Fortis Inc. (FTS) Q2 2017 Earnings Report, Transcript and Summary

Ladies and Gentlemen, thank you for standing by. This is the conference call operator. Welcome to the Fortis Inc. Q2 2017 Conference Call and Webcast. During the call, all participants will be in a listen-only mode. There will be a question-and-answer session following the presentation [Operator Instructions]. At this time, I would like to turn the conference over to Janet Craig. Please go ahead, Ms. Craig.

Thanks, Ruth, and good morning everyone. And welcome to Fortis’ 2017 second quarter results conference call. I am joined by Barry Perry, President and CEO, Karl Smith, Executive VP and CFO, other members of the senior management team as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide show. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our 2017 second quarter MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

Thank you, Janet and good morning everyone. Our strong second quarter earnings announced this morning are a result of focusing on serving our customers well, our continued focus on growing our base business, as well as, realizing the benefits of our acquisition of ITC. UNS and ITC were the main drivers of our earnings growth this quarter and overall our business continues to progress as expected this year. Our capital investment plan is on track and we invested $1.4 billion year-to-date across all our utilities. The integration of ITC is also on track and the acquisition remains nicely accretive. During the quarter, we also found an investment opportunity in energy infrastructure within our service territory in British Columbia, with the proposed acquisition of Teck Resources two-thirds interest in the Waneta dam. Opportunities like this do not come up often; this investment is a great example of how the CEOs of our utility operations came be nimble as well as opportunistic. Fortis has a winning strategy for its business. We combine the strengths and predictability of being almost entirely regulated, the benefit of scale and financial capacity to invest prudently across our utility operations and in other energy infrastructure as well as, the agility to capture growth prospects. Our unique business profile makes us probably the most diversified utility in North America, while bouncing risk and optimizing opportunity. This allows us to have the confidence to provide dividend growth guidance. We are committed to delivering on average 6% annual dividend growth through 2021. This combined with earnings growth we believe results in a compelling risk adjusted total return for shareholders. Finding quality assets or investment opportunities within our service territories to grow our business is core to who we are. Our purchase of the Waneta dam hydroelectric facility and related transmission assets in British Columbia for $1.2 billion is a great example of this. It has a total capacity of 496 megawatts of renewable power and generation average of 2,750 gigawatt hours of energy per year, FortisBC of the operator of the facility. The transaction is expected to be immediately of accretive. It will be financed with the combination of cash on hand, debt and equity consistent with our current consolidated capital structure. It is important to note that BC hydro has a 60 day window expiring in August to exercise the right of first offer to acquire the dam. If the right of first offer is not exercised, we expect the acquisition to close in the fourth quarter of this year. Fortis also holds a 51% interest in the Waneta expansion completed in 2015. This project added 335 megawatts of renewable power generation from a second powerhouse downstream of the existing Waneta dam. It is fitting to be speaking about Waneta and the rest of our FortisBC operations as we are in their offices today having held our board meetings here this week. Many of you are relatively new to the Fortis story and I thought I would spend some time providing a little background on FortisBC. It is a perfect example of how Fortis and its subsidiaries operate and grow. Fortis’ entry into the BC market started in 2004 with the acquisition of the electric utility from Aquila. This was followed by the acquisition of gas LDC assets from Terasen Gas three years later. With Fortis Inc. providing capital and support FortisBC has grown significantly by investing prudently to support the delivery of safe, reliable and cost effective energy to its customers. Since the acquisition the electric business has grown by nearly 135% and the gas business has grown by proxy 80%. In my opinion with