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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the AltaGas First Quarter 2021 Financial Results Conference Call. My name is Valerie, and I will be the operator for today's call. [Operator Instructions] As a reminder, this conference call is being broadcast live on the internet and recorded. I would now like to turn the conference call over to Adam McKnight, Director, Investor Relations. Please go ahead, Mr. Mcknight.
Thanks, Valerie. And good morning, everyone. Thank you for joining us today for AltaGas' First Quarter 2021 Financial Results Conference Call. Speaking on the call this morning will be Randy Crawford, President and Chief Executive Officer; and James Harbilas, Executive Vice President and Chief Financial Officer.Also joining us here this morning is Randy Toone, Executive Vice President and President of our Midstream business; Blue Jenkins, Executive Vice President and President of our Utilities Business; and John Morrison, Senior Vice President, Investor Relations and Corporate Development.In addition to the first quarter press release, financial statements and MD&A that were released earlier today, we've also published a first quarter earnings summary presentation. This presentation walks through the quarter and highlights some of the key variances and nonrecurring items that we would assume will be helpful for the market to understand, and it is available on our website under Events and Presentations.As always, today's prepared remarks will be followed by an analyst question-and-answer period. And I'll remind everyone that we will be available after the call for any follow-up or detailed modeling questions that you might have. We'll proceed on the basis that everyone has taken the opportunity to review the press release and our first quarter results.As for the structure of the call, we'll start with Randy Crawford providing some comments on our first quarter financial performance, recent progress on our strategic priorities and what you can expect on the road ahead for AltaGas. Followed by James Harbilas, providing a more detailed walk-through of our financial results, near-term outlook and 2021 guidance. And then we'll leave plenty of time at the end of the call for Q&A.Before we begin, we'll also remind everyone that we will 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 2 of our investor presentation, which can be found on our website and more fully within our public disclosure filings on both the SEDAR and EDGAR systems.And with that, I'll now turn the call over to Randy.
Thank you, Adam, and good morning, everyone. As an organization, we have undergone significant changes over the past 2 years in terms of focus, process and business optimization. And we believe the fruits of that labor were demonstrated in our operating results this quarter. Despite the ongoing effects of COVID-19 and the headwinds associated with the U.S. dollar exchange rate, we delivered a record quarter with strength across the platform and are well positioned to execute upon our durable 2021 and beyond growth prospects.Our global exports and Midstream platform achieved record throughput in proppants. Our utilities platform continued to profitably deploy capital, control cost and improve returns. And our finance team continued to lower our debt cost, and we are well positioned to continue to reduce our leverage ratios over 2021.As a result of these factors, we grew normalized EPS by 63% year-over-year in the quarter. Excluding the profits from the U.S. transportation and storage business, run rate normalized EPS increased 35% year-over-year and aligns with AltaGas focus on delivering durable and growing EPS and FFO per share that supports steady dividend growth and provides the opportunity for ongoing capital appreciation.Our Utility segment continues to demonstrate ongoing resiliency and improved financial performance where we continue to prioritize the health and safety of our employees, customers and stakeholders. Excluding onetime items, our U.S. Utility business delivered 11% year-over-year EBITDA growth in U.S. dollar terms.Through the combination of our judicious management of our cost, acute capital discipline and profitable investments we are making to upgrade our infrastructure, we are driving both improved financial results and customer outcomes. The performance seen in the quarter continues to align with the strong long-term growth trajectory projections that we have shared with you in the past.Through the recently approved Maryland and DC rate cases that came into effect March 26 and April 1, we continue to improve upon our ability to earn our allowed returns on the invested capital. The advancement of our network upgrade plans through the utilization of ARP programs continues across our jurisdictions. The investment of this incremental capital remains focused on reducing leaks, lower operating costs and ensuring that we are well positioned to continue to deliver affordable, reliable and lower-carbon natural gas for our 1.7 million customers, while preserving the optionality of carbon-free solutions in the future.Based on the progress we have made this quarter, I remain confident that we will close the remaining 150 basis point of ROE gap through 2021, which will allow our shareholders to realize appropriate rates of return on their invested capital across our utilities in 2022 and beyond.We also realized robust performance across our recently expanded Midstream operations. Excluding