AltaGas Ltd.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Alcatraz 3rd Quarter 2024 Financial Results Conference Call. My name is Ludi and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. If you have any difficulties hearing the conference, please press star zero for operator assistance at any time. After the speaker's remarks, there will be a question and answer session. As a reminder, this conference call is being broadcast live on the internet and recorded. I would now like to turn the conference over to Abram Swanson, Vice President, Investor Relations.

Please go ahead, Mr. Swanson.

Good morning, and thank you for joining AltaGas' third quarter 2024 results conference call. Speaking this morning will be Vern Yu, President and Chief Executive Officer, and James Harbalas, Executive Vice President and Chief Financial Officer. We're also joined this morning by Randy Toon, president of our midstream business, Blue Jenkins, president of our utilities business, and John Morrison, senior vice president of corporate development and investor relations. This call is being webcast, and we encourage following along with the supporting slides that can be found on our website. Lastly, I'll remind everyone that we'll refer to forward-looking information on today's call. This information is subject to certain risks and uncertainties, as outlined in the forward-looking information disclosure on slide two in our presentation. As always, prepared remarks will be followed by an analyst question and answer period. I'll now turn the call over to Vern.

Thanks, Erin. Good morning, and thanks for joining us today. It's great to be here to review our strong Q3 results. I'll start with some key highlights from the quarter, provide an update on our major projects, and discuss the supply and demand trends in the energy markets that are providing us with strong growth opportunities. Then I'll provide an update on our recent regulatory filings, and I'll close with an update on our recent customer advocacy efforts at WGL. Let's move the slide forward. We delivered normalized EBITDA of 294 million in Q3, which represents 17% growth year over year, while normalized EPS was 14 cents, nearly double last year. These results were modestly ahead of our expectations. We now anticipate 2024 normalized EBITDA to be in the upper end of our guidance range, which James will touch on later. We delivered record global export volumes in Q3, with more than 128,000 barrels a day of LPGs exported to Asia. Despite weak natural gas prices, our operating performance across our midstream platform was strong, with gas processing, fractionation, liquids handling, and extraction volumes all experiencing double-digit growth year over year. Performance in our utilities business was ahead of our expectations, despite warmer-than-normal weather in Michigan and D.C. Strong performance at the utility was driven by the partial settlement of Washington Gas's post-retirement benefit pension plan, continued capital investments across the network, and active cost management. These capital investments make our system safer, more reliable, and add more customers who can take advantage of the affordable and reliable energy that we deliver every day. We continue to position our business for long-term growth. Reef and Pipestone 2 are showing strong construction progress, and both projects remain on time and on budget. During the quarter, we saw the benefit of higher volumes at North Pine, with the completion of a 5,000 barrel per day de-bottlenecking project, allowing the facility to deliver 11% growth year over year. We invested nearly $190 million into our utilities during the quarter, with more than half of that focused on modernization capital to ensure safe and reliable service, while also delivering steady rate-based growth. We finalized in advance a good number of midstream commercial agreements during the quarter. At Townsend, we just finalized two gas processing contracts for a total of 100 million cubic feet a day of capacity with a large global investment-grade energy company. The contracts have a high single-digit average contract length and cover fractionation and liquids handling. The customer is already tolling through our global exports platform. This demonstrates how supply is growing in Northeast BC for LNG feedstock and how producer activity has accelerated over the past 12 to 18 months. We also extended a gas processing and liquids marketing contract at Pipestone One with a large Canadian investment grade producer for five years. This reiterates the strong demand for deep cut processing capacity in the Alberta Montney, which underpinned our decision to acquire the Pipestone assets. We continue to advance commercial agreements for Phase 1 of REIF and are very comfortable in achieving our long-term tolling target across the portfolio. Once we reach our target, some of the tolling demand will be satisfied by Phase 2 of REIF Let's now move to the midstream project execution update. I'll start with reef. Work on the jetty is going well. We now have driven 20 piles with no major weather challenges to date. On site, we're now six weeks into blasting and overburden removal. We have moved more than 7,000 truckloads