Avangrid, Inc.

Ladies and gentlemen, welcome to Alphonse Great's fourth quarter and full year 2022 earnings conference call. My name is Glenn and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on the telephone keypad. I will now turn the call over to O'Farrell Ortega, Vice President of Finance, Investor Relations and Treasury. Please go ahead.

Thank you, Glenn, and good morning to everyone. Thank you for joining us today to discuss Avangrid's fourth quarter and full year 2022 earnings results. Presenting on the call today are Pedro Asagra, our Chief Executive Officer, and Patricia Yoskel, our Chief Financial Officer. Also joining us today for the question and answer part of the call will be Catherine S. Tempien, President and Chief Executive Officer of Avangrid Networks, and Jose Antonio Miranda, Chief Executive Officer and President of Avangrid Renewables. Other members of the executive team are also joining us today and may be called upon to assist with the Q&A part of the call. 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 Securities Litigation Reform Act of 1995 based on current expectations and assumptions, which are subject to risk 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 earnest 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 recommendations of non-GAAP financial measures, the closest GAAP financial measures. I will now turn the call over to Pedro. Okay.

Thank you, Alvaro, and good morning, everyone. We appreciate you joining us for our fourth quarter full year results presentation. I'd like to thank now the chairman and the rest of the board, the rest of the Verdola Group, and all my team present with me and not present with me today, and every single employee of Avangrid for the great work that we have done all together in the last 12 months. I'd like to also remember our customers, regulators, governors, legislators, AGs, consumer representatives, investors, analysts. We are here to serve all of you, and we are very proud of doing that. I think let's move now to slide number five. Over the last year, our team has worked under one simple and clear principle, to make sure that almost everything we say, and hopefully everything, we deliver, even when faced with challenges, uncertainty, or skepticism. Through an increased focus on operational and financial excellence, we accomplished our objectives and have now delivered double-digit net income growth, 25% year-over-year and adjusted, and 16% year-over-year on an adjusted basis. Since 2015, we have grown net income and adjusted net income at the strong compound annual growth rates of 9% and 10% respectively. On an earnings per share basis, our EPS has grown 15% year-over-year to 2.228 per share, and adjusted EPS has grown 7% year-over-year to $2.33 per share. In adjusted EPS, we have exceeded the midpoint of our 2022 guidance range of $2.20 to $2.38 per share and surpassed the analyst consensus of $2.07 per share from the first quarter of the year. In networks, we invested $1.9 billion and grew our rate based by $1 billion, or 8% to 12.7 billion dollars. We also achieved significant operational improvements with successful response to winter storm Elliot, which impacted over half a million of our grid customers, recognition from EI for an April 2022 snowstorm in New York, and mutual aid provided to Nova Scotia and Louisiana. and enhanced reliability performance, including double-digit improvements to average safety and safety. In renewables, we are focused on ensuring disciplined and prudent growth. We placed nearly 400 megawatts of new capacity into operation, including our first large-scale solar project, and we are advancing construction of approximately 1.4 gigawatts on and offshore. This includes Avangrid's 806 MW Binger Wind 1 project, which is progressing on a schedule to reach full commercial operations next year. We are very pleased with our strong performance for the year. We have set a 2023 outlook for our earnings per share of $1.90 to $2.10 per share, or $2.20 to $2.35 per share on an adjusted earning per share basis. This translates into an adjusted net income of $850 million to $910 million. As we implement our $221.5 billion investment plan, we believe we are very well positioned to deliver our targeted 6% to 7% compound annual growth in adjusted EPS through 2025. Of the midpoint of our 2022 guidance, of $2.29 per share. Let's turn on to page six. I believe that when it comes to execution, our actions speak the loudest. No company and no industry comes without challenges. What matters most is to deliver solutions. As you can see here, our team is taking action on the things we pledge to deliver. To start in New Mexico, we extended our merger agreement with PNM Resources and a new public regulatory commission has been seated. The new commissioners are each highly experienced individuals with deep knowledge of the challenges and opportunities the energy transition will bring, as well as the central role of utilities in enabling that transition. We remain committed to the merger and the benefits it will bring to the State of New Mexico and intend to seek a settlement that reflects this value to all parties. We are successfully constructing the first large-scale offshore wind project in the nation and are on track to enter commercial operations next year. Up and Green's Binger Wind One will bring clean energy to 400,000 Massachusetts homes and businesses and support more than 3,000 full-time equivalent jobs over the project's lifetime. And we are working with our stakeholders to address macro pressures on our other New England projects and ensure these projects meet our investment criteria and can support the financing need in order to move forward with them. Let me be clear. While we are terminating our PPAs for Commonwealth win, we remain fully committed to our offshore business. We are on track to bring the first