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spk00: 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.
spk05: 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.
spk06: 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.
spk04: Thank you, Pedro. Good morning, everyone. Since our company's formation in 2015, Avangrid has been a story of long-term growth and evolution. While we've had periods with headwinds, we have aggressively focused on continuous improvement. We remain targeted on improving execution and maximizing our earnings growth opportunities, and we have demonstrated success. Importantly, looking over the long term, Net income has grown by 85%, or $404 million, from our 215 pro forma results to 2022. Our adjusted net income has grown by 97%, or $443 million. This is a compound annual growth rate of 10%. And over the last two years, we have demonstrated stronger growth and execution with an adjusted net income CAGR of 20%. Additionally, over the last seven years and over the last two years, even with our equity issuance in 2021, adjusted EPS has grown at a CAGR of 7%. Turning to the next slide and our 2022 earnings performance. For the full year 2022, our net income was $881 million, an increase of $174 million, or 25% compared to 2021, and our adjusted net income was $901 million, an increase of $121 million, or 16% compared to 2021. Overall, compared to 2021, our 2022 results benefited from the implementation of our rate plans, primarily for the New York companies. This increased adjusted net income by $74 million. That number includes a positive impact from the removal OF 100 BASIS POINT ROE ADJUSTMENT IN CENTRAL MAINE POWER, EFFECTIVE EARLY IN 2022, RESULTING FROM OUR IMPROVED CUSTOMER SERVICE METRICS. WE ALSO HAD A GAIN OF 181 MILLION RELATED TO THE RESTRUCTURING OF OUR OFFSHORE WIND LEASE AREAS IN NEW ENGLAND, WHICH GAVE US 100 PERCENT CONTROL OVER THE PARK CITY WIND AND COMMONWEALTH WIND PROJECTS. OVERALL PRICING AND PRODUCTION WAS APPROXIMATELY 30 MILLION LOWER. HOWEVER, THIS LARGELY REFLECTED THE ABSENCE OF 93 MILLION 2021 BENEFIT FROM THE STORM URI in Texas. Excluding this, we did see improvements in pricing and production over the year, primarily from new assets in service and PTCs. We also had positive thermal and asset management results of $21 million. However, across the business, there were reductions from business costs, financing costs, primarily due to the absence of the NECEC AFUDC that we had in 2021, and depreciation. We had a consolidated net tax benefit in 2020 2022 that was approximately equal to 2021. In the business segment, it shows as a positive in renewables, primarily due to the release of a valuation reserve related to tax credits that we are now expecting to use due to the Inflation Reduction Act and state tax rate adjustments reduced by state unitary tax adjustments in corporate. For a business breakdown, we wanted to highlight the high percentage of networks adjusted EBITDA with tax credits within Avangrid's business mix, which explains 70% in 2022. Network suggested EBITDA improved in 2022, although there was a drop in renewables, which again reflects the absence of the 2021 benefits from our strong operational performance during the Texas weather event. Net of improved pricing, new capacity, and production tax credits in the 2022 that I had mentioned. We continue to invest in our businesses. driving future earnings potential as we implement our network's rate plans and construct wind and solar assets that reach COD in 2022 and that we expect to reach COD in 2023. Network's CapEx represented over 70% of our CapEx in 2022, funding core electric and gas distribution and electric transmission spend for reliability and resiliency. In this challenging and uncertain economic environment, we are focused on our balance sheet, access to liquidity, and credit ratings. Our sources and uses of funds on the next slide shows that in 2022 we generated or raised over $3.2 billion from a combination of cash and external borrowings, including green financing, to fund our CapEx and our dividends. Access to capital at attractive rates is important. Last year we secured bonds for approximately $792 million in our regulated utilities, including CMP's inaugural green bonds. We were able to lock in competitive rates ranging from 2.25% to 4.96% benefiting from a delayed draw pricing strategy. In 2022, we also closed on tax equity funding for $223 million for solar and onshore wind projects. Maintaining our solid credit ratings is a key objective. We had significant cash in 2022 due to the 2021 equity issuance to fund the PNM merger, which we deployed efficiently and cost-effectively to offset or defer debt and financing costs in the interim. In 2023, we look forward to closing on our merger with PNM Resources with Avangrid debt that we deferred due to our early equity issuance. As we previously noted on Investor Day, our long-term outlook anticipates additional equity of $1.9 billion in 2024, absent incremental asset sale proceeds that are not included in the formal outlook. Cash and liquidity are also key priorities. Supported