Fortis Inc. (FTS) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Lisa, and I will be your conference operator today. Welcome to the Fortis Q4 2019 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 Stephanie Amaimo. Please go ahead, Ms. Amaimo.

Thanks, Lisa, and good morning, everyone, and welcome to Fortis’s 2019 fourth quarter results conference call. I am joined by Barry Perry, President and CEO; and Jocelyn Perry, 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 2019 annual MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

I am going to start again. Thank you, Stephanie, and good morning, everyone. Before providing details on our 2019 results, I would like to take a moment to say that we are deeply saddened by the recent passing of Ida Goodreau. Ida served as Chair of our Governance and Nominating Committee of Fortis Board and as Chair of the Board of FortisBC. She was an international business leader, a mentor, and a cherished colleague who provided years of thoughtful leadership to Fortis. Ida will be greatly missed by the Fortis family. Now turning to our annual results, 2019 was another strong year for Fortis. Our energy delivery businesses invested approximately $4 billion in our systems. These investments enhance the service we provide to our customers while focusing on delivering cleaner energy, in a safe, reliable and affordable manner. These investments supported earnings of $1.1 billion or $2.55 per common share on an adjusted basis for 2019. Earnings were impacted by FERC’s ROE decision received in the fourth quarter. Jocelyn will spend more time discussing this decision in her prepared remarks. Additionally, in the fourth quarter, the quarterly dividend paid increased by 6.1% marking 46th consecutive years of increases, a record we are very proud of. On the sustainability front, we advanced our plans to deliver energy as clean as we can, as fast as we can with customer affordability top of mind. In British Columbia, FortisBC set a target to reduce Greenhouse gas emissions associated with its customers’ energy use by 30% by 2030. In Arizona, our team secured the 250 megawatt Oso Grande Wind Project, which will become Tucson Electric Power’s largest renewable resource. This project will help the utility to reach its goal of delivering 30% renewable power to customers by 2030. TEP is expected to approach this level as early as 2021, nine years ahead of schedule. In addition, we issued our sustainability update in the second quarter, which included information on the performance of our utilities, as well as new indicators. Specifically, we included disclosure around our efforts to advance the United Nations’ sustainable and development goals. Our improvements on the sustainability front were validated in late 2019 when we received an upgrade from a key ESG rating agency MSCI. We are pleased to share that we are now rated a Double A company. This positions us in the top quartile and profiles us as a leader on the ESG front. Our focused efforts in this area over the past five years have resulted in significant improvements in our rating as shown on Slide 4. Even with this strong position, we aim to better in 2020 and beyond, keeping sustainability core to the success of Fortis. In 2020, we are focused on furthering our efforts by advancing the shift to cleaner energy and improving our disclosures. We also executed on our funding plans in 2019. This was accomplished with the sale of the Waneta expansion hydroelectric project in British Columbia for $1 billion and a successful $1.2 billion common equity issuance completed in the fourth quarter. Overall, these two items position the balance sheet nicely as we look to deploy our capital plan in 2020 and beyond. Before we get into our operational performance, we wanted to discuss our efforts surrounding talent management and the development of our team. Over the last several years, Fortis and our utilities have placed significant focus on these initiatives. 2019 was no exception. During the year, we broadened the responsibilities of the following executives reporting into me. First, Jim Laurito's role was expanded in 2019 to include oversight of our information technology, cybersecurity and innovation functions serving as our Executive Vice President of Business Development and Chief Technology Officer. And more recently, David Hutchens was appointed as Chief Operating Officer. In this newly created role, Dave’s responsibilities have broadened to include operational oversight of our ten utilities across Canada, the United States and the Caribbean, as we look to strengthen our energy networks and execute on our large capital plan. When we reflect on the past five years, we closed our largest utility acquisition, shifted our focus to an organic growth strategy, all while performing well operationally. Operational excellence is a key pillar of our long-term success. On the safety and reliability front, we have consistently outperformed our Canadian and U.S. peers on leading industry indicators. Recently, system reliability was tested at Newfoundland Power, the City of St. John's experienced a record blizzard bringing over 75 centimeters of snow and hurricane force winds in a 24 hour stretch. Fortunately, our system held up extremely well despite the city being in a state of emergency for a week. In fact, less than 10% of Newfoundland Power’s customers lost power during the storm, the reliability of our system highlights the operational expertise of our teams, but also underscores the importance and the need for further investments to harden the systems in our footprint, especially as we think about the impacts of climate change. As we look forward to the next five years, our teams will strive for continued strong operational performance and look to improve our safety and reliability metrics. Our long history of achieving strong shareholder returns continued in 2019 with a one year total shareholder return of 22.7%. Looking back over a 20 year timeframe, Fortis has delivered superior average annual total shareholder returns of 14.3% or over 1300% in total. As shown on Slide 6, this far exceeds the returns generated by the benchmark indices. All in all, 2019 maintained our track record of delivering strong total returns to our shareholders. Turning to Slide 7 and our five year capital outlook, we are increasing the 2020 to 2024 capital plan from $18.3 billion to $18.8 billion or $500 million more to account for capital that shifted from 2019 into 2020 and 2021. Specifically, $300 million of expected investment in 2019 has shifted to January 2020 driven by the timing of payments on the Oso Grande Wind Project. The remaining $200 million was shifted to 2021 to account for changes in time of our other projects in Arizona. As a reminder, the capital plan is focused on our regulated businesses and consists of a diverse mix of highly executable, low-risk projects needed to maintain and upgrade our existing infrastructure. Only ten projects in our five-year capital plan have a value of $200 million or more. Over the next five years, as we execute on the capital plan, we expect our rate base will grow by approximately $10 billion or by $1 billion every six months. Our 2019 rate base of $28 billion is expected to grow to $38 billion by 2024. This yields three and five year compound annual growth rates of approximately 7%, which is consistent with our prior rate base growth guidance. As mentioned, 2019 was our 46th consecutive year of dividend increases. The strength and durability of our locally-operated energy delivery businesses, coupled with our diverse geographic and regulatory footprint positions us well to continue this record into the future. Looking ahead, we remain committed to our 6% five year average annual dividend growth guidance through 2024. I’ll now turn the call over to Jocelyn for an update on our fourth quarter and 2019 annual results.

