Avangrid Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to Avangrid's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode and please be advised that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. And now at this time, I would like to turn the call over to Mr.

Operator

Alvaro Ortega, Vice President of Finance, Investor Relations and Treasury. Please go ahead, sir.

Speaker 1

Thank you, Bo, and good morning to everyone. Before we start, our CEO, Pedro Zagreb, would like to share a message. Pedro, please?

Speaker 2

Thank you, Alvaro. I think before we begin, I'd like to say some a few words about the horrific and trade mass shooting and loss of life in Lewiston, Maine. We have many Central Maine Power employees in Lewiston and all over Maine who are likely severely impacted by this horrible act of senseless violence. We are monitoring the situation very closely and we're prepared to provide every resource available to our employees and our affected communities. Our hearts and thoughts from all of us at CMP, Aventrita and Ipadrola are with the Lewiston community during this difficult time.

Speaker 2

Let's move now to our Q3 results presentation. Please, Albert, proceed.

Speaker 1

Thank you for joining us today to discuss Avangrid's Q3 2023 Earnings Results. Presenting on the call today are Pedro Azagra, our Chief Executive Officer I'm Patricia Josquel, our Chief Financial Officer. Also joining us today for the question and answer part of the call will be Catherine Estenpien, President and Chief Executive Officer of Avangrid Networks, Jose Antonio Miranda, President and Chief Executive Officer of Avangrid Renewables and Justin Lagasse, Senior Vice President and Controller. Other members of the executive team are also joining us today and may be called upon to assist with the Q and A part of the call. If you do not have a copy of our press release or Presentation for today's call, they are available at our website, avangrid.com.

Speaker 1

During today's call, we will make various forward looking statements within the meaning of the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors discussed In Avangrid's earnings news release, in the comments made during this conference call, in the risk factors of the company's presentation or in our latest reports and filings with the SEC, each of which can be found on our website. We do not undertake any duty to update any forward looking statements.

Speaker 1

Today's presentation also includes references to non GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for Additional information and reconciliations of non GAAP financial measures to the closest GAAP financial measures. I will now turn the call over to Pedro.

Speaker 2

Thank you, Alvaro. During the past months, Avangrid has continued working hard on building the foundation for a stronger and more resilient energy future, not only for our company, but also for the U. S. A year ago, we had many challenges ahead of us. I'm very pleased how the team has performed and we'll be updating during the presentation on some of the major achievements we have been able to obtain at present.

Speaker 2

If we move to slide 5, earlier today, AlpenGrid reported 3rd quarter results or 2023 net income of $59,000,000 or $0.15 per share and adjusted net income of $105,000,000 or $0.27 per share. Over the 9 months, $4,000,000 or $1.12 per share. In New York, our NYSEK and RGE rate cases were approved by the Public Service Commission on October 12 with a positive after tax impact of $136,000,000 or $0.35 per share to be recognized in the Q4 this year. This includes $66,000,000 of positive impact as if the joint proposal settlement was effective May 1 $70,000,000 for the mitigation of uncollectibles. We successfully terminated our offshore wind PPAs for Commonwealth Wind and Park City Wind with an after tax payment of We are above $29,000,000 in guarantees for this year.

Speaker 2

By terminating these contracts, we have improved the economics of our offshore wind projects and avoided 1,000,000,000 in write offs at minimal cost. This cost is excluded from our adjusted earnings. Based on our year to date achievements and progress on key issues, we are reaffirming our 2023 EPS guidance of $1.90 to $2.10 and adjusted EPS of $2.20 to $2.35 This includes one time extraordinary gains from potential transactions of $0.24 to $0.28 Over the last month, we have successfully completed key challenges from 2022. 1 year ago, we announced our plan to file multiyear rate cases to avoid gaps between rates, balancing earnings, cash flow and affordability. Just on October 12, we received the final decision on the rate case for our companies in New York, including over $6,000,000,000 of investment or past on future investments.

Speaker 2

Our rate base will increase by close to 40% from $6,600,000,000 in $22,000,000,000 to $9,200,000,000 in 2026, reflecting increases in plant additions needed to enhance the grid's reliability and resiliency. The 3 year rate case will also improve cash flow up to $940,000,000 or in excess of $940,000,000 and enhance our net income to nearly $450,000,000 in 20.26. This will help us pay for vegetation management cost, improve our credit metrics and provide a fair return on historic investments up to 2022 as well as those projected into 2026. The decision also includes risk mitigation provisions for uncollectibles and changes in long term debt rates as well as make whole provision. This make whole goes back to May 1, meaning that even though the new rate is going to effect on November 1, we will be able We will make whole as the joint proposal settlement had been approved back on May 1.

Speaker 2

The allowed return on equity is 9.2 And the equity ratio is 48%. Ultimately, the New Year rate case will enable us to continue to deliver a high quality service for our customers, accelerate vegetation management, work to improve system reliability and resiliency and accelerate the clean energy transition in New York. If I remember last year, many people put into question rightly that we were going to have a successful rate case. I think in the same case that in Maine, when you work hard, You have relationships, you have spent time with the regulator, you explained your case correctly, I think it's delivered. So I'm very happy and proud of the work that has been done on this topic.

Speaker 2

Nobody could believe this outcome a year ago. Turning to slide 7, a year ago, Park City Wind and Commonwealth Wind were financially exposed [SPEAKER JOSE RAFAEL FERNANDEZ:] So significant additional project costs due to unprecedented economic headwinds. Many of the things we said a year ago, I think now everybody comments on the same in the same way. The contracts did not allow unilateral termination or renegotiation and as promised In our last strategic plan in September 2022, we took steps to improve the economics of the projects. Since that time, AVANGRID has been transparent and collaborative, working digitally with the state and federal officials and stakeholders to find solutions.

Speaker 2

Today, PPIs, PPAs for both projects have been successfully terminated at minimum cost and avoiding massive write offs. As we said last year, we care about every dollar, every million as we care about 1,000,000,000, but we're not here to put in danger the money we receive from our equity and debt Investors? On Park City Wind, the electric distribution companies filed PPA termination documents with the Connecticut Public Utilities Regulatory Authority Pura, they approved termination of the PPAs contract early this month. The impact was limited to the security deposit of almost $12,000,000 after tax. On Commonwealth Wind, the Massachusetts Department of Public Utilities, DPU, approved the termination of the PPAs in August.

Speaker 2

The impact was limited to the security deposit of almost $18,000,000 after tax this year. Over the last year, we continued to advance the permitting and development of these projects. Now we have 2 high valuable leases ready to leverage on the experience as part of the Pedrera Group developing, financing and constructing offshore projects like Vineyard Wind 1. As in the case of the rate case in New York and the rate case in Maine, also in these two projects, I would like to congratulate the team. I think we have done a simply very difficult to believe work, which is not even to initiate the construction in relation to the project and to be able to terminate 2 projects that otherwise we will be now speaking of 1,000,000,000 of losses today.

Speaker 2

So congratulations and I'm very, very proud of the negotiations. And thank you also to all the legislatures, executives and other parties and constituents we work with because this is the best thing thinking of to note the company viability in the long term. Turning to slide 8, early this year we received Approval for the 1st multiyear rate case in Maine for 15 years. The Maine Public Utilities Commissions, MBUC, approved over $380,000,000 of investments to improve safety, reliability and resiliency. This increases our rate base to nearly $1,300,000,000 in rate year 2, reflecting the plant additions necessary to improve and modernize the grid in Maine.

