Q1 2022 Algonquin Power & Utilities Corp Earnings Call
Good morning, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the Oregon Clean power and Utilities Corp. First quarter 2022 earnings webcast and conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the.
Speakers remarks, there will be a question and answer session if you'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one once again, thank you Amelia Tsang Vice President of Investor Relations you May begin your conference.
Thank you good morning, everyone and thanks for joining us this morning for our first quarter 2022 earnings conference call presenting on the call today are our president and CEO and Arthur Kasprzak <unk> Chief Financial Officer also joining us. This morning for the question and answer part of the call will be Jeff Norman.
Our Chief Development Officer, and Johnny Johnston, our Chief operating officer to accompany our earnings call today, we have a supplemental webcast presentation available on our website.
And utilities Dot Com, our financial statements management discussion and analysis and annual information form 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 earnings capital expenditures and the acquisition capital recycling and growth at the end of the call I will read a notice regarding forward looking information.
And non-GAAP 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 will provide an overview of our Q1 performance.
Arthur will follow with the financial results and then I ran will conclude with an update on our strategic plan for the business. We will then open the lines for questions and 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 Iran.
Yeah.
Thank you Amelia and a very good morning to those who have been able to join us on the call and online.
I am pleased to report that we are on track with steady year over year growth in the following key financial metrics.
Q1 adjusted EBITDA.
$336 million.
17% increase year over year.
And our Q1 adjusted net earnings per share was 21.
And the increase of 5% compared to last year's 20.
We see ourselves as a business built from long lived assets and stable operations and.
And we've consistently been able to produce stable and growing financial results and remain confident in our plans to continue delivering strong returns to our shareholders.
We're pleased that Algonquin execution of strategic priorities and our strong financial positioning.
Has led to support from our board of directors to approve an increase in our common share dividend of 6%.
Which was declared yesterday.
This increase marks the 12th year of consistently increasing dividends each year.
Demonstrating our confidence in and the resiliency of our business model.
We continue to focus our efforts on Algonquin has three strategic pillars.
Growth.
Operational excellence.
And sustainability.
And I will provide more details on each of these pillars.
Our growth pillar in our regulated business is focused on deploying capital.
To benefit our customers and investing in our rate base.
Our rate review at Empire electric progressed well.
On April the sixth 2022, the Missouri Public Service Commission issued its final report and order.
The resulting in a total revenue increase of $39 5 million.
With new rates expected to be implemented.
On June 1st 2022.
Recall that Empire electric had earlier requested a rate increase of $79 $9 million.
Which included $29 $9 million of recovery related to last year's extreme Midwest weather event.
And subsequently amended.
Two quest to $50 million.
After updating certain components.
And deferring the recovery of storm costs.
We believe this settlement represents a fair outcome.
For our customers and the company.
We continue to invest in our network.
To deliver mission critical services to our.
Communities.
While keeping customer affordability is top of mind.
We also received a regulatory outcome for Delta.
Our Bermuda electric utility in the quarter.
Moving a revenue increase of $22 8 million.
However.
We are appealing the decision with the regulatory authority.
As we believe both parties could benefit from better methodology go definition around the rate making process.
Okay.
Another growth pillar on the regulated side is from our acquisitions.
At the beginning of this year, we closed on the acquisition of Liberty New York water.
Rich services over 127000 customer connections.
Across seven counties in southeastern New York.
And we officially welcomed the employees into Liberty.
The transition has gone very well.
As we have incorporated.
Operations into our east region, and similar to past acquisitions, we are sharing knowledge.
Benchmarking with our other jurisdictions and sharing best practices across our utility businesses.
Staying on the topic of acquisitions.
I want to provide you an update on our pending $2 8 billion dollar acquisition of Kentucky Power Company.
AEP transmission.
Transmission company.
We remain firmly committed to this transaction.
And look forward to bringing the benefits of our local operating model to eastern Kentucky.
As we've previously mentioned.
Our expectation of enhancing Kentucky Power's local operating model.
Bringing benefits to customers by exploring opportunities to reduce customer reads through investing in lower cost energy.
And creating increased local employment.
Are all attributes that are expected to help customers and the local communities.
While driving value for shareholders.
To that end.
On may four.
The Kentucky Public Service Commission issued an order.
Including an approval of the pending acquisition.
Subject to certain conditions.
The order issued is one of several steps required to complete the transaction.
The prior on May 3rd.
The Kentucky PSC issued an order authorizing a revised ownership and operating agreement related to the Mitchell plant.
Orders on that subject, we remain outstanding from the West Virginia Commission.
And Farooq.
We have already received Hart Scott Rodino.
