Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas Second Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. If you have any difficulties hearing the conference, please press star then zero for operator assistance at any time. 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, Kenzy. Good morning, everyone, and thank you for joining us for the AltaGas Q2 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. We're also joined here today by several additional members of our executive team. As the operator noted, today's prepared remarks will be followed by an analyst question and answer period. I'd remind everyone that the investor relations team will be available after the call for any follow-up questions or any detailed modeling questions that you might have. This call is webcast, so we encourage everyone listening on the phone lines to view the supporting slides, which are available on our website.
A replay of the call will be available later today, along with the transcripts, both of which can be accessed through our website. 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 here on slide two, 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 Crawford.
Thank you, Adam, and good morning, everyone. It is my pleasure to welcome you to our 2019 second quarter results call. Before I go into an overview of the quarter, I want to take a moment to introduce you to our new Executive Vice President and Chief Financial Officer, James Harbilas, who you will be hearing from shortly. James joined AltaGas on June 10th, and in just eight weeks has already made a measurable impact on the business. As we look at the important work we have ahead of us, capitalizing on the enormous organic growth potential of our core assets, improving operational excellence in integrating our businesses, and further strengthening our financial position, James quickly stood out as the right person for the job.
He is a results-driven leader with more than 20 years of experience in the energy and utility sectors, including 11 years in the CFO seat at Enerflex. He has a proven track record of building and transforming functions, which is vital as we continue to optimize our business to drive performance. On behalf of the board of directors and the entire organization, welcome, James. Moving on to our results. A little over seven months ago, I laid out a plan that would refocus the company, capture the intrinsic value of our core assets, and regain our financial footing, providing us the flexibility to capitalize on the significant investment opportunities ahead of us. I am pleased to share that we have made tremendous progress against these goals and that progress is clearly evident in our Q2 results and accomplishments.
In the quarter, we announced the sales of Stonewall Pipeline and our U.S. distributed generation portfolio, the latter, which has transformed AltaGas into a more focused Canadian midstream and U.S. utilities company. We also saw EBITDA come in approximately 20% higher over last year. This was driven by strong performance in our midstream segment, which included contributions from recently commissioned Ridley Island Propane Export Terminal, or RIPET as we refer to it, which saw its first three ships loaded in May and June, and contributions from WGL. The sale of CAD 1.3 billion of non-core assets this quarter moves us significantly closer to our stated goal and further strengthens our financial footprint. James will get into these numbers in a little more detail, but I wanted to note one important observation.
This quarter, along with our last one, reinforces our focus strategy as our base businesses continue to perform very well and are more than compensating for any lost earnings as a result of asset sales to date. Turning to our near-term priorities, we have moved swiftly and decisively over the last several months to execute on our asset sale program to delever our balance sheet, fund our capital program, and maintain our investment-grade rating. Our asset sale program continues to have a very robust response. We're even more confident that we will meet or exceed the targets we laid out for this year. Early last week, we announced the sale of our U.S. distributed generation portfolio for approximately CAD 940 million, or a $720 million, representing a strong multiple of just over 12x 2019 estimated EBITDA. This valuation is accretive to FFO to debt and earnings per share.
This transaction, combined with the sale of Stonewall completed last May, brings us to a total of CAD 1.3 billion in asset sales announced or completed to date, just shy of our 2019 target of CAD one and a half billion to CAD 2 billion. The proceeds we received from this transaction will be used to both pay off a portion of the debt, which James will address in more detail, as well as fund profitable growth initiatives in our core businesses. We remain confident and committed to the balanced funding plan we announced last December. As we gain our financial strength and flexibility, we'll continue to move towards a self-funding model. In addition, we have a number of other sale processes underway. We continue to see strong and sustained interest from numerous high-quality counterparties, which is a clear indicator of the value of these assets.
With the wind at our back from our recent asset sales and the projected valuations of our remaining non-core assets, our attention is now intensified on the future and our ability to capitalize on the full opportunity set ahead of us in our utilities and midstream segment. Our strategic priorities are straightforward and include maximizing the unique structural advantage we have created with our integrated platform in the Montney, which is underpinned by RIPET and our LPG export strategy, enhancing our returns and capturing the growth opportunities across our utilities, and driving a performance-based culture to achieve a high level of operational excellence. We have made significant progress on these priorities over the first half of the year and specifically during the second quarter with the commercial startup of RIPET and the filing of the WGL Maryland and SEMCO rate cases.