large-scale project to successful completion. This is not a question of commitment or capabilities, but rather of a unique economic situation. that offshore wind is the ideal solution to quickly deliver clean, reliable energy to the Northeast. Unfortunately, the impact of historic inflation, sharp interest rate increases, supply chain bottlenecks, and the existence of a price gap prevent us from moving commonwealth wind forward under viable economic conditions. I've agreed this fully committed to offshore wind and to Massachusetts, but we must always be disciplined investors particularly given the size of the investments on the table. For Commonwealth, this means we expect to review the project in the upcoming solicitation. With regards to Park City Wind, we're initiating conversations with the key stakeholders in Connecticut to address these issues. Regarding our regulated utilities, we filed rate cases in all jurisdictions and enhanced our engagement and relationship building. Ahead of our rate case filings, we ensured we had a strong outreach plan in place and held over 160 meetings with the stakeholders to discuss our proposals and listen to their feedback. Strengthened by this proactive engagement, the proposals we put forward will allow our companies to respond to critical system needs while maintaining among the lowest rates in New York and New England. We are working hard to move our rate cases forward. Settlement negotiations are actively going in New York, which accounts for the largest portion of our rate base, and we anticipate new rates will be effective from May. In May, we filed rebuttal testimony, and we plan to begin settlement discussion shortly. Evidence sharing hearings started in Connecticut last week, and in Massachusetts, we successfully closed the rate case process, and new rates are already in place. 2022 also brought important successes for our New England Clean Energy Connect, NECC project. We received favorable rulings from the main law court on two critical items. First, in August, regarding our legal challenges to the main referendum that resulted in the halting of construction of NECC. And second, in November, upholding our lease of a small section of public lands for the project. The law court additionally denied a motion to reconsider its decision, meaning that the issue of lease validity is now settled. Earlier this month, the FERC issued a decision directing the breaker upgrade at Seabrook Station, which is necessary for the safe operation of NECC and the continued reliability of the regional New England grid. As we work to close the remaining legal matters, we are working on multiple fronts to ensure the economic viability of the project. And in our onshore business, we are confronting the current challenging market environment by successfully renegotiating 780 megawatts of wind and solar PPAs in 2022. We are also pursuing partnerships and asset rotation opportunities that help mitigate capital needs and maximize the value of our robust pipeline. Turning to slide number seven, since I was appointing a CEO, we put in place a highly skilled, diverse, and stable management team that is driving successful execution in multiple critical areas. First, delivering a strong early performance for 2022, coming in or above the midpoint of our guidance, and well above initial consensus expectations. Next, we've enhanced our focus on engagement and relationship building, which enabled us to obtain several positive regulatory outcomes over the course of the year and supported our rate case filing. We also took decisive action to protect the company by moving to terminate non-viable offshore wind PPAs in Massachusetts, renegotiating multiple onshore PPAs, addressing misinformation around customer bill increases caused by unregulated generators, and advocating for long-term solutions. And finally, combating efforts to implement government control power. Furthermore, we are addressing the current economic uncertainties by driving a sharper focus on cash flow management and value creation. All in all, these strategic actions we are taking reinforce our trend towards consistent execution and provide a solid foundation for future growth and delivery of our long-term commitments. In slide eight, I'd like to further highlight for you that our strong financial performance is not the product of an isolated year or a string of good quarters, but rather a trend that we have cultivated over the course of multiple years. Since 2020, we have delivered over 50% and 40% growth in net income and adjusted net income, respectively, in most cases with over 20% growth from year to year. Looking at adjusted net income, we have performed consensus expectations from the start of 2022, which it was $801 million, by almost $100 million, or more than 12%. On an earnings per share basis, we've seen 21% and 15% growth in EPS and adjusted EPS, respectively, since 2020, with a stable or increasing trend year over year. Even with the impact of the 2021 equity issuance, our adjusted EPS has grown at a healthy compound annual growth rate of approximately 7%. This is true both for over the last two years and since avant-garde creation in 2015. We are very proud and encouraged by these strong results, but we won't just be satisfied with our performance to date. Our team will continue to drive execution and deliver what we say we'll deliver. If we do that, we keep building upon this trend well into the future. This is an objective we can't and won't lose sight of. Turning to networks on slide nine, we are focused on meeting our operational mandate, which is to deliver safe, reliable, and affordable service to customers while increasing access to clean energy across the states we serve. Throughout 2022, our teams have worked to enhance system reliability with programs targeting vegetation management, asset condition, increased distribution