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Executives

Ian Robertson – Chief Executive Officer

Christopher Jarratt – Vice Chairman

David Bronicheski – Chief Financial Officer

Kelly Castledine – Investor Relations

Analysts

Juan Plessis – Canaccord Genuity

Rupert Merer – National Bank

Nelson Ng – RBC Capital Markets

Ian Tharp – CIBC World Markets, Inc.

Matt Gowing – Mackie Research Capital Corp.

Sean Steuart – TD Securities

John Safrance – Cantor Fitzgerald Canada Corp.

Jeremy Rosenfield – Desjardins Capital Markets

Algonquin Power & Utilities Corp (OTCQB:AQUNF) Q1 2013 Earnings Call May 10, 2013 10:00 AM ET

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Algonquin Power & Utilities Corp Q1 Analyst Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session and instructions will be given at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Friday May 10, 2013 at 10.00 am Eastern Time.

I’ll now turn the conference over to Mr. Chris Jarratt, Vice Chair. Please go ahead, sir.

Christopher Jarratt

Good morning everyone. Thanks for joining us on our 2013 first quarter conference call. With me on the call today are Ian Robertson, our Chief Executive Officer; David Bronicheski, our Chief Financial Officer; and Kelly Castledine, our Direct of Investor Relations. For your reference additional information on the result is available for download on our website at algonquinpowerandutilities.com.

I would like to note that in this call we will provide forward, some information that relates to future events and expected financial positions that should be considered forward-looking. Kelly Castledine will be back at the end of this call to provide some further details.

This morning Ian will discuss the highlights of the quarter and David will follow with a review of the financial results. And then we’ll open up the lines for questions and as usual I’d just ask if you restrict your questions to two and re-queue if you have any additional questions.

And with that I will hand it over to Ian.

Ian Robertson

Thanks Chris. Good morning everyone and thanks for taking the time to join us on the call today. As we look back on Q1 and its financial results, I believe we’re now seeing the full impact of our 2012 growth initiatives in both our regulated and non-regulated utilities businesses. Within our non-regulated electric generation business Q1 2013 shows the first full quarter impact of the acquisition of 460 megawatts worth of wind generation in Texas and Illinois. On the regulated side of the business, I believe the quarters financial results illustrated the true value proposition of our new Hampshire and Midwest Gas Utilities acquired mid last year.

Following the success of completion of the regulatory approval process, we were pleased that the quarter saw the commencement of the process of integrating the Arkansas and Georgia based utility assets, customers and employees into the Liberty Utilities family. The successful closing of all of these transactions marks a significant milestone and the continued growth of our company. And we believe they will strongly contribute to our strategy of providing attractive total shareholder return.

Continue on the growth front, in February of this year, we entered into an agreement to purchase the assets of New England Gas Company, a natural gas distribution utility serving over 50,000 customers in Massachusetts. The completion of this $74 million acquisition is subject to customary regulatory approvals and is expected to close in the second half of this year. With these activities we’re almost halfway to our stated goal of $1 million regulated utilities businesses with Liberty’s total customer account expected to close in on 500,000 in 2013. Additionally, we’re already surpassed our goal of $1 million kilowatt of installed capacity, with APCo’s interest in non-regulated power assets, surpassing 1100 megawatt mark.

Before I hand things over to David, I would like to take a moment to touch on our announcement yesterday regarding the Board of Directors decision to increase APUC annual dividend by $0.03 to $0.34 annually. The recently completed acquisition of several power and utility assets that will contribute significantly to earnings and cash flows affirms our continuing growth trajectory. As such the Board believes that in the context of the profile of earnings and cash flow contributions on these new assets, an increase in the dividend was appropriate. We are pleased to being able to deliver on these growth initiatives and believe that the dividend increase is consistent with our strategy of providing total shareholder return comprised of a track of dividend yield and capital deprecation.

I’d now like to hand things over to David to speak the financial results.

David Bronicheski

Thanks Ian and good morning everyone. You clearly see from our results in the first quarter of 2013, we have shown significant year-over-year growth. Overall, we ended the first quarter with adjusted EBITDA of $61 million, an increase of nearly $38 million over the same period a year ago. The increase is primarily a result of the positive impact of our growth plans including acquisitions and development projects that have been completed in the last 12 months.

Sort of specific details, we ended the quarter with revenue of $196.7 million and that compares to $63.4 million in 2012. Our EBITDA was $61 million compared to $23 million a year ago and net earnings of $17.8 million compared to $5.5 million a year ago. Now a little bit more detail by division. In our renewable energy division, in the first quarter, net energy sales were $37.3 million compared to $19.9 million in the same period a year ago. If we adjust for the effect of the unplanned outage at our Long Sault generating station during the first quarter our hydro facilities experienced production equal to a 110% of long-term average resources. Our wind facilities generated electricity equal to approximately 91% of long-term averages for a combined 94% of long-term projected average wind and hydrology. Our renewable energy divisions operating profit totaled $34.5 million, as compared to $15.3 million, during the same period a year ago.

Looking at our thermal energy division, we essentially broke even during the quarter and is largely due to a less peaking opportunities at our Windsor Locks generating facility and the lower time by the year for our Sanger facility also with lower EBITDA coming from our EFW facility as we continue to transition to a more variable waste stream than we previously had when we’re on contract with processing solid municipal waste.

