Avangrid Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 7 speakers on the call.

Operator

After the speakers' remarks, there will be a question and answer session. I will now turn the call over to Alvaro Ortega, Vice President of Finance, Investor Relations and Treasury. Please go ahead.

Speaker 1

Thank you, Dennis, and good morning to everyone. Thank you for joining us today to discuss Avangrid Second Quarter 2023 Earnings Results. Presenting on the call today are Pedro Zagra, our Chief Executive Officer and Paticia Giosquel, our Chief Financial Officer. Also joining us today for the question and answer part of the call will be Catherine Estem, President and Chief Executive Officer of Avangrid Networks and Jose Antonio Miranda, President and Chief Executive Officer of Avangrid Renewables. Other members of the executive team are also joining us today and may be called Avang to assist with the Q and A part of the call.

Speaker 1

If you do not have a copy of our press release or presentation for today's They are available on our website at avangrid.com. During today's call, we will make various forward looking statements within the meaning of the Safe Harbor provisions of the U. S. 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 section of the company's presentation or in our latest reports and filings with the SEC, each of which can be found on our website.

Speaker 1

We do not undertake any duty to update any forward looking 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 definitional information and reconciliations of non GAAP financial measures to the closest GAAP financial measures.

Speaker 2

I will now turn the call over to Pedro. Thank you, Alvaro, and good morning to all. Thank you for joining us today on our Q2 results presentation. Let's get started on slide number 5. Algonquin reported 2nd quarter earnings per share of $0.22 And adjusted earnings per share of $0.21 As we anticipated last year, 2023 would have timing effect Such as the implementation of key rate cases expected later in the year.

Speaker 2

This year, we have accomplished various important milestone in our core business and In Networks, Central Maine Power received approval for a 2 year rate case effective July 1. On the New England Clean Energy Connect Transmission NECEC, in this quarter, we received favorable rulings from Maine's Business Board Supporting the advancement of this project. We also have 2 new positive developments. First, the Massachusetts House and Senate have included legislation supporting cost recovery For change of law, the referendum, costs in Apache appeal. And second, we have an agreement to extend The commercial operations date for the change in law delay if needed.

Speaker 2

We continue our discussions regarding price adjustments for the change in law cost. Today, we have provided with the regulatory name with the required notice that we will continue some critical path construction activities in August. On Commonwealth Wind, the Massachusetts Electric Distribution Companies have filed with the Department of Public Utilities for the termination of the PPA contracts, Which will pave the way for Banquiry's participation in future offshore solicitations. In addition, we are progressing on our Wind 1 offshore project, which is on track to deliver 1st power this year. Finally, our ESG efforts continue to be recognized By third parties, we have earned 11 Sustainability and Governance Award or recognition in the first half of the year.

Speaker 2

We have also made significant strides in our New York rate case. We filed the joint proposal agreement with the Public Service Commission With new rates expected to go into effect in October with a Mayhold provision back to May 1. We're also aiming To repower over half of our existing fleet beginning this year through 2,032 to benefit from opportunities created by the IRA. And we continue to address with regulators and electric distribution companies about a path forward for our Park City offshore wind project. Finally, we remain committed to the PNM merger.

Speaker 2

We extended the merger agreement to December 31. This extension will enable us to work through the legal process in the coming months. Based on our year to date achievements and progress on key issues, We are reaffirming our full year 2023 EPS of $1.90 to $2.91 and adjusted EPS of $2.2 to $2.35 In the Slide 6, in Maine, we have We've successfully completed the 1st multiyear rate case settlement in 15 years. We received approval from the Maine Public Utility Commission For our CMP rate case, which is centered around over $380,000,000 of investments to improve safety, reliability and resiliency. This will increase our rate base to $1,300,000,000 by rate year 2.

Speaker 2

The plan also includes an authorized ROE of 9.35 percent 50 percent equity With an ability to earn up to 10.35 percent prior to sharing. The decision provides mechanisms that will reduce our rigs' exposure such as the ability to charge pre staging costs to a strong reserve and protection against hyperinflation. Ultimately, this rate case will balance customer affordability with needed investments while strengthening our credit metrics. In addition to a successful rate case, we have also achieved another notable accomplishments in Maine. On the regulatory front, we received approval for our compliance filings generating $80,000,000 of additional cash for the 2nd part of the year.

