Algonquin Power & Utilities Corp. (AQN) Q3 2019 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Algonquin Power & Utilities Corp. Third Quarter 2019 Analyst and Investor Earnings Call. [Operator Instructions].I would now like to turn the conference over to Mr. Christopher Jarratt, Vice Chair of Algonquin Power & Utilities Corp. Please go ahead, Mr. Jarratt.

Great. Thank you. Good morning, everyone, and thanks for joining us on our call today. As mentioned, my name is Chris Jarratt, and I'm the Vice Chair of Algonquin Power & Utility. And joining me on the call today are Ian Robertson, Chief Executive Officer; and David Bronicheski, Chief Financial Officer.To accompany our earnings call today, we have a supplemental webcast available on our website, algonquinpowerandutilities.com. Additional information on our results is also available for download at the website.Over the course of this call, we will be providing information that relates to future events and expected financial positions, which should be considered forward-looking, and I would direct you to review our full disclosure on our website. Alison will read the full disclaimer at the end of this call. Please note that all dollar amounts presented on our call and in the supplemental webcast presentation are in U.S. dollars, unless otherwise noted.As usual on our call this morning, Ian will start with a discussion of our strategic achievements in the quarter, and David will follow up with the financial highlights. And then Ian will conclude with an update on our strategic plan as well as providing some details on a couple of upcoming events that we hope you'll be able to attend. We'll then open the lines for questions. And as usual, we ask you to restrict your questions to two and re-queue if you have additional questions.And with that, I'm going to turn things over to Ian. Ian?

Chris, thanks very much, and good morning, everyone, and thanks for taking the time to join us for our Q3 call. It's a crisp fall day from our offices here in Oakville. I'll start the conversation, as Chris had highlighted, with some of the more pertinent details from this quarter. So looking at a brief snapshot of the financial results, we're pleased to report a solid quarter with year-over-year increases in both adjusted EBITDA and adjusted earnings per share. We're confident that the strength in our key financial metrics supports growth in our dividend, which also saw a 10% year-over-year increase in keeping with our previous dividend growth guidance.Now turning to a couple of the strategic initiatives. We're pleased at having completed previously announced utility acquisitions, New Brunswick Gas in early October followed by St. Lawrence Gas just last week. These acquisitions expanded our utility presence into New York State and the province of New Brunswick, our first Canadian-regulated utility, and added nearly 30,000 customers to our distribution footprint, which now stands at over 800,000 customers.Secondly, the months leading up to December 2020 are expected to be very active for our construction teams. In addition to construction commencing on our 490-megawatt Maverick Creek Wind project, located in Texas announced during the quarter, I'll provide you some additional details later on the call on the other projects, which are targeting 2020 commercial operations dates.And lastly, we're pleased to have completed our first-ever U.S. marketed offering of common shares. Strong investor response supported our $350 million equity raise to be used to partially finance certain of the company's previously announced acquisitions and our renewal development growth project, and David Bronicheski will give you a few more details of that a little later in the call.But before I pass things over to David to discuss the financial results, I wanted to highlight the recent publishing of our 2019 Sustainability Report, which is available on our corporate website. As I have often said in the past, from the earliest days of our company's history, sustainability has underpinned how we think, act and operate. By virtue of the business we're in, creatively and responsibly delivering clean energy and water solutions that create better everyday lives and aspire our communities, sustainability is ingrained in our nature. Through our purpose, sustaining energy and water for life, we take our role in helping to create a sustainable energy and water future very seriously, and I'm pleased to share our progress and goals in this report.And as a shameless plug, we're hosting our first-ever Sustainability Day next week to further outline the highlights of the report to investors, and I'll give you more details on this further in the call.And with that, I'll pass it over to David for a review of our Q3 2019 financial results. David?

