Q4 2021 Avangrid Inc Earnings Call
Okay.
Hello, and welcome to Vanguards fourth quarter, and full year 2021 earnings conference call.
I would now like to hand over to our host Michelle Hudson manager of Investor Relations. Please go ahead.
Thank you Elliot and good morning to everyone. Thank you for joining us today to discuss <unk> fourth.
Fourth quarter 2021 earnings results presenting on the call today are Dennis Arriola, our Chief Executive officer with respect to opt out.
Chief Financial Officer, and also joining us today will be Bob.
Deputy Chief Executive Officer, President of outbound grid, Katherine Jenkins, President and Chief Executive Officer.
Jose Antonio Miranda co CEO , Who's President onshore Bill White, co CEO , and president offshore and Doug Stuver, our outgoing CFO .
If you do not have a copy of our press release or presentation for today's call are available on our website at www.
During today's call, we will make forward looking statements within the meaning of the safe Harbor provisions of the US Private Securities Litigation Reform Act of 1095 based on current expectations and assumptions, which are subject to risks and uncertainties actual results may differ materially from our forward looking statements if any of our key assumptions are incorrect or.
Because of other factors discussed in oven grid earnings news release, and the comments made during this conference call. The risk factors section of the accompanying presentation on our latest reports and filings with the SEC each of which can be found on our website. We do not undertake a duty to update any forward looking statements. Today's presentation also includes references to non-GAAP financial measure.
You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures. The closest GAAP financial measures I will now turn the call over to Dan.
Well, thanks, Michelle and good morning, everyone. We appreciate you joining us for our fourth quarter earnings call, Let's get started with a review of 2021, beginning on slide five.
Our nearly all accounts 2021 was a banner year for ion and grid as we successfully demonstrated that by focusing on execution and building a culture of accountability, we can deliver on our operating and financial commitments. In 2021, we finished the year with net income and adjusted net income up 22%.
25%, respectively above our 2020 results. In addition to our strong consolidated financial results each of our individual business segments delivered as well our networks adjusted net income increased 16% and that renewables adjusted net income was up 48%.
Even with the impact of our equity issuance in May <unk> adjusted earnings per share rose, 8% compared with 2020 to $2 18.
Sure.
This success was mainly driven by our strong operating performance and customer service and networks, which represents over 80% of our earnings in renewables, we delivered in critical growth areas such as offshore wind by completing the financing and then commencing construction for vineyard wind one our 800 Mega.
One joint venture.
In December we were selected as a winner for our largest offshore project, yet, but one two gigawatt award for Commonwealth Wind. In addition, we advanced construction and continued improvements to our fleet energetic availability in onshore wind and solar.
Additionally, we were able to raise $4 billion in equity at the market price without a discount which strengthened our balance sheet and helped to fund our growth plans as we continue to work to get the final approval for our merger with PNM resources.
I'm also proud of the op and grid is continuing to be recognized by multiple organizations for our ESG and Apple leadership. So needless to say 2021 was a strong foundational year for Robyn grid from which we will continue to build and grow.
Turning to slide six.
At our last Investor Day in November 2020, we told you that operating grid was boy just focus on the basics.
And improve on how we served our customers.
In networks, we made great progress in 2021 with a record investment of $2 2 billion and an increase in rate base of 9% to 11 7 billion.
A major component of our improvement has been our renewed commitment to the customer experience, we've reduced call handle times and expanded services like E billing to more customers increased our customer service contact satisfaction to over 90% and thanks to our customer service teams, we secured over one.
$100 million.
And government assistance to help support customers in need.
In Maine, we turned the corner on our customer service challenges and now under the leadership of our new Central Maine, Our CEO , Joe Purington, we're focused on the present and the future not the past. We're pleased to report that last week, the Maine Public Utilities Commission removed the 100 basis points.
ROE adjustment imposed on CMP as they recognize the consistent improvements we've made and moving forward, we're redesigning our overall customer experience and improving our communication channels. So that our customers can interact with us in a seamless way.
In addition, we've increased our proactive planning for storms using data analytics and increased positioning of crews to respond more effectively when we do get impacted by mother nature.
As a result, we reduced the number of customers impacted by outages in 2021 by 22%.
Now we were also supported other utilities across the country in their time of need and our dedication and hard work were recognized by our National trade group.
Hi.
In 2021, our team in New York continue the work of implementing the rate plans that were approved at the end of 2020, we're starting to see the results not only in improved operations, but also on the bottom line, New York makes up about half of our rate base and with our focus on our new investments we started to see.
The gap in earned ROE improved by approximately 50 basis points, but we still have more work to do.
Turning to onshore renewables, our focus on operational excellence and getting back to basics has substantially improved our wind and solar fleets energetic availability to over 97% in 2021.
This focus is what enabled us to successfully meet customer needs during winter storm urea in Texas last year.
In 2021, we also delivered 386 megawatts of new wind and solar projects and currently have approximately one gigawatt of projects in construction.
And we continue to enhance the value of our onshore business by executing contracts for 210 megawatts of solar and 39 megawatts of Rex.
2021 was truly a monumental year for our offshore business as we became the first company to cross the finish line for permitting a commercial scale offshore wind projects and completed the financing.
As a result, we're now constructing constructing vineyard wind, one which will become the first major offshore wind project to deliver clean energy to U S standards.
We closed the year on a high note with another win for our orphan grid renewables team of one two gigawatt award from Massachusetts for our Commonwealth Wind project, making that both the largest award for US today as well as the largest offshore wind project in new England.
And last week, Prisma and group announced that it was build the first offshore wind manufacturing plant in Massachusetts, bringing hundreds of new jobs to the state and transforming a former coal power plant site into a clean energy hub.
