Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power and Utilities Corp. 2019 4th Quarter and Full Year Analyst and Investor Earnings Call. As a reminder, all participants are in listen only mode and the conference is being recorded.
I would now like to turn the conference over to Christopher Gerhardt, Vice Chair of Algonquin Power and Utilities Corp. Please go ahead, Mr. Jarrett.
Great. Thanks. Good morning, everyone, and thank you for joining us on our 2019 Q4 and full year earnings results conference call. As mentioned, my name is Chris Jarrett. I'm the Vice Chair of Algonquin Power and Utilities Corp.
And joining me in the call today are Ian Robertson, our Chief Executive Officer and David Bronachevsky, our Chief Financial Officer. We have a supplemental webcast presentation that accompanies the call and this can be accessed from our website at algonquinpowerandutilities.com. Our audited financial statements and management discussion and analysis are also available on the website and also on SEDAR and EDGAR. Before continuing the call, we would like to remind you that our discussion during the call will include certain forward looking information and may also refer to certain non GAAP financial measures. And at the end of the call, Amelia from our Investor Relations team will read a not so brief legal notice in respect of both forward looking information and non GAAP financial measures.
We've had what we believe to be a pretty good Q4 full year. And so today, Ian is going to start with the strategic highlights, followed by David summarizing the financial highlights. We'll then turn things back to Ian and conclude the prepared portion of the call with an overview of our strategic growth plan for 2020 and beyond. And then as usual, we'll open up the lines for questions. Also as usual, we'll ask you to restrict your questions to a maximum of 2 and then re queue if you have additional questions to allow others the opportunity to participate.
Now with that, I'll turn things over to Ian and he'll discuss the main focus areas of 2019.
Thanks, Chris, and good morning to everyone who's able to join us. We're coming to you from our offices here in Oakville on a sunny but cold morning. I always welcome the opportunity on the last quarterly call of the year to reflect on the progress we made over the course of the previous year with a number of corporate achievements supporting a solid year of financial performance. We will then spend some time looking in a bit more detail at our plans for the current year and longer term as our team works on successful execution against our recently updated 5 year strategic plan. Before I begin my formal remarks, I wanted to extend a warm welcome to Arun Banskoda, who has now been with us for 3 weeks.
Arun brings to APAC a unique combination of experience in renewable energy development, proven financial acumen and a results driven leadership style. I'm sure you'll share our confidence that Arun's background makes him a great addition to Algonquin's executive leadership team. Over the coming year, I will be working closely with Arun to help him expand his knowledge of our business in the newly created role as President of our company to provide the opportunity for Arun to fully engage in our business and the culture which has so distinguished this company making it the fastest growing utility in North America. The coming months, I hope you'll all have the opportunity to meet and build a relationship with Arun. I trust everyone takes comfort from financial results that confirm it's business as usual as we continue to deliver solid performance and execute on our $9,000,000,000 pipeline of growth.
I'm personally enthused by the prospect when the time is right for me to transition away from the direct management role of CEO of being able to continue to contribute to APAC's success. We've been cooperating on the creation of independent investment platform to collaborate with APUC on incremental growth opportunities, which is intended to provide for a continuation of the passion forces which have driven this company's extraordinary track record. Obviously, these plans are in early stage, but the measured pace of our leadership transition will give us all time to sort things out. And lastly, after almost 14 years on the APOC rocket ship, David Bronycheski has decided to retire this coming fall. He shared that family considerations at this stage of his life have made it the right time for him to move forward towards retirement and allow our deep talent base in our finance team to step forward.
We will certainly wish David the best when he finally embarks on his well deserved retirement later this year. The strong financial program that's contributed to our success will remain in capable hands with Arthur Kasprzak assuming the role of Deputy Chief Financial Officer. Given that this is our year end earnings call, let's start with some of the highlights for 2019 and how those initiatives contributed to another year of solid financial performance. Firstly, I am pleased to report strong and stable year over year growth in our key financial metrics. Top line profit continued to grow with 2019 adjusted EBITDA of close to $840,000,000 Secondly, as we discussed at our recent Investor Day, excluding the one time impact related to U.
S. Tax reform from our 2018 EPS, 2019 EPS of $0.63 represents year over year growth of approximately 10%. The organization exited 2019 with nearly $11,000,000,000 in assets, a 16% increase over 2018 levels. We're very mindful of the important role our dividend plays in the total return expectations of our shareholders and we delivered annual dividends per share of approximately $0.55 which represents a 10% increase from the previous year. Secondly, the company completed many successful growth initiatives and achieved a number of important milestones during the year.
