Fortis Inc. (FTS) Q2 2022 Earnings Call Transcript

Fortis Inc. (FTS 0.15%)
Q2 2022 Earnings Call
Jul 28, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Fortis' second quarter conference call and webcast. During the call, all participants will be in a listen-only mode. There will be a question-and-answer session following the presentation. [Operator instructions] At this time, I would like to turn the conference over to Stephanie Amaimo.

Please go ahead, Ms. Amaimo.

Stephanie Amaimo -- Vice President, Investor Relations

Thanks, Michelle, and good morning, everyone, and welcome to Fortis' second quarter 2022 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 slideshow. Actual results could 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 US GAAP financial measures in our second quarter 2022 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 Hutchens -- President and Chief Executive Officer

Thank you and good morning, everyone. Today, we are pleased to report another successful quarter underpinned by our investment in the energy infrastructure needed for the provision of safe and reliable energy service to our customers. For the first half of 2022, we invested $1.9 billion in our system, placing us on track to achieve our 2022 annual capital plan and supporting our second quarter adjusted earnings of $0.57 per common share. In today's economic environment, our utilities have been especially focused on maintaining customer affordability by proactively managing energy prices, as well as other inflationary pressures through hedging programs, energy efficiency programs, and cost reduction initiatives.

Today, we released our 2022 sustainability report highlighting the progress made to reduce our greenhouse gas emissions and linked sustainability targets to executive compensation and the corporation's revolving credit facility. The report also includes comprehensive diversity data on employees across the Fortis Group of companies which will advance our DEI strategies and inform our objectives setting. Overall, the report contains more than 35 new key performance indicators and is fully aligned with the applicable Sustainability Accounting Standards Board or SASB standards. During the quarter, we continued to make progress toward our greenhouse gas emissions reduction targets.

In June, TEP retired San Juan, Unit 1, removing another 170 megawatts of coal-fired generation from its portfolio, supporting its plan to fully exit coal by 2032. Earlier this month, FortisBC, announced a pilot project to produce carbon-neutral hydrogen from natural gas through a partnership between FortisBC, Suncor Energy, and Hazer Group, utilizing new carbon capture and utilization technology that provides a marketable, solid carbon byproduct. The pilot is being funded by the partner companies and the provincial government's CleanBC Industry Fund, while still in the early stages. It is innovative technologies and partnerships like this that will be necessary to accelerate the transition to clean energy.

In June, TEP filed its general rate application with the Arizona Corporation Commission seeking new retail rates effective September of 2023, based on a December 31, 2021 test year. The application includes a rate base of US$3.6 billion, representing an increase of US$900 million since the last rate case. Largely driven by investments in renewable generation, such as the Oso Grande wind project and the Raptor Ridge solar facility. The application requested and allowed a return on equity of 10.25% and an equity layer of 54%.

TEP is proposing to modify an existing adjuster mechanism to include the recovery of certain investments associated with the TEP Clean Energy Transition. The new Resource Transition Mechanism, or RTM, is intended to reduce the regulatory lag between rate cases. In addition, TEP is requesting to eliminate both the demand side management and the renewable energy standard adjusters and recover those costs in base rates. The requested non-fuel increase associated with the rate application totals US$159 million.

As the waterfall chart highlights, the recovery and investments in the rate base make up the majority of the increase. TEPs progress in its Clean Energy transition plan delivers a net reduction offset to customer rates in this case due to the cost savings from the recent retirement of the San Juan coal facility. The impact of the proposal to eliminate the two adjusters reduces the total revenue increase to US$136 million. Earlier this month, commission staff filed a sufficiency letter indicating the TEPs rate application meets all the necessary filing requirements.

A procedural schedule was also agreed to earlier this week with staff and intervenor direct testimony due in January of 2023. Today we are reaffirming our $20 billion five-year capital plan through 2026. This highly executable and low-risk capital plan is expected to increase the rate base by over $10 billion over the next five years, supporting an average annual rate base growth of approximately 6%. Earlier this week, the MISO Board approved the first tranche of projects associated with the long-range transmission plan.

These 18 projects, which span across the MISO Midwest subregion, have total investments of approximately US$10 billion, with six of the projects located in ITC service territory, ITC estimates an investment of approximately US$1.4 million to US$1.8 billion through 2030. This is up from the previous estimate of US$1 billion to US$1.5 billion. Once ITC finalizes the timing of these investments, we will update our capital outlook accordingly. Next, development activities and commercial negotiations on the $1.7 billion Lake Erie Connector Project were suspended earlier this week.

This was driven by recent macroeconomic conditions that impacted our ability to secure a viable transmission service agreement within the required time frame. We acknowledge the efforts of all parties to bring the project to this point. However, at this time, it is a prudent and appropriate action given the circumstances. This project has never been included in our five-year capital plan.

