Fortis Inc. (FTS) Q1 2021 Earnings Call Transcript

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Fortis Inc. (FTS 0.41%)
Q1 2021 Earnings Call
May 5, 2021, 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 Debrah and I will be your conference operator today. Welcome to the Fortis Q1 2021 Conference Call and Webcast.

[Operator Instructions]

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

Stephanie A. Amaimo -- Vice President, Investor Relations

Thank you, Debrah, and good morning everyone, and welcome to Fortis's first quarter 2021 results conference call. I'm joined by David Hutchens, President and CEO, 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. 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 2021 MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars.

With that, I will turn the call over to David.

David G. Hutchens -- President and Chief Executive Officer

Thank you, and good morning, everyone. Today, we are pleased to report a strong first quarter.

On the financial front, EPS growth was supported by our record capital investments made in 2020 and during the first quarter of this year. Higher earnings in Arizona also contributed to year-over-year earnings growth.

On the operations front, our systems continued to perform well, with our people focused on delivering safe and reliable service. As a good example of this, in Arizona, our gas and electric utilities maintained reliable service to our customers throughout Winter Storm Uri that affected so many others surrounding states. It serves as a reminder that planning for the long term and preserving adequate capacity is critical to the provision of energy service to our customers,under an increasingly wide range of circumstances.

On the ESG front, we continued to advance key initiatives.

As you may have read in our circular, we have 10 current directors and two nominees up for election. Assuming all nominees are elected at our Annual Meeting tomorrow, the Fortis Board will have reached gender parity for the first time in our history. This is a significant milestone in our diversity and inclusion journey.

We are also strengthening our compensation metrics with the addition of new ESG-related measures. The metrics are focused on carbon reduction and climate change, building on our corporatewide target to reduce carbon emissions 75% by 2035.

Additionally, we are happy to report that our credit ratings were affirmed by S&P in April and our outlook was revised to stable from negative. And yesterday, DBRS Morningstar upgraded our credit rating from BBB (high) to A (low).

These positive developments underscore our financial strength.

Lastly, in April, FERC issued a supplemental notice of proposed rulemaking on incentives. Effectively, FERC is proposing to eliminate the 50 basis point regional transmission organization, or RTO ROE adder, for utilities that have been RTO members for more than three years. Not only were we surprised in the reversal of FERC's direction on the RTO adder, but we are extremely disappointed, given the important role RTOs play in facilitating a reliable, cost-effective and resilient grid while enabling clean energy goals.

Turning to Slide 5.

Through the first quarter, CAD900 million of capital was invested in our utilities to support resiliency, modernization, and cleaner energy projects. For 2021, our CAD3.8 billion capital plan remains on track. Higher-forecasted capital expenditures are expected to offset a lower foreign exchange rate.

Recently, we completed the Oso Grande Wind project at Tucson Electric Power. The 250-megawatt project is the company's largest renewable energy resource with enough power to energize nearly 100,000 homes. The project complements TEP's Integrated Resource Plan, which calls to exit coal and add 2,400 megawatts of new wind and solar power, and 1,400 megawatts of energy storage by 2035.

And in Ontario, Wataynikaneyap Transmission Power Project continues to progress. The 1,800-kilometer transmission project is the largest First Nations majority-owned infrastructure project in Canada's history. With this ownership structure, the project is a model for indigenous communities across Canada. Fortis brings a 39% equity interest and its utility expertise as project manager to the partnership.

At the end of the first quarter, 850 transmission towers have been installed, with approximately 1,100 workers on site, including First Nations members. The project is on track to be completed in 2023.

By replacing diesel fuel generation with cleaner energy from the Ontario grid, the Wataynikaneyap project is estimated to reduce emissions by 6.6 million tons over a 40-year timeframe. Additionally, the project is expected to generate significant benefits for First Nations communities, including access to reliable energy supply and economic benefits from construction.

We are very thankful for the partnership with First Nations communities, as we work together to realize our vision, while advancing the project during the pandemic.

As Slide 6 highlights, we expect to invest CAD19.6 billion in our systems through 2025. With nearly all of our capital supporting energy delivery and the transition to a cleaner energy future, we have a balanced low-risk plan. Investments including renewable generation, such as wind, solar, and battery storage, interconnections of renewables, liquefied natural gas, and renewable natural gas continue to support our sustainability strategy.

The capital plan is expected to increase rate base by CAD10 billion from CAD30.5 billion in 2020 to over CAD40 billion in 2025, supporting average annual rate base growth of approximately 6% through 2025.

Beyond the base capital plan, we are focused on incremental opportunities that expand and extend growth.

First at ITC, the Midcontinent Independent System Operator, or MISO, has initiated a long-range transmission planning process. In March, MISO outlined conceptual maps, identifying potential new transmission required to enable more renewable generation in the region. Specific details regarding the size and location of MISO long-range transmission projects remain unknown until the studies are completed.

But, as Slide 7 highlights, ITC's assets are strategically located to interconnect the Midwest to cleaner energy resources. Also, at ITC, the proposed Lake Erie Connector Transmission Project continues to progress. In April, the Canada Infrastructure Bank announced that it will fund up to 40% of the project costs. ITC will own the transmission line and be responsible for all aspects of design, engineering, construction, operations and maintenance. The project is expected to bring an estimated CAD100 million in annual savings to Ontario customers by connecting their grid to the PJM Interconnection, the largest electricity market in North America.

Additionally, the project is expected to reduce greenhouse gases by up to 3 million tons per year. While the project is fully permitted and shovel-ready, it is not included in the current five-year plan, as we continue to negotiate transmission service agreements. Once finalized, construction of the projects would take four years to complete.

