Algonquin Power & Utilities Corp. (AQN) Q1 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp First Quarter 2017 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corporation. Please go ahead, Mr. Jarratt.

Great. thanks very much. Good morning, everyone and thank you for joining us on our 2017 first quarter earnings conference call. As mentioned, my name is Chris Jarratt. I am the Vice Chair of Algonquin Power & Utilities. Joining me on the call today are Ian Robertson, our Chief Executive Officer; and David Bronicheski, our Chief Financial Officer. For your reference, additional information on the results is available for download from our website at www.AlgonquinPower.com. We also have a webcast presentation to accompany this earnings call that you can access from our website. Over the course of this call, we'll be providing information that relates to future events and expected financial positions, which should be considered forward-looking. I direct you to review our full disclosure on forward-looking information and non-GAAP financial measures, which are also available on our website and we will read the full disclaimer at the end of the call. To kick off the call this morning, Ian will review our Q1 2017 strategic achievements and at the risk of stealing some of Ian's thunder, one of these includes reaching the milestone of 1,000 megawatts of operating wind generation in our portfolio. This is an organizational achievement. David will follow with the financial highlights, and then Ian will conclude with our outlook for remainder of 2017 and also provide further details on our growth plan. We will then open the lines out for questions and we ask you to restrict your questions to two which allows others the opportunity to participate. If you have additional questions, of course you may re-queue. And now, I would like to turn things over to Ian.

Thanks, Chris, and thanks for taking the time to join our Q1 2017 call. There is a big picture start to my remarks. I think we're pleased to report a positive beginning to the year with a welcoming of the Empire District Electric Company into our family and strong, financial and operational results. I think in a way the quarterly results that we're discussing here today should really be credited to the efforts that were expended over 2016 construction and commissioning of new renewable energy projects and the approval and closing of the transaction with the Empire District Electric Company are certainly factors. And three takeaways I guess I would like to highlight this morning. Firstly, I believe we have delivered on major growth initiatives for our business. The Empire acquisition was certainly first and foremost on the list. We're excited obviously on New Year's Day of this year to report on successful closing of the Empire acquisition, the largest certainly in the company's history. Empire brings several things to our organization, including a dedicated and deep team of talented employees and the expansion of our customer connections by close to 40% with the addition of 220 or so thousand new water gas and electric utility customers in the Midwest. It also brings over 1,400 megawatts of regulated electric power generation assets to our current portfolio. And as Chris has mentioned more than 1,000 megawatts worth of renewable wind generation located here in North America. Second, we continue to focus on our renewable energy business group with over 200 megawatts of new capacity. Liberty Power, our renewable generation group, commissioned two new wind and solar projects in Q1 with total capacity of 160 megawatts and our Liberty Utilities Group marked a milestone with the commissioning of its first rate-based renewable power generation facility 50 megawatts Luning solar facility, which was constructed in Nevada. As a fundamental part of the capital investment growth process in our regulated utilities, Liberty Utilities successfully advanced several rate cases across our utilities representing over U.S. $30 million in increased revenue requirements. The second big picture point is that these growth initiatives have obviously had a significant impact on our financial performance, but of course Empire being a significant contributor. Adjusted EBITDA grew by 72% year-over-year, adjusted net earnings per share grew by close to 20%. David will speak a little bit more about our financial results in a minute. Supported by the growth in our earnings and cash flows on a per-share basis, we were pleased that the Board increased our dividend by 10% in the quarter. I think probably this is the seventh consecutive year of double-digit increases for our dividend, but I would be remiss if I didn't address the impact of this past winter’s unseasonably warm weather. I would say the differentiating competitive advantage for AQN, our diversified portfolio has historically demonstrated a great capacity to manage the naturally occurring fluctuations of weather. Obviously, the weather anomalies were extremely widespread this quarter. Our response has been to craft plans to manage discretionary expenses for the balance of the year to close the shortfall gap. Assuming that the robust diversification of our portfolio continues to be effective for the balance of the year, we continue to remain confident in our Investor Day expectations of over 90% year-over-year growth in EBITDA and our ability to achieve mid-to-low $0.70 in earnings per share. The third point, which I think is important is that we remain highly focused on executing on the five-year growing plan, we outlined to the investment community. The diversity of our businesses allows us to work with several different conservative building blocks if you will to deliver on this growth. Were actively pursuing important new organic investment opportunities within Liberty Utilities and I've got a couple of comments later in the call to add to that. Our nonregulated renewable generation group, Liberty Power as we refer to it now, currently had four projects in the development/construction pipeline. This year should see 75 megawatts of new solar being commissioned and construction of 75 megawatts of new wind on Amherst Island substantially advanced. As I mentioned earlier, Liberty Power, our nonregulated renewable energy group, added 160 megawatts of net capacity to its generation fleet in the first quarter of 2017. The Deerfield Wind and Bakersfield II solar facilities had 150 and 10 megawatts each respectively, are diverse by renewable generation source, you can see in the little map on the slide there, that they're also diversified location. Diversity by geography and modality are important contributors to the stability of the operating results of our overall organization, which I had mentioned earlier in the call. We're also pleased to report that Liberty Utilities first rate based renewable generation assets the 50 megawatts Luning solar facility achieved COD this quarter. We see this as a great collaboration across our business groups and demonstrates in my opinion that the entrepreneurial spirit is alive and well in our organization and with that, David why don't you take away to discuss the financial results.

