AltaGas' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb.28.13 | About: AltaGas Ltd. (ATGFF)

AltaGas Ltd (OTCPK:ATGFF) Q4 2012 Earnings Call February 28, 2013 11:00 AM ET

Executives

Jess Nieukerk – Director-Finance and Communications

David W. Cornhill – Chairman and Chief Executive Officer

Deborah S. Stein – Senior Vice President Finance and Chief Financial Officer

David Harris – President-Gas and Power

Analysts

David Noseworthy – CIBC World Markets, Inc.

Linda Ezergailis – TD Securities

Carl L. Kirst – BMO Capital Markets

Robert Kwan – RBC Capital Markets

Winfred Fruehauf – W. Fruehauf Consulting

Operator

Good morning ladies and gentlemen and welcome to the AltaGas Ltd. 2012 Fourth Quarter and Year End Results Conference Call and Webcast.

I would now like to turn the meeting over to Mr. Jess Nieukerk Director of Finance and Communications. Please go ahead, Mr. Nieukerk.

Jess Nieukerk

Thank you, operator. good morning, everyone. Welcome to AltaGas’ fourth quarter and year end 2012 conference call.

Speaking today are David Cornhill, Chairman and Chief Executive Officer; Debbie Stein, Senior Vice President and Chief Financial Officer; and David Harris, President, Power and Gas. After some formal comments this morning, we will have a question-and-answer session.

Before we begin, I’d like to remind you that certain information presented today may include forward-looking statements. Such statements reflect the Corporation’s current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and they are subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated in the forward-looking statements.

For additional information on these risks, please take a look at our annual information form under the heading Risk Factors.

I’ll now turn the call over to David Cornhill.

David W. Cornhill

Thank you, Jess. Good morning, everyone. AltaGas team has made significant strides in our journey to be one of North America’s leading energy infrastructure companies. In 2012, we completed our largest acquisition, taking our first major step in the U.S. We constructed the two largest natural gas processing projects in our history and we made considerable progress in our three Northwest run-of-river hydro projects, which are expected to begin, beginning in 2014 with Forrest Kerr in midyear.

This morning, we reported normalized EBITDA for the fourth quarter, up $29.4 million or 66% higher in the same quarter of 2011. Normalized funds from operation for the three months ending December 31, 2012 were $112 million or 94% higher than the same quarter last year. We reported normalized net income of $0.44 per share for the fourth quarter 2012 compared to $0.36 for the same period last year.

For the full-year, we reported $1.15 per share compared to $1.07 per share on a normalized basis. I’ll provide a brief update of our new assets; both SEMCO and PNG are performing well. We can report that the first full quarter of SEMCO has met our expectations, as it is the first full-year of PNG.

On our power side, Busch Ranch wind project is exceeding the expectations, while the gas supplier generation is operating as expected. In the gas business, we had a milestone quarter with the addition of both Co-stream and Gordondale facilities, both facilities are performing well. The Co-stream project has met operational requirements for cost of service. we expect Co-stream processing volumes will increase over the next few months.

And the Gordondale facility is operating well. however, Encana has been a little slower than expected in bringing on gas. We are currently operating take-or-pay contracted levels. we expect the volumes at Gordondale to increase throughput over the course of 2013.

Our Blair Creek facility expansion is currently running near capacity at about 60 million cubic feet a day. Our three Northwest hydro projects in BC continue to progress well and remain ahead of schedule and within budgets. In one-year, we advanced the 195 MW Forrest Kerr projects from 10% completion to over 75% completion, a significant accomplishment. We also have made significant progress in McLymont Creek and Volcano Creek projects. David Harris will provide more detail on the gas and power business and the power projects later in the call.

Looking passive projects we have under construction today, we see many opportunities for organic growth. This is a direct result of the strategic location of our assets we own. It is clear that renaissance of natural gas has provided AltaGas gas with opportunities across all businesses. One example, we have just increased our utility’s capital budget to over $30 million from the previously discussed $100 million for 2013.

We are embarking on a new joint-venture with Idemitsu to exporting energy from Canada to Asian markets. We are excited to partner with Idemitsu, as they are Japan’s second largest petroleum company. We believe the access to new markets is critical for the future of the Western Canadian Sedimentary Basin in Canada.

