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Executives

Sheena McKellar – IR

David Cornhill – Chairman and CEO

Debbie Stein – VP, Finance and CFO

Richard Alexander – President and COO

Jared Green – VP, Controller and Corporate Secretary

Analysts

Nima Billou – Bloom Investment Counsel

Tony Courtright – Scotia Capital

Robert Catellier – Clarus Securities

Linda Ezergailis – TD Newcrest

Matthew Akman – Macquarie

Robert Kwan – RBC Capital Markets

AltaGas Income Trust (OTCPK:ATGFF) Q1 2010 Earnings Call April 29, 2010 10:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to the AltaGas Income Trust 2010 first quarter conference call and webcast.

I would now like to turn the meeting over to Ms. Sheena McKellar of Investor Relations. Please go ahead, Ms. McKellar.

Sheena McKellar

Thank you, Cheyenne. Good morning everybody. Welcome to AltaGas’s first quarter 2010 conference call.

Speaking today are David Cornhill, Chairman and Chief Executive Officer; Richard Alexander, President and COO; and Debbie Stein, Vice President, Finance and Chief Financial Officer. After some formal comments, we will have a question-and-answer session.

Before we begin, I would like to remind you that certain information presented today may constitute forward-looking statements. Such statements reflect the Trust’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 will now turn the call over to David.

David Cornhill

Thank you, Sheena, and good morning. Today, I am pleased to announce that our Board of Directors is recommending AltaGas’s conversion to a corporation. The vote is expected to take place at our Annual and General Meeting on June 3rd. Following the unitholder vote, we expect the Board will approve a monthly dividend of $0.11 or a $1.32 annually. And the conversion to a corporation will be completed on or about July 1st, 2010.

AltaGas continues to pursue significant organic growth, actively developing $2 billion worth of gas and power projects to completion over the next five years. By proceeding with the conversion now and establishing a competitive dividend, we will focus on our growth strategy.

We provided guidance to the market on dividend levels and timing of conversion over a year. On the dividend level, we provided a range between a $1.10 and a $1.40. We came in at the high end of the target range with the dividend of a $1.32. We believe that dividend levels is sustainable and has the potential to grow over time.

On the timing of conversion, we set second half but not at yearend, and most likely in Q3. We believe that it is time for AltaGas to move forward and focus on the future. July 1 conversion allows the company and the market to focus on the growth opportunities.

Conversion will provide strategic benefit to AltaGas and its unitholders including a simpler corporate structure making it easier for the market participants to value AltaGas, greater flexibility to deliver long-term capital growth and reliable gas yield, and enhance access to capital and fewer restrictions on ownership, resulting in increased liquidity.

All the structure of our company will change, but foundation of our business remains the same. We have the financial discipline, capacity, and flexibility to pursue our strategy and we will continue to deliver earnings growth and strong returns to investors. AltaGas has always focused on the financial metrics typically used by corporations such as earnings per share and return on equity.

With $2 billion worth of organic gas and power growth projects under development, AltaGas’s future is very bright. Some of these projects will begin to generate earnings and boost results this year. In the gas business, this growth includes the $24 million acquisition of the $20 million a day sour gas plant announced yesterday. The plant, which is being built by Monterey Exploration is located in the Groundbirch area of Northeast BC, targeting the Montney formation, and expected to be in service by yearend.

In response for producer demand, we will proceed with the expansions in three existing producing facilities, Pouce Coupe, Ante Creek and Acme. The Ante Creek expansion is now on stream adding approximately 7 million cubic feet a day of incremental gas.

The other expansion is still doing an additional 28 million cubic feet of capacity are expected to be adding to earnings by Q3 2010. We expect to invest approximately $56 million into the natural gas distribution business, property, plant, and equipment, to grow our average midyear rate base by approximately 28% in 2010.

The Harmattan Co-Stream Project, when approved, is expected to significantly increase extraction production volumes by around 25%. The hearing by the ERCD will be in July. This gas business growth is complemented by our power business. The Harmattan Co-Gen is on budget and on time and we have received AUC approval on this project. We are pursuing our 11 megawatt waste heat recovery facility near Crows Nest Pass in British Columbia. BC Hydro selected the project from the 2008 call for clean power and we are in the process of finalizing an electrical purchase agreement with BC Hydro.

