Algonquin Power & Utilities Corp. Price & Performance (AQN)

Thank you, operator, and good morning, everyone. Thank you for joining us for our fourth quarter and full year twenty twenty four earnings conference call. Joining me on the call today will be Chris Huskelson, Chief Executive Officer Rod West, incoming Chief Executive Officer Darren Myers, Chief Financial Officer and Sarah McDonald, Chief Transformation Officer. To accompany today's earnings call, have a supplemental webcast presentation available on our website, algonquanpower.com. Our financial statements and management discussion and analysis are also available on the website as well as on SEDAR plus and EDGAR.

We would like to remind you that our discussion during the call will include certain forward looking information and non GAAP measures. Actual results could differ materially from any forecast projection contained in such forward looking information. Certain material factors and assumptions were applied in making the forecast and projections reflected in such forward looking information. Please note and review the related disclaimers located on Slide two of our earnings call presentation at the InvestorRelationssectionofourwebsite@algonquinpower.com. Please also refer to our most recent MD and A filed on CedarPlus and EDGAR and available on our website for additional important information on these items. On the call this morning, Chris and Rod will provide comments on the company's recently announced leadership transition. Chris will then review key highlights and operational updates for the quarter. Followed by Darren and myself, with our financial results and forward looking commentary. We will then open the lines for questions. We ask that you kindly restrict your questions to two then re queue if you have any additional questions to allow others the opportunity to participate. And with that, I'll turn it over to Chris. You, Brian, and good morning, everyone.

Thank you once again for your interest in Algonquin and for supporting us through our strategic transformation journey. Before I jump into our regular quarterly update, it's my distinct pleasure to introduce Roderick West, our incoming CEO.

Rod has over twenty five years of experience at Entergy where he was responsible for leading Energy's regulated utilities, and helped engineer that company's transition an integrated utility to a pure play regulated one.

I'm confident Rod has the right set of leadership skills, expertise, experience and vision to lead Algonquin to new heights as a regulated utility. As of noon today, Rod will be stepping into the Chief Executive Officer position. I will be resuming my prior place as a member of the Board of Directors, and I'm committed to facilitating a smooth transition. Rod, I can say without a doubt that everyone here from our employees to the Board is extremely excited to start this new chapter with you. [indiscernible] We're delighted to have you here. Well, greetings and good morning, everyone.

It's a pleasure to be here and thank you, Chris, for your kind introduction. Under your leadership, Algonquin has made significant strides in paving the way for a brighter future. I'm very much aligned with the strategic direction taken by the company under your and the Board's leadership. And as I consider joining Algonquin, I I saw a unique opportunity to create sustainable value with the diversified utility asset base and I also saw a company that's making significant customer centric investments. With a focus on operational performance and safety, which in my view was foundational to a successful pure play utility.

And what I found compelling personally is the tremendous opportunity to create value.

I'm excited to bring my experience and background to Algonquin as as we look to drive value for our stakeholders. The company has undergone tremendous change in a short period of time. Now as a pure play utility, Algonquin is primed to focus on accelerating its performance to all of its stakeholders. We're focused on improved customer service, of course, creating value and ultimately returning to a sustained growth. Trajectory. I'll let Chris and the team summarize the company's recent results, but I'll make right in on transforming Algonquin. And my aim is to come back to shareholders in approximately ninety days or so to provide more transparency on our outlooks. And detail on our performance acceleration plan. I want to personally thank Chris and the team for all the work getting us to this point. And I am tremendously excited by the future and the opportunity in front of us. Chris? Back to you.

Well, thank you, Rod. And as I said, we're very excited On the same note, let me also briefly touch on the CFO transition. As previously announced, Darren has accepted as its Chief Financial Officer. And today will be his last as CFO of Algonquin. I'd like to extend my sincere appreciation to Darren who helped steer Algonquin through its most significant transformation. The company and I were fortunate to benefit from his strong leadership through this period. Thank you, Darren.

