Avangrid, Inc. (NYSE:AGR) Q4 2022 Earnings Call Transcript

Avangrid, Inc. (NYSE:AGR) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Ladies and gentlemen, welcome to Avangrid’s Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Glen and now will be coordinating your call today. I will now turn the call over to Alvaro Ortega, Vice President of Finance, Investor Relations and Treasury. Please go ahead.

Alvaro Ortega: Thank you, Glen and good morning to everyone. Thank you for joining us today to discuss Avangrid’s fourth quarter and full year 2022 earnings results. Presenting on the call today are Pedro Azagra, our Chief Executive Officer; and Patricia Cosgel, our Chief Financial Officer. Also joining us today for the question-and-answer part of the call will be Catherine Stempien, President and Chief Executive Officer Avangrid Networks; and Jose Antonio Miranda, Chief Executive Officer and President of Avangrid Renewables. Other members of the executive team are also joining us today and may be called upon to assist with the Q&A part of the call. If you do not have a copy of our press release or presentation for today’s call, they are available on our website at avangrid.com.

During today’s call, we will make various forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 and 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 assumptions are incorrect or because of other factors discussed in Avangrid’s earnings news release and 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, avangrid.com. We do not undertake any duty to update any forward-looking statements.

Today’s presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today’s presentation for definitional information and reconciliations of non-GAAP financial measures to the closest GAAP financial measures. I will now turn the call over to Pedro.

Pedro Azagra: Okay. Thank you, Alvaro and good morning, everyone. We appreciate you joining us for our fourth quarter and full year results presentation. I’d like to thank the Chairman and the rest of the Board, the rest of the Iberdrola Group and all my team present with me, I’m not present with me today and every single employee of Avangrid 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, consumer representatives, investors, analysts. We are here to serve all of you and we are very proud of doing that. I think 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 accomplished our objectives and have now delivered double-digit net income growth 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 a 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 $2.28 per share and adjusted EPS has grown 7% and year-over-year to $2.33 per share. In adjusted EPS, we have exceeded the midpoint of our 2022 guidance range of $2.20 to $2.38 per share and surpassed the analyst consensus of $2.07 per share from the first quarter of the year. In Networks, we invested $1.9 billion and grew our rate base by $1 billion or 8% to $12.7 billion.

We also achieved significant operational improvements with successful response to Winter Storm Elliott, which impacted over 0.5 million of Avangrid customers, recognition from EI for April 2022 was non-storm in New York and mutual aid provided to Nova Scotia and Luciana, and enhanced reliability performance, including double-digit improvement to average SAIFI and SAIDI. In Renewables, we are focused on ensuring disciplined and prudent growth. We placed nearly 400 megawatts of new capacity into operation, including our first large-scale solar project, and we are advancing construction of approximately 1.4 gigawatts on and offshore. This includes Avangrid’s 806 megawatts Vineyard Wind 1 project, which is progressing on schedule to reach full commercial operations next year.

We are very pleased with our strong performance for the year. We have set a 2023 outlook for our earnings per share of $1.90 to $2.10 per share or $2.20 to $2.35 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 $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 $2.29 per share. Let’s turn on to page six. I believe that when it comes to execution, our actions speak the loudest, no company and no industry comes without challenges, what matters most is to deliver solutions. As you can see here, our team is taking action on the things we pledged to deliver.

To start in New Mexico, we extended our merger agreement with PNM Resources and a new public regulatory commission has been seated. The new commissioners are each highly experienced individuals with deep knowledge of the challenges and opportunities, the energy transition will bring as well as the central role of utilities in 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. Avangrid’s Vineyard Wind 1 will bring clean energy to 400,000 Massachusetts homes and businesses and support more than 3,000 full-time equivalent jobs over the project’s lifetime.

And we are working with our stakeholders to address macro pressures on our other new inland 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 PPAs for Commonwealth Wind, we remain fully committed to our offshore business. We are on track to bring the first large-scale project to successful completion. This is not a question of commitment or capabilities, but rather of a unique economic situation. We believe that offshore win 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 existence of a price cap prevent us from moving Commonwealth Wind forward and the viable economic conditions.

Avangrid is fully committed to option wind and to Massachusetts, but we must always be disciplined investors, particularly given the size of the investments on the table. For Commonwealth, this means we expect to repeat the project in the upcoming solicitation. With regards to Park City Wind, we’re initiating over sections with the key stakeholders in Connecticut to address these issues. Regarding our regulated utilities, we filed rate cases in all jurisdictions and enhanced our engagement and relationship building. Ahead of our rate case filings, we ensured we had a stronger bridge plan in place and held over 160 meetings with the stakeholders to discuss our proposals and listen to their feedback. As strengthened by this proactive engagement, the proposals we put 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 from May. In Maine, we filed rebuttal testimony and we plan to begin settlement discussions shortly. hearings started in Connecticut last week. And in Massachusetts, we successfully closed the rate case placed — the rate case process and new rates are already in place. 2022 also brought important successes for our New England Clean Energy Connect, NECEC project. We received favorable rulings from the main low court on two critical items. First, in August regarding our legal challenges to the main referendum that resulted in the halting of construction of NECEC.

And second, in November, upholding our lease of a small section of public lands for the project. The low court additionally denied a motion to reconsider its decision, meaning that the issue of lease 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 NECEC 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 confirming the current challenging market environment by successfully renegotiating 780 megawatts of wind and solar PPAs in 2022. We are also pursuing partnerships and asset rotation opportunities that helped mitigate capital needs and maximize the value of our robust pipeline.

Turning to slide number seven. Since I was appointed as CEO, we put in place a highly skilled, diverse, and stable management team that is driving successful execution in multiple critical areas. First, delivering 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 enable 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, renegotiating multiple onshore PPAs, addressing misinformation around customer build 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, these strategic actions we are taking reinforce our trend towards consistent execution and provide a solid foundation for future growth and delivery of our long-term commitments. In 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 stream 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, in most cases, with over 20% growth from year-to-year.

Looking at adjusted net income, we outperformed consensus expectations from the start of 2022, which 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 since Avangrid 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’ll keep building up on this trend well into the future.

This is an objective we can’t and want to 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, SAIFI has improved by 10%, SAIDI by 16%, and CAIDI has improved by 7%. Over the last years, we have seen a trend towards more frequent and intense storms and 2022 was an exception.

I’m 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, Avangrid delivered exceptional storm response for our customers, navigating harsh conditions, both near and apart from home. For example, between November and December, our New York and main companies were hit by seven and four major storms, respectively. The most severe was Winter Storm Elliott, which knocked out of power to more than 0.5 million Avangrid customers over the holidays. We responded quickly and effectively outperforming some of our neighboring utilities. In hardest hit, Maine where outages exceeded 300,000, nearly all CMP powers customers were back online by day four.

Over half of CMP customers were restored by day two. In New York, virtually every customer had power back by day two 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 Elliott, but in responding to the dozens of storms we faced in 2022 and the work we do every single day. These efforts over the course of the year earned well-deserve recognition from regulators and local stakeholders as well as from EEI. In addition, we are focused on increasing digitalization and providing customer support to enhance satisfaction, reduