Q2 2021 Avangrid Inc Earnings Call
Reconciliations of non-GAAP financial measures to the closest GAAP financial measures I.
I will now turn the call over to Dennis.
Well, thanks, Patricia and good morning, everyone. We appreciate you joining our second quarter earnings call low.
Hard to believe but yesterday was my 1 year anniversary at oven grid and I want to start by saying thanks to all of you for your support and a special thanks to those of you that provided me on the team with the candid and constructive feedback on how we can be a better company.
Over the last 12 months, we've worked hard to build a company that focuses on accountability and execution on developing goals that are realistic before on delivering results that are consistent with our commitments, while focusing on our customers on safety and continuous improvement on.
I'm pleased with our progress so far we still have a long ways to go.
And I am proud of all we've accomplished but even more excited for what lies ahead and I believe our first half performance is indicative of what our team can deliver when we're aligned focused and executing.
For the second quarter of 2021, our net income was $98 million up 11% year over year and our adjusted net income was $122 million up.
Up 25% year over year.
For the first half our total net income was $432 million.
32% year over year, and our adjusted net income for the first half was 476 million up 43% year over year.
Both businesses are delivering excellent growth.
Networks with bottom line results are growing at a double digit rate as we execute on our road to authorized ROE, while focusing on providing excellent service to our customers.
In renewables, we're pleased with our strong operating and asset management performance improved pricing and the availability of our fleet, which has helped to compensate for a weaker wind resource as compared with the previous year.
Based on our excellent performance in the first half and our outlook for the rest of the year, we're raising our adjusted net income guidance by 5% from the midpoint of our previous range of 696 million to $758 million to our new guidance of 730.
<unk> million dollars to $795 million for 2021 now remember this is the second time, we've increased guidance. This year since we raised our earnings guidance by 4% at the end of the first quarter.
With this most recent revision our guidance is now up around 10% from our original outlook we provided in February.
We're also updating our adjusted EPS guidance to a range of $2 <unk> to.
So $2.22 per share, which reflects the additional $78 million common shares 78 million common shares issued on may 18th which increased our weighted average shares to $358 million for 2021, and this compares with a $310 million reflected.
And previous guidance on prior results.
In addition to our strong cash.
In addition to our strong financial performance, we continue to execute on our strong on our strategic plan objectives in Connecticut, We finalized UI settlement agreement with regulators and other key stakeholders in New York recently passed legislation, which we expect governor Cuomo to sign.
Would enable on grid to proposed incremental 10 year storm hardening investment plans to increase resiliency.
In Maine, our new England clean energy connect our CEC transmission project is progressing well with construction ongoing on all segments and new Mexico. We are awaiting the final approval to our PNM resources merger from the New Mexico Public Regulation Commission all other approvals.
<unk> have been received.
In offshore renewables, we received bombs record of decision for vineyard wind 1 in the notice of intent for preparation of a draft environmental impact statement for Park City wind.
In onshore renewables, we contracted 210 megawatts of solar in PJM with the commercial and industrial customer and entered into 254 megawatts of contracts to reduce our on contracted capacity.
On the financing side, we successfully issued $4 billion of common equity in may at no discount, which removes the equity financing risks from the pending PNM merger transaction.
And as we look to build a green hydrogen future. We submitted several concepts for hydrogen projects nationwide as part of the U S Department of Energy's request for information to enable low cost clean hydrogen at scale. We see this as an additional opportunity for long term growth, which will leverage our existing assets and capabilities.
Abilities and the global experience of the <unk> growth.
Now driving further into networks on slide 6 we remain focused on safety customer service and operational excellence as we continue down on our road to achieve our authorized ROE at all of our utilities, we are making good progress across the board in each of our utilities and.
In Connecticut.
<unk> approved our settlement agreement in the interim rate decrease in rate adjustment mechanism dockets largely preserving the initial terms that we have to agree to with no change to our ROE or capital structure.
The agreement was the result of multiple key stakeholders coming together to bring rate relief and stability to <unk> customers for years to come and we're pleased to see them move forward.
In New York, we're implementing <unk> and <unk> 3 year rate plans and we're tracking towards earning the authorized ROE vs at both utilities.
Additionally, the legislature recently passed a bill directing utilities to create and implement 10 year storm hardening and resiliency plans outside of the rate case.
Bill, which we expect governor Cuomo assign will provide an important opportunity to holistically and thoughtfully planned from a long term challenges storms pose.
The plan will identify the right investments to enhance resiliency and to ensure reliable service continues for our customers.
In Maine.
<unk> continues to perform well on its customer service metrics and we expect to file to remove the 100 basis points adjustment later this year.
In addition, the findings of the management audit released last week Echo what echo that we've made real improvements in customer service, while identifying certain places where we can still do more.
We're committed to fully meeting our customers' expectations as well as those of our regulators.
We're focused on ensuring power is delivered safely affordably and reliably and making the investments main needs to meet its ambitious climate goals, while driving economic growth and creating good paying jobs.
Now in that vein, we're making steady progress on our new England clean energy connect project.
Construction is now ongoing in all parts of <unk> as the segment 1 injunction was lifted in may.
Our construction activities have employed roughly 800 mainers to date, which we expect to ramp up to 600 workers as construction continues.
We see any CEC remaining on track for <unk> in 2023.
Our team is doing a great job sharing the facts on the positive benefits of this clean energy project for <unk> and <unk> and we're seeing growing support from the unions business groups small and large and residents.
And across all of our need network utilities, we continue to collaborate with our regulators and customers on ongoing COVID-19 challenges on cost recovery.
But before we continue I want to recognize our networks teams great efforts responding to storms that impacted each of our northeastern states over the last 2 weeks, including tropical storm Allison.
Storm response is never easy and our crews continuous continuously go above and beyond to ensure service as efficiently and effectively restored to our customers while working safely.
2 are often grid teen your work makes a difference. Thank you from all of us.
