Avangrid, Inc.

Welcome to OvenGrid's second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I will now turn the call over to Alvaro Ortega, Vice President of Finance, Investor Relations, and Treasury. Please go ahead.

Thank you, Dennis, and good morning to everyone. Thank you for joining us today to discuss Avangrid second quarter 2023 earnings results. Presenting on the call today are Pedro Asagra, our chief executive officer, and Patricia Joskel, our chief financial officer. Also joining us today for the question and answer part of the call will be Catherine Estampien, president and chief executive officer of Avangrid Networks, and Jose Antonio Miranda, president and chief executive officer 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 factors section of the accompanying presentation, or in our latest reports and filings with the SEC, each of which can be found on our website. 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 considerations of non-GAAP financial measures to the closest GAAP financial measures. I will now turn the call over to Pedro.

Thank you, Alvaro, and good morning to all. Thank you for joining us today on our second quarter results presentation. Let's get it started on slide number five. Having reported second quarter earnings per share of 22 cents and adjusted earnings per share of 21 cents. As we anticipated last year, you know, 23 would have timing effects, such as the implementation of key rate cases expected later in the year. This year, we have accomplished various important milestones in our core business and strategic initiatives. In networks, central main power received approval for a two-year rate case, effective July 1st. On the New England Clean Energy Connect Transmission, NECEC, in this quarter, we received favorable rulings from Maine's business board supporting the advancement of this project. We also have two new positive developments. First, the Massachusetts House and Senate have included legislation supporting cost recovery for change of law, the referendum, costs in a budget bill. And second, we have an agreement to extend the commercial operations date for the change in law delay if needed. We continue our discussions regarding price adjustments for the change of low cost. Today, we have provided with the regulator in Maine with the required notice that we will continue some critical path construction activities in August. On Commonwealth wind, the Massachusetts electric distribution companies have filed with the Department of Public Utilities for the termination of the PBA contracts, which will pave the way for Van Grief's participation in future offshore solicitations. In addition, we are progressing on our Binger Wind 1 offshore project, which is on track to deliver first power this year. Finally, our ESG efforts continue to be recognized by third parties. We have earned 11 sustainability and governance awards or recognition in the first half of the year. We have also made significant strides in our New Year rate case. We filed the joint proposal agreement with the Public Service Commission with new rates expected to go into effect in October with a Mayhold provision back to May 1st. We're also aiming to repower over half of our existing fleet beginning this year through 2032 to benefit from opportunities created by the IRA. And we continue to address with regulators and the electric distribution companies about a path forward for our Park City offshore wind project. Finally, We remain committed to the PNM merger. We extended the merger agreement to December 31st. This extension will enable us to work through the legal process in the coming months. Based on our year-to-date achievements and progress on key issues, we are reaffirming our full year 2023 EPS of $1.90 to $2.91, and adjusted EPS of $2.2 to $2.35. In the slide 6, In May, we have successfully completed the first multi-year rate case settlement in 15 years. We received approval from the Maine Public Utility Commission for our CMP rate case, which is centered around over $380 million of investments to improve safety, reliability, and resiliency. This will increase our rate base to $1.3 billion by rate year two. The plan also includes an authorized ROE of 9.35% and 50% equity, with an ability to earn up to 10.35% prior to sharing. The decision provides mechanisms that will reduce our risk exposure, such as the ability to charge pre-estation costs to storm reserves and protection against hyperinflation. Ultimately, this rate case will balance customer affordability with needed investments while strengthening our credit metrics. In addition to a successful rate case, we have also achieved another notable accomplishment in Maine. On the regulatory front, we received approval for our compliance filings, generating $80 million of additional cash for the second part of the year. These filings enable us to recover items like generation expenses on a timely basis. In customer service, we have met or exceeded our service quality indicators for over three years. In operations, we have conducted over 9,000 distribution line inspections and removed over 5,000 aging poles. Finally, we also closed the 2020 CMP management audit, resulting in no actions from the Commission. In the next slide, regarding our NECC project, We are very pleased that the jury in the Maine Business and Consumer Court unanimously determined that NECC cannot fully resume construction and that there are no appeals on the ruling. In May, the Maine Department of Environmental Protection lifted its permit suspension clearing the way for project construction. We are having ongoing discussions on cost adjustments and have reached an agreement with the counterparties to extend the COD timeline under the contracts if necessary. In addition, we will be