Thank you for standing by. This is the conference operator. Welcome to the third quarter 2023 results conference call for Canadian Utilities Limited. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star and 0. I would now like to turn the conference over to Mr. Brian Fersovich, Director, Corporate Finance. Please go ahead, Mr. Fersovich.
Thank you. Good morning, everyone. We're pleased you could join us for Canadian Utilities' third quarter 2023 conference call. With me today is Canadian Utilities Executive Vice President and Chief Financial Officer, Brian P. Shkrobot, as well as ATCO EnPower's Chief Operating Officer, Bob Myles, and ATCO Energy Systems Chief Operating Officer, Wayne Stensby. Before we move into our formal agenda, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located. Today, we are speaking to you from our ATCO Park head office in Calgary, which is located in the Treaty Seven region. This is the ancestral territory of the Blackfoot Confederacy, comprised of the Siksika, Kainai, and Piikani nations, the Tsuut'ina Nation, and the Stoney Nakoda nations, that include the Chiniki, Bearspaw, and Goods toney First Nations.
The City of Calgary is also home to the Métis Nation of Alberta, Region Three. We honor and respect the diverse history, languages, ceremonies, and culture of the indigenous peoples who call these areas home. Brian will begin today with some opening comments on our financial results and recent company developments, including regulatory decisions. Following these prepared remarks, Brian, Bob, and Wayne will take questions from the investment community. Please note that a replay of the conference call, a short supplementary presentation, and a transcript will be available on our website at canadianutilities.com and can be found in the Investors section under the heading Events and Presentations. I'd like to remind you all that our remarks today will include forward-looking statements, which are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Canadian Utilities with the Canadian Securities Regulators.
And finally, I'd also like to point out that during this presentation, we may refer to certain non-GAAP and other financial measures, such as total of segment measures, adjusted earnings, adjusted earnings per share, and capital investment. These measures do not have a standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented in other entities. And now I'll turn the call over to Brian for his opening remarks.
Thanks, Lawrence, and good morning, everyone. Thank you all very much for joining us today for our third quarter 2023 conference call. Canadian Utilities achieved adjusted earnings of $ 87 million or CAD 0.32 per share in the third quarter of this year, compared to CAD 120 million in the third quarter of last year. As you know, we concluded a successful second cycle performance-based regulation in our Alberta distribution utilities in 2022. 2023 is a single cost of service rebasing year, and in 2024, we will start the third cycle of performance-based regulation with final rebase rates. Performance-based regulation facilitates affordability, which is important to the long-term sustainability of the business, as the savings and efficiencies generated in the second PBR cycle are returned to customers through the rebasing process.
As expected, the impact of our Alberta distribution utilities rebasing resulted in lower year-over-year earnings in the third quarter. On its own, this rebasing contributed to a year-over-year decline in earnings of approximately CAD 17 million. This is a significant impact to 2023 earnings, but for anyone who has listened to our conference calls throughout last year and this year, this is not an expected trend. It is a direct result of the exceptional performance that we drove throughout our second PBR cycle and the savings and efficiencies that are now being returned to customers. As our utility teams continue to work hard to find new efficiencies and drive down costs, we expect to see the earnings pressure associated with this rebasing begin to soften in the fourth quarter of this year.
Looking ahead to 2024 and beyond within our Alberta utility businesses, I want to briefly touch on two key regulatory decisions that received earlier this month. First, the Alberta Utilities Commission, or AUC, released the parameters for Alberta's third performance-based regulation cycle, or PBR3 for short, which will be the framework in which our Alberta distribution utilities operate for the period between 2024 and 2028. Included in our MD&A for this quarter is a detailed breakdown of the differences and similarities between PBR3 and our outgoing PBR2 framework. At a high level, while PBR3 does include a tiered earnings sharing mechanism, we continue to believe that this framework would create opportunities for us to deliver strong outperformance and growth throughout the term. Importantly, this framework allows us to make investments needed to drive both efficiencies and long-term stability for our energy distribution systems in the province.
