Fortis Inc.
Q3 2016 Earnings Call Transcript

Published: 4 Nov 2016

[Operator:]

Ladies and gentleman, thank you for standing by. This is the conference call operator. Welcome to the Fortis Q3 2016 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, Vice President, Investor Relations, Fortis Incorporated. Please go ahead, Ms. Craig.

[Janet Craig:]

Thanks, Chris, and good morning, everyone. And welcome to Fortis’ third 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 various CEOs of our certain subsidiaries - or actually all of our subsidiaries today. Before I 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 Q3 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. We have accomplished a lot this quarter and so far this year. On February 9, we announced the acquisition of ITC and 248 days later we closed the ITC acquisition on October 14. In fact, we close the transaction just 132 days after all state regulatory filings were made. This transaction further diversifies our business and positions us for continued growth. The acquisition of ITC is the largest in the history of Fortis dramatically increasing our North American footprint. We remain confident that the transaction will be nicely accretive to earnings per share in 2017. I have been asked lately about the timing of another acquisition. We are proud of our acquisition record and the value creation has bought to our shareholders. We have a well accepted business model and strong acquisition framework and we’ll consider and pursue utilities that align with this. Having said that you shouldn’t expect another acquisition anytime soon. We need to integrate ITC and have a full-year of earnings to illustrate the benefits of the transaction. M&A activity in the medium to long-term will need of course to complement our portfolio and be accretive to earnings per share. A condition in our agreement to acquire ITC was to list our shares on the New York stock exchange. We had been considering listing on the New York stock exchange for sometime and the structure of this transaction with shares forming a portion of the consideration gave us that opportunity. On October 14, under the ticker symbol FTS Fortis listed on NYSE. It was the largest international listing by market cap on the exchange and the second largest listing overall so far this year. We did hold a number of activities around our listing with a few different objectives including creating some excitement within our own organization for this very important milestone which was the result of a long-term success in growth of Fortis. Increasing volume, share and brand with the media and continuing our broaden engagement strategy with the investment community. Today, our footprint in North America expands in nine U.S. states, five Canadian provinces and three Caribbean countries with over 800,000 employees positioning forward as the leader in the North American regulated electric and gas utility business, with a focus primarily on transmission and distribution. The addition of ITC to our portfolio of utilities provides a strong platform in the electric transmission sector in North America and we are extremely well positioned to capitalize on and contribute to the infrastructure investment required to maintain, improve and secure a transmission grid in the United States. Our acquisition track record speaks for itself. Our business has grown from under $5 billion in assets in 2004 to almost $47 billion today with the acquisitions of our FortisBC, FortisAlberta, Central Hudson, UNS Energy Corporation and ITC utilities. We have created a company with tremendous economic geographic and regulatory diversity, while at the same time delivering superior shareholder returns. We always seek to maintain constructive regulatory relationships. We believe this is a key strength. Over the past year, we have successfully navigated a number of significant regulatory proceedings, providing regulatory stability in the near-term. Our base capital program will be at approximately $8 billion over the next three years and approximately $13 billion over the five-year period to 2021. Additionally, we will continue to pursue opportunities beyond our base capital program with each of our utility seeking incremental opportunities within their franchise regions. Our base capital program allows us to continue to target 6% average annual dividend growth through 2021 and continue our record for the longest consecutive dividend increases for a public company in Canada. In September, our Board of Directors declared a fourth quarter 2016 dividend up $0.40 per common share, an increase of approximately 7% from $0.375 paid in the third quarter of 2016. Turning to Q3, we are pleased