Algonquin Power & Utilities Corp. Common Shares

Hello and welcome to the Algonquin Power and Utilities Corp second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by one on your telephone keypad. I will now turn the conference over to Brian Chin, Vice President of Investor Relations. Please go ahead.

Thanks, and good morning, everyone, and thank you for joining us on our second quarter 2023 earnings conference call. Speaking on the call today will be Chris Huskelson, Interim Chief Executive Officer, and Darren Myers, Chief Financial Officer. Also joining us this morning for the question and answer part of the call will be Jeff Norman, Chief Development Officer, and Johnny Johnston, Chief Operating Officer. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website as well as on CEEDARplus and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures. Please also refer to our most recent MD&A filed on CEEDARplus and EDGAR and also available on our website for important information on these items. On the call this morning, Chris and Darren will walk through a few important updates. First, Chris will review the board's decision on company leadership, and then the results of the strategic review announced in May. Then, Darren will review our second quarter performance and financial results. We will then open the lines for the question and answer period. Please restrict your questions to two, and then re-queue if you have any additional questions to allow others the opportunity to participate. With that, I'll turn it over to Chris.

Okay, well, thank you, Brian, and good morning, everyone. Before we dive into our second quarter results, I'd like to start off by providing an overview of this morning's announcements. The board announced that I've been appointed interim CEO and that Arun Venkata has stepped down as president and chief executive. On behalf of everyone at Algonquin, I want to thank Arun for his contributions over the past three years and wish him the best in his future endeavors. By means of introduction, I've served on Algonquin's Board of Directors for the past two and a half years, most recently as chair of the Strategic Review Committee, and I've worked closely with the executive team on the review. Some of you may already be familiar with my experience in the utility industry. I was previously CEO of Emera from 2004 to 2018, and some of that time, Emera was an investor in Algonquin. The Board has engaged the nationally recognized search firm to identify a permanent chief executive officer. During this period, however, I am committed to working towards a successful execution of the strategic separation and ensuring a smooth transition. The Board's decision to establish new leadership is directly related to the outcome of the strategic review process. After a thorough strategic review, We announced earlier today that the company will pursue a sale of our renewable energy group. With the support of our independent financial advisor, the strategic review committee of the board carefully evaluated both of our strong businesses and determined that we can create more long-term value by focusing on our regulated business and pursuing a sale of the renewables business. The regulated utility business is well positioned with diversified assets, multiple modalities, and attractive jurisdictions. We have a proven track record of providing reliable service for our customers and have achieved constructive regulated returns for our shareholders. The renewable business is a solid and over the past 30 years has grown into an attractive platform that remains poised to benefit from the acceleration of clean energy. In fact, both businesses are well positioned to benefit from the energy transition. That said, with the work the board and management has done, we believe our current integrated structure is holding us back from realizing the full value of our both businesses. We have a strong set of regulated assets to long-term growth. The regulated portfolio has upside potential that can be unlocked through more focused organic growth strategy, including a simpler business model and more disciplined approach to capital. A sale of the renewable business supports the realization of this value opportunity. We also believe a renewables business would be better positioned to accelerate its growth under a different ownership structure. We expect to use the proceeds of a renewables transaction to reduce our debt and fund share repurchases. Our objectives for the transaction are to support our current dividend, reduce our cost of capital, and maintain our investment grade BBB rating, always with the objective to build long-term value. The timing of the sale will be dependent on value. and we will update the market as appropriate. JP Morgan will be acting as financial advisor for this purpose. We look forward to exiting the sale process as a competitively capitalized regulated utility with a stable, healthy growth outlook. Let me take a brief moment to highlight some unique aspects of our regulated utility story. With our first regulated investment in 2001, Algonquin is among the newer investor owned utility portfolios of our scale in North America. Over the last two decades, and especially during the period of lower interest rates, we took the opportunity to build a utility platform by acquiring and investing in undervalued and underperforming assets. Through improved customer and regulatory relationships, as well as cost management, we've been able to improve delivered ROEs and, on average, bring them closer to our allowed returns. We now serve over 1.2 million customer connections in $7 billion of rate base across our utility business. Our portfolio is heavily concentrated in four U.S. states, Missouri, California, New Hampshire, and New York. These provide 86% of our U.S. rate base and 73% of our overall rate base. Our utilities are primarily comprised of electric distribution and water distribution, which is 78% of our rate base, as well as natural gas distribution making up the final 22%. We believe this mix provides our investors a unique and favorable composition and exposure to clean infrastructure trends and investment opportunities. While our story has been one of growth largely through acquisition, in a higher cost of capital environment, the company's strategy needs to adapt and evolve from our early regulated years. More specifically, We see our strategy focusing more intently on organic growth, greater operational discipline, and capital discipline. With the plans we're pursuing, we expect to be able to bring additional efficiencies and value to customers while investing in the infrastructure in an affordable way. Clean, affordable, and reliable energy and water will be the focus of our regulated business. Our plan to accomplish this is underpinned by aiming to invest approximately one billion of capital per year by focusing on standardizing our infrastructure, which is expected to provide the biggest impact for our customers through improvements in reliability and creating economies of scale. We are finding investment opportunities that provide the double benefit of improving service and helping customer affordability by OpEx to CapEx investments. By reducing a dollar of OpEx, this creates headroom for up to $8 of CapEx investment without increasing rates. Our plan is to continue to modernize our utility systems, supporting safe and reliable delivery of our services, help our customers transition towards net zero, and keep a close eye on customer affordability with average aggregate rate increases roughly in line with inflation. Since our regulated business is capital-intensive, growth rates tend to be lumpy, but we expect our annual adjusted net EPS growth over time to be in the 4% to 7% range, consistent with the industry and exclusive of near-term headwinds. We also expect to continue to maintain our investment-grade BBB credit rating. Diving deeper into our renewables business, comprised of primarily wind and also containing solar and hydro assets, the renewable portfolio is positioned to benefit from the energy transition. By operating scale, our fleet has approximately 2.7 gigawatts of gross generating capacity at 46 facilities. It operates in 11 states and 6 provinces in North America. This provides diversity of geography and markets and is a business of scale. Our footprint spans 7 independent system operators, including PJM, MISO, and ERCOT. Our development pipeline is comprised of over 6 gigawatts of solar and wind, more than half of which has site certainty and is in interconnection queues. and we have over three gigawatt hours of storage in development. We've grown this business significantly and believe the business is poised to continue this growth. We have approximately 650 megawatts of projects in various stages of construction today. That said, for a variety of reasons, its value is not being fully realized as part of the Algonquin integrated business. We believe that a sale of the renewables business will unlock the unrealized value and better position the renewables business for growth and a positive future for our team members that support it. In summary, we have four messages to communicate today. First, we have two strong growing businesses. Second, we're pursuing a sale of the renewables business. Third, The current dividend can be supported by the remaining regulated business combined with our intended sale. And fourth, the remaining regulated business will have a strong balance sheet, a lower cost of capital, and a growing rate base. With that, I'll turn things over to Darren to speak about the second quarter.