Fortis Inc.
Q3 2018 Earnings Call Transcript

Published: 2 Nov 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. My name is Jessica, and I will be your conference operator today. Welcome to the Fortis Third Quarter 2018 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 Stephanie Amaimo. Please go ahead, Ms. Amaimo.

[Stephanie Amaimo:]

Thanks Jessica, and good morning, everyone, and welcome to Fortis's third quarter 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 Executives 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 2018 third quarter MD&A. Also, unless otherwise specified, all financial information referenced in Canadian dollars. With that, I will now turn the call over to Barry.

[Barry Perry:]

Thank you, Stephanie, and good morning, everyone. We had a strong quarter reflecting our focus on growing our regulated businesses. Before we get into those details, I want to give you a quick update on a few items that have transpired over the last month. First of all, I want to send my thanks to our team in British Columbia as they managed through a tough situation caused by the rupture of Enbridge's gas transmission line. The shutdown of Enbridge's mainline servicing 700,000 of our gas customers presented us with a potential loss of supply. Thankfully, Enbridge was able to get its parallel 30 inch transmission line back in service quickly. Just this week Enbridge announced that it had repaired the main gas line and expect to have it back in service in a few days. However the two lines are expect to run at a maximum of 80% capacity through the winter. Customers have been supported by conserving gas consumption. We continue to closely monitor Enbridge's progress and we thank our customers, employees and industry partners for their diligence and cooperation as we manage through the situation. Switching gears now, last month, we released our 2018 sustainability report. This comprehensive report follows three previously issued environmental reports and focuses on our environmental commitment, our governance practices, our people and our involvement in the communities we serve. As highlighted in the report, we've reduced carbon intensity by over 60% since 2015. In addition, we've made progress on gender diversity with 42% female representation on our board and nearly a third of our executives within the Fortis Group being female. The most positive part of the past few weeks was holding our Investor Days in Toronto and New York, where we issued a new five year capital plan and extended our dividend guidance to 2023. I'll get into additional details on this shortly, but before doing so, I wanted to provide an update on a decision that ITC received from FERC ROE matters just after our New York Investor Day. As you are aware, a third party complaint was filed this past April, challenging the independence incentive adders included in ITC's MISO subsidiaries transmission rates. On October 18th, FERC concluding that ITC was no longer fully independent and reduce the incentive adder to 25 basis points, down from the approximate 50 basis points that ITC was earning in rates previously approved by FERC. ITC has operated on a standalone independent basis since our acquisition. Therefore, ITC is currently reviewing the order and considering its options including rehearing an appeal. As a reminder, each 10 basis point change in ROE at ITC equates to about $0.01 EPS impact for Fortis. Around the same time, FERC also issued its order related to the - of the first NETO ROE complaint. This recent order provides guidance on FERC's new methodology for establishing ROEs, which is expected to be used in addressing outstanding complaints. Essentially FERC has adopted a new approach to setting ROEs, which averages the results of several different benchmark methodologies instead of relying solely on the previous two step discounted cash flow methodology. We view this as directionally positive for transmission owners as the new methodology uses more inputs which is expected to result in a broader zone of reasonableness. This should provide more stability to the ROE calculation which may reduce the number of future complaints. Although we await next steps on FERC on the MISO ROE complaints, the new methodology appears to be generally constructive and we look forward to getting closure on these outstanding complaints. At our recent Investor Days, we announced our new $17.3 billion capital expenditure program for the next five years. This program reflects a $2.8 billion increase from the prior year's plan and equates to an average of $3.5 billion in annual capital expenditures. The $2.8 billion increase is driven by regulated investments in great modernization to delivery of cleaner energy and natural gas infrastructure. Our capital investments yield a three year compound annual growth rate on rate base of 7.1% and a five year compound annual growth rate of 6.3%. These growth rates are aligned with industry and support our average annual dividend growth target of approximately 6%. The capital program is virtually all regulated with 99% of our capital investment plan for regulated businesses. The plan consist of a diverse mix of highly executable low risk projects. For example only 23% or 10 projects have a total project cost of over $150 million each. The bulk of our plan consists of capital needed to maintain and upgrade our existing infrastructure. Geographically, the capital plan is weighted towards the U.S. with 55% to be spent at our U.S. utilities. This is followed by 42% percent in Canada and 3% in our Caribbean operations. We continue to focus on finding additional opportunities to grow beyond the current plan for the benefit our customers and our shareholders. These opportunities include further energy network modernization investments across the group, the Lake Erie Connector transmission project at ITC. The move towards renewable power in the Caribbean. LNG infrastructure expansion opportunities in British Columbia as well as storage and transmission opportunities in Arizona. Now moving to my favorite slide. In October, we announced a quarterly dividend increase of 5.9%. This marks 45 years of dividend increases. This is a record we are very proud of and one that we intend to continue. Our strong growth profile coupled with our highly regulated transmission and distribution businesses, gave us the confidence to extend our dividend guidance. We expect to maintain our dividend payout ratio range of mid-60s to low 70s over the next five years. I'll now turn the call over to Jocelyn for an update on our third quarter results.

