AQN 2022Q1

Good morning. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Algonquin Power & Utilities Corp. First Quarter 2022 Earnings Webcast and Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Amelia Tsang, Vice President of Investor Relations, you may begin your conference.

Thank you. Good morning, everyone, and thanks for joining us this morning for our first quarter 2022 earnings conference call. Presenting on the call today are Arun Banskota, our President and CEO; and Arthur Kacprzak, our Chief Financial Officer. Also joining us this morning for the question-and-answer part of the call will be Jeff Norman, our Chief Development Officer; and Johnny Johnston, our Chief Operating Officer. To accompany our earnings call today, we have a supplemental webcast presentation available on our website, algonquinpowerandutilities.com. Our financial statements, management discussion and analysis and annual information form are also available on the website, as well as on SEDAR and EDGAR. Before continuing the call, we would like to remind you that our discussion during the call will include certain forward-looking information, including, but not limited to, our expectations regarding earnings, capital expenditures pending acquisitions, capital recycling and growth. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures. Please also refer to our most recent MD&A filed on SEDAR and EDGAR and available on our website for additional important information on these items. On our call this morning, Arun will provide an overview of our Q1 performance. Arthur will follow with the financial results, and then Arun will conclude with an update on our strategic plan for the business. We will then open the lines for questions. And I ask that you restrict your questions to two and then requeue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn it over to Arun.

