Algonquin Power & Utilities Corp

TSX:AQN

Earnings Call Transcript 2019-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. Second Quarter 2019 Analyst and Investor Earnings Conference 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.

[Christopher Kenneth Jarratt, Vice Chairman]

Good morning, everyone. Thanks you for joining us on our 2019 second quarter earnings conference call. As mentioned, my name is Chris Jarratt, and I'm Vice Chair of Algonquin Power & Utilities Corp. As usual, 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, there is a supplemental webcast presentation available on our website at algonquinpowerandutilities.com. Over the course of the call, we will be providing information that relates to events and expected financial positions, which should be considered forward-looking. And we direct you to our full disclosure on forward-looking information and non-GAAP financial measures available on our website, and we will read the interesting full disclaimer at the end of this call. We've had a very busy and exciting quarter. On our call this morning, Ian is going to provide details regarding our recent announcements and strategic achievements in the quarter. David is going to follow-up with financial highlights. And then Ian will conclude with an update on the areas of growth that we're focused on in 2019 and beyond as we execute on our strategic plan. We'll then open up the lines for questions and as usual, we ask you to restrict your questions to 2 and then re-queue if you have additional questions to allow others the opportunity to participate. And with that, I will turn things over to Ian to talk about our strategic achievements in the quarter.

[Ian Edward Robertson, CEO & Director]

Thanks, Chris, and welcome everyone to our Q2 earnings call. Appreciate you taking the time to be with us today. So I'll start the conversation today with the main highlights in the quarter. Firstly, in terms of financial results, while our quarterly EBITDA was generally in accordance with expectations, our diversified portfolio delivered a story of puts and takes with higher than average dividend income contribution from our renewable energy assets, offset by year-over-year weather impacted earnings in our Midwest Electric Utility. We will clearly welcome the implementation of revenue decoupling in Missouri during our 2020 Empire rate case. Secondly, adjusted earnings per share of $0.11 was slightly below our expectations, primarily due to unbudgeted carrying costs for the committed capital earmarked for our previously announced New Brunswick Gas acquisition, and actuarially driven increases in our non-cash pension expense in New Hampshire, a request for recovery of which will be included in our upcoming EnergyNorth rate case. Lastly, consistent with our commitment to tangibly deliver the benefits of our growth to shareholders, the Board of Directors increased the dividends by AQN by 10% in May of this year. Looking now at our recent announcements, we had a very busy and exciting quarter. In early June, we announced an agreement to extend our regulated utility footprint internationally through the acquisition of the Bermuda Electric Light Company. This transaction is expected to close later this year.Secondly, in the Midwest, we were pleased to have received a final certificate of convenience and necessity from the Missouri Public Service Commission in respect of our greening the fleet wind development initiative. We would note that consistent with its role of being the reasoned opposition, the Missouri Office of the Public Counsel filed a re-hearing request on our approvals.While using production tax credits to subsidize rate-based generation may be perceived as somewhat innovative, we are confident in the compelling savings, which will be delivered to our customers, which benefits have been proven through the last 2 years of public proceedings.Thirdly, as you will have noted in our MD&A, we have fully executed on our strategy to capitalize on the opportunities presented by the U.S. PTCs, with the addition to our growth pipeline of a participation in the development of the 470-megawatt, Texas-based, Maverick Creek Wind Project.And lastly, in addition to these new projects, I wanted to highlight progress made on our existing pipeline of opportunities. Firstly, we made the final investment decision to proceed with our previously disclosed Great Bay II solar project, a 45-megawatt expansion to our existing 75-megawatt solar project located in Maryland. The energy and renewable energy credits produced by the incremental generating capacity will be sold under a 10-year synthetic PPA.Secondly, we hope that our organization's commitment to sustainability has been formally recognized by the capital markets with the successful completion of our first CAD 300 million green bond offering, the proceeds of which are committed to our renewable wind and solar energy developments.And finally, we're pleased with our second offering of subordinated debt in the U.S. capital markets with $350 million of bonds being issued to help fund our CapEx plans. All told, we believe we took positive new steps to build the business and bring value to shareholders in the quarter.And with that, I'll pass it over to David for a review of our Q2 2019 financial results. David?

