Algonquin Power & Utilities Corp (AQN) 2017 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. Second Quarter 2017 Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead, Mr. Jarratt.

Great. Thanks. Good morning, everyone, and thanks for joining us on our 2017 second quarter earnings conference call. As mentioned, my name is Chris Jarratt, and I'm the Vice Chair of Algonquin Power & Utilities Corp. Also with 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 on our website, algonquinpowerandutilities.com. We also have a webcast presentation to accompany this earnings call that you can access from that website.

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

Kicking off the call this morning will be Ian with a review of our Q2 2017 strategic achievements, and then David will follow up with some financial highlights. And then we'll go back to Ian and conclude with the future outlook and details on our growth plan. We then open the lines for questions. (Operator Instructions)

And with that, I'll turn things over to Ian.

Thanks, Chris. Good morning, everyone, and thanks for taking time out of your day to join us for our Q2 2017 call.

For the quarter, I'm pleased to report that APUC delivered another quarter of increasing financial and strong operational results. I think it's clear that these results were driven by the significant growth we've undergone in recent years. In APUC, we pride ourselves on having this say-do mindset, and I think that means that one should say what one intends to do and then ultimately do what one says. And we believe that we remain on the growth trajectory promised over the past few years. 18% year-over-year increase in adjusted net earnings per share, 99% year-over-year increase in adjusted EBITDA and then near doubling of our assets, I think those are all indicia of our value creation through growth philosophy.

For this quarter, our growth can be attributed to accretion from the Empire acquisition and earnings contributions from new renewable long-term contracted generating facilities. And from the screen, well, you can see that the quantum of our growth seems dramatic. I think we're comfortable and confident that this growth represents continued execution against our stated strategic business plan to maintain stability and strength of our overall business.

In addition to the strong financial results, we were comfortable with the recent operational accomplishments within Liberty Utilities. Six rate cases were successfully completed in the quarter, which collectively will add close to USD 14 million in net incremental revenues to our utility business. And you will note that the board also recently approved the acquisition of 2 small water distribution systems from the city of Perris, which would add close to 4,000 new water customers to our operations in California.

Within our new energy -- with our renewable energy generation group, Liberty Power, progress continues to be made on our 2 active 2017 construction projects, but a new 10-megawatt solar project located in Nevada has been added to the development to-do list. Construction of this project is currently being overseen by our Liberty Power development team, and the facility will be added to the generation rate base to serve the needs of Liberty Utilities California distribution customers when it's complete late next year.

The Turquoise Solar project is similar to the 50-megawatt Luning Solar facility that reached COD earlier this year and is currently in service to satisfy the energy needs of our CalPeco customers.

I think I'd offer the Turquoise project up as a further example of the ability to combine the core competencies of our 2 business groups at the same time demonstrating our continuing commitment to renewable energy and the ability to reliably and cost effectively serve the needs of our utility customers.

And with that overview, I'll turn things over to David to give you a bit of a deeper look into our Q2 financial results. David?

Thanks, Ian. And good morning, everybody. We're pleased again to be reporting strong financial results compared to the same period last year. This marks a continuation of the strong growth experienced in the first quarter, driven by our acquisition of Empire. In fact, the accretion of the Empire being as strong as it is might overshadow some of our other major drivers to the strong results, namely important contributions from new generating assets such Odelle, Deerfield and Bakersfield II; strong production from our existing facilities; and successful rate cases on the Liberty Utilities side. The diversity of our overall business certainly is a key component of our continued ability to deliver strong sustainable financial performance.

Now turning to the financial metrics for the quarter. Our adjusted EBITDA was basically double on a year-over-year basis to $197.6 million for Q2 2017, up an impressive 99%. A total of $94.9 million of adjusted EBITDA growth was sourced from new facilities, including Empire, within the Liberty Utilities Group and commissioning of new facilities within Liberty Power.

Taking a closer look at our individual business units and starting with Liberty Power. Liberty Power's operating profit grew 42% over the second quarter compared to 2016. On a production basis, Q2 production from our fleet of hydro facilities was 15% higher than the previous year. As mentioned previously, our wind fleet was -- having a strong contributor to the quarter; existing assets were a full 14% stronger than Q2 2016 and above long-term averages. And production from our 2 new facilities, Odell and Deerfield, was in line with our expectations. With the addition of the 2 new wind farms, the collective production from our fleet of wind facilities was 76% higher than the previous year and 2% higher than expected long-term averages.

