Ladies and gentlemen, thank you for standing by. My name is Jessa, and I will be your conference operator today. Welcome to the Fortis First Quarter 2019 Conference Call and Webcast. During the call, all participants will be in a listen only mode. There will be a question and answer session following the presentation.
At this time, I would like turn the conference over to Stephanie Amaimo. Please go ahead, Ms. Amaimo.
Thanks, Jessa, and good morning, everyone, and welcome to Fortis' Q1 results conference call. I'm joined by Barry Perry, President and CEO and Jocelyn Perry, Executive VP and CFO, other members of the senior management team as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward looking information, which is subject to the cautionary statement contained in the supporting slide show. All non GAAP financial measures referenced in our prepared remarks are reconciled to the related U. S.
GAAP financial measures in our 2019 Q1 MD and A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to Barry.
Thank you, Stephanie, and good morning, everyone. Before getting into the quarterly results, I wanted to take a moment to thank ITC's team for quickly and safely restoring power after blizzard conditions brought heavy snowfall, ice and high winds to the Midwest. The storm damaged over 400 poles in Southern Minnesota and Northern Iowa last month. Fortunately, ITC was able to restore service to its customers within a few days. 2019 is off to a strong start.
We continue to see strong growth in our regulated utility businesses. Financially and operationally, we've made strides positioning us well to execute on our goals for the year. Financially, adjusted EPS was 0 point 7 $4 for the quarter and was up 0 point 0 $4 compared to the previous year, reflecting 5.7 percent EPS growth. Operationally, in the quarter, we invested $740,000,000 at our utilities. These investments enhance the service we provide to our customers with an eye on delivering cleaner energy in a safe, reliable and affordable manner.
We remain on track to invest $3,700,000,000 in 20.19 and approximately $17,000,000,000 over the next 5 years. In Arizona, Tucson Electric Power or TEP filed a rate case 1 using a 2018 historical test year. TEP is seeking to recover its investments made since its last rate case, supporting customers in the transition to a cleaner energy future, including expansion of its wind, solar and natural gas generation resources. Earlier this year, we announced that we had entered into an agreement with Columbia Power Corporation and Columbia Basin Trust to sell our 51% interest in the Waneta Expansion for approximately $1,000,000,000 During the quarter, we progressed through the sale process we successfully closed the transaction on April 16. Lastly, in conjunction with the Waneta Expansion sale, we successfully settled a tender offer to repurchase US400 $1,000,000 of the corporation's outstanding notes due 2026.
At Fortis, we are committed to reducing our environmental footprint. During the quarter, 3 significant milestones were achieved to support this commitment. In March, TEP finalized its plans for construction of the US370 million dollars Oso Grande Wind Project. Construction of the 247 Megawatt Wind Farm is expected to commence later this year and be online by the end of next year. Once completed, it will become TEP's largest renewable energy resource and generate enough power to supply nearly 100,000 homes.
This project is expected to increase TEP's renewable energy production to approximately 28% in 2021, well ahead of the existing state renewable goal of 15% by 2025 and bringing the utility close to a 30% goal planned to be achieved by 2,030. Although we expect to meet our target well ahead of 2,030, we are not stopping there. We will continue to pursue new initiatives to support the shift to a lower carbon economy for our customers and we expect to be able to grow beyond the 30% previously targeted for 2,030. Turning to British Columbia, FortisBC announced a significant increase in its energy conservation and efficiency program over the next 4 years. The nearly $370,000,000 program will be focused on customer initiatives to lower energy use, emissions and reduce energy bills.
These expenditures will increase FortisBC's rate base over the 4 years. These conservation and efficiency enhancements are expected to decrease carbon dioxide emissions by 50,000 tons annually, which equates to taking close to 11,000 gasoline powered cars off the road. A significant milestone was achieved in the Wataynikitiap power project last month when the lead to construct was obtained from the Ontario Energy Board. Remaining milestones include finalization of environmental approvals, which are expected to be received later this year. The project is targeted to be completed in 2023 and will reduce greenhouse gas emissions associated with the diesel generation currently used by the communities.
We are confident in our ability to deliver on our $17,300,000,000 capital plan for the period 2019 through 2023. 99% of our planned capital investments are in our regulated businesses. The plan consists of a diverse mix of highly executable low risk projects needed to maintain and upgrade our existing infrastructure. This capital plan supports our 6% to 7% average annual rate base growth and translates to over $35,000,000,000 in rate base in 2020 3. We remain optimistic in our ability to grow our portfolio of utility businesses.
