Avangrid, Inc.

Good day and thank you for standing by. Welcome to the Avant-Garde first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Patricia Cosgall, Vice President of Investor and Shareholder Services. Please go ahead.

Patricia Cosgall Thank you, Jason, and good morning to everyone. Thank you for joining us today to discuss Auburn Bridge's first quarter 2021 earnings results. Presenting on the call today are Dennis Areola, our Chief Executive Officer, and Doug Stuber, our Senior Vice President and Chief Financial Officer. Also joining us today for the Q&A part of the call will be Bob Kump, Deputy Chief Executive Officer and President of Avangrid, Alejandro Dehos, President and Chief Executive Officer of Avangrid Renewables, and Catherine Stepien, President and Chief Executive Officer of Avangrid Network. 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 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 release in the comments made during this conference call, in the risk factor section of our accompanying presentation, or in our latest reports and filing for the Securities and Exchange Commission, each of which can be found on our website, AubinGrid.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 our earnings call. Now, over the last 10 months, you've heard our team talk a lot about the importance of execution and focusing on delivering strong and consistent results. These are the elements that build trust, confidence, and deliver sustainable long-term value. Now, building on the encouraging direction set in Q4 of 2020, Our results in Q1 demonstrate the progress we've made by prioritizing our resources and building a culture of high performance and accountability. Now, we realize that one or two quarters don't make a trend, but you can't start a trend without a couple quarters. So I'm pleased with the excellent start of the year driven by strong execution and solid operating performance in both our networks and renewable businesses. Our net income in the first quarter was $334 million, or $1.08 per share, up 40% over the first quarter of 2020. And adjusted net income for the quarter was $354 million, or $1.14 per share, up 50% year over year. Now, even if we exclude the impact of the Texas weather event, our adjusted EPS was still a strong 87 cents per share, representing growth of approximately 15% year over year. We delivered double-digit growth in our regulated business, driven by our New York rate cases, and solid progress on our ROJA-authorized ROEs at all our utilities. In the first quarter, we started construction of our $1 billion New England Clean Energy Connect transmission line, which will be the largest clean energy project in New England. And I'm also pleased to officially welcome to the team Catherine Stempion as our new president and CEO of Auburn Grid Networks. Catherine is here with us in Orange, Connecticut, safely socially distanced, and she brings solid leadership experience in the utility business. Her track record of success and innovation are a great addition to our leadership team, and I'm confident that she's going to help raise the bar for all of us as we continue to improve our customer service and focus on reliable and efficient operations. Welcome, Catherine. Now, with regard to our P&M resources merger, we're pleased with our continued progress on the required regulatory approvals, including our all-party settlement in Texas and our multi-party stipulation in New Mexico, as well as the recent FERC approval. We are on track to close the transaction in the second half of the year. In renewables, our adjusted EPS was up by 25 cents compared with the previous year, thanks to the strong operating performance and availability of our fleet, including through the Texas weather event. During the winter storm, we met all of our delivery obligations and produced excess energy, contributing to the solution during the crisis. In offshore wind, we received BOEM's final environmental impact statement in March for our 800 megawatt Vineyard Wind 1 project, and we're on track to break ground in the second half of the year. We currently have 690 megawatts of wind and solar under construction, with 640 megawatts starting construction in 2022. Lastly, based on our strong performance in Q1 and our outlook for the rest of the year, we are raising our EPS and adjusted EPS guidance by $0.10 from our previous range of $2.15 to $2.35 to our new guidance of $2.25 to $2.45 for 2021. This guidance assumes that we close the PNM resources merger along with the required financing at year end. Now, let me provide a little more detail on our operating businesses. In networks, we're focused on operational excellence, customer service, and earning our authorized ROEs at all of our utilities by meeting our commitments in our rate plans, enhancing our operating effectiveness, and continuing to focus on enhancing the customer experience. Our regulated investments during the first quarter were up 40% to nearly half a billion dollars, and we're on track to invest about $2 billion this year. These investments will go toward continuing to improve the reliability and resiliency of our grid, including investments in AMI, automation, and substation upgrades. In New York, we're implementing our three-year rate plans approved in 2020 for NYSEG and RG&E, which are going to enable us to make critical investments in automation, reliability, and smart grids. Now, beyond the three-year rate plans, we're also encouraged by the 10-year resiliency bill proposed in New York's current legislative session. This legislation would provide the opportunity to look holistically at the next 10 years, allowing for critical investments to reduce storm impact and to shorten the duration of outages when they do occur. In Maine, we've consistently met or exceeded our customer service quality metrics at CNP on a 12-month rolling basis through April, and we expect to file to remove the 100 basis point downward adjustment in ROE in the second half of the year. And I'm also pleased to announce that last week we reached an agreement with our union leadership to renew our labor agreement