<unk> approvals.
We expect to close the transaction in mid 2022.
After satisfaction of all closing conditions.
We continue to work collaboratively with AEP and look forward to bringing benefits to the customers and communities.
Kentucky.
Turning to the growth levers on our renewable business.
<unk>.
In this business.
Our ability to originate and execute projects.
Critical growth lever.
Late last year, we completed the 24 megawatt Val Eo wind facility, which reached commercial operations in Quebec.
With all of the energy being sold to a hydro Quebec.
I am pleased to report that the latest project to achieve commercial operations is a 175 megawatt Blue Hill facility in Saskatchewan.
With all the energy under contract with SaaS power.
Our construction teams continued to execute well.
On the wind side, we continued to make progress on shady Oaks too.
And have started construction of Deerfield, too and Sandy rich too.
On the solar side, we continued to execute as a crouton community solar facility reached commercial operations in December .
Groupon is Algonquin first.
Operational community Solar project.
Expected to lower retail utility bills for over 1300 residential customers.
Construction continues to progress on the utility scale new market solar project.
And we have started construction on three additional community solar projects in New York State.
Yes.
Staying on the topic of solar.
As it relates to the U S government's solar tariff investigation for the renewable sector.
We believe there are two categories, where the investigations impact on our industry might affect our pipeline.
First.
There are projects currently under construction, which could have potential delays.
We are evaluating all options to mitigate potential impacts from the commerce Department's investigation into foreign manufactured solar modules.
The second category would be future projects.
We believe the potential consequences of the investigation to be cost passed through to PPA pricing in the industry.
As is consistent with our development philosophy.
We generally try and finalize the long supply agreements.
The EPC contract.
And off takes as close together as possible in an effort to protect the margins we expect.
Another lever of growth on the renewable side is.
He is developing successful partnerships for renewable development with commercial and industrial customers to support sustainable energy.
We are pleased to report that we continue to collaborate with meta.
Formerly known as the Facebook company and.
<unk> executed an off take agreement between meta and the 112 megawatt Deerfield two wind farm located in Michigan.
This represents the second offtake agreement with meta.
After the previously announced Alta Vista.
Moving on now to operational excellence.
In a mission critical industry safety and reliability are always key areas of focus.
I am pleased to share that we have passed the impressive milestone of over 800 days.
That is nearly 12 million work hours without a single lost time injury across our North American business.
While keeping our customers and community safe.
And maintaining our system reliability and resiliency.
Yes.
In fact.
Another Testament to our safety culture is that I am pleased to report a notable achievement.
Algonquin Liberty was recently recognized by.
The American gas Association.
Great.
As a top safety performer in 2021.
Winning the AGL safety Achievement award for the lowest incident rate in the medium combination utilities category.
Our balanced approach.
Operating a local model with central governance continues to be a focus.
We'd like to have our local management team situated close to our assets.
To work closely with the community <unk>.
Customers and regulators.
We continue to be innovative and invest in our system.
In effort to meet future customer needs in a decarbonising world.
One recent example is.
Is that Liberty has secure approval.
And is now awaiting the final tariff for a pilot program with a regulatory in Missouri.
Which is making the first utility in the state to obtain approval to earn a regulated return on behind the meter electric vehicle charging equipment.
The pilot is slated to launch by fall.
And includes a number of unique asset and system data insights.
That we will be sharing with the commission staff.
As the program unfolds.
This pilot program is also notable.
Given that its final design reflects nearly a year of close collaboration.
Between Liberty.
The Missouri Commission staff.
And the local intervenor community.
Having proposal original framework.
Liberty refined multiple program features.
In response to stakeholder input.
We are pleased with the final design.
And hope that this type of collaboration becomes a norm when it comes to innovative projects.
And finally.
We remain firmly committed to sustainability.
Through the inclusion of environmental social and governance values in our broader corporate strategy and day to day operations.
Okay.
We have always said that our sustainability plans and initiatives are embedded into our broader corporate strategy.
And we've taken another important step in that direction by repos positioning.
Sustainability business unit.
Under our corporate strategy group, which is being led by Helen Bremner Executive Vice President strategy and sustainability.
Our short medium and long term strategic direction, we'll continue to factor in sustainability.
Core strategic imperative.
I'm sure many in the Investor community will get a chance to meet with Alan in the near future.
During the quarter <unk> was also recognized for the second year in a row.
By the Globe and mail and report on business magazines women lead here benchmark.
Which acknowledges corporations with the best record of executed gender diversity in Canada.
With that.
Ill pass it over to Arthur will speak to our first quarter 2022 financial results.
Arthur.
Thank you Arun and good morning, everyone I'm.