the larger-than-expected profits from the U.S. transportation and storage business in the quarter, AltaGas Midstream platform continued to show strong growth, including a full quarter of consolidation of PetroGas to deliver more than 85% year-over-year EBITDA growth. The Midstream business is currently firing on all cylinders, with solid volume growth realized across our integrated platform. We continue to see strong demand for Canadian LPGs in Asia and activity and production volumes continue to increase around our Montney-focused platform in Northeast B.C. We also are witnessing a strong rebound in production volumes in our non-Montney footprint.It's only been 4 months of combined operations since the acquisition and consolidation of PetroGas, but the strength and efficiencies of the assets combined with the increased scale and reach of the expanded platform and the bolstered expertise of the combined workforce is exceeding our expectations.Given the headwinds of building new fossil fuel-related export assets in the U.S., we believe that our Ferndale facility is not only strategic, but extremely valuable. Ferndale's highly efficient operation and dual product optionality located on the Western U.S. Coast is difficult to replicate and creates a competitive advantage related to the delivery of cleanly-burning LPGs to Asia.We are realizing the benefits of operating both export facilities through greater optionality and flexibility in terms of supply and logistics, and the allocation of propane and butane between the 2 terminals as well as the benefits associated with integrating PetroGas other transportation and storage-related assets.During the quarter, we exported a record average of 85,000 barrels a day of propane and butane to premium markets in Asia, improving Canadian realized pricing as we continue to connect more Canadian production to global markets. Both export terminals are performing very well and in line with our strong expectations.Overall, our expanded Midstream and energy platform provides us with great operational scale, and commercial optionality, allowing us to provide better service and improved outcomes for our customers. Last Friday, we took another step forward in advancing our strategy to refocus the company on our 2 core businesses, while continuing to strengthen and delever the platform and reduce the volatility of cash flow through the monetization of our U.S. transportation and storage business.We were excited about closing this transaction as it accelerates our time line of getting to our target of being 5x net debt to normalized EBITDA, and it brings us closer to contemplating the journey that we have been on in the past 2 years.We're also fortunate in our timing to be able to sell the business after a strong financial contribution in the first quarter related to the weather-driven gas pricing volatility to recognize an incremental source of funds that augment this deleveraging event.We are now positioned to reduce our net debt to normalized EBITDA ratio by up to 0.5x over the course of 2021 relative to the approximate 5.6 run rate level we exited 2020, and we remain focused on further de-risking the platform over the long term.We are proud of the fact that for 2 years running, we have delivered normalized EPS growth that has materially eclipsed all of our U.S. gas utility and Canadian Midstream peers. Our stock performance has followed suit and eclipsed all of our U.S. utilities and Canadian Midstream peers over this period. The strong performance we achieved in the first quarter provided the confidence to increase guidance that now when using the midpoint for 2021 represent 22% year-over-year earnings per share growth.The progress made during the first quarter positions AltaGas to drive strong stakeholder outcomes in the year ahead and continue to build a platform that is focused on long-term sustainability. We believe this is a testament to the perseverance and steady progress that we have made towards executing our strategy and delivering on our priorities and it's a true reflection of the significant potential that lies within our diversified platform.As we continue to move towards a more decarbonized ecosystem, we believe natural gas to be a critical part as the transition fuel of the future. Our utilities network is comprised of critical infrastructure that enables us to deliver low-carbon natural gas today and provides a foundation for the delivery of carbon-free solutions in the years ahead, including renewable natural gas and hydrogen.We remain focused on executing upon our climate business plan and are confident that we will be very well positioned for the energy transition that is upon us.We are committed to exploring and defining the next steps to introduce renewable natural gas and hydrogen into our natural gas distribution system. There will be more information to come in the quarters ahead as we explore and position ourselves to execute on this promising opportunity.In summary, we've achieved record EBITDA growth, which allowed us to increase our earnings guidance for 2021, successfully integrated the PetroGas acquisition to achieve outstanding year-over-year growth in the Midstream business, made significant progress towards earning our allowed rate of return at the utility, and positioned ourselves to further reduce our debt and improve our leverage metrics.And with that, I will turn the call over to James to dig into the operational and financial results of the quarter in more detail.
