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Algonquin Power & Utilities Corp
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Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. 2019 fourth quarter and full year analyst and investor earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [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.
Great. Thanks. Good morning everyone and thanks for joining us on our 2019 fourth quarter and full year earnings results conference call. As mentioned, my name is Chris Jarratt and I am 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.
We have a supplemental webcast presentation that accompanies the call and this can be accessed from our website at algonquinpowerandutilities.com. Our audited financial statements and management discussion and analysis are also available on the website and also 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 and may also refer to certain non-GAAP financial measures. And at the end of the call, Amelia from our Investor Relations team will read a not so brief legal notice in respect of both forward-looking information and non-GAAP financial measures.
We have had what we believe to be a pretty good fourth quarter and full year. And so today, Ian is going to start with the strategic highlights followed by David summarizing the financial highlights, who will then turn things back to Ian and conclude the prepared portion of the call with an overview of our strategic growth plan for 2020 and beyond. And then, as usual, we will open up the lines for questions. Also, as usual, we will ask you to restrict your questions to a maximum of two and then re-queue, if you have additional questions to allow others the opportunity to participate.
And now with that, I will turn things over to Ian and he will discuss the main focus areas of 2019.
Thanks Chris and good morning to everyone who is able to join us. We are coming to you from our offices here in Oakville on a sunny but cold morning. I always welcome the opportunity on the last quarterly call of the year to reflect on the progress we made over the course of the previous year with a number of corporate achievements supporting a solid year of financial performance. We will then spend some time looking in a bit more detail at our plans for the current year and longer term as our team works on successful execution against our recently updated five-year strategic plan.
Before I begin my formal marks, I wanted to extend a warm welcome to Arun Banskota, who has now been with us for three weeks. Arun brings to APUC a unique combination of experience in renewable energy, development, true financial acumen and a results-driven leadership style. I am sure you will share our confidence that Arun's background makes him a great addition to Algonquin's executive leadership team.
Over the coming year, I will be working closely with Arun to help him expand his knowledge of our business in the newly created role as President of our company to provide the opportunity for Arun to fully engage in our business and the culture which is so distinguished as a company making it the fastest growing utility in North America. Over the coming months, I hope you will all have the opportunity to meet and build a relationship with Arun.
I trust everyone takes comfort from financial results that confirm it's business as usual, as we continue to deliver solid performance and execute on our $9 billion pipeline of growth. I am personally enthused by the prospect that by the time it is right for me to transition away from the direct management role of CEO of being able to continue to contribute to APUC's success. We have been cooperating on the creation of independent investment platform to collaborate with APUC on incremental growth opportunities, which is intended to provide for a continuation of the passion and forces which have driven this company' extraordinary track record. Obviously these plans are in early stage but the measured pace of our leadership transition process will give us all time to sort things out.
And lastly, after almost 14 years on the APUC rocketship, David Bronicheski has decided to retire this coming fall. He has shared that family considerations at this stage of hi life has made it the right time for him to move forward towards retirement and allow our deep talent base in our finance team to step forward. Well, we certainly wish David the best when he finally embarks on his well deserved retirement later this year. The strong financial program that's contributed to our success will remain in capable hands with Arthur Kacprzak assuming the role of Deputy Chief Financial Officer.
Given that this is our year-end earnings call, let's start with some of the highlights for 2019 and how those initiatives contributed to another year of solid financial performance. Firstly, I am pleased to report strong and stable year-over-year growth in our key financial metrics. Topline profit continued to grow with 2019 adjusted EBITDA of close to $840 million. Secondly, as we discussed at our recent Investor Day, excluding the one-time impact related to U.S. tax reform from our 2018 EPS, 2019 EPS of $0.63 represents year-over-year growth of approximately 10%.
The organization exited 2019 with nearly $11 billion in assets, a 16% increase over 2018 levels. We are very mindful of the important role our dividend plays in the total return expectations of our shareholders and we delivered annual dividend per share of approximately $0.55, which represents a 10% increase from the previous year.
Secondly, the company completed many successful growth initiatives and achieved a number of important milestones during the year. I am proud to say that we completed two acquisitions in the past quarter. We closed the acquisition of our first Canadian utility New Brunswick Gas together with St. Lawrence Gas in New York. Both acquisitions are expected to provide opportunities for future growth. During the quarter, we also announced an agreement for the acquisition of New York, of American Water's New York jurisdictional assets. It represents a sizeable regulated water and wastewater acquisition with the addition of close to 125,000 customer connections across seven counties in Southeastern New York. During 2019, the regulated services group successfully completed several rate reviews representing a cumulative annualized revenue increase of approximately $0.5 million.