Looking ahead for the second quarter of 2013, our renewable energy division is expected to perform based on long-term average resource conditions for wind and hydrology. And our Long Sault facility experienced an unplanned outage late last year, but it is expected to be brought back to full production levels in the second quarter of 2013 with one unit already return to service in April.

In the interim, we expect the loss revenue to be made up through our business interruption insurance. As an added note, we’re expecting additional revenue in the second quarter of 2013 compared to last year from the results of our acquisitions of four new wind form assets in the U.S. including Shady Oaks, which we closed on January 1st. For our thermal energy division, we have no planned outages in 2013 and our Sanger facility is expected to perform at comparable levels to historical results.

Moving on to Liberty Utilities. In the first quarter of 2013, Liberty Utilities reported an operating profit of $31.9 million compared to $8.3 million a year ago. The increase in operating profit is obviously due to the contributions from our recently acquired utility businesses. The Liberty Utilities West during the first quarter water distribution and waste water treatment revenue was $4.5 million, which is in line with the same period a year ago and net electricity revenue was $29 million compared to $19.4 million, a year ago. The increase was primarily due to the fact that you might recall, last year, we experienced lower than normal customer electricity consumptions and this year we’ve now implemented the Calpeco rate case in which there is a decoupling mechanism which smoothes out the revenues from quarter-to-quarter as we’re no longer taking volume metric risk in the utility.

In our central division, the regions water distribution and waste water treatment revenue was $3.6 million that was higher than the U.S. $2.1 million a year go due to the addition to the Pine Bluff Water System. Also during Q1, our Liberty Utilities central net revenue from the Midwest Gas Utilities was $10.2 million and that’s as a result of our acquisition of our gas utilities halfway through last year.

Moving on to Liberty Utilities East. Net utility sales for the East totaled $28 and obviously the renewal comparable results for that in the prior year. Looking ahead to the next quarter for Liberty Utilities, we’re expecting more of the same that is continued modest customer growth in 2013 throughout our service territories, an increase in EBITDA of approximately $7.1 million in the West and our large part is as a result of the rate case for which the utility was approved back in late 2012 and the obvious contributions from our gas and electric utilities, which will continue to wind its way through our income statement as the year progresses.

I would like to take a moment now to review some recent financing activities. Early in the quarter, we completed the redemption of the outstanding Series 3 debentures by issuing and delivering $13.3 million APUC common shares and as a result we no longer have convertible debentures in our capital structure. In March, we competed a small U.S. private placement of $15 million half of our Liberty Utilities master debt platform that’s a 10 year note issued as 4.1% and we’re currently in the U.S. long-term debt private placement market to raise approximately a $100 million again for our utilities and we hope to have commitments on that financing before the end of May. Overall in the quarter, we issued about $15.2 million shares for a total of $19 million bringing Emera's ownership of Algonquin to 24.5%. I’ll now hand it back to Ian.

Ian Robertson

Thanks David. Just before we open the lines up for questions, I would like to provide a brief update on some of our growth and development initiatives. On the APCo side of the business, we’ve received the renewable energy approval on January 15 for our Cornwall Solar project and recently we received the notice to proceed construction that starts to begin in the second quarter with commercial operation in late 2013, adding an additional expected 13.4 gigawatt hours of product to the business.

We did complete our final open-house for the Amherst Island Wind Project during the quarter and subsequently submitted the renewable energy approval application April of this year. The application approval process typically takes the voting months and if and when approves construction will commence shortly thereafter with an expected timeframe of 12 to 18 months.

As I have stated on previous calls, I believe effect growth management is not just about buying new assets but also about reviewing the portfolio to determine whether its competition remains optimal. In this vein we were pleased to have entered into an agreement last quarter for the stale of a 11 smaller non-strategic hydroelectric generating assets for $27 million, a transaction we expect to close mid this year. You will also note, our MD&A confirms that we are undertaking a review of our strategic options with respect to our Brampton Energy from Waste facility.

Turning to Liberty Utilities, we’re focused on the seamless integration of our recently acquired Arkansas Water Utility and Georgia Gas Utility and gearing up for the closing of the New England Gas Distribution Utility in the second half of this year. Our Regulatory Affairs teams will diligently prosecute the several significant rate case as previously mentioned by David. Lastly as the value of our net utility assets tops to $1.2 billion, I believe there are significant investment opportunities to effectively and organically grow our rate base.

As we look forward to the balance of 2013, our focus continues to be on the smooth integration and operation of our growing fleet of assets and building on the momentum we have experienced over the past few years. We will continue to find value creating developments and acquisitions for our business in order to grow cash flow and further strengthen our stable base of earnings.

With that operator I’d like to open the lines up for our question-and-answer session.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. We’ll now conduct the question-and-answer session. (Operator Instructions) Your first question comes from Juan Plessis from Canaccord Genuity. Please go ahead.

Juan Plessis – Canaccord Genuity

Well, thanks very much and congratulations on a good quarter.

Ian Robertson

Thanks, Juan.