Thank you, Randy, and good morning, everyone. We are pleased to be here today to discuss our strong first quarter results, our increased 2021 guidance and the monetization of our U.S. transportation and storage business that we announced last Friday. The latter of which should drive an estimated $485 million of near-term deleveraging and accelerate AltaGas towards our target of being below 5x net debt to normalized EBITDA.Specific to the first quarter, we were very pleased with the record financial performance that we produced, which builds on the financial and operational improvements we have demonstrated over the past 2 years as we reposition the platform and sharpen our focus on delivering durable and growing EPS and FFO per share, which supports steady dividend growth and provides the opportunity for ongoing capital appreciation.During the first quarter of 2021, this included normalized EPS of $1.29 compared to $0.79 in the first quarter of 2020, representing a 63% year-over-year increase. Normalized FFO per share of $2.08 compared to $1.51 in the first quarter of 2020, representing a 38% year-over-year increase.And normalized EBITDA of $674 million compared to $499 million in the first quarter 2020, representing a 35% year-over-year increase, all of which was underpinned by solid performance across the entire platform. As we highlighted in the earnings release, the U.S. transportation and storage business generated $80 million in normalized EBITDA over and above what we had originally forecasted as we positioned the business to realize strong profitability from strong pricing moves in the U.S. natural gas market, while meeting the demand arising from the February winter storm that grip parts of the continent.Overall, core performance in the quarter aligned with AltaGas' corporate focus of delivering durable and growing EPS and FFO per share that supports steady dividend growth and provides the opportunity for ongoing capital appreciation. Specific to the business units, the utility segment reported normalized EBITDA of $371 million compared to $369 million in Q1 2020.The strong operating performance across the segment was largely offset by a $20 million unfavorable move in the U.S. to Canadian dollar exchange rate, and $16 million in negative headwinds associated with the sale of AltaGas Canada Inc. and the Virginia adjustment that were present in Q1 2020. Excluding these onetime headwinds, Utilities EBITDA was up 11% in U.S. dollar terms.Our growth continued to be underpinned by ongoing system upgrades that are focused on improving the safety and reliability of the network, reducing leak rates and driving better environmental outcomes, all of which are focused on serving our customers. During the first quarter, the utility segment experienced slightly colder weather across all our utilities, with the exception of Alaska, compared to the first quarter of 2020.I would also remind everyone that we have weather normalization mechanisms in place at Virginia and Maryland, our 2 largest operating jurisdictions, which protects our customers and AltaGas from large weather-driven volatility in any given quarter.WGL had a solid quarter with normalized EBITDA of $276 million compared to $278 million in Q1 2020. Excluding a $15 million negative impact of foreign exchange and the onetime impact of Virginia rate case adjustment of $8 million in the first quarter 2020, WGL's run rate normalized EBITDA increased approximately $21 million or 8% year-over-year.Notable drivers include higher revenue from ongoing system improvements and ARP spending, lower operating expense and continued customer growth, which were partially offset by ongoing impacts related to COVID 19. We continue to make solid progress towards earning our allowed returns at WGL through a combination of capital, regulatory and cost discipline.SEMCO and ENSTAR's combined normalized EBITDA was $82 million in the first quarter, down $4 million for the same period last year removing the negative impact of foreign exchange fluctuations, which totaled $5 million, SEMCO and ENSTAR'S run rate normalized EBITDA increased by approximately $1 million as the colder weather in Michigan was largely offset by warmer weather in Alaska compared to the first quarter of 2020.And finally, normalized EBITDA from retail energy marketing business was $13 million in the quarter, an increase of $17 million year-over-year, driven by favorable gas margins and pricing and the absence of widespread shutdowns experienced by C&I customers as a result of COVID-19 that occurred last March.Within our Midstream segment, we reported a record $304 million of normalized EBITDA in the first quarter 2021 compared to $120 million in the first quarter of 2020, which represented a 153% year-over-year increase. This included robust profits from the U.S. transportation and storage business as well as strong performance across the Canadian Midstream operations. If we adjust for the larger-than-expected performance from the U.S. transportation and storage business, Midstream run rate EBITDA was still up approximately 87% year-over-year, including a full quarter of consolidating PetroGas.EBITDA from global exports increased to approximately $7 million during the first quarter 2021, reflecting PetroGas consolidation and combined shipments at RIPET and Ferndale of approximately 85,000 barrels per day of LPGs to Asia across 14 VLGCs.Our processing and fractionation business realized strong volume increases across the Midstream platform, with a 10% year-over-year increase in total inlet volumes due to increased producer activity as a result of improving fundamentals and commodity prices.As has been the case in the past few years, we continue to benefit from our industry-leading footprint in the Montney as producers continue to complete drilling programs and increase production at our recently expanded Townsend and North Pine facilities, a trend we expect to continue in the coming period.We remain focused on managing risks in the Midstream business and reducing commodity price exposure and volatility. We had approximately 95% of our frac exposed volumes hedged at $26 a barrel and realized an average frac spread of approximately $15 a barrel after transportation costs. Approximately 60% of global exports projected volumes are collectively hedged, including our long-term tolling agreements. The balance of volumes are derisked through FEI to North American financial hedges that average approximately USD 11 per barrel for propane and butane.Depreciation and amortization expense for the first quarter of 2021 was $99 million, compared to $105 million for the same quarter in 2020. The decrease was primarily due to lower U.S. Midstream amortization and lower foreign exchange rates, which were partially offset by new assets placed into service and the amortization on the consolidated PetroGas assets.Interest expense was $70 million, was in line with last year. Overall, higher debt balances and lower capitalized interest was offset by lower average interest rates.Turning now to our 2021 guidance and capital plan. We have increased our 2021 financial guidance ranges to reflect our robust start to the year and the confluence of tailwinds and headwinds that have unfolded since our initial guidance back in December of 2020.This includes increasing our 2021 normalized EPS guidance range to $1.65 to $1.80 per share from $1.45 to $1.55 previously. This represents 22% year-over-year growth using the new midpoint. We also increased our 2021 normalized EBITDA guidance range to $1.475 billion to $1.525 billion, from $1.4 billion to $1.5 billion previously. This represents 15% year-over-year growth in normalized EBITDA using the new midpoint.Our 2021 CapEx outlook remains unchanged at approximately $910 million. The majority of that capital budget is being allocated to the utility segment, which is focused on system upgrades to drive better customer outcomes.We were also pleased to announce the sale and closing of a transaction to monetize the U.S. transportation and storage business last Friday for total proceeds of $344 million. This noncore asset sale represents another important step in advancing AltaGas' strategy of refocusing the company on its 2 core businesses while continuing to reduce leverage and reduce the volatility of cash flows. This is a continuation of what has been a multiyear journey as we reposition Altagas, and we are pleased to be nearing our goal of getting to 5x net debt to normalized EBITDA.This concludes our prepared remarks. And we would be happy to turn it over to Q&A. Operator?
