Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas 4th Quarter 2019 Financial Results Conference Call. My name is Sheryl, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise.
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 of Investor Relations. Please go ahead, Mr. McKnight.
Thanks, Cheryl, and good morning, everyone. Thank you for joining us today for the AltaGas 4th quarter 2019 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. As always, today's prepared remarks will be followed by an analyst question and answer period. And I'll remind everyone that the Investor Relations team will be available after the call for any follow-up questions that you might have.
Presentation slides have been made available for today's webcast, and they can be accessed through our Events and Presentations webpage. However, today's prepared remarks will not follow along directly with the slides provided. A replay of the call will be available later today and a transcript will be posted to our website shortly thereafter. Before we begin, I'll 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 2 of the presentation and more fully within our public disclosure filings on both the SEDAR and EDGAR systems.
And with that, I'll now turn the call over to Randy Crawford
or sorry to James Harbilas. Thank you, Adam, and good morning, everyone. It is my pleasure to welcome you to our 2019 Q4 and full year results call. We had a strong year reflecting solid financial and operational performance from both our Midstream and Utility segments. Normalized EBITDA was $1,300,000,000 which is the high end of our full year guidance of $1,200,000,000 to $1,300,000,000 and represents a 26% increase over 2018.
This growth was driven primarily by full year contributions from WGL, 7 months of operations at RIPET, our industry leading LPG export facility and strong results from Petrogas. These impacts flow through to normalized funds from operation, which was $895,000,000 compared to $657,000,000 in 2018. Normalized net income was up over 65 percent to $324,000,000 in 2019, driven by strong operational performance of our capital investments and previously referenced factors impacting normalized EBITDA and higher interest expense and depreciation and amortization expense. Also driving the increase was a low normalized effective tax rate, which was impacted by the accretion of regulatory amounts for tax expense and higher non taxable equity earnings. We delivered these strong results while remaining firmly focused on executing our balanced funding plan, a significant component being the disciplined approach to capital deployment and an aggressive approach to our non core asset sales program with funds being used to delever the balance sheet and fund organic growth.
In 2019, we executed on 2 point $2,000,000,000 in asset sales at attractive multiples, exceeding our target of $1,500,000,000 to $2,000,000,000 We closed out 2019 with a much stronger balance sheet, decreasing our net debt by approximately $3,000,000,000 and improving our debt metrics in line with expectations. In addition, we position the company for continued organic growth through our accretive asset sales in 2019, including the sale of ACI, which has been approved by shareholders and is expected to close in the first half of twenty twenty. This is an all cash transaction for $33.50 per share generating proceeds of approximately $370,000,000 to AltaGas. In 2019, we executed on the largest capital program in our company's history, spending approximately $1,400,000,000 slightly higher than our guidance due to accelerated timing on certain growth capital projects and the timing of close of certain asset sales. Overall, we delivered on all our financial commitments in 2019.
Moving on to our 4th quarter results, we recorded normalized EBITDA of $425,000,000 up from $394,000,000 in the prior year. On the surface, this shows an uplift related to the work we have completed on the rate cases in Maryland and Virginia as well as RIPET, which added $36,000,000 in normalized EBITDA to the quarter. Strong quarter over quarter results were also positively impacted by higher equity earnings from petrogas due to higher export volumes and domestic margins, partially offset by higher operating costs at Washington Gas and the impact of Cinqsa's rate case decision. As I mentioned earlier, we were very successful in monetizing assets to delever the company, which had a corresponding impact on loss normalized EBITDA negatively impacting the quarter by $85,000,000 Adjusting for this, would have achieved over 25% growth in normalized EBITDA. Digging slightly deeper into our segments, the 4th quarter at our utility saw earnings ramp up consistent with historical seasonality expectations.
In addition, the increase in normalized EBITDA was largely was offset by the impact of the ACI IPO and higher operating expenses. As you will recall, in the Q3, we recorded a one time adjustment of $30,000,000 related to the hearing examiner's report in Virginia due to an adjustment of the TCJA liability. In December, the commission in Virginia issued a final order adjusting certain of the hearing examiner's findings, some of which were favorable to Washington Gas, reported very strong Q4 results with normalized EBITDA up over 80% over the same period in 2018. Our energy export strategy was a significant contributor to the quarter with strong volumes at both RIPET and at Ferndale from our equity investment in Petro Gas, which I will get to in a moment. Results in our base midstream business remain strong and we are seeing healthy volumes at our plants, specifically a full year of operations at the 18 Creek North facility and new volumes from the Knick Creek facility, a direct result of the work we have done with respect to our Northeast BC and energy export strategies, creating an integrated value chain connecting our customers from wellhead to export markets in Asia.