[David Bronicheski, Chief Financial Officer]

Thanks, Ian, and good morning, everyone. In the second quarter of 2019, our business operations overall performed slightly below our expectations, but they were still within the normal variability that can be expected from weather-dependent externalities.Our Q2 adjusted EBITDA on a consolidated basis was $189.8 million, an increase of about $29 million or 18% over the same period last year. And while there are onetime pluses and minuses in the results, we still view this as solid growth nevertheless, particularly given the backdrop of U.S. tax reform, where lower rates have now been implemented in virtually all of our regulated utilities.Within Liberty Power, the business generated a divisional operating profit of $93.4 million, an increase of $41.1 million compared to Q2 of 2018. The increase in adjusted EBITDA for Liberty Power is related to the addition of new 75 megawatts of wind in our Amherst Island wind facility as well as our incremental investment in Atlantica.Speaking of Amherst just for a second, Algonquin, together with Atlantica have now created a drop-down vehicle named Atlantica Yield Energy Solutions or AYES. This now allows us to work more closely with Atlantica on identifying assets that may be better held in Atlantica. The initial drop-down into AYES has been an interest in our recently commissioned Amherst Island project.Following wind up on the construction joint venture and the drop down of the project interest to AYES, we were able to release, by way of dividends, the net cash, which had been accumulated in Amherst Island. Combined with higher resources and production from our fleet of renewables compared to the same period last year, the increased investment in Atlantica and the AYES investment contributed $31.6 million in incremental adjusted EBITDA over Q2 in 2018.On the utility side of our business, Liberty Utilities generated divisional operating profit of $109.6 million, a decrease of $11.8 million over the same period last year, which was primarily a result of fewer cooling degree days and lower consumption, primarily in our central division, and combined with the implementation of lower rates in most of our utilities due to U.S. tax reform. Adjusted EPS, well, we came in at $0.11 per share for Q2 consistent with the same period last year. We've pre-raised the capital in anticipation of closing our New Brunswick Gas and St. Lawrence Gas Utility acquisitions, which now look to be closing in late Q3 rather than early Q3, as we had originally anticipated. This contributed to higher interest costs in the quarter. Our earnings were also negatively impacted by higher pension and non-service costs by approximately $5 million, primarily due to the downturn of the equity markets at the end of 2018, which in turn affected return on plan assets.And even though markets recovered early in 2019, U.S. GAAP is very prescriptive about measuring return on plan assets at the end of the fiscal period. Both of these items weighed on our earnings, even as our EBITDA grew year-over-year.With respect to our capital expenditure program, we have adjusted up slightly our capital investments for 2019, which stems from our joint development of the Maverick Wind Project in Texas that Ian touched on earlier. This development advances into 2019 some capital that was otherwise planned for 2020, and therefore leaves our total direct capital investments over the 2 years at about the same level that we were expecting. It does not change our expectations around equity either that's required to maintain our targeted credit metrics over the next 2 years.And now turning to some treasury matters. During the second quarter, on May 23, 2019 APUC issued $350 million of 60-year non-call fixed to floating 6.2% subordinated notes. Concurrent with the offering, we also entered into a cross currency swap to convert the U.S. denominated coupon and principal payments from the offering into Canadian dollars, which resulted in the effective interest rate to APUC of approximately 5.96%. These notes give APUC a 50% equity credit with rating agencies and therefore was an integral part of our 2019 equity plan. This offering represents APUC's second issuance into the U.S. public debt markets. The offering was very well received by the U.S. capital markets and was more than 2x oversubscribed by institutional investors and had a strong retail component.In particular, we believe that this financing represents a perfect example of how Algonquin can now execute opportunistically in either the U.S. or Canadian markets to meet its financing needs. The notes are listed on the NYSE under the ticker symbol AQNB. Investors will also note that we activated our at the market equity program in the second quarter. The ATM program, as it's called, allows us to raise what we expect to be a modest amount of equity on a very cost-effective basis. We reported that the company has issued 1 million common shares under the ATM program at an average price of about U.S. $12.30 per share for gross proceeds of approximately $13.2 million.And finally, while we need to continue to provide the fuel to our growth program, not only here in North America but globally as well. So we've now put in place a new syndicated, $500 million bank credit facility at the APUC level to provide additional liquidity to the entire corporate group, and to support the growth pipeline we are building in our international development activities. The facility is backed by a well-balanced syndicate of Canadian, U.S., and international banks. With that, I'll hand things back to Ian.