Speaker 2

This plan was designed to ensure that CMP can continue making progress towards upgrading the electric grid, improving vegetation management practices and enhancing the customer experience. Having been selected this year, CMP, the best company to work in Maine to work for in Maine, I would say thank you to the team, terrific job. Again, very few people trusted a year ago we were going to achieve a rate case like this one. I think we're doing this because it's necessary. We'll have we're spending All the time needed to obtain all the constituencies we need to deal with, I think this is what basically comes out when the work is done correctly.

Speaker 2

So congratulations and let's continue. On the next item, NECEC, we have successfully resolved key legal matters and restarted construction, enabling us to accrue any fee UDC. The Massachusetts in Massachusetts, sorry, we are right now investing in this project both in Maine and then in Massachusetts. As you know, we have agreements with ADCs. We will be investing approximately $1,500,000,000 in this project.

Speaker 2

Through the end of the Q3, we have spent already almost $700,000,000 NECEC contributed $7,000,000 on after tax earnings in the Q3 and is expected to add earnings almost approaching $20,000,000 in the 4th quarter. On slide 9, we move to key items that we continue to make progress on. On Vineyard Wind 1, construction is progressing and we are on track for delivering 1st power before the end of the year and achieving commercial operation by the end of 2024. Once online, this project will generate clean, renewable and affordable energy for over 400,000 homes and businesses in Massachusetts, while also reducing car run emissions by over 1,300,000 tons per year, which is equivalent to removing 325,000 cars from the road. Nearly 60% of the construction has been successfully completed and we have achieved key milestones, including the installation of the first two wind turbines, 25 monopiles and 15 array cables to connect the turbines.

Speaker 2

We have also completed the installation of the offshore substation earlier this summer and the onshore substation has been energized. Additionally, we have fully secured the components needed to support construction and executed A first of its kind tax equity financing for $1,200,000,000 It represents the largest single asset tax equity financing clause and the first for a commercial scale offshore wind. This allows us to monetize depreciation of the project, supporting the capital structure and project economics. We are proud of the work accomplished by the offshore team in pioneering A new industry in the U. S.

Speaker 2

The lessons learned will be invaluable as we continue developing these projects and others in the U. S. Finally, parties in the merger case related to PNM presented oral arguments to the New Mexico Supreme Court in September and we are now awaiting a decision. We are also progressing in the divestiture plan that, as you know, is needed before the end of 2024, and we continue to make progress there. Turning to Slide 10, we will discuss our U.

Speaker 2

A. Rate case And the challenging regulatory environment in Connecticut. 2 months ago, the Public Utilities Regulatory Circuit Bureau issued a final decision regarding the rate case. The decision departs without prior notice from over 25 years of PURA practices, resulting in our inability to recover reasonably incurred costs and earn a fair return on and off capital. The decision would hinder our ability to invest on the grid to improve the storm resiliency and reliability and will slow down the state progress on its clean energy goals.

Speaker 2

For this reason, we have filed, among others, an appeal in the Superior Court of the Judicial District of New Britain on September 18. Turning now to slide 11. The IRA is bringing tremendous opportunities to the industry and will be crucial for Abengrid's plan to repower up to approximately 1.6 gigawatts of our renewable assets between 2023 32. Repowering allows us to increase production of our existing assets by around 30% and reduce O and M costs by approximately 10%. Please do not forget that it allows for tax credits for 100% of the asset production, not only the increased production, including both as we commented for the next 10 years.

Speaker 2

Unlike windfield projects, repowering does not require full development And permitting, allowing the projects to reach completion much faster. In fact, we have already repowered 3 projects successfully in the last 3 years. This represents a low risk opportunity to increase the value of our existing portfolio at least through 2,032. We have continued passing in Slide 22 sorry, 12 in our priorities and achieved additional key milestones this year. On this slide, we have some examples.

Speaker 2

Within networks of CMP, we have secured a grant of $30,000,000 awarded by the DOE Grid Development Office and the Grid Resiliency and Innovation Partnership Program. This grant was established by the bipartisan infrastructure law and we position CMP to accelerate the deployment of smart grid technologies and reduce the frequency and impact of power outages. CMP also delivered an exceptional response to Hurrick and Leaf, which affected the region of Northern New England on September 16. We successfully restored Power to the vast majority of the 130,000 customers impacted within 24 hours. CMP has also been recognized as one of Maine's Best Places to Work.

Speaker 2

This is a research driven program from Best Companies Group that examines the practices, programs and benefits of a company and perform service to its employees to evaluate their perspective. Across all operating companies and networks, we have improved our system average interruption duration index or SADI by 9% in 2023 when compared to our average SADI between 2019 2022. We continue to put the customer experience at the core of our network business by expanding our digital platforms. Year to date, we have over 1,100,000 app downloads, which represents an 8% increase on over 1,000,000 customers on outage alerts, which is a 46% increase. These tools and technologies will help increase customer satisfaction, Reduce cost to customers and improve cash flow.

Speaker 2

Moving on to renewables. We have reached an installed capacity of 8.6 gigawatts of wind And solar energy, and we are on track to install around 1.2 gigawatts between 23 2025 as addressed in our strategic plan. Right now, we have close to 850 megawatts of solar energy projects under construction. Equipment and supply needed for these projects are fully contracted and secured, preventing CapEx variation. In the 1st 9 months, we have also secured 580 megawatts of new and renegotiated PPAs.

Speaker 2

In addition, early this year, we joined the Caixo Western Energy Imbalances Market, EIM, as the 1st generation only entity. Regarding our corporate accomplishments, we recently reached an agreement with Vito to transfer $100,000,000 of PTCs in 2023. The PTCs will come from 8 operating wind farms totaling over 1.1 gigawatts for projects that are not in tax equity. This is one of the first for tax Transfers of PTCs since the IRA allowed for transferability of tax credits. Early this year, Fitch also upgraded Travel and Grid Outlook to a stable, improving our credit profile.

Speaker 2

Related to ESG achievements, we hosted our 1st Supplier Diversity Summit this quarter with the objective of bringing our small and diverse businesses together to promote equitable and competitive business practices. On innovation, we hosted our annual digital summit this past quarter with technology leaders from around the country to showcase the latest digital solutions for the energy sector. This year's event featured disruptive technologies that will advance smart grids, improve operations and enhance the customer experience. Also related to innovation, Fortnightly recently awarded us with the Louis Latimer Top Innovator Award in Design. We were recognized through our projects simulating cybersecurity threats and our response.

Speaker 2

Thanks to these achievements, Avangrid is well positioned for success, and I am confident that we're taking the firm steps to deliver future growth. Turning to Slide 13. ARAVANGRID continues to be recognized in the key ESG related indexes reaffirming our strong efforts to meet our sustainability and governance goals. This year, we have received over 14 ESG recognitions. I would like to highlight the following 4, which align with our ESG goals.

Speaker 2

We're also most ethical companies by ItySphere, the Bloomberg Gender and Equality Index, the Financial Times Stock Exchange for Good by FPSC Russell and the 2023 Sustainability Yearbook by S and P. 2023 marks the 5th consecutive year being recognized as one of the most of the world's most ethical companies by Etisphere, a global leader in defining and advancing the standards of ethical business practices. We are one of the only 9 honorees globally in the energy and utility sector this year. The Bloomberg Gender Equality Index connects with ApenGrid's goal to build, maintain and improve a diverse workforce and inclusive culture, aligned with our ESG targets for women in executive and leadership positions. This is the 6th time we have won the FTSC For Good Award Created by the Global Index and Data Provider, FTSC Russell, the FTC E4 Group Index measures the quality of each company's management of environmental, social and governance matters.

