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Fortis Inc. (NYSE:FTS)
Q1 2020 Earnings Call
May 6, 2020, 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 Lisa, and I will be your conference operator today. Welcome to the Fortis Q1 2020 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 presenation. [Operator Instructions] 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, Lisa, and good morning, everyone. And welcome to Fortis' first quarter 2020 results conference call. I'm joined by Barry Perry, President and CEO; and Jocelyn Perry, Executive Vice President 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. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our first quarter 2020 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 and Chief Executive Officer

Thank you, Stephanie, and good morning, everyone. To begin today's call, I want to take a moment to express our heartfelt thanks to our 9,000 employees, 3 million-plus customers and our local communities, all of whom have been impacted by COVID-19. We are especially grateful for our local heroes on the frontlines, in our hospitals and our essential employees working to provide the energy that enables our economy. Also, we are thankful for our customers who depend on us to provide these services. Thank you.

Like many companies, we've responded to the call to act. Half of our total employees remain in the field and continue to operate and maintain our critical infrastructure. They have been doing an amazing job. The remainder of our essential employees have been working from home since mid-March. Across North America, our utilities have suspended disconnections and waived late fees to help alleviate the impacts of COVID-19 for our customers that need it most. At the community level, our utilities have supported local charities by donating $4 million to food banks, mental health agencies and other community-based organizations in their local service territories.

Our businesses are performing well with essential employees maintaining and operating our systems. With respect to our supply chain, our businesses have access to the necessary supplies to operate effectively. We will continue to monitor our supply chain for the duration of the pandemic. And in some of our harder hit regions like Michigan and New York, we've sequestered control room operators to ensure we can continue to operate our networks well.

During this time, we've adhered to strict health and safety guidelines, including ensuring social distancing is in effect in the workplace. For example, our work crews have only one person per truck with other employees following to job sites in separate vehicles. Crews are also maintaining good hygiene practices to protect themselves and customers.

At the onset of the pandemic, we implemented our emergency response plans, hosting regular calls with the CEOs of our 10 utilities. Our leaders have tremendous operational experience and have risen to the occasion, sharing best practices on an array of topics ranging from employee safety to customer solutions in real time. The fundamentals of our business haven't changed with the pandemic. Our decentralized model where local teams have the authority to manage their businesses, coupled with our irreplaceable energy delivery assets, positions us well to provide customer safe and reliable service. Plus our geographic and regulatory diversity is a major advantage of this time.

From a shareholder perspective, 82% of our annual revenues are protected by regulatory mechanisms or from residential sales, which are expected to increase during the pandemic. This helps to shield the majority of our utilities from changes in sales associated with the economic slowdown, which has resulted in lower commercial and industrial sales. Our conservative approach to running the business ensured we were in a strong liquidity position at the start of the pandemic. At the end of April, we had approximately CAD5 billion of liquidity, leaving Fortis positioned near the top of our sector.

COVID-19 has caused the U.S. dollar to strengthen markedly. And with approximately 65% of our earnings coming from the United States, this could provide a potential tailwind to Fortis. Lastly, given the regulatory constructs in most of our utilities, we have limited pension expansion exposure.

Now turning to Slide 7. This slide provides a breakdown of our annual revenues. Approximately 63% of our revenues are protected by regulatory mechanisms from changes in sales, which is very positive. The remaining 37% of total annual revenues are exposed to changes in sales. This primarily relates to UNS in Arizona and our Other Electric segment.

When you break down the 37%, 19% relates to residential sales and 18% to commercial and industrial sales. In other words, 82% of our revenues are either protected by regulatory mechanisms or from residential sales, which I mentioned are generally seeing an increase. While we don't know how long the pandemic will last, we've included a sensitivity table on the slide, which translates every 1% change in sales broken out by jurisdiction and revenue class into an annual EPS impact.

Moving to Slide 8. Here we've included an overview of the local economic impacts the pandemic has had in our jurisdictions today. Generally speaking, most regions are seeing an uptick in residential sales as individual spend more time in their homes and the decline in commercial and industrial sales as businesses scale back or close. Some of our service territories have been struck harder than others. In Southeast Michigan, for instance, where ITC's headquarters is located, the community has seen a high number of COVID-19 cases. This has resulted in a decline in peak load of up to -- about 25% at times, mainly driven by manufacturing and auto suppliers being closed during this time.

Since the FERC formula rate mechanism allows for a true-up of actual versus projected revenue requirements, ITC expects to recover these loss revenues associated with lower peak loads. However, to help mitigate the size of the true-up, ITC is working to reduce expenses to alleviate the net impact on customers. In contrast, as noted on the previous slide, our utility in Arizona doesn't have a regulatory mechanism to protect it from changes in sales. Fortunately, the Tucson area has seen fewer COVID-19 cases compared to Michigan.

In Arizona, the authorities established a broader definition of essential services, which has somewhat muted the economic impact compared to other states. UNS has seen an approximate 10% decline in commercial and industrial sales, partially offset by 7% increase in residential sales, albeit primarily due to weather. Combined, this yields an approximate 4% decline. Overall, our utilities that are exposed to changes in sales have seen an approximately 3% decline one month into the pandemic, and that's where the period between mid-March and mid-April.

Moving onto Slide 9. Our 2020 capital plan is on track. Through the first quarter, we invested CAD1.2 billion in our energy systems or 28% of our annual plan. We are confident in our 2020 plan. However, the pandemic evolves differently than what authorities expect, some of the capital may shift to subsequent years.

Turning to Slide 10. The five-year capital plan of CAD18.8 billion remains intact through 2024. As you will recall, the capital plan is focused on our regulated businesses and consist of a diverse mix of highly executable, low-risk projects needed to maintain and upgrade our existing infrastructure. In 2019, mid-year rate base was CAD28 billion and is projected to grow to CAD34.5 billion by 2022 and CAD38.4 billion by 2024. This yields three-year and five-year compound annual growth rates of approximately 7%, which is consistent with our prior rate base growth guidance.

