Fortis Inc.
Q2 2016 Earnings Call Transcript

Published: 29 Jul 2016

[Operator:]

Ladies and gentleman, thank you for standing by. This is the conference call operator. Welcome to the Fortis Q2 2016 Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Janet Craig. Please go ahead, Ms. Craig.

[Janet Craig:]

Thanks, Amy and good morning, everyone and welcome to Fortis’ second quarter results conference call. I am joined by Barry Perry, President and CEO and Karl Smith, EVP and CFO, other members of the senior management team as well as the CEOs of our subsidiary. Before we begin today’s call, I want to remind you that the discussion will include forward-looking information, which is subject to the forward-looking 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 Q2 MD&A. Also, unless otherwise specified, all information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

[Barry Perry:]

Good morning, everyone. This year remains a very active one for Fortis as we continue to build on our track record of performance and execution delivering strong results across all meaningful financial and operational measures. At the same time, we have made significant progress towards completing the acquisition of ITC, which remains on track to close by year end. Fortis has $29 billion of assets virtually all of which are regulated. Our model of having a low risk, highly diversified utility business where each utility is run autonomously by experienced and local management team, continues to be a competitive advantage for us. This model supports our growth strategy, which is a simple one. We want to leverage the footprint of our utilities, operating expertise as well as a reputation and financial strength to develop opportunities and that’s exactly what we are doing. Across the business, we have invested, managed and advanced key projects to drive growth in our portfolio, including targeting additional energy infrastructure. Our $9.3 billion, 5-year capital plan remains on track and we expect to invest $1.9 billion this year. We have a history of outperformance and capital investment relative to our plan, so we would expect the numbers in the outer years to climb as we have more visibility in future capital projects. Our capital program is largely focused on transmission and distribution across our utilities and is reflective of our ongoing capital needs in each business to continue to provide safe, reliable and cost effective energy service to our customers. Excluding ITC, we expect our 2016 midyear rate base to be $17.3 billion and to exceed $20 billion by 2020 growing at a compound annual growth rate of approximately 4.5%. We have a low risk, highly executable capital plan and we continue to have success in bringing major projects in on time and on budget. In the second quarter, Caribbean utilities completed its 39.7 megawatt generation expansion project on schedule and below budget for a total cost of $79 million. At the same time, our lower mainland system upgrade at FortisBC Energy progressed. The project addresses system capacity and pipeline condition for the gas supply system in the lower mainland area of British Columbia. With a total capital cost of more than $400 million, we have invested $26 million to-date. This upgrade is expected to be completed in 2018. Construction continues on the Tilbury LNG facility expansion in British Columbia. It is our largest ongoing capital project with an estimated cost of $440 million. We have invested $368 million to-date. We had expected the in-service date to be the end of this year, but it has been pushed back slightly into the first quarter of 2017. The slight delay will not impact the total project cost or any customer commitments related to LNG delivery from the facility. An important factor in our continued growth is finding incremental investments in our existing franchises and I want to update you on the progress we are making here. Our recent acquisition of Aitken Creek is a great example of this strategy and action. This transaction closed on April 1 and contributed $4 million in earnings this quarter. Purchased for $266 million, Aitken Creek is an integral part of the Western Canada’s natural gas transmission network and is the only underground gas storage facility in British Columbia. This acquisition is the right fit for us both operationally and strategically and positions us well to further expand our gas infrastructure in British Columbia. It is also uniquely positioned to benefit from the development of proposed LNG export projects, where it could provide balancing services to suppliers and LNG