Now turning to PNM resources on slide 7 the merger process continues to move forward with 6 of the 7 government approvals needed to close the transaction now in hand.
The New Mexico Public Regulation Commission is the only remaining approval necessary to close the merger.
Evidentiary hearings are set for mid August on the stipulated agreement among PNM oven grid and 13 other parties.
New Mexico's Governor Michel Lu Han Grisham has also expressed support for the merger agreement.
And while we're continuing to work with other stakeholders to have them join the stipulation agreement, we expect the approval of the PRC and for the transaction to close by year end.
Now turning to renewables on slide 8 we continue to execute on our long term plan by developing and converting our identified approximately 23 gigawatt pipeline into contracted projects and improving the overall operating performance of our existing fleet.
We have recently executed a PPA contract for our 210 megawatts solar project in PJM to be commissioned in 2023.
This new PPA is with our commercial and industrial customer.
Now 1 of the commitments we made in November at our Analyst day was our focus to Derisk, our asset portfolio by reducing the percentage of volume contracted capacity.
We're continuing to make progress on that commitment as we've signed direct sale contract for our 39 megawatt <unk> wind project in California, and during the second quarter, we executed a PPA on 254 megawatts of existing on contracted portfolio of capacity for the Blue Creek Wind farm.
In Ohio.
At the end of 2020, approximately 20% of our portfolio of capacity was on contracted and susceptible to market price fluctuations.
We're now on track to end 2021 at around 11%.
As for new capacity, we have 13.100 megawatts of solar and onshore wind projects for construction in 2021 through 2022 with 690 megawatts already under construction, including Roaring Brooklyn in New York with 81 megawatts Golden Hills.
Wind in Oregon with 202 megawatts.
<unk> Hill solar in Washington, with 194 megawatts and Montague solar in Oregon with 211 megawatts.
In addition, we've got 2.5 gigawatts of mature projects in our approximately 18 gigawatt onshore pipeline that will provide future growth and we're optimizing the value of our overall portfolio with the sale of the 780 megawatt development Solar project now.
Now as always we will continue to evaluate the strategic importance and the risk of the pipeline projects and optimize assets when it makes sense.
On slide 9 another exciting part of our growing company is our offshore wind business <unk>.
Robin grid is leading the emerging U S offshore wind industry, starting with the first large scale wind farm in the country, our 800 megawatt vineyard wind 1 project.
In May the Bureau of Ocean energy management or bone Gabe Vineyard wind the green light to go forward.
We intend to reach financial close and begin construction soon in the second half of 2021 to start delivering clean electricity to Massachusetts in 'twenty, 3 and reach full commercial operations in 2024.
We're really excited and proud to be a part of the birth of an incredibly important new industry for the U S.
Offshore wind is a key part of America's clean energy future and vineyard wind 1 is a major step forward to the clean and connected future, we envision and we work toward every day.
The project is progressing well, we have all major construction contracts with suppliers and contractors secured and we've executed a project labor agreement with the unions that we celebrated last week in new Bedford, Massachusetts, with Senators Markey and Warren as well as National climate adviser Gina Mccarthy <unk>.
Okay.
The approximately 500 jobs created with this will be a critical backbone for vineyard wind as we progressed through construction.
We will be using best in class technology from GE, where just 1 rotation of their Hollywood X turbine can power an entire Massachusetts house for a day, we will deliver clean energy to 400000 families and this is only the start.
For Park City wind are 804 megawatts contracted project that will serve the state of Connecticut. The Bureau of Ocean Energy management published its notice of intent to prepare an environmental impact statement, enabling the rod in Q3 of 2023.
We expect to start generating clean electricity from the project in 2025 and intend to reach full commercial operations in 2026.
And earlier this week, we celebrated the opening of our offshore wind office in Connecticut, and we were honored to have governor led Lamont in attendance to help cut the ribbon.
Operating revenue growth is also developing the Kitty Hawk offshore project, which has the potential to deliver 2500 megawatts of clean energy into Virginia, and North Carolina, We expect to receive the notice of intent for Kitty Hawk North soon and we're continuing discussions with potential energy off takers.
Now in total we have access to lease areas with as much as 7.5 gigawatts of offshore wind capacity, including our 50% share of the 5 gigawatts of lease areas supporting 1.6 gigawatts of contracted projects in the northeast and another 2.
1.5 gigawatt lease area off the coast of North Carolina, which often grid a wholly owns.
In terms of future opportunities, Massachusetts has released its third RFP for up to 1.6 gigawatts with bids due in September we.
We expect that this will be followed by more than 3 Gigawatts in Rhode Island, New York and Connecticut, starting next year.
We received more good news regarding our lease area of recently when volume granted an extension of the operations term for vineyard wind from 25 years to 33 years, starting at <unk> approval and alignment with the terms of the latest leases auction by bone.
The extension will also apply to park city and vineyard wind South.
And last month and supportive it's 30 Gigawatts by 2030 target. The Baidu administration proposed the sale of 8 lease areas in the New York volume with a potential capacity of approximately 7 Gigawatts final sale notice as expected after a 60 day comment period.
Now we expect to participate in most of these auctions, but as I've noted before we will continue to be disciplined in our bidding approach since we already have a significant footprint with our existing leases.
Now turning to slide 11, as we aim to aim to Decarbonize. This country on a large scale. We now we have to think bigger and bolder and continue continuously develop the tools we have in our toolbox.
Why we are excited to have submitted our responses from the department of Energy's hybrid hydrogen energy Earshot Rsi Earth shot AFI.
We see often grid is well positioned to be a leader in the emerging cleanup hydrogen space. Thanks to several unique advantages, which gives us a leg up on.
On the utility side, our operating companies have deep local knowledge and roots in the states and communities. We serve we have existing expertise as a leading renewables developer and operator nationwide and our colleagues at <unk> are already delivering commercial scale green hydrogen projects in Spain and the UK.
