Q4 2022 Avangrid Inc Earnings Call
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Ladies and gentlemen, welcome to Avon's, great Great fourth quarter and full year 2022 earnings Conference call. My name is Glenn and I will be quoting your call today.
If you'd like to ask a question. During your presentation you may do so by pressing star one tack on keypad.
I'll now turn the call over to O'farrell Ortega, Vice President Vice President of Finance Investor Relations and Treasurer. Please go ahead.
Thank you Glenn and good morning to everyone.
You for joining us today to discuss <unk> fourth quarter and full year 2022.
Presenting on the call today are Pedro sorry draw, our Chief Executive Officer, Patricia Scheller, Our Chief Financial Officer also joining us today for the question and answer part of the call will be Kathryn <unk>, President and Chief Executive Officer, I'm Hungry networks, and close Antonio Miranda, Chief Executive Officer, and President of our renewals.
Other members of the executive team are also joining us today on may be called upon to assist with the Q&A part of the call.
You do know how the copy of our press release or presentation for today's call. They are available on our website at <unk> Dot com.
During today's call, we will make various forward looking statements within the meaning of the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1095 based on current expectations and assumptions, which are subject to risks and uncertainties actual results could differ materially from our forward looking statements if any of our key.
<unk> are incorrect or because of other factors discussed in Avon grids earnings news release in the comments made during this conference call in the risk factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission each of which can be found on our website at <unk> Dot com, we do not undertake.
Any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP financial measures. The closest GAAP financial measures I will now turn the call over to Pedro.
Okay. Thank you Alberto and good morning, everyone. We appreciate you joining us for our fourth quarter and full year results presentation.
I'd like to thanks, now the chairman and the rest of the board the rest of the Portola group on all my team pressing with me or not present with me today and every single employee of having great for the great work that we have done altogether in the last 12 months I'd like to also remember our customers regulators governors legislators Ags consumer Representatives investor.
Please we're here to serve all of you and we're very proud of doing that.
Let's move now to slide number five.
Over the last year. Our team has worked under one simple and clear principle to make sure that almost everything we say hopefully everything we deliver even when faced with challenges uncertainty or skepticism.
Through an increased focus on operational and financial excellence, we accomplish our objectives and have not deliver double digit net income growth, 25% year over year, and adjusted and 16% year over year on an adjusted basis.
Since 2015, we have grown net income and adjusted net income at the strong compound annual growth rates of 9% and 10% respectively.
On an earnings per share basis, our EPS has grown 15% year over year to point to 2.2 dollars 28 per share and adjusted EPS has grown 7% year over year to $2 $33 per share.
And adjusted EPS, we focused we have exceeded the midpoint of our 2022 guidance range of $2 22 to $38 per share and surpassed the analyst consensus of $2 $7 per share from the first quarter of the year.
In networks, we invested $1 9 billion and grew our rate base by 1 billion.
Our 8% total $12 7 billion.
We also achieved significant operational improvement with successful response to winter storm, Elliot, which impacted over half a million dollars of and with customers'.
Recognition from <unk> for an April 2020 towards non storm in New York on mutual aid provided to Nova Scotia and Louisiana.
And enhanced reliability performance, including double digit improvement to average safety and safety.
In renewables, we are focused on ensuring disciplined and prudent growth.
We placed an early 400 megawatts of new capacity into operation.
Including our first large scale solar project and we are advancing construction of approximately one four gigawatt.
<unk> and offshore.
This includes our increased 806 megawatt <unk> wind project, which is progressing.
<unk> on our schedule to reach full commercial operations next year.
We're very pleased with our strong performance for the year. We have said in 2023 outlook for our earnings per share of $1 $90 to $2 $10 per share.
Or $2 22 to $35 per share on an adjusted earnings per share basis.
This translates into an adjusted net income of $850 million to $910 million.
As we implement our $2 21 5 billion investment plan. We believe we are very well positioned to deliver our targeted 6% to 7% compound annual growth in adjusted EPS through 2025 of the midpoint of our 2022 guidance of $2.
$9 per share.
Let's turn on to page six.
I believe.
When it comes to execution, our actions speak that Atlas <unk>.
And no company annoying district aren't without challenges what matters most is to deliver solutions.
As you can see here our team is taking action on the things we pledge to deliver.
So we're starting new Mexico, we extended our merger agreement with PNM resources on a new public regulatory commission has been seeded.
The new commissioners are each highly experienced individuals with deep knowledge of the challenges and opportunities that energy transition will bring as well as the central role of utilities and enabling that transition.
We remain committed to the merger and the benefits it will bring to the state of new Mexico and intend to seek a settlement that reflects this value to all parties.
Additionally, we are successfully constructing the first large scale offshore wind project in the nation.
And are on track to enter commercial operations next year.
<unk> been yard wind, one will bring clean energy to 400000, Massachusetts home homes and businesses and support more than 3000 full time equivalent jobs over the project's lifetime.
And we are working with our stakeholders to address macro pressures on our other new England projects and ensure these projects meet our investment criteria and can support the financing need.
In order to move forward with them.
Let me be clear, while we are terminating our PPA sarcoma.
We remain fully committed to our offshore business. We are on track to bring the first large scale project to successful completion.
And this is not a question of commitment of capabilities, but brother of a unique economic situation. We believe that offshore wind is the ideal solution to quickly deliver clean reliable energy to the northeast.
