Algonquin Power & Utilities Corp (AQNU) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Algonquin Power & Utilities Corporation Q4 analyst conference call. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today, Friday, March 5, 2010 at 10 AM Eastern time. I will now turn the conference over to Ian Robertson, Chief Executive Officer.

Good morning to all. As mentioned, my name is Ian Robertson, and I am the Chief Executive Officer of Algonquin Power & Utilities Corp., or as we have been affectionately referring to it, APUC. I would like to welcome you this morning to the 2009 fourth-quarter and year-end results conference call.

With me on this call today are Chris Jarratt, Vice Chair of our Board of Directors and a member of our Strategy Development Committee; David Bronicheski, our Chief Financial Officer; Luisa Read, our Controller; Kelly Castledine, our Manager of Investor Relations; and Andrew Ingram, our Treasurer.

For your reference, the Q4 financial statements and Management's Discussion and Analysis are available for download on APUC's website, www.AlgonquinPowerandUtilities.com.

I would like to note that in this call we will provide information that relates to future events and expected financial positions, which should be considered forward-looking. This information was developed based on certain factors and assumptions, and we caution that actual results may vary from the forward-looking information. Further detail will be provided at the end of the call.

We would like to start with a few highlights in 2009 and a general update on the business of APUC. Following that, our CFO, David Bronicheski, will talk specifically about our financial results. And at the end of the call we will have a question-and-answer period.

Before we get started, I would like to take a moment to provide you a brief introduction of myself and provide some insight into the go forward strategies for APUC following my appointment as its Chief Executive Officer.

Prior to my appointment as CEO, I the most recently served as Executive Director of Business Development for the Algonquin Power Income Fund, and was an original founding member of the Algonquin Power Group, I hate to mention way back in 1988.

Academically I am a professional electric engineer. I hold a Master of Business Administration degree, a CFA designation and a Charter Director's certification.

I am thrilled to be given this opportunity by the Board to continue to work for an organization with such great value and upside potential as APUC. And I'm looking forward to reporting to you on our joint progress over the coming periods.

With respect to our strategic focus, APUC's business strategy is to maximize long-term shareholder value, with a dividend paying growth oriented corporation actively competing in the regulated utilities and independent power sectors. APUC is committed to delivering a total shareholder return which is comprised of a dividend, augmented by capital appreciation arising through growth in earnings and dividends.

APUC is focused on investing, taking the long view in renewable power and utility businesses which are physically, economically, socially and environmentally sustainable. Through these investments over a midterm planning horizon APUC is striving to deliver annualized earnings growth exceeding 5%, and is committed to maintaining a growing dividend stream representing the majority of our earnings.

Since the strategic realignment communicated to our shareholders just over a year ago, we have been changing our strategy toward a corporate form growth model. While responsible accretive growth obviously takes time, we are pleased to report that we are making definite progress in this regard through acquisitions of highly valuable renewable energy and utility assets, organic growth within our existing portfolio of long-lived assets, and new development projects.

Now for a few business highlights from 2009. As we have just confirmed, our fundamental business strategy is to continue to accretively grow earnings from our expanding portfolio of regulated utility and independent power assets. We believe APUC is in a transition state making the shift from a passively managed income trust to a growth corporation actively competing in our chosen sectors.

We understand that such conversion and the associated accounting treatment of some of the various items on our income statement can make the review of our GAAP earnings challenging. In spite of the positive impact of some of these accounting and tax considerations, we knowledge that 2009 was a challenging year due to the recessionary impact on energy prices and utility growth. In this regard we are optimistic that 2010 is providing some relief from these pressures.

Notwithstanding the economic challenges of 2009, we are pleased to confirm that APUC was able to achieve a number of the important goals we set for ourself, and I would like to highlight a few for you.

First, we are accretively growing our portfolio. Pursuant to our continued focus on expanding APUC's regulated utility business, the Company committed to acquire a regulated electricity distribution company in California, adding over 47,000 customers in the transaction, which is expected to close following regulatory approval later in 2010.

Additionally, APUC augmented its renewable power portfolio with the acquisition of a 36.6 megawatts of hydroelectric generating assets in New Brunswick and Maine.

And notwithstanding the volatility in the capital markets and wavering global economic environment, APUC successfully improved its capital structure by raising over CAD86 million in 2009.

Secondly, in the last quarter of '09, and representing a very important milestone in our evolution into a growth oriented dividend paying power and utility company, APUC changed from an income trust to a corporate structure, with our equity holders now holding shares in APUC rather than units in an income fund.

In conjunction with the corporate conversion our near-term debt maturities were addressed through the exchange of existing debentures for new debentures with a maturity date extended from 2011 to 2014. Consistent with this corporatization the management functions previously provided by Algonquin Power Management Inc. were internalized. And as we have mentioned, I assumed overall responsibility for APUC's operations as its Chief Executive Officer.

Continuing our objective of pursuing governance best practices, in 2009 our Board was expanded to include Mr. Chris Huskilson, the CEO of Emera. It is further contemplated that Mr. Chris Jarratt, who is chairing our Strategy Development Committee, and myself will join the Board of Directors later this year.

As an extension to our change to a corporate structure, going forward APUC is managing its businesses primarily through two distinctly different branded operating subsidiaries. The first consisting of the renewable energy and clean thermal energy assets is Algonquin Power Company, or APCo. The second, consisting of the water distribution and wastewater utilities, is Liberty Water.