I'm proud to say that we completed 2 acquisitions in the past quarter. We closed the acquisition of our first Canadian utility, New Brunswick Gas together with St. Lawrence Gas in New York. Both acquisitions are expected to provide opportunities for future growth. During the quarter, we also announced an agreement for the acquisition of New York of America Water's New York jurisdictional assets.
It represents a sizable regulated water and wastewater acquisition with the addition of close to 125,000 customer connections across 7 counties in Southeastern New York. During 2019, the regulated services group successfully completed several rate reviews representing a cumulative annualized revenue increase of approximately $8,500,000 And lastly, before I turn things over to David, I wanted to highlight the positive impact that our recent utility acquisitions have had on our growing customer count, putting the March to a 1,000,000 campaign milestone squarely in our sights. As previously mentioned, the completion of our 2 recent acquisitions and the 2 acquisitions we announced in 2019, the Bermuda Electric Company and America Water's New York jurisdictional assets will bring the 1 millionth customer into view. Not that long ago, our regulated services group was 100% based in the United States and we're thrilled that these recent acquisitions have provided the company with the opportunity to expand our skill set beyond those borders and serve the utility needs of customers in Canada, the United States and soon to be Bermuda. And with that, I'll turn things over to David for a review of Q4 and
the full year financial results. David? Thanks, Ian, and good morning, everyone. As Ian mentioned earlier, in 2019, APAC has again showed its ability to grow its business in an accretive way through a stable utility and long term contracted renewable platform. We ended 2019 pretty much where we guided at Investor Day in December with an EPS of $0.63 On a consolidated basis, our Q4 results were positively impacted by solid operations at our existing facilities in addition to new utilities which came on board in the Q4 as well as our investment in Atlantica which combined to increase our Q4 adjusted EBITDA to $231,500,000 an increase of $32,600,000 over the same period last year.
On an annualized basis, we posted adjusted EBITDA for the full year 2019 of 838,600,000, an increase of 4% over the prior year. With respect to our earnings per share and our adjusted net earnings per share was $0.63 which after adjusting for the one time effects of U. S. Tax reform in 2018 of approximately $0.09 per share of which we spoke of at Investor Day, our adjusted net EPS has grown by just over 10%. Looking first at our regulated services group, the business unit delivered $565,400,000 in operating profit in 2019 compared to $551,600,000 in the prior year.
We saw improved contributions from our gas and water facilities as well as the contribution of New Brunswick Gas and St. Lawrence Gas, which closed in the Q4 and helped to offset lower results from our electric utilities. In addition, the regulated services group earned $6,000,000 related to the development of our San Antonio water system project or SAWS as we like to call it, which is being jointly developed with 3rd parties. This is consistent with our expectation that for jointly developed projects, we will earn fees consistent with our contributions to the project through the development process. Going forward, we expect in 2020 to earn approximately $2,500,000 from SAWS.
On a year over year basis, our Renewable Energy Group delivered strong results in 2019, posting $328,500,000 of operating profit compared to $303,600,000 in 2018. The increase of adjusted EBITDA is related to our investment at Atlantica as well as increased production from our newer wind and solar facilities. The final topic I'd like to cover off relates to our capital structure and the steps we took in 2019 to strengthen our balance sheet. As you are aware, APAC targets a BBB flat capital structure which we believe is optimal from a cost of capital perspective. In January of last year, we were quite proud of our green bond offering, pricing a CAD300 million 10 year senior unsecured bond at an attractive 4.6 percent interest rate.
This is a key element of our continual commitment to sustainability with the proceeds from the bonds used for sustainable purposes. In May of 2019, we issued $350,000,000 of 60 year fixed to floating 6.2 percent subordinated notes. Concurrent with the offering, we entered into a cross currency swap to convert the U. S. Dollar denominated coupon and principal payments from the offering into Canadian dollars, resulting in an effective interest rate of approximately 5.96%.
This shows the power and efficiency of being able to be opportunistic on either side of the border with respect to our financings. I would also point out that the notes also provide us with additional equity credit to our rating agencies. In October, we issued 354,400,000 of common equity through our inaugural US marketed equity offering which was 3 times oversubscribed. It increased our US shareholder base with new long only investors and improved the liquidity of our shares trading on the NYSE. Finally, earlier this month with our new bond platform here in Canada, Liberty Utilities Canada, we issued a 30 year CAD200 1,000,000 senior unsecured debentures at an interest rate of 3.315 percent.