[Jocelyn Perry:]

Thank you, Barry, and Good morning, everyone. As shown on Slide 9, adjusted earnings per common share were $0.65 for the quarter, up $0.04 compared to last year results for the quarter were driven by strong performance from our regulated businesses. On a year-to-day basis, adjusted earnings of $809 million was up $15 million from the previous year, but adjusted earnings per common share of a $1.91 was down slightly compared to the first nine months of 2017. There are several items impacting earnings growth in 2018 that are not reflective of our ongoing business. These include mark-to-market losses and natural gas derivatives associated with our Aitken Creek natural gas storage facility and U.S. Tax Reform impact. These two factors alone temper earnings per common share by $0.08 on a year-to-date basis. As a reminder, the Aitken Creek business hedges its physical gas inventory with forward financial instruments. U.S. GAAP requires these financial instruments to be valued at the current spot rate on each reporting date and this creates unrealized gains and losses. Again these accounting adjustments are purely timing. Turning to our capital program, our $3.2 billion 2008 capital program remains on track for the year with approximately $2.3 billion spent to the end of September. As noted on the previous slide, adjusted earnings per share increased by $0.04 compared to the third quarter of 2017. Key drivers impacting the quarter's performance included growth in ITC's transmission business, related to the execution of its capital plan, which improved EPS by $0.02 compared to the third quarter last year. Performance at our Canadian and Caribbean utility operations improved earnings per common share by $0.02. This increase was driven by the timing of purchase power cost at Newfoundland Power and the recognition of a capital track of revenue true up at FortisAlberta. In addition, FortisTCI has higher electricity sales during the quarter, due to Hurricane Irma's impact in the third quarter of 2017. This increase in earnings per common share was partially offset by higher operating costs and interest expense at FortisBC Energy. Changes in foreign exchange rates resulted in a $0.02 increase in earnings per common share. The average exchange rate was $1.31 this quarter compared to $1.25 in the third quarter last year. In addition, earnings at UNS U.S. and Central Hudson netted to an overall $0.01 increase in earnings per common share during the quarter. Favorable electricity sales at UNS associated with warmer weather was a key driver of growth. Unrealized net mark-to-market losses on derivatives at the Aitken Creek natural gas storage facility negatively impacted earnings per common share by $0.01. As discussed earlier, this $0.01 impact is purely timing. Energy Infrastructure was also $0.01 lower during the quarter, resulting from a decreased hydroelectric production in Belize as a result of lower rainfall. And finally, an increase in the weighted average number of common shares outstanding as a result of the strong uptake in our dividend reinvestment plan lowered adjusted earnings per common share by $0.01 compared to the same period in 2017. Approximately 40% of our shareholders elected to reinvest their quarterly dividend on September 1st, 2018. It was our highest percentage of dividends reinvested ever. You will notice that U.S. Tax Reform did not have a net impact on earnings per common share during the quarter. The negative impact of U.S. Tax Reform for the quarter was negated by growth at UNS since rates were last set. Now turning to the first nine months of 2018. Adjusted earnings per common share decreased $0.01 compared to the same period in 2017. As I mentioned earlier, both unrealized mark-to-market losses at Aitken Creek and U.S. Tax Reform negatively impacted earnings per common share by $0.08. We still expect U.S. Tax Reform to impact consolidated earnings by 2% to 3% for the full year. Growth at ITC equated to an increase in earnings per common share of $0.04 and was mainly driven