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, 2019 and 2018, and for the three years ended December 31, 2019,
included in our Annual Report on Form 10-K for the year ended December 31, 2019,
filed with the Securities and Exchange Commission, or the SEC, on March 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 the SEC.
Overview
AVANGRID is a leading sustainable energy company with approximately $36 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 8.3
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 and 2020
by the Ethisphere Institute and listed by Forbes and Just Capital as one of the
2021 Just 100, an annual ranking of the most just U.S. public companies.
AVANGRID employs approximately 6,600 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, 2020.
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 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 8,280 megawatts, or MW, as of September 30, 2020, including Renewables' share
of joint projects, of which 7,516 MW was installed wind capacity. As of
September 30, 2020, approximately 67% of the capacity was contracted for an
average period of 9.2 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, 2020, Renewables strives to lead the
transformation of the U.S. energy industry to a sustainable, competitive, clean
energy future. Renewables currently operates 65 wind farms and four solar
facilities in 21 states across the United States.
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Proposed Merger with PNMR
On October 20, 2020, AVANGRID, PNM Resources, Inc., a New Mexico corporation, or
PNMR, and NM Green Holdings, Inc., a New Mexico corporation and wholly-owned
subsidiary of AVANGRID, or Merger Sub, entered into an Agreement and Plan of
Merger, or Merger Agreement, pursuant to which Merger Sub will merge with and
into PNMR, with PNMR surviving the Merger as a direct wholly-owned subsidiary of
AVANGRID, or Merger. Pursuant to the Merger Agreement, each issued and
outstanding share of the common stock of PNMR (other than (i) the issued shares
of PNMR common stock that are owned by AVANGRID, Merger Sub, PNMR or any
wholly-owned subsidiary of AVANGRID or PNMR, which will be automatically
cancelled at the time the Merger is consummated and (ii) shares of PNMR common
stock held by a holder who has not voted in favor of, or consented in writing
to, the Merger who is entitled to, and who has demanded, payment for fair value
of such shares) will be converted, at the time the merger is consummated, into
the right to receive $50.30 in cash, or Merger Consideration, or approximately
$4.3 billion in aggregate consideration. In connection with the Merger,
Iberdrola, S.A. has provided the Iberdrola Funding Commitment Letter, pursuant
to which Iberdrola has unilaterally agreed to provide to AVANGRID, or arrange
the provision to Avangrid of, funds to the extent necessary for AVANGRID to
consummate the Merger, including the payment of the aggregate Merger
Consideration. The Merger is expected to be consummated in the fourth quarter of
2021 and is subject to certain conditions including regulatory and PNMR
shareholder approval and entry into agreements providing for, and to making
filings required to, exit from all ownership interests in the Four Corners Power
Plant and certain other customary closing conditions. For additional
information, see Note 21 - Subsequent Event.
COVID-19
The continued spread of the novel Coronavirus, or COVID-19, has led to global
economic disruption and volatility in financial markets and the 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. We
have not yet experienced a materially adverse impact to our business, results of
operations or financial condition, however, 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 materially adverse impacts to our
business, results of operations or financial condition in the future.
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 $1,487 million for the three months
ended September 30, 2019 to $1,470 million for the three months ended
September 30, 2020.
Networks business revenues increased mainly due to increased customer rates and
increased flow-through amortizations 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 along with a
decrease in wind generation output in the period.
Net income attributable to AVANGRID decreased by 42% from $150 million for the
three months ended September 30, 2019 to $87 million for the three months ended
September 30, 2020, primarily due to decreased revenue from Renewables and Other
in the period.
Adjusted net income (a non-GAAP financial measure) decreased by 18% from $123
million for the three months ended September 30, 2019 to $100 million for the
three months ended September 30, 2020. The decrease is primarily due to a $14
million decrease in Renewables driven by decrease in existing production,
unfavorable results from decreased pricing and higher depreciation, a $15
million decrease in Corporate mainly driven by higher interest expenses, offset
by a $10 million
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increase in Networks driven primarily by customer rate increases in the period
and favorable tax benefits, which were offset by unfavorable outage restoration
costs..
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, 2019.
Customer Disconnections
Due to the COVID-19 pandemic, all of our regulated utilities suspended customer
disconnections during March 2020. In New York, we had voluntarily suspended
disconnections for non-payment. In June 2020, the New 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 in New York
is lifted, or until no later than March 31, 2021, whichever comes first.