This was part of Avon grids proposal for Commonwealth win.
And we continue to make progress on park city wind and phase one of Kitty Hawk with bone launching the environmental review process for both projects.
Now we did hit a couple of road bumps in 2021, and our PNM merger application approval in new Mexico, and with the SEC referendum in May.
However, we remain committed to working towards a successful outcome for both important investments we've extended our merger agreement with PNM resources to April 2023, and we filed an appeal with the new Mexico Supreme Court.
In Maine, where challenging last year's unconstitutional referendum, we truly believe that.
These efforts, but they are a win win for both of all of our stakeholders with PNM, our merger would bring at least $300 million of benefits for the state of New Mexico, while <unk> would help bring much needed energy cost relief and stability to new England at a time when families are struggling with rising energy prices.
Turning to slide seven.
I want to spend a couple of minutes on our focus on continuous improvement.
In early 2021, we launched our everyday better continuous improvement journey and from the very beginning we wanted to do this to be we wanted it to be about improving and making it easier to do business every day at all.
For these improvements to be sustainable over the long term they can't just be driven by senior management and outside consultants.
Ideas and changes we've implemented are driven and owned by our employees. This includes a range of opportunities, including process improvement, creating capacity and our teams increasing revenues and reducing low value activities.
And when we do all these things right, we see the results in health and safety higher employment.
Employee engagement increased customer satisfaction and improved financial results.
We're very proud of what we accomplished through everyday better in year. One we successfully delivered between 40 and $50 million in value with approximately $30 million pre tax falling to the bottom line.
In addition, new capacity has been created that can be re prioritized to critical activities. We're reinvesting in the business and we're addressing cost avoidance in 2022, we expect to see further improvements in how we do business and even more value creation.
Let's now turn to our 2022 priorities starting on slide eight.
This year, we plan to invest approximately $1 $9 billion in our networks business base.
Basically bread and butter investments to continue improving our operational effectiveness as well as safety reliability and overall resiliency in our system, including our investments in New York.
We will continue to strengthen our relationships with state and federal agencies in 2022, and we have multiple initiatives underway to resolve open regulatory matters.
In renewables, it's all about signing market based ppas with our customers and continuing to build out our portfolio on time and on budget with a target of about $1 $4 billion and investments in.
In offshore wind will continue constructing vineyard wind, one and hitting our key project milestones, including the start of offshore construction, while advancing the development of Park City wind Commonwealth wind and kidney heart.
We will remain focused on prudently managing our balance sheet and credit metrics, while actively exploring alternative funding options, including partnerships and asset recycling for investments that may no longer be strategic or may be more valuable to others in the market.
Now given the continuing supply chain challenges and inflationary pressures, we will stay focused on our supplier partnerships and leverage the purchasing power and global scale <unk> procurement group, where it makes sense.
And we will continue to push forward, our legal challenges to deliver successful resolutions in our PNM resources merger and the <unk> project.
In addition, we will continue to implement our everyday better journey to generate incremental value of at least $30 million in 2022 with approximately $15 million to $20 million pretax expected to fall to the bottom line.
But make no mistake about it 2022 continues to be about execution.
Now slide nine provides a high level summary of where we're focusing our $1 9 billion in investments at networks. In 2022 again. This is really about continuing to make our energy systems stronger safer and more reliable while also beginning the rollout of our advanced meter infrastructure in New York.
And about 80% of the investments will go to the electric side of the business and just over 20% of gas distributions.
And the results will be roughly 8% increase the total rate base by year end to $12 7 billion.
In onshore renewables on slide 10, we continue to focus on constructing our roughly one gigawatts in projects scheduled for.
This year and in 2023, while mitigating supply chain and inflation pressure.
With product availability impacting the entire country as well as our sector, we're managing supply chain challenges as effectively as possible.
Wind projects are contracted for supply through 2023, and our solar modules are contracted for our projects under construction with Cod's in 2022 and 2023.
We still however needs to stay focused and work with suppliers to ensure the actual availability of the product, that's where we try and leverage <unk> purchasing power to help further manage risk.
As for our offshore wind priorities on slide 11, we will continue to focus on building vineyard wind, one and hitting key construction milestones and as a reminder, basically all of the supply chain elements have been contacted for vineyard wind one and the labor cost for the project are either fixed forecast.
Development of our other major projects continues to go forward and we expect to have the Commonwealth wind Ppas completed by the end of the second quarter in 2022.
We believe strongly that our affiliation with <unk> is a competitive advantage in the U S offshore wind business and we plan to continue leveraging their experience and resources as appropriate.
Now turning to slide 12, I want to focus on the value creation that takes place in the offshore wind development lifecycle.
Now that we've closed our strategic offshore wind restructuring and I'll speak to that in a little bit more detail on the next slide we now directly control $4 nine gigawatt of offshore wind potential along the east Coast. This includes two four gigawatts of projects in new England of which one two gigawatts is.
Fully contracted and another one two gigawatts is in the contract negotiation process.
And also two five gigawatts from our Kitty Hawk lease area more easily deliver incremental.
So value and future growth and to fully capture the value of it.
Of our offshore wind investments.
This economic value.
It will be realized over the lives of life of the assets, but may also be realized in part as we determined the optimal financing structure for these investments, including partnerships, which could then generate.
Additional gains to those we are reporting in Q1 2022.
You can see the development timeline here, which starts with the acquisition of the lease area. This is one of our competitive advantages.
An early mover in offshore we have lease areas, which are undervalued on our books based upon current market prices.
We then move through permitting continue with financial closing for construction and end with COPD.