Speaker 2

Avant Grid has also been included in SMP's 2023 sustainability yearbook, scoring more than twice the average of the industry. All these awards and accomplishments are a testament of the hard work and dedication of the teams to make this possible. As such, I wanted to thank everyone in Avangrid who works on heart every day to continue to deliver excellent customer and employee experiences, Innovative ideas and contribution to these ASG goals. In particular, I would like to thank you, Patricia, for your dedication [SPEAKER JOSE RAFAEL FERNANDEZ:] And the many contributions you have made to App and Grid over the past 8 years. You didn't join last year.

Speaker 2

You were here for 8 years with us. Early this week, we shared that Patricia will be leaving retiring from Avangrit in November. She has been an integral part of our company, first working at UIL as Vice President and Treasurer and then as Vice President of Investor Relations. Patricia, we wish you all the best and Justin, we welcome you now. You may hear also her on time, and it's a pleasure to have you now as Interim's CFO.

Speaker 2

And with that, let me return the call over to you.

Speaker 3

Thank you, Pedro. Good morning, everyone. Before I start with this quarter's financial performance, I want to comment on the recent announcement of my resignation from the It is for personal reasons, a family related matter that requires my attention. I remain supportive of the company and Pedro as CEO, And I'm very thankful to Pedro, the Avangrid Board, the Chairman and Ibadiola for the opportunities I've had. I admire their support and commitment to the company.

Speaker 3

I have really enjoyed my tenure here at Avingrad and I am proud of all of the accomplishments we have achieved, including successfully managing through some real challenges in a complex business environment and the company's efforts to effectively promote our financial objectives and the advancement of the clean energy transition in the U. S. Thank you to everyone and I look forward to seeing some of you at EEI in November. Turning to earnings on Slide 15. For the Q3 of 2023, our EPS was $0.15 a share compared to $0.27 in the Q3 of 2022 and our adjusted EPS was $0.27 compared to $0.31 in the Q3 of 2022.

Speaker 3

Networks results were $0.24 higher by a penny quarter over quarter compared to the Q3 of 2022. The key drivers included a positive $0.06 due to the implementation of 3rd year of the existing rate plans for our New York companies and the implementation of our new rate plan in CFP. These results do not include the 0.35 onetime benefit of the new rates approved in New York, which will be in our 4th quarter results. We also experienced lower On collectibles, which had a positive $0.02 impact quarter over quarter due to higher VEDV debt write offs in the Q3 of 2022 versus the Q3 of 2023, primarily in New York. The start of construction of our NECEC project in August resulted in an additional $0.02 of AFUDC earnings quarter over quarter.

Speaker 3

Offsetting the positive results at Networks will prompt to implement our investment plans and operate the businesses, including O and M, depreciation and interest costs. Our Renewables business segment also reflected strong performance of $0.14 for the Q3 of 2023, higher by $0.03 quarter over quarter. Wind and solar operating performance, which includes the impacts of pricing, production and tax benefits, contributed $0.12 a share Related to new projects and service, operating performance and tax credits. We also benefited from higher earnings from our thermal operations and asset management reflect a decrease of $0.08 a share quarter over quarter, primarily due to higher interest costs. Moving now to the next slide.

Speaker 3

We are reaffirming our 2023 outlook ranges for EPS of 1.90 dollars 0.10 a share and adjusted EPS of $2.20 to $2.35 a share. Our ongoing focus remains on achieving these targets as we execute our investment plans with discipline and a risk management focus. We also provide our expectations for the remainder of 2023. This includes, first, the implementation of the New York rate case with a positive after tax impact of $136,000,000 or $0.35 a share from May 1 through November 1. This reflects a make whole adjustment of $66,000,000 for the incremental rate as if the rate case had been implemented on May 1, And a one time catch up of uncollectibles adjustment of $70,000,000 to match existing reserve amounts.

Speaker 3

To explain further, This one time adjustment reflects a new regulatory treatment allows for the deferral of uncollectibles to match the amount set aside in our uncollectible reserve. Our NECEC project has a range of $0.04 to $0.05 reflecting AFUDC earnings. Additionally, operational performance in our Networks and Renewables business in the Q4 is in the range of $0.41 to $0.49 which includes the ongoing impacts from the implementation of rate cases for NYSEG and RGE, CNP and UI. And we have cost management initiatives in the range of $0.04 to $0.06 This brings us to expected results prior to our renewables transactions in the range of 1.95 to $2.08 which is the same as we indicated last quarter. Adding the renewables transactions that we previously disclosed, which includes the partial sale of our Kitty Hawk lease area as a range of $0.24 to $0.28 reaching our 2023 outlook range of $2.20 $50.35 Note that the delay in the closing of our merger with PNM has had a negative minus $0.03 impact for the year, which is what we disclosed last quarter.

Speaker 3

Considering the net impact of PNM operations and interest rates on the cost of funding as our guidance had assumed $0.30 contribution in 2023 $4,500,000,000 of debt to fund the closing of the transaction. Additionally, opportunities and risks impacting our 2023 results include renewables production and pricing, other regulatory adjustments, thermal and asset management results, And finally, today, we are reaffirming our 6% to 7% compound annual growth rate in our to EPS through 2025 off a base that is the midpoint of our 2022 guidance. Moving now to the next slide. We're very much aware of the environment and are focused on managing our interest rate exposure. Some of the key points that we wanted to highlight are on this slide.

Speaker 3

93% of our long term debt is fixed. Our variable debt exposure is limited to a hedge on an existing parent company bond and our commercial paper program, which we did pay down by $800,000,000 with an EBITDOL intercompany 10 year term loan earlier in the quarter at a 5.45 percent rate. Importantly, our regulated utilities can recover higher financing costs in their rates. For example, our New York utilities, which represents 58 And our rate base allows for the annual recovery of debt costs and our new rate case includes a fixed rate debt reconciliation mechanism. And UI and CMP interest costs are reconciled at the end of each rate year.

Speaker 3

And when we issued debt at the utilities in the private placement market, we were able to Use the delayed draw feature that allows us to price in advance of taking the funds at the pre issuance hedge. Through 2024, our maturities include dollars 600,000,000 at the parent and at the utilities, dollars 75,000,000 bond at United Illuminating and a $12,000,000 tax exempt note. Our renewables business does not have external debt, including project debt. Our offshore wind project Vineyard Wind 1 is financed with variable debt with a swap to fix for the construction loan and the project debt, hedged several years ago at very low rates. Overall, the weighted average interest cost of our debt is 3.94% as of September 30, and a sensitivity to our interest rate Motion was provided with our September 22 Investor Day materials with an estimated impact on a 50% a 50 basis point Change in our interest rates through 2022 through 2025 of about $20,000,000 We also want to highlight that we have strong processes in place to manage supply chain Our onshore supply chain for our projects under construction is fully contracted and secured, preventing CapEx variations.

