AVANGRID, INC. 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 ofDecember 31, 2019 and 2018, and for the three years endedDecember 31, 2019 , included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSecurities and Exchange Commission , or theSEC , onMarch 2, 2020 , 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 theSEC . OverviewAVANGRID is a leading sustainable energy company with approximately$35 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 inNew York andNew England . Avangrid Renewables owns and operates 8.1 gigawatts of electricity capacity, primarily through wind power, with a presence in 22 states acrossthe United States .AVANGRID supports the achievement of theSustainable Development Goals approved by the member states of theUnited Nations , and was named among the World's Most Ethical companies in 2019 by theEthisphere Institute .AVANGRID employs approximately 6,600 people.Iberdrola S.A. , a corporation (sociedad anónima) organized under the laws of the Kingdom ofSpain , a worldwide leader in the energy industry, directly owns 81.5% of outstanding shares ofAVANGRID common stock.AVANGRID's primary business is ownership of its operating businesses, which are described below. Our direct, wholly-owned subsidiaries includeAvangrid Networks, Inc. , or Networks, andAvangrid Renewables Holdings, Inc. , or ARHI. ARHI in turn holds subsidiaries includingAvangrid 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 inNew York ,Maine ,Connecticut andMassachusetts , 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 ofJune 30, 2020 . Networks, aMaine 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 upstateNew York geographic area; •Rochester Gas and Electric Corporation, or RG&E, which serves electric and natural gas customers within a nine-county region in westernNew York , centered aroundRochester ; •The United Illuminating Company, or UI, which serves electric customers in southwesternConnecticut ; •Central Maine Power Company, or CMP, which serves electric customers in central and southernMaine ; •The Southern Connecticut Gas Company, or SCG, which serves natural gas customers inConnecticut ; •Connecticut Natural Gas Corporation, or CNG, which serves natural gas customers inConnecticut ; •The Berkshire Gas Company, or BGC, which serves natural gas customers in westernMassachusetts ; and •Maine Natural Gas Corporation, or MNG, which serves natural gas customers in several communities in central and southernMaine . Through Renewables, we had a combined wind, solar and thermal installed capacity of 8,102 megawatts, or MW, as ofJune 30, 2020 , including Renewables' share of joint projects, of which 7,337 MW was installed wind capacity. As ofJune 30, 2020 , approximately 70% of the capacity was contracted for an average period of 9.2 years, and 12% of installed capacity was hedged. Being among the top three largest wind operators inthe United States based on installed capacity as ofJune 30, 2020 , Renewables strives to lead the transformation of theU.S. energy industry to a sustainable, competitive, clean energy future. Renewables currently operates 62 wind farms and four solar facilities in 21 states acrossthe United States . 50 --------------------------------------------------------------------------------
COVID-19
The continued spread of the novel Coronavirus, or COVID-19, has led to global economic disruption and volatility in financial markets andthe United States economy.AVANGRID is one of the many companies providing essential services during this national emergency and we communicate regularly with federal and state authorities and industry resources to ensure a coordinated response. We have implemented business continuity and emergency response plans to continue to provide service to our customers and support our operational needs. We continue to monitor developments affecting both our workforce and our customers and will take precautions that we determine are necessary or appropriate. We regularly communicate with our customers regarding the tools and resources available and to help our customers stay informed during this public health crisis. In addition to measures to protect our workforce and critical operations, we have established a cross-functional task force to plan for a safe and effective return to office.AVANGRID is actively monitoring potential supply chain and transportation disruptions that could impact the Company's operations and will implement plans to address any such impacts on our business. This is a rapidly evolving situation that could lead to extended disruption of economic activity in our markets, which could adversely affect our business. Given the uncertain scope and duration of the COVID-19 outbreak and its potential effects on our business, we currently cannot predict if there will be a material impact to our business, results of operations or financial condition. For more information, see the risk factor under the heading "The outbreak of COVID-19 and its impact on business and economic conditions could negatively affect our business, results of operations or financial condition." in Item 1A. Risk Factors in this Form 10-Q. Summary of Results of Operations Our operating revenues decreased by 1%, from$1,400 million for the three months endedJune 30, 2019 to$1,392 million for the three months endedJune 30, 2020 . Networks business revenues increased mainly due to increased customer rates and pass-through to customers of increased purchased power and gas driven by higher commodity prices and volumes in the period. Renewables had a decrease in revenues mainly due to unfavorable mark to market, or MtM, changes on energy derivative transactions entered into for economic hedging purposes, offset by an increase in wind generation output from new capacity in the period. Net income attributable toAVANGRID decreased by 20% from$110 million for the three months endedJune 30, 2019 to$88 million for the three months endedJune 30, 2020 , primarily due to decreased revenue from Renewables in the period. Adjusted net income (a non-GAAP financial measure) decreased by 3% from$101 million for the three months endedJune 30, 2019 to$98 million for the three months endedJune 30, 2020 . The decrease is primarily due to a$34 million decrease in Renewables driven by unfavorable results from decreased pricing, higher depreciation, prior year positive asset sales and adjustments that did not recur and unfavorable income taxes (offset in Corporate), offset by a$16 million increase in Networks driven primarily by customer rate increases in the period and a$15 million increase in Corporate mainly driven by higher income tax benefits in the period (offset in Renewables). For additional information and reconciliation of the non-GAAP adjusted net income to net income attributable toAVANGRID , 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 endedDecember 31, 2019 . Customer Disconnections Due to the COVID-19 pandemic, all of our regulated utilities suspended customer disconnections duringMarch 2020 . InNew York , we had voluntarily suspended disconnections for non-payment. InJune 2020 , theNew York state legislature passed a bill stating moratoriums on residential customer disconnections shall remain in place until 180 days after the COVID-19 state of emergency inNew York is lifted, or until no later thanMarch 31, 2021 , whichever comes first. InConnecticut andMaine , disconnections for non-payment have been suspended per regulatory orders from PURA and the MPUC, respectively. 