by rate based growth. This growth was partially offset by higher business development costs related to our efforts to progress our hydro pump storage opportunity in Arizona. Approximately $7 million of business development costs have been spent this year for this initiative. Our other U.S. utilities improved earnings per common share by $0.03, driven by the rate settlement implemented at Tucson Electric Power in February 2017 and favorable weather in Arizona. Performance at our Canadian and Caribbean utility operations contributed a $0.03 increase in earnings per common share. Drivers of growth include rate base and sales growth, insurance proceeds received from FortisTCI related to a Hurricane Irma and a capital tracker true up at FortisAlberta. These positive factors were partially offset by lower earnings at FortisBC Energy, due to higher operating costs and interest expense. And our non-regulated energy infrastructure assets added $0.02 to earnings for common share. The increase was driven by higher gas volumes and favorable pricing to Aitken Creek. Partially offsetting growth in our utilities was unfavorable foreign exchange of $0.02 with the exchange rate declining from $1.31 to $1.29 and $0.03, mainly driven by higher weighted average number of common shares as a result of our dividend reinvestment plan and a 500 million common equity private placement that occurred in March 2017. As Barry noted earlier, we recently announced our new capital expenditure program of $17.3 billion for the period 2019 through 2023. This capital plan is expected to be funded mostly through net cash from operations and debt financing at the regulated utilities. This accounts for approximately 92% of the expected funding requirements. Other sources of funding include assumed asset sales which are expected to yield 1 billion to 2 billion in proceeds over the planning period, a very small increase in non-regulated debt and contributions from stock purchase plan. We do not require any discrete equity to fund the plan and we expect their ATM program to remain available to provide further financing flexibility. Fortis' low business risk profile and standalone nature of each regulated subsidiary supports the investment grade credit rating that we have today. Given our concentration on our regulated businesses and our focus on transmission and distribution, we expect no change to Fortis' business risk profile which is described as strong or excellent by credit rating agencies. The funding strategy also supports improving our credit metrics over the five year plan. The holdco debt to total debt is expected to decrease by 13% through 2023, reflecting a higher proportion of regulated debt to fund growth at the utility. With the new plan, together with our funding strategy, we do expect to maintain our investment grade credit rating. We continue to have a stable regulatory outlook. Barry covered the FERC related matter, so I will not repeat anything there. Although not one of our significant regulatory decisions, I wanted to note that the Arizona Corporation Commission issued an order in TEP's phase 2 rate case in September. The decision ended solar net metering in TEP's service territory. Residential and small commercial customers who install solar will now receive a monthly bill credit for excess energy exported to TEP's distribution system. The export rate will be updated annually based on TEP's actual solar PPA and generation facilities cost, subject to a 10% maximum decline. With regard to other regulatory matters, we intend to file two rate cases in 2019. At Tucson Electric Power, we plan to follow rate case early next year that will be based on the 2018 test year. As you will recall, rates were last set based on the 2015 test year. Since then TEP has invested nearly US $1.5 billion in capital to serve its customers. In addition, FortisBC also expects to have a PBR renewal filing in early 2019 as the current term is set to expire at the end of next year. I'll now turn the call back to Barry for some concluding remarks.

