Q3 2019 Earnings Call
Thank you for standing by this the conference operator, welcome to the Algonquin power and Utilities Corp, third quarter, 2019 analyst and Investor earnings call.
As a reminder, all participants are in listen only mode and the conference is being recorded I.
After the presentation, there will be an opportunity to ask questions. He joined the question can you hear me Press Star then one on your telephone keypad.
Did you need assistance during the conference call you May signal, an operator by pressing star in zero I would now like to turn the conference over to Mr., Christopher Jones, Vice Chair Algonquin Power and Utilities Corp. Please go ahead Mr. Jarrett.
Great. Thank you [laughter] good morning, everyone and thanks for joining us on our call today as mentioned in my Name's, Chris Jarratt, and I'm, the Vice chair about <unk> power and utilities and joining me on the call today, our Ian Robertson, Chief Executive Officer, and David Bronicheski, Chief Financial Officer.
So a company earnings call today, we have a supplement the webcast available on our web site.
And power and utilities Dot com.
Additional information on our results is also available for download at the website.
Over the course of this call will be providing information that relates to future events expected financial position, but should be considered forward looking and I would direct you to review our full disclosure on our website.
Alex It will read the pulled the disclaimer at the end of this call.
Please note that all dollar amounts presented on our call and in the supplemental webcast presentation or in U.S. dollar.
Unless otherwise noted.
As usual on our call. This morning in let's start with a discussion of our strategic achievements in the quarter, David will follow up at the financial highlights and then he and will conclude with an update on our strategic plan as well that's providing some details on a couple of upcoming events that we hope you'll be able to attempt.
Well then open the lines for questions and as usual, we ask you to restrict your questions did you.
And and weak too if you have additional questions and with that I'm going to turn things over to yeah. Yeah.
Chris Thanks, very much and good morning, everyone and thanks for taking the time to join US for our Q3 call. It a Chris fall day <unk> from our offices here in Oak, Phil I'll start the conversation, it's Chris had highlighted a west or some of the more pertinent details from this corridor. So.
Looking at a brief stopped short of the financial result, we're pleased to report a solid quarter with year over year increases in both adjusted EBITDA and adjusted earnings per share.
We're confident that the strength in our key financial metrics to parts growth at our dividend, which also saw a 10% year over year increase in keeping with our previous dividend growth guidance.
Now turning to a couple of the strategic initiatives.
We're pleased that having completed previously announced utility acquisitions, New Brunswick gas in early October followed by Saint Lawrence gas just last week.
These acquisitions expanded our utility presence into New York State.
And the province of New Brunswick, our first Canadian regulated utility and added nearly 30000 customers to our distribution footprint, which now stands at eight hope over 800000 customers.
Secondly, the months, leading up to December 2020 are expected to be very active for our construction teams.
In addition to construction commencing on our 490 megawatt Maverick Creek when project located in Texas and now its during the quarter.
I'll provide you some additional details later on the call or the other projects, which are targeting 2020 commercial operation States.
And lastly, we're pleased that was completed our first ever U.S. marketed offering of common shares strong investor response supported our 350 million dollar equity raise to be used to partially fund at certain of the company's previously announced acquisitions.
And our renewable development growth projects and David Wright Cesco give you a few more details on that a little later in the call.
But before I pass things over to David to discuss suffered as a result.
I wanted to highlight the recent publishing of our 2019 sustainability report, which is available on our corporate web site.
As I have often said in the past from the earliest days of our company's history sustainability has underpinned how we think.
Act and operate.
By virtue of the business were in creative for me at Irresponsibly, delivering clean energy and water solutions that create better everyday lives and aspire our communities sustainability is in grain in our nature.
Through our purpose sustaining energy and water for life, we take our role in helping to create a sustainable energy and water future very seriously.
And I'm pleased to share our progress and goals and this report.
And as a shameless plug we're hosting our first ever sustainability day next week to further outline the highlights of the report to investors and I'll give you more details on this further in the call.
And with that I'll pass it over to David for a review of our Q3 2019 financial results, David Thanks, and good morning, everyone.
Algonquin enjoyed a relatively quiet third quarter, a this year or business operations overall generally performed in line with our expectations. Our Q3 2019 adjusted EBITDA on a consolidated basis was $186.9 million, an increase of 21.4 million over the same.
Period last year.