Thanks, Ian, and good morning, everyone. Algonquin enjoyed a relatively quiet third quarter this year. Our business operations overall generally performed in line with our expectations.Our Q3 2019 adjusted EBITDA on a consolidated basis was $186.9 million, an increase of $21.4 million over the same period last year. On the regulated side of our business, Liberty Utilities generated Q3 2019 divisional operating profit of $135.3 million, which is consistent with the previous year as solid operations from our existing facilities, including implementation of several rate cases that were more than able to offset the implementation of lower rates at Empire and Granite State Electric utilities due to U.S. tax reform. We think this is a really good demonstration of the benefits of our diversified utility platform.Within our nonregulated group, the business generated a divisional operating profit of $66 million, an increase of $22 million compared to Q3 2018. The increase in adjusted EBITDA is related to our investment in Atlantica as well as higher wind and solar resources that boosted production from much of our fleet of renewables compared to the same period last year.Our adjusted EPS came in at $0.14 per share for Q3 2019 compared to $0.10 per share reported in the same period last year. The increase in adjusted EPS reflected a $0.02 per share acceleration of value from the energy offtake agreement related to our Sugar Creek development that arose as we now move to the construction stage of that project.And as Ian noted, in October, Algonquin completed its first U.S. marketed equity offering of common shares for total gross proceeds of just over $350 million. We turned to the U.S. market for this equity offering to expand our investor base in the U.S. and to improve our trading liquidity on the New York Stock Exchange. We believe the offering was very successful. It certainly was oversubscribed and attracted new investors at what we believe to be a modest discount to our share price. The proceeds will be used to partially finance previously announced growth initiatives.I'd also like to note that last night, it was confirmed that Algonquin will be added to the MSCI Canada Standard Index, effective at the close of business on November 26. We view this addition as a reflection of Algonquin's increased scale in the Canadian equity capital markets and is expected to drive additional passive demand in our stock throughout this month.With that, I'll now hand things back over to Ian.

Thanks, David. Before we close out our prepared comments this morning, I did want to give you a quick update on our main areas of growth that we focused on and will continue to focus on for the remainder of 2019 as we execute on our 5-year strategic plan. We'll then, as usual, open the lines for the question-and-answer period.We are pleased that we are continuing to make progress on our 5-year $7.5 billion capital investment program that we outlined at last year Investors Day. Within our non-regulated renewables business group, Liberty Power, we're pleased to report that the construction program related to our projects targeting 2020 COD are well underway. I already mentioned that the ground has been broken on the 490-megawatt Maverick Creek Wind project in Texas, but access roads and turbine foundations are being constructed on the 202-megawatt Sugar Creek Wind project in Illinois and our 24-megawatt Val Éo project in Québec, both of which, we anticipate, will achieve commercial operations next year. Additionally, foundation pile driving and panel installations are underway at our Great Bay 2 Solar project in Maryland.Our active construction program extends into our regulated utility business, Liberty Utilities, with 600 megawatts of new wind generation targeting commercial operations in 2020 to replace coal at our Midwest electric utility. EPC, or Engineering, Procurement and Construction, contracts have been signed and construction activities are in varying states for the 3 projects, which comprise our central region Greening the Fleet initiative.While investing capital in our regulated utilities to support our customers is a good thing, completing the value circle, with rate reviews to earn a return on such investment, is also important. This quarter, we completed approximately $5 million in rate reviews and have another approximately $45 million in rate reviews pending.Finally, we're continuing to focus on opportunities to save customers' money through replacement of fossil fuel-fired generation with renewables and energy storage through our acquisition of the Bermuda Electric Company. Plans are being developed for lowering customer rates using a combination of solar, wind and energy storage. The regulatory application was filed earlier last month, and we're hopeful of closing early in the new year. With these initiatives, we remain on track and committed to our $7.5 billion project pipeline of growth that will bring value to our shareholders.And last, but not least, before we open the lines up for questions, I'd like to highlight some important events that Chris referenced that we'll be hosting in the coming weeks. We'll be hosting our first Sustainability Day in step with the release of our 2019 Sustainability Report. The event takes place next Thursday morning, November 14. While the event will be held at our offices and will include a scrumptious continental breakfast to lure you here, it will actually be available through webcast. So there's no actual need to travel for the wilds of Oakville.And secondly, we're hosting our Annual Investor -- Analyst and Investor Days in Toronto on Tuesday, December 3, and New York Friday, December 6. These events provide us the opportunity to share our thoughts, our enthusiasm and excitement regarding our operations, our strategic direction and the future growth plans for Algonquin Power & Utilities Corp. And so, to find out more or register for either or any of these upcoming events, please e-mail investorrelations@apucorp.com.And so with that, I'll turn things over to the operator to open the lines up for questions. Operator?