With Darren's upcoming departure, the company has engaged a national firm as part of a comprehensive search process for a permanent CFO.

And while this search is underway, our VP of Investor Relations, Brian Chin, has agreed to step into the Interim CFO role. Brian has more than two decades of utilities experience as a senior executive in several finance roles here at Algonquin, and American Water. And as the lead North American Utilities equity analyst for both Bank of America Merrill Lynch and Citicorp I'm confident Ryan has the right capabilities to help ensure a smooth transition for our finance, and executive teams. Thank you, Brian, for taking on the role. Now turning to the closure our 2023 strategic review.

The company set out to achieve a few key objectives. These include the sale of our renewables business, uplifting our regulated utilities, and applying a greater degree of focus and discipline to the company overall. At this stage, the company has completed the sale of its renewables business as well as its stake in Atlantica. Marking two major milestones in its transition to a pure play regulated utility company. Now the critical focus points for the company remain continuing to improve our utilities, optimizing and leveraging our IT platform, which we completed last year streamlining how we operate and driving operational efficiency and customer service.

When I look at the I believe Algonquin has a great portfolio of assets in attractive jurisdictions and commodities. These investments were made by our employees for the benefit of our customers. While Algonquin is authorized to achieve a 9.2% ROE. Its actual earned ROE is several hundred basis points below that allowable target. This requires improvement. The company is aiming to achieve its allowed returns on equity with all possible speed. To bridge this gap, we must accelerate reductions in regulatory lag and improve our operational efficiency. This means uplifting and upskilling the regulated utilities, and improving our focus and discipline to capture the tremendous opportunity ahead of the company today. We're committed to improving enhancing our efficiency, and effectiveness for the benefit of our customers communities and investors.

It's been a privilege to lead Algonquin during this momentous period. I want to thank Algonquin's employees whom I have had the honor of working alongside during this short but significant time. With that, let me now turn to operational updates of which there have been several since our last call.

Let's start with Atlantica and the renewables business. The Atlantica transaction resulted in net proceeds of approximately $1,100,000,000 which we used to reduce debt as referenced in our balance sheet as of year end.

From the sale of renewables business, we expect to receive proceeds of approximately $2,100,000,000 which reflects our originally announced value of $2,500,000,000 after subtracting taxes, transaction fees and other preliminary closing adjustments and less the $220,000,000 cash earn out Darren will discuss this in more detail later. I'll turn now to our regulatory updates for the quarter. I'm pleased with the progress we've made in several cases In our Missouri Water case, the commission approved an all party settlement and new rates were effective March 1. In our Arkansas water case, the commission there also approved a previously reached settlement and new rates are effective also March 1.

In our Gas New Brunswick rate case, we received an order in December approving new rates which took effect January one this year. In our Arizona proceedings, that involve four small water utilities, we reached a settlement agreement. The parties in this case agreed to full consolidation of all four water systems, which is consistent with our plan streamline our business Next steps include a settlement hearing and a recommended order from the assigned judge. We also recently received a constructive staff proposed order with regards to depreciation deferrals for our Cerebel wastewater treatment facility. And our Litchfield Park facility. [indiscernible] Our CalPeco rate case filed in September 24 is proceeding on schedule. Our New Hampshire Granite State rate case reached an all party settlement which is now in front of the commission A hearing is scheduled for March.

Despite the progress in these other cases, I'm disappointed with the initial filing of our Empire Electric Missouri rate case.

We've recently had to delay our timetable.

In short, the late revision to our tariff calculations has prompted us to restart the case. Meaning the case is now expected to be resolved in the first half of twenty twenty six rather than the late portion of twenty twenty five as previously expected. Additionally, the Missouri Commission has announced an investigation into customer service and billing issues.

We view this as driven partially by our recent implementation of our IT platform.