David Bronicheski

Thanks Juan

Juan Plessis – Canaccord Genuity

Yeah with respect to the strategic review process initiated on the EFW facility, can you provide us with a timeframe around that process and when you might you expect to conclude that?

Ian Robertson

Well, I think it really going to start it on the basis of and I think I’ve mentioned on previous calls and you and I certainly talked about it is that, when you look at the EFW asset, it does look a little bit different from the rest of the assets in the portfolio. So I think that’s really what’s kind of motivated us to be some more formal about looking at our options. I don’t think we’ve concluded by any stress that the asset needs to go and in fact I observe that it does look different not necessarily bad.

I think what we’re going to be undertaking and just to be responsive to your question, probably over the next quarter, an inter review of the whether what the asset might be worth to other people. I think we’ve mentioned in the past that it is ideally situated from a permitting an infrastructure perspective within the GTA. And so anybody who is interested in pursuing the EFW business would be keenly interested in this asset. But there are also possibilities as strategic partnerships with organizations for whom the technology and markets are core competency. And then lastly, we may decide to state the course. So I think we’ll have more color for you this time next quarter, Juan, I don’t think we’ve landed on anything, if you will, in terms of exactly how this unfolds.

Juan Plessis – Canaccord Genuity

Okay, thanks very much for that. As a follow-up, you’ve had a couple of changes in your development projects, the most wind projects now expecting to be in service in 2015, I think it was 2014 previously. Just wondering what’s going on there? And as well it looks like there is some cost call refinements at St. Damase. I think it’s down a few million dollars. Just wondering what’s driving that?

Ian Robertson

Specifically with respect to Morse, really the development schedule is largely driven by SAS powers interconnection commitment. And so we have to be say mindful, obviously we can’t build the generating station before SaskPower is ready to accept the power. I don’t think you should proceed anything to nefarious in terms of those delays, I think SaskPower to my knowledge remain as committed to the project as they were before, and internally we are moving quickly towards that construction process.

And so with respect to San Dimas its gearing up for a start of construction late this fall with the preponderance of the work being done next summer. And so if you see the refinement, it’s only because guys are going to the work we’re finalizing construction contracts for turbine supply in BOP and so. I think you’re really just starting to see, it’s the result of the continued development work and we’re obviously trying to keep the disclosure up-to-date with sort of the best available information. But John, I don’t think that you should read anything into it other than its just kind of a normal course.

Juan Plessis – Canaccord Genuity

Thank you very much.

Ian Robertson

Thanks John.

Operator

Your next question comes from Rupert Merer from National Bank. Please go ahead.

Rupert Merer – National Bank

Good morning everyone.

Ian Robertson

Good morning Rupert.

David Bronicheski

Good morning, Rupert.

Rupert Merer – National Bank

You mentioned some rate case applications and the granite state you’re seeking the interim rate increase of $9.2 million of possible implementation in Q3. What’s the timeline for hearings on the rate case, and how soon would we know about approval on the interim rate?

Ian Robertson

Well, there is actually hearing scheduled in June of this year, so next month on the interim rates. This is a very standard regulatory protocol within the New Hampshire environment. So it’s obviously we’re very supportive of these sort of mechanisms that reduced regulatory lag. So the way it works in New Hampshire as one comes in for – it files the complete rate case then makes an application for interim rates 90 days or 120 days after the initial application is filed and in this case it’s June. So we actually expect that that interim hearing to take place. As I said it particularly is targeted for June, so we’re hoping that you’ll see the impact of those rates is starting in Q3. The final rate case takes a little bit longer but in some respects the sting is taken out of that delay by virtue of the implementation of these interim rates. And so you shouldn’t expect to see kind of the final determination until Q1 of next year. I think it’s the timing maybe late Q1 I think the procedure of scheduled calls are. I hope, is that regular for Rupert?

Rupert Merer – National Bank

Yeah, yeah that’s great. Thank you. And then secondly, you talked about $100 million long-term debt facility, you’re looking out in the U.S. When that closes how does your pro forma debt to capital look going into the end of this year and how does that compared to your targets?

David Bronicheski

Rupert, we’re always targeting, I think, describe it overall on a consolidated basis we’re looking at trying to target fifty-fifty debt to total cap. I think we’ve consistently said on the utility side we’re managing towards debt to total cap in the 50% to 55% range and on the APCo side debt to total cap in that 45% to 50% range and so overall about fifty-fifty. And so I think our internal forecast were showing we’ll end the year basically within those ranges. There is certainly not going to be any surprise, I think to anybody on the capital structure that we have within our group.

Rupert Merer – National Bank

Okay. And you can get there without any additional equity?

David Bronicheski

Sorry, Rupert.

Rupert Merer – National Bank

You can get to that target structure without any additional equity?

David Bronicheski

Yes and we’ll say the existing $100 million that we are raising is simply replacing short-term debt for long-term debt.

Rupert Merer – National Bank

Okay. Great, thank you very much.

David Bronicheski

Thanks Rupert.

Operator

Your next question comes from Nelson Ng from RBC Capital Markets. Please go ahead.

Nelson Ng – RBC Capital Markets

Great thanks. Regarding your hydro divestments, how many facilities have you sold to date and how many additional facilities are you looking to divest?