First, for those of you who've heard me speak, you know how excited I am about RIPET and the competitive advantage it provides within our Canadian midstream business. We see this project as a game-changer, not just for AltaGas, but also for Canada and the natural gas producers we serve every day. RIPET is part of the solution for producers, providing much-needed LPG egress to premium markets in Asia and lessening the dependency on the U.S. Now, into our third month of operations, we are seeing positive contributions from this business that fall in line with our expectations. Volumes have steadily increased to our target capacity. The first cargo departed in May, with two additional shipments in June and another two in July.
I'm pleased to report that through June, we sold 1.36 million barrels of LPG from RIPET to Asia, generating approximately CAD 13 million in EBITDA or CAD 9 per barrel. While I am excited with these results, they were not unexpected, as the Far East Index has been trading at a premium to Mont Belvieu and shipments from RIPET have a structural advantage compared to the U.S. I am equally excited for our producers who have contracted to toll their propane through RIPET, as they too were the recipient of this global market premium. Going forward, we expect to sell approximately 1.2 million barrels per month or 40,000 barrels per day to Asia. Of those 40,000 barrels, approximately 11,000 barrels are tolled, for which we will pass through Asian prices, less tolling and transportation fees to our producers.
For the remaining 29,000 barrels, we pay Edmonton prices plus transportation fees, and in return, realize FEI premiums. The combination of our tolling volumes and our active merchant hedging program has the effect of locking in our base load margin on approximately 80% of forecasted 2019 sales. The remainder of our barrels are currently unhedged and floating with the market spread, which continues to remain strong, and we will continue to opportunistically hedge these remaining volumes. Any additional barrels liquified above 1.2 million barrels will be spot-based and provide additional upside to AltaGas. While we are pleased with the margins we are generating from the merchant aspect of RIPET, our strategy remains unchanged. Use the RIPET advantage to capture additional tolling arrangements with producers, increase the utilization of our existing processing and fractionation assets, and position us for additional investment in the Montney.
Our ability to handle the molecule from gathering and processing to liquids handling, fractionation, and export offers our customers a complete solution and a very attractive return profile for their product. This has been a tremendous accomplishment, and I applaud the team that worked tirelessly to bring it online on time and on budget. The economics around RIPET are compelling and positive for both our customers and for us. Our RIPET advantage continues to attract increased volumes to our midstream complex. This value-added approach to our customers is the foundation of our Northeast B.C. growth program, which includes expansions at our North Pine and Townsend facilities, anticipated to come into service in the first quarter of 2020. Work also proceeds on the Nig Creek gas plant that we co-own with Black Swan.
The facility is expected to come online in the fourth quarter of 2019 and is currently on schedule and on budget. Projects like these leverage our existing infrastructure and deliver very strong integrated economics while increasing our ability to touch more barrels and expand our overall strategic footprint. Moving forward, we will continue to explore opportunities to leverage RIPET LPG premiums to expand our customer base and drive additional high-valued investment in the Montney. Our utilities balance our portfolio with low risk, growing cash flows that are stable and predictable. We expect to see significant growth in this segment in the future, reflecting exposure to higher growth markets with capital expenditures to support customer additions and accelerated replacement programs. In the second quarter, our utilities performed as expected, contributing CAD 81 million in EBITDA.
Our strategy in our Utilities segment is driven by intensifying our focus on operational excellence, which we define as operating a safe and reliable system, providing exceptional service to the more than 1.6 million customers we serve, and enhancing efficiencies to reinvest earnings and increase returns. We continue to work towards earning our allowed returns on a more timely basis across our utilities. Rate cases offer one mechanism to close this gap. Currently, we have active rate cases in three of our five operating jurisdictions, and applications under review for Accelerated Replacement Programs to renew aging infrastructure in the District of Columbia and in Michigan. Interim rates have taken effect in Virginia as of January this year. In Maryland, we expect new rates to go into effect this December, with new rates in place in Michigan no later than April 1st, 2020.
This critical first step of updating our rates to reflect our current cost structure will drive earnings growth in 2020. Also in 2020, with the expiration of our regulatory rate stay out commitment that ends December 31st, 2019, we will be filing a general rate increase request in Washington Gas Light's District of Columbia jurisdiction. Upon completion of these remaining cases, we will have updated our rates across all of our jurisdictions. There's also a great deal of opportunity to enhance our performance, update aging infrastructure, and continually improve our service offering for our utility customers. This is where our team will be laser-focused for the balance of this year and into next. In summary, we continue to reposition AltaGas as a low-risk, high-growth utilities and midstream company.