And we take this investigation seriously and intend to work with the commission to address these concerns. We are committed to getting this done right for our customers. We understand the commission's frustration and we welcome this opportunity to show the improvements that the new system will allow to our customer experience. Ultimately, we are confident this system will lead to better customer service.

Shifting to transmission, As many of you are aware, the Southwest Power Pool is conducting an integrated transmission planning process.

The SPP Board of Directors approved its plan in October of 'twenty four and in February of 'twenty five approved a series of projects in our Empire Electric footprint.

Along with several other utilities. The total projects that have been approved by SPP or Empire's service territory total over $700,000,000 in cumulative capital spending over the potential next five to seven years.

We are currently in the ninety day window in which we will respond as part of SPP's process. So we expect to provide more updates on this as As part of the process, are to develop detailed plans submit them to SPP, and accept the notices to construct. These projects could represent an exciting multiyear opportunity to invest in our communities, and infrastructure to improve reliability for our customers.

And with that, I'll hand things over to Darren. To review the quarter's financial results. Darren? Thanks, Chris, and good morning, everyone. As a reminder from last quarter, we separated our results into continuing operations and discontinued operations. Our continuing operations include our regulated business, hydro business, ownership stake in Atlantica, which was sold during the fourth quarter. It also includes all debt except debt specific to our renewables business, which has been netted into assets held for sale.

We have recorded our ownership stake in Atlantica, and the final associated dividend in continuing operations accordance with generally accepted accounting principles. Starting with EBITDA, Q4 consolidated adjusted EBITDA was $248,600,000 down 5.2% from the prior quarter. Prior year or to me. Fourth quarter adjusted EBITDA was lower driven by $18,000,000 year over year decline in our corporate segment as a result of the lower dividend from Atlantica and certain corporate allocations, which under discontinued operations cannot be allocated to our renewables business.

Our regulated adjusted EBITDA $234,400,000 in the quarter up 2.4% from 2023. On a full year basis, our consolidated adjusted EBITDA was approximately $1,040,000,000 up 2.6% from 2023. Our consolidated adjusted EBITDA was negatively impacted by the reduced Atlantica dividend in the fourth quarter while we delivered regulated adjusted EBITDA of $940,200,000 up 4.2% from 2023.

Our increased regulated EBITDA was driven by new rates in the year and higher HLBV on weather normalization which more than offset higher operating expenses which included approximately $18,000,000 in non recurring expenses that were recorded in 2024.

Fourth quarter adjusted net earnings were $45,200,000 down from $81,300,000 in 2023. The decline in adjusted net earnings is primarily attributable to lower consolidated adjusted EBITDA $8,500,000 of higher depreciation as a result of continued capital expenditures approximately $6,000,000 in higher interest expense and $8,600,000 dollars in higher adjusted taxes.

Our actual year over year increase in interest expense was $13,600,000 but it includes approximately $7,000,000 relating to a reclass of the margin loan.

With no impact on net income. It's worth noting that the $6,000,000 increase in interest was primarily related to funding of the renewables business which has not been recorded in discontinued operations based on generally accepted accounting principles. Full year adjusted net earnings were $232,100,000 down from 02/2023. Growth in adjusted EBITDA was more than offset by $41,700,000 of higher depreciation $29,000,000 of higher interest expense and 11,400,000.0 in higher adjusted taxes. Our actual year over year increase interest expense was $55,100,000 and included $26,000,000 relating to a reclass of the margin loan with no impact on net income.

We estimate approximately $16,000,000 of the increased interest expense related to the funding of the renewables business. Moving to our earnings per share.

Q4 earnings adjusted net earnings per share were $0.06 versus $0.12 in the prior year while full year adjusted net earnings per share were $0.3 versus $0.39 in 2023.