Thank you, Amelia, and a very good morning to those who have been able to join us on the call and online. I'm pleased to report that we are on track with steady year-over-year growth in the following key financial metrics: Q1 adjusted EBITDA was $330.6 million, a 17% increase year-over-year, and our Q1 adjusted net earnings per share was $0.21, an increase of 5% compared to last year's $0.20. We see ourselves as a business built from long-lived assets and stable operations, and we've consistently been able to produce stable and growing financial results and remain confident in our plans to continue delivering strong returns to our shareholders. We're pleased that Algonquin's execution of strategic priorities and our strong financial positioning has led to support from our Board of Directors to approve an increase in our common share dividend of 6%, which was declared yesterday. This increase marks the 12th year of consistently increasing dividends each year, demonstrating our confidence in and the resiliency of our business model. We continue to focus our efforts on Algonquin's three strategic pillars: growth, operational excellence, and sustainability. I will provide more details on each of these pillars. A growth pillar in our regulated business is focused on deploying capital to benefit our customers and investing in our rate base. Our rate review at Empire Electric progressed well. On April 6, 2022, the Missouri Public Service Commission issued its final report and order, resulting in a total revenue increase of $39.5 million, with new rates expected to be implemented on June 1, 2022. Recall that Empire Electric had earlier requested a rate increase of $79.9 million, which included $29.9 million of recovery related to last year's extreme Midwest weather event and subsequently amended the direct request to $50 million after updating certain components and deepening the recovery of Storm Uri cost. We believe the settlement represents a fair outcome for customers and the company. We continue to invest in our network to deliver mission-critical services to our communities while keeping customer affordability top of mind. We also received our regulatory outcome for BELCO, our Bermuda Electric Utility in the quarter, approving a revenue increase of $22.8 million. However, we are appealing the decision with the regulatory authority, as we believe both parties could benefit from better methodological definition around the rate-making process. Another growth pillar on the regulated side is from our acquisitions. At the beginning of this year, we closed on the acquisition of Liberty New York Water, which services over 127,000 customer connections across seven counties in Southeastern New York, and we officially welcome the employees into Liberty. The transition has gone very well, as we have incorporated the operations into our East region. And similar to past acquisitions, we are sharing knowledge, benchmarking with our other jurisdictions and sharing best practices across our utility businesses. Staying on the topic of acquisitions, I want to provide you an update on our pending $2.8 billion acquisition of Kentucky Power Company and AEP Kentucky Transmission Company. We remain firmly committed to this transaction and look forward to bringing the benefits of our local operating model to Eastern Kentucky. As we've previously mentioned, our expectation of enhancing Kentucky Power's local operating model, bringing benefits to customers by exploring opportunities to reduce customer rates through investing in lower-cost energy and creating increased local employment are all attributes that are expected to help customers and the local communities while driving value for shareholders. To that end, on May 4, the Kentucky Public Service Commission issued an order, including an approval of the pending acquisition, subject to certain conditions. The order issued is one of several steps required to complete the transaction. The day prior on May 3, the Kentucky PSC issued an order authorizing a revised ownership and operating agreement related to the Mitchell Plant. Orders on that subject remain outstanding from the West Virginia Commission and FERC. We have already received Hart-Scott-Rodino and CFIUS approvals. We expect to close the transaction in mid-2022, after satisfaction of all closing conditions. We continue to work collaboratively with AEP and look forward to bringing benefits to the customers and communities in East Kentucky. Turning to the growth levers on our renewable business. In this business, our ability to originate and execute projects is a critical growth lever. Late last year, we completed the 24-megawatt EBR Val-Éo wind facility, which reached commercial operations in Quebec, with all of the energy being sold to Hydro-Québec. I'm pleased to report that the latest project to achieve commercial operations is the 175-megawatt Blue Hill facility in Saskatchewan, with all the energy under contract with SaskPower. Our construction teams continue to execute well. On the wind side, we continue to make progress on Shady Oaks II and have started construction of Deerfield II and Sandy Ridge II. On the solar side, we continue to execute as our Croton Community Solar facility reached commercial operations in December. Croton is Algonquin's first operational community solar project and is expected to lower retail utility bills for over 1,300 residential customers. Construction continues to progress on the utility-scale New Market Solar project, and we have started construction on three additional community solar projects in New York State. Staying on the topic of solar as it relates to the U.S. government's solar tariff investigation for the renewable sector, we believe there are two categories where the investigations might affect our pipeline. First, there are projects currently under construction that could have potential delays. We are evaluating all options to mitigate potential impacts from the Commerce Department's investigation into foreign-manufactured solar modules. The second category would be future projects. We believe the potential consequences of the investigation could result in cost pass-throughs to PPA pricing in the industry. As is consistent with our development philosophy, we generally try to finalize the large supply agreements, the EPC contract, and offtakes as close together as possible in an effort to protect the margins we expect. Another lever of growth on the renewable side is developing successful partnerships for renewable development with commercial and industrial customers to support sustainable energy. We are pleased to report that we continue to collaborate with Meta, formerly known as the Facebook Company, and executed an offtake agreement between Meta and the 112-megawatt Deerfield II wind farm located in Michigan. This represents the second offtake agreement with Meta, after the previously-announced Altavista. Moving on now to operational excellence. In a mission-critical industry, safety and reliability are always key areas of focus. I am pleased to share that we have passed the impressive milestone of over 800 days. That is nearly 12 million work hours without a single lost time injury across our North American business, while keeping our customers and communities safe and maintaining our system reliability and resiliency. In fact, another testament to our safety culture is that I'm pleased to report a notable achievement as Algonquin Liberty was recently recognized by the American Gas Association, AGA, as a top safety performer in 2021, winning the AGA Safety Achievement Award for the lowest incident rate in the medium combination utilities category. Our balanced approach of operating a local model with central governance continues to be a focus. We like to have our local management team situated close to our assets to work closely with the community, customers, and regulators. We continue to be innovative and invest in our system in an effort to meet future customer needs in a decarbonizing world. One recent example is that Liberty has secured approval and is now awaiting the final tariff for a pilot program with the regulator in Missouri, which is making the first utility in the state to obtain approval to earn a regulated return on behind-the-meter electric vehicle charging equipment. The pilot is slated to launch by fall and includes a number of unique asset and system data insights that we will be sharing with the commission staff as the program unfolds. This pilot program is also notable, given that its final design reflects nearly a year of close collaboration between Liberty, the Missouri Commission staff, and the local intervener community. Having proposed the original framework, Liberty refined multiple program features in response to stakeholder input. We are pleased with the final design and hope that this type of collaboration becomes a norm when it comes to innovative projects. And finally, we remain firmly committed to sustainability through the inclusion of environmental, social, and governance values in our broader corporate strategy and day-to-day operations. We always said that our sustainability plans and initiatives are embedded into our broader corporate strategy. And we've taken another important step in that direction by repositioning our sustainability business unit under our Corporate Strategy Group, which is being led by Helen Bremner, Executive Vice President, Strategy and Sustainability. Our short, medium, and long-term strategic direction will continue to factor in sustainability as a core strategic imperative. I'm sure many in the investor community will get a chance to meet with Helen in the near future. During the quarter, Algonquin was also recognized for a second year in a row by the Globe and Mail and Report on Business Magazine's Women Lead Here benchmark, which acknowledges corporations with the best record of executive gender diversity in Canada. With that, I'll pass it over to Arthur, who will speak to our first quarter 2022 financial results.