of soil, and we're at about 10% complete. This site work aligns with our schedule to be in service by late 2026. Off-site activities are also moving along nicely, with compression, refrigeration, storage, and vessel fabrication having been started in controlled manufacturing environments. We have fixed-price EPC contracts for approximately 50% of REIF's total capital cost, And we have plans to award more fixed price DPC contracts as we move along the execution plan. At Pipestone 2, construction is also progressing well. All earthworks are complete, and piling and concrete work is advancing. The gas gathering system is nearly complete, and the facility construction is moving along nicely. Again, the majority of this work takes place offsite in controlled environments. Over 90% of the project's capital costs are now locked down with fixed-price EPC contracts, and the project remains on track for a year-end 2025 in-service date, where 100% of the project's revenues are backed by long-term take-or-pay contracts. We are excited about the long-term outlook for the Montney and our assets in the region. On slide 6, we highlight our outlook for this, and why we continue to make ongoing investments in the region. The Montney is one of the most prolific resource plays globally, and it will be the center of Canadian natural gas and NGL development for decades to come. Nearly 70% of all Canadian gas well licensing activity is now focused on the play. Throughput volumes that are not in the assets have grown by double digit percentages over the past two years, And the recent contracts at Townsend and Pipestone reinforced this growth. All of this production will naturally want to move to the best markets. This means flying west to Asia, providing long-term structural growth for our global exports platform. Turning to utilities, we ought to take some time to updo you on the emerging data center growth opportunities shown on slide seven. Current expectations are by 2030, Data center power demand will be three times what it is today, and data centers will consume more than 10% of total U.S. power demand by the end of the decade. The energy requirements for data centers are daunting, and it's becoming increasingly obvious that all forms of energy will be needed to meet this demand, and that natural gas will play a critical role. This opportunity will further support our long-term utilities growth and augment our already robust growth trajectory. Within Washington Gas, we're progressing multiple commercial discussions with data center developers. We're working to provide natural gas as the primary energy source or have natural gas provide backup energy when there's insufficient power from the grid. We are progressing gas supply and engineering work, and it's important to note we're doing this on a highly de-risk basis, with developers footing the upfront costs. Our current expectation is that capital for these projects will be regulated rate-based investments, but this rate base will likely have unique and accelerated rate structures. Data centers look to be part of our long-term growth opportunity And we're excited about adding new customers that would be among our largest users of natural gas. We continue to be active on the regulatory front, where we filed a new rate case and submitted a proposed three-year ARP modernization program extension in DC. The latter filing for system modernization includes a request to invest 215 million US over the next three years. These filings are part of our ongoing regulatory strategy, where you will see us actively filing annual rate cases to minimize rate lag as we invest capital into our network. Having up-to-date ARP programs ensures that we are balancing the need to enhance our system's safety and reliability while ensuring our shareholders are getting an appropriate return on their capital. Finally, I want to discuss our recent advocacy initiatives on behalf of our customers. Two weeks ago, Washington Gas, along with local unions, restaurant associations, business councils, housing and building associations, filed two statements of claims challenging proposed gas bans in D.C. and Maryland. We strongly believe that customers have the right to choose their energy supplies. and we believe that natural gas is the most affordable, reliable, and missions-friendly form of energy in the DMV. Our actions, in conjunction with our partners, are necessary to protect the rights of our customers to choose the best energy source to meet their everyday needs. Our statements or claim are similar to the legal efforts taking place in other jurisdictions in the U.S., where gas bans are being challenged. A great example is in Berkeley, California, where the federal court recently overturned the gas ban. That decision affirmed that the federal law preempts a local gas ban, and these local gas bans do not fully account for the broader implications of customer wants and needs regarding energy reliability and affordability. As we've said in the past, we're here for our customers, we always advocate for their best interests. And with that, I'll turn the call over to James to provide more detail on Q3 and our forward outlook.

Thank you, Vern, and good morning, everyone.