With 48 years of consecutive dividend payment increases, we continue to target a 6% average annual dividend growth guidance through 2025, underpinned by our five-year capital plan. Now I will turn the call over to Jocelyn for an update on our second quarter financial results.

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

Thank you, David, and good morning, everyone. So turning to Slide 11. Reported earnings for the second quarter of 2022 were $284 million or $0.59 per common share compared to earnings of 253 million or $0.54 per common share for the second quarter of 2021. On a year-to-date basis, reported earnings were $634 million or $1.33 per common share compared to earnings of $608 million or $1.30 per common share last year.

Reported earnings include timing differences related to mark-to-market accounting of natural gas to resist any concrete. Turning to Slide 12. We delivered adjusted net earnings of $272 million or $0.57 per common share in the second quarter. This is $0.02 higher than the second quarter of 2021.

Rate base growth at our regulated utilities and a higher US dollar to Canadian dollar exchange rate favorably impacted the quarter. Timing of earnings in Alberta and Arizona, as well as losses on retirement plan assets at UNS and ITC, tempered earnings growth in the quarter. As you may recall, Fortis benefits from limited pension exposure given regulatory mechanisms at most of our utilities in the second quarter. However, broader market volatility impacted the value of certain retirement assets at our US utilities held outside of our defined benefit pension plans.

The quarter-over-quarter impact was $0.02 for the six months ended June 2022, we delivered adjusted net earnings of $641 million or $1.34 per common share, $0.02 higher than the same period in 2021. Year-to-date earnings reflect the same factors noted for the quarter, as well as higher sales in the Caribbean, along with higher operating costs at Central Hudson and lower hydroelectric production in Belize. The waterfall chart and Slide 13 highlight the EPS drivers for the quarter by segment. We continue to see rate base growth across all utilities supported by capital investments of nearly $2 billion year-to-date.

Our Western Canadian utilities and ITC each contributed a $0.01 EPS increase driven mainly by rate base growth. At ITC, quarterly earnings growth was impacted, as I mentioned, by losses on retirement assets while earnings growth at Fortis Alberta was impacted by the timing of operating costs. For our energy infrastructure segment, EPS increased by $0.01 due to higher hydroelectric production in Belize. Next, the higher US dollar to Canadian dollar foreign exchange rate favorably impacted quarterly results by approximately $0.02.

At our US electric and gas utilities EPS decreased by $0.01 in the quarter. UNS was down $0.02 and Central Hudson was up $0.1. As expected, the lower earnings in Arizona were associated with both the timing of [Inaudible] recognized in 2021 during the construction of the Oso Grande wind generating facility and losses on retirement assets. UNS did benefit from higher long-term wholesale sales during the quarter, which help offset higher operating costs and regulatory lags.

Central Hudson's EPS contribution was driven mainly by rate base growth and the conclusion of its rate case in 2021. In our corporate and other segments, the $0.01 EPS decrease was mainly due to losses on hedging contracts. And lastly, as expected, with our dividend reinvestment plan, EPS decreased by $0.01 due to higher weighted average shares outstanding. Year-to-date EPS was impacted by many of the same drivers as the quarter.

I would note that the losses on retirement assets that UNS and ITC were approximate $0.04 for the first half of 2022. Year-to-date EPS was also impacted by the higher costs associated with the implementation of a new customer information system at Central Hudson. Central Hudson does not anticipate any additional significant direct costs beyond the $0.3 EPS impact recorded through June. Turning to Slide 15.

We were once again active in the debt capital markets in the second quarter, bringing the total debt raised year-to-date to over $1.5 billion, largely in support of our capital program. With the backdrop of a rising interest environment, several of our utilities accelerated debt issuances in the first half of the year, locking in attractive rates to the benefit of our customers. At Fortis Inc., we recently refinanced 500 million in debt. That was due in 2023, and ITC Holdings previously entered into interest rate swaps of $450 million US to mitigate refinancing risk associated with debt due later this year.

During the quarter we also entered into a one-year, $500 million US non-revolving corporate term facility and amended our existing $1.3 billion revolving corporate facility. Our revolving facility was amended to extend the terms to 2027 and established sustainability-linked targets related to [Inaudible] and the reduction of Scope 1 emissions. And lastly, we continue to maintain strong investment grade credit ratings. In May, DBRS Morningstar confirmed our A low issuer and unsecured debt ratings and stable outlook.

The recent debt issuances, coupled with almost 4 billion available on our credit facilities, place us in a strong liquidity position supporting our $20 billion five-year capital plan. In addition to the TEP rate case that David spoke to earlier, I'll spend a moment on some recent regulatory updates. First, ITC continues to wait for a final rule from FERC in relation to the supplemental NOTICE OF PROPOSED RULEMAKING or NOPR on transmission incentives, which proposes to eliminate the 50 basis points RTO return on equity incentive adder. Next, FERC issued two additional NOPRs in June, addressing interconnection queue reform and grid reliability in extreme weather.

