Algonquin Power & Utilities Corp

TSX:AQN

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. 2020 First Quarter Analyst and Investor Earnings Call. [Operator Instructions] I would now like to turn the conference over to Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead, Mr. Jarratt.

[Christopher Kenneth Jarratt, Vice Chairman]

Good morning, everyone. Thanks for joining us this morning for our 2020 first quarter earnings conference call, and sorry about the slight delay getting started. 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. Also joining on the call and participating in its first quarterly earnings call is Arun Banskota, who joined our organization as President in February of this year. To accompany our earnings call today, we have a supplemental webcast presentation, which I hope you're able to access from our website, algonquinpowerandutilities.com. Our audited financial statements and management discussion and analysis are also available on the website as well as on SEDAR and EDGAR. Before continuing the call, we would like to remind you that our discussion during the call will include certain forward-looking information, including, but not limited to, expectations regarding future earnings and capital expenditures as well as potential impacts of COVID-19. We will also refer to certain non-GAAP financial measures. And at the end of this call, Amelia will read a legal notice regarding both forward-looking information and non-GAAP financial measures. Please also refer to our most recent MD&A for additional information. On this call this morning, Ian will start with a summary of the strategic achievements for Q1 2020, and Arun will speak about the impacts of COVID-19 on our operations. David will follow-up with the Q1 financial highlights, and then Ian will conclude with some strategic outlook of the business and some concluding remarks. We then open the lines up for questions. And as usual, I'd ask you to restrict your questions to 2 and then re-queue if you have additional questions. And with that, I will turn things over to Ian to talk about Q1.

[Ian Edward Robertson, CEO & Director]

Thanks, Chris, and going back to old school, I'm going to be referencing Slide 4 in that slide deck. I welcome everyone who's been able to take the time to join us today. But before I begin my formal remarks, regarding the quarter, I did want to touch on what's likely on everyone's mind, which is how we're navigating through the impact of this COVID-19 pandemic. And so hopping to Slide 5. I'd point out the utilities, such as we provide are an essential service, and they do play a unique role in maintaining the fabric of our society, people need to light and heat their homes and need drinking and sewer water services. And we provide these services to over 800,000 customers. A commitment we take incredibly seriously. We recognize that people are counting on us more than ever right now. While the majority of our customers continue to regularly pay their bills, in a move to help lessen any potential financial hardship that the COVID-19 pandemic is causing for our customers, we've temporarily waived late payment charges, suspended collection activities and delayed service disconnections for nonpayment of bills across our service territories. We have also recently made a $500,000 donation to support our communities during the COVID-19 pandemic, including our low-income individuals, foodbanks and first responders. Additionally, we're helping our local COVID heroes by donating excess personal protective equipment, or PPE, as it's referred. By donating already 5,000 masks, and we have plans for providing an additional 20,000 masks in the next few weeks. I was gratified to see how quickly our preexisting business continuity plans were updated to address COVID-specific issues and then rapidly executed in each of our key business units. The team swung into action as we seamlessly transition to a work-from-home model. The safety of our employees and customer remains our top priority. I'm grateful for how our employees