Avangrid : Q4 2020 Earnings Call Transcript

February 25, 2021 at 09:53 am EST

Corrected Transcript

Total Pages: 30

CORPORATE PARTICIPANTS

Patricia C. Cosgel	Robert D. Kump
Vice President-Investor & Shareholder Relations, Avangrid, Inc.	Deputy Chief Executive Officer & President, Avangrid, Inc.
Dennis Victor Arriola	Alejandro de Hoz
Director & Chief Executive Officer, Avangrid, Inc.	President & Chief Executive Officer-Avangrid Renewables, LLC,
Avangrid, Inc.
Douglas K. Stuver
Anthony Marone
Chief Financial Officer & Senior Vice President, Avangrid, Inc.
President & Chief Executive Officer, Avangrid Networks, Inc, Avangrid,
Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

David Arcaro

Analyst, Morgan Stanley & Co. LLC

Insoo Kim

Analyst, Goldman Sachs & Co. LLC

Neil Kalton

Analyst, Wells Fargo Securities LLC

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Richard W. Sunderland

Analyst, JPMorgan Securities LLC

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

Michael Gaugler

Analyst, Janney Montgomery Scott LLC

MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by and welcome to the AVANGRID's 4Q 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Patricia Cosgel, Vice President-Investor Relations. Thank you. Please go ahead.

Patricia C. Cosgel

Vice President-Investor & Shareholder Relations, Avangrid, Inc.

Thank you, Julienne, and good morning to everyone. Thank you for joining us today to discuss AVANGRID's fourth quarter 2020 earnings result. Presenting on the call today are Dennis Arriola, our Chief Executive Officer, and Doug Stuver, our Senior Vice President and Chief Financial Officer.

Also joining us today for the question-and-answer part of the call will be Bob Kump, Deputy Chief Executive Officer and President of AVANGRID; Alejandro de Hoz, President and Chief Executive Officer of AVANGRID Renewables; and Tony Marone, President and Chief Executive Officer of AVANGRID Networks.

Note that some of us will be together for the call today keeping our social distancing, while others will be joining us remotely. If you do not have a copy of our press release or presentation for today's call, they are available on our website atwww.AVANGRID.com.

During today's call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions which are subject to risks and uncertainties.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in AVANGRID's earnings news release, in the comments made during this conference call, in the Risk Factors section of the accompanying presentation, or in our latest reports and filings to the Securities and Exchange Commission, each of which can be found on our website, AVANGRID.com. We do not undertake any duty to update any forward-looking statements.

Today's presentation will also include references to non-GAAP financial measures.

You should refer to the information contained in the slides accompanying today's presentation for GAAP financial information and reconciliation of non-GAAP financial measures to the closest GAAP financial measures.

I will now turn the call over to Dennis.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Well, thanks Patricia and good morning, everyone. We appreciate you joining us for the call. There's no doubt that 2021 was a challenging year for everyone as we work to address COVID and adapt our personal lives to this strange new reality. I want to start this year-end call by thanking our employees across the country.

Nearly 7,000 strong for your unwavering commitment to safely serving our customers and for looking out after each other. Thank you for making a difference every day. Since I joined AVANGRID in July, we've been focused on driving alignment, accountability and execution to create long-term value. At our Investor Day in November, we shared our new plans and strategy for the future.

We discuss the need to start reasonable and achievable goal and the importance of delivering on our commitment. And over the last several months, we focus on the details. The fundamental blocking and tackling that helps make a good company great. And while we still have a long way to go, I'm really pleased with our direction.

We recognize that one quarter doesn't make a trend but our results in Q4 2020 and for the full year relative to the guidance we provided at our Investor Day is encouraging. And needless to say, I'm excited about our current position and about our prospects going forward. We truly believe we're in the right place at the right time in this energy transition. We're in the sweet spot, clean and connected.

Our networks business representing over 80% of AVANGRID earnings is focused on serving our customers and getting better every day. We'll be larger and more diversified once we complete our merger with PNM Resources.

Our renewables platform is strong and we're leading the new offshore wind industry.

We're seeing strong tailwinds from a clear focus on clean energy in all directions from consumers, the government and corporations and from the investment community. Over the next five years, we'll invest over $20 billion, more than $12 billion in Networks and over $8 billion in Renewables.

Networks will continue to be the predominant earnings driver in our business model, and the PNM merger and our organic investment opportunities will provide AVANGRID with significant opportunities for predictable growth resulting in the 6% to 8% EPS CAGR from 2020 to 2025 that we provided on Investor Day, last November 5th.

We'll get all this done while maintaining a strong balance sheet and a reliable dividend. And with the unwavering support of the Iberdrola Group, AVANGRID is uniquely positioned to become the leading sustainable energy company in the US.

Now, 2020 was a year of transition and an inflection point for the future at AVANGRID. For 2020, net income was $581 million or $1.88 per share, and our adjusted net income was $625 million or $2.02 per share, which exceeds the guidance we affirmed on November 5. In addition, we invested $3 billion to drive future growth in Networks and Renewables.

In Networks, we successfully sold our New York rate cases and our New England Clean Energy Connect Project completed all major permitting and started construction last month. In Renewables, we signed new PPAs for approximately 750 megawatts and installed approximately 620 megawatts of new wind and 370 megawatts of re-power projects, bringing our total generation capacity to 8.5 gigawatts. We also made significant progress gigawatts. We also made significant progress on our three offshore wind projects and we're in the final approval stages for our Vineyard Wind 1 project. Across the board, we've demonstrated leadership as a company driven by our purpose to serve our customers and society.

And just yesterday, AVANGRID was recognized by EcoSphere as one of the world's most ethical companies in 2021 for the third year in a row. We were also named one of America's Most JUST Companies on the annual

Forbes JUST 100 list. These accolades are a tribute to all of our employees at AVANGRID.

Reinforcing our commitment to ESG [indiscernible] (00:06:35), we've set several bold targets for our company including carbon neutrality by 2035. And in regards to our PNM Resources merger, key filings have been completed with federal - several federal approvals already received.

In 2021, we're focused on several key objectives that will build on our accomplishments in 2020. First and foremost, safety and reliability are at the heart of AVANGRID's core values. We'll continue to safely and reliably serve our customers while managing the ongoing impacts of the pandemic, making the health and safety of our employees, our customers, and our communities our utmost focus.

We plan to successfully close the PNM merger in the second half of this year, further strengthening our regulated profile and our geographic diversity. In networks, we're laser-focused on delivering more predictable earnings going forward and earning our authorized ROEs at all our utilities. We expect to invest about $2 billion this year, growing our rate base to approximately $11.4 billion. In addition, we'll continue to advance our major clean energy projects like NECEC and Vineyard Wind 1.

In renewables, we continue to improve our operating performance and target the delivery of about 690 megawatts of new wind and solar projects in 2021, with a total investment of close to $1 billion in renewables this year.

Lastly, we are affirming our guidance for 2021 EPS and adjusted EPS of $2.15 to $2.35. And I'll remind you that this guidance assumes that we close the PNM Resources merger along with the required financing at year end.

Now, with the Biden administration in place we see strong prioritization of clean energy policy going forward. Our strategy positions AVANGRID to fully leverage this momentum for the long-term benefit of our customers, employees, communities, shareholders, and the environment. The administration has outlined a target to decarbonize the power sector by 2035 and reach net zero economy-wide by 2050, backed immensely by several climate-focused executive orders and a proposed $2 trillion investment in clean energy over the next five years.

For us, this translates into an acceleration of renewables deployment, grid enhancements, and transmission projects to support growing demand for clean energy. It also provides for additional EVs and charging infrastructure as well as investments in energy efficiency and battery storage. We'll also see advancements in green hydrogen to enable cost-parity with grey hydrogen by 2030. And this is an area we're looking at seriously as we think about future growth opportunities.

The Iberdrola Group has already taken a leading position in Europe with significant investments and exciting projects in green hydrogen and we plan to leverage on their learning curve to identify opportunities for AVANGRID here in the United States. And we're also aligned on a State level. We expect State policy will continue to drive strong demand for renewables and incentives as States work to reach their individual climate and environmental goals.