51 -------------------------------------------------------------------------------- NYSEG and RG&E Rate Cases OnMay 20, 2019 , NYSEG and RG&E filed rate cases with theNew York State Public Service Commission , or NYPSC, for new tariffs. OnMarch 23, 2020 , thePublic Utility Law Project (a party to the cases) submitted a letter motion requesting that the NYPSC administrative law judges assigned to preside over the rate cases require NYSEG and RG&E to pause settlement discussions and to provide new and accurate calculations based on the current and future expected economic impact of the COVID-19 pandemic. OnMarch 31, 2020 , NYSEG and RG&E, Multiple Intervenors (a party to the cases), and NYDPS staff each filed a response in opposition to the motion. OnApril 7, 2020 , the NYPSC administrative law judges issued aRuling Denying Public Utility Law Project's Motion, allowing settlement negotiations to continue. OnApril 22, 2020 , thePublic Utility Law Project andAARP filed an interlocutory appeal requesting that the NYPSC review the determination of the administrative law judges. We cannot predict the outcome of this proceeding. OnJune 22, 2020 , NYSEG and RG&E filed a joint proposal with the NYPSC for a new three-year rate plan. The proposed effective date of new tariffs isNovember 1, 2020 with a make-whole provision back toApril 17, 2020 . The proposed rates facilitate the companies' transition to a cleaner energy future while allowing for important initiatives such as COVID-19 relief for customers and additional funding for vegetation management, hardening/resiliency and emergency preparedness. The joint proposal bases delivery revenues on an 8.80% ROE and 48% equity ratio; however, for the proposed earnings sharing mechanism, the equity ratio is the lower of the actual equity ratio or 50%. The below table provides a summary of the proposed delivery rate increases and delivery rate percentages, including rate levelization and excluding energy efficiency, which is a pass through, for all four businesses: Year 1 Year 2 Year 3 Rate Increase Delivery Rate % Rate Increase Delivery Rate % Rate Increase Delivery Rate % Utility (Millions) Increase (Millions) Increase (Millions) Increase NYSEG Electric$ 34.7 4.6 %$ 71.51 9.1 %$ 79.4 9.1 % NYSEG Gas $ - - %$ 1.58 0.8 % $ 3.3 1.6 % RG&E Electric$ 10.7 2.4 %$ 22.92 5.2 %$ 25.4 5.2 % RG&E Gas $ - - % $ - - % $ 2.4 1.3 % The rate plans continue the RAM designed to return or collect certain defined reconciled revenues and costs, have new depreciation rates and continue the existing revenue decoupling mechanisms, or RDMs, for each business. Statements in support or opposition and reply statements were filed inJuly 2020 , and a final decision by the NYPSC is expected inOctober 2020 . We cannot predict the outcome of this proceeding. CMP Rate Case In an order issued onFebruary 19, 2020 , the MPUC authorized an increase in CMP's distribution revenue requirement of$17 million , or approximately 7%, based on an allowed ROE of 9.25% and a 50% equity ratio. The rate increase was effectiveMarch 1, 2020 . The MPUC also imposed a 1.00% ROE reduction (to 8.25%) for management efficiency associated with CMP's customer service performance following the implementation of its new billing system in 2017. The management efficiency adjustment will remain in effect until CMP has demonstrated satisfactory customer service performance on four specified service quality measures for a period of 18 consecutive months which commenced onMarch 1, 2020 . CMP is currently satisfying all four of these quality measures. The order provided additional funding for staffing increases, vegetation management programs and storm restoration costs, while retaining the basic tiered structure for storm cost recovery implemented in the 2014 stipulation. The MPUC order also retained the RDM implemented in 2014. The order denied CMP's request to increase rates for higher costs associated with services provided by its affiliates and instead initiated a management audit to assess the quality of these services as well as the impacts of theAVANGRID management structure on the quality of CMP's customer service. CMP Metering and Billing Investigation OnFebruary 19, 2020 , the MPUC issued an order in CMP's distribution rate case proceeding discussed above and onFebruary 24, 2020 issued an order in the metering and billing investigation. Each order reflected the MPUC's conclusion that CMP's Metering and Billing system is accurately reporting data, there is no systemic root cause for high usage complaints and errors related to CMP's metering and billing system are localized and random, not systemic. However, the MPUC orders imposed a reduction of 100 basis points in ROE, as a management efficiency adjustment, to address the MPUC Commissioners' concerns with CMP's customer service implementation and performance following the launch of its new billing system in 2017. 52 -------------------------------------------------------------------------------- The management efficiency adjustment will remain in effect until CMP has demonstrated satisfactory customer service performance on four specified service quality measures for a period of 18 consecutive months with measurement commencing onMarch 1, 2020 . OnApril 27, 2020 , the MPUC issued an order requiring that CMP pay for the costs of the metering, billing, and customer service practices audit, which were less than$1 million . CMP is currently satisfying all four of these quality measures. CMP Disconnection Notices Investigation OnJanuary 22, 2020 , the MPUC initiated an investigation into certain customer notices of CMP that reference service disconnection. The purpose of this investigation is (1) to determine whether CMP provided customers notices that violated Commission rules or that contained incorrect or misleading information and, (2) if it did, to order CMP to show cause why it should not be subject to administrative penalties for those violations. CMP has responded to data requests and party testimony was filed onMarch 2, 2020 . Hearings were suspended to allow for settlement discussions that began inMarch 2020 . OnApril 