Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. Third Quarter 2019 Analyst and Investor Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead, Mr. Jarratt.
Great. Thank you. Good morning, everyone, thanks for joining us on our call today. As mentioned, my name's Chris Jarratt, and I'm the Vice Chair of Algonquin Power and Utilities. Joining me on the call today are Ian Robertson, Chief Executive Officer, and David Bronicheski, Chief Financial Officer. To accompany our earnings call today, we have a supplemental webcast available on our website, algonquinpowerandutilities.com. Additional information on our results is also available for download at the website. Over the course of this call, we will be providing information that relates to future events and expected financial positions, which should be considered forward-looking. I would direct you to review our full disclosure on our website. Alison will read the full disclaimer at the end of this call.
Please note that all dollar amounts presented on our call and in the supplemental webcast presentation are in US dollars unless otherwise noted. As usual on our call this morning, Ian will start with a discussion of our strategic achievements in the quarter. David will follow up with the financial highlights, and then Ian will conclude with an update on our strategic plan as well as providing some details on a couple of upcoming events that we hope you'll be able to attend. We'll open the lines for questions, and as usual, we ask you to restrict your questions to two. Re-queue if you have additional questions. With that, I'm going to turn things over to Ian. Ian?
Chris, thanks very much. Good morning, everyone, and thanks for taking the time to join us for our Q3 call. It's a crisp fall day from our offices here in Oakville. I'll start the conversation, as Chris had highlighted, with some of the more pertinent details from this quarter. Looking at a brief snapshot of the financial results, we're pleased to report a solid quarter with year-over-year increases in both adjusted EBITDA and adjusted earnings per share. We're confident that the strength in our key financial metrics supports growth in our dividend, which also saw a 10% year-over-year increase in keeping with our previous dividend growth guidance. Now turning to a couple of the strategic initiatives. We're pleased at having completed previously announced utility acquisitions, New Brunswick Gas in early October, followed by St. Lawrence Gas just last week.
These acquisitions expanded our utility presence into New York State and the province of New Brunswick, our first Canadian regulated utility, and added nearly 30,000 customers to our distribution footprint, which now stands at over 800,000 customers. Secondly, the months leading up to December 2020 are expected to be very active for our construction teams. In addition to construction commencing on our 490-megawatt Maverick Creek Wind project located in Texas, announced during the quarter. I'll provide you some additional details later in the call on the other projects, which are targeting 2020 commercial operation dates. Lastly, we're pleased to have completed our first-ever U.S. marketed offering of common shares. Strong investor response supported our $350 million equity raise to be used to partially finance certain of the company's previously announced acquisitions and our renewable development growth project.
David Bronicheski will give you a few more details of that a little later in the call. Before I pass things over to David to discuss the financial results, I wanted to highlight the recent publishing of our 2019 sustainability report, which is available on our corporate website. As I have often said in the past, from the earliest days of our company's history, sustainability has underpinned how we think, act, and operate. By virtue of the business we're in, creatively and responsibly delivering clean energy and water solutions that create better everyday lives and inspire our communities, sustainability is ingrained in our nature. Through our purpose, sustaining energy and water for life, we take our role in helping to create a sustainable energy and water future very seriously. I'm pleased to share our progress and goals in this report.
As a shameless plug, we're hosting our first-ever Sustainability Day next week to further outline the highlights of the report to investors, and I'll give you more details on this further in the call. With that, I'll pass it over to David for a review of our Q3 2019 financial results. David?
Thanks, Ian, good morning, everyone. Algonquin enjoyed a relatively quiet third quarter this year. Our business operations overall generally performed in line with our expectations. Our Q3 2019 adjusted EBITDA on a consolidated basis was $186.9 million, an increase of $21.4 million over the same period last year.
On the regulated side of our business, Liberty Utilities generated Q3 2019 divisional operating profit of $135.3 million, which is consistent with the previous year as solid operations from our existing facilities, including implementation of several rate cases that were more than able to offset the implementation of lower rates at Empire and Granite State Electric due to U.S. tax reform. We think this is a really good demonstration of the benefits of our diversified utility platform. Within our non-regulated group, the business generated a divisional operating profit of $66 million, an increase of $22 million compared to Q3 2018. The increase in adjusted EBITDA is related to our investment in Atlantica, as well as higher wind and solar resources that boosted production from much of our fleet of renewables compared to the same period last year.
