Q1 2020 Earnings Call
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Thank you for standing by and welcome to be.
Great very supportive 2020 <unk> earnings conference call at this time, all participants are in a listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today, it's pretty.
Russia Cosco. Thank you. Please go ahead.
Thank you poly and good morning, everyone.
Thank you for joining up to discuss our than group's first quarter 2020 earnings results presenting on the call today, our Jim Thompson, Our Chief Executive Officer on Doug's <unk>, Our senior Vice President and Chief Financial Officer also joining US today. The question and answer question. Another call will be Bob <unk>, Deputy Chief Executive Officer in President of and grid.
100 to host President and Chief Executive Officer of I've been getting renewables and Tony Milan, President and Chief Executive Officer of Avangrid networks.
He did not have a copy of our press release or presentation for today's call. They are available on our website at www dot often green dot com.
During today's call. We will make theory is 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 are forward looking statements if any of our key assumptions are incorrect or because of other factors discussed an average 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 <unk> dot com.
We do not undertake any duty to update for the 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 go definitionally information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures I will now kind of call over to Jim Torgerson.
[noise] nice Patricia and good morning, everyone. Thanks for joining us today.
I'm happy to report that I'm, a group delivered strong results from the first quarter and earnings improved year over year, driven primarily by our renewal business and while we're pleased with the solid started the year as a key focus has been and will continue to be the cold at 19 pandemic and its potential impact on our businesses and our key stakeholders.
We recognize the challenges at the situation poses for workers some of them or at home managing work families and even illness those close to them.
Including members.
Our workforce, who are personally dealing with the virus.
Fortunately, that's very few a number at this time.
And we appreciate the great work that they continue to support not only the company that the a central role that we serve in the community.
Now, we're actively monitoring and addressing cobot 19 impacts and are implementing plans to address such impacts on our business.
Even as the Cobot 19 pandemic has up ended our everyday lives our operations and investments continue.
During this pandemic our top priority is to ensure the health and safety of our employees suppliers and community, which is critical to our ability to deliver reliable electric and gas service to our customers and to generate clean energy.
We have a critical duty to our community as first responders.
It is essential electric and gas service to the 3.3 million customers that depend on us.
We need to ensure that the hospitals nursing homes in critical care facilities. We serve has sufficient reliable service, we need to support our residential customers as they transition into remote work and distance learning.
And this unprecedented in crisis many of our customers are facing economic hardship and our operating companies have announced the suspension of service shut off in late fees.
Now having great well also continue to support the economic recovery and job creation by providing stable quality jobs in continuing to invest in our clean energy future through our new renewable portfolio and our grid infrastructure.
Our solid liquidity and access to capital.
Will facilitate our strategic plans through the pandemic challenges.
Our business model is resilient and we didn't levers to mitigate many of the impacts of the pandemic in our businesses for instance, our regulated utilities have revenue decoupling and a renewable.
Assets target, 75% to 85% of their production under contract or hedge and currently for the balance of 2020 that number is about 79%.
A key projects continue to advance in our offshore wind business vineyard wins permitting process is on track with no changes to the Bureau of Ocean Energy management latest timeline and final record of decision, which is expected by December 2020.
Park City wind offshore wind project is also moving forward with the negotiation of contracts with Connecticut utilities and process.
In addition to this we have 900 megawatts of onshore wind and Repowering projects under construction that are all on track to come online in 2020.
And our onshore wind business, we commissioned did marks the 150 megawatt Otter Creek wind project located in Illinois.
Our new England clean energy connect project received the draft approval from the main department of Environmental Protection with final decision expected shortly.
The project also were key contracts over $320 million using main workers to build the new high voltage DC transmission line from the Canadian border to a substation and Lewiston.
Now turning to slide six.
The first quarter results improve year over year, reflecting wind resources in line with our historical average and renewables. Our net income for the quarter was $240 million are 78 cents per share up seven cents, our 10.6% above first quarter of 19.
The adjusted net income amounted to 236 million, our 76 cents per share up six cents or 8% versus the first quarter of 19 now the key drivers for the quarter over quarter results by business really are in networks adjusted earnings per share for the first quarter of 2020 decreased by one cents per share the 60.
Four cents.
As the positive contributions from our rate increases of about a penny was offset by the impact of higher depreciation that was three cents and outage restoration costs of attending.
In renewables the adjusted earnings per share increased by 13 cents to 15 cents per share driven by the contribution of 831 megawatts of new wind projects that were commissioned during 2019, adding about four cents a share.
And higher when production from existing assets, we were 19% above the previous years quarter and added about seven cents a share and this was driven by better wind resource and improved availability.
Total production, including new capacity was 36% above 2019, and this was really partially offset by lower merchant pricing.
To give you were asked through April 26, the month today, we're about 17% versus our lights debate average, but 7% above 2019.
And year to date, we're now running about 3.6% versus our life down versus our lipid average, but 29% above 2019.
On a consolidated basis, there was a positive tax impact quarter over quarter that contributed to earnings. This is the net impact of a benefit in the business is primarily renewable due to the ptcs, which are really offset than in corporate.
Now moving to slide seven.
On our coded 19 response.