Speaker 2

These filings enable us to recover pass through In customer service, we have met or exceeded our service quality indicators for over 3 years. In operations, We have conducted over 9,000 distribution line inspections and removed over 5,000 aging poles. Finally, we also closed the 2020 CMP management audit resulting in no actions from the commission. In the next slide, regarding our NECEC project, we are very pleased that the jury in the Main Business and Consumer Court unanimously Determining that NECEC can locally resume construction and that there are no appeals on the ruling. In May, the Maine Department of Environmental Protection lifted its permanent suspension, clearing the way for project construction.

Speaker 2

We are having ongoing discussions on cost adjustments and have reached an agreement with the counterparties to extend the COD timeline under the contracts if necessary. In addition, we will be working on critical path activities in the Lewiston substation as of August 3rd. The transmission project has an expected total capital expenditure at present of $1,500,000,000 With $638,000,000 already capitalized. Once complete, NECEC We benefit all of New England by reducing the region's dependence on fossil fuels and providing more stable energy prices. Recently, the Massachusetts House of Representatives and the Senate included favorable legislation in a budget bill To provide the Department of Public Utilities the flexibility to approve amended transmission services agreements, which will support the recovery of cost increases.

Speaker 2

In slide number 8, we are proud of the partnership we have built with Massachusetts And we lead the offshore wind industry in the United States. We remain committed to constructing our offshore wind pipeline And helping New England meet their ambitious 2,030 climate targets for a better brighter clean energy future. On Commodal Wind, the electric distribution companies have filed termination documents with the Massachusetts Department of Public Utilities. Once approved, we plan to repeat in future solicitations. The termination agreement limits our financial impact solely to the project security deposits.

Speaker 2

This outcome is significantly better than our peers who have paid up to $350,000,000 to terminate The respective offshore wind project contract. Construction is progressing well on Vineyard Wind 1. The 806 Megawatt project is on track for set power in 2023 and commercial operation in 2024. Once online, this project will generate clean, renewable, affordable energy for over 400,000 homes and businesses across Massachusetts, while reducing carbon emissions by over 1,600,000 tons per year. We have achieved many construction milestone this summer on Vision Wind 1, including energy Station of the onshore substation in Berescible, Massachusetts.

Speaker 2

Construction has also started On the operational and maintenance facilities in Mozart Vineyard. Offshore, we have installed Six monopiles and transition pieces. And shown on this slide is one of the 6 completed turbine foundations. We have also completed the installation of the offshore substation and export cable, which connects the onshore and offshore facilities. In the next slide, in June, we filed the joint proposal agreement for the New York rate case with the Public Service Commission, which has been signed by 8 parties.

Speaker 2

The record will be completed on August 4th, so that it is ready for the Commission to act. Last week, the KONE joint proposal was approved almost as filed. Our joint proposal agreement requests $6,400,000,000 in capital expenditures over 2022, 2026, including $634,000,000 for New York's Climate Leadership And Community Protection Act CLCPA Phase 1. The new rates are expected to go into effect in October 2023 With a May hold provision back to May 1, 2023. The agreement includes an authorized ROE of 9.2% 48 percent and fifty-fifty earnings sharing above 50 basis points and contains a provision for fixed debt rate reconciliation.

Speaker 2

The rate case yields an additional $1,450,000,000 of authorized revenues. The 3 year rate settlement also includes regulatory asset language for uncollectibles, providing risk mitigation against customer arrearages. There are also provisions for improved storm recovery and funding for vegetation management. Additionally, we've taken significant steps in customer service performance in New York with a positive trend over the last several months. Furthermore, we received approval to build transmission projects through CLCPA Phase 2 and New York Transco, Bringing the total transmission opportunities in the state beyond 2025 to over $3,000,000,000 for these projects.

Speaker 2

Finally, our teams have worked to improve system reliability by enhancing vegetation management, targeting infrastructure replacements For aging assets, a modernizing degree. As a result of this work, we're seeing a 12% improvement in NYSEG And 16% improvement in RG and E in system average interruption duration or SADI year over year as compared to 2022. In slide number 10, the Inflation Reduction Act has created an attractive environment for clean energy projects by extending tax credits. Due to the IRA, we are pursuing opportunities between 2023 and 2,032 To improve the earnings profile of our renewable business by recovering over half of our fleet with about 4.6 gigawatts identified As of today, repowering is a great opportunity for our renewable business. 1st, For technical reasons, the sweet spot of repowering is when turbines are between 13 20 years old and over half of our existing fleet is in this range.