RIPET, our cornerstone asset in our Canadian midstream strategy continues to perform well supported by strong FEI spreads. During the quarter, RIPET generated approximately $36,000,000 in normalized EBITDA with slightly greater than 3,000,000 barrels for 6 ships of propane exported to Asia. Overall, we are pleased with the performance of the facility to date. Volumes exported for the quarter were just over 36,000 barrels per day, slightly lower than anticipated due to the CN strike in the 4th quarter. We continue to see strong results from Petro Gas recording equity earnings of $31,000,000 a significant increase from $5,000,000 in Q4 of 2018.
These strong results were driven by higher export volumes and improved export margins like what we are experiencing at RIPET together with improved contributions from Petrogas' other core business segments and a contract termination payment realized during the quarter. Turning to our capital program and funding plan for 2020. Given all the work we have done to improve our financial flexibility, our focus is now able to shift towards executing on organic growth opportunities to drive meaningful contributions in 2020 and beyond. Our emphasis will be on capital efficient organic growth and executing on the accelerated replacement programs at our utilities to ensure timely recovery of this growth opportunity. As such, the funding plan includes $900,000,000 in projects, primarily within our low risk utilities business to deliver stable and transparent rate base growth and strong risk adjusted returns.
In 2020, we have allocated approximately 25 percent more capital to accelerated replacement programs, which represents about 45% of the total 2020 utilities capital program. Capital in our Midstream segment will be focused on the completion of Townsend and North Pine expansions and associated pipeline maintenance and administrative capital and the completion of MVP Southgate, which is the Mountain Valley Pipeline Expansion Project. We plan to fund our capital investment plan through our significant embedded growth and existing financial capacity with no expectation for raising common equity in the near term. We will continue to maintain a disciplined approach to capital allocation. Our priorities have not changed as we focus on preserving a strong balance sheet, returning capital to shareholders through our dividend and executing on low risk, capital efficient organic growth with a self funding model, given our decision to suspend the DRIP early in 2020.
Our investment grade credit rating continues to be fundamental to our strategy. As you know, it provides us with greater financial flexibility and a lower cost of capital, which in turn supports growth going forward. In December, positive rating action was taken by S and P of BBB- with the revised outlook to stable, while Fitch and DBRS affirmed ratings at BBB and BBB low respectively. The S and P result was favorable and in line with our expectation as we have made significant strides in strengthening our balance sheet and refocusing the business. We will continue to work on improving the financial metrics of the company and we'll continue the dialogue with the credit rating agencies with the goal of improving our credit rating time.
As we move into 2020, we are positioned to deliver strong earnings growth, which reflect the underlying strength of of our business and our ability to capitalize on the ample opportunities within our core business. Growth in our Utilities segment is driven by rate based growth and achieving higher returns through rate case settlements, increased utilization of accelerated replacement programs and operating costs and leak remediation reduction initiatives. Our consolidated utilities rate base is expected to grow at approximately 8% to 10% in 2020. The recent rate case settlement at CEMCO is a strong example of our ability to capture timely returns on invested capital and rate base growth. We completed the market connector pipeline safely, on time and on budget in the Q4 of 2019.
And on December 6, 2019, an order was finalized in respect to the Sample rate case with an effective date of January 1, 2020, several months ahead of previous expectations. The settlement approved included an approximately $20,000,000 rate increase and an allowed return on equity of 9.87%. Growth in the Midstream segment will be driven by the significant upfront investment we made since 2018 and increased utilization at RIPET as well as increased volumes at Northeast BC facilities including North Pine, Townsend and Aitken Creek as well as higher expected margins on U. S. Midstream storage and transportation.
Our distinct ability to handle the molecule through the entire value chain and provide access to premium price global markets is very attractive to Western Canadian producers. We will leverage our 1st mover advantage to drive the continued expansion of our integrated asset base and increase export volumes at RIPET. The facility itself was built to accommodate almost 80,000 barrels per day, which will drive significant long term earnings growth with minimal additional capital required. We expect to achieve normalized earnings per share of $120,000,000 to $130,000,000 and normalized EBITDA of approximately $1,275,000,000 to $1,325,000,000 excluding any contributions from the outcome of the Petro Gas put option. We will update the market on contributions from Petrogas once we finalize the valuation and close that transaction.