27, 2020 , CMP filed a proposed stipulation to resolve all issues in this proceeding and requested that the Hearing Examiner convene a settlement conference to discuss the proposed Stipulation. A settlement conference was held onApril 30, 2020 andMay 5, 2020 . A revised Stipulation was filed with the MPUC onMay 8, 2020 , and was deliberated and rejected by the MPUC onJune 2, 2020 , due to theOffice of the Public Advocate's lack of authority to perform the tasks required by the revised Stipulation. A written order rejecting the Stipulation was issued onJune 8, 2020 . A litigation schedule has been established with deliberations scheduled forAugust 4, 2020 . We cannot predict the outcome of this proceeding. CMP Revenue Decoupling Mechanism (RDM) Investigation OnJune 9, 2020 , the MPUC issued a Notice of Investigation to open an investigation into the effects of the COVID-19 pandemic on customers' electricity-usage patterns and whether CMP's RDM should be suspended for the annual distribution rate change that is expected to occur onJuly 1, 2021 , for electricity delivered in calendar year 2020. OnJune 24, 2020 , the MPUC issued a procedural order setting forth initial steps in this proceeding. OnJuly 21, 2020 , CMP filed testimony presenting electricity-usage data for its two RDM classes (residential and commercial/industrial) throughJune 2020 , along with testimony explaining the data and the reasons why the current RDM should remain in place without alteration. We cannot predict the outcome of this matter. CMP Annual Compliance Filing OnMarch 31, 2020 , CMP submitted its annual compliance filing in accordance with the Commission'sFebruary 19, 2020 decision inPublic Utilities Commission , Investigation into Rates and Revenue Requirements ofCentral Maine Power Company . In its filing, CMP proposed an overall increase in its distribution delivery revenues of$14.5 million , or 5.56% over current rates, effectiveJuly 1, 2020 . This increase is due primarily to storm costs, RDM and excess deferred income taxes. As a result of the COVID-19 pandemic, CMP's filing proposed cost recovery provisions designed to minimize the rate impacts on customers including, without limitation, an extended period for recovery of storm costs incurred in 2019. OnJune 18, 2020 , the MPUC approved a partial stipulation, which adopted CMP's proposal to recover 2019 major storm costs over a three-year period commencing onJuly 1, 2020 , but denied CMP's proposed recovery of costs related to its legacy billing system, which are less than$1 million . OnJune 18, 2020 , CMP made a compliance filing with revised tariffs, which was approved by the MPUC onJune 23, 2020 , and the new rates took effect onJuly 1, 2020 .New York State Department of Public Service Investigation of the Preparation for and Response to theMarch 2018 Winter Storms InMarch 2018 , following two severe winter storms that impacted more than one million electric utility customers inNew York , including 520,000 NYSEG and RG&E customers, the NYDPS commenced a comprehensive investigation of the preparation and response to those events byNew York's major electric utility companies. The investigation was expanded in the spring of 2018 to include other 2018 New York spring storm events. OnApril 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 (ERP). The report also identified potential violations by several of the utilities, including NYSEG and RG&E. Also onApril 18, 2019 , the NYPSC issued an Order Instituting Proceeding and to Show Cause directed to all major electric utilities inNew 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 penalties, 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 should mandate, reject or modify in whole or in part, the 94 recommendations contained in the 2018 Staff Report. OnMay 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 a series of extensions to respond to the portion of the Order to Show Cause with respect to why the Commission should not pursue a penalty action. A 53 -------------------------------------------------------------------------------- petition requesting Commission approval of a joint settlement agreement was filed with the Commission onDecember 17, 2019 . OnFebruary 6, 2020 , the Commission approved the joint settlement agreement, which allows the companies to avoid litigation and provides for payment by the companies of a$10.5 million penalty ($9.0 million by NYSEG and$1.5 million by RG&E). The proposed joint settlement provides for payment of these penalties as rate modifiers during the term of the proposed rate plans forNYSEG Electric andRG&E Electric , respectively. The company cannot predict the outcome of the rate cases and the provisions for payment of these penalties. NYPSC directs Counsel to commence Judicial Enforcement Proceeding against NYSEG OnApril 18, 2019 , the NYPSC issued an Order Directing Counsel to the Commission to commence a special proceeding or an action inNew York State Supreme Court to stop and prevent ongoing future violations by NYSEG of NYPSC regulations and orders. OnDecember 24, 2019 , the Commission filed a verified petition to commence the action against NYSEG. At the same time, NYSEG and the Commission settled the causes of action asserted in the verified petition and entered into a consent and stipulation and also submitted a joint motion to the court requesting that the court approve and enter a consent order and judgment reflecting the settlement. The consent order and judgment were issued by the court onJanuary 24, 2020 . 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$152 million and$153 million , respectively, for this item atJune 30, 2020 andDecember 31, 2019 . In 2017, audits of the power tax regulatory assets were commenced by the NYPSC and MPUC. OnJanuary 11, 2018 , the NYPSC issued an order opening an operations audit on NYSEG and RG&E and certain otherNew York utilities regarding tax accounting. The NYPSC audit report is expected to be completed during 2020. InJanuary 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. InSeptember 2019 , CMP filed a report in response to the audit report and addressed MPUC staff concerns. OnDecember 17, 2019 , CMP filed a stipulation with the MPUC providing for recovery of the Power Tax regulatory asset and adjusting the carrying costs values for the period ofJuly 1, 2017 throughJune 30, 2019 . The MPUC approved the stipulation onJanuary 21, 2020 and CMP will begin collecting the Power Tax Regulatory asset beginning inJuly 2020 over 32.5 years. New England Clean Energy Connect The New England Clean Energy Connect, or NECEC, transmission project includes a 145-mile transmission line linking the electrical grids inQuébec, Canada andNew England . The project, which has an estimated cost of approximately$950 million , would add 1,200 MW of transmission