I'm pleased to report strong first quarter results, reflecting the benefits of our diversified and resilient business model.
Our first quarter 2022, consolidated adjusted EBITDA was $330 6 million, which is up approximately 17% from the $282 9 million, we reported for the same period last year.
The regulated services group delivered $231 2 million in operating profit in the current quarter, which compares to $206 4 million in the same quarter last year, an increase of $24 8 million or nearly 12%.
This increase reflects the addition of 600 megawatts of wind generation in the first half of 2021 as part of the Greening The fleet initiative in the Midwest.
These facilities contributed approximately $9 5 million of additional operating profit.
The group also benefited from the implementation of new rates across several of our utilities systems, adding approximately $7 5 million to operating profit as compared to the prior year.
Lastly, our operations at Empire electric although moderately negatively impacted by weather this quarter as compared to long term averages recorded higher operating profit as compared to the prior year due to higher non pass through fuel costs incurred in the prior year, resulting from the impact of store Murray.
Getting profit was negatively impacted this quarter by an operating loss of Liberty, New York water, which was acquired in January .
As a reminder, this utility is impacted by seasonality and as expected to earn a disproportionate amount of its operating profit during the summer months.
The renewable energy group reported first quarter divisional operating profit of $118 6 million, which compares to $95 million in the same quarter last year, representing an increase of $23 $6 million or nearly 25%.
During the quarter production at our existing wind and solar generation facilities was more in line with long term averages increasing by 20% over the same period last year and as a result contributed approximately $12 4 million to the year overall increase in operating profit.
Generation from newly commissioned facilities and investments added $8 5 million, primarily from the Maverick Creek wind and Alta Vista solar facilities that both achieved full commercial operations in the second quarter of last year.
Operating results also benefited from incremental dividends received from atlantica, but were partially offset by unfavorable price capture at some of our wind facilities and higher fuel costs at our Sanger thermal facility in California.
Our investment in the Texas coastal wind facilities provided a positive contribution to operating profit this quarter with the addition of the West Raymond facility in the second half of last year.
But continues to perform below our expectations, primarily due to higher than anticipated basis costs, resulting from the imposition of the general transmission constraint in the vicinity of the facilities.
In total our Q1 adjusted net earnings per share came in at 21, which compares to <unk> 20 in the prior year.
In addition to the drivers discussed our results were negatively impacted by financing costs associated with the capital deployed in 2021, and an increase in weighted average shares related to the Kentucky power acquisition funding.
These financing costs were and continue to be incorporated into our financial outlook for the year.
Moving onto our capital plan for the year for 2022 or the <unk> is targeting to spend over $4 3 billion in capital with the majority related to the acquisitions of Liberty in your quarter, which closed earlier this year and Kentucky power, which is expected to close mid this year.
Our capital plan remains on track.
During the quarter. In addition to the approximately $609 million of capital deployed from the closing of near quarter, we invested over $225 million of capital into our utilities and continue to invest into our renewables development and construction programs.
We also continue to make good progress on our financing plan for the year, which as a reminder is predicated on maintaining a strong and resilient balance sheet targeting a triple b flat investment grade credit rating.
As mentioned in my remarks last quarter early this year, we issued approximately $1 1 billion of hybrid debt, which we expect to use in connection with the closing of Kentucky power together with the common equity offering completed last year. In total we have raised just over $1 7 billion towards the $2 8 billion purchase price with the remainder being.
Debt assumed on acquisition, a portion of which we expect to refinance in the debt capital markets. Shortly after.
The remaining funding requirements for the year are expected to be solved by a combination of various funding sources available to us including retained cash additional hybrid debt proceeds from securitization of regulatory assets and long term debts.
In the second half of the year. We may also reactivated our aftermarket offering program to provide flexibility to raise a modest amount of equity capital.
We've also recently commenced a process of exploring the modernization of several of our renewable assets, which we view as another source of potential value accretive capital for us this year.
Considering the various funding sources available we do not expect to require a discrete common equity offering for the rest of this year.
Our liquidity position also remains strong ending the quarter with over $1 8 billion of available liquidity.
Subsequent to the quarter, our regulated services group Upsized and extended its revolving credit facility, increasing it from the $500 to $1 billion for a five year term.
The extension was well oversubscribed, highlighting the strong support for the Companys credit in the bank market.
Our Treasury group remains focused this year on also extending and potentially upsizing, our renewable and corporate revolving credit facilities.
Before turning things over to Arun I'd like to provide a brief update on our 2022 adjusted net EPS guidance.
We continue to expect our 2022 adjusted net EPS to be within the range of 72 to 77.