Thank you, Barry and good morning everyone. Turning to Slide 11, reported earnings for the fourth quarter of 2019 were $346 million or $0.77 per common share which were significantly higher than $0.61 per common share in the fourth quarter of 2018. Earnings in the quarter reflect the impact of FERC’s ROE decision received this past November. In this order, FERC authorized a base ROE of 9.88%, up to a maximum of 12.24% with incentive adders. Including ROE incentive adders, this implies an all-in go-forward ROE of 10.63% for ITC, compared to the previous all-in ROE of 11.07%. In the order, FERC also dismissed complaint number two. As you might recall, ITC had previously accrued amounts related to the expected refunds for the ROE complaint. Overall, a net favorable earnings impact of $63 million was recognized in the quarter. This favorable impact was comprised of the reversal of prior period accruals of $83 million, which were tempered by $20 million related to the reduced ROE for 2019 that I just discussed. I’ll get into the order a little more in the next couple of slides. On an adjusted basis for the quarter, EPS was $0.62, $0.06 higher compared to the previous year and this reflects rate base growth in our regulated businesses, partially offset by the lower ROE at ITC. On an annual basis, reported earnings of approximately $1.7 billion or $3.79 per common share were significantly higher than last year. This was driven by the $484 million net gain on the sale of our 51% interest in the Waneta expansions recorded in the second quarter and the impact of the FERC order. Adjusted EPS for 2019 was $2.55 per common share, $0.04 higher than 2018. Again rate base growth at our regulated businesses was partially offset by the FERC ROE decision at ITC, as well as weather impacts in Belize and Arizona. Now on Slide 12, I’ll walk through the details of the EPS drivers for the quarter. Rate base growth at our regulated utility businesses was led by our Western Canadian Utilities, which contributed a $0.04 increase in EPS during the quarter; FortisAlberta’s earnings were also favorably impacted by lower operating costs. In Arizona, UNS Energy increased EPS by $0.03 during the quarter. Lower operating cost associated with scheduled outages and maintenance along with lower taxes were the main drivers. This increase was partially offset by higher cost associated with rate base growth, not yet included in rates due to the historical test year. Weather was not a significant driver of results for the fourth quarter. In New York, Central Hudson increased EPS by $0.01 driven by rate base growth. And rate base growth at ITC was tempered by the approximate $0.04 annual impact of the lower ROEs, all of which was recognized in the fourth quarter of 2019. And at our non-regulated energy infrastructure businesses, EPS decreased by $0.01 for the quarter. This was mainly driven by lower production in Belize as the country continues to experience drought like conditions. With the lower rainfall, production in the fourth quarter was 14 gigawatt hours compared to 53 gigawatt hours in the previous year. Now turning to 2019 annual results on Slide 13. Adjusted 2019 earnings per share increased $0.04 to $2.55, compared to 2018. Our Western Canadian Utilities improved EPS by $0.05, largely reflecting rate base growth at FortisBC at FortisAlberta, coupled with lower operating expenses at FortisAlberta. ITC, our largest utility improved EPS by $0.04 driven mainly by strong rate base growth and lower business development costs. This was partially offset by the unfavorable $0.04 annual impact of the 2019 FERC order. A higher U.S. dollar to Canadian dollar foreign exchange rate for 2019 resulted in a $0.04 EPS increase. The 2019 average rate was $1.33 compared to $1.30 last year. Central Hudson contributed $0.02 to EPS over last year. This was driven by rate base growth and lower storm restoration cost in 2019. The non-regulated energy infrastructure businesses reduced annual EPS by $0.06, again lower rainfall in Belize resulting in lower production reduced EPS by $0.05 for 2019. With the drought light conditions, production for 2019 was 64 gigawatt hours compared to 233 gigawatt hours for 2018. EPS contribution from UNS was $0.02 lower compared to last year. This was largely driven by higher cost associated with rate base growth, not yet in rates due to the historical test year and cooler temperatures in Arizona during the second quarter. The decrease was partially offset by higher AFUDC and lower operating cost associated with scheduled outages and