Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas First Quarter 2021 Financial Results Conference Call. My name is Valerie, and I will be the operator for today's call. All lines have been placed on mute to prevent any background noise. If you have any difficulties hearing the conference, please press star then zero for operator assistance or at any time. After the speakers' remarks, there will be a question and answer session. As a reminder, this conference call is being broadcast live on the internet and recorded. I would now like to turn the conference call over to Adam McKnight, Director, Investor Relations. Please go ahead, Mr. McKnight.
Thanks, Valerie, and good morning, everyone. Thank you for joining us today for AltaGas's First Quarter 2021 Financial Results Conference Call. Speaking on the call this morning will be Randy Crawford, President and Chief Executive Officer, and James Harbilas, Executive Vice President and Chief Financial Officer. Also joining us here this morning, is Randy Toone, Executive Vice President and President of our Midstream business, Blue Jenkins, Executive Vice President and President of our Utilities business, and Jon Morrison, Senior Vice President, Investor Relations and Corporate Development. In addition to the first quarter press release, financial statements, and MD&A that were released earlier today, we've also published a first-quarter earnings summary presentation. This presentation walks through the quarter and highlights some of the key variances and non-recurring items that we would assume will be helpful for the market to understand. It is available on our website under Events and Presentations.
As always, today's prepared remarks will be followed by an analyst question and answer period. I'll remind everyone that we will be available after the call for any follow-up or detailed modeling questions that you might have. We'll proceed on the basis that everyone has taken the opportunity to review the press release and our first quarter results. As for the structure of the call, we'll start with Randy Crawford providing some comments on our first quarter financial performance, recent progress on our strategic priorities, and what you can expect on the road ahead for AltaGas. Followed by James Harbilas providing a more detailed walkthrough of our financial results, near-term outlook, and 2021 guidance. Then we'll leave plenty of time at the end of the call for Q&A. Before we begin, we'll also remind everyone that we will refer to forward-looking information on today's call.
This information is subject to certain risks and uncertainties as outlined in the forward-looking information disclosure on slide two of our investor presentation, which can be found on our website and more fully within our public disclosure filings on both the SEDAR and EDGAR systems. With that, I'll now turn the call over to Randy.
Thank you, Adam, and good morning, everyone. As an organization, we have undergone significant changes over the past two years in terms of focus, process, and business optimization. We believe the fruits of that labor were demonstrated in our operating results this quarter. Despite the ongoing effects of COVID-19 and the headwinds associated with the U.S. dollar exchange rate, we delivered a record quarter with strength across the platform and are well-positioned to execute upon our durable 2021 and beyond growth prospects. Our global exports and midstream platform achieved record throughput and profit. Our utilities platform continued to profitably deploy capital, control cost, and improve returns. Our finance team continued to lower our debt cost, and we are well-positioned to continue to reduce our leverage ratios over 2021. As a result of these factors, we grew normalized EPS by 63% year-over-year in the quarter.
Excluding the profits from the U.S. transportation and storage business, run rate normalized EPS increased 35% year-over-year in alliance with AltaGas focus on delivering durable and growing EPS and FFO per share that supports steady dividend growth and provides the opportunity for ongoing capital appreciation. Our utility segment continues to demonstrate ongoing resiliency and improved financial performance, where we continue to prioritize the health and safety of our employees, customers, and stakeholders. Excluding one-time items, our U.S. utility business delivered 11% year-over-year EBITDA growth in U.S. dollar terms. Through the combination of our judicious management of our cost, acute capital discipline, and profitable investments we are making to upgrade our infrastructure, we are driving both improved financial results and customer outcomes. The performance seen in the quarter continues to align with the strong long-term growth trajectory projections that we have shared with you in the past.
Through the recently approved Maryland and D.C. rate cases that came into effect March 26th and April 1st, we continue to improve upon our ability to earn our allowed returns on invested capital. The advancement of our network upgrade plans through the utilization of ARP programs continues across our jurisdictions. The investment of this incremental capital remains focused on reducing leaks, lower operating costs, and ensuring that we are well-positioned to continue to deliver affordable, reliable, and lower carbon natural gas for our 1.7 million customers while preserving the optionality of carbon-free solutions in the future. Based on the progress we have made this quarter, I remain confident that we will close the remaining 150 basis points of ROE gap through 2021, which will allow our shareholders to realize appropriate rates of return on their invested capital across our utilities in 2022 and beyond.
We also realized robust performance across our recently expanded midstream operations. Excluding the larger than expected profits from the U.S. transportation and storage business in the quarter, AltaGas midstream platform continued to show strong growth. Including a full quarter of consolidation of Petrogas to deliver more than 85% year-over-year EBITDA growth. The midstream business is currently firing on all cylinders with solid volume growth realized across our integrated platform. We continue to see strong demand for Canadian LPGs in Asia, and activity and production volumes continue to increase around our Montney-focused platform in Northeast B.C. We also are witnessing a strong rebound in production volumes in our non-Montney footprint.