have stepped up to ensure we continue to provide essential services in a safe manner. We now have approximately 3/4 of our office and field employees, either working from home or starting their day from home, rather than the office. Out of our 2,500 employees, we're fortunate that we've only had 2 cases of COVID-19 within our rank so far. And importantly, no further transmission to other employees due to our social distancing measures. We believe this is a testament to the rapid measures we took early on and our continuing commitment to social distancing protocols. For those who are not able to work remotely, we've implemented preventive measures to help keep them safe on the job. Arun is going to provide more commentary on the operational impacts that COVID-19 has had on our Regulated Services business. I might point out that at our renewable energy generation facilities, the nature of the business has actually naturally supported social distancing, with the lion's share of our business contracted with creditworthy counterparties, there's been essentially no COVID-19-related impact. Jumping to Slide 6. First, in terms of the financial results for the quarter, we do view the quarter's financial performance to be below our expectations. But it seems pretty straightforward to attribute the impact to mild winter weather in those service territories, which do not yet benefit from volume normalization. From the MD&A, you might have noted good news on this front, with the pending significant expansion of decoupling mechanisms across a number of our service territories. Year-over-year, we reported Q1 2020 EBITDA of $242 million, which represents a 5% increase as compared to the same quarter in 2019, while Q1 2020 adjusted EPS of $0.19 was in line with last year. You'll hear from David that these warmer than normal winter weather conditions negatively affected our operations and caused our results to miss our budgetary expectations. Nonetheless, we remain confident in the resiliency of our business model, long-lived assets, providing essential services, operating under business provisions, which reduced economic volatility. This business model has consistently produced stable and growing financial results, and we remain highly confident in our plans to continue delivering strong returns to our shareholders. You'll also note it that our Board has approved to 10% increase in the dividend, beginning with the Q2 dividend payable on July 15 of this year. This increase marks the tenth year of consistently increasing our dividend as well as demonstrates our collective confidence in the resiliency of our business model. Secondly, we made positive progress on our strategic initiatives. Q1 marks the first full quarter that includes St. Lawrence Gas and New Brunswick Gas into our operations. The transition, as expected, has been seamless. With respect to our acquisition of Ascendant, the parent company of Bermuda Electric Company (sic) [ Bermuda Electric Light Company ], or BELCO, as we refer to it, the regulatory process continues to move forward. Even though Bermuda, like most countries in the world have put in place public health measures to deal with COVID-19, the regulatory authority in Bermuda completed its public consultation on May 4. We remain confident we will receive regulatory approval in the coming months and are excited about our role in helping implement new renewable energy generation in the country. As for the purchase of American Water's New York assets, the transaction continues to progress as we filed a joint petition with the New York State Public Service Commission in February and a procedural conference has been scheduled for early June. Later on in the call, I'm going to provide a quick update with respect to our major capital projects. All told, we are executing on our commitment to build the business and bring value to our shareholders. And with that, I'll pass things over to Arun for an update on the current operating environment for our Regulated Services Group and the impact that COVID-19 has had on it. Arun?