Thanks Ian and good morning, everybody. We're pleased again to report strong financial results compared to the same period last year. As Ian mentioned earlier, it's clear that our significant year-over-year growth can largely be attributed to the inclusion of Empire in our results, whether aside as a management team, we are very pleased with the financial performance of Empire. That said, we also saw important contributions from our existing utility operations as well as contributions from our new renewable generation facilities that were commissioned in the quarter. So, looking at our adjusted EBITDA on a year-over-year basis, it was up 72% to $255 million for Q1 2017, nearly $100 million of the adjusted EBITDA growth was from Liberty Utilities between the acquisition of Empire and also new rate case. We also achieved new EBITDA from new facilities within Liberty Power. Now delving into the individual business units, Liberty Powers' groups operating profit grew 11% over the first quarter of 2016, our renewable generation again showed the benefits that comes from the growing diversity of the portfolio. All told, our production from existing renewables was 101% of long-term average resource expectations, our wind overall was basically in line with long-term averages as was our solar facilities. We were pleased that our Hydro facilities actually came in 9% above long-term averages. I would also like to specifically call out the performance of our new facilities that also performed well. Odell and Deerfield accounted for approximately 25% of our production in Q1 and essentially operated at 100% of their long-term average wind resource. Now turning over the Liberty Utilities, operating profit grew by 109%. Empire's impact on our year-over-year growth has been significant. Empire contributed $89 million in EBITDA in the quarter and that's despite being negatively impacted by close to $18 million due to warmer than normal weather in the quarter. In fact, with the growth from Empire, it's easy to overlook the fact that our existing utilities also performed well and contributed materially to our growth. The implementation of new rate cases is a prime example of this with successful rate cases and eight of our U.S.-based utilities adding almost $12 million of new revenues and by extension EBITDA in Q1 2017. Moving on now to adjusted EPS, we achieved growth of 19% in adjusted earnings and per share $0.25 for the first quarter of 2017. With Empire now comfortably integrated into our pool, APUC is well-positioned to deliver on our growth expectations for the balance of the year. Turning now to some of our financing accomplishments, it was a busy quarter I think as most of you know. Pleased to report that we've now closed all of the permanent financing required for the Empire acquisition and repaid all of the shorter-term acquisition financing. With respect to our convertible debentures, 99.6% of the convertible debentures have now been converted to equity and I would encourage the few remaining debenture holders to contact their broker to complete the conversion to common shares. We appreciate all the support that APUC enjoys from investors in the debt and equity capital markets both here in Canada and the U.S. to raise the capital needed for our growth plans. We continue to carefully manage our balance sheet and financing activities in support of our current BBB flat credit rating. I'll now pass things back to Ian to discuss some of our other plans for 2017 and beyond.

