Algonquin Power & Utilities (AQN) Q1 2023 Earnings Call Transcript

Algonquin Power & Utilities (AQN 1.54%)
Q1 2023 Earnings Call
May 11, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Algonquin Power & Utilities Corp. first-quarter 2023 earnings webcast and conference call. Following the presentation, there will be a question-and-answer session. I would now like to turn the meeting over to Mr.

Brian Chin, vice president of investor relations. Please go ahead.

Brian Chin -- Vice President, Investor Relations

Thank you, operator. Good morning, everyone, and thank you for joining us on our first-quarter 2023 earnings conference call. Speaking on the call today will be Arun Banskota, president and chief executive officer; and Darren Myers, chief financial officer. Also joining us this morning for the question-and-answer part of the call will be Jeff Norman, chief development officer; and Johnny Johnston, chief operating officer.

To accompany today's earnings call, we have a supplemental webcast presentation available on our website, algonquinpowerandutilities.com. Our financial statements and management discussion and analysis are also available on the website, as well as on SEDAR and EDGAR. We would like to remind you that our discussion during the call will include certain forward-looking information, including, but not limited to, expectations regarding earnings, capital expenditures, growth and the strategic review of the Renewable Energy Group. At the end of the call, I will read a notice regarding both forward-looking information and non-GAAP measures.

Please also refer to our most recent MD&A filed on SEDAR and EDGAR and available on our website for additional important information on these items. On the call this morning, Arun will comment on our renewable strategic review and provide an overview our first quarter -- of our first-quarter performance, and Darren will follow with the financial results. We will then open the lines for the question-and-answer period. Please limit your questions to two and then requeue if you have any additional questions to allow others the opportunity to participate.

And with that, I'll turn it over to Arun.

Arun Banskota -- President and Chief Executive Officer

Thank you, Brian, and good morning to everyone joining the call. Before we get into the results for the quarter, I'd like to provide some context around our announcement this morning of our strategic review of the Renewable Energy Group. Both our Renewable Energy Group and our Regulated Services Group have grown into strong businesses with scale and high-quality assets, and both are positioned to benefit from the energy transition. But we believe our assets are undervalued.

We have, therefore, initiated our strategic review of our renewables business to explore alternatives to maximize shareholder value. By doing so, we aim to lower the company's cost of capital and better position the company for success. The review will focus on whether separating our Renewable Energy Group from our Regulated Services Group would advance that objective. As part of the process, we will review the best structure to position our company for continued growth and value creation for our shareholders.

To oversee the review, our board has created a strategic review committee comprised of three of our independent directors. This committee will work with our internal team and external advisors, including JPMorgan, to execute a thorough review and take an open-minded approach to determining the best path forward to drive meaningful, long-term value for shareholders. Our team has already initiated the process, and we expect to announce our go-forward plan by our second-quarter earnings call. Last, let me touch quickly on guidance.

We are reaffirming that our 2023 adjusted net earnings per share outlook of $0.55 to $0.61 is unchanged. In addition, our expectation of $1 billion in organic capital expenditures for 2023 remains unchanged. And with that, let me turn to our ongoing operations and recent developments. I would first like to touch on the termination of the Kentucky Power acquisition.

Last month, we announced with AEP a mutual termination of agreement to acquire Kentucky Power Company and AEP Kentucky Transmission Company. This was not an easy decision. However, our board of directors and management team decided that, given the challenging and continuously evolving macroeconomic environment and regulatory uncertainty over a final order, it was in the best interest of the company to terminate the transaction. I wish to personally extend my gratitude to the teams that worked tirelessly throughout the entire process.

Now, for a couple of updates from our operations. Late in the first quarter of 2023, the 112 megawatts Deerfield II wind project located in Huron County, Michigan achieved full commercial operations. Supporting our growth lever of commercial and industrial partnerships, all of the output from Deerfield II is being sold to a subsidiary of Meta pursuant to a purchase -- power purchase agreement. And on the regulated services side, we received final rate case orders at three of our California facilities: Apple Valley Water, Park Water, and CalPeco Electric with aggregate annual revenue increases of $29.6 million, which includes approximately $9.7 million due to increases in rate base.