Speaker 3

We are also working with affiliates and suppliers to ensure the availability of transformers, panels and other equipment. We have renegotiated 1 gigawatt of PPAs to reflect inflation, supply chain disruptions and higher interest rates. For offshore, our Vineyard Wind 1 project closed supply chain contracts in 2021, insulating the project from the current volatility in the global market. And as we have said, we exited our Commonwealth and Park City wind contracts before securing supply when we saw the unprecedented spike in cost and interest rates to avoid billions in write offs. Finally, an important distinction for Oppengood is that we are part of the Iberdrolo Group, and we are leveraging their experience, Synergies and supply chain network to drive efficiencies and mitigate the supply chain and macroeconomics that are impacting the sector.

Speaker 3

Overall, we are managing costs as well through savings and optimization initiatives across the business. Moving on to our updates to our financing, liquidity, dividends and credit rating. Just this week, we signed a milestone tax equity transaction for Vineyard Wind 1 for $1,200,000,000 to monetize project ITCs and accelerated depreciation. This is the first tax equity transaction for offshore wind and the largest single asset renewables transaction tax equity deal in the U. S.

Speaker 3

For Renewables, we also recently executed a tax credit transfer agreement, one of the first in the sector to do so, to monetize $100,000,000 of tax credits from existing wind assets, not in tax equity financing structures benefiting from the IRA. We expect to continue to use the transferability provisions enabled by the IRA to monetize as generated tax credits to enhance our cash flow and alternative to tax equity financing. During the quarter, as I noted, we issued an $800,000,000 10 year green term loan with EBITDOLA at a fixed rate of 5.45 percent and we issued a $350,000,000 10 year note at 5.68 percent and a $400,000,000 30 year note at 5 point 85% for NYSEG, each of which we use to refinance FICO's short term debt and incurred to fund the investments and growth of the businesses. We also recently remarketed United Illuminating Tax Accept Mod for $64,000,000 at an attractive rate of 4.50 percent through the maturity of the bond in 2023. Finally, we have no equity expected in 2023.

Speaker 3

And as we presented in our September 2022 Investor Day, we had planned for a $1,900,000,000 in our outlook in 2024. However, we are also looking at other levers to manage this need, including renewables divestiture options as well as other financing alternatives, including securitization, transferability, tax equity, asset rotations and partnerships and other items to manage our targeted credit metrics. For the 9 months, we have $7,800,000,000 in liquidity covering 14 months. This includes $4,300,000,000 commitment letter from Iberdrola that backstops our merger. Maintaining our solid credit ratings is a key objective.

Speaker 3

At the Avangrid level, all of our ratings are on stable outlook. Finally, our dividend policy remains unchanged, targeting a payout of 65% to 75%, and our Board recently declared a quarterly dividend of $0.44 a share, payable on January 2, 2024. In summary, we continue to focus on executing our long term financial plan. There are timing impacts to recognize the results of rate cases, transmission construction and renewables asset monetization That we expect to materialize in the Q4 as we've demonstrated. As you can see, we have successes on we have had successes on many important milestones that will support the achievement of our financial goals.

Speaker 3

Thank you for joining us today for our financial update. I'll now hand the call back to our operator for questions, followed by closing remarks from Pedro.

Operator

Thank And if you find your question has already been addressed, you can remove yourself from the queue by pressing star 1 again. And we'll take our first question this morning from Richard Sunderland of JPMorgan.

Speaker 4

Hi, good morning. Can you hear

Speaker 2

me? Yes.

Speaker 4

Thank you. Thanks for the time today. Looking at the repowering update and thinking about your onshore Platform overall, when is the right time to give an update on kind of how that looks For the megawatts and development targets on a long term basis, curious if the asset Sales that are contemplated in 2023, really the timing there factor into when you might want to give that update. And maybe since I brought up those asset sales, any progress you can provide in terms of where those processes are right now?

Speaker 2

I'll comment on that. I think on the second one on the asset sales, remember that in the strategic plan we said But that was something to basically to be done no later than 2022 sorry, than 2024, okay, because that's when you we had this €1,900,000,000 Capital increase, if you do divestitures, you don't need to do it. If you don't do it, you need to do it. So that's why it's by the end of 2024 when we need to do divestitures, not in 2023. We are progressing well.

Speaker 2

I think we have options, but we need to finish that. When we have final decision on some of the options we have, we'll come back. I think Renewables is different. I think Renewables, what we'd like to do is, I'll come back to you in the upcoming months with a full detailed plan. I think we're now As you can imagine, we have now more than EUR 8,000,000,000 regulated investments in New York, both in the rate case and in CL CPA.

Speaker 2

I think we have a huge amount of CapEx also in Maine. I think we have NEC going on. I think we have been working on being completed. So we have a huge amount of things going on right now. So Athena, what idea is to put it all together and the upcoming in the upcoming months to bring them back to you with a clear path Beyond 25, and I think that's the time I think to go into a lot of detail in recovery.

Speaker 2

I I think the good thing about repowering is we have 10 years to do it. So there is nothing that we need to rush and do it in a second. And we have identified all the assets, all the pieces what need to be changed. And I think we will come back with a very specific proposal.

Speaker 4

Got it. Got it. That's helpful. I did just want to circle back on The asset sales by 24 point though, so the gain contemplated in the 2023 guidance, Would that game shift to 2024 if you're doing the asset sales in 2024? Or is there a path to announce something in 2023 that would Crystallize the game, but I guess leave the proceeds for 2024?

Speaker 2

No, it's 2 separate things. If you remember, 2023 was a year that we made it clear was a transition year. We had a huge amount of issues last year to deal with. I think we are almost doing everything that we had to do to get them right. So 2023 was the year that I think some of you Why do you put a gain there?

Speaker 2

And we said, well, get the guidance with and without the gain. If we do the gain fine, if we don't do the gain, that's okay as well. But 2024 and 2025, remember 2025 there was a very, very de minimis amount of gain there, but in 2024 there was no gain. So I think the approach right now that we have It's very simple. We're working this year to finalize all these things to make sure that 2024 and 2025 come smoothly as we have said they were going to.

Speaker 2

Again, in 2024, we were not contemplating any gain, so that's why we want to move in one to the other one. I think in the case of the divestitures or rotational process, of course, we can have that value, but semi structures would not mean any gain, because maybe we're not selling control. So the important thing about divestiture is more the cash angle, basically to avoid a capital increase or to make sure that we top it up the financing needs with Rotation was we have done in the group for the past 25 years non installed. So that's why it's 2 separate things. But we're not moving any gain to 2024.

Speaker 2

I think we're very comfortable right now in 24, that is to be the business delivering as we expect, ordinary cost of business and no gains in 2024.

Speaker 4

Okay, okay. Got it. That's very helpful. Just one quick follow-up here. The uncollectibles change, Is this, I guess, a protection on a go forward basis in terms of uncollectibles deviating from baseline?

Speaker 4

Could you just Parcel a little bit more about what's changed and what that does for you going forward? And then I guess just to break down the $70,000,000 how much of that covers 2023 And how much of that covers prior periods that are getting trued up?

Speaker 2

I'll let Catherine and Patricia to comment. But the answer is yes. I think that is exactly, I think, the very positive things on this risk case. And again, we didn't go through every single item we put through the presentation, but I think we'll follow-up with each of you separately if needed. I think the rate case is not just the rate increase.

Speaker 2

I think many of you remember last year, you said, well, we're going to have a 2% increase, 0% increase. Inflation is there. I think you have seen the rate increases. You have seen the recognition of our CapEx. And I have insisted in the conversations in the last weeks very strongly exactly what you are saying.