Our 45 years of dividend increases makes us a leader in dividend growth. Our strong growth profile coupled with our highly regulated businesses gives us confidence that we will continue this record and grow the dividend at an average annual growth rate of 6% through 2023. I'll now turn the call over to Jocelyn for an update on our Q1 results.
Thank you, Barry, and good morning, everyone. For the Q1, reported EPS of $0.72 was $0.05 lower than last year. This was largely due to a 1 time $30,000,000 positive US tax adjustment in 2018 related to our filing of a consolidated state income tax return. Excluding one time items, adjusted EPS of $0.74 for the quarter was up $0.04 compared to the previous year, reflecting a 5.7 percent EPS increase. Our utilities continue to execute on their capital plans with $740,000,000 invested during the Q1.
Now turning to slide 10, I'll take a look at the EPS growth on a segmented basis. First, strong performance at UNS and Central Hudson resulted in a $0.03 EPS increase during the quarter. Higher sales at UNS Energy as a result of colder temperatures and the new rate order at Central Hudson were the key drivers of this increase. Central Hudson's results were also positively impacted by timing differences associated with the rate order and operating costs. These increases were partially offset by planned outage costs at UNS.
A higher U. S. Dollar to Canadian dollar foreign exchange rate favorably impacted the quarter. The average rate was $1.33 this quarter compared to $1.26 in the Q1 last year. This increase resulted in a $0.02 EPS increase.
ITC contributed a 0 point during the quarter. This was driven by rate based growth, partially offset by the reduced ROE independence incentive adder. Our Canadian and Caribbean utilities increased EPS by 0 point 0 $1 driven mainly by rate base growth and higher electricity sales at Turks and Caicos. Sales at Turks and Caicos last year were impacted by Hurricane Irma. Offsetting growth at our regulated utilities was a $0.02 EPS decrease associated with our non regulated energy infrastructure businesses.
Realized margins were lower at Aconcreek and lower rainfall decreased production in Belize. Lastly, there was a $0.01 EPS decrease during the quarter due to a higher number of weighted average common shares as a result of our dividend reinvestment plan. The funding plan outlined at Investor Day this past fall remains intact. The majority of the funding required to execute the 5 year capital plan will come from cash flow our operating cash flow, DRIP proceeds and debt financing at the regulated utilities. The ATM program remains available to provide additional financing flexibility.
As Barry discussed, our recent sale of the Waneta Hydro Plant for approximately $1,000,000,000 completed the asset sale component of our current capital funding plan. Net proceeds were used to pay down corporate short term borrowings as well as repurchase a portion of the corporation's outstanding 3.055 percent notes due in 2026. The repayment of holding company debt strengthens our balance sheet, improves our credit metrics and further supports our investment grade credit ratings. Overall, we are pleased with the Waneta sale. We estimate our gain to be approximately $415,000,000 and this gain is expected to be recognized in the Q2.
Turning to our 2019 regulatory outlook, there was a fair amount of regulatory activity during the Q1. In March, FERC issued 2 notices of inquiry which seek comment on its policies for determining the ROE used in setting rates and how to improve its transmission incentive policy to appropriately encourage the development of needed infrastructure to the benefit of our independent transmission model, as well as advocate for the appropriate incentives to drive needed investments. With respect to the ROE inquiry, FERC is providing an opportunity for all stakeholders beyond those currently involved in New England or MISO transmission ROE litigation to comment on the new ROE methodology. We don't expect this will materially impact the MISO based ROE complaint process and we anticipate that we'll issue an order later this year. FortisBC filed its multi year rate plan in March as the current term expires at the end of this year.
The proposed plan seeks approval for a rate setting framework for 2020 through to 2024. Cost of capital is not included in this filing and we anticipate a decision in 2020. As Barry mentioned, Tucson Electric Power filed its rate case April 1. And turning to Slide 13, we wanted to spend some time on this filing. Current rates at TEP are based on a mid-twenty 15 test year and do not include approximately US700 million dollars of rate based investments at the utility since rates were last set.
