Q2 2023 Algonquin Power & Utilities Corp Earnings Call

August 10, 2023

Hello, and welcome to the Algonquin power and Utilities Corp, second quarter 2023 earnings Conference call. 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 star followed by one on your telephone keypad I will now turn the conference over to Brian Chin Vice President of Investor Relations. Please go ahead.

Brian Chin: Thanks, and good morning, everyone, and thank you for joining us on our Q2 2023 earnings conference call. Speaking on the call today will be Chris Huskilson, Interim Chief Executive Officer, and Darren Myers, Chief Financial Officer. 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. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR+ and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures.

Thanks, and good morning, everyone and thank you for joining us on our second quarter 2023 earnings Conference call.

Speaking on the call today will be Chris Huskisson interim Chief Executive Officer, and Darren Myers, Chief Financial Officer also joining us. This morning for the question and answer part of the call will be just normal Chief development Officer, and Johnny Johnston, Chief operating officer to accompany today's earnings call. We have a supplemental webcast presentation available on our website Algonquin power Dot com our financial statements.

And management discussion and analysis are also available on the website as well as on SEDAR and Edgar we.

We would like to remind you that our discussion during the call will include certain forward looking information at the end of the call I will 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 also available on our website for important information on these items on the call. This morning, Christian Darren will walk through a few important updates first.

Brian Chin: Please also refer to our most recent MD&A filed on SEDAR+ and EDGAR, and also available on our website for important information on these items. On the call this morning, Chris and Darren will walk through a few important updates. First, Chris will review the board's decision on company leadership and then the results of the strategic review announced in May. Then Darren will review our Q2 performance and financial results. 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. With that, I'll turn it over to Chris.

Chris will review the Board's decision on company leadership and then the results of the strategic review announced in May then Darren will review, our second quarter performance and financial results. 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 with that I'll turn it over to Chris.

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Chris Huskilson: Okay. Well, thank you, Brian, and good morning, everyone. Before we dive into our Q2 results, I'd like to start off by providing an overview of this morning's announcements. The board announced that I've been appointed interim CEO and that Arun Banskota has stepped down as President and Chief Executive. On behalf of everyone at Algonquin, I want to thank Arun for his contributions over the past three years and wish him the best in his future endeavors. By means of introduction, I've served on Algonquin's Board of Directors for the past two and a half years, most recently as Chair of the Strategic Review Committee, and I've worked closely with the executive team on the review. Some of you may already be familiar with my experience in the utility industry.

Okay, well, thank you, Brian and good morning, everyone.

Before we dive into our second quarter results I'd like to start off by providing an overview of this morning's announcements.

The board announced.

That I've been appointed interim CEO .

And then around.

And Scott has stepped down as president and Chief Executive.

On behalf of everyone at Algonquin I want to thank our own for his contributions over the past three years and wish him the best in his future endeavors.

By means of introduction I have served on Algonquin as board of directors for the past two and a half years. Most recently as chair of the strategic Review Committee.

And I've worked closely with the executive team on the review.

Some of you may already be familiar with my experience in the utility industry I was previously CEO of emera from 2004 to 2018.

Chris Huskilson: I was previously CEO of Emera from 2004 to 2018, and some of that time, Emera was an investor in Algonquin. The board has engaged a nationally recognized search firm to identify a permanent chief executive officer. During this period, however, I am committed to working towards a successful execution of the strategic separation and ensuring a smooth transition. The board's decision to establish new leadership is directly related to the outcome of the strategic review process. After a thorough strategic review, we announced earlier today that the company will pursue a sale of our Renewable Energy Group.

And some of that time emera wasn't investor.

The board has engaged a nationally recognized search firm to identify a permanent chief Executive officer.

During this period, however, I am committed to working towards a successful execution of the strategic separation.

And ensuring a smooth transition.

The board's decision to establish new leadership is directly related to the outcome of the strategic review process.

After a thorough strategic review, we announced earlier today the company will pursue a sale of our renewable energy group.

Okay.

Chris Huskilson: With the support of our independent financial advisor, the Strategic Review Committee of the board carefully evaluated both of our strong businesses and determined that we can create more long-term value by focusing on our regulated business and pursuing a sale of the renewables business. The regulated utility business is well-positioned with diversified assets, multiple modalities, and attractive jurisdictions. We have a proven track record of providing reliable service for our customers and have achieved constructive regulated returns for our shareholders. Excuse me. The renewable business is solid, and over the past 30 years has grown into an attractive platform that remains poised to benefit from the acceleration of clean energy. In fact, both businesses are well-positioned to benefit from the energy transition.

With the support of our independent financial advisor the strategic review Committee of the board carefully evaluated both of our strong businesses and determined that we can create more long term value by focusing on our regulated business and pursuing a sale of the renewables business.

The regulated utility business is well positioned with diversified assets multiple modalities.

Tractive jurisdictions.

We have a proven track record of providing reliable service for our customers.

And have achieved constructive regulated returns.

For our shareholders.

Excuse me Sir.

Renewable business is a solid and over the past 30 years.

It has grown into an attractive platform that remains poised to benefit from the acceleration clean energy.

Okay.

In fact, both businesses are well positioned to benefit from the energy transition.

Chris Huskilson: That said, with the work the board and management has done, we believe our current integrated structure is holding us back from realizing the full value of our both businesses. We have a strong set of regulated assets with long-term growth. The regulated portfolio has upside potential that can be unlocked through more focused organic growth strategy, including a simpler business model and more disciplined approach to capital. A sale of the renewable business supports the realization of this value opportunity. We also believe our renewables business would be better positioned to accelerate its growth under a different ownership structure. We expect to use the proceeds of a renewables transaction to reduce our debt and fund share repurchases. Our objectives for the transaction are to support our current dividend, reduce our cost of capital, and maintain our investment-grade BBB rating, always with the objective to build long-term value.

That said.

But the work the board and management is that we.

We believe our current integrated structure is holding us back from realizing the full value of our both businesses.

We have a strong set of regulated assets.

Long term growth the.

The regulated portfolio has upside potential that can be unlocked through more focused organic growth strategy.

Including a simpler business model and more disciplined approach to capital.

A sale of the renewables business support the realization of this value opportunity.

We also believe our renewables business would be better positioned to accelerate its growth under a different ownership structure.

We expect to use the proceeds of renewables transaction to reduce our debt and fund share repurchase repurchases.

Our objectives for the transaction are to support our current dividend.

Reduce our cost of capital and maintain our investment grade Triple B rating.

Always with the objective to build long term value.

Chris Huskilson: The timing of the sale will be dependent on value, and we will update the market as appropriate. J.P. Morgan will be acting as financial advisor for this purpose. We look forward to exiting the sale process as a competitively capitalized regulated utility with a stable, healthy growth outlook. Let me take a brief moment to highlight some unique aspects of our regulated utility story. With our first regulated investment in 2001, Algonquin is among the newer investor-owned utility portfolios of our scale in North America. Over the last two decades, and especially during the period of lower interest rates, we took the opportunity to build a utility platform by acquiring and investing in undervalued and underperforming assets.

The timing of the sale will be dependent on value and.

And we will update the market as appropriate.

P Morgan will be acting as financial advisor for the purpose purpose.

We look forward to exiting the sale process as a competitively capitalized regulated utility with a stable healthy growth outlook.

Let me take a brief moment to highlight some unique aspects of our regulated utility story.

With our first regulated investment in 2001 Algonquin is among the newer investor owned utility portfolios of our scale in North America.

Over the last two decades, and especially during the period of lower interest rates, we took the opportunity to build a utility platform by acquiring and investing in undervalued and underperforming assets.

Chris Huskilson: Through improved customer and regulatory relationships as well as cost management, we've been able to improve delivered ROEs and on average, bring them closer to our allowed returns. We now serve over 1.2 million customer connections in $7 billion of rate base across our utility business. Our portfolio is heavily concentrated in four US states, Missouri, California, New Hampshire, and New York. These provide 86% of our US rate base and 73% of our overall rate base. Our utilities are primarily comprised of electric distribution and water distribution, which is 78% of our rate base, as well as natural gas distribution, making up the final 22%. We believe this mix provides our investors a unique and favorable composition and exposure to clean infrastructure trends and investment opportunities.

Through improved customer and regulatory relationships as well as cost management, we've been able to improve delivered our oes and on average bringing them closer to our allowed returns.

We now serve over $1 2 million customer connections and $7 billion of rate base across our utility business.

Our portfolio is heavily concentrated in four U S states.

Missouri, California, New Hampshire, and New York.

These provide 86% of our U S rate base and 73% of our overall rate base.

Our utilities are primarily comprised of electric distribution and water distribution, which is 78% of our rate base as well as natural gas distribution, making up the final 22%.

We believe this mix provides our investors a unique and favorable composition and exposure to clean infrastructure trends and investment opportunities.