[Operator Instructions]. The first question comes from Sean Steuart of TD Securities.

A couple of questions. So you've acquired an interest in the entities that are developing the Missouri wind projects for the greening of the fleet and Empire. Can you go into a little detail there on the motivation for that as construction gets underway?

Yes. I mean, let me start by saying, you know that this organization is not uncomfortable with nor shy in, I'll say, directly developing wind projects, such as the ones comprising the Greening the Fleet initiative. So we kind of looked at the risks and costs associated with the third-party developer relationship that we initially entered into in respect to 2 of the 3 projects. I think we came to the conclusion that on behalf of customers, I think, it made sense for us to negotiate and step into the shoes of the original third-party developer, and I think, ultimately, sort of just given all of the factors that this was something that just made sense from a risk-return perspective. And as I said, you certainly know that this isn't our first rodeo when it comes to building wind projects. And so they're there. It is a process that we're sort of totally comfortable with. I don't know, Sean, is that where your question was going? Happy to kind of give you more thoughts and details to it. But...

Yes. I mean, that gets to the gist of it. I just wondered if something had changed in the relationship with the entity that you felt the need to step in. But...

No. No. But I think -- as we look at the process, and it's -- I don't think it comes as a shock that the third-party developers were charging a fee. And as we kind of looked at what stands in front of us, and I'll say, the risk reward, it made sense for us to negotiate a termination of that arrangement. I don't think -- I don't think that there's sort of anything untoward. Clearly, we might have a different view of some of the risks associated with outstanding permitting, et cetera, than the original developer might have. And so to the extent that costs were being -- trying to be passed through to us, it just made sense to negotiate that arrangement. And as I said, we're not uncomfortable with the risks, and Lord knows it isn't the first time we've been down the path, so.

That explains it. Second question, sticking with greening of the fleet. Prior -- well, Belco close soon, I suppose, wondering if you could go into a little more detail on the greening of the fleet potential there? And specifically, how offshore wind might fit into those plans?

Well, I'll say -- I don't want to say hold that thought, Sean, until Investor Day, because obviously, we're going to spend some more time on that. I think Belco is a perfect example of this organization, executing on the -- basically the same plan that you see put to work in the Midwest, which is this idea of shutting down fossil fuel in favor of renewables and energy storage. And my gosh, when your energy is being sold at $0.42 a kilowatt hour, man, there's lots that can be done. But I think your intuition leads you into exactly the right spot, which is the optimal solution will likely be a combination of some more solar, some offshore wind, which you obviously touch on because the Bermuda, if -- well, it's a beautiful place, there isn't much of it, and so land certainly comes at a premium, but also combining some storage into that. And so we are pulling together a plan. We want to sit down, I'll say, get -- hit the ground running with government as we -- the regulatory approvals come through. And I think we're confident we can really do great things. But it's exactly the combination of the things that you talked about. And as I said, my gosh, if you're burning -- if you're generating electricity at $0.42 a kilowatt hour, we're almost half of that, is literally just the cost of fuel. With the falling cost of renewables, it's a pretty exciting opportunity.

The next question comes from Nelson Ng of RBC Capital Markets.

My first question relates to the utility business. In the operating profit bridge for the utility business, I think there was a $4.1 million benefit due to operating cost savings across the gas system. Could you give a bit more color in terms of those savings? Whether the -- like, what the annualized amount is? And whether you can -- whether there's opportunities to realize additional savings going forward?