Advancing through the development process reduces uncertainty and increase in portfolio value.
As you May as you move to the right it not only reduces the project risk.
So it increases the value, but it also makes it easier for new potential partners to participate in our deals. There are various potential partners don't want for example, PPA or permitting risk, but they're able to pay a higher valuation premium for our piece of the project once those development steps have been completed.
Now that we solely owned and controlled four five gigawatts of our total $4 nine gigawatts offshore portfolio.
Oven grid controls its own destiny in terms of when we bring in partners to monetize our projects and reduce capital requirements.
I don't believe that this optionality and incremental value is fully appreciated by the market and reflected in our stock price and we need to do a better of explaining it however, the restructuring agreement and the resulting gain in 2022 clearly demonstrates part of this value.
And speaking of value creation, let's turn to slide 13, and spend a couple of minutes on our recently restructured joint venture agreement with BNP.
As a result of the restructuring agreement, which closed in January 2020 to where now the sole owner of 232 megawatts Commonwealth Wind and 804 megawatts Park City Wind project in Massachusetts, and Connecticut, respectively.
We continue to maintain a 50% interest in the 800 megawatt vineyard wind one project under construction.
This strategic restructuring increases often grids offshore wind pipeline to two four gigawatts of new England, making us the largest offshore wind supplier in new England.
And to help understand the value of beliefs areas. We made a net payment of $168 million to acquire 100% of leased area of $5 34, which contained park city wind and Commonwealth wind and in exchange CIP. Our partner first full ownership of least bearing a $5 22.
The eastern most offshore wind area.
As a point of comparison, our lease areas for our vineyard wind one park city and Commonwealth projects were acquired at auction for below $1 million.
And based on current market prices of offshore lease areas. They are currently valued in the hundreds of millions of dollars and Thats before we continue to develop the portfolio.
Further increased its value.
This strategic transaction allows often grid that generated a gain of about $175 million, which will record in Q1 of 2022.
This gain is associated with the value generation from the transaction considering the excess of the net present value of future cash flows versus our reported book value of the lease areas in their current stage of development, which will be recognized into here in 2022. So in essence this gain in <unk>.
One represents the incremental value of future cash flows related to our initial investment and the synergies are full control and joint development of Park City wind and Commonwealth.
This unlock future optionality demonstrates additional value in our total offshore portfolio, that's going to be realized in real cash flows and real EBITDA over time.
We will provide additional detail of our offshore business at our Investor day. So you can get a better understanding of the significant value of these assets and they are recurring impact to our P&L in the future.
Now sustainability is truly a part of our DNA. It often it's how we operate our business and we're fully committed to our ESG strategy as core to our long term value proposition and our investment decisions on slide 14 provides a little of our bragging rights when it comes to ESG in F. <unk>.
'twenty to March <unk>.
<unk> consecutive year on the annual just 100 list, where we increased our overall ranking by 'twenty five places to number 48, and we continue to be a top performer among industry industry peers, placing fourth out of 38 utility companies.
We were also named one of the world's most ethical companies by Ethisphere for the third year in a row.
And our commitment to health and safety every day and particularly through the COVID-19 pandemic made on grid. The first energy company to earn the well telephone safety rate in.
In addition, S&P highlighted often grid as a world leader in sustainability.
Now we will spend more time on this area during the Investor day, but <unk> is integral to our overall strategy.
Now before we go onto the financial results for 2021 in more detail I think it's important to recognize that the makeup evolving <unk> executive leadership team has really evolved over the last 18 months and with that I want to thank Doug Stuver for his steady leadership as CFO over the last four years and wish him.
All the best in his new role in Pittsburgh with the Steelers organization.
So congratulations Doug go Steelers, except when you guys play my La Rams.
Thank you Deb.
Today has done his last day with the company and I am proud to see them here, but I'm also pleased that we have appointed Patricia Hospital as Alban Briggs interim CFO and all of you know Patricia well he joined <unk> holdings over 10 years ago and has served in various roles, including IR Treasury corporate finance.
Retirement benefits investment management and insurance risk management. Since then it's a long resume I am confident that we won't skip a beat with Patricia leading our finance team.
So please help me congratulate the pressure on her new role and with that let's put her to work to discuss our financial results and 2022 outlets Patricia Thank.
Thank you Dennis and good morning, everyone.
Turning to our financial performance often greatly.
<unk> consolidated financial results for 2021.
Adjusted net income of $780 million for the year by 25% increase from our full year 2020 results. Additionally, embedded in the consolidated results our O&M cost mitigation efforts from our everyday better journey, which resulted in O&M as a percent of revenue that was slightly declined in 2021, helping to mitigate the impact of it.
When I think.
While our quarterly results were lower year over year, let me remind you that in the fourth quarter of 2020, we recorded approximately $68 million or 22.
But the implementation of our New York rate plans, which included a make whole back to April 17 2020.
This is a very important rate settlement.
And New York represents approximately half of our rating and we were able to enhance our ability to mitigate storm outages and restoration costs with the key measures approved as part of the plan.
Now networks, our largest business in this segment.
Consolidated performance for the year with adjusted net income increasing 16% in 2021.
Networks adjusted net income also improved in the fourth quarter of 2021 compared to the fourth quarter of 2020 by 2% even with the fourth quarter of 2020 Maple benefit.
This is largely due to the implementation of our right brands, primarily at our New York Company, which added $68 million after tax in 2021.
The electric and gas distribution and electric transmission investment in 2021 also positively impacted earnings adding financial income from <unk> of $18 million after tax.
By depreciation from new assets placed in service.
Importantly, these investments enhanced safety reliability, and resiliency and further support our customers and community.