In Connecticut and Maine, regulatory orders for COVID-19 disconnection
moratoriums cease on November 1, 2020, however, disconnections will not resume
until the winter disconnection period has ended.
NYSEG and RG&E Rate Cases
On May 20, 2019, NYSEG and RG&E filed rate cases with the New York State Public
Service Commission, or NYPSC, for new tariffs.
On March 23, 2020, the Public 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. On March
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. On April 7, 2020, the
NYPSC administrative law judges issued a Ruling Denying Public Utility Law
Project's Motion, allowing settlement negotiations to continue. On April 22,
2020, the Public Utility Law Project and AARP filed an interlocutory appeal
requesting that the NYPSC review the determination of the administrative law
judges. We cannot predict the outcome of this proceeding.
On June 22, 2020, NYSEG and RG&E filed a joint proposal with the NYPSC for a new
three-year rate plan. The effective date of new tariffs was November 1, 2020
with a make-whole provision back to April 17, 2020. We were granted a one month
extension making the new effective date December 1, 2020, pending NYPSC approval
of the joint proposal. 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
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support or opposition and reply statements were filed in July 2020, and a final
decision by the NYPSC is expected during the fourth quarter of 2020. 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 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 NYDPS commenced a comprehensive investigation of the
preparation and response to those events by New York's major electric utility
companies. The investigation was expanded in the spring of 2018 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 (ERP). 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 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. 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 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 petition requesting Commission approval of a joint
settlement agreement was filed with the Commission on December 17, 2019. On
February 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 by the establishment of regulatory liabilities that will be
amortized over the three-year term of the proposed rate plans for NYSEG Electric
and RG&E Electric, respectively. The company cannot predict the outcome of the
rate cases and the provisions for payment of these penalties.
CMP Rate Case
In an order issued on February 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
effective March 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 on March 1,
2020. CMP has satisfied all four of these quality measures since the measurement
period commenced.
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 ordered the initiation of a management audit to evaluate
whether CMP's current management structure, and the management and other
services from its affiliates, are appropriate and in the interest of Maine
ratepayers. The management audit was commenced in July 2020 by the MPUC's
consultants and is expected to conclude in December 2020.
CMP Metering and Billing Investigation
On February 19, 2020, the MPUC issued an order in CMP's distribution rate case
proceeding discussed above and on February 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. 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 on March 1, 2020. On April 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 has
satisfied all four of these quality measures since the measurement period
commenced.
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CMP Disconnection Notices Investigation
On January 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 on March 2, 2020. Hearings were suspended
to allow for settlement discussions that began in March 2020. On April 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 on April 30, 2020 and
May 5, 2020. A revised Stipulation was filed with the MPUC on May 8, 2020, and
was deliberated and rejected by the MPUC on June 2, 2020, due to the Office 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 on
June 8, 2020. Following submission of an offer of proof by the
customer-intervenors, comments by CMP and the Office of the Public Advocate and
recommendations by the MPUC staff, the MPUC issued an Order on August 5, 2020,
accepting CMP's consent to a finding that CMP violated a MPUC rule and payment
of an administrative penalty less than $1 million.
CMP Revenue Decoupling Mechanism (RDM) Investigation
On June 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 on July 1, 2021, for
electricity delivered in calendar year 2020. On June 24, 2020, the MPUC issued a
procedural order setting forth initial steps in this proceeding. On July 21,
2020, CMP filed testimony presenting electricity-usage data for its two RDM
classes (residential and commercial/industrial) through June 2020, along with
testimony explaining the data and the reasons why the current RDM should remain
in place without alteration. On August 11, 2020, a technical conference was held
and CMP filed electricity-usage data on August 20, 2020. We cannot predict the
outcome of this matter.
CMP Annual Compliance Filing
On March 31, 2020, CMP submitted its annual compliance filing in accordance with
the Commission's February 19, 2020 decision in Public Utilities Commission,
Investigation into Rates and Revenue Requirements of Central 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, effective July
1, 2020. This increase is due primarily to storm costs, RDM, which are by offset
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. On June 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 on July 1, 2020, but denied CMP's proposed
recovery of costs related to its legacy billing system, which are less than $1
million. On June 18, 2020, CMP made a compliance filing with revised tariffs,
which was approved by the MPUC on June 23, 2020, and the new rates took effect
on July 1, 2020.