And lastly, before I turn things over to David, I wanted to highlight the positive impact that our recent utility acquisitions have had on our growing customer count putting the March to a Million milestone squarely in our sights. As previously mentioned, the completion of our two recent acquisitions and the two acquisitions we announced in 2019, the Bermuda Electric Company and American Water's New York jurisdictional assets will bring the millionth customer into view. Not that long ago, our regulated services group was 100% based in the United States and we are thrilled that these recent acquisitions have provided the company with the opportunity to expand their skill set beyond those borders and serve the utility needs of customers in Canada, United States and soon to be Bermuda.
And with that, I will turn things over to David for a review of Q4 and the full year financial results. David?
Thanks Ian and good morning everyone. As Ian mentioned earlier, in 2019 APUC has again showed its ability to grow its business in an accretive way through a stable utility and long term contracted renewable platform. We ended 2019 pretty much where we guided at Investor Day in December with an EPS of $0.63. On a consolidated basis, our Q4 results were positively impacted by solid operations at our existing facilities. In addition to new utilities, which came onboard in the fourth quarter as well as our investment in Atlantica, which combined to increase our Q4 adjusted EBITDA to $231.5 million, an increase of $32.6 million over the same period last year.
On an annualized basis, we posted adjusted EBITDA for the full year 2019 of $838.6 million, an increase of 4% over the prior year. With respect to our earnings per share and our adjusted net earnings per share, it was $0.63 which after adjusting for the one-time effects of U.S. tax reform in 2018 of approximately $0.09 per share of which we spoke of at Investor Day, our adjusted net EPS has grown by just over 10%.
Looking first at our regulated services group. The business unit delivered $565.4 million in operating profit in 2019 compared to $551.6 million in the prior year. We saw improved contributions from our gas and water facilities as well as the contribution of New Brunswick Gas and St. Lawrence Gas, which closed in the fourth quarter and helped to offset lower results from our electric utilities. In addition, the regulated services group earned $6 million related to the development of our San Antonio Water System project or SAWS, as we like the call it, which is being jointly developed with third-parties.
This is consistent with our expectation that for jointly developed projects, we will earn fees consistent with our contributions to the project through the development process. Going forward, we expect in 2020 to earn approximately $2.5 million from SAWS. On a year-over-year basis, our renewable energy group delivered strong results in 2019, posting $328.5 million of operating profit compared to $303.6 million in 2018. The increase of adjusted EBITDA is related to our investment at Atlantica as well as increased production from our newer wind and solar facilities.
The final topic I would like to cover also relates to our capital structure and the steps we took in 2019 to strengthen our balance sheet. As you are aware, APUC targets a BBB flat capital structure which we believe is optimal from a cost of capital perspective. In January of last year, we were quite proud of our inaugural green bond offering pricing at CAD300 million 10-year senior unsecured bond at an attractive 4.6% interest rate. This is a key element of our continual commitment to sustainability with the proceeds from the bonds used for sustainable purposes.
In May 2019, we issued $350 million of 60-year fixed to floating 6.2% subordinated notes. Concurrent with the offering, we entered into a cross currency swap to convert the U.S. dollar denominated coupon and principal payments from the offering into Canadian dollars, resulting in an effective interest rate of approximately 5.96%. This shows the power and efficiency of being able to be opportunistic on either side of the border with respect to our financing. I would also point out that the notes also provide us with additional equity credit to our rating agencies.
In October, we issued $354.4 million of common equity through our inaugural U.S. marketed equity offering, which was three times oversubscribed. It increased our U.S. shareholder base with new long-only investors and improved the liquidity of our shares trading on the NYSE.
Finally, earlier this month with our new bond platform here in Canada, Liberty Utilities Canada, we issued a 30-year CAD200 million senior unsecured debentures at an interest rate of 3.315%. This is the longest duration bond we have issued and the lowest coupon we have ever issued. This offering provides us with a strong debt platform in which to grow our utility base in Canada. The proceeds were used to partially finance the acquisition of New Brunswick Gas.
Before I turn things back over to Ian, I would like to touch briefly on our earnings guidance that we put out at Investor Day last December and reiterate that we continue to target our adjusted net earnings per share for 2020 to be in the range of $0.68 to $0.70.