A one-time net earnings benefit from the retroactive impact of the orders of approximately $3.7 million for Apple Valley Water and Park Water were recorded in the first quarter of 2023, with a further $11.4 million for CalPeco Electric expected in the second quarter of 2023. I would like to touch on a couple of selected recent rate proceedings as a core growth strategy of the Regulated Services Group is to responsibly invest in our utility systems and target a constructive return on the rate base across our various utility systems. Subsequent to the end of the first quarter of 2023, the company filed an application at its New York Water utility, seeking an increased revenues of $39.7 million based on an ROE of 10% and an equity ratio of 50%. Additionally, the company filed a new rate application at its Empire electric Arkansas utility, seeking an increase in revenues of $7.3 million based on an ROE of 10.5% and an equity ratio of 56% to be phased in over three years.

These rate cases highlight a broader pattern for us, which is that we place a high emphasis and attempting to earn as close to our authorized ROE as possible. Turning now to growth for our Renewable Energy Group. The first-quarter 2023 saw the installation of the remaining panels at our Hayhurst Texas solar project co-owned with Chevron, as well as further advancements on site preparation and turbine erection at Sandy Ridge II. As mentioned previously, Deerfield II wind project achieved full commercial operations in the first quarter of 2023.

Deerfield II came online at the tail end of Q1. And as with most wind projects, it contributes to most financial results in the first and fourth quarters. New to the pipeline this quarter is a 144-megawatt Clearview solar development project located in Champaign County, Ohio, which is scheduled to start construction at the end of May. We currently have nearly 750 megawatts of wind and solar projects in various stages of construction and expect to bring approximately 450 megawatts in service throughout 2023.

As for an update on the New Market Solar project, 42 megawatts of the remaining 76 megawatts have firm delivery. The remaining 34 megawatts have been shipped and are expected to be delivered by June of 2023. So, overall, our construction program continues on track. As we have mentioned in previous quarters, we expect our 2023 renewables operating earnings, excluding gains on sales, to be relatively flat year over year.

I will now turn things over to Darren who will speak to our first-quarter 2023 financial results. Darren?

Darren Myers -- Chief Financial Officer

Thank you, Arun, and good morning, everyone. Our first-quarter 2023 consolidated adjusted EBITDA was $341 million, which is up approximately 3% from the $330.5 million for the same period last year. The company grew year-over-year adjusted EBITDA by $10.5 million, which was driven by growth in the Regulated Services Group as a result of new rates at a number of the company's utilities. This growth was partially offset by a decline in our Renewable Energy Group's operating profit, as expected, driven by lower HLBV from projects commissioned in 2012.

Looking further at results on a segmented basis. The Regulated Services Group delivered $255.3 million in operating profit in the first quarter, which compares to $231.2 million in the same quarter last year, an increase of 10%. The year-over-year increase was primarily a result of new rates in a number of the company's utilities, most notably the Empire Electric and Park Water Systems. Switching now to the Renewable Energy Group.

First-quarter 2023 divisional operating profit was $106.5 million, compared to $117.9 million in the same quarter last year, a decrease of 10%. The decrease was, as seen in prior quarters, primarily due to lower HLBV income as a result of the end of tax eligibility on projects commissioned in 2012. Excluding the HLBV roll-off, operating profit for the Renewable Energy Group was effectively flat as we expected with financial contributions from new facilities slated to come online later this year. Corporate interest expense were $81.9 million, compared to $57.9 million in the same quarter last year, a $24 million increase, reflecting a higher interest rate environment and higher borrowings to support growth.

This quarter's increase over the prior year is primarily similar to the pattern observed in the late 2022 as was in line with our expectations. Looking further down the income statement. First-quarter adjusted net earnings were $119.9 million, compared to $141.2 million reported last year, a decrease of 15%. Turning to adjusted net earnings per share.

The first quarter of 2023 came in at $0.17, compared to $0.21 in the prior year. Our GAAP net earnings were $270.1 million, compared to $91 million in the first quarter of 2022, an increase of $179.1 million for the quarter. Looking now at our capital plan for the year. We reiterate that we expect to spend $1 billion in capital in 2023 with approximately $700 million to be spent by the Regulated Services Group and approximately $300 million by the Renewable Energy Group.