Our adjusted EPS came in at $0.14 per share for Q3 2019, compared to $0.10 per share reported in the same period last year. The increase of adjusted EPS reflected a $0.02 per share acceleration of value from the energy offtake agreement related to our Sugar Creek development that arose as we now move to the construction stage of that project. As Ian noted, in October, Algonquin completed its first U.S. marketed equity offering of common shares for total gross proceeds of just over $350 million. We turned to the U.S. market for this equity offering to expand our investor base in the U.S. and to improve our trading liquidity on the New York Stock Exchange. We believe the offering was very successful. It certainly was oversubscribed and attracted new investors at what we believe to be a modest discount to our share price.
The proceeds will be used to partially finance previously announced growth initiatives. I'd also like to note that last night it was confirmed that Algonquin will be added to the MSCI Canada Standard Index, effective at the close of business on November 26th. We view this addition as a reflection of Algonquin's increased scale in the Canadian equity capital markets and is expected to drive additional passive demand in our stock throughout this month. With that, I'll now hand things back over to Ian.
Thanks, David. Before we close out our prepared comments this morning, I did want to give you a quick update on our main areas of growth that we focused on, and will continue to focus on for the remainder of 2019 as we execute on our five-year strategic plan. We'll, as usual, open the lines for the question and answer period. We are pleased that we are continuing to make progress on our five-year, $7.5 billion capital investment program that we outlined at last year's Investor Day. Within our non-regulated renewables business group, Liberty Power, we're pleased to report that the construction program related to our projects targeting 2020 COD are well underway.
I already mentioned that the ground has been broken on the 490-megawatt Maverick Creek Wind Project in Texas, but access roads and turbine foundations are being constructed on the 202-megawatt Sugar Creek Wind Project in Illinois and our 24-megawatt Val-Éo project in Quebec, both of which we anticipate will achieve commercial operations next year. Additionally, foundation pile driving and panel installation are underway at our Great Bay Solar II solar project in Maryland. Our active construction program extends into our regulated utility business, Liberty Utilities. With 600 megawatts of new wind generation targeting commercial operations in 2020 to replace coal at our Midwest electric utility, EPC or engineering procurement and construction contracts have been signed and construction activities are in varying states for the three projects which comprise our central region Greening the Fleet initiative.
While investing capital in our regulated utilities to support our customers is a good thing, completing the value circle with rate reviews to earn a return on such investment is also important. This quarter, we completed approximately $5 million in rate reviews and have another approximately $45 million in rate reviews pending. Finally, we're continuing to focus on opportunities to save customers money through replacement of fossil fuel-fired generation with renewables and energy storage through our acquisition of the Bermuda Electric Company. Plans are being developed for lowering customer rates using a combination of solar, wind, and energy storage. The regulatory application was filed earlier last month, and we're hopeful of closing early in the new year. With these initiatives, we remain on track and committed to our $7.5 billion project pipeline of growth that will bring value to our shareholders.
Last but not least, before we open the lines up for questions, I'd like to highlight some important events that Chris referenced that we'll be hosting in the coming weeks. We'll be hosting our first Sustainability Day in step with the release of our 2019 sustainability report. The event takes place next Thursday morning, November 14th. While the event will be held at our offices and will include a scrumptious continental breakfast to lure you here, it will actually be available through webcast, so there's no actual need to travel to the wilds of Oakville. Secondly, we're hosting our annual Analyst and Investor Days in Toronto on Tuesday, December 3rd, and New York, Friday, December 6th. These events provide us the opportunity to share our thoughts, our enthusiasm, and excitement regarding our operations, our strategic direction, and the future growth plans for Algonquin Power & Utilities Corp.
To find out more or register for either or any of these upcoming events, please email investorrelations@apucorp.com. With that, I'll turn things over to the operator to open the lines up for questions. Operator?
Thank you, sir. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Sean Steuart of TD Securities. Please go ahead.