exporters. The proposed pipeline expansion project for Woodfibre LNG continues to progress. FortisBC Energy received environmental approval from the Squamish First Nation during the second quarter. The Woodfibre LNG project itself has also achieved significant milestones, including signing a heads-up agreement for the uptake of 1 million tons per year of LNG for 25 years starting in 2020. Woodfibre LNG is targeting a final investment decision by the end of 2016. As a reminder, this project is approximately $600 million and is not currently reflected in our base capital plan. We continue to see the potential of further expansion at our Tilbury facility. In May, we announced the 20-year take-or-pay fuel service agreement with Hawaiian Electric. This agreement had a number of conditions, including the approval of the proposed merger between HECO and NextEra. Earlier this month, the Hawaiian state regulator denied the merger and HECO has terminated our agreement. Notwithstanding this setback, the further Tilbury LNG expansion remains an important opportunity for Fortis and we remain optimistic about further developments at the site. The New York Transco project continues to advance with FERC approving rates early this year and three projects being placed in service during the second quarter. Fortis grows both organically and by acquisition and has successfully executed several key acquisitions since 2004. These acquisitions complement and diversify our portfolio, expand our rate base and reduce overall regulatory risk. The acquisition of ITC is another great example of our acquisition strategy in action. As the largest independent fully regulated electric transmission utility in the U.S., the acquisition of ITC is a singular opportunity to diversify our business in terms of regulatory jurisdiction, business risk profile and regional economic mix. ITC reported its second quarter results yesterday and they continue to demonstrate strong financial and operational performance, including operating earnings of $0.58 per diluted common share for the quarter, capital investment of approximately $375 million for the first half of the year and rate base and construction work in progress of $5.7 billion. We continue to expect the deal to be nicely accretive in 2017. The strength and breadth of this business combination provides the expertise and financial capacity to further capitalize on investment opportunities in our franchise regions and the scale to grow our business further. Let me remind you of the scale of the business combination of Fortis and ITC. Enterprise value was approximately $42 billion and our 2017 combined capital expenditures are expected to be approximately $2.9 billion and our 2017 midyear rate base is expected to be about $26 billion. Turning to milestones and timelines, we continue to expect that the ITC transaction will close by the end of the year and we have made significant progress in this regard. To-date, we have received the necessary regulatory approvals from both Fortis and ITC shareholders, secured the minority investment in ITC with GIC and have filed all regulatory applications. We are working closely with the regulators to advance these regulatory dockets. Additionally, we completed our registration with the SEC, obtained approval to list our shares on the New York Stock Exchange and received approval from the committee on foreign investment in the U.S. for the transaction. In the second half of the year, we will continue to advance the process for closing the transaction, including securing permanent long-term debt financing and working to obtain the necessary state and federal approvals. I am proud of the team, both Fortis and ITC and the tremendous progress we have made in the last 6 months. To wrap up, we are well-positioned for sustained growth. Our business is in excellent shape. It’s very low risk and well diversified. We expect continued growth in our business in 2016 and results in 2017 will benefit from the expected outcome of the TEB general rate case, the impact of ITC and the continued growth of our underlying business. We have the financial strength and flexibility to maintain predictable dividend growth. Our track record for dividend growth, the best of any public company in Canada at 42 consecutive years, is expected to continue with 6% average annual dividend growth through 2020. We expect long-term value creation from the execution of our capital plan, the balance and strength of our diversified portfolio of businesses as well as growth opportunities from additional infrastructure investment beyond our base plan. Karl?