Finally, while production from our solar facilities was 40% higher than the previous year due to the commissioning of the 10-megawatt Bakersfield Solar project in 2017. In total, our renewables fleet certainly benefited from diversification by modality, with our strong wind production offsetting more moderate results from solar and hydro.

Now looking at our Liberty Utilities Group. Q2 operating profit more than doubled over the corresponding quarter in 2016 with the acquisition of Empire. And there is also -- and Empire contributed $81 million to the operating profit in Q2. Even aside from Empire though, the implementation of new rates from successful rate cases is a key component of the Liberty Utilities Group's growth strategy, and that contributed $6.9 million to the Liberty Utilities operating profit in Q2 2017.

The growth in EBITDA is not important if it doesn't translate into meaningful growth in our EPS. Our adjusted EPS grew 18% to $0.13 per share for the second quarter of 2017. Adjusted funds from operations grew 54%, $119.6 million during Q2, and revenue increased 103% to $453.2 million. With the full effect of Empire now reflected in our results for the second quarter in a row, APUC has demonstrated that we are well positioned to deliver material growth through the remainder of 2017.

I'd like to make 2 capital markets comments before turning things back over to Ian. First, a quick update on our convertible debentures. 99.7% of the convertible debentures have now been converted to equity. I would once again encourage those few remaining debenture holders to contact their broker to complete the conversion to common shares.

Second, I'm pleased to report that our Board of Directors yesterday approved changes to our dividend reinvestment plan, or DRIP as it's called, to make our DRIP now available to our U.S. shareholders in addition to our Canadian shareholders. Extending our DRIP to the U.S. is a natural extension of our efforts to deliver value to our expanding base of shareholders in the United States, and it aligns well with the dual listing of our common shares in the New York Stock Exchange last November. As mentioned in our dividend press release yesterday afternoon, shares under our DRIP for Q3 will be issued at a discount to market, as defined in our plan, of 5%.

Now I'll pass things back to Ian.

Thanks, David. And before opening up the lines to address questions, with the successful first half of 2017 behind us, I did want to provide an update on our growth initiatives for the remainder of the year and beyond.

Within the Liberty Utilities Group, our continued investment in system improvements is evidenced by our evolving list of completed and pending rate cases. As I've mentioned earlier, so far in 2017, 6 rate cases have been collected -- have collectively added USD 14 million in annualized revenues. And another 5 rate cases totaling USD 33 million in requested incremental revenues are in current pursuit.

I believe that this continual stream of rate cases serves as a backdrop to highlight the benefits that we gain from the diversity of our utilities business. With more than 30 regulated utilities across the U.S., every year sees the prosecution of multiple smaller rate cases. This diversification into a larger number of smaller rate cases avoids the volatility and uncertainty that might accompany the outcome of a large rate case in a single regulatory jurisdiction. Our regulatory team is structured and, frankly, staffed for this cadence of rate cases, and I hope that you'd agree that our capabilities on this front are evidenced by our track record of success rate case outcomes.

Another key element of our growth strategy involves the cross-functional work between our utility and power groups in furtherance of our greening the fleet strategy in Missouri, Arkansas, Oklahoma and Kansas. We remain convinced that our utility customers will derive long-term public interest benefits through the transition from the current coal-dominated generation mix to a future where low-cost, environmentally beneficial renewables are the primary source of electricity to serve our customers. Current plans could see up to 800 megawatts of new wind generation, representing total capital investment of over USD 1.2 billion.

To support a portion of this new generation, for those of you who follow the SPP interconnection filings, we did file an interconnection request during the quarter by Empire for 500 megawatts of new wind generation within the SPP ISO. And the development projects that are being pursued directly by Empire continue to be advanced within the service territory.

Our updated integrated resource planning special study, which I've mentioned on previous calls, is being readied for filing in Missouri in the coming weeks. I would mention that we are pleased to see recent filings by other electric utilities, which echo the compelling economic proposition associated with the replacement of coal and other fossil fuel-fired generation with new wind generation.