[Ian Edward Robertson, CEO & Director]

Thanks, David. Before we close out our prepared comments this morning and open the line for the question-and-answer period, I want to give you a quick update on some of our 2019 areas of focus on growth.For those of you who have been following APUC for the past few years, you will recall that to capitalize on the opportunity presented by the phase out of the U.S. PTCs, we purchased a number of safe harbor turbines, sufficient to support the development of 500 to 600 megawatts of project that would qualify for 100% PTCs. We're pleased that, with our participation in the Maverick Creek Wind Project, and our now under construction 200 megawatt Sugar Creek Project, we will have at least 670 megawatts in capacity, which we expect to qualify for 100% PTCs.Perhaps as importantly, the Maverick Creek Project provides additional flexibility in the timetable for development of the other already identified projects, which are included in our pipeline. In essence, we believe undertaking this near-term development opportunity effectively derisks the execution on the rest of our growth pipeline.As to expanding our regulated utility footprint, we're pleased with the commencement of construction on the 3 projects comprising 600 megawatts of wind in Missouri and Kansas under our customer savings plan, following receipt of final regulatory approvals. This $1.1 billion initiative comprises an important part of our growth program and affirms our public commitment to sustainability. Additionally, we are confident that the closings of our previously announced utility acquisitions in New Brunswick and Upstate New York are imminent, and both are expected to contribute to earnings within 2019. With respect to our acquisition of the Bermuda Electric Utility, the approval of the transaction is expected to be confirmed today at the shareholder general meeting, with closing anticipating following regulatory approval later this year. I hope you share our perspective that the highly certain nature of these initiatives should bring even greater confidence in the organization's ability to deliver on the 5-year, $7.5 billion pipeline of growth that will bring value to our shareholders. And with that, I'll turn the call back over to the operator for questions from those on the line. Operator?

[Operator]

[Operator Instructions] Our first question from Julien Dumoulin-Smith of Bank of America-Merrill Lynch.

[Julien Patrick Dumoulin-Smith]

If I could kick it off with the BELCO acquisition, could you give us a little bit more of the details [indiscernible]. Can you talk a little bit about [indiscernible] and even how the current investment plan could shift into the IRP? Just wanted to understand sort of the broader scope of what's contemplated here. And then if you can elaborate just while we're on the subject. How is the debt being treated? Just so we get it right because I know there's a little nuance there. If you could provide that detail at the same time.

[Ian Edward Robertson, CEO & Director]

So Julien, I'm going to restate your question if I could, just because I guess you're on a cellphone and you kind of cut out halfway through. So we lost the first half of the question. But I took your question to kind of be could you juxtaposition kind of the response on the integrated resource plan from the regulatory authority, what it might mean in terms of the investment in BELCO. That was the first part. And then second of all, talk a little bit about the OpCo debt and how we're thinking about it from a consolidation point of view. Did I get the question right, Julien?

[Julien Patrick Dumoulin-Smith]

You got it.

[Ian Edward Robertson, CEO & Director]

So as everyone on the call will recall that we announced in June an agreement to acquire the parent company of Bermuda Electric Company. And while it's a - I'll say it's a great utility in a highly stable and fairly well off socioeconomic service territory, what really enthused us about it is the fact that, believe it or not, that the utility supplies I'll say almost 100% of its energy from fossil fuel resources.And there's 2 consequences of it. Obviously, I don't think Bermuda is achieving its objectives from an ESG perspective. And second of all, maybe where the real opportunity comes in, energy is very expensive in Bermuda, like $0.40 a kilowatt-hour with almost $0.20 of that being attributed to fuel.We obviously see a great opportunity to kind of replicate what we're doing in the Midwest in terms of our replacement of fossil fuel generation with renewables. And gosh, when you're paying $0.20 for the energy alone, that's certainly clearly - there's a value proposition there.What Julien's question was alluding to is that the regulatory authority, in response to the integrated resource plan submitted by BELCO or Bermuda Electric Company really very much came down heavily on the side of a program to aggressively replace fossil fuel generation with renewables.You can imagine that was the underpinning of our interest in Bermuda and music to our ears, Julien. And so I think all it has done from our perspective, it has advanced the timing of our expectations of continued investment to replace fossil with renewables. So I think it's great news.Secondly, your comment about the debt within BELCO. I'll start by saying BELCO is a relatively low levered utility certainly at the OpCo level. And clearly, our intent is to kind of maintain credit metrics that are consistent with our triple B flat credit metrics. Though I think with -- given that it will be held internationally, kind of in the same way as we hold our other projects through Atlantica, we won't be consolidating that debt. So Julien, all you'll see on our financial statement is the equity interest in BELCO. And then we'll be obviously recognizing dividends that come up from us.I don't know, Julien, is that kind of the color you're looking for?