We are actively monitoring addressing the key coven 19 impacts on our businesses on grid has instituted several companywide measures to protect the health and safety of our customers communities and employees versus our customers, we implemented customer disconnect moratoriums and waiver of late payment.
We also minimized exposure between our customers in our employees, we discounted continued in home meter readings and suspended non emergency in residence work.
For our community.
Together with Avangrid Foundation, the company's donating an excess of $2 million to support response and recovery, including over $1 million to support the state and local responses in the 24 states, where we operate than an additional $1 billion from Avangrid Foundation to support response at a national and regional scale focused on does.
Thanks to response livelihoods and basic needs.
In addition, 31000 protective mask have been donated to hospitals across 500 service territories and we are coordinating a public response to the pandemic with legislators and regulators.
To protect our employees, we have activated emergency response business continuity plans emergency ops centers, our unified command and executive level crisis management teams. We're also working closely with our federal and state regulatory and governmental authorities and communicating daily with our employees we have over 4700.
Employees that are able to work from home, which is more than 70% of our total employees.
Our crews grid operators and customer service employees that cannot work from home they are maintaining social distancing and using personal protective equipment, such as faced coverings, we've enhanced cleaning and all of our facilities and deferred non emergency work and customer homes.
As an essential to energy provider, we're ensuring the continuity of our electric and gas service to customers that depend on us during this pandemic, while maintaining safety reliability and responding quickly to storms.
We are supporting emergency services in hospitals by helping them prevent service interruptions during an emergency support our economy by continuing to invest in critical infrastructure and our clean energy future.
Turning to slide eight.
During the cold 19 pandemic.
Our top priorities for tech and support our customers employees contractors in the communities in which we operate now due to the critical business needs. At this time, we've decided to postpone our investor day until the fourth quarter of 2020.
Considering this postponement and original long term guidance was introduced in February 2090, we're withdrawing our current long term guidance for the 2018 to 2022 period as well as the supporting assumptions until we provide a new long term outlook. Later this year that will give us better clarity on our major projects anyway.
The New York rate case, hopefully, we'll have a settlement by them and then we'll be able to determine if or how well we're doing in meeting the metrics and.
At this point.
Through our.
We are affirming our 2000.
20 earnings per share of too low six to 226.
$2.17 to $2.37 per share.
As our current expectations that we will be able to absorb the impacts of cold and 19 on our businesses.
We will be closely.
Monitoring and addressing the potential covance in risks and mitigation, which Doug Stuever will address later in this presentation.
Overall, despite the risks, resulting from the pandemic such the potential impacts on demand overdue debt our merchant prices our business model remains resilient and we're confident in our ability to deliver on our targets.
Financially, we're well positioned with sufficient liquidity and continued access to capital markets.
From a regulatory perspective, we are actively engaging our regulators as the cold and 19 crisis continues.
We're also working with our suppliers to ensure minimal disruption to our capital programs.
Now moving on to the highlights for networks on slide nine.
In New York due to the Pandemics settlement negotiations has an extended the may now the company's filed a request to extend the suspension period to September 13th 2020 for rates effective September 1st 2020, and requested a may call provision to April 17th.
The public utility lot project filed a motion to halt settlement negotiations to introduce new testimony on the pandemic impact.
In April seven ruling denied the motion allowed parties to address the pandemic impacts during settlement negotiations.
In Maine, Central Maine power was authorized a 17.4 million or about almost 7% rate increase effective March onest.
With storm recovery effective January Onest of 2020.
And have 50% authorized equity eight nine in the quarter percent ROI.
And up 100 basis point downward adjustment until customer service metrics achieved were achieved for 18 months.
Now we are meeting those metrics as we speak CMP proposed delayed collection of storm cost and tier two star reserved funding to reduce the impact to customers of Cowen 19.
Concerning FERC on March 20 of the Commission issued a notice of proposed rulemaking that would expand electric transmission ROE incentives. The proposal would increase the our tivo participation incentive from 50 to 100 basis points and include a 250 basis point cap on total our OEM incentives for new projects.
And comments are due on that July onest.
Turning our $950 million, New England clean energy connect transmission project, that's going to deliver 1200 megawatts of Canadian Hydro power to the new England grid.
Project continues to advance through the permitting process on January eight we received the site loss certification from the mainland These planning commission to.
The main department environment Protection Draft approval was received on March 13th and final decision is expected. Shortly this is the last date permit we need in order to move forward. The US Army Corps of Engineers approval is expected in early third quarter 90 days after the main DP final decision.
And the ISO New England ice resigned approval is expected in the second quarter 2020.
The presidential permit, which really isn't needed to start construction is just needed across the border is expected to be issued approximately 60 days. After the Army Corps of engineers, and ISO New England approvals.
In addition to the project has recently awarded over $320 million in contracts. The several companies, including main base should grow in a joint venture with Irby construction Sargent electric and northern clearing to build an upgrade transmission and provide land clearing for the project.
The clean energy corridor is projected to inject more than $570 million and dominion's economy to deliver high quality jobs for matters.
Pending the necessary permits and an assessment of the potential of a referendum, we will be in a position to start construction in the third quarter 2020 and to start operation by the end at 22.
Any sense, we'll bring clean energy to our customers reduced regional carbon dioxide emissions, which would be equaled about 700000 fewer cars on the road and reduced energy costs in may.