[Arun Banskota, President]

Thank you, Ian, and good morning, everyone. I'm pleased to participate in my first quarterly earnings call with the investor community, and I look forward to meeting with all of you in person in the months ahead as this COVID-19 restriction start to ease. My focus since joining the organization has been to meet with as many of our colleagues as possible and come up to speed on all operational development, financial and corporate matters across the company. At Algonquin, safety is more than a priority. It is part of who we are. In our response to the evolving COVID crisis, the health and safety of not only our employees, but also our customers was front and center in the actions we took and the protocols we put in place. You can imagine the increased potential for an incident with all the distractions around us at the moment. We have, therefore, doubled down on our focus on safety, and I'm gratified to report that our employees have risen to the challenge and continued our enviable safety record. As a business providing mission-critical energy and water services to our customers, we have existing business continuity plans to ensure that we continue to provide those services to our customers or be able to recover as quickly as possible in the event we are faced with events such as hurricanes, floods, tornadoes, fires, et cetera. These business continuity plans cover every element of our business. And all the processes required to deliver these mission-critical services. As soon as we got visibility into COVID-19, we set up a war room approach and started analyzing our BCPs for immediate actions and then revised these BCPs to take into account for longer-term scenarios. Given this intense focus, we are fortunate to report that we have not had any issues in the delivery of mission-critical services to our customers and do not anticipate any. Certainly, during Q1, we did not see any material COVID-19-related inefficiencies. But admittedly, very few days in the quarter were impacted by COVID. We moved quickly to a work-from-home model where possible, isolated teams deemed critical to the business and practiced physical distancing in our field operations. Ian will talk about the effects of COVID-19 on our major capital projects. And in a few minutes, David will talk about measures we have taken from a treasury perspective. So I would like to focus here on the operational effects we see impacting our business for the balance of 2020. We have examined potential impacts of COVID-19 on our operations. And on balance, the effects of COVID-19 that we currently foresee are expected to have a relatively modest impact to our business. But I'd like to spend a little bit of time on 2 items that may impact our business in 2020. First, higher accounts receivable. Like other utilities in the U.S. and Canada, we have been instructed or asked to curtail collections activities, including disconnections for nonpayment during pandemic. This is, of course, the right thing to do to support our most vulnerable customers at this challenging time. And based on the broad support for these actions, we believe that there will be appropriate cost recovery in due course. We continue to see the vast majority of customers paying their bills in the normal course. We are, of course, tracking our agent accounts receivable on a weekly basis. And to date, we have seen only a minor deterioration in our agent accounts receivable. And while we can't know with certainty what this might mean by the end of the year, this could lead to higher uncollectible amounts -- accounts receivable. Nevertheless, we would be tracking and ultimately expect to seek recovery of any additional expenses through future rate proceedings and believe that regulators should be accommodating on this issue. So at this time, we do not know the impact of higher bad debt expenses might have on our business. Second, we are carefully monitoring the changes in consumption patterns of our residential, commercial and industrial customers across all 3 modalities of utility services. However, I would note that change in consumption patterns doesn't translate necessarily into changes in revenues, given the various regulatory mechanisms we have in place across our 40 utilities and 14 regulatory jurisdictions. In some utilities, we have full revenue decoupling. In some utilities, we are specifically weather decoupled. In other utilities, we have such a large fixed fee component that you may as well say, we are decoupled. This means that today, over 50%, 5-0, 50% of our revenues are protected and once we get through our current rate case in Missouri, where we have reached a nonunanimous settlement agreement, we are expecting that nearly 80% of our revenues will be protected. So due to all these mechanisms, it is hard to draw a quick rule of thumb, but we have estimated that due to these various decoupling mechanisms we have in place, the impact to our net utility sales for April to be around $3 million. Given the uncertainty around how long the pandemic will last and what the shape of the expected recovery over the balance of the year will look like, we don't know the full impact that reduced load will have on our full year-end results. Thirdly, we also began implementing certain cost reduction strategies in order to mitigate some of the weather impacts experienced during Q1. Some of the reductions will naturally flow out of things like lower travel expenses over the course of the year due to COVID. But there will be other proactive measures taken to reduce operating expense but without impacting safety or quality and reliability of service to customers. We are targeting expense reductions of at least $15 million, 1-5, in the balance of 2020. Lastly, I wanted to address the COVID impact on regulatory proceedings. With the exception of Kansas, which represents only a small proportion of our customers, all state regulatory commissions that we deal with have remained open through the COVID-19 pandemic. Current rate cases remain in progress and are expected to be finalized in a normal course with only relatively minor delays. With that, I'll pass it over to David for a review of our Q1 2020 financial results and an update on our overall guidance for 2020. David?

[David John Bronicheski, Chief Financial Officer]

