Adam McKnight - Director, IR David Cornhill - Interim Co-CEO Tim Watson - EVP and CFO Phil Knoll - Interim Co-CEO

Robert Kwan - RBC Capital Markets Rob Hope - Scotiabank Ben Pham - BMO Capital Markets Linda Ezergailis - TD Securities Robert Catellier - CIBC Capital Markets Patrick Kenny - National Bank Financial David Galison - Canaccord Genuity

Thank you. Good morning, everyone, and welcome to AltaGas' third quarter 2018 earnings call.

Speaking on the call this morning will be David Cornhill, Interim Co-Chief Executive Officer; and Tim Watson, Executive Vice President and Chief Financial Officer. Also joining us on the call today is Phil Knoll, Interim Co-Chief Executive Officer, along with a few additional members of our executive team.

The prepared remarks on today's call will be followed with a question-and-answer period. And we'd also like to remind everyone that the Investor Relations team will be available after the call for any follow-up questions that you might have.

I would like to point out the presentation slides have been made available on the webcast. And for those of you joining us on the phone lines, the slides are also available on our Events and Presentations webpage, and we encourage you to view them.

Please note, however, that the presentation slides are for your reference only, and do not follow directly along with the prepared remarks. Before we begin, I'll 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 two of the presentation, and more fully within our public disclosure filings on both the SEDAR and EDGAR systems. And with that, I'd like to turn the call over to David Cornhill.

Thank you, and good morning, everyone. I expect this will be my last earnings conference call.

I'll miss meeting with the great shareholders and members of the analyst communities. The conversations we've had over the past few months have been very helpful to me and AltaGas.

AltaGas has never been better positioned as a company in terms of the quality of assets and strength of opportunity. Unfortunately, we have never seen such lack in confidence in the company, which is evidenced by the stock that has significantly underperformed, and yields over 10% currently.

We recognize this, and we're working hard to earn your confidence back. Over the last 18 months, we have seen tremendous change at AltaGas, but we've also seen the capital markets and their appetite for funding growth changed as well.

We could not, due to the restrictions put on us by the approval process of WGL and the bride facility make the operational and financial moves we needed to position AltaGas well for the new environment. We understand, and we're taking steps to strengthen our balance sheet and position AltaGas for value creation.

When we spoke in the Q2 call, on August 1, we committed by the time of this call to focus our business on gas and U.S. utilities, complete over $2 billion worth of asset sales, and to pay down the bridge financing.

Also, to provide plans for paying the remaining balance of our bridge facility by year-end. We have met those commitments.

Some may have not agreed with each step taken, so we always look the balance short-term financing requirements with long-term value creation opportunities. We also strove to stay true to our culture as we proceeded down the asset sale path to ensure we balance the needs of our employees and all stakeholders.

We are entering the second phase of our plan. This stage will strengthen our balance sheet and the transition from interim co-CEOs to new CEO.

We are planning to sell additional assets, and expect to raise over $1.5 billion. Several asset sales processes are underway, including selling down our ownership in the Northwest Hydro asset.

We heard loud and clear from our shareholders that equity is precious. AltaGas plans to suspend the Premium DRIP plan at year-end.

AltaGas has had an investment-grade credit since 1998, and is very important to us today and into the future. Finally, moving forward on the CEO search, now I'm confident we will be able to provide clarity in the next several weeks.

The final stage of reshaping AltaGas with its focus on gas and U.S. utilities will be led by the new CEO who will optimize our business and continue to refine our asset portfolio.

We would expect the new CEO to continue to look at ways to strengthen the company's balance sheet. Before I turn the call over to Tim, who will outline our financial framework in more detail as well as discuss the third quarter financial and operating results, I want to share a learning from AltaGas' first major acquisition.

In 1998, we acquired our first natural gas utilities in close to mid-June. You never want to close a utility acquisition in the summertime because they are breakeven, at best, in the third quarter.

Due to a law in regulatory process, we closed WGL at the start of Q3, and the first quarter we reported WGL's results was their weakest quarter. I will now pass the call on to Tim.

Okay, well, good morning everyone. As David mentioned, we've never had a better set of assets.

We have a clear line of sight on significant high-quality growth opportunities, and we want to be able to execute on them for our shareholders. But in order to do that we need to address and strengthen our financial flexibility and optimize our cost of capital.

Over the next couple of weeks a few key events are taking place. We will be finalizing our capital plan for 2019, and have a line of sight on a multiyear capital plan.

You will have a better view of our EBITDA and FFO outlook for 2019, including credit metrics as we complete our normal course annual planning process. And importantly, we expect to have the results from the annual review process with S&P.

All these pieces are connected, and will allow us to give you a more fulsome view of our financial outlook and next stage of investment in growth at a reshaped AltaGas. While we still have progress to make in strengthening our balance sheet by delevering and applying even more discipline to our allocation of capital.

We have to remember how far we have come in the last few months. It has been less than four months since we closed WGL.

And we have completed a significant portion of funding steps to rapidly repay the bridge facility. And we continue to expect the bridge to be fully repaid this quarter.

As an energy infrastructure and utility business, we put a lot of capital to work. So, capital discipline and strong of capital are key ingredients to long-term success and the ability to create value for our shareholders.

Our objective is clear to regain our financial strength and flexibility, maintain our investment grade credit rating, and strengthen our cost of capital. This is a process that will be not accomplished overnight.