Thanks. Good morning, everyone.
Morning, Sean.
Morning.
Couple questions. I see you've acquired an interest in the entities that are developing the Missouri wind projects for the Greening the Fleet at Empire.
Yeah.
Can you go into a little detail there on the motivation for that as construction gets underway?
Yeah. Let me start by saying, you know that this organization is not uncomfortable with nor shy in, I'll say, directly developing wind projects such as the ones comprising the Greening the Fleet initiative. We kind of looked at the risks and costs associated with the third-party developer relationship that we'd initially entered into in respect to two of the three projects. I think we came to the conclusion that on behalf of customers, I think it made sense for us to negotiate and step into the shoes of the original third-party developer. I think, ultimately, sort of just given all of the factors, that this was something that just made sense from a risk-return perspective. As I said, you certainly know that this ain't our first rodeo when it comes to building wind projects.
It is a process that we're sort of totally comfortable with. I don't know, Sean, is that where your question was going? Happy to kind of give you more thoughts and details to it.
Yeah. I mean, that gets to the gist of it. I just wonder if something had changed in the relationship with the entity that you felt the need to step in, but.
No. I think as we look at the process, I don't think it comes as a shock that the third-party developers were charging a fee. As we kind of looked at what stands in front of us and I'll say the risk reward, it made sense for us to negotiate a termination of that arrangement. I don't think that there's sort of anything untoward. Clearly, we might have a different view of some of the risks associated with outstanding permitting, et cetera, than the original developer might have. To the extent that costs were being tried to be passed through to us, it just made sense to negotiate that arrangement. As I said, we're not uncomfortable with the risks, and Lord knows, it ain't the first time we've been down the path.
That explains it. Thanks. Second question, sticking with the Greening the Fleet. Well, BELCO will close soon, I suppose.
Yeah.
Wondering if you can go into a little more detail on the Greening the Fleet potential there, and specifically how offshore wind might fit into those plans?
I don't want to say hold that thought, Sean, until Investor Day, because obviously we're going to spend some more time on that. I think BELCO is a perfect example of this organization executing on basically the same plan that you see put to work in the Midwest, which is this idea of shutting down fossil fuel in favor of renewables and energy storage. My gosh, when your energy is being sold at $0.42 a kilowatt-hour, man, there's lots that can be done. I think your intuition leads you into exactly the right spot, which is the optimal solution will likely be a combination of some more solar, some offshore wind, which you obviously touch on because Bermuda, while it's a beautiful place, there ain't much of it, and so land certainly comes at a premium, also combining some storage into that.
We are pulling together a plan. We want to sit down, I'll say hit the ground running with the government as the regulatory approvals come through, and I think we're confident we can really do great things. It's exactly the combination of the things that you talked about. As I said, my gosh, if you're generating electricity at $0.42 a kilowatt-hour, where almost half of that is literally just the cost of fuel with the falling cost of renewables, it's a pretty exciting opportunity.
No doubt. That's all I have for now. I'll get back in the queue. Thanks, Ian.
All right. Thanks, Sean.
The next question comes from Nelson Ng of RBC Capital Markets. Please go ahead.
Great. Thanks. Good morning, everyone.
Hey, Nelson.
My first question relates to the utility business. In the operating profit bridge for the utility business, I think there was a $4.1 million benefit due to operating cost savings across the gas system. Could you give a bit more color in terms of those savings, like what the annualized amount is and whether there's opportunities to realize additional savings going forward?
Yeah. Well, this is exactly the thesis that we've been putting forward with respect to our capital program. I think you'll recall last year at Investor Day, we outlined how we're able to increase our rate base at a pace of, it was closer to 8%, while keeping rates to customers closer to that 2%-3% rate. This is a perfect example of that. We've invested in capital, and this has now allowed us to enjoy some operational cost savings. That's essentially what it is.
Okay. Got it. The next question is the sale or moving Sugar Creek into AAGES. There was this, I think, $15.6 million gain. Just for housekeeping purposes, was that number included in adjusted net earnings or was it backed out?