With Idemitsu’s experience in LNG and LPG operations along the entire value chain and their access to markets in Asia, we believe those business opportunities will bring long-term social and economic value to both Canada and Japan. The business opportunities we intend to pursue through the partnerships will be executed with the same discipline manner as we’ve always employed.

Given the timing of the plan, we expect any major capital expenditure occur only after the Forrest Kerr comes online. Subject to consultation with the First Nations and the completion of the feasibility studies permitting regulatory approvals and facility constructions to propose LPG and LNG export business could begin as early as 2016 and 2017 respectively.

We are very optimistic about these opportunities as the partnership open stores to new markets for Canada’s natural gas and LPG. With PNG having only natural gas pipeline from the eastern BC to Canada’s Northwest Coast, AltaGas is best positioned to deliver natural gas for export from Canada ahead of any other project.

PNG is carrying out feasibility studies for further expansion to natural gas pipeline to approximately 600 million cubic feet a day. In Nova Scotia, Heritage Gas continues to develop the CNG delivery system that will deliver first gas to industrial customers, which will reduce their energy costs and make them more competitive. We expect to begin distributing at CNG to customers by truck this year.

2013 performance will benefit from the new assets added in 2012, how we have experienced in early part of 2013, some weakness in the Alberta power and propane prices in warmer temperatures. If price remains weak, we expect Q1 2013 to be at similar level of performance in the fourth quarter of 2012.

We remain committed to our strategy of stable cash flow and long-life assets to further support dividend growth and capital project growth. With the completion of the Forrest Kerr construction and getting ready to deliver power to the BC grid in mid-2014 and the completion of feasibility studies for the expansion of our PNG system in the development of energy export opportunities, AltaGas is beginning to embark on the next lake of growth.

I will now pass the call over to Debbie.

Deborah S. Stein

Thank you, David and good morning everyone. On a GAAP basis, net income applicable to common shares for the three months ended December 31, 2012 was $26.7 million or $0.25 per share, compared to $31.6 million or $0.36 per share for the same quarter last year. For the year ended December 31, 2012, net income applicable to common shares was $101.8 million or $1.07 per share compared to $82.7 million or $0.98 per share for 2011.

Normalized net income applicable to common shares for fourth quarter was $46.6 million or $0.44 per share, compared to $30.8 million or $0.36 per share for the same quarter, 2011. As David mentioned, normalized net income applicable to common shares for the full-year 2012 was $109.5 million, compared to $90.2 million for the full-year 2011. And on a per share basis, results were $1.15 in 2012 compared to $1.07 in 2011.

Results are normalized from mark-to-market accounting, non-recurring items and the impact of changes in tax rates to the deferred tax liability. Non-recurring items included the charge related to the Sundance Force Majeure arbitration decision, foreign exchange losses on acquisition, write-down and projects under development, gains and losses on assets dispositions and transaction costs related to acquisitions.

As David mentioned, cash flow growth was strong. In 2012, cash flow increased by 28% with normalized EBITDA of $336.9 million in 2012 compared to $265.8 million in 2011. Normalized funds from operations were $281 million compared to $219 million in 2011.

The business segments reported normalized operating income of approximately $105 million in the fourth quarter of 2012 compared to approximately $66 million for the same period last year; the increase was driven by the addition of SEMCO and PNG, major turnarounds at Younger and Harmattan last year fourth quarter and higher revenues earned at some extraction facilities, the addition of Gordondale and Co-stream this quarter, the addition of new power plants, colder than normal weather at AUI and rate based growth at the Nova Scotia and Alberta utilities; these increases will partially offset by lower revenues from the sale of liquids, lower volumes of gas processed at some facilities, lower power generation at Bear Mountain and lower proved returns at Heritage Gas.

For 2012, normalized business operating income was approximately $265 million compared to $216 million for 2011. Excluding the impact of the plan turnarounds in 2011, the increase was driven by the acquisitions of SEMCO and PNG, higher fees earned at some of the extraction gas processing facilities, higher volume hedged at higher prices, lower natural gas cost and gas fired, power facility, the addition of new power plants and rate based growth at the Nova Scotia and Alberta utilities; these increases were partially offset by lower revenue from the sale of natural gas liquids, lower transmission revenues, lower gas processing volumes, and realized power, lower proved materials at Heritage Gas and warmer weather in Nova Scotia.

