Q2 2022 Algonquin Power & Utilities Corp Earnings Call
We continue to standby we thank you for your patience.
No one else seemed to be honest, we lapped a silty duckenfield it'd be tough soup the level pre owned to be honest, we want don't want to get it because there's still meaningful isn't necessarily the best guilty.
[music].
All participants please standby your conference is ready to begin.
Good morning, ladies and gentlemen, and welcome to the Q2 Algonquin power <unk> Utilities Corp.
Corporation earnings call.
Following the presentation, there will be a question and answer session to ask a question.
Press Star one on your telephone keypad I would now like to turn the call over to MS. Zhang. Please go ahead.
Thank you good morning, everyone and thanks for joining us this morning for our second quarter 2002 earnings conference call presenting on the call today are runeberg Scooter, our president and Chief Executive Officer, and Arthur Kasprzak, Our Chief Financial Officer also joining US. This morning for the question and answer part of the call will be just ignore.
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.
Power and utilities dotcom.
<unk> 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 earnings capital expenditures any acquisition asset recycling growth and pending legislation.
At the end of the call I'll read a notice regarding both 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, we will provide an overview of our Q2 performance Arthur will fall over the financial results and then we'll conclude with an update on our strategic plan.
We will then open the lines for a question.
I ask that you restrict your questions to Chew 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 a room.
Thank you Amelia and in 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 the following key financial metrics.
Q2, adjusted EBITDA was $289.3 million.
Our 18% increase year over year, and our Q2 adjusted net earnings per share was <unk> 16 cents.
Compared to last year's 15 cents.
We reported a strong second quarter as our businesses delivered solid operations, which Arthur will go into more detail.
We see ourselves as a business built from long lived assets and strong operations and we've consistently been able to produce stable financial results.
We remain confident.
Our plans to continue delivering strong returns to our shareholders.
We continue to focus on Algonquin three strategic pillars.
Rose.
Operational excellence.
And sustainability.
And I will provide more details on each of these pillars.
We have a high confidence in our five year $12 $4 billion capital plan.
Given the large proportion of rules that is organic.
And a number of growth lever as we have.
One of the most important growth lever as you know our regulated business.
He is deploying capital.
The benefit of our customers.
And investing in a rebase.
In the second quarter, the Missouri Public Service Commission issued its final report.
And order, resulting in a total revenue increase of $39 5 million.
With new rates implemented on June one 2022.
We believe this settlement represents a fair outcome for customers.
And the company.
Also during the quarter.
Senate Bill 745 was signed by the Governor in Missouri, which modifies plant in service accounting or piece up.
This bill also puts into law.
Property tax tracker, which is expected to enhance our Missouri utilities ability to earn their authorized returns.
Another growth lever on the regulated side is from our acquisitions.
As many of you know earlier this year, we go through the acquisition of Liberty New York water.
Which services over 127000 customer connections across seven counties in southeastern New York.
With the close of Liberty, New York water the water sector currently represents approximately 45% of our total customer connections.
Or approximately 15% of the regulated business EBITDA.
And this is our fastest growing modality on this measure.
Given the increased need for clean safe reliable water and wastewater services.
Especially in states like Arizona with a growing population.
We have started construction of a wastewater reclamation facility with a capacity of 4 million gallons per day.
Yeah.
Next.
The pending 2.8 billion acquisition of <unk>.
<unk> power company and he began to keep transmission company.
First.
We want to extend our SOR sauce.
Through the many individuals and families who have been impacted by the recent flooding in eastern Kentucky.
To support relief efforts Liberty recently donated $50000.
And we will continue to monitor the situation to see how we can best support the needs of the local communities.
On my sword, when you're trying to do.
The Kentucky power Public Services Commission D E F C.
Issued an order that requires certain changes to the proposed operating and ownership of agreements.
Leading to the Mitchell plant.
On July one 2022.
The public service Commission of West Virginia.
<unk> issued an order on the operating on ownership agreements related to Mitchell.
Inconsistent with a <unk> order.