In Arizona, the team is working to advance its clean energy goals, which requires investments in the range of CAD4 billion to CAD6 billion to execute Tucson Electric Power's Integrated Resource Plan. And in British Columbia, we continue to pursue further development of the Tilbury site, long-term contracted LNG opportunities, and additional investments required to obtain FortisBC's target to reduce customer greenhouse gas emissions 30% by 2030.

Lastly, the Biden administration recently released its proposed infrastructure plan, calling for carbon-free power from the electricity sector by 2035. This could accelerate capital investments at our U.S. utilities through transmission interconnections at ITC, clean generation and energy storage in Arizona, and electric vehicle infrastructure in the nine U.S. states that we serve today.

With a strong track record of increasing dividends for the past 47 consecutive years, coupled with our low-risk growth strategy, we remain confident in our 6% average annual dividend growth guidance through 2025.

Now, I will turn the call over to Jocelyn for an update on our quarter's financial results.

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

Thank you, David, and good morning everyone.

For the quarter, adjusted net earnings was CAD360 million or CAD0.77 per common share, CAD0.09 higher than the first quarter of 2020. As David mentioned, increased rate base at our regulated utilities and higher earnings in Arizona were the main growth drivers for the quarter.

Slide 12 highlights EPS drivers for the quarter by segment.

Our U.S. electric and gas utilities provided the most significant contribution, growing EPS by CAD0.05 for the quarter, compared to the same period last year. Our Arizona business contributed a CAD0.04 EPS increase; this was driven by new rates at Tucson Electric Power, effective January 1st, offset by higher operating costs associated with planned generation maintenance.

Additionally, the CAD0.02 impact of losses on retirement investments, recognized in March of 2020, favorably impacted the quarter-over-quarter change. In New York, Central Hudson increased EPS by a CAD0.01, driven mainly by rate base growth and timing of operating costs. And CAD0.02 EPS increase for both ITC and our Western Canadian utilities was mainly due to rate base growth.

Our Energy Infrastructure segment contributed a CAD0.01 EPS increase, driven by production at the Belize Hydroelectric Generating facilities. And in our Corporate and Other segment, the CAD0.01 EPS increase mainly reflects losses on foreign exchange contracts that were recognized in the first quarter of last year. This increase was tempered by higher weighted average shares outstanding issued through our dividend reinvestment program.

And lastly, a lower U.S. dollar to Canadian dollar exchange rate unfavorably impacted quarterly results by CAD0.02.

All in all, a very strong quarter with minimal financial impacts from the pandemic.

Turning now to an update on our credit ratings and liquidity.

Earlier this year, we highlighted the significant improvements in our cash flow to debt and holding company debt ratios over the past couple of years. Throughout the pandemic, we have maintained a strong credit profile, as our utilities have managed costs and regulatory mechanisms that serve to stabilize cash flows and earnings have operated as expected.

As David mentioned, in April, S&P affirmed our A- issuer credit rating and our triple BBB+ unsecured debt rating, and also revised our outlook to stable from negative. And just yesterday, DBRS Morningstar upgraded our corporate and unsecured debt credit ratings from BBB (high) to A (low). Both rating agencies highlighted our improved credit profile and operational and financial stability throughout the pandemic.

Overall, our credit metrics, coupled with Fortis's low business risk profile, positions us well within our existing investment-grade credit rating.

And finally, we continue to maintain strong liquidity with over CAD4 billion available on our credit facilities.

Now, turning to Slide 14 for an update on our ongoing regulatory proceedings.

At ITC, FERC issued a supplemental notice of proposed rulemaking related only to the incentive adder for participation in the RTO. Notably, the commission modified the initial NOPR from March 2020, which proposed to increase the RTO adder to 100 basis points. However, the supplemental NOPR, now seeks to eliminate the 50 basis point RTO adder for transmission owners that have been a part of the RTO for more than three years, including ITC.

As David highlighted, we were disappointed with FERC's proposal, given the current public policy goals to encourage investment in transmission, to enhance grid reliability and transition to a cleaner energy future. We believe utility participation in an RTO provides customers with benefits, that far outweigh the costs.

ITC is reviewing the supplemental NOPR and will be providing comments, which are due to FERC later this month. There is no stipulated time frame for FERC to issue a final rule, and any impacts would be perspective. As a reminder, every 10 basis points change in ROE at ITC impacts Fortis's annual EPS by approximately CAD0.01.

In New York, settlement discussions are ongoing in Central Hudson's general rate application and we do expect the decision later this year. Earlier this year, the British Columbia Utilities Commission initiated a generic cost of capital proceeding for all regulated utilities in BC, including our gas and electric businesses. The proceeding is expected to set cost of capital parameters, effective January 1st, 2022.

In March, FortisAlberta received a decision on the 2022 generic cost of capital proceeding. Current cost of capital parameters remain in place for 2022.

And lastly, in conjunction with the expiration of FortisAlberta's current performance-based rate-making, or PBR term, ending in 2022, the AUC has initiated a process to gather stakeholder feedback on how a cost of service rebasing can be completed to establish base rates after 2022. Concurrently, the AUC is evaluating the effectiveness of past and current PBR plans to determine whether a third PBR term should be established. Reports on the findings are expected in mid-2021.

Before wrapping up my remarks, I would like to discuss the potential implications of the recently proposed tax changes and infrastructure spending.

From a U.S. tax perspective, the proposed increase in the corporate tax rate from 21% to 28%, if passed, is expected to increase earnings and cash flow, as it will have some of the reverse effects of the 2017 U.S. tax reform. The Made in America Tax Plan also includes proposals to introduce transmission investment tax credits. This is expected to encourage large regional projects, while the newly proposed Department of Energy Grid Development Authority should streamline, permitting and planning of regional and intra-regional transmission investments.