Thanks, Arun, and we're now going to be on Slide 9 and moving to Slide 10, and good morning to everybody. In the first quarter of 2020, we can summarize the operating results that we experienced in one word, weather. Our adjusted EBITDA came in at $242.2 million and while up 5% from the previous year when we reported $231.5 million, it was below our expectations due to weather. But other than for that, overall, our various utilities and nonregulated generating stations generally performed in line with our expectations. And as Arun mentioned, the quarter was not materially impacted by COVID-19. Diving into our Regulated Services Group, the business unit delivered $170.2 million in operating profit in Q1 2020 compared to $161.2 million in the prior year, as lower consumption due to warmer weather was partially offset by cost savings. Results also benefited from the first full quarter contribution of New Brunswick Gas and St. Lawrence Gas, as these acquisitions closed at various times in Q4 of 2019. So while ahead of last year, the results were below our expectations due to a 12% reduction in heating degree days. On a year-over-year basis, our Renewable Energy Group delivered solid results in Q1 2020, delivering $87.2 million of operating profit compared to $83.1 million in 2019. The increase of adjusted EBITDA is related to our investment in Atlantica as well as increased production from our newer wind and solar facilities. Nevertheless, our Renewable Energy Group also experienced weather-related impacts that resulted in the production being 94% of our long-term average expected production. Our adjusted EPS came in at $0.19, which was in line with the prior year. Again, most of the variance was due to weather. Moving on to Slide 11. I I'd like to turn my attention to the measures we have taken within our treasury group in response to the COVID-19 pandemic. With the onset of COVID-19 in March and with all the uncertainty that, that's coupled with our largest capital program in our history in 2020, we wanted as a treasury group to move quickly to put additional liquidity in place. So going into 2020, Algonquin had $1.5 billion of credit lines and available liquidity of just over $1 billion. At normal times, this would have been more than enough liquidity for the year. But in times of financial market disruption, liquidity takes on an even more important place, particularly for a company like Algonquin moving forward with a relatively large capital expenditure program. During times of market disruptions and not knowing the actual extent and length of COVID-19 effects, Algonquin's treasury team felt it prudent to obtain additional liquidity for the next 12 months as an additional margin of safety, so that we know with confidence, we have the ability to move forward with our updated current year capital expenditure program, independent of the state of the capital markets, both from a debt and equity perspective here in North America. We have now obtained an additional $1.6 billion of bank credit to allow for the financing of our committed acquisitions and orderly refinancing of debt maturities, depending on market conditions and the debt capital markets and any other unknown variable that might arise. We have more than sufficient liquidity without needing to access the capital markets well into next year, should that be required. In terms of credit metrics, Algonquin targets a BBB flat capital structure, which we believe is optimal from a cost of capital perspective, we remain highly committed to maintaining our credit metrics. And so we'll continue to monitor both the debt and equity capital markets closely as the year progresses, and we are prepared to move forward opportunistically should the market settle and more normal access to markets become available. Before I turn things back over to Ian, I'd like to touch briefly on our earnings guidance that we put out at Investor Day last December. In any given year, we know that a portion of our results are weather dependent. And therefore, when planning the year, we always ensure that we have contingency plans in place that would allow us to make up for any variances due to whether, should that be necessary. This then allows us to normally navigate to a relatively narrow range. What is unique about this year is that in addition to weather, we also have to take into effect any potential impacts that might arise from COVID-19. This has created additional uncertainty as we look at the remainder of 2020, and therefore, has caught us to widen our guidance for 2020. Our guidance for 2020 has now widened to a range for annual adjusted net earnings per share of between $0.65 and $0.70 per share. The adjusted guidance is based on certain assumptions, which are more fully described in our Q1 2020 MD&A. So with that, I'll turn things back over to Ian.

[Ian Edward Robertson, CEO & Director]

