Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. First Quarter 2019 Analyst and Investor Earnings Conference 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.

[Operator Instructions] I would now like to turn the conference over to Christopher Gerhardt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead..

Great. Good morning, everyone and thank you for joining us this morning for our 2019 first quarter earnings conference call. As mentioned, my name is Chris Gerhardt and I am the Vice Chair of Algonquin Power & Utilities Corp.

And joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer. To accompany our earnings call today, we have a supplemental webcast presentation available at our algonquinpower&utilities.com and additional information on our results is also available to download at this site.

Over the course of the call we will be providing information that relates to future events and expected financial positions which should be considered forward looking. Our full disclosure on forward-looking information and non-GAAP financial measures are available on our website and we will read the full disclaimer at the end of this call.

On our call this morning, Ian as usual will provide the strategic for our Q1 2019 and David will follow up with the Q1 financial highlights. Ian will then conclude with our strategic outlook for the business and then we will open the lines for questions.

And as usual, we ask that you restrict your questions to two, even though sometimes you don't, and then we will re-queue if you have any additional questions to allow others the opportunity to participate. And with that, I will turn it over to Ian to start the presentation..

Great. Thanks, Christ and good morning to you who have been able to join us on the call this morning. So, as Christ mentioned I would like to start conversation with some of the highlights from Q1.

So, firstly in terms of financial results for the quarter we felt the performance was generally in line with expectations, slightly better than forecast performance in our regulated utility was offset lower than average resource conditions in our wind and hydro group.

With respect to year-over-year performance analysis, I think it is important to try to look through the one-time impact of US tax reforms within our Q1, 2018 financials and without the impact of the one-time income acceleration in 2018 from the US tax reforms, Q1, 2019 adjusted EBITDA shows approximately a 3% increase as compared to the same quarter last year.

Q1, 2019 adjusted EPS of $0.19 would be compared against the one-time tax reform adjusted Q1, 2018 EPS of around $0.21.

We see ourselves as a business which is built from long-lived assets and stable operations and we have been consistently been able to produce stable and growing financial results and remain highly confident in our plans to continue to deliver a strong returns to our shareholders.

We are pleased that Algonquin's performance throughout 2018 and our strong financial positioning has led to support from our Board of Directors to approve an increase in our common share dividend of 10% will apply to this quarter's dividend which was declared yesterday.

Secondly, as to progress our organic growth initiatives in the quarter, we made positive progress on the customer savings plan in the Midwest with recent approval granted by the Arkansas Commission and following a hearing in front of the Missouri PSE which was completed last month are hoping for an approval in Missouri by the end of this quarter.

Regulatory approval for the grant of bridge natural gas pipeline LNG and storage facility, it's closer with filings made and New Hampshire PUC, perhaps a little disappointing, and I'll will touch on a little bit more the PUC's casual won't completion of the process until this fall.

And with the utilities we secured $6 million increase in our annual revenue requirement from completed rate reviews in Georgia and Massachusetts.

And lastly, I think we have taken some positive new steps in advancing our development initiatives on the international front, we were pleased to announce that AAGES was selected as a successful proponent for the development of a 60 kilometer 500 kV transmission line in Uruguay.

This project now could be added to the to-do list for our international development team.

Secondly, we are pleased to have completed a $30 million investment in the San Antonio water pipeline; some of you may recall that this is the close to $1 billion water delivery project in Texas in which Algonquin owned a 20% interest at the time we announced our international expansion initiative.

Closer to home here in Canada, the quarter saw the closing of our partnership with Fortis in the Wataynikaneyap Northern Ontario transmission line. We are pleased the project has now received lead to construct approval from the Ontario Energy Board and is now awaiting environmental approvals.

Project teams working with EPC with construction expected to commence later this year. So all told, I think we took some positive steps to continue building the business and creating value for shareholders in this quarter, and so with that, I'll pass it over to David for a review of the Q1 2019 financial results.

David?.

Thanks Ian, good morning everyone. In the first quarter of 2019 our business operations overall generally performed in line with our expectations. Our results last year reflected certain one-time items related to the first-year implementation of US tax reform which makes year-over-year comparisons somewhat difficult.

Our Q1, 2019 adjusted EBITDA on a consolidated basis was $231.5 million which when adjusted for the one-time effective US tax reform works out to about an increase of about $ 8 million over the same period last year.

Within Liberty Power, the business generated a divisional operating profit of $83.1 million; Liberty Power had two new facilities contributing to our EBITDA in Q1 including a full quarter production from our 75 megawatt Great Bay solar and our 75 megawatt Amherst Island wind facility, as well, our incremental interest in Atlantica generated increased dividends this quarter.

These new facilities contributed incremental EBITDA adjusted over Q1 in 2018 some of which was offset by slightly lower resources and production from our fleet of renewables, and especially when contrasted to the above average conditions that we did have last year.

Growth and diversification continues to allow us to report solid results quarter after quarter. Net of US tax reform impacts and despite modestly weaker than expected resource conditions, Liberty Powers' divisional operating profit increased by approximately 11% on a year-over-year basis.