Both of which stem from the initial advance NOPR released last year. While ITC continues to evaluate both NOPR, any FERC actions that help streamline the interconnection queue will be positive for all parties involved. ITC also supports FERC's continued focus on grid resiliency and expects to be active in the rulemaking process. Reply comments on both proposals are due later this year.

Also in May, the Iowa Coalition for Affordable Transmission filed a complaint with FERC seeking to lower the ITC Midwest equity ratio from 60% to 53%. The complaint alleged that ITC Midwest no longer met the three-part test, which authorizes the use of a utility's actual capital structure for rate-making purposes. We believe the complaint is without merit and should be denied. ITC filed reply comments in support of its position in June, and while the timing and outcome remain uncertain, a decrease in ITC Midwest equity ratio to 53% would reduce annual EPS by approximately $0.05.

And lastly, in British Columbia, the generic cost of capital proceedings remains ongoing. The proceeding is expected to continue into the first part of 2023, and the effective date of any change in the cost of capital remains unknown. That concludes my remarks. I'll now turn the call back to David.

David Hutchens -- President and Chief Executive Officer

Thank you, Jocelyn. With a successful execution of our capital plan, our exit from the San Juan generating facility, and key regulatory applications, we are in a strong position heading into the second half of the year to deliver on our growth and sustainability goals. Our local management teams will continue to work with their customers and regulators to manage through this time of high inflation and energy prices while still making the investments needed to deliver a clean and resilient energy future. I will now turn the call back over to Stephanie.

Stephanie 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Maurice Choy of RBC. Please go ahead.

Maurice Choy -- RBC Capital Markets -- Analyst

Thank you, and good morning. My first question is a follow-up on your comment about MISO spending timing and specifically, I'm trying to understand the moving parts in the months ahead. I know that MISO staff on Monday noted that on August 8th they will indicate what goes through competitive bidding and what won't be assigned to incumbent utilities. But you also indicated the expectation that many of the 18 projects will come online by 2028.

So it's a bit of a tight deadline, so to speak. Is the clarification on August 8th, what you're waiting for in order to get a better idea of what all this means to the next capex update, or is this something else?

David Hutchens -- President and Chief Executive Officer

Yeah, thanks. And good morning, Maurice. Yeah. So, we still have to figure out the exact timing.

Obviously, there are estimates of the timing of those projects that are part of the original filings, etc. But there's still a fair bit of process to go through working with the other transmission owners because in some of these projects we actually are splitting with other transmission owners. So lots more detailed engineering planning, etc. That needs to go into our calculus here before we can put it into our capital plan.

I do appreciate that some of those projects look like they were earlier, but those are also probably a bit stale on the dates because this process has been extended a couple of times. But don't worry, we'll get -- as soon as we get a good feel for where those dollar layouts from the capital plan perspective, we'll be putting that out.

Maurice Choy -- RBC Capital Markets -- Analyst

And my second question and this is a follow up -- not follow up, but I assume there are still limited details so far on the Inflation Reduction Act that was announced yesterday, whether the climate portion of this bill is a slimmed-down version of the bill that that initiative or something entirely different. Any thoughts on which parts of your business might benefit from this new bill if it becomes law? And if any changes in taxes might offset that?

David Hutchens -- President and Chief Executive Officer

Yeah. So it is extremely early. So that across the wire there as we were all finishing up our notes for today. We do like the fact that it includes $370 billion of investments in energy and climate.

We're not exactly sure what that breakdown is yet. So we'll be looking at that today and going forward to see how that might apply to our companies and the things that we have in play. I think probably one of the -- at least one of the press releases that we saw on this on this bill was the reference to permitting reform. So that's obviously, they referenced transmission in that commentary.

And that's always welcome news when there can be additional help for us to get some of these projects permitted because that's obviously one of the bigger things that we have to do that slows down us doing the transmission projects is getting through the siting and permitting processes. But we haven't been able to digest that completely yet, but we will very soon.

Maurice Choy -- RBC Capital Markets -- Analyst

OK. Thank you very much.

Operator

Your next question comes from Robert Hope of Scotiabank. Please go ahead.

Robert Hope -- Scotiabank -- Analyst

Good morning, everyone. Thanks for taking the questions. Maybe a broader question we've seen I guess what we could argue as the Lake Erie cost go up. We've seen the microtransmission projects increase there as well.

When you're taking a look at -- we'll call it [Inaudible] transmission projects. How much inflation are you seeing in those projects which could yield a higher capital plan? And then two, are you worried that the higher capital costs could defer further investments similar to what we saw with Lake Erie?

