Q2 2020 Avangrid Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to adding grid second quarter 2020 earnings Conference call.
At this time all participants are no 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.
If you require any further assistance please press star zero.
I'd now like to hand, the conference over to your speaker today Patricia Cosgel. Thank you. Please go ahead.
Thank you Lindsay and good morning to everyone.
Thank you for joining us today to discuss on grid second quarter 2020 earnings result.
The dancing on the call today, our data Arriola, our Chief Executive Officer, and Doug Hoover, Our senior Vice President and Chief Financial Officer also joining us today for the question and answer portion of the call will be bought Huh, Deputy Chief Executive Officer, and President Avangrid 100, Uh Huh.
Okay, and Chief Executive officer of all of them grid, renewable and Tony Marone, President and Chief Executive Officer Officer of Avangrid network.
No that Thomas will be together for the call today, maintaining our social distancing, while others will be joining us remotely.
If you do not have a copy of our press release it presentation for today's call. The worry a little on our website at Www Dot often green dot com during today's call. We will make various forward looking statements within the meaning of the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 based on current expectations and assumptions, which are subject to risks and uncertain.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect or because of other factors. It's gotten <unk> earnings release in the comments made during this conference call and the risk factor section of the accompanying presentation, where in our latest reports and filings with the Securities and Exchange Commission each of which can be found on our website called them.
<unk> Dot com, we do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures.
Ill now turn the call over to Jim.
Well. Thanks was really good morning, everyone first I wanted to say how excited I am about meeting all the rig and I'm honored by the trust demonstrated by the board of Directors pointed me as CEO.
But I also want to thank all of you that have reached out with a warm wishes over the last couple of weeks. This is obviously a big change for me personally and I really do appreciate the support Buyside received from so many people and yes, I will be moving from San Diego to Connecticut very soon.
I'd like to briefly share or.
So why I came dobbin grid, and what's driving my optimism about the future.
First of all been grid has a wonderful adjusting business platform focused on regulated uncontracted businesses.
Its strategy for the future is aligned with the ongoing energy transformation, both globally and here on the U.S. and demand for clean energy as we all know is being driven by consumer preferences policy decisions and competitive cost.
That process for clean energy is only going to increase in the future.
With a strong balance sheet and attractive long term investment opportunities all been grid is committed to investing in a smarter and cleaner energy future, while providing innovative solutions and high quality service to its customers.
And with more than 7500 megawatts of unfavorable energy generation in our portfolio, 90% emission free capacity and a nearly might change gigawatt pipeline, a future wind and solar projects. All been grid today is one of the leading clean energy players in North America, and we're well positioned the grow into the future.
Sure.
With 1.6 Gigawatts of sign P. age for our vineyard wind in Park city projects Auburn grid is leading the U.S. offshore wind industry by leveraging global offshore experiences from the Ebola group and our European partners.
On the network side of the business, our connectivity to consumers and businesses through our eight utilities in New York, Connecticut main in Massachusetts provides us with a strong platform to serve approximately 3.3 million customers and the company is building the grid of the future by investing in transmission solutions such as any.
Evaluating non wires alternatives to enable renewables and enhancing our distribution system with grid modernization technologies.
And as we look to the future work going to continue to introduce new technology like smart meters grid automation battery storage and electric vehicle charging infrastructure that will further enhance our relationship and connectivity with our customers.
And for the growing number of U.S.G. focused investors out there often grid is already a leader being for instance, the first U.S. utility to set a goal for carbon neutrality from our electric generation and my commitment is to make yes, Ci performance a strategic differentiator for our company in the future.
Now I've heard from some of you that in the past we've fallen short of the earnings expectations. We've discussed publicly and I want to change that going forward and really focus on execution and delivering results that are consistent with our forecast.
This is all about building your confidence in Auburn grid going forward.
And given that this is my third day with often grid I'm planning to work with our team and do a detailed and thorough review of our previous financial forecast for 2020 and beyond and as a result, we will not be reaffirming our 2020 guidance today, but we will provide you with a strategic update and financial projections at our Investor Day Nobel.
However, after we've completed this review.
I do want to take this opportunity to thank all evolving grids employees for their relentless focus on our customers in our communities that we serve.
The pandemic has brought countless professional and personal challenges to our team, but we are grateful for their commitment to safely serving our customers at a time when access to clean reliable and affordable energy is so important tool.
So I look forward to working with all of you and especially look forward to meeting with you in the person as soon as it safe.
So now what I'd like to do is pass it off to Doug good to give a brief old business overview and to discuss second quarter financial results Doug.