[Julien Patrick Dumoulin-Smith]

Exactly. And then maybe if you could just elaborate briefly. Missouri, congratulations on moving forward on the project there. Anything to the OPC appeal there? And then secondly, anything on Granite Bridge that you would flag to us just progress wise?

[Ian Edward Robertson, CEO & Director]

Okay. You're going for 3 or 4 questions, Julien, but we'll cut you some slack on this one.

[Julien Patrick Dumoulin-Smith]

If anything is relevant, flag them.

[Ian Edward Robertson, CEO & Director]

So I think as I tried to give some comfort in my prepared remarks, I think it's not unfair to say that the role of the OPC is to be the reasoned opposition to these -- to almost any proceeding in front of the Commission. And I think they're playing that role.I will say that we are candidly, probably -- it isn't crystal clear to us what the specificity of the objections that may be being raised by the OPC. And so in the lack of kind of clarity in terms of what the opposition is, and the fact that no new -- that nothing new was raised in the contents of the appeal, I guess we're resting on the decision that came from the Commission that basically took into account OPC's objections during the -- as an intervener during the process.So while I'd certainly would never be dismissive of their role, I think we remain comfortable and confident that this whole greening the fleet program is going to deliver significant benefits to our customers and that's recognized by the Commission.In terms of Granite State or Granite Bridge, just to roll that forward. We have a procedural schedule kind of shows that there'll be a continuation of the technical hearings in front of the Commission as we move into the fall. Knock wood with a regulatory decision on that coming close to the end of the year. And so we remain as optimistic as we were before, Julien. So hopefully that's kind of the color you're seeking.

[Operator]

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

[Nelson Ng, Analyst]

My first question relates to Maverick Wind and could you just provide a bit of background in terms of how you guys got involved in the project. Did RES essentially run a sales process to get bids? And then what do you guys provide to the -- what value do you guys provide to the JV other than the turbines given that I presume RES is fully capable of doing those projects on their own.

[Ian Edward Robertson, CEO & Director]

Well, let me start by saying you know our relationship with RES goes back a long time. We entered into a JV with RES in respect of our Deerfield Project in Michigan and that got completed, I want to say, a couple of years ago.So I think we're a known entity to RES, which I'm hoping they're respecting and believe in our ability to kind of execute on these sorts of projects. No doubt about it. It's a big undertaking. 470 megawatts is a big project and so I think I would hope that RES are happy with a partner who has not only, obviously, financial wherewithal but brings some development expertise to the party.In addition, as you mentioned, sort of securing the safe harbor turbines. I think that we, as you know, in the same way as in Deerfield, we have structured our arrangements as we have. There's optionality for us to acquire the other half of the JV post-COD. And so I think that as we think about our long-term aspirations, you know they're in the ownership and aspiration of these assets. And maybe RES has a shorter-term perspective. So I think it is a high-quality project. Just to kind of give you some color, we've been actually having conversations with RES on this project, gosh, it's gone back almost 6 months. And I appreciate while they've been talking to other parties, I'm hoping our attributes shone through. I think it's a great project and it's perfectly aligned with our strategy.I don't know if I hit what you were looking for, Nelson. I'm happy to keep rambling on but maybe you can help me focus.

[Nelson Ng, Analyst]

Could you just provide a bit more color on the financial details in terms of the project cost? And I presume Texas hedge prices are probably in the sub-$20 region; is that about right?

[Ian Edward Robertson, CEO & Director]

Yes. And so maybe just to put, as you said, some color to the cost. The total capital cost in and around the $700 million range. The cash – the sponsor equity, if you will, the equity that we're getting involved in after PTC is probably in the $250 million range. So it's a meaty but not too large a project.It generates, as we put in the MD&A, just under 2,000-gigawatt hours a year. And given the high capacity factor, you can imagine obviously, as I said, a big chunk of the capital costs are funded with tax equity. I think your assessment that kind of captured cost in the Texas market in the $20s, between the portion which is contracted under the long-term PPAs with a couple of investment-grade counterparties, and a portion that we will either sell into the merchant markets or maybe enter into hedge for, is as I said, probably $20s is not an unreasonable pricing zone.So hopefully you can kind of do the math to sort of say -- back your way through it and sort of come to the conclusion that it doesn't feel dissimilar to the other projects that we've undertaken.

[Operator]

Our next question comes from Sean Steuart of TD Securities.

[Sean Steuart, Research Analyst]

A few questions or I guess 2. AYES, can you give us context on your decision to move ahead with this structure with Atlantica and putting Amherst Island into it? I guess the background on the structure and your ambition to feed more assets into this structure.

