Algonquin Power & Utilities Corp (AQN) 2017 Q1 法說會逐字稿

Welcome to the Algonquin Power & Utilities Corp. First Quarter 2017 Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Christopher Gerard -- sorry, Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead, Mr. Jarratt.

Great. Thanks very much. Good morning, everyone, and thank you for joining us for our 2017 first quarter earnings conference call. As mentioned, my name is Chris Jarratt, and I am the Vice Chair of Algonquin Power & Utilities. Joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer.

For your reference, additional information on the results is available for download from our website at www.algonquinpower.com. We also have a webcast presentation to accompany this earnings call that you can access from our website.

Over the course of this call, we will be providing information that relates to future events and expected financial positions, which should be considered forward-looking. I direct you to review our full disclosure on forward-looking information and non-GAAP financial measures, which are also available on our website, and we will read the full disclaimer at the end of this call.

To kick off the call this morning, Ian will review our Q1 2017 strategic achievements. And at the risk of stealing some of Ian's thunder, one of these includes reaching the milestone of 1,000 megawatts of operating wind generation in our portfolio. This is an organizational achievement. David will follow with the financial highlights, then Ian will conclude with our outlook for the remainder of 2017 and also provide further details on our growth plan. We'll then open lines up for questions. (Operator Instructions)

And now I'd like to turn things over to Ian.

Thanks, Chris, and good morning, everyone. Thanks for taking the time to join our Q1 2017 call. Kind of as a big picture start to my remarks, I think we're pleased to report a positive beginning to the year with the welcoming of the Empire District Electric Company into our family and strong financial and operational results.

I think, in a way, the quarterly results that we're discussing here today should really be credited to the efforts that were expended over 2016: construction and commissioning of new renewable energy projects and the approval and closing of the transaction with the Empire District Electric Company are certainly factors.

And 3 takeaways I guess I'd like to highlight this morning: Firstly, I believe we have delivered on major growth initiatives for our business. The Empire acquisition was certainly first and foremost on the list. We're excited, obviously, on New Year's Day of this year to report on the successful closing of the Empire acquisition, the largest certainly in the company's history.

Empire brings several things to our organization, including a dedicated and deep team of talented employees and the expansion of our customer connections by close to 40%, with the addition of 220-or-so thousand new water, gas and electricity utility customers in the Midwest. It also brings over 1,400 megawatts of regulated electric power generation assets to our current portfolio. And as Chris had mentioned, more than 1,000 megawatts worth of renewable wind generation located here in North America.

Second, we continue to focus on our renewal energy business group, with over 200 megawatts of new capacity. Liberty Power, our Renewable Generation Group, commissioned 2 new wind and solar projects in Q1 with total capacity of 160 megawatts. And our Liberty Utilities group marked a milestone with the commissioning of its first rate base renewal power generation facility, the 50-megawatt Luning Solar facility, which was constructed in Nevada. As a fundamental part of the capital investment growth process in our regulated utilities, Liberty Utilities successfully advanced several rate cases across our utilities representing over USD [13] million in increased revenue requirements.

The second big picture point is that these growth initiatives have, obviously, had a significant impact on our financial performance with, of course, Empire being a significant contributor. Adjusted EBITDA grew by 72% year-over-year. Adjusted net earnings per share grew by close to 20%. David will speak a little bit more about our financial results in a minute.

Supported by the growth in our earnings and cash flows on a per share basis, we were pleased that the board increased our dividend by 10% in the quarter. I think, probably, this is the seventh consecutive year of double-digit increases for our dividend.

But I would be remiss if I didn't address the impact of these past winter's unseasonably warm weather. I'd say as a differentiating competitive advantage for AQN, our diversified portfolio has historically demonstrated a great capacity to manage the naturally occurring fluctuations of weather. Obviously, the weather anomalies were extremely widespread this quarter. Our response has been to craft plans to manage discretionary expenses for the balance of the year to close the shortfall gap, assuming that the robust diversification of our portfolio continues to be effective for the balance of the year. We were -- we continue to remain confident in our Investor Day expectations of over 90% year-over-year growth in EBITDA and our ability to achieve mid- to low $0.70 in earnings per share.