We expect to tap into the key learnings from these efforts to streamline the development process here in the U S and enhance our projects cost competitiveness and support of the Dod's goal to achieve a cost of $1 per kilogram by 2030.
Now the concept we provided to the low.
Envision hydrogen stretching from coast to coast and the northeast, we're looking at multiple applications for hydrogen ranging from transportation to manufacturing and industrial use to create what we call a hydrogen valley.
There may be opportunities to potentially leverage our offshore wind in CEC to power electric <unk> in Connecticut and in Maine.
The northeast States have a long history as industrial hubs and our proposal to build on these historic strength, while bolstering local investment and creating thousands of jobs that can thrive in a green economy.
Shifting out west we're in the early stages of an ambitious commercial scale project in Corpus Christi, which would convert our low cost, Texas on contracted wins into green hydrogen to support Green ammonia productions and industrial needs. Our aim with projects like this is to demonstrate hydrogen.
<unk> and value and to continue to further our country's domestic energy leadership.
And in Oregon, we're proposing.
Co locating green hydrogen production at our Klamath cogeneration plant.
This project would help create a cleaner sorts of grid resiliency and flexibility ability as klamath balance of the instrument in the generation from our northwest wind fleet.
So in total we expect these projects could deploy approximately 350 megawatts of electrolyzed with capacity to generate an estimated 30 million kilograms of clean hydrogen per year, reducing emissions by over 140000 tonnes of carbon dioxide a year now while these.
Projects are still concepts. They are part of our vision for green hydrogen as a viable clean energy fuel as well as a key avenue for future growth for Robyn grid in the years to come.
American innovation has always been a driving force for progress and we had on grid are committed to being part of the climate solution. It's who we are as a company and how we will continue to lead into the future.
We look forward to continuing to engage with the Doa and stakeholders in our states to make green hydrogen the next game changing technology like offshore wind.
Now I've said this before but our strategy and business model is grounded in strong environmental social governance and financial practices or ESG in F. <unk>.
Using these filters at the plant front end of our investment process is a better and balanced way to do business doing good by doing well for our customers employees communities and shareholders.
Amin grid is already an established leader on sustainability and good corporate governance with a track record of recognition from reputable third parties like Forbes and just capital where often GERD was ranked as the best utility for the environment and for communities.
Our best practices earned Ethisphere compliance later Vera.
<unk> and the world's most ethical companies award for multiple years.
Now last November when we set out our ESG and <unk> business model, we laid out our commitments on a number of areas, including increasing our renewables capacity.
<unk> scope, 1 carbon neutrality by 2035.
Lower on our carbon emissions promoting diversity equity and inclusion in our organization, increasing diversity and sustainability, among our suppliers and increasing employee volunteerism.
Since then we've been taking concrete steps to further articulate and progress on our commitments on goals.
We've introduced unconscious bias training for our leaders with a goal of making the training available to all of our employees by the end of the year, we're actively tracking our supplier sustainability and on identifying diverse suppliers as part of our procurement process and we're implementing our plan to reduce consumable energy usage and the Sidoti.
For our office facilities with a plan to upgrade and consolidate our workspace.
In May we also announced the appointment of our first Chief Sustainability Officer Zilkha Mcdonald zone that will help spearhead the achievement of these goals enterprise wide as we deliver on our aspiration to be developed leading sustainable sustainable energy company in the U S. Net.
Now you can find additional detail on our progress in the sustainability and ESG reports on our website.
So now I'll turn it over to Doug to take you through the financial results.
Thank you Dennis and happy 1 year anniversary with 100.
Morning, everyone and thank you for joining us today, turning to our financial performance for the second quarter and first half of 2021 I'm pleased to report spinoff on grid continues to execute well against its financial targets.
Moving on the great start we had in the first quarter.
We're making excellent progress on our plans to earn our allowed ROE.
And on our wind and solar PPA execution project construction and energetic availability.
In the second quarter of 2021, we produced net income of $98 million and our adjusted net income was $122 million.
Increases of 11% and 25% respectively from the second quarter of 2020.
For the first half of 2021 net income was $432 million and our adjusted net income was 476 million increases of 32% and 43% respectively from the first half of 2020.
Investment growth in our businesses was a key driver of our results in the first half of 2021, we invested $1.4 billion, an increase of 14% from 2020, which included $1 billion of investments in networks, and a little under $400 million of investments in renewables.
This reflects our continued spending to improve networks provide ability and resiliency and enhance the safety of our electric and gas systems.
We also continue to construct or any CEC transmission line to bring clean energy into new England.
In renewables, our spending was for the ongoing construction of the 1.3 gigawatts that will be in service from 2021 and 2022.
In our networks business on an adjusted basis, we earned $108 million from second quarter, a $26 million or 32% increase from 2020.
The execution of our planned investments benefited our networks earnings as we had higher capitalized interest in favor of $14 million on larger average construction balances, including any CEC.
The improvement in the quarterly earnings for networks was also largely due to the successful implementation of the New York rate agreements that we settled on the fourth quarter of 2020, adding $15 million.
Effective may 1st we entered great year, 2 of the New York rate plan further enhancing our quarterly comparison against last year, which largely excluded the effects of the New York rate plan filled a make whole was recognized in the fourth quarter.
The second quarter results were also impacted by higher personnel costs related to the successful implementation of our New York rate plans and higher depreciation.
In renewables adjusted net income for the second quarter also increased meaningfully.
We continue to construct on wind and solar projects and benefit from improvements to our operations and energetic availability.
On the second quarter adjusted net income was $41 million, an increase of $11 million or <unk>, 36% compared to 2020.
Key impacts in renewables during the second quarter included improved pricing of $11 million.
Earnings from successful thermal and asset management of $17 million Ptc's of $8 million in contributions from new capacity of $4 million.
These positive impacts were reduced by $19 million in the second quarter comparison, primarily due to decreased wind resource and unreimbursed curtailments.