[Ian Edward Robertson, CEO & Director]

Sure. I think you will hopefully recall almost at the time we announced our interest in Atlantica, we saw opportunity to optimize the ownership of assets. And we've kind of historically mentioned projects that might be longer on cash and shorter on GAAP earnings would be a candidate to be held in Atlantica.And I think you would see the AYES structure as really just creating an umbrella under which we could -- we can go through our portfolio and find projects that met that criteria. Amherst Island recently commissioned long-term PPA. Seems like a project that met the criteria. I think there was strong interest on Atlantica's part to establish a bit of a, let's say, a beachhead in North American wind -- contracted wind projects and there was interest from their perspective.And so really I think this is just an execution on I would say an initiative that we had laid out for you at the time of our investment into Atlantica. And I think it makes sense for us to go through our portfolio of regulated or non-regulated renewable energy assets to kind of see what makes -- where are things optimally held. Are they optimally held through Atlantica or held directly through us.So I would say no magic there, Sean. I don't know if that's kind of giving you the color that you're looking for. Happy to add more.

[Sean Steuart, Research Analyst]

That helps. And just so I understand it, the dividend of $17.5 million, that was the cash at Amherst and, David, I guess, going forward, we should expect that to normalize at a much lower level quarter-to-quarter.

[Ian Edward Robertson, CEO & Director]

Yes. I think we tried to be clear that during the pendency of the original construction JV, obviously, we weren't sending cash out. And so I think that's a totally fair observation, Sean, that what a great onetimer on the upside to help deal with the onetimer on the downside of the weather that we hit in Missouri. But I think you're absolutely right. On a go-forward basis that should normalize to what you'd normally expect coming off of a project the size of Amherst.

[Operator]

Our next question comes from Robert Hope of Scotiabank.

[Robert Hope, Analyst]

Just want to follow-up on Sean's question there. So when you look at AYES and the potential further dropdowns into that vehicle, what's the gating factor there? Is it Atlantica's access to capital? Is it you taking back shares to maybe move up to that 50%? Or is it really just a, we'll work through the portfolio and drop them down as we see fit.

[Ian Edward Robertson, CEO & Director]

Well, I won't be glib but I'll say yes to all of the factors that you combined there. I tried to give a little bit of color to Sean that there was strategic interest in Atlantica -- from Atlantica's part in Amherst and establishing that beachhead. So clearly, their Board will have to look at further dropdowns. I think their cost of capital has always been a challenge.I think we have made no secret that we are encouraging of Atlantica's strategic review process because clearly, we don't think their cost of capital reflects the value of the assets that they hold. And so we want them to improve their cost of capital. So that is not a factor going forward. But I guess what the main thing that will drive it is, as we think about our portfolio, where is the best place to hold a particular asset. And I don't think it's lost on anyone on the call that you can look at the earnings profile off of assets, and they are different based on their PPAs, and how old are they, what was the original capital cost from a depreciation point of view. And you'll go through the portfolio and decide that maybe there's 1 or 2 more that would be appropriate drop down candidates, subject to meeting all of the other issues that you just raised, Rob.

[Robert Hope, Analyst]

And then just moving over to the Empire, let's call it, the IRP that was put out in June as well. Quite a lot of talk about adding solar in Missouri on a standalone basis, plus in batteries. But just want to get a sense of kind of what magnitude of capital do you think you can put in further generation in Missouri?

[Ian Edward Robertson, CEO & Director]

It’s a good question, and as you know, we are very keen on and think that solar with storage is a great addition. It certainly helps offset transmission costs. As you know, storage can kind of interesting like both generation and transmission sort of at the same time.It's probably in the hundreds of millions of dollars. It's not $1 billion. I think we're pleased that the $1.1 billion of wind from the customer savings plan today, that's going to satisfy a big chunk of their needs. But on the margin, I think there's still growth going forward. And as you know, there's a complementary generation profile between wind and solar that we'll want to take advantage of.So it's real. But I wouldn't want you to be putting $1 billion into your model, Rob. That's just overstating the opportunity.

[Operator]

Our next question comes from Ben Pham of BMO Capital Markets.

[Benjamin Pham, Analyst]

Just on some of the questions on this Amherst JV with Atlantica. Sort of optimizing your structure and whatnot, releasing capital. I imagine you starting this – there’s probably longer-term game planning in place or flexibility. But is this really -- would you ever consider the public route at all at some point? It's probably too small now but is that the long-term thought process on that?

