Good day and thank you for standing by. Welcome to the Algonquin Power & Utilities Corporation, 2021 Third Quarter Earnings Webcast and Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. . of today’s call is being recorded. .

And I'd like to hand the conference over to your speaker today, Mr. Amelia Tsang, Vice President Investor Relations, please go..

Thank you. Good morning everyone. Thanks for joining us this morning for our third quarter earnings conference call. Presenting on the call today, are Arun Banskota our President and Chief Executive Officer, and Arthur Kacprzak our Chief Financial Officer.

Also joining us this morning for the Q&A part of the call will be Jeff Norman our Chief Development Officer and Johnny Johnston, Chief Operating Officer. To accompany our earnings call today, we have a supplemental webcast presentation available on our website, algonquinpowerandutilities.com.

Our financial statements and management's discussion and analysis are also available on the website, as well as on SEDAR and EDGAR.

Before continuing the call, we will like to remind you that our discussion during the call will include certain forward-looking information, including but not limited to our expectations regarding future earnings, capital expenditures, and pending acquisitions.

At the end the call, I will read a notice regarding both forward-looking information and non-GAAP financial measures. Please refer to our most recent MD&A filed on SEDAR and EDGAR, and available on our website for additional important information on these items.

On our call this morning, Arun will provide an overview of our Q3 performance, Arthur will follow with the financial results, and then Arun will conclude with an update on our strategic plan for the business. We will then open the lines for questions.

I ask that you restrict your questions to 2 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 Arun..

Thank you, Amelia, and a very good morning to those who have been able to join us on the call and online. I'm pleased to report solid key financial metrics for the third quarter of the year. Q3 adjusted EBITDA was $252 million or 27% increase year-over-year. And our Q3 adjusted net earnings per share were $15, in line with last year.

On our regulated side of the business, operating profit was positively impacted by the addition of our new Empire wind facilities, as well as the first full year of operations from our Bermuda Electric Utility and the ESSAL Water Utility in Chile, which both closed late last year and have both performed in line with our expectations.

On the renewable side of the business, operating profit from our new facilities, such as SugarCreek and MaverickCreek contributed to increased earnings on a year-over-year basis. Excluding new facilities, production was 7.3% below the same period last year due to lower wind resource.

But this was partially offset from other income, including increased renewable energy credit or REC revenues. I'm pleased to report that the Company's operating results were not materially impacted by the pandemic this quarter. Recall that in the third quarter last year, the pandemic did have a $0.01 impact on earnings per share.

Generally speaking, we are not seeing negative impacts from COVID on our loads as business conditions in the regions we operate in return to normal. Our team continues to focus our efforts on Algonquin 3 strategic pillars. Growth, operational excellence, and sustainability. We operate through 2 primary businesses, regulated and renewables.

And we'll spend some time on each for an update. On the regulated side, one important lever of growth is acquisitions. On that topic, I'm pleased to discuss our recently announced agreement to acquire Kentucky Power Company.

A vertically integrated, regulated electric utility that services approximately 228,000 customer connections in 20 eastern Kentucky counties. As part of the transaction, we will also be acquiring AEP Kentucky Transmission Company, Inc., a regulated electric transmission utility, operating in the PGM -integrated market.

We look forward to welcoming the Kentucky Power employees into the Liberty family and to working with AEP during the closing and transition process. The total enterprise value of the Acquisition is approximately $2.8 billion comprised of assumed debt of approximately $1.2 billion and a cash purchase price of approximately $1.6 billion.

From our perspective, this represents an attractive value as a multiple of 1.3 times rate base. Based on an estimated mid-year 2022 rate base of approximately $2.2 billion. This transaction will have the benefit of increasing our pro forma regulatory business mix, to nearly 80% of our portfolio from nearly 70% currently.

And further increasing our service territory and regulatory jurisdiction diversification with a supportive regulatory framework. Upon closing of the transaction, we expect to have approximately $9 billion of rate base increasing our pro forma electric rate base from 63% to 72% of our total pro forma rate base.

We expect to close the transaction in mid-2022, subject to customary closing conditions, including the receipt of various state and federal regulatory and governmental approvals.

We expect the transaction to be accretive to adjusted net earnings per share in the first full year of ownership, which will be calendar year 2023 and generate mid-single-digit accretion to our adjusted net EPS thereafter, while being supportive of our long term growth trajectory.

Now I thought I'd spend a few minutes on the rationale behind the acquisition and why we feel strongly that it represents a strategic fit for us. This acquisition fits squarely into our 2 playbooks of greening the fleet and improving return on equity from non-optimized assets.

As I've mentioned in the past, greening of fleet is an important lever of growth, and an area where we have a strong track record, through the transition of our Empire and CalPeco Utilities. Just between 2017 and 2020, we successfully reduced absolute carbon emissions at the acquired Empire District Electric utility by 33%.

And at acquired CalPeco Electric Utility by 38% by including renewables in the rate base, use of tax equity, and shutting down our 200 megawatt coal plant, in the case of Empire District. We plan on leveraging this experience at Kentucky Power.

In particular, the Kentucky Power business offers significant opportunities for us to transition the existing fossil fuel generation to renewables, which will reinforce our leading role in the transition to a low carbon economy.

We see a pathway to decarbonize, as it is our expectation that the low cost resource to replace retiring or transferred coal will be a combination of renewables, with support from energy. Wind and solar represent the lowest levelized cost of energy today and are expected to provide benefits for our customers.