The closing of the Kentucky power transaction.
It's subject to the satisfaction of certain conditions precedent.
Which include those relating to the approval of the Mitchell agreements.
By the PSC.
West Virginia PSC.
For it.
We are in discussions with AEP.
You identify a resolution that would work for the parties.
Upon which we expect to Kentucky power transaction to close in the second half of 2022.
We remain firmly committed to this transaction.
And look forward to bringing the benefits of our local operating model to the customers and communities of eastern Kentucky.
Turning to the growth lever for our renewable business.
We continue to be active on the renewables front and.
I thought I'd provide you with a few project updates.
We continue to execute on our Greenfield pipeline.
During the quarter. The latest project achieved commercial operations was 175 megawatt Blue Hill facility in Saskatchewan.
With all the energy under a 25 year contract with SaaS Bauer.
We are pleased to bring low cost renewable generation two communities and contribute to a cleaner power supply for Saskatchewan.
We are proud of our long lived assets and at the end of Q do.
We have approximately 82% of output sold under long term contracts with production weighted average remaining contract life.
Approximately 12 years.
Construction continues to progress.
On the wind side, our Deerfield project is in full construction.
With over 100 individuals now engaged on site.
Foundations subsea.
Substation.
And collector work is in progress.
And turbine deliveries have started.
Our Sandys reached two project is also ramping up construction was 45 individuals now engaged on site.
Public and private road improvements are in progress.
And the foundation work, you're starting with a forest or occurring in July .
Turbine deliveries expected starting in August .
On the solar side.
With respect to the U S executive order regarding a two year tariff exemption for solar panels, which was announced in June .
We believe that this can be divided into two categories.
First.
There are certain projects with solar panel deliveries before the 24 months free.
Free period expires.
The two year extension allows battled procurement activities to resume or restart, giving greater certainty to the completion of the current active projects and the timing and cost impacts.
These projects include new market solar.
The four chevron projects.
And Godless Creek.
Oh geez.
New market solar and two of the four chevron projects are under construction.
The second category.
It would be future projects with solar panel deliveries after the 24 months period.
These include the remaining solar projects outlining our five year capital plan.
We believe our potential consequences of the investigation could be cost passed through to PPA pricing in the industry.
As is consistent with our development philosophy.
We generally try to finalize the most significant he convinced supply agreements.
EPC contract.
And the offtake contracts as close together as possible in an effort to protect the margins we expect.
I also want to give you an update on our sand hills RMG renewable natural gas projects, which represent the company's first investment in the nonregulated renewable natural gas space.
Earlier this month.
We achieved commercial operations at two of the four projects.
The remaining two projects are in late stage development and are expected to reach commercial operations in 2023.
The sand hills portfolio of projects in Wisconsin gives us an opportunity to apply our expertise in renewables development.
And energy generous and method known for these extremely low net carbon intensity.
And it gives us a strategic foothold.
In the highly attractive sector of the RMG market.
According to a us environmental Protection Agency report.
Wisconsin represents the state with a stick and largest university RMG opportunities.
We are excited to utilize sand hill as a potential LNG growth platform.
Moving on now to operational excellence.
In a mission critical industry.
Safety and reliability are always key areas of focus.
We strive to keep our customers and communities safe while.
While maintaining our system reliability and resiliency.
On a trailing 12 month basis.
Our key performance indicators of lost time injuries and recordable injuries in the top decile rate when compared to our industry peers.
In addition to being recognized by the American Gas Association.
As a top safety performer in 2020, one we need the AG safety Achievement award for the lowest incident rate in the medium Communist utilities category.
We were recently recognized by the Canadian Gas Association.
And what was awarded a 2021 safety awards for excellence.
Appropriately acronyms.
F E for employee safety.
Recipients of this safe awards.
Demonstrated an outstanding dedication to safety.
Yeah.
We continue to monitor our rising costs.
And the consequent cost of living challenges.
We invest in our network to deliver mission critical services to our communities.
While keeping customer affordability is top of mind.
