Algonquin Power & Utilities Corp

TSX:AQN

Earnings Call Transcript 2019-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. First Quarter 2019 Analyst and Investor Earnings Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions].I would now like to turn the conference over to Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead.

[Christopher Kenneth Jarratt, Vice Chairman]

Great. Good morning, everyone, and thank you for joining us this morning for our 2019 first quarter earnings conference call. As mentioned, my name is Chris Jarratt, and I'm the Vice Chair of Algonquin Power & Utilities Corp. And joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer.To accompany our earnings call today, we have a supplemental webcast presentation available at algonquinpowerandutilities.com and additional information on our results is also available for download at the site.Over the course of the call, we will be providing information that relates to future events and expected financial positions, which should be considered forward-looking. Our full disclosure on forward-looking information and non-GAAP financial measures are available on our website, and we will read the full disclaimer at the end of this call.On our call this morning, Ian, as usual, will provide the strategic achievements for Q1 2019, and David will follow-up with the Q1 financial highlights. Ian will then conclude with our strategic outlook for the business, and then we'll open the lines up for questions.[Operator Instructions]And with that, I will turn it over to Ian to start the presentation.

[Ian Edward Robertson, CEO & Director]

Great. Thanks, Chris. And good morning to you who've been able to join us on the call this morning. So as Chris mentioned, I'd like to start the conversation with some of the highlights from Q1. So firstly, in terms of financial results for the quarter, we felt the performance was generally in line with expectations, slightly better than forecast performance in our regulated utilities post to offset lower than average resource conditions in our wind and hydro group.With respect to year-over-year performance analysis, I think it's important to try to look through the onetime impact of U.S. Tax Reform within our Q1 2018 financials and without the impact of the onetime income acceleration in 2018 from the U.S. Tax Reform. Q1 2019 adjusted EBITDA shows approximately a 3% increase as compared to the same quarter last year. Q1 2019 adjusted EPS of $0.19 would be compared against the onetime tax reform adjusted Q1 2018 EPS of around $0.21.We see ourselves as a business which is built from long-lived assets and stable operations, and we've consistently been able to produce stable and growing financial results. And we remain highly confident in our plans to continue delivering strong returns to our shareholders. We're pleased that Algonquin's performance throughout 2018, and our strong financial positioning has led to support from our Board of Directors to approve an increase in our common share dividend of 10% which will apply to this quarter's dividend, which was declared yesterday.Secondly, and as to progress on our organic growth initiatives in the quarter, we made positive progress on the Customer Savings Plan in the Midwest with the recent approval granted by the Arkansas Commission. And following a hearing in front of the Missouri PSC which was completed last month, we're hoping for an approval in Missouri by the end of this quarter. Regulatory approval for the Granite Bridge natural gas pipeline, LNG and storage facility, it's closer with filings made in the New Hampshire PUC, perhaps a little disappointingly, and I'll touch on it a little bit more as the PUC schedule won't allow completion of the process until this fall.And within Liberty Utilities, we secured $6 million increase in our annual revenue requirement from completed rate reviews in Georgia and Massachusetts.And lastly, I think we've taken some positive new steps in advancing our development initiatives. On the international front, we were pleased to announce that AAGES was selected as a successful proponent for the development of a 60-kilometer, 500 KV transmission line in Uruguay. This project now can be added to the to-do list for our international development teams. Secondly, we're pleased to have completed a $30 million investment in the San Antonio Water pipeline. Some of you may recall that this is the close to $1 billion water delivery project in Texas, in which Abengoa owned a 20% interest at the time we announced our international expansion initiative.Closer to home here in Canada, the quarter saw the closing of our partnership with Fortis in the Wataynikaneyap Northern Ontario (sic) [ Northwestern Ontario ] transmission line. We're pleased that the project has now received lead to construct the approval from the Ontario Energy Board and is now awaiting environmental approvals. Project teams working with EPCs with construction expected to commence later this year. So all told, I think, we took some positive steps to continue building the business and creating value for shareholders in this quarter. And so with that, I'll pass things over to David for a review of the Q1 2019 financial results. David?

[David Bronicheski, Chief Financial Officer]

