The leaders of Algonquin Power & Utilities Corp. last week said they are dialing back their spending plans and slashing the company’s dividend in the face of “various market pressures,” the rise in interest rates and inflation most notable among them.
At the same time, President and CEO Arun Banskota and his team said they intend to continue to pursue their $2.6 billion acquisition of Kentucky Power from American Electric Power Co., which was announced in 2021. That planned transaction hit a major snag last month when the Federal Energy Regulatory Commission said Ontario-based Algonquin hadn’t yet provided enough assurances that transmission rates wouldn’t rise as a result of its acquisition. FERC officials did leave open the door for Algonquin to provide more information about its plans and both buyer and seller have pledged to continue their work on the transaction.
But the FERC decision has added another element of uncertainty to Banskota’s and CFO Darren Myers’ plans and they have had to tighten their reins in response to the headwinds. They have reduced their 2023 capital spending forecast by about 15% from 2022’s pace to roughly $1 billion. That figure also is a big step down from the company’s previous forecast of an average of about $1.8 billion annually for the five-year period from 2022 to 2026.
Asked on a conference call with analysts about details for 2023 spending plans, Banskota said the “vast majority” will go to organic investments on the regulated side of Algonquin’s portfolio rather than to new renewable energy projects.
“I take the current situation very seriously,” Banskota said on the call. “Regardless of the challenges we face, I’m holding myself and this management team accountable for improving our trajectory. We are committed to taking decisive actions in the near term.”
Banskota and Myers also plan to shrink Algonquin’s portfolio to generate cash. They last month completed the sale of a portfolio of wind energy facilities to a unit of Sun Life Financial Inc. for nearly $360 million in cash (and will book a gain on that deal of about $55 million) and plan to strike deals for another $1 billion worth of assets – most if not all of them renewables – this year. Some of those proceeds, they said, will only come through Algonquin’s doors in 2024.
Shares of Algonquin (Ticker: AQN) fell nearly 4% Jan. 12 on word of the dividend cut and were down another 6%+ to $6.66 on the afternoon of the following day. Thanks to those drops and a November plunge after its leaders lowered their earnings outlook, they have now lost more than half of their value over the past six months, lowering the company’s market capitalization to about $4.6 billion.