The third point, which I think is important, is that we remain highly focused on executing on the 5-year growth plan we outlined to the investment community. The diversity of our businesses allows us to work with several different conservative building blocks, if you will, to deliver on this growth. We're actively pursuing important new organic investment opportunities within Liberty Utilities that I've got a couple of comments later in the call to add to that. Our nonregulated Renewable Generation Group, Liberty Power as we refer to it now, currently has 4 projects in the development/construction pipeline. This year should see 75 megawatts of new solar being commissioned and construction of 75 megawatts of new wind on Amherst Island substantially advanced.

As I mentioned earlier, Liberty Power, our nonregulated renewable energy group, added 160 megawatts of net capacity to its generation fleet in the first quarter of 2017. The Deerfield wind and Bakersfield II Solar facilities at 150 and 10 megawatts each, respectively, are diverse by renewable generation source. You can see on the little map on the slide there that they're also diverse by location. Diversity by geography and modality are important contributors to the stability of the operating results of our organization, which I had mentioned earlier in the call.

We're also pleased to report that Liberty Utilities' first rate base renewable generation asset, the 50-megawatt Luning Solar facility, achieved COD this quarter. We see this as a great collaboration across our business groups and demonstrates, in my opinion, that the entrepreneurial spirit is alive and well in our organization.

And with that, David, why don't you take it away to discuss the financial results?

Thanks, Ian, and good morning, everybody. We're pleased again to report strong financial results compared to the same period last year. As Ian mentioned earlier, it's clear that our significant year-over-year growth can largely be attributed to the inclusion of Empire in our results. Weather aside, as a management team, we are very pleased with the financial performance of Empire. That said, we also saw important contributions from our existing utility operations as well as contributions from our new renewable generation facilities that were commissioned in the quarter.

So looking at our adjusted EBITDA on a year-over-year basis, it was up 72% to $255 million for Q1 2017. Nearly $100 million of the adjusted EBITDA growth was from Liberty Utilities, between the acquisition of Empire and also new rate cases. We also achieved new EBITDA from new facilities within Liberty Power.

Now doubling in to the individual business units, Liberty Power's group operating profit grew 11% over the first quarter of 2016. Our Renewable Generation, again showed the benefits that comes from the growing diversity of the portfolio. All told, our production from existing renewables was 101% of long-term average resource expectations. Our wind overall was basically in line with long-term averages as was our solar facilities. We were pleased that our hydro facilities actually came in 9% above long-term averages.

I would also like to specifically call out the performance of our new facilities that also performed well. Odell and Deerfield accounted for approximately 25% of our production in Q1 and essentially operated at 100% of their long-term average wind resource.

Now turning over to Liberty Utilities. Operating profit grew by 109%. Empire's impact on our year-over-year growth has been significant. Empire contributed $89 million in EBITDA in the quarter. And that's despite being negatively impacted by close to $18 million due to warmer-than-normal weather in the quarter. In fact with the growth from Empire, it's easy to overlook the fact that our existing utilities also performed well and contributed materially to our growth. The implementation of new rate cases is a prime example of this with successful rate cases in 8 of our U.S.-based utilities adding almost $12 million of new revenues and by extension EBITDA in Q1 2017.

Moving on now to adjusted EPS. We achieved growth of 19% in adjusted earnings and per share $0.25 for the first quarter of 2017. With Empire now comfortably integrated into our fold, APUC is well positioned to deliver on our growth expectations for the balance of the year.

Turning now to some of our financing accomplishments. It was a busy quarter, I think as most of you know. Pleased to report that we've now closed on all of the permanent financing required for the Empire acquisition and repaid all of the shorter-term acquisition financing.

With respect to our convertible debentures. 99.6% of the convertible debentures have now been converted to equity. And I would encourage the few remaining debenture holders to contact their broker to complete the conversion to common shares.

We appreciate all of the support that APUC enjoys from investors in the debt and equity capital markets, both here in Canada and the U.S., to raise the capital needed for our growth plans. We continue to carefully manage our balance sheet and financing activities in support of our current BBB flat credit rating.

I'll now pass things back to Ian to discuss some of our other plans for 2017 and beyond.