capacity to supplyNew England with power from reliable hydroelectric generation. OnMarch 13, 2020 , theFERC approved the transfer of jurisdictional facilities from CMP toNECEC Transmission LLC with regulatory approval from the MPUC expected in the third quarter of 2020. OnMay 11, 2020 , theMaine Department of Environmental Protection issued its final approval of the project. OnJuly 9, 2020 , ISO-NE issued its final approval.The Army Corps of Engineers permit is expected to be issued in the third quarter of 2020. In 2019, certain opponents of the NECEC began an effort to have a referendum ballot question to enact legislation (i.e., a Maine Citizens Initiative) entitled "Resolve, To Reject theNew England Clean Energy Transmission Project ," which, if passed byMaine voters, would require the MPUC to amend itsMay 3, 2019 "Order Granting Certificate of Public Convenience and Necessity and Approving Stipulation" and deny the certificate of public convenience and necessity for the NECEC transmission project (the NECEC Referendum). OnMarch 4, 2020 , theMaine Secretary of State qualified the NECEC Referendum for the ballot in theNovember 3, 2020 general election inMaine . A challenge of the Secretary of State's determination that the NECEC Referendum qualified for the ballot was filed in theMaine Superior Court onMarch 13, 2020 , alleging that the proponents violatedMaine's signature gathering laws.The Superior Court upheld theMaine Secretary of State's determination and the matter was appealed to the Maine Supreme Judicial Court. OnMay 13, 2020 , the Maine Supreme Judicial Court upheld theSuperior Court's ruling. OnMay 13, 2020 , Networks filed a constitutional challenge for injunctive relief to prevent the NECEC Referendum from being included on the ballot in theMaine November 3, 2020 general election. OnJune 29, 2020 , theSuperior Court denied Networks request for an injunction. OnJuly 1, 2020 , an appeal of the denial of the constitutional 54 -------------------------------------------------------------------------------- challenge was filed with the Maine Supreme Judicial Court. We cannot predict the outcome of this proceeding and, if submitted toMaine voters, the NECEC Referendum. Construction could begin as early as the third quarter of 2020 following issuance of theArmy Corps of Engineers permit, if we are successful in our constitutional challenge. Results of Operations The following tables set forth financial information by segment for each of the periods indicated: Three Months Ended Three Months Ended June 30, 2020 June 30, 2019 Total Networks Renewables Other(1) Total Networks Renewables Other(1) (in millions)
Operating Revenues$ 1,392 $ 1,121 $ 272 $ (1) $ 1,400 $ 1,093 $ 307 $ - Operating Expenses Purchased power, natural gas and fuel used 265 207 58 - 259 197 62 - Operations and maintenance 584 486 102 (4) 573 478 97 (2) Depreciation and amortization 242 147 94 1 222 135 87 - Taxes other than income taxes 146 133 14 (1) 139 128 12 (1) Total Operating Expenses 1,237 973 268 (4) 1,193 938 258 (3) Operating Income 155 148 4 3 207 155 49 3 Other Income (Expense) Other income (expense) 2 2 (1) 1 2 1 5 (4) Earnings (losses) from equity method investments 2 3 (1) - 1 2 (1) - Interest expense, net of capitalization (89) (68) 1 (22) (76) (66) (2) (7) Income (Loss) Before Income Tax 70 85 3 (18) 134 92 51 (8) Income tax (benefit) expense (6) 12 (16) (2) 29 25 (18) 22 Net Income (Loss) 76 73 19 (16) 105 67 69 (30) Net loss (income) attributable to noncontrolling interests 12 - 12 - 5 (1) 6 - Net Income (Loss) Attributable to Avangrid, Inc.$ 88 $ 73 $ 31 $ (16) $ 110 $ 66 $ 75 $ (30) 55
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Six Months Ended Six Months Ended
June 30, 2020 June 30, 2019
Total Networks Renewables Other(1) Total Networks Renewables Other(1)
(in millions)
Operating Revenues $ 3,181 $ 2,582 $ 600 $ (1) $ 3,242 $ 2,697 $ 549 $ (4)
Operating Expenses
Purchased power, natural gas
and fuel used 740 601 139 - 822 723 99 -
Operations and maintenance 1,154 952 211 (9) 1,126 946 184 (4)
Depreciation and amortization 493 295 197 1 444 269 175 -
Taxes other than income taxes 312 277 36 (1) 302 273 29 -
Total Operating Expenses 2,699 2,125 583 (9) 2,694 2,211 487 (4)
Operating Income 482 457 17 8 548 486 62 -
Other Income (Expense)
Other (expense) income (1) - 5 (6) (5) - 2 (7)
Losses (earnings) from equity
method investments (4) 5 (9) - 2 5 (3) -
Interest expense, net of
capitalization (165) (136) - (29) (154) (135) (7) (12)
Income (Loss) Before Income Tax 312 326 13 (27) 391 356 54 (19)
Income tax expense (benefit) 6 55 (46) (3) 70 89 (17) (2)
Net Income (Loss) 306 271 59 (24) 321 267 71 (17)
Net loss (income) attributable
to noncontrolling interests 22 (1) 23 - 6 (1) 7 -
Net Income (Loss) Attributable
to Avangrid, Inc. $ 328 $ 270 $ 82 $ (24) $ 327 $ 266 $ 78 $ (17)
(1)"Other" represents Corporate and intersegment eliminations.
Comparison of Period to Period Results of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Operating Revenues
Our operating revenues decreased by $8 million , or 1%, from $1,400 million for
the three months ended June 30, 2019 to $1,392 million for the three months
ended June 30, 2020 , as detailed by segment below:
Networks
Operating revenues increased by $28 million , or 3%, from $1,093 million for the
three months ended June 30, 2019 to $1,121 million for the three months ended
June 30, 2020 . Electricity and gas revenues increased by $7 million , primarily
due to the impact of increased customer rates in the three months ended June 30,
2020 compared to the same period of 2019, increased by $7 million from
unfavorable earnings sharing and net plant reconciliation recorded in the second
quarter of 2019, increased by $3 million due to regional network services
revenue offset by a $1 million decrease due to other. Electricity and gas
revenues changed due to the following items that have offsets within the income
statement: an increase of $9 million in purchased power and purchased gas
(offset in purchased power) and an increase of $3 million in flow through
amortizations (which are offset in operating expenses).
Renewables
Operating revenues decreased by $35 million , or 11%, from $307 million for the
three months ended June 30, 2019 to $272 million for the three months ended
June 30, 2020 . The decrease in operating revenues was primarily due to
unfavorable mark to market, or MtM, changes of $40 million on energy derivative
transactions entered into for economic hedging purposes, a decrease of $5
million in merchant pricing, a $3 million decrease in thermal revenue driven by
lower volumes and average prices in the period and an $8 million decrease in
other revenues, offset by an increase of $21 million driven by wind generation
output increase of 400 GWh from new capacity in the current period.