to report another quarter of strong performance. We made significant progress on key regulatory proceedings, advanced our capital projects and had strong financial results. Today, we are going to spend some time discussing our new five-year capital forecast including ITC to provide visibility on our growth through 2021. Capital expenditures over the forecast period totaled approximately $13 billion, consisting of highly executable low risk and diversified projects. Our five-year capital program consist of several major capital projects including regional transmission projects at ITC and system capacity and pipeline upgrades of FortisBC Energy. Capital spending at ITC is expected to be approximately $3.6 billion or 28% of the consolidated five-year capital program. Fortis like most utilities has a declining capital budget curve in the outer years of its five-year capital program. This reflects the inherent challenges we are projecting capital projects over a five-year horizon. So while we have rollout our five-year forecast as we have traditionally done in the past, we are focused on measuring ourselves against delivering on the three-year capital forecast and rate base growth. Overall, our capital program is largely focused on transmission and distribution across our utilities and as reflective of our ongoing capital needs in each business to continue to provide safe, reliable and cost effective energy service to our customers. For 2016, consolidated mid-year rate base is expected to increase by nearly $7 billion to over $24 billion due to the acquisition of ITC. Consolidated mid-year rate base is projected to approach nearly $30 billion in 2021. The three-year outlook supports a mid-year rate base CAGR of 5.3% rate base growth from $24 billion in 2016 including ITC to $28 billion in 2019. As a result of the declining capital spend the five-year mid year rate base CAGR is 4.1%. If we were to sustain our current base capital annual program at a run rate of approximately $2.9 billion annually, the three-year mid-year rate base CAGR through 2019 would increase by approximately 40 basis points to 5.7% and the five-year mid year rate base CAGR through 2021 would increase by approximately a 100 basis points to 5.1%. Our consolidated mid-year rate base does not include construction work in progress or CWIP, previously ITC had included CWIP in their calculation of mid-year rate base, but Fortis does not, so we have aligned the methodology. Through September 30, 2016 we’ve invested $1.4 billion in capital projects. Capital expenditures for full-year 2016 are forecast to be approximately $2.1 billion and increase of $200 million from the original forecast of $1.9 billion. The increase is primarily due to expected capital investments at ITC from the date of acquisition. Capital expenditures at FortisAlberta for 2016 are expected to be approximately $40 million lower than the original forecast of $441 million primarily due to lower Alberta Electric System Operator contributions and as a result of the current economic downturn in Alberta. Our capital expenditures for 2016 at UNS Energy are expected to be higher than the original forecast primarily due to the purchase of remaining interest in Springerville Unit 1 for US$85 million in September 2016 as part of a settlement agreement with the third-party owners. Well not included in our base plan, we are pursuing additional investment opportunities in our existing service territories. Major opportunities include LNG and transmission among others. FortisBC Energy's proposed pipeline expansion project for Woodfibre LNG continues to progress. The project is conditional on Woodfibre LNG proceeding with its LNG export facility. The potential pipeline expansion as an estimated total project cost of up to $600 million and is not currently reflected in our base capital plan. Woodfibre is expected to make a final investment decision this year and assuming a positive decision it will be completed in 2020. If this project proceed it could increase our three-year rate base growth rate closer to 6%. We are also pursuing the ITC Lake Erie Connector project which is proposed long-term contract to transmission line that would link the Ontario and PJM grids. We are currently in a process of engaging with the potential offtakers to secure transmission service agreement. We also have other significant opportunities including our transmission investment opportunities at ITC, investment at New York Transco to address the electric transmission constraints in New York and the Wataynikaneyap transmission line to connect remote First Nations communities in Ontario. I’ll now turn the call over to Karl for an update on our Q3 performance and outlook.