Just by way of background, we put an energy offtake contract in place early in the development of that, and it's obviously in the money. To this point in time, those gains have been in OCI. Now as we move into the construction stage of the project, we've handed the responsibility off to our AAGES group for that. The accounting treatment required that the gain be released from OCI and into our earnings, and it's certainly an acceleration of value that's been created through the development process. That gain is not included in our adjusted EBITDA, but it is included in our adjusted net earnings.
Okay. Just to clarify, those were the synthetic hedges or synthetic PPAs.
Yeah
that you put in place back earlier in the year. Okay, thanks. I'll get back in the queue.
Thanks, Nelson.
The next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.
Good morning, guys. This is actually Ryan Greenwald on for Julien. Thanks for taking our question.
No worries, Ryan. We'll talk to you too.
Appreciate it. I guess piggybacking on the Sugar Creek question. It seems like this is kind of more one-time in nature and similar to an item last quarter. I guess, how should we be thinking about 2020 EPS drivers after accounting for the one-time items?
Yeah. Well, I might question the comment that it's a one-time item. We're in the development business, and every year we develop projects, and every year we create value in development of projects. I guess it really is a matter of perspective, I suppose. I would argue that creating value through the development process is something that recurs in our business every year. It was perhaps more evident this time through this acceleration of value, as we say. Certainly it, to our way of thinking, happens every year.
Maybe, Ryan, to kind of speak to the heart of your question, as you think about 2020, I think in general, when you look at the guidance that we're going to be giving at Investor Day, I would say we don't presume that we're going to create value through these sort of initiatives. As you know, the lion's share of this business generates its earnings through the operation of its regulated utilities, which are pretty straightforward. To the extent that we're in the renewable energy business, and when assets get transferred and our paradigm for constructing these assets is through the use of partnerships, we actually think that net gain that arose on the transfer of that asset is really just harvesting value that ultimately, otherwise would come over the length and life of that project. It doesn't feel like it's a one-timer.
I get the concept of acceleration. In general, as I said, your question focused on 2020. We don't presume that we're going to be able to realize any of these gains, if for no other reason that as you know, in some respects, they're premised on what do the various electricity markets look like? It would be presumptuous for us to assume that those are going to arise. I don't know, Ryan, if that's helpful, gives you the insight that you're looking for.
Yes, that's very helpful. Thank you. Are you guys able to just provide any of your latest thoughts around the AY relationship and long-term partnership strategy there?
Well-
I don't think anything has changed from the calls that I've answered the question in the past. I'm not being critical about it getting raised again, I think we probably share, if it's not certainly frustration, we certainly acknowledge that the strategic review process for Atlantica has gone on for a while. Maybe that's the heart of your question. We have said that we are sitting in a polite kind of Canadian way on the sidelines, cheering on the strategic review process. We want Atlantica to continue to fulfill its role in our business, which is to provide a provider of cost-effective capital to the other half that we don't own for holding certain assets. I'm not so sure that it's actually able to perform that function right now. We're kind of hoping that things get advanced.
I will say, and I pointed out on every call in the past, and I think it should be pointed out again, is you know we're sitting on the sidelines or in the waiting room, name your metaphor, of those discussions, because we don't want anyone to presume that somehow we're putting a thumb on the scale as to how it should be resolved.
Got it. Thank you. Looking forward to seeing you guys at the EI.
Yeah. Thanks, Ryan. We'll see you there.
The next question comes from David Quezada with Raymond James. Please go ahead.
Thanks. Morning, guys.
Morning, David.
Maybe one follow-up here on Sugar Creek. I think there was some commentary in the MD&A about potentially reacquiring the stake that had been moved into AAGES. Wondering what your decision process would be like on that specifically?
Well, if you look, David, at kind of previous projects that we've undertaken, I don't want to say you'll see a pattern emerge, but that while we're happy to enter into partnerships during the late development and construction phase, in most of those instances, I won't say all of them, but in most of those instances, following successful commercial operations, the project's been repatriated back onto our books. You can imagine there's all sorts of reasons to do that. Risk-sharing, management of credit metrics, because there's obviously no cash flows off of a construction project. Without making it a foregone conclusion that we're going to reacquire the project, we have certainly preserved the option to do that at the end of construction. I'll leave you to draw your own conclusions there, David. Do you need more, or are you good with that?