this rate base growth potential and regulatory construct, this gas LDC franchise in one of the best in North America. FortisBC Gas and FortisBC Electric deliver in aggregate approximately 21% of the total energy consumed in the province, the most of any utility. Whether delivering electricity, natural gas or propane and BC, more than 2,200 of our employees serve over 1.1 million customers. Our five year $13 billion capital plan consists of a diverse mix of highly executable and low risk projects. We expect that the projected consolidated mid-year rate base will approach $26 billion this year and $30 billion by 2021. This base capital plan yield three year rate base CAGR of 5.2% to 2019 and a five year rate base CAGR of 4% to 2021. As you're aware there is a decline in the outer years of our capital plan. We have a record of exceeding our plan in the outer years and we continue to pursue growth opportunities in our existing service territory to do just that. In parallel to this, we also pursue larger development opportunities, which is also not reflected in our basic plan. A key focus is to get better visibility on the outer years of our plan as we go through the business planning cycle this year. We have a very strong and consistent record of making prudent investments across our utilities and we simply need to do a better job of having this reflected in our planning process. Consolidated capital expenditures for this year are now forecast to be approximately $3.1 billion or about $100 million higher than our prior forecast. This increase is driven by UNS Energy and FortisBC Energy. At UNS Energy, the incremental capital investments are largely due to investments in natural gas-fired facilities and distribution modernization projects. At FortisBC Energy it is due to the advancement of capital spend for the lower mainline system upgrades to 2017 from 2018. ITC is on track to invest approximately $300 million in four multi value projects or MVPs in 2017, with nearly $550 million expected to the investment from 2017 through 2021. The MVPs are regional electric transmission projects that have been identified by MISO to address system capacity needs and reliability in various states. Construction on the Tilbury LNG facility expansion in British Columbia is nearing completion. The total cost of the project scope is approximately $400 million before allowance for funds used during construction and development costs. Key activities during the first half for 2017 included commissioning of the LNG storage tank and the continued installation of liquefaction piping installations as well as, electrical and instrumentation cabling. While we are focused on executing on our low risk, highly diversified capital plan, we do have a few sizeable development projects, which would provide meaningful upsides to our base plan if we’re successful. These include The Wataynikaneyap Power Projects, the Woodfibre pipeline expansion and the Lake Erie Connector. In the past, we have had the opportunity to speak in detail about the Woodfiber pipeline expansion and the Lake Erie Connector. Both of these projects continue to progress and we remain focused on achieving key milestones for each. Today, I wanted to spend some time on The Wataynikaneyap Power Projects as it highlights our constructive and collaborative relationships with First Nations as well as our ability to partner with multiple stakeholders. Fortis has a 49% ownership interest in the partnership with the remaining 51% ownership interest being held by 22 First Nation communities. This project continues to advance with a mandate to develop new transmission lines to connect remote First Nations communities to the electricity grid in Ontario. Over the life of the projects, this transmission connection to these remote communities could result in over $1 billion in cost savings compared to continued diesel generation, as well as significantly reducing greenhouse gas emissions. The preliminary capital cost estimate is approximately $1.35 billion. We are encouraged by the progress we have made in addition to environmental segments underway, other regulatory approvals are currently being sought. The next regulatory milestone would be the preparation of filing are believed [ph] to construct with the Ontario Energy board, which is expected to be in the fourth quarter of 2017. Construction would commence pending the receipt of permits, approvals and contribution agreement between the federal and provincial governments. I'll now turn the call over to Karl for an update on our second quarter results.

