Canadian Utilities Limited (CU) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Third Quarter 2026 Results Conference Call and Webcast for Canadian Utilities Limited. The conference is being recorded. I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Financial Operations. Please go ahead, Mr. Jackson.

Thank you, and good morning, everyone. We are pleased you could join us for Canadian Utilities Third Quarter 2026 Conference Call. On the line today, we have Bob Miles, Chief Executive Officer; and Katie Patrick, Chief Financial and Investment Officer. Before we move into today's remarks, I would like to take a moment to acknowledge the numerous traditional territories and homelands on which our global facilities are located. Today, I'm speaking to you from our ATCO Park head office in Calgary, which is located in the Treaty 7 region. This is the ancestral territory of the Blackfoot Federacy comprised of the Siksika, the Kainai and the Pigani nations, the Sutina Nation and the Stoney Nakoda Nations, which include the Tuniki, Berispra and Goodstoney First Nations. I also want to recognize that the City of Calgary is home to the Métis Nation of Alberta, Districts 5 and 6. During the quarter, employees across Canada recognized the National Day for Truth and Reconciliation by walking together to honor indigenous communities and their experiences. May we continue to reflect, learn and respect the diverse history, languages, ceremonies and cultures of indigenous peoples as we move forward towards understanding, healing and reconciliation. Today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please refer to our filings with the Canadian securities regulators. During today's presentation, we may refer to certain non-GAAP and other financial measures, including 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 by other entities. Please refer to our filings with the Canadian securities regulators for further information. I'd also like to highlight, as part of the merger announcement, we have launched a joint website with Emera, where investors can access transaction-related information, key documents and ongoing updates. And now I'll turn the call over to Bob for his opening remarks.