A third operating subsidiary called liberty Electric will be established upon the successful completion of the acquisition of our California electric distribution utility APUC is co-acquiring with Emera in 2010.

This orientation is firstly intended to allow application of the management and capital structures which are optimal for the particular business, i.e., our regulated versus our nonregulated businesses. And secondly, it is intended to provide greater segregation and transparency of our individual businesses to the capital markets in evaluating our value and prospects. You will hear us begin to use these operating subsidiaries in all of APUC's future communications going forward.

In summary, with respect to the 2009 accomplishments we would hope that you would agree with the statement that APUC ended 2009 looking like a very different organization than one which started the year, one which weathered the effects of the credit crisis and recession relatively well, and is poised to deliver on the growth element of our value proposition through a number of committed value enhancement initiatives.

With that, we would like now to take a couple of moments provide an update on the growth initiatives upon which our organization has recently been working, starting with APCo and its Red Lily wind project. As someone with 20 years of personal experience in the development of independent power projects, I can confirm that the one certainty in IPP development is there are lots of individual cogs which need to line up.

Having said that, in addition to the milestones achieved to date we continue to progress through our preconstruction closing agenda, including finalizing arrangements with turbine suppliers and completing third-party financing structures.

With respect to financing, APCo is considering a number of financing alternatives, the most likely will follow the paradigm established in respect of our successful St-Leon project. Under such a structure an agreement in principle has been reached with a third-party investor to participate in the project through a tax assisted equity investment. And APCo will receive its returns from the project in the form of development and operation speeds, together with an interest on a subordinated debt investment of up to CAD19 million.

After five years APCo will have an option to subscribe for a direct 75% equity interest in the project.

While the permitting and financing delays have been challenging, a positive note is that the wind turbines selected for the project have already been manufactured and are in storage here in Canada, eliminating any potential for equipment manufacturing delay.

In respect to the completion date, I would note the misprint in our MD&A which was circulated last night, which states 2011. In fact, the earliest expected commissioning date is actually at the end of this year, 2010.

In addition to the phase one project, we are continuing to assess the viability of an extended project, and have secured additional land in the area to support the development of phase two of the Red Lily project.

Now turning to our Windsor Locks facility. As you may be aware, we acquired this 54 megawatt natural gas fired combined cycle generating system facility in 2003. As of December 31, 2009, our net book value for this facility was approximately $17 million. We have been developing strategies for maintaining attractive returns from this remaining investment, following the expiration of one of the two existing offtake agreements in 2010.

In this regard, commencing in April of this year we will be maximizing net revenues from the existing equipment by continuing to serve the steam and power requirements of Alstom, together with bidding approximately 40 megawatts of capacity into the 30 minute forward operating reserve market. Assuming the historic clearing prices for this market of CAD14 per kilowatt month are maintained through the balance of 2010, we anticipate 2010 operating cash flow from Windsor Locks to be approximately $4.5 million, compared to the historic cash flow of $8 million.

We have entered into an agreement with Emera Energy Services, Inc. to manage the offtake sales from this facility into the New England ISO market.

Additionally, we are continuing on the preliminary engineering environmental permitting work for the installation of a new combustion gas turbine, one which is more efficiently sized to meet the electrical and steam requirements of Alstom. APCo believes it is eligible to receive a one-time nonrecurring grant from the state of Connecticut equivalent to $450 per kilowatt to a maximum $6.6 million to offset the cost of such repowering.

It should be pointed out that in addition to installing the new gas turbine we would expect to continue to operate and maintain the existing equipment, as previously discussed. Any investment in new capital for this site will be based on an assessment of the incremental earnings against such additional investment meeting our required hurdle rates.

Now speaking of our energy-from-waste facility here in Brampton, as you may have noticed from our year-end results, the EFW facility is currently on shutdown to allow the completion of boiler tube replacements. While this work was originally scheduled for subsequent shutdowns, through the acceleration of this replacement work and improved facility availability, we are optimistic that we can mitigate the earnings impact of the unplanned shutdown, which as you will have noted from our disclosure, is approximately CAD1.2 million compared to our 2009 results.

With respect to the longer view for this facility, we are continuing our discussions with [a region] appeal to expand the power generation and waste processing capacity by up to 40,000 tons per year. If such an expansion is pursued, an investment of approximately CAD60 million would be required. We are currently evaluating the feasibility of an expansion in the context of associated capital and operating costs, additional revenues and financing terms.

I would now like to switch gears for a moment and discuss Liberty Water and its continued growth. We are pleased to announce that Liberty Water has entered into an agreement for the purchase of yet an additional water distribution and wastewater collection system located in Galveston, Texas, which will bring the total number of utilities under the Liberty Water brand to 19.

This new system provides rate -- a net rate base of approximately CAD2.1 million. And the purchase price is essentially 1 times ratebase. Under regulatory regime in effect in Texas, this utility investment is expected to earn approximately 12% after regulatory tax return, which would translate into approximately CAD410,000 on an EBITDA basis, and is expected to close during this current quarter.

Lastly, but certainly not least, with regards to Liberty Electric and the completion of our previously announced California electric utility operation. We are currently in the process of obtaining the regulatory approvals for this important transaction and anticipate a latter half of 2010 closing.

With the completion of this transaction it should be noted that the percentage of our EBITDA generated by regulated utilities will rise to close to 40%. We believe that such an observation provides strong support for our assertion that APUC should be considered in the context of a peer group focused on sustainable regulated utility assets and not one comprised just of independent power producers.

