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MarketScreener Homepage  >  Equities  >  Nyse  >  Avangrid, Inc.    AGR

AVANGRID, INC.

(AGR)
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AVANGRID : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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10/31/2019 | 03:13pm EST
You should read the following discussion of our financial condition and results
of operations in conjunction with the condensed consolidated financial
statements and the notes thereto included elsewhere in this Quarterly Report on
Form 10-Q and with our audited consolidated financial statements as of
December 31, 2018 and 2017, and for the three years ended December 31, 2018,
included in our Annual Report on Form 10-K for the year ended December 31, 2018,
filed with the Securities and Exchange Commission, or the SEC, on March 1, 2019,
which we refer to as our "Form 10-K." In addition to historical condensed
consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. The foregoing and other factors are discussed and
should be reviewed in our Form 10-K and other subsequent filings with the SEC.
Overview
AVANGRID is a leading sustainable energy company with approximately $34 billion
in assets and operations in 24 states. AVANGRID has two primary lines of
business - Avangrid Networks and Avangrid Renewables. Avangrid Networks owns
eight electric and natural gas utilities, serving approximately 3.3 million
customers in New York and New England. Avangrid Renewables owns and operates 8.0
gigawatts of electricity capacity, primarily through wind power, with a presence
in 22 states across the United States. AVANGRID supports the achievement of the
Sustainable Development Goals approved by the member states of the United
Nations, and was named among the World's Most Ethical companies in 2019 by the
Ethisphere Institute. AVANGRID employs approximately 6,500 people. Iberdrola
S.A., a corporation (sociedad anónima) organized under the laws of the Kingdom
of Spain, a worldwide leader in the energy industry, directly owns 81.5% of
outstanding shares of AVANGRID common stock. AVANGRID's primary business is
ownership of its operating businesses, which are described below.
Our direct, wholly-owned subsidiaries include Avangrid Networks, Inc., or
Networks, and Avangrid Renewables Holdings, Inc., or ARHI. ARHI in turn holds
subsidiaries including Avangrid Renewables, LLC, or Renewables. Networks owns
and operates our regulated utility businesses through its subsidiaries,
including electric transmission and distribution and natural gas distribution,
transportation and sales. Renewables operates a portfolio of renewable energy
generation facilities primarily using onshore wind power and also solar, biomass
and thermal power.
Through Networks, we own electric generation, transmission and distribution
companies and natural gas distribution, transportation and sales companies in
New York, Maine, Connecticut and Massachusetts, delivering electricity to
approximately 2.3 million electric utility customers and delivering natural gas
to approximately 1.0 million natural gas public utility customers as of
September 30, 2019.
Networks, a Maine corporation, holds our regulated utility businesses, including
electric transmission and distribution and natural gas distribution,
transportation and sales. Networks serves as a super-regional energy services
and delivery company through the eight regulated utilities it owns directly:
•          New York State Electric & Gas Corporation, or NYSEG, which serves
           electric and natural gas customers across more than 40% of the upstate
           New York geographic area;


•          Rochester Gas and Electric Corporation, or RG&E, which serves electric
           and natural gas customers within a nine-county region in western New
           York, centered around Rochester;


•          The United Illuminating Company, or UI, which serves electric
           customers in southwestern Connecticut;


•          Central Maine Power Company, or CMP, which serves electric customers
           in central and southern Maine;

• The Southern Connecticut Gas Company, or SCG, which serves natural gas

           customers in southern Connecticut;


Connecticut Natural Gas Corporation, or CNG, which serves natural gas

           customers in Connecticut;


•          The Berkshire Gas Company, or BGC, which serves natural gas customers
           in western Massachusetts; and


•          Maine Natural Gas Corporation, or MNG, which serves natural gas
           customers in several communities in central and southern Maine.


Through Renewables, we had a combined wind, solar and thermal installed capacity
of 7,995 megawatts, or MW, as of September 30, 2019, including Renewables' share
of joint projects, of which 7,203 MW was installed wind capacity. As of
September 30, 2019, approximately 68% of the capacity was contracted for an
average period of 9.7 years, and 13% of installed capacity was hedged. Being
among the top three largest wind operators in the United States based on
installed capacity as of September 30, 2019, Renewables strives to lead the
transformation of the U.S. energy industry to a sustainable, competitive, clean
energy future. Renewables currently operates 59 wind farms in 21 states across
the United States.

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Summary of Results of Operations
Our operating revenues decreased by 4%, from $1,546 million for the three months
ended September 30, 2018 to $1,487 million for the three months ended
September 30, 2019.
Networks business revenues decreased mainly due to decreased purchased power and
gas driven by lower commodity prices and volumes in the period. Renewables had
an increase in revenues mainly due to an increase in wind generation along with
favorable mark to market, or MtM, changes on energy derivative transactions
entered into for economic hedging purposes in the period.
Net income attributable to AVANGRID increased by 20% from $125 million for the
three months ended September 30, 2018 to $150 million for the three months ended
September 30, 2019, primarily due to increased revenue from Renewables business
in the period.
Adjusted net income (a non-GAAP financial measure) decreased by 11% from $139
million for the three months ended September 30, 2018 to $123 million for the
three months ended September 30, 2019. The decrease is primarily due to a $7
million decrease in Networks driven by increased non-deferrable outage
restoration and pre-staging costs and a $22 million decrease in Corporate mainly
driven by higher interest expense, offset by a $14 million increase in
Renewables driven mainly by wind generation output increase and a gain from the
sale of assets and associated change in control during the period.
For additional information and reconciliation of the non-GAAP adjusted net
income to net income attributable to AVANGRID, see "-Non-GAAP Financial
Measures".
See "-Results of Operations" for further analysis of our operating results for
the quarter.
Legislative and Regulatory Update
We are subject to complex and stringent energy, environmental and other laws and
regulations at the federal, state and local levels as well as rules within the
independent system operator, or ISO, markets in which we participate. Federal
and state legislative and regulatory actions continue to change how our business
is regulated. We are actively participating in these debates at the federal,
regional, state and ISO levels. Significant updates are discussed below. For a
further discussion of the environmental and other governmental regulations that
affect us, see our Form 10-K for the year ended December 31, 2018.
NYSEG and RG&E rate cases
On May 20, 2019, NYSEG and RG&E filed rate cases with the New York State
Department of Public Service, or NYDPS, for new tariffs. The effective date of
new tariffs, assuming an approximately 11-month suspension period, will be April
20, 2020. The proposed rates facilitate the companies' transition to a cleaner
energy future while allowing for important initiatives such as vegetation
management, hardening/resiliency and emergency preparedness. The companies are
requesting delivery revenues to be based on a 9.50% ROE and 50% equity ratio.
The below table provides a summary of the proposed delivery rate increases,
delivery revenue percentages and total revenue percentages for all four
businesses in the initial filing:
                  Requested Revenue Increase      Delivery Revenue     Total Revenue
Utility                   (Millions)                     %                   %
NYSEG Electric   $                      156.7             20.4 %             10.4 %
NYSEG Gas        $                        6.3              3.0 %              1.4 %
RG&E Electric    $                       31.7              7.0 %              4.1 %
RG&E Gas         $                        5.8              3.3 %              1.4 %