In addition to the ongoing organic investment, we continue the pursuit of additional service territories to which Liberty Utilities can bring its local and responsive customer-oriented business model. The recent internal approval of the acquisition of 2 small water distribution systems in the city of Perris, California, which is about 70 miles east of L.A., is a good example of Liberty Utilities' ability to create value for our customers, for its communities and shareholders, frankly, through the acquisition of smaller tuck-in utilities systems. Given the proximity of these 4,100 customers to our existing Southern California operations, we look forward to working with the city as they progress toward the electoral vote on the acquisition in November of this year and then working with them through the regulatory approval process next.

Within the Liberty Power Group, we are advancing a portfolio of commercially secure construction development projects, more than 350 megawatts across 5 projects. Construction is proceeding in Maryland at our 75-megawatt Great Bay Solar facility, with commercial operations expected early next quarter. And construction activities at our 75-megawatt Amherst Island project are underway, with road and foundation work planned for the coming months.

In addition to prosecuting the existing pipeline of development projects, we are maintaining our commitment to new developments in the U.S. renewable energy markets. This is underlined by our Safe Harbor turbine purchase last year. In this regard, we have identified a 135-megawatt California development project in which we can use -- we'll be able to use a proportion of our Safe Harbor turbines.

And lastly, a couple of thoughts on international geography. As I've confirmed in previous calls, we continue to be interested in geographically broader prospects for renewable generation. Recently, we've been expanding our knowledge of international jurisdictions and available development opportunities. Consistent with our statements last Investor Day, our focus remains on opportunities which accrete to our earnings, our cash flows, perhaps importantly, our growth profile and which operate in stable markets with a strong rule of law and clear capital repatriation pathways.

I guess before we open up to questions. In summary, we are confident that the investment thesis that we articulated at our Investor Day last year remains intact, and it's one against which we continue to mark our progress. I trust everyone sees this quarter's results as a continuation of a 7-year string of earnings and cash flow growth that supports our guidance for continued dividend growth.

And with that, operator, I'd like to open it up for questions on the call, please.

(Operator Instructions) The first question comes from Rupert Merer with National Bank.

So Ian, you finished talking about international investment opportunities. There are some reports recently that Algonquin was participating in the sale process of Abengoa's stake in Atlantica Yield. You may not want to comment on that process specifically, but can you give us your thoughts on the price of assets in the M&A market today? And now that you're starting to learn more about international markets, are the returns in the international markets more attractive than what you can see in North America?

Well, let me start by saying, yes, I don't think it's appropriate that we comment on any specific bid or business development opportunity. But I will say that you want us and we do see all of the opportunities that really come across the transom. I think something's not working in our system if we're not looking -- if we're not seeing these things. So my second comment is -- and maybe just using Atlantica as a -- kind of as an example, if nothing else. These are long -- we like long-term contracted assets with sort of stable currency expectations and stable political regimes. And with respect to your question about returns, I don't think it's unfair to say that the North American market is a very competitive landscape, and there may be outsized returns offered in some of the jurisdictions that -- for which, if you find a partner, it's their home turf, and so you take away the fact that it's a foreign environment. And so I think the work that we have done has made us increasingly comfortable that there is an economic thesis to be pursued at looking at things outside of Canada and U.S. It doesn't in any way mean that we don't see value in the Canadian and the U.S. marketplaces. We just acknowledge that it is a -- it's a competitive market. I think we are comfortable with our cost of capital, and our development ingenuity will allow us to be successful. But as the company continues to grow and as the size of -- that it's at, I think it would be a mistake for us to not look internationally. So I don't know if that's responsive to your question, Rupert.

Yes, that's great. And then secondly, you mentioned you filed the interconnection request for 500 megawatts of wind in Empire territory. Can walk us through the next steps to moving those plans along? And given the support from the top in the U.S. for coal, is there any pushback by some who may want to support the coal industry?