In networks, we're executing on our strategy which is designed around three growth drivers. First, our road to authorize ROE, which means earning at least the approved regulatory ROE at each of our utility. We'll do this through the implementation of our rate plans, improving reliability and resiliency and enhancing operational efficiency and customer satisfaction.

Secondly, by investing in transmission such as NECEC and other opportunities to enable the clean energy transition. And thirdly, by the addition of PNM Resources. This merger increases AVANGRID's share of regulated earnings to over 85% with opportunities to add new clean energy as PNM phases out its existing [ph] coal

(00:10:52) generation.

We expect rate base including PNM to grow roughly 14% annually from 2020 to 2025 to almost $21 billion. Now as we discussed previously, our road to authorize ROE is a data-driven plan focused on accountability, efficiency, continuous improvement and alignment to our rate bases.

By the end of 2021, we will be positioned to earn our allowed ROEs at all of our regulated utilities. In New York, we secured a three-year rate plan with a make whole provision back to April 2020. With the approval in November, we had time to ensure our plan more fully considered the impacts of COVID-19 and allowed us to [ph] provide needed (00:11:41) relief for customers.

The plan which covers nearly half of AVANGRID's rate base works with an 8.8% ROE with a 48% equity layer. It provides for critical investments in infrastructure and reliability, enhance vegetation management, increased allowances for staging and storm cost recovery, and incremental workforce in key areas to support our crews in the field. The investments amount to about $1 billion per year driving the economic recovery and job creation in our service territory.

In Maine, we continue to meet or exceed our service quality metrics on a 12-month rolling basis. We expect to file to remove the 100 basis points downward adjustment by September which, if approved, would increase CMPs allowed ROE to 9.25%. Lastly, we're taking steps to improve operations, efficiency, and customer satisfaction at all our utilities.

Transmission is another exciting growth area for AVANGRID. The IEA estimates over $44 billion a year is needed in North America through 2040, and AVANGRID's experience at successfully executing large and complex projects positions us to help address this challenge and turn it into an opportunity.

Now once complete in 2023, our $1 billion New England Clean Energy Connect or NECEC will be the largest onshore clean energy project in New England. Through NECEC, we're removing the equivalent of 700,000 cars from the road and bringing clean energy jobs and economic benefits to the New England region. With all major permitting complete, the first [ph] poles (00:13:33) have been raised and construction work is underway.

Hundreds of Mainers are already employed by NECEC and its subcontractors and recent polling shows support for this clean superhighway is growing. Now, we're confident in our ability to deliver this project as we previously did for our $1.4 billion Maine power reliability project which helped upgrade CMP's transmission system in 2015.

And while we recognize there is a vocal minority in the state that is basically against any infrastructure development anywhere, we remain confident that NECEC will be completed and will provide affordable clean energy and substantial economic benefits including jobs to the people of Maine.

Now we're also looking at potential new transmission opportunities. Recently, we announced a new proposal for New York, the Excelsior Connect. It's a 1,310 megawatt underground high-voltage DC line that would link upstate New York with New York City. We've opened a solicitation for renewable developers to bid for transmission service with the aim of participating in New York's Tier 4 RFP which [ph] seeks (00:14:47) at least 1,500 megawatts.

Now this is a New York solution for a New York opportunity. And this early stage opportunity is not currently in our long-term plan, so it's another example of potential future value creation. And so far, we're seeing a strong interest from renewables developers that want access to the transmission.

Now let's turn to our merger with PNM Resources. We're very pleased that the PNM Resources shareholders overwhelmingly approved the transaction earlier this year. We've submitted all necessary filings at the federal level, as well as with New Mexico and Texas regulators. And so far, our key approvals are progressing according to our plan.

We've received the Hart-Scott-Rodino clearance as well as clearance from the Committee on Foreign Investment or CFIUS. We expect to receive FERC and FCC approval by March and the Nuclear Regulatory Commission approval is expected by June. At the state level, we expect the approval of the Public Utility Commission of Texas in May or June and from New Mexico in the second half of the year.

Now, before we continue, I want to recognize and thank our Networks CEO, Tony Marone, who is retiring this month after an outstanding 33 years with the company. Tony has played a key role on our leadership team over the years and he will be missed but we know his contributions will continue to have an impact for years to come.

Thank you, Tony.

We also look forward to welcoming Catherine Stempien into the AVANGRID family when she joins us in mid-March as the new CEO of Networks.

Now, turning to Renewables. Our 21-gigawatt pipeline of projects and leadership in offshore wind will drive significant growth opportunities and supported by favorable energy policy and strong demand. Our pipeline is more diversified than ever with roughly 60% solar, approximately 20% offshore wind, and the other 20% onshore wind. Overall, we're going to grow our capacity nearly 70% by 2025 with significant growth driven by offshore wind.

In 2020, we installed approximately 620 megawatts of new wind and completed 370 megawatts of repowering projects. Additionally, we executed about 180 megawatts of PPAs and long-term hedges which will help improve the contracted percentage of our overall portfolio. This year we're positioned for increased profitability with a strong lineup of new assets and our continued execution of PPA. We've got close to 700 megawatts expected to come online in 2021 waiting for the first time for solar.

And we continue to secure PPAs to support our future growth. In total, we've signed PPAs for nearly 560 megawatts with COD in 2022, including a new PPA for 187 megawatts for Bakeoven Solar II.

Now, I'd also like to address the extraordinary events that have taken place in Texas this past week. AVANGRID has approximately 1,250 megawatts of wind located in Texas and 100 megawatts of firm delivery obligations. In the early days of the weather event, our operations like most others in the area were impacted for a short period of time.

Through this event, we've been focused on safety, operational excellence and proactive risk management in order to meet our limited fixed obligations. Our clean generation met all firm delivery obligations and we were able to deliver our excess energy to the grid to help get Texas back on its feet. Our thoughts remain with the many Texans who have been affected as well as with our employees who have continued to work hard under the difficult conditions.

With offshore wind, we're at the forefront of an industry that is on the rise. Our superior offshore wind investments are positioned to deliver growth and financial results beginning in 2024 and 2025. In addition to our strong offshore team, our affiliation with Iberdrola provides us a deep bench of offshore wind expertise to leverage.

And today, we have 1.6 gigawatt of fully contracted projects, made up of our 800 megawatt Vineyard Wind 1 and our 804 megawatt Park City Wind, both shared 50/50 with our partner, CIP. At our wholly-owned Kitty Hawk site, we expect the first phase to deliver up to 1 gigawatt of power beginning in 2026.

The recent changes to the ITC are also a positive for AVANGRID and our customers. For Vineyard Wind, the full 30% ITC will generate additional value for the project. And with BOEM's focused on completing the final approval process, we're one step closer to placing turbines in the water at the nation's first utility scale offshore wind farm.

We expect to make our final investment decision in the second half of this year, begin generation in 2023 and reach full commercial operation in 2024. For Park City, we submitted our commercial operations plan or our COP to BOEM in the second half of 2020.

We also executed long-term PPAs with the Connecticut Utilities and will negotiate how to share the benefits of the enhanced ITC. We expect Park City will come online in 2025. For Kitty Hawk, we've submitted our COP to BOEM for the first phase of the project which we expect to come online in 2026. Including Phase 1 of Kitty Hawk, we have approximately 6 gigawatts available to bid in the future solicitations, of which AVANGRID owns outright 4.2 gigawatts.

As a point of comparison and to help understand the value of these leased areas and based on the pricing of the latest offshore auction in Scotland, our 4 gigawatts share could be valued somewhere between $1.5 billion and $2 billion And this year, we expect two auctions in Rhode Island and Massachusetts, followed by New York in 2022, and Connecticut in 2023. We expect to participate in most, if not, all of these auctions but we're going to continue to be disciplined in our bidding approach.

As I think about AVANGRID's offshore business, I really believe it's an undervalued growth opportunity. Offshore wind is coming to the US in a big way. And AVANGRID is extremely well-positioned to lead this attractive market.