Also in October, the AUC delivered its decision on the Generic Cost of Capital, or GCOC for short, and the parameters for 2024 and beyond. As was signaled throughout the year, the commission has adopted the use of a formula for setting ROE, and this decision also reaffirmed equity thickness set at 37% for the Alberta utilities. The established formula for ROE utilizes a base rate of 9% and takes into account two variables to adjust this base rate. First, the changes in 30-year Government of Canada bond yields and changes in utility spreads. The commission will update the ROE annually and issue the following year's ROE in November of the current year.
Now, while the final 2024 ROE will still not be known until November of this year, current market data suggests an ROE in the range of 9%-9.2%, up from the current rate of 8.5%. Now, as we begin to operate under these new frameworks in 2024, we'll continue to apply the ownership principles that we have historically used to drive efficiencies and operational excellence across our businesses, and we expect this to drive continued outperformance and growth for our business. Importantly, the receipt of both these critical regulatory decisions well in advance of the respective operating years, further reinforces the strides we've seen in reducing regulatory lag in the province and providing prospectivity.
Moving on to our natural gas distribution business in Australia, we continue to see strong growth in key operating metrics, such as new connections, tariff rates, and system volumes. The narrative for this business, however, remains focused on Australia's in-country inflation profile, which continues to contribute to a year-over-year earnings pressure. As we alluded to in our second quarter 2023 conference call, it is important to remember that inflation in 2022 built rapidly in the second half of last year, with full-year inflation reaching almost 8% by the year-end 2022. As a result of this building profile in the prior year, our third quarter 2022 earnings were exceptionally strong, creating a comparable that is difficult to compete with in 2023 as inflation levels begin to moderate. This trend resulted in us reporting year-over-year decline of CAD 8 million for this business in the quarter.
Similar to the messaging we delivered throughout this year, we continue to expect Q4 and full-year earnings for this business to be lower than 2022 as the CPI trend continues to moderate in Australia. For added context, in-country estimates continue to suggest full-year inflation in Australia between 4%-5%, which is consistent with the in-market estimates from last quarter. Now, before I move on to our ATCO and Power businesses, I want to briefly touch on the capital investments we made in the third quarter. The third quarter saw us invest CAD 331 million in our business, with CAD 307 million of the spending being within our existing utilities. This ongoing utility investment ensures a continued generation of stable earnings and reliable cash flows, while also driving sustainable rate-based growth.
The remaining capital was primarily related to our ongoing renewable generation initiatives at ATCO EnPower. Moving on to ATCO EnPower business, we delivered adjusted earnings of CAD 9 million, compared to CAD 12 million for the same period last year. While our newly acquired and recently completed renewable assets contributed to earnings, lower demand in our natural gas storage business, timing of costs and seasonally low wind output pressured earnings. As we continue to drive the numerous development processes already underway to completion, and these assets begin to contribute additional earnings, we're confident that the earnings power of these assets will become more pronounced. Now, moving to the development side of the discussion, it's been a busy quarter and one highlighted by the creation and formalization of a number of key strategic partnerships that are paramount for us advancing growth strategy.
In September, we announced our partnership with the Chiniki and Gitxaałii First Nations, which saw them become joint owners of the Deerfoot and Barlow solar facilities. Nurturing Indigenous partnerships that promote social and economic development has long been a hallmark of our method of operating, and we're proud to announce that this agreement with our new partners. The Deerfoot and Barlow solar facilities are some of the largest solar installations in an urban setting in Western Canada, and I'm proud to say that our Barlow facility achieved full commercial operations in the second quarter of this year. We expect our Deerfoot project to achieve the same in the fourth quarter of this year. This month, we also announced a virtual power purchase agreement with Lafarge Canada, which will see them receive 100% of the energy produced at our Empress Solar facility.
