Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Avidan grid third quarter earnings Conference call. At this time all participants are in listen only mode meter, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference we spread Star then zero on your Touchstone telephone I.
I would now like to turn conference over to your host Ms., Patricia Cosgel Vice President of Investor Relations. Please go ahead now.
[laughter] and good morning, everyone. Thank you for joining us to discuss on Android third quarter 2019 earnings result, presenting on the call today, our Jim Thompson, Our Chief Executive Officer, and Doug do her on Chief Financial Officer I team has been good operators will also be participating on the call to answer your question.
If you do not have a copy of my press release, a presentation for today's call. The are available on our website at www Dot Avangrid dotcom.
During today's call, we only various forward looking statements within the meaning of the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions, which are subject to risks and uncertainties.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors discussed enough and goods earnings news release in the comments made during this conference call in the risk factor section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission each of which can be found on our website Avangrid dot.
We do not undertake any duty to update any forward looking statements.
Today's presentation also include references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definition information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures I will now turn the call over to Jim Torgerson.
Thanks, Patricia and good morning, everyone and thank you for joining the call.
Oh I'm going to start on page five with the financial results in the third quarter, which reflects really positive performance the renewable.
Improved production due to better wind resource, a new assets and service during the quarter.
So for the third quarter of 2019, net income was $150 million or 40, some share up about 20% year over year.
Year to date net income was 477 million or $1.54, a share which was in line with last year, our adjusted net income.
Become in the third quarter was up 123 million or 40 cents, a share which was down 11% versus 2018 and year to date adjusted net income amounted to 442 million or $1.43 cents, a share which was down 13%.
We continue to really make good progress executing our strategic plan in networks settlement negotiations for nice thing NRG any rate cases began.
On October 22nd and the main rate case is in progress the New York staff and the main.
Bench analysis included enhanced recovery mechanisms for outage restoration and staging costs.
And with these in place we would have been able to recover about 90% of the staging and the outage restoration costs.
Experienced in 2019.
Moving on our new England clean energy connect transmission project is really on track to start construction in the second quarter point of your money.
Concerning our renewable projects, we have executed over 2000 megawatts and power purchase agreements exceeding our long term outlook targets.
We commissioned 427 megawatts year to date, and we have approximately 562 megawatts of onshore wind under construction.
During the third quarter.
We executed a new PPR with Portland General electric for the Repowering of our 75 megawatt onshore wind project conduct two in Oregon.
In addition, we're optimizing our renewal pipeline to the agreeing with axiom to sell a 50% ownership interest in a wind farm in a solar projects for 112 million, which is expected to close in the fourth quarter. Both projects are located in Arizona and have long term PA and this is going to be a continuing strategy too.
Recycle capital and optimize our pipeline projects in our assets.
Our our vineyard when offshore project volume is expected to issue a supplemental environmental impact statement by late 2009 seen early 2020.
And during the third quarter vineyard when submitted separate bids in the Massachusetts, and Connecticut is offshore wind RFP.
And the winning bids are expected to be announced in November .
In addition, our forward 2020 plus plan, we're on track to achieve savings in the range of 70 85 million pre tax in 2019 with about 45 million pretax savings achieved in the first nine months. This is helping to mitigate the impact of our higher outage restoration staging cost, particularly in New York.
As part of our continued organizational transformation designed to improve communication and to enable better strategic coordination and more efficient decision, making we are developing an east coast presence for the renewables business. This change will be relocating some senior leadership roles to Connecticut, specifically originations.
Development investment in the business performance.
We also announced some changes to leadership that are designed to help us and the growth of renewables, notably lower being is decided this should we be leaving the organization now we have the greatest respect for a lower and we really do wish for well and thank her for all the contribution she's made off on grid.
I'll handle the host who has been leading the U.S. offshore business for the last two years has been appointed as president and CEO evolve and grid renewables now Lora is going to be staying through the end of March to assist us with this transition and really this is a very exciting time robin good renewables and I'm optimistic for the growth prospects of the.
Business and the ability of our team to deliver on it.
Moving to slide six note that the GAAP earnings per share were impacting the quarter by several factors noted on the slide which are excluded from adjusted.
From the adjusted earnings per share most notably there was a large mark to market impact in the third quarter that positively impacted earnings per share.
For the quarter adjusted earnings per share of were lower compared to third quarter of 18, primarily driven by increased outage restoration and staging costs, including non deferrable minor storm expenses.
And networks and in interest expense in carpet, which was offset by positive performance in renewables for the nine month GAAP earnings per share remained flat at $1.54 versus last year and adjusted earnings per share decreased about 13% Percentto dollar 43, the key drivers for the nine months.
Adjusted results by business, our for networks results reflect the impact of higher depreciation and higher staging outage restoration costs.
These negative impacts more than offset the rate increases in New York, Connecticut and Massachusetts.
Renewable adjusted earnings per share decreased primarily driven by at lower prices expiring Ptcs lower wind resources for existing assets. In this was partially offset by a contribution of new capacity.
Higher revenues from climate than higher minority interest income for corporate adjusted earnings per share decreased about five cents to nine cents a share driven by higher interest expense. The forward 2020, plus mid period assessment savings helped to mitigate the impact from higher outage restoration staging costs, particularly a nice thing and lower when.
Production, primarily in the first quarter. The mid period assessment provided about 11 cents savings versus our expectations.
Not today, we are revising upward our 2019 consolidate U.S GAAP earnings outlook to to 36 to 246 per share from the previous estimate of 218 to 28 per share really due to changes in mark to market expectations and we are affirming our 2019 consolidated adjusted earnings guidance.
Outlook of to 25 to 35 per share.
Moving on to the highlights from our network business on slide seven in New York Nice thing NRG filed one year rate cases, and may requesting new rates, we are requesting a 9.5% our OE on a 50% equity ratio and proposing additional capital for our resiliency plan, which includes an increase in vegetation.
In management.
The program to a five year cycle that nice thing and also for Amazon.
Now lets staff proposed in our OE of 8.2% and equity of 48%. They agreed with the 100% of company proposal for any a mine and 2019 resiliency plan and recommended an increase for vegetation management from 30 million to 57 million per year.
The company filed its we bundle on October 15th and settlement negotiations began on October 20 seconds.
The effective date of new rates, assuming an approximately 11 months suspension period will be April 17th 2020.
Now the rate cases are expected to substantially mitigate the impact of outage restoration staging cost and overtime.
The reduced outages at a future costs will be positively impacted by investments replaced aging infrastructure, that's treatment of staging costs tree trimming and increased vegetation management for nicely.
Increase internal alignment hires and apprentice programs to support the future retirements qualified resources.
As I said, we would be able to recover or deferred 90 about 90% of the outage costs experienced in 2019 through the regulatory mechanisms that it would be implemented in New York in Maine.
On slide eight in Maine, CMP has ongoing rate case with the decision expected an early first quarter of 22 running that was originally targeted for October of 2019.
So in October of 2018, CMP filed a rate case requesting an ROI, we have 10%, which is above the current 9.4 or 5% and an equity ratio of 55%, which was above the current 50%.
We have proposed increasing tier one and these are normal storms or liner storms or call. It have a rate allowance to 8.1 million from the 4 million annually.
GAAP proposed an ROI of eight in three quarters and equity a 50% and staff is recommending lowering the R&D by 75 100 basis points.
Due to customer billing and customer service issues. The company responds recommended organizational changes and the establishment of a 6 million dollar customer benefit fund plus the establishment of an energy assessment pilot with efficiency, Maine and.
In August the main PTC decided the linked to CMP rate case with the completion of the metering and billing docket for.
For the CMP metering and billing docket hearings will begin on November 5th and a decision expected by December Twentyth.
Now on slide nine concerning our $950 million, New England clean energy connect transmission projects that would delivered 1200 megawatts of Canadian Hydro power from the new England grid, we expect to start construction the second quarter of 2020.
The project is progressing well in September CMP filed a request to reroute the project using the Merrell strip alternative to avoid the BD PON protected area.
And the main lane these planning commission reopen the docket for the limited purpose of reviewing this alternative route.
Early October domain land use planning Commission and Department and environment Protection issued a joint procedural order determining that no additional hearings were necessary.
Based on this the mainland Skews planning Commission deliberation vote and the DPP decision are expected in the first quarter of 2020.
US Army Corps of Engineers approval is expected in the second quarter about 60 to 90 days. After the main DTV decision and then the ISO New England 3.9 approval is expected in the first quarter of 20 Twond.
The presidential permit which is not needed to start construction. It's just needed to cross the border is expected to be issued approximately 60 days.
The Army Corps of engineers, and the ISO New England approvals.
Yes.
Our holding to our timeline just our construction the second quarter 2020, and expect completion by the end of 22.
For renewables on slide 10.
We are exceeding by 223 megawatts are 2020 target to add few thousand megawatts of executed wind and solar contract.
On these 2223 megawatts 427 megawatts of onshore wind projects came online so far in 2019, including our Patriot when 226 megawatt wind farm in Texas that was purchased at the end of June and the Montana 201 megawatt wind farm in Oregon that came online this month and so.
We have 562 megawatts under construction.
And we have 1234 megawatts with contract signed that are expected to come online between 2020 in 2022.
We've increased our pipeline to 16 and a half gigawatt from 15.9 Gigawatts in the second quarter. This breaks down to 5.7 Gigawatts of onshore wind five gigawatts of offshore wind and 5.8 gigawatts of solar.
Our Repowering plan is also on track during the third quarter, we executed a new pp with Portland General electric for the Repowering of our 75 megawatt onshore wind project of conduct two in Oregon to be completed in 2020.
With this addition, we are already exceeding our 2022 repowering targets.
In addition, we're optimizing our renewable pipeline through the agreement with axiom infrastructure to sell a 50% ownership interest in the 65 megawatt dryly to wind farm and 20 megawatt copper crossing solar projects both located in Arizona.
This is really a continuation of our ongoing strategic initiatives to monetize our pipeline.
We expect to close the transaction in the fourth quarter. This year for $112 million sale proceeds the earnings per share impact for the two projects.
In 2019 is expected to exceed 20 cents a share but the final amount recorded this year will depend on the timing of the actual transfer control of each of the assets.
Now on slide 11 concerning our vineyard win 800 megawatt offshore wind farm in joint venture with Copenhagen infrastructure Partners. The Bureau of Ocean energy management or bone determine the need to file a supplemental environmental impact study to complete a revised cumulative impact.
This review affects all offshore wind project, so the Atlantic Coast and is not specific to our projects. We expect the volume to complete the supplemental environmental impact study by end of 2019 early 2020, and then the final record of decision by early second quarter 20 to 2020.
Although no formal schedule has been issued the project has recently completed other permitting milestones, including the settlement I'm hearing with Edgerton Conservation Commission on the export stable relative, allowing undersea transmission corridor to connect the offshore wind farm with the mainland electric grids.