The year over year decline for both periods was driven by reduced adjusted net earnings as well as the higher share count as a result of the equity unit conversion in mid twenty twenty four. With regards to our balance sheet, our December 31 balance sheet but excluded the January 8 closing over sale of our Renewables Energy business. On our year end balance sheet, we have $6,700,000,000 continuing operations debt, and a further $1,350,000,000 in debt related to discontinued operations for a total GAAP debt of $8,050,000,000 Let me provide some further color on the proceeds from the $2,500,000,000 sale of our renewables business, which closed on January 8, 2025. As a reminder, the sale includes a $220,000,000 earn out associated with the performance of certain wind assets. Against our year end balance sheet, we expect to receive $2,100,000,000 in proceeds after customary transaction costs and estimated remaining construction cost for certain projects. Adjusting for the consolidation of certain construction debt in the fourth quarter, the $2,100,000,000 represents the high end of the range we provided last quarter. Approximately $150,000,000 of the net proceeds are expected to be received later in 2025 upon monetization of certain tax attributes.

Putting this all together, you should expect our year end GAAP debt of approximately $8,050,000,000 to be reduced by an estimated $1,950,000,000 with a further $150,000,000 to be received later in 2025.

As a last point, let me touch on our rate base.

As of year end 2024, we estimate our rate base to be approximately $7,800,000,000 up from $7,200,000,000 a year earlier.

As a reminder, our rate base estimate represents our authorized rate base plus prudently invested capital for the benefit of our customers on which we aim to. Aim to both recover and earn a rate of return. Our rate base increased by approximately $740,000,000 due to spending and invested capital in 2024 offset by approximately $350,000,000 in depreciation and increases in accumulated deferred income taxes. The remainder of the increase primarily relates to pre-twenty twenty four spending on our IT platform software whose implementation was completed earlier this year and is now included in our estimate of rate base. Let me conclude with some final comments on my time with Algonquin. It has been a privilege to serve as CFO during such a transformational period for the company.

While we have faced challenges, we have made significant progress to reposition Algonquin through decisive actions. Although there is still more work to be done, I'm confident the company is now in a stronger position with great opportunities in front of it. I look forward to seeing the company accelerate its performance and earnings. Thank you to the entire Algonquin team and all of our investors. I'll now hand things over to Brian to provide some forward looking commentary. Brian? Thanks, Darren.

Two key adjustments to remember looking ahead versus 2024. Are that our continuing operations will no longer have dividends from Atlanta and our interest expense will be affected by proceeds used from both renewables and Atlantica transactions. As a reminder, the December 31 balance sheet reflects proceeds from the Atlantica sale but the interest expense reductions related to that sale were only for a few weeks. For operating expenses, we expect normal inflationary pressures to continue next and we will be working down the dissynergies associated with exiting our renewables business. Against this backdrop, we will be aiming to accelerate our operating efficiency measures, particularly as this will essentially be our first year as a pure play regulated utility. Please note that we're not providing guidance at this time. But as Rod mentioned, we expect to provide substantially more detail in our outlook and our plan in the coming months. We very much see 2025 as a transition year and we believe that off that base Algonquin has the opportunity to grow earnings above peer averages with substantial longer term opportunities to grow our rate base for the benefit of our customers through prudent investments in our service territories. With regards to capital expenditures, we also intend to provide a more fulsome update but for now we'll say that we plan to continue to exercise discipline which we expect will result in directionally lower capital spend year over year.

We also intend to provide more color on our financing plans. As a general principle, we continue to favor financing self sufficiency while we work to improve our asset returns and lower our cost of capital. Last, I'll comment on some high level thoughts on the opportunity in front of We estimate our earned ROE stands in approximately the mid-5s percent range excluding HLBV, on our 2024 average rate base of 7,500,000,000.0 To be clear, our goal is to substantially improve our earned ROE to move it much closer to our authorized ROE weighted average of 9.2% and achieve or improve upon our previously stated comments related to our targeted dividend payout ratio of 60% to 70%. In closing, it's a privilege and a and I'm looking forward to accelerating our progress. And with that, I'll turn things back to Rob for some quick closing remarks.