Thanks, David, and we'll open up the lines for questions in just a second. But before we do, as promised, I wanted to share some updates on the initiatives which are underway within the company over the balance of 2017 and maybe give some thoughts as to our long-term growth plan.

Although we have had a good start to the year, we continue to be focused on delivering on the 2017 capital initiatives we have in progress to secure growth in the medium and long term. Our 2017 growth program, as you can see, is over $1 billion, and it's split between our regulated and nonregulated renewable generation business groups. Within the nonregulated Renewable Generation Group, in addition to Deerfield wind and Bakersfield II Solar joining the fleet in the quarter, construction is progressing satisfactorily for 2 more projects at our 75-megawatt Great Bay Solar project located in Southern Maryland. Solar panels are now all on site and installation is well underway. Project's on track to achieve commercial operations by the end of the year.

Construction is also moving ahead at our 75-megawatt Amherst Island wind project. Works on the island where completed during the quarter in accordance with the schedule, including movement of gravel to the island for roads and foundations. Work will be progressing on some mainland facilities over the course of the summer, and we expect turbine foundation and erection will commence in earnest in the fall. We do believe we remain on track for construction to be complete in the second quarter of next year.

Our 5-year growth plan for Liberty Power includes an additional 200-or-so megawatts of project development across 2 wind facilities here in Canada. To further strengthen our competitive in the U.S. market, you've heard about our securing of safe harbor turbines last year that will give us access and support more than 700 megawatts of wind development potential over the coming 3 or 4 years.

Turning to Liberty Utilities. We are on track with our significant 2017 CapEx program, which includes the Luning Solar facility and a material expansion of our wastewater treatment facility in the West Valley of Phoenix.

As with past M&A, our continuing approach is to surface investment opportunities, which may not have been actively pursued by the previous owners of those utilities. Capitalizing on the materially expanded asset base of Liberty Utilities, following the acquisition of Empire, we're in active pursuit of a number of organic growth opportunities, including greening the fleet initiative within Empire's largely coal-based generating portfolio. Significant declines in the costs of renewable wind energy make a very compelling economic argument for our customers to support the eventual replacement of a substantial portion of the coal-fired generation with wind generation. We're currently working closely with the regulator in Empire's home state of Missouri to update them on our plans.

Lastly, we're focused on ensuring that we earn the returns that have been approved by the regulators on our regulated portfolio of utility assets. To make this a reality, we have rate cases representing more than USD 35 million slated to be advanced across 7 different jurisdictions in the U.S. over the coming year or so.

So with that, that ends the prepared remarks for our quarterly call. Operator, could you please open the lines up for the first question.

(Operator Instructions) The first question comes from Rob Hope with Scotiabank.

Just a quick clarification, just in the prepared remarks you mentioned guidance being, I believe, mid- to low 70s for EPS. But if we look back at the IR day in '16, it would have been more in the upper 70s, low 80s I'm just hoping you could reconcile that for us.

Well, actually, I'd be surprised if -- certainly happy to take to that off-line. But obviously, there's a couple of factors that, I would say, influenced our Canadian earnings in Canadian dollars, given we have significant U.S. exposure. And so we certainly have to look at the exchange rates. But I guess, I think, really if there's a nugget in the prepared remarks, it was that I appreciate that the weather has been -- was tough in the first quarter. But I think we've been able to craft discretionary expense reductions to offset it. So I think if there's a -- as I said, it's a big picture answer, I think our position is that things haven't really changed. But I'm happy to kind of take it off-line and explore what the guidance was back in November. But I think, really, nothing has changed from our point of view, which is I think what we were hoping to communicate.

Right. That's helpful. And then just regarding your power business, you did mention your safe harbor turbines a couple of times. And when we look at the presentation, the facilities under development are largely the Canadian ones. Just want to get an update on potential timing and opportunities in the U.S. that you're seeing that could present investment opportunities closer than in the 2019 or 2020 time frame.