NYPSC staff and other parties filed responsive testimony on September 15, 2019.
NYPSC staff is recommending an 8.2% ROE and 48% equity. NYPSC staff recommended
the following rate increases/decreases: NYSEG electric a rate increase of $76.7
million, NYSEG Gas a rate decrease of $15.9 million, RG&E Electric a rate
increase of $0.7 million and RG&E Gas a rate decrease of $22.5 million. NYPSC
Staff is also recommending NYSEG credit the environmental reserve by $31.1
million due to the legal rulings in 2017 and 2018 that denied insurance claims
against OneBeacon and Century Indemnity in an insurance lawsuit. The companies
entered into settlement discussion with the staff and other parties in October
2019. We cannot predict the outcome of this matter.
CMP rate case
On January 14, 2019, the Maine Public Utility Commission, or the MPUC, issued an
Order and Notice of Investigation initiating an investigation of CMP's metering
and billing practices and initiating a separate investigation of the audit of
CMP's

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customer service and communication practices and incorporating such
investigation into the general rate case. On February 22, 2019, the MPUC issued
the MPUC staff Bench Analysis, or BA, on all revenue requirement issues in this
case, including customer service issues. The BA includes, among other things, a
proposal to reduce CMP's existing distribution rates by $2.0 - $3.6 million,
inclusive of one-time items from July 2018, and implement a management
efficiency adjustment as part of the rate setting process to reduce the MPUC
staff recommended "unadjusted" ROE of 9.35% by 75 to 100 basis points. On April
12, 2019, CMP filed rebuttal testimony to the Bench Analysis and intervenor
testimony. On June 17, 2019, the MPUC Staff issued its Reply Bench Analysis in
response to CMP's rebuttal testimony, which includes a reduction of the
"unadjusted" ROE recommendation to 8.75% based on current market conditions,
maintains the proposed management efficiency adjustment of 75 to 100 basis
points and proposes to maintain the current cap of $31.4 million on the shared
service costs provided to CMP until a management audit on the cost effectiveness
of such services is completed. The Maine Office of Public Advocate, OPA, for
utility issues filed a motion to delay CMP's rate order decision to allow
incorporation of the results of the separate metering and billing investigation.
CMP did not oppose this motion. Initial briefs and reply briefs on revenue
requirement issues were filed by CMP and the OPA in September 2019. A hearing on
rate design issues was held on October 2, 2019. Initial briefs on rate design
issues were filed on October 24, 2019 with reply briefs due on November 1, 2019.
A final decision on all issues in this proceeding will follow the conclusion of
the MPUC's investigation into CMP's billing, metering and customer service
practices which is expected by the end of the year. We cannot predict the
outcome of this matter.
CMP Metering and Billing Investigation
In 2018, the MPUC had an independent auditor conduct an audit of CMP's billing
system and issue a report, which was made public in December 2018. On January
14, 2019, the MPUC issued an Order and Notice of Investigation initiating an
investigation of CMP's metering and billing practices. On September 3, 2019, the
MPUC issued its Bench Analysis in the Metering and Billing Investigation and
supported the findings of the independent audit. On September 7, the OPA issued
testimony and findings from a separate audit firm which agreed with certain
portions of the independent audit and also stated that continuing problems still
persist in CMP's billing system. CMP provided rebuttal testimony on October 16,
2019, and hearings are scheduled for November 2019. The MPUC is scheduled to
decide this matter on December 20, 2019. We cannot predict the outcome of this
matter.
Transmission - ROE Complaint
Following various intermediate hearings, orders and appellate decisions, on
October 16, 2018, the Federal Energy Regulatory Commission, or FERC, issued an
order directing briefs and proposing a new methodology to calculate the NETOs'
ROE that is contained in NETOs' transmission formula rate on file at the FERC,
or the October 2018 Order. The FERC proposes to use this new methodology to
resolve Complaints I, II, III and IV filed by the New England state consumer
advocates. Pursuant to the October 2018 Order, the NETOs filed initial briefs on
the proposed methodology in all four Complaints on January 11, 2019, and replies
to the initial briefs on March 8, 2019. We cannot predict the outcome of this
proceeding.
New York State Department of Public Service Investigation of the Preparation for
and Response to the March 2017 Windstorm
On May 18, 2018, NYSEG and RG&E filed a settlement joint proposal and investment
joint proposal before the NYPSC to settle potential penalties and avoid
litigation related to the March 2017 windstorm, pursuant to which, among other
things, NYSEG and RG&E have agreed to make $4 million in investments designed to
increase resiliency and improve emergency response in the areas impacted by the
storm. The investments will not be reflected in rate base or operating expenses
in establishing future delivery rates. On April 18, 2019, the NYPSC approved the
joint proposals.
New York State Department of Public Service Investigation of the Preparation for
and Response to the March 2018 Winter Storms
In March 2018, following two severe winter storms that impacted more than one
million electric utility customers in New York, including 520,000 NYSEG and
RG&E customers, the NYPSC initiated a comprehensive investigation of all the New
York electric utilities' preparation and response to those events. The
investigation was expanded to include other 2018 New York spring storm events.
On April 18, 2019, the NYDPS staff issued a report (the 2018 Staff Report) of
the findings from their investigation. The 2018 Staff Report identifies 94
recommendations for corrective actions to be implemented in the utilities
Emergency Response Plans, or ERPs. The report also identified potential
violations by several of the utilities, including NYSEG and RG&E.
Also on April 18, 2019, the NYPSC issued an Order Instituting Proceeding and to
Show Cause directed to all major electric utilities in New York, including NYSEG
and RG&E. The order directs the utilities, including NYSEG and RG&E, to show
cause why the NYPSC should not pursue civil and/or administrative penalties for
the apparent failure to follow their respective ERPs as approved and mandated by
the NYPSC. The NYPSC also directs the utilities, within 30 days, to address
whether the NYPSC