We are helping our customers through energy efficiency programs.
Such as the one in Massachusetts, where Liberty received approval for a $21 million three year energy efficiency plan.
Our largest commitment ever to energy efficiency in that state we love.
We are committed to serving over 6400 residential and lower income customers over the next three years.
We remain focused on managing affordability for our customers through opex to Capex conversion opportunities.
We are also focused on cost management within the utilities.
In fact, we.
We brought down our operations and maintenance efficiency ratio.
That's our operating costs as a proportion of our revenues.
From 66% back in 2012.
To around 42% in 2020 one.
And we're aiming to bring that down further to around 35% by 2026 as we indicated at our last Investor day.
Yeah.
And finally.
We remain firmly committed to sustainability.
Through the inclusion of environmental.
Social and governance values in our corporate strategy and operations.
We continue to make meaningful progress in driving sustainable business practices across each of our businesses.
Our efforts to date are reflected in our low greenhouse gas emissions intensity.
On a revenue basis 0.0011 of carbon dioxide equivalent per dollar of 2021 revenue.
This is a 15% improvement from the previous year.
In fact.
When we look back over the last five years since 2017.
We have made meaningful reductions.
Of our scope, one and two emissions.
Our revenue based emissions intensity has decreased by 48%.
And we have reduced our overall emissions by 38%.
This is a direct result of our greening the fleet initiatives.
Significant growth in our renewables businesses.
And a dedicated focus throughout the company to reduce overall emissions.
We also continued to improve our ESG data reporting.
During the quarter, we did a R E S G data hub.
And published our ESG performance index.
Which contains our key 2021 ESG metrics.
Including our scope, one two and three emissions, which can be found on our website.
Lastly.
The company launched a new employee engagement survey.
With a strong employee participation rate of 81%.
We recognize that engagement is a journey.
And the most important part of the survey is employee feedback that allows for continuous improvement.
The survey results highlight.
Our team at Liberty is committed to employee safety and being a good corporate citizen.
And that we are focused on development.
Bruce <unk>.
<unk>.
Equity and inclusive.
And belonging.
Attributes that are directly connected to our guiding principles.
With that.
I'll pass it over to Arthur will speak to our second quarter 2022 financial results.
Arthur Thank.
Thank you rune and good morning, everyone.
In the second quarter, we delivered solid results reflective of the strength and resiliency of our core businesses.
Our second quarter 2022, consolidated adjusted EBITDA was $289 3 million, which is up approximately 18% from the $244 9 million, we reported for the same period last year.
The regulated services group delivered $185 9 million in operating profit in the current quarter, which compares to $161 1 million in the same quarter last year, an increase of $24 8 million or 15%.
This increase reflects the normalization of our operations as well as the implementation of new rates across some of our utility systems, which added approximately $7 1 million as compared to the prior year.
This was partially offset by a one time catch up of distributions received from our San Antonio water system investments recorded in the prior year.
The increase in operating profit also reflects the addition of Liberty New York Water, which was acquired in January .
As a reminder, this utility is impacted by seasonality and as expected to earn over 60% of its operating profit during the peak summer months, primarily in the third quarter.
The renewable energy group reported first quarter divisional operating profit of $117 9 million, which compares to 97 million in the same quarter last year, representing an increase of $20 9 million or 22%.
Existing wind and solar generation facilities added approximately $14 2 million to operating profit and generation from newly commissioned facilities in investments added $4 1 million.
In general results benefited from increased production from our renewables fleet, which was in line with long term averages as compared to approximately 12% belong long term below long term averages experienced for the same period last year.
The higher production was partially offset by higher operating costs as well as underperformance from our investment in the Texas coastal wind facilities, which continue to experience high basis costs.
With your position by ERCOT of a generic transmission constraints into the Sydney of the facilities. It appears more likely however that the area of congestion will be mitigated over time.
Lastly, our renewable energy group benefited from incremental dividends received from our investment in Atlantica, which continues to provide strong results.
