Algonquin Power & Utilities Corp. Common Shares

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power and Utilities Corp. 2020 Third Quarter Earnings Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Amelia Tseng, Vice President, Investor Relations at Algonquin Power and Utilities Corp. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us this morning for our 2020 Third Quarter Earnings Conference Call. My name is Amelia Tseng, and I'm the Vice President of Investor Relations at Algonquin Power and Utilities Corp. Presenting on the call today are Arun Banskada, our President and Chief Executive Officer, and Ardra Kastasek, our Chief Financial Officer. Also joining us this morning for the question and answer 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 and management discussion and analysis are also available on the website as well as CDAR 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 and capital expenditures, as well as potential future impacts of COVID-19. We will also refer to certain non-GAAP financial measures At the end of the call, I will read a notice regarding both forelooking information and non-GAAP financial measures. Please also refer to our most recent MD&A filed on SIDAR and EDGAR and available on our website for additional important information on these items. On our call this morning, the room will provide an overview of the strategic achievements for Q3 2020. Arthur will follow with the Q3 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, and I ask that you restrict your questions to two, and then re-queue if you have any additional questions to allow others the opportunity to participate. Before we turn it over to Arun to discuss our progress in Q3, we will have Chris Jarrett make some farewell remarks.

Chris? Great. Thanks, Amelia. Before we start the formal part of the presentation, I'd just like to say a few words to all the analysts and investors who are on this call. As previously announced, I will be retiring at the end of this month, and today will be the last time I'll be on these calls. As the co-founder of the organization, I've had the honor of serving employees, investors, and customers for the past 32 years. I have to tell you, it's been an incredible journey to be part of growing a company from a single room office above a convenience store to the $12 billion asset-rich company which we are today. I'm incredibly proud of our long-term accomplishments, our 32 years of growth strategy, our successful long-term financial performance, and our success at being recognized as one of the most sustainable companies in the world. As everybody knows, leadership succession in any organization is inevitable, and therefore it needs to be an ongoing initiative. I honestly believe that Algonquin Succession has positioned us as the organization for continued success going forward. In addition to recruiting and to transitioning Arun into the role of CEO, you will have also seen that our senior leadership team has been significantly expanded and strengthened. I'm leaving this organization confident that the new generation of leadership will be successful at executing on the existing strategy, but probably more importantly, contributing new ideas, new energy, and new skills. And lastly, while I'm supremely proud of my role over the past 32 years of building this organization, I must acknowledge the contributions of so many talented and committed employees throughout the Many of these individuals have not historically been front and center to investors and analysts, but their contributions have been immense, and Algonquin would simply not be where we are today without their involvement. And I'm extremely thankful to have had them as teammates, and I wish them the best. So next quarter, I'm going to be at the other end of these quarterly calls as an extremely interested long-term shareholder, and I'll pass it over to Arun now.