[Ian Edward Robertson, CEO & Director]

I'll start by saying, Ben, that that isn't the long-term strategy at this 10 seconds, because for exactly what you described. The last thing we want to create is an entity which kinds of feels orphan or stranded in the capital markets. But clearly, I think the relationship with Atlantica, providing Atlantica had a constructive cost of capital, kind of allows us to achieve the majority of those benefits without ending up with a stranded entity.Having said that, who knows what the future holds. And as 700 -- or 470 megawatts of new wind in Texas, and as we continue to execute on the rest of the game plan, it's going to be nudging up to 2.5 gigawatts or 3 gigawatts worth of generation. So that's going to have some real size. What the optimal management of that, I guess you'll just have to trust us that we're keeping our eye on all the opportunities that you're probably seeing. But at this 10 seconds, I think it's on the margin. I don't want people to walk away from this earnings call to think that there's some strength to spot strategic change going on. On the margin, we saw a great opportunity to do something that felt optimizing. And maybe there's a few more things in the portfolio. But gosh, there's nothing in there that's sized that you should feel represents a strategic change. What you described clearly is a strategic move but that isn't what this is focused on.

[Benjamin Pham, Analyst]

I'm thinking then also just how you think about deploying capital, North America, international. You go international, like Bermuda. Hopefully, there's better returns there over North America. But I'm curious, now you've gone through Maverick and you got the greening the fleet. How do you think about the returns between the 2 asset classes now? Is there still a spread there for you guys?

[Ian Edward Robertson, CEO & Director]

Well, when you say the 2 asset classes, Ben, just so I can clarify, are you speaking between reg and non-reg or domestic and international?

[Benjamin Pham, Analyst]

Yes, I've always been of the view or I've seen historically, it's non-reg is a better return profile than regulated but maybe that's different now.

[Ian Edward Robertson, CEO & Director]

Well, I think one is an apple and one is an orange, as you can imagine from a risk profile perspective. What we like about the regulated side, so just think about owning the customer savings plan wind generation in rate base. Arguably, our shareholders don't take the residual risk, if you will, the residual value risk. On the other hand, they are not able to -- our shareholders, our customers do -- don't capture the upside of the value of those assets in the marketplace.And so I think it's probably a fair observation that there is a higher return available in the non-regulated space. But I think on a risk-adjusted basis, we are actually comfortable with both investments. And I think this is kind of getting to the question of business mix. You know that we don't have hard and fast rules on business mix. We will be opportunistic. I think Maverick is a great example of we'll be opportunistic. To the extent, we see something that meets our risk-adjusted return profile, then we're going to go ahead and pursue it. We're comfortable with our 70-30 reg-non-reg business mix and I don't see that actually changing any time soon. So if you look at our $7.5 billion of growth, it's pretty much split 70-30. So if you like our business mix today, 5 years from now, it won't be any different, absent kind of a more strategic move to kind of split the businesses, which is just not -- it's not on the thought process right now.So I'd actually -- and maybe this is going to sound a little trite, but we love both our children in terms of the business. And really, at this 10 seconds wouldn't be sort of saying we prefer one to the other. We are fortunate that the capital markets have been supportive enough that we haven't been -- have to make that Sophie's Choice, if you will, between assets.

[Operator]

Our next question comes from David Quezada of Raymond James.

[David Quezada, Equity Analyst]

My first question here just on the North American wind strategy. And as you think about the economics for wind projects beyond, or as we move into 2020, do you think that returns on those projects will decline as the PTC steps down? Or do you see offsets there either on the cost side or maybe in terms of slightly better PPA prices holding returns on those projects somewhat constant?

[Ian Edward Robertson, CEO & Director]

Well, isn't that the uncertainty that we all face as we stare into the fog. I think a couple of data points. I think that after the noise of the PTCs is fully out of the market, then to the extent the price of new wind, the marginal price of new wind is setting the cost in the market, that ultimately it will reflect whatever the then current cost is.I think over that 5-year or so of the phase out of the PTCs, I think we all can look forward to some technological advancements in terms of larger machines, which could actually help offset the loss of the PTCs as it steps down, certainly from 100 to 80, maybe from 80 to 60. I think we're going to have to see what the world holds for us thereafter.What I am comfortable and confident in is that there is both an economic and societal push that renewables are going to continue to build out through the U.S. And that will be driven by the economics. Because there's just no way that fossil fuels can compete, even today, absent the PTCs, for that next kilowatt of generation. So I think the future continues to be strong. I get it, your comment about some uncertainty in the market over the next 3 years as the turbulence of the phase out of the PTCs comes along. It's one of the reasons that, candidly, we're very pleased to have added Maverick to our portfolio of projects. I hope that you see the addition of Maverick in the same way we do, which is it derisks our ability to execute on that $7.5 billion. Because to the extent some projects suffer permitting delays or whatever and may get pushed out from 2020 to 2021, we have locked in the value that we wanted to lock in, in the 100% PTC.So as a hardcore entrepreneur, David, I guess where others see uncertainty, we see opportunity. But so far, we're pretty pleased with our positioning.