On the regulated side of our business Liberty utilities generated Q3, 2019 divisional operating profit of 135.3 million, which is consistent with the previous year as solid operations from our existing facilities, including implementation of several rate cases that were more than able to offset the implant.
Sensation of lower rates at Empire, and granite state electric utilities due to you as tax reform.
We think this is a really good demonstration of the benefits of our diversified utility platform.
Within our Nonregulated group business generated the divisional operating profit of 66 million an increase of 22 million compared to Q3 2018, the increase with adjusted EBITDA is related to our investment in Atlanta got as well as higher wind and solar resources that boosted production from much of our fleet.
Renewables compared to the same period last year.
Our adjusted EPS came in at 14 cents per share for Q3 2019 compared to 10 cents per share reported in the same period last year. The increase is adjusted EPS reflected a two cents per share acceleration of value from the energy Offtake agreement related to our Sugar Creek development that arose as we now move.
So the construction stage of that project.
And as I noted in October .
Completed its first U.S. marketed equity offering of common shares for total gross proceeds of just over $350 million, we turn to the U.S. market for this equity offering to expand our investor base in the U.S. and to improve our trading liquidity on the New York Stock Exchange. We believe the operating was very success.
Vessel that certainly was oversubscribed and attracted new investors at what we believed to be a modest discount to our share price. The proceeds will be used to partially financed previously announced growth initiatives.
I'd also like to note. The last night. It was confirmed that Algonquin will be added to the M. A C. I, Canada standard index effective at the close of business on November 26. We view. This addition is a reflection of Algonquin increased scale in the Canadian equity capital markets and is expected to drive additional passive demand in our stock.
Throughout this month with that I'll now hand things back over to hand, thanks, David.
Before we close out our prepared comments. This morning, I did want to give you a quick updates on our main areas of growth that we focus Todd and well continue to focus on to the remainder of 2019 as we execute on our five year strategic plan will then as usual open the lines for the question and answer period.
We are pleased that we are continuing to make progress on our five year, a 7.5 billion dollar capital investment program that we outlined.
Last year investors day.
Within our nonregulated renewable business grew Liberty power. We're pleased to report that that construction program related to our projects targeting 2020, CRD are well underway.
I already mentioned that the ground has been broken on the 490 megawatt Maverick Creek wind project in Texas, but access roads and turbine foundations are being constructed on that 202 megawatt Sugar Creek wind project in Illinois.
And our 24 megawatt Valeo project in Qubec, both of which we anticipate will achieve commercial operations next year.
Additionally foundation pile driving a panel installation are underway at our great eight two solar project in Maryland.
Our active construction program extends into our regulated utility business Liberty utilities with 600 megawatts have new wind generation targeting commercial operations in 2020 to replace call out our Midwest electric utility.
DPC or engineering procurement and construction contracts have been signed and construction activities are in varying states for the three projects, which comprise our central region Greening complete initiative.
While investing capital in our regulated utilities to support our customers is a good thing.
Completing the value circle with rate reviews to earn a return on such and kind of investment is also important.
This quarter, we completed approximately $5 billion and great reviews and have another approximately 45 million in rate reviews pending.
Finally, we're continuing to focus on opportunities to save customers money to replacement of fossil fuel fire generation with renewables and energy storage.
Through our acquisition of the Bermuda Electric company.
Plans are being developed for lowering customer rates using a combination of solar wind and energy storage.
The regulatory application was filed earlier.
Last month, and we're hopeful of closing early in the new year.
With these initiatives, we remain on track and committed to our 7.5 billion dollar project pipeline of growth that will bring value to our shareholders.
And last but not least before we open the lines up for questions I'd like to highlight some important events that Chris reference that we'll be hosting in coming weeks.
We'll be hosting our first sustainability day in step with the release of our 2019 sustainability report.
The event takes place next Thursday morning November 14th.
While the event will be held at our offices and will include I Scrumptious Continental breakfast to lower you here.
It will actually be available through web cast so theres no actual need to travel to the wilds of Oak Hill.
Secondly, we're hosting our annual Investor analyst and Investor days in Toronto on Tuesday December Threerd, and New York Friday December six these events provide us the opportunity to share our thoughts are enthusiastic and excitement regarding our operations, our strategic direction and the future growth plans.
Protocol, comparing utilities carpet so to find out more register for either or any of these upcoming events. Please email investor relations at Aipu Corp, Dot com and so with that I'll turn things over to the operator to open the lines up for questions operator.