by our ongoing cash from operations, debt at the utility level, tax equity financing and tax credit transferability at renewables. We have a $2 billion commercial paper program with an outstanding balance of 397 million at the end of 2022. This is backed by 3.575 billion sustainability linked credit facility and we have a $500 million in intercompany line of credit with Evadrola. Evadrola has also provided us with a $4.3 billion commitment letter that backs up our PNM resources merger closing. These sources provide us with $8 billion in liquidity, covering 21 months. We also have the unique benefits of being a member of the eBidrola Group, which also has strong liquidity of approximately 25 billion euros, covering 27 months. Finally, our dividend policy remains unchanged. We're targeting a payout of 65% to 75% that we will grow into as our earnings increase over time, subject to Board approval. Importantly, our dividend yield of 4.36% exceeds the sector average of approximately 3.14%. Our Board recently declared a quarterly dividend of 44 cents a share payable on April 3, 2023. Moving to the next slide, we are introducing our 2023 outlook ranges for EPS of $1.90 to $2.10 and adjusted EPS of $2.20 to $2.35 per share. We expect 2023 adjusted EPS to be relatively flat compared to our 2022 guidance and note that, excluding the offshore wind gain in 2022 and asset sale proceeds in 2023, our expected adjusted EPS results increased by approximately 9%. Our ongoing focus remains on achieving these targets as we execute our investment plans with discipline and a risk management focus. Our 2023 outlook includes debt at the parent level, including to close on the merger transaction, which was financed in 2021, as I mentioned, primarily with the $4 billion of equity that we issued. PNM is included in our guidance starting in mid-2023, and based on public information and our internal estimates, we have assumed EPS of approximately 30 cents in 2023 for PNM. We also provide our expectations of opportunities and risks for the remainder of 2023 versus our outlook expectations. which include renewables production and pricing, rate cases and other regulatory actions, storms and weather-related events, the restart of the NECC construction, thermal and asset management results, taxes and financial interest, business costs, and uncollectibles. We expect renewable asset divestitures in 2023 to include the sale of a portion of our Kitty Hawk lease area, as we noted on our September investor day, but also include estimated proceeds from potential partnership transactions for new projects with CODs expected in 24 and 25. In total, we are estimating pre-tax earnings benefit of approximately $125 million. Finally, today we are also confirming our 6% to 7% CAGR and our adjusted EPS through 2025 based off a base that is the midpoint of our 2022 guidance unchanged from our investor day. In summary, we're very pleased with our 2022 financial results, and we are very focused on continuing to execute our long-term financial plan. As we outlined in our recent Investor Day, we have a disciplined focus on our investments, on risk management, our financing plans, liquidity management, and our credit ratings. Thank you for joining us today for our financial update. I'll now hand the call back to our operator, Glenn, for questions, followed by closing remarks from Pedro.
spk00: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star, followed by one on a telephone keypad now. When preparing to ask your question, please ensure your phone is unmuted locally. We have our first question comes from Richard Sunderland III from JP Morgan. Richard, your line is now open.
spk11: Hi, good morning, and thank you for the time today. I've started with the 23 outlook. Right through a lot of the details, just at the end there, I wanted to confirm some of the pieces. The $125 million pre-tax gain, if I heard that correctly, that's inclusive of both Kitty Hawk and the onshore partnerships. I think in the past, Kitty Hawk was tapped for about $100 million. Is that still the case? And just wanted to confirm that those are the two moving pieces within that and see if any of your expectations around Kitty Hawk have changed since the fall.
spk06: No, I think there is no change. Again, this is, you know, two examples of different options that we have, you know, to obtain those proceeds. Okay, it's not just those two examples you give, but I think, you know, there is no change in specifically having, you know, those assets, you know, targeted. You know, the 6040 for some assets in development of onshore, and then the Kitty Hope, among other things, because we're looking into several things right now from an asset, you know, rotation point of view.
spk11: And then in terms of the onshore piece within that, you mentioned 24 and 25 CODs. Would the sum total of the gains there come in 23, or would you still expect to have 24 and 25 EPS contributions from those partnerships in terms of the gains themselves, not recurring earnings?
spk07: In 25, I think we had almost nothing. You know, a long-term projection from EBS.