In addition, the project as a strong support our key stakeholders multiple initiatives from governors Senators industry associations, the foam and supply chain of urged department of interior to expedite the vineyard wins record of decision.
Vineyard wind is targeted commissioning date by the end of the 2022 subject to BOEM permitting clearance by early 2020.
Since the business cases being impacted by external delays, we are requesting an extension of in the IRS for the originally planned itcs of the project, we are considering technology improvements, including the larger rotors that would supplement the business case.
Then offshore wind on slide 12 vineyard wind submitted bids to Massachusetts second offshore wind RFP and to the Connecticut's offshore wind our fee.
Linear when holds two leases and Massachusetts electric Comet ate up to three Gigawatts and two gigawatts, respectively and keep in mind our share of this is 50%.
These sites our own jointly with the IP in Connecticut Vineyard wind submitted bids the RFP, including a required 400 megawatt plan and options for 800 megawatts 1000 megawatts in 1200 megawatts. The winning bid is expected to be selected in November .
Now the project, we reduced regional greenhouse gas emissions by over 1.6 million tons per year and generate up to 1.6 billion in direct economic benefit and save repairs up to 1.1 billion and energy costs now we did announce a partnership with marmon utility LLC to create the first tier one offshore wind supplier in the U.S simple.
To supply offshore internal rate cable cores.
We proposed significant workforce development initiatives pilot programs and research for up to 26.5 million to establish Bridgeport is an offshore wind hub and many more collaborative activities with Connecticut partners.
The earliest cod is expected in 2024, John Massachusetts Vineyard when also submitted bids into the Massachusetts second offshore wind RFP with required proposal of 400 megawatts and two options of 800 megawatts. These selection is expected to be announced November eight.
Now the proposals include significant job creation engine and port infrastructure investment opportunities.
Turning now to slide 13 are.
It shows an update on our forward 2020, plus plan, we're on track to achieve savings in the range of 70 to 85 million pre tax in 2019 of which 35% would come from corporate 30% from networks and the remaining 35% from renewables in the first nine months, we achieved above 45.
We really driven by Ben management initiatives for about 54%.
Savings have also been delivered to the optimization of spans of control in our organizational structure.
Additional labor capitalization.
Transitioned to a costars model for tax and wind availability improvements.
Now we're also implementing robotic process automation automating processes in our billing front office credit and collection departments.
Which will both reduce our cost and enhanced service for our customers and most of these will be reflected in 2020 and beyond.
Year to date renewables achieved 40% of the 45 million pre tax savings and network, 60%, including the allocation from corporate.
By quarter, 45% when delivered in the third quarter and 55% in the first six months of the year.
On slide 14 in conclusion, we continue to execute on our long term strategy to deliver sustainable growth by investing in clean energy as we build the grid of the future and serve our customers through innovative and smarter energy solutions, we're focused on our car regulated and contrasted businesses and we continue to maintain a strong balance sheet while.
We execute programs like forward 2020, plus Ford best in class operational efficiency.
And now I'm going to turn it over Doug's Stuever our CFO .
Thank you Jim Good morning, everyone and thank you for joining us today.
Im now on slide 16, which shows our quarterly and nine month year to date roll forward earnings per share from 2018 to 2019 on a us GAAP basis and on a non us GAAP adjusted basis.
In these periods the adjusted earnings per share largely reflects the exclusion of positive mark to market adjustments in the renewable segment.
Which resulted from favorable price movements on our merchant hedges in the quarter and year to date period.
In the quarter. This item was a positive 10 cents to our us GAAP results and for the year to date period to 16% positive.
Accelerated depreciation from Repowering of certain wind projects, which as Jim noted is progressing ahead of our strategic targets had positive adjustments of one cents quarter over quarter.
Four cents year over year.
Other impacts include those Jim as noted and they're also described in the appendix.
As you can see on both the U.S. GAAP and adjusted basis networks results for the quarterly and year to date roll forward or lower reflecting higher outage restoration and staging costs and the effects of depreciation expense outpacing rate increases.
Renewables results improved in the quarter over quarter comparison, due to stronger wind resource and production from the addition of the Patriot wind farm at the end of the second quarter.
On a comparative basis year over year, However, renewables earnings per share declined as a result of poor wind resource and negative impacts from extreme weather, primarily in the first quarter of the year.
Corporate results are lower in the third quarter comparison, reflecting the issuance of a new green bond in the second quarter of 2019 as well as the impact of the consolidating tax rate adjustments.
Now on the next several slides will provide more detail on the business segment impacts.
Moving to slide 17. This summarizes the results in key drivers for the networks business.
For networks, you can see that the third quarter 2019 adjusted earnings per share 29 cents was lower by two cents compared to the third quarter of 2018.
In the quarter over quarter comparison, there was a small benefit of one cents due to new rate years, and our Connecticut, and Massachusetts utilities.
Offsetting this increase was greater depreciation due to the fixed assets placed in service as we successfully execute on our capital investment plan.
For the first nine months of 2019, the networks business reported adjusted earnings per share of $1.15 a decline of seven cents compared to the first nine months of 2018.
Similar to the quarterly year over year comparison, the nine month year over year comparison reflects additional earnings attributed to rate increases from the negative impact of depreciation on new assets. In addition that reflects the free sent year over year increase in outage restoration and staging costs.
This outage restoration category represents the costs, principally overtime and contractors to restore service to customers from outages caused by aged equipment, principally in New York and from minor storms.
The outages from aged equipment were larger issue in the third quarter than we previously experience.