On the utility side of the business, Liberty Utilities generated Q1, 2019 divisional operating profit of a $161.3 million which is consistent with the previous year and as a solid result given that it has absorbed the effects of lower revenues from US tax reform across over 93% of our utility customer base.

Adjusted EPS came in at $0.19 for Q1, 2019 and well down from the $0.32 we reported in Q1 last year - the largest variance is of course related to HLBV income acceleration and other impacts of US tax reform that will reflected last year.

Last but not least, we are pleased to have announced the 10% dividend increase in our common share dividend starting with our Q2, 2019 dividend which will increase it from the current 0.1282 per share to a new quarterly dividend of $0.1410 per share.

The dividend increase is consistent with the growth trajectory of our business and aligns with their stated dividend and growth guidance we provided at our last investor day in late 2018. With that, I'll hand things back over to Ian for a future look..

Thanks, David and before I close out on our prepared comments this morning, I want to give a quick update on the main areas in growth in which we focused in 2019. And then as usual will open up the lines for the question-and-answer period.

So, first off I'd mentioned that we've reached some important milestones in our efforts to bring new wind generation to bear to lower costs for our customers in the US Midwest.

With the approval in Arkansas now behind us, we are looking forward to receipt of approval in Missouri before quarters end, and as you can imagine on a parallel path, we are working on all of the contracting construction arrangements for each of the three projects comprising our customer savings plan up in Kings Point, North Fork and Neosho Ridge and we are ready to move into construction mode promptly following receipt of the final approvals.

Second, a little bit a couple of thoughts on Granite Bridge. The Granite Bridge pipeline and storage infrastructure projects designed to improve local gas system reliability, lower cost and provide additional gas supply to support new customers in our service territories.

Further project submissions were made to the New Hampshire Public Utilities Commission in April, and I said that disappointingly with the other items on the docket in New Hampshire and the summer schedule, the next hearings will likely take place not until the fall of this year and - and at this point we anticipate that the New Hampshire site evaluation committee filing will be made.

So it's the support of final investment decision sometime early next year. And on the development side engineering public consultation work on Granite Bridge continues to press ahead. Just a quick update on some of the previously announced gas utility acquisitions.

Things are marching ahead on the regulatory approval front for both of these acquisitions, New Brunswick Gas in and St.

Lawrence Gas in upstate, New York, and I guess it's a sad statement that despite the tiny difference in terms of announcing these acquisitions are currently neck-and-neck in terms of reaching a regulatory approvals but we expect closing on both of these acquisitions in Q3, and therefore will be in a position to make a contribution to earnings this year.

And then summing up on some of our development initiatives, we've got some exciting opportunities under way within our infrastructure development group. At the beginning of the call I mentioned our HS Group was the winning bidder on the electric transmission project opportunity in Uruguay.

I think it's an interesting milestone given that the HS team originated, developed, bid and secured this Greenfield project basically from scratch. The project which is called Cardell is an 80 kilometer transmission line and a substation with a special cost of just over $80 million and commercial and service date expected in around 2022.

And I think it might be noted that we already have a presence in Uruguay with 150 megawatts of operating wind generation owned through Atlantica.

When we announced the formation of AAGES you'll recall that part of the mandate was to further development of a number of projects in which - our Abengoa had an interest and some of which has started to go follow.

The San Antonio water project was identified in 2017 as an interesting investment opportunity and we're pleased that the AAGES team has been able to satisfy its original mandate and complete a $30 million investment in the project. Development and construction of the project are underway with commercial operations expected mid next year.

And lastly, a quick update on our wind and solar development projects. Our near-term development list as you can recall from our disclosure includes five wind projects totaling close to 600 megawatts and that doesn't include the wind projects being pursued as part of the customer savings plan.

We have a 100% safe harbor turbines which can accommodate four of those projects meaning that one will likely have to drop to an 80% PTC project. Nearest term, Sugar Creek moving ahead with the synthetic KPA now assigned turbines on order and the final EPC negotiation ongoing.

For phase I of Broad Mountain, I can confirm we've now placed an order for the turbines and are working with our EPC contractors to secure cranes for 2020 construction, and so with that operator I would like to turn things over to you to open the line for questions..

[Operator Instructions] Our first question comes from Rupert Merer of National Bank..

Good morning, everyone. I was wondering if you could give us some color on the transactions you've proposed with Atlantica yield today, looks like you're investing $30 million in to Atlantica and giving them the right to acquire some assets, can you give us a little more color on that transaction..

Rupert, actually maybe we'll get Chris Gerhardt who's I guess one of my co directors on Atlantica to maybe give you some thoughts on that, Chris?.

Yes, sure I think that's probably a strong way to kind of characterize the - the $100 million it's really just the opportunity to talk about a couple of investments, which are near-term. One of them is the [Indiscernible] which is probably one that will definitely for sure happen.

So that's a $100 million; we did give them $30 million to buy additional shares. This is really just a fund some of their near-term growth that we've announced already..

So, when you look at doing dropdowns into Atlantica today, how do you view their cost of capital or say their ability to pay a good price for an asset versus what you might be able to get from another third-party source for a lower cost of capital?.

