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Edited Transcript of AQN.TO earnings conference call or presentation 28-Feb-20 3:00pm GMT

Q4 2019 Algonquin Power & Utilities Corp Earnings Call

OAKVILLE Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Algonquin Power & Utilities Corp earnings conference call or presentation Friday, February 28, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amelia Tsang

Algonquin Power & Utilities Corp. - VP of IR

* Christopher Kenneth Jarratt

Algonquin Power & Utilities Corp. - Vice Chairman

* David Bronicheski

Algonquin Power & Utilities Corp. - CFO

* Ian Edward Robertson

Algonquin Power & Utilities Corp. - CEO & Director

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Conference Call Participants

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* David Quezada

Raymond James Ltd., Research Division - Equity Analyst

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Mark Thomas Jarvi

CIBC Capital Markets, Research Division - Director of Institutional Equity Research

* Neil Andrew Kalton

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

* Nelson Ng

RBC Capital Markets, Research Division - Analyst

* Robert Hope

Scotiabank Global Banking and Markets, Research Division - Analyst

* Rupert M. Merer

National Bank Financial, Inc., Research Division - MD and Research Analyst

* Sean Steuart

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp 2019 Fourth Quarter and Full Year Analyst and Investor Earnings Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

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

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Christopher Kenneth Jarratt, Algonquin Power & Utilities Corp. - Vice Chairman [2]

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Great, thanks, good morning, everyone, and thank you for joining us on our 2019 fourth quarter and full year earnings results conference call. As mentioned, my name is Chris Jarratt and I am the Vice-Chair of Algonquin Power & Utilities Corp, and joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer.

We have a supplemental webcast presentation that accompanies the call and this can be accessed from our website at algonquinpowerandutilities.com. Our audited financial statements and management discussion analysis are also available on the website and also on SEDAR and EDGAR. Before continuing the call, we would like to remind you that our discussion during the call will include certain forward-looking information and may also refer to certain non-GAAP financial measures and at the end of the call, Amelia from our Investor Relations team will read a not-so-brief legal notice that's in respect of both forward-looking information and non-GAAP financial measures.

We've had, what we believe to be a pretty good fourth quarter and full year and so today Ian is going to start with the strategic highlights followed by David summarizing the financial highlights. We'll then turn things back to Ian and conclude the prepared portion of the call with an overview of our strategic growth plan for 2020 and beyond and then, as usual, we'll open up the lines for questions. Also, as usual, we'll ask you to restrict your questions to a maximum of two and then re-queue if you have additional questions to allow others the opportunity to participate. Now with that, I'll turn things over to Ian and he will discuss the main focus areas of 2019.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [3]

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Thanks, Chris, and good morning to everyone who is able to join us we're coming queue from our offices here in Oakville are sunny but cold morning. I always welcome the opportunity on the last quarterly call of the year to reflect on the progress we made over the course of the previous year with a number of corporate achievements supporting a solid year financial performance. We will then spend some time looking in a bit more detail at our plans for the current year and longer term as our team works on successful execution against Updated 5-year strategic plan. Before I begin my formal remarks, I wanted to extend a warm welcome to Arun Banskota who has now been with us for 3 weeks.

Arun brings APUC a unique combination of experience in renewable energy, development, proven financial acumen in a results-driven leadership style. I'm sure you share our confidence that Arun's background makes him a great addition to Algonquin's executive leadership team. Over the coming year, we working closely with Arun to help them expand his knowledge of our business in the newly created role as President of our company to provide the opportunity for Arun to fully engage in our business and the culture, which is so distinguished in this company, making it the fastest growing utility in North America. Over the coming months, I hope you all have the opportunity to meet and build a relationship with Arun.

I trust everyone takes comfort from financial results that confirm its business as usual as we continue to deliver solid performance and execute on our $9 billion pipeline of growth. I'm personally enthused by the prospect. For them, the time is right for me to transition away from the direct management role as CEO of being able to continue to contribute the APUC success. We've been cooperating on the creation of independent investment platform to collaborate with APUC on incremental growth opportunities, which is intended to provide for a continuation of the passion and forces which have driven this company's extraordinary track record.

Obviously, these plans are at an early stage, but the measured pace of our leadership transition process will give us all time to sort of things out and lastly, after almost 14 years on the APUC rocket ship, David Bronicheski has decided to retire this coming fall. He shared that family considerations at this stage of his life. I've made at the right time for him to move forward towards retirement and allow our deep talent base in our finance team to step forward.

Well, we'll certainly wish David the best when you finally embarked on as well deserved retirement later this year. The strong financial program that contributed to our success will remain in capable hands with Arthur Kacprzak, assuming the role of Deputy Chief Financial Officer. Given that this is our year-end earnings call let's start with some of the highlights for 2019 and how those initiatives contributed to another year of solid financial performance.

