AQN 2025Q4

Hello, and welcome to the Algonquin Power & Utilities Corp. Fourth Quarter 2025 Earnings Conference Call. I will now turn the conference over to Mr. Brian Chin, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us for our fourth quarter and full year 2025 earnings conference call. Joining me on the call today will be Rod West, Chief Executive Officer, and Rob Stefani, Chief Financial Officer, who will share prepared remarks. Other members of the management team are also available to answer your questions during the Q&A portion of the call today. To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR+ and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information and non-GAAP measures. Actual results could differ materially from any forecast or projection contained in such forward-looking information. Additionally, all net earnings information to be discussed today is for continuing operations and is attributable to the common shareholders of Algonquin. Certain material factors and assumptions were applied in making the forecasts and projections reflected in forward-looking information. Please note and review the related disclaimers located on Slide 2 of our earnings call presentation at the Investor Relations section of our website at algonquinpower.com. Please also refer to our most recent MD&A on SEDAR+ and EDGAR and available on our website for important additional information on these items. On the call this morning, Rod will provide a business update, and Rob will follow with details of our financial results. We'll then open the line for questions. And with that, I'll turn things over to Rod.

Thanks, Brian, and good morning, everyone. Thanks for joining us. 2025 was a turning point for Algonquin. We delivered strong results, improved earned returns, made substantial operational and regulatory progress and meaningfully strengthened our balance sheet. And those results reflect something broader. Algonquin is a different company today than it was a year ago. We are more focused, more disciplined and to each other and to our stakeholders more accountable. We have sharpened our strategy, assembled an experienced leadership team and laid the foundation for a sustained performance culture. In short, we're advancing toward our goal of becoming a premium pure-play regulated utility. Turning to Slide 5. I'll begin my remarks today by walking through our accomplishments in 2025. We delivered full year net earnings per share of $0.27 and adjusted net EPS of $0.34, which exceeded the top end of our guidance range by $0.02. These results demonstrate that our Back-to-Basics strategy is driving measurable improvements in our underlying fundamentals. And as we've discussed before, becoming a premium utility starts with getting the fundamentals right. Since I joined Algonquin, we focused on, first, improving operational discipline to improve customer outcomes and driving efficiencies by bending our cost curve; and second, strengthening regulatory strategy execution through more proactive stakeholder engagement, all to drive more constructive and timely outcomes. Our 2025 results provide recent evidence of that focus. We reduced operating expense as a percentage of gross revenue from approximately 38% in 2024 to roughly 36% in 2025. We achieved constructive regulatory outcomes across a range of proceedings, and we improved our earned ROE from 5.5% in 2024 to approximately 6.8% in 2025. We also made progress this year in strengthening our balance sheet. We used net proceeds from the sale of our renewable business, excluding our hydro assets to retire approximately $1.6 billion of debt, materially improving our capital structure and financial flexibility. And finally, we continue to simplify the company and the story, both through portfolio actions and by reducing complexity inside the regulated platform. While we clearly have much more work to do, this was a good start, and we carry that momentum into 2026. Looking ahead to 2026 on Slide 6, our priorities build directly on what we have achieved over the last 12 months. Operationally, cost discipline remains a core priority. As we transition to a more commodity aligned structure and centralizing shared services around cost and value, we expect to capture additional efficiencies and drive consistency across our gas, water and electric portfolio. As we undertake these efforts, we're also implementing a centralized capital projects team to improve our execution performance and reducing risk. At the same time, we're focused on improving the safety and reliability of our system, supporting positive customer outcomes and maintaining affordability across all of our jurisdictions. To drive better customer experiences, we've been making improvements across our end-to-end process design, focusing on the moments that matter most to our customers. This includes more accurate billing and better delivery of information during any kind of disruption. From a regulatory standpoint, we're pleased to receive approval of our settlement in Empire Electric Missouri's rate case in January this year. We're working there to see the rates implemented, which remains subject to evaluation of specific customer metrics. We were also glad to reach settlement agreements at New England Gas, CalPeco Electric and Arizona Litchfield Park Water & Sewer and look forward to advancing them towards approval and implementation. I'll speak to each rate case in a bit more detail shortly. Finally, at the corporate level, we've recently onboarded key leaders, including Rob