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Fortis, Inc. (NYSE:FTS)
Q1 2019 Earnings Call
May 1, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. My name is Jessa, and I'll be your conference operator today. Welcome to the Fortis First Quarter 2019 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. At that time, those with questions should be press * followed by the No. 1 on their telephone. If at any time during the conference, you need to reach an operator, please press *0.

At this time, I would like to turn the conference over to Stephanie Amaimo. Please go ahead, Ms. Amaimo.

Stephanie Amaimo -- Vice President, Investor Relations

Thanks, Jessa, and good morning, everyone. And welcome to Fortis' first 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 CEOs 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 US GAAP financial measures in our 2019 first quarter MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to Barry.

Barry V. Perry -- President & Chief Executive Officer

Thank you, Stephanie, and good morning, everyone. Before getting into the quarter results, I wanted to take a moment to thank ITC's team for quickly and safely restoring power after blizzard conditions brought heavy snowfall, ice, and high winds to the Midwest. The storm damaged over 400 poles in Southern Minnesota and Northern Iowa last month. Fortunately, ITC was able to restore service to its customers within a few days.

2019 is off to a strong start. We continue to see strong growth in our regulated utility businesses. Financially and operationally, we've made strides positioning us well to execute on our goals for the year. Financially, adjusted EPS was CAD$0.74 for the quarter and was up CAD$0.04 compared to the previous year, reflecting 5.7% EPS growth. Operationally, in the quarter, we invested CAD$740 million at our utilities. These investments enhance the service we provide to our customers with an eye on delivering cleaner energy in a safe, reliable, and affordable manner. We remain on track to invest CAD$3.7 billion in 2019 and approximately CAD$17 billion over the next five years.

In Arizona, Tucson Electric Power, or TEP, filed a rate case on April 1st using a 2018 historical test year. TEP is seeking to recover its investments made since its last rate case, supporting customers in the transition to a cleaner energy future, including expansion of its wind, solar, and natural gas generation resources. Earlier this year, we announced that we had entered into an agreement with Columbia Power Corporation and Columbia Basin Trust to sell our 51% interest in the Waneta Expansion for approximately CAD$1 billion. During the quarter, we progressed through the sale process and we successfully closed the transaction on April 16. Lastly, in conjunction with the Waneta Expansion sale, we successfully settled a tender offer to repurchase US$400 million of the corporation's outstanding notes due to 2026.

At Fortis, we are committed to reducing our environmental footprint. During the quarter, three significant milestones were achieved to support this commitment. In March, TEP finalized its plans for construction of the US$370 million Oso Grande Wind Project. Construction of the 247-megawatt wind farm is expected to commence later this year and be online by the end of next year. Once completed, it will become TEP's largest renewable energy resource and generate enough power to supply nearly 100,000 homes.

This project is expected to increase TEP's renewable energy production to approximately 28% in 2021, well ahead of the existing state renewable goal of 15% by 2025, and bringing the utility close to a 30% goal planned to be achieved by 2030. Although we expect to meet our target well ahead of 2030, we are not stopping there. We will continue to pursue new initiatives to support the shift to a lower carbon economy for our customers, and we expect to be able to grow beyond the 30% previously targeted for 2030.

Turning to British Columbia, FortisBC announced a significant increase it its energy conservation and efficiency program over the next four years. The nearly CAD$370 million program will be focused on customer initiatives to lower energy use, emissions, and reduced energy bills. These expenditures will increase FortisBC's rate base over the four years. These conservation and efficiency enhancements are expected to decrease carbon dioxide emissions by 50,000 tons annually, which equates to taking close to 11,000 gasoline powered cars off the road.

A significant milestone was achieved in the Wataynikaneyap Power Project last month when the leave to construct was obtained from the Ontario Energy Board. Remaining milestones include finalization of environmental approvals, which are expected to be received later this year. The project is targeted to be completed in 2023 and will reduce greenhouse gas emissions associated with the diesel generation currently used by the communities.

We are confident in our ability to deliver on our CAD$17.3 billion capital plan for the period 2019-2023. 99% of our planned capital investments are in our regulated businesses. The plan consists of a diverse mix of highly executable low-risk projects needed to maintain an upgrade our existing infrastructure. This capital plan supports our 6-7% average annual rate-based growth and translates to over CAD$35 billion in rate base in 2023. We remain optimistic in our ability to grow our portfolio of utility businesses.

Our 45 years of dividend increases makes us a leader in dividend growth. Our strong growth profile coupled with our highly regulated businesses gives us confidence that we will continue this record and grow the dividend at an average annual growth rate of 6% through 2023.

I'll now turn the call over to Jocelyn for an update on our first quarter results.

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

Thank you, Barry, and good morning, everyone. For the first quarter, reported EPS of CAD$0.72 was CAD$0.05 lower than last year. This was largely due to a one-time CAD$30 million positive US tax adjustment in 2018 related to our filing of a consolidated state income tax return. Excluding one-time items, adjusted EPS of CAD$0.74 for the quarter was up CAD$0.04 compared to the previous year, reflecting a 4.7% EPS increase. Our utilities continued to execute on their capital plans, with CAD$740 million invested during the first quarter.