Firstly, I'm pleased to report strong and stable year-over-year growth in our key financial metrics. Offline profit continue to grow with 2019 adjusted EBITDA of close to $840 million. Secondly, as we discussed at our recent Investor Day, excluding the onetime impact related to US tax reform from our 2018 EPS, 2019 EPS of $0.63 represents year-over-year growth of approximately 10%. The organization exited 2019 with nearly $11 billion in assets, a 16% increase over 2018, levels. We're very mindful of the important role our dividend plays in the total return expectations of our shareholders and we delivered annual dividends per share approximately $0.55, which represents a 10% increase from the previous year.

Secondly, the company completed many successful growth initiatives and achieved a number of important milestones during the year. I'm proud to say that we completed two acquisitions in the past quarter. We closed the acquisition of our first Canadian utility New Brunswick Gas together with St Lawrence Gas in New York. Both acquisitions are expected to provide opportunities for future growth. During the quarter, we also announced an agreement for the acquisition of New York of American Water's New York jurisdictional assets it represent a sizeable regulated water and wastewater acquisition with the addition of close to 125,000 customer connections across 7 counties in southeastern New York.

During 2019 the regulated Services group successfully completed several rate reviews representing a cumulative annualized revenue increase of approximately $8.5 million and lastly, before I turn things over to David, I wanted to highlight the positive impact that our recent utility acquisitions have had on our growing customer account putting the March to a million campaign milestone squarely in our sites. As previously mentioned, the completion of our 2 recent acquisitions and the 2 acquisitions we announced in 2019 that Bermuda Electric Company and American Water's New York jurisdictional assets will bring the millionth customer interview.

Not that long ago our regulated services group was 100% based in the United States and we're thrilled that these recent acquisitions have provide the company with the opportunity to expand our skill set beyond those borders and serve the utility needs of customers in Canada, the United States and soon to be Bermuda and with that, I'll turn things over to David for a review of Q4 and the full year financial results. David?

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David Bronicheski, Algonquin Power & Utilities Corp. - CFO [4]

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Thanks, Ian, and good morning, everyone. As Ian mentioned earlier in 2019 APUC has again showed its ability to grow its business in an accretive way through a stable utility and long-term contracted renewable platform. We ended 2019 pretty much where we guided at Investor Day in December with an EPS of $0.63. On a consolidated basis, our Q4 results were positively impacted by solid operations at our existing facilities in addition to new utilities which came on board in the 4th quarter as well as our investment in Atlantica which combined to increase our Q4 adjusted EBITDA to 231.5 million, an increase of 32.6 million over the same period last year.

On an annualized basis, we posted adjusted EBITDA for the full year 2019 of 838.6 million, an increase percent over the prior year. With respect to our earnings per share and our adjusted net earnings per share was $0.63 which after adjusting for the onetime effects of US tax reform in 2018 of approximately $0.09 per share of which we spoke of at Investor Day. Our adjusted net EPS has grown by just over 10%. Looking first at our regulated services group, the business unit delivered $565.4 million in operating profit in 2019, compared to $551.6 million in the prior year. We saw improved contributions from our gas and water facilities as well as the contribution of New Brunswick Gas and St Lawrence Gas, which closed in the fourth quarter and helped to offset lower results from our electric utilities.

In addition, the regulated Services group were in $6 million related to the development of our San Antonio water system project or SAWS as we like to call it, which has been jointly developed with third parties. This is consistent with our expectation that per jointly develop projects, we will earn fees consistent with their contributions to the project through the development process. Going forward, we expect to, in 2020 to earn approximately $2.5 million from SAWS. On a year-over-year basis, our Renewable Energy Group delivered strong results in 2019 posting $328.5 million of operating profit, compared to $303.6 million in 2018.

The increase of adjusted EBITDA is related to our investment in Atlantica as well as increased production from our newer wind and solar facilities. The final topic I'd like to cover off relates to our capital structure and the steps we took in 2019 to strengthen our balance sheet. As you are aware APUC targets a triple B flat capital structure, which we believe is optimal from a cost of capital perspective. In January of last year, we are quite proud of our inaugural green bond offering pricing $300 million Canadian 10-year senior unsecured bond at an attractive 4.6% interest rate. This is a key element of our continual commitment to sustainability with the proceeds from the bonds used for sustainable purposes.

In May of 2019, we issued $350 million of 60-year fixed to floating 6.2% subordinated notes. Concurrent with the offering, we entered into a cross currency swap to convert the US dollar-denominated coupon and principal payments from the offering into Canadian dollars resulting in an effective interest rate of approximately 5.96%. This shows the power and efficiency of being able to be opportunistic on either side of the border with respect to our financings. I would also point out that the notes also provide us with additional equity credit to our rating agencies.