First, we expect to minimize our reliance on equity capital markets, maximize per share funds from operations and earnings. As we move forward, we will be heavily focused on earnings per share and FFO per share growth along with the typical credit metrics being FFO-to-debt and debt-to-EBITDA.

To fund key projects that meet or exceed our return metrics, we plan to sell additional assets within AltaGas. We have indentified $1.5 billion to $2 billion of additional assets sales to be undertaken in the near term.

These assets sales will be accretive and aligned with our underlying strategy to focus on gas in U.S. utilities.

This will include an additional interest in the Northwest Hydro facilities. Turning to capital discipline and dividend philosophy, capital discipline needs to be balanced with rich and diverse platform of organic growth opportunities that we have in front us for 2019 and beyond.

We will only be executing projects that provide the strongest risk adjusted returns and long-term value creation for our shareholders. We will be focusing on projects with organic growth potential and favorable risk profile that fit with our strategy.

Further to this, we are also favoring projects with strong returns and more immediate cash flow rather than projects that require a long-term investment prior to realizing a return. This is a prudent manner for us to deploy capital in the near term as we focus on strengthening our balance sheet and deleveraging without impacting long-term value creation for AltaGas.

Turning to our dividend, this has been an area of focus by the capital markets lately given where the stock is yielding. We have determined not surprisingly that growing the dividend at this time is not appropriate.

What we need to assess now in the mix of other factors is what constitutes sustainable and ultimately growing dividend for the reshaped AltaGas. It's really a matter of short-term yield versus long-term growth.

With our business mix changing significantly including the higher contributions from utilities and appropriate payout for our new longer-term asset mix must be identified. A sustainable payout ratio provides additional funding flexibility, allows for long-term dividend growth in line with earnings and cash flow per share growth.

Moving on to the balance sheet and financing. Let me start by saying we value our investment grade credit rating.

A strong balance sheet and an investment grade credit rating will position us for greater flexibility and growth going forward. We continue to work with S&P to ensure that our final plan will achieve an investment grade credit rating and expect to provide an update to you in November.

We have made significant progress in our funding plan to pay down the bridge loan used to fund the WGL acquisition. We called that with a 35% sale of Northwest Hydro in June.

We only drew down $2.3 billion of the bridge. And the additional asset sale steps announced in September and October will reduce the outstanding bridge amount to U.S.$1.2 billion.

We are on track to repay the remaining amount by yearend not withstanding that most of the bridge does not mature until January 2020. This remains a top priority because it creates financial flexibility and allows us to move forward.

The future path will be tailored to optimize our funding and cost to capital. Part of the strategy to minimize common equity requirements the Board has decided to turn off the Premium DRIP at the end of 2018.

In the near term stated, we intend to sell an additional $1.5 million to $2 billion in assets to fund attractive identified capital projects focused on gas in U.S. utilities as well to align the underlying assets of the business to our strategic focus.

So, hopefully, we have been able to give you some colors here on our funding framework going forward. I am now going to turn to the operational financial highlights of the third quarter.

We will go through those pretty quickly starting with utilities. Things are progressing very well regarding the applications filed earlier in the year in both Maryland and Virginia.

In Maryland, several rounds of testimony were filed in September and hearings were held in early October. We expect to have an order on this application in mid-December with new rates taking effect January 1, 2019.

In Virginia, the new interim rates will be effective in January 2019 and hearing is scheduled for late April with a decision expected in the first half of the year. At SEMCO, work continues on the Marquette Connector Pipeline which will provide system redundancy and increase deliverability, reliability and diversity of supply to our SEMCO customers.

We received approval for all environmental permits in September. Construction is expected to begin in 2019.

And the project is on schedule and anticipated to be in service near the end of Q4 2019. So, AltaGas now has a total rate base in its regulated U.S.

utility to approximately $4.4 billion serving approximately $1.6 million customers in five jurisdictions. We have significant opportunities to grow our rate base with improved system betterment and accelerate pipeline replacement programs in Virginia, Maryland, and Washington, D.C.

Through these programs and regulatory applications in both Virginia and Maryland, we expect to grow our rate base to approximately $5.5 billion by the end of 2021. Now on to the highlights within the Gas segment, which continues drives significant opportunities we see in front of us through 2021.

I am going to touch on just a few. The Central Penn Project is a new 185 mile pipeline through Pennsylvania, which came online early in October.

We own an indirect 21% of Central Penn which has the capacity to transport and deliver up to 1.7 Bcf a day of natural gas from the Northeast Marcellus-producing regions to markets in the mid-Atlantic and southeastern regions of the U.S. The project startup was delayed approximately five weeks primarily due to weather conditions, but is now fully online.

We continue be excited about our RIPET project which is the first propane export terminal on Canada's West coast. We expect to ship 1.2 million tons per year of propane to Asia and that's equivalent to about 40,000 barrels per day.

Construction activity is progressing safely and remains on time and on budget. And the members of the operations team are now permanently onsite to initiate a smooth transition in Q1 2019.

We expect the facility to begin receiving propane in Q1 2019 with the first ship ready for export early in Q2 which aligns with the propane contract year. Commercial deals to secure the remaining off-take commitments are currently under negotiation and are expected to be completed by the end of 2018.

