Q4 2022 Algonquin Power & Utilities Corp Earnings Call
Speaker 1: And.
Speaker 1: So.
Speaker 2: On participants, please continue to stand by. The conference will begin momentarily. Once again, please continue to stand by. We thank you for your patience.
Speaker 2: We want to thank you for your patience. The conference has been great. We want to thank you for your patience.
Speaker 3: All participants, please stand by. Your conference is ready to begin. Good morning ladies and gentlemen and welcome to the Algonquin Power and Utilities Corp.
Speaker 3: Fourth quarter and full year 2022 earnings webcast and conference call. Following the presentation, there will be a question and answer session. I would now like to turn the call over to Mr. Brian Chin, Vice President of Investor Relations. Go ahead.
Speaker 4: Good morning everyone and thank you for joining us for our fourth quarter and full year 2022 Earnings Conference call. Speaking on the call today will be Arun Bemskota, President and Chief Executive Officer and Darren Myers, Chief Financial Officer.
Speaker 4: Also joining us this morning for the question and answer part of the call will be Jeff Norman, Chief Development Officer and Johnny Johnston, Chief Operating Officer.
Speaker 4: To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquimpowerandutilities.com. Our financial statements and management discussion analysis are also available on the website, as well as on CDER and EDGAR.
Speaker 4: We'd like to remind you that our discussion during the call will include certain forward-looking information including but not limited to expectations regarding earnings, capital expenditures, pending acquisitions, asset sales, and growth. At the end of the call, I will read a notice regarding forward-looking information and non-GAAP measures. beasts of theinteractive
Speaker 4: Please also refer to our most recent MDNA filed on CDER and EDGAR and available on our website for additional important information on these items.
Speaker 4: On the call this morning, Arun will provide an overview of our fourth quarter and full-year performance. Darren will follow with the financial results, and then Arun will conclude with an update on our strategic plan for the business. We will then open the lines for the question and answer period. Please restrict your questions to two, and then re-queue if you have any additional questions to allow others the opportunity to participate.
Speaker 4: And with that, I'll turn it over to Arun. Thank you, Brian , and good morning, everyone.
Speaker 5: To start, I would like to quickly extend my best wishes to Amelia Tsang, our outgoing head of investor relations. We will be returning to the buy side.
Speaker 5: We are pleased to welcome Brian Chin to the role of Vice President Investor Relations, whose utility and investment analyst background should serve as a useful resource for you.
Speaker 5: Now turning to our results.
Speaker 5: Given that this is our year-end earnings call, we'll be providing financial and operational highlights for both the fourth quarter as well as the full year 2022.
Speaker 5: After a challenging second half of the year, we closed out 2022 on stable ground with full-year adjusted net earnings per share coming in at the top end of our revised guidance range at 69 cents.
Speaker 5: supported by 4th quarter adjusted net earnings per share of 22 cents.
Speaker 5: On January 12th,
Speaker 5: We hosted an investor update call where we presented decisive actions the company is taking to strengthen its financial position while addressing the various challenges faced.
Speaker 5: These actions include
Speaker 5: Reducing our capital spend intensity to recognize changing market conditions and company specific factors.
Speaker 5: Optimizing our portfolio by targeting approximately $1 billion of additional asset sales.
Speaker 5: Reducing our quarterly dividend by 40% to $0.1085 per common share.
Speaker 5: and reducing our reliance on equity capital markets, including undertaking no new equity financings for the next two years.
Speaker 5: We continue to be focused on supporting our financial foundation.
Speaker 5: driving long-term profitable growth.
Speaker 5: and we remain committed to our BBB credit rating.
Speaker 5: Also, as a reminder, we are very pleased with the results of our inaugural renewable acid recycling program.
Speaker 5: On December 29, we closed the previously announced sale of our ownership interests in a portfolio of Canadian and US wind facilities to infrared capital partners.
Speaker 5: Total cash proceeds of the sale were approximately $357.6 million.
Speaker 5: As we have discussed before, we see a path to continue validating shareholder value by selling down operational renewable energy assets.
Speaker 6: With that...
Speaker 5: Let's review Algantu's four quarter and full year 2022 efforts and achievements within our three strategic pillars of growth.
Speaker 5: operational excellence, and sustainability.
Speaker 5: Despite Algonqu's recent commitment to reducing our capital intensity, long-term profitable growth remains an important component of our strategy.