Well, okay, 2 separate questions, which you snuck into one question, I might point out, Rupert. But first of all, with respect to the kind of the coming months in Missouri, specifically, the 500-megawatt that I mentioned that we'd filed interconnection request for are for 2 projects that Empire would be kind of developing itself. I think Empire is a little bit agnostic as to whether the best value for its customers is created by developing its own projects or, frankly, on a build-transfer basis for other projects. But we want to make sure that by having our own projects in the queue, we maintain competitive tension in there. And so we have 2 projects that we're -- we filed in the interconnection -- for interconnection request for. And so we will continue to develop those. But the expectation, frankly, is we'll be issuing an RFP likely in late September or early October for other developers to bring projects that they would build and ultimately sell to Empire, in some respects in competition to our own undertakings. At the end of the day, it'll really about getting the best deal for customers. So over the course of the fall, you'll see that RFP be completed, with some regulatory filings looking for a prudence determination sometime early next year. The -- clearly, the intention is for the commitment to get these projects online before 2020 for -- to secure 100% of the PTCs. And so we are moving purposefully ahead on that. So I guess in terms of then the -- I'll say, your corollary question about kind of the U.S. administration's view on coal and the proposition we have for replacement of coal-fired generation with wind, I'm not sure it actually is in any way trading on administrative or legislative support. I mean, in large part, this is largely just an economic argument. And I think when you look at some of the other filings that have been done, the premise is that with the current PTC market, the variable costs of coal are higher than the all-in costs of wind. And it's hard as a utility which has kind of a fiduciary obligation to its customers to continue to operate those existing coal plants when there is an opportunity to reduce costs. And it really doesn't have anything to do with administrative support. Now if your question is going to could there be some counterintuitive measure introduced that somehow subsidize coal on behalf of -- against wind, I guess presumably that's always the case. I will point out that in Missouri there are no coal miners. The coal that gets burned in Missouri is Powder River Basin coal. It all comes by train. So it would be a little bit counterintuitive that, that would be an initiative. Certainly, that would be -- have any impact on the jurisdiction in which -- jurisdictions which we serve. And I appreciate that doesn't necessarily is inconclusive of whether or not somebody might try to advance that kind of initiative. But man, it just feels strange when the economics are in favor of something which is societally good that something would come out with that kind of counterintuitive program. But man, like we're -- nothing is beyond the beyond. So -- but we don't anticipate it right now, Rupert. And as I said, we're advancing our argument solely on the basis of economics.

All right. Yes, it does seem like there could be some subsidies for coal coming. But I guess we'll see what happens.

The next question is from Nelson Ng with RBC Capital Markets.

Could you provide a bit more color on the Perris water? I guess it's a privatization. Like do they -- why did they run the process in terms of like do they need cash? Do they need a better operator? Is there like a large CapEx requirement? It's -- yes, like, could you just kind of give a bit more color on the process and, I guess, why -- like, why you looked at the opportunity given...

Sure. Well, first of all, as you know, we're always on the hunt to kind of add tuck-ins to our system where operational synergies and economies of scale can benefit everyone. And the City of Perris, with the acquisition of Park Water last year, certainly would fall into that category. So I'll start with that. What's driving it from the City of Perris' perspective? It's a little bit complicated in that the City of Perris itself is actually served by a couple of different water providers. And I think the objective from the City of Perris' perspective is really to consolidate their operations so that they have uniform rates across the -- across their entire service territory. I think you do allude to one of the concerns that I think exist broadly in the U.S. municipal water business is that there are latent capital investment obligations that might be politically tough for the municipalities to advance but which are easier for an investor-run utility to advance. And certainly, that's a thesis that we saw play out in White Hall where -- in Arkansas. And I think that's probably an underlying objective from the City of Perris' perspective. I think there is an economy of scale, I mean, that would be -- that the customers in the city of Perris would realize. So I think it's a little bit of kind of all the things that you mentioned, Nelson. But at the end of the day, we are -- as you know, we've largely built our organization on this acquisition, and I won't use the word of orphans because the City of Perris sort of doesn't fall into that same category. But I think we are an efficient and effective consolidator of smaller utilities, and this obviously isn't a blockbuster deal from Algonquin's perspective. But I'd like to -- I'd offer it up as kind of evidence of the ability to kind of continue to execute on that consolidation thesis.

Okay. And then my next question is, did you guys participate in the Alberta wind RFQ? And I guess what are your plans there?

Well, to be frank, actually in Alberta our focus is really, frankly, more on the solar side of things rather than on the wind side. As we looked at the opportunities that might be available, we didn't find anything that was going to be sufficiently competitive that you wanted -- that we wanted to put money into it. There is no prize for second place in these sort of things, but you can spend a lot of money to run that race. And so I think our focus has been more on the solar side, and we're -- we are looking at a couple of -- are there a couple of development opportunities for future RFPs? Maybe. But frankly, we didn't find anything that we felt was sufficiently competitive to warrant the investment.

