Q2 2021 Algonquin Power & Utilities Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q2 earnings call for Algonquin power and Utilities Corp.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your speaker today, Mr. Amelia Tsang. Thank you. Please go ahead.
Thank you good morning, everyone. Thanks for joining us this morning for our second quarter earnings conference call presenting the call today are everything's going out our president and Chief Executive Officer, and Arthur Casper, Zhang Our Chief Financial Officer also joining US. This morning for the question and answer part of the call will be Jeff Norman our chief.
Officer, and Johnny Johnston, our Chief operating officer to accompany our earnings call. Today, we have a supplemental webcast presentation available on our website I'll Conklin power and utilities Dot com, our financial statements and management's discussion and analysis are also available on the website as well as on SEDAR and Edgar.
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 at the end of the call I will read a notice regarding both forward looking information and non-GAAP financial measures. Please.
Also refer to our most recent MD&A filed on SEDAR and Edgar and available on our website for additional important information on these items.
On our call. This morning, I ran will provide an overview of our Q2 performance Arthur will follow with the financial results and then a rune will conclude with an update on our strategic plan for the business.
We will then open the lines for questions I ask that you restrict your questions to two and then re queue. If you have any additional questions to allow others the opportunity to participate and with that I'll turn it over to Aaron.
Thank you Amelia and a very good morning to those who have been able to join us on the call and online.
And a special welcome to today.
Since it's a Friday the 13th.
I am pleased to report solid year over year growth in our key financial metrics for the second quarter of the year.
Q2, adjusted EBITDA was $244.9 million.
A 39% increase year over year.
And our Q2 adjusted net earnings per share was <unk> 15.
An increase of 67% compared to last year's nine.
I am pleased to report solid year over year earnings earnings growth from the addition of approximately 40 to 100 megawatts of new renewable generation projects.
These were in construction over the course of last year and this year and this quarter's progress brings to 60 to 100 megawatts of projects that began construction in 2020 close to completion.
We are also starting to see benefits from the first full year of operations from our Bermuda Electric utility has realized the <unk> water utility in Chile.
Which both closed late last year.
Both performed in line with our expectations.
I'm pleased to report that the company's operating results results were not materially impacted by the pandemic this quarter.
Recall that in the second quarter last year. The pandemic did have a one cent impact on earnings per share.
Generally speaking, we have not seen negative impacts from COVID-19 on our laws at this stage.
As business conditions in the regions, we operate in slowly return to normal.
Proximately, 60% of the company's workforce.
Do you need to work remotely.
We continue to employ operational measures.
Intended to protect the health and safety of our employees and customers.
Over the coming months the company is planning to return to base operations.
As the impact of the pandemic further diminish.
However, we will continue to keep watch for any developments with the Delta variant.
And adjust accordingly.
Our team continues to focus our efforts on Algonquin key strategic pillars.
Group.
Operational excellence.
And sustainability.
We operate through two primary businesses.
Our regulated and renewables.
We will spend some time on each brand update.
On the regulated side.
One important lever of growth is our greening the fleet initiatives.
We continue to make investments for the benefit of our customers as we accelerate our transition to a clean energy future.
During the second quarter, we successfully completed our Midwest Greening. The fleet initiative has all three wind facilities.
North Fork Ridge.
Jim's point.
New issue rich.
Have been placed in service and has been acquired by the Empire District Electric company.
The related closer of the Asbury coal plant in March 2020.
Approximately 15 years ahead of its original retirement schedule.
In accordance with our most recently filed integrated resource plan.
And is expected to reduce emissions by nearly 1 million metric tons of carbon dioxide as we work to generate and deliver cost effective.
Diverse.
Sustainable energy solutions for our customers and communities.
We continue to be responsible stewards of our energy infrastructure assets.
We are an early pioneer in seeking to build renewables into rate base.
The early retirement of Asbury has also contributed to the reduction in the company's total scoop, one greenhouse gas emissions as well as reducing scope, one and scope two emissions intensity per dollar of revenue by 26% since 2017.
The year in which the company acquired Empire.
The completion of the Midwest Greening initiative is just one more step on our path to reduce emissions.
Liberty recently filed an application with the California Public Utilities Commission.
To approve financing construction and operations of the looming expansion project, which is expected to be a combined 60 megawatt solar facility.
And 240 megawatt hour lithium iron battery storage facility that will benefit liberty's customers by adding reliability resiliency and price stability. In addition to meeting Liberty is renewable portfolio standards energy supply objectives.
Since 2017, we.
We have already reduced our carbon intensity of <unk> by 46%.
And this new investment is.
If approved.
Will help us continue to Decarbonize and provide cost savings over the long term to our customers.
Another important growth lever in the regulated business is the organic investments in improving the safety and reliability of our mission critical infrastructure.
Working with our local regulators, we strive to make the ongoing necessary investments to improve service for our customers.
While managing the affordability of their bills.
Reduced activity across our jurisdictions continues to be quite active.
And I wanted to provide you with a few regulatory updates in some other jurisdictions that we operate in.
Okay.
In the second quarter.
We filed our Missouri electric rate case with the commission at the end of May.
Which included seeking cost recovery of the three recently completed 600 megawatts of wind generation facilities I mentioned earlier.
In addition.
While our original filing included costs related to the impact of winter storm theory.
Listen has subsequently been passed which will allow for these items to be securitized.
<unk>, which we intend to pursue.