[Karl Smith:]

Thanks Barry. Good morning, everyone. As Barry mentioned, our third quarter 2016 financial results were strong and also in line with our expectations. Adjusted earnings for the quarter of $154 million was higher by $9 million or 6% compared to the same quarter last year. Adjusted earnings per share of $0.54 for the quarter was higher by $0.02 or nearly 4%. On a year-to-date basis, adjusted earnings of $475 million was higher by $28 million or over 6% and earnings per share was higher by $0.06 reaching a $1.67. Cash flow from operations of $1.4 billion year-to-date increased approximately 10% over the same period in 2015 due to higher cash earnings and favorable changes in working capital. During the quarter, our subsidiaries raised $225 million of long-term debt including $150 million of unsecured debentures at FortisAlberta at a rate of 3.34%. In October, we issued approximately $114 million Fortis common shares in connection with the ITC acquisition and now have approximately 400 million common shares outstanding. Debt financing from the transaction included US$2 billion of unsecured notes issued in October comprised of $500 million at five-year notes at 2.1% and US$1.5 billion at 10-year notes at 3.055%. As you can see from the waterfall chart, adjusted earnings per share for the quarter reflects strong performance from most of our regulated utilities and contribution from Aitken Creek. Performance was driven by favorable contribution from UNS largely due to the settlement of Springerville Unit 1 matters in the third quarter. That resulted in $10 million in after tax operating cost reimbursements which equates to about $0.03 per common share. These operating costs has been expensed in prior quarters. Earnings were tempered this quarter at FortisAlberta reflecting the economic downturn in the province and $2 million negative adjustments related to the recent generic cost of capital decision. The elimination of the contribution of operating earnings from the commercial real estate and hotel assets due to their sale in 2015 dampen earnings growth this quarter compared to last year and impacted earnings per share by about $0.02. Corporate costs and an increase in the weighted average number of common shares outstanding each had a $0.01 negative impact on earnings per share for the quarter. Moving on to the next slide, a somewhat similar story plays out for the nine months ended September 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 higher earnings at our regulated utilities driven by UNS mainly as a result of the Springerville Unit 1 settlement, contributions from Aitken Creek and from the Waneta Expansion. Earnings were tempered year-to-date at FortisAlberta due to the economic downturn in that province and the $2 million negative adjustment related to the GCOC decision. Additionally, the sale of commercial real estate and hotel assets in 2015 tempered earnings per share growth year-over-year. The utilization of the dividend reinvestment plan program increased the number of outstanding common shares and reduced earnings per share by $0.04 for the year-to-date period. I wanted to briefly go through the highlights of ITC’s third quarter results which were also filed this morning. For the three months ended September 30, 2016 net income at ITC was approximately US$50 million. This is $16 million lower compared to the same period in 2015 and is largely driven by additional after tax impacts related to the MISO based ROE refund liability and transaction related expenses. As from these items net income at ITC would have increased approximately US$13 million quarter-over-quarter primarily as a result of higher rate base. For the nine months ended September 30, net income at ITC was approximately US$185 million. This is $20 million lower compared to the same period in 2015 and was largely driven by additional after tax impacts related to the MISO based ROE refund liability and transaction related expenses. As from these items net income at ITC would have increased approximately $34 million over the nine-month period last year, primarily as a result of higher rate base. In October, subsequent to the completion of the acquisition Standard & Poor's reaffirmed the credit ratings of ITC Holdings and its operating companies and revised the outlook to stable from negative. Capital investments for 2016 are on track and reflect US$561 million invested through September 30, 2016. Our improving cash flow metrics driven by increasing earnings and our current capital structure continue to support our financial capacity and our investment grade credit ratings. Our consolidated credit facilities totaled $3.8 billion excluding ITC of which $2.2 billion was unused at the end of the third quarter. On a pro forma basis our consolidated credit facilities totaled $5.1 billion including ITC of which $3.2 billion was unused at the end of the third quarter. Our financial strength and borrowing capacity positions us well to fund both new investment opportunities and organic growth. As expected on October 2016 following the completion of the acquisition of ITC. DBRS revised our unsecured debt credit rating to BBB high from A low and revised its outlook to stable from under review with negative implications. In addition S&P affirmed our long-term corporate rating at A minus and unsecured debt credit rating at BBB plus and revised its outlook to stable from negative. In September Moody's initiated coverage of Fortis and assigned an issuer credit rating of Baa3 and an unsecured debt credit rating with Baa3 both with the stable outlook. Turning to regulatory matters, in August Tucson Electric Power reached the settlement agreement regarding the revenue requirement of this general rate application, which included and allowed ROE of 9.75% and common equity thickness of 50%, a final order from the Arizona Corporation Commission is expected in the fourth quarter. FortisBC Energy received the BCUC decision in August regarding the 2016 generic cost of capital proceeding, which maintained the allowed ROE of 8.75% and common equity thickness of 38.5%. In September, ITC received an order from FERC regarding the initial MISO Base ROE Complaint setting the base ROE at 10.32% with a high-end of the zone of reasonableness of 11.35% aligned with the Administrative Law Judge's initial decision. Lastly, FortisAlberta received an Alberta Utilities Commission decision in October regarding the 2016, 2017 generic cost of capital proceeding, which maintained the ROE of 8.3% for 2016 and increase the ROE to 8.5% for 2017, while decrease in the common equity thickness was 40% to 37% for 2016 and 2017. These key regulatory decisions received in 2016 provide regulatory stability in the near-term. As you can see on this chart, we have outlined the five-year forecast highlights. While we have discussed many of the items listed. We'd like to point out that from a liquidity perspective we expect consolidated unused credit facilities to be $3.4 billion on average over the forecast period and fixed-term debt maturities and repayments averaging $450 million annually. In terms of capital structure, our forecast supports investment grade credit ratings with equity levels averaging 36%. Additionally, in terms of foreign exchange, the forecast assumes a U.S. dollar to Canadian dollar exchange rate of $1.30. Given the size and scale of the business today, we have segmented $13 billion of capital expenditures into the following segments for the period 2017 to 2021. Regulated-Independent Transmission which is ITC, Regulated-US Electric & Gas utilities, Regulated-Canadian & Caribbean utilities and finally other energy infrastructure. Over the five-year period on average, the approximate breakdown of the total capital spending is expected to be 58% in sustaining capital expenditures, 30% to meet customer growth and 12% for general plans and other assets. ITC’s mid-year rate base is forecasted to increase from $6.9 billion in 2016 to $8.4 billion in 2019, reflecting a three-year CAGR of 6.8%. For reference, the slide illustrates the impact of bonus depreciation on mid-year rate base of ITC, which reduces mid-year rate base by approximately $400 million on average annually over the five-year forecast period. This concludes my remarks and I’ll now turn the call back to Barry.

