Q2 2020 Algonquin Power & Utilities Corp Earnings Call
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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 today.
During the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal and 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, Good morning, everyone and thanks for joining US this morning for 2022nd quarter Earnings Conference call. As mentioned my name is Chris Jarratt and joining me on the call today are around Ben Skoda, Our Chief Executive Officer, David Bronicheski, Our Chief Financial Officer, and Arthur Kasper checked our deputy Chief financial.
Officer.
To accompany our earnings call today, we have a supplemental 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 as on SEDAR and Edgar and before continuing the call. We 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 coded 19 situation.
We will also refer to certain non-GAAP financial measures and at the end of this call Amelia from our Investor Relations team will read a short notice regarding both forward looking information and non-GAAP financial measures. Please refer to our most recent mdna filed.
For important information on these items.
On our call. This morning, Iran is going to provide the strategic achievements for Q2 2020 aren't there is going to follow with the Q2 financial result, and David will speak to our recent capital raise and but now I will wrap up with a rune concluding with our strategic outlook for the business.
We then open the lines for questions and as usual light asset you restrict your questions to two and then week you. If you have any additional questions.
Now before I turn things over to everyone I would like to say 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 have been immense including building an extremely strong finance team that will succeed.
Thank you, David and with that I would turn things over to a room.
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 continue to perform well.
Well from a financial and operational standpoint, as we continued to navigate through the impact of will be 19.
Given the resiliency in our business model. The company has been able to provide interrupted and continued high quality utility services since the onset of pandemic.
As expected given the changing patterns of our customers. We have seen some moderate increases in customer demand across some of our utilities, which have impacted our second quarter results by just over one cents on a per share basis.
Also we will provide more commentary on these financing impacts.
Operations of our renewable energy generation facilities has naturally supported social distancing and with the Lions share of our business under long term contracts with creditworthy Counterparties, we have not expedias any negative will be 19 impacts.
Our laser renewable energy construction projects of approximately 1600 megawatts continued to be considered essential infrastructure in the jurisdictions in which they are located.
And therefore construction has been receiving despite what weve 19 pandemic.
And all of these sites the anticipated timing for the projects to be placed in service has not been materially impacted by good 19 to date.
I'm pleased to report that the new Dcs Harbor deadline for U.S Federal production tax credits has been extended by one year, which provides more flexibility for our use wind projects currently under construction to qualify for the maximum PTC.
Overall.
Im pleased with the progress we made so far this year and I'm confident we will continue this into the second half of the year.
Since joining the organizers and in February I have been focusing my efforts on three pillars.
Operational excellence.
Rules.
And environmental social governance BSG.
I would like to spend a bit of time grew over each pillar.
Firstly on operational excellence, which is all about having a laser focus on improving our video service delivery in all areas.
To do this will fix a real organizers lunch agility.
Our response to global 19 has been a great example of how our organization and our frontline workers were able to pivot without missing a beat.
In delivering essential services for our customers.
As O'donovan 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 closer was recently recognized and awarded by the National Safety Council in our Central region for working 2 million employee hours without injury.
And even greater achievement when you dig into account the reference timeframe includes operating under opened 19 times.
Customer focus has to be at the heart of any operational excellence strategy.
Over the past three years, we've increased our JD power results by 40 basis points as we strive towards stopped Florida.
We continue to listen and add to hone our customers' needs.
Specifically as part of our 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've continued to demonstrate the customer benefits and receive regulatory support for our smart meter 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 although I'm going to has a strong new steel growth and I am committed to continuing this growth trajectory and add value to our customers and shareholders.
As I look forward as the changing energy market.
I believe that commercial and industrial Cnine business segment would represent an enormous channel for growth.
Today it 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 Julien.
Oil and natural gas.
Well Mercy Lightning and industrial businesses will want to continue to be 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 you a framework agreement with Chevron seeking to four 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 scale 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 downgraded by helping customers decarbonize.