Thanks, Ian, and good morning, everyone. In the first quarter of 2019, our business operations overall generally performed in line with our expectations. Our results last year reflected certain one-time items related to the first year implementation of U.S. Tax Reform, which makes year-over-year comparisons somewhat difficult.Our Q1 2019 adjusted EBITDA on a consolidated basis was $231.5 million, which when adjusted for the onetime effect of U.S. Tax Reform, works out to about an increase of about $8 million over the same period last year.Within Liberty Power, the business generated a divisional operating profit of $83.1 million, Liberty Power had 2 new facilities contributing to our EBITDA in Q1, including a full quarter production from our 75-megawatt Great Bay Solar and our 75-megawatt Amherst Island Wind facilities. As well, our incremental interest in Atlantica generated increased dividends this quarter.These new facilities contributed incremental EBITDA adjusted over Q1 in 2018, some of which was offset by slightly lower resources and production from our fleet of renewables, and especially, when contrasted to the above average conditions that we did have last year. Growth and diversification continues to allow us to report solid results quarter after quarter. Net of U.S. Tax Reform impacts, and despite modestly weaker-than-expected resource conditions, Liberty Power's divisional operating profit increased by approximately 11% on a year-over-year basis. On the utility side of the business, Liberty Utilities' generated Q1 2019 divisional operating profit of $161.3 million, which is consistent with the previous year and has a solid result, given that it has absorbed the effects of lower revenues from U.S. Tax Reform across over 93% of our utility customer base.Adjusted EPS came in at $0.19 for Q1 2019, and well down from the $0.32 we reported in Q1 last year. That largest variance is, of course, related to HLBV income, acceleration and other impacts of U.S. Tax Reform that were reflected last year. Last but not least, we're pleased to have announced the 10% dividend increase in our common share dividends starting with our Q2 2019 dividend, which will increase it from the current $0.1282 per share to a new quarterly dividend of $0.1410 per share. The dividend increase is consistent with the growth trajectory of our business and aligns with our stated dividend and growth guidance we've provided at our last Investor Day in late 2018.With that, I'll hand things back over to Ian for future look.

[Ian Edward Robertson, CEO & Director]

Thanks, David. And before I close out on our prepared comments this morning, I want to give a quick update on the main areas in growth in which we focused in 2019. And then as usual, we'll open up the lines for the question-and-answer period. So first off, I'd mentioned that we've reached some important milestones in our efforts to bring new wind generation to bear to lower cost for our customers in the U.S. Midwest. With the approval in Arkansas of now behind us, we're looking forward to receipt of approval in Missouri before quarter's end. And as you can imagine on a parallel path, we're working on all of the contract in construction arrangements for each of the 3 projects comprising our Customer Savings Plan up in Kings Point, North Fork and Neosho Ridge. And we're ready to move into construction mode promptly following receipt of the final approvals.Second, a little bit -- a couple of thoughts on Granite Bridge. The Granite Bridge pipeline and storage infrastructure project is designed to improve local gas with the system reliability, lower cost and provide additional gas supply to support new customers in our service territories. Further projects submissions were made to the New Hampshire Public Utilities Commission in April. And I said that disappointingly, with the other items on the docket in New Hampshire and the summer schedule, the next hearings will likely take place not until the fall of this year. And at this point, we anticipate that the New Hampshire Site Evaluation Committee filing will be made so it's the support of final investment decision sometime early next year. And on the development side, engineering public consultation work on Granite Bridge continues to press ahead.Just a quick update on some the previously announced gas utility acquisitions. Things are marching ahead on the regulatory approval front for both of these acquisitions, New Brunswick Gas and St. Lawrence Gas in Upstate New York. And I guess it's a sad statement that despite the timing difference in terms of announcing these acquisitions are currently neck and neck in terms of reaching a regulatory approval. But we expect the closing on both of these acquisitions in Q3. And therefore, we'll be in a position to make a contribution to earnings this year.And then summing up on some of our development initiatives. We've got some exciting opportunities underway within our infrastructure development group. But at the beginning of the call, I mentioned our AAGES group was the winning bidder on an electric transmission project opportunity in Uruguay. It's -- I think, it's an interesting milestone given that the AAGES team originated, developed, bid and secured this greenfield project basically from scratch. The project, which is called [ Cardel ], it's an 80-kilometer transmission line and a substation with an expected cost of just over $80 million, and commercial and service date expected in around 2022. And I think it might be noted that we already have a presence in Uruguay with 150 megawatts of operating wind generation owned through Atlantica. When we announced the formation of the AAGES, you will recall that part of the mandate was to further development of a number of projects in which Abengoa had an interest, and some of which has started to go follow. The San Antonio Water project was identified in 2017 as an interesting investment opportunity, and we are pleased that the AAGES team has been able to satisfy its original mandate and complete a $30 million investment in the project. Development at -- and the construction of project are underway with commercial operations, expected mid next year.And lastly, a quick update on our wind and solar development projects. Our near-term development list, as you can recall from our disclosure, includes 5 wind projects totaling close to 600 megawatts. And that doesn't include the wind projects being pursued as part of the Customer Savings Plan. We have 100% Safe Harbor turbines, which can accommodate 4 of those projects, meaning that 1 will likely have to drop to an 80% PTC project. Nearest term, Sugar Creek's moving ahead with the synthetic PPA and now assigned turbines on order and the final EPC negotiations ongoing. For Phase 1 of Broad Mountain, I can confirm we've now placed an order for the turbines that are working with our EPC contractors to secure cranes for our 2020 construction. And so with that, operator, I'd like to turn things over to you to open the line for questions.

[Operator]

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

[Rupert M. Merer, Managing Director and Research Analyst]

I was wondering if you could give us some color on the transactions you've proposed with Atlantica Yield today. It looks like you're investing $30 million into Atlantica and giving them the right to acquire some assets. Can you give us a little more color on that transaction?

