Q1 2025 Algonquin Power & Utilities Corp Earnings Call
Rachel Smith: Hello and welcome to the Algonqn Power & Utilities Corporation first quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Rachel Smith: If you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Mr. Brian Chin, interim chief financial officer and vice president of investor relations. Please go ahead.
Brian Chin: Thank you operator and good morning everyone. Thank you for joining us for our first quarter 2025 earnings conference call. Joining me on the call today will be Rod West, Chief Executive Officer, and Sarah MacDonald, Chief Transformation Officer.
Brian Chin: To a company today's earnings call, we have a supplemental webcast presentation available on our website, AlgonqnPower.com Our financial statements and management discussion analysis are also available on the website as well as on Cedar Plus and Edgar.
Brian Chin: We'd like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures . Actual results could differ materially from any forecast or projection contained in such forward-looking information. Certain material factors and assumptions were applied in making the forecast and projections reflected in such forward-looking information.
Brian Chin: Please also refer to our most recent MDNA file on Cedar Plus Network and available on our website for additional important information on these items.
Brian Chin: On the call this morning, Rod will provide brief commentary on his first 60 days at Algonqn followed by a review of key highlights and operational updates for the quarter.
Speaker Change: I will then detail our financial results. We will then open the line for questions. We kindly ask that you restrict your questions to two, then req if you have any additional questions, to allow others the opportunity to participate. With that, I'll turn things over to Rod.
Thank you, Brian , and good morning, everyone.
Rod West: Before I provide my opening remarks on the quarter in my first 60 days, I first want to acknowledge the heartbreaking incident that occurred on April 9 in Lexington, Missouri within our gas service territory.
Rod West: As members of the community, our thoughts and prayers remain with the affected families.
whose lives have been devastated by the tragedy.
Our hearts are with you.
Speaker Change: Nothing's more important to me and to this company than the safety of our customers, employees, and communities.
We remain fully committed to working with the authorities [inaudible]
Speaker Change: to support the ongoing investigation into the cause of the accident.
and we will continue to work in partnership.
with the Community on Restoration and Recovery Initiatives
Moving now to my comments on the quarter.
Speaker Change: I'd like to start things off by thanking you for your interest in Algonquin for continuing to support the company through this transformative journey.
Speaker Change: and for welcoming Brian and I into our new respective roles.
Speaker Change: It's been a busy first 60 days for me having had the opportunity to meet with many of our stakeholders and visit several of our regional offices.
Speaker Change: My observations are consistent with the remarks I shared on the Q4 call.
Speaker Change: I see significant opportunity ahead, but there's still a tremendous amount of work to do.
Speaker Change: Algonqn has real potential to be a premium utility. We have solid, diversified asset base and many talented and hardworking employees, but we have yet to consistently evidence the practices that set premium utilities apart from the rest.
Speaker Change: The areas of improvement that come to mind include improving our customer outcomes first and community engagement, leveraging our economies of scale.
Speaker Change: I look forward to sharing more insights on our path forward.
Speaker Change: As promised, we plan to provide a forward-looking multi-year update on June 3rd, which falls approximately 90 days from our Q4 2024 call and my first day, my first day in the seat.
Speaker Change: Also on June 3rd, I plan to share more of my observations regarding the company and later this year I do expect to provide a little more color
into our longer-term strategic thinking and positioning of the portfolio.
Speaker Change: With that, let's now turn to the operational highlights from the quarter.
Speaker Change: Starting with regulatory updates. On March 25th, the New Hampshire Public Utilities Commission issued an order approving the granted state electric settlement agreement with new rates have been taken effect on April 1st.
Speaker Change: On April 21st, the New Hampshire Commission further extended a stay of the Energy North Gas rate case proceeding until May 30th, allowing more time for settlement negotiations to be completed.
Speaker Change: On our Empire Electric Missouri rate case, the Commission extended the test to you true up period from September 30th, 2024 to March 31st, 2025.
