Avangrid, Inc.

Welcome to the Avon Grid second quarter 2021 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 one on the telephone. Please be advised that today's conference has been recorded. If you require any further assistance, please press star zero. I'll now turn today's call over to Patricia Cosgill, VP of Investor and Shareholder Services. Please go ahead.

Thank you, Stephanie, and good morning to everyone. Thank you for joining us today to discuss Avangrid's second quarter 2021 earnings results. Presenting on the call today are Dennis Cariola, 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 Kump, Deputy Chief Executive Officer and President of Avangrid, Alejandra DeJos, President and Chief Executive Officer of Avangrid Renewables, and Catherine Stampian, President and Chief Executive Officer of Avangrid Networks. 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 be making 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 news release in the comments made during this conference call, in the risk factor 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 our second quarter earnings call. Well, it's hard to believe, but yesterday was my one-year anniversary at Avangrid. And I want to start by saying thanks to all of you for your support. And a special thanks to those of you that provided me and the team with candid and constructive feedback on how we can be a better company. Over the last 12 months, we've worked hard to build a company that focuses on accountability and execution, on developing goals that are realistic but bold. on delivering results that are consistent with our commitments while focusing on our customers, on safety, and continuous improvement. While I'm pleased with our progress so far, we still have a long ways to go. And I'm proud of all we've accomplished, but even more excited for what lies ahead. And I believe our first half performance is indicative of what our team can deliver when we're aligned, focused, and executing. For the second quarter of 2021, our net income was $98 million, up 11% year over year, and our adjusted net income was $122 million, up 25% year over year. For the first half, our total net income was $432 million, up 32% year over year, and our adjusted net income for the first half was $476 million, up 43% year over year. Both businesses are delivering excellent growth. Networks with bottom-line results are growing at a double-digit rate as we execute on our road to authorized ROE while focusing on providing excellent service to our customers. In renewables, we're pleased with our strong operating and asset management performance, improved pricing, and the availability of our fleet, which has helped to compensate for a weaker wind resource as compared with the previous year. Based on our excellent performance in the first half and our outlook for the rest of the year, we're raising our adjusted net income guidance by 5% from the midpoint of our previous range of $696 million to $758 million to our new guidance of $730 million to $795 million for 2021. Now, remember, this is the second time we've increased guidance this year since we raised our earnings guidance by 4% at the end of the first quarter. With this most recent revision, our guidance is now up around 10% from our original outlook we provided in February. We're also updating our adjusted EPS guidance to a range of $2.04 to $2.22 per share, which reflects the additional $78 million common shares issued on May 18th, which increased our weighted average shares to $358 million for 2021, and this compares with the $310 million reflected in previous guidance and prior results. In addition to our strong financial performance, we continue to execute on our strategic plan objectives. In Connecticut, we finalized UI settlement agreement with regulators and other key stakeholders. In New York, Recently passed legislation, which we expect Governor Cuomo to sign, would enable Omnigrid to propose incremental 10-year storm hardening investment plans to increase resiliency. In Maine, our New England Clean Energy Connect, or NECEC, transmission project is progressing well, with construction ongoing on all segments. In New Mexico, we're awaiting the final approval to our PNM resources merger from the New Mexico Public Regulation Commission. All other approvals have been received. In offshore renewables, we received BOEM's record of decision for Vineyard Wind 1 and the notice of intent for preparation of a draft environmental impact statement for Park City Wind. In onshore renewables, we contracted 210 megawatts of solar in PJM with a commercial and industrial customer and entered into 254 megawatts of contracts to reduce our uncontracted capacity. On the financing side, we successfully issued $4 billion of common equity in May at no discount, which removes the equity financing risk from the pending PNM merger transactions. And as we look to build a green hydrogen future, we submitted several concepts for hydrogen projects nationwide as part of the U.S. Department of Energy's request for information to enable low-cost clean hydrogen at scale. We see this as an additional opportunity for long-term growth, which will leverage our existing assets and capabilities and the global experience of the Iberdrola Group. Now driving further into networks on slide six, we remain focused on safety, customer service, and operational excellence as we continue down our road to achieve our authorized ROEs at all of our utilities. We're making good progress across the board at each of our utilities. In Connecticut, Pura approved our settlement agreement in the interim rate decrease and rate adjustment mechanism dockets, largely preserving the initial terms that we had agreed to with no change to ROE or capital structure. The agreement was the result of multiple key stakeholders coming together to bring rate relief and stability to UI's customers for years to come, and we're pleased to see it move forward. In New York, we're implementing NYSEG and RG&E's three-year rate plans, and we're tracking towards earning the authorized ROEs at both utilities. Additionally, the legislature recently passed a bill directing utilities to create and implement 10-year storm hardening and resiliency plans outside of the rate bases. This bill, which we expect Governor Cuomo to sign, will provide an important opportunity to holistically and thoughtfully plan for the long-term challenges storms pose. The plan will identify the right investments to enhance resiliency