In October, we issued $354.4 million of common equity through our inaugural US marketed equity offering, which was 3 times oversubscribed. It increased our US shareholder base with new long only investors and improve the liquidity of our shares trading on the NYSE. Finally earlier this month with our new bond platform here in Canada, Liberty Utilities Canada, we issued a 30-year $200 million Canadian senior unsecured debentures at an interest rate of 3.315%. This is the longest duration bond we've issued and the lowest coupon we've ever issued. This offering provides us with a strong debt platform on which to grow our utility base in Canada. The proceeds were used to partially finance the acquisition of New Brunswick Gas.

Before we turn things back over to Ian, I'd like to touch briefly on our earnings guidance that we put out at Investor Day last December and reiterate that we continue to target our adjusted net earnings per share for 2020 to be in the range of $0.68 to $0.70.

With that, I'll turn things back over to Ian.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [5]

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Thanks, David. Before we open up the lines for our question and answer period, I want to spend a couple of minutes speaking about some of the growth initiatives we're pursuing in the context of our 5-year strategic plan.

At our annual investor morning typically held in early December, our leadership team meet with investors and analysts, many of whom are likely on the call today to discuss our current operations and our plans for the future. While I know quite a few of you will have feel like you just heard this from us in December. In our view, a positive story bears repeating. Our updated 5-year capital investment program projects $9.2 billion to be spent across our two business groups with the emphasis on a regulated services team over the coming 5 years.

On the non-regulated side of the business, construction is proceeding in earnest on close to 850 megawatt of wind and solar projects. We're pleased that execution on our development pipeline will preserve our attractive average PPA line. On the regulated services side, following receipt of the final regulatory approvals last year, construction is now underway on all 3 projects comprising the 600 megawatt of new wind in the Midwest. These wind farms are expected to be completed by the end of 2020 and will contribute to earnings next year.

Perhaps a couple of comments on coronavirus are in order. We are obviously taking all appropriate precautions for the health and well-being of our employees and customers, including managing the travel requirement for our team. With respect to our renewable energy projects both regulated and non-regulated, these projects are generally located in the heartland of the continent per United States and as such, do not appear to be immediately exposed to coronavirus consideration.

Having said that, we're actively monitoring the potential impact held protection measures might have on the global renewable energy supply chain, but based on our investigation of the current situation we remain confident that our projects will be completed generally in accordance with the planned schedule. With respect to our two newest utility acquisition Bermuda Electric Company and American Water's New York jurisdictional assets.

I'd like to turn things over to Chris Jarratt for some additional color.

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Christopher Kenneth Jarratt, Algonquin Power & Utilities Corp. - Vice Chairman [6]

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Chris, yes. Thanks, Ian. So just on those with respect to Bermuda, people may have noticed that the time frame for the regulatory approval was extended by the government to October 4 and from our perspective, I don't think we will read too much into that. We understand that the date was somewhat arbitrarily picked to be 1 year from the date of the original application. And while the time frame was originally 4 months, the government always had that ability to extend this date. And while this is new territory for Bermuda regulator, we don't expect it will actually take that long, but that of course it will be up to the government. Just a little bit more on Bermuda.

In the last little while, we've got some great dialog with the government, and we are as excited as ever about the opportunity and the benefits of the transaction for the country for example, we've committed $300 million of investment into renewables, which is totally aligned and accelerate for muted an objective of reaching 85% renewables.

The sale of Ascendant will also inject about $200 million into the Bermuda economy and we've also announced something that we call our plus five plan and that consists of two components, the first five we've identified operational savings of about $5 million per year with no company initiated job cuts, which will reduce rates for customers and the second component of the plus five plan is the investment in a sustainable Bermuda foundation of $5 million and then this will promote green energy in Bermuda and it's totally aligned with our own sustainability objectives.

So just in summary, I'd say we are as excited as ever and we are looking forward to collaboration with the government on the people of Bermuda. With respect to American Water, the story is a little bit shorter, the application is being submitted today and we've had some good discussions while socialized in the application with the state senators and the assembly men and women, we expect this transaction will close sometime in 2021.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [7]

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Thanks, Chris. And finally, at the end of 2019. We had approximately $7 million in pending rate reviews within our regulated Services group. Organic rate base capital expenditures are primarily related to the maintenance and expansion of existing assets to improve quality and efficiency of service to our customers, it's a core strategy of regulated Group to ensure that an appropriate return is earned on the rate base investments at our various utility system.