Speaker 2

There are many more things in the rate cases that we have achieved, which is, I would say, what we should have achieved a long time ago, but let's not go backwards. We have achieved them right now. And this is one of them because this allows going forward to be done. Keep in mind also the governor is helping in the budget, so that's why there are combination of things going on right now that I think allows us to deal with examples like this one. So this is also very important.

Speaker 2

But Catherine, Patricia, you can comment.

Speaker 5

Yes. Thank you, Pedro. So you should think about the uncollectible $70,000,000 as a one time this year, but ongoing mitigating the risk going forward on uncollectibles. So from an accounting perspective, it matches up our uncollectible reserves that we make When accounts go into default with the deferred amount acknowledging from the NYPSC that we will be able ultimately to collect, on the write offs that we need to make from the uncollectibles. So going forward, those 2 will match And you won't see increased risk on our balance sheet, but it will be matched with a deferral entry.

Speaker 3

Just to give a little more description to it, the $70,000,000 references a reserve amount that we've set aside for uncollectibles. It's not our full on collectibles balance. It's the amount that we set aside as a reserve. That has an when we do that, that has a negative impact on earnings. So now with this new order, we're able to now set aside a deferral to match that reserve amount.

Speaker 3

And so going forward, These deferral will match reserve amounts and you'll mitigate the risk to your earnings of setting aside incremental on collectibles reserves in the future. But because it goes into effect now with the new rate case, we do get to do a catch up Where we had actually had the expense and to set up the reserve, now we're getting to set up, that was $70,000,000 to offset So there is a one time catch up expense and going forward really no expected impact to P and L, but a risk mitigation going forward.

Speaker 2

If I can make a comment, I really want to say thank you to the leadership in the public commissions, senior staff, administration in New York. I think when you see the decisions they have taken, they are fixing many things which come from the past, okay. This is not something that is an issue now. And that's why I think this probably puts on the table New York as a very, very predictable regulatory environment. I think we hear many times that people say, well, this is state that one.

Speaker 2

I think in New York, this is a very, very stable and predictable regulatory environment. There are other things still that we have to deal with and that's why we continue working with the public commission. But I think as Patricia said, this is not just this one time. This allows for the future similar situations to be dealt with, which I think is very, very positive because it becomes recurrent, but in this case, but there are more things that we're working with the public commission. And again, congratulations to the team, but also thank you to the leadership to be able to fix things that come from the past.

Speaker 2

I will remind people the previous rate case we had a 2% rate increase and we were now acknowledging By the public commission that impact, which was the wrong thing to be done at that time. I think when you see right now, we are not only going forward, but going backwards getting 22 investments, They were still not being allowed. So many things that I think the leadership in the public commission, the senior staff and the staff, the settlement rate, The parties that agree the settlement when you conclude something is you have the right to do so and you need to be compensated. I will encourage many of you To read the comments by the commissioner, so if anybody thinks New York is an unpredictable regulatory environment, that's not true. I think they should get all the credit because I think the leadership in the administration and the

Speaker 6

Great. Thank you for the time today.

Operator

Thank you. We'll go next now to Michael Sullivan at Wolfe Research.

Speaker 7

Hey, good morning. Wanted to just start where we left off there on the collectibles. So when you were excluding from non GAAP COVID costs the past couple of years, Was there anything for uncollectibles in there that was being pulled out as well?

Speaker 3

No. This is not at all related to COVID. And it is really just about exactly what I said, about the reserve amount that we set aside a portion of your uncollectibles as part of our normal Business practice, you set aside what you as they age, what you think you might need to write off in the future and you put a reserve there. And we get to collect that reserve. But in the interim, it's impacting our earnings.

Speaker 3

With this new order, what we get to do is put A regulatory deferral in place for the recovery of those and so that has a neutral impact on earnings. It's not at all related to any specific type of uncollectibles Like COVID, etcetera.

Speaker 7

Okay. And then, just wanted to understand some of the moving pieces Coming out of this New York case, it looked like a few things moved around. So just in the waterfall for the year to go, I think that went up about a nickel From the slides last quarter and then like in your fact book, I think the CapEx went up, but the rate base actually went down. So can you just give a little more color on what kind of moved from last quarter?

Speaker 3

I think the from the earnings perspective, it's really just a better handle With the implementation of the rate cases going forward and as we get closer to the end of the year, we can have better information on what we expect to achieve through the end of the year. In terms of the rate base, when we did a forecast of CapEx and rate base as part of our long term outlook in the past, That included more generic items as we go through the rate case and work with the commission in determining what the projects are that we need in place And what the prioritization of those projects are, some of them have different timelines for construction and for CODs, so that doesn't impact our rate base.

Speaker 5

Yes. I'll just remind you that, part of our CapEx spend right now included in the rate case has to do with CLCPA Phase 1, which are transmission projects that are going to be multi year projects and won't go into rate base until outside of the current rate year in the JPA. So as Patricia said, it's kind of just a matching up of the CapEx that we're spending and when items actually go into rate base. But along with CLCPA Phase 1 and the $2,300,000,000 for CLCPA Phase 2 That we will start spending this year up until 2,030. There's a significant amount of CapEx that we will be deploying in New York for future recovery.

Speaker 7

Okay. Appreciate that. That's helpful. Also, and then just another one on the Gain assumed in the guidance for the rest of the year. So that $0.24 to $0.28 has stayed the same since you initially gave that out.

Speaker 7

Is that being like actively refreshed based on where things are going? Or is that kind of something you just put out in the beginning And we're not really sure, does it still have to be Kitty Hawk or are there other options? Just trying to understand what's kind of Evolve since you initially put that out?

Speaker 2

I think when you put some number as a guidance It's based on specific potential transactions you're considering. So this is not a number that you cannot explain. And the answer in divestitures right now is very simple. If We get the right value, we'll go ahead. And those are the numbers we're targeting.

Speaker 2

And if not, we will now go ahead. So I think that, again, since for 2024 and 2025, we don't need any gains. This was just what we thought it was important for this year from a cash point of view and then that was coming with a gain. I think we had This year to sell specific assets, we decided not to, because it was better to go from a bigger transaction, which involves massive amount of cash In order to go forward because of the CapEx, I think Catherine just mentioned an example of CLCPA. I mean, we have almost $3,000,000,000 additional We didn't happen the projections last year.

Speaker 2

So that's why we need to work on all those things going forward. I think in the case of the game, if we see it happens this year, fine. If it doesn't We don't need it for next year. That's okay as well. But we are working to try to see if we can get that done this year in the amounts.

Speaker 2

If there was to be A variation in the valuation of those potential transactions and basically we were not achieving those valuations, we will not go ahead. We will just wait because we don't have any rush to do it. Okay. Thank you.

Operator

We'll go next now to Sophie Karp at KeyBanc.

Speaker 8

Hey, guys. Thank you for taking my questions. I wanted to ask you about Connecticut, like any color on the regulatory environment there, the way you see it and if there is a path To sort of improve it, or for it to get improved anytime soon?

Speaker 2

I would love to say yes, but it doesn't depend on us. I think what we can do and that's why perhaps with this, I'd like to say thank you to the employees, trade unions, suppliers, Many other people very relevant that they have some support because of the change in precedent, change in past practice, non compliance with law of the decision we suffered. I think the only thing we can do is to work. I mean, keep in mind that as you know from an accounting point of view because of the strong legal opinion is not having a lot of impact. But I think, we well, our base case is we need to turn around that regulatory decision because we don't agree with that from a legal point of view.