Speaker 2

2nd, the technology has improved significantly with new turbines producing 30% more energy than the aging turbines. Finally, the permitting process for repowering is simpler and faster, while the profitability is expected to be the same as newbuild. Thus, we are beginning the repowering process this year by working to secure the supply chain and commencing development activities. We will begin by assessing our 80 megawatt leaning Juniper wind project. Repowering These assets enable us to receive additional PTCs on existing assets and their incremental production for 10 years.

Speaker 2

Extending our assets as usual live will help us avoid the diminished returns and performance of the aging fleet. We will provide additional details on these plans in the upcoming months. Slide number 11. In Connecticut, We filed the UI rate case with the Public Utilities Regulatory Authority in September 2022. The draft decision was received on July 21 and we are preparing our response.

Speaker 2

We expect a final decision by August or September With new rates in effect by September or October. In addition, as part of our earlier agreement with the Connecticut Office Of Consumer Council, which was approved by the Public Utilities Regulatory Authority, we will be filing rate cases for Connecticut Natural Gas or Southern Canadian Gas this November. SB 7, a Senate bill to reform utility regulation, passed in the legislature and was signed by the governor in June. It was a political response to increases that customers saw in their electric bills. Our team worked hard with the state regulators and the outcome Was much better than the original draft of the bill.

Speaker 2

Finally, for Park City Wind, we continue working to address the economic viability of the power purchase agreement with regulators and electric distribution companies with the goal of finding a path forward. Moving on to PNM. We continue working towards closing The merger with PNM Resources. We are committed to the merger and the benefits it will bring to the state of New Mexico. This merger agreement has been extended to December 31 as we work through the legal process.

Speaker 2

There is also an option to extend It for an additional 3 months if agreed. The merger has received approval from 5 federal agencies and the Public Utilities Commission of Texas. The parties in the merger case will present arguments in front of the New Mexico Supreme Court in September. In Slide 12, I am honored to mark my 1 year anniversary as a bank REIT CEO. Over the past year, I appreciate the support of the Chairman of the Board And all my team in this task that we have ahead of us.

Speaker 2

We have navigated through unprecedented macroeconomic and supply chain challenges. As you have seen, we have made significant progress in most of our priorities and also achieved some additional important accomplishments. For example, in Connecticut after 8 months of discovery, our companies received an overall positive audit report and finalized the management audit With no material negative findings. We also made substantial strides in customer digitization, which will help us drive further improvements In our customer service metrics, efforts from our customer experience team have resulted in over 1,200,000 customers Enrolled in eBill, 10% increase year to year, plus over 1,000,000 mobile application downloads, a 54% increase. In addition, we almost multiplied by 4 times the number of customers with outage alerts From 430,000 to over 1,600,000 customers.

Speaker 2

We continue to prioritize customer service By automating net energy billing and the move in process and we launched a new electric vehicle portal and self-service payment tool. These tools and technology will help increase customer satisfaction, reduce cost to customers and improve cash flow. In Renewables, we reached 8.6 gigawatts of wind and solar capacity, signed 321 megawatts of new Our purchase agreement and renegotiated 1 Geowatt. We've achieved operational success by reaching 97.3 percent fleet wide availability in 2022 and are currently maintaining energy availability At 27%. Preparing for Vineyard Wind 1 operation, we've integrated The project into the National Control Center for remote operations.

Speaker 2

We have also joined the California Independent system operators, Western Energy Imbalance Market as the 1st generation only entity, enabling Avangrid To optimize real time trading in the energy balancing market and reduce curtailments. In addition, we have also signed A memorandum of understanding to explore opportunities to develop up to 1 gigawatt of green energy projects within the Navajo Nation in New Mexico and Arizona. Lastly, for accomplishments across the rest of the company, we have executed a transferability term sheet for $100,000,000 tax credit For multiple projects that are not in tax equity. In addition, we signed the tax equity term sheet for Vineyard Wind 1 I'm fully funded the tax equity for Land Hill Solar. We also issued $575,000,000 of long term debt in Networks And $800,000,000 of a 10 year green loan with Iberdrola.