In conclusion, the strategy we have outlined is designed to result in reliable, attractive, long term earnings and dividend growth. I believe that the combination of appropriate capital discipline, business optimization and operational excellence will position us to deliver strong performance. With that, I will turn the call over to Randy.
Thank you, James, and good morning, everyone. Was a transformational and extremely successful year for us here at AltaGas. We exceeded the operational and financial priorities set out in December 2018, which resulted in earnings that were at the top half of our guidance range. This is a direct result of the newly focused strategy and moreover, the hard work and effort of our talented teams across the company. We transformed the focus and focused the company on our stable, high growth utilities and midstream businesses, where we see the best return opportunities and are now well positioned to deliver long term value to our customers, business partners and shareholders.
Looking back, since I first spoke with you in December 2018 on my 4th day at AltaGas, I am proud of the achievements that we have accomplished. I laid out an aggressive strategy designed to delever the balance sheet, regain our financial strength and flexibility and streamline the business to focus on sustainable growth from our highest returning investment opportunities. We successfully executed our balanced funding plan, delevering the balance sheet and solidifying our investment grade rating, while funding the largest capital program in the company's history at almost $1,400,000,000 We did this through responsible execution of major capital projects like RIPET and the Marquette Connector, which were delivered on time and on budget. In May, celebrated the official grand opening of Ridley Island Propane Export Terminal, the 1st LPG export facility on Canada's West Coast and a cornerstone asset of our integrated midstream strategy. Through RIPET, we offer our customers a unique and compelling proposition, providing services across the energy value chain, including access to export markets where demand is strong and the value proposition remains robust.
We expect this integrated value added capability to provide significant growth in our midstream business over several years by attracting increasing volumes to our existing facilities with minimal capital investment. We achieved significant profit growth at our utilities through projects like the Marquette Connector, utilization of accelerated rate initiatives to upgrade and modernize our distribution system, rate cases to update our current cost structure and implementing our operational excellent model to keep future cost in check. We took steps to establish our utility management team, a new utility management team to address the current needs of our operating and industry leading LDC. We have accomplished significant milestones in a short period due to the exemplary effort and innovative commitment to a new approach of our leadership teams across North America. We are now positioned in 2020 with a significantly stronger financial footing, a sharper focus on our core businesses and ability to capitalize on the significant portfolio of organic growth opportunities in front of us.
We continue to improve our operational excellence model, which will position AltaGas to deliver on our long term strategy of being low risk, high growth utility and midstream business. The near term growth opportunities I see today exceed my original expectations and are now achievable due to the hard work the teams have delivered over the past year. Looking ahead, 2020 is all about execution at our core businesses. We have a unique investment proposition that combines higher growth midstream assets with stable and predictable cash flows of our utility business. We continue to believe this strategy is the right one and the quality and diversification of our asset position, they position us to deliver sustainable, attractive risk adjusted returns over the long term.
Our strategy is straightforward leverage the unique proposition of our high quality utilities and midstream businesses to utilize expertise along the energy value chain to connect customers to markets in North America and abroad. In 2020, we expect approximately 13% year over year growth, driven by our core businesses, which more than offsets the lost EBITDA associated with 19 asset sales. Our midstream strategy is underpinned by the growing demand for energy in Asia and our first mover advantage at RIPET. We will continue to leverage our unique structural advantage to export cleaner energy to Asia and expand our footprint in Northeast BC. We expect this unique capability to attract more Canadian production to increase producer value proposition, to drive continued expansion of our asset base, increase volume and provide more producers the opportunity to access our value export capacity.
Our Northeast B. C. Strategy and the value added approach to our customers continues to position AltaGas as a midstream provider of choice. The success of RIPET is highlighted through premium pricing received by our tolling customers, and we see increasing demand for export capacity and tolling agreements at RIPET. By the end of 2020, we expect to increase tolling volumes to approximately 40% of throughput to approximately 20,000 barrels by the end of 2020.
We expect approximately 15% growth within the midstream segment in 2020 after adjusting for the loss of EBITDA from asset sales in 2019, driven by a full year and higher propane export volumes at RIPET and increased volumes at Northeast BC facilities including North Pine, Townsend and Aiken Creek. We also see significant opportunity to further expand our current service offering through the increased ownership of Petrogas, which owns and operates the 50,000 barrels a day Ferndale NGL export terminal in Washington State. The opportunity for AHAV to obtain full ownership of Petrogas upon the closing of SAM Holdings exercise of its put option and AltaGas acquisition of a greater indirect interest as a result will create the opportunity to provide producers additional market alternatives through access to up to 130,000 barrels of industry leading West Coast energy export strategy. Shifting to the utility segment. Through the ownership in WGL, we are uniquely positioned to capitalize on one of the higher annual rate base growth rates in the United States at 8% to 10%, underpinned by the replacement of aging infrastructure, innovative rate design and growth in our customer base.