The third quarter was another period where we focused on operational excellence, advanced our strategic priorities, and progressed key growth projects, all of which position AltaGas for continued value creation in the years ahead. In terms of the financial operating results for the second quarter, we'll start with the midstream segment on slide nine. Normalized EBITDA of 181 million was in line with expectations and consistent with financial performance last year. As we discussed on our second quarter conference call, we expected the Alberta wildfires and the potential for national rail strikes to impact operations in July and August. While the rail strikes were short-lived, they did drive higher one-time operating costs and the delay of one cargo that slipped into Q4. Despite these challenges, the organization was able to deliver another record quarter for global export volumes through strong planning, logistics management and execution. We exported more than 128,000 barrels per day of propane and butane in the quarter, spread across 21 VLGCs, which represents a 9% year-over-year increase. This included nearly 70,000 barrels per day being exported at Ripit and more than 58,000 barrels per day at Ferndale. This was also a record quarter for Ferndale with export volumes up 22% year over year and largely offset the rail interruptions, which principally impacted RIPIT. The operational flexibility we demonstrated reinforces the value of owning multiple export terminals to overcome short-term disruptions when they arise. As a reminder, the summer months are the strongest period for exports at Ferndale due to our pipeline connectivity to local refineries and available butane supply, which is not required for summer gasoline specs. We have also recently benefited from the commissioning of TMX and more Canadian crude in the Washington refining market as it has a higher butane content that can be recovered and exported. Despite extremely low Canadian natural gas prices during the quarter, performance across the midstream platform was strong and speaks to the strategic location of our assets in the most prolific resource plays. Fractionation, extraction, and liquids handling volumes were up 20% year-over-year, supported by the addition of Pipestone 1 and strong volume growth at Hermantin, North Pine, Younger, and Eap. Gathering and processing volumes were up 10% year-over-year, underpinned by the addition of pipestone one and strong volume growth at our hermaton townsend and blair creek facilities in terms of financial performance strong volume growth across global exports and the broader midstream value chain was offset by lower export margins including the impact of higher tolling volumes higher one-time operating costs lower contributions from the Mountain Valley pipeline, as well as higher LTIP costs due to AltaGas' rising share price. Turning to utilities on slide 10, normalized EBITDA was $117 million in the third quarter, representing a 65% increase from Q3 of 23. Year-over-year growth was driven primarily by four major factors, the partial settlement of Washington Gas' post-retirement benefit pension plan, ongoing investment in our asset modernization programs, ongoing cost management initiatives across Washington Gas and SEMCO, and the benefit of new rates being in place in D.C. These factors were partially offset by the impact of the Maryland rate case, decreased asset optimization activities at Washington Gas, warmer weather in Michigan and D.C., where AltaGas does not have weather normalization, and heating degree days were 60% below normal levels. During the quarter, we deployed $187 million of invested capital in the utilities on behalf of our customers. This included $100 million across our various asset modernization programs in the DMV and Michigan, which improves the safety and reliability of our system and reduces leaks. In addition to our modernization programs, our utilities investments are focused on new meter growth through servicing customer additions, maintenance on the system, and regional expansion opportunities. Within the corporate and other segment, normalized EBITDA was a loss of $4 million, consistent with the same quarter of 2023. Turning to slide 11, we're excited to be in a period of strong midstream growth with rising throughput volumes across the platform and the Reef and Pipestone II projects under construction. We have been here before and reiterate our track record of successful project execution. We have a strong history of delivering large midstream projects on time and on budget. Our last series of major midstream growth projects totaled $1.5 billion. These projects were all delivered on time and 8% below budget. We are seeing strong execution on Reef and Pipestone 2 to date and will continue to update the market on major milestone achievements as the projects progress. Turning to slide 12, the Mountain Valley Pipeline had a successful first full quarter of operation, with the 20-year firm contracts taking effect on July 1st. The pipeline operated as expected in the quarter and is playing a strong role in connecting upstream production in the Marcellus and Utica to strong and growing downstream demand in key eastern U.S. markets. The two VCF per day pipeline can be expanded with the partners currently evaluating the addition of another 475 million cubic feet per day of throughput via incremental compression. This will add required long-term takeaway capacity in a highly capital efficient build. We believe there will be strong demand for the expansion with recently proposed power plants requiring the full capacity of the project for projected data center demand. As we have shared in the past, We do not view our 10% non-operated equity stake as core to our long-term strategy, and we are in the early phases of price discovery on the asset. We believe demand for our MVP stake will be very strong given the shipping commitments with investment-grade counterparties, strong free cash flow generation, and highly capital-efficient growth projects, including the mainline expansion and Southgate. Turning to slide 13, we continue to focus on balance sheet flexibility and deleveraging. During the third quarter, we issued $900 million in hybrid notes that will carry an effective interest rate of 6.9% over the initial 10-year period, inclusive of a cross-currency swap that we executed to convert the underlying proceeds and interest costs to Canadian dollars. The net proceeds will be used to repay senior notes and bank debt and provided significant liquidity and funding capacity. These hybrid notes will provide additional headroom to our credit metrics as they receive 50% equity treatment by the rating agencies. Post the issuance of these hybrids, we will have a higher level of hybrid and preferred capital than was previously the case, and we are recalibrating our long-term leverage targets as a result. We previously had a long-term leverage target of four and a half times adjusted net debt to normalized EBITDA, which excluded hybrid and preferred capital. Going forward, we are adjusting this target to reflect the higher use of hybrid and preferred capital, and we'll now have a target of four times adjusted net debt to normalized EBITDA, excluding these instruments. which also equates to 4.65 times net debt to normalized EBITDA, including 50% debt treatment of the hybrid and preferred capital. These targets will also align with BBB mid-investment grade credit ratings. On this basis, our trailing adjusted net debt to normalized EBITDA ratio at Q3 2024 was 4.3 times, excluding press and hybrids, and 5 times, including 50% treatment of hybrids and press. We continue to view an MVP divestiture as the most immediate path to achieving these leverage targets as we have made significant progress with our balance sheet since 2019. On slide 14, we share our 2024 outlook. We have seen a number of tailwinds and headwinds since we first set guidance last December. Taking these all into account, and our year-to-date performance, we now expect to deliver 2024 normalized EBITDA in the upper end of our guidance range, while we expect normalized EPS to be around the midpoint of the 2024 guidance range. Our 2024 capital budget remains unchanged at $1.3 billion, as shown on slide 16. In closing, we are pleased with our third quarter and year-to-date performance, We continue to execute on our strategic priorities with a focus on compounding long-term value, as highlighted on slide 16. This is a testament to the entire team and to the quality of the enterprise. Looking ahead, we will remain disciplined allocated as a capital, as we have demonstrated over the past five years, and driving the best long-term outcomes for all our stakeholders.