This is the longest duration bond we've issued and the lowest coupon we've ever issued. This offering provides us with a strong debt platform in which to grow our utility base in Canada. The proceeds were used to partially finance the acquisition of New Brunswick Gas. Before we turn things back over to Ian, I'd like to touch briefly on our earnings guidance that we put out at Investor Day last December and reiterate that we continue to target our adjusted net earnings per share for 2020 to be in the range of $0.68 to $0.70 With that, I'll turn things back over to Iain. Thanks, David.
Before we open up the lines for our question and answer period, I wanted to spend a couple of minutes speaking about some of the growth initiatives we're pursuing in the context of our 5 year strategic plan. At our annual Investor Morning typically held in early December, our leadership team meets with investors and analysts, many of whom are likely on the call today to discuss our current operations and our plans for the future. While I know quite a few of you will feel like you just heard this from us in December. In our view, a positive story bears repeating. Our updated 5 year capital investment program projects $9,200,000,000 to be spent across our 2 business groups with the emphasis on our regulated services team over the coming 5 years.
On the non regulated side of the business, construction is proceeding in earnest on close to 8 50 megawatts of wind and solar projects. We're pleased that execution on our development pipeline will preserve our attractive average PPA line. On the regulated services side, following receipt of the final regulatory approvals last year, construction is now underway on all three projects comprising the 600 megawatts of new wind in the Midwest. These wind farms are expected to be completed by the end of 2020 and will contribute to earnings next year. Perhaps a couple of comments on coronavirus are in order.
We are obviously taking all appropriate precautions for the health and well-being of our employees and customers, including managing the travel requirement for our team. With respect to our renewable energy projects, both regulated and non regulated, these projects are generally located in the heartland of the continental United States and as such do not appear to be immediately exposed to coronavirus considerations. Having said that, we're actively monitoring the potential impact health protection measures might have on the global renewable energy supply chain. But based on our investigations of the current situation, we remain confident that our projects will be completed generally in accordance with the planned schedules. With respect to our 2 newest utility acquisitions, Bermuda Electric Company and American Water's New York jurisdictional assets, I'd like to turn things over to Chris Gerhardt for some additional color.
Chris?
Yes. Thanks, Ian. So just on those, with respect to Bermuda, people may have noticed that the timeframe for the regulatory approval was extended by the government to October 4. From our perspective, I don't think we would read too much into that. We understand that the date was somewhat arbitrarily to be 1 year from the date of the original application.
And while the timeframe was originally format, the government always had that ability to extend this date. And while this is new territory for the Bermuda regulator, we don't expect it will actually take that long, but that of course will be up to the government.
Just a little bit
more on Bermuda, in the last little while, we have had some great dialogue with the government and we are as excited as ever about the opportunity and the benefits of the transaction for the country. For example, we have committed $300,000,000 of investment into renewables, which is totally aligned and accelerates Bermuda's objective of reaching 85% renewable. The sale of Ascendant will also inject about $200,000,000 into the Bermuda economy. And we've also announced something that we call our 5 plus 5 plan. And that consists of 2 components.
The first five is we've identified operational savings of about $5,000,000 per year with no company initiated job cuts, which will reduce rates for customers. And the second component of the 5+5 plan is the investment in a sustainable Bermuda foundation of $5,000,000 And this will promote green energy in Bermuda and is totally aligned with our own sustainability objective. So just in summary, I'd say we are as excited as ever and we are looking forward to the collaboration with the government and the people of Bermuda. With respect to American Water, the story is a little bit shorter. The application is being submitted today, and we've had some good discussions while socializing the application with the state senators and the assembly men and women.
We expect this transaction will close sometime in 2021. Thanks, Chris.
And finally, at the end of 2019, we had approximately $7,000,000 in pending rate reviews within our regulated services group. Organic rate based capital expenditures are primarily related to the maintenance and expansion of existing assets to improve quality and efficiency of service to our customers. It's a core strategy of our regulated services group to ensure that an appropriate return is earned on the rate based investments at our various utility systems. And before ending my formal remarks, I want to touch on the subject of sustainability. We believe that a commitment to sustainability is not simply something we do, but rather something we are.