[Operator Instructions] And your first question will come from the line of Patrick Kenny of National Bank.
Just on the propane export business, it looks like the tolling arrangements are still at just 15% of the 90,000 combined capacity. I thought it was closer to 20% previously, but I just wanted to confirm that there have been no incremental long-term commitments made after the April 1 NGL supply recontracting season? And I guess, if not, maybe an update on how your discussions are progressing with some of your larger gas processing customers that might be interested in locking in their export capacity on a long-term basis?
Patrick, thank you for the question. First of all, you're right, we're currently at 35% toll at RIPET, and we are targeting higher percentages post April. Conversations have been constructive, and we speak with them regularly to secure additional tolling volumes.I think just to give you a more back up on longer term, you look at this and you see our capabilities and efficiencies that we've created of having these 2 West Coast export facilities have really put us in a position that producers certainly can't ignore the value proposition that we're proving to them and the recent strengthening in the fundamentals and improving commodity prices is really starting the conversation, and we're seeing increased interest by producers and aggregators who want to be participating to upside.And quite frankly, some of the consolidation that's occurred as well with larger balance sheets and customers able to make longer-term commitments makes us optimistic that we'll continue to strengthen our position there. But thank you, Patrick.
That's great, Randy. And I know it's still early days in the nearby Watson Island terminal being online. But any comments on having to compete for volumes or contracts? Or are you servicing completely different markets, and we should not expect any near-term pressure on volumes or margins at RIPET or Ferndale?
Yes. We don't see that the start of the Watson Island is going to have any significant impact on our business. We believe that the Canadian propane market is going to continue to be oversupplied, and the Montney continues to see strong drilling activity and remains a top player in North America.Overall, though, when you think about our assets, intrinsically, the assets are great. It gives us a return on the investment that's outstanding and the intrinsic value of the dislocation of those propane, the ability to -- our propane and butane, what that does is it provides us an incredible value that no one, including Watson, can replicate. And so we're not a 1 company. We've acquired these assets, and we can move far more propane prior to the acquisition. And we also have the ability as we said when prices line up differently between the 2 products to ship more butane and propane or vice versa.So our position in the industry is leading. The 2 facilities with the optionality access the Asian markets and when we look at it, we don't see others that have that ability. So overall, Watson Island, smaller boats, different markets. And it'll essentially have some commercial challenges.
Okay. That's great. And then just for James, maybe just with the improved visibility here towards reaching your sub 5x leverage target. Any update on your discussions with S&P regarding moving to BBB mid rating? Or is that still dependent on executing a sale of MVP?
Patrick, no, it's a good question. I mean at the end of the day, it would be fair to say that the sale of the U.S. transportation and storage business is moving us a little faster than we had originally anticipated towards that 5x net debt-to-EBITDA goal. We've just come through a ratings update and confirmation process with S&P late in 2020 and so far -- and other rating agencies. And so far, we're exceeding some of the forecast that we've put in front of them.So I think that this is something we will discuss with them as we enter the ratings review cycle later this year. But if you look at the report, it would be a couple of years of us hitting FFO-to-debt targets that are in the 14% to 15% range that would trigger an upgrade.
The next question will come from the line of Ben Pham of BMO.
I had a couple of questions on the U.S. storage sale. And I'm curious, you mentioned a series of debt reduction. I'm just curious about what you meant by that, is it 6 months, 1 month? And any sense of when you think you can get to the 5x target, next year or the year afterwards or something more medium term?
James, you want to take that?
Yes. Sure. So I mean, when we released the press release on the U.S. Midstream sale, we've clearly identified that if you look at our run rate EBITDA at the end of 2020 and add a full year contribution from PetroGas, we would have been at about 5.6x net debt to EBITDA.This sale will take about 0.5 turns of leverage off of that. So we're starting to get close to that 5x net debt to EBITDA. Looking out into 2022, obviously, if you layer in some growth that we forecasted being contributed by rate base investments and then we will move closer to that 5x for us to get below it.We obviously have additional dry powder at our disposal and levers to pull with some additional noncore assets that we haven't moved on at this point. We continue to identify MVP as a noncore asset, but we're going to continue to be patient with that asset so that we fully derisk it and increase the value and move forward with the process at that point, which should take us below 5x net debt to EBITDA.