We will continue to keep you informed on the progress of all of these initiatives as we move forward. I would like now to hand it over to David Bronicheski, our CFO, to speak directly to the 2009 financial results.

Now I'll review the Q4 and the year-end results. Our revenues in 2009 were CAD187.3 million, and this -- in Q4 our revenues were CAD43.4 million, and this compares to revenues ion Q4 of 2008 of CAD56.5 million.

Just as a note, Algonquin Power & Utilities Corp. uses adjusted net earnings to assess the net earnings without the effects of gains or losses on foreign exchange, foreign exchange forward contracts and interest-rate swaps, as these are not reflective of the performance of the underlying business of APUC.

In that regard, our adjusted EBITDA for Q4 of 2009 was CAD18 million, and that is down from Q4 of 2008 of CAD23.3 million. And our adjusted net earnings in Q4 of 2009 was CAD11.5 million compared to Q4 of 2008 of CAD8.8 million.

Now for some fourth-quarter highlights from our operating subsidiaries, beginning with Algonquin Power Company, or APCo. In APCo's Renewable Energy division during the fourth quarter of 2009 revenue from energy sales totaled CAD16.6 million. And the division generated electricity equal to 93% of long-term projected average wind and hydrology.

The decrease in revenue compared to the same period last year is mainly a result of lower weighted average energy rates in the US, decreased average hydrology and wind resources compared to the same period last year, partially offset by increased average energy rates at APCo's Canadian facilities.

For the fourth quarter of 2009 operating profit totaled CAD10.4 million as compared to CAD13.5 million during the same period in 2008. Overall the Renewable Energy division did not meet management's expectations due to lower weighted average energy rates in the US and a lower wind resource.

In APCo's Thermal Energy division net energy sales revenue for the fourth quarter of 2009 totaled CAD8.6 million as compared to CAD10.2 million during the same period in 2008. The decrease is mainly due to decreased energy rates due in part to lower natural gas prices.

During the quarter production increased by 700 megawatt hours at the Windsor Locks facility, 2,100 megawatt hours at the Sanger facility, and 1,500 megawatt hours at the Valley Power facility. The BCI facility had an increase in its steam used in operations, resulting in a 1,000 megawatt hour decrease in electrical generation from the EFW facility. Throughput at the EFW facility remained consistent with the same period in 2008, processing just over 42,000 tons of waste.

During the quarter operations at EFW resulted in the diversion of approximately 11,500 tons of waste from landfill sites.

For the fourth quarter of 2009 operating profit totaled CAD6.7 million as compared to CAD7.7 million during the same period in 2008. Overall the Thermal Energy division did not meet management's expectations, primarily due to weaker gas prices and lower demand for steam from the division's cogeneration assets resulting from the economic slowdown in the US.

Looking ahead to the next quarter, APCo's Renewable division is expected to perform at or below long-term averages in the first quarter of 2010 based on wind and hydrology conditions, with the exception of Quebec and New England regions, where we expect at or above long-term averages.

Beginning in the first quarter of 2010 APCo will show energy produced and financial results from the acquisition of the three hydro stations totaling 36.8 megawatts in New Brunswick and Maine, and will report these as the Maritime region.

We continue to do our assessments required under the Quebec Dam Safety Act, and expect to complete these assessments during the first quarter of 2010. Currently we estimate the work will require capital expenditures of approximately CAD17.5 million. These expenditures will be completed over a period of five years or more. And our current estimate of the year-by-year expenditures are noted in our MD&A.

The EFW facility is expected to operate below expectations during the first quarter of 2010 as a result of an unplanned outage late in January due to a failure with the second-stage boiler tubes and economizer tubes, some of which were scheduled for replacement as part of the current year CapEx plan. We will be accelerating this replacement and will advance capital maintenance originally planned for the second and third quarter to be completed during this outage. This should allow the facility to make up some of the income expected to be lost in the quarter.

We expect both Sanger and Windsor Locks facilities to operate at or above expectations during the first quarter of 2010, in line with performance from the same time last year. The Windsor Locks power purchase agreement with Connecticut Life and Power we note expires on April 2010, after which we expect to be able to sell between 10 megawatts and 40 megawatts of electrical capacity to a local utility or provide ancillary services to the ISO New England, as previously noted by Ian Robertson.

Moving on to Liberty Water, revenue for the fourth quarter of 2009 totaled CAD8.7 million as compared to CAD9.8 million during the same period in 2008. Decreased revenue resulted primarily from a stronger Canadian dollar compared to the fourth quarter in 2008. Excluding the impact of foreign exchange, revenue was consistent with the same period a year ago.

The wastewater treatment customer base grew by 0.7%, and the water distribution customer base grew by 1.7% over the total customers at the same time a year earlier.

For the fourth quarter operating profit totaled CAD3.7 million, consistent with the same period in 2008. Overall Liberty Water exceeded APUC's expectations for the quarter.

During the quarter Liberty Water provided approximately 1.4 billion US gallons of water to its customers, treated approximately 500 million gallons of wastewater, and sold approximately 100 million gallons of treated effluent.

Looking ahead to the next quarter, we do not expect any material change in the water or wastewater customer base during 2010. We are proceeding through rate cases at a number of facilities in both Arizona and Texas. For the facilities in Texas interim rates have been implemented now at all three facilities. Normal course objections to the interim rates has been registered at two of the three facilities and will go through the normal regulatory process with the conclusion expected before the end of 2010.