Apple Valley, which operates in California was the subject of Honda Nissan lawsuit filed by the town of apples Adam.
For the last few years, we have been in legal proceedings over the water system and recently received a tentative statement of decision that supports our continued ownership and operation of the system.
We have a track record of providing safe and reliable water services and we look forward to working with the town of Apple Valley to continue those services for the benefit of our customers.
Staying on the topic of California.
We filed our <unk> rate case in meat.
And filed our Blackwater Apple Valley rate case in July.
Our California utilities wouldn't be the first to file rate cases seeking recovery of customer first.
Ill provide more details on later.
In addition, we recently reached a tentative agreement for our energy North gas system in New Hampshire.
As part of the settlement the commission authorized a permanent rate increase which is expected to result in a revenue increase of $7.6 million based on a return on equity of nine 3%.
And equity capital structure of 52%.
In addition.
Energy North received an authorized isn't for a property tax tracker mechanism, which.
Which is expected to further increase the predictability of earnings.
Further step adjustments of $4 million for 2021, and $3.2 million for 2022 were authorized as part of the settlement pending further detail further diligence and hearings.
Yeah.
Lastly on the regulatory front.
We reached a constructive rate case outcome with the regulatory authority of Bermuda.
Marking the first completed rate case since the acquisition of <unk> in the fourth quarter of last year.
Another lever of growth is acquisitions.
And we completed two utility acquisitions in Q4 of 2020.
Assam and ascendant.
The integration of these two utilities into the Algonquin Liberty family continues to go well.
With our pending acquisition of New York American water. We are currently going through the settlement process.
As important work continues to determine the best path forward on resolving issues related to the special franchise tax we remain confident that Liberty has the best long term owner of the utility and expect this transaction to close within the recently extended timeline set out in the stock purchase.
Agreement.
Lastly, <unk>.
Looking to the future of our gas utilities.
We have begun exploring the utilizing some of renewable natural gas or RMG to better serve our customers.
We have R&D projects in various stages of commercial development and have already made a record.
Regulatory filings in New Hampshire for the.
The approval of supply agreement that includes a purchase option for liberty to be the ultimate owner of the facility.
Moving on now to operational excellence.
In a mission critical industry safety and reliability are always the most important areas of focus.
I am pleased that we have passed the impressive milestone of 502006 days and over 7 million safety hours without a single lost time injury.
While keeping our customers and communities safe.
And maintaining our system reliability and resiliency.
I also want to highlight some innovative approaches we are taking to support system resiliency.
Our stage project in <unk>.
As a micro grid at Berkeley Research station at the end of four miles of transmission line in wildfire territory.
By putting solar and stories onto the site, we are able to take the transmission line out of service during wildfire season.
While keeping the lights on for our customers.
All for a significantly lower cost than installing covered conductors through the four miles of transmission line through the environmentally sensitive sports.
In the non wildfire season, when the transmission line is back in service. The micro grid is expected to provide additional resiliency.
As previously mentioned, we are excited about the new digital experience for our customers through our customer first program.
During the second quarter.
The team successfully completed the first major implementation of our new suite of tools.
Tools and systems at our Massachusetts gas utility.
We will be rolling out this enhanced technology platform in a phased approach across the rest of the organization over the next couple of years.
The customer is at the heart of every good operational excellence strategy.
We have continued to bring customer focused interaction.
By asking our customers.
After interactions with our team about their experience.
This quarter, we have started the rollout of net promoter score measurements from our customers.
This is on top of our existing J D power service and will allow us to collect more timely and specific feedback to drive focused action as we continue to look to meet and exceed our customers' expectations.
Turning to the renewable side of the business.
In the second quarter.
Our 492 megawatt Maverick Creek wind facility in Texas reached commercial operations.
And as a long term power purchase agreement with General Mills and Kimberly Clark.
There was a blade manufacturing error, which impacted 26 of the 73 turbines at Maverick Creek.
What remedies and work was completed in early June.
With all 26 effective turbines returning to service.
Our service agreement contains liquidated damages protections in favor of the company for revenue loss due to operating downtime.
Alta Vista solar and.
An 80 megawatt facility located in Virginia.
Also reached commercial operations in the second quarter.
The facility has a 12 year power purchase agreement with Facebook.
We're also excited to be collaborating with J P. Morgan Chase on our Shady Oaks wind construction project in Illinois with JP Morgan Chase agreed to purchase approximately 70% of the wind energy output, which will contribute towards the 100% renewable energy.
Okay.
All of these projects showcase our strong relationships with key commercial and industrial C&I customers.
The demand from C&I customers, who are helping to drive an acceleration towards clean energy is expected to be an attractive source of growth for Algonquin in the coming years.
Algonquin is well positioned to help them advance their own sustainability targets.
We recently closed the acquisition of a 51% interest in the West Raymond Wind facility, which reached commercial operation in the third quarter.
And as a generating capacity of approximately 240 megawatts.
Which we had previously agreed to purchase from R. W. E.
With the close of Raymond we.
We have completed the acquisition of our 51% ownership interest in four wind projects from arguably looking in South Texas.
With a total capacity of 861 megawatts and a net capacity of 439 megawatts.
And finally.
We remain firmly committed to sustainability.
The inclusion of environmental social and governance values in our broader corporate strategy and day to day operations.
Last year, we released our 2020 sustainability report, which not only outline our progress on our ESG goals, but also provided a higher level of detail around nine priority issues.
