Avangrid, Inc.

Welcome to AvantGrid's first quarter 2022 earnings conference call. I would now like to turn the call over to Alvaro Ortego, Vice President of Finance, Investor and Shareholder Relations and Risk. Please go ahead.

Thank you, Emily, and good morning to everyone. Thank you for joining us today to discuss AvantGrid's first quarter 2022 earnings results. Presenting on the call today are Denis Arriola, our Chief Executive Officer, and Patricia Joschko, our Interim Chief Financial Officer. Also joining us today for the question and answer part of the call will be Bob Camp, Deputy Chief Executive Officer and President of Avangrid, Catherine S. Tempien, President and Chief Executive Officer of Avangrid Networks, Jose Antonio Miranda, Co-CEO and President Onshore, and Bill White, Co-CEO and President Offshore. If you do not have a copy of our press release or presentation for today's call, they are available on our website at 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 Security Litigation Reform Act of 1995, based on current expectations and assumptions, which are subject to risk 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 earnest news release. in the comments made during this conference call, in the risk factor section of the campaigning presentation, or in our latest reports and findings with the Security 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, Alvaro, and good morning, everyone. We appreciate you joining us for our first quarter earnings call. Let's get started with an overview of the quarter beginning on slide five. Now, there's obviously a lot of things going on in the world right now that are impacting the energy markets, including the Russian invasion of Ukraine. We're seeing a number of factors such as record inflation, rising commodity prices, supply constraints, a tight labor market and an ongoing pandemic. They're all intersecting to create a challenging environment for businesses and customers alike. And while we can't control most of these factors, we have been proactively taking steps to mitigate their impacts to the extent we can. And our focus on operational excellence, cost and cash management, and risk mitigation has never been stronger or more important. Now, amid these industry and economy-wide challenges, I'm pleased to say that we had another strong start to the year. Our net income in the first quarter was $445 million, up 33% from the first quarter of 2021. And our adjusted net income was $450 million, up 27% year over year. And in just two years, our first quarter adjusted net income has grown by approximately 90%. We're continuing to execute on our strategic plan, and as a result, we're affirming our 2022 guidance of $2.20 to $2.38 per share, which includes the common shares we issued last year. Our first quarter results and outlook for the year are driven by the strong and predictable foundation of our regulated networks business, which in 2021 accounted for approximately 80% of our company's earnings. And over the last two years, Networx has recorded successive double-digit growth in net income and adjusted net income as a result of our ability to drive operational excellence throughout our electric and gas utilities. Additionally, we're executing on our rate plans and meeting our regulatory commitments to deliver excellent customer service and safe and reliable energy. And through technology investments and process improvements, we've made important enhancements to our customer service, resulting in a better experience for our customers and better outcomes for our business, including the successful removal of central main powers, or CMPs, 100 basis point ROE adjustment. Now, while there's still more work to be done, we've made very good progress. In renewables, we completed the strategic restructuring of our offshore wind joint venture partnership. This restructuring allowed us to take full ownership of our largest New England projects and created immediate accretive value through a post-tax gain of $181 million, which we booked in the first quarter. And as we explain our fourth quarter call, this gain represents the incremental value of future cash flows related to our highly competitive initial investment. I'm also pleased to report that we recently executed PPAs with the Massachusetts utilities for our 1.2 gigawatt Commonwealth wind project and will soon submit those contracts to the Department of Public Utilities for final regulatory approval. We're also advancing the construction of 1.8 gigawatts of new capacity on and offshore. Across networks, renewables, and our corporate functions, our employee-led Every Day Better journey is in its second year, and it continues to enhance our operational effectiveness, enabling us to better deliver on our commitments, mitigate pressures on our business, and create sustainable long-term values. We expect Every Day Better to generate incremental value of at least $30 million in 2022, with approximately $15 to $20 million pre-tax falling to the bottom line. Now and into the future, our ESGNF focus is essential to our success. I'm proud that we're recognized by third parties like Ethisphere for our leadership in corporate governance and our partnership with the Department of Energy's Better Climate Challenge aims to accelerate innovative solutions for tomorrow, demonstrating our continued commitment to the clean energy transformation. Aubin Grid aspires to become the leading sustainable energy company in the U.S., and we will continue to step up to the plate. Turning