Algonquin Power & Utilities Cor Q3 FY2024 earnings call

• Strategic transition to pure-play regulated utility: Completed SAP-based IT platform rollout, added regulated experience to board and leadership, and reorganized utility structure by commodity to drive best practices.
• Rate case filings: Filed rate cases for Empire Electric in Missouri, CalPeco in California, and expect to file for Litchfield Park in Arizona. The general rate case for Empire Electric Missouri was filed with a request to increase rate base by ~$534 million and revenue requirement by ~$92.1 million. CalPeco's rate case was filed with a request to increase rate base by ~$154 million and revenue requirement by ~$39.8 million.
• Financial results: Continuing operations had revenue growth but was offset by lower pass-through commodity costs, and adjusted net earnings and EPS decreased due to higher expenses and share issuance. Balance sheet debt was $8.7 billion, and net proceeds from renewable sale expected to be $1.7 billion to $1.8 billion.

For continuing operations, which include the regulated business, hydro business, and ownership in Atlantica, third quarter financial performance saw year-over-year growth in revenue and adjusted EBITDA of 1% and 4% respectively, primarily due to new rates across regulated electric, natural gas, and water facilities. However, adjusted net earnings and adjusted net earnings per share decreased 5% and 20% respectively due to higher operating expenses, depreciation, interest expense, and the issuance of common shares. On a segmented basis, adjusted EBITDA for the regulated business was up 3% y-o-y due to new rates at several electric, gas, and water facilities, higher HLBV income from normalized wind resources, and recovery of securitized regulatory assets at Empire, but was partially offset by higher operating expenses.

• Not providing 2025 guidance at this point; will provide further color when reporting fourth quarter results.
• Proceeds from Atlantica and renewables transactions expected to be $2.8 billion to $2.9 billion, with net proceeds from renewables sale after liabilities satisfied being $1.7 billion to $1.8 billion, including ~$150 million in net proceeds from tax attributes in late 2025.

• Regulatory lag in rate cases due to system implementation has impacted timing of rate cases and may affect earnings in the short term.

Q: Can you give more color on rate case submissions, including the $300 million remaining and timing?

A: Darren Myers said they're not going to walk through the remaining $300 million, but will continue to file rate cases, with Litchfield next and others, and Chris Huskilson noted the number is a moving target and occurs out to 2027.

Q: What impact could the Empire rate case have on 2025?

A: Darren Myers said historically it takes about 12 months, so there'll be a small impact in 2025 but meaningful in 2026, and it would be prospective.

Q: Update on deferrals of depreciation?

A: Chris Huskilson said applications were submitted in New Hampshire and Arizona, but no answer yet.

Q: Erosion of base earnings in 2025?

A: Darren Myers said they can't give guidance today, but there are rate cases settling this year that will go into next year, and they're working on OpEx efficiencies.

Q: Advocacy for minimizing regulatory lag in Missouri rate case?

A: Chris Huskilson said they have PISA opportunity and listed items in the case filed.

Q: Updates on hydro process?

A: Chris Huskilson said they haven't started the sale process yet, will go to market in first half of 2025 if renewables transaction closes, and will sell if it creates value for shareholders.

Q: Use of proceeds from hydro assets?

A: Darren Myers said they're committed to investment-grade rating, will use proceeds for flexibility, self-funding, and investing in the business; Chris Huskilson said they'll test the balance between value inside the business and reinvestment value.

Q: Purchase price movement and net proceeds?

A: Darren Myers said net proceeds range is $1.7 billion to $1.8 billion due to bringing construction JVs on balance sheet, no economic effect, and $150 million in net proceeds from tax attributes in late 2025 due to project timing.