Thanks David and we'll open up the lines for questions in just a second, but before we do as promised, I wanted to share some updates on the initiatives, which are underway within the company over the balance of 2017 and maybe give some thoughts as to our long-term growth plan. Although we have had a good start to the year, we continue to be focused on delivering on the 2017 capital initiatives we have in progress to secure growth in the medium and long term. Our 2017 growth program as you can see is over $1 billion and it's split between our regulated and nonregulated renewable generation business groups. Within the nonregulated renewable generation group, in addition to Deerfield winds and Bakersfield II solar joining the fleet in the quarter, construction is progressing satisfactorily for two more projects. At our 75 megawatt Great Bay solar project, located in Southern Maryland, solar panels are now all on-site and installation is well underway. Projects are on track to achieve commercial operations by the end of the year. Construction is also moving ahead at our 75 megawatt Amherst Island wind project. Works on the island were completed during the quarter in accordance with the schedule, including movement of gravel to the island for roads and foundations. Work will be progressing on some mainland facilities over the course of the summer and we expect turbine foundation and erection will commence in earnest in the fall. We do believe we remain on track for construction to be complete in the second quarter of next year. Our five-year growth plan for Liberty Power includes an additional 200 or so megawatts of project development across two wind facilities here in Canada to further strengthen our competitive in the U.S. market. You've heard about our securing of safe harbor turbines last year, that will give us access and support more than 700 megawatts of wind development potential over the coming three or four years. Turning to Liberty Utilities, we are on track with our significant 2017 CapEx program, which includes the Luning Solar facility and a material expansion of our wastewater treatment facility in the West Valley of Phoenix. As with past M&A, our continuing approach is to surface investment opportunities, which may not have been actively pursued by the previous owners of those utilities, capitalizing on the materially expanded asset base of Liberty Utilities following the acquisition of Empire, we're in active pursuit of a number of organic growth opportunities including greening the fleet initiative within Empire's largely coal-based generating portfolio. Significant declines in the cost of renewable wind energy make a very compelling economic argument for our customers to support eventual replacement of a substantial portion of the coal-fired generation with wind generation. We're currently working closely with the regulator and Empire' home state of Missouri to update them on our plans. Lastly, we're focused on ensuring that we earn the returns that have been approved by the regulators on our regulated portfolio of utility assets. To make this a reality, we have rate cases representing more than $35 million U.S. slated to be advanced across seven different jurisdictions in the U.S. over the coming year or so. So, with that, that ends the prepared remarks for our quarterly call and operator, could you please open the lines up for the first question?

Sure. We'll now begin the question-and-answer session. [Operator instructions] The first question comes from Rob Hope with Scotia Bank. Please go ahead.

Good morning, everyone. Thanks for taking the questions.

Hey Rob.

Just as a quick clarification just in the prepared remarks, you mentioned guidance being I believe mid-to low $0.70s for EPS. But if I look at the IR day in '16, it would have been more in the upper $0.70s, lower $0.80s I was just hoping could reconcile that for us.

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

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

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

Thank you.

Thanks Rob.

The next question is from Sean Steuart with TD Securities. Please go ahead.

Thanks. Good morning, everyone.

Hey Sean.

Couple questions. Any update on your activities in Alberta in anticipation of the procurement there?

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

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

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

Okay. Thanks for that detail, Ian. I'll get back in the queue.

Yes, thanks Sean.

The next question is from Orhan Eldarov with RBC. Please go ahead.

Hey guys. Good morning.

Good morning.

Just filling in for the big man today. I've a couple questions, first on the energy north rate case, I notice that you guys are posting a $20 million increase and I think that's a long ago maybe in 2015 or so you guys had a $12 million rate increase for that. So, I was wondering if there is a particular reason you're posting a large increase request again or is it due to rate base or what's behind that?