It's only been four months of combined operations since the acquisition and consolidation of Petrogas, but the strength and efficiency of the assets, combined with the increased scale and reach of the expanded platform and the bolstered expertise of the combined workforce, is exceeding our expectations. Given the headwinds of building new fossil fuel-related export assets in the U.S., we believe that our Ferndale facility is not only strategic but extremely valuable. Ferndale's highly efficient operation and dual-product optionality, located on the western U.S. coast, is difficult to replicate and creates a competitive advantage related to the delivery of cleanly burning LPGs to Asia. We are realizing the benefits of operating both export facilities through greater optionality and flexibility in terms of supply and logistics and the allocation of propane and butane between the two terminals, as well as the benefits associated with integrating Petrogas' other transportation and storage-related assets.
During the quarter, we exported a record average of 85,000 barrels a day of propane and butane to premium markets in Asia, improving Canadian realized pricing as we continue to connect more Canadian production to global markets. Both export terminals are performing very well and in line with our strong expectations. Overall, our expanded midstream and energy platform provides us with great operational scale and commercial optionality, allowing us to provide better service and improved outcomes for our customers. Last Friday, we took another step forward in advancing our strategy to refocus the company on our two core businesses while continuing to strengthen and delever the platform and reduce the volatility of cash flow through the monetization of our U.S. transportation and storage business.
We were excited about closing this transaction as it accelerates our timeline of getting to our target of being 5x net debt to normalized EBITDA, and it brings us closer to contemplating the journey that we have been on in the past two years. We are also fortunate in our timing to be able to sell the business after a strong financial contribution the first quarter related to the weather-driven gas pricing volatility to recognize an incremental source of funds that augment this deleveraging event. We are now positioned to reduce our net debt to normalized EBITDA ratio by up to 0.5x over the course of 2021 relative to the approximate 5.6 run rate level we exited 2020, and we remain focused on further de-risking the platform over the long term.
We are proud of the fact that for two years running, we have delivered normalized EPS growth that has materially eclipsed all of our U.S. gas utility and Canadian midstream peers. Our stock performance has followed suit and eclipsed all of our U.S. utilities and Canadian midstream peers over this period. The strong performance we achieved in the first quarter provided the confidence to increase guidance that now when using the midpoint for 2021, represent 22% year-over-year earnings per share growth. The progress made during the first quarter positions AltaGas to drive strong stakeholder outcomes in the year ahead and continue to build a platform that is focused on long-term sustainability.
We believe this is a testament to the perseverance and steady progress that we have made towards executing our strategy and delivering on our priorities, and it's a true reflection of the significant potential that lies within our diversified platform. As we continue to move towards a more decarbonized ecosystem, we believe natural gas to be a critical part as the transition fuel of the future. Our utilities network is comprised of critical infrastructure that enables us to deliver low-carbon natural gas today and provides a foundation for the delivery of carbon-free solutions in the years ahead, including renewable natural gas and hydrogen. We remain focused on executing upon our climate business plan and are confident that we will be very well-positioned for the energy transition that is upon us.
We are committed to exploring and defining the next steps to introduce renewable natural gas and hydrogen into our natural gas distribution system. There'll be more information to come in the quarters ahead as we explore and position ourselves to execute on this promising opportunity. In summary, we've achieved record EBITDA growth, which allowed us to increase our earnings guidance for 2021, successfully integrated the Petrogas acquisition to achieve outstanding year-over-year growth in the midstream business, made significant progress towards earning our allowed rate of return at the utility, and positioned ourselves to further reduce our debt and improve our leverage metrics. With that, I will turn the call over to James to dig into the operational and financial results of the quarter in more detail.
Thank you, Randy, and good morning, everyone. We are pleased to be here today to discuss our strong first quarter results, our increased 2021 guidance, and the monetization of our U.S. transportation and storage business that we announced last Friday. The latter of which should drive an estimated $485 million of near-term deleveraging and accelerate AltaGas towards our target of being below five times net debt to normalized EBITDA.
Specific to the first quarter, we were very pleased with the record financial performance that we produced, which builds on the financial and operational improvements we have demonstrated over the past two years as we reposition the platform and sharpen our focus on delivering durable and growing EPS and FFO per share, which supports steady dividend growth and provides the opportunity for ongoing capital appreciation. During the first quarter of 2021, this included normalized EPS of CAD 1.29 compared to CAD 0.79 in the first quarter of 2020, representing a 63% year-over-year increase. Normalized FFO per share of CAD 2.08 compared to CAD 1.51 in the first quarter of 2020, representing a 38% year-over-year increase. Normalized EBITDA of CAD 674 million compared to CAD 499 million in the first quarter of 2020, representing a 35% year-over-year increase. All of which was underpinned by solid performance across the entire platform.