While not depicted on the slide, the Made in America Tax Plan also introduced the minimum tax on book income, which could impact timing of cash flows, as well as changes to international taxation. The Canadian federal government also released its budget last month, including proposed changes to interest deductibility, which could also impact timing of cash flows and changes in international taxation.

Draft legislation in both countries has not yet been released. We will continue to assess and we'll provide further information as more details become available.

With respect to infrastructure spending, while we recognize the American Jobs Plan requires final approval, we are pleased to see a strong focus on the critical role transmission plays in facilitating new renewable generation and grid resiliency. This emphasis on investments in clean energy aligns with Fortis's focus on improving our low-carbon footprint and our goal to deliver a cleaner energy future.

That concludes my remarks and I'll now turn the call back to David.

David G. Hutchens -- President and Chief Executive Officer

Thank you, Jocelyn.

In summary, we remain steadfast in providing safe and reliable service, with the safety of our employees and customers top of mind. We have a strong five-year growth outlook, supporting our 6% average annual dividend growth guidance through 2025. And as we look forward, we are optimistic about the growth prospects in our business, including the heightened focus on the clean energy transition across North America.

I will now turn the call back over to Stephanie.

Questions and Answers:

Stephanie A. Amaimo -- Vice President, Investor Relations

Thank you, David. This concludes the presentation. At this time, I'd like to open the call to address questions from the investment community.

Operator

Thank you.

[Operator Instructions]

Your first question comes from the line of Maurice Choy with RBC Capital Markets. Please proceed with your question.

Maurice Choy -- RBC Capital Markets -- Analyst

Thank you and good morning.

My first question relates to the FERC NOPR. Recognizing that the RTO adder was obviously the main topic of the supplemental NOPR, but can you discuss the potential upside to ROE from other matters in the March 2020 NOPR, such as the cost benefits, reliability? And also, how do you see this decision, in April, impacting the Transco independent adder?

David G. Hutchens -- President and Chief Executive Officer

Yeah. Thanks, Maurice, and good morning. Glad you could make it on the call today. As you know, the March 2020 incentive NOPR, that came out, had several different categories. It actually -, as you mentioned, on the RTO adder side of things, it actually was increasing that 50 basis point current adder to a 100, that was part of that original proposal, which is why we are so surprised with that switch of going from 50 to 100, and then to zero.

But, it also included another 100 basis points for reliability projects, 100 basis points for new technology, and then another 50 basis point for projects that improved efficiency or reduced costs. So, overall, there was 350 basis points of additional incentive opportunities there on a project-by-project basis, although within that NOPR it did cap the total of any one project to 250 basis points.

So, we obviously are very strong proponents of looking at ways to incentivize new transmission on a going-forward basis. Again, surprised that that is the RTO reduction. But, frankly, it's early days; it is just a NOPR. Basically, we have the original NOPR and the supplemental NOPR sitting here at basically a bid-ask spread of zero and 100. So, we don't know where that will end up and we will obviously make comments accordingly on the importance of the RTO adder for Trans--, basically, for getting people inside those RTOs.

It is extremely important to recognize that the bigger the markets are, the lower the costs are; the higher the reliability and the more renewable energy that we can integrate into the system. So, we really think that, that was the wrong direction to send.

On the independent adder, we've been fighting those for a while. And I don't think this provides us any additional insight on where that might go.

Maurice Choy -- RBC Capital Markets -- Analyst

Great. And maybe related to that, my second question, your outlook comments noted that there are obviously further expansion in terms of electric transmission grid in the U.S., as that visibility on initial projects could be as early this year.

Can you elaborate a little bit more about this visibility, where do you see this growth coming from? And also, timing in terms of how potential projects could fall within--, just to look it up as part of your five-year plan?

David G. Hutchens -- President and Chief Executive Officer

Yeah. So, I'll turn this over to Linda Apsey, the CEO of ITC here in a second.

Just real high level, MISO is in that planning process and they put out a--, there is a ton of great information on their website related to basically these three different futures that they're analyzing that will have different percentages of renewable integration, as well as different growth scenarios.

I would point out, though, that when you look at those futures, even the most aggressive one might seem a little bit stale these days as we've cranked up our level of greenhouse gas reductions in the United States, at least the targets that we're putting out there from the Biden administration. So, even that might be, I would say, I wouldn't say conservative, but might not be as aggressive as what we might see over the next 20 years, because it is that that 20-year outlook.

I would suggest that there might be the need for a future for, to see if we actually followed the Biden energy plan and had those, that 50%--, 50% to 52% greenhouse gas reductions by 2030 and what that would look like.

But, I'll turn it over to Linda, so that she can tell us about the timeframe and expectations there?

Linda Apsey -- President and CEO, ITC Holdings Corp.

Great. Thanks, Dave, and good morning, Maurice.

Yeah. As Dave mentioned, I would characterize MISO as perhaps the most advanced in their long-range planning efforts. And as Dave, I think, outlined in terms of the different futures, the different scenarios, we are expecting MISO to announce kind of their, what I would call, their basket or portfolio of first-mover projects later this year, probably in the October timeframe. And the hope is that there would be a sort of--, a set of projects, these first-mover projects that would be included in MISO's, their MTEP plan, that's their annual transmission expansion plan that goes to their Board of Directors for approval.

So, if all goes as planned and as indicated, we could anticipate seeing a portfolio of projects in the latter part of this year. I would say, consistent with that, there is a group of MISO transmission owners that is also advancing principles around cost allocation, that would be coincident with the projects that are put forth.