Renewables adjusted net income for the full year 2021 was 48% higher than for 2020.
Our strong operating performance during the Texas weather event, which enabled us to deliver more energy and our firm commitment contributed $93 million after tax as of 2021 result.
Production from the addition of new capacity in 2020, and PTC also added $34 million after tax results for the full year 2021 compared to 2020.
<unk> solid performance in thermal in asset management, and improved pricing, which were $28 million and $22 million higher after tax in 2021 versus 2020.
Moderating the annual and quarterly results for 2021 versus 2020, where lower wind production ongoing costs related to growing the business and higher taxes.
Finally, when looking at the drivers in terms of adjusted EPS from May 2020 equity issuance, which increased average debt from $309 million for 2000 $20 million to $358 million for 2021 had an impact of negative 26.
Yet even with that higher amount of shares we had an 8% improvement in adjusted EPS year over year.
Moving to the next slide we.
We deploy new capital to drive growth in that business in 2021 with total investments of $3 3 billion up 20% over the prior year.
In networks, our $2 2 billion of investments advanced ongoing efforts to enhance and modernize our system and ensure safe and reliable service and replacing gas pipeline lanes and replacing than repairing ageing infrastructure.
We're also continuing to roll out the EMI and enabled significant resources in New York, which has was approved as part of a week.
As a result of these investments we are able to grow our rate base in 2021 by 9% to $11 7 billion.
In renewables, we invested $1 1 billion as we constructed over one gigawatt of wind and solar assets with PPA and kick started the U S offshore wind industry with the startup construction for our vineyard wind project.
In 2021, we also increased our renewables in stock capacity by 4% to eight gigawatt.
In renewables.
Starboard value of our investment with a 22% growth in adjusted EBITDA with tax credits for the year.
<unk> captured the positive contributions of our assets during the Texas weather than earlier in the year.
However, even without this impact from early in the year, we had the benefit as I mentioned related to new capacity tax credit and pricing, which improved adjusted EBITDA by 12% in the fourth quarter of 2021 compared to the fourth quarter of 2020.
Moving on to our financing activities in 2021.
By successful sustainable financing program and equity issuance in 2021 provided approximately $7 billion in funding, including the unconsolidated vineyard wind project financing and resulted in ample liquidity and improved credit metrics positioning us strongly for the execution of our future growth.
We have an ongoing financing program that focuses on sustainable unemployment.
We're proud of in 2021 to be awarded the global ESG deal of the year by project Finance International for the $2 3 billion financing for vineyard wind one inaugural Oxford linked financing in the U S.
His key financing achievement highlights the excitement for the banking community for offshore wind in the U S with nine global banks completely exhaustive due diligence and signing on to this construction and loan financing.
Closing the financing was an important milestone enabling us to issue notice to proceed with our suppliers and start construction.
As we previously communicated we also issued our first green bonds at the utility level this year totaling $625 million out of the $840 million and finally issued.
We also refinanced our sustainability linked credit facility, increasing aside from two five to $3 $5 75 billion.
And with the 4 billion equity issuance. This past may we have significant resources to support our approximately $6 6 million of investment covering 2021 and 2022.
Issuing this equity at the <unk> $51 40 share price last year with no discount to the market also saved us approximately 13 million shares and $24 million in annual dividends at our current dividend level compared to issued at the closing price on February 18th.
The equity proceeds were used to repay borrowings, which lowered our borrowing cost and they also strengthened our balance sheet, which we expect to use to fund the PNM acquisition.
Understood. It incur later this year with incremental debt.
With our financing activities in 2021, we ended the year in a strong liquidity position with $1 4 billion of cash.
Our credit metrics also improved with the cash from operations pre working capital to debt metric of 19% at the end of 2021 compared to 12% at the end of 2020.
We value our credit ratings and we're pleased that Moody's recently affirmed cmp's rating of <unk>, and a stable outlook and affirmed United illuminating ratings TWD, one increasing its outlook to positive.
We also highlight that the board approved a quarterly dividend of <unk> 40 per cent per share at February 16th what meeting payable on April one to shareholders of record as of March.
Moving on to the next slide we're pleased with our continued strong results in this year, a reflection of our commitment to ongoing execution, which we are continuing.
From the prior year.
We are providing our outlook ranges for 2022 of net income and adjusted net income of $850 million to $920 million and EPS and adjusted EPS of $2 20 to $2 38 per share.
On an adjusted net income basis, the midpoint of our outlook for 2022 represents a 13% increase from 2021, which as we noted with a 25% increase from 2020, providing a 19% CAGR for the three year period.
The adjusted EPS outlook, which reflects the share issuance in May of 2020 is a 5% increase at the midpoint of $2 in 2009 from 2021, and a six 5% CAGR from 2020.
On the next slide we show the key drivers of our 2022 long term outlook.
Note that the 2021 EPS figures include the annualized amount of the shares reflecting the may 2021 share issuance and we do not have any additional shares included in our 2022 outlook, but thats a $387 million for 2022 reflects the full amount of outstanding shares for the year.
As we manage our businesses to add value and support future growth, we restructured our offshore wind lease areas as Denis had noted resulting in a gain that reflects the current market value of our own lease areas, which is based on the expected future cash flows of the project.
As required by accounting standards due to the change in control from the restructuring the after tax gain of approximately $175 million will be recognized in 2022 and depreciated over 25 years. It represents real earnings to the company.
We're recognized now and.
That replaces future Ernie as earnings from the re valued portions of the leaf variance will be lower in future periods due to greater depreciation from the stepped up asset.
In 2022, we will also have incremental revenues from our New York rate plans additional production from renewable projects placed in service in 2021.