Chris Huskilson: While our story has been one of growth largely through acquisition, in a higher cost of capital environment, the company strategy needs to adapt and evolve from our early regulated years. More specifically, we see our strategy focusing more intently on our organic growth, greater operational discipline, and capital discipline. With the plans we're pursuing, we expect to be able to bring additional efficiencies and value to customers while investing in the infrastructure in an affordable way. Clean, affordable, and reliable energy and water will be the focus of our regulated business. Our plan to accomplish this is underpinned by aiming to invest approximately $1 billion of capital per year by focusing on standardizing our infrastructure, which is expected to provide the biggest impact for our customers through improvements in reliability and creating economies of scale.

While our story has been one of growth largely through acquisition.

In a higher cost of capital environment The company.

Strategy needs to adapt and evolve from our early regulated years.

More specifically, we see our strategy focusing more intently on our organic growth.

Greater operational discipline and capital discipline.

With the plans, we're pursuing we expect to be able to bring additional efficiencies and value to customers, while investing in the infrastructure in an affordable way.

Clean affordable and reliable energy and water will be the focus of our regulated business.

Our plan to accomplish this is underpinned by aiming to invest approximately $1 billion of capital per year.

By focusing on standardizing, our infrastructure, which is expected to provide the biggest impact for our customers through improvements in reliability and creating economies of scale.

Chris Huskilson: We are finding investment opportunities that provide the double benefit of improving service and helping customer affordability by OpEx to CapEx investments. By reducing a dollar of OpEx, this creates headroom for up to 8 dollars of CapEx investment without increasing rates. Our plan is to continue to modernize our utility systems, supporting safe and reliable delivery of our services, help our customers transition towards net zero, and keep a close eye on customer affordability with average aggregate rate increases roughly in line with inflation. Since our regulated business is capital-intensive, growth rates tend to be lumpy. We expect our annual adjusted net EPS growth over time to be in the 4% to 7% range, consistent with the industry and exclusive of near-term headwinds. We also expect to continue to maintain our investment grade BBB credit rating.

We are finding investment opportunities that provide the double benefit of improving service and helping customer affordability by opex to Capex investments.

By reducing a dollar of Opex. This creates headroom for up to $8 of Capex investment without increasing rates.

Our plan is to continue to modernize our utility systems supporting safe and reliable delivery of our services.

Help our customers transition towards net zero.

And keep a close eye on customer affordability.

With average aggregate rate increases roughly in line with inflation.

Okay.

Since our regulated business is capital intensive.

Growth rates tend to be lumpy.

But we expect our annual adjusted net EPS growth over time to be in the 4% to 7% range consistent with the industry and exclusive of near term headwinds.

We also expect to continue to maintain our investment grade Triple B credit rating.

Chris Huskilson: Diving deeper into our renewables business, comprised of primarily wind and also containing solar and hydro assets. The renewable portfolio is positioned to benefit from the energy transition. By operating scale, our fleet has approximately 2.7GW of gross generating capacity at 46 facilities. It operates in 11 states and 6 provinces in North America. This provides diversity of geography and markets and is a business of scale. Our footprint spans 7 independent system operators, including PJM, MISO, and ERCOT. Our development pipeline is comprised of over 6GW of solar and wind, more than half of which has site certainty and is in interconnection queues. We have over 3 GWh of storage in development. We've grown this business significantly and believe the business is poised to continue this growth. We have approximately 650MW of projects in various stages of construction today.

Diving deeper into our renewables business.

Comprised of primarily wind and also containing solar and hydro assets.

The renewable portfolio was positioned to benefit from the energy transition.

By operating scale, our fleet is approximately two seven gigawatts of gross generating capacity at 46 facilities.

It operates in 11 states and six provinces in North America.

This provides diversity of geography and markets.

It is a business of scale.

Our footprint spans seven independent system operators, including PJM MISO and ERCOT.

Our development pipeline is comprised of over six gigawatts of solar and wind more than half of which is site certainty and is in interconnection queues.

And we have over three gigawatt hours of storage and development.

We've grown this business significantly and believe the business is poised to continue this growth.

We have approximately 650 megawatts of projects in various stages of construction today.

Chris Huskilson: That said, for a variety of reasons, its value is not being fully realized as part of the Algonquin integrated business. We believe that a sale of the renewables business will unlock the unrealized value and better position the renewables business for growth and a positive future for our team members that support it. In summary, we have four messages to communicate today. First, we have two strong growing businesses. Second, we're pursuing a sale of the renewables business. Third, the current dividend can be supported by the remaining regulated business combined with our intended sale. Fourth, the remaining regulated business will have a strong balance sheet, a lower cost of capital, and a growing rate base. With that, I'll turn things over to Darren to speak about Q2.

That said for a variety of reasons its value is not being fully realized as part of the Algonquin integrated business.

We believe that a sale of the renewables business will unlock the unrealized value and better position in the renewables business for growth.

And a positive future for our team members that supported.

In summary, we have four messages to communicate today.

First we have two strong growing businesses.

Second we're pursuing a sale of the renewables business.

Third the current dividend can be supported by the remaining regulated business combined with our intended sale.

And fourth the remaining regulated business will have a strong balance sheet.

A lower cost of capital and a growing rate base.

With that I'll turn things over to Darin to speak about the second quarter.

Darren Myers: Thank you, Chris, and good morning, everyone. Let me start with some operating updates followed by an overview of our financial performance for the quarter. Overall, we had a challenging quarter despite growth from constructive regulatory developments. Unfavorable weather resulted in headwinds to our year-over-year financial results. The map we've provided illustrates how weather-driven low wind production levels overlapped heavily with our fleet for the quarter. I'll provide more detail on the financial impact of this in a moment. On the regulatory front, we're pleased to report that our Regulated Services Group received final rate case orders at our California Pacific Electric Company in California, and St. Lawrence Gas Utility in New York. At California Pacific Electric Company, the CPUC issued a final order on 27 April, authorizing an annual revenue increase of $27 million, with new rates becoming effective in June 2023, retroactive to January 2022. For St.

Chris and good morning, everyone.

Let me start with some operating updates followed by an overview of our financial performance for the quarter.

Overall, we had a challenging quarter despite growth from constructive regulatory developments.

Unfavorable weather resulted in headwinds to our year over year financial results.

The map, we've provided illustrates how weather driven low wind production levels overlapped heavily with our fleet for the quarter.

I'll provide more detail on the financial impact of this in a moment.

On the regulatory front, we're pleased to report that our regulated services group received final rate case orders at our Cal Pico Electric system in California, and St. Lawrence gas utility in New York at Cal Pico The CPUC issued a final order on April 27, authorizing an annual revenue increase of 27.

Yeah.

With new rates, becoming effective in June 2023, retroactive to January 2022.

Darren Myers: Lawrence Gas, on 22 June 2023, the commission issued an order authorizing a revenue increase of $5.2 million to be implemented over three years, with new rates becoming effective on 1 July 2023. Looking now at recent pending rate proceedings. A core growth strategy of the Regulated Services Group is to responsibly invest in our utility systems and target a constructive return on the rate base. While I won't go through each of these, I do want to highlight that the Regulated Services Group filed for new rates at its New York Water and Granite State Electric utilities. The New York Water application seeks an increase in revenues of $39.7 million based on an ROE of 10% and an equity ratio of 50%.

For St. Lawrence gas on June 22nd the Commission issued an order authorizing a revenue increase of $5 2 million.

<unk> to be implemented over three years with new rates, becoming effective on July one 2023.

Looking now at recent pending rate proceedings.

Core growth strategy of the regulated service group is to responsibly invest in our utility systems and targeted constructive return on the rate base.

Well I won't go through each of these I do want to highlight that the regulated service group filed for new rates at its New York water and granite state electric utilities.

The New York water application seeks an increase in revenues of $39 7 million based on an ROE of 10% and an equity ratio of 50%.

Darren Myers: The Granite State Electric Company application seeks an increase in revenues of $15.5 million based on an ROE of 10.35% and an equity ratio of 55%. In total, the Regulated Services Group has pending reviews totaling $95.3 million across six of its utilities. These rate cases reflect our continued commitment to earning as close to our authorized ROE as possible. One more mention. On August 1, the Missouri Court of Appeals, Western District affirmed the Missouri Public Service Commission's order in the Asbury securitization docket. We will finalize our response in the coming weeks on this long-standing issue. Turning now to an update on construction projects for our Renewable Energy Group. The Q2 2023 saw progress on panel installation at our New Market Solar project.

Granite state electric utility application seeks an increase in revenues of $15 5 million.

Just on an ROE of 10, 35% and an equity ratio of 55%.

In total regulated service group has pending reviews totaling $95 $3 million across six of its utilities.

These rate cases reflect our continued commitment to earning as close to our authorized ROE as possible.

One more mentioned on August 1st the Western District Court of Appeals affirmed the Missouri commissions order in the Asbury securitization docket, we will finalize our response in the coming weeks on this longstanding issue.

Turning now to an update on construction projects for our renewable energy group. The second quarter of 2023 sub progress on panel installation at our New York market Solar project Phase. One is now fully commissioned as of June and 75% of the panels have been installed for phase III site.