Before ending my formal remarks, I wanted to touch on the subject of sustainability. We believe that our commitment to sustainability it's not something, it's something we do but rather something we are, it touches every one of our business strategies and operations. This past quarter SAWS publishing our 2019 Sustainability Report and hosting our well attended inaugural sustainability morning.

I'm pleased that our commitment is being recognized with Corporate Knights ranking Algonquin as the world's 10th most sustainable company on its recently released -- recent released list of the 100 Most Sustainable Corporations. We're proud to be the highest rent Canadian company and the highest rate electric utility on the list.

Through our decarbonization initiatives and renewables growth, you can see that our fleet is turning a nice shade of green. For instance, we're advancing our plans to shut down and operational coal plant in favor of $1.1 billion of new wind generation an initiative, which is good for our customers by saving the money as well as good for the planet.

You can clearly see that our organization is very well positioned to be on the right side of the shift of social sentiment to renewable energy. To wrap up my prepared comments for today. I'm proud of the team's 2019 accomplishment. I think we've proved that an agile entrepreneurial culture all growing in the same direction is indeed a powerful for us. We have an ambitious but achievable growth plan in front of us and we're committed to extending our track record of creating shareholder value in the current year and beyond.

With that operator, I'd like to open up the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Sean Steuart with TD Securities.

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Sean Steuart, TD Securities Equity Research - Research Analyst [2]

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Few questions before I get back in the queue. Ian, I gather you are still working out the details based on your prepared comments, but any context, you can provide on the structure of what's envisioned for the collaborative development platform that you might have established?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [3]

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Well, I think, I mean it's all based in a belief that there is an opportunity to potentially Mary the characteristics of Algonquin competitive capital with those of some private capital to be the winning bid if you will, as we continue to pursue infrastructure projects, particularly internationally and so I think it's all founded on fundamentally that we want to continue to win here and we will do what's necessary and capitalize on those opportunities to continue to be a winner. I don't know -- I wish I can at this second, Sean, I could give you more details, but I think I think there is an opportunity for us to make us winter through collaboration.

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Sean Steuart, TD Securities Equity Research - Research Analyst [4]

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Okay, understood and maybe related to that question. Any updated thoughts you can provide on asset recycling initiatives, how that might be structured and how contingent all of this is on the Atlantica Yield strategic review wrapping up hopefully sometime. How does that play into all this?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [5]

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Well, I mean I am not sure that the two are related. At our Investor Day we outlined that capital recycling would be part of our 5-year and I reiterate 5-year up $9.2 billion plan and so it's not feeling like it's something that is near term that we need to realize on. We've got a capital plan for 2020 which may or may not include capital recycling. So I'm not sure that that I see capital recycling at the top of the list. We spoke of things like mandatory converts and some of those other securities as an important part of our 2020 capital plan.

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Sean Steuart, TD Securities Equity Research - Research Analyst [6]

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Okay. That helps. I'll get back in the queue.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [7]

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No Sean. I'll give you one more.

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Sean Steuart, TD Securities Equity Research - Research Analyst [8]

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I mean any comment, you want to provide on the Atlantica review. They didn't provide a lot of detail on the call yesterday, but your patience with that investment at this stage?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [9]

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Well, I guess in some respects you. I would say, I think it's appropriate that Atlantica are the best guys to comment on Atlantica's strategic review and I don't think, I don't think I have anything constructive to add to that, obviously we still remain interested spectators to the whole thing and hopefully as you said it will conclude soon.

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Operator [10]

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Our next question comes from Mark Jarvi with CIBC Capital Markets.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [11]

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Just picking up on that last comment, given where Atlantica Yield had moved. I mean obviously today is a different day and a lot of pay in the market, but in terms of asset recycling does monetizing your interest in Atlantica Yield if that's the path that Atlantica must take it out become more a viable option for you guys at this stage.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [12]

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Well, that's a big question. We never invested in Atlantica Yield as to, I'll say to hold to sell the thesis for Atlantica Yield was to give us instant economies of scale as we built out our international presence. It would feel a little bit like strategic shift to sort of say now it's time to sell and I get look these all of none of our assets are I'll say my personal children and so that everything has to be considered for sale, but I think we would have to look at that in the context of our international operations and whether that made sense going forward.

I think we've spoken in the past that we like the assets that Atlantica Yield has and candidly probably like to have maximum visibility into the value proposition of associated with each one of those assets. That would be our aspiration. As to whether they're, I'll say, ready to -- our interest is on the block to be sold. I'll say at this 10 seconds. I don't think anything has changed from what we said in the past.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [13]

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Okay. And then on just look at the results operating expense on Utilities is down year-over-year. It looks like a very good cost control. Is that a function of timing or have you guys been able to find permanent savings in utility business cross platform?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [14]

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Well, we look at cost savings across the utility platform as kind of one of those dials that allows us to earn our regulatory return and it will vary somewhat depending on with the various rate case cycles that we happened to be and I think for this year it just so happened that we were in a position where we could kind of move the dial back a little bit on that and help us in the year. I think earning pretty much full regulatory return on an average basis across all of the utility.