This is consistent with our prior capex plan disclosures, excluding the $2.6 billion we had initially expected for Kentucky. We remain firmly committed to maintaining a BBB credit rating. We are pleased that within the past few months, S&P, Fitch, Moody's, and DBRS all reaffirmed their existing ratings. We were also recently removed from negative watch by S&P.

And in February, DBRS updated Algonquin's outlook to stable. Turning to our earnings outlook. We have reaffirmed our 2023 adjusted net earnings per share expected range of $0.55 to $0.61 which, as a reminder, starting this year, will be calculated excluding the impact of any gains or losses on asset sales. Finally, we remain focused on optimizing our balance sheet and providing transparency on our financing needs.

As previously stated, we do not expect any new equity financing through the end of 2024. With that, I will now turn the call over to the operator to open the lines for questions. Operator?

Questions & Answers:

Operator

Thank you. We will now take the question from our telephone lines. [Operator instructions] There will be a brief pause while the participants register. Thank you for your patience.

The first question is from Nelson Ng from RBC Capital Markets. Please go ahead. Your line is now open.

Nelson Ng -- RBC Capital Markets -- Analyst

Great. Thanks and good morning, everyone. My first question just relates to the strategic review. So, while you're running the strategic review, are you still progressing with the, I guess, targeted $1 billion of asset sales? Can you just talk about how the two processes overlap or don't overlap and obviously, the scope of the -- and provide a bit more color on the scope of the strategic review?

Arun Banskota -- President and Chief Executive Officer

Sure. Nelson, good morning. As we announced this morning, we have initiated a strategic review process. We have also -- the board has also decided to form a strategic review committee, which is going to be overseeing the whole strategic review process.

And as we announced, we plan to finalize the deliberations by the Q2 earnings call. As to your other question around the $1 billion asset sale, we stand by our commitment as we announced at the January 12 update. As you recall, our first priority has always been to strengthen our balance sheet, and the actions we announced on January 12 were all geared toward that. So, we continue to stand by our $1 billion asset divestiture program as well.

Nelson Ng -- RBC Capital Markets -- Analyst

OK. So, is it safe to say you won't be making any big asset sales prior to the conclusion of the strategic review in August or the Q2 call?

Arun Banskota -- President and Chief Executive Officer

I'm not going to speculate on the timing on that, Nelson. But like I said, both processes are continuing at the same time.

Nelson Ng -- RBC Capital Markets -- Analyst

OK. Got it. And then, my second question just relates to -- it's just more about the number of rate cases you guys have. Have you seen any -- I guess, first question is in terms of higher interest rates and higher cost of capital.

Has that caused a -- has that driven, I guess, rate case requests much higher? Has that been a big driver in additional rate requests from your perspective? And are you seeing any pushback from the regulator and consumer groups?

Arun Banskota -- President and Chief Executive Officer

Nelson, we continue to have very constructive dialogues and discussions with our regulators. Of course, I mean, things like interest rates and inflation and others are part of the overall discussions. But it is business as usual for us in terms of the number of rate cases we are looking to file and as expected as part of our business plan.

Nelson Ng -- RBC Capital Markets -- Analyst

OK, thanks. I'll leave it there.

Operator

Thank you. The next question is from Rupert Merer from National Bank Financial. Please go ahead. Your line is now open.

Rupert Merer -- National Bank Financial -- Analyst

Good morning. Thanks for taking the question. Arun, you highlight that the market may not be valuing your renewable assets appropriately. And we have seen public market valuations on some of your peers come down a bit recently.

Now, no doubt, you're in tune with the market with your asset divestiture plan. So, I was wondering if you could comment on the state of the M&A market. How much of that market do you think is in private transactions? And are private market valuations that you're seeing still healthy? And how are they trending relative to the public market?

Arun Banskota -- President and Chief Executive Officer

Sure. So, Rupert, as you know, we did our first inaugural asset sell-down that was completed in December. And we continue to see a very robust set of interest in that asset size and, frankly, from all different types of financial players and strategic players and also from all geographies. So, we have continued to see very robust interest.

As you know, we have an ongoing conversation with various participants in the market. And we believe that the public market and private market, while obviously cognizant of the interest rate environment, there does seem to be continued interest in long-lived renewable energy assets.