And finally on MSG 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 focus on the E or environmental including the closing of our Asbury coal plant in March which will as reduced our greenhouse gas emissions by approximately 1 million metric tons of carbon dioxide.
I wanted to provide some commentary on the EPS, social factors and GE governance factors as well.
In terms of social initiatives, one of our key sustainability goals is to achieve top quartile employee engagement.
Despite will be 90.
Im pleased to report that organizers and has made great progress on our Twentytwenty employee engagement results.
Our blended going to engagements score is near North American thought Florida ranking.
The improvement is evidence that we've committed to putting actions in place to continue to be a top employer of choice.
As with GE.
We are focused on building effective governance practices, where the long term.
Our commitment to diversity and corporate governance practices can be evidenced by our continued year over year improvement in governance scores from independent organization, such as the global mail and ISS.
Before turning the ball older Arthur I wanted to touch up on the recent and finally lifted ruling in Missouri that we received last month.
Under Missouri Law Senate Bill 564.
Electric utilities have the option to apply for a weather decoupling mechanism.
In our 2900 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 promise and denied our request.
And as a result of his decision the company Revalidated other options under misery loft and opted to elect visa.
Plant in service accounting.
The piece not less than is not subject to additional approval is expected to reduce regulatory lag smooths are reaching back of necessary investments where 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 answer for a review of our Q2 Twentytwenty financial results.
Arthur.
Thanks, and good morning, everyone.
Im 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 ease.
In the second quarter of 2020, our adjusted EBITDA came in below our expectations at 176.3 million, which is down approximately 7% from the 190 million we reported in the previous year.
The regulated services group delivered 112.8 million in 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 St_lawrence gas, which closed late last year.
The 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 over 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 loss last year related to the company's investments 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 covered my team negatively impacted our results by just over one cents this quarter.
We are also anticipated that our acquisition of the Bermuda Electric company would close early in Twentytwenty, which is now is anticipated to take place later in the year.
The delay in closing impacted our adjusted EPS by another one cents.
Ill now like to provide a few more details on some of the impacts from the cold 19 pandemic from a financial perspective.
First with respect to collections on accounts receivables.
While the majority of our customers continue to regularly pay their utility bills.
Like other utilities in the U.S and Canada, we have curtailed collection activities, including Disconnections for non payment during the pandemic.
We believe the this is the right thing to do in support of the most are most vulnerable customers. During this unprecedented time.
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 impacted 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 covered 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 pandemic and unfavorable weather.
Im 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 will be seeking recovery and 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 reiterated 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 are there and good morning, everyone. As everyone is acutely aware cobot 19 has changed a lot of things in North America end around the world, including creating unprecedented uncertainty into the public capital markets. This coupled with Algonquin slot.
Or just capital program in its history in 2020.
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 us federal election trade issues with China and all the potential that this disruption could have on the equity capital markets, we felt but on balance it would be prudent to solve for our equity needs for this year and put us in a position of stress.
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 have 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, our 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 Obama on 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 all 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 a ruling 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 in your hard it's time to step aside and let others take the range and that time for me is now.
While we 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 Algonquin can not 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 over to a room.
Thank you David.
Before we close out our prepared comments. This morning, 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.
I will conclude remains committed to and reiterates, our five year $9.2 billion capital investment program across our two business groups, which is expected to grow our asset base to nearly $17 billion by the end up 2024.
The total growth feces as not being 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 growth with many libors at our disposal.
In our revenue the services group, we have our local and 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 CNS space were important long term customers are supporting renewable growth as we have contracts with general Mills and Kimberly Clark for our Maverick Threeq wind facility and Facebook with our Vista Solar and our recently announced framework agreement with Chevron.
In summary, our three pillars of operational excellence growth and energy will 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.
Yes, Gee, we plan on releasing our updated Twentytwenty sustainability report 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 appeal small as David's many contributions.
Which has played an integral role in Algonquin success.
On behalf of revenue on we have 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 we enjoy your retirement.
With that operator, I'd like to open up the lines for questions.