Our strategy is centered on safety and reliability, capital discipline and growing the rate base through accelerated replacement programs. We continue to drive towards a performance based culture to enhance our capital efficiency and returns and maintain affordable rates for our customers. We will optimize every dollar spent on repairing and replacing aging pipe to improve safety and reliability, improve our customer experience and reduce leak remediation costs. For 2020, we expect over 10% growth in our Utilities segment, underpinned by approximately 10% rate base growth, higher achieved returns through rate case settlements, increased utilization of accelerated placement programs and operating cost reduction initiatives. In January, we filed a rate case in the District of Columbia asking for an increase in rates of approximately $35,000,000 to reflect the growth in rate base and updating our operating costs.
We haven't filed for new rates in DC since 2016. It is currently the jurisdiction where we see the largest gap between earned versus allowed returns. So this rate case represents a significant step towards closing the gap on achieving our allowed ROEs. In summary, we have a clear line of sight on a significant portfolio of growth within our Utility and Midstream segments and a stronger balance sheet, which will allow us to deliver sustainable growth. We have the internal cash flow and incremental debt capacity to fund approximately $1,000,000,000 in annual growth capital that will provide us the ability to invest in our profitable growth opportunities.
Finally, our near term priorities have not changed. We continue to execute on our organic growth opportunities while preserving capital discipline within our self funding model. Maintaining a strong balance sheet and prudent payout ratio that reflects the long term nature of our asset and balances the need to fund growth and return capital to shareholders. That concludes our prepared remarks. I will now pass it back to the operator to facilitate the Q and A session.
Thank you. Ladies and gentlemen, we will now conduct the analyst question and answer session. Your first question comes from Rob Hope of Scotiabank. Please go ahead. Your line is open.
Good morning, everyone. First question is on the utilities. In your prepared remarks, you mentioned that the DC had the largest gap between the earned and the allowed ROE. Can you kind of walk us through where you actually earned in 2019 or what your actual income on the utility side were to be if we were to kind of back into some of the parts there?
Well, I think clearly as I said in the prepared remarks, Rob, that the D. C. District is our currently has our biggest gap between allowed return and current. And we have a slide in our investor presentation, I think, that walks you through essentially the different steps that we go forward. We filed our Maryland rate case last year and updated our rates as well as Virginia.
And so the main focus really is on getting the Washington DC district rates up to current
basis. Okay. And then moving over to RIPET, can you just remind us what percentage of your volumes historically or I guess in the last couple of months have gone to China versus Japan and whether or not you could see a slowdown in exports there just given coronavirus?
Sure. Rob, I'll tell you what, I don't have the exact percentages, but I'll make a comment in terms of the coronavirus has had an impact obviously on propane demand in Asia. Some of the factories have been shut down. But we haven't seen any direct impact on RIPET operations at this point and we really don't anticipate it that it will. Again, we have a structural shipping and pricing advantage from the West Coast to Canada over the supply destinations such as the U.
S. Gulf Coast. And so we would not expect to be the 1st impacted. We continue to see and receive multiple bids for our spot cargoes in January, as well as March. And with the lower demand in Asia for LPG, we have seen FEI pricing come off.
However, the spreads in North America for propane out twenty are still strong. The FEI to Mount Belvieu is an $11.55 a barrel. We have additionally to your point about Japan and Asia, we have firm term commitments with Astomos, that's 16 cargoes per year. And we have over 22,000 barrels that are of our merchant that are hedged and I mentioned the tolling. So we've again if you look at our historic Astomos has been probably taking 50% of the load in the prior year and then the spot cargoes tend to go to China and other countries.
Great. That's great. Thank you.
Your next question is from Robert Kwan of RBC Capital Markets. Please go ahead.
Great. Good morning. Maybe just starting with a higher level strategic question. You have mentioned about being a diversified company, but I'm just wondering what are your thoughts as you kind of get both sides of the house in order and then start growing? What are the thoughts on splitting the business into a WCSB Midstream Company and a separate U.
