Fortis Inc.

Ladies and gentlemen, thank you for standing by. My name is Lisa and I will be your conference operator today. Welcome to the Fortis Q1 2020 conference call and webcast. During the call, all participants will be in a listen-only mode. There will be a question and answer session following the presentation. At that time, those with questions should press star followed by one on their telephone. If at any time during the conference you need to reach an operator, please press star zero. At this time, I would like to turn the conference over to Stephanie Amimo. Please go ahead, Ms. Amimo.

Thanks, Lisa, and good morning, everyone. And welcome to Fortis' first quarter 2020 results conference call. I'm joined by Barry Perry, President and CEO, and Jocelyn Perry, Executive Vice President and CFO, other members of the senior management team, as well as CEOs from certain subsidiaries. Before I 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 can differ materially from the forecast projections included in the forward-looking information presented today. All non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our first quarter 2020 MD&A. Also, unless otherwise specified, all financial information references in Canadian dollars. With that, I will turn the call over to Barry.

Thank you, Stephanie, and good morning, everyone. To begin today's call, I want to take a moment to express our heartfelt thanks to our 9,000 employees, 3 million plus customers, and our local communities, all of whom have been impacted by COVID-19. We are especially grateful for our local heroes on the front lines, in our hospitals, and our essential employees working to provide the energy that enables our economy. Also, we are thankful for our customers who depend on us to provide these services. Thank you. Like many companies, we've responded to the call to act. Half of our total employees remain in the field and continue to operate and maintain our critical infrastructure. They have been doing an amazing job. The remainder of our essential employees have been working from home since mid-March. Across North America, our utilities have suspended disconnections and waived late fees to help alleviate the impacts of COVID-19 for our customers that need it most. At the community level, our utilities have supported local charities by donating $4 million to food banks, mental health agencies, and other community-based organizations in their local service territories. Our businesses are performing well with essential employees maintaining and operating our systems. With respect to our supply chain, our businesses have had access to the necessary supplies to operate effectively. We will continue to monitor our supply chain for the duration of the pandemic. And in some of our harder hit regions like Michigan and New York, we've sequestered control room operators to ensure we can continue to operate our networks well. During this time, we've adhered to strict health and safety guidelines, including ensuring social distancing is in effect in the workplace. For example, our work crews have only one person per truck with other employees following to job sites in separate vehicles. Crews are also maintaining good hygiene practices to protect themselves and customers. At the onset of the pandemic, we implemented our emergency response plans hosting regular calls with the CEOs of our 10 utilities. Our leaders have tremendous operational experience and have risen to the occasion, sharing best practices on an array of topics ranging from employee safety to customer solutions in real time. The fundamentals of our business haven't changed with the pandemic. Our decentralized model where local teams have the authority to manage their businesses, coupled with our irreplaceable energy delivery assets, positions as well to provide customers safe and reliable service. Plus, our geographic and regulatory diversity is a major advantage at this time. From a shareholder perspective, 82% of our annual revenues are protected by regulatory mechanisms or are from residential sales, which are expected to increase during the pandemic. This helps to shield the majority of our utilities from changes in sales associated with the economic slowdown which has resulted in lower commercial and industrial sales. Our conservative approach to running the business ensured we were in a strong liquidity position at the start of the pandemic. At the end of April, we had approximately $5 billion of liquidity, leaving Florida's position near the top of our sector. COVID-19 has caused the U.S. dollar to strengthen markedly, and with approximately 65% of our earnings coming from the United States, This could provide a potential tailwind to Fortis. Lastly, given the regulatory constructs in most of our utilities, we have limited pension exposure. Now turning to slide seven. This slide provides a breakdown of our annual revenues. Approximately 63% of our revenues are protected by regulatory mechanisms from changes in sales, which is very