Thanks for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp 2020 second quarter 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 Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead.
Great. Thanks. Good morning, everyone. Thanks for joining us this morning for our 2020 second quarter earnings conference call. As mentioned, my name is Chris Jarratt. Joining me on the call today are Arun Banskota, our Chief Executive Officer, David Bronicheski, our Chief Financial Officer, and Arthur Kacprzak, our Deputy Chief Financial Officer. To accompany our earnings call today, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion analysis are also available on the website, as well as 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, including but not limited to our expectations regarding future earnings and capital expenditures, as well as potential future impacts of the COVID-19 situation. We will also refer to certain non-GAAP financial measures.
At the end of this call, Amelia from our investor relations team will read a short notice regarding both forward-looking information and non-GAAP financial measures. Please refer to our most recent MD&A filed for important information on these items. On our call this morning, Arun is going to provide the strategic achievements for Q2 2020. Arthur is going to follow with the Q2 financial results, and David will speak to our recent capital raise. We'll wrap up with Arun concluding with our strategic outlook for the business. We then open the lines for questions. As usual, I'd ask that you restrict your questions to two and then re-queue if you have any additional questions. Before I turn things over to Arun, I would like to say a few words regarding David Bronicheski, who is retiring in September after serving as Algonquin CFO for 13 years.
On behalf of all our employees and the board of directors, I would like to thank David for his many contributions. Personally, I can tell you that it's been an absolute pleasure to work with David over the past 13 years, and I wish him the best in retirement. David's contribution to this organization over this time period have been immense, including building an extremely strong finance team that will succeed him. Thank you, David. With that, I would turn things over to Arun.
Thank you, Chris. Good morning to those who've been able to join us on the call and online. As a business providing mission-critical energy and water services to our customers, we continue to perform well, both from a financial and operational standpoint as we continue to navigate through the impacts of COVID-19. Given the resiliency in our business model, the company has been able to provide uninterrupted and continued high-quality utility services since the onset of the pandemic. As expected, given the changing patterns of our customers, we have seen some moderate decreases in customer demand across some of our utilities, which have impacted our second quarter results by just over $0.01 on a per-share basis. Arthur will provide more commentary on these financial impacts.
Operations of our renewable energy generation facilities have naturally supported social distancing, and with the lion's share of our business under long-term contracts with creditworthy counterparties, we have not experienced any negative COVID-19 impacts. Our major renewable energy construction projects of approximately 1,600 MW continue to be considered essential infrastructure in the jurisdictions in which they are located, and therefore, construction has been proceeding despite the COVID-19 pandemic. At all of these sites, the anticipated timing for the projects to be placed in service has not been materially impacted by COVID-19 to date. I'm pleased to report that the Continuity Safe Harbor deadline for U.S. federal production tax credits has been extended by one year, which provides more flexibility for our U.S. wind projects currently under construction to qualify for the maximum PTC.
Overall, I'm pleased with the progress we've made so far this year, and I'm confident we will continue this into the second half of the year. Since joining the organization in February, I have been focusing my efforts on three pillars: operational excellence, growth, and environmental social governance, ESG. I would like to spend a bit of time going over each pillar. Firstly, on operational excellence, which is all about having a laser focus on improving our day-to-day service delivery in all areas. To do this well takes real organizational agility. Our response to COVID-19 has been a great example of how our organization and our frontline workers were able to pivot without missing a beat in delivering essential services for our customers. At Algonquin, safety is more than a priority.
It is part of how we operate, and despite our industry-leading performance, we are always looking for ways to improve. I'm pleased to share that our safety culture was recently recognized and awarded by the National Safety Council in our central region for working 2 million employee hours without injury. An even greater achievement when you take into account the referenced timeframe includes operating under COVID-19 times. Customer focus has to be at the heart of any operational excellence strategy. Over the past two years, we have increased our JD Power results by 48 points as we strive towards top quartile. We continue to listen and act upon our customers' needs.
Specifically, as part of our grid modernization efforts, we have now installed over 13,000 electric meters in the first few weeks of our advanced metering project in Missouri, as we continue to demonstrate the customer benefits and receive regulatory support for our smart meter deployment. We have progressed well on our Customer First program and recently completed the global design phase and are on schedule to launch first in Massachusetts. Second, Algonquin has a strong history of growth, and I am committed to continuing this growth trajectory and add value to our customers and shareholders. As I look forward at the changing energy market, I believe that the Commercial and Industrial, C&I business segment will represent an enormous channel for growth. Today, it accounts for the majority of energy consumption. In fact, more than transport and residential commercial combined.