So it really is just one more dial that we'll use over time and Mark just kind of add a couple of words to that, that the fundamental basis of an OpEx for CapEx, or CapEx for OpEx shift is replacing the cost the customers incurred from an operating point of view with general rates include for rate base and so I guess the question if you might be asking Looking at do we see a continued a drop in operating cost and the answer is, certainly, yes as we continue to invest in CapEx, which is intended to reduce those operating cost and that's how we are of the belief that we can keep customer rates constant while doing good things for our customers in terms of enhanced reliability in our shareholders enhanced investments.

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Mark Thomas Jarvi, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [15]

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So just to clarify a bit of both from the OpEx or CapEx, but maybe a bit more sound like were saying was managing regulatory lag this year in terms of higher allocating dollars?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [16]

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It's really both and that's how we look at it, I mean I think over the next couple of years, you're actually going to see that play out even more. As we look to decommission the coal plant build out the wind. I mean the long-term thesis of that obviously is to lower customer rates now that will be in the commodity cost line, which is a little bit higher up on the income statement, but you'll see it play out there over the next couple of years as well.

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Operator [17]

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Our next question comes from Nelson Ng with RBC Capital Markets.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [18]

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Congrats on the good quarter and also, with the leadership transition plan. The first question relates to the Empire wind projects. You guys mentioned that 2 of the 3 projects have started construction and the third one will start construction this quarter. Is it the small one or the big one that has yet to start construction, like the 150 or the 300 megawatts? I was just wondering and...

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [19]

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We are all underway now. There are no now I'll say all underway there was one final permit that was coming in on King's Point. It was received and so there are digging holes as we speak.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [20]

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Okay. I just want to ask about timing risk and whether you see any issues given that there is going to be a glut of wind projects reaching completion by the end of this year?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [21]

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Well, let me say that the time for that worry. I'll say we're certainly before now and it with one that we are focused on and it's about getting quality contractors in locking up cranes, all the things that you need in order for these projects to come in on time. So the good news is, while we are certainly mindful of December 31, 2020. I think we've taken all the necessary steps to make sure that that I'll say the contractual infrastructure is there to make it happen. Clearly, I mean you heard in my prepared remarks, obviously, we are also mindful of shocks to the supply chain infrastructure from coronavirus, we're obviously mindful of those things, but I think the machine is robust and we're looking forward to you to get in these projects are all done on time.

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Nelson Ng, RBC Capital Markets, Research Division - Analyst [22]

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Okay, good and then the second item might be for David. On the utility side, there was, I think about $10 million of other income included in EBITDA, just wondering whether that relates to non-regulated services and I think in previous years you provided some services to the U.S. military or army.

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David Bronicheski, Algonquin Power & Utilities Corp. - CFO [23]

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Yeah, I mean you've touched on it exactly. So in the other income category that you're talking about, it really falls into three buckets, one I touched on in my prepared remarks where it relates to the fees earned from our size joint development project that we're working on and we'll continue to earn on that in the coming years. Next year we'll probably be about $2.5 million as an example, but yes we also provide utility services to Fort Benning and so that amounted to a few million dollars last year as well and then the final bucket that falls into that is AFUDC, which as you know, is a utility construct that allows us to capitalize to the project the regulated equity thickness as we're building out the construction project. So it really falls into those three buckets.

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Operator [24]

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Our next question comes from Rupert Merer with National Bank.

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Rupert M. Merer, National Bank Financial, Inc., Research Division - MD and Research Analyst [25]

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Like to ask about your view on bond yields. I'm watching the US 10-year reached record lows today obviously could be good for refinancing could be supportive of equity values, can you give an update on your view for your larger rate cases and do you see any potential impact for the low bond yields to lower ROEs in your upcoming rate cases.

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David Bronicheski, Algonquin Power & Utilities Corp. - CFO [26]

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Okay. I'll start off by just talking about the impact that we see on the debt and I'll transition that over to Ian to talk about our views on future ROEs with respect to debt, I mean where you're really seeing that benefit, I mean we just issued a 30-year bond here in Canada for our New Brunswick Gas utility and in New Brunswick, I mean this is like fantastic news because for that utility, it really is all about driving down operating costs for customers are making gas more competitive in that market and so that's going to be saving that utility, about $2 million a year, which you can do the quick math when it's spread out over 12,000 customers works out to almost $10 to $15 per month per customer.

