Q2 2020 Algonquin Power & Utilities Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Algonquin power and utilities, Corp., 2022nd quarter analyst and Investor earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation, there will be an opportunity to ask questions.
To join the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Christopher Jarrett Vice Chair of Algonquin Power and Utilities Corp. Please go ahead.
Great. Thanks, Dave Good morning, everyone and thanks for joining US this morning for 2022nd quarter Earnings Conference call. As mentioned my name is Chris Jarrett and joining me on the call today I run band Skoda, Our Chief Executive Officer, David Bronicheski, Our Chief Financial Officer, and Arthur Kasper checked our deputy Chief Financial Officer.
Yes, Sir.
To accompany our earnings call today, we have a supplement the webcast presentation available on our website Algonquin power and utilities Dot com, our financial statements and management discussion and analysis are also available on the website as well that's on SEDAR and Edgar and before continuing the called me would like to remind you that our discussion during the call will include certain forward looking information.
Including but not limited to our expectations regarding future earnings and capital expenditures as well as potential future impacts of the code at 19 situation.
We will also refer to certain non-GAAP financial measures and at the end of this call Amelia from our best terminations team will read a short notice regarding both forward looking information Nongaap financial measures. Please refer to our most recent mdna filed.
Yeah for important information on these items.
And our call. This morning, I rent is going to provide the strategic achievements for Q2 2020 art, there's going to follow with the Q2 financial result, and David will speak to our recent capital raise and when that will wrap up with a ruin concluding with our strategic <unk> the business.
We then open the lines for questions and as usual I'd ask that you restrict your questions. The two and then week you. If you have any additional questions.
Now before I turn things over to everyone I wouldn't like to see a few words regarding David Bronicheski, who is retiring in September after serving as Algonquin CFO for 13 years.
On behalf of all our employees and the board of directors I would like to thank David for his many contributions.
Personally I can tell you that's been an absolute pleasure to work with David over the past 13 years and I wish him. The best in retirement, David contribution disorganization over this time period had been a men, including building out extremely strong finance team that will succeed.
Thank you, David and with that I would turn things over to Iraq.
Thank you, Chris and good morning to those we've been able to join us on the ball and online.
As a business, providing mission critical energy and water services to our customers we've continued to perform well.
Well for all financial and operational standpoint, as we continue to navigate through that you back so well be 19.
Given the resiliency, you're not a business model. The company has been able to provide interrupted and continued high quality utility services since the onset those abandonment.
As expected given the changing patterns of our customers. We have seen some moderate degrees is in customer demand.
Some of our utilities, which have impacted our second quarter results by just over one cents on a per share basis.
Also we provide more commentary on these financing impacts.
Operations of our renewable energy generation facilities has naturally supported social dispensing and with the Lions share of our business under long term contracts with graded worthy counterparties, we have not expedias any negative well did nitrogen impacts.
Our major renewable energy construction project. So approximately 1600 megawatts when do you need to be considered essential infrastructure in the jurisdictions in which they are located.
And therefore construction has been receding despite well good 19 pandemic.
And all of these sites the anticipated timing for the projects to be placed in service has not been materially impacted my goals in 19 to date.
I'm pleased to report that the do you do see if harbor deadline for you as federal production tax credits has been extended by one year, which provides more flexibility for our U.S wouldn't projects currently under construction to qualify for the maximum PTC.
Overall.
I'm pleased with the progress we've made so far this year and I'm confident we will continue this into the second half of the year.
Since joining the organized isn't in February.
I've been focusing my efforts on three pillars.
Operational excellence.
Gross.
And environmental social governance, Yes G.
I would like to spend a bit of time going over each pillar.
Firstly on operational excellence, which is all about having a laser focused on improving our due to their service delivery in all areas.
To do this will fix a real organizers much agility.
Oh response to moving 19, that's been a great example of how our organization and our frontline workers were able to do that without missing a beat.
In delivering essential services for our customers.
Oh dog food safety is more than a priority. It is part of how we operate and despite our industry leading performance, we're always looking for ways to improve.
I'm pleased to share that our safety culture was recently recognized and awarded by the National Safety Council in our Central region for working <unk> million employee hours without injury.
And even greater achievement when you take into account the reference timeframe includes operating under moving 19 times.
Customer focus has to be at the heart of any operational excellence strategy.
Over the past two years, we have increased our JD power results by 40 basis points as we strive towards stopped Florida.
We continue to listen and after a one I've customers needs.
Specifically as part of a grid modernizes and efforts we have now installed over 13000 electric meters in the first few weeks of our advanced metering project in Missouri, as we continue to demonstrate the customer benefits and receive regulatory support for our smart metering deployment.
We have progressed well on our customer first program and recently completed the global design phase.
And are on schedule to launch first in Massachusetts.
Second Algonquin has a strong whose job growth and I am committed to continuing this growth trajectory and adds value to our customers and shareholders.
As I look forward at the changing energy market.
Believes that the commercial and industrial Cnine business segment would represent an enormous channel for growth.
Today, the accounts for the majority of energy consumption in fact more than transport and residential commercial combined.
And the vast majority of industrial consumption is fossil fuels, the drill them all and natural gas.
Well most of the lightning and industrial businesses will want to continue to de carbonized in the coming years and I'm confident they will become much larger consumers of renewable energy.
That is why I'm, particularly excited by our recently announced for your framework agreement with Chevron.