The vast majority of industrial consumption is fossil fuels, petroleum, coal, and natural gas. Commercial and industrial businesses will want to continue to decarbonize in the coming years, and I'm confident they will become much larger consumers of renewable energy. That is why I am particularly excited by our recently announced four-year framework agreement with Chevron, seeking to co-develop more than 500 MW of renewable power projects to provide electricity to their operations. This partnership unites Algonquin's technical and operations renewable power expertise with Chevron's scale, land, and local knowledge to enable faster, more cost-effective renewable power solutions. This is exactly the type of growth opportunity that gets me excited about the prospects for this sector, and our collaboration with Chevron is proof of concept. We can create shareholder value for Algonquin by helping customers decarbonize. Finally on ESG, environment sustainability governance.
We remain firmly committed to sustainability through the inclusion of environmental, social, and governance values in our daily operations and business planning activities. There has been much focus on the E or environmental, including the closing of our Asbury coal plant in March, which has reduced our greenhouse gas emissions by approximately 1 million metric tons of carbon dioxide. I wanted to provide some commentary on the S, social factors, and G, governance factors as well. In terms of social initiatives, one of our key sustainability goals is to achieve top quartile employee engagement. Despite COVID-19, I'm pleased to report that the organization has made great progress on our 2020 employee engagement results. Our 2020 engagement score is near North American top quartile ranking. The improvement is evidence that we're committed to putting actions in place to continue to be a top employer of choice.
As for ESG, we are focused on building effective governance practices for the long term. Our commitment to diversity and corporate governance practices can be evidenced by our continued year-over-year improvement in governance scores from independent organizations such as The Globe and Mail and ISS. Before turning the call over to Arthur, I wanted to touch upon the recent Empire District ruling in Missouri that we received last month. Under Missouri law, Senate Bill 564, electric utilities have the option to apply for a weather decoupling mechanism. In our 2019 rate review, we requested a weather decoupling mechanism to provide stable rates to customers. We believed and continue to believe that this is good to reduce volatility, not just for the utility, but also for customers.
With its reset order, the commission denied our request, and as a result of this decision, the company reevaluated other options under Missouri law and opted to elect PISA, Plant-in-Service Accounting. The PISA election is not subject to additional approval, is expected to reduce regulatory lag, smooth the rate impact of necessary investments for customers, and will remain in place through 2023. Later on this call, I will provide an update with respect to our major capital projects. I'll pass it over to Arthur for a review of our Q2 2020 financial results. Arthur?
Thanks, good morning, everyone. I'm pleased to participate in my first quarterly earnings call with the investor community, and I look forward to meeting with all of you in person in the months ahead as these COVID-19 restrictions start to ease. In the second quarter of 2020, our adjusted EBITDA came in below our expectations at $176.3 million, which is down approximately 7% from the $190 million we reported in the previous year. The Regulated Services Group delivered $112.8 million in operating profit in the current quarter. This compares to $109.5 million in the same quarter last year. The increase is primarily due to the addition of New Brunswick Gas and St. Lawrence Gas, which closed late last year, the implementation of new rates, as well as operating cost savings realized during the quarter.
This has been partially offset by decreased customer demand due to weather and the impacts from COVID-19. We estimate the effects of the pandemic on the Group's second quarter divisional operating profit to be approximately $9.6 million. The Renewable Energy Group reported Q2 divisional operating profit of $82.6 million, as compared to $93.4 million in 2019. The decrease is primarily related to timing of distributions received in the second quarter of last year, related to the company's investment in an affiliate of Atlantica Yield. Our Q2 adjusted net earnings per share came in at $0.09, which compares to $0.11 reported last year and was below our expectations of between $0.11 and $0.13. As Arun has mentioned, COVID-19 negatively impacted our results by just over $0.01 this quarter.
We had also anticipated that our acquisition of the Bermuda Electric Company would close early in 2020, which is now anticipated to take place later in the year. The delay in closing impacted our adjusted EPS by another $0.01. I would now like to provide a few more details on some of the impacts from the COVID-19 pandemic from a financial perspective. First, with respect to collections and accounts receivables. While the majority of our customers continue to regularly pay their utility bills, like other utilities in the U.S. and Canada, we have curtailed collection activities, including disconnections for non-payment during the pandemic. We believe that this is the right thing to do in support of our most vulnerable customers during this unprecedented time. These measures have resulted in collection delays, which have increased our over 60 days past due accounts receivable.
Although we have not experienced significant write-offs, we have increased our allowance for doubtful accounts provisions modestly. Beginning in July, we have started to resume normal collection procedures in several jurisdictions, and we expect our accounts receivable balances to normalize in the coming months. Second, as previously mentioned, the Regulated Services Group has experienced load reductions due to decreased demand resulting from COVID-19. This impacted divisional operating profit by an estimated $9.6 million as compared to the same period last year. Although future impacts to customer demand resulting from COVID-19 are uncertain, we have already seen some gradual easing and would expect that to continue in the upcoming months as the states we operate in continue to open up. Third, as discussed in our Q1 call, we began implementing cost containment strategies in response to the demand decreases caused by the pandemic and unfavorable weather.