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should mandate, reject or modify in whole or in part, the 94 recommendations
contained in the 2018 Staff Report. On May 20, 2019, NYSEG and RG&E responded to
the portion of the Order to Show Cause with respect to the recommendations
contained in the 2018 Staff Report. The Commission granted the companies an
extension until October 31, 2019 to respond to the portion of the Order to Show
Cause with respect to why the Commission should not pursue a penalty action, and
the companies have requested a further extension to November 8, 2019. The
companies and NYDPS staff counsel are engaged in settlement discussions to avoid
litigation including the potential payment by the companies of the statutorily
provided $0.5 million penalty for each of the 24 alleged violations described by
the Commission in the Order to Show Cause. We cannot predict the final outcome
of this matter.
NYPSC directs Counsel to commence Judicial Enforcement Proceeding against NYSEG
On April 18, 2019, the NYPSC issued an Order Directing Counsel to the Commission
to commence a special proceeding or an action in New York State Supreme Court to
stop and prevent ongoing future violations by NYSEG of NYPSC regulations and
orders. As of the date hereof, a special proceeding or an action has not been
commenced; however, the companies and the Commission's counsel are engaged in
settlement discussions as part of the March 2018 Wind Storm settlement
discussions. We cannot predict the final outcome of this matter.
Power Tax Audits
Previously, CMP, NYSEG and RG&E implemented Power Tax software to track and
measure their respective deferred tax amounts. In connection with this change,
we identified historical updates needed with deferred taxes recognized by CMP,
NYSEG and RG&E and increased our deferred tax liabilities, with a corresponding
increase to regulatory assets, to reflect the updated amounts calculated by the
Power Tax software. Since 2015, the NYPSC and MPUC accepted certain adjustments
to deferred taxes and associated regulatory assets for this item in recent
distribution rate cases, resulting in regulatory asset balances of approximately
$154 million and $157 million, respectively, for this item at September 30, 2019
and December 31, 2018.
In 2017, audits of the power tax regulatory assets were commenced by the NYPSC
and MPUC. On January 11, 2018, the NYPSC issued an order opening an operations
audit on NYSEG and RG&E and certain other New York utilities regarding tax
accounting. The NYPSC audit report is expected to be completed during 2019. In
January 2018, the MPUC published the Power Tax audit report with respect to CMP,
which indicated the auditor was unable to verify the asset "acquisition value"
used to calculate the Power Tax regulatory asset. The audit report requires that
CMP must provide support for the beginning balance of the regulatory assets or
it will be unable to recover the value of the assets, which is approximately $11
million, excluding carrying costs. CMP responded to the audit report in its rate
case filing by providing additional acquisition value support and, therefore,
requested full recovery of the Power Tax regulatory asset. MPUC staff expressed
concerns about the value CMP has attributed to this issue. The MPUC also had an
outside firm conduct an audit of CMP's filing and acquisition values, and the
auditor found CMP's information was reasonable. In September 2019, CMP filed a
report in response to the audit report and addressed MPUC staff concerns. We
cannot predict the outcome of this matter.
Yankee Nuclear Spent Fuel Disposal Claim
CMP has an ownership interest in Maine Yankee Atomic Power Company, Connecticut
Yankee Atomic Power Company and Yankee Atomic Electric Company, or the Yankee
Companies, three New England single-unit decommissioned nuclear reactor sites,
and UI has an ownership interest in Connecticut Yankee Atomic Power Company.
Pursuant to the statute of limitations, the Yankee Companies file a lawsuit
periodically to recover damages from the Department of Energy, or DOE, for
breach of the Nuclear Spent Fuel Disposal Contract to remove spent nuclear fuel
and greater than class C waste as required by contract.
From 2012 to 2016 the Yankee Companies filed three claims against the DOE (Phase
I, II and III) for the years from 1995 to 2012 and received damage awards, which
flow through the Yankee Companies to shareholders (including CMP and UI based
percentage of ownership) to reduce retail customer charges. On May 22, 2017, the
Yankee Companies filed their next case (Phase IV) in the Federal Court of
Claims, or Court, seeking damages for the period from January 1, 2013 through
December 31, 2016 and submitted their claimed Phase IV damages to the DOE in
late August 2017. The Court issued its decision on the Phase IV trial on
February 21, 2019, awarding the Yankee Companies a combined $103 million
(Connecticut Yankee $41 million, Maine Yankee $34 million and Yankee Atomic $28
million). The damage awards are returned to customers either through customer
refunds or by reducing future costs. Refunds or reductions in costs are
reflected in the Yankee Companies billings to shareholders, including CMP and
UI. CMP and UI will receive their proportionate share of the awards that flow
through based on percentage of ownership. On April 23, 2019, the notice of
appeal period expired and the Phase IV trial award became final. The Government
has paid the Yankee Companies the full amount of the damage award. We recorded a
receivable $8 million from the Yankee Companies related to this matter which
will be returned to customers.

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Results of Operations
The following tables set forth financial information by segment for each of the
periods indicated.
                                          Three Months Ended                                      Three Months Ended
                                          September 30, 2019                                      September 30, 2018
                            Total      Networks     Renewables      Other(1)      Total      Networks     Renewables       Other(1)
                                                                         (in millions)
Operating Revenues        $ 1,487$  1,140$      347      $      -     $ 1,546$  1,228$      315$       3
Operating Expenses
Purchased power,
natural gas and fuel
used                          279          209             70             -         342          277             65              -
Loss from assets held
for sale                        -            -              -             -           1            -              -              1
Operations and
maintenance                   588          482            111            (5 )       574          486             92             (4 )
Depreciation and
amortization                  237          138             98             1         226          128             98              -
Taxes other than income
taxes                         144          129             15             -         150          130             20              -
Total Operating
Expenses                    1,248          958            294            (4 )     1,293        1,021            275             (3 )
Operating Income              239          182             53             4         253          207             40              6
Other Income (Expense)
Other income (expense)          6           (3 )           15            (6 )       (16 )        (19 )            6             (3 )
(Losses) earnings from
equity method
investments                    (1 )          3             (4 )           -           1            4             (3 )            -
Interest expense, net
of capitalization             (72 )        (66 )            1            (7 )       (75 )        (64 )          (13 )            2
Income (Loss) Before
Income Tax                    172          116             65            (9 )       163          128             30              5
Income tax expense
(benefit)                      33           28              2             3          29           31              2             (4 )
Net Income (Loss)             139           88             63           (12 )       134           97             28              9
Net loss (income)
attributable to
noncontrolling
interests                      11            -             11             -          (9 )         (1 )           (8 )            -
Net Income (Loss)
Attributable to
Avangrid, Inc.            $   150$     88$       74$    (12 )$   125$     96$       20$       9



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                                            Nine Months Ended                                     Nine Months Ended
                                           September 30, 2019                                    September 30, 2018
                             Total      Networks     Renewables      Other(1)      Total      Networks     Renewables      Other(1)
                                                                         (in millions)
Operating Revenues         $ 4,729$  3,837$      896$     (4 )$ 4,813$  3,885$      896$     32
Operating Expenses
Purchased power, natural
gas and fuel used            1,101          932            169             -       1,197        1,024            171             2
Loss from assets held
for sale                         -            -              -             -          16            -              -            16
Operations and
maintenance                  1,714        1,428            295            (9 )     1,634        1,360            269             5
Depreciation and
amortization                   681          407            273             1         644          374            270             -
Taxes other than income
taxes                          446          402             44             -         444          393             47             4
Total Operating Expenses     3,942        3,169            781            (8 )     3,935        3,151            757            27
Operating Income               787          668            115             4         878          734            139             5
Other Income (Expense)
Other income (expense)           1           (3 )           17           (13 )       (57 )        (60 )            6            (3 )
Earnings (losses) from
equity method
investments                      1            8             (7 )           -           8           10             (2 )           -
Interest expense, net of
capitalization                (226 )       (201 )           (6 )         (19 )      (219 )       (189 )          (28 )          (2 )
Income (Loss) Before
Income Tax                     563          472            119           (28 )       610          495            115             -
Income tax expense
(benefit)                      103          117            (15 )           1         128          118            (30 )          40
Net Income (Loss)              460          355            134           (29 )       482          377            145           (40 )
Net loss (income)
attributable to
noncontrolling interests        17           (1 )           18             -          (6 )         (2 )           (4 )           -
Net Income (Loss)
Attributable to
Avangrid, Inc.             $   477$    354$      152$    (29 )$   476$    375$      141$    (40 )

__________________________

(1) Other amounts represent Corporate, Gas and intersegment eliminations.