automation, and more. As a result, we are seeing good operating performance with the liability improving year over year as compared to 2021. On average, safety has improved by 10%, safety by 16%, and KD has improved by 7%. Over the last years, we have seen a trend toward more frequent and intense storms, and 2022 was no exception. I'm proud to say our utilities rose to the challenge. Thanks to the effort of our field crews, both electric and gas, as well as the thousands of employees who support them, Avangre delivered exceptional storm response for our customers, navigating harsh conditions both near and far from home. For example, between November and December, our New York and Maine companies were hit by seven and four major storms, respectively. The most severe was Winter Storm Elliot, which knocked out of power to more than half a million avant-garde customers over the holidays. We responded quickly and effectively, outperforming some of our neighboring utilities. In hardest hit, Maine, where outages exceeded 300,000, nearly all CMP powers customers were back online by day four. Over half of CMP customers were restored by day two. In New York, Virtually every customer had power back by day two, with most customers restored within 24 hours. I'd like to thank all of our employees for their commitment to stepping up for our customers, not just after Elliott, but in responding to the dozens of storms we faced in 2022 and the work we do every single day. These efforts over the course of the year earned well-deserved recognition from regulators and local stakeholders, as well as from EI. In addition, we are focused on increasing digitalization and providing customer support to enhance satisfaction, reduce costs, improve cash flow, and help address pressures caused by the current macro environment and recent generation rate increases across the Northeast. Over the last year, we've expanded our EV program by 16% to 1.2 million customers, and increased mobile app downloads by 73% to 840,000 customers. We continue to make critical investments in reliability and resiliency and drive healthy rate-based growth, 18% since 2020. We've also collaborated with the state officials to reduce our residues and offer bill assistance. To help address this issue across New York, the PSC approved two phases of utility customer assistance. targeting residential low-income customers, provided $59 million approximately in state funds for NYSEC and RG&E. NYSEC and RG&E expect to receive approximately $34 million in Phase 2, which was approved in January, and will offer assistance to non-low-income residential and small businesses customers. After consistently meeting our customer service performance goals, the main PUC in February removed the 100 basis points adjustments on CMP's return on equity. Lastly, we're continuing to advance major investments in transmission to unlock lower-cost clean capacity. As mentioned earlier, over the last few months, we obtained favorable rulings from the Maine Law Court and FERC that resolve or materially address critical challenges to our NECC project. Turning now to slide 10, Successfully closing our gray cases is one of our top priorities for our regulated businesses this year. Without a secure and healthy financial position, our utilities cannot meet those objectives described on the previous slide, to deliver safe, reliable, and affordable service, to expand access to clean energy, or to enhance operational performance. We're making steady progress. With Massachusetts successfully settled, and the process advancing in other states, our expectation is to have new rates in effect across all our states later in the year. These rate cases, combined with our FERC formula rates, will provide regulatory agreements for approximately 90% of our rate base. As a reminder, we have requested approval for approximately $10 billion in capital investments over the next three years, focusing on clean energy transformation, reliability, resiliency, and improving the quality of service to our customers, which will also create jobs in our local communities. Additionally, we're aiming to secure multi-year agreements, which will provide better rate stability for our customers. In New York, we are currently in the middle of settlement negotiations with all parties. We expect new rates for NYSEC and RG&E to be effective as of May 1st date. Of this process, we are also seeking authorization to move forward with multi-year investments in our CLCPA Phase 1 transmission portfolio. In May, we filed rebuttal testimony early this month and are preparing to enter settlement discussion shortly. We expect CMP's new rates to be effective in July. In Connecticut, internvernor and rebuttal testimony were filed in December and January. And last week, we began evidentiary hearings. For UI, we expect new rates to be effective in September. Turning to our renewables business on slide 11, first and foremost, we are on track to deliver the country's first large-scale offshore wind park. Avangrid's 806 MW Binger Wind 1 project. With supply fully contracted and manufacturing of all components underway, labor costs fixed or capped, and financing secured with interest rate hedge and no foreign exchange risk. Binyard Wind 1 is protected from the inflation and supply chain pressures we currently see in the market. Our team has made excellent progress in construction over the last year. Today, equipment installation at the onshore substation is fully complete and cold commissioning has started. Offshore, we are working to install Our export cable with 55% already complete. Mid-year, we plan to begin installation of our foundations and turbines, and by the end of the year, we expect to have delivered the first power from Avangrid's vineyard wind one. This is a significant project for our company, for the country, and for Massachusetts, and we are proud to make