Darren Myers: Phase one is now fully commissioned as of June, and 75% of the panels have been installed for phase two. Site preparations also advanced at both the Carvers Creek and Clearview Solar projects. At our Sandy Ridge Two wind project, site preparations and turbine erection was completed during the quarter, and the project is on track to achieve full COD by the end of the year. In total, we currently have nearly 650 MW of wind and solar projects in various stages of construction and expect to bring approximately 450 MW in service in 2023. Turning now to our financial year-over-year performance. Quarterly results were negatively impacted by weather, higher interest, and lower HLBV from older project rollovers. Our Q2 revenue increased by 1% year-over-year to $627.9 million.

Site preparation has also advanced at both the Carter's Creek in clear view solar projects.

At our Sandy Ridge, two wind project site preparations and turbine erection was completed during the quarter and the project is on track to achieve full <unk> by the end of the year.

In total we currently have nearly 650 megawatts of wind and solar projects in various stages of construction and expect to bring approximately 450 megawatts in service in 2023.

Turning now to our financial year over year performance.

Quarterly results were negatively impacted by weather higher interest and lower HBV from older projects rollovers.

Our second quarter revenue increased by 1% year over year to $627 9 million.

Darren Myers: Growth was primarily attributable to the implementation of new rates, offset by unfavorable weather. Our Q2 consolidated adjusted EBITDA was $277.7 million, a decline of approximately 4% from the same period last year. Growth in our regulated operating profit was more than offset by decline in our renewables operating profit. The Regulated Services Group delivered $214.4 million in Divisional Operating Profit in Q2, a year-over-year increase of 15%. The increase was primarily a result of new rates at certain of the company's utilities, most notably the California Pacific Electric Company, with rate increases in Q1 2022, as well as Empire, Belco, and Granite State Electric.

Both was primarily attributable to the implementation of new rates offset by unfavorable weather.

Our second quarter consolidated adjusted EBITDA was $277 7 million.

A decline of approximately 4% from the same period last year.

Growth in our regulated operating profit was more than offset by decline in our renewables operating profit.

The regulated service group delivered $214 4 million and divisional operating profit in the second quarter of year over year increase of 15%.

The increase was primarily a result of new rates at certain of the company's utilities, most notably the <unk> electric system with recruitment to the first quarter of 2022 as well as Empire Belko in granite state electric.

Darren Myers: Included in the regulatory results was weather-driven, reduced customer demand, which drove a divisional operating profit headwind of $11 million, or approximately $0.01 of adjusted earnings per share. Moving now to the Renewable Energy Group. Q2 2023 divisional operating profit was $90.6 million, a year-over-year reduction of 26%. Approximately half of the decline was a result of the group's wind facilities operating at 75.1% of the long-term average resource. This decline from weather equates to a -$0.02 impact on the adjusted earnings per share. Additionally, lower HLBV income accounted for much of the remaining decrease as a result of the end of Production Tax Credit eligibility on projects commissioned in 2012.

Included in the regulatory results was weather driven reduced customer demand, which drove a divisional operating profit headwind of $11 million.

We're approximately one penny of adjusted earnings per share.

Moving now to the renewable energy group second quarter 2023, divisional operating profit was $90 6 million a year over year reduction of 26%.

Approximately half of the decline was a result of the group's wind facilities operating at 75, 1% of the long term average resource.

This decline from weather equates to a negative <unk> <unk> impact on the adjusted earnings per share.

Additionally, lower HBV income accounted for much of the remaining decrease as a result of the and the production tax credit.

Eligibility of projects commissioned in 2012.

Darren Myers: This extends a year-over-year pattern first seen in late 2022 and is the last quarter of HLBV rollovers we expect to see for these projects. Our interest expense was $89.7 million in the quarter, a $25.1 million increase year-over-year, with approximately two-thirds of the increase attributable to higher short-term borrowing costs and approximately one-third attributable to financings to support our growth initiatives. This quarter's increase over the prior year is similar to the pattern observed in late 2022 and in Q1 2023. In aggregate, for the quarter, we delivered adjusted net earnings of $56.2 million and adjusted earnings per share of $0.08, both representing a year-over-year decline of approximately 50%.

This extends a year over year pattern first seen in late 2022 and is the last quarter of HBV rollovers, we expect to see for these projects.

Our interest expense was $89 $7 million in the quarter, a $25 $1 million increase year over year with approximately two thirds of the increase attributable to a higher short term borrowing costs and approximately one third attributable to financings to support our growth initiatives.

This quarter's increase over the prior year is similar to the pattern observed in late 2022 and in Q1 2023.

In aggregate for the quarter, we delivered adjusted net earnings of $56 $2 million and adjusted.

Earnings per share of <unk>, both representing a year over year decline of approximately 50%.

Darren Myers: As we look to the balance of the year, we are tracking to the lower half of our previously disclosed 2023 guidance, driven by the unfavorable impact of weather in Q2. Please note, our guidance assumes continuing operations accounting treatment for the renewables business. We look forward to updating you as the year progresses. With that, I will now turn the call over to the operator to open the lines up for questions. Operator?

As we look to the balance of the year, we are tracking to the lower half of our previously disclosed 2023 guidance driven by the unfavorable impact of weather in the second quarter. Please.

Please note our guidance assumes continuing operations accounting treatment for the renewables business.

We look forward to updating you as the year progresses with that I will now turn the call over to the operator to open the lines up for questions operator.

Operator: Thank you. If you have a question, please press star followed by one on your telephone keypad. To withdraw your question, simply press star one again. One moment, please, for your first question. Your first question comes from Dariusz Lozny from Bank of America.

Operator 3: Your first question comes from Dariusz Lozny from Bank of America.

Thank you if you have a question. Please press star followed by one on your telephone keypad to withdraw your question simply press Star One again one moment. Please for your first question.

Okay.

Your first question comes from Darius <unk> from Bank of America.

Dariusz Lozny: Hey, guys. Good morning. Thank you for taking the question. Maybe just at the outset on the planned renewables sale. Can you comment a little bit on, obviously some of your publicly traded peers have announced similar transactions in recent months. Can you comment on what you're seeing from initial conversations as far as some of the valuations we've seen on those other announced transactions and how that may potentially inform the valuation that you see in your planned transaction? Then also related, could you potentially stack or somehow rank the priorities for proceeds, paying down parent debt, and buying back shares? If you could put any specifics around that'd be very appreciated.

Hey, guys. Good morning, Thank you for taking the question maybe.

Maybe just at the outset on the planned renewable sale can you comment a little bit on obviously some of your publicly traded peers have announced similar transactions in recent months can you comment on what you're seeing from initial conversations as far as some of the valuations we've seen on those other announced transactions.

And how about how that may potentially informed devaluation that you'd see.

In your planned transaction and then also related could you potentially back or somehow rank the priorities for proceeds paying down parent debt and buying back shares. If you could put any specifics around that that would be very appreciated.

Chris Huskilson: Yeah. Good morning. Thank you. It's Chris. You know, when we did the separation calculations, one of the things that we did was look hard at where the market is and also look at our portfolio. We have a very strong portfolio with an extremely strong development pipeline. When we look at that and compare it with where the markets are trading right now, in consultation with our advisor, J.P. Morgan, we believe that this works for the business. What we've said is that the result of that is that we would be able to support our dividend, reduce our cost of capital, and maintain our credit rating in the regulated business. You know, that's the way we've looked at it.

Chris Huskilson: Yeah. Good morning. Thank you. It's Chris. You know, when we did the separation calculations, one of the things that we did was look hard at where the market is and also look at our portfolio. We have a very strong portfolio with an extremely strong development pipeline. When we look at that and compare it with where the markets are trading right now, in consultation with our advisor, JPMorgan, we believe that this works for the business. What we've said is that the result of that is that we would be able to support our dividend, reduce our cost of capital, and maintain our credit rating in the regulated business. You know, that's the way we've looked at it.

Yes. So good morning, Thank you it's Chris.

So when we when we did the separation.

Calculations one of the things that we did was look hard at where the market is in <unk> and also look at our portfolio. So we have a very very strong portfolio with an extremely strong development pipeline and so when we look at that and compare it with where we're.

The markets are trading right now in.

In consultation with our our advisor J P. Morgan, we believe that this works for the business and what we've said is that the result of that is that we would be able to support our dividend reduce our cost of capital.

We maintain our credit rating in the regulated business. So that's the way we've looked at it the work that we've done has taken us to those views and so we're going to move in that direction.

Chris Huskilson: The work that we've done has taken us to those views, and so we're gonna move in that direction. Your other question was the use of proceeds. You know, clearly one of the things that will be an opportunity for the business is that the FFO to debt will be able to be reduced as a result of being a pure play regulated business. Some of it will go to debt, but we will look at putting the FFO to debt in the right place, and then the remainder will go to buying back shares. You know, we're hopeful that we'll be able to buy back a significant number of shares to help support our growing business.