And in 2022, including PTC.
The trend in market pricing for renewables has been increasing and we expect additional savings opportunities from our everyday better Gerry.
These incremental positive drivers, we expect to offset the absence of the storm very benefit in 2021 and costs related to the growing the business.
Additionally, construction on the <unk> transmission project has been suspended pending our appeal of the referendum in Maine. So we are not including AFDC for the project and our outlook.
We're aware that our merger with PNM resources did not close at the end of 2021, we're also not including any earnings for that transaction and our 2022.
Overall, we continue to get stronger and grow the earnings of the company, even while the PNM and any CEC contributions that have shifted out of our 2020 outlook and even with the equity we issued in 2021.
Our ongoing focus remains to execute our investment plans with discipline and continuously drive for excellence in our operations and customer service.
And I wanted to summarize again, highlighting that we had a strong year in 2021 as a result of our focus on the achievement of our financial targets and strategic initiatives.
And we have expenses with the execution of our financing plan that strengthened our balance sheet and support our future growth.
We noted 2022, we'll be continuing to focus on execution as we invest an additional $3 3 billion in the business that will be the foundation for the generation of future earnings, including with our longer dated offshore wind investment program.
We will efficiently fund our investments we will continue to pursue successful resolution of our pending PNM Mercury I think AC project, and we will manage supply chain and drive continuous improvement and value creation.
Thank you for joining us today with our update on our results. We also look forward to talking with you again at our Investor Day on March 22nd where we will provide an update of our five year outlook through 2025.
At that time, we expect to provide more information and updates.
Our earnings expectations, our annual Capex plans by business segment and utility our network rate based growth.
Operating PNM resources in any CEC into our expectation and our financing plan.
We will continue to provide additional information on the value creation of our offshore wind business and our ESG plus initiative.
I'll now hand, the call back to our operator for questions followed by closing remarks from that.
Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now you changed your mind. Please press star followed by.
Underpinning to ask a question. Please ensure you will furnish on mute locally.
Our first question comes from Andres for lunch.
She poultry research partners. Please go ahead.
Thank you.
And Patricia congratulations on that.
Basically live vicariously through your career path, even been a big Ben I mean, thats pretty pretty impressive.
Thank you.
Okay.
Anyway, Okay I wanted to talk about the.
MCC and the ACC so.
So youre no longer booking any of you.
<unk>.
From basically starting from December or you are excluding the PVC that was embedded in that 'twenty, one numbers as well meaning.
Despite.
Ongoing efforts to continue with the project you are not recognizing any earnings stream.
From related to any cc.
Yes. Good morning, Andrew This is Dennis Yes, you are correct when we decided to suspend the construction back in December we stopped.
Reported any new <unk> EDC going forward so.
We had a slight impact in 2021 at the end of the year.
But we have not reported any in 2022, but all of the <unk> that was reported prior to that remained in our 2021 results.
And 'twenty two alright.
Now in 'twenty two.
Again, we are not reporting any.
Active AFDC in our income statement because we're not.
We're not constructing at this point in time.
For <unk> that's correct.
Okay I understand then secondly could you comment about what your expectations of.
Capex offshore offshore wind capex are especially in like dollars per kw I remember that you used to quote to around $3900 per kw.
Which.
It was supposed to be an all in cost can you give us a sense, where the estimate is now.
Sure.
We haven't really given any further updates I think as we've said on our previous calls I think it's important to recognize that for vineyard wind we have substantially all of the contracts have been entered into and in the case of labor, we either have those labor cost fixture with cash so we don't.
See that really moving around very much so for vineyard wind, we're looking at a total project cost still.
Around $4 billion and as far as four.
Park City and for Commonwealth.
We haven't finished obviously.
Actually we haven't gone into the major part of the overall procurement, but we've been targeting about $4000 per kilowatt.
Okay.
And then moving on to main.
Yes.
It's really great to see that.
ROE penalty has been lifted but there is this.
The regulatory review.
Got the commission storage and I was just wondering what type of.
Financial expectations this could have on CMP.
Sure, let me start off and I'll ask Catherine to jump in as well, but I think as you said.
So we're really pleased that the commission last week recognized.
The extraordinary work by our team in Maine.
To focus on customer service and not just for one month, but consistently.
And I think as I said the team under Joe's leadership is really focused on the present in the first half the precedent in the future and not on the past now this issue here, we're actually if that's something that we're really concerned about because we think that we're open to.
Comments by the commission and things that we can be doing better, but <unk>, maybe you want to provide a little bit more color on what we expect.
Sure, Thanks, Dennis and Hi, Angie.
A little bit of context on what's going on in May.
Recall that we had a management audit.
We were undergoing under a summary investigation.
That dates back to the previous customer care issues that Denis had mentioned, but that we're now very confident that we have resolved as part of that proceeding.
CMP at filed a performance improvement plan with the commission and as part of that we agreed to continue to keep the commission informed of all of our progress both in terms of customer service progress, but also in terms of the changes that we're making with management.
And in working with our customers and our communities and our stakeholders had made.
Summary investigation process that the commission started does not procedurally allow for that kind of a canoe.
<unk> open docket and update with the commission.
And so in addition to our ability to continue to update them and had a couple of additional questions with respect to our capital planning and budgeting process. So that's why they opened up this additional investigation, it's really just to have that follow up on.
There's a couple of opening questions and allow us the ability to continue to.
Tim on our progress we feel very confident that this is part of our strategy on improving our regulatory relationships and our stakeholder relationships and me and we will continue to look forward to work with the PFS PUC in order to answer any remaining questions that they have and continue to show our improvement.
In our service and our customer quality and me.