We are also developing a portfolio of run-of-river hydro projects in British Columbia, including the three northwest projects. These projects have a combined generating capacity of 277 megawatts and are currently the subject of discussion with the British Columbia Government and the First Nation’s community. We are very optimistic about these discussions. There is a broad support for these projects from local governments, First Nations and various resource and green energy interests.

We continue to build our proven renewable project management and construction teams. And we will continue to add staff as necessary to meet our growth plans.

Last week, the British Columbia Government announced plans to proceed with the approval process for its 900 megawatt Site C Hydroelectric Project with an in-service date of 2020. AltaGas is encouraged by this prudential support for renewable power generation. We see it as complementary to our hydro projects in Northwest BC with planned and staggered in-service dates of 2014 through 2016.

As we grow, we are consistently consciously focused on decreasing business risk. We continue to focus on low-risk, long-life infrastructure with stable returns. For example, utilities, renewable projects underpinned by long-term purchase agreements with creditworthy counter parties and extraction and transmission inter structure underpinned by long-term fee for service contracts.

Our business performed well in the first quarter. We reported net income of $36.4 million or $0.45 per unit. Our overall results reflect the benefit of the Trust diversified portfolio of assets and discipline of risk management.

I will now pass the call over to Debbie Stein to discuss our financial results.

Debbie Stein

Thank you, David, and good morning, everyone. First quarter net income was $36.4 million compared to $37.5 million in first quarter 2009. Excluding the effect of unrealized gains on risk management contracts, first quarter net income was $32.4 million compared to $37 million for the same period in 2009.

Interest expense for first quarter 2010 was $11.5 million compared to $5.7 million in same quarter last year. Interest expense increased due to our higher average debt balance of $1 billion compared to $568.6 million for the same period in 2009.

The average borrowing rate was 4.6% in first quarter 2010, comparable with the 4.7% in first quarter 2009. Income tax recovery in the first quarter 2010 was $5.4 million compared to an expense of $1.5 million in the same period last year.

The decrease in expense was a result of $5.1 million due to lower income subject to tax and the $2 million current tax recovery from the natural gas distribution business. These decreases were partially offset by $1.2 million due to the tax impact, our gains from risk management contracts.

Net invested capital for first quarter 2010 was $43.1 million compared to $36 million in first quarter 2009. Growth capital in the quarter was $40 million.

In the gas segment, growth capital included $26 million for the acquisition of Landis, $5.6 million for NGD projects, $9 million for expansions of our fuel gathering and processing facility, and $1.1 million for the Harmattan fractionation project.

Within the power segment, growth capital projects included approximately $2 million to advance our renewable energy underdevelopment and $1.2 million related to the construction of the Harmattan Co-Generation Project.

The reduction in long-term investments and other assets in the corporate segment related was related to the unrealized losses on equity investments. Based on projects currently under review, 2010, the capital expenditures are estimated at approximately $250 million, 75% for gas and 25% for power. As of March 31st, approximately $130 million has been committed.

At March 31, AltaGas had total volume capacity of $816 million. Following our NTN issuance in first quarter, we have approximately $430 million available to support our growth strategy. At the end of the first quarter, our debt-to-total capitalization was 50%. Our debt maturity profile increased from 3.6 years at the end of the 2009 to 4.4 years at the end of the first quarter of 2010. And as we continue to add long life assets, we will pursue longer-term debt to match the cash profile.

Our revolving credit facilities are coming due this fall. And as part of our financing plan and our corporate conversion process, we expect to consolidate our bank credit facilities in the coming month. We are progressing with discussions with our bank group as well as other perspective participants as we continue to be pleased by the keen interest in maintaining and increasing their commitments to AltaGas.

Distributions declared during the quarter totaled $0.54 per unit or $43.7 million, subject to approval of the conversions, and we expect the Board to declare first dividend at the time or shortly thereafter of the time of the conversion.

I will now pass the call over to Rick to conclude the call with a discussion of our operating results and business outlook.

Richard Alexander

Thank you, Debbie. We reported first quarter consolidated operating income of $42.7 million, comparable with the $44.5 million reported in first quarter last year. Excluding gains or losses on risk management, first quarter operating income was $37.4 million compared to $43.9 million in the same period 2009.

Operating income in the gas segment increased 15% year-over-year to $32.6 million in first quarter 2010. The increase was due to the natural gas distribution assets acquired in fourth quarter 2009, higher frac spread, and the exploration of a gas marketing contract, which resulted in losses of previous quarters.