David Hutchens -- President and Chief Executive Officer

Yeah. Thanks, Rob. So it's really hard to judge inflation on a longer-term basis because that's what we do in our capital planning process, as we obviously have to make some assumptions on where inflation is going. And then, frankly, the shape of that curve.

The things that we have in flight, say this year's capital plan, etc. We typically don't see a big inflationary impact on those because they're already in flight, we have the materials, etc. But as we go forward, we're going to have to obviously adjust on the fly as needed in those capital projects to bring them in on budget as best we can. We don't see long-term inflationary pressures that would cause us to adjust our -- I'll say, so there's there are two different questions, right? Because there's the capital plan as in the total for the current projects you have? Or, is your budget going to get bigger and you're going to continue to do those capital plans, meaning which is going to give? Are you going to keep the capital plan the same or keep the number of projects the same? We are -- we definitely did the capital projects that we have are ones that we are needed for the safe and reliable service for our customers.

So we're going to have to do those projects. So we will have to manage the capital budget accordingly. And that goes to the other side of the ledger. Right.

So as we see some of these capital cost increases, as we go, we'll have to look for efficiencies not only in the capital process and in the construction process but also look for efficiencies in the [Inaudible] to help mitigate some of the rate impacts as these projects go in. So there shouldn't and we don't see any reduction in the number of projects, but we still are continually updating those capital plans to make sure we're capturing inflation as best we can. And that's something that, of course, we'll do in the fall when we put out our next five-year capital plan.

Robert Hope -- Scotiabank -- Analyst

I appreciate the answer to the question. Maybe it is a narrow one here, in Arizona, what's the initial feedback there on the filing, as you're starting to engage stakeholders realizing that just not due for quite some time? And then, be in a higher yield environment, are stakeholders willing to agree with the higher ROE?

David Hutchens -- President and Chief Executive Officer

Yeah. Robert, I actually missed the first part. There was a little garbled, but I did catch the last part on the ROE. I mean, the ROE it's the formula that has been used in the conversation that has been used for 100 years.

So as we see interest rates increase, we do expect ROEs to be following that in some manner that we typically see a little bit of a lag down and we'll typically see a little bit of a lag up. But the ROE, particularly in Arizona, since I was the one on the stand last time, Susan sitting next to me, she gets to sit on the stand this time. She'll do better than I did in ROE arguments because I think in the middle of COVID when we were at the end of 2020 and doing that case, we feel that we got a little bit of a reduced ROE because of that. Now, when you look at the situation from an interest rate underlying calculus again goes into the ROE, I think we're going to come out in a better spot.

So what was the first part of your question?

Robert Hope -- Scotiabank -- Analyst

Just initial feedback on what the rate filing has been in Arizona. Any feedback from stakeholders, so far?

David Hutchens -- President and Chief Executive Officer

Yeah. I'll turn it over to Susan to answer.

Susan Gray -- Executive Vice President of Western Utility Operations

Hey, Robert. This is Susan. Yeah. I think it's pretty early to tell.

The intervenor testimony won't be file until January of next year, but I think our initial conversations as we were planning to file with staff and commissioners and some of the various stakeholders were very positive. And I feel like we have a lot of support for the new adjuster mechanism. I think the economic situation supports a higher ROE, and so we're anticipating a great outcome.

Robert Hope -- Scotiabank -- Analyst

Thank you.

Operator

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

Ben Pham -- BMO Capital Markets -- Analyst

Hi. Thanks. Good morning. I wanted to go back to Lake Erie and you characterize it as you're suspending the project.

And I'm curious, where are you with conversations with the ISO? Is it [Inaudible] stop at this stage? And is there really any outcome here where you could start working on the project again? Is it inflationary inputs that they would drive to drive that project going forward?

David Hutchens -- President and Chief Executive Officer

Yeah. Thanks. Thanks for the question, Ben. And I got to tell you, this is a tough time for us to try to lock down a project.

We probably couldn't have picked a more volatile three to six months of inflation, interest rates, etc. for [Inaudible] in order for us to try to lock in the economics that we would need to go forward. So we obviously have had very close conversations with ISO through this process. And it's just it's the timing, it's a situation where we just -- we have to make the prudent investments, so we can get the return that we need for this type of project in the current environment, absent in essence, sort of restarting those negotiations.

So we have told the ISO that we are suspending the negotiations. And that doesn't mean that the project is canceled, but it also -- it means that we would have to have a pretty big restart for us to get moving again. That does not mean -- that doesn't say that it might not happen. But right now our view is it's suspended.

And if it comes back, it will it won't be soon and it will take a lot of things to align again.