Now, I want to talk about I want to talk about our approach to sustainability, something that has been part of our DNA for a long, long time. It's important to highlight that sustainability in AVANGRID is not just about the E in

ESG. It's leadership in each of these areas that will drive our success and help us become the leading sustainable energy company in the US.

As the third-largest renewables developer in the US, our dedication to the environment is clear. In 2020, our emissions intensity fell by 30%, making the AVANGRIND seven times less-intensive than the utility average.

Social investment is a key part of our purpose as well to create healthier more sustainable communities every day. And through the AVANGRID Foundation, our primary charitable entity, we've provided over $4 million in grant funding in 2020 to address COVID-19, to combat racial injustice and much, much more.

We've signed both the paradigm for parity and the CEO action for diversity and inclusion pledges. And a commitment to strong ethical governance drives how we operate our business at every level.

With this balance of these three areas of ESG complemented by a sharp focus on financial results will drive performance and execution to create sustainable long-term value for all our stakeholders. Our goals over the next 5 and 10 years include further reductions to our emissions intensity including carbon neutrality by 2035, enhancing our supplier sustainability and diversity programs, implementing a robust employee volunteer program and minimizing the environmental impact of our fleet and facilities.

Now at AVANGRID, we believe leaders set bold goals and then deliver on them. But it's also important to measure and compare yourself to your peers. And as you can see on this slide 18, we don't just talk about being a clean energy company at AVANGRID. We deliver. Renewables currently make up 90% of our own generation portfolio compared with just under 40% for comparable peers and only a quarter industry-wide. We're a leader in renewables. And the commitments we've made will continue to expand that leadership position.

Now, before I turn it over to Doug, I want to bring things back full circle to the big picture. I'm excited about the future here at AVANGRID. Our current platform of businesses and our merger with PNM positioned AVANGRID for strong and predictable growth over the next five years. Over 85% of our business mix is expected to be regulated, and we'll invest approximately $20 billion in total through 2025.

We're committed to clean generation and have identified long-term profitable offshore wind and transmission opportunities, as well as a large pipeline of onshore renewable opportunities that will support the 6% to 8% adjusted EPS CAGR through 2025 we discussed at our Investor Day in November.

And while we have plenty of organic growth opportunities, we also have a successful track record in M&A, first, with the acquisition of UIL and now with PNM Resources underway.

These transactions create scale, they add regulatory - regulated revenue, and geographic diversity, and provide stability that enables future renewables growth.

We'll also continue to focus on maintaining an attractive, reliable dividend yield, and solid investment grade credit ratings. All of these ingredients are vital to becoming the leading sustainable energy company in the US. Is this a bold aspiration? Yes, it is. Is it achievable? Absolutely. And I look forward to sharing our progress with you on future calls.

Now, I'll hand it over to Doug to discuss the financial results.

Douglas K. Stuver

Chief Financial Officer & Senior Vice President, Avangrid, Inc.

Thank you, Dennis. Good morning, everyone, and thank you for joining us today. Let's turn to the financial highlights for 2020. AVANGRID reported fourth quarter 2020 GAAP EPS of $0.54 per share and adjusted EPS of $0.62 per share.

For the full-year 2020, AVANGRID reported GAAP EPS of $1.88 per share and adjusted EPS of $2.02 per share which is above the $1.90 to $2 per share guidance range we affirmed at our November 5 Investor Day. Overall, our 2020 results, in comparison to 2019, reflect the strong growth and contributions of our core networks business.

In the fourth quarter, we received regulatory approval for our New York company's multi-year rate plan representing a very important step on the road to earning our authorized returns in networks. For 2020, Networks' rate agreements provided $0.34 of higher earnings per share with New York delivering $0.22 of this in the fourth quarter through our [ph] make whole (00:26:45) back to April 17 and $0.28 overall for the year.

In 2020, we received regulatory approval for a transmission revenue decoupling in Maine that reduces our risk and fluctuations in customer volumes. This produced a positive $0.06 benefit for the quarter and year.

In the Renewables business, you'll recall that we had a large asset sale in the fourth quarter of 2019 that delivered approximately $0.32 of adjusted EPS. In the fourth quarter of this year, we completed sale of majority of shares in the Tatanka Wind Farm allowing us to recycle approximately $240 million in capital and produce a $0.04 positive EPS impact.

Excluding the effects of asset sales, renewables for full-year 2020 adjusted EPS results are up approximately 14%, made possible from the benefits of adding almost 1,000 megawatts of new capacity in 2019 in the first part of 2020.

Wind production and pricing, net of operating costs and depreciation, contributed $0.04 of higher earnings per share in the fourth quarter and $0.09 for the full year. In our Corporate segment, higher interest costs and income taxes negatively impacted the quarter and annual results by approximately negative $0.04 and negative $0.12 respectively.

Higher interest costs resulted from the issuance of $1.5 billion in green bonds over 2019 and 2020, and income taxes increased primarily due to the prior year favorable [ph] street (00:28:25) items.

Looking forward to 2021, we are affirming our EPS and adjusted EPS outlook for $2.15 to $2.35 per share, reflecting net income and adjusted net income of $665 million to $727 million.

In Networks, we expect rate-based growth of approximately $500 million or 5% along with a full year of new rates for our New York companies and CMP and a new rate year for CMG. We also benefit from AFUDC income related to NECEC starting construction in January of 2021.

These advancements, position Networks to earn its authorized returns in 2022 and significantly close the gap in 2021. In our Renewables business, we expect to benefit from nearly 1 Gigawatt of new projects in repowering that occurred in 2020. And we will be bringing another 690 megawatts of wind and solar projects online in 2021.

We also expect to reach an important milestone in 2021 for our offshore business with the start of construction of

Vineyard Wind 1, the first large-scale offshore wind farm in the US. During 2021, we expect to fund approximately $70 million for our 50% share of investments in this project.

And with our offshore wind business, I'd also like to emphasize some additional points. First, we're confident that our projects will earn solid double-digit leverage returns. We have strong partners in CIP and Iberdrola with track records of constructing offshore projects on time and on budget and with the practice of establishing and maintaining conservative assumptions.

Our projects are in attractive lease areas with relatively short transmission lines to our landing point and we benefit from existing port infrastructure. We also benefit from the new 30% offshore wind investment tax credit which is applicable to each of our projects.

You'll recall that with Vineyard Wind, we originally assumed a mix of 24% and 18% ITC for the project. In the case of Park City, we did not assume ITC in our original pricing. And with this extended tax benefit, we expect to sharing between the project and our customers. And then finally, we have the opportunity for meaningful economies of scale in procurement and operations due to the timing of our two projects in the contiguous leased areas.

Now, moving on to financing plans and liquidity, our strong balance sheet, predominantly regulated business mix and solid investment grade credit ratings, provide us with excellent flexibility to finance our organic growth and the PNM Resources merger. In late 2020, we entered into a very attractive $3 billion intercompany financing arrangement with Iberdrola which significantly enhanced our liquidity position and provided a low-cost source of funds.

We use these funds to pay down commercial paper borrowings and fund CapEx. This loan, along with the funding commitment letter for the PNM Resources merger and Iberdrola's announced intent to participate at 81.5% share in the 2021 equity offering demonstrate Iberdrola's strong commitment to AVANGRID and support for the merger transaction.

In 2021, we continue to be focused on maintaining a strong balance sheet and solid investment grade credit ratings. In support of this, we plan to issue approximately $4 billion in equity in 2021, which will strengthen our balance sheet and improve our share liquidity.

Of this amount, $3.6 billion is attributed to our merger with PNM Resources and $400 million will finance the attractive investments in our plan that contributes to the 6% to 8% EPS growth we outlined on our Investor Day last fall. We do not expect to issue any additional equity through 2022.

We also expect to enter into long-term debt financing in the form of green bonds or sustainability linked bonds for our [ph] whole co (00:32:44) financing needs and tax equity financing for our renewables projects. While not included in our plan, we will opportunistically consider value-added capital recycling as another funding lever.