Thank you, Arun, and good morning, everyone. I'm pleased to report strong first quarter results, reflecting the benefits of our diversified and resilient business model. Our first quarter 2022 consolidated adjusted EBITDA was $330.6 million, which is up approximately 17% from the $282.9 million we reported for the same period last year. The Regulated Services Group delivered $231.2 million in operating profit in the current quarter, which compares to $206.4 million in the same quarter last year, an increase of $24.8 million or nearly 12%. This increase reflects the addition of 600 megawatts of wind generation in the first half of 2021 as part of the Greening the Fleet initiative in the Midwest. These facilities contributed approximately $9.5 million of additional operating profit. The group also benefited from the implementation of new rates across several of our utility systems, adding approximately $7.5 million to operating profit as compared to the prior year. Lastly, our operations at Empire Electric, although moderately negatively impacted by weather this quarter as compared to long-term averages, recorded higher operating profit as compared to the prior year due to higher non-pass-through fuel costs incurred in the prior year resulting from the impacts of Storm Uri. Operating profit was negatively impacted this quarter by an operating loss at the Liberty New York Water, which was acquired in January. As a reminder, this utility is impacted by seasonality and is expected to earn a disproportionate amount of operating profit during the summer months. The Renewable Energy Group reported first quarter divisional operating profit of $118.6 million, which compares to $95 million in the same quarter last year, representing an increase of $23.6 million or nearly 25%. During the quarter, production on our existing wind and solar generation facilities was more in line with long-term averages, increasing by 20% over the same period last year. And as a result, contributed approximately $12.4 million to the year overall increase in operating profit. Generation from newly-commissioned facilities and investments added $8.5 million, primarily from the Maverick Creek Wind and Altavista Solar facilities that both achieved full commercial operations in the second quarter of last year. Operating results also benefited from incremental dividends received from Atlantica, but were partially offset by unfavorable price capture at some of our wind facilities and higher fuel costs at our Sanger Thermal facility in California. Our investment in the Texas coastal wind facilities provided a positive contribution to operating profit this quarter, with the addition of the West Raymond facility in the second half of last year, but continues to perform below our expectations primarily due to higher-than-anticipated basis costs, resulting from the imposition of the general transmission constraints in the vicinity of the facilities. In total, our Q1 adjusted net earnings per share came in at $0.21, which compares to $0.20 in the prior year. In addition to the drivers discussed, our results were negatively impacted by financing costs associated with the capital deployed in 2021 and an increase in weighted average shares related to the Kentucky Power acquisition funding. These financing costs have been and continue to be incorporated into our financial outlook for the year. Moving on to our capital plan for the year, for 2022, Algonquin is targeting to spend over $4.3 billion in capital, with the majority related to the acquisitions of Liberty New York Water, which closed earlier this year and Kentucky Power, which is expected to close mid this year. Our capital plan remains on track. During the quarter, in addition to the approximately $609 million of capital deployed from the closing of New York Water, we invested over $225 million of capital into our utilities and continue to invest into our renewables development and construction programs. We also continue to make good progress on our financing plan for the year, which, as a reminder, is predicated on maintaining a strong and resilient balance sheet, targeting a BBB flat investment-grade credit rating. As mentioned in my remarks last quarter, earlier this year, we issued approximately $1.1 billion of hybrid debt, which we expect to use in connection with the closing of Kentucky Power. Together with the common equity offering completed last year, in total, we have raised just over $1.7 billion towards the $2.8 billion purchase price, with the remainder being debt assumed on acquisition, a portion of which we expect to refinance in the debt capital market shortly after. The remaining funding requirements for the year are expected to be solved by a combination of various funding sources available to us, including retained cash, additional hybrid debt, proceeds from the securitization of regulatory assets, and long-term debt. In the second half of the year, we may also reactivate our aftermarket offering program to provide flexibility to raise some modest amount of equity capital. We've also recently commenced a process exploring the monetization of several of our renewable assets, which we view as another source of potential value accretive capital for us this year. Considering the various funding sources available, we do not expect to require a discrete common equity offering for the rest of this year. Our liquidity position also remained strong, ending the quarter with over $1.8 billion of available liquidity. Subsequent to the quarter, our Regulated Services Group upsized and extended its revolving credit facility, increasing it from $500 million to $1 billion for a five-year term. The extension was well oversubscribed, highlighting the strong support for the company's credit in the bank market. Our treasury group remains focused this year on also extending and potentially upsizing our renewable and corporate revolving credit facilities. Before turning things over to Arun, I'd like to provide a brief update on our 2022 adjusted net EPS guidance. We continue to expect our 2022 adjusted net EPS to be within the range of $0.72 to $0.77. These expectations are based on underlying assumptions, including normalized weather patterns as well as resource production and realized pricing of renewable generation facilities consistent with long-term averages. We've also assumed the acquisition of Kentucky Power will be completed in mid-2022, and there will be no impacts from COVID on operations. We look forward to continuing to deliver solid earnings, which in conjunction with our history of dividend growth, we believe will continue to drive a strong return for our shareholders. With that, I'll now hand it back to Arun to outline our strategic plans.