During 2012, AltaGas declared dividends of $1.40 for common share or 47.3% of normalized funds from operations. For 2012, AltaGas hedged approximately 82% of frac exposed production at an average price of approximately $35 a barrel before deducting extraction premium. For 2011, AltaGas had hedged approximately 70% of frac exposed production at an average price of $28 a barrel before deducting extraction premium.

We estimate that 11% of total extraction volumes in 2013 will be exposed to frac spread. For 2013, approximately 45% of the exposure has been hedged at an average price of approximately $30 a barrel before deducting extraction premiums. For 2012 AltaGas’ Alberta power generation was 70% hedged at an average price of $67 per megawatt hour compared to 62% hedged in an average price of $70 per megawatt hour in 2011.

AltaGas have hedged approximately two-thirds of the expected Alberta based power generation for first quarter 2013 at $67 a megawatt hour and approximately 40% for the second through fourth quarter at an average price of $64. On a full year basis for 2013, AltaGas is approximately 50% hedged at an average price of $65 per megawatt hour.

Interest expense for fourth quarter 2012 was $21.6 million compared to $13.3 million in the same quarter 2011, due to higher average debt balance of $2.63 billion versus $1.18 billion for the same quarter 2011, offset by higher capitalized interest on lower average borrowing rates quarter-over-quarter. Capitalized interest in fourth quarter of 2012 was $9.7 million compared to $4.4 million in same quarter last year.

In the fourth quarter, the GAAP effective tax rate was approximately 36%, excluding one time items related to year-end adjustments, the effective tax rate was approximately 29%. In 2013, we expect our effective tax rate to be between 27% and 28%.

In fourth quarter, net invested capital was $150 million, a $145.7 million of which was growth capital and $4 million for maintenance capital. For 2013 estimated CapEx for projects currently under construction and capital expenditures of the utilities is expected to be between $350 million and $400 million.

AltaGas’ capital program is expected to be fully funded from the equity from our DRIP, internally generated cash flow and over $770 million in available credit facility. We continued to be well positioned for long-term earnings, cash flow and sustainable dividend growth into the future.

With that I’ll now turn the call over to David Harris.

David Harris

Thank you, Debbie and good morning everyone. Our gas business accomplished more on 2012 then in any other year. In total, we added over $500 million in new and expanded assets and over 420 Mmcf per day of processing capability, which is currently 65% utilized.

In fourth quarter, AltaGas commissioned Gordondale gas plant and began commercial operations. The plant was constructed in record time to meet producers’ requirements in the Montney resource area, one of the largest low-cost liquids rich resource plays in the basin. 120 Mmcf per day facility successfully commenced processing gas at the end of October slightly ahead of schedule and is currently earning revenue under a long-term take-or-pay contract. Given the deep cut capability and strategic location of the plant, AltaGas expects utilization of the plant to increase over the coming months.

Harmattan Co-stream Project was completed and commissioned with gas first being processed during October and in-service conditions met during November in accordance with the AltaGas’ 20-year cost-of-service agreement with NOVA Chemicals. AltaGas is currently processing 300 Mmcf per day to 350 Mmcf per day or approximately 65% of plant capacity.

Turning to the commercial side of our business; the Alberta power market showed considerable volatility in Q4 with October averaging $91 and December averaging $58. Overall, fourth-quarter prices increased slightly year-over-year, averaging $79 per megawatt hour compared to $76 per megawatt hour in 2011.

That said, the division’s performance was impacted by the Sundance Force Majeure arbitration decision, low-end generation of Bear Mountain and the write-down of certain wind development projects; these decreases were partially offset by lower variable cost of Sundance, the addition of new business, biomass business, higher earnings at the cogeneration plants and the addition of the Busch Ranch Wind Project in Colorado.