Your other question was the use of proceeds so clearly one of the things that will be an opportunity for the business is that the <unk> that we'll be able to be reduced as a result of being a pure play regulated business and so some of it will go to debt, but we will look at putting the <unk>.

That in the right place and then and then the remainder will go to buying back shares and so.

We're hopeful that we'll be able to buy back a significant number of shares to help support our growing business.

Darren Myers: Darius, as Chris mentioned, I mean, the first priority in that equation is, you know, the BBB credit rating. You know, the first priority is in the order to pay down the debt and then with the balance for the buybacks.

And there is as Chris mentioned I mean, the first priority in that equation is the triple B credit ratings. So first priority is in the order is the pay down the debt and then with the the balance for the buybacks.

Dariusz Lozny: Okay. Thank you guys for that color. One more, if I could, just as a quick follow-up. Just, it's a fairly diverse operating portfolio in terms of both types of assets and also ownership structures. In terms of your on-balance sheet assets and also the stake in AY, do you envision this as a series of discrete transactions or potentially one kind of holistic one?

Okay. Thank you guys for the color one more if I could just as a quick follow up.

It's a fairly diverse operating portfolio and chips.

Both types of assets and also the ownership structures in terms of your on balance sheet assets and also the stake in a y.

Do you envision this as a series of discrete transactions or potentially.

One kind of holistic one.

Chris Huskilson: We're not making a final decision at this point, but we think that the portfolio as a whole has more value than in parts, and especially with the development pipeline attached. You know, that's the way we're looking at it right now, and we believe that that'll create the most value. Remember, it's a competitive process. Through that competitive process, we could get offers that look different than that, but that's our current view.

So we're not making a final decision at this point, but we think that the portfolio as a whole has more value than in parts and especially with the development pipeline attached and so that's the way we're looking at it right now when we believe that that will create the most value, but remember, it's a competitive process and so through that competitive process we could.

Get offers that look different than that but that's our current view.

Operator 3: Okay. Appreciate the color.

Dariusz Lozny: Okay. Appreciate the color.

Okay I appreciate the color.

Darren Myers: Darius.

Darren Myers: Thanks, Darius.

Chris Huskilson: Thank you.

As Darius thank you.

Operator 3: Your next question comes from the line of Sean Steuart from TD Securities. Your line is live.

Operator: Your next question comes from the line of Sean Steuart from TD Securities. Your line is live.

Your next question comes from the line of Sean Stewart TD Securities Your.

And slides.

Sean Steuart: Thanks. Good morning, everyone. Follow-on question with respect to the process. Any incremental thoughts on, I suppose, what the target FFO to debt ratio is? Has that changed at all, with respect to keeping the BBB credit rating? And then further to that, any incremental ambition to have a little bit of a liquidity cushion left over, to provide room for growth in the regulated side of the business, as the company takes on its new structure?

Thanks, Good morning, everyone.

Follow on question with respect to the process.

Any incremental thoughts on.

I suppose what the target <unk> to debt.

Ratio is has that changed at all with respect to keeping the triple B credit rating.

And then further to that.

Any incremental ambition to have a little bit of a liquidity cushion leftover.

To provide room for growth in the regulated side of the business.

As the company.

Takes on its new structure.

Chris Huskilson: Darren, do you wanna go ahead and take that?

The R&D ongoing data, yes, sure. Good morning, Sean Yes, I think the way to think about we're not going to get into the numbers today in terms of what that new target <unk> to debt would be but in the past we've talked about needing to be over 14% as an integrated business clearly that does come down.

Darren Myers: Yeah, sure. Good morning, Sean. Yeah, I think the way to think about it, we're not gonna get into the numbers today in terms of, you know, what that new target FFO to debt would be. In the past, we've talked about needing to be over 14% as an integrated business. You know, clearly that does come down as a pure play regulated. Directionally, it would allow us to have a lower FFO to debt. And the other thing, of course, we would wanna make sure we've got room to invest. You know, as Chris mentioned in his prepared remarks, you know, we see an opportunity to invest, you know, approximately $1 billion a year on the regulated side.

As a pure play regulated so directionally it would allow us to have a lower <unk> to debt.

The other thing of course, we would want to make sure we've got room to invest as Chris mentioned in his in his prepared remarks, we see an opportunity to invest approximately $1 billion a year on the regulated side. So finally getting to the right sweet spot to make sure. We've got the appropriate liquidity to manage a $1 billion of spend a year will be the key.

Darren Myers: You know, getting to the right sweet spot to make sure we've got the appropriate liquidity to manage $1 billion to spend a year will be the key goal.

Sure.

Sean Steuart: Okay. Thanks for that, Darren. This might be a question for the permanent CEO successor, but do you have any thoughts on the regulated mix that the company has? Is there any benefit to potentially streamlining the regulated portfolio, one around a tighter group of modalities or a tighter regional platform as well?

Okay. Thanks for that Darren.

And then this might be a question for the permanent CEO successor, but do you have any thoughts on.

The regulated makes it the company has.

Is there any benefit substantially streamlining the regulated portfolio of one around.

Tighter group of modalities or.

A tighter regional platform as well.

Chris Huskilson: Well, I mean, I'd say first of all, we're focused on the separation. You know, that's where our focus is going to be on getting to that point and maximizing the value of those assets. I guess the other thing is that we are gonna bring a focus to the regulated business. You know, I think that's going to be a renewed focus. That's going to allow us to look very hard at the business and see how it grows best. When we think about that business, the diversity of modalities, the diversity of the business, we think is an advantage. In fact, you know, we are uniquely a regulated company of scale that actually has water attached.

Well I mean, I would say first of all we're focused on the separation and so.

That's our that's where our focus is going to be on getting to that point and maximizing the value of those assets.

I guess the other thing is is that we are going to bring a focus to the regulated business and I think that that's going to be a renewed focus that's going to allow us to look very hard at the at the business and see how it grows best but when we think about that business. The diversity of modalities that diversity of the business. We think is an advantage and in fact.

We are uniquely.

Our regulated company of scale that actually has water attached and we think that that's also a unique opportunity for the business as a whole. So at this point, we got to stick with the focus that we have which is to to get the separation done and to sell the the current assets and.

Chris Huskilson: We think that that's also a unique opportunity for the business as a whole. You know, at this point, we gotta stick with the focus that we have, which is to get the separation done and to sell the current assets and focus on growing that regulated business.

And focus on growing that regulated business.

Sean Steuart: Okay. Thanks very much for the detail. That's all I have.

Okay. Thanks, very much for the detail that's all I have.

Chris Huskilson: Thanks, Sean.

Thanks Chuck.

Operator 3: Your next question comes from the line of Robert Hope from Scotiabank.

Operator: Your next question comes from the line of Robert Hope from Scotiabank.

Your next question comes from the line of Robert Hope from Deutsche Bank.

Operator 2: Good morning, everyone, and good to hear from you, Chris. It's been a little while.

Robert Hope: Good morning, everyone, and good to hear from you, Chris. It's been a little while.

Hi, good morning, everyone and good to hear from you, Chris it's been a little while.

Chris Huskilson: Thanks. Nice to hear your voice, Rob.

I used to hear your voice.

Operator 2: I did actually wanna go back to one of your comments in the prepared remarks. It's just that the timing of the sale was going to be dependent on value. Can we just dive a little bit deeper into this? Like, have you already got some inbounds in terms of valuation that kinda give you comfort? As well as will this be, you know, a set formal process with a kind of wholesale divestiture as the end goal? If valuations do not come where you expect them, could we see this deferred?

Robert Hope: I did actually wanna go back to one of your comments in the prepared remarks. It's just that the timing of the sale was going to be dependent on value. Can we just dive a little bit deeper into this? Like, have you already got some inbounds in terms of valuation that kinda give you comfort? As well as will this be, you know, a set formal process with a kind of wholesale divestiture as the end goal? If valuations do not come where you expect them, could we see this deferred?

I did actually want to go back to one of your comments in the prepared remarks that that the timing of the sale was going to be dependent on value.

Can we just dive a little bit deeper into this like have you already got some inbounds in terms of evaluation that kind of give you comfort.

As well as will this be.

A set formula process with a kind of wholesale.

Divestiture is the goal and this valuations do not come where you expect I mean could we see this deferred.

Chris Huskilson: Well, I mean, I think that's what we would mean by the value essentially being part of what we're thinking about. I mean, we're not going to give these assets away. I'll start with that point. We don't see any need to. We think that this is a very attractive portfolio. The work we've done with JPM would tell us that we believe this portfolio will be valued appropriately. The modeling we've done to look at where the reg business would be after that is in line with what JPM thinks we can achieve with this sale. To your question about inbounds, we have actually had inbounds already and some very interesting opportunities where people are interested in new portfolios, and this is one.

Well I mean, I think thats, what we would mean by the by the <unk>.

<unk>.

Essentially being being part of what we're thinking about I mean, we're not we're not going to give these assets away I'll start with that.