Alright, Thank you Dennis and just on behalf of all the all under employees. Congratulations on your appointment as CEO and welcome to and grid.
We're excited as well that you've joined us and our glad to be part of your team.
Good morning, everyone and thank you for joining us today.
Starting on slide five with the highlights of our business.
In the second quarter, we achieved several key milestones successes in any environment, particularly challenging while operating during the cobot 19 pandemic.
We remain focused on providing reliable and safe electric and gas service and generating clean energy.
And our top priority is the health and safety of our employees customers and stakeholders in our communities.
We include highlights of our significant accomplishments in the first half of 2020 on this page.
I'll jump right into the details now and the next slides.
On slide six we update our current expectations of the impacts to our businesses from Cobot 19.
This is a key area of focus for us it highlights on responsibilities as an essential service.
And to partner with our communities and the resiliency of our team and our businesses.
For our networks business, we have revenue decoupling in nearly all of our utilities and therefore, we expect minimal net income impacts from decreases in load during the pandemic.
That said, we also see a continuing trend increased residential load, partially compensating for reduced commercial and industrial load.
And the states in our network service territories have begun easing theres stay at home restrictions.
We currently expect utility disconnect and late payment fee Moratoriums. The continued through March 2021 in New York and be lifted in the third quarter 2020 for our other utilities.
Buckets are now open in each state to evaluate code 19 impacts.
We are pursuing recovery of coded 19 costs, including bad debt expense and late payment fees.
The timing of stay commission orders is not certain though and the final decisions may not occur until 2021.
With the social distancing and Compartmentalisation of work, we expect a limited impact from the timing of our capital spending this year in our networks business.
For our renewables business, we're tracking the progress of wind projects and construction.
We received force majeure notices from suppliers, but do not currently expect covert 19 delays in these projects.
Congress' extension of the Safe Harbor removes the PTC qualification risk although.
Okay, and pandemic health and safety protocols.
On the positive side, 98% of our Counterparties have investment grade credit ratings.
Now moving to slide seven we have some significant achievements in our networks business to report.
On June 22nd we reached a joint proposal among 21 party in folder in part.
And our New York rate cases, which we expect to be effective on November onest with a make whole back to April 17th.
The rate plan, which covers almost 50% of our rate base as a three year term with cumulative incremental revenues of $439 million.
Based on an 8.8% or are we which is in line with our expectations.
Importantly, the joint proposal includes investments to improve system reliability addressed needed infrastructure improvements and drive economic recovery in job creation with capital expenditures through the three year plan of about $3 billion.
Other key provisions support our critical need to enhance storm preparedness and response, including funding for enhanced vegetation management hiring of new field workers and enhance storms staging cost recovery.
The rate case also approved funding for covered 19 related protections for our customers such as direct credits in grants deferrals and adjustments to regulatory assets and liability amortization.
Additionally, we received important approvals for our NVCC transmission project the permit from the main department of environmental protection, and the ISO New England Threenine.
The US Army Corps of Engineers permit is issued its final stages, and we anticipate a decision, including our review and comments by early August.
We expect the presidential permit to follow this by 60 to 90 days.
While we're pleased with the permitting success of this very important project for the region.
We are pursuing in parallel a constitutional challenge to a potential ballot referendum that would direct to state to revoke their prior approval of the project.
The main superior court ruled in June that while the issues challenging the referendum worse substantive it would not decide on the constitutionality prior to the outcome of the referendum vote.
We appealed to us because the mainly backward and expect the decision by the end of August.
Lastly, highlighting the benefits of the project Hydro Qubec and the Governor's office announced their agreement to execute a PPA for hydro qubec to provide up to 500 gigawatt hours of discount and energy annually on the transmission line directly to main customers.
Hydro Qubec also agreed to accelerate by two years there prior financial commitments the state of Maine.
On the next slide we turn to our achievements in the renewables business, we expect to complete approximately one gigawatt of projects in 2020, including 158 megawatts that reach commercial operation in March as well as 461 megawatts of onshore wind projects and 366 megawatts of Repower project.
Yes.
The new wind projects in 2020 will bring our total wind assets in operation to approximately eight gigawatts.
Our 81 megawatt Roaring Brooklyn project is now expected to come online in early 2021 due to a delay in interconnection communicated by national grid.
In the second quarter, we also executed a new PPA with Puget Sound energy for our 201 megawatt Golden Hills Wind project in Oregon, with an expected commercial operation date by late 2021.
In addition, we have 670 megawatts of contracted solar projects with expected Seo. These in 2021 and 2022.