The financial results and significant accomplishments that we achieved this quarter continue to move the ball down the field in a big way. Our second quarter results were up more than 20% year-over-year, despite lost earnings due to asset sales. Signaling our base business is healthy and performing as it should be. In just seven months, we have improved our financial strength materially by announcing CAD 1.3 billion in non-core asset sales, and are well on track to meet or exceed our 2019 asset sale program target of CAD 1.5 billion-CAD 2 billion. Operationally and commercially, our cornerstone project, RIPET, was successfully commissioned and is making a significant positive financial impact for us and to our producer, netback. We are confident that we will continue to attract additional volumes to our midstream footprint as a result of this unique capability.
In our utilities, we continue to make progress on improving our distribution pipeline infrastructure and driving more timely and appropriate returns through accelerated rate recovery mechanisms and new rate case filings in our Maryland and Michigan jurisdictions. Finally, we remain on track to meet our guidance for 2019. In the back half of 2019, we will continue to build on this momentum and stay focused on delivering our near-term priorities. I am confident we will enter 2020 in a much stronger position, applying capital discipline to our core businesses, driving efficiencies through business optimization, capturing increased and timely returns at our utilities, and enhancing value for you, our shareholders. With that, I will turn the call over to James to review the financial results.
Thanks, Randy, and good morning, everyone. First off, I'd like to thank Randy and the board of directors for the trust they've placed in me. I'm excited to join the AltaGas team as the Chief Financial Officer, and look forward to working alongside the AltaGas leadership team to achieve our near and long-term priorities. To recap, these are deliver a balance sheet that maintains an investment-grade credit rating, complete our asset divestiture program, focus on optimizing the business, including the integration of WGL, and working to fully capitalize on our organic growth opportunities in utilities and midstream. Joining AltaGas to support the strategic plan to unlock the value of its strong asset base was very compelling. In my prepared remarks, I'm going to walk you through a few key areas.
Performance of the business, our capital program and funding plan, our de-leveraging plan and balance sheet, and our 2019 guidance and drivers that are expected to positively impact 2020. AltaGas delivered another strong quarter. Our utilities and midstream groups delivered solid operational results, and we also made significant progress on our near-term priorities, including executing on non-core asset sales, de-levering our balance sheet, and funding organic growth. Our base business is performing very well. In fact, it grew by approximately 20% quarter-over-quarter, adjusting for both the impact of WGL and our asset sales. On a consolidated basis, asset sales reduced Q2 2019 EBITDA by CAD 72 million compared to last year. The asset sales included the AltaGas Canada IPO, the sale of the Northwest Hydro facilities, Canadian non-core midstream and power assets, as well as the sale of the San Joaquin power facilities.
AltaGas recorded normalized EBITDA of CAD 203 million, representing a 22% increase over the same period in 2018. As expected, the largest driver of the positive quarterly results were contributions from our WGL assets. In total, the WGL assets contributed CAD 77 million across all three of our segments, CAD 41 million in the utilities, CAD 21 million in the midstream segment, and CAD 15 million in the power segment. Normalized funds from operation of CAD 120 million for the quarter reflect many of the same drivers as normalized EBITDA, which I will outline shortly, partially offset by higher interest expense. Normalized net loss was CAD 5 million, or CAD 0.02 per share for the quarter, compared to normalized net income of CAD 23 million, or CAD 0.13 per share for the same quarter in 2018. The decrease was related to higher interest expense and depreciation amortization expense, partially offset by factors impacting normalized EBITDA.
Digging slightly deeper into our segments, our midstream segment reported strong Q2 results, with EBITDA up over 100% over the same period in 2018. The WGL assets were positive contributors for the quarter, alongside increased export volumes at Ferndale from our equity investment in Petrogas. Results in our base midstream business remain strong, we are seeing healthy volumes at our plants. This is a direct result of the work we have done with respect to our Northeast B.C. and energy export strategies that have created an integrated value chain connecting our customers from wellhead to export markets in Asia. The cornerstone asset of our Canadian midstream strategy, RIPET, came into service this quarter, generating approximately CAD 13 million in EBITDA. Total propane volumes exported to Asia in the quarter were approximately 110,000 metric tons, representing about three ships of product.
Overall, we are pleased with the performance of the facility to date. Volumes have steadily increased to its current 40,000 barrel per day capacity, and we continue to improve operational efficiencies. Within our utilities business, we saw an increase in normalized EBITDA of CAD 31 million compared to last year. This is largely attributed to the addition of the WGL utilities, partially offset by the ACI IPO. Other variances in the quarter were neutral but included a stronger U.S. dollar, lower operating expenses and customer usage, impacts of U.S. tax reform, and warmer weather in Alaska. You can see in the second quarter, and will see again in the third quarter, a sharp decline in utilities earnings driven by the warmer weather experienced in the summer months.