I'm pleased to say that we are making excellent progress on achieving our goals.
We reached an important milestone with.
With Algonquin now owning operating and have the net interest in 4000 megawatts of renewable generation across our two businesses.
We are well on our way to achieving 75% renewable energy generation by 2023, another one of our sustainability targets.
We have also added sustainability metrics to both our annual and long term compensation for our leaders this year.
Embedding sustainability into our compensation model.
Another key ESG goals set out in our sustainability report is to add 2000 megawatts of renewable power generating capacity between 2019.
And at the end of 2023.
By the end of 2000 by the end of Q2, we have added over 40 to 100 megawatts of renewable generation.
And we remain on track to achieving our 'twenty to 'twenty three targets.
We are focused on progressing and advancing our ESG disclosures to our stakeholders.
I'm pleased to report that we recently launched a new data hub that can be found in the sustainability section of our corporate website.
Which is further evidence of our increasing breadth.
And transparency on ESG data.
I encourage you to take a look at the data hub, which provides detailed information around our operational metrics.
Governance.
And policy amongst many other measures.
Our efforts in sustainability continue to pay off and we continued to receive external validation.
Including the recent inclusion of Algonquin and do corporate Knights 2021.
<unk> corporate citizens.
Ranking within the top quartile of our peer group of power transmission and distribution companies.
With that.
I'll pass it over to Arthur will speak to our second quarter 2021 financial results.
Arthur.
Thank you Rune and good morning, everyone. I am pleased to report that Algonquin has made good progress to meeting its financial targets for 2021 with solid financial results for the second quarter.
The Q2 results are underpinned by our golf is diversified and resilient business model and proven track record of ambitious but responsible growth.
Turning to slide 11, our second quarter 2021, consolidated adjusted EBITDA was $244.9 million, which is up approximately 39% from the $176.3 million, we reported in the previous year.
The regulated services group delivered $165.9 billion and operating profit in the current quarter, which compares to $114.5 million in the same quarter last year.
The year over year improvement is primarily attributable to the additional contribution from Bill Cole, our Bermuda electric utility and ESL, our Chilean water utility as both acquisitions closed in Q4 of last year.
Well as from the contribution of our wind facilities that were placed in service as part of the Greening. The fleet initiative that Arun spoke of earlier.
Results also benefited from new rates implemented at the granite state and <unk> electric systems, but were partially offset by higher fuel costs in the central region, resulting from out of period, we settlements relating to store Murray and increased operating expenses.
I should also note that the regulated services group did not experience any material impact from COVID-19, this quarter, but the comparative results from Q2 of 2020 were negatively impacted by the pandemic by approximately $9.6 million.
The renewable energy group reported Q2 divisional operating profit of $97.9 million, which compares to $82.7 million in the same quarter last year.
The increase is primarily due to the addition of the Sugar Creek and Maverick Creek wind facilities and the Great Bay two solar facility.
This was partially offset by lower production due to resource shortfalls, primarily across our wind portfolio.
Excluding the impact of the newly added facilities production of renewable facilities was approximately 7% lower than last year or approximately 12% below the long term average expected production.
I should also mention that our investment in atlantica sustainable infrastructure continues to provide benefit to the renewable energy group's operating profit with dividends received increasing by $2.1 million over the comparative quarter supported by Atlantica is continued growth in cash flows.
Quarter over quarter, corporate and administrative expenses remained generally flat interest and depreciation expenses, both increased due to higher property plant and equipment and the associated financing related to the acquisitions that closed late in 2020.
Income tax expense was lower and benefited from renewable energy tax credits recognized.
In total our Q2 adjusted net earnings per share came in at 15.
Which is up 67% from the nine reported last year.
Moving on to slide 12 to provide some updates on our 2021 capital plan and financing activities.
During the quarter Algonquin deployed approximately $1.2 billion of capital pertaining primarily to the previously discussed initiatives and initiatives relating to the safety and reliability of our electric water and gas systems.
This brings the total capital deployed so far this year to approximately $3.1 billion and on track to our expected capital deployment in 2021 of over $4 billion.
Moving on to financing activities I'm pleased to say that during the quarter, we made great progress in Derisking, our five year financing plan.
Further strengthening our balance sheet and reinforcing our commitment to triple B flat credit metrics.
During the quarter Algonquin completed a green mandatory equity units offering.
Due to strong demand the deal was upsized from the indicated 900 million size and the full over allotment option granted to the underwriters was exercised.
Bringing the total gross proceeds from the offering to 1.15 billion.
The units are expected to receive 100% equity credit from standard and poors.
The transaction represents several first of all Don Quinn the market in general to our knowledge. This was the first green mandatory equity unit offering ever done showcasing although <unk> ongoing leadership and commitment to deploying capital to support sustainable initiatives.
This was also the first offering by Canadian issuer of a mandatory equity units, which are more frequently used by some of our utility peers in the U S.
As you maybe heard me mentioned in the past would we find attractive about the mandatory equity units as the natural match they provide to our business in terms of when we pay for our capital and when we earn on it.
The securities deferred the issuance of shares until conversion after a three year period, but received 100% equity credit immediately from S&P.
Investors benefit from an enhanced yield and the issuer can partly benefit from share price appreciation, which can result in an overall lower cost of capital compared to common equity.
Through this issuance, we have further expanded and diversified Algonquin investor base and introduced another tool to fund future potential accretive growth opportunities.