Rupert Merer -- National Bank Financial -- Analyst

OK. Thanks for the color. Now, the strategic review likely will impact the outlook for Atlantica Yield, too. Will they be involved in your process to any degree? And how important is it that they complete their strategic review at the same time you complete yours?

Arun Banskota -- President and Chief Executive Officer

Rupert, those are two totally separate processes. The Atlantica Board is running the strategic -- strategy review for Atlantica. And as we announced before, we remain supportive of that strategic review process. Our strategy review process is totally different, and there is really no linkage between those two strategy review process.

Rupert Merer -- National Bank Financial -- Analyst

I imagine you're somewhat involved in their process as well. Does that inform your process to any degree?

Arun Banskota -- President and Chief Executive Officer

Of course. Given the fact that we were in the market until December on our own set of assets and the visibility we have through the Atlantica strategy review process, obviously, that would be a data point in what we're looking at as well.

Rupert Merer -- National Bank Financial -- Analyst

All right. I'll get back in the queue. Thank you.

Arun Banskota -- President and Chief Executive Officer

Thank you, Rupert.

Operator

Thank you. The next question is from Mark Jarvi from CIBC Capital Markets. Please go ahead. Your line is now open.

Mark Jarvi -- CIBC World Markets -- Analyst

Hi. Just wondering if you have some comment on the timing of this. I'm wondering why it wasn't initiated earlier, strategic review given some of the things you've been trying to solve over the last couple of quarters. And I guess is there anything else aside from strategic review that you might consider doing now given feedback and investor engagement that maybe you didn't consider earlier this year or back in 2022?

Arun Banskota -- President and Chief Executive Officer

Sure, Mark. So, look, our first focus and priority was really around our balance sheet. That will -- absolutely the most important thing for us. So, in January, we announced a series of actions, including reducing our capital intensity, dividend reset, asset divestitures.

All of those actions were all geared toward firming up our balance sheet. As you know, at the same time, we are in the middle of continuing to execute on the Kentucky Power transaction, which would have been our largest M&A transaction to date. And really, the focus was on continuing to use reasonable best efforts to complete that transaction. So, once both the seller and we've decided that it was in the interest of both parties to terminate the transaction, that's when we started looking at what are the other opportunities out there for us to make sure we get the right values and for our strong set of assets.

And as you will know, we continue to have a regular dialogue with our -- between management and board. And this is -- the strategic review came out as the one that -- where we believe we can unlock perhaps the most value.

Mark Jarvi -- CIBC World Markets -- Analyst

So, just a follow-up. So, you're saying the strategic review is more of unlocking value, not singularly focused on solving the funding issues? And then, maybe just to my other part, is there anything else now post the Kentucky Power deal being terminated that you're considering in terms of optimizing and trying to surface value for shareholders?

Arun Banskota -- President and Chief Executive Officer

No. Nothing new besides executing on our January 12 update and executing on our strategy review.

Darren Myers -- Chief Financial Officer

And, Mark, maybe I'll just add just to your question -- I'll just make sure I heard it right. The strategic review is not being put in place because of a funding problem. Just to be clear, the strategic review is to figure out the best option, the most optimal way to structure the company in order to get the best valuation and the lowest cost of capital for the company.

Mark Jarvi -- CIBC World Markets -- Analyst

Makes sense. And then, just to follow up on that, Darren, if you did split apart the renewables and divested all or most of it became predominantly regulated, is there a path forward when you go back to the credit rating agencies and look to change their perception of business risk and try to lower your FFO to debt metrics, which maybe give you a bit more -- plenty of flexibility and balance sheet flexibility?

Darren Myers -- Chief Financial Officer

Yeah, Mark. I certainly don't want to speculate on outcomes today as to where this may go. We are truly open-minded to all the different options in front of us. And, obviously, we look at all the different levers that each option presents and try to come up with the best answer for the company and for shareholders.

Mark Jarvi -- CIBC World Markets -- Analyst

OK. Thanks, Darren. Thanks, Arun.

Arun Banskota -- President and Chief Executive Officer

Thanks, Mark.

Operator

Thank you. The next question is from Sean Steuart from TD Securities. Please go ahead. Your line is now open.

Sean Steuart -- TD Securities -- Analyst

Thanks. Good morning. A couple of questions. It looks like you're reiterating your capex plans this year, which calls for a pretty conservative investment in rate-based growth this year, one of the lowest levels we've seen in several years.