for CNP. We expect the agreement to be voted on by members later this week. In Connecticut, we reached a historic settlement agreement in March with five key parties, including the Attorney General, in our rate reduction proceeding. The proposal provided for rate stability for our customers by agreeing to a base rate freeze until May 1, 2023, which would offset the increase that otherwise would have gone in to recover planned public policy costs. On April 26th, Pura, the regulator, issued a procedural order suspending the docket until July 2nd to allow parties to address comments that they had on specific components of the settlement. Now, we're going to continue to collaborate with the settling parties and with Pura's staff with the hope of getting a deal that can be ultimately approved by Pura and be good for customers. Across our networks group, we're actively working with regulators and customers on continuing COVID challenges and providing payment support options and referrals to social service agencies for customers who are facing financial hardship. We currently expect moratoriums will be extended in New York. Now, I'm really proud of how our employees have continued to focus on their own personal safety and health, as well as the safety and health of our customers and the communities we serve. In addition, we're also making great strides on our transmission and distribution projects, improving the efficiency of our operations, investing in the grid of the future, and enabling the clean energy transition. We recently completed and energized our 10-year Rochester Area Reliability Project, a $390 million investment to upgrade the electricity transmission system in the Rochester region. Close to 1,000 people have worked on this site during this project, which involved the rebuild of 28 miles of transmission lines, the construction of a new 345-115 KV substation, and upgrades to five other substations. In January, we initiated construction of our New England Clean Energy Connect project. This 1,200-megawatt project will deliver clean renewables generation to Maine and New England while creating 1,600 Maine jobs during construction and contributing over $200 million for Maine's economic development, which will support educational programs, broadband, heat pumps, EV charging stations, and much, much more. We recognize that building any new transmission in this country has its challenges, but we're encouraged by the growing support we're seeing from Mainers as they learn more about the benefits of this clean energy project and as we address the misinformation spread by the anti-project minority. Now let's turn to our merger with PNM Resources. I'm pleased with the progress our team is making in getting the key approvals for the merger. Earlier this year, we received approvals from PNM Resources shareholders and the Federal Communications Commission, as well as regulatory clearance from the Committee on Foreign Investment in the United States, or CFIUS, and under the Hart-Scott-Rodino Antitrust Improvements Act. And then on April 21st, we received Federal Energy Regulatory Commission approval. The last outstanding federal approval is from the Nuclear Regulatory Commission, and it's expected by June. At the state level, we recently announced a unanimous stipulation of agreement among parties before the Public Utility Commission of Texas. The merger is on the Commission's agenda in Texas on May 6th, and we could receive a form of approval that day. In New Mexico, we've made equally positive progress with a multi-party stipulation agreement that provides significantly enhanced economic development and customer benefits. The stipulation agreement was originally signed by key stakeholders, including the New Mexico Attorney General, and was publicly supported by Governor Michelle Lujan Grisham. Now, while we're continuing to work with other stakeholders to have them join the stipulation agreement, we do expect the approval of the New Mexico Public Regulatory Commission in the second half of the year and for the entire transaction to close before year end. Turning to renewables, our 23-gigawatt pipeline of projects and leadership in offshore wind will drive significant growth opportunities supported by favorable federal policy and strong demand for clean energy. Avangrid is pioneering the emerging U.S. offshore wind industry by starting with the first large-scale wind farm in our country, our 800-megawatt Vineyard Wind One project. In total, our lease area represents as much as seven and a half gigawatts of offshore wind capacity in the Northeast and Mid-Atlantic, including the 1.6 gigawatts we've already contracted. Avangrid's share of this total pipeline is five gigawatts. Our strategic offshore wind investments are positioned to deliver growth and financial results beginning in 2024 and 2025. For Vineyard Wind, the U.S. Bureau of Ocean Energy Management, or BOEM, issued the final environmental impact statement in March, and a record of decision is expected very soon here in May. We intend to reach financial close and begin construction in the second half of 2021 and reach full commercial operation in 2024. The project is progressing well. We have all major construction contracts with suppliers and contractors secured, and we're finalizing the evaluation of optimal financing structures, including tax equity and project financing. In addition, Park City Wind, our 804-megawatt contracted project that will serve the state of Connecticut, is also on track. Now, Avangrid Renewables is also developing the Kitty Hawk offshore project, which has the potential to deliver 2,500 megawatts of clean energy into Virginia and North Carolina. In terms of future opportunities, we expect one auction this year in Massachusetts with an estimated 1.6 gigawatt of demand, followed by more than three gigawatts expected in Rhode Island, New York, and Connecticut starting next year. BOEM also plans to release new lease areas in the New York Bight between Long Island and the New Jersey coast. We expect to participate in most of these auctions, but as I've noted before, we'll continue to be