Thank you Sir we will now begin the question answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear its own acknowledging your request.
If you're using a speakerphone please pick up your handset before passing any keys to withdraw your question. Please press Star then too.
We will pause for a moment this call is join the queue.
The first question comes from Sean Stewart of TD Securities. Please go ahead.
Thanks, Good morning, everyone warning showing good morning couple of questions.
Steve acquired an interest in the entities that are developing the Missouri when projects for the screening of the fleet at Empire.
Into a little detail there on the motivation.
For that as a construction gets underway.
Yes.
I mean, let me start by saying you know that this organization.
Not a uncomfortable with no our shy in I'll say directly developing a wind projects such as the ones comprising the green in the speed initiative. So it kind of looked at.
The risks and costs associated with.
The third party developer relationship that we there initially entered into in respect to two of the three projects I think we came to the conclusion that on behalf of customers.
I think it made sense for us to to negotiate and step into.
Into this this use of of the original third party developer and I think ultimately sort of just given all of the factors that this was something that.
It just made sense from a risk return perspective, and as I said, you you certainly know that.
This eight our first rodeo when it comes to tip building wind projects and so there there is a process that we're sort of totally comfortable with I don't know Sean is that where your question was going happy to kind of give you more thoughts in details to it but yeah, I mean that gets to the gist of it I just wonder if somebody had changed in the relationship with the the entity that.
You felt the need to step in but no no but.
I think.
As we as we look at the process and it's I don't think hit it comes as a shock that.
The third party developers were charging a fee and as we kind of looked at what stands in front of us and and.
And I'll say the risk reward and made sense for us to 10 to negotiated a termination of that arrangement I don't think.
I don't think there that theres sort of anything untoward, clearly we might have a different view of some of.
The risks associated with with outstanding permitting et cetera, then the original develop termite haven't so to the extent that.
That.
Costs were being tried to be passed through to us. It just made sense to two to negotiate that arrangement and as I said, we're not uncomfortable with the risks and Lord knows that the first time, if it down the path so that that explains a thanks.
Second question sticking with screening of the fleet.
Prior well Bellco close soon I suppose wondering if you go into it a little more detail on the greening of the fleet potential there and.
Specifically, how offshore wind might fit into those plans well.
I'll say.
Now, let's say hold that thought Sean Intel Investor day, because obviously, we're going to spend some more time on that I think telco is a perfect example.
This organization executing on the basically the same plan that you you see put to work in the Midwest, which has this idea of shutting down fossil fuel in in favor of of renewables at energy storage and my gosh.
When your energy is being sold at 42 cents, a kilowatt hour man Theres lots that can be done I think your intuition leads you Antony exactly the right spot which is.
The optimal solution will likely be a combination of some more solar some offshore win which you actually touch on because they Bermuda if well, it's a beautiful place during much of it and so land certainly comes at a premium but also combining some storage and to that and so we are pulling to.
Gather a plan we want to sit down I'll say get hit the ground running website government as we.
The regulatory approvals come through and I think we're confident we can really do great things, but it's exactly that the combination of the things that you talked about and as I said, Oh, My gosh, if you're burning if you're generating electricity at 42 cents, a kilowatt hour where almost half of that is literally just the cost of few all met with that falling costs are available.
It's a pretty exciting opportunity.
That's all I have for now I'll get back in the queue. Thanks, you alright, thanks drugs.
The next question comes from Nelson of RBC Capital markets. Please go ahead.
Great. Thanks, Good morning, everyone, Hey, they also.
My first question relates to the utility business in the.
Operating profit bridge.
For the utility business I think there was a.
4.1 million dollar.
Benefit due to operating cost savings across the gas system.
Could you give a bit more color in terms of.
Those savings whether they like what the.
Annualized amount is on.
And whether you can whether there's opportunities to.
Realize additional savings going forward.
Yes, well this is exactly the thesis that we've been.
Putting forward with respect to our capital program and I think you'll recall last.
You're at Investor Day, we outlined our able to increase their rate base.
At a at a pace of it was closer to 8% well keeping rates to customers closer to that 2% to 3% raid and.
This is a perfect example of that we've we've invested in capital and this is now.
Allowed us to do enjoy some operational cost savings that's essentially what it is.
Okay got it and then.
