Fortis Inc.
Q1 2017 Earnings Call Transcript

Published: 2 May 2017

[Operator:]

Ladies and Gentlemen, thank you for standing by. This is the conference call operator. Welcome to the Fortis Inc. Q1 2017 Earnings 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 [Operator Instructions]. At this time, I would like to turn the conference over to Janet Craig. Please go ahead, Ms. Craig.

[Janet Craig:]

Thanks, Carol, and good morning, everyone. And welcome to Fortis’ 2017 first quarter results conference call. I am joined by Barry Perry, President and CEO, and Karl Smith, Executive VP and CFO, other members of the senior management team as well as our CEOs with 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 2017 first quarter MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

[Barry Perry:]

Thank you, Janet, and good morning, everyone. It’s a beautiful day here in Newfoundland, nice and sunny. So I am pleased to report that we had a good first quarter and in line with our expectations. Our results were driven by higher earnings from UNF [ph] and accretion from ITC. In March, we raised $500 million through a private placement of 12.2 million common shares to a large institutional investor. We are pleased to obtain this vote of confidence in our long term strategy and growth prospects. Proceeds were used to repay short term debt. Our performance in the first quarter supports our 6% average annual dividend growth target which is predicated on the delivery of our capital plan and corresponding rate base and earnings growth. Planned capital expenditures for 2017 through 2021 remain at approximately $13 billion consisting of a diverse mix of highly executable and low risk projects. As a result, consolidated mid-year rate base is projected to a approach $26 billion this year and $30 billion by 2021 assuming constant currency of a U.S. dollar Canadian dollar exchange rate of $1.30 through 2021. As a reminder, these investments translate into a three year mid-year rate base CAGR of 5.2% through 2019 and a five year midyear rate base CAGR of 4% to 2021. As you can see in the chart, there is a decline in the outer [ph] years of our plan, we have a record of exceeding this plan in the outer years if we hold capital spending steady at a current levels our three year midyear rate base CAGR would increase 30 basis points to 5.5% and our five year CAGR would increase 90 basis points to about 5%. And it is important to have a size at our $13 billion base capital plan does not include development projects that are currently being pursued, only base CapEx that has arrived from our regular utility planning process is included. Our capital plan is mainly made up of hundreds of small capital projects with only a handful of projects being larger than a $100 million individually with some of our larger multiyear projects listed on the chart. This year’s capital plan includes ITC’s multi value projects or MVPs which consists of four regional electric transmission projects that have been identified by the midcontinent independent system operator to address system capacity needs and reliability in various states. Currently, we expect to invest over $300 million on these projects in 2017 which represents approximately 10% of the 2017 consolidated capital forecast. Three of the MVPs are scheduled to be completed by the end of 2018 with the fourth slated for completion by 2023. At FortisBC Energy, the lower maintenance system upgrade project continues. It addresses system capacity and pipeline condition issues for the Gas supply system in the lower mainland area of British Columbia. In 2017, we expect to invest approximately $162 million in the project which is expected to be completed next year. As always we remain focussed on identifying additional investment opportunities in our various franchise regions. In January 2017, ITC was granted a Presidential permit from the U.S. Department of Energy for the Lake Erie Connector Transmission Line. This is a required approval for international border crossing projects. Also in January ITC received a report from Canada’s National Energy Board recommending the issuance of the Certificate of Public Convenience and Necessity or CPCN with a prescribed condition for the transmission line. The project continues to advance the regulatory operational and economic milestone. Key milestones remaining for 2017 include receiving approval from the U.S. Army Corp of Engineers and the Pennsylvania Department of Environmental Protection in a joint application completing project cost refinements and securing favourable transmission service agreement with prospective counter parties. Pending achievement of key milestone the expected in service day for the projected is late 2020. The Wataynikaneyap project also moved forward during the quarter. In March of this year, Fortis Ontario received approval from the OEB to acquire the ownership interest held by renewable energy systems Canada in the partnership as well as closed this transaction. As a result, our ownership interest in the partnership has increased to 49% with the remaining 51% held by 22 First Nation Communities. Further the project also reached a significant milestone with the approval by the OEB of a deferral account to recognize development cost incurred between November 2010 and the commencement of construction. Construction will begin following the receipt of permitting approvals and cost sharing agreement between the Federal and Provincial government. I’ll now turn the call over to Karl for an update on our first quarter results.