It touches every one of our business strategies and operations. This past quarter saw us publishing our 2019 Sustainability Report and hosting our well attended inaugural Sustainability Morning. I'm pleased that our commitment is being recognized with Corporate Knights ranking Algonquin as the world's 10th most sustainable company on its recently released list of the 100 most sustainable corporations. We're proud to be the highest ranked Canadian company and the highest ranked electric utility on the list. Through our decarbonization initiatives and renewables growth, you can see that our fleet is turning a nice shade of green.
For instance, we're advancing our plans to shut down an operational coal plant in favor of $1,100,000,000 of new wind generation, an initiative which is good for our customers by saving the money as well as good for the planet. You can clearly see that our organization is very well positioned to be on the right side of the shift of social sentiment to renewable energy. And to wrap up my prepared comments for today, I'm proud of the team's 2019 accomplishments. I think we've proved that an agile entrepreneurial culture all rowing in the same direction is indeed a powerful force. We have an ambitious but achievable growth plan in front of us and we're committed to extending our track record of creating shareholder value in the current year and beyond.
And with that, operator, I'd like to open up the lines for questions.
Certainly. We will now begin the question and answer session. Our first question comes from Sean Steuart with TD Securities. Please go ahead.
Thanks. Good morning. Good morning, Sean.
Few questions before I get back in the queue.
You don't want to get 2. Don't you remember?
2. Ian, I gather you're still working at the details based on your prepared comments, but any context you can provide on the structure of what's envisioned for the collaborative development platform that you might establish?
Well, I think it's all based in a belief that there is an opportunity to potentially marry the characteristics of Algonquin's competitive with those of some private capital to be the winning bid, if you will, as we continue to pursue infrastructure projects, particularly internationally. And so I think it's all founded on fundamentally that we want to continue to win here and we will do what's necessary and capitalize on those opportunities to continue to be a winner. I don't know if I wish I at this 10 seconds Sean I could give you more details, but I think there is an opportunity for us to make us winners through collaboration.
Okay, understood. And maybe related to that question, any updated thoughts you can provide on asset recycling initiatives, how that might be structured and how contingent all of this is on the Atlantica Yield strategic review wrapping up hopefully sometime. How does that play into
all of this? Well, I mean I'm not sure that the 2 are related. You know at our Investor Day, we outlined that capital recycling would be part of our 5 year, and I reiterate 5 year, up $9,200,000,000 plan. And so it's not feeling like it's something that is near term that we need to realize on. We've got a capital plan for 2020, which may or may not include capital recycling.
I'm not sure that I see capital recycling as the top of the list. We spoke of things like mandatory converts and some of those other securities as an important part of our 2020 capital plan.
Okay. That helps. I'll get back in the queue. Thanks guys.
No, Sean, I'll give you one more.
I mean any comment you want to provide on the Atlantica review, they didn't provide a lot of detail on the call yesterday, but your patience with that investment at this stage?
Well, I guess in some respects, I'll say I think it's appropriate that Atlantica are the best guys to comment on Atlantica's strategic review. And so I don't think I'd have anything constructive to add to that. Obviously, we remain interested spectators to the whole thing and hopefully, as you said, it will conclude soon.
Okay. Thanks, Ian.
Thanks, Sean.
Our next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.
Yes, thanks. Good morning, everyone.
Good morning, Mark.
Just picking up on that last comment, given where Atlantica yield had moved, I mean, obviously, today is a different day and a lot of pain in the market. But in terms of asset recycling, is monetizing your interest in Atlantica yield, if that's the path that Atlantica will take it out, become more of a viable option for you guys at this stage?
Well, that's a big question. You know we never invested in Atlantica Yield as to, I'll say, a hold to sell. The thesis for Atlantica Yield was to give us instant economies of scale as we built out our international presence. It would feel a little bit like a strategic shift to sort of say now it's time to sell. And I get, look, these all of none of our assets are, I'll say, my personal children.
And so that everything has to be considered for sale. But I think we would have to look at that in the context of our international aspirations and whether that made sense going forward. I think we've spoken in the past that we like the assets that Atlantica Yield has and candidly probably like to have maximal visibility into the value proposition associated with each one of those assets. That would be our aspiration as to whether they're, I'll say, ready to our interest is on the block to be sold. I'll say at this 10 seconds, I don't think anything has changed from what we said in the past.
Okay. And then on just looking at the results, operating expense on utilities is down year over year. It looks like very good cost control. Is that a function of timing or have you guys been able to find permanent savings in the utility business across the platform?