Corporate administrative expenses have increased by approximately $3 million in the second quarter relating primarily to higher staffing expenses as well as timing of expenses incurred relative to the comparative period.
In total our Q2 adjusted net earnings per share came in at 16.
Which compares to 15.
In the prior year, a 7% increase.
Moving onto our capital plan for the year.
We're 2022 Algonquin is targeting to spend over $4 3 billion of capital with the majority related to the completion completed acquisition of Liberty, New York water and the pending acquisition of Kentucky power.
Our capital plan remains on track year to date, we have invested over $1 2 billion, including $609 million of capital deployed for the closing of Liberty, New York water and over $400 million into organic investments to improve the safety reliability and resiliency of our network.
We continue to make good progress on our financing plan for the year, which is predicated on maintaining our strong and resilient balance sheet targeting a triple b investment grade credit rating.
To that end I'm pleased to report that Moody's has assigned an inaugural beat double H two long term issuer rating to Liberty utilities coal the primary holding company of a regulated business.
We believe that this rating will further broaden our access to the debt capital markets for our regulated business and will further support our competitive cost of capital.
As we look forward to completion over 'twenty two our financing plan, we have a diversity of potential funding sources available to us.
The renewable asset modernization.
Monetization process. We commenced earlier this year is continuing to progress well with strong interest received from the market.
We are seeking to issue utility tariff bonds under Missouri securitization statute for costs related to last year's Midwest extreme weather events and balances related to the retirement of the Asbury coal plant.
We expect the decision by the Missouri Public Service Commission on the quantum or the finance Financeable later this month.
Our drip program continues to see strong uptake and we expect to reactivate our ATM program with both programs supporting base equity needs.
Lastly, we continue to monitor the hybrid market on both sides of the border, which has recently seen some positive momentum.
Our liquidity position also remains strong ending the quarter with approximately $2 4 billion of available liquidity.
During the quarter, our regulated group Upsized and extended its revolving credit facility, increasing it from $500 million to $1 billion for a five year term.
The extension was well oversubscribed highlighting strong support for the company's credit in the bank market.
Also subsequent to the quarter, our renewable energy group extended its revolving credit facility for additional five years, along with meaningful improvements in pricing and terms.
Along with strong liquidity, we're also well positioned against short term interest rate shocks with approximately 84% of our debt being fixed and limited near term refinancing as expected.
Before turning things over to rune.
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 a range of 72 to 77.
These expectations are based on underlying assumptions, including normalized weather pattern resource production and realized pricing on our renewable generating facilities consistent with long term averages.
We have also assumed that the acquisition of Kentucky power will be completed in the second half of 2022 and there'll be no impact from COVID-19 on operations.
We look forward to continuing to deliver solid earnings, which along with our history of dividend growth. We believe will continue to drive strong returns for our shareholders.
With that I will now hand, it back to rude to outline our strategic plans.
Thank you Arthur.
Before we close out our prepared comments this morning.
To give an update on our strategic initiatives.
I'm excited about the prospects for Algonquin as a regulated and renewables businesses, which are both well positioned to contribute to and benefit from the decarbonize and transformation that is currently underway.
And which will only accelerate over the coming years.
With our.
Increased scale of 4000 megawatts.
We expect to get incremental benefits, including improved negotiating power lower transaction cost and access to greater opportunities.
This includes the opportunity to partner with institutional investors, who wish to invest in long term contracted sustainable assets by selling down a portion of our assets and earning a recording operating fee.
As I mentioned on our last call. We are formally formerly from comments our inaugural asset recycling broke says.
With a portfolio of assets in the range of approximately 750 megawatts.
The portfolio consists of four wind assets located in Canada, and the U S.
The process continues to advance.
And we have received strong interest.
As you can appreciate we are not at the stage, where we can provide a fulsome update and we look forward to giving you detailed as a process concludes.
Key objectives for us are increasing the scale of our development and operational platform together.
Together with increasing the amount of internally generated cash for future growth.
Asset recycling is part of our enhanced renewables plan.