CMP Standard Offer Uncollectible Adder Investigation
On August 19, 2020, the MPUC issued a Notice of Investigation to open an
investigation into the whether the uncollectible adder to CMP's standard offer
retainage account for the residential and small non-residential standard offer
customer class should be increased for standard offer electricity-supply rates
that will go into effect January 1, 2022. The investigation will also include a
review of CMP's credit and collection practices. A technical conference was held
on October 8, 2020. We cannot predict the 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
$149 million and $153 million, respectively, for this item at September 30, 2020
and December 31, 2019.
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 2020. 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
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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. On December 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 of
July 1, 2017 through June 30, 2019. The MPUC approved the stipulation on January
21, 2020 and CMP will begin collecting the Power Tax Regulatory asset beginning
in July 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 in Québec, Canada and
New England. The project, which has an estimated cost of approximately $950
million, would add 1,200 MW of transmission capacity to supply New England with
power from reliable hydroelectric generation. On March 13, 2020, the Federal
Energy Regulatory Commission, or FERC, approved the transfer of jurisdictional
facilities from CMP to NECEC Transmission LLC and the regulatory approval from
the MPUC to effectuate the transfer was granted on October 20, 2020. On May 11,
2020, the Maine Department of Environmental Protection issued its final approval
of the project. That approval has been appealed by certain intervenors. The
appeals are currently before the Board of Environmental Protection. On July 9,
2020, ISO-NE issued its final approval. On October 27, 2020, three environmental
groups filed a lawsuit against the Army Corps of Engineers in the U.S. District
Court of Maine alleging that the Army Corp's decision to prepare an
environmental assessment of the NECEC transmission project instead of an
environmental impact statement violates federal laws and asking the court set
aside the Army Corps' environmental assessment and prepare an environmental
impact statement before issuing the permit. We cannot predict the outcome of
this proceeding and its impact on the timing of the Army Corps of Engineers
permit, which is expected to be issued in the fourth 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 the New England Clean Energy Transmission Project,"
which, if passed by Maine voters, would have required the MPUC to amend its May
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, or the NECEC Referendum. On August
13, 2020, the Maine Supreme Judicial Court vacated the Superior Court decision,
held that the NECEC Referendum is unconstitutional, and remanded the case to the
Superior Court to enter a declaratory judgment. On August 21, 2020, the Superior
Court issued a declaratory judgment that the NECEC Referendum fails to meet the
constitutional requirements for inclusion on the ballot.
On September 16, 2020, a group of Maine voters submitted an application for a
citizen referendum to enact legislation that, if enacted into law and found to
be constitutional, would, among other things, require a two-thirds affirmative
vote of each of the Maine state house of representatives and Maine state senate
to approve high-impact transmission line construction and the lease by the
Bureau of Parks and Lands of public reserved lands for transmission lines and
similar linear projects. Proponents of the citizen initiative will need to
gather the constitutionally required number of signatures before the initiative
can be considered for placement on the ballot. We cannot predict the outcome of
this citizen initiative.
We will start construction following the issuance of the Army Corps of Engineers
permit and the transfer of the project from CMP to NECEC Transmission LLC, which
is expected in the fourth quarter of 2020.
Maine Government-Run Power Referendum
On September 18, 2020, a request was submitted to the Maine Secretary of State
to initiate the process of placing a government-run power referendum on the
November 2021 ballot. We cannot predict the outcome of this request or any
potential referendum.
PURA Investigation of the Preparation for and Response to the Tropical Storm
Isaias and Connecticut Storm Reimbursement Legislation
On August 6, 2020, the PURA opened a docket to investigate the preparation for
and response to Tropical Storm Isaias by the electric distribution companies in
Connecticut including UI. We cannot predict the outcome of this investigation.
Public statement hearings were held on October 21 - 23, 2020.
On October 7, 2020, the Governor of Connecticut signed into law an energy bill
that, among other things, instructs PURA to revise the rate-making structure in
Connecticut to adopt performance-based rates for each electric distribution
company, increases the maximum civil penalties assessable for failures in
emergency preparedness, and provides certain penalties and reimbursements to
customers after storm outages greater than 96 hours and extends rate case
timelines.
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NYDPS Investigation of the Preparation for and Response to the Tropical Storm
Isaias
In August 2020, following Tropical Storm Isaias, the NYDPS commenced a
comprehensive investigation of the preparation and response this event by New
York's major electric utility companies. In addition, on August 20, 2020, the
New York State Senate and Assembly held a joint hearing to examine the response
of various utility companies during the aftermath of Tropical Storm Isaias. We
cannot predict the outcome of this investigation or any potential legislative
action.