Construction on Forrest Kerr continues to outpace the expectations with the project running ahead of schedule and on budget. The in-take structure in the powerhouse are complete as is 90% of the tunneling. The in-river construction commenced in mid-November and the sluiceway diverting the river is now in operation. In-river wave foundation work is complete and the mechanical assembly of the wave components have started. The wave is on schedule to be completed during this seasons’ low flow period. At the end of fourth-quarter, Forrest Kerr from an overall project perspective is approximately 75% complete. With respect to the transmission line construction, clearing of corridor is currently 80% complete, current scheduled to in-service date to the line as stated by BC Hydro at the end of May 2014.

We are pleased to report that our material permits necessary to the start-up construction on the 66 MW McLymont project and the 16 MW Volcano project have been issued. So the McLymont project pre-construction activities continue as planned with road and bridge construction being 70% complete.

That concludes my prepared remarks. And I’ll now pass the call back to Jess.

Jess Neukirk

Thank you, David. I’ll now turn the call back to you operator for the Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from David Noseworthy of CIBC. Please go ahead.

David Noseworthy – CIBC World Markets, Inc.

Good morning.

David W. Cornhill

Good morning.

David Noseworthy – CIBC World Markets, Inc.

Just trying to get start on your new recently announced JV. Reports that, Jess, you’re looking at 600 metric ton LPG export terminal, your Q4 highlights the scope including logistics, plant refrigeration and storage facilities. Can you provide us a range of the CapEx you might expect to spend on construction facility?

Jess Neukirk

It’s a little premature just with respect to that. but overall when I talk to my Board in terms of the opportunity for gas going to the West Coast and all related investments, it’s fairly large range and we’re looking at somewhere between $2 billion and $5 billion spend over the next 10 years. That gives you the ballpark.

David Noseworthy – CIBC World Markets, Inc.

Okay, certainly. You’re right, very wise. In terms of just doing the visibility on the LPG, is there a first take on what the major issues are that you need to kind of sort out to make a go/no-go decision?

David W. Cornhill

It’s basically proper siting for LPG. We believe we have the market and effective siting for transportation on the West Coast to North America.

David Noseworthy – CIBC World Markets, Inc.

Is last point a potential site in addition to Kitimat or Prince Rupert, do you see just an outsize another area for the sort of export?

David W. Cornhill

For LPG, we don’t at this point, we don’t think so.

David Noseworthy – CIBC World Markets, Inc.

Okay, excellent. and then maybe just a change in direction here, with regards to your hedging, has your strategy or the implementation of the hedging strategy changed between Q3 and Q4?

David Harris

David, it’s David Harris speaking, if you’re talking with respect to power or gas. No.

David Noseworthy – CIBC World Markets, Inc.

Okay. And I guess what I’m getting at is for 2013 last quarter, you’re seeing 35% is hedged that $35 per barrel, and this is the NGLs and now you’re 45% at $30 per barrel. and I would suggest that you hedged 10% at $12.50 per barrel, which is materially below what foreign markets would suggest you get for it, and I would just kind of to understand what changed?

Deborah S. Stein

David, what’s changed is, we did some hedges on just one single product as opposed to the full frac spread hedge.

David Noseworthy – CIBC World Markets, Inc.

Okay. And all right, fair enough. Thanks for that. And then if you look forward, are you adjusting your hedging strategy in anyway to account for new NGL pipelines being built between the various North American NGL hubs or the reversals [approaching]?

David W. Cornhill

Not at this time, but we’ll continue to monitor how the market develops.

David Noseworthy – CIBC World Markets, Inc.

Perfect, great. thank you very much; I will get back in queue. Those are my questions.

Operator

Thank you. Our next question is from Linda Ezergailis of TD Securities. Please go ahead.

Linda Ezergailis – TD Securities

I have a question with respect to your maintenance capital. Can you provide what that was in Q4 and 2012?

Deborah S. Stein

It was, I think I said it in my conference call, I think it was $4 million, Linda.

Linda Ezergailis – TD Securities

$4 million, sorry, I missed that number.

Deborah S. Stein

Yeah.

Linda Ezergailis – TD Securities

Okay. And then for 2013, your $350 million to $400 million number, is that a total number or just growth?