Thanks, David, and we are now on Slide 12, moving to Slide 13. And before I close out our prepared remarks this morning, I did want to give a quick update on our 5-year strategic plan. And then as usual, open up the lines for questions. We do remain committed to our 5-year capital investment program, which projects $9.2 billion to be spent across our 2 business groups, which will grow our asset base to close to $17 billion by the end of 2024. The total growth thesis has not been impacted by the challenges currently being experienced due to COVID-19. And Algonquin remains well positioned, both in the near term and the long term to continue executing on our long-term capital plan. With respect to our major renewable energy projects for this year, I'm pleased to report that they are considered essential infrastructure in the jurisdictions in which they're located. And therefore, construction has been proceeding despite shelter-in-place orders. All of these sites, construction activities have basically proceeded substantially in accordance with the planned schedules. Our 3 wind projects for the customer savings plan in the Midwest have proceeded substantially within the normal schedules as well as construction for our Sugar Creek project. And with respect to our Maverick Creek project in Texas, we're currently anticipating that delays in deliveries of components due to overseas manufacturing shutdowns and similar supply chain disruptions may cause the placed in-service date for a small number, 16 of the 127 total wind turbines to slip into early 2021. But notwithstanding such delay, we still expect all of our projects to fully qualify for 100% of PTCs, production tax credits, under Section 45 of the internal revenue code. And this will occur in either in reliance on meeting the continuous efforts requirements as described within the guidance or perhaps the more omnibus relief to the December 31, 2020, safe harbor date, which the U.S. Treasury outlined in the letter back to Senator Grassley yesterday. As part of our coal for wind program in Missouri, our Asbury coal plant is now fully retired as of March 1, 2020, and this closure is in line with our commitment to sustainability with the closure expected to reduce CO2 emissions by approximately 1 million metric tons annually, at the same time, reducing customer rates through lower cost wind generation. To take a bit of the stress, both financial and operational off of our organization, as it learns to operate under the new COVID-19 influenced circumstances, we expect to be able to shift up to $300 million of our previously planned 2020 capital expenditures into 2021. But keep in mind, this deferral in no way diminishes our commitment to our overall 5-year $9.2 billion capital plan. Shifting to Slide 14. Just as a quick shameless plug for our upcoming AGM. I'm proud of the team that we have. And I think we've proven to be an agile workforce. And I want to sincerely thank all of our employees and our own frontline workers for their ongoing commitment and contribution, which exemplifies what incredible teamwork can do. Through both of our stable utility and a long-term contract of renewable generation platform, we have a very resilient business model with predictable earnings and operating cash flows, all turning a nice shade of green. In light of COVID-19, we will, like many other companies, be hosting our Annual general Meeting virtually this year. And we welcome your participation on June 4 at 4:00 p.m. We remain firmly committed to extending our track record of creating shareholder value in the current year and beyond. And operator, with that, I'd like to open it up for questions.

[Operator]

[Operator Instructions] Our first question is from Rupert Merer with National Bank.

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

So you have a -- looks like a positive outcome for the rate case at the Empire District. Can you talk us through what's included in that rate case as far as the ROE and give a little more color on the decoupling provisions? And when they may start?

[Ian Edward Robertson, CEO & Director]

Yes. Well, I'll start by saying it's sort of a black box settlement, if you want to think of it that way. But we were pleased that the outcome is generally in accordance with our expectations from a long-term model. I think more relevantly, given the circumstances, is the first-time inclusion of decoupling mechanisms. As you mentioned, prior to implementation of Senate Bill 564 a couple of years back, decoupling was just not part of the regulatory landscape in Missouri and it now is. And so this is going to be our first decoupling. And it's an important one. Candidly, it takes that 50% decoupling up to close to 80% when you add in this in the smaller Granite State. One of the, I'll just say, uniquenesses of the decoupling in Missouri is that it's broad-based volumetric decoupling for all of our residential and small commercial customers. The larger commercial customers and industrial customers who historically have been, I'll say, weather insulated because just the nature of their usage are not decoupled. And that's kind of -- that's one of the reasons why -- if you assume that those customers are decoupled weather wise, it actually would take that 80% up to 94%. So huge win from our perspective in changing and changing the -- I'll say, the risk profile of the business. Rupert, I don't know if that's kind of the color that you're looking for in terms of the Empire rate case?

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

Yes. And when with the decoupling start? Will it capture any of the impacts we're seeing from COVID-19?

[Ian Edward Robertson, CEO & Director]

Well, is it not an interesting debate that took place between ourselves and the PSC. Right now, it's scheduled to take -- to start on June 15. So while we were obviously arguing for an earlier start, and I'll say, candidly, as we were negotiating the settlement agreement with staff, they were arguing for a later start. And we kind of settled on June 15. So that's -- so as we think about our Q2 results, I know a portion of those will fall into this, I'll say, newly -- more broadly decoupled world.

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

And if then I look at Missouri or other jurisdictions and you have this impact of roughly $3 million a month from COVID-19, are there other mechanisms to recover any revenues that may be lost from lower volumes related to COVID-19?