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, 2020                                                        September 30, 2019
                                        Total           Networks          Renewables           Other(1)           Total           Networks          Renewables           Other(1)
                                                                                                      (in millions)
Operating Revenues                    $ 1,470          $  1,197          $      276          $      (3)         $ 1,487          $  1,140          $      347          $       -
Operating Expenses
Purchased power, natural gas
and fuel used                             259               218                  41                  -              279               209                  70                  -
Operations and maintenance                634               527                 107                  -              588               482                 111                 (5)
Depreciation and amortization             255               151                 104                  -              237               138                  98                  1
Taxes other than income taxes             157               141                  17                 (1)             144               129                  15                  -
Total Operating Expenses                1,305             1,037                 269                 (1)           1,248               958                 294                 (4)
Operating Income                          165               160                   7                 (2)             239               182                  53                  4
Other Income (Expense)
Other income (expense)                     16                14                   5                 (3)               6                (3)                 15                 (6)
Earnings (losses) from equity
method investments                          1                 3                  (2)                 -               (1)                3                  (4)                 -
Interest expense, net of
capitalization                            (86)              (63)                  1                (24)             (72)              (66)                  1                 (7)
Income (Loss) Before Income Tax            96               114                  11                (29)             172               116                  65                 (9)
Income tax (benefit) expense               15                20                  (7)                 2               33                28                   2                  3
Net Income (Loss)                          81                94                  18                (31)             139                88                  63                (12)
Net loss (income) attributable
to noncontrolling interests                 6                (1)                  7                  -               11                 -                  11                  -
Net Income (Loss) Attributable
to Avangrid, Inc.                     $    87          $     93          $       25          $     (31)         $   150          $     88          $       74          $     (12)


                                       57

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                                                               Nine Months Ended                                                         Nine Months Ended
                                                              September 30, 2020                                                        September 30, 2019
                                        Total           Networks          Renewables           Other(1)           Total           Networks          Renewables           Other(1)
                                                                                                      (in millions)
Operating Revenues                    $ 4,651          $  3,779          $      876          $      (4)         $ 4,729          $  3,837          $      896          $      (4)
Operating Expenses
Purchased power, natural gas
and fuel used                             999               819                 180                  -            1,101               932                 169                  -
Operations and maintenance              1,788             1,479                 318                 (9)           1,714             1,428                 295                 (9)
Depreciation and amortization             748               446                 301                  1              681               407                 273                  1
Taxes other than income taxes             469               418                  53                 (2)             446               402                  44                  -
Total Operating Expenses                4,004             3,162                 852                (10)           3,942             3,169                 781                 (8)
Operating Income                          647               617                  24                  6              787               668                 115                  4
Other Income (Expense)
Other (expense) income                     15                14                  10                 (9)               1                (3)                 17                (13)
(Losses) earnings from equity
method investments                         (3)                8                 (11)                 -                1                 8                  (7)                 -
Interest expense, net of
capitalization                           (251)             (199)                  1                (53)            (226)             (201)                 (6)               (19)
Income (Loss) Before Income Tax           408               440                  24                (56)             563               472                 119                (28)
Income tax expense (benefit)               21                75                 (53)                (1)             103               117                 (15)                 1
Net Income (Loss)                         387               365                  77                (55)             460               355                 134                (29)
Net loss (income) attributable
to noncontrolling interests                28                (2)                 30                  -               17                (1)                 18                  -
Net Income (Loss) Attributable
to Avangrid, Inc.                     $   415          $    363          $      107          $     (55)         $   477          $    354          $      152          $     (29)


(1)"Other" represents Corporate and intersegment eliminations.
Comparison of Period to Period Results of Operations
Three Months Ended September 30, 2020 Compared to Three Months Ended
September 30, 2019
Operating Revenues
Our operating revenues decreased by $17 million, or 1%, from $1,487 million for
the three months ended September 30, 2019 to $1,470 million for the three months
ended September 30, 2020, as detailed by segment below:
Networks
Operating revenues increased by $57 million, or 5%, from $1,140 million for the
three months ended September 30, 2019 to $1,197 million for the three months
ended September 30, 2020. Electricity and gas revenues increased by $8 million,
primarily due to the impact of increased customer rates in the three months
ended September 30, 2020 compared to the same period of 2019, increased by $9
million from unfavorable earnings sharing and other regulatory deferrals
recorded in the third quarter of 2019. These were offset by unfavorable $4
million recorded in the third quarter of 2020 due to an electric reliability
revenue adjustment and $5 million of unfavorable 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 $40 million in flow through
amortizations ($33 million of which are offset in operating expenses and $7
million in taxes other than income taxes).