Speaker Change: which provides an opportunity for us to capture capital invested during that time frame in our rate filing.
Speaker Change: Moving to a brief update on the Missouri Commission investigation into our customer service and billing issues
Speaker Change: As stated on the Q4 call, the investigation opened at the end of February and we have been working with the investigation team responding to data requests and providing answers to their questions.
Shifting from state-level rate cases to transmission
Speaker Change: As discussed last quarter, the Southwest Power Pool, SPP, approved this 2024 Integrated Transmission Plan.
The largest portfolio of transmission projects ever undertaken by SPO.
totaling roughly $7.7 billion $7.7 billion.
Speaker Change: A significant share of this transformative investment, approximately 750 to 800 million is dedicated to strengthening the Empire District Electric Service Area, underscoring the region's critical role in the future of the grid.
Speaker Change: Within the Empire District Electric Footprint, the approved upgrades encompass approximately 80 miles of 161 KV rebills or conversions.
Speaker Change: 90 miles of new 345 KP transmission lines and the construction of two large scale transmission stations.
Speaker Change: On April 23rd, Empire accepted the first tranche of notices to construct or NTCs.
for the 161 KV portion of the portfolio.
Speaker Change: Empire has also received the second tranche of NTCs and the next step is the official acceptance of the second tranche of NTCs submitted to the to SPP on over four June 19th.
Speaker Change: We're excited for the opportunity these projects represent for our stakeholders [inaudible]
Brian Chin: I'll now turn things back to Brian to review the financial highlights from the quarter. Brian .
Brian Chin: Thanks, Ron. In a short summary, it was an encouraging quarter for our key financial metrics.
Brian Chin: First quarter adjusted net earnings from continuing operations were 111.6 million, up from 39% from 80.1 million in 2024.
Brian Chin: 43% increase of $40.8 million in net earnings for the regulated services group was primarily due to the implementation of new rates of $15.7 million and lower interest expense of $13.6 million as a result of debt repayment with the proceeds from the sales of the renewables, business, and our Atlantic estate.
Brian Chin: Our depreciation expense was relatively flat year-over-year. Our usual organic growth in depreciation expense was partly offset by 8.2 million in non-recurring favorable pickups related to regulatory orders in New Hampshire and Arizona.
Brian Chin: The 13.4 million increase in net earnings for the hydro group was primarily due to a one-time tax recovery related to the sale of the renewable energy business.
Brian Chin: Our expectations of an effective tax rate in the mid to low 20% range for the year has not changed and as we have said before, we do expect a bit of lumpiness in our quarterly tax profile.
Brian Chin: On the corporate side are adjusted net earnings decreased by 22.7 million related to the removal of
Brian Chin: Moving to our EPS walk, Q1 Adjusted Net Earnings per Share were 14 cents, which is flat to last year's Q1 2024 adjusted net earnings per share of 14 cents, which includes renewables
Brian Chin: and yet above last year's Q-1 2024 continuing operations adjusted net EPS of 11 since excluding renewables.
Brian Chin: You're your drivers include a negative 3 cents attributed to the renewable sale, an increase of 3 cents for new rate case contributions from New York water, Velco and Mid-State's gas as well as increased customer demand.
Brian Chin: and another two sense of contribution from lower interest expense from use of renewables and Hanukkah sales proceeds to pay down debt net off financing for organic growth
Brian Chin: Mirroring Mike earlier comments, we had approximately a penny pickup from non-recurring items, favorable items based on depreciation related to regulatory orders in New Hampshire and Arizona.
Brian Chin: Aside from the regulated business, we captured a two-cent increase for the one-time tax recovery related to our hydro group.
Brian Chin: A decrease of 3 cents for the removal of the Atlantic dividend, and a reduction of 2 cents for an increase in weighted average shares outstanding.
Brian Chin: For the last two quarters, our adjusted net EPS impact from dilution has been tracking to a penny each quarter but since our results are proportionally skewed to Q1, this mathematically increased our dilution to two cents for this quarter.