spk04: Yeah, we actually had the project COD in 24 and 25. And these are project COD in 24 and 25 and a long-term outlook. And I think we had 15 million of pre-tax in each year.
spk07: Yeah. Yeah, one place.
spk04: Yeah.
spk11: Almost nothing. Right. Okay, got it. But we always look to the 15 million expected.
spk04: We're always looking for... Sorry, sorry. Richard, just my comment was we're always looking for these opportunities. So if they arise sooner, we're going to capitalize on those. And as Pedro mentioned, and we mentioned actually on Investor Day, that there are a lot of other opportunities that we're looking at that were not in the plan.
spk11: Okay, got it. And sorry, just one last follow-up on the guidance itself. The $0.30 from T&M based on a mid-year close, is that kind of all in with the financing costs, or is that a separate contribution just from the PNM acquisition?
spk04: That's PNM. That's PNM's contribution.
spk11: Okay.
spk04: It's not inclusive of any other.
spk11: Thank you. And then just for my second question, the 6% to 8% and reiterating the outlook there, I noticed you referred back to the fall update for that. Does that then consider, I guess, changes in the interest rate outlook or power prices subsequent to the fall update? I'm curious if that has an impact on where you are within the 6% to 8% range or any other changes relative to the fall that might impact the 6% to 7% EPS CAGR.
spk04: Yeah, I was just going to say it was 6% to 7%, the EPSK group. So we are affirming that today, and we do consider changes in the macro environment that have gone on since that point in time. I think when we refer back to Investor Day, we're just talking about some of the key items that are really unchanged, like the asset sales assumptions, the equity assumption, the assumptions we had in the model for rate cases and investments, rate-based, all of that is unchanged. But we do look at other things as we narrow the range and got closer to this disclosure.
spk11: Got it. Very helpful. Thank you for the time today.
spk00: Thank you, Richard. We have our next question. It comes from David Acaro from Morgan Stanley. David, your line is now open.
spk09: Great. Thanks for taking my question. I was wondering if you could give an update on the New York settlement discussions. Any latest thoughts on how those are going, the timing of when we could get a settlement out in that state?
spk06: Catherine, I know it's confidential.
spk03: Sure. Thanks, David. I'll update you as much as I can. Right now, we have an extension until March 6th. for the proceedings. And we are continuing those settlement conversations with staff and with all interveners. And we'll just continue to work through those. As Pedro said, our guidance estimates that we will have rates in effect from May. And I will note that historically, the commission has looked favorably upon make whole agreements for rates. So we're working hard to see what we can do as soon as possible, but we'll continue to hold those settlement negotiations as long as they're productive.
spk09: Okay, got it. Thanks for that. And then I was wondering if you could just speak to Commonwealth Wind a bit, just in terms of your strategy as you bid that into the next auction. Do you feel you have a good line of sight into the cost structure in terms of having a high level of confidence in the cost structure to be able to bid at a level that does protect your returns in this next round, but also be able to bid competitively? I'm just wondering if you could speak to how you think about positioning that strategically and protecting the downside risk on returns.
spk06: I think the first thing is I think we need to terminate the existing contracts. I think as we commented, we have already declared our termination, but it has a process, so we need to finish that process. And then the rebate that will be in the May auction and then decisions in September and by the end of the year, the answer is yes, we're very committed. What we're trying to do right now is also to make sure everybody understands that these situations that we have been suffering in the last quarters It's not just to us, it's worldwide and it has consequences. I think we see material deviations in many projects, in solar, in onshore, in offshore, in substations, in many situations. And I think the important thing is also that when the auctions come out, they keep in mind, you've seen some index considerations in other states in terms of the offshore development. And I think, you know, that has to be taken into account. You know, it would be very important in the new auctions that they take into account that the process takes so long that other things can happen in the middle and then there should be adjustments. But I think, you know, because of the work we have already done in the last more than three years, you know, we're probably, you know, as best positions as we can to have as certainty as we can, you know, to making a new bid, you know, for this project because we continue working in the project and we are committed to deliver this project.
spk09: Okay, great. That's helpful. Thanks so much.
spk00: Thank you, David. We have our next question. It comes from Michael Sullivan from Wolf Research. Michael, your line is now open.
spk08: Hey, everyone. Good morning. Wanted to ask on just the latest on NECC and some of the cost estimate updates and timeline updates that you had in the fact book. And then maybe just a little more on what you mean by ensuring economic viability that was in the slides. Is there any risk to this project at this point?