The next question is the I guess, the sale or moving Sugar Creek into Asia.
There was this a 15.6 million dollar gain.
Just sort of housekeeping purposes like was.
Was that number included in.
Adjusted net earnings or was it was it backed out.
So so just by way of background.
We put.
An energy uptake.
Contract in place early in the fell into that and.
It's obviously in the money to this point in time those gains have been in in OCI and now as we move into the construction stage of the project we've had responsibility.
Sure Aegis grew for that and in the accounting treatment are required the gain be released for most giant into our our earnings.
Certainly.
Acceleration of value that's been created through the through the development process. So so that gain is not included in our adjusted EBITDA, but it is included in our adjusted net earnings.
Okay. So just to clarify that those are the synthetic hedges or synthetic prepays.
You put in place back got really on there okay. Thanks, I'll get back in the Q.
Thanks Nelson.
The next question comes from Julianne Demoing Smith of Bank of America. Please go ahead.
Good morning, guys is actually Ryan Greenwald on for Joe and Thanks for taking my question.
No worries Ryan will will leave and we'll talk to you too.
Okay.
Appreciate it so I guess piggybacking on the sugar free question.
So it seems like there this is kind of more onetime in nature.
And a similar.
One item last quarter. So I guess, how should we be thinking about 2020 bps drivers after accounting for the onetime items.
Yes, well I make.
Question the comment that is a onetime item I mean, we're we're in the development business and every year, we develop projects and every year, we create create value in development of projects. So.
I guess, it's it.
Really as a matter of perspective I suppose.
I would argue that the creating value through the development process is something that we recur.
The workers and our business every year and it was perhaps more evident this time through through this acceleration of value as we say.
But but certainly it.
Through our way of thinking happens every year and there may be ride to kind of speak to the heart of your question.
I think about 2020.
I think in general when when you look at the guidance that we're going to be giving at Investor day, Let's say, we don't we don't presume that we're going to.
To create value through the sort of initiatives as you know the lions share of.
This business generates its earnings through the operation of as regular utilities, which are pretty straight forward.
But to the extent that we're in the renewable energy business and and when when assets get get transferred and you know our our paradigm for constructing these assets is through the use of partnerships, we actually think that.
That that net gain that arose on the transfer that asset is really just harvesting value that ultimately otherwise would would come over the they the length of and life for that project. So it doesn't feel like it's a it's one timer I get the concept of acceleration, but in general as.
He said your question focused on 2020, we don't presumed that we're going to be able to to realize any of these gains if for no. Other reason that as you know there in some respects their premised on what to the various electricity markets look like presumptuous for us to to fair to assume that are those are going to arise I don't know Brian .
Thats helpful gives you the insight that you're looking for.
Yes, that's very helpful. Thank you and then are you guys able to just provide any of your latest thoughts around the wide relationship and long term partnership strategy there.
Well.
I don't think I don't think anything has changed from the from the calls that I've I've I've.
I've answered the question in the past and I am not being critical about getting raised again, because I think we probably share.
If it's not certainly frustration at.
If we certainly acknowledge that the this strategic review process for Atlantic.
Hi, guys going on for Awhile, and so maybe that's that kind of the heart of your question. We have we have we have said that we are sitting in a in a polite kind of Canadian way on the sidelines cheering on the strategic review process.
Because we want.
Atlantic had to continue to fulfill its role in our business, which is.
Provide a set of a cost effective approach a provider of cost effective capital.
As a through the other half that we don't own.
For for holding certain assets and and I'm not so sure that it's actually able to perform or that function or write down so.
Were trying to hoping and thus the things get get advanced I will say it I've pointed out on every call in the past, but I think it should be pointed out again as you know we're sitting on the side Ryan's or in the waiting room name your metaphor.
Of those discussions because we don't want anyone to present in the somehow we're putting us I wanted to scale as to how it should be results.
Got it. Thank you looking forward seen you guys the I.
Yes, Thanks, I will say there.
The next question comes from David to Saada with Raymond James. Please go ahead.
Thanks, Good morning, guys.
Good morning, David.
Just just maybe one follow up here on shouldn't Creek and there is some commentary about any mdna about potentially requiring the stake that had been moved into Hs wondering what your what your decision process would be like.
On that specifically.
Well you know if you look David.
At kind of previous projects that we've undertaken.