These expectations are based on underlying assumptions, including normalized weather patterns as well as resource production and realized pricing and renewable generation facilities consistent with long term averages.
We have also assumed the acquisition of Kentucky power will be completed in mid 2022, and there'll be no impacts from Covid on operations.
We look forward to continuing to deliver solid earnings which was along with our history of dividend growth. We believe we will continue to drive a strong return for our shareholders.
With that I'll now hand, it back to Arun to outline our strategic plans.
Thanks Arthur.
Before we close out our prepared comments this morning.
I want to give an update on our strategic initiatives.
At our December Investor Day.
We updated our five year capital investment program.
Which project 12 $4 billion from 2022 through the end of 2026.
With the visible capital plan.
All that we.
We have already closed on Liberty, New York water earlier this year.
Executing on our approximately $600 million.
After capital plan in January .
While a large portion of the capital plan is being spent on organic investments.
To improve the safety.
Reliability and resiliency of our network.
On the renewable side.
We are excited about the growth potential.
And believe that we have a once in a generation opportunity.
Two accelerated renewables growth.
And add shareholder value.
We all are <unk> investments.
And over 4000 megawatts of renewable generation.
Which provides us with scale.
With scale, we expect to get incremental benefits in.
Including improved negotiating power lower transaction costs and access to greater opportunities.
I have previously spoken about accelerating renewables growth.
And adding shareholder value as we plan to continue to increase our investments in Greenfield development.
Which we expect will allow us to capture the higher development margins.
And take a number of those projects through construction.
London operations we.
We see an opportunity to partner with institutional investors.
Wishing to make ultimate sustainable investments.
And we are seeking a partner with a proven ability to develop.
And deliver on long term contracted sustainable assets.
More specifically.
We should be able to sell down to these investors.
While earning and operating fee.
We could then deploy some or all of the capital gains.
In further Greenfield development.
Creating a potential new recurring source of earnings for our investors.
We have formally commenced.
Our inaugural asset recycling process.
Now with the portfolio with the U S and Canadian assets in the range of approximately 750 megawatts.
And we'll provide an update as the process concludes.
Key objectives for us.
Our increased scale of our development and operational platform.
Together with increasing the amount of internally generated cash for future growth.
I'm excited about the prospects of Algonquin regulated and renewables businesses.
Which are both well positioned to contribute to and benefit from the Decarbonize and transformation that is currently underway.
Which will only accelerate over the coming years.
Okay.
We welcome you to hear more.
At our upcoming annual General meeting.
Similar to last year.
And as a result of our ongoing pandemic.
We'll be hosting our AGM virtually this year.
We welcome your participation on June 2nd at four PM Eastern.
The start of 2022.
Has been very productive so far with.
With the close of Liberty, New York water.
And the receipt of orders for our Kentucky power acquisition.
On the renewable side.
We are excited about the growth potential.
And believe that we have once in a generally as an opportunity to accelerate renewables growth and add shareholder value.
Our three strategic pillars of operational excellence.
Growth and.
And sustainability will be a key foundation as we continue to build a business.
And seek to deliver steady earnings.
Dividend growth and.
And long term shareholder value.
With that I.
I will turn the call over to the operator for any questions from those on the line.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Okay. We will take our first question from David Quezada with Raymond James Your line is now open.
Hey, Thanks, good morning, everyone.
My first question here just on the.
Maybe on the renewable power side of your business is start I'm, just curious I know that.
I think about 18% of your capacity is not contracted curious what kind of upside you are seeing from higher spot prices today, and if there are any opportunities for contracting.
Essentially those assets in the current environment.
Okay.
Yes sure.
David its Jeff Norman.
Yes.
You're absolutely right that there is a portion of that of those.
Those assets that are not contracted and we are seeing an increase in pricing.
I think part of the that we would probably leave those open in terms of managing the overall risk.
And so that they can appreciate and the upside and there are some other benefits in terms of balancing with the generation profile and mix that optimize the portfolio.
Okay, great. Thank you for that and then maybe just one on <unk>.
On the topic of renewable deployment throughout your regulated footprint.
Certainly appreciate the Kentucky powers the <unk>.
Opportunity, but I'm just curious at your footprint in the Empire District Electric I know that the case for renewables in the past has been at it saves customers money I imagine that that math is even more favorable today I'm curious if you.
If you've had any initial discussions with the regulator there about potential <unk>.
Additional renewables in the Empire footprint.
That is a discussion David we continue to have with all of our regulators throughout our jurisdictions.
Including Missouri, including California, and Luke.
Have those conversations with the water utilities, where we are we are in jurisdictions because in fact, David takes a significant amount of energy to move water.