[Barry Perry:]

Thank you, Karl. While we are very pleased with our progress this year, we remain firmly focused on continuing to achieve strong operational and financial performance in 2016 and we will continue to execute on our strategy, integrate ITC and maintain investment grade credit ratings. In closing, Fortis is well positioned to deliver on our commitments to customers and shareholders given our highly diversified virtually 100% regulated business. We will continue to advance our highly executable base capital program against a backdrop of a period of regulatory stability. This coupled with our 6% average annual dividend growth guidance through 2021 and strong track record of growth both organically and by acquisition will position Fortis to maintain its track record of superior returns to shareholders. And I'll now turn the call back over to Janet.

[Janet Craig:]

Thanks Barry. This concludes the presentation. And at this time, we’d like to open the call to address questions from the investment community. So Chris?

[Operator:]

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer period. [Operator Instructions] Our first question comes from the line of Ben Pham of BMO Capital Markets. Your line is open.

[Benjamin Pham:]

Thanks. Good morning.

[Barry Perry:]

Good morning.

[Benjamin Pham:]

I wanted to ask about your commentary on acquisitions and your focuses on ITC integration and it seems like unless something really compelling comes up, we won’t be seeing anything for at least a year. I’m just wondering in terms of potential acquisitions. Other than EPS accretion, are you thinking about something maybe more strategic that could benefit you or you think when you look at your footprint today from our strategic perspective here you are well-positioned going forward?

[Barry Perry:]

I think we are well-positioned Ben we've created a very diversified company with primarily wires business plus a big gas LDC business. That's what we've done here. There's obviously in the future once we're comfortable with the ITC transaction opportunities to continue to grow the company. Our model is pretty scalable model where we have this very small head office and substantially autonomous subsidiary. So I would think that we would start to look at the regions that we already have businesses in an ideal world that's where you focus your attention. It's not necessary, but just from a simplicity perspective that that's we would look initially, but there are very few opportunities remaining. I continue to stress that is less than 40 investor on utilities remaining in the United States. Some of them are very large, some are very small. So there's only a handful that make some sense for Fortis. We're not going to be spending a whole lot of time on that in the next little while, but just people have to keep that in context that there are not a lot of opportunities remaining in North America.

[Benjamin Pham:]

Okay. And you mentioned TND is the focus and really limited commentary on generation are there maybe some rate base opportunities? Does that more the returns aren't as attractive over different risk profiles or is that maybe perhaps more of competitive issues that could come up later on when we're looking at additional acquisitions in the future?

