Hello, and welcome to the Algonquin Power & Utilities Corp. first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone. We appreciate you attending our first quarter 2026 earnings conference call. Joining me on the call today will be Rod West, Chief Executive Officer, and Rob Stefani, Chief Financial Officer, who will share prepared remarks. Other members of the management team are also available to answer your questions during the Q&A portion of the call today. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR+ and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results could differ materially from any forecast or projection contained in such forward-looking information.
Additionally, all net earnings information to be discussed today is for continuing operations and is attributable to the common shareholders of Algonquin. Certain material factors and assumptions were applied in making the forecasts and projections reflected in such forward-looking information. Please note and review the related disclaimers located on slide two of our earnings call presentation at the investor relations section of our website at algonquinpower.com. Please also refer to our most recent MD&A filed on SEDAR+ and EDGAR and available on our website for important additional information on these items. On the call this morning, Rod will provide a business update, and Rob will follow with the details of our financial results. We'll open the line for questions.
We ask that you kindly restrict your questions to two, then follow up with us after the call if you have any additional questions to allow others the opportunity to participate. With that, I'll turn things over to Rod.
Thanks, Brian, and good morning, everyone. Thanks for joining us. 1st quarter 2026 has been a solid start for Algonquin, and I'm pleased to say that we are indeed pushing ahead on our Path to Premier . As I stated in my early days at Algonquin, a premium pure-play regulated utility earns its standing through consistent execution, constructive regulatory outcomes, supported by disciplined financial and operational management. These attributes position the company to deliver sustainable value to shareholders, customers, employees, and the communities we serve. As we'll discuss in a moment, this quarter's results touch on all of those and build on the measurable progress we've made from 2025. In short, we're advancing toward our goal of becoming a premier pure-play regulated utility.
Taking measure of our strategic priorities for the year, I'm pleased with the progress we've made in the 1st quarter. For example, on the operations front, we've begun to roll out updated procedures and training materials for damage prevention and leak response at our gas operations. We've also implemented quality assurance and quality control reviews of line locating activities by independent inspectors. On the customer side in Missouri, we've improved our billing accuracy versus prior periods and improved our communications to customers in the moments that matter to them. On the regulatory side, we were pleased to achieve conclusions to our rate cases at New England Gas and CalPeco Electric, an order approving our settlement agreement at The Empire District Electric Co. and the tariff agreement at ESSAL, our Chilean water utility.
We continue to work towards resolution of our Liberty Utilities (Litchfield Park Water & Sewer) Corp. and The Empire District Electric Co. rate cases. On the corporate front, we expect to refinance our senior unsecured notes due in June, which Rob will discuss in more detail shortly. We continue to explore tax optimization strategies, including a potential redomicile. In summary, we've laid out our list of strategic priorities for the year, and for the first quarter, we've made solid progress on this priority list. On slide six, we've outlined several factual considerations that require evaluation as part of a possible redomicile, which I know is a common area of inquiry. As a reminder, we have not made any definitive decisions on this, and such a move would require the approval of our board, shareholders, and other stakeholders.
One timing point. We have engaged with the Internal Revenue Service to request a private letter ruling to confirm tax treatment, and these types of requests typically take six to nine months to rule on. We will update you when we have more to share. Turning to slide seven. Focusing in a bit more on our regulatory strategy, we've been prioritizing earlier dialogue to identify areas of common ground, as well as advancing more pragmatic filings. We expect this to deliver fair regulatory outcomes that allow us the opportunity to capture both recovery of reasonable costs and returns on our investments for the benefit of our customers. I'm pleased to note that we are starting to see this play out.
In Massachusetts, the Department of Public Utilities on March 27th approved our New England Natural Gas settlement agreement, which calls for a $45.3 million revenue adjustment. In California, the Public Utilities Commission on March 19th approved a proposed decision that adopts our CalPeco Electric settlement agreement, with the exception of changes to the proposed adjustment to our fixed charge for residential customers, which will remain the same. The approved decision provides for additional $48.6 million in annualized revenues and includes a retroactive adjustment to January 2025. Rob will provide more details on the CalPeco settlement in just a moment. For Empire Electric Missouri, we continue to await commission review of our customer performance data. As a reminder, the approved settlement requires three consecutive months of customer metric performance before we can implement the $97 million in annualized revenues.
We've submitted the three monthly filings in which we identified limited deviations in each month, consistent with the provisions of the settlement. We are now awaiting Commission approval. Separately, the next step to the settlement is an additional potential $13 million of annual revenues based on meeting further performance requirements stated in the starting rather in the second half of 2026. We remain in close discussions with stakeholders to arrive at an appropriate set of customer performance metric definitions and review the processes for this second tranche of revenues. With regard to active cases, in Arizona, our settlement agreement and a decision regarding formula rate plans remains pending at Litchfield Park Water and Sewer. We've asked the Commission for a decision by August.