Go ahead. Thank you, Chris. And good morning to those who have been able to join us on the call and online. Our diversified business model delivered stable results, and I'm pleased that we had a strong third quarter amid the disruptions due to the global pandemic, reporting Q3 adjusted net earnings per share of $0.15 compared with $0.14 per share last year. Looking at our regulated services group, We are a business providing mission-critical energy and water services to our customers. We continue to perform well, both from a financial and operational standpoint, as we navigate through the impacts of COVID-19. Given the resiliency of our business model, the company has been able to provide uninterrupted utility services since the onset of the pandemic without compromising on the safety and quality of those services. As expected, given the changing consumption patterns of our customers, we have seen some moderate decreases in customer demand across some of our utilities, impacting our third quarter adjusted net EPS by one cent and bringing the year-to-date effects of COVID to two cents per share. We have been able to offset the decline in operating profit by implementing cost containment strategies that year-to-date have provided $18 million of savings, already above the $15 million we had committed for the year. Arthur will provide more commentary on these financial impacts. Operations at our renewable energy generation facilities have naturally supported social distancing, and with the lion's share of our renewable energy generation under long-term contracts with creditworthy counterparties, we have not experienced any negative COVID-19 impacts to that side of our operations. Overall, I'm pleased with the progress we've made so far this year, and I'm confident we will continue to benefit from our strong, resilient, and diversified business model for the remainder of 2020. Since our last quarterly call, we have been continuing to focus efforts on APOC's three strategic pillars, growth, operational excellence, and sustainability. I would like to spend a bit of time now with updates from each pillar. Firstly, as you well know, Algonquin has a strong history of growth and we are committed to continuing this growth trajectory and adding value to our shareholders. During the quarter, we announced the acquisition of ESAL, our first international water utility in Chile with approximately 230,000 customer connections. We remain by and large a North American energy water company and when it came to looking outside of North America, we looked long and hard at ESSA. We feel good about investing in Chile with one of the highest GDP growth rates and lowest country risks in Latin America. The transaction was completed at a very attractive multiple and considerably increases Algonquin's water utility footprint. As you may have seen last week, we also completed the acquisition of Ascendant, which through its wholly owned subsidiary, Bermuda Electric Light Company Limited, is the sole electric utility in Bermuda. With the completion of the Escal and Belco acquisitions, which mark our 26th and 27th regulated utility acquisitions respectively, I'm proud to say that we have achieved a significant milestone with Algonquin now having over 1 million customer connections within our regulated footprint. This means that an estimated 2.7 million people benefit from the essential energy and water services we provide to their homes. Moving on now to operational excellence, which is all about having a laser focus on improving our day-to-day service delivery and efficiency on all areas. I was pleased that in this quarter, we were able to celebrate in our renewable generation business six years without a lost time injury. That is more than a million hours' worth of fantastic achievement. To do this well takes real leadership and focus. We bring the same focus to our M&A acquisitions as they become part of the families. including the recent additions of ESAL and Belco that I just discussed. Not only does Algarcun have a strong track record of closing on its acquisitions, but we have a very specialized skill set of integrating them without missing a beat in delivering essential services to our customers. We share learnings between our utilities with the aim of driving consistent improvement in our key performance metrics that drive value for our customers and investors. In order to do this even more seamlessly, we are making investments in technology and are making good progress on our Customer First program. We rolled out a number of releases in Q4, including improvements to our customer payment platform, procurement, employee experience, and are on track for our first major releases in Massachusetts in Q2 of next year. 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. From the earliest days of our company's history, sustainability has underpinned how we think, act and operate. By virtue of the business we're in, interacting with the environment to bring energy and water to communities sustainability is ingrained in our nature. That's why I'm so pleased to report that last month, we released our 2020 sustainability report, outlining our progress on our ESG goals. The 2020 report provides a higher level of disclosure detail around our nine priority issues. Another enhancement includes the addition of new emissions information such as scope three and SS6 emissions and third-party verification of our 2019 emissions inventory. We are targeting to issue our 2020 Climate Change Assessment Report in alignment with the Financial Stability Board's Task Force on Climate-Related Financial Guidelines in Q4. This will be our first TCFT-aligned disclosure, and we'll lay out how climate-related considerations intersect with our value proposition to the communities we serve and to our shareholders. We are also proud to acknowledge that we are among the leaders of a representative peer group with respect to 2019 CO2 emissions intensity per dollar of revenue. Later on this call, I will provide an update with respect to our major capital projects. With that, I'll pass it over to Arthur for a review of our Q3 2020 financial results.

Arthur. Thank you Arun and good morning everyone. In the third quarter of 2020, our business operations performed well amid the COVID-19 pandemic. Our third quarter 2020 adjusted EBITDA on a consolidated basis was $197.9 million, which is up approximately 6% from the $186.9 million we reported in the previous year. The regulated services group delivered $145.6 million in operating profits, in the current quarter, which compares to $135.3 million in the same quarter last year. The increase is primarily due to the implementation of new rates, as well as operating cost savings realized during the quarter and has been partially offset by decreased customer demand from the impacts of COVID-19. The Renewable Energy Group reported Q3 divisional operating profit of $65.6 million, which was in line with last year of $65.9 million. Higher overall production at our wind facilities than the addition of the Great Bay II solar facility was offset by lower HLVV income and non-capitalized development costs. Our Q3 adjusted net earnings per share came in at 15 cents, which compares to 14 cents reported last year and was above our guidance range of between 11 and 13 cents. Our results were positively impacted by cost savings implemented during the quarter, and tax credits earned from our renewable generation projects, but were partially offset by the delay in the closing of Belco and the impacts of COVID-19. Now we'd like to provide a few more financial updates from the court. First, a bit more detail on the financial impacts from COVID-19 pandemic. As mentioned, the Regulative Services Group has experienced load reductions due to decreased demand resulting from COVID-19. This impacted divisional operating profit by an estimated $4.2 million in the quarter and $14 million for the first nine months of the year as compared to the same period last year. We have seen the impact on consumption patterns start to ease from the early peaks as the economy has begun to reopen. Our regulated services group continues to track the incremental impacts related to COVID-19 and will be seeking recovery in all of its regulatory jurisdictions. To date, 10 of our regulatory jurisdictions already have mechanisms in place or have approved accounting orders to track these impacts. Second, as discussed previously, we began implementing cost containment strategies in response to the demand decreases caused by the pandemic and unfavorable weather. I'm pleased to report that on a year-to-date basis, we achieved $18 million in cost savings and expect to achieve further reductions of approximately $5 to $10 million in the fourth quarter. Some of the reductions are occurring naturally, like lower travel expenses. However, we're also taking proactive measures to recur operating expenses where possible, such as driving efficiencies through procurement and increasing focus on capital work. This, of course, comes without compromising on safety, security, and reliability of the services we provide to our customers. Third, during the quarter, we have accrued approximately $50 million of tax credits associated with renewable energy projects, that either have or are expected to be placed in service during the year. The self-monetization of tax credits, which we have spoken about at past investor dates, continues to be an ongoing strategy to opportunistically optimize the economics from our renewable energy projects by prudently utilizing our available tax attributes in place or as a complement to external tax equity finance. Now turning over to the balance sheet. Given the potential disruption within the capital markets with the second wave of COVID and the pending U.S. federal elections, we felt it would be prudent to solve for our equity needs for this year and put us in a position of strength for next year. Early in the quarter, we successfully accomplished this by completing an equity offering for a total gross proceeds of $724 million. On the debt side, Liberty Utilities issued an inaugural $600 million 10-year senior unsecured notes into the U.S. 1.4A market with an attractive coupon of 2.05%. In keeping with our core value of sustainability, it qualified as a green bond with the proceeds of the offering to be used to finance wind energy projects and other green investments. We now have completed green financings on both the regulated and renewable sides of our business. Considering both our equity and debt offerings, Algonquin has now over $3 billion of liquidity available on its balance sheet, leaving us well-positioned to continue to execute on our over $9.2 billion five-year capital plan through the end of 2024. When combined with our predictable cash flows from operations, our balance sheet positioning remains in line with our commitment to maintain triple B-flat investment-grade credit metrics. Before turning things over to Arun, I'd like to provide a brief update on how we are tracking to our previously provided earnings items. This year, we experienced several unforeseen and uncontrollable items, including the COVID-19 pandemic, unfavorable weather, and the delay of Delta close from the first quarter to the fourth quarter. We worked to offset some of these impacts with a cost savings program that is already exceeding the $15 million we committed to. While our actual 2020 adjusted EPS results remain uncertain, Based on the results to date and certain future assumptions, we expect to finish the year around the lower end of our most recently issued guidance of $0.65 to $0.70. With that, I will hand things over back to Arun to discuss the future outlook.