The existing unit power agreement with the Rockport coal-fired plant will expire in 2022 and Kentucky Power’s 50% interest in the Michel coal-fired plant is expected to be retired or transferred by 2028.

To replace the lost electricity supply from Rockport and Mitchell, we see an opportunity to utilize the integrated resource planning process to explore the potential to replace over 1100 megawatts of fossil generation capacity with renewables.

This would represent our largest greening the fleet opportunity to date and is aligned with our target to achieve net zero, scope 1 and 2 emissions by 2050.

We look forward to partnering with the Kentucky Public Service Commission, or KPSC, to the integrated resource planning process and leveraging our greenfield development expertise to deliver low cost clean energy solutions to Kentucky Power s' customers as part of our demonstrated greening the fleet capabilities.

Secondly, Algonquin has had a successful track record of identifying, securing regulatory approvals, and closing acquisitions. We have extensive experience in managing the integration of multi-modality utilities such as Kentucky Power and Kentucky TransCo.

As with our previously acquired utilities, we strive to share learning's and best practices among our utilities with the aim of driving consistent improvement in our key performance metrics, that provide value for our customers.

A number of these acquisitions have been utility acquisitions from large entities, and our stewardship of those utilities as part of our Liberty family, has helped us to create value for our shareholders, and our customers.

Similar with previous utilities, we will utilize our local responsive approach as our local model has been able to reduce disallowances from having transparency of our costs as well as the local model allows us to manage our costs within our regulatory allowances.

In addition, we have generally been able to utilize our geographic diversity to deploy capital in a manner that reduces regulatory lag and increases returns as we have done with many of our utilities. Also contributing to our ability to earn returns is a focus on added regulatory mechanisms.

Under our ownership, we have been able to secure decoupling mechanisms, capital trackers, property tax adjustments and similar mechanisms which all help the utilities increase their returns while providing bill stability and adding the necessary capital to allow us to better serve our customers.

For example, after the acquisition of Granite State Electric in New Hampshire, since our first test year, our returns have averaged nearly 9% ROE. Whereas under prior ownership, the returns we're frequently under 3%. Similarly, and perhaps more pertinently.

At Empire District Electric prior to our acquisition, ROE is achieved were commonly in the 7% to 8% range. Whereas under our ownership, we have been able to average nearly 9.5%. Kentucky Power is primary regulated by the KPSC, which we view as a constructive regulatory jurisdiction and is highly rated by S&P from a regulatory perspective.

Kentucky Power is a utility that has historically realized ROE below the authorized levels when compared to peers in Kentucky. We see a compelling path forward to improving the earnings profile to achieve an ROE that is closer to the off-price amount of 9.3% for the distribution rate base, through the availability of certain key regulatory features.

For instance, forward test years are not currently being employed by Kentucky Power, despite its approved use by other regulated peers in the state and could provide for more timely recovery of costs and expenditures.

We look forward to working with the commission on implementing certain improvements due to help us deploy the necessary investments to deliver reliable electric service to Kentucky Power's customers. And we plan to maintain Kentucky Power's headquarters in Ashland, along with developing constructive relationships in the local community.

Arthur will discuss the financing plan of the acquisition shortly. Lastly, on the acquisition front, I wanted to provide you with an update on our pending acquisition of New York American Water. We filed our joint proposal, signed off by staff, and the majority of interveners in early November, with a hearing scheduled for November 16th.

While this has been a longer process than originally anticipated, we remain confident that the transaction will close and we are on track to do that within the timeline set out in the Stock Purchase Agreement, which calls for closing to occur on our prior to January 3, 2022. Moving on now to our personal excellence.

In a mission-critical industry, safety and reliability are always the most important areas of focus. I'm very pleased to share that we have passed the impressive milestone of over 615 days. That is over 9 million work hours without a single lost-time injury across our North American business.

While keeping our customers and communities’ safe and maintaining our system reliability, and resiliency. I want to thank our employees during the wildfire season, which was really operational excellence in action. During the quarter, the Caldor fire impacted our South Lake Tahoe area at CalPeco.

And our local teams worked with incident command and infrastructure teams where power lines were shut down for safety. I'm glad to say that operations are returned to normal. And our teams were proactive during the evolving event , deploying fire retardant , and clearing vegetation.

Longer-term, we intend to continue to make investments for system resiliency, system hardening, and wildfire prevention. On the regulatory front, our Missouri rate case continues to progress and we expect the outcome in the middle of next year. In our regulated businesses, we are closely tracking rising gas prices as we head into this winter.

We have different regulatory approved hedging policies in place, but overall, we expect the energy costs to increase, and for these to flow through the customer bills through our various recovery mechanisms. Affordability is always a concern for us. And so we continue to work with our various partners and our energy efficiency programs.

And low income programs to help mitigate these costs where we can. And finally, we remain firmly committed to sustainability through the inclusion of environmental, social, and governance values in our broader corporate strategy and day-to-day operations.

I'm pleased to report that last month we announced our target for net-zero for scope 1 and scope 2 emissions by 2050. The achievement of our net-zero targets is supported by our strong decarbonization track record, extensive experience in regulated utility management, and deep expertise in renewables development.

I spoke earlier of our greening the fleet capabilities and wanted to highlight our track record of environment stewardship. Since acquiring the Empire District Utility Company in 2017, Algonquin's total scope 1 greenhouse gas emissions have been reduced by over 1 million metric tons.