[Karl Smith:]

Thanks Barry. Good day everybody. As Barry mentioned, our second quarter 2016 financial results were strong and in line with our expectations. Adjusted earnings for the quarter were higher by $8 million or almost 7% compared to the same quarter last year. Adjusted earnings per share of $0.46 for the quarter was higher by $0.02 or nearly 5%. On a year-to-date basis, adjusted earnings were higher by $19 million or 6% and earnings per share was higher by $0.04 at $1.13. Cash flow from operations was comparable for the quarter and the year-to-date periods and our capital program remains on track. As you can see from the waterfall chart earnings per share for the quarter reflects favorable foreign exchange, the timing of quarterly earnings at FortisBC Electric, the contribution from Aitken Creek gas storage and stronger performances from most of our other regulated utilities. Removing the benefit of foreign exchange, both Central Hudson and UNS grew earnings year-over-year. Central Hudson benefited from its rates being reset July 1 last year as a result of a 3-year rate settlement. A number of factors drove the growth at UNS, including above average temperatures in the quarter. For utility that operates under a historical test year regulatory construct, having earnings flat to growing at this point in the cycle is very positive. UNS’ last rate order was in 2013 using a 2011 test year. As you can see from the waterfall, we did have lower earnings at FortisAlberta, reflecting the economic downturn in Alberta. The elimination of the contribution of operating earnings from the commercial real estate and hotel assets due to a sale in 2015 dampened earnings growth this quarter compared to last year and impacted earnings per share by about $0.03. Moving to the next slide, a somewhat similar story plays out for the six months ended June 30. On a year-to-date basis, results were favorably impacted by foreign exchange. Other factors that contributed to growth in adjusted earnings per share were a higher allowance for funds used during construction at FortisBC Energy related to the construction of the Tilbury LNG project; contribution from Aitken Creek during the second quarter; and contribution from the Waneta Expansion project for the full six months of this year. The timing of quarterly earnings at FortisBC Electric and the sale of commercial real estate and hotel assets in 2015 tempered earnings per share growth year-over-year. Our strong financial metrics, driven by increasing earnings and strong cash flows as well as a conservative capital structure support our financial capacity and our investment grade credit ratings. Our consolidated credit facilities totaled $3.5 billion, of which $2.1 billion was unused at the end of the second quarter. Year-to-date, we have issued over $350 million in long-term debt, including FortisBC Energy’s dual tranche of 10-year, $150 million and 30-year, $150 million unsecured debentures. We have a light near-term debt maturity profile with more than 90% of our long-term debt other than credit facility borrowings having maturities beyond 5 years. Specifically, as of June 30, 2016, we expect consolidated fix term maturities and repayments to average approximately $260 million annually over the next 5 years. Our financial strength and capacity positions us well to fund both new investment opportunities and organic growth. Turning to the financing of the ITC transaction, with the planned issuance of $2 billion in debt this fall, the acquisition financing will be substantially complete. Related to the debt raise, in order to provide some certainty around this important component of the economics of the transaction and to be opportunistic in the historically low interest rate environment, we entered into interest rate swap contracts totaling $1.25 billion in the second quarter. This hedges a significant portion of the cash flow risk associated with the debt issuance and has the effect of reducing a significant portion of interest rate risk associated with the transaction. Turning to regulatory matters, we continue to focus on maintaining constructive regulatory relationships and completing ongoing regulatory proceedings across our existing utilities in addition to those related to the acquisition of ITC. As you can see from the list of significant filings and applications, our regulatory calendar remains very active. The most significant regulatory proceeding underway is Tucson Electric Power’s general rate application, which requests new retail rates effective January 1, 2017 using the year ended June 30, 2015, as the historical test year. This proceeding is progressing with intervener direct testimony, including commission staff testimony filed in June. In response, TEP filed rebuttal testimony this past week. The hearing is scheduled to begin in late August and it is expected to last two weeks to three weeks. During the second quarter, Newfoundland Power received a decision on its general rate application, which resulted in a decrease and has allowed return on equity from 8.8% to 8.5% on a 45% common equity thickness, and this is effective January 1, 2016. A decision on FortisBC’s generic cost of capital application for the 2016 benchmark ROE and common equity thickness is expected in the third quarter of 2016. Generic costs of capital proceedings are ongoing in Alberta to set the allowed ROE and common equity thickness for 2016 and 2017 and a decision is expected before the end of 2016. That concludes my remarks. I will now turn the call back to Barry.

[Barry Perry:]

Just to the close off, we operate in jurisdictions with constructive regulatory frameworks and maintain good relationships with our regulators. We are firmly committed to delivering dividend growth and have provided dividend growth guidance through 2020. Our balance sheet is strong with sufficient cash flow to fund our capital requirements. Beyond value creation in our base capital plan and growth opportunities and infrastructure in our franchise regions, we are also a very successful in creating value from strategic acquisitions. We created value with the acquisition of Central Hudson. We created value with the acquisition of UNS and we expect to create further value with acquisition of ITC. We will content to focus on delivering growth across all utility operations, earning our allowed return and delivering safe, reliable and cost-effective energy solutions to our customers. With that, I will turn the call over to Janet.