Thanks, Arthur. Before we close out our prepared comments this morning, I want to give an update on our growth initiatives. We'll then open the lines for the question and answer period. We remain committed to our strong track record of growth with many different levers at our disposal. We remain on track for our five-year $9.2 billion capital plan through the end of 2024. And in fact, plan to exceed that with our newly announced accretive investments in SL. In our regulated services group, we have a successful track record of acquiring utilities and have a very specialized skillset of integrating them into the Algonquin family. We recently completed two acquisitions, Delco and Essal, and the acquisition of New York American Water is expected to close in 2021. In addition, we have smaller organic tuck-in opportunities in existing areas of our operations that contribute to our customer growth each year. All of these acquisitions over the years have allowed us to reach our latest milestone of $1 million. customer connections. Another lever of growth as we transition to low carbon energy is our greening the fleet initiatives, including our customer savings plan where construction in the Midwest continues to be underway. And we will look for similar opportunities in Bermuda. In addition, we expect to realize strong rate-based growth from our organic investments as we improve the safety and reliability of our infrastructure. In our renewable energy group, we also have many growth levers, including our ability to execute on the company's largest construction program in our history. And I wanted to provide you with a couple of project updates. Our major renewable energy construction projects are considered to be essential infrastructure in the jurisdictions in which they are located. and therefore construction has proceeded throughout the COVID-19 pandemic. At the end of the last quarter, we had approximately 1,600 megawatts of renewable energy projects under construction. Since that time, nearly 275 megawatts have been placed in service with a further 850 megawatts expected to be placed in service by year end, including 380 megawatts from our Midwest customer savings plan. I'm pleased to report that the Great Bay True Solar facility located in Southern Maryland and the Sugar Creek Wind Facility located in Illinois have both achieved full commercial operations. The Sugar Creek Wind Facility consists of 57 wind turbines and has a total capacity of 202 megawatts. We completed the project on time and under budget with no lost time injuries, all despite the extraordinary circumstances surrounding the global pandemic of 2020. Our 492 megawatt Maverick Creek wind project, located in Texas, is advancing well, with 110 of 127 turbines installed, and with the main energy buyers being General Mills and Kimberly Clark. This leads to another leap of our growth as Algonquin remains very well positioned in the CNI space, where important long-term customers are supporting renewable growth as they are looking to achieve their own sustainability goals. The last growth lever that I'd like to touch on is our significant focus on greenfield development, which allows to efficiently identify high-quality greenfield sites and advance those sites through the development process. Our investment in development staff and tools has produced a robust pipeline of greenfield development projects that we look forward to discussing in more detail at our upcoming investor day. These multiple levers of growth that I've described, both in our regulated services group and renewable energy group, differentiate Algonquin from our peers and provide us with high confidence in our ability to execute on our five-year capital plan year after year. In summary, our three strategic pillars of operational excellence, growth, and sustainability will be a key foundation as we continue to build a business and continue 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 guided by maximizing operational excellence on behalf of our investors and customers. And before we open the line for questions, I would like to highlight that we will be hosting our annual Analyst and Investor Day on Monday, December 14th. With COVID-19 restrictions, this year's Investor Day will be a virtual event. As always, 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 APAC. We hope you will be able to join us virtually. With that, I will turn the call over to the operator for any questions from those on the line.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. Our first question comes from Sean Stewart of TD Securities. Please go ahead.