To be frank it’s all about capital, it's been invested in the utility over since our last increase and while it's a significant amount, obviously just to keep it in contact on a total build basis, it's certainly sub 10% and not that that's not a significant increase, but one of the things that is characteristic of the LDC, the natural gas local distribution market, is the requirement to replace a lot of price they're reaching at the end of their useful life in terms of steel. And the unfortunate reality is as those assets have reached the end of their useful life, the replacement of them with plastic pipe has a cost and so nothing unique or special other than we're trying to bring the system up to current standards and to make sure that it's well positioned, make it up for the next 50 years of the operation for the utility, but we've been pretty transparent with the regulator in terms of all of our activities and so we're confident that as we have offered up the rate case and there's obviously the bid ask spread that always you get in these assets, the that work is never comfortable that we've got relationship in New Hampshire and that we'll get a fair shape by the regulator.

Right. Okay. That makes sense. And then mountain water condemnation, I believe you guys said in your MD&A, you will be receiving $103 million the City of Missoula but you also mentioned those FBO contracts the $23 million bucks over four years. I just wanted to clarify the $103 million that you receiver is that net of those payments or is that gross and then you're going to be paying that over the next 40 years the $23 million or is the city going to be LIBOR, where does that $23 million go?

Yeah, it's a great question and the short answer, that's net to us. So, we've kind of sorted out all of those relationships in the context of our discussions with the city and I should point out that the proceeds from the city or the funds that we are receiving, are a combination of two things, proceeds from the city and second of all as we mentioned in there certain arrangements that we had entered into with the original seller of that utility because the condemnation was already kind of in evident at the time of the transaction. And so, while the proceeds from the city are substantially less than $103 million, as you can you probably glean from the press release from the city, we really made provisions with the original seller to make sure that that wasn't a commercial exposure that we wore.

Correct yes and just to piggy-back on that, you also said that there might be a potential condemnation process with Apple Valley now, is that them seeing that City of Missoula was successful and they just wanted to do something like that or do you know there is a particular reason for them doing so. And then do you expect that there will be a similar outcome in terms of economics if the condemnation was granted?

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

Very helpful. Thank you.

The next question is from Rupert Merer with National Bank. Please go ahead.

Hi. Good morning, everyone.

Hey Rupert.

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

The condemnation and the receipt of the proceeds, actually does allow us to prepay one of the bonds that we have outstanding within Liberty Utilities at our discretion if we so chose. So, I think it will really just be a matter of managing the balance sheet and looking at what the best use of that proceeds will be. But maybe just to be specifically responsive Rupert is the net to us is 103, what we do with it is our business, the city has been assuming any test other than as was mentioned earlier those FBO contracts, but really that's the net to us.

So that's the total enterprise value then.

Correct.

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

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

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

Okay. Great. Well thanks for the color.

Thanks Rupert.

The next question is from Ben Pham with BMO. Please go ahead.

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

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

Yeah, my fifth question was the accretion expectation.

Oh! Yeah, well and I guess maybe it was implicit but I'll make it explicit and my first answer is Empire is delivering exactly what our expectations were in terms of terms of its earnings, net income and it's EBITDA obviously the weather was a challenge in Q1. We're comfortable that we'll make that out by the end of the year. So, nothing has changed Ben in terms of the impact that we think Empire will have on the consolidated organization from an accretion perspective.

Okay. Great. Thanks Ian. Thanks everybody.

The next question is from David Quezada with Raymond James. Please go ahead.

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

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

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

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

That's great. Thank you very much. That's all I had.

Thanks David.

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

Yes. Good morning. Thanks. I think you meant to say in an answer to your last question that you're not doing enough projects and you want to do more. I wanted to come back to the transmission question and I was wondering just specifically on the transmission opportunity if you were thinking of investments in transmission within the rate based construct of if you were more thinking in terms of merchant/contracted under long-term agreement.

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

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

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

Yeah, that's good. I appreciate it. Thank you.

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

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

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

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