spk06: I think if I can answer that, and please, Catherine, add up, it's very simple. We have legal things ahead of us, and we need to finalize them. And also, you know, we have, you know, to review the economics just to make sure that, you know, we get the right recovery of the cost we have incurred. You know, there has been a change in law in this contract, and that allows, you know, for, you know, updating, you know, the cost, you know, due to that change of law. So I think, you know, those are the two things that we're going to be working on. Catherine?
spk03: Yeah, I'll just add that, you know, with the delay that was caused by the kind of unprecedented action from our opponents, And we continue to look at restarting construction as soon as possible. And with that restart of construction, we're negotiating with all of our vendors to make sure that we can optimize all of the construction schedule as well as the pricing that we're receiving. So we're doing that in the background as we're proceeding along with the legal matters.
spk08: Okay. So this is more negotiating on the cost side, not the revenue contract side, or is that part of this as well?
spk06: Well, it's both things. I think, you know, there is a change in law and those additional costs, you know, legally, you know, we believe, you know, we're entitled to them. And I think, you know, that's something part of the things that we're working, you know, with the ADCs and subsequent, you know, with the public commission. So the answer is yes, you know, we're going to be working and we are working in both sides.
spk08: Okay. And then just on the 23 guide on slide 18, you point out 9% growth, excluding some of the offshore wind gain and the divestitures planned for 23. But then you show P&M as 30 cents. I mean, isn't P&M the majority of that 9% kind of normalized growth? And if that's right, what's kind of going on with the rest of the business that it's seeing such little growth, I guess?
spk06: Yeah. I will let Patricia to comment on details, but I think remember when we did our strategic presentation because of the rate cases, you know, negotiations that we have going on right now, we made it clear that, you know, out of the three years, this was the one, you know, with less growth and then, you know, things, you know, we catch up later. You know, I think, you know, we've been very transparent on how this year, you know, will be. I think, you know, when you look at the numbers, you know, with and without PNM, you know, and you look at the numbers also, you know, without existing gains, If you take out, you know, the two gains, you know, both the ones that we had last year, you know, with the Texas event, you know, and some other asset divestitures, you know, and you take out, you know, the actual gain that we had this year in 22, I think you will see that, you know, the growth is 7%, okay, you know, when you think about it. And when you think about, you know, the growth, you know, for, you know, 23, if you think about the point of the guidance, you know, we go to 9%. Now you say, well, if you take out, you know, P&M, those numbers go more to the 7%. So that's why I think, you know, for us, you know, yes, you know, this is, you know, the year that, you know, we made it clear, you know, what we have, you know, rate cases, negotiations, et cetera. And, you know, P&M is a factor, you know, to move, you know, from, you know, two, three points, you know, above or below. Patricia, you can comment.
spk04: Yeah, I think you've hit all the key points. I mean, what we were really trying to show is that even though these events that happened in 2021 and 2022 are part of our You really are, and we've said this a couple of times, our ongoing strategy of capturing value in our business. And we've been able to do that by having the strong operational performance in Texas. We've been able to do that by restructuring our offshore wind lease. So now we have 100% ownership of those projects. If you wanted to exclude those, and we had some small asset divested shares also in 2021, which we had typically on a recurrent basis from our pipeline. you would have a 9% growth excluding that. Yes, in 2023 there is PNM and we have $0.30 there for the PNM operations, but we also have rate cases that we expect will be very important to the companies and will go into effect, you know, mid to late year. So, you know, not early in the year. We also have operations from projects that went COD last year and this year that will add, we expect this year, that will also add to the performance. We also have the funding cost for debt at the parent company level that needs to be considered into 2023. So it's really not any change from how we have been looking at it all along from investor day considering all those factors other than we're constantly looking, as I mentioned before, at the whole macro environment and other impacts to the business. Okay, that's helpful.
spk12: Thanks for sharing.
spk04: Yep, sure.
spk00: Thank you, Michael. Our next question comes from Julian Dumanin-Smith from Bank of America. Julian, your line is now open.
