Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Algonquin Power & Utilities Corp. 2021 Fourth Quarter Earnings Webcast and Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. . Amelia Tsang, VP, Investor Relations, you may begin your conference..

Good morning, everyone. Thanks for joining us this morning for our fourth quarter and full year 2021 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, our Chief Operating Officer. To accompany our earnings call today, we have a supplemental webcast presentation available on our website, algonquinpowerandutilities.com.

Our financial statements, management discussion and analysis and annual information form are also available on the website as well as on SEDAR and EDGAR.

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

At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures. Please also refer to our most recent MD&A filed on SEDAR and 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 Q4 and annual 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 line for questions. I ask that you restrict your questions to 2 and then requeue if you have any additional questions to allow others the opportunity to participate.

And with that, I'll turn it over to Arun..

growth, operational excellence and sustainability, and I will provide more details on each of these pillars.

Earlier this year, we pulled on the acquisition of New York American Water, which services over 125,000 customer connections across 7 counties in Southeastern New York, and we officially welcome the New York American Water employees into Liberty. The transition has gone very well as planned.

Staying on the topic of growth, I want to provide you an update on our pending $2.8 billion acquisition of Kentucky Power Company and AEP Kentucky Transmission Company. We remain excited and firmly committed to this transaction and look forward to bringing the benefits of our local operating model to Eastern Kentucky.

As we've previously mentioned, our expectation of enhancing Kentucky Power's local operating model, bringing benefits to customers by exploring opportunities to reduce customer rates through investing in green energy and creating increased local employment are all attributes that are expected to help customers and the local communities while driving value for our shareholders.

To that end, you are likely aware that we jointly filed with AEP an application with the Kentucky Commission on January 4 for the approval of the acquisition of Kentucky Power. By statute, the Commission must issue an order on the application within 120 days.

We expect to close the transaction in mid-2022 after receipt of state and FERC-level approvals and satisfaction of all other closing conditions. To date, we have already received Hart-Scott-Rodino and CFIUS approvals. Staying on the regulatory front, our rate review at Empire Electric continues to progress well.

On February 4, 2022, a stipulation was reached among Empire Electric, Office of the Public Counsel, staff of the Missouri Public Service Commission and other intervenors. Hearings were held on February 7 on rate design and a hearing on the stipulation was held on February 10, with new rates expected to be implemented in May of 2022.

We believe the settlement represents a fair outcome for our customers and the company. We continue to invest in our network to deliver mission-critical services to our communities while keeping customer affordability top of mind. Another growth pillar in our regulated business is focused on deploying capital to benefit our customers.

In 2021, the Regulated Services Group invested over $1.9 billion, including the completion of our Midwest greening initiative, where we brought 600 megawatts of wind generation online.

In the coming years, we expect to invest between $800 million and $1.2 billion annually into our rate base to improve safety, security, reliability, resiliency and customer experience. Turning to the growth levers on our renewable business. In this business, our ability to originate and execute projects is a critical growth lever.

2021 has been a record year for Algonquin with nearly 1,200 megawatts of new renewable projects either closing or reaching commercial operations. In December 2021, we completed our latest project to achieve commercial operations, the 24-megawatt EBR wind facility in Quebec, with all of the energy being sold to Hydro-Quebec.

The 175-megawatt Blue Hill facility in Saskatchewan, with all of the energy under contract with SaskPower is on track to achieve commercial operations in March 2021. Our construction program continues with the expected start of construction in Q2 2022 of the Deerfield II and Sandy Ridge II wind projects.

Also, we continue to progress our partnership with Chevron and expect to start construction on the first 2 of these solar projects in midyear.

The fact that we continue to successfully execute on construction in the midst of the COVID pandemic, and supply chain challenges is a testament to the hard work, entrepreneurial culture and experience base of our employees.

At our Investor Day, we discussed our strong development platform, where our ongoing development has resulted in growing our greenfield pipeline of prospective generation projects to 3,800 megawatts by the end of 2021. This growth is net of projects totaling 640 megawatts, which advanced from our greenfield pipeline into our 5-year capital plan.