We have ample additional liquidity available through our $2 billion commercial paper program, supported by a $2.5 billion sustainability linked revolving credit facility and an additional $500 million bank credit facility, plus a $500 million credit facility available from Iberdrola. We have ambitious and achievable plans to become the leading sustainable energy company in the US.

Our focus now is on executing those plans to drive value. This includes investing nearly $3 billion in our Networks and Renewables businesses in [Technical Difficulty] (00:33:34) closing on a $4.3 billion merger in the second half of this year and continuing to deliver solid and reliable dividend.

Slide 24 provides an overview of our investment grade credit ratings and our dividend policy. We recognize that our robust growth program and the important commitments we've made to provide relief to our customers during this pandemic through moratoriums and waivers of late payment and other fees will temporarily affect us.

However, with the strong support of Iberdrola and our financing plans, we remain committed to maintaining solid investment grade credit rating. We have a strong Networks footprint and with the addition of PNM, we will increase and diversify our regulated businesses, further strengthening our credit profile.

Over the next five years with over $12 billion of our $20 billion of investments in our Networks companies, we will further improve safety, reliability and predictability. We are communicating with our rating agencies about these plans. In addition, we remind you that S&P ties our rating to Iberdrola's and S&P just reaffirmed that rating of BBB+ and widened the FFO to debt threshold from 18% to 20% to 17% to 20%.

This was done in recognition of the resiliency shown during COVID and with accelerated growth considering them as an energy transition champion. Our dividend policy remains unchanged targeting a payout of 65% to 75% thatwe will grow into as our earnings increase over time. Our Board recently declared a quarterly dividend of $0.44 per share payable on April 1.

With that, thank you for joining us for today's fourth quarter 2020 earnings call.

I'd like to close by saying that we're looking forward to adding PNM to our family later this year and continuing to deliver sustainable growth and value creation by investing in a smarter and cleaner energy future.

I will now hand the call back to our operator, Julianne, for questions followed by a brief closing remarks from Dennis.

QUESTION AND ANSWER SECTION

Operator: Thank you. [Operator Instructions] Your first question will come from David Arcaro from Morgan Stanley. Please go ahead. Your line is open.

David Arcaro

Analyst, Morgan Stanley & Co. LLC

Hi. Good morning. Thanks for taking my question.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good morning, David.

David Arcaro

Analyst, Morgan Stanley & Co. LLC

Good morning. I was wondering if you could talk to - Doug, thoughts on equity needs post 2022 through the rest of the plan.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Let me touch on that David. I mean, I think, as you'll remember, we provided some information at our Investors Day that laid out our expected sources and uses of funds from 2020 to 2025. And this did include the funding of the merger with PNM. And as Doug just touched on in his formal remarks that we will be planning to issue up to $4 billion in equity this year in association with the PNM merger and the expected CapEx, and that will happen by the end of the year.

So with this capital raise, I want to just be really clear, we did not anticipate any additional equity needs through the end of 2022. And that capital raise is consistent with the 2022 financial outlook we provided to you in November.

Now, when you think about beyond 2022 and through 2025, we've got a lot of different levers available to us to raise the necessary non-debt capital to fund our growth program and to maintain our strong balance sheet including asset recycling, hybrid securities.

We can raise equity, asset securitizations, and actually potentially monetizing some of our larger projects if it makes sense. So, the 6% to 8% EPS CAGR growth through 2025 that we provided in November took into account the different levers available to us. And we looked at it under a different market conditions, and we estimate that we would most likely raise approximately $2 billion in additional capital through those levers or a combination of them to help fund our growth from 2023 through 2025.

Now needless to say with the 30% ITC applicable to Vineyard Wind 1, our confidence level on the 6% to 8% EPS growth through 2025 is even stronger. So, hopefully, that answers your question.

David Arcaro

Analyst, Morgan Stanley & Co. LLC

Yeah. Great. That's super helpful color. I appreciate that. And just a question on Texas, I was wondering if there was any quantification you might be able to provide in terms of - it sounds like you had a gain but with your very strong operational performance in the state in the weather events. And I was wondering if there was any quantification you might be able to provide and is that embedded in the 2021 guidance at this point?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

You know I think what I would tell you is first of all, we're really proud of our folks down in Texas. They had to not just work hard to get the - our turbines running again, but they were living there and their families were impacted by it as well. So, they did a great job to get the generating - generation operating as quickly as possible. And I think as we said in our statement that we were able to meet our limited fixed obligations and then provide the excess energy back into the market to help the people of Texas.

At this point, we're not going to be providing more details on the financial impact. But what I will tell you is it was positive because we did have access to energy. And although it's still early in the year, I guess what I would tell you it really adds to the confidence we have in our - in the guidance that we just affirmed of $2.15 to $2.35 for 2021.

David Arcaro

Analyst, Morgan Stanley & Co. LLC

Great. Thanks. That makes sense. Thanks very much.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you.

Operator: Your next question comes from Insoo Kim from Goldman Sachs. Please go ahead. Your line is open.

Insoo Kim

Analyst, Goldman Sachs & Co. LLC

Thank you. My first question is on - in Maine with the NECEC. Definitely, appreciate the start of the construction that you guys had. It seems like more recently there's been a second round of the citizens' initiative against the project, then more recently the secretary of state approved those signatures to proceed.

So now we're talking about round two of what we experienced last year and how that ended up. How do you see this one? How it's laid out different or the same as the past and whether you think that it presents a real threat to a project?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Yeah, Insoo, let me start and then I'll pass it over to Bob, and he can provide some more color. I don't think there's any energy infrastructure project underway in the United States that doesn't have some opposition. I think it's very clear that with this - the Biden administration, there's the realization, we need more transmission in this country to be able to get the clean energy to the load centers so that people can use it.

And as we think about NECEC, it's that type of project that truly is going to provide clean energy into the New England area. It's going to provide jobs. It's an economic stimulus. And it's something that as we've been polling more - more and more people, they are understanding the benefits to Maine and to the region.

So, are we surprised by the referendum? I'd say no. Is it - it's just going to be additional work that we've got to continue to educate people and including the legislators on the importance of this transmission line. But we remain confident. But Bob, you may want to share some more on that.

Robert D. Kump

Deputy Chief Executive Officer & President, Avangrid, Inc.

Yeah, sure. Good morning, Insoo. So, a couple things particular to the referendum. First, we believe that that referendum is really bad public policy because it could have unintended consequences for other clean energy projects in Maine that will need transmission.

And as Dennis said, secondly, I wouldn't draw conclusions from the number of signatures that the opponents collected. Remember, that this is the second one. They learned from the first one. They knew who their supporters were and were able to be really more efficient in terms of collecting signatures.

I'd also point out that the fossil fuel interests that are really behind this effort to impact NECEC paid $1.5 million to 350 individuals at $35 an hour to get these signatures. So, it's not a surprise to us that they got the signatures. What's more important I think is where is consumer spending. And if you look at recent polling that has been done, the opposition is in the minority, and we have continued to see improvements in support for the project over the past year.

And we think that that settlement and that the view of NECEC will continue as we begin to construct a line and demonstrate the jobs that are being created for maintenance and the economic benefits the project will bring to Maine. I think Den has mentioned, we have right now got 275 Mainers employed. And that's really just the start.

So, again, as Dennis said, I don't expect the opposition to end. It's going to be there probably till the project goes commercial operation. But the reality is we've been successful in defeating every challenge that the opposition has put in front of us. It's really indicative of all of the work that has been done by the agencies both state and federal in issuing permits and the quality of those permits that were issued.

So the bottom line is the project is aligned with the Biden administration's goals. The governor continues to strongly support the project. In fact just yesterday in her state of the budget, she referenced the benefits of NECEC twice. As we talked, the project is fully permitted. And people are clearly aware of two things, realizing two things.