So we are even looking at how do we power of those energy needs with a renewable energy. So that's something we continue to have given the fact that we.
Certainly.
Additional natural gas fired generation in Missouri over time, we believe that there may be.
More.
Opportunities for Greening the fleet.
As the prices of renewable energy goes down and we were able to foresee.
The benefits to our customers there.
Excellent. Thank you very much I'll turn it over.
Thank you David.
Next we'll go to Nelson <unk> with RBC capital markets. Your line is open.
Great. Thanks.
First question's for Arun you mentioned that you started the capital recycling process for our 750 megawatts.
Can you just clarify that your are you looking to sell a minority interest in retaining O&M responsibility is that.
That's what you are taking.
So Nelson thanks.
First of all I think the range is.
Is around 750 megawatts I did say that this is an inaugural.
Renewable asset recycling.
As we continue to increase on a greenfield pipeline and accelerated growth.
One has to be something thats of recurring value to our shareholders.
We.
You may add.
Significant amount of flexibility in terms of how much we want to sell out.
What is important for us is really to maintain that.
Scale on both the development and the operational side of that is really the most important thing for us.
Do they really validate the strength of our development platform by Dream. This sold out, but we will retain flexibility.
In terms of.
The exact ownership to really maximize shareholder value.
Okay. Thanks, and then my next question might be for Jeff. So in terms of solar panel supply.
Can you just clarify so there is some projects.
On that.
On that slide that has.
Some solar panels installed like 60% to 70% on the community solar and the.
New market solar phase one.
Are those like are those projects essentially on hold or do you already have.
Panels on the ground and this.
Third this investigation into tariffs.
I would they impact the projects that are already.
Starting the panel installations.
Resumed new market phase two and Chevron does have been pushed out a bit to two <unk>.
To this issue.
And no Nelson its a good question and certainly the department of Commerce decision to investigators has caused some turmoil in the supply chain.
I think maybe stepping back a little bit before answering your specific question.
We feel very fortunate.
The solar projects within our 12 4 billion pipeline only represent about 2%.
And you would break that into two chunks. The projects that you are asking specific questions for which are a little over 100 megawatts and the remainder which is two projects that are out in 'twenty four 'twenty five timeline and our capital plan.
We don't expect an impact on the majority that's out in 'twenty four 'twenty five that we will have time to adjust to.
Whatever decision is made by the department of Commerce.
But then specifically to your question on the community solar projects those are and will continue under construction. The panels are in countries that we expect no impact there.
To chevron projects, which totaled 45 megawatts.
I've made a joint decision with Chevron to pause those projects until we get the decision from department of Commerce.
So a little bit of an impact there, but pretty small projects.
And then on new market solar.
The.
The remaining 65 megawatts in the schedule that Arun went through is constructed except for panels. So once the panels arrive weakens complete construction quite quickly we expect the panels to arrive in time to complete that construction before December 31.
We do expect based on the sourcing of the panels that there is some tariff exposure there, but its only approximately 30 basis points on return.
Excellent. Thanks for the thanks for the color, Jeff I'll leave it there.
Thanks.
Next we'll go to Rupert <unk> with National Bank. Your line is open.
Hi, good morning, getting back to the topic of sell Downs, initially which assets could you be targeting you are looking at.
While assets under construction or Youre contemplating sell down on some operating assets I imagine those wind assets you have coming off of a 10 year tax rate windows could be good candidates I guess what are your thoughts on what gets sold down.
So rupert.
The whole idea for us is to Derisk.
These projects through the development interconnection.
Siting permitting construction and early operations.
And so all of these projects are in early stages of.
Our operation.
And those are the projects, we have in the pipeline and the bluefin.
In Canada, and the U S and they are all.
Renewable energy projects.
Okay, So youre not contemplating sell down on operating assets at this point.
We are looking at.
These are operating their renewable energy projects.
To clarify.
Okay, Okay great.
Secondly, with the the dividend increase can you give us some thoughts on the payout ratio targets, you have near and long term and how those came into effect with your dividend increase this quarter.
Yeah sure sure Richard.
Thanks for the question actually were expecting that question.
So in terms of our dividend and as we think about our dividend going forward again drove year in a row raising dividends as we look at it.
We want to ensure we're providing a strong yields to a lot of our investors, but also we want to make sure that our dividends are sustainable and Thats really back in Investor Day, We did lay out our our target payout ratios of about 80% to 90%. We believe <unk> payout ratios will ensure a sustainable dividend and really just as a recap on.
How we think about that.
Those payout ratios it really it brings into combinations of our two businesses on the renewable side, which.