All right. That's great. And and also, it's an interesting transaction because you're doing it at a time where the volatility is increasing and on a trailing basis, it looks like you got a good multiple on a forward basis, maybe not so much. So I know you -- do you characterize this transaction as more accretive to your balance sheet versus accretion to EPS or your unlevered EBITDA?
Well, I think when you think about this transaction and the asset itself, right, it's pretty much of a noncore asset. And the business is really, if you think about the business in the contractual business of storage and transmission, it really has the -- what you do in that business is it has the intrinsic value that you hope to cover your cost. And then you -- you set yourself up with the opportunity with intrinsic value that may happen 1 out of 5, or we believe, 10 years. And so for us, very much of a noncore asset, very small impact overall to earnings, and it presented us with an opportunity to delever significantly.And we made a strategic an important decision to hold those assets through the end of the quarter for that opportunity. And I think the teams did an excellent job.
Okay. And I wouldn't mind just adding -- sorry. I just wanted to add to on -- from an earnings standpoint, it's actually going to be somewhat -- it's going to be neutral from an EPS standpoint. Just if you look at the contribution it's had on average over the last 5 years of about $16 million, and you basically take interest expense out from proceeds that we're going to use to repay debt and the depreciation and amortization that we'll avoid because of the derecognition of that asset on sale, then it would be neutral to earnings going forward.
Okay. That makes sense. You just -- so you're ignoring this -- or this year, which makes a lot of sense using that historical average. Okay. And then maybe the other thing is the MVP. Any change -- I just didn't -- I didn't have time to go through everything. Any change, something like accounting, like AFUDC, and anything going on there? If you just have some notes on AFUDC.
I'll let James talk about the AFUDC, but more broadly speaking, right, I think we believe and we continue to be confident that the pipeline will get built. And it's a very critical asset for reliability in the U.S. in terms of the build-out of the electric grid as well.So -- but specifically, the AFUDC, do you want to address that, James?
Yes. And Ben, we did record AFUDC through 2020 on the construction of that project ourselves and the consortium partners on MVP all see this recognition of AFUDC as it moves its way through the remaining milestones that it needs to achieve to get to in-service date. So 2021 will not have any AFUDC in our EBITDA or EPS numbers.
And the next question will come from the line of Robert Catellier of CIBC Market -- Capital Markets.
Congratulations on the sale of U.S. transport business. But just a follow-up there. How do you look at the -- how that impacts future asset sales, for example, just picking 1 at random, Blythe, is it easier to just sell it and clean up the story? Or do you know the financial flexibility to hold out for top dollar?And on a similar vein, we're seeing some very strong valuation on utility sales in the market. So is there any incentive to maybe look at noncore utilities as deleveraging candidates?
Thank you, Robert. Thanks for the question. On the last half, sure, we're always looking at opportunities to look at our portfolio and to the extent that we can leverage and grow those assets, we would look at that.But more broadly, right, more broadly, the deleveraging that we have done has been, I think, significant, and it's put us in a position where we can use our dry powder on some of these other noncore assets. So that's where we'll be -- certainly, as we did with our noncore transportation and storage assets, we'll be opportunistic. But we are in, I think, in excellent position to fund our growth plans and to continue to create shareholder value.So it hasn't really changed. It's just put us in even a better position going forward.
Okay. And so I wonder if you could comment on the outcome of the recent Maryland case. How do you characterize that income? It looks like it was quite a bit short of the allocation. And so at the same time, you're still holding to your view of being able to achieve authorized returns. Could you just square that up for us, please?
Yes, sure. I mean, the order was -- it was ultimately a settlement on our -- in terms of the return on equity and the capital structure were consistent to what we have previously been earning on. And and so when we look at our business going forward, our strong rate base growth and earning our allowed return, we're looking at our overall operational excellence model. Blue and his team have done a tremendous job in terms of capital discipline, judicious cost management and improving the customer value proposition.So yes, we're very bullish, and we continue to remain on target to earn our allowed return.
Okay. Last question for me. I know it's quite early, but has the change in the carbon tax or the expectation of [ CCUs ] tax credit open up any opportunities for AltaGas?
We know it's early, right? And there's a lot to unpack in a variety of these items, the proposals around infrastructure and area. But really, I think, overall, in some of this, we'll be looking at really benefiting in the utility and our existing kind of relationship infrastructure that connects our 1.7 million customers.So as we look forward on projects such as hydrogen, it appears to have some options that can leverage our asset and customer base and provide significant environmental benefits. We'll be looking at those opportunities. And in particular, and it's early, there's a hydrogen production tax credits and some of the other proposals.So we'll be looking at that. But again, it's really early, that's going to be, I think, months down the road...
The next question will come from the line of Andrew Kuske of Crédit Suisse.