One, the need for transmission to bring renewables to market and, two, who's really behind the opposition to this project. So, again, we're really excited about having started construction and being able to show Mainers and for that matter all of New England the benefits the project will bring, whether it's monies for low-income consumers, jobs, EV infrastructure we've committed to, heat pumps, broadband, property taxes, you name it. This is the largest, as Dennis mentioned, clean energy project in New England and we're looking forward to bringing this online in the second quarter of 2023.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

The other thing, Insoo, this is Dennis, that was interesting about the governor's comments yesterday. This is also going to provide access to additional Internet and telecommunication systems for people throughout the state. So there are a lot of really different benefits to this. And again part of our job is to make sure that we're clearly articulating what those benefits are and to move forward.

Insoo Kim

Analyst, Goldman Sachs & Co. LLC

Got it. That's really good color. My second question is on offshore wind. Just more broadly there's been an increasing concerns just on a global scale with the entrances by the oil majors. And investors worry that for developers like you guys and Iberdrola that the increased competition could drive returns lower.

So understanding that you guys will be very I guess, disciplined under the term profiles. I don't know if you're willing to share what type of returns you're willing to accept, going forward for future projects or just more broadly, how do you think from a competitive standpoint, what type of edge you may have versus some of the other parties that can help you guys?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Sure. Let me start and I'll ask Alejandro to jump in and provide some color as well. I mean look, I think there's no doubt that with the entrance of some of the larger energy companies that have not traditionally been involved in the clean energy space, I think if anything what it does is, it just clarifies that this - the offshore wind industry is for real.

And it's a place where companies can put a lot of capital to work. So competition is good. It's good for consumers. It's good for us, it makes us sharpen our pencils. But we're going to continue to be very disciplined in the bids that we make.

We actually think that given our experience and Iberdrola's experience, we're the type of company that some of these other major energy companies would want to partner with. So we don't see it really as a negative, as long as we continue to focus on making sure that we maintain our financial discipline. And the other thing I would say is, it's really going to be important going forward that we are not just a power provider here. But that we provide energy and economic solutions.

And I think with the leased areas that we have and the work that we've been doing especially in the New England, New York area as well as down in the South, that's what - how we're going to differentiate ourselves. It's not just going to be about providing cheap energy. It's got to be competitive energy, but it also has to do with what can we do to build jobs? What can we do to bring more manufacturing to that area?

I think that's one of the things that differentiates AVANGRID in our experience, and I think it'll help differentiate us as we go forward. But, Alejandro, do you want to add to that?

Alejandro de Hoz

President & Chief Executive Officer-Avangrid Renewables, LLC, Avangrid, Inc.

Thank you, Dennis. I mean not much to add to everything you said. I would just say that, well, in the US, the demand we are seeing, there is - it's really high for the next years. The number of competitors is not a huge item. There are not many, many companies that can really engage into this kind of infrastructure project.

And then we have a track record as Dennis was saying. We have some experience in construction and operation that gives us clearly, a competitive advantage. So I think that while being disciplined, as Dennis said, we will we continue to have many opportunities to grow.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

And Insoo, given that we can see who's on the call and we may have some competition, we're not going to get into returns.

Insoo Kim

Analyst, Goldman Sachs & Co. LLC

Understood. Thank you so much.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you.

Operator: Your next question comes from Neil Kalton from Wells Fargo Securities. Please go ahead. Your line is open.

Neil Kalton

Analyst, Wells Fargo Securities LLC

Yeah. Hi, everyone. Thanks for taking my call or the question.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good morning, Neil.

Neil Kalton

Analyst, Wells Fargo Securities LLC

Yeah. Kitty Hawk, I wanted to start there. So did I hear you right that the thought is that this could be COD by as early as 2026? And if so, what do we need to kind of get there, right? I think it's - there's no off takers yet or it's not really crystal clear how it's going to proceed. So just thoughts on that to start.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Sure. Let me start and then Alejandro can jump in. I think one of the things that we've learned is with Vineyard Wind 1, we've been the guinea pig, if you will with BOEM. So our expectation is that as we continue to go forward with Park City and with Kitty Hawk, the experience that we have and the comfort hopefully that BOEM has with our process is going to help us as we go forward with our other projects including Kitty Hawk. But, Alejandro, could you jump in?

Alejandro de Hoz

President & Chief Executive Officer-Avangrid Renewables, LLC, Avangrid, Inc.

Yeah. Sure. So, I mean, it is clear that we need everyone to market for that project to construct it and make it operational but - what we have seen installed, those are things that come and go off very, very quickly. You have seen how much have happened in the region in 2020.

We are developing the project as quickly as we can to be ready so that investment become the critical part, once we find the route to market. And in terms of route to market, well, you know the objectives of Virginia. You know that North Carolina is showing a high interest in offshore wind as well. So really we want to be ready very, very quickly. And 2026 if the timing of final stage works as we expect, it's not unrealistic.

Neil Kalton

Analyst, Wells Fargo Securities LLC

Got it. Thanks. And then my second question, I apologize if I missed this, but on the Excelsior project, is there anything sort of - is that a pretty clear from a right of way standpoint? Are there any considerations just having lived through the New England, Maine line, other projects, I mean is there anything that we need to be concerned about in terms of the [ph] siding (00:50:28) here?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Look, let me start and I'll ask Tony to jump in. I think whenever you're working on a transmission project, there are challenges. They're not easy. The team has been working on this one for a while, looking at the most efficient and effective way where - from where we think we can we can receive energy from renewable developers to get it all the way down to New York. And I'd say this project is beyond just a concept as this has got a lot of details behind it. But, Tony, if you want to jump in.

Anthony Marone

President & Chief Executive Officer, Avangrid Networks, Inc, Avangrid, Inc.

Yeah. Sure, Dennis. Thank you. And the right of way is certainly one of many challenges that we've got to overcome here. But we feel really good about the project and the pathway that we've chosen, our competitiveness in this. And as Dennis said earlier, it's not just about price, it's also about the flexibility of the assets that you're providing and economic development benefits as well.

So we feel really motivated by the package that we're putting together and bids are due on May 12 of this year and we plan to be presenting very competitive proposals.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

And look, I think it's this - very public, but the governor would like to get more renewable power from the Northern part of the State down to the city. And we're really excited about the response we've got so far based upon the announcement that we've made on the solicitation.

Developers sees this as a high priority project for them to be able to get their power down. So it's early. It's not in our plan. So again, it's upside, but it's something that we're really excited about.

Anthony Marone

President & Chief Executive Officer, Avangrid Networks, Inc, Avangrid, Inc.

We also think [indiscernible] (00:52:06) what differentiates us here is, this is the New York solution, an all New York solution.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Yeah.

Neil Kalton

Analyst, Wells Fargo Securities LLC

Okay. So and one last quick question on this, the follow up. Do you have any wind sites in Northern New York that could be on this line?

Yes. There's a number of wind farms in and around that in [indiscernible] (00:52:25) and Southern [indiscernible] (00:52:28) comes to mind. It's just North of Utica. Maple Ridge, there's a couple more up close to the border, north of the - around that park that presumably along with many, many other wind farms would have access to this line.

Neil Kalton

Analyst, Wells Fargo Securities LLC

Okay. Got it. But - it would be existing wind farms or would it be new projects that you guys could do?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

It could be a combination of both. That's really what the RFP that we just put out is to solicit front generators, who would want to tap into the line. One other thing, I'll just mention Neil, this is - I think saw someone ask this question in a research note when we announced it.

This is something we've been working on for a long time. We called it something different back four or five years ago, called Connect New York. So, it's a very similar concept, this new project. So, there's a lot of work that has been done over the years that puts us in kind of a more advanced stage than many might think relative to having just an [indiscernible] (00:53:26).

Neil Kalton

Analyst, Wells Fargo Securities LLC

Yeah. Remember that well. Yes. Thank you.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thanks, Neil.

Operator: Our next question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead. Your line is open.

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

[indiscernible] (00:53:44) Good morning, team. Thanks for the time and opportunity.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good morning, Julien. Thank you.

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

Hey, thank you. So if I can I'll start with a couple of small points here [Technical Difficulty] (00:53:52). The ITC benefits, you guys flagged them earlier here, obviously a positive. Can you talk a little bit about how much of that ITC is flowing in, adding to your confidence on earnings? I know you don't traditionally necessarily talk about the offshore economics in earnings terms per se but if you can elaborate however you can.