Now, turning to Slide 10, I'll take a look at the EPS growth on a segmented basis. First, strong performance at UNS and Central Hudson resulted in a CAD$0.03 EPS increase during the quarter. Higher sales at UNS Energy, as a result of colder temperatures, and the new rate order at Central Hudson were the key drivers of this increase. Central Hudson's results were also positive impacted by timing differences associated with the rate order and operating costs. These increases were partially offset by planned outage costs at UNS.

A higher US dollar to Canadian dollar foreign exchange rate favorably impacted the quarter. The average rate was CAD$1.33 this quarter, compared to CAD$1.26 in the first quarter last year. This increase resulted in a CAD$0.02 EPS increase. ITC contributed a CAD$0.01 increase to EPS during the quarter. This was driven by rate-based growth, partially offset by the reduced ROE independence incentive adder. Our Canadian and Caribbean utilities increased EPS by CAD$0.01, driven mainly by rate-based growth and higher electricity sales at Turks and Caicos. Sales at Turks and Caicos last year were impacted by Hurricane Irma.

Offsetting growth at our regulated utilities was a CAD$0.02 EPS decrease associated with our nonregulated energy infrastructure businesses. Realized margins were lower at Aitken Creek and lower rainfall decreased production in Belize. Lastly, there was a CAD$0.01 EPS decrease during the quarter due to a higher number of weighted average common shares as a result of our dividends reinvestment plan.

The funding plan outlined at Investor Day this past fall remains intact. The majority of the funding required to execute the five-year capital plan will come from cash flow -- our operating cash flows, drip proceeds, and debt financing at the regulated utilities. The ATM program remains available to provide additional financing flexibility.

As Barry discussed our recent sale of the Waneta hydro plant for approximately CAD$1 billion completed the asset sale components of our current capital funding plan. Net proceeds were used to pay down corporate short-term borrowings as well as repurchase a portion of the corporation's outstanding 3.055% note due in 2026. The repayment of holding company debt strengthens our balance sheet, improve our credit metrics, and further supports our investment grade credit ratings. Overall, we are pleased with the Waneta sale. We estimate our gain to be approximately CAD$415 million, and this gain is expected to recognized in the second quarter.

Turning to our 2019 regulatory outlook, there was a fair amount of regulatory activity during the first quarter. In March, FERC issued two notices of inquiry, which seek comment on its policies for determining the ROE used in setting rates and how to improve its transmission incentive policies to appropriately encourage the development of needed infrastructure to the benefit of our customers. ITC views the process as an opportunity to demonstrate the value of the independent transmission model as well as advocate for the appropriate incentives to drive needed investments.

With respect to the ROE inquiry FERC is providing an opportunity for all stakeholders, beyond those currently involved in New England or MISO transmission ROE litigations to comment on the new ROE methodology. We don't expect this will materially impact the MISO-based ROE complaint process, and we anticipate that FERC will issue and order later this year.

FortisBC filed its multiyear rate plan in March as the current term expires at the end of this year. The proposed plan seeks approval for a rate setting framework for 2020 through to 2024. Cost of capital is not included in its filing and we anticipate a decision in 2020.

As Barry mentioned, Tucson Electric Power filed its rate case April 1st. And turning to Slide 13, we wanted to spend some time on this filing. Current rates at TEP are based on a mid-2015 test year and do not include approximately US$700 million of rate-based investments at the utility since rates were last set. These investments were made to deliver safe and reliable service to our customers, meet increasing demand, and improve the sustainability of our generation portfolio, including the integration of over 1,000 megawatts of renewable resources scheduled to be on TEP's system by the end of 2020.

Additional requests include an ROE increase of 60 basis points to 10.35% and an equity thickness increase to 53%. This equates to a non-fuel revenue increase of US$115 million, or US$76 million net revenue increase after considering a reduction in fuel costs. The reduction in fuel cost is driven by our migration to a cleaner and more balanced resource portfolio. TEP's proposal translates into an average residential customer bill increase of approximately US$7.61 per month. Over the past 10 years, TEP has seen its rate base grow from US$1 billion to US$2.7 billion while keeping average customer rate increases consistently below inflation each year. We await a procedural schedule from the Arizona Corporations Commission to determine the timing of proceedings.

This concludes my remarks. I'll now turn the call back to Barry.

Barry V. Perry -- President & Chief Executive Officer

Thank you, Jocelyn. Fortis consists of well run utilities. We are now 99% regulated and we are one of the most diversified utility businesses in North America. Looking ahead, our growth profile is strong with over 7% rate-based growth expected over the next three years and 6% rate-based growth over the next five years. This supports our 6% average annual dividend growth guidance to 2023.

We continue to focus on growing our utility businesses. To summarize, through the first quarter, the following accomplishments positions us well for the remainder of 2019. We closed the Waneta Expansion sale for approximately CAD$1 billion, improved our credit metric outlook by using the Waneta proceeds to pay down corporate debt, including the CAD$400 million US repurchase of notes due in 2026, advanced the Wataynikaneyap Power Project by obtaining the leave to construct from the OEB, progressed our commitment to reduce our environmental footprint with the announcement of the Oso Grande Wind Project and the FortisBC Energy Conservation Efficiency Program, filed rate cases at TEP and FortisBC, and delivered strong EPS growth in the quarter.