Well, Rupert, I think you've heard me say that one of the interesting characteristics between Atlantica are the differentiating characteristics between Atlantica and ourselves is the asymmetry between the valuation metrics that - they both - that we both employ as you can imagine there as a yield curve kind of a cab - cash available for distribution driven organization, and as a regulated utility GAAP earnings are probably more important to us.

And I've said in the past that there may well be projects in our portfolio which fall into the cash rich earning - earnings core category, which might actually be better held from our point of view down in Atlantica, and if you think about it, it's kind of the interesting opportunity for it to be a accretive to us and accretive to them just given what the definition of accretive is.

One of the things that I will say - you did mention and I think this is probably an important consideration is that in addition to subscribing for that small equity issuance of $30 million, there is some headroom that's been granted for in our ability to participate in Atlantica's equity.

So to the extent that we dropped an asset down into Atlantica, it is possible that we would possible - I think the intention is that we would be able to take back equity and maintain, I'll say a 100% exposure to the economics of that asset, that's one of the things that the headroom and flexibility gives us.

And so I get it, any transaction needs to be accretive to us and accretive to them and that will be an interesting challenge. I've just - I just think with the asymmetry evaluation metrics, we probably have more flexibility than you might otherwise have thought, but your comment is a good one and nothing's assured unless it works for both of us, so..

And as we can extrapolate them to assume that you could be acquiring more of Atlantica stock in the market though not with direct purchases?.

Oh, I don't know - that, I mean I don't say I - I think the headroom from my perspective what I think was created primarily for us being able to drop assets down into it, and I think when you've heard me say in the past and maybe this is in the context of the Atlantica - a strategic review we are kind of neither sellers of this company nor buyers, but I've always put a little asterisk to say we are kind of comfortable between our 41.5% today and you know - I'll say 48.5% or 49% which is kind of where our cap out is, and I think this just gives us the flexibility to maximize value for ourselves and I guess arguably for Atlantica and gives us the flexibility to do that, but you shouldn't think of us like kind of going on a purchase of buying campaign..

Our next question comes from Nelson Ng of RBC Capital Markets..

Great, thanks.

Quick question on San Antonio water, so can you just clarify whether that's being developed at AAGES? And can you just provide a bit more information in terms of I think you mentioned that it's like a $1 billion project - already construction and under construction and what does that $30 million investment goes - go towards and what's the current ownership interest in the project?.

Sure, when Abengoa's wheels started to wobble, I guess back in 2016, they took that project, the San Antonio water project and sold 80% off to a third party, but kept 20% themselves, and so, I guess the good news is that the construction of the project development - the project continue to move ahead notwithstanding the fact that Abengoa might have been a little impecunious in terms of their ability to contribute more capital, but I think when we announced the arrangement with Abengoa the - it was on the list of opportunities for us to invest in going forward.

Our initial investment in the project is by way of a frankly alone into the Abengoa structure to give us exposure to the project and I think in terms of AAGES helping out obviously the AAGES guys, the team that we have on AAGES were actually involved - some of them are involved in the development of the project right from the beginning.

So I think we have some pretty good insight into how the project is being developed.

I will say that we are not on the front line and so, I don't know if that's a good or a bad thing from your perspective, Nelson, but - but we - it is a high quality project long- term off take obviously denominated in US dollars being in Texas, and so I think it's great that the AAGES guys have kind of been able to make good on that part of the mandate which is to find value in that list of initial projects that we had set out when we announced the - the international expansion initiative.

I don't know if that's the kind of color you're looking for?.

Yes, so, just to clarify Algonquin invested in or essentially acquired Abengoa stake or is that - what happened?.

Yes, that's probably that's - that I will say that's technically incorrect, and first of all as you know we do these things through AAGES and in the first instance it's really alone from AAGES to Abengoa who holds the stake in the project, but a pretty significant chunk of the economics obviously are reflected in that loan and so we are pleased with the exposure to the project though it's still technically an Abengoa undertaking..

Got it.

Okay, and then just to change the subject a little bit, can you talk about succession planning and I know there's some disclosure about how you guys essentially looking at candidates and putting a transition plan together?.

Sure and Nelson let me start by saying, I appreciate your characterization of - my age is 59 years young I thought that was particularly nice but let me start - and I guess probably maybe three points to make. First of all, I don't say, this is not a new message, and it's actually not even new disclosures.

As you can probably recall in our circulars for the past two years, we've been I say pretty explicit for making sure that that succession kind of at least got coverage and got airtime in that, and, but we have been getting questions for a little while from investors, and I guess it's not surprising.

You got a CEO and a CFO who are both as you characterized 59 years young, and we thought that if this is on the minds of a couple of investors, it's probably on the minds of more and so we thought that an open discussion and I perhaps providing a consistent message on the matter, it should be probably part of our ongoing dialogue.

So, there's the first point.

The second one is like the disclosure is really intended to confirm our collective commitment, and when I say our, I mean the board and management too, smooth and measured and thoughtful succession here at Algo, and so as we put in the specific disclosure, please don't read through that there's anything imminent happening, and so, I guess God-willing Chris, and David and I, we aren't going anywhere in the near term.