Yes. Well, this is exactly the thesis that we've been putting forward with respect to our capital program. And I think you'll recall last year at Investor Day, we outlined how we're able to increase our rate base at a pace of it was closer to 8%, while keeping rates to customers closer to that 2% to 3% rate. And this is a perfect example of that. We've invested in capital, and this has now allowed us to enjoy some operational cost savings. That's essentially what it is.

Okay. Got it. And then the next question is, I guess, the sale or moving Sugar Creek into AAGES. There was this, I think, $15.6 million gain. Just for housekeeping purposes, like, was that number included in adjusted net earnings? Or was it backed out?

So just by way of background, we put an energy offtake contract in place early in the [indiscernible] for that and it's, obviously, in the money. To this point in time, those gains have been in OCI. And now as we move into the construction stage of the project, we've spent [ph] responsibility up to our AAGES group for that and the accounting treatment required that the gain be released from OCI and into our earnings, and it's certainly, an acceleration of value that's been created through the development process. So that gain is not included in our adjusted EBITDA, but it is included in our adjusted net earnings.

Okay. So just to clarify, those are the synthetic hedges or synthetic PPAs that you put in place back earlier in the year?

Yes.

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

It's actually Ryan Greenwald, on for Julian.

No worries, Ryan. We'll even -- we'll talk to you, too.

Appreciate it. So I guess, piggybacking on the Sugar Creek question. So it seems like this is kind of more onetime in nature and similar to an item last quarter. So I guess, how should we be thinking about 2020 EPS drivers after accounting for the onetime items?

Well, I might question the comment that it's a onetime item. I mean, we're in the development business, and every year we develop projects, and every year we create value in development of projects. So I guess, it really is a matter of perspective, I suppose. I would argue that creating value through the development process is something that we recur -- that recurs in our business every year. And it was, perhaps, more evident this time through this acceleration of value, as we say. But certainly, it, to our way of thinking, happens every year.

And then maybe, Ryan, to kind of speak to the heart of your question as you think about 2020. I think, in general, when you look at the guidance that we're going to be giving at Investor Day, I want to say we don't presume that we're going to create value through these sort of initiatives. As you know, the lion's share of this business generates its earnings through the operation of its regulated utilities, which are pretty straightforward. And -- but to the extent that we're in the renewable energy business and when assets get transferred and our paradigm for constructing these assets is through the use of partnerships, we actually think that, that net gain that arose on the transfer of that asset is really just harvesting value that, ultimately, otherwise would come over the length and life of that project. So it doesn't feel like it's a one-timer, I get the concept of acceleration. But in general, as I said, your question was focused on 2020, we don't presume that we're going to be able to realize any of these gains. If for no other reason that, as you know, there -- in some respects, they're prevised on what do the various electricity markets look like, and it would be presumptuous for us to assume that those are going to arise. I don't know, Ryan, if that's helpful, gives you the insight that you're looking for?

Yes. That's very helpful. And then are you guys able to just provide any of your latest thoughts around the AY relationship and long-term partnership strategy there?

Well, I don't think anything has changed from the calls that I've answered the question in the past, and I'm not being critical about it getting raised again because I think we probably share -- if it's not certainly a frustration, it -- we certainly acknowledge that the strategic review process for Atlantica has gone on for a while. And so maybe that's kind of the heart of your question. We have said that we are sitting in a polite kind of Canadian way on the sidelines, cheering on the strategic review process because we want Atlantica to continue to fulfill its role in our business, which is to provide sort of a cost-effective -- provider of cost-effective capital as a -- through the other half that we don't own for holding certain assets. And I'm not so sure that it's actually able to perform that function right now. And so we are kind of hoping and -- that this -- that things get advanced. I will say, and I pointed out in every call in the past, but I think it should be pointed out again is you know we're sitting on the sidelines or in the waiting room, name your metaphor of those discussions because we don't want anyone to presume that somehow we're putting a thumb on the scale as to how it should be resolved.

The next question comes from David Quezada with Raymond James.

Just maybe one follow-up here on Sugar Creek. I think there was some commentary in the MD&A about potentially reacquiring the stake that had been moved into AAGES. Wondering what your decision process would be like on that specifically.