The Power segment normalized EBITDA decreased to CAD 34 million as a result of the sale of the Northwest Hydro, the San Joaquin facilities, and the ACI IPO. The extended spring outage at Blythe also negatively impacted EBITDA by CAD 3 million. All of this was partially offset by contributions from WGL's Power segment. With that, we expect that this will be the last quarter we will be providing the same level of detail on its performance by segment. For this quarter, however, I will quickly outline some of WGL's results as compared to the same quarter last year. At the utilities, results were in line with our expectations.
We did see favorable customer growth, and we do expect on an annual basis for our Washington Gas utilities to benefit from new rates that have gone into effect this year. However, with portions of the accelerated replacement programs now being incorporated into customer rates, the revenue is earned based on usage, which has seasonality. Accelerated replacement program revenue, conversely, is earned in a linear fashion throughout the year. This creates a timing change in when revenue is recognized, and this has contributed to lower performance this quarter. Other factors impacting the quarter included unfavorable variances of warm weather and higher operating costs, partially related to increased leak repairs. As a result, the Washington Gas results were down slightly year-over-year. WGL's midstream assets contributed favorably with Central Penn in service and increased AFUDC on Mountain Valley.
These were partially offset by compressed storage spreads, the sale of Stonewall, and higher operating costs. Results in WGL's power segment were down as a result of higher capacity prices in the first half of the year, combined with higher operating costs. Turning to our capital program and balanced funding plan for 2019, we continue to improve our financial flexibility, particularly given the success of our 2019 asset sale program. We remain comfortable with our 2019 funding plan. Our total funding plan for 2019 is approximately CAD 4 billion and was designed to delever and stabilize the balance sheet through a combination of asset sales, disciplined capital allocation, and a repositioning of our dividend. With the achievements we have seen to date on our asset sales program, you will notice that we have removed hybrids and prefs from our funding plan.
We will continue to monitor these markets and plan to only execute on an opportunistic basis and when they have a positive effect on our credit metrics. The funding plan includes the CAD 1.3 billion in capital projects where we have a clear line of sight to a significant number of high-quality, organic growth opportunities. These opportunities reflect the underlying strength of our utilities and midstream businesses. We continue to execute on our capital projects both on time and on budget. Year to date, we have spent approximately CAD 700 million of our CAD 1.3 billion capital program. The focus of spending has, of course, been on the completion of RIPET, as well as system betterment and accelerated replacement program spending at our utilities.
In the back half of the year, the majority of the remaining spending will be geared towards the completion of the Townsend and North Pine expansions, the Nig Creek facility, the Marquette Connector Pipeline, as well as additional expenditures related to the accelerated replacement programs. The balance of our funding plan is focused on debt repayment. As we have mentioned, we have already made excellent progress. In 2019, we expect to have total debt repayments of approximately CAD 3 billion for the full year. In the first half of the year, we have already achieved a reduction in net debt of CAD 2 billion. With this progress, our focus is shifting towards executing on the organic growth opportunities that drive meaningful contributions in 2020 and beyond. 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. We designed our 2019 capital and funding plan with the very clear goal of maintaining an investment-grade credit rating. We expect our capital and funding plan, along with the lower risk profile of our overall business mix and the dividend reduction, will all contribute to improving investment-grade credit metrics over time. Our 2019 capital and funding plan remains on track, and we expect our metrics to support this investment-grade rating. As we have discussed in the past, we expect our credit profile to improve as we execute our growth capital and new capital projects enter service.
Supported by strong results in line with our expectations, as well as our confidence in our performance in the back half of the year, we remain comfortable with our consolidated normalized EBITDA guidance range of CAD 1.2 billion-CAD 1.3 billion. We look to the back half of the year and beyond, I thought now would be a good time to provide some perspective on drivers for 2020. It is too soon to be providing full guidance at this point in the year. We plan to update the market following the completion of our planning cycle later this year. Based on a combination of factors, we expect 2020 normalized EBITDA to remain at least in line with 2019 after incorporating EBITDA loss from our asset sale program this year.