Thank you, we'll now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you'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 tail.
To join the question can you. Please press Star then one now.
Our first question comes from Sean Stewart of TD Securities. Please go ahead.
Thank you good morning.
Couple of questions on on Missouri can you give us some context on the rehearing timeline in process and I guess your general thoughts on on the lack of weather normalization mechanisms.
Being approved in the decision.
Sure. Thanks, Sean.
Good morning.
As you know we filed an AFFO for the rehearing already further.
For the reader return as well as well on.
I will add on the equity thickness.
Bluest will clearly disappointed with what we got for from the Commission.
And we have filed for re earlier in there is no set time period, when they're going to be coming back to us.
And whether or not they're going to allow for hearing.
As you probably know we all have also filed for a rate case on other risk is the towards the end of the year.
So we do have another bass at trying to do a better job.
In convincing the commission of 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.
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 process as as you can imagine.
This is something pretty important for chevron. So I assume these talk with a number of other parties as well.
We spent considerable time and energy with them.
Going through their projects.
How should be viewed.
Global energy Blizzards, 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 those were very aligned in dose of what we're looking forward.
Chevron was looking to the really minimize the levelized cost of energy.
And with the.
Pricepoint around both women 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 the.
Mickey that into field projects and we have plans to in fact start construction.
Sometimes when you go into one on the first of those projects.
Thanks for that detail and David Congratulations on a while learns retirements 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.
Client 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 like a clearly.
There is no regulatory lag.
In terms of piece I think that is.
An important.
Factor for us.
The other thing is also.
It does smoothes out.
The reads for our customers over the long term.
It really doesn't change that would have the capital plan or do you feel the source. So that those are primarily the benefits of that 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.
What you might see there in terms of.
In terms of PA is for those projects should we assume there or something similar to.
Contracts that we've seen signed in the U.S. recently.
Clearly leaves out or what are the roles and responsibilities of the different parties.
Obviously, we address developer.
Sourcing the.
The supply chain.
Be responsible for the financing part of things was.
Chevron, obviously I removal knowledge.
Dabir Lam and other facilities.
So it really brings the the two separate.
Knowledge bases of the of the 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 of these things are going to be done in the power purchase agreement and again both sides are.
Convinced that would we are one to duty is minimize the levelized cost of energy over the long term for Chevron and Thats.
We'll.
Going to be the goal of the power purchase agreements.
Excellent. Thank you for that and I'll Echo Sean comments, congratulations Dave internal well reserved retirement.
Thanks, 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.
Reiteration of the guidance.
Could you 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 it's correct or not but.
I get the sense that you need at 23% earnings improvements over the second half of.
Of 2019 to to hit the low end of your guidance.
Just wondering whether.
You're comfortable with that and yes, what are some of the risks Bahamian guidance.
And also as Arthur I'll try to take though on 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, but by maybe to provide a little bit of.
Color around that so we.
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 the art demands on our CN I customers saw 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 up a very hot summer so as to whether actually has thousand 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 our guidance.
Okay got it and then mice my second question relates to the the Chevron deal like I know the initial focus probably going to be in the U.S. spreads.
And mentions that geographies.
For the target geographies include Argentina Catholic stand and Western Australia.
Could you just talk about how I guess your comfort level in Argentina Catholic Stan and.
What the approach for those places would be.
As as you've seen Milton we're currently not in places like Argentina and Kazakhstan.
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 on board of framework to cover these initial facilities and that could be even added over time right.
So we clearly our comfort level is is there given the fact that chevron is clearly the counterparty.
It's going to be cited on certain chevron.
Lam.
The annual these reasons extremely well.
So what I see ourselves doing even just by going to.
Our places like the racks and Argentina is that we are really dig chevron created.
Okay got it.
All right I'll get back the K, but David Congratulations on your retirement and hopefully you can pick up some new hobbies.
Thanks elsewhere.
Our next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Hey, good morning gaming congratulations everyone as well.