I'll now turn the call back over to Stephanie.

Stephanie Amaimo -- Vice President, Investor Relations

Thank you, Barry. This concludes the presentation.

...

At this time, we'd like to open the call to address questions from the investment community.

Questions and Answers:

Operator

Thank you, ladies and gentlemen. We will now conduct a question-and-answer period. If you would like to now register a question, please press * followed by the No. 1 on your telephone. If your question has been answered and you'd like to withdraw your registration, please press the # sign. If you are using a speakerphone, please lift your handset before entering your request. One moment, please, for the first question. Your first question comes from the line of Robert Kwan from RBC Capital Markets. Please go ahead.

Robert Kwan -- RBC Capital Markets -- Analyst

Good morning. Maybe just --

Barry V. Perry -- President & Chief Executive Officer

[Crosstalk] Good morning, Robert.

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

Good morning.

Robert Kwan -- RBC Capital Markets -- Analyst

Morning. Maybe just to start with some of the opportunities that are potentially in front of you in BC, and just wondering if there's an update on Woodfibre LNG -- and I guess generally, just thoughts given the gas supply issues we had this past winter.

Barry V. Perry -- President & Chief Executive Officer

Thank you, Robert, for your question. We continue to work with Woodfibre. They obviously have asked us to build a pipeline to sell them -- to get them some gas for their facility. They're providing us some funds to do permitting, procurement, design of the pipeline. So, we continue to work with them on that. And frankly, I'm probably anxious for them to make a final investment decisions, but that's not yet been done. So, we're hopeful that will come soon. And --

Robert Kwan -- RBC Capital Markets -- Analyst

[Crosstalk] I guess --

Barry V. Perry -- President & Chief Executive Officer

-- in terms of the, I guess, resilience and reliability of the gas network I'm -- Roger Dall'Antonia is here, our CEO of FortisBC. He was a fellow that handled that crisis as a result of the Enbridge pipeline rupture late last year. Did a great job for us. So, he's here for our annual meeting tomorrow. And I'll let Roger comment on that.

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Thanks, Barry. Morning, Robert. As far as Woodfibre and the Enbridge situation, Woodfibre holds their capacity, and they haven't raised any issues with that. So, we don't see that as a concern. And we are working with Enbridge, just generally on how we're addressing resiliency going forward.

Robert Kwan -- RBC Capital Markets -- Analyst

Okay. I guess, just with that, I'm also wondering if Woodfibre went ahead, are there any discussions with the province, or the BCUC? And really, upside I guess, with strengthening, whether that's actually getting something done additionally at Tilbury, or something around Southern Crossing?

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

We're looking at both opportunities. It's too early to discuss those plans in front of the BCUC and the government in the next little while as we look at both options.

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. I can just finish with financing. With the Waneta divesture squaring up the funding plan, I'm just wondering what you might be thinking about, though, past that? Whether that's funding and making room for new assets or future step-up in capital projects, as it seems like there's a lot of things in front of you right now, or even just streamlining the asset base.

Barry V. Perry -- President & Chief Executive Officer

Robert, maybe I'll wade in and Jocelyn can follow up here. But, we've been pretty clear that the CAD$17 billion program required us to raise certain proceeds from asset sales. And we've now said the Waneta transaction completes that. We've also been clear, if our capital does go up, that we have our ATM program -- which s CAD$500 million -- currently approved, that we would turn that on. And that would be -- we would -- that is our plan, basically. Clearly, if capex went well beyond levels that one could think about, we would have to consider other opportunities to raise capital. To be clear, we are committed to our investment grade credit ratings. We would do nothing that would harm those ratings.

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. So, that stands that ATM is really the first option here?

Barry V. Perry -- President & Chief Executive Officer

That's correct.

Robert Kwan -- RBC Capital Markets -- Analyst

Okay. That's great. Thank you.

Operator

Your next question comes from the line of Ben Pham from BMO. Please go ahead.

Ben Pham -- BMO Capital Markets Corp -- Analyst

Okay, thanks. Good morning. Just going back to the Waneta sale, and you think what divestiture is. Does your holdco debts outlook that you highlighted at Investor Day -- is that -- are you well ahead of that spot that you presented, or is it more of a gradual reduction?

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

Yeah, so, Ben, this is Jocelyn. So, at Investor Day, we actually had Waneta included in our projections for holdco debt. So, I think we showed at Investor Day that holdco was going from 38% down to around 33 -- 32%. So, we're on track with that plan with the close of the Waneta sale.

Ben Pham -- BMO Capital Markets Corp -- Analyst

Okay, so the graphs are still -- in terms of the timing of Waneta, it's still more of a gradual reduction that --

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

[Crosstalk] Yes.

Ben Pham -- BMO Capital Markets Corp -- Analyst

-- you bring forward the hold -- OK. All right. Just wanted to check on that. And then, the -- on the -- just going back to some of the questions on future growth prospects, there's a -- on some of the transmissions stuff in Ontario, there is a press release mentioning Ontario capacity markets could drive your transmission initiatives. Can you comment a bit on that, on why that could increase the probability of Erie happening?