I think as we have talked about previously, the biggest sort of hurdles, if you will, to realizing these regional transmission projects, obviously the planning, collaboration, and coordination, but certainly also having on cost allocation methodology that can realize the projects that are put forward. So, we are very optimistic, given, I would say, a lot of the activity, the conversation, the collaboration, the engagement across MISO. And so, certainly, I think--, as Dave suggested, I think as we move forward, we'll continue to see MISO refine their future studies based on assumptions around penetration of renewable levels. But, overall, very optimistic on the MISO planning process.

And meanwhile, SPP, they too are actively engaged and involved in a long-term transmission planning effort, not quite the same visibility at this point in time, in terms of timing. But, again, I would say, all of this is in a very constructive positive direction.

Maurice Choy -- RBC Capital Markets -- Analyst

Great. Thank you very much.

Operator

And your next question comes from the line of Linda Ezergailis with TD Securities. Please proceed with your question.

Linda Ezergailis -- TD Securities -- Analyst

Thank you.

Looking at some of the recent positive actions from some of the debt-rating agencies, I'm wondering when you expect to next get an update from Moody's? And what sort of changes, if any, might come on that front?

And, I guess, as a follow-up question, I'm just wondering how the debt-rating agencies reflect some of the uncertainties around the FERC NOPR; recently, the Biden infrastructure plan, some of the proposed tax changes in Canada and U.S.; these are few moving parts. And I'm just wondering how that's reflected in their base outlook and scenarios?

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

Hi, Linda, it's Jocelyn.

Yeah. With respect to Moody's, next update, I would suspect, it will be over the next couple of months. We have recently met with all three rating agencies, DBRS, S&P, and Moody's, just to give them an update on our Annual 2020 results. So, all of those discussions went very well. And as you can see in this quarter, we did receive an upgrade from DBRS and the negative outlook was removed from S&P, which we were pleased about.

Our conversations with Moody's were good and I can't predict the outcome of that. But, I'm not anticipating much change there. Like I said, I think all rating agencies were pleased with the improvements that we've made in our balance sheet over the last couple of years. So, we had good discussions.

With respect to how they reflect the NOPR, you've probably seen, I think, that S&P came out with some commentary around the NOPR that suggested that--, that they would expect the NOPR, if approved, would temper cash flow metrics for Fortis down to the lower end of the range, but not drive us down below the range which isa fair point, if that is the only thing that's approved in isolation of everything else. So, they recognize--, they're all aware of the NOPR, they're aware of the Biden infrastructure plan, they're all aware of the tax.

But, as you say, they are moving pieces. And it's hard to nail down exactly what any of them potentially mean. And Fortis has worked through this in the past. And I envision we're going to work through all of this going forward. So, no real red flags here with the credit rating agencies, and we'll continue to communicate with them and keep them apprised of any developments.

Linda Ezergailis -- TD Securities -- Analyst

Thank you.

And as a follow up, with respect to some of these additional potential opportunities, Tilbury, Lake Erie Connector, etc. If they were to reach a positive FID, this year, what are the thoughts on how they might be optimally financed?

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

For the Tilbury?

Linda Ezergailis -- TD Securities -- Analyst

Well, just generally adding, like additive to your already pretty robust rate base growth outlook. Just wondering, where the incremental capital may come from?

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

Yeah, [Indecipherable] Linda. Yeah, you're right.

We've also stated that when we looked at our CAD19.6 billion capital plan, we were expecting that the DRIP will be a little bit of a lower participation. But, as you know, participation is back up to, I must say, pre-2019 levels, go back up to that 35% participation. So, we will have some extra capacity under our DRIP.

And I've always said that if we're in a position where we're growing even faster than that, then, I say this to David all the time, everything goes back on the table from a funding perspective. But, right now, we do have some current flexibility with our DRIP program giving us extra, above than what we thought when we set that CAD19.6 billion plan.

Linda Ezergailis -- TD Securities -- Analyst

Thank you. And just a question around your cash flows from operations.

I noticed that your accounts receivable is creeping up a little bit, recognizing that there's been some relief provided to customers during the pandemic. What's the outlook in the trend, or whether that might continue to grow through the year, whether that might be recovered through regulatory mechanisms over time, or potentially stay flat for a while, how might we think of that trending?

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

Linda, that's a great question. And last year, certainly, with the start of the pandemic, it was an area that a lot of companies focused on, no doubt, including Fortis. We did see an increase in receivables, last year. I do feel like we've--, it's hard to predict entirely, but I do feel that we're in a good place right now. We adjusted our reserves to reflect the fact that our receivables were increasing, feel that we've hit a plateau; and that we're in a good spot, we're not seeing it worsen, which I think is a very good point.

Clearly, we're all looking for this pandemic to be over and to get back to more normal operations, and we're not going to take our eye off of this. But, I would say, yes, you're correct, we did see an increase. But, we're starting to see it levelized and we're in a good position from how we provided for that in the previous year.

David G. Hutchens -- President and Chief Executive Officer

I would just add to that. Probably, the two utilities that are most exposed to that, that don't have their regulatory mechanisms defined as clearly as others, would be UNS and CH. And I'd add that, as we're coming out of the pandemic here, those are two of the states that are probably coming out pretty quick here. So, we would expect that recovery to obviously impact us in a positive manner from a customer payment perspective.

Linda Ezergailis -- TD Securities -- Analyst

Thank you. I'll jump back in the queue.

Operator

And your next question will come from the line of Rob Hope with Scotiabank. Please proceed with your question.

Robert Hope -- Scotiabank -- Analyst

Yeah, good morning, everyone.

First question, just on the Lake Erie Connector. So, it looks like the feds are on board with the project. However, we still need to offtake, which we expect will be driven by the provincial government. Are the feds talking to the provincial government? Is the Canadian infrastructure banks' transaction, a precursor to contracts there? Or maybe, more broadly, where are we in that project right now?

