Canadian Utilities Limited

Thank you for standing by. This is the conference operator. Welcome to the second quarter 2023 results conference call for Canadian Utilities Limited. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Finance, Treasury, and Sustainability. Please go ahead, Mr. Jackson.

Thank you. Good morning, everyone. We're pleased you could join us for Canadian Utilities' second quarter 2023 conference call. With me today is Executive Vice President and Chief Financial Officer Brian Skrobot. Before we move into our formal agenda, I'd like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located. Today, we're speaking to you from our Akko Park head office in Calgary, which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Confederacy comprised of the Siksika, Kainai, and Magani Nations, the Tsitsinu Nation and the Stony Nakota Nations that include the Chukniki, Berespa, and Good Stony Second Nations. The City of Calgary is also home to the Métis Nation of Alberta, Region 3. We honour and respect the diverse history, languages, ceremonies, and culture of the Indigenous people who call these areas home. Brian will begin today with some opening comments on recent company developments, our financial results, and key trends and expectations for our businesses in 2023. Following these prepared marks, we will take questions from the investment community. Please note that a replay of the conference call and a transcript will be available on our website at canadianutilities.com and can be found in the Investors section under the heading Events and Presentations. I'd like to remind you that our remarks today will include forward-looking statements. which are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Canadian utilities with the Canadian securities regulators. And finally, I'd also like to point out that during this presentation, we may refer to certain non-GAAP and other financial measures, such as total of segments measures, adjusted earnings, adjusted earnings per share, and capital investment. These measures do not have any standardized meaning under IFRS, And as a result, they may not be comparable to similar measures presented in other entities. And now I'll turn the call over to Brian for his opening remarks.

Thanks, Colin. And good morning, everyone. Thank you all very much for joining us today for our second quarter 2023 conference call. Canadian utilities achieved adjusted earnings of 100 million or 37 cents per share in the second quarter of this year. compared to $136 million in the second quarter of last year. As expected, the impact of our Alberta distribution utilities rebasing following our second successful performance-based regulation cycle resulted in lower year-over-year earnings in the second quarter. On its own, this rebasing contributed to a year-over-year decline in earnings of approximately $25 million. While significant, this is certainly not unexpected in a rebasing year, especially with the phenomenal outperformance we achieved last year, the final year of PBR2. Looking ahead to the rest of the year, we expect to see the earnings pressure associated with this rebasing peak in the third quarter. And in the fourth quarter, we expect seasonality benefits and our annual spending profile to create potential opportunities for year-over-year growth. Overall, despite the earnings pressure from rebasing, we still believe that our full-year performance for these businesses will be in line with the expectations that we've shared previously. More specifically, we continue to believe that we will be successful in achieving outperformance largely in line with our long-term historical performance. This will limit the single-year earnings decline for this year to levels largely consistent with what we experienced back in 2018 following PBR1. Moving to our natural gas distribution business in Australia, we continue to see strong growth in key operating metrics, such as new connections and system volumes. The in-country inflation trend within Australia continues to contribute to our year-over-earnings pressure. As we discussed on our first quarter conference call, 2022 saw us enter the year with a full year annual inflation expectation of 3% in Australia. By the time the year had ended, however, full year inflation had reached almost 8%. This surge in inflation resulted in strong earnings last year, but more importantly, an earnings profile that built beginning in Q2 of 2022 and rapidly progressed throughout the year. As a result of this trend in the prior year, our second quarter 2022 earnings were exceptionally strong, creating a comparable that is difficult to compete with as 2023 inflation levels begin to moderate. This trend resulted in us reporting a year-over-year decline of $5 million for this business in the quarter. Similar to what we saw in our second quarter results, we expect to see continued pressure in Q3 and Q4 related to the CPI trend and for it to push full-year results lower than last year. For added color, when we spoke following our first quarter call, in-country estimates were suggesting full-year inflation in Australia to be between 4% to 5%. Now, we continue to believe that this is an appropriate expectation but do see signs to suggest that inflation may trend closer to the 5% end of this range and be slower to recede than previously expected. Moving on to our electric generation business, we continue to see strong earnings contributions from our existing assets and those that we've acquired earlier this year. Along with our 40-mile wind in Adelaide assets performing in line with expectations operationally, We also saw earnings benefit from the strong Alberta merchant power pricing. This pricing strength helped offset lower than normal wind levels in Alberta during the quarter. As a reminder, our long-term power purchase agreement for 40-mile wind did not come in effect until July 1st of this year, which allowed us to capture these strong merchant market trends in the quarter. Now, before diving into our capital investments, I just want to touch on the recent wildfire activity in Alberta. Despite significant wildfire activity this year, our businesses have been successful in limiting customer outages and avoiding any safety incidents related to these events. My sincere appreciation goes out to all our employees who work so tirelessly to restore service and to support first responders. With wildfire activity in Alberta slowing significantly since its peak earlier in the second quarter, our teams continue to remain focused on restoration efforts. And we do not expect to see any negative impact to earnings as a result of these events. Moving on to capital, I just want to briefly touch on the capital investments we made in the second quarter. The second quarter saw us invest $336 million in our business, with $287 million of this spending being within our existing utilities. These ongoing utility investments ensure the continued generation of stable earnings and reliable cash flows, while also driving rate-based growth. The remaining capital was primarily related to our ongoing renewable generation initiatives, And the second quarter saw us achieve full commercial operation at our Barlow solar generation facility. We continue to push closer to completion of our previously announced Deerfoot and Ampersolar developments and expect commercial operation of these facilities this year. And we've also seen great progress in advancing numerous projects within our acquired renewables development pipeline and expect the upgrading of our 40-mile wind asset to be completed by year-end. Overall, the second quarter was a key inflection point in this rebasing year. The earnings pressures we expected related to rebasing and Australian inflation became more pronounced than they were in the first quarter as offsetting seasonality and timing impacts faded. That being said, rebasing is something we've dealt with before, and it's a key part of the PBR framework. We remain focused on driving exceptional results for our shareholders and position our business to maximize growth and earnings as we exit this key regulatory transition period. I look forward to providing further updates on the progress of our numerous growth initiatives as the year progresses. That concludes my prepared remarks. Now I'll turn the call back to Colin.