And during the second quarter, we've added 900 megawatts of solar to our pipeline, bringing our total pipeline size to nearly 19 gigawatts.
In offshore wind the bolam released that supplement to the draft environmental impact statement for the Vineyard wind project.
Evaluating the Q cumulative impacts of 22 gigawatts of offshore wind in the eastern us lease areas.
The study indicates that direct impact of the project, where mild to moderate and that some of the cumulative impacts of the expected industry build out were major but manageable.
Additionally, public hearings on the supplement concluded and we believe were constructive.
We expect to bomb to remain on their scheduled to issued a final environmental impact statement in November and the record of decision in December.
In the second quarter Park City wind executed and filed its PPA contract for 804 megawatts with the Connecticut. PURA ended decision is expected by mid August.
Park City Wind also filed its commercial operation plan with the Boeing on July 2nd.
Additionally, we're in discussions with our partner that could result in increasing our ownership position in the project.
Tony Hawk to 2.5 gigawatt, North Carolina lease area that Aman grid is developing received approvals or that site assessment plan and Geotech survey plan from the bone and deployed a met Ocean view buoyed.
Finally, we're looking forward to participating in New York next offshore wind RFP for up to 2500 megawatts and was announced yesterday.
Turning to slide nine our quarterly in first half earnings results for 2020 compared to 2019.
Reflect our continued focus on improving our operating results through completion of our rate plan in Maine management of our outage restoration costs and operation of our new wind assets.
For the second quarter results improved in network from corporate although they were offset by lower results in renewables, resulting in a decline in excess of minus 20% and adjusted EPS of 3%.
For the first half of 2020, EPS was flat compared to the first half.
2019.
While adjusted EPS increased by 5%, reflecting improvements in networks in renewables and a decline in corporate.
Our adjusted results exclude Kobin 19 related costs, including late payment fees bad debt costs, and certain higher operating costs totaling $13 million pre tax for the second quarter and year to date.
Restructuring charges renewables mark to market and accumulated depreciation from the Repowering for wind projects.
The combined impact versus the prior year of the adjustments were forced to sense for the quarter and two cents for the first half.
Now moving to slide 10, we show the results and drivers for the networks business.
This compares to a negative six cents for the second quarter of 2020 or a one cent improvement.
These quarterly improvements were offset by higher depreciation of a negative three cents from new assets and service.
Taxes had a positive to send impact primarily due to tax reform related excess deferred income tax refunds to customers.
For the first half networks, adjusted EPS improved by 5% or four cents. The drivers were similar to those described for the quarter with rate increases contributing three cents and depreciation reducing results by six cents.
Taxes in the first half of 2020 versus 2019 were six cents favorable also primarily reflecting the excess deferred tax.
Refund to customers.
Importantly, the full impacts of the New York companies Joint proposal will not be reflected in our results until we have a final decision from the commission.
The six cents favorable year to date income tax benefits include approximately four cents of New York excess deferred tax amortization that are part of the New York rate plan.
We estimate the first half results would've been approximately three cents higher for amounts that are pending approval in the New York Joint proposal and those will be recognized later in the year subject to commission approval.
Now moving to slide 11, where we talk about renewables are new assets operating in 2020 contributed positively to results, although were reduced by market conditions, including lower prices and curtailments impacted by the pandemic, resulting in a second quarter decline in adjusted EPS of 11 cents to 10.
Sense.
When production from our new assets and Ptcs added five cents in the quarterly comparison, while there was no incremental quarter over quarter benefit.
Detriment from wind production at our existing assets.
As a strong first quarter in 2020 was matched by a weaker second quarter.
Offsetting the contributions of the new assets were declines in pricing predominantly in the South Texas region lower merchant pricing in part due to covert 19, a negative rec inventory adjustment and other factors listed on the table.
For the first half comparison, when production from existing and new projects and Ptcs had a combined positive impact of 20 cents.
Similar to the second quarter other negative impacts in the first half reduce the improvement in the first half the two cents.
Taxes, including the impact of Ptcs and are consolidating tax adjustments as large period over period impacts for the second quarter that are primarily offset in corporate.
On slide 12, the corporate segment drivers include the positive consolidated tax adjustment offset in renewables.
And higher interest expense due to the issuance of the 750 million dollar green bonds at a 3.2% interest rate.
Turning to slide 13, our overall liquidity remained strong and this quarter, we increased our subsidiaries credit availability by allocating to them additional minimum borrowing limits in our revolving credit facilities, which moved 500 million from the Auburn grid parent limit.