The 640 megawatts that advanced includes the Riverbend Wind Project in Michigan, the Blue Violet combined wind solar project in Illinois and 4 projects being developed in partnership with Chevron in New Mexico and Texas.

Two other important initiatives in 2021 to establish a strong foundation for future growth include building a 1,700 megawatt hour pipeline of prospective energy storage projects, an entry into renewable natural gas with the agreement to acquire Sandhill, a developer of RNG projects.

Sandhill represents an attractive platform, giving us immediate entry by its portfolio of 4 projects in the State of Wisconsin, 2 of which are currently under construction with first production expected around the end of Q1, and 2 projects which are in late-stage development. According to a U.S.

Environmental Protection Agency report, Wisconsin represents the state with the second largest universe of renewable natural gas opportunities, and we are excited to utilize Sandhill as an RNG growth platform. This acquisition is expected to close in the first half of 2022. Moving on now to operational excellence.

In a mission-critical industry, safety and reliability are always key areas of focus.

I'm very pleased to share that we have passed an impressive milestone of over 715 days, that is nearly 11 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 all of our employees for their ongoing focus on safety and preparedness for weather events. I want to particularly call out Sanger electric team in as that area received record-breaking snowfall over the Christmas holidays.

Liberty crews worked hard throughout the holiday weekend to restore power to our customers and communities as quickly and safely as possible during highest weather conditions. The hard work and dedication of our employees did not go unnoticed by the customers and local communities we serve.

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.

In 2021, we announced our target for net zero for Scope 1 and 2 emissions by 2050 with a critical path, supported by our strong decarbonization track record, extensive experience in regulated utility management and deep expertise in renewables development.

On the governance side, we successfully embedded sustainability into our management's compensation model, continuing to enhance how ESG factors are embedded throughout the organization's business goals. And finally, in 2021, AQN's ESG ratings continued to improve in the aggregate, positioning the company as a sustainability leader.

More recently, I'm pleased to report the company's inclusion in the 2022 Bloomberg Gender Equality Index for the third year in a row.

Our inclusion into the index is a testament to our continued efforts for continued gender equality, improved gender equality and transparency as we target above-market gender representation at our Board and executive levels. With that, I'll pass it over to Arthur who will speak to our fourth quarter and full year 2021 financial results.

Arthur?.

Thank you, Arun, and good morning, everyone. I'm pleased to report that Algonquin has reported steady fourth quarter and full year results, reflecting the benefits of our diversified and resilient business model and proven track record of disciplined growth.

Our fourth quarter 2021 consolidated adjusted EBITDA was $297.6 million, which is up approximately 18% from the $253.1 million we reported for the same period last year.

The Regulated Services Group delivered $191.4 million in operating profit in the current quarter, which compares to $162.4 million in the same quarter last year, an increase of about 18%.

This improvement reflects contributions from our Midwest wind facilities, which were placed in service in 2021 as well as contributions from BELCO, our Bermuda Electric Utility; and ESSAL, our Chilean water utility, as both acquisitions closed during Q4 of 2020.

Results also benefited from new rates implemented on CalPeco and Granite State Electric systems as well as Park Water and Apple Valley Water systems in California. This was offset by lower consumption driven by milder weather.

Results were also impacted by higher non-passthrough fuel costs at Empire Electric as well as higher operating costs at Granite State and CalPeco. The Renewable Energy Group reported fourth quarter divisional operating profit of $123.9 million, which compares to $97.9 million in the same quarter last year, an increase of about 27%.

The addition of the Sugar Creek and Maverick Creek wind generation facilities contributed to the year-over-year increase in operating profit. Our investment in Atlantica also continued to provide benefits with dividends received and increasing by $4.4 million over the prior year.

Q4 also benefited from the sale of our New Market Solar facility through a joint venture with our renewable construction partner, Ares, resulting in a recognized gain, reflecting a step-up in the value created through the development process.

However, this increase was partially offset by lower overall production of some of our wind and solar generation facilities and higher operating costs, while performance at our Sanger facility was negatively impacted this quarter while higher compliance costs and lower capacity payments.