Well, if you look, David, at kind of previous projects that we've undertaken, I don't want to say you'll see a pattern emerge, but that -- while we're happy to enter into partnerships during the late development and construction phase in most of those instances, I don't want to say all of them, but in most of those instances, following successful commercial operations, the project's been repatriated back onto our books. And you can imagine there's all sorts of reasons to do that, risk sharing, management of credit metrics because there's, obviously, no cash flows off of a construction project. But without making it a foregone conclusion that we're going to reacquire the project, we have certainly preserved the option to do that at the end of construction. So I'll leave you to draw your own conclusions there, David. I don't -- do you need more? Or are you good with that?

No. That's helpful. And then maybe just a follow-up on the wind segment in general, specifically in the Midwest. As a wind project that you're putting into the rate base there approach, wondering -- maybe it's lower premature assets, but just wondering if -- how -- what your sense is on what the regulator's appetite might be for future renewable investments in rate base in that region?

Well, I'll start by saying, you know that our Greening the Fleet initiative actually doesn't really reflect the regulator's appetite for wind, per se. It actually reflects the regulator's appetite for us doing the right thing to save customers' money. So the end of the day, the underlying previse for that initiative is it's just the right thing for customers. You know that shutting down our Asbury coal plant was fundamental to creation of those savings. We have a couple of other interesting coal plants. So the process of replacing that generation with low-cost renewables is some -- is a little bit more complicated because we don't own and control those assets, but really have interest in those assets. And so we are looking hard at additional renewables in the Midwest. And if, I don't know, drawing your attention to is the right thing, but in our latest integrated resource plan for the utility, we look to the installation of some substantial amount of solar and some energy storage, and that both of those represent the low-cost solution for our customers. And so I think I'd wrap up, David, by saying we are not done yet in terms of saving customers' money through the development of low-cost renewables.

The next question comes from Hassaan Khan with National Bank Financial.

I'm here on behalf of Rupert. Just to make a quick question here. With the increase in what we're seeing in interest in infrastructure from private capital, how do you guys see the market for M&A?

Well, I don't know, Hassaan, if your question is, should we be buyers or sellers in that marketplace. Clearly, you could ask the guys from pattern 3 weeks ago, you might have got a different message there. So well, look, I mean, we are always trying to make to make the -- to make good decisions on behalf of, I'll say, all of our stakeholders, but really, in respect of our shareholders as we think about the M&A market. So when we want to buy something, I think you should be asking us the question as how did we create value through that acquisition, and there is intense competition for assets. I think we have demonstrated a competency at string, a little bit from the fairway, perhaps, but finding good assets.I think New Brunswick Gas and St. Lawrence Gas are perfect examples of being able to add quality utility operations that may not have been exactly on the fairway from some of the private equity side of things. But I think it's hard to look away and wonder as we think about funding some of our growth initiatives going forward is capital recycling, something that we should consider. David Bronicheski, without giving spoilers on Investor Day, is going to give you his thoughts about how we might look at that movement. And I know Rupert published a little bit of a faint piece on what's happening sort of the flow of funds into real assets. And I think we just need to do the right thing. And I will say, sort of in wrapping up, the assets we own are not our children. While we love them dearly, we get it that if they need to be sold, that's the right thing from maximizing the overall value proposition for this organization, we're going to take advantage of it. I don't know, Hassaan, if that's the kind of insight that you're looking for?

Yes. Yes. That's great color. Just to follow up on your comment with the recent acquisition of St. Lawrence and New Brunswick Gas. What are your nearer-term goals for these assets? Can we get some color on contributions?