Well, we look at the cost savings across the utility platform as kind of one of those dials that allows us to earn our regulatory return and it will vary somewhat depending on the various rate case cycles that we happen to be in. And I think for this year, it just so happened that we were in a position where we could kind of move the dial back a little bit on that and help us end the year. I think earning pretty much our full regulatory return
on an average basis across all of the utilities. So it really is just one more dial that we'll use over time. And Mark, just to kind of add a couple of words to that, you know that the fundamental basis of an OpEx for CapEx or CapEx for OpEx shift is replacing the cost that customers incur from an operating of view with general rates include for rate base. And so I guess the question if you might be asking is, do we see a continued drop in operating costs? The answer is certainly yes as we continue to invest in CapEx, which is intended to reduce those operating costs and that's how we are of the belief that we can keep customer rates constant while doing good things for our customers and in terms of enhanced reliability and our shareholders in terms of enhanced investments.
Just to clarify, a bit of both from the OpEx to CapEx, but maybe a bit more, like what Dave was saying was managing regulatory lag this year in terms of how you're allocating dollars?
It's really both and that's how we look at it. I mean, I think over the next couple of years, you're actually going to that play out even more as we look to decommission the coal plant, build out the wind. I mean, the long term thesis of that obviously is to lower customer rates. Now that will be in the commodity cost line, which is a little bit higher up on the income statement, but you'll see it play out there over the next couple of years as well.
Right. Okay. Thanks.
Thanks, Mark.
Our next question comes from Nelson Ng with RBC Capital Markets. Please go ahead.
Great, thanks. And congrats on the good quarter and also with the leadership transition plan.
Thanks, Justin.
The first question relates to the Empire's wind projects. You guys mentioned that 2 of the 3 projects have started construction and the third one will start construction this quarter.
Is it the small one
or the big one that has yet to start construction like the 150 or the 300 megawatts?
I'm just wondering under way now. They're now, I'll say, all under way. There was one final permit that was coming in on Kings Point. It was received. And so they're digging holes as we speak.
Okay. No, I just want
to ask about timing risk and whether you see any issues given that there is going to be a glut of wind projects reaching completion by the end of this year?
Well, let me say that the time for that worry, I'll say, was certainly before now and it was one that we focused on. And it's about getting quality contractors and locking up cranes and all the things that you need in order for these projects to come in on time. So the good news is, while we are certainly mindful of December 31, 2020, I think we've taken all the necessary steps to make sure that, I'll say the contractual infrastructure is there to make it happen. Clearly, and as you heard in my prepared remarks, obviously, we are also mindful of shocks to the supply chain infrastructure from coronavirus. We're obviously mindful of those things.
But I think the machine is robust and we are looking forward to getting these projects all done on time.
Okay, good. And then the second item might be for David. On the utility side, there was, I think, about $10,000,000 of other income included in EBITDA. I'm just wondering whether that relates to non regulated services. And I think in previous years you provided some services to the military, US military or army?
Yes. I mean, you've touched on it exactly. So, in the other income category that you're talking it really falls into, I'll say, 3 buckets. 1, I touched on in my prepared remarks relates to the fees earned from our SAWS joint development project that we're working on and we'll continue to earn on that in the coming years. Next year, it will probably be about $2,500,000 as an example.
But yes, we also provide utility services to Fort Benning and so that amounted to a few $1,000,000 last year as well. Then the final bucket that falls into that is AFUDC, which as you know is a utility construct that allows us to capitalize to the project the regulated equity thickness as we're building out the construction project. So it really falls into those 3 buckets.
Okay, got it. I'll leave it there and get back in the queue.
Thanks, Nelson.
Our next question comes from Rupert Merer with National Bank. Please go ahead.
Good morning, everyone.
Hey, Rupert.
I'd like to ask about your view on bond yields. I'm watching the U. S. 10 year reach record lows today. Obviously, it could be good for refinancing, could be supportive of equity values.
Can you give an update on your view for your larger rate cases? And do you see any potential impact for the low bond yields to lower ROEs in your upcoming rate cases?
Well, let me I'll start off by just talking about the impact that we see on the debt and I'll transition it over to Ian to talk about our views on future ROEs. With respect to debt, I mean, where you're really seeing that benefit, I mean, we just issued a 30 year bond here in Canada for our New Brunswick gas utility. And in New Brunswick, I mean, this is like fantastic news because for that utility, it really is all about driving down operating costs for customers and making gas more competitive in that market. And so that's going to be saving that utility about $2,000,000 a year, which you can do the quick math when it's spread out over 12,000 customers works out to almost $10 to $15 per month per customer. I mean, that's a tremendous benefit that we're able to do there.