Seeking to will develop more than 500 megawatt of renewable power projects to provide electricity to their operations.
This partnership unites Algonquin technical and operations renewable power expertise with Chevron skill land and local knowledge to enable faster more cost effective renewable power solutions.
This is exactly the type of growth opportunity that gets me excited about the prospects for this sector and our collaboration with Chevron is proof of concept.
We can create shareholder value for all Duncan by helping customers deep dive a nice.
And finally on yes G environments sustainability.
Governance.
We remain firmly committed to sustainability through the inclusion of environmental social and governance values in our daily operations and business planning activities.
There has been much focused on the E or environmental including the closing of our Asbury coal plant in March which has reduced our greenhouse gas emissions by approximately 1 million metric tons of carbon dioxide.
I wanted to provide some commentary on the S social factors and Gi governance factors as well.
In terms of socially initiatives one of our key sustainability goals is to what you've talked about employee engagement.
Despite will be 90.
I'm pleased to report that the organize isn't has made great progress on our Twentytwenty employee engagement results.
Our blended going to engagement score is near North American thought Florida ranking.
The improvement is evidence that we committed to putting actions in place to continue to be a top employer of choice.
As with GE.
We are focused on building you 15 governance practices for long term.
Let me spend a diversity and corporate governance practices can be evidenced by our continued year over year improvement in governance scores from independent organizations, such as the Golden meal and ISS.
Before turning the ball older Arthur.
I wanted to touch up one of the recent and finally liquid ruling in Missouri that we received last month.
Under Missouri Law Senate Bill 564.
You look at utilities have the option to apply for a weather decoupling mechanism.
You know when do you mind you review.
We requested a weather decoupling mechanism to provide stable rates to customers.
We believed it.
And continue to believe that this is a good to reduce volatility not just for the utility but also for customers.
However, with its recent order the recent denied our request.
And as a result of his decision the company Revaluated other options under misery law and up to do you like pizza.
Plant in service accounting.
The peace election is not subject to additional approval.
He is expected to reduce regulatory lag smoothed, the reaching back of necessary investments with customers and will remain in place through 2023.
Later on this call I will provide an update with respect to our major capital projects.
With that I'll pass it over to ours or for a review of our Q do Twentytwenty financial results.
Uh huh.
Thanks, and good morning, everyone.
I'm pleased to participate in my first quarterly earnings call with the Investor community and I look forward to meeting with all of you in person in the months ahead as these cobot 19 restrictions start to east.
In the second quarter is 2020, our adjusted EBITDA came in below our expectations at 176.3 million, which is down approximately 7% from the 190 million that we reported in the previous year.
The regulated services group delivered a 112.8 million an operating profit in the current quarter.
This compares to 109.5 million in the same quarter last year.
The increase is primarily due to the addition of new Brunswick gas and Saint Lawrence gas, which closed late last year.
Implementation of new rates as well as operating cost savings realized during the quarter.
This has been partially offset by decreased customer demand due to weather and the impacts from cobot 19th.
We estimate the effects of the pandemic on the group's second quarter divisional operating profit to be approximately 9.6 million.
The renewable energy group reported Q2 divisional operating profit of 82.6 million as compared to 93.4 million in 2019.
The decrease was primarily related to timing of distributions received in the second quarter lot of last year related to the company's investment in an affiliate of atlantica yield.
Our Q2 adjusted net earnings per share came in at nine cents, which compares to 11 cents reported last year and was below our expectations of between 11 and 13 cents.
As soon as mentioned Cobot 19 negatively impacted our results by just over a one cents this quarter.
We're also anticipated that our acquisition of the Bermuda Electric company would close early in Twentytwenty, which is now its anticipated to take place later in the year.
The delay in closing impacted our adjusted EPS by another one cents.
I would now like to provide a few more details on some of the impacts from the cold with 19 pandemic from a financial perspective.
First with respect to collections on accounts receivables.
While the majority of our customers continue to regularly paid their utility bills.
Like other utilities in the U.S. in Canada.
We have curtailed collection activities, including Disconnections for non payment during depend demick.
We believe that this is the right thing to do in support of the most are most vulnerable customers. During this unprecedented type.
These measures have resulted in collection delays, which have increased our over 60 days past due accounts receivable.
Although we have not experienced significant write offs, we have increased our allowance for doubtful accounts provisions modestly.
Beginning in July we have started to resume normal collection procedures and several jurisdictions and we expect our accounts receivable balances to normalize in the coming months.
Second.
As previously mentioned the regulated services group has experienced load reductions due to decreased demand, resulting from coal with 19.
This impact this and talk to divisional operating profit by an estimated 9.6 million as compared to the same period last year.
Although future impacts the customer demand, resulting from cobot 19 are uncertain, we have already seen some gradual easing and would expect start to continue in the upcoming months as the states, we operate and continue to open up.
Third.
As discussed in our Q1 call.
We began implementing cost containment strategies in response to the demand decreases caused by the endemic and unfavorable weather.
I'm pleased to report, but in Q2, the company was able to achieve approximately 5 million in cost savings and expect to show similar savings in Q3 in Q4 to achieve further expense reductions of approximately 10 million in the second half of the year.
Some of the reductions are occurring naturally like lower travel expenses over the course of the year.
But we're also taking proactive measures to reduce operating expenses were possible.