And we expect this to occur on a recurring basis.
Before wrapping up my formal remarks.
I want to comment on the inflation reduction act of 2022.
We are pleased to see continued progress towards the passage of the inflation reduction Act.
Which is necessary to continue driving the push.
Towards greening the grid.
Many provisions in the draft legislation.
Provide deal wins to Algonquin.
And to help accelerate the clean energy transition.
The 10 year extension of the PTC and ITC.
Would provide significant opportunities for continued investment in renewable energy.
While the United States.
We didn't our renewable business.
PTC and ITC benefits are expected to be split between customers and developers.
Our active Greenfield development platform will ensure we have projects in the pipeline.
And the ability to participate in these benefit if the legislation is passed.
From our previously announced $3 6 billion renewables capital plan.
Approximately $2 4 billion in projects stand to benefit from increased levels for PTC and ITC.
While the remainder of our lease does projects already had 100% PTC and 30% ITC strategies.
All of the wind solar storage and renewable natural gas projects in our early stage Greenfield pipeline are expected to benefit from the new legislation is passed.
As a reminder.
At our last Investor day, we have not announced our 3800 megawatts of Greenfield pipeline.
And 70 to 100 megawatt hours of storage pipeline.
In addition.
Future Greening the fleet initiatives within the regulated business.
Should become even more economic for REIT peers.
Increasing the scale of our potential investment opportunities.
Going into the second half of the year.
We've continued to make steady progress on both sides of our business.
On the regulatory side, we have closed on Liberty, New York water and are progressing towards closing of Kentucky power.
On the renewable side, we are excited about the growth prospects and believe that there are a number of positive deal wins that support renewables growth.
Especially given the current environment of higher gas and commodity prices.
Renewables represent the lowest priced form of generation.
Our three strategic pillars of operational excellence growth.
And sustainability will be a key foundation as we continue to build a business and seek to deliver steady earnings dividend growth and long term shareholder value.
With that.
I will turn the call over to the operator for any questions from those on the line.
Okay.
Thank you we will now take questions from the telephone lines.
I have a question and you are using a speaker phone. Please lift your handset before making your selection.
I have a question.
Press Star one on your devices keypad.
So to your question at any time by pressing star two.
Please press star one at this time, if you have a question.
That will be a brief pause for all participants register for questions.
We thank you for your patience.
Our first question is from W. Mostly from Bank of America. Please go ahead.
Hi, Good morning, and thank you for taking my question I.
Just wanted to maybe discuss a little bit more detail the progress of the talks on the.
Sale of Kentucky Power, you mentioned that you continue to expect the transaction to close in the second half of the year can you just give a little bit of color or clarity as to the the pace of talks at the moment Oh, it's sort of like what the next upcoming gating items might be and.
Any other maybe detail as far as within the second half or would it be the early part or the perhaps the middle or later part of the second half of the year that you might expect the transaction to close.
Sure there is a.
Great question, obviously right. So look we are as you know we received the order from Kentucky backing me.
And then on July one we.
We received an order from the West Virginia.
Commission.
And those two orders were clearly inconsistent.
And so what we are doing is working closely with the AEP as a seller.
To come up with a resolution.
To those inconsistencies.
And there are questions, whether we go back to the commissions or.
Over everything and in our filing in front of FERC. So all of those questions remain outstanding and that is the reason why we said we why we remain confident.
In our ability to close the transaction.
Given the regulatory requirements.
Requirements are.
We basically said the second half of 2020 due just to remain on the same site.
Okay got it thank you for that color.
One more if I can just pivoting to the <unk> acquisition that you announced can you give a little bit of.
Detail on what might be a run rate contribution from that project once it's fully up and running across all sites in 2023, and perhaps what the.
Any kind of metrics around the actual deal like what type of EBITDA multiple or or any other metrics that we could think about.
Good great question.
Yeah, Dennis I'll, I'll I'll have Jeff respond to that.
And Darius I think the first thing to keep in mind is that we do treat this as an opportunity to learn and build our business. So we don't expect it to be a significant contributor.