With that, I will turn things back over to Ian.
Thanks David. Before we open up the lines for our question-and-answer period, I wanted to spend a couple of minutes speaking about some of the growth initiatives we are pursuing in the context of our five-year strategic plan. At our Annual Investor Morning, typically held in early December, our leadership team meets with investors and analysts, many of whom are likely on the call today, to discuss our current operations and our plans for the future. While I know quite a few of you will feel like you just heard this from us in December, in our view a positive story bears repeating. Our updated five year capital investment program projects $9.2 billion to be spent across our two business groups, with the emphasis on a regulated services team over the coming five years.
On the non-regulated side of the business, construction is proceeding in earnest on close to 850 megawatt of wind and solar projects. We are pleased that execution on our development pipeline will preserve our attractive average PPA length. On the regulated services side, following receipt of the final regulatory approvals last year, construction is now underway on all three projects comprising the 600 megawatt of new wind in the Midwest. These wind farms are expected to be completed by the end of 2020 and will contribute to earnings next year.
Perhaps a couple of comments on Coronavirus are in order. We are obviously taking all appropriate precautions for the health and well-being of our employees and customers, including managing the travel requirements for our team. With respect to our renewable energy projects, both regulated and non-regulated, these projects are generally located in the heartland of the Continental United States and as such do not appear to be immediately exposed to Coronavirus considerations. Having said that, we are actively monitoring the potential impact health protection measures might have on the global renewable energy supply chain. But based on our investigations of the current situation, we remain confident that our projects will be completed generally in accordance with the planned schedules.
With respect to our two newest utility acquisitions, Bermuda Electric Company and American Water's New York jurisdictional assets, I would like to turn things over to Chris Jarratt for some additional color. Chris?
Yes. Thanks Ian. So just on those, with respect to Bermuda, people may have noted that the timeframe for the regulatory approval was extended by the government to October 4. From our perspective, I don't think we would read too much into that. We understand that the date was somewhat arbitrarily picked to be one year from the date of the original application. And while the timeframe was originally four months, but the government always had that ability to extend this date. And while this is new territory for the Bermuda regulator, we don't expect it will actually take that long but that of course will be up to the government.
Just a little bit more on Bermuda. In the last little while, we got some great dialogue with the government and we are as excited as ever about the opportunity and the benefits of the transaction for the country. For example, we have committed $300 million of investment into renewables, which has totally aligned and accelerated Bermuda's objective of reaching 85% renewables. The sale of Ascendant will also inject about $200 million into the Bermuda economy. And we have also announced something that we call our 5+5 plan and that consists of two components.
The first five we have identified operational savings of about $5 million per year with no company initiated job cuts which will reduce rates for customers. And the second component of the 5+5 plan is the investment in a sustainable Bermuda foundation of $5 million. And this will promote green energy in Bermuda and is totally aligned with our own sustainability objective. So just in summary, I would say, we are as excited as ever and we are looking forward to the collaboration with the government and the people of Bermuda.
With respect to American Water, the story is a little bit shorter. The application is being submitted today and we have had some good discussions while socializing the application with the State Senators and the assembly men and women. We expect this transaction will close sometime in 2021.
Thanks Chris. And finally at the end of 2019, we had approximately $7 million in pending rate reviews within our regulated services group. Organic rate base capital expenditures are primarily related to the maintenance and expansion of existing assets to improve quality and efficiency of service to our customers. It's a core strategy of our regulated services group to ensure that an appropriate return is earned on the rate base investments at our various utility systems.
And before ending my formal remarks, I want to touch on the subject to sustainability. We believe that a commitment to sustainability is not simply something we do, but rather something we are. It touches every one of our business strategies and operations. This past quarter saw us publishing our 2019 sustainability report and hosting our well-attended inaugural sustainability morning.
I am pleased that our commitment is being recognized with Corporate Knights ranking Algonquin as the World's 10th Most Sustainable Company on its recently released list of The 100 Most Sustainable Corporations. We are proud to be the highest ranked Canadian company and the highest ranked electric utility on the list.
Through our decarbonization initiative and renewables growth, you can see that our fleet is turning a nice shade of green. For instance, we are advancing our plans to shut down an operational coal plant in favor of $1.1 billion of new wind generation, an initiative which is good for our customers by saving their money as well as good for the planet. You can clearly see that our organization is very well-positioned to be on the right side of the shift of social sentiment to renewable energy.