I mean that's a tremendous benefit that we're able to do there and certainly we're as far as our existing debt goes, I mean most of our debt, as you know, is long-term fixed. So we have limited ability to I'll say refinance that without some horrendous make holes so that's likely not in the cards for us, but we will be looking at being able to come to market whenever we see the opportunity because you're right, I mean I think we absolutely do want to take advantage of long-term rates and we look to go for as long a tenure as possible given where they are right now. So with that, I'll pass it over to Ian to just discuss ROEs.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [27]

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Sure and Rupert as I'll say, that one thinks of ROEs as a long-term proxy for equity returns in the capital markets, but many times people look at utility ROEs in the context of a premium over, I'll say, the U.S. 10-year treasury. Historically, I'll say that premium has been banded at the top end at about 700 basis point. Well, as the U.S. Treasury continues to fall and let's even say weirdly imagine if it went negative, I think that would obviously cause people to think about their CAPM models for ROEs.

And so I'll say we keep our eye on it as David said, though in the short term, our interest cost that we bring to bear in our rate case or kind of driven by the existing portfolio of bonds that are issued within Liberty Utilities and so I'm not sure that our ROEs would be immediately affected but I think your consideration is a fair one you have to be thinking about those equity returns in the context of the risk-free rate. So I wish I had something more insightful to offer you Rupert but that's just kind of that's just to kind of the way this thing unfolds.

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Operator [28]

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Our next question comes from Rob Hope with Scotiabank.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [29]

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Congratulations on the transition plans. I want to circle back on Sean's initial question and just in terms of the collaborative investment platform. You did mention that you could bring private capital to bear on international opportunities. Any sense on how this platform could interplay with AAGES or Atlantica given that potentially they could be going after similar investments?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [30]

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Well, okay, well let's start by saying that in our world, our international investment initiative with characterized by two specific tactics. The first was to acquire an interest in Atlantica Yield as a holdco for projects that got to developed internationally and the second tactic was the creation of a development group jointly with Abengoa to pursue the origination development and construction of those initiatives and I think I think it comes as a shock, we've spoken on earnings calls in the past that Abengoa is an exactly the strongest financial partner, so one could imagine that that to the extent that we founded we're able to take advantage of some incremental private capital to collaborate in Abengoa stead in terms of AAGES what a great opportunity to continue to drive that growth going forward.

And so I'm not sure that this has really candidly, anything to do with Atlantica one way or the other Atlantica is what it is, as I've mentioned in answer to Sean's question. We like the assets that happened to exist within Atlantica right now. I'm not sure though it really plays one way or the other in terms of growth going forward. Atlantica, unto itself -- and maybe just to touch at the very end, Atlantica into itself is for all intents and purposes, a holdco. It's not a developer. It's not a development capable platform and candidly, that's not what we invested in it for. So I don't know if Rob that kind of the additional color you're looking for.

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Robert Hope, Scotiabank Global Banking and Markets, Research Division - Analyst [31]

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Yeah, that's great. And then maybe for David. SAWS looks like it had a dividend of $6 million in 2019 when we're looking at the 2020 guidance, any outsize kind of contributions from development platforms that you didn't highlight so aside from the 2.5 million from SAWS?

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David Bronicheski, Algonquin Power & Utilities Corp. - CFO [32]

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That's all that we're seeing right now, but obviously we're pretty active company. So I mean people shouldn't be surprised if a new project happens to come along. There could be additional income coming from that, but at the present time that would be what we're looking at.

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Operator [33]

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Our next question comes from Julien Dumoulin-Smith with Bank of America.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [34]

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I think you're on mute Julien.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [35]

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Sorry, guys, appreciate their heads up there. So well, first off, congrats on the succession all around here, and then maybe we would do that point first easy question. How do you think about EV strategy playing into the company altogether in the future. I mean obviously very, very early days. I mean utility perspective that being said, you guys are one to venture off into non-rate-base opportunities when you see it. Is there any thought on that front given the background here.

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David Bronicheski, Algonquin Power & Utilities Corp. - CFO [36]

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Well, right now our I'll say our biggest our EV initiatives have been on the rig side, I mean you can imagine, a dollar of rate base is fungible with every other dollar to the extent that we can invest that rate base in infrastructure that happens to grow the load that improves the economics for everybody on the system. So I'll start by saying that to date our primary focus has been on investing in those states that allow the inclusion of EV infrastructure into rate base and that's not everyone and you can imagine it's jurisdiction specific.