Typically pays out a proportion of its cash flows and on the regulated side, we see a lot of our utility peers paying out between 60 and 70% of earnings.
Blend those two together you do get about the 80% to 90%.
Earnings payout ratio.
And I would say the only thing I will tell you about the payout ratio. It is a long term payout ratio, we probably do see ourselves potentially exceeding that in the short term, especially with some of the transitional factors. This euros were bringing on.
Thank you power.
But.
Certainly in the long term probably post 2023, we would we.
We see ourselves within that to that payout ratio.
Assuming the 6% increase.
What we're seeing today.
Great. Thank you Arthur and I'll leave it there.
Thanks Rupert.
Thank you next we'll go to Ben Pham with BMO. Your line is open.
Hi, Thanks, Good morning, I wanted to start off on M&A I'm curious about your.
Philosophy now.
Kentucky power.
And.
And then your comments around not doing equity need to you.
You look on both electric and gas is there a bias to tighter what are you seeing more opportunities in renewables versus utilities.
We'll have an update on alright, thanks for M&A in the current environment.
Sure look first of all I do want to point out that.
The vast majority of our.
Usual capital plan is organic growth.
And perhaps.
The last one is a little non representative because we have two large acquisitions north American water and.
Kentucky power, but if you go to the previous.
Investor Day, which is more like $9 $4 billion and also included the.
$600 million of M&A. So it's $8 billion of the $9 4 billion Capex program was all.
Organic growth right. So so I do want to point to point that out first of all so.
We do.
Do not absolutely depend on M&A for our growth.
At the same time, we are.
Cognizant of the fact that.
Scale does bring certain benefit and where we can execute on M&A.
That fits our strategy that fits all of our financial metrics all of those kinds of things we will execute.
M&A.
Is by its very nature fairly opportunistic.
So look we have closed.
Liberty, New York Lager that drive that transition as gone.
It's very well.
No surprises.
And in a given hour.
Experience base in terms of transitioning.
<unk> utilities into our fold, we do not anticipate any surprises on Kentucky power as well.
And so.
Given all of that.
Right opportunity comes we will look at M&A opportunities, but again.
We are always very very disciplined.
When it comes to fit with strategy fit with all of our financial metrics, so on and so forth.
And then thank you thanks for that.
And those are Marc I'm wondering also.
Not sure what year was last year, you were a little bit.
On gas M&A, but with Wil.
Maybe just Ukraine situation is that has that changed at all in your thinking.
Look one of the things that we've made very clear is around sustainability.
As to fit.
And and as you saw on.
On the Kentucky power transaction.
We did.
Did a lot of structuring to make sure that that trend transact and fit.
Our long term sustainability.
Rolls and profile when it comes to natural gas and look we're focused on really several things first of all we want to minimize.
Sure.
Emissions and so if you look at our utilities like Massachusetts gas, there's a lot of investments going on under replacing.
Youll beer steel.
The iron pipes.
With a plastic long lasting plastic pipes.
And that effort, we're going to continue to minimize our is the emissions profile of our gas utilities. We also have filed.
Renewable natural gas.
<unk>.
Our filings in front of four different commissions, so far and are going through that regulatory process on the renewable side, we acquired <unk>.
Platform in Wisconsin with.
Our two plants in the late stages of construction, which we.
We expect to come into operation. This month in fact, and two others in development. So we are working on a renewable natural gas and longer term. We are looking at either that we've participated in a number of studies.
We are all participating in the New York State.
Program on hydrogen as well and over long term we see.
That ad.
Very much of a potential however, we want to make sure that we have a good line of sight on green hydrogen and the economics of that before transacting further on natural gas assets.
Okay got it.
The other question is on the dividend some of my questions have been asked.
When you said, the 6% and I just thought of.
Different factors driving that are you also considering your ability to maintain.
That rate over the next couple of years.
If I can move around every year based on the inputs that you're putting in.
Look absolutely. This is the first thing I would clarify Ben is that it's really our board.
That dictates that in the dividend policy and.
The level of dividends is really important and I think Arthur alluded to some of the factors we consider.
In terms of when we look at setting dividends and sustainability of dividends is an absolute must right. So absolutely.
Okay. Thank you.
Thanks for that.
Thank you next we'll go to Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, good morning, Tim Thanks for the time and the opportunity to connect can you hear me.
Yes, Julian great.
Thanks, Arun <unk>.
<unk> is indeed, hey, listen just actually just to clarify that last response I want to make sure I heard you right just I've got a follow up here, but.
When you said dividends sustainability sustainability of growth rate I think that's what Ben was after what he was asking about the 6% Vps a second ago.