The key drivers of our normalized EBITDA growth in 2020 include benefiting from our investment in our energy export strategy, including a full year of RIPET, increased gas processing volumes from the Townsend expansion, as well as contributions from the Nig Creek gas plant and the expansion of our North Pine fractionator. Growth in our utilities, we expect the benefit from the investment in the Marquette Connector Pipeline, customer growth, as well as improvements in our earned returns. In conclusion, AltaGas has made tremendous progress in reshaping its business and creating greater financial flexibility over the past several months. Looking to the future, I believe that with the combination of appropriate capital discipline, business optimization, and operational excellence, position us to deliver strong performance. With that, I will turn the call over to the operator to facilitate the Q&A session.
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 the number 1 on your telephone keypad. If you would 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 comes from the line of Robert Kwan, RBC Capital Markets. Your line is open.
Great. Good morning. Maybe I'll start with RIPET. It's early, but you've got very strong results out of the gate. I'm just wondering, how are you thinking about expansion, particularly given the low capital intensity? Do you just proceed on it given the low capital intensity, just to have that capacity in place to capitalize on market dislocation?
Good morning, Robert. Thank you. Clearly, I will tell you the expansion of RIPET is real, the value proposition, as you mentioned, is very low capital for very high potential. We are continuing to build our core competencies. Quite frankly, you can't underestimate the capabilities we're building and how that's going to position us for the low-cost expansion. With respect to the question, we continue to hone our skills. We're investing in things that improve our logistics capabilities, and that would be around the rail and other logistics capabilities. Again, overall, small capital for a significant upside. We'll continue to work toward it each and every day, getting to the design capacity, 80,000 barrels.
Got it. Randy, just so I'm clear, it sounds like it's a little bit more of making sure you've got all your ducks in a row operationally and logistically rather than necessarily needing contractual backstops, given how little capital it would take.
No, that's right. Absolutely. It's very little capital for high return, as I had said, and really we're working just to focus on improving those logistics. Look, we're just starting. We're focused on moving our 40,000 barrels a day, and we'll continue to be able to exceed that as we move forward.
Okay, great. If I can turn to U.S. Midstream and just finish here, a couple of questions. First on Central Penn, to the extent that it is something that's on your list for sale, I'm just wondering, based on inbounds, whether it's formal or informal, just what's the sentiment out there with respect to Marcellus Midstream? The pressure that we've seen, how is that impacting or not impacting Central Penn in your thought process? That's the first question. The second is just on MVP. I know you've got protection on cost. I'm just wondering, do you have protection on timing? Can you talk just about some of the potential protections to the extent that the walk clause that's out there for EQT and where you might have protection or not have protection?
I'll take your first question overall on asset sales in Central Penn. No, we haven't. Again, as I said in my prepared remarks, we're seeing robust interest from strong counterparties on all of our non-core asset sales, and that obviously includes our non-operating positions in the Marcellus. No impact there. With regard to MVP, again, I think they're moving ahead very effectively. I think it's a value-added pipeline, as I mentioned in the past. We have cost protections
In terms of contracting, again, our operating partner is managing the overall construction and such. I think that project is obviously an important aspect to EQT to get to the Southeast markets. I think overall, I don't want to get into all of the details of the contracts, but I would just step back and tell you that I think that at the end of the day, that's a very valuable asset and an important in EQT's overall commercial strategy. I would expect that to continue.
Okay. I guess maybe just to follow up, though, on MVP. Does AltaGas have any additional protection similar to what you have on the cost side over and above the contract termination penalty, or is it just limited to that?
No, it's just that, Robert.
Okay, that's great. Thank you very much.
You're welcome.
Your next question comes from the line of Ben Pham, BMO Capital Markets. Please go ahead.
Okay, thanks. Good morning. I wanted to go back to RIPET and some of the financial disclosure you have on the EBITDA, the CAD 13 million in five weeks or so. Is that a number we could think about from annual perspective? You run the math on that just quickly, and it looks like it's a pretty attractive return on RIPET.
Sure. Look, I think that as we move forward, we'll continue to prove out the RIPET advantage. Last time, as I told you, that we needed to seed the business, improve the value-added aspect of RIPET, the option to diversify the producer portfolios, capture the FEI spreads, and we clearly demonstrated this quarter. Overall, our strategy is really to provide our customers, our producers, these opportunities. We'd expect to continue to build out additional infrastructure in the Northeast BC. Yeah, the spreads are strong. I think that you'll continue to, as I said, we've hedged the majority of that for this year. Over time, we're going to transition to more of a tolling and annuity-based model as we bring the value to producers. As we increase volumes, that'll continue to help in addition to that. Right now, the spreads are strong.