Speaker 2

Some people try to take this into like personal matters, attacking people. No, we don't do that. We just disagree strongly from a legal point of view with our decision. And I think in the same way that New York, I think you hear comments by the commissioners about compliance with law in the case of termination of PPAs in offshore. You remind people that companies need to be paid for the investments.

Speaker 2

I think we want to make sure that's the case in any jurisdiction where we do business. So I think in the case of Connecticut, there has been a good decision in the RAN in the rate adjustment mechanism after the rate case. I think we're working very hard in the appeal. I think we're going to take further action soon. We're going to continue.

Speaker 2

I think we're filing some rate cases right now. I would love to say that we have learned because of the prior decision how to file a rate case differently. But the problem is if you have read the decision, you say, well, you didn't prove this, but it doesn't have how you have proven it, okay? That's why We strongly disagree with the decision that was taken. So the only thing we can do is work hard in the relationships.

Speaker 2

We'll put a lot of information on the table and also unfortunately to follow the complaint angle in any matter we can think of. And I think when You do those things and you have done nothing wrongly and perhaps the decision is not correct. I think we just expect these to turn around in the future. Is there something we expect in the near future? I think we're working every single day.

Speaker 2

We do not stop. We continue to do many meetings. We continue to seek Additional legal actions, we continue to have employees' actions, suppliers' actions, management actions. The good thing about this decision is to prove how close we are, how proud we are of being part of the Avantreaty Petrola Family, we are a company. There is no differentiation between management and employees.

Speaker 2

There is no differentiation between union workers and non union workers. I think when you have a decision like this, it's going to affect everybody. And that's why we are strongly reactive, all of us. I think it's the same thing with government control power. It's something that A lot of employees have reacted on their own against that approach.

Speaker 2

So I think we're very proud of the reaction all of us have taken. But again, what we can do now is Work, do as many actions as we can. And I think in the same way the last year, I think we told you, the way you're asking us If we are going to get a 2% rate increase in New York or 0% rate increase in New York because of a comment by a governor or one comment by somebody else, I think we told you let us work, okay? And I think right now you've seen the rate cases. You've seen this one.

Speaker 2

Again, this is very small. Keep in mind that $50,000,000 less investment In Connecticut, it's compensated by €3,000,000,000 in New York that we have in the plan. So you multiply by pick up any number you want. So the whole agreement is not effective. But we simply do not accept having decisions what we believe are illegal, change of practice without notice, change of precedent, That's not the way to have to do business and invest in our sector.

Speaker 2

So from that point of view, I think we need to continue working. This is not personal matter. This is just objective matters Now we need to deal with and give us some time to continue working.

Speaker 8

Terrific. Thank you. And my other question was kind of like a big picture question on So wind, you guys probably are the closest utility in the U. S. To this space and have the most expertise.

Speaker 8

So from where you sit, right, and from what you know about the cost of equipment, cost of capital, tax equity availability, etcetera, The PPA that you have been canceled, right? Can they be rebid in a way that's Both economic given the current environment and also palatable for the ratepayers in those states. I guess it's kind of like a question, Is the LCOE of offshore wind acceptable right now, I guess, For policymakers, for other stakeholders as the things stand? Like I'm just curious to hear your thoughts.

Speaker 2

I think in our case, to say offshore business, there are a lot of risks going on in Europe. You know there are good projects we're building here in the U. S. At present. So I don't we don't like the stereotypes or generic comments because it's not true.

Speaker 2

I think you need to go case by case. I think in our case, the message last year was simple. And this is how we have done business in Iberdrola for 25 years. We're not going to put in danger the financial health of the company. That's it.

Speaker 2

And I think we said that a year ago. I think some people say that we have done a bad beat. Other people said that we don't have any negotiation here, we didn't do this. It doesn't matter to us what other people do. I think in our case, we were clear, we will not start a project if we already have information and we got as soon as we got it, A week after we got the information, we shut down with the leadership in those states.

Speaker 2

We cannot go ahead with the project that you already know you're going to have $1,600,000,000 write off and $1,200,000,000 because the contractors are renegotiating, they are opening the contracts and you cannot reopen the PPA. So it doesn't work. So that's why for us, the answer is You have to not stop. I think a lot of people refer to stop is do not start. And that's what we did.

Speaker 2

We simply did not start. I think right now, you have a couple of leases that are very valuable. I think if you see the new options, are we going to participate? Let's see. I think unless you have indexation, unless you have, We will not be able to have any risk.

Speaker 2

The important thing for us is we will not run risks. I think that's the message. As in other people, we don't know. You need to check with everybody where they are. In our case, we don't have billions of losses right now.

Speaker 2

I think we have a very modest loss because of losing those guarantees. By the way, sometimes in renewables, you have those losses quite often in some projects that are compensated With other games in other projects, because you beat the budget, I think in the States, we have 2 beautiful leases. They are worth a lot right now. And I think we are in the right space. I would encourage all of you to keep in mind the President, Governor Hochul, Governor Healy, Governor Lamont, I think they're leading right now the U.

Speaker 2

S. In terms of renewable green transition, climate change, etcetera. And we are as well. We're building a transmission line from Canada into Massachusetts and we're building the only project in larger scale right now in offshore. And will this continue?

Speaker 2

Well, sometimes things have stopped for a year, sometimes it stopped for 5 years, for 3 years. But in our case, what we're going to do at all is to put in risk 1,000,000,000 of dollars coming from our shareholders and lenders, basically get not only a downgrade, but the whole withdrawal into danger. That's not how we do business. So I think in our case, We will go case by case.

Operator

Thank you. We go next now to Julien Dumoulin Smith at Bank of America.

Speaker 2

Hey, good morning, team. Thank you guys very much. Hope you guys are doing well. Can you hear me?

Speaker 3

Yes.

Speaker 6

Hey, excellent. Thank you. And congrats to both of you here on your successive moves here. So maybe actually starting with that, if you can, a little bit further, can you just speak a little bit to the commentary in the 8 ks the other day around the backdrop With the new committee here and just, sort of the context what drove that decision here, if you don't mind. It's certainly an intriguing, release here.

Speaker 6

What precipitated it? And can you confirm that this was related at all to the latest decisions to see obviously the turnover in the CFO role, if you can affirm that as well?

Speaker 2

Okay. As long as that's your concern, I'm very happy, Giulio. So I'm more than happy to speak about that. First, I will speak on the compliance and then Patricia, You can answer if that has anything to do with you retiring. I think on the compliance, we never So improving and enhancing our compliance unit, I think we believe there has been probably 6 to 9 months analysis of further improvement of the compliance.

Speaker 2

Basically, we're moving from just one compliance unit at the Avangrid level to putting compliance units in each of the businesses. So we are multiplying by 3, the focus right now in terms of how we're going to do compliance in the group. So I think what we're doing is going beyond. If somebody wants to say that this is related to 3, 4 years ago that we had a tax issuing the accounts, Well, maybe let's go back to, I don't know, 2022 to 2,002 maybe we also have something wrong there. This is something that we never stop at the group level, at the Agrib level and at each subsidiary.

Speaker 2

We think we need to continue enhancing the compliance. A lot of people right now may say, well, because of Ukraine war and other dynamics is not ESG so important right now. For us, it is. We're not going to stop. And one of the key things is to enhance compliance across the organization.

Speaker 2

And that's why we know there is no like a Perfect time to announce this. No, this is not a matter of when. This is when we have finished the analysis and we believe there is an improvement. We check with some of those agencies that basically validate and certificate the compliance units later and we got Very positive reaction. They loved what we were proposing.