We are addressing the staging and outage restoration cost impacts in our pending rate filings in New York and main as Jim mentioned earlier and just to repeat.
The impacts of that using the recovery provisions proposed by staff.
If we were to incur the same level of costs as this year's costs to date want new rates are in effect.
We would have recovered approximately 90% of those costs.
Now moving to slide 18, we also provide the results in key drivers for the renewable segment.
While the renewable segment was a key driver for the year over year decline in earnings as I noted earlier improved when production resulted in a positive quarter over quarter impact.
In addition, compared to our expectations when production was 11% below for the first nine months of 2019, and approximately 7% lower for the third quarter of 2019.
Driven by delays in new construction and installation of boost software for existing facilities.
Along with wind resource and external factors such as icing on the blades and access the sites in the earlier part of the year.
Wind resources, approximately 4% lower than expectations for the year, but 3% positive for the quarter compared to our expectation.
I'm happy to save for the fourth quarter, we're off to a good start with our production.
Production right now is slightly ahead of our expectations through yesterday.
Looking at the key drivers of the year over year comparisons in the third quarter of 2019. The renewable segment produced the positive adjusted earnings per share of 15 cents, which was a four cents improvement versus the third quarter of 2018.
Quarter over quarter renewables earnings improved with higher wind production from existing assets as well as from the addition of the Patriot and Montag wind farms when production in total was approximately 12% higher quarter over quarter.
Reflecting improvements in the northeast than the South Texas regions with a total benefit of six cents over the period.
Also positively impacting the quarterly comparison were incremental production tax credits due to the improved when performance in 2019, along with thermal and trading revenue and minority interest related to our tax equity financing.
Renewables results were negatively impacted in the third quarter by pricing impacts largely driven by the change in status of projects that moved from contracted to merchants.
As well as the nonrecurring positive impacts in the third quarter of 2018.
From bankruptcy related collateral proceeds and a claim sale, which had about a five cents negative impact on the year over year comparison.
For the nine months of the year. The renewable segment reported adjusted EPS of 37 cents a decline of 10 cents compared to the first nine months of 2018.
Impacts for the nine month year over year comparison or similar to those impacting the third quarter comparison, although significantly impacted by the low wind production in the first quarter. The nine month year over year negative variance for wind production of existing assets. However was offset by the additional production from new assets.
Pricing for the nine month year over year comparison was significantly negative in part due to lower merchant pricing and unfavorable Rex along with status changes from.
Power purchase agreements a merchant and the 2018 benefits from the first energy solutions bankruptcy claim sale and collateral.
Finally, ptcs through the nine month year.
The year comparison reflects a bit net negative impact of our expiring ptcs.
Partially offsetting these negative impacts where the clements optimization and trading margins.
That resulted from continued higher prices and volatility in the northwest with the exceptionally cold winter and the ongoing impact of repair of Canadian pipeline rupture along with improved.
Minority interests.
Moving to slide 19, we show our corporate results.
The corporate segment reported adjusted EPS for the third quarter of negative four cents, a decline of seven cents quarter over quarter.
The decline primarily reflects the additional interest expense from the $750 million Green bond that we issued in may at an interest rate of 3.8%.
For the first nine months of the year corporate reported a loss of nine cents, which was five cents lower than the same period in 2018.
The nine month year over year comparison included positive tax impacts that were due to a positive discrete tax item in the first quarter and a favorable year over year change in the consolidating tax rate adjustment as well as the impact of the green bond issuance.
And grid consolidated effective tax rate before discrete items for the first nine months of the year is approximately 19.4% and that's largely in line with the rate through June .
Moving to slide 20, we show our guidance ranges broken down by Big business segment for 2019.
On a consolidated basis, we revised.
Earnings per share guidance upward to $2 in 36 cents per share to $2.46 per share for us GAAP.
And as Jim noted this reflects the favorable mark to market impacts in renewables in the third quarter.
And we've affirmed the adjusted earnings per share guidance of $2.25 to $2.35.
For networks, while we had positive impacts from the mid period assessment savings of seven cents for the first nine months of the year. We're adjusting the guidance range to reflect the continued costs were seeing related outage restoration costs.
Primarily related to the greater instances of equipment faults and failures that we've experienced in the third quarter.
And our estimating to continue in the fourth quarter.
Outage restoration plus staging costs were three cents negative and nine cents unfavorable to our expectations for the third.
Quarter end first nine months of 2019, respectively.
Importantly, we have been addressing these outage restoration and staging cost impacts in our New York and main rate cases.
Which Jim and I have covered earlier in our commentary.
In our renewables business segment, we're increasing our guidance as we expect our pending sale of pure I'd like to and copper crossing together to deliver over 20 cents per share. This is above the high end of our five to 10 cents target for 2019.
The sale is subject to FERC approval, and we expect the transaction to close.
In December .
Earnings recognition is tied to the timing of transfer of control for each project and we presently expect the control will transfer for both in the fourth quarter of 2019.
We've also experienced good when results in the third quarter and as I noted earlier through October .
For 2020, plus mid period assessment savings for the quarter were approximately one cents and for the nine months of the year were approximately four cents.
Finally, we're bringing down the corporate segment to reflect the ongoing impact of interest expense and our current expectations on tax impacts for the year, considering our actual results year to date as well as allowing for a range of risks around our fourth quarter tax through ups.
That said, it's important to also acknowledged that our performance versus our guidance over the remainder of 2019 assumes risks and opportunities as Jim noted earlier.
And within the networks guidance, we have the pending FERC bar, we decision as part of that which is estimated at nine cents per share for sorry, six cents per share.