and to ensure reliable service continues for our customers. In Maine, CMP continues to perform well on its customer service metrics, and we expect a file to remove the 100 basis points adjustment later this year. In addition, the findings of the management audit released last week echo that we've made real improvements in customer service while identifying certain places where we can still do more. We're committed to fully meeting our customers' expectations as well as those of our regulators. We're focused on ensuring power is delivered safely, affordably, and reliably, and making the investment's main needs to meet its ambitious climate goals while driving economic growth and creating good-paying jobs. Now, in that vein, we're making steady progress on our New England Clean Energy Connect project. Construction is now ongoing in all parts as the Segment 1 injunction was lifted in May. Our construction activities have employed roughly 800 Mainers to date, which we expect to ramp up to 1,600 workers as construction continues. We see NECEC remaining on track for COD in 2023. Our team is doing a great job sharing the facts and the positive benefits of this clean energy project for Maine and Mainers, and we're seeing growing support from the unions, business groups, small and large, and residents. And across all our network utilities, we continue to collaborate with our regulators and customers on ongoing COVID-19 challenges and cost recovery. But before we continue, I want to recognize our network's team's great efforts responding to storms that impacted each of our northeastern states over the last two weeks, including Tropical Storm Elsa. Storm response is never easy, and our crews continuously go above and beyond to ensure service is efficiently and effectively restored to our customers while working safely. To our Aubin Grid team, your work makes a difference. Thank you from all of us. Now turning to PNM resources on slide seven, the merger process continues to move forward with six of the seven government approvals needed to close the transaction now in hand. The New Mexico Public Regulation Commission is the only remaining approval necessary to close the merger. Evidentiary hearings are set for mid-August on the stipulated agreement among PNM, Avangrid, and 13 other parties. New Mexico's governor, Michelle Lujan Grisham, has also expressed support for the merger agreement. And while we're continuing to work with other stakeholders to have them join the stipulation agreement, we expect the approval of the PRC and for the transaction to close by year-end. Now turning to renewables on slide eight, we continue to execute on our long-term plan by developing and converting our identified approximately 23 gigawatt pipeline into contracted projects and improving the overall operating performance of our existing fleet. We've recently executed a PPA contract for our 210 megawatt solar project in PJM to be commissioned in 2023. This new PPA is with a commercial and industrial customer. Now, one of the commitments we made in November at our analyst day was our focus to de-risk our asset portfolio by reducing the percentage of uncontracted capacity. We're continuing to make progress on that commitment as we've signed a REC sale contract for our 39-megawatt Manzana wind project in California. And during the second quarter, we executed a PPA on 254 megawatts of existing uncontracted portfolio capacity for the Blue Creek Wind Farm in Ohio. At the end of 2020, approximately 20% of our portfolio capacity was uncontracted and susceptible to market price fluctuations. We're now on track to end 2021 at around 11%. As for new capacity, we have 1,300 megawatts of solar and onshore wind projects for construction in 2021 through 2022. with 690 megawatts 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. In addition, we've got 2.5 gigawatts of mature projects in our approximately 18-gigawatt onshore pipeline that will provide future growth, and we're optimizing the value of our overall portfolio with the sale of a 780-megawatt development solar project. Now, as always, we'll continue to evaluate the strategic importance and the risk of the pipeline project and optimize assets when it makes sense. On slide nine, another exciting part of our growing company is our offshore wind business. Avangrid is leading the emerging U.S. offshore wind industry, starting with the first large-scale wind farm in the country, our 800-megawatt Vineyard Wind One project. In May, the Bureau of Ocean Energy Management, or BOEM, gave Vineyard Wind the green light to go forward. We intend to reach financial close and begin construction soon in the second half of 2021, to start delivering clean electricity to Massachusetts in 2023, and reach full commercial operation in 2024. We're really excited and proud to be a part of the birth of an incredibly important new industry for the U.S. Offshore wind is a key part of America's clean energy future, and Vineyard Wind One is a major step forward to the clean and connected future we envision and we work toward every day. The project is progressing well. We have all major construction contracts with suppliers and contractors secured, and we've executed a project labor agreement with the unions that was celebrated last week in New Bedford, Massachusetts, with Senators Markey and Warren, as well as National Climate Advisor Gina McCarthy in attendance. The approximately 500 jobs created with this PLA will be a critical backbone for Vineyard Wind as we progress through construction. We'll be using best-in-class technology from GE, where just one rotation of their Hollyott X turbine can power an entire Massachusetts house for a day. We'll deliver clean energy to 400,000 families, and this is only the start. For Park City Wind, our 804-megawatt contracted project that will serve the state of Connecticut, The Bureau of Ocean Energy Management published its notice of intent to prepare an environmental impact statement enabling the rod in Q3 of 2023. We expect to start generating clean electricity from the project in 2025 and intend to reach full commercial operation in 2026. And earlier this week, we celebrated the opening of our offshore wind office in Connecticut, and we were honored to have Governor-led Lamont in attendance to help cut the ribbon. Aubin Grid 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. We expect to receive the notice of intent for Kitty Hawk North soon, and we're continuing discussions with potential energy