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Hello and welcome to the Algonquin Power and Utilities Corp Third Quarter 2023 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. [Operator Instructions] I will now turn the conference over to Mr. Brian Chin, please go ahead.

Good morning and thank you for joining us on our third quarter 2023 earnings conference call. Speaking on the call today will be Chris Huskilson, Interim Chief Executive Officer; and Darren Myers, Chief Financial Officer. Also joining us this morning for the question and answer portion of the call will be Jeff Norman, Chief Development Officer; and Johnny Johnston, Chief Operating Officer. 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+. We would like to remind you that our discussion during the call will include certain forward-looking information. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures. Please also refer to our most recent MD&A filed on SEDAR and available on our website for additional important information on these items. On the call this morning, Chris will provide a business update, including advancements relating to the pending sale of the Renewable Energy Group, the CEO search that is currently underway, and other business developments. Then Darren will review our third quarter financial results and provide comments on guidance. We will then open the lines for a question and answer period. We ask that you kindly restrict your questions to two and then re-queue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn it over to Chris.

Well, thank you, Brian, and good morning, everyone. To start things off today, I'd like to share my observations from my first 90 days as Interim CEO. During this time, I've had the opportunity to visit several of our regions across Canada and the United States. I have three main takeaways from these visits. First, we have dedicated and talented employees, managing a strong set of assets. Second, there is substantial opportunity to simplify, streamline and reinvest for greater customer service and value. And third, both our renewable and regulated segments have considerable long-term growth potential. From these takeaways, I'm even more convinced that moving to a pure-play regulated utility is the right answer for both businesses. This will create focus and provide the chance to capitalize on all of our opportunities. We have now kicked off the formal sale process for our renewable energy business. We are, of course aware of the dynamic market environment. That said, we are seeing continued inbound interest from prospective buyers. We own a sizable fleet of high quality renewable assets and an extensive development pipeline. And by no means will our assets be sold at a buyer sale price. We continue to believe this is the strategic direction that creates the most long-term value for our stakeholders, allowing both business groups to better capitalize, be better capitalized while continuing to support our BBB investment grade credit rating and our current dividend. Since the announcement at the time of our Q2 call we have made considerable progress on the search for a new Chief Executive, with the current slate of qualified candidates. As I've mentioned previously, I'm committed to staying on until the right candidate is found and I'm actively moving the company forward. Next, I want to highlight our recent DOE grants. We invest for the future to modernize our infrastructure, while keeping an eye on customer affordability. So we were very pleased to have successfully secured two DOE awards through our Grid Resilience and Innovation Partnerships program. We are only one of four regulated utilities to successfully secure two awards. This is but the first step of several towards the opportunity to invest over $100 million in accelerating the modernization of our electricity infrastructure while reducing the impact on our customers with the DOE grants covering 50% of the cost. We're excited for this partnership and look forward to working with DOE, and our local regulatory commissions, and stakeholders to get the full benefits from these programs for our customers. On the regulatory front, we're pleased to report that during the quarter, a Regulated Services Group received the final rate case order at the Pine Bluff Water Utility in Arkansas, authorizing an annual revenue increase of $3.4 million, which became effective on August 15th. Additionally, this quarter marked the implementation of new rates at our St. Lawrence Gas facilities in New York. As the authorized revenue increase of $5.2 million became effective on July 1st. We're pleased with these continued advancements as a core growth strategy of the Regulated Services Group is to responsibly invest in our utility systems and to target constructive return on rate base. In total, the Regulated Services Group has pending rate reviews totaling $90 million across four of our utilities. These rate cases reflect our continued commitment to invest in our utilities and recovering these investments. And finally an update on the securitization of costs related to winter storm Uri and retirement of the Asbury coal plant at our Empire Electric utility. Oral arguments were heard in July following Empire Electric's appeal to the Missouri Court of Appeals. And on August 1st, the court affirmed the amount eligible for securitization of $290.4 million. The company intends to securitize in line with the Commission's order to recover remaining book value of the storm costs and Asbury. However, in doing so, our securitization excludes a portion of carrying costs and taxes, which leads to a one-time charge of $63.5 million or $48.5 million net of tax. Turning now to an update on projects for our Renewable Energy Group, where our construction and development pipeline continues to progress. The third quarter of '23 saw advancements at Phase 2 of our New Market Solar project, where 95% of panels have now been installed. Site preparations also advanced at both the Carvers Creek and Clearview Solar projects. In total, we now have approximately 400 megawatts of solar projects in various stages of construction. We're pleased to report that the Sandy Ridge II Wind Facility achieved full commercial operations this past quarter, adding 88 megawatts of capacity to our operating fleet. Additionally, our Shady Oaks II facility achieved full commercial operations last week, adding 108 megawatts of capacity. When you include our Deerfield II wind facility, which achieved commercial operations in March, we have now brought over 300 megawatts into service year-to-date. We continue to expect to bring approximately 450 megawatts in service in 2023. With that, I'll turn things over to Darren who will speak about the third quarter results. Darren?