Maybe the first question just starts with Randy. And it really revolves around the hedging program, and we appreciate the details that you have on a quarterly basis. But if you could maybe just talk about just the philosophy of the hedging program on the Midstream side of your business and how you're approaching this? What's changed in the current market environment? Or what's remained the same?
Andrew, thank you. Nice to talk to you. As James mentioned, we have volumes locked in this year. Really, when we look at it, we're managing in terms of our cash flow and earnings, but we leave a certain amount of those positions only because it provides us the flexibility for opportunistic pricing and supply movement.So we tend to go into the year with a target around those levels, and then we charge the commercial team to optimize that going forward. And then we'll be continuing to look forward into 2022. And in addition to that, we have to -- we calculate our forecast on ultimate tolling volumes as well and incorporate that into our hedging strategy.So that hasn't changed, and we continue to be focused on increasing the tolling percentages as well.
Okay. I appreciate that commentary. And then maybe just looking for like the top of the house lens. And obviously, all of Canada has moved a lot. How do you think about just the FX hedging approach or lack thereof from a philosophical standpoint for the organization?
Well, James has done a great job, I'm going to let him address it. I'll address it at a high level, we have 2 aspects that go here, right? We have a U.S.-denominated debt, so that changes, as opposed to some of the cash flows and EBITDA that come back. So there's an inherent hedge there. But, James, I'll let you address it more specifically.
Andrew, I mean, we said in the past that we don't undertake translational hedging. So we do look at transactional hedging to try to lock in margins on some of our exports. But on the translational side, we don't. And even though there is a reduction to EBITDA, I mean, when you drop down to ratios like EPS and our debt metrics, just given the fact that we've got U.S. dollar-denominated debt and U.S. dollar EBITDA, there's no real material impact to our earnings per share, debt ratios as a result.
Appreciate that. And then 1 final one, if I may, and I know it's still early days. Do you foresee any impacts just from the commentary that came out of the Canadian budget in relation to interest deductibility?
Yes. I mean, we've looked at this on a preliminary. We don't anticipate any issues with the debt that we've got at ALA and the profits that we're generating within our Canadian business units, I don't think we're going to be captured by those rules at this point. And we continue to reduce leverage. So I think we're in good shape.
And the next question will come from the line of Linda Ezergailis from TD Securities.
Some of my questions have already been answered. But I'm wondering, maybe you can just give us a bit more context around hitting your run rate of operational efficiencies and synergies with PetroGas and Ferndale.How would you characterize in terms of the extent to which you think you've realized what's possible versus how much more there is in the first quarter versus how you might continue to ramp that up and when you might hit your full run rate of efficiencies and synergies.
Linda, this is Randy. Thank you for the question. We're -- look, we're in the early days of the integration. So I'm -- I think that we are just beginning to scratch the surface of what we can do as we align these 2 businesses going forward. I told you broadly, it gives us the ability to load more ships. We have far more tools in our toolbox around logistics and optimization. And so I -- again, I think that we'll be working through this year to continue to optimize them. I think the 2 teams have come together very well.So we'll continue to look at our railcars, our -- a lot of the logistics. I've said before, we're an energy export and logistics company, and the team continues to drive value. So early stages of what we ultimately can achieve in my judgment.
Okay. And clearly, the outlook for the whole industry has improved in Western Canada. I'm wondering if you can give us a sense of how we might think of the volumes continuing to ramp-up in your Midstream business? And what sort of incremental commercial agreements or commitments that you might realize from producers over the next 9 months, I guess, as you continue in the year?
Well, clearly, we don't want to get into some of our specific negotiations, but I think the trend has been friendly, mobility around the world is continuing to pick up and energy demand is following suit, and that's good for the upstream producers.We are fortunate in the extent that the investments that we've made in our assets have available capacity, particularly at Townsend and North Pine. And so we continue to see ramp up there.Over the longer term, continue to provide what I believe to be the best market in Canada for LPGs. And you'll see us continuing to increase volumes there and make longer-term commitments with producers going forward.So we're in a really good position as volumes continue. Now producers have said they're going to be disciplined. And -- but we'll continue to improve our efficiencies and cost structures.And I expect that we'll continue to have volume growth trends ramping up over the next year.
And just a final follow-up. In the past, AltaGas has expressed a willingness to consider petrochemical investment opportunities in Western Canada with your expanded NGL capabilities and optionality, would you consider any sort of petrochemical investments, whether it's a partial interest in the joint venture or other initiatives.
So Linda, we think -- look, I'd say this, we're primarily focused on our integration and optimization of our assets and that we continue to see opportunistically ability to deploy capital there organically.But as we look forward, similar to what we did with PetroGas to continue to leverage distinctive capability around our export capacities, we would really be looking more on organic growth. But overall, I think we're unique in providing both access to domestic markets as well as our export volumes. So again, I don't see us at this point, moving in that direction. But clearly, I think our focus, and we believe to be the best market is in Asia.
