Avangrid, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Avant-Grid's 4Q 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Patricia Cosdell, Vice President, Investor Relations. Thank you, please go ahead.

Thank you, Julianne, and good morning to everyone. Thank you for joining us today to discuss Avangard's fourth quarter 2020 earnings results. Presenting on the call today are Dennis Arriola, our Chief Executive Officer, and Doug Stuber, our Senior Vice President and Chief Financial Officer. Also joining us today for the question and answer part of the call will be Bob Count, Deputy Chief Executive Officer and President of Avangard. Alejandro Dehos, President and Chief Executive Officer of Avangrid Renewables, and Tony Marrone, President and Chief Executive Officer of Avangrid Network. 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 at www.avangrid.com. During today's call, we will make various forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions which are subject to risks and uncertainty. 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 with 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 also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures. I will now turn the call over to Dennis.

Well, thanks, Patricia, and good morning, everyone. We appreciate you joining us for the call. There's no doubt that 2020 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 Offing Grid 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 discussed the need to set reasonable and achievable goals and the importance of delivering on our commitments. And over the last several months, we focused 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 Auburn Grid's 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, from 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 a leading sustainable energy company in the U.S. 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 5th. In addition, we invested $3 billion to drive future growth in networks and renewables. In networks, we successfully settled 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 repowered projects, bringing our total generation capacity to 8.5 gigawatts. We also made significant progress on our three offshore wind projects, and we're in the final approval stages for our Vineyard Wind One project. Across the board, we've demonstrated leadership as a company driven by our purpose to serve our customers and society. And just yesterday, Aubingrid was recognized by Ethisphere 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 Aubingrid. Reinforcing our commitment to ESG and DEF, 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 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 Auburn Group'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 a billion dollars 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 Auburn Grid 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 initially 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 prosperity with gray 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 the oven grid 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 roads are authorized ROE, which means earning at least the approved regulatory ROE at each of our utilities. 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 NECC and other opportunities, to enable the clean energy transition. And thirdly, by the addition of PNM resources. This merger increases Auburn Grid's share of regulated earnings to over 85%, with opportunities to add new clean energy as PNM phases out its existing coal generation. We expect rate base, including P&M, to grow roughly 14% annually from 2020 to 2025 to almost $21 billion. Now, as we've discussed previously, our road to authorized ROE is a data-driven plan focused on accountability, efficiency, continuous improvement, and alignment to our rate cases. By the end of 2021, we will be positioned to earn our allowed ROEs at all of our regulated utilities. In New York, we've secured a three-year rate plan with a make-hold 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 provide needed relief for customers. The plan, which covers nearly half of Auburn Grid's rate base, works with an 8.8% ROE with a 48% equity layer. It provides for critical investments in infrastructure and reliability, enhanced vegetation management, increased allowances for staging and storm cross-recovery, and incremental workforce in key areas to support our crews in the field. The investments amount to about $1 billion per year, driving 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 CMP's 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 poles have been raised, and construction work is underway. Hundreds of Mainers are already employed by NECC 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 main 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 seeks 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 strong interest from renewable developers that want access to the transmission. Now, let's turn to our merger with PNM Resources. We're very pleased that the PMM Resources shareholders overwhelmingly approved the transaction earlier this year. We 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 Medina 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 network 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 Kathryn Stempion to the Aubin Grid family when she joins us in mid-March as the new CEO of Networx. 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 PPAs. 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 bake oven solar, too. Now, I'd also like to address the extraordinary events that have taken place in Texas this past week. Offing Grid 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. At the date, we have 1.6 gigawatt of fully contracted projects made up of our 800 megawatt Vineyard Wind, one, and our 804 megawatt Park City Wind, both shared 50-50 with our partner CIT. At our wholly owned Kitty Hawk site, we expect the first phase to deliver up to one gigawatt of power beginning in 2026. The recent changes to the ITC are also a positive for Offingrid and our customers. For Vineyard Wind, the full 30% ITC will generate additional value for the project. And with BOEM's focus 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 23, and reach full commercial operation in 24. 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 top to BOEM for the first phase of the project, which we expect to come online in 2026. Including phase one of Kitty Hawk, we have approximately six gigawatts available to bid in the future solicitations, of which Aubin Grids owns outright 4.2 gigawatts. As a point of comparison, and to help understand the value of these lease areas, and based on the pricing of the latest after auction in Scotland, our four 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 U.S. in a big way, and Avangrid is extremely well positioned to lead this attractive market. Now 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 at 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 U.S. As the third largest renewables developer in the U.S., our dedication to the environment is clear. In 2020, our emissions intensity fell by 30%, making the oven grid 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 Aubin Group Foundation, our primary charitable entity, we 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 the three areas of ESG complemented by a sharp focus on financial results, we'll drive performance and execution to create sustainable long-term value for all our stakeholders. Our goals over the next five and ten 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 fleets and facilities. Now, at Aubin Grid, 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 position 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 cater 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, add 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 U.S. 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.