Our investment in the Texas coastal wind facilities was also negatively impacted by higher-than-expected basis costs, lower-than-expected production and an acceleration of HLBV losses of $9 million related to Q1 hedge settlements caused by Winter Storm Uri and are expected to largely reverse in the future.

Fourth quarter corporate expenses were higher by approximately $10.5 million as compared to last year, driven primarily by higher administrative expenses and a higher overall net development expenses as compared to last year. In total, our Q4 adjusted net earnings per share came in at $0.21, which is in line with last year.

In addition to the drivers discussed, our results were negatively impacted by financing costs associated with the capital deployed in 2021 and an increase in the weighted average shares related to the Kentucky Power acquisition funding.

For the full year, adjusted net EPS came in at $0.71 and compares to $0.64 reported in the prior year, representing an annual growth in adjusted net EPS of 11%, showing solid year-over-year growth. Although we delivered strong results, we did encounter various headwinds throughout the year.

As a result of record load wind resources experienced throughout the early part of the year, which was an industry-wide phenomenon, generation on our wind facilities was down approximately 10% from long-term averages. Also, much warmer-than-normal weather in the Midwest negatively affected customer usage in the early and latter parts of the year.

Compared to normalized weather patterns, this represents an impact of approximately $48 million on our 2021 operating profit or about 5.5 cents on our adjusted EPS. Moving on to the balance sheet and financing activities.

First, I wanted to spend a few minutes to provide an update on our progress towards the financing of the Kentucky Power acquisition. On the announcement of the deal back in October of last year, we executed a Canadian dollar-bought deal offering of common shares, raising a U.S. dollar equivalent of approximately $640 million in proceeds.

Early this year, we issued approximately $1.1 billion of hybrid debt in a concurrent public offerings in the U.S. and Canada. Recall that hybrid debt received 50% equity credit from S&P and Fitch, and never converts to common shares.

We have issued this financing on an attractive expected 10-year rate of approximately 4.9% or at 5% after factoring hedging. That brings the total rates for the transaction to just over $1.7 billion towards the $2.8 billion purchase price.

On closing, we expect to assume approximately $1.2 billion of Kentucky Power Company debt, of which approximately $500 million is targeted to be refinanced using Liberty Utilities' established 144A debt platform, which we would expect would benefit our future Kentucky customers.

We continue to see this acquisition as providing compelling value and look forward to closing later this year. Moving on to the broader capital and financing plan.

In 2021, Algonquin deployed $3.7 billion of capital or organic initiatives relating to the safety and reliability of our electric, water and gas systems as well as delivering new renewable generation from our projects, including Maverick Creek Wind, Altavista Solar and our Midwest greening.

For 2022, Algonquin is targeting to spend over $4.3 billion in capital, with the majority related to the acquisitions of New York American Water, which closed earlier this year; and Kentucky Power, which is expected to close in the middle of this year.

Our funding plan for the remainder of the year is predicated on maintaining a strong and resilient balance sheet, targeting a BBB investment grade credit rate. I spoke to the funding associated with the Kentucky Power acquisition already.

The remaining funding requirements can be solved by a combination of various funding sources available to us, including retained cash to more hybrid debt proceeds and some more hybrid debt, proceeds from securitization of certain regulatory assets and as well as issuance of long-term debt.

As we discussed during our Investor Day, asset recycling, we're selling down a portion of our nonregulated renewables can also be viewed as another source of potential value-accretive capital for us this year.

Considering the various funding sources available, we do not expect to raise additional capital when we have issuance of discrete common equity for the remainder of this year. Our funding plan is supported by a strong liquidity position. At the end of 2021, we had approximately $2 billion of committed capital and reserves available.

Not counting the acquisition facility that was arranged in connection with the Kentucky Power transaction. Before turning things over to Arun, I'd like to provide a brief update on our 2022’s adjusted net EPS guidance.

We continue to expect our 2022 adjusted net EPS per share to be within a range of $0.72 to $0.77, which was communicated previously at our Investor Day.