Moving forward, we continue to be focused on employee safety and customer reliability. With our long-term strategy intact, we are progressing our sustainability objectives, including clean energy initiatives. We also continue to focus on cybersecurity and innovation and are pursuing growth opportunities beyond the base plan. Overall, our growth platform is resilient and we are confident that our long-term strategy will create shareholder value.

With that confidence in our long-term strategy, coupled with our long-standing track record of increasing dividends for 46 consecutive years, we remain committed to our 6% average annual dividend growth guidance through 2024. It's worth noting that about one-third of our shareholder base is comprised of retail investors who rely on our dividends as a source of income. Our goal is to maintain a stable dividend for these investors and other shareholders throughout this crisis.

Turning now to the first quarter highlights. Our safety and reliability performance was very strong as we invested CAD1.2 billion of capital expenditures in the quarter. This supported adjusted earnings per common share of CAD0.68 for the quarter. On the regulatory front, in late March, FERC issued a Notice of Proposed Rulemaking on transmission incentives, demonstrating their commitment to incentivizing the construction of transmission infrastructure. Jocelyn will speak to this in more detail shortly. And recently both S&P and DBRS Morningstar have affirmed our strong investment-grade credit ratings. We are pleased with these developments.

Now I'll turn the call over to Jocelyn for an update on the first quarter results as well as additional information on our COVID-19 financial impact outlook.

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

Thank you, Barry, and good morning, everyone. Reported net earnings for the quarter of 2020 were CAD312 million or CAD0.67 per common share compared to net earnings of CAD311 million or CAD0.72 per common share for the first quarter of 2019. On an adjusted basis, earnings per common share was CAD0.68 for the quarter or CAD0.06 lower compared to the previous year.

Our regulated utilities performed well during the quarter with strong rate base growth. As expected, EPS was tempered by a higher weighted average share count related to the equity issuance completed in late 2019. And during the quarter, EPS decreased as a result of lower earnings at UNS Energy, and I'll get into the details of UNS on the next slide.

On Slide 16, shows the details of the EPS drivers by each reporting segment. And as you can see, our regulated utilities contributed a CAD0.06 increase in EPS. For our Western Canadian utilities as well as Central Hudson, rate base growth was the main driver of the increase in EPS. The increase at ITC was driven by rate base growth as well as lower development -- business development expenses and earnings at ITC were also tempered by a lower ROE associated with the FERC order issued in November 2019.

Our non-regulated energy infrastructure segment contributed a CAD0.01 EPS increase driven by higher realized margins at the Aitken Creek natural gas storage facility. And at our corporate and other segment, the CAD0.01 negative EPS impact was mainly due to net unrealized losses on foreign exchange contracts, partially offset by lower finance charges and operating costs.

As noted on the previous slide, lower earnings at UNS decreased EPS by CAD0.06 for the quarter. Earnings at UNS reflect higher cost associated with rate base growth not yet included in rates due to the historical test year. TEP has requested rates that recognize approximately $700 million of additional rate base investments and this rate case remains outstanding.

Earnings were also lower at UNS due to a reduction in the market value of certain assets that are held in the trust to support retirement benefit. This impact was about CAD0.03 and was a result of the financial market volatility experienced in March associated with COVID-19. The remaining decrease was due to lower retail sales in Q1 2020, driven by reduced heating load compared to the first quarter of 2019. And lastly, a higher number of shares contributed to a CAD0.06 EPS decrease for the quarter.

Now turning to updates on our regulatory proceedings. At ITC, we await a decision on rehearing regarding the MISO-based ROE order issued in November 2019. As you will recall, FERC issued an order in January, granting the rehearing for further consideration, effectively extending FERC's review, and there is no stipulated period for FERC to act on this.

With regard to the two notices of inquiry issued in March 2019, FERC issued a Notice of Proposed Rulemaking or NOPR in March 2020 on the transmission incentives inquiry. In the NOPR, the commission proposed cumulative ROE incentives of up to 250 basis points for transmission investments that meet certain criteria. It is proposed that these incentives would not be kept by the upper end of the base ROE zone of reasonableness.

Notably, the commission proposed that 100 basis point ROE incentive adder for participation in a regional transmission organization or RTO compared to the 50 basis point RTO adder that ITC has today. Partially tampering, this was a proposal to eliminate the Transco ROE incentive adder in which ITC's MISO utilities currently earned 25 basis points. So this means if the proposals and the rulemaking are approved in a final rule, ITC's all-in eligible adders in MISO could move from 75 basis points to 100 basis points before considering other projects specific incentive. Next steps include ITC and other stakeholders providing comments to FERC by the 1st of July.

As I mentioned, in Arizona, the TEP rate case remains outstanding. Initially, TEP requested new rates becoming effective May 1. Unfortunately due to COVID-19, the Arizona Corporation Commission has extended the procedural schedule and a decision is now expected in late 2020. As I mentioned, the current rates are not reflective of the investments made in Arizona and as a result, this delay can be expected to temper earnings in 2020.

Over the past few years, the impact of delayed rates has been reduced by higher sales associated with warmer than expected weather and a strong economy in Tucson. As you can appreciate, it's difficult to predict the impact weather will have on earnings in 2020. But I will note it's pretty hot there today. I understand the temperature is around 105 degrees Fahrenheit, so it's pretty warm there.

Beginning in today's ACC open meeting, the commission is expected to consider various issues related to COVID-19, including the financial impacts on customers and utilities and potential deferral and recovery of pandemic-related costs. We cannot predict the timing or outcome, but view this as a positive development.

And as discussed last quarter, FortisBC filed its 2020 to 2024 multiyear rate plan last March, as the prior term expired at the end of 2019, currently, we have interim rates and expect final rates via a written order by mid-2020. During the quarter, FortisBC filed an initial project description with regulators to begin a federal impact assessment and an environmental assessment to further expand the Tilbury site. This expansion which is not included in our current capital plan, considers the potential increase in storage capacity to improve resiliency of the gas system and additional liquefaction for export opportunities.