Deborah S. Stein

That is, you can consider that a total number, I mean we expect maintenance capital to be about $10 million to $15 million, which is what we’ve been more or less averaging in the last few years.

Linda Ezergailis – TD Securities

For 2013, okay.

Deborah S. Stein

That’s mostly the utilities as well as the CapEx for the Northwest projects.

Linda Ezergailis – TD Securities

All right, that’s helpful. Now maybe with respect to the transmission line, the NGL transmission line, it was helpful to get an update on expected completion date. can you give us a sense of what a best-case scenario and a worst-case scenario is? Is the expected end service data best-case scenario and how that might move?

David Harris

Linda, David Harris again, I think a best-case scenario could be something at the end of March-April timeframe. We’ve seen a fair amount of progress pickup, significantly with respect to tree clearing and there’s some additional measures that’s being taken with BC Hydro (inaudible) and their contractors to bring some additional crew, utilize some helicopters. so I think the slope at a curve of progress is getting better with each passing month. So I could say March and April could be a best-case. I think May is a pretty solid date at this point. if you saw some slippage, it maybe as it relates to commissioning when we actually get into physically commissioning the lines. It’s got a pretty long run, but maybe a 30-day slip at this point, but I’d say the probability of that is some 50%.

Linda Ezergailis – TD Securities

Great, thank you.

Operator

Thank you. Our next question is from Carl Kirst of BMO Capital Markets. Please go ahead.

Carl L. Kirst – BMO Capital Markets

Thanks, good morning everybody. If I could actually go back maybe to Idemitsu for a second, I just want to make sure David that I understood you correctly. did you say that from kind of gaining factors with the feasibility studies primarily focused on is more siting rather than actually having the market meaning that you already think you got a pretty good read on the ability to place the product?

David W. Cornhill

We’ve got a good read on with Idemitsu on placing products. LPG, I would say it’s a head of LNG, but siting is one of the critical items that we’ve been working on for many months now, and continue to work on. and so that I would say it’s a critical path item.

Carl L. Kirst – BMO Capital Markets

So then, if I could just extend that as we think about road signs ahead, as we get sticking, but the LNG project we are talking about maybe ending, but including the feasibility study early 2014. If the siting is sort of successfully addressed at that point with the view that, essentially, the market access is already there, when we actually conclude that feasibility study, will you be in a position, do you think to actually make a go/no-go decision or does that sort of then queue up kind of an open season of sorts where you’re now actually in the market trying to get contract? so I’m ultimately trying to figure out the timing for when FID could be made?

David W. Cornhill

I’m not sure, quite as far as you want me to here. The other critical path item and we’re working on is the consultation with First Nations, and that part is larger than the just siting situation. So First Nations consultation and successful conclusion with the First Nations would be the other significant item in terms of most important and long history working with First Nations, and so that until we work through those items, those are the critical items.

Carl L. Kirst – BMO Capital Markets

Fair enough, appreciate the color. And then if I could, just because I’m sorry, this is on the natural gas side of things, specifically the field, GNP in the volumes there recognizing that the number we have is for fourth quarter. As we look at where Gordondale is today, where Blair Creek is today, can you give us a sense of what FGNP volumes are right now and where do you think they may end the year with the ramp up of Gordondale?

David W. Cornhill

They are clearly higher today than they were for the fourth quarter. There is a fore handle on the numbers, consistently and growing. I think we could look at 450-ish as a number that’s realistic as an exit.

Carl L. Kirst – BMO Capital Markets

Great, thank you so much.

Operator

Our next question is from (inaudible) of Macquarie. Please go ahead.

Unidentified Analyst

Thank you. I was hoping you could talk about the proposed LNG export tax and what impact that’s having on behavior of the commercial parties in terms of making final investment decisions on LNG projects and the same question for the impact that’s having on producer community in developing their LNG reserves?

David W. Cornhill

It’s just planning, there’s a lot of moving parts, and more uncertainty causes delay and I would say at this point, it’s just another part of uncertainty that hasn’t yet had the material impacts and it’s just fresh, but there’s a lot of challenges to export LNG and this is just another one that needs to be clarified, and so before a final investment decisions made. So it’s just adding some near-term uncertainty.