Speaker 5: Let me provide an update on the pending acquisition of Kentucky Power Company.
Speaker 5: To recap, on December 15, 2022,
Speaker 5: the US Federal Energy Regulatory Commission issued an order denying, without prejudice, authorization for the Kentucky power transaction.
Speaker 5: On February 14th,
Speaker 5: We filed a new application with FERC for approval of the transaction.
Speaker 5: Closing of the transaction remains subject to the satisfaction or waiver of certain conditions.
Speaker 5: In 2022, we successfully closed the New York Water transaction and have now fully integrated the business into Liberty Operations.
Speaker 5: Liberty New York Water is a regulated water and wastewater utility serving approximately 127,000 customer connections across eight counties in southeastern New York State.
Speaker 5: Turning now to growth for our renewable energy group.
Speaker 5: One growth lever is our CNI strategy of partnering and collaborating with companies to help them achieve their ESG commitments.
Speaker 5: We are pleased to report that during the quarter, site preparation commenced at the Carvers Creek Solo Project.
Speaker 5: A 150 MWh project in Virginia.
Speaker 5: We continue to make progress on the Renewables Development Front.
Speaker 5: Advancements include the delivery and installation of wind turbines at our Deerfield 2,
Speaker 5: Sandy Ridge II and Shady Oaks II wind projects.
Speaker 5: We currently have over 600 MW of wind and solar projects in various stages of construction.
Speaker 5: and expect to bring approximately 450 MW in service by end 2023.
Speaker 5: Separately, we also received news this week.
Speaker 5: that the remaining solar panels for Newmarket Solar have started to clear customs.
Speaker 5: and all remaining modules are expected to clear customs in the near future.
Speaker 5: This is great news and gives us enough confidence on module deliveries to remobilize our EPC to complete final installation and site commissioning.
Speaker 5: And last, we are pleased to confirm that we have been awarded a 122 megawatt power purchase agreement from Hydro-Québec.
Speaker 5: for the Send the Mask 2 expansion project. Awards for this project were announced earlier this week.
Speaker 5: This too is great news reflecting our strong relationship with Hydro-Québec.
Speaker 5: So overall, our construction program continues on track.
Speaker 5: As we mentioned on our January 12th update,
Speaker 5: We expect our 2023 renewable operating earnings, excluding the gain on sale.
Speaker 5: to be relatively flat year over year, in part due to the lumpy nature of the business.
Speaker 5: Darren will provide further details shortly. Turning now to our strategic pillar of operational excellence.
Speaker 5: In a mission critical industry,
Speaker 5: Safety and reliability are always key areas of focus.
Speaker 5: We strive to keep our customers and communities safe.
Speaker 5: while maintaining our system reliability and resiliency.
Speaker 5: 2022 was an excellent year for our safety numbers.
Speaker 5: We had a best-in-class lost time injury rate.
Speaker 5: Stop, desal, reportable injury rate.
Speaker 5: and saw a significant drop in motor vehicle accidents year over year.
Speaker 5: We also received two additional industry awards recognizing another excellent year.
Speaker 5: The American Gas Association Leading Indicator Safety Award.
Speaker 5: and the AGA Safety Achievement Award.
Speaker 5: We are very proud of our employees for living our culture of safety excellence.
Speaker 5: as we have noted a significant increase in our leading indicator performance.
Speaker 5: This year, we also rolled out a new reporting program for GoodCatch.
Speaker 5: action-oriented and proactive reporting program.
Speaker 6: With increasing inclement weather,
Speaker 5: Emergency preparedness and response is more important than ever.
Speaker 5: And we are proud that our Velcro team received the EEI.
Speaker 5: Emergency Response Award for restoration efforts following Hurricane Fiona in Bermuda.
Speaker 5: Presented to EI member companies twice a year, the Emergency Response Awards recognize recovery and assistance efforts of electric companies following service disruptions caused by extreme natural events. We wish to extend our thanks and congratulations to our Bermuda team.
Speaker 5: for this achievement and focus on customer service. Lastly, I would like to provide an update on key events from recent rate proceedings.
Speaker 5: We are pleased to have had a successful ROE appeal in New Brunswick.
Speaker 5: A rate order for California water.
Speaker 5: as well as new GRC filings for Arkansas and New Brunswick.