FortisAlberta awaits a decision by the Alberta Utilities Commission or AUC in the review and variance and stay on implementation of the September 2019 order, which significantly changed the Alberta electric system operators' transmission customer contribution policy. We received notice in December that the AUC's decisions wouldn't be delayed into 2020 to allow the regulator to gather additional information. This information was provided in January, but given the current circumstances, we think there may be further delays before this matter gets resolved.

And lastly, expert evidence was filed in AUCs ongoing generic cost of capital proceeding in January. This proceeding was supposed to establish the allowed ROEs and capital structures for 2021 and 2022, but what's we suspended in March as a result of the pandemics. The AUC will reassess the suspension every 30 to 60 days going forward. On April 23, the commission asked participants to file comments on whether the proceeding could be resumed and if so, when and on what terms.

As you may recall, we strengthened our liquidity in 2019 using proceeds from the equity issuance and sale of the Waneta Expansion to repay fixed term debt and credit facility borrowings. We have approximately CAD5 billion in total liquidity, which strongly positions Fortis, as we continue to work through the COVID-19 pandemic and execute on our capital plan. This includes CAD1.3 billion unutilized corporate credit facility and an additional CAD500 million one-year revolving term corporate facility secured in April. Most of our credit facilities are unsecured committed facilities with maturities ranging from 2022 to 2025.

And as you can see on Slide 19, our utilities remain active in the debt capital markets. ITC issued $275 million term loans in the first quarter. Additionally, TEP and Newfoundland Power successfully issued 30-year and 40-year debt in April 2020. Despite broader market volatility, the debt capital markets remain attractive for strong credit quality issuers like Fortis. Our financial flexibility is further supported by manageable fixed term debt maturities with approximately CAD1.1 billion due on average annually over the next five years with approximately CAD500 million maturing in 2020.

In 2019, we met all credit rating agency thresholds and significantly improved our cash flow to debt and holding company debt metrics. This improvement was reflective of our funding plans, again, including the sale of the Waneta Expansion and the equity issuance. And you also recall, we terminated both our ATM program and the 2% discount previously offered under our dividend reinvestment plan, concurrently with the equity issuance.

In late March, S&P affirmed our A- issuer rating and our BBB+ unsecured debt rating. S&P recognized the execution of our funding plan in 2019, while maintaining the negative outlook due to concerns around COVID-19. The negative outlook is consistent with our peers as S&P revised its outlook for the entire North American regulated utility industry to negative from stable in early April due to COVID-19. And on May 4, DBRS Morningstar affirmed a BBB high issuer rating and senior unsecured debt rating with a positive trend up from stable. Fortis' low business risk profile, improved credit metrics and ample liquidity support our investment-grade credit ratings.

Before I wrap up my remarks, I wanted to discuss some of the potential financial implications of COVID-19. Despite capital market volatility associated with the pandemic, Fortis benefits from limited pension exposure. At the end of last year, our defined benefit pension plans were almost 90% funded, was just under half of the plan assets invested in fixed income. Our pension expense is further mitigated by regulatory mechanisms covering approximately 80% of our plan assets. The remaining 20% relates primarily to UNS, where the exposure is largely attributable to the historical test year.

As a reminder, the impact of asset valuations on pension expense and funding requirements is dependent on December 31st asset valuations. So consequently, any valuation impact will not be reflected in our financial results until 2021. And with regards to other retirement benefits, our U.S. utilities fund certain benefits through trust and are subject to market changes each quarter. Outside of UNS, most assets are heavily weighted toward fixed income investments and thus have minimal volatility. In total, UNS has approximately $30 million U.S. in trust assets.

Turning now to the implications of the recent strengthening of the U.S. dollar, approximately two-thirds of our earnings come from the U.S., and a similar amount for our five-year capital plan is expected to be invested in the U.S. A stronger U.S. dollar could be a tailwind for Fortis in 2020, every CAD0.05 change in the U.S. dollar to Canadian dollar exchange rate impacts annual EPS by approximately CAD0.06 on average, and would result in an approximately CAD400 million change in our five-year capital plans. And as a reminder, our capital plan is based on a foreign exchange rate of CAD1.32.

Lastly, we remain committed to working with our customers to alleviate some of the financial impacts associated with COVID-19. Although, it is too early to quantify the impact, we continue to evaluate potential credit losses. And depending on the amounts, some of our utilities may seek future rate recovery of credit losses associated with this pandemic.

Additionally, some of our utilities are somewhat insulated from credit losses. For instance, ITC and FortisAlberta do not interface with end-use customers for billing purposes. Instead, ITC is primarily paid by MISO, which collects revenue from the local distribution utilities and FortisAlberta is mainly paid by the retail energy provider at core. Combined ITC and FortisAlberta represent approximately 30% of our annual revenues.

So to summarize, we are effectively managing the financial impacts of COVID-19 on our operations. Our diverse business coupled with positive regulatory mechanisms and constructive regulatory relationships placed us in a good position today.

This concludes my remarks and I will now turn the call back to Barry.

Barry V. Perry -- President and Chief Executive Officer

Thank you, Jocelyn. To wrap up, I want to reiterate our heartfelt thanks to frontline workers, especially those in healthcare and our own essential personnel. As for Fortis, our fundamentals haven't changed. We are strong and stand united with our 10 utilities across North America to deliver the essential service that our customers count on by keeping their lights on and the natural gas flowing. We are optimistic that we can navigate back to a sense of normalcy, keeping the health and safety of our employees and customers top of mind.

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 the question-and-answer period. [Operator Instructions] And our first question today comes from the line of Robert Kwan from RBC Capital Markets. Your line is open.

Robert Kwan -- RBC Capital Markets -- Analyst

Good morning. If I can just start with COVID-19 impact, and you've got the sensitivity if the 3% reduction holds on an annual basis. So that's tracking to CAD0.02 a share or CAD0.03 a share. But you also noted the FX impact, and if that holds as well, are you looking at everything in its entirety being in -- that's kind of that commentary about it potentially be just a net positive?