We see them continuing, but our strategy hasn't wavered, as I said in my prepared remarks.
Sounds like you look at the build multiples probably 4x right now, you start to look more run rate basis, you start to normalize that into a still attractive return, maybe not as much as this year.
Yeah, I think that, look, as we continue to move more and more toward tolling, clearly, that will provide additional annuity revenues. To the extent that we're not using the merchant business as we are today, as I said, seeding the business, what we're going to do is continue to pick up more incremental volumes on filling up our fractionators, our processing. Overall, the combined overall return should continue to grow as well as the revenues.
Okay, that's great. Maybe the slide on your capital and funding, and you took out the pref as part of that. Is that really maybe your greater confidence in that CAD 2 billion asset sales that you can take out the pref, or are you saying now that if you deliver to the low end, you still get to your debt targets?
Yeah, I'll let James get on to the specifics of the pref, but I will just comment on the asset sales in general and really, I think at the end of the day, we're in an enviable position as we've already completed the CAD 1.3 billion toward that goal, and we've got significant asset sale liquidity going forward. We talked about our two non-operating pipes, remaining high-value power assets, and really an ever-increasing value ACI valuation and liquidity position. We have all the liquidity that we need to meet or exceed that plan, and that'll impact the financing ultimately. James, I'll let you comment.
I think just to add to Randy's comments, it really comes down to the fact that we've got numerous processes on the go with some very robust interest. To the extent that we can get to the higher end of that range, we felt that we could be a little more opportunistic on the timing of when and if we access the hybrid and pref market.
All right. That's great. Thanks, everybody.
Your next question comes from Linda Ezergailis, TD Securities. Please go ahead.
Thank you. I'm wondering if you could help us understand or confirm that any sort of change in ownership of the Ridley Terminal land, the sale by the Canadian government, shouldn't affect RIPET's operations, any sort of lease renewals or expansion optionality.
Right. No. Linda, hi. Good morning.
Hi.
We're looking forward to working with the new ownership to really unlock the full potential of RIPET. We're moving from Crown Corporation to a private firm. I think that's a good thing. It has the potential for continuing to streamline operations and potential additional capital investment at the site. We think that's good. We have a long-term 25-year lease with the ability to renew. 20, excuse me, 20 years. We feel good about it.
Good. Maybe we can move on to your U.S. operations, Ben Pham. Is there any update on your storage enhancement or other optimization initiatives or any sort of PPA opportunities that might be considered?
Oh, I'm sorry, Linda, was that with respect to Blythe that you had said?
Correct.
No, I've said on the call, no additional update at this point, but we're optimistic that we think that is a very critical asset in the SCE stack. We're continuing to have discussions about extension and renewal of that contract. No further update on that, but again, I think those are high-value power assets. Our strategy hasn't changed in terms of them being non-core. Again, I think that to the extent that as we work toward those negotiations, we'll continue to evaluate the ultimate asset sale regarding power.
Okay. The nature and the tone of those conversations hasn't changed. It's continuing?
No, they're positive, though. They're positive. Those are excellent assets, both those and the battery storage.
Okay. That's helpful. Maybe just to help give us some context on your initiatives in your utilities business. You mentioned that 2020, you'll see some improvement in earned returns. When do you expect to hit kind of the full run rate of your potential there in terms of utility returns? Will you hit that next year, or do you think it might take till 2021? Can you comment on that?
Linda, we're making good progress. The team is, again, as I said in my prepared comments, updating the rates. We've got almost CAD 100 million of rate case requests that are out. Clearly, if we achieve those levels of requests, we'd be there. To the extent that as we work through those processes, we'll improve in 2020. We'll continue to improve our customer experience and invest in the business. As we work through 2020, 2021, look, we should be able to get at a minimum our allowed returns as we move through 2020 and beyond. We'll continue to always, as we always do, improve the business and work on behalf of our customers. That's an ongoing process in the years ahead. The updating of rates is the first critical step, Linda.
Great. Thank you.
Your next question comes from the line of Julien Dumoulin-Smith, Bank of America. Please go ahead.
Hey, good morning, team, and congratulations, James.
Thank you. Thank you very much. Happy to be here.
Absolutely. Excellent. If I could go back to some of the commentary about asset sales. I appreciate that certainly there's robust interest out there, and there's been pretty good multiples thus far. How do you think about the need to, as you say, perhaps take the hybrids off the table versus just redefining what eligible assets are here? I.e., could we see the asset sales sort of evolve over time into a broader scope of what this company should be, given the diversity of the assets in play? Or are we thinking narrowly about raising the CAD 2 billion target perhaps to CAD 2.5 billion, just to take some of the incremental financings or refinancings off the table?