And then related to that, if you don't mind, COVID impacts going into 2021, is there an ongoing impact here? [Technical Difficulty] (00:54:19)

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Let me start with the easy one. On the COVID impacts, we did provide some information in our appendix that gives some sensitivities or assumptions on what we think. I mean obviously we don't have a crystal ball there but we do know what's going on right now. So, you've got some information there that I think will help you understand how we think about it.

On the - on the second question?

Douglas K. Stuver

Chief Financial Officer & Senior Vice President, Avangrid, Inc.

Yes. Julien, this is Doug. Hi. Related to ITC, as you know we have the Vineyard Park City Projects. With Vineyard we had originally assumed 24% ITC for the first half of that project and 18% for the second half. Now, when we're in the 30% ITC environment, that's obvious upside relative to our original economics.

In the case of Park City and when we bid that project, we didn't really have an anticipation of qualifying for ITC, given the timeframe that it was scheduled to go in service. So, now, with the expansion of ITC at 30% out through the date of this project, that would be ITC benefits that were not planned.

We do expect though with that project to have to share ITC benefits with the customers so there will be some allocation between the project and customers on that particular item.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

The other thing I'd say, Julien, given that we expect Park City and - excuse me, Vineyard and Park City to come online in 2024 and 2025, that's right at the tail end of our - the five-year plan that we have. I guess it gives us additional confidence in the 6% to 8% CAGR growth that we provided in November.

So, at this point in time, we're not going to quantify exactly what that is but it is a positive in both projects, more so in Vineyard. And we'll see the benefits of those in 2024 and 2025 and beyond.

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

Right. Got it. Okay. Sorry. And just to [indiscernible] (00:56:26) COVID, you haven't provided a - I see the appendix here. You haven't provided a total estimated impact in 2021. You've been doing this because it's unclear, right?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Yeah. At this point in time, we haven't. I mean, look, every state is moving quicker on certain things. If you look at here in Connecticut, the governor just announced that vaccines are going to be available by age group, including starting on March 1, people that are 55 and older, which I belong to that group, can now start making appointments to get their vaccines.

New York is in a slightly different situation, although things seemed to be moving a little bit more there. So, we have not included a specific number, and - but as we have more information and as the year goes by, we'll provide updates.

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

Right. [Technical Difficulty] (00:57:21) Some - one final clarification, on the balance sheet, I think I heard you clearly, but I want to make sure I heard this right. So, the financing plan through 2025 hasn't changed, you're just providing clarity on 2021. What's the total amount to come to market here? I know that there's a piece that - isn't necessarily marketed per se. What's the total amount that you would - that is coming forward with here? If you can clarify that. And also just affirm that this does not impact the total, I think, it was like the 47% of financing needed to 2025, I think that's where you have to [indiscernible] (00:57:54) for.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

So, let's break it up into two pieces. First of all, again in 2021, we're assuming related to the merger and additional CapEx needs that we'll be issuing up to $4 billion in equity by the end of the year. And that was part of our -I think we have the $3.6 billion originally in our plan, but the $4 billion works still within the range that we've given - with the outlook that we gave in 2022 in November.

And then if you look at the next piece, what do we need beyond 2023 through 2025, what I said in my - what I answered in one of the questions here is that's still 2.5 years - 3 years away. But based upon the plan and the sensitivities that we've done, a large portion of our overall needs are going to be financed by debt and by tax equity. However, we'll probably need somewhere close to a $2 billion in additional capital or proceeds.

And if we're looking to do those in the most beneficial way that we can, whether it's through recycling existing assets, hybrids securities that could include equity, it could include assets securitizations or in some of the major projects we're talking about, we could decide to monetize a piece of that to minority players, it makes sense.

So, there's a lot of different options that we have. But because I know that you've been interested in this and others have, we wanted to be very clear that those sources or those levers that we have would probably add up to about $2 billion. And that is included in the sensitivity around that $2 billion is included in that 68% CAGR growth for EPS and adjusted EPS for 2025.

Julien Dumoulin-Smith

Analyst, BofA Securities, Inc.

Got it. Okay I'll leave it there. You guys have been kind.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thanks, Julien.

Operator: Your next question comes from Michael Sullivan from Wolfe Research. Please go ahead. Your line is open.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Hey, everyone. Good morning.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good morning, Michael.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Hey. I just wanted to follow up on what's going on in Connecticut. I think one of your old cases at UIL was reopened related to COVID and just what your expectations are there? And if this turns into a more traditional rate case or if there were plans for that at all, just the thinking on the Connecticut regulatory?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Sure. Let me start and I'll ask Tony to jump in. I think one of the things that we've continued to work closely with the regulators and the other interveners to make sure that we understand what their sensitivities are related to COVID and the impact that it's had on customer bills and everything. So, we want to be part of the solution here, and I think that we have been. But Tony, if you want to add to that.

Anthony Marone

President & Chief Executive Officer, Avangrid Networks, Inc, Avangrid, Inc.

Yeah. So, yeah, there's a few dockets that are on their way. And certainly, with respect to COVID and on collectibles and when we start collections and so forth, we've been fully engaged with all the parties there

[indiscernible] (01:00:57) and others to make sure that whatever solution we put forward makes sense for the ratepayers.

And so we've been following that. There's nothing right now with respect to any significant change associated with that. But we maintain to follow whatever the guidance [indiscernible] (01:01:31) it is as far as that goes.

Connecticut was one of the first states that allowed for spending up regulatory assets related to COVID-related costs. And so we're happy about that. And they continue to monitor that. So we provide data on a regular basis. And we look forward to getting beyond this so that we get back to business as normal for our customers and all our employees.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Okay. And just to clarify, though, outside of this, was there a plan to file a UI rate case in the near future?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

So UI is outside of its rate plan right now. Last time rates were increased for UI was January of 2019. So we're evaluating that. UI has done reasonably well and its earnings is a lot of return. And so we're happy about that. But as we look forward, there certainly will be a point in time where UI will need to go in for new rates. But at this point, we're still considering evaluating that.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Okay. Great. Thanks. And then shifting over to the Vineyard Wind process, I know you all said you're expecting a resolution from BOEM in the first half of the year. Have they put out a specific schedule or any dates for milestones since you've resumed the permitting process there?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

They have not put out a specific schedule or calendar. Our team is continuing to work very closely with their staff to give them the information that they need and - but they have not. We're optimistic based upon all the work that had been done prior to us, temporarily pausing our application that they're moving forward.

And I think that with the new BOEM director being very familiar with wind and this being, I think the trophy marquee project for the Biden administration to say that they are totally supportive of wind. We're optimistic that this is going to happen sooner than later.

Michael P. Sullivan

Analyst, Wolfe Research LLC

Great. That was it. Thank you.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you.

Operator: Your next question comes from Richard Sunderland from JPMorgan. Please go ahead. Your line is open.

Richard W. Sunderland

Analyst, JPMorgan Securities LLC

Hi. Good morning, Dennis. Just maybe a quick clarification upfront. The up to $4 billion equity in 2021, that's - Iberdrola intends to participate in the entirety of that, at their pro rata ownership. Is that correct?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Yes. They have communicated to us that they would like to maintain their current ownership interest, 81.5%. So it's our expectation based upon what they - [Technical Difficulty] (01:04:12) participate on a pro rata basis.

Richard W. Sunderland

Analyst, JPMorgan Securities LLC

Okay. Got it. And then, starting off at a higher level here that the sort of earned ROE improvement you're contemplating. I'm curious, if you've got any insight into the main process following the expected, I think September filing and I guess for 2022 specifically, if you expect to earn your authorized ROE on the Networks wide basis or you know, at each individual utility?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Well, I think there's a couple of things there. Let's start with the second half of the question. Our plan is to be in a position including with Maine to be able to earn or authorized that all utilities in 2022. That we just got the New York rate case here in November.