Thank you. Good morning, everyone. A couple of questions. Aruna, I'm wondering if you can discuss the legislation in New York in more detail and how this might affect the thinking around the proposed acquisition of New York American water.

Sure, Sean, good morning. So the legislation has recently come out and we're obviously digging into a lot of details. At first glance, our conclusion is that it's primarily end towards the emergency response and storm response from the utilities in the state. There's also provisions for increased fines and penalties, that the commission can impose on the regulated utilities. There's also a provision in the bill for a study on municipalization. And look, from our perspective, we welcome this kind of public debate and discussion. At the end of the day, we believe we are best positioned to provide those essential water services to the customers of New York American Water. and we are looking forward to engaging with all of the stakeholders as we go through this process. We still remain confident that at the end of the day, we will be able to close this transaction in 2021, and we remain very engaged with the Commission and other stakeholders in the state currently.

Okay, thanks for that detail. Second question is for Arthur. The tax credit tailwind this quarter related to the PTCs and ITCs, can you give us a sense of which projects were wrapped up in that number? And just trying to gauge how we should think about that line item going forward into Q4 and into next year as well.

Yeah, sure. Good morning, Sean. So maybe it might be useful to provide a little bit of context on how we think about self-monetization. of our renewable energy project. And we mentioned some of this back in our 2019 investor day. But you can think about self-monetization really coming as a complement to exercise maximum value out of our projects as a complement to tax equity. So, if you think about it, on our wind projects, for example, the wind projects are placed in service, as you know, not all at once, but are placed in service sequentially. So tax equity only funds whenever all the projects have been fully commissioned. So there's typically about a couple months lag between when the first turbine gets commissioned and starts generating tax credits to when we actually could get tax equity funding. So that's a perfect opportunity for us to be able to use some of our internal tax appetite and actually monetize some of those tax credits. The other places that we use self-monetization is what maybe were projects where tax equity may not be the most efficient choice to use. There's certainly a cost benefit of arranging tax equity. So, again, as we look at maybe some smaller projects or projects where maybe we see the cost of tax equity being a little bit higher, we would look to potentially self-monetize. So, to be basically responsive to your question in terms of the projects, It's a little bit of all of them to say that we're commissioning this year because if you think about the wind projects, I mean, we are commissioning in total about 1.4 gigawatts of renewables. So there's a lot of opportunity to monetize PTCs. But we also have a couple of solar projects that were monetized this year as well.

Okay. Thanks very much for the detail, and congratulations, Chris, on the retirement.

Yeah, thanks, John. Appreciate it.

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

Great. Good morning, everyone. My first question relates to the Chilean water acquisition. This question is, will you be doing anything different different at the company in terms of like, are there any capital projects that the company didn't pursue that you're now looking to revisit? And can you just comment on the drought situation in Chile and how that opens up any potential opportunities? And finally, how all that translates to your expected rate-based growth for that investment?

Sure. Good morning, Nelson. So, look, primarily we remain a North American energy and water company, right? So when this transaction, this opportunity became available, we really looked long and hard because there's a lot of things we really like about the transaction. You know, water utilities are not easy to come by, significant number of customer connections. We did a lot of analysis around country risk. Chile has very, very solid country risk. That is very low country risk, obviously. It has a strong and stable regulatory environment. And finally, the transaction price was very compelling. So we are confident in our ability to acquire and integrate utilities. and that, we believe, is one of our special skillsets, and that's the process we're going through right now in terms of integrating SL into our overall mix and operational excellence. In terms of how that affects our capital plan, we remain committed to our $9.2 billion five-year capital investment plan, and SL would, in fact, be an addition on top of that $9.2 billion plan.

Okay, thanks. And then this might be a preview to the investor day, but in terms of on your renewable development side in terms of your development pipeline, can you just give an update in terms of how much PTC-qualified wind turbines and ITC-qualified solar equipment you have in terms of just, I guess, performance? potential opportunities to fund future projects?

Yeah. Hi, Nelson. It's Jeff. And we have been very active, as you know, for years in terms of identifying and securing PTC-qualified equipment going back to 2016 when we secured about $56 million worth of equipment to fund out the 100% PTC program that we're now seeing constructed. We have... transferred a lot of that effort in last year and this year in the transformer process, and we are in the process of securing safe harbor for all of our five-year pipeline between what we've done in the past and what we'll be doing before year-end.

Okay, and what's your thoughts on like any potential extension of tax credits from a potential Biden government, and does that help or hurt what you might potentially have already secured?