[Ian Edward Robertson, CEO & Director]

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

[Christopher Kenneth Jarratt, Vice Chairman]

Yes. Sure. I think that's probably a strong way to kind of characterize the $100 million. It's really just the opportunity to talk about a couple of investments, which are near term. One of them is the [ SEGS ], which is probably one that will definitely for sure happen.So that's the $100 million. We did give some $30 million to buy additional shares. This is really just to fund some of their near-term growth that they've announced already.

[Rupert M. Merer, Managing Director and Research Analyst]

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

[Ian Edward Robertson, CEO & Director]

Well, Rupert, I think you've heard me say that one of the interesting characteristics between Atlantica are -- differentiating characteristics between Atlantica and ourselves is the asymmetry between the valuation metrics that they both -- that we both employ. As you can imagine there as a yield co kind of a cab -- the cash available for distribution-driven organization, and as a regulated utility, GAAP earnings are probably more important to us. And I've said in the past that there may well be projects in our portfolio, which fall into the cash-rich earnings [ pool ] category, which might actually be better held from our point of view down in Atlantica. And if you think about it, it's kind of the interesting opportunity for it to be accretive to us and accretive to them, just given what the definition of accretive is. One of the things that, I will say, you didn't mention that, and I think this is probably an important consideration is that in addition to subscribing for a small equity issuance of $30 million, we -- there is some headroom that's been granted for -- in our ability to participate in Atlantica's equity. So to the extent that we dropped an asset down into Atlantica, it is possible that we would -- possible. I think the intention is that we would be able to take back equity and maintain, I'll say, 100% exposure to the economics of that asset, that's one of the things that the headroom and flexibility gives us. And so I get it. Any transaction needs to be accretive to us and accretive to them. And that will be an interesting challenge. I've just -- I just think with the asymmetry evaluation metrics, we probably have more flexibility than you might, otherwise, have thought. But your comment, is a good one. And nothing is assured unless it works for both of us. So...

[Rupert M. Merer, Managing Director and Research Analyst]

And -- so we can extrapolate then to assume that you could be acquiring more Atlantica's stock in the market though, not with direct purchases?

[Ian Edward Robertson, CEO & Director]

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

[Operator]

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

[Nelson Ng, Analyst]

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

[Ian Edward Robertson, CEO & Director]

Sure. When Abengoa's wheel started to wobble, I guess, back in 2016, they took that project, the San Antonio water project and sold 80% off to a third party, but kept 20% themselves. And so I guess the good news is that the construction of the project -- development project continues to move ahead, notwithstanding the fact that Abengoa might have been a little impecunious in terms of their ability to contribute more capital. But I think when we announced the arrangement with Abengoa, the -- it was on the list of opportunities for us to invest in going forward. Our initial investment in the project is by way of, frankly, a loan into the Abengoa structure to give us exposure to the project. And I think in terms of AAGES helping out, obviously, the AAGES guys, the team that we have in AAGES were actually involved -- some of them were involved in development of the project right from the beginning. So I think we have some pretty good insight into how the project is being developed. I will say that we're not on the frontline. And so I don't know if that's a good or bad thing from your perspective, Nelson. But we -- it is a high-quality project, long-term offtake, obviously, denominated in U.S. dollars being in Texas. And so I think it's a -- it's great that the AAGES guys have kind of been able to make good on that part of the mandate, which is to find value in that list of initial projects that we had set out when we announced there at the International Expansion Initiative. I don't know, Nelson, if that's the kind of color you're looking for.

[Nelson Ng, Analyst]

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

[Ian Edward Robertson, CEO & Director]

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

[Nelson Ng, Analyst]

Got it. Okay. And then just to change the subject a little bit. Can you talk about succession planning? And I know there's some disclosure about how you guys trying to look at candidates and putting a transition plan together?

[Ian Edward Robertson, CEO & Director]

Sure. And Nelson, let me start by saying I appreciate your characterization of my age is 59 years young. I thought that -- was particularly nice. But let me start -- and I guess, probably maybe 3 points to make. First of all, I don't say this is not a new message. And it's actually not even new disclosure, as you can probably recall in our circulars for the past 2 years. We've been, I would say, pretty explicit of making sure that succession kind of at least got coverage and got airtime in that. And -- but we have been getting questions for a little while from investors. And I guess, it's not surprising. You got a CEO and CFO who are both, as you characterize, 59 years young. And we thought that if this is on the minds of a couple of investors, it's probably on the minds of more. And so we thought that an open discussion, and I, perhaps, providing a consistent message on the matter, it should be probably part of our ongoing dialogues. And that is the first part. The second one is like the disclosure is really intended to confirm our collective commitment. And when I say, our, I mean the Board and management too. A smooth and measured and thoughtful succession here at Algonquin. So as we put in the -- in the specific disclosure, please don't read through that there's anything imminent happening. And so I guess God willing, Chris and David and I, we are not going anywhere in the near term. So hopefully that provides some comfort. But I think it does confirm that the Board and management embrace the importance of a measured and planned transition. And we recognize that succession here at Algonquin might be a little bit more challenging than usual, just given the central role that, I guess, Chris and I have played in building the company from its inception. And but to provide you maybe a second thought on that is that we're all taking an active role in this process. And you can imagine for Chris and I as founders of Algonquin, I think it's absolutely the right thing to do because the outcome of this is going to help frame our legacy of putting 13 years of our lives into it. And so -- and then the third point I'll make is, in the here and now, I can confirm to you that the management team, if you think of David and Chris and I, we are totally committed to this business. We are now close to 4 million shares in the company collectively. And so I can tell you our alignment is completely with the shareholders. And we're obviously focused on driving the business forward. So I don't know if that's the kind of color that you're looking for, but there is a couple of additional thoughts around the disclosure that we put in.