[David Quezada, Equity Analyst]

I totally agree. That’s great color. And then maybe for my second question, just switching gears a little bit. I was wondering if you could talk just from a high level on your -- I know sustainability is important to you guys. Talk about your strategy on ESG and how you think about the various sustainability-rating agencies out there. And if you have any goals in that regard.

[Ian Edward Robertson, CEO & Director]

Sure. What a timely question. We are going to be publishing our report this fall. We're going to be holding a sustainability, I'm going to say grandiosely, day but it's probably going to be a couple hour meeting with analysts to walk through the report. We've kind of landed on FASB as the framework under which we intend to report, though you can imagine there's tons of other qualitative observations that we want to make about our commitment to sustainability.I think it's not lost on anyone that our involvement in renewable energy made us kind of green before it was hip to be green as a company. And as we move forward with things like the greening of the fleet initiative in the Midwest, knocking off some of these KPIs in terms of carbon intensity reduction, those sort of things, those are going to be for sure available to us. And so you're going to hear a lot more from us this fall. Hope you can attend our sustainability report unveiling and is that the color you were kind of looking for, David?

[David Quezada, Equity Analyst]

Absolutely. We'll look forward to that.

[Operator]

Our next question comes from Mark Jarvi of CIBC Capital Markets.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Just wanted to back to the OPC and the filing. I know it's a little uncertain. Not seeing much change in what the base of their case, but who bears the risk if this causes a delay or an amendment to what the CC&E provide you? Do you have any exposure or is it completely on the developer right now?

[Ian Edward Robertson, CEO & Director]

Well, I'd say it's completely on the developer except for the fact that I think we've entered into agreements to buy these assets. I trust that they're not going to be frustrated. I think we're hoping that the uncertainty associated with the OPC's request for rehearing is resolved before there's too many holes dug in the ground and too many turbines planted. And because clearly, the developer will have concerns associated with that. And then ultimately, we won't realize our objective of being able to invest the capital.So I'd say that financially is actually not the issue right now. The issue is clearly one of timing. Although I think you pointed -- the point that you made, which is -- I just said I'm trying not to be dismissive but there is no new story for us to try to interpret in the context of the rehearing that wasn't fully vetted and opined on in the orders issued by the Commission.So it's hard for us too. While we certainly are concerned about the timing -- it's hard for us to kind of infer that there's sort of new concerns that would arise. I don't know what more to say, Mark.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

That's helpful. We'll keep an eye on it.

[Ian Edward Robertson, CEO & Director]

But keep in mind, and while there is no hard and fast time clock for the commission to respond to a rehearing request, we're clicking into a month now. And so I think they are -- we're hoping they're going to be responsive to this.

[Mark Thomas Jarvi, Director of Institutional Equity Research]

Okay. And then just pivoting back to Maverick and it sounds like you guys are using some of your safe harbor turbines. How should we interpret that in a signal towards other projects that either may not proceed? So is Maverick completely additive or maybe a partial substitution as you think about your CapEx plans in the next few years?

[Ian Edward Robertson, CEO & Director]

I think it provides us optionality is the way we would ask you to think about it. As you know, the 5% commitment for safe harbor isn't a cap. It's, in fact, a floor. So we have other projects, as you know, in the pipeline -- Broad Mountain, and Walker Ridge, and Shady Oaks II. And while we, actually are confident that these projects have legs, what we see Maverick doing has us taking the edge off from a timing point of view.We're working our way through certain permitting issues at Broad Mountain. And I think while we are confident that Broad Mountain is likely to go ahead, it's not a must do, if you know what I mean, that if it gets bumped to 2021 -- and I will point out that moving to 2021, particularly for a project like Broad Mountain, doesn't mean that it won't qualify for 100% PTCs. It won't qualify under the safe harbor rules, but continuous efforts is certainly recognized under the regulations governing the PTCs, as a strategy for us to preserve PTCs on something like Broad Mountain.And so I guess I wouldn't ask you to think about it as substituting, i.e. throwing away. It does provide us optionality. But more importantly, I think I'm hoping that everybody on the call sees the inclusion of Maverick, as we call it, kind of derisking our ability to execute on the $7.5 billion pipeline of growth. That's kind of how we're thinking about it.