maintenance. And lastly, the $0.03 EPS decrease in the Corporate and Other segments was driven by a higher number of weighted average common shares, partially offset by lower corporate costs. Higher average common shares reflect the $1.2 billion equity issuance completed in the fourth quarter, the company’s dividend reinvestment plan and the ATM programs. And I’ll discuss the recent equity issuance in a couple of slides. Absent the unfavorable impacts of the lower ROE at ITC and weather in Belize and Arizona, 2019’s adjusted EPS increased by approximately 6% over 2018. Turning now to our regulatory outlook. At ITC, we previously mentioned that we received an order from FERC on the base ROE in November 2019. In December, the transmission owners in the MISO, including ITC, filed a request for rehearing on the basis that, among other things, the order will not allow utilities to earn a reasonable rate of return on investments. Last month, FERC issued an order granting the rehearing for further consideration effectively extending FERC’s review. Currently, there is no designated time for FERC to act on this particular matter. With regard to the two notices of enquiry issued in March 2019 by FERC, we still await a decision. As you’ll recall, the first NOI sought comment on how FERC could improve its transmission incentive policy and the second on how FERC’s policies for determining the ROE used in setting rates should be modified. And lastly, ITC still awaits a response from the U.S. Court of Appeals regarding its appeal of FERC’s 2018 order, which reduced the independent adder. Again there is no specified timeframe for the court to decide on this matter. rate base $0.10: Intervener testimony including the ACC staff testimony was filed in October 2019. TEP revised its application in November, which now requests an allowed ROE increase of 25 basis points to 10% and increase equity thickness to 53%. Hearings commenced in January and we anticipate a decision by mid-year. As discussed last quarter, FortisBC filed its multi-year rate plan last March, as the current term expired at the end of 2019. The proposed plan seeks approval for a rate setting framework for 2020 through 2024. Now moving to Alberta. Back in September, the Alberta Utilities Commission issued a decision proposing to change how the Alberta electric system operators customer contribution policy is accounted for between distribution owners, including FortisAlberta and transmission owners. The decision would prevent these transmission-related investments by FortisAlberta in the future and directs that the unamortized balance of approximately $400 million, which forms part of FortisAlberta’s current rate base to be transferred to the transmission facility owner. We immediately filed a request for a review and variance and stay on implementation of the decision, which was granted. The matter is on hold pending a review by the AUC and we received notice in December that the AUC’s decisions would be delayed into 2020 as additional information was requested before they reach a decision. And lastly, expert evidence was filed in the AUC’s ongoing generic cost of capital proceeding in January. This proceeding will establish the allowed ROEs and capital structures for 2021 and 2022 and we expect this proceeding to conclude later in 2020. In the fourth quarter, we completed the issuance of $1.2 billion of common shares. The net proceeds of the equity issue were used to repay debt including the redemption of US$500 million unsecured notes and the repayment of credit facility borrowings. This equity issuance accelerated our funding needs to support our capital plans. As a result, we terminated both our ATM program and the 2% discount previously offered under our dividend reinvestment plan. Last year we indicated that we expected to meet all credit rating agency thresholds in 2019 and stated our commitment to improve our metrics over the five year plans. In 2019, we achieved our objectives by significantly improving both our cash flow to debt and our holding company debt metrics. This improvement is reflective of our funding plans, particularly the recent equity issuance and the sale of the Waneta expansion in the second quarter. Fortis’ low business risk profile driven by the geographic and regulatory diversity of our subsidiaries, coupled with our credit metrics, support our investment-grade credit ratings. Fortis is well-positioned to execute on our five year capital plan and maintain our strong credit profile. This concludes my remarks. And I will now turn the call back to Barry.