Of course without compromising on safety security and reliability of the services, we provide to our customers.
Our regulated services group continues to track the incremental impacts related to cope with 19 and it will be seeking recovery in all of its a regulatory jurisdictions.
Several jurisdictions have already approved mechanisms or accounting orders for the recording of and tracking of these incremental impacts.
And others are expected to do so in the coming months.
Before turning things over to David I'd like to touch briefly on our earnings guidance.
The company reiterates its current Twentytwenty adjusted net earnings per share guidance of between 65 cents and 70 sets.
This adjusted guidance is based on certain assumptions, which are more fully described in our Q2 Twentytwenty mdna.
With that.
I will turn it over to David to talk about some of our recent financing activity. David Thanks, sorry, there and good morning, everyone. As everyone is acutely aware cobot 19 has changed a lot of things in North America and around the world, including creating unprecedented uncertainty into the public capital markets. This coupled with Algonquin is large.
Or just capital program in its history and Twentytwenty.
Our treasury team felt it was prudent to be proactive in the execution of its funding program.
Given the risks and uncertainties that we see ahead of us the possibility of the second wave of Covance 19 upcoming U.S federal election trade issues with China and all the potential that this disruption could have on the equity capital markets. We felt it on balance it would be prudent to solve for our equity needs for this year and put us in a position of stuff.
Thanks for next year, we successfully accomplished this by completing an equity offering and a bought deal offered here in Canada. This was the first broadly marketed offering that we had in Canada. In three years. We're also able to issue additional equity in a concurrent private placement with an institutional investor on.
The same terms for total gross proceeds of $724 million.
The proceeds of the offering are expected to be used to partially finance, our previously announced renewable development growth projects and for general corporate purposes.
In conjunction with our at the market equity program or ATM total equity raise this year is $845 million.
Following this equity offering Algonquin is well positioned to whether any potential future impacts from cobot 19 into 2021.
I'm also pleased to report that Algonquin attained another milestone in the quarter and has been added to the S&P TSX 60 here in Canada. This is a tremendous accomplishment for our banquet. This will generate additional volumes and make us more visible to investors both inside and outside of North America.
Now before I turn things back over to around and open the lines up for questions I'd, just like to say a few words to all of the analysts and investors on the call. This morning.
Today will be the last time I will be addressing our investor community on these quarterly calls as I will be retiring next month.
For the past 13 years I've had the owner of serving our employees, our investors and our customers as Chief financial officer of Algonquin for 52 consecutive quarters I've had the privilege to update everybody on the ups and downs of Algonquin is growth Unfortunately, more ups and downs.
From a company taking it from a market cap of just $200 million back in 2008 to the $11 billion market cap company that it is today certainly a blue chip TSX 60 listed company the spans not only North America, but also has significant investments around the globe and I might add one that's been ranked in.
The top 10 as among the most sustainable companies in the world.
But as everyone knows they're always comes a point when you know when your hard it's time to step aside and let others take the range and that time for me is now.
Well I look forward to slowing down a bit and spending a lot more time with family I also take a lot of comfort in knowing that you were in the very capable hands of a new generation of management I have every confidence that a room Arthur and the entire very talented executive team that Ian Robertson, Chris Jarrett and I have put together an algonquin cannot only.
We continue executing on our existing plan, but we'll also build on it with the new ideas and the new energy that inevitably comes with new leadership.
With that I'll pass things back overdue room.
Thank you David.
Before we close out our prepared comments this morning I.
I want to give a quick update on our five year strategic plan.
We'll then open the lines for the question and answer period.
Okay, I'm going to remains committed to and reader is our five year $9.2 billion capital investment program across our business groups, which is expected to grow our asset base to nearly $17 billion by the end up 2024.
The total growth feces has not been impacted by the challenge is currently being experienced due to go over 90.
Algonquin remains well positioned both in the near and long term to continue executing on our long term capital plan.
Before wrapping up my formal remarks, I wanted to spend more time, highlighting our pillar of growth, which I spoke of earlier.
We remain committed to our strong track record of growth with many libors at our disposal.
Hi regularly the services group, we have our Bill go a New York American water acquisitions in our pipeline of capital investments.
In our renewable energy group our growth continues to be focused on Greenfield development as well as in the Cninety space were important long term customers are supporting renewable growth as we have contracts with general Mills and Kimberly Clark for our Maverick wind facility and Facebook with other than just a solar and our recent.
We announced framework agreement with Chevron.
In summary.
Our three pillars of operational excellence growth and SG would be a key foundation as we continue to build a business and funding to bring long term value to our shareholders.
In fact for one of our pillars, yes, Gee, we plan on releasing our updated 2020 assist inhibited the board later this fall.
We remain focused on delivering capital investments that enhance value for both our customers and shareholders.
We remain firmly committed to extending our track record of creating shareholder value in the quarter end year and beyond.
Before opening the lines for questions.
I'd also like to do the opportunity to off mall as David's many contributions.
Which has played an integral rule.
Good success.
On behalf of everyone. We has had the privilege to know and work with you David.
Thank you for your Eurs of dedicated service.
And leadership.
And all the best as you enjoy your retirement.
With that operator, I'd like to open up the lines for questions. Thank you.
I'll now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.
We'll hear a tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too.
To join the question Q. Please press Star then one now.
Our first question comes from Sean Stewart of TD Securities. Please go ahead.