Ben Pham -- BMO Capital Markets -- Analyst

OK, that's great. And then, maybe on your capital plan and looking at the one where you show all the wedges and that 20 billing between this should be [Inaudible] and all that stuff. And I mean, how do you think about when you factor in tranche one and there's some news on RNG and even transmission? Do you expect any meaningful moves in those wedges as you think of the next 6 to 12 months?

David Hutchens -- President and Chief Executive Officer

Ben, you're trying to get a little preview into our capital plan that we'll release here in the fall. I'll save the answer for that. When we put all that together, we're obviously working hard behind the scenes, pulling those pieces together. But I can't really divulge any of that right now.

I mean that the best part about that existing plan is how those investments are spread across transmission, distribution, clean energy, etc. That's the exact kind of capital plan you want to see. A lot of little projects -- little projects that are needed by our customers to improve their reliability. And, of course, the clean energy investments that we expect to continue to increase over time because of the trends -- the transition that we're doing in Arizona, the additional renewable interconnections that we're going to be doing in MISO, it's always great to see FERC with that put that new NOPR on the interconnection queue.

Hopefully with that, once that gets sort of that logjam gets freed, we'll start seeing a lot more interconnections in ITC's footprint.

Ben Pham -- BMO Capital Markets -- Analyst

That's great. Thanks, David.

David Hutchens -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Mark Jarvi of CIBC. Please go ahead.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Thanks. Good morning, everyone. First on the micro transmission project. Can you clarify whether or not the numbers you've provided to 1.4 to 1.8 is net pricing [Inaudible] and others, any sort of partnerships on any other projects? And then for Jocelyn, with these incremental investments that have made it to or at this point, but can you comment on how they were fold-in into your sort of funding plan for the next four or five years?

David Hutchens -- President and Chief Executive Officer

So I'll take the first part. That one point is our new estimate for the MISO long-range transmission projects. That's our estimate for our dollars, right? So it doesn't depend on someone else to come in. Now, obviously, we have to be discussing the overall projects with the partners that we are going to be spending some of these with, but those are our dollars and our portion.

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

And then, Mark with respect to the funding, I believe, I think I caught your question on the funding, particularly as it relates to bringing the MISO long-range transmission plans into fruition. So that's still a bit hard to answer because we don't know the full timing. But assuming it's over a certain period of time, I mean, we do have room even within our program. But it is something we'll have to evaluate when we actually get a chance to see the timing.

So if it's a little bit, I guess, lumpier, than we expect then we'll have to look at other methods of funding. But right now I -- it's too early to tell.

Mark Jarvi -- CIBC Capital Markets -- Analyst

OK. And then, just with turning the case to TEP and rate case. Can you give us some sort of context in terms of when you submitted your application and where you were on completion expectations? Now, since you've submitted some of the updated numbers and what is the mechanism by which you would update your application for new inflation expectations?

David Hutchens -- President and Chief Executive Officer

Yeah. So since we have a historical test year in Arizona, we don't really get to update inflation, as it were. But what we do -- so it's because it's based on the historical 2021 test year expenses. But what we are able to do is put in some adjustments on a going-forward basis for labor and some other known O&M.

What things that are known immeasurable go into that calculation? But we don't have an interest rate track or anything like that in Arizona. So that is the one jurisdiction that as we see inflation increase between rate cases, that can have an impact. But also on those on the other side, it's the regulatory lag that works both ways as inflation will come down the other side. You'll see it -- you'll see the higher inflation built into the rate.

So overall, it kind of evens out over time. So from a long-term perspective, it kind of gives and takes throughout the years.

Mark Jarvi -- CIBC Capital Markets -- Analyst

Well, I guess, I was most interested in the labor in the O&M stuff. So, is there an opportunity to resubmit updated expectations for those items?

David Hutchens -- President and Chief Executive Officer

I don't know of any way of doing that. But we also have never been in an environment like this. So when you have high inflation and it changes from the time basically on a historical basis, there are a lot of different ways that you can get that. The consideration for that during the rate proceeding.

So there may not be, as a keen eye on expenses when the commission and the interveners realize that inflation has increased, but there are also ways of managing it, right? So Susan and her team down in Arizona will be managing O&M expenses as best they can to offset that, offset the impact, whatever it might be as we go forward. So that's that there isn't a standard process per se. Now, if you get in settlement negotiations, there's, that opens the doors for a lot of different conversations that are typically not available to you if you're going through a standard, fully litigated process.

Mark Jarvi -- CIBC Capital Markets -- Analyst

That makes sense. I think one more in here, I think one of the commissioners submitted sort of a novel idea of the sort of catalyzing some of the, I guess, purchase agreement costs. Any initial thoughts on that and what that means? I think from cost mitigation for your customers.