Taxes also reduced the positive impact from the second quarter compared to the second quarter of 2020 by $11 million representing timing differences.
Finally, we highlight a 42% increase in renewables adjusted EBITDA in the first half year over year, which includes tax credits.
That's reflective of the increasing value of that business.
Our focus remains on achieving our growth targets by delivering high quality projects to produce our targeted returns and earnings accretion.
Moving to slide 15 in May we successfully completed the issuance of $4 billion on equity to fund, our PNM acquisition and ongoing investments we.
We're very pleased to complete this offering and a robust market at no discount to our stock price.
Moving the market risk in advance of our merger with PNM.
As we've previously noted this completes our equity need through 2022.
We completed the equity offering through 2 private placements that resulted in the issuance of slightly under 78 million shares.
We received a strong vote of confidence from IBRA Jolla, who maintained its 81, 5% interest in carbon grid shares with the offering and are quite pleased to add Qatar investment authority and outstanding New long term investment investor not on grid for the remaining 18, 5% of the shares issued at on.
Our investment authority EBIT, <unk> largest shareholder and is well aligned with <unk> and all the grids ESG plus our focus on strategy.
Since the equity offering we've seen all shareholders benefit with our share price outperforming the sector by roughly 190 basis points.
The equity offering proceeds were used in part to repay our $3 billion intercompany loan from Beaver drove removing a modest amount of interest costs with the remainder of the year.
And increased our total share count to approximately 387 million shares.
We've included on Slide 15, the weighted average shares outstanding that will be used for our earnings per share calculation throughout 2021 to ensure you have accurate share counts for future EPS calculations.
For the second quarter of 2021, our adjusted EPS after reflecting the dilution from the May equity issuance was 35.
Up 9% versus the second quarter of 2020 and for the first half of 2021, our adjusted earnings per share was $1.45 up 34% versus the first half of 2020.
Both the quarter and first half are up strongly when measured from an adjusted net income or adjusted earnings per share standpoint.
I'm moving to slide 16, we are pleased with our continued strong results from the second quarter and for the first half of this year, a reflection of our commitment to execution.
As a result, we are increasing our 2021 net income outlook from a range of $696 million to $758 million.
$700 million to $765 million and our adjusted net income outlook from a range of 696.
To 758 million to $730 million to $795 million.
Adjusted net income reflects the exclusion of mark to market merger and COVID-19 costs.
As Dennis noted second an increase in our outlook this year as our progress on the road the authorized ROE.
The execution of our renewables growth plans and our focus on operational excellence provide us with the confidence to raise our expectations for the year.
As a reminder, from our fourth quarter 2020, and first quarter of 2021 earnings calls our guidance had assumed an equity issuance to finance the PNM merger at the end of the year with our earlier issuance or increase the net income and adjusted net income guidance.
<unk> updated 2021, EPS and adjusted EPS guidance ranges of $1.95 to $2.14.
And $2 <unk> to $2.22, respectively.
As noted on slide 15. This is based on weighted average shares outstanding in 2021 of 358 million shares.
We continue to assume in our outlook for 2021.
The PNM merger will close at the end of the year.
The principal driver of the second increase in our outlook as our strong operational performance year to date.
We're seeing solid financial improvements through execution of our investment plan.
Lamenting our plans to achieve authorized Roe.
And improved energetic availability.
In our renewables business we.
We achieved a very modest interest rate savings and strengthen our balance sheet through repayment of the $3 billion intercompany loan from either Jolla with proceeds of the equity issuance positioning us well for the future.
Now moving on to our liquidity credit ratings financing and dividends on slide 17.
Our strong liquidity as demonstrated by our $2 billion commercial paper program, which is backed by a $2.5 billion.
Sustainability linked credit facility.
Additionally, <unk> has provided a $500 million credit facility. Another clear example of their strong support in addition to their 3 billion intercompany loan to often grid. So it was a low cost bridge to our equity issuance in may.
With the equity issuance, we now have a strong $1.7 billion cash position at the end of the second quarter.
We're committed to maintaining our solid investment grade credit ratings.
Im on grid has triple B, plus ratings with S&P, and Fitch and with Moody's rating action yesterday on <unk> rating with Moodys almost stable outlooks.
We believe our strong balance sheet and these ratings along with deeper drill as demonstrated support provide excellent access the capital needed to fund our strategic growth plans at attractive financing cost cost, including for our major projects.
We remind everyone that we have a commitment to green financing not only with the $2.5 billion sustainability linked credit facility supporting our working capital needs, but also with the issuance of $2.1 billion of green bonds to date, making us the number 11 Green bond issuer in the United States.
We've also disclosed that we plan to fund the PNM merger with an additional $700 million on debt and expect to reach financial close on our vineyard wind project very soon in the second half of the year.
Finally, we note that the board recently declared a quarterly dividend of <unk> 44 per share payable on October 1.
In summary, we highlight our strong earnings growth through the first half of this year is a testament to our focus on the execution of our financial targets and strategic initiatives.
Our primary objective continues to be executing on those plans to drive sustainable value as a leading sustainable energy company.
Thank you for joining us today with our update on our second quarter results and execution on our plans I will now hand, the call back to our operator, Stephanie for questions followed by closing remarks from Dennis.
Thank you as a reminder, if you would like to ask an audio question. Please press star followed by the number 1 from your telephone keypad.
And your first question from the line of <unk>.
Kim with Goldman.
Hey, good morning.
My first question is related to the PNM deal.
Congrats on getting the equity financing down in May and insight.
Got you.
It showed that you have confidence in the deal closing just hypothetically I'm curious.
Somehow the PNM deal doesn't go through as planned on what are some of the options.
That you would consider in relation to capital allocation with the equity that you're right.
Good morning, and so look we're not going to speculate because we are confident this thing is going to close I think we've got 13 different intervenors and have signed the stipulation agreement.