Unfortunately, the impact of historic inflation sharp interest rate increases supply chain bottlenecks and the existence of a price gap prevented us from moving Commonwealth went forward and a viable economic conditions.
Our greatest fully committed to offshore wind and two Massachusetts, but we must always be disciplined investors, particularly given the size of the investments on the table.
Our Commonwealth. This means we expect to review the project in the upcoming solicitation.
With regard to park city wind, where 80 shaping over <unk> with the key stakeholders in Connecticut to address this issue.
Regarding our regulated utilities, we filed rate cases in all jurisdictions on enhanced our engagement and relationship building.
Our head of our rate case filings, we ensured we had a strong outreach plan in place and are held over 160 meetings with stakeholders to discuss our proposals and listen to their feedback.
Our strengthened by these proactive engagement the proposals we pull forward will allow our companies to respond to critical system needs, while maintaining among the lowest rates in New York and New England.
We are working hard to move our rate cases forward.
Settlement negotiations are actively going in New York, which accounts for the largest portion of our rate base and we anticipate new rates will be effective for me.
In Maine, we filed rebuttal testimony and we plan to begin settlement discussion shortly.
Evidentiary hearings have started in Connecticut last week and in Massachusetts, We successfully closed the rate case.
The rate case process and new rates are already in place.
2022 also brought important successes for our new England clean energy connect an ECC project.
We received favorable rulings from the main low court onto critical items first in August regarding our legal challenges to the main referendum then resulted in the halting of construction of NSC.
And second in November upholding our lease of a small section of public lands for the project. The law Court. Additionally, benight a motion to reconsider its decision meaning that the issue of least validity is now settled.
Earlier this month, the FERC issued a decision directing the breaker upgrade at Seabrook station, which is necessary for the safe operation of <unk> and the continued reliability of the regional New England grid.
As we work to close the remaining legal matters, we are working on multiple fronts to ensure the economic viability of the project.
And in our onshore business, we are confronting the current challenging market environment by successfully renegotiated 780 megawatts of wind and solar Ppas in 2022.
We are also pursuing partnerships and asset rotation opportunities that help mitigate capital needs and maximize maximize the value of our robust pipeline.
Turning to slide number seven.
Since I was appointed CEO , we've put in place a highly skilled diverse and stable management team that is driving successful execution in multiple critical areas.
<unk> delivered a strong earnings performance for 2022 coming in.
Or above the midpoint of our guidance and well above initial consensus expectations.
Next we've enhanced our focus on engagement and relationship building, which enabled us to obtain several positive regulatory outcomes over the course of the year and supported our rate case filings.
We also took decisive action to protect the company.
By moving to terminate nonviable offshore wind Ppas in Massachusetts, renegotiated multiple onshore ppas addressing misinformation around customer bill increases caused by unregulated generators and advocating for long term solutions.
And finally combating efforts to implement government control power.
Furthermore, we are addressing the current economic uncertainties by driving a sharper focus on cash flow management and value creation.
All in all this is strategic actions, we are taking reinforce our trend towards consistent execution and provides a solid foundation for future growth and delivery of our long term commitments.
In the slide eight I'd like to further highlight.
For you that our strong financial performance is not the product of an isolated year.
Or a string of good quarters, but rather a trend that we have cultivated over the course of multiple years.
Since 2020, we have delivered over 50% and 40% growth in net income and adjusted net income respectively, respectively. In most cases with over 20% growth from year to year.
Looking at adjusted net income, we outperformed consensus expectations from the start of <unk> thousand 20 to which it was $801 million by almost $100 million or more than 12%.
On an earnings per share basis, we've seen 21% and 15% growth in EPS and adjusted EPS, respectively. Since 2020, with a stable or increasing trend year over year.
Even with the impact of the 2021 equity issuance, our adjusted EPS has grown at a healthy compound annual growth rate of approximately 7%.
This is true both for over the last two years and these are in grid creation in 2015.
We are very proud and encouraged by these strong results, but we won't just be satisfied with our performance to date.
Our team will continue to drive execution and deliver what we say, we'll deliver if we do that we keep building up of this trend well into the future.
This is our objective, we can't and won't lose sight of.
Turning to networks on slide nine we are focused on meeting our operational mandate, which is to deliver safe reliable and affordable service to customers, while increasing access to clean energy across the states we serve.
Throughout 2022, our teams have worked to enhance system reliability with programs targeting vegetation management asset condition increased distribution automation and more.
As a result, we are seeing good operating performance with the liability improving year over year as compared to 2021.
On average safety has improved by 10% safety by 16% and Kt has improved by 7%.
Over the last years, we have seen a trend toward more frequent and intense intense storms. In 2022 was no exception I am proud to say our utilities rose to the challenge.
Thanks to the effort of our field crews, both electric and gas as well as the thousands of employees who support them.
We delivered exceptional storm response for our customers navigating harsh conditions, both near and far from home for example between November and December Our New York, and Maine companies, where heat by 7% on four major storms respectively.
The most severe was winter storm Elliot, which knocked out of power to more than half a million dollars 100 customers over the holidays.
We responded quickly and effectively our performance some of our neighboring utilities.
In harvest heat, Maine, where <unk> exceeded 300000, nearly all CMP powers customers were back online by day for over half of CMP customers were restored by day too.
In New York virtually every customer had power backed by day too with most customers restored within 24 hours.