Again, we are proud to be at the forefront of the energy transition and providing solution to help customers like Lafarge reduce their own carbon emissions, and it remains a key priority for us in our growth strategy. Agreements like this also align with our target of having approximately 75% of the renewable generation portfolio contracted under long-term agreements with high-quality counterparties. This portfolio view to contractedness helps ensure a stable and secure cash flow stream for the long term, while ensuring that we retain the needed flexibility to maximize value within the portfolio and to capture near-term economic benefits as they arise. For our Empress project, we expect to see achieve full commercial operations in the fourth quarter of this year.
But looking ahead to our development pipeline, I think it's also valuable to briefly touch on the AUC's decision to pause approvals for the new renewable electricity generation projects until February of next year. First and foremost, this announcement does not impact our projects under construction, which are the upgrading of the Forty Mile Wind Asset or the near-term development of our Forty Mile Solar Project. For our renewables development pipeline, more broadly, we continue to progress our near-term projects and our development pipe timelines did not contemplate a need to file any new AUC applications in advance of the expected lifting of this moratorium in February next year. We also continue to be focused on developing the Forty Mile Solar Project, and we do not expect the project delays related to this government pause.
I would say that throughout this process, we've been working collaboratively with the AUC to ensure that the importance of developing these assets for the benefit of our province and its decarbonization goals is well understood. Finally, we remain committed to our, our hydrogen project within Alberta's Industrial Heartland and continue to move development of that project forward. Since last quarter, we've actively reengaged discussions with both financial and strategic partners, along with the off-takers that are key to underwriting the business case on a project of this scale. We continue to believe that demand of this area exceeds the facility capacity. These negotiations are in advanced stages, and we expect to be able to provide further clarity on timing and next steps in the coming months.
Now, on the topic of hydrogen, earlier this week, it was also announced that our ATCO Australia business was named a preferred partner in the delivery of the South Australian Government's Hydrogen Jobs Plan. Under this plan, we will work as part of consortium with our partner to deliver a strategy and development program for a 250-megawatt hydrogen production facility, along with a 200-megawatt hydrogen-fueled electricity generation facility and related hydrogen storage. While this project is in its early days, projects like this further cement our global hydrogen strategy and our position as leaders in the global transition to a cleaner energy. So summing up, overall, our third quarter results were in line with our expectations for a rebasing year.
The earnings pressures that we expected related to rebasing and Australia inflation were evident in the quarter, but we expected this rebasing pressure to begin to ease in the fourth quarter. Now, looking again ahead to 2024, our Alberta utilities now have prospectively, following the regulatory decisions on PBR3 and the GCOC that was received earlier this month. As I said in the past, no matter what the regulatory environment we operate in, we remain focused on driving exceptional results for all shareholders and positioning our businesses to maximize sustainable growth and earnings. I look forward to sharing our full 2023 performance and providing further updates on the progress of our numerous growth initiatives on our next call in early 2024.
Now, that concludes my prepared remarks, but before we open the call to questions from the analyst community, I just want to give everyone a chance to hear from both Bob Myles on our ATCO EnPower business and Wayne Stensby on our ATCO Energy Systems business. Bob, the ATCO EnPower business has made numerous strides in 2023 towards the achievement of its renewable generation and clean fuels growth objectives. In light of this progress, could you comment on the growth you're seeing in the business and where you expect things to go from in the near term?
Thanks, Brian. It's hard to talk about where we're going without looking at what we've done in 2023. You know, I'm proud to say that we have fully integrated the acquisition that we acquired earlier this year for the Suncor Renewables acquisition. We have fully integrated our two wind assets that are operating, so that's a great accomplishment. And, you know, we've also completed pretty well all of the construction on our three solar projects here in Alberta, as you indicated a little earlier. So I think that was a great accomplishment as well. The next project that we're pursuing right now is our Forty Mile Solar Project. You touched on that, and, you know, that's a 220-MW solar project, also in Alberta. And so that's fairly far along.
We hope to make FID on that later this year or early into 2024. On the clean fuel side, you did indicate that we're progressing quite nicely on our hydrogen project, both domestically and with regards to exports. So, definitely a busy time right now. So lots on the go.