The outcome, I think was a really strong one for us and for our customers and allows us to do a lot of things that we can do more of now that - like vegetation management that increase the reliability and the resiliency that help us to avoid penalties. So, we think that - in New York, for example, as the year goes through, we have the opportunities to at least turn our authorized ROE.

In the case of Maine, as you mentioned, we're doing very well with the four metrics that we have to in order to be able to file an application to get these 100 basis points adjust downward adjustment listed. We haven't made a decision yet how early we may file that, but it's something that obviously we want to do as soon as it makes sense.

And we're continuing to work closely with the commission. They're following our results as well as they should. But I think that overall, we want to be in a position in 2022 to be able to at least earn our authorized ROEs at all of our utilities.

Richard W. Sunderland

Analyst, JPMorgan Securities LLC

Great. Appreciate the color there. And then just one final one for me, if I could, you saw the earnings restatement. Just curious if you have any color there or sort of the works to improve internal controls.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Sure. Let me just clarify. It was not an earnings restatement. These were items from 2019 that management and our outside auditors felt were 2019 items that should be reflected in the 2019 financial statements, and so we both agreed to make that adjustment. But there is, as you know, there's a difference between a restatement and an adjustment to a prior period.

And in the case of the controls that we've had some challenges in the past, I think that we're continuing to make progress to improve the overall system of controls of the company. They can always be stronger but there's something that we're focused on and we're dedicating the resources to continue to have stronger controls going forward. I mean, Doug, I don't know if you have anything else.

Douglas K. Stuver

Chief Financial Officer & Senior Vice President, Avangrid, Inc.

No. I think that's all, Dennis. Just to clarify, this is technically called a revision, not a restatement. And so, it simply means we're revising the numbers in our filings for 2019 to reflect the changes that Dennis highlighted. These are mainly tax items and we have made tremendous progress in tax with improving our processes and controls.

And I would say, this is really more a function of those enhanced processes and controls identifying this type of items and positioning us well, going forward.

Richard W. Sunderland

Analyst, JPMorgan Securities LLC

Great. Appreciate the clarification there and thanks for the time.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you, Richard.

Operator: Your next question comes from Sophie Karp from KeyBanc. Please go ahead. Your line is open.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

Hi. Thanks for taking my question. It's actually Sangita for Sophie.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Hello there.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

How are you?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

So, a couple of things, one is there seems to be a package of bills moving through the New York legislature dealing with COVID disconnects and penalties on storm outages. And I was wondering if you could elaborate a little bit on what you think if the disconnects get extended to the end of 2021, what that means for your guidance? And then, I'll ask you a follow-up on the discounts for storm outages.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Sure. I think in New York, we're watching and monitoring it very closely. I think that there are new bills that are being considered in their legislature. There are discussions about continuing to extend the moratorium on [ph] trade-offs (01:09:15) and what might happen with the past two bills and everything. So, at this point in time, it would be truly speculation from us to say what's going to happen there.

I think from an earnings perspective, we don't expect it to have any major impact there. If anything, it's more of a cash flow impact. But I think one of the things that we're continuing to do is look at different vehicles that we might be able to employ to be able to collect some of that cash sooner than later, and yet not have an overall impact in the short term on customers.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

Okay. And if there's any color you can provide on the [indiscernible] (01:09:58) who imposed rate discounts on their service disconnects or allowing the [ph] PSP (01:10:06) to remove restrictions for penalties?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Again it's a new bill that's been introduced. I don't think it's been fully debated. I think that there is recognition that you want to make sure that there's a level playing field and that reasonable judgment is included in any decisions that the utilities make. So, again, we're continuing to follow this.

We have strong opinions as I think other utilities do not matches the New York but throughout the country. The reasonable standard is one that is very common and allows companies like ours and other utilities to make long-term investments and be using sound business practices given the situations that they're dealing with.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

That's very helpful. Thank you. And if I can move on to Texas. I understand that your turbines performed better than some of the others, but I just wanted to find out if - are your turbines that are inland weatherized, is that why they perform better, or do you have plans to weatherize them?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

I'll ask Alejandro to jump in, but I think part of the reason why is most of our turbines are actually the southern part of Texas. So I think just geographically where they were located, some of the cold weather lifted sooner than it did in other parts of Texas. But, Alejandro, if you want to add anything there?

Alejandro de Hoz

President & Chief Executive Officer-Avangrid Renewables, LLC, Avangrid, Inc.

Yes, sure, Dennis. So, yes, what you said is totally true. I mean, we have, as you know, most of our assets in Texas are in the Southeast and obviously they were less affected by cold than the assets further in the North. In terms of weatherizing the turbines, the answer to that is they are weatherized but for the Texas weather which is more towards the high temperatures than the low temperatures.

And just to make it clear, this is a choice. You have to either decide whether them to be optimized for a warmer weather or cold weather. And so obviously, we optimized those turbines to a warmer weather, and therefore that's why we have suffered, us and the whole industry, these difficulties in those days.

Sangita Jain

Analyst, KeyBanc Capital Markets, Inc.

Okay. That's very helpful. Thank you.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you.

Operator: Your next question comes from Angie Storozynski from Seaport. Please go ahead. Your line is open.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

Thank you. Okay. So just I have to talk about Texas because I feel like I've been writing about it so much. I mean, you guys have pretty much told us how much money you made, right? You said 7% of wind power output during the cold snap, and we know what the wind power output was, right? So it's - I'm just making sure that it's not as simple as that.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Well, I don't know that we've said how much money we've made. What we're trying to illustrate is that when you look at the wind capacity that we have as it operates ordinarily, we were able to do better than we ordinarily would, at least given what we represent as far as the capacity of the overall market. And that's what enabled us to provide additional energy to the grid and to the customers of Texas.

But I'm not sure - I think it would be very difficult to take that excess above our traditional capacity and try to ascertain what the financial implications are because as you know the price or the cost of the - the price of the power changes on an hourly basis. So, without knowing what was going on, on an hour-to-hour basis, I don't know how anybody would come up with that.

Douglas K. Stuver

Chief Financial Officer & Senior Vice President, Avangrid, Inc.

This is Doug. I'd just add too that portions of that generation are under power purchase agreements. If they would not have been selling into that high price market, we would have been collecting the price that was negotiated under the power purchase agreement.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

But Angie, I think the important part for us is we got this - we got our wind farms up and running as quickly as we could. We served our fixed or limited fixed obligations that we provided excess power. And it gives us additional confidence that our $2.15 to $2.35 is very achievable.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

Yeah. Actually speaking of that guidance I mean you're not providing us with the breakdowns - segmental breakdown. But again, even [indiscernible] (01:14:45) performance of your assets and accounting for the PPAs and the firm contract in Texas. That - the year-over-year comps for renewables is really easy, then you have a number of assets that came online for a year - for the year-end 2020.

Again, you have some benefit in Texas. I mean, So for once I struggle with how conservative this guidance is, and I understand that you're trying to set it as such. But again, it would have probably helped if you showed us the segmental breakdown - a segmental breakdown.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

So, Angie, first of all, nothing is easy in this business. You know that. But, look, we did provide in our appendix some breakdown on what we expect from - on a quarterly basis from both Networks and from Renewables.

And I think you've got a pretty good sense as we talk about you know, before we add on PNM at the end of the year that Networks represents roughly 80% of the overall earnings contribution for AVANGRID. So even though we haven't provided the specific range by business grouping, I think you've got a pretty good sense there.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

Okay. And the last question is on the NECEC referendum. So I understand that you're optimistic that the project is supported. But this referendum will take place in November. You are building the project as we speak. So what happens if the referendum goes against you in November? Yeah. I mean, what happens with the spending?

Robert D. Kump

Deputy Chief Executive Officer & President, Avangrid, Inc.

Yeah. Angie, it's Bob. How are you? Look, we're not going to get into hypotheticals on what happens. But at this point, as I mentioned earlier, we're seeing consumer sentiment strengthen around this project. People are understanding who's really behind this and the motives behind that in terms of the fossil fuel interests.