I am pleased to report that in Q2, the company was able to achieve approximately $5 million in cost savings and expect to show similar savings in Q3 and Q4 to achieve further expense reductions of approximately $10 million in the second half of the year. Some of the reductions are occurring naturally, like lower travel expenses over the course of the year. We are also taking proactive measures to reduce operating expenses where possible, of course, without compromising on safety, security, and reliability of the services we provide to our customers. Our Regulated Services Group continues to track the incremental impacts related to COVID-19 and will be seeking recovery in all of its regulatory jurisdictions. Several jurisdictions have already approved mechanisms or accounting orders for the recording of and tracking of these incremental impacts, and others are expected to do so in the coming months.
Before turning things over to David, I'd like to touch briefly on our earnings guidance. The company reiterates its current 2020 adjusted net earnings per share guidance of between $0.65 and $0.70. This adjusted guidance is based on certain assumptions, which are more fully described in our Q2 2020 MD&A. With that, I will turn it over to David to talk about some of our recent financing activity. David?
Thanks, Arthur, and good morning, everyone. As everyone is acutely aware, COVID-19 has changed a lot of things in North America and around the world, including creating unprecedented uncertainty into the public capital markets. This coupled with Algonquin's largest capital program in its history in 2020, our treasury team felt it was prudent to be proactive in the execution of its funding program. Given the risks and uncertainties that we see ahead of us, the possibility of a second wave of COVID-19, upcoming U.S. federal election, trade issues with China, and all the potential that this disruption could have on the equity capital markets, we felt that on balance, it would be prudent to solve for our equity needs for this year and put us in a position of strength for next year. We successfully accomplished this by completing an equity offering and a bought deal offered here in Canada.
This was the first broadly marketed offering that we had in Canada in three years. We were also able to issue additional equity in a concurrent private placement with an institutional investor on the same terms for total gross proceeds of $724 million. The proceeds of the offering are expected to be used to partially finance our previously announced renewable development growth projects and for general corporate purposes. In conjunction with our at-the-market equity program, or our ATM, total equity raised this year is $845 million. Following this equity offering, Algonquin is well-positioned to weather any potential future impacts from COVID-19 into 2021. I'm also pleased to report that Algonquin attained another milestone in the quarter and has been added to the S&P/TSX 60 here in Canada. This is a tremendous accomplishment for Algonquin.
This will generate additional volumes and make us more visible to investors both inside and outside of North America. Now, before I turn things back over to Arun and open the lines up for questions, I'd just like to say a few words to all of the analysts and investors on the call this morning. Today will be the last time I'll be addressing our investor community on these quarterly calls, as I will be retiring next month. For the past 13 years, I've had the honor of serving our employees, our investors, and our customers as Chief Financial Officer of Algonquin.
For 52 consecutive quarters, I've had the privilege to update everybody on the ups and downs of Algonquin's growth, and fortunately, more ups than downs, from a company taking it from a market cap of just $200 million back in 2008 to the $11 billion market cap company that it is today. Certainly a blue-chip TSX 60-listed company that spans not only North America, but also has significant investments around the globe. I might add, one that's been ranked in the top 10 as among the most sustainable companies in the world. As everyone knows, there always comes a point when you know in your heart it's time to step aside and let others take the reins. That time for me is now.
While I look forward to slowing down a bit and spending a lot more time with family, I also take a lot of comfort in knowing that you are in the very capable hands of a new generation of management. I have every confidence that Arun, Arthur, and the entire very talented executive team that Ian Robertson, Chris Jarratt, and I have put together at Algonquin can not only continue executing on our existing plan, but will also build on it with the new ideas and the new energy that inevitably comes with new leadership. With that, I'll pass things back over to Arun.
Thank you, David. Before we close out our prepared comments this morning, I want to give a quick update on our five-year strategic plan. We'll open the lines for the question and answer period. Algonquin remains committed to and reiterates our five-year, $9.2 billion capital investment program across our two business groups, which is expected to grow our asset base to nearly $17 billion by the end of 2024. The total growth thesis has not been impacted by the challenges currently being experienced due to COVID-19. Algonquin remains well-positioned both in the near and long term to continue executing on our long-term capital plan. Before wrapping up my formal remarks, I wanted to spend more time highlighting our pillar of growth, which I spoke of earlier. We remain committed to our strong track record of growth with many levers at our disposal.
In our Regulated Services Group, we have our BELCO and New York American Water acquisitions in our pipeline of capital investments. In our Renewable Energy Group, our growth continues to be focused on greenfield development as well as in the C&I space, where important long-term customers are supporting renewable growth, as we have contracts with General Mills and Kimberly-Clark for our Maverick Creek Wind facility and Facebook with Altavista Solar and our recently announced framework agreement with Chevron. In summary, our three pillars of operational excellence, growth, and ESG will be a key foundation as we continue to build the business and continue to bring long-term value to our shareholders. In fact, for one of our pillars, ESG, we plan on releasing our updated 2020 sustainability report later this fall. We remain focused on delivering capital investments that enhance value for both our customers and shareholders.