Well, look, I think that what I said is that we're in an enviable position. I've laid out a strategy from December, Julien, that is transforming our company to a low risk, higher growth midstream and utilities company. I defined the assets that were non-core going forward to position ourselves to improve our liquidity and our balance sheet. We're well on our way, and so we'll take a more strategic approach about where we're headed. In terms of the asset sales, again, we look at the value and illuminating the intrinsic value of these assets. We'll definitely be within or above those targets, but we'll be opportunistic as we go beyond that, and we'll evaluate it as we move forward.
Got it. All right. If I can elaborate just a little bit further on some of the last few questions. Earned returns, I know you just addressed this, but do you see a pathway to earning at your authorized levels? Just to be clear, by what year run rate? I know you just elaborated a little bit here, but just to get a little bit more.
Well, look, you file your rate cases, and if the jurisdictions give us the appropriate relief, we're right at our allowed returns going into next year. That's our objective. Clearly, Julien, that's our value driver, right? Our drive is to earn our allowed return, and that's what the commissions provide us that opportunity. Again, as we move through the cases, we can update that, but you should expect us to be putting forward and running our businesses that at a minimum earn our allowed return. We'll work diligently through these cases to get there in 2020. We'll see how these cases turn out.
Excellent. If you could elaborate a little bit more about the asset sales. The ACI stake lockup expires here in the next few months. Also Blythe, we've seen a real turnaround in that market. I'm just sort of curious, how are you thinking about just waiting that out to see the full potential of locking in a new RA arrangement there versus monetization, and then also ACI?
Yeah. Well, as I said with Blythe, I think it's, again, that and the battery storages are very high value, excellent assets. To the extent that we receive offers of fair value, then we'll move forward. If we don't, we won't. With respect to ACI, again, the market has certainly appreciated the value of that asset. We'll continue to look forward to monetizing that non-core asset. Again, I just reiterate that we're in an enviable position. We're very confident in meeting our goal. We've illuminated the intrinsic value of these assets, and we will not monetize an asset that we don't receive our fair value for, and we have that luxury.
Got it. All right. Excellent. Just last quickly, just as you think about the 20 drivers, the Canadian midstream exposures and some of the volume commentary out there, do you think that largely, you think that that business segment can be stable year-over-year at its core, ex some of the growth projects?
Oh, yeah, definitely. Yeah. It'll be stable. I was going to say, you said ex the growth. That's a growing business. We're very excited about that business. Absolutely, we're building a business of long-term sustainable value and growing cash flows. Absolutely, we are working diligently to do that and believe that the RIPET competitive advantage positions us well for profitable growth going forward.
All right. I'll leave it there. Thank you all very much. Good luck.
Thank you.
Your next question comes from Patrick Kenny, National Bank Financial. Your line is open.
Yeah, good morning. Maybe just to follow up on that last question with regards to your Northeast BC strategy. Just wondering how you're thinking about mitigating your exposure to some of these smaller customers, such as Painted Pony. Obviously, another tough summer for AECO. Say, prices don't improve much going forward. Now with Pony's volumes dropping below their take-or-pay commitments at Townsend. I believe a reduced CapEx budget as well last night. A, are you able to, or are you open to restructuring those take-or-pay agreements going forward just in order to support production growth? B, maybe how you're thinking about potentially having to backfill your propane supply for RIPET if certain producers do fall short of their take-or-pay capacity.
Yeah. Well, look, I think it's always prudent when you run a business such as this, that we continue to diversify our customer mix. I mean, we believe in this basin, we believe in our RIPET advantage and how it will increase netbacks to our producer community. Frankly, we continue to diversify the mix of customers. Condensate pricing and demand remain strong. Like I said, our value-added RIPET approach will improve the value to our producers. I think that we're doing our part to connect producers to value-added markets. We're always willing to work with our customers to try to, again, increase their profitability in the development of their resource. We'll work closely with all of our customers, but we're confident going forward that we'll continue to diversify and add additional customers on a going-forward basis.
Okay, great. Appreciate those comments. Slide 17, I guess for James, the improving debt-to-EBITDA ratio by year-end towards five and a half times. Wondering as we look into 2020 and beyond, what your longer-term target debt-to-EBITDA ratio might be for the company? Perhaps your target FFO-to-debt ratio while you're at it.