We're continuing to have discussions with the remaining 4.5 and I think we're continuing to make progress with at least a couple of them. So all indications are we're going to have the evidentiary hearings as we've said in the middle of August and with the support that we have and it's very broad support. We think this is going to go through so.
Rather than speculate what might be we're really focused on what we're going to make happen.
Got it fair enough.
Just a question on <unk>.
Sure when it seems like correct me, if I'm wrong that the park city wind CRD day.
I'll move back about a year.
Some thoughts on our clarity on the reason for that is it more just the timing of the bone permitting process or.
Potentially because of some considerations due to cost inflation that you're seeing.
Commodity cost side and just related to that.
Are you seeing the current situation.
On the sourcing costs.
I do get sustained impacting potential offshore return.
Well, let me start I'll.
I'll provide some color and then we can have alejandro.
And Doug jump in as well.
Specifically to just the overall timing, we don't really think about it as a year. We think about it is months as I said in my opening remarks.
Remarks, we expect to start Gen.
Generation electricity in 2025 and to complete.
<unk>.
We finished in 2026 so it.
It's not really inconsistent with what we had but probably a shift by months not a year. The other thing is it really does come down to the bombs schedule.
I think that we're being conservative here based upon the notice of intent that came out I think 1 of the things that gives us confidence that we're going to hit free. This again is because we were the first ones with vineyard wind we know how the process works they are comfortable with how we provide information.
And we've learned a lot and they have as well so.
I think the slight shift in timing, we're still looking for again generating electricity in 2025 and by having COPD in 2026.
On a 100 do you want to talk just a little bit more just about the process on what youre seeing there.
Sure. Thank you.
And so it may be the only thing I would add is debt.
We have on late June.
1.
On these projects that are in industries that are still in the early stages of maturation.
The Knights are normally compensated by additional maturity offset either the technology or local content. So in the case of parts CD any force mentioned.
We have received a notice of intent from Boeing but at the same time on specific backing up to seek more clarity on the overall process, but we think that demand plenty by FTE line will give us a better flow.
You get things done on time and also it's probably going to come back is much more certainty.
Being able to exchange units generation of buying debt previews.
Schedule, where maybe the types of volume model, we think that tragically benefits from these few months hopefully.
They pushed back.
And perhaps just on a follow up question I had on.
Commodity cost inflation in general I understand vineyard wind, having much of that Capex secured already what the cost, but as it relates to let's say park city wind on sort of the other projects.
How are you seeing the current environment potentially impacting returns or or when do you expect to get.
Secure solid.
Project costs.
The more future project.
On housing do you want to cover that.
Yes sure.
In the case of the wind that we said last quarter we were.
Very good hedging position in terms of commodity and currency and now this quarter. We are we have made good progress in relation to launch 2 next quarter. So right now we can say that.
Commodity te's almost hedged on 100% 3 states have very small part of that execute on hedged and then we tend to hedge prior to financial close and so.
I think the 1 <unk> in that case on part D. What I would say that's in commodity price evolution.
Hi.
And so we really don't know what the situation will be by the time, we have to fixed price based on all the procurement both price. So we don't Cvs at from each of them at this point on once we get a little bit closer to having 2 blocks.
Acknowledging on thanks for the Capex associated to the project debt.
Look at BCE in more detail.
But I think the other thing I'd add there is that's why we do add a I'd say a healthy contingency to this for the unknowns I think 1 of the things that is a benefit both park city as it will have the experience of having started the construction and really completing the construction of vineyard wind, which hopefully will give us additional.
Synergies and learnings that we'll adapt to park city so.
Alejandro said at this point in time, we're not concerned too we think we've got a really good project. We think it's going to move along and we will address the costs as they come in.
And Doug I would just add to Dennis that when we've talked about park city and as you mentioned, we're talking about months not a year's worth of delay.
The effect on 2025 on our outlook is not material.
As we put our outlook together 2026, we've always assumed to be the first full year of operation for Park City. So we only have a partial impact to the 2025 period and it is not material to our outlook.
Got it thank you so much.
So.
Your next question is from the line of Richard Sunderland with Jpmorgan.
Hi, good morning.
Maybe starting with the renewables project sales could you quantify the impact there either on the quarter or <unk> 21 guidance and give a little more color on the process.
Sure Richard Let me just tell you. This was part of as we look at our pipeline. We're always looking at the quality of the projects are they still too strategic to us are the more important to somebody else and this was something that we just decided.
More important to somebody else, but the financial impact was less than a penny.
And I'm sorry.
And I would just add as far as our guidance is concerned we didn't make any assumptions on asset sales on our guidance. So it's immaterial in both accounts.
Got it Okay, and then just returning to the financing comments on slide 17, <unk> laid out a little bit of incremental PNM financing could you speak to the rest of the containerization Kari, including any more equity this year on next.
Yes. This is Doug.
As we mentioned on the first quarter call Nothing's really changed in terms of our expectations for equity.
We did the $4 billion offerings, we're very pleased with the outcome of that we.
We feel like that satisfies our equity needs through 2022, and then as we look forward to 2023 through 2025, we anticipate approximately $2 billion of non debt financing that will occur in that timeframe that could come in the form of equity hybrids asset recycling any of that mix.
<unk>.
Got it thanks, James if I could just squeeze in 1 more the 2.5 gigs of mature projects that you spoke team you'll see those as like aiming at GTA. So could you provide any other color on those.
Let me start we will have Alejandro covered I can tell you that our folks are working hard.
With customers to turn those into Ppas there are on a lot of different stages.
But I think that 1 of the things that we're seeing because of the very public.
Publicity that we're getting on our offshore wind.
People are paying a lot more attention to us I mean, we are the third largest operator and developer of renewables, but I think with what we're doing in vineyard wind and the publicity we're getting in park city.
We've got some new players customers are paying attention to us. So we're urging our our origination people people to be out there as much as they can to start turning these opportunities into ppas with Alejandro.