1 billion dollar investment in infrastructure in may with yield $250 million and local benefits for manners and support local economic development and employment by creating on average of about 1600 jobs per year during construction.
Now moving on to slide 10.
On our renewables business, we have several exciting projects that continue to keep on grid at the forefront of renewables energy in this country and we'll continue to derive the long term performance of our business.
Concerning our onshore wind projects during the first quarter, we commissioned to 158 megawatt Otter Creek Wind project in Illinois with T mobile.
We also completed the Repowering of two wind projects are 100 megawatt triumphant wind project in Minnesota and R 22 megawatt Mountainview project in California.
Additionally, we have approximately 542 megawatts of onshore wind under construction and 243 megawatts of wind Repowering projects underway on track to the operational in 2020.
In offshore wind, our 800 megawatt vineyard when the offshore wind project in joint venture with Copenhagen infrastructure partners is on schedule with no changes to the most recent bureau of Ocean Energy management timeline.
The draft supplement to the EPS is extended and expected to be completed by June 12 with final approval expected by November 13th.
And the record of decision and approval is targeted for December 18.
The OEM officials have recently indicated that the agency is overall on track and on schedule to deliver its final decision by year end as expected.
Our 804 megawatt Park city when the offshore wind project submitted the initial environmental and Fisheries mitigation plan to the Connecticut Department of energy and environmental protection.
Execution of TV is expected in early May.
Our kidney Hawk offshore wind project off the coast in North Carolina with a potential capacity of up to two UNEV Gigawatts is also going forward as planned.
Hi assessment plan was approved by the OEM in late February and we're now preparing to deploy instrumentation to commence wind wave and title monitoring programs.
In addition, we're seeing upcoming opportunities for our offshore wind portfolio, New York than Virginia In New York, The New York Public Service Commission authorized.
New York Energy Research and development authority or NYSERDA to issue a solicitation for 1000 megawatts or more up to 2500 megawatts of offshore wind capacity in 2020 and in Virginia. The Governor signed legislation in April 5th or 5.2, Gigawatts of offshore wind by 2035.
Now moving to slide 11. During this pandemic, we remain committed to our vision of building a cleaner and smarter energy future in 2016, we pledged for our generation fleet to be carbon neutral by the end of 2035.
Moving on grid, the first us utility to set a goal for carbon neutrality.
We are releasing our fourth annual sustainability report highlighting our continued progress and leadership in promoting sustainable energy and sustainable communities through our purpose and values.
Allied some in part include in 2019, the emissions intensity from our own generation was six times lower than the us utility average in 2019.
In 2019, we also continued to expand our wind generation fleet. The nation's third largest we've increased our renewable capacity by over 7800 megawatts and on gross created and currently have approximately 7500 megawatts of capacity.
And we're a leader in the emerging offshore wind industry.
Notable achievements for networks include ongoing investments to replace aging transmission and distribution infrastructure.
These investments will not only improve the safety and reliability the electric and gas distribution system, but also will reduce methane emissions in carpet advanced technology improves system resiliency.
And enable customers to adopt distributed energy solutions.
We're also collaborating with states on electric vehicles advancement on grid networks launched easy demonstration pilot projects and as also proposed investing $34 million in New York and me to build charging infrastructure and expand access to electric vehicles.
We are committed to the United Nations sustainable.
Development goals as a best in class Energy company, we're focused on the goal is targeting affordable and clean energy and climate action. We're also directly contributing to the promoting innovation and education protecting biodiversity and supporting gender equality, particularly the empowerment of women.
We've incorporated these goals into our company strategy and corporate governance system.
Our corporate governance has been recognized and awarded by various external parties for being best in class.
On April seven.
Hundred completed its third green bond issuance with a 750 million five year bond.
And there's not a seventh large green bond insurer in the us with a total of 2.1 billion issue.
In summary, we remain focused on delivering clean reliable and affordable service, our customers through our commitment to innovation and safety.
As previously announced I decided to retire the day after our annual meeting of shareholders between now and then loop continue navigating these unprecedented public health and economic challenges due to the pandemic.
You heard is fully committed to the health and safety, our customers and employees supporting our communities and being part of the economic and job recovery and I believe.
I will be leaving the company well positioned for the future now I'm going to hear from our CFO Doug Stewart.
Thank you Jim Good morning, everyone and thank you for joining us today I hope all in the call and your families are healthy and doing well during these challenging times.
Im now on slide 13 on this slide we roll forward earnings per share from the first quarter of 2019 to the same period in 2021 of us GAAP basis and on an non U.S. GAAP adjusted basis.
Adjusted EPS reflects the exclusion of favorable mark to market adjustments in the renewable segment restructuring charges and accelerated depreciation related to the repowering of for wind projects. The combined impact of which was only one cents per share on a quarter over quarter basis, we have the full reconciliations of the.
And our appendix to the earnings presentation.
As you can see on both the us GAAP and adjusted basis, we had significantly improved results for the first quarter of 2020 compared to the first quarter of 2019.
This is primarily due to the positive impacts in our renewables business of 15 cents on a U.S. GAAP and 13 cents on an adjusted basis from the 831 megawatts of new assets placed in service in 2019, including the Ptcs for those projects as well as from improve when production that availability on existing.