Thanks, Bob. A lot of great opportunities on the horizon, as you said, and exciting to see these initiatives convert to strong earnings contributions. Wayne, in a similar vein, the third quarter saw your ATCO Energy Systems business receive two key regulatory decisions, the Generic Cost of Capital and the formalization of the framework for the third-year PBR cycle. Now that you're back in Canada and refocused on our Canadian-based businesses for the utilities, can you comment on how you're thinking of ATCO Energy Systems businesses moving forward and what can we expect in the coming years?
Thanks, Brian. You know, let me start by just saying, I'm very excited to be back and leading the utilities portfolio. LUMA is in a good place or a good position with Juan Saca stepping into the CEO role, and I'm very confident that the more than 3,500 hardworking women and men who are in Puerto Rico, in LUMA, will continue to build on the substantial early progress that we were all able to make. As you say, maybe a little closer to home here in Alberta, and as you mentioned, a number of regulatory decisions have now been received.
I look forward to working with our teams to build on what really is phenomenal progress that the utilities have made through the first two PBR cycles or periods in the distribution businesses, and also the strong progress in the transmission businesses. These past periods have yielded great efficiencies for our customers, and I see them as providing a very strong foundation as we now move to invest and perhaps get a little more oriented on growth to serve our customers' growing and evolving needs in the province.
Thanks, Wayne. That's great insight. Thank you. We'll now turn the call back to Lawrence to bring us to the formal Q&A component of the call.
Thanks, Brian. In the interest of time, we ask you to limit yourself to two questions. If you have additional questions, you're welcome to rejoin the queue. I will now turn it over to the conference coordinator for questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw from the question queue, please press star then two. The first question comes from Linda Ezergailis with TD Securities. Please go ahead.
Thank you. Very interested to hear your updated thoughts on what sort of optimization and cost efficiencies you're working on so that your utilities, your distribution utilities, can meet or beat any sort of productivity factors that they're working towards. I guess the second part of that question is, we are, you know, still seeing some inflationary pressures in various cost buckets, and I'm just wondering, in your view, how well the inflation indices reflect your true underlying inflation, or might there be some mismatches, for better or worse, on that front?
Thanks, Linda. Appreciate your question. Yeah, in terms of performance, as I've indicated on previous calls, and we have a long track record of finding new and creative ways to drive down our costs for our customers. You know, we continue to see that throughout this year. Although we've had the expected rebasing, I would say that the teams have done a great job in the first part of 2023 to find some additional savings throughout our business, and that's throughout. Whether it's through some tax efficiencies, whether it's through our operations. Of course, the wildfire also diverted some of our teams onto that response effort.
Overall, I guess I would kind of give guidance that we are confident that we can drive that continued efficiencies. As we mentioned, maybe it's in the 1 to 200 basis points range for this year. Obviously, we'll have another resetting in PBR3, and we get into 2024, but for this year, the teams are doing extremely well. In terms of inflationary pressures, like I would say in the past, you know, we've done really well to kind of work with our vendors and suppliers to maintain our expected cost increases in line with the general inflation. It's been sometimes improved. We've had a little bit of delay over a period of time on some of our materials, especially some of our long leads.
We've just changed our practices going forward to make sure that we get well, well ahead of ordering long-term expected supplies for some of our projects. We did that on our solar facilities, getting ahead and ordering all the panels. So Bob, as you mentioned, can hit those timelines. So overall, I think, we're not expecting any inflationary pressures that are outside of what we're seeing, I guess, generally in the market.
Thank you. And maybe just moving to Australia, just trying to understand kind of what the financial benefit might be on this hydrogen project, beyond just leveraging the learnings for future projects. Is there some sort of revenue model here, or is it driving business through your existing assets? Can you comment on kind of what the end game is and the magnitude of any sort of economic participation, given that my understanding is the Australian government will own the facilities?
Yeah, maybe I'll start and then I'll ask Bob to help chip in here. So first of all, I would just kind of comment that it's very early days and yeah, we're very excited to work with the South Australian government on this project. It really sees kind of the benefit of kind of our outward approach to the hydrogen strategy globally and how we're recognized in the jurisdictions that we operate in. Again, it's too early to talk about the funding model and how big this project will be. I think that's part of this project. It's part of what we've been engaged to do, is to provide that preliminary review.