Thanks, Arthur. Before we close out our prepared comments this morning, I want to give an update on our strategic initiatives. At our December Investor Day, we updated our five-year capital investment program, which projects $12.4 billion from 2022 through the end of 2026, with a visible capital plan. Of that, we have already closed on Liberty New York Water earlier this year, executing on approximately $600 million of the capital plan in January. While a large portion of the capital plan is being spent on organic investments to improve the safety, reliability, and resiliency of our network. On the renewable side, we are excited about the growth potential and believe that we have a once-in-a-generation opportunity to accelerate renewables growth and add shareholder value. We all have investments in over 4,000 megawatts of renewable generation, which provides us with scale. With scale, we expect to get incremental benefits, including improved negotiating power, lower transaction costs, and access to greater opportunities. I've previously spoken about accelerating renewables growth and adding shareholder value as we plan to continue to increase our investments in greenfield development, which we expect will allow us to capture the higher development margins and take a number of those projects through construction. Once in operation, we see an opportunity to partner with institutional investors, wishing to make alternate sustainable investments, and we are seeking a partner with a proven ability to develop and deliver on long-term contracted sustainable assets. More specifically, we should be able to sell down to these investors while earning an operating fee. We could then deploy some or all of the capital gains in further greenfield development, creating a potential new recurring source of earnings for our investors. We have formally commenced our inaugural asset recycling process, now with a portfolio of U.S. and Canadian assets in the range of approximately 750 megawatts and we’ll provide an update as the process concludes. Key objectives for us are increasing the scale of our development and operation platform, together with increasing the amount of internally generated cash for future growth. I'm excited about the process of Algonquin's regulated and renewables businesses, which are both well positioned to contribute to and benefit from the decarbonization transformation that is currently underway and which will only accelerate over the coming years. We welcome you to hear more at our upcoming Annual General Meeting. Similar to last year and as a result of the ongoing pandemic, we will be hosting our AGM virtually this year. We welcome your participation on June 2 at 4:00 p.m. Eastern. The start of 2022 has been very productive so far with the close of Liberty New York Water and the receipt of orders for our Kentucky Power acquisition. On the renewable side, we are excited about the growth potential and believe that we have a once-in-a-generation opportunity to accelerate renewables growth and add shareholder value. Our three strategic pillars of operational excellence, growth, and sustainability will be a key foundation as we continue to build the business and seek to deliver steady earnings, dividend growth, and long-term shareholder value. With that, I will turn the call over to the operator for any questions from those on the line.