And with that, I will turn it over to the operator for the Q&A session.

Thank you. And ladies and gentlemen, we will now conduct the analyst question and answer session.

If you would like to ask a question, please press the star followed by the number one on your telephone keypad. To withdraw your question, please press the star followed by the number two.

We'll pause for just a moment to compile the Q&A roster.

And your first question comes from the line of Robert Ho with Scotiabank. Please go ahead.

Morning, everyone. First question is on Reef and the contracting outlook there. You know, it appears that your confidence is increasing there with some of the agreements moving to the documentation phase. So, I guess a two-part question. When do you think we could start to see contracts being secured and then How does the Reef 2 sanctioning decision kind of mesh in with that? And could you keep a construction crew rolling from phase one into phase two?

Hi, Rob. It's Vern here.

Yeah, we're very positive on the commercial discussions that we've been having with our customers on getting some tolling contracts finalized. I think Over the next three or four months, I think we'll be able to announce some of the finalization of some of these contracts. As you can imagine, these are pretty long-term agreements with lots of detail to go in there, so it does take a little bit longer than people might expect to get these finalized. With the second phase of REIF, I think there is – I think it's important for us to see where we end up finalizing these contracts. We do have the ability to do a relatively small expansion at reef with minimal environmental permitting, but a larger scale expansion would require more permitting. So I think it's a bit early to comment on when we would expect the expansion of reef, but it is very much something that's viable at this point. All right, thanks for that.

And then maybe moving over to the balance sheet and MVP, you know, the hybrid issue in the summer did give you some headroom. And, you know, the outlook or valuation for MVP and the potential for expansion has probably improved over the last, you know, we'll call it six months. So how do you balance maximizing the value of MVP potentially by holding it a little bit longer versus, you know, fixing or improving the balance sheet in the near term?