But I do think it's great for our business and kind of builds on some of the work that we've been doing across our various business units. And maybe, Bob, I'll turn it over to you to maybe provide some further color.
Yeah, maybe the only other things. By the way, hi, Linda. The only thing I'd add to what Brian said is, is this project, I could say- I would say, could be one of three things. It could be, engineering, procurement, construction. It could be engineering, procurement, construction, and operation, and there's the potential of equity ownership as well. So as Brian indicated, it is early days, but all of three of those scenarios have all been discussed with the South Australia government as well.
Thank you. I appreciate the context.
The next question comes from Rob Hope with Scotiabank. Please go ahead.
Good morning, everyone. Wanted to circle back on the, on the EnPower business. You know, it's been a little choppy out there in terms of valuations, the pause, and on the Q2 call, you had talked about the potential for looking at other financing opportunities for this business, whether it be, you know, a number of outcomes there. So just wonder if you could give us a, an update on how you're thinking about, financing the, renewable power business.
Yeah, maybe I'll start off, and, yeah, like, as we talked about in the second quarter, you know, we're looking at, you know, the long term, well, how we're gonna fund the business, and we must consider how we best optimize the value for CUL shareholders in each step of the way. Well, in the immediate term, our funding needs are tied to the continued development of our renewables, pipelines, and the pre-FID hydrogen work. To support this need, we're continuing to consider partnerships, options, particularly in the short term. Longer term, though, we'll continue to evaluate both private and public sources of funding for the continued growth of the company.
So, you know, with all the strategic decisions that we make, we'll continue to evaluate these opportunities through the lens of shareholder value creation and the long-term growth and stability of this business. Any further comments, Bob, you wanna make?
Rob, the other thing is, on our—on the larger projects in EnPower, specifically the large hydrogen projects, it's not just a matter of the financing. We're also looking at who we partner with strategically with regards to strong operating partners, strong offtake partners, and with that, they also bring the financing side as well. So that's all very much part of the strategy as we build out ATCO EnPower.
I appreciate that. And then maybe more broadly, with the strong balance sheet, you were able to access capital a little over a month ago at attractive rates, as well as kind of the choppiness we're seeing in the market. You know, have you thought or kind of what are your views on acquiring assets a little countercyclically in this environment and using your balance sheet to maybe buy them for values?
Yeah. Thanks, Rob, and yeah, I'd say that we're constantly evaluating opportunities, whether it's through MRA or other parts of the business. And, you know, that doesn't change that, yes, there's some volatility in the cycle right now and appreciate that where the capital markets are today. But yeah, like I'd say that we're constantly evaluating, you know, all of our aspects of our business and geographic locations, opportunities, and if there is something out there that is attractive and accretive, we'll certainly look at it.
Thank you.
The next question comes from Maurice Choi with RBC Capital Markets. Please go ahead. Maurice, your line is open.
Sorry about that. Muted myself. Good morning, everyone. Just wanted to follow up on the ATCO EnPower. Sorry if I missed this, but when are we expecting to hear a meaningful update on this, if not a decision? And also, I know that you've been doing some market feedback on the potential options on this, so any thoughts on what you've been hearing, recognizing, obviously, as my colleague mentioned, the market is choppy.
Sorry, Maurice, just to clarify, update on some of our projects or update on kind of Power
How we look to fund this? [guess]
EnPower. Well, EnPower's potential separation specifically. I recognize-
I see. Okay.
how you responded to the previous question, but, you know, timing-wise, when can we have clarity on it?
Yeah, like, you know, in terms of timing, again, we're not rushing into anything. We said that we would evaluate as we kind of went through the previous question. You know, as we look to build out and some of these bigger projects come online, you know, we'd be evaluating all options. Where the capital markets are today, as Bob kind of alluded to, certainly partnerships is kind of a key, probably near-term solution and focus. But over the long term, as a previous comment on the quarter, we're gonna look at all opportunities and alternatives, including the public and private markets.