Speaker 2

Earlier this year, Fitch also upgraded Avangrid's outlook to stable, Improving our ability to access the capital markets. Thanks to these achievements and a solid operational and earnings trajectory in hand, I'm confident that we are Confirm footing to deliver future growth. Turning now to Slide 13. In the first half of twenty twenty three, Avangrid has earned awards and recognitions spanning various aspects of sustainability and governance. On our Q1 earnings call, I discussed Avangrid's inclusion in Just 1 100 List, Bloomberg's Gender Equality Index and its Sphere's World's Most Ethical Companies for the 5th consecutive year.

Speaker 2

We received another 8 prestigious awards in 2023. SMP Global 2023 Sustainability Yearbook named Avangrid as one of the world's most sustainable companies. Avangrid is one of the only 2 U. S. Electric utilities to be recognized.

Speaker 2

U. S. Today recognized Avangrid as one of the nation's climate leaders. The Edison Electric Institute recognized up and grid for exceptional storm restoration performance following winter storm Elliott in December 2022 As well as for mutual aid provided to Nova Scotia following Hurricane Fiona. This recognition serves as a testament Our continued commitment to customer reliability.

Speaker 2

This is the 6th consecutive year that avanguitis included In the Food See For Good Index series, we received top scores in climate and governance, which includes assessments of risk, management, corporate governance and anti corruption. As part of the EBITDORA Group, Our sustainability commitments are central to our company strategy. So we are incredibly proud that our climate leadership is being recognized My third party. Each of these awards and recognitions highlights our commitment to building a clean energy future Now I will turn the call over to Patricia, our CFO,

Speaker 3

Thank you, Pedro. Good morning, everyone. For the Q2 of 2023, our EPS was $0.22 compared to $0.48 in the Q2 of 2022 And our adjusted EPS was $0.46 compared to $0.21 in the Q2 of 2022. Networks results were $0.20 Lower by $0.14 quarter over quarter compared to our Q2 of 2022. The key drivers included a positive $0.04 Due to the implementation of the 3rd year of the existing rate plans for our New York company.

Speaker 3

This does not include the proposed new rates in our joint proposal filed in New York, Which we expect to go into effect in October with a May call back to May 1. While we were supported by joint utility arrearages orders in New York In 20222023 to reduce impacts from uncollectibles, the positive impact in 2022 was in the 2nd quarter And in 2023, it was in the Q1, which explains the minus $0.03 impact this quarter related to the timing. We continue to experience higher uncollectibles, which had a negative $0.04 impact quarter over quarter. Additionally, we experienced higher costs to implement our investment plans and operate the businesses, including O and M, depreciation and interest costs. O and M includes new headcount and cost of the business, higher depreciation represents new assets placed in service and higher finance costs reflects higher Rates and short term debt balances.

Speaker 3

We anticipate improvement later in the year with the implementation of our rate cases and that will update the cost of the business. Our Renewables segment was $0.18 lower by $0.01 quarter over quarter. Wind and solar operating performance, which includes the impacts of pricing, production and tax Benefits explained minus 1% I'm sorry, minus 0.01 dollars and was related to lower wind generation output and a decrease in virgin prices, Partially mitigated by tax credits and new projects in service. While we had strong wind performance in the Q1, our wind resource was low this quarter. Our net capacity factor for our fleet was 28.6% for the quarter versus our long term average of 33.4% For the Q2 periods from 2011 to 2022, lower earnings from our thermal operations and asset management of $0.02 reflected the planned maintenance of our Klamath Thermal Plant, which concluded in mid July.

Speaker 3

O and M costs are positive $0.04 due to higher capitalized maintenance. Corporate costs reflect a decrease of $0.11 quarter over quarter, primarily due to tax timing as we balance to our annual expected tax rate and higher interest costs. Moving to the next slide. We are reaffirming our 2023 outlook ranges for EPS Of $1.90 to $2.10 and adjusted EPS of $2.20 to $2.35 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.

Speaker 3

This includes the implementation of our New York joint proposal with the May call back to May 1, as we previously mentioned, and the remaining months in our main final rate order And combined with a range of $0.28 to $0.32 The rate cases capture the cost of the business and investments that support safety, reliability and resiliency. While we recently received the proposed final decision in our UI rate case, we are still evaluating that decision. We will be filing written exemptions and providing oral arguments, and we believe our testimony briefs and the many interrogatories that we filed fully support our rate filings. Therefore, the outlook does not reflect any adjustments related to the draft decision. Additionally, we're also anticipating the start Construction of our NECEC project with a range of $0.06 to $0.07 per share, reflecting AFUDC earnings Operating performance of our Networks and Renewables businesses in the second half of the year in the range of $0.72 to 0 point 78 And cost management initiatives of $0.04 to $0.06 This brings us to expected results prior to our renewables transactions in the range of $1.95 $2.08 Adding the renewables transactions as we have previously disclosed, which include the partial sale of our Kitty Hawk lease area and partnership transactions At a range of $0.24 to $0.28 And with that, we reach our 2023 outlook of $2.20 to $2.35 Note that the delay in the closing of our merger with PNM has a minus $0.03 impact on the year, considering the net impact of PNM operations and the interest rate On the cost of the funding or the closing funding to close the transaction.