Brian Chin: Let me pause here on non-recurring items embedded in this walk. If one takes the positive penny from regulatory orders related to depreciation and the two cents from the hydro-tats recovery, our adjusted net EPS includes a total of three cents of favorable non-recurring items in
Brian Chin: and given our unchanged view of an effective tax rate in the middle of a 20% range, we expect a portion of the effective tax rate non-repring items to reverse over the remainder of the year.
Brian Chin: In keeping with our goal of reducing complexity, the company's financial disclosures now focus primarily on adjusted net earnings and adjusted net earnings per share and earnings per share as we view these as our key financial metrics.
Brian Chin: Our simplified financial disclosure includes net earnings from continuing operations separated into regulated hydro and corporate segments in our financial statement footnotes.
Brian Chin: A few comments now on our credit metrics. Simply stated, our credit metrics are healthy.
Brian Chin: For year end 2024, S&P indicated our FFO to debt was 12.5%, comfortably above the requisite triple B threshold of 11%.
Brian Chin: Fitch indicated our debt to EBITDA was 5.6 times, appropriately below the requisite triple beef rush hold of 5.8.
Brian Chin: These metrics were measured before net-deliveraging proceeds to continuing operations were received from the sale of the renewable energy business on January 8th.
and now back to Rod for closing remarks.
Rod West: Thanks Brian . As per our press release this morning I want to highlight to our listeners to save the date for our investor update call on June 3rd, which I referenced earlier.
Rod West: We expect this outlook, which will be primarily based on the current portfolio. We'll include projected adjusted net EPS ranges for 25, 20, 26
Rod West: in 2027, with more detailed thoughts on the company and its potential after my first 90 days.
Rod West: I also aim to share my broader strategic thinking on the broader portfolio later this year.
Speaker Change: Thanks to everyone for joining us on the call this morning. I am excited and motivated by the opportunities ahead and now the management team is available to answer your questions.
Operator.
Speaker Change: Thank you. If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star one again. Please limit your questions to two. One moment please for your first question.
Speaker Change: Your first question comes from the line of Robert Hope with the Scotiabank. Your line is open.
Robert Hope: Mark. Morning, everyone. I won't ask about the forward outlook, but maybe a little bit backwards looking. Rod, you've been here for a number of weeks, months now. Can you maybe walk us through kind of what you think the most impactful changes you've made to the organization so far have
Robert Hope: and month look back is literally one month. But my focus and the initial sort of impact has been setting a vision for what a premium pure play utility looks like and setting setting the
Robert Hope: The attributes of a pure play utility to the corporation which informs the work we're doing to lower our overall cost profile to make room to do more on the on the capital and on in front.
Robert Hope: but also a focus on improving our stakeholder engagement capacity and sort of discipline.
Robert Hope: Again, these things are notional because I'm communicating them to the organization as I'm setting ourselves up.
Robert Hope: to actually execute on those plans, and the way that they will ultimately play out. [inaudible]
Robert Hope: Our own outcomes for our stakeholders, you know, from the investment community. We're talking more and we'll be talking more about total shareholder return.
Robert Hope: from the customer perspective, we'll be talking about net promoter score and specific customer outcomes.
Robert Hope: that would drive our capital plan and our sort of organizational health, the motivation, the help, the alignment of our employees' actions to create sustainable value for those four keys, day-coulders.
and the metrics that we'll pay attention to.
Robert Hope: All the types of things that will give us our stage gates along the way, sir, everybody has a clear understanding of where we're headed and what are the milestones along the way that that will will separate us from from good to great. [inaudible]
Robert Hope: The good thing is that we have a lot to work with and that's the biggest part of my initial evaluation is that we have really quality assets and we have a group of employees who are really motivated to turn our performance around.
Alright, appreciate that color.
Speaker Change: Second question, moving over to the SVP projects. So you have two tranches with good clarity right now. Do you know how much capital that could be versus the 750 to 800 that you referenced as well as when would that capital start being spent?