Renewables
Operating revenues decreased by $71 million, or 20%, from $347 million for the
three months ended September 30, 2019 to $276 million for the three months ended
September 30, 2020. The decrease in operating revenues was primarily due to
unfavorable mark to market, or MtM, changes of $88 million on energy derivative
transactions entered for economic hedging purposes and a decrease of $3 million
driven by lower wind generation output of 49 GWh in the current period, and a $4
million decrease in other revenues, offset by an $18 million increase due to a
combination of higher market prices, RECs and curtailment revenues and a $6
million increase in thermal revenue driven by higher average prices in the
period.
Purchased Power, Natural Gas and Fuel Used
Our purchased power, natural gas and fuel used decreased by $20 million, or 7%,
from $279 million for the three months ended September 30, 2019 to $259 million
for the three months ended September 30, 2020, as detailed by segment below:
                                       58
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Networks


Purchased power, natural gas and fuel used increased by $9 million, or 4%, from
$209 million for the three months ended September 30, 2019 to $218 million for
the three months ended September 30, 2020. The increase is primarily driven by
an $8 million increase in average commodity prices and an overall increase in
electricity units procured due to an increase in degree days along with a $1
million increase in other power supply purchases driven primarily by new
purchase agreements in the period.
Renewables
Purchased power, natural gas and fuel used decreased by $29 million, or 41%,
from $70 million for the three months ended September 30, 2019 to $41 million
for the three months ended September 30, 2020. The decrease is primarily driven
by favorable MtM changes on derivatives of $39 million due to market price
changes in the period and a decrease of $5 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
Operations and maintenance expenses increased by $46 million, or 8%, from $588
million for the three months ended September 30, 2019 to $634 million for the
three months ended September 30, 2020, as detailed by segment below:
Networks
Operations and maintenance expenses increased by $45 million, or 9%, from $482
million for the three months ended September 30, 2019 to $527 million for the
three months ended September 30, 2020. The increase is driven by $11 million in
outage restoration costs, a $1 million increase in uncollectible expenses, a $2
million increase due to additional cleaning and personal protective equipment
resulting from COVID-19, and an increase of $38 million in flow through
amortizations (which are offset in operating revenue). These were offset by $5
million of favorable overhead and $2 million of favorable other.
Renewables
Operations and maintenance expenses decreased by $4 million, or 4%, from $111
million for the three months ended September 30, 2019 to $107 million for the
three months ended September 30, 2020. The decrease is primarily due to $12
million of lower maintenance costs driven by reduced production and
curtailments, offset by an $8 million increase driven by higher personnel costs
primarily attributable to new capacity.
Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2020 was
$255 million compared to $237 million for the three months ended September 30,
2019, representing an increase of $18 million. The increase is primarily due to
an increase of $21 million in depreciation expense from plant additions in
Networks and Renewables in the period, offset by a $2 million decrease of
accelerated depreciation from the repowering of wind farms in Renewables and $1
million of other.
Other Income (Expense) and Earnings (Losses) from Equity Method Investments
Other income (expense) and equity earnings (losses) increased by $12 million
from $5 million for the three months ended September 30, 2019 to $17 million for
the three months ended September 30, 2020. The increase is primarily due to $9
million favorable change in allowance for funds used during construction, $2
million favorable equity earnings and a $5 million increase due to a settlement
gain, offset by a $5 million gain for the sale of assets recorded in the same
period of 2019.
Interest Expense, Net of Capitalization
Interest expense for the three months ended September 30, 2020 and 2019 was $86
million and $72 million, respectively. The increase was due to an increase of
$13 million of interest expense primarily from new debt issued in 2020 and 2019
within Other.
Income Tax Expense
The effective tax rate, inclusive of federal and state income tax, for the three
months ended September 30, 2020, was 15.6%, 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 ended September 30, 2019
was 19.2%, 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.