Turning to up on perhaps last.
Hey, good morning, Thank you.
Couple of questions here again.
Hi, perhaps 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 pretty cobot guidance on a quarterly basis.
That would if you if you added those numbers up it would suggest again going back to work through the last question going with a little bit of a delta. How are you speaking 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 in there.
Your Capex budget, you reaffirming that I know granite bridge I think you guys cancel 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 goods as cold as 19 hits I mean, as we kind of look at our guidance for the year. We're admittedly maybe looking at it much more annual basis and again factoring things as you mentioned the our API.
Operating cost savings, so that's where we're actually well on track for four.
For achieving.
As we see our guidance is that would hold.
On the capital expenditure buyers Julian absurd granted bridge was in the 250 300 million dollar range.
And at that time, we firmly believe that was the right solution so for for the 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 was on the Tennessee gas pipeline.
In the opted not to renew their contracts. So we had significant amount of long term pipeline capacity that became available. So we did what was the right thing for customers we.
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 storage solutions into the store may still be there also.
When we talk about this as a five year plan like that.
Obviously, we would is development company and we have a pipeline of development projects. So there is obviously other projects that.
Our geared towards.
Resiliency or safety or security.
We have that would feel that pipeline.
And that and Thats why we feel confident do reiterated that.
$9.2 billion Bottler Capex, Matt.
Got it so it sounds like you guys have something in mind already.
That's right.
Okay.
And just if I can come back to business is more of a conceptual question.
You see.
Dividends.
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 toward new management team. If I can in thought process, especially given the opportunities you guys have described et cetera.
Does it Julian I mean, I think other will allow us to investor day, we reiterated.
What our dividend growth would be and we reiterated that all the way through 2021 and 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 Scotiabank. Please go ahead.
Good morning, Iran, and congratulations David.
Thank you. Thank you.
I now want to circle back on the Chevron deal and conceptually how you're thinking about your international strategy you have Atlantic area. You have Hs are you looking to utilize a third party here. So that you can keep these equity accounted for or are you looking too.
Consolidate them just want to think just wanted to get a little sense of how.
The international angle of the Chevron deal could play into your kind of side currencies.
Sure, Thanks, Rob and and really we fundamentally consider our sales 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 is Jim on transaction was again like I explained earlier, a little different because there were truly looking for global partner.
Clearly it gives us facilities around the world there were very large facilities in the Permian basin around.
Texas, New Mexico, without probably going to be along our forrester ones, where we're going to be.
Exactly 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 risk in going introduce a different jurisdictions. So so our thought process is somewhat different perhaps.
We see ourselves going out there with a strong partner like Chevron digging chevron created risk rather than all the different dockland peers, but fundamentally we are north American energy and water company.
Alright, and then as a follow ups you mentioned that you could see a it looks like there's some of the U.S. properties start construction in 2021, when you take a look at that 500 megawatts. How how do you think you'll be filter through the years kind of which countries you think will be.
Developed first.
So when we have started after signing the framework agreement is exchanging information. The two teams are working very closely together. So we've started receiving.
Site specific information from from Chevron. So we're looking through those were analyzing them in terms of located in what is the right technology solar win what is the right capacity for each one of these.
So.
Really we've been early stages of working Brewers, a financial model that and then the the power purchase agreement.
So I have unfortunately, we cannot give you more detailed in that.
But in our discussions with Chevron both parties want to see progress and we have talked about.
This study a construction on some of these bugs even as early as when you go into one.
Given pulls it and everything.
We assume the earliest ones who 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 are too.
Thank you I wanted to take one more crack activity that chevron deals. So when your relationship with Atlantic and with HSN. There more international footprint are there any conflicts the chevron deal and these relationships or any opportunities for these partner soon to be involved in the project.
We don't see any conflict there certainly could be opportunities in the future for us do.
Work this through either ages or.
Or our partner with Atlanta got those those are they remain open.
Due to see an idea strategy is very important for us and these chevron relationship is very important for us and the also really wanted a one phase.