[Janet Craig:]

Thanks Barry. This concludes the presentation. I will now ask Amy to open up the call for Q&A.

[Operator:]

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer period. [Operator Instructions] Your first question today comes from the line of Linda Ezergailis from TD Securities. Your line is open.

[Linda Ezergailis:]

Thank you. I have a question on your TEP rebuttal testimony, I see it’s you lowered your revenue requirement to $101 million from $110 million, is that substantially driven by a slightly lower ROE or is there some other factors that come into play?

[Barry Perry:]

Linda that’s part of it, I am going to ask Dave – I have the guy on the phone that would give you some detailed answer on that, is Dave Hutchens. Dave, you want to just chip in on that?

[David Hutchens:]

Yes. Most of it is lowering that ROE from the request of 10.35% to 10%, which is our current ROE, as well as some adjustments in the fair value increment that was dropped about I don’t know, 25 basis points, 30 basis points. And then there is also some other minor adjustments, including some jurisdictional allocations between plant used for retail rate base and FERC jurisdictional rate base and then some adjustments in depreciation lines.

[Linda Ezergailis:]

Okay. Thank you. And how confident are you that this will be accepted or is there going to be anything contentious in the hearing…?

[Barry Perry:]

Maybe Dave, I will just jump in there and you can add some flavor. By Linda, my sort of sense of basically we are just in the middle part of the process, so we are working our way through with our – with the interveners and with the regulatory process. So, it’s hard to predict, but we are confident that we have a good application in front of the commission at this point in time. David?

[David Hutchens:]

Yes, I would just add that we still expect a pretty rigorous debate not necessarily around the revenue requirements, but as our smaller company units, electric showed us, there is quite a bit of debate around rate design and net metering aspects that we have asked to change. So, it will be – there will be a lot of discussion and debate in the hearings, but we have a very good case that we put on.

[Linda Ezergailis:]

That’s helpful context. Thank you. Now, moving on just to your financial planning and risk mitigation, can you give us some more detail on the swap that you had entered into, did you lock in a certain interest rate or can you describe some parameters around that?

[Karl Smith:]

Yes, Linda, it’s Karl. What we did was locked in two tranches, $750 million, 10-year, $500 million, 5 year taking advantage of the post-Brexit low level of interest rates and they are contingent forward locks. So, the deal doesn’t go ahead and then they just fall away, but of course the thing that can’t be locked in is the spread. But if the spreads behave there or consistent with the way they look today, it’s – it will result in financing that I would say nicely lower than what we assumed in our accretion assumptions.

[Linda Ezergailis:]

Okay, that’s helpful context. And I think in the past you talked about revisiting your U.S. dollar exposure and the potential for hedging it after certain milestones had been met in terms of approvals, have you updated your thinking around that or not?

[Barry Perry:]

Not really. We haven’t updated our thinking in the last call, our thinking will be the same as then, but we are waiting until we get further thorough process and primarily once we get past the FERC approval process, then we will turn our attention. So, I would think that was fourth quarter work stream for us, Linda.

[Linda Ezergailis:]

Okay, great. Thank you.

[Barry Perry:]

Thank you, Linda.

[Operator:]

Your next question comes from the line of Robert Kwan of RBC Capital. Your line is open.

[Robert Kwan:]

Good morning. Just I guess now you have got the rate lock here that sounds like it’s worked in your favor here. I am just wondering, Barry I think you used the term for ITC nicely accretive in 2017, I am just wondering is there any update to the accretion guidance taking into account minorities sale, the ROE and bonus depreciation?

[Barry Perry:]

No update, Robert other than I said nicely. So, clearly last quarter, few things were moving away from us. Now, this quarter, a few things are moving in our favor. And I just feel positive about where we are in any large transaction given the timelines that takes to get this approved in our sector, things move around a little bit as you go to closing. So, this interest rate situation has helped us a lot and we are feeling very positive at this point in time.

[Robert Kwan:]

Okay. Just on TEP and the transmission refunds, so I think you had accrued for $8 million in the first quarter and then you had the disclosure that you recalculated that down to $3 million, was there anything then in the second quarter where you reversed the prior accrual or are you going to wait for that to be fully approved at the FERC?