Well, thanks, Brian, and thank you everyone for joining us on the call this morning. I am, as I stated before, excited to begin leading the team here at Algonquin.

In just a few hours. And I truly believe that there is significant opportunity ahead. And we're looking forward to your questions. Back to you, operator.

Thank you. And with your first question, this comes from the line of Sean Stewart from TD Cowen. Thank you. Good morning, everyone, and congratulations to Rod, Darren and Brian. I wanted to start first I guess for Chris or Rod, the optimization of the utility platform is mentioned is an ongoing effort. Outside of the rate case, docket, including the three big initiatives, Can you give us a little more context on what are the focus areas for improvement? How concentrated it is? It's specific utilities or is it still an ongoing broader effort?

Yes. I mean, I think first of all, from our overall perspective, it is about working on our service codes.

We do have quite a complicated service code arrangement as we are today. And so we see that as the location of our biggest opportunities. And we're putting together a plan to actually execute a reduction of the overall overhead on the various utilities. The other thing that we're doing, which Sarah could speak to in more detail, but the other thing that we're doing is actually changing accountability structure within the organization as a whole. So we've as I think I said from day one, raised up the utilities. They are now our primary our primary focal point.

We've put utility leaders, utility presidents in place and they are accountable for all aspects of the businesses that those utilities have And we're moving that forward quite rapidly.

So when we put those two things together, we can see tremendous operational efficiency and improvements in our customer experience. And those are the two primary things we're focused on right now. Okay. Thanks for that, Chris. And then question for Brian. Or Darren. Brian, you touched on your perception that the company's long term EPS growth potential will outpace the peer group.

What timeframe are you thinking of when you talk about that potential? Presumably, it's not a 2025 story, but do you have any parameters you can put around on timeframe and what EPS growth potentially might think is reasonable over the long run?

Yes. Thanks for the question, Sean. So at this point, no comments on timeframe, but let me remind everybody, what we said in the past. We indicated previously that our targeted dividend payout ratio That timeframe hasn't changed. In fact, if anything, we think there's a possibility to accelerate that, particularly given the arrival of Rod and his just tremendous experience. With regards to the opportunity to grow our EPS, can put it no more simply than we're an under earning utility but for the first time in the company's history, we're now singularly focused on a single business model The opportunity for us to execute here is tremendous So I think that, we're excited about being able to talk about the future But first, we got to make sure that Rod has a chance to come in and take a look and see where we have additional opportunities in front of us.

Okay. That's all I have for now. Thanks everyone. [indiscernible] Thank you.

Our next question comes from the line of Nelson Ng Your line is open.

Great, thanks. And Rod, congrats on your new role. I think Darren, best of luck at Canadian Tire and Chris, I guess we look forward to your continued involvement on the Board. First question just relates to the hydro sales process. Are you able to provide any kind of high level comments on how that process is going?

No more detail than we would have had last time, which is that within this half year, we will at least to go to market and take a look from an indicative perspective.

But I would repeat what I've repeated what I've said in the past, which is that we're not going to do any more dilutive transactions.

At the end of the day, if we can achieve a If not, it is on the one hand not reducing our position as a pure play. We have greater than 90% of our business that is in the regulated space. And secondly, we continue to need Canadian income and so it's definitely helps in that area as well.

Okay, that's great. Thanks, Chris. And then a question for Darren. So Darren, you talked about the rate base at the end of the year. And obviously the rate base growth year over year it looks like it was quite a bit higher than the growth CapEx. And I think you mentioned that there were some adjustments spend prior to 2024 that you decide to include. Are there any other spend prior to 2024 or other periods that you haven't included into rate base that could be included this year or any other further adjustments that could take place this year?