Very good thank you.
Thanks Angie.
We now turn to Richard Sunderland from Jpmorgan. Your line is open.
Good morning, Richard.
Hi, good morning, Thanks for the clients today, maybe just starting with the offshore gains just want to unpack that a little bit.
If I'm following the commentary correctly.
Earnings you're recognizing this year.
Then youre somewhat offset later with the higher depreciation or if.
If I'm following this correctly there is.
Timing element at play here, just wanted to confirm that dynamic meaning that the higher depreciation should ultimately weigh in operating results and not something adjusted out in the future could you just walk through those parts per day.
Yeah, No youre looking at it the right way basically.
Where required by accounting regulations to look at as a result of the change in control of what the future cash flows are going to be related to our initial investment.
In parts of the new win and Commonwealth and so we worked with an outside group that helped validate.
Our cash flows would be relative to the current market conditions and expected market conditions and as a result, we're basically taking the net present value of those earnings here in.
2022, and as you've said, we will continue to basically amortize the depreciation in the future.
Youll see a reduction in net income are related to what we're booking here in 2022, but you will see.
The corresponding EBIT jaw in those years and the cash flow, obviously and so when you think about what we are booking it truly represents the value is that we're going to end cash flow that we're going to be getting in the future.
Understood that was held.
So just to be clear on the sort of EBITDA and cash flow point.
The value here is essentially non cash, but then going forward you.
You'll see the EBITDA and cash flows associated with this.
Yes, I guess I guess the way I think about it Richard as it represents the economic value of the true cash value that is going to be received in the future.
Understood that's helpful.
And then maybe just.
Circling back to 2022.
Walking on a net income basis from 'twenty, one I know there are several moving parts here with the.
<unk> contribution.
The offshore gain in 'twenty, two and then I guess <unk> C as well.
It looks like kind of on net of these factors net income looks to be a little flattish year over year maybe.
Maybe in consideration of any CDC, obviously, some other positives, though with CMP penalty in your rate plan.
Could you just walk through the drivers maybe on the cost side as well that are driving that and anything you'd call out that we made on depreciating there on the shape of net income growth specifically.
Sure I think when you look at it you touched on the major ones, but obviously from 'twenty one to our forecast for 'twenty two.
On the positive side, you've got continued improvement from the New York rate case.
You talked about the CMP, the 100 basis points, but that's obviously a positive we do have increased depreciation and operating expenses.
On the network side of the business and obviously you've got the.
The loss of the <unk> going forward.
But there won't be included in 2022, and there are some some finance costs related to that when you look at the renewable side of the business.
Touched on the Texas.
Sorry about the Texas is even though we don't expect that too to replicate here in 2022, the importance of having our our turbines ready or solar panels ready to take advantage of market opportunities when demand is high and prices are volatile.
Something that.
Really does help differentiate us and makes it and we've got to make sure that when those opportunities do come out like they did last year that we take advantage of them.
The other the other pieces that add to what's going on obviously are the newbuild that we've added the capacity in renewables.
Wind output as it related to that and and.
Basically we would.
We do it's offset slightly by financial the financing costs as well related to the business that are allocated there.
But those are the major ones that obviously from a EPS standpoint, you've got the additional shares.
So again net income what what's flattening out the growth into 'twenty two then.
8% rate base growth in that.
Backdrop here.
You've got depreciation that's adding to that the operating cost.
That are being added to.
In networks as well.
Those are the primary ones.
Understood. Thank you pick a color.
Okay. Thanks Richard.
Our next question comes from David I'll, Colorado from Morgan Stanley . Your line is open.
Good morning, David Good morning, Thanks for taking my question good morning.
Yes.
Could you maybe comment on how much of the supply chain for Park City is contracted at this point.
What are your kind of assumptions there for any inflation that could hit the cost structure for that project and then maybe a little bit more broadly.
What's your view on the return profile of the offshore wind project here.
Yes, David what I would tell you that is at this point in time in Park City.
Literally very little if any materially has been contracted at this point, we're still going through obviously, the permitting approvals and everything.
We've obviously had discussions with some of the major.
Supplier companies, but at this point in time, it doesn't make a lot of sense to enter into it until we get the final or get closer to getting the final approvals. What I think is going to be helpful to us having said that is now the Commonwealth is there when we do start bidding out for whether it's turbines or other things we're going to have.
Additional scale there.
And then obviously leveraging off a deeper role his expertise in there.
<unk> power as well, we're going to have a original additional scale and purchasing power that we wouldn't have had if it would have just been park city. So I think theres no doubt that.
In some cases, we're seeing some some inflationary pressures in some supply constraints, but fortunately, we don't need to be.
Going into contract for those things right now because the construction isn't going to happen for several years. The other thing that I would say is that we did see this and we're benefiting from it for for Vineyard wind one as time goes on similar to what happened in the solar and the onshore wind industry technology continues to elevate turbines.
Get bigger cost come down when you look at the overall cost per kilowatt.
Produce and so we're our plans are to be able to take advantage of that as well.
Yes.
Got it that makes sense.
And maybe could you talk about a little bit just about your internal offshore wind capabilities, you're taking on 100% of of the projects from CIP were there.
<unk>, we're their functions or capabilities that you needed to backfill without CFP, there or where does the internal organization stand.
It's a great question, because we had been adding certain people both for the team directly and being complemented by a broad rollout. So we still have people that are part of the joint venture with CIP, but I'd say its much more of a project joint venture that it is a business growth joint.
Venture on Vogtle.
<unk>, who is our new Vice President of Finance was formerly the CFO of the joint venture and he has now joined Avon.