Hey Rob, it's James here. Obviously, we highlighted on the second quarter call that we wanted to see a couple of things fall into place for us to be able to maximize value and move forward with price discovery. And one of those was the pipeline becoming operational, which happened on July 1st. And the other was getting some clarity around the operator, which was confirmed by EQT's close of the Equitrans transaction and the fact that they've identified that they want to continue to be the operator of that asset, right? So, We are in the early phases of price discovery. We're not obviously changing our mind or holding on to the asset. We continue to see it as non-core, and obviously we touched on some of the positive attributes that we think are going to get a lot of attention from financial buyers on the assets, and those are in a falling interest rate environment that we're in now as central banks have started an easing cycle. We expect a 20-year take or pays, the highly rated counterparty, strong pre-cash flow, and capital efficient growth projects to attract some financial buyers to this. So I think we're right on track relative to what we set for ourselves in terms of timeline and price discovery, and some of those gating items have now been taken care of that I touched on.

I appreciate that. Thank you.

Your next question comes from the line of Mauritius Toy with RBC Capital Markets. Please go ahead.

Thank you very much, and good morning, everyone. Maybe we could just start with a discussion about data centers, and you do have a slide that It's about how you're cautiously optimistic about the growth opportunity here. Can you speak to the progression of events in the coming quarters and years in order for you to start seeing rate-based investments and also what motivates you to be on the cautious side?

Hi, Maurice. It's Vern here. I'll provide some high-level commentary on the progress the fundamentals behind data centers as we see them. And then Blue can chip in and just provide some more detail on how these commercial discussions are going right now. I think it's fairly early days to figure out what is the true long-term demand from data centers. Like if you go through the various research pieces, the range of incremental gas demand in the U.S. is kind of in that 5 to 20 bcf a day obviously data centers are a big driver there more particularly in pjm our market there's probably the the system operators calling for 10 10 gigawatts of growth by 2030 and we are lucky to be the gas provider for loudoun county in virginia which is the largest data center concentration in the world. And there seems to be quite a bit of activity that we're looking from customers looking to add more energy to provide power for these data centers. The challenges that we have is how do we serve these customers on peak days and the ability to provide that energy 24-7, 365. So that's what we're working through right now. I know we have a number of smaller data centers in the queue. So, Blue, why don't you take over and provide a little bit of extra color?

Sure. Thanks, Vern. Maurice, I think Vern did a nice job of teeing up the opportunity set and some of the conversations. We've got a handful, I'll say, you know, a few more than you can count on a single hand. Moving through the process, the scale of these, as Vern points out, are anywhere from, you know, it would be a BCF a day to some that look or a BCF a year, sorry, not a day, a BCF a year to some that are more than 10 BCF a year. And the conversation is about how much do they want for primary energy, i.e., how much are they turning from molecular energy into electrons on site? And again, we're just delivering to them, right? And then how much of that do they want for backup and what's the flexibility? And so the conversations to date have really been more about them getting clear on what they need in their particular energy stack. And then the timeframe conversation is actually pretty straightforward. So we're very optimistic that we'll have a couple of these under contract in the next couple of quarters, we think. with several more that are through the queue. So we are optimistic about our ability to put rate base in the ground. The question will be as they get clear on their energy mix and their timelines for us. Maybe this is a quick follow-up to that.

You know, as you look at allocating capital between the two segments, obviously the reliability and safety investments in utility are non-negotiable. But in the past, you're able to accelerate and decelerate discretionary investments and utilities depending on balance sheet and the alternative opportunities in midstream. So when you look at these data center investments, would you characterize them across the spectrum of non-negotiable and discretionary? How would you, where would you place them?

For us, I think they're more discretionary, Maurice. There will be, there won't be right down the middle of the fairway as rate-based investments. There may be accelerated terms on the return of capital and things like that, which would be individually negotiated with the data center operator. So then we'll have to make a capital allocation decision on the how much premium are we making over our risk-free rate or our hurdle rate, sorry, for these investments relative to midstream investments.

If I could just finish off with a discussion about the retirement benefits and the guidance. So the benefits and utilities appear to be about $65 million. So how much of this was actually in the guidance? And secondly, By keeping this in the results, what does that mean in terms of the baseline for utilities for 2024 as we think about the growth in 2025 and beyond?