Yes. Well, first of all, to integrate them into the Liberty Utilities family. That's kind of our first and foremost goal. But I think both St. Lawrence Gas and New Brunswick Gas present really the word unique opportunities since they both share it, I guess, it's not unique, but they present the opportunity to drive substantial, I'll say, customer growth that would lead to a reduction in costs for everyone and therefore, lubricate more our customer growth. New Brunswick Gas is a perfect example. You've got a utility with infrastructure that was installed during the creation of the utility that could support 70,000 customers, and there's sort of almost just under 13,000 on there. And so when we announced New Brunswick Gas, we committed $5 million of candidly your money, shareholder money, as part of that acquisition process to lubricate the adoption of natural gas as a clean fuel in the province. And we're hopeful that we can get that virtuous circle going that more customers begets more customers because everybody gets lower rates. And so we are all about -- almost in every one of our utility acquisitions, all about -- it's not just about buying the utilities, it's about surfacing opportunities that may exist in there. And so I would expect that you should see nothing less out of New Brunswick Gas and St. Lawrence Gas, Hassaan.

And I'll also just add on that, that it really does also play into our commitment to sustainability because, as you know, a large preponderance of the homes in New Brunswick are still using fuel oil to heat their homes. And so this is a classic example of how we can grow our business and still do good on the sustainability front.

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

I wanted to go to the U.S. Midwest projects and just circle back in terms of how does it change now the timing of your capital outlay and whether or not you guys can use any of your safe harbor turbines for those projects.

Oh, nothing. Are you talking about as a result of us [indiscernible]?

Yes.

Nothing's changed, Mark, in terms of 2020 COD that -- the safe harbor turbines like -- and I don't want to say, maybe just to clarify, you know we're not being forced to use our safe harbor turbines for those 600 megawatts. They're being dedicated to some of the other projects, Sugar Creek and Maverick, and that through a partnership with an affiliate of Vestas, we've secured the safe harbor turbines for the 3 projects comprising the Midwest. So I don't want to say, don't worry about the safe harbor turbines. Those relationships are continuing, notwithstanding the fact that Liberty Utilities is kind of stepping in as in the role of developer of those assets. We are maintaining the access to those safe harbor turbines. I don't know, was that what your question or concern was?

Yes. No. I was just curious whether or not they were going into those projects. And then, I guess, so just maybe you clarify whether or not you have to actually contribute capital to get those projects up and then that just moves into rate base. Or just maybe help me understand the logic of your role in funding these projects now.

Yes. So I don't want to say, again, nothing's changed under the construct that we're using to build these projects. We have, in large part, already contributed, I'll call it, the equity stroke that needs to support the construction financing that will be obtained in the existing joint ventures between that affiliate and Vestas and Liberty, now Liberty Utilities Co. So again, the capital needs from us haven't really changed. When those projects are finished, Empire District will be acquiring them in the exact same manner into rate base of the regulated utility still. And in fact, fully pay for them at that time, which will be used to repay the construction financing. The equity that's been previously invested will now be reflected in rate base. So I think, Mark, from an accounting and from a rate base perspective, this is kind of a non-event in terms of the process. I don't know if that sort of gives you the insight and color into the process.

No. That's very helpful. I just didn't know if you guys had to contribute any additional capital in turn, but if construction financing covers it, that's good to know.

Yes. And let me just say, it does, and whatever equity we are putting into the project to support that construction financing, ultimately, as you know, it all kind of gets rolled together into the cost of the projects included in rate base. So -- and the timing of that, I'll say, was, continues to be late this quarter, early 2020 in terms of the contribution of that capital. Again, so I don't -- you shouldn't think from your model perspective of any change in -- from a material capital needs.

Okay, understood. And then moving on to sort of the capital recycling commentary. Obviously, looking at your water utilities not a huge component anymore of your rate base or net revenues for the utilities and kind of fragmented. Obviously, you are utilities trade at really high PE multiples. Is it more about getting better recognition for that inside your company? Is that something you guys think to divest that? And maybe just how you think of those valuations in the context of like ESG criteria?