offtakers. Now, in total, we have access to lease areas with as much as 7.5 gigawatts of offshore wind capacity, including our 50% share of the 5 gigawatts of lease areas supporting 1.6 gigawatts of contracted projects in the Northeast and another 2.5 gigawatt lease area off the coast of North Carolina, which Oven Grid wholly owns. In terms of future opportunities, Massachusetts has released its third RFP for up to 1.6 gigawatts with bids due in September. We expect that this will be followed by more than 3 gigawatts in Rhode Island, New York, and Connecticut starting next year. We received more good news regarding our lease areas recently when BOEM granted an extension of the operations term for Vineyard Wind from 25 years to 33 years starting at COP approval in alignment with the terms of the latest leases auctioned by BOEM. The extension will also apply to Park City and Vineyard Wind South. And last month, in support of its 30 gigawatt by 2030 target, the Biden administration proposed the sale of eight lease areas in the New York Bight with a potential capacity of approximately seven gigawatts. Final sale notice is expected after a 60-day comment period. Now, 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 since we already have a significant footprint with our existing leases. Now, turning to slide 11, as we aim to decarbonize this country on a large scale, we know we have to think bigger and bolder and continuously develop the tools we have in our toolbox. That's why we're excited to have submitted our responses to the Department of Energy's Hydrogen Energy Earshot RFI, Earthshot IFI. We see Avangrid as well-positioned to be a leader in the emerging clean hydrogen space, thanks to several unique advantages which give us a leg up. On the utility side, our operating companies have deep local knowledge and roots in the states and communities we serve. We have existing expertise as a leading renewables developer and operator nationwide. And our colleagues at Iberdrola are already delivering commercial-scale green hydrogen projects in Spain and the U.K. We expect to tap into the key learnings from these efforts to streamline the development process here in the U.S. and enhance our project's cost competitiveness in support of the DOE's goal to achieve a cost of $1 per kilogram by 2030. Now, the concepts we provided to the DOE envision hydrogen stretching from coast to coast. In the Northeast, we're looking at multiple applications for hydrogen, ranging from transportation to manufacturing and industrial use, to create what we call a hydrogen valley. There may be opportunities to potentially leverage our offshore wind and NECEC to power electrolyzers in Connecticut and in Maine. The Northeast states have a long history as industrial hubs, and our proposals build on these historic strengths while bolstering local investment and creating thousands of jobs that can thrive in a green economy. shifting out west we're in the early stages of an ambitious commercial scale project in corpus christi which would convert our low-cost texas uncontracted wind into green hydrogen to support green ammonia productions and industrial needs our aim with projects like this is to demonstrate hydrogen scalability and value and to continue to further our country's domestic energy leadership And in Oregon, we're proposing co-locating green hydrogen production at our Klamath cogeneration plant. This project would help create a cleaner source of grid resiliency and flexibility as Klamath balances the intermittent generation from our northwest wind fleet. So in total, we expect these projects could deploy approximately 350 megawatts of electrolyzer capacity to generate an estimated 30 million kilograms of clean hydrogen per year, reducing emissions by over 140,000 tons of carbon dioxide a year. Now, while these projects are still concepts, they're part of our vision for green hydrogen as a viable clean energy fuel, as well as a key avenue for future growth for Avangrid in the years to come. American innovation has always been a driving force for progress, and we at Avangrid are committed to being part of the climate solution. It's who we are as a company and how we'll continue to lead into the future. We look forward to continuing to engage with the DOE and stakeholders in our states to make green hydrogen the next game-changing technology like offshore wind. Now, I've said this before, but our strategy and business model is grounded in strong environmental, social, governance, and financial practices, or ESGNF. Using these filters at the front end of our investment process is a better and balanced way to do business, doing good by doing well for our customers, employees, communities, and shareholders. Avangard is already an established leader in sustainability and good corporate governance with a track record of recognition from reputable third parties like Forbes and Just Capital, where Avangard was ranked as the best utility for the environment and for communities. Our best practices earned Ethisphere's compliance leader verification and the world's most ethical company's award for multiple years. Now, last November, when we set out our ESG&F business model, we laid out our commitments in a number of areas, including increasing our renewables capacity, achieving scope one carbon neutrality by 2035, lowering our carbon emissions, promoting diversity, equity, and inclusion in our organization, increasing diversity and sustainability among our suppliers, and increasing employee volunteerism. Since then, we've been taking concrete steps to further articulate and progress on our commitments and goals. We've introduced unconscious bias training for our leaders with the goal of making the training available to all of our employees by end of the year. We're actively tracking our supplier sustainability and identifying diverse suppliers as part of our procurement process. And we're implementing our plan to reduce consumable energy usage and the CO2 footprint for our office facilities with a plan to upgrade and consolidate our workspaces. In May, we also announced the appointment of our first Chief Sustainability Officer, Zoka McDonald. Zoka will help spearhead the achievement of these goals enterprise-wide as we deliver on our aspiration to be the leading sustainable energy company in the U.S. Now, you can find additional detail on our progress in the sustainability and ESPF reports on our website. So now, I'll turn it over to Doug to take you through the financial results.