Thanks Barry. Good morning everyone. As Barry highlighted, our second quarter 2017 financial results were strong. Adjusted earnings for the quarter were $253 million, nearly double compared to the same quarter last year. Adjusted earnings per share of $0.61 for the quarter was higher by $0.16 or 36%. On a year-to-date basis, adjusted earnings of $540 million was higher by $221 million and adjusted earnings per share was higher by 16% or $0.18 reaching $1.31. Cash flow from operations of $1.2 billion for the first half of 2017 increased approximately 28% over the same period in 2016. The increase was driven by higher earnings mainly at ITC and UNS. There are a couple of things to note this quarter with respect to reporting the results of our Aitken Creek facility, which is included in our non-regulated energy infrastructure segments. We're no longer excluding the mark-to-market of derivatives and the calculation of adjusted net earnings as we now have a full year of comparative information. Also effective in 2017 energy supply costs of Aitken Creek are being netted against revenues. In 2016, revenues and energy supply costs were reported separately. This change in reporting has no effect on earnings. As noted in the previous slide, adjusted earnings per share increased $0.16 compared to the second quarter of 2016. UNS delivered a strong second quarter, improving our adjusted earnings per share quarter-over-quarter by $0.10. Both the establishment of new rates at two of UNS’ business, Tucson Electric Power and UNS Electric, as well as, higher electricity sales due to the hot weather conditions contributed to the earnings growth. While record high temperatures were set in Arizona during the second quarter, weather was relatively less significant on the overall quarter-over-quarter increase as hotter than average temperatures were also experienced last year. ITC continues to contribute to earnings growth. During the quarter ITC contributed $0.04 to adjusted earnings per share or 6.5% accretion, after considering finance charges and increased equity associated with the acquisition. We're obviously pleased with the accretion from ITC, particularly as the balance of our business outperform this quarter, meaning base earnings for comparative purposes were higher having the fact of tempering accretion. A $0.01 increase in earnings per share quarter-over-quarter was Aitken Creek and relates to our realized gains on the mark-to-market of derivatives, which were $3 million during the second quarter of 2017 compared to an unrealized loss of $2 million from the same period in 2016. Additionally, favorable foreign exchange impacts provided $0.01 increase in the second quarter earnings per share over the same period in 2016. The average U.S. dollar to Canadian dollar FX rate was $1.34 this quarter, up from $1.29 in the second quarter last year. As a whole, earnings are not significantly affected by U.S. dollar to Canadian dollar foreign exchange fluctuations. For every $0.05 change in the Canadian to U.S. dollar exchange rate, there is a corresponding $0.07 impact to annual earnings per share. For the first half of 2017 adjusted earnings per share increased $0.18 compared to the same period in 2016. Year-to-date UNS has had strong performance, improving our adjusted earnings per share by $0.14. The revenue impacts resulting from the recent rate order and higher electricity sales due to the hot weather were the major reasons. As well timing of operating expenses and more favorably priced wholesale electricity contracts contributed to higher earnings from first half of this year. Aitken Creek contributed $0.05 to earnings per share year-to-date. The treatment of unrealized gains on the mark-to-market of derivatives contributed to the increase by approximately $0.04 for the first half of 2017 compared to the same period in 2016. ITCs contributed $0.04 to adjusted earnings per share for the first half of 2017 after considering finance charges and increased equity associated with financing the acquisition. Partially offsetting these increases were higher corporate and other expenses. Lower earnings from other regulated utilities mainly driven by FortisAlberta and a higher weighted average number of common share outstanding as a result of our dividend reinvestment plan. Our low business risk profile, diversity of operations and the standalone nature in financial separation of each of our regulated subsidiaries, provides financial flexibility and supports our investment grade credit ratings. From a liquidity perspectives, our consolidated credit facilities totaled approximately $5.4 billion. At the end of June 2017, there was $4 billion of unused capacity. Including approximately $940 million of unused capacity on our committed corporate credit facility. Our current capital plan is fully funded through debt raised that the utilities, cash from operations, and contributions from our dividend reinvestment plan. Furthermore in September, our U.S. shareholders will be eligible to participate in our dividend reinvestment plan. These factors will dictate what form and when we go to the market to fund incremental equity requirements beyond our base plan, including funding for Waneta. That being said, we do intend to finance, the Waneta acquisition consistent with our current capitalization profile. Overall, we continue to have the flexibility to pursue instrumental organic growth in our existing service territories and other development opportunities not included in our current plan. We are in a period of relative regulatory stability in 2017 and we continue to ensure we work with all of our regulators in a constructive and respectful manner. We do have two current regulatory matters of note. ITC second ROE complaint decision by FERC [ph] and Central Hudson’s rate case filing that we expect to file later today. At ITC we await a decision from FERC on the second ROE complaint and anticipated decision early next year. The rate case expected to be filed today with the New York Public Service Commission by Central Hudson requests an increase in electric and natural gas rates. We have requested an increase in the allowed ROE to 9.5% from 9% currently. The equity component of the capital structure to 50% from 48% and order is expected mid-2018. Beyond these two pending regulatory matters, we are also looking at two regulatory proceedings in 2018, one of Tucson Electric Power, the other at FortisAlberta. In February, Tucson Electric Power completed the first phase of its rate case, receiving an order establishing as revenue requirement. The second phase of the rate case is ongoing and relates to net metering and the rate design for new distributed generation customers, which is expected to be completed in the first quarter of 2018. In April 2017, FortisAlberta filed a rebasing application to establish the revenue requirement for second PBR term and the subsequent distribution rates for 2018. Our decision on this application is expected in the first quarter next year. Also, the generic cost of capital process to determine an ROE and capital structure for the period 2018 through 2020 is ongoing. A decision on this is expected in third quarter of 2018. I’ll now turn the call back to Barry.