I don't want to say you will see a pattern emerge but.
That while we are happy to enter into partnerships during the late development and construction phase.
In most of those instances, let's say all of them, but but in most of those instances following successful commercial operations.
The projects bed repatriated back onto our onto our books and you can imagine there's all sorts of reason as to do that risk sharing management of credit metrics has theres, obviously, no cash flows off of a construction project.
But but without making it a foregone conclusion that we're going to reacquire. The project, we have certainly preserved the option to.
To do that at the end of.
At the end of construction. So I'll leave you that draw your own conclusions there David I I.
Kevin do you need more or are you going with that no. That's helpful. Thank you.
And then maybe just follow up on the on the wind.
Segment in general specifically in the in the Midwest.
As as the wind projects that you're putting into the rate base their approach wondering.
Maybe it's a little premature to ask just wondering if I what your senses on what the regulators appetite might be for future.
Renewable investments in rate base in that region.
Well I'll start by saying you know that.
That that our green the fleet initiative actually doesn't really reflect the regulators appetite.
For win per Se it actually reflects the regulators appetite for us doing the right thing to save customers money. So the ended today.
The underlying premise for that initiative.
It's just the right thing for customers.
You know that shutting down our Asbury call plant.
What is fundamental to creation of those savings we have a couple of other.
Interesting coal plants, though the process of of replacing that generation with low cost renewable as it is a little bit more complicated because we don't own and control those assets I really have interest in those assets and so we are looking hard.
Add to add additional renewables in the Midwest and then I'll turn it off draw your attention to it the right thing, but it our latest integrated resource plan for the utility we look to the installation of sub substantial amount of solar and some energy storage and that both of those.
Represent a low cost solution for our customers and so I think I drop off David by saying, we inked and yet in terms of saving customers money true true that the development of a low cost.
Renewables.
That's great. Thanks, Dan appreciate those comments.
David.
The next question comes from Hassan Khan with National Bank Financial. Please go ahead and good morning, guys I am here on behalf of Super.
Just a major.
The question here.
Oh would increase and we're seeing in an existing infrastructure from private count how do you guys see the market for M&A.
Well.
Hey, I don't know has that is your question is should we be buyers or sellers that non marketplace.
Clearly if thats the guys are pattern.
Three weeks ago talking about it got to tip credit.
So well look I mean, we are always.
Trying to make the to make good decisions on behalf of I'll say all of our stakeholders, but really in respect of our shareholders as we think about the M&A market.
So when we want to buy something I think you should be asked the question is how did we create value through that acquisition and there is intense competition.
For assets I think we have demonstrated a competency strain a little bit some the fairway, perhaps but finding good assets I think new Brunswick gas and say large gas a perfect example.
Able to add quality utility operations that may not have been exactly on the fairway from some of the private equity side of things.
But but I think.
It's hard to its hard to look away and wonder as we think about funding some of our.
Our gross initiatives going forward is capital recycling something that we should consider and David Bronicheski without giving spoilers on Investor day again to give you a his thoughts about how we might look at.
Add add as that move in and I know Rupert published.
A little bit of I think piece on.
On a what's happening sort of the flow of funds into real assets and you know its.
I think we just need to do the right thing and I will say she had a very wrapping up.
The assets, we own or not hard children.
While we love them dearly, we get it that.
That.
They need to be sold that's the right thing from a.
From maximizing the they overall value proposition for this organization, we're going to take advantage of it I don't know Thats on is that if thats the kind of insight that you're looking for and that's great great color.
Just to follow on your comment with the recent acquisition of Saint Lawrence and new.
Next week. So what are your near term goals with these guys. Its can we get some color contribution.
Yes, well first of all.
To integrate them into the Liberty utilities family, that's kind of our first and foremost all but.
I think both Saint Lawrence gas in New Brunswick cash for.
Present really the were unique opportunities since they both share I guess is not unique but they they present the opportunity to drive sink substantial I'll say customer growth.
That would lead to a reduction in cost for everyone and therefore lubricate more.
Our customer growth New Brunswick gas is a perfect example, you've got to our utility with infrastructure that as it was installed during the creation utility that could support 70000 customers and there is no sort of almost just.
Under 13000 on there and so.
When we announced new price for gas, we committed $5 million of four candidly your money shareholder money as part of that acquisition process to lubricate.
The adoption of natural gas has as a clean fuel in the in the province, and we're hopeful that we can get that.