And as that determination of the increased revenues from rate case applications is not possible at this time, as the timing of conclusion to the rate cases and the final decision on rate increases are determined by the regulator. Currently as a result of the progress of rate cases through the regulatory processes to date Liberty Water anticipate that approximately CAD7 million of additional revenue from rate cases will be achieved in 2010, but the full annualized increase in revenues determined through the rate case processes will be achieved in 2011. Further details on these rate cases are detailed in our MD&A.

I will now turn things back to Ian.

As we have previously stated, our fundamental business strategy is to continue to grow our portfolio of regulated utility and independent power assets on a basis which is accretive to earnings. So we have discussed, we believe, that APUC is currently in a transition state, making the shift from income trust to corporation. We understand that such conversion and the associated accountment treatment of some of the various items on our income statement are making the review of our GAAP earnings challenging.

Until the full impact of the currently committed growth initiatives, such as the resolution of our outstanding rate cases in Liberty Water, and the committed acquisition of our California electric utility are reflected in the results, we believe that continued volatility may make earnings a difficult metric by which to evaluate APUC. Notwithstanding, we are committed, however, to growing steady-state earnings, and with that growth providing an increasing dividend stream over the coming years.

On a quick side note, we will -- we do believe that the proposed income tax changes recently announced in the budget confirm that the approach that APUC took in completing its coroporate conversion was consistent with the intent of the Income Tax Act at the time we completed our change.

In summary, we are very excited about our new corporate structure, as it represents a major milestone in reorienting the Company as an internally managed, dividend paying growth focused corporation, actively competing within the independent power and regulated utilities business sectors. This structure will allow us to continue our CAD0.24 per year dividend payment, and create long-term value for our shareholders through accretive growth.

We remain focused on the long-term goal of providing total shareholder return through a combination of dividend and capital appreciation realized through the successful execution of our growth strategies.

Throughout 2009 APUC believes it was able to evidence proof of execution for our growth strategy with the prosecution of our rate cases, commitment for the Calpeco acquisition, the completion of the Tinker Hydroelectric asset purchase, along with the continued advancement of several wind development projects.

With that, I would like to turn it over to Chris Jarratt, the Vice Chair of our Board of Directors, to manage questions. And would like to open up the lines at this time.

Any questions, please ask them.

(Operator Instructions). Tony Courtright, Scotia Capital.

I am wondering if you could elaborate a bit on the strategy, or just want to clarify -- to medium-term planning horizon APUC strives to deliver annualized earnings growth exceeding 5%. Now this earnings will be sheltered presumably from income taxes because of the transaction that occurred in October. So will they not -- those earnings growth not essentially be overstating it on a run rate basis on a fully taxable equivalent?

Well I suppose that it really depends on the time horizon that you're looking at. Certainly in the fullness of time we will have used up all of the tax shelters. But as a result of the transaction in the fall, our expectation and as we previously communicated, will be able to shelter taxes for the next four to five years. So that is all certainly within the current planning horizon that we are looking at. Beyond that, I mean, five years out any number of things could happen. So that is really all we can say at this point in time.

Right. But it is your own statement, your medium-term planning horizon, so I presume that means within the next four to five years.

That's correct.

Could you elaborate on the asset write-down on your Thermal division? Did that relate to Windsor Locks?

Now, the asset write-downs related to our last remaining landfill gas asset, you may recall that two years ago we disposed essentially of all of them, with the exception of one. So we have now written that asset down. The other has to do with our bio mass facility out west, and we have now written down to its expected net realizable value. Both of those facilities are not considered strategic to the Company going forward, and contribute negligible EBITDA.

In terms of subsequent event to the quarter, you on February 4 apparently acquired some energy management services contracts. Were there costs associated with that? And what are the risks of trying to fill those contracts? Are there -- I know you have generation, but I'm just wondering is there a potential for mismatch or exposure there?

It is Ian. A good question. The entire energy services business, to be frank, is really ancillary to the Tinker acquisition, and it really is in support of the management and sales of the offtake from those facilities.

Just to put it into context, the total volumes under that business that are expected to be sold through that energy sales services business -- it is about 150 gigawatt hours a year or 150,000 megawatt hours. Of that over 80% of it comes from our own generation, and so consequently there is certainly no price risk associated with that.

The balance of it is really represented by purchase confirms that already exist in the New England ISO. So certainly for 2010 we see no exposure.

I think your question probably goes more to the heart of what are the businesses we are getting into, and does this represent a strategic shift in our focus. I would certainly say, no, that is not the intent of this business.

I think what we do need to do and we need to acknowledge, and it is on our 2010 plan, is this organization needs to, if you will, get smart on how to manage our merchant energy off of our hydro facilities in New England and other where -- other places as those facilities come off contract. We see this energy services business as a great way for this organization to be more effective in capitalizing on that energy.

We see our general strategy for energy offtake management to represent a combination of spot or short-term purchases, some medium two or three year sales, and the long-term PPAs. I don't know if that answers your question.

It is a fulsome answer. Just in relation to when you get into energy services, I gather you're going to be using the services of Emera to assist you in this regard. Are there requirements to post Prudential security deposits with them?

No. Given the relatively de minimis size of this business there are no onerous security obligations that have come up. The security obligations with respect to this business have been measured in the hundreds of thousands of dollars range.