spk10: Hey, good morning, team. Thanks for the time. Appreciate it. Just coming back real quickly here, and I know you guys addressed this a little bit, the 6% to 7% CAGRs. First off, just when you talk about the assumptions embedded, is it still assuming the same power curve from last year? Or how do you think, in reaffirming, to use your words, I think a moment ago, today, relative to incorporating some of the assumptions from last year, one of the big delts would potentially be power. How do you think about the market there and what the curve is as of?
spk04: I mean, we call that a couple things, interest rates, macro environment. We look at all these things combined to see how comfortable we are with the guidance. We haven't changed some of the things I mentioned, like rate case assumptions in terms of investments, in terms of expected ROEs and capital structures, CapEx across the business. you know, megawatts, et cetera, but, you know, we do, when we're trying to determine our 2023 budget, we do, which came after Investor Day, we do, you know, deep dive focuses on all of our expectations for 2023, so we take those into account, and anything else that we are, you know, believe could be impactful, positive, or negative in the long-term, and that's how we get comfortable with maintaining the 6% to 7%.
spk01: Maybe just to remind that also 70% of our earnings are linked to PPAs, so not subject to this change in the power curves. And also just to highlight that yes, we were quite prudent when we made our budget, because in 2022, we saw basis as an important vector in some assets, and we put prudence in our 2023 budget.
spk04: That's right. I think it's important to note that, too. that 70% of the renewables business, which is less than 30% of the corporate earnings, are for PPAs. And we do, when we look at pricing, consider basis risk and curtailments and prudently managing around those.
spk10: Got it. Basically, the way to say this is, Your power curve assumptions haven't changed formally for the range, but given the market-to-market today, you're still within the range. Is that the way to read it?
spk04: I'm saying we look at a lot of different things, pluses and minuses, and we're not calling out everything that's in our long-term outlook, every assumption that's in our long-term outlook, positive and negative, because then you're just going to know those single things that we call out. We're just basically saying, you know, total recovery for the range when you... Yes, when we consider everything.
spk10: And maybe the follow-up related to that would be, when do you think about coming out with an updated and roll-forward long-term outlook? And then, you know, to that end, do you think that you could be in a position to give kind of a cleaner number, you know, given the gains, et cetera? There's a lot of lumpiness within the adjusted EPS still. What point do you think we get kind of a cleaner view on the outlook for the business without kind of the jump in PNM here, for instance. And then related to that, what's the timeline, do you think, for PNM? It seems like the Commission and others are keen to resolve. What's your sense on when you're able to get that clarity, given some of the other sort of logistical and pending matters in the state?
spk06: If I can respond to both, I think, first of all, you know, we have confirmed the outlook for 25, you know, so I think we don't have any date right now that we will come back. I think it's clear we're working always in updating our onshore business plan. I think we're working on updating. You know there was a transmission approval last week, so we're working on that to come back to you. It's a very material amount on CLCPA Part 2. So we always will have to come back to you with updates. It seems to me that most of the updates are more things happening than less things happening. I think on PNM, I hope you are right. I think we respect that you know the process. There is a new commission. You know, the commissioners are very respectful. They have been confirmed. And I think, you know, we're just right now working, you know, with them, you know, to see if, you know, not with the commissioners. We're working, you know, with the parties, you know, try to, you know, come back to the commission. So we are just waiting right now.
spk07: You know, but if there is something there, it's going to be in the upcoming weeks.
spk00: Thank you. We have our final questions from Angie Staronsky from Seaport Research Partners. Angie, your line is now open.
spk02: Thank you. So I just wanted to go back to the earnings, segmental earnings. I mean, what happened with networks earnings in the fourth quarter? Because it seems like, you know, the year-over-year delta, you know, is pretty harsh, especially for the fourth quarter earnings. You know, you clearly made your... consolidated EPS against market expectations, mostly through the renewables business, but the networks looks weak. And you're suggesting that there's basically flat earnings year over year, roughly for that business in 23, if I understand correctly, because of the timing of rate cases. But again, I would argue that the 22 earnings for networks were relatively weak, no? No.
spk04: So, yeah, let me just go through a couple of things there, Angie. For the fourth quarter, specifically for networks, we did have the ongoing impact of rate increases in New York and Maine. That was about $16 million, and we had a small amount of capitalized labor and some benefit from taxes, but we also had ongoing cost of the business, which was including, you know, all across the business, higher vegetation management spend, other costs of the business. We had personnel costs that were higher that was primarily due to growth, including some that were in our prior JP in New York. We had depreciation as we had new fixed assets put in place. And then if you look quarter over quarter, There's also a negative in finance costs that's really from NECC because we had that. There's about 6 million there that was in the fourth quarter of 2021, but not in the fourth quarter of 2022. So that's really for the quarter with what's been, you know, timing wise, what's been driving the business, the cost.
