Canadian Utilities: De-risking growth with Yellowhead approval and a new midstream focus
Q2 earnings jump 16% on inflation indexing and rate base growth; $12B plan now fully funded without common equity
CU.TO · Earnings Call · 2026-07-29
Regulatory milestones and de-risked growth
Canadian Utilities' second quarter marked a turning point. The completion of the Central East Transfer-Out (CETO) project, coupled with the final approval of the Yellowhead Pipeline facility application, converts years of planning into a tangible, de-risked growth outlook. As CEO Bob Myles stated, “CETO was completed ahead of project schedule, below expected project spend, and with zero lost time injuries.” — Bob Myles, Chief Executive Officer · 2026-07-29 The Yellowhead pipeline, now 100% contracted, is set to begin construction in August, with the facility application approval clearing the final regulatory barrier. This approval also introduced a capital deferral account and placed 100% of construction work in progress into rate base, providing near-term cash flow relief. The revised negotiated settlement for ATCO Electric's general tariff application further enhances revenue certainty.
This capital program is comprised of highly certain projects. We believe there are opportunities for upside to this plan.
Earnings momentum and a fully-funded plan
The company delivered strong financial performance, with second-quarter adjusted earnings of CAD 140 million, up 16% year-over-year. Much of this came from inflation indexing on rate base and robust results at ATCO Gas Australia, where adjusted earnings rose CAD 13 million. CFO Katie Patrick highlighted the sensitivity: “as a rule of thumb, for every 10 basis points of increased inflation, our earnings benefit by CAD 1.2 million.” — Katie Patrick, Chief Financial and Investment Officer · 2026-07-29 This inflation indexing is a powerful tailwind, particularly as Australia's inflation assumption rises to 4.2%.
The five-year CAD 12 billion capital program, underpinning a 6.9% rate base CAGR, is now fully funded without recourse to common equity. Management has tapped internally generated cash, the CAD 700 million raised in late 2025, and CAD 850 million of additional capital securities. Katie reiterated the disciplined approach: “We have a clear and disciplined financing plan to support our growth ambitions while maintaining balance sheet strength.” — Katie Patrick, Chief Financial and Investment Officer · 2026-07-29
A new strategic angle: midstream
Perhaps the most intriguing development is the explicit mention of midstream as a new area of focus. In response to an analyst question about non-regulated growth, Bob Myles said, “Midstream is an area that we are currently evaluating and we would look to actually pursue opportunities in that sector.” — Bob Myles, Chief Executive Officer · 2026-07-29 This marks a strategic expansion beyond the company's traditional emphasis on gas storage and generation. While gas storage expansion remains a core growth pillar, the midstream comment signals a broader ambition. Historically, the company focused heavily on gas storage—as Bob noted in the August 2025 call, “we're absolutely interested in looking at inorganic growth for sure in our gas storage business.” — Robert J. Myles, Chief Executive Officer · 2025-08-01 Now, the lens is widening.
The company is also monitoring the potential for data center-driven demand, though it has deliberately excluded this from its forecast. Bob was clear: “We have not included speculative upside related to data centers in our five-year forecast.” — Bob Myles, Chief Executive Officer · 2026-07-29 This cautious stance contrasts with the growing excitement across the utility sector, but it reflects management's commitment to execution before speculation.
Outlook
With CETO complete and Yellowhead moving to construction, Canadian Utilities has de-risked its near-term growth story. The regulatory approvals, combined with a transparent funding plan, remove substantial uncertainties. The new midstream exploration, though early, could open additional avenues for value creation. As the infrastructure investment program accelerates, investors will watch for both execution on the existing pipeline and any confirmation of the midstream discussions. The company's long history of operational outperformance—achieving return on equity better than peers by an average of 2% annually—provides a solid foundation for this next phase.