Just to be clear, as Bob mentioned, partnerships on the hydrogen project specifically, when it comes to the entire ATCO EnPower entity, are you suggesting that there's also a partnership for the entity or more like on a project-by-project basis?
It's more of a project-by-project basis, Maurice, and again, like, we're gonna evaluate all of those as those come up. You've seen us just announce a partnership on some of our renewables, and so that's kind of evidence of what we're looking at.
So is it fair to say that ATCO EnPower, at least from a base case, will remain within at, CU, and we'll just see partnerships from this point onwards?
... Again, listen, we will evaluate all opportunities, but for now, yes, we were considering the partnerships and as we grow up the business, I'm not going to suggest that any options are not on the table, but certainly we see partnerships within CU as being, you know, a meaningful way to fund the near-term projects of this nature.
Great, that makes sense. Maybe I just want to finish off on the government's review of the electricity pricing market, including reducing T&D costs. I know in the last call, you mentioned that you weren't expecting anything negative from this review. But obviously, cost of capital is higher, notwithstanding that your ROE now looks to rise next year. So as you look at the cost structure for T&D for customer bills, where would you see costs coming down for the government to achieve this T&D cost reduction?
Yeah, like, It's a great question, and, and, I think as I alluded to in prior calls, you know, what we can directly do in our business is what we try to focus on. And, and certainly, we, as we've kind of communicated, we've worked really hard to drive down our costs for our customers, and we've seen a rate reduction both in our transmission business and our distribution business with the PBR rebasing. So that is the meaningful thing that we can do as a utility company.
That said, we continue to work with the ISO and, you know, in terms of project designs and market studies to help, how we best source and do the right pricing, those to get the most efficient way of connecting new generation, but also how do we ensure that our distribution and transmission grids can provide, continue to provide the safe and reliability of the energy delivery. I don't know, Wayne, anything else that you'd want to offer?
You know, maybe what I would, kind of just add, Brian, is we completely recognize the challenges of affordability, you know, here in Alberta and across Canada, right? We are well aware of that. We empathize with our customers as they have seen cost increases. The cost on the bill is, of course, the sum of the transmission and distribution or the delivery costs and the generation costs, and, you know, as you would recognize, there's been some volatility in all of that in the last few months and even years. As Brian indicated, as we move forward, I think our emphasis is going to be on how do we continue to invest in those networks and bring the reliability improvements and the climate adaptation and resiliency improvements that our customers are really demanding.
I see it as far more than just a cost conversation. I think that's very important in our role as we have these distribution and transmission utilities here in Alberta and our role as a broader energy provider.
Great. Thanks for the color.
The next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.
Yeah, thanks. Good morning, everyone. So just coming to the decisions, the formula for the ROE and the PBR parameters, including an earnings sharing mechanism, how would you think that all shakes out? You know, obviously, the base ROE is going higher, but you then move into an earnings sharing mechanism on above 200 basis points. Do you think the all-in earned ROE changes at all under the new construct relative to what you were operating under previously?
Yeah. Thanks, Mark. Yeah, great question. And, you know, overall, I think we're, you know, in terms of Generic Cost of Capital decision, as kind of expected, the commission moved to a formula, with the goal of reducing regulatory lag. That said, you know, I—we're thankful that the base ROE has gone up. That said, it's probably below what we'd like it to be, but it's still going in the right direction.
You know, in terms of the earnings sharing mechanism, at least, you know, the first 200 basis points is on the account of shareholders, and above that, there starts to become in a sharing, which, you know, as I think is a balance that the commission struck at the end of the day, providing a supportive net framework. I'm sorry, I'm kind of mixing that with the PBR, but I do think they're both tied in terms of the ability to share and having a proper ROE.