As we highlighted in the earnings release, the U.S. transportation and storage business generated $80 million in normalized EBITDA over and above what we had originally forecast as we position the business to realize strong profitability from strong pricing moves in the U.S. natural gas market, while meeting the demand arising from the February winter storm that gripped parts of the continent. Overall, core performance in the quarter aligned with AltaGas's corporate focus of delivering durable and growing EPS and FFO per share that supports steady dividend growth and provides the opportunity for ongoing capital appreciation. Specific to the business units, the utility segment reported normalized EBITDA of CAD 371 million compared to CAD 369 million in Q1 2020.
Strong operating performance across the segment was largely offset by a CAD 20 million unfavorable move in the USD to CAD exchange rate and CAD 16 million in negative headwinds associated with the sale of AltaGas Canada Inc. and the Virginia adjustment that were present in Q1 2020. Excluding these one-time headwinds, utilities EBITDA was up 11% in USD terms. Our growth continued to be underpinned by ongoing system upgrades that are focused on improving the safety and reliability of the network, reducing leak rates, and driving better environmental outcomes, all of which are focused on serving our customers. During the first quarter, the utility segment experienced slightly colder weather across all our utilities, with the exception of Alaska, compared to the first quarter of 2020.
I would also remind everyone that we have weather normalization mechanisms in place at Virginia and Maryland, our two largest operating jurisdictions, which protects our customers and AltaGas from large weather-driven volatility in any given quarter. WGL had a solid quarter with normalized EBITDA of CAD 276 million compared to CAD 278 million in Q1 2020. Excluding a CAD 15 million negative impact of foreign exchange and the one-time impact of Virginia rate case adjustment of CAD 8 million in the first quarter of 2020, WGL's run rate normalized EBITDA increased approximately CAD 21 million or 8% year-over-year. Notable drivers include higher revenue from ongoing system improvements and ARP spending, lower operating expense, and continued customer growth, which were partially offset by ongoing impacts related to COVID-19. We continue to make solid progress towards earning our allowed returns at WGL through a combination of capital, regulatory, and cost discipline.
SEMCO and Enstar's combined normalized EBITDA was CAD 82 million in the first quarter, down CAD 4 million for the same period last year. Removing the negative impact of foreign exchange fluctuations, which totaled CAD 5 million, SEMCO and Enstar's run rate normalized EBITDA increased by approximately CAD 1 million, as the colder weather in Michigan was largely offset by warmer weather in Alaska compared to the first quarter of 2020.
Finally, normalized EBITDA from retail energy marketing business was CAD 13 million in the quarter, an increase of CAD 17 million year-over-year, driven by favorable gas margins and pricing and the absence of widespread shutdowns experienced by C&I customers as a result of COVID-19 that occurred last March. Within our midstream segment, we reported a record CAD 304 million of normalized EBITDA in the first quarter 2021 compared to CAD 120 million in the first quarter of 2020, which represented a 153% year-over-year increase.
This included robust profits from the U.S. transportation and storage business, as well as strong performance across the Canadian midstream operations. If we adjust for the larger-than-expected performance from the U.S. transportation and storage business, midstream run rate EBITDA was still up approximately 87% year-over-year, including a full quarter of consolidating Petrogas. EBITDA from global exports increased to approximately CAD 7 million during the first quarter of 2021, reflecting Petrogas consolidation and combined shipments at RIPET and Ferndale of approximately 85,000 barrels per day of LPGs to Asia across 14 VLGCs. Our processing and fractionation business realized strong volume increases across the midstream platform with a 10% year-over-year increase in total inlet volumes due to increased producer activity as a result of improving fundamentals and commodity prices.
As has been the case in the past few years, we continue to benefit from our industry-leading footprint in the Montney as producers continue to complete drilling programs and increase production at our recently expanded Townsend and North Pine facilities, a trend we expect to continue in the coming period. We remain focused on managing risks in the midstream business and reducing commodity price exposure and volatility. We had approximately 95% of our frack-exposed volumes hedged at CAD 26 a barrel and realized an average frack spread of approximately CAD 15 a barrel after transportation costs. Approximately 60% of global exports projected volumes are collectively hedged, including our long-term tolling agreements. The balance of volumes are de-risked through FEI to North American financial hedges that average approximately $11 U.S. per barrel for propane and butane.
Depreciation amortization expense for the first quarter 2021 was CAD 99 million, compared to CAD 105 million for the same quarter in 2020. The decrease was primarily due to lower U.S. midstream amortization and lower foreign exchange rates, which were partially offset by new assets placed into service and the amortization on the consolidated Petrogas assets. Interest expense was CAD 70 million, in line with last year. Higher debt balances and lower capitalized interest was offset by lower average interest rates. Turning now to our 2021 guidance and capital plan. We have increased our 2021 financial guidance ranges to reflect our robust start to the year and the confluence of tailwinds and headwinds that have unfolded since our initial guidance back in December of 2020. This includes increasing our 2021 normalized EPS guidance range to CAD 1.65-CAD 1.80 per share, from CAD 1.45-CAD 1.55 previously.