I'd like to thank all of our employees for their commitment to stepping up for our customers not just after elliot, but in responding to the dosing of the storms, we faced in 2022 and the work we do every single day.
These efforts over the course of the year earned well deserved recognition from regulators and local stakeholders as well from us from EA.
In addition, we are focused on increasing the utilization and providing customer support to enhanced satisfaction reduce costs improve cash flow and help address pressures caused by the current macro environment and recent generation rate increases across the northeast.
Over the last year, we've expanded our EBIT program by <unk> by 16% to $1 2 million customers an increase in mobile app downloads by 73% to 840 <unk> customers. We continue to make critical investments in reliability and resiliency and drive healthy rate base growth.
18% since 2020.
We've also collaborated with state officials to reduce our <unk> on <unk> Bill assistance to.
To help address this issue across New York, the PSC approved two phases of utility commerce customer systems phase one targeting the residential low income customers provided $59 million approximately in the state fund for <unk> on our journey.
<unk> expects to receive approximately $34 million in phase II, which was approved in January and will offer our systems to non low income residential and small business customers.
After consistently meeting our customer service performance goals, the Maine PUC in February removed, the 100 basis points adjustments on Cmp's return on equity.
Lastly, we're continuing to advance major investments in transmission to unlock lower cost clean capacity as mentioned earlier over the last few months, we obtained favorable rulings from the main Lockhart on FERC that result, or materially address critical challenges to our ADC project.
Turning now to slide 10 successfully closing our rate cases is one of our top priorities for our regulated businesses. This year without a secure and healthy financial position our utilities cannot meet those objectives described on the previous slide to deliver safe reliable and afford.
Both service to expand access to clean energy or to enhance operational performance.
We are making a steady progress with.
With Massachusetts successfully settled and the process advancing in other states. Our expectation is to have new rates in effect across all of our states later in the year.
These rate cases, combined with our FERC formula rates will provide regulatory agreements for approximately 90% of our rate base.
As a reminder, we have requested approval for approximately $10 billion in capital investment over the next few years, focusing on clean energy transformation reliability, resiliency and improving the quality of service to our customers, which will also create jobs in our local communities.
Additionally, we're aiming to secure multi year agreement, which will provide better rate of stability for our customers.
In New York.
We are currently in the middle of settlement negotiations with all parties.
We expect new rates for <unk> I need to be effective as of May 1st date.
As part of this process. We are also seeking authorization to move forward with multi year investments in our CPA phase one transmission portfolio.
In may.
We filed rebuttal testimony earlier this month and are preparing to enter settlement discussion. Shortly we expect cmp's new rates to be effective in July in Connecticut in <unk> and <unk> testimony were filed in December and January and last week, we began a billion CRE hearings for <unk>.
We expect new rates to be effective in September .
Turning to our renewables business on slide 11, first and foremost we are on track to deliver the country's first larger scale offshore wind park.
<unk> 806 megawatts being Darwin one project.
We supply fully contracted and manufacturing of our components underway labor costs fixed or capped and financing secured with interest rate hedge and no foreign exchange risk being yard when one is protected from the inflation and supply chain pressures. We currently see in the market.
Our team has made.
Excellent progress in construction over the last year to date equipment installation at the onshore substation is fully complete and cold commissioning has started off.
Offshore we are working to install our export cable with 55% already complete.
Midyear, we plan to begin installation of our foundations and turbines and by the end of the year. We expect to have delivered the first power from Avon grids Vineyard wind one.
This is a significant project for our company for the country and for Massachusetts, and we're proud to make it possible.
We also continue to advance the development of our two other new England project Spark CDN Comber wind as we collaborate with our stakeholders on the right solutions to address the economic challenges seen across the industry and around the world. We are continuing to make progress on the necessary permits including the federal.
Mental impact statement.
This will ensure that in the event that we reached a successful outcome. We can forward. We can move forward with these projects swiftly and efficiently avoiding unnecessary delays.
While this process plays out we've taken a prudent and conservative approach to our long term outlook and have not assumed park city and Comber wind in our 'twenty to 'twenty five outlook.
That being said we remain confident in the value. These projects can bring to the new England States and know that they have an essential role in meeting the region's visionary climate and clean energy objectives.
Turning now to our onshore operations on slide 12.
Over the last year, we managed a challenging market environment to deliver 395 megawatts of new capacity, including our first large scale solar projects.
In addition, we worked with our customers and successfully renegotiated 780 megawatts of Ppas to address the current market pressures and support improved economics.
We continue to make operational excellence, a top priority for our eight CTO, what fleet, which in 2022 operated with over 97% availability.
In early two percentage point increase from just three years before in 2019.
Additionally, our fleet has consistently maintained solid performance on EBIT outperformed during extreme weather events with major generation outages.
<unk> is Tom here in Texas in 2021, and Winter Storm Elliot in 2022.
Additionally, we successfully worked with our suppliers to secure panels for the 480 megawatts.
We are constructing with <unk>.
All of these panels have already been delivered on site.
<unk> are in customs work waiting to be released.
We have several supply frameworks in place for the main equipment needed in our near term pipeline, we see already in 2024 without certainty to these projects and mitigate risks.
We're also continue to explore opportunities to deploy green hydrogen leveraging our expansive of onshore footprint and development and operational expertise to value to the renewable business.
Our team is focused on building out our portfolio of commercial projects along with our network suppliers on experienced partners. As you know, we announced in 2022 and agreement with simpler infrastructure to support support potential joint development efforts.