Thank Karl. Two clear goals for us in 2017, we're realizing the economic benefits of the acquisition of ITC, which remains nicely accretive and to curing a reasonable outcome in our first large rate case that UNS Energy, since the announcement of the acquisition in 2013. Achievement of these two goals were key factors in delivering strong second quarter results. Looking ahead, we remained focused on achieving strong operational and financial performance. As we look past 2017 we are seeing upside to our five year base capital plan at our utility businesses. The opportunities we are identifying will enhance our ability to serve our customers and grow our rate base. This in turn supports our 6% average annual dividend growth target, while maintaining a conservative payout ratio. In closing, I am comfortable where Fortis sits today. We are largely a big wires and gas LDC business delivering energy to millions of customers. It is the quality of our employees, the diversity of our portfolio of utilities, our constructive regulatory relationships, our ability to capitalize on opportunities and our focus on regulated or regulated like assets that combine, have created a high quality, low risk business that can deliver superior risk adjusted returns to our shareholders. Now I’ll turn the call back over to Janet.

Thanks Barry. We concluded our prepared remarks, and at this time we would like to open up the call for questions.

[Operator Instructions] Our first question comes from the line of Rob Hope with ScotiaBank. Please go ahead.

Yes, good morning, everyone and congratulations on another good quarter.

Thanks, Rob.

Just wanted to touch base on M&A. In some prior calls, you had noted that you’d looked for large corporate M&A to take a pause in 2017. You didn't really focus on that during this call and instead focused on your organic growth. Should we take this to potentially read that we, I guess, in 2017 and beyond we could see Fortis’ growth shifting more towards its organic growth and its core businesses versus corporate M&A.

Yes you got the correct message.

All right. That's helpful. And then maybe just following up on that corporate are on the organic growth profile there. When we look at some of your larger projects that are in the potential bucket specifically Lake Erie its being good regulatory milestones, north and south of the border. Just want to get a sense of when do you commercial contract should be secured for that and when we could see and that might be for that project, if that is for first of these larger projects that you think will get across the finish line.

We’re very pleased with the progress on Lake Erie Connector. There seems to be momentum building right now, Rob. Obviously, the big next thing is the commercial arrangements and we're very much focused on that. We’re hoping that that we'll be able to make progress before the end of this year and that would lead fairly quickly to sort of announcing a go on the project. So, I hope that we will have more to say at year-end I would say for sure, but there are really positive discussions going on right now.

All right. And then just to confirm, so it looks like Lake Erie is the first one to potentially go over that group?

I wouldn't place my bets there. We’re making great progress on Woodfibre as well. As you know Woodfibre is not in our current forecast, we're continuing to have dialog there and again hopeful that we'll have more to say about that even in our third quarter as we head into our investor days and stuff as well. So I would say all three of the big projects that are working on Woodfibre, Erie Connector and Wataynikaneyap are very much still in sort of real possibility of moving forward. So, we remain very pleased with that frankly. The other thing, Rob, just on your point that about the organic growth. I mentioned in my remarks that we’re really digging into our planning processes and specifically related to those outer years of our five year plan and we are seeing upside potential there and as we finalize our business plan this year we’ll have more to say about that as well.

That's great. Thank you.

Thanks a lot.

Your next question comes from the line of Andrew Kuske with Credit Suisse. Your line is open.

Thank you. Good morning. You've obviously got a pretty wide geography of service territories. If you could just give us maybe some color on fundamental economic changes you're seeing in some of the service territories, maybe with specific focus on just what you have in western Canada, Arizona and then a little bit in ITC to the extent that you can comment on that.