And to wrap up my prepared comments for today, I am proud of the team's 2019 accomplishments. I think we have proved that an agile, entrepreneurial culture, all rowing in the same direction is indeed a powerful force. We have an ambitious but achievable growth plan in front of us and we are committed to extending our track record of creating shareholder value in the current year and beyond.
And with that, operator, I would like to open up the lines for questions.
[Operator Instructions]. Our first question comes from Sean Steuart with TD Securities. Please go ahead.
Thanks. Good morning.
Good morning Sean.
A few questions before I get back in the queue.
No, you only get two. No, you remember.
All right, two. Ian, I gather you are still working out the details based on your prepared comments, but any context you can provide on the structure, what's envisioned for the collaborative development platform that you might establish?
Well, I think it's all based in a belief that there is an opportunity to potentially marry the characteristics of Algonquin's competitive capital with those of some private capital to be the winning bid, if you will, as we continue to pursue infrastructure projects, particularly internationally. And so I think it's all founded on fundamentally that we want to continue to win here and we will do what's necessary and capitalize on those opportunities to continue to be a winner. I don't know if -- I wish at 10 seconds, Sean, I could give you more details, but I think I think there is an opportunity for us to make this winners through collaboration.
Okay. Understood And maybe related to that question, any updated thoughts you can provide on asset recycling initiatives? How that might be structured? And how contingent all of this is on the Atlantica Yield strategic review wrapping up hopefully sometime? How does that play into all of this?
Well, I mean, I am not sure that the two are related. You know, at our Investor Day, we outlined that capital recycling would be part of our five-year and I reiterate five-year, $9.2 billion plan. And so it's not feeling like it's something that is near term that we need to realize on with a capital plan for 2020, which may or may not include capital recycling. So I am not sure that I see capital recycling at the top of the list. We spoke of things like mandatory converts and some of those other securities as an important part of our 2020 capital plan.
Okay. That helps. I will get back in the queue. Thanks guys.
No. Sean, I will give you one more.
I mean any common you want to provide on the Atlantica review. They didn't provide a lot of detail on the call yesterday. But your patience with that investment at this stage?
Well, I guess, in some respects, I would say it's appropriate that Atlantica are the best guys to comment on Atlantica's strategic review. And so I don't think I would have anything constructive to add to that. Obviously, we shall remain interested spectators to the whole thing and hopefully, as you said, it will conclude soon.
Okay. Thanks Ian.
Thanks Sean.
Our next question comes from Mark Jarvi with CIBC Capital Markets. Please go ahead.
Yes. Thanks. Good morning everyone.
Good morning Mark.
Just picking up on that comment, given where Atlantica Yield had moved, I mean obviously today is a different day and while a pain in the market, but in terms of asset recycling, is monetizing your interest in Atlantica Yield, if that's the path that Atlantica wants to take, become more of a viable option for you guys at this stage?
Well, that's a big question. You know, we never invested in Atlantica Yield as to, I will say, a hold to sell. The thesis for Atlantica Yield was to give us instant economies of scale as we built out our international presence. It would feel a little bit like a strategic shift to sort of say, now it's time to sell. And I get, look, none of our assets are, I will say, my personal children and so that everything has to be considered for sale. But I think we would have to look at that in the context of our international aspirations and whether that made sense going forward. I think we have spoken in the past that we like the assets that Atlantica Yield has and candidly, probably like to have maximal visibility into the value proposition associated with each one of those assets. That would be our aspiration. As to whether they are, I would say, ready to -- our interest is on the block to be sold. I will say, at this 10 seconds, I don't think anything has changed from what we said in the past.
Okay. And then just looking at results, operating expense in the utilities is down year-over-year. It looks like very good cost control. Is that a function of timing? Or have you guys been able to find permanent savings in the utility business platform?
Well, we look at cost savings across the utility platform as kind one of those dials that allows us to earn our regulatory return and it will vary somewhat depending on the various rate case cycles that we happen to be in. And I think for this year, it just so happened that we were in a position where we could kind of move the dial back a little bit on that and help us in the year, I think, earning pretty much here full regulatory returns on an average basis across all of the utilities. So it really is just one more dial that we will use over time.