Speaker 5: We expect to file several additional rate cases in 2023.
Speaker 5: The most immediate of this being for New York Water, which will be the first rate case filed post acquisition.
Speaker 6: And finally...
Speaker 5: We remain firmly committed to sustainability.
Speaker 5: We continue to include environmental, social, and governance activities across our business and our key metrics.
Speaker 5: Our 2022 ESG report published in Q4.
Speaker 5: including a more quantitative-focused approach to ESG across the enterprise.
Speaker 5: We also continued our journey to operationalize net zero.
Speaker 5: By rolling our transition plans across our top five emitting facilities,
Speaker 5: and advancing work on our TCFD risks for these.
Speaker 5: Our overall emissions intensity continues to trend down.
Speaker 5: We also continue to make progress on our 2023 ESC targets.
Speaker 5: We also continue to make progress on our 2023 ESC targets, including an 8% improvement in the
Speaker 5: towards our employee engagement target.
Speaker 5: We are currently processing our 2022 ESC data and are aiming to publish performance data by Q3.
Speaker 5: We are pleased that our ESG efforts are being recognized, as evidenced by Algonquin's inclusion in the Bloomberg Gender Equity Index for the fourth year in a row.
Speaker 5: and recognition on the Globe and Mail's 2022 report on Business Women Lead Here list.
Speaker 5: an annual benchmark program that ranks Canadian companies on achieving or nearing gender parity in their executive ranks. Additionally, we recently awarded the SMI Terra Carta Seal in recognition of Algonquin's commitment and leadership in sustainability.
Speaker 5: 2022 was focused on advancing our ambitious five-year targets.
Speaker 5: which conclude at the end of 2023.
Speaker 5: as well as ongoing integration of our net zero by 2050 target across the enterprise. With that, I'll pass it over to Darren.
Speaker 5: We will speak to our fourth quarter and full year 2022 financial results.
Speaker 4: Thank you Arun and good morning everyone. As Arun touched on briefly, Algonquin finished the year on stable footing and we are confident that the steps we are taking will strengthen our financial foundation, drive profitable growth and create long-term value.
Speaker 4: Turning to the fourth quarter and full year financial results.
Speaker 4: Our fourth quarter 2022 consolidated adjusted EBITDA was $358.3 million, which is up approximately 20% from the $298.3 million for the same period last year.
Speaker 4: Full year 2022 consolidated adjusted EBITDA was approximately 1.26 billion dollars. An increase of approximately 17% from the approximately 1.08 billion dollars in the prior year.
Speaker 4: Fourth quarter adjusted net earnings were $151 million compared to $137 million reported last year, an increase of 10%.
Speaker 4: Full year adjusted net earnings were $474.9 million, up 6% from $449 million for the full year 2021.
Speaker 4: Looking at adjusted net earnings per share, the fourth quarter of 2022 came in at 22 cents, a five cent increase compared to 21 cents in the prior year.
Speaker 4: And for the full year, adjusted net earnings per share was $0.69, a 3% decrease from $0.71 last year.
Speaker 4: The 69 cents came in at the high end of our revised 2022 adjusted net earnings per share guidance range of 66 to 69 cents.
Speaker 4: Our net gap earnings was a loss of $74 million for the quarter and a loss of $212 million for the full year compared to $175 million net profit in the fourth quarter of 2021 and $265 million for the full year 2021.
Speaker 4: During the fourth quarter, the company took a $235 million non-cash impairment charge, primarily resulting from specific challenges we have previously discussed before, including congestion and declining forward energy prices in ERCOT.
Speaker 4: Our full year gap earnings were also negatively impacted by $499 million in non-cash mark-to-market adjustments on our Atlantica shares.
Speaker 4: Looking further at the drivers of the fourth quarter and full year results, the Q4 increase in adjusted net earnings per share was primarily the result of gains on asset sales in the renewable energy group and growth in our core earnings.
Speaker 4: Our growth and adjusted EBITDA was partially offset by higher interest expense, lower recognition of tax credits, primarily as a result of the industry-wide solar panel supply chain challenges we previously discussed, and an increase in the weighted average number of common shares outstanding. Water Public Works
Speaker 4: As a reminder, the company does not intend to undertake any new common equity financing through the end of 2024.