Due to the significant interest we have seen in the initial 40,000 barrels per day, we expect to have a 100% on the propane supply fully contracted before RIPET comes into service. We have deliberately balanced our contracts between commodity exposed and tolling arrangements.

And with a strong support, we are also planning to increase the facility's overall capacity beyond the initial stage of 40,000 barrels a day. And believe the increase can be achieved with minimal capital investment.

This will further significantly enhance total cash flow and returns from the project. As you know, we spend a significant amount of time of the past several years cultivating and nurturing the Japanese market and its counter parties.

We have seen this significant investment generate material benefits as we move forward towards to COD at RIPET. Asian propane prices are at a significant premium to pricing received by Canadian producers which makes RIPET an extremely attractive market.

High rail cost to Conway in the mid-West U.S. which itself has a significant discount at Mt.

Belleview coupled with strong demand and higher prices in Asia means that access to export market which RIPET provides can result in significantly better propane net backs for producers in Western Canada. During the quarter, we announced the Kelt and Black Swan transactions.

Both of which really highlight the strength of our integrated value chain as well as efficient use of capital. We are continuing to extend and build out our unique value proposition and integrated gas strategy right in the middle of the Montney.

These projects utilize existing AltaGas infrastructure providing very strong integrated economics and strengthening our strategic footprints within Northeast, B.C. As a result of these new projects, the North Pine liquid separation facility is expected to be expanded in 2019.

And we also continue to have additional discussion with other Montney producers who are looking to AltaGas to provide fully-integrated customer focused midstream solution including energy export options which provide increased value for their products. Now quickly moving on to the results for the third quarter, we had a lot going on in this quarter and have certainly seen a lot of change since we reported Q2 back in July and as you know, we are almost a full quarter WGL operating results.

Overall normalized EBITDA for the quarter came in at $226 million, up $36 million or 19% over last year. As you would expect, the WGL acquisition accounted for much of the increase in year-over-year third quarter EBITDA.

Total normalized EBITDA in the Gas segment came in at $65 million up 27% over last year. The Legacy AltaGas gas business itself saw a strong 12% year-over-year growth and contributions from -- contributions from Townsend 2A and North Pine, which commenced commercial operations in the fourth quarter 2017.

Also, stronger realized frac spreads and volumes and higher revenues at Harmattan due to increased NGL activities there. WGL contributed $8 million to Q3 gas results.

These positive factors were partially offset by reduced ownership at younger and lower contribution from Petrogas where we recorded equity earnings of $2 million versus $6 million last year as the solid underlying operating performance at Petrogas was offset by some unrealized mark-to-market losses on hedging activities. Moving to the Power segment, Total normalized EBITDA was up 21% to $128 million in the third quarter.

WGLs power business contributed $32 million of that. The legacy AltaGas business benefited from higher dispatch generation at life due to greater operational and fuel flexibility and also by about $2 million from a favorable U.S.

dollar exchange rate. Positive results were somewhat offset by $8 million lower EBITDA at Northwest hydro due to lower river flows caused by colder than normal weather conditions and $3 million due to the expiry of the Ripon PPA.

Finally, Utility segment EBITDA was $32 million in the third quarter of 2018. This is a decrease of $6 million year-over-year.

As I noted earlier the WGL acquisition was a drag on the Utilities segment EBITDA by about $7 million due to the timing and normal seasonality of WGL earnings as well as higher leak remediation expenses. This is also where we saw the greatest impact at U.S.

tax reform, which had a $3 million impact on AltaGas's Legacy utilities along with $4 million at WGLs utilities. Positive impacts came from lower operating expenses and several of the utilities, colder weather in Alberta as well as a favorable $1 million impact from FX and as David pointed out, the summer is not the most ideal time to AltaGas utilities acquisition.

However, going forward, we do expect WGL to be a significant contributor to our Utility segment on an annualized basis and in the fourth quarter as we move into the winter heating season. Normalize funds from operations for the third quarter was $170 million or $0.45 per share down from last year's $143 million or $0.83 per share.

Funds from operations for the third quarter were impacted by the same factors impacting EBITDA. However, higher interest expense associated with the WGL acquisition more than offset the increase in EBITDA in a quarter due to the normal seasonality within the utilities business.

Third quarter dividend income from Petrogas was stable at $4 million, represented by $3 million of preferred dividends and $1 million of common share dividends. Current taxes in Q3 were comparable to the previous year, but deferred gap taxes were more favorable due to serious non-recurring expenses.

Normalized net income in the third quarter was a loss of $17 million to $0.07 per share versus a gain of $48 million or $0.28 per share in Q3 2017, higher EBITDA as previously discussed and low-income tax expense was more than offset by higher interest expense and a higher depreciation and amortization expense associated with the WGL acquisition and bridge financing and higher preferred share dividends. The effect of having less than a full-year contribution from WGL in 2018 while having the full transaction costs, including financing results in this partial year impact.

A full-year of WGL in 2019 should result in a more balanced impact. Per share metrics were materially impacted by the higher number of outstanding shares from the 2.6 billion of subscription receipts to fund the WGL acquisition.

And now quickly moving on to the funding, we've moved quickly and swiftly since closing the WGL acquisition to complete the 2 billion asset monetization plan and pay down the bridge facility. In the third quarter, we successfully completed the AltaGas Canada IPO which closed on October 25, 2018.