as our new CFO; Pete Norgeot as our new Chief Operating Officer; and Kristin von Fischer as our new Chief Human Resources Officer. Our execution against these priorities underpins our financial outlook. For 2026, we're pleased to reaffirm our earnings guidance. The drivers supporting this year's guidance range are well defined, and we're confident in our ability to execute. Relative to where we were last June, we now expect our effective tax rate in 2027 to be in the mid- to high 20s percent range as compared to the previously anticipated low to mid-20s percentage range. We're continuing to evaluate tax strategies to optimize the tax rate, but expect the majority of the benefits from those strategies to be realized after 2027. This largely results in an updated expected adjusted net EPS range for 2027 of $0.38 to $0.42. With an executive team that brings deep utility experience now in place, in addition to the aforementioned tax optimization work, we're focused on disciplined execution and constructive regulatory engagement to position the business to deliver sustainable earnings growth over the long term while also looking for additional opportunities to bridge the gap caused by the tax rate relative to last June. Turning to Slide 7. While there is more to be done to bring resolution to a number of key rate cases, we're seeing the benefits of our regulatory and stakeholder engagement approach. By prioritizing earlier dialogue to identify areas of common ground as well as advancing more pragmatic filings, we've been able to achieve settlement agreements. We expect these agreements will deliver reasonable regulatory outcomes that benefit our customers and allow us to recover investment in our systems efficiently. Let me walk through our key recent proceedings. In January this year, the Missouri Public Service Commission approved our settlement agreement for Empire Electric, which is our largest operating utility. This authorizes a $97 million revenue increase after we meet customer metric performance requirements for 3 consecutive months, with an additional potential $13 million of annual revenue increase based on meeting further performance requirements starting in the second half of 2026. In California, we received a proposed decision at CalPeco Electric, adopting the proposed settlement agreement, which provides for a $48.6 million revenue increase retroactive to January 2025, an allowed ROE of 9.75% and an equity ratio of 52.5%. We are awaiting a final decision. In Massachusetts, we reached a settlement for New England Natural Gas, which calls for a $45.3 million revenue adjustment, of which approximately $17.9 million is non-gas system enhancement plan revenue, with 2 additional step-ups in rate base in subsequent years. The settlement includes an allowed ROE of 9.3% and an equity ratio of approximately 52.9% and a rate stay out through October 31, 2029. We've requested a commission order by the end of this month. In Arizona, just this week, we filed a proposed settlement for Litchfield Park Water & Sewer. The settlement, which was reached with the Arizona Corporation Commission staff calls for a $15.3 million revenue adjustment and an allowed ROE of 9.75% with a 54% equity ratio. Hearings are scheduled for late March of this year. And finally, in Kansas, we filed a rate case at Empire Electric in December, requesting a $15.8 million base rate adjustment, which represents a net requested increase of $12.5 million with a 3-year phase-in for a gradual adjustment. Slide 8 helps put all of this in context. Over the past year, we have steadily resolved rate cases across multiple jurisdictions, advancing from filing to constructive resolution to implementation of rates. As we look ahead, we now have line of sight to resolving a significant portion of the remaining requested revenue adjustments this year, which will inform our forward earnings trajectory. Turning to Slide 9. We are fortunate to operate in high-quality jurisdictions that have attractive regulatory mechanisms. This includes tracker mechanisms, multiyear rate plans, forecasted test years and formula rate structures. These regulatory mechanisms underpin the majority of the expected rate base growth between now and 2028. Building on this foundation, recent legislative and regulatory developments across our states are supporting enhanced investment recovery. Recent advances in Missouri, Arizona, New Hampshire and Oklahoma are further strengthening our regulatory frameworks with the adoption of future test years, CWIP for new gas generation, plant and service accounting and consideration of formula rates. Overall, these developments reinforce the constructive regulatory environments in which we operate. With that, I'll turn it over to Rob to walk through our financial update for the quarter and year-end. Rob joined the company just this past January on January 5. Many of our analysts and investors may already know Rob from his time as CFO of Southwest Gas Holdings. He also previously served as CFO and Treasurer of PECO Energy, a Philadelphia-based electric and gas utility subsidiary of Exelon. Rob joins a strong team of experienced utility executives in the C-suite. And as we continue to build our utility platform, Rob's utility leadership experience, strategic skill set and financial expertise will be leveraged to build a strong foundation for the company as we solidify our strategy and execute on our path to becoming a premium utility. So again, Rob, and for my last time formally welcoming you, I'll hand the call over to you.