Speaker 3

As our guidance assumes $0.30 contribution from PNM in 2023 and $4,500,000,000 of debt at the parent level to close the merger transaction mid year. This amount is included in the second half business Additionally, the opportunities and risks impacting our 2023 results include Renewables production and pricing, other regulatory adjustments and final rate case outcomes, thermal and asset management results, taxes, interest, O and M, uncollectibles and Finally, today, we are also reaffirming a 6% to 7% compound annual growth rate in our adjusted EPS through 2025, Off of these, that is the midpoint of our 2022 guidance. On the next slide, we move on to updates for financing, liquidity, dividends and credit ratings. In July, we signed a 10 year green term loan with EBITDrola for $800,000,000 at a rate of 5.45%. This highlights the unique benefit of our relationship with Iberdrola, which provides us with flexible cost effective access to capital.

Speaker 3

Similarly, we increased our intercompany credit facility with EBITDOLA from $500,000,000 to $750,000,000 We do not have anything outstanding under that facility, but the higher amount enhances our available liquidity. We also recently remarketed a NYSEG tax exempt For $100,000,000 at an attractive rate of 4% through maturity of that bond in 2,030 4. For renewables, we recently executed a term sheet to monetize our $100,000,000 over $100,000,000 of tax credits from existing assets not in tax equity, Benefiting from the transferability provisions enabled by the IRA. For the first half of the year, we have 7 point From the commitment letter from Ibadrola that backstops our PNM 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 October 2. In summary, we continue to focus on executing our long term financial plan. There are timing impacts to the recognition of the results of rate cases, Transmission construction and renewable asset monetization that we expect to materialize in the second half of the year. As you can see, we've had successes in many important milestones Thank you for joining us today for our financial update.

Speaker 3

I'll now hand the call back to our operator, Dennis, for questions, Followed by closing remarks from Pedro.

Operator

And your first question is from the line of Richard

Speaker 4

Great. Thank you for the time today. Maybe I'll pick it up where you left off on the waterfall for the second half of the year. The $0.72 to $0.78 were for 2H business operations. I think you did around $0.70 last year for 2H.

Speaker 4

Could you walk through some of the drivers year over year within that bucket, just quantifying the positives and the negatives? Presumably, there's some Renewables, megawatts that are in service, but likely some other offsets as well. So could you quantify a few of those pieces?

Speaker 3

Yes, certainly, Richard. I think just overall the second half business operations is just our normal operations of the business. So we called out some specific items like rate case implementations that are new this year, NECEC. But this reflects just the normal collection of revenues in our Networks business, the normal production and operations in our Renewables business and The overall cost of the business, depreciation, interest, etcetera. So some of the impacts maybe year over year that are looking if you're comparing to The last second half of twenty twenty two would be some efforts that we have made to improve capitalization of Labor and maintenance costs, also normal wind production.

Speaker 3

We have, incremental new assets in service. We actually added 405 Megawatts Since the second half of last year for our LUND Hill and our Montag assets and we have 8 99 megawatts in construction. On those new assets, we have incremental PCCs. PCCs are also inflation adjusted. And then we also have strong thermal results Now that our thermal plant, Klamath plant is back in operation in this July.

Speaker 3

So those are kind of the So, I mean incremental benefits and then we have the normal cost of the business as I mentioned depreciation, interest costs, factored into in there.

Speaker 4

Okay, got it. Got it. Very helpful. And sticking with the walk here, I know you mentioned that the UI draft decision is not factored in. At a high level here, if you if the draft decision holds or substantially close to the draft decision, Would you look to find other offsets within the plan to stick with the $220,000,000 to $235,000,000 range whether on the cost management side, the renewables transactions

Speaker 2

Let me react to that. I think as 1 year ago, when we had probably 10 things on the table, Probably all of them not easy to deal with. I think we told you we need to work, okay, and try to get these things done. I think in the case of Connecticut, there is a draft decision right now. Let us work.