Barry V. Perry -- President & Chief Executive Officer

Linda Apsey's here with us from ITC. I would just comment, obviously, Ben, that we saw that developments in Ontario were positive toward making projects like Erie Connector make more economic sense, and we felt it would make some sense for us to come out in support of the initiatives that were occurring there. The project still, obviously, does require a contract -- a long-term contract for it to go ahead, and we are not there on that at this point in time. But overall, the backdrop to some of the changes that are occurring in Ontario are positive for the project.

Linda Apsey -- President & Chief Executive Officer, ITC Holdings

Yeah, absolutely. Good morning, Ben. This is Linda Apsey. Yeah, as Barry mentioned, certainly with the energy market, capacity in market, in PJM as well as, obviously, directional capacity interest in Ontario, obviously, from a BC-type project, obviously, we're trying to bring more attention to the benefits that can be created, if you will, both in terms of Ontario through that transmission line, just in the differentials that occurs in terms of capacity pricing in both those different markets. So, from our perspective, capacity market was not something that Ontario has, I would say, a lot of experience in.

And so, bringing more attention to the benefits of a capacity market and the value of a project like the Lake Erie Connector brings, we're just really, obviously, trying to highlight that to continue to be part of the conversation and to continue to advance that project and highlighting the benefits and the need for the projects and continue to drive value for Ontario customers.

Ben Pham -- BMO Capital Markets Corp -- Analyst

Okay, that's great. And maybe to finish off, some of the capex changes on the Oso Grande Wind Farm in Arizona. I'm just more curious -- as the reiteration of the rate base at UNS, is that just because tax equity is going to pick up a greater share of that debt increase in capex, that your rate base isn't changing?

Barry V. Perry -- President & Chief Executive Officer

I don't know if I understand your question, Ben. I don't think that's part of it. The -- are you referring to the CAD$700 million rate-based growth since the last historical test year in Arizona?

Ben Pham -- BMO Capital Markets Corp -- Analyst

I was thinking more -- this was the higher megawatts on the Oso Grande Wind Farm. It's going up by 200 million from previous disclosures. And so, it's CAD$0.2 billion in capex. And I'm nitpicking a little bit on the numbers, but is that -- you've opted not to raise -- or change a rate base with that change. So, is it because the 200 million -- a big portion of those tax equity doesn't go to your rate base? Is that --

Barry V. Perry -- President & Chief Executive Officer

No, that's not it, Ben.

Ben Pham -- BMO Capital Markets Corp -- Analyst

[Crosstalk] No? Okay.

Barry V. Perry -- President & Chief Executive Officer

We just, obviously -- we weren't ready to update our overall program for the year. A lot of projects in the CAD$17.3 billion. So, I would say, stay tuned for that. But this is definitely an increased amount of capital, but we haven't yet updated our overall program.

Ben Pham -- BMO Capital Markets Corp -- Analyst

Okay. Got it. Okay. Thanks, everybody.

Operator

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

Nicholas Campanella -- Bank of America Merrill Lynch -- Analyst

Hey, congrats on the quarter. Good morning.

Barry V. Perry -- President & Chief Executive Officer

Thank you.

Nicholas Campanella -- Bank of America Merrill Lynch -- Analyst

Hey, just looking at the regulatory items, I was just curious if you could provide a timeframe, if you haven't already, on when you think we'll have a resolution for the ITC complaints as well as the notice of inquiry?

Barry V. Perry -- President & Chief Executive Officer

Linda? You want to provide your perspective? You're the closest to it, so --

Linda Apsey -- President & Chief Executive Officer, ITC Holdings

Good morning, Nick. I mean, yeah, certainly our view is particularly on the ROE, the pending ROE base complaint. We still believe we will see a decision on that yet this year. In terms of the notice of inquiries, I think those are a little less certain in terms of what FERC will do once they've received all of the various comments and reply comments. I think that's less clear as to what their next steps might be or what their timeline might be. But I think, clearly, we feel as though we will continue to see a decision yet this year on the MISO-based ROE complaints. I think we'll have to just wait and see, based on the comments, and the FERC, and the composition of FERC, what they might do on those NOIs.

Nicholas Campanella -- Bank of America Merrill Lynch -- Analyst

Thanks. I guess, just shifting to Arizona, we all saw the Hudbay Mine, and it sounds like that's going to be your largest customer in the jurisdiction. Is there any way to quantify how meaningful that is to your top line sales? And then, if you could just remind us how that reconciles with your longer term forecasts. And then, perhaps we can talk about incremental opportunities in Arizona as well.

Barry V. Perry -- President & Chief Executive Officer

Well, Nick, all I can say is that Arizona's a pretty big business and we're bringing on a new customer that's going to be our largest customer. That's got to be positive, right? So, David's here. David, do you want to add some other color?

David Hutchens -- Executive Vice President, Western Utility Operations

Yeah. So, our current largest customer is 80 megawatts, so it's going to be north of that. They're still trying to figure out what equipment they're going to have in their mine design. We're working with them through that process over the balance of this year, so don't really have a firm estimate of what that top line revenue impact would be. But you could probably calculate pretty close yourself, if you're looking at that above 80-megawatt type load and a typical capacity factor of a mine. So, you could probably get pretty close. So, yeah, we're expecting them to start building early next year the transmission line that will serve them. We expect that to start later this year. And as Hudbay has put out for this mine, they're expecting that full production to be in by the end of 2022. So, that is in our longer term forecast. Now, it's moved around quite a bit over the last two years, but that's the timeline that we currently have.