[Nelson Ng, Analyst]

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

[Ian Edward Robertson, CEO & Director]

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

[Operator]

Our next question comes from Sean Steuart of TD Securities.

[Sean Steuart, Research Analyst]

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

[Ian Edward Robertson, CEO & Director]

Sure, Sean. And in some respects, I don't say this could be a repeat of my standard answer. You know, I would say, accidently misspoke last time about our involvement in Emera Maine process. That one obviously came to a conclusion. And while I use the analogy, we are always keeping our stick on the ice for this sort of things, I kind of feel like we got cross-checked a little in that process. And maybe that's fair. If you're willing to pay more than anybody else in the planet, then you'll get to win. And so we didn't win in Emera Maine. But I think if there's a look through on that, it's a continued exercise of discipline from our perspective. Because I think you could imagine it might be a difficult conversation that I was having kind of defending the acquisition of Emera Maine at the prices it got done at, then good for Emera. I think that's great for them. But as we think about the -- of the sort of the rest of the M&A landscape, I think a similar philosophy is going to be applied if we can do a transaction in which we see value for our shareholders, in that we can create value then we'll look at it. And then if we can't, we'll pass. And I think St. Lawrence Gas and New Brunswick Gas are 2 examples of opportunities where we did see an opportunity to create value, and we lapped up on them.So you can imagine, it's probably inappropriate to neither confirm nor deny any rumors with respect to El Paso. But I think the philosophy stays the same, Sean. We've done very well in building this organization to acquisition. Note, there's no reason for us to give up on it, but we will remain disciplined in what is obviously a ferociously competitive marketplace.

[Sean Steuart, Research Analyst]

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

[Ian Edward Robertson, CEO & Director]

Well, I guess I'll start by saying, and with the increased ownership, I'll say, headroom. Sean, we don't actually think of when we drop an asset down into Atlantica that we're actually selling it in some respect. If you took back a 100% on equity interest, which really allowed you to maintain the economic exposure to the asset, it's really just being held in a different vehicle and bandwidth to the extent that it's actually accretive to us on the metrics we use and accretive to Atlantica. Arguably, we actually get half -- nice run -- numbers half of that accretion, down at Atlantica, comes to us in addition to the accretion that we get on our own financial statements. And so I feel -- I totally get it. If this was -- if we didn't have the ability to take back 100% of the equity value of an asset, I think, it's going to be with Atlantica's current cost of capital challenges. If it probably is going to be a bit of a rough road in order to find those opportunities that it makes sense to drop down. You know at our heart, we are not really sellers or flippers of assets. We see that -- we go to all the trouble of creating value doing the development process, and our thesis is we want to harvest that for our shareholders over the next 30 years. And the thought of taking a onetime gain to a sale, I feel like the antithesis of our philosophy. And so I hope that I've kind of give you a color that a drop-down to Atlantica is really an -- is really just Algonquin in another form. I don't know if that's helpful, Sean.

[Operator]

Our next question comes from David Quezada of Raymond James.

[David Quezada, Equity Analyst]

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

[Ian Edward Robertson, CEO & Director]

Sure. Well, actually, let me start by saying this is a -- in some respects, this was an execution in action of the plan that we had developed on the formation of AAGES. So the opportunity, the broad opportunity kind of came to us through the eyes and ears of Abengoa's EPC subsidiary on the ground in Uruguay. And so -- but our guys took with it, ran it, got to work with Abengoa to come up with an EPC bid, and we submitted our bid like every other transmission line. As you can imagine, David, that's -- this is a pretty intensively, competitive market, almost irrespective of where it is. Transmission lines are almost, if you think about it, the perfect infrastructure asset, basically no moving parts, no volume metric risk and generally, they're secured by a sovereign guarantee. And this case is no different. I think the good news is because of aggressive work on getting the EPC costs to the point. Well, we won. I think the good news is I can confirm that we didn't win by a country mile, which in some respects would have been a little disappointing. It was ones of percent, so that makes us feel good that we understood the market correctly. In terms of return expectations, obviously, a little bit competitive -- competitively sensitive. But I can tell you that overall, I think with the leverage package, the financing package we put together, returns are right where we need them to be in terms of this to be accretive to us. And ultimately now the question is this asset would obviously, I think, as you think about its home. Atlantica has 3 wind projects, 150 megawatts of -- significant player in -- on the Uruguayan landscape. It's probably the right asset to drop down into them. So all in all, I think it's -- this is just us turning our words to action in terms of the whole AAGES thing. I don't know, David, if that's the type of color that you're looking for.