S. Utility company?
Well, Robert, right now, as I've said in my prepared remarks, I think we currently believe we've got a unique investment proposition combining our high growth midstream assets with our stable predictable cash flows. And currently, we believe that's the right approach for AltaGas as we've focused the company on the highest quality core businesses. We've restructured the company. So I think right now the diversification in our stable and growing utilities and our higher growth midstream business portfolio enable us to deliver strong risk adjusted returns over the long term. So at this point, I think we're focused on 2 strong businesses rung under a common platform.
And so I think that's because we see significant growth opportunity at this point. Will always look at corporate structure, but at this point, as I said, the combination of 2 strong businesses is the best path forward at this point.
Got it. If I can turn to Petro Gas, I'm just wondering, are you able to quantify how much the one time contract booking was and if there's any color on just the nature of that contract?
Sure. I'll let James answer that.
Yes. So Robert, it's obviously a contract termination that's specific to contract. As a result, we don't want to disclose the amount because it is commercially sensitive information. But what I can confirm that it wasn't a material contributor to quarterly performance and the cancellation of that contract doesn't impact our guidance for 2020 as well. It will not negatively impact our 2020 performance.
Got it. If I can just slide a quick third one here.
Can you just give an
update on MVP specifically as well? Just thoughts on the ACP Supreme Court hearing and read throughs for your project?
Yes, sure Robert. I think based on our discussions with our partners EQM's call, I think we continue to believe that is an excellent project and that is that will ultimately be in service and they're targeting the end of this year. So clearly focusing on the court's decision. There's been some recent comments that appear to be positive, but we'll see how that turns out. But overall, our view is that excellent project.
They're 90% complete as we speak and they're targeting the end of this year.
Great. Thank you.
Your next question comes from Robert Catellier of CIBC Capital Markets. Please go ahead. Your line is open.
Okay. Hi, good morning. I just wondered if you could walk through the provision on Pouss Coupe and just generally discuss your appetite for allocating capital to other gas plants in the current environment?
Yes, Robert, it's James here. So with respect to Puskapay, I mean it's an acid gas injection well that basically we've shut in cause we're in the process of drilling a new well in that area for the purposes of acid gas injection and just felt that it was the appropriate provision to take given the fact that we're replacing it with a new well.
Yes. And Robert
Go ahead.
I'm sorry. Well, I was just going to comment. This is Randy on your second question in terms of the basin. And we continue to believe that we have long term fundamentals and outlook for gas and NGLs in the Montney continue to remain strong. For us, we're in an enviable position with the fact that the capital spend that we did in 2019 positioned us well with respect to RIPET, 80,000 a day of capacity and the completion of our processing facility in Townsend and a doubling of frac capacity at North Pine this year allow us to have a capital light program and really grow into those capacities to some extent are easing the TransCanada North Montney Mainline, to some extent are easing.
The TransCanada North Montney Mainline is expected to come on shortly. We're helping a great deal with our LPG RIPET asset to providing an outlet for 40,000 barrels a day. So excellent basin, well positioned company with assets that are providing producers access to valuable markets. So in the long run, I think we're well positioned to continue to have growth in this basin.
Okay. And then just adding to that the aspects of BC and surrounding undrip recently and then also we've seen some protests of rail blockades. So how does that factor into your capital allocation decisions?
Yes. Well, I mean, again, the particular rail issues that we've encountered are really not an overly concerned. We don't like interruptions, but the rail is an integral part of our supply chain in Canada. It's been that way for over 100 years. And while we wouldn't expect labor strikes and blockades is a common practice in the long run.
And so it doesn't as we look forward into our investments, we see that it will be a viable option into the long run.
Okay. And then final question for me. I noticed there's a sensitivity in there related to the pension discount rate. I don't think we've seen that sensitivity published before. I'm just curious why now and under what conditions would you what conditions would trigger a change in the discount rate used in your pension accounting?
Yes. I mean, we've well, we've included it because obviously, having bought WGL and having post retirement benefit plan, we felt that it was an appropriate disclosure. Obviously returns of the plans themselves could potentially impact the rate and as well as work that the actuaries do. So we felt that it was an appropriate sensitivity to include just given the impact to EBITDA that a change in that rate could have as based on work that actuaries do every year with respect to the appropriate discount rate from a funding standpoint.
So really it's a question of what rates the actuaries pick and when they pick them?
Correct, yes. And that's something we look at annually with respect to those plans.
Thank you.
The next question comes from Linda Ezergailis of TD Securities. Please go ahead.
Thank you. I realize there's a lot of moving parts to how this year will unfold on a number of fronts. But I'm wondering if you could give us a sense of how much was already baked into your 2020 EBITDA guidance when you introduced it in December? And what do you see as the more significant headwinds and tailwinds emerging since then that were not contemplated when you introduced guidance?