Thank you good morning.
A couple of questions on on Missouri can you give us some context on the rehearing timeline and process and I guess your general thoughts on on the lack of weather normalization mechanisms.
Being approved and the decision.
Sure. Thanks, Sean.
Good morning.
So, but as you know we filed an AFFO for the rehearing already for the.
For the reader return as well as well on.
As well as on the equity thickness.
Because we were clearly disappointed with what we've got for from the Commission.
And we have filed for we are hearing there is no said time period, when they're going to be coming back to us.
And whether or not they're going to allow for a returning.
As you probably know we all have also filed for a rate is another it gives a good towards the end of the year.
So we have another bass at trying to do a better job.
We are convinced that the missing our position regarding.
Especially the equity thickness.
Okay. Thanks for that are in and question on the agreement with Chevron can you give us a little bit of background on on how that came together and I.
And I suppose thoughts on similar agreements potentially with other oil majors going forward is that an avenue for.
Incremental potential growth.
Yes. It is clearly a fairly lengthy bras is a as as you can imagine.
This is something pretty important for chevron. So I assume this talk with them no other parties as well.
We spent a considerable time and energy with them.
Going through their projects.
How big viewed.
Global energy projects, what is the kind of partnership they wanted and with all of that.
Yeah.
Many months of discussions.
We feel good about the partnership.
Most of US we're very aligned in most of what we are looking for.
Chevron was looking to really minimize the levelized cost of energy.
And with the.
Pricepoint around both wind and solar energy, we can certainly a meet those targets.
But is that it is a framework agreement, which basically lays out how the two parties will work together in the future.
We are already in discussions about.
Making that into real projects and we have plans to in fact start construction.
Sometimes when you're going to one on the first of those projects.
Thanks for for that detail and David Congratulations on a while learns retirement and thanks for your help over the years.
Thanks, Sean.
Our next question comes from David Kizomba of Raymond James. Please go ahead.
Thanks. Good morning, everyone. My first question here just on the the commentary around plant can service accounting I'm wondering if you could comment at all on the lift you expect to get from that to rate base going forward.
Well a couple of things I've got a clearly.
Yes, no regulatory lag.
In terms of piece I think thats that is there.
An important.
Factor for us.
The other thing is also a it does move out.
The reads for our customers over the long term.
It really doesn't change the Japanese line or do you feel the sorts of that those are primarily the benefits have been receipt.
Okay Fair enough. Thank you and then.
Maybe one more just on.
A follow up on the on the Chevron agreement is is it too early to discuss.
You might see there in terms of in terms of PA is for those projects should we assume there's something similar to two contracts that we've seen signed in the U.S. recently.
Clearly it lays out what are the roles and responsibilities over different parties.
Obviously, we as a developer.
Sourcing the.
The supply chain.
Hi, good being responsible for the financing part of things was.
Chevron, obviously has a local knowledge.
They have their land and other facilities.
So it really brings the the two separate.
Knowledge bases of the other two parties together.
Those are the power purchase agreements is that's going to be really very site specific things like what is what is a term what is the kind of financial structure. All other things are going to be done in the power purchase agreement and again both sides are.
Convinced that would we are one to do is minimized the levelized cost of energy over the long term for Chevron and that's.
Going to be the goal of power purchase agreements.
Excellent. Thank you for that and I'll Echo Sean comments, so congratulations Dave internal well reserved retirement.
David.
Our next question comes from Nelson Ng of RBC capital markets. Please go ahead.
Great. Thanks. Good morning, Good morning, everyone. So my first question relates to the are they a reiteration of or the guidance.
Could you just talk about what some of the the biggest risks to hitting your guidance is because I was just looking at just doing the math the quick math I'm not sure with if that's correct or not but I.
I get a sense that you need to 23% earnings improvements over the second half of.
Of 2019 to hit the low end of your guidance I'm just wondering whether.
You're comfortable with that and yes, what are some of the risks of not having guidance.
Hey, now since its Arthur I'll try to take that one so first of all lets say point you to the Mdna with respect to some of the assumptions that we've we've made with respect to our reiteration of guidance as you can look at some of the factors maybe to provide a little bit of a color around that so we.
From a from a in terms of impacts from demand reductions and to cold, we actually have been seeing quite a lot more normalization, especially with respect to be our demands on our see an eye customers. So demand has been normalizing over the course of Q2 and and we continue to see that into.
Q3, as well I mean, the other thing to point to its been a very hot summer. So as the weather actually has been cooperating with us as well.
So.
As far as as we see it right now and working through the various factors, we do see ourselves still reiterating the guidance.
Okay got it and then mice my second question relates to the the Chevron deal like I know that initial focus is probably going to be in the U.S., but.
Got it mentions that geography is.
For the target geography is include Argentina Catholic stand and Western Australia.
Could you just talk about how I guess your comfort level in Argentina Catholic Stan and what they approach for those basis would be.
As as you've seen Milton were currently not in places like Argentina, and because I.
But what Chevron really wanted was a global partner.
Did they didn't want to have a different biographer each country. So to speak and that was the reason for coming up with a framework to go over these initial facilities and that would be even added over time right.
So we clearly our comfort level is is there given the fact that chevron is clearly the counterparty.
We're going to be cited on chevron.
And.
No these reasons extremely well.
So what I see ourselves doing even just by going to.
Oh places like the last time and Argentina is that we are really dig chevron created.
