity to approximately 130 petajoules. The company is also evaluating midstream investments as a potential area of non-regulated growth.
  • Negative Sentiment: ATCO EnPower continues to face headwinds in its renewable portfolio, although stronger gas-storage spreads and higher Veracruz Hydro generation supported modest year-over-year earnings growth. Management said it remains cautious about power generation conditions while assessing new investments.
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Earnings Conference Call
Canadian Utilities Q2 2026
00:00 / 00:00

There are 5 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the second quarter 2026 results conference call and webcast 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 to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing star then zero. I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Financial Operations. Please go ahead, Mr. Jackson.

Speaker 1

Thank you, Ashia, good morning, everyone. We are pleased you could join us for Canadian Utilities' second quarter 2026 conference call. On the line today, we have Bob Myles, Chief Executive Officer, and Katie Patrick, Chief Financial and Investment Officer. Before we move into today's remarks, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located. Today, I am speaking to you from our ATCO Park 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, the Kainai, the Piikani nations, the Tsuut'ina Nation, and the Stoney Nakoda Nations, which include the Chiniki, Bearspaw, and Goodstoney First Nations. I also want to recognize that the City of Calgary is home to the Métis Nation of Alberta Districts 5 and 6.

Speaker 1

During our second quarter, we proudly celebrated National Indigenous History Month in Canada, a time to honor the stories, achievements, and resiliency of Indigenous peoples. We continue to respect and celebrate the diverse history, languages, and culture of Indigenous peoples beyond the month of June. Today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please refer to our filings with Canadian securities regulators. During today's presentation, we may refer to certain non-GAAP and other financial measures, including adjusted earnings, adjusted earnings per share, and capital investment. These measures do not have any standardized meaning under IFRS, as a result, they may not be comparable to similar measures presented by other entities. Please refer to our filings with the Canadian securities regulators for more information.

Speaker 1

Now I'll turn the call over to Bob for his opening remarks.

Speaker 2

Thanks, Colin, and good morning, everyone. As we move through 2026, I want to again remind everyone of our focus to remain anchored on our three strategic priorities of growth and prosperity, operational excellence, and financial leadership, which Katie will address in more detail shortly. Consistent execution across these priorities positions us well to continue to deliver on our growth objectives. On our first pillar, growth and prosperity, I want to begin my remarks by congratulating our team on the successful completion of the Central East Transfer-Out project in June of this year. Thanks to our dedicated employees, I'm very pleased to share that CETO was completed ahead of project schedule, below expected project spend, and with zero lost time injuries. CETO is a critical energy infrastructure investment that reduces congestion and enhances the efficiency of electric transmission across Alberta's electric grid.

Speaker 2

I'd also like to take a moment to recognize our team for their hard work on our Yellowhead Pipeline project. All major contracts have been awarded. I'm pleased to share that the project received its facility application approval earlier this month, which was the final regulatory milestone we've been pursuing. This approval cleared the way for construction to begin, which we expect to occur in August, ahead of schedule. The Yellowhead Pipeline project serves as a key growth driver in our current five-year plan. More importantly, it remains a critical, needed piece of infrastructure for the province. The Yellowhead Pipeline is 100% contracted with customers, which underscores the clear demand for this project and the role this pipeline plays in Alberta. As a reminder, we expect the project to be in service in the fourth quarter of next year.

Speaker 2

Other positive regulatory decisions we received this month include the ATCO Pipelines' general rate application, which approved the Yellowhead Pipeline capital deferral account to manage uncertainties for the project, along with 100% of construction work in progress for CWIP being placed into rate base for 2026 and 2027. CWIP provides temporary credit relief during the construction period of Yellowhead by increasing our cash flows for this project. The application also approved the proposed depreciation placeholder and IT operating costs for both ATCO Pipelines and ATCO Electric Transmission, providing certainty on the recovery of these costs. On the electric transmission side, the revised negotiated settlement agreement regarding ATCO Electric's general tariff application was also approved by the Alberta Utilities Commission. I commend the strong collaboration between our teams, the interveners, and the regulator in reaching this agreement.

Speaker 2

Reaching these milestones through a negotiated settlement is a positive outcome and is reflective of our coordinated efforts to productively work with the regulatory body, particularly in a jurisdiction that we believe is supportive of infrastructure investments. The achievement of these regulatory milestones marks meaningful progress and represents an important step in advancing our strategic objectives. Within our regulated utilities, we see a strong runway for growth beyond our Yellowhead project. To support this, we continue to advance our CAD 12 billion capital program over the next five years. This capital program is comprised of highly certain projects. We believe there are opportunities for upside to this plan. The latter half of the five-year outlook does not reflect several major infrastructure opportunities across the province in which we expect to participate. As these projects are secured, they will represent incremental growth beyond the current plan.