I see. Just one last question if I may. You're using a metric to judge yourself, which is adjusted net earnings and adjusted EBITDA. And you say you are excluding things such as foreign exchange losses because most of them are unrealized. What about the realized losses or gains in relation to financial contracts, are they excluded as well? You are just eliminating all of those items.

Yes. We are eliminating all of those items as we view those more as a treasury function as opposed to an operations function.

But so it is -- even the realized ones you're saying, okay, let's look at the operations, but these have impacts on the enterprise, the realized components. So it is not just a backing out the unrealized, it is backing out all of them?

That's correct.

All right. Thank you very much. Those are my questions.

Michael McGowan, BMO Capital Markets.

I have a question about the COGS expense during the quarter on the internalization of management. Why did you -- I am just wondering about the accounting treatment as opposed to why they were expensed as opposed to capitalized as an investment?

Under Canadian GAAP there is a very specific Emerging Issues pronouncement that requires all management internalizations to essentially be treated in this manner. It is considered to be an expense. It really is just the accounting treatment. I don't disagree with your view though, but GAAP requires us to expense it.

I also had a question about one of your growth metrics. You're looking to target 5% EPS growth per year. Is that the rate of dividend growth you're also targeting? And what sort of long-term or medium-term payout ratio based on earnings do you think is achievable?

One of the issues that we are grappling with is the fundamental question about providing earnings or dividend guidance going forward. I think we are probably leading towards using our dividend growth as an indicative pointer toward earnings growth. So I guess I would answer your question first by saying that to the extent that we achieve our earnings growth, it certainly is our expectation that dividends will follow that.

We fully believe that that is the underpinning of a reasonable capital appreciation strategy that shareholders have to have an expectation that not only earnings are going to rise, but the dividends they see from the organization going forward.

With respect to your question about a payout ratio going forward, we think, given the business that we are in, the utility and relatively moderate risk independent power business, that a payout ratio of somewhere between 50% and 75%, and probably trending toward the higher end of that range, is probably an appropriate payout ratio for the businesses -- for the business activities we have going forward.

Obviously, I think as we have made the transition from income trust to corporation, the whole concept of EPS or earnings as a metric by which we have even evaluated our businesses internally is a new one for us. So I think, as I mentioned in my discussion there, we are in a bit of a transition, and while ultimately the volatility of this transition phase will sort itself out, I think we just as a group need to look through some of that noise that has been created to get a feel for the steady-state growth going forward.

I just have one final question about some of the tax attributes you acquired with respect to the Hydrogenics transaction. When that transaction was announced you were talking about tax attributes of about CAD192 million, but in your financial statements it looks like you recognized assets about CAD110 million. Are you still looking at utilizing the whole CAD192 million in tax shields?

I am not sure where specifically you were looking at, certainly we can have a conversation after the call on it. But, no, we did actually recognize the full almost CAD200 million of tax attributes, and certainly that has been identified in the notes to the financial statements.

The tax attributes translate into a certain income tax benefit. That income tax benefit is now showing up on the balance sheet as a future tax asset. In fact, it is split into two pieces. The current portion, which is what we expect to utilize in the current year, and the -- I will say the longer-term portion, which we expect to utilize in years two to five.

Great. Thank you. Those are my questions.

James Morrison, Cormark Securities.

Just in terms of the Texas rate cases, is that standard for the 10% threshold to be reached?

It is Ian Robertson speaking. When you say standard, I think it varies from utility to utility. And I think that -- I wouldn't say that there is a standard. Most of the time that, even if the 10% threshold is reached, it ultimately results in a negotiated settlement.

And just to give you a little bit of background behind that, if the 10% threshold is reached, really what has happened is the regulatory, or the ALJ, or the administrative Law Judge is appointing a group of the citizens who have protested this to act as a negotiating committee on behalf of the ratepayers.

It may well proceed to a full evidentiary disclosure with the TECQ, which we are obviously totally comfortable if it goes there. Our rates are being paid as if it was proclaimed. And any rate case costs that we incur in running through that process will be added to our rate base. So on that knowledge most of the time these process -- even if the 10% are reached are ultimately settled.

Right. So what kind of outcome would you expect? Like would you expect to get most of what you did if it goes into this kind of adversarial process or would you expect like 50%?

No, no. We are highly confident and comfortable that what we have asked for we are completely and totally entitled to. So to be frank if there is a negotiation, I've got to tell you it will be on the margin.

So you're saying you are assuming you'll get CAD7 million from the rate cases this year. What is that annualized assumption that you're basing that on?

Here is the issue with that. Obviously, that to the extent -- we can certainly tell you what we have asked for. I think in general in the rate case process it would be unrealistic to assume that ultimately the rate case decisions give you 100% of what we have asked for. I think it would be inappropriate for us to disclose internally what -- where our expectations of these rate cases -- the outcome is.

Every dollar that we have asked for we think we are fully entitled to, but we understand that pragmatically the rate case process could result in a lower limit. And since it is inappropriate for us to publicly disclose where ultimately we think that will come down, I think it does suffice to say that we are going into this, and we wouldn't file a rate case asking for a dollar that we weren't thinking we were totally entitled to. I think for your own purposes you will have to make your own view of that. We think we are highly confident in what we'll get, but I don't want to say a number, and I hope you understand why.

That is fair. Okay, so I'll just move on then. In terms of the EFW facility, what are the repairs to the boiler and economizer tube expected to cost?