The total cash proceeds for AltaGas when including both the IPO proceeds as well as the debt to be repaid will be about $874 million and this amount could increase to as much as $910 million if the underwriters over what options exercised and before. The IPO together with the non-chord Gas and power asset sales of about $560 million which are expected to close in the fourth quarter represent the final steps of our initial asset monetization strategy.

We exceeded our 2 million target with approximately $2.4 billion raised with the proceeds from these two transactions we will reduce the outstanding amount on the bridge facility to approximately $1.2 billion. As I mentioned, going forward, we expect the WGL acquisition to benefit from all three segments and we expect the Utility segment to be to have the greatest contribution on an annualized basis starting in 2019.

Base and all the steps discussed we see utilities representing about 50% to 55% of full-year 2019 EBITDA with Gas at approximately 35% and then the power of 10% to 15%. Turning to the outlook for 2018, in total we're still tracking in a 25% to 30% growth range for 2018 full-year EBITDA.

Despite the later closing of the WGL acquisition and a few headwinds including seasonality of WGL learning's, lower generation revenues at Northwest hydro the hired WGL utility leak remediation costs and the delayed in service day for Central Penn. This guidance also counts for the impact of the announcement expected asset sales and other financing initiatives.

Quickly running through the individual business segments, Gas will continue to benefit from WGLs growing pipeline investments including Stonewall which is already in service and Central Penn which came on earlier this month. We're also benefiting from the higher frac exposed extraction volumes of about 10,300 a day with attracted hedges in place for 73% of those volumes in 2018.

Townsend 2A and North Pine also contributed full-year performance the Power segment will continue to benefit from WGLs growing distributed generation assets and higher power prices in Alberta, utilities will be driven by the contributions from WGLs growing utility business as we move into the heating season in Q4 as well as higher fully contributions from SEMCO and MSTAR. This is partially offset by the impact of tax reform which for the rest of the 2018 in total will be 16 million for our legacy you U.S.

utilities and about $22 million for WGLs utilities. Increased EBITDA from business operations expected to be partially offset by asset sales, including the pending cells in non-core Gas and power and a close of the AltaGas Canada IPO which will reduce 2018 EBITDA by about $46 million.

Just as a reminder with about 60% of our 2018 being U.S. based, here's a quick sensitivity for Q4 for every $0.05 change in the foreign exchange rate.

There is a corresponding $11 million Canadian impact on Q4, 2018 EBITDA which is only about 1% of our total expected EBITDA. Given some of the headwinds referred to earlier we now expect full-year normalized FFO in 2018 to grow approximately 10% year-over-year which is below the previous guidance of 15% to 20%.

The 2018 FFO is being impacted by the same factors as EBITDA, but again however, due to a smaller denominator the FFO growth as a percentage is more sensitive to he said these factors we've already discussed. The net combined capital expenditures are tracking to the high end of our previously stated guidance of $1 billion to $1.3 billion with $675 million spent in the first three quarters of 2018.

Guidance for full-year 2018 is $1.2 billion to $1.4 billion. And of that 45% to 50% of total capital will be spent in the Gas business on RIPET, Central Penn, Mountain Valley in the recent Kelton Black Swan transactions with another 45% to 50% in utilities for attractive replacement programs in the start and market connector.

Gas and Power maintenance capital for full-year 2018 is expected to be $30 million to $35 million. In summary due to all the moving parts this quarter and subsequent to quarter end with the acid sales it's a bit hard to see the strength of our business, however this should not overshadow the underlying performance or the opportunity which our business has become, we continue to be confident and excited about our acid base and its potential.

We've made considerable progress over the past quarter on reshaping and optimizing our operating business since the closing of WGL and our asset monetization strategy including the successful IPO of AltaGas Canada. But as we move forward, we will continue looking for ways to further optimize our business and execute on our growth opportunities for the long-term benefit of our shareholders.

As we finalize our capital and funding plan for 2019 and beyond and complete our normal annual planning process, we'll come back to the market later this quarter with a more wholesome plan and a clearer view of our financial and business outlook. I'd like to now turn it back to David for his closing remarks.

Thank you, Tim. You'll see us over the coming months a very planned and measured approach to funding and capital plan.

So we effectively deployed capital today to result in long-term value creation. To close, AltaGas has never been better positioned than it is today to benefit from the growth of its asset base and opportunity set.

Our investment in our Northeast PC strategy as well as positive developments in LNG have positioned us very well in this basin. RIPET is shaping up to be a homerun for us and we continue to see upside for producer customers and AltaGas in the integrated value chain we have created.

We are seeing good progress in the Marcellus basin with our pipeline investments there. Our U.S.

utilities are experiencing significant growth, system betterment, population growth as well as a market connector, our key drivers for us in the midterm. And we are keeping our capability strong in power and adopting a capital light strategy at the moment until the economics of the power business meets our return thresholds.

We look forward to reporting back to you in late November with a fuller picture on our funding framework, more detail on our 2019 capital projects, providing greater detail on the transactions we are seeing both in the gas and U.S. utilities and an update on hiring a new CEO.

Finally, I want to thank the AltaGas employees who have been working very hard in trying conditions. They have been performing outstandingly, facing ridiculous deadlines and ever changing conditions.

With a balance funding strategy and a focus on opportunities ahead of us, and a dedication of our employees, I am confident about the future plans and growth. Thank you very much.