Ian Robertson

Well, we have a single transaction which we announced last quarter for eight to eleven facilities, representing 32 megawatts in I want to say three states, in across the U.S., but certainly in two, New Hampshire and New Jersey. And previous to that, we had disposed of some really small facilities and I think there were four if I am not mistaken historically. But I think really what you see is about it from a hydro perspective as we look at the portfolio. So I don’t think you should see future sales of the hydro assets, we mentioned when we talked about selling these assets. It was really about economics to scale if the organization tops $3 billion in assets, our 250 kilowatt hydro facility, which we have to manage with the same prudent safe approach to safety and environmental as we would even if it is was a 20 megawatt facility, just doesn’t make much sense for us. But I think, Nelson you’ve seen it about the end of the hydro dispositions.

Nelson Ng – RBC Capital Markets

Okay thanks. And then in terms of the Cornwall Solar facility, how much of your $45 million like total project cost. How much of that is locked in. Like do you have fixed price, fixed aid EPC contract and have you try to fix the price or secure the panels yet?

Ian Robertson

Yes and yes to both of your questions. We are in the very short strokes if you will of signing up the EPC contract for the racking, the foundation, the assembly and are highly confident in the price point that we’ve did said out in the MDNA and yes to the panels, we had actually previously executed a commitment for those panels and so the price of that is already fixed.

Nelson Ng – RBC Capital Markets

Okay. Thanks. I’ll get back in the queue.

Ian Robertson

Thanks Nelson.

Operator

Your next question comes from Ian Tharp from CIBC World Markets. Please go ahead.

Ian Tharp – CIBC World Markets, Inc.

Thanks and good morning.

Ian Robertson

Good morning, Ian.

Ian Tharp – CIBC World Markets, Inc.

So, just going back to Amherst Island, it sounds like you filed your REA in April, and it’s an eight month process. So, Ian are there any issues that you expect to contend with as the government goes through their assessment process on the REA or any other kind of curve balls you could be thrown to either delay or kind of impair the project.

Ian Robertson

Well, just to be clear that the approval process going forward really is in two steps. The first step is to determine administrative sufficiency of the REA application. And that said there really isn’t a fixed clock on that one. The government typically says we take about 60 days to 90 days, and so if I’m kind of hedging the timeframe, it’s only because they don’t make assisted that commitment to that, and that’s were both, I don’t say about a month, a little bit less three weeks into that process so far, we have met with the government obviously to try to make sure that we’re responsive to issues they raise. The second part of the process for which there is a six month block once administrative sufficiency is determined well they sort of conduct their formal review. I guess the plus and minus about the Ontario process, it’s very significantly front-end loaded. And so when one prepares the reapplication that I’m sure it doesn’t surprise you, if you stack the binders on the table, it will be probably the better part of three feet tall.

The good news is if you hit, you try to hit most of the issues right up front. And so hopefully there isn’t too many curved balls that come up in terms of the reapplication. Having said that I mean we all appreciate that this is a highly political process. I think we find ourselves in an environment where the government of the day has even themselves kind of their support for green power. I think you can appreciate it, it’s somewhat (Inaudible). And so I don’t want to hazard I guess as to what the future might holds on that on approval perspective. I will say that we are following the rules and I like thing both in letter and spirit. And so we’ve done our job. It’s now up to the government to do theirs. And so I’m cautiously optimistic that we said our reapplication is exhaustive in terms of the issues that it’s need to hit and nothing has shown up in our reapplication it will cause us to be concerned about the project.

Ian Tharp – CIBC World Markets, Inc.

Okay, helpful. And then moving on and maybe if you can give us some of your thoughts on acquisitions on the power side, certainly, you’ve been active in the U.S. So maybe outlining some of the opportunities you’re seeing there now and also state of development. And then also in Canada, if you’re seeing any opportunities to either partner acquire projects here in Canada?

Ian Robertson

Sure. I think I mentioned our annual general meeting last month that one of the things that I’m most proud of this organization in terms of the skills that its built to be able to understand and participate in the U.S. market to which you make reference, it is fundamentally different from an IPP perspective than Canada is. And so, yes in that we are continuing to scour the landscape down there.

Lots is happening, and I think with the extension of the PTCs I think some projects that were dead before are back on. And so we’re spending time looking at a number of projects on the wind side not surprisingly, but also in addition on the solar space within, so yes we are continuing to hunt those projects, I think we’re obviously being prudent in terms of the – how we look at those assets. It is a different proposition than a Canadian based project, which is under a long-term PPA.

With respect to that, as you know we’ve got 450 megawatts worth of Canadian PPA projects that fill that [hopper] over the next few years, but in addition, we’re preparing for the Quebec RFP, which we understand is that rumors that today is the day for an announcement, so we like to think we’re going to be competitive in that. And so it’s a little bit of a different hunt in Canada than in the U.S. as to your specific question about state your project. You know we have, we would like to believe that development almost from Greenfield to a completion is a core competency. And so we’re comfortable really getting in all almost at any stage, and as we look at some of the projects in the U.S. I think the opportunity is to get in after the machinery works been done, but before serious development decisions are made, and I think that’s where we can add the most value.