Operating income also benefited from the addition of Sarnia Storage second quarter 2009 and lower operating costs at our processing facility. The increases were partially offset by the fact that there were nonrecurring adjustments and liabilities related to natural gas transactions reported in first quarter 2009.

Lower throughput in most FG&P areas and lower volumes processed at extraction facilities also contributed to reduced operating income. And warmer than normal weather in Nova Scotia and Alberta resulted in the natural gas distribution business reporting about $1 million lower than normal earnings in the quarter.

Spot frac spread prices continue to rise in first quarter 2010, averaging $35 per barrel, up from $15 per barrel in the same period 2008. AltaGas realized a frac spread of $30 per barrel compared to $25 per barrel in the first quarter of 2009.

In first quarter 2010, the 11% of extraction volumes exposed to spot frac spreads added

$13.9 million of net revenue compared to the same period last year when 13% of extraction volume exposed to frac spreads added $7.5 million net revenue.

The gas segment is expected to deliver stronger results in 2010 than in 2009. We are planning to invest more than $56 million in the natural gas distribution business to grow its average midyear rate base by roughly $47 million.

We also expect higher producer activity in the FG&P business and incremental earnings from the expansions of expansions at Pouce Coupe, Ante Creek, and Acme gas plants. Earnings will also grow due to a full year of operations at Sarnia Storage and the exploration of the legacy gas marketing contract.

We anticipate the 12% of total extraction volumes will be exposed to frac spread in 2010. We have hedged two-thirds of 2010 frac spread exposed volumes at an average of $21 a barrel and approximately 15% of 2011 exposed volumes hedged at approximately $20 per barrel.

The power segment reported operating income of $16.9 million in the first quarter compared to $24.1 million in the same period last year. The decrease was due to a lower realized power prices and higher environmental cost. These decreases were partially offset by lower PPA costs and contributions from AltaGas's Alberta commercial and industrial electricity business, which is now reported in this segment.

Contributions from Bear Mountain Wind Park are also added to results. Bear Mountain is performing as expected given the wind conditions since the Wind Park began commercial operations in fourth quarter. The Dawson Creek area did experience weaker than normal wind conditions resulting in weaker than budgeted results from the wind farm.

The average Alberta power pool price was $41 per megawatt hour in the first quarter, down from $63 per megawatt per hour in first quarter 2009. Our average power price received, which includes sale of power in Alberta and BC was $62 per megawatt hour compared to $74.38 per megawatt hour in first quarter 2009.

For 2010, almost two-thirds of the power delivered to the Alberta power pool from the Sundance plant is hedged at $72 per megawatt hour. Hedged volumes were slightly higher than average first quarter and are slightly lower in the second quarter. Current forward prices, as published in daily broker reports, are in the about $50 per megawatt hour for the balance of 2010.

Continued low natural gas prices and a temporary oversupply situation, hedge created a environment that management does not believe is sustainable over the long term. A large coal unit in Alberta was retired at the end of March 2010, resulting in a reduction of base load supply that will not be fully replaced until mid-2011, and improved economic conditions are expected to increase power demand in the province.

Offsetting current weakness in the spot market will a full year of operations at the Bear

Mountain Wind Park as well as the anticipated addition of the Harmattan Co-Generation Facility currently expected to be on line in the fourth quarter of 2010. The 13 megawatt gas fired co-generation facility is expected to cost approximately $22 million, and all the regulatory approvals have been received, and the facility is expected to be commissioned in the fourth quarter.

Our corporate segment reported an operating loss of $6.8 million in first quarter compared to a loss of $8 million in the first quarter 2009. The reduced loss was due to realized and unrealized gains from investments, partially offset by higher compensation costs and lower investment income.

Excluding the impact of market-to-market accounting, corporate cost for 2010 are expected to be higher than in 2009 as a result of cost to support our growth initiatives, as well as additional cost related to corporate conversion and new financial reporting requirements. Also, corporate segment expects to report lower earnings from equity investments as utility group is now reported in our gas segment.

Our Q1 results reflected the benefits of our diversified portfolio. A number of new assets are now contributing to earnings and we have much more to growth to come. We are excited about our future as we continue to deliver to on our commitment to create shareholder value in a financially disciplined manner.