[Karl Smith:]

Thanks Barry. Good morning, everyone. As Barry highlighted our 2017 first quarter results were in line with our expectations. Adjusted earnings for the quarter of $281 million were higher by $91 million compared to the same quarter in 2016. Adjusted earnings per share of $0.69 for the quarter was higher by $0.02 or 3%. Cash flow from operations was $541 million in the first quarter of 2017, an increase of approximately 12% compared to the same period in 2016. This was the result of higher earnings at regulated utilities, particularly for ITC. This was partially offset by changes in working capital driven by a refund payment during the quarter related to the first ROE complaint with ITC totalling US$121 million. As noted on the previous slides, adjusted earnings per share increased $0.02 compared to the first quarter of 2016. UNS has strong performance this quarter improving our earnings per share by $0.04. About half the increase in adjusted earnings relative to last year resulted from increased revenue from the recent rate order. Additionally, [Indiscernible] of operating expenses and were favourably priced wholesale contracts contributed to higher earnings during the quarter. Aitken Creek contributed $0.01. Closed date for the acquisition of Aitken Creek was April 1, 2016 and as a result it was and a factor in the first quarter last year. ITC contributed $0.01 to earnings per share in the quarter after considering finance charges and an increase in the weighted average number of common shares outstanding associated with financing acquisition. Fortis’s results excluding ITC is seasonal with our first and fourth quarters being our strongest. At ITC earnings generally grow each quarter’s right based growth. The combination of these two factors means that quarterly accretion from the transaction is not a linear. Developed of earnings per share contribution from ITC is forecasted to be the lowest in the first quarter and is in line with our expectations. Foreign exchange with a negative $0.01 impact in quarter one relative to last year, the average U.S. dollar to the Canadian dollar FX rate a drop from the $1.37 in the first quarter last year to $1.32 this year. As we have noted in the past, we are not as affected by U.S. dollar to Canadian dollar foreign exchange fluctuation as you may think. We had some natural hedges in place as it relates to our U.S. dollars denominated debt. Having said that, for every $0.05 change in the Canadian to U.S. dollar exchange rate there is a corresponding $0.07 impact through annual earnings per share. Our businesses performed largely as planned, UNS was stronger than expected. We also saw some weakness at FortisAlberta where soft economic conditions in Alberta, the reduction in equity thickness and regulatory lag impacted earnings per share. However, for the full year, we expect earnings at FortisAlberta to be largely in line with 2016 and further we expect UNS to continue to benefit from its recently approved rates. The strength of our low risk diversified portfolio of utilities provides financial flexibility and supports our investment grade credit ratings. From a liquidity perspective, our consolidated credit facilities totalled approximately $5.4 billion. At the end of March 2017, there was $3.8 billion of unused capacity, including approximately $900 million of unused capacity under the Fortis committed revolving corporate credit facility. Going forward, we are well positioned to fund our organic growth and have the flexibility to pursue the other opportunities discussed by Barry. On the regulatory front we are in a period of relative regulatory stability. During the quarter, the Arizona Corporation Commission issued a rate order in connection with Tucson Electric's general rate application approving rates was to [Indiscernible] that was filed in February 27. The rate order included an increase in non-fuel base revenue of US$81.5 million and allowed return on equity of 9.75% and a common equity component of the capital structure of approximately 50%. This constructive order positions UNS for a strong year. Pursuant to a September 2016 order from FERC regarding the first return on equity compliant, ITC paid refunds during the first quarter totalling US$121 million including interest for the initial refund period. As you may recall the base ROE was set at 10.32% for the initial refund period with a maximum ROE of 11.35%. These rates are to be used perceptively until a new approved rate is established for the second complaint. A decision from FERC on the second compliant is expected later this year or early next year. As at March 31, 2017 the estimated range of refunds for the second refund period was between US$103 million and US$140 million. ITC has recognized a regulatory liability of US$140 million for this compliant. Turning to FortisAlberta, the second PBR term for the period 2018 through 2022 was confirmed in December last year. FortisAlberta filed a rebasing application in April 2017 to establish the going-in revenue requirement for the second PBR term, and the subsequent distribution rates for 2018. A decision on this application is expected in the second half of 2017. As we continue to navigate various regulatory proceedings, we remained focused on maintain constructive regulatory relationships and delivering reasonable outcomes across all our utilities. I’ll now turn the call back to Barry.

[Barry Perry:]

Thank you, Karl. The first quarter results illustrate the strength of our business, our highly diversified company provides predictable and consistent earnings results. We remain on track; we continue to expect to see strong earnings growth based on the results at UNS and the addition of ITC. The integration of ITC is progressing as planned and we expect the acquisition of ITC to be nicely accretive this year. Operationally, we continue to focus on integrating ITC and on advancing development projects that could provide upside to our rate base growth. It’s incredible to think that just over six months ago, we closed the ITC acquisition. Our business model allows us to quickly and effectively fold businesses into the Fortis family. And finally, we will continue to focus on what distinguishes us from our peers, maintaining a highly diversified business, our unique business model and finding opportunities within our franchise regions. At this time, I’m going to hand the call back over to Janet.