We also supplemented on groups liquidity with a new 500 million dollar 364 day credit facility with an extension option.
As of July 14th we had 2.9 billion liquidity available from our credit facilities after borrowing 620 million through our commercial paper program.
The board declared a quarterly dividend of 44 cents at its meeting on July 14 payable on October Onest.
Now finally on slide 14, I want to highlight the drivers of long term value creation for our company.
As Denis noted we're conducting a thorough review of our 2020 in long term guidance to support achievement of solid results driven by the attractive growth opportunities we have in our businesses.
We're a leader in offshore wind in the US with the first large scale offshore wind project in development, and we're making progress developing our two offshore projects totaling 1.6, gigawatts, along with our Kittyhawk North Carolina lease area.
And plan to continue to pursue future offshore wind opportunities.
As a major sustainable energy company in the US in 2017, we became the first utilities to set a goal for carbon neutrality in our generation portfolio.
Importantly, we believe our strong financial position and reliable dividend enhance strategic growth opportunities and our networks in renewables businesses.
Thank you and now I'll hand, the call back to our operator lynsey for questions.
At this time, ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Well pause for a moment compiled the Q and a roster.
Hi, first question comes from the line of Durgesh Chopra with Evercore ISI. Your line is now open.
Hey, good morning team. Thank you for taking my question.
Good morning.
And then it's a welcome and look forward to working with you in the future.
Just really quick.
First I have a follow up on the quarter, Doug you mentioned a four cents.
Yes adjustment.
And you brought a very detailed explanation, but can you elaborate what of that four cents and I'm looking at slide.
18, I believe what of that for sand is is a is networks versus renewals.
Let me just get are you talking about the decoded.
Yeah, My apologies if the impact of of covered 19, I'm trying to im trying to see what does that and made above.
Yes, I mean really the bulk of that is networks and due to a lesser extent corporate.
Sure there is a small impact in renewables, but.
If I break that down into pieces.
We've got about $13 million pre tax impacts.
About $5 million of that is uncollectible expenses.
About $4 million late payment fees and Thats in New York in Maine, and then the remainder is additional costs, we've incurred for things like ERP.
Rental vehicles, because we want to have proper distancing for our field surface personnel.
And cleaning costs so.
I would say the bulk of that remainder is networks and corporate that there is also some degree of of renewable so for those would be the main drivers there.
Understood Great I appreciate the color and then just finally in terms of looking at the analyst day, what to expect I'm thinking about so what theme I know and I. Appreciate it's too early but what the base here is going to be and historically you've got it provided long term growth rate. So any color that you can share around that would be.
Great.
Sure Durgesh this is Dennis and thanks for joining our call. This morning.
We're going to we're going to look at everything really fresh obviously 2020 is a foundational year for our growth going forward and with the assets that were adding on renewables and the the rate case settlements that we'll have in our networks, it's going to be really important to have that that clean foundation going forward. So we're looking at.
What type of information, we're going to give out for the future.
I know that will be having calls with many of you over the next several weeks and months and I'll be interested in an input from you on how best we could be serving both the sell side and the buyside communities, but I think that.
Well first wanted to get our arms around what we have and where we're going to the headwinds and tailwinds and provide a useful information to you in November.
Excellent look forward to the Chad Dennis Good luck. Thank you.
Thanks for your guys.
Our next question comes from the line of Jeffrey Campbell from Tuohy Brothers. Your line is now open.
Good morning.
First I want to sell off motherboards, Dennis as the new CEO.
On slide 20, less curtailments as a potential CB 19 related production impact on renewables I wanted to ask what portion of the renewable portfolio would be most likely to curtail production and how that would come about.
Thanks, Jeff This is Dennis limit, let me hand that overtime to handle that give a little bit of color there.
Yes, Thank you Denise and thank you Jeff it for the question.
So in terms of curtailments, where we have seen and most impacted over our fleet TD say last two quarters, mostly the second one he say actually in the Pacific Northwest.
And do too.
Hi, Hi, Joel, which a pipe tightly flow demand has touched throughout 2008, some and some kind of curtailments there might still cuts had on a on then we have also seen a may impose include tendency to south east case from them into due to pricing negative pricing debt and it comes in Germany with curtailing, so pretty much spread over the over the in jail.
RFP area that has been a little bit Tim They may get safe bet.
Okay. Thank you and as a follow up.
Regarding nanny CE CE constitutional challenge I, just want to review.
Decision late next month was consistent with your expected timeline is what are the next step sample was anticipated timeline. Thank you.