Thank you, Jocelyn. To summarize, 2019 was another great year for Fortis that couldn’t have been made possible without the hard work and dedication of our 9,000 employees. So thank you to our teams across North America. As we kickoff 2020, we are focused on continuing to deliver safe, reliable and affordable energy to our customers. Our goals are to execute our capital plan, obtain constructive regulatory outcomes, pursue operational excellence and explore new ways to embrace the delivery of cleaner energy. I’ll now turn the call back to Stephanie.

Thank you, Barry. This concludes the presentation. At this time, we’d like to open the call to address questions from the investment community.

[Operator Instructions] And our first question today will come from the line of Robert Kwan from RBC Capital Markets. Your line is open.

Thank you. Good morning. Maybe if I can start on sustainability and ESG topics and specifically how it’s guiding some of your business decisions. Barry, you talked about this kind of clean as you, as fast as you can. Can you talk about that from the perspective of how you are just viewing gas distribution businesses in general and existential risk to those businesses – the existential risks?

Thank you, Robert. So, first of all, Robert, from a Fortis perspective, you know, our footprint is in the sort of energy delivery. So we are already very strongly positioned from a sustainability perspective, but, clearly, we are still doing work to improve and the two areas of focus I would say is our Arizona business where we do have some thermal generation and David and the team are really on a great path to reduce their coal generation over time. And the other area is British Columbia and Roger and his team out there are really have been with the BC government and the regulator to really clean up the gas supply, frankly. And it sets some really aggressive targets now to reduce the amount of GHG in customers’ gas by 2030. But we do think about 30% actually. That target is not an easy target to get to, but it’s what’s required. I think to really maintain the momentum in our gas business, to find ways to grow and I am pretty excited about where that’s headed frankly. Clearly, there is a lot of conversation that’s going on about natural gas. But it remains a critical fuel in the energy mix. And if you look at British Columbia, I still believe natural gas is the number one source of energy in that province. So, really, it’s irreplaceable frankly. And so, I think Roger and his team have done a great way – great thing – great job of finding ways to grow the business, working with the regulator and the government, cleaning up gas, going to renewable natural gas, gas for transportation, all of those things and bunkering of vessels. So these are the kind of issues that natural gas companies have to do now to be able to succeed. I would say, our regulator and the government of British Columbia are very progressive on these issues, probably the most in all of North America and that we are happy that we do have that business in British Columbia and we have a couple of smaller gas businesses in the U.S. but our primary exposure there would be in BC.

Got it. If I can just finish with some questions just here on the funding plan. You’ve obviously done the equity issue. I am just wondering if you – as you look at where you are today, and back to Investor Day, you had that 3% ATM wedge plus the DRIP. So I guess, the first question is, do you have an updated number where the DRIP participation has now shaken out now that you’ve taken the discount out of that? And just generally, how you are looking at funding moving forward? One other aspect is just on, are you looking at any potential asset monetizations, particularly given some of your smaller Canadian electric utilities are some of the slowest growing in the portfolio and you’ve previously commented that you are not particularly enthused with the cost of capital parameters?

Robert, this is Jocelyn. I’ll take the DRIP part of that question. So, we – right now, our DRIP participation is pushing 40%. We do expect to see a drop in that participation. It’s hard to quantify exactly, but we will know more as we go forward. So, March 2nd will be our first DRIP participation under the new terms of the DRIP program. But we do expect to see the decrease. And when we look to our funding plans back to the Investor Day, I mean, we’ve accelerated the equity that we talked about at Investor Day. It clearly sets us up well from a credit profile perspective. We met our credit metrics per se, a couple years prior to when we figured we would that clearly is a credit positive when we are engaging and having conversations with our credit rating agencies, which we anticipate to do in the upcoming weeks. So, I think it positions us nicely and for the growth program that we have, we don’t see any further discrete equities required and we are positioned well.

And Robert, I got to say I am not interested in selling any of our utilities. I don’t like the idea for again smaller on a regulated perspective. That being said, if someone makes us a great offer for a business, we have to consider it. So – but, don’t really get many great offers for our Canadian businesses frankly. So, in terms of growth, yes, you are right. These businesses are probably growing a little slower. I would say, except for our gas business in British Columbia, that business grows on par with our U.S. businesses. I am hopeful over time with all the efforts around hardening of the systems, preparing for climate change, all of that that we’ll see some stronger growth in our Canadian business. I just know recently, I think the Canadian Standard Associations are talking about what needs to be done on the electrical systems in Canada to prepare for a more intensity, I guess, on storms and all of that. And I think that’s going to drive some capital in the business here. So overall, we are focused on keeping our Canadian and U.S. businesses that we have. The returns are still a problem. I think we are still much lower in Canada than in the U.S. That is a lingering material issue for Fortis that we have to have to make progress on over time in my view. And it’s not just a Fortis issue, it’s an industry-wide issue frankly to have such disparity between the two countries. It’s just not good for any one over the long haul.

That’s great. Thank you very much.

And our next question comes from the line of Ben Pham from BMO. Your line is open.

Okay. Thanks. Good morning. Barry, just maybe to your comments around monetizations and your Canadian utilities maybe not getting fantastic offers relative to your hold. Could you comment generally on just, what do you think about some of the take off multiples that you’ve seen in North America like AltaGas Canada, El Paso, relative to that great offer that you characterize that and who is the buyer here that you’ve tended to that conversations with? Is this strategic or financial players?

Sorry, Robert. Ben, I didn’t say we are having conversations about offers and stuff. But clearly, the utility industry is the values that are being transacted at are – have been up from where they were historically. I think it’s a sign that there is a shortage of good utility businesses to buy out there. There has been a lot of consolidation happening. The businesses are continuing to grow in North America. You see 6% and 7% growth rates in these businesses. That’s pretty good growth and that stability of cash flow and the regulation generally has made these businesses very attractive to a lot of parties. And I don’t see that changing frankly. I think the growth rates for the industry are going to remain strong for the foreseeable future given all the challenges and big trends that we are dealing with our sector as we move to cleaner energy and reduce greenhouse gases. These things are going to continue to drive growth for a long time. And I think now that’s becoming reflective in the values of these businesses and I fully expect that we are going to see that continue for the next few years here.

Okay. And then, sorry about that. I very much misheard you. So just to clarify and just for the record. You are saying that really is someone comes along with a very attractive offer for the Canadian utilities you would look at it. But you didn’t necessarily say that you are getting really any inbounds?

No, exactly.

Okay. Okay.

And clearly, as a public company, Ben, anytime we seize a strong offer for a business, we are obligated to review that offer and if it makes sense from a shareholder perspective that we have to execute on that. So, that’s just the message we’ve been preaching for a long time. Capital allocation in our business is very, very important. We have a very large capital plan. The days are gone when you just – the only source of capital is the equity capital markets. That’s not how we look at it any more. We look at our balance sheet. We look at the assets that we have and we review them on a regular basis to determine what’s the appropriate funding strategy for a company.

