On Wednesday, Canadian Utilities (TSX:CU) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Canadian Utilities reported strong year-over-year earnings growth in Q1 2026, with adjusted earnings of $242 million, up from $232 million in Q1 2025.

The company is focused on three strategic pillars: growth and prosperity, operational excellence, and financial leadership, with a significant $12 billion capital investment plan over the next five years.

Key projects include the Yellowhead Pipeline, which has received environmental approval and is expected to start construction in Q3 2026, and additional potential projects post-2030 such as the McNeil Converter Station.

Operational excellence initiatives have resulted in substantial cost savings, with over $500 million in savings anticipated across the utilities through 2028.

Funding strategies include issuing debentures and leveraging cash flow from regulated utilities, with no immediate need for common equity issuance.

Management expressed optimism about future growth opportunities, particularly in Australia and through natural gas storage expansions in Canada.

Full Transcript

OPERATOR

2026 conference call on the line with me 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 am 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 Confederacy comprised of the Siksika, the Kainai and the Piikani nations, the Sutina Nation and the Stoney Nakota nations which include the Chiniki, Bearspaw and Goodstoney First Nations. I also want to recognize that the city of Calgary is home to the Metis Nation of Alberta districts 5 and 6. We honor and respect the diverse history, languages, ceremonies and culture of the Indigenous peoples who call these areas home. 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 security 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. And now I'll turn the conference call over to Bob for his opening remarks.

Bob Miles (Chief Executive Officer)