[David Quezada, Equity Analyst]

Definitely, that's great color. Just my only other question on the power side of business in North America for Algonquin, I know you guys at one time, Safe Harbor, quite a few wind turbines. Are you considering doing the same thing with solar panels currently to qualify them for the ITC?

[Ian Edward Robertson, CEO & Director]

Yes. I think we are obviously pleased that the -- with our investment in the -- in 100% PTC projects, and you kind of heard me mentioned that those -- that investment is facilitating, I'll say, hundreds of megawatts of wind turbines. And so I think the thesis is we'd like to pursue a similar strategy of safe harboring ITC projects for Solar. I will say that the strategy -- there are different ways to secure the ITC in terms of solar projects. It doesn't necessarily actually having to be buying the panels. I think, to the extent that there are other aspects of the solar project, most particularly things like the transformers, to the extent that you start to make an investment in those, you've kind of secured the ITC in that projects. And so I'd say, trust me that we're looking at all of those strategies, because we're actually pleased with the results from our wind experience. I don't know if that's how -- what you were looking for. But we definitely see solar as, I'll say, the next decade's got to belong to solar, if you think the last decade belonged to wind.

[Operator]

Our next question comes from Ben Pham of BMO.

[Benjamin Pham, Analyst]

Let's go back to your comment around some of your projects, the wind side going to the 80% PTC. What's your -- just want to clarify, what's your strategy on the 2020? I'm hearing some folks are just waiting it out because of your returns compressing turbine orders getting pretty crazy. And what's your thought process going to -- into next year?

[Ian Edward Robertson, CEO & Director]

Well, you are correct. If you have not gone and locked up turbines, cranes, EPC suppliers, I think the competition will push returns to a place that you probably won't want to do them. The good news is we are not in that group. As you've probably heard me speak of arguably maybe even for last year, securing EPC contractors with specific reservations for cranes, that has been part of our strategy. We inked 1000-megawatt deal with Vestas last year to secure turbines for those at prices that made sense. And so you're absolutely correct. I mean, there -- 2020 is shaping up to be a 15-gigawatt year in terms of installed capacity. And so if you're at the end of the line, of the end of that supply chain in terms of being able to secure what you needed it's -- the economics are going to be impacted. When I say that we have projects that could drop from 100% to 80% PTCs, I think, I'm just giving -- hoping to giving you some comfort that the world is not going to end for us, and arguably and hopefully for the rest of the developers that if you don't get your 100% PTC project that there -- that you're -- that we're out of business. And so that -- we are pleased with, as we think about the positioning for the projects we've identified this 2020, I think, we're equally pleased that we've got a pipeline that is still -- has efficacy in 20 -- in for 80% PTCs.So I don't know, Ben, if that's the kind of where you were -- what you're kind of hoping to understand this as you think about the resiliency of our pipeline.

[Benjamin Pham, Analyst]

Yes. That's great. And then the second one, acquisitions. You mentioned you needed to see it to the value to your share. Can you comment on what's like your definition of value? Is it always EPS-accretive from a gear or is there -- what are some other things that you're looking at?

[Ian Edward Robertson, CEO & Director]

There's probably 3 measures. When we would look at sort of any investment, it's obviously multidimensional. But the first one, and you mentioned it. We would, obviously, like it to make a constructive contribution to accretion on an EPS level. Having said that, that's not the only metric. You have to look at -- we've look at -- if we're speaking about the wind project. We look at these things cradle to grave on an unlevered project IRR basis. Where we would definitely consider that to make sure that, that near-term accretion isn't somehow just a blip. We will look at the leverage of a particular project. Clearly, we are covetous of our BBB flag credit metrics, and we are certainly not going to threaten that. And so as we think about the leverage we can bring to bear, we're going to look at it. And then I think was that -- the very last one. And I know I said 3 but I kept saying, I meant 4, is that as you think about the opportunities for revenue certainty in today's market, they probably on average are not going to extend for the economic useful life of this asset. So you have to think really hard that I'm building a manufacturing facility, for all intents and purposes, in a market which will -- and that asset will be there to serve that market long after whenever the initial term of my PPA or commercial or industrial offtake agreement or my synthetic PPA is going to exist. And so the question is, are you going to be happy being in that marketplace?And I think Walker Ridge is actually a perfect example of an asset that we picked because we liked the market that it's going to be in. And I think you should think about California's focus on renewables going forward. It's just the right place to be. So there are kind of 4 things that we would think about being an attractive investment. Ben, I hope I was in the -- headed in the right direction.

[David Bronicheski, Chief Financial Officer]

And, Ben, I would just add one more thing with respect to utility EPS accretion. We have, from time to time, bought utilities that happened to be underearning for various reasons. And so if it's in that particular situation, we would look to what is that accretion going to be once we get into that first rate case post acquisition? So there is one additional filter that we would put on it.

[Benjamin Pham, Analyst]

Okay. So, I don't want to ask the third question, but I just wanted to clarify...