Sure. And we've got a couple or 3 opportunities that we're advancing. I think given that we -- they're not fully commercially secured though, we are comfortable with them. I think our belief is that we will find great homes for those turbines. As you point out, kind of I'll use the word drop-dead date because it's -- [sort of not] drop-dead at all, but the last date for the 100% PTCs is the end of 2020. So while we are chasing the things here in Canada and are indeed looking to expand opportunities in the U.S. to use those turbines, we're not feeling kind of a fire sale pressure, Rob, if you understand what I'm saying, is we, obviously, always want to find great places for the turbines. We are continuing to exploit the portfolio of opportunities. I would expect you'll hear something pretty concrete from us in the next quarter or so in terms of at least where 1 or 2 homes for those turbines might be located. So I -- we're not uncomfortable or not feeling the pressure, if that's maybe helpful in terms of as we think about it.

The next question is from Sean Steuart with TD Securities.

A couple of questions, any update on your activities in Alberta in anticipation of the procurement there?

Yes. It's -- I mean, I think as you point out, other than Alberta and Saskatchewan, ain't too much happening in Canada from a renewable energy perspective. So we've been certainly running around cobbling together land. From a solar perspective, we've been talking to a number of junior developers to look at partnering up on -- for the [windar] fee. I think one of the things that we are hopeful that we can bring to the equation for some of these junior developers is certainly a track record. If you're familiar with the RFP requirement, a history -- a proven history of being a developer and obviously having the financial wherewithal are 2 elements that are going to be evaluated in the context of looking at prospective RFP submissions. And so I think Algonquin's development history and obviously our strong balance sheet will, hopefully, be attractive to at least one of these junior developers. And so, don't have anything to announce on it right now, but it's sure on our radar scope, Sean.

Okay. And further to Rob's question, I'm wondering if you can give any broader comments on the acquisition opportunity set for preconstruction wind developments in the U.S. and how that jibes with tax equity market depth right now?

Sure. Well, I think we have, as I've kind of intimated to Rob, a couple, I'll say strong and another a little bit more distant opportunities with junior developers who are looking to find partners who have safe harbor turbines, who have the financial credibility with tax equity -- and I'll get to that for a second, with which to team up with. And so as I said, I'm hopeful that you'll hear something concrete. With respect to your question about tax equity, no doubt about it. There is a little bit of uncertainty in the U.S. tax equity marketplace. I think demand is still strong, but obviously what's happening with corporate tax rates is causing tax equity providers a little bit of, I'll call it, flight to quality, if you want to think of it that way, in terms of the projects that they want to back. And so I think our experience in being in the tax equity marketplace is being helpful. So we're not concerned that we won't be able to find tax equity for the projects that we are originating in the U.S. And I think it's largely because of the history that we have. I think we were pleased that the tax equity -- for example for Deerfield, over $200 million flowed this week in terms of the Deerfield project now that it's off to hit COD. And so I think we are a proven entity for the tax equity providers. And notwithstanding the uncertainty in the marketplace that may have been introduced by what's happening from a tax landscape, I think there is still strong demand.

The next question is from Orhan Eldarov with RBC.

I'm just filling in for the big man today. I have a couple of questions. First, on the EnergyNorth rate case. I noticed that you guys are posting, I think, a $20 million increase. And I think not too long ago, maybe in 2015 or so, you guys had a $12 million rate increase for that. So I was wondering if there's a particular reason you're posting a large increase request again. Or is it due to rate base? Or what's behind that?

It's -- to be frank, it's all about capital that's been invested in the utility over the -- since our last increase. And while it's a significant amount, I mean, obviously, just to keep it in context, on a total bill basis, it's certainly sub-10%. And not that that's not a significant increase, but one of the things that is a characteristic of the LDC, the natural gas local distribution market, is a requirement to replace a lot of pipes that are reaching at the end of their useful life in terms of cast iron and bare steel. And the unfortunate reality is, as those assets have reached the end of their useful life, the replacement of them with plastic pipe has a cost. And so nothing unique or special other than we're trying to bring the system up to kind of current standards and to make sure that it's kind of well positioned [and] make it up for the next 50 years of the operation for the utilities. But we've been pretty transparent with the regulator in terms of all of our activities. And so we're confident that as we have offered up the rate case, and there's obviously the bid/ask spread that's always the case in these processes, that we're -- I think, that we're comfortable that we've got a constructive relationship in New Hampshire and that we'll get a fair shake by the regulator.