And scope 1 and 2 emissions intensity per dollar of revenue has decreased by 26%. Similarly at CalPeco, we have already reduced the carbon intensity of CalPeco by 46% since 2017. At $0.0013 per dollar of revenue, Algonquin has among the lowest carbon intensities among its peers in the industry.

Concurrent with the release of our net-zero target, we also released our 2021 sustainability report, which not only outlined our progress on our ESG initiatives but also provided a higher level of detail around 9 priority ESG targets for 2023; some of which we have already achieved ahead of schedule, and others that we are confident in meeting.

With that, I'll pass it over to Arthur, who will speed to our third quarter 2021 financial results. Arthur..

Thank you, Arun. And good morning, everyone. I'm pleased to report solid third quarter results reflecting the benefits of Algonquin's diversified and resilient business model and proven track record of disciplined growth.

Our third quarter 2021 consolidated adjusted EBITDA was $252 million, which is up approximately 27% from $197.9 million we reported for the same period last year, but slightly below our expectations.

The regulated services group delivered a $195.8 million in operating profit in the current quarter, which compares to a $146.1 million in the same quarter last year. This improvement primarily reflects contributions from BELCO, our Bermuda Electric Utility, and Nasal or Chilean water utility.

As both acquisitions closed in Q4 of last year, as well as contributions from our wind facilities that were placed in service earlier this year, as part of the Midwest Greening the fleet initiative.

Results also benefited from new rates implemented at Energy North and Peach State gas systems, as well as the Park Water and Apple Valley systems in California. This was offset by the impact of a one-time retroactive rate increase in Q3 of last year, at the CalPeco Electric System.

I should also note that the regulated services group did not experience any material negative impacts from COVID-19 this quarter. However, the comparative results from Q3, 2020 were negatively impacted by the pandemic by approximately $4.2 million.

Moving on, the Renewable Energy Group reported a Q3 divisional operating profit of $72.5 million, which compares to $67.1 million in the same quarter last year. An increase of about 8%, but below our expectations for this business unit.

The addition of Sugar Creek and Maverick Creek wind generation facilities, as well as the and AltaVista Solar generation facilities all contributed to the quarter-over-quarter increase in operating profit. Our investment in Atlantica also continued to provide benefits with dividends received increasing by $2.8 million over the prior year.

However, this increase was partially offset by several factors. We experienced lower overall production at our wind generation facilities, primarily due to resource shortfalls.

Excluding the impact of the newly added facilities, production in our existing power generation facilities was 7.3% lower than the same quarter last year or approximately 15.4% below the long-term average.

Production shortfalls along with lower than expected realized pricing also negatively impacted the results from our investment in the Texas coastal wind facilities. Lastly, performance at our Sanger facility was negatively impacted this quarter by higher carbon compliance costs and lower capacity payments.

Some of these impacts were partially offset by higher realized renewable energy credit pricing on our U.S. wind facilities, as well as operating cost savings.

I should note that during the quarter the Company's soft monetized approximately $8.7 in million renewable tax credit benefits, which would have been otherwise included as part of their Renewable Energy Group's operating profit and in adjusted EBITDA, but are reflected in our overall adjusted net earnings.

In total, our Q3 adjusted net earnings per share came in at $0.15, which is in line with the $0.15 reported last year.

I now want to spend a few minutes on the financing plan for Kentucky Power and for the Kentucky Power acquisition, which was designed to maintain our mid-triple B investment-grade credit ratings and maintain a strong and resilient balance sheet.

Concurrent with the announcement of the transaction, we announced C$800 million bought deal offering of common shares to fund a portion of the equity purchase price. This offering is expected to satisfy all of our common equity needs to the expected closing of the transaction in mid-2022.

To fund the remainder of the cash purchase price, we plan to utilize some or all of the following sources. First, , which has seen some very attractive rates in the market recently and provides for an attractive funding source receiving 50% equity credit from S&P and Fitch.

We continue to maintain a significant room in our capital structure for this low cost capital. Second, potential monetization of non-regulated assets or investments. The current low cost capital environment continues to precipitate a strong valuation for quality renewable generation assets.

Although our competency continues to be as a developer, operator, and owner of regulated and renewable assets, we believe augmenting these competencies with the introduction of low cost capital through monetization of some of our renewable or investments has the potential to drive greater shareholder value. Lastly, mandatory convertible units.

As you heard me say before, we believe that mandatory convertible units are a great fit in our capital structure. Having the potential to be lower cost capital compared to common equity, and more effectively match investments cash-generation profile with its financing.

However, recognizing the ultimate conversion to common equity, if used as a financing source, we intend to be prudent in the magnitude of their use.

While we expect to have the majority of our permanent financing in place, either in year of the transaction close, we also secured on approximately $2.7 billion Acquisition financing commitment to support the Acquisition. Finally, I wanted to say just a few words on the acquisition itself.

We view this acquisition to be of compelling value and expect it to be accretive to adjusted net EPS. And the first full year of ownership, which would occur in calendar year 2023, based on our anticipated mid-2022 closing.

Thereafter, we would expect it to generate mid-single-digit accretion to adjusted net EPS and support growth in our adjusted net EPS over the long term. Now moving on to provide some updates on our other financing activities and progress on our 2021 capital plans.

Since August of 2020, we have placed into operation approximately 1400 megawatts of renewable energy projects from our construction pipeline.