We continue to assume in our earnings guidance normalized weather patterns and rate decisions in line with expectations as well as resource production and realized pricing on a renewable generating facilities consistent with long-term averages. We also assume that there are no impacts from COVID-19 on our operations.

We look forward to continuing to deliver solid earnings from our diversified and growth-oriented business model, which along with our history of superior dividend growth, we believe will continue to drive strong shareholder returns. With that, I will now hand it back to Arun to outline our strategic plans..

Thanks, Arthur. Before we close out our prepared comments this morning, I want to give an update on our strategic initiatives. At our December Investor Day, we updated our 5-year capital investment program, which projects $12.4 billion from 2022 through the rest -- through the end of 2026, it is very visible capital plan.

Of that, we have already closed on New York American Water earlier this year, executing on approximately $600 million of the capital plan in January. On the regulatory side of the business, the additions of New York American Water and Kentucky Power are expected to drive long-term adjusted net EPS growth.

While a large portion of the capital plan is being spent on organic investments to improve the safety, reliability and resiliency of our network. On the renewables side, we are excited about the growth potential and believe that we have a once-in-a-generation opportunity to accelerate renewables growth and add shareholder value.

In just over a period of 1 year, we have made investments and have grown our prospective greenfield pipeline from 3,400 megawatts to 3,800 megawatts, while converting 640 megawatts from that greenfield pipeline into our new 5-year capital plan.

We also introduced a new prospective pipeline of storage opportunities of 1,700 megawatt hours at our December Investor Day. We believe this validates the strength of our development platform. We now have scale across both our development platform as discussed, and we own and have investments in over 4,000 megawatts of renewable generation.

At our Investor Day, we spoke of accelerating renewables growth and adding shareholder value as we plan to increase our investments in greenfield development, which we expect will allow us to capture the higher development margins and take a number of those projects through construction.

Once in construction, we see an opportunity to partner with institutional investors wishing to make alternate sustainable investments with our ability to develop and deliver on long-term contracted sustainable assets. In particular, we should be able to sell down to these investors while earning an operating fee.

We could then deploy somewhere all of the capital gains in further greenfield development, creating a potential new recurring source of earnings for our investors. With scale, we expect to get incremental benefits, including improved negotiating power, lower transaction costs and access to greater opportunities.

We are on our way to completing planning and plan to execute this strategy in 2022. I'm excited about the prospects for Algonquin's regulated and renewables businesses, which are both well positioned to contribute to and benefit from the decarbonization transformation that is currently underway and which will only accelerate over the coming years.

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 pursuing our sustainability goals.

With that, I will turn the call over to the operator for any questions from those on the line..

Your first question today comes from the line of Sean Steuart with TD Securities..

A couple of questions.

The New Market Solar project sale to the joint venture with Ares, how should we think about that project pipeline going forward for future sales into that vehicle?.

Sure, Sean. So look, we have been talking a few times now about the ability for us to provide recurring shareholder value through the growth of our development and construction pipeline.

And so what I talked about towards the end of my presentation, was really how that the New Market Solar also fits into our strategy of being producing recurring shareholder value through such sell-downs.

So because of the fact that we believe it's going to be a recurring source, we thought -- we believe it was prudent to not adjust that out of our earnings..

Okay. Understood.

The pace going forward though for future projects to be sold into that vehicle? Any context you can provide there?.

Well, we're about done with our planning process and starting our execution process on that, Sean. So we'll probably be able to give a lot more detail at the next quarterly call..

Okay.

The Sandhill acquisition and, I guess, context on the amount of capital you expect to invest into those projects? And more broadly speaking, larger investment opportunities for whether it's RNG or other energy transition type investments? Any details you can provide on that front?.

Sean, it's Jeff. Yes. I think the Sandhill acquisition and the 4 projects are anaerobic digesters. And so they're relatively small in terms of CapEx. It's important to us because of the benefits of advancing in RG and improving our knowledge in that area more so than an absolute capital play. That being said, we do see RNG expanding.

Our RNG includes hydrogen. And so as we start to build our knowledge, start to build how we trade and expand more. We do see that as an important area, but there's still a lot of information to unfold..