Bob and Greg here. So there are various people that were basically shifting from the project team back to our team that will focus on our business, 100% of their time and we are in the process of hiring I think that with the addition of Amazon and the additional work that we'll have there on the permitting and the approval side.
We're naturally filling spots. So in some cases, we're taking people that are already within the off grid family of companies or even rollout and shifting them over but in other cases, we're bringing on new people that want to be part of this team.
Okay, Great. That's helpful. Thanks, so much.
Thanks.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Julian Good morning, Hey, good morning team.
So the time and Patricia.
Congratulations really well deserved and say I got to say.
Best of luck to you as well here Sir.
Thank you Joe.
If I can I want to take the conversation a slightly different direction and just talk about renewable growth aspirations here.
You think about 2022, we've heard a lot from other peer companies out there.
Just curious how are you guys thinking about framing your growth aspirations here in 'twenty do you just in terms of.
Bucket, a PPA sign ups rate I'm not saying.
Struction this year, but how you're framing that pipeline, we saw obviously some some shifts and what you saw your pipeline is being pleasantly.
What are your target what are you looking at just in the near term.
Yes, let me, let me start on that Julien I'll ask.
Let's say Antonio to jump in as well.
<unk> debt either at our Investor day, we're going to go into a lot more detail here, but I think directionally. What we're looking at is the same direction that we talked about in November 2020 at our Investor day, There I think recognizing that the market has changed.
Obviously with inflationary pressures and what's going on in the electric market.
<unk> prices have been going up and I would say that we've been working very closely with our customers.
To help them get up to speed on what the new realities of the market are.
And we're in the process in many cases of revisiting some of the prior discussions we've had with customers and I think that there again is the realization that it's it's a different market than it was a year or two years ago, having said that.
We're focused on signing attractive ppas that makes sense for us and for our customers. We don't want to just grow ppas and add capacity at any cost were going to continue to stay disciplined and focused and make sure that we're providing smart energy solutions for our customers whether they be utilities.
Our C&I customers, but Jose Antonio maybe I'll, let you add a little more color to that thank you and hi, Julien I think you had a split alone ladies yes, hopefully is to that we are very advanced stages of conversations with many customers for over four years, the social tool that we have.
Internal approval process and.
We are not just bringing megawatts cyclically and enable us we want to win profitable megawatts and I have to say that the customers. They receive traditionally our silk of all is that they will at least initially by changing the need both for renegotiating. Some PPA prices at least the process doesn't get undergoing.
Again, we remain very positive and close new BPH.
The other thing Julien that I'd say is look one of the reason we have ranges in our guidance is because things can move positive or negatively and I'm less focused on a project moving by a month or two versus making sure that we do it right. It's on top of it.
It's on budget and we provide the customer what they need so.
There is no doubt that with everything going on in the economy with challenges in the labor markets relative to Covid.
Like others have had some challenges there, but overall I still feel really good about the direction that we're going onshore.
Excellent.
Talk about profitability on the offshore side I know one of your peers has talked about it of late and I just wanted to check it out how did you guys are framing that today right admittedly you all have talked about this in the past, but given some of the updates across the sector. How would you frame that for vineyard Wind Park city today, what returns on equity. Your IRR is specifically are you going.
Projecting presently and again.
Anything to add on the cost front that gives you comfort again.
This is in the context of your peers more than you all updating anything specifically here.
Yes.
Be careful that we're not comparing.
One project that we have with another project that a competitor has because I think it's really apples and oranges and every project is different depending upon the size where it is.
<unk> in the ocean with the depth of the water and everything.
No.
Want to make sure that we're careful on that what I would say and I'll ask bill white to jump in as well is that.
Again on vineyard wind as we look at the overall contracts that we've signed.
Still very comfortable.
On the on the overall cost side and what we've said before and no reason to believe that this has changed is that on a levered basis, we're still looking at a.
A low double digit type return them.
But bill you may want to just talk a little bit more about.
How we're thinking about park city wind and Commonwealth and I know that we haven't given out specific profitability numbers on those but just directionally bill.
Yes, I think thanks, Dennis we feel really quite quite confident I mean, touching and building a little bit upon what Dennis said already articulated.
Able to build these the two projects two Gigawatts 800 megawatts in Park City, one two megawatts from Commonwealth This will probably be among the larger.
Offshore wind projects in the world So to drive that economy of scale and benefit from those synergies we're talking to them.
In the in the tens and hundreds of millions of dollars in savings because we're going to build those with one project team with one procurement strategy with one deployment.
<unk>.
And we think and feel very good but what we're seeing in the market, particularly from the Oems.
As the technology is advancing.
The other thing Julien I think it's important to recognize that.
Given that we were just awarded Commonwealth back in December we're actually just in the process right now of having the discussions with the utilities that will be entering into the ppas with so.
It would be premature to start talking about what the returns on those projects are going to be.
Got it alright, well best of luck, guys and again that Patricia look forward to it if you guys. Thank you. Thanks Julian.
Sure.
Our next question comes from <unk> Kim from Goldman Sachs. Please go ahead.
Good morning, Thank you.
Hey, good morning, Dennis.
First question just wanted to go back to the 22, EPS guidance, a little bit sorry to harp on it.
Just trying to reverse engineer.
Just based on I think when PNM was still ongoing and the potential guidance you gave for 'twenty two I think around $2 50 at the midpoint there.
Recognizing this offshore wind amount.
If you back that out just from an operational perspective of about 46% gets you to a little over about $80 a share for 'twenty two just operationally.
I understand <unk> the share count dilution all of that and try to back into that a little bit, but still getting to some level of gaps. So I guess my question is versus 12 months ago 15 months ago. What are some other items you mentioned all the costs there, but what are some of the bigger items that are accounting for the remaining difference.