Moving to slide 21, we show our credit ratings those remains strong and we highlight the year to date actions taken by the rating agencies, including upgrades to the CMP Eli NFC G.
We also highlight our screening financing strategy, including the $1.35 billion of Green bonds outstanding.
And our $2.5 billion sustainability linked credit facility.
The screen financing strategy has helped to finance our growth.
In our strategic plan.
We're on track with our capital plans for 2019 and in the first nine months of 2019, we spent nearly $2.2 billion in Capex, which is over 90% increase for the first nine months of 2018.
This significant increase in investment is important to our future growth and in delivering safe and reliable service to our customers.
On the next slide we wanted to highlight that we continue to pursue our sustainability objectives and support the United Nations Sustainable development goals with the main focus and everything that we do on number seven affordable, including never energy and number 13 climate action.
We also have direct contributions the number six clean water and sanitation number nine industry innovation and infrastructure number 15 lifelong land a number 17 partnerships for the goals.
We also recap that we've made ambitious and sector, leading carbon reduction pledges, including a target of carbon neutrality by 2035.
Thank you and with that I'll now hand, the call back to our operator, Jason for questions.
Ladies and gentlemen, if you have a question at this time expressed the star in the number one key and your touchdown telephones.
For your questions and answers are you wish to remove yourself from the Q fee stressed about key.
Yes.
Our first question comes from the line of.
Brasil method.
From Citigroup.
Your line is open.
Thanks for the question. So just want to see wondering if I understand in terms of the earnings for the quarter, how much actually was the impact from the storms to the networks business can you just break out exactly what does that impact that you are saying, 90% of which can be recovered in future.
And depending on what you get to New York, but if you can break out thats, Tom impact that will be really helpful.
Yes so.
This is Doug profitable for the quarter, we were about three cents on favorable to our expectations with storm.
And staging impacts and and I should say also that we really think of this as more than minor storms Theres also.
Equipment failures and the cost to restore that so we've kind of broaden the category as to how we speak this as outage restoration and staging cost as a combined category.
In the quarter, we saw a decrease in staging costs.
But we saw an overall increase in our in our outage restoration costs.
Year to date, we're at roughly.
$42 million of total costs.
For that category.
Gotcha and even in your year end all your 2019 estimates.
What is built into that and is that entire number also going to be recoverable that 90%.
Pro forma for what you can now coming New York.
Yes, we promised Jim we will we fully expect a 90% to include the full year.
And Doug will have to give you what week.
We estimate on that we've estimated.
Much more for the rest of the year other than what we had originally thought though.
Yes, I mean, we have a continuation of the yet because we're expecting more storms. So yes, yes. If you think about this last year profitable we were at roughly 14 cents all in with the impacts of of storms and saving costs.
Again through the third quarter of last year, we were at roughly nine cents.
So in the fourth quarter last year, we had roughly an additional five cents per share.
And in terms of how we're thinking about the guidance for Q4, as it's largely consistent with with that profile.
What we've seen this year. Unfortunately, we were anticipating.
Those cost to go down and roughly behalf of 28 feet 18 levels and instead, we've seen a net higher incidence this year.
So we're looking forward to the rate cases, as a way to help.
You have closed those gaps and profit listed Bob.
I'll also say that when we look at these numbers the vast majority of the.
Instances, we've had where we've incurred costs beyond what's currently reflected in rates.
Is that nice SEC.
I think electric business Rochester continues to perform very well electric and gas ne se gas, we've seen some increase had CMP as well, but as Jim and Doug. Both said, we think with the what's been.
Negotiated so far on where we are in the case right now and staff positions both as it relates to CMP and nice single electric.
That we would see much much better performance in terms of recovering.
These types of cost if you think about the experience for example in 2018 that we had at nice day 2018 is to test year. In this case. So that provides the basis for a much higher elevated level of recovery for storms than we had in the past.
Gotcha, that's super helpful detail and maybe just a second question more strategic they've been talk of M&A in this space and also theyve been some rumors around your name and I know Ebola is obviously going to have a view on that as well.
And on grid perspective, and if I have on great currency would to be used in a transaction what are the criteria from you all perspective that you can see when you think about M&A, Mike is there a particular.
Things that need to be achieved in your mind or is this the right time to do something or not how should we think about that are more from a broad strategic perspective, as you think about to all on quick currency and that you are today.
Well first on when our comment at any rumors or speculation on anything in to the extent as we said in the past we're focused on our.
Organic strategic growth.
But overall it does look at things all the time and.
We have those strong currency in.
Online grid so.
But.
As I said, we're not going to comment anything related to any rumors at this point.
Fair enough I just wanted to confirm so from your perspective, you did do think on great. Today has a strong currency if in order to be utilized.
We have in currency.
All right really appreciate it guys. Thank you.
Your next question comes from Orlando Insoo, Kim from Goldman Sachs.
Your line is open.
Thank you.
Maybe thinking about the EPS benefit from the renewable asset sales and partnerships that you are expected to achieving 2019, how should we think about the timing of that and the amounts that we should expect 10 2020 versus what you guys had.
Good.
Many of the here.
We expect the transaction with acts in the close.
In the fourth quarter.
It depends on when we recognized the.
Gain.
Depends on when the change of control for each.
Arm the wind farm the solar farm actually occurs.
If the change of control occurs in this year than we could recognize again this year and we're expecting the gain to be in excess of 20 cents a share for the to.
Going forward, we settled we didnt include in our.
Long term outlook that we did in February of this year.