David Hutchens -- President and Chief Executive Officer

Yeah, we're actually pretty happy to see that conversation take place, the chair, Marcus Peterson who put out that letter. It's a good way to look at things because PPA versus ownership has to be looked at on a bit of a -- they have to be looked at on a level playing field. We feel that ownership has a lot of not just financial but -- intangible benefits related to the ability for us to dispatch, say, renewable energy, battery storage, etc., exactly how we need to instead of trying to figure out how to get a contract price rate to give you the full flexibility and unfettered access to the value of those assets. So one of the things that PPAs do is lean on your balance sheet rate, it's imputed debt.

And having recognition for that too, in essence, a level that playing field I think is helpful. Now, all that being said, I'm looking at Susan and seeing if she knows, we have no idea where this is going to go because it was just a proposal by one commissioner. And we don't know if this will get any traction with at least two others, and she --

Mark Jarvi -- CIBC Capital Markets -- Analyst

OK.

David Hutchens -- President and Chief Executive Officer

In agreement.

Mark Jarvi -- CIBC Capital Markets -- Analyst

That's great. OK. Thank you.

Operator

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

Andrew Kuske -- Credit Suisse -- Analyst

Thanks. Good morning. Maybe if we could just look back at UNS in Arizona more broadly. Obviously, there's a lot of Arizona-related experience on the call today.

The regulatory environment ebbed and flowed at times. And maybe just give us some perspective on where you see the dynamics right now from a positive standpoint versus maybe less constructive in and of itself or the history of Arizona? And then also, just as you see it, versus other jurisdictions where you have exposure, or just more broadly?

David Hutchens -- President and Chief Executive Officer

So I'll turn this over to Susan to talk about the kind of the current situation. And if you want the history of the world, I can give you the last 27 years that I've been in Arizona as well. But I think the most important piece to answer here is kind of the current situation. And Susan's got her pulse on that.

Susan Gray -- Executive Vice President of Western Utility Operations

I think that our three companies have had some positive outcomes, regulatory outcomes, just even this year. And if you look at our last rate case, other than maybe a lower ROE, we did have some positive outcomes out of that case. So we're feeling like there is regulatory support for UNS. I think some of the more extreme negative outcomes have been directed more at one company.

And we feel like that is unique just to that company. And we don't expect that to be the case for UNS, or for this TEP rate case.

David Hutchens -- President and Chief Executive Officer

And then really how it compares across the rest of the footprint which was in was in your question there. I mean, I might be biased because I came from Arizona. But I always thought that it's a very constructive environment when you get past some of the headlines and some of the kinds of one-offs. We have a very good relationship with a very strong staff up there.

And that's really the -- that's the group that is there from year-to-year to year to year. And having those relationships building up that trust through transparency is how we've operated. And so there might be little, rulings, etc., that that we might not be fond of, as Susan mentioned, I guess the ROE in the last case. But I mean, you have to realize in the scheme of things that it's still a very -- in my opinion, very constructive environment.

And as we go forward, I think I think others will start seeing that as well.

Andrew Kuske -- Credit Suisse -- Analyst

OK. I appreciate that. I'm going to refrain from naming that one company. But when you look at the --

David Hutchens -- President and Chief Executive Officer

As did we.

Andrew Kuske -- Credit Suisse -- Analyst

That was noted. If you maybe look at just the drivers within Arizona and, you mentioned the 27 years when you think about the economic growth potential that has been robust on a historic basis, how do you think about the growth drivers and even in the event of a negative outcome or something that's less favorable from a regulatory standpoint, does the overall growth environment in Arizona really support the business there?

David Hutchens -- President and Chief Executive Officer

Yeah. That's really one of the key underlying principles in any jurisdiction is that we serve -- we're regulated utilities, we serve lines, load within lines on a map. And it's really important for our growth that the lines on the map within which we serve are growing. And in Arizona, we -- Arizona has always been one of the highest growth states, I would say always.

But for others, I think it's over the last four or five decades, there was only one decade where Arizona was in the top four fastest-growing states. So even in economic downturns, net migration into the state, the business environment that we have a constructive business environment from a tax business-friendly perspective and just flat out, it's a good place to live and people like to move there. The weather is consistently positive in Arizona, and that does bring in net migration to the state. So the underlying growth is there.

And I think you'll see that within the overall numbers when you look at Arizona versus the other states, and we expect that to continue. It is something that -- except for that big downturn in 2008. It was only for a few years after that we didn't land in one of those top spots for statewide growth.

Andrew Kuske -- Credit Suisse -- Analyst

If I can sneak one more and it's an area we don't talk about that much more, whether or not as positive as Arizona but there are a lot of circulating positives in Atlantic Canada. Maybe just talk about any kind of emerging opportunities that could surprise the upside in the portfolio?

David Hutchens -- President and Chief Executive Officer

In Canada, is that what you asked?

Andrew Kuske -- Credit Suisse -- Analyst

Really in Atlantic Canada?