[Barry Perry:]

We are going to wait. We haven’t reversed any of the charges, Robert. So, you know that obviously was a little bit of a surprise thing for us and related to things from long ago. So, we are obviously working our way through the process and we will see how it develops over the second half.

[Robert Kwan:]

Okay. And the last question here is just on Aitken Creek, just wanted to get a bit of an understanding of how its generating revenue, I don’t know if you can give a bit of a split or some disclosure that you have got related party transactions, so it looks like it’s the sale into the utility that contracted there. But then you also have the unrealized mark-to-market and so it looks like there is a proprietary site to what you are doing. Are you able to give a bit of a split between how much is contracted and how much is what you guys are doing on your own book?

[Karl Smith:]

Robert, it’s Karl. The intercompany aspect of that is and the percentage will change depending on market prices and so on, but half of these stories is leased to FortisBC Energy and has been for quite a while. Now, on the proprietary side, there is some proprietary trading and so on, but we are taking the very conservative low risk approach to that. We are matching the physical injection in storage and trading with financial instruments. So, the mark-to-market will be there on a quarterly basis. It’s hard to predict what the quantum will be, but at the same time because of the process we take, the underlying value of the inventory moves in the same direction. Unfortunately, due to the accounting rules, we cannot book that. So, the economic value – the approach we take is to make sure the economic value is intact throughout all the proprietary trading aspects.

[Robert Kwan:]

Okay. So, just so I am clear on the proprietary side, you are buying say spot gas into storage and you have immediate forward sell to lock in the profit, is that correct?

[Karl Smith:]

That’s right. And sometimes we will turn around to sell the gas right away and then enter into what we must refer to as product and loan transactions where we basically charge to store the gas that we have just old.

[Robert Kwan:]

Okay, but you weren’t able to get hedge accounting for that activity?

[Karl Smith:]

Not for the underlying increase in the value of the inventory, no.

[Robert Kwan:]

Okay, and that’s what’s creating the mark-to-market?

[Karl Smith:]

Yes.

[Robert Kwan:]

Okay, perfect. Thank you.

[Barry Perry:]

Thank you, Robert.

[Operator:]

Your next question today comes from the line of Rob Hope of Scotiabank. Your line is open.

[Rob Hope:]

Yes, thank you. Maybe just a question on your LNG expansion project in BC with the challenges with the Hawaii agreement, have you begun to potentially look for other tenants for that expansion?

[Barry Perry:]

Robert, it’s Barry. Yes, for sure. We actually were already in some discussions, because the site itself could have been expanded beyond what we were contemplating with Hawaiian Electric. So, we have had a number of discussions and it’s a unique site and we do believe that it has certain advantages. It’s very close to Asia and much closer to the Gulf Coast. So, from a shipping perspective and we remain optimistic. I will say, it’s a setback with HECO not going forward. There is some possibility I guess that HECO may consider smaller scale LNG Imports. They will have to go through some processes to determine if they are going to come forward with that. But there are other priorities that are interested in the site. In BC, I want to just remind everyone we do own I would say the lion’s share of gas infrastructure in the province right now and whether it would be fiber LNG or Tilbury or other possible pipeline upgrades related to gas getting out of the province. I think Fortis will be a player in further investment in the province there.

[Rob Hope:]

Alright, that’s helpful. And then maybe just a follow-up on the ITC, with the recent ALJ decision, have you potentially revised your above 11% ROE for ITC?

[Barry Perry:]

Now, we have not. We are comfortable where we are on that with a lot of sort of moving parts around these ALJ decision is sort of a moment in time decision and we are comfortable that our assumptions of which we stated when we announced the transaction that we are using 11.35. We are comfortable with that at this point.

[Rob Hope:]

Alright, that’s helpful. Thank you.

[Operator:]

Your next question today comes from the line of Ben Pham of BMO. Your line is open.

[Ben Pham:]

Okay, thanks. Good morning, everybody.

[Barry Perry:]

Good morning, Ben.