Maurice, it's James here. So, obviously, when you look at pension income, we do have a base amount of pension income that's always included in our in our guidance because of the funded surplus within the post-retirement benefit plan it's it's almost 550 million dollars so this was and obviously that that that does experience some volatility uh in terms of asset performance and and returns on those plant assets within the market so we decided to basically uh de-risk some of that and and to partially settle portion of the plan. So that $65 million gain that we recognized on those de-risking activities was incremental to what we had in our original guidance. But I do want to point out what I said in my prepared remarks. We have had a number of headwinds that have also impacted the utilities this year. And if you add up whether asset optimization and the Maryland rate case, you know, you get a value that's pretty much equivalent to where the pension settlement set out. So we don't see this changing the run rate, if you will. It will take us to the upper end of guidance, just given the fact that it's been able to offset some of those headwinds.

That's it. Thank you very much.

Your next question comes from the line of Jeremy Tonette, where JP Morgan, please go ahead.

Hey, this is Eli on for Jeremy. Thanks for taking my question. Maybe to continue on the forward outlook a little bit, it seems like you're headed for the upper end of the guide. We're seeing kind of stronger performance on LPGs and liquids handling, so maybe just on the midstream segment, how should we think about the run rate given kind of recent strength, you know, and obviously North Pine, obviously operating a little higher with those optimizations.

So yeah, just run rate guide for this segment or caller there.

Yeah, it's a great question. And I mean, obviously, in our prepared remarks, we touch on the fact that the strongest quarters for us from a global export standpoint tend to be Q2 and Q3, just given the connectivity of the Ferndale facility by pipeline to some of the local refineries, right? So we do take more delivery of more volume as a result of that pipeline connectivity during those quarters. And that doesn't happen in Q4 because obviously butane is not being pushed out by the refineries they needed for the gasoline spec. So I do see that adjusting in Q4 with respect to the midstream business. And I do want to highlight one other thing in Q4, right, that obviously it's been a headwind for us, and it's not midstream related. It's utility related. But to start Q4, we've already seen mild weather within D.C. So that's going to be a continued headwind for us relative to our guidance. But we still feel comfortable with getting close to the upper end of our range.

Got it. That's helpful there.

And then maybe just thinking about CapEx run right there. I know with the FID at Reeve, you guys revised and added some CapEx. But as you look out to 2025 and, you know, you have a large backlog of different organic projects, how should we think about those levels compared to 2024 and, you know, what the business is going to be, you know, able to spend in 2025?

Eli, we're just working through our budget process right now, and I think we'll provide everyone with some more color on our outlook for 2025 and our capital expenditures in 2025, sort of in that early December timeframe. So I think it's just best to say stay tuned for that.

All right, thanks.

Your next question comes from the line of Robert Cotillier with CIBC Capital Markets. Please go ahead.

Yes, good morning. I just wondered with the recent events in BC, so the election and some changes with the Blueberry River First Nation Council, what that means for your development plans in the Montney, notwithstanding all the business momentum you've shown with this quarterly report?

Hey, Rob.

For the most part, our expectation is it's not going to be a material change in how things have been progressing. I think the good news for us is all the development we're doing potentially in northeast BC is brownfield. And we've been in constant communication with that First Nation on our activities up there, so they're very well informed of anything that we're doing now or we may be doing in the future. Randy, was there anything you wanted to add?

No, I think you covered it, but yeah, we maintain a strong relationship with all the Treaty 8 First Nations, including the Blueberry, and despite their governance issues, We've been working with them and our customer and other stakeholders, and you can see that with our recent announcement of a long-term processing agreement.

We're confident that that development will still take place.

Okay. And then we've been through a period here with some pretty high export spreads as well as pretty strong hedge pricing. How does this impact how you set tolling rates? Really, what are you doing to ensure that you're getting enough economic rent for tolling when spreads are this high?

Well, I think we have to take a long-term view of what spreads are going to be over the life of a tolling arrangement. We're obviously targeting to have agreements that are as long as possible to minimize the volatility of our cash flows. So There is always a trade-off when somebody is willing to sign up for more volume and more term that they will get a lower tolling rate than somebody who's not as willing to sign up for volume and term. I think it's fair to say that what we're tolling is a reasonable – what we're striving for in tolling will provide a a good economic outcome based on the risk-adjusted nature of the capital. So the tolls on REIF will be higher than RIPIT, obviously, just because of the larger CapEx profile.

Okay. And then the last question for me here is just, you've done a lot over the last couple of years to take cost and variability out of the business. including with your decision on the pension in the quarter, on the post-retirement benefits, where do you think the next best opportunity is for you to take costs out of the business or reduce volatility, increase the stability of the earnings outlook?