disciplined in our bidding approach. Now, we have equally exciting opportunities in our onshore portfolio. In 2021, we commissioned the first PPA of our 300 megawatt La Jolla project in New Mexico and expect to commission the second PPA in May. We have an additional 1.3 gigawatts of projects under construction in 2021 and 2022, weighted for the first time towards solar. Approximately 690 megawatts of the 1.3 gigawatts are already under construction, including Roaring Brook Wind in New York with 81 megawatts, Golden Hills Wind in Oregon with 202 megawatts, Lund Hill Solar in Washington with 194 megawatts, and Montague Solar in Oregon with 211 megawatts. Now, as we look forward and learn more about President Biden's ambitious clean energy goals, I believe Avangrid is in the sweet spot to help lead the clean and connected energy transition in this country. Our expertise and business strategy position us extremely well to help lead the charge to a cleaner energy future. Recently, at the Earth Day Climate Summit, President Biden pledged that the United States will aim to cut economy-wide greenhouse gas emissions 50% to 52% by 2030 relative to 2005 levels. Now, this is aligned with the administration's target to decarbonize the power sector by 2035 and reach net zero economy-wide by 2050. We see these environmental commitments as an opportunity to further drive economic recovery and create jobs. It's a cornerstone of the administration's $2.3 trillion infrastructure plan, including a $100 billion infrastructure plan for upgrades and build-out of our nation's aging and regionally siloed electric transmission systems. The infrastructure plan includes many beneficial proposals to drive decarbonization, including extensions and expansions to tax incentives, support for additional financing tools, funding for R&D, education, and workforce development, and the creation of a national clean energy standard targeting 100% carbon-free power by 2035. In addition, offshore wind is taking the leap from concept to reality in the U.S., with a national goal to deploy 30 gigawatts of offshore wind by 2030. The new coordination plan directs various federal agencies to identify wind energy areas released in the New York Bight. They'll work to complete permitting reviews of 16 pending projects by 2025 and open funding opportunities for wind and transmission developers while also upgrading U.S. ports. These definitely are exciting times in our sector, and Auburn Grid is poised to play an important role in leading the clean energy transition. In recognition of Earth Week, we recently released Aubin Grid's fifth annual sustainability report titled Clean and Connected. The report highlights all the activities from 2020 that are helping us reach our aspiration to be the leading sustainable energy company in the U.S. Every step of the way, our actions are guided by our environmental, social, governance, plus financial framework, or what we call ESG-NDEF. We believe it's a better and balanced way to do business, doing well by doing good for our customers, employees, communities, and shareholders. We've got a great base from which to build going forward. We're already the third largest wind and solar operator in the U.S., having grown our install capacity by over 30% since Auburn Grid was formed in 2015. And throughout the COVID-19 pandemic, our foundation and family of companies have donated $2.5 million to support response efforts nationwide and help our communities recover. Last year, we strengthened our commitment to diversity, equity, and inclusion with a number of initiatives, including a focus on increasing gender and racial balance in our senior roles. In the past 15 months, 57% of our directors and above hires have been women or people of color, and we've hired or promoted nine women into key vice president and above roles. We're proud to be a part of both CEO action and Paradigm for Parity, whose members have committed to 50-50 gender parity in senior operating roles by 2030. And we're also looking to enhance our supplier sustainability and diversity programs while building a more robust employee volunteer program. Each of these goals and our commitments will help Avangrid deliver sustainable value to all of our key stakeholders in the long term. And going forward, we plan to more than double our installed clean energy capacity by 2025 compared to 2015 and further reduce our scope one emissions intensity to reach net zero by 2035 and convert the majority of our fleet to cleaner energy vehicles by 2030. We've made great progress, but we've got a lot more work to do. Now, at Aubin Grid, we're fully committed to our ESGNF strategy. It's central to our long-term value proposition, guiding our investments and resource allocation in a smarter and cleaner energy future. Now, I've said it before, but I think it's worth saying again, we truly are in the right place at the right time in the energy transition. We've got a healthy balance of growing regulated businesses on the network side, along with P&M resources, combined with strong value opportunity in our renewables business, which will support the 6% to 8% adjusted EPS CAGR through 2025 off of our 2020 reference year. We're well aligned with the priorities of the new administration, and states are moving faster than ever with their own clean energy plans. Through our investments of over $20 billion through 2025 in our utilities, clean generation, offshore wind, transmission, and new technologies, and with our merger with PNM Resources and the backing of the Iberdrola Group, we're focused on execution and delivering on our commitment. Now, I'll turn it over to Doug to take you through the financial results. Thank you, Dennis. Good morning, everyone, and thank you for joining us today. Turning to our financial performance and highlights for the first quarter of 2021, I'm pleased to report that Avangrid is continuing to execute on its financial targets with a great start to the year. We're making excellent progress on our plans to earn our allowed ROEs, and we're realizing the benefits of our efforts to improve the operations and energetic availability