These investments were made to deliver safe and reliable service to our customers, meet increasing demand and improve the sustainability of our generation portfolio, including the integration of over 1,000 megawatts of renewable resources scheduled to be on TEP system by the end of 2020. Additional requests include an ROE increase of 60 basis points to 10.35 percent and an equity thickness increase to 53%. This equates to a non fuel revenue increase of US115 million dollars or US76 million dollars net revenue increase after considering a reduction in fuel costs. The reduction in fuel costs is driven by our migration to a cleaner and more balanced resource portfolio. TEP's proposals translates into an average residential customer bill increase of approximately US7.61 dollars per month.
Over the past 10 years, TEP has seen its rate base grow from US1 $1,000,000,000 to US2.7 billion dollars while keeping average customer rate increases consistently below inflation each year. We await a procedural schedule from the Arizona Corporations Commission to determine the timing of proceedings. This concludes my remarks. I'll now turn the call back to Barry.
Thank you, Jocelyn. Fortis consists of well run utilities. We are now 99% regulated and we are one of the most diversified utility businesses in North America. Looking ahead, our growth profile is strong with over 7% rate base growth expected over the next 3 years and 6% rate based growth over the next 5 years. This supports our 6% average annual dividend growth guidance to 2023.
We continue to focus on growing our utility businesses. To summarize, through the Q1, the following accomplishments positions us well for the remainder of 2019. We closed the Waneta Expansion sale for approximately $1,000,000,000 dollars improved our credit metric outlook by using the Waneta proceeds to pay down corporate debt, including the $400,000,000 U. S. Repurchase of notes due in 2026, advanced the Huatayna Kittia power project by obtaining the lead to construct from the OEB, progressed our commitment to reduce our environmental footprint with the announcement of the Oso Grande Wind Project and the Fortis, BC Energy Conservation Efficiency Program, filed rate cases at TEP and Fortis, BC and delivered strong EPS growth in the quarter.
I'll now turn the call back over to Stephanie.
Thank you, Barry. This concludes the presentation. At this time, we'd like to open the call to address questions from the investment community.
Thank you. Your first question comes from the line of Robert Kwan from RBC Capital Markets. Please go ahead.
Good morning. Good morning, Robert. Good morning.
Maybe just to start with some of the opportunities that are potentially in front of you in BC, I'm just wondering if there's an update on wood fiber LNG and I guess generally just thoughts given the gas supply issues we had this past winter.
We continue to work with Woodfiber. They obviously have asked us to build a pipeline to sell them to get them some gas for their facility. They've been providing us some funds to do permitting, procurement, design of the pipeline. So we continue to work with them on that. And frankly, we're probably anxious for them to make a final investment decision, but that's not yet been done.
So we're hopeful that will come soon. And in terms of the sort of resilience and reliability of the gas network, I'm Roger Dallantania is here, our CEO of FortisBC. He was a fellow that sort of handled that crisis as a result of the Enbridge pipeline rupture late last year, did a great job for us. So he's here for our annual meeting tomorrow and I'll let Roger comment on that. Thanks, Barry.
Good morning, Robert. As far as Woodfiber and the situation, Woodfiber holds their capacity and they haven't raised any issues with that. So we don't see that as a concern. And we are working with Enbridge just generally on how we're addressing resiliency going forward.
Okay. I guess just with that, I'm also wondering if Woodfiber went ahead, are there any discussions kind of with the province or the VCUC and really upside I guess with strengthening whether that's actually getting something done additionally at Tilbury or something around Southern Crossing?
We're looking at both opportunities. It's too early to discuss those plans. They'll be in front of the BCUC and the government in the next little while as we look at both options.
Got it. I can just finish with financing with the Waneta divestiture really kind of squaring up the funding plan. Just wondering what you might be thinking about though past that, whether that's funding and making room for new assets or future step up in capital projects as it seems like there's a lot of things in front of you right now or even just streamlining the asset base?
Robert, maybe I'll wait in and Jocelyn can follow-up here. But we've been pretty clear that the $17,000,000,000 program required us to raise certain proceeds from asset sales and we've now said that the Waneta transaction completes that. We've also been clear if our capital does go up that we have our ATM program, which is 500,000,000 dollars currently approved at, that we would turn that on. And that would be that is our plan basically. Clearly, if CapEx went well beyond levels that one could think about, we would have to consider other opportunities to raise capital.
To be clear, we are committed to our investment grade credit ratings. We would do nothing that would harm those ratings.