In addition, we are actively engaged in southern coalitions for the department of Energy's hydrogen hops program final obligations for this program. This spring and awards are expected to be announcing for 2023.
As we look to the future we are seeking to maximize the value of our robust 20 gigawatt onshore pipeline.
Leveraging the attractive environment created by the IRS.
We are pursuing opportunities to create value through repowering targeting the repower of more than half of our fleet by 2035, and net leverage leveraging solar PTC optionality and attractive hydrogen Curt credits to improve project economics and generate future growth.
Let's turn to slide 13, as part of the better our group, we have been focused on sustainable leadership and value creation for decades.
Our ESG plus F position is a key part of our business profile.
We are proud to lead our peers to date with our cleaner generation mix, beating the top end mobile operators in the country and an emissions intensity six times lower than the average U S utility and to have created a robust a robust set of goals to keep us ahead well into the future.
Regarding our environmental efforts are agreed was the first U S utility to establish a goal for Camborne Youtube neutrality in our generation fleet.
At our last Investor Day, we announced we would expand our goals to cover his scopes, one and two neutrality by 2030, putting US ahead of most almost other major U S utilities.
We're also developing a strategy to address scope three.
We have significantly expanded our focus on the social component more than doubling the number of goals in this area.
In 2022, we made important strides to improve diversity, among our management team increasing the representation of women on the team to 30% up to up from 20% in 2021.
By 2025, we expect to further increase our presentation of women in executive positions to 35%.
As we consider the impact that we have in the communities that we serve I also want to acknowledge our recognition and commitment to our survey black history month.
Through our <unk> African American calcium for excellence, we had focused activities that celebrates our or our own employees and their experiences hosted external speakers and highlighted community relationships and increase our reach and impact.
We work actively to maintain the highest ethical standards and the best business practices across our wireless our organization as a result, we have been named one of the more worlds most ethical companies by Ethisphere since 2019.
Our focus on financial performance and sustainability makes it all possible.
In 2022, we both deliver on our annual earnings commitment and applying a disciplined value driven plan to create healthy and predictable growth over the next few years.
In addition, we closed on nearly $100 million of debt, including $270 million in green bonds, taking advantage of delayed draw to lock in a more favorable interest rates.
Our efforts continue to be recognized by many third parties, including just capital, which named oven greet to at least of America's most just companies for the third year on a row.
<unk> one of the just two years utilities recognized by S&P.
<unk> 2023, sustainability yearbook, and in 2023 joined Bloomberg's gender equality index.
Thank you and now I will turn it over to Patricia to provide more detail on our financial results.
Thank you Pedro good morning, everyone.
Since our company's formation in 2015 oven grid has been a story of long term growth and evolution.
While we've had periods with headwinds we have aggressively focused on continuous improvement we remain targeted on improving execution and maximizing our earnings close opportunity and we have demonstrated success.
Importantly, looking over the long term net income has grown by 85% or $404 million from our 215 pro forma results to 222022.
Alright, Justin net income has grown by 97% or $443 million. This is a compound annual growth rate of 10%.
And over the last two years, we have demonstrated strong growth and execution with an adjusted net income CAGR of 20%.
Additionally over the last seven years and over the last two years, even with our equity issuance in 2021, adjusted EPS has grown at a CAGR of 7%.
Turning to the next slide.
Our 2022 earnings performance.
For the full year 2022, our net income was $881 million, an increase of $174 million or 25% compared to 29, one and our adjusted net income was $901 million, an increase of $121 million or 16% compared to 2021.
Overall compared to 2021, our 2022 results benefited from the implementation of our rate plans, primarily for the New York companies. This increased adjusted net income by $74 million.
That number includes a positive impact from the removal.
The 100 basis point early adjustment and central Maine power effective early in 2022, resulting from our improved customer service metrics.
We also had a gain of $181 million related to the restructuring of our offshore wind lease areas in new England, which gave US 100% control over the park city wind and Commonwealth wind projects.
Overall pricing and production was approximately $30 million lower however, this largely reflected the absence of $93 million of 2021 benefit from the strong U already in Texas.
Excluding that we did see improvements in pricing and production over the year, primarily from new assets in service and PTC.
We also had positive thermal and asset management results of $21 million.
However across the business there were reductions from business costs financing costs, primarily due to the absence of any CEC AFDC that we had in 2021.
And depreciation.
We had a consolidated net tax benefit in 2010.
2022 that was approximately approximately equal to 2021 and the business segment. It shows as a positive and renewables primarily due to the release of evaluation reserve related to tax credits that we are now expecting to use due to the inflation reduction act and state tax rate adjustments reduced by state unitary tax adjustments in court.
Right.
For our business breakdown, we wanted to highlight the high percentage of networks adjusted EBITDA with tax credits within Avon grids business mix, which explains 70% in 2022.
Networks adjusted EBITDA improved in 2022, although there was a drop in renewables, which again reflects the absence of the 2021 benefits from our strong operational performance during the Texas weather event.
Net of improved pricing new capacity and production tax credits into 2022 that I had mentioned.
We continue to invest in our businesses driving future earnings potential as we implement our networks rate plans and construct wind and solar assets that reached <unk> in 2022, and we expect to receive in 2023.
Networks Capex represented over 70% of our Capex in 2022 funding core electric and gas distribution and electric transmission spend for reliability and resiliency.
In this challenging and uncertain economic environment, we are focused on our balance sheet access to liquidity and credit ratings.