Nicholas Campanella -- Bank of America Merrill Lynch -- Analyst

Appreciate it. That's it for me. Thanks again.

Barry V. Perry -- President & Chief Executive Officer

Thanks, Nick.

Operator

Your next question comes from the line of Robert Catellier from CIBC. Please go ahead.

Robert Catellier -- CIBC World Markets -- Analyst

Hey, good morning. I was wondering if you could characterize what type of run rate you have to increase renewables at TEP and UNS, given that you're bumping up against some of the renewable portfolio standards there?

Barry V. Perry -- President & Chief Executive Officer

David.

David Hutchens -- Executive Vice President, Western Utility Operations

So, the -- obviously, putting in the 250-megwatt Oso Grande project is going to be a big one for us. That's the one that we currently have on our time horizon. We expect that to be done by the end of next year. That, with a couple purchase power agreements that also come in next year will bring our portfolio to over 1,000 megawatts. So, we've got -- we're doing all the plans for integrating not only that 1,000 megawatts, but making room for a little more. So, we don't have a firm number for additional renewable resources that we will build over that near term. But just to keep your eye out for our preliminary integrated resource plan that we're going to be filing here in the next couple weeks -- will show you what those resources look like now. And then, we're going to go through about a year-long stakeholder process, get input from our commission -- other stakeholders, and develop a final integrated resource plan that will lay that out in a little bit more detail. That won't be finished until about a year form now, but it'll give you a pretty good heads up.

We plan on -- our current plan is owning any additional renewable energy that we put in the ground for our customers on a going forward basis, because the vast majority, other than this big wind project, has been PPAs. So, that's how you could look at it.

Robert Catellier -- CIBC World Markets -- Analyst

Okay. And then, Barry, I wanted you to help me with the rate cases in BC. You've been an advocate for Canadian regulators to improve the competitiveness of the cost of capital, and the ROEs, and the equity thicknesses, basically. I wondered if you could tell us how the rate applications in BC address that and help make the returns more competitive.

Barry V. Perry -- President & Chief Executive Officer

Well, this case that we've field does not include cost of capital. So, costs of capital in BC -- it's a separate process, Rob. So, we'll obviously -- once we get to that, we will be incorporating our thoughts in that filing. I will just be clear to say that the Canadian regulatory landscape is inferior to the US landscape. Our equity thickness is a full 10 points lower than our American businesses, and that, over the long term, is a major competitive issue for Canadian companies and it has to be fixed. So, we -- but we have to make a case of why it's good for our customers to fix that and we'll be doing that. And that is a challenge that Fortis is taking on. And we're going to work transparently with respect with our regulators in Canada to try to improve that situation.

Robert Catellier -- CIBC World Markets -- Analyst

If -- Barry, the question was actually in the context of the fact that this rate case doesn't address cost of capital. I was wondering if there's any other items in there that help make it more balanced on a risk adjusted basis, that might not meet the eye because they're not capital items.

Barry V. Perry -- President & Chief Executive Officer

Roger's here to make a comment.

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Morning, Robert. Just on the application itself, traditionally in BC, going back to the '90s, cost of capital has been set separately. That's rate of return as well as equity thickness from rate application. So, it's not unusual that our multiyear rate plan does not include a specific filing for cost of capital. Our last decision on cost of capital was 2016, so we do look time-to-time at financial situations to determine whether we'll be bringing forth a new cost of capital allocation. We've just filed this multiyear rate application. As this application rolls forward, we'll make another decision on when we think the right time is to bring forth a new cost of capital application

As far as the application itself, it's really an extension of the existing PVR. They have a different focus. The current PVR was really rooted in productivity efficiency, on both O&M and capital. This program maintains -- this application maintains many of the same elements, but it's more of a focus on targeted incentives around low carbon energy, on demand side management, and innovation. So, it's not directly changing -- in our view, it's more of an extension of our current regulatory construct, not a large departure. So, we don't see it having an impact right now on our view of cost of capital.

Robert Catellier -- CIBC World Markets -- Analyst

Okay. Thank you very much.

Barry V. Perry -- President & Chief Executive Officer

Thank you, Rob.

Operator

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

Robert Hope -- Scotiabank -- Analyst

Good morning, everyone. Want to circle back with Rosemont. Just want to get a sense of when the relatively short transmission line to the mine would be completed, as well as -- appreciate David's comments on load. But just want to get a sense of how much load do you think you're going to get -- that project, during the construction of it.

Barry V. Perry -- President & Chief Executive Officer

So, Rob, you're peeling -- you want to peel the onion.

Robert Hope -- Scotiabank -- Analyst

A little bit.

David Hutchens -- Executive Vice President, Western Utility Operations

I guess I was a little too vague. Purposely so, because they still are developing their mining plan. As far as the construction goes, we should have that line built by the end of next year. It's only a 13-mile route, so the engineering is mostly done. We have been doing prep work for that for years, so it's all permitted and ready to go. We just need to get it in time for them to start their operations. But yeah, I really can't say much more about the expected load there.