And certainly, we are as far as our existing debt goes, I mean, most of our debt, as you know, is long term fixed. So, we have limited ability to, I'll say, refinance that without some horrendous make whole. So that's likely not in the cards for us. But we will be looking at being able to come to market whenever we see the opportunity, because you're right. I mean, I think we absolutely do want to take advantage of long term rates and we look to go for as long a tenor as possible given where they are right now.
So with that, I'll pass it over to Ian to just discuss ROEs. Sure.
And Rupert, as I'll say, you know that one thinks of ROEs as a long term proxy for equity returns in the capital markets. But many times people look at utility ROEs in the context of a premium over, I'll say, the U. S. 10 year treasury. Historically, I'll say that premium has been banded at the top end at about 700 basis points.
Well, as the U. S. Treasury continues to fall and let's even say weirdly imagine if it went negative, I don't think that I think that would obviously cause people to think about their Cap M models for ROEs. And so I'll say we keep our eye on it. As David said though, in the short term, our interest costs that we bring to bear in our rate case are kind of driven by the existing portfolio of bonds that are issued within Liberty Utilities.
And so I'm not sure that our ROEs would be immediately affected, but I think your consideration is a fair one. You have to be thinking about those equity returns in the kind of the kind of the way this thing unfolds.
Our next question comes from Rob Hope with Scotiabank. Please go ahead.
Initial question just in terms of the collaborative investment platform. You did mention that you could bring private capital to bear on international opportunities. Any sense on how this platform could interplay with Aegis or Atlantica, given that potentially they could be going after similar investments?
Well, Wendy, okay, let's start by saying that in our world, our international investment initiative was characterized by 2 specific tactics. The first was to acquire an interest in Atlantica Yield as a holdco for projects that got developed internationally. And the second tactic was the creation of a development group jointly with Abengoa to pursue the origination, development and construction of those initiatives. And I think I don't think it comes as a shock. We've spoken on earnings calls in the past that Abengoa isn't exactly we found we're able to take advantage of some incremental private capital to collaborate in Abengoa's stead in terms of AAGES, what a great opportunity to continue to drive that growth going forward.
And so I'll start by maybe I'm not sure that this has really candidly anything to do with Atlantica one way or the other. Atlantica is what it is. As I've mentioned in answer to Sean's question, we like the assets that happen to exist in it with Atlantica right now. I'm not sure though it really plays one way or the other in terms of growth going forward. Atlantica unto itself and maybe just to touch at the very end, Atlantica unto itself is for all intents and purposes the holdco, it's not a developer, it's not a development capable platform.
And candidly, that's not what we invested in it for. So I don't know, Rob, that's kind of the additional color you're looking for.
Yes, that's great. Thank you. And then maybe for David, SaaS looks like it had a dividend of $6,000,000 in 2019. When we're looking at the 2020 guidance, any outsized kind of contributions from development platforms that you didn't highlight, so aside from the $2,500,000 from SaaS?
That's all that we're seeing right now, but obviously we're a pretty active company. So I mean people shouldn't be surprised if a new project happens to come along. There could be additional income coming from that. But at the present time, that would be what we're looking at.
All right.
Thank you.
Thanks, Rob.
Our next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
I think you're on mute, Julian.
Hey, sorry guys. I appreciate the heads up there. And thank you again for the time.
I'm sure the question was incredibly insightful, but you're going to have to repeat it.
Let me get going again here, right? Let's do it again Friday morning. So, well, first off, congrats on the succession all around here. And then maybe to that point, first easy question, how do you think about EV strategy playing into the company altogether in the future? I mean, obviously, very, very early days from a utility perspective.
That being said, you guys are want to venture off into non rate based opportunities when you see it. Is there any thought on that front given the background here?
Well, right now, our I'll say our biggest EV initiatives have been on the reg side. I mean you can imagine a dollar of rate base is fungible with every other dollar and to the extent that we can invest that rate base in infrastructure that happens to grow load that improves the economics for everybody on the system. So I'll start by saying that to date, our primary focus has been on investing in those states that allow the inclusion of EV infrastructure into rate base. And that's not everyone and you can imagine it's jurisdictionally specific. In terms of how EV infrastructure is going to, I'll say the value proposition, the revenue model outside of the regulated construct.