Right. Okay. That makes sense. And then on the Mountain Water condemnation, I believe you guys said in your MD&A you will be receiving $103 million from the City of Missoula. But you also mentioned those FBO contracts, the $23 million over 4 years. I just wanted to clarify, the $103 million that you receive, is that net of those payments? Or is that gross and then you're going to be paying that over the next 40 years, the $23 million? Or is the city going to be liable? Where does that $23 million go?

Yes. It's a great question. And the short answer, that's net to us. So we've kind of [shorted] out all of those relationships in the context of our discussions with the city. And so -- and I should point out that the proceeds from the city -- the funds that we are receiving are a combination of 2 things: Proceeds from the city; and second of all, as we mention in there are certain arrangements that we had entered into with the original seller of that utility. Because the condemnation was already kind of in evidence at the time of the transaction, and so while the proceeds from the city are substantially less than the $103 million, as you can probably glean from the press releases from the city, we really made provisions with the original seller to make sure that, that wasn't a commercial exposure that we wore.

Correct. Yes. Okay, and now just to piggyback on that. You also said that there might be a potential condemnation process with Apple Valley now. Is that sort of them seeing that the City of Missoula was successful and they just want to do something like that? Or do you know if there's a particular reason for them doing so? And then do you expect that there would be a similar outcome in terms of economics if the condemnation was granted?

Well, let me start by saying that we are at the -- we are at like kilometer 1 of a marathon of a condemnation with Apple Valley. So you know how long a -- 42 kilometers. We're a long way away from making any speculation as to whether the city will be successful. If you kind of follow that, the yins and yangs of that process. There's a public plebiscite that needs to be held even to grant the city some authorization to contemplate borrowing the amount of money. And we're not sure that when you look at the total investment that would be occasion on behalf of the city to approve it that that's going to be something that they -- that the citizens of Apple Valley are even going to support. So I'll start by saying this thing may be dead in the water from the city's perspective on June 7, which is the date of that public plebiscite. In terms of the process for condemnation in California, it's not dissimilar to the process in Montana with a commission or board being appointed to determine value. I think it's a different judicial landscape, obviously in California than Montana. And so we'll -- I think we've always felt we've got a pretty fair shake in the state of California. We'll see how things sort out. But we are so at the front end of this thing that -- but we take comfort in the fact that the laws are there to -- the Fifth Amendment to make sure that we've kind of got due process and we don't -- that if any of our assets are taken for public good, that we're given just and fair compensation. So anyway, it doesn't frighten us. It's just part of the business. And maybe -- and I will editorialize a little bit because you asked, is that, on a personal level, I think the concept of a city going and investing its citizens' money in a business that can be easily funded with private capital, leaving other more difficult aspects, schools and roads, to be funded, just doesn't make any sense to me. But you know what, you have to look into the aspirations of city councils and mayors to really determine what's driving that sort of thing. So anyway, there's my pontification on condemnation.

The next question is from Rupert Merer with National Bank.

A quick follow-up question on the Missoula. To start, really, a housekeeping question. So you talked about the net $103 million in equity you'll receive from that transaction. Are there any other changes to the balance sheet? Is there any debt going along with that disposition? And can you tell us what the change will be to rate base?

Sure. The condemnation [of] the receipt of the proceeds, I mean, it actually does allow us to prepay one of the bonds that we have outstanding within Liberty Utilities, at our discretion if we so chose. So I think it will really just be a matter of managing the balance sheet and looking at what the best use of that proceeds will be.

But maybe just to be specifically responsive, Rupert, is the net to us is -- in net funds, is $103 million. What we do with it is our business. The city isn't assuming any debt other than, as mentioned earlier, those FBO contracts. But really, that's just the net to us.

That's the total enterprise value then?

Correct.

Okay. And then the weather impact in Q1, I believe you mentioned $18 million impact to EBITDA in the quarter. Wondering if you can give a little more color on that. Where did you see the impact? And do you have any plans or opportunities to reduce volatility from weather in the regulated returns where you saw that headwind this quarter?

Yes. The $18 million that we mentioned -- that I mentioned on the call is really a reduction to heating degree days at Empire, mostly in the electric utility and a little bit in the gas utility. So that's the primary source of that. And with respect to kind of the balance of the year, we're certainly going to be looking to offset that through various measures, as Ian mentioned, cost reductions and so on and so forth. With respect regard to further progress on decoupling that's certainly a project the regulatory group is all over on a regular basis. And so I think we do expect to see more progress on that.