[Ian Edward Robertson, CEO & Director]

Sure. This is obviously an evolving regulatory landscape. Right now, 3 of our jurisdictions, Oklahoma, Texas and California, have very specific tracking account mechanisms that have been put in place to track increased costs or lost revenues associated with this whole situation. And in many states, and I would expect the rest of our states to ultimately follow suit, many states are treating this kind of in the same way as we might otherwise treat a major storm. And that these costs would be aggregated in tracking accounts and recovered over time. So I think the regulatory jurisdictions are recognizing, Rupert, that the world -- this kind of feels, obviously, unlike business as usual in many of the current mechanisms just aren't appropriately set up for it.

[Operator]

The next question is from Sean Steuart with TD Securities.

[Sean Steuart, Research Analyst]

A couple of questions. David, I'll start with you. You've got a lot of incremental borrowing capacity here to, I guess, bridge the gap if some of the other capital raises you had targeted or compromised. And I'm just wondering if you can first let us know what the cost of that incremental $1.6 billion of borrowing capacity is if you do tap it? And if you can provide any context on the mandatory convert market right now, asset recycling opportunities, how those funding sources might be compromised in the current environment?

[David John Bronicheski, Chief Financial Officer]

Sure. With respect to the provisions under the additional credit, the spreads are, I'll say, slightly wider than what we have in our existing credit facilities. But I'll say, not materially so. So it's really, from our perspective, very much in line with the terms that we currently have. And we're certainly pleased with the support that we receive from syndicate or banking syndicate on these, I think, is something like 12 different banks. And so we're quite pleased with the additional liquidity and accommodations they provided us for that. With respect to the mandatories, I mean, I think pre-COVID would have been our plan to move forward with mandatories earlier in the year probably than later. Right now, what we're seeing in the market is heightened volatility. And of course, that heightened volatility then increases the cost of the mandatories. And so it's turned out that I'll say at this 10 seconds, the mandatories aren't attractive. We have seen some early indications that there could be a fine again, in that, there have been some mandatories that got off, but it's still not at the level we would like to see before we move forward with it. Like I said, in my prepared remarks, we'll be monitoring the markets closely over the course of the year. And I think the theme for us is going to be to move opportunistically, depending on the market, the security that it kind of presents itself with the best opportunity. And that could be in Canada, it could be the U.S. and we have a lot of different tools that we can avail ourselves of.

[Sean Steuart, Research Analyst]

Thanks for that context. And second question is for Ian. Wondering if you can comment on the Board's shakeup at Atlantica and updated thoughts for your investment in that action...

[Ian Edward Robertson, CEO & Director]

Sure. And as a good CEO, I'm going to deflect the question and turn it over to Chris Jarratt.

[Christopher Kenneth Jarratt, Vice Chairman]

Great. Okay. Thanks, Ian. Well, yes -- So just by way of background, there were 4 directors at Atlantica that were not reelected by the shareholders. So the Atlantica has a lot of stuff on the go. We're in kind of an unprecedented times. So the remaining directors appointed new directors, and you've seen the bios and who those directors are. The high level is they're all highly skilled, highly qualified. 25% are women of the total Board now. So I think we just see this as the -- a refresh of the Board is just part of good governance, but it doesn't really signify any dramatic change. There's no change in strategy. It's a great company, and we see it in the same way. So I don't think you should read too much into it that it's that we're seeing Atlantica is any different than it was before. So that's probably the high level of what happened.

[Operator]

The next question is from David Quezada with Raymond James.

[David Quezada, Equity Analyst]

My first question on the renewable power side of the business. I understand the U.S. Treasury has come out with a letter suggesting an extension to the deadline to qualify for the PTC and ITC. And I realize that Maverick is going to qualify for the full 100% regardless. But I'm wondering if any of your other prospective projects could see a benefit from some kind of extension there.