Yeah, I think it's too soon to tell what the Biden government's going to do, although it clearly should be good for renewables in one way or another. The benefit of using transformers as a big chunk of our qualification is those transformers will be used no matter what, whether we use them for qualification or whether we just use them as a critical component of the projects that we're going to be building. So we see lots of upside but no downside.

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

Our next question comes from David Kizada of Raymond James. Please go ahead.

Thanks. Morning, everyone. My first question here, just wondering if you could provide us an update on where you are with the update or the appeal of the rate order in Missouri. Just any recent thoughts there, and maybe if you could mention if – if you think you have the time now to go through with an appeal before you go back in for rates in Missouri.

Yes, thank you, David. So, as you know, one of the things we have appealed is against the equity thickness that was given to us. I mean, we believe that we have a strong case for a larger equity thickness, and we have appealed that decision. That obviously is going through the process, and we will obviously look at, you know, where that stands in terms of timing with our next rate case, which will probably be sometime in 2021 in Missouri.

Okay, great. Thank you for that. And then maybe just another question on cost savings. You've done quite well and looks like you're on pace to materially exceed your target. Is there anything particular that drove that? Any bucket that you could point to?

Yeah, maybe I'll start off with this one and I'll let Johnny add. This team has been doing all the hard work with respect to finding all the cost savings. But, I mean, if you think about the cost savings, we've saved about $18 million so far this year, probably looking to save somewhere between another five and ten next year. You can kind of think about it as broken down into maybe three buckets. One are expenses that basically are naturally would have been saved anyway. Think about lower travel expenses and so forth. The other one is maybe a bit of deferrals, such as holding positions open and so forth. And the last bucket is really taking a hard look and really trying to find efficiencies, whether looking at our procurement processes and looking at ways to deploy capital, et cetera. So it's really those three buckets that those cost saves come from.

Johnny, you want to add some color?

Yeah, thank you. Good morning, David. In some ways, not a huge amount more to add other than maybe, I think, I was getting visibility of the challenges that we had with weather in the first quarter. We were already sort of mobilising how we could counteract that through the rest of the year. And so I think we got an early start. And as COVID started to kick in, really just increased the focus across the team of making sure that we didn't leave any stone unturned for the rest of the year. And I guess we can see the results through that. But I think after you covered off really the buckets of where the savings are coming from, pretty well.

Great. Thanks, everyone. Appreciate it. I'll get back in the queue. Thanks, David.

Our next question comes from Julian Dumond-Smith of Bank of America. Please go ahead.

Thank you. And, again, congrats, Chris. Thanks for the time and opportunity. I just wanted to talk to you guys about growth trajectory and thoughts around it. Obviously, hearing you guys talk very confidently about the CapEx outlook, How does that translate back to the 9% to 11% growth that we've talked about off a 2019 base of $0.62? How are you thinking about that capex relative to the earnings trajectory that you guys had last year? Because it sounds like everything's reaffirming the trajectory by some challenges. I just want to understand how you're thinking about that, and then potentially even more, as you've alluded to. And I apologize. I know you have a natalist day around the corner here, but just try to get a little bit perhaps of a preview as you think about the earnings implications, too.

Yeah, Julian, good morning. Yeah, I was hoping you'd ask me that question during Investor Day, but let me give you a preview in any case. Look, I mean, there were one-time downsides we had faced this year, like COVID and weather, especially COVID, that were totally not anticipated. And on Belco, there was really a statutory change requirement to close this by March 1st, and that was really part of our assumption. And so the delay certainly impacted the financials. However, what we believe is what we provided to the market was a five-year 9% to 11% CAGR growth, and we remain confident that we're going to be able to bounce back in 2021. And again, I look forward to providing a lot more details during investor day.

Absolutely. Thank you, Rudy. And if I can follow up on that, perhaps a little bit nearer term, as you think about that trajectory, the 9% to 11%, not just from the 20%, but the 21%, should we still think about being able to achieve that trajectory off the 19 base in 21? You know, obviously, there's a lot of moving factors in 20, you alluded to a second ago, including some newfound cost savings in the back half of the year here. So just curious on how the sustainability of those efforts into 21, and ultimately, if a good proxy for now should still be the implied CAGR for 21 as far as guidance goes?

For now, Julian, I would say, you know, I would still stay with that analysis of that 90-11% CAGR growth. You know, obviously, like you alluded, a lot of different moving parts, you know, cost savings, We also acquired SL, which is not part of that five-year plan. And with all of that, we believe we're going to be getting back on track in 2021. But, again, those are all of the dirty details we look forward to providing you during Investor Day.

Got it. So it sounds like, given some of the incremental points, you're saying perhaps at least that.

Within that range is what I would say, Julian.

Excellent. Thank you again for the clarity. Look forward to the analyst in a few weeks, all right? Take care, everyone.

Thank you, Julian.

Our next question comes from Rob Hope of Scotiabank. Please go ahead.