Thanks, Rod, and good morning, everyone. I've been immersed in my first 2 months at Algonquin, and I'm excited to partner with Rod and the leadership team here to build a premium utility through disciplined execution across the organization. With that, I'll turn to our results on Slide 11. We reported full year GAAP net earnings of $208 million compared to $54.8 million in 2024. Full year adjusted net earnings were $258.8 million, up approximately 17% from $221.6 million in 2024. For the fourth quarter, GAAP net earnings were $29.4 million compared to a net loss of $110.2 million in the fourth quarter of 2024. These strong results reflect the progress we are making to deliver steady, predictable earnings. I'll now discuss the drivers behind this improvement as I walk through our adjusted net EPS results. On Slide 12, we provide our fourth quarter 2025 adjusted net EPS walk to common shareholders. Fourth quarter adjusted net EPS to common was $0.06 per share, which was flat year-over-year. On the top line, the increase in adjusted net earnings was primarily driven by $10.3 million from the implementation of new utility rates at BELCO Electric, Midstates Gas, Peach State Gas, Missouri Water, New York Water and several of our Arizona water and sewer systems. Moving to interest expense, we realized a $17.9 million reduction, reflecting the paydown of debt using proceeds from both the sale of the renewable energy business and the sale of our ownership stake in Atlantica. This has been a consistent positive driver throughout the year and a direct result of our balance sheet strengthening efforts. Operating expenses and depreciation were modestly higher by $6.1 million, driven by fourth quarter costs associated with the targeted relief initiative for customers agreed to as part of our Empire Electric Missouri settlement. On a full year basis, operating expenses were essentially flat. These benefits were offset by the removal of $10.9 million in Atlantica dividend income, which impacts the corporate group as well as a $7.3 million write-off related to the CalPeco solar project that was discontinued. Taxes were flat year-over-year. Moving on to Slide 13. Full year adjusted net EPS attributed to common was $0.34 per share, up from $0.30 per share in 2024, representing approximately 13% growth. This exceeded the top end of our previously stated guidance range by $0.02 per share, driven by accelerated realization of our operating expense savings, lower depreciation expense resulting from authorized deferrals and tax adjustments. Let me walk through the key drivers in more detail. New utility rates contributed $41.6 million of benefit from approved rate implementations across several gas, water and electric systems throughout the year. We saw $13.9 million of favorable weather, predominantly at our Empire Electric system. In addition, we benefited from $11.9 million in depreciation deferrals. These factors were partly offset by the costs associated with the targeted relief initiative at Empire and CalPeco write-off mentioned previously. We also recognized a $15.9 million Hydro Group tax adjustment that was largely recognized in the first half of the year from the Hydro reorganization completed in connection with the sale of the renewable energy business. Interest expense declined by $81.1 million, reflecting the paydown of debt using proceeds from the sale of the renewable energy business completed in January 2025 and the prior sale of our Atlantica ownership stake. The removal of $76.3 million in dividend income from the sale of an ownership stake in Atlantica was the single largest headwind for the year. As a reminder, the repayment of debt using the Atlantica sale proceeds contributes to the interest expense savings across both the Regulated Services Group and the corporate group, which partially offsets the lost dividend income. We also absorbed a higher effective tax rate and common share dilution from the mandatory underlying shares as approximately 77 million common shares were issued upon the settlement of the purchase contracts in 2024. The Regulated Services Group growth was driven by the combination of new rate implementations, favorable weather, lower interest expense and depreciation deferral benefits, partially offset by higher operating expenses and the solar project discontinuations. Turning to Slide 14. We are updating our 3-year regulated utility capital expenditure outlook now totaling approximately $3.2 billion from 2026 through 2028. This includes approximately $800 million in 2026, ramping to $1.1 billion in 2027 and approximately $1.3 billion in 2028. Cash flow from the business and existing cash balances are expected to internally fund approximately 65% to 70% of the capital investment requirements. This capital plan is focused on reliably serving our customers with investments in safety, reliability and service across our electric gas and water systems. As you can see on the slide, the capital spend is expected to be diversified across our commodity types. Our large capital expenditure plan supports our strong organic regulated utility growth proposition. As Rod highlighted, across our jurisdictions, mechanisms exist to pursue recovery via capital trackers, formula rates and other interest rate case mechanisms. I'd note that the 2025 capital expenditures totaled approximately $604 million, down from approximately $757 million in 2024, with the decrease primarily due to investment in our integrated customer solution platform, which was largely completed in 2024. In terms of rate base, year-end 2025 rate base was approximately $8.2 billion, up from $7.9 billion at year-end 2024. We expect our rate base to grow to approximately $8.5 billion by the year-end 2026, $9 billion by the year-end 2027 and approximately $9.7 billion by year-end 2028, representing a compound annual growth rate of nearly 6% from 2025 year-end through 2028. On Slide 15, our balance sheet was meaningfully strengthened following the completion of the sale of the renewables business in January of 2025. We used approximately $1.6 billion of net proceeds to pay down debt. Combined with proceeds from the sale of our Atlantica ownership stake, we have significantly improved our credit profile. Total debt stands at approximately $6.5 billion. After adjusting for equity credit on our hybrid debt, Empire securitization bonds and preferred equity, our adjusted net debt profile supports our current credit ratings. We have a solid investment-grade credit rating with stable outlooks from S&P and Fitch. Moody's rates our operating subsidiary, Liberty Utilities at Baa2 with a stable outlook. We continue to expect no equity issuance through 2027. On the near-term financing front, we plan to refinance the Algonquin unsecured notes that are due in June 2026, and we continue to manage our maturity profile in a disciplined manner. Lastly, we expect to pay an annualized dividend of $0.26 per share, subject to Board approval. On Slide 16, you'll see a sources and uses table depicting the cash flows between the holding company of our U.S. operating businesses, Liberty Utilities Company, or LUCO, and the publicly traded holding company, Algonquin Power & Utilities Corporation or APUC. Our 2026 financing plan at APUC of approximately $1.6 billion includes nearly $1.45 billion upstream from LUCO. We expect this upstream to fund repayment of the June 2026 APUC of $1.15 billion debt maturity and the approximately $100 million Suralis term loan as well as the Algonquin common equity dividend. We expect to raise approximately $1.15 billion at LUCO through bond issuances to retire the June maturity at APUC. Cash flow from ops of approximately $500 million and a draw of about $500 million on the credit facility together are expected to fund domestic regulated CapEx and the upstreaming of cash to APUC. Through these actions, we aim to proactively refinance upcoming maturities, fund the business, maintain liquidity and manage leverage without incurring additional incremental debt. Let me walk through our financial outlook on Slide 17. First, we are reaffirming our 2026 adjusted net EPS estimate in the range of $0.35 to $0.37, consistent with the outlook we originally provided in June of 2025. The drivers supporting 2026 performance are underway, and we are confident in their achievability. As Rod discussed earlier, we are revising our 2027 adjusted net EPS estimate to a range of $0.38 to $0.42. We updated our assumptions regarding the company's effective tax rate in 2027, which is now expected to be in the mid- to high 20s percent range as compared to the previously anticipated low to mid-20s percent range. We are continuing to evaluate tax strategies to optimize the tax rate, but expect the majority of the benefits from such strategies to be realized after 2027. The guidance revision also reflects expected timing of gas operational excellence activities to extend into 2027 before normalizing. With that, I'll turn the call back over to Rod for his closing remarks.