Thanks, Colin and good morning everyone. To kick off 2026, we remain focused on our three strategic pillars: first, growth and prosperity. This includes our project pipeline across all of our business segments. Next is operational excellence and lastly, we remain focused on financial leadership, which Katie will speak to in her remarks. Consistently executing across these three pillars will help us achieve our growth in the year ahead. Looking at our first pillar, growth and prosperity, I want to start by discussing our positive view on the Alberta environment, which is tied to our strong growth plans and continued focus on driving affordability through the efficiencies our teams deliver. As you can see on the slide, Alberta continues to be at the forefront of population growth amongst Canadian provinces heading into 2026. Economic fundamentals coupled with an affordability advantage are expected to sustain above average interprovincial migration in the year ahead, a positive sign that momentum persists. Looking ahead, the Government of Alberta forecasts that the province's electricity demand is projected to double by 2050. Last year, public and private investments in Alberta's utility sector totaled over $5 billion and we anticipate an increase to this spend in the years ahead. As Alberta's energy landscape continues to evolve, it's crucial we invest in projects that address our province's changing energy needs. Enhancing Alberta's energy infrastructure while enabling a modernized system that can readily accommodate generation specific to our regulated utilities, we see a significant growth opportunity ahead. As such, we are investing a significant amount of capital, $12 billion over the next five years, our largest investment plan to date, looking at the graph on the slide this year and 2027 are driven by our natural gas transmission spending which is fueled by the Yellowhead Pipeline project. In our view, this is the tip of the iceberg when it comes to our investment plan. The back half of the five year plan does not account for some of the other major infrastructure projects needed in the regulated utilities across the province in which we would expect to participate. When secured, these potential projects would be additional growth on top of the current plan. I want to reiterate that for all of our regulated investments, affordability and minimizing the impact on customer rates continues to be a priority in Alberta. Our gas utility has driven significant efficiencies that have resulted in our distribution charges growing less than inflation since 2013. Similarly, the focus of our electric utility on cost savings has resulted in their distribution charges growing less than our peers in the province since 2013. This is a significant accomplishment and one I will speak to further in the presentation. The capital plan that I discussed drives our 5 year compound annual growth rate or CAGR of 6.9%. This CAGR incorporates the regulated utility business including the Yellowhead Pipeline project. I will also add that it does not include the growth plans related to our non regulated assets including natural gas storage expansions which will drive further growth for Canadian utilities. With the Yellowhead Pipeline project being a driver of the growth under our current five year plan, I want to provide an update on recent milestones as we work towards the start of construction. In March, the project received its key environmental approval under Alberta's Environmental Project Protection and Enhancement act from the Alberta Energy Regulator. In all projects we undertake we are committed to environmental responsibility and regulatory compliance. This approval reinforces our commitment to ensuring the land and community impacted by our project are respected. The approval of the facility application from the AUC will be the final milestone we are working towards and is required in order for construction to proceed. Once received, construction can begin which we still currently expect to commence in the third quarter of this year. Something that I would like to remind everyone is that the yellowhead pipeline is 100% contracted with our customers, an indication that this project and infrastructure is greatly needed in the province as we look beyond 2030 in our regulated utilities, we also believe there are opportunities to increase rate base in our electric service territory tied to the ISO's long term outlook. Namely, the ISO forecasts an increase in load growth as a result of an expected increase in industrial activity, electrification and emerging loads. These developments require additional transmission capacity across the province specific to our service territory. A significant opportunity we see post 2030 is the McNeil Converter Station, the only intertype point between Alberta and Saskatchewan. We have now received a needs identification document for this project which confirms the need for the proposed transmission system upgrades. We have submitted a proposed project scope and schedule to the ISO who is currently evaluating our submission. The preliminary cost estimate for this work is approximately $1 billion with the vast majority of costs expected to occur between 2030 and 2034 period. Beyond this needed project, there continues to be ongoing conversations and excitement over the longer term. Of note, in March of this year the Government of Alberta and the Government of the Northwest Territories signed a first of its kind partnership agreement with on Transmission enter ties with the goal of modernizing electricity transmission and building a more resilient energy future across Canada. While these discussions are very early days, given this intertie would fall within our service territory, we see this as a possible long term opportunity outside of our current five year capital plan. Further conversations are underway between the federal government and utility companies for additional interprovincial tie lines between Alberta and BC and Alberta and Saskatchewan. This again would be a post2030 opportunity. The additional projects, opportunities and ongoing conversations I've outlined today provides us confidence that our strong growth will continue beyond 2030. Our second pillar, Operational Excellence focuses on safety, reliability and operational excellence outperformance. I want to start by congratulating the work of our utilities, both transmission and distribution. On the transmission side, ATCO Pipelines work collaboratively with our all stakeholders including the AUC who in the first quarter approved our negotiated settlement agreement for the 2026-2028 general rate application. All of our utilities continue to seek out and drive efficiencies across our business. Our distribution utilities operate under the Performance Based regulation which incentivizes utilities to reduce costs while maintaining safe and reliable service and then share these cost savings with customers. As seen on the slide, both atcogas and ATCO Electric teams have driven substantial efficiencies across previous and current performance based regulation cycles resulting in lower distribution charges and creating savings for our customers across the utilities. We are delivering more than $500 million in savings in total distribution costs which customers are already benefiting from over the 2023 to 2028 period. I'm very proud to be recognized as one of the most efficient utilities in Canada and will look to continue to drive efficiencies across forward Looking At Australia, our five year regulated capital plan allocates $500 million of investment in our Australian gas business. More specifically, we see a variety of macro trends in Australia both on the regulated and non regulated side on which we believe we can capitalize, including population growth, the expansion of mining, LNG and critical minerals, record infrastructure investments and industrial energy demand. Currently we own and operate over 15,000km of natural gas pipelines in Australia. We also have two natural gas fire generation plants, Karatha, which is located in the Pilbara region of Western Australia, and our Osborne facility located in Adelaide in South Australia. Western Australia stands out as a highly attractive market for development opportunities and we believe strategic expansion is possible. We see bilateral infrastructure developments as a fast, low risk, flexible way to serve the demand of the many new and expanding remote and semi remote mines which require generation. Given our background and expertise across the portfolio, we remain positive towards the Australian market and see Australia's evolving energy landscape and progressive policies as a center of opportunity and a place where we can benefit. Moving to our non regulated Assets in Canada, natural gas storage continues to be a valuable asset for our business in 2026. We are continuing to further develop and expand our natural gas capacity via organic growth initiatives as seen on the slide. We expect commercial operations of the carbon main pool expansion as well as the Alberta hub phase one expansion in the third quarter of 2026. Our low cost growth initiatives will bring our portfolio to approximately 130 petajoules with the potential for additional expansion opportunities in 2027. These expansions contribute to the financial performance of our storage business which have been a consistent generator of cash flow and earnings for our portfolio in recent years. Our third pillar is financial leadership and with that I'll pass the call to Katie to discuss this in further detail.