During the first 9 months of the year, Algonquin has developed cap -- deployed capital on initiatives relating to the safety and reliability of our electric, water, and systems, as well as delivering new renewable generation from our projects, including Maverick Creek Wind, AltaVista Solar, and our Midwest Greening, bringing the total capital deployed so far this year to approximately $3.4 billion and on track for expected capital deployment in 2021 of over $4 billion.

During the third quarter, the Company utilized its ATM program, raising proceeds slightly north of $100 million. We view the ATM program is allowing for cost-effective and opportunistic issuance of common stock, but plan to be disciplined and its use.

As a result, we do not expect further issuance under the ATM until after the expected closing date of the Kentucky Power acquisition at the earliest. Lastly, and what to say that our Balance Sheet remains strong and resilient. At the end of the third quarter, the Company had approximately $1.9 billion of liquidity and capital reserves available.

We continue to have strong support from our key banking partners and expect to maintain resilient liquidity profile as our business continues to expand. Before turning things over to Arun, I would like to provide a brief update on our 2021 adjusted net EPS guidance.

Excluding the impact of the market disruption on the Senate Wind facility related to winter store in Q1, we continue to expect our 2021 adjusted net earnings per share to be in or around the lower end of the Company's range of $0.71 to $0.76, those communicated previously.

We continue to assume our earnings guidance normal -- in our earnings guidance, normalized weather patterns in the fourth quarter, as well as resource availability and production of the renewable generating facilities that is within long-term averages.

We also assumed that the Company is able to obtain constructive regulatory outcomes as well as absence of any supply chain delays that will impact our estimated placed in service dates based on the current equipment delivery and construction schedules. With that, I will hand it back to Arun to outline our strategic plans..

Thank you, Arthur. Before we close out our prepared comments this morning, I want to give an update on our strategic initiatives. With society and economy is working hard and preparing for the energy transition.

I'm excited about how Algonquin regulated, and renewables businesses are both well-positioned to contribute to and benefit from this decarbonization and transition. We remain committed to our strong rag track record of disciplined growth, with many different levers at our disposal. Having deployed nearly $3.4 billion of capital this year.

We remain on track for our 2021 planned capital expenditures. The addition of Kentucky Power will be additive to the Company's long-term investment pipeline. Another growth lever on our renewable side that I'd like to touch on is our significant focus on new Greenfield Development.

As a reminder, this prospective Greenfield pipeline is over and above our long-term capital investment plan. Our Greenfield investments are focused on securing new opportunities, and continuing to advance the projects that will eventually form part of our base long-term capital plan in future years.

We look forward to discussing this in more detail at our upcoming Analyst and Investor Day, which is scheduled for the morning of Tuesday, December 14th.

Where we will be providing the investment community the opportunity to hear from key members of the leadership team for an update on our operations, strategic direction, and future growth plans for Algonquin.

In summary, our 3 strategic pillars of operational excellence, growth, and sustainability will be a key foundation, as we continue to build the business and strive to bring long-term value to our shareholders.

We remain well-positioned to continue to execute on our growth strategies while foreseeing our sustainability goals, guided by maximizing operational excellence on behalf of our investors and customers. With that, I will turn the call over to the operator for any questions from those on the line..

. Please stand by while we compile the Q&A roster. Your first question comes from the line of Rupert Merer from National Bank. Your line is open..

Thank you. Good morning..

Good morning Rupert..

Good morning. So I'd like to start by asking about plans to finance the Kentucky acquisition and the potential for asset sales.

Have you had discussions in the past on selling assets and can we get some thoughts on which assets you might select for sale? Do you think you have some orphans in the portfolio or would you maybe look at selling a share of the whole portfolio?.

Well, first of all Rupert, in anything we do we're going to be guided by making sure we maintain a very strong balance sheet; that's an absolute must for us.

And so from a business risk and credit profile perspective, whatever we do in terms of asset recycling, probably will be more on the renewable side of the business where we believe it could be a combination of some of the things you talked about.

It could be orphan assets that we perhaps developed or acquired many years ago that may not be a good strategic fit anymore, or it may be opportunities to bring in low cost capital while maintaining our strong development and operational levers. So we probably will not be obviously announcing which exact assets before we are prepared to do so..

Okay. That's fair enough. And then secondly, if we can talk about supply chain logistics issues and any inflationary pressures, you might see on your operations.

I know you're not taking in any potential logistics issues related to your being any -- what sort of risks should we be baking in there?.

Sure. So first of all, I do want to give a little bit of context. So back in 2020, we had 1600 megawatts of renewables under construction, right? And that was right in the midst of COVID.

And I'm very pleased to report that by large, we're able to bring in that 1600 megawatts of construction projects into operation earlier last year in 2020 and in 2021. And so we have actually really done a lot in terms of ensuring we are able to effectively manage our supply chain efforts.

Now, having said that, yes, we are seeing issues around shipping, issues around delivery from the various boards. But I believe we have a pretty effective supply chain management team and we do not see any huge movements or significant movements in terms of our project milestones..

Are you seeing any inflationary pressures either on your construction costs or on your operations, you anticipated upcoming impact?.

So two items, 1. Many of the EPC contracts and large equipment supply agreements we have, they are under by and large, under fixed supply -- fixed price contracts. Right? Now for the ones that are coming up, what we tend to do is, to try to align our equipment supply and EPC agreement contract as close as possible to the off take agreements.

So yes, we have seen some pressures, and inflationary pressures anywhere from depending on especially components 5% to 10%. But we have also seen an increase, an uplift in the off take pricing. So, we have been able to preserve the kinds of returns that we look for..

I'll leave it there. Thank you..