Ian Tharp – CIBC World Markets, Inc.

Okay, great. And then one final one if I may, for David. There was a disclosure of $5 million worth of something refer to as HLBV, a new accretive for us all due to tax credits on your U.S. wind assets I’d expect. So do you expect this amount to continue or that the payment, and is there any way to put these to use through amortization or you’re able to do within APCo U.S.?

David Bronicheski

The HLBV income that you see there, the way you should think of it is really its a monetization of the production tax credits associated with the wind that’s generated at the U.S. wind farm, and that’s the amount – and the production tax credits, think of them is being shared between the tax equity investors and the structure and us. And so the $5 million that you see really is the net amount of the production tax credits that come to us in that.

And so the amount that you’re going to see there will vary according to the production, because the production tax credits are basically direct drive to the energy that’s produced. So I will say that if we were to produce exactly the same level of energy next quarter as we did this quarter, you’d see pretty much exactly the same number in HLBV. There is a few other adjustments in the calculation, so I don’t want to be quite as exact as that, but broadly speaking that’s the way to think of it.

Ian Tharp – CIBC World Markets, Inc.

Okay, great helpful detail. Those are my questions. Thanks.

Ian Robertson

Thanks Ian.

Operator

Your next question comes from Matt Gowing from Mackie Research Capital. Please go ahead.

Matt Gowing – Mackie Research Capital Corp.

Good morning everyone. Congratulations on the quarter and the dividend increase.

Ian Robertson

Thanks Matt.

Matt Gowing – Mackie Research Capital Corp.

So Ian you mentioned that you are seeing investment opportunities to grow the rate base on the Liberty Utilities side. Just wondering if you could paint a broad brush as to where you think the most exciting opportunities are to do that?

Ian Robertson

Sure, I think they’re broad across the organization. I think to kind of put it in context and we certainly haven’t made a commitment across the organization to this sort of capital. But we’re seeing upwards of a $100 million, $120 million of near-term rate based investment opportunities and they are pretty broadly distributed across the portfolio. We obviously focused on those in which near-term recovery has assured and you think of that. And I think I’ve mentioned in the past that your regulatory regime in Georgia is quite supportive for providing that, but there were certainly other opportunities that in other states that we are pursuing.

One of the ones that we’re or some of the ones that we’re excited about is participating potentially in transmission, electro transmission opportunity in California, expanding gas service within New Hampshire to sort of instant customers to make one as a very economically compelling conversation to natural gas, expanding service down in Georgia to new areas, in fact there is a even before, I think we mentioned even before we bought the Georgia Utility, we were approached by the commission to say would we be supportive of putting $6 million or $7 million into a pipeline to a new chicken processing plant.

And well it doesn’t sounds I don’t want to give up (inaudible) to work at chicken processing plant, there are 14,000 jobs associated with that, so it both has a great investment opportunities for us but economic implications for the area. And lastly the area that I think it really has picked up a lot of steam is the whole idea of how natural gas plays a role in the American economy, not just in terms of as they [eating] in power fuel but CNG and LNG, it’s an area that we’re seeing great investment opportunities before going forward. So I think and I know it’s a long answer to a short question Matt, but we really see these investment opportunities quick broadly diversified across that portfolio within our Liberty Utilities group.

Matt Gowing – Mackie Research Capital Corp.

Thanks. That is helpful. And my second question, let’s say you do actually sell the ESW facility by end of this year and you close on all of these 10 hydro facilities that you sell. You monetize $27 million. In the near-term, what would you look to do with that capital?

Ian Robertson

Well as I had mentioned, we’ve got a lots of things on the go. The New England Gas acquisition is slated through second half of this year. Cornwall Solar is being funded. And as David had mentioned perhaps to previous question is that debt market fulfilling that $100 million Liberty Utilities acquisition. We believe we have credit facility is able finance all over capital needs, but it would be nice that we can just put some, deploy some capital from perhaps less core assets into what we would consider strategic. And so it’s just going to go into the (inaudible). Keep in mind that as you mentioned $27 million for an organization, which is $3 billion in size isn’t really going to move the meter one way or the other.

Matt Gowing – Mackie Research Capital Corp.

Right thanks very much.

Ian Robertson

Okay, thanks Matt.

Operator

Your next question comes from Sean Steuart from TD securities. Please go ahead.

Sean Steuart – TD Securities

Thanks. Good morning everyone.

Ian Robertson

Good morning Sean.

David Bronicheski

Good morning Sean.

Sean Steuart – TD Securities

A couple of questions. Ian, last call I think you went though a number of the I guess public statements with respect to bigger company is looking to divest mid to small size U.S. utility assets and you guys are obviously active in that market. I’m just wondering if you can speak to increase competition that you’re seeing for those sorts of assets. How the market has evolved over the last three months to six months? Is that potentially compromising some of the returns you would look out for those types of acquisitions?

Ian Robertson

Well I think a risk of repeating my comments of last quarter. I think our focus on enterprise value of $100 million to call it $250 million is motivated by a couple of things. But I think a little bit one of them most notably as to kind of get out of the floppy competition that does exist for those larger assets. And so maybe that’s a backwards way of saying is we haven’t really seen that the price points that have shown up in the larger acquisitions that I think you’re making reference specifically to Laclede acquisition of MGE being probably the latest one.