So, hopefully does that provide some comfort, but I think it does confirm that the board and management embraced the importance of a measured and planned transition, and we recognize that the succession here at Algonquin might be a little bit more challenging than usual just given the central role that I guess Chris and I played in building the company from its inception, and, but to provide you maybe a second thought on that is that we're all taking an active role in this process, and you can imagine for Chris and I as founders of Algonquin, I think it's absolutely the right thing to do because the outcome of this is going to help frame our legacy of putting 30 years of our lives into it.

And so, and then the third point I'll make is - in the hearing now I can - I can confirm to you that that the management team, if you think of David and Chris and I, we are totally committed to this business.

We've close to four million shares of the company collectively and so I can tell you our alignment is completely with the shareholders and we are obviously focused on driving the business for it. So, I don't know if that's the kind of color that you're looking for, but, there's a couple of additional thoughts around the disclosure that we put in..

That's great; I think probably more interesting indicator or disclosure in the future might be if you're looking for a vacation property in Mexico, Florida..

Got you. Unlikely, you know like vacation hasn't really been on my agenda for the past 30 years..

Our next question comes from Sean Steuart of TD Securities..

Thanks. Good morning, guys.

Algonquin has been tied in the press to - I guess potential interest in the El Paso utility, and you guys get tied to every process that comes up I guess, but just general thoughts on appetite for M&A scale of opportunities you're looking at there?.

Sure - sure Sean, and in some respects - I don't say this is going to be a repeat of my standard answer you - you know I don't say accidentally misspoke last time about our involvement in Emera Maine process; that one obviously came to a conclusion, and while I use the analogy we are always keeping our stick on the ice for these sort of things, I kind of feel like we got cross-checked a little in that process, and maybe that's fair if you are willing to pay more than anybody else in the planet, then you get to win, and, and so we didn't win in a Emera Maine, but I think if there's a look through on that, it's the continued exercise of discipline from our perspective, because I think could imagine it might be a difficult conversation that I was having kind of defending the acquisition of Emera Maine at the prices it got done, and good for Emera, I think that's - that's great for them but - but as we think about the - sort of the rest of the M&A landscape, I think a similar philosophy is going to be applied if we can do a transaction in which we see value for our shareholders in that that we can create value, then we'll look at it, and if we can't - we'll pass it, and I think St.

Lawrence Gas and New Brunswick Gas are two examples of opportunities where we did see an opportunity to create value and we lapped on them.

And, so, you can imagine it's probably inappropriate to neither confirm nor deny any rumors with respect to El Paso, but I think the philosophy stays the same, Sean, we've done very well in building this organization through acquisitions.

Note, there's no reason for us to give up on it, but we will remain disciplined in what is obviously a ferociously competitive marketplace..

Right. Thanks for that context.

My second question is just to follow-up on the Atlantica --the amended agreement, I suppose, with respect to the drop-down potential, can you just maybe go through your thoughts of this option versus having a more supposed formal competitive process to maybe sell some assets down? How do you think about that tension and maximizing value from Algonquin's perspective of the asset base?.

Well I guess I'll start by saying and with the increased ownership, I'll say headroom, you know Sean we don't actually think of when we drop an asset down into Atlantica that we are actually selling it in some respect.

If you took back a 100% of an equity interest which really allowed you to maintain the economic exposure to the asset it's really just being held in a different vehicle and manual to the extent that it's actually accretive to us on the metrics we use and accretive to Atlantica.

Arguably, we actually get half - nice round numbers half of that accretion down in Atlantica coming to us in addition to the accretion that we get on our own financial statements, and, so, I totally get it if this was - if we didn't have the ability to take back a 100% of the equity value of an asset, I think it's going to be with Atlantica's current cost to capital challenges, it probably is going to be a bit of a rough road in order to find those opportunities that it makes sense to doctor, you know at our heart we are not really sellers or flippers of assets.

We see that - we go to all the trouble of creating value during the development process and our thesis is we want to harvest that for our shareholders over the next 30 years, and the thought of taking a one-time gain through a sale feels like the antithesis of our philosophy.

And so, I hope that I've kind of given you a color that a drop-down to Atlantica is really just Algonquin in another form.

I don't know if that's helpful, Sean?.

Our next question comes from David Quezada of Raymond James..

Thanks. Good morning, guys.

My first question just on the pipeline project in Uruguay, I am wondering if you can provide any color on what the bidding process was like for that project? How competitive it was? And what return expectation you might have there?.

Sure, well, actually let me start by saying this is in some respects this was an execution in action plan that we had developed in the formation of AAGES.

So, the opportunity, the broad opportunity kind of came to us through the eyes and ears of Abengoa's EPC subsidiary on the ground in Uruguay, and so, but our guys took with it, ran it, got to work with Abengoa to come up with an EPC bid and we submitted our bid like every other transmission line, as you can imagine, David.

This is a pretty intensively competitive market almost irrespective of where it is. Transmission lines are almost, if you think about it, the perfect infrastructure asset; basically no moving parts, no volumetric risk, and generally they're secured by a sovereign guaranteed. In this case no difference.