Speaker 4: Looking at results on a segmented basis, the Regulated Service Group delivered $214.4 million in operating profit in the fourth quarter.
Speaker 4: which compares to $191.4 million in the same quarter last year, an increase of 12%.
Speaker 4: For the full year 2022, the Regulated Services Group delivered $863.6 million in operating profit compared to $758.8 million for the full year 2021, an increase of 14%.
Speaker 4: The year over year increases for both the 4th quarter and full year were primarily due to increases associated with the acquisition of New York water and rate reviews of certain electric and gas utilities.
Speaker 4: Switching now to the Renewable Energy Group, fourth quarter 2022 Divisional Operating Profit was $163 million compared to $123.2 million in the same quarter last year, an increase of 32%.
Speaker 4: The increase was primarily due to the $62.8 million gain from our inaugural renewable asset recycling transaction, which compared to a gain of $29.1 million recorded in the fourth quarter of 2021.
Speaker 4: Excluding the gains, our year-over-year operating profit was up 7%, reflecting improvements over a challenging fourth quarter 2021, in particular with our Texas coastal wind assets.
Speaker 4: For the full year 2022, the Renewable Energy Group reported the visual operating profit of $472.2 million compared to $383.6 million last year, an increase of 23%.
Speaker 4: The annual increase was primarily due to higher production, favorable energy market pricing, and a gain from our asset recycling transaction.
Speaker 4: Now, moving on to our capital plan for the year.
Speaker 4: We remain focused on creating value by making profitable investments to improve safety, reliability and resiliency of our assets to further enhance Algonquin's core businesses and allow us to better execute our strategy.
Speaker 4: Assuming completion of the $2.6 billion Kentucky Power acquisition, we expect to spend approximately $3.6 billion in capital in 2023.
Speaker 4: As Arun touched on earlier, Algonquin remains committed to maintaining its triple-B credit rating. We are pleased that in January 2023, S&P and Fitch affirmed their existing ratings and outlook. And in February , DBRS also affirmed its existing ratings and removed Algonquin from under review with developing implications, updating Algonquin's outlook to stable.
Speaker 4: Additionally, at the end of 2022, we had approximately $2.3 billion of available liquidity on our revolving and term credit facilities.
Speaker 4: As an update, we extended our delayed draw term facility of $1.1 billion to the end of November 2023, and all the participant banks continue to be supportive of the extension.
Speaker 4: We are now in the process of extending and upsizing our parent credit facility, which is expected to add an additional $500 million of capacity.
Speaker 4: Additionally, we ended the year at approximately 89% fixed rate debt.
Speaker 4: Moving now to our earnings outlook, we have reaffirmed our 2023 adjusted net earnings per share expected range of $0.55 to $0.61.
Speaker 4: which starting this year will be calculated excluding the impact of any gains or losses on asset sales.
Speaker 4: For clarity, the 69 cents adjusted net earnings per share in 2022 would be 61 cents if we excluded an estimated 8 cents after tax from the gain on sale.
Speaker 4: With that, I will now hand it back to Arun.
Speaker 4: I will now hand it back to Arun. Thanks Darren.
Speaker 5: Before we close out our prepared remarks comments this morning and open the line for questions, I want to provide an update on Algonquin's strategic initiatives.
Speaker 5: The company has continued to execute on strategic priorities which are positioning us well for the future.
Speaker 5: First, we are seeking to optimize our portfolio by targeting approximately $1 billion of asset sales announcements in 2023. Proceeds from this initiative are expected to further improve financial flexibility.
Speaker 5: First, we are seeking to optimize our portfolio by targeting approximately $1 billion of asset sales announcements in 2023. Proceeds from this initiative are expected to further improve financial flexibility. Second, we are seeking to optimize our portfolio by targeting approximately $1 billion of asset sales announcements in 2023. Proceeds from this initiative are expected to further improve financial flexibility.
We continue to work with AEP with regards to the Kentucky Power transaction.
We continue to work with AEP with regards to the Kentucky Power transaction.
We remain focused on operational discipline and profitable growth. Our 2023 capital investments are expected to be $3.6 billion, inclusive of Kentucky power.
I also wanted to briefly touch on the Atlantica strategic review. As you may have seen, Atlantica, of which Algonquin owns approximately 42%, announced that it is undertaking a strategic review of the business.
We are supportive of the process. We remain confident in Algonquin's long-term future.