Bognor Raghavan.
Having a number of other partners.
In the face on the other side.
Of the table, so we will be taking the lead.
Again.
The goal is for from both sides is very very clear is to minimize the.
Levelized cost of energy and we will do the right kinds of partnerships if need be the.
Right kind of financing structures as needed in order to achieve that goal.
For Chevron and for Us.
Given the comments you made earlier about the size of the Cnine opportunity and we see this global push towards investment in infrastructure renewable CTC or potential for shifts and the focus of Algonquin back more to renewable energy and they get a little away from.
Regulated utilities.
We actually like the balance we have in terms of the 65, 70% regulated the remainder.
The renewable energy, we like that.
Our balance and there's a lot of.
Process.
Synergies indoors or ideas and things of the slower.
On on how to either of those two.
Business box would've been better get better as well, so who we obviously want to maintain our triple b.
In a credit ratings and the so theres a lot lot of factors around that as I will see any major departure form from.
From what we've announced before so.
We also have opportunities on the regulated side.
You know we're in it we are and Acquisitively company, we've announced obviously bell Glenn yields are moving water.
Only over the five year horizon, but.
You can follow the rest assured and we've always in the market.
Looking for the right transactions that meet our financial and our shareholders financing sources.
Thank you and secondly, looking at 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 should we should see Dallas has a new normal for the.
The admin costs or should those the lower in the second half here too.
Yes, sure. So so maybe it's a I can start with the admin costs for the one thing I want to maybe point on the other costs. Some of that is is this probably climbing. It's a so maybe that variance seems a little bit higher than a truly is because we look back in the prior year, our admin costs are actually flat.
Year over year.
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 may be could be considered a little bit whoa onetime in nature.
Increased professional fees et cetera.
But in general 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 sorry, and so just to answer your second part of the question in terms of because the cost savings. So the cost savings of all of the cost savings are coming out quite naturally I mean with respect to people are traveling a less less conferences.
Et cetera, but we're also taking a pretty hard look at other items and implement set a bit of a hiring pause so to the except us.
There's theres.
And in 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.
Get 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 markets RV and see RBC capital markets. Please go ahead.
Great Good morning, everyone.
First David all the best in retirement.
Yes.
Going to the guidance again, one of the items you talked about was closing of Delco small contribution will be needed maybe to hit the low end I mean, just give us an update on that and in display or talking locally in acquisitions status in Europe water, where I think theres been an offer to maybe let municipal a new studies bid on assets just maybe.
Technical involves acquisition in the next 12.
Sure. It's it's Chris Mark maybe I'll take the first one balco 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 and the other background component is that the government extended their guideline date to win a decision will be made through October 4th which happened to be 12 months. After the application was submitted.
And so I guess when if you just step back a little bit I think you'd say that at duration for a regulatory.
Decision on a on a regulated utility of one year, it's probably not unusual and I guess.
We could be accused of being a little bit optimistic on our initial timing expectations.
But that was probably because the regulatory approval process in Bermuda is a very new process.
And that the DRA mandate for electricity is only three or four years old and there's 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 unusual circumstances, such as the are a succession that they underwent every regulator, the Florida commissions, which was.
Changed and something called coded that you might have heard about.
But if you just look at the benefits of the transaction, which is what it keep focusing on there's a huge benefit to the people of Bermuda.
And at a huge benefit to the customers at Balco.
You know.
We're very optimistic that.
Eric that this will be approved it's just.
To us even in the times that were in that represents so many benefits to all stakeholders. So on.
Mark Good morning on near term American water.
As as you know we filed a joint citizens back in February with the New York PSC.
Based on what we've recently seen.
Seen on the revised procedural schedule.
We are expecting to have.
Evidentiary hearings have been in mid December.
And we're expecting the transaction to close sometime in 2021.
And your view of the opportunity for these municipal based to come in and some not participation second to extend the process.
And how confident are you that ultimately peer set a golf winners.