Thank you, Chris and good morning, everyone. Overall, I would describe the third quarter as a mixed quarter, with underlying growth in the business offset by impacts of weather and higher interest costs. Adjusted net earnings for the quarter were up 7.9% year-over-year, while our adjusted net earnings per share was flat year-over-year. Our Regulated Services Group's divisional operating profit was $246.4 million, up $17.1 million, or 7.5%, from the same period last year. Growth was driven by rate increases at Empire, CalPeco, BELCO, Granite State and Park Water. Year-over-year growth included a negative impact of an estimated $4.3 million from unfavorable weather. Our Renewable Energy Group's divisional operating profit was $66.2 million, down $5.2 million or 7.3% from the same period last year. The decline was primarily driven by unfavorable weather affecting wind and solar of production, offset by an increase from Deerfield II, which came online earlier this year. We estimate the weather impacted our year-over-year performance by $5.1 million. Depreciation of the quarter was $104.8 million, a $3.4 million year-over-year improvement driven by lower depreciation of $7.8 million in renewables, primarily from lower production which more than offset a $4.3 million increase in depreciation for the regulated business. At the corporate level, administrative and other expenses increased year-over-year by $4.3 million, reflecting IT costs including cyber and a greater use of shared services. We expect these costs will lay the foundation for improved future efficiencies for our regulated utility portfolio. Our interest expense was $94.2 million in the quarter, a $19.2 million increase year-over-year, with approximately one-third to fund our growth and two-thirds due to the increase in interest rates on variable rate borrowings. The year-over-year impact is tracking a little better than in prior quarters. Our adjusted tax recovery was $8.1 million in the quarter, a $20.8 million favorable change year-over-year. The improvement in adjusted taxes was driven by higher tax credits associated with continued development of our renewable projects as well as $8.3 million from the unfavorable tax adjustment we recorded last year associated with custom delays at our new market solar project. So overall for the quarter, our adjusted earnings grew 7.9% as a result of the underlying growth in the business and tax favorability, which more than offset the negative impacts of weather and higher interest costs. Our adjusted net earnings per share was $0.11 flat versus the last year. And now for a few comments on our forward-looking outlook. We are pleased that our underlying business continues to grow, however, primarily as a result of continued unfavorable weather, we now expect to come in at or below the low end of our previously disclosed 2023 adjusted net earnings per share range of $0.55 to $0.61. We remain focused on maintaining our BBB investment grade rating and supporting our dividend, as well as executing on the renewable business sales process. Please note we have several key marketing events ahead of us, including attending the EEI Financial Forum in November, the Wells Fargo Symposium in December, and the CIBC Whistler Conference in January. We look forward to meeting many of you over the next few months. And with that I will now turn the call over to the operator to open the line for questions. Operator?

Thank you. [Operator Instructions] One moment please for your first question. Your first question comes from the line of Sean Steuart with TD Securities. Please go ahead.

Thank you. Good morning, everyone. A couple of questions. First, let's start with the process to sell the non-regulated power business. Little context on discussions you've had with various stakeholders, what's convinced you that this is the right time to proceed given pronounced valuation headwinds for the group? And any updated thoughts on timelines towards completing the process?