During the quarter. The company also utilized its ATM program, raising approximately $235 million of common equity.
We view the ATM program is allowing us for cost effective and opportunistic issuance of our common stock, but plan to remain disciplined in its use.
To date, we have also received funding from over $1 billion from tax equity investors monetizing the tax benefits associated with our renewable energy projects in the U S.
In total I would say that we have satisfied the preponderance of our capital needs for the year and have positioned our balance sheet to continue to execute on all goldman's growth plans.
For the rest of the year, we will continue to monitor the hybrid debt markets as a potential opportunistic source of capital in the current low yield low yield environments.
Before I turn things over back to you Rune I'd like to provide a brief update on our 2021 guidance.
Although it can continues to execute well against its 2021 financial targets as discussed we have already delivered approximately 14.100 megawatts of new renewable generation capacity from our 2020 construction pipeline. In addition, we have and continue to expect to benefit from the first full year of operations from <unk> itself.
Excluding the impact of the market disruption on the Senate wind facility related to storm early in Q1, we continue to expect our 2021 adjusted net earnings per share to be within the range of <unk> 71 to 76 <unk>.
As communicated previously.
We continue to assume that our earnings expectation normalized weather patterns as well as resource availability and production on our renewable generation facilities that are within long term averages.
We also assume that the closing of New York American water will occur sometime within the fourth quarter of 2021.
Although a further delay in the closing is not itself expected to materially impact our 2021 adjusted net earnings per share estimates.
I also want to reiterate that our five year capital plan of $9.4 billion remains on track of any already deployed over $3 billion of capital. This year, we are well on our way to meeting our five year targets.
With that I'll now hand, it back to you rune to outline our growth plans.
Thanks Arthur.
Before we close out our prepared comments this morning.
I wanted to give an update on our strategic initiatives.
As we look to simplify our business further on August six we took a step towards simplification by exercising the option to acquire <unk> interest in ages.
Given the change in ownership, we will be referring to ages and associated ended entities at Liberty development.
Liberty development will remain focused on advancing Algonquin Nonregulated development pipeline in North America and selected international markets.
<unk> interest is expected to be acquired by funds managed by the infrastructure and power strategy of Ares management LLC.
With Algonquin retaining the right drug.
Acquire 100% of Liberty development projects.
We also anticipate that Aries will remain involved in projects.
Commercial operations.
At Investor Day, we spoke about our nine $4 billion five year investment plan from 2021 through 2025, which has identified projects that make up the entire nine $4 billion with most of them now in operation.
Under construction or in advanced stages of development.
Let me provide the latest update.
The following projects have reached commercial operations since last November.
Maverick Creek.
<unk> Creek.
Alta Vista on the renewable side one.
While on the regulated side, our three Midwest wind projects totaling $1.1 billion in investments were also completed.
On the construction site.
What our 175 megawatt blue.
With project in Saskatchewan.
And 24 megawatt Val Eo wind project in cubic.
Continued to progress well, we'll start buying deliveries in flight.
We are also progressing well on our new sites.
Demonstrating the ongoing execution of our development portfolio.
Shady Oaks too.
<unk> signed an agreement with JP Morgan Chase as I discussed earlier and.
And the project commenced construction in May.
We have also included too.
GM solar projects that were incremental additions at Investor day.
In the first quarter of 2021, we completed the acquisition of these two Ohio solar projects, which has an expected combined capacity of 235 megawatts with the first project new market solar.
100 megawatts, having begun construction in may.
We also recently executed equipment procurement contracts for both our Deerfield too.
And Sandy these two wind projects.
I note that recent inflation and commodity pricing trends will likely result in higher project costs.
Conversely.
I'll state contracts have seen similar increases in pricing recently.
Which may help to offset the impact if any of increased commodity risk.
The renewable energy group seeks to mitigate impact on project returns by locking in generating 8%.
Construction prices and optics as close to contemporaneously as possible.
We continue to invest in the 3400 megawatt Greenfield pipeline that we discussed at Investor day.
As a reminder.
This greenfield pipeline investment is over and above our $9.4 billion capital plan.
Our greenfield investments are focused on securing new opportunities and.
And continuing to advance the projects comprising the 3400 megawatts.
The Chevron projects are included in the 3400 megawatt Greenfield pipeline.
These projects continue to progress well.
And we are on track to achieve final investment decisions for the initial projects by year end.
As discussed in the past.
The Greenfield pipeline is being built to replenish the more advanced projects included in our five year $9.4 billion capital plan.
I am proud of all we've accomplished so far this year.
But even more excited for what lies ahead.
With society economies working hard to minimize carbon emissions I'm excited about how algonquin regulated and renewables businesses position the company to contribute to and benefit from this decarbonize incentives.
We have multiple levers of growth of course, our two businesses that I've spoken about throughout today's call, which gives me further confidence in our ability to execute and deliver on our fiber investment and growth plan.
In summary.
2021 has been a very productive year, so far as we continue to execute and deliver on the company's largest consistent program in its history with.
With approximately 40 to 100 megawatts of the 600 megawatts already placed in service for.
For context this.
These new projects are expected to approximately double the size of the company's portfolio of renewable energy generation facilities that we own and operate.
Our three strategic pillars of growth operational excellence and sustainability will be a key foundation as we continue to build the business and strive to deliver steady earnings and dividend growth create.
Creating long term shareholder value.