[Barry Perry:]

I just think Fortis is started with a distribution business in new plan power, electricity business. Clearly our Canadian utilities are mostly wires businesses and we have a large gas LDC in British Columbia obviously, so a lot of it's the history of the company and our expertise in that area. We like being close to the customer frankly and wires business gets a little closer to the customer. So that doesn't mean that we won't look at a vertically integrated utility in the future that has a rate generation embedded in rate base, but if we had a choice I think we'd be buying a wires business or a gas LDC. And those are the businesses that attract the highest valuation in our sectors, so are the most expensive the buy for the downside of that, but it also shows the value of what we would already own at Fortis as well.

[Benjamin Pham:]

Okay. Thanks. Thank you. That’s helpful.

[Barry Perry:]

Thanks Ben.

[Operator:]

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

[Robert Kwan:]

Good morning. Just with respect to the future growth and citing things like the various infrastructure opportunities across North America. Outside of some of the things that you listed, can you just talk about maybe the top three most likely things taking into account and also your ability to compete and execute?

[Barry Perry:]

Rob. I really would just want to focus on the things that we are focused on. I'm not running after every opportunity in North America. We've got a lot going on in our service territories and work at ITC is doing around Erie Connector some other work in the Midwest. A lot of new win generation is being installed and I would expect we'll have incremental growth that will come from transmission perspective from that. We're very excited about our BC business both the Woodfibre opportunity as well as our Tilbury site there. We were unsuccessful with Hawaii, obviously because of next Erie deal falling apart there and the governor really not wanting LNG in Hawaii, but we were having conversation with a number of parties to look at expansion of our Tilbury site in the BC. And over the next number of years I could see us putting some significant capital work there. And finally, the other project I would highlight is the Wataynikaneyap project in Ontario. This is a $1.2 billion approximately project, it's a partnership between the First Nations, ourselves and another party and we are very optimistic about that project proceeding to go through its various steps. So we have lots on our plate, we are running a good base business, big capital project, but also pursuing these other opportunities that can add to our overall growth rate. So I really say that’s where our focus is and clearly pushing our Arizona team to continue to look at solar, utility scale solar and hopefully we'll get some positive progress there in the future as well. But other than that, we're just hunkered down.

[Robert Kwan:]

So that fair to say Barry. Outside of things that you’ve identified on the map obviously the world can change as we go forward here, but it's unlikely that there's something that's going to be particularly material that that would come up outside of kind of…

[Barry Perry:]

Something that happens in one of – I’ll let this something that happens Robert in one of our service territories that is exciting to us that maybe government privatize assets and we compete for those within the service territories that we operate in - maybe regulated pipelines become available in BC for example that will be interesting to us on the gas side. These are things we'll pursue that are within our footprint of the utilities that we already own. So but it's very unlikely that we go to another jurisdiction to buy a pipeline that we don't have already existing franchise in for example right.

[Robert Kwan:]

For sure, okay and if I can just finish on acquisitions broadly whether it's of utility assets or contracted type assets. Just as you get larger though it becomes harder to grow and with ITC especially with this strong ROE even with some of the MISO changes in the equity thickness. With all of that being so high it's also tough to improve the return on invested capital. So I'm just wondering is there any thought of recycling capital i.e. monetizing say slower growing assets in your total portfolio?

[Barry Perry:]

No, no. We like the utilities that we own, clearly if anyone not to make an offer for any part of our business. We’re a big public company we've got to consider these things, but we won't be listing for sale any of our utility businesses, hard enough to buy utility these days. I can imagine selling one, but again that there are acquirers out there were out looking for businesses and I'm sure other utilities are looking for businesses as well. So I wouldn't be surprised if someone make us an offer at some point in time that will have to consider but it won't be initiated by Fortis.

[Robert Kwan:]

Maybe a minority interest sell down, would that be of interest.

[Barry Perry:]

I don’t think so, it would have to be part of some larger transaction that we would like to do in the future beyond the sort of integration of ITC if a transaction of a size that we needed to bring in a minority partner to make it work, we would consider that again our experience with GIC so far has been fabulous. So I'll tell you that we're very impressed by those folks and so that model could be employed again in the future if the transaction required it.