Okay got it.
All right I'll get back thank you, but David Congratulations on your retirement and hopefully you can pick up some new hobbies.
Thanks outside [laughter].
Our next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Hey, good morning, Jae min congratulations everyone as well.
Hey, good morning, Thank you.
Couple of questions you ever again.
Hi, probes coming back to the guidance and how you're thinking about this year you guys provided at the start of the year at your analyst day, Admittedly tweak Toby guidance on a quarterly basis.
That would if you if you added those numbers that you would suggest again going back to work through the last question, we're going with a little bit of a delta. How are you thinking about the puts and takes need year here to get you back within the guidance range versus your previously articulated guidance. It sounds like from the commentary earlier that you have $10 million.
Cost reduction what are the other moving pieces. There if you can speak to that and then also if I can just so this isn't there.
Your Capex budget, you're reaffirming that I know granite bridge I think you got canceled that project here how much of that Capex is tied to that in reaffirming what is taking place can you talk about like the puts and takes on the capex budget as well.
Sure. So those so maybe just with respect to the guidance.
As you know we did provide guidance and we did provide quarterly guidance and the last quarter. We widened it's a us as cold as 19 hits I mean, as we kind of look at our guidance for the year. We are admittedly maybe looking at it much more annual basis and again factoring other things as you mentioned the our offer.
Operating cost savings, that's we're actually well on track for four or.
For achieving.
As we see it or our guidance is a would hold.
On the capital expenditure by Julien So granted bridge was in the 250 300 million dollar range.
And at that time, we firmly believe that that was the right solution. So for further customers.
In terms of you could find natural gas and the storage solutions, we are proposing.
However, as we are developing that one of the largest customers that it was on the Tennessee gas pipeline.
In the opted not to renew their contract. So we had a significant amount of long term a pipeline capacity that became available. So we did what was the right thing for customers we are.
But that's obviously the rising for us to do however, given that there is still will be system wide.
Requirements for for upgrading the system, possibly adding stores solutions things of this were amazed to do there also.
When we talk about a five year plan like that obviously, we would development company and we have a pipeline of development projects. So.
There is obviously other projects that that.
Our geared towards.
Resiliency or safety or security.
That we have that would feel that pipeline.
And that and that's why we feel confident do reiterated that.
$9.2 billion Baller Capex now.
Got it so it sounds like you guys have something in mind already.
That's right.
Okay.
And just if I can go back to business is more of a conceptual question.
You see.
Dividend.
Kind of Annualizing at 62 cents level, how are you thinking about the balance between dividend growth versus growth versus cash for growth rate again, obviously, you guys have been fairly proactive this year, but how do you think about positioning the company.
In terms of payout ratio in the future et cetera, and again this is more of a geared towards the new management team if I can.
And thought process, especially given the opportunity as you guys have described et cetera.
Does it Julianna I mean, I think at our last Investor day, we reiterate its what our dividend growth would be an operator reiterated that all the way through 2021 and are committed to relook at its a after that more on a on a failed or they failed ratio basis.
Got it fair enough. Thank you guys very much take care and again congrats everyone.
Thanks Julien.
Our next question comes from Robert help Scotia Bank. Please go ahead.
A lot of Iran, and congratulations or David.
Thank you. Thank you.
I wanted to circle back on the Chevron deal and conceptually how you're thinking about your international strategy you have Atlantic a you have aegis are you looking to utilize a a third party here. So that you can keep fees a equity accounted for or are you looking too.
Or consolidate that's just want to think just want to get a little sense of how are you know the international angle of the Chevron deal could play into your kind of side currencies.
Sure, Thanks, Rob and and really we fundamentally consider ourselves to be a north American.
Energy and water company right. The vast majority of our business continues to be in the U.S. and Canada. This chip on transaction was again like I explained earlier, a little different because there were truly looking for global partner.
And clearly you have got facilities around the world or they would very large facilities in the Permian basin around.
Texas, New Mexico.
I'd, probably going to be among our first oh ones, where we're going to be a transacting around but again because of the fact that they wanted a global partner, we felt like we feel much more comfortable taking chevron risk.
Rather than international country. This in going introduce a different jurisdictions. So so our thought process is somewhat different perhaps.
You know, we see ourselves going out there with a strong partner like Chevron digging cimarron created risk rather than all the different back on for years, but fundamentally we are on North American energy.
And water company.
All right and then as a follow ups you mentioned that you could see a it looks like the some of the U.S. properties start construction in 2021, when you take a look at that 500 megawatts, how how would you take it will be built here through the years kind of whats countries you think over the developed first.
So when we have started after the assigning the framework agreement is exchanging information than the two teams are working very closely together. So we've started receiving a site specific information from from Chevron. So we're looking through those were analyzing them in terms of okay and what is the right now.
I want to do solar win what is the right capacity for each one of these.
So really we did in early stages of working worse, a financial model that and then the power purchase agreement.
So I. Unfortunately, we cannot give you more details or not.
But in our discussions with Chevron both parties want to see progress and we have talked about.
This study a construction and some of these projects even as early as when you go into one.
Given pulls it and everything.
We assumed the earliest once we will be in the Permian basin, but we are looking at other projects as well.
Right. Thank you.
Thanks.
Our next question comes from Rupert Mayor of National Bank. Please go ahead.