But we don't see any need to we think that this is a very attractive portfolio.

And the work we've done with J P. M would tell us that we believe this portfolio will be valued appropriately.

And the modeling we've done to look at where the Reg business would be after that.

As in line with what J P. M thinks we can achieve with this sale and to your question about inbounds, we have actually had inbounds already and some very interesting interesting opportunities where people are interested in new portfolios and this is what it is.

Chris Huskilson: It is a portfolio of scale. It has a tremendous development pipeline, and we think it's gonna be very attractive to the marketplace.

It is a portfolio of scale. It has a tremendous development pipeline and we think it's going to be very attractive to the marketplace.

Operator 2: I appreciate the color there. Just moving over to the dividend, appreciate the commentary on sustaining the existing dividend level. You know, as you take a look out in the outer years, you know, have you an update on where you want the payout ratio to go on a longer-term basis and where you think it will be, I guess more near-term?

Robert Hope: I appreciate the color there. Just moving over to the dividend, appreciate the commentary on sustaining the existing dividend level. You know, as you take a look out in the outer years, you know, have you an update on where you want the payout ratio to go on a longer-term basis and where you think it will be, I guess more near-term?

I appreciate the color there and then just moving over to the dividend I appreciate the commentary on sustaining the existing dividend level as you take a look out in the in the outer years.

Have you an update on where you want the payout ratio to go on a longer term basis, and where you think it will be.

I guess more near term.

Chris Huskilson: Well, as you can imagine, near term, it's going to be, you know, a pretty reasonably high payout. There's no question about that. In the long term, we just wanna get to where the industry is. We believe the growth that we have in this business will allow us to get there in a reasonable time. It allows us to support the dividend in the way that we think we should. You know, we've done the work to tell us what we think how this is going to evolve. With the evolution we see of this business, we're very comfortable with where we are today.

Well as you can imagine near term, it's going to be.

Pretty reasonably high payout Theres no question about that but in the long term, we just want to get to where the industry is and we believe the growth that we have in this business will allow us to get there in a reasonable time and so it allows us to support the dividend in the way that we think we should.

We've done the work to tell us what what we think this is this how this is going to evolve and with the evolution. We see of this business, we're very comfortable with where we are today.

Jeff Norman: Thank you.

Robert Hope: Thank you.

Thank you.

Operator 3: Your next question comes from the line of Rupert Merer from National Bank.

Operator: Your next question comes from the line of Rupert Merer from National Bank.

Your next question comes from the line of Rupert mirrored from National Bank.

Okay.

Operator 1: Hi, good morning, everyone. Thanks for taking the questions. Now, you've talked about the strength of your development platform. How important is this going to be in the sale process? Do you have any metrics? You know, maybe perhaps what percentage of the value of the sale price you think could come from the development platform?

Rupert Merer: Hi, good morning, everyone. Thanks for taking the questions. Now, you've talked about the strength of your development platform. How important is this going to be in the sale process? Do you have any metrics? You know, maybe perhaps what percentage of the value of the sale price you think could come from the development platform?

Hi, good morning, everyone. Thanks for taking the questions.

Now you've talked about the strength of your development platform, how important assist going to be in the sale process do you have any metrics maybe perhaps.

What percentage of the value of the sale price you think could come from the development platform.

Okay.

Chris Huskilson: Yeah. I don't think we've tried to break it out that way, but I think what we would say, though, is that for the right buyer, the development platform will be a very attractive thing because at the end of the day, being able to have already teed up opportunities to invest. You know, we've already got 650MW under construction. That by itself is a nice starting point. The fact that half of the 6GW that we have under development are already in interconnection queues and have locations. I think that's somewhat unique, at least for something that's being offered. I don't know. Jeff, is there anything you want to add to that?

Yes, I don't think we've tried to break it out that way, but I think what we would say though is that is that for the right buyer. The development platform will be a very attractive thing because at the end of the day being able to have.

Already teed up opportunities to invest now we've already got 650 megawatts under construction.

That by itself is a nice starting point and and the fact that half of the six gigawatts that we that we have under development are already in interconnection queues and have locations.

That's I think that's somewhat unique at least for something Thats being offered I don't know Jeff is there anything you want to add to that.

Jeff Norman: Yeah, no. I'd say, Chris, that the pipeline, given where we are with the energy transition and the amount of excitement within the US market, that I think the pipeline is certainly gonna have good value on the in-construction projects and the near-term development assets. We're also going to see kind of a sweetener in that longer-term positioning of someone who wants to play in that market.

I would say.

Yes.

The.

The pipeline and given where we are with the energy transition and the amount of excitement within the U S market that I think the pipeline.

Is certainly going to have good value on the in construction projects in the near term development assets, but we're also going to see it kind of a sweetener in that longer term positioning of someone who wants to play in that.

Yes.

Operator 1: Okay. Thank you. When you look at selling that development capability, how much of that capability do you need to keep in-house for the regulated operation if you're looking to continue to green the fleet and head to net zero? How do you separate that business?

Rupert Merer: Okay. Thank you. When you look at selling that development capability, how much of that capability do you need to keep in-house for the regulated operation if you're looking to continue to green the fleet and head to net zero? How do you separate that business?

Thank you and when you look at selling that development capability, how much of that capability do you need to keep in house for the regulated operation if youre looking to.

Continued to green the fleet and head to to net zero, how do you separate that business.

Chris Huskilson: Yeah. Well, we certainly will need to keep some of that capability because the regulated business will continue to develop clean assets. You know, that's something we'll have to work our way through as we configure what the actual renewable business is. But that's something that we have in mind. You know, I think one of the significant opportunities for the reg business is to continue to build clean assets and also to build for the electrification of the entire economy. Those two things are absolutely in mind when we look at how we're gonna configure the company going forward.

Yeah, well, we certainly will need to keep some of that capability because the regulated business will continue to develop clean assets and so that's something we'll have to work our way through as we as we configure.

What the actual renewable business is.

But thats something that we have in mind.

<unk>.

One of those significant opportunities for the rig business is to continue to build clean assets and also to build for the electrification of the entire the entire economy and so those two things are things that are absolutely in mind. When we look at how we're going to configure the company going forward.

Operator 1: All right, thank you. I'll get back in the queue.

Rupert Merer: All right, thank you. I'll get back in the queue.

Alright, Thank you ill get back in the queue.

Chris Huskilson: Thank you.

Thank you.

Okay.

Operator 3: Your next question comes from the line of Nelson Ng from RBC Capital Markets.

Operator: Your next question comes from the line of Nelson Ng from RBC Capital Markets.

Your next question comes from the line of Nelson <unk>.

From RBC capital markets.

Nelson Ng: Great. Thanks, and good morning, everyone. My first question relates to Atlantica. Can you talk about your Atlantica investment? Is it kind of excluded from the strategic review of the renewables business? Like, obviously, Atlantica, they have their own strategic review that's ongoing. Any color you have there would be great.

Great. Thanks, and good morning, everyone.

My first question relates to Atlantica. So can you talk about your.

Logic investments is it kind of excluded from the <unk>.

Strategic review of the renewables business.

Atlantica is a.

They are they have their own strategic review that's ongoing.

So any color you have there would be great.

Okay.

Chris Huskilson: Yeah. Nelson, it's Darren. Good morning. Yeah, no, in terms of the Atlantica, I mean, I think the first point that we wanna leave you with is we are moving to a pure play regulated business. We are continuing with regards to Atlantica, that is a separate process that they're running in terms of their strategic review, and we continue to be supportive of that process that they're running.

Darren Myers: Yeah. Nelson, it's Darren. Good morning. Yeah, no, in terms of the Atlantica, I mean, I think the first point that we wanna leave you with is we are moving to a pure play regulated business. We are continuing with regards to Atlantica, that is a separate process that they're running in terms of their strategic review, and we continue to be supportive of that process that they're running.

Yes, yes.

Allison staring good morning, yes, so in terms of the Atlanta.

I think I mean, I think the first the first point that we want to leave you with is we are moving to a pure play regulated business.

We are continuing with with regards to atlantica that is a separate process that they're running in terms of their strategic review and we continue to be supportive of that process that they're running.

Nelson Ng: Okay. Got it. My second question, which relates to the sale of the renewables business. Chris, you mentioned that I guess timing will be dependent on value. Like, if the value isn't there, could you see a scenario where you retain the renewables business or kind of spin it out rather than outright sell it?

Okay got it.

And then a second question, which relates to the sale of the renewables business.

Chris you mentioned that I.

I guess timing will be dependent on value but.

I guess the value isn't there.

Could you see a scenario where you.

<unk> retained the renewables business or kind of spin it out rather than.

<unk> sell it.

Chris Huskilson: Well, again, when we look at the portfolio, we see that it does have value to the market, and the development pipeline itself, we think is uniquely valuable. So, we're not expecting to be in a position that you're describing. You know, I would probably leave it at that. At the end of the day, our objective will be to sell this in a competitive process, and we believe that will work very well. That's why we employed JPM to help us with this. Obviously they're very experienced in doing this business. They and we believe that this will actually come off in the way that we expect.