I think the good news is because of aggressive work on getting the EPC costs to the point while we won, I think the good news is, I can confirm that we didn't win by a country mile, which in some respects, would've been a little disappointing. It was 1% so that makes us feel good that we understood the market correctly.

In terms of return expectations, obviously a little bit competitive - competitively sensitive, but I can tell you that overall I think with the leverage package, the financing package we put together, returns are right where we need them to be in terms of this to be a accretive to us and ultimately now the question is this asset would obviously, I think as you think about its home, Atlantica has three wind projects, 150MW of significant player in Uruguayan landscape, is probably the right assets to drop down into them.

So all-in-all, I mean I think it's just as turning words to action in terms of whole AAGES thing.

I don't know David, if that's the type of color that you are looking for?.

Definitely, that's great color. Thank you. Just my only other question on the power side of the business in North America for Algonquin. I know you guys at one time safe harbor quite a few wind turbines.

Are you considering doing the same thing with solar panels currently to qualify them for the ITC?.

Yes, I think we obviously pleased that with our investment in the 100% PTC projects and you kind of heard me mention that those, that investment is facilitating I'd say 100 of megawatts of wind turbines and so I think the thesis is we'd like to pursue a similar strategy of safe harboring ITC projects for solar, I will say that the strategy, there's different ways to secure the ITC in terms of solar projects, it doesn't necessarily actually having to be buying the panels.

I mean I think to the extent that there are other aspects of the solar project most particularly, things like that, transformers.

To the extent you start to make an investment in those you've kind of secured the ITC in that projects and so I'd say trust me that we're looking at all of those strategies, because we're actually pleased with the results from our wind experience.

I don't know if that's how, what, what you were looking for, but we definitely see solar as I'll say the next decade got a blog to solar. If you think the last decade belongs to wind..

Our next question comes from Ben Pham, of BMO..

Hi. Good morning. Just go back to your comment around some of your projects the wind side going into the 80% PTC.

What's your - just want to clarify what's your strategy in the 2020? I'm hearing some folks are just waiting out because of a fear returns compressing turbine orders getting pretty, pretty crazy and what's, what's your thought process going to into next year..

Well, you are correct, if you have not gone and locked up turbines, cranes, EPC suppliers. I think the competition will push returns to a place that you probably won't want to do them. The good news is we in that group. As you probably heard me speak of arguably maybe even for the last year.

Securing EPC contractors with specific reservations for cranes has been part of our strategy, we inked 1,000 megawatt deal with Westos last year to secure turbine, super those at prices that made sense. And so you're absolutely correct I mean the 2020 is shaping up to be up 15 gigawatts year in terms of installed capacity.

And so if you are at the end of the line of, of the end of that supply chain in terms of being able to secure what you needed. If the economics are going to be impacted. When I say that we have projects that could drop from 100% to 80% PTC's.

I think I'm just giving, hoping to giving you some comfort that the world is not only end for us and arguably hopefully for the rest of the developers that if you don't get your 100% PTC project that there - that were out of business. And so that we are pleased with as we think about the positioning for the projects we've identified is 2020.

I think we are equally pleased that we've got a pipeline that is still has efficacy in for 80% PTC. So and know Ben if that's kind of where you were --what you were kind of hoping to understand if you think about the resiliency of our pipeline..

Yes, that's great. And then the second one. Acquisitions, you mentioned needed to see it value to your share you.

Can you comment on what like your definition of value? Is it always EPS accretive from a gear or is there --what are some other things that you're looking at?.

There is probably three measures where we would look at sort of any investment, is obviously multi-dimensional, but the first one. And you mentioned it; we would obviously like it to make a constructive contribution to accretion on an EPS level. Having said that, that's not the only metric.

You have to look at, we look at it, and we're thinking about the wind project, we look at these things cradle to grave on an unlevered project IRR basis. Where we would definitely consider that to make sure that near-term accretion is it somehow just a blip. We will look at leverage as of a particular project.

And clearly, we are covered this of our Triple B Flat credit metrics and we are certainly not going to threaten that. And so as we think about the leverage we can bring to bear.

We're going to look at it and then I think that the very last one, I know I said three, but I guess I meant four is that as you think about the opportunities for revenue certainty in today's market, they probably on average are not going to extend for the economic useful life of this asset.

So you have to think really hard that I'm building our manufacturing facility, for all intents and purposes in a market which will and that asset will be there to serve that market long after whatever the initial term of my PPA, commercial or industrial off-take agreement or my synthetic PPA is going to exist.

So the question is, are you going to be happy being in that marketplace and I think Walker Ridge is actually a perfect example of an asset that we picked because we like the market that is going to be and I think as you think about the California's focus on renewables going forward, it's just the right place to be.

So there are kind of four things that we would think about being an attractive investment. I hope I was in there - headed in the right direction..

Ben. And then I would just add one more thing with respect to Utility EPS accretion. We have from time to time bought utilities that happened to be under earning for various reasons. And so if it's in that particular situation, we would look to what is that accretion going to be, once we get into that first rate case post-acquisition.