Speaker 2

Okay. We're going to be filing preface, hearings, working on that. And I think let's not forget, you know, Connecticut is a very small part of our business. So if you compare, you know, we're investing in Connecticut €150,000,000 a year more or less In CapEx, I think that compares with €2,000,000,000 right now in New York. If you add CPL, it's even more.

Speaker 2

So it's a small part of the business as a whole, But it's important. We care about €1,000,000 as we care about €1,000,000,000 Let us work on that. Give us 1 or 2 months that is we know we have pending and then we'll come back to you. Of course, we are always focused if something goes down to find ways of getting that up. Efficiency is on top of us 24 hours a day the whole year.

Speaker 2

But on Connecticut, I think we prefer not to comment right now at work. We are not criticizing anybody making public statements. We need to work, Okay. And go there, work with the different parties, make sure we put our cases strongly. And then once that's done, we'll come back to you.

Speaker 4

Very clear, Pedro. Thank you for the time today.

Speaker 3

Thank you.

Speaker 2

Your next

Operator

from Bank of America. Please go ahead.

Speaker 5

Hey, good morning team. Thank you guys very much for the time. Hope you guys well. Maybe just thinking of different tact on things, can we talk a little bit about the wind and maybe wind repowering opportunities? Obviously, with Prices coming off here.

Speaker 5

You guys have perhaps a unique opportunity here to step in, and pursue that versus many of your peers. Do you think about the timing, size and sort of cadence of those investment opportunities here materializing post IRA?

Speaker 2

I think we intend to do a very detailed presentation in the months ahead of us, but we wanted not to delay To present an initial big picture of what we're going to be doing. I think as we mentioned in the presentation, IRA allows right now 15, 17, almost 20 years. We are the perfect candidates to take care of this. I think we've been working now for months on a very detailed asset by asset Reviewing which ones we could do, but I'm very comfortable that between now and the end of the decade, we are at least going to go ahead with this amount of megawatts. I think this is something important.

Speaker 2

As you know, the way in which the profile of the earnings works for U. S. Renewable assets, you get PTCs upfront, accelerated depreciations. So the last part of the life of the asset, you actually have negative results. By doing this repowering, we turned that around.

Speaker 2

I think from a cash flow point of view, it's going to be very positive. It's going to be a business self financed. So when you look at 2,030, 2,035 numbers, This business through the PTCs allows for our sole financing of that. So I think this is a very positive piece of news. I think this says that we're going to be doing, let's say, like new investments in renewable non stop for the next 8 years in a very simple manner.

Speaker 2

I don't know, Jose Antonio, if you want to compliment something.

Speaker 1

Thank you, Pedro, and good morning, Julian. Yes, you are totally right. I think that as you pointed out, We have a fleet that allow us like no others to profit from the IRA guidance on the repowering because remember that we have 30% of our assets in merchant. So it's a great opportunity to reengage with new PTCs another 10 years for the whole production Plus also we see traction in off takers telling us that they would be agreeable to sign PPAs for repowering. So all in all, I think that is a good opportunity.

Speaker 1

Thanks to our installed fleet.

Speaker 5

Yes, I agree. I'm curious to see when and how it happens. If I can come back to another side of the equation here, I mean, just given the delays in PNM, does it have to be the next Big update on your long term outlook have to be after close or could we be seeing that sooner and later here as you think about 'twenty four and beyond guidance? I just want to clarify When you think you'll come back with a more refreshed view? Does it need to be post that deal?

Speaker 5

And I got a quick clarification on that.

Speaker 2

Yes. I think now PNM, we have the next step is the oral hearing in the Supreme Court in September 12. So I think after that, we will wait for a decision. So I think the answer probably is you're right. I think we have to wait until we have that because that's a very material part of the Business going forward.

Speaker 2

But in that context, I think it's very interesting what we said before that we're going to be working on a 3 year plan that we announced last year. We made clear 2023 was the most difficult year for several reasons. First, because we had a lot of things on the table. And you've seen in Page 5, I'm very pleased with the work the team has done. We have basically put out of the table things that had either billions of risk, 100 of 1,000,000 of impact.