Robert Hope -- Scotiabank -- Analyst

All right. So, let's do a broader question then. So, Barry, when you look at the overall market, and the very strong valuations we're seeing on energy infrastructure items, either majority or minority interests, how do you weigh further strengthening the balance sheet versus your existing asset suite?

Barry V. Perry -- President & Chief Executive Officer

Well, first of all, Rob, I take you back to the fact that we laid out a strong funding plan for the existing capital program and we're executing well on that plan. And that does see our credit metrics improve over time. So, we'll start there. But I would say, frankly, any offers we would receive on assets that would be similar to or better than what we got for Waneta, everything is for sale at those levels. Any CEO of a large public company would have to entertain those kinds of offers. And I don't see those showing up, but if they did appear for certain of our assets, we would have to look at them.

David Hutchens -- Executive Vice President, Western Utility Operations

Barry, I could add a little color related to Rosemont, because one of the things that you're talking about -- the transmission line. I think it's important to point out that we don't pay for that transmission line. Rosemont is paying the CAD$30 million it'll take to construct that. So, when you look at, from a customer perspective, and that cash flow versus investment, we have to make absolutely zero investment in order to serve Rosemont. So, that's a really nice asset to have, joining our company with a customer that size -- zero additional infrastructure need, and obviously, a big customer. So, that might provide a little bit of color for that later period cash topic.

Robert Hope -- Scotiabank -- Analyst

Thank you.

Operator

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

David Quezada -- Raymond James & Associates, Inc. -- Analyst

Thanks. Morning, everyone. My first question here, just on Wataynikaneyap, just curious if there's any color you can provide on the permitting process and just if you could comment at all on whether or not that's going as expected?

Barry V. Perry -- President & Chief Executive Officer

It's going very well. And Gary Smith, who heads up that project for us, is here. Gary, you want to give an update?

Gary J. Smith -- Executive Vice President, Eastern Canadian and Caribbean Operations

Yeah, we've been at the permitting process for, for sure, pretty hard now for a couple of years. And we've met all the requirements in the permitting process. The file now is in front of the minister to make a decision. We just think there's a little bit more time required for them to digest the information we've provided. But we don't see any critical hurdles in our way to stop the project from moving forward. So, we do expect to get a decision soon. But again, exactly when that will be later this year is undetermined.

David Quezada -- Raymond James & Associates, Inc. -- Analyst

Okay. That's good color. Thank you. And maybe just one other one. I realize this is a longer term opportunity. But just on Big Chino, if you had any early consultations with stakeholders there, and how that process has been going?

Barry V. Perry -- President & Chief Executive Officer

Well, Big Chino is an interesting project, obviously. Theoretically, it's a great project for the region to have long durations of pump storage. It would greatly enhance the ability of the region -- Southwest region -- to bring more renewables onto the grid -- solar, wind. That being said, it is a big project that would take seven-eight years to complete. And so, we're evaluating our involvement in that project at this point in time and continuing to do certain initiatives there. But I would say that it's a project we'll be making a decision on this year, whether we continue to put development dollars into it going forward.

David Quezada -- Raymond James & Associates, Inc. -- Analyst

Okay. Fair enough. Thank you for that. That's all for me.

Operator

Your next question comes from the line of Linda Ezergailis with TD Securities. Please go ahead.

Linda Ezergailis -- TD Securities -- Analyst

Thank you. I'm wondering if you could help us understand whether your current funding plan addresses -- or should eliminate the negative outlook that S&P has, or how you feel about defending your S&P rating versus potentially a downgrade?

Barry V. Perry -- President & Chief Executive Officer

Well, I would hope that they would remove it related to our strong execution in investing in our regulated businesses, Linda. We're continuing to have good dialogue with S&P. I would not expect any immediate actions from them. Jocelyn, you want to add --

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

Yeah. I just -- I would say that the negative outlook stems from, obviously, post-US tax reform. And so, any -- US tax reform was as expected for us, and we do expect to get back to a metric similar to pre-US tax reform in a few years. So, I suspect that that will create even better dialogue with S&P.

Barry V. Perry -- President & Chief Executive Officer

Yeah. And, Linda, to be clear, I'd like BBB+ unsecured debt rating with S&P.

Linda Ezergailis -- TD Securities -- Analyst

Okay. Thank you. That's helpful. And maybe we can move on to Aitken Creek. I realize that it's hard to predict that earnings stream, but maybe you can help us see year-to-date what you're seeing, both from a volume and margin perspective? And beyond just help and deleveraging or funding, would maybe moving that asset to rate based or, for the right price, exiting help your risk profile from a business risk perspective with rating agencies, or some other strategic benefit?

Barry V. Perry -- President & Chief Executive Officer

I would say, in a perfect world, Linda -- Roger is sitting right next to me here, so I would like to see that asset in regulated operations. It is a critical asset for the management of the gas network in Western Canada and our utility FortisBC uses a lot of the capacity of the plant. That's something we'll be thinking about in the future in terms of performance in the quarter and longer term performance. I think, since we bought it, the asset has done very well. It's actually, I would say, outperformed our expectations. There's some potential to also expand the asset a little bit. So, Roger, maybe you can add some color on where we are in the quarter and some of the reasons why that we had a light quarter?