That virtuous circle going that more customers be gets more customers because everybody gets lower rates and so.
We are all about almost in every one of our utility acquisitions all about it's not just about buying utilities about surfacing opportunities that may may exist in there and so I would expect that you should see no nothing left out of new friends for gas and and St. Lars.
Yes.
And also just add on that that it really does also play into our commitment to sustainability because as you know.
A large preponderance of the homes in new Brunswick are still using fuel oil to the heat their homes and so this is the classic example of how.
Yes, we can grow our business and the and still do good on the sustainability front.
All right that's great color.
Back into the Q.
Thanks.
The next question comes from Mark Jarvi.
Capital markets. Please go ahead.
Good morning, everyone.
Good morning, Dr. Gerry Yeah, I wanted to go to the U.S. Midwest projects.
And just circle back in terms of how does that change now the timing of your capital outlay.
And whether or not you guys can use any are safe harbor turbines for those projects Oh nothing are you talking about as a result of US I said I mean, yes, Houston Nothing's changed Mark in terms of.
2020 cod.
That does the safe Harbor turbines and auto say, maybe just to clarify you know, we're not being forced to use our safe Harbor turbans for those 600 megawatts, they're being dedicated to some of the other project sugar creation, and Maverick and that through a partnership.
With that with.
Elliott have best as we've secured the safe Harbor turbans.
For the three projects comprising the Midwest. So I I don't think don't worry about that.
The safe Harbor turnover as those those relationships arc are continuing notwithstanding the fact that.
That Liberty utilities is kind of stepping in.
In in the role of of of developer of those assets. We are maintaining the access to the safe Harbor term is I don't know whatever your your your question are concerned.
No just curious whether or not they were going to those projects and then I guess, so you just maybe clarify whether or not you have to actually contribute capital to get those projects up and then that just moves into rate base or maybe help me understand the logic of of Youre Rolling in funding these projects now.
Yeah. So.
I don't want to say again nothing's changed.
Sure that under the idea that construct that that we're using to build these projects.
We have in large part already contributed I'll call. It the equity stroke that needs to support the construction financing that will be obtained.
In the existing joint ventures between that affiliate and.
That's this and Liberty now Liberty utilities coal so again the capital needs from Us haven't really changed when those projects are finished.
Empire District will be acquiring them in the exact same manner into rate base of the regulated utility.
Well in effect fully paid for them at that time, which will be used to repay that construction financing. The equity. That's been previously invested will now be reflected in rate base. So I think mark.
From an accounting and from a rate base perspective.
This is kind of a non event in terms of in terms of the process I had I didn't know if that sort of gives you the the insight and color into into into the process. No. That's very helpful. I didn't know if you guys had they contribute any additional capital in turn but its construction financing covers the that's good to know.
Yes it.
And then let me just say it doesn't and was whatever equity we are putting into the project to to support that construction financing ultimately as you know at all cutting gets rolled together into that cost to the projects included in rate base. So.
And the timing of that.
I'll say was continues to be late this quarter early 2020 in terms of the contribution to that capital again. So I don't say I think you shouldn't think from your model perspective of any change in from a material capital needs. Okay. Understood. Thanks, and then moving on to sort of the cap.
Recycling commentary obviously.
Or water utilities are not huge company more of your rate base not revenues for the utilities and kind of fragmented. Obviously you are utility trade at really high PE multiples is it more about getting better recognition for that inside your company that some of you anything or divest that and maybe just how you think of those valuations in the context of like yes GE criteria.
Well, that's a great thats a great question I think.
Well as we think is thought about capital recycling.
Candidly it probably really has an extended to the utility business. So much you know that that a dollar rate base.
Independent of whether that modality is water gas and electric are sort of fungible from from Liberty utilities perspective, and I totally get your thesis that.
Maybe on a some of the parts basis, we're not getting full value for our water utilities, but man if I could grow the water utility business I think the organization would be well served to do that.
The zero substitution risk.
Generally pretty good capex investment opportunity to kind of deal with.
With that historic deterioration of the of the water infrastructure through in pipe replacement.
And so I think we love to water utilities your commentary about sustainability is absolutely true, but but I'm not sure that we really see a massive distinction yes in terms of the ability to execute on a David in their answer to a previous question, obviously talked about being able to substitute dirty fuels for for.