And Mark, just to kind of add a couple of words to that, you know that the fundamental basis of an OpEx for CapEx or CapEx for OpEx shift is replacing the cost that customers incur from an operating point of view with general rates include for rate base. And so I guess the question if you might be asking is, do we see a continued drop in operating cost? And the answer is certainly yes. As we continue to invest in CapEx which is intended to reduce those operating cost. And that's how we are of the belief that we can keep customer rates constant while doing good things for our customers in terms of enhanced reliability on our shareholders enhanced investment.
So just to clarify, a bit of both from the OpEx to CapEx but maybe a bit more, it sounded like what David was saying was managing regulatory lag this year in terms of how you are allocating dollars?
It's really both. And that's how we look at it. I mean I think over the next couple of years, you are actually going to see that play out even more as we look to decommission the coal plant and build out the wind. I mean the long term thesis of that, obviously, is to lower customer rates. Now that will be in the commodity cost line which is a little bit higher up on the income statement but you will it play out there over the next couple of years as well.
Right. Okay. Thanks.
Thanks Mark.
Our next question comes from Nelson Ng with RBC Capital Markets. Please go ahead.
Great. Thanks and congrats on the good quarter and also with the leadership transition plan.
Thanks Nelson.
The first question relates to the Empire's wind projects. You guys mentioned that two of the three projects have started construction and the third one will start construction this quarter. Is it the small one or the big one that has yet to start construction, like the 150 or 300 megawatts? I am just wondering -- sorry.
They all underway now. They are now, I will say, all underway. There was one final permit that was coming in on Kings Point. It was received. And so they are digging holes as we speak.
Okay. And I just wanted to ask you about timing risk and whether you see any issues given that there is going to be a glut of wind projects reaching completion by the end of this year?
Well, let me say that the time for that worry, I will say, was certainly before now and it was one that we focused on and it's about getting quality contractors and locking up cranes and all the things that you need in order for these projects to come in on time. So the good news is, well, we are certainly mindful of December 31, 2020. I think we have taken all the necessary steps to make sure that, I will say, the contractual infrastructure is there to make it happen. Clearly, you heard in my prepared remarks, obviously we are also mindful of shocks to the supply chain infrastructure from Coronavirus. We are obviously mindful of those things. But I think the machine is robust and we are looking forward to getting these projects all done on time.
Okay. Good. And then the second item might be for David. On the utility side, there was I think about $10 million of other income included in EBITDA. I was just wondering whether that relates to non-regulated services? And I think adding in previous years, you provided some services to the Military, the U.S. Military or Army?
Yes. I mean you have touched on it exactly. So in the other income category that you are talking about, it really falls into, I will say, three buckets. One, I touched on in my prepared remarks where it relates to the fees earned from our SAWS joint development project that we are working on and we will continue to earn on that in the coming years. Next year, it will probably be about $2.5 million as an example. But yes, we also provide utility services to Fort Benning and so that amounted to a few million dollars last year as well. And then the final bucket that falls into that is AFUDC which, as you know, is a utility construct that that allows us to capitalize to the project the regulated equity thickness as we are building out construction projects. So it really falls into those three buckets.
Okay. Got it. I will leave it there and back in the queue.
Thanks Nelson.
Our next question comes from Rupert Merer with National Bank. Please go ahead.
Good morning everyone.
Hi Rupert.
I would like to ask about your view on bond yields. I am watching the U.S. 10-year reach record lows today. Obviously, it could be good for refinancing. It could be supportive of equity values. Can you give an update on your view for your larger rate cases? And do you see any potential impact for the low bond yields to lower ROEs in your upcoming rate cases?
Okay. Well, I will start off by just talking about the impact that we see on the debt and I will transition it over to Ian to talk about our views on future ROEs. With respect to debt, I mean, where you are really seeing that benefit, I mean we just issued a 30-year bond here in Canada for our New Brunswick Gas utility in New Brunswick. I mean this is like fantastic news because for that utility, it really is all about driving down operating cost for customers and making gas more competitive in the market. And so that's going to be saving that utility about $2 million a year which you can do the quick math, when it's spread out over 12,000 customers, it works out to, well, almost $10 to $15 per month per customer.
I mean, that's a tremendous benefit that we are able to do there. And certainly we are, as far as our existing debt goes, I mean most of our debt as you know is long term fixed. So we have limited ability to, I will say, refinance that without some horrendous make-whole. So that's likely not in the cards for us, but we will be looking at being able to come to market whenever we see the opportunity, because you are right. I mean I think we absolutely do want to take advantage of long term rates. And we look to go for as long as a tenure as given where they are right now.