Before we open the line for questions, I want to step back and leave you with a few thoughts on where we are and where we're headed now that literally, this is my 1 year in the job. It was March 7 last year when I began my tenure. When I joined Algonquin just over a year ago, I said that this company had the very real potential to become a premium pure-play utility. In 2025, we began turning that potential into results. Our leadership team is now in place, and we're delivering results through our Back-to-Basics strategy. We're focused on driving operational execution and constructive regulatory engagement to drive an attractive near-term financial profile as we close the gap to our authorized return. We have a strengthened balance sheet with a credit rating profile that provides low-cost access to capital and no expected equity needs through 2027. We're executing a customer-focused capital plan of approximately $3.2 billion, focused on organic investment to enhance safety, reliability and improve customer service. As we continue to reearn our right to grow, we're keeping our eye on additional opportunities in our service territories. We believe this adds up to a clear and compelling investment thesis as we position Algonquin as a singularly focused pure-play regulated utility operating across high-quality, increasingly constructive jurisdictions. As you've heard me say, every component of our vision, mission and strategy is being developed with achieving sustainable premium attributes at the forefront. We're staying focused on capturing the opportunity ahead and executing the mission we've laid out. I couldn't be more excited about what's in store for 2026 and beyond. Thanks for your time this morning. And with that, I'll turn it back to the operator for questions.