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

Robert, certainly. This is Jocelyn. Yeah, I mean, right now we're seeing an overall 3% decrease. And so it's about CAD0.03. So one could potentially argue that the tailwind with FX could certainly mute the impact of any variances that we see, as a result of the lower sales in those jurisdictions. Yes, you're correct.

Robert Kwan -- RBC Capital Markets -- Analyst

And just to be clear though, you focused on the sales reduction and not any of the other COVID-19 responses that you outlined, including the return of the DSM in Arizona, the rate deferral in Turks and any of the bill deferrals. Is that just in your expectation cash timing and everything from an earnings perspective will be swept up under rate regulated accounting?

Barry V. Perry -- President and Chief Executive Officer

I think, Robert, those are fairly minor overall. I don't think they're large enough to show up. The one in Arizona, I don't think has an impact. Turks, obviously delaying the rate implementation, does have some impact on bottom line. But they're not significant in any way, so.

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. Okay. And if I can just finish with funding. Removing the DRIP discount looks like it's had a pretty big impact on participation. So if that continues to hold, can you just talk about your approach -- excuse me, sorry, your approach to funding, given the DRIP being on at participation higher than where you are was part of the plan going forward?

Barry V. Perry -- President and Chief Executive Officer

So Robert, I'm going to jump in, because I -- obviously, based on our actions last year to exit the Waneta plant for CAD1 billion and then CAD1.2 billion of equity done in December, it's almost like we predicted the pandemic was coming. We really got out ahead of this thing and created a strong position. But if you think back to when we did the equity, we talked about pre-funding our capital plan. So yeah, we got lower participation in the DRIP, which we expected, but we have really no need to go do equity for some time here. And we created a lot of room for the Company.

Now if we get some more growth, which is very possible as we look at some of the initiatives we have on the go in the Company, then yeah, we'll probably be looking at some more equity. But where we are now, it's nothing that I'd be worried about anytime soon.

Robert Kwan -- RBC Capital Markets -- Analyst

Okay. Just to be clear, absent of new growth, this lower participation rate was what has already been factored into the existing capital plan that doesn't require material new equity going forward?

Barry V. Perry -- President and Chief Executive Officer

Yeah. We've -- we did assume lower DRIP participation. It is a little lower than what we had anticipated, but it's just in one quarter, right? So, I think we need to go to two or three quarters, Robert, to really see what the actual DRIP participation is, what we're leveling off at. So what we're finding is the banks are doing synthetic DRIPs. There's a lot of shareholders acting -- participating in DRIPs. They're just not the Fortis DRIP, right? So the banks are doing their own back-office DRIPs and buying shares in the open market, which I think a lot of us weren't really aware of. So once the discount went away, this is what's occurring. So we're looking at that and seeing if there's anything we can do about that.

Robert Kwan -- RBC Capital Markets -- Analyst

Got it. Great. Thank you very much.

Operator

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

Ben Pham -- BMO Nesbitt Burns, Inc. -- Analyst

Okay. Thanks. Good morning. Thanks a lot for all the detail on COVID-19. I was wondering as you've gone through this work from home and remote and whatnot, is there any sort of potential permit costs savings coming out of this that has popped up? Travel and you have a dozen different Board meetings and companies you're looking at, is anything there that you think could be sustainable? I know you mentioned cost reductions of ITC would ensure that, those were reference to that.

Barry V. Perry -- President and Chief Executive Officer

Yeah. Ben, it's was a great question. And I would say, first of all, at the top, the transition to work from home has gone remarkably well. If you had asked me three months ago, could we put 5,000 people at home working and have a very effective system and communication system and all that stuff, I would have said, that's going to be a big challenge. But our IT team especially stepped up and it's working so well. And we actually are communicating -- we're communicating better, I think, at this point in terms of the senior team especially, and how we're monitoring each others businesses and we're even learning from each other that. So that's all going well.

I would say, it's a little early to say what the savings are associated with this and whether it's -- some of it becomes permanent,. We're learning. We're just -- I would think in the last couple of weeks here, we're sort of starting to feel a little more comfortable about how the current system is working. But definitely, we'll be looking at opportunities to really see if there's stuff here that we can keep once we get through the crisis. And clearing travels down, all that kind of stuff, that's evident at this point in time. But maybe there are bigger things around, some proportion of our workforce may be able to stay working from home and that could lessen the need for office space that kind of thing. So we're going to be looking at that. But at this point, a little early to say how much it is and what the real benefit could be?

Ben Pham -- BMO Nesbitt Burns, Inc. -- Analyst

All right. Great. And may be on the UNS, the hearing scheduled in the summer. Do you know what couple of a virtual hearing and submissions, if there is a situation where this could keep, can punch it down into the future?

Barry V. Perry -- President and Chief Executive Officer

David Hutchens, did you get that question? Yeah, I got that question. Thanks, Ben. Yeah, they have got extremely comfortable with virtual open meetings. And I'm sure we'll be able to do a virtual hearing for this particular circumstance. It's not a very complicated one. It's a single issue. There's not a whole bunch of interveners for this particular issue. So I think this will easily be done in the June timeframe virtually.

Ben Pham -- BMO Nesbitt Burns, Inc. -- Analyst

Okay. Great. And maybe one last question on the Belize. You didn't mentioned Belize in your commentary, that -- looks there's probably a couple pennies hit in last year. Is that because the conditions have improved or is it because year-over-year it's still challenging?

Barry V. Perry -- President and Chief Executive Officer

The water situation of the Belize is definitely still challenging. We've been actually holding back a little bit of water as we go into the dry season to make sure we have some amount of water to provide energy to the country. And so we're actually above the rule curve right now, but we're holding back on generation at the request of the utility there. So I think, Ben, we've got to wait now until August, September, October for the rainy season to start again.

And I remind everyone, it only takes one big tropical storm to fill that reservoir in Belize. We're all dancing for rain at this point. But right now, we are still struggling through a very severe drought there. We did pick up a little bit of earnings from our interest in Belize Electricity. A lot of folks maybe have forgotten this, but we do own one-third of the utility there, and it did pick up, I think, a little bit from that in the quarter.