[Janet Craig:]

Thanks Barry. This concludes the presentation and at this time, we would like to open the call to address questions. Over to you, Carol.

[Operator:]

Thank you. Ladies and gentlemen, we'll now conduct a question-and-answer period [Operator instructions] Our first question comes from Rob Hope from ScotiaBank. Please proceed with your question.

[Rob Hope:]

Good morning and thank you for taking my questions. Maybe to start off with just hoping you could add some additional color on your expectations for FERC. You know we are seeing that they could potentially move down to one commissioner by mid-year. Does this push off when you expect to hear the FERC decision on the second ROE complaint as well as the potential outcome there?

[Barry Perry:]

Thank you, Rob. Possibly, you know you notice in our script we talked about the decision may be coming later this year early next year. Clearly we don’t know what’s going to happen, but just a practical view of the situation for just that it may take a little more time but again, that’s just from the outside looking in Linda Blair, Linda I know you are very close to this issue, any other thoughts, you might want to add?

[Linda Blair:]

Good morning. No Barry, I think you have articulated well certainly just given the fact that we don’t have the other remaining commissioners formally nominated or the confirmation process has now begun. You know we are looking that that process would take probably the better part of atleast three to four months even if the process had formally started. And so, I think to Barry’s point, I think just given the fact that you are going to have three if not four new commissioners at some point hopefully this year it certainly suggest that a decision on the MISO compliant or any other matters will be pushed off to atleast later this year.

[Rob Hope:]

Right, that’s very helpful. And then just along the same vein, just want to get your thoughts on the DC circuit court decision regarding the New England ROEs, is this a potential avenue that you can challenge a new MISO ROE if it comes at a level that you deem to be unjust?

[Barry Perry:]

Possibly again Linda maybe you can offer some more granular flavour there, but you know tracking all the sort of happenings all these ROE proceedings is you know requires tremendous efforts, so Linda maybe you can actually wait in there.

[Linda Blair:]

Yes certainly. Yes, clearly with the court of appeals decision on the New England complaint I mean it’s fundamentally addressed two shortfalls in FERC’s decision. The first being that FERC did not essentially did not find that the then existing current ROE that the New England deals [ph] had was unjust and unreasonable. So that’s sort of the first fundamental issue that FERC has to revisit and then the second issue is you know that FERC certainly needs to provide justification or rationale for why they set the ROE in the upper portion of the zone of reasonableness. So when you sort of highlight that to the MISO complaint when FERC made their initial decision in the first compliant for MISO, it did make a finding that the then current ROE was unjust and unreasonable. So from our perspective, that issue is probably not going to be revisited in the MISO complaint. However, the question around why FERC set the midpoint in the upper end of the zone certainly is in question in the MISO compliant and we would imagine that those issues will translate and sort of push forward into MISO complaint number two. Our view stepping back from all of this is certainly that you know FERC really has two paths. One, they could further justify and rationalize their decisions in opinion 531 or two, certainly with a new commission, a new complexion, a new political party at the home at FERC it certainly could be an opportunity to revisit sort of the rationale by which you know they do think about ROEs. So you know certainly we don’t know, because we don’t even have a new FERC commission, but certainly it would suggest one of two paths, either stay the course or two, use it as an opportunity to revisit how ROEs are established and set with this remand proceeding.

[Rob Hope:]

All right. That’s very helpful. Thank you.

[Linda Blair:]

Thanks, Rob.

[Operator:]

Our next question comes from Robert Catellier from CIBC World Markets. Please proceed with your question.

[Robert Catellier:]

Hi, good morning. I was wondering if you could provide a bit more of a status update in the Lake Erie Connector project. In particular, is there any more detail you can provide on customer negotiations?

[Barry Perry:]

Rob, I will say that we are in negotiations, bilateral negotiations with a number of parties, so and they are going recently well. This is a very complex contract; you know 20 year kind of contracts. So it will take some time but we are grabbing revenue very reasonable discussions at this point in time. And hopefully we will be able to give it some more progress in the third quarter.

[Robert Catellier:]

Okay. And then just on the Watay, what are the milestones do you think to get the [Indiscernible] between the federal and provincial governments. It sounds like that, that could be a highly politicised process. And then the second part of the question is what’s the earnings impact of the deferral account for the development cost and is that effective immediately and what type of earnings impact does that have?