This represents 22% year-over-year growth using the new midpoint. We also increased our 2021 normalized EBITDA guidance range to CAD 1.475 billion-CAD 1.525 billion from CAD 1.4 billion-CAD 1.5 billion previously. This represents 15% year-over-year growth in normalized EBITDA using the new midpoint. Our 2021 CapEx outlook remains unchanged at approximately CAD 910 million. The majority of that capital budget is being allocated to the utility segment, which is focused on system upgrades that drive better customer outcomes. We were also pleased to announce the sale and closing of a transaction to monetize the U.S. transportation and storage business last Friday for total proceeds of CAD 344 million. This non-core asset sale represents another important step in advancing AltaGas's strategy of refocusing the company on its two core businesses while continuing to reduce leverage and reduce the volatility of cash flows.
This is a continuation of what has been a multi-year journey as we reposition AltaGas, and we are pleased to be nearing our goal of getting to five times net debt to normalized EBITDA. This concludes our prepared remarks, and we would be happy to turn it over to Q&A. Operator?
Thank you. Ladies and gentlemen, we will now conduct the analyst question-and-answer session. If you would like to ask a question, press star then one on your telephone keypad. If you like to withdraw your question, press the pound key. There will be a brief pause while we compile the Q&A roster. Your first question will come from the line of Patrick Kenny of National Bank.
Yeah, good morning. Just on the propane export business, looks like the tolling arrangements are still at just 15% of the 90,000 combined capacity. I thought it was closer to 20% previously, I just wanted to confirm that there have been no incremental long-term commitments made after the April 1st NGL supply recontracting season. I guess if not, maybe an update on how your discussions are progressing with some of your larger gas processing customers that might be interested in locking in their export capacity on a long-term basis.
Yeah. Hey, good morning, Patrick. Thank you for the question. First of all, you're right. We are currently at 35% toll at RIPET, we are targeting higher percentages post April. Conversations have been constructive and we speak with them regularly to secure additional tolling volumes. I think just to give you more backup on a longer term, you look at this and you said our capabilities and efficiencies that we've created of having these two West Coast export facilities have really put us in a position that producers certainly can't ignore the value proposition that we're proving to them. The recent strengthening in the fundamentals and improving commodity prices is really starting the conversation, and we're seeing increased interest by producers and aggregators who want to be participating outside.
Quite frankly, some of the consolidation that's occurred as well with larger balance sheets and customers able to make longer-term commitments makes us optimistic that we'll continue to strengthen our position there. Thank you, Patrick.
That's great, Randy. I know it's still early days in the nearby Watson Island terminal being online, but any comments on having to compete for volumes or contracts, or are you servicing completely different markets and we should not expect any near-term pressure on volumes or margins at RIPET or Ferndale?
We don't see that the startup of Watson Island is going to have any significant impact on our business. We believe that the Canadian propane market is going to continue to be oversupplied, and the Montney continues to see strong drilling activity and remains a top play in North America. Overall, though, when you think about our assets intrinsically, the assets are great. It gives us a return on the investment that's outstanding and the intrinsic value of the dislocation of values of propane, the ability to arb propane and butane. What that does is it provides us an incredible value that no one, including Watson, can replicate. We're not a one-trick pony. We've acquired these assets, and we can move far more propane than prior to the acquisition.
We also have the ability, as I said, when prices line up differently between the two products, to ship more butane than propane or vice versa. Our position in the industry is leading. The two facilities with the optionality access the Asian markets, and when we look out there, we don't see others that have that ability. Overall, Watson Island, smaller boats, different markets, and it'll essentially have some commercial challenges.
Okay, that's great. Thanks for confirming that. Just for James, maybe just with the improved visibility here towards reaching your sub five times leverage target, any update on your discussions with S&P regarding moving to BBB mid rating, or is that still dependent on executing a sale of MVP?
Hey, Patrick. It's a good question. At the end of the day, it would be fair to say that the sale of the U.S. transportation and storage business is moving us a little faster than we had originally anticipated towards that five times net debt to EBITDA goal. We've just come through a ratings update and confirmation process with S&P late in 2020 and other rating agencies, and so far we're exceeding some of the forecasts that we've put in front of them. I think that this is something we will discuss with them, as we enter the ratings review cycle later this year. If you look at the report, it would be a couple of years of us hitting FFO to debt targets that are in the 14%-15% range that would trigger an upgrade.
Okay, that's perfect. Thanks, guys. I'll leave it there.
The next question will come from the line of Ben Pham of BMO.
Hi. Thanks, Lamar. I had a couple questions on the U.S. storage sale. I'm curious, you mentioned acceleration of debt reduction. Just curious about what you meant by that. Is it six months, one month? Any sense of when you think you can get to the five times target? Is it next year or the year afterwards or something more medium term?
James, you want to take that?
Yeah. Sure. When we released the press release on the U.S. Midstream sale, we've clearly identified that if you look at our run rate EBITDA at the end of 2020 and add a full year contribution from Petrogas, we would've been at about 5.6x net debt to EBITDA. This sale will take about 0.5 turns of leverage off of that, so we're starting to get close to that 5x net debt to EBITDA. Looking out into 2022, obviously if you layer in some growth that we forecasted being contributed by rate-based investments, then we will move closer to that five times. For us to get below it, we obviously have additional dry powder at our disposal and levers to pull with some additional non-core assets that we haven't moved on at this point.