As the best owners of this asset.
And in fact that was what the extended the process because there are two towns.
That sort of approximately 10000 customers out of a couple of hundred 25000.
Customers that express interest and we.
We support the New York PSC drilling a fulsome review.
And.
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Looking at a different options as well.
But we remain confident that we will be able to close on this transaction sometime in 2021.
And then my second area for a question what is just around simplicity orders over the last year. So management's talked about trying to simplify and from the fanatical flexi. Your room, just with you coming in fresh perspective is there any low hanging fruit day like accomplish in the next couple of quarters in terms of of our simplification.
Sure. So does that there's a number of areas as you will know.
That brings in complexity, obviously, we'd like to simplify the story.
More so around ages obviously.
Long term.
We'd like to find a better way to work, we're absolutely Atlantic as well.
Yes, so clearly there is opportunities like that on who we are right now going through a fulsome review of all of the different opportunities again, we clearly want to remain.
We did our credit metrics, we polyone too.
Gain more.
Upside on the if if we'll do a debt ratio probably give us a more room.
And probably.
I 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 at uncovering.
Value that's out there so we'd like to be all his prepared for that optionality.
Okay actually answer I appreciate.
Thank you.
Our next question comes from Ben Pham of BMO. Please go ahead.
Thanks, Good morning, I had a question on.
Your funding.
Now what.
Today, you guided for you.
Basically had reiterated at 9.2 billion.
You can add some equity more recently and I think you mentioned about half of that Capex is can be funded by debt and FX also so I want to meeting.
You have cadence on what's what's the funding that breakout going for the next four years and transit.
For for shares equity direct.
Net sales on our particular cat.
Sure I'll try to address that one so I mean, we as you know we did have our equity raise we tried to get ahead of our equity needs. This year. So so I think we're taking care of certainly 2020 and into 2021, I mean, as we look forward with respect to.
On the appliance for for the remaining Capex I mean, it's in the future we've talked to both certainly mandatory converts product, we still like quite a lot suit visit.
Matches, the earnings profile with with the cash flows of the investments that.
We are we are making so no mandatory convertibles are definitely on the table for us the in the future.
And.
Otherwise of the funding plan kind of remains as is with the with debts and an equity.
And so free cash flow.
Do you get the ATM, then I know yet.
No not near better second half that is.
As I said really a reassessment and next year that based planet ATM does that come back on.
Yeah, I think we'll reassess the ATM early next year I think this year, we for shutdown. The ATM, we really are done the equity for this year, but to the next year, we'll take a fresh look at it.
Okay.
Maybe I can.
Go back to mid Missouri, a bit more just spectrum moving parts and M&A. So you basically you had apply for 22 million of revenue increase Casey.
Got Wyman, you're obviously disappointed if you're going to go back and I try to get more back but in the meantime, youve exercise that class and service.
So with that that basically.
Yes, it for of depreciation that's happening as.
I just thought process that you spend capex. This year now the next couple of years had to throw parity you can recover that capex right away.
And make that person that that.
Revenue Didnt get approved foreign income 10.3 year your rate base effectively as rebates are naturally that is that the way that the.
The sale with network.
Yes, again, primarily is good news around reducing regulatory lag.
That is the primary.
Attractive for Us frankly, I mean with.
We had our wanted to do whether decoupling because we thought it is good for the customers and for the utility not to see these lives as Gary is due to weather but.
I will not did not happen we opted for besides as as you probably know.
Other two investor owned utilities in Middle or you have also opted for piece off earlier so.
We were in good company footfall from that perspective, but we will primarily seeing the benefit of reducing their regulatory lag and smoothing out the clause to AFFO for our customer base.
Okay. So it's not only just to rate base. It's also.
At the income statement to as I'd like to cost structure and whatnot.
That's correct.
Okay.
Alright, thanks for now 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 lot of lots been discussed I wanted to maybe step back and just talk about the U.S. selection 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'm.