Linda, I didn't catch the first part of your question. Do you mind just repeating that?
Well, I was just saying when you introduced your EBITDA guidance in December, I think you had certain assumptions baked in there and things are fluid and dynamic and continue to evolve as 2020 continues on. But I'm just wondering, what has changed since then that was not contemplated that's presenting headwinds and tailwinds that might cause where you land either within guidance or potentially need to revise guidance as the year unfolds?
Well, look, I mean, when we actually rolled out our guidance in December of 2018, we knew about the CN Rail strike. It had more or less come and gone. But obviously blockades and the coronavirus were not something that were in play at the time with respect to the guidance that we've rolled out. That being said though, I mean you've heard very clearly from Randy that despite some muted demand in Southeast Asia, we have not seen a drop off in terms of cargoes leaving RIPET. We have not seen a drop off in demand whenever we go to market with a spot cargo.
So we wouldn't anticipate those issues impacting our ability to land within the guidance range that we provided to analysts when we rolled out our numbers in December. Are you seeing And the only thing I will add is obviously the other thing that's contribution on a pro form a basis of that Petro Gas acquisition.
And any sense of timing, bookends of timing of when Petro Gas might close?
Yes. Linda, this is Randy. We think our judgment is that at the end of the second quarter is where we would see that coming out at this point. And I would add that acquiring the 3rd interest in Petrogas in a greater interest and operational control of these strategic assets are a nice fit within our midstream footprint as you know and it's a great opportunity to take on that operational control. So we would expect to and we're hopeful through the Q2 that we will work toward closing that transaction.
And can you maybe give us a sense of how you're seeing potential synergies as you do gain operational control of Petrogas, whether it be revenue or cost synergies or maybe even future capital allocation decisions, how they might shift now that you would have that full control of Petrogas?
Linda, I guess I would answer your question this way that we've made an investment in Petrogas in 2013. We were bullish on the prospect of exporting products from North America and we continue to remain bullish. We currently are moving, as I said, through the process to determine the value of Sam's ownership stake. So therefore, at this point, as I think you'd agree, I cannot I can't get into great detail. But what I can tell you is that we recently did invest in building our Ridley Island LPG and we continue to move RIPET to a more of a tolling model, right, and to position the asset for upside.
And we will deploy the same strategy for Petro Gas. And the opportunity to have more access to the Asian markets is exciting for us. I firmly believe that the valuation of Sam's interest will be accretive to our ALA shareholders. That ability to operate Petro Gas together with the ALA assets will prove valuable to all of our stakeholders.
Okay. Thank you. And just a final question on Petro Gas. I realize that the funding plan can shift depending on a number of considerations. But have you started a parallel process to tee up the funds required for that?
And can you comment on and I know you can't comment on asset sales, but would they be partial or full sales of assets? Or any context you can provide on how the funding plan has started if at all would be appreciated?
Yes. It's James here Linda. So what I can say is that obviously our that we will not need equity to fund petrogas. I just want to reiterate that for you in the markets. But what our first option from a financing standpoint is additional is cash flow and some additional leverage because we will have incremental EBITDA once we start to consolidate that acquisition.
And then with respect to asset sales process, no, we haven't started any yet, but we do have non core assets that we can monetize when the time is right to be able to fund that. I don't think that we need to close an asset sale at the same time that we close Petro Gas because we've got capacity on the line, but we can close it shortly after we close Petro Gas on an asset monetization and pay for that.
Thank you. Your next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
[SPEAKER JULIEN DUMOULIN SMITH:] Hey, good morning, team. Thanks so much for the time. And again, congratulations on some pretty incredible results here. I want to focus here on the utility front first. The MRP success in Maryland is pretty incredible.
Can you guys talk to whether that was contemplated in the rate base disclosure that you guys provided in December? And then separately speak to timeline on achieving your ROEs. To what extent did you intend or have a thought process about using this again towards your broader achieving of the ROE? And then separately and related, on DC and tackling that, I know you've talked about a rate case, but is there any ability to file anything more formulaic as we saw in Maryland of late?
Good morning, Julian. This is Randy. Good questions. Look, when we looked at building our guidance, we built in the results of our Maryland and our Michigan rate case into our forecast in 2020. So we've built those aspects in.
And I think we'll look at a variety of innovative modified rate approaches and such modified rate approaches and such like that. So more to come on it, but certainly the team is looking at a variety of ways to have an innovative rate structure that can allow us to have the opportunity to earn our allowed return going forward.