Well again, when we look at the portfolio, we see that it does have value to the market and we end the development pipeline itself. We think is uniquely valuable. So so we're not expecting to be in a position that you are describing.

And so I would probably leave it at that at the end of the day, our objective will be to sell this in a competitive process and we believe that that will work very well that's why we employed.

J P M to help us with this and obviously theyre very experienced in doing this business and they and we believe that this will actually come off in the way that we expect.

Nelson Ng: Okay. Just finally, you talked about the value of your development pipeline. How large is the development team currently?

Okay and then just finally, you talked about the value of your development pipeline how.

How large is the development team currently.

Jeff Norman: It's Jeff, Nelson. The development team is a little over 100 people at this point in time, which includes the construction team, the development team, and the origination team for wind and solar, and our international team, which is relatively small, but the international team is in that 100 to 110 number.

So.

Jeff Nelson and so the development team is a little over 100 people at this point in time, which includes the construction team the development team and the origination team for wind and solar.

Our international team, which is relatively small but the international team is in that 100 to 110 number.

Nelson Ng: Great. Thanks, Jeff. I'll leave it there.

Great. Thanks, Jeff I'll leave it there.

Yeah.

Operator 3: Your next question comes from the line of Mark Jarvi from CIBC Capital Markets.

Operator: Your next question comes from the line of Mark Jarvi from CIBC Capital Markets.

Your next question comes from the line of Mark Jarvi from Ti BC capital markets.

Mark Jarvi: Yeah, thanks. Good morning, everyone. I wonder if you guys could share a range of expected proceeds based on what you think valuations would be. I mean, many other companies have done that. Just could you do that? I guess otherwise, other thing would be any implications around tax and any associated debt that have to be repaid if you sell the renewables assets?

Yeah. Thanks, good morning, everyone I'm.

I'm wondering if you could share a range of expected proceeds based on where you think valuations would be I mean, how many other companies have done that just could you tie in I guess, he otherwise everything would be any implications around tax and the associated debt to the happy to repaid if you saw the renewables assets.

Chris Huskilson: Yeah. We're not gonna get into numbers today. As I said, we've done the work. We've looked at what values we believe can be achieved here. We've consulted, you know, expertise in that area, and we feel comfortable with where we are. It's a competitive process. If we started putting numbers out there, that might flavor that competitive process, and we'd like to maximize value. We're not prepared to do that today. Did you wanna speak to the second half?

Yes. It was so we're not going to get into numbers today as I said, we've done the work.

Looked at it.

What values, we believe can be achieved here.

We've consulted.

Expertise in that area.

And we feel comfortable with where we are.

It's a competitive process. If we started putting numbers out there that might that might flavor that competitive process and we'd like to maximize value. So we're not prepared to do that today I don't know did you want to speak to the second half, yes, yes, Mark on tax is a little hard for me to comment on that today, there's lots of complexities.

Darren Myers: Yeah. Yeah, Mark, on tax, it's a little hard for me to comment on that today. There's lots of complexities in the way this could be sold and different things depending on the buyers and what have you. We've obviously done a thorough analysis of the tax impact as we looked at and made the decision that we've announced today.

And the way this could be sold.

Different things, depending on the buyers and what have you, but we've obviously done a thorough analysis of the facts impact as we've looked at and made the decision that we've announced today.

Mark Jarvi: Anything on the OpCo notes in terms of them having to be repaid, I guess, if you sell the renewables business?

And then anything on the Opco notes in terms of them having to be repaid I guess, if you sell the renewables business.

Darren Myers: Nothing that we would talk about today. Obviously, we're looking at all the aspects, including the notes as part of the sales process.

Nothing that we would talk about today, obviously, we're looking at all the.

All aspects include.

Including the notes as part of a part of the sales process.

Mark Jarvi: Okay. Then in the slide deck, you talked about ramping up, I guess, the CapEx or moving to $1 billion in utility relative to, I think, around $700 million this year. You know, just wanted to make sure that $300 million increase relative to what you're spending this year could be done within the context of current approved rate plans, whether or not you'd have to run into issues of, you know, regulatory lags. Just that confidence level in getting to $1 billion of spending on the utility business here, on the other side of a sales process.

And then in.

In the slide deck, you talked about ramping up I guess, the capex or moving to a $1 billion in utility relative turning around $700 million this year.

Just wanted to make sure that that 300 million increase relative to what you're spending this year. It could be done within the context of current approved rate plans, whether or not you have to run into issues of regulatory lag. So just the confidence level in getting to $1 billion of spending on utility business here.

On the other side of a sales process.

Johnny Johnston: This is Johnny here, Mark. We feel very confident that we'll be able to ramp up to that billion-dollar mark very quickly within our existing plans. We've got a number of capital trackers, and as long as we continue to focus those investments on things that are providing benefits to our customers, we feel very confident that we'll be able to get the return of those with minimal lag.

Hi, yes.

This is.

Johnny him up Tim we feel very confident that we'll be able to ramp up to the.

Mark.

Very quickly within our existing plans you've got a number of.

Capital craft isn't as long as we continue to focus those investments on things that are providing benefits to our customers. We feel confident that we'll be able to get the return of those with with minimal lag.

Mark Jarvi: Just to clarify, the 4% to 7% growth rate, is that essentially underlying rate-based growth with assuming that you're just staying around your authorized ROEs when you put those numbers out there?

And just to clarify the 4% to 7% growth rate is that essentially your underlying rate base growth with assuming that you are just staying around your authorized ROE when you put those numbers out there.

Chris Huskilson: Yeah. I think the rate-based growth might be slightly higher than that, but we think that that's what the net of the EPS will be.

Yes, I think the rate base growth might be slightly higher than that but we think that that's what the net of the EPS will be.

Mark Jarvi: Great. Thanks, everyone, for the time today.

Great. Thanks, everyone for your time today.

Chris Huskilson: Thank you.

Darren Myers: Yep. Thanks, Mark.

Thank you.

Operator 3: Your next question comes from the line of Ben Pham from BMO.

Operator: Your next question comes from the line of Ben Pham from BMO.

Your next question comes from the line of Ben Pham from BMO.

Ben Pham: Hi. Thanks. Good morning. I wanted to clarify. I think you mentioned in response to the question that the EPS payout could be going up on pro forma net EPS or share buyback. I just wanted to make sure that you mentioned that. If so, is really the value creation exercise ultimately an expansion in utility multiple?

Hi, Thanks, good morning.

I wanted to clarify.

I think you mentioned in response to your question.

EPS payout kit.

Could be going up on pro forma net of share buybacks.

I just wanted to make sure that you've mentioned that.

If so.

Divide creation exercise ultimately expansionary totally multiple.

Chris Huskilson: Well, I think when you think about this business, the way it sits today, it's not optimized for either of the businesses. You know, the FFO to debt is higher than it would be if we were pure-play regulated, and the credit rating is probably higher than the renewables business needs. Because we're financing off our balance sheet, we're not actually optimally financed. It's a combination of the financing getting in an optimal place for both businesses and seeing the growth that can be there. Then, yes, the multiples will get in the right place as well once we get in that structure.

Well I think when you when you think about this business the way it sits today.

It's not optimized for <unk> for either of the businesses.

<unk> to debt is higher than it would be if we are a pure play regulated.

And the rate the credit rating is probably higher than the renewables business needs. So so we would not because we're financing off our balance sheet, we're not actually optimally financed and so it's a combination of the financing getting in an optimal place for both businesses and seeing the growth that can be there and then yes.

Yes, the multiples will get in the right place as well once once we get in that structure. The other thing I would say is that.

Chris Huskilson: The other thing I would say is that as we've sat today, we essentially have to constrain the capital that goes into the renewables business because we can't support as much as they could actually develop. As Jeff told you earlier, we have quite a strong development team. That's something we've ramped up over about the last two years, and that development team can produce a lot more megawatts than our existing business can finance. When you put all those factors together, that's really why the integrated business wasn't going to continue working. It wasn't sustainable anymore in the state that it was in.

As we've sat today, we essentially have to constrain the capital that goes into the renewables business, because we can't support as much as as they could actually develop and as Jeff told you earlier, we have quite a strong development team that's something we've ramped up over about the last two years and that development team can produce.

A lot more megawatts than our existing business can finance and so when you put all those factors together, that's really why the integrated business wasn't going to continue working it wasn't sustainable anymore in the state that it was in <unk>.

Chris Huskilson: Another factor that really goes into that is that the overall business got to a scale that the amount of renewables you had to build to not be holding back the other part of the business was more than we could sustain. Put all that on the table, and that's really what's driven us to the decision we've made.

And another factor that we really goes into that is that they bring to the overall business cut to a scale that the amount of renewables you had to build two to not be holding back. The other part of the business was more than we could sustain so put all that on the table and that's really what's driven us to the decision we've made.

Okay.