Purchased Power , Natural Gas and Fuel Used
Our purchased power, natural gas and fuel used increased by $6 million , or 2%,
from $259 million for the three months ended June 30, 2019 to $265 million for
the three months ended June 30, 2020 , as detailed by segment below:
56
--------------------------------------------------------------------------------Networks
Purchased power, natural gas and fuel used increased by$10 million , or 5%, from$197 million for the three months endedJune 30, 2019 to$207 million for the three months endedJune 30, 2020 . The increase is primarily driven by a$9 million increase in average commodity prices and an overall decrease in electricity and gas units procured due to an increase in degree days along with a$1 million increase in other power supply purchases in the period. Renewables Purchased power, natural gas and fuel used decreased by$4 million , or 6%, from$62 million for the three months endedJune 30, 2019 to$58 million for the three months endedJune 30, 2020 . The decrease is primarily driven by favorable MtM changes on derivatives of$18 million due to market price changes in the period and a decrease of$1 million in thermal purchases driven by the decrease in volume and unit cost in the period, offset by an increase of$15 million in power purchases in the current period. Operations and Maintenance Our operations and maintenance increased by$11 million , or 2%, from$573 million for the three months endedJune 30, 2019 to$584 million for the three months endedJune 30, 2020 , as detailed by segment below: Networks Operations and maintenance increased by$8 million , or 2%, from$478 million for the three months endedJune 30, 2019 to$486 million for the three months endedJune 30, 2020 . The increase is driven by a$5 million increase in uncollectible expenses, a$3 million increase due to additional cleaning and personal protective equipment resulting from COVID-19,$3 million increase in regional network services expenses, and an increase of$3 million in flow through amortizations (which is offset in revenue). These were offset by a$6 million decrease in medical expenses. Renewables Operations and maintenance expenses increased by$5 million , or 5%, from$97 million for the three months endedJune 30, 2019 to$102 million for the three months endedJune 30, 2020 . The increase is primarily due to$4 million of increased costs resulting from higher personnel and operations costs, which are primarily attributed to new capacity. Depreciation and Amortization Depreciation and amortization for the three months endedJune 30, 2020 was$242 million compared to$222 million for the three months endedJune 30, 2019 , representing an increase of$20 million . The increase is primarily due to an increase of$26 million in depreciation expense from plant additions in Networks and Renewables in the period, offset by a$7 million decrease of accelerated depreciation from the repowering of wind farms in Renewables. Other Income (Expense) and Earnings (Losses) from Equity Method Investments Other income (expense) and equity earnings (losses) increased by$1 million from$3 million for the three months endedJune 30, 2019 to$4 million for the three months endedJune 30, 2020 . The increase is primarily due to a$2 million favorable change in allowance for funds used during construction in Networks,$2 million of interest income in Renewables,$1 million of favorable equity earnings in the current period, offset by a$5 million gain from the sale of assets recorded in the same period of 2019. Interest Expense, Net of Capitalization Interest expense for the three months endedJune 30, 2020 and 2019 was$89 million and$76 million , respectively. Networks decreased$2 million from carrying costs on regulatory deferrals in the current period. Other added$11 million of interest expense from new debt issued in 2020 and 2019. This is offset by an interest expense decrease in Renewables of$4 million primarily driven by higher capitalized interest in the current period. Income Tax Expense The effective tax rate, inclusive of federal and state income tax, for the three months endedJune 30, 2020 , was (8.6)%, which is lower than the federal statutory tax rate of 21%, primarily due to the recognition of production tax credits associated with wind production and the effect of the excess deferred tax amortization resulting from the Tax Act. The effective tax rate, inclusive of federal and state income tax, for the three months endedJune 30, 2019 was 21.6%, which is higher than the federal statutory tax rate of 21% primarily due to unfavorable discrete income tax adjustments recorded in the period, partially offset by production tax credits associated with wind production. 57 -------------------------------------------------------------------------------- Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 Operating Revenues Our operating revenues decreased by$61 million , or 2%, from$3,242 million for the six months endedJune 30, 2019 to$3,181 million for the six months endedJune 30, 2020 , as detailed by segment below: Networks Operating revenues decreased by$115 million , or 4%, from$2,697 million for the six months endedJune 30, 2019 to$2,582 million for the six months endedJune 30, 2020 . Electricity and gas revenues increased by$11 million , primarily due to the impact of increased customer rates in the six months endedJune 30, 2020 compared to the same period of 2019, increased by$7 million from unfavorable earnings sharing and net plant reconciliation recorded in the second quarter of 2019, increased by$3 million due to regional network services revenue and$2 million increase due to other. These were offset by a decrease of$10 million from a pension deferral write-off, and a$4 million decrease due to an electric reliability penalty. Electricity and gas revenues changed due to the following items that have offsets within the income statement: a decrease of$123 million in purchased power and purchased gas (offset in purchased power) offset by an increase of$3 million in flow through amortizations (which are offset in operating expenses). Renewables Operating revenues increased by$51 million , or 9%, from$549 million for the six months endedJune 30, 2019 , to$600 million for the six months endedJune 30, 2020 . The increase in operating revenues was primarily due to an increase of$88 million with wind generation output increasing 1,870 GWh from existing and new capacity in the current period and favorable MtM changes of$21 million on energy derivative transactions entered into for economic hedging purposes, offset by a decrease of$16 million in merchant pricing, a$35 million decrease in thermal revenue driven by lower volumes and average prices in the period 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$82 million , or 10%, from$822 million for the six months endedJune 30, 2019 to$740 million for the six months endedJune 30, 2020 , as detailed by segment below: Networks Purchased power, natural gas and fuel used decreased