working on critical path activities in the Lewiston substation as of August 3rd. The transmission project has an expected total capital expenditure at present of $1.5 billion, with $638 million already capitalized. Once complete, NECC will benefit all of New England by reducing the region's dependence on fossil fuels and providing more stable energy prices. Recently, the Massachusetts House of Representatives and the Senate included favorable legislation in a budget bill to provide the Department of Public Utilities the flexibility to approve amended transmission services agreements, which would support the recovery of cost increases. In slide number eight, we are proud of the partnership we have built with Massachusetts, and we lead the offshore wind industry in the United States. We remain committed to constructing our offshore wind pipeline and helping New England meet their ambitious 2030 climate targets for a better, brighter, clean energy future. On Commonwealth Wind, the electric distribution companies have filed termination documents with the Massachusetts Department of Public Utilities. Once approved, we plan to repeat in future solicitations. The termination agreement limits our financial impact solely to the project security deposits. This outcome is significantly better than our peers who have paid up to $350 million to terminate their respective offshore wind project contracts. Construction is progressing well on Binger Wind 1. The 806 MW project is on track for set power in 2023 and commercial operation in 2024. Once online, this project will generate clean, renewable, affordable energy for over 400,000 homes and businesses across Massachusetts, while reducing carbon emissions by over 1.6 million tons per year. We have achieved many construction milestones this summer on Virginia Wind 1, including energy of the onshore substation in Massachusetts. Construction has also started on the operation and maintaining facilities in Munster-Pingert. Offshore, we have installed six monopiles and transition pieces. And shown on this slide is one of the six completed turbine foundations. We have also completed the installation of the offshore substation and export cable, which connects the onshore and offshore facilities. In the next slide, in June, we filed the joint proposal agreement for the New York rate case with the Public Service Commission, which has been signed by eight parties. The record will be completed on August 4th so that it is ready for the Commission to act. Last week, the CONET joint proposal was approved almost as filed. Our joint proposal agreement requests $6.4 billion in capital expenditures over 2022-2026 including 634 million dollars for new york's climate leadership and community protection act clcpa phase one the new rates are expected to go into effect in october 2023 with a may hold provision back to may 1st 2023 the agreement includes an authorized roe of 9.2 percent and 48 and 50 50 earnings sharing above 50 basis points and contains a provision for fixed debt rate reconciliation. The rate case yields an additional $1.45 billion of authorized revenues. The three-year rate settlement also includes regulatory asset language for uncollectibles, providing risk mitigation against customer . There are also provisions for improved storm recovery and funding for vegetation management. Additionally, we've taken significant steps in customer service performance in New York with a positive trend over the last several months. Furthermore, we received approval to build transmission projects through CLCPA Phase 2 and New York Transco, bringing the total transmission opportunities in the state between 2025 to over $3 billion for these projects. Finally, our teams have worked to improve system reliability by enhancing vegetation management targeting infrastructure replacements for aging assets and modernizing the grid. As a result of this work, we're seeing a 12% improvement in NYSEG and 16% improvement in RG&E in system average interruption duration, or SADI, year over year as compared to 2022. In slide number 10, the Inflation Reduction Act has created an attractive environment for clean energy projects by extending tax credits. Due to the IRA, we are pursuing opportunities between 2023 and 2032 to improve the earnings profile of our renewable business by repowering over half of our fleet with about 4.6 gigawatts identified as of today. Repowering is a great opportunity for our renewable business. First, for technical reasons, The sweetest part of repowering is when turbines are between 13 and 20 years old, and over half of our existing fleet is in this range. Second, the technology has improved significantly, with new turbines producing 30% more energy than the aging turbines. Finally, the permitting process for repowering is simpler and faster, while the profitability is expected to be the same as new build. Thus, we are beginning the repowering process this year. by working to secure the supply chain and commencing development activities. We will begin by assessing our 80 MW Leaning Juniper Wind Project. Repowering these assets enable us to receive additional PTCs on existing assets under incremental production for 10 years. Extending our assets' useful life will help us avoid the diminished returns and performance of the aging fleet. We will provide additional details on these plans in the coming months. Slide number 11, in Connecticut, we filed the UI rate case with the Public Utilities Regulatory Authority in September 2022. The draft decision was received on July 21st, and we are preparing our response. We expect a final decision by August or September, with new rates in effect by September or October. In addition, as part of our earlier agreement with the Connecticut Office of Consumer Counsel, which