Ben Pham -- BMO Nesbitt Burns, Inc. -- Analyst

Okay. That's great. Thank you.

Operator

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

Robert Hope -- Scotiabank -- Analyst

Yes. Good morning, everyone. Two questions. First one is just, can you add a little bit more color on the CAD0.03 hit at UNS? What type of assets are included in that trust just given that the CAD0.03 looks relatively large versus, I believe, Jocelyn said that, the trust had CAD30 million of assets and I guess subsequently, could we see a reverse of the [Indecipherable] versus the charge into Q2?

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

Yes, Rob. Yeah, they do have about CAD30 million. It's invested 60-40, I'm going to say, between equity and fixed income. It did take a bit of a hit this quarter, but we also had a slight gain in the first quarter of the previous year. So CAD0.02 actually, I guess, happened in this quarter, but it was coupled with the positive gain in the first quarter of last year. We don't typically see big movement that never ever reaches CAD0.01 for Fortis. But where the market took a bit of a drop at the end of March there, clearly, it added up to the CAD0.03 for Fortis.

Barry V. Perry -- President and Chief Executive Officer

Yeah. This market volatility, Rob, was -- it's interesting. You think about what happened in the last couple of weeks of the quarter on the stock markets and on foreign exchange for Canada. We were -- even on foreign exchange, we were like averaging for the quarter, like a CAD1.34, but the dollar ended up at the end of the quarter at like a CAD1.40 or something like that. So, we had to mark-to-market our contracts at the end of the quarter, but only earned during the quarter at CAD1.34. So it was a mismatch.

So this sort of acute movement in the markets near the end of the quarter introduced a little bit of volatility for us. The markets have bounced back. So I know David's team, they recovered a bit of that sort of trust account already and as markets continue to improve that we'll get that back. So it's really, I see not sort of like part of the normal business, it's definitely something we have to do to fund retirement benefits, but this market -- acute market volatility has caused us some issues with those accounts.

Robert Hope -- Scotiabank -- Analyst

All right, that's helpful. And then just a longer-term question. Just how are you thinking about the Eagle Pipeline in BC and what is your conversations with the developer there? It looks like you pushed it off to 2024 from late 2023?

Barry V. Perry -- President and Chief Executive Officer

Rob, I would say that, we're still including that project in our five-year plan. We're still spending money on behalf of that developer, that funding work that we're doing. So as long as we continue to see that progress from the customer, ultimately that is building the plant, we feel we have to include it. I am very excited about the prospects in BC generally. The -- our natural gas system there is a very large system. We're looking at some exciting opportunities to expand our Tilbury site. Jocelyn mentioned that in her upfront comments, to add more tank storage for resiliency, maybe some more liquefaction for bunkering and export opportunities. We really don't have those things in our five-year plan yet, but they're starting to advance and I'm getting more and more optimistic.

I know Roger's on the call and he's doing really great work for us in British Columbia. So when you think about governments and looking toward shovel-ready projects coming out of this crisis, we're hopeful that some of the work we're doing at BC will be on that list, and we'll be able to grow the business even faster in British Columbia.

Robert Hope -- Scotiabank -- Analyst

All right. Thank you for the color.

Operator

And our next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open. Yeah. Hey, everyone, good morning. Hope you're all well.

Barry V. Perry -- President and Chief Executive Officer

You too.

Michael Sullivan -- Wolfe Research -- Analyst

I just had a question, I wanted to dig a little deeper on the Arizona sales growth trends. Do you happen to have any of those data points on a weather normal basis just given, I think, that was -- had a pretty big impact in Q1 and in April as well?

Barry V. Perry -- President and Chief Executive Officer

I'm going to -- David Hutchens is on the line. I'm going to throw it over to David. We'll say this period that we have in that slide, Michael, the period mid-March to mid-April, is the shoulder period for the business in Arizona. So it's the toughest periods to predict trends. But David, you have all the details on that obviously.

David G. Hutchens -- Chief Operating Officer

Yeah. I'd just add, Barry, that on a weather normalized basis, residential is flat to slightly up. And remember also that weather normalization is quite a bit more of an art than science, and there's a lot of things moving around, particularly as we see commercial businesses change, how they're taking energy as well as the residential load shape, etc. So our models aren't really as great as we'd like them because we've never seen a load shape really quite like this. But given that, if you take out the weather normalization on an overall perspective, I would say it probably takes out a 1% or maybe 2% at most on that 4% that we were looking at as net down for that last 30 day outlook or look back.

So the other thing to keep in mind too though is that, these are shoulder months and we don't see a ton of weather typically in the March-April time period. As we get into the summer, we'll see a lot more sensitivity to weather, particularly with that many more people working from home. So the weather on a going forward basis will be something to watch for sure.

Michael Sullivan -- Wolfe Research -- Analyst

Great. Thanks. And then also just sticking with Arizona, the impact of the delayed rate case, I think, showed up in the quarter as a $0.02. Just any sense of how big that impact should be over the course of the year, given it's looking like rates are not going to be in effect until late 2020?

Barry V. Perry -- President and Chief Executive Officer

Michael, I tried to say simple on this stuff. We've got $700 million rate base that we're trying to get into rates, no real issues with that. A lot of the Gila River Unit, the reciprocating engines is sort of like good stuff. You apply 50% equity to that. Maybe just use some estimate of ROE that you feel comfortable with, and for the remaining time period for the year, do the math, it's pretty simple and that's sort of what we're seeing for the rest of the year at this point. It's unfortunate, that it's been that long since we set rates. We've done a great job investing in Arizona. We're looking forward to getting our new rates there and continuing to do our jobs. But there will be a lingering impact on the earnings in Arizona until we get those rates secured at the end of the year.

Michael Sullivan -- Wolfe Research -- Analyst

Okay. Great. And then just last one from me. I know you said a little early to talk about credit losses, but just any historical perspective, what those have looked like in past economic downturns and how much of that you've ultimately have to wear versus cover by riders?