For natural gas.
Coupled with our commitment to develop renewable natural gas I think we're confident that weekend, we can live that that that sustainability purpose. It with every modality to get to the harder to your question, which is what talk to me a little bit more about this idea of capital recycling I think it's hard to look away from some of them.
Multiples that are getting paid for renewable energy assets.
And say should we be recycling some of that capital to help fund some of the growth that we have going on on on what's a core business to us I think.
Maybe I get it we started life as a as a small hydro development company, but as a life has evolved over the past 30 years, it's hard to not see us.
At our hurt as a regulated by us in Canada utility business and so maybe some of that some portion of the value. We've created in the renewable energy space should get recycled air and so I think David as I said without being a spar there for our Investor day is planned to give you a little bit more thought and insight into the Craig.
Here, we might use for capital recycling, but you know thats not a word that we've spoken very frequently of in the past and so maybe it is a reflection of up kind of the evolving demand for.
For for private money chasing some of these real assets of which we are our rich with and the other thing that I will add specifically with the rule of water utilities within our.
Utility portfolio, we they also play a maybe not so obvious rule.
With respect to our.
Our business risk profile with.
Various rating agencies that we deal with and rating agencies view water utilities.
Very very highly and and so so it does.
When factor into into our ratings.
Okay look forward to hear more about at Investor day. Thanks, guys. Thanks Mark.
The next question comes from Christopher Turner with JP Morgan. Please go ahead.
Good morning.
And on for Chris Here, Hey, Chris Chris.
Just.
Circling back to the utility cost cut commentary.
Just curious to what extent the.
Savings or are being generated to kind of into rate cases to moderate.
Inflation impact.
Or you will retain kind of for the duration of the cycle into the next rate case.
Following a rate case.
Yes, I think you're you Chris your question is.
Is spot on I mean, obviously.
Operating cost started the to the benefit of into the cost of of customers and so that depending on where that operating cost saving as occasioned. It could go away at the next rate case or if it was occasion further up at the Liberty utilities level. It will obviously have.
Much longer enduring because it will and we'll have to sort of be reflected in rate cases across the entire portfolio, which given our cadence for rate cases, you're probably locked at looking at four or five year since so.
Very specifically.
I I can't speak to exactly where that does the $4.8 million that.
That Sean might have have raised or maybe it was nelson.
Rate, but the.
But by the end in any event ultimately those go away, but what is what is enduring is to the extent that those operating cost savings are I'll say replaced in some way with the return on return on invested capital that's an enduring return for us and so.
Clearly.
To the extent that you know if we can save some customers moneypak create an investment opportunity for shareholders isn't that good.
Got it thank you and then.
Similarly, just circling back to be the M&A commentary.
Kind of separate from the capital recycling I'm curious about your latest thoughts on.
National with Bermuda sort of close at finish line here.
Yes.
You know I know you're from the northeast. So you will appreciate stick is still on the ice from a.
From a perspective in looking for additional opportunities to end.
No. We got say large gas new Brunswick gas and Bellco is coming close and so I think we are.
We're keeping our eye open end and said.
It's not just international but we would love to continue to add to the business I think as you think about.
This business, it's hard not to really love.
That the quality of earnings that comes off of regulated utilities and predictability to so iser eyes are open then and so.
Next on the ice.
Got it thank you.
Thanks, Chris.
The next question comes from Rob Hope with Scotia Bank. Please go ahead.
Good morning, everyone.
Hey.
Just one of them don't to beat a dead horse part I wanted to circle back on the capital recycling on the utility side I think the question is more broadly speaking are you looking at your utilities in terms of capital recycling as a source of funds or could a JV with a third party allow you to pursue some large.
Your opportunities in North America, if they do a occur.
Well.
I would say interesting thought I'll I'll say that.
Clearly that the thought of capital recycling is about optimizing returns you know we've got that a 7.5 billion dollar.
Portfolio, we announced last year and as I said without being a sportswear for Investor day.
Coming up in a month or two where we've kept at it and so.
That's going to continue on.
And so the question that we always ask ourselves is are we better off a selling some select or selling an interest in some select group of assets and obviating the need for for new equity issuances I know you're.
Your your brother in India investment Bank, our cringing as I say that but to the extent that that's the right way you'd have to maximize returns the idea this thought about.
Creating a joint venture to create scale and may be enhanced currency when it comes to doing a larger M&A.