Okay. All right.
Fair enough. We'll just stay tuned here on what those innovative approaches might be. No, no, no, very much appreciate the regulatory process here. If I can pivot back here quickly, why do you think there hasn't been more of a pricing impact on propane? I hear what you're saying about volumes and the demand for volume, but the pricing commentary about that being sustained has been, I suppose, dare I say surprising, but I'd be curious on any further thoughts there.
And then if you can, I'll squeeze in just the last one. Any financial metrics you can disclose as you think about this Petrobras pro form a? I'll leave that there.
Yes. Well, we have seen with the impact on demand, a decline in FEI pricing, but the real driver is at the end of day that the spread between the alternative, the Bellevue market and FEI and that has remained strong. And I think that's the key driver for us. And as I said, with the shipping advantage off the West Coast of Canada, it provides a very cost effective solution to the market. So and so you might see some decline and you'll see the overall spreads have remained strong on a going forward basis for us.
Your second question was about more financial guidance with respect to Petrogas. I'll let James
we finalize the valuation, there isn't very much in the way of pro form a or the impact that we can provide. What I can point you to though is Note 14, I believe, in our MD and A that discloses what the after tax equity pickup of Petro Gas has been in 2019 2018 as well as historically. But so obviously, once we close process though we would be consolidating that acquisition and not doing an equity pickup.
Fair enough. Okay guys, best of luck. Thank you.
Your next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Yes, good morning. Just starting with the 8% to 10% rate base CAGR outlook for utilities through 2024. Can you remind us what level of annual CapEx is required to achieve that growth rate? And perhaps comment on how much of that annual CapEx would be exposed to pre approval from the regulators versus ongoing maintenance and replacement capital?
Right. So we have a again, we get these U. S. And Canadian conversions. We have when I look at this as a 10% rate base gross number, our rate base is about what 4.5 $1,000,000,000 right?
Yes.
Yes, about that.
So you're talking about a $400,000,000 CapEx program for growth capital beyond that. But specifically to the strategy of getting current recovery on those, as I mentioned in the past, the accelerated rate recovery in all of our jurisdictions has been pre approved over a 5 year plan. DC is a bit shorter and we're working through that process. But our strategy is to all investments above depreciation and maintenance will be recovered through our accelerated rate recovery mechanisms that will give current recovery to those investments.
Okay, perfect. And then moving over to RIPET, just curious at what point in 2020 you might be able to achieve the 50,000 barrels a day of throughput. I assume it depends on being able to secure the incremental volumes through tolling agreements this spring. But just curious if you might be able to achieve 50,000 barrels a day well before the end of 2020, if all goes well on the contracting front?
Sure. We would expect capacity to grow in material income that's commencing in April of 2020 that aligns to the LPG contract year. So we feel very good about our forecast and our supply aggregation. And so I think you would see that starting up in the April on a going forward basis.
Okay, perfect. And then circling back to funding the petrogas option here with additional non core asset sales. How do you think about timing the cash payment there assuming it is the end of the second quarter with maximizing value for something like your stake in MVP? Do you need to see that project in service before you look to sell it or is that a process that could be undertaken well before year end?
Well, I'll comment on the asset sales and as James has said, we've got a good bit of asset sale liquidity with MVP, with our power assets that we have and we can be selective as to how we move forward with that. I think James referenced the fact that we could close this transaction without those asset sales comfortably. So we'll be again, when we look at MVP, we believe that's an excellent asset, and we'd like to de risk that and see that a little bit more clarity before we do any transactions there. But we would expect that clarity to come later this year.
Okay. And last one for me guys, if I could, just on your recent sustainability report. Obviously, propane displacing higher carbon fuels in Asia is a good news story. Just wondering how this ESG momentum might be playing into some of the commercial contracting discussions you're having with customers right now, both producers and off takers. Are you seeing any financial tailwinds from this rising demand from industry towards decarbonization?
Well, I think that the overall macro market in Asian demand for propane is strong and that's driving some of the pricing as we get through the coronavirus and we look long term. So I think but clearly the ability to displace higher carbon intensive fuel is good for the world and it's good for Canada. And so I think it's a very important part of reducing carbon emissions and we're excited to be part of it. And while I think that could we expect that to continue to grow a going forward basis.
Got it. I'll leave it there. Thanks guys.
Your next question comes from Ben Pham of BMO. Please go ahead.