Assets.
For the first quarter of 2020, our net capacity factor, including New resources was 33.7% as compared to 28.1% in the first quarter of 2019 at above the 2011 to 2019 first quarter average of 31.8%.
The slight decline in networks results for the quarter of 2020 of negative one cents compared to the first quarter of 2019 was due to higher depreciation and outage restoration costs offsetting small positive rate increases.
Lower corporate earnings in the quarter over quarter period related to consolidating tax adjustments, which are offset primarily in renewables.
Now the next several slides provide more detail on the business segment impacts.
On slide 14, we summarize the results in key drivers for the networks renewables and corporate business segments.
For the first quarter, you can see that the networks results were lower by one cents quarter over quarter with $198 million of adjusted net income and 64 cents earnings per share shifts.
We've received a benefit of one cent quarter over quarter due to new rates for Connecticut natural gas, which is in the second year of a three year rate plan and southern Connecticut gas, which is in the final year of its three year rate plan as well as a small amount of for new rates in CMP that were effective March onest.
These incremental revenues were offset by higher depreciation of three cents due to new assets placed in service and outage restoration costs of four cents, which were a penny higher than the first quarter of 2019.
Taxes and other category, primarily includes the tax reform related excess deferred tax benefits of four cents that is spread over 12 months and will reverse in future periods. As these benefits are returned to customers.
In the first quarter 2020, we did not see immaterial impact related to cope with 19 on sales and Uncollectibles as the state disconnect Moratoriums and stay at home requirements didn't begin to go into effect until mid to late March and we have decoupling at our utilities to mitigate the lower demand.
As I mentioned earlier, our renewable segment was the key driver for the quarter over quarter improvement in earnings.
Quarter over quarter renewables adjusted net income increased by 41 billion or 13 cents.
Performance period over period was significantly impacted by 19% higher production from our existing wind assets due to higher wind resource and availability along with new assets that went into service in 2019 in the first quarter of 2020.
The West region, which is the region that has the highest average PPA prices experienced the largest increase in total production followed by the self with both regions benefiting from improved wind resource and new assets placed in service in 2019.
Improved when production from existing assets and new assets explained 11 cents of the quarter over quarter improvement.
While ptcs from the new projects added another four cents.
Reducing these positive impacts was a four cents negative impact to earnings.
From Klema thermal plant operations and trading.
This is the category the benefited in 2019 from a very cold winter price volatility and the Canadian pipeline rupture that drove up prices.
A negative impact from pricing of one cent reflected lower merchant pricing in all regions.
Renewables taxes. Another includes a positive eight sent tax impact quarter over quarter, that's primarily offset in corporate as a consolidating tax adjustment that will be spread over the year.
In renewables this tax benefit was reduced by several other smaller items, such as incremental personnel external services and depreciation expense with the addition of new plant minority interest and other.
The corporate segment includes the negative offsetting consolidating tax adjustment as the driver of the quarter over quarter comparison.
While we did have approximately $10 million of higher interest expense in the first quarter of 2020 due to the issuance of the Green bond in May of 2019. This was offset by an increase of $8 million of intercompany interest income quarter over quarter.
In 2020, we expect to carry forward.
The forward 2020, plus savings of $75 million pre tax that we accomplished in 2019.
And for 2020, we anticipated in our guidance incremental savings of about $5 million to $10 million for totaled 2020 expected savings with $80 million to $85 million, while continuing to target a long term run rate of approximately $100 million.
And grids consolidated effective tax rate for the first quarter was approximately seven cents, 7% before discrete items. This is lower than the 12% before discrete items that we quoted in our 2020 guidance and is largely due to additional permanent items in networks, a portion of which is offset in rates and hence has no earnings impact.
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Now moving to slide 15, this is where we highlight our solid liquidity position and our access to capital.
We believe both our sources of strength that will help us not only grow our business, but also cushion the impacts of coded 19.
We have approximately $2.91 billion and liquidity available.
We have secured liquidity through a $2.5 billion credit facility that backs are $2 billion commercial paper facility.
As of April 24th we have approximately $87 million of commercial paper borrowings outstanding against that facility.
Plus we have access to 500 million dollar.
Lineup credit with our parent company ever droll, which is on drawn.
Since coated 19 emerged in March we've been able to access the commercial paper markets, except for three days in March when the market was disrupted and at that time, we used our credit facility to meet our funding needs.
While spreads to LIBOR increase since Coca Cola 19, overall short term funding costs have not been adversely impacted due to an offsetting drop in the LIBOR rates.
We've also access long term clean energy funding in the first quarter, placing $237 million as tax equity financing and issuing our third green bond to finance our renewables projects.
This green bond of $750 million brings our total green bond debt to $2.1 billion, which makes us a seventh largest issuer of in the us of green social and sustainability bonds in the fifth largest in the sector.
The transaction was very successful being 2.8 times oversubscribed and with 58% of the proceeds allocated to.
DSG focused investors.
While treasury rates had dropped due to covert 19, the spreads were wider than we've expected pre coated bringing our financing costs higher than originally estimated in increasing the potential for higher financing costs on future financings in 2020, which we've estimated at approximately $9 million pretax, including the screen bond.
Now moving to slide 16, we highlight our financing expectations for the remainder of 2020.