With more flexibility in your capital structure post Kentucky Power, can you speak to your ability to potentially ramp up that spending in your rate base into 2024?

Arun Banskota -- President and Chief Executive Officer

Sure, Sean. Happy to take that question. So, yes. As you've observed, we have reduced our capital intensity, which was all really with a view to strengthening our balance sheet.

But at the same time, as you pointed out, we do have the ability to invest more on our regulated business for further growth. At the same time, we always look at things like inflation and customer bill impact. And we thought that this year was a good year that for us to moderate the capital intensity, but there is the ability to invest more on the regulated side of the business, yes.

Darren Myers -- Chief Financial Officer

Yeah. And, Sean, you -- probably just add to that, I think you're thinking about it right as we look beyond this year into next year and after that. I think there is more opportunity to invest in our rate base.

Sean Steuart -- TD Securities -- Analyst

OK. Thanks for that. And then, broader priorities for capital allocation even before potential proceeds from asset sales, you've got capital structure flexibility now. Is it safe to assume that short-term paying down revolver and credit facility drawings as a priority? And then, if you are successful in asset divestitures, can you comment on whether share buybacks are potentially part of the plan longer term?

Darren Myers -- Chief Financial Officer

I think from where we are today, it's really -- and with the announced actions we have, it's really around paying down debt and investing in the business. Again, that's for all the actions that we've announced to date.

Sean Steuart -- TD Securities -- Analyst

OK. That's all I have for now. Thanks, guys.

Darren Myers -- Chief Financial Officer

Thanks, Sean.

Operator

Thank you. The next question is from Andrew Kuske from Credit Suisse. Please go ahead. Your line is now open.

Andrew Kuske -- Credit Suisse -- Analyst

Thank you. Good morning. Maybe just on the core utility business. You've given us the rate basis again and the authorized ROEs, which is much appreciated.

But could you give us maybe a context on where you are in aggregate maybe on the gap of realized versus the authorized that you have?

Arun Banskota -- President and Chief Executive Officer

I believe we have already given that information, Andrew, that our weighted average ROE is right in the range of 9%.

Andrew Kuske -- Credit Suisse -- Analyst

OK. I might have missed that in the deluge of stuff this morning. So, maybe just in the context of investing more in the utilities business, Arun, I think when you took over the seat a while ago, you talked more about pivoting in the utility investments. Is the strategic review process maybe a culmination of the plan that you set out a few years ago to really improve the balance sheet and maybe derisk the overall company and improve the funding situation?

Arun Banskota -- President and Chief Executive Officer

Absolutely, Andrew. And the first priority was -- has continued to be to strengthen the balance sheet. And especially in the light of the macro environment, we had to take very decisive steps, which we announced in January. And yes, as we've announced before, both of our platforms are very strong, the regulated business and the renewable business.

Both are benefiting hugely from the energy transition and are positioned to best continue to benefit hugely over the years. And it really is not a lack of opportunities for us. So, first of all, strengthen the balance sheet; second, continue to focus on value creation growth; and continue to create value long term for our shareholders. That absolutely remains our focus.

Andrew Kuske -- Credit Suisse -- Analyst

If I could just sneak in one more. And it really comes down to -- if you exit the renewables group entirely, would you just plan on having renewables embedded within rate base activities?

Arun Banskota -- President and Chief Executive Officer

Andrew, we continue to -- we do have renewables embedded on our regulated side of the business. You know about the 600 megawatts customer savings plan that we have in Missouri. So, that continues to be part of our strategy on the regulated side. On the renewable side, I don't want to prejudge what the end result is going to be.

We are going into the strategic review process with a very, very open mind, not prejudging what the end result might be. So, I will just leave it at that.

Andrew Kuske -- Credit Suisse -- Analyst

OK. Thank you.

Arun Banskota -- President and Chief Executive Officer

Thank you, Andrew.

Operator

Thank you. The next question is from Ben Pham from BMO. Please go ahead. Your line is now open.

Ben Pham -- BMO Capital Markets -- Analyst

Hi. Thanks. Good morning. I mean, when you think about renewables versus utilities, and let's maybe ignore valuation for a second, which segment has the best outlook in terms of earnings or EBITDA growth you think about it in the next five years?