My first question here, just on the maybe the renewable power side of your business to start. I'm just curious, I know that I think about 18% of your capacity is not contracted. I'm curious what kind of upside you're seeing from higher spot prices today and if there are any opportunities for contracting potentially those assets in the current environment?

Yes. Sure. Hey, David, it's Jeff Norman. Yes, you're absolutely right that there is a portion of those assets that are not contracted and we are seeing an increase in pricing. I think part of that we will probably leave those open in terms of managing the overall risk and so that they can appreciate in the upside and there are some other benefits in terms of balancing with the generation profile and mix that optimize the portfolio.

Okay. Great. And then maybe just one on the topic of renewable deployment throughout your regulated footprint. I certainly appreciate that Kentucky Power is the big opportunity. But I'm just curious about your footprint in the Empire District Electric. I know that the case for renewables in the past has been that it saves customers money, I imagine that that math is even more favorable today. I'm curious if you’ve had any initial discussions with the regulator there about potential additional renewables in the Empire footprint?

That is a discussion, David, we continue to have with all the regulators throughout our jurisdictions, including Missouri and California. And look, we didn't have those conversations with the water utilities where we are in jurisdictions because it takes a significant amount of energy to move water. So we are even looking at how do we power those energy needs with renewable energy? So that's something we continue to have since we certainly have additional natural gas-fired generation in Missouri. Over time, we believe that there will be more opportunities for Greening the Fleet as the prices of renewable energy goes down, and we're able to foresee the benefits to our customers there.

Great. First question is for Arun. You mentioned that you started the capital recycling process for 750 megawatts. Can you just clarify that you're looking to sell a minority interest while retaining O&M responsibility? Is that the approach you're taking?

So Nelson, thanks. First of all, I think the range is around 750 megawatts. I did say that this is kind of inaugural renewable asset recycling because as we continue to increase our greenfield pipeline and accelerated growth, we want this to be something of recurring value to our shareholders. We may have a significant amount of flexibility in terms of how much we want to sell down. What is important for us is really to maintain the scale on both the development and the operational side. That is really the most important thing for us and to really validate the strength of our development platform by doing this sell-down. But we will retain flexibility in terms of the exact ownership to really maximize shareholder value.

Okay. My next question is for Jeff. Regarding solar panel supply, can you clarify if the projects on that slide, which show 60% to 70% of solar panels installed, like the community solar and New Market Solar Phase 1, are essentially on hold? Do you already have panels installed, and would the investigation into tariffs affect those projects that have started panel installations? I assume New Market Phase 2 and Chevron have been delayed due to this issue?

No, Nelson, it's a good question. And certainly, the Department of Commerce decision to investigate has caused some turmoil in the supply chain. I think maybe stepping back a little bit before answering your specific question, we feel very fortunate that the solar projects within our $12.4 billion pipeline only represent about 2%. And you break that into two chunks, the projects that you're asking specific questions for, which are a little over 100 megawatts, and the remainder, which is 2 projects that are out in '24-'25 timeline in our capital plan. We don't expect an impact on that majority that's out in '24, '25; we'll have time to adjust into whatever decision is made by the Department of Commerce. But then specifically to your question, on the community solar projects, those are and will continue under construction, the panels are in country, so we expect no impact there. The two Chevron projects, which totaled 45 megawatts, we have made a joint decision with Chevron to pause those projects until we get the decision from the Department of Commerce, so a little bit of an impact there, but pretty small projects. And then on New Market Solar, the remaining 65 megawatts in the schedule that Arun went through is constructed except for panels. So once the panels arrive, we can complete construction quite quickly. We expect the panels to arrive in time to complete that construction before December 31. We do expect, based on the sourcing of the panel, that there is some tariff exposure there, but it's only approximately 30 basis points on return.