Well, I think on the highest level, I think when we reach our goal of 60% of our global export business told on a long-term basis. About 90% of our EBITDA will be cost of service or under long-term take-or-pay contracts. So that, I think, materially moves up the cash flow volatility or reduces the cash flow volatility of the company as a whole. And we're gonna continue cost management efforts at the utility. I think we're tracking to be in that 100 basis point range below are allowed. So I think we can't take our eye off the ball there. So that along with us serially filing rate cases in our jurisdiction will allow us to minimize the overall ROE lag that we see in the business as a whole.

Okay. And just finally, the level of confidence in getting a weather variance account in DC.

Lou, do you want to comment on that?

Yeah, happy to take that. You know, we continue to work that process in terms of a confidence level. Yeah, I don't know that I can give you a great answer on that. We took a look at decoupling and worked that through our last rate case. We did get feedback from the Commission. They weren't comfortable at a decoupling level. They gave us some work to do with other counterparties, which we have done and we've come back based on that work with a weather normalization. We think based, we're hopeful based on what we have in the other regional jurisdictions, that that will pass muster. But I don't know that I could give you a good view. I don't think we're far enough into the rate case yet.

Oh, that's a good update. Thanks, everyone.

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

Hi. Good morning. I was wondering, could you update us on your recent conversations with the credit rating agencies and what they're most focused on and, you know, to remind us beyond the MVP monetization, what other levers you have to match your balance sheet.

Hi, Ben. It's James here. So, yeah, I mean, we're in constant conversation with the rating agencies. That's an ongoing dialogue. With respect to some of the targets that they've set for us, those were pretty clear, and we've pulled some of those levers already. The hybrid, I think, as we stated, did create some balance sheet capacity for us and headroom relative to those metrics. Some of the other things that we've been focused on have been obviously commercial de-risking at Reef, which we're making progress on, and obviously operational de-risking of both Pipestone 2 and Reef, and we continue to progress those projects. MVP is the other lever that we have to pull, and obviously we've always said that if it makes sense at the right valuation, we would consider minority stake or sale of other smaller non-core assets as well. So these are all the things that we continue to look at as opportunities for us to be able to achieve those metrics. I'll go back to the comments that I made in my prepared remarks. The hybrids in combination with an MVP sale, we feel strongly will get us to the metrics that have been established by Fitch to be able to get to that triple B or maintain that triple B. And after that, the hybrid issuance, do you have any room left on your balance sheet for more?

Since you're simply growing your assets over time?

Yeah, I think it's the latter. Obviously, as projects start to come online and we add to our asset base, both within the utilities and the midstream business, that cap that S&P has for hybrid capital continues to grow for us. But obviously, with this hybrid issuance, we took advantage of that room that S&P has for hybrid capital to get equity treatment and took full advantage of it in 2024 with the $900 million USD issuance.

Okay. And may I just just one clip on – Blythe Park, can you remind us when the contract expires and when do you plan to begin the next round of negotiations?

Yeah, so the contract, the new contract took effect Jan 1 of 24. It runs four years, so that takes us to the end of 27, so still a little early to be able to start having those kind of extension discussions as we're only

a little uh little close to one year into that contract not even a year yet okay got it okay thank you you're welcome your next question comes from the line of anthony linton with jeep jeffries please go ahead hey good morning guys and uh thanks for taking my questions just one from me just wondering what the status of the gas market in alberta if you're seeing any

increased inbounds from producers on increasing storage capacity at dimsdale and what that could potentially look like as an opportunity thanks hey anthony uh for sure we're seeing lots of interest in dimsdale let randy and provide some detail sure yeah so uh yeah there is strong demand for for gas storage and we and we see that trend continuing definitely when lng canada starts ramping up. And so the dim cell asset that we acquired from Tidewater is a great asset and it does have expansion abilities and we are going through the technical and regulatory requirements for that as we speak. And hopefully we can talk more about that in 2025.

Awesome. Thanks, guys. We'll turn it back.

And this concludes the Q&A portion of today's call. I will now turn the call back to Mr. Swanson. Please go ahead.

Thanks, Lady. And thank you, everyone, for joining our call this morning. Enjoy the rest of your day.