And with that, I will turn the call back to Sheena.

Sheena McKellar

Thank you, Rick. That concludes the formal part of today’s call. David, Rick and Debbie are now available to answer your questions. Cheyenne, I will turn the call back to you for the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Nima Billou from Bloom Investment Counsel. Please go ahead.

Nima Billou – Bloom Investment Counsel

Good morning.

David Cornhill

Good morning.

Nima Billou – Bloom Investment Counsel

David, just wanted to commend you on your handling of the dividend issue. It's always pleasant that it's at the higher end of the range, but to retain it on a monthly basis and to really listen to the concerns of your shareholder base, I want to say that you handled this issue very well.

David Cornhill

Thank you.

Nima Billou – Bloom Investment Counsel

So thanks very much for that. Just wanted to get a sense on the power side. When looking at operating income, obviously pricing played a role. On a blended basis it was down 16%, yet operating income was down well close to I guess 50%. So I just wanted to get a sense because you are hedged, is that just a matter of depreciation? What's factoring into the larger unexpected drop in operating income versus pricing?

David Cornhill

It is partly the depreciation, but it’s also – there were some additional environmental cost in the first quarter compared to last year.

Nima Billou – Bloom Investment Counsel

Okay. Do you expect those costs to diminish over time and then the actual cash flow generation to mimic pricing in terms of quarter-over-quarter growth?

David Cornhill

Those costs should continue. One of the reasons they were higher this year than last year is the plant was down part of the first quarter last year and so we had more operating time.

Nima Billou – Bloom Investment Counsel

Okay. On the plant acquired yesterday, are there any cash flow metrics associated with that? I am assuming it's largely a fee for service business, is that correct?

David Cornhill

Yes, it will be a capital fee plus flow-through opt costs.

Nima Billou – Bloom Investment Counsel

Okay. And I guess you haven't disclosed the cash flow contribution of that?

David Cornhill

No, we haven’t at this point.

Nima Billou – Bloom Investment Counsel

Okay. But you expect it, obviously, to meet whatever your internal hurdle rates are?

David Cornhill

Yes, it would be consistent with all our investments in FG&P.

Nima Billou – Bloom Investment Counsel

Okay. When looking at your capital budget for the year, obviously there are some very interesting growth opportunities, especially on the gas distribution side, it's nice to see a lot of money committed to that stable utility business. But only a $130 million is committed so far. Is it a function of acquisitions factoring into that or what are you waiting to see I guess before deciding where to redistribute the rest of that capital budget?

David Cornhill

Primarily waiting for regulatory approvals at this point.

Nima Billou – Bloom Investment Counsel

Okay. Well, thanks very much.

Operator

Thank you. The next question is from Tony Courtright from Scotia Capital. Please go ahead.

Tony Courtright – Scotia Capital

Thanks very much. Just in relation to the Harmattan Co-Streaming Project, you said it will increase your extraction capacity by 25%?

David Cornhill

Our Co-Streaming Project?

Tony Courtright – Scotia Capital

Yes.

David Cornhill

Yes.

Tony Courtright – Scotia Capital

So is that about then 10,000 barrels or in that vicinity?

David Cornhill

About that range.

Tony Courtright – Scotia Capital

Right. And it's going to a hearing and you are still optimistic that it will go your way, the decision?

David Cornhill

We are.

Tony Courtright – Scotia Capital

Okay. And in terms of power sector, in terms of investments during the quarter, you indicated $2 million on renewables. I guess if you are capitalizing, could you review again your policy in relation to capitalization versus expensing such costs?

David Cornhill

I will pass that on to Debbie.

Debbie Stein

Tony it’s – our policy is ongoing. Things like salaries and wages and admin costs are expensed. The only thing that we capitalize are third-party expenses that we incur to move the projects along, so things like preliminary engineering and feasibility studies get capitalized.

David Cornhill

As well as transmission deposits and things like that.

Tony Courtright – Scotia Capital

Okay. And in terms of the Northwest Hydro projects, is there any clarity in terms of timing? Did I see it suggested that it would be in the summer or something it might be or –?

David Cornhill

We are working hard to just be ready to construction in Q3 of this year.

Tony Courtright – Scotia Capital

And are there any particular issues that need to be overcome to reach that or is it just everybody putting their shoulder to the wheel here to get different parties on the same page?