Thank you, Andrew. Economic activity in British Columbia remained still pretty strong from our perspective. We're adding gas customers, especially. We're also seeing some improvement in construction in the interior in our electric businesses. A lot of folks there selling their homes in Vancouver and moving to the interior and building nice homes in Kelowna. So, that business I think will continue to grow as well. But on the gas side as I mentioned in my call, I really believe that our gas business in BC is benefiting from all the economic activity here and we do have a lot of prospects to expand that business both in sort of larger projects related to Tilbury and just the normal growth in the business and in maintaining this massive pipeline system that we have here. We have a very large network of pipes in British Columbia that will require a pretty substantial asset maintenance over time, so, economy is good in BC. Arizona's economy, Tucson is improving. It’s the best that we've seen it, since we’ve bought the business. There are some fair number of new jobs being created in Tucson. Firms like Raytheon and Caterpillar are adding jobs in that region. Mining is actually stabilized and picking up, so we’re optimistic there. Alberta is stable for us, so we still are investing some substantial capital. The economy is stable now. Customer growth has slowed from historical levels, but we're still adding customers in the market, so we remain very, very pleased with that overall performance of that business. ITC clearly is not as affected by economic matters, its more about reliability, asset integrity. That business continues to perform well in the mid west. Although, I think economy is picking up in those regions. Michigan has been strong for sure and we're getting some residual benefits from that with some new larger facilities requiring transmission services, those kind of things. New York still surprisingly, Central Hudson is still in a slow economy in Hudson Valley. I think it takes a lot to move that economy, but if you get a chance look at their rate case filing today. It’s still a utility that's going to grow at the fastest of any of our businesses over the next few years, largely related to sort of asset maintenance and those kinds of capital investments for that region. Eastern Canada, still pretty slow. New plan is will probably have the worst economy in Canada right now that's a slow area. We do have a great business there, it’s doing well for us, but the economy is definitely slow there and I think that takes care of most of them.

That is very helpful and then with that kind of background and context, especially the growth in some of your larger businesses, how do you think about just the probability of back-selling your capital program in the out years to levels that we’re seeing that you've got now.

I'm very optimistic about that Andrew. Obviously it's going to be a focus of our investor days in New York and Toronto there are going to be happening in October, we’ll be doing a deep dive into our CapEx programs. But we've historically outperformed, right, so it's not like this is new information. Clearly we present the numbers that we build up from our various subsidiaries. They do currently show this declining curve. But if there's one thing that I've been focused on this year as we've been integrating ITC is really trying to sort of get our - all of our CEOs across our group to focus on the five year plan because it's so important that we provide good guidance in that area. I am expecting to see progress. We may not get fully there this year. It takes a little bit of time to turn this big supertanker that we have here at Fortis, but we are making great progress in filling in those outer years.

Yeah, you keep upsizing your vote, but my [indiscernible].

We’re at the VLCC size right now. For not oil people that’s very large crude carriers.

Thank you.

Your next question is from Robert Kwan with RBC Capital Markets. Please go ahead.

Good morning. Just maybe on FX exposure and you've got your earnings translation guidance. I’m actually just wondering when you look at your cash flow and the CapEx mix Canada versus U.S. from a cash generation out at utilities. Does that kind of translation guidance follow on the cash side or is there kind of a more muted impact based on the way you're standing and the way that cash is coming out of the businesses?

Yeah, and Robert good morning. There's a lot of things are going through that calculation and the resulting cash flow as you can appreciate. But there's similarity on in terms of direction and so on. We’re generating significant cash flows, throughout the foreseeable future. Not affected terribly by the FX, change in FX. We are looking at implementing a FX program, hedging program around currency that's tied into our cash flow that flows from the U.S. back into Canada. I guess like everybody, we got to take a little bit [indiscernible] about how quickly the FX rates changed over the last month or so. But in the near future we’ll put a program in place that’s programmed and tied into those quarterly cash flow. So, cash flow generation for us continues to be a positive and probably get stronger as we go forward.

Maybe turning to Aitken Creek, how much capacity is currently being used on a proprietary basis. And do you expect this to change over time as you kind of continue to operate the asset [ph].