Got it. So as it stands today, ATM is really the first option here?
That's
correct.
Your next question comes from the line of Ben Pham from BMO. Please go ahead.
Okay. Thanks. Good morning. Just going back to the Waneta sale and you think about divestitures, does your HoldCo debt outlook that you highlighted at Investor Day, is that are you well ahead of that slide that you presented or is it more of a gradual reduction?
Yes. So Ben, this is Jocelyn. So at Investor Day, we actually had Juanita included in our projections for Holdco debt. So I think we showed at Investor Day that Holdco was going from 38% down to around 33%, 32%. So we're on track with that plan with the close of the Waneta sale.
Okay. So the graphs are still in terms of the timing of Waneta, it's still more of a gradual reduction than you're bringing forward the whole okay. All right. Just wanted to check on that. And then the on the just going back to some of the questions on future growth prospects.
There's a unlike
just some
of the transmission stuff in Ontario, There's a press release mentioning Ontario capacity markets could drive your transmission initiatives. And could you comment a bit on that on why that could increase the probability of your EEREI thing?
Linda Abse is here with us from ICC. I would just comment, obviously, Ben, that we saw that developments in Ontario were positive towards making projects like Erie Connector make more economic sense. And we felt it would make some sense for us to come out in support of the initiatives that were occurring there. The project still obviously does require a sort of contract, a long term contract for it to go ahead and we are not there on that at this point in time. But overall, the backdrop to some of the changes that are occurring in Ontario are positive for the project.
Yes, absolutely. Good morning, Ben. This is one to ask the yes, as Barry mentioned, certainly with sort of the energy market, capacity market in PJM as well as obviously directional capacity interest in Ontario, obviously from a DC type project. Obviously we're trying to bring more attention to the benefits that can be sort of created, if you will, both in terms of Ontario through that transmission line, just in the differential that occurs in terms of capacity pricing in both those different markets. So from our perspective, capacity market is not something that Ontario has, I would say a lot of experience in.
And so bringing more attention to the benefits of the capacity market and the value of the projects like the Lake Erie Connector to bring, we're just really obviously trying to highlight that to continue to sort of be part of the conversation and to continue to advance that project and highlighting the benefits and the need for the projects and continue to drive value for Ontario customers.
Okay, that's great. And maybe to finish off some of the CapEx changes on the also Grand Wind farm in Arizona. And I was more curious, is the reiteration of the rate base at UNS, is that just because tax equity is going to pick up a greater share of that increase in CapEx that your rate base isn't changing?
I don't know if I understand your question, Ben. I don't think that's part of it. The 700 are you referring to the 7 $100,000,000 of light based growth since the last historical test year in Arizona?
I was thinking more this was the higher megawatts on the Oso Grand Wind Farm. It gets going up by $200,000,000 from previous disclosures. And so it's $200,000,000 in CapEx and I'm nitpicking on a little bit of the numbers. But does that you've opted not to raise or change your rate base with that change. So is it because the 200,000,000 dollars big portion of this tax equity doesn't go to your rate base?
Is that
No, that's not it, Sam. We just obviously we weren't ready to update our overall program for the year, a lot of projects in the $17,300,000,000 so I would say stay tuned for that, but this is definitely an increased amount of capital and we haven't yet updated our overall program.
Okay, got it. Okay. Thanks, everybody.
Your next question comes from the line of Nicholas Campanella from Bank of America Merrill Lynch. Please go ahead.
Hey, congrats on the quarter. Good morning.
Thank you. Hey, just looking at the regulatory items, I was just curious if
you could provide a timeframe if you haven't already on when you think we'll have a resolution for the ITC complaints as well as the notice of inquiry?
Linda, provide your perspective. You're the closest to it.
Good morning, Nick. Yes, I mean, certainly our view is particularly on the ROE, depending ROE based complaints. We still believe we will see a decision on that yet this year. In terms of the notice of inquiry, I think those are a little less certain in terms of what FERC will do once the they've received all of the various comments and reply comments. I think that's less clear as to what their next steps might be or what their timeline might be.
But I think clearly we feel as though we will continue to get to see a decision yet this year on the MISO based ROE complaint. I think we'll have to just wait and see based on the comments and the FERC and the composition of FERC, what they might do on those NOIs.