Not just sustaining the dividend, but I think that you were affirming our confidence on a certain degree of growth.
That's absolutely correct, yes.
Thank you it wasn't clear in your response I thought you meant that.
<unk>.
Alright, alright, so back to the regularly scheduled question.
Just with respect to your Kentucky acquisition and the earned returns I know we've talked about this.
At various points.
Timeline, there right so coming back to that payout ratio comments from earlier it sort of seems as if it's tied to the earned ROE.
Achieving a certain level and then normalizing your overall earnings profile such whats your latest sense on when you get close to earning those quote unquote authorized levels wherever that settles.
Sure so clearly.
With the expiry of the Rockford unit purchase agreement and a certain level of the dissolved allowances were there that will there will be recovered. So that's obviously one step towards getting back closer to allowable return.
And the next opportunity for us it will clearly be on the rate case that we plan to file in 2023, which goes into.
In fact in 2024 and as we've talked before there is a number of mechanisms.
I have already been <unk>.
Among them among other.
Investor owned utilities in Kentucky, and we plan to.
Try and avail ourselves of those as well and then finally as we start layering in both in a lower cost.
Good purchases.
Once the once the Rockwood EPA expert expires in the Mitchell.
It gets retired from our from a <unk> perspective, and as we bring in lower cost renewable energy, we should be able to pass on.
Those benefits to customers as well as enhance our RV as well so it's a step by step progressing that we built into our acquisition model and we remain confident in being able to execute against that.
Excellent. Thank you.
And further one one quick clarification, if I can.
You said in your prepared remarks, you've commenced the process of exploring the modernization of several of your renewable assets, which you would view as another source of potential value accretive capital. What is the modernization of your renewable assets look like in the form of financing I just want to be crystal clear about this I know we've talked on.
On the call earlier about potential monetization of the assets.
I think you used the term modernization I just want to make sure I heard that right.
Sorry, maybe maybe you meant modern trade.
Transcripts coming across a little odd maybe.
One moment Julien.
Okay.
Can you hear US. Please. Please. Please proceed go ahead Julien with your question.
Hey, Julien.
Yes, yes.
Something happened technology glitch here.
So.
First of all it is.
It's really a case of us.
CSN.
Julien I had said monetization not Margaret.
At this time.
Alright.
Reviewing the transcript if there's better disease all good. Thank you so much.
Thanks, guys.
Thank you next we'll go to Sean Stewart with TD Securities. Your line is open.
Thank you good morning, everyone.
Lot of my questions have been asked one question on the the nonregulated renewable platform I guess two questions.
The process that.
You've formalized for potential asset sales to institutional partners.
I might have missed it but can you give us context on the timeline for reaching conclusions there.
But by the end of this year.
Okay.
We plan to conclude that yes.
Okay. Thanks Arun.
Maybe a question for Jackson.
As you look to redeploy.
That capital towards earlier stage development opportunities.
Given the scale you are at now.
Most of what you've done you've sourced yourselves built yourselves.
Can you speak to the Greenfield opportunity set versus <unk>.
Wiring early stage portfolios of projects and using that to build the growth going forward at any any comment on the bias one way or another for earlier stage renewable development opportunities.
Absolutely, Sean and so we continue to shift more towards greenfield than acquisition of facilities and just because of two factors. One we do see a lot of the Earth.
Early junior developers being acquired by Strategics and by financial players.
Two we see the ability to create more value.
By going in earlier, and our platform has gotten bigger and bigger in the U S and our ability to him tools for doing that.
<unk> improved.
Okay.
Thanks for that detail, that's all I have everyone. Thanks.
Thank you next we'll go to Rob Hope with Scotiabank. Your line is open.
Good morning, everyone. Just two follow up questions first on the asset monetization.
Hi.
If you take a look at these processes when youre, taking a look at how much you want to sell.
Consolidating or equity accounting these assets come into play.
And by that I mean, you have some renewable assets that could where quite a bit of debt and so if these are equity accounted for you could put asset level financing Marin and lever them up and not impact. The overall balance sheet is that a factor that we could see come into play here.
Let me first.
The first consideration most critical printers and for us is how to maximize value.
That is by far the most important consideration I'll, let to offer a comment on the accounting treatment I was kind of a <unk>.
The same thing the value is the number one piece, but obviously, if we could if we can optimize around financing structures.
Through asset monetization, we will certainly look at that.
Alright, I appreciate that and then just to follow up on Kentucky, We're seeing conditions in the filings does that alter your expected Roe.
Moving forward, there or is that or has that played out largely as expected so far.
Largely as expected Rob I mean, we obviously are cognizant of all of the ideas that came out in orders.