Yes, Nelson, that was really the the our IP platform. So as they sit in corporate, we don't include them in the rate base, but as the program push out, then they're included. So that's really the lion's share. There's nothing more significant that's going to come forward like that. Okay. And then just one related question. In terms of the transition, I think in Q4 there were some kind of one off expenses. Maybe there's a question for Darren or or Brian. But do you expect to see any kind of material transition expenses this year? Related to the sale of renewables?

So Nelson, as you may recall from my prepared remarks, we did see some associated costs related to the synergies on the renewables that occurred in 2024. So it will take us a little bit of time to work that down in 2025.

But part of the reason why we called that out is because those are not those are not ongoing costs that we see as part of the value of the business. So we just want to reiterate that point. And Nelson, maybe the other thing I'd just add, in the quarter, as I called out, there's certain allocation kind of indirect allocations that hit the continuing operations. So part of that dis synergy is already in the run rate of the fourth quarter. Continuing operations. Thanks, everyone. I'll leave it there. Yes. Thanks, Nelson. Thank you.

Our next question comes from the line of Rob Hope from Scotiabank. The line is open. All right. Good morning everyone. Yes, congrats all, Rod and Brian on the new roles and Chris and Darren, it's been a pleasure working with you both. So all the best as well. Thank you, Rob. We appreciate it.

I guess maybe the first call question is, I understand you're not providing 2025 outlook or capital. Looking back at the Q3 call, you were expecting to provide an update with the Q4 call. I'm just wondering what has changed? Is this just a function of a new or a new CEO coming in? And some time to take a lay of the land Is it the uncertainty of the Missouri delay or are there any other factors driving that No, Rob, thanks for asking the question. Question. When Rod's announcement was first made, the thought process at the time was that we would be on track to provide a baseline outlook as of the timing of the Q4 call.

That actually hasn't changed in that we do have a baseline outlook as of now. But what has changed on further reflection was our recognition that with Rod's insight and fresh eyes, the opportunity to have him take a look at what we were doing and perhaps find ways to accelerate that progress really meant that we needed to give him time to see what opportunities we could capture and put into the outlook. The developments in Missouri, the developments in any of our other operations did not have any factor with regards to the timing of when we have chosen to give out guidance. Yes. And Rob, I would just say that when you think about it, Rod truly has not started yet. He's starting at noon today. And so we really do need to be fair to him and give him time to get his feet on the ground and understand the business so he can put his stamp on it. And then you folks can rely on what he's saying.

Fair point. Busy per se.

Maybe turning over to Missouri, can you maybe add a little bit more color on the Caloute customer solutions technology platform problems that you're seeing there kind of the path forward there. As well as the Missouri investigation on the billing practices?

Sure. Hi, Rob. It's Sarah McDonald. [indiscernible] customer investigation is something we're spending a lot of time on, but our SAP implementation was a massive undertaking. We changed out almost all of the systems we used to run our business, not just finance, not just customer. And the majority of those are working well. It doesn't take away from the billing issues we've experienced. We're disappointed with the pace at which we've been able to fix these issues and we understand the frustration our customers are experiencing. We understand the frustrations the commission is experiencing and frankly we're frustrated as well. So we are encouraged because the pace of improvements has increased. And through the investigation, we'll be able to share our progress to date and our plan to complete all the improvements with the commission in the coming weeks. So we're we're welcoming the opportunity to share our improvements.

Yes. And I think the other point that I would make is that it has taken more time than we had hoped to get the system working the way it is. But as we're seeing the system start to work, we're seeing the opportunity [indiscernible] that this will be a better customer experience in the end It's unfortunate and we apologize to customers for how long it's taken, but for sure it will be better in the future.

Yes. Thanks Rob.

Thanks Rob.

Thank you. Our next question comes from the line of Rubik Meir from National Bank. The line is open.

Morning everyone. I'll echo the sentiment of the other analysts. Congratulations to all Rod, if I could start with you. You're going to come back with an outlook for us in ninety days. What are your key areas of focus for the first ninety days? How are you going to get into this business and then figure out everything you need to know?