Thank you, Rupert..

Next question comes from the line of David Quezada from Raymond James. Your line is open..

Thanks. Morning, everyone.

Wondering if you can just provide any color on the path you see to improving ROE s, be it timing and what you see as the low-hanging fruit just in terms of whether that's the future test year or anything like that?.

So look, this is something we're much focused on. And David, as I talked about earlier, we do have a playbook that we are utilized in places like Empire State, in CalPeco, and other Granite State and some of our other utilities as well.

All right? So we are well aware that the ROE is not optimized right now in Kentucky Power, there are number of different mechanisms we obviously will be working closely with the commission to make sure we work this effectively and we do something that's in the best interest of the customers as well.

So, there are things like, for example, the unit power agreement with Rockport, which is a coal plant that is based in Indiana. There are certain numbers of cost that have been deferred, and disallowed for future -- it includes in revenues.

So that's one lever, another one is utilizing forward test years, which as I said in my prepared remarks, are utilized by our other investor owned utility bills in Kentucky. There are also items such as, the 42% equity that we see right now, we believe we have room to increase that as well.

And other capital and operating cost tracking mechanism that are available. I mean, Kentucky is a very constructive regulatory state and we definitely look forward to working with the Commissions closely to doing, once again, best for our customers over the long term..

That's great color. Thanks, Arun. And then maybe just one more for me. As you look to green the fleet at Kentucky Power, I'm curious if you had any initial thoughts on what the mix of renewables might be and if you could potentially even include storage there..

So look we look at whenever we look at any renewable projects these days. And it is becoming more and more compelling. We will talk about this a lot more at Investor Day. By at large, we believe that between solar and wind that in the state Kentucky, solar is probably -- has an -- probably better resource, availability and better economics.

There are pockets in the State of Kentucky were wind is a strong resource. So we'll have to work through, obviously, , interconnection capacity, all of those things. And obviously make sure that we work with the commissions through the integrated IRP process as we firm up our plan..

Excellent. Thanks for that. I'll turn it over..

Thanks, David..

The next question comes from the line of Nelson Ng from RBC. Your line is open..

Great. Thanks. Good morning, everyone. First question is just to follow up on David's question on Greening Kentucky.

In terms of the Rockport facility rolling off the UPA at the end of 2022, what is Kentucky Powers SEC requirement to backfill that capacity? Do you have enough spare capacity for now for that facility to roll off or can you provide a bit more details on if you have to get new capacity by the end of 2022?.

Sure. At present Kentucky Power has several sources for its load. You've got Rockport coal facility, you've got Mitchell Coal, you've got Big Sandy Gas, and then you have purchases from the grid.

And interestingly enough, over the last several years, what we've seen is purchases from the grid are in fact a lower cost than purchases from the coal plants. So when Rockport EP expires, that should actually be positive in terms of us being able to procure lower cost energy from the grid as compared to Rockport..

But there's no requirement to have available capacity as backup for anything, right?.

There are some utility capacity requirements, and we will be working with AP to replace the Rockport contract on a short-term basis to make sure we stay in compliance with those..

Got it. And then my next question just relates to Belco. I believe there is a $35 million rate increase request. I didn't get a chance to pull the rate case filing.

But can you just talk about the key drivers of the increase and is it mainly just due to higher oil prices that you've been seeing?.

Yes. I think the 2 main drivers, Nelson, you've hit on one of them which is the increased fuel prices, and then in the last rate agreement that was some costs being in the middle of the COVID pandemic. And maybe as a reminder and context for everyone, traditionally we've been filing an annual rate case with the and.

This is us now going to our first of multiyear filing; this will be a 2-year rate case with them..

Okay. Thanks,. I'll leave it there and get back in queue..

Thanks, Nelson..

Our next question comes from the line of Julien Dumoulin – from Bank of America. Your line is open..

Hey, good morning team thanks for the time and opportunity..

Good morning, Julien..

It’s a pleasure..

We agree..

Indeed, hey, so maybe just following up, let me just first focus on Kentucky here. Just as you think about the, first off, Michel, could that be transferred sooner here, just as you think about the timeline to exit coal here, if you can elaborate on that? And then also can you quantify a little bit.

I know you're alluded to earlier the earned ROE, just what the timeline is there. And again, I know this is ahead of your Analyst Day.

But as you're thinking about that coal transition, how much coal is in rate base today as you think about that outlook that you're going to provide, as well as the timeline to get to your earned ROE given the sort of cadence the rate cases around us..

Sure. So first on Mitchell, Julien, right? As I'm sure you are aware, the Kentucky Commission basically approved the investment for CCR, which takes the project capable of delivering, continuing to operate through 2028.

And the commission did not approve the investments in ELG, which would have actually enabled the plant to continue to operate through 2040. So, given that order, we are -- our view is that we will be able to transfer that ownership from Kentucky Power to the West Virginia subsidiary of AEP in 2028.

Are there compelling reasons for us to be an economics for us to be able to transfer that earlier? That's something we will obviously look at. But again, we will have to work with the commission on that account. On your earned ROE question, the allowable ROE in Kentucky is 9.3%.

And I believe some of the earlier comment I made Julian, around the disallowance of costs on under the Rockport, the potential to increase the equity thickness from 43% to something higher through utilization of forward test years.

And some of the other mechanisms that are already available in Kentucky that we hope to be able to come closer, much closer to the allowable ROE. However, we have continued to be fairly conservative in our modeling as to our forward-looking views on that. So we're pretty confident to be able to get much closer to the ROE..