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Yeah. Thanks, Barry. Morning, Linda. I think the main driver is Q1 2018 there's a couple of things happening that were not prevalent in 2019. So, we had a colder regional winter Q4 '17/Q1 '18 relative to what we experienced in 2019. We had a very mild winter in the region -- Pacific Northwest -- and we experienced winter more into February and into March than the previous year. So, we had a greater demand for gas power storage Q1 2018. We also had some maintenance constraints, so gas prices were generally higher. So, there was a significant amount of gas pulled out of the ground in 2018. We are closing off deals and realizing the value of the market at the time.

2019, partly because of weather and the Enbridge situation, there was lower prices. So, we were injecting more than withdrawing in the quarter. That's really the driver. We feel that Q1 2019 was a good quarter, but not as strong as '18 because of those factors.

Linda Ezergailis -- TD Securities -- Analyst

And can you comment on the scale of a potential expansion and the timing? What factors need to be in place to expand that asset?

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

We are just connecting to the north artery, which is a small expansion of the system. We are looking at development of the North Aitken Field. That would be a few years away. We don't have specific capital estimates yet. It's really going to be determinant on market factors in the next two to three years. So, more to come on that one.

Barry V. Perry -- President & Chief Executive Officer

But fairly small in terms of capital, Roger.

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Yeah. Less -- maybe CAD$100 million.

Linda Ezergailis -- TD Securities -- Analyst

And what factors would need to be in place to move it to rate based?

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Just LNG development, natural gas expansion in the Pacific Northwest, ongoing increased demand for natural gas -- which we think is positive. But those things will develop over time.

Linda Ezergailis -- TD Securities -- Analyst

Okay. Thank you. And maybe just a final high level strategic question, I guess, for Barry. Given some of the recent changes in provincial governments, how has that affected your strategic lens and outlook on those geographies and does that increase the urgency to address some of your cost of capital issues you have with Canada? Or might there be some opportunities to potentially -- to nonregulated assets in those geographies? Can you comment on, I guess, Alberta and, to a lesser extent, Ontario and anywhere else specifically -- that you think there's been a change in policy that might help or affect your business?

Barry V. Perry -- President & Chief Executive Officer

That's a big question, Linda. I'll try to address it. We're not overly interested in nonregulated assets, other than, I would say, things like LNG tolling or the contracted transmission that the Erie Connector would be involved in. So, things that look and feel like regulated items, I would say. In terms of the region, we have a very positive relationship with the government in British Columbia. Our natural gas business is doing well there. A fair amount of investment going into our pipeline network. We added 22,000 customers in British Columbia last year -- 2+% customer growth. Was probably one of the strongest growing natural gas franchises in all of North America. And so, we're very positive on that business and we're aligning -- reducing carbon intensity of our product there. Focusing on renewable natural gas, gas for transportation -- all of these things that are obviously consistent with government policy.

In Alberta, across the border, we have an electric franchise -- distribution only. Alberta still grows our business there by 5-6% a year. It's a strong business and we're working, obviously, through the regulatory regime in Alberta. It has the thinnest equity in all of Canada -- 37%. That's' a significant issue, and we need to see some improvement there. But the distribution network that's comprised of over a million poles is a very strong franchise. And we continue to have a good relationship with the previous government, and I expect it will be the case with this government.

And I think that's the benefit of what you get with Fortis. We have these local teams who are running the business with their local independent boards, dealing with the matters that they face within their territories. And it's been a pretty successful model for our company and I would expect that that would continue going forward.

Linda Ezergailis -- TD Securities -- Analyst

Thank you.

Barry V. Perry -- President & Chief Executive Officer

Thanks, Linda.

Operator

Your next question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead.

Andrew Kuske -- Credit Suisse Group -- Analyst

Good morning. I guess the question starts off with Barry and it's just on energy conservation and the efforts behind that. How do you think about returns on that business activity -- this -- the quirky thing with regulated utilities, it's probably the only industry in the world where you're effectively trying to incent people to use less of your product and service.

Barry V. Perry -- President & Chief Executive Officer

Well, Andrew, I would just say that we need to keep doing the things that reduce the company's environmental footprint. Our customers are demanding cleaner energy be delivered. Obviously, always with an eye of affordability. I think jurisdictions that go too far too quick run into some trouble. And I always use Arizona for the poster child for the way to do it. They've gotten greener incrementally every year for the last number of years, but yet have kept rates very economic and affordable in that jurisdiction. So, they're the jurisdiction, I think, that people should look to.

So, I would say regulators that are progressive enough to think that their utilities can play a major role in improving the portfolio of supply, becoming more energy efficient, are very progressive because utilities know how to do this. And Fortis knows how to do it. And we can get it done quickly. So, I think that, clearly, we are looking for that. And when we interact with our regulators, we're looking for those opportunities. And I would commend the BCUC for being very progressive in terms of this new program that we have in place in British Columbia, that we get to invest CAD$370 million, I think over the next four years. It does go into rate based, but it accelerates these programs very quickly. And we will see results from that.