Barry V. Perry -- President and Chief Executive Officer

I would say, first of all, from a Canadian perspective, like if you look back to '08, '09, we really didn't have the U.S. businesses back then. It gives you a sense how much we've grown. The Canadian customers pay their bills, frankly. And we've not seen historically large bad debts even in crisis. I know that the U.S. utilities, maybe there's a little more of that. But the work we've done, Jocelyn, we haven't like -- there's has not been -- this has not been a material issue historically, right?

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

Certainly, not material. And I do know in New York, during the last financial crisis that they actually did apply for a regulatory deferral and they did get it. But again, nothing material to Fortis in terms of the dollar amount we're talking about. But -- and I suspect in this case, depending on the amounts of credit losses that we're -- that the utilities may see, they very well may file for the regulator for deferrals of these amounts as well, but nothing material that we expect.

Barry V. Perry -- President and Chief Executive Officer

But Michael, we're on alert for it, we are monitoring it. But it's a little early also to say that there's any trend or anything at this point.

Michael Sullivan -- Wolfe Research -- Analyst

Awesome. Thanks again. Take care.

Operator

Your next question comes from Julien Dumoulin-Smith from Bank of America. Your line is open.

Ryan Greenwald -- Bank of America -- Analyst

Good morning everyone. It's actually Ryan Greenwald on for Julien.

Barry V. Perry -- President and Chief Executive Officer

Good morning, Ryan.

Ryan Greenwald -- Bank of America -- Analyst

Good morning. I appreciate all the new disclosures and sensitivity. So I was hoping you guys could kindly give us some color, I know the data that you guys provided there as you alluded to is the shoulder months, but can you kind of talk about your internal assumptions for load on a weather normalized basis into the summer, specifically in Arizona?

Barry V. Perry -- President and Chief Executive Officer

Ryan, it's pretty tough. I know the industry, I think what we're hearing is about a 4% net load between -- commercial being down, say 10% and residential being up 6%, 7%, that kind of thing. We're seeing about the same stuff at Fortis. But I -- the business in Arizona is such a wildcard with temperatures at the levels we're seeing is even today, like 105 degrees, you can quickly overcome any decline in sales on the commercial side by an uptick on the residential side. So on a day-like today, we're -- our sales are probably up in Arizona even factoring in the crisis. So that's the nuance for Fortis is trying to predict, where the weather is going to be in Arizona. So in the last two or three years, last year maybe it was a little more normal, but the prior two years we had warm weather and that overcame all the regulatory lag that we were experiencing or most of it in the jurisdiction, right?

Ryan Greenwald -- Bank of America -- Analyst

Yes. Fair enough. And then in terms of kind of -- so you have some mechanisms in place, but you have this rate lag in Arizona [Technical Issues] levers that you can pull across your jurisdictions just in terms of mitigating any load impact?

Barry V. Perry -- President and Chief Executive Officer

Sorry, Ryan. Can you -- we lost the first part of the question. Can you restate it?

Ryan Greenwald -- Bank of America -- Analyst

Yes. So you have some mechanisms in certain jurisdictions, but then you have the rate lag in Arizona. But just broadly, can you kind of talk about the levers that you can pull in terms of cost cuts in order to kind of mitigate any load impact?

Barry V. Perry -- President and Chief Executive Officer

I don't think there's a lot we can do, Ryan really, we are doing some -- obviously at ITC were load is down probably more than some of the other jurisdictions largely related to the auto plants. I know, Linda and her team are really focused on cost reductions to really mitigate the impact on customer's there. But it's not a bottom line issue. It's more about making sure we do the right thing. So, in the other businesses, we -- our focus really is mainly around making sure that grids are operational, that we're very reliable, that the service we're providing is there for our customers. And we've always done a great job of monitoring our operating costs, as we come in for frequent rate cases, especially in our Canadian jurisdictions.

So I don't think there's a lot of opportunity to cut costs in the business to sort of create more earnings in one part of the business offset and impact in another part of the business. That's sort of not the way we operate the business overall. Some other companies like do that way, but for us, our businesses are independent businesses that are implementing their business plans, executing on their capital and currently doing a really good job. We haven't really seen any, because I think some of the early practices around how we approach the work and safety of our employees, we really haven't seen much at all in terms of decline in the work that we're doing in the field.

Ryan Greenwald -- Bank of America -- Analyst

Got it. Appreciate the time.

Barry V. Perry -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Mark Jarvi from CIBC Capital Markets. Your line is open.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Great. Good morning, everyone. Maybe just following up on that question where you said, you couldn't necessarily do a lot on the opex, what about given there is a slight push out in the TEP rate case about managing capex just as the regulatory lag here gets extended a bit?

Barry V. Perry -- President and Chief Executive Officer

No, I don't think we're going to do that. The capex we're putting in the ground and TEP is required, the fact is, is we have an historical test year there. The crisis happened. It's not unusual that the commission would have delayed in this circumstance. The process that's -- we're seeing that happen across many jurisdictions. So, we knew coming in, that it wasn't historical test year. Like, I would hope -- listen, I'd hope over time and I'm always encouraging David and the team to try to find ways to improve, I suppose the regulatory compact in Arizona is a recently with this case our equity -- looks like our equity is going to move up from 50% to 53%. So that's a positive development. But I don't see ourselves really cutting capex or anything like that.

There may be some way of moving capital around a few months here or there that helps a little bit. We'll take advantage of that. But from an overall direction, how we look at Arizona is that it's a really fast growing jurisdiction, typically leads the nation in the top one, two or three states in terms of economic growth. Over the long haul, we have tremendous investment opportunities there. And over time, we're going to see that earnings growth. It's just that we'll have these periods of flatness between rate cases. And fortunately, they're about 20-plus-percent of Fortis overall. We can absorb that, but we're not looking at severe changes in terms of how we run the business, that's for sure.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Okay. And then just turning to BC. Can you just clarify whether or not there actually is decoupling in place in the interim rates? Or that comes in how can you get through this rate case? And then given that you're kind of saying there's a revenue protection there. What is that from the electric utilities? Is that just a higher fixed charge component?