Hi, good morning, everyone. Congratulations on retirement, David and congratulations to lots and lots of too.
Thank you I wanted to take one more crack at the their chevron deals so with your relationship with Atlantic on Monday, just send their more international footprint are there any conflicts the chevron deal and these relationships or any opportunities for these partners soon to be involved in the project.
Oh, we don't see any conflicts and then certainly.
Opportunities in the future for us to.
Work this through either ages or.
Or our partner with Atlanta got those Blu ray.
Remain open.
Did you see an eye a strategy is very important for us and these chevron relationship is very important for us and deal also really wanted or a one phase bognor and rather than.
Having a number of other partners.
In the face a on the other side.
But they've also we will be taking the lead again.
The goal is bill from both sides is very very good is to minimize the.
Levelized cost of energy and we will do the right kinds of partnerships if need be the the right kind of financing structures are needed in order to achieved that goal.
For Chevron and for Us.
And given the comments you made earlier about the size of the and the Cnine opportunity and we see this global push towards investment in infrastructure Lenovo, Steve do you see a potential.
For shifts and the focus of Algonquin back more to renewable energy.
Away from.
Regulated utilities.
Well, we actually like the balance we have a in terms of recognized the 65, 70% regulated or remainder renewable energy we like that.
Balances, there's a lot of.
Process synergies indoors ideas and things of the store.
How are either lives through a.
Business bogs would've been better get better as well. So we we obviously want to maintain our triple B, a integrated ratings and and so there's a lot of factors around that I don't see any major departure from from from what we've announced before so.
But we also have opportunities on the regulated side.
You know we're in it we are and acquisition company. When I was to obviously you don't go and yield American water oney over the five year horizon, but Oh, you can follow the rest assure that we've always in the market, they're looking for the right transactions that meet our financial and our shareholders financing sources.
Thank you and then secondly, looking at.
Cost so youre cost cutting initiatives, you're looking for 10 million reduction in the second half of the year, you talk about where that's coming and how the admin costs sitting here I think they were up a little bit.
Quarter over quarter or should we shouldn't see bad as as a new normal for the.
Then costs or or should those be lower in the second half here too.
Yeah sure. Some so maybe it's a I can start with the I've been costs for the one thing I want to maybe point on the other cost. Some of that is a is there's probably timing. It's a so maybe that variance seems a little bit higher than a truly is because if you look back in the prior year or I've been costs are actually flat or year over year. So.
So it's it's maybe a little bit exasperated the difference I mean, when you when you look at the increase in the admin costs I mean, so some of the the.
The cost there maybe it could be considered a little bit whoa onetime in nature.
Increased professional fees et cetera, a bunch of you know in general did that there. There is a there is some increase I mean, just the fact that so we are becoming a bigger organization.
Really the admin costs are catching up.
Okay. Thanks, very much appreciate the color.
And in terms of the us or is it just to answer your second part of the question in terms of because the cost savings. So the cost savings out of the cost savings are coming out quite naturally I mean with respect to people are driving less less conferences et cetera, but but also taking a pretty hard look at a other items and implemented a bit of the hiring pause so.
To the extent that so there's theres a any non critical positions, where we're putting that on pause for a little bit areas like property tax.
And so forth, so just because really scarring through the organization and and looking to see where we can potentially.
Got some cost savings I mean, the one thing for sure is we're not compromising.
Safety reliability resiliency.
Off limits.
Thank you.
Our next question comes from Mark Jarvi of see RBC capital markets. Please go ahead.
Great Good morning, everyone.
First David all the best in retirement.
No.
Going to the guidance again, one of the items you talked about was closing adult though a small contribution mode you needed maybe to hit the low end I mean, just give us an update on that and then display talking locally in acquisitions status of New York water, where I think theres been an offer to maybe not meaningful a new studies bid on assets, just maybe a prospect circle.
Well those acquisition in the next 12.
Sure. It's it's Krestmark, maybe I'll take the first one bellco. So just by way of background. The application was submitted to the regulatory authority on October the fourth 2019.
The the public consultation process was completed on on made a fourth of this year.
The other background component is that the government extended their guideline date to win a decision will be made to October 4th which happened to be 12 months. After the application was submitted.
And so I guess when it did just step back for a little bit I think you say that a duration for a regulatory.
Decision on a regulated utility of one year, it's probably not unusual and you know I guess.
We could be accused of being a little bit optimistic on our initial timing expectation.
But that was probably because the regulatory approval process in Bermuda is a very new process and that there. They are a mandate for electricity is only three or four years old and just no one had ever gone through the process, but I agree we probably were a little bit optimistic and throw in theres been a couple of fat and years.
Ill circumstances, such as the are a succession that they underwent every regulator it the Florida commissions, which was changed and something called Cove. It that you made a heard about.
But if you just look at the benefits of the transaction, which is what we keep focusing on you know there's a huge benefit to the people that are meta.
And there's a huge benefit to the customers at Balco.
You know, we're very optimistic that.
Our that this will be approved it's just a two S. Even in the times that were in that represent so many benefits to all stakeholders.
On a mark a good morning on New York American water, a as as you know we filed a joint there isn't a back in February with the New York up you see.
Based on what do we recently Oh seen on the revised a procedural schedule.
We are expecting to have a evidentiary hearings have been in mid December.
And we're expecting the transaction goes up sometime in 2021.
And is your view of.