So I do think that it's kind of in line with what we would expected, and I think as a supportive framework, I think on the PBR side, in terms of having the, the formula way approved it is, having some capital tracker mechanisms allow us to pursue decarb opportunities, is supportive. And they even put in some creative mechanism on the pilot project to say if we could, because if we have a capital versus an O&M decision made, to extent that we could prove that it's beneficial to customers to have an O&M solution, that we're allowed to earn on that program. So I think the commission has taken a positive step forward in this, in these decisions.
Yeah, I think we're now that we have the rules known, and again, go back to our previous tried and true ability to find ways to generate value for our shareholders throughout any PBR or cost-of-service or Generic Cost of Capital framework.
... And just to follow up on the comments you made earlier about the annual updates, you've gotten the clarity that even under the distribution utilities operate under PBR, that there'll be an annual ROE update? Because I know in some jurisdictions, they set it at the beginning of the five-year window, and then you kind of operate under that base ROE. And I guess if you do have annual updates, does that make it harder to manage through PBR in terms of how you think about timing and working through cost savings through the five-year period?
No, like, in terms of the annual update for the Generic Cost of Capital rate flowing through, is that referring to Mark?
Yep, yep, yep.
Yeah. No. Yeah, and no, that's not, you know, that's. It doesn't change anything. In terms of our formal normal compensation for inflation, and that is a typical thing through a PBR framework. But the update to ROEs, instead of being flat, yeah, they will change maybe up or maybe down, depending on kind of underlying parameters, those two. But I don't think it's gonna materially change throughout the five-year period. And, it'll be set November each year. And like I said in the, on my opening remarks, we expect that to be north of 9% for 2024.
Okay. And then just one last question for me is just, as you look into the medium term, particularly your Alberta utilities, are you seeing anything changing in terms of the outlook, demand, regional needs, technology changes, anything sort of factoring into what you think the rate base outlook looks like for any of the utilities in Alberta? Maybe on a 3-5-year outlook.
Yeah, maybe I'll let Wayne kind of answer this one. I think he kind of hit it off in terms of what our outlook looks like. Certainly, all of those factors are something that are currently on our radar. Maybe, Wayne, do you wanna get your views on that?
Yeah, and I think you hit the, the kind of key elements in a way. But, you know, and I'm almost building on the affordability conversation from, from a couple of questions ago, but we are seeing, strong demand growth from our customers across the province. Alberta, the Alberta economy is doing well, and, you know, in an inflationary situation, right? So, we are seeing customer growth. We are seeing, I would say, ever-increasing needs from our customers or, or wants from our customers, from their utilities. And, and so we are building strong plans as we move forward to invest and support, that those growing customer needs and growing numbers of customers. So, we are, we, we see the next three to five years as, as very positive for our four Alberta utilities.
Was that expected to manifest itself into higher rate-based growth when you look at maybe in a five-year horizon?
Yes.
Okay. I'll leave it there. Thanks.
The next question comes from Patrick Kenny with National Bank Financial. Please go ahead.
Thank you. Good morning. You guys touched on the on LUMA in your prepared remarks, but any update or guidance on when we might see a transition from the the supplemental to the O&M agreement?
I'll pass that one on to Wayne.
Good morning, Patrick. Yes, it is the question we've been facing, I suppose, for two or, you know, two or three years at this point in time. But maybe I can offer you a little more kind of color there. It's in the public markets that the court dates or the confirmation hearing dates have been set for the first two weeks of March of next year. I, you know, it's possible those are delayed, but I think it's highly unlikely at this point in time. It's a U.S. federal bankruptcy court, and so the judge will hold those confirmation hearings.
If you follow, then, kind of, you know, conventional thinking from March, I think that, that plan will take, you know, there will have to be the hearing or the trial, I guess, then the evidence, then the eventual ruling. That will probably take you all the way till middle of next year, and then there's the implementation of the plan. In broad strokes, we would imagine that, that PREPA emerges from bankruptcy, perhaps, towards the end of 2024. That said, as you know, LUMA extended the supplemental period with no deadline, roughly a year ago, and if it takes longer, it takes longer.