It's Chris, thank you. Thank you for your question. I guess, first of all, when we think about our business, it's a very strong platform of renewable development. And so I guess it's our view that if there's a buyer out there who wants a strong platform, who's ready to invest in renewables for the future, who wants to invest around the Inflation Reduction Act, all those kinds of issues, you know, we think that that platform is a unique offering that we believe people will pay for. And so regardless of what's happening right now in the cost of capital regime, we think that the platform is something that is quite valuable. And so when we look at it through that lens, and also when we look at the fact that we've actually had lots of inbound interest in the platform, we say, we should absolutely continue and go to market. And so if you see what's happened right now, we've put the initial teaser into the market and we're in the process of now responding to buyers who are interested. And we still would expect that we can get something done here in 2024.

Okay. And at what point in the process do you reclassify these operations as assets held for sale or not discontinued? But do we start to think about reclassification of these assets and how that affects adjusted EPS?

Yeah, Sean. It will be a judgmental thing. There's testing gaps when you, you know, you're highly likely that you're going to sell it. So within 12 months. So it's more, if you look at a lot of companies do it different times, like once they have a signed agreement and different things like that. So we'll continue to look at that, it's not, we're not at the point where just launching the teaser where we'd be at discontinued ops. But assuming we get bids at a valuation that is attractive to us, it will be at some point next year is when we would go to discontinued ops. And then, as you know, there'll be differences on things like depreciation no longer occurs, it's more of a fair value assessment that you got to continue to do. So it will make things a little bit tricky as you think about you know normal results and adjusted earnings, but we will have to work through that.

Okay. All right. Thanks for that. And then just second question, the CEO search process. Can you give us a sense of timelines towards concluding that how that process has evolved as you started it? Any further details on that front?

Yeah, we've always said it's a six to 12 month process, and so we would continue to say the same thing. You know, we do have a good slate of candidates and the board is proceeding through the process. So, you know, I think the update is that we're quite positive that we're moving forward.

Okay, thanks very much, guys. I'll get back in the queue.

Yep. Thanks, Sean.

Your next question comes from Nelson Ng with RBC Capital Markets. Please go ahead.

Great, thanks. First question just relates to the renewables CapEx side. So I think this year you guys are expecting to spend about $300 million on renewables. I think since you guys use a JV structure to hold your projects and I think Sandy Ridge and Shady Oaks, like, which are completed, might only move into the balance sheet in early 2024. Are we, are you expecting to see a material increase in renewables CapEx next year?

Nelson, it's a good question. We're not giving any color next year. We're in the final steps of finalizing our plan for next year. But there is flexibility in terms of the way we structure things in our business and we're always looking to optimize our financing. So there is some flexibility that we have in that regard.

Okay, got it. And then my second question just relates to tax. So in Q3, you had some tax benefits. Do you expect to see those benefits carry into Q4?

Yeah. I mean at this point, I think at the beginning of the year we said low single-digits. We're looking at a recovery on tax this year. It's been a more favorable year, predominantly a large part of that's been the tax credits and a few moving parts. Longer-term, our view is not changing on taxes, but it has been a good year from a tax perspective.

Great, thanks. I'll get back in the queue.

Yeah. Thanks, Nelson.

Your next question comes from Dariusz Lozny with Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for taking the question. Just maybe thinking about your capital plans sort of in the interim while the renewable sale is pending, just as you think about the balance sheet. And I saw obviously, the dividend announcement earlier today. How do you think about growth versus maintenance CapEx at the utilities, is there an opportunity maybe to pull back on some of that, the growth part of it, at least in the interim in order to keep the balance sheet in a good place? And then related, how do you think about it on the renewable side while the transaction is pending?

Yeah. Good morning, Dariusz. Yeah, no, I think it comes down to just capital discipline. You know long-term, we see lots of growth opportunities, but in this current environment, with all the moving parts, it's going to be, we got to show restraint and capital discipline. So we're going to continue to invest in the business, but you're also mindful of where we're spending money and just given all the moving parts right now.

Okay, appreciate that. And then maybe just on the '23 range, you guys are pointing to the lower end or perhaps below. I mean, if you could kind of maybe give us a sense of, like, if there were an updated range, would it be like $0.50 to $0.55 or just how you're thinking about that?

Dariusz, I love the way you asked that question. Listen, we didn't, we didn't give an updated range today, but we did you know add or below, I mean, we're seeing a little bit of soft weather in the month of October. We talked about in a call, we've had $0.05 of weather impact this year relative to what year-over-year. So it's really, going to be a function of a little bit of how the wind blows in this last quarter. But I think you got enough pieces there to kind of land numbers in a reasonable range there, hopefully.