by$122 million , or 17%, from$723 million for the six months endedJune 30, 2019 to$601 million for the six months endedJune 30, 2020 . The decrease is primarily driven by a$123 million decrease in average commodity prices and an overall decrease in electricity and gas units procured due to a decline in degree days, offset by a$1 million increase in other power supply purchases in the period. Renewables Purchased power, natural gas and fuel used increased by$40 million , or 40%, from$99 million for the six months endedJune 30, 2019 to$139 million for the six months endedJune 30, 2020 . The increase is primarily driven by an increase of$23 million in power purchases,$4 million in RECs and unfavorable MtM changes on derivatives of$28 million due to market price changes in the period, offset by a decrease of$15 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$28 million , or 2%, from$1,126 million for the six months endedJune 30, 2019 to$1,154 million for the six months endedJune 30, 2020 , as detailed by segment below: Networks Operations and maintenance increased by$6 million , or 1%, from$946 million for the six months endedJune 30, 2019 to$952 million for the six months endedJune 30, 2020 . The increase is driven by$1 million in outage restoration costs, a$5 million increase in uncollectible expenses, a$3 million increase due to additional cleaning and personal protective equipment resulting from COVID-19, a$3 million increase in regional network services expenses, an increase of$3 million in flow through amortizations (which is offset in revenue) and a$2 million increase in other. These were offset by a decrease of$5 million in unfavorable write-off of deferred storm costs in the six months endedJune 30, 2019 , which did not recur in 2020 and a$6 million decrease in medical expenses. 58 --------------------------------------------------------------------------------
Renewables
Operations and maintenance expenses increased by$27 million , or 15%, from$184 million for the six months endedJune 30, 2019 to$211 million for the six months endedJune 30, 2020 . The increase is primarily due to$25 million of increased costs resulting from higher personnel and maintenance costs which are primarily attributed to operations of new capacity. Additionally, operations and maintenance expense increased by$10 million driven by an asset retirement obligation adjustment in the same period of 2019, offset by$3 million decrease due to a favorable provision release in the six months endedJune 30, 2020 , and$4 million in other expenses. Depreciation and Amortization Depreciation and amortization for the six months endedJune 30, 2020 was$493 million compared to$444 million for the six months endedJune 30, 2019 , an increase of$49 million . The increase is driven by$50 million from plant additions in Networks and Renewables in the period, offset by a$3 million decrease of accelerated depreciation from the repowering of wind farms in Renewables. Other Income (Expense) and Earnings (Losses) from Equity Method Investments Other income (expense) and equity earnings (losses) decreased by$2 million from$(3) million for the six months endedJune 30, 2019 to$(5) million for the six months endedJune 30, 2020 . The change is primarily due to$6 million of unfavorable equity earnings in the current period, offset by a$2 million favorable change in allowance for funds used during construction in Networks and$2 million of other. Interest Expense, Net of Capitalization Interest expense for the six months endedJune 30, 2020 and 2019 was$165 million and$154 million , respectively. Networks had a$1 million increase in interest expense from higher average debt balances in the current period. Other added$18 million of interest expense primarily from new debt issued in 2020 and 2019. This is offset by interest expense decrease in Renewables of$8 million primarily driven by higher capitalized interest in the current period. Income Tax Expense The effective tax rate, inclusive of federal and state income tax, for the six months endedJune 30, 2020 was 1.9%, which is below the federal statutory tax rate of 21%, primarily due to the recognition of production tax credits associated with wind production and the effect of the excess deferred tax amortization resulting from the Tax Act. The effective tax rate, inclusive of federal and state income tax, for the six months endedJune 30, 2019 was 17.9%, which is below the federal statutory tax rate of 21% primarily due to the recognition of production tax credits associated with wind production. Non-GAAP Financial Measures To supplement our consolidated financial statements presented in accordance withU.S. GAAP, we consider adjusted net income and adjusted earnings per share as non-GAAP financial measures that are not prepared in accordance withU.S. GAAP. The non-GAAP financial measures we use are specific toAVANGRID 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 toU.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 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 byAVANGRID to economically hedge market price fluctuations in related underlying physical transactions for the purchase and sale of electricity, accelerated depreciation derived from repowering of wind farms and costs incurred in connection with the COVID-19 pandemic. We believe adjusted net income is more useful in understanding and evaluating actual and projected financial performance and contribution ofAVANGRID core lines of business and to more fully compare and explain our results. The most directly comparableU.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's U.S. GAAP financial information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness, may be unique toAVANGRID , and should be considered only as a supplement toAVANGRID's 59 --------------------------------------------------------------------------------U.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 underU.S. GAAP and should not be considered as alternatives to operating income, net income or any other performance measures determined in accordance withU.S. GAAP. The following tables provide a reconciliation between Net Income attributable toAVANGRID and Adjusted Net Income (non-GAAP) by segment for the three and six months endedJune 30, 2020 and 2019, respectively: Three Months EndedJune 30, 2020 Six Months Ended June 30, 2020 Total Networks Renewables Corporate* Total Networks Renewables Corporate* (in millions) (in millions) Net Income Attributable to Avangrid, Inc.$ 88 $ 73 $ 31 $ (15) $ 328 $ 270 $ 82 $ (24)
Adjustments:
Mark-to-market earnings - Renewables 2 - 2 - (16) - (16) - Restructuring charges 1 1 - - 4 2 1 - Accelerated depreciation from repowering (4) - (4) - 6 - 6 - Impact of COVID-19 13 11 - 2 13 11 - 2 Income tax impact of adjustments (1) (3) (3) - - (2) (4) 2 - Adjusted Net Income (2)$ 98 $ 82 $ 30 $ (14) $ 334 $ 280 $ 76 $ (22) Three Months EndedJune 30, 2019 Six Months Ended June 30, 2019 Total Networks Renewables Corporate* Total Networks Renewables Corporate* (in millions) (in millions) Net Income Attributable to Avangrid, Inc.$ 110 $ 66 $ 75 $ (30) $ 327 $ 266 $ 78 $ (17)