Got it. So just to clarify that.

When you say you're with your , you're saying you're not necessarily fully assuming that as you look at your outlook over the 5-year period?.

That's right. We assume that we will get closer to it over time, and we believe that our first refiling will be in 2023..

Got it, excellent. And can you clarify the coal and rate-base here.

Just as you said today, you think about like that pivot over time, what's the starting point that we're at today if you think about sort of the degradation from coal rate base to transition to renewable overtime?.

So clearly the trend is in happening at the end of 2022, right? And obviously the -- another big point in time is 2028, when we will no longer have ownership of Mitchell. The third part obviously is how quickly can we bring renewables into the in our working through the IRP process.

And given the state of the economy in Eastern Kentucky, given the much lower LCOE of renewables, we believe that we should be able to start renewing in renewables as, perhaps even as early as towards the end of 2024..

Excellent. Sorry, if I can't -- I know we're also fixated myopically on Kentucky, but I've got to ask the question around BBB here reconciliation. How you think about your prospects under this legislation especially given how you guys talked about renewables at times.

And specifically also, I'd be curious if you could comment on how you think about HLBV given this legislation too. I mean, obviously an expanding opportunity set and some nuances I imagine for tax and how you guys recommend them too..

Well, let me first answer on the Build Back Better, right? Look, what I usually say to folks is that renewable has gone beyond policy. It's becoming -- It's already become an economic value proposition, right? What, all of the tailwinds that are out there, based on things like Build Back Better can only help us, right? I will also go beyond that.

One of the fairly easy things I think the Biden administration do through an executive order in fact, is direct purchases through the federal government of renewables. We already have the grade based solar project, where the General Services Administration of the Federal Government is.

So we have all of the accounting, regulatory, policies and processes in place to in fact directly contract with the federal government as well. So with all of the tailwinds and what the Biden administration is trying to do to accelerate the piece of renewables, we believe that all of these tailwinds can only benefit us.

Arthur, why don't you respond to the HLBV question?.

Good morning, Julian. Look, from the plan basically, a lot of tailwinds and increased flexibility. Obviously with the proposal surrounds the extension of the tax credits just makes tax equity financing continue to be viable for us. Also with the direct pay proposals, that obviously provides another dimension of financing.

And as well as -- I said before, we could continue to have tax appetite internally so that we can continue -- we can look at monetizing some of our own tax credit as well. So it's from an overall perspective, it's provides flexibility and -- look, we'll use it to basically enhance economics as best fit..

Bye guys, thanks for the time. Best of luck..

Thank you, Julien..

Your next question comes from the line of Sean Steuart from TD Securities. Your line is open..

Thanks. Good morning everyone..

Good morning Sean..

Good morning, just a couple of questions. New York American Water, just so I understand it ahead of the hearing next week.

If there are still dissenting parties on this transaction, how does that play out post this hearing? And how does that inform your thinking around the closing date of early January worst-case scenario?.

Good Morning, Sean, this is Johnny. So I think in the joint proposal that we filed with the commission, we have all parties ball one signing on.

And so I think we feel very confident in terms of the process that we've gone through the large degree of alignment in -- with all the parties down in Long Island, and severely feel pretty confident coming through the hearing that we should be seeing an order in the not-too-distant future..

Thanks, Johnny for that. Second question is on Agis and see if you've got the new partnerships in place.

Can you give us some context on what ARI vehicle, using it as a growth lever going forward?.

So with ages, as you know, we have had Abengoa as a partner. And based on everything that is out in the public, it was a challenging partnership given the financial challenges that they have been going through. So with areas, what we have is a very solid financial partner for us to work through our development and construction financing.

And rather than also bringing in a beautiful partner every time we do a project, we now have the contractual terms and conditions and everything. So pretty much with one partner. And also there are no conflicts of interest, given that the ROE financial partner and they're not looking to enhance their own EPC capability or anything of sort.

But we do intend to retire the name and basically do everything now under Liberty Development, all of our development activities globally. So you probably be not be hearing about going forward for from us..

Okay. That's understood. That's all I have. Thanks very much, Arun..

Thank you, Sean..

Next question comes from the line of Rob Hope from Scotia Bank. Your line is open..

Good morning, everyone. I want to circle back on Arun's comments that you're seeing a little bit of cost inflation on near it over projects. But PPA pricing is coming up as well.

How are discussions going for the next phase of contracted renewable projects? Could we see a little bit of an air pocket here? If the PPA off-takers want a little bit more certainty on whether or not the inflation is transitory or if it's here for a while. Just want to get a sense of how discussions are going..

I think just to make sure I understand Rob. So basically what I was trying to say in my comments is that we are seeing inflationary pressures depending on certain commodities. but also it could include things like shipping and other transportation in cost things of the sort.

But what I was saying is that on the flip side, by and large we have seen higher off-peak prices as well. So we have been able to preserve the economics of our projects. And one of the things we do is really try to make sure we sign off on the EPC and meter equivalence supply contracts as close to the off-take agreements as possible.

So there's really little if any daylight between the two where we are exposed. That's really what I was trying to say in my remarks. I don't know if I miss anything from -- particular from your question or if you feel free to ask again, Rob..

Yeah, maybe just to clarify.

The next phase of renewables, the ones that you still need to secure PPAs, how are the pace of conversations going on those to get those secured? And they -- has the inflationary environment slowed it down or are they still making good progress?.