Our sources and uses of funds on the next slide shows that in 2022, we generated a raised over $3 2 billion from a combination of cash and external borrowings, including green financing to fund, our capex and our dividend.
Access to capital at attractive rates is important.
Last year, we secured bonds for approximately $792 million in our regulated utilities, including Cmp's inaugural Green bond.
We're able to lock in competitive rates ranging from two 5% to 496% benefiting from a delayed draw pricing strategy.
In 2022, we also closed on tax equity funding for $223 million for solar and onshore wind projects.
Maintaining our solid credit ratings is a key objective we had significant cash in 2022 due to the 2021 equity issuance to fund the PNM merger, which we deploy efficiently and cost effectively to offset or deferred debt and financing costs in the interim.
In 2023, we look forward to closing on our merger with PNM resources with oven, great debt that we deferred due to our early equity issuance.
As we previously noted on Investor day, our long term outlook anticipates additional equity of $1 9 billion in 2024 absent incremental asset sale proceeds that are not included in our formal outlook.
Cash and liquidity are also key priorities supported by our ongoing cash from operations debt at the utility level tax equity financing and tax credit transferability at renewables.
We have a $2 billion commercial paper program with an outstanding balance of $397 million at the end of 2022. This is backed by $3 $5 75 billion sustainability linked credit facility and we have a $500 million intercompany.
Intercompany line of credit with EBITA EBITA.
<unk> has also provided us with a $4 $3 billion commitment letter that Backstops, our PNM resources merger closing.
These sources provide us with 8 billion in liquidity covering 21 months.
We also have the unique benefits of being a member of the EBITDA of the group, which also has strong liquidity of approximately 25 billion euros covering 27 months.
Finally, our dividend policy remains unchanged, we're targeting a payout of 65% to 75% that we won't go into as our earnings increase over time subject to board approval.
Importantly, our devin dividend yield of 436% exceeds the sector average of approximately $3 one 4%.
Our board recently declared a quarterly dividend of <unk> 44 cents a share payable on April 32023.
Moving to the next slide we are introducing our 2023 outlook ranges for EPS of $1 90 to $2 10, and adjusted EPS of $2 20 to 235 per share.
We expect 123, adjusted EPS to be relatively flat compared to our 2022 guidance and note that excluding the offshore wind gain in 2022 and asset sale proceeds in 2023, our expected adjusted EPS results increased by approximately 9% or.
Our ongoing focus remains on achieving these targets as we execute our investment plans with discipline and our risk management focus.
Our 2023 outlook includes debt at the parent level, including to close on the merger transaction, which was financed in 2021 as I mentioned, primarily with the $4 billion of equity that we issued.
PNM is included in our guidance starting in mid 2023 and based on public information on our internal estimates we have assumed EPS of approximately 30 in 2023 for PNM.
We also provide our expectations of opportunities and risks for the remainder of 2023 versus our outlook expectations, which include renewables production and pricing rate cases, and other regulatory action.
The weather related events, the restart of the ECC.
Traction thermal and asset management results taxes, and financial interest business costs and uncollectible we.
We expect renewable asset divestitures in 2023 to include the sale of a portion of our Kitty Hawk lease area. As we noted on our September Investor Day.
So include estimated proceeds from potential partnership transactions for new projects with Cod's expected in 'twenty four 'twenty five.
In total we are estimating pretax earnings benefit of approximately $125 million.
Finally today, we are also confirming our 6% to 7% CAGR in our adjusted EPS to 2025 based off a midpoint that is based off a base that has a mid point of our 2022 guidance unchanged from our Investor day.
In summary, we're very pleased with our 2022 financial results and we are very focused on continuing to execute our long term financial plan.
As we outlined in our recent Investor day, we have a disciplined focused on our investments on risk management, our financing plans liquidity management and our credit ratings.
Thank you for joining us today for our financial update I will now hand, the call back to our operator, Glenn for questions followed by closing remarks from Pedro.
Thank you.
Hey, gentlemen, if you'd like to ask a question. Please press star followed by one on telephone keypad now.
Let me toss. Your question. Please ensure your phone is on mute locally.
We have our first question comes from Richardson differed.
From Jpmorgan. Your line is now open.
Hi, good morning, and thank you for the time today.
Starting with the 'twenty three outlook.
We're through a lot of the details just wanted to confirm confirm some of the pieces.
The $125 million pre tax gain if I, if I heard that correctly.
Inclusive of booked to the Hawk and the onshore partnerships.
Think of the past can be awkward tap for about $100 million instead still the case and just wanted to confirm that those are the two moving pieces within that and see if any of your expectations around could be all could change since football.
No I think there is no change again. This is two examples within different options that we have you know two to obtain those proceeds okay. It's not just those two examples you gave but I think there is no changing in specifically hub in D&O dose US Latino target $6 40 for some assets in development of onshore.
And then they keep the hope among other things because we are looking into several things right now from a set of inaugural patient point of view.
And then in terms of the onshore piece within that are you mentioned 24 and 25 <unk>.
With the sum total of the games that are common in 'twenty three year would you still expect to have $24 25 to EPS contributions from those from.
From those partnerships in terms of the games themselves not recurring earnings.
Okay.
In 2015, we have almost nothing in our long term predictions from EPS.
Yes, we had we actually had projects EOD in 'twenty four 'twenty five.
And these are projects CRD in 'twenty, four 'twenty, five and our long term outlook.