With that.
I will turn the call over to the operator for any questions from those on the line.
Thank you once again, ladies and gentlemen, if you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key and we will now pause for just one moment compile the Q&A roster.
And your first question comes from the line of Sean Stewart with TD Securities.
Thank you good morning, and thanks for all the detailed commentary.
Couple of questions with respect to the Empire rate request, a 10% ROE and 52% equity thickness.
Similar to what was rejected last year can you give us some thoughts on the request this time.
What gives you confidence that this is.
Reasonable and and how things might have changed over the last year to give you that confidence.
Sure Sean Good morning, and thanks for that question. So look first of all it's still early.
Just very recently filed for that rate case.
As we've said in prior calls.
We continue to be confident in our in our position on equity sickness.
And we believe we will get the right outcome around equity thickness.
Okay.
And further to that in the securitization of the cost tied to the the weather event can you walk us through that process and how that can evolve ticket for the 30 million there.
Sure as you know.
Sean.
The legislature has recently fast.
Listen.
Pat.
Approves securitizing, our such.
Extraordinary cost and we do plan to.
Deal of that Mccann has them.
We are looking at.
We've started the process internal process around that.
Just as a reminder.
After $80 million increase and a $30 million of that is from Stuart.
Outside of that our rate case increase is more in the 7%.
Range.
Which translates approximately one 4% CAGR when you look at it from the last rate increase in 2017.
Okay and then one last question maybe for Arthur.
You guys seem very focused on obviously growth here, but.
Any updated thoughts on capital recycling as a longer term funding source to them.
The broader growth ambitions for the company any updated thoughts on potential for asset sales too.
Fund earlier stage developments.
So before I turn to Arthur I will say that I've looked at it in a capital recycling is always on the agenda for us.
When we announced that back in.
At Investor Day, we are still what six seven months down from that point onwards, it's still early days, but capital recycling is absolutely something we continue to look at as an option.
I don't really have anything to add Shaun.
It's on the radar we look at it.
Nothing concrete to talk about at this stage.
Okay. Thanks, very much guys I'll get back in the queue.
And your next question comes from the line of Rupert <unk> with National Bank.
Good morning, everyone.
Good morning, Rupert so getting back to the the rate cases that you filed can you give us a sense of the timing of the hearings here and are you seeking any additional smoothing mechanisms and maybe move off piece of accounting with the <unk>.
Hey, Casey filed with Empire.
Sure. So we filed a rate case.
<unk> me, but let me turn to Johnny for a further deep.
Detailed.
So.
Having said it will be later on.
And I think this year.
We're not expecting a decision until Q2.
Next year.
And we will work through.
With the commission and all stakeholders in terms of the best way to.
Implement an increase say, we're certainly open to <unk>.
A new thing right.
Rates in a way that works.
For our pro customers.
Alright, great. Thanks, and Arun you've completed the greening the fleet initiative in Missouri or looking at some new.
Ladies investments account Pico is there more to come here how soon before you could look at say greening the fleet phase two in Missouri as their political support for doing.
Many more investments like this across your asset base.
We believe so Rupert and again.
We're proud of the fact that we are.
Pretty much entrepreneurs.
This.
Area.
We look at it.
Across our existing fleet and in fact, even on our water utilities, which there's a lot of energy that goes into moving water and we look at that as well as an option.
Even when we acquired <unk>.
One of the attractions for US was the fact that in.
In an island economy.
It is pretty much all of it as a thermal.
Generation.
And with customers being over 30 per kilowatt hour and we strongly believe that there is a lot of.
<unk> ability to be in the fleet and in that case as well. So that's something we look at it in pretty much every instance, whether it be with our existing portfolio or anything new.
Hi.
Possibilities, we look at as well.
So how long before you think we could see some some more greening the fleet initiatives.
Telecom for example.
Steve do in Rupert.
We're obviously excited to let everybody know as soon as we are able to announce it.
Okay I'll leave it there thank you.
Thanks Robert.
Yeah.
And your next question comes from the line of Nelson Cheung.
Great. Thanks, everyone, just a follow up on Rupert.
<unk> like now that you have finished screening or you would start you finished the first phase of greening the Empire I'm, just wondering like bigger picture.
Now that you've kind of gone over that.
Hum on your capital plan spending about a third of.
Of the of your five year capital plan in the first six months.
Okay.
If you like I guess the question is if you see an opportunity that's similar to Empire.
Where you had the opportunity to buy.
Some assets that has coal.
Would you do it like would you buy a utility with significant coal assets.
Does that is that something you would look to do.
Look.
It's a speculative question and so.
I'll answer it in a similar way right. So.
First of all we.
Have a very.
Attractive ESG profile I mean, when you look at our carbon intensity at 0.0013 per dollar of revenue that is among the lowest lowest among our peers and in our history.
Nelson.
I'd like to repeat this back.
33 years of existence, we've never ourselves.
Developed and therefore added to the world stock of emissions and at the same time, we are very good stewards of infrastructure.
And so some of the numbers, we gave you around Midwest Greening with.
A reduction of 26% carbon intensity in just three years in Calgary, Google a 46% reduction in carbon intensity in just two years.
Besides what we do on the renewable energy side of the business in terms of investing in renewable energy assets.
For the good of our customers and our shareholders and the world at large I think it's a similar profile on the regulated side of Greening the fleet, which I believe is good for our customer.