[Ben Pham:]

Good morning. I am just wondering in your long-term plan and when your 6% growth targets, were you anticipating some of the ROEs to compress as what we are seeing out there right now, some of the decisions that have come out?

[Barry Perry:]

So, Ben, when we came up with dividend guidance, right, we would have factored in many, many different assumptions and success in cost of capital hearings and other regulatory hearings, CapEx, all these things are part of that analysis. So yes, we would have used at the time, we would have used our base level ROE that were in place at the time. So, I am not – we wouldn’t have predicted lower ROEs. That being said, the business is growing. There are other offsetting factors if you expect ROE to go down. So, we remain very comfortable with our guidance at this point. And ITC obviously further supports our position there as well.

[Ben Pham:]

Okay. And I am just wondering on your stress test and I appreciate there is a lot of factors driving it, I mean is there...

[Barry Perry:]

No Ben, I am – obviously we will review this with our Board on a fairly regular basis. We are very comfortable with our guidance there and on the various sensitivities around the assumptions that we have used.

[Ben Pham:]

Okay. I just wanted to touch based on one of your exhibits on the CapEx for the next couple of years, it drops modestly in 2019 and ’20, I am just wondering is that driven just broad based CapEx declines are one segment and I just wonder why sustaining CapEx kind of flatter coming down versus moving higher?

[Barry Perry:]

Well, generally Ben, in the sector, frankly most utilities when they predict out their 5-year CapEx plans show a declining curve on CapEx. Usually we have good visibility on the next 2 years or 3 years, but then years four and five tend to trail off. Frankly, we have never seen that happen in our business, so that’s why we say we remain fairly confident that the outer years in our capital program will be higher CapEx than we are showing – than we are showing in the 5-year chart at this point in time. So we are showing some declines like for example, at FortisBC Energy in those outer years. ITC in some of their capital planning will show some declines as well. We don’t see those things happening. And as we move forward each year, we will continue to provide those forecasts. And if the past is any representative of future, you won’t see those declines. But that’s based on the information we have today. Sustaining CapEx, I am not quite sure it will either would be a small decline, but it should be fairly stable over time.

[Ben Pham:]

Okay. Thanks for that. And just one quick one on where you are with the W project right now in terms of milestones and anything since the Investor Day since you have announced that?

[Barry Perry:]

Well, we continue to work with the province and our partners there to progress the project Ben and nothing to report at this point. But we are very much focused on that project. It’s a large project overall. Our share of it is essentially about one quarter of the capital cost of the project. So but it’s like a $1.2 billion, $1.3 billion project overall and very exciting project to obviously connect the First Nation’s community in Northern Ontario. So we are excited about it, but nothing to add at this point.

[Ben Pham:]

Okay, that’s helpful. Thanks everybody.

[Barry Perry:]

Thanks Ben.

[Operator:]

Your next question today comes from the line of Paul Lechem of CIBC. Your line is open.

[Paul Lechem:]

Thank you. Just a couple of quick follow-ups, first on the LNG, the BC LNG project to Hawaii, are those discussions with HECO essentially dead at this point or is there any opportunity to revisit them. And what about with Hawaii Gas, have they also confirmed their agreement…?

[Barry Perry:]

So Paul, clearly, the deal between NextEra and HECO just obviously ended. They have announced – HECO announced they terminated our agreement. So we have had a couple of conversations. We have a good relationship with HECO. I will point out that HECO first approached us on a smaller scale opportunity before the NextEra situation evolved. So but there are – there is nothing – there are no fixed plans at this point in time. We will keep an open dialogue with our colleagues over at Hawaiian Electric. And obviously we are more interested in continuing to pursue any possible involvement that we could have there. But we are also having conversations with other parties, so that’s what I add at this point.

[Paul Lechem:]

Fair enough. And in terms of the Woodfibre project, I mean is there any opportunity for you to maybe folding any of those discussions you have with the third parties to try and get the Woodfibre project over to the finishing line, my understanding is anybody owes that heads of agreements that they signed, it was only for about half of the capacity, so have you had any thoughts about actually combining those two projects…?