was approved by the Public Utilities Regulatory Authority, we will be filing rate cases for Connecticut Natural Gas and Southern Canadian Gas this November. SB 7, a Senate bill to reform utility regulation, passed the legislature and was signed by the governor in June. It was a political response to increases that customers saw in their electric bills. Our team worked hard with the state regulators, and the outcome was much better than the original draft of the bill. Finally, for Park City Wind, we continue working to address the economic viability of the power purchase agreement with regulators and electric distribution companies with the goal of finding a path forward. Moving on to P&M, we continue working towards closing the merger with PNN Resources. We are committed to the merger and the benefits it will bring to the state of New Mexico. This merger agreement has been extended to December 31st as we work through the legal process. There is also an option to extend it for an additional three months if agreed. The merger has received approval from five federal agencies and the Public Utility Commission of Texas. The parties in the merger case will present arguments in front of the New Mexico Supreme Court in September. In slide 12, I am honored to mark my one-year anniversary as a BankGrid CEO. Over the past year, I appreciate the support of the chairman of the board and all my team in this task that we had ahead of us. We have navigated through unprecedented macroeconomic and supply chain challenges. As you have seen, we have made significant progress in most of our priorities and also achieved some additional important accomplishments. For example, in Connecticut, after eight months of discovery, our companies received an overall positive audit report and finalized the management audit with no material negative findings. We also made substantial strides in customer digitalization, which will help us drive further improvements in our customer service metrics. from our customer experience team have resulted in over 1.2 million customers enrolled in eBill, 10% increase year to year, plus over 1 million mobile application downloads, a 54% increase. In addition, we almost multiplied by four times the number of customers with outage alerts from 430,000 to over 1.6 million customers. We continue to prioritize customer service by automating net energy billing and the move-in process, and we launched a new electric vehicle portal and self-service payment tool. These tools and technology will help increase customer satisfaction, reduce cost to customers, and improve cash flow. In renewables, we reached 8.6 gigawatts of wind and solar capacity, signed 321 megawatts of new power purchase agreement, and renegotiated 1 gigawatt. We've achieved operational success by reaching 93 97.3 percent fleet wide availability in 2022 and are currently maintaining energy availability at 20 and 97 percent preparing for binger win one operation we've integrated the project into the national control center for remote operations we have also joined the california independent system operators western energy imbalance market as the first generation only entity, enabling Avangrid to optimize real-time trading in the energy balancing market and reduce curtailment. In addition, we have also signed a memorandum of understanding to explore opportunities to develop up to one gigawatt of green energy projects within the Navajo Nation in New Mexico and Arizona. Lastly, for accomplishments across the rest of the company, We have executed a transferability term sheet for 100 million tax credits for multiple projects that are not in tax equity. In addition, we've signed the tax equity term sheet for Binger Wind 1 and fully funded the tax equity for Landhill Solar. We also issued $575 million of long-term debt in networks and $800 million of a 10-year green loan with Iberdrola. Earlier this year, Fitch also upgraded Avangrid's outlook to stable, improving our ability to access the capital markets. Thanks to these achievements and a solid operational and earnings trajectory in hand, I'm confident that we are on firm footing to deliver future growth. Turning now to slide 13, in the first half of 23, Avangrid has earned awards and recognitions spanning various aspects of sustainability and governance. On our Q1 earnings call, I discussed Avangrid's inclusion in just 100 lists, Bloomberg's Gender Equality Index, and its fierce world's most ethical companies for the fifth consecutive year. We received another eight prestigious awards in 23. S&P Global 23 Sustainability Yearbook named Avangrid as one of the world's most sustainable companies. Avangrid is one of the only two U.S. electric utilities to be recognized. US Today recognized Avangrid as one of the nation's climate leaders. The Edison Electric Institute recognized Avangrid for exceptional storm restoration performance following winter storm Elliot in December 2022, as well as for mutual aid provided the Nova Scotia following Hurricane Fiona. This recognition serves as a testament to our continued commitment to customer reliability. This is the sixth consecutive year that Avangrid is included in the Food Seed for Good Index Series. We received top scores in climate and governance, which includes assessments of risk, management, corporate governance, and anti-corruption. As part of the Iberdrola Group, our sustainability commitments are central to our company strategy. So we are incredibly proud that our climate leadership is being recognized by third parties. Each of these awards and recognitions highlights our commitment to building a clean energy future while maintaining socially responsible businesses practices. Now, I will turn the call over to Patricia, our CFO, to provide more detail on our financial results.