Barry V. Perry -- President and Chief Executive Officer

So was the question about BC, British Columbia?

Mark Jarvi -- CIBC Capital Markets -- Analyst

Yes, that's correct.

Barry V. Perry -- President and Chief Executive Officer

Yes, we have Roger, maybe he can describe the mechanism. But I think it's a pretty strong mechanism that protects volume, right?

Roger Dall'Antonia -- President and Chief Executive Officer

Yes. So there's two metrics we've had decoupling for decades on our residential and commercial that protects usage. And then under the PVR that ended in the -- at the end of 2019 we had a revenue flow through, it captured all other revenue variances. We've applied in the MRP that we're waiting for on the decision. We've applied for a continuation of that revenue flow through. So currently we're using the revenue flow through and we expect it to be approved when we get to raise order. But absent that, we've always had the decoupling going back years that covers our residential and commercial customer classes.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Okay. Thanks for clarifying that. And then I know it's a small segment of earnings, but the Caribbean, given the drop in tourism. Maybe just speak to what can be done to sort of mitigate some of the drop in the local there? And how severe could the earnings impact would be?

Barry V. Perry -- President and Chief Executive Officer

I don't see a material earnings impact coming out of the Caribbean. And in fact, in Grand Cayman right now, we're not seeing a lot of sales related changes. It's not as -- Grand Cayman is not as subject to the tourism trade as Turks and Caicos is. Turks and Caicos is a little down. We made -- I suppose, we really made headway in Turks and Caicos just before the crisis by getting rates settled for the recovery of hurricane cost. And unfortunately when the crisis happened, we did have to delay the implementation of that rate increase. So overall, I remind everyone the Caribbean in total is 3% of the Company, so really it's not significant. And it may be a penny or something like that overall for Fortis, but not significant.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Okay. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Linda Ezergailis from TD Securities. Your line is open.

Linda Ezergailis -- TD Securities -- Analyst

Thank you. I'm wondering, if you put any thought to maybe reassessing your rate or your revenue allocation across customer classes to the extent that potentially industrial load doesn't recover in certain jurisdictions very quickly and maybe even some impact remains for commercial customers. What -- how quickly could that be done in various jurisdictions? And do you think the regulator would be open to that and/or potentially increasing your fixed charges as well?

Barry V. Perry -- President and Chief Executive Officer

Good question, Linda. Hope you're well. I think first of all, industrial class, we don't get a lot of margin from industrial customers usually that large volume, customer that got the lowest power rates and we don't get a lot of volumes. So a lot of margin I should say. But if you extend your questions to commercial customers, there's obviously more margin there. I think, we'd have to see this sort of pandemic last a little longer here to start thinking about rate design and customer allocation, customer costs, revenue requirements allocation, I guess between customer classes. I think we'll probably learn something from this. But I think it's a bit early to say, we're going to be filing new applications to try to allocate our costs to different classes based on what we're seeing now on the pandemic. So -- but interesting thought for sure.

Linda Ezergailis -- TD Securities -- Analyst

Okay. And I know it's early days and you're focused on the safe operations for your customers and your employees. But you did mention this possibility that if growth were added your equity needs might change. So I'm just wondering if you can comment on at what point the organization would be open to looking at maybe opportunistically acquisitions and what factors would need to be in place that would make you more interested in capitalizing on those opportunities?

Barry V. Perry -- President and Chief Executive Officer

Yes. We have this sort of situation that we're fortunate, we have a strong organic growth story, great bunch of businesses now that have -- this rate based growth of around 7% and that's using exchange rate at CAD1.32. If we believe the Canadian dollar is going to be at CAD1.39, that rate based number, I think the next three years were 8-plus percent rate based growth. So we had a big tailwind there. So Linda, no one's buying anything in the middle of this crisis, unless the company is really in trouble in our sector, I don't think any transaction happens in this crisis.

So really coming out of it into next year, you might see some companies trade. I'm not anxious to get back at that. I really am. I think we've got a great company, a great portfolio of businesses that are growing well at this point in time. Acquisitions are risky. I won't rule it out because we always got to look at the opportunities to create shareholder value. We've got a great business model at Fortis and that's showing up here in this crisis, in terms of our local management teams can imagine centrally managing a crisis like this across multiple jurisdictions in Canada, in the U.S. Like the fact that we have this business model that we have is working out so well Fortis. So I do know that we can add another company to that in the future. Just that not something we're focused on right now.

Linda Ezergailis -- TD Securities -- Analyst

Okay. Thank you. And I realized your DRIP participation rate has gone down with elimination of the discount. But I'm just wondering, what options you might have to turn it off and what factors would have to evolve or change for you to consider turning that off entirely?

Barry V. Perry -- President and Chief Executive Officer

I think there's some shareholders have liked the fact that there's the DRIP. So I'm not thinking we'll turn it off. I mentioned earlier on the call that the participation rates have declined a little more than what we were expecting. And what we're learning is the fact that, a lot of the banks are doing their own DRIPs, now that there's no discount in ours. They don't -- I guess they can figure out how to do that without creating too much risk for themselves and offer these reinvestment programs. So we don't get issue shares and treasury, they're just bought in the market by the bank. So we're not seeing that sort of cash flow coming in.

We're looking at that and see if there's a way that we can change that. Maybe the possibility is we even go back to adding a little discount on the DRIP again to sort of normalize the participation. So that's one possibility. So I guess what I'm saying is, I do value the DRIP. I do value what it brings to retail shareholders and I was a little surprised that the mechanics behind it in the Canadian market that allow DRIPs to continue without the company's involvement basically.

Linda Ezergailis -- TD Securities -- Analyst

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Patrick Kenny from National Bank Financial. Your line is open.