We have approximately $710 million of maturities in 2020, including a $450 million bond at the parent company, which was originally the while holding company bond.
We've also forward sold our $200 million nice a private placement to an underwriter and have small maturities at the other operating companies.
We expect to issue another $2 billion of new debt at the operating and parent companies by the end of the year.
Our dividend policy remains unchanged targeting 65% to 75% of net income.
And on Monday April 27, the board declared a quarterly dividend of 44 cents per share payable on July onest of 2020.
Now I'll turn to slide 17, and give some more color on our current expectations of the areas of risk in the middle mitigation measures, we have related to coded 19.
As Jim noted this is a key area of focus for our entire company and it highlights our responsibilities as an essential service and partner to the communities in which we operate in the resiliency of our team and our business.
With careful and ongoing planning and diligence, we were able to quickly and very successfully mobilize to enable our over 70% of our workforce to work remotely.
And we've also implemented enhance measures to social distance and compartment mineralized key operations and work areas.
Fortunately today. This is benefited our workforce by impeding the spread a virus in regions of the country that have been hot spots.
As I've noted our liquidity and access to capital puts us in a position to work through the funding needed.
We continue to implement our strategic plans even in light of expected coded 19 impacts.
We have decoupling and all of our utilities, except for CMP transmission and main natural gas.
Which significantly removes the impact of lower demand in our service territories.
We're working closely with suppliers in our networks in renewables business businesses as we implement our capital plans for the year.
And we did not anticipate delays in our 2020 wind projects, which are expected to reach their commercial operation dates at the end of the year.
We've included in our appendix some sensitivities.
Two risks I will highlight on the next few pages and those are intended to include potential pre tax income and cash impacts.
We are working to mitigate the dress and not cumulative impacts.
As you'll see the potential pre tax income impact based on our current assumptions are relatively modest.
On slide 18, we look at the impacts of coated 19 on our networks business and the mitigation measures that are in place for which were currently pursuing.
Our current expectation is for three months of stay at home policies in place in the four states in which our electric and gas utilities operate and disconnect moratoriums ease by June Thirtyth.
In terms of demand, we're seeing drops in commercial and industrial load was the various stay at home policies, but increases in residential load, which was approximately 63% of our revenues for 2019.
We expect to continue to continue to see lower demand from see an eye customers as the pandemic progresses, and assuming our modeling roughly a three month recovery period.
With some lasting demand destruction, continuing beyond 2020 as businesses try to recover from the shutdown and communities adjusted new norms of social distancing.
However, as I mentioned previously all of our distribution utilities, except for May natural gas have full revenue decoupling mechanisms across all customer classes.
Are you lie in CMP transmission rates reset annually and July transmission also has a decoupling mechanism.
These decoupling mechanism substantially stabilize revenues limiting the upside when load exceeds approved revenues, but also insulating the companies and time such as this.
With disconnect moratoriums in place in each of our rate regulatory jurisdictions and as customers delayed bill payments due to the economic hardships associated with coated we expect to see an increase in overdue receivables a portion of which we expect will turn into uncollectible expenses.
With the assumption of a three month duration of disconnect moratoriums for all of our regulatory jurisdictions.
We currently do not expect and net income impact as we will seek to defer and expect to achieve regulatory recovery for the estimated potential uncollectable its expenses, which we estimate at roughly $18 million for that period.
There are also potential coated related regulatory impacts and dealer can Maine.
In New York, We're currently in confidential settlement discussions to address the impacts of coded 19, and if requested a deferral of the effective date to September 13th with a make whole provisions to April 17.
To address the cobot 19 impacts in Maine.
We propose to mitigate our rate increase with the delayed recovery of $34 million of deferred storm costs and recovery over two to three years.
We're also closely working with our suppliers as we implement our capital programs in our networks businesses.
With the social distancing and Compartmentalisation of work, we anticipate that there could be lower than anticipated capital spending for the year.
Although we are actively working on mitigation strategies across our asset portfolio.
Moving to slide 19, we review the potential impacts that fill the 19 on our renewables business. We have four projects with commercial operated ration dates at the end of the year. We do not currently expect delays in these projects due to coded 19.
Work continues on these sites with social distancing and segregated teams, but we did not expect turban deliveries until later in the year.
Our repowering projects as noted our lower risk and largely completed.
While delays are not currently expected we recognize that with the force majeure notices we've received from suppliers. There is a potential risk of delayed depending on the length and severity of the pandemic and its global impacts.
However, we highlight that the 100% PTC qualification is turban by turban.
It would apply to turbans completed in 2020, even if the project in its entirety does not reached Cody.
With the 5% Safe Harbor elected for these projects, we're confident of qualifying for the PTC, even if the turban installations lapse into 2021 through our demonstration of continuous efforts.
Finally, the industry is working on seeking an extension of the safe Harbor provisions by one year for projects started in 2016.
Reviewing other risks in the renewables business, we note potentially small impacts for merchant prices due to low demand.
And we do not currently expect credit default on our high quality portfolio of Counterparties, 97% of which are investment grade.
On slide 20, we conclude highlighting the long term value of our company, we have attractive investment opportunities in our networks and renewables businesses. These include our leadership in offshore wind in the US as we develop three lease areas on the eastern Cecos.