[Barry Perry:]

Well, I have got to tell you, I think the folks at Woodfibre are highly capable people and I think they are making good progress on the project. And we are focused on our pipeline work that we had to do to be ready to serve that customer, because essentially that’s what it is. It’s a customer of FortisBC. And our focus is making sure that we are ready to go with the pipeline and we are very pleased with the progress that Woodfibre made in the last few months on the initiative. And we are obviously very hopeful that they will make FID decision before the end of this year.

[Paul Lechem:]

Got it. Last question just in the Ontario LDC consolidation, has there been any movement, have you seen any further discussions in Ontario about potential acquisitions of the municipal LDC?

[Barry Perry:]

I would say no material developments in the quarter there. We are obviously still interested in that market. And we will be participating in what happens there, but no material developments.

[Paul Lechem:]

Got it. Thanks very much.

[Barry Perry:]

Thanks Paul.

[Operator:]

[Operator Instructions] Your next question comes from the line of Andrew Kuske from Credit Suisse. Your line is open.

[Andrew Kuske:]

Good afternoon. I guess my question is for Barry and it just relates on your thoughts on utility valuation at this point in time and I ask the question in part is when we see Canadian tenure hovering around 1%, spreads are still reasonable, so they haven’t blown out for good quality credits, so many things are financeable, how does that translate into your views on just utility valuation or are we in a new paradigm for valuation, largely valuations going higher given just the financeability of comparable investments?

[Barry Perry:]

Andrew, that’s a great question. Valuations are up and if anything frankly, what as Fortis sets the opportunity we have let’s call it is for the first time in a long time, U.S. utility valuations are higher than Canadian activity valuations. And I would rather have it other way around, frankly. So we have to work hard to encourage more participation in our stock from U.S. shareholders and we are going to do that as we really believe there is a valuation gap right now going on and we need to close that gap between Fortis and the typical U.S. utility because we are going to be 60% U.S. once we close ITC. So yes, it’s a concern, obviously and especially when you are acquiring businesses and things, but it doesn’t seem to be slowing down what’s happening in the sector, so I probably couldn’t offer much more than that.

[Andrew Kuske:]

And then I guess maybe the natural extension in a cheap interest environment or cheap debt environment, is there an opportunity in your conversations with government officials to really spur on infrastructure spending which you could be involved in and in backstopping some initiatives, because [indiscernible] cheaper for government entities to finance at this point in time and the cycle and winds up being economically simulative?

[Barry Perry:]

I am not sure. We obviously are doing what we need to do in each of our regulated businesses to ensure we are investing appropriately in our infrastructure to serve customers. One thing I do know is with bonus depreciation in the U.S., the purpose of that was to spur further investment. So our utilities in the U.S. will be looking for further opportunities to deploy the cash flow that are getting back through bonus depreciation to improve their energy networks. And essentially that’s what that program was designed to do. So we do have a bit of a focus on that. But overall, we really are working with our regulators on a normal basis to invest in our infrastructure and we got a pretty big capital program. We think with ITC we are going to be close to $3 billion next year in CapEx, that’s if you assume that runs out over 4 years or 5 years, you are getting up to a 5-year CapEx in the $12 billion plus range that gives you a sense of the size of Fortis, Fortis has become here. So we are working hard obviously to put things into the ground. I agree that this is the time to do it, the cost of capital and debt is attractive and we are executing well in my view on all of that.

[Andrew Kuske:]

Okay, that’s very helpful. Thank you.

[Barry Perry:]

Thanks Andy.

[Operator:]

As there are no further questions, I would now like to turn the call over to Ms. Craig for closing remarks.

[Janet Craig:]

Thank you, Amy. As we have nothing further at this time, we just want thank you for participating in our conference call today. If you have any further questions, please don’t hesitate to contact Investor Relations if you need anything. And have a great long weekend in the rest of Canada and U.S.

[Barry Perry:]

Thanks everyone.

[Janet Craig:]

Goodbye.

[Operator:]

Thank you for participating in today’s conference call. This concludes today’s conference, you may now disconnect.