We haven’t seen those kinds of price points show up in the zone in which we’re hunting. And having said that obviously is that we’re obviously having our conversations with the buyers and they see those price points. And whether that $100 million utility should qualify for those prices is a different issue. But it certainly makes for a conversation. But so far you haven’t see that they announce that 1.5 times of multiple for a $100 million and (inaudible) that we will be able to continue to fulfill our growth obligations, our growth commitments, which have been about 15% CAGR in assets at a price point, which is sort of more consistent with what we’ve been able to do historically by staying down in that lower end, Sean.

Sean Steuart – TD Securities

Okay, thanks for the context on that. And then just with respect to I guess pending RFP EF in Quebec. Do you guys have anything beyond; I think you talk before the two separate 106 megawatt expansions at San Dimas and Val Eo. Is there anything in your pipeline beyond that, and can you speak to obviously you have good community relations, but any first nations, relationships you’re developing on that front?

Ian Robertson

Well, those are the sort of the two primary candidates, which we see to be bid into the RFP. I think having said that, we are fielding inbound calls from developers to potentially partner up with them on their site, and the reason being is I’m sure it doesn’t come as a surprise you’d all. This is a cost of capital gain; the spoils go to company who has the ability to procure equipment on low cost and frankly finance it at a low cost. And I’m gratified to see that the capital markets have put us into the sort of same leases of best-in-class from a cost of capital perspective. And so I think we have lost to offer to those developers from an inbound perspective. Nothing to speak up right now, but obviously once that RFP gets announced and to the extent that we did some other things in there, and then struck some other partnerships, happy to talk about them.

Sean Steuart – TD Securities

Okay, that’s all I had. Thanks guys.

Ian Robertson

Thank Sean.

Operator

Your next question comes from John Safrance from Cantor Fitzgerald Canada. Please go ahead.

John Safrance – Cantor Fitzgerald Canada Corp.

Good morning. A follow-up on Matt’s question on rate base, I think in the last quarter management commentary was a target range for growth on an annualized basis of around 10% to 15%. And of course, I guess you could probably achieve 2% or 3% just sort of a growing customer base. But what you see in terms of opportunities now that you’ve reached a pretty decent critical math and size with respect to growing that rate base organically above and beyond just sort of the natural growth in your customers and sort of where that would leave you on the M&A side as well?

David Bronicheski

Well, I think that’s what I mentioned earlier that I don’t say line of site. We have some relative pretty serious clarity to call it a $100 million, $120 million worth of near-term investments in the Liberty Utilities portfolio. So that would sort of to your question John, go directly to the bottom-line from a rate base perspective. Additionally, and we should keep in mind though that against that there is regulatory depreciation, which has to be replenished. And so I think that were that, if you kind of look at that the net growth comes from, but that’s really the basis of it, which is those near-term acquisition opportunities. I will point out that very little of that $120 million of near-term investment opportunities from rate base focused on our participation of disorganization in the CNG and LNG front, and any thing that we do in that regard or frankly the transmission front in California. Anything we do in that regard would be over to talk over and above that.

John Safrance – Cantor Fitzgerald Canada Corp.

Okay, thanks. And just looking at your Granite State, customer numbers on the commercial side, you were sequentially lower. Is there any seasonality involved in that and would you expect the number to come back up the year?

David Bronicheski

Well, we were having a big fight around the [boards] on table here, before the call started. Should we be reporting these numbers on a trailing 12 month basis, on an average basis, because they do fluctuate with seasonality, they fluctuate with people moving in and out just normal churn, if you will, in the customers probably more or so on the residential upfront than on the commercial and industrial.

And so I would hope that people don’t read fair but we are to be, it look fair, we are continuing to report, it’s not trailing time. And so when you see those customer accounts, they are literally the count as of the day of the financial statement. And so I would you probably shouldn’t read too much into that there is a trend. In general, we’re seeing continuous modest growth perhaps maybe even more than modest in California. I think arguably, the housing market is coming back. We saw sort of three or so percent growth year-over-year. And so don’t read too much into the monthly numbers John and certainly nothing has happen in Granite State from a customer or load perspective that that warrants discussion.

John Safrance – Cantor Fitzgerald Canada Corp.

Okay, Thanks very much.

Ian Robertson

Thanks John.

Operator

Your next question comes from Jeremy Rosenfield from Desjardins Capital Markets. Please go ahead.

Jeremy Rosenfield – Desjardins Capital Markets

Great, thanks good morning everybody.

David Bronicheski

Good morning, Jeremy.

Ian Robertson

Good morning, Jeremy.

Jeremy Rosenfield – Desjardins Capital Markets

So just one question I wanted to be absolutely clear. You talked about the tax credits for U.S. wind facilities. And I just want to make sure that I understood so when production goes up, the tax credit that you’re going to book is going up also. I’m just curious if there is a cap to that in a specific quarter or in a specific year or does it continue to rise fairly linearly?