We continue to identify MVP as a non-core asset. We're going to continue to be patient with that asset so that we fully de-risk it and increase the value and move forward with the process at that point, which should take us below five times net debt to EBITDA.
Okay. That's great. It's an interesting transaction because you're doing it at a time where volatility is increasing and on a trailing basis, looks like you got a good multiple and on a forward basis, maybe not so much. Do you characterize this transaction as more accretive to your balance sheet versus accretion to your EPS or your unlevered EBITDA?
Well, when you think about this transaction and the asset itself, it's pretty much of a non-core asset. If you think about the business and the contractual business of storage and transmission, what you do in that business is it has the intrinsic value that you hope to cover your cost. Then you set yourself up with the opportunity with intrinsic value that may happen one out of five or we believe 10 years. For us, very much of a non-core asset, very small impact overall to earnings, and it presented us with an opportunity to de-leverage significantly. We made a strategic and important decision to hold those assets through the end of the quarter for that opportunity, and I think the team did an excellent job.
Okay.
I just wanted to add from an earnings standpoint, it's actually going to be neutral from an EPS standpoint. Just if you look at the contribution it's had on average over the last five years of about CAD 16 million and you basically take interest expense out from proceeds that we're going to use to repay debt and the depreciation and amortization that we'll avoid because of the derecognition of that asset on sale, then it would be neutral to earnings going forward.
Okay. That makes sense. You're ignoring this windfall this year, which makes a lot of sense and using that historical average. Okay. Maybe the other thing is the MVP. I just haven't had time to go through everything. Any change with some of the accounting, like AFUDC and anything going on there? Because I just saw some notes on AFUDC.
I'll let James talk about the AFUDC, but more broadly speaking, I think we believe and continue to be confident that the pipeline will get built. That it's a very critical asset for reliability in the U.S. in terms of the build-out of the electric grid as well. Specifically the AFUDC, do you want to address that, James?
Yeah. Ben, we did record AFUDC through 2020 on the construction of that project, ourselves and the consortium partners on MVP all cease recognition of AFUDC as it moves its way through the remaining milestones that it needs to achieve to get to in-service date. 2021 will not have any AFUDC in our EBITDA or EPS numbers.
Okay, perfect. Okay. Thank you.
The next question will come from the line of Robert Catellier of CIBC Capital Markets.
Yes, thank you and good morning. Congratulations on the sale of the U.S. transportation business. Just a follow-up there.
How do you look at how that impacts future asset sales? For example, just picking one at random, Blythe. Is it easier to just sell it and clean up the story, or do you now have the financial flexibility to hold out for top dollar? On a similar vein, we're seeing some very strong valuation on utility sales in the market. Is there any incentives to maybe look at non-core utilities as de-leveraging candidates?
Thank you, Robert. Thanks for the question. On the last half, sure. We're always looking at opportunities to look at our portfolio. To the extent that we can't leverage and grow those assets, we would look at that. More broadly, the de-leveraging that we have done has been, I think, significant, and it's put us in a position where we can use our dry powder on some of these other non-core assets. That's where we'll be. Certainly, as we did with our non-core transportation and storage assets, we'll be opportunistic. We are in, I think, an excellent position to fund our growth plans and to continue to create shareholder value. It hasn't really changed. It's just put us in an even better position going forward.
Right. Okay. I wondered if you could comment on the outcome of the recent Maryland case. How do you characterize that income? It looks like it was quite a bit short of the application. At the same time, you're still holding to your view of being able to achieve authorized returns. If you could just square that up for us, please.
Yeah, sure. The order was ultimately a settlement on our HEAP in terms of the return on equity and the capital structure were consistent to what we had previously been earning on. When we look at our business going forward, our strong rate base growth in earning our allowed return, we're looking at our overall operational excellence model. Blue and his team have done a tremendous job in terms of capital discipline, judicious cost management, and improving the customer value proposition. Yeah, we're very bullish, and we continue to remain on target to earn our allowed return.
Okay. Last question from me. I know it's quite early, but has the change in the carbon tax or the expectation of a CCUS tax credit opened up any opportunities for AltaGas?
We know it's early, right? There's a lot to unpack in a variety of these guidance proposals around infrastructure and area. Really, I think, overall in some of this, we'll be looking at really benefiting in the utility and our existing kind of relationships and infrastructure that connects our 1.7 million customers. As we look forward on projects such as hydrogen, it appears to have some options that can leverage our asset and customer base and provide significant environmental benefits. We'll be looking at those opportunities, and in particular, and it's early, there's a hydrogen production tax credits in some of the other proposals. We'll be looking at that. Again, it's really early. That's going to be eight months down the road.
Yeah. Okay. Thank you.
The next question will come from the line of Andrew Kuske of Credit Suisse.