We remain firmly committed to extending our track record of creating shareholder value in the current year and beyond. Before opening up the lines for questions, I would also like to take the opportunity to acknowledge David's many contributions, which has played an integral role in Algonquin's success. On behalf of everyone we have had the privilege to know and work with you, David, thank you for your years of dedicated service and leadership and all the best as you enjoy your retirement. With that, operator, I'd like to open up the lines for questions.
Thank you. We will now begin the question and answer session. Our first question comes from Sean Steuart of TD Securities. Please go ahead.
Thank you. Good morning. Couple of questions. On Missouri, can you give us some context on the rehearing timeline and process? I guess your general thoughts on the lack of weather normalization mechanisms being approved in the decision.
Sure. Thanks, Sean. Good morning. As you know, we filed for the rehearing already for the rate of return as well as on the equity thickness. We were clearly disappointed with what we got from the commission, and we have filed for a rehearing. There is no set time period when they're going to be coming back to us, and whether or not they're going to allow for a rehearing. As you probably know, we have also filed for another rate case towards the end of the year. We have another pass at trying to do a better job in convincing the commission of our position regarding, especially the equity thickness.
Okay. Thanks for that, Arun. Question on the agreement with Chevron. Can you give us a little bit of background on how that came together and, I suppose, thoughts on similar agreements potentially with other oil majors going forward? Is that an avenue for incremental potential growth?
Yeah. It is clearly a fairly lengthy process, as you can imagine. This is something pretty important for Chevron. I assume they've talked with a number of other parties as well. We spent a considerable time and energy with them, going through their projects, how they viewed renewable energy projects, what is the kind of partnership they wanted. With all of that, through the many months of discussions, we felt good about the partnership. Both of us were very aligned in terms of what we were looking for. Chevron was looking to really minimize the levelized cost of energy. With the price point around both wind and solar energy, we can certainly meet those targets. It is a framework agreement, which basically lays out how the two parties will work together in the future.
We are already in discussions about making that into real projects, and we have plans to in fact start construction sometime in 2021 on the first of those projects.
Thanks for that detail. David, congratulations on a well-earned retirement and thanks for your help over the years.
Thanks, Sean.
Our next question comes from David Quezada of Raymond James. Please go ahead.
Thanks. Morning, everyone. My first question here, just on the commentary around plant and service accounting. I'm wondering if you could comment at all on the lift you expect to get from that to rate base going forward.
Well, a couple of things, right. Clearly, there is no regulatory lag in terms of PISA. I think that is an important factor for us. The other thing is also, it does smooth out the rates for our customers over the long term. It really doesn't change the capital plan or anything of the sort. Those are primarily the benefits that we see.
Okay. Fair enough. Thank you. Maybe one more just on a follow-up on the Chevron agreement. Is it too early to discuss what you might see there in terms of the PPAs for those projects? Should we assume there is something similar to contracts that we've seen signed in the U.S. recently?
Clearly, it lays out what are the roles and responsibilities of the different parties. Obviously we as a developer are sourcing the supply chain, being responsible for the financing part of things, while Chevron obviously has a local knowledge. They have their land and other facilities. It really brings the two separate knowledge bases of the two parties together. In terms of the power purchase agreements, that's going to be really very site-specific. Things like, what is the term? What is the kind of financial structure? All of these things are going to be done in the power purchase agreement. Again, both sides are convinced that what we want to do is minimize the levelized cost of energy over the long term for Chevron. That's going to be the goal of the power purchase agreements.
Excellent. Thank you for that. I'll echo Sean's comments. Congratulations, David, on a well-deserved retirement.
Thanks, David.
Our next question comes from Nelson Ng of RBC Capital Markets. Please go ahead.
Great. Thanks. Good morning, everyone. My first question relates to the reiteration of the guidance. Could you just talk about what some of the biggest risks to hitting your guidance is? I was just doing the quick math. I'm not sure if it's correct or not, but I get the sense that you need a 23% earnings improvement over the second half of 2019 to hit the low end of your guidance. I'm just wondering whether you're comfortable with that and, yeah, what are some of the risks of not hitting guidance?
Hey, Nelson, it's Arthur. I'll try to take that one. First of all, I'd say point you to the MD&A with respect to some of the assumptions that we've made with respect to our reiteration of that guidance. You can look at some of the factors. Maybe to provide a little bit of color around that. In terms of impacts from demand reductions and to COVID, we actually have been seeing quite a lot more normalization, especially with respect to our demands on our C&I customers. Demand has been normalizing over the course of Q2, and we continue to see that into Q3 as well. Other thing to point to, it's been a very hot summer, weather actually has been cooperating with us as well.
As far as we see it right now and working through the various factors, we do see ourselves still reiterating that guidance.