Ian Robertson

It raises exactly linearly, Jeremy. We have for all intention purposes while within tax equity, there is a cap, an annual plat on the number tax credits that they’re prepared to purchase from us. The cap is established sufficiently high that we’ll never bump into it practically on a year by year basis. But having said that just to be very clear, we generate an infinite number of tax credits as determined by the IRS. And so even if Morgan Stanley and JPMorgan who are the tax equity partners if for some fortuitous reason we ever get their cap then those tax credits would just accrue to our benefits. So no cap on the actual production, a cap on what JPMorgan and Morgan Stanley are prepared to buy, but I think it’s sufficiently high that we shouldn’t concern ourselves with it from a practical perspective.

Jeremy Rosenfield – Desjardins Capital Markets

Okay perfect that’s exactly what I was looking for. Just from a higher lever perspective in terms of the growth projects, the contracted growth projects on the power side of the business to what extent you think that you might look to take advantage of capital market conditions and try to pre-fund some of the sort of capital requirements associated with that growth both on the debt and on the equity side versus waiting until your through all the permitting closer to construction and completion of those projects?

Ian Robertson

It’s interesting comment that you raised. As you move to the development project to the process with respect to the project, it’s all about kind of managing risks and trying to take the bigger ones off the table soon or rather than later, but managing your exposure that the possibility are going to the capital markets to kind of pre-fund the equity that would rise in if we decide if that was the right next risk to take off the table because of our perception that maybe the capital markets might may or may not be receptive. I think we’re probably hesitant to do that. I mean, I think this organization has – I think we’re delivering on a proposition of growth, but we’re doing it because we’re kind of prudently going to the capital markets. Having said that matters lots of investment to be done between now and the end of that pipeline as a contacted portfolio to the extent that we build to mold out, we will be coming to market, but I think you do raise the question, which it’s all about timing. Right now, we don’t see the capital markets threatening as a risk to those projects, and so I guess it’s not high on our list of the risk that we need to take off the table from a development prospective as we think about the economics and the permitting issues et cetera in all of those projects.

Jeremy Rosenfield – Desjardins Capital Markets

Okay. And maybe just one follow-up on that, in terms of how you would look to finance equity requirements over the next let’s say five years as you grow this pipeline. To what extent, do you think preferred shares would fit in the capital structure relative to obviously common equity?

Christopher Jarratt

Sure, if you think of the hierarchy of capital needs and our hierarchy of capital sources as we think about the find our needs. First and foremost we obviously want to bring a cash generator from our operations to there, and as this organization as I sort of mentioned $3 billion, it’s not an inconsequential amount of annual cash flow that can be brought to satisfy those needs. Second of all, we obviously have the relationship with the matter of which has been important. Your specific question about the shares is a good one. With CDs out of our market or out of our capital structure plus shares that kind of stepped in there stead as kind of a bridge between debt and equity and they are in efficient way to financings on a non-dilutive basis. And so, but having said that, you got it everything in the appropriate quantum the rating agencies look at correct shares not as a 100% equity, and we are very fastidious about maintaining our investment grade, our credit ratings.

And so, I think David could answer more, but right now we think there is probably a room for perhaps and other $100 million of [upfront] shares in the current capital structure without pushing any boundaries that would cause S&P or DBRS, to be concern. So I think I’ll answer by saying, I like to think that we have a high level of flexibility to manage our growth going forward without getting ourselves out over our skies in terms of having to come to market from an equity perspective that’s clearly the last thing anybody on this call want to be hear that we’ve got ourselves in a position that we have to do an equity offering, so that’s not a very value creating circumstance.

Jeremy Rosenfield – Desjardins Capital Markets

Excellent. That’s pretty much wraps it up. Thanks.

Christopher Jarratt

Okay, thanks very much.

Operator

(Operator Instructions) Your next question comes from the line of Nelson Ng from RBC Capital Markets. Please go ahead.

Nelson Ng – RBC Capital Markets LLC

Great, thanks. Just a quick follow-up on the Granite State rate case filing, what was the actual ROE earned and what ROE are you looking to get approval on?

Ian Robertson

Well, we’ve see actual ROE earned, as you know historically it’s been a massive under earner and it’s been the subject of a five year stay out. I think the application that we filed is based on the historic precede of 9.67% ROE, which has been something that you’ve seen in a number of rate cases historically in New Hampshire. I will say that cost of capital is an element of our rate case preceding and so we’ll clearly hire our experts and the staff will take a position on that as well. So it’s hard to determine how that that part of the rate case sorts itself out but our ask is 9.67 Nelson if that’s like to be specifically responsive to your question.

Nelson Ng – RBC Capital Markets LLC

Yeah, and then in terms of what you actually earned over the last year or two?

David Bronicheski

We knew it was brutal that utility is just a bit of horrendous under earner. And that was totally understood by everyone, ourselves national grade. And frankly it was subject of a discussion that that I had with Chairman, Ignatius, at the time of the approval application, everybody understood that we needed to come in for a raise of filing. And if there’s lot of (inaudible) within for rate cases, that can only 7 still, it’s hazardous I guess I don’t half percent, one percent, basically nothing. The rate case ask of $14.2 million is really to try to start even just get it up to a full area.