Customers, our shareholders and the world at large so if there are similar types of opportunities where we can.
Utilized our greening the fleet initiatives, we will.
Take a hard look at that.
Okay. Thanks, that's clear.
And then just moving over to Kal Pico in terms of the rate case filing I havent gotten a chance to go through it but.
Roughly $36 million increase.
Seems like a.
Big increase for our four utilities, that's not that bank could you just.
Run through some kind of big picture items in terms of what's driving the rate increase there at Cal Pico.
Yeah, Let me give you the big picture and I'll turn it over to Jonathan.
Vast majority of that increase is really associated with what with wildfire mitigation.
And as you know in California, and that greater geography, Thats, obviously something that is extremely important.
We want to make sure we keep our customers and community safe.
Johnny.
Yes.
The short story is it's really it's a wildfire.
Cost have driven that increase and it's the investments that we're making.
Reduce the risk of future impacts in the area.
Going activities.
Increasing our tree trimming.
Ed.
Monitoring so that we are able to sort of take all lines out of service at high risk.
Periods of time, I think maybe the important point to note. Despite the significant increase even with if it were fully approved we'd still be one of the lowest cost rates in California, and actually if you look it will be.
Californian utilities would be filing in terms of their rate increases.
The majority of them have had 30% to 40% increases.
Sort of in this timeframe really driven by a similar activity.
It is a big step up there's no doubt we're always very focused on the bill impact for our customers, but really this is being driven by the evolving landscape in California.
And just to follow up on that is that increased like.
Is it mostly to service higher operating costs or are you, making a lot of capital investments.
What's the mix roughly.
It's roughly 50.50, and so there is significant investment going in in terms of putting in covered conductor modernizing.
Switching and using technology as well as some of the operating cost expenses.
Kevin This is roughly 50.50.
Okay. Thanks, I'll get back in the queue.
Thanks Nelson.
And your next question comes from the line of Ryan Greenwald with Bank of America.
Good morning, everyone.
Good morning Rod.
Good morning, I appreciate your commentary earlier on that potential call opportunities in transition, but kind of given the media reports earlier. This week can you comment a bit more broadly just on your overall assessment of the regulated M&A landscape and independent Capex update at the end of the year here.
Sure so.
As everybody well knows.
Just the number of regulated.
Many opportunities out there when you look at it in 2010 for example, our 2000 versus now that landscape has significantly.
Sure. So just a number of.
Utilities out there are fewer.
Some of the consolidation that has been going on.
And look in.
If you look at our $9.4 billion five year plan.
We only include.
Acquisitions that we've already announced so you define New York American water in there.
Our $9.4 billion dollar plan does not depend on any future acquisitions.
But having said that we do look at that as a possible lever another growth lever to enhance our growth even further and provide more shareholder value.
So that that's really the context.
Great. Thank you for that and then giving broader concerns around the supply chain and inflationary pressures. This having any impact on the way you think about the development pipeline any hesitation to go through with some of the potential projects given pressure on returns.
So far we have not seen that Ryan and again.
What we have seen is some of the increases on the supply chain.
It has been.
Offset by by price increases on the offtake side.
All of the ledger.
And also one of the strategies, we deploy is drive to.
Finalize the supply contract the construction contract.
And the optic contracts as close together as possible. So that there is very little.
Residual risk that we're taking in terms of commodity increases.
In the light.
So.
So far we are we continue to.
Absolutely, our greenfield pipeline and other such projects, but we always have the options of delay anything.
As such.
Contingency does that.
Great I'll leave it there thanks for the time.
Thanks Ryan.
And your next question comes from the line of Rob Hope with Scotiabank.
Good morning.
First question is just on the 2021 and EPS outlook that you reiterated.
We're kind of halfway through the year.
You're talking about the puts and takes.
Looks like taxes had been a pretty strong tailwind. So far was that originally anticipate or is that offsetting some of the weakness first thing in the renewable generation side.
Yeah, Hey, good morning, Rob It's Arthur here, So sure I can speak to that so well.
In terms of our outlook for the rest of the Europe like I mentioned in my prepared commentary, we are reiterating our guidance of that between the 71% and 76, but in terms of when setting that guidance I mean, we factored in several things one of the things obviously being.
The impacts of Covid, which thankfully, we actually didn't see so so that is providing us a little bit of room on the flip side I mean, we did have a little bit of.
Milder weather, obviously throughout the year as well so those two things are to some extent.
Offsetting that to your second question around tax credits.
I would say a portion of the tax credits, yes, we're not unplanned, but maybe it's more of a function of of geography, where there are recorded and I'll explain.
Little bit further.
As you are aware, we had the delays in.
And the final commissioning of Maverick and Sugar Creek due to the.
Due to the blade issues there so what that basically did is in essence it delayed.
Final investment by tax equity.
Those projects so normally what we would have seen for the year as if tax equity invested we would assume that those those credits that were generated from the.
The turbines the we're operating going through through <unk> versus here, we have the opportunity to obviously take those credits and self monetize them.
Seeing a little bit more in the tax line versus what you would've been seen a little bit more in the EBIT line, otherwise if that wasn't the case, but but overall.
Washington, and the results.
Yeah.
That's some great color. Thank you.
And then maybe just a follow up question on the Ares partnership there can you just walk us through.
Thank you of not taking a 100% of agents as well as whether or not I.
I guess, what does <unk> bring to the table and kind of.
What future partnerships could look there.