No, we're still making good progress, Rob. We continue to advance those discussions. We'll be sharing more at Investor Day on some of those discussions. But we also will anticipate as we move forward that the counter parties are willing to transact at higher prices.

But we have to have the difficult discussion of if there's uncertainty and things that are , how do we take and manage that risk. Because we typically do not take that on and we remain disciplined. So if we have to push a project out, we'll push a project out. But the discussions directly to your question have been going well..

Good to hear. And then a second question. Just in terms of how you're looking at the Atlantic stake. We haven't seen a ton of dropdowns, but you do have this capital requirement coming at us with Kentucky.

Do you view drop-downs to Atlantica as an attractive source of capital? And I guess secondarily, how are you viewing Atlantica from a strategic point of view?.

Sure. So look, Atlantica remains a very attractive investment, especially given the price at which we're able to enter Atlantica, right? It's also very aligned with our overall ESG poster. I mean, they have been really the most number one renewable energy Company globally. And so we are very aligned on that front as well.

We continue to work with them well. We in fact have drop down last quarter, we fire assets in Colombia that was under construction that is now fully operational; so we have done drop downs.

As we think about bringing possibly more monetizing our -- some of our renewable energy assets, will do what's best from a balance sheet perspective, first and foremost, but also, what is best in the context of if our shareholders. And if you just found that drop-downs into our Atlantica is the best outcome.

We will give that serious contribution as well..

Thank you..

Thanks Rob..

Next question comes from the line of Ben Pham from BMO Capital Markets. Your line is open..

Hi, thanks. Good morning. There is some commentary or a sentence in the MD&A mentioned your targeted Utility exposure, 78% to 80%. And I think that's maybe the first time I have seen maybe some more specific numbers being put their correct me if I'm wrong. And my question is that really you may maybe to frame us how you're thinking about that.

I mean, Kentucky brings to 80%. So are you basically say you don't want to accelerate the Utility expansion or M&A as much anymore post Kentucky, doesn't impact how you sell renewable assets because that's kind of changed the mix routers, business, maybe credit rating -- driven..

Good morning, Ben. First and foremost, balance sheet, right? Again, we're a little focused on making sure that we do not degrade our triple BBB at credit rating. Business mix obviously is a part of that.

There is no -- you know, very clear red line on what exactly that business mix should be; which gives us optionality, frankly, on how we grow regulated versus renewables.

The higher regular the mix, pro forma, we can take power obviously takes us closer to 80%, which obviously has positive impact on the business risk, credit profile, and so on and so forth.

It also gives us optionality on accelerating our growth on the renewable side because it is lifting if we were to come back to 70%, which is still within the right mix for our previous ratings. That opens a room just on the renewable side of the business for over 2,700 megawatts.

Now that over and top of whatever we could do in terms of Greening the fleet in Kentucky. So it really does accelerate significantly our potential growth of renewables, both in rate base in Kentucky as well as on the renewable side of the business.

Does that answer your question, Ben?.

Yes it does, that's helpful. And maybe to follow-up on some of our comments around the remaining funding for Kentucky. It sounds like -- I just maybe want a confirmation.

If you are too clear to funding near-term, it sounds like your bias right now is hybrid securities, maybe a little bit of non-regulated asset sales, but less of a desire to a lot of mandatory converts given that future equity dilution.

Is that correct?.

Look, Ben, I think I mean, one thing I can say about the remaining funding plan, it gives us a lot of flexibility. That's 5 seconds. Hybrids are very attractive. We've got flexibility with mandatories. And we talked about potential asset recycling opportunities that could be there, but right now we really have -- this provides us flexibility..

Okay. And is there -- I know you feel quite good about not needing external equity ATM through mid-2022.

But is there any sort of scenario, like a dark skies scenario that could happen or maybe even more robust growth opportunity that you expect that could drive an equity issuance in that timeframe?.

Look, I mean, one of the things that's non-negotiable for us is our strong Balance Sheet. We need to maintain a strong Balance Sheet, so there's -- we can speculate. There's a lot here, and I won't speculate.

There could be a lot of dark cloud scenarios, but right now, as we're looking forward, I think what we stated in my remarks is -- continues to hold..

Okay, and maybe a cleanup question on the tax credits you mentioned that your bookings this year -to - date.

It looks like it's probably around $0.05 or so; do you expect that $0.05 to be more of maybe a structural impact to EPS going forward, do you expect it to increase decrease?.

That's a great question. And I will say, yes, I mean, as we kind of look through it, spoke to the flexibility that now we'll have actually under the Build Back Better plan as well. The ability to self-monetize is going to be there.

And as one of the ways that we'll look to potentially fund projects again, whichever way best optimizes the particular projects' economics. So yes, I would say that is a tool that we'll have to continue to manage our overall effective tax rate..

Okay, great. Thank you..

Thanks, Ben..

Next question comes from the line of Andrew Gajewski from Credit Suisse. Your line is open..

Thanks. Good morning. I guess the question is for Arun, and that's really around the whole notion of the organization getting thicker, which you've been on a great growth trajectory for a while and then you've got another acquisition in the fold.

How do you maintain the entrepreneurial culture and status of the organization that it's historically been known for as you expand the entire enterprise?.

It's a great question, Andrew. And look, one of the things I'm really, really pleased about -- at Algonquin is that very entrepreneurial culture. It's one of our guiding principles. And that and a strategic thinking is both on the renewable side of the business and on our side of the business.