Rough numbers, Robert, it’s about 50/50. 50% of the storage capacity in the gas associated with our storage supplies; our gas business here in British Columbia and the remaining half is sold or rented out to others and we trade around that other half from time-to-time in a very low risk, non-speculative basis.

Okay. And I guess just …

Yeah, we don’t anticipate that’s going to change much going forward.

Okay. And just with the derivative though, how locked down is it with respect to like is it a station two contract in the firm transportation. Like is there any other gaps on the commodity [ph]?

No. No gaps.

Okay. Last question is just on Waneta, have you had any direct discussions with hydro particularly post election within hydro leadership?

We've always have continued dialog with hydro almost just because the major operations here in British Columbia on a regular basis, Robert, so that continues. Clearly, they’re in a period of transition to new leadership at this point in time with the new government as well. So, things are just normal at this point on there.

All right, nothing specific that reaches to Waneta at this point?

No, no they are, obviously that's a Teck more of a BC hydro matter, not at a FortisBC hydro matter. So, we're waiting with bated breath like everyone so.

Okay. That's great. Thank you much.

Thank you.

Thanks, Robert.

Your next question is from Linda Ezergailis with TD Securities. Please go ahead.

Thank you, congratulations on a strong quarter.

Thank you, Linda.

But I can't avoid asking some regulatory questions. So, with respect to Central Hudson, can you describe the basis for your request to increase the ROE and equity sickness? Is it rising interest rates, is it increased risk et cetera, et cetera. Are there any other key attributes in your application that have kind of changed with your current framework?

Linda, I have a guy on the phone, Mr. Mike Mosher, he can give you more than enough detail on that. So, I'm going to let Michael, if he is able to speak here to answer that question. Michael are you ready?

Yeah. I think Linda with respect to the ROE; we believe that that is introducing some risks that really are different and new. So, we're asking for an increase of 50 basis points from where we are today. With respect to our increase in equity layer. New York is a bit of an outlier, with respect to capitalization for most of the U.S. utilities and given our strong investment in capital and the desire to detain our strong financial position, we really do think we need a thicker equity layer. I would categorize the main drivers of the filing really as across the board continue modernization of our electric and gas systems. With a lot more distribution investment with respect to modernizing and automating our distribution system. The gas business is driven by the leak from pipe replacement and then a lot more information technology investment.

Thanks, Mike.

And just maybe a more bigger picture question, you've got a few large scale transmission projects in your domestic backyard in Ontario. At what point and in what jurisdictions are you starting to explore other large scale merchant transmission possibilities?

Well, I don't really want any merchant transmission possibilities in a true sense of the word, as you know, we’re looking for these long term contracted assets that if its outside the regulatory time pact they’ll call it. North America is our stopping ground, right, like it's really. With ITC’s expertise, their strategy is to look at. Every bit of transmission in North America. Every opportunity in that area that comes up, ITC would have been around it. So, we're not going to win everything, I mean, we're going to get some of it, but that company will be pushing to review every opportunity that comes up. They’re big thought leader in this area and we're obviously representing in various sort of states with RTOs [ph] of projects, the project that should be done. And so there's – I wouldn’t want to exclude any geographic location in North America and that also includes Mexico, by the way. There will be some transmission built in Mexico and we're going to compete for that as well, so.

Okay. Thank you. And maybe also with your renewable business again, you see stuff in Arizona to a lesser extent in Alberta in your current backyard. Is there any other jurisdictions where you're seeing the potential for emergent opportunities?

Well, Caribbean, frankly is another area, I would say that, over the next few years, I'd like to do more solar generation in the Caribbean especially, that's an area that I think could benefit from that. So, we have a focus there. Clearly, ITC is benefiting from all the win that's going into the Midwest and in terms of transmission, but not participating in the actual generation side of the business given it would lose its independent status and piece of its ROE under that basis. We’ll continue to monitor how that sort of independence process works going forward. But as of now it would be negative to get involved in generation in those regions. In Arizona, clearly we are progressing our move away from coal. Our diversification strategy, we are purchasing solar at Tucson Electric Power from others at very attractive prices. When you think about, we just bought 100 megawatts from NextEra for 20 years at around $0.03 a kilowatt hour, that’s pretty incredible, so. But even there we would like to own some solar over the next few years as well and I think we will have opportunities to do that. So I do want to say that we continue to focus on increasing our renewable power exposure and the Waneta project clearly this purchase from Teck was very much aligned with that strategy. And it's probably one of the best renewable projects we would have in our portfolio if we were successful in getting it closed.