Yeah. Obviously, the year-end target is progress in the right direction to get us to a net debt-to-EBITDA of 5.5 times. If you look at our medium term to longer-term goals, we'd like to be under 5. Randy touched on some of the ways that we can get there. I mean, we have identified a set of assets as non-core that could take us beyond the CAD 2 billion in asset monetizations, which we would then use to reduce debt further. The philosophy here is clearly to get a balance sheet that is solid investment grade, and we feel that targeting a net debt-to-EBITDA ratio under 5 in the medium to long term is what we want to accomplish.
Just to confirm, James, the under five times target, do you consider 50% of your CAD 1.3 billion of preferred shares outstanding as debt within those target credit metrics?
Sorry. The way the slide has been set up is that the prefs are being treated entirely as equity in those metrics. I think the other part of your question was around FFO to debt. Obviously we've been talking to the rating agencies. We know that we need to get to a sustainable 10 times S&P FFO to debt to be able to get off negative watch. Obviously we want to continue to take debt off the balance sheet to be able to move that ratio higher.
Got it. Thank you very much.
Your next question comes from David Galison, Canaccord Genuity. Please go ahead.
Good morning, everyone. Just on the 2020 initial, I guess, guidance, I know it's early days, but does that include just the CAD 1.3 billion of asset sales that you've identified, or does it include the targeted range that you've put out there?
Yeah, it's our target range.
Okay. Can you give an idea of what the EBITDA removed for 2020 that you're assuming from that?
Well, we have announced two asset sales with EBITDA multiples that you can back into that EBITDA that would be lost from the Stonewall and DG business. That's about CAD 100 million. The balance of what we would basically forego in 2020 will really depend on the assets we end up selling to get us to the higher end of that range. As we sell those assets, we can definitely become clearer in terms of the lost EBITDA. Right now, the two that we actually announced, Stonewall and DG, and the multiples that we've talked about, you can back into about CAD 100 million of annualized EBITDA.
Okay. Then if you were to exceed that range of the CAD 2 billion, do you anticipate, based on what you're sort of seeing from a demand standpoint and the assets that you're seeing demand for, would you still be comfortable with that guidance range of CAD 1.2-CAD 1.3 at a minimum?
David, I think at that point, I go back to my earlier comment. It really depends on which assets we end up selling to get us above the range and what the EBITDA of those assets is going to be. We can update people as we announce some of these transactions and get a clearer picture of what that foregone EBITDA for 2020 will end up being.
Okay. All right. 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 and then the number one on your telephone. This last question comes from Robert Catellier, CIBC Capital Markets. Please go ahead.
Hi, guys. Thanks for the presentation. Just a couple of quick follow-ups here. Just on RIPET. With the profitability you seem to be generating out of the gate here, is there any ability or desire to hedge perhaps more of that commodity price exposure or that CAD 5 RIPET advantage? Is that difficult and not likely because you're trying to convert some of those volumes into tolling volumes?
Well, no. We have to consider that, obviously, as we transition more into tolling. We also have to look at the fact that as we work toward exceeding and going above our 40,000 barrels, we'll continue to have an active hedging program. We have to take all those variables into account. I think we're in excellent shape to do that. Those are factors that we have to take in as we go forward.
Okay. Just, I guess one clarification on the updated funding slides and specifically removing the hybrids and everything else. Your slide 16, or your slide 17, I should say, still shows CAD 3 billion of debt repayment in 2019. I'm wondering how you get there if there's CAD 660 million loss of hybrids in the funding equation.
Well, we've already paid CAD 2 billion at June 30th. Obviously, we're assuming that we would get to the high end of our range with respect to our proceeds. We're at CAD 1.3 billion now inclusive of the DG sale. To get to the high end of our range, we would generate another CAD 700 million, plus our funds from operations. That's the math that we do to be able to get to the CAD 3 billion of net repayments.
Yeah. Okay.
Sorry?
Go ahead.
No, please go ahead.
Well, that's what I figured. You're going to make up with the hybrids with additional asset sales. That's pretty much it, and a little bit more maybe on the funds from operations.
That's right, yeah. It's the assumption that we get to the high end of the range, and obviously, we get to the midpoint of our FFO range, which we've guided to be CAD 850-CAD 950. The midpoint is about CAD 900.
Okay. Thanks for that.
Welcome.
This concludes the Q&A portion of today's call. I will now turn the call back to Mr. McKnight.
Thanks, Kenzie. Thanks, everyone, for joining our call today. Thank you for your interest in AltaGas. As a reminder, the investor relations team here at AltaGas 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.