Thank you. Good morning. Maybe the first question just starts with Randy, and it really revolves around your hedging program, and we appreciate the details that you have on a quarterly basis. If you could maybe just talk about just the philosophy of the hedging program on the midstream side of your business and how you're approaching this. What's changed in the current market environment or what's remained the same?
Hey, Andrew. Thank you. Nice to talk to you. As James had mentioned, we have approximately 60% of the volumes locked in this year. Really when we look at it, we're managing in terms of our cash flow and earnings. We leave a certain amount of those positions open because it provides us the flexibility for opportunistic pricing and supply movement. We tend to go into the year with a target around those levels, then we charge the commercial team to optimize that going forward. Then we'll be continuing to look forward into 2022. In addition to that, we calculate our forecast on ultimate tolling volumes as well and incorporate that into our hedging strategy. That hasn't changed. We continue to be focused on increasing the tolling percentages as well.
Okay. Appreciate that commentary. Maybe just looking through the top-of-the-house lens, obviously dollar to Canada has moved a lot. How do you think about just the FX hedging approach or lack thereof from a philosophical standpoint for the organization?
Well, James has done a great job of that. I'm going to let him address it. I'll address it at a high level. We have two aspects that go here, right? We have our U.S.-denominated debt, as that changes as opposed to some of the cash flows and EBITDA that come back. There's an inherent hedge there. James, I'll let you address it more specifically.
Yeah, Andrew, we've said in the past that we don't undertake translational hedging. We do look at transactional hedging to try to lock in margins on some of our exports. On the translational side, we don't. Even though there is a reduction to EBITDA, when you drop down to ratios like EPS and our debt metrics, just given the fact that we've got U.S. dollar-denominated debt and U.S. dollar EBITDA, there's no real material impact to our earnings per share debt ratios as a result.
Appreciate that. One final one, if I may, and I know it's still early days. Do you foresee any impacts just from the commentary that came out of the Canadian budget in relation to interest deductibility?
Yeah, we've looked at this on a preliminary basis. We don't anticipate any issues with the debt that we've got at ALA and the profits that we're generating within our Canadian business units. I don't think we're going to be captured by those rules at this point. We continue to reduce leverage, so I think we're in good shape there.
That's good. Thank you very much.
Thank you.
The next question will come from the line of Linda Ezergailis from TD Securities.
Thank you. Some of my questions have already been answered. I'm wondering maybe you can just give us a bit more context around hitting your run rate of operational efficiencies and synergies with Petrogas and Ferndale. How would you characterize in terms of the extent to which you think you've realized what's possible versus how much more there is in the first quarter versus how you might continue to ramp that up and when you might hit your full run rate of efficiencies and synergies?
Good morning, Linda. This is Randy. Thank you for the question. We're in the early days of the integration, I think that we are just beginning to scratch the surface of what we can do as we align these two businesses going forward. I told you, broadly, it gives us the ability to load more ships. We have far more tools in our toolbox around logistics and optimization. Again, I think that we'll be working through this year to continue to optimize them. I think the two teams have come together very well. We'll continue to look at our rail cars, a lot of the logistics. I've said before, we're an energy export and logistics company, the team continues to drive value. Yeah, early stages of what we ultimately can achieve, in my judgment.
Okay. Clearly the outlook for the whole industry has improved in Western Canada. I'm wondering if you can give us a sense of how we might think of the volumes continuing to ramp up in your midstream business and what sort of incremental commercial agreements or commitments that you might realize from producers over the next nine months, I guess, as you continue in the year.
Well, clearly, we don't want to get into some of our specific negotiations, but I think the trend has been friendly. Mobility around the world is continuing to pick up and energy demand is following suit. That's good for the upstream producers. We're fortunate in the extent that the investments that we've made in our assets have available capacity, particularly at Townsend and North Pine, and so we continue to see ramp-ups there. Over the longer term, continue to provide what I believe to be the best market in Canada for LPGs, and you'll see us continuing to increase volumes there and make longer-term commitments with producers going forward. We're in a really good position as volumes continue.
Producers have said they're going to be disciplined, but we'll continue to improve our efficiencies and cost structures, and I expect that we'll continue to have volume growth trends ramping up over the next year.
Thank you. Just a final follow-up. In the past, AltaGas has expressed a willingness to consider petrochemical investment opportunities in Western Canada. With your expanded NGL capabilities and optionality, would you consider any sort of petrochemical investments, whether it's a partial interest in a joint venture or other initiatives?
Linda, look, let me say this. We're primarily focused on our integration and optimization of our assets, and that we continue to see opportunistically an ability to deploy capital there organically. As we look forward, similar to what we did with Petrogas, to continue to leverage our distinctive capability around our export capacities we would really be looking more on organic growth. Overall, I think we're unique in providing both access to domestic markets as well as our export volume. Again, I don't see us at this point moving in that direction. Clearly, I think our focus, and we believe to be the best market, is in Asia.
Thank you. I'll turn it back in the queue.