Good morning. If I can just start with you laid our number of the goal post here, but it's possible to refine some of that just when you're looking first on the credit rating and the investment grade side of things, can you just talk about your desire to stay at BBB or is BBB minus being considered given still an investment grade rating?

Clearly, BBB is our hope and that's what we're working to. It's in most of the plans that we're putting forward, but the determination of S&P and bond raters to make that determination -- I can't give you any more clarity than that.

Is there a comfort level, though, obviously it may not be the desired outcome, but to operate at the BBB minus level?

In the past history, AltaGas had been BBB low [ph] with S&P for a number of years and operated quite effectively, but clearly, we prefer BBB mid.

Understood.

I would say, Robert, I mean, there's, you know, S&P, we're going to be as we've noted a couple of times, we will be having further discussions and updates with them here very shortly. They do have different parameters and criteria at different rating levels.

And so we need to go through that with them and fully understand it and understand how holistically it fits with our overall business plan. And so that's part of the process.

Got it. I guess, turning to the dividend and on an appropriate payout ratio, I'm just wondering what are the different payout ratio metrics you're looking at?

You did mention EPF earlier as well as cash flow, I'm just wondering are you still looking at FFO or would you also be looking at deductions from that number around your preferred dividend financing minority interest distributions, maintenance CapEx as well as rate based investment into the units?

I think I'm going to jump into this one, because I think you got to look at everything. I prefer FFO, because I find it a purer number than doing all the adjustments and normalizations.

And I think earnings, whatever -- if they are true earnings and not adjusted with some of the current GAAP normalized, are probably the best to -- I think it depends what you think is the appropriate range on those two metrics, but it -- AFFO, UAFFO are all factors that should be coming into your calculation on range at FFO. So probably aware of all those and what happens with changing mix and changing ability of fund dividend.

Got it. And if I can just finish then on the focusing of capital towards the highest quality projects, are there any projects underway that don't fit that new definition or more stringent definition from your perspective and if not are there any examples of a project that you've done in the past few years that you wouldn't be doing going forward if they were in front of you today?

I don't think that's quite a fair question, because of different classic apple and different things. But clearly, we've made the decision that where we see power investments going forward are too low for the needed returns.

And so we would look at some of those slightly differently, I would think, but clearly since Phil and I've stepped in, we've slowed down a number of investments to high-grade them to higher returns and reduce some significant capital spend.

I'd say, Robert, I think we're very comfortable with the projects, the key projects we mentioned, the ones in the center of the fairway that we're spending control on, the critical ones we talk about lead by RIPET but Central Penn and other examples like that, especially the integration aspects around many of those key projects, extremely comfortable with those. It's really -- marginal dollar going forward and that's where the criteria comes up.

That's great. Thank you.

Good morning, everyone. Turning over to asset sales, you did highlight that the Northwest Hydro could be monetized.

Do you have a target ownership level there and if you go down below 50% or don't control that asset, would you be subject to any longer review processes?

We haven't set a target. I think we over the last months have been working through to understand and I think we have quite a bit of flexibility in terms of what ownership we'll end up with Northwest Hydro.

All right. And then just moving over to the timing of the asset sales, are you looking for earlier closed assets or could we be more in the back half of the 2019?

With respect to the over $1.5 billion I would be significantly disappointed if those were not essentially done by the end of Q1 '19.

All right. And then just to wrap up, just in terms of your conversations with S&P, are they more focused on FFO to debt and given the kind of build out of your program in '19 are you seeing some potential to realize those targets in 2020 or is it really a focus to hit them in 2019?

I think 2019 is the natural year simply because it's the first full-year. So it's a much cleaner year so we've been -- at Q3 that we just described, and so just the timeframe, the first -- the near-term timeframe for those key metrics, but make no mistake, I mean, we're looking at the foreseeable future and we certainly had discussions with S&P and everybody else over a forecast planning period that goes beyond 2019 as well.

Thank you.

Okay. Thanks, good morning.

I wanted to go over a bit about your comments around the transformation of your business last 18 months and just some commentary on the dividend and where you thought it was going to go before and where it could go going forward and so when you think about that business plan 18 months ago, going into WGL, I know David you mentioned the financing or capital market have got to be closed for AltaGas, but is there something else there that you may have misjudged along the way, because it's impacting our stocks and quite significant that -- is it really the financing markets that's changed realized 18 months?

I think clearly, if you look at where the financing market was almost two years ago now when we are contemplating this transaction to today is quite different, primarily in terms of models and expectations from the market and access to equity. And we've been unable to really adapt over that period of time if we weren't locked up in large regulatory process and part of that was in bridge financing.

It prevented us from doing some things we should've done from my perspective would've done earlier if we were free to do those things. So we're playing catch-up quite frankly.

If you look at -- go back two years ago from an investment basis people are looking for growth, people are supportive of growth, today, people want from a shareholders' perspective, we're looking for totally self funding and growth within that self funding model and -- which I think is prudent quite frankly, but that changed the dynamic dramatically and if we look at our cost to capital, we see the cheapest cost to capital right now is asset sales and we're pursuing that because we think it's the best way to long-term enhanced shareholder value. So, we had contemplated $2 billion but we're announcing almost $4 billion now with the $2.4 billion already done and another in excess of $500 million.