Speaker Change: We haven't disclosed anything beyond what is currently, currently public, so I don't anticipate that we'll do so until we're further along but the short answer is my expectation.
Speaker Change: is that if we're successful in executing on what's in front of us, we'll be in a better position to capture and execute on additional cap X opportunities in that space.
Alright, thank you. I'll jump back in with you
Sean Stewart: Your next question comes from the line of Sean Steuart with TD Collin, your line is open.
Thank you. Good morning. A couple questions.
Speaker Change: I want to start with investigations, so there's another investigation in Arkansas.
Speaker Change: and an audit in New Hampshire. And I'm just trying to gauge are these the same billing issues that you're doing with in the Missouri investigation?
Speaker Change: and do you have any perspective on timing resolution for these areas?
Investigations and Audits [inaudible]
Speaker Change: I don't believe New Hampshire is a customer related investigation but the other investigations have to do with the billing issues, the timeliness of billing associated with the deployment of an overhaul of a new system and we're working with the regulators and the state in each of those circumstances.
Speaker Change: In from my initial observation that our challenges were not unlike other utilities who have gone through system to form it. I think what we have fallen short in a seeking to.
Speaker Change: to remedy it, is that we did not do a good job of stakeholder engagement prior to the deployment of the system, which left a lot of folks surprised when the normal. [inaudible]
Speaker Change: What I would consider to be the normal hiccups associated with the scale of the system overall that we...
We implemented ...
Speaker Change: You know, we didn't, we didn't, in my view at least do the conditions precedent to making it a smoother transition transition.
Speaker Change: for customers and regulators, but we're closing that gap as we speak.
and I don't ...
Speaker Change: to represent my commitment to follow through and ensure the issues that the customers have been experiencing. But we'll continue to participate and support the work of the states and closing out these customer complaints.
Okay, thank you for that context.
Speaker Change: The second question. I wonder if there's any update on your thinking around the hydro portfolio potential timeline towards the vestiture, how the thinking's evolved and the current valuation environment. Yeah, and I'll, you know, if we do a double click, I'll let Brian talk more about it, but my perspective is consistent with the position we've taken. Yeah, I'll let you know.
Speaker Change: We're looking, we're looking to transact, but the condition president has to be it being value-ocreative.
Speaker Change: You know, not from a singular EPS perspective, but certainly from a balance sheet and a strategy of a creative perspective as well. And we're monitoring the market environment for potential off-takers, but it has to be something that is that we view as net net accretive and. And that's what we're going to do.
Speaker Change: You know, I don't know that there's a specific timeline that we're we're we're we feel forced to pursue but should that opportunity arise I am I have given the go ahead that we'll transact if those conditions are met
Brian .
Speaker Change: Yeah, and Sean, as a reminder, our thought process is that we would be looking at that in the first portion of this year, obviously with the leadership transition and our thought process on the portfolio strategy has been evolving here. We've pushed back the timetable a little bit, but everything that we said before about it being value accretive on a number of fronts that remains consistent.
Got it. Okay, thanks very much guys, much appreciated.
Nelson Ng: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open.
Nelson Ng: Great, thanks, and good morning everyone. It's a quick question on the LCRM implementation. Can you just comment?
Nelson Ng: About, I think in the past, she talks about how this CRM implementation would result in cost savings and I just had a look at the
Nelson Ng: Operating expenses of the utility division, I think costs have increased by just 1.5% euro a year, so that's obviously lower than inflation, so that's good. But can you just talk about realizing cost savings in the business, that big picture?
Nelson Ng: and maybe do a bit more color going forward as well.
Nelson Ng: Sure, Nelson at Sarah MacDonald, so the implementation was not just about cost savings. There were a lot of other customer benefits.
Nelson Ng: that we're now coming to fruition. When we were starting to implement, we had multiple systems, no integration, and issues in making sure that customers had access, disability, ability to go online and look at their bills.