Our next question will come from the line of Julien Dumoulin-Smith of Bank of America.
Hi, good morning. It's Dariusz Lozny on for Julien here. Just wanted to briefly have you walk through some of the moving parts of your higher EBITDA guidance for 2021. Obviously, it seems like it's higher due to the strong performance in the U.S. midstream segment that you discussed. Maybe talk through some of the other moving pieces, if you could, such as potentially synergies from Petrogas, FX outlook, and I assume the range is narrower because you have a better sense of your hedging program. If you could talk through some of those moving pieces, please, that'd be great.
Good question. I'm gonna let James get into some. I'll just make a broad comment that we feel that we could be, again, above the midpoint if the Cal '21 stays strong and that it moves beyond that. There's a variety of give and takes in that, and I'll let James walk you through some of those particulars. James?
Obviously, when we look back to where some of the factors were that we put into our guidance in December of 2020, some of the tailwinds that we're seeing right now that contributed to us moving up is obviously the contribution from the U.S. storage and midstream business. We've also seen stronger frac spreads, and we've been able to lock in the majority of those. We're 95% hedged on frac spreads. We've seen higher volumes at our extraction facilities as well than what we had factored in, and obviously higher export volumes in our global export facilities. Randy touched on it, stronger NGL pricing on C4s is something that we've factored into some of our upside as well. On the headwind side, you touched on the one that's the most material, it's FX.
If you look at a full-year impact to FX, it's about CAD 45 million, just given where the FX rate is right now relative to where it was when we set that guidance. Those are some of the factors, the puts and takes that went into us tightening the range and moving the midpoint up by CAD 50 million.
Okay, excellent. Thank you. One more, if I could. On the sale of the U.S. transport and storage asset, can you maybe just talk about, was that a segment or a business that you have been actively marketing, or did you just realize that the time was right for a sale given the conditions during Q1?
We identified that as a non-core asset, and we've been working toward that. As I said in the past, that we've continued to look at a deleveraging. We made a business decision to hold the assets through the winter heating season because of the nature of these assets, and then we went forward to monetize it. That's been in the works.
Okay. Thank you very much. Congratulations on a great quarter.
Thank you. I appreciate it.
The next question will come from the line of Rob Hope of Scotiabank.
Morning, everyone. Just two follow-up questions for me. First off, on the guidance, I just want to get a sense. Was the cancellation of AFUDC on MVP also contemplated there? I guess, when I take a look at kind of the moving parts there, the FX headwind will be offset below the EBITDA line and AFUDC is non-cash there as well. Fair to say that on a cash impact basis, you're still quite ahead of plan?
Oh, yeah. Absolutely, you could say that. James, do you want to comment on that?
No, I don't have anything to add to that, Randy.
I guess as well. AFUDC was contemplated in the guidance?
Originally it was, yes. Obviously, as we got to year-end reporting and some of the impairments that took place and the consortium partners decided not to recognize any more AFUDC, that became a headwind to EBITDA.
Okay. Just another follow-up to Andrew's question previously. You commented on the interest deductibility. What about any cross-border structures? Any potential thought that you'd have to alter anything there or any potential impact from the federal government and the structures you use across the border?
Sorry, I didn't follow your question, Robert. Can you repeat that?
The federal budget also talked about the potential to change any cross-border structures on the tax basis. I'm just wondering if you repatriating any of your U.S. income into Canada could be impacted by any of the changes.
No.
In the budget. Okay.
No, it wouldn't be impacted by Sorry, that's what I wanted to confirm. The Canadian budget changes would not impact our ability to repatriate funds from the U.S.
All right. Thank you. That's it.
Thanks, Rob.
The next question will come from the line of Robert Kwan of RBC Capital Markets.
Great. Good morning.
Morning.
I'd like to come back to asset monetization. While a key goal to date has been the benefit of deleveraging, coming back to your answer earlier around the utilities, does today's LDC transaction cause you to think more about the benefit of selling to drive value between what you think you can sell an asset at versus what's embedded in your share price? Is deleveraging still the main focus and really what would drive asset sales?
I think more on the deleveraging is how we're really focusing to continue to drive down those metrics and provide ourselves dry powder for opportunities going forward to fund the significant growth we see in both our midstream business and our utilities going forward. My comment on the utility is that we want to continue, and we will continue to invest and grow those assets. As we look at what the right mix there is, we'll always be looking at every asset that we own to drive value for our shareholders.
I guess the difference between what you can sell it for versus the whole value is not really something that would cause you in and of itself to transact?
The way I look at these assets, Robert, is that to the extent that we can add value, that we can continue to improve it, leverage the asset, and continue to grow earnings per share, and that we bring a competitive advantage, that's what we'll do with these assets. To the extent that we're not able to do that and they're non-core, then we will look toward monetizing them at fair value. We're not in a position where we have to do any transactions as we were maybe two years ago.