We didnt include anything beyond 29 team, but we said we thought there could be five or 10 cents a share in ongoing.
Sale of development projects and assets to recycle capital in our renewable business that would allow us than to optimize the our portfolio, which is really going to be an ongoing practice of ours and strategy.
As we see development opportunities to sell those are even existing assets, where we're getting value in excess of what we value at four than we would be inclined to seller. So.
When can that continue to do that we see that is ongoing we have such as large pipeline of projects right now that it just makes sense for us to be recycling the capital as we move forward.
Understood and I recognize I think Ellis.
Got it as an upside to your guidance. So thats still the way you would think about it in terms of your guidance on what the asset sale partnership with contribute on top of that.
2020 and beyond.
But it's not embedded in that and the base plan.
We won't change what we're looking at for the longer term outlook until we actually talk about it.
After the end of this year.
Understood.
And switching over to the regulated rate base figures you is very detailed job and all of the fact books from laying out the various assumptions estimates for rate base across the different utilities over a multiyear period.
Yes, hi, and especially when it comes from New York and with the rate case, that's been filed in the numbers that's filed by.
Nobody on what the staff has come out with.
It's it's been a little bit tough to reconcile up and the estimates, especially in New York.
In fact versus other numbers that we have seen anda filings. So how should we think about whats included in those slide decks versus what's in the rate case and does your growth in networks over the multiyear period utilize achieving.
Our always using the rate based at our Investor presentations.
Well.
First off on the our OE will we said in our long term outlook back in February that we would intend to earn the allowed our always except in 2019, because we knew we were filing rate cases in New York. So in New York will be there.
Well, we have in the Fac book and what the Commission staff came out with as far as additions to rate base will we're going we're in settlement discussions right now so obviously the numbers going to change from what they said and what we put in and we'll update that as.
We go forward as we get the results of the rate base and hopefully we get a settlement that's a long term settlement with the in New York, So we'll update that as things.
Progress I don't bother you want to add anything.
Exactly right.
Understood I think I think just versus what you had given filed on the utility side there may have been.
Difference and numbers, but I follow up with that offline. Thank you very much are.
Your next question comes from the line of.
Mr., Greg Gordon from Evercore ISI Your line is open.
Thanks, Good morning.
Good morning.
But is it a bunch of my key questions were answered on can you can you explain the adjustment from gaps to.
In the operating earnings as it relates to accelerated depreciation the how thats coming about and why we should.
Why we should consider that non operating and.
Will there be as you pursue your strategy going forward on re powering the potential for future adjustments that nature.
Yes, the adjustments that we may was strictly for the Repowering asset and knowing that this was really going to be.
Pretty much a onetime issue.
We're not we see the repowering occurring this year with the benefits occurring in 2020.
When the assets will actually get re powered so we had to accelerate the depreciation on those once we decided to do the repowering and so we had to reflect that in 2019. So that was really it and there's those assets that are going to be repower, we just see that as the 370 or so megawatts for doing.
That's pretty much yet.
Now and so I don't Doug you want to add yes. The only thing I'd add is just to be clear when we're talking about accelerated depreciation. It. It's just on them to sell component itself. It's not all of the assets of the wind farm our repowering as our are basically putting a new to sell and blades on the the existing tower and foundation. So.
So we're basically just taking accelerated depreciation to remove that category of the assets.
Off the books by the time to the Repowering takes place.
Okay.
And.
And.
The I guess the other question just going back to vineyard. When you said, you've you've got the settlement now what the Edgar town.
But can you just go over again, you know what the puts and takes our that you're thinking about in terms of potentially not getting the full tax credit benefits, but what you can do.
In the bid business planning for that for that asset to try to get back inside the range of your expected IR outcomes. When you because when you. Initially built it said you were going to build that you thought you would do we're gonna be getting different tax attributes.
Well, we originally said that we were looking as having the first 400 megawatts coming online in 2021, which would have given us a 24% ITC and the second 400 coming on in 2022, which would have been the 18%.
So what we're doing right now as we're.
Meeting with the IRS the talked some about getting an extension since the.
Basis for us not being able to get it done in 20 point I want to really because of the delays in the federal government in the department of interior wanting to take a cumulative impact look at all wind farms that are going to be built on offshore in the north Atlanta.
So when we made our original proposal and when we applied for the.
Permit from bomb, we were really the only one and so they were looking at as a one off now that there's so many projects being involved they want to make sure they're all going to be designed and aligned consistently.
So with that some of the other thing so were partitioning our asset again, an extension of that ITC.
At the 24% level for us through into the 2022 timeframe.
Now the other things were looking at one is as there is a delay we have the opportunity to get a larger rotor going from the 164 meter road or 174 meters. We also then when you look at the ways that configuration could be.
If we end up with the one nautical miles spacing on an east to west configurations, and that's what the fisherman want.
And that seems to be where things may be heading.
There's a less wake effect for us in that regard so that actually can improve the capacity factor a little bit. So there are other things were looking at technically and from an engineering standpoint that would actually improve the.
The returns of one but the real thrust is to work with the IRS conceivable getting some type of extension.
Great. Thank you very much.
Welcome.
Your next question comes from the line of Mr., Michael Sullivan from Wolfe Research.
That is helping.
Hey, good morning.
Hi, Mike overnight.
So I first just wanted to clarify and start with the renewable segment guidance you took the midpoint up there at 15 cents.
To the positives you've got the asset sales that you're doing which I think.
You are saying you're going to exceed 20 cents ordered the other moving pieces there that that are offsetting that.
Well, probably the other one is we're seeing.