[Barry Perry:]

Thank you, Jocelyn. Fortis comprised of well-run utilities with 97% of our assets related to regulated utility. We are the one of the most diversified utility businesses in North America. We have a strong growth profile with a 7.1% rate base CAGR over the next three years and a 6.3% rate base CAGR over the next five years. This growth supports our 6% dividend growth guidance to 2023. In addition, we are working on incremental growth opportunity not yet included in our capital plan. We remain confident as we finish 2018 and look forward to continuing to execute well on behalf of our customers and shareholders in 2019. I'll now turn the call back to Stephanie.

[Stephanie Amaimo:]

Thank you, Barry. This concludes the presentation. At this time, we like to open the call to address questions from the investment community.

[Operator:]

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer period. [Operator Instructions] Your first question comes to the line of Robert Kwan with RBC Capital Markets. Please go ahead.

[Robert Kwan:]

Good morning. I'm just wondering Barry, if I can get your thoughts on recent U.S. M&A just generally, but as it tied back to you just to confirm that you're not planning on getting involved going forward with this trend as well as how this may or may not factor into that $1 billion to $2 billion of asset monetization, I know you focused on regulated. But is there any thought trying to take advantage of high valuations on the regulated side?

[Barry Perry:]

Robert, thank you. I focus Robert is really growing the business that we have. The portfolio of utilities that we currently own and we really have now achieved a marked change I would say on our growth rate since we purchased ITC. You know ITC is growing faster, our U.S. business is growing faster and some of our Canadian businesses are actually going faster as well and we still have some work to do and probably in that area. So that's where our tension lies. We're really not focused at this point on and M&A.

[Robert Kwan:]

Okay. Do that feed into just what we're seeing if that accelerates as to how you might think about asset monetization program?

[Barry Perry:]

I don't think so, Robert. Our focus really is it's hard enough to buy utility let alone sell one, I'm really not focused in that area. Clearly at a public company, if someone is prepared to make Fortis an offer for some part of our business, we would have to evaluate it, but that's not something we're looking at initiating at this point in time.

[Robert Kwan:]

Got it. And if I can just clean up a couple of line items in the quarter. You to explained kind of year-over-year for both the Belize and UNS. I'm just wondering, are you able to quantify how much the lower hydrology in Belize was versus stable long term average and then for UNS, what the impact on weather versus normal days?

[Barry Perry:]

I don't think so Robert. I think year-to-date in Belize, we're probably not too bad. Yes, it is the third quarter, it was - usually we get a little bit of rain in the quarter, but it was a little slow. Actually year-to-date up the plan there, we're actually running ahead of our budget. So I'd expect for the full-year that will be consistent with our annual targets.

[Robert Kwan:]

Okay. And then for UNS?

[Barry Perry:]

In terms of weather, is that what your question was?

[Robert Kwan:]

Yeah, how much weather was in the quarter versus normal?

[Barry Perry:]

I am going let to David way in, but I maybe should just make a general comment about Arizona. That business continues to do really well. You're thinking about - our last year annual earnings around I think 2, 2.20 something like that U.S. The economy still remains strong and is improving, lots of new jobs being created in that market. And I've been saying for some time that I would say Arizona is our jurisdiction, I'm the most optimistic about at this point and in terms of the long term growth there. I'm not putting any pressure on David. So David maybe you can comment on the sort of the summer weather patterns versus historical patterns.

[David Hutchens:]

Well we'll keep looking good if we keep up with the soft weather. But Robert, you know that this weather normalization is a little bit more of art and science. But we've calculated for the third quarter effect is probably somewhere around US $8 million to US $10 million. So we saw the hottest September on record, also one of the hardest July as well. So overall, the quarter was very strong from a weather perspective. And if you just want a little piece of data for September, our average temperature in Tucson was 84.9, that's average, not average high but average temperature during the entire month. So it was a pretty hot month for us.

[Robert Kwan:]

That's great. Thank you very much.

[Operator:]

The next question comes to line of Ben Pham from BMO. Please go ahead.

[Ben Pham:]

Okay. Thanks, good morning. And the first question on the MISO, are you able to get a sense of what the base ROE could be in at MISO just looking at the four different methods that we looking and seeing what they've determined?

[Barry Perry:]

I would they we're not actually able to disclose that at this point, Robert. I would - the process - I'll Linda comment as well, because she is the definitely the subject matter expert on FERC is basically the way I understand with the New England transmission owners, they have to file their responses to the reason order at FERC within 60 days. And then there's a 30 day period allowed for the complainant to respond to that filing. And then FERC has to really take that material and then make a final order on those complaints. And we're obviously hopeful that we can read through that process into MISO, the complaints in MISO. But those are just assumptions at this point in time. And so Linda, maybe you can add a little more color around that.

[Linda Apsey:]

Yeah, Barry, I would wholeheartedly agree. I mean obviously as Barry indicated, we are still way awaiting final decision in the NETO case as well as the MISO case. And I think it would be premature and speculative of us to sort of calculate numbers as the price to MISO case. However, I would say based on the methodology and sort of the four different sort of methodologies that they have established, I think as we previously stated, we do believe the new methodology, the new construct is supportive of investment in transmission and having more stable predictable ROEs. I think certainly the new methodology provides longer durability for the ROEs and can potentially minimize sort of the pancaking of rate complaints that we've experienced. So I think overall, we feel positive and constructive. It's constructive, but certainly premature I think to sort of put out the specific numbers as it relates to the MISO case.