And they're concerned about losing money on their P&L as this energy comes out. So we are 100% focused on delivering the project on the schedule we have right now and ensuring that Maine and New England get the benefits from this project as we expect.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

The other thing, as far as the way that the referendum is structured, it's not specifically against NECEC, but it looks at transmission as a whole. And what it does is, it brings into the judgment of the legislature on what they think should happen going forward. So, it's not an automatic. If the referendum does pass, that stops the project. The legislature has to get involved there.

And as Bob said, with the polling that we've been seeing from people and get on the support of the governor, we remain optimistic that people are going to continue to understand the benefits this brings, not just from a clean energy standpoint, but from an economic standpoint and job standpoint as well.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

No, that's great. And then lastly, this up to $4 billion in equity, so is it $4 billion or is there a way to shave off some of that equity especially associated with PNM? I mean, you haven't really - at least by my count, fully committed to the financing structure of that acquisition. So, is there still some wiggle room?

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Well, what we said originally was that we were aiming for roughly $3.6 billion in equity and roughly $700 million in debt. And I don't think we've deviated from that. So, the $4 billion in equity, again, takes care of the merger but also provides some additional funding to support the CapEx.

And also, quite honestly, given some of the cash delays we've had from COVID in some of the states, supports our balance sheet from that perspective.

Angie Storozynski

Analyst, Seaport Global Holdings LLC

Very good. Thank you.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Thank you, Angie.

Operator: Our last question today will come from Michael Gaugler from Janney Montgomery Scott. Please go ahead. Your line is open.

Michael Gaugler

Analyst, Janney Montgomery Scott LLC

Good morning, everyone.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Good morning.

Michael Gaugler

Analyst, Janney Montgomery Scott LLC

To start off, with so many wind projects coming online over the next several years, wondering if you've got any concerns about equipment or labor availability when you need it.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Michael, it's a great question. With the growth in renewables, especially onshore, it's important to connect yourself with reputable and serious construction companies and contractors. And we're fortunate that given the scale of business that we do, being the third largest renewables operator and developer in the country, we've got those relationships. But it is tight. And, Alejandro, you may want to touch on that.

Alejandro de Hoz

President & Chief Executive Officer-Avangrid Renewables, LLC, Avangrid, Inc.

Yeah, thank you Dennis. Yes, I agree with what you mentioned. It is true that 2020, as you know, has seen a huge increase in capacity construction both in wind and solar. So, it is a tight market that is [indiscernible] (01:19:34).

But here is where our - with our experience and our track and our relation with the supply chain plays, we are trying to anticipate for these coming years our - closing our contacts with suppliers to be able to, well, not be caught in this market where as you say it's tight because of the level of development that we're seeing.

Michael Gaugler

Analyst, Janney Montgomery Scott LLC

Okay. And then last one - and granted, look, it's certainly early days, but just wondering if you see any opportunities in ERCOT for new investment post the storm impacts.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

Look, I think that we like the state of Texas. I think that when we complete the merger with PNM, we'll have a utility there, PNMP. We think it's a very constructive regulatory business-friendly environment. You've seen a lot of companies moving to Texas because the governor and then the legislature and the regulatory bodies are very welcoming there.

And if the opportunity presents itself, we'd like to continue to expand the [indiscernible] (01:21:10). We think it's a good market. Obviously, what happened here in this recent weather event, nobody would have wished on anyone. The people in Texas are smart. They will figure out the best way to go forward, and we want to be a major part of that solution going forward.

Michael Gaugler

Analyst, Janney Montgomery Scott LLC

All right. Thank you.

[indiscernible] (01:21:32)

Operator: This will conclude today's question-and-answer session. I would like to turn the call back over to Dennis Arriola for closing remarks.

Dennis Victor Arriola

Director & Chief Executive Officer, Avangrid, Inc.

So, I want to thank everybody for listening to our call. We know that it's a busy time of the year. There's a lot of other calls going on. But I really hope that our excitement about the future is coming across. AVANGRID is truly in the sweet spot of the energy transition.

And now it's time for our team to execute and to deliver by driving growth in our regulated or renewable businesses, by investing in a cleaner energy future and being a thought and innovation leader supported by strong financial profile. Our ESG and [ph] F (01:21:46) framework is what will drive our strategy and asset allocation decisions over the coming years.

This is the new AVANGRID. We aspire to be the leading sustainable energy company of the US, and we're up to the challenge, and we appreciate your support. If you have any other questions, please follow up with Patricia or Michele. Stay safe and have a great day.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Real-time Estimate Cboe BZX Other stock markets 10:47:00 2024-04-23 am EDT			5-day change	1st Jan Change
37.16 ^USD	+0.28%		+4.13%	+14.73%

Apr. 11	Avangrid Keeps Quarterly Dividend Unchanged at $0.44 per Share, Payable July 1 to Shareholders of Record June 3	MT
Apr. 11	Avangrid, Inc. Declares Quarterly Dividend, Payable July 1, 2024	CI

Avangrid Keeps Quarterly Dividend Unchanged at $0.44 per Share, Payable July 1 to Shareholders of Record June 3	Apr. 11	MT
Avangrid, Inc. Declares Quarterly Dividend, Payable July 1, 2024	Apr. 11	CI
Construction Begins At Avangrid?s First California Solar Farm	Apr. 09	CI
Avangrid, Statkraft Sign Virtual Power Purchase Agreement for Renewable Energy	Apr. 08	MT
Avangrid Receives Federal Record of Decision for New England Wind Projects	Apr. 02	MT
Biden administration approves eighth US offshore wind project	Apr. 02	RE
Avangrid Submits Wind Project Proposals to Multiples New England States	Mar. 27	DJ
Big turnout expected in New England offshore wind power auction	Mar. 27	RE
Big turnout expected in New England offshore wind power auction	Mar. 27	RE
Iberdrola Allocates EUR41 Billion for Strategy to Expedite Electrification	Mar. 22	MT
Avangrid Launching Bill Explainer Videos for Utility Clients	Mar. 15	MT
Avangrid Launches New Educational Tool to Simplify Billing for Utility Customers	Mar. 15	CI
Avangrid Announces Construction of Its Fifth Wind Farm in Illinois	Mar. 11	CI
North American Morning Briefing : Stock Futures -2-	Mar. 11	DJ
Janney Downgrades Avangrid to Sell From Neutral, $35 Price Target	Mar. 08	MT
Global markets live: Broadcom, Gap, Costco, DocuSign, Bayer...	Mar. 08
Iberdrola Offers $2.48 Billion for Takeover of US Unit Avangrid	Mar. 07	MT
Utilities Up After Powell Testimony -- Utilities Roundup	Mar. 07	DJ
Sector Update: Energy Stocks Rising Late Afternoon	Mar. 07	MT
Sector Update: Energy Stocks Advance in Thursday Afternoon Trading	Mar. 07	MT
Sector Update: Energy	Mar. 07	MT
Top Stories at Midday: Powell Testifies Before Senate Panel; US Initial Jobless Claims Unchanged; Novo Nordisk Surpasses Tesla in Market Valuation; Kroger Earnings Rise; Fitch Affirms New York Community Bancorp; Avangrid Receives Take-Private Offer	Mar. 07	MT
Avangrid Receives Take-Private Offer From Controlling Shareholder Iberdrola; Shares Rise	Mar. 07	MT
Stocks in motion: Burlington Stores, Kroger, Ciena...	Mar. 07
Trending : Iberdrola Makes $2.5 Billion Bid for Avangrid	Mar. 07	DJ

	1st Jan change	Capi.
AVANGRID, INC.	+14.73%	14.33B
NEXTERA ENERGY	+10.02%	134B
SOUTHERN COMPANY	+5.16%	79.81B
IBERDROLA, S.A.	-2.74%	76.68B
DUKE ENERGY CORPORATION	+1.85%	75.7B
CONSTELLATION ENERGY CORPORATION	+60.58%	57.74B
AMERICAN ELECTRIC POWER COMPANY, INC.	+5.37%	44.71B
DOMINION ENERGY, INC.	+7.91%	42.41B
EXELON CORPORATION	+5.49%	37.66B
GE VERNOVA INC.	0.00%	37.19B

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