Sure Let me have Bob handled the NVCC question.
Sure Dennis Thank you.
Suggested the.
The core has set out they will make a decision.
By the end of August our constitutional challenge.
If that were to occur and presumably between now and then as Doug said, we're very close in the final stages on the Army Corps, we would have been.
Everything we need to begin construction.
But we ended the third quarter.
If we're not successful in the.
In the the challenge and the real issue here I think everyone.
I say everyone virtually.
Anyone from a legal perspective.
Agrees with us that the referendum as drafted is unconstitutional, we had to reach put in in this case by former PSP you see.
Commissioners and chairman.
By the Secretary of state in the state of main who agrees that is unconstitutional by law professors by legislators. The issue is more around whats called brightness and should the court decided now or after the referendum, we believe that because.
The scope of the initiatives exceeds the legislative authority that it needs to get discussed now and determine now by the courts, but if they didn't do that and they waited till after obviously then we would have to challenge assuming we lost.
We would challenge it directly thereafter now we have a very active pack, we've been pushing really hard to make sure that consumers in Maine understand the benefits of the project and to correct quite frankly the misinformation.
Thats being spread about the project.
But because this project when it's all said and done is a win win for main for consumers in Maine for consumers in new England and for the climate the only people that losing this or the fossil fuel generators to scandal is 3 million.
Project comes online so we feel very strongly that that the referendum is drafted is unconstitutional and it's more a function of a timing.
With regards to when the courts will act, we think it's appropriate to act now which would allow us to begin construction by industry.
Okay. That's a wonderfully detailed answer and just to follow that up yes to reiterate yes. The decision is pushed out.
Is there a reasonable timeline for the ultimate decision and then your follow on action that can be projected or is it too hard to call at this point well I mean, I think the courts and these types of matters you. We've gone through a couple of different iterations here with the courts, whether it was on the original referendum and whether the signatures for approach.
Great or not and now with the constitutional count the courts Act on these fairly quickly events.
So if if we went through.
Election day and.
The opponents were successful.
Then I would suspect it's going to take three four months probably into there and.
To to go through the course once again.
Okay, great. Thanks.
I will say this I mean in terms of.
Of of commercial operation date, and the terms and conditions within our contractual our t. assays with utilities in Massachusetts, we have a lot of flexibility.
In terms of the date that the project goes cod. So this no risk of the project and that perspective.
And we still feel like even if we got delayed here a little bit that we could get this project online by the first half of 2023.
Okay, great. Thank you I really appreciate it.
Our next question comes from the line of Sophie Karp with Keybanc. Your line is now open.
Hi, good morning, and thank you for taking my questions.
Then its welcome aboard I think you like it didn't tragic and it's not that bad.
[laughter].
[laughter], maybe hard to believe in the temperature the as it is right now, but it gets better anyway I was just haven't Ike.
I want I wanted to see if you could help me with its high level question I mean, we live in the World where the he is GE is the common that buys worried entries in the right and a this is an election year, where this is a topic again and we've seen stocks that successfully implemented news just strategist.
To outperform and I think that Evan great. Trina has this amazing platform on which to build a story like that right. Considering your annual ownership. What do you think is missing or what is needed rather clearly sat here. So that this story is you know has the buying with investor incentives small.
That's all going forward. Thank you well, so well Sophie thanks for joining the call and I. Appreciate your your question from the S.G. side again that was one of the reasons that I was really excited about the joining on grid I think Scott as you mentioned.
We're already doing many of the things that other companies, which they could be doing and I think it's really about making sure that were coordinated internally that to as we think about SG and each of them are equally important.
That it's a filter at the front of our investment.
So that.
Yes. She is not just something that we report on the outside but that we're actually very deliberate about it.
Whether it comes to how we run our businesses from an environmental standpoint in the impact we have on on client on the climate.
As we think about the social aspects of our business and what we're doing.
From a you know engagements in community how we're.
Engaging our customers are part of our customers and our employees to support what we're doing and then obviously on the government side, making sure that we're leading edge on on governance issues. So I really think it's about coordination and then making sure that we can effectively communicate the story and.
<unk> understand what's important to the different groups out there now we're not planning to be everything to everyone. I think we want to be true to ourselves and it's consistent with the purpose of the company and the vision, but I'm hopeful that when we come to November you're gonna here, a little bit more about some of the specific projects and programs that we want to do and.
What we want to emphasize and this is a Ah. Yes. This is a movement as you mentioned that isn't going to slow down and I think given the business platform that often grid already has and our continued focus on new renewables and making our grid smarter to be able to except those renewables and to give color.