Biding further value and diversification to our business, while solidifying our position as a major sustainable energy company in the U.S.
Our target of carbon neutral generation by 2035 also supports that position.
Importantly, we believe our strong balance sheet and solid investment grade credit ratings proved to be a strong asset, particularly in this challenging coded 19 environment.
And lastly, I want to end with a recognition that as Jim noted this will be his last earnings call. Prior to his retirement on June 20 Threerd.
I want to thank him and wish him well, it's been a pleasure working with the Jim.
Graduations on your upcoming retirement and thank you on behalf of all of our employees for your leadership and contributions to the business.
Thank you I'll now hand, the call back to our operator poly for questions.
Thanks, Dan if you would like to ask a question. Please press Star then the number one your telephone keypad well pause for just a moment to compel peculiar roster.
And your first question comes from the line of into Kim with Goldman Sachs.
Thank you.
Maybe first question acknowledging the benefits that you do have with decoupling can you just give a little more color in your jurisdictions that the magnitude of and demand it back and you're seeing by customer class.
Yes, we can maybe Tony Marone adhesive if you'd give you a quick update on what we're seeing.
It's obviously, we're seeing an increase in residential in Cnine was down only model yet so what we're seeing especially where we have the smart meters to be able to capture accurate data is increases on the residential side in the 6% to 7% range DNA loads are down.
Now they vary quite a lot from journal jurisdiction to jurisdiction, but we're seeing anywhere from 10% to 15% on some of the Cnine close that we experienced so far as Doug mentioned before.
With the top line net.
Those Dolby that.
The merchandising of that across the board, but we are seeing those impacts.
The other thing I might add too so.
Into we have on slide 31, the decoded impacts and and this is one of them in terms of the demand and decoupling, we're showing a very modest pre tax income impact of only $1 million and from a cash standpoint, roughly $17 million Tony mentioned per se.
Manages.
That.
For residential commercial and industrial were actually using more conservative assumptions in mis modeling we've assumed.
5% improvement in residential and about a 15% reduction in commercial and industrial.
In residential as is the higher tariff customer class, so thats where were getting the mitigation bye.
Even though residential as a smaller percentage increase in.
In terms of price it has a significant benefit to offset commercial and industrial.
Got it and then in terms of collecting on the cash for the decoupling.
There are more most of the decoupling mechanisms.
Set up to that occurred more by annual true up or is that kind of half Sam annual annual.
Yes, so we have a reconciliation mechanism in each jurisdiction is a little bit different in terms of the exact timing but.
So the show up whether it's positive or negative typically inactive midpoint. The following year over 12 months.
There are some nuances with each location.
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Understood.
Correct me, if I'm wrong, but believe it or drill on its recent earnings call sit back BGR may fit when.
Could be delayed until 2024.
Are you guys getting any sense just on the permitting side I know you've mentioned that bottom hasn't changed the dates on the bar.
That took a couple of my color that the final JAKKS profit seats, but any sense just.
That you're seeing that it could be delayed a little bit longer than that.
At this point, we're still believing we said all along it wouldn't be any earlier than 2023.
I think we're still on track with that.
They might have been hedging a little bit because of the coven 19 mode right now we're not seeing a whole lot of delays on Alejandro is on the phone maybe can expand a little bit on well we're seeing.
Okay. Thanks Jane.
As you were mentioning and we can actually delivered a project in 2024 and still be perfectly on timing terms offset the PPA validity gesink posting a decent securities, but our intent is to deliver the project as quickly as possible on as we said in deposits and we know now that he cannot be early than 20.
23, we're going to do the best to to do it as quickly as possible in that save train in a period of 23 24, and so certainly too early because of all the moving parts to say exactly when it will be.
And just one more add on if I caught up so if it is delayed.
Beyond 2023 into 20 to 24 are you still.
Im confident that you could qualify that 18% ITC.
Yes, well, making an 18% ITC.
Sorry go ahead.
Yes.
I had on them.
And the 18% ITC. It's also a name a valuable a twentytwenty for.
So there is no difference in that sense Abby continues to be entity to flow.
Got it thank you and Jim Congratulations on your upcoming retirement.
Thank you.
Looking forward to it.
Your next question comes from the line of Turkish helper with Evercore.
Hey, good morning, guys and Jim Congratulations as well and although we are investing.
Thank you.
So.
Just wanted to lot of moving pieces on income taxes, maybe Doug what sort of what onetime items drove the 7% effective tax rate versus where some of the 12% guide and what should we be modeling for Q2 Q4 this year.
Yes, I would say really to the couple items that are driving the effective tax rate down from the the 12% originally our guidance to the.
Roughly 7%, we're seeing right now.
One is just higher hvdc equity.
That's an item that would not be offset in rates, so that would fall to the bottom line.
And then there was also higher excess deferred income tax amortization that is something that over the course of the year does get offset in rates.
This is where we've got the deferred income tax liabilities from.
The tax reform act that will be passed back to customers.
Beyond that there's also some some higher ptcs, but we're seeing so that would be on the renewable side and would fall to the bottom line.
And I'd say those are really the major items to speak us.
Got it and then what you mean should it be closer to the 12% for the rest of the year or it should be NIM for the fair from Q2 to Q4 in 2020.