Understood. If I can just finish with the growth that you're seeing in the Western Canadian Midstream Business. Do you see more of that being driven by the optimization of your asset footprint with Petrogas? Or do you still see it being fairly capital intensive with respect to building new infrastructure under contracts for producers and shippers.
I think long term there'll be additional investments in assets and on our integrated platforms and such. Right at this point, we are fortunate to have our network that provides producers access to very valuable markets. I've learned in this business, connecting producers to valuable markets and increasing their netback will attract more volumes to your platform. That's what's happening here. Certainly, we expect with low prices and prices increasing, that there will be a reaction in terms of volumes, and that's what we're seeing, and that will only be more helpful to filling up our facilities.
Just over that long term, if you look at some of those more capital-intensive projects, what are the top two or three opportunities that you see to add to your footprint?
Well, look, I think as we look organically, first of all, we're looking at our logistics platform, right? In that we can aggregate rail and put together more efficiency around our cost structure and rail structure over the long term, right? Expanding in the fractionation side of the business in our Northeast Montney footprint, and continuing to build out infrastructure there and doing it to the best extent possible in a modular way, where the paybacks are faster and that there's not a lot of lag, is a model that we would look for. To be able to take our assets, continuing to expand and leverage that footprint in a cost-effective and efficient manner is something that we would see capital into the future. I think we'll see many opportunities over the long term.
Okay, that's great. Thank you very much.
Before we move on to the last question, I would like to remind participants that if you have any further questions, simply press star then the number one on your telephone. The last question will come from the line of Jeremy Tonet of JP Morgan.
Randy, good morning. How are you?
Hey there, Jeremy. I'm doing well. Thank you.
Good. Just a few questions from me, if I could, to round it out here. Just wondering, any thoughts you might be able to share with the Biden infrastructure bill, and there could be opportunities for infrastructure build-out, but I guess I'm more curious on the tax side. With taxes moving up, how you think that could impact consumers? What could that do to bill headroom? Just wondering, any thoughts you might have on taxes there.
Yeah. Great question, Jeremy, and thank you for it. I tell you on the utility side, and you know this business quite well, to the extent that the Biden tax bill ultimately becomes law, and there'll be some time here, right? It's probably, in terms of the utility, net positive in terms of cash flows, right, and EPS neutral going forward. Those costs would be passed on to the consumer from that standpoint. Given that most of our operations in the U.S. are utility-based, the impact would be small. Clearly, in terms of Petrogas in the U.S., other unregulated operations, there's some give and takes there. There's opportunities for other projects within the infrastructure bill that I alluded to that we're working on in terms of other opportunities with consortiums, possibly, again, around renewable natural gas and hydrogen.
Some things as well in terms of carbon capture that we'll be looking at. There's some puts and takes throughout the bill, and I think we've got a long way to go to see exactly how that plays out.
Got it. Thanks for that. Just wondering, separately, I guess, carbon capture has been kind of gaining a bit more attention with regard to the 45Q there. Even carbon tax in Canada is kind of, I think, raising the profile of CCS as well. Just wondering, any thoughts you might have as far as this technology, whether there could be some role for AltaGas to utilize this at some point in the future?
Great question. I think we're looking at that. We're looking at all aspects of this. We've got a very good, strong, long history of being a leader in social purpose, delivering strong environmental stewardship. As we go through this long, what I believe to be a long transition in the energy ecosystem, one of the things that's really, I think, helpful is what we're doing with RIPET and Ferndale to deliver lower carbon-intensive fuels to Asia and displacing some of the higher carbon footprints. That's of real value in the long run. In terms of the technologies and investments here, carbon capture is, I think, you look at where we are with Ferndale, the refineries, you need scale, right? You need scale and more parties that are necessary to increase scale.
Once we have that, I think that that's long-term, that's viable, and we'll look to participate where we can bring an advantage in terms of building pipes around hydrogen or long-term carbon capture. Again, long-term transition, our company will focus on what we have core capabilities to do and where we'll participate in leveraging our skills going forward, Jeremy. Appreciate the broad question, though. Thank you.
Got it. Just the last one, if I could, with regards to RNG, if you see any opportunities across your footprint there, just any thoughts in general?
Yeah. A few. Again, it's different in each one of our different jurisdictions. I think that we see a couple of things around our territory. I know Blue's on the call. Blue, did you want to add any comment on that respect?
Yeah. I think from a macro perspective, Randy, you're spot on. It varies across our jurisdictions. We, of course, when we think about RNG, we're looking much more broadly than perhaps just the traditional dairy farms or chicken farms based on where we operate. We are active in dialogues and discussions, and you should expect to see some activity from us in that space as we move forward.
Got it. I'll leave it there. Thanks so much.
Thank you, Jeremy.
This concludes the Q&A portion of today's conference call. I will now turn the call back over to Mr. McKnight.
Thanks, Valerie. Thank you everyone once again for joining our call today and for your interest in AltaGas. As a reminder, we will be available after the call for any follow-up questions that you might have. That concludes our call this morning. I hope you enjoy the rest of your day, and you may now disconnect your phone lines. Thank you.