Yes, the only thing I would add <unk>.
On that 2.5 gigawatts.
That are in either.
Short lease debt.
RFP sort of bilateral discussions.
Putting up about a 1 gigawatt of projects that are already in advanced negotiations and such and our long term plan. We are targeting around 800 megawatts per year of growth.
So we think that we are very well positioned to deliberate on debt long term plan.
Okay.
Great. Thank you if I could follow.
Thanks Richard.
Yes.
The next question.
Okay.
Okay.
Hello.
2 questions on that PNM.
1.
While the board composition.
You guys made a cash.
Thank you wanted to harm.
I think 40% of all of the directors.
On the hormone questions I think several percentage.
From the commission.
And so on and so how do you see debt and also secondly.
Assuming net net confection bark close can you give us some sense of.
Core earnings.
Earnings seasonality from TMR flu virus.
Incorporate just from the fourth quarter, earning the PNM and PNM barrels roughly what percentage of our malls.
PM on.
Is this Angie we Couldnt hear you broke up at the beginning.
Yes, It is Andy and Brian James.
Thanks, Thanks, Angie let me let me start on the first part of the question I think that debt.
As I mentioned in my comments, we've got 13 different intervenors that have signed on to the stipulation agreement. We're continuing to have discussions with the remaining 4 or 5 of the 13 debt have signed on the.
The composition of the board has not been an issue they have been very comfortable with the commitments that we've made.
Whats youre, referring to is day.
I think a desire from the staff, but we're having discussions with them about this to better understand why they believe they need debt given the commitments that we've already made in the stipulation agreement, but Bob you may want to just give a little more color on <unk>, Bob how are you.
Just echo what Dennis said, we have strong support from 13 folks that have signed on to the new.
On the joint proposal, while we have another 3 that provided testimony they still have some concerns but not related to this issue on the majority of independent board and when we look at the SaaS comments in their areas of concern. We think there are ways to address those maybe not necessarily directly to an independent board, but we will continue to work with the parties.
Yes, I would just add from a seasonality standpoint.
Really the fourth quarter is 1 of the smaller quarters for PNM.
The third quarter is really 1 of their bigger drivers for the earnings throughout the year.
Okay. Okay. Thank you thank.
Thanks Angie.
Your next question is from the line of Michael Sullivan with Wolfe Research.
Hey, Ron Good morning, Good morning, Michael.
Wanted to start off with just the guidance update a couple of moving pieces there but.
If I just tried to normalize things you guys went up.
<unk> last quarter, and then if I look at on the old share Count went up another 10.
This quarter.
And then you also talked about a 27% Europe benefit in Q1 last year.
Am I thinking about the moving pieces right here or are there. Some other assets. So that's just kind of ignoring the equity issuance.
Michael Let me start I think if some people have asked on an apples to apples basis, what is the increase in guidance look like and the non.
I'm using the same math that you guys are looking at but if you would have taken the mid point of our prior adjusted earnings forecast.
$727 million and used the 309.5 shares as the denominator that gave you the prior guidance midpoint of $2.35, and then if you look at the guidance midpoint of our new adjusted income of 763, roughly using again on a pro.
Form a basis to 309.5 that gives you a pro forma EPS of $2.47, So we're really increasing at about <unk> 12 on a pro forma basis from.
From where we were previously.
As far as the Doug do you want to jump in on the second piece there.
Well, yes, I guess, maybe just the translated also to adjusted net income, which gives I think that's maybe an easier way to think of it with the earnings.
As opposed to the share issuance.
We've got a combined increase in our guidance midpoint of roughly $66 million.
The impact of the.
Texas event was above that if you look at what's happened in the first half of this year I would say that the wind production.
Really has been roughly 2 percentage points below.
Last year, and Thats really been I'll say the drag on on our.
Outlook.
For this year and why we're not seeing the full benefits.
Thus far the Texas weather event.
I think Michael if you look at the fundamental business, but specifically on networks, which is still the predominant piece of on grid, we're doing really well the team is continuing to progress on our road to authorized.
We're doing very well and in implementing the new rate plans in New York that were approved in November we like the momentum that we have in Connecticut with our settlements and we're seeing in our customer service metrics continued to perform extremely well in Maine, So I'd say that.
With what's going on in networks.
What's happening in renewables, adding the capacity and getting increased.
Fact of this out of our existing operating fleet.
We feel really good about the first half and we feel really confident about the second half based upon those factors. There isn't 1 single thing that really drives us and I think thats the benefit of having a diversified portfolio not just within networks.
On renewables, but it's for all the all the moving pieces working together are working nicely.
Okay.
That was actually 1 thing I wanted to follow up on was you guys referenced a couple of times improved energetic availability at renewables.
Can you just give a little more color on that particularly.
As Doug just mentioned when production is actually down year over year. So just any more color on.
What you guys mean by that.
Douglas.
Yes, I can start and Alejandro feel free to jump in but.
We think of energetic availability is.
Is the resource available to operate as the Windows.
Blowing and if we look at it year over year, we're up above.
About.
<unk> 7 percentage points, so we've seen meaningful improvement.
Year over year, and all of that translates into additional production capability. So we're very focused on the operations and being as effective as we can with.
Being able to generate as as the win.
This low yes, while we can't control the wind, we can control and influence our effectiveness when the wind does blow and I think that was another reason why in Texas, we were able to take.
Advantage of the situation and be able to provide power win when customers really needed. It because we were able to hit our machinery up and working and our teams did a great job there and they continue to get more juice out of our existing portfolio.
Okay. Thanks, a lot I appreciate it.
Thanks, Michael.
Your next question is from the line of Sophie Karp with DCM.
Hi, Good morning, and thank you for taking my question.
So questions.
Morning.
First on the New York Legislature part sales potential for increased <unk> spend on.
Curious if you clearly it's early days, but I am curious if you have sort of.
A host of projects that you already contemplating that could fall under the purview of debt.