Thanks. I guess just shifting to Arizona. We all saw the Hudbay mine and it sounds like that's going to be your largest customer in the jurisdiction. Is there any way to kind of quantify how meaningful that is to your top line sales? And then if you could just kind of remind us how that reconciles with your longer term forecasts?
And then perhaps we can kind of talk about incremental opportunities in Arizona as well?
Well, Nick, all I can say is that Arizona is a pretty big business and we're bringing on a new customer that's going to be our largest customers. That's got to be positive, right? So David's here. David, do you want to add some other color?
Yes. So our current largest customer is 80 megawatts. So it's going to be north of that. They're still trying to figure out what equipment they're going to have in their mine design. We're working with them through that process over the balance of this year.
So don't really have a firm estimate of what that top line revenue impact would be, but you can probably calculate it pretty close yourself if you're looking at that kind of above 80 megawatt type load and a typical capacity factor of a mine. So you could probably get pretty close. So yes, we're expecting our well, we're expecting them to start building early next year. The transmission line that will serve them, we expect that to start later this year. And as Hudbay has put out for this mine, they're expecting that full production to be in by the end of 2022.
So that is in our longer term forecast now. It's moved around quite a bit over the last few years, but that's the timeline that we currently have.
Appreciate it. That's it for me. Thanks again.
Thanks, Nick.
Your next question comes from the line of Robert Catellier from CIBC Capital. Please go ahead.
Hi, good morning. I was wondering if you could characterize what type of run rate you have to increase renewables at TP and UNS, given that you're bumping up against some of the renewable portfolio standards there?
David? So the obviously, putting in the 250 Megawatt Oso Grande project is going to be a big one for us. That's the one that we currently have on our time horizon. We expect that to be done by the end of next year. That with a couple purchase power agreements that also come in next year, we'll bring our portfolio to over 1,000 megawatts.
So we've got we're doing all the plans for integrating not only that 1,000 megawatts, but making room for a little more. So we don't have a firm number for additional renewable resources that we will build over that near term. But just to keep your eye out for our preliminary integrated resource plan that we're going to be filing here in the next couple of weeks, We'll show you what those resources look like now and then we're going to go through about a year long stakeholder process, get input from our commission, other stakeholders and then develop a final integrated resource plan that will lay that out in a little bit more detail. That won't be finished until about a year from now, but it will give you a pretty good heads up. We plan on our current plan is owning any additional renewable energy that we put in the ground for our customers on a going forward basis because the vast majority other than this big wind project has been PPAs.
So that's kind of how you could look at it.
Okay. And then, Vireo, I wanted you to help me with the rate cases in BC. You've been an advocate for Canadian regulators to improve the competitiveness of the cost of capital and the ROEs and the equity thicknesses basically. I wondered if you could tell us how the rate applications in BC address that and help make the returns more competitive?
Well, this case that's been filed does not include cost of capital. So cost of capital in BC is a separate process, Rob. So we obviously once we get to that, we will be incorporating our thoughts in that filing. I will just be clear to say that the Canadian regulatory landscape is inferior to the U. S.
Landscape. Our equity thickness is a full 10 points lower than our American businesses. And that over the long term is a major competitive issue for Canadian companies and it has to be fixed. So we but we have to make a case of why it's good for our customers to fix that and we'll be doing that. And that is a challenge that Fortis is taking on and we're going to work transparently with respect with our regulators in Canada try to improve that situation.
Barry, the question was actually in the context of the fact that this rate case doesn't address cost of capital. I was wondering if there's any other items in there that help make it more balanced on a risk adjusted basis that might not beat the eye because they're not capital items?
Roger is here to make a comment.
Good morning, Robert. Just on the application itself, traditionally in BC going back to the 90s, cost of capital has been set separately. That's rate of return as well as equity thickness from rate application. So it's not unusual that our multiyear rate plan does not include a specific filing for cost of capital. Our last decision on cost of capital was 2016.
So we do look time to time at the financial situation to determine whether we'll be bringing forth a new cost of capital allocation. We've just filed this multiyear rate application. As this application rolls forward, we'll make another decision on when we think the right time is to bring forth a new cost of capital application. As far as the application itself, it's really an extension of the existing PBR, a bit of a different focus. The current PBR was really rooted in productivity efficiency of both O and M and capital.