Adjustments:
Mark-to-market earnings - Renewables (20) - (20) - (23) - (23) - Restructuring charges 2 - - 2 2 - - 2 Accelerated depreciation from repowering 5 - 5 - 10 - 10 - Income tax impact of adjustments (1) 3 - 4 - 3 - 3 - Adjusted Net Income (2)$ 101 $ 66 $ 64 $ (29) $ 319 $ 267 $ 69 $ (16) (1)Income tax impact of adjustments: 2020 -$(1) million and$4 million from MtM earnings,$0 and$(1) million from restructuring charges, and$1 million and$(2) million from accelerated depreciation from repowering,$(3) million and$(3) million for the three and six months endedJune 30, 2020 , respectively; 2019 -$5 million and$6 million from MtM earnings,$(1) and$(1) from restructuring charges and$(1) million and($2) million from accelerated depreciation from repowering for the three and six months endedJune 30, 2019 , respectively. (2)Adjusted Net Income is a non-GAAP financial measure and is presented after excluding restructuring charges, accelerated depreciation derived from repowering of wind farms, costs incurred in connection with the COVID-19 pandemic and the impact from mark-to-market activities in Renewables. * Includes corporate and other non-regulated entities as well as intersegment eliminations. Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 Adjusted net income Our adjusted net income decreased by$3 million , or 3%, from$101 million for the three months endedJune 30, 2019 to$98 million for the three months endedJune 30, 2020 . The decrease is primarily due to a$34 million decrease in Renewables driven by unfavorable results from decreased pricing, higher depreciation, prior year positive asset sales and adjustments that did not recur and unfavorable income taxes (offset in Corporate), offset by a$16 million increase in Networks driven primarily by customer rate increases in the period and a$15 million increase in Corporate mainly driven by higher income tax benefits in the period (offset in Renewables). Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 Adjusted net income Our adjusted net income increased by$15 million , or 5%, from$319 million for the six months endedJune 30, 2019 to$334 million for the six months endedJune 30, 2020 . The increase is primarily due to a$13 million increase in Networks driven primarily by customer rate increases in the period,$7 million increase in Renewables as a result of increase in production and income tax benefits in the period, offset by$6 million decrease in Corporate mainly driven by higher interest expenses in the period. 60 -------------------------------------------------------------------------------- The following tables reconcile Net Income attributable toAVANGRID to Adjusted Net Income (non-GAAP), and EPS attributable toAVANGRID to adjusted EPS (non-GAAP) for the three and six months endedJune 30, 2020 and 2019, respectively: Three Months Ended Six Months Ended June 30, June 30, (in millions) 2020 2019 2020 2019 Networks$ 73 $ 66 $ 270 $ 266 Renewables 31 75 82 78 Corporate (1) (15) (30) (24) (17) Net Income$ 88 $ 110 $ 328 $ 327 Adjustments: Mark-to-market earnings - Renewables (2) 2 (20) (16) (23) Restructuring charges (3) 1 2 4 2 Accelerated depreciation from repowering (4) (4) 5 6 10 Impact of COVID-19 (5) 13 - 13 - Income tax impact of adjustments (3) 3 (2) 3 Adjusted Net Income (6)$ 98 $ 101 $ 334 $ 319 Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Networks$ 0.24 $ 0.21 $ 0.87 $ 0.86 Renewables 0.10 0.24 0.27 0.25 Corporate (1) (0.05) (0.10) (0.08) (0.06) Net Income$ 0.28
0.01 (0.06) (0.05) (0.07)
Restructuring charges (3) - 0.01 0.01 0.01
Accelerated depreciation from repowering (4) (0.01) 0.02 0.02 0.03
Impact of COVID-19 (5) 0.04 - 0.04 -
Income tax impact of adjustments (0.01) 0.01 (0.01) 0.01
Adjusted Earnings Per Share (6) $ 0.32 (1)Includes corporate and other non-regulated entities as well as intersegment eliminations. (2)Mark-to-market earnings relates to earnings impacts from changes in the fair value of Renewables' derivative instruments associated with electricity and natural gas. (3)Restructuring and severance related charges relate to costs to implement an initiative to mitigate costs and achieve sustainable growth. (4)Represents the amount of accelerated depreciation derived from repowering of wind farms in Renewables. (5)Represents costs incurred in connection with the COVID-19 pandemic. (6)Adjusted net income and adjusted earnings per share are non-GAAP financial measures and are presented after excluding restructuring charges, accelerated depreciation derived from repowering of wind farms, costs incurred in connection with the COVID-19 pandemic and the impact from mark-to-market activities in Renewables. 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 ofJune 30, 2020 . 61 -------------------------------------------------------------------------------- Liquidity Position We manage our overall liquidity position as part of the group of companies controlled byIberdrola , or theIberdrola Group , and are a party to a liquidity agreement withBank of America, N.A . along with certain members of theIberdrola Group . The liquidity agreement aids theIberdrola 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 was$0 and$150 million as ofJune 30, 2020 andDecember 31, 2019 , respectively. Any deposit amounts are 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 investments. We optimize our liquidity withinthe 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,$500 million from the lenders committed to the 2020 Credit Facility and$500 million from anIberdrola Group Credit Facility, each of which are described below. The following table provides the components of our liquidity position as ofJune 30, 2020 andDecember 31, 2019 , respectively: As of June 30, As of December 31, 2020 2019 (in millions) Cash and cash equivalents $ 46 $
178
AVANGRID Credit Facility 2,500 2,500
2020 Credit Facility 500 -
Iberdrola Group Credit Facility 500 500
Less: borrowings (619) (562)
Total $ 2,927 $ 2,616
AVANGRID Commercial Paper Program
AVANGRID has a commercial paper program with a limit of $2 billion that is
backstopped by the AVANGRID Credit Facility and the 2020 Credit Facility
(described below). As of June 30, 2020 and July 30, 2020 , there was $619 million
and $791 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. On June 29, 2020 , we entered into an amendment
to the AVANGRID Credit Facility which reduced AVANGRID's maximum sublimit from
$2.0 billion to $1.5 billion and added minimum sublimits for each joint borrower
other than AVANGRID . Under the AVANGRID Credit Facility, each of the borrowers
will pay an annual facility fee that is dependent on their credit rating. As of
June 30, 2020 , the facility fees ranged from 10.0 to 17.5 basis points. The
AVANGRID Credit Facility matures on June 29, 2024 . As of both June 30, 2020 and
July 30, 2020 , we had no borrowings under the facility.