Arun Banskota -- President and Chief Executive Officer

That's a tough one, Ben. I mean, given the societal move toward decarbonization and energy transition, when we look at both our regulated business and our renewable business, we see, frankly, unlimited opportunities. Obviously, the constraint on the regulated side of the business is vis-a-vis customer bill impacts, which we look at very, very closely. And also, given the fact that we're largely electric on the regulated side of the business and water, that's where we believe that much of that growth in line with the energy transition is going to be.

So, we see pretty much unlimited opportunities and again, constrained by customer bill impacts. On the renewable side, you know the landscape with continued closure of coal assets, the need to really green the grid massively in both the U.S. and also in Canada, and very strong government incentives like the IRA. It's difficult to say which side of the business has more set of opportunities.

Ben Pham -- BMO Capital Markets -- Analyst

OK. And maybe a couple of follow-ups on this review process. And I'm just curious, A, how influential have access to drive this review? I'm also curious what are you actually giving up here if you do carve this unit out because you did mention synergies before on it. And then, lastly, when you think about value creation, is the price earnings that's driving it in terms of the commentary on value servicing?

Arun Banskota -- President and Chief Executive Officer

Sure. So, look, I mean, let me make it very, very clear. Management and our board absolutely own this strategy to be processed, right? It's clearly informed by a whole number of factors, clearly, macroeconomic factors, the interest rate environment, cost of capital, our values vis-a-vis our peers, both integrated and pure play, our discussion with shareholders. So, it's really informed by a whole variety of items.

And also, the timing is right, given the fact that we are not focused on closing Kentucky Power. But again, let me reiterate, management and our board very much own this strategy review process.

Ben Pham -- BMO Capital Markets -- Analyst

And price earnings you're looking at, right, Arun?

Arun Banskota -- President and Chief Executive Officer

We're looking at various values and factors out there, including PE.

Darren Myers -- Chief Financial Officer

Some of the parts be -- so you've got a lot of -- as you know, a lot of complexity on a value of a company.

Ben Pham -- BMO Capital Markets -- Analyst

OK. That's great. Thank you.

Arun Banskota -- President and Chief Executive Officer

Thanks, Ben.

Operator

Thank you. The next question is from Dariusz Lozny from Bank of America. Please go ahead. Your line is now open.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Good morning. Thank you for taking my question. Maybe just starting off on the timing of the strategic review.

You gave a target of your Q2 call as being able to provide an update to the market. That seems like a relatively quick turnaround relative to some of the -- some of your other peers that have announced similar strategies. Can you maybe talk a little bit about what's driving that relatively quick time frame? Is it the visibility you may have into the process, having done asset recycling before? Or is there anything else specifically that's driving that timing? Thank you.

Arun Banskota -- President and Chief Executive Officer

We actually believe that we are able to do a comprehensive review within that time frame. And that's why we feel comfortable giving you that time frame for determination of that strategic review process. Really besides that, there's nothing else that's driving why we believe that it will be done in three months and not take longer. Does that answer your --

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Great. It does answer it. Thank you. Maybe just following along that theme, you guys in the past have done comprehensive multiyear updates in December, January in the past.

Assuming that you have clarity on the outcome of the strategic review by then, do you think that perhaps in Q4 of this year, you'd be in a position to give a more comprehensive multiyear look as far as earnings growth, capital at the utility, those usual type of long-term updates?

Arun Banskota -- President and Chief Executive Officer

Sure. We will absolutely take that into consideration, Dariusz. And we'll probably formulate that view as well as we get toward the Q2 earnings call and beyond.

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

OK. Thank you very much. I'll leave it here.

Arun Banskota -- President and Chief Executive Officer

Thanks, Dariusz.

Operator

Thank you. The next question is from Naji Baydoun from iA Capital Markets. Please go ahead. Your line is now open.

Naji Baydoun -- iA Capital Markets -- Analyst

Hi. Good morning. Just going back to the strategic review. I understand you're keeping sort of staying open-minded, keeping flexibility.

But just based on where you stand today, is there a preference for either a full monetization or maybe a partial monetization like you did last year, bringing in partners?