Speaker 2

So very pleased on many of the outcomes. I think the main rate case, I don't think a year ago anybody would think of having a 20 year actual cash rate increase in 2 years. I think we were expecting a lot of people were expecting I think negative outputs, etcetera. So I think many things have happened. When you look at PNM, compare that with the EUR 6,000,000,000 capital expenditure in New York, that's almost a PNM.

Speaker 2

You think about the additional EUR 3,000,000,000 Now we are referring to 4,600 megawatts. So we I think we're working on fixing the things that we need to fix in the short term. As you can see, we are laying out a strong foundation probably for the next 10 years ahead of us. So that's why I think we're working in the long term as well Because those things need to happen right now.

Speaker 5

Awesome. And just a quick clarification on timing too. It seems like the next opportunity here is around the climate investment proposals in New York. Can you talk a little bit about your expectations on timing there, especially with the JP still pending? And then Again, given the sort of the protracted process for your peer, what's the timing expectation for that JP approval too?

Speaker 5

So just really kind of getting at process here On the climate and the JP in parallel.

Speaker 2

Yes. I think on the rate case in New York, please Catherine now compliment. I think for me it's very simple. We've been working very well with the parties, with the public commission. I think you saw how In a very short period of time, we reached a settlement with multiparty support.

Speaker 2

I'm very pleased with the work we've been doing with the For the public commission with the trade unions, with some of the key consumers, key parties also involved. And I think we the case will be done in August. And after that, we just look forward to a rapid decision. I would not like to guarantee it's going to be 1 month or Another one, but I think we've been working very well right now and making good progress in all the fronts we have in New York. So I'm very pleased on that.

Speaker 2

Kathleen, if you want to

Speaker 3

Sure, Pedro. I'll just add some commentary on the CLCPA, both Phase 1 and Phase 2. So if you look at those investments, It's almost $3,000,000,000 worth of the transmission investments that we'll be making between now and 2,030. So 2,030 is the date by We'll have those projects complete per the legislation in New York. And we're already starting to work on preliminary engineering.

Speaker 3

There's over $684,000,000 that are included in the JPA. And we've worked hard with the settling parties To work on how much of the Phase 1 investments would be included in this rate case. And as I said, we're already starting our preliminary engineering on those projects. On the Phase 2 projects, those of course are not subject to rate case approval. Those have already been approved through the Phase 2 proceeding.

Speaker 3

And we've already provided our first update to the commission on the Phase 2 projects. And again, we're already starting our preliminary engineering on those projects and they are anticipated to be complete by 2,030.

Speaker 2

Excellent. Thank you, guys. Appreciate it. Good luck. Thank

Operator

Your next question is from the line of Michael Sullivan with Wolfe Research. Please go ahead. Hey, good morning.

Speaker 6

Can you all hear me?

Speaker 5

Yes.

Speaker 6

Okay, great. I just wanted to go back to the With and without PNM scenario again, so I think you all talked about it being like a $0.03 Swing factor this year netted against the debt. But can you maybe just explain how we think about that next year When you talked about the $1,900,000,000 of equity out there, and how that gets you to the same place. I guess I'm just struggling with, If you do close the deal, and you do the equity, how that ends up being better versus not doing the deal and you're in the same place, it seems this year and then you don't have to do the equity.

Speaker 2

Let me answer more on the capital increase and then you can answer more on the actual numbers there. I think Remember, we put a plan for 3 years and the capital increase for next year, it was subject to 2 different things. The first one is whether PNM closes or not. If he closes, then he knows it's different that if he does not close. And the second one, it was also our asset rotation.

Speaker 2

I think we continue to work on the asset rotation. So that's why in the update that we will give in the upcoming months for next year, we hope to have Final decision on that asset rotation. And then once we know if PNM closes or not, I think we will be able to put everything together. That's I think the 2 things that we continue to drive that decision. I don't know Patricia if you want to.

Speaker 3

Yes. I think that covers it. I think the real important thing was that That $1,900,000,000 in 2024 was not related to PNM. It was really to fund the rest of the business. The funding for PNM was the prior capital equity issuance and then the debt to close the transaction.

Speaker 3

So I think we just need to understand the better What the timing is, so in terms of putting that all together, I mean, that the additional equity was just to maintain our credit metrics over time And make sure we're at our targeted levels and maintain our investment grade reading. So the timing may impact the timing of how we do this and the equity, but Pieces are the same and for the same purposes.

Speaker 6

Okay. Okay. Thanks. On the asset rotation in the renewables, I guess, why now on that? I mean, obviously, things seem pressured in the offshore business right now, if we just look at what some of the peers are announcing and looking to do on the sale front.