Okay. Got it. My second question relates to the Chevron deal. I know the initial focus is probably going to be in the U.S., but it mentions that the target geographies include Argentina, Kazakhstan, and Western Australia. Could you just talk about how, I guess, your comfort level in Argentina, Kazakhstan, and what the approach for those places would be?
As you see, Nelson, we're currently not in places like Argentina and Kazakhstan. What Chevron really wanted was a global partner. They didn't want to have a different partner for each country, so to speak. That was a reason for coming up with a framework to cover these initial facilities, and that could be even added over time. Right? Clearly our comfort level is there given the fact that Chevron is clearly the counterparty. It's going to be sited on Chevron land. They know these regions extremely well. What I see ourselves doing, even despite going to places like Kazakhstan and Argentina, is that we are really taking Chevron credit.
Okay. Got it. All right. I'll get back in the queue. David, congratulations on your retirement, and hopefully you can pick up some new hobbies.
Thanks, Nelson.
Our next question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.
Hey, good morning, team, and congratulations to everyone as well.
Good morning, Julien.
Hey, good morning. Thank you. Couple questions here if I can. Perhaps coming back to the guidance and how you're thinking about this year. You guys provided at the start of the year at your Analyst Day, admittedly pre-COVID guidance on a quarterly basis. If you added those numbers up, it would suggest, again, going back to where I think the last question was going, was a little bit of a delta. How are you thinking about the puts and takes mid-year here to get you back within the guidance range versus your previously articulated guidance? It sounds like from the commentary earlier that you have $10 million of cost reductions. What are the other moving pieces there, if you can speak to that? Also, if I can just throw this in there, your CapEx budget, you're reaffirming that.
I know Granite Bridge, I think you guys canceled that project here. How much of that CapEx was tied to that? In reaffirming, what is taking its place? Can you talk about the puts and takes in the CapEx budget as well?
Sure. Maybe just with respect to the guidance. As you know, we did provide guidance, and we did provide quarterly guidance. Last quarter we widened it as COVID-19 hit. As we kind of look at our guidance for the year, we are admittedly maybe looking at it much more annual basis. Again, factoring things as you mentioned, our operating cost savings, that we're actually well on track for achieving. As we see it, our guidance would hold.
On the capital expenditure part, Julien. Granite Bridge was in the $250 million-$300 million range. At that time, we firmly believed that that was the right solution for the customers in terms of liquefied natural gas and the storage solutions we were proposing. However, as we were developing that, one of the large customers that was on the Tennessee Gas Pipeline opted not to renew their contract. We had significant amount of long-term pipeline capacity that became available. We did what was the right thing for customers. That's obviously the right thing for us to do. However, given that there still will be system-wide requirements for upgrading the system, possibly adding storage solutions, things of the sort may still be there. Also, when we talk about a five-year plan like that, obviously we're a development company, and we have a pipeline of development projects.
There's obviously other projects that are geared towards resiliency or safety or security that we have that would fill that pipeline. That's why we feel confident to reiterate that $9.2 billion CapEx plan.
Got it. It sounds like you guys have something in mind already?
That's right.
Okay. If I can come back to this is more of a conceptual question. Obviously, dividend, kind of annualizing at $0.62 level, how are you thinking about the balance between dividend growth versus cash for growth, right? Again, obviously, you guys have been fairly proactive this year, but how are you thinking about positioning the company in terms of payout ratio in the future, et cetera? Again, this is more geared towards the new management team, if I can, and thought process, especially given the opportunities you guys have described, et cetera.
Yeah. Julien, I think at our last Investor Day, we reiterated what our dividend growth would be, and we reiterated that all the way through 2021, and committed to relook at it after that, more on a payout ratio basis.
Got it. Fair enough. Thank you guys very much. Take care, and again, congrats everyone.
Thanks, Julien.
Our next question comes from Robert Hope of Scotiabank. Please go ahead.
Morning, everyone. Congratulations, David.
Thank you.
Thank you.
I want to circle back on the Chevron deal and conceptually how you're thinking about your international strategy. You have Atlantica, you have AAGES . Are you looking to utilize a third party here so that you can keep these equity accounted for, or are you looking to consolidate them? Just want to get a little sense of how the international angle of the Chevron deal could play into your kind of sidecar entities.
Sure. Thanks, Rob. Really, we fundamentally consider ourselves to be a North American energy and water company, right? The vast majority of our business continues to be in the U.S. and Canada. This Chevron transaction was, again, like I explained earlier, a little different because they were truly looking for a global partner. Clearly, they've got facilities around the world. They've got very large facilities in the Permian Basin around Texas and New Mexico. Those are probably going to be among our first ones where we're going to be transacting around. Again, because of the fact that they wanted a global partner, we felt much more comfortable taking Chevron risk rather than international country risk in going into these different jurisdictions. Our thought process is somewhat different, perhaps.
We see ourselves going out there with a strong partner like Chevron, taking Chevron-created risk rather than all these different country risks. Fundamentally, we are a North American energy and water company.