No it it should be still at that roughly 7% as the overall consolidated effective tax rate for the year.
So yes, that's what I would suggest.
Got it okay.
Understood and then maybe just one quick and I think Youve put this information in the slide of previously book in terms of merchant exposure on the on the renewables business.
What percentage of perhaps you PBM contracts or margins are.
Our PPA horses worse with merchants in the renewals business.
Yes, I think we were saying that.
We target 70, 585% between the PBM hedges this year for the balance of the year, we'd be at 79% that's already fixed whether it's a TV era.
So we have about 21% merchant exposure.
Yes.
Got it thank you very much guys.
Certs.
Your next question comes from the line Sophie Karp with Keybanc.
Hi, good morning, guys.
Hi, Sophie good morning.
Couple of questions from me. So first is on New York settlement negotiations right and so thats been going on for Awhile and now we have the endemic in so I'm just.
And I'm wondering if.
The.
It's going to the impacts.
Feed on the ratepayers is factoring in any way in these negotiations right now or do you think you already have you expectation at this will be completed the GAAP separate.
From the Boeing.
Right case.
Yes, I think we we said that there was.
The filing by one of the of participants to.
Update everything and not include the co. The 19 and just redo everything in the Judge said no. You can go ahead include the co. The 19 in the settlement discussions. So yes. They are being included in we're having discussions about that and as you might expect the governors on the utility commissioners from the state.
We are looking to how do we mitigate some of these costs that people are going to be bearing and so we're having further discussions about how to deal with Dakota 90, Tony do you want to add some hi, Jim I think you characterized it well clearly does cobot impactful on our customers and I think all parties settling parties want to make sure.
We take the opportunity.
As a settlement to put any adjustments are tweaks necessary to consider so with that so that's that's what we're working through right now.
Got it and then.
Thank you are in the second question for me is on the on the new both sides.
Are you seeing then you pressures and on your.
Both.
Offtakers may be experiencing deterioration in their credit quality or in that business. It could make should we begin thinking about that as a potential transcore do you see that that's more or less insulated income.
Yeah, we're pretty comfortable with the Offtakers, we have 97% of those are investment grade credit. So we feel pretty good about now we do we watch them all very closely we have a group that thats. Our responsibility we have a risk group that looks at credit constantly and its monitored the daily So we're keeping track of but right now.
We feel pretty good about it I'll hand or anything else there.
No I think thats exactly the case AG might would maybe just add thats in turn so lets say future uptake opportunities and we're not seeing actually any and slow down in the appetite in the market. So we are having a lot I will say conversations soon with many parties a for future rate offtake opportunities.
Great. Thank you. Thank you Jim and congratulations on your retirement, you a little than this.
Thanks, Overage I'll Miss you guys do.
Okay, and then I'll jump back into queue. Thank you guys.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America.
Hey, good morning came and congratulations Jim.
Thanks.
Absolutely pleasure.
Hi.
Kevin extra start with with that subject back.
When you think about just succession.
Public detailed work succession planning and what is the plan, especially in light of club the changes will.
Welcome to gear.
At the outset and then maybe the core question I'd be curious about is how do you think about balance sheet and.
Obviously took away the long term Bob.
Guide here, but but how do you think about positioning in light of but good action on offline.
On the succession plan.
I think Thats, we were asking you were breaking up below him to win but.
Yeah the board.
Looking at it right now and they're evaluating internal next.
Return on candidate so I would expect there to be open announcement.
Soon but I'd say the board's working on it right now and as far as liquidity Doug.
Yes, just on the credit metrics topic going back to the fourth quarter earnings call I think I mentioned that.
In 2019, we saw.
Cash from operations pre working capital to debt of about 16%.
And in 2020, we were projecting to be about 16.6%. So some improvement.
With that the cash flow impacts of coated 19, that's a bit of the an unpredictable variable.
But you can see in our slides that.
Basically some of the working capital negatives that we would see are offset by potential capex reductions that would bring us to a largely net neutral position. So overall I don't see that.
Coated 19 based on our current outlook is necessarily going to materially negatively impact our.
Our cash flows overall, where are our credit metrics, but.
Obviously, that's a fuzzy crystal ball at this point.
Hi can just a quick one on mitigating the risk around transmission, obviously is a lot of question.
Or hurdles that the become still how do you think about mitigating risk in the spending that you all water due to the extensive building out the SEC.
You touched on NBC.
Julien Yeah, how do you think.
Rolls around and each given some of the pending with federal Realty's, specifically the valid efforts.
Yes.
There's a lot of things we have going on right now we formed a pack in order to.
Get the facts out about any cc, Bob you may want to just talk about some of the things we're doing yes sure.
So as humor, saying Juliet and a lot of work being done to have the focusing main recognize.
Many benefits that come with this project.
And in particular, the economic benefits that come with this project considering the situation we find ourselves in now.
As Jim mentioned, the estimates are that it will inject over a half billion dollars of economic benefits over the construction period, and 1600 jobs and about 3000.
Include indirect jobs associated with that we saw this we bid MPRP never USIO has a tremendous boost to the to the economy. So we see the economic benefits are going to be tremendous and at a time that the states than needed most.