positive. The remaining 37% of total annual revenues are exposed to changes in sales. This primarily relates to UNS in Arizona and our other electric segment. When you break down the 37%, 19% relates to residential sales and 18% to commercial and industrial sales. In other words, 82% of our revenues are either protected by regulatory mechanisms or from residential sales, which I mentioned are generally seeing an increase. While we don't know how long the pandemic will last, we've included a sensitivity table on the slide which translates every 1% change in sales broken out by jurisdiction and revenue class into an annual EPS impact. Moving to slide eight, here we've included an overview of the local economic impacts the pandemic has had in our jurisdictions to date. Generally speaking, most regions are seeing an uptick in residential sales as individuals spend more time in their homes. and a decline in commercial and industrial sales as businesses scale back or close. Some of our service territories have been struck harder than others. In Southeast Michigan, for instance, where ITC's headquarters is located, the community has seen a high number of COVID-19 cases. This has resulted in a decline in peak load of up to about 25% at times, mainly driven by manufacturing and auto suppliers being closed during this time. Since the FERC formula rate mechanism allows for a true-up of actual versus projected revenue requirements, ITC expects to recover these lost revenues associated with lower peak loads. However, to help mitigate the size of the true-up, ITC is working to reduce expenses to alleviate the net impact on customers. In contrast, as noted on the previous slide, our utility in Arizona doesn't have a regulatory mechanism to protect it from changes in sales. Fortunately, the Tucson area has seen fewer COVID-19 cases compared to Michigan. In Arizona, the authorities established a broader definition of essential services, which has somewhat muted the economic impact compared to other states. UNS has seen an approximate 10% decline in commercial and industrial sales, partially offset by a 7% increase in residential sales, albeit primarily due to weather. Combined, this yields an approximate 4% decline. Overall, our utilities that are exposed to changes in sales have seen an approximately 3% decline one month into the pandemic, and that's for the period between mid-March and mid-April. Moving on to slide nine, our 2020 capital plan is on track. Through the first quarter, we invested $1.2 billion in our energy systems, or 28% of our annual plan. We are confident in our 2020 plan. However, if the pandemic evolves differently than what authorities expect, some of the capital may shift to subsequent years. Turning to slide 10, the five-year capital plan of $18.8 billion remains intact through 2024. As you will recall, the capital plan is focused on our regulated businesses and consists of a diverse mix of highly executable, low-risk projects needed to maintain and upgrade our existing infrastructure. In 2019, mid-year rate base was $28 billion, and it's projected to grow to $34.5 billion by 2022 and $38.4 billion by 2024. This yields three-year and five-year compound annual growth rates of approximately 7%, which is consistent with our prior rate-based growth guidance. Moving forward, we continue to be focused on employee safety and customer reliability. With our long-term strategy intact, we are progressing our sustainability objectives, including clean energy initiatives. We also continue to focus on cybersecurity and innovation and are pursuing growth opportunities beyond the base plan. Overall, our growth platform is resilient, and we are confident that our long-term strategy will create shareholder value. With that confidence in our long-term strategy, coupled with our long-standing track record of increasing dividends for 46 consecutive years, we remain committed to our 6% average annual dividend growth guidance through 2024. It's worth noting that about one-third of our shareholder base is comprised of retail investors who rely on our dividends as a source of income. Our goal is to maintain a stable dividend for these investors and other shareholders throughout this crisis. Turning now to the first quarter highlights, our safety and reliability performance was very strong as we invested 1.2 billion of capital expenditures in the quarter. This supported adjusted earnings per common share of 68 cents for the quarter. On the regulatory front, in late March, FERC issued a notice of proposed rulemaking on transmission incentives, demonstrating their commitment to incentivizing the construction of transmission infrastructure. Jocelyn will speak to this in more detail shortly. And recently, both S&P and DBRS Morningstar have affirmed our strong investment-grade credit ratings. We are pleased with these developments. Now I'll turn the call over to Jocelyn for an update on the first quarter results, as well as additional information on our COVID-19 financial impact outlook.