Your next question comes from the line of David Quezada with Raymond James..

My first question here, just on New York American Water, now that, that's closed. I'm curious what kind of potential you see there, I guess, for spending CapEx, either organic or otherwise? I think at the time of the acquisition, there were some -- there was some talk about opportunities for consolidation there.

So any thoughts around that would be appreciated..

Look, I mean, we are very much in a planning process for continued investments in New York American Water. Our next rate case is not due for some time. But as with all of our other utilities, we continue to invest in the safety and reliability and resiliency of that water system as with anything else.

Now given our unique positioning in terms of renewable energy, I mean as you know, there's quite a bit of energy required to transport water.

One of the unique things we do, do is look at opportunities to see how we can substitute the current energy profile with our renewable energy generation to serve water utilities also, which I think is a unique capability that we have, and we have utilized that already. So that's something we're taking a close look at as well..

Excellent. Maybe just one more for me, just on the topic of cost inflation, and I'm thinking specifically about your regulated business.

Curious if you've had any discussions with regulators, especially on your active regulatory dockets? If inflation is -- has been raised as a concern there, at all? And how are those discussions going?.

Sure. Look, David, I mean inflation is the current topic du jour, right? So obviously, we're seeing more inflation than we have seen in the past probably what, 10, 15 years, at least, I think. On the regulated side of the business, look, I mean, inflation is largely a pass-through.

But at the same time, we are acutely aware of the potential impact on customer affordability, so we track that extremely closely. And that's a continued source of discussion we have with the regulators on how to balance all the costing increases vis-a-vis the right level of customer rates.

On the renewable energy side, it's largely a function in our minds of you have 3 significant contracts on the renewable energy side, right? You've got your large equipment contracts, you've got your EPC contract, you've got your offtake contracts. Once you signed those 3 agreements, all of them are fixed-price contracts.

And so in our mind, the strategy we employ is trying to sign those 3 contracts as closely concurrently as possible so that we are not left holding the inflation risk. So and that's the balloon being able to protect our return margins..

Your next question comes from the line of Rob Hope with Scotiabank..

First question, just on the -- it looks like a little bit of a pivot on the renewable power strategy to a bit more of a capital strategy. Is this what's driving the investment in capital projects on the Renewable Energy Group of $5 million to $30 million in 2022? Because if I look at Slide 7, it looks like it should be a relatively busy year.

So the assumption that you're going to be kind of bending down more than half of these projects, equity count for them and kind of recoup your capital here pretty quick..

Not basically already there. What you're seeing there is basically the spend that's really the on-balance sheet spend. But obviously, a lot of activity going on in the year and certainly a lot of development spend and continuing construction spend but there -- that spend is mostly reflected in our construction JVs..

And then that activity is only likely to keep on increasing Rob, and that's why if you notice, we started including a slide that shows you the level of construction activities, which is fairly significant.

So we have not slowed down in terms of continue to advance our greenfield projects through the development process, through construction and Android into operations..

All right. That's helpful.

And then I guess the question is, how should we think about the $3.6 billion of CapEx that you put forward at your Investor Day? Is that then more of a 100% number and then net to Q1 could be significantly smaller than we'll add on more projects as they come?.

Yes. You can think of that as the growth number. I mean, obviously, as we think about how much is actually retained versus monetized and so forth will be determined in the future..

Your next question comes from the line of Nelson Ng with RBC Capital..

Just a quick follow-up to that question in terms of the JV.

So can you give a bit more -- give a bit more color on your relationship with Ares Management? Are they a long-term buyer of your assets? Is that part of the plan?.

Yes. Nelson, it's Jeff. I wouldn't characterize it as long-term buyers. So we've got a strong relationship with Ares, and we expect to do more than one transaction with them, but it's not an exclusive relationship. And I think there's a very robust market out there, and we want to keep our options open..

Okay. So I know in the past, you would move assets into a JV, have it constructed. And then at the end, you would you usually kind of buy it back at a nominal price.

But this isn't the case, right? Ares will be a long-term equity shareholder in New Market and the other assets, is that right?.