We're obviously keeping our eyes on this. The Edison Electric Institute has an entire electric transportation working group that we are sort of actively involved in. And I agree with you. I mean, if ultimately EVs progress the way that I'll say on the trajectory that one thinks that they are going to be, I'm not sure that the regulated construct is going to be the most effective way to do it. And if you hear in Canada organizations like Suncor are pioneering, they call it their electric highway, which is a coast to coast network of charging stations.
You hear about the same things on I-ninety five heading south from the Canadian border down to Florida. So look, we're on it. It definitely feels, Julian, like something we need to keep our attention on as an entrepreneurial organization. You hit the nail on the head where we never want to lag an 10 seconds beyond our focus in the regulated utility space.
All right. Excellent. And then, I'll keep it the 2 here. Second question going back to some of the strategic private capital you've talked about at Analyst Day last in December here. Can you discuss again what the purpose is?
Because I hear with respect to some of the various commentary in the call thus far, but just to be very specific about this. I thought the private capital piece was to address otherwise ordinary common equity needs that you might otherwise have here, as well as try to show the value underlying the renewables business and the renewable platform. But talk to us broadly around the thought process behind sourcing the private capital. What assets might be, at least as you see today, in the vein of meriting sell down or however you want to frame it. But again, I want to come back to this private capital conversation.
Sure. Well,
I'm actually not sure it's a new theme. The investment in internationally, our international investment is predicated to achieve the, I'll say, the accounting treatment we look for as having a party on the other side of owning, I'll call it a 50% interest in those international assets. As you know, they are generally funded using limited recourse project debt and perhaps in quantities that exceed what we might do directly under our in North America under our current credit metrics. And so I think the thesis was to have a strong off balance sheet partner in that venture going forward. I'll say that as we think about private capital and we think about infrastructure return profiles, I think we believe that there is an opportunity to bring the character of private capital, which you can imagine might be more return focused, might be more patient, might have, I'll say, a different credit interest.
Combine that with public capital of Algonquin, which is obviously a recognized global player from a development and operations point of view, that feels like it could be a winning bid in international projects. And so if it sounds like we are further ahead than that, it's probably not correct. I mean, it's just that we do believe and since we're actively out there in the marketplace looking to win in this place, having as another tool in the Algonquin toolbox a credit worthy partner for international development that brings an appetite with low cost capital. That was always the premise. And so I think we've mentioned at our Investor Day, we're committed to making that a reality.
And isn't it a great win win for us both.
But to clarify, it's more of a strategic growth initiative rather than necessarily filing someone for the lower cost of capital in order to avoid common equity or otherwise?
Yes, yes. No, no, no. You shouldn't see this as a strategic shift from Algonquin's point of view. It isn't about substituting, I'll call it, their capital for our capital. It never was from an international point of view.
We just wanted to make sure that whoever our partner is internationally wasn't hamstringing our development initiative. And you know that we've sort of made historic comments that historically Atlantica's access to capital in the public capital market. I'm not sure brings the exact same character private capital from an institutional name your favorite pension fund brings. They have their own set of constraints, their own depth of access to capital that public markets impose. So no, you shouldn't think of this as, first of all, as any strategic shift, you should think of it as a continued execution on
the strategy of
making sure that we have a investment aspirations.
Excellent. Thank you guys for the time. I'll keep myself honest here.
Thanks, Julien. All right, Julien. Thanks very much.
Our next question comes from David Quezada with Raymond James. Please go ahead.
Thanks. Good morning, everyone.
Good morning, David.
A question here just on the regulated side of your business, thinking about your you've made a lot of progress with your rate making mechanisms, some of those key features and assuming things go to plan with Empire and Granite State, you'll have revenue assurance accelerated recovery and post test year recovery at most of your major utilities. I'm wondering if you see any other kind of rate making mechanisms that you could still add or have you gotten, call it, the low hanging fruit from a regulatory lag perspective here?
Well, it's interesting. Well, first of all, this is a never ending journey because every time we add a new jurisdiction, AKA New York or New Brunswick, we're always going to be advocating for regulatory mechanisms that don't just reduce risk for us, they reduce risk for customers too. And so I think what you've seen and if you've followed us and historically look back at the progression of those regulatory mechanisms, David, I think we've been pleased that we've continued to fill out that chart at every year at our Investor Day over time. Now there are jurisdictions that we are continuing to agitate and advocate for those mechanisms. I'd say we're thrilled that Missouri has adopted them.