Speaker 2

I think probably we're the 1st company in the U. S. That is taking this action. Maybe there are others, but at least in our analysis, we believe we're on the first ones to make this move. So the whole rationale about that is very simple.

Speaker 2

To increase and enhance the compliance around the company because for diversity reasons, for contractor reasons, For ESG reasons, it's a must. And if we got ideas that our legal and compliance departments put on the table, We enhanced our compliance. We put it on the table as soon as they are finished. And in this case, we're moving from 1 compliance At least 3, because we're going to put 1 in renewables, another one in networks. I think it's beautiful to show how much commitment we have to that.

Speaker 2

We are announcing that right now because we finished the work some weeks ago, as simple as that. And again, Patricia, sad for me to be speaking about you on this topic and relating These things to you, Patty, do you want to comment anything, I'll give it to you?

Speaker 3

No. I'm only just going to add that, it is really extremely disappointing to hear that. I think it's offensive. I had zero basis. I've had a long career and throughout I've always in every circumstance defended law, Descended regulation, without hesitation.

Speaker 3

And I just I feel like it's a personal character assassination and it's completely unfounded.

Speaker 6

Got it. Excellent. Well, thank you guys for clarifying that. It's good to get the clarity on that front and appreciate it. I know people at times can sound things.

Speaker 6

Look, maybe just to talk about the Q3 call Q3 results rather, can you just elaborate a little bit about what Seeing in terms of West power dynamics going on out there, obviously, it's been a volatile and again elevated market backdrop. It seems like that's a Fairly meaningful contributor here in terms of what's driving the year over year results. Can you perhaps clarify more precisely How much of that was West Power? I mean, it seems like over $100 a megawatt hour realized in the quarter here, but if you don't mind.

Speaker 2

Sorry, Julian, because we didn't understand very well the question. Do you mind to repeat?

Speaker 6

Yes. Sorry. So to ask it more precisely, it Seems like West Power and specifically your asset out there drove a very meaningful benefit in the quarter here To the tune of over $100 a megawatt hour implied. Obviously, West has seen elevated results in recent years. I just want to confirm that that is indeed what's really contributing to the segment results this quarter.

Speaker 2

Sorry, because we were not here in the world west. So, that was Antonio. So you can speak also in the call, please, if you can answer. Good morning, Julian.

Speaker 9

So first, yes, when you compare year versus year and also quarter versus quarter, the West has been performing very well and is One important or the most important contributor among the different regions, but also I would like to highlight Klamath and also our And the trading team that we're able also to bring results way above our expectations. So all in all, this is The composition of the main contributors today will result in this.

Speaker 2

Keep in mind, we have clamors stopped because of a review that is mandatory. And that's why the results we're having right now, which were very good last year, very good this year. Keep in mind, it hasn't been working the whole year, okay. So going forward, I think Please keep that in mind because unfortunately you have to stop and we take care of OpEx and Clape very strongly, Baratini is back fully speed right now and again delivering as it was.

Speaker 9

And also I'd like to highlight that this year is the 1st year that we are also Performing as a new member of the cash the caisson balanced market, and this is helping also a lot of our costs in the West and driving also the good results.

Speaker 3

And just kind of to finalize, I think what we've always highlighted about the business and one of the benefits of our company in the renewable sector is that we're diversified and we have assets all over the country in multiple regions. So you will see period to period one region just better than another and then that could I

Speaker 2

think, Julian, on renewables, again, we'll comment on this at the end of the year. But I think since sometimes people go back to 6 years ago, 7 years ago, things like that. Well, we are here since last year, so we can explain what we're doing. But I think in the case of renewables, there was a long history For El Nino, La Nina, many reasons why in a specific year was materially deviated. I think I'm very pleased that the planning we're doing right now last year That's why we took our 6 months.

Speaker 2

We stopped a lot of things for 6 months to put everything in the right direction. So I'm very pleased that last year and this year, We are almost exactly where we thought we were going to be. I think that's something for the credit of the Renewable team that I'm very pleased. Also, I think just to make a comment, last year, we really hinted we were going to be probably around 300 megawatts a year. And I think a lot of people ask us, well, what are you doing Solito?

Speaker 2

Other people are doing 2,000. I think we made clear that we didn't believe in yield cost When we were asked also that question, we said that 4 years ago at the Pivotala level, but we said that last year in November. We also said we're not going to be in the race of growth Per megawatts, we're in the race of making money. And from that point of view, I think we're going to put projects that deliver the right return. I think in the geo, we already have 500 megawatts, so we have 200 more than we said we were going to do.

Speaker 2

And those ones, I think, have supply chain fees. We have very nice return. We have renegotiated PPAs, In existing PPAs, I think at least 2 or 3 with material increases and in other 2 or 3, we have been able basically to renegotiate the penalties, which also is you can call it, we negotiate the penalties or increase the price, okay? Both things we know have the same impact and it's material impact that we have been able to do. And the new PPAs, Stacy perhaps making a comment, Alvaro, related to the debt.

Speaker 2

When you look at us, I think we have networks, which is I'll pass through from interest rates. I think the existing PPAs and new PPAs are reflecting the new interest expense. And maybe we have a little bit of debt at the holding level that is still is floating where basically interest rates may be affecting. But we don't have 100% of the business. It's a very small amount there.

Speaker 2

So I think for us interest rates is something we're dealing with very nicely because of past 301 and adjustment new revised PPS for new assets. So I think I'm comfortable that we have less risk than otherwise pay people. We don't have acquisition debt That you bought something that has assets with flat or fixed revenues and then you have this acquisition that now Turning around from 1% cost of debt to 5%, that's not us, okay? So from that point of view also, that's an item that helps in those results that you were mentioning in Renewable. Sorry to

Speaker 6

Excellent. And the gain just for this year, you're still expecting that Here through the balance of the year, it's not in 2024, right? I know we talked about it a little bit. I just wanted to clarify your earlier comments.

Speaker 2

Yes. 2024, we don't need the game. I think remember, 2023, It was the year that we call it transition year because again, I'm very pleased and I will make some comments on the end about the things we have done. But I think we could be here now with 2 or 3 these items now being obtained. And then we will be in a material different way from an earnings point of view, not only for 2023, but going forward.

Speaker 2

I think we have been able to achieve things that, in my opinion, were not credible a year ago. From that point of view, remember 'twenty three was the transition to a full 'twenty four and 'twenty five based on ordinary cost of business. I think many of you said last year whether you put an extraordinary gain and we said, well, you can do the numbers with and without because it's a one time off And if it happens fine and if not, we moved into 2024. So that's why for us, we continue to work on that and if it happens fine and if not, we will not need that for 2024.

Operator

And we'll go next now to Angie Storozynski at Seaport Research.

Speaker 10

Thank you. Thanks for squeezing me in. So I have a question about transferability. You mentioned the $100,000,000 from existing assets that you are Monetizing using the IRA's transferability, I was just wondering If you're changing the way you plan to finance renewable power projects going forward, I mean, Do you expect to use tax equity versus transferability? And also, How about levering projects, basically at the project level instead of using HomeCoVet?

Speaker 3

Yes, sure. We'll definitely Angie, we'll definitely see a huge benefit from transferability that was enabled by the IRA. This initial transaction was our first foray into being able to early Adopt some of those provisions in the IRA because we do have a number of assets that are generating PTCs that we were otherwise just retaining and holding on our books. These are assets That, are not in tax equity structures because we haven't always used tax equity. So now with the IRA, we're able to monetize And benefit from the cash, which actually has a material impact for our credit metrics.