All right. As a follow-up, you mentioned that you could see, it looks like some of the U.S. properties start construction in 2021. When you take a look at that 500 MW, how do you think it will be built out through the years, and kind of which countries do you think will be developed first?
What we have started after signing the framework agreement is exchanging information. The two teams are working very closely together. We've started receiving site-specific information from Chevron, so we're looking through those. We're analyzing them in terms of, okay, what is the right technology, solar or wind? What is the right capacity for each one of these? Really, we're in early stages of working towards a financial model there, and then the power purchase agreement. I unfortunately cannot give you more detail than that. In our discussions with Chevron, both parties want to see progress. We have talked about starting construction on some of these projects even as early as 2021. Given COVID and everything, we assume the earliest ones will be in the Permian Basin. We are looking at other projects as well.
All right. Thank you.
Thanks.
Our next question comes from Rupert Merer of National Bank. Please go ahead.
Good morning, everyone. Congratulations on your retirement, David.
Thank you.
Congratulations to Arthur too.
Thank you.
I wanted to take one more crack at the Chevron deal. With your relationship with Atlantica and with AAGES and their more international footprint, are there any conflicts with the Chevron deal, and these relationships, or any opportunities for these partners to be involved in the project?
We don't see any conflicts. There certainly could be opportunities in the future for us to work this through either AAGES or partner with Atlantica. Those remain open. The C&I strategy is very important for us, and the Chevron relationship is very important for us, and they also really wanted a one-face partner rather than having a number of other partners in the face on the other side of the table. We will be taking the lead. Again, the goal from both sides is very clear, is to minimize the levelized cost of energy, and we will do the right kinds of partnerships if need be, the right kind of financing structures as needed in order to achieve that goal for Chevron and for us.
Given the comments that you made earlier about the size of the C&I opportunity, and we see this global push towards investment in infrastructure and renewables, do you see a potential for a shift in the focus of Algonquin back more to renewable energy and maybe a little away from regulated utilities?
Well, we actually like the balance we have in terms of the 65%-70% regulated, the remainder renewable energy. We like that balance. There's a lot of cross synergies in terms of ideas and things of the sort on how either of those two business blocks could get better as well. We obviously want to maintain our BBB credit rating. There's a lot of factors around that. I don't see any major departure from what we've announced before. We also have opportunities on the regulated side. We are an acquisitive company. We've announced, obviously, BELCO and New York American Water only over the five-year horizon. You can probably rest assured that we're always in the market looking for the right transactions that meet our financial and our shareholders' financial thresholds.
Thank you. Secondly, looking at costs. Your cost-cutting initiatives, you're looking for a $10 million reduction in the second half of the year. Can you talk about where that's coming and how the admin costs fit in here? I think they were up a little bit quarter-over-quarter. Should we see that as a new normal for the admin costs, or should those be lower in the second half of the year, too?
Yeah, sure. Maybe I can start with the admin costs. The one thing I want to maybe point out on the admin costs, some of that is probably climbing. Maybe that variance seems a little bit higher than it truly is, because if we look back in the prior year, our admin costs were actually flat year-over-year. It's maybe a little bit exacerbated, the difference. When you look at the increase in the admin costs, some of the costs there maybe could be considered a little bit one time in nature, some increased professional fees, et cetera. In general, there is some increase. Just the fact that we are becoming a bigger organization and really, the admin costs are catching up.
Okay. Thanks very much. Appreciate the color.
Yeah. In terms of the Sorry, so just to answer your second part of the question. In terms of the cost savings, a lot of the cost savings are coming out quite naturally with respect to people are traveling less, less conferences, et cetera. We're also taking a pretty hard look at other items and implemented a bit of a hiring pause. To the extent that there's any non-critical positions, we're putting that on pause for a little bit. Areas like property tax and so forth. Just really scouring through the organization and looking to see where we can potentially get some cost savings. The one thing for sure is we are not compromising safety, reliability, resiliency. That's off limits.
Thank you.
Our next question comes from Mark Jarvi of CIBC Capital Markets. Please go ahead.
Great. Good morning, everyone. First, David, all the best in retirement.
Thank you.
Going to the guidance again, one of the items you talked about was closing of BELCO. Small contribution, but would be needed maybe to hit the low end. Can you just give us an update on that? Just while you're talking about closing acquisitions, status of New York Water, where I think there's been an offer to maybe let municipalities bid on assets, just maybe prospects for closing both those acquisitions in the next 12 months.
Sure. It's Chris, Mark. Maybe I'll take the first one, BELCO. Just by way of background, the application was submitted to the regulatory authority on October 4th, 2019. The public consultation process was completed on May 4th of this year. The other background component is that the government extended their guideline date to when a decision will be made to October 4th, which happened to be 12 months after the application was submitted. I guess if you just step back for a little bit, I think you'd say that a duration for a regulatory decision on a regulated utility of one year is probably not unusual. I guess we could be accused of being a little bit optimistic on our initial timing expectations.