And talk about what type of rate case or is that something that you would have to both in the drawing board and develop once that becomes a reality.
And what that will be project, yes.
Let me turn it over to Katherine, but I can tell you with a company that has a lot of engineers theres always a lot of great ideas that don't necessarily make it into the rate cases, and they are always looking to see what they can do to improve the overall effectiveness on resiliency of the system. So I can tell you we're not starting from scratch.
But kathryn thanks, Dennis on high scarcity.
First of all let's talk a little bit on that timing.
We anticipate net we will debt.
Net regulatory authority needs to promulgate from regulation and we anticipate we'll we won't be filing anything with the commission until.
2020, <unk> at the earliest and of course, we're already in a rate plan right now.
Net new <unk>, not being able to go into effect until 2023.
Being said, we are definitely planning right now and thinking in the future.
Storm resiliency types of matters that we can make let.
Let me tell you. This year has been a tough year for many of our customers in the New York area, where we have seen a lot of storms coming through and we know from experience that if we build resiliency into our system that can really help with restoration effort.
And it can help minimize the number of outages to we're examining things like increased automation on our grant.
We can reduce the number of customers that are impacted by any 1.
<unk> outage.
And we're looking at other types of investments that we can make but these are.
Really appreciate that European John because theyre looking at the long term here.
We will be filing with the commission will be looking at a 10 year plan for resiliency expenditures.
<unk> cost from the legislation will be able to be recovered outside of rate cases to the extent they are incremental to our rate case filings and there'll be recovered through a tracker mechanism.
Thank you.
And then my next question was on hydrogen.
And again early early days, but could you maybe give us a little more context on what this means I think I heard dollar per program, maybe I misheard, but.
Or does that translate into in terms of the cost of energy on narrowband, maybe compared to the storage system seekers or offshore wind debt.
That is currently in existence.
Yes, it's a good question and I will tell you that we are on the early stage, what we're looking at and it really depends on the project.
And who the off taker is going to be how they're going to use it what fuel source. They may be replacing so there isn't 1 easy answer there I guess the real takeaway here is there are customers that are interested in using hydrogen not just because it.
It's a clean fuel, but I think that with the support that we expect to get from.
From the Doe and other agencies to be able to drive down the overall cost it's going to make them more competitive and if you just look at in the in the Gulf area, where a lot of the chemical producers are they use a lot of natural gas today.
And we support the use of natural gas, but as they are trying to decarbonize their fuel sources hydrogen is going to be something.
Something that they use going forward. So we're working on on things like that.
Awesome. Thank you.
Your next question is from the line of Peter Gordon of music.
Hi, Thanks for taking my question Dennis happening on here. Thank.
Thank you Sir.
On China.
I, even got a K.
Sure.
Yes.
In regard to the adjusted net income guidance.
Obviously, you increased to 31 in Q1, and then 36 here in Q2, just trying to understand the breakdown of how much of that is renewables vs networks.
In the aggregate for the year and then secondly, how much of that is setting up as.
As a base to grow off into 2022 or is there an offset to be thinking of.
And our storm Bernie that debt.
Just to be aware of that brings that back down.
Yes, Peter were not going to break it down between.
Network said renewables, but I will tell you though is in.
Doug went through the details of both of our businesses are really performing well, we like what's going on from the investment side in networks.
Especially as it's driven by the New York rate case.
We like the progress, we're making to improve the return from an ROE perspective at all of our utilities and what we said in November and knock on wood.
We're tracking to this is that the 2021 would be the year, where we narrow the gap on those utilities, where we werent fully earning our authorized Roe.
I like the direction, we're going in and for 2022 and.
We see that continuing to improve.
From a renewable standpoint, we've got capacity coming on as Doug mentioned, the energetic availability is continuing to improve.
Wind hasnt been our best friend here, but when there is when we're taking advantage of it so I'd say that both pieces of our business are performing well and then as we prepare to add PNM.
We will have a full year of their earnings in 2022, so without necessarily breaking it up by segment of where that growth is coming from I would tell you it's coming from from all parts of our business and we're excited about having PNM joined us as well.
Okay Fair enough and then just in regard to 2022, just the guidance you had previously rolled out it was $2.36.
260 day, that's still holds.
We gave that out in November and we talked about it at the end of the year and we're not going to be updating guidance at this point in time, what I can tell you is we like the direction that we talked about in November of having 6% to 8%.
Bps growth over that 5 year time period, and there is nothing that we see today.
Including.
On the trajectory through 2022 that tells us that we're not going to be able to meet that.
Okay. Thank you.
Thanks, David.
Your next question is from the line of David <unk> of Morgan Stanley.
Hey, good morning, Thanks, so much for taking my question.
Wondering if you could just briefly touch on central Maine power, maybe first on the audit and how you expect that to play out from here in the regulatory arena.
Secondly on the recent efforts to municipal line.
Would you consider that to be done at this point or do you think that could be follow on efforts in the state to moving that direction.
David We appreciate your comments, let me add Catherine jump in.
I think what I'd start, though with the audit.
And to a certain extent that was backward looking but I think that there was also a lot of our recognition of the improvements that we've made.
<unk> management and processes and our focus on customer service so to a certain extent the audit was a validation of the things that we've been focused on and kudos to the team I'd also said that there are certain areas that we can continue to.
<unk> bought and we're focused on those that Kathryn sure. Thanks, Dan.
Let's start I'll start with the government controlled power.
Legislation now, but just from history that this process has been going on for a couple of years been driven by a couple of legislators and last year. In fact, the legislator agree at more steady needed to be done given the real risks and potential cost to customers in Maine, but new steadying width perform so when they came back and.
Reintroduced legislation this year.
We went back and forth. We competed in that was passed but ultimately on the and we're glad that come from our mills each of the legislation on recognizing that there are some real questions about government control power for mainers.
He has significant potential cost with up to $13.5 billion.