[Barry Perry:]

On the latter question, it really has no significant impact on earnings, primarily our cost going forward will be – will not go to I guess bottom line will be set up as an asset to recovering rates. The retroactive part of it was not significant at all, so I really – it’s not a matter that will show up anywhere. In terms of the politics, I don’t have to tell you that things are aligning very well. There is a lot of support for this project provincially and federally we are obviously trying to get underneath the federal budget to see where some of the funds could come from, but you know the federal government has really made it a priority to encourage remote communities in Canada to be connected to the grid and this project really fits very well with that. So I am optimistic that the federal government and the provincial government will be a big player in making this project a success. We are working very closely with the First Nations Communities obviously there playing a very much a leadership role in the discussions with the federal and provincial government and we remain very optimistic that we will be able to bring together the parties to make this a very viable project.

[Robert Catellier:]

Okay. And then finally, I know there is a lot of details you don’t have yet but do you have an updated view on the implications of U.S. tax reform?

[Karl Smith:]

Rob, this is Karl. Not really an updated view, I mean anything that we have set up for this point in time doesn’t really change in any material way based on the plan that was announced last week. The bigger issue for us as we always did was interested [Indiscernible] and was new at that point, so I don’t know what you want to read into that. The 15% rate is positive is for our utilities we think. We are supportive of that. And until we get further details with respect to the plan it’s difficult to do any further assessment about.

[Robert Catellier:]

Thank you.

[Barry Perry:]

Thanks Rob.

[Janet Craig:]

Thanks, Rob.

[Operator:]

Our next question comes from Robert Kwan from RBC Capital Markets. Please proceed with your question.

[Robert Kwan:]

Good morning. If I can just come back to your Erie Connector to start, just wondering, can you give some of your thoughts just on to the pace of discussions in some of the key issues just I guess wondering whether the political policy stability matters in the discussions, things like EPA policy and tax laws that really just the underlying economics and state level environmental policy that’s shaping the discussions?

[Barry Perry:]

Sorry, Robert, are you talking about the ROE thing.

[Robert Kwan:]

No. I’m sorry, on the Lake Erie project.

[Barry Perry:]

Right now, Robert, I would say, the policy close sort of on the side. We’re dealing with the parties who will be the transmission system off-takers I guess that would enter into the TSA agreements, and working with sort of ISO [ph] in Ontario and PJM as well. So those are the folks we’re dealing with at this point. And I would say that provincial politics are not playing a part in this at this point in time. So that's fine. I think these needs to stand on its own and be a good thing for Ontario and a good thing for the PJM market. So if we can convince both of those parties that is viable project then it won’t go ahead, but I am very optimistic and I'll keep pointing back to the NEB decision, it’s a very detailed decision assessing the value of this project and I think they came down on the side that this is a project that should go forward.

[Robert Kwan:]

Got it. And U.S. politics hasn’t slowed down discussions either?

[Barry Perry:]

Not at all, not at all.

[Robert Kwan:]

Okay.

[Barry Perry:]

This is not. At least at this point I’m on the radar of at that level, so hopefully that would stay.

[Robert Kwan:]

Okay, great. Turning to funding with the common equity that you've now done, as you look at the funding plan going forward is it geared to metrics that align with Moody’s Sba3 rating or are you funding the business to achieve metrics consistent with Baa2?

[Barry Perry:]

Well, I frankly think we’re already at Baa2 metrics, you know clearly you read the Moody’s report when they assessed us at the time of the ITC acquisition, that was somewhat disappointing view, and so we have to work with Moody’s to the really convince them that the rating that’s company needs to come up and that’s my goal overtime. And so, if the claim back ratings notch from Moody’s, really not happy with sitting here at Baa3 at for Moody’s and we’re at a low from S&P. So that’s a big gap and we need to start narrowing that gap between these two agencies.

[Karl Smith:]

Robert, I’ll add the credit metrics over the course of planning horizon has suddenly improved, so that should bolster our case.

[Robert Kwan:]

Okay. So it sounds like its more trying to work, sorry, Barry.

[Barry Perry:]

I will point out, we still getting tremendous support from our shareholders and reinvesting their dividends in the stock, so we are running I would say well ahead of our planning on dividends we invested. So that’s helping strengthen our balance sheet over time as well.

[Robert Kwan:]

Okay, perfect. So, it sounds like you’re working – trying to work a little bit more on the softer attributes of the rating rather than as you mentioned where you think you're Baa2 so, the strategy is not to have Baa1 metrics and then trying to get the upgrade that one?