[Ian Edward Robertson, CEO & Director]

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

[Benjamin Pham, Analyst]

I just want to clarify it's just that, I guess, at arbitrage and on the rate base. I mean, is that -- does that mean you would do a dilutive deal year 1 and...

[Ian Edward Robertson, CEO & Director]

Well, I think where David's is really going is that when you buy a utility, you get it at some point pretty arbitrarily in its rate review cycle. And so if you think that a utility has, I'll say, earning potential based on the rate base that you're acquiring at the time that you need to buy, you kind of got to look through where it is in the particular cycle. And I think the nice thing with our diversified portfolio with over 30 regulated utilities in it, that probably will get lost, I mean, obviously unless it's some massive acquisition. And so I don't think it's an arbitrage issue. It's just a recognition that the regulated utilities go through a natural cycle of earnings, as investments are made, rate reviews are undertaken and new tariffs are established.

[Operator]

Our next question comes from Rob Hope of Scotiabank.

[Robert Hope, Analyst]

What is the...

[Ian Edward Robertson, CEO & Director]

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

[Robert Hope, Analyst]

All right. Can hear me now?

[Ian Edward Robertson, CEO & Director]

Yes.

[Robert Hope, Analyst]

There we go. Okay. All right. So let's start off with AAGES. I just wanted to get some insight on how you're going through the kind of the project evaluation. The $80 million investment in Uruguay, absent the Atlantica in existing investment in that region, would that have been sufficient for you to pursue that? Or would you look to be adding clusters in certain geographies?

[Ian Edward Robertson, CEO & Director]

I mean -- you want to speak to that, Chris?

[Christopher Kenneth Jarratt, Vice Chairman]

Yes. And maybe, I'll just answer that like -- obviously, it makes more sense when you're already there. But if you're going to new jurisdictions, you got to start somewhere. And I think we would always look for a jurisdiction that we had a line of sight to a cluster. I don't think we would do a one-off in any country. So that's part of the evaluation process we go through in all these jurisdictions.

[Ian Edward Robertson, CEO & Director]

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

[Robert Hope, Analyst]

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

[Ian Edward Robertson, CEO & Director]

Oh, yes. Yes. So when you say third party is going to be developing them, you know Kings Point and North Fork were, I'll say, Empire-developed or Algonquin-developed assets, which a third party, is kind of taking over the responsibility of securing turbines from Vestas and securing the EPCs and getting all of those crane reservations. So the good news is we've got teams that -- who are kind of doing that on contract -- under contract for us, which is good. There's obviously milestones all the way through. And I will say, it's pretty transparent, the whole process to us. And so I -- yes, there are third parties who are taking responsibility. But given the importance of getting these things done by 2020, this is not kind of a "call us when it's done" process. We are actively involved in making sure that from an environmental point of view and from a technical perspective and in your connection. So I'll say, Rob, we're all over it. In respect to the fact that somebody else is actually going to retain the EPC contract and have the contract with us.

[Operator]

Our next question comes from Mark Jarvi from CIBC.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

I just want to go back to the sort of $30 million investment in Atlantica. I think about this -- it sounds like from their perspective, they're taking the proceeds in investing in the projects alongside you guys. So -- and then we talked about potential dropdowns, is this really just sort of measuring leverage and balance sheet by the points of equity through a comp or through I guess, Atlantica, which can use project finance and debt? Is that the right way to think about how this -- the relationship is evolving?

[Ian Edward Robertson, CEO & Director]

Well, actually, I think that's probably the way the relationship was originally crafted. As you and I have spoken, one of the advantages that Atlantica brings to the Algonquin story is the flexibility to use project financing in a way that we can't optimize that. And so I think, yes. And so one way to perhaps think about it, maybe just to follow your thoughts on, is that $30 million investment we're doing actually can be leveraged by Atlantica probably far more than we would do it if it was -- if the assets were owned directly by us. And so there's a benefit in that. And then maybe lastly, you know that Atlantica announced some -- a number of acquisitions over the past sort of while. And it would be shameful from our perspective if perhaps due to constraints and the access to capital that they might have that those assets -- that those opportunities went by the buy ins. So I think we were just trying to be accommodating to help out, Mark. And so -- but I don't think you should -- I'm hoping that you're not reading that us who kept putting some more equity into Atlantica kind of, in any way deals, deviates from the original investment thesis for them to be, I'll say, our holdco for international project finance opportunities.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

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

[Ian Edward Robertson, CEO & Director]

Correct. Correct.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

And then if you kind of keep pursuing that path and explain their ability to use more leverage, is there any risk or any conversations you've had with the rating agencies around how they're going to view this, and think about the read through from Atlantica and your ownership in Atlantica? Or do you think as long as you're under 50%, it's a nonissue?

[David Bronicheski, Chief Financial Officer]

Yes. I would say our interactions with the rating agencies, I think, it's confirmed. Their -- they accept the GAAP treatment of it. And so there's no issues as far as we're concerned for any consolidation -- proportional consolidation or whatever, the GAAP treatment will be followed.