to slide six. Avangrid is first and foremost a regulated networks company. We are laser focused on prioritizing the basics, driving operational excellence, safety, improving the customer experience, and meeting our regulatory commitments. A challenging macro environment puts pressure not only on our business, but also on our customers. And while rising commodity costs are recoverable through periodic adjustment mechanisms, we still need to do everything we can to help our customers. This includes running our operations as effectively as possible. We've improved our storm response and rate recovery mechanisms over the last couple years, and this has helped remove storm restoration expenses that impacted our earnings in the past. In addition, we've increased the productivity of our crews by up to 30 minutes per person per day. We're also improving the customer experience by enhancing digital tools, accelerating e-bill adoption, and providing self-service payment options. These tools help increase customer satisfaction. They reduce cost to customers, and they improve cash flow. And over the last year, we've increased our e-bill enrollment by approximately 25% to 1.1 million customers. Through the pandemic and now with current inflation and commodity cost challenges, we've actively worked with state and federal partners to help reduce bill impacts by securing nearly $150 million of direct government assistance in 2021 and 2022, identifying eligible customers and ensuring those customers are connected with available funds. In addition, we've worked individually with customers to arrange flexible payment and balance billing agreements to promote energy efficiency measures and to select a more affordable supply plan. As a regulated business, we're working to meet our commitments to regulators by delivering on our existing rate plans in New York and achieving our customer service quality obligations, which is reflected in the main PUC's removal of the 100 basis point ROE adjustment at CMT. We've also been working to resolve open CMP matters at the Public Utilities Commission, such as closing the original management audit investigation and working through the narrow review of the planning process. Looking ahead, we're focused on making the necessary investments to strengthen our system and address safety and reliability needs, as well as minimizing the gap between our rate plans. We plan to file rate cases in all of our utility jurisdictions over the next 12 months to improve the quality of service to our customers and enable a clean energy future. And where required, we will be releasing notices on these filings shortly. Let's turn to slide seven. We remain focused on working toward a successful outcome for both the PNM resources merger in New Mexico and the NECEC transmission project in Maine, and we are executing on our legal strategies. Regarding PNM, we filed our notice of appeal and briefed at the New Mexico Supreme Court earlier this year, and the brief may be followed by oral arguments at the New Mexico Supreme Court's discretion. For any CDC, we are continuing to challenge the unconstitutional referendum that passed last year and hope to get a decision this summer. We were encouraged by the substantial number of amicus briefs filed on March 30th, which demonstrated the support of this project continues to have, we have from a diverse and distinguished set of stakeholders, including leading law professors, environmental groups, local municipalities, policy leaders, and former regulators and legislators. We also received additional continued support on April 20th through filings by our main customers, our union labor, and our partners. We remain confident in the significant benefits both the PNM merger and NECEC would bring to customers. At PNM, our merger would bring at least $300 million of benefits and support New Mexico's clean energy transition. And in Maine, NECEC would deliver clean energy, cost relief, and stability to New England as families continue to shoulder the cost of high energy supply prices, which in many cases have risen 80 to 90 percent or even more. In fact, the delivered cost of energy from NECEC would be about one-half the current standard offer rate in Maine. Turning now to slide eight, we're proud of Avangrid's offshore leadership position in New England. With all three of our New England projects totaling 2.4 gigawatts owned directly, now contracted, and our partnership restructuring complete. Construction of Vineyard Wind 1 is underway, and we're tracking well with our key milestones in 2022. And as we've discussed previously, basically all the supply chain elements have been contracted for in Vineyard Wind 1, and the project's labor costs are either fixed or capped. This is another area where being ahead of the curve in offshore wind has paid off, as our early execution of CAPEX contracts for this project has helped us get ahead of the present supply chain and inflation challenges. In turn, we have three key advantages when it comes to addressing these types of challenges for Park City Wind and Commonwealth Wind. First, scale. Our strategic decision to advance Commonwealth and Park City as a single two-gigawatt project, which would be the largest in New England and one of the largest nationwide, will allow us to tap into synergies and unlock greater economies of scale when it comes to permitting and procurement. And the project's co-location within contiguous lease areas will add further efficiencies when we get to construction and operations. The