So Rob.
Just to give you context as you know Abengoa was our 50% partner on aegis.
And.
Given all of the challenges that they were having with.
The restructuring we felt it was timely for us to find a new partner.
And so we have exercised the option.
And we.
Believe areas.
It does.
Quite quite a bit of.
The constructive.
Our experience and know how in this sector.
In 2020 for example, one of the 10 largest wind.
Answers.
Also we will have.
Companies.
Or in the construction business as well so we believe that they bring both.
The development and construction expertise as well as our financing capability too.
To develop and finance.
<unk> finance our construction activities.
And Thats, where.
The cities.
Thank you.
Yeah.
Thanks, Ron.
And your next question comes from the line of Ben Pham with BMO.
Hey, Thanks, Good morning, I had a couple of follow up questions on it totally M&A aggregate.
Comment more.
More broadly.
I carry that you're most focused on now at five.
Geographic diversification.
Synergies or anything else, you can share and more specifically just lifting tier the answers to earlier questions on when these Kentucky Opex was that would that fit into your overall.
Preferences are targeting.
Sure Ben lots of questions in there so let me try to.
In a good spot.
Those.
So first of all geographies, it's pretty clear I mean, it's North America.
And again.
We don't say never.
Yeah.
Other than North America for example.
Case in point was finalized the geographies North America right.
One of the few companies that are across all three modalities electric.
Water and gas.
We are.
Very very bullish on electric and water that fit extremely well with our ESG profile right now on the gas side that we are focused much more on.
Deploying our renewable natural gas into our facilities.
We have filed the first one in new Hampshire, we are looking at a pipeline of a lot more and we're also looking at green hydrogen we New Brunswick for example, we participated in.
Maritime study.
And we are following a number of other pilot projects that are out there and green hydrogen that's our focus on.
The gas modality so.
But.
Specific to <unk>.
Transactions that we have a policy never to comment on specific transactions I'll, probably leave it at that.
Okay and then.
<unk> you want one accretion added a gate.
On the financial absolutely I mean look I mean, we don't we look at from.
From a strategy perspective, clearly it has to fit all of our strategic objectives, but we do we do not make China do transactions based upon striving given these transactions and absolutely have to stand on their own we look at a lot of different metrics.
And we are extremely disciplined around those and we obviously.
And I'm not doing many more transactions than we end up transacting on so absolutely extremely disciplined around the financial metrics.
Okay, and then and then the second one is on.
On the funding side here.
Kate.
Hey, Ed larger than <unk>, everyone.
Our balance sheet Arclight Medicare convert to their room and that's in the.
Hi, Brett.
Or do you think about that impacting your funding plan.
Yes.
And.
From our perspective, I mean, one thing I would say, maybe generally but we've we've never kind of fallen behind on our balance sheet strength, we always would.
We maintain a strong balance sheet I think that that itself brings us from us for it.
Position of strength to call it.
To some extent and speculating around any any funding sources as I said in my prepared remarks lots of tools in the shed right in terms of.
Would you be able to.
Where to source capital.
Okay. That's great. Thank you.
And your next question comes from the line of Mark Jarvi with CIBC.
Thanks, Good morning, everyone I just wanted to clarify one thing on the response to Bens question. When you talked about the different financial metrics you look at for a deal making sense, what EPS accretion or the topless wasn't 100% clear EPS accretion has to be on day one.
Absolutely we look at EPS accretion, that's probably our most fundamental and most.
The metric we look at absolute.
Perfect. Thanks for that and then I'll see lots of.
Whilst our auction in California this year.
<unk> seen reports that you guys have 90 energized lines.
Ted how peco can you just update us in terms of any.
Earnings hedged for any potential liabilities that might.
It might be faster, so far you've been scanned by that.
That wildfire.
Wildfire option.
Sure So I think.
Mark We did report earlier, we talked about.
The mountain view wildfire the investigation continues on that one.
We also recently faced another wildfire the tamarack wildfire, which is a much smaller.
Smaller one in comparison.
One is largely contained.
We are look.
Our employees did an amazing job in terms of mitigating that wildfire and bringing all of the customers back online.
A very short time.
It was extremely impressive to see what our employees were able to do out there in bringing.
Generally there is in place even for just a few customers.
Reliability is so important.
And yes, and that was all of the background and context on what we're seeking for.
In terms of the new rate case, because we do believe we need to continue to invest.
In wildfire mitigation.
Aspects in that.
Is really the context behind the most recent.
Right.
Okay, and then just one more thing just on the <unk> partnership.
Location.
Arthur you can explain in terms of where all the investments flow through your own financial statements or is there still some spv's involved in some of that stuff.
Any capital commitments from Aries.
On any investment going forward.
So maybe the simplest answer is in essence, how it's going to flow through the financial statements. It's basically status quo in terms of how you currently see it to the extent that you listed.
C C.
Hey, Scott.
Being accounted for as a joint venture.
Okay. Thanks, a lot.
And your next question comes from the lineup <unk> Beydoun with IAG capital markets.
Hi, good morning.
Just wanted to start with the Oh.
Renewable projects that are already.
And the Hopper can you just remind us of whats contracted.
So shady Oaks, you have the contract with Jpmorgan, what about the <unk>.
Ohio solar projects or some of the other projects coming down the pipeline.
Yes, yes, yes.
Happy to do that and you're absolutely right with the with Shady Oaks too in terms of the uptake with JP Morgan the new market.