This, efficiency of both O and M and capital. This program maintains this application maintains many of the same elements, but it's more of a focus on targeted incentives around low carbon energy on demand side management and innovation. So it's not directly changing. In our view, it's more of an extension of our current regulatory contract, not a large departure. So we don't see it having an impact right now on our view of cost of capital.
Okay. Thank you very much.
Thank you, Rob.
Your next question comes from the line of Rob Hope from Scotiabank. Please go ahead.
Good morning, everyone. I want to circle back with Rosemont. Just want to get a sense of when the kind of relatively short transmission line to the mine would be completed as well as appreciate David's comments on load, but just want to get a sense of how much load do you think you're going to get out of that projector in the construction
of it?
So
Rob, you're peeling, you want to peel the onion.
A little bit.
I guess I was a little too vague,
purposely so because they still are developing their mining plan. As far as the construction goes, we should have that line built by the end of next year. It's not a it's only a 13 mile route to the engineering is mostly done. We have been doing prep work for that for years. So it's all permitted and ready to go.
We just need to get it in time for them to start their operations. But yes, I really can't say much more about the expected load there.
All right. So let's do a broader question then. So Barry, when you look at the overall market and the very strong valuations we're seeing on energy infrastructure items either majority or minority interests. How do you weigh further strengthening the balance sheet versus your existing asset suite?
Well, first of all, Rob, I'll take you back to the fact that we laid out a strong funding plan for the existing capital program and we're executing well on that plan. And that does see our credit metrics improve over time. So we'll start there. But I would say frankly, any offers we would receive on assets that would be similar to or better than what we got for Waneta, everything is for sale at those levels. Any CEO of a large public company would have to entertain those kinds of offers.
And I don't see those showing up, but if they did appear for certain of our assets, we would have to look at them.
So, Barry, I could add
a little color related to Rosemont, because one of the things that you're talking about the transmission line, I think it's important to point out that we don't pay for that transmission line. Rosemont is paying the $30,000,000 it will take to construct that. So when you look at from a customer perspective and kind of that cash flow versus investment, we have to make absolutely 0 investment in order to serve Rosemont. So that's a really nice asset to have joining our company with a customer that size, 0 additional next question comes from the line of Chris
topic. Thank you.
Your next question comes from the line of David Quezada from Raymond James. Please go ahead.
Thanks. Good morning, everyone. My first question here just on Wataynikaneyap. Just curious if there's any color you can provide on the permitting process and just if you could comment at all on whether or not that's going as expected?
It's going very well and Gary Smith who heads up that project for us is here. Gary, you want to give an update?
Yes, we've been at the permitting process for sure pretty hard now for a couple of years and we've met all the requirements in the permitting process. The file now is in front of the minister to make a decision. We just think there's a little bit more time required in the digest the information we provided, but we don't see any critical hurdles in our way to stop the project from moving forward. So we do expect to get a decision soon, but again exactly when that will be later this year it's undetermined.
Okay, that's good color. Thank you. And then maybe just one other one. I realize this is a longer term opportunity, but just on Big Chino, if you've had any early consultations with stakeholders there and how that process has been going?
Well, Big Chino is
an interesting project. Obviously, it's theoretically, it's a great project for the region to have long duration pump storage. It would greatly enhance the ability of the region, Southwest region to bring more renewables onto the grid, solar and wind. That being said, it is a big project that would take 7, 8 years to complete. And so we're evaluating our involvement in that project at this point in time and continuing to do certain initiatives there.
But I would say that it's a project we need we'll be making a decision on this year whether we continue to put development dollars into it going forward.
Okay, fair enough. Thank you for that. That's all I have for me.
Your next question comes from the line of Linda Ezergailis from TD Securities. Please go ahead.
Thank you. I'm wondering if you could help us understand whether your current funding plan addresses or should eliminate the negative outlook that S and P has or how you feel about kind of defending your S and P rating versus potentially a downgrade?
Well, I would hope that they would remove it related to our strong execution and investing in our regulated businesses, Linda. We're continuing to have good dialogue with S and P. I would not expect any immediate actions from them. Jocelyn, you want to add?
Yes. Linda, I would say that the negative outlook stemmed from obviously post U. S. Tax reform. And so and U.
S. Tax reform was as expected for us and we do expect to get back to metrics similar to pre U. S. Tax reform in a few years. So, I suspect that that will create even better dialogue with S and P.
Yes. And Linda, to be clear, I like the BBB plus unsecured debt rating with S and P.