Good morning, everyone, and congratulations on the upcoming retirement, Chris.

Great, thanks, Robert.

Maybe just to start on kind of your international strategy, you know, it looks like you may – well, you have now purchased an option to buy the rest of Aegis. You know, how are you thinking about some of the structures you have in the organization to facilitate this international growth? We've seen you do some potential international renewables on your own balance sheet. Hessel was on your own balance sheet. How does Atlantica and Aegis kind of fit into the structure currently?

Sure. Great question. Thanks, Rob. So, by and large, I mean, we plan to do all regulated utilities and North American, you know, business through Algonquin, right? We're very happy with our investment in Atlantica, very strong long-term assets with a weighted average life of 18 years, and so we like that the long-term nature of those infrastructures. And so when it comes to international non-regulated assets, we really look at it on a case-by-case basis as to whether it makes more sense for Algonquin to go after that and operate it versus Atlantica. So it really becomes a case-by-case decision. By and large, we believe that if it's anything outside of North America, non-regulated, that Atlantica may be in a good position to pursue those, but not absolutely. I don't know if that gives you a clear answer or not, but there's no absolute formula other than that all North American and regulated business will be under the auspices of Atlantica. All right, perfect.

And then just circling back on kind of the original tax question, you know, how should we think about those $15 million of incremental tax benefits? Will those be realized in Q4? And then are you, in essence, kind of realizing future tax savings? So, in essence, you know, the 2020 cash or 2020 tax guidance that you gave at your investor day, it looks like you'll outperform that, but potentially at the expense of future tax expenses?

Yeah, sure. So maybe take that question in parts. The answer to the first question is yes. I mean, the $50 million is going to apply to projects that will be placed in service this year, that will be or have been placed in service this year, certainly. In terms of whether we are shifting tax, I would say no. I mean, it certainly the year we monetize some of the assets, you get a bigger shift, but in essence, it is true tax savings for us. So on an equivalent basis, it's not like we're shifting our tax liability down to future years. If that was your question, I'm not sure I followed it correctly.

That was great. Thank you.

Our next question comes from Rupert Murr of National Bank. Please go ahead.

Good morning, everyone, and congratulations, Chris, on your retirement and success at Alconquin.

Great. Thanks, Rupert.

Maybe if I could start with just a follow-up on AGS. How should we think about your partnership with Abengoa going forward? And are there any changes to the ownership in Sugar Creek now that it's completed? I believe it was acquired by AGS.

Yeah, sure, Rupert. Good morning. Look, it's pretty public knowledge that Abengoa has been a challenging partner, right? I mean, the whole market knows the restructuring and other challenges that they are going through. So, consequently, Aegis has been a challenging vehicle for us. But despite that, there are a series of development projects that AGES has under its umbrella, including a pipeline of solar development, greenfield development projects in Spain. The last year, 20 megawatt solar project in Colombia that's under construction with community commercial operations in Q1. And there's other projects in Latin America that they are following. But I will be the first to admit that with AGES, Abengo as our partner, it has not been the most effective vehicle for us.

So if you do buy out Abengo's interest in Aegis, what does Aegis, what could it look like in the future, and what are the implications on some of the other projects that you have in development in Aegis?

I think we will be turning Aegis much more so into an international development pipeline. We have a very, very strong development team that covers regulated and everything in North America. Aegis was always supposed to be that vehicle. And again, we'll be the first to admit that it has not been extremely effective on that front. we would look to reposition it, strengthen it, and create a much more robust, you know, pipeline of development projects, you know, similar to what we have in North America.

Based on your earlier comments about the non-regulated business and assets in North America, would we anticipate that the development projects in Aegis will ultimately be held at the Algonquin level?

Aegis is a development vehicle, right? Where those development projects are actually held and operated is a choice that we have, whether that be with Algonquin, whether that be with Atlantica. But, again, by and large, our view is that everything North America and everything – regulated, will be owned and operated by Algonquin and the question is more around international assets. I don't know, Jeff, do you want to add anything to that?

I think maybe the only other thing, Rupert, I might add is you had asked about the Sugar Creek option and like a number of our construction projects, we maintain an option, Algonquin maintains an option to buy out the remaining 50% and we do fully anticipate now that we've completed construction on that project that we will be acquiring 100% ownership within Oklahoma.

Great. Thank you. And then just quickly on the CSP wind farms, you've got some progressing to COD quite soon. Can you remind us what the impact will be on your reported results when those hit COD and what the impact of plant and service accounting may be?

Much of that should be coming online by the end of this year. With COVID-19, we have certainly been challenged with our global supply chain issues. But despite that, we remain confident that there are not going to be any material delays. So some of the turbines that experience delays in getting to the U.S. and to the project site, we remain confident that we're going to be able to get all of them online in Q1 of next year.

Okay, great. I'll leave it there. Thank you. Thank you.