Folio is also contracted.
And so all the projects that we have under active construction or are contracted at this point in time.
Okay I guess the other projects that are in what's called them advance development are those whats still left to be contracted from those.
Yes.
Two we've got Sandy rich too, which is an advanced development, which is contracted and we've got Deerfield to which we're in active discussions on the <unk>.
<unk>.
But have not signed the contract yet.
Okay. Okay got it that's good.
And just on that in the luxury.
Just for context.
The offtake contracting happens towards the very end before what we say internally at notice to proceed so that's where we try to make sure we we.
Yes.
The supply contract contract with construction contract and offtake contract comes together and Thats. One we got a notice to proceed so usually that really happens towards the end of the development cycle.
No.
Fully agree and that's very intentional on our part for the reasons that you cited.
Earlier in terms of making sure we get alignment between cost and the offtake contract.
Understood and.
On the lending project this both the solar and storage system.
Together, that's how that Youre working on.
That is correct.
Solar plus a 240 megawatt hour battery storage system Thats correct.
Okay.
Just wanted to get your thoughts broadly on I guess, how youre thinking about storage is maybe the first project will then the utility business, but just wondering how are you thinking about storage both within the regulated portfolio, but also maybe the nonregulated side of the house.
Actually we already have around what 20 megawatts worth of capacity on the regulated side of the business on stories.
<unk>.
On the renewable energy side of the business. Our first project in New York State is under construction.
<unk> plus <unk>.
Battery storage project look given the prices.
Storage.
And our ability to shape up perhaps of the energy.
Outflows, we look at stores on.
Every wind and solar project to see if it makes sense and so it's very much part of the equation.
Okay. So it sounds like there is maybe opportunities on Todd on both sides.
Absolutely.
And again.
The reason I was telling you about the 20 megawatt plus on the regulated side as we are already deeply in at.
You already have a lot of Knowhow and experience in operating these battery storage system. So we absolutely will continue to look at stores.
Yet another area of technology growth.
Understood. That's very helpful. Just I guess last question on that as.
What I also meant by regulated versus unregulated, maybe how you think about the risk and the returns and if you had to choose a project would you.
Storage side does it make more sense for you today to have it within the utilities or not.
I mean look the risk profile is somewhat different on the two sides, but not that much given the fact that even on our own.
Renewable side of the business is largely contracted and with a long term contract remainder average weighted life of 13 years.
Until there is some.
The risk reward of difference.
But it's not large enough for us to say, we're going to put all of our capital on stores on one side or the other.
We believe that there is a lot of opportunities on both the regulated and the renewables side of the business.
Okay got it thank you.
Thanks Maggie.
And your final question comes from the line of David Quezada with Raymond James.
Thanks. Good morning, everyone. Just one quick one from me you mentioned renewable natural gas a little bit in your comments I'm. Just wondering if theres any color you can provide around the timing and maybe the quantum of that opportunity and given that the tax credit that has been proposed.
Could you look at that outside of the regulated footprint.
Absolutely David we are already looking at outside our regulated footprint as well.
We have a.
Our development pipeline across every one of our gas utilities that is looking at a renewable natural gas.
We believe that at its maximum it could actually substitute for approximately 25% of all of the magic that flows through our gas LDC systems. So it's pretty attractive from that perspective, the pricing is something obviously, we're working on.
One of the things we're very focused on is trying to make sure that it doesn't impact.
Customer bills. So we're looking at different kinds of structures and.
It reminds me of the days of.
Renewable energy.
A decade ago, when the prices were higher but there were enough.
Customer base out there that we're willing to pay higher prices for the sustainability gain for renewable energy and I think we see a similar pattern on the renewable natural gas side as well with theirs in Napa.
Commercial and industrial customer base that is willing to pay in the initial higher prices on renewable natural gas now a lot of the stuff that is going on.
<unk>.
Biden Illumina interest environment action builds.
Should help in terms of bringing that cost down even further so we're absolutely looking at that.
CRD.
Our robust development pipeline and LNG.
That's great color. Thank you very much.
Okay, David Thank you very much and <unk>.
Thank you everyone for taking the time on our call today with that please stay on the line for our disclaimers.
Our discussion during this call contains certain forward looking information, including but not limited to expectations regarding earnings capital expenditures and size and timing for completion of our project. This forward looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and Edgar and available on our <unk>.
And is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward looking information forward looking information provided during this call speak only as of the date of this call and is based on the plans beliefs estimates projections expectations opinions and assumptions.
Of management as of today's date, there can be no assurance that forward looking information will prove to be accurate and 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 subsequent actual events and such forward looking information.
As required by applicable law. In addition, during the course of this call we may refer to certain non-GAAP financial measures, including but not limited to adjusted net earnings adjusted net earnings per share our adjusted net EPS.
EBITA adjusted funds from operations and divisional operating profit there is no standardized measure of such non-GAAP financial measures and consequently, Eqm's method of calculating these measures may differ from methods used by other companies and therefore, they may not be comparable to similar measures presented by other companies.
For more information about both forward looking information and non-GAAP financial measures, including a reconciliation of non-GAAP measures to the corresponding GAAP measures. Please refer to our most recent MD&A filed on SEDAR in Canada or Edgar in the United States and available on our website and that concludes the conference call.
Yes.
And this concludes today's conference call. Thank you for your participation you may now all disconnect.
Yes.
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