Yes. There's 2 elements to think of on that. The first one is on the development side, where we are moving projects through and they're participating in the risk on those projects. And then there's the construction type JVs.

I think the primary difference is Ares' -- the primary difference between the original construction projects to -- we may not take them back at the end. But it may not be Ares that is the long-term goal, but there may be a third party that picks up thereafter as well. So that's not absolutely certain at this time..

Okay. And then just one last follow-up question.

In terms of timing, so is it the plan to have things sold down and moved to a JV at, I guess, on financial close or just prior to construction or during construction rather than on or after completion? I presume there's still a bit of extra value to be had if -- after you hit COD?.

The plan is that we're in the best position to derisk these projects through development and through construction. Those are clearly areas of expertise we have and take them through a certain period of operation, take care of all the initial bidding down issues, and then sell down..

Okay. Sorry, go on..

No, I was just going to add. And I mean, with the construction JVs, Algonquin still look to retain the full obviously upside value throughout the construction cycle..

Your next question comes from the line of Ryan Greenwald with Bank of America..

Maybe starting with, any additional color how you're thinking about the dividend growth going forward? It looks like excluding the gain on the sell here, you guys were tracking at approximately 100% payout ratio.

Is there any way to help frame how you're thinking about that? How does the annual cadence and would you typically revisit it?.

Yes. I would say it's -- our stance really hasn't changed what we communicated previously. But our dividends, we certainly wanted to be sustainable dividends. And I think we've communicated in the past in the 80% to 90% payout ratio target. I mean it's long term targets, that's what we're targeting between 80% to 90%.

So there is going to be a lumpiness in certain years. But from an overall long-term perspective, that as where we end up seeing and certainly some further dividend growth as well..

Got it. That's helpful.

And then in terms of the sale to Ares instead of AUI, can you just talk about that? And how you're thinking about the AY relationship going forward?.

Look, the AY relationship remains strong, right? I mean as you saw, we have dropped down some other assets into AY as well, like I've told multiple times. I mean we like the ESG profile of Atlantica. So the relationship remains strong. I just want to remind folks that the whole construct around with AI on the drop-down.

So that it is going to be around nonregulated non-North American assets, right? So this does not obviously necessarily fall into that category. So I think as a company, we -- as we grow our renewables portfolio, we find ourselves in a good position that we have multiple options..

Yes, understood. And maybe just one more, if I may.

In terms of your appetite for further M&A in the market environment, can you touch on that a bit? And then perhaps, separately, given where LDCs have been transacting from a private valuation perspective, will regulated divestment beyond the table? Or is any asset recycling going to be more on the renewable side?.

Look, I mean, Ryan, I would tell you that we're always looking to increase shareholder value.

And then we're never closing any doors and saying, there are no sacred cows here, right? Having said that, from a strategic perspective, when we look at all of our assets in our portfolio and given the external market as well, we believe that the first phase is really the sell-down on the renewable side of the business because we see our ability to be able to control more that development pipeline, the construction pipeline, the flow of the number of projects into operations.

So it's a much more recurring and it's a much more controllable pace of recurring shareholder value rather than one-offs, right? Now having said that, we're not against doing one-offs either. And so one of the ways we look at that is any particular asset, more valuable in our -- under our ownership versus somebody else's ownership.

So that's something we're always looking at..

Your next question comes from the line of Ben Pham with BMO..

Maybe I want to start off to follow up on some of the questions you had on Ares and some of the structures that you're utilizing.

I'm wondering, when you look at asset drop-downs or asset sales, like how do you position where it sits? Is Ares mainly development construction, AY, operating assets, and then you compare that to third party? How do you -- there's a bunch of different structures going, so would be interesting to see how you think about where things sit..

So basically, when we look at development and construction, one of the options we have, obviously, is to utilize this joint venture with Ares, right? So we do not have any other -- but we could develop it totally ourselves as well. So we have that flexibility of doing either, or.

We are not normally developing projects or going through construction with Atlantica. On the operational side, by and large, we are the operating entity on our asset base. And Atlantica is the operator on their set of assets. I mean we obviously try to learn from each other, but those are 2 separate operation platforms..