Unidentified Analyst

Yeah. I mean if there’s no resolution with that, they’re talking about taking the year to get this done. I mean it sounds to me like it’s ultimately could be rather significant delay even for the projects that are closed FID today and so I’m wondering what the follow-on impact would be on things like feasibility study for the pipeline expansion?

David W. Cornhill

Well, those would continue. I wouldn’t see those as being delayed as per tax clarification. But at the end of the day, more and more uncertainty just creates delay, so everything moves back in terms of capability to deliver and when you want to make long-term construction commitments. And so the sooner those uncertainties can be resolved by the government, the better.

Unidentified Analyst

Okay. And then related question is the tax issue having any impact on LPG or is it contained at this point to LNG exports?

David W. Cornhill

It’s the LNG exports as we understand it.

Unidentified Analyst

Okay. And then my final question has to do with the Sundance; what impact do you think the Force Majeure ruling is going to have on 2013 volumes?

David W. Cornhill

With respect to Sundance?

Unidentified Analyst

Yeah.

David W. Cornhill

Really nothing for 2013.

Unidentified Analyst

So your expectations for the refurbishment of the plant are consistent? They haven’t changed?

David W. Cornhill

That’s correct.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question is from Robert Kwan of RBC Capital Markets. Please go ahead.

Robert Kwan – RBC Capital Markets

Good morning. If I can just start on the LNG, just wondering with the feasibility study for these LNG around them taking additional capacity, just wondering how that decision point on the feasibility study versus your timeline to potentially get your commercial terms in line to piggyback on a potential twinning? Doest that lineup well for you or is it going to be completely separate in your line?

David W. Cornhill

We’re looking to try to integrate as closely as possible. So I would say, we’re looking at an integrated view to serve a number of customers for the PNG including our project in LNG.

Robert Kwan – RBC Capital Markets

And so their timeline does match up well with the time in your feasibility study to be able to get the right diameter pipe in place?

David W. Cornhill

We believe so.

Robert Kwan – RBC Capital Markets

Okay. Just on Gordondale, you’ve got to take or pay, you talked about having take or pay levels right now. I’m just wondering how much do volumes have to increase such that you start to exceed the take or pay levels and actually generate an extra cash flow at the plant?

David W. Cornhill

Probably on Mcf?

David Harris

Yes, correct.

Robert Kwan – RBC Capital Markets

Probably write down now. So the build from here is going to fall back to the bottom line.

David W. Cornhill

Yes.

Robert Kwan – RBC Capital Markets

Okay. And then just a last question I have really it’s to impress and there were some comments how this factor around the potential for rationalization of the ownership and capacity positions this year, just wondering if you have any thoughts on that and what forum do you think that may or may not take?

David W. Cornhill

This has been talked for a long time. We think that make sense to have some way over capacity, but the difficulty is that every owner has different economics and how do you equalize that rationalization helps some people more than other people and so it’s hard enough to crack, but we think it overtime it should – we have to – it’s just way too much capacity there.

Robert Kwan – RBC Capital Markets

Do you think something could be done via joint venture and agreements to shut down capacity or do you think it’s really going to need to take the forum given competition that somebody have to get bigger before it gets smaller?

David W. Cornhill

So history said that we haven’t been able to crack that, not yet. So I think someone may get bigger before they get smaller.

Robert Kwan – RBC Capital Markets

Okay that’s great, thanks very much.

Operator

Thank you. Our next question is from Winfred Fruehauf of W. Fruehauf Consulting. Please go ahead.

Winfred Fruehauf – W. Fruehauf Consulting

Thank you, good morning. I have a question on the defined benefit plan. At the end of 2011, the funded deficit for the defined benefit plan was just a little over $29 million and the funded deficit for the post retirement benefits was just under $9 million, what are the corresponding numbers for 2012 and how does AltaGas propose to reduce the funded deficit going forward?

David W. Cornhill

I will pass on that one to Debbie.

Deborah S. Stein

So Winfred, the 2012 number is about $105 million on the defined benefit and the post retirement number is 24 and the big increase really was driven by the SEMCO acquisition in 2012. When it comes to funding the year, the benefit liability I think you have to look at all of the pieces that’s working to how that number is actually derived. We have got a few moving pieces here and I think one of the big drivers this year was the continued lower discount rates that drove that liability up.