Yes, it's a great question. And I won't get ahead of my conversations I'll have with my internal stakeholders here. It starts with the people. Getting them aligned on what good to great looks like. And beyond that, it's focusing on the aspects of the business where we have this quickest opportunity to put productive capital to work. And as you think about what the mission is as I come from an experience at Entergy, every decision we make at the end of the day will be assessed through the lens of its impact on our ability to create sustainable value for each of our four key stakeholders. Starting with the customers, the employees, the communities we serve and at the end of the day, the outcomes that matter most to you. And I think communicating that in a clear concise way to the [indiscernible] Will also help me get my hands around where my attention should be placed first with the objective of accelerating the great work that Chris and his leadership team have have been working so hard on. So when I come back, in the next ninety days or so, I want to have the conviction that gives you confidence in the outlooks that we ultimately out.

And that's my objective. And I don't I don't wish to to be obfuscate the point that I like where this company is heading. And I think my objective at the end of the day is to try and help accelerate the benefits we've committed to.

To you.

Maybe it's too early, but are there any high level thoughts given the collection of assets Algonquin has, maybe a little more distributed than what you worked with previously. Any opportunities or challenges that you see with this asset based relative to where you've come from?

No, it's early. It's early to opine on that Just know that I am looking to answer the question where can we put productive capital to work. To create value? And doing it as quickly as we can. So I'll be consistent with that, Dean.

And the other thing I would just say, Robert, is that Rod has tremendous regulatory experience. He's been very focused on that over his career and especially in the last few years. That's clearly an area that the company needs some work.

And so I look forward to just seeing how Rod takes that on and the improvements he can make as he works on that area. So I'll say that about where I think this will go.

Okay, very good. And then secondly, we have a very dynamic political situation here in North America. And as I look at Algonquin, it's now, I think, more than ever a company focused in The U. S. With U. S. Management. Do you see any potential for change in the way that companies run, meaning any potential to move headquarters either down to The U. S. The opportunities that could surface from doing so?

Yes, Rupert, I think it's premature to make any comments on that. I do think that you're right to point out it's a pretty volatile environment out there.

So while I think that it's a little premature to directly answer that question, I really do think what's interesting about our story is in spite of quite a bit of the macro volatility this really is a self help story. It's one of the more unique aspects in the utility space. And that's part of the simplicity of why the opportunity here is so interesting and unique.

All right, great. Thank you. I will leave it there. Congrats to all. Thanks, Rupert. Thank you. And our next question comes from the line of Ben Pham from BMO. Your line is open. Hi, thanks. Good morning. Just on your comments around the the realized ROE and the difference between allowed How does that compare to historical differences between the two?

Thanks, Ben, for that question. The last time that the company provided color on the GAAP between the earned and allowed ROE was a few years back as you recall from our investor Relations materials. So you can point we can point to that. In terms of if you want try and look at our numbers since then, the way that we calculated the mid-5s range you can look at our segmented footnote in our notes of the financial statements, you can see our regulated earnings before taxes And if you want to assume a simplified tax rate on that, and then divide that by our average rate base, you can actually get pretty close to the mid-5s number that I referenced in the prepared remarks. That segmented footnote does exist in all of our financials going backwards, There's a few adjustments here or there, but this year is a relatively clean number. And so I'd advise you to take a look at that.

Okay. Thanks for that, Brian. And maybe next And as you think about the regulatory strategy that a big gap in realized versus a lot of ROEs. Just based on experience, what's typically the best approach or step by step process to bridge that gap over time? Yes. And I won't go into too much detail, but I think Brian alluded to to the story as a self help story. And the things that you can do first and foremost, internally is managing your overall cost structure. Because the regulatory process sometimes takes a while to to play itself out. And so the discipline around both capital and O and M those are decisions that you can make without having to rely on any external party. And that for me was what I was alluding to I said we've already made progress as I was thinking looking outside in. At this opportunity, I like the direction that the company was headed in. And I'll have more to say as I have an opportunity to assess some of the external levers. But internally, the self help story is beginning to pay dividends and it's one of the reasons why I thought this was a viable opportunity to really accelerate the value proposition for the company.