The opportunity for these municipal base to come in and some not participation second to extend the process and how often are you that ultimately PSC sees on California has is the best owners of the SASSA.
And in fact that was what a extended the process because there are two towns.
That I was sort of approximately 10000 customers out of a total of 125000 customers that express interest and a we support the New York you seem to be a fulsome review.
And.
Looking at a different options as well.
But we remain confident that we'll be able to close on this transaction sometime in going deep into one.
And then my second area for a question was just around simplicity. There's you know the last year. So management's talked about trying to simplify and some of the flash complexity here in just with you coming in fresh perspective is there any low hanging fruit they like accomplishing the next couple of quarters in terms of of our simplification.
Sure. So does that there's a number of area that as you will know that brings in complexity, obviously, we'd like to simplify the story or.
Or more so around age is obviously a long term.
We'd like to find a better way to work, we're absolutely Atlanta guys well.
Hi, just so clearly there's an opportunity you like that and we are right now going through a fulsome review of all of the different opportunities again, we clearly want to remain.
We didn't out our credit metrics, we've already wants to.
Gain more.
ER.
Upside on the as if we do a a debt issue probably give us a more room, a and probably.
Have a balance sheet that is flexible enough that we can do a more transactions in the future because that is something we traditionally have been very good at uncovering.
Value that's out there so we'd like to be all his prepared for that optionality.
Okay actually answered for ship.
Thank you.
Our next question comes from Ben Pham of BMO. Please go ahead.
Thanks, Good morning, [laughter] question on.
Your financing plan now with.
Good to hear it so you.
Yes, basically had reiterated to 9.2 billion.
You can add some equity and more recently and I think you mentioned about half of that Capex is can be funded by debt and at that call. So that's why maybe.
You have paid us on what's what's that funding a breakout concordant next four years and trying to.
Her for shares equity trip or asset sales all options you look at.
Sure I'll just try to address that one so I mean, we are as you know we did a hover equity raise we tried to get ahead of our equity needs. This year. So so I think with no taking care of certainly 2020 and into 2021, I mean, as we look forward with respect to.
Funding plan for for the remaining Capex I mean, it's in the future. We've talked to boats are certainly mandatory converts its product that we still like a quite a lot suit because it's not just the earnings profile with with the cash flows of the investments that we are Oh, we are making us. So no mandatory convertibles are definitely on the table for.
Yes, the in the future.
So or otherwise the funding plan kind of remains a this with a with debts and so an equity.
And the free cash flow.
Do you.
Can I know you had said no not near bunch for second half that is.
As I said really a reassessment and next year is it the baseline of ATM does that's come back on.
Yes, I think we'll reassess the ATM or early next year I think this year, we've shut down the ATM. We really are are done the equity for this year, but to the next year, we'll take a fresh look at it.
Okay and when they can.
Go back and that is there a bit more that just spectrum moving parts and and DNA. So you basically you had a life or 22 million of revenue increases here you got one you're obviously disappointed if you're going to go back and I try to get more impact, but in the meantime, you you've exercise classes in service.
So that that basically.
Yeah, the currency depreciation that's happening as.
I just thought process that you spend capex. This year now the next couple of years had the prohibiting you can recover that capex right away.
And they kept person that that ER revenue you Didnt get approved garden and.
Kevin 23 years your rate base effectively as rebase automatically that.
Is that the way that.
A detailed what's not to war.
Yes, again, primarily due to get it is around reducing a regulatory lag I've done that is the primary.
Attractive for Us frankly, I mean, what Oh.
We had I wanted to do whether decoupling because we thought it is good for their customers and for the utility not to see these lives as Gary is into due to weather, but a win win that didn't happen you know we opted for besides as as you probably know a bother to a investor owned a you do.
The decrease in Missouri have also opted for piece out earlier so we.
We were in good company for from from that perspective, but we will primarily seeing the benefit of reducing their regulatory lag and smoothing out the caused FFO for our customer base.
<unk>.
Okay. So it's not only just just a rate base. It's also a that the income statement to its a lot like the cost structure and whatnot.
That's correct.
Okay.
All right. Thanks.
Thanks.
Our next question comes from Stephen Byrd of Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning, Steven.
David Congratulations on a very successful career I wish you all the best in retirement, you have many many have years and retirement.
Thank you Steve.
So a lot of lots been discussed I wanted to maybe step back and just talk about the U.S. election and in the event of a Democratic sweep I guess I'm I'm thinking about both sort of programmable policies like tax credit extensions cover regulation, but also thinking about the potential increase in the corporate tax rate and I will.
But if you could just maybe at a high level give your thoughts on the implications for Algonquin a in the event about Democratic sweep.
Sure. So it's a maybe a I can start with a with the the tax rate because that has been getting quite a lot of.
For us and so Joe Biden is looking at the but on this the ticket proposing the increase in the tax rate from a 21% to the 28% Ccs also looking at some minimum tax increases.
I kind of as we think about it it's almost a reversal of a of 2018, we when the rates came down those oh. It was it was basically.
Yes, a neutral for us on the utility side and slightly.
Cash flow Occassional negative and on the on non Reich side, it looks like as positive seat and kinda almost think about it as a direct reversal of that I mean in reality, there theres a lot of things to be sorted out. The so it's difficult to tell I mean, one thing for example is how does this new minimum tax enter.