Tumors more choices I think that were extremely well positioned to to continue our leadership and do some new and exciting things on the SG front.
Thank you.
Thanks, Okay.
Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, good morning, and congratulation Dennis.
Thank you very much of the time excited work here.
Julien it's good to hear from you again in the I look forward to working with you.
Excellent. Thank you likewise, so alright, let me let me start from from.
Let me take the renewable side first when you think about the offshore business here.
Fish exchanges comp right.
Speaking about increasing your state can you talk about the context or why that might be the case why would they be asked differently why would somebody want to sell down after lunch and pharmacy gross.
Drilling you broke up there a little bit let me give a little bit of contacts to then I can hand, it over to Alejandro as well I think that given the projects that we have we're excited about them I. We think that offshore wind is definitely an area, where we can continue to be a leader and a at an investor and I think.
So with as Doug mentioned, we just got the word that New York is going to go forward as well. So we see this being a unimportant and growing part of our overall business as far as.
That being able to look at the potentially increasing our our ownership in the project that you mentioned I think whenever you do have good projects a if you can own more and it makes sense, that's something that we would take into consideration, but let me hand, it off to Alejandro see if he wants to add a little bit more color.
Thank you Denny, saying, Hello, Julien I mean, not much more color to add they test test rates rates, a would benitez Dccc said great project for US. We as you know we have said put a lot of energy into each one and we are seeing that she will be very successful project, we kind of comments on the reasons why you see a pea.
And my Tim any half and opportunities to pay off or fame and divesting into project. It actually these kind of discussion so on ownership I really not unusually neo filling industry across on projects globally US you certainly no.
Okay on table other than that and then can see thinking we talk previous messages, we would not to men keep more more specifics on M&A and actions.
Okay fair enough. Thank you guys.
Hi can take it back to a higher level here and talk about the business. Obviously, you guys are pulling back away from 20 guidance.
At risk of asking what the deltas are in the quarter.
What changed over the course of the quarter relative to the guidance that you had last go around obviously, we're getting more specifics on cove it but if I can ask for directly you had a new York rate case outcome and that seems to have how to delta relative to what you all work.
Projecting initially for your rate there can you talk about that New York rate base and potentially other deltas quarter over quarter here on at least what your earlier guidance was just to clarify.
I suppose the series out there by pulling away from guidance that there are other factors that might not necessarily be as transparent us that are driving that decisions I just want to try to get the clarity as best we can.
Julien let this is Dennis let me start that just got from a macro perspective than than handed over to Doug to add some more color. I think you know again, a day three I want to make sure that what we're putting out there for 2020 and beyond.
Our our numbers and and and plans that are that I can support that I understand that I'm comfortable with im confident in so that you can be confident and those as well and as we look at a both tailwinds and headwinds.
As you mentioned and as Doug highlighted in his script.
A lot of really good things going on now obviously, the new Yorker rate case.
We're very excited about the the joint proposal, but it's not final yet.
For the the co. Good situation, we're trying to provide you with as much detailed information as we know it.
But you know that's it's a dynamic situation as we read about every day, so I think that rather than spend a lot of time on.
What's the Delta was maybe to our previous guidance.
The real focus here is gonna be on execution on clarity on our forecast going forward and what we're going to be providing in November the dogs <unk>, obviously, if you want to add anything to them.
Yeah, I think that covers it well done it's.
In the first half I covered on on my comments some of the main drivers that impacted our results we had lower merchant pricing.
It was below our expectations, we had some delay in the in service date broader Creek and.
Some lower availability in the south region of renewables.
Financing costs were were a bit higher than we had expected because of.
This basically how the the market spreads blew out.
During the cold period.
And outside of that I'd say, there's really not a whole lot of.
Items further dimension, obviously with the New York rate case.
We're not in the first half achieving the the increase that we had expected.
But thats time, we expected by the end of the year that that wall get made up through the make whole and and rates becoming effective in November. So so those are a few of the items that I would just add to the denniss comments.
Got it excellent. Thank you guys just with regard to then joint proposal I know, it's not final Oh are you going to add something there Dennis.
Oh go ahead.
I was just gonna they can you earn your returns.
[noise] all run rates, you and again I know, it's not you know the inks not dry yet if you will but.
As best you see it now are you in a position to be able to earn out your back closer or add your optimize returns in New York, specifically as you look at the outlook and that again I'm I'm trying to pick your head here for the long term outlook in November.
But what I would say and Tony may want to jump in on this I think anytime you have a an approval by a commission.