Getting back to the topic of sell-downs, initially, which assets could you be targeting? You're looking at all assets under construction? Or are you contemplating sell-down of some operating assets? I imagine those wind assets you have coming off a 10-year tax rate windows could be good candidates. So just what are your thoughts on what gets sold down?

So Rupert, the whole idea for us is to de-risk these projects through the development, interconnection, siting, permitting, construction, and early operations. Right? And so all of these projects are in early stages of operations, and those are the projects we have in the pipeline, and they're both in Canada and the U.S., and they're all in our renewable energy projects.

Okay. So you're not contemplating sell-down of operating assets at this point?

We are looking at these operating renewable energy projects, just to clarify.

Okay. Okay. Great. Secondly, with the dividend increase, can you give us some thoughts on the payout ratio targets you have near and long term? And how those came into effect with your dividend increase this quarter?

Yes. Sure, Rupert. It's Arthur. Thanks for the question. Actually, we're expecting that question. So in terms of our dividend and as we think about our dividend going forward, again, the 12th year in a row of raising dividends. As we look at it, we want to ensure we're providing a strong yield to a lot of our investors. But also, we want to make sure that our dividends are sustainable. And that's going back in Investor Day, we did lay out our target payout ratio of about 80% to 90%. We believe that those payout ratios will ensure a sustainable dividend. And really, just as a recap on how we think about those payout ratios, it really brings a combination of our two businesses on the renewable side, which typically pays out a proportion of its cash flows. And on the regulated side, we see a lot of our utility peers paying out between 60% and 70% of earnings. So if you run those two together, you do get about 80% to 90% earnings payout ratio. And I would say the only thing I would say about the payout ratio, it is a long-term payout ratio. We probably do see ourselves potentially exceeding that in the short term, especially with some of the transitional factors this year that have been bringing on Kentucky Power. But certainly, in the long term, probably post-2023, we see ourselves within that payout ratio, assuming the 6% increase that we're seeing today.

I wanted to start off on M&A and curious about your philosophy now with Kentucky Power pending and your comments around not needing equity needs. You look at both electric and gas, is there a bias to either one? Are you seeing more opportunities in renewables versus utilities? Would love an update on how you think about M&A in the current environment.

Sure. Ben, first of all, I do want to point out that the vast majority of our usual capital plan is organic growth. And perhaps the last one is a little non-representative because we had two large acquisitions, New York American Water and Kentucky Power. But if you go through the previous Investor Day, which was more like $9.4 billion and included $600 million of M&A, so $8.8 billion of that $9.4 billion CapEx program was all organic growth. Right? So I do want to point that out, first of all. So we do not absolutely depend on M&A for our growth. But at the same time, we are cognizant of the fact that scale does bring certain benefits and where we can execute on M&A at that fit our strategy and all of our financial metrics, all of those kinds of things, we will execute. M&A is, by its very nature, feeling fairly opportunistic. So look, we have closed Liberty New York Water; that transition has gone very well. No surprises. And given our experience base in terms of transitioning, acquiring utilities into our fold, we do not anticipate any surprises on Kentucky Power as well. And so given all of that, if the right opportunity comes, we will look at M&A opportunities. But again, we are always very, very disciplined when it comes to fit with strategy, fit with all of our financial metrics, so on and so forth.

Arun, I’m curious if your thoughts on gas M&A have changed, particularly considering the situation in Ukraine.