David Hutchens -- President and Chief Executive Officer

Atlantic Canada. Yeah. So there's, it's -- while we're all sitting here in Alberta today it's -- when I was in Saint John's just a month or so ago, and seen the economic vibe in Newfoundland related to some new projects, particularly in oil and gas, which is a big part of that economy over there. A couple of big projects were announced, both an expansion and a new project.

That was a big deal. And I think I think that that that has given a little bit of boost to people in Newfoundland in particular. I think probably the broader conversation around, say, the Atlantic Loop and the opportunities that that might bring wind development that's being talked about in Newfoundland and Labrador, all of those things are additional positives for growth opportunities in our sector. In Atlantic Canada, you kind of have to look at as -- well if you get something like the Atlantic Loop, you have to look at it like an integrated -- like integrated resource plan for the region.

And that means all of us need to do a little bit different resource planning and it's going to include transmission, renewables, maybe some additional hydro, etc. There are a lot of development opportunities, it's a resource-rich area. You've been there and you know how it can be so. The wind is definitely going to be a component going forward.

And we may be able to even invest in some of that wind. As you also might know, solar will not.

Andrew Kuske -- Credit Suisse -- Analyst

OK. Thank you for that.

Operator

Your next question comes from Matthew Weekes of iA Capital. Please go ahead.

Matthew Weekes -- iA Capital -- Analyst

Good morning. Thanks for taking my questions. I think I just have one. And just wanted to ask if you could provide sort of any comments at this point time on progress on the GCOC proceeding and NBC here just in terms of developments, how that's been progressing, timing? And maybe how those conversations are going with the regulator at this point?

David Hutchens -- President and Chief Executive Officer

Sure, I'll turn it over to Roger Dall'Antonia. He's here as well.

Roger Dall'Antonia -- President and Chief Executive Officer, FortisBC

Thanks, Matthew. The proceeding was through the information request process for the most part. We just had a procedural conference early in July. We were awaiting the order for the additional process.

There is a potential for an oral hearing in November and should the oral hearing proceed, then we likely are getting that [Inaudible] for 2023 with the decision to follow, but we're waiting for that. As far as the process, nothing surprising. We did put forth a request for higher ROE. And capital structure, the interveners, of course, are suggesting something less than that and were really no surprises so far.

And what we're seeing in earnings and we look forward to [Inaudible] very soon here.

Matthew Weekes -- iA Capital -- Analyst

OK. Thank you. I appreciate the updates. I'll turn the call back.

Thanks.

Roger Dall'Antonia -- President and Chief Executive Officer, FortisBC

Thank you, Matthew.

Operator

[Operator instructions] Your next question comes from Michael Sullivan of Wolfe Research. Please go ahead.

Michael Sullivan -- Wolfe Research -- Analyst

Hey, everyone, good morning.

David Hutchens -- President and Chief Executive Officer

Good morning, Mike.

Michael Sullivan -- Wolfe Research -- Analyst

My first question was just around the FERC complaint. On the equity ratio, I understand that you're pretty confident that you ultimately prevail here. But just in terms of process, would it be surprising if FERC at least took it off, and set it for hearing? I think when this came up a number of years ago, they just outright denied it. Is that the expectation this time or would it be not surprising if they did at least take it up?

David Hutchens -- President and Chief Executive Officer

Well, our desire would be for them to outright deny it, which we think would be the right process. But I'll turn it over to Linda Apsey to answer that one.

Linda Apsey -- President and Chief Executive Officer, ITC Holdings Corp.

Yeah. Good morning. Thank you, Michael. Absolutely, as Dave said, we certainly would hope that FERC would dismiss the complaint outright, just given that how we set our capital structure is directly according to the FERC's three-prong test.

And so this would be a significant departure from FERC precedent if they were to grant that complaint. So certainly our hope and desire that they dismiss it outright and certainly the comments that we have provided in the docket certainly lay out our case, and we are hopeful that FERC will take the appropriate action. I would note that there is no time frame required for FERC to act, so we don't really have any visibility into when we might get a decision from FERC.

Michael Sullivan -- Wolfe Research -- Analyst

OK. But if they don't outright deny it, should we be worried or it's still possible you can ultimately prevail?

Linda Apsey -- President and Chief Executive Officer, ITC Holdings Corp.

Well, I think if FERC does not -- FERC would have to take action. If they don't deny it or dismiss it, there are two other possible paths. One, they could grant the complaint and yield their own decision through an order. Or, through an order, they could set the matter for hearing, which would ultimately sort of take us off into a different track before an ALJ and we would certainly be down the hearing path, which would presumably the expectation that there would be some settlement or at least attempt settlement.