No, that's helpful. Thank you. Maybe just to follow up on the wind segment in general, specifically in the Midwest, as the wind projects that you're putting into the rate base there approach, wondering, maybe it's a little premature to ask this, but just wondering what your sense is on what the regulators' appetite might be for future renewable investments in rate base in that region.
I'll start by saying you know that our Greening the Fleet initiative actually doesn't really reflect the regulators' appetite for wind per se. It actually reflects the regulators' appetite for us doing the right thing to save customers money. At the end of the day, the underlying premise for that initiative is it's just the right thing for customers. You know that shutting down our Asbury coal plant was fundamental to creation of those savings. We have a couple of other interesting coal plants, so the process of replacing that generation with low-cost renewables is a little bit more complicated because we don't own and control those assets, but really have interest in those assets. We are looking hard at additional renewables in the Midwest.
I don't know if drawing your attention to it is the right thing, but in our latest integrated resource plan for the utility, we look to the installation of some substantial amount of solar and some energy storage, and that both of those represent a low-cost solution for our customers. I think I'd wrap up, David, by saying we ain't done yet in terms of saving customers money through the development of low-cost renewables.
That's great. Thanks, Ian. Appreciate those comments.
Appreciate it, David.
The next question comes from Hassaan Khan with National Bank Financial. Please go ahead.
Good morning, guys. I'm here on behalf of Rupert.
Great.
Just a bigger picture question here. With the increase in what we're seeing in interest in infrastructure from private capital, how do you guys see the market for M&A?
Well, I don't know, Hassaan. Is your question is should we be buyers or sellers in that marketplace? Clearly if you'd asked the guys from Pattern 3 weeks ago, you might have got a different answer. Well, look, we are always trying to make good decisions on behalf of, I'll say all of our stakeholders, but really in respect of our shareholders as we think about the M&A market. So when we want to buy something, I think you should be asking us the question is, how did we create value through that acquisition? There is intense competition for assets. I think we have demonstrated a competency at straying a little bit from the fairway, perhaps, but finding good assets.
I think New Brunswick Gas and St. Lawrence Gas are perfect examples of being able to add quality utility operations that may not have been exactly on the fairway from some of the private equity side of things. I think it's hard to look away and wonder as we think about funding some of our growth initiatives going forward, is capital recycling something that we should consider? David Bronicheski, without giving spoilers on Investor Day, is going to give you his thoughts about how we might look at that movement. I know Rupert published a little bit of a think piece on what's happening, sort of the flow of funds into real assets. I think we just need to do the right thing. I will say, sort of in wrapping up, the assets we own are not our children.
While we love them dearly, we get it that if they need to be sold, and that's the right thing from maximizing the overall value proposition for this organization, we're going to take advantage of it. I don't know, Hassaan, if that's the kind of insight that you're looking for?
Yeah. That's great color. Just to follow up on your comment. With the recent acquisition of St. Lawrence and New Brunswick Gas, what are your near-term goals for these assets? Can I get some color on contributions?
Well, first of all, to integrate them into.
Yeah
the Liberty Utilities family. That's kind of our first and foremost goal. I think both St. Lawrence Gas and New Brunswick Gas present really unique opportunity, since they both share it, I guess it's not unique. They present the opportunity to drive substantial, I'll say, customer growth that would lead to a reduction in cost for everyone, and therefore lubricate more customer growth. New Brunswick Gas is a perfect example. You've got a utility with infrastructure that was installed during the creation of the utility that could support 70,000 customers, and there's almost just under 13,000 on there. When we announced New Brunswick Gas, we committed $5 million of, well, candidly, your money, shareholder money, as part of that acquisition process to lubricate the adoption of natural gas as a clean fuel in the province.
We're hopeful that we can get that virtuous circle going, that more customers begets more customers because everybody gets lower rates. We are all about, almost in every one of our utility acquisitions, all about, it's not just about buying utility, it's about surfacing opportunities that may exist in there. I would expect that you should see nothing less out of New Brunswick Gas and St. Lawrence Gas System.