[Ben Pham:]

Okay. Thanks for that. And sticking at ITC, is 2018, when you look at year-over-year growth and even think about Q4, you have Tax Reform impacts in there and BD expenses, you also have some good rate base growth, is this a year of really just limited earnings growth and then you really pick up the growth into next year's Tax Reform is out of the numbers?

[Barry Perry:]

Yeah, we obviously have the independent that reduction are Ben, that you have to factor in now on an annual basis. But I would say for me ITC and when we bought that business, their CapEx was declining in the out of years. They've done a great job of finding opportunities to invest in their infrastructure. That's no longer the case and we've increased the growth rate I think annually from about 6% to 7% plus at this point in time. So for me, when I get a sense of maybe improving stability around ROEs and a stronger growth rate at ITC, that's what we were hoping to accomplish when we bought that business and it makes the ITC transaction so much better for Fortis overall. You know what's need about ITC obviously is the FERC regulatory compact, formula rate setting process where once you spend your capital, it really does get baked into your rates very quickly, far more faster than any other state regulated or provincially regulated jurisdiction in North America. So ITC's growth should track very nicely with this rate base earnings growth, with its rate base growth over that five year period.

[Ben Pham:]

Okay. That's great. Thanks Barry.

[Operator:]

Your next question comes from the line of Nicholas Campanella from Bank of America Merrill Lynch. Please go ahead.

[Nicholas Campanella:]

Hey there, good morning.

[Barry Perry:]

Good morning, Nick.

[Nicholas Campanella:]

Hey, so just to keep on the ITC discussion here, the FERC ROEs, can you remind us just what's assumed in your own forecasts related to the order that we just saw and you know where the MISO complaint stands right now?

[Barry Perry:]

My - Linda, my numbers in my hand are - with the independent that are included now at the lower level, we're at about 11.07.

[Linda Apsey:]

Yeah, that's correct. Yeah, 11.07 would assume the 10.32 base ROE that came out of my MISO complaint number one plus 75 basis point of incentive add - it's not 75, it's 50 basis points to the RTO adder, and now it's 25 basis points for independence adder or Transco adder I should say.

[Nicholas Campanella:]

Got it. And then just moving to BC gas quick, I know we all saw the FID by your peers on the LNG side, can you discuss if that's kind of spread any additional interest in your own facilities? And then if you have any expectations around the timing of the Woodfibre opportunity too? That would be helpful.

[Barry Perry:]

Well, I would say there's been no waning of interest in our facility and we're having good conversations for some time on our especially our Tilbury LNG facility and that plant is going for LNG production and it's highly expandable. So we continue to have good dialogue there and I expect that to continue. And frankly LNG Canada's announcement, I think it's just supportive all around in terms of tone for investing in gas infrastructure in British Columbia. In terms of Woodfibre, we really are engaged a lot right now with the with the Woodfibre folks, they clearly have still not made their final investment decision, but our sense is that we'll know a lot more in the next few months. It's getting close and - but ultimately you know we are we are beholding to them, you know they are the customer and we have to build the pipeline to get them their gas and we await their final investment decision before we can kick into high gear and start building the pipeline.

[Nicholas Campanella:]

Thanks for that.

[Barry Perry:]

Thank you. Thanks Nick.

[Operator:]

The next question comes from the line of Rob Hope from Scotiabank. Please go ahead.

[Rob Hope:]

Good morning, everyone. Maybe just keeping with BC, just given the orders that we saw in the specter line, are you looking at further diversification of fuel supply that could potentially you know lead to some sizable investment in your - the southern edge of your pipeline system in BC?

[Barry Perry:]

The answer is, we've been looking at this point sometime Rob. You know we've always had a Southern crossing line and I've looked at over the years expanding the capacity on that line. But I think this year's heightens are focused on the areas and storage is another area frankly in the Lower Mainland. You know this is really bringing into light the critical need for redundant infrastructure. Roger is on the line. Maybe Roger, you can chip in and add your thoughts. But for me I think it's directionally positive for further infrastructure investment in the provenance.

[Roger Dall'Antonia:]

Thanks Barry. Good morning, Rob. I just echoing what Barry is saying there. We've always had those plan Southern crossing would be the first step to see if we can't expand that to tie into the lower part of the Enbridge system. And then we're looking for the ability to add additional storage on-system. It would replace throughput that Enbridge has that would give us much more redundancy for peak weather days which would help us through situations like this.