Katie Patrick (Chief Financial and Investment Officer)

Thank you Bob and good morning everyone. Now that Bob has spoken to a number of growth opportunities ahead of us at Canadian Utilities, I want to talk about how we're going to pay for all of this. Our regulated utilities operate under a regulated capital structure. To fund our regulated debt requirements, we expect to issue debentures each year during the five year period. Through this period we remain focused on continuing our proactive engagement with our credit raters and maintaining strong investment grade credit ratings for our regulated equity requirements, our utilities are a strong generator of cash flow. We expect to use this cash, along with the $700 million we raised in 2025 and approximately $850 million of additional capital securities, that being debentures, preferred shares or hybrid bonds, to fund our equity portion of our regulated capital investment. Our current five year plan does not require common equity and to fund our regulated utility growth. On the non regulated side, we do not forecast equity issuance to fund the current organic growth profile. Non regulated growth will be funded with cash from its current operating assets combined with project level debt financing and partnerships with the flexibility to access other equity instruments if an opportunistic acquisition arises. If an opportunity were to become available, we would provide the market with the financing details at the time. Overall, this funding strategy supports our growth initiatives while preserving balance sheet strength. Looking at the first quarter performance for Canadian Utilities, we are proud to have delivered another quarter of year over year earnings growth. Canadian Utilities achieved adjusted earnings of $242 million, up from $232 million in Q1 2025. As you can see on this graph, this was primarily driven by earnings growth at ATCO Energy Systems and ATCO Australia and moderated by the expected lower earnings within financing. Another As a reminder, we issued hybrids in September of last year to fund our Yellowhead project and the increased interest expense was the primary driver of the year over year difference. Looking at the specific business units, ATCO Energy Systems delivered adjusted earnings of $246 million in the first quarter, $14 million higher year over year. This was driven by a few factors including rate based growth coupled with ongoing customer demand as well as lower income tax expense from the reinstatement of accelerated Capital cost allowance under Bill C15 within ATCO Npower, we delivered comparable results to the prior year as lower generation from domestic renewables was offset by growth within our storage and industrial water business. ATCO Australia had an excellent quarter and was a key driver of growth at Canadian Utilities, delivering adjusted earnings of $21 million, up $8 million year over year. In addition to strong operational performance in this business, we also benefited from inflation adjustments which had about a $5 million positive impact year over year. From a cash flow perspective, our cash flow from operating activities decreased by $33 million year over year. This was a result of the refunds provided to customers under the PBR2 reopener decision, which I will remind everyone. Our appeal was recently heard by the Alberta Court of Appeal. Excluding this impact, we would have delivered modest year over year growth in cash flow from operations in the first quarter. As we look ahead, we are well positioned entering 2026 and we expect to deliver strong adjusted earnings growth on a full year basis. We will continue to execute on our proven strategy and focus on finding efficiencies across the business to ensure we continue to create shareowner value. I will now turn the call back to Bob for his closing remarks.

Bob Miles (Chief Executive Officer)

Thanks, Katie. With a solid first quarter in the books, we will continue to advance our strategic priorities and capitalize on the opportunities in front of us looking ahead. We remain optimistic for the upcoming year and beyond. That concludes our prepared remarks. I'll now turn the call back to Colin for questions from the investment community.