Our regulated and renewables businesses are both well positioned to contribute to and benefit from the decarbonization transformation that is currently underway.
and which will only strengthen over the coming years.
We remain excited about the Inflation Reduction Act and the long-term incentives to decarbonize.
which should benefit both our regulated and renewable businesses. In the face of near-term macro headwinds,
We believe we are taking the prudent and proactive steps to navigate challenges and position the company to enhance shareholder value over the long term.
taking the prudent and proactive steps to navigate challenges and position the company to enhance shareholder value over the long term. With that, I'll leave it at that.
I will now turn the call over to the operator to open the lines up for questions.
Thank you, sir. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2.
Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience.
Our first question is from Sean Stewart with TD Securities. Please go ahead. Thank you. Good morning. A couple of questions. The $3.6 billion spending plan for 2023, just to clarify, does that include the full $2.6 billion for Kentucky Power or just $2.6 billion for the state of Kentucky?
portfolio? Is that the correct way to look at it?
I ask because I think that at the most recent Deep Dive Investor Day over a year ago, you were talking about 1.2 billion.
for the regulated spending plan in 2023. And I guess what I'm trying to get at is how do you guys think about?
Long term organic rate based growth potential for that overall business. So, maybe I'll start so on the, just to clarify on the 36 is 2.6Billion for the Kentucky and then 1Billion obviously is left over. And we're not providing color on the investments.
through the longer term of our capital plan here, but needless to say we see lots of opportunity to keep investing both in the regulated and the renewable business.
Okay, so no thoughts on longer term organic growth potential that you can share at this point.
Sorry, Shawn, not to, at this point, I don't know if you want to add to that. Sure. So, Shawn, in the past, we have shown you that with the existing portfolio of regulated assets, that we have potential to invest as much as $1 to $1.2 billion on the regulated side of the business. However, in the interest of customer affordability, we have seen that the
we have made the decision to reduce our capital intensity and focus on really safety, reliability, and other absolutely needed investments on the regulatory side of the business. Okay, thanks for that Arun. Second question, with respect to the asset sell-down program.
You touched on and reiterated the $1 billion target.
does maybe some updates on how that program is progressing and
Does the Atlantica Strategic Review affect how you approach that possible divestiture program going forward?
So as background, I would say that with over $17 billion worth of assets in our portfolio, the $1 billion taken in context is a fairly small amount. We have quite a number of different optionalities for that $1 billion of proceeds.
As you know, we just announced in the fourth quarter the renewable asset sell-down which proceeds in the range of $360 million. That is part of our ongoing strategy on the renewable side of the business. And with our acquisition of this kind of system, we very quickly chose to bring in a DARPA printer which had been done with a real-time architecture based on our user battlefield market setting. So we areops if the user is someone to access the data about the market in the sky 7,000 identifies
history over the many years, we certainly have a number of optionalities to get to that one billion dollars and we certainly will provide you more color with time.
Thanks for that, Arun. That's all I have for now. Thanks, guys.
Thank you. Our next question is from Darius Lonsy with Bank of America. Please go ahead. Hey guys, good morning. Thank you for taking my question. First one is just on the Kentucky power transaction, maybe just procedurally how you guys are thinking about it. Obviously, it's a fairly
beyond the FERC approval to sort of dot the I's and cross the T's and actually get to a financial close with your counterparty on that transaction.
Beyond the outside date, we have actually done all of the planning necessary to be able to close, so that is not a constraint. As you know, we are putting the new 2 or 3 in February , so we are as...
always have been using reasonable best efforts, and we continue to use reasonable best efforts right up to the outside date. And beyond that, Darius, it would not be prudent for me to speculate on timing, inside date, outside date. So how you think of horn
there were some embedded assumptions in there about your interest expense and obviously we've seen some volatility in the rate markets since then. Are you in a position to comment at all about as far as where you're tracking when that 55 to 61 cent band specifically related to that interest expense component?
Hi Darius, I mean really I mean as you said there's a lot of volatility obviously going on right now. We're very comfortable still in the 55 to 61 cents. So, you know, we reiterated that guidance and I would say that, you know, everything is all in all where we would have been with during the last update.
Which in January that we gave the investment community.
Okay, great. Thank you for that caller. I'll leave it here.
Okay, great. Thank you for that call or I'll leave it here. Thank you.