David Cornhill

I will let Rick to speak to that.

Richard Alexander

Really, the – the issues are that we are trying to align all of the interests, the BC Government, BC hydro, BC transmission and First Stations and AltaGas and so it’s a complex process to get everybody aligned in a way that everybody benefits from the various projects that’s what takes time. So we continue to be optimist that we will find that solution.

Tony Courtright – Scotia Capital

And the costs that you have – estimated cost is now quoted as about $1 billion. If that – it’s slightly higher than previously or am I wrong on that count, has the scope increased?

Richard Alexander

No, that’s the same number we have been talking about. Remember, it represents three projects, so it’s our hope that we will be able to receive three EPAs at the process.

Tony Courtright – Scotia Capital

I see. Alright, and then a final question for Debbie, if I could, please. You quoted two figures, Debbie. One was, I think, $430 million of availability under your credit facilities?

Debbie Stein

Yes.

Tony Courtright – Scotia Capital

But you also mentioned something beforehand, $816 million. And I forget what that related to.

Debbie Stein

That is the total amount of our credit facilities.

Tony Courtright – Scotia Capital

Alright, thank you. And you still intend to adhere to a general policy of about a 50% –ceiling of about 50% debt to capital?

Debbie Stein

That is the current plan.

Tony Courtright – Scotia Capital

Great. Thank you very much. Those were my questions.

Operator

Thank you. The next question is from Robert Catellier from Clarus Securities. Please go ahead.

Robert Catellier – Clarus Securities

Hi. Could you tell me who has the capital risk on the newly acquired plant from Monterey in the Montney?

David Cornhill

The producer bears the capital risk.

Robert Catellier – Clarus Securities

Okay. What feedback have you received from the rating agencies about your credit rating, should the conversion proceed as proposed, including I assume they are aware of your new dividend level?

Debbie Stein

The rating agencies have the range, Rob. Our discussions with them were on the range and they were comfortable with where the range was in our overall business and financing strategy, and we expect maintain our credit rating. Keep in mind that this plan played a part in our upgrades last year.

Robert Catellier – Clarus Securities

Yes.

Debbie Stein

So we are comfortable with where we are with respect to the rating agency.

Robert Catellier – Clarus Securities

Yes. Thee question was just because it's at the upper end of the range, so maybe they were targeting the middle of the range?

Debbie Stein

No, when we had discussions with them, they were comfortable with the range itself, whether it was at the lower or the higher.

Robert Catellier – Clarus Securities

Okay. I am very curious to know about the transmission deposits for the $2 million in capital in the power segment. What projects does that relate to?

David Cornhill

It’s California, Walker Ridge.

Robert Catellier – Clarus Securities

Okay. And you said the capacity factor was a little bit weaker for Bear Mountain. Obviously, there will be fluctuation in wind generation, that's just the nature of the asset. But can you quantify the degree? Was it off by a couple of percent or was it a major impact?

David Cornhill

The first quarter weather across the nation was rather unusual when you see 10%, 11% warmer than normal. When you see the – anyone watched the Olympics in Vancouver. So it was unusual performance from a wind and far was lower than we had seen any of them in our history. So it was unusual and had a material – weather has a material and negative impact on our performance in Q1, both on the wind side and on the natural gas distribution side.

Robert Catellier – Clarus Securities

Yes. And have you received any feedback? I know it's early, but have the producers given you any feedback on proposed changes to the Alberta royalty framework and the competitiveness review?

David Cornhill

We have talked to producers about it from time to time and our impression is that they generally see the announcements is favorable. But given the low gas prices, it really hasn’t has that much of an impact at this point.

Robert Catellier – Clarus Securities

And finally, what can you tell us about your compensation philosophy, once you change to a corporation if anything changes at all? And what I am targeting here is anticipated changes in your incentive compensation plan and whether or not you expect any change of control provisions to be triggered as part of the conversion.

David Cornhill

With respect to comp philosophy, we had always – I guess one change where we will be targeting earnings per share rather than earnings per unit. But we have always focused on from a performance level earnings per unit and i.e. that it won’t change for our short-term compensation.

Our long-term are primarily ownerships of shares and there may be some minor tweaking there to better align, but no significant comp changes there. On change of control with respect to this transaction, they all have to impact – there will be no change of control impacts here.

Robert Catellier – Clarus Securities

Okay, great. Thanks.