And maybe just to chime in on that one, Rupert, our EnergyNorth rate case that was brought up right at the beginning of the call, includes a proposal for decoupling in the state of New Hampshire. And so we're, obviously, hopeful that we'll be able to successfully include those kind of provision into that rate case as we continue to push for decoupling in all of our jurisdictions across the U.S. I think though, I don't want to lose sight of the fact that our, I'll call it, strategic approach to managing the naturally occurring volatility of weather is through diversification. And so as we continue to add wind projects in Michigan and solar projects in California and Maryland and new utilities in different areas, that, to me, is an approach that I think if you look back historically at our financial results, has been pretty effective. Obviously, when you start to have weather anomalies, which are so widespread as last winter, even the most diversified portfolio struggles to maintain the mean, if you will, from a return perspective. So I think, yes, we'll continue to push for new initiatives like in EnergyNorth. And yes, as the portfolio gets more diversified, it just gets more robust. And then, lastly, at the end of the day, this is -- I'll say it's God's will, the good news is there's pluses and minuses to that. And so I think we don't -- while it certainly introduces volatility, it doesn't shift the mean, if you will, from a return perspective. And that is kind of my response to Rob in that -- Rob Hope is that, we've -- notwithstanding that fact that it's a little bit outside of our control, we have embraced it and said, okay, what can we do to manage our discretionary expenditures to kind of make up for that over the balance of the year? And we're confident that our current -- our expectations haven't changed as a result of those anomalies over Q1.

The next question is from Ben Pham from BMO.

Just got a question on Empire. And now that you've seen a quarter of it, then we can see the results benefiting your numbers. I'm just wondering from your perspective, when you look at it now versus when you first initially looked at it, are you finding that there's maybe some more growth opportunity that's kind of come out of that hidden file cabinet as you go into the area? And conversely, is there any sort of additional risks that your finding that could surface that you're looking to mitigate? And maybe just an update on your EPS [FO] accretion -- are you still very confident that you can achieve that for Empire?

Sure, Ben. You skirted the 2-question limit by throwing a whole bunch of things into one question, but we'll give you that one. So let's start with Empire that after being in the driver's seat for a quarter, I think we're pleased that the machine performed as expected in terms of the operations, the seamlessness, the bills went out, lights stayed on, gas flowed, customer inquiries got answered, spent a lot of time sort of building a cultural initiatives so that we're touching fingers with those 800 new employees who have joined in. So I'll start by saying, nothing has come after driving the car home that caused us to feel different than we saw it on the lot, if you want to think of it that way. I think the positive, and it's certainly isn't something that we didn't see when the car was on the lot because we spoke about it at length at our Investor Day, is this concept of greening the portfolio, greening the Empire fleet, I think, momentum and the compellingness of the arguments for that have only grown since we spent time with you in November of last year disclosing that. And not just from our side, other utilities, Xcel, other large utilities in the U.S. have seen the fact that wind is hypercompetitive right now with the PTCs against even the operating costs of coal. And so if we were confident in November, nothing has shaken that confidence as we sit here today looking at the opportunities for greening the portfolio. So I don't know if you'd say that was kind of a new opportunity in the filing cabinet that we didn't see. If I did have to highlight an opportunity that we didn't fully appreciate, it was probably the transmission opportunity within the state. As we look at the growth in renewable generation, particularly wind, and you think of Oklahoma and Kansas and the massively strong wind resource that exists in those jurisdictions and the opportunities to kind of construct transmission to move that, I'll call it, cheap energy North and East back toward the market. I think that's something we probably hadn't fully appreciated. Is it this year's opportunity investment? No. But is it something over the coming half decade? Yes. And so that was a -- I mean, that's a positive that's got our transmission guys engaged and enthused. What did I miss there on your question, Ben, in terms of our perspective on Empire?

Yes. My fifth question was the accretion expectation.