[Ian Edward Robertson, CEO & Director]

Well, isn't that -- I totally agree isn't that cool. So we obviously we're on the front lines of trying to do regulatory or legislative outreach to get this extension. And right now, it looks like, and it's unclear exactly how it gets -- is going to get proposed, but Senator Grassley when he was interacting with the Treasury, basically asked for a year extension to all of the projects. And that will have some interesting and positive implications to project that right now we had thought about being 2021 80% PTC projects. And so I think we had originally, I'll be candid had thought that it would probably only extend to projects that were fully in construction already. But if the relief is broader than that, I agree with you. It does have potential implications beyond just the projects that were originally slated for 2020. Now the good news is, and while that's upside, well, we were confident in the 2020 projects fully qualifying for 100% PTCs. It's just so nice to take the pressure off of, off of the team in terms of getting these projects done. People just, well, I'll say, sleep easier. I don't know if, David, if that's kind of the insight that you're looking for?

[David Quezada, Equity Analyst]

It is. That's great color. And then maybe just kind of a follow-up on that topic. How are you seeing, I guess, demand in terms of counterparties for PPAs or power hedge agreements under the current environment?

[Ian Edward Robertson, CEO & Director]

Well, I'll say, let me say, early to say. The good news is we're actually not trying to sign any right now. We have obviously projects that we are continuing to work on, but it's not like anybody has pulled the plug on a negotiation that has been ongoing, which is obviously good. I think what is very interesting, and maybe this is a broad commentary, about -- I'll say, the capital markets and maybe society in general. We haven't seen people running away, if you will, from their ESG or sustainability-linked objectives. And so therefore, to the extent that investing in renewable energy through a PPA made sense before. The good news is we're seeing that the world still thinks that makes sense going forward. So David, I guess, at this 10 seconds, we're not seeing immediate impact and perhaps over the longer haul, we can't foresee the market for C&I, PPA has been materially impacted.

[Operator]

Our next question is from Nelson Ng with RBC Capital Markets.

[Nelson Ng, Analyst]

The first question relates to the Energy North rate case. I was just wondering whether you can clarify the status. So I thought our rate case was filed last year, and it sounds like you're withdrawing it and filing a new one this summer? I was just wondering whether that like resets the clock in terms of timing. And is there going to be a lot more additional information or a lot of more additional items included in this summer filing?

[Ian Edward Robertson, CEO & Director]

Sure. Let me answer that one, and I can kind of give you some more color to that one, is in the current rules within New Hampshire, there needs to be 2 years of gap between rate cases. And while we were confident that, that 2-year period had elapsed, I think, ultimately, there was some debate with the staff as to whether the 2 years had originally elapsed.And so we agreed to pull the rate case with the thesis of we're actually refiling it in April. And really, refiling it in exactly the same form, Nelson. So this wasn't about us can we throw more things into the rate case. It was really about just meeting this 2-year requirement. Obviously, COVID-19 has stepped in, and it's causing us to think of the date is now July rather than April. So does it occasion a delay? Yes. Does it fundamentally change the risk or the context of the rate case? No. But I think could we have, I'll say, fought that battle? Well, I'll say regulators are sort of like customs agents. There's -- nothing good will come out of you having an argument with them over some procedural points. And so I think we've done it gracefully, and we are going to resubmit basically the same rate case. I don't know if, Nelson, if that's kind of the color you're looking for. There's nothing nefarious associated with this other than just meeting this timing requirement.

[Nelson Ng, Analyst]

Yes, that answers my question. My next question is for -- it's probably for Arun. But in terms of the -- in terms of achieving at least $15 million of savings, can you guys give a bit more color on like where you're looking to achieve those savings, whether it's from the underlying operations head office, whether it's for at utilities where there's somewhat of a delay in rate cases? Could you just give a bit more color in those areas?

[Arun Banskota, President]

Sure, Nelson, thank you. So in our 2020 guidance, as you said, we've assumed a decrease of, what, $15 million. And it's really a bunch of things, right? There are some things that are naturally reduced, for example, lower travel expenses, things of the sort. And while in higher -- the piece is not at the same level as before, just because of the remote -- work-from-home policies. But there's also other things like operating costs and also focused on things like possibly pushing out some of the operational and maintenance expenses. But again, we look at that very, very carefully to make sure that it doesn't impact anything, safety, security, availability, things of the sort. So it's really a bunch of different things that makes up that $15 million.