[Robert Kwan:]

That's great. Thank you very much.

[Barry Perry:]

Thanks Robert.

[Operator:]

Our next question comes from on line of Linda Ezergailis of TD Securities. You may proceed with your question.

[Linda Ezergailis:]

Good morning. I have a bit of a more specific question this morning with respect to one of your existing jurisdictions Alberta. As you're probably aware the first renewable procurement details have now been released. And instead of including some merchant component and it's a contract for differences so effectively that would be contracted power. Is that something that - at first blush Fortis might be interested in and can you just comment on your appetite for participating in Alberta?

[Barry Perry:]

Well, I will say that Linda, renewable generation for example is something that we'd like to do a little more off. It’s not going to be a large part of our portfolio because of the - some of the focus on wires and gas LDC, but it would be an area that we would like to go. So for example with contracted gas generation in Alberta is not something we like we would do, but if we could find a way to do contracted win for example we would have a look at although I would say is very competitive and getting into that business initially given how mature it’s become, it’s going to be tough for a company like ourselves to be competitive in that area.

[Linda Ezergailis:]

Would you consider then buying our partnering or I'm assuming you don’t have any…

[Barry Perry:]

I must say it’s not a big part of our strategy Linda. We'll look at things, but our primary strategy really is around that regulated utility business and yes we like to see some progress on our sort of renewable portfolio, things like the Waneta hydroelectric plant. Those kind of things will run at pretty hard, if they can come up in our service territory. But we are spending a little timing exploring the possibilities in Alberta I would say that.

[Linda Ezergailis:]

Okay, great. Thank you.

[Operator:]

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

[Robert Catellier:]

Hi. Just like a little bit more clarity on the messaging surrounding your rate base growth rates. On Page 20, you've illustrated three and five-year CAGR’s, but you also have common shares that holding the base capital steady and what impact that has in lifting your CAGR? So my question really is, if you could help quantify how much of the projects that aren't included already in your rate base, you’d have to secure to achieve those higher numbers and some of the key sensitivities and actually getting there. I know larger projects are lumpy and maybe have a little bit more subjectivity to them. But can you just help us to get from the existing CAGR’s to maybe the upper end?

[Barry Perry:]

Yes. Well, I'll take a stab initially and Karl can jump in behind me. If you look at our capital chart on Slide 9, it shows a five-year bar chart on CapEx and the first two years are at $2.9 billion and then we drop off to $2.4 billion in year three. So that 5.3% CAGR is reflective of what the impact of that CapEx is on our rate base, okay. What we're saying is that, if that curve was held for the three years if the bars were all showing $2.9 billion, so additional $500 million of CapEx essentially in year three then we’d have that 5.3% would be 5.7%. And I pointed out in my note that for example, if we secure the Woodfibre opportunity, the pipeline expansion that’s a $600 million project and that completed, for example mostly completed by the end of 2019 that would mean that our rate base growth for the three years would be 5.7% approximately close to 6%.

[Robert Catellier:]

Yes. I think we're talking the same line, but that's actually what I'm getting at, you identified the capital associated with one project, but I wondered if there was an aggregate on risk bucket or bucket of capital.

[Barry Perry:]

We are trending out there, we’re sort of like some other company put all the list of CapEx down of all the potential projects we're pursuing and then do a probability weighted outcome. We tend to just say this is our CapEx that our utilities are telling us. That’s the base program that shows 5.3% growth in the next three years. And then we work hard on other projects and that would add to that. So this sort of base program is highly executable, very unlikely that it comes in maybe less than that and then hopefully we can secure some of these other project. And as we get down to the other years, our utilities will also be reforecasting and likely there is going to be an increase in their CapEx. If you look at historically, we’ve always under estimated our capital forecast in those outer years and because of the nature of planning and how the budgets all come together. So base plan, low risk almost countonable numbers and then you add to it the reforecasting plus the new projects that we secure.