And I presume you're working with a local development partner in Alberta?

Yes, yes, yes.

Okay, great.

All right, Nelson. And we're sorry for holding the call an hour earlier from Vancouver. I know it makes it an early day for you.

The next question is from Sean Steuart with TD Securities.

A couple of questions. With the -- Ian, with the successful integration of Empire, maybe just give us a sense of your appetite for larger-scale utility M&A from here. And with respect to scale, how big is too big from your perspective? What's your appetite in terms of capital deployment on that end?

Sure. Well, I think we are comfortable that I think we've put the Empire transaction -- we've put a tick beside it on the success column. And so hopefully, the capital markets would see that the kind of the benefits and the results that we promised are actually coming to fruition. So we are interested in repeating that experience. We watched, I would say, with envy, but we certainly have -- we're familiar with Avista that obviously Hydro One bought. I don't think it's unfair to say that they were in a unique position from a capital structure perspective to win that. And more power to them, and that worked out. But maybe just as an example of scale and size, I think Avista would have been something now, with ourselves kind of close to $11 billion in total size, is something that might be on our radarscope today that it wouldn't have been on our radarscope before we had completed with Empire and kind of demonstrated our ability to digest something of that scale and make sure that it's functioning operationally. And so they're kind of an example of something that we would obviously have liked to have done. We like the hydro generation in there, and we are actually very familiar with the Alaska operations that we have looked at them before Avista had bought them. So they're a good example, I think, Sean, of something scale-wise that we'd pursue. Obviously, the smaller -- we'll go right down to $11 million in the city of Perris, California. So it's a pretty broad band that we, I think, are effective in competing on. So the top end's moved up, but I wouldn't say the bottom end has moved up from our perspective.

Got it. That's useful context. Second question is, with respect to your comments on offshore opportunities, can you give us a little more detail and update us on which jurisdiction specifically you're spending the most time getting up to speed on?

Sure. Well, I'll start by saying we're a little agnostic as to specific jurisdictions. But the principles that I kind of outlined, this idea of stable political environments, stable electricity markets, strong rule of law, capital repatriation pathways, and then if you wanted to offer up some examples that I think would fit those -- that rule list, OECD countries clearly fall into it. A number of countries in, I think, South America, Chile. I think Peru would fall into it. I have to think a little bit about Brazil, but certainly, that -- anything in Western Europe would fall into it. I think really that the challenge that we have as we look at these international opportunities is we want to make sure that this isn't just about buying an asset in Belgium or in France. It's about having a program that kind of is accretive to the growth thesis that we have going forward. Is adding that single asset, I don't think adds value. And in fact in some respects, it adds complexity, if having a program and looking for an opportunity that brings a pipeline and perhaps arguably a partner that allows us to kind of harvest those opportunities in geographies that we're not ourselves completely familiar with. And so I know it's a long list of what we're looking for, but that certainly kind of gives you some color to what we're trying to accomplish as we think about moving internationally.

The next question is from Ben Pham with BMO Capital Markets.

I believe [you already stood up to some] questions on the international commentary that you guys mentioned. And in the past, the topic has typically been initiated by us analysts, and now it's coming from you guys. It's interesting to see that. And you guys have talked about Chile and Europe before, so that's not surprising. But in the past, you have mentioned that you have a ton of opportunity in North America, that international sounds as more on opportunistic side of things, and you weren't buying a lot of tickets heading outside. So just curious, has that changed now from your perspective, Ian, in terms of just the pace at what you're going out and learning foreign jurisdiction? And how you think about your existing portfolio today?