David G. Hutchens -- President and Chief Executive Officer

Yeah. So, we can't really tell exactly what's going on behind the scenes, but we're obviously having a lot of conversations with the provincial government in Ontario there, related to this project. But, having the federal government involved and having the Canada Infrastructure Bank come out in support of this project, I think, is all very positive for us to progress that project. It's a great project. I mean, just laid out there, it's got a great saving story, it's got a great greenhouse gas reduction story, it's got a great reliability story.

It is a really, really good project. This is kind of the things that when you think about big transmission projects with interconnect markets that we should be focused on longer term. In fact, this is one of them that's called out specifically in one of the most recent studies that show all these basically shovel-ready projects that are raring to go. Lake Erie Connector was on that list.

So, yeah, we think that the positive momentum, the positive conversations among government, whether it's at the state or provincial level, are going to do nothing other than help us get this project move and get TSAs finalized, and get--, I was going to say, wires in the air, but it's actually wire under water. So, we're looking forward to starting this project.

Robert Hope -- Scotiabank -- Analyst

All right, thank you. And then, I just want to go back to the NOPR. Glick was out yesterday saying, he was baffled by the criticism of the changes of the NOPR and that you didn't need an incentive to be part of an RTO. However, you also mentioned that if you need to incent transmission, there would be kind of other ways to do it, including higher base ROEs.

So, could this NOPR change then kind of once again lead to another fulsome review of the ROE for ITC?

David G. Hutchens -- President and Chief Executive Officer

Yes, Rob, I don't think--, I wouldn't go that far on the tail-end of your question there and this basically brings up the base ROE conversation again.

But, I'll point out a couple things.

First, reading the dissents from Danly and Chatterjee--, Commissioners Danly and Commissioner Chatterjee related to this RTO adder removal is very insightful. There is a couple points. One, they obviously argue that the reason for having this RTO adder from a market perspective too. We need bigger markets, as I mentioned before, that is the solution to integrating renewables, we need bigger markets, we need more participants. The bigger the market, the better cost allocation is, the better reliability is, the more renewable energy we can integrate.

That should be the key focus, which leads me to the second point, which both Commissioners Danly and Chatterjee bring up is legally, the Federal Power Act requires that there is an incentive to participate in the RTO. And there is 14 years of precedent that is related to exactly doing that. So, it's odd that this would be a focus of a supplemental NOPR and we obviously will make comments that I think will sound a lot like the dissents from those two--, the two minority commissioners there.

So, while it is--, I understand commissioners--, with commissioner Glick's opinion that this is a different mechanism than the project incentives. I think our answer is, yes, but you need both; one is for projects, the other is for RTO participation; those are two very different incentives and you got to make sure you have both, especially given the accelerated renewable energy transition that we are trying to push across the United States under the current Biden administration.

Robert Hope -- Scotiabank -- Analyst

I appreciate the color. Thank you.

Operator

And your next question comes from the line of Mark Jarvi with CIBC Capital Markets. Please proceed with your question.

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

Thanks. Good morning, everyone.

I just wanted to go to the transition tax credits. I am wondering, as you gone through them--, your understanding of how broadly applicable that might be to things like, that come into fold, in terms of Lake Erie project?

And then, any idea in terms of loosely quantifying what it could impact, you said, it could be positive to EPS and cash flow?

David G. Hutchens -- President and Chief Executive Officer

Yes, so, the question there is around the investment tax credits for transmission projects on a going-forward basis, because there is a lot of incentives and a lot of attention being paid on transmission. Obviously, when you look at the infrastructure plan and the CAD100 billion of satisfied basically for grid upgrades to improve both regional and inter-regional transmission, there is loan guarantees, there is obviously structural changes they are making to try to get things permitted more quickly, partnerships between DOE and DOT down here in the U.S., a lot of that stuff.

And obviously, tax credits are going to be part of that overall push toward new transmission projects as well. I am going to kick that to Linda, to talk a little bit about. But, generally, what we see from a tax credit perspective, from a transmission perspective, is this will hopefully bring some of those projects that might be around the edges into fruition. It might be the thing that puts some of these projects over the edge from an economic standpoint.

Do you have any additional color on that, Linda?

Linda Apsey -- President and CEO, ITC Holdings Corp.

Yeah, Dave, not a whole lot of additional color. I mean, certainly, we are still awaiting sort of further clarity or insight in terms of specifically how would those projects that may be eligible for the investment tax credit, how would they come to fruition. There is talk about, sort of, you can, sort of, make some options around kind of taking advantage of the tax benefits.

I think the positive news is that we see all of these things, not only a positive from a tax perspective, but, certainly, we do not view them as eroding any-- the rate base of the projects. But, more to come. The details, I think, are still pretty great at this point in time. But, I think, overall, and most importantly, I think it shows all of the positive momentum around incentivizing transmission.

Obviously, from our perspective, whether that be through sort of the FERC avenue and perspective, or whether it would be through our tax incentive. So, I think more to come. As sort of the legislative proposals get more substantive, we'll be able to, I think, share more information on that.

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

But, just based on those comments, it seems like--, from based on what ITC is contemplating and what's in your outlook, it wouldn't be a largely more on the fringe [Phonetic] as opposed to a lot of your core investments?

Linda Apsey -- President and CEO, ITC Holdings Corp.

Yeah, that's correct. I mean, we would envision that the typical, what I would call, regional transmission projects would continue to go through the RTO planning process, be included in our rate base. I suppose if there is some projects that meet certain criteria that perhaps legislation specifies and perhaps those could be--, they could take advantage of the tax credit.