[Karl Smith:]

So Robert, once you get this fast sit down doing the math, you’ll find it’s relatively straightforward and this is our attempt to assist you with some sensitivities around our rate base growth. That’s why we’re giving you some impression of the size of these other potential projects. So Woodfibre we've got the $600 million number, Barry mentioned Wataynikaneyap have $1.2 billion, Lake Erie ITC you talk about something in the area of a $1 billion. So rather than get into the probabilistic approach that some others use, we’re just attempting to help you with the math a little bit.

[Robert Catellier:]

Fair enough. It does seem though like I mean clearly the base plan was highly executable, but it also doesn't seem like much of a stretch to get to that $2.9 billion further opening in the planning horizon?

[Barry Perry:]

Yes. Rob, you said it.

[Karl Smith:]

We’ll let you drive your own conclusions there.

[Robert Catellier:]

And then just sort of a housekeeping thing here, I didn't quite catch the sustaining capital percentage of your capital plan, was it 58%?

[Karl Smith:]

58%.

[Robert Catellier:]

Yes. Okay, thank you.

[Barry Perry:]

You’re welcome.

[Operator:]

Our next question comes from Robe Hope of ScotiaBank. Please proceed with your question.

[Robert Hope:]

Good morning. Thank you. Just two questions. First, a little housekeeping, your rate base forecast showed the election of bonus depreciation, is this something that you look to potentially challenge and if so what are the steps there?

[Barry Perry:]

We're looking at it. Yes, mostly utilities in the U.S. have elected to do it, some as not, but we wanted to show you the conservative position clearly and that what we shown there.

[Robert Hope:]

All right. Thank you. And then as a follow-up just back on the M&A theme, if there was a municipally owned utility that could sell potentially a minority stake would you look to potentially look at that if rather than a whole stake, trying harder if you will?

[Barry Perry:]

Idea unlikely, I think the bigger they are they would be very unlikely that we would look at a minority position. Smaller utilities in our footprint that we already have in Ontario I think we'd be open to – if you're looking at something like a large city owned utility you would like to have control to move forward with that.

[Robert Hope:]

And then if you were able to have control would that be something you'd be interested in?

[Barry Perry:]

I wouldn't want to say at this point.

[Robert Hope:]

All right. That's it for me. Thank you.

[Operator:]

Our next question comes from David Quezada of Raymond James. You may proceed with your question.

[David Quezada:]

Just I guess FortisAlberta I think there is a dimension of higher operating expenses in the quarter, just wondering do you have any color on what drove that and it's that something we should expect going forward?

[Karl Smith:]

Yes, there's no one items that stands out David to be honest with you and I mean in context because the revenue was sort of flat lining. I mean generally speaking in the last several years the increases in revenue and operating cost would have been in tandem, but it’s not significant, they continue to focus on because they're in the PBR regime to keep their cost well managed and they are doing that. And the amount in the quarter is not that significant year-over-year in terms of decline anyway.

[David Quezada:]

Okay, great. That’s helpful. Thank you. And then I guess maybe a follow-up to the renewable procurement going on in Alberta right now. Appreciate that you are largely a distribution in Alberta right now I think entirely. Do you see any opportunities there outside of the generation aspect already connecting those renewable sources into the grid? And how do you envision the I guess increased variability from those renewable sources impacting your business there?

[Barry Perry:]

I think there's a little bit maybe Phonse -- are you on the line? Phonse, so you just can comment on that?

[Phonse Delaney:]

Yes. I can give few comments on that. Just a little bit of color to the first question with respect to operating costs. A good portion of the third quarter operating cost being over last year was driven by and we've had a pretty bad lightning seasonal here sort of summer, so drove up some of our overtime costs as well the timing on our vegetation management program this year lumped a fair amount of our vegetation management expense into the third quarter. So these things will even out over the course of the years. With respect to the renewables in Alberta, we're pursuing a few opportunities mostly on the distribution and trends we are working with the government to the microgen regulation ends this year and under that regulation distribution companies are to invest in new renewable generating sources that are less than one megawatt. We did full investment. And so we're working with the government to look at that microgen regulation for renewables and see whether it can be extended to a larger removeable sources something up to say around five megawatts as well. We're working with some of the wind turbine companies and looking at the distribution systems that they have under sites and whether we could partner with them to operate those systems or perhaps even eventually own those systems and as well on the energy efficiency side of the covenants initially seen Alberta where we have a fairly extensive LED street lighting program happening right now we see extending into the future. So those are sort of angles we're coming at.