Okay. Appreciate it. Thanks for the detail, guys.

Yep, thank you.

Your next question comes from Rupert Merer with National Bank. Please go ahead.

Hi. Good morning, everyone.

Good morning, Rupert.

You talked about being a little more mindful of your spending, and you are still investing in the renewable portfolio. I was wondering if you can give us some color on the returns on investment that you're getting in the renewables today, like Shady Ridge II -- Shady Oaks II. Sorry. How are those returns moving today as well? Are you seeing an increase with the higher cost of capital?

Hey, Rupert, it's Jeff. And we're definitely seeing flexibility, I would say, the demand for renewable energy is very inelastic, but the pricing is quite elastic. And so we've been finding as we go to contract new assets that there is a recognition that CapEx has moved up and the cost of capital has moved up and counterparties who want the green energy are willing to give fair returns for that.

Yeah, and, Rupert, we have been internally increasing our target returns over the last year and continue to make sure we're having projects, that we deliver projects above those targeted returns commensurate with our cost of capital.

And when you look at closing out the acquisition of the 50% stake in those projects, you don't have today, how material is that cost to you, and what kind of returns can you expect on that?

Yeah. So the cost -- those projects, when they're in the JV during the construction cycle, have predominantly financed through construction capital and construction loans. And so when we acquire our 50% of the equity, that's a relatively thin slice to acquire the portion of the equity, and then we use tax equity proceeds and our balance sheet to repay the rest of the debt.

Okay, great. So not material. And then secondly, Chris, you mentioned that you see an opportunity to streamline operations in the Regulated utility. Can you give us a little more color on that? How significant is the opportunity? And is it really an opportunity to create headroom for investment into rate base? Meaning that you're really looking at benefits to ratepayers, or are there any direct benefits to shareholders here as well?

Yeah. I think it comes in both categories. And so, first of all, as I've said many times, the utilities have been cobbled together and so there's quite a bit of opportunity to run them in a different way than they run today. Fundamentally, things like the platform, the customer first platform we're putting in place, are giving us visibility into, into the business that we haven't had in the past. And so when we look at that, that does allow us to see opportunities to reduce the overall cost of the business. And so that then tends to allow us to invest in other things that are good for customer service, and are good ultimately, for things like net zero type investments. So it's an opportunity, I think, where we can, at the same time as we improve customer service and customer response, also get to the point where we can put some more good solid investments in that are good for the long-term of the infrastructure. So that's the way I look at it and, and I've kind of now gone where in fact, by next week we'll have gone to all the utilities, I think, and we're absolutely seeing opportunity in each and every one of them. And so when we look at it from that perspective, there's going to be a great opportunity for us to put the capital we've been talking about, which on average will get around $1 billion a year to work in the business. And so we're quite excited about that.

Great. And just a quick follow-up there. Where do you see the best opportunities for investing in growth in your regulated assets?

Well, as I said, I think it's -- it's a combination of a few things. So, first of all on the service side, making sure that we have the absolute best visibility towards the service we're providing to customers. We've made some very serious improvements in that over the past year, and that's through investments in our, in our customer-first project, which is truly an end-to-end application tool that allows us to serve our customers much better. So, that's one example. But as well as we think about how we're going to continue to implement our net zero outcome, that's going to also provide opportunities. So things like making some of our gas assets more, investing in our gas assets so that they're more flexible. And if I think about it from a gas generation perspective, if the asset is more flexible, then it doesn't have to run as much of the time and therefore has less emissions and is more cost effective for customers. So it's that kind of thing. The fuel budget is always one of the best places to look to, on the one hand, reduce cost, but also create opportunity for investment. And in the places where we have that opportunity, that's where we'll be investing.

And, Rupert, maybe I'll just add, I mean, we see good opportunities across, across the whole network. And I think one of the positives is that a lot of our capital, majority of their project's under $50 million. So we've got a fair amount of flexibility across many parts of our jurisdictions in order to be able to invest in them, in projects that are digestible.

Very good. I'll leave it there. Thank you.

Yep. Thanks, Rupert.