Okay. And I may just, just flipping on the M&A side, the BD side, have you thought – I mean, notwithstanding the water evaluation just the water utility business and is that’s something that on your radar screen and would that take your core competencies?

No, we are not looking at water.

Okay. All right. Thank you.

Our next question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is open.

Hey, good morning team. How are you?

Good morning.

Good morning. So, couple questions here. First, Arizona, I’ll start there. In terms of some of the latest headlines to the state, there is talk of a moving to an appointed commission some talk about like a bipartisan legislation here, any initial perhaps preliminary thoughts about that? And then separately, perhaps somewhat related, how are you thinking about prospects for settlement? I know that there has been some talk amongst peers and the commission here too. But just want to hear your thoughts more broadly.

So, Julien, I got David here. David Hutchens, so instead of repeating ourselves I am just going to let David deal with those two questions, right off the start here.

Yes, so, on the appointed commission, we really don’t have any comment on that. We get good commissioners either way. We think that there is – it’s right to have a good balance of commissioners. We don’t think it makes that much difference whether they are appointed or whether they are elected. So, we don’t really have a position on that at all. And then, and – what was your other question? Oh, settlement, oh yes.

About settlement and where we stand in the state in terms of just policy?

Yes, I think the whole anti-settlement policy is going to be pretty short-term. It was, I think a result of one settlement that the commissioners weren’t a big ban of and so they’ve sort of put a pause on having settlements done. And they want to have more fully litigated – they want to have more formally litigated processes. So, I think that after our rate case, which is of course we couldn’t do a settlement and because of that, I think and I am hopeful that we will be able to get back to that. Because I think settlements provide a much more balanced result for all the stakeholders than litigating that topic-by-topic.

Got it. All right. Excellent. And then just quickly if I can, perhaps more of a macro question. wood fiber, how are you thinking about prospects there? Listen, I know it’s several years out et cetera. Just sort of inconsideration of the macro environment chronology.

Great question, Julien. I would say that, we continue to have that project in our five year plan. It’s about $350 million. The main reason is that, wood fiber is a customer, really. We are building a pipe to supply a customer with natural gas. And obviously they are building a small-scale LNG export terminal. We are still spending money on behalf of that customer. They are providing us cash as we sort of get ready to build that line. So, what’s missing obviously is a final decision by that party to move forward with their project. But there is still a fair amount of activity going on related to the work that needs to be done for us to commence the pipeline. So it is something that we monitor and we sort of review as we head into the September, I guess, period when we do our new five year plan, we’ll have to consider whether this is still something that we feel confident that should be included in our plan. And we’ll consult with that customer over that period of time and make our decision at that point. But based on the information we have today, it is something that we still expect will be completed in that five year period.

Well. Thank you guys very much for the patience and the questions.

Thank you.

Our next question comes from the line of Rob Hope from Scotiabank. Your line is open.

Morning everyone. Couple follow-up questions. Just when you look at Arizona, and I know you are going to hit that 30% renewable ahead of schedule and that’s to be a couple of years out. But what’s the path forward to further increasing your renewables in the state there for you?

Yes, Rob. This is Dave again. We are really evaluating that right now in our integrated resource planning process. We’ve brought a lot of stakeholders together, customers, government, et cetera. We are using climate experts in the University of Arizona and we are really focused on trying to develop a greenhouse gas reduction goal, because we think that’s the most important target to have. We are in the process of running, oh it seems like a million different scenarios related on inputs from those stakeholders and we plan on ruling that out sometime later this year. So, standby for that. Obviously, the 30 by 30 is going to be hit early. So, I can tell you we are not going down on those goals and we will definitely focus on trying to get to – as Barry mentioned to get that clean energy as fast as we possibly can and making sure that we are managing the reliability and affordability effects of what we are doing.

All right. That’s helpful. And then, a bit of a broader question. The MISO ROE rehearing, bit of a uncertain process right now. How do you think it plays out? And kind of what timeline or what do you think are the key – or how in-depth did you think it will go?

Thanks, Rob. Some of our folks are saying their kids will be through high school and college before it’s all done. But Linda, maybe you can just provide some more flavor on that for Rob.

Yes, Rob. Good morning. Look, I wish I could look into my crystal ball and answer those questions with a little bit more clarity, but look, I think the commission understands – I think they signaled pretty quickly that they were willing to rehear their order. I take that as a positive signal. Obviously there was a strong vocal industry response to their order. And so, I remain – I would say, cautiously optimistic that they are going to undertake the review of the matter seriously. I think they understand we are probably one of the most transformative points in the utility industry in terms of where we are going over the course over the next twenty to thirty years and they understand that transmission plays a vital part in realizing our future energy composition in this country. And I think they know they understand that ROEs are an important component of that. So, I remain cautiously optimistic that they are going to seriously review the matter to look at their methodology not only kind of from – in terms of how it’s applied under the period under consideration, but obviously how it also applies prospectively. And in terms of timeline, I am hopeful that perhaps with maybe the sort of decision with Commissioner Macome leaving the commission under at least the – his current term at the end of June. However, he could stay through the end of the congressional session, which presumably will be December. I am hopeful that they will act sooner rather than later while they know they have a quorum. But again, I don’t have any particular knowledge or insight that that suggests what they might do or when.