                                       59
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Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Operating Revenues
Our operating revenues decreased by $78 million, or 2%, from $4,729 million for
the nine months ended September 30, 2019 to $4,651 million for the nine months
ended September 30, 2020, as detailed by segment below:
Networks
Operating revenues decreased by $58 million, or 2%, from $3,837 million for the
nine months ended September 30, 2019 to $3,779 million for the nine months ended
September 30, 2020. Electricity and gas revenues increased by $19 million,
primarily due to the impact of increased customer rates in the nine months ended
September 30, 2020 compared to the same period of 2019, and increased by $16
million from unfavorable earnings sharing, net plant reconciliation and other
regulatory deferrals incurred in 2019, which were not incurred in 2020. These
were offset by a decrease of $10 million from a pension deferral write-off, $7
million decrease due to an electric reliability revenue adjustment, $8 million
decrease from the inability to charge late payment fees due to regulatory
orders, and a decrease of $1 million due to other. Electricity and gas revenues
changed due to the following items that have offsets within the income
statement: a decrease of $113 million in purchased power and purchased gas
(offset in purchased power) offset by an increase of $46 million in flow through
amortizations ($39 million of which are offset in operating expenses and $7
million in taxes other than income taxes).
Renewables
Operating revenues decreased by $20 million, or 2%, from $896 million for the
nine months ended September 30, 2019, to $876 million for the nine months ended
September 30, 2020. The decrease in operating revenues was primarily due to
unfavorable MtM changes of $66 million on energy derivative transactions entered
for economic hedging purposes, a decrease of $5 million in merchant pricing, a
$30 million decrease in thermal revenue driven by lower volumes and average
prices in the period, and a $11 million decrease in other revenues (offset in
operating expenses). These were offset by an increase of $92 million driven by
wind generation output increase of 1,722 GWh from existing and new capacity in
the current period.
Purchased Power, Natural Gas and Fuel Used
Our purchased power, natural gas and fuel used decreased by $102 million, or 9%,
from $1,101 million for the nine months ended September 30, 2019 to $999 million
for the nine months ended September 30, 2020, as detailed by segment below:
Networks
Purchased power, natural gas and fuel used decreased by $113 million, or 12%,
from $932 million for the nine months ended September 30, 2019 to $819 million
for the nine months ended September 30, 2020. The decrease is primarily driven
by a $109 million decrease in average commodity prices and an overall decrease
in electricity and gas units procured due to a decline in degree days along with
a $4 million increase in other power supply purchases in the period.
Renewables
Purchased power, natural gas and fuel used increased by $11 million, or 7%, from
$169 million for the nine months ended September 30, 2019 to $180 million for
the nine months ended September 30, 2020. The increase is primarily driven by an
increase of $37 million in power purchases, $5 million in RECs, offset by
unfavorable MtM changes on derivatives of $10 million due to market price
changes in the period and a decrease of $21 million in thermal purchases driven
by the decrease in volume and unit cost in the period.
Operations and Maintenance
Our operations and maintenance expenses increased by $74 million, or 4%, from
$1,714 million for the nine months ended September 30, 2019 to $1,788 million
for the nine months ended September 30, 2020, as detailed by segment below:
Networks
Operations and maintenance expenses increased by $51 million, or 4%, from $1,428
million for the nine months ended September 30, 2019 to $1,479 million for the
nine months ended September 30, 2020. The increase is driven by $12 million in
outage restoration costs, a $6 million increase in uncollectible expenses, a $5
million increase due to additional cleaning and personal protective equipment
resulting from COVID-19, an increase of $41 million in flow through
amortizations (which is offset in revenue) and a $3 million increase in other.
These were offset by a decrease of $5 million in unfavorable write-off of
deferred storm costs in the nine months ended September 30, 2019, which did not
recur in 2020, $6 million decrease in medical expenses, and $5 million of
favorable overhead.
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Renewables


Operations and maintenance expenses increased by $23 million, or 8%, from $295
million for the nine months ended September 30, 2019 to $318 million for the
nine months ended September 30, 2020. The increase is primarily due to $27
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 nine months
ended September 30, 2020, and $11 million in other expenses (offset in operating
revenues).
Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2020 was
$748 million compared to $681 million for the nine months ended September 30,
2019, an increase of $67 million. The increase is driven by $63 million from
plant additions in Networks and Renewables in the period, an increase of lease
amortizations of $3 million, $4 million increase due to an asset retirement
obligation true up for the period ended September 30, 2019, which did not recur
in 2020, and $2 million of other, offset by a $5 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 $10 million
from $2 million for the nine months ended September 30, 2019 to $12 million for
the nine months ended September 30, 2020. The change is primarily due to $17
million favorable change in allowance for funds used during construction in
Networks and a $5 million increase due to a settlement gain, offset by $5
million gain for the sale of assets recorded in the same period of 2019, and $4
million of unfavorable equity earnings in the period.
