Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian Utilities Ltd (CDUAF, Financial) reported strong adjusted earnings of $117 million for Q2 2024, a 17% increase from the same period last year.
- ATCO Energy Systems saw a 14% increase in adjusted earnings, driven by rate base growth and higher allowed ROE.
- ATCO EnPower's adjusted earnings rose to $18 million, benefiting from a settlement related to wind turbine availability and increased generation.
- ATCO Australia maintained consistent adjusted earnings of $17 million, aided by favorable changes to PPA power pricing and cost efficiencies.
- The company is making significant progress on growth priorities, including the Yellowhead Mainline project and the Central East Transfer-Out electric transmission project.
Negative Points
- The Alberta Utilities Commission's decision on electric and gas distribution performance-based regulation plans is being appealed, indicating regulatory challenges.
- Wildfires in Alberta have impacted operations, particularly in the historic Mountain community of Jasper.
- The hydrogen project faces bottlenecks related to rail transport and regulatory uncertainties, affecting both domestic and export opportunities.
- The decision to suspend the DRIP program reflects low participation and the dilutive impact on share price, indicating potential investor concerns.
- Lower CPI expectations in Australia have offset some of the benefits from favorable changes to PPA power pricing and cost efficiencies.
Q & A Highlights
Q: Just on the hydrogen project. You've got a letter of intent, when would you be in a position to share who the partners are outlined sort of how you see this coming to the formation of the project? And are you leaning towards more an export for the offtake or is it a domestic use case at this point?
A: Hi Mark, Bob here. I want to be able to tell you who the party is, but right now, it's still confidential. We really were focusing on bringing a partner in who brings operational capabilities on the hydrogen side. Regarding domestic and export, we are pursuing both. We are currently looking at the export side because there are a lot of auctions proceeding in the Southeast Asia market, and we want to participate in that. However, we are also progressing domestic opportunities.
Q: What holds you back from communicating who the operating partner is? Is it because you haven't finalized all the documentation and the structure of the arrangement, or is there something else?
A: No, it's more that our partner has asked us to align on how we make this announcement. This is quite recent, like in the last couple of weeks. So, we hope to inform everybody here in the very near future.
Q: Turning to the access arrangement in Australia, given your interactions as you go through this process now in the last couple of months, where are you seeing alignment on which items, and what aspects of the initial provisional decision are you still struggling to get alignment on?
A: Thanks, Mark. It's Katie. We continue to have discussions on operating costs, accelerated depreciation, and demand forecasts. We've had an open dialogue with the regulator and exchanged a lot of information. I believe there is a solution that will come somewhere between our original submission and the draft response. We expect a positive decision around November.
Q: Can you elaborate on the restructuring? Any financial impact, whether it's near-term costs or medium to longer-term earnings benefits from those efforts?
A: Sure. We focused on driving cost efficiencies and took a hard look at our corporate overhead structure across our business units and at the corporate level. We have no disclosure on the total amount of severance and restructuring for the quarter, with a small amount anticipated still to come. In terms of ongoing cost savings, we look to benefit from these restructuring initiatives in future years while setting ourselves up with the right team to drive growth.
Q: Can you discuss what remains as the bottleneck in signing the off-taker for the hydrogen project, both on a domestic and export side?
A: Hi Maurice, Bob here. On the domestic side, the bottleneck is the need for certainty on policies and programs in Canada. The ITC has been helpful, but there's still uncertainty about the future of the clean fuel standard. For export, it's about getting the Asian market comfortable that Canada can provide the product, which is tied to resolving rail issues.
Q: Is the rail issue purely regulatory, or is it about the availability of trains and ships? Can you elaborate on that?
A: The rail issue involves capital improvements needed to transport ammonia safely and addressing indemnity and liability concerns. We are pushing to resolve these issues in 2024 to participate in auctions this year.
Q: Regarding the decision to suspend the DRIP in July, what has changed from when you reinitiated the program to now?
A: We looked at the participation, which was very low, and the dilutive impact based on the share price. Given these factors, we decided to suspend the DRIP at the moment.
Q: With the 10-year bond rate hitting 3% in Canada, can you remind us at what level does the ROE get impacted next year? And does this only affect your non-PBR utility assets?
A: Long-term bond rates have come down since November when the 2024 ROE was set. The commission will establish 2025's ROE in November this year, and if bond rates stay as they are, the ROE would come down. The generic cost of capital decision applies across all our regulated utilities, including electric and gas distribution and transmission.
Q: There was a reference to feeling good about the 4% to 5% rate base growth. Is this more of a long-term outcome, or is there an accelerated CapEx cycle you can see?
A: We continue to see strong growth in Alberta and increased demand for both electricity and gas capacity. We are maintaining our guidance but feel very good about it. Our focus is on several opportunities, including the Yellowhead Mainline project.
Q: If the rate base growth goes to 5%, does that change the need for equity, and can you still self-fund your program?
A: In the near term, we do not anticipate needing equity issuance to fund our growth. Over the longer term, if we drive rate base growth to 5% plus, we will consider all available options, including equity, capital recycling, or other measures to fund that growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