That was not contemplated going into the plan and as you sell assets, you unfortunately have to -- you sell assets but generate cash flow and so that's quite a different model and assumption that we went into, but the cost of capital is better for our shareholders to sell assets at this point than to raise additional equity.

Okay. So was the prior plan then -- there was -- on top of the on DRIP, which was more dilutive, there was actually a plan to issue equity, external equity in that three-year to four-year plan.

There was a more growth-oriented forecast on -- rather than -- as far as we've going on asset sales. So I think that's a major change and some of that would've been equity in future years that we're basically looking to -- for a self-funding model going forward.

So that's quite a dramatic change in assumptions.

Okay. And then my other and last question, as you think about the asset sales of $1.5 billion you've turned off the Premium DRIPS here, you're probably going to save $200 million a year.

So you called 600 in three years. So does that difference, does that replace a lot of the debt that must've been in your, on a prior plan or your thinking maybe a few months ago?

No, a Premium Drip from our perspective is we just don't like the dilution it does to our existing shareholders. And we think we want to deliver growing per share metrics and we think it's a prudent thing to -- what we're hearing from our shareholders is that equity is precious and we want to -- as a company to treat it that way.

All right. Thanks a lot, David.

Thank you. I am wondering if you could help us understand how your outlook for the accretion of WGT has shifted.

In addition to U.S. tax reform, I am wondering specifically how the cost of capital of capital changed that.

And I am also wondering if your outlook from operational cash flow and EBITDA contribution has declined beyond 2018 as well. And specifically, I am wondering if those higher leak remediation cost were kind of more one-time in nature in 2018, or continue down the road and if there is any other factors that might have contributed to a decline?

That's a big question. Lots of different things, Tim -- I guess I'll say one thing and then Tim will correct me.

Biggest change that we saw in our forecast on FFO was just performance in Northwest Hydro and the record drought. And I think you'll remember in the news Telegraph Creek fire that the Tahltan suffered to total evacuation in one of the largest forest fires in B.C.'

s history was right in the watershed -- right next to watershed of Northwest Hydro. I think that's the biggest change for the -- change in guidance in FFO.

And in Canada, we are non-taxable, so EBITDA and FFO could march step. But Tim can maybe answer some additional questions.

I think we have always talked about 2019 as I said earlier as being the first full year and the year that we start to assess benchmark WGL transaction on a pro forma basis. We still believe that it's very accretive to us in 2019 versus what we would have been on a standalone basis and that's the test that we have been using since day one.

Obviously, there has been changes, as David alluded to you, and I have alluded to you in our prepared comments around funding mix. When you sell certain assets with cash flow associated with those and issue less share that changes the metrics at least on a per share basis it does.

But I would emphasize that again WGL, our expectations are that it's performing in line with what we originally expected. And a quarter doesn't make a year nor does it make a lifetime in terms of the long-term nature of those assets within WGL.

And so, we think 2019 is going to be a very strong additive year with WGL in tow. And so, I don't think that changes are perspective on accretion, Linda.

That's helpful. And the 2019 business mix that you have provided similar to 2018 guidance which baked in asset sales, is that business mix after asset sales?

Yes, it is. So, that's as best as we can do right now is as we look at everything we talked about.

I mean we are not leaving anything out here because otherwise it wouldn't be a true representative business mix. So when I said 50 to 55 utilities, 35% gas approximately and 10% to 15% power and that's EBITDA that I am talking about in 2019, that's everything baked in.

The assets sales that we are closing this quarter, the asset sales that we are undertaking and have underway as David alluded to you $1.5 billion to $2 billion. Any other assumptions base assumptions of natural or operational side that fully accountable.

Thank you. And just if you can maybe help us further understand the outlook for cash flows.

Would it be possible to get an update on your cash tax outlook or your maintenance outlook and maybe what the timing of cash flows and over what period might be for the various regulatory commitments that you booked that onetime merger commitment cost of $182 million?

Yes, we will work on that. We can circle with you on some of those specifics.

Our cash taxes haven't change a whole a lot. I mean our effective tax rate is in the order of 20% - 21%.

And we are not cash taxable in Canada and haven't been through a long term of time, so, no change there.

And similarly your maintenance CapEx outlook hasn't changed that much?

No, it hasn't because again my guidance was $30 million to $35 million for this year. And going forward, I mean as you add new assets that come on, but you subtract certain assets as part of asset sales, that's really not shifting a whole lot.

That $30 million to $35 million on maintenance capital is gas and power in terms of depreciation which is maybe a proxy for utilities, maintenance, where AltaGas's U.S. utilities are -- sorry, AltaGas total utilities this year are probably about $75 million of depreciation, that will decline to about $50 million next year with the IPO.

And on the WGL side on a full-year basis, their depreciation is probably in the order of CAD175 million.

For context, and the merger commitment cost of those follow through the cash flow from operations and at the end what's the cadences of that?

Yes, they do. And so they would have been reflected on and as, we report normal gap metrics as well as normalized metrics.

So for Q3, we would have -- they would have flown through, there would have been transaction related costs in the order of this reported in our MD&A for $35 million merger-related transaction costs this quarter of about $182 million, so just a little over 200 in total and those would be normalized out of those normalized results.

So that was cashed out the door of $182 million for the merger commitment cost?

Some of that's related to change in working capital. But I think I'll have to just circle with you to give you the full breakdown of that, we do have that really available to circle with you…

Thanks, Tim, I'll jump back in the queue.