That was probably because the regulatory approval process in Bermuda is a very new process, and that the RA's mandate for electricity is only three or four years old, and just no one had ever gone through the process. I agree, we probably were a little bit optimistic. Throw in, there's been a couple of unusual circumstances, such as the RA succession that they underwent. Every regulator, the Board of Commissioners, was changed, and something called COVID that you might have heard about. If you just look at the benefits of the transaction, which is what we keep focusing on, there's a huge benefit to the people of Bermuda, and there's a huge benefit to the customers of BELCO. We're very optimistic that this will be approved.
It's just to us, even in the times that we're in, that this represents so many benefits to all stakeholders.
Mark, good morning. On New York American Water, as you know, we filed a joint petition back in February with the New York PSC. Based on what we've recently seen on the revised procedural schedule, we are expecting to have evidentiary hearings beginning in mid-December, and we're expecting the transaction to close sometime in 2021.
Is your view of this opportunity for these municipal bids to come in and some of that participation, is that going to extend the process? How confident are you that ultimately PSC sees Algonquin as the best owners of this asset?
In fact, that was what extended the process. There are two towns that have served approximately 10,000 customers out of a total of 125,000 customers that expressed interest. We support the New York PSC doing a fulsome review and looking at different options as well. We remain confident that we will be able to close on this transaction sometime in 2021.
My second area for a question was just around simplicity. The last year or so, management's talked about trying to simplify and some of the financial complexity. Maybe, Arun, just with you coming in, fresh perspective, is there anything low-hanging fruit that you'd like accomplished in the next couple of quarters in terms of simplification?
Sure. There's a number of areas, as you well know, that brings in complexity. Obviously, we'd like to simplify the story, more so around AAGES, obviously. Long-term, we'd like to find a better way to work, perhaps with Atlantica as well. Clearly there's opportunities like that, and we are right now going through a fulsome review of all of the different opportunities. Again, we clearly want to retain our credit metrics. We probably want to gain more upside on the FFO-to-debt ratio, probably give us some more room. Probably have a balance sheet that is flexible enough that we can do more transactions in the future, because that is something we traditionally have been very good at uncovering value that's out there. We'd like to be always prepared for that optionality.
Okay. Thanks for the answers. Appreciate it.
Thank you.
Our next question comes from Ben Pham of BMO. Please go ahead.
Thanks. Good morning. I had a question on your funding plan now with the equity that you've done. You've basically reiterated the $9.2 billion. You've done some equity more recently. I think you mentioned about half of that CapEx is going to be funded by debt and FFO. I was wondering maybe you can update us on what's the funding breakout going forward the next 4 years in terms of preferred shares, equity, DRIP, asset sales, all the options you're looking at.
Sure. I'll try to address that one. As you know, we did have our equity raise. We tried to get ahead of our equity needs this year. I think we were taking care of certainly 2020 and into 2021. As we look forward with respect to a funding plan for the remaining CapEx, in the future, we've talked about certainly mandatory converts. It's a product that we still like quite a lot because it matches the earnings profile with the cash flows of the investments that we are making. Mandatory converts are definitely on the table for us in the future. Otherwise, the funding plan kind of remains as is with debt and equity and free cash flow.
The ATM, I know you have it not in your budget for second half, but is it really a reassessment next year, or is it the base plan if the ATM does come back on?
Yeah, no, I think we'll reassess the ATM early next year. I think this year we've shut down the ATM. We really are done the equity for this year. Next year we'll take a fresh look at it.
Okay. Maybe I can go back to Missouri a bit more. It's just a bunch of moving parts and MD&A. Basically you had applied for $22 million of revenue increases. You got one. You're obviously disappointed. You're going to go back and try to get more. In the meantime, you've exercised plant in service. That's basically the through depreciation, that half thing is. Is the thought process that you spend CapEx each year now the next couple of years of deferral period, and you can recover that CapEx right away and make up for some of that revenue you didn't get approved for and come 2023, your rate base effectively is rebased automatically. Is that the way that the bill was meant to work?
Yeah. Primarily it is around reducing regulatory lag, right? That is the primary attraction for us, frankly. We had wanted to do weather decoupling because we thought it is good for the customers and for the utility not to see these large variations due to weather. When that did not happen, we opted for PISA. As you probably know, the other two investor-owned utilities in Missouri have also opted for PISA earlier. We're in good company from that perspective. We're primarily seeing the benefit of reducing the regulatory lag and smoothening out the cost for our customer base.
Okay, it's not only just rate base, it's also the income statement, too, as well, like the cost structure and whatnot.
That's correct.
Okay. All right, thanks very much.
Thanks.
Our next question comes from Stephen Byrd of Morgan Stanley. Please go ahead.
Hi, good morning.
Good morning, Stephen.