It is an important piece of our building out an RG and.
It alerting.
I can't.
To answer the specific EBITDA run rate numbers, but in terms of once the two facilities have C. O D. Two more facilities are expected in 2023, which will give us approximately.
500.
M Btu per day or around 155000 per year, and so to give you a little bit of it.
The idea of the scale and we're certainly happy to follow up with the what the EBITDA run rate.
Yeah, well certainly follow up dairy is the only a couple of items that are the reason. We're excited about this transaction is that it didn't in Wisconsin and like I said in my prepared remarks are the second highest number of potential harbinger opportunities. So we see this really as a development platform to brew.
Our orange business, especially given the significant negative carbon intensity say from dairy farms of as much as it had a negative 400 reps.
It represented a pretty sizable way to.
Green, our our natural gas fleet.
The only other color I'll give you is that we also.
Have projects in front of four different commissions on the regulated side of the business and we were working through a regulatory process is to get those projects online as well.
Great. Thank you guys very much I'll turn it over here.
Sure.
Thank you.
Once again, please press star one at this time for any questions or comments.
Our following question is from Bernstein from BMO. Please go ahead.
Hi, Thank you.
I wanted to follow up I know you mentioned.
I really want renewable asset sales. So last quarter I was just wondering if you had an update on on timing of our progress with that.
Sure Ben Oh look we are making very very solid progress on the process I think from a macro perspective.
What we're seeing is very strong interest, especially from a lot of our large financial players wanting to buy into.
Long live are well contracted sustainable infrastructure.
And also given some of the.
Global issues are happening around Europe , and Asia are we in.
I see an even stronger interest in these assets that are in North America. So we have seen a robust.
Level of interest.
And.
<unk> continues.
With management presentations all of those kinds of things and are we in fact move forward hopefully to making an announcement sometime in the second half of the year.
Okay, that's great and.
Hi, I heard part of that the last question around inconsistent season.
In O&M on Mitchell on them and maybe to expand that was inconsistent or is it mostly mostly really the calculation of the transfer values just.
All your salvage value add was that the one that was.
I know, it's probably more of a deeper.
Not without the gist of it.
For the most part yes, I mean, there's also issues around operating off the assets between now and the end of 2020 did win for Kentucky power.
Port, but it is the the acid retires, but primarily you're absolutely right it's around the values.
Okay and.
I mean is it just a name that maybe.
Maybe using samples to general statement, but is it is it really just taken out.
The president of <unk> of that O&M and in your transaction.
It really to the transfer of value you have sorted out by 2028, I'm just just not kick it down the road, but it's just something you can deal with it in a few years.
And we can certainly do that Hollywood from them from a risk perspective, you we want to make sure that there is more of a certain deep as was in our you know transaction documents and again you know we are.
We're working very constructively with AEP are to come to a resolution and like I said earlier in my prepared remarks as well we remain highly confident that we are going to arrive at a conclusion.
That works for all parties, and then finally, especially the customers of our eastern Kentucky.
Okay. That's very helpful. Thank you.
Thank you once again, please press star one at this time, if you have any questions.
Yeah.
And we do not we have no further questions registered at this time I would now like to turn the meeting back over to Rune.
Thank you operator, and thank you very much for those who participated for taking the time on our call today.
And with that please stay on the line for our disclaimer.
The discussion during this call contains certain forward looking information, including but not limited to our expectations regarding earnings capital expenditures and acquisitions asset recycling gross and pending legislation.
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 website and is subject to risks and uncertainties that could cause actual results to differ materially.
Really from historical results or results anticipated by the forward looking information.
The information provided during this call speaks 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.
Claim any obligation to update any forward looking information or to explain any material difference between subsequent actually events and such forward looking information except as required by applicable law. In addition, during the course of this call. We can do they have referred.
Certain non-GAAP measures and ratios.
<unk>, 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 measures 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 company.
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 and that concludes the conference call.
Thank you.
The conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.