Our first question comes from the line of Baltej Sidhu with National Bank of Canada.

Just on the revised 2027 guidance, can you share details or the largest drivers that underpin the new assumptions towards the mid- to high 20s effective tax rate versus the prior assumptions?

Yes. Thanks, Baltej. It's Rob Stefani. Look, throughout my onboarding, we reviewed the financial projections. And during that assessment, the forward view of the effective tax rate moved from the low to mid-20s to the mid- to high 20s that we currently expect. That resulted in just over about $0.03 per share of EPS deduction. We're actively looking at tax optimization strategies, but those appear to really move past 2027, if pursued. As a result and in the interest of transparency, we revised that 2027 range down. Anything else I can add there for you?

No, I think I got it there. And then just a follow-up there for you, Rob, just more from a strategic overview. You've been in the seat now for 60 days. Could you share your thoughts on the largest levers that the business can pull in the near term and also potential procedures or processes that Algonquin doesn't have yet that you've seen elsewhere in your prior experience?

Yes. I mean, look, I think the strategy that Rod and the team have put together is strong, and that's really hinges around the rate case cadence and rate case strategy and engaging across our jurisdictions, bringing leaders in from very well-recognized utilities to enhance the operating platform like Amy and Pete and Kristin. And so as I think about kind of levers we can pull as a management team with a lot of experience at premium utilities, I think that's really at the forefront. And then the balance sheet, we've got over $1.4 billion of liquidity. We've got a strong investment-grade balance sheet, and that provides us the flexibility to pursue organic growth as well as assess other opportunities. So as you think about levers, the leadership team, that refocus on regulatory engagement and then the sound financial balance sheet provides us a lot of flexibility.

Our next question comes from the line of Elias Jossen with JPMorgan.

I wanted to start on the additional opportunities you mentioned at the end of your remarks. Can you just frame what types of opportunities you see in the market and maybe touch on whether those would include some portfolio optimization opportunities as well?

I will begin and let Rob share his initial thoughts. The opportunities I see are not new. Our growth journey is rooted in organic growth within our current areas where we have both the opportunity and the responsibility to create diverse customer outcomes. The foundation of our rate base growth is largely organic. As we mentioned in previous quarters, especially since last May, we have done extensive work on our existing portfolio, considering various scenarios. We remain open to opportunities. However, there hasn't been anything compelling enough in our M&A criteria that makes us deviate from our core business. Currently, there's nothing urgent that requires immediate action. That said, we are ready to explore any potential moves within our portfolio. We also see capital recycling opportunities and have a perspective on items that may come up. For me, it's still early; we are focused on enhancing our existing portfolio to generate sustainable returns. We will stay alert for additional opportunities, but they need to be beneficial and executable without diverting our focus away from our commitments. So, being opportunistic is key.

Great. And then we've seen some initial rate case and broader operational execution across the business. But maybe thinking a bit further out, how should we think about this transitioning from an ROE improvement vision to one that is more growth driven by solid rate base trends and growth across the business?

Yes, that's the right question and the one we're focused on. It starts by enhancing customer outcomes and improving our operational discipline, which enables us to make requests for necessary adjustments and regulatory changes in our states. For instance, in Missouri, Senate Bill 4 established forward test year formula rate plans for water and gas but did not extend to electric. Given our capital focus on enhancing customer outcomes and fostering economic development in the Empire region, it would be beneficial to have access to forward test years and formula rates for the electric sector. However, achieving this requires legislative changes. We can partner with our stakeholders to advocate for more timely and effective recovery mechanisms that align with our customer-driven capital plans. This is one example of how we can close the gap and improve returns by engaging with regulators to prioritize cost reduction, affordability, and our shared goals of enhancing customer service, supporting economic growth, and fulfilling our financial commitments to our investors.