In California, separate from our CalPeco general rate case, we have our WEMA proceeding, which we filed in June of 2025. This application seeks recovery of approximately $77 million in wildfire costs, consisting primarily of claim settlements in excess of insurance coverage, legal costs, and finance costs related to the 2020 Mountain View Fire. We've also received proposed decisions and alternate proposed decisions in our Park Water and Apple Valley rate cases. In Kansas, our rate case at Empire Electric requesting a $15.8 million base rate change is pending. Finally, at our Chilean water utility, ESSAL, we just this week reached an agreement with our regulators in our most recent tariff proceedings, which includes a $4 million rate adjustment expected in the latter half of the year.
The common thread through these updates is this: We continue to make steady progress on rate cases across multiple jurisdictions in a more deliberate and intentional manner, doing a better job of involving all stakeholders. Slide eight helps to put all of this in context. Simply put, our regulatory strategy means we're engaging in key dialogue earlier, identifying broader areas of common ground, filing in a more timely and accurate fashion, and as a result, achieving more constructive resolutions. In other words, we're getting back to regulatory basics to earn our rights to grow, earn the right to grow on our Path to Premier . Turning to slide nine. I'll add a few comments regarding our evolving regulatory and legislative landscape.
On April 7, the California Earthquake Authority released its Natural Catastrophe Resilience Study report, as required by Senate Bill 254's passage last year. We found a number of points in the report worthy of further discussion. For example, we support the report's concept of expanding the catastrophe fund to protect smaller utilities like CalPeco and the communities we serve, so that we have the same financial protections during natural disasters as those served by our larger brother and sister utilities in the region. We also support the report's suggestion to transition the catastrophe fund away from a customer-only funding model. Wildfire safety is a shared state responsibility that should be supported by broader state resources, not just through utility bills.
We're looking forward to presenting more of our perspectives on this and other points raised in the report in the near future. More broadly, in states including Arizona, Missouri, and New Hampshire, we're working to build coalitions with our peers to educate stakeholders on the benefits of forward test years and formula rate plans that facilitate constructive customer-centric investment in our communities. These mechanisms are examples of the predictable, transparent regulatory frameworks that support full and timely cost recovery and are key to operating as a premier pure-play regulated utility. This allows the opportunity to capture returns closer to authorized return, ROEs, with the objective of supporting earnings and credit metrics stability, all to benefit our customers. I'm pleased to say that in this first quarter, we've taken several steps further along on our journey to Premier.
With that, I'll turn it over to Rob to walk through our financial update for the quarter.
Thanks, Rod, good morning, everyone. On slide 11, we reported first quarter GAAP net earnings of $83.1 million compared to $92.8 million for the same period in 2025. First quarter 2026 adjusted net earnings were $99.6 million versus $109 million for first quarter of 2025. Overall, the slight decline from 2025 to 2026 reflects the non-recurrence of favorable depreciation and tax adjustments recognized in the first quarter of 2025 and slightly unfavorable weather year-over-year, almost entirely offset by a favorable retroactive adjustment in the resolution of our CalPeco general rate case. I'll discuss the drivers behind this in more detail as I walk through our results. On slide 12, we provide our first quarter 2026 adjusted net earnings per share walk to common shareholders.
First quarter adjusted net EPS to common was $0.13 per share, which was a penny lower year-over-year. Our CalPeco rate case is the largest driver for our year-over-year results. As noted earlier, our rate case concluded with the increase to approved annualized rates of $48.6 million. This resolution includes retroactive revenues to January 1, 2025 of $60.7 million. This revenue uplift was partially offset by higher wildfire insurance expenses recovered in rates of $28.5 million, which includes retroactive insurance expenses to the first quarter of 2025 of $22.7 million. I'll provide a little more context on this point. Wildfire insurance costs incurred and paid in 2025 above the amount permitted in rates at that time were deferred onto our balance sheet as part of the regulatory process.
In the first quarter of 2026, the commission approved and finalized authorized revenues and costs for 2025. The commission's approval prompted retroactive recognition of those on our income statement, along with the higher revenues and costs as required by US GAAP. The net effect of the increase in revenues and the increase in wildfire insurance expenses, inclusive of the retroactive adjustment, amounts to an increase in year-over-year EPS of $0.03 per share. Elsewhere, our net revenues year-over-year were down by $11.9 million, driven primarily by slightly unfavorable weather in the quarter compared to slightly favorable weather in the comparable period in 2025. Operating expenses increased by $41 million compared to the first quarter of 2025, driven primarily by the aforementioned $28.5 million in wildfire insurance expenses as a result of the retroactive adjustment from the CalPeco rate case.
Aside from the retroactive adjustment, the increase in operating expenses was primarily driven by our $3.8 million in Gas Safety Excellence costs and higher labor benefits and property taxes across our gas systems. Depreciation increased by $12.9 million, primarily due to the non-recurrence of two favorable depreciation deferrals in the first quarter of 2025 that totaled $8.2 million at Granite State Electric and Litchfield Park Water and Sewer. Tax expenses were higher by $9 million, due primarily to the non-recurrence of a favorable first quarter 2025 tax adjustment for our hydro group following the January 2025 sale of our renewables energy business.