So to the extend that planned assets can do better or interest rates go up and the liability comes down, those numbers will change accordingly, but from a funding perspective based on the pension legislation that we are all obligated to comply with, our funding obligations based on the actuarial valuations that we have done in the last couple of years is well within our capability to fund.

David W. Cornhill

I guess the Board had a discussion on this yesterday as well and the lion share, the vast majority of the liability is related to regulated entities and those are recovered through rates.

Winfred Fruehauf – W. Fruehauf Consulting

As a sort of a general question related with the same subject; would you set the discount rate at the same level as the rate of return you are expecting to earn on planned assets?

David W. Cornhill

No.

Winfred Fruehauf – W. Fruehauf Consulting

Why not?

David W. Cornhill

I think the actuarial will not allow that, the actuarial of the rate.

Winfred Fruehauf – W. Fruehauf Consulting

Okay, thanks very much.

David W. Cornhill

Thank you.

Operator

Thank you. Our next question is from Carl Kirst of BMO Capital Markets. Please go ahead.

Carl L. Kirst – BMO Capital Markets

Hey, thanks, sorry, just a couple of cleanup questions if I could. One just with respect to the C3 Plus frac spread today the spot spread. Could you give us a sense of what you’re seeing with your mix and also any color you might be able to share with respect to the perhaps the quality environment of the extraction premium, has it gotten any better, is it stayed the same as last year? Any color on that if you could?

David W. Cornhill

Yeah. I’ll answer the last question first. It’s fairly consistent with last year. So operating above that $6 range and as it relates to frac spreads, our view is somewhere between $20 and $30 point for 2013.

Carl L. Kirst – BMO Capital Markets

Fair enough, thanks so much.

David W. Cornhill

Thanks.

Operator

Thank you. Our next question is from David Noseworthy of CIBC. Please go ahead.

David Noseworthy – CIBC World Markets Inc.

Hi, just two quick follow-up questions. One, one we have seen a lot of activity around the Duvernay recently with lights of ExxonMobil AltaGas oil into China et cetera. Can you share with you what AltaGas is seeing in terms of opportunities for new gas plants serving the Duvernay and how AltaGas position itself relative to its competitors?

David Harris

We watched that very closely, as there’s a lot of our peers. We see potential opportunity in that area, and I think consistent with what we’ve done in the past with Gordondale and our Co-stream facilities that we’d look to potentially take our spots and take advantage of plants similar to that size as opportunities present themselves.

David Noseworthy – CIBC World Markets Inc.

In terms of when you would think opportunities may present themselves, is it a 2013 story or a 2014 story like where do you impact when producers might call in the trigger?

David Harris

I mean that’s the $50million question. Anybody’s crystal ball is as good as [explaining]. If we saw producers start to move, I think we’re in a good position to move, if it was 2013 show, but this may be something that takes a little bit more time to develop for clear picture. So 2014 (inaudible) 2015 timeframe out of the equation.

David Noseworthy – CIBC World Markets Inc.

Okay. Thanks for that color. And one last question in terms of your 2013 CapEx guidance, does this contemplate anything for a potential expansion of your western transmission pipeline?

David W. Cornhill

No.

David Noseworthy – CIBC World Markets Inc.

Okay.

David W. Cornhill

Just some minor feasibility cost that would be included in that.

David Noseworthy – CIBC World Markets Inc.

All right. And if you were to go forward with that, I'm assuming that would almost that CapEx would beyond 2013 is that fair to assume?

David W. Cornhill

There will be some minor costs incurred in the joint ventures, but most – any significant spend will be after Forest Kerr is online.

David Noseworthy – CIBC World Markets Inc.

Okay, perfect. Thank you very much. Those were my questions.

Operator

(Operator Instructions) We have no further questions registered at this time. I would now like to return the meeting over to Nieukerk.

Jess Nieukerk

Thank you, operator. That concludes AltaGas' 2012 fourth quarter and year-end conference call. I would like to thank you everyone for joining us today and we are available for any follow-up questions you may have.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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