Had we had $15 million of pretax and each year 15, yes, they won't flex almost nothing right.
Okay got it we always look to 2 million extra.
Sorry.
Richard just my comment was we are always looking for these.
These opportunities so if they arrive sooner we're going to capitalize on those and as Pedro mentioned and we mentioned actually on Investor day that there are a lot of other opportunities that we're looking at that we're not in the plan.
Okay got it and sorry, just one last follow up on the guidance itself with 30% from for Q&A.
Based on a midyear close is that kind of all in with the with the financing costs or is that a separate contribution just from that.
<unk> acquisition.
That's that's PNM SPM contribution okay, it's not got it here.
Thank you.
For my second question would be.
The 6% to 8% and reiterating the outlook there.
I noticed you referred back to the fall update for that.
You said they would consider against changes in the interest rate outlook or power prices.
Subsequent to the fall update I'm curious if that has an impact on where you are within the 6% to 8% range.
The other changes relative to the fall back.
<unk> I'm, sorry, the 67% EPS CAGR.
Yes, I was just going to say it was 6% to 7% EPS CAGR. So.
We are affirming that today.
And we do.
<unk> changes in the macro environment that has gone on since that point in time I think what were we formally refer back to Investor Day, We were just talking about some of the key items, we are really unchanged like the asset sales assumptions the equity assumption.
The assumptions, we had in the model for rate cases in investments rate base all of that is unchanged, but we do.
Look at other things as we as we narrow the range and got closer to.
This disclosure.
<unk>.
Got it very helpful. Thank you for your time today.
Okay.
Thank you Richard.
We have our next question comes from David Arcaro hormone Stephanie Davis. Your line is now open.
Oh, great. Thanks for taking my question.
I was wondering if you could give an update on the New York settlement discussions any latest thoughts on how those are going the timing of when we could get a settlement out in that state.
Catherine vendors confidential.
Sure. Thanks, David.
You as much as I can right now we have an extension until March six.
For the proceedings and we are continuing those settlement conversations with staff and with all intervenors.
And we'll just continue to work through those as Pedro said.
Our guidance estimates that we will have rates in effect for.
May and I will note that historically the commission has.
Ben has looked favorably upon make whole agreements for rates.
We're working hard to see what we can do as soon as possible.
We'll continue to hold those settlement negotiations as long as they're productive.
Okay got it thanks for that and then I was wondering if you could just speak to Commonwealth wind a bit just in terms of your strategy as you build that into the next auction.
Do you feel you have a good line of sight into the cost structure.
Having it.
Our level of confidence in the cost structure to be able to bid at a level that does protect your returns in this in this next round, but also be able to bid competitively I'm. Just wondering if you could speak to how you think about positioning that strategically and protecting the downside risk on returns.
In the first thing is I think we need to terminate the existing contract.
In us as we commented we have already in our comment.
Comment.
<unk> termination.
It's a process, where we need to finish that process and then they repeat that will be in the in the may auction and then decisions in September by the end of the year.
Answer is yes, we're very committed while we're trying to do right now is social to make sure everybody understands that these situations that we have been suffering in the last quarters is not just to us.
Worldwide <unk> has consequences I think we see no material deviations in many projects in solar in onshore and offshore subsea in substations in many situations.
I think the important thing is also that when the auctions come out and they keep in mind you have seen some index.
Considerations.
Other states in terms of you know the ultra development and I think that has to be taken into account and now it will be very important to the new auctions.
Taking into account that the process takes how long that <unk> can happen in the middle of them there should be adjustments, but I think because of the work we have already done in the last more than three years.
Please.
Positions that we can to have a certain deals we continue to make in <unk> for this project because we continue working in the project and we are committed to deliver these projects.
Okay, Great. That's helpful. Thanks, so much.
Thank you David.
We have our next question comes from Michael Sullivan from Wolfe Research Michael Your line is now open.
Yes.
Hey, everyone. Good morning.
Wanted to ask on.
Just the latest on on any CEC and some of the cost estimate updates and timeline updates that you add in the fact book.
And then maybe just a little more on what you mean by.
Ensuring economic viability of that was in the slides is there any risk to this project that at this point.
Alright, I think and if I can answer that one please katherine it up.
It's very simple we have you know legal things ahead of us and we need to finalize them and also you know we have to.
To review the economics, just to make sure that we get the right recovery of the Costco. We have incurred there has been a change in law in this contract and that allows you not <unk>.
Updating the cost.
Due to the change of law. So I think those are the two things that we wouldn't be working on gathering yes, I'll just add that with the delay that was caused by the kind of unprecedented action from our opponents and we continue to look at restarting construction as soon as possible and with that restart construction, we're negotiating with all of our vendors to make sure that we.
Can optimize all of the construction schedule as well as the pricing that we're receiving so we're doing that in the background as we're proceeding along with the legal.
Matters.
Okay. So this is more negotiating on the on the cost side not the.
The revenue contract side or is that part of this as well.
Sure.
It is both things I think there is potentially low on those additional costs.
Legally we believe you know were in total to them.
That's something part of the things that we're working with Adcs.
Subsequent to know with the public Commission. So the answer is yes.
We're going to be working and we are working in both sides.
Okay.
And then just on the 23 guide on Slide 18 point out 9% growth excluding some of the.
Offshore wind gain in the <unk>.
Divestitures planned for 'twenty three.
But then you show PNM is 30.