Thank you. Our next question is from David with Raymond James. Go ahead. Thanks. Morning everyone. Maybe I'll start with one on the 23 capital plan. I'm curious if Kentucky Power doesn't go through...
Do you think that you could add some projects back into the plan or would affordability on the regulated side still limit the investments there consistent with your comments? Maybe are there some renewable projects that could go back in? Just any thoughts in that scenario?
Sure, David. So on our $1 billion program, as I said before, that includes Kentucky Power in our base case, which we provided color to you about January 12 update. And as we've discussed before...silence
we certainly have a lot more growth opportunities on both the regulated side of the business and the renewable side of the business. So, you know, I don't want to speculate on what happens, but we have lots of options to deploy capital, but we'll obviously be looking at it from the customer affordability, our own capital intensity requirements, funding requirements, and all of those factors.
Okay, excellent. Thanks for that. Then, maybe just a follow-up or maybe just a clarification on the asset sales. Is it fair to say that I guess you're still…
potentially looking at other asset sales outside of Atlantica and you don't need to wait for an outcome on the Atlantica process in order to be having conversations with respect to potential other asset sales.
We are comfortable with our billion dollar asset sales that we announced in January . And again, like I said, we have lots of options to get to that $1 billion range. We are deep in the planning stages and we will certainly let our industry community know with time.
Thanks for that Arun, I'll turn it over.
Thanks for that, Arun. I'll turn it over. Thanks, David. Thank you.
Our next question is from Nelson Ng with RBC Capital Markets. Please go ahead. Great, thanks. Just a quick follow-up question on interest rates. So I think with the sale of assets in Q4, it looks like you reduced your floating interest rate exposure a bit. Can you talk about how you're looking to manage your floating interest rate exposure going forward?
in the 4th quarter to improve the fixed to floating rate. And as we, assuming the close of Kentucky, we would expect the fixed percent to go down and then work our way back up through more fixed instruments as through our capital plan for.
to maintain it at this level.
Okay, thanks. And then next question relates to the renewable energy business, and maybe this is a question for Jeff. But you guys mentioned that you have roughly, I guess, 600 megawatts under construction and 450 megawatts.
That will be commissioned this year kind of looking out over the next few years.
Is 450 megawatts like a good run rate or do you see that ramping up over time? I know at RuneFlag that there's obviously a lot of optionality and opportunities you see.
I'm just thinking whether the 450 is a good number or
or not. Yeah I think the 450 if you look at our history the
build has fluctuated a little bit as high as 1600 megawatts, but then the projects are fairly clumpy, as you know, in terms of minimum size, 100 megawatts to 300 megawatts, but 450 megawatts annually is a reasonable run-right for our current capital planning.
Again, as a reminder, we have lots of growth opportunities on the renewable side as well, with over 4,000 megawatts of green field pipeline and over 1,700 megawatt hours of storage pipeline. So, you know, we have a lot of growth opportunities on the renewable side as well.
we will be able to get to that number. At the same time, as a reminder, you know, we have said this time and again because of the nature of the renewables business, it does happen to be fairly lumpy with as much as, like just that, 1,600 megawatts in one year versus, you know, 450 megawatts this year.
We'll be able to get to that number at the same time as a reminder, you know, we have said this time and again because of the nature of the renewables business, it does happen to be fairly lumpy with as much as, like Jeff said, 1,600 megawatts in one year versus, you know, 450 megawatts this year. Thanks for the cover.
Thank you. Our next question is from Rob Hope with Scotiabank. Please go ahead. Good morning, everyone. Thanks for taking my questions. Just two follow-up ones. First, in Kentucky, assuming the transaction is closed, we can close with your question, is there something happening to the internet 20% times in this cycle?
Has your outlook forward, your greening the fleet initiatives there been changed or tempered at all? You know, I realize that the Senate bill that have been proposed don't necessarily directly impact you, but it does speak to and will maybe characterize as maybe a tougher time to get renewables in the state.
Actually, Robert, I would say otherwise. With the Inflation Reduction Act, really the goal is to reduce prices for green and clean energy to ultimate consumers. And what the IRA also does is provide a very long-term solution.
on the wind side, and that was before the IRA, those investments, theses have become even more compelling with the IRA. The other thing I would like to point out is that in the Kentucky Power footprint, you're talking about the retirement or the closure of more than 1100 megawatts of coal.