Okay.

And then your 2022 guidance for even thinking the 7% to 9%, I would assume, correct me if wrong, there's a drop-down element baked into those numbers?.

Yes. We do certainly look at extracting value out of our greenfield development pipeline, and we have to bake that into the guidance. Now whether it's pure drop-down or a pure gain or whether it's extracted through different ways, such as management fees and so forth, that's to be -- we still work through.

But there is certainly 1 thing we are looking at is obviously some of the value created to our current growth plan go..

Okay. I understand. And then my last one. You mentioned some of the bridges on funding for Kentucky Power.

I wasn't sure offer, were you suggesting that you're now fully funded for Kentucky Power? Or there's still a slice left?.

Yes. We're basically done in terms of the notional melts for Kentucky Power with our hybrid debt of $1.1 billion. We funded the cash purchase price. Now we obviously need to put everything into the mix and make sure our credit metrics come out right on the other side of all of this.

So there's -- the rest of -- there are funding plans certainly considered with that..

Your next question comes from the line of Andrew Kuske with Credit Suisse..

I guess the first question is really around the ability to monetize certain assets, portions of it entirely and then use those proceeds to effectively accelerate growth. All that can be pretty compelling.

But how do you balance just a more complicated structure versus being more simple? And how do you think about that? And whether the financial terms are sort of warmer fuzzy kinds of ceilings?.

Andrew, great question. Thank you. So fundamentally, if you really look at it, what we're trying to do is leverage -- there's 2 specialized skill sets we have, right? One on the development side and one on the operations side. And I think, over the years now, we have a certain level of scale on both sides of the business.

And we believe that we should be able to just accelerate that growth by utilizing and leveraging those specialized costs, even more given the external environment and the whole decarbonization fees that's out there, right? So that's really the fundamental thesis.

Now obviously, to grow significantly along that renewable energy portfolio, you obviously need to access a lot of capital.

And our view is that, again, looking at the external market, with the amount of a number of sustainable investors out there, we believe that we should be able to sell down to those sustainable investors at a point where we can provide recurring value to our shareholders, right? So that's really the thesis of that flywheel, if you will, continue to expand our renewables the greenfield pipeline, taking those derisking goes through development construction and operations, selling down, redeploying that capital back into more renewables growth..

Okay. That's helpful. I appreciate that. And then maybe just thinking about that flywheel and your businesses, and the transactional markets we've seen in the U.S.

more recently on the LDC side, is there an opportunity to really focus your expertise in both the renewables business and the utilities business more broadly through the Caribbean because you've got the exposure in Bermuda, but there's other assets there that do have good decarbonization storage, renewable needs and offer just more compelling value from an investment standpoint.

How do you think about that region more broadly?.

Well, we were attracted to burn it up from a lot of different factors, including the size. We even look at things like hurricane profiles, things of the sort, where the Bermuda does experience even fewer hurricanes than the other parts of the Caribbean. So there's obviously a lot of things we look at when we look at any acquisitions.

Scale is important, we believe, in terms of being able to do a lot more with less. So building scale across any 1 of our 3 modalities, especially electric and water, are things that we look at very closely.

But again, we end up looking at a lot more opportunities than in terms of executing against those just because we continue to be extremely disciplined around which assets we bring under our fold. We just have a lot of financial metrics, risk metrics that we need to look at, but that has need to fit.

But again, I hope I'm answering your question, Andrew, it's a long-winded question -- answer..

Your next question comes from the line of Naji Baydoun with Industrial Alliance..

Just wanted to start off with, I guess, a clarification on the balance of funding for this year.

So in the large hybrid offering, and in terms of the priorities for asset recycling, can you just clarify if you're thinking about existing asset monetizations or noncore asset sales? Or is that -- is it really just more focus on development sell loans for this year?.

So for this year, I mean, as we think about our funding plan, look, we've got, I would say, first of all, we've got optionality. As always, we've got a lot of different funding sources that we can look to tap. I mean asset recycling is certainly one of those funding sources and that would potentially come from existing assets that are in our fleet.

