Algonquin Power & Utilities (AQN) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 adjusted EBITDA was $252 million, a 27% increase year-over-year from $197.9 million [8][26] - Q3 adjusted net earnings per share were $0.15, consistent with the previous year [8][30] - Operating profit from regulated services was $195.8 million, up from $146.1 million in the same quarter last year [26][27] Business Line Data and Key Metrics Changes - Regulated services group saw improved operating profit due to contributions from BELCO and Nasal, as well as new rates implemented at various systems [26][27] - Renewable Energy Group reported a Q3 operating profit of $72.5 million, an increase of about 8% from $67.1 million in the same quarter last year [29] - Production from existing power generation facilities was 7.3% lower than the same quarter last year, primarily due to lower wind resources [29][30] Market Data and Key Metrics Changes - The company did not experience material negative impacts from COVID-19 this quarter, contrasting with a $0.01 impact on earnings per share in Q3 of the previous year [9][28] - The company is closely tracking rising gas prices as winter approaches, expecting energy costs to increase [22][23] Company Strategy and Development Direction - The company is focused on three strategic pillars: growth, operational excellence, and sustainability [10][39] - The acquisition of Kentucky Power Company is expected to increase the regulatory business mix to nearly 80% of the portfolio [11][12] - The company aims to transition existing fossil fuel generation to renewables, reinforcing its role in the low carbon economy [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the acquisition of Kentucky Power and its potential to be accretive to adjusted net earnings per share in the first full year of ownership [12][34] - The company remains committed to achieving net-zero emissions by 2050, supported by a strong decarbonization track record [24][25] - Management noted that inflationary pressures have been observed, but they have been able to preserve project returns through higher off-take pricing [48][49] Other Important Information - The company has passed over 615 days without a lost-time injury across its North American business [21] - The company plans to maintain Kentucky Power's headquarters in Ashland and develop constructive relationships in the local community [20] Q&A Session Summary Question: Plans to finance the Kentucky acquisition and potential asset sales - Management indicated that asset recycling would likely focus on the renewable side of the business, potentially involving orphan assets or opportunities to bring in low-cost capital [44] Question: Supply chain and inflationary pressures - Management acknowledged some inflationary pressures of 5% to 10% on construction costs but noted that many contracts are fixed price [48][49] Question: Improving ROEs and low-hanging fruit - Management discussed various mechanisms to improve ROE, including utilizing forward test years and addressing disallowed costs [52] Question: Greening the fleet at Kentucky Power - Management indicated that solar has better resource availability and economics in Kentucky, with plans to explore renewable options [54] Question: Capacity requirements for Kentucky Power - Management confirmed that Kentucky Power has several sources for its load and expects to procure lower-cost energy from the grid after the Rockport contract expires [58] Question: Rate increase request for BELCO - Management noted that increased fuel prices and costs during the pandemic are key drivers of the rate increase request [62] Question: New York American Water acquisition - Management expressed confidence in the acquisition process and the alignment of parties involved [80] Question: Future partnerships and growth levers - Management discussed the transition to a new financial partner for development and construction financing, indicating a streamlined approach moving forward [82] Question: Cost inflation and PPA pricing - Management confirmed that discussions for the next phase of renewable projects are progressing well despite inflationary pressures [88]