I think our real focus, you know, organizationally, is to continue to build on what we were hired to do, which is fundamentally transform the electric system in Puerto Rico, you know, and rebuild and improve that system. That's where I would tell you the vast majority of the focus is as we follow through the bankruptcy. I guess I should have added, of course, as you know, once we move out of the supplemental period, we move into the 15-year term of the contract.
Right. Okay, that's perfect. Thank you for the update. And then maybe just shifting gears to the balance sheet. Brian, you issued some 30-year paper late in the quarter. Can you just provide maybe an update on your funding needs for the remainder of the year and maybe into 2024?
... Are there any other upcoming maturities or CapEx spend that you might be able to pre-fund and maybe take some additional market risk off the table?
Yeah, thanks, Patrick, for your question. Yeah, you mentioned our, our, our issue that we did earlier in the year, and, you know, very, very success- very happy with the outcome of that, that debt issue. Got very favorable rates and well oversubscribed. It's also kind of the first issue since withdrawing from our ratings from S&P. In terms of the rest of the year, no, we don't expect to have to access the market for the remaining of this year. To next year, I'd see that, you know, we have some, definitely some flexibility there. At least on the CU Inc. side, we expect to be probably around the same range of this year for our needs, but with some flexibility.
Got it. Thanks for that. I'll leave it there, guys.
Once again, anyone on the conference call who wishes to ask a question may press star one at this time. The next question comes from Benjamin Pham with BMO. Please go ahead.
Hi, good morning. I wanted to go back to the Alberta rate base. I know you've -- you mentioned that it's tracking in line with your expectations, the, the rebase and where earnings are going, for 2023. I, I wanted to, reconcile that with some of your comments early in the year. I think you mentioned Q3 was going to be a, a peak rebase, and then you would see growth in Q4. Is, is that still the, the trend? Because it looks like Q3 ended up not being as bad as Q2.
Yeah, no, no, thanks, Ben, for the comments. And I'd say generally in terms of the seasonality of... That's typically the case. And I would say there's— That said, there's always some timing of costs and initiatives that happen throughout the year. And I would say for the third quarter here, we did have some timing, especially in our electric distribution business, timing of some costs which probably improved us versus where kind of above the normal seasonality would be. So I guess, yes, overall, we would expect, but with that kind of proviso that we do have on a typical year, some timing of operating issues from one year to the next. And whether it's us working on wildfire restoration, that changes some of our timing of our O&M costs.
Those are kind of, like, examples which could, you know, from a typical year-over-year comparison, and cause some noise.
That, that Q3 timing and some of that maintenance work, is that pushing to, to Q4 then? Maybe you won't see growth year-over-year?
Yeah, I think, you know, I'd say we're still back in line with what we expect for when we communicated. Listen, we know we're coming off a 2022 outperformance and, and I think you've seen the regulatory filings and the significant outperformance we achieved. We do expect to come back down to kind of that 100-200 basis point range by the end of the year. I do see a little bit of that aversion in Q4, but again, I do think it's in line with the guidance that we've already provided into that, you know, 100-200 basis point range.
Understood. And I know usually with... The second question is on CapEx. I mean, no news means there's no change in that utility CapEx budget. But I wanted to check those in reference to maybe rate base, growth maybe moving better than expected. Is that more reference to your beyond your guidance timeframe?
Yeah, that's a great question, Ben. I think Wayne kind of alluded to, in kind of his comments, like, we do see some significant growth in our jurisdictions here, and certainly, you know, being mindful of the affordability of our customers. We are seeing pressures from the growth and evolving demands from our customers. Also, we recognize there's a little bit of a pause on the renewables, but the reality is, we do need to connect and make sure that we continue to provide a network which has safe and reliable energy in serving our net needs. You know, I think this is evolving. You know, we expect to give an update. You know, typically we provide a further update at the end of the year.
So in February, we'll provide kind of a more refined guidance in terms of what our expectations and outlook is for the next, say, three to five years.
That's great. Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Brian P. Shkrobot for any closing remarks.
Thank you, Operator, and thank you all for participating today. We appreciate your interest in Canadian Utilities, and we look forward to speaking with you again soon.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.