So I think it's far too soon to know or tell what the outcomes might be. Again, we're hopeful that this will be an outright dismissal of the complaint, given that we file FERC precedent. And again, I think as we've mentioned before this would have broader industry impacts, as other utilities have similar equity components in their capital structure. So this would certainly have much broader concern from the industry's perspective.

And that's why I think sort of there were other interveners in the docket to that effect, reminding FERC that this -- their precedence -- nothing has changed. There's not been a change -- no change in facts or circumstances. So, again, we have remained hopeful that this will be an outright dismissal.

Michael Sullivan -- Wolfe Research -- Analyst

OK. Great. That's super helpful. Thank you.

And wanted to also just shift gears to the quarter and the trust asset performance drag. If so, it looks like it's been about $0.02 a quarter so far this year. I mean, if the market continues to kind of hold where it is, obviously that's a big if. But should we expect that to be like a sustainable drag through the remainder of the year?

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

Yeah, Michael, that's right. So there's -- the market holds and we shouldn't see any further impact of these assets. But as the market is still moving around. But if the market holds where it is today, then we probably would keep the $0.4 and the impact that we would have.

Michael Sullivan -- Wolfe Research -- Analyst

OK. So, no incremental year-over-year impact in future quarters.

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

Not expecting. No.

Michael Sullivan -- Wolfe Research -- Analyst

OK. Great. Thank you.

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

It depends on the market of course.

Michael Sullivan -- Wolfe Research -- Analyst

Thank you.

Operator

Your next question comes from Dariusz Lozny of Bank of America. Please go ahead.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning. Thank you for taking my questions. Just a quick one on your sales read, that you reported for the quarter.

Looks like Central Hudson came in a fairly robust double-digit increase on residential. Can you talk a little bit about what kind of trends you're seeing there? It looks like you're not calling out weather specifically, but looks like that might be organic growth. But just curious, if you could unpack that a little bit?

David Hutchens -- President and Chief Executive Officer

Yeah. Let me turn that over to Charlie Freni, he'll have some more details on the load impacts in this quarter. Charlie, are you there?

Charlie Freni -- Chief Executive Officer, Central Hudson

I am here, Dave. Thanks for the question. Our service territory, north in New York City has really prospered with, I want to say, the migration exit from the city. So we're seeing pretty robust housing development, more housing development I've seen in a long, long time.

So people are moving to the area. And obviously, when mortgage rates were low, a lot of starts and purchases were taking place. So from a residential perspective, we're seeing that [Inaudible]. It's fair amount of conversion to heat pumps.

The heat pump programs in our service territory, as well as some of the other service territories in New York, have been, for the most part, stripped of all their funding because there's been such strong demand for the heat pumps. And more and more electric vehicles are in the area as well. So I think there are a number of drivers there that have supported the residential growth.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Great. Thank you for that. One more, if I can. And this is just a follow-up to a response that you gave to another question.

I think you said that in response to seeing some of the pressures on capital costs and things like that, you might look to efficiencies on the O&M side. And I'm just curious if you'd be in a position to perhaps quantify those expected O&M efficiencies on any future updates.

David Hutchens -- President and Chief Executive Officer

Yeah. In the future, we will. This is something that we've been having conversations throughout -- the really past year. On ways for us to find ways of reducing costs to allow us to the headroom to make the needed investments we need and the infrastructure that our customers need.

So we will -- we were continually trying to figure out how to best gather and display that information for our investors and for ourselves. So we'll continue to do that and continue to refine that and get it in some of our IR materials, decks, and conversations going forward.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. I'll turn it back here.

David Hutchens -- President and Chief Executive Officer

Thank you, Dariusz.

Operator

As there are no further questions, I would like to turn the call back to Ms. Amaimo for closing remarks. Please go ahead.

Stephanie Amaimo -- Vice President, Investor Relations

Thank you, Michelle. We have nothing further at this time. Thank you for participating in our second quarter 2022 results conference call. Please contact investor relations should you need anything further.

Thank you for your time and have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Stephanie Amaimo -- Vice President, Investor Relations

David Hutchens -- President and Chief Executive Officer

Jocelyn Perry -- Executive Vice President and Chief Financial Officer

Maurice Choy -- RBC Capital Markets -- Analyst

Robert Hope -- Scotiabank -- Analyst

Susan Gray -- Executive Vice President of Western Utility Operations

Ben Pham -- BMO Capital Markets -- Analyst

Mark Jarvi -- CIBC Capital Markets -- Analyst

Andrew Kuske -- Credit Suisse -- Analyst

Matthew Weekes -- iA Capital -- Analyst

Roger Dall'Antonia -- President and Chief Executive Officer, FortisBC

Michael Sullivan -- Wolfe Research -- Analyst

Linda Apsey -- President and Chief Executive Officer, ITC Holdings Corp.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Charlie Freni -- Chief Executive Officer, Central Hudson

More FTS analysis

All earnings call transcripts