Some positive movement in the wind itself the wind resource leased in October is up a little bit over our expectations.
But it's mainly looking at the asset sales I guess as a primary one and really also we'd already factored in our.
For 2020 plus plan.
That's impacting renewables in the availability for renewables is actually improved as a result of that plan that we've been working on so we're seeing the availability actually is a little better. So there is a combination of things, but mainly at the asset sales.
Okay. So those are more positives. So why is the segment guidance going up less than than just the pure asset sales benefit.
Ed what it's up I think just looking at previous the current it's up 14 cents.
And so.
We hedge funds Phantom there right.
Exactly we had 5% in there and and we Didnt take it all the way because we're not.
Totally surely it's been a close in that both projects will end up in the.
Being able to be consolidated so deconsolidation and bill the change of control would have to occur towards being a little conservative on it but I think were.
In a good range right now.
Okay and.
And then just on the.
Vineyard when project and the remaining.
Permitting process from here I, just wanted to make sure so.
Once we get the draft.
Supplemental eas and that goes out for.
Comment what is the expected timeline from there before.
That ultimately gets finalized.
Maybe since Alejandro is on the line maybe he can talk about what's going on with vineyard win since he's our resident expert.
Good morning, everyone. Thank you Jim.
So I think the process. He said once he and I think any such statements a gauge out it would go for probably coming so these opinion for public comment.
And then after that say in a blend hostile issue they find any about anything thats statements. So once did drop to is out there and we think thats in pita about a couple of months.
A boy you should be able to to be sure. They find anybody anything thats statements. So everything.
Relies on when and Boeing is able to issue that draft environmental impact statement, we'd shape as has been clemente requires that the community by community to impact study is done a so this is actually Dave it most critical part of the process on the one that east less clear in terms of timing.
Okay. Thank you.
Your next question comes from the line of Sophie Karp from Keybanc. Your line is open.
Hi, good morning.
Good morning.
Oh my questions have been answered about that just trying to ask maybe a couple of questions on renewables.
First on slide 36, fished out and looking at the rack Sprycel here. It seems like there's a descent degree of volatility in those.
And I was just wondering if that's something that you've looked at potentially so in all four hedging or doing something with them and what is that how do you think about that in general.
Yes. These are our basically our merchant Rex we have other risks that are part of our power purchase agreements. So this is just breaking out the standalone Wrexham.
Yes, as you've noted we have seen a decline in prices.
In 2019 versus last year.
And in terms of our strategy for Rex, we're always looking at the forward market.
Opportunities to basically sell those forward, we do have contracts in place going out say one to two years with.
Already committed sale of though those Rex.
We don't actually.
Transfer title until that point in time, so so the effects of those forward commitments would already.
Basically.
Be locked in and.
Eligible for recognition in the future, but so I guess the short answer is that yes, we do already look on a forward basis, then and still a portion of those Rex forward as the opportunity presents.
Hi is there a market or an opportunity to just sell them I guess completely at the point when you originate the asset or something along those lines.
I mean it.
That market typically as more of just the power purchase agreements themselves, where you tend to bundle the Rex with the energy.
There's also the California market, where a portion of these reside and you can again bundle them with energy or sell them on a standalone basis, but.
Typically what you're describing is more what would exist in a power purchase agreement, where as you generate the title essentially immediately passes the the off taker.
Got it should and and my second question is so.
Andrew.
Maybe just.
Congrats on Euro and as you.
Going to spend my time here in the U.S. working with agencies here and on the projects here.
What have you want to have you been learning so far in maybe what surprised you compared to only if I experiences in Europe .
Thank you very much and well I mean I, having here for for a couple of years already leading Dave offshore business. So and then you'll see us not to say neutrally and but it's clear that in the new role. They look I will hop say much more rate exposure to and everything related to investors relations. So.
That's the part that I have to get to add to learn in the coming months and so what I'm really looking forward to that.
Yes.
Thank you.
Your next question comes from Orlando.
Julien Dumoulin Smith from Bank of America. Your line is helping.
Hey, good morning, James.
Alright.
Hey, so a quick.
Yes, a little bit more of the accounting item here on the foreign car. We assumption I think you guys had a six cents.
How do you think about that given just how late we are in the year would you think about rolling that into next year. If we don't get FERC action and then I suppose the real question is do you have thoughts about mitigating that or is this really.
Function of the range that you already provide to account for things like this.
Well you're right. It is late in the year. They are from what we understand the new Commissioner.
Stanley.
Has the hearing set I think they set up for November 5th.
So he could become a commissioner yes, but.
The possibility, it's still in our guidance at this point.
To the extent.
They get it this year it would be great.
If it doesnt occur. This year, then hopefully we would see an action next year, it's only been going on since 2011 funding eight years kind of a long time to wafer narrow you decision.
So yes, we wouldn't.
Reflect whatever occurs.
Our doesnt occur this year and in the guidance now are changes into next year. When we look at guidance overall for next year. The other thing to add to that is that there's about a penny per share of ongoing impact from that so as time passes and and this backlog accumulates that would then grow the the impact when when it.
Ultimately is resolved.
Got it okay excellent and then just if I can follow up a little bit more on the renewable guidance shift from sort of down versus initial guidance to up.
You seem that now versus the original 19 guidance here about a dime higher that seems to reconcile what the fact that you'd five to 10 cents of asset sale assumptions originally and now it looks like you're heading towards 20 cents. So moving from tenant 20 cents would seem to account for the positive delta versus the initial guidance, but I just want to understand.