2020 Credit Facility
On June 29, 2020 , we entered into a revolving credit agreement with several
lenders, or the 2020 Credit Facility, that provides maximum borrowings up to
$500 million . We will pay an annual facility fee, which ranges from 15 to 30
basis points, dependent on AVANGRID's credit rating. As of June 30, 2020 , the
facility fee is 20 basis points. The 2020 Credit Facility matures on June 28,
2021 . We have the right to extend, and the banks are obligated to extend, the
commitments and loans outstanding under the facility for one year at a cost of
75 basis points. We may also request an extension of the facility for one
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year, which the banks may grant at their discretion for a fee that will be
determined at the time of the request. As of both June 30, 2020 and July 30,
2020 , there were no borrowings outstanding under this credit facility.
Since our credit facilities are also a backstop to the AVANGRID commercial paper
program, the total amounts available under the facilities as of June 30, 2020
and July 30, 2020 , were $2,381 million and $2,209 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. As of
both June 30, 2020 and July 30, 2020 , there was no outstanding amount under this
credit facility.
Capital Resources
On April 9, 2020 , AGR issued $750 million aggregate principal amount of
unsecured notes maturing in 2025 at a fixed interest rate of 3.20%.
On May 1, 2020 , NYSEG remarketed $200 million aggregate Pollution Control bonds
with maturity dates ranging from 2026 to 2029 at fixed interest rates of 1.40%
to 1.61%. The remarketing was a non-cash transaction to reset the interest
rates.
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 continue to have
access to the capital markets as long-term growth capital is needed. To date,
the Company has not experienced limitations in our ability to access these
sources of liquidity in connection with the economic recession triggered by the
COVID-19 pandemic. While taking into consideration the current economic
environment, management expects that we will continue to have sufficient
liquidity and financial flexibility to meet our business requirements.
We expect to incur approximately $1.4 billion in capital expenditures through
the remainder of 2020.
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 six months
ended June 30, 2020 and 2019, respectively:
Six Months Ended
June 30,
2020 2019
(in millions)
Net cash provided by operating activities $ 884 $ 817
Net cash used in investing activities (1,352) (1,452)
Net cash provided by financing activities 335 764
Net (decrease) increase in cash, cash equivalents and restricted
cash $ (133) $ 129
Operating Activities
The cash from operating activities for the six months ended June 30, 2020
compared to the six months ended June 30, 2019 increased by $67 million ,
primarily attributable to lower purchased power, natural gas and fuel used in
the period.
Investing Activities
For the six months ended June 30, 2020 , net cash used in investing activities
was $1,352 million , which was comprised of $1,345 million of capital
expenditures and $37 million of other investments and equity method investments,
partially offset by $19 million of contributions in aid of construction and $8
million of proceeds from the sale of assets.
For the six months ended June 30, 2019 , net cash used in investing activities
was $1,452 million , which was comprised of $1,337 million of capital
expenditures and other investments and equity method investments of $143
million , partially offset by $21 million of contributions in aid of construction
and $5 million of cash distributions from equity method investments.
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Financing Activities
For the six months ended June 30, 2020 , financing activities provided $335
million in cash reflecting primarily a contribution from non-controlling
interests of $312 million and a net increase in non-current debt and current
notes payable of $308 million , offset by distributions to non-controlling
interests of $4 million , payments on finance leases of $6 million and dividends
of $272 million .
For the six months ended June 30, 2019 , financing activities provided $764
million in cash reflecting primarily an issuance of notes/bonds with net
proceeds of $1,188 million , contributions from non-controlling interests of $131
million and a net decrease in non-current debt and current notes payable of $248
million , offset by distributions to non-controlling interests of $10 million ,
payments on capital leases of $25 million and dividends of $272 million .
Off-Balance Sheet Arrangements
There have been no material changes in our off-balance sheet arrangements during
the six months ended June 30, 2020 as compared to those reported for the fiscal
year ended December 31, 2019 in our Form 10-K.
Contractual Obligations
There have been no material changes in contractual and contingent obligations
during the six months ended June 30, 2020 as compared to those reported for the
fiscal year ended December 31, 2019 in our Form 10-K.
In 2019, DEEP selected Vineyard Wind to provide 804 MW of offshore wind through
the development of its Park City Wind Project . Pursuant to a joint bidding
agreement between Renewables and CIP, CIP holds a right to sell all or a portion
of its 50% ownership interest to Renewables for up to $70 million , subject to
certain conditions. CIP also holds a right to repurchase its previously held
interest in Park City Wind at a later date, if they exercise their right to
sell, at a pre-determined price.
Critical Accounting Policies and Estimates
The accompanying condensed consolidated financial statements provided herein
have been prepared in accordance with U.S. GAAP. In preparing the accompanying
condensed consolidated 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. 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 June 30, 2020 , we continue to utilize information
reasonably available to us; however, the business and economic uncertainty
resulting from COVID-19 has made such estimates and assumptions more difficult
to assess and calculate. Impacted estimates include, but are not limited to,
evaluations of certain long-lived assets and goodwill for impairment, expected
credit losses and potential regulatory deferral or recovery of certain costs.
While there were no material impacts from COVID-19 on financial results, actual
results could differ from those estimates which could result in material impacts
to our consolidated financial statements in future reporting periods. The other
notable changes to the significant accounting policies described in our Form
10-K for the fiscal year ending December 31, 2019 , are with respect to our
adoption of the new accounting pronouncements described in the Note 3 of our
condensed consolidated financial statements for the six months ended June 30,
2020 .
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. The new accounting
pronouncements that we have adopted as of January 1, 2020 , and reflected in our
condensed consolidated financial statements are described in Note 3 of our
condensed consolidated financial statements for the six months ended June 30,
2020 . There have been no other material changes to the significant accounting
policies described in our Form 10-K for the fiscal year ended December 31, 2019 ,
except for those described in Note 3 resulting from the adoption of new
authoritative accounting guidance issued by FASB.
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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, civil or social unrest, natural disasters or pandemic health
events or other similar occurrences;
•the impact of any change to applicable laws and regulations affecting
operations, including those relating to the environment 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 six months
ended June 30, 2020 , as compared to those reported for the fiscal year ended
December 31, 2019 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
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objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is
required to apply judgment in evaluating the benefits of possible controls and
procedures relative to their costs.
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