Next question comes from the line of Nelson Ng with RBC Capital Markets.

Rod, congratulations on your first anniversary in the role. My first question is about CalPeco, the solar project that was either canceled or written down. Could you provide some background on that project and its scale? I know there are several solar assets at CalPeco, but I’d like to gain a clearer understanding. Additionally, why was it included in adjusted earnings and not removed from that calculation?

Yes. So just regarding the question on the CalPeco solar write-off, that project was in Nevada, was meant to bring power in CalPeco. Just given where the economics of the project were and our assessment of the ability to earn a fair return on it, we decided not to move forward. As far as why it wasn't included in adjustments, I think as a utility with the rate base, the size of ours, obviously, you'll have projects that could potentially be abandoned along the way. And so view that more as something that wouldn't necessarily be classified as one-off. Obviously, you strive to limit those. But in that case, we wanted to reflect it within operating expenses year.

Okay. Great. And then my next question is, I know, Rod, you previously talked about potentially redomiciling. Do you have any updates or early indications on that process? And I was just wondering whether that could potentially impact your effective tax rate.

The short answer is that it could. The other answer is that it's ongoing. I cannot announce anything regarding the redomicile question at this moment, but we are working on our analytics to explore how a redomicile conversation might affect our perspective on our tax strategy and the options available to us. We are presenting this analysis to our Board to address these questions. However, I don’t have any announcements to make, as it is too early for that, but the work is certainly in progress.

Next question comes from the line of Robert Hope with Scotiabank.

I appreciate the additional details on the 2028 CapEx and rate base from the presentation. Could you share your thoughts on the natural growth rate of your utilities in a more stable environment? The presentation indicates a 5% to 6% rate base CAGR to '28. However, if we examine '28 with $1.3 billion of CapEx, it suggests an approximately 8% growth on the rate base. Do you consider this to be a more representative figure for the natural growth of the business?

Yes. Thanks, Robert. I think towards the end of that forecast, I think you have to remember, we've got the ARIS generation project as well as our investment in the transmission and SPP, which we're very excited about. So it's back-end weighted due to that SPP transmission project and really more of the spend on ARIS. So that's what really drives the outsized growth towards the end of that forecast period.

All right. That's helpful. And then as a follow-up there, maybe just in terms of the SPP transmission, can you provide us an update on where you are with the number of those projects? And would it be fair to assume that, that does hit '28, but that will be a multiyear project towards the end of the decade?

It is definitely a multiyear project, with most of the capital coming in during the latter part of the decade. We are navigating various regulatory processes related to SPP and our counterparties involved in transmission and generation projects. We are monitoring our regulator's expectations about how the capital deployment will impact rates, and we are developing our regulatory strategy to ensure recovery aligns with our capital deployment plans. Given the scale of our capital programs, especially in relation to the histories of Algonquin and the Empire District, this is one of the largest projects in the company's history. It is essential for us to align our capital expenditure programs with effective regulatory recovery. The states involved recognize the importance of this, and we are collaborating with them throughout the process.

Next question comes from the line of Ben Pham with BMO.

You mentioned the progress on operational efficiencies for '25. You mentioned the uptick in ROE. Can you comment then maybe specific for Rod, as you think about the last 12 months, you kind of tracking to what you're expecting coming in? Was there anything you learned along the way in the last 12 months, surprises, areas you can tweak a bit more. So a progress update on 2025 versus when you first started?