[David Quezada:]

Okay, great. That’s very helpful. Thank you. That's all I had.

[Operator:]

Our next question comes from the line of Jeremy Rosenfield of Industrial Alliance. Your line is open.

[Jeremy Rosenfield:]

Thanks. I think the question that Barry you’ve addressed previously off the top though you mentioned about the limited number of future M&A opportunities in North America. And so I’m thinking you now have a very big financial partner GIC as interest globally. Do you think that there's an opportunity or a play for Fortis to become more of a global utility holding company and looking for opportunities outside of North America and other jurisdictions?

[Barry Perry:]

Yes, that probably is, but it's not one that I'm taking frankly. We believe over there the near medium-term we're going to continue to be able to execute our model in North America despite the fact that there's only a handful of opportunities, but frankly I think we believe our model will be able to attract a couple more of those opportunities going forward. So I'm not adverse to doing more business with GIC or other firms like that, some of the large Canadian pension funds are also good partners to have and that's a possibility. But I don't think at this point, we need to extend our reach beyond North America.

[Jeremy Rosenfield:]

Okay. Great. Thanks.

[Operator:]

[Operator Instructions] Our next question comes from the line of Andrew Kuske of Credit Suisse. You may proceed with your question.

[Andrew Kuske:]

Thank you. Good morning.

[Barry Perry:]

Good morning.

[Andrew Kuske:]

I guess the question is to Barry and just ahead of Edison next week. How do you think about just your profile given the magnitude of the ITC deal when you look year-over-year just the level of interest you anticipate next week for us to say what you've seen in past years?

[Barry Perry:]

I think we have dramatically increased our profile. Having $5 billion of common equity put into the market related to the share exchange with ITC, it's been significant. We are having a lot of good discussions with ITC’s shareholders. We are all anxious obviously to see the shareholdings come out, post the transaction. And one thing is in the U.S. is a much more visible approach than we have in Canada. It’s hard to know who owns a stock in Canada, but the U.S. model is much more transparent and we're looking forward to seeing that data. But we have a good slat to meeting set up and really kudos to Janet and her team frankly for increasing our exposure on the IR side in North America and we're going to continue doing that going forward. And I think ITC helps that tremendously frankly.

[Andrew Kuske:]

Okay. That's helpful. And then maybe a question for Karl. Could you just maybe give us a bit of a breakdown on your debt on the fixed versus floating and then the amount of the debt that just passed through, I mean passed through by way of your regulated asset basis and…

[Karl Smith:]

Andrew, the vast majority of our debt is fixed term and that's always been our approach. I mean obviously scale matters what it comes to when you translate your variable debt into your fixed debt. And again with respect to the regulatory nature of that other than the holding company level. Practically all of our debt is a flow through for regulator rate purposes, I mean the timing in terms of the true up and catch up maybe take a year not much longer than that to actually get trued up for the regulators. And we'll continue down that path. We have to do a little bit of financing over the next year I suspect by explaining few things up, but it won’t be material and our approach will always be to have a fixed as much as we possibly can.

[Barry Perry:]

I would say Andrew just our maturity schedule should give you a sense that we're in really good shape because on average – and this is consolidated entire company regulated and non-regulated debt I'll call it and $450 million a year for the next five years. So we're in really good place in terms of a maturity schedule on a long-term debt. And we tend to wait around with our short-term debt. We just push it out the doors very quickly once we get it up to a certain level that we can get a sizable economic transaction out there.

[Andrew Kuske:]

That's great. Thank you.

[Barry Perry:]

Thank you. End of Q&A

[Operator:]

Thank you. As there are no further questions, I would like to turn the call back to Mr. Perry for any closing remarks.

[Barry Perry:]

I just want to say thank you for everyone for participating today and I will talk to you on the next call. Thank you.

[Operator:]

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