Ben Pham: Okay. Thanks for that, Chris. I'm also wondering too, 'cause you're running Emera when they're trading at a premium valuation. Algonquin before the recent dividend cut and whatnot did trade at a premium even though they had renewables in their business. Can you talk about really the conditions that was driving that pre-Algonquin dividend cut, and why you don't think those conditions are gonna continue going forward and supporting maybe the premium valuation, even if you stayed together, the renewables and utility business?

Okay. Thanks.

Thanks, Chris.

I'm also wondering too.

You are running.

Irwin is trading at a premium valuation.

O'clock on before.

The recent.

Getting a cut and whatnot that trade at a premium.

Even though they have renewables in that business and if you may talk about really the conditions that was driving that.

Many of Guaco dividend cotton.

Those conditions are going to continue going forward and.

In support of maybe a cream valuation could even if you stay together the renewables utility vessels.

Chris Huskilson: Well, again, if you think about it, because of the, we now have $7 billion of rate base on the regulated side. In order for the renewables to keep up and not be a drag on earnings growth, they actually have to invest a tremendous amount of capital. It's that combination of scale. We've gotten to a scale that we need to grow a lot faster than we were growing, which was why we ultimately ramped up the development. But that's. At that point, the scale actually made it unsustainable. You know, when the company was a lot smaller, then it was a lot easier for that to happen. Now at the scale that the business is, it just, the math just doesn't work anymore.

Well again, if you think about it because of this so we now have 7 billion of rate base on the regulated side. So in order for the renewables to keep up and not be a drag on earnings growth. They actually have to invest a tremendous amount of capital and so it's that combination of scale. So we've gotten to a scale.

Bill that we need to grow a lot faster than we were growing which was why we ultimately ramped up the development.

But but that at that point the scale actually made at unsustainable. When the company was a lot smaller than it was a lot easier for that to happen, but now at the scale that the business is it just it's just the math just doesn't work anymore and then obviously the other big difference is the the change in the interest rate environment I mean, we're in a different or in a different.

Darren Myers: Obviously the other big difference is the change in the interest rate environment. I mean, we're in a different environment now and that makes the model that much harder to do with higher rates and the changes in the capital markets.

Environment now and.

That that makes the model that much harder to deal with with higher rates and the changes in the capital markets exactly.

Chris Huskilson: Exactly.

Ben Pham: Okay, I got you. Maybe that pre-evaluation was predicated on our perceptions of high growth rate and regardless of business mix, and sounds like the split makes more sense because it's both comps will grow much higher going forward.

Okay I got you.

Craig evaluation before is predicated on our perceptions of high growth rate in regardless.

As a snack.

It sounds like the Sputnik smart sticking that both companies will grow much higher goals.

Chris Huskilson: Yeah.

Ben Pham: Okay.

Chris Huskilson: Ben, just remember though, in order to maintain our credit rating, we had to keep the regulated at above 70%. That, you know, it was a very tight set of criteria and a knife edge that the company was on at the time.

Okay, Ben just trying to remember, though in order to maintain our credit rating, we had to keep the regulated at above 70% in that.

It was a it was a very tight.

Set of criteria and a knife edge that the company was on at the time.

Okay.

Ben Pham: All right. Got it. Okay. Thank you.

Alright got it okay. Thank you.

Operator 3: Again, if you'd like to ask a question, press star then the number one on your telephone keypad. Your next question comes from Andrew Kuske from Credit Suisse.

Operator: Again, if you'd like to ask a question, press star then the number one on your telephone keypad. Your next question comes from Andrew Kuske from Credit Suisse.

Again, if you'd like to ask a question press Star then the number one on your telephone keypad.

Your next question comes from Andrew <unk> from Credit Suisse.

Andrew Kuske: Thanks. Good morning, and welcome back, Chris. Maybe just building upon the comments of the math not working for the renewables growth rate. I know it was said earlier on that there's about 100 people in the development group. You know, if that business group was unconstrained, which obviously it wasn't on your balance sheet, you know, how much growth per annum in, say, megawatts do you think you could pull off each year?

Thanks, Good morning, and welcome back Chris.

Maybe just building upon the comments of the mouth not working for the renewables growth rate and I know what was said earlier on that there is about 100 people in the development group.

If that business group was unconstrained, which obviously it wasn't under balance sheet, how much growth per annum and same megawatts do you think you can pull off each year.

Chris Huskilson: Well, well Jeff may wanna speak to that, but certainly more than we were doing, that's for sure. Go ahead.

Well, it's Jeff may want to speak to that but certainly more than we were doing and thats for sure go ahead.

Darren Myers: Yeah, no, Andrew, it takes time to move things through the pipeline, but we started to ramp up our investment in the greenfield pipeline a couple of years ago, as Chris said, and our target for ramping that up was to get to 1 GW a year in additions, which then obviously puts balance sheet constraints on, in terms of the business mix. But we do feel we can ramp up to, you know, we've done 1,600 MW in a year in construction between the reg and the non-reg, which was overseen by that team. We can certainly ramp up into a material number that's north of 500 MW and potentially 1 GW.

Jeff Norman: Yeah, no, Andrew, it takes time to move things through the pipeline, but we started to ramp up our investment in the greenfield pipeline a couple of years ago, as Chris said, and our target for ramping that up was to get to 1 GW a year in additions, which then obviously puts balance sheet constraints on, in terms of the business mix. But we do feel we can ramp up to, you know, we've done 1,600 MW in a year in construction between the reg and the non-reg, which was overseen by that team. We can certainly ramp up into a material number that's north of 500 MW and potentially 1 GW.

Andrew.

It takes it takes time to move things through the pipeline, but we start to ramp up our investment in the Greenfield pipeline a couple of years ago, as Chris said and our target for ramping that up was to get to a gigawatt a year in additions, which then obviously.

She'd constraints on in terms of the business mix, but we do feel we can ramp up too.

<unk> done 600 megawatts in a year when construction between the Reg and non Reg, which was overseen by the team.

We can certainly ramp up to a material number that's north of 500.

Potentially a gigawatt.

Andrew Kuske: Okay. Appreciate that. Thank you. I guess as the financials go and transition from being maybe more complicated to being streamlined, you know, ex the Renewable Energy Group, in the future, are there other opportunities for other optimizations? Just if we think about partnership capital that some utilities have used for, you know, selling a 19.9% interest in either an underlying disco or a transmission asset, you know, what is the appetite for that? I know that's not part of the strategic review on the renewables side, but I guess, are you open to that and have you been approached on that kind of concept?

Okay. I appreciate that thank you and I guess as the financials go on transition from being maybe more complicated to being streamlined extra renewable group in the future.

Are there other opportunities for other optimizations and just if we think about partnership capital that some utilities have used for selling a 19, 9% interest in.

In either an underlying disco or a transmission asset what is the appetite for that I know that's not part of the strategic review on on the renewable side, but.

I guess are you open to that and have you been approached on that that kind of concept.

Chris Huskilson: Yeah. Again, Andrew, I think we really have to go back to what our focus is right now. We really have to get some momentum on the sale, and we need to bring a renewed focus to the existing regulated business. I think that's where our focus is gonna be. But, you know, at the end of the day, we will run this business in the best possible way to create value for our shareholders. That's what we'll be focused on doing.

Yeah again, Andrew I think we really have to go back to what our focus is right now.

You really have to get some momentum on on the sale.

And we need to bring a renewed focus to the existing regulus regulated business and so I think that's where our focus is going to be.

But at the end of the day, we will run this business in the best possible way to create value for our shareholders. So that's what we'll be focused on doing.

Andrew Kuske: Okay, great. Thank you very much.

Okay, great. Thank you very much.

Chris Huskilson: Thank you.

Thank you.

Operator 3: Your next question comes from the line of Naji Baydoun from iA Capital Markets.

Operator: Your next question comes from the line of Naji Baydoun from iA Capital Markets.

Your next question comes from the line of <unk> pay down from <unk> capital markets.

Speaker 19: Hi, good morning. Just wanna go back to the topic of Atlantica Yield or Atlantica Infrastructure. It's very clear that from the renewable portfolio sale, you're gonna allocate a portion to de-leveraging and a portion to buybacks. I assume the potential sale of Atlantica would be incremental for that. If that process does work its way through, what would be the use of proceeds potentially for that type of deal?

Naji Baydoun: Hi, good morning. Just wanna go back to the topic of Atlantica Yield or Atlantica Infrastructure. It's very clear that from the renewable portfolio sale, you're gonna allocate a portion to de-leveraging and a portion to buybacks. I assume the potential sale of Atlantica would be incremental for that. If that process does work its way through, what would be the use of proceeds potentially for that type of deal?

Hey, good morning.

Want to go back to the topic of Atlantica yield.

A lot of infrastructure. So it's very clear that from the renewable portfolio sale, you are going to allocate a portion to deleveraging and a portion for buybacks.

But I assume the potential panel Atlanta would be incremental to that so it's that process does.