I'll also just add on that it really does also play into our commitment to sustainability, because as you know, a large preponderance of the homes in New Brunswick are still using fuel oil to heat their homes. This is a classic example of how we can grow our business and still do good on the sustainability front. All right. That's great color. I'll get back into the queue.
Thanks, Hassaan.
The next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.
Thanks. Good morning, everyone.
Good morning, Dr. Jarvi.
Yeah. I wanted to go to the U.S. Midwest projects, and just circle back in terms of how does it change now the timing of your capital outlay, and whether or not you guys can use any of your safe harbor turbines for those projects?
Oh, nothing. Are you talking about as a result of us stepping in-
Yeah.
Nothing's changed, Mark, in terms of 2020 COD. The safe harbor turbines, and I would say, maybe just to clarify, you know we're not being forced to use our safe harbor turbines for those 600 megawatts. They're being dedicated to some of the other projects, Sugar Creek and Maverick. That through a partnership with an affiliate of Vestas, we've secured the safe harbor turbines for the three projects comprising the Midwest. I would say don't worry about the safe harbor turbines. Those relationships are continuing, notwithstanding the fact that Liberty Utilities is kind of stepping in, as in the role of developer of those assets. We're maintaining the access to those safe harbor turbines. I don't know. Was that what your question or concern was regarding that?
I'm just curious whether or not they were going to those projects. I guess, just maybe clarify whether or not you have to actually contribute capital to get those projects up, and then that just moves into rate base? Just maybe help me understand the logic of your role in funding these projects now.
I don't want to say, again, nothing's changed under the construct that we're using to build these projects. We have, in large part, already contributed, I'll call it the equity stroke that needs to support the construction financing that will be obtained, in the existing joint ventures between that affiliate and Vestas and now Liberty Utilities Co. Again, the capital needs from us haven't really changed. When those projects are finished, Empire District will be acquiring them in the exact same manner into rate base of the regulated utility. They'll, in effect, fully pay for them at that time, which will be used to repay the construction financing. The equity that's been previously invested will now be reflected in rate base. I think, Mark, from an accounting and from a rate base perspective, this is kind of a non-event, in terms of the process.
I don't know if that sort of gives you the insight and color into the process.
No, that's very helpful. I just didn't know if you guys had to contribute any additional capital in term, but if construction financing covers it, that's good to know.
Yeah. Let me just say, it does, and whatever equity we're putting into the project to support that construction financing, ultimately, as you know, it all kind of gets rolled together into the cost of the projects included in rate base. The timing of that, I'll say, continues to be late this quarter, early 2020, in terms of the contribution of that capital. Again, you shouldn't think from your model perspective of any change from a material capital needs.
Okay, understood. Thanks. Moving on to sort of the capital recycling commentary. Obviously, looking at your water utilities, they're not a huge component anymore of your rate base or net revenues for the utilities and kind of fragmented. Obviously, water utilities trade at really high P/E multiples. Is it more about getting better recognition for that inside your company? Is that something you guys are thinking to divest at? Maybe just how you think of those valuations in the context of ESG criteria.
Well, that's a great question. I think, as we have thought about capital recycling, candidly, it probably really hasn't extended to the utility business so much. You know that a dollar of rate base, independent of whether the modality is water, gas, and electric, are sort of fungible from Liberty Utilities perspective. I totally get your thesis that maybe on a sum of the parts basis, we're not getting full value for our water utilities. Man, if I could grow the water utility business, I think the organization would be well-served to do that. Zero substitution risk. Generally pretty good CapEx investment opportunities to kind of deal with the historic deterioration of the water infrastructure through pipe replacements. I think we love the water utilities.
Your commentary about sustainability is absolutely true. I'm not sure that we really see a massive distinction in terms of the ability to execute on it. David, in an answer to a previous question, obviously talked about being able to substitute dirty fuels for natural gas. It's coupled with our commitment to develop renewable natural gas. I think we're confident that we can live that sustainability purpose with every modality. To get to the heart of your question, which is, well, talk to me a little bit more about this idea of capital recycling.