So there is one additional filter that we would put on it..

Okay. So I don't want to third question but I just want know -.

No. Go ahead, Ben, we will give you a special dispensation for your third question..

I want to clarify is just that I guess that arbitrage on the rate base. I mean does that - does mean like you would - you would do dilutive deal year one - [Multiple Speakers] accretion will add to three that..

Yes. I think we, I think where David is really going is that when you buy utility, you get it at some point pretty arbitrarily in its rate review cycle.

And so if you think that the utility has, I'll say earning potential based on the rate base that you're acquiring at the time that you need to buy, you kind of got to look through where it is in the particular cycle, and I think the nice thing with our diversified portfolio with over 30 regulated utilities in it that probably will get lost in obviously, unless it some massive acquisition.

And so I don't think it's an arbitrage issue, it's just recognition that the regulated utilities go through a natural cycle of earnings as investments are made, rate reviews are undertaken and new tariffs are established..

Our next question comes from Rob Hope of Scotiabank..

Good morning, everyone..

Rob, you are on mute. I know it's a great insightful question. But -.

But you never know. Okay. All right. So let's turn it off with AAGES. Just want to get some insights on how you're going through that kind of the project evaluation. The $80 million investment in Uruguay absent the Atlantic in existing investment in that region.

Were that has been sufficient for you to pursue that or would you look to be adding clusters in certain geographies?.

You want to speak to that, Ian..

Yes. Maybe I'll just add that late, obviously, it makes more sense when you're already there. But if you're going to new jurisdictions, you got to start somewhere. And I think we would always look for a jurisdiction that we had line of sight to our cluster. I don't think we would do a one-off and in any country.

So that's part of the evaluation process we go through and all these jurisdictions..

And maybe just a couple of thoughts then Rob is, rule of law, repatriation of capital. There's kind of a bunch of things that almost any jurisdiction has to have to pass before we would go there. Obviously irrespective of whether you can find a cluster or not..

Okay, thanks for that. And then moving to the Midwest, just on the Greening the Fleet initiative. So third-party will be developing those sites, but have you been working with them on EPC contractors, cranes and turbines. And are those ready to hit the dirt in the coming weeks and months..

Yes. So when you say third party is going to be developing them. You know King's point and North where I'll say empire developed or Algonquin developed assets which are third-party is kind of taking over the responsibility of securing turbines from Westos and securing the EPCs, and getting all those crane reservation.

So the good news is we've got teams that who are kind of doing that on - under contract for us, which is good. There's obviously milestones, all the way through, and I will say it's pretty transparent, the whole process to us. And so, yes, there are third parties who were taking responsibility.

But given the importance of getting these things done by 2020, this is not kind of our call this when it's done process. We are actively involved in making sure that from an environmental point of view and from a technical perspective and in your connection.

So, I'll say, Rob, we're all over it, irrespective of the fact that somebody else is actually going to retain the EPC contract and have the contract with us..

Our next question comes from Mark Jarvi of CIBC..

Hi, good morning. Yes, I just wanted to go back to sort of a $30 million investment in Atlantica, and think about this, it sounds like from their perspective, we're taking the proceeds and investing in the projects alongside you guys. And then we talked about potential dropdowns.

Is this really just sort of sort managing leverage and balance sheet by the points of equity through comes through - I guess Atlantic which can use project finance and debt.

Is that the right way to think about how this relationship is evolving?.

Well, actually I think that's probably the way relationship was originally crafted, as you and I have spoken, one of the advantages that Atlantica brings to the Algonquin story is the flexibility use project financing in a way that we can optimize that. And so I think, yes, and so one way to perhaps think about it.

Maybe just to follow your thoughts on, is that $30 million investment we are doing, actually can be leveraged by Atlantica probably far more than we would do it if it was - if the assets were owned directly by us. And so there is a benefit in that.

And then maybe lastly, that as that Atlantica, announced some number of acquisitions over the past little while, and it would be shameful from our perspective, if perhaps due to constraints and the access to capital that they might have, that those assets that those opportunities are when by the buy.

And so I think we were just trying to be accommodating to help out, Mark.

And so, but I don't think you should, I'm hoping that you're not reading that us putting some more equity into Atlantica, kind of, in any way deals, deviate from the original investment thesis, for them to be - I'll say our hold- co for international project finance opportunities..

No. I know it's - it goes with what you guys in the past. I was just kind of reconcile in terms of - it is a project already doing you're $30 million is kind of like you said just, explain the fact that they can use more leverage.

Just want to confirm?.

Correct..

And then, if you kind of keep pursuing that path and explain their ability to use more leverage.

Is there any risk or any conversations that we had with the rating agencies around how they're going to view this and think about the read through from Atlantica and your ownership in Atlantica, or do you think is as long you are under 50%, it's a non-issue?.

Yes, I would say our interactions with the rating agencies, I think is to confirm they accept the GAAP treatment of it and so there are no issues, as far as we're concerned for any consolidation, proportional consolidation or whatever, the GAAP treatment will be both..