Our next question will come from the line of Julien Dumoulin-Smith of Bank of America.
It's Dariusz Lozny on for Julien here. I just wanted to briefly -- have you walked through some of the moving parts of your higher EBITDA guidance for '21. Obviously, it seems like it's higher due to the strong performance in the U.S. Midstream segment that you discussed. But maybe talk through some of the other moving pieces, if you could, such as potentially synergies from PetroGas, FX outlook, and I assume the range is narrower because you have a better sense of your hedging program. But if you could talk to some of those moving pieces, please, that would be great.
Good question. I'm going to let James get into some -- I'll just make a broad comment that we feel that we could be again, above the mid point, if the cal '21 stays strong and it moves beyond that, but there's a variety of gives and takes in that, and I'll let James walk you through some of those particulars. James?
Yes. So when -- obviously, when we look back to where some of the factors were that we put into our guidance in December of 2020, some of the tailwinds that we're seeing right now that contributed to us moving up is obviously the contribution from the U.S. storage and Midstream business, but we've also seen stronger frac spreads, and we've been able to lock in the majority of those. We're 95% hedged on frac spreads.We've seen higher volumes at our extraction facilities as well than what we had factored in, and obviously, higher export volumes in our global export facilities. And Randy touched on it, stronger NGL pricing on C4 is something that we've factored into some of our upside as well.And then on the headwind side, you touched on the 1 that's the most material. It's FX. If you look at a full year impact to FX, it's about $45 million, just given where the FX rate is right now relative to where it was when we set that guidance. So those are some of the factors, the puts and takes that went into us tightening the range and moving the midpoint up by $50 million.
Okay. Excellent. One more, if I could. On the sale of the U.S. transport and storage asset. Can you maybe just talk about, was that a segment or a business that you have been actively marketing? Or did you just realize that the time was right for a sale given the conditions during Q1?
We identified that as a noncore asset, and we've been working toward that. As I've said in the past that there's a -- we continue to look at the deleveraging. We made a business decision to hold the assets through the winter heating season because of the nature of these assets, and then we went forward to monetize it. So we've been -- that's been in the works.
Congratulations on a great quarter.
Thank you. Appreciate it.
Next question will come from the line of Rob Hope of Scotiabank.
Just 2 follow-up questions for me. First off on the guidance. I just want to get a sense, was the cancellation of AFUDC on MVP also contemplated there? And then I guess when I take a look at kind of the moving parts there, the FX headwind will be offset below the EBITDA line, and AFUDC is noncash there as well. So fair to say that on a cash impact basis, you're still quite ahead of plan?
Oh, yes. Absolutely. You could say. James, I don't know if you want to comment on that?
No. I think -- I don't have anything to add to that, Randy. Sorry, AFUDC was contemplated in the guidance. Well, originally it was, yes. But obviously, as we got to year-end reporting and some of the impairments that took place in the consortium, partners decided not to recognize any more AFUDC, that became a headwind to EBITDA.
Okay. And then just another follow-up to Andrew's question previously. So you commented on the interest deductibility. What about any cross-border structures, any potential thought that you'd have to alter anything there or any potential impact from the federal government that the structures you use across the border?
Sorry, I didn't follow your question, Robert. Can you repeat that?
The federal side also talked about the potential to change any cross-border structures on a tax basis. So I'm just wondering if you're repatriating any of your U.S. income into Canada could be impacted by any of the changes in the budget.
Okay. No, no, it wouldn't be impacted by -- sorry, that's what I wanted to confirm. So the Canadian budget changes would not impact our ability to repatriate funds from the U.S.
And the next question will come from the line of Robert Kwan of RBC Capital Markets.
I'd like to come back to asset monetization. And while a key goal to date has been the benefit of deleveraging, coming back to your answer earlier around the utilities. Does today's LDC transaction cause you to think more about the benefit of selling to drive value between what you think you can sell an asset out versus what's embedded in your share price?Or is deleveraging still the main focus and really what would drive asset change?
Yes. I think more on the deleveraging is how we're really focusing to continue to drive down those metrics and provide ourselves dry powder for opportunities going forward to fund the significant growth we see in both our Midstream business and our utilities going forward.My comment on the utility is that we want to continue and we will continue to invest and grow those assets. But as we look at what the right mix there is, we'll always be looking at every asset that we own to drive value for our shareholders.
But I guess the difference between what you can sell it for versus the hold value is not really something that would tie you in and of itself to transact?
The way I look at these assets, Robert, is that to the extent that we can add value, that we can continue to improve it, leverage the asset and continue to grow earnings per share and that we bring a competitive advantage. That's what we'll do with these assets.And to the extent that we're not able to do that in the noncore, then we will look towards monetizing them at fair value, but we're not in a position where we have to do any transactions as we were maybe 2 years ago.