Well, that's a great question, I think. As we have think -- thought about capital recycling candidly, it probably really hasn't extended to the Utility business so much. You know that $1 of rate base, independent of whether the modality is water, gas and electric, are sort of fungible from Liberty Utilities' perspective. And I totally get your thesis that maybe on a sum of the parts basis, we're not getting full value for our water utilities. But man, if I could grow the water utility business, I think the organization would be well served to do that, 0 substitution risk, generally pretty good CapEx investment opportunities to kind of deal with the historic deterioration of the water infrastructure through [indiscernible]. And so I think we love the water utilities. Your commentary about sustainability is absolutely true. But I'm not sure that we really see a massive distinction in terms of the ability to execute on it. David, in an answer to a previous question, obviously, talked about being able to substitute dirty fuels for natural gas coupled with our commitment to develop renewable natural gas. I think we're confident that we can live that sustainability purpose with every modality.To get to the heart of your question, which is, well, talk to me a little bit more about this idea of capital recycling. I think it's hard to look away from some of the multiples that are getting paid for renewable energy assets and say, should we be recycling some of that capital to help fund some of the growth that we have going on, on what's a core business to us? And I think and maybe I get it. We started life as a small hydro development company. But as life has evolved over the past 30 years, it's hard to not see us at our heart as a regulated U.S. and Canada utility business. And so maybe some of the -- some portion of the value we've created in the renewable energy space should get recycled there.And so I think, David, as I said without being a spoiler for Investor Day, is planning to give you a little bit more thought and insight into the criteria we might use for capital recycling. But you know that's not a word that we've spoken very frequently of in the past. And so maybe it is a reflection of kind of the evolving demand for private money chasing some of these real assets, of which we are rich with.

And the other thing that I will add, specifically, with the role of water utilities within our Utility portfolio, I mean, they also play a maybe not so obvious role with respect to our business risk profile with various rating agencies that we deal with and rating agencies view water utilities very, very highly. And so it does even factor into our ratings investments.

The next question comes from Christopher Turnure with JPMorgan.

It's actually Rich Sunderland, on for Chris here. Just circling back to the utility cost commentary, I'm just curious to what extent the savings are being generated kind of into rate cases to moderate that rate inflation impacts or retain kind of for the duration of the cycle into the next rate case following a rate case.

Yes. I think your -- Chris, your question is spot on. I mean, obviously, operating costs are to the benefit of and to the cost of customers. And so that, depending on where that operating cost saving is occasioned, it could go away at the next rate case. Or if it was occasion further up at the Liberty Utilities level, it will obviously have a much longer endurance because it will have to sort of be reflected in rate cases across the entire portfolio, which given our cadence for rate cases, you're probably looking at 4 or 5 years. And so very specifically, I can't speak to exactly where the $4.8 million that Sean might have raised or maybe it was Nelson raised. But the -- but in any event, ultimately, those go away. But what is enduring is to the extent that those operating cost savings are, I'll say, replaced in some way with the return on invested capital, that's an enduring return for us. And so clearly, to the extent that if we can save some customers' money, but create an investment opportunity for shareholders isn't that good.

Got it. And then similarly, just circling back to the M&A commentary kind of separate from the capital recycling, curious about your latest thoughts on international with Bermuda sort of close to the finish line here.

Yes. I know you're from the Northeast, so you'll appreciate stick is still on the ice from a perspective in looking for additional opportunities. And we got St. Lawrence Gas, New Brunswick Gas and Belco is coming close. And so I think we are -- we're keeping our eye open. And it's not just international, but we would love to continue to add to the business. I think as you think about this business, it's hard not to really love the quality of earnings that comes off of regulated utilities and predictability, too. So eyes are open and stick's on the ice.

The next question comes from Rob Hope with Scotiabank.

I just want to -- I don't want to beat a dead horse, but we wanted to circle back on the capital recycling on the utilities side. I think the question is, more broadly speaking, are you looking at your utilities in terms of capital recycling as a source of funds? Or could a JV with a third-party allow you to pursue some larger opportunities in North America, if they do occur?