In terms of how EV infrastructure is going to that I'll say the value proposition, the revenue model, outside of the regulated construct. We're obviously keeping our eyes on this. The Edison Electric Institute, has that entire Electric Transportation working group that we are instead of actively involved in and I agree with you, I mean if ultimately EVs progressed the way that our on the trajectory that one things that they are going to be, I'm not sure that the regulated construct is going to be the most effective way to do it in your view.

Here in Canada organizations like Suncor our pioneering they call it, their electric highway, which is a coast to coast network of charging stations. You hear about the same things on I-95 heading south from the Canadian border down to Florida. So we're on it, it definitely feels Julien like something we need to keep our attention on as an entrepreneurial organization you hit the nail on the head, where we're never want to leg opportunity go by the, by just don't have anything at this 10 seconds beyond our focus in the regulated utility space.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [37]

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Alright. Excellent. And then if, keep it to here. Second question, going back to some of the strategic private capital, you've talked about at Analyst Day last in December here. Can you discuss again what the purposes because I hear with respect to some of the various commentary in the call thus far, but just to be very specific about this. I thought the private capital piece was to address otherwise ordinary common equity needs that you might otherwise have here as well as to try to show the value underlying the renewables business in the renewable platform but talk to us broadly around the thought process type behind sourcing the private capital, what assets might be at least as you see today, sort of in the vein of meriting sell down or how you want to frame it. But I guess I want to come private capital conversation.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [38]

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Sure. Well, I actually not sure it's a new theme. The investment in our international investment is predicated to achieve that I'll say the accounting treatment we look at it before as having a party on the other side. I've owning to call it a 50% interest in those international assets, as you know, they are generally funded using our limited recourse project debt and perhaps in quantities that exceed what we might do directly under our in North America and our current credit metrics and so I think the thesis was to have a strong off balance sheet partner in that venture going forward.

I'll say that as we think about Private Capital and we think about infrastructure return profiles, I think we believe that there is an opportunity to bring the character of private capital, which you can imagine, might be more return focused, might be more patient, might have a different credit interest. It combines that with public capital of Algonquin, which is obviously a recognized global player from a development and operations point of view. I feel like it can be a winning bid in international projects. And so, if it sounds like we're further ahead, then that is probably is not correct. I mean it's just that we do believe and we're actively out there in the marketplace looking to win in this place having us another tool in the Algonquin toolbox a credit-worthy partner for international development that brings an appetite with low-cost capital. That was always the permits and so I think we mentioned at our Investor Day, we're committed to making that a reality. And is this isn't it a great win-win for us both.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [39]

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But to clarify that. It's more of a strategic growth initiative rather than necessarily finding someone for the lower cost of capital in order to avoid common equity or otherwise?

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [40]

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Oh, yeah, no, you shouldn't see this as a strategic shift from Algonquin point of view, it isn't about substituting I'll call it their capital for our capital. It never was from an international point of view, we just wanted to make sure that whoever our partner is internationally wasn't hamstringing our development initiatives and that we've sort of made historic comments that historically Atlantica's access to capital in the public capital market, I'm not sure brings the exact same character that private capital from an institutional name your favorite pension fund brings. They have their own set of constraints or own depth of access to capital, that public markets imposed. So no, you shouldn't think of this is first of all, as any strategic shift, you should think of it as a continued execution on the strategy of making sure that we have a co-investor to realize on our international investment aspiration.

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Operator [41]

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Our next question comes from David Quezada with Raymond James.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [42]

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A question here, just on the regulated side of your business, thinking about your, you made a lot of progress with your rate-making mechanisms, some of those key features and assuming things go to plan with Empire & Granite State you'll have revenue assurance accelerated recovery and post test year recovery at most year major utilities. I'm wondering if you see any other kind of rate-making mechanisms that you could still add or have you gotten call it, the low hanging fruit from a regulatory lag perspective here.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [43]

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Well, it's interesting. Well, first of all, this is a never-ending journey because every time we add a new jurisdiction aka New York or New Brunswick, we're always going to be advocating for regulatory mechanisms that don't just reduce risk for us, they reduce risk for customers to and so I think what you've seen and if you followed us historically look back at the progression of those regulatory mechanism. The mechanism. David, I think we've been pleased that we've continued to fill out that chart at every year at our Investor Day over time.

Now there are jurisdictions that we are continuing to agitate and advocate for those mechanisms, I'd say we're thrilled that Missouri is adopted them New Hampshire our first rate case where we're going to be seeking weather normalization. Those are all underway, but every time we add a new jurisdiction, we're obviously going to be advocating for those, so I think it's not too and it's not just in the utilities' best interest. It's in the customers' best interest to and I think that's why you're seeing States adopt these constructive our regulatory mechanisms such as trackers and weather normalization.