Understood. If I can just finish with the growth that you're seeing in the Western Canadian Midstream business. Do you see more of that being driven by the optimization of your asset footprint with PetroGas? Or do you still see it being fairly capital-intensive with respect to building new infrastructure under contracts for producers and for shippers?
I think long term, there'll be additional investments in assets on our integrated platforms and such. But right at this point, we are fortunate to have our network that provides producers access to very valuable markets, and I've learned in this business connecting producers to valuable markets and increasing their netback will attract more volumes to your platform. And that's what's happening here.And certainly, we expect with low prices and prices increasing that there will be a reaction in terms of volumes, and that's what we're seeing, and that will only be more helpful to filling up our facilities.
And just over that long-term, if you look at some of those more capital-intensive projects, what are the top 2 or 3 opportunities that you see to add to your footprint?
Well, look, I think as we look organically, first of all, we're looking at our logistics platform, right, and that we can aggregate rail and put together more efficiency around our cost structure and rail structure.Over the long term, right, expanding on the fractionation side of the business in our Northeast Montney footprint and continuing to build out infrastructure there and doing it in, to the best extent possible in a modular way, where the paybacks are faster. And that there's not a lot of lag is a model that we would look for.So to be able to take our assets, continuing to expand and leverage that footprint in a cost-effective and efficient manner is something that we would see capital into the future. And I think we'll see many opportunities over the long term.
[Operator Instructions] And the last question will come from the line of Jeremy Tonet of JPMorgan.
Just a few questions for me, if I could, to round it out here. Just wondering, any thoughts you might be able to share with the Biden infrastructure bill and there could be opportunities for infrastructure build-out. But I guess I'm more curious on the tax side with taxes moving up, how do you think that impact -- could impact consumers, what could that do to bill headroom? Just wondering any thoughts you might have on taxes there.
Yes. Great question, Jeremy, and thank you for it. I'd tell you, on the utility side, and you know this business quite well. I mean to the extent that the Biden tax bill ultimately becomes law, and there'll be some time here, right? Is probably in terms of the utility, net positive in terms of cash flows, right, and EPS neutral going forward.And in terms of the -- and so those costs will be passed on to the consumer from that standpoint. And given that most of our operations in the U.S. are utility based. The impact would be small. But clearly, in terms of PetroGas in the U.S., other unregulated operations. There's some give and takes there. There's opportunities for other projects within the infrastructure bill that I alluded to that we're working on in terms of other opportunities with consortiums, possibly, again, around renewable natural gas and hydrogen, some things as well that -- in terms of carbon capture that we'll be looking at.So there are some puts and takes throughout the bill. And I think we've got a long way to go to see exactly how that plays out.
Got it. Just wondering, separately, I guess, carbon capture has been kind of gaining a bit more attention with regard to the 45 Qs there. And even carbon tax in Canada is kind of, I think, raising the profile of TCS as well. Just wondering any thoughts you might have as far as this technology, whether there could be some role for Alta to use this, utilize this at some point in the future?
Yes. Great question. And I think we're looking at that. We're looking at all aspects of this, and we've got a good -- and a very good, strong, long history of being a leader in social purpose, delivering strong environmental stewardship. So as we go through this long and I believe to be a long transition in the energy ecosystem, 1 of the things that's really, I think, helpful is what we're doing with RIPET and Ferndale to deliver lower carbon-intensive fuels to Asia and displacing some of the higher carbon footprints. And that's a real value in the long run.In terms of the technologies and investments here, look, carbon captures, I think you look at where we are with Ferndale, the refineries, you need scale. You need scale and more parties that are necessary to increase scale. So once we have that, I think that, that's long term, that's viable. And we'll look to participate where we can bring an advantage in terms of building pipes around hydrogen or long-term carbon capture. So again, long-term transition, our company will focus on what we have core capabilities to do and where we'll participate in leveraging our skills going forward, Jeremy.Appreciate the broad question though, thank you.
Thank you. Got it. Just the last one, if I could. With regards to RNG, if you see any opportunities across your footprint there, just any thoughts in general?
Yes. A few, again, it's different in each 1 of our different jurisdictions. I think that we see a couple of things around our territory. I know Blue is on the call. Blue, did you want to add any comment on that respect?
Yes. I think from a macro perspective, Randy, you're spot on. So it varies across our jurisdictions. We, of course, when we think about RNG, we're looking much more broadly than perhaps just the traditional dairy farms or chicken farms based on where we operate. So we are active in dialogues and discussions, and you should expect to see some activity from us in that space as we move forward.
And this concludes the Q&A portion of today's conference call, I will now turn the call back over to Mr. Mcknight.
Thanks, Valerie. Thank you, everyone, once again for joining our call today and for your interest in AltaGas. As a reminder, we will be available after the call for any follow-up questions that you might have. That concludes our call this morning. I hope you enjoy the rest of your day. And you may now disconnect your phone lines.