Just a couple questions here to follow-up on the asset sales and then the dividend, what informs the $1.5 billion to $2 billion target of additional asset sales, what -- why that level and what exact financial objectives are you trying to accomplish versus last term…

Well, look we don't get the RIPET coming on next year. The capital center for that and number of projects and we are looking at how do we best balance our growth and capital commitments, ensuring investment grade credit rating and setting ourselves up for 2020 and beyond growth so that's how we determine those numbers and it's everything's kind of circular and linked but we felt that was prudent number.

So a big future capital commitment, I suspect an ongoing capital commitment that well upon the…

So '19 would be, '19 we talked about was a growth year and you know with U.S. pipelines and with RIPET finalized and, the just in Marquette Connector being spent.

So all those we've talked about and so what we felt was that this is a quantum that we thought was very transactable quickly at the scale and we feel highly confident that we should be north of 1.5 billion by the end of Q1 next year.

Okay. And thus, the suite of assets that could be invested include Mount Valley and land or central pipelines?

Not within that $1.5 billion, no.

Okay. And then, just on the dividend, I guess there's still a lot you need to figure out before you re-address the dividend level, but I'm just curious whether you saw a case for a cut now that help you.

I mean, that would be credit positive might help you with the debt funding and second, you've got the Premium DRIP but why not cut the DRIP all together given where the thought process has been?

Main reason, I've never been a fan of the Premium DRIP; I shouldn't say that, I just think it's a selling pressure on the stock and stocks keeps coming into the market. And the timeline makes sense at this meeting to do it for a year-end let's turned from a contractual perspective and a lot of our shareholders do like to reinvest in AltaGas gas and our DRIP is pretty consistent with the norm within our competitive group.

So historically I'd like to give shareholders the opportunity to reinvest in company, if they can, and so that was the reason. Personally, I don't view Premium DRIP as and investment back in the company.

I view it as more of a trade.

And, Robert, as David said, we've had the DRIP for our shareholders over time, very consistent with our peers. And we have the ability to adjust the terms on the DRIP as well.

So you can, as you know, sort of modulate the discount percentage and things like that, so.

And the first part of the question is why not cut now to help with some of the credit funding that you're looking to do to repay the bridge?

Because we're not ready with all the work that we're doing…

You could always address the debt markets once the cut is made, I guess, so.

We've got the budget. We're coming back in November.

The dividend, we're proud of, and sharing that with our -- trade off, and we've been talking to shareholders a lot and listening is short-term yield and long-term growth, and trying to balance that listening to our shareholders. And we're doing, the goal is to increase our long-term value of the company.

So we're taking all that into account and thinking through it, and there's no -- so that's the process that we're going through, and that's the process that the Board wants to go through. Now, the objective at the end is how do we best deliver long-term value to our shareholders, grow our earnings per share, grow our FFO per share, and provide a sustainable dividend level.

So that's what the Board will be looking at.

And most companies, Robert, at this time of year are in their budget planning processes for the forward year, 2019, and so we're no different. And every year we go through that in November, and last year was no different from a timing perspective.

And really, if you just think about it logically, it makes sense to make sure that we fully go through that process in the most fulsome way because the dividend is part of the overall holistic business plan that we have. So that's the reason why to complete that.

Yes, I understand. It's just you can't rush it, and you're not ready yet, so that's fine.

Thank you.

I just want to reemphasize that our employees are working very hard on a lot of things, billed over $2.4 billion assets. And we want to make sure that we do the right thing and a reason thing.

And I think it would've been imprudent for us to do anything at this time.

Okay, thank you.

Yes, good morning. Yes, I would agree, David, that you guys deserve a lot of credit for the $2.4 billion of asset sale there.

But I guess I'll just start with a quick comment on how you define the new plan here as, quote, building shareholder value. And not to kick anyone -- bother down by any means, but I think it's probably a good starting point in order to regain the trust of some of your loyal shareholders out there that you just call a spade a spade, and define your new plan as being designed to recover shareholder value just given the stock needs to basically double from current levels just to get back to where it was before the acquisition.

I totally agree with you.

Okay, thank you. In terms of my question, just wondering how you square the comment that you've never had a stronger asset base with the new plan to sell down, arguably, the highest quality asset across the Canadian energy infrastructure in the, of course, the Northwest Hydro assets.

And most importantly, I guess to circle back on Robert's question, if the rating agencies view the sale of the Hydro as enough of a reason to move down to BBB-, and let's assume for whatever reason the U.S. hybrid market isn't attractive over the near-term.

Do you have other assets that you'd be willing to sell over and above the $1.5 billion to $2 billion target, or should we assume at that point external equity just to protect the investment grade credit rating?

No, I think, well, I guess the -- I hate compound questions because you always go to the last one first. Clearly, our stage three will be optimized in portfolio.

I don't know what that would look like with the new CEO, but clearly focused on a gas and power business. If you look at the Northwest Hydro, I totally agree with you that it's the best asset in the infrastructure portfolio.

But as held by AltaGas, the valuation that that asset is getting is discounted heavily compared to other holders of that asset. And it's not from a -- everything I know from S&P is not an asset that is valued as highly as you stated today.

So I guess a combination of those versus -- and it is an asset that has limited growth in the future other than inflation in terms of cash flow growth compared to other asset. So that, with all those things, I believe that it makes sense to monetize 35%.