So as you see, things like greening the fleet on the regular side of the business as well, we have been successful in putting significant amount of renewables into rate base, putting in tax equity, perhaps as -- in a pioneers in doing that into the rebased, since we're doing things like the renewable natural gas, we've got a lot of storage pipeline, we're doing community solar projects.

So there is a lot of different levers we have, but really, everything is really around the old decarbonizes and plans for omission, right? What I'm extremely excited about is that, that opens up these huge amounts of opportunities. And we are absolutely stood to benefit hugely from that transformation over the next 10 years, 20 years.

And that's where we've really trying to align the entire Company and our entire entrepreneurial vent is really towards that..

That's helpful. And then maybe just a follow-up and related, if you think about your overall portfolio now, 10 years ago, some of the acquisitions that were done were meaningful to the Company and those assets aren't that meaningful now. But maybe they have positional value and there are things that could be done around those assets.

So how do you think about just rationalizing parts of the portfolio to maybe help out the financial structure versus the entrepreneurial efforts that can be driven off of so the that are across North America?.

And again, we do want to look at that very strategically. I mean so -- frankly each of our assets and jurisdictions, we should be looking at it from a perspective of do we grow? Or do we hold? Or do we divest? And at the end of the day, what is best for our shareholders.

And so we do look at it from that perspective, and it -- like I said earlier at the edge, there may be a assets that we may have acquired in 10, 15 years ago, that may not be good strategic fit for. So, when we think about things like asset recycling, those are really -- as obviously be at the top of the heap for us.

But other than that, we also have believe we have lots of opportunities given our scale on the renewable side to really continue to use the flywheel in terms of basically bringing in lower-cost capital, utilizing some of that for continued development. Continue to provide the kinds of growth and returns that we want to provide to our shareholders.

So there's a lot of good that could come from that process as well..

Okay. Thank you very much. That's very helpful..

Thanks, Andrew..

Next question comes from the line of Naji Baydoun, from IA. Your line is open..

Hi, good morning. Just wanted to start off with some questions on Kentucky and some of the comments you made on the strategic fit of certain assets.

I guess to be clear, there is no currently any preference to sell others taken Atlantica or an existing assets to help finance the Kentucky acquisition?.

Look Naji, what we've just talked about is that various financing sources and one of them could be asset recycling. But I think what Arthur, as also said repeatedly is that we in fact have you especially given our recent bought deal that we have a lot of flexibility on how we are going to fund the remainder of the balance.

Again, that's hybrid debt goods looks very attractive right now, but we could be looking at other sources as well such as asset recycling..

Okay. Got it. I just wanted to get, I guess, a bit more of your thought process behind the Kentucky acquisition. It seems like there's a lot of value we can unlock, maybe couldn't or wasn't interested in doing.

How do you view these assets in terms of risk return profile and maybe relative to some other M&A opportunities you're seeing in the market? Especially, when you take into consideration the size of the transaction..

Look, what we're excited about is several things, right? First of all, it's a very compelling value. When you think about 1.3 times rate based and you just look at the other transactions that have been done out there, right? This is a very compelling value.

Second of all, you look at the fact that Kentucky is in fact a highly rated constructive regulatory jurisdiction. That's another plus as well. Third, you look at the greening the fleet potential that I talked about earlier.

Especially given the fact that from the perspective of Kentucky, one of the coal plants from where we're purchasing power is in the State of Indiana and the other coal plant from which we're purchasing power and own 50% is in West Virginia.

And so from the perspective of Kentucky, being able to add significant amount of lower-cost renewable energy in the State of Kentucky to replace the energy that is being brought in from either Indiana or West Virginia and that is cool and at a higher cost.

That has to be extremely compelling as well, right? And on top of that, what I talked about is the other playbook that we have where examples like Granite State, examples like Empire, which were underperforming when we acquired them. And the fact that we have been able to bring them back to at or close to ROE.

I think broad back playbook also speaks for itself. So for all of those reasons, we're actually very excited about this opportunity..

Got it. Very clear. Just one final quick question if I can on the Empire Missouri rate case.

Just any preliminary thoughts on the staff recommendation and in that case, I know strong going, but just any thoughts?.

I think at this point in time as we are in the middle of the process. It's probably not the right time to come in. We're looking forward to engaging with -- through the process and look forward to getting a fair outcome..

Okay. Thank you..

Thanks, Naji..

There are no further questions at this time. I would now like to turn the conference back to Arun Banskota..

Thank you, Operator. And thank you very much for those who were able to join us today for taking their time on our call today. With that, please stay on the lime for our disclaimer..

Our discussion during this call contains certain forward-looking information, including but not limited to our expectations regarding earnings, sample expenditures, pending acquisitions, potential future greening the fleet initiatives, and potential future funding sources and transactions.

This forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.

Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations,.

Opinions and assumptions of management as of today's date. There can be no assurance of forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information.

We disclaim any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law.

In addition, during the course of this call, we may have referred to certain non-GAAP financial measures, including but not limited to adjusted net earnings, adjusted net earnings per share, or adjusted net EPS, adjusted EBITDA, adjusted funds from operations, and divisional operating profit.

There is no standardized measure of such non-GAAP financial measures, and consequently, AQN’s method of calculating these measures may differ from methods used by other companies and therefore, they may not be comparable to similar measures presented by other companies.

For more information about both forward-looking information and non-GAAP financial measures, including a reconciliation of non-GAAP measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR in the U.S., and available on our website. And that concludes our call, thank you for joining..

This concludes today's conference call, thank you for participating. You may now disconnect..