But, as we sit here right now, our belief is that most of the, sort of, what I would call, traditional regulated transmission projects will continue to go through the RTO planning process. And that perhaps, there will be, sort of, other definition or categories of transmission projects that meet certain criteria that maybe eligible for certain tax benefits. But, like I said, all of those details haven't been developed yet, so we are going to have to continue to work with congressional folks, the administration, to help kind of flush those details out.

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

Okay. Got it. And then, Jocelyn, the question is for you. I know you still are still looking for lot more details around some of the proposed tax changes here in Canada and the U.S.

But, if you had to say one versus the other being potentially more impactful, is it the U.S. changes on minimum taxes, international tax treatment, or any kind of comments in terms of the relative impact of what you've seen so far from those proposals?

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

So, Mark, that's a tough question because we have limited information both in the U.S. and in Canada.

But, when you look at the impacts for Fortis, the increase in taxes is a pretty--, is a simpler one, because we are going to likely see partial reversal of what we had seen with U.S. tax reform. So, we will seen an increase in taxes, increase in cash flow. When it comes to the--, like interest deductibility limits in Canada and the 15% minimum tax in the U.S., both of those are going to be driven by how they define tax EBITDA or the minimum book income. And we don't really have clarity on that.

Just cash flow on that particular one, but still important, it will be timing of cash flow. But, it's hard for us to say, which one is really going to be more impactful because it's going to depend on the definitions I think.

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

Okay. And then, just one last question around the NOPR. If it was passed as it's been proposed today, would there be any retroactive adjustments, or would it just be solely on a go-forward basis in terms of impact on your rates and revenues?

David G. Hutchens -- President and Chief Executive Officer

Yeah, it's solely on a going-forward basis.

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

Okay. Got it. Thank you

David G. Hutchens -- President and Chief Executive Officer

You are welcome, Mark.

Operator

And your next question comes from the line of Michael Sullivan with Wolfe Research. Please proceed with your question.

Michael Sullivan -- Wolfe Research -- Analyst

Hey, everyone, good morning.

David G. Hutchens -- President and Chief Executive Officer

Good morning, Michael.

Michael Sullivan -- Wolfe Research -- Analyst

I first wanted to just on the capex plan, you guys noted for the year that higher capex could potentially offset FX headwinds. Where would that be coming from and how material could that be?

David G. Hutchens -- President and Chief Executive Officer

It's coming from a couple different places, this year; some has to do with the timing of Oso Grande investments that we have made; basically, some of that leaked over from 2020 into 2021 in getting that project completed. There is a little bit additional at the Wataynikaneyap project as well, and also [Indecipherable] at FortisAlberta.

So, right now, those three pieces are basically covered in the FX delta between what we had in--, what we used for CAD19.6 billion of capital budget and this year's capital budget, and what the current rate is.

Michael Sullivan -- Wolfe Research -- Analyst

Got you, OK. And then, kind of similarly, if the NOPR does, I am sorry to beat a dead horse on this. But, if the NOPR were to--, if supplemental NOPR were to go forward as proposed, are there any potential offsets that you guys would have there to--, I guess, the CAD0.05 or so of downside?

David G. Hutchens -- President and Chief Executive Officer

Yeah, I mean, it's the offset in a growth that we are always looking for. This is really about not just focusing on the ROE, the adders, the incentives, all of that stuff. That obviously is extremely important and definitely the topic de jure, that's for sure.

But, what we have to look at to is longer term, how we are going to be growing that transmission business. And as I mentioned previously, just all of the effort around building up the transmission system, everybody is in alignment on the need for additional transmission infrastructure for us to even--, even to have a prayer of becoming getting close to meeting the clean energy transition targets that we are putting out in the United States.

So, it' really -, there is two different topics; that's the return side of things, but the other is, what we call, the pie side of things. And this pie is going to be growing enormously. So, we have got to see, basically how those two are going to balance out. And as we talked about from a transmission planning process, MISO is in the middle of it. SPP is getting after it. Obviously, a lot of independent transmission investments are going on throughout the United States. We have to take a look at that bigger, broader picture, see how that applies to things that we can invest in. And then, put that whole story together.

Unfortunately, you are probably jumping it a bit like we are, trying to figure out how much of this is out there. But, it will take some time for us to figure this out. And then, we'll have a better balance of that growth in return picture on a going-forward basis.

Michael Sullivan -- Wolfe Research -- Analyst

Okay. Great, appreciate the color there.

And then, my last question was at the Lake Erie project. Any better sense or clarity on how long the TSAs could take, like within the balance of the year reasonable? And would you guys get AFUDC on that, once it starts construction?

David G. Hutchens -- President and Chief Executive Officer

Yeah, I would opine on that, but I don't want to get in trouble with Linda and putting out a date that she doesn't agree with. So, I am going to shoot straight to her to answer that one.

Linda Apsey -- President and CEO, ITC Holdings Corp.

Yeah, thanks, Dave. Certainly, we are hopeful that we can continue to see progress and that we can reach an agreement within the coming months, by the end of the year. But, certainly, as you can imagine with any type of negotiation, two party on negotiation, it takes two of us obviously, to just come to terms.

So, are we hopeful, is that possible? Absolutely. And I am sorry, I cannot specifically answer the AFUDC question. I don't know. Maybe, perhaps, Jocelyn can.

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

Yeah, no, that's all part of, I would say, negotiations of the whole process and how we finance that. But, it's a non-regulated business as you know, Michael.

Michael Sullivan -- Wolfe Research -- Analyst

Got it. Okay, thank you so much.

Operator

Your next question comes from the line of Andrew Kuske with Credit Suisse. Please proceed with your question.

Andrew Kuske -- Credit Suisse Securities (Canada), Inc. -- Analyst

Thanks, good morning.

Maybe, if you could just focus a little bit on Arizona. And obviously, there is some pretty big capital plans there from Intel, TSMC, among others, there is just natural happenings in the state.