Our next question comes from Jeremy Rosenfield of Industrial Alliance Securities..

Yes, thanks. Couple of clean up. In terms of the power development side of the business, you talked about locking up certain things heading into 2020.

I'm just curious if you can elaborate a little bit on tax equity supply both from sort of external suppliers, but also the availability from within Algonquin?.

Good question.

So, I think with the PTCs being phased out, and maybe even Tax Reform kind of changing the tax ability of the historic players in the tax equity market, you can imagine that the dynamics of that market have shifted, and I would argue that some respects it's a little bit in a flight to quality from the tax equity, their historic, I could - the traditional tax equity purchasers, because they have - I'll just say fewer dollars, that they need to address.

And so, I think the broad relationship that Algonquin has been able to develop with Wells Fargo and BAML and some of these large US financial institutions perhaps because of our presence in the utility market has served us well, to be able to secure tax equity for our projects.

And so I'd say, we are comfortable as we sit here, and think about the customer savings plan, and the assets that we intend to complete in 2020, that we have good line of sight to tax equity needs and that's not going to be the constraint. But it is a really good question.

But I'd like to think that we position the organization, while perhaps in other ways to secure the tax equity.

David, I don't know if you wanted to add anything?.

Yes. The other thing - our customer savings plan tax equity project, I mean, that's a very coveted project in the tax equity community there, there is a lot of interest in that, because it's really first prize to have an asset like that that's going to be in regulated rate base.

And so we're happy with that and I think as Ian said, we have very strong relationships with all of the Tier 1 tax equity providers, and I will just put in another comment too, that we're approaching our tax ability horizon.

And so we are going to be able to be our own tax equity provider to the tune of about 400 megawatts, and we communicated that at our last Investor Day as well..

Right. Okay, good. Just turning back to the AAGES and I'd like to get discussion for a second. As you think about AAGES being successful in its development initiatives and potentially dropping down assets into Atlantica yield.

Are you envisioning that AAGES would reinvest proceeds from those transactions within sort of future developments or distributions of proceeds up to the parent, so up to Algonquin?.

Well, let me start by saying is, I think, and maybe this gets back to kind of the characterization of what's the role Atlantica plays for Algonquin.

And this idea, part of the thesis behind expanding our headroom in Atlantica, to give us the ability to actually take back shares Jeremy, rather than in cash, Atlantica shares in return for dropping an asset down. And so, in the first instance, we would want to preserve 100% of the equity exposure associated with any particular dropdown.

And so I think the idea is that, Algonquin which just preserve its equity exposure to that asset, albeit being held by Atlantica. To the extent that we got ourselves to the point where we had reached our cap of 48.5% ownership and that they had to pay cash for the other portion of it. Now you got an interesting question.

Do we take the cash out, and then just put it back into new assets. I think it's a little bit arbitrary from our point of view, but as you know, at our current, we're not building flip owners..

And Jeremy, it's Chris. If there is an uptick at the AAGES level well that just goes to fund, the cost that AAGES incurs just on an ongoing basis. So that's probably how we look at it..

Our next question comes from Nicholas Campanella of Bank of America Merrill Lynch..

So sorry to beat a dead horse. But AY share purchase. I'm just trying to better understand the strategic rationale. I know we went over a few times.

But I guess I'll probably sit with, we've seen that AY exploring strategic alternatives, in my conversation with all of you in the past few months, I think there is a mutual agreement that this portfolio of assets, maybe has perceived discount in the market today.

So I'm curious as to why you would accept new issue stock rather than kind of purchasing in the open market.

And then secondly, correct me if I'm wrong, but I don't think this comes with additional announcements for drops today and I also appreciate that AY has to fund their own business, but they have some of the lowest leverage right now versus their peer yield curve.

So I'm just trying to get a better sense of why now? I know there's lot of whys if you could just expand..

Sure, Nick.

I mean I think you've heard the Atlantica guys on previous calls, announced that they have some near-term growth opportunities and as I said, it was answered in earlier question, wouldn't it be a shame if Atlantica wasn't able to fully realize on those to the extent that they are accretive opportunities for us given that we own I'll just say nominally half the business that would be a shame for that accretion to not be realized.

And so I think given that they can lever that $30 million. I think it's a great opportunity for them to execute on some of the internal growth that they've been able to come up with and then us going into the marketplace. Buying stock doesn't help Atlantica and given that we own half of Atlantica a nice round numbers.

That it really seems like not the value maximizing thesis. And so, I mean I think that's kind of where they opportunity to the capital increase came in.

I think in some respects in you put it in the backdrop against the strategic review process and I actually would argue to say the business, the business needs to keep going, irrespective of whether Atlantica thinks that the path to thereon may have some forks in that road down in the future.

I think, yes, if you've got some opportunities now that you can, that you can execute hit on that are accretive at today's stock price and create value for all shareholders. Why you wouldn't do it? So anyway that's kind of some my thought on that on the capital increase. In terms of the dropdown of new assets.

I mean, I think part of our discussions with Atlantica was to create headroom in our ownership level to the 48.5%, so that exactly we could explore those because I think there is an opportunity as I explained, again in response to an earlier question, this sort of interesting ability to be accretive to both entities.