Our next question comes from Mark Jarvie of CIBC Capital Markets. Please go ahead.

Thanks. Good morning, everyone, and happy retirement, Chris. Following up on Rupert's question, I think it was to file sometime around year-end to try to get recovery of the investments for the wind and the rate base at Empire for mid-year. Does that fill the plan? Or maybe just go back to his question around the kind of service they can. What is the regulatory plan to get a recovery? And then maybe, Arthur, do you guys start occurring HLVV income early in the year once they're in service?

Yeah. Sure. Mark, I'm going to start and maybe turn it over to Johnny for more color on this one. So, you know, as you know, we elected for PSAP, you know, plant and service accounting, which does give us some more flexibility in terms of exactly when we have to go back for a rate case in Missouri. And PSAP gives us the flexibility the ability to, in fact, put it on our rate base as plants come into service. So with that, Johnny, do you want to add more color to that?

Yeah, so as the plants go live, we're able to effectively true up at the next rate case 85% of the depreciation from the dates that they go into service. So I think, as you've heard, looking to file our next rate case, early next year once the plants are operational. And so we'll see them sort of fully represented in rates as they go into service in 2022.

So there will be some regulatory lag in recovery a little bit on our end?

85% of it effectively we're able to track from as soon as they go into service. I'd say the majority of the lag is is picked up, I guess the new rates will ultimately be effective in 2022, but we'll be able to have a regulatory account to true up post that rate case.

And are there any comment on HLV contributions?

HLV will be able to start recognizing it as they are. Okay.

And then now with Belco closed, maybe you'll give us a bit more of a full sum of data at the investor day, but is there anything you guys can share in terms of implementation of the IRP and timeline for sort of hit the ground running in terms of incremental investments and moving to grow the rate base at Belco? Is it 2021 we'll start to see incremental investments or is it a little bit off from that?

Yeah, Rupert, thanks for that question. As you know, we just closed the transaction, so With COVID-19, you know, one of the impacts has been that the level of engagement was not as robust as we would have hoped. In fact, Johnny and some of our other, you know, folks just came back from Bermuda. We're restarting that conversation. Obviously, the economy of Bermuda would like to see investments the earlier the better. We have proposed some, you know, greening the fleet initiatives. We're excited about that, given the very high cost of electricity on the island, as well as the fact that much of it is, you know, generated by with diesel engines. So, we do see a lot of scope for greening the fleet initiatives. We will continue those interactions with the government, and hopefully, we'll be able to structure something in the 2021 timeframe. Okay, thanks.

Thanks.

Our next question comes from Ben Pham of BMO. Please go ahead.

Hi, thanks. Can you provide a bit more context on Granite Bay and how much you've spent on it so far that you plan to recover?

Sure. So Granite Bay, just to give you some context, it was a pipeline with LNG storage facility, and we went to quite a great length in developing that facility. But at some point, there became pipeline capacity available that was not there before. So obviously, we're looking at, we want to do the make the best investment that's right for our customers as well. So we have basically formed up that long-term pipeline capacity. So the Granite Bridge project, as it was originally stood, is not going to be the same kind of a project, although we do think that there's going to be quite a bit of investments required to strengthen some of the reliability of the system, pipeline, things of the sort. So we do believe that there's still room for some investment, but it's not going to be the same scope as before. I don't know if Johnny or Jeff want to add anything to that.

Yeah, I would just add that I think you've done a great job of summarizing what we did and how it turned out that creating – That option, which was the option of being able to get additional supply to meet our customers' growing need through the pipeline and the LNG, ultimately gave us a very strong negotiating position to benefit the customers. And so the investment that was made, we believe, created value and we're working with the commission to are getting positive feedback that they see that value in the creation that was there. In addition to we will need to put in resiliency investment to facilitate the incremental capacity from the pipe.

Okay. Can I go back to some of the tax questions? I hope I don't confuse myself more than I should. I wanted to confirm, is the tax crew, is that related to your past guidance around becoming a tax equity investor yourselves because your corporate tax rate is going up, or is this basically accruing ahead really the share of the tax equity investors attributes ahead of time before they come in?

Good morning, Ben. Good morning. Yes, it is us becoming our own tax equity investor. We are not currently a cash taxpayer, but you would tend to view ourselves being a cash taxpayer a few years out. So to some extent, it is taking some of those tax attributes that will be used. We could see ourselves using them over the next two to three years.

Okay. That makes sense. And I also want to confirm, when you're modifying that yourself, becoming an investor, was that always in your CapEx plan? and financing outlook, or do you have to tweak that in the future?

I would say we do it, call it opportunistically, again, to optimize around the tax equity investments that are there. So, to some extent, yes, it does form a portion of our plan, but, again, we've got to think about it opportunistically because, to some extent, we don't know what that's calling up going back to the PPCs. how long the lag is going to be between when the first turbine gets commissioned and when all of the tax equity funds. So that is a little bit of fluid, but we certainly use that as a shared asset.