Speaker 6

Why do it now if you don't have to and why not wait till maybe things Rebound a little to try and capture more value.

Speaker 2

I probably I'm going to answer based on the 25 years I've been at Dividola Group. I think we have done more than 100 deals in that period. We will never sell if the price is not right. We will never do a transaction if we cannot explain it's a good and attractive valuation for us. We will never do anything like that, okay?

Speaker 2

So feel comfortable that Unless we have a right proposition on the table, we will not go ahead. So that's what we have done always in our transactions. We I continue to think that the market in general maybe the way you were commenting, But I can tell you good assets and good platforms and good proposals always find the right buyer at the right price. And I'm you may not have 7 people competing, but I think you have some people as we are the case when we want to buy things very keen on good opportunities. So I think the market that you have right now probably affects 90% of transactions going on, but you still have the good deals, the good platforms

Speaker 6

Okay. And specifically on the onshore piece, is it still more so you're looking at individual assets or you're looking at A larger portion of the portfolio, the portfolio itself, or is it kind of all options on the table in terms of

Speaker 1

All the options continue to

Speaker 2

be on the table. We have been receiving offers for specific assets. I think we have interest in a stake in the business, in a partnership. I think we're just looking into what is the best option from an restructuring point of view, from a value point of view, so we don't rule out any option.

Speaker 6

Okay, great. Thank you very much.

Operator

At this time, there are no further questions. I will now turn the call over to Pedro Azagra for closing remarks.

Speaker 2

Okay. So thank you again for joining us for the Q2 earnings call. Looking ahead, Our team is focused on execution, growth and value creation in order to deliver our 2023 guidance and the years to come. As such, ongoing priorities include the resolution of our New York and Connecticut rate cases, balancing cash flow, earnings and customer affordability. And we will focus on achieving a lot ROEs in the different jurisdictions.

Speaker 2

Our priorities also include continuing to work towards the construction of NECEC And the completion of our PNM merger. In renewables, we plan to execute on our repowering plan, While continuing to bring new profitable projects. With regards to our offshore projects, we will begin exporting power from Vineyard Wind 1 later this year. On top of that, we are working with Connecticut stakeholders to find a path towards Park City wind. And also we are concentrated on terminating The Commonwealth wind contracts can see the new opportunities in the RFP coming ahead of us.

Speaker 2

Additionally, we will remain focused on our commitment to financial sustainability, Prioritizing the maintenance of solid credit ratings and a strong liquidity, cash flow is key for us. And we will continue developing and promoting talent and diversity, We believe that AvantGrid has exceptional growth prospects. Our business mix with a core regulated networks mix and expanding renewable energy investments represents an attractive opportunity At the forefront of the energy transition, by leveraging additional long term growth opportunities like the IRA And New York Steel CPA, we are confident Up and Green will continue to drive value for our customers, communities and shareholders. We look forward to sharing our progress with you over the coming months and appreciate your continued support. Thank you for joining us In today's call, if you have any other questions, please follow-up with Alvaro and the IR team.

Speaker 2

Have a great day.

Operator

This does conclude Avangrid's 2nd quarter 2023 earnings conference call. Thank you for participating. You may now

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Key Takeaways

  • Avangrid reported Q2 GAAP EPS of $0.22 (down from $0.48 in Q2 2022) and adjusted EPS of $0.46 (up from $0.21), with Networks segment earnings pressured by higher uncollectibles and O&M costs.
  • Central Maine Power secured a two-year rate case approval effective July 1 with a $380 million investment plan, 9.35% ROE (up to 10.35%), and enhanced inflation and cost recovery mechanisms.
  • New England Clean Energy Connect construction resumed after favorable Maine Business & Consumer Court and DEP rulings, with Massachusetts legislation now supporting change-of-law cost recovery and a commercial-operations date extension agreement in place.
  • Avangrid filed a joint proposal for its New York rate case seeking $6.4 billion in capex, $1.45 billion in additional revenues, a 9.2% authorized ROE, and rate relief effective October 1, 2023 with a May 1 true-up.
  • The company is leveraging the Inflation Reduction Act to repower over half of its 4.6 GW wind fleet by 2032, boosting output by ~30%, simplifying permitting, and capturing additional PTCs and accelerated depreciation benefits.
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Earnings Conference Call
Avangrid Q2 2023
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