[Barry Perry:]

Well, I will tell you that long term I think a company should be at Baa1 Company. I think that would, if I’m setting a long-term goal for the company I think Fortis Inc. in that category is where we should be over the long haul. I think our large subsidiary should be in the A category that’s directionally where we would like to be. These things do take time though we just did a very large acquisition and as you know, ITC was a fairly levered company and they had an impact on us. We did issue more equity in this recent transaction in just about any other utility transactions that was done in the last couple of years. So in fact we financed ITC with likely more equity, and just -- again just about any other peer transaction that was done. But directionally we’re heading towards better ratings. I would say that’s what my goal is from Moody’s.

[Robert Kwan:]

That’s great.

[Barry Perry:]

We’re fine with S&P I would say.

[Robert Kwan:]

For sure. I’m just finish, when you look at the relatively newly acquired businesses like ITC and UNS, I’m just wondering if you're seeing any additional upside that’s not in the capital plan. And one aspect; is there anything material on the in-sourcing opportunities that could enhance customer service while driving rate base growth, I guess something similar to what you did on my way with the call centers?

[Barry Perry:]

On the latter part, I don't think there’s lot of factors, basically businesses had not outsourced much of their activity like UNS has its own call center already for example in Tucson. So I think they hadn’t gone down the path of some of these other companies. I do see though very – I’m very optimistic about further growth in both those businesses. Our Arizona business is really now coming into its own, with the rate case behind us with improving economic conditions in the Tucson area with the recent resource plan that David Hudson and his team filed about the need for more renewable power in future years. The availability of gas-fired generation in the region to help us diversify away from coal, especially these jointly owned plants that were into. I think there's some real opportunities for us to add generation maybe some transmission over the next number of years there, so I must say I'm very pleased with what we’re seeing in that jurisdiction. And now that we’re getting much more is the ITC, the prospects for ITC across America and transmission are very strong and I'm very optimistic about projects like Erie Connector, about projects that help connect different RTOs together, things like that that we can we can add some workload to that business over time. I always remind people that ITC owns 16,000 miles of transmission. That's an amazing amount of infrastructure and that in itself requires constant investments to maintain and keep to the correct standard. The final thing I would say, Robert, is that, our cyber and physical security, I think this is an area that Fortis will see increased capital investment in all of our businesses for the next number of years. I can't tell you how much at this point in time, but we're learning a lot from ITC, and we have some work to do in our businesses to improve in that area and that capital will be coming forward over the next number of years. So that I could be additive to what we see in our plan at this point.

[Robert Kwan:]

That’s great. Thanks.

[Janet Craig:]

Thanks Robert.

[Operator:]

Our next question comes from Ben Pham from BMO Capital Markets. Please proceed with your question.

[Ben Pham:]

Thanks. Good morning. My questions on some of the commentary about your CapEx plan. And as you think about the next five years and there you’ve highlighted in terms of past trends that the outer years tends to – you guys tend to see upside and you see that historically. But do you think that maybe that's more trends that's need more prevalent on the distribution side than transmission side, because we’re seeing quite a bit of a slowdown in transmission in Alberta in particular?

[Barry Perry:]

While Alberta as you know Ben we have no transmission, so no matter what’s happening there we’re not involved on that side. It’s distribution only and we remain pretty optimistic that we can spend in at 300 or so million plus in Alberta. We’re just down a bit from where we were historically but still substantial amount of CapEx. Ben, your thoughts are good on this, so we obviously we are not yet including those outer years at a higher level at 5% growth. We are doing a lot of work in this area, really trying to get underneath the planning processes in each of our businesses to re-extend our view beyond the 24-month, 36-month period into those years four and five. I will say, it's a challenge, the industry, our business has been designed around focusing on those couple of years out and doing all the necessary engineering and scoping and planning work around those years not as much on the outer years, but because increasingly our shareholders want to see that growth over a five-year period we’re spending more time on those outer years. I'm sitting here obviously knowing that we’re pursuing a lot of these development projects as well. So when I look at the picture of more CapEx in the outer years successfully winning and proceeding with a couple of these development projects, I’m pretty comfortable that we can grow this business at the 5+ kind of CAGR rate over time, that’s my sense of it, but hopefully we’ll be able to progress our work in our businesses and provide more color once we renew our business plans later this year on that outer growth rate.

[Ben Pham:]

Okay. And then some -- maybe just on somewhere just on that Ben. What are your thoughts about you’ve seen those big replacements investment cycle for quite a number of years in spending billions for quite a long time. How do you think about it high level in terms of what innings we're in or you guys are in, in terms of that replacement cycle? And is that inning perhaps a little bit different depending on what franchise are you looking at, amongst your various different thoughts [ph] amongst North America?