Total cost for the project is probably in the CAD5 million range. We expect that to be completed probably in early to mid May of this year. The only the other thing I would like to point out about that it is kind of unfortunate, because as we just heard our processing for the quarter was 42,000 tons. You add that for the year it was actually the highest that facility has ever produced since it was constructed. So it is coming at a time where things were going fairly well there. Anyway, the cost is about CAD5 million and the timing is about mid-May.

For the Sanger facility you have 14 megawatts from the repower, and 6 of which I think you have transmission access. When are you expecting to see that come online?

The existing 6 or the up to 14 is your question?

No, I think previously you have said you have 14 available to you, but only six -- there is on the transmission capacity for six.

Yes.

So like the 14, the remaining 8 is whenever, but the six we were expecting midyear this year.

We expect it in 2010.

In 2010 still?

Yes.

With regard back to the EFW expansion, when is the earliest you would expect to have something tangible to disclose to us in terms of a go or no go decision?

I don't think we have a time for that. We are involved in discussions with the region appeal, so it is hard to know how long that will take. I just can't --.

Like would you characterize it, I guess, this is pretty early days then?

No, I would say it is middle days. So we could hear something in 2010.

Finally, how much of your 2010 cash flows is hedged, and do you expect any hedging for 2011?

I'm sorry, what was the question?

How much of your 2010 cash flow are you hedging right now?

There is none in 2010 that are hedged on a transaction basis.

So that would remain the same for 2011?

2011 we do have transactional hedges currently in place, some CAD26 million worth, which is about 70% of our expected US dollar cash flow. I think as we have signaled in the previous quarter, we don't believe that we need to be hedging on a transactional basis anymore, but neither do we think that we should be paying money necessarily to -- paying good money to necessarily exit these hedges. So they are currently in place, and they don't hit until 2011. We have some expectation that we might be able to exit those hedges at no cost before then.

Fair enough. What was the price of those are hedged that on average?

About CAD101.

Okay, those are my questions. Thanks guys.

Juan Plessis, Canaccord Adams.

You seem to have a lot of growth potential in the hopper right now. You recently closed on the acquisition in New Brunswick and Maine. You have rate decisions out there at your water utility that could potentially give you another 18 million in revenue. You expect to close on the California electric utility in the second half. And Red Lily could be up and running at the end of the year. So if all those come to fruition, is it fair to say that your 5% or better EPS growth target that you mentioned would be on the conservative side in the near term?

We certainly -- with some of the ones that you speak of, for instance, like the rate case numbers -- the ratecase results, frankly it is a little bit hard for us in good conscience to take that into account, though it is an investment that has already been made for shareholders and we need to just realize on that. So if you add those sort of things in, oh gosh, of course we are going to blow through that 5%. Just the -- that had 18 million, as you mentioned, it goes almost straight to the bottom line, because it really represents a return on capital that our shareholders are already entitled to.

Having said that, I think as we look at our internal planning and managing our business development activities, we really look at trying to deliver growth. And as we are looking at 2010 beyond, deliver growth with, if you will, excluding the already committed growth initiative that is in the bank.

As I am tasking the business development and utility planning guys who are reporting to me, I am saying is we can't rest on our laurels. You cannot use the things that have been done literally largely in 2009 as a justification for saying, we've got over the hurdle.

So I think the short answer to your question is, sure, of course, we will -- with those things we will blow through 2009 -- through the 5%. I think though, to be frank though our commitment is a little bit deeper than that.

Okay, thank you for that clarification. Moving on to Red Lily, you mentioned the potential to expand the capacity at sometime in the future. Can you share with us perhaps the size of the expansion you are thinking of, or is it still far too early for that?

We do have enough land to expand the facility quite significantly. It really will come down to what [Sas] Power requires. So it is really -- fairly early to increase -- to advise that.

Okay, thanks. With respect to the recent assets you purchased, you closed mid-January, can you comment on how the hydrology has been in the first quarter so far at those facilities?.

Hydrology in January met our expectations. That is really all we are saying right now.

Certainly nothing has leapt out at us to say that it is something that we would need to disclose. The assets we are happy with.

Okay, thank you very much. Those are my questions.

Carolina Vargas, Clarus Securities.

Thanks for taking my call. This is [Amin] on behalf of Carolina. Just for clarification purposes, Red Lily, you said you will be online by the end of this year?

No, I think we said that was the earliest time we could be online.

Just going back to your growth prospects, could you just maybe comment a little bit on your participation in the Ontario Green Energy Act?

Yes, we have two projects in the [SIFT] program, totaling about 40 megawatts.

Right, okay, so any idea on timing with regards to that?

No, because we haven't really heard all the results of the interconnection studies, so it is kind of hard to comment on that. It is on a time horizon probably in the two to three year range.

Okay, great. That's all for me. Thank you.

Matthew Akman, Macquarie Capital.

Can you just confirm -- I think you said that Valley Power does very little in EBITDA.

Yes, that's correct.

So are you trying to sell that asset, is that what you're disclosing?

We are saying at this point in time we have written it down to its net realizable value. It is not considered strategic for us. If an appropriate offer came our way, we would certainly look at it. But we are not necessarily looking to sell it at a fire sale price.

Ian, is there anything prohibiting you from shutting it down if it is not economic?

(inaudible) when you said is not economic, it generates EBITDA. It is making a contribution. I think the concern that we have, as we start to look in our portfolio and make strategic decisions about where we should focus our efforts, the question arises is the contribution that is being made by that asset punching above its weight in terms of its management overhead and aggravation. I think the answer is, yes, it probably is punching above its weight. So consequently that asset, and frankly perhaps even that asset class, is not where our strategic focus is going forward.