One of our main focuses has been on sustainability, ensuring that it aligns with our goals. For instance, in the Kentucky Power transaction, we carefully structured it to support our long-term sustainability objectives. Regarding natural gas, our priorities include minimizing emissions. For example, our utilities like Massachusetts gas are investing in replacing outdated steel and iron pipes with durable plastic alternatives to reduce our emissions profile. Additionally, we've submitted filings for renewable natural gas to four different commissions, and we're actively navigating that regulatory process. On the renewable front, we recently acquired a platform in Wisconsin that has two plants nearing completion, expected to begin operations this month, along with two more in development. We're making strides in renewable natural gas and, looking ahead, we're also exploring hydrogen. We are involved in several studies and participate in New York State's hydrogen program. Long term, we see significant potential in this area, but we want to ensure we understand the viability and economics of green hydrogen before making further investments in natural gas assets.

Okay. Got it. And another question I had is on the dividends. Some of the questions have been asked. So when you set the 6%, I know there are a lot of different factors driving that, are you also considering your ability to maintain that rate over the next couple of years? Or can it move around every year based on the inputs that you're putting in?

Look, absolutely. And the first thing I would clarify, Ben, is that it's really our Board that dictates dividend policy and the level of dividend that is really important. And I think Arthur alluded to some of the factors we consider in terms of when we look at setting dividends and sustainability of dividends is an absolute must.

Hey, I just wanted to clarify that last response. I want to make sure I understood you correctly. I have a follow-up question. When you mentioned dividend sustainability and growth, I believe it was Ben who asked about the 6% EPS earlier. You're indicating that it's not only about a sustainable dividend, but also expressing confidence in a certain level of growth, correct?

That's absolutely correct. Yes. I confirm.

It wasn't clear in your response, I thought you meant that. So thank you. All right. Sorry. So back to the regularly scheduled question. Just with respect to your Kentucky acquisition and the earned returns, I know we've talked about this at various points, but the timeline there, right? So coming back to that payout ratio comment from earlier, it sort of seems as if it's tied to the earned ROE achieving a certain level and normalizing your overall earnings profile as such. What's your latest sense on when you get closer to earning those 'authorized' levels wherever that settles?

Sure. So clearly, with the expiry of the Rockport unit purchase agreement, a certain level of the disallowances were there, that there will be recovered. So that's obviously one step towards getting back closer to a viable return. And the next opportunity for us will clearly be on the rate case that we plan to file in 2023, which goes into effect in 2024. And as we talked before, there's a number of mechanics that have already been common among other investor-owned utilities in the entity, and we plan to try and avail ourselves of those as well. And then finally, as we start layering in both lower-cost grid purchases once the Rockport EPA expires and the Mitchell that gets retired from a Kentucky perspective, and as we bring in lower-cost renewable energy, we should be able to pass on both those benefits to customers, as well as enhance our ROE as well. So it's a step-by-step progress that we've built into our acquisition model, and we've remained confident in being able to execute against that.

Excellent. I would like to clarify something quickly. In your prepared remarks, you mentioned that you have started exploring the monetization of several renewable assets, which you see as another potential source of value-accretive capital. Can you elaborate on what the monetization of your renewable assets looks like in terms of financing? I want to ensure that I understood you correctly regarding the monetization aspect. Sorry, Arun. The transcript seems a bit unclear.

One moment, Julien.

Hey, Julien, yes. Something happened. Technology glitch here. So first of all, it is really a case of pronunciation, Julien, I had said monetization, not monetization.

Many of my questions have already been addressed. I have one question regarding the nonregulated renewable platform. Specifically, can you provide clarity on the process you've established for potential asset sales to institutional partners? If I missed it, could you share the timeline for concluding this?

By the end of this year we do plan to conclude that, yes.

Maybe a question for Jeff. As you look to redeploy that capital towards earlier-stage development opportunities, given the scale you're at now, most of what you've done, you've sourced ourselves and built yourself. Can you speak to the greenfield opportunity set versus acquiring early-stage portfolios of projects and using that to build the growth going forward? Any comment on the bias, one way or another, for earlier-stage renewable development opportunities?