New Hampshire, those are all underway. But every time we add a new jurisdiction, we're obviously going to be advocating for those. So I think it's not and it's not just in the utilities' best interest, it's in the customers' best interest too. And I think that's why you're seeing states adopt these constructive regulatory mechanisms such as trackers and weather normalization.
Okay, great. Thank you. That's good color. And then just one other one, I guess, more generally across your utility footprint, have you had any recent, I guess, IRP type discussions with the regulators and any recent thoughts on how storage and renewables could fit in there going forward?
Well, I said, I know you're aware that in Bermuda, there is a very active IRP discussion going on that where the government is kind of tolerated 85% renewables. We actually think the number can be definitely higher than that. We are in regulatory planning strategy work in California literally as we speak this week on our California 100, this idea of bringing solar and energy storage to bear to meet California's objective of having 100% renewables. So that is definitely a theme. I don't think we're done quote greening the fleet yet, David, that we've got a number of initiatives underway with the whole idea of bringing low cost renewables to reduce costs for customers going forward.
Our next question comes from Neil Kelton with Wells Fargo. Please go ahead.
Hi, guys. Thanks for taking my question. Hey, Neil.
Hey, Neil.
So I just wanted to follow-up on the supply chain. So it seems like things are still a little bit fluid, but just if you did have some slippage beyond the end of this year, is there an ability you think to go to the IRS and get an extension? And then the second question kind of along these lines is, if not, who bears the risk, especially on the regulated wind farms? Would that risk be borne by Algonquin shareholders or would there be some ability to go to the regulator and then sort of share it with customers?
Well, let me start by saying is we could have
a half hour
conversation about this whole point. But I'll start by sort of saying is let's say, three lines of defense against that. The first is, as you say, while it appears sort of fluid right now. It is something we are actively on top of just given the quantum of our investment in renewable energy over the course of 2020, it's visible to the extent that kind of I'm sitting on a biweekly committee where we kind of understand what's happening from a supply chain point of view. So the vigilance is the first, I'll say strategy.
And the good news is so far, I think the supply chain appears to be holding up at least in our end. As you know, obviously, the problem isn't digging holes for turbines in Kansas and Missouri. That's underway just fine. Thanks very much. And that's moving ahead.
I think the second approach that you mentioned is that and maybe it's probably worthwhile sort of being clear is that right now the production tax credits, I'll say, don't fall off if the entire project isn't completed by December 31, 2020. Production tax credits are allocated on a turbine by turbine basis. And so to the extent, imagine if 1 out of the 400 turbines were erecting across the entire fleet got done in January, only that turbine would be, if you will, I'll say, under consideration for a discussion about the 100% PTCs if it got commissioned in January. And the last one is and I think this is where you touched on is that December 31, 2020 is really I'm going to say it's an arbitrary date. It's a date that was developed by the treasury and in terms of the regulations that gives developers comfort that if your project was done before that point in time is de facto conclusion that you did apply, I'll call it, continuous efforts to get your project complete.
But it doesn't if you didn't get it done by January by December 31, 2020, that doesn't conclude that you didn't apply continuous efforts, for which is really the standard and the test for 100% PTCs. And so we're confident that I'll say every one of our projects we have been continuing pursuing. And to the extent that there was a delay, it's hard not to think of coronavirus as being a fair argument for force majeure against those continuous efforts. And so I think we're probably a long way away from having to sort of have a conversation about whether that's a shareholder risk, is it a customer risk in the context of the regulated utilities and candidly how large the risk is. And so while we're mindful of it, I think we have confidence that we've taken all the steps to kind of manage that risk.
And I'm not trying to be hedgy here, Neil. It's just that I think the solution to this is kind of managing it right upfront rather than waiting to the end and kind of having to deal with it in the context of a problem. So I'm just saying is we are cautiously comfortable and confident in our ability to manage against the risk.
That is helpful. Thank you very much.
All right, Neal. You got another one. You paid for 2.
But that was the one I had. So I'll Okay. Thanks, Neil.
All right, Neil. Thanks, Mike.
This concludes the question and answer session. I would like to turn the conference back over to the presenters for any closing remarks.
Well, thanks everyone. Appreciate you taking the time. I see we're just coming up to the top hour and I know everybody has things to do. So we'll speak to you next quarter and God willing. And with that, stay on the line for our so brief, but still riveting disclaimer from Amelia.
Amelia?
Thanks, Ian. Our discussion during this call included certain 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 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 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, APAC'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 and A filed on SEDAR in Canada and EDGAR in the United States and available on our website. Thank you.