In terms of the permits as Jim said were were really waiting any day now for the final state permit.
And then we have the Army Corps and the the Geo we presidential permit.
Our goal right now is to focus on getting all of us from its done so to be able to start construction.
In the summer.
Excellent. Thank you guys.
And your next question comes from the line of Steve Schmidt with Wolfe Research LLC.
Hi, good morning.
Hi, good question on the same topic on metric.
Just first on the on the Army Corps approval is there any potential impact from the.
And WP 12, our decision in Montana.
Related to you know.
Yep.
Now we were on a faster and why.
Okay, I think that and if you talk though because I thought they've kind of halted all permits.
For our van on traffic projects, we are not in that category.
And so there is no impact to us.
Okay great.
And then just on I think youre going to challenge the.
Decision by the court up to the Supreme Court in terms of the validity of the signatures is there any.
Update on timing and process of that.
So to the Supreme Court.
Yes, we did file and appeal to the Lockhart, which is the Supreme Court and May oral arguments were actually held yesterday.
And the decision is supposed to be by the Lockhart by made by May 13. So.
Thats their current process with the appeal of the.
Secretary of state approval of the signatures for the referendum.
And we are challenging it for a lot of good reasons, we found what we believe rollout of irregularities.
People doing notary public work when there are also doing work for the campaign to.
Bush the referendum so.
We felt we have a good case, but obviously the secretary of state approved enough sufficient signatures and the.
Superior Court judge of went along with what the secretary of state sentiment. So we appealed.
To the Supreme Court in May.
Okay, Great and then.
Last question a different topic, the Uncollectibles deferral in New York or I guess, maybe more than just New York, but I guess specific New York.
Has there been anything that the commission has said or.
Or precedent that that you're.
Table to to do that deferral.
No. So at this point, we do not have a mechanism in New York for Uncollectibles deferral.
And if there is it's possible that there could be a generic proceeding, which we would obviously the a part of.
And is also an issue that we are looking at as part of the settlement discussions that are still ongoing right now we do anticipate though that one way or another that there'll be some mechanism our recovery or unexpected uncollectable costs and theres, a few pathways, where by which we could achieve that.
But there has not been unlike say, Connecticut for example to set up a specific docket related to fully banking impacts on customers into business. Similarly, just yesterday afternoon see that name PC also put forth docket New York at this time does not have a similar docket. So we'll pursue different strategies.
As Steve I will say that there is to your point around precedent.
You recall back into 2008 2009 simply there was a generic.
Preceding instituted and ultimately in order that came out that provided some protection for costs associated with that time periods. So theres precedent for it and we'll see what happens and considering that the commission and the governor really want and the utilities to voluntarily recalled voluntarily.
You know.
Stopped the any shut off and continue to Mark Holleran, basically and then not send disconnect orders and so forth to train.
That there is basis to say that we should be able to get recovery that and we farm. We believe we will.
Great. Thank you very much.
And your final question comes from the line of Paul Patterson with Glenrock Rock Associates.
Hey, congratulations Jim.
Thanks, Paul.
Oh.
Just to follow up with a few things the Supreme Court.
What do you expect the main Supreme Court to.
To rule on this.
By the according to the Constitution domain, they have to rule within a certain timeframe and that date happens we may 13th.
They have to rule by that.
Awesome and then.
On the deferred nope.
Could you fills could you quantify what the with the potential upside would be if that if the numbers basically is approved as it.
As it.
As it currently stands as it currently proposed.
Yes, I think our people looked at incentive it goes into effect as proposed than it is going to depend on what the our OE is too, but it would be about a penny to share that just reflects the 50 basis points additional adder for our Geo from 50 to one right.
That would be the only benefit associated with it.
Well I may potentially on future projects.
Yep.
The other potential incentives wouldnt retroactively applied to prior investments. So the only thing because we would expect current investments is at 50 basis points editor for DRG.
Okay, Great and then.
In Connecticut just.
Could you give us a little sense is whats the aware inches been.
And so obviously the search was I guess in particular I was wondering about Connecticut, because it seems like thats been sort of high.
For new England, and what have you.
Just what the.
What you've seen so far in April or any sort of color you could give and I know you're planning and deferring and would have just but just sort of give us a senses to what you.
Your experience has been.
Yes. This is Doug.
In March for example, what we saw that is roughly about an $8 million increase overall with networks in terms of Arrearages.
Versus February and if we look back a year that was roughly about 1 million dollar increase that we saw in March of 2019. So arguably you could say roughly a $7 million net increase in arrearages year over year that could be potentially attributed to co bid.
Through the first half of April frankly, we've not really seen any abnormal increase in arrearages, thus far and now we do expect that to happen, but so far it's been relatively muted in the first half of April.
And that increase was overall to utilities fall yep.
Disconnected.
Okay. That's good good to hear.
Once again, congratulations Jim and best wishes for for everything.
Thanks, Bob appreciate it.
At this time there are no further audio question.
Yes.
Okay, well I want to thank everybody for participating thanks for the best wishes that you gave me and.
Look forward to sitting on it and that the company those great into the future. So thanks again.
Everybody else, we'll be talking Ulysses Sp.
I guess the AG a personal conference.
But.
Every day.
And thank God.
This concludes today's conference you may now disconnect.
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