PNM the majority of that 9% kind of normalized growth.
If that's right or what's kind of going on with the rest of the business that is seeing.
Such little growth I guess.
Right.
I'll, let patricia to commentary bills, but remember when we did our strategic presentation because of the rate cases.
Our negotiations that we have going on right now we made it clear that.
Out of the three years. These was the one with less growth and then you know things we catch up later.
We've been very transparent on how this year will be I think when you look at the numbers with and without PNM onto.
And you look at the numbers also without the existing games, if you take out in order to gains in both the one what we had last year with the Texas event and on some other asset divestitures and <unk>.
The actual gain that we had this year in 'twenty. Two I think you will see that the growth is 7%. Okay. You know when you think about it and when you think about the growth for 'twenty. Three if you think about the midpoint of the guidance. We go to 9% now you say well if you take out <unk>.
PNM based on those numbers go more to the 7%. So that's why I think for us in Rds. This is the year that we may be clear do you know what we have in our rate case these negotiations et cetera.
<unk> is a factor to move you know from.
Two to three points above or below but appreciate you can glenn.
Yes, I think I think you hit all the key points I mean, while we are really trying to show is that even though these these these events that happened in 2021 and 2022 are part of our.
Really are and we've said this a couple of times our ongoing strategy is capturing value in our business and we've been able to do that by having the strong operational performance in Texas, we have been able to do that by restructuring our offshore wind lease.
So now we have 100% ownership of those projects if you wanted to.
Exclude those and we had some small asset divestitures also in 2021.
We had typically on a recurrent basis from our pipeline.
You would have a 9% growth excluding that yes in 2023.
There is PNM and we have 30, therefore at the PNM operations, but we also have.
Uh huh.
Rate cases that we expect will.
We will be very important to the companies that will go into effect mid to late year.
So.
Early in the end of the year, we also have.
Operations from projects that when CODI last year and this year that will add.
And we expect this year that will also add to the performance, but we also have the.
The funding cost for debt at the parent company level that needs to be considered into 2023. So it's really not any change from how it was had been looking at it all along from an Investor day, considering all those factors other than we're constantly looking as I mentioned before at the whole macro environment and other impacts to the business.
Okay. That's helpful. Thanks.
Yes sure.
Thank you Michael.
With our next question comes from Julien Dumoulin Smith from Bank of America, Tony Your line is now open.
Hey, good morning, Thanks for the.
I appreciate it.
Just coming back real quickly here and I know you guys addressed this a little bit the 6% to 7% CAGR first off when you talk about the assumptions embedded is it still assuming the same power curve from last year or how do you think.
Reaffirming your words, I think a moment ago.
Today relative to incorporating some of the assumptions from last year and one of the big Delta would potentially be power. How do you think about the mark to market, there and what what the curve is.
We look at I mean, we called out a couple of things had interest rates macro environment. We look at all these things combined to see how comfortable we are with the guidance, we havent changed.
Some of the things I mentioned like.
Vacate.
Assumptions in terms of investments in terms of expected ROE and capital structures.
Capex across the business megawatts et cetera, but we do when we are trying to determine our 2023 budget, we do which came after investor day, we do deep dive focuses on all of our expectations for 2023, So we take those into account and anything else that we believe.
Believe could be impacted for positive or negative in the long term and that's how we get comfortable.
With maintaining a 6% to 7%.
Maybe just to remind you that 70% of our.
Our earnings are linked to Ppas right, we're not subject to this change can be bonkers and also just also to highlight that yes, we were quite prudent when we made our budget.
In 2022, we saw basis is an important victory in some.
Eastern assets.
Prudence in our 2023 budgets.
Yes.
That's why I think it's important to note that two.
70% of the renewables business, which is less than 30% of the corporate earnings are for Ppas and we do when we look at pricing consider basis risk and curtailments and are prudently managing around dose.
Got it.
Basically the way to say that your power curve assumptions haven't K havent changed formally for the range, but given the mark to market today Youre still within the range is that the way to read it.
I'm, saying, we look at a lot of different things pluses and minuses and we're not calling out everything thats in our.
Long term everyday every assumption that's in our long term outlook.
Does it have a negative because then you're just going to build single things that will just basically saying yes.
But within the range when you.
Yes, when we consider everything.
And maybe the follow up related to that would be when do you think about coming out with an updated <unk> long term outlook and then.
To that Ed.
Do you think that you could be in a visit to give kind of a cleaner number given the the gains et cetera, There's a lot of lumpiness within the adjusted adjusted EPS Bill What point do you think we get kind of a cleaner view on the outlook for the business without kind of the jump in PNM here for instance, and then related to that what's the timeline do you think for <unk>.
It seems like the commission and others are keen to resolve.
What's your sense on when you are able to get that clarity given some of the other sort of logistical and pending matters on this date.
If I can respond to both I think first of all we have confirmed <unk> 25. So I think we don't have any data I know that we will come back.
It's clear we're working on with an update in our onshore business plan I think we're working on updating.
You know the water transmission approval last week. So we're working on that to come back to us a very material amount of sales CPA.
<unk>. So we will we will have to come back to you with updates it seems to me that most of the debates on more things happening.
And in a listing happening I think on PNM.
I Hope Youre right I think with respect as you know the process. There is a new commission the commissioners already respectful they have be confirmed and I think we're just right now work.
Working with them to see with the commission that we're working.
With the parties in or try to come back to the commission. So we are just waiting right now.