So consequently as David characterized, we would certainly entertain a sale. It is not like it is a fire sale need. But I think one of the initiatives that I have launched in 2010 is for us to take a bit of a critical review of the assets that are in our portfolio, make the decision that are all of them appropriately contributing for the management overhead and aggravation that they deliver. So I will just say that this is one of the assets that leapt out early in that process to say this is probably something that if we could -- we sell it, we probably would.

What is the remaining carrying value, David?

That number we -- it is CAD1.5 million.

Finally, just a last cleanup question. When we are looking at your income statement over the next couple of years, what sort of income tax rate can we expect you to book? Is it going to be zero, something close to zero?

It won't exactly be zero, but it will be fairly close. Like on an overall basis effectively what the transaction that we did in the fall does is allow us to essentially expense -- show a tax expense equal to about one-sixth of the prevailing tax rate. So on the assumption that tax rates are on average about 30%, the effective tax rate will end up being somewhere in that 5% range.

Thanks very much guys. Those are my questions.

Rupert Merer, National Bank Financial.

A quick couple of follow-up questions. On the EFW facility are you able to generate any revenue from this facility until the maintenance work is done? Can you still operate the incinerator or are you losing tipping fees here as well?

We are not operating the EFW facility right now, so we are losing tipping fees, but we are running the BCI part of the project. So to answer your question, no, we're not running -- we are not receiving tipping fees.

On the internalization of the management contract, can you give us some detail on how you arrived at the value of CAD4.7 million?

It was a negotiation between the manager and the Board, and the Board retained advisors, Blair Franklin, to advise them as to the fairness of it.

Can you give us any more granularity on what the components of the CAD4.7 million includes?

No, I don't think there is a whole lot we can add to that.

Matt Gowing, Mackie Research Capital.

I just would like to get some color on the Red Lily wind power project development. It looks like the way that you are structuring the financing, Algonquin will have an equity interest in the project lower than 50%, and then more gain revenues in the form of development income. Can you just confirm that your equity interest will be lower than 50%, at what percentage it will be? And then how we should look at revenues and earnings from that project?

Your first observation is correct. The intent is that Algonquin's participation in that project initially will be represented in the form of ongoing operations and development fees, together with interest earned on our subordinated debt investment. So from an earnings perspective I think it is probably fair to say that those would head straight for the earnings line.

Obviously, if -- assuming we exercise the option to acquire the 75% interest in the project, which we alluded during our discussions, then going forward obviously we would consolidate the entire operations onto our income statement.

The structure that we are following here is very similar in nature to the one that was employed for the St-Leon facility. It allowed the Algonquin Power Income Fund at that time to get an economic exposure to the facility, but allowed the tax attributes associated with the facility to flow to the then equity investors through AirSource. So in some respects it is a private version of the AirSource facility.

Great, and the municipal permit that you acquired on that, are you very comfortable that should come sometime soon and you can start this by the end of the year?

I certainly don't want to presume to those tell the regional municipality of [Martin] how to run their business. We expect -- the meeting is being scheduled for March 17, so we are optimistic that the final permit would be available at that time. That the -- I would say that the construction of this facility really hasn't been frankly delayed, because February and March are hardly the optimal times to be digging foundations. So to be frank, as long as we get on the ground, if you will, in the mid-summer, we will be fine.

I think that the gating item, and we would mention it, I think I did in perhaps in my discussion -- the gating item isn't actually the construction of the wind turbines. I mentioned they are sitting in a warehouse. We have gone and looked at them, touched them, kicked the tires proverbially on them. I think the issue is just ensuring that [Dos] power completes its work for its interconnection.

And so the good news to that one is that as we work our way through the permitting and financing process it is not like the final commissioning date is necessarily being delayed.

Thanks for that. A question on the Calpeco closing. You have changed your guidance a little bit to the end of 2010, the latter part of 2010, as expecting that acquisition to close versus the middle of 2010 previously. Is there anything that is of a concern to the federal regulators or are you still just as confident there should be no issues closing that transaction?

In short, I will start the question by saying that no, we are highly confident. Nothing has come up which would cause us to be concerned so far in the regulatory process resulting -- that has caused us -- to cause us concern.

I think we will never be -- cease to be amazed at how slow and methodical government agencies like the California Public Utility Commission can be in discharging their mandates. So they are a government organization, which are under intense budgetary constraints. So it is really getting just people within the various offices focused on it in their time frame is really the explanation for the delay.

I would point out, and because obviously all of this is all publicly disclosed on their CPUC website, that interveners in the process, we have been very actively managing the resolution of them. We have been able to frankly settle up with all of the interveners who filed protests in this regard. So I think that we are highly confident that there will be nothing coming out of the woodwork.

Great. Thanks. That's good for me.

Michael McGowan, BMO Capital Markets.

Hello, I just had a follow-up question with respect to Red Lily. I am wondering why you're choosing to finance it in this manner as -- instead of a more traditional straight equity investment. Because if what I understand is correct, the tax attributes associated with this structure will essentially be ceded to a different party, and wouldn't those tax attributes be valuable to Algonquin?