second key advantage is technology. we're seeing significant advances in turbine technology that drive greater cost efficiency and optimization in project design. We'll be looking to leverage this improved technology to further enhance our projects. And lastly, timing. In periods of general market uncertainty, flexibility is essential. The CODs for these projects are still several years out, and therefore we don't have pressure to immediately execute supply contracts in the current environment. Instead, we have headroom to assess the macro situation, engage with key suppliers, and make strategic decisions on when to act. And because of these factors, we're confident in our return estimates for these projects, which we expect to reflect levered IRRs in the low teens. Now, outside of New England, we also continue to make progress on our Kitty Hawk project off the coast of North Carolina and Virginia. And earlier this month, we filed the Construction and Operations Plan, or COP, for the project's 1.7 gigawatt second phase, known as Kitty Hawk South. We have an exceptionally strong and growing offshore team at Auburn Grid Renewables, backed by the expertise, established track record, and the purchasing power of one of the largest utilities in the world, Iberdrola. Iberdrola has 1.3 gigawatts of offshore wind currently in operation, and projects that were delivered on time and on budget, with production exceeding their original expectations. Offshore wind is a proven technology that has been successfully deployed for years on a global scale. And Avangrid has the right skills and the right support to lead this industry in the U.S. Now let's turn to our onshore renewables business on slide nine. Overall, we have approximately 1.4 gigawatts of projects with contracts, including approximately one gigawatt under construction. All of our planned 2022 projects are on track for COD this year. Our 201 megawatt Golden Hills wind project is fully constructed and will enter commercial operations very shortly. In the second quarter, we'll begin energization for the 194 megawatt Lund Hill solar project, and we expect to reach COD in the third quarter. In 2023, we expect to add Midland, a 106-megawatt wind project. And additionally, we have approximately 535 megawatts of DC of solar projects already contracted and in advanced development. Now, the issues around supply chain delays, potential tariffs, and higher labor costs are generally impacting all participants in the market, and we're working hard with our customers and suppliers to minimize the impact to the extent we can. And when necessary, we'll adjust the COD dates of those impacted projects to reflect the realities in the market. As we move forward, our top priorities on our onshore wind will continue to be operational excellence, disciplined growth, and risk management. Again, the supply chain challenges, inflation, or potential anti-circumvention tariffs are issues generally facing all of us in the industry. And in some cases, we've heard that some of our competitors are entering into PPAs before completing development or arranging for supply. Now, given the current environment, we've been taking what we believe is a much more prudent and disciplined approach to evaluating new PPAs and keeping to that strategy will help us mitigate the current market risk. we will not pursue growth at any cost. But instead, we're aligning our PPA execution with supply contract certainty and working with customers and suppliers on the right projects for the current market conditions. We're also working to address anti-circumvention risk through our trade organizations. We remain focused on making the right investments at the right time. Now turning to slide 10. And before I hand it over to Patricia, I'd like to bring you back to what we call ESG&F and our aspiration to become the leading sustainable energy company in the U.S., because this is really our North Star as a company. We've seen a lot of uncertainty and destruction in the world over the last couple of years, but we're certain our ESG&F strategy puts us in the right places at the right time to continue to accelerate the clean energy transformation. Avangrid was the first utility to set a goal for carbon neutrality. And even as our peers begin to follow the path we set years ago, we remain one of the nation's cleanest utilities with an emissions intensity six and a half times lower than average. We've set bold goals with committed actions to achieve them. And our leadership in this area has been continuously recognized by organizations like Ethisphere, Just Capital, and CNBC. And most recently, Avangrid was the inaugural investor-owned utility to join the Department of Energy's Better Climate Challenge. In addition to our previously announced commitments, and as part of this challenge, we pledged to reduce Scope 1, and for the first time, Scope 2 emissions at least 50% over the next 10 years, and to reduce our facility's carbon footprint at least 20%, also by 2032. And through this process, we're going to work alongside the DOE, leveraging the deep technical expertise of its national labs and a diverse group of participants representing a range of sectors to share and accelerate innovative solutions and successful decarbonization strategies. We know that an economy-wide energy transition will require collective effort, and we're committed to providing a leading voice and driving real-world action. And with that, I'll turn it over to Patricia to take you through the financial results.