[Barry Perry:]

Yes. I think your latter comment is probably appropriate. If not – you can't be – so you can’t really be generic on this. Some utilities have -- and I'm not just referring the Fortis here, some utilities have done a better job of investing in those systems and others for various reasons. So I would say there are usually out there that are under invested in the capital. I do believe that we still have room to run on investment in the sector, and there just so much happening with the grid right now especially on the electric side that with technology and customer demand that I do see continued investment required to make sure that grid is robust enough to be able to deal with all the emerging technology issues and demands of our other customers. And I think Fortis which is now primarily focused in poles and wires and natural gas distribution pipe is in the perfect spot to be a big part of that investment over the next number of years. So, I'm very happy that from a business perspective our focused where we brought the company at this point in time.

[Ben Pham:]

Okay. And then last may just a more detailed question on FortisAlberta. You mentioned the CapEx spending you're expecting, but it seems like the results this quarter you’ve seen a couple headwinds if you highlighted there. But I'm just wondering, why is there a big uptick for the balance of year versus what you're seeing in Q1? And what’s driving that OpEx number higher, because it seems that some of your peers in Alberta are driving OpEx lower and not higher?

[Barry Perry:]

Well, I would just generally point you to the fact been that, this is a last year of five-year PBR and if we can achieve similar earnings this year as to 2016 which Karl indicated to you. But I'm very pleased with that and that’s where our sense is of the year. Its hard in any particular quarter our business that really get to concerned about operating expenses being up or down. There’s always things that move around a little bit, but sitting here in the last year of five-year PBR comfortably saying that we can we can hit 2016th earnings level as we head into the next five years of PBR. Well, I think that's a reasonable place for us to be in the sort of dealing with the regulatory framework in Alberta at this point in time.

[Ben Pham:]

Okay. Thanks very much.

[Janet Craig:]

Thanks, Ben.

[Barry Perry:]

Thanks, Ben.

[Operator:]

Our next question comes from the line of Andrew Kuske from Credit Suisse Securities. Please proceed with your question.

[Andrew Kuske:]

Thank you. Good morning. You had really minor FX drag in the quarter, but I also note that the dollar Canada is 137 which was the average year ago, so we’re still back to where we were. But just sort of philosophically when you think about the balance sheet over all, you are about call it 60% of your assets are exposed in the U.S. When do you think about effectively reporting in U.S. dollars on mass as opposed to being a C dollar reporter?

[Barry Perry:]

I think the general answer, Andrew is right now our shareholders are probably like 80% Canadian, right. So, if we were successful in moving that dial more than a majority of the shareholders being U.S.-based institution retail shareholders I think we’d have to look at this situation, but not before then. That’s my sense. You are managing the risk effectively and as Karl mentioned it’s not as great as you would think because of a fact we've issued in most of the corporate debt in U.S. dollars. But I think we are pushing very hard to increase the U.S. ownership and it’s the thing that we will monitor over time to see how successful we can be in attracting those of large U.S. institutions to the stock and then we’ll have to revisit it in future years.

[Karl Smith:]

Andrew, currently about 10% of the volume trades through the New York Stock Exchange, so we’ve had to see that come up significantly from there before we start thinking about changing our currency.

[Andrew Kuske:]

Okay. That’s helpful context. And then maybe just continue on the cross-border theme. When you think about just the rate base growth that you've got line aside on in the next five years and just say highly prospective things that may happen putting acquisition aside, do you see the bias of growth really coming from the U.S. asset base along with the opportunities that really existing there versus that in Canada?

[Barry Perry:]

Well, I would say, Andrew we’re pushing all aspects of businesses. Like I’m very excited about British Columbia, the LNG area, I’m not giving up on that where we were bringing on online here shortly in July, we’re looking at further expansion of that site. If we can get that done that could be as much a several billion dollars of investment and so BC itself has to go a long way to start the even out the asset mix of the company. In terms of acquisition, clearly when we’re ready to go back to that market I do see the opportunities that being much bigger in the U.S. for Fortis and in Canada. So I think that we did manage to get ourselves in a situation where we could acquire another good U.S. business. Obviously [Indiscernible] further, but in Canada remains very few opportunities on the acquisition side for the company or so.

[Andrew Kuske:]

This is very helpful. Thank you.

[Janet Craig:]

Thanks, Andrew.

[Operator:]

Our next question comes from the line of Linda Ezergailis from TD Securities. Please proceed with your question.

[Linda Ezergailis:]

Thank you. Barry, if I could just follow-up on your outlook for British Columbia. I'm wondering if that shift post the pending provincial election, some of the, I guess comments from the NDP party have caused some investors kind of pause on how the energy outlook might change. And I’m wondering if you had discussions with the NDP government, and how a change in BC might affect your outlook for, not just your LNG prospects, but also the rest of your franchise there?