[Operator]

The next question is from Ryan Greenwald with Bank of America.

[Ryan Greenwald, Associate]

So if we could kind of go back to Empire and the settlement reached there recently. So under this stipulation, the revenue requirement is being held as a regulatory asset until the next rate review in '21. So how are you guys kind of framing earned ROEs there in the interim?

[Ian Edward Robertson, CEO & Director]

Well, I'll let David answer it since I have an engineering degree and he is a CPA, but that will stop me from giving you at least -- from our perspective, I think the GAAP financial statements are unchanged, but obviously, there's, I'll say, a liquidity issue and that you have to fund that, that to deferred revenue. But in the context of ROEs and the way regulatory assets work, obviously, you get to earn on your WACC on any deferred revenue. That's just the way it works. But David, if you maybe want to add some more color to that.

[David John Bronicheski, Chief Financial Officer]

Sure. Yes. I mean from a financial statement point of view, it will be, I'll say, transparent. You won't actually see any difference in our earnings as a result of that. We'll recognize that. It will show up as a regulatory asset on the balance sheet, customer rates will be reviewed in 2021. And the rates that are established that time will incorporate a recovery of the regulatory asset. And so we'll begin collecting on that regulatory asset sometime in -- beginning sometime in 2021. It really is just a timing from a cash collection point of view, but will be transparent from a GAAP earnings point of view.

[Ryan Greenwald, Associate]

And then with the decoupling component, does the commission have to take action by June for that to go into effect? Or would you expect that to be retroactively applied?

[Ian Edward Robertson, CEO & Director]

Well, I think right now, the expectation is in the settlement of the rate case, assuming that it's approved that the decoupling calculation will be retroactive to June 15, 2020. Now ultimately, you know that I'll say that settlement, if you will, takes place at a later date because there's nothing to be done, obviously, on June 16. But at a later date, one will look back and when we look back to June an appropriate adjustments will be made. So Ryan, I'm not sure anything actually has to happen on June 15 to put this into force and effect. It just -- we just all have to collectively agree that starting on June 15 that volumetric will be -- changes will be tracked from that day forward. I don't know if that's helpful, Ryan?

[Ryan Greenwald, Associate]

Yes, that is helpful. And then just in terms of any granularity you guys have around formal succession timing?

[Ian Edward Robertson, CEO & Director]

Well, I mean, I think we've been pretty clear. I will point out, that's your third question, Ryan. But that -- I think we've been pretty clear that we obviously welcome the room to the organization in February. I think he's done a great job drinking from the Algonquin fire hose so far, getting to know all of his colleagues. And I think -- so I'm not sure that the timing that we outlined when Arun joined the organization, we don't feel any different about this. I mean I'm sure from Arun's point of view, he stepped into a circumstance that he could never have foreseen in terms of COVID-19. But candidly, he's done a great job of coming up to speed from a day-to-day perspective, and I think has got a great understanding of the organization. So I'm not sure I have anything more to add to that, Ryan?

[Operator]

Congratulations again, Arun, and best of luck in the new role.

[Arun Banskota, President]

Thank you.

[Operator]

This concludes the question-and-answer session. I'd now like to turn the conference back over to Ian Robertson for closing remarks.

[Ian Edward Robertson, CEO & Director]

Great. Thanks, operator, and hey, I appreciate everybody's time and interest today. Obviously, as always, you can stay on the line for our riveting disclosure this time provided by Amelia Tsang. But before we go, I guess, I have 2 things. Again, stay healthy, stay safe. And I look forward to at least seeing you in cyberspace on June 4 at our Annual General Meeting. Thanks, everybody.

[Amelia Tsang, Vice President of Investor Relations]

Our discussion during this call contains 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. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. We disclaim any obligation to update any forward-looking information or to explain 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, adjusted net earnings per share and net utility sales. 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, 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 the non-GAAP measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada and EDGAR in the United States and available on our website.

[Operator]

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