[Rob Hope:]

Thank you for that. Any potential CapEx on the storage or expansion on Southern crossing?

[Barry Perry:]

I would say no, not at this time. Not at this time, Rob, our focus obviously is getting through the current situation. But clearly that will be part of our thought process as we focus on the next iterations of our five year capital plans you know. So I would think we have more to say next year about where we can get on those opportunities.

[Rob Hope:]

Think you. I'll hop back in the queue.

[Operator:]

Your next question comes from the line of [indiscernible] from CIBC. Please go ahead. Good morning, guys. I am calling on behalf of Rob Catellier here at CIBC. We just want to follow-up with respect to the Enbridge gas line rupture. And with respect to, it's running at 80% capacity through the winter, wondering what the impact of that would be on the Fortis operations?

[Barry Perry:]

Roger, I'm going to go right the source, maybe you can give your thoughts on that.

[Roger Dall'Antonia:]

Yeah, thanks for the question. Thanks, Barry. From an operating point of view, there's not a direct impact, none of our asset were impacted. What we are seeing now is depending on weather days we have to put out a fairly strong conservation message obviously following closely Enbridge's ramp up plans to get the 80%, which is what they've been rated for by the NAB and frankly hoping they can get through their integrity program and get back up closer to full capacity before the end of winter, the challenge for us simply is going to be on those peak cold weather days where we rely on our storage that's goes down in the U.S. as well as on-system. So our concern base line right now the next couple of months is just matching those peaks and working with Enbridge to hopefully to see them get back up to speed quicker. Then what they said so far which is 80%.

[Barry Perry:]

Thank you, Roger.

[Unidentified Analyst:]

Okay, that's great. That's all our questions for today.

[Operator:]

[Operator Instructions] Your next question comes from the line of David Quezada from Raymond James. Please go ahead.

[David Quezada:]

Thanks, good morning, everyone. My first question on the U.S. midterm election coming up, I know I believe there are two seats available on the ACC. I'm wondering what your views are there and what parts that raise your following?

[Barry Perry:]

I'm very hesitate to comment on anything as a Canadian on U.S. politics. David, I don't know if you even want to venture you know obviously you're living in two side on that, but I know there's a lot the competition going on in Arizona, so David I don't know if you want to add any flavor.

[David Hutchens:]

I just say I'm going to like and get along with whoever selected.

[Barry Perry:]

Okay, fair enough.

[David Quezada:]

Just my only other question there, any conversation with the new government Ontario yet on Lake Erie or any update on that side?

[Barry Perry:]

Yeah, we have some engagement on Lake Erie and it's been relatively positive I would say. But it does take some time you know to get - for the new government to get everyone up to speed and we're continuing to have those dialogues. What's great about Lake Erie is the strength of the project, you know the annual benefit that they can derive connecting these two markets together Ontario with PJM. And when you have sort of the - that kind of project, you just got to keep having the conversation. But, yes, we've engaged with the provenance several times at this point.

[David Quezada:]

Okay, great, that's it for me.

[Operator:]

Your next question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead.

[Patrick Kenny:]

Good morning. Just quick follow-up, Roger on you sales provenance there. Just wanted to clarify on any recourse your customers might have as it relates to not being able to meet peak demand or any recourse you might have just on rising fuel cost through the winter?

[Roger Dall'Antonia:]

Yes, so on the recourse from an Enbridge perspective, they've declared, so we don't see any immediate recourse at Enbridge. As far as our situation, we would utilize different mechanisms that we have in place to our PVR we have a revenue variance deferral account. We also have the concept is that factors for that about certain threshold for recovery from customers. Those are the two main ones. We also have commodity cost variance deferral accounts would increase cost here. Most of our gas is purchased up at Station 2, internal gas supply we may have to purchase could have an impact, but it's so early days in that, but we feel that there would be a resale deferral accounts in place with our current regulatory fund.

[Patrick Kenny:]

Okay, that's great. Thank you very much.

[Operator:]

Thank you. There are no further question. I'd like to turn the car back to Ms. Amaimo for closing remarks.

[Stephanie Amaimo:]

Thank you. We have nothing further at this time. Thank you for participating in our third quarter 2018 results call. Please don't hesitate to contact Investor Relations should you have anything further you need. Thank you for your time and have a great day.

[Operator:]

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