[Operator]

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

[Jeremy Rosenfield, Equity Research Analyst]

A couple of cleanups. In terms of the power development size of the business, you talked about your locking of certain things heading into 2020. I'm just curious if you can elaborate a little bit on tax equity supply, both from sort of external suppliers but also the availability from within Algonquin?

[Ian Edward Robertson, CEO & Director]

Good question. So I think with the PTCs being phased out, and maybe even tax reform kind of changing the taxability of the historic players in the tax equity market, you can imagine that the dynamics of that market have shifted in. And I would argue that in some respects, it's a little bit in a flight to quality into -- from the tax equity, the historic -- the traditional tax equity purchasers because they have, I would just say, fewer dollars that they need to address. And so I think the broad relationship that Algonquin has been able to develop with Wells Fargo and BAML and some of these large U.S. financial institutions, perhaps because of our presence in the utility market has served us well to be able to secure tax equity for our projects. And so I'd say we are comfortable as we sit here and think about the Customer Savings Plan, and the assets that we intend to complete in 2020, that we have good line of sight to tax equity needs and that's not going to be the constraint. But it is a really good question. But I'd like to think that we position the organization well perhaps in other ways to secure the tax equity. David, I don't know if you wanted to add something.

[David Bronicheski, Chief Financial Officer]

The other thing I wanted to say, our Customer Savings Plan tax equity project, that's a very coveted project in the tax equity community. There's a lot of interest to that, because it's really first prize to have an asset like that, that's going to be in a regulated rate base. And so we're happy with that. And I think as Ian said, we have very strong relationships with all of the Tier 1 tax equity providers. And I will just put in another comment too that we're approaching our taxability horizon. So we are going to be able to -- to be our own tax equity provider to the tune of about 400 megawatts, and we communicated that at our last Investor Day as well.

[Jeremy Rosenfield, Equity Research Analyst]

All right. Okay. Good. Just turning back to the AAGES and Atlantica discussion for a second. As you think about AAGES being successful in its development initiatives and potentially dropping down assets into Atlantica Yield, did you -- are you envisioning that AAGES would reinvest proceeds from those transactions within sort of future developments? Or distributions of proceeds up to the parent, so up to Algonquin?

[Ian Edward Robertson, CEO & Director]

Well, let me start by saying is, I think, and maybe this gets back to kind of the characterization of what's the role that Atlantica placed for Algonquin. And this idea -- the part of the thesis behind expanding our headroom in Atlantica is to give us stability to actually take back shares, Jeremy, rather than cash, Atlantica shares in return for dropping an asset down. And so in the first instance, we would want to preserve 100% of the equity exposure associated with any particular drop-down. And so I think that the idea is that Algonquin would just preserve its equity exposure to that asset albeit being held by Atlantica to the extent that we got ourselves to the point where we have reached our cap of 48.5% ownership, and that they had to pay cash for the other portion of it. Now you got an interesting question, do we take the cash out? And then just put it back into new assets. I think it's a little bit arbitrary from our point of view. But as you know, at our heart, we're not build-and-flip owners.

[Christopher Kenneth Jarratt, Vice Chairman]

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

[Operator]

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

[Nicholas Joseph Campanella, Research Analyst]

I hope I'm not on mute. So sorry to beat a dead horse, but the AY share purchase, I'm just trying to better understand the strategic rationale, and I know we went over a few times. But I guess I'll probably sit with, we've seen that AY is -- they're exploring strategic alternatives. In my conversation with all of you in the past few months, I think there's the mutual agreement that this portfolio of assets maybe is -- has a perceived discount in the market today. So I'm curious as to why you would accept new issue stock rather than kind of purchasing in the open market. And then secondly, correct me if I'm wrong, but I don't think this comes with additional announcements for drops today. And I also appreciate that AY has to fund their own business, but they have some of the lowest leverage right now versus their peer yield co. So I'm just trying to get a better sense of why now. I know there was a lot in one, if you can just expand.

[Ian Edward Robertson, CEO & Director]

Yes. Sure, Nick. I think you've heard the Atlantica guys on previous calls announced that they have some near-term growth opportunities. And as I said, in response to an earlier question, wouldn't it be a shame if Atlantica wasn't able to fully realize on those to the extent that there are accretive opportunities for us given that we own, I'll just say, nominally half the business. That would be a shame for that accretion to not be realized. And so I think given that they can lever that $30 million, I think it's a great opportunity for them to execute on some of the internal growth that they've been able to come up with and then us going into the marketplace. A buying stock doesn't help Atlantica and given that we own half of Atlantica in nice round numbers. That -- and that really seems like not the value-maximizing thesis. And so I think that's kind of where the opportunity to do the capital increase came. And I think in some respects, you put it in the backdrop against the strategic review process. And I actually would argue to say, "The business is a business." It needs to keep going, irrespective of whether Atlantica thinks that the path that they're on may have some forks in that road down in the future. I think if you've got some opportunities now that you can execute on that are accretive at today's stock price and create value for all shareholders, why wouldn't you do it. And so anyway, that's kind of some -- my thought on that -- on the capital increase. In terms of the quote, "drop-down of new assets," I think, part of our discussions with Atlantica was to create headroom in our ownership level to the 48.5% so that's exactly we could explore those because I think there is an opportunity. As I explained again, in response to an earlier question, this sort of interesting ability to be accretive to both entities. Accretive to them as they think about cap, being accretive to us as we think about earnings. So Nick, I don't know if that added more color or it just was me saying the same thing again.