Operator

Thank you. Your next question is from Linda Ezergailis from TD Newcrest. Please go ahead.

Linda Ezergailis – TD Newcrest

Thank you. I am wondering if you could clarify a few things for me on your frac business. There was some commentary that you are hedged for 2010 at $21 a barrel. Is that true for the balance of the year as well?

David Cornhill

Yes.

Linda Ezergailis – TD Newcrest

So if we assume for the balance of the year that you are at $21, two-thirds of your volume?

David Cornhill

That’s correct.

Linda Ezergailis – TD Newcrest

And then in addition, there was an outlook comment about frac spreads expecting to be $25 for the balance of the year. Is that including – is that on a realized basis or is that for the unhedged volumes, looking at the forward markets?

Richard Alexander

That's the forward market average for the year.

Linda Ezergailis – TD Newcrest

Forward market, thank you. There was one of your facilities that had some changes to terms for your frac spreads agreement. Can you elaborate at all on that?

Debbie Stein

No, and other than to say what’s in the MD&A. We did reduce some commercial arrangements that allowed us to enhance the returns on that plant.

Linda Ezergailis – TD Newcrest

Okay. So that's not necessarily pricing but maybe volume?

Debbie Stein

It was pricing.

Richard Alexander

Because of confidentiality, we can’t really say more.

Linda Ezergailis – TD Newcrest

And then the volumes trend or the outlook for your extraction business, can you comment on that?

Richard Alexander

Yes. Well, we talked about 2010 into 2011, what we are seeing right now is the forward curve is in about that $21, $22 range for 2011.

David Cornhill

And on a volume basis, we are seeing growth at younger and strong, steady performance everywhere else except Empress is somewhat challenged with the small part of our volume. The rest is committed volume processing.

Linda Ezergailis – TD Newcrest

Okay, thank you. And as you convert to a corp., has there been any thought to when the Board might consider reviewing dividend levels? As you are probably aware, some of your corporate peers typically do it at the yearend or towards the beginning of the year, once a year. Has there been any thought?

David Cornhill

We thought we would continue the tradition we had as a corporation and as a trust, would review at in the August timeframe or July timeframe, summer. And the rationale is the – we completed our long-term planning process. We have a year, a half yearend, so we would expect to go on a annual basis in Q3 to review our dividend levels.

Linda Ezergailis – TD Newcrest

Alright, Q3 adjustment. So the next one would be Q3 2011, then?

David Cornhill

Yes.

Linda Ezergailis – TD Newcrest

Okay, thank you.

Operator

Thank you. Next question is from Matthew Akman from Macquarie. Please go ahead.

Matthew Akman – Macquarie

Thank you. My first question is just a progress update, please on 2011 power hedges in Alberta.

Richard Alexander

We are hedged right now at just over 20% in about $67 range.

Matthew Akman – Macquarie

Okay, thanks for that.

Richard Alexander

Sorry $70 –

Debbie Stein

$62.

Richard Alexander

$62, sorry.

Matthew Akman – Macquarie

$62, okay thanks. The next few questions really relate to trying to understand what the earnings of the company would have looked like in a corporate form because, obviously we are getting there quite soon. And primarily what I am interested in – and maybe this is for Debbie – is just an update on your expected accounting tax rate for 2011.

Debbie Stein

So on the expected rate, it will be based on the statutory 26%. So – but you can imagine that it would be primarily deferred taxes not cash tax. We will have a small amount of cash tax as a result of the NGE business.

Matthew Akman – Macquarie

Okay, thanks for that. And so, if we are to look at the first quarter income before tax excluding unusual item, that would have been about I guess $26 million. If we were to tax effect that at the $20 million, $28 million or whatever, would that be what your earnings would have looked like in a corporate form or are we missing something?

Debbie Stein

No. That, for all intents and purposes would be the benchmark.

Matthew Akman – Macquarie

Okay. And I guess then in light of that, I just wanted to come back to David on the dividend policy, because when you announced the new range, David you were talking – I think you were talking about the dividend being some fraction of earnings and maybe in the sort of 60% to 70% range. But at $1.32 and sort of consensus of a $1.03 in earnings next year, it looks like it's going to be significantly higher than 100%. I know that's obviously affordable on a cash basis, but I am just wondering if that reflects a change of heart over the last while on payout ratio.