And that's not limited to any of the commodities. It's inherent in successful premium valued utilities, water, gas, or electric.

Okay, got it. Thank you. And congratulations to all four of you. [indiscernible] Thank you. Our next question comes from the line of Mark Jarvi from CIB Capital Markets. Your line is open.

Yes. Good morning, everyone. Welcome, Rod. Looking forward to getting to know you better and thanks Chris and Darren for time and engagement in the last couple of years has been very helpful.

Yes, just on Missouri, obviously, you talked about the disappointment in the reset of the timelines. Does the billing investigation potentially further extend that horizon on that if it takes a little bit of time to work through that? And I guess if there is a further extension even given the current extension, would you seek some interim rates just given the fact that the decision has been pushed out a few months now?

Hi, it's Sarah again.

So no, we will be fully cooperating with the investigators. We'll take it seriously and we'll make sure we can figure out a way to restore trust has our full attention, but the rate case stands on its own. So we don't see it further delaying it.

And anything on interim rates?

At this time, I don't believe so.

The other thing to take into account, Mark, is that we've already answered an awful lot of Doctor's as we sit right now. And so the rate case is developing quite well. The interveners are getting lots of information. And so that I think is helpful in the restart keep things moving along. That makes sense, Chris.

Rod, I know it's early days and you talked a bit about some of the things you want to accelerate and improve on. As you look at sort of the regulatory relationships there and the processes set up today, do you think there's refinement that's required? And then even you think with the billing issues, you still believe that the current Customer First SAP system is adequate enough? Does it require further investments? Just sort of in terms of beefing up systems and processes to improve the regulatory outcomes?

Yes. It's early in the assessment, but I know enough to say this the systems that we have deployed have been used in other utilities to success the process of technological deployment around AMI, communication system, the mesh networks, all of those things have bumpy experiences on the front end. I have lived through it at Entergy as well as as many in the space The objective though at the end of the day is tried and true improvements in customer experiences And despite sort of the bumpy beginnings, my conviction in the direction that we're headed for customers really gives me confidence that we will get it we will get it right. And so I know it's a bumpy start, but I like where this is headed.

Just to sort of get it to where you needed to be, does it require some incremental capital?

I have no doubt about that because it's customer expectations are constantly evolving. And if I might properly use a hockey reference coming from my background, which is American football, we constantly have to skate to where the puck is going to be. And that's going to require additional CapEx. It's not a terminal investment proposition. It will be an evolving one as we adapt to evolving customer expectations. So Yes. And just the other thing I would add, so we're already in the capital budget for this year putting in a new IVR system. That IVR system will be extremely helpful, I think, to interfacing with our customers and making sure that we're rapidly responding to them.

And the only other thing I'd say about the SAP implementation in Missouri is it's a much more complicated utility than the utilities that we had moving parts. And as Rod referenced, things like AMI and so on. And so it just was a bit more of a complicated deployment. But that doesn't change the fact that we're committed to getting this working. We've firmly believe that this will be better for our customer experience in the long haul We just have to accelerate. The improvement.

Understood.

Thanks for your time today, everyone.

Thank you. Thank you. There are no further questions at this time. Will turn the call to Mr. Rob West.

Well, I'll simply say thanks for your interest and certainly for the well wishes this morning. Brighter days are ahead. I want to thank in advance to the employees who might be listening in. I look forward to engaging you and and to the investment community. I commit to you as my predecessor has to be as transparent as I can and And I expect that you're not going to be surprised by what we do because we're going to bring you along on the journey as we have before. So thanks for your ongoing interest in continued support for us.

Thank you, everyone.

This concludes today's conference call. You may now disconnect.