Your next question comes from Jessica Hoyle with Scotiabank. Please go ahead.

Thanks so much for taking my question. I just wanted to ask about some of your comments on getting an appropriate valuation for the renewable sale. So would you be willing to either change or maybe alter the process to maximize value, including not fully selling the whole portfolio or just selling parts of it?

Well, at this point, we think that the greatest opportunity will be for selling it as a platform, and because as a full business. And if you think about this business, it's one that has been doing this business for 30 years, and so has a tremendous amount of capacity and capability to develop assets and to do that in a -- in an on-time, on-budget, cost-effective manner. And so we think that there are buyers out there who will be looking for it in whole. And so that's -- that would be our approach to the business as we sit today. And, Jeff, I don't know, is there anything you want to add?

No. Chris, I think I'd just echo that the, the input that we've received so far is that there seems to be lots of interest in the whole business because of that platform and the 30 years of successful track record.

Yeah.

Okay, thanks for that. And then just in this quarter, I think it was highlighted that about two-thirds of the higher interest cost was attributed to your variable rate borrowings. So just wanted to see how you're thinking currently just about your floating rate exposure?

Yeah. We have one of the metrics that we closely monitor is our fixed to, our fixed to variable, our fixed to variable rate, and 85% is the target on that, that we have internally as a, as a guardrail, and we're at 86% this quarter. So, we're in a, we're in a decent place on that at this time, and we'll continue to manage that.

Thanks. Appreciate the color.

Yep. Thanks, Jessica.

[Operator Instructions] Your next question comes from David Quezada with Raymond James. Please go ahead.

Thanks. Good morning, everyone. My first question just on the renewables side of the business, appreciate the sale process is ongoing, but I'm just curious what you're seeing today, or if you can comment at all, on availability of tax equity financing for some of those projects. Some committees have mentioned that it's a bit less available than it has been, and what kind of scenarios could you see to fund growth projects, or could a potential acquirer, how could they look to fund those projects if tax equity wasn't there?

Yeah. It's Jeff, David. And we continue to see, and I think it's partially because of the long relationships that we've had with a number of tax equity providers, but we continue to see strong interest in -- in our projects moving forward. And I'd say the one new twist is being able to sell the tax credits as opposed to just doing the traditional flip structure, and that -- that is opening up additional participants into the market. So I think the, the way that things have been structured with the Inflation Reduction Act to bring additional parties into that market is important, and I think it's going to work.

Yeah. And I would just add, it's definitely early days in the, in that part of the tax market, but we're actually starting to see it materialize quite quickly.

Okay, excellent. Thanks for that. And then maybe just one more, just thinking about procurement for solar panels, I guess at Carvers Creek and Clearview. Could you just remind us where you are with that and if prices have come down maybe since the time that you underwrote that investment?

Yeah. So the, the panels for both of those projects were contracted earlier in the year. They are in line with what we expected when we underwrote the projects. We have seen a little bit of a decline in panel pricing as we've gone through this year, and so which I think is good news. But overall, panel pricing is stable to a slight decline.

Great. Thanks. I'll, I'll turn it over.

Thank you.

Thanks. Thanks, David.

There are no further questions at this time. I will turn the call over to Mr. Chris Huskilson.

Okay. Well, thank you very much, folks, for attending our third quarter 2023 call. We appreciate your interest in the company, and we appreciate your time. So thank you very much and stay tuned for Brian to read the disclaimer.

Thanks, Chris. Our discussion during this call contains several forward-looking information pieces, including but not limited to statements, statements regarding expected future dividends, growth and earnings, as well as statements regarding the sale of the Company's renewable energy business. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A and annual information form filed on SEDAR. In addition, this forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the historical results, anticipated by 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 measures and ratios including, but not limited to adjusted net earnings, adjusted net earnings per share or adjusted net EPS, adjusted EBITDA, adjusted funds from operations, and divisional operating profit. There's no standardized measure of such non-GAAP measures, and consequently our method of calculating these measures may differ from methods used by other companies. And therefore may not be comparable to similar measures presented by other companies. For more information about forward-looking information and non-GAAP measures, including a reconciliation of non-GAAP financial measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR and available on our website. With that, we'll close out the call. Thank you very much.