Colin Jackson (Moderator)

Thank you, Bob and thank you Katie. In the interest of time, we ask that you limit yourself to two questions. If you have additional questions, you are welcome to rejoin the queue. I will now turn it back over to the conference coordinator Asha for questions.

Asha

Thank you, Colin. To join the question queue you May press star then 1. On your telephone keypad you will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press Star then two. The first question comes from Maurice Choi with RBC Capital Markets. Please go ahead.

Maurice Choi (Equity Analyst)

Thank you and good morning everyone. If I could just pick up on a comment you made, Bob. In your prepared remarks you mentioned that Yellowhead is the tip of the iceberg and at the back half of your five year plan there are other infrastructure projects needed across your platform. I know in slide 10 you've identified some electric opportunities. So my two pronged question is is there a way to size some of these projects relative to the Yellowhead project and B are there any gas pipeline projects that you're thinking about?

Bob Miles (Chief Executive Officer)

Yeah. Thanks Maurice. In the five year plan there definitely isn't anything of the size of Yellowhead that we have in there. So a lot of the opportunities that we have in our five plans, specifically on the electric side, are smaller opportunities really tied to the ISO's long term plan. Things like new substations, wire expansions. But it's nothing of that magnitude. Where I'm really optimistic is when you start looking at some of the things that are not in there, whether it be enter ties, you know, major expansions like that. I think there's significant, you know, potential for that. We also are already seeing with the gas demand in the province that we're already having discussions about expansions of the Yellowhead pipeline system. So again, that's why I'm optimistic. And I did use that term tip of the iceberg for the latter half of the plan. Are those gas opportunities purely centered on expanding Yellowhead, or are there other ones that could also come to fruition? I think there's other ones as well, Maurice. But I would say Yellowhead expansion is, in my view, is definitely the largest opportunity for us. And we're already having discussions about the first stage of the expansion would be adding compression and then with the ultimate goal of looping the pipeline in the future. Gotcha. And just to finish off on a question on gas storage, I believe the previous disclosure that you had to reach 130 petajoules was by the end of 2026. And I noticed that in this set of slides, it's delayed by about a couple quarters, which isn't much to be fair. But just wanted to know what, what generally is the reason for this change in timeline? And holistically, what's your updated outlook about Western Canadian gas storage? Yeah, maybe, Marie, starting with your second question first is I've been always a believer in gas storage for a long time, and I still am a believer that gas storage is very much needed, especially as we started looking at things like LNG Canada Phase 2 and other growth opportunities with regards to natural gas. So I just, I just see gas storage as something that's very much needed in Western Canada and across North America in general. When you look at the delays that we had in the project, my view on that, Maurice, is that we really need to have the gas storage in place to be able to capitalize it later this year. And so the delays were really tied to the decisions we made over the winter to not incur winter construction, wait to the spring to actually complete the work. Some of the work is some, well, workovers, some new wells that need to be drilled and then associated pipelines with that. So, you know, even though we're saying it's delayed a couple quarters, it's not really delayed from impacting and benefiting our financial performance. Perfect. Great to know. Thank you very much for that.

Asha

Once again, if you have a question, please press Star then one. The next question comes from John Mold with TD Cohen. Please go ahead.

John Mold (Equity Analyst)

Hi. Morning, everybody. Maybe just going back to Yellowhead. Could you give us a little more color on your thoughts on the regulatory proceeding there so far, just in terms of how the. I think the hearing starts on Monday. And then relatedly on the broader GRA potential acceptance of one of the several credit relief measures that you've proposed, just on the financing side Just some insight on how that's progressing would be great.