[Nicholas Joseph Campanella, Research Analyst]

Yes. No, I definitely appreciate it. Just a follow-up. It seems like at this point, the preferences for continued new issuance rather than open market purchases as a means to maintain your own ownership and potential future transactions and scale up to that 48.5%. Is that correct?

[Ian Edward Robertson, CEO & Director]

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

[Operator]

Our next question comes from Christopher Turnure of JP Morgan.

[Christopher James Turnure, Analyst]

So if I look back to 2018, you guys look like you had a GAAP EPS of $0.38 and adjusted EPS of $0.66. And it looks like today, you're indicating that you had $0.11 of that $0.66 come from U.S. Tax Reform. What exactly was that?

[David Bronicheski, Chief Financial Officer]

Yes. The -- in Q1 last year, there was an acceleration of HLBV income. That was primarily the major component of that. There is also the issue, you can appreciate that January 1, there would've been -- last year, there would've been a -- think of it as the immediate reduction, the day 1 reduction to your tax expense. So that took -- we went through various rate proceedings last year. And so had overtime reduction in revenues to take that. And so there's a little bit of that effect in that difference as well.

[Ian Edward Robertson, CEO & Director]

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

[Christopher James Turnure, Analyst]

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

[David Bronicheski, Chief Financial Officer]

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

[Christopher James Turnure, Analyst]

Okay. Is there anything else that was in that $0.66 of adjusted EPS? So I guess if I take that down, I would get to $0.55 of adjusted EPS for last year on a apples-to-apples basis. Is there anything in that $0.55 that would not be recurring?

[David Bronicheski, Chief Financial Officer]

No. Off the top of my head, I can't think about anything. Maybe put my mind to it later today, but I just -- I can't think of anything.

[Christopher James Turnure, Analyst]

Okay. And then if we look at that $0.55 versus what you're calling adjusted EPS in 2017 to $0.57, that would be a decrease year-over-year. Last year, I think, you increased the dividend by 10%. That would put your payout ratio for '18 at 89%. And then it looks like today, you've also increased the dividend by 10%. I'm wondering, if there's something that might catch up here that helps to fund the dividend in 2019.

[David Bronicheski, Chief Financial Officer]

Yes. Well, a couple of things. I mean, you're certainly going back in time in which you'd have to also be wanting to look through our basically year-to-year variations in -- due to weather patterns in that. So that'll involve sort of a deeper dive into the kind of historical record to make sure that you've normalized for year-to-year fluctuations in weather patterns. But when it comes to the dividend, I think, the -- our Board certainly takes a long-term view to -- so that they -- the market gets long-term comfort from the sustainability of the dividend. And there is no two ways about it. In the next couple of years, we've got some -- heavy lifting on the capital side. We've got a lot of projects coming online towards the end of 2020, early 2021. And all that's laid out in our Investor Day book, and you can sort of see that kind of maybe not quite a bell curve, but kind of a clustering of some of the larger projects in that 2020, 2021 period.

[Ian Edward Robertson, CEO & Director]

And I think that maybe to -- and Chris, to kind of put the whole picture, and to bring the picture into focus. I think the way we look at it is if our EPS can grow, and it's not on a year-by-year basis, because a lot of these projects are lumpy, like the Customer Savings Plan's been in the works for 1.5 years. But that if we can look at it over, and we generally use a 5-year planning horizon, which is what we talk about at our Investor Day. If we can see an EPS growth, which exceeds on average our DPS growth. And you're absolutely right that 10% is kind of a promise we made to the marketplace in the context of our growth forecast. It feels like we're doing the right thing, and we're not threatening payout ratio, but it's really not a -- it's really not done on a year-by-year basis. It's -- I think it's really done as we look at the prospects for the business over the long haul. You know we announced the $7.5 billion pipeline of growth opportunities at our Investor Day last year, those will and their forecast to deliver EPS growth of in and around the 10% mark. And so I think that the way, we hope, that you look at it is that -- look at over whatever the appropriate planning horizon is that the EPS growth and the EPS growth field related.

[Christopher James Turnure, Analyst]

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

[Operator]

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

[Ian Tharp, Vice President, Investor Relations]

Thanks, everyone, for attending the call today. I'm going to read the disclaimer now.Our discussions during this call included certain forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or result 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 EBITDA, adjusted funds from operations and adjusted earnings per share. There is no standardized measure of such non-GAAP financial measures, and consequently, APUC's method of calculating these measures may differ from methods used by other companies, and therefore, 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 the non-GAAP financial measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR on the United States and available on our website. Thanks, again, for attending today's call.

[Operator]

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