That is great question. Arguably APUC had just completed its conversion and end up with CAD200 million worth of tax attributes on its books. And obviously the economic terms of that were well disclosed. I think as we look at the net present value of retaining tax attributes in the Red Lily project, or structuring them in a manner that a third party can make more efficient use of them, we came to the conclusion that in some respects maybe we were better to be sellers than buyers, if you want to think of it that way.

I think over the long haul our long-term strategy involves owning and consolidating these assets onto our balance sheet. But I think your observation is correct. It did make more sense for us to be sellers rather than buyers.

If I could just ask one more follow-up on that. It looks like you're trying to put some subordinated -- or you will be putting some subordinated debt in there. What is the interest rate you are targeting on that?

Well, we are moving ahead, but right now the discussions are in the mid-teen range for that, sort of 12%, 13%.

Okay, great. Thank you.

David Brill, Salman Partners.

I am on Red Lily. I am still on it. Right now are you -- do you own 100% of the equity of Red Lily right now?

As we speak today, the answer is no. We have concluded our arrangements with the third-party to acquire the equity in that facility. Having said that, obviously, the Algonquin Power & Utilities development group are remaining responsible for the development of the facility going forward.

Do you own any -- so after this whole thing will come through, or as you just said, you have offloaded the equity, what percentage of equity will you be left with, if any?

In the fullness of time, we will have an option to acquire 75%.

No, I see that. But right now do you have any?

The answer is no.

Okay. That is really what I was getting at. Secondly, if you don't mind, I heard it but it went by very quickly, the small acquisition of -- that Liberty Water is doing in Texas, could you just go over that one more time? It was like two sentences and it just whipped on by.

Sure, sure. Liberty Water's underlying strategy is obviously to continue to build its utility rate base going forward. We are pleased to be able to announce that Liberty Water entered into an agreement to acquire a wastewater collection and water distribution utility, very similar to a number of the other utilities we own in Texas. The rate base, that the assets for rate basing purposes that we will be acquiring are approximately CAD2.1 million.

In Texas the regulatory return is a 12% after regulatory tax return. So when we add that CAD2.1 million to our portfolio, and it is a fully earning investment, generate about CAD410,000 or so in EBITDA to be added to the -- to our income statement. So really it is just continuing on that growth mandate. As we identify attractive utility operations, we are happy to add them to the portfolio.

Okay, I have got that. And thanks very rame much. Can I ask one more question on Red Lily?

You certainly may.

Thank you very much. Okay, so you don't -- you won't own any of it -- you don't own any of Red Lily. There will be support maybe -- may well be a supported commitment somewhere in the mid-teens for [CAD19 million]. That is all well and good. But in terms of the revenue that Algonquin generates from Red Lily, I mean, this is not the normal state of affairs, because the normal state of affairs is you sell off the electricity at the PPA, etc., etc.

So maybe I wonder what technique we might use to get the revenue that you will generate -- and I don't use that term -- no pun intended -- from Red Lily once it is up and running?

Let's put it this way. I think it is our intent to include in the note disclosure for our investment sufficient detail so that the people can work their way back to understand what the total revenue operating expenses are for the facility. So to the extent they choose to in their own models kind of reconsolidate that into interest away from a subordinated debt investment to one of equity, we will leave it to them to do. Obviously, that wouldn't be consistent with GAAP and wouldn't be the way we would be presenting our financial results.

But really and frankly, this is about maximizing efficiency for this organization going forward, pursuant to the earlier question should we be buyers or sellers of tax attributes in the Red Lily facility. And the structure that we are pursuing obviously causes us in effect to be sellers.

Right, but there is no -- you don't want to give any general idea of what the fees in respect to development construction operation, supervision would be? Or maybe you do, in which case I would be thrilled.

I guess we would have to think a little bit about that. Maybe what we should leave that to be is the subject, I would hope from where we are talking to you 90 days hence, we will be making statements that should fully disclose everything associated with that. I think it will be fair for us to give some guidance at that time, and I think we will certainly give it. There is certainly no intent to try to be -- to withhold that.

Understood. I look forward to that information.

There are no further questions at this time. Please continue.

Thanks for everyone's questions today, and appreciate the interest. We are obviously excited about the Algonquin story, and look forward to speaking to you through 2010. Obviously, I would like Kelly to go through the obligatory disclaimer.

Certain written and oral statements contained in this information are forward-looking within the meaning of certain securities laws, and reflect the views of Algonquin Power & Utilities Corp. with respect to future events based on assumptions relating to, among others, the performance of the Company's assets and [divisions] financial and regulatory climate in which it operates.

These forward-looking statements include, among others, statements with respect to the expected performance of the Company, its future plans and its dividends to shareholders. Statements containing expressions such as believe, anticipate, may, will, and similar expressions generally constitute forward-looking statements.

Since forward-looking statements relate to future events and conditions, by their very nature they were required to make assumptions that involve inherent risks and uncertainties. We caution that, although we believe our assumptions are reasonable under the circumstances, these risks and uncertainties give rise to the possibility that our actual results may differ materially from the expectations set out in the forward-looking statements.

Material risk factors include the continued volatility of world financial markets, the impact of movements in exchange rates and interest rates, the effect of changes in environmental and other laws and regulatory policy applicable to the energy and utility sectors, decisions taken by regulators on monetary policy, and taxation, and the state of the Canadian and the US economy and accompanying business climates.

We caution that this list is not exhaustive and other factors could adversely affect our results. Given these risks, undue reliance should not be placed on forward-looking statements, which apply only as of their date.

Except as required by law, the Company does not intend to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. And that is it.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.