Okay. Thank you. That's helpful. And maybe we can move on to Aitken Creek. I realize that it's hard to predict that earnings stream, but maybe you can help us see year to date kind of what you're seeing both from a volume and margin perspective?
And beyond just help in deleveraging or funding, would maybe moving that asset to rate base or for the right price exiting kind of help your, I guess, risk profile from a business risk perspective with rating agencies or some other strategic benefit?
I would say in a perfect world, Linda, Roger is sitting right next to me here. So I would like to see that asset in regulated operations. It is a critical asset for the management of the gas network in Western Canada. And our utility FortisBC uses a lot of the capacity of the plant. That's something we'll be thinking about in the future.
In terms of performance in the quarter and longer term performance. I think since we bought it, the asset has done very well. It's actually, I would say, outperformed our expectations. There's some potential to also expand the asset a little bit. So, Roger, maybe you can add some color on where we are in the quarter and some of the reasons why that we had a sort of light quarter?
Yes. Thanks, Barry. Good morning, Linda. I think the main driver is Q1 2018, there was a couple of things happening that were not prevalent in 2019. So we had a colder regional winter Q4 2017, Q1 2018 relative to what we experienced in 2019.
We had a very mild winter in the region, the Northwest, and we sort of experienced winter more in February into March than the previous year. So we had a greater demand for gas out of storage Q1 2018. We also had some maintenance constraints. So gas prices are generally higher. So there was significant amount of gas pulled out of the ground.
In 2018, we are closing off deals and realizing the value of the market at the time. 2019, partly because of weather and the Enbridge situation, there was lower prices. So we are injecting more than withdrawing in the quarter, and that's really the driver. We feel that Q1 2019 was a good quarter, but not as strong as 2018 because of those factors. We are just connecting to the North Montney, which is a small expansion of the system.
We are looking at development of the North Aton field. That would be a few years away. We don't have specific capital estimates yet. It's really going to be determined on market factors in the next 2 to 3 years. So more to come on that one.
But it's fairly small
in terms of capital, Roger.
Yes, less maybe 100,000,000
And what factors would need to be in place to move it
to rate base?
Just LNG development, natural gas expansion in Pacific Northwest, ongoing increased demand for natural gas, which we think is positive, but those things will develop over time.
Okay. Thank you. And maybe just a final high level strategic question, I guess for Barry. Given some of the recent changes in provincial governments, how has that affected your strategic lens and outlook on those geographies? And does that increase the urgency to address some of your cost of capital issues you have with Canada?
Or might there be some opportunities to potentially add to non regulated assets in those geographies? Can you comment on, I guess, Alberta and to a lesser extent, Ontario and anywhere else specifically that you think there's been a change in policy that might help or affect your business?
That's a big question, Linda. I'll try to address it. We're not overly interested in non regulated assets other than, I would say, things like LNG tolling or the contracted transmission that Erie Connector would be involved in. So things that look and feel like regulated, I would say. In terms of the region, we have a very positive relationship with the government in British Columbia.
Our natural gas business is doing well there, fair amount of investment going into our pipeline network. We added 22,000 customers in British Columbia last year, 2 plus percent customer growth, was probably one
of the
strongest growing natural gas franchises in all of North America. And so we're very positive on that business and we're aligning with reducing carbon intensity of our product there, focusing on renewable natural gas, gas for transportation, all of these things that are obviously consistent with government policy. In Alberta, across the border, we have an electric franchise, distribution only. Alberta still grows by our business there by 5%, 6% a year. It's a strong business and we're working obviously through the regulatory regime in Alberta.
In Alberta. It has the thinnest equity in all of Canada, 37%. That's a significant issue and we need to see some improvement there. But the distribution network that's comprised of over 1,000,000 poles is a very strong franchise and we continue to have good relationship with the previous government and I expect it will be the case with this government. And I think that's the benefit of what you get with Fortis.
We have these local teams who are running the businesses with their local independent board dealing with the matters that they face within their territories. And it's been a pretty successful model for our company and I would expect that that would continue going forward.
Your next question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead.
Good morning. I guess the question starts off with Barry and it's just on energy conservation and the efforts behind that. How do you think about returns on that business activity? This sort of the quirky thing with regulated utilities, it's probably the only industry in the world where you're effectively trying to incent people to use less of your product and service.