Comparison of Period to Period Results of Operations
Three Months Ended September 30, 2019 Compared to Three Months Ended
September 30, 2018
Operating Revenues
Our operating revenues decreased by $59 million, or 4%, from $1,546 million for
the three months ended September 30, 2018 to $1,487 million for the three months
ended September 30, 2019, as detailed by segment below:
Networks
Operating revenues decreased by $88 million, or 7%, from $1,228 million for the
three months ended September 30, 2018 to $1,140 million for the three months
ended September 30, 2019. The decrease was primarily due to the following items
that have offsets within the income statement: decreased by $68 million due to
decreased purchased power and purchased gas (offset within purchased power), $11
million decrease due to recoverable pension expenses which are offset in other
expenses, $6 million increase due to a change in intercompany billing which is
offset in operating expenses and $10 million due to a decrease change in
pass-through components which is offset in operating expenses. Electricity and
gas revenues also decreased due to a $6 million decrease driven by earnings
sharing mechanisms which were triggered during the period and $9 million of
unfavorable transmission revenue in the period, offset by a $7 million increase
in electricity and gas revenues, primarily due to the impact of increased
customer rates.
Renewables
Operating revenues increased by $32 million, or 10%, from $315 million for the
three months ended September 30, 2018 to $347 million for the three months ended
September 30, 2019. The increase in operating revenues was primarily due to an
increase of $27 million from wind generation output increasing 425 GWh and new
capacity, favorable MtM changes of $54 million on energy derivative transactions
entered into for economic hedging purposes, an increase of $2 million in thermal
revenue driven by higher average prices in the period, a $12 million decrease
due to a combination of lower overall average prices and lower REC revenues, a
decrease due to a gain of $33 million from the sale of claims from a bankruptcy
proceeding with a customer recorded in the three months ended September 30, 2018
and a $7 million decrease in other revenues.

                                       57
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Purchased Power, Natural Gas and Fuel Used
Our purchased power, natural gas and fuel used decreased by $63 million, or 18%,
from $342 million for the three months ended September 30, 2018 to $279 million
for the three months ended September 30, 2019, as detailed by segment below:
Networks
Purchased power, natural gas and fuel used decreased by $68 million, or 25%,
from $277 million for the three months ended September 30, 2018 to $209 million
for the three months ended September 30, 2019. The decrease is primarily driven
by a $69 million decrease in average commodity prices and an overall decrease in
electricity and gas units procured due to a decline in cooling degree days in
the period.
Renewables
Purchased power, natural gas and fuel used increased by $5 million, or 8%, from
$65 million for the three months ended September 30, 2018 to $70 million for the
three months ended September 30, 2019. The increase is primarily driven by
unfavorable MtM changes on derivatives of $15 million due to market price
changes in the period, offset by a decrease of $3 million in power purchases in
the current period and a decrease of $6 million in thermal purchases driven by
the decrease in volume and unit cost in the period.
Operations and Maintenance
Our operations and maintenance increased by $14 million, or 2%, from $574
million for the three months ended September 30, 2018 to $588 million for the
three months ended September 30, 2019, as detailed by segment below:
Networks
Operations and maintenance decreased by $4 million, or 1%, from $486 million for
the three months ended September 30, 2018 to $482 million for the three months
ended September 30, 2019. Operations and maintenance changed due to the
following items that have offsets within the income statement: $6 million
increase driven by a change in intercompany billing (offset in revenue), offset
by a $10 million decrease in pass through components (offset in revenue). An
increase of $10 million in personnel expenses was driven by increased headcount,
regular pay and overtime pay and $5 million of unfavorable regulatory
mechanisms. These were offset by $10 million of favorable capitalized staff
costs and $2 million of decreased non-deferrable outage and restoration costs in
the period. Excluding items that have offsets within the income statement,
non-deferrable outage and restoration costs and staging expenses, operations and
maintenance expense decreased by $5 million, or 1%, for the three months ended
September 30, 2019 as compared to the same period of 2018.
Renewables
Operations and maintenance expenses increased by $19 million, or 21%, from $92
million for the three months ended September 30, 2018 to $111 million for the
three months ended September 30, 2019. The increase is primarily due to $10
million of increased costs resulting from headcount increases and higher
maintenance costs which are primarily attributed to growth and enhanced
maintenance to increase availability. Additionally, operations and maintenance
expense increased by $7 million due to a favorable provision release in 2018.
Depreciation and Amortization and Loss from Assets Held for Sale
Depreciation and amortization and loss from assets held for sale for the three
months ended September 30, 2019 was $237 million compared to $227 million for
the three months ended September 30, 2018, representing an increase of $10
million. The increase is primarily due to an increase of $11 million in
depreciation expense as a result of plant additions in Networks in the period,
offset by a loss of $1 million from remeasurement of assets held for sale driven
by final purchase price negotiations and certain related working capital
adjustments of Gas business recorded in the third quarter of 2018.
Other Income (Expense) and Earnings (Losses) from Equity Method Investments
Other income (expense) and equity earnings (losses) increased by $20 million
from $(15) million for the three months ended September 30, 2018 to $5 million
for the three months ended September 30, 2019. The increase is primarily due to
a $5 million gain from the sale of assets, $11 million of favorable pension and
other post-retirement expense in the period in Networks driven by lower
actuarial loss amortization (offset in Networks revenue) and a $5 million
favorable change in allowance for funds used during construction in Networks.
Interest Expense, Net of Capitalization
Interest expense for the three months ended September 30, 2019 and 2018 was $72
million and $75 million, respectively. Networks had $2 million decrease from
carrying costs on regulatory deferrals, offset by a $1 million increase in
interest expense

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from higher average debt balances in the current period. Other added $11 million
of interest expense from new debt issued in 2019. This is offset by interest
expense decrease in Renewables of $13 million due to lower average debt balances
in the current period.
Income Tax Expense
The effective tax rate, inclusive of federal and state income tax, for the three
months ended September 30, 2019, was 19.2%, which is lower than the federal
statutory tax rate of 21%, primarily due to the recognition of production tax
credits associated with wind production, offset by unfavorable discrete tax
adjustments. The effective tax rate, inclusive of federal and state income tax,
for the three months ended September 30, 2018 was 17.8%, which is lower than the
federal statutory tax rate of 21%, primarily due to discrete tax adjustments
recorded during the period, offset by the recognition of production tax credits
associated with wind production.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30,
2018
Operating Revenues
Our operating revenues decreased by $84 million, or 2%, from $4,813 million for
the nine months ended September 30, 2018 to $4,729 million for the nine months
ended September 30, 2019, as detailed by segment below:
Networks
Operating revenues decreased by $48 million, or 1%, from $3,885 million for the
nine months ended September 30, 2018 to $3,837 million for the nine months ended
September 30, 2019. Electricity and gas revenues changed due to the following
items that have offsets within the income statement: decrease of $92 million in
purchased power and purchased gas in the same period (offset in purchased
power), $19 million increase due to a change in intercompany billing (offset in
operating expenses), $36 million decrease in recoverable pension expense (offset
in other expenses), $9 million increase in property taxes (offset in taxes other
than income taxes) and a $19 million increase in pass-through components, which
are offset in operating expenses. Electricity and gas revenues increased by $37
million, primarily due to the impact of increased customer rates in the nine
months ended September 30, 2019 compared to the same period of 2018, offset by
$3 million from unfavorable regulatory mechanisms.
Renewables
Operating revenues were $896 million for both the nine months ended
September 30, 2019 and 2018. Operating revenues increased due to favorable MtM
changes of $64 million on energy derivative transactions entered into for
economic hedging purposes, an increase in thermal revenues of $32 million driven
by higher average prices in the period and increased sales from Klamath (29%
volume increase). These items were offset by a $69 million decrease due to
prices decreasing 13% through a combination of lower merchant pricing, an
adverse PPA mix and expired PPA contracts, and a gain of $22 million from the
sale of claims from a bankruptcy proceeding with a customer recorded in the nine
months ended September 30, 2018 and a $7 million decrease in other revenues.
Purchased Power, Natural Gas and Fuel Used
Our purchased power, natural gas and fuel used decreased by $96 million, or 8%,
from $1,197 million for the nine months ended September 30, 2018 to $1,101
million for the nine months ended September 30, 2019, as detailed by segment
below:
Networks
Purchased power, natural gas and fuel used decreased by $92 million, or 9%, from
$1,024 million for the nine months ended September 30, 2018 to $932 million for
the nine months ended September 30, 2019. The decrease is primarily driven by an
$84 million decrease in average commodity prices and an overall decrease in
electricity and gas units procured due to a decline in degree days combined with
an $8 million decrease in other power supply purchases in the period.
Renewables
Purchased power, natural gas and fuel used decreased by $2 million, or 1%, from
$171 million for the nine months ended September 30, 2018 to $169 million for
the nine months ended September 30, 2019. The decrease is primarily driven by a
decrease of $16 million in power purchases in the current period, offset by an
increase of $12 million in thermal purchases driven by the increase in volume
and unit cost in the period and unfavorable MtM changes on derivatives of $3
million due to market price changes in the period.
Operations and Maintenance
Our operations and maintenance increased by $80 million, or 5%, from $1,634
million for the nine months ended September 30, 2018 to $1,714 million for the
nine months ended September 30, 2019, as detailed by segment below:

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Networks

Operations and maintenance increased by $68 million, or 5% from $1,360 million
for the nine months ended September 30, 2018 to $1,428 million for the nine
months ended September 30, 2019. Operations and maintenance expense changed due
to the following items that have offsets within the income statement: $19
million increase driven by a change in intercompany billing (offset in revenue)
and a $19 million increase in pass through components (offset in revenue).
Additionally, the increase is due to a $14 million increase in non-deferrable
pre-staging expenses and outage restoration costs, a $5 million increase in
personnel costs (net of capitalized staff costs) driven by a headcount increase,
and $8 million of unfavorable regulatory mechanisms. Excluding items that have
offsets within the income statement, non-deferrable pre-staging expenses and
outage restoration costs, operations and maintenance expense decreased by $13
million, or 1%, for the nine months ended September 30, 2019 as compared to the
same period of 2018.
Renewables
Operations and maintenance expenses increased by $26 million, or 10%, from $269
million for the nine months ended September 30, 2018 to $295 million for the
nine months ended September 30, 2019. The increase is primarily due to $29
million of increased costs resulting from headcount increases and higher
maintenance costs which are primarily attributed to growth and enhanced
maintenance to increase availability. Additionally, operations and maintenance
expense increased by $7 million from a provision release in 2018, offset by an
$11 million decrease driven by an asset retirement obligation adjustment in
2019.
Depreciation and Amortization and Loss from Assets Held for Sale
Depreciation and amortization and loss from assets held for sale for the nine
months ended September 30, 2019 was $681 million compared to $660 million for
the nine months ended September 30, 2018, an increase of $21 million. The
increase is primarily due to increases of $37 million as a result of plant
additions in Networks and Renewables in the period, offset by a loss of $16
million from remeasurement of assets held for sale driven by final purchase
price negotiations and certain related working capital adjustments of Gas
business recorded in 2018.
Other Income (Expense) and Earnings (Losses) from Equity Method Investments
Other income (expense) and equity earnings (losses) increased by $51 million
from $(49) million for the nine months ended September 30, 2018 to $2 million
for the nine months ended September 30, 2019. The increase is primarily due to a
$22 million favorable change in allowance for funds used during construction in
Networks, a $5 million gain from the sale of assets during the period in
Renewables, $36 million of favorable pension and other post-retirement expense
in the period in Networks driven by lower actuarial loss amortization (offset in
Networks revenue), offset by a decrease of $7 million in equity earnings in the
current period.
Interest Expense, Net of Capitalization
Interest expense for the nine months ended September 30, 2019 and 2018 was $226
million and $219 million, respectively. Networks had a $6 million increase in
interest expense due to a higher average outstanding balance of debt in the
period and $6 million increase from carrying costs on regulatory deferrals.
Other added $18 million of interest expense from new debt issued in 2019. This
is offset by an interest expense decrease in Renewables of $21 million due to
lower average debt balances in the current period.
Income Tax Expense
The effective tax rate, inclusive of federal and state income tax, for the nine
months ended September 30, 2019 is 18.3%, which is below the federal statutory
tax rate of 21%, primarily due to the recognition of production tax credits
associated with wind production and favorable discrete tax adjustments. The
effective tax rate, inclusive of federal and state income tax, for the nine
months ended September 30, 2018 was 21.0%, which is in line with the federal
statutory tax rate of 21% primarily due to the recognition of additional income
tax expense of $22.1 million resulting from the disposal of the Gas business, in
addition to other discrete tax adjustments recorded during the period, which
were partially offset by the recognition of production tax credits associated
with wind production.
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with
U.S. GAAP, we consider adjusted net income and adjusted earnings per share as
non-GAAP financial measures that are not prepared in accordance with U.S. GAAP.
The non-GAAP financial measures we use are specific to AVANGRID and the non-GAAP
financial measures of other companies may not be calculated in the same manner.
We use these non-GAAP financial measures, in addition to U.S. GAAP measures, to
establish operating budgets and operational goals to manage and monitor our
business, evaluate our operating and financial performance and to compare such
performance to prior periods and to the performance of our competitors. We
believe that presenting such non-GAAP financial measures is useful because such
measures can be used to analyze and compare profitability between companies and
industries by eliminating the impact of certain non-cash charges. In addition,
we present non-GAAP