All right. Thank you for the color.

And our next question comes from the line of David Quezada from Raymond James. Your line is open.

Thanks. Good morning everyone. My first question here, I understand there is legislation proposed in New York that couldn’t enable regulated utilities to invest in renewable generation and I am wondering if that’s an opportunity you could potentially look at and if you see that as being something realistic of your five year outlook?

I guess, David, anything is possible. Although I find it difficult with – in terms of competing some of the sort of bidding processes on renewable energy, you have some of the bigger players that are sort of owning that space. Their supply chains have been developed and all of that, but, clearly, these are things we’d always look at and I know Charlie is on the phone. Charlie, anything else that you want to offer around that area?

I mean, I think, first of all, legislation is probably a bit of a long shot in getting through. We’ve often said that, if the market doesn’t deliver we want the opportunity to deliver or if we could deliver it at a lower cost, we want that opportunity. serve and stick:

Okay. Great. Thank you. I appreciate that. And then, maybe just one other question. On the MISO, the next round of the MISO MVP project, any thoughts on timing and how those might be awarded?

Linda, do you want to provide some color?

Sure. I continue to be more and more optimistic in terms of when you understand what’s needed in terms of various state RPF standards or particular utility renewable goals. They cannot be met without a kind of one would say it’s a large regional build out. I think there is a lot of recognition with from state governors, from state commissions, the utility industry at large that we do need another MVP like portfolio. I think there is a lot of people that would agree that the last round of MVP project, how that was accomplished was a good model for us to sort of try to replicate. MISO right now is currently in the process of doing a regional study that would sort of help identify based on all the known variables and goals from each of those respective states. But I think the industry awaits sort of the outcome of MISO study process. But I do think sort of on a – sort of a parallel path, the biggest issue and the one that we have to get solved is, sort of the cost allocation. That continues to remain the biggest barrier. But I do think there is increasing recognition that we do need to sort of move forward in this approach. I – from a timeline perspective, again, this is just my opinion of prospective. I do think we will hopefully see progress on that fronts probably within the next 12 to 24 months. But obviously, there are large unknown, large variables, particularly when it comes to who pays and that’s really the – I think the focus of the effort once the actual sort of lines and plan is identified. That will be the biggest focus for us all.

Great. That’s great color. Thank you very much.

And our next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open.

Yes. Hey everyone. Good morning. My first question was just on the – now that you guys have done the equity issuance late last year and I think you mentioned meeting with the credit rating agencies in the next couple of weeks. And I think you are too far in front of that, but just thoughts on the potential for action from Moody’s given the spread in rating. I think, previously that it seemed like a more longer term type deal, but any chances that that can shift up given the equity acceleration?

Just a comment, Michael from me and then Jocelyn can provide some more color. But, clearly, we’ve made great strides in improving our balance sheet. We listen to the input of our rating agencies and we wanted to make sure that there was no doubt that Fortis’ intent was to have a stronger set of credit metrics. And we’ve acted on that and we are looking forward to engaging with these agencies in the next few weeks here to really tell them the story and get further input from them.

Barry, I agree with that conclusion. I mean, we would look certainly to with S&P to get removal of the negative outlook and with Moody’s we’ve always said that we are not pleased with the BAA3 and we are always looking to improve that. We do have a good story. The recent equity issuance certainly again is a credit positive that I think is going to bode well when we are having these discussions. But – so we look forward to having those discussion and hopefully we can make progress in that area.

Great. Thanks. And then my other one, just shifting to Alberta. First just anymore specifics on the potential timing regarding the transmission issue and the review in variance there and then maybe just also expectations what we can expect, salary, cost of capital proceeding that’s going to go on this year?

Michael, do you want to comment on the sort of process a little bit? Add some more flavor on the AUC issue?

Sure. The only thing, Barry - thank you. The only thing we have out of the commission was the ruling at the end of December which really indicated that there were still a lot of uncertainty with respect elements required for them to reconsider their decision. So they’ve tendered some IRs to parties here. But we don’t have any visibility into the timeline and expect that it may go beyond the end of the first quarter and even into the second quarter. Yesterday, we filed the motion with the AUC seeking additional information and clarity on to the – as to the process and requesting an oral hearing on several of the matters.

And I guess, on the cost of capital, do you want to just add on that as well?

Yes, on the cost of capital, that proceeding, we expect we filed the evidence in January. We will have a hearing in April and the intention is to have the commission decision before year end to set new ROEs and capital structure for the next year PBR. And there has been a sort of a signaling that there may be a desire to return to a formula for the 2022 period.

Okay. Great. Thanks a lot.

Yes.

And our next question comes from the line of Mark Jarvi from CIBC Capital Markets. Your line is now open.

Thanks. Good morning everyone. Maybe start with MISO, as you go through this process of the rehearing. Curious to hear your thoughts on whether or not you think the second complaint gets revisited and the dismissal could be potentially reversed?