But, with those two semi manufacturers, it's really big capital. It looks like it falls outside of your service territory. But, could you maybe give us a little bit of color and context on opportunities you think will happen, just from the capital flows into the state?

David G. Hutchens -- President and Chief Executive Officer

Yeah, Andrew, that's a great question. And a lot of times, when you look at some of the economic data in Arizona, it's obviously driven mostly around the Phoenix area, Maricopa County, which is obviously one of the fastest-growing, if not the fastest growing county in all of the U.S. Some of that does leak out to areas around the Phoenix area down into Arizona.

We have seen an increase in economic development inquiries. In Southern Arizona, we have an economic development organization that both me and Susan Gray, the new President and CEO of UNS Energy, are both part of. So, we are seeing some visibility into that and we do see that we are going to--, and it is Arizona. I mean, this is a strong growth state and will continue to be a strong growth state on a going-forward basis. And we obviously are looking to attract as much business as we can.

Economic development is the best of all things from a utility standpoint, because that's what brings in customer growth that actually brings in kWh with it. So that when you are investing to add these customers, you are adding the usage to the formula as well. And some of these larger customers like Rosemont mine is still sitting out there, waiting to get through its legal hurdles and get started. Those big customers like that are beneficial for our overall customer base and our rates, because we can spread those costs out among more customers and more kilowatt hours.

Andrew Kuske -- Credit Suisse Securities (Canada), Inc. -- Analyst

That's helpful context. And then, maybe just still staying within the state, do you foresee any opportunities to do renewable generation outside of your existing rate base sector that needs to maybe support corporate customers that are seeking to have cleaner power?

David G. Hutchens -- President and Chief Executive Officer

Yes, we actually just announced this week when we brought the big solar project that NextEra built for us, a 100 megawatt project, with a 30 megawatt battery. And of course, also grounded project as well. We actually earmarked some of those kilowatt hours for our University of Arizona. We entered into a long-term contract with them to provide them with a 100% renewable energy, which is one of the biggest--, this is the biggest deal like that with a public university in United States. So, we are really proud of that deal.

We're always looking at ways to meet our customers' needs. And if there is additional renewable energy that they are looking for and that we can invest in and that we can get a long-term contract that points back to those resources, we are always looking at things like that, always have been and always will be. There is also other utilities within our footprint in our control area, smaller municipalities, co-ops, etc., there are always opportunities for that as well.

But, those are things we look at, not something we have a laser focus on. But, always looking to help out our customers and look for investments around the edges even if they are unregulated, or what we'd like to call, contracted energy infrastructure deals.

Andrew Kuske -- Credit Suisse Securities (Canada), Inc. -- Analyst

Very helpful. Thank you.

Operator

And your next question comes from the line of Elias Foscolos with IA Capital. Please proceed with your question.

Elias Foscolos -- Industrial Alliance Securities Inc. -- Analyst

Good morning. Just want to focus on the capital plan and potential inflationary pressure that you might see on it. So, I was wondering if you could provide some color on that. And just also comment on the ability to absorb any further increases in rate base?

David G. Hutchens -- President and Chief Executive Officer

Well, that's a great question, because there is a combination of impacts when we look at our capital plan. Well, every year, we lock down a capital plan, show it to our investors. And then, of course, we are already working on the next one. So, there will be as we go forward. And we look at this next capital plan that we'll roll out in the fall for the next five-year period, it will be a combination of things that go in there, related to inflationary, we redo budgets on these all the time.

Obviously, the shorter-term contracts are much important. Some of that exposure might be hedged with the contracts or commodity, etc. But, on a going-forward basis, that goes all back into the pot with the additional fine tuning of project definitions and, of course, the addition of new projects as we go. So, I probably don't have a clear view on where that might go from an inflationary pressure perspective, whether that drives the capital up.

Of course, there is FX impacts as well. And then, when you look at it from a funding perspective, as Jocelyn noted, we have the DRIP program that we are getting really strong participation in. So, all those pieces will go back into tell that story when we roll it out later this fall.

Elias Foscolos -- Industrial Alliance Securities Inc. -- Analyst

Okay. I know it wasn't an easy question, but it was one that I wanted to ask.

And you kind of alluded to this, so I'll just make this the last follow up. You probably have some internal tolerances on the capital plan. Should we really expect one about six months from now, or if you think you are moving outside those boundaries? Is there a possibility that we might get an update earlier? And I'll leave at that.

David G. Hutchens -- President and Chief Executive Officer

Yeah, there is always the option to give an update early if something big happens, right?

I mean, we wouldn't completely redo the forecast, but if--. Let's just say, if Lake Erie Connector, which is not in our five-year capital plan, drops in and we can get that thing move in, we are going to tell you, we are going to wait til September or October, whenever we are going to do our Investor Day, to let that cat out of the bag.

It's just more of the pieces behind it, the inflationary changes, the commodity price changes. Remember, a lot of the stuff that we do are structural, right? So it's copper, it's steel, it's all of those things and we are going to have to take a hard look at how those have changed and what that does to our capital budget on a going-forward basis. But, anything big, we'll let you know. The stuff that's, kind of, the details behind the scenes of rolling up a capital plan, you probably don't want us to be giving too often of updates on that.

Elias Foscolos -- Industrial Alliance Securities Inc. -- Analyst

I appreciate. And I think I've got a good understanding of the boundaries and how you look at it with all these moving parts. So, I'll leave it at that. Thank you very much.

David G. Hutchens -- President and Chief Executive Officer

You are welcome.

Operator

And your next question comes from the line of Patrick Kenny with National Bank. Please proceed with your question.

Patrick Kenny -- National Bank -- Analyst

Yeah, thanks. Good morning, everybody.