Thanks, Colin, and good morning, everyone. I'd like to begin my remarks today by speaking to our recently announced merger with Emera. This merger into a utility champion marks a defining moment that I believe will benefit all shareowners. Not only does this transaction position the business to respond to increasing investment requirements but heart of Emera, shareowners can expect to benefit from greater scale, broader capabilities, geographic diversification and enhanced access to capital, which strengthens our ability to invest in the future while maintaining the disciplined approach that has defined Canadian utilities for decades. Together, the merged company will create a top 20 North American utility, an energy infrastructure company with a rate base of $45 billion, 6 million customers across 12 regulated utilities and approximately 95% of earnings coming from regulated operations. Upon close, Canadian Utilities shareowners will receive an approximate 20% increase in dividend, while share owners of the combined company will benefit from meaningful exposure in key markets including Australia, along with 2 of North America's most attractive growth markets, Alberta and Florida, with Alberta being our largest rate-based region within Canadian Utilities. I'll expand on the opportunities in this high-growth market shortly. Put simply, this merger brings together 2 organizations that share similar values, a long-term perspective, and a deep understanding of the responsibility that comes with operating essential infrastructure. Moving forward, the combined company will be able to grow, compete and operate more effectively. Within that context, the combined company is expected to deliver more capital capacity to fund future growth, added scale to compete for major projects, and a continued commitment, annual dividend growth and improvement in the dividend payout ratio. We believe this transaction creates compelling value for shareowners, meaningful opportunities for employees and a stronger foundation for continued investment in the communities we serve. As we progress through 2026, our efforts continue to remain centered on 3 strategic priorities: growth and prosperity, operational excellence, and financial leadership, which Katie will address in more detail shortly. By continuing to execute consistently across these areas, we are well positioned to advance our growth strategy and deliver on our objectives. Starting with growth and prosperity, Canadian Utilities is positioned at the center of one of North America's most attractive infrastructure growth geographies in Alberta. Alberta's markets are supported by multiple long-term demand drivers that are accelerating capital requirements across energy, power and industrial infrastructure. Moreover, Alberta has experienced the highest population growth over the last 5 years and has significantly higher forecasted GDP growth when compared to the Canadian average. These growth drivers, in addition to our resource advantage, create a direct line of sight to the need for utility investment. The most immediate catalyst is unprecedented growth in electricity demand with per year growth through the next decade. The province is undergoing a step change in load growth, driving the need for investment in both generation and transmission grid infrastructure. Load growth is expected to come from a diverse set of sources, including data centers, expanded market access projects, industrial growth and decarbonization investments. Collectively, these trends in Alberta underpin a multi-decade opportunity set for infrastructure investment, supported by durable demand fundamentals and a growing need for essential energy and utility assets. On our current project front, the Yellowhead pipeline exemplifies the role Canadian Utilities plays in delivering essential infrastructure for Alberta's growing economy. I am pleased to share that construction commenced in August, and we remain on track for an in-service date for the -- in the fourth quarter of 2027. Once in service, this $2.9 billion project will add more than 1 billion cubic feet per day of natural gas transportation capacity, helping ensure Alberta's industrial heartland has access to the reliable energy required to support industrial development and future growth. The Yellowhead Pipeline project is a major contributor to growth in our 5-year plan and remains an essential infrastructure investment that will support the provinces continued development and energy reliability. Our teams remain focused on executing our year capital plan that we disclosed earlier this year. While the Yellowhead project is an important initiative, we see considerable growth across our regulated utilities in Alberta. We are supporting this growth through our $12 billion capital program over the next years. Importantly, our capital program is built on projects with a high degree of certainty, providing strong visibility into future growth. However, we see additional upside beyond the current plan, especially in Alberta. As I have said on previous calls, the latter years of our 5-year outlook do not include several major infrastructure opportunities, which we expect to emerge supported by demand drivers in Alberta that I discussed earlier. For example, recent pipeline project announcements build confidence in resource and energy infrastructure investments. We view this as a meaningful opportunity for our growth potential as it creates further demand for interconnected transmission infrastructure in Alberta. Continued expansion of the NGTL system supports growth in Western Canadian natural gas production, LNG exports, industrial development and population growth all of which can contribute to higher energy demand and future rate base investment opportunities across Canadian utilities, regulated gas and electric infrastructure businesses. In addition, a stronger outlook improves the rationale for expansion projects such as Yellowhead. At the same time, we see attractive transmission opportunities including the McNeil, Alberta, Saskatchewan intertie, which has been designated as 1 of 5 high-priority interprovincial power line projects. As these opportunities are advanced and secured, they have the potential to provide incremental growth beyond what is reflected today. Across our regulated utilities, we are focused on balancing infrastructure investment with affordability. Our goal is to deliver a safe, reliable and resilient energy system that serves the needs of customers and communities both today and in the future. It's also worth noting that our outlook does not incorporate potential contributions from our nonregulated businesses including opportunities such as natural gas storage and generation expansion. As these opportunities advance, they have the potential to provide additional growth beyond the outlook we have disclosed. To align with our previous disclosure cadence, we will roll forward our capital plan forecast when we release our fourth quarter results. Now moving to operational excellence. As you can see on the top half of the slide, both ATCO Gas and ATCO Electric distribution consistently delivered annual ROEs above peer averages and approved levels, exceeding them by approximately 200 basis points and 300 basis points, respectively, from 2013 to 2025. This consistent outperformance reflects our disciplined approach to managing costs, improving productivity and operating our businesses efficiently. The graph on the bottom half of the slide highlight the benefits of those efforts. Across successive PBR cycles, our teams have generated meaningful efficiencies that have helped to limit distribution charge increases creating tangible savings for our customers while maintaining safe and reliable service. This track record has positioned us among the most efficient utilities in Canada, and we remain focused on delivering further efficiencies to drive continued outperformance alongside customer affordability. Safety, reliability and resilience are foundational to everything we do. They guide not only our day-to-day operations, but also how we invest and grow our business. Our focus is on ensuring that our infrastructure can safely and reliably deliver energy even as operating conditions become more challenging and customer expectations continue to evolve. This focus is shown in our safety record and reliability performance. As you can see on this slide, we saw a significant year-over-year performance improvement in the overall reliability of our Alberta distribution utilities. As extreme weather events become more frequent, we are broadening our approach to balance operational readiness with long-term system resilience, which includes investing in the hardening of our assets. And that is why of our $12 billion 5-year capital plan is directed to improving safety, resilience and adaptation. Within our Canadian nonregulated portfolio, our natural gas storage business continues to generate stable earnings and cash flow, reinforcing its value to the broader business. This year, we've continued executing our strategy to grow and enhance our storage platform through a series of low-cost organic expansions. During the quarter, we completed the carbon storage expansion, and we're on track for the Alberta hub expansion to enter commercial service in the fourth quarter. Together, these projects will increase our total storage capacity by 10% to approximately 130 peta jewels while also enhancing the earnings and cash flow potential of the business. More broadly, they demonstrate our ability to generate attractive returns through disciplined capital efficient investments. Looking ahead, we see additional opportunities to expand our storage platform, and we believe we are well positioned to capture that growth over the coming years. Our third pillar its financial leadership. And with that, I'll pass the call to Katie to discuss this in further detail.