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David Quezada, Raymond James Ltd., Research Division - Equity Analyst [44]

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Okay, great. That's good color and then just one other one, I guess more generally across your utility footprint, if you had any recent I guess IRP type discussions with the regulators and any recent thoughts on how storage and renewables could fit in there going forward.

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [45]

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Well, you, I said I know you're aware that in Bermuda, there is a very active IRP discussion going on that where the government is kind of tolerate a targeted 85% renewables. We actually think the number can be definitely higher than that. We are in regulatory planning strategy work in California, literally as we speak this week on our California 100, this idea of bringing some additional solar and energy storage to bear to meet California's objective of having 100% renewables. So that is definitely a theme, I don't think we're done Greening the Fleet yet David that we've got a number, a number of initiatives underway with the whole idea of bringing a low cost renewables to reduce costs for customers going forward.

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Operator [46]

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Our next question comes from Neil Kalton with Wells Fargo.

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Neil Andrew Kalton, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [47]

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So I was going to follow up on the supply chain. So it seems like things are still a little bit fluid, but just if you did have some slippage beyond the end of this

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [48]

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Is there an ability, you think you go to the IRS and get an extension and then the second question kind of along these lines, if not who bears the risk, especially on the regulated wind farms with that risk be borne by our common shareholders or would there be some ability to the regulator and then sort of share it with customers? Well, let me start by saying is we could, we could have a half hour conversation about this whole point but I'll start by sort of saying let's say three lines of defense against that.

The first is, as you say, well, it appears sort of fluid right now. It is something we are actively on top of it just given the quantum of our investment in renewable energy over the course of 2020. It's visible to the extent that kind of I'm sitting on a bi-weekly committee where we kind of understand what's happening from a supply chain point of view. So that the individual is the first I'll say strategy and the good news is so far I think the supply chain appears to be holding up at least in our instance. Obviously, the problem is it digging holes for turbines in Kansas and Missouri that's underway, just fine, thanks very much and that's moving ahead.

I think that the second approach that you mentioned is that and maybe it's probably worthwhile sort of being clear is that right now the production tax credits, I'll say don't fall off if the entire project isn't completed by December 31, 2020. Production tax credits are allocated on a turbine by turbine basis and so to the extent to imagine if one out of the 400 turbines were erecting across the entire fleet, have got done in January, only that turbine would be if you will, I'll say under consideration for a discussion about the 100% of PTCs if it got commissioned to January.

And the last one is that I think this is where you touched on is that December 31, 2020, is really I'm going to say it's an arbitrary date, it's a date that was developed by the Treasury in terms of the regulations that gives developers comfort that if your project was done before that point in time is de facto conclusion that you did apply, I'll call it, continuous efforts to get your project complete. But it does it, if you didn't get it done by December 31, 2020, that doesn't concludes that you didn't apply continuous efforts and for which is really the standard and the test for 100% PTCs.

And so we are confident that I'll say every one of our projects, we have been continuing pursuing and to the extent that there was a delay it's hard not to think of coronavirus has being a fair argument for force measure against those continuous efforts and so I think we're probably a long way away from having to sort of have a conversation about whether that's a shareholder risk, is it a customer risk in the context of the regulated utilities and candidly how large the risk and so while we're mindful of it. I think we have confidence that we've taken all the steps to kind of manage that risk and I'm not trying to beat but be hedge here Neil, it's just that I think the solution to that it's kind of managing it right upfront rather than waiting to the end and kind of having to deal with it in the context of a problem. So I just think it, we are cautiously comfortable and confident in our ability to manage against the risk.

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Operator [49]

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

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Ian Edward Robertson, Algonquin Power & Utilities Corp. - CEO & Director [50]

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Well, thanks, everyone. Appreciate you taking the time. I see, we're just coming up to the top hour and I know everybody has things to do so with we'll speak to you next quarter and God willing and with that stay on the line for our not so brief but still riveting disclaimer from Amelia. Amelia?

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Amelia Tsang, Algonquin Power & Utilities Corp. - VP of IR [51]

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Thanks, Ian. Our discussion during this call included certain forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speak only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate and you should not place undue reliance on forward looking information. We disclaim any obligation to update any forward-looking information or if you explain any material real difference between subsequent actual events and such forward-looking information except as required by applicable law.

In addition, during the course of this call, we may have referred to certain non-GAAP financial measures, including but not limited to adjusted net earnings, adjusted EBITDA, adjusted funds from operations, and adjusted earnings per share. There is no standardized measure of such non-GAAP financial measures and consequently APUC method of calculating these measures may differ from methods used by other companies and therefore, they may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-GAAP financial measures, including a reconciliation of the non-GAAP measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada and EDGAR in the United States and available on our website. Thank you.

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Operator [52]

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