Okay. And may I round up the adjective a bit here? When you first introduced this a bit more aggressively a few years back, you mentioned that your tax rate could be 5% or so, and then you moved up to 10%. in the last investor day, so is this accrued tax credits, are you going back to that 5% two years ago, or is that 10% still a reasonable number to use going forward?

Yeah, and I think certainly in the near-term year, where we do end up self-monetizing attributes that does push our tax rate down, and to the extent that if you look at on an overall run rate, tax rate, we didn't self-monetize anything.

The next year, the guidance that we've given an investor is still false.

Okay. That's very helpful. Thank you, everybody. Thanks, Ben.

Our next question comes from Richard Sunderland of J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for the time here. Maybe starting off first with the CLA acquisition, you're curious to get some color on the environmental issues that the assets have had and maybe risks and opportunities around that specifically under your ownership going forward?

Sure. Good morning, Richard. So, obviously, during our due diligence, those are some of the things that we looked at very carefully and also know incident, also some of the rainwater spills that have occurred. And, you know, our due diligence was really around is there something fundamentally broken? Are these one-time issues that are fixable? And in the end, we made the determination that, you know, by strengthening that culture of, you know, safety, security, reliability within SILES, that we would be able to get the company back on track and make sure that we did not incur those kinds of incidents in the future. Clearly, right, what has happened in the past has impacted SL in terms of its reputation and the view of the community around SL. And so we clearly have our work cut out, but we feel confident that with our culture of operational excellence that we're going to be able to get that company back on track.

Great. Thank you. And then you touched on this earlier briefly around kind of the growth outlook, but just thinking about the dividend specifically, any updated thoughts on the dividend policy given the, you know, elevated payout ratio this year? I certainly appreciate that there are the one-off impacts of 2020 you spoke to, but just how to think about that going forward.

Good morning, Richard. Maybe I'll try to take that one. So, yes, I mean, your observation, our failed ratio is maybe a bit higher than our U.S. peers and maybe some of our Canadian peers as well. But I would say kind of keep in mind that we're also one-third IPT business. We're not a pure utility. I mean, in terms of the dividend, maybe we'll talk a little bit more about that on our investor day, but maybe what I'll leave with you today is that we certainly view the dividend growth as an important part of the total shareholder return that we provide.

Great. Thank you.

Thanks, Richard.

Our next question comes from Najee Weyboon of Industrial Alliance Securities. Please go ahead.

Good morning. Just going back to the cost savings initiatives, Arthur, I appreciate the details you provided on sort of the three different buckets of where those are coming from. How much of that would you say is sort of a recurring or run rate savings that you think you can maintain into next year and beyond?

Yeah, that's a tough question. I mean, it's certainly probably not zero, but, you know, it all depends on kind of what the new normal is. We've certainly, you know, have built in some efficiencies, but as I said, there's also maybe a little bit of holding patterns that take cost. So it's difficult to see, you know, how much of that is going to translate, call it a into next year, but I mean, I think certainly it's not zero in terms of the cost savings we've identified that could be sustainable.

Okay. And it might be a bit too early to tell how things will play out, but do you think there are other sort of savings that you're looking at maybe being able to target for next year too?

We're always looking at savings is probably the answer, Najee. I mean, That's one of the levers we have. I mean, I talk about operational excellence. It's all about how can you maximize the outputs with a given set of inputs, and that formula is something we look at all the time, absolutely. And especially this year, given the significant impact on our EPS with Delco delays and COVID and weather, that was something we probably turned over every stone in the company. But that's something that we look at all the time.

Okay. Okay. Thanks for the detail. And just can you just remind us, I think you have another big year coming up next year for rate filings other than the Empire rate case. Can you just remind us what are some of the other major filings that you expect to complete next year?

Johnny, do you want to take that?

Yes, I mean, there's no doubt that the biggest filing that we've got next year is the Empire rate case. As you're probably aware, we're in the middle of our Energy North rate case at the moment. And then we've got a couple of other rate case filings that we're looking to do next year, but they're smaller, so things like Illinois Gas, rate case. So, yeah, I think that you've got the big one. The other big one coming through is our Energy North case.

Okay. Okay, I'll leave it there. Thank you, and I'll echo the comments that Chris writes on the retirement. Thank you, Najee.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Ben Skoda for closing remarks.

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.

Thanks, Arun. Our discussion during this call contains certain forward-looking information, including but not limited to our expectations regarding future earnings, potential future cost savings, future placed-in-service dates, and potential future impacts of COVID-19. This forward-looking information is based on certain assumptions. including those described in our most recent MD&A filed on Cedar 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 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 profits. There is no standardized measure of such non-GAAP financial measures, and consequently, APOC'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 CDAR in Canada for EDGAR in the United States and available on our website. Thank you.

This concludes today's conference call. You may disconnect your lines. Thanks for participating and have a pleasant day.