Wondered if you could just maybe at a high level give your thoughts on the implications for Algonquin in the event about Democratic sweep.
Sure. So maybe I can start with the with the the tax rate because without that has been getting quite a lot of.
For us and so Joe Biden is looking at.
On the ticket proposing the on increasing the tax rate from 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 it was basically EPS neutral for us on the utility side and slightly.
Cash flow Occassional negative and so on the on non Reg side, it looks like as positive seat and kind of almost think about it as a direct reversal of that I mean in reality theres a lot of things to to be sorted out that it's difficult to tell I mean, one thing for example is how does this new minimum tax enter.
Interact with the beach, the beach get repealed and and so forth. So so I mean, we'll be watching it closely but all in all.
So.
You can cut to think about as a reversal of what happened last time.
And in terms of of the overall environment.
We've done we managed to do very well isn't under and administration that mean, perhaps be as bullish on on.
It will energy so we see will do very well on there and our nutrition that is.
A very little renewable energy our fundamental feces remain strong I think you know one of things you may see is more direct federal procurement of flow renewed renewable energy and I think even for that.
This is in very well as you probably know we have a solar facility in Maryland, great via solar that contract directly with the federal government. So we do have experience and expertise around doing that.
There may be opportunities to add renewable energy more to the rebates as well so we see.
If anything I think of Breuil renewable energy.
Quality will only enhance our our renewable energy and dual story.
That makes sense and then maybe just last question for me just on Chevron, It's obviously, an exciting development 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 be a year or two into the relationship things are obviously, they are going well development is proceeding as planned and both sides really want to.
The increase the scope of fee arrangement or is that less likely is just in your mind sort of fairly discrete or you need to wait longer that are kind of mutually decided to to extend or sort of makes dan.
Stephen We certainly hope do I mean, if you look at the press release is it is actually to let's say 500 megawatts is over 500 megawatts.
So we are certainly hopeful we obviously.
Need to prove ourselves.
Good solid partner for with Chevron and we have every instead of doing that.
And.
We also frankly see this as as almost like a passport project in terms of being able to do similar projects ultimately with other.
Potential cnine customers as well so we're excited about that possibility also so all in all.
I think it it's one more growth lever that we have a within that number.
That's great. That's all had thank you.
Thanks, Susan.
Our next question comes from energy budget of Industrial Alliance. Please go ahead.
Hi, good morning.
Maybe just going back to the guidance for this year on maybe looking beyond sounds like you can offset some of the the weakness here today with some cost savings.
That's probably agree that 2020 of them sort surprises, so far and David you Mendelson clear uncertainties.
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 might come your way over and above 15 million of cost savings.
Yeah sure, although I'll take that I mean, we do have with with respect to we're 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.
You know from from an operations perspective again, just to is committed to 15 million, we grew continuing to a two.
To push that.
But you're right I mean, it is it is an uncertain timing for for the for the remainder of the year ends up.
At this 10 seconds to its we certainly see ourselves.
Holding to the guidance, but.
But we really don't know, what's going to happen with coated or how the weather's going to be so so.
There there is certainly a certainty.
Okay, Yeah, that's something we're going to ground.
Maybe just a high level comments on unauthorized or are we trends. We've seen are always loved will result in some some of the recent U.S. rate cases continue to try and lower and and the spread really versus column long dated the bond yield really why then recently which suggest on.
More ticked down of allowed already going forward just any comments on your expectations for allowed arteries within your utility.
Sure.
Good morning, Naji. So one of the strength of our decentralized model is we're in a water and gas and electric utilities were in 14 different jurisdictions and so while you have seen.
The results of in Missouri.
But we've also seen results in places like California, with 10%, Georgia was it was simply will present, so I think it's difficult to really conclude.
And overall.
The North America wide are really story based upon what we've seen in Missouri.
We have seen other places where the commissions have approved.
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 time.
Thank you that GE.
I would like to turn the conference back over to Mr. Benscoter for closing remarks.
Thank you operator.
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