Well, and I appreciate your observation, Ben. Let me just, I'll say, correct the premise that you had offered it up in. I think perhaps, historically, I said we're probably buying a lot of airline tickets to look at things internationally. We just weren't, I would say, ready to print any transactions. And I wouldn't say that -- and I've always couched our comments about international as saying going to a geography that you're -- that is outside your kind of home province or state is something that you want to do in a measured way, that you've taken your time to fully understand. And I still feel that way. I don't feel -- we do not feel the pressure to, "Oh, my God, we've got to get international." Our pipeline, as you accurately point out, has got billions of dollars of stuff to do over the near term. I think as we stare off into the future and I think my job and arguably the rest of the executive team here is to try to peer into the cloud down the road, the foggy road, and see what comes out. And I think, consistent with Rupert's first question is, it's a competitive landscape here in North America. And the question is, are there returns that justify whatever your perception of the increased risk are internationally? Are there -- is that a risk-return profile which is attractive? And as we think, as I said, about this organization to continue to meet our growth trajectory, we're $11 billion in size, I think you want us to be looking abroad, but you don't want us to start looking abroad when the cupboard is bare. And I'd say the cupboard is not bare right now. And I think that was your opening premise. So we are continuing to look abroad. I think there are things that we have looked at. And as I said, without commenting on specific opportunities that you saw in the press, of course, we looked at Atlantica. Why wouldn't we have? These are things -- these -- I've never gone to a management presentation for an investment opportunity and come away stupider than I walked in. And so we go to these things, and we just get smarter. And so I wouldn't -- Ben, I wouldn't want you to characterize your comments that there's any increased level of desperation on this organization's part. It's just a continued evolution of what we said in the past.

Okay, that makes sense. And then I'm just curious also, other than just returns to get -- the typical acquisition strategy, I mean, are you -- is there anything else that you'd look at in international transaction maybe strategically? And do you guys buy the thought process that seeing some of your -- maybe some peers going international, seeing their own multiple compressed on the back, even though know it's accretive, are you guys thinking about that in your analysis [so when] -- if you look outside North America?

Well, obviously, all of those things are considerations. Let me start by saying as -- when we think about international and we think about things outside of -- everything is done in measures. So I don't think you would ever see us announce a transaction that you would go, "Oh, my gosh, there's a significant portion of their growth profile or asset base now in a jurisdiction that I'd never considered. And therefore, I think that could lead to multiple compression." These are always about incrementalism. It's always about we'll add and create value in any opportunity, even as we think about regulatory jurisdictions that we might get into. Does this -- is there a strategic alignment here? Does it create opportunities? Are our investors going to be comfortable with this? And we say the word international. That's a big word, but there's a big difference between Botswana and Belgium. And so I think you just have to be very measured and very disciplined as you think about any diversification initiative. But it would always be that, Ben, a diversification initiative as opposed to a wholesale strategic shift.

The next question is from Robert Hope with Scotiabank.

Just a clarification on the 500 megawatts of Missouri wind. Is this tied to the shutdown of Asbury? Or would the greening of the fleet in Missouri be above and beyond that?

It is -- the greening of the fleet definitely involves the shutdown of Asbury, Robert. The 500-megawatt interconnection requests were just for Empire's own projects that I kind of perhaps [bumbly] tried to explain are potentially an element of Empire's procurement of up to 800 megawatts total of wind. Whether they're a little bit -- Empire -- we are a little bit indifferent as to we -- whether we develop our own projects for which we have 2, which as I mentioned we did that interconnection request, or by projects that have been developed on our behalf by other developers. But it is all in the context of shutting down Asbury, greening the energy mix and reducing costs for our customers. So they're all kind of one and the same, Robert.

All right, that's helpful. And then in your prepared remarks, you mentioned that you had a checkmark next to Empire being a successful integration. Any potential upside you're seeing there? And also, how are you tracking versus your 2017 guidance?

Well, in sort of any upside, I'm going to have to say no, but that's actually a good thing because there is a downside. I mean, if I -- if there was upside that we didn't see before, but then theoretically there could have been downside that we would have missed as well. As I mentioned when we very first announced the Empire acquisition, it's pretty transparent in terms of what you're getting there. And I think it's a well-run, conservatively managed utility in a jurisdiction where customers pay their bills. And that provides some predictability and stability. So I'll say that Empire, absent the climatological issues, which I think we talked about last quarter and for which we're actually had made a commitment that we will try to make that ground up through cost control, and I think we're well on our way to do that. Absent those issues, Empire is delivering kind of in accordance with the expectations that we articulated, which mean that we remain comfortable with the guidance we gave before. And I've got to put an asterisk beside it saying, and you know that you have to be careful about which currency of which you speak in terms of our guidance. Obviously, we're a Canadian company, and we report in Canadian dollars. But a fair chunk -- in fact, the vast lion's share, probably between 80% and 90%, of our operations are actually in the U.S. And so currency swings have a big impact on us. So I don't want to mislead because we are subject to that going forward. And I know you're aware of that, but I just thought -- in the interest of making sure that we add transparency to that.