So with that, I will pass it over to Ian to just discuss ROEs.
Sure. And Rupert, I will say, you know that one thinks of ROEs as a long term proxy for equity returns in the capital markets. But many times people look at utility ROEs in the context of a premium over, I will say, the U.S. 10-year treasury. Historically, I will say that premium has been banded at the top end at about 700 basis points. Well, as the U.S. treasury continues to fall unless, you can say, weirdly magically it went negative, I don't think that -- I think that would obviously cause people to think about their CAPM models for ROEs. And so, I will say, we keep our eye on it. As David said, though in the short term, our interest cost that we bring to bear in our rate case, they are kind of driven by the existing portfolio of bonds that are issued within Liberty Utilities. And so I am not sure that our ROEs would be immediately affected. But I think your consideration is a fair one. You have to be thinking about those equity returns in the context of the risk-free rate. So I wish I had something more insightful to talk for you, Rupert. But that's kind of the way this thing unfolds.
All right. Very good. I will leave it there. Thank you very much.
Thanks Rupert.
Our next question comes from Rob Hope with Scotiabank. Please go ahead.
Good morning everyone and congratulations on the transition plans.
Thank you.
I wanted to circle back on Sean's initial question, just in terms of the collaborative investment platform. You did mention that you could bring private capital to bear on international opportunities. Any sense on how this platform could interplay with AAGES or Atlantica., given that potentially they could be going after similar investments?
Okay. Well, let's start by saying that in our world, our international investment initiative was characterized by two specific tactics. The first was to acquire an interest in Atlantica Yield is a HoldCo for projects that got developed internationally. And the second tactic was the creation of a development group jointly with Abengoa to pursue the origination, development and construction of those initiatives.
And I think, it comes as a shock, we have spoken on various calls in the past that Abengoa isn't exactly the strongest financial partners. So one could imagine that to the extent that we found or we are able to take advantage of some incremental private capital to collaborate in Abengoa's stead in terms of AAGES, what a great opportunity to continue to drive that growth going forward. And so I will start by maybe, I am not sure that this has really candidly anything to do with Atlantica one way or the other.
Atlantica is what it is. As I have mentioned in answer to Sean's question, we like the assets that happen to exist in it, within the Atlantica right now I am not sure, though, it really plays one way or the other in terms of growth going forward. Atlantica, unto itself and maybe just to touch at the very end, Atlantica unto itself is for all intents and purposes a HoldCo. It's not a developer. It's not a development capable platform. And candidly, that's not what we invested in it for. So I don't if, Rob, that's kind of the additional color you are looking for.
No. That's great. Thank you. And then maybe for David. SAWS looks like it had a dividend of $6 million in 2019. When we are looking at the 2020 guidance, any outsized contributions from development platforms that you didn't highlight, so aside from the $2.5 million from SAWS?
That's all that we are seeing right now, but obviously we are a pretty active company. So I mean people shouldn't be surprised if a new project happens to come along. There could be additional income coming from that. But at the present time, that would be what we are looking at.
Okay. Thank you.
Thanks Rob.
Our next question comes from Julien Dumoulin-Smith with Bank of America. Please go ahead.
I think you are on mute, Julien.
Hi. Sorry guys. I appreciate the heads-up there. And thank you again for the time.
I am sure the question was incredibly insightful, but you still have to repeat it.
Let me get going again here, right. Let's do it again Friday morning. So well first off, congrats on the succession all around here. And then maybe to that point first, easy question. How do you think about EV strategy playing into the company altogether in the future? I mean obviously very, very early days from a utility perspective. That being said, you guys are ones to venture off into non-rate base opportunities when you see it. Is there any thought on that front given the background here?
Well, right now, I will say, our biggest EV initiative has been on the rate side. I mean, you can imagine a dollar of rate base is fungible with every other dollar. And to the extent that we can invest that rate base in infrastructure that happens to grow load, that improves the economics for everybody on the system. So I will start by saying that to-date, our primary focus has been on investing in those states that allow the inclusion of EV infrastructure into rate base. And that's not everyone and you can imagine it's jurisdictionally specific.
In terms of how easy infrastructure is going to, I will say, the value proposition, the revenue model outside of the regulated construct, we are obviously keeping our eyes on this. The Edison Electric Institute has an entire Electric Transportation Working Group that we are sort of actively involved in. And I agree with you. I mean if ultimately EVs progress the way that, I will say, on the trajectory that one thinks that they are going to be, I am not sure that the regulated construct is going to be the most effective way to do it.