Thanks, Bob. Moving into the third quarter performance for Canadian Utilities. I'm pleased to share that we delivered another quarter of strong year-over-year earnings growth. Canadian Utilities achieved adjusted earnings of $117 million, up from $108 million in Q3 2025. This 8% growth was primarily driven by growth in rate base in ATCO Energy Systems and the impact of inflation indexing on rate base and increased rates in Apco Gas Australia. Looking at the specific business units, what is apparent is the consistent growth we delivered at our 2 largest segments. At Energy Systems achieved adjusted earnings of $103 million in the third quarter, $5 million higher year-over-year. This was primarily driven by strong rate base growth across our utilities. And Power delivered slightly lower results year-over-year. Adjusted earnings were $15 million for the quarter, mainly due to lower realized carbon pricing and lower compensation related to turbine availability, guarantees at 40-mile wind facility, partially offset by stronger seasonal spreads in natural gas storage services. ATCO Australia had another strong quarter, delivering adjusted earnings of $29 million, up $2 million year-over-year. The increase was primarily driven by the impact of inflation indexing on rate base, higher foreign exchange rates and higher customer rates in ATCO Gas Australia. Our cash flow from operating activities increased by $58 million year-over-year, largely driven by higher cash earnings within most business units and higher customer contributions in natural gas transmission, partially offset by the timing of working capital. Entering the last quarter of the year, we intend to build on the momentum from the first 3 quarters, continuing to execute on our capital plan. I will now turn the call back to Bob for closing remarks.

Thanks, Katie. Following our strong execution year-to-date, we continue to focus on delivering our strategic objectives and capturing growth opportunities through the balance of 2026. We remain confident in our outlook for the remainder of the year and the long-term opportunities ahead, especially those within our primary jurisdiction of Alberta. We're excited to play a leading role in Alberta's continued growth where strong population trends, economic development and industrial investment are driving increased demand for electricity and natural gas infrastructure and supporting meaningful long-term growth opportunities. Merging with Emera creates value for all shareowners. And together, we play a leading role in the continued energy infrastructure build-out across all of our jurisdictions where we operate. This concludes our prepared remarks. I'll now turn the call back to Colin for questions from the investment community.

Thank you, Bob and Katie. I'll now turn it over to Galen, our conference coordinator for questions.

The first question is from Maurice Choy with RBC.

Just wanted to start with the pending merger. Can you speak to the types of growth opportunities that you believe shareholders should expect following the merger? And specifically, what opportunities do you see Canadian utilities being able to more forcefully go after in partnership with Emera that it could have in the past? And if you could detail some of this between regulated and unregulated segments, I appreciate it.

Maurice, thanks for that. And I mean, I know we've chatted about this in the past. What I really see the benefits with Emera are probably the big thing is additional access to capital and the benefits of additional expertise. And one area where I can tell you definitely see some benefits opportunities are in large intertie, and we've done a lot of that in Canadian Utilities over the years, built large electric transmission, I think Emera brings a lot of skill sets in that but definitely access the capital. I've spent some -- a fair bit of time working with Emera over the last number of months, as you can imagine. And they also bring a lot of experience in large gas-fired generation, which is an area of focus, as we've discussed previously. So I'd say those 2 areas are areas that I see a benefit in the merger, large electric transmission and I would say, large gas-fired generation.

Maybe as a quick follow-up to that. I recall about a year ago when data centers was obviously a big theme in the province and even bigger today. Canadian utilities effectively resurrected the ambition to rebuild its thermal power generation in Alberta. Is this the direction of travel that you're referring to in terms of Emera bring with it expertise in gas generation?

Yes, Maurice. They do have a lot of gas-fired generation in their Florida operations. They're in the process of building more gas-fired generation there as we speak. So they definitely bring that. We still believe in that gas-fired generation in this province of Alberta is definitely an opportunity in the future. We just want to make sure that we have contracts to support it, and that's consistent with our approach in the past.

Are you anticipating that the contracts underpinning these gas-fired generation will be similar to the type of risk and return profiles as your regulated business or at least close to it.