Andrew Kuske -- Credit Suisse Group -- Analyst

Okay. Appreciate that. And then, just maybe an extension on some of the activities you've got going on in the portfolio, and to the first question. Do you see any broader need to pivot into renewables to a greater degree? And directly, if you can do rate based renewables? And then, anything outside of rate based, if it's in a contractual framework.

Barry V. Perry -- President & Chief Executive Officer

Where we can do renewables within our utilities, we would definitely pursue those. But I always remind folks that most of our business is just wires and gas pipes. So, our -- we're not that involved in the generation side of the business, except for Arizona. And David and his team there, working with the Corporations Commission, have done a really good job of improving their portfolio of supply and will continue to do so. I think, in America, obviously, renewables have become very attractive in terms of price. And this Oso Grande Wind regime, David, I think we're at 45% capacity factor? I think -- something like that? So, these are 4.5-megawatt turbines. These are great assets.

And so, where we can do more of that, we will. But you have to remember, Fortis is more of a T&D business without that -- I don't see us, frankly -- we can try, and we will try here and there. But competing against the big renewables businesses that are non-regulated, that's a tough spot to go to. And it's hard to make money in that area. So, really, our core focus will be investing in our grid, our energy networks, as well as improving our portfolio of supply in Arizona.

Andrew Kuske -- Credit Suisse Group -- Analyst

Okay. That's great. Thank you.

Barry V. Perry -- President & Chief Executive Officer

Thank you.

Operator

If there are any additional questions at this time, please press * followed by the No. you're your telephone keypad. Your next question comes from the line of Patrick Kenny from National Bank. Please go ahead.

Patrick Kenny -- National Bank Financial Markets -- Analyst

Hey, good morning. Just a follow-up on the question around credit ratings. Now, with the Waneta proceeds in the door, I'm wondering if you could update us on any discussion you might be having with Moody's and if there's any visibility, or a roadmap, to get off of the AA industry rating?

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

Yeah, Patrick. This is Jocelyn. Yeah, I think I can echo Barry on this one, that we're not happy with the Baa3 rating. And we do work with Moody's to understand it better and we have worked to improve it. But we're having normal discussions with Moody's, and certainly we shared with them our funding plan out of the fall. And we updated them, even within this past quarter. So, we're having good discussions with them, and they'll go through their normal ratings process. But we are looking to improve this rating over the planning period, yes.

Barry V. Perry -- President & Chief Executive Officer

And I'll sound defensive on this, but I want to remind everyone on the call that we're BBB+ with DBRS. We're BBB+ with S&P. And we -- yes, we're Baa3 with Moody's, but a lot of folks forget the other two agencies who rates us very attractively.

Patrick Kenny -- National Bank Financial Markets -- Analyst

Thanks. And, Jocelyn, can you just remind us what the target holdco debt to total debt ratio would be for Moody's?

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

The Moody's doesn't actually provide a target. I expect it's 30% or lower.

Patrick Kenny -- National Bank Financial Markets -- Analyst

Okay, great. And then, just back to Alberta and the regulatory outlook there, how should we be thinking about the AUC potentially moving to a formula-based ROE by 2022? I know it's still a ways off, but I guess, based on the shape of the interest rate curve today, I'm wondering if you think this represents upside or downside to the 8.5%.

Barry V. Perry -- President & Chief Executive Officer

I can only hope that it represents upside, since I can't imagine we can go much lower than where we are. But that -- clearly, we -- Patrick, we'll be in that process, making sure that we put good evidence forward, to make sure that those -- any outcome that would suggest it should be lower than that would not be appropriate. Clearly, regulators will do what they do. But I would hope that we could put forward strong evidence to suggest that any outcome that would generate an ROE, even where we are today, is not appropriate.

Patrick Kenny -- National Bank Financial Markets -- Analyst

Okay, that's great. Thanks, Barry. Thanks, Jocelyn.

Operator

Thank you. There are no further questions, I would now like to turn the call back to Ms. Amaimo for closing remarks.

Stephanie Amaimo

Thank you, Jessa. We have nothing further at this time. Thank you, everyone, for participating in our first quarter 2019 results call. Please contact investor relations should you need anything further. 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 disconnect.

Duration: 55 minutes

Call participants:

Stephanie Amaimo -- Vice President, Investor Relations

Barry V. Perry -- President & Chief Executive Officer

Jocelyn H. Perry -- Executive Vice President & Chief Financial Officer

David Hutchens -- Executive Vice President, Western Utility Operations

Gary J. Smith -- Executive Vice President, Eastern Canadian and Caribbean Operations

Roger Dall'Antonia -- President & Chief Executive Officer, Fortis BC Inc. and FortisBC Energy Inc.

Linda Apsey -- President & Chief Executive Officer, ITC Holdings

Robert Kwan -- RBC Capital Markets -- Analyst

Robert Hope -- Scotiabank -- Analyst

David Quezada -- Raymond James & Associates, Inc. -- Analyst

Ben Pham -- BMO Capital Markets Corp -- Analyst

Nicholas Campanella -- Bank of America Merrill Lynch -- Analyst

Patrick Kenny -- National Bank Financial Markets -- Analyst

Robert Catellier -- CIBC World Markets -- Analyst

Andrew Kuske -- Credit Suisse Group -- Analyst

Linda Ezergailis -- TD Securities -- Analyst

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