Absolutely, Sean. And so we continue to shift more towards greenfield than acquisition of facilities just because of two factors. One, we do see a lot of the early junior developers being acquired by strategics and by financial players; and two, we see the ability to create more value by going in earlier. And our platform has gotten bigger and bigger in the U.S., and our ability and tools for doing that have become improved.

Just two follow-up questions. First, on the asset monetization side, as you take a look at these processes, when you're taking a look at how much you want to sell, does consolidating or equity accounting, these assets come into play? And by that, I mean, you have some renewable assets that could wear quite a bit of debt. And so if these are equity accounted for, you could put asset-level financing there and lever them up and not impact the overall balance sheet? Is that a factor that we could see come into play here?

Let me first say that the first consideration, the most critical consideration for us is how to maximize value. That is by far, the most important consideration. I'll let Arthur comment on accounting treatment.

Yes. I was going to echo the same thing. The value is the #1 piece, but obviously, if we could optimize around financing structures through asset monetization, we'll certainly look at that.

All right. Appreciate that. And then just a follow-up on Kentucky. We've seen some conditions in the filings, does that alter your expected ROEs moving forward there? Or has this played out largely as expected so far?

Largely as expected, Rob. I mean, we obviously are cognizant of all of the items that came out in orders. We are collaborating closely with AEP on resolving all the outstanding issues. We did the outstanding regulatory requirements from West Virginia on Mitchell and FERC. We remain confident in resolving those again, midyear. And we continue to believe that the economics that we've laid out earlier hold through that Kentucky Commission order.

Just two questions. On the asset sales, do you expect sort of your success this year to perhaps lead to a more regular pace or a specific scale of capital recycling initiatives going forward?

The idea is to have on the renewable side, a recurring team of asset sellouts and to be able to recognize and validate the value we've created through the development process. So yes. And as we've said, even in the prepared remarks, this is an inaugural asset recycling program. So yes, there will be part two and part three and hopefully continuing scale.

Okay. Got it. But I guess, so far, there's no specific targets because you talked about 750 megawatts this year. And then obviously, it's going to depend on how much more you can add to the portfolio over time, but at sort of this a step one, but you do expect to do it more regularly.

That's exactly correct.

And just one quick question on the Deerfield partnership with Meta. Have you looked at maybe replicating the Chevron framework with this client or with some other clients in the U.S. or in Canada?

No. We'd obviously like to, right? We like the Chevron framework agreement because having that certainty around offtake did a lot of things, including significantly reducing transaction costs. And so we certainly would like to develop all of these relationships into those types of framework agreements. As you know, the important part about this one with Meta was the fact that it is a second one. And this whole C&I partnership is something we spend a lot of time and effort and focus on making sure that we're delivering value to our customers. So whether a true framework agreement or repeated partnerships on repeat projects, that is a model that we do want to retain, yes.

Just wanted to circle back quickly to the tariff comments earlier in the Q&A. Just wanted to clarify, the tariff exposure is just on New Market Solar 2 and not on the first phase or the community solar, is that correct?

That's correct. And there will be tariff exposure also on Chevron assets. We just need to sort through exactly what the decision is and where we source those panels. Thank you for taking the time on our call today. With that, please stay on the line for our disclaimer.

Our discussion during this call contains certain forward-looking information, including, but not limited to, our expectations regarding earnings, capital expenditures, pending acquisitions, capital recycling, and growth. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A filed on SEDAR and EDGAR and available on our website, and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. We disclaim any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, we may have referred to certain non-GAAP measures and ratios including, but not limited to, adjusted net earnings, adjusted net earnings per share or adjusted net EPS, and adjusted EBITDA, adjusted funds from operations, and additional operating profit. There is no standardized measure of such non-GAAP measures. Consequently, our 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 measures, including a reconciliation of non-GAAP financial 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. That concludes the call.

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