Accretive to them as they think about cap being accretive to us as we think about earning. So, Nick, I don't know if that added more color or just was me saying the same thing again..

Yes, no. I definitely appreciate it and thanks for that. And I mean just a follow-up.

It seems like at this point the preference is to continue new issuance rather than open market purchases as a means to maintain your ownership and potential future transactions and scale up to that 48.5%, is that correct?.

Yes, yes, I mean yes to that.

We are, we are not, we are - we didn't invest in Atlantica to be arbitraging in buying the securities of a public company, we invested in Atlantica to give us a platform and to give us access to assets and to the extent that Atlantica can on their own come up with some growth opportunities, we should be happy to fund those through treasury issuances and so I'd say that thought of --the market purchases as sort of way, way, way down on our priority list..

Our next question comes from Christopher Turnure of JP Morgan..

Good morning, Ian, and David. So if I look back to 2018.

You guys look like you had GAAP EPS of $0.38 and adjusted EPS of $0.66 and it looks like today you're indicating that you had $0.11 that $0.66 come from US tax reform, what exactly was that?.

In the Q1 last year, there was an acceleration of HLBV income that was primarily the major component of that.

There also the issue, you can appreciate that the January 1st, there would have been last year, there would have been, think of it is a, the immediate reduction the day one reduction to your tax expense, and it took, we went through various rate proceedings last year and so had over time reduction in revenues to take that.

And so there is a little bit of that effect in that difference as well..

And then, so maybe then Chris just to do a fair year-over-year comparison, given that obviously in 2019, we didn't have that one time acceleration that you've probably have to probably have to look through that and into in terms of 2018 and that's why I think you can look back at the disclosure of it we were I hopefully been pretty clear in terms that you can see that you have about $55 million, $56 million worth of income that was accelerated in 2018..

Okay, sir. So perhaps fair to characterize what looks like about 17% of what you're calling adjusted EPS in 2018 as something that not recurring..

That's correct. I mean we don't adjust out HLBV I mean income if that's the question. And we pretty much stick to our formula. We don't like deviating from that. So I mean it is important to understand the variations of the things that we don't adjust for obviously..

Okay. Is there anything else that was in that 66% adjusted EPS? So I guess if I take that down, I would get to $0.55 of adjusted EPS for last year on an apples-to-apples basis.

Is there anything in that $0.55 that would not be recurring?.

No, of the top of my head, I can't think of anything. I mean maybe put my mind do it later today. But I just. I can't think of anything..

Okay. And then if we look at that $0.55 versus what you're calling adjusted EPS in 2017 to $0.57 that would be a decrease year-over-year. Last year I think you increased the dividend by 10%, that would put your payout ratio for 18% at 89% and then it looks like today you also increased the dividend by 10%.

I'm wondering if there something that might catch up here that helps to fund the dividend in 2019..

Well, a couple of things, I mean it's certainly going back in time in which you'd have to also be wanting to look through our basically year-to-year variations in due to weather patterns in that and so that involve the sort of a deeper dive into the kind of historical record to make sure that you have normalized for year-to-year fluctuations in weather patterns.

But when it comes to the dividend you, I think our Board certainly takes a long-term view to so that the market gets long term comfort from the sustainability of the dividend then and there is no two ways about it.

The next couple of years, we've got some having heavy lifting on the capital side, we've got a lot of projects coming online towards the end of 2020, early 2021 and all that's laid out in our Investor Day book and you can sort of see that kind of maybe not quite a bell curve, but kind of a clustering of some of the larger projects in that 2020, 2021 period..

And I think that maybe to, and Chris, to kind of put the whole picture it bring the picture to focus, I think the way we look at it is, is if our EPS can grow and it's not on a year-by-year basis, because a lot of these projects are lumpy like that customer savings plan has been in the works for a year and a half, but that if we can look at it over and we generally is a 5-year planning horizon, which is what we talked about at our Investor Day, if we can see an EPS growth, which exceeds on average our EPS growth and you're absolutely right that 10% is kind of a promise we made to the marketplace in the context of our growth forecast, it feels like we're doing the right thing and we are not threatening payout ratio, but it's really not done on a year-by-year basis.

I think it's really done as we look at the prospects for the business over the long haul. You know, we announced a $7.5 billion pipeline of growth opportunities at our Investor Day last year, those will and their forecast to deliver EPS growth of in and around the 10% mark.

And so I think the way we hope that you look at it is that looked at over whatever the appropriate planning horizon is that the EPS growth in EPS growth field related..

Okay. I wanted to make sure I wasn't missing something there, because without that number, your EPS guidance down around 6% in 2018. And then again as you point out today on an adjusted basis, your EPS is going down in the first quarter, again, but it sounds like there might be things that are coming online in the future that are going to do that.

Thank you very much..

There are currently no questions in the queue at this time. I would like to turn the conference back over to Mr. Ian Tharp, for any closing remarks..

Thanks everyone for attending the call today. I'm going to read the disclaimer now.

Our discussion during this call included certain forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.

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