of our renewables fleet. In the first quarter of 2021, we produced net income of $334 million, or $1.08 per share. Our adjusted net income was $354 million, or $1.14 per share, an increase of 50% from the first quarter of 2020. On an adjusted basis, networks earned $0.74 per share for the first quarter, representing solid growth of 16% compared to the first quarter of 2020. Key drivers of the strong network's results include the successful rate agreements in the fourth quarter of last year in our New York companies, which added $23 million, or six cents per share, and the implementation of our CMP rate plan in March of last year, which added another $3 million, or one cent per share. Outage restoration costs in the first quarter are flat to down slightly compared to the first quarter of 2020, Although it's still early to draw conclusions, we're encouraged by this result, suggesting that the higher vegetation management spend and focus on addressing the worst performing circuits may be helping to stem the growth in outage restoration costs. The significant quarter over quarter increase in renewables EPS to 40 cents per share in the first quarter of 2021 from 15 cents in the first quarter of 2020 was largely due to our focus on safety, operational excellence, and proactive risk management during the Texas weather event, helping us to meet our fixed obligations and deliver excess energy to the grid, as we were an important part of the solution for the state. Wind production during the quarter was lower than 2020's strong first quarter, primarily due to wind resource and curtailment, driving the net capacity factor for the first quarter of 2021 of 30.6 percent. About 45 percent of these curtailments were reimbursed under our PPA contract. Importantly, OnGrid's first quarter adjusted EPS excluding the Texas weather event would have been 87 cents, a 15 percent increase compared to the first quarter of 2020 and exceeding our expectations. Investments in our business contribute to their ongoing growth and earnings potential. Networks, which represent 75% to 80% of our business mix, invested over $489 million to benefit our customers by enhancing safety, reliability, and resiliency in the first quarter of 2021, approximately 40% higher than the first quarter of 2020. While renewables investments were lower in the first quarter of 2021, this reflects the timing of investments and transitions versus wind project installations in 2021 and 2022. Finally, we highlight the 73% increase in renewables adjusted EBITDA, which includes tax credits, as reflective of the increasing value of that business and our focus on delivering high-quality projects that produce our targeted returns and contribute to achieving our growth targets. Now, moving on to our liquidity, credit ratings, and dividends, With our financial resources, predominantly regulated business mix, and clear support from Iberdrola, we have the financial strength to finance our growth while maintaining a solid balance sheet and credit ratings. As we discussed on our fourth quarter earnings call, we plan to issue approximately $4 billion of equity this year, which will further strengthen our balance sheet and improve our share of liquidity. Of this amount, $3.6 billion will be used to fund our acquisition of P&M resources, which we remain confident will be over 3% accretive. The remaining $400 million of equity will be used to finance the attractive investments in our long-term plan that support the 6% to 8% earnings per share compound annual growth rate that we outlined on our investor day last November. We also noted that we did not expect to issue any additional equity in 2022, and we will add another $2 billion approximately of non-debt funding sources in 2023 to 2025 to further support our growth, potentially including equity, hybrid securities, asset sales, securitizations, or some combination of these. Our ample liquidity also supports our strategic initiatives. In the fourth quarter of last year, Iberdrola provided a $3 billion intercompany loan at very attractive rates, that serves as a bridge to the acquisition financing. This, along with Iberdrola's $4.3 billion funding commitment letter for the PNM transaction, highlights the unique benefits of a strong parent and Iberdrola's clear commitment to Avangrid and the PNM merger. We also have additional liquidity available through our $2 billion commercial paper program, supported by a $2.5 billion sustainability link revolving credit facility and an additional $500 million credit facility available from Iberdrola. Our robust growth plans will benefit from our liquidity, access to capital, and credit ratings. With our significant network footprint, access to multiple sources of funding, strong liquidity profile, and the backing of our parents, we are committed to maintaining solid investment-grade credit ratings. Finally, our dividend policy remains unchanged, targeting a payout of 65% to 75% that we will grow into as our earnings increase over time. Our board recently declared a quarterly dividend of $0.44 per share, payable on July 1st. We're pleased with our strong results this quarter and are increasing our EPS and adjusted EPS outlook range by $0.10 to $2.25 to $2.45 per share, reflecting a range of net income and adjusted net income of $696 million to $758 million. As a reminder, our outlook assumes that we close on the PNM merger transaction and its financing at the end of 2021. The key drivers of our earnings growth that will support the delivery of this guidance are mostly unchanged from what we discussed on our fourth quarter call, with the additional impacts of our performance during the Texas weather event and our overall first quarter financial results. In summary, we have ambitious and achievable plans to become the leading sustainable energy company in the U.S. Our focus continues to be on executing on those plans to drive sustainable values. Thank you for joining us today with our update on the first quarter results and execution on our plans. I'll now hand the call back to our operator, Jason, for questions following my closing remarks from Dennis.