And if you are here in Canada, organizations like Suncor are pioneering, they call it their Electric Highway which is a coast-to-coast network of charging stations. You hear about the same things on I-95, heading south from the Canadian border down to Florida. So look, we are on it. It is definitely feels, Julien, like something we need to keep our attention on as an entrepreneurial organization. You hit the nail on the head where we never want to let an opportunity go by the by. I just don't have anything at this 10 second beyond our focus in the regulated utility space.
All right. Excellent. And then I will keep it two here. Second question, going back to some of the strategic private capital you talked about at Analyst Day last in December here. Can you discuss again what the purpose is? Because I hear with respect to some of the various commentary in the call thus far, but to be very specific about this, I thought the private capital piece was to address otherwise ordinary common equity needs that you might otherwise have here as well as to try to show the value underlying the renewables business and the renewable platform. But talk to us probably around the thought process behind sourcing the private capital? What assets might be, at least as you see today sort of in the vein of meriting sell down or however you want to frame it, but I guess I want to come back to this private capital conversation.
Sure. Well, I actually am not sure it's a new theme. The investment internationally, our international investment is predicated to achieve, I will say, the accounting treatment we look for as having a party on the other side of owning, I will say, call it a 50% interest in those international assets. As you know, they are generally funded using a limited recourse project debt and perhaps in quantities that exceed what we might do directly under our North America current credit metrics.
And so I think the thesis was to have a strong off balance sheet partner in that venture going forward. I will say that as we think about private capital and we think about infrastructure return profile, I think we believe that there is an opportunity to bring the character of private capital, which you can imagine might be more returns focused, it might be more patient, it might have, I will say, a different credit interest. Combine that with public capital of Algonquin which is obviously a recognized global player from a development and operations point of view, that feels like it could be a winning bid in international projects.
And so you know, if it sounds like we are further ahead than that, then it's probably not correct. I mean, it's just that we do believe and since we are actively out there in the marketplace looking to win in this place having as another tool in the Algonquin toolbox a credit worthy partner for international development that brings an appetite with low-cost capital, that was always the premise. And so I think we have mentioned at our Investor Day, we are committed to making that a reality. And it is a great win-win for us both.
But to clarify that, it's more of a strategic growth initiative rather than necessarily finding someone with a lower cost of capital in order to avoid common equity otherwise?
Yes. No, you shouldn't see this as a strategic shift from Algonquin's point of view. It isn't about substituting, I will call it, their capital for our capital. It never was from an international point of view. We just wanted to make sure that whoever our partner is internationally, wasn't hamstringing our development initiatives. And you know that we sort of made historic comments that historically Atlantica's access to capital in the public capital market, I am not sure brings the exact same character that private capital from an institution or name your favorite pension fund brings. They have their own set of constraints, their own depth of access to capital that public markets impose. So no, you shouldn't think of this as, first of all, as any strategic shift. You should think of it as a continued execution on the strategy of making sure that we have a co-investor to realize on our international investment aspirations.
Excellent. Thank you guys for the time. I will keep myself honest here.
Thanks Julien.
All right Julien. Thanks very much.
Our next question comes from David Quezada with Raymond James. Please go ahead.
Thanks and good morning everyone.
Good morning David.
A question here just on the regulated side of your business. I am thinking about, you made a lot of progress with your ratemaking mechanisms, some of those key features a and assuming things go to plan was with Empire and Granite State, you will have revenue assurance accelerated recovery and post test year recovery at most of your major utilities. I am wondering if you see any other ratemaking mechanisms that you could still add or have you gotten, call it, the low hanging fruit from a regulatory lag perspective here?
What's interesting, well, first of all, this is a never-ending journey because every time we add a new jurisdictions a.k.a. New York or New Brunswick, we are always going to be advocating for regulatory mechanisms that don't just reduce risk for us, it reduces risk for customers too. And so I think what you have seen and if you have followed us, historically look back at the progression of those regulatory mechanisms, David, I think we have been pleased that we have continued to fill out that chart every year at our Investor Day over time.