Bob Miles (Chief Executive Officer)

Sure. On Yellowhead, John, you're right. Next week is the hearing. The hearing is truly the facility application, the needs for the project. We received that approval last year. There are, I might get this wrong, John, but I think we're down to low single digit interveners now coming in on the pipeline. So we are optimistic that will be positively received. But it is a step that we have to, we have to go through. And so, but again I think we're well positioned. We spent a lot of time having discussions with impacted parties. So we're confident from that perspective we're, we're working with, trying to work with the auc, the government around an expedited decision because the sooner we can get a decision on that, a positive decision, the sooner we can get into construction. We have on an outside sort of set of timeline of late July, early August for at the outer edge of an approval which would allow us to start construction, you know, in August, September, which is the timeline that we've set for ourselves. So again we're still, I'm still optimistic on that and hopefully it'll even be sooner. We've also just as an aside on that, we've been, you know, having a lot of discussions with contractors to get contractors signed and in place so that we are ready to start construction and not delayed due to contracts with contractors. Katie, why don't you comment on John's second part of that question?

Katie Patrick (Chief Financial and Investment Officer)

Yeah, for sure. Thanks, John. On the credit relief metrics that we've applied for through the GRA and specifically related to Yellowhead, I think the two, just for everyone's benefit, the two that we have requested would be an ROE adder or CWIP during the construction period, construction work in progress. I think we're, you know, we've had the hearing with the AUC and I think we're somewhat optimistic that we might receive one or the other. Obviously I think the more the one that would be easier for the AUC to issue would be the cwip, but we'll hear about that in this quarter, you know, similar timeframe to when we will hear about the final decision around the facilities application for Yellowhead.

John Mold (Equity Analyst)

Okay, that was very fulsome. Thanks. And then maybe just quick follow up on expansions at Yellowhead. Could that potentially come through ahead of even some of the later stage items that you've noted as incremental to your capital plan? Like I'm thinking of McNeil, for example, like when could we get more confidence in line of sight on some of those expansions,

Bob Miles (Chief Executive Officer)

Joanna? Absolutely. I do think it could happen sooner to give you, give everyone a sense of this is there has been an open season for expansion. As I said in my remarks, the Yellowhead pipeline, which if you go back even a year ago, I want to say a year ago we were probably at the 60% contracted on that pipeline. We're now we're at 100% contracted. We've there's been an open season and there's already interest in additional volumes. So I could see that happening within this five year capital plan. And again that is not those additional expansions are not in the numbers that we've put forward as our CAGR for capital.

John Mold (Equity Analyst)

Okay, that's great. Thank you very much. I'll get back in the queue.

Christina Koloko

The next question comes from Mark Harvey with CIBC World Market. Please go ahead. Good morning, this is Christina Koloko on the line on behalf of Mark Jarvi. A couple of questions this morning. So on funding in the past you've indicated that you would contemplate asset or minority interest sales to support equity funding that wasn't included in the options you mentioned today. So does that imply that it's not, not a likely source of funding? And then my second question is any update on any other intertie opportunities including the potential in the northwest of Alberta?

Katie Patrick (Chief Financial and Investment Officer)

Thanks Christina. I'll start with just with the asset recycling partnership opportunities. It wasn't specifically included on the slide related to our regulated capital investments, but I would say that absolutely that would remain on the table for funding alternatives. So you know, we are trying to be quite clear that our regulated capital plan can be funded with additional effectively debt securities through our balance sheet. But that on the non regulated side, as we pursue opportunities, and we will be pursuing opportunities, we would look for potentially other sources of equity which could include asset recycling or partnerships or the common equity markets if the right opportunity were to become available.

Bob Miles (Chief Executive Officer)

On interties. We've taken a conservative approach to that, not including intertie opportunities in our capital plan. But I do believe there's a great opportunity here in Alberta for interties, whether it be Northwest Territories, British Columbia or Saskatchewan. And we're having a lot of discussions with the federal government, provincial governments and the territories around that. I just think it's too early to start putting numbers into our plan, you know, with regards to interties. But I do think we have some great opportunities as a province and as a country to execute in that area.

Asha

Okay, thank you for that color today. This concludes the question and answer session. I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks, Please go ahead.

Colin Jackson (Moderator)

Thank you, Asha. And thank you all for participating today. We appreciate your interest in Canadian utilities, and we look forward to speaking with you again soon.

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