Just looking at the long-term decarbonizing plant for FortisBC, wondering if you could provide just an update on your progress to integrate RNG, hydrogen, given some of the carbon capture initiatives that are starting to come to the surface here? I know we still got a ways to go to 2030, but would you say things are tracking on pace with your original targets? Or has there been any variance either way?

David G. Hutchens -- President and Chief Executive Officer

Yeah. I'll kick that to Roger for some of the details. I was just actually on a House of Commons Natural Resource subcommittee on this topic last week about. From a Canadian perspective, the opportunities for looking at the clean fuels and, of course, our topic was around the use of both hydrogen and renewable natural gas in our gas systems.

And FortisBC, which is a leader in this area, has really been doing some great work that we probably don't tout loud enough on what we are doing from: one, from an RNG perspective and the projects that we have in the queue there; and then, also, the R&D and the behind the scenes things that we are looking at from a hydrogen perspective.

I'll turn that over to Roger to add a little bit of color there.

Roger Dall'Antonia -- President and CEO, FortisBC Group of Companies

Thanks, David. Good morning, everyone. I appreciate the question.

So, on the RNG front, we've got good line of sight to the 15% RNG target by 2030. We now have about six petajoules of agreements that are signed and approved by the BCUC; those have to be built over [Phonetic] the off-taker on those agreements. But, they are signed and approved, and we have another three pending BCUC approvals. So, we have about eight petajoules ready to go with a number of projects that we've identified and are in negotiations to sign. So, we feel that we've got a very good start on the 2030 target for RNG and continue to make good progress there.

Hydrogen is a little bit--, we're more in now, what I would say, is the development phase. We've got a number of projects under way. We have a joint initiative with other utilities on technical feasibility studies on hydrogen blending in BC. We have a pilot project with a large industrial site to use renewable hydrogen production to blend into the gas supply for that industrial site.

And we are looking at some northern BC blue hydrogen carbon capture opportunities to decarbonize the gas system. So, quite a bit of activity in this area. The BC government is helping to find with the industry a hydrogen study. We're also working thoroughly with our industry peers on advancing hydrogen standards and development as well. So, quite a bit of progress on that front, thanks.

Patrick Kenny -- National Bank -- Analyst

Okay. Great. Thanks for that update.

And then, maybe just sticking with Western Canada, given the headlines here in Alberta and the challenges in controlling the case numbers. And, I guess, your peers implementing a rate freeze over the next couple of years. I am not sure if you guys are considering the same or perhaps looking at other opportunities more on the social side to help out your Alberta customers?

David G. Hutchens -- President and Chief Executive Officer

Yeah. I'll turn that over and then actually introduce Janine Sullivan, who is the new President and CEO of FortisAlberta.

We obviously recognize with our folks on the ground there in Alberta, just the tough time that the province is having on several fronts. And obviously, I was just hearing yesterday on another call that Alberta has, I think, if this is right, that they currently have the highest per capita number of cases in North America. And so, that's obviously a concern of ours. There is nothing more important than making sure that our employees and customers and communities are safe, and that we are doing everything we possibly can to protect them and to taking all the precautions that we need to as a company to not just keep providing our service, but making sure that our employees and customers are safe and are taking those right precautions.

Obviously, economic impacts from COVID, from the shutdowns, there is a lot of--, every one of our jurisdictions has gone through it in different time periods and to different extents. And FortisAlberta seems to be the tip of the sphere on where that's focused now.

So, I'll turn that over to Janine and have her explain what we may be looking at doing there for our Albertan customers.

Janine Sullivan -- President and CEO, FortisAlberta

Thanks, Dave. And yes, we are certainly very cognizant of the challenges that are going on in Alberta right now, particularly, as COVID continues to ramp up and really pose some issues for our customers. We are really cognizant of the heightened focus on the cost of delivered electricity in the province and the conversation that our customers are having with the regulator and with government. And we've been a part of those conversations and we are staying close to them.

There have been some proposals as to how it can be addressed and, of course, we are watching how those play out and assessing those in light of our own specific circumstances and working on proposals as to how we might approach it in the coming months, particularly as we work through this approach to resetting rates for 2023 at the end of this PBR term. So, there is some opportunities coming, where we'll continue to work through options available to us and seeing how those have been put out already play out, and how they are received, and how they might work to address the issues at hand.

Patrick Kenny -- National Bank -- Analyst

Okay. Thank you very much for your comments.

David G. Hutchens -- President and Chief Executive Officer

Thanks, Patrick.

Operator

As there no further questions in queue, I would now like to turn the conference over to Ms. Amaimo for her closing remarks.

Stephanie A. Amaimo -- Vice President, Investor Relations

Thank you, Debrah.

We have nothing further at this time. Thank you everyone for participating in our first quarter 2021 results call. Please contact Investor Relations, should you need anything further. Thank you for your time and have a great day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Stephanie A. Amaimo -- Vice President, Investor Relations

David G. Hutchens -- President and Chief Executive Officer

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

Linda Apsey -- President and CEO, ITC Holdings Corp.

Roger Dall'Antonia -- President and CEO, FortisBC Group of Companies

Janine Sullivan -- President and CEO, FortisAlberta

Maurice Choy -- RBC Capital Markets -- Analyst

Linda Ezergailis -- TD Securities -- Analyst

Robert Hope -- Scotiabank -- Analyst

Mark Jarvi -- CIBC World Markets Inc. -- Analyst

Michael Sullivan -- Wolfe Research -- Analyst

Andrew Kuske -- Credit Suisse Securities (Canada), Inc. -- Analyst

Elias Foscolos -- Industrial Alliance Securities Inc. -- Analyst

Patrick Kenny -- National Bank -- Analyst

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