That’s helpful context. Thank you.

Thank you, Linda.

[Operator Instructions] Your next question is from Ben Pham with BMO. Please go ahead.

Thanks, good morning. I wanted to follow-up on the question on M&A versus organic growth sort of things. If you kind of look back at ITC and currencies move 10% in the C dollars favor and sort of couple of quarters of ITC under your belt now and cost of debt is achieved and willing [indiscernible] of border. I’m just curious your thoughts about just perhaps the hesitation you guys have as you think about doing more M&A in the U.S. because you announced something today regulatory approval process and whatnot. You’re not going really see your earnings until closer to 2019?

Ben, we don’t need to do big M&A. Now with our push into United States over the last three years, four years here, we own three great businesses. We’ve created a company of upsize at this point in time. We are now focused on growing that business and we believe we can grow this, this sort of very low risk diversified business that we have. These wires and gas LDCs that we own at a rate that its comparatively to the average for the industry. So, all that organic growth and when you’ve coupled that with a low risk nature of our assets, we think that's a powerful combination and that's where our focus lies right now. Clearly, as you know U.S. utilities have become very expensive. We still have some uncertainty on policy as well in the U.S. So, we’re fortunate in a way that we’ve said from the day we closed ITC that we're going to be on pause for 2017 and we're taking that time now to focus on our organic growth profile for the business and I'm not moving off that at this point in time.

Okay. And just on organic growth that you mentioned upside potentially in your base CapEx plan. We’ll hear more details on Investor Day on that, but just curious, so can you comment on the sources, is that driven by some of the economic drivers you mentioned earlier Barry. Is it more kind of smaller projects that add up to something more meaningful or is it more bigger projects that expect to drive that?

Well, Ben I would go back to the point that we tend to always outperform those outer years when they arrive if you look back at our forecasting, when we are forecasting them at lower levels, when they get here, we are spending more capital. So, it’s a process issue mostly, frankly. We really have to get to identify those projects earlier and that’s where we’re spending the time at this point in time. Sure, the economy helps for sure, but really, it’s really, getting the forecasting right and that’s where our focus is. And we’re seeing that – we’re going to make progress this year. I don’t think we’re going to get all the way there. Like I said, it takes a little while to turn the shift a bit. But stay tuned, all this stuff really, largely relates to some of our bigger utilities, especially in our pipes in British Columbia, our gas pipes here, asset integrity those kind of things. In Arizona, the regulated businesses there, in terms of our, part of our diversification strategy away from coal, natural gas-fired facilities, renewables, those kind of things that you will see show up in the fall. But we’re very optimistic that we have a very strong organic growth story and M&A is not something we need to do grow this business.

Okay. Thanks. And maybe lastly on some of that commentary about Waneta financing. Would it be possible like it’s just looking at some of the comments from Karl, it’s all come into DRIP program and your cash flow generation is here and next. I mean, is that possible, you may not even need to do a discrete equity deal if everything is passed on your favor?

Yeah, I mean, it’s certainly around possibility, Ben, but the wildcard of course and the unknown factor, right now is the participation rate for our U.S. base investors and we’ll have a better sense for that in September. But it will be an indicator, I suspect that it will grow over time. For us, we rather than look at it on a discrete basis, we’re looking at our capital structure holistically. So, when that time comes, so we don’t expect we’re going to close this until, near the end of the year anyway, so we’ll have a much better indication, then and we’ll have an update for Investor Day for sure.

Okay. All right. Thanks everybody.

Thanks, Ben.

There are no further questions at this time. I’m going to turn the call back over to Mr. Barry Perry.

Well, thank you everyone. I think we are complete. Thanks for participation today and have a great rest of your summer.