The next question is from David Quezada with Raymond James.

Just my first question just on tax equity financing general theme. It's been a while now since we heard anything out of the U.S. on updated ideas on tax reform there. Do you have any insight or idea of what tax rate that these tax equity deals are assuming today?

That's an interesting question. I guess the plus and the minus of this right now is that we're not sort of actively in the market during this period of uncertainty. And so I think that -- I'll start by saying is that's a good thing because in periods of uncertainty where it is a seller's market from a tax equity perspective they would push that risk over to us. And so right now, we're not seeing that market sort of upfront and experiencing that. In terms of the tax rate, no, actually, I don't have a good idea. I think a lot of it will come down to the perception of whether tax reform really does have legs. And I think, as you accurately pointed out in setting your question up, none of us have really heard in the cacophony that's come out of Washington a concerted effort in terms of where tax reform is going. So I know it's an unsatisfying answer to an insightful question, David, but I wish I had something more for you.

No, that's okay. That's helpful. My only other question is, you hear a lot kind of in the trade journals about the concept of repowering wind assets in the U.S. I'm wondering if there -- if you see any set of circumstances where that could be an opportunity for you.

Yes. And so we have looked at a number of opportunities. Where that thesis really makes sense, where the economics of repowering really make sense is where you can take a project that has a, I'll say, by today's standard a poorer capacity factor and by retrofitting newer equipment, larger rotors, more efficient machines, you increase the energy output for that, and so that it's more than just kind of refreshing the PTCs. There are a couple of projects, coincidentally, in Empire's service territory which are actually a part of Empire's energy mix through PPA that we have looked at as potential repowering candidates. I'm not sure that they're better, frankly, than building new ones ourselves to meet the needs of shutting down Asbury. So those projects while there might still be an interesting economic thesis associated with them, they're not the optimal thing from our customers' perspective. And so while I agree that repowering does have a place, we're not really seeing it, frankly, right now for the 2 opportunities that are front and center for us within Empire's service territory.

The next question is from Mark Jarvi with CIBC.

Question on Amherst. It hasn't gone as smoothly as you wanted. There's always been some headwinds. At this point now, is there any consideration to fully divest or maybe sell down an interest, surface some capital and put it into other higher-return opportunities?

Well, I mean, when you say it hasn't gone -- it has definitely taken longer and has been a bumpier road than when we got into this 6 or 7 years ago. Whether we would sell down an interest of it and surface some capital, I think is kind of a separate question. We're obviously committed to getting Amherst over the finish line. And I think when you look at what these projects are trading at, I think your -- if your question is premised that we could surface a profit on the sale of Amherst, I think that would be -- that is definitely true. And the question would be though would St. Leon or any of the other projects be as good a candidate to recycle some of the capital? So I think there's 2 kind of premises baked into your question. So on the first one, yes, I don't think anyone would deny Amherst has been a bumpy road. But -- and I think as we sit here today at this 10 seconds, maybe the bumps are smoothing out and we're picking up a little speed on the road, which is good because we're kind of heading into commissioning it next year. Whether we want to be the long-term owner of all or some of that asset, I think it's the same question that we would ask ourselves, is it time for us to recycle capital in our other assets. And so I think right now, we haven't seen that as the value-maximizing thesis, but I think you -- and we want to keep our eye on that one going forward. So -- but the bumpiness in Amherst wouldn't cause me to think of Amherst any differently than I think of St. Leon. We're going to get that one done, and it will have a profit baked into it, if you want to think of it that way, in terms from a valuation perspective.

Okay, fair enough. And then going back to your prepared remarks, you made a comment about a wind project, I believe you said California. Can you give us any more details around any -- the contract possibilities on that and time line?