But again, it's -- we've got quite a lot of funding sources to potentially satisfy what we need to do this year..

Okay. So there's no, I guess, necessity in terms of accelerating some of that here in the short term? Okay. Just the other question I have was about the accelerating renewables growth that you mentioned. I know that you have a lot of projects in the pipeline for this year.

But maybe just beyond 2022 and '23, can you just give us an update on how the new development projects are going that could potentially extend that runway over time..

Naji, it's Jeff. And I think Arun referred to our greenfield pipeline, the 3,800 megawatts, which we rolled out at Investor Day. That is what we see feeding our 5-year capital plan, and we continue to add to that pipeline as well as advance the projects in that pipeline for pull down into the capital plan.

So we feel like we've got the pump well primed or the flywheel turning here, and we're making good progress across the spectrum from new entrants into that greenfield pipeline and pulling stuff out into the capital plan.

And so '22, '23, '24, we won't be able to say anything concrete until we have names ready to share with you, but the process is certainly working well. .

Okay. And on top of that, we also showed you the 17 to 100-megawatt hours of storage pipeline which we're pretty bullish about..

Of course. And again, just to be clear, I think you said you're looking to add about a gigawatt of new projects in the next 5 years.

So are you -- do you feel like you're still on track to do at least 200 megawatts this year of new development?.

Yes. In terms of new development that would fall into the capital plan that we shared at Investor Day, we would expect at least 200 megawatts..

Your final question today comes from the line of Rupert Merer with National Bank..

Another question on asset recycling of freight.

Can you talk about potential to sell your existing assets? Are you only looking to sell downs on development assets? Or could you do sell downs on existing assets as well?.

Rupert, it's Jeff. Yes. Existing assets are certainly on the table, and we believe they've got good value given the transactions we're seeing in the market. And to the extent that we're looking to monetize anything in the shorter term, that's where the more material amount would be..

And then would you look to aim or look to say, control 51% of assets in the future? So you're going to maintain control and then you have a joint venture accounting somewhat like you have with your Texas assets?.

Not necessarily, Rupert. I mean, we have not decided exactly what level of ownership we're going to take. I believe what is more important for us is to make sure we are the operating and asset management entity because, again, creating and furthering scale on that side of the business also continues to be important for us.

So that's what we will focus on, exactly what percent is we sell down, that's still in the planning stages..

Okay. Great. And then just finally on Texas, you saw some headwinds, the coastal wind assets. I know you gave us some color on that situation back in December.

Just walking -- wondering if you could walk us through what you saw in Q4, and what the outlook is for these assets going forward? I understand you're looking at improved transmission there over time, but what does the outlook look like for the remainder of this year?.

Sure. So Rupert, so there was really a combination of factors, right, on those coastal wind facilities. First of all, there were lower wind resources, which, again, I believe is an industry-wide phenomenon that affected quite a number of our North American wind assets in 2021.

On top of that, during periods of oversupply, the prices were obviously lower than anticipated in the market. And third, one of the projects actually got to COD later than anticipated. And finally, as you saw towards late of the year, there was general transmission constraint that is announced by ERCOT. So it really was a combination of factors.

We believe that the first 3 of those should be transitory. The fourth one, we believe, is going to go away with time because of the announcement of a general transmission constraint, that means that both ERCOT and the commission have already approved transmission upgrades around that region and that facility.

So we believe that over time, starting 2024, that basis risk is going to be -- should significantly go away. So of those -- the 4 factors I talked about, 3 of them are transitory, one, we believe will continue until 2024..

There are no further questions at this time. Arun, I turn the call back over to you..

Thank you, operator, and thank you, everyone, for taking the time on our call today. With that, please stay on the line for our disclaimer..

Our discussion during this call contains certain forward-looking information, including, but not limited to, our expectations regarding earnings, capital expenditures, pending acquisitions, capital recycling and future growth.

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

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

There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information.

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

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

There is no standardized measure of such non-GAAP measures, and consequently, AQS 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 measures, including a reconciliation of non-GAAP financial measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR in the United States, and available on our website. And that concludes our call..