Well, there is any group of possible outcomes, so we really can’t prejudge what will happen there. Clearly, from our perspective, we did - under the accounting rules, book the refund in the fourth quarter. We did remove it in terms of our adjusted earnings. So that was the correct way of handling it. But it has been – I guess, I am lacking a better word, appeal it as well – well, as much as we are appealing the order, they are appealing the fact there wasn’t a refund granted on the complaint two. So, I just think there just can be lot more conversations around that over the course of the next twelve months.

Okay. And then a couple questions on BC. One would be, just mechanics are on the interim rates, why you wait for the final decision as it kind of just flattish year-over-year and then potentially a retroactive true up once your final decision later on ends in 2020?

Roger, do you want to add some color on the sort of mechanism? Roger Dall’Antonia: Yes, you bet. Good morning. On the interim rates, it applies to both the natural gas company, as well as the electric, it’s saying 2% increase on gas and 1% electric. It sets rates for the year once we get the decision we should expect mid-2020 depending on the outcome of that decision. They are likely be an adjustment starting in the following year and either an increase or decrease to adjust to whatever the final decision is.

So no adjustments in 2020, that it would come with 2021? Roger Dall’Antonia: Yes, if it’s happening later in the year, just for convenience without – review the rate adjustment January 1st later than two week changes because we also then have to set rates for 2021. So it’s going to be really a question of when in 2020 the decision is received what’s most experienced, so the customers are dealing with two great changes.

Okay. That’s helpful. And then my second question on BC would just, maybe Barry you can extend your thoughts on your commentary on wood fiber to Tilbury and just your view even in the concept of ESG principles, as well as just the LNG environment right now?

Well, we are very excited about the Tilbury facility, generally. You know that facility is acting currently as a peaking facility as well as a storage facility for natural gas that we are using for local transportation, fielding the ferries and heavy-duty trucking and that kind of things. We are also looking at the possibility of expanding that facility to increase the storage capability to provide some resiliency for the natural gas networks in British Columbia. And as you mentioned, the possibility of a small-scale export terminal. These are longer term projects. You do have to work through various processes to make them happen and we are starting on those path. Clearly, the spot price of LNG in Asia, I have looked that at today, but over the last few weeks, given everything that’s happening in the world, it’s dropped dramatically, it’s not that helpful for LNG exporters. But these are temporary things in my view and these are projects we look at over very long periods of time. What we do know is that there is tremendous amount of natural gas in British Columbia. That gas does have to get out of the province and any sort of avenue that it could be available to allow that to happen is attractive to the owners of that gas and we do have that possibility with our Tilbury facility to play a small role in export of LNG and we continue to sort of examine that opportunity.

So to summarize, just if you take a longer term view, really nothing has really changed in the last few months from what you guys would have had maybe at the Investor Day in terms of outlook for that?

Yes, I would say, we are further along on our work. In regards to the resiliency conversation for example, as well as we are working on getting the adjudi approved for the site. So that we can bring vessels up to the plant. So that has to go through an environmental process. We are working on that. So, we are knocking things off. So we are further ahead. In terms of making a final decision, I can’t say, when we are going to be including it in our capital plans, but we are definitely putting a lot of effort into progressing the opportunities that are there.

Okay. Thanks for that.

And our next question comes from the line of Linda Ezergailis from TD Securities. Your line is open.

Thank you. I am wondering if you could maybe give us a sense of the nature of the resiliency standards that CSA is looking at implementing for Canadian utilities and when might Fortis start incorporating that into your Canadian utility plans? And what might be the magnitude and timing of the investments that might be required for that?

So, Linda, I do have my Google here. Gary Smith, all things related to standards in the electricity industry in Canada. And Gary, you want to just comment on that?

Sure, Linda. A couple of years ago, the Canadian Standards Association launched a project with the National Research Council to review the effects of climate change for Canada. And the output of that is a document that was published last year and it highlights significant changes required in standards for overhead systems. And the next year or so, those standards will be reviewed by the industry and updated and it will likely lead through additional requirements to increase the strength of the asset.

And so, it wouldn’t be included in your five year capital budget, this September, but potentially next September?

I think what will happen, Linda, is that will take probably a year or so to go through these standards and to make the revisions. When you deal with a CSA standard as a balloting process that the industry needs to look at, so it will probably take a year to 18 months to revise the standards and then once that’s happened it will then filter into utility budgets.

And would these be incremental or quite significant in their nature versus prior revisions?

I think that remains to be seen, Linda, the areas that are looked at of course is, wind loading, ice loading, the effects on pole strength, conductor strength. So, I think it remains to be seen what the output will be. But there is no doubt that the signals that were sent by the National Research Council that are captured in the document that was published last year, the signals had significant changes that are required.

Okay. That’s helpful context. Thank you. And maybe, just more from an operational perspective, when we look at across your North American utilities 2019 and factoring in whether and timing of operating expenses et cetera, can you comment on kind of what your achieved ROE was versus allowed? And how we might think of that in 2020?