Well, Andrew, I would just say that we need to keep doing the things that reduce the company's environmental footprint. Our customers are demanding cleaner energy be delivered, obviously, always with an eye on affordability. I think jurisdictions that go too far, too quick, have run into some trouble. And I always use Arizona as the poster child for the way to do it. They've gotten greener incrementally every year for the last number of years, but yet kept rates very economic and affordable in that jurisdiction.
So they're the jurisdiction I think that people should look to. So I would say regulators that are progressive enough to think that their utilities can play a major role in improving the portfolio of supply, becoming more energy efficient are very progressive because utilities know how to do this and Fortis knows how to do it and we can get it done quickly. So, I think that clearly we are looking for that and when we interact with our regulators, we're looking for those opportunities and I would commend the BCUC for being very progressive in terms of this new program that we have in place in British Columbia that we get to invest $370,000,000 I think over the next 4 years. It does go into rate base, but it accelerates these programs very quickly and we will see results from that.
Okay, appreciate that. And then just maybe an extension on some of the activities you've got going on in the portfolio. And to the first question, do you see any broader need to pivot into renewables to a greater degree than sort of directly if you can do rate based renewables and then anything outside of rate base if it's in a contractual framework?
Where we can do renewables within our utilities, we would definitely pursue those. But I always remind folks that most of our business is just wires and gas pipes. So we're not that involved in the generation side of the business, except for Arizona. And David and his team there, working with the Corporation's Commission have done a really good job improving their portfolio of supply and will continue to do so. I think in America, obviously, renewables have been become very attractive in terms of price.
There's also Grande wind regime, David, I think we're at like 45% capacity factor, I think, something like that. So these are 4.5 megawatt turbines. These are great assets. And so where we can do more of that, we will. But you have to remember Fortis is more of a T and D business without that generation.
I don't see us frankly, we can try and we will try here and there, but competing against the big renewables businesses that are non regulated, that's a tough spot to go to and it's hard to make money in that area. So really our core focus will be investing in our grid, our energy networks, as well as improving our portfolio supply in Arizona.
Okay, that's great. Thank you.
Your next question comes from the line of Patrick Kenny from National Bank. Please go ahead.
Yes, good morning. Just a follow-up on the question around credit ratings. Now with the Waneta proceeds in the door, wondering if you could update us on any discussions you might be having with Moody's and if there's any visibility or roadmap to get off the BAA3 rating?
Yes, Patrick. This is Jocelyn. Yes, I think I can echo Barry on this one that we're not happy with the BAA3 rating and we do work with Moody's to understand it better and we've worked to improve it. But we're having normal discussions with Moody's and certainly we share with them our funding plan out of the fall and we updated them even within in this past quarter. So we're having good discussions with them and they'll go through the normal ratings process.
But we are looking to improve this rating over the planning period, yes.
And I'll sound defensive on this, but want to remind everyone on the call that we're BBB plus with DBRS, we're BBB plus with S&P and yes, we're Baa3 with Moody's, but a lot of folks forget the other two agencies who rate us very attractively.
Thanks. And Jocelyn, can you just remind us what the target holdco debt to total debt ratio would be for Moody's?
The Moody's doesn't actually provide a target. I expect it's 30% or lower.
Okay, great. And then just back to Alberta and the regulatory outlook there. How should we be thinking about the AUC potentially moving to a formula based ROE by 2022. I know it still weighs off, but I guess based on the shape of the interest rate curve today, wondering if you think this represents upside or downside to the 8.5%?
I can only hope that it represent upside, because I can't imagine we can go much lower than where we are. But clearly, we, Patrick, will be in that process, making sure that we put good evidence forward to make sure that those any outcome that would suggest it should be lower than that would not be appropriate. Clearly, regulators will do what they do, but I would hope that we could put forward strong evidence to suggest that any outcome that would generate an ROE even where we are today is not appropriate.
Okay, that's great. Thanks, Barry. Thanks, Jocelyn.
Thank you. There are no further questions. I would now like to turn the call back over to Ms. Amaimo for closing remarks. Thank you,
Spessa. We have nothing further at this time. Thank you everyone for participating in our Q1 2019 results call. Please contact Investor Relations should you need anything further. Thank you for your time and have a great
day. Thank you for participating, ladies and gentlemen. This concludes today's conference. You may disconnect.