We are collaborating closely with AEP.
It goes on resolving all of the outstanding issues.
The outstanding.
The regulatory requirements are from West, Virginia on Mitchell and work.
We remain confident on resolving those again the mid <unk>.
Mid year.
And we continue to believe that.
The economics that we've laid out earlier.
Hold.
Through that Kentucky Commission order.
Alright, I appreciate the clarity thank you.
Thank you Rob.
Thank you and next we'll go to <unk>.
Hey, Jay Baidu with IAA capital markets. Your line is now open.
Hi, Good morning, just two questions on the asset sales.
Do you expect sort of your success this year to perhaps.
Lead to more regular pace or a specific scale.
Capital recycling initiatives going forward.
Okay.
The idea is to have on the renewable side are recurring.
Theme of asset sell downs and to be able to recognize in.
And validated the value we've created through the development process.
And as we've said.
Even in the prepared remarks.
This is an inaugural asset recycling program. So yes, there will be a part two of the <unk> III and hopefully.
Continuing.
The scale.
Okay got it I guess so far.
There is no specific targets because as you know you talked about 750 megawatts. This year and then obviously, it's going to depend on how much more you can add to the portfolio over time, but it's sort of the step one but you do expect to do it more regularly.
That's exactly correct.
Okay, and just one quick question on <unk>.
Deerfield partnership with meta you.
<unk>.
Looked at maybe replicating the Chevron framework with this client or with some other clients in the U S or in Canada.
We would obviously like to write the we like the Chevron framework agreement because of having that certainty around.
Offtake.
It does a lot of things including.
<unk> significantly reduced.
Transaction costs and.
And so we certainly.
We'd like to develop all of these relationships introduced kind of a framework agreement.
As you know.
But the important part about this one with meta was the fact that it is a second one.
And so.
Yes.
And in this world C&I partnership is something we spend a lot of time and effort and focus on making sure that we're delivering value to our customers. So.
Whether through a framework agreement or repeated.
Partnerships on a non repeat projects that that is the model that we do want to redeem yes.
Got it understood. Thank you.
Thank you.
Next we'll go to Richard Sunderland with Jpmorgan. Your line is now open.
Hi, Thank you for the clients today.
Wanted to circle back quickly to the tariff comments earlier in the Q&A.
Just wanted to clarify Kerry and careful exposure just on new market solar too and not on the first phase or the community solar is that correct.
That's correct and there will be tariff exposure also on on Chevron assets that we just need to sort through exactly what the decision is and where we source those panels.
Right understood. Thank you for the clarity.
And then separately over the past <unk> talked about your storage pipeline, just curious where your efforts down there.
Yes, So we announced a 70 to 100 megawatt hour stories.
Pipeline Greenfield, Richard and we are at the point with storage economics, and everything that we basically look at store is on every one of our renewable.
Everyone have a renewable project development and <unk>.
Thinking through.
Interconnect things of the sword.
Make room for storage capability.
Even when in case that we may not start out with.
Including a.
Battery storage. So we do believe that battery storage will continue to.
Both.
They will continue to be price reduction as well as capacity increases in terms of the number of.
Hours of stories, so we are pretty bullish.
On the battery storage side of the business.
And we already have actually.
Quite a bit of battery storage on the regular decided of the business.
And a lot through the operations are also.
Yes, again, all in all excited about the battery storage opportunities.
Thanks for the color.
Thank you Richard.
Yes.
There are no further questions at this time, a roomba and <unk> I'll turn the call back over to you for any additional or closing remarks.
Thank you for taking the time on our call today with that please stay on the line for our disclaimer.
Our discussion during this call contains certain forward looking information, including but not limited to our expectations regarding earnings capital expenditures and the acquisition capital recycling and growth with forward looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and Edgar and avail.
<unk> on our website 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.
We're looking information provided during this call speak only as of the date of this call and is based on the plans will be estimate.
<unk> 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.
Disclaim any obligation to update any forward looking information or to explain.
Any material difference between subsequent actual events and such forward looking information, except as required by applicable law. In addition, during the course of this call. We may have referred to certain non-GAAP measures and ratios, including but not limited to adjusted net earnings adjusted net earnings per share or adjusted net EPS adjusted EBITDA.
Adjusted funds from operations and divisional operating profit there is no standardized measure of such non-GAAP measure and consequently, our 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 measures, including a reconciliation of non-GAAP financial measures to the corresponding GAAP measures. Please refer to our most recent MD&A filed on SEDAR in Canada, and Edgar in the United States and available on our website that concludes the call.
This concludes today's conference.
Conference call you may now disconnect.
Please state the conference will begin shortly.
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