Briefly touching on slide 13, our balance sheet continues to be in a position of strength with a reaffirmation of our credit ratings in the BBB range by Fitch for Algonquin in the last few weeks, and we remain at BBB at S&P and Baa2 at Moody's. On the near-term financing front, we expect to refinance the Algonquin unsecured notes due in June of this year by raising approximately $1.15 billion at LUCO through a 144A bond issuance, as discussed on our prior earnings call. Additionally, we recently put in place a $1.15 billion delayed draw credit facility to support the execution of this refinancing if it's required. With that, I'll turn the call back over to Rod for his closing remarks.
Thanks, Rob. Before we open the line for questions, I just wanted to step back for a second and leave you with a few thoughts on where we are and where I think we're headed. It's only been a couple of months since we last provided you an update. In that short time, we've made some meaningful progress. You know, we received the approvals in our Empire, Missouri, CalPeco Electric, and New England Gas rate cases and reached an agreement in Chile for ESSAL, the water company there. We're working diligently toward the resolution of our California WEMA, Arizona Litchfield Park, and Empire Electric Kansas proceedings. We're providing an influential voice in advancing our point of view towards more constructive regulatory and legislative compacts in states like California, New Hampshire, and Missouri.
Operationally, we've implemented improvements in our gas excellence efforts and improved our customer billings accuracy. In short, we've extended our tremendous 2025 momentum into the first quarter of this year, and we remain confident in our plan ahead. I couldn't be more excited for what's next, and I hope you will join us on our Path to Premier . Thanks for your time this morning. With that, I'll turn it back to the operator for questions.
Thank you. If you have a question, press star one on your telephone keypad. To withdraw your question, simply press star one again. One moment, please, for the first question. The first question comes from Eli Josson from JP Morgan. Your line is live.
Hey, good morning, everyone. Just wanted to start on the Empire, Missouri billing. Can you just walk us through procedurally, you know, what the key milestones are for execution, the phase-in timeline once you kind of have clarity on those metrics and, you know, any other expectations from staff that you can provide color on today? Thanks.
I think I'll just give you an overview. Our objective and certainly responsibility is to show three consecutive months of designated performance metrics. We made the filings for those first three months. The commission on advice will get essentially an assessment from the staff on their point of view and observations regarding our performance. Then the commission would then essentially confirm their point of view on us having met the requirements and allow us to implement the rates consistent with the settlement. It's our expectation, given the fact that we believe we've met our expectations, that the commission will rule on it by mid-year.
Amy, our Chief Customer Officer, is here with me, and if there's anything I've missed or anything that you think we ought to communicate, you're welcome to add anything, Amy.
I think you've covered it, Rod. We want to thank the staff for their thorough review of the data that we've provided, and we look forward to the Commission's response to their feedback.
Good.
Great. Thanks for the color there. Then, you know, maybe just further on the IRS private letter ruling. I know that this is an ongoing process, and you provided some clarity in your opening remarks, but, you know, maybe can you just give us a little bit of color on what this ultimately means for Algonquin, you know, going forward and, you know, what a potential outcome could look like here? Thanks.
Yeah, go ahead.
Hey, Eli, it's Rob. Yeah, we've engaged with the IRS. As you probably know from other situations, those rulings typically take six to nine months. That will affect the timing of further updates around this. You know, what we're asking them to assess is obviously the tax implications of a legal re-domiciling into the United States. There would be tax consequences associated with that and we're trying to get the best estimate of what those would be.
Great. I'll leave it there. Thanks, guys.
Your next question comes from the line of Nelson Ng from RBC Capital Markets. Your line is live.
Great. Thanks, good morning, everyone. I just had a question, relating to CalPeco Electric. I saw an article about NV Energy indicating that they'll no longer supply electricity to CalPeco Electric starting in May of next year. I think that coincides with the completion of that Greenlink transmission line. Can you just provide a bit more comment on the power supply plans for CalPeco Electric and whether there's any opportunities to add some generation to the utility?
Sure. Hey, hey, Nelson, this is Rob. We're launching a competitive search for new energy partners. We filed a request with the CPUC to begin the search. Expect formal bidding to commence later this summer, preferred selection should be announced in the winter of 2026, 2027. If that's approved by the CPUC, we'd expect to enter into new power supply agreements by the spring of 2027.
Okay, got it. There are no plans to potentially add generation to the utility or in terms of building some of your own generation. I know previously CalPeco Electric added some solar facilities.
As part of the fourth quarter, those solar facilities we stood down on, at this point in time, we're just launching a competitive search for new energy supply partners in the region.
Got it. Thanks. My next question just relates to CapEx. I know the guidance for the year is about $800 million. I think CapEx in Q1 was about $88 million. Like, I presume it's just seasonal or timing, or is there a large project that might kick off later this year?
Yeah, your assumption is correct, seasonal and timing. We still have an expectation of meeting our capital plan, but your instincts are spot on.
Okay, great. Thanks. I'll get back in the queue.
There are no further questions at this time. I'll turn the call to Mr. Rod West for closing remarks.
Well, I'll just say thank you for your time, and attention, and we look forward to our next update. Before I close, just a thanks to the employees who've contributed so much to our progress thus far. All the best.
That concludes today's meeting. You may now disconnect.