it possible. We also continue to advance the development of our two other New England projects, Park City and Commonwealth Wind. As we collaborate with the stakeholders on the right solutions to address the economic challenges seen across the industry and around the world, we are continuing to make progress on the necessary permits, including the Federal Environmental Impact Statement. This will ensure that in the event that we reach a successful outcome, we can move forward with this project swiftly and efficiently, avoiding unnecessary delays. While this process plays out, we've taken a prudent and conservative approach to our long-term outlook and have not assumed Park City and Commonwealth win in our 2022-25 outlook. That being said, we remain confident in the value these projects can bring to the New England states and know that they have an essential role in meeting the region's visionary climate and clean energy objectives. Turning now to our onshore operation on the slide 12. Over the last year, we managed a challenging market environment to deliver 395 megawatts of new capacity, including our first large-scale solar project. In addition, we worked with our customers and successfully renegotiated 780 megawatts of PPAs to address the current market pressures and support improved economics. We continue to make operational excellence a top priority for our 8.6-year Watt fleet, which in 2022 operated with over 97% availability, an early two percentage point increase from just three years before in 2019. Additionally, our fleet has consistently maintained solid performance and even outperformed during extreme weather events with major generation outages including Storm Yuri in Texas in 2021 and Winter Storm Elliot in 2022. Additionally, we successfully worked with our suppliers to secure panels for the 480 MW we are constructing with COD this year. All of these panels have already been delivered on site and are in customs waiting to be released. We have several supply frameworks in place for the main equipment needed in our near-term pipeline with COD in 2024, which adds certainty to these projects and mitigates risks. We'll also continue to explore opportunities to deploy green hydrogen, leveraging our expansive onshore footprint and development and operation expertise to add value to the renewable business. Our team is focused on building out a portfolio of commercial projects along with the network suppliers and experienced partners. As you know, we announced in 2022 an agreement with SEMPREFER STRUCTURE to support potential joint development efforts. In addition, we are actively engaged in seven coalitions for the Department of Energy's hydrogen hubs program. Final applications for this program are due this spring, and awards are expected to be announced in fall 2023. As we look to the future, we are seeking to maximize the value of our robust 20-geowatt onshore pipeline, leveraging the attractive environment created by the IRA. We are pursuing opportunities to create value through repowering, targeting the repower of more than half of our fleet by 2035, and at leveraging solar PTC optionality and attractive hydrogen credits to improve project economics and generate future growth. Let's turn to slide 13. As part of the Verdura Group, we have been focused on sustainable leadership and value creation for decades. Our ESG plus F position is a key part of our business profile. We are proud to lead our peers today with a clean generation mix, beating the top renewable operators in the country, and an emissions intensity six times lower than the average U.S. utility, and to have created a robust set of goals to keep us ahead well into the future. Regarding our environmental efforts, Avangrid was the first U.S. utility to establish a goal for carbon neutrality in our generation fleet. At our last investor day, we announced we would expand our goals to cover Scopes 1 and 2 neutrality by 2030, putting us ahead of most almost other major U.S. utilities. We are also developing a strategy to address Scope 3. We have significantly expanded our focus on the social component, more than doubling the number of goals in this area. In 2022, we made important strides to improve diversity among our management team, increasing the representation of women on the team to 30%, up from 20% in 2021. By 2025, we expect to further increase representation of women in executive positions to 35%. As we consider the impact that we have in the communities that we serve, I also want to acknowledge our recognition and commitment to observing Black History Month. Through our African-American Council for Excellence, we have focused activities that celebrates our own employees and their experiences hosted external speakers, and highlighted community relationships that increase our reach and impact. We work actively to maintain the highest ethical standards and the best business practices across our organization. As a result, we have been named one of the world's most ethical companies by Ethisphere since 2019. Our focus on financial performance and sustainability makes it all possible. In 2022, we both delivered on our annual earnings commitment and outlined a disciplined value-driven plan to create healthy and predictable growth over the next three years. In addition, we closed on nearly $800 million of debt, including $270 million in green bonds, taking advantage of delayed draw to lock in a more favorable interest rates. Our efforts continue to be recognized by many third parties, including Just Capital, which named Avangrid to its list of America's most just companies for the third year in a row. Avangrid is one of the just two-year utilities recognized by S&P in its 2023 Sustainability Yearbook, and in 2023 joined Bloomberg's Gender Equality Index. Thank you, and now I will turn it over to Patricia to provide more detail on our financial results.