Years of litigation and really no improved reliability for customers in Maine on the reliability from CMP has the same or if not better reliability than other heavily fourth in use and consumer utilities.
And on affordability, he's got the lowest rates in new England.
And we don't see that moving to government controlled power is a benefit and a good thing for me interest in taxi that theres a lot of problems there.
Thats the Genesis point on the audit we were great.
Grateful that the auditors recognized our significant improvement on on customer service as well as on some reliability, but that's where we're focused we're focused on remaining committed to our customers in Maine.
And remaining committed to net improvement.
Making the right investments to improve our brand with vegetation management animal guards automation. These improvements are going to take some time, but we know that.
That's what we are committed Q4, our customers 1 of the things that we're also doing is we're instituting some customer listening counsel all throughout all of our service territory and make sure that we're getting closer to the blades on our customers and then as counsel to be made up on a broad swath of different kinds of our customers for us to really.
Listen to our customers the feedback, they're giving us and also to work with Dan can talk about the way that we are looking towards improvements in our system to balance the reliable face increasingly clean and affordability for our customers. So this is I think that we're going on.
The focus on.
As we think that government controlled power issues in Maine are likely to continue to be a permanent compensation inmate.
Legislators potentially looking for on a referendum in the future. We know our best day is to make sure that we're focused on our customer and our reliability improvement.
In helping mainland spring that cleaner affordable energy future.
Great. That's helpful color. Thanks, so much.
Thanks, David.
And your next question is from the line.
On the line Smith with Bank of America.
Hey, good morning, James Thanks for your time.
Welcome.
Absolutely.
Wanted to clarify a couple things here if you don't mind. So first on the guidance. If you can just go back here.
Very very quickly here, so I hear the puts and takes in some respect I just want to make sure I'm hearing that right. So clearly the bulk of the increase here related to the onetime benefits from taxes.
With a slight offset in the context of wind being 2% below performance is there any change to the underlying networks business here I just wanted to make sure as you think about the composition of the updated net income guidance here.
Well, let me start by when you talked about the onetime, Texas, we've got facilities down there and they.
They were on contracted a good portion of them and therefore, there were available to be able to produce.
Wind and profits during these time periods. So I wouldn't necessarily say, it's 1 time I think it's a fundamental part of our business. We have said that we're looking to reduce the amount of on contracted capacity because I think that will help us with investors as we talk about the sustainability and predictability of our earnings.
But I think that when we look at the overall business on specifically on the renewable side of.
Things are going well there from a network standpoint, we touched on the fact that we're executing very well the New York rate plans, we're continuing to focus on improving our cost and our effectiveness, which leads to us narrowing the gap on the ROE.
So I think that again I don't think Thats 1 thing that says Hey, This is why we're confident in increasing our guidance for the rest of the year, but it's really that the business is how many people are performing.
We've got some tough challenges every now and then with wind and even with storms, but I can tell you I'm really proud of the way that people have.
Altogether in focus and that gives that's what gives us the confidence to raise the guidance in the second half of the year.
When you say, it's not 1 thing it's not just the renewable business are contributing to that.
That's correct I think if you look at the networks business.
And as part of this is.
It's consistent with what we expected from the New York rate case, but also the improvements we're making.
All parts of our business and whether it's in Connecticut.
Whether it's in Maine.
So I would say the preponderance of our business is still networks networks helped to drive the overall stable growth that we have and that's what gives us additional confidence in the second half of the year.
Excellent. Thank you and then if I can pivot to the balance sheet and Brees here, obviously Moody's made their accident here, but curious on reconciling the numbers here I know theres been a lot of different figures floating around but you all talked about 14, 5% voted.
Total debt as the target here across your forecast period, they talk about it declining down to 13% in 'twenty 2 and then moving subsequently a little bit higher from there can you talk a little bit about how this how the balance sheet health compares versus when you did the PNM deal and relative to the initial analyst day guidance.
There's been a meaningful shift.
Yes. This is Doug Julien I would say theres really not a meaningful shift.
We're looking at as the outlook.
This goes back to our Investor day, we were saying we target <unk>.
<unk> thousand 14, 5%.
Over to the guidance period, and Thats really I would say in the middle of what this updated rating is from Moody's I think they're.
Theyre downgrade threshold is 13% their upgrade threshold is 16%. So we're right in the middle of that.
Stable outlook from here, so I feel like we're on solid footing with all the rating agencies with this latest update and well positioned for financing our growth going forward.
Right got it so the point is.
Not looking to get back higher what have you <unk> 2 works with you and still intact mid $14.5 range.
By the end of the forecast period.
Yes, and I would just remind you so really Moody's is the outlier at this point we have.
Triple B plus ratings with S&P and Fitch. So it's really a split rating at this point.
Yes, understood excellent well best of luck. Thanks for your time.
Thanks Julien.
Youre welcome.
And at this time there are no further questions I will turn the call over to Dennis Arriola for any closing remarks.
Well look we really appreciate everybody joining us today.
Look we've come off another very successful quarter to close the first half of the year and I want to make sure that I think again our team here at <unk> for their continued efforts to serve our customers to deliver results and to further our ESG enough leadership, thanks to our team ICR and greater becoming a stronger and better company each and every.
Day, with an attractive business mix compelling growth opportunities in close alignment with federal and state clean energy policies and priorities as we move forward, we're driving customer service execution and consistent results to make everyday better for our customers our employees and all of our different stakeholders and that's why we're focused on the spin.
<unk> excellent that that's what it's going to take to become the leading sustainable energy company in the U S.
This before 1 quarter doesn't make a trend, but now we have some momentum of delivering strong results over several quarters. So having said that I know that we still have a lot of work ahead, but I would tell you I'm confident the best is yet to come. So if you have any other questions. Please follow up with Patricia Michele.
Thanks for joining us and stay safe and have a great day.
Thank you. This does conclude today's conference call you may now disconnect.
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