Nelson Ng: and so there was certainly a lot more benefits to the customer coming in. Ultimately, when the system is functioning optimally, you will start to see cost, you know, will start to be able to realize the benefits of that integration. But for now, we were looking, we're focused on getting it implemented right and making sure the customer experience is better. [inaudible]
Nelson Ng: and they caught her benefits are not going to be specifically called out solely to...
Nelson Ng: The implementation of the platform, but you would expect to see more digital channels, lower calls from customers because we're providing more self-help options and, you know, more of paper expenses, but those would be...
Nelson Ng: Those would be reflected in our overall O&M numbers and not just attributed to the one specific platform just on a future basis to understand where we'll be coming from.
Speaker Change: Okay, thanks for the color. And then the second question probably relates to Brian . So just a quick one on the non-controlling interest earnings of 18.9 million. I know in the past.
Speaker Change: You kind of singled out, HLBB as a line item, is this item, is it all HLBB or are there several items lumped together into earnings, attributable to non-controlling interests?
Speaker Change: Yeah, so it's primarily HLBB income, the other significant piece of that and it's a relatively small piece is the minority interest related to the ownership stake in Suralis down in Chile.
Got it, thanks. Let's go back in the queue
Speaker Change: Your next question comes from the line of Rupert Merer with National Bank, here line is open.
Hi, good morning, everyone.
Rupert Moyer: I could start with a follow-up on the operating costs. I think with the billing issues you've had in previous quarters, it did incur.
Rupert Moyer: Some added costs are you still seeing added costs related to those issues or is that largely in the rear view mirror now and when we look at those operating costs they more representative of what we should expect in future quarters.
Rupert Moyer: Yeah, Rupert. So when we started experiencing those billing issues the extra cost that we did call out in the Q4 materials was bad debt expense.
Rupert Moyer: And that's where we saw the majority of that. You saw a little bit of that this quarter but wasn't really enough for us to call out specifically and definitely the trend line is moving in a more improved direction. I think going forward from here.
Rupert Moyer: that we would expect that that would temper off, just given the trajectory of where our customer building's exceptions are at. So, you know, the short answer Rupert is we recorded the majority of that in Q4.
Rupert Moyer: And last quarter you talked about some synergies related to the sale of the renewable group. It seems like the
Rupert Moyer: The costs in the renewables and corporate group have come down significantly, have you largely dealt with these to synergies, or are there any other sort of plans you can discuss to lower costs in the near term? I understand some of this maybe things you want to talk about on June 3rd
Speaker Change: Yeah, Rupert, so last year, if you look at the year in aggregate, we had roughly 18 million in disenergies that affected our OPEX numbers last year.
Speaker Change: For the first quarter, it's at a smaller amount. It's less than a penny of this energy that we're seeing.
Speaker Change: We didn't call it out specifically in the material, it's just because of the size.
Speaker Change: We do expect that as we're continuing to execute greater operational and capital discipline on the company that the eventual removal of those disenergies will manifest themselves through the outlook but at this stage for the quarter it just simply wasn't large enough for us to call out so we do think that that's a helpful stage and that's something you should expect for us.
Thank you for joining us. Thank you. Thank you.
I very good. We'll leave it there. Thank you.
Speaker Change: Your next question comes from the Linus Ben Pham with BMO, your Linus Open.
Ben Pham: Hey, thanks. Good morning. Now, how do you, your peers on conference calls highlight customer affordability as a, as a topic of interest?
Speaker Change: These days with all that's going on with markets and inflation, supply change, can you add some flavor to conversation and you think, well, some of your comments are pretty listed on cost initiatives and narrowing that that are what you get towards
Speaker Change: Yeah, I'll certainly start on that if I think about the guardrails of the company, you heard me make reference to premium utilities.
Speaker Change: You know, we aren't capital constrained if we have constructive regulatory mechanisms and we have a platform for customer centric investment to me, you know, evolving customer demands for our services.