David, congratulations on a very successful career. I wish you all the best in retirement. I hope you have many happy years in retirement.
Thank you, Stephen.
A lot's been discussed. I wanted to maybe step back and just talk about the U.S. election. In the event of a Democratic sweep, I guess I'm thinking about both sort of pro-renewable policies like tax credit extensions, carbon regulation, but also thinking about the potential increase in the corporate tax rate. I wondered if you could just maybe at a high level, give your thoughts on the implications for Algonquin in the event of a Democratic sweep.
Sure. Maybe I can start with the tax rate, because that has been getting quite a lot of press. Joe Biden is looking at, on this ticket proposing an increase in the tax rate from 21% to the 28%. He's also looking at some minimum tax increases. Kind of as we think about it's almost a reversal of 2018. When the rates came down, it was basically EPS neutral for us on the utility side and slightly cash flow negative. On the non-reg side, it was slightly EPS positive. You can kind of almost think about it as a direct reversal of that. In reality, there's a lot of things to be sorted out. It's difficult to tell. One thing, for example, is how does this new minimum tax interact with the BEAT? Does the BEAT get repealed? So forth.
We'll be watching it closely, but all in all, you can kind of think about it as a reversal of what happened last time. Yeah.
In terms of the overall environment, we've managed to do very well even under an administration that may not perhaps be as bullish on renewable energy. We assume we'll do very well under an administration that is very pro renewable energy. Our fundamental theses remain strong. I think one of the things you may see is more direct federal procurement of renewable energy. I think even for that, we're positioned very well. As you probably know, we have a solar facility in Maryland, Great Bay Solar, that contracts directly with the federal government. We do have experience and expertise around doing that. There may be opportunities to add renewable energy more to the rate base as well. If anything, I think a pro renewable energy policy will only enhance our renewable energy and growth story.
That makes sense. Maybe just last question for me, just on Chevron, it's obviously an exciting development and probably something we're going to see more of more broadly. As you begin really, I guess, to really execute on this agreement, is there a natural stage at which you could expand this relationship? In other words, could it be a year or two into the relationship, things are obviously going well, development is proceeding as planned, and both sides really want to increase the scope of the arrangement? Is that less likely? Is this, in your mind, sort of fairly discrete or you need to wait longer to kind of mutually decide to extend or sort of expand?
Stephen, we certainly hope to. If you look at the press release, it actually does not say 500 MW, it says over 500 MW. We are certainly hopeful. We obviously need to prove ourselves as a good, solid partner with Chevron, and we have every intent of doing that. We also, frankly, see this as almost like a passport project in terms of being able to do similar projects, hopefully with other potential C&I customers as well. We're excited about that possibility also. All in all, I think it's one more growth lever that we have within the company.
That's great. That's all I had. Thank you.
Thanks, Stephen.
Our next question comes from Naji Baydoun of Industrial Alliance. Please go ahead.
Hi, good morning. Just going back to the guidance for this year and maybe looking beyond. It sounds like you can offset some of the weakness here today with some cost savings, but let's all agree that 2020 has been full of surprises so far. David, you mentioned some clear uncertainties, U.S. elections, second wave, et cetera. Can you talk about some of the other levers that you can try and pull to offset anything else that might come your way over and above the $15 million of cost savings?
Yeah. Sure. I'll take that. We're also looking at some potential self-monetization strategies with some of our assets as well. There is some potential offset there from an earnings perspective. From an operations perspective, again, just we've committed to $15 million. We're continuing to push that. You're right. It is an uncertain time for the remainder of the year. At this 10 seconds, we certainly see ourselves holding to the guidance, but we really don't know what's going to happen with COVID or how the weather's going to be. There is certainly uncertainty.
Okay. Yeah. I think that's something we can agree on. Maybe just a high-level comment on authorized ROE trends. We've seen ROEs, allowed ROEs in some of the recent U.S. rate cases continue to trend lower and the spread really versus, call them long-dated bond yields, have really widened recently, which suggests a more tick down of allowed ROEs going forward. Just any comments on your expectations for allowed ROEs within your utilities?
Sure. Good morning, Naji. One of the strengths of our decentralized model is we're in water and gas and electric utilities. We're in 14 different jurisdictions. While you have seen the results in Missouri, but we've also seen results in places like California with 10%, Georgia with 10.4%. I think it's difficult to really conclude an overall North America-wide ROE story based upon what we've seen in Missouri. We have seen other places where the commissions have approved higher ROEs as well.
Okay. Too soon to tell. All right. Well, thank you very much. David, congratulations on a very well-earned retirement.
Thank you, Naji.
I would like to turn the conference back over to Mr. Banskota for closing remarks.
Thank you, operator. Thank you for taking the time on our call today. With that, please stay on the line for our disclaimer.
Our discussion during this call contains certain forward-looking information, including, but not limited to, our expectations regarding future earnings and capital expenditures, as well as potential future impacts of COVID-19. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website, 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.
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