[Operator]

Our next question comes from Rupert Merer of National Bank.

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

In the quarter, you had an acquisition of 3.4 million shares from Atlantica. It looks like you purchased 1.4 million at a little less than $22 a share and you've got a prepayment that looks like it will settle in about 6 months at a higher price. Can you give some color on why the share acquisition is structured that way?

[Ian Edward Robertson, CEO & Director]

Sure. So we've done, as you know and I think we've been pretty transparent, that we're neither buyers nor sellers of Atlantica, largely, but on the margin, our aspirations are to have a significant but non-controlling, i.e. less than 49% interest in Atlantica. And you know we subscribed for some treasury shares.And then most recently, we entered into an arrangement with a counterparty to sell us 2.5 million shares, 2 million of which were delivered immediately and the other 500,000, as you point out, will settle before the end of the year. It's just a way to affect an acquisition, if you will, in the marketplace but without disturbing the trading dynamics. That's kind of the short of it. It's called an accelerated share purchase program and it's a pretty conventional approach or well-trodden approach to maintaining or building one's position in a public company.So I would say nothing secretive about it. That's just the way the mechanics work.

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

Okay. All right. Great. And then also the mechanics of AYES. I think I'm reading this right but it looks like the plan is to move Amherst Island to Atlantica post-May 2020. Is that correct and why is the transaction structured that way? And is the intention to move the entire Amherst Island Wind Farm over to Atlantica in the long run?

[Ian Edward Robertson, CEO & Director]

No, and happy to kind of take this offline, Rupert, to understand. No, I think it was May of 2019 that the transaction took place. So not exactly sure where 2020 comes into it. And candidly, there's no plans beyond the partial interest, which has been transferred into AYES, to transfer more. So maybe I'm a little bit confused as to where it is. But if you want to give me a shout after the call, Rupert, I'm happy to kind of walk through specifically.

[Operator]

[Operator Instructions] Our next question comes from Jeremy Rosenfield of Industrial Alliance Securities.

[Jeremy Rosenfield, Equity Research Analyst]

Just a couple of cleanups. First on Maverick, is the intention to have an external tax equity partner? I know in the past, we've discussed the ability or the possibility of Algonquin being the tax equity provider for itself. Maybe you could just sort of clarify that.

[Ian Edward Robertson, CEO & Director]

Great question, Jeremy. As you alluded to, our cash tax ability horizon is coming distinctly into view as we look into the early 2020s. And so, therefore, we have seen an opportunity for us to put some capital to work as our own tax equity. I think Maverick gives us an opportunity to execute on that strategy.I will say that it's probably bigger than our appetite for tax equity. So maybe a partial participation in the tax equity is what the chef will cook up on this one. So for sure, some third party tax equity, but maybe a participation of ourselves in some part of it.

[Jeremy Rosenfield, Equity Research Analyst]

All right. That sounds delicious. And then just in terms of I guess the ATM that was used in the quarter. Ian or David maybe, can you just talk about why you would want to continue to use that? Is it really just opportunistic for small bite sized amounts of equity that are required? Just help us to understand there a little bit more.

[David Bronicheski, Chief Financial Officer]

Sure. Our objective on the ATM program is to just, again, give us another tool in the toolbox in order to meet our equity needs over time. And I think at the onset of this, we're kind of thinking of it in size and scope similar to our DRIP program. So we can then issue equity in modest amounts and do it on a very cost-effective basis. And that's the primary objective.The other advantage that you have seen in other companies that have ATM programs is, again, the ability to execute on an opportunistic basis for a block trade that might come through, where you have a new shareholder. He wants to come into the stock. And assuming that we've got the equity need and they've got the appetite to invest, we could execute a block trade through that as well. So it really is just a matter of giving us one more tool to meet our financing objectives.

[Operator]

This concludes the question and answer session. I'd like to turn the conference back over to the presenters for any closing remarks.

[Ian Edward Robertson, CEO & Director]

Thanks, operator, and appreciate everyone taking the time on our Q2 call. Look forward and God willing, we'll speak to you next quarter. Thanks very much.

[Unknown Executive]

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 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, 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 measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada or EDGAR in the United States, and available on our website.

[Operator]

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