Speaker Change: But I think the, you know, at this point, the one thing that gives us credibility when coming in to our regulatory environment, asking for support.
Speaker Change: that we've done everything that we can to lower the cost profile, the actual cost of service.
Speaker Change: for our customers. And so from my vantage point, the one constraint
It's not capital constraint, it's affordability [inaudible]
Speaker Change: and so the conversation that we are having internally and for the entirety of my tenure here in our pursuit to be a premium utility.
is driving the cost down.
Speaker Change: So that we could put productive capital to work on behalf of our stakeholders [inaudible]
In a way that minimizes the impact [inaudible]
Brian Chin: on Custom Abills. It's embedded in what you just heard Brian make reference to about Capitol Discipline.
Brian Chin: But we're also constantly going to be benchmarking ourselves against best-in-class on our overall cost profile so that I can make, we can make a credible case.
to our stakeholders that we're responsible stewards of our service, so...
Brian Chin: You'll see that in our O&M numbers and I'll talk a little bit more about it in our outlooks on June 3rd but I think discipline should be your takeaway.
Brian Chin: and we're comparing our objectives. We're not there yet. Obviously, we're a ways away, but our objective is to compare ourselves to best in class on both Capitol and O&M discipline.
Speaker Change: Okay, got it and I am I need provide some details on that the June update you mentioned so also later in a year I just just want to clarify the June
Speaker Change: Portion with 25 to 27 as a focus on EPS members, rate-based CAPEX and at time-prim and then later it's a beyond 27.
Speaker Change: guidance it's fair to say that you're absolutely right on 25 26 and 27
Speaker Change: and I know that there are going to be questions about broader points of view on a portfolio strategy.
Speaker Change: and what we're seeing is that we're prepared to go public with the guidance and outlooks for that three-year timeframe and while we are we are definitely thinking through the broader strategic
Speaker Change: Portfolio questions. We think we'll be in a better position to talk about it publicly later in 2025.
Okay, God, thanks for that.
Mark Herline is Open
Speaker Change: Sorry about that. You have questions on New Hampshire, you've got the settlements now at Energy North and Granite State, but obviously there's still the audit on the terms of the systems there. A bit of perspective in terms of the path forward there, when you could get back into file for a new race and try to get through some of those of the requests that didn't come through on the power settlements.
Speaker Change: Yeah, Mark, so just to be clear, we do have an order of proving the settlement for Granite State. We are in settlement discussions at Energy North, and that's part of the prepared commentary that we've got a little bit more time as granted by the commission to negotiate that settlement, so just to clarify that.
Speaker Change: But with regards to when we can go back in for new rates, so for granted state what we have in the settlement is a staff period until we can file a new rate case on January 1st, 2026.
Speaker Change: and that is a helpful data point in those and given that similar parties, similar time scales for the rate cases, I think that's something to think about as we're looking at concluding settlement negotiations in the energy north.
Got it.
Speaker Change: And then maybe updated views in terms of CalPICO, the application for interim rates, any feedback yet in terms of whether or not that's feasible and just probably how you see timeline progressing in CalPICO.
Speaker Change: So it's absolutely feasible. We wouldn't have filed otherwise. We haven't got any feedback yet but we're continuing to answer any questions that come up but it's certainly an option open to us that we're taking every advantage of.
Speaker Change: When do you think you get clarity? Because I believe the ask was for interim rates by the middle of this year, and that's not that far away at this point.
And,
Speaker Change: California is a slower jurisdiction to hear back, so I actually can't say when we'll hear.
Got it. Okay, next little time, Sean.
Thanks, Mark.
Speaker Change: There are no further questions at this time. I will turn to Colton, Mr. Rod West.
Speaker Change: Alright, thanks again for your interest and your questions this morning and we look forward to visiting with you again in just a few weeks on June 3rd.
Have a great rest of the day.
This includes today's conference call, You Ain't No Disconnect . . .