I think it's hard to look away from some of the multiples that are getting paid for renewable energy assets, and say, "Should we be recycling some of that capital to help fund some of the growth that we have going on what's a core business to us?" I think, and maybe I get it, we started life as a small hydro development company, but as life has evolved over the past 30 years, it's hard to not see us at our heart as a regulated U.S. and Canada utility business. Maybe some portion of the value we've created in the renewable energy space should get recycled there. I think David, as I said, without being a spoiler for our Investor Day, is planning to give you a little bit more thought and insight into the criteria we might use for capital recycling.
You know that's not a word that we've spoken very frequently of in the past. Maybe it is a reflection of kind of the evolving demand for private money chasing some of these real assets of which we are rich with.
The other thing that I will add, specifically with the role of water utilities within our utility portfolio. They also play a maybe not so obvious role with respect to our business risk profile with the various rating agencies that we deal with. Rating agencies view water utilities-
Very, very highly. It does even factor into our ratings assessment.
Okay. Look forward to hearing more about it at Investor Day. Thanks, guys.
Thanks, Mark.
The next question comes from Christopher Turnure with JPMorgan. Please go ahead.
Good morning. It's actually Rich Sunderland on for Chris here.
Hey, Chris.
Hi, Chris.
Just circling back to the utility cost-cut commentary. I'm just curious to what extent the savings are being generated kind of into rate cases to moderate that rate inflation impact, or retained kind of for the duration of the cycle into the next rate case, following the rate case.
Yeah. I think, Chris, your question is spot on. Obviously, operating costs are to the benefit of and to the cost of customers. Depending on where that operating cost saving is occasioned, it could go away at the next rate case, or if it was occasioned further up at the Liberty Utilities level, it will obviously have a much longer endurance because it will have to sort of be reflected in rate cases across the entire portfolio, which, given our cadence for rate cases, you're probably looking at four or five years. Very specifically, I can't speak to exactly where the $4.8 million that Sean might have raised, or maybe it was Nelson, raised. In any event, ultimately those go away.
What is enduring is to the extent that those operating cost savings are, I'll say, replaced in some way with the return on invested capital. That's an enduring return for us. Clearly, to the extent that if we can save some customers money but create an investment opportunity for shareholders, isn't that good?
Got it. Thank you. Similarly, just circling back to the M&A commentary, kind of separate from the capital recycling. Curious about your latest thoughts on international with Bermuda sort of close to the finish line here.
Yeah. I know you're from the Northeast, so you'll appreciate stick is still on the ice from a perspective in looking for additional opportunities. We got St. Lawrence Gas, New Brunswick Gas, and BELCO is coming close. I think we're keeping our eye open. It's not just international, but we would love to continue to add to the business. I think as you think about this business, it's hard not to really love the quality of earnings that comes off of regulated utilities and predictability, too. Eyes are open and stick's on the ice.
Got it. Thank you.
Thanks, Chris.
The next question comes from Rob Hope with Scotiabank. Please go ahead.
Morning, everyone.
Morning.
Hey.
Don't want to beat a dead horse, we want to circle back on the capital recycling on the utility side. I think the question is more broadly speaking, are you looking at your utilities in terms of capital recycling as a source of funds, or could a JV with a third party allow you to pursue some larger opportunities in North America if they do occur?
Well, I would say interesting thought. I'll say that clearly the thought of capital recycling is about optimizing returns. You know, we've got this $7.5 billion portfolio we announced last year, and as I said, without being a spoiler for Investor Day coming up in a month or two, we've kept at it, and so that's going to continue on. The question that we always ask ourselves is, are we better off selling some select or selling an interest in some select group of assets and obviating the need for new equity issuances? I know your brethren in the investment bank are cringing as I say that, but to the extent that that's the right way to maximize returns.
The idea, this thought about creating a joint venture to create scale and maybe enhance currency when it comes to doing larger M&A, it's an interesting thesis, but I will admit that wasn't at the heart of the capital recycling commentary. The capital recycling commentary is really a reflection from our perspective of the quantum and cost of money chasing real assets in the globe today and what's the right thing for us to do, though you do present an interesting thesis.