Yes. It's a great question, and I've been in constant both assessment and reflection mode. I think the extent to which I had a point of view around bidding the cost curve and the need for us to rightsize the service company in support of our utility objectives, that's really been reinforced the deeper I've gotten into the organization. The need for consistent operational both cadence and standards for customer outcomes for safety and operational performance, the need is great. To the extent that you have operating entities from, let's say, Bermuda out from an eastward perspective to CalPeco to the West, you have different operating cultures and experiences. The 13 U.S. states in 4 different countries each have different regulatory cultures. But from our vantage point, the need to have a singular focus on safety, customer outcomes and operational excellence required more engagement from leadership, which is why I knew that I needed to be surrounded by folks who understood what excellence looks like so that we could role model the very behavior we're seeking to now reinforce 2, 3, 4 levels down in the company. And the other piece of the puzzle is the stakeholder engagement where I'm bringing and we are intentionally bringing our stakeholders along with us on the journey. It's really important for us as leaders to show up with our regulators who we're asking to support us on the journey to create different customer outcomes. And that means putting capital to work. More importantly, all of this stuff is happening in an environment where affordability is an absolute headwind regardless of what the actual price to value might actually be. The narrative around affordability is influencing our regulators' receptivity to additional rate recovery. But they recognize being intellectually honest that customers can't receive the benefits of economic development and lower cost without efficient investment and timely recovery. And so I'm not surprised by what I've seen because I've been in the industry long enough to where I'm recognizing pattern recognition, but in every different jurisdiction, context matters and it influences how our employees, our regulators, the communities and the customers that we serve, how they receive our value proposition. My objective then is to provide you as much transparency as our investors in the path ahead and create a predictable pathway of meeting your expectations so that you take the journey with us. But I've been pleasantly surprised by the receptivity of our employees to this pure-play strategy and the standard. And I'm really pleased that I've been able to convince my colleagues around the table to join me on this journey of realizing what I still very much believe is a fantastic future for Algon.

Okay. That's great. And then maybe to turn to some of the other questions highlighted, the 2028 CapEx, the rate base you have there. You now have CFO, Rob in the seat, he's looked at the numbers in more detail. Are you in a position near term or next couple of months to think about your guidance beyond '27 with these additional details? Or is even through 2030 guidance, that may be unrealistic just given that you're still walking and running?

Yes, we are definitely considering that. However, I’m hesitant to provide guidance on anything beyond a growth compound annual growth rate for earnings due to the various factors at play, such as different states, regulatory environments, investment opportunities, and the ongoing discussions about domicile. In the next few months, I may not be able to offer a longer-term outlook that I feel comfortable with. Since we joined and now that Rob is settling in as CFO, we are working on refining our longer-term strategy and focusing on reducing uncertainty as we and the Board make key decisions regarding broader topics like portfolio and domicile, which will impact our tax assumptions for 2027. This is a work in progress, and I don’t want to raise expectations of any significant announcements soon. I want to assure you that we are continuously evaluating how we can provide clearer projections going forward. We are actively engaged in this process.

Next question comes from the line of Mark Jarvi with CIBC Capital Markets.

Just in terms of the CapEx ramping through '27 and again through '28, Rob, you've articulated that you don't want the company really spending capital unless you can earn a fair return on it. So just as you stand here today, the confidence that the regulatory improvement there, confidence in recovering that invested capital to get across '27, '28. And just is that sort of the signal then the higher CapEx through '28, just that increasing confidence that the earned ROE continues to track higher beyond 2027?

The short answer is yes. As we shape out the capital plan and align it with earnings, we are also considering the timing. I am trying to gain clarity on how the timing will unfold over the next five years. I have significant investments in transmission and generation in the next couple of years, especially in Missouri where there is a two-year stay-out period. During this time, I will work to implement the rates we agreed upon while also needing to invest capital in larger projects that will enhance the firm's value. My focus is on bending the cost curve in the near term to maintain margins while managing investments and gaining regulatory support to potentially accelerate mechanisms that keep us whole. These are all aspects of business management. As we've mentioned, there are areas requiring more resources to deliver results for customers and secure more efficient recovery mechanisms. Rob, the executive team, and I understand our responsibility to outline how we can bridge the gap between our allowed returns and what we actually earn. We are committed to achieving these outcomes as quickly and efficiently as possible, and that priority is always at the forefront of our efforts.

That makes sense. And then just if I hear you right, would we maybe sort of have higher variance potentially on CapEx in '27, '28 just because you're still working through this process? And then I guess, Rob, in terms of the comments around 2027, no equity, just the view in terms of how you fund through 2028?