Patrick Kenny -- National Bank Financial -- Analyst

Yes. Good morning. Just on the rehearing for the base ROE at ITC. Any thoughts on how this recent volatility, both the capital markets and the overall economy might help support your case in convincing the FERC to maintain a methodology that supports a higher base ROE? If I recall, 2008, 2009 had somewhat of a positive impact on base ROEs after the dust settled. So I'm just wondering if you're expecting a similar outcome this time around with the FERC at ITC and maybe perhaps across some of your other utilities as well.

Barry V. Perry -- President and Chief Executive Officer

Patrick, that's a great question. I'd have to say, we'll use all the tools available to us and I know Linda's on the call and she can wait in here. But the messaging is consistency at FERC and the ROE needs to be enough to inset the building a transmission. And that ROE means it's got to be higher than state level ROEs. So I believe, FERC understands that we just got to figure out how to get to the other end of all these processes that we have in place at this point in time. We are -- I think, seeing some positive commentary coming out of the commission chair.

And I'm hopeful that over the next maybe 12, 18 months here, we'll get some of these matters resolved and get back to that -- knowing what the ROEs are going to be, so that we can make the decisions necessary to build out the transmission system in the U.S. It's such a marvellous asset and it's facilitated such improvement in renewable energy and all those things. So I think FERC understands the importance of it all and we're hopeful that we'll come out with the right end of it. Linda anything you can offer as well on the current volatility and how it sort of plays into everything.

Linda Apsey -- President and Chief Executive Officer

Well, Barry, I think you stated it very, very well. And just to kind of repeat what Barry said, look, I mean I think FERC has been, I think it's keeping a close eye on sort of what is happening in the market. I think they understand very well the impact of the economic downturn and COVID and sort of just how important to have a sustainable healthy ROE is to continue to attract transmission investments. So, while we don't have any specifics in terms of what actions they might take or when, I think we continue to view this as just I think a reminder to FERC about how important, stable, sustainable ROEs are. And so I think we remain hopeful, that we will see some actions, some decisions before the end of the year on the ROE case. But certainly, we don't really have any particular insight on timing, but we are hopeful and optimistic.

Patrick Kenny -- National Bank Financial -- Analyst

Okay. That's great. Thank you. And then maybe just for Jocelyn on to go back to the FX tailwind. You might've touched on it, but can you confirm if you're thinking about locking in perhaps your next 12 to 24 months of U.S. dollar cash flow here at current rates of, call it $1.40. Just to lock in some of that tailwind to offset the impact of COVID.

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

Yes, Patrick, we're thinking about it every day and we're on top of it and we have done some extra hedging, as we've seen the rates increase. So, you're right on the mark there and that's something that we look at every day and we're doing more of it.

Patrick Kenny -- National Bank Financial -- Analyst

Maybe can you just remind us on the negative outlook from S&P, outside of the COVID uncertainties and whatnot? What needs to be achieved to get back to the stable outlook and perhaps your internal expectations on when you might hit those targets?

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

I think for S&P -- for us, the negative outlook similar to the industry outlook is all related to them getting comfortable with how the short-term cash flows are impact. And how we set up potential regulatory mechanisms to deal with them and how long it's going to take to recover some of those costs over time. So I think they just want to get comfort that the regulatory mechanisms are working as intended, which we have a number of these mechanisms and to have some visibility for the long-term recovery of cash flows. So once I think regulators get through sort of solidifying these mechanisms and implementing these mechanisms in middle of COVID, I think that S&P for us will get comforted on our cash flow.

Patrick Kenny -- National Bank Financial -- Analyst

And any comment on when you might decide to file for future rate recoveries due to credit losses? Is that back half of 2020 process? And perhaps, what's the timeline for those recoveries to start showing up in the results?

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

Yes. So that's a bit of a tough question, because all of our utilities will be impacted differently and it will be either material for some or not material for others. Again, we're not expecting it to be material support, watching it quite closely clearly. But I suspect that we will have to have a little bit more time to assess credit losses before any of the utilities stand in front of the regulators looking for recovery.

Patrick Kenny -- National Bank Financial -- Analyst

Okay. That's great. That's it for me. Keep well everybody.

Barry V. Perry -- President and Chief Executive Officer

Thank you, Patrick.

Operator

We have no further questions at this time. I would like to turn the call back over to Stephanie Amaimo for any closing remarks.

Stephanie Amaimo -- Vice President, Investor Relations

Thank you, Lisa. We have nothing...

Barry V. Perry -- President and Chief Executive Officer

Stephanie, this is Barry. I just want to maybe add a closing comment before we go. I just want to say to everyone, I'm so proud of my team and all the employees Fortis and how we responded to this crisis. We're doing our darnedest to make sure we can deliver safe, reliable energy right now. And I'm also proud of the industry generally. This industry has responded so well to this crisis. And obviously, knock on wood that hopefully we can keep doing that. And also I'll tip my hat to the regulators. Regulators are working with us, with the customers to try to make sure we come through this in a good spot where we're taking care of our customers, but also taking care of the utilities. And I'm really very optimistic that that will come through this crisis and we're in a good shape and get back to normal business once we get to the other side of it. So thank you very much. Back to you, Stephanie.

Stephanie Amaimo -- Vice President, Investor Relations

Thank you, Barry and thank you, everyone for participating in our first quarter 2020 results call. Please contact investor relations, should you need anything further. Thank you for your time. Stay safe and have a great day. Thank you.

Duration: 66 minutes

Call participants:

Stephanie Amaimo -- Vice President, Investor Relations

Barry V. Perry -- President and Chief Executive Officer

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

David G. Hutchens -- Chief Operating Officer

Roger Dall'Antonia -- President and Chief Executive Officer

Linda Apsey -- President and Chief Executive Officer

Robert Kwan -- RBC Capital Markets -- Analyst

Ben Pham -- BMO Nesbitt Burns, Inc. -- Analyst

Robert Hope -- Scotiabank -- Analyst

Michael Sullivan -- Wolfe Research -- Analyst

Ryan Greenwald -- Bank of America -- Analyst

Mark Jarvi -- CIBC Capital Markets -- Analyst

Linda Ezergailis -- TD Securities -- Analyst

Patrick Kenny -- National Bank Financial -- Analyst

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