An interesting thesis, but I will admit that that would that wasn't at the heart of that capital recycling commentary at re is really the capital recycling commentary is really a reflection from our perspective of the quantum and cost of money chasing real assets.
In the globe today, and what's the right thing for us to do though you do present, an interesting thesis.
All right that's it for me. Thank you thanks, Rob Thanks, Rob.
The next question comes from Ben Pham of BMO capital markets. Please go ahead.
Okay. Thanks, [laughter] event, Hey, Ben and good morning.
What's your comments.
On the ice and ER.
We are positive tone on water.
What did you guys look at the Jacksonville.
Utility in terms of the initial.
It's are.
We we.
We have and so.
Lets say without telling stories at ASCO you know, it's a it's quite the acquisition and there's the complexity associated because it is both.
Electric and water and I think if where are your question is going is that it does the water assets there feel more bite sized and suited for us. The answer is I know they certainly would I I don't think the electric utility.
Is is it would be it would be significantly de waiting as you know to our portfolio. So I think your intuition to ask about the waters probably.
It's probably spot on that those assets are something that either through some concession or partnership arrangement.
Some management agreement is that that might be something that we're interested in but.
But we're gonna have to see how that whole process sorts itself out okay alright. Thanks.
And then what what's your recent equity offering do you.
I think that your balance sheet is under Levered right now.
I I wouldn't say Underlevered, I mean, I mean I guess.
Arguably depends on your perspective, when you can say.
Underlevered I mean, we liked to have some elbow room between where we're at from a credit metric perspective, and our downgrade threshold and and so we we think we we have that elbow room today. Some of this obviously timing I mean.
We were comfortable upsizing, our equity offering it move forward a little bit of.
Equity for some of the things that we've got going next year, but will soon be closing both though we just closed.
The Saint Lawrence gas and in New Brunswick gas and the those acquisitions already been reflected in the Q3, because they happened subsequent to the quarter, but.
But I'd say, we're quite comfortable with where we stand from a truck from a leverage perspective. It gives us the flexibility that we need and so that.
If we were to make another announcement the on some other thing.
We're comfortable the market would see that we've got the the all go room to to take that Oman.
Okay, that's grant and kratz on the U.S. offering.
Great. Thanks. Thanks.
Once again, if you have a question. Please press Star then one now.
The next question comes from Nelson with RBC capital markets. Please go ahead.
Thanks, I just had a quick question on the August rate case filing for Empire requesting of the I think 26 million dollar rate increase you asking a bit more color on the.
Made request is this like normal course or is it related in any way to the greening of the fleets no. It's.
It's just part of the I'll say the normal cadence so let's say in some respects we were obligated to two filed a rate case in accordance with the previously agreed cadence with the with the Missouri Commission.
I as we think about recovery on the greening the fleet that Savi see I'll say next year that the year after that we're planning to do that so so no elson Nelson that Tom.
That rate case really just reflects a.
Ill say a collection of a bunch of issues that that just needed to get needs to get trued up and so.
I get it it's 26 million box, but that's just kinda that.
So it's not related to agreeing the fleet.
Okay, and then just on the Greening other fleet.
There are supposed to be some savings longer term so.
Will you be required to have another filing in early 2021 or.
Sure.
Will it be another call it three years or so.
No no no no no I think no.
We're not that we are going to step out of that normal cadence for the greening. The fleet because you can imagine the way that process works is we put the wind assets into rate base.
Net the savings to customers is in the cost of a purchase power, but we need to rate case to back that shift in customer across albeit we expect them to be lowered in the aggregate than they were.
To the extent you're buying energy from from Asbury as an example, and so no there to do there will be an extraordinary cadence to to the rate cases in respect to have the greening asleep at our our regulatory team have.
Our our audit and and.
And I don't think the commission would be surprised with that.
With those statements.
Okay. Thanks.
Thanks Nelson.
This concludes the question and answer session I would now like to turn the conference back over to their presenters for any closing remarks.
Great well it looks like we got done before you guys I'll have to Russia off to your 11 o'clock.
Our earnings calls and so with no further Ado I'll turn things over to Allison for her riveting disclaimer on forward looking information Allison. Thank Dan I, just got our discussion during the call include forward looking information at the same certain assumptions and is subject to risks and uncertainties that could cause actual results.
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Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yes.
Okay.