spk06: I think also if I could make a comment, and please Catherine or Scott comment as needed. I think I'm very proud that, you know, we have delivered, you know, almost, when I say almost, it's almost 100% the budget we have for the year. I think that's, you know, I'm very happy, you know, so that's why we want to do the same thing in 2023. And perhaps, Catherine, I don't know if you want to add anything to Patricia.
spk03: I'll just add, Angie, that this is traditionally the profile that we have in networks, where as we get towards the fourth quarter, some of those expenditures that Patricia was talking about typically flow through. So what we really target for is the total year EPS.
spk02: Okay, well, but you never provided us with those segmental earnings targets, right? I mean, I understand that you're showing us on a quarterly basis, but as I look into event 23, you're not showing me what is the target for networks, right? Would you consider providing us with segmental guidance?
spk06: I think we used to do that, and I think we have decided to move more, you know, to the commitment as a company. you know, to do that. And that's why, you know, we will explain in the data every quarter, but we prefer to stay with a commitment, you know, to the whole company.
spk02: Okay. And just one last one. So you mentioned that you considered asset sales to offset equity needs. You know, it seems like we have had, or we have a number of pending processes of asset sales on the renewable side. They seem to be getting delayed. There's some questions about how the higher cost of financing impacts the value of these assets. Have you looked at, again, potential monetization of either existing assets or undeveloped projects and how the market perceives these assets versus what you had expected a couple of years ago?
spk06: I think, you know, the answer is yes. You know, we are working on different processes. We have interest, you know, from buyers. I think, you know, if you see the recent transactions both in Europe and the U.S., you know, the market continues to be there. And I think interest rates, as you correctly say, may go up now. But, you know, people expect the interest rate to go down, you know, a year from now or three quarters from now. So I think, you know, the amount of money coming into the funds has not changed. You have, you know, a lot of, you know, money going into the funds. So from that point of view, I think you can see the transaction we have closed at the group level already, three or four in the last six months. And I think if you review the RWU transaction, I think you review some of the other transactions in offshore going on, it seems to me that the appetite is there. So there is no change in dynamics right now in the money market for renewables. All those other processes, I cannot comment. I think we're very pleased on our assets. We believe they are tier one. They are very unique. Not everybody has the third largest onshore operations in the U.S. in onshore. I think nobody has so much commitment as we do to real projects in offshore. So from that point of view, when you look at those assets, I think the appetite is there and the interest is there. I have not seen any change at all.
spk00: Thank you. And thank you all for your questions. I will now pass it over to Pedro Asagora for closing remarks.
spk06: 2022 was a highly successful year for Avangrid, thanks to our increased focus on execution and risk management, which enabled us to meet or exceed our financial commitments and positions for continued success in 23. We believe the moment is right for a unique green investment opportunity like Avangrid. In the year ahead, we look to leverage the solid foundation provided by our largely regulated business mix to drive secure, stable, and profitable growth across Avangrid. As we look to deliver on our commitments in 2023, we will prioritize completing our PNM resources merger, as far as, you know, depends on us, closing our rate cases to balance cash flow earnings and customer affordability, and resolving any CEC legal matters. Our discipline investment strategy will ensure optimal use of our capital with a sharp eye on balance sheet strength, solid credit agencies, and liquidity. As a rotation, which includes, as we announced, up to $2 billion at least in sale opportunities throughout 2025, and partnerships are a key element of that strategy. Our investment plans are well aligned with the state and federal clean energy policies. We are driving faster decarbonization across our own operations and enabling a broader energy transition through first in the nation offshore wind, expand of onshore renewables, and by developing clean energy transmission, and grid infrastructure. In each of these activities, we benefit from the expertise, scale, and strong financial backing of our Iberdrola Group that we are part of. If we leverage this strength and capitalize upon these upsides of our plan, I am confident that we will continue to deliver on our commitments and extend our trend of solid execution. Thank you again for joining us today for our fourth quarter call. If you have any other questions, please follow up with Alvaro, Patricia, myself, and the rest of the IR team. Thank you very much, and have a great day.
spk00: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
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