Algonquin Power & Utilities Corp. will pursue a sale of the Renewable Energy Group.
"Over the past few months, the AQN Board of Directors, in conjunction with our independent financial advisor, has conducted a thorough review of our businesses with the aim of enhancing value for our shareholders," said Chris Huskilson, Interim Chief Executive Officer of AQN. "We have two strong businesses – a well-positioned regulated utility business with diversified assets and attractive jurisdictions, and a solid, competitive renewables business with scale and strong assets. That said, we believe the value of our assets is not fully realized in our current structure. We therefore determined that focusing on our regulated business going forward and pursuing a sale of the renewables business is the best path forward for AQN."
Huskilson continued, "We are confident that the intended sale will unlock AQN's value as a pure-play regulated utility by simplifying our structure and enabling us to focus on lower risk regulated investment opportunities, with greater operational efficiency and capital discipline. We expect to use the proceeds of a renewables transaction to reduce our debt and fund share repurchases. In addition, our objectives for the transaction are to support our current dividend, reduce our cost of capital, and maintain our investment grade BBB credit rating. At the same time, we will seek to maximize the value of the renewables business and position it with a new owner that can facilitate its long-term success through the ongoing energy transition."
As announced on May 11, 2023, the Company's Board of Directors initiated a strategic review of the Renewable Energy Group with the aim of enhancing shareholder value. The strategic review was conducted by the Strategic Review Committee of the Board, comprised of directors Chris Huskilson (Chair), Amee Chande and Dan Goldberg.
JP Morgan will act as the Company's financial advisor in connection with the sale of the Renewable Energy Group. The Company expects to exit the sale process as a competitively capitalized, pure-play regulated utility with a stable and healthy growth outlook.
Second Quarter Financial Highlights
The Company also announced today financial results for the second quarter ended June 30, 2023. All amounts are shown in United States dollars ("U.S. $" or "$"), unless otherwise noted.
"While our second quarter 2023 results were negatively impacted by unfavourable weather, we remain focused on our growth outlook and long-term success," said Mr. Huskilson.
Revenue of $627.9 million, an increase of 1%;
Adjusted EBITDA1 of $277.7 million, a decrease of 4%;
Adjusted Net Earnings1 of $56.2 million, a decrease of 49%; and
Adjusted Net Earnings1 per common share of $0.08, a decrease of 50%, in each case on a year-over-year basis.
Quarterly Results
Solid Regulated Growth from New Rate Implementations – The Regulated Services Group grew primarily due to the implementation of new rates at certain of the Company's utilities. As previously disclosed, the Company realized the benefit of an annual revenue increase of $27.0 million at its CalPeco Electric utility, which was authorized on April 27, 2023, effective June 2023 and retroactive to January 2022. The order's retroactive adjustment resulted in a one-time net earnings benefit of $11.2 million that was realized in the second quarter of 2023.
New Rates Filed in New York and New Hampshire – In the second quarter of 2023, the Regulated Services Group filed for new rates at its New York Water and Granite State Electric utilities. The New York Water application, filed on May 4, 2023, seeks an increase in revenues of $39.7 million based on a return on equity ("ROE") of 10% and an equity ratio of 50%. The Granite State Electric utility, filed on May 5, 2023, seeks a permanent increase in revenues of $15.5 million and a temporary increase of $6.7 million based on an ROE of 10.35% and an equity ratio of 55%.
Unfavourably Impacted Results due to Weather – Overall across the Company's business segments, unfavourable weather negatively impacted second quarter Adjusted Net Earnings per common share by approximately three cents compared to the same period in 2022. More specifically, the Renewable Energy Group's wind facilities generated 75.1% of long-term average resource, a 22% decrease compared to the same period in 2022, accounting for approximately two cents of year-over-year Adjusted Net Earnings per common share decline (see "Non-GAAP Measures" below). For the Regulated Services Group, unfavourable weather reduced customer demand and drove a headwind equating to approximately one cent of year-over-year Adjusted Net Earnings per common share decline.
Renewable Operating Performance Reduced by HLBV Roll Offs – The Renewable Energy Group experienced a $14.0 million decrease in Hypothetical Liquidation at Book Value ("HLBV") related to end of the production tax credit eligibility on certain projects commissioned in 2012, as previously experienced in the latter half of 2022 and first quarter of 2023, and the remainder related to weather-driven reduced wind production.
Higher Interest Expenses Reflect Growth Financing and Macro Environment – In the second quarter of 2023, interest expense increased by $25.1 million year-over-year, with approximately two-thirds of this increase attributable to higher short-term borrowing costs and approximately one-third attributable to financings to support growth initiatives. Higher interest expenses also drove a large portion of the year-over-year decline in adjusted funds from operations.