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financial measures because we believe that they and other similar measures are
widely used by certain investors, securities analysts and other interested
parties as supplemental measures of performance.
We define adjusted net income as net income adjusted to exclude restructuring
charges, mark-to-market earnings from changes in the fair value of derivative
instruments used by AVANGRID to economically hedge market price fluctuations in
related underlying physical transactions for the purchase and sale of
electricity, loss from held for sale measurement, accelerated depreciation
derived from repowering of wind farms, income from release of collateral, impact
of the Tax Act and adjustments for the non-core Gas storage business. We believe
adjusted net income is more useful in understanding and evaluating actual and
projected financial performance and contribution of AVANGRID core lines of
business and to more fully compare and explain our results. The most directly
comparable U.S. GAAP measure to adjusted net income is net income. We also
define adjusted earnings per share, or adjusted EPS, as adjusted net income
converted to an earnings per share amount.
The use of non-GAAP financial measures is not intended to be considered in
isolation or as a substitute for, or superior to, AVANGRID'sU.S. GAAP financial
information, and investors are cautioned that the non-GAAP financial measures
are limited in their usefulness, may be unique to AVANGRID, and should be
considered only as a supplement to AVANGRID'sU.S. GAAP financial measures. The
non-GAAP financial measures may not be comparable to other similarly titled
measures of other companies and have limitations as analytical tools.
Non-GAAP financial measures are not primary measurements of our performance
under U.S. GAAP and should not be considered as alternatives to operating
income, net income or any other performance measures determined in accordance
with U.S. GAAP.
The following tables provide a reconciliation between Net Income attributable to
AVANGRID and Adjusted Net Income (non-GAAP) by segment for the three and nine
months ended September 30, 2019 and 2018, respectively:
                                          Three Months Ended September 30, 2019                         Nine Months Ended September 30, 2019
                                  Total          Networks      Renewables      Corporate*       Total        Networks        Renewables      Corporate*
                                                      (in millions)                                                 (in millions)
Net Income Attributable to
Avangrid, Inc.                 $     150$       88$      74$     (12 )$    477$    354$       152$     (29 )
Adjustments:
Mark-to-market earnings -
Renewables                           (42 )              -           (42 )             -           (66 )            -               (66 )            -
Restructuring charges                  2                2             -               -             4              2                 -              2
Accelerated depreciation
from repowering                        5                -             5               -            15              -                15              -
Income tax impact of
adjustments (1)                        9                -            10               -            12             (1 )              13              -
Adjusted Net Income (2)        $     123$       89$      46$     (12 )$    442$    355$       115$     (28 )


                                            Three Months Ended September 30, 2018                                         Nine Months Ended September 30, 2018
                           Total        Networks        Renewables       Corporate*      Gas Storage       Total        Networks      Renewables     Corporate*     Gas Storage
                                                        (in millions)                                                                 (in millions)
Net Income
Attributable to
Avangrid, Inc.          $    125$     96$       20       $         10     $       (1 )$   476$    375$     141$     (20 )$       (20 )
Adjustments:
Mark-to-market
earnings - Renewables         10              -               10                  -              -             9              -              9              -                -
Restructuring charges          1              1                -                  -              -             2              2              -              -                -
Loss from held for
sale measurement               1              -                -                  -              1            16              -              -              -               16
Income from release
of collateral -
Renewables                     7              -                7                  -              -             -              -              -              -                -
Impact of the Tax Act          -              -                -                  -              -             7              -              -              7                -
Income tax impact of
adjustments (1)               (5 )           (1 )             (5 )                -              -            11             (1 )           (2 )            -               14
Gas Storage, net of
tax                            -              -                -                  -              -           (10 )            -              -              -              (10 )
Adjusted Net Income
(2)                     $    139$     96$       33       $         10     $        -       $   511$    376$     147$     (13 )    $         -

(1) Income tax impact of adjustments: 2019 - $11.2 million and $17.2 million from

MtM earnings, $(0.5) million and $(1.0) million from restructuring charges,

$(1.3) million and $(3.9) million from accelerated depreciation for the three

and nine months ended September 30, 2019, respectively; 2018 - $(2.6) million

and $(2.3) million from MtM earnings, $(1.9) million and $0 from release of

collateral, $(0.3) and $(0.6) million from restructuring charges, $(0.1)

    million



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and $14.4 million from loss from held for sale measurement for the three and nine months ended September 30, 2018, respectively. (2) Adjusted Net Income is a non-GAAP financial measure and is presented after

excluding restructuring charges, loss from held for sale measurement,

accelerated depreciation derived from repowering of wind farms, the impact

from mark-to-market activities in Renewables, Gas storage business, income

from release of collateral and impact of the Tax Act.



* Includes corporate and other non-regulated entities as well as intersegment
eliminations.
Three Months Ended September 30, 2019 Compared to Three Months Ended
September 30, 2018
Adjusted net income
Our adjusted net income decreased by $15 million, or 11%, from $139 million for
the three months ended September 30, 2018 to $123 million for the three months
ended September 30, 2019. The decrease is primarily due to a $7 million decrease
in Networks driven by increased non-deferrable outage restoration and
pre-staging costs and a $22 million decrease in Corporate mainly driven by
higher interest expense, offset by a $14 million increase in Renewables driven
mainly by wind generation output increase and a gain from the sale of assets and
associated change in control during the period.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30,
2018
Adjusted net income
Our adjusted net income decreased by $68 million, or 13%, from $511 million for
the nine months ended September 30, 2018 to $442 million for the nine months
ended September 30, 2019. The decrease is primarily due to a $32 million
decrease in Renewables as a result of reduction in RECs, lower average prices
and increased costs resulting from headcount increases and higher maintenance
costs in the period, a $21 million decrease in Networks driven by increased
non-deferrable outage restoration and pre-staging costs and a $15 million
decrease in Corporate mainly driven by higher interest expense.
The following tables reconcile Net Income attributable to AVANGRID to Adjusted
Net Income (non-GAAP), and EPS attributable to AVANGRID to adjusted EPS
(non-GAAP) for the three and nine months ended September 30, 2019 and 2018,
respectively:
                                            Three Months Ended                 Nine Months Ended
                                               September 30,                     September 30,
(in millions)                              2019             2018             2019             2018
Networks                              $        88$        96$       354$       375
Renewables                                     74                20             152               141
Corporate (1)                                 (12 )              10             (29 )             (20 )
Gas Storage                                     -                (1 )             -               (20 )
Net Income                            $       150$       125$       477$       476
Adjustments:
Loss from held for sale measurement
(2)                                             -                 1               -                16
Mark-to-market earnings -
Renewables (3)                                (42 )              10             (66 )               9
Restructuring charges (4)                       2                 1               4                 2
Accelerated depreciation from
repowering (5)                                  5                 -              15                 -
Income from release of collateral -
Renewables (6)                                  -                 7               -                 -
Impact of the Tax Act (7)                       -                 -               -                 7
Income tax impact of adjustments                9                (5 )            12                11
Gas Storage, net of tax                         -                 -               -               (10 )
Adjusted Net Income (8)               $       123$       139$       442$       511



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                                            Three Months Ended               Nine Months Ended
                                              September 30,                    September 30,
                                           2019             2018            2019            2018
Networks                              $      0.28$     0.31$      1.14$     1.21
Renewables                                   0.24             0.06            0.49            0.45
Corporate (1)                               (0.04 )           0.03           (0.09 )         (0.06 )
Gas Storage                                     -                -               -           (0.06 )
Net Income                            $      0.48$     0.40$      1.54$     1.54
Adjustments:
Loss from held for sale measurement
(2)                                   $         -       $        -     $         -      $     0.05
Mark-to-market earnings -
Renewables (3)                              (0.14 )           0.03           (0.21 )          0.03
Restructuring charges (4)                    0.01                -            0.01               -
Accelerated depreciation from
repowering (5)                               0.02                -            0.05               -
Income from release of collateral -
Renewables (6)                                  -             0.02               -               -
Impact of the Tax Act (7)                       -                -               -            0.02
Income tax impact of adjustments             0.03            (0.02 )          0.04            0.04
Gas Storage, net of tax                         -                -               -           (0.03 )

Adjusted Earnings Per Share (8) $ 0.40$ 0.45 $

1.43 $ 1.65

(1) Includes corporate and other non-regulated entities as well as intersegment

eliminations.

(2) Represents loss from measurement of assets and liabilities held for sale in

connection with the committed plan to sell the gas trading and storage

businesses.