Yes. So we haven't put out guidance on 2028. And I think to Rod's earlier point, I think as you look across the business and anything we could do there, I think it's just premature. But as we look out, as you look at our balance sheet, as you look at bringing in decisions on the regulatory front, we feel confident in that ability to get through 2027 without an equity issuance. I think the capital plan is exciting. It is back-end weighted, but not an insignificant part of that is FERC transmission that would earn a return along the way that's compelling. So as we think about those kind of opportunities and closing the gap on ROE, I mean, that's exactly that and getting in on the state side to close the gap on the distribution end. That's what we got to be doing. So I think it's exciting. Those projects, unfortunately, they're towards the back end. But as Rod highlighted, they do continue past 2028. So something to kind of look forward to in the forecast, but also beyond that.

Next question comes from the line of John Mould with TD Cowen.

I'd like to begin with the Missouri rate case and the customer metrics required for three consecutive months. Could you provide some updates on your progress with those customer metrics and your timeline for achieving that three-month requirement?

Yes. I have Amy, our Chief Customer Officer, here. I'll start the question and look for some feedback from Amy to see if I'm on the right track. I've mentioned before that the customer metrics revolve around aspects like accuracy and timeliness of billing. While these may seem straightforward, they represent the results of a series of processes where we saw opportunities for improvement. We are confident that we have met these metrics, which are reasonable for any utility. However, we are currently working with the commission to validate the achievement and sustainability of these metrics to confirm that we meet the requirements for rate implementation. Amy and her team have been working tirelessly to ensure not only that we achieve these metrics but also that the solutions we implemented in Missouri are durable. Our expectation is to meet the regulator's and our customers' expectations regarding the timelines and outcomes. We are on track, but we are still validating our progress with the commission, which is essential for the rate implementation associated with this aspect. Keep in mind the importance of timeliness, accuracy of bills, and the durability of the system upgrades and adjustments we have made.

Okay, could you provide some insight on the hydro projects and their position among potential recycling opportunities? It seems they won't affect your core focus and won't create a need for external equity in the next couple of years since you don't plan to raise funds; however, they are your only non-regulated assets. How should we view this in comparison to your overall portfolio, and what kind of interest or discussions have you encountered in the market since this was identified?

Yes. It's not going to be exciting to hear because there isn't anything new compared to what you've heard before. I want us to stay consistent in our message. What we consider material has changed, especially regarding the asset's position in our portfolio. We are focused on the pure play, and our willingness to engage with the hydro asset remains unchanged. We have indicated that we are not in a situation where we need to sell it at any cost. Regarding conversations with potential buyers, we won't comment unless we reach a point where we have something concrete to discuss. That said, we believe the asset could serve us better outside the portfolio if reasonable terms are met. We are pursuing reasonable terms and are not going to be sidetracked by any processes that do not appear to create value from our perspective. If Rob has anything to add, he can, but we will continue to consider offers from interested parties. However, this will not be a fire sale.

We'll take our last question from Elias Jossen with JPMorgan.

One more quick one. Can you just discuss your overall view on the California regulatory backdrop, maybe thinking about wildfire risk at CalPeco and whether the team would consider contributing to a wildfire fund there?

How much time you got? No, it’s an ongoing effort for us as we’re not at the same scale as some of my larger colleagues operating in the state. That dynamic influences how I view the situation regarding wildfire. We are currently going through a process to get our wildfire mitigation plans approved, and it is a complex landscape that we are navigating. We expect to manage it as is our responsibility and reduce the risks, financially, operationally, and otherwise related to wildfires while also managing the costs. However, from my perspective, the recovery mechanisms and access to insurance reduce our risk. I am dedicating a significant amount of time, and so is my team, to both contributing to and tracking that process. It is a full-time commitment. We are investing considerable time and resources to stay up to date, as I am determined to reduce the risks of operating in California. We are actively engaged with our stakeholders in Washington D.C. and the state of California, from the governor's office to our regulators and other partners. We are fully engaged due to the complexity of managing risk there.

There are no further questions at this time. I will turn the call to Mr. Rod West.

All right. Just a general thanks for your continued interest and our commitment to be transparent with you has been the undergirding of our disclosures today. And again, thanks for supporting our path to premium. Have a great day.

This concludes today's conference call. You may now disconnect.