Well, I would say, interesting thought. I'll say that, clearly, the thought of capital recycling is about optimizing returns. You know we've got this $7.5 billion portfolio we announced last year. And as I said, without being a spoiler for Investor Day coming up in a month or two, we've kept at it and so that's going to continue on. And so the question that we always ask ourselves is, are we better off selling some select -- or selling an interest in some select group of assets and obviating the need for new equity issuances? And I know your brethren in the investment bank are cringing as I say that, but to the extent that, that's the right way to maximize returns. The idea of this thought about creating a joint venture to create scale and maybe enhance currency when it comes to doing larger M&A, it's an interesting thesis, but I will admit that, that wasn't at the heart of that capital recycling commentary. It is really -- the capital recycling commentary is really a reflection from our perspective of the quantum and cost of money-chasing real assets in the globe today and what's the right thing for us to do, though, you do present an interesting thesis.

The next question comes from Ben Pham of BMO Capital Markets.

With your comments stick on the ice and your positive tone on water, do you guys look at the Jacksonville utility in terms of the initial bids or?

We have. And so I'll say without telling stories here. You know it's quite the acquisition. And there's a complexity associated because it is both electric and water. And I think if -- where your question is going is, does the water assets there feel more bite-sized and suited for us? The answer is, they certainly would. I don't think the electric utility is -- it would be significantly deweighting, as you know, to our portfolio. So I think your intuition to ask about the water is probably spot on that those assets are something that either through some concession or partnership arrangement, some management agreement, that might be something that we're interested in. But we're going to have to see how that whole process starts itself out.

Okay. All right. And then with your recent equity offering, do you think that your balance sheet is under-levered right now?

I wouldn't say under-levered. I mean, I guess -- it arguably depends on your perspective when you can say under-lever. I mean we like to have some elbow room between where we're at from a credit metric perspective and our downgrade threshold. And so we think we have that elbow room today. Some of it's, obviously, timing. I mean, we're comfortable upsizing our equity offering. It moved forward a little bit of equity for some of the things that we've got going next year. But we'll soon be closing Belco. We've just closed St. Lawrence Gas and New Brunswick Gas, and those acquisitions aren't even reflected in the Q3 because they happened subsequent to the quarter. But I'd say we're quite comfortable with where we stand from a leverage perspective. It gives us the flexibility that we need. And so that if we were to make another announcement on some other thing, we're comfortable the market would see that we've got the elbow room to take that on.

Okay. That's great. And congrats on the U.S. offering.

[Operator Instructions]. The next question comes from Nelson Ng with RBC Capital Markets.

I just had a quick question on the August rate case filing for Empire, requesting the, I think, $26 million rate increase. Can you just give us bit more color on the rate request? Is this like normal course? Or is it related in any way to the greening of the fleet?

No. It's just part of the, I'll say, the normal cadence. I don't want to say, in some respects, we were obligated to file the rate case in accordance with the previously agreed cadence with the Missouri Commission. As we think about recovery on the Greening the Fleet, that's obviously, I'll say, next year, the year after that we're planning to do that. So, no, Nelson, that rate case really just reflects, I'll say, a collection of a bunch of issues that just needed to get -- need to get trued up. And so I get it. It's $26 million, but that's just kind of the -- so it's not related to Greening the Fleet.

Okay. And then just on the greening of the fleet, like there is supposed to be some savings longer term. So, like, will you be required to have another filing in early 2021? Or will that be another, call it, 3 years or so?

No. No. No. I think -- no, we're not -- we are going to step out of that normal cadence for the greening of the fleet because you can imagine the way that process works is we put the wind assets into rate base. The net -- the savings to customers is in the cost of purchased power, but we need a rate case to affect that shift in customer costs, albeit we expect them to be lower in the aggregate than they were if, to the extent, you're buying energy from Asbury, as an example. And so, no, there will be an extraordinary cadence to the rate cases in respect of the greening of the fleet. But our regulatory team of -- are on it, and I don't think the commission would be surprised with those statements.

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

Great. Well, it looks like we got done before you guys all have to rush off to your 11:00 earnings calls. And so with no further ado, I'll turn things over to Alison for her riveting disclaimer on forward-looking information. Alison?

Thanks, Ian. Our discussion during the call included 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 the call speaks only as of the date of the 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 to explain any material 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's 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 or EDGAR in the United States and available on our website.

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