If there is something there is going to be in the upcoming weeks.
Thank you.
Final question is from Angie Swarovski from Seaport Research partners Angie Your line is now open.
Thank you. So I just wanted to go back to the.
Our earnings supplemental earnings.
What happened with networks earnings in the fourth quarter, because it seems like.
The year over year Delta.
Is this pretty harsh, especially for the fourth quarter earnings.
You clearly made your.
Consolidated Etfs against market expectations, mostly through the renewables business, but both networks looks weak and.
You were suggesting that there is basically flat earnings year over year roughly for that business in 'twenty, three if I understand correctly because of the timing of rate cases, but again.
I would argue that the 'twenty two earnings from networks, where a relatively weak now.
So yes, let me just go through a couple a couple of things there Andy.
For the fourth quarter, specifically for our networks we.
We did have the ongoing impact of rate increases.
In New York, and Maine that was about $16 million and we had a small amount of capitalized labor.
And some benefit from taxes slightly also had ongoing.
Cost of the business, which is including all across the business higher vegetation management spend.
Other costs of the business, we had personnel costs that were higher that was primarily due to growth.
Including some that were in our prior J P and in New York, We had depreciation as we put.
<unk> had new fixed assets put in place and then if you look quarter over quarter.
There is also a negative in finance costs, that's really from any <unk>, because we have that.
It was about $6 million there that was.
In the fourth quarter of 2021, but not in the fourth quarter of 2022.
So that's really for the quarter with what's been timing wise, what's been driving the business to the costs.
So if I can make a comment on please carefully noted Scott comment as needed.
I'm very proud that we have delivered almost when I say almost as long as 100% of the budget, we have for the year at <unk>.
I am very happy so that's why we wanted to do the same thing in 2023, and perhaps putting a little if you want to add anything to Patricia.
I will just add Angie this is traditionally the.
Profile that we have in networks.
Towards as we get towards the fourth quarter. Some of those expenditures that Patricia was talking about typically flow through so what we really target for is the total year EPS.
Okay, well, but you've never provided us with those segmental earnings targets right I mean, I understand that you're showing us on a quarterly basis.
I would like to open till even 23, you're not showing you what is the target for networks right.
Would you consider providing us with segmental guidance.
I think we used to do that.
I think we have decided to move more of the commitment as a company.
To do that industrial we will explain in the data every quarter, but we prefer to stay with a commitment to do the whole company.
Okay, and just one last one so you mentioned that you considered asset sales to offset equity needs. It.
It seems like we have had we have a number of pending processes of asset sales on the renewable side they seem to be getting delay there was some questions about how the higher cost of financing impact severity of these assets have you looked at.
<unk>.
Again potential monetization of.
Existing assets or projects.
Undeveloped projects and how the markets.
These assets versus what you had expected a couple of years ago.
Okay.
The answer is yes.
We are working on different processes, we have interest from from buyers I think youll see the recent transactions both in Europe and the U S. The market continues to be there.
I think interest rates as we correctly say may go up now, but people, who expect interest rates to go down a year from now or three quarters from now so I think that's the amount of money coming into the funds have no change you have you know a lot of money going into the funds. So from that point of view it and dooku considered transaction, we have close of the level at the group level already three or four in the.
Six months and I think if you review the RW transaction with EU review some of the other transactions in offshore going on it seems to me that the appetite is there. So there is no change in dynamics right now in the M&A market for renewables that will all those other processes I cannot comment I think we're very pleased with our assets we believe in <unk>.
Tier one is there are very unique is not.
Not everybody has the third largest onshore operations in the U S. Onshore I think you know nobody has.
How much commitment as we go through real projects in offshore so from that point of view when you look at those assets.
The appetite is there and the interest is there.
<unk> seen any change at all.
Thank you and thank you all for your questions.
I will now pass it over to Petro S Mcgrath for closing remarks.
2022 was a highly successful year for ABA and great. Thanks to our increased focus on execution and risk management, which enable us to meet or exceed our financial commitments and positions us for continued success in 'twenty three.
We believe the moment is right for a unique reimbursement opportunity that govern grid in.
In the year ahead, we look to leverage the solid foundation provided by our largely regulated business mix to drive secure a stable and profitable growth at gross oven grid as.
As we look to deliver on our commitments in 2023, we will prioritize completing our PNM resources merger.
For us it depends on US closing our rate cases to balance cash flow earnings and customer affordability and resulting in the CEC legal matters.
Our disciplined investment strategy will ensure optimal use of our capital with a sharp eye on balance sheet strength solid credit agencies on liquidity.
As a rotation, which includes as we announced up to $2 billion at least in sell opportunities throughout 2025 from partnerships are a key element of that strategy. Our investment plans are well aligned with the state and federal clean energy policies, we are driving faster decarbonization across our own operations.
On enabling a broader energy transition through first in the nation offshore wind expand of onshore renewables and by developing clean energy transmission grid infrastructure.
In each of these activities, we benefit from the expertise of scale and a strong financial backing of our EBIT dollar growth. Although we are part of.
If we leverage these strengths will and capitalize upon this upsides of our plan I am confident that we will continue to deliver on our commitments on extent our trend of solid execution.
Thank you again for joining us today for our fourth quarter call. If you have any other questions. Please follow up with our Patricia buy sell for the rest of the IR team. Thank you very much on profitability.
Thank you.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Yeah.
Yeah.