Interest Expense, Net of Capitalization
Interest expense for the nine months ended September 30, 2020 and 2019 was $251
million and $226 million, respectively. The increase was due to an increase of
$26 million of interest expense primarily from new debt issued in 2020 and 2019
within Other.
Income Tax Expense
The effective tax rate, inclusive of federal and state income tax, for the nine
months ended September 30, 2020 was 5.1%, 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 nine months ended September 30, 2019 was
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.
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 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, 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 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's U.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's
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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
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, 2020 and 2019, respectively:
                                                                 Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020


                                                 Total             Networks           Renewables          Corporate*             Total             Networks          Renewables          Corporate*
                                                                             (in millions)                                                                (in millions)
Net Income Attributable to Avangrid,
Inc.                                        $         87          $     94          $        25          $      (31)         $      415          $     363          $      107          $      (55)
Adjustments:
Mark-to-market earnings - Renewables                   7                 -                    7                   -                  (9)                 -                  (9)                  -
Restructuring charges                                  1                 1                    -                   -                   5                  3                   1                   -
Accelerated depreciation from
repowering                                             3                 -                    3                   -                   9                  -                   9                   -
Impact of COVID-19                                     8                 7                    1                   -                  21                 18                   1                   2
Income tax impact of adjustments (1)                  (5)               (2)                  (3)                  -                  (7)                (6)                  -                  (1)
Adjusted Net Income (2)                     $        100          $     99          $        32          $      (31)         $      434          $     379          $      108          $      (53)


                                                                  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)


(1)Income tax impact of adjustments: 2020 - $(2) million and $2 million from MtM
earnings, $0 and $(1) million from restructuring charges, and $(1) million and
$(3) million from accelerated depreciation from repowering, $(2) million and
$(5) million from impact of COVID-19 for the three and nine months ended
September 30, 2020, respectively; 2019 - $11 million and $17 million from MtM
earnings, $0 and $(1) from restructuring charges and $(2) million and $(4)
million from accelerated depreciation from repowering for the three and nine
months ended September 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 Ended September 30, 2020 Compared to Three Months Ended
September 30, 2019
Adjusted net income
Our adjusted net income decreased by $23 million, or 18%, from $123 million for
the three months ended September 30, 2019 to $100 million for the three months
ended September 30, 2020. The decrease is primarily due to a $14 million
decrease in Renewables driven by decrease in existing production, unfavorable
results from decreased pricing and higher depreciation, a $15 million decrease
in Corporate mainly driven by higher interest expenses, offset by a $10 million
increase in Networks driven primarily by customer rate increases in the period
and favorable tax benefits.
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Adjusted net income
Our adjusted net income decreased by $8 million, or 2%, from $442 million for
the nine months ended September 30, 2019 to $434 million for the nine months
ended September 30, 2020. The decrease is primarily due to $7 million decrease
in Renewables as a result of unfavorable results from decreased pricing, higher
personnel and maintenance costs in the period driven by new capacity, $25
million decrease in Corporate mainly driven by higher interest expenses in the
period, offset by $24 million increase in Networks driven primarily by customer
rate increases in the period.
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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, 2020 and 2019,
respectively:
                                                        Three Months Ended                     Nine Months Ended
                                                          September 30,                          September 30,
(in millions)                                        2020                2019               2020                2019
Networks                                         $       94          $      88          $      363          $     354
Renewables                                               25                 74                 107                152
Corporate (1)                                           (31)               (12)                (55)               (29)
Net Income                                       $       87          $     150          $      415          $     477
Adjustments:
Mark-to-market earnings - Renewables (2)                  7                (42)                 (9)               (66)
Restructuring charges (3)                                 1                  2                   5                  4
Accelerated depreciation from repowering
(4)                                                       3                  5                   9                 15
Impact of COVID-19 (5)                                    8                  -                  21                  -
Income tax impact of adjustments                         (5)                 9                  (7)                12
Adjusted Net Income (6)                          $      100          $     123          $      434          $     442


                                                                Three Months Ended                          Nine Months Ended
                                                                   September 30,                              September 30,
                                                              2020                  2019                 2020                  2019
Networks                                               $     0.30               $    0.28          $     1.17              $    1.14
Renewables                                                   0.08                    0.24                0.35                   0.49
Corporate (1)                                               (0.10)                  (0.04)              (0.18)                 (0.09)
Net Income                                             $     0.28               $    0.48          $     1.34              $    1.54
Adjustments:
Mark-to-market earnings - Renewables (2)                     0.02                   (0.14)              (0.03)                 (0.21)
Restructuring charges (3)                                       -                    0.01                0.02                   0.01
Accelerated depreciation from repowering (4)                 0.01                    0.02                0.03                   0.05
Impact of COVID-19 (5)                                       0.02                       -                0.07                      -
Income tax impact of adjustments                            (0.02)                   0.03               (0.02)                  0.04
Adjusted Earnings Per Share (6)                        $     0.32               $    0.40          $     1.40              $    1.43


(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 of September 30, 2020.