[Barry Perry:]

Linda, we’re obviously not going to wait into the BC election. I will say that generally we always keep all parties inform about our business and what we’re doing in each of our jurisdictions and that would be the case in British Columbia as well. We’re really is focused on serving our customers well there. Gas service is very economic service for customers in British Columbia. We keep promoting that and that obviously aligns with the NDP program I think. So we’ll continue to focus on our customers working with the regulator of British Columbia and really making sure that we conduct a good business there. And I think that will prove well for the company under any government frankly. So that’s our approach.

[Linda Ezergailis:]

Okay. Thank you. And maybe just moving across the country as you probably aware at the Ontario government and is scheduled to release its long-term energy plan sometime this spring. And I’m wondering again how that might affect your franchise if at all, for example, if there’s such compelling rationale for Lake Erie Connector and your other transmission project that have a hard time financing in terms of reliability economics et cetera, remote connections that you wouldn't expect sort of any shifts given the Ontario government about the some cost containment et cetera?

[Barry Perry:]

Again, good question, Linda and at this point we think these projects are viable projects, it appear to be getting strong support from both levels of government and there’s no sense at this point at least that they're going to be pushed to the back burner related to any announcements that are coming on the pipe. But obviously it could happen not saying that it can't, but that we have no information to suggest that is in the cards at this point in time.

[Linda Ezergailis:]

Okay. I don’t mean to be -- but maybe we can jump back across the country and just looking at Alberta and what's going on there with some of the kind of coal to gas conversion and focus on renewables. Have you evolved your thinking on how Fortis might participate in that if at all? Or is it still kind the status quote [ph] there?

[Barry Perry:]

Well, just on renewables generally, Linda, clearly I would like to purport us to do more renewables under long-term contracted arrangements that could be in Arizona. For example as I mentioned Piazza has a long-term resource plan that indicates that they need to procure another 800 Megawatts I believable of renewable power to 2030. In case of Alberta, I think frankly where play is more hooking up renewable power to the grid into our various rule distribution facility those kind of things, so we might get some upside there. We may plan a small role in some of these micro facilities that kind of thing, but at this point at least I don't see any significant upside for us to be building wind farms in Alberta at this point in time.

[Linda Ezergailis:]

Great. Thank you.

[Janet Craig:]

Thanks, Linda.

[Operator:]

Our next question comes from David Quezada from Raymond James. Please proceed with your question.

[David Quezada:]

Thanks. Good morning, guys. Just a general question, I guess as it relates to capital program, I’m wondering just given the large amount that not only you but other utilities are spending in terms of CapEx, are there any trends worth noting on the cost side be it contractors building materials, any evidence of inflation in any one of those buckets that you would note?

[Barry Perry:]

I haven’t heard of any at this point, but maybe I’ll just canvas my two U.S. folks since the economy down there and while my three U.S. folks economy the U.S. is improving maybe little faster than Canada. I’ll start with Linda, Linda are you seeing anything that have risen to your attention on the inflation side for some of the big purchases that we have?

[Linda Blair:]

No. At this time we have not seen anything. I mean, certainly in the context of projects that are going to take sever years to construct, some of those estimates are built into our product cost estimates, but no, we’re not seeing anything that’s out of the ordinary or any significant change in direction at this time.

[Barry Perry:]

[Indiscernible]

[Unidentified Speaker:]

Yes. The North of [Indiscernible] and Arizona seen anything out of ordinary.

[Barry Perry:]

And Michael Mosher.

[Michael Mosher:]

I’m here.

[Barry Perry:]

And maybe Mike Mulcahy anything out of BC Mike that you’re seeing at this point?

[Unidentified Speaker:]

No, Barry, nothing.

[Barry Perry:]

Okay. Just nothing to report there.

[David Quezada:]

Okay, good. That’s good to hear. Lot of my questions had been asked, but maybe any update on the ITC Mexico transmission projects, anything on the horizon there?

[Barry Perry:]

Nothing other than waiting to hear about the new sort of rules that will come out, I think CFE is going to be releasing some new bit sort of guidelines I guess for lack of a better description, so until that happens really nothing to report.

[David Quezada:]

Okay, great. Thanks. That’s all I had.

[Barry Perry:]

Thank you.

[Janet Craig:]

Thanks, David.

[Operator:]

Our next question comes from Chris Turnure from JPMorgan. Please proceed with your question.