Nelson Ng – RBC Capital Markets LLC

Okay, that’s good stuff. And then just one last question on your Gamesa Wind portfolio. When will there be like non-controlling interests or distributions to Gamesa like will that be paid quarterly or annually and how would you like what’s your expectation?

David Bronicheski

Basically we share it as we go I mean it’s not like all of the cash comes to us and then we hold it and then give it to them. I mean when the cash comes in from the facilities, it’s distributed out to the B unitholders and we got our 60% and they get their 40%.

Ian Robertson

What a great idea Nelson, I think we’re going to hold on to their 40% from now on and thanks from bringing that up.

Nelson Ng – RBC Capital Markets LLC

I was just thinking do you fully consolidate the results and then would you have to kind of back out the distributions are non-controlling interests?

David Bronicheski

Yes, and so I mean and it depends, if you’re referring to where everything shows up in the GAAP line on the financial statements, it is down to be non-controlling interests section of the income statement that numbers, I’ll say, a bit complicated because there is actually two non-controlling interests that are there. There is obviously the tax equity non-controlling interest and then there is the Gamesa as the other Class B unitholder there. So the non-controlling interest that you see in the income statements is really that Class A and the Class B units that we don’t own.

Nelson Ng – RBC Capital Markets LLC

Okay got it. Thanks a lot.

Ian Robertson

And actually Nelson, I looked down at my notes and I just want to make sure I answered you correct statement. With respect to the actually the filed ROE in New Hampshire, it’s actually probably 10.5% not 9.67%.

Nelson Ng – RBC Capital Markets LLC

Okay, they’re 10.5%?

Ian Robertson

Correct.

Nelson Ng – RBC Capital Markets LLC

Okay so the 9.67% that was just…

Ian Robertson

That’s historically what has been a bit of a precedent. We obviously do our own CAPM model and come with our own – our own believe as to what an appropriate ROE would be and that’s what 10.5% was.

Nelson Ng – RBC Capital Markets LLC

Okay, great. Thanks a lot.

Ian Robertson

Thanks.

Operator

Your next question comes from Ian Tharp from CIBC World Markets. Please go ahead.

Ian Tharp – CIBC World Markets

Hi thanks. Just one final follow-up if I may on the tax credit issue. So, Ian I understand that it increases linearly up to what would be a very high cap, what’s the tax equity providers. Is it the same thing on the way down and what I mean by that, I would assume that they have first access to the tax credits that would come and for example in a lower wind period they would probably capture all of the tax benefits and say a poor wind quarter. So, is that fair to say around the structure for that credit.

Christopher Jarratt

Yes, just to be specific. Well, let me start by saying yes, Ian I think you’ve got it. When the project was initially financed Morgan Stanley and JPMorgan put in certain capital that went to the acquisition of these assets and in return for that, they had a threshold number of tax credits for which they had and if you will sort of booked on and banked on getting, and those go to them in the first instance. And in nice round numbers that’s about I don’t know 70% maybe a little bit less than that I’ll be expected wind production. So it would be surprising that they didn’t get that in, we obviously would need that threshold.

Every tax credit above that, as I said up to the cash, they’ve committed to buy from us and those just pay us for us on an as you go basis if you will. And so, yes, linearly up and linearly down, right down to the point where we get down to the minimum threshold and that’s been a commitment that to which they’re owed and obviously to the extent that they don’t get it. We in fact owe them back for those, because we’ve in fact the money has already been taken for that threshold, but it’s pretty low, it would have to be a very extraordinary event that saw not meet that minimum threshold.

Ian Tharp – CIBC World Markets

Okay. We might see that come through in a very poor wind quarter, where there may be a negative number against this.

Christopher Jarratt

No, because the commitment to them has been made based on our expectations on a quarterly seasonality. So it’s not like we owe them that any, if we don’t owe them, if there is a 100 tax credits, it’s not 25 a quarter its basically shaped with the expectation of the wind production. So everybody understands the seasonality, but so you won’t see a negative.

Ian Tharp – CIBC World Markets

Okay. I understand it crystal clear now. Thank you so much.

Christopher Jarratt

Thanks Ian.

Operator

There are no further questions at this time. Please continue.

Ian Robertson

Great. Well, thanks everyone for joining us this morning and as always please stay on the line for the riveting disclaimer from Kelly in terms of forward-looking statements.

Kelly Castledine

Certain written and oral statements contained in this call are forward-looking within the meaning of certain securities laws and reflect views of Algonquin & Utilities Corp. with respect of future event based upon assumptions relating to among others, the performance of the company’s assets and the business, financial and regulatory climates in which it operates These forward-looking statements include, among others, statements with respect to the expected performance of the company’s future plans and its dividends to shareholders.

Since forward looking statements relate to future events, conditions, by their very nature they require us to make assumptions and involve inherent risks and uncertainties. We caution that although we believe our assumptions are reasonable in the circumstances, these risks and uncertainties give rise to the possibility that our actual results may differ materially from the expectations set out in the forward-looking statements. Material risk factors include those presented in the Company’s annual financial results, the annual information form and most recent quarterly management’s discussion and analysis.

Given these risks, undue reliance should not be placed on forward-looking statements, which apply only as of their dates. Except as required by law, the company does not intend to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thanks for participating. You may now disconnect your lines.

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