(3) Mark-to-market earnings relates to earnings impacts from changes in the fair

value of Renewables' derivative instruments associated with electricity and

natural gas.

(4) Restructuring and severance related charges relate to costs resulted from

restructuring actions involving initial targeted voluntary workforce

reductions and related costs in our plan to vacate a lease, predominantly

within the Networks segment and costs to implement an initiative to mitigate

costs and achieve sustainable growth.

(5) Represents the amount of accelerated depreciation derived from repowering of

wind farms in Renewables.

(6) Relates to cash collateral released in excess of outstanding receivables from

a bankruptcy proceeding with a Renewables customer regarding two power

purchase agreements.

(7) Represents the impact from measurement of deferred income tax balances as a

result of the Tax Act enacted by the U.S. federal government on December 22,

2017.

(8) Adjusted net income and adjusted earnings per share are non-GAAP financial

measures and are presented after excluding restructuring charges, loss from

held for sale measurement, accelerated depreciation derived from repowering

of a wind farm, the impact from mark-to-market activities in Renewables, Gas

storage business, income from release of collateral and impact of the Tax

Act.



Liquidity and Capital Resources
Our operations, capital investment and business development require significant
short-term liquidity and long-term capital resources. Historically, we have used
cash from operations and borrowings under our credit facilities and commercial
paper program as our primary sources of liquidity. Our long-term capital
requirements have been met primarily through retention of earnings and
borrowings in the investment grade debt capital markets. Continued access to
these sources of liquidity and capital are critical to us. Risks may increase
due to circumstances beyond our control, such as a general disruption of the
financial markets and adverse economic conditions.
We and our subsidiaries are required to comply with certain covenants in
connection with our respective loan agreements. The covenants are standard and
customary in financing agreements, and we and our subsidiaries were in
compliance with such covenants as of September 30, 2019.
Liquidity Position
At September 30, 2019 and December 31, 2018, available liquidity was
approximately $2,481 million and $2,447 million, respectively.
We manage our overall liquidity position as part of the group of companies
controlled by Iberdrola, or the Iberdrola Group, and are a party to a liquidity
agreement with Bank of America, N.A. along with certain members of the Iberdrola
Group. The liquidity agreement aids the Iberdrola Group in efficient cash
management and reduces the need for external borrowing by the pool participants.
Parties to the agreement, including us, may deposit funds with or borrow from
the financial institution, provided that the net balance of funds deposited or
borrowed by all pool participants in the aggregate is not less than zero. The
balance at September 30, 2019 was zero. Any deposit amounts would be reflected
on our condensed consolidated balance sheets under cash and cash equivalents
because our deposited surplus funds under the cash pooling agreement are
highly-liquid short-term

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investments. We also have a bi-lateral demand note agreement with a Canadian
affiliate of the Iberdrola Group under which we had notes payable balance
outstanding of $0 at September 30, 2019.
We optimize our liquidity within the United States through a series of
arms-length intercompany lending arrangements with our subsidiaries and among
the regulated utilities to provide for lending of surplus cash to subsidiaries
with liquidity needs, subject to the limitation that the regulated utilities may
not lend to unregulated affiliates. These arrangements minimize overall
short-term funding costs and maximize returns on the temporary cash investments
of the subsidiaries. We have the capacity to borrow up to $2.5 billion from the
lenders committed to the AVANGRID Credit Facility and $0.5 billion from an
Iberdrola Group Credit Facility, both of which are described below.
The following table provides the components of our liquidity position as of
September 30, 2019 and December 31, 2018, respectively:
                                   As of September 30,      As of December 31,
                                           2019                    2018
                                                  (in millions)
Cash and cash equivalents         $              103       $              36
AVANGRID Credit Facility                       2,500                   2,500
Iberdrola Group Credit Facility                  500                     500
Less: borrowings                                (622 )                  (589 )
Total                             $            2,481       $           2,447


AVANGRID Commercial Paper Program
AVANGRID has a commercial paper program with a limit of $2 billion that is
backstopped by the AVANGRID Credit Facility (described below). As of
September 30, 2019 and October 30, 2019, there was $622 million and $813 million
of commercial paper outstanding, respectively.
AVANGRID Credit Facility
AVANGRID and its subsidiaries, NYSEG, RG&E, CMP, UI, CNG, SCG and BGC have a
revolving credit facility with a syndicate of banks, or the AVANGRID Credit
Facility, that provides for maximum borrowings of up to $2.5 billion in the
aggregate.
Under the terms of the AVANGRID Credit Facility, each joint borrower has a
maximum borrowing entitlement, or sublimit, which can be periodically adjusted
to address specific short-term capital funding needs, subject to the maximum
limit contained in the agreement. AVANGRID's maximum sublimit is $2 billion,
NYSEG, RG&E, CMP and UI have maximum sublimits of $400 million, CNG and SCG have
maximum sublimits of $150 million and BGC has a maximum sublimit of $40 million.
Under the AVANGRID Credit Facility, each of the borrowers will pay an annual
facility fee that is dependent on their credit rating. As of September 30, 2019,
the facility fees range from 10.0 to 17.5 basis points. During 2019, we extended
the maturity date for the AVANGRID Credit Facility by one year to June 29, 2024.
Since the facility is a backstop to the AVANGRID commercial paper program, the
amounts available under the facility as of September 30, 2019 and October 30,
2019, were $1,878 million and $1,687 million, respectively.
Iberdrola Group Credit Facility
AVANGRID has a credit facility with Iberdrola Financiacion, S.A.U., a company of
the Iberdrola Group. The facility has a limit of $500 million and matures on
June 18, 2023. AVANGRID pays a facility fee of 10.5 basis points annually on the
facility. As of both September 30, 2019 and October 30, 2019, there was no
outstanding amount under this credit facility.
Capital Resources
On January 15, 2019, UI, CNG, SCG and BGC issued $195 million in aggregate
amount of notes/bonds with maturity dates ranging from 2029 to 2049 and interest
rates ranging from 4.07% to 4.52%.
On April 1, 2019, NYSEG issued $12 million of Indiana County Industrial
Development Authority Pollution Control Revenue Bonds in a private placement
maturing in 2024 with a 2.65% interest rate.
On May 16, 2019, we issued $750 million of senior unsecured notes maturing in
2029 at an interest rate of 3.80%.
On June 3, 2019, CMP issued $240 million aggregate principal amount of first
mortgage bonds with maturity dates ranging from 2026 to 2034 and interest rates
ranging from 3.87% to 4.20%.