Arun Banskota -- President and Chief Executive Officer

No. We're not going to be doing anything right away, Naji, before we have the full result of the strategy review. So, we will look at all different ways to maximize shareholder value. And again, we are going in this with a very open mind and looking at all possible pathways.

Naji Baydoun -- iA Capital Markets -- Analyst

And I assume one of those pathways would include a spin-off of the renewable business as well so that they would be two stand-alone public entities. How does sort of similar initiatives that have been undertaken by your peers in North America inform your decision to maybe do a spin-off?

Arun Banskota -- President and Chief Executive Officer

Sure. Naji, we have obviously just started the strategy review process. So, obviously, we will be looking at market considerations and experience of our peers, absolutely. So, again, everything is on the table.

The two primary outcomes we're looking for are continuing to strengthen our balance sheet and maximize the valuation of our assets, both regulated and renewables for our shareholders. Those are the outcomes we will continue to look.

Naji Baydoun -- iA Capital Markets -- Analyst

OK. Got it. And maybe on that first one, you mentioned before priority of paying down debt and investing for growth. So, the $1 billion of assets that you had previously targeted is to fund the organic growth capex.

So, let's say that whatever the outcome is of the strategic review, how much of that would you want to pay down once you have more clarity on this review? Is there a target that you have in mind?

Darren Myers -- Chief Financial Officer

Yeah. No, that's a tough question because there's so many different permutations as to what the outcome could be. So, I don't want to speculate on where that would lead us.

Naji Baydoun -- iA Capital Markets -- Analyst

OK. Understood. Just maybe one last quick question on New York American Water. Can you just remind us of the current regulatory sort of contract? I think I had 46% equity and roughly 9% ROE.

And now, you're finding for 50 and 10. Is that correct?

Johnny Johnston -- Chief Operating Officer

Yeah. I think that sums -- it's Johnny. It's -- 9.1 is the current allowed ROE for American Water. So, yeah.

And I think you've got the equity business right. I haven't got that number in front of me, but I think it's just below 50.

Naji Baydoun -- iA Capital Markets -- Analyst

OK. Thank you.

Operator

Thank you.

Arun Banskota -- President and Chief Executive Officer

Thanks, Naji.

Operator

The next question is from Robert Hope from Scotiabank. Please go ahead. Your line is now open.

Robert Hope -- Scotiabank -- Analyst

Good morning, everyone. Just wanted to get maybe some high-level thoughts. Historically, your renewable power development has been a core part of the business, both on the Renewable Power Group side, as well as the utility side. If the company was to be split up, how are you thinking about potentially losing some of that renewable development capabilities in the utility group, as well as some of the scale benefits as well?

Arun Banskota -- President and Chief Executive Officer

Robert, that's clearly going to be part of the analysis or even going forward, right? I mean, we have maintained in the past that there's synergies, if there may be dissynergies as well of the two groups being together. That -- those are clearly items that we're going to be focusing on as part of the strategic review.

Robert Hope -- Scotiabank -- Analyst

All right. Thank you. And then, I just want to revisit the Atlantica comments. Maybe you can add a little bit of clarity there because the outcome of the strategic review for Atlantica seems to be a relatively large variable in the valuation of the renewable power business.

So, how do you think about that key variable and as it pertains to your strategic review, understanding that AY's review may take longer than yours?

Arun Banskota -- President and Chief Executive Officer

Again, that's a better question to the Atlantica company than to us. I mean, they have announced their strategic review. They have not announced when exactly they plan to complete it. We have announced the 42% shareholder that we are supportive of that strategy review process and we continue to be supportive.

Future updates really should be coming from Atlantica.

Robert Hope -- Scotiabank -- Analyst

Thank you.

Arun Banskota -- President and Chief Executive Officer

Thanks, Robert.

Operator

Thank you. [Operator instructions] We have a question from David Quezada. Please go ahead. From Raymond James.

Your line is now open.

David Quezada -- Raymond James -- Analyst

Thanks. Good morning, everyone. Maybe my first question, just assuming you do sort of refocus strategically on the regulated side of the business going forward, could you talk about what your main priorities or what you see as the big opportunities there on the regulated side? Any particular region or modality that you think has a lot of potential?

