Canadian Utilities Limited, a stalwart of Canadian energy infrastructure, just had a conference call about their first quarter 2024 results. On the surface, it seemed like a typical update, full of the usual jargon about ROEs, PPAs, and wildfire preparedness. But beneath the surface, a tectonic shift is occurring. A shift so subtle, it might have escaped the notice of most analysts. This shift, however, could reshape the company's future and offer a potential bonanza for investors.

Let's rewind to Canadian Utilities' Q4 2023 conference call, where outgoing CFO Brian Shkrobot dropped a bombshell: the company expected to invest between $4.1 billion and $4.8 billion in their regulated utilities over the next three years, driving a 3% to 4.4% annual rate base growth. They even hinted at reaching the coveted 5% growth level in the longer term.

Most analysts, focused on the immediate impact of rebasing and moderating Australian inflation, shrugged this off as standard, readily achievable growth. But the Q1 2024 call reveals a different story. Wayne Stensby, COO of ATCO Energy Systems, painted a picture of an Alberta on the cusp of an economic boom, fueled by a surging population, a frenzy of housing starts, and a staggering wave of industrial development. He explicitly pointed to the "ever-increasing investment signals" coming from the Heartland industrial area, suggesting that the previously announced $4.1 to $4.8 billion investment might be just the tip of the iceberg.

Consider this: Alberta experienced the highest population growth in Canada in 2023. This influx of people needs housing, and that housing needs energy. Simultaneously, Alberta's industrial heartland is attracting billions of dollars in new projects, each demanding vast quantities of natural gas and electricity. Stensby even alluded to upcoming regulatory applications to support "climate adaptation" and reliability enhancements for these customers.

This is where the quiet earthquake comes in. Stensby's carefully chosen words, combined with the undeniable reality of Alberta's booming economy, suggest that Canadian Utilities' rate base growth could dramatically exceed their initial guidance. If the company secures regulatory approval for the pipeline expansion projects necessary to fuel this growth, their rate base could explode, pushing annual growth well beyond the 5% mark.

Hypothetical Rate Base Growth Scenarios

The following chart illustrates potential rate base growth scenarios for Canadian Utilities, assuming their current rate base is $14 billion. Reference: Author's calculations based on earnings call transcript.

Let's do some back-of-the-envelope calculations. Assume Canadian Utilities' current rate base is approximately $14 billion. A 5% annual growth rate translates to roughly $700 million in new rate base additions per year. But what if, fueled by the economic boom and new pipeline approvals, that rate base growth jumps to 7%? That's $980 million in annual additions, a nearly 40% increase!

Now, let's factor in the potential for capital recycling. COO of ATCO EnPower Bob Myles indicated that the company is actively seeking partners for both their renewable energy and hydrogen projects. These partnerships could free up billions of dollars in capital that could be redirected towards rate base-growing utility projects, further amplifying the potential for growth.

Of course, regulatory approval remains a crucial factor. But given the AUC's recent decisions favoring formulaic ROEs and supporting critical utility investments, the regulatory landscape appears favorable.

Canadian Utilities, often perceived as a slow-and-steady dividend play, might be on the verge of something far more explosive. The company is ideally positioned to capitalize on the booming economic activity in Alberta. If they can successfully navigate the regulatory process and secure approval for the pipeline expansions necessary to fuel this growth, their rate base could grow at an unprecedented pace, offering a potential windfall for investors.

The quiet earthquake in Alberta has begun. The question is, are you ready to ride the wave?

"Fun Fact: Canadian Utilities has increased its dividend for 51 consecutive years, making it one of only a handful of companies in North America to achieve this milestone. This impressive track record highlights the company's commitment to returning value to shareholders and its ability to generate consistent cash flows even during challenging economic times."