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On August 27, 2019, RG&E issued $150 million aggregate principal amount of first
mortgage bonds maturing in 2027 at an interest rate of 3.10%.
On September 5, 2019, NYSEG issued $300 million aggregate principal amount of
senior unsecured notes maturing in 2049 at an interest rate of 3.30%.
Capital Requirements
We expect to fund our capital requirements, including, without limitation, any
quarterly shareholder dividends and capital investments primarily from the cash
provided by operations of our businesses and through the access to the capital
markets in the future. We have a revolving credit facility, as described above,
to fund short-term liquidity needs and we believe that we will have access to
the capital markets as long-term growth capital is needed.
We expect to incur approximately $630 million in capital expenditures through
the remainder of 2019.
Cash Flows
Our cash flows depend on many factors, including general economic conditions,
regulatory decisions, weather, commodity price movements and operating expense
and capital spending control.
The following is a summary of the cash flows by activity for the nine months
ended September 30, 2019 and 2018, respectively:
                                                                 Nine Months Ended
                                                                   September 30,
                                                                2019            2018
                                                                   (in millions)
Net cash provided by operating activities                  $      1,244$     1,317
Net cash used in investing activities                            (2,156 )        (1,033 )
Net cash provided by (used in) financing activities                 977            (290 )
Net increase (decrease) in cash, cash equivalents and
restricted cash                                            $         65     $        (6 )


Operating Activities
The cash from operating activities for the nine months ended September 30, 2019
compared to the nine months ended September 30, 2018 decreased by $73 million,
primarily attributable to higher operations and maintenance expenses in the
period.
Investing Activities
For the nine months ended September 30, 2019, net cash used in investing
activities was $2,156 million, which was comprised of $2,045 million of capital
expenditures and $164 million of other investments and equity method
investments, partially offset by $36 million of contributions in aid of
construction and $13 million of proceeds from the sale of assets.
For the nine months ended September 30, 2018, net cash used in investing
activities was $1,033 million, which was comprised of $1,173 million of capital
expenditures, partially offset by $132 million of proceeds from the sale of
assets and $36 million of contributions in aid of construction.
Financing Activities
For the nine months ended September 30, 2019, financing activities provided $977
million in cash reflecting primarily an issuance of notes/bonds with net
proceeds of $1,637 million, contributions from non-controlling interests of $133
million and a net decrease in non-current debt and current notes payable of $312
million, offset by distributions to non-controlling interests of $47 million,
payments on finance leases of $26 million and dividends of $408 million.
For the nine months ended September 30, 2018, financing activities used $290
million in cash reflecting primarily an issuance of Pollution Control Revenue
Bonds at NYSEG and RG&E with net proceeds of $324 million, contributions from
non-controlling interests of $219 million, partially offset by a net decrease in
non-current debt and current notes payable of $353 million, dividends of $401
million, distributions to non-controlling interests of $60 million and payments
on finance leases of $13 million.
Off-Balance Sheet Arrangements
There have been no material changes in the off-balance sheet arrangements during
the nine months ended September 30, 2019 as compared to those reported for the
fiscal year ended December 31, 2018 in our Form 10-K.

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Contractual Obligations
Upon adoption of ASC 842, certain land easements that we previously classified
as a lease do not meet the definition of a lease. As a result, our operating
lease obligations as of December 31, 2018 will be categorically separated
between operating leases and land easements. The new lease accounting standard
is discussed further in Notes 3 and 8 to our condensed consolidated financial
statements. These changes did not result in material changes to the quantitative
amounts of our contractual and contingent obligations during the nine months
ended September 30, 2019 as compared to those reported for the fiscal year ended
December 31, 2018 in our Form 10-K.
Critical Accounting Policies and Estimates
The accompanying financial statements provided herein have been prepared in
accordance with U.S. GAAP. In preparing the accompanying financial statements,
our management has applied accounting policies and made certain estimates and
assumptions that affect the reported amounts of assets, liabilities,
stockholders' equity, revenues and expenses and the disclosures thereof. While
we believe that these policies and estimates used are appropriate, actual future
events can and often do result in outcomes that can be materially different from
these estimates. The accounting policies and related risks described in our
Form 10-K are those that depend most heavily on these judgments and estimates.
As of September 30, 2019, the only notable changes to the significant accounting
policies described in our consolidated financial statements as of December 31,
2018 and 2017, and for the three years ended December 31, 2018, are with respect
to our adoption of the new accounting pronouncements described in the Note 3 of
our condensed consolidated financial statements for the nine months ended
September 30, 2019.
New Accounting Standards
We review new accounting standards to determine the expected financial impact,
if any, that the adoption of each such standard will have. As of September 30,
2019, the new accounting pronouncements that we have adopted as of January 1,
2019, and reflected in our condensed consolidated financial statements are
described in Note 3 of our condensed consolidated financial statements for the
nine months ended September 30, 2019. There have been no other material changes
to the significant accounting policies described in our consolidated financial
statements as of December 31, 2018 and 2017, and for the three years ended
December 31, 2018.

                                       66
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           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements. Forward-looking statements may be identified by the use of
forward-looking terms such as "may," "will," "should," "would," "could," "can,"
"expect(s)," "believe(s)," "anticipate(s)," "intend(s)," "plan(s),"
"estimate(s)," "project(s)," "assume(s)," "guide(s)," "target(s),"
"forecast(s)," " are (is) confident that" and "seek(s)" or the negative of such
terms or other variations on such terms or comparable terminology. Such
forward-looking statements include, but are not limited to, statements about our
plans, objectives and intentions, outlooks or expectations for earnings,
revenues, expenses or other future financial or business performance, strategies
or expectations, or the impact of legal or regulatory matters on business,
results of operations or financial condition of the business and other
statements that are not historical facts. Such statements are based upon the
current reasonable beliefs, expectations, and assumptions of our management and
are subject to significant risks and uncertainties that could cause actual
outcomes and results to differ materially. Important factors are discussed and
should be reviewed in our Form 10-K and other subsequent filings with the SEC.
Specifically, forward-looking statements include, without limitation:
•        the future financial performance, anticipated liquidity and capital
         expenditures;

• actions or inactions of local, state or federal regulatory agencies;

• success in retaining or recruiting our officers, key employees or directors;

• changes in levels or timing of capital expenditures;


•        adverse developments in general market, business, economic, labor,
         regulatory and political conditions;

• fluctuations in weather patterns;

• technological developments;

• the impact of any cyber breaches or other incidents, grid disturbances,

acts of war or terrorism or natural disasters;

• the impact of any change to applicable laws and regulations affecting

operations, including those relating to environmental and climate

change, taxes, price controls, regulatory approval and permitting;

• the implementation of changes in accounting standards; and

• other presently unknown unforeseen factors.



Should one or more of these risks or uncertainties materialize, or should any of
the underlying assumptions prove incorrect, actual results may vary in material
respects from those expressed or implied by these forward-looking statements.
You should not place undue reliance on these forward-looking statements. We do
not undertake any obligation to update or revise any forward-looking statements
to reflect events or circumstances after the date of this report, whether as a
result of new information, future events or otherwise, except as may be required
under applicable securities laws. Other risk factors are detailed from time to
time in our reports filed with the SEC, and we encourage you to consult such
disclosures.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risk during the nine months
ended September 30, 2019, as compared to those reported for the fiscal year
ended December 31, 2018 in our Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer, or CEO,
and our Chief Financial Officer, or CFO, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as
of the end of the period covered by this Quarterly Report on Form 10-Q. Based on
such evaluation, our CEO and CFO have concluded that as of such date, our
disclosure controls and procedures were effective.
Changes in Internal Control
There has been no change in our internal control over financial reporting
identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d)
of the Exchange Act during the period covered by this Quarterly Report on Form
10-Q that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints

                                       67
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and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

                                       68

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© Edgar Online, source Glimpses

Stocks mentioned in the article
ChangeLast1st jan.
AVANGRID, INC. -0.18% 49.69 Delayed Quote.-2.87%
IBERDROLA -4.18% 10.32 End-of-day quote.12.42%
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