Arun Banskota -- President and Chief Executive Officer

Sure. And again, let us not presuppose what exactly is going to be the end result of the strategy review process. So, I'll answer your question around opportunities on the regulated side of the business. Look, if you just look at all of the organic growth requirements from things like safety, security, reliability improvements, we are constructing a 161 KV line in the State of Missouri.

We have growth opportunities in Arizona, constructing a new waste water system. In our CalPeco jurisdiction, we are putting in renewable energy to increase the amount of clean energy on that grid. So, there continues to be both the core requirements for, again, safety, security, reliability but also, beyond that, to account for growth and multiple ways where we could manage converted opex into capex and, thereby, help manage customer bills as well. So, all in all, we see a very robust set of opportunities on the regulated side of the business.

David Quezada -- Raymond James -- Analyst

Appreciate that color. Thanks, Arun. And maybe just one more for me. Just wonder if there's any comment you could make around the development projects in your renewable business.

Could you just talk about if there is any comment you can make on where they sit from a grid interconnection perspective? Has that been a challenge in moving those projects forward or do you think you're well positioned there?

Arun Banskota -- President and Chief Executive Officer

Look, as with any development project on the renewable side, right, I mean sizing and interconnection are really, really core to moving the process forward. As you know, interconnection has been more challenging in PJM, and there has actually been a stop hold on new interconnection agreements. But we continue to make advancements. And we have accounted for the increased timing in our plans and our expectations in the renewable projects.

Jeff, do you want to add anything?

Jeff Norman -- Chief Development Officer

Yeah. I think that last point, I'd just reinforce that what is in our plan considered and thought through the interconnection delays. There's definitely, as we see excitement about the energy transition, interconnection timing is going to be a key factor. I would point out that our portfolio of development projects, our greenfield pipeline, we've got different vintages, and we've been investing in that pipeline for a number of years.

So, there are some projects that are in front of that way, and there are some projects that we'll have to deal with that way. But we feel good about what we've put forward for the next five years.

David Quezada -- Raymond James -- Analyst

Excellent. Thank you very much.

Arun Banskota -- President and Chief Executive Officer

Thank you, David.

Operator

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back to Arun Banskota.

Arun Banskota -- President and Chief Executive Officer

Thank you, operator, and thank you, everyone, for taking the time to listen to our first-quarter 2023 call today. Please continue to stay on the line for our disclaimer. Brian?

Brian Chin -- Vice President, Investor Relations

Thanks, Arun. Our discussion during this call contains certain forward-looking information, including, but not limited to our expectations regarding earnings, capital expenditures, growth, and the strategic review of the Renewable Energy Group. This forward-looking information is based on certain assumptions, including those described in our most recent MD&A and annual information form filed on SEDAR and EDGAR and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided during this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date.

There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. We disclaim any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information except as required by applicable law. In addition, during the course of this call, we may have referred to certain non-GAAP measures and ratios including, but not limited to, adjusted net earnings, adjusted net earnings per share or adjusted net EPS, adjusted EBITDA, adjusted funds from operations, and divisional operating profit. There is no standardized measure of such non-GAAP measures.

And consequently, our method of calculating these measures may differ from methods used by other companies and, therefore, may not be comparable to similar measures presented by other companies. For more information about forward-looking information and non-GAAP measures, including a reconciliation of non-GAAP financial measures to the corresponding GAAP measures, please refer to our most recent MD&A filed on SEDAR in Canada and EDGAR in the United States and available on our website. Thank you, and that concludes today's call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Brian Chin -- Vice President, Investor Relations

Arun Banskota -- President and Chief Executive Officer

Darren Myers -- Chief Financial Officer

Nelson Ng -- RBC Capital Markets -- Analyst

Rupert Merer -- National Bank Financial -- Analyst

Mark Jarvi -- CIBC World Markets -- Analyst

Sean Steuart -- TD Securities -- Analyst

Andrew Kuske -- Credit Suisse -- Analyst

Ben Pham -- BMO Capital Markets -- Analyst

Dariusz Lozny -- Bank of America Merrill Lynch -- Analyst

Naji Baydoun -- iA Capital Markets -- Analyst

Johnny Johnston -- Chief Operating Officer

Robert Hope -- Scotiabank -- Analyst

David Quezada -- Raymond James -- Analyst

Jeff Norman -- Chief Development Officer

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