Yes. Well, and I specifically referred to it as a development project. And we are working our way through the permitting and, frankly, contracting issues. I'm hoping within -- before the end of the year we've kind of got some specifics on it. Really, what my intention was to say, we are confident -- I want to give the analyst community some comfort that we're not going to end up with 75 megawatts of turbines in our parking lot here in Oakville and that we are identifying what looked like attractive opportunities. We'll certainly give you the details as the project comes together, Mark. But it's probably one of the most advanced from our -- from the development perspective but not far enough ahead for you to be thinking about the economic implications but perhaps far enough ahead for you to be taking some comfort that there are homes -- attractive homes for those PTC turbines that we committed to last year. That was kind of really the purpose of it.

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

I'll take one of those wind turbines if you need to get rid of them, Ian.

Yes, okay. You got to ship it though.

Okay. Just want to come back on this chat about the acquisitions. One trend that a lot of other players have been moving towards is the use of large institutions to finance some of their acquisitions or to finance their growth strategy. I'm just wondering how you view Algonquin's access to capital markets. It's always been strong in the past, but how you view that as playing into the potential size for transactions that you could do going forward and whether you've considered or you would consider large coinvestors or other investors alongside Algonquin.

Yes. And just to be clear, Jeremy, I assume you're making kind of reference to PSP and Pattern and Boralex and Caisse de dépôt and that sort of thing. Yes, and -- yes, we obviously -- I mean, this -- you -- I think you accurately are inferring that in the renewable energy game cost of capital is, I want to say, a critical success factor. It's arguably the critical success factor. And so whatever brings the most competitive cost of capital to that -- to an opportunity is likely going to be the winning one. And so, yes, we have thought about it. Is there a rule for kind of a sidecar vehicle? Because there's a couple of different ways to address your cost of capital. You look at somebody like NextEra, who I think we would aspirationally put ourselves up against, one of their concepts is through their sidecar publicly traded renewable energy vehicle allows probably a more effective cost of capital than the utility proffer. And so that's one way to do it. Obviously, what Boralex has done with Caisse is interesting. So we are looking at a number of different vehicles, Jeremy. But you are correct where you -- when you asked that the -- is the objective all about optimizing your cost of capital? It definitely is. It definitely is.

Okay, good. So the second question is just around the condemnations and -- specifically with Mountain Water. So a second of the utilities has moved in that direction. And I'm just wondering if from a higher-level perspective there's maybe a reason to try to explore a sale of some assets where maybe the towns or other interested parties would be interested in acquiring those assets rather than getting into these condemnation proceedings and then having them drag on for a period of time?

Well, I'll start by saying, clearly our plan isn't to shrink our way to greatness from -- with respect to our utility assets. I'd go further to say the condemnation process is a very specific opportunity for a town to ultimately acquire an asset that they require. But under the Fifth Amendment of the U.S. Constitution, sort of fair and just compensation is constitutionally guaranteed to you. And it is that guarantee upon which one looks to, to end up with a price that arguably might be better than one would get just through bilateral negotiations. I'm actually -- I think when you look at the way that -- the valuation phase of a condemnation process, I'm not sure that that's the way one would go into it if one was negotiating it. So I'm not sure that there really is an opportunity for us to sit down with the City of Goodyear and say, "Hey, we'd like to sell you our water business. But by the way, we want you to pay us condemnation rates." I don't think that that's a -- is a practical reality even if we wanted to voluntarily engage in that process to sell off our assets. I think if you look at the historical record the prices paid in condemnation, however you want to measure it, dollar for rate base, dollar per customer, dollar for EBITDA acquired, have generally outpaced and outsized the negotiated prices that have existed in any bilateral transaction. And so consequently, I don't think I'd voluntarily subject myself to a lower price and, as I said, even if shrinking our way to greatness was part of our thesis, which it is not.

(Operator Instructions) This concludes the question-and-answer session. I would like to turn the conference back over to the presenters for any closing remarks.

Well, I appreciate everyone's time today, and we'll speak to you next quarter. And as always, stay on the line for the review of our disclaimer. Thanks, everyone.

During the course of this conference call, we may have made statements relating to the future performance of Algonquin that contain 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 on 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 material factors or assumptions that were applied in making any forward-looking statement as well as risk factors that may affect future performance and results of Algonquin are contained in the results press release and 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 operations, 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 GAAP or non-GAAP or non-IFRS financial measures presented by other companies. We refer you to our MD&A 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.

Thank you.

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