Let me ask Patricia handle that.
Sure Hi anthem.
Actually I'd, rather than go back and kind of taken tie back to reconcile back to a number we gave before I mean, a lot has changed since that guidance that we had back in November of 2020 and a.
A question now released.
Since then we.
We've done it a saline restructuring we have.
Required acquired one two gigawatts of Commonwealth when we actually put in place.
And negotiated rate settlement in New York.
And secondly, we comprehensively does change some of the things in the way we look at.
Costs and efficiencies in the business.
Is that kind of focus on kind of answer your question not focusing more on going forward in the business and the fact that you're starting off with.
A really good 2021, and which we said we'd provided 25% from 2020.
Focusing on the Big picture and then the next.
Value creation that we're adding in 2022, which also provides.
Dennis highlighted some of the key items, but at a summary level. We're looking at in 2022 moving forward, we're adding we're adding benefits from our rate plan, primarily New York Youre, adding benefits from.
Transmission rate.
Well and the CMP removal of the rate case.
Adding new introduction on the renewable side with that comfort DTC, we've seen increases in pricing as well, but you're removing things.
<unk> two.
The prior year AFDC from any PC or in moving.
Moving the what the Texas event and there is also a cost of the business I think we talked a lot about our investing billions of dollars <unk> 3 billion in 2021.
$3 billion in 2022, that's really setting.
<unk> for future growth, improving and enhancing the reliability and safety.
And resiliency in our network system and constructing on renewables projects that will come in service in 'twenty, two and in 2023, so providing future growth, but a conflict.
The business as we move through 2023, we will have depreciation associated with the new assets in both of those businesses.
Interest costs.
And for a new staff as well associated with those businesses. So I think that on the cost side those are from the things that are.
Offsetting some of the material increase numbers.
Okay got it thanks for that color. My second question is just when we as we think about the PNM process.
The new Mexico Supreme Court playing out.
What is.
How do we think about the kind of the best case scenario in terms of timing. If this ultimately goes in your favor and why are we await that process or that decision how should we think about that.
The excess cash that you have from that equity issuance.
We should make that and I know you may be getting more of that color in March but just wanted to see if you had any color there for them.
Sure Let me start with the second part of the question then I'll ask Bob to jump in specifically the PNM.
But.
In hindsight the issuance of the equity back in May at the time, given what was going on in the market continues to be have been a really good decision I think on our part.
Are we disappointed that PNM shifted given the timing the answer is yes, but I think when you look at what the cash that we have on hand.
The continued growth plans that we have the new projects that we.
We're looking at like the announcement of Commonwealth when we didn't have that in hand, when we raised the equity. So I think that theres plenty of uses for the capital that we raised we reduced the amount of debt. So that obviously helped us from a noninterest expense standpoint, and our credit ratings and metrics went up.
So I think all in all they are having a stronger balance sheet to having some dry powder. If you would for a short period of time until we consummate piece.
And we get started on the construction of any CEC is a good thing.
Bob Let me less low teens kind of give an update on how youre thinking about the PNM sure. Good morning, how are you.
So I mean, obviously, we remain as does PNM absolutely committed to this transaction and I think thats indicative of the fact that we've made.
Roger extension out until the end.
The April 'twenty three in terms of the mechanics of the PEO, we file that early in the year. We just recently issued let's call. It June issues at the beginning of the month.
There'll be a period of briefs reply briefs oral arguments.
This is a 12 plus months processes for import into Mexico.
Having said that we continue to work very closely with.
With PNM and quite frankly, all of the quarters that we've had through this transaction recall that 2324 parties in the case, either supported or we're neutral on the on the project.
So we continue to focus on and work with PNM on the benefits of.
With the transaction can dream.
Two the.
The combined companies and to consumers in new Mexico, and when you look at some of the issues that are being faced.
Whether it's in new England or in New Mexico, and New England, We had the iPhone talk about potential for Brent ups as winter because of a lack of supply you're talking about that now in new Mexico for this summer and next we think Theres a lot of things we can learn from each other and continue to work and move this forward, obviously, there's going to be changes. This.
This year as the year progresses.
A new a new commission be appointed by the Governor by the first of next year. So there's a lot of pieces to this that continue to move forward with the bottom line is we along with the folks at PNM are absolutely committed to getting this thing done.
Understood.
Thank you very much that's okay. That's helpful. Doug.
Thanks Anthony.
We've come to the end of our Q&A I'll now hand back to <unk> for any final remarks.
Well great.
With a strong foundational year behind us.
Really proud that we are effectively executing on our commitments and delivering consistent performance 2021 was a really important year for <unk> for a lot of reasons.
We've said it certainly wasn't without challenges, but our successes are due to our people our wonderful and dedicated team who have.
We've worked hard to serve our customers to respond to storms worked safely through COVID-19, and enable the clean energy transition. So I want to use part of this.
Presentation to say, thank you to to T mob and grid Youre working really continues to make a difference every day I also want to thank everybody on the call for your questions and for your overall support in 2021 again, we're proud of our results, but we recognize there is a lot more work, we need to do and we're focused on being successful.
In 2022, we look forward to using the momentum of 21 to deliver another strong year in 2022, and we look forward to sharing more information with you about our strategy and our outlook in 2022 and beyond at our next months Investor day. So thanks again, if you have any other questions. Please follow up with Patricia <unk>.
Officially becomes our interim CFO or Michelle and stay safe and have a great day. Thanks, everyone.
This concludes today's call. We thank you for joining you may now disconnect your lines.
Okay.
Yes.
Yes.
Yeah.