David Cornhill

I think you are not quite remembering what I said. I said with respect to the focus on cash flow, we target in the 50% range and we would move to a fraction over time, as we grow into our dividend, we were looking at about 100% to start and we have significant growth coming on that significantly reduces that fairly quickly when our capitals come on. So that’s the traditional philosophy we have had and that’s where we are at.

Matthew Akman – Macquarie

Sorry, a 100% of what?

David Cornhill

Net income.

Matthew Akman – Macquarie

So just taking consensus or what this run rate implies of earnings of $0.23 or whatever in the quarter, the corporation, what's going to change that's going to take that to the dividend level or above the dividend level, which is $0.33 a quarter?

David Cornhill

I guess you will have to wait and see that Matthew.

Matthew Akman – Macquarie

Okay. Okay, thanks. Those are my questions.

Operator

Thank you. (Operator Instructions). Our next question is from Robert Kwan at RBC Capital Markets. Please go ahead.

Robert Kwan – RBC Capital Markets

Just coming back to Northwest BC projects, the transmission line has moved into the environmental assessment. Do you need that to be done before you get an agreement? And then also, if you can just comment on whether the BCTC proposed remerger back into hydro changes anything?

David Cornhill

Rick?

Richard Alexander

Well, the merger doesn’t change anything. Our discussions have been directly with the BC, hydro BCTC and the BC Government all at the joint tables. So, for us, it’s different. The – in terms of the EA and transmission line moving forward, we don’t need to see that process completed before we have an agreement or an understanding. That’s a separate issue. It is obviously important that the EAV provided for the transmission lines to move forward and therefore our project, but we don’t see that as an impediment for the process.

Robert Kwan – RBC Capital Markets

Okay. Just I guess on the EA though, I know you don't see it that way. Do you get the sense that BCTC sees it that way? And then just on the remerger, do you think that process is just going to tie up from a bureaucracy perspective and slow things down?

Richard Alexander

No, I don’t see the – could see it slowing down or that having any impact on our process what’s so ever. And as for BCTC, I guess I can’t speak for them.

Robert Kwan – RBC Capital Markets

Okay. Just on kind of the corporate segment, what you booked in the quarter, do you see that as a pretty good run rate going forward?

Debbie Stein

Yes. Other than the impact of risk or hedges.

Robert Kwan – RBC Capital Markets

On the mark-to-market, okay.

Debbie Stein

Yes.

Robert Kwan – RBC Capital Markets

And then just the last question I have is on the tax recovery in the natural gas distribution segment, do you think you could just give a little bit more color on that?

Jared Green

This is Jared Green here representing the natural gas distribution. Within in the natural gas world, for accounting purposes, they generally don’t recognize a future impact. They only have a tax expense related to their cash taxes. And the future taxes end up just sitting on balance sheet is where they go for changes.

Now, for 2010, our Alberta utility had a significant investment in the customer billing. With that then, they have significant pools available for deduction. And the Alberta regulator has directed them to take maximum deductions from that and create a tax recovery for 2010.

Robert Kwan – RBC Capital Markets

Okay.

Jared Green

So there is a lot of (inaudible) regulator.

Robert Kwan – RBC Capital Markets

Now, when you say for 2010, has that fast write-off occurred completely in Q1 or should you expect more cash to come in the door throughout the rest of the year?

Jared Green

We will be expecting that for the full year. And for the for the utility group side, that we have the same effect in 2009 as well.

Robert Kwan – RBC Capital Markets

Okay, sorry, so the amount – the recovery you booked in Q1 that will continue to recur throughout the year?

Jared Green

That recovery is based on our tax – the income that we did have for the first quarter. So we would expect the remaining half of that or the remaining three quarters of the year, sorry, to be very similar to what the first quarter recovery is.

Robert Kwan – RBC Capital Markets

Okay.

Jared Green

Now you have (inaudible).

Robert Kwan – RBC Capital Markets

Okay, great. That’s great. Thank you.

Operator

Thank you. That concludes our question-and-answer session. I would now like to turn you back over to Ms. McKellar. Please go ahead.

Sheena McKellar

Thank you, Cheyenne. That wraps everything up for us. If you have any follow-ups, please give us a call. Thank you.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time. We thank you for your participation.

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Source: AltaGas Income Trust Q1 2010 Earnings Call Transcript
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