[Chris Turnure:]

Good morning. You guys mentioned in your prepared remarks in Alberta that you would be seeing flat net income year-over-year. If we strip out the impacts of load changes purchase power, cost changes, what's the impact of rates alone in 2017 versus 2016?

[Karl Smith:]

On [Indiscernible] here. In terms of the thinner equity the sort of rate impacts, it’s not big.

[Barry Perry:]

I think the biggest single impact is the reduction in equity thickness. Our rates are comprised of a inflation less productivity factor, plus additional revenue for capital trackers with respect to the inflation less productivity factor that would still be negative in 2017, so we have a rate reduction, but it’s more than made up by the capital tracker revenue that would apply to 2017, its bit of a complex formula there.

[Karl Smith:]

Yes. It’s just a few million. Yes, my Goddess [ph] is in that site, in $3 million to $5 million range in that kind of range.

[Chris Turnure:]

Okay. That’s helpful. And then I guess I would have the same question for 2018 if you’re filing for the new PBR is approved as requested, how can I think about the rate impact alone there I know you have opportunities a little further down the income statement to make up for any changes, but how can I think about that alone?

[Barry Perry:]

Yes. I think the most important input to think about that is its following the compliance form that’s been submitted -- that just submitted in April and getting our going in rates for 2018 established at a good suitable level to allow us to earn our return that will be adjusted going forward, the inflation minus productivity factor. But the key part of that equation is this hearing that will occur at in September where each utility can bring its own unique situation at the table to establish those at going in rate. So watch out for that.

[Chris Turnure:]

Okay. And then, I mean, is there way to think about a best case scenario year-over-year?

[Barry Perry:]

Well, it’s going to depend on what the inflation is in Alberta. And like I say, getting those going in rate at a suitable place.

[Chris Turnure:]

Okay. And then one question on 2017 again, is there a consolidated effective tax rate that I can think about?

[Karl Smith:]

It will be somewhere between 25% to 30%, Chris.

[Chris Turnure:]

Okay. And then based on the first quarter coming in at I think at 24 would you say, you’d be trending towards the bottom half of that ranger or is it just too early to tell?

[Barry Perry:]

No. It should not be too just similar to what you saw on the first quarter.

[Chris Turnure:]

Okay, great. Thanks.

[Barry Perry:]

Thanks, Chris.

[Operator:]

[Operator Instructions] And our next question comes from the line of Jeremy Rosenfield from Industrial Alliance. Please proceed with your question.

[Jeremy Rosenfield:]

Thanks. Just a quick question on the Woodfibre, LNG and FortisBC gas system expansion, associated with that specific project, can you just remind us of the approvals and/or milestones that you would be looking for at this point in order to move forward and maybe move that capital spending from your sort of I would say unsecured bucket to your secured bucket?

[Barry Perry:]

Well, I would say that, it’s really is in the customer’s hands which is Woodfibre. We are building a pipeline to hook up that customer and so we’re really working very closely with Woodfibre at this point to get through the remaining things they need to do to make their final investment decision and we’re optimistic that will happen in the second half of this year. So rest assure we’re doing everything we need to do to be ready and we’re working closely with those folks.

[Jeremy Rosenfield:]

Okay. Maybe just more of a higher level question that I think I’ve asked probably previously, maybe I’ll just pull it one more time. You look at the sort of M&A landscape obviously sort of diminished opportunities in North America. Have you started to look at any potential opportunities, are you considering opportunities outside of the North American landscape potentially the internationally for you know dipping your toes in new markets?

[Barry Perry:]

The answer is no. We are very optimistic that we will have more opportunities to grow forward as in North America we have the right business model for owning utilities in North America, where the companies can get transactions done with North American regulators and when we are ready to do this again, I’m very optimistic that we’ll find that right opportunity. So we have no need to go outside of North America.

[Jeremy Rosenfield:]

Okay. Thank you.

[Barry Perry:]

Thank you very much.

[Linda Blair:]

Thank you, Barry.

[Operator:]

And as there are no further questions in queue, I’d like to turn the call back to Mr. Barry for any closing remarks.

[Barry Perry:]

Thank you everyone. Just to summarize, we had a good first quarter. We are on track for a strong 2017 based on the contributions from UNS related to its recently completed rate case at Tucson Electric Power and from the accretion from ITC we are very happy with how the transaction with ITC has gone so far. We just posted our first quarter, no surprises, that’s pretty damn good after this largest acquisition that we’ve ever completed. So, we are very happy with where we are as we head into sort of the middle part of 2017. Thank you very much and have a great day.

[Linda Blair:]

Thank you, thanks Carol.

[Operator:]

Thank you for participating ladies and gentlemen. This concludes today’s conference. You may now disconnect.