All right. That's it for me. Thank you.
Thanks, Rob.
Thanks, Rob.
The next question comes from Ben Pham of BMO Capital Markets. Please go ahead.
Okay, thanks.
Hi, Ben.
Hey, Ben.
Hey, good morning. With your comments, stick on the ice. Your positive tone on water. Do you guys look at the Jacksonville utility in terms of their initial bids?
We have, though, I'll say without telling stories there to school. You know it's quite the acquisition, and there's a complexity associated because it is both electric and water. I think where your question is going is that does the water assets there feel more bite-sized and suited for us? The answer is, they certainly would. I don't think the electric utility would be significantly de-weighting, as you know, to our portfolio. I think your intuition to ask about the water is probably spot on, that those assets are something that either through some concession or partnership arrangement, some management agreement, that might be something that we're interested in. We're going to have to see how that whole process sorts itself out.
Okay. All right. Thanks. Then with your recent equity offering, do you think that your balance sheet is under-levered right now?
I wouldn't say under-levered. I guess it arguably depends on your perspective when you can say under-levered. We like to have some elbow room between where we're at from a credit metric perspective and our downgrade threshold. We think we have that elbow room today. Some of it's obviously timing. We're comfortable upsizing our equity offering. It moved forward a little bit of equity for some of the things that we've got going next year. We'll soon be closing BELCO. We've just closed St. Lawrence Gas and New Brunswick Gas. Those acquisitions aren't even reflected in the Q3 because they happened subsequent to the quarter. I'd say we're quite comfortable with where we stand from a leverage perspective.
It gives us the flexibility that we need, so that if we were to make another announcement on some other thing, we're comfortable the market would see that we've got the elbow room to take that on.
Okay. That's great. Congrats on the U.S. offering.
Great. Thanks.
Thanks.
Once again, if you have a question, please press star then one now. The next question comes from Nelson Ng with RBC Capital Markets. Please go ahead.
Great. Thanks. I just had a quick question on the August rate case filing for Empire, requesting the, I think, $26 million rate increase.
Yeah.
Can you just give a bit more color on the rate request? Is this like normal course or is it related in any way to the Greening the Fleet?
No. It's just part of the, I'll say the normal cadence. I want to say in some respects, we were obligated to file the rate case in accordance with the previously agreed cadence with the Missouri Commission. As we think about recovery on the Greening the Fleet, that's obviously, I'll say, next year, the year after that we're planning to do that. No, Nelson. That rate case really just reflects, I'll say a collection of a bunch of issues that just needed to get trued up. I get it. It's $26 million, so it's not related to Greening the Fleet.
Okay. Just on the Greening the Fleet, there is supposed to be some savings longer term. Will you be required to have another filing in early 2021, or will it be another, call it three years or so from now?
Oh, no. I think, no. We are going to step out of that normal cadence for the Greening the Fleet, because you can imagine the way that process works is we put the wind assets into rate base. The savings to customers is in the cost of purchased power. We need a rate case to affect that shift in customer costs, albeit we expect them to be lower in the aggregate than they were to the extent you're buying energy from Asbury, as an example. No, there will be an extraordinary cadence to the rate cases in respect of the Greening the Fleet. Our regulatory team are on it, and I don't think the commission would be surprised with those statements.
Okay. Thanks, Ian.
Thanks, Nelson.
This concludes the question and answer session. I would now like to turn the conference back over to the presenters for any closing remarks.
Great. Well, it looks like we got done before you guys all have to rush off to your 11:00 A.M. earnings calls. With no further ado, I'll turn things over to Alison for her riveting disclaimer on forward-looking information. Alison?
Thanks, Ian. Our discussion during the call included forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during the call speaks only as of the date of the 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 financial measures, including but not limited to adjusted net earnings, adjusted EBITDA, adjusted funds from operations, and adjusted earnings per share. There is no standardized measure of such non-GAAP financial measures, and consequently, APUC's method of calculating these measures may differ from methods used by other companies and therefore, they may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-GAAP financial measures, including a reconciliation of the non-GAAP measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR in the United States, and available on our website.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.