Yes. Yes. Well, and I guess I -- maybe it was implicit, but I'll make it explicit. And my first answer is, Empire is delivering kind of exactly what our expectations were in terms of its earnings, net income and its EBITDA. Obviously, sort of the weather was a challenge in Q1. We're comfortable that we'll make that up by the end of the year. So yes, nothing's changed, Ben, in terms of the impact that we think Empire would have on the consolidated organization from an accretion perspective.

The next question is from David Quezada with Raymond James.

My first question is on just the, I guess, a follow-up on the opportunity for rate base renewable power investments, I guess, specifically within Empire. Just what are you thinking in terms of potential timing there? I guess it's kind of a longer-term opportunity. And sort of a sidebar to that question, is there precedent in those jurisdictions to include wind, for example, in the rate base?

Okay. Well, let me respond in parts to your question. First, you -- in the phraseology you said, well, just wind in Empire. Well, I think we're pleased that actually this quarter evidenced our inclusion of solar in California. So it's not just wind in Empire, but you're absolutely right, wind in Empire is a significant investment potential, given the wind resources in the Midwest. In terms of weather, there's regulatory precedent in Missouri for that. The answer is no, but we're not the only people who are thinking about that. Ameren, who are big utility in Missouri as well are kind of on to that. We've been in front of the regulator, at least twice, and I'm thinking maybe 3 times in terms of socializing the concept. I think anything that you can put in front of the regulator that shows that we can deliver energy at a lower cost for customers gets a positive reception. And so the process that sits in front of us is we, obviously, in addition to those preliminary regulatory discussions and socialization, we're in the midst of what's called a special study. And it's a special study that's being undertaken under the integrated resource plan, which is the way regulators provide some oversight and thoughts and feedback to utilities in terms of their generation mix. That will -- you will see that, it's obviously a public document, in the next month or so. Probably by the end of July it will be published. And my expectation is that it will confirm exactly what I said that we think the lowest cost approach for customers over the coming years is to take advantage of the incredibly competitive cost of wind. And so I think we're confident that the regulators in Missouri are sufficiently, I'll say, open-minded and rational to say that if that's the best bet for customers, we should do it. So while there is no regulatory precedent specifically in Missouri, we're -- I think we're a long way down the road to getting there. And the last part of your question is you kind of inferred that it was -- these were long-dated investments. Well, by definition, they're all going to be done by the end of 2020, and maybe that's what you meant by long-dated. But all -- obviously, any regulatory investment of this size, there's a prudency reviews that needs to be done by the regulator. We're in the midst of cobbling together land for our -- for these projects. We'll be making a submission to the RTO SPP with respect to them. So it's moving ahead purposefully, but it's all going to be done by the end of 2020. So I don't know if that was helpful color from a timing perspective.

That is helpful. My only other question here, just in terms of -- it seems like a pretty good volume of projects built on the -- your Liberty Power segment and within the utility rate base, there's a lot of power projects that you're pursuing. How do you think about -- like will there be any constraint on the amount of projects that you can carry on simultaneously? Or is that not something that you're concerned about?

Well, obviously, we're always concerned about that. Maybe this is one of the pluses about -- and as a corollary to your first question, is that to the extent that the construction and development of those wind projects for Empire get pushed out and are kind of a 2019 construction activity, it's going to allow us the time to focus on the near term things that we have in the commercially secured pipeline including our Blue Hills project in Saskatchewan, the [Valley Oak] project in Québec. Sean had asked a little bit about what's happening in Alberta, the focus to have that project online before the end of 2019. So -- like I'm not uncomfortable about things that are kind of a little bit longer dated in our pipeline. I think it allows us to manage that capacity. And so we're always on top of it. I think the organization has demonstrated it hasn't dropped the ball and with -- even with the pace of development construction we've had going. So knock wood, we'll continue that track record, but we're always mindful of it and I appreciate the comment.

The next question is from Jeremy Rosenfield with Industrial Alliance Securities.

I think you were meant to say, in answer to the last question, that you're not doing enough projects and you want to do more. In any case, the -- I wanted to come back to the transmission question. And I was wondering, just specifically on the transmission opportunity, if you were thinking of investments in transmission within the rate base contract or if you were more thinking in terms of sort of merchant/contracted under long-term agreements?