Our goal is to to meet the authorized return and so we're going to be spending time here over the next several months Lucky in that what we may need to do and and change in focus to to be able to do that I know that in the past we've fallen short and there are challenges, obviously, but a win when it comes.
I shouldn't grants you an authorized return our goal is to to at least made it.
Yes. This is Tony Marone that Dennis I think said it well so oh, we fully anticipate the earning you authorized return once it gets approved I think the make whole provisions gives us a that look backwards here to be able as as Doug instead to be able to catch up and it's a matter.
Timing, but we feel good about our ability to be able are now longer term.
Excellent. Thank you all very much the time how fast.
Thanks Julien.
Hi next question comes from David Arcaro with Morgan Stanley. Your line is now open.
Hi, Thanks for taking my question and walking Dennis Thank.
Thank you David.
Head, yes, let's see I was wondering if if we could get your thoughts on expectations for the covert 90 kind of generic proceeding in New York, maybe your views on the potential pluses and minuses coming on to that.
Yeah, Let me, let me hand that over to Tony I think one other things, but I've been very impressed with so far as just the the focus by the company on the safety and the wellbeing of our employees I think the protocols that we put in place both for our employees, but also on how we.
Deal with customers has been very impressive from my perspective, let's let me, let me hand that over to that Tony.
Thanks, Dennis David and this is Tony Marone, So regarding the New York and Cobot impacts we were encouraged by that the preceding that New York regulators had put forward and we worked closely and filed with the joint utilities in New York combined comments on July 15th regarding.
Covidien Pacsun fairly extensive comments include there was 22 were 23 questions that we answered and we laid out the case for the impacts on.
Customers as well as the company and I really put it into three broad pockets here.
In terms of our ability to make sure that theres a full understanding.
The impact of uncollectible expenses are late payment fees, and then any incremental cost savings related to Colgate around some of the things that we've had to do that make sure that employees and customers are properly protected during this timeframe I think Doug mentioned earlier things like rentable vehicles in additional P.P. and and other sort.
As of things offsetting some of that are less travel expenses and so forth. So we've really tried to put all of this into that receding and in a way that commission can understand the impacts on the company and I'm customers. So that we can get a swift decision on this and so we look forward to participating in that proceeding as it goes forward.
Understood. Thanks, and do you happen to have any sense or expectation for the timing of when the company. She could could lay out a set of preferences and when that might impact you.
We don't there is no timetable established yet for a decision in this case, we are hoping in anticipating that that will happen before the end of this year, we think that thats important several perspectives, but theres not been it did a timetable yet there are a lot of parties in this docket and that tends to slow things down to some degree but are.
Sales and I believe along with the other joint utilities are fully engaged in this and we hope 80 soon to be able to have a more definitive schedule.
Okay got it that's helpful.
I was also curious if you could give an update on how you're thinking about F. Soda debt. This year with the latest coping Nike impacts that you'd laid out looks like a little bit more of a drag on the cash flow side. So what's your latest thinking there and.
And also the potential response or perspective of the rating agencies after the credit rating.
Sure, let's have that Doug touched them.
Sure. So just as a reminder, in 2019, we were it FFO to debt or Moody's metric is cash from operations pre working capital the debt we were at 16% in 2019, and we forecast for 2020.
Back in our.
Fourth quarter.
Call at 16.6%.
With the cobot impacts, creating some drag this year that that has put further pressure on that metric.
But recognize two that we also have the new York rate case that.
We expect becoming effective in the later part of this year and we'll see the full benefit of rate increases in 2021.
Likewise in 2021, we'll see the full benefit of the CMP rate rate case so.
There are some positives that.
Looking forward can have an impact.
That said Moodys.
Did take a rating action, where they have us on negative outlook for RP double a one rating.
So those are probably the bigger items that I would highlight for you there.
Hi, Nick has written thank you very much.
Thanks, David.
Our next question comes from Michael Sullivan with Wolfe Research. Your line is now open.
Hey, Ron Good morning, Dennis Congrats.
Thanks, Michael.
Just to start maybe just a follow on that that last question. There. So some Moody's has you guys on on negative outlook. Currently do you have any sense of it if they will act prior to you guys doing this this refresh in November and is there is there any need to potentially take action before then.
Doug, Yes, sure yet Moody's hasn't really laid out a timetable for us or further actions I think they more or less said that they'll continue to monitor on a quarterly basis, our metrics and.
So there's there's really nothing additional in terms of color that I I could provide on Moody's you there.