Her interact with the beat the beach, good repealed and and so forth. So so I mean, we'll be watching it closely but so all in all.
It's a you can kind of think about as a reversal of what happened last night.
In terms of of the overall environment are you. We've done we managed to do very well even under an administration that mean long perhaps be as bullish on on a renewable energy. So we see you will do very well under.
And our nutrition that is.
A very rule renewable energy.
Our fundamental feces remained a strong I see.
One other things you me see is more direct federal procurement of renewable energy and I think even for that.
This into very well as you probably know.
We have a solar facility in Maryland grid via solar that contract directly with the federal government. So we do have.
I mean, because as well so we see.
If anything I I think breuil renewable energy.
Policy will only enhance our our renewable energy and good story.
That makes sense and then maybe just last question for me just on Chevron, It's obviously, an exciting developments and probably something we're gonna see more of a more broadly.
As you continue to well as you began really I guess really execute on this on the screen and is there a natural stage at which you could expand this relationship in other words sort of is it could it be a year or two into the relationship things are obviously, they're going well development is proceeding as planned and both sides really go.
And increased the scope of fee arrangement or is that less likely is this if in your mind sort of fairly discrete or you'd need to wait longer that to kind of mutually decided to us to extend or sort of extent.
Hi, Stephen we certainly hope do I mean, if you look at the press release. It is it is actually business is 500 megawatts. It's just over 500 megawatts.
So I will we are certainly hopeful that we obviously.
Need to prove ourselves.
Good solid partner for with Chevron and we have every instead of doing that ER and Oh, We also frankly see this as as a almost like a in a passport project in terms of being able to do similar projects hopefully with other potential CNN customers as well. So we're excited about that possibility.
Also so all in all I think.
It's one more growth lever that we have a within the company.
That's great. That's all had thank you.
Thanks Steven.
Our next question comes from Nashi budget of Industrial Alliance. Please go ahead.
Hi, Good morning, maybe just going back to the guidance for this year than maybe looking beyond.
Sounds like you can offset some of the the weakness here today with some cost savings, but that's probably greater 2020 of them somewhat surprising so far and David you Mendelson there uncertainties Ah Ah you know U.S. election, second wave et cetera can you talk about some of the other levers that you can try and pull tossed out anything else that Mike.
Away over and above the 15 million of cost savings.
Yeah sure sure I'll take that I mean, we do have a with respect to Oh. We're also looking out some potential self monetization strategies with the with some of our assets as well. So there is some potential offset there from a from an earnings perspective and so.
From an operations perspective again, just a committed to 250 million, we were continuing to a two to push that but you're right. I mean, it is it isn't uncertain time for for the for the remainder of the year ends up.
At this 10 seconds. So it's a you know, we certainly see ourselves or holding to the guidance, but but we really don't know what's going to happen with cold or how the weather's going to be so so you know there there are certainly uncertainty.
Okay Yeah.
Something's Gonna ground or maybe just a high level comments on unauthorized or we trends we've seen our OE is a lot about reason there and some some of the recent U.S. rate cases continue to you know trying to lower and and the spread really versus let's call them long dated the bond yield really wide than recently, which so.
Just on more ticked down of allowed already is going forwards just any comments on your expectations for allowed arteries within your utility.
Sure.
Good morning, Naji, so one of the strength a far a decent realize model. A is you know when a water and gas and electric utilities were in 14 different jurisdictions and so a while you have seen oh the results of the in Missouri.
But we've also seen that results in places like California was 10% no. Georgia was it was 10 point will present, so I think it's difficult to a really conclude or a an overall.
The North America wide are really a story based upon what we've seen in Missouri.
We have seen other places where.
The commissions have approved.
You know higher I always as well.
Okay. So some to tell a well thank you very much and David congratulations on a very well on the timed thank you that GE.
I would like to turn the conference back over to Mr. Benscoter for closing remarks.
Thank you operator.
Thank you for taking the time on our call today with that please stay on the line for our disclaimer.
Our discussion during this call contain certain forward looking information, including but not limited to our expectations regarding future earnings and capital expenditure as well as potential teacher impact a little bit 19. This forward looking information is based on certain assumptions, including those described in our most.
Recent mdna found on center and that's all right and available on our website and is subject to risks and uncertainties that could cause actual results could differ materially from currently result.
Our results anticipated I look forward looking information.
Forward looking information provided during this call speak only as of the date of this call and as Steve on the plan lease estimates projections expectations opinion and assumptions of management as of today.
It can be newish or any forward looking information will prove to be accurate.
You should not place undue reliance on forward looking information, we disclaim any obligation to update any forward looking information or to explain any material difference between sufficiently actually that in such forward looking information.
As required by applicable law.
In addition, during the course of this call may have refer to certain non-GAAP financial measure, including but not limited to adjusted net earnings adjusted EBITDA adjusted funds from operations adjusted net earnings per share and divisional operating profit. There is no standardized measure of such non-GAAP.
Financial measure and consequently method of calculating these measures may differ from method used by other companies and therefore, they may not be comparable to similar measures presented [laughter].
For more information about bode well looking information and non-GAAP financial measure.
Putting a reconciliation of non-GAAP measures to the corresponding GAAP measures. Please refer to our most recent mdna filed on SEDAR, it cannot or anchor and the United States and available on our but.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
[noise] [noise].
[music].
[noise] Oh.
[music].
[noise] [noise].
[noise].