Now that Weve added sort of the gate the onetimes into the number how do we think about the the these reasons behind the negative adjustments early in the year I think soaking started to alluded this earlier, but I just want to make sure.
We're kind of calibrating appropriately here.
Yes, our earlier in the year keep in mind, we saw.
The wind resource was negative two our expectations as was production.
Those were both down so that's why I move things down at the time when we're looking at we had a in our plan five to 10 cents a share for asset sales so now that.
We actually have assigned agreement that we expect the closed on in the fourth quarter, we have a better sense of what the game might be in this year and so we could reflect that.
Better so really the downward.
Adjustment, we made earlier was really just reflective of the resource and production. We saw in the first half of the year I would also say that increased visibility through the summer of the impact of our mid period assessment and the efficiencies coming out of that.
And the amount of that that would be attributable to renewables also helped in terms of our views now towards the end of the year.
Yeah.
And part of that was the increase in availability we saw.
Starting at about the mid part of the year when.
The plans that were executed put in place too.
Yes, the higher availability actually taken.
Come to fruition, we're seeing now.
So.
If I can clarify this very quickly you are saying that some of the pressures that materialized in the first half of the year with respect to capacity factors and otherwise have fundamentally in parts and reversed in the back half based on some of the factors that you talked about.
I'd say the availability has improved.
Builds that.
We saw in the third quarter.
Wind resource was actually solid it was good it was slightly above our expectation, yes. We're seeing October is slightly above our expectations. So we're seeing some trend towards improvement in the wind resource, but we're not predicting that it's going to keep that way I mean, we're keeping to our original plan for the last couple of money.
For the year and so those are the things we saw.
I'd just add this is Doug Julian that if you just look at kind of our quarter by quarter progression of wind production in the first quarter, we were down 14% year over year in the second quarter, we were down 5% cumulatively year over year and in the third quarter were basically flat year over year, we've seen over time and improvement.
In the wind production year over year.
So that helps to I think explain why in the early part of the year. We had we went the direction of lowering guidance for renewables.
And then as we got better line of sight to the opportunities with our strategic partnerships and the value that that could bring to 2019.
Yes that along with the improved when conditions helped to.
Kind of move the guidance in in the opposite direction.
Okay, Alright fair enough guys. Thank you very much okay.
Hey, too.
Your next question comes on line of from Mr., Paul Patterson from Graton <unk> Associates your.
Your next open.
Hey, good morning, guys.
Well good morning.
As you guys I'm sure you've noticed worst data came out with an announced yesterday.
And I was wondering just how.
You guys view that in terms of its applicability or or lack thereof, what do you guys.
Yeah, you're talking about the thing they mentioned on the blocking in the wake effect.
Keep in mind that Eva droll into Avangrid predecessors have been operating wind farms for 20 years and so we have some extensive experience in how we operate wind farms.
And this wake effect, we've factored that in for a number of years.
Based on the experience that we have with the withdrawal on onshore wind and then also with the offshore wind now they've had but really the expertise that has been developed over the last 20 years and the engineering that they've been able to do and analysis as shown us that there is a wake effect and there is a blocking effect and we factor.
That into the analysis that we do and we've been doing it for a number of years matter of fact, we don't use of P. 50, when we're doing it on analysis investments we.
That they would lessen the wake effect, so would it could potentially improve the capacity in that capacity factor for each turban. So thats really what we're talking about.
We're looking at that right now depending on how the spacing ends up working with the OEM.
Does that does moving from 164 to 170 for me to writers.
Increase.
Hey.
Well kingold doesn't make any difference.
Hi Def.
Ask our engineer Alejandro should note.
Yes, Hey, Jim.
So when you do they went into analyses obviously you run demoted again with a new tubing type fund you have to men recalculate every single variable of it so that they didn't answer to that would be yet the bigger the roper add the bigger the wake effect.
Not actually that straightforward. If for example, a bigger wrote for means higher how tight on higher have heights mean, a lower wake effect. So there is a lot of variables into the model you cannot isolate them and in the answer to that would be.
Putting all the variables into the equation are bigger rotor gives you a higher production and then.
Splitting got high production, whether it is because of the size of the royal toward the wake effect the height of to hop et cetera, et cetera is more complicated but the general answer is 174, we'll certainly give a high production of 164.
Okay very clear thanks.
And your second question on the split between renewables and.
The networks business, our long term projections had maintained in the 70 525 split through 2022, we don't do that appreciably changing because of the growth we have them both networks and renewable so.
And we havent necessarily targeted any specific number it's where the opportunities volume that we will then focus on.
For each business.
So in that split that we feel pretty comfortable with that as a range.
And on anything you would hold you ends up in say the could be in.
Could do better needs to be better area of the business at this stage.
I guess as Bob I guess I would say.
Continue to look at ways of de risking the business both on networks and in renewables saw networks, we've talked about.
What we've experienced over the past couple of years on storms in trouble and I think we're addressing that and these rate cases.
We are doing a comprehensive look on the renewable side as well to say how can we further de risk.
The business, we love both pieces of the business, but were recognized that theres. Some inherent risks that we need to figure out how we can reduce.
Okay. Thank you.
Your next question comes from the line of inter Kim from Goldman Sachs. Your line is open.
Thanks, My follow up questions have been answered thank you very much.
Right. Thanks, Thanks, Thank you.
Hi, I'm showing no further questions at this time please continue speakers.
Okay, well, thank you everybody for participating.
Yeah, you have more detailed questions you wish to follow up with our Investor Relations team. Please do so thank you for being here Tonight.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
Okay.
Oh.