Speaker 3

So that was kind of the first step to do that. As they're generated, We can continue to sell from those assets. But we have looked across the business and we'll continue to do that to see Where we can use transferability, we definitely think that there are in projects where we are doing PTCs, it makes a lot of sense. Certainly, we have talked a lot about this large repowering plans that we have ahead of us. Those are assets where that could make a lot of sense because Those are assets where the CapEx is a lot lower than a new build, where you already have depreciated assets that because they're existing assets.

Speaker 3

So you're not generating a lot of more tax losses. So PTCs and transferability makes a lot of sense. Again, Transferability proceeds are cash from operations, so they actually have a big benefit to our credit metrics. We do think we'll still look at tax equity. I think it's important that we continue to monitor.

Speaker 3

There isn't sort of a one and done review because we have to take a look at our tax capacity And we do have a lot of NOLs on our balance sheet. So for large projects, particularly for ITC Projects where we have a larger CapEx, where ITC makes sense, tax equity can make more sense. So we're not just continuing to add to those NOLs. So I do think in summary, it's a very valuable tool that we have and we will look at it more not only for these As generated PTCs, but for new projects and retiring.

Speaker 10

Okay. And in those cases where you use Transferability, the push of CapEx that would usually be financed with tax equity, would be financed with what, additional debt?

Speaker 3

Okay. Yes. It really depends on the asset, but we also That's right. The other part of your question, we are looking at just future financing options. It depends on how much we grow the business.

Speaker 3

I I think it has been historically cost effective for us to do green bonds at the parent company to support that business, but we are looking at options to fund with project That is well.

Speaker 10

Okay. And then changing topics to PNM, so we're obviously waiting for the decision From the New Mexico Supreme Court. And I'm just again, we don't know when exactly it happens What it will be, but I'm just wondering, 1, given how long this has been taking and that we are in a Dramatically different PE multiples for utilities. So I'm asking, 1, about potential renegotiation of the price. And number 2, if you had to if the Supreme Court does not side with you, what kind of route should we expect?

Speaker 10

So would you refile? And then again, would that give you a chance to potentially reprice this transaction?

Speaker 2

I think you two comments. The first one is we're just waiting for the Supreme Court decision and We prefer not to comment either in the outcome or potential things after that. Let's wait for that. The second one, I think when you do M and A transactions, you don't really foresee the price if In 1 year, things go up or down. So from that point of view, I think we always look at valuations on a present value basis and that's the approach to do Okay.

Speaker 2

So but I think we just need to wait for the Supreme Court. And there's a history of somebody makes a comment and then people say that we said it was going to be for a month, 3 months, 2 months, I think we prefer to be silent. Let's respect the court decision. And let's wait for that decision and we'll go from there.

Operator

Thank you. Ladies and gentlemen, that is all the time we have for questions this morning. I'd like to turn things back over to you, Mr. Azogra, for any closing comments.

Speaker 2

Okay. Thank you very much to everybody for being here today. I think in my case, the first thing I'd like to do is, as I said, to say thank you to the employees, to the union suppliers. Many of them have been supporting us None stopping some difficult matters we have on the table from rate case decisions, government controlled power. And it's a pleasure to see how committed they are Thank you, Bina, the Petrolab and Greeting Group.

Speaker 2

And from that point of view, I would say first thank you. The second comment I want to make is, and again, we'll go back to this at the end of the year, But if a year ago, I was to be asked if I was comfortable we were going to have a rate case in New York as we have got, a rate case in Maine, any CEC being built, Park City terminated and Commonwealth terminated, I think probably the answer from everybody from me would have been no, okay? So I think right now to see that additional $3,000,000,000 in CLCPA, dollars 6,000,000,000 approved in New York, €500,000,000 in Maine, I think this is beautiful, okay? I think this is basically the future being achieved this year on the foundation for the next 5 years. So from that point of view, earnings, CapEx, rate base, Projects in renewables, we said 300 megawatts, we are right now in 500 megawatts, good returns, renegotiations everywhere.

Speaker 2

I think the dynamic is different. So the only comment I will make right now is that the success I think in the last 12 months is as simple as saying that work. And let's make sure we meet everybody non stop. I think the teams right now are meeting legislatures, executive branch, public advocates, attorney generals, Investors, rating agencies, public commissions non stop. And from that point of view, when you work like this, I think the results come because there is nothing we have to hide.

Speaker 2

We are proud of what we're doing, but also we're very objective on the needs that we have. So we have been able to solve many of the outstanding challenges that we had and clear their way for 2024. I insist a lot. We were very clear last year that 2020 was a transition year. Again, we were trying to fix many things as much as we could and I think we are being hopefully very successful in all of them or almost in all of them.

Speaker 2

But in this case, I think with the rate cases in New York and Maine, The termination of these 2 offshore projects and NECEC, I'm very, very happy about how we are putting the right thing for the years to come. I think still we have other things to be done. I think we have asset rotations. I think we need to basically turn around the dynamics that we have right now in Connecticut. We need to make sure we complete being year win 1 and NECC on track, on time and on budget.

Speaker 2

I think I'm very pleased about Making sure we have a strong financial credit metrics, liquidity because that's also important when sometimes it gets difficult, this is the moment to be. We're just waiting for the PNM decision by the Supreme Court. And also, we're very keen also on developing and diversifying our talent. Talent continues to be critical even when situations like the one with Patricia, she has to take a personal decision. As you can see, we are not for 2 months looking for anybody.

Speaker 2

We have a decision that is taking the same time because we have a very strong and ready succession plan. As a result, I would like also to comment that we believe we are very well positioned to fix issues and very well positioned For growth and the uncertainty in the opportunities ahead of us that we feel comfortable should generate long term growth and continue building a better and more sustainable any feature, not only for our company, but in general. So thank you. I think if we have any other questions, I know we're going to have follow ups with each of you separately. So please, Alvaro, I'll let you now to deal with the further Q and A and so on.

Speaker 2

And everybody, have a great day.

Operator

Thank you. Ladies and gentlemen, that will conclude the Avangrid's 3rd quarter 2023 earnings conference call. Again, we'd like to thank you all so much for joining us and wish you all a great day. Goodbye.

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Key Takeaways

  • During Q3, Avangrid reported GAAP EPS of $0.15 and adjusted EPS of $0.27 and reaffirmed its 2023 EPS guidance of $1.90–$2.10 and adjusted EPS of $2.20–$2.35.
  • On October 12, New York regulators approved multiyear rate cases for NYSEG and RGE, adding $136 million after tax in Q4, boosting rate base by ~40% to $9.2 billion by 2026 and securing a 9.2% ROE.
  • Avangrid successfully terminated PPAs for Commonwealth Wind and Park City Wind at a minimal $29 million cost, avoiding over $1 billion in write-offs and improving offshore project economics.
  • Connecticut regulators issued a rate case decision departing from 25 years of practice, disallowing cost recovery and fair returns, which Avangrid is appealing to protect investment in grid resiliency and clean-energy goals.
  • Construction on Vineyard Wind 1 is ~60% complete, targeting first power by year-end and commercial operation in 2024, backed by a landmark $1.2 billion tax equity financing that secures project economics.
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Earnings Conference Call
Avangrid Q3 2023
00:00 / 00:00