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Liquidity Position
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 was $0 and $150 million as of September 30, 2020 and December 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 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, $500 million from the lenders
committed to the 2020 Credit Facility and $500 million from an Iberdrola Group
Credit Facility, each of which are described below.
The following table provides the components of our liquidity position as of
September 30, 2020 and December 31, 2019, respectively:
                                           As of September 30,       As of December 31,
                                                   2020                     2019
                                                           (in millions)
     Cash and cash equivalents            $                101      $               178
     AVANGRID Credit Facility                            2,500                    2,500
     2020 Credit Facility                                  500                        -
     Iberdrola Group Credit Facility                       500                      500
     Less: borrowings                                     (999)                    (562)
     Total                                $              2,602      $             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 September 30, 2020 and October 29, 2020, there was $999
million and $1,758 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
September 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 September 30, 2020
and October 29, 2020, we had no borrowings outstanding under this credit
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 September 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
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one 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 September 30, 2020 and October
29, 2020, we had 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 September 30,
2020 and October 29, 2020, were $2,001 million and $1,242 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 September 30, 2020 and October 29, 2020, we had no borrowings outstanding
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.
On September 1, 2020, BGC issued $25 million aggregate principal amount of
unsecured notes maturing in 2050 at a fixed interest rate of 3.68%.
On September 25, 2020, NYSEG issued $200 million aggregate principal amount of
unsecured notes maturing in 2030 at a fixed interest rate of 1.95%.
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 revolving credit facilities, 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 $717 million 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 nine months
ended September 30, 2020 and 2019, respectively:
                                                                              Nine Months Ended
                                                                                September 30,
                                                                          2020                  2019
                                                                                (in millions)
Net cash provided by operating activities                            $      1,092          $     1,244
Net cash used in investing activities                                      (1,956)              (2,156)
Net cash provided by financing activities                                     786                  977
Net (decrease) increase in cash, cash equivalents and
restricted cash                                                      $        (78)         $        65


Operating Activities
The cash from operating activities for the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019 decreased by $152 million,
primarily attributable to higher operations and maintenance expenses in the
period.
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Investing Activities
For the nine months ended September 30, 2020, net cash used in investing
activities was $1,956 million, which was comprised of $1,960 million of capital
expenditures and $48 million of other investments and equity method investments,
partially offset by $35 million of contributions in aid of construction and $12
million of proceeds from the sale of assets.
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.
Financing Activities
For the nine months ended September 30, 2020, financing activities provided $786
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 $897 million, offset by distributions to non-controlling
interests of $5 million, payments on finance leases of $7 million and dividends
of $408 million.
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.
Off-Balance Sheet Arrangements
There have been no material changes in our off-balance sheet arrangements during
the nine months ended September 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 nine months ended September 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 held a right to sell all or a portion
of its 50% ownership interest to Renewables, subject to certain conditions,
however this right expired on September 30, 2020. In October 2020, Vineyard Wind
submitted an offshore wind solicitation to NYSERDA to provide 1,200 to 1,300 MW
of offshore wind through the development of its Liberty Wind Project. In October
2020, Renewables and CIP entered into an agreement pursuant to which, subject to
the satisfaction of certain conditions, CIP may exercise an option to effectuate
a series of transactions that include the sale of its ownership interest in the
Liberty Wind and Park City Wind Projects to Renewables and the purchase of
Renewables' residual ownership interest in certain lease areas that have not
been awarded an offtake agreement as of the date of the exercise of such option
by CIP.
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 September 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 nine months ended
September 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 nine months ended
September 30, 2020. There have been no other material changes to the significant
accounting policies
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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 nine months
ended September 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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