Speaker 2

I want to emphasize that across all of our regulated investments, we remain very focused on balancing customer affordability while ensuring we maintain a resilient energy system that is stable, reliable, and can withstand the impact of severe weather events. The capital plan underpins a five-year compound annual growth rate of 6.9%, driven by our regulated utility businesses, including the Yellowhead Pipeline Project. It's also important to note that this outlook does not reflect growth from our non-regulated businesses, including opportunities such as natural gas storage expansion, which we expect will provide additional upsides for Canadian Utilities. As we look beyond our current capital and growth plan, the broader operating environment continues to improve and is creating a larger runway for investment across the Canadian utility sector. First, we're seeing renewed momentum in energy infrastructure development. Recent pipeline proposals signal growing confidence in long-term resource investments.

Speaker 2

These developments create additional opportunities for utilities to support expanding energy systems, and the scale is quite material as natural gas is a critical input for oil sands extraction, processing, and upgrading. Second, policy direction around emissions is becoming clearer. Commitments from the Pathways Alliance provides greater visibility on future carbon-related requirements, helping large industrial customers make investment decisions with more confidence in reducing uncertainty around major hydrocarbon project development. Our Atlas Carbon Storage Hub, in partnership with Shell, positions us to generate long-term growth from future carbon capture investments. Third, numerous federal government announcements have driven ambitious plans to expand grid capacity, enhance inter-provincial connections, and introduce financing and tax incentives that will improve the economics of large-scale infrastructure projects.

Speaker 2

This supports new transmission opportunities such as our McNeill, Alberta, Saskatchewan intertie, where the federal government has designated it as one of five high-priority inter-provincial power line projects designed to strengthen the national electricity grid. Finally, we have not included speculative upside related to data centers in our five-year forecast. Should Alberta continue to be successful in capturing significant data center activity, this could drive supporting infrastructure investments for our business and therefore for our growth outlook. Taken together, these developments reinforce a constructive backdrop for long-term growth given our expertise at Canadian Utilities, with opportunities spanning power generation, transmission, natural gas infrastructure, and other critical energy assets. Let's look at operational excellence, which focuses on safety, reliability, and operational outperformance.

Speaker 2

As seen on the top half of the slide, both ATCO Gas and ATCO Electric Distribution attained achieved return on equities that are better than peers by an average of 2% each year from 2013 to 2025. This reinforces our ability to drive efficiencies across the business by reducing operating costs and improving productivity. As shown on the bottom half of the slide, during this same period both ATCO Gas and ATCO Electric teams have driven substantial efficiencies across previous and current performance-based regulation, or PBR cycles, resulting in lower distribution charges and creating savings for our customers. We're proud to be recognized as one of the most efficient utilities in Canada, and we continue to drive efficiencies across our businesses to maintain customer affordability. Turning to our non-regulated assets in Canada, natural gas storage continues to be a valuable contributor to our business.

Speaker 2

In 2026, we continue to advance our strategy to grow and enhance our storage platform through a series of low-cost organic growth initiatives. As shown on this slide, we expect the Carbon Storage Hub expansion and the Alberta Hub expansion to enter commercial operations in the third quarter of this year. These projects will increase our storage portfolio to approximately 130 petajoules. Beyond increasing our capacity, these expansions are expected to further strengthen the financial performance of our storage business, which continues to generate strong cash flow and earnings. Looking ahead, we are well-positioned to pursue additional gas storage expansion opportunities in the year to come. Our third pillar is financial leadership, and with that, I'll pass the call to Katie to discuss this in further detail.

Speaker 3

Thank you, Bob, and good morning, everyone. I've shown this slide in the past, but I think it is worth a reminder of how we will finance our plan. We have a clear and disciplined financing plan to support our growth ambitions while maintaining balance sheet strength. As a reminder, our regulated utilities operate under an approved capital structure. To meet our regulated debt requirements, we expect to issue debentures annually over the five-year period. On the equity side, our regulated utilities continue to generate significant cash flow. We expect to fund our regulated equity requirements through internally generated cash, the CAD 700 million of capital we raised in late 2025, and approximately CAD 850 million more of additional capital securities. Based on our current five-year plan, we do not anticipate the need to issue common equity to support our regulated utility growth.

Speaker 3

Turning to the non-regulated business, our current organic investments are expected to be financed through cash flow generated by existing operations, supplemented by project-level debt and financing and strategic partnerships. Overall, our funding approach positions us to execute our growth strategy while maintaining flexibility and preserving balance sheet strength. Moving on to the second quarter performance for Canadian Utilities. I'm pleased to share that we have delivered another quarter of strong year-over-year earnings growth. CU achieved adjusted earnings of CAD 140 million, up from CAD 121 million in Q2 2025. This impressive 16% growth was primarily driven by the impact of inflation indexing on rate base and increased rates in ATCO Gas Australia and growth in rate base in ATCO Energy Systems.