And those have been the highest cost power for Kentucky Power. So we see lots of potential given the IRA and given the out-of-state coal retirements to be investing in Greenfield. So the thesis is even stronger in fact. Okay, good. I appreciate that, Colin. Thank you.
And then maybe turning over to the regulated businesses, higher operating costs were kind of flagged in DMDNA, especially on the GAAS side. Can you maybe add a little bit of commentary on where you're seeing operating costs and whether or not it's been a material drag on ROEs into 2022 and into 2023?
Hey, Robert, it's Jonny. And I think overall, we feel, we always manage our operating costs pretty closely and you look at the track record over time as our operating costs, I think, have come down, I think we'll take probably the 1% CAGR over the last five years or so.
And so I think we feel like we've got a pretty good track record going forward in terms of managing our operating costs.
Thank you.
Thank you.
Next question is from: as you be doing with the I capital markets, Please go ahead.
Hi, good morning. Just wanted to revisit Atlantic AO and the assets of the program. Can you just give us maybe your thoughts on what's different with this strategic review versus the one that was launched a couple years ago? And are you still looking to launch or have you already launched other assets or programs?
Sorry, Nadia, I didn't get the last part of your question. Yeah, I was just saying, are you still looking to begin or have you already begun other processes to sell assets other than Plantika?
Sure. Again, you're right. Atlantica did go through a strategic review process back in 2018. However, these are very different times and this is a different board that has announced the strategic review process. And we're just going to let that unfold and Atlantica will give updates with time.
When we did our investor update in January 12, that was clearly before the Board of Atlantica had announced its strategic review. So we are confident in the billion dollar asset sales because like I keep saying, with our over 17 billion dollars of assets, we have lots of optionalities and we are...
very much deep in the planning stages, including phase two of our renewable asset sell-down. Okay, okay that helps. Thank you. Just a question on Kentucky.
Is there a scenario where we get past the April 26 deadline and still no updates or positive updates from regulatory approvals? Just any thoughts on what happens then? I will kind of store your options at that point.
Sure, so look, with the December 15 denial by FERC, obviously it will be prudent for management to be looking at all options, right? But at the same time, as under all of our obligations and our commitments, we will continue to use reasonable best efforts to close this transaction all the way until the outside date.
and before that it will probably not be prudent for me to speculate on the what-ifs.
Okay, understood. Thank you. Thank you, Najee. Thank you. Once again, please press star 1 at this time if you have a question. There are no further questions. I do apologize.
We do have a question from Richard Sandelan with GP Morgan. Please go ahead. Hi, good morning. Thank you for the time today, and just one for me. I know you hit this in the script, but can you speak a little bit more to the 4Q impairment and the valuation allowance alongside that? I'm just wondering if this relates at all to
changing expectations for the renewables development activities going forward. It doesn't sound like there's been a change in the pipeline, but just a little more color there would be helpful. Thank you.
Yeah, Richard, let me start just directly to your question. It does not change the outlook from our January update or for the renewables business.
You know, I think as you know, the Texas markets being a tougher market and this is part of our annual impairment testing. You know, there was really two pieces to it. There's the Senate asset, which was a 2012 kind of vintage asset that really is just being, you know, the impairments a result of the forward pricing curve today versus where it was when the original business case was done.
which has obviously changed since 2012. And then on the Texas coastal wind assets, it's really around the congestion and basis issues that we've been discussing. So I would say that it reflects everything that we've been discussing on the previous calls and just part of our annual impairment testing and no change going forward. The deferred tax.
asset that's just a result of losses that we have in the business and just ability to it's a tax and accounting thing and ability to use them in the short term. It doesn't change our outlook on the tax expense around the business.
Got it very clear. And so one follow-up for me on the Kentucky side. I think the release notes that HSR approvals have lapsed. What's the timeline to receive HSR again? There will, every team will, receive a short or deficient $ concentrate. When we arrive, again, we'll filler, wh JawhAgon nowadays.
Richard, we have already refiled the HSR approval and we do not anticipate that to be an issue.
I will leave it there. Thank you. Thank you. Thank you. Thank you.
There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Bhaskar. Thank you for taking the time to listen to our fourth quarter and full year 2022 call today. Please continue to stay on the line for our disclaimer.
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