Now there are jurisdictions that we are continuing to agitate and advocate for those mechanisms. I would say, we are thrilled that Missouri has adopted them. New Hampshire, our first rate case, where we are going to be seeking weather normalization. Those are all underway. But every time we had a new jurisdiction, we are obviously going to be advocating for those. So I think it's not just in the utility' best interest, it's in the customer's best interest too. And I think that's why you are seeing states adopt these construct of regulatory mechanisms such as trackers and weather normalization.
Okay. Great. Thank you. That's good color. And then just one other one, I guess, more generally across your utility footprint. If you had any reason, I guess IRP type discussions with the regulators and any recent thoughts on how storage and renewables could fit in there going forward?
Well, I said I know you are aware that in Bermuda, there is a very active IRP discussion going on where the government has kind of targeted 85% renewables. We actually think the number can be definitely higher than that. We are in regulatory planning strategy work in California, literally as we speak this week on our California 100, this idea of bringing some additional solar and energy storage to bear to meet California's objective of having 100% renewable. So that is definitely a theme. I don't think we done "greening the fleet" yet, David. We got a number of a number of initiatives underway with the whole idea of bringing low-cost renewables to reduce costs for customers going forward.
Thank you very much for that, Ian. I appreciate it. I will get back in the queue.
Thank you David.
Our next question comes from Neil Kalton with Wells Fargo. Please go ahead.
Hi guys. Thanks for taking my question.
Hi Neil.
So I just wanted to follow-up on the supply chain. So it seems like things are still a little fluid but just if you did have some slippage beyond the end of this year, is there an ability, you think, to go to the IRS and get an extension? And then the second question kind of along these lines is, if not, who bears the risk, especially on the regulated wind farms? Would that risk be born by Algonquin shareholders? Or would there be some ability to go to the regulator and sort of share it with customers?
Well, let me start by saying is, we could have a half-hour conversation about this whole point. But I will start by saying is, I will say, three lines of defense against that. The first is, as you say, well, it appears sort of fluid right now. It is something we are actively on top of just given the quantum of our investment in renewable energy over the course of 2020. It's visible to the extent that kind of I am sitting on a biweekly committee where we kind of understand what's happening from a supply chain point of view. So the vigilance is the first, I will say, strategy. And the good news is, so far I think the supply chain appears to be holding up at least in our instance. You know, obviously, the problem isn't digging holes for turbines in Kansas and Missouri. That's underway just fine. Thanks very much and that's moving ahead.
I think that the second approach that you mentioned is that and maybe it's probably worthwhile sort of being clear is that, right now the production tax credits, I will say, don't fall off if the entire project is completed by December 31, 2020. Production tax credits are allocated on a turbine-by-turbine basis. And so to the extent, imagine if one out of the 400 turbines we are erecting across the entire fleet got done in January, only that turbine would be, if you will, I will say, under consideration for a discussion about the 100% PTCs, if it got commissioned in January.
And the last one is and I think this is where you touched on, is that December 31, 2020 is really, I am going to say, it's an arbitrary date. It's a date that was developed by the treasury in the terms of regulations that gives developers comfort that if your project was done before that point in time is de facto conclusion that you did apply, I will call it, continues effort to get your project complete. But if you didn't get it done by December 31, 2020, that doesn't conclude that you didn't apply continuous efforts which is really the standard in the test for 100% PTCs. And so we are confident that, I will say, every one of our projects, we have been continual in pursuing and to the extent that there was a delay it's hard not to think of Coronavirus as being a fair argument for force majeure against those continuous efforts.
And so I think we are probably a long way away from having to have a conversation about whether that's a shareholder risk, is it a customer risk in the context of the regulated utilities and candidly how large the risk is. And so while we are mindful of it, I think we have confidence that we have taken all the steps to kind of manage that risk. And I am not trying to beat hedgy here, Neil. It's just that I think the solution to this is kind of managing it right up front rather than waiting to the end and kind of having to deal with it in the context of a problem. So as I was just saying, we are cautiously comfortable and confident in our ability to manage against the risk.
Very helpful. Thank you very much.
All right Neil.
You get another one. You pay for two.
Well, that was the one I had.
Okay. Thanks Neil.
All right Neil. Thanks much.
This concludes the question-and-answer session. I would like to turn the conference back over to the presenters for any closing remarks.
Well, thanks everyone. I appreciate you taking the time. I see, we are just coming up to the top hour and I know everybody has things to do. So we will speak to you next quarter, God willing. And with that, stay on the line for our not so brief but still riveting disclaimer from Amelia. Amelia?
Thanks Ian. Our discussion during this 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 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 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. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.