And when I look at cost of capital for equity versus selling assets, I think it's prudent for us to sell addition interest in Northwest Hydro. Personally, if I could own it myself, I'd only be buying that asset all day.

But it's doesn't make sense, I don't think, for AltaGas to hold that asset.

And I think, saw the valuation in June and that was about 27 times EBITDA. And so what we've done is we've achieved the appropriate evaluation for that asset.

We weren't prepared to sell for something uniquely less that than, frankly. And that reflects, I think, the unique attributes of that asset.

But we're going to think about it as we've effectively received a value for that. What we're doing is we're taking money and we're reinvesting it.

We're reinvesting it one times rate base into some highly attractive utility assets. We're investing it six to eight times or if you think we're capital over EBITDA in our integrated gas midstream business.

And so you think about that, I mean -- arbitrage, but that difference, I guess, and there's a real ability to create value there. And the Northwest Hydro asset, as I just said, we've received appropriate value recognition for it.

It is a nice stable asset, not a lot of growth, but nice stable asset. But we've also significantly enhanced the utilities, which are actually viewed more highly by the agencies than even Northwest Hydro.

So there is some logic in terms of thing thinking, we're just trying to tie it together for you a little bit.

Yes, I know. And we would agree that, capital allocation standpoint, makes sense to sell the Hydro at the June valuation levels, was just curios about if the hybrid market didn't come together as you'd expected, if that puts the spotlight back on equity.

And by the way, Pat, I mean like in the hybrid market -- sorry, I didn't mean to cut you off there, but the hybrid market is still something we're looking at and we're all teed up as you know with the U.S. dollar base shelf.

But there's also, obviously, the Canadian market too, I mean the Canadian preferred market is akin to the hybrids, it's treated the same way. And it's a market we value as well going forward.

So those are all options.

Just one -- at the end of the day, we will do from a costing function, what makes sense on a cost basis and what's the most effective way to have equity, lower cost…

And that's a good lead into my next question, and the final question here, David. You mentioned the ability to expend RIPET beyond the initial capacity with minimal capital.

Just wondering, at least until you achieve your target credit ratios and have some dry powder, if your view of a new self-funding model might include more JVs, more partnerships with private equity. How do you think about slowing down growth across the portfolio versus keeping the foot on the gas pedal and brining in some other funding partners?

Early for RIPET, the capital is not material. We are debating whether we want to do JVs and how fast we want to do that versus just high-grading our projects from a critical perspective.

And focus then maybe late '20-'21 on time laying for more growth. So we haven't determined that.

And I think it's partly -- it's important that the new CEO has an input into that discussion. And it clearly is an option for us, but at this point we're looking at being able to grow just in a self-funding model with no external funding from the JV.

Okay, that's great. Appreciate all your comments.

Just want to make one other quick comment, and this is really to -- extension on what Pat was saying. Yes, I just want to be clear that the asset sales, just trying to simplify it.

We've announced a bunch of assets sales are closing here shortly; some are already closed, like the IPO. We've announced the additional $1.5 billion to $2 billion in the near-term.

But again, to be clear, that addition $1.5 billion to $2 billion is not earmarked for the bridge repayment. The Bridge repayment has been already riddled down to $1.2.

And we still intend to do term debt to complete that bridge repayment. So I just want to make sure we're not losing sight of one of those steps that we're still actively have underway.

Good morning everyone. So I also just want to circle back to the asset sales.

Maybe is the sales, I don't know if your investment in AltaGas Canada is part of one of the options that you'd be considering as well. I guess on the flipside of that, is there ability to maybe drop assets down into AltaGas Canada?

We're comfortable where we are with AltaGas Canada. We have no plans at this point to drop any assets down.

And that's clearly something for the future. We haven't contemplated that in our current plans at all.

And we're happy at our current level, but if the broker option is exercised we go down to just under 37%, and that's our go-forward plan to stay at that level is our current plan.

Okay. And then just touching on the dividend, and we've talked a bit about the targeted payout ratio.

When you look at the overall business and when you look at the 2019 and go forward, that AltaGas largely being a utility now. Does it make sense to look at a target payout ratio similar to you know, the peers or is it -- how are you thinking about it?

I guess when I look at it, and there's different appropriate payouts depending on the businesses. You look a hydro business with very low maintenance, you could justify a higher payout ratio.

I think it's pretty standard for most pure midstream or heavily stream is have a mid payout ratio, and utilities have a lower payout ratio because of their need to invest to maintain the rate base to maintain earnings. I think we've become a -- you put those all together to determine what's the appropriate payout ratio for AltaGas.

And if the business mix changes, I think the long-term payout target should change appropriately to reflect the business that we're in. In think in 2017, our largest segment from an EBITDA perspective was Power, followed by Utilities, followed by Gas.

So, and in '19, Tim was saying our largest will be Utilities, 50% to 55%, Gas at around 35%, and Power, the smallest, at about 15%. So we dramatically reshaped the company over this period of time.

So I think the dividend payout would make sense to reflect the change in the business.

All right, thank you very much.

Okay, thanks. We've covered a lot of material this morning.

So as a reminder, the Investor Relations team will be available after the call for any follow-up questions that you might have. I'd also like to think everyone once again for joining us this morning, and for your interest in AltaGas.

That concludes our call, and have a great day.