Yes, Michael what I with what I would this is Dennis what I would tell you is yeah I'm I'm planning in the next several weeks to to be able to speak with each of our credit rating agencies to.
Listen.
The them and a and share with him where where we think we're going in our expectation. So what's the work we want to get done.
By November so.
Hopefully, we'll have a little bit more information.
Okay great.
And on the I think in the prepared remarks. It was said a that that the bomb drastic yes seem generally a constructive Kim can maybe this for a longer. Okay. Can you maybe just give a little more color on what.
Specifically in there.
Looks good and kind of what gives you conviction that that the finally I guess comes out okay and things are able to continue moving forward.
Yes sure.
So I think in turn so see a healthy traffic to miss spending because our makes a big statement what makes us think that to it goes into right direction east and that each addresses say the key issue that was controversial then that's in may generate today delay second half of last year, which was around and it.
The layout well see a future wind farms. So now the whole area has been address not on not only just convenient area.
Hey on the outcome of fees and Tracy sets a proposal that the developers had say may push over a compromise on that's a coastguard had seen too and we approve it used to one by one notable Nio North South East West. These proposed to lease now in a supplemental a draft environmental impact statement.
On a look when you look at day mitigation is requirements each of the different scenarios at least one looks like a that most probable to be chosing. So this is something that it's really a really good for assets could you just going into right direction and then when you back to that to the fact that say after the in May.
A few weeks off in a public hearings and we have more than 85% a positive comments around the project from oil and kind of stakeholders and may all these together makes us really pretty comfortable and that's a we're really going into right direction in terms, what could that permitting blend continues to say that stay skates when they put out at the end of last year that.
Sure and we've had record decision in December this year and they are they're working towards Cetone basing they lose so can you needed so not only node and we're pretty confident that to now we're getting the right.
Great. Thanks, Thanks for that and I'm just last one maybe maybe for Dennis if you could just.
Talk at a high level about how you're thinking about.
The election, and maybe the potential implications of Bided administration.
Look I think as Ah you know as I talked about before when you look at what's going on with the U.S.G. investing and specifically a the gross and continued trends and clean energy I think we're really well positioned I think regardless of who wins the election.
I don't think this trend is going to do a reverse I think that we've seen in other countries that up with changes in administrations the demand for clean energy and for smart networks that continues to to increase and then I think that's.
What we're saying is that a lot of the clean energy policy is really being driven at the state level, where I think we've got really good relationship so regardless of who's in office, whether it's the white house or the capital House that New York, Massachusetts main or Connecticut, our job is to make sure that we're advocating on behalf of our our customers.
On the we're putting forward suggestions and ideas and solutions that are are part of the overall solution on addressing climate change and providing our customers with you know the energy in technology and systems that they need so I'm I'm bullish either way quite honestly, we'll let the people in Las Vegas decide whose.
Who is running ahead in the election, but.
I think for often grid.
This company couldn't be better position for the continuing energy transformation that lies ahead.
Thanks, a lot appreciate it.
Thanks, Michael.
That's a reminder, if he would like to ask a question. Please press star one on your telephone keypad. Our next question comes from Insoo Kim with Goldman Sachs. Your line is now open.
Thank you maybe just a.
It's a question on the renewables business for the quarter, what was the blended average price up for.
Maybe I guess, the TPS flush merchant, our pricing and for the balance of the year, how much or you're hedged on your friction physicians.
Thank you and sue for for joining US, let's let's Douglas why don't you start on that and if we need to add more color maybe I'll handle can jump in.
Sure so for the second quarter, the blended average price.
So this would be the PPA plus merchant.
Was $40 in 20 cents per megawatt hour.
And.
Thats down a bit from the first half of of 2019.
By approximately 12%.
And it into I think you had another question on top of that what was your second one.
Just on the a they merchant I guess, the non PPA piece or what type of hedges you haven't place for the balance of here and how much.
Yes, so when you look at the balance of 2020 as well as into 2021 were between the PPA and hedges were about 80% contracted in hedge.
So about 20% open position.
For for both periods.
And I think Doug we've got more of that information a detailed in our fac book as well right.
Hi, there no further questions in queue at this time I'll turn the call back over to Dennis Arriola for closing comments.
Well I really want to thank everyone for joining us today are not being too hard on me on my first earnings call I really do look forward to working with you all and and senior virtually I'm sure.
During the upcoming conference season here in the fall and if you have any questions. Please contact Patricia Michelle on our IR team. We hope you stay safe and you have a great day. Thanks, everyone.
This concludes today's conference call you may now disconnect.
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