Okay, thanks. I want to go back to the main topics of RIPET, cash or gas and maybe more broadly your appetite for, I guess, commodity exposure. Maybe that's not the right word, but maybe just more of the non regulated side of it. And is there I guess my question is, is there a certain level of commodity exposure, just that Far East Index exposure that you guys start to get a little bit more uncomfortable when you look at your total enterprise?
Look, I think that our strategy is a low risk, high growth utility and midstream business. We continue to move toward more of a tolling arrangement as I mentioned at RIPET. And with respect to the merchant, we hedge those volumes as soon as we enter into one side of the transaction, if that's the supply side with the FEI. So we continue to focus on annuity long term earnings. And with respect to Petrogas, as I mentioned previously, we continue to move RIPET more forward with a tolling model and we would expect to operate similarly as we do with Petrogas.
We are not a producer. We connect producers to valued markets and the commodity risk should rest with those that are bearing that commodity risk and we provide the upside for those producers to access that market. So that's our strategy and we'll continue to execute on that.
Ben, if I could just add to that. I mean, if you look at 2019, if you look at our hedge positions and then you layer in tolling, RIPET was anywhere between 75% to 80% hedged for us during the year, right. So I want to stress that we're not out there taking commodity exposure. To Randy's point, we'd lock it in.
Yes. I appreciate that. But I guess I'm just thinking, I mean, these hedges don't you're not locking in like a 10 year hedge, right? Or are you? And then I mean, I don't think you're expecting the tolling arrangements to be 100%, right?
I mean, it's more 40%, 50%.
Yes. Well, what I think what I've said in the past is that we'll continue to de risk the asset. We had to see this business, right, so that we could show that Canadian producers the advantage of getting to the Far East market and get FEI pricing and we've done that. And I believe strongly that as we continue to move forward, the percentage of tolling will just continue to increase on a going forward basis. So yes, our strategy was to see this business to clearly demonstrate the value of getting to the Far East market and our producer community is seeing that clearly.
And we'll work on the demand pull side of this too for long term annuity type contracts as well to reach all the way back. So that's our philosophical approach and I think we're making excellent progress in that way.
Okay. Thanks for that. And there was a question on corporate restructuring before that. And I want to tie it into my first question around commodity exposure. I mean, are you in a sense, as you guys take some of this RIPET Far East exposure that maybe it makes it a little bit harder to restructure business later on?
No, I don't think that's I think these two businesses run under a common platform that are both annuity based long term sustainable businesses with annuity cash flows fit together quite well. And I don't think it precludes any other corporate restructuring down the road, if that's a direction that's in the best interest of our shareholders.
Okay. And I'm not sure if it's disclosed on a patch, I mean, I look, but are you can you quantify the Mountain Valley AFUDC that you're booking?
Turn that to James if we have that.
The AFUDC that we're booking is about $35,000,000 a year, dollars 35,000,000 to $40,000,000 a year.
Okay. All right. Thanks a lot guys.
Thank you.
Your next question comes from Jeremy Tonet of JPMorgan. Please go ahead.
Good morning, Randy. Great to talk again.
Hi, Jeremy. How are you?
Very good. Thank you. Just want to start off, if I could, for RIPET. I didn't know if there was any sense you could provide for the level of contribution to EBITDA last year. Just trying to get a feel for how big that was?
Or maybe just kind of looking forward, I guess, on the midstream side, how do you see the business evolving between kind of liquids handling, processing, fractionation, like the size of those different contributors to midstream EBITDA going forward, just directionally speaking, if you could?
Yes. No, with respect to last year's contribution, we had 7 months of RIPET and it was approximately $85,000,000 of EBITDA contribution. And then we have a full year built into 2020. I said in the past, Jeremy, that we want to be able to touch the molecule throughout from the wellhead through our processing fractionation facilities and ultimately through RIPET to the West Coast. We're doubling the size of our fractionator at North Pine moving from 10,000 barrels to 20,000 barrels this year and that will be completed in April.
We're adding an additional 200,000 a day of processing capacity at Townsend all backed by firm contracts with shippers. So we want to we will continue to see growth in the business in those areas. So while we don't touch every molecule, our overall goal is to be able to provide an integrated business model to our producers and attach them to attractive markets.
That's helpful. I'll stop there. Thanks.
Thank you, Jeremy.
This concludes the Q and A portion of today's call. I will now turn the call back over to Mr. McKnight.
Thanks, Cheryl, and thank you everyone once again for joining our call this morning and for your interest in AltaGas. As a reminder, the Investor Relations team will be available disconnect your phone line.