So, Linda, it’s Barry. Obviously, there is – with ten utility businesses, it’s – I don’t have the list in front of me, but we actually – from an achieved perspective, generally have done pretty well actually at our businesses and the businesses that had forward test years frankly, obviously, we typically achieve our allowed returns, maybe a little more. And the Arizona business had a reasonable year last year as well. So it did pretty well. ITC with its formulary rates as FERC clearly earns its allowed return. It’s a true up process and that is the strength of that FERC formula rate. So that’s very, very positive. Our Caribbean businesses are still, I would say a little light, but they had a reasonable year and what’s needed in the Caribbean now is that we are seeing a fair bit of growth coming and the economies have strengthened there. So I am excited, even though they are small, I am excited about those businesses for the next number of years. So, so, overall from a ROE perspective, in terms of what we were allowed to earn, I think we really did a pretty reasonable job last year.

Thank you. And maybe also just to help us look forward a little bit. In your Energy Infrastructure segment, I realize it’s not a big part of your business. But there is some variability there year-over-year. Can you comment on what the rainfall so far has been this year and any sort of outlook if you can even see forward what that might – what sort of forecast there might be locally? And then, margins so far this year in Aitken Creek and what 2020 might hold for Aitken Creekas well?

Thank you, Linda. It would be helpful if everyone on this call did a rain dance for us, because, we do need rain in Belize. We are in the dry season now going into sort of the beginning of it. So, I am not expecting any real improvement in Belize until mid-year as we go back into those rainy season. Hopefully, we get to fill those reservoirs quickly and we have a good second half related to that. What’s interesting is, sort of ten years that we’ve held those assets in Belize, this is really sort of an off the chart kind of – this past year it was aberration frankly, because we’ve tended to generate pretty well around the normal in that business. So, definitely a strange year there for sure. I am going to allow Roger to comment on the Aitken Creek facility in BC and I don’t think there is probably any big trends we can comment on right now. But Roger, do you want to just maybe offer a comment on the year there? Roger Dall’Antonia: Yes, thanks, Barry. As far as the first quarter, it’s too soon – we are still in a fairly low cost environment out there. So, we are – strong inventory levels and we’ll take care of opportunities based on market shifts here as we move forward. So nothing - fairly consistent to what we saw as we ended 2019. Too early to say really about 2020.

Okay. Thank you.

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

Thank you. Probably quick one from me and congrats on navigating your way through the state of emergency in the province earlier this year. Given what’s happened with Nalcor in Muskrat Falls in the Federal Government. Do you see any longer term opportunities arising out of Nalcor and just some of the assets that they hold?

I would say, I hope so. But I wouldn’t be counting on it too much. We try to play a bigger role in the province and it’s not been available frankly. So, we obviously have Newfoundland Power. It’s a great business. Our people there do a great job. We saw that in the state of emergency. We are very open to doing more, maybe we can be part of some solution in the future. But it doesn’t look like that that’s possible at this point.

Okay. I will leave it at that.

And our next question comes from the line of Patrick Kenny from National Bank. Your line is open.

Hey, good morning everyone. Just a quick follow-up here on the rehearing on the MISO ROE. Just wondering, depending on the outcome, whenever that is, I know you’ve quantified the impact on EPS for every 100 basis points downside to the 10.6%. But also wondering if there is any reduction in ROE might that have an impact on the five year capital plan for ITC or that 6% to 7% rate base CAGR over the next five years?

Patrick, listen, clearly, we have to see what FERC does here with ROEs go dramatically lower than any – I think any business has to evaluate its plans and we would have to do that at ITC. Clearly, we are always going to do our jobs of making sure that system is reliable and all of that. But this conversation on ROE is very, very important to the industry and to all the things that need to be done in terms of moving to clean energy and reliability of the systems. So, this is why it’s so important for FERC to get this right. And we believe they will, frankly at the end of the day and we are going to work hard to play our part in making sure that that happens.

Great. Appreciate that. And then, just on the ESG fronts with respect to – sorry, any land used agreements you may have with First Nations communities across Canada. I know you guys have done a great job over the years managing relationships. But I just wanted to confirm if there are any near-term negotiations we should be keeping on the radar here or perhaps, Barry, any comment you might have on just navigating the broader indigenous sensitivity right now around energy infrastructure in general?

Well, for any Canadian business involved in infrastructure, this has been a matter that’s been with us for some time and in the case of Fortis, we have been working with our First Nation partners for a very long time in British Columbia especially, since we’ve owned the company, but even before that, whether it be the Terasen business when we bought it. Those folks have developed a really strong relationship with many of their First Nation partners. We’ve actually utilized a lot of that sort of expertise as we looked at our Northern Ontario Transmission project, Wataynikaneyap and that project is often running at this point in time. And the relationships there are strong. We – like, you would expect obviously, do have a lot of infrastructure on First Nation sort of lands, for lack of a better description and – but have just a pretty normal working relationship at this point in time. There is no – that I can recall, Patrick, no sort of current issues from our perspective there. And but it’s something we got to continue to work on to make sure that we are listening and have great relationships with the indigenous folks, so.

Okay. That’s great. Thanks, Barry.

And we have no further questions in queue. I would like to turn the call back to Stephanie Amaimo for any closing remarks.

Thank you, Lisa. We have nothing further at this time. Thank you for participating in our fourth quarter 2019 results call. Please contact Investor Relations should you need anything further. Thank you for your time, and have a great day.

Thank you for participating. Ladies and gentlemen, this concludes today’s conference. You may now disconnect.