Speaker 3

Drilling down into the business units, what is most impressive and visible on the slide is the strong growth we delivered at each of our three key business units during the quarter. ATCO Energy Systems achieved adjusted earnings of CAD 124 million in the second quarter, CAD 8 million higher year-over-year. This was primarily driven by rate-based growth and year-to-date recognition of final rates resulting from Electric Transmission's recent GTA application decision that Bob spoke to earlier. ATCO EnPower delivered modestly higher results year-over-year. This is an impressive result given the continued headwinds in the renewable portfolio. Adjusted earnings were CAD 15 million for the quarter, due to gas storage services achieving stronger seasonal spreads and higher generation from the Veracruz Hydro facility in Mexico. ATCO Australia had another excellent quarter and was a key driver of growth at Canadian Utilities, delivering adjusted earnings of CAD 34 million, up CAD 13 million year-over-year.

Speaker 3

As a reminder, inflation indexing can impact our overall earnings in Australia, with higher inflation leading to an increase in earnings for ATCO Gas Australia. In 2025, Australia inflation indexing reflected a full-year inflation of 3.4%. Australia inflation indexing in 2026 currently reflects an inflation assumption of 4.2%. Inflation indexing on rate base had a AUD 9 million positive impact year-over-year. As a rule of thumb, for every 10 basis points of increased inflation, our earnings benefit by AUD 1.2 million. From a cash flow perspective, our cash flow from operating activities increased by CAD 160 million year-over-year, largely driven by higher earnings across our businesses and higher customer rates in gas distribution. Entering into the back half of the year, we will continue executing on our strategy while identifying efficiencies across the business to drive substantial shareholder value. I will now turn the call back to Bob for his closing remarks.

Speaker 2

Thanks, Katie. Following a strong start to the first half of the year, we remain focused on delivering on our strategic priorities and capitalizing on our growth opportunities in the back half of 2026. We are encouraged by our outlook for the remainder of the year and beyond. This concludes our prepared remarks. I'll now turn the call back to Colin for questions from the investment community.

Speaker 1

Thank you, Bob and Katie. In the interest of time, we ask that you limit yourself to two questions. If you have additional questions, you are welcome to rejoin the queue. I will now turn it over to Ashia, our conference coordinator, for questions.

Operator

To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Once again, anyone on the conference call who wishes to ask a question may press star one at this time. The first question comes from John Mould with TD Cowen. Please go ahead.

Speaker 4

Hi. Good morning, everybody. Thanks for taking my questions. Maybe just starting with ATCO EnPower, excuse me. I'm wondering if you can just dig in a little more to how your team is spending time in terms of looking at incremental growth, the kind of projects that those are weighted to, just given the challenges in the power business right now. I'm wondering more specifically, is there anything on the unregulated side beyond gas storage or power where you would consider more meaningful growth and what could the nature and scale of investments, if you are looking at those kinds of initiatives, look like? Excuse me.

Speaker 2

Yeah, John, thanks for that. The short answer is yes, maybe the little longer answer is, you're right with regards to our concerns as well with regards to the generation and the struggles we've had there, the headwinds still on the renewable side. We are very focused for sure on our gas storage expansion. In addition to that, we're also looking at areas where we can participate more in the full energy value chain. Looking at midstream, which as you know, is something that we've had in our portfolio for a long time. I would say it's something that I have a lot of passion around the midstream sector. Midstream is an area that we are currently evaluating and we would look to actually pursue opportunities in that sector.

Speaker 4

Okay. We'll look forward to more on that. Maybe just more broadly on your comments around the national electricity strategy and intertie. Intertie can be challenging to advance. It can take a while to move to fruition. I guess when investors are looking at just bigger picture electricity opportunities, for your company, what key milestones should they be looking for, and what are you hoping to see to get projects of this nature closer to reality?

Speaker 2

Yeah. John, you're right. Definitely a much larger project when you start talking intertie. As I've said, we have the McNeill station with Saskatchewan that will be expanded. We also have in our capital forecast a lot of electric transmission growth in the northwest part of the province. We also think there's some great opportunities as oil sands develop, it's right in our service territory, to continue expansion of our electric system in that area as well. We are spending a lot of time also working with both BC and Alberta on intertie, still a lot of work to be done on that. We do think it makes a lot of sense to continue the interconnections between our provinces. If you had to make me pick which one should probably have the lead right now, it's probably the BC-Alberta one.

Speaker 2

We still have a lot of work to be done on that, John.

Speaker 4

Okay. Thanks for all that detail. I'll get back in the queue.

Operator

Once again, if you have a question, please press star then one. Since there are no further questions, I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks. Please go ahead.

Speaker 1

Thank you, Ashia. 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 brings to a close today's conference call. You may disconnect your line. Thank you for participating, and have a pleasant day.

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