Well, in some respects, both. One of the things that came up as we really got the car home and started to kind of go through it in the portfolio of Empire, it's a fairly substantial, I guess, filing cabinet of projects that had been proposed to SPP in terms of regulated rate base investment in transmission. I think you touch on another interesting one. And it's one that, frankly, Empire -- and I don't mean it in an accusatory way at all because it wasn't really in their warehouse -- but has appeared is this idea of, as you point out, kind of contracted transmission lines with the idea of moving shipper generation from hellishly windy areas like Oklahoma and Kansas, perhaps across the state of Missouri to bring to load pockets further North and East. And I think that's something that would fit into our wheelhouses because it feels a little bit like an IPP project as more than a rate base project. But it's something that I think we'd be comfortable exploring, and maybe that opportunity hasn't been fully surfaced by the Empire guys. And as I said, I don't mean it in an accusatory way at all, but it's certainly an opportunity that would fit from our perspective as you think about it.

Okay. Good. And then if I just -- if you look more broadly at the opportunities that have potential investments, comparing maybe more power M&A specific assets or thinking about corporate M&A transactions on the regulated utilities side. Do you have a specific preference? Or are you seeing better returns in one sort of bucket versus another? Or are things pretty comparable and it's just going to be a question of timing and what comes up and what's appropriate?

Well, I'll kind of reiterate. I'll say the party line that we've advanced in the past, we are a little bit indifferent to our business mix provided it continues to be supportive of our credit metrics, which we talked in the past, which kind of feels like we're okay down to 50-50, if you want to think of that from a regulated contracted generation business versus our nonregulated IPP business versus our regulated utilities, all the way kind of presumably north to that. We very much like the growthiness and the ability to capitalize on the entrepreneurial spirit in the IPP business, and so we want to continue to do that. But we -- certainly, no hard and fast targets. I think returns in the IPP business, there's no doubt about it, they are probably shrinking a little as -- in a low interest rate environment. I'd say probably a wind project can be found today to be developed in the 8.5% unlevered after-tax IRR zone, whereas I probably would have said a year ago it was 9 or 9.5. So that's certainly a factor that we think about. I am pleased that, organizationally, we've never really had to make that capital allocation choice to say -- well, we can either do a good utility rate base investment to our power project. And hopefully, with the sort of continued support of the capital markets, we won't be forced into making that Sophie's choice. And so I think we don't have -- I guess, in summary to your question, we don't have hard and fast limits on where the focus lies. We see continued opportunities on both sides. Obviously, we don't have anything to announce from an M&A perspective, but we are obviously watching what's happening in the U.S. M&A utility marketplace. And we wouldn't want a good opportunity to go by without us having a stare at it. I don't know, I appreciate -- I'm sorry, it was a bit of a dog's breakfast of an answer, Jeremy, but I hope that kind of gave you the color that you were looking for.

This concludes the question-and-answer session. I would now like to turn the call back over to the management for any closing remarks.

Great. Well, I appreciate everybody's time today. I appreciate that your time is valuable. And again, we look forward to having a conversation at our next quarter. Have a great summer, everyone. But please, as always, stay on the line for the riveting review of our disclaimer. Go ahead.

During the course of this conference call, we may have made statements relating to the future performance of Algonquin that contained forward-looking information. Including statements with respect to the expected performance of the company, its future plans and its dividends to shareholders. While these forward-looking statements represent our current judgment based of certain material factors or assumptions, actual results could differ materially from such forward-looking statements made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking information and the material factors or assumptions that were applied in making any forward-looking statements, as well as risk factors that may affect the future performance and results of Algonquin, are contained in the press release in Algonquin's public disclosure documents filed by the company on SEDAR at www.sedar.com. We undertake no obligation to update these forward-looking statements unless required by law. Furthermore, during the course of this conference call we have referred to certain non-GAAP financial measures including, but not limited to, adjusted net earnings, adjusted EBITDA, adjusted funds from operation, per share cash provided by adjusted funds from operations and per share cash provided by operating activities. These non-GAAP measures do not have any standardized meaning under GAAP and may not be comparable with other non-GAAP or non-IFRS financial measures presented by other companies. We refer you to our management commentary for more information about these non-GAAP measures including a reconciliation of the non-GAAP measures to the corresponding GAAP measures, where a comparable GAAP measure exists.

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