Work its way through what will be the use of proceeds potentially for that type of a bill.

Chris Huskilson: At the end of the day, all proceeds will go to the balance sheet. That's exactly the way we're gonna look at it. We want to have, you know, a competitively structured balance sheet for this reg business, which will create the most value for us.

At the end of the day all proceeds will go to the balance sheet, that's exactly the way we're going to look at it.

Want to have a competitively structured balance sheet for this reg business.

Which will make us which will create the most value for us.

Speaker 19: You don't necessarily have a target for incremental buybacks or just creating more or putting more capital to work in the org on the utility side?

Naji Baydoun: You don't necessarily have a target for incremental buybacks or just creating more or putting more capital to work in the org on the utility side?

So we don't necessarily have a target for incremental buybacks or just creating.

We're putting more capital to work in New York on the utility side, yes.

Darren Myers: Yeah, Naji, it really comes down to the same equation. It's the BBB, you know, BBB investment grade rating is our anchor. Whether it's the sale proceeds from Atlantica, if that ends up resulting in a sale plus, you know, what we've announced today, it goes to that first. Then, you know, as we've mentioned, buybacks. You know, we're gonna capitalize the balance sheet so we can grow and support the $1 billion of growth that we've mentioned today for the regulated business. The equation, it's gonna be the same thing, you know, with both processes.

And that really comes down to the same equation, it's the triple B.

Triple B investment grade.

<unk> is our anchor and.

Whether it's the sale proceeds from Atlantic if that ends up.

The resulting in the sale of plus what we've announced today. It goes to that first and then as we've mentioned buybacks.

We're going to capitalize the balance sheet. So we can grow and support the $1 billion of growth that we've mentioned today for the regulated business. So equation, it's going to be the same thing.

With with both processes.

Speaker 19: Okay. Got it. Just going back to the topic of sort of constraint and slow growth in the renewables business. I think earlier this year you were maybe thinking about a 5% to 8% annualized growth rate as a North Star. Now it's 4% to 7% with the regulated group. Is the way to read that to say that, you know, sort of 1% per year EPS growth was sort of the incremental value of the renewables business today, and then to your point earlier, you know, constrained in growing it, so it would make sense to kind of go forward with this separation. Is that how you kind of view the standalone growth profile of the renewable business?

Naji Baydoun: Okay. Got it. Just going back to the topic of sort of constraint and slow growth in the renewables business. I think earlier this year you were maybe thinking about a 5% to 8% annualized growth rate as a North Star. Now it's 4% to 7% with the regulated group. Is the way to read that to say that, you know, sort of 1% per year EPS growth was sort of the incremental value of the renewables business today, and then to your point earlier, you know, constrained in growing it, so it would make sense to kind of go forward with this separation. Is that how you kind of view the standalone growth profile of the renewable business?

Okay got it.

And just going back to the topic of sort of.

Constrained and slower growth in our renewables business.

Earlier this year.

Maybe thinking about a 5% to 8% annualized growth rate of the Northstar now.

It's 47% of the regulated group.

The way to read that to say that.

Sort of 1% per year EPS growth was sort of the incremental value of the renewables business today and then to.

To your point earlier.

Constrained and growing it so it would make sense to two.

Kind of go forward with the separation, but how are you kind of view that standalone growth profile of <unk>.

The renewable business.

Darren Myers: Yeah. Naji Baydoun, what we had talked about before in that 5 to 8 was kind of a baseline for regulated of the 4 to 6 and then, you know, a sweetener from renewables of 1, you know, 1 to 2. So that got you the math, the 5 to 8. You know, obviously, you know, one of the complications is both businesses trade a little bit different. You know, the naturally inherently renewables isn't as focused on earnings per share, so that does create a little bit of lumpiness relative to that 5 to 8%. But then when we look at the 4 to 7% in all the modeling we've done through this process and with our regulated business, you know, one is we think it's in line with the industry for regulated companies.

Darren Myers: Yeah. Naji Baydoun, what we had talked about before in that five to eight was kind of a baseline for regulated of the four to six and then, you know, a sweetener from renewables of one, you know, one to two. So that got you the math, the five to eight. You know, obviously, you know, one of the complications is both businesses trade a little bit different. You know, the naturally inherently renewables isn't as focused on earnings per share, so that does create a little bit of lumpiness relative to that 5 to 8%. But then when we look at the 4 to 7% in all the modeling we've done through this process and with our regulated business, you know, one is we think it's in line with the industry for regulated companies.

Yes, <unk>, what we had talked about before in that five to eight was kind of a baseline for regulated to the four to six and then a sweetener from renewables of one one to two and so that that got you to map. The <unk>, obviously, one of the one of the complications as both businesses trade a little bit different.

Naturally inherently renewables isn't as focused on earnings per share. So that does create a little bit of lumpiness relative to that 5% to 8%, but then when we look at the 4% to 7% and all the modeling we've done through this process and with our regulated business.

One is we think it's in line with the industry for our regulated companies and secondly, we think with our assets and focus on operational effectiveness and capital discipline, we certainly can deliver within that 4% to 7%.

Darren Myers: Secondly, we think with our assets and focus on operational effectiveness and capital discipline, you know, we certainly can deliver within that 4% to 7%.

Speaker 19: Great. Appreciate that. Just one final quick question. I know it's been asked already in terms of other corporate simplification processes. Just maybe a question on the one that sticks out, which is the Chilean utility business, and any updated thoughts on where that fits within the portfolio going forward?

Naji Baydoun: Great. Appreciate that. Just one final quick question. I know it's been asked already in terms of other corporate simplification processes. Just maybe a question on the one that sticks out, which is the Chilean utility business, and any updated thoughts on where that fits within the portfolio going forward?

Okay. Appreciate that and then just one final quick question I know.

Its been asked already in terms of other corporate simplification.

Processes.

Maybe a question on the one that sticks out which is the Chilean utility business and any updated thoughts on where that fits within the portfolio going forward.

Chris Huskilson: Again, our focus at this time is on the renewable sale and focus on operational aspects of the regulated business. That's where we are right now, and we'll get that done.

Again, our focus at this time is on the renewable sale and on and focus on operational aspects of the regulated business. So that's where we are right now and.

We'll get that done.

Speaker 19: Okay. Understood. Thank you.

Naji Baydoun: Okay. Understood. Thank you.

Understood. Thank you.

Operator 3: There are no further questions at this time. I'll turn the call back over to Chris Huskilson.

Operator: There are no further questions at this time. I'll turn the call back over to Chris Huskilson.

There are no further questions at this time I'll turn the call back over to Chris Eskelson.

Chris Huskilson: Okay. Well, thank you all for listening to our call today and our Q2 results. I personally look forward to talking to all of you in the future. Please continue to stay on the line and listen to our disclaimer. Thank you all very much.

Okay, well. Thank you all for listening to our call today, and and our second quarter results.

I personally look forward to talking to all of you in the future.

Please continue to stay on the line and listen to our disclaimer. Thank you all very much.

Brian Chin: Thanks, Chris. Our discussion during this call contains certain forward-looking information, including, but not limited to, statements regarding expected future dividends, growth, earnings, and rate base, as well as statements regarding the separation of the company's Renewables and Regulated business through a sales process, including the expected benefits and outcomes and the use of proceeds therefrom. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A and annual information form filed on SEDAR+ and EDGAR, and also including an assumption that the Renewable Energy Group remains in continued operations for accounting purposes for the remainder of 2023. In addition, this forward-looking information 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.

Thanks, Chris our discussion during this call contains certain forward looking information, including but not limited to statements regarding expected future dividends growth earnings and rate base as well as statements regarding the separation of the Companys renewables unregulated business through a sales process, including the expected benefits and outcomes in the use of proceeds from this forward looking information is based on <unk>.

Certain assumptions, including those described in our most recent MD&A and annual information form filed on SEDAR and Edgar and also including an assumption that the renewable energy group remains in continued operations for accounting purposes for the remainder of 2023. In addition, this forward looking information is subject to risks and uncertainty and uncertainties that could cause actual results to differ materially from historical.

Results or results anticipated by the forward looking information.

Brian Chin: Forward-looking 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. We disclaim any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information 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 earnings, adjusted net earnings per share or adjusted net EPS, adjusted EBITDA, adjusted funds for operations, and divisional operating profit.

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, we disclaim any obligation to update any forward looking information or to explain any material difference between subsequent.

Actual events and such forward looking information, 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 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.

Brian Chin: There's 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, may not be comparable to similar measures presented by other companies. For more information about 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. With that, operator, we'll conclude this call. Thank you.

Our method of calculating these measures may differ from methods used by other companies and therefore may not be comparable to similar measures presented by other companies.

For more information about 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 with that operator, we'll conclude this call. Thank you.

Operator 3: This concludes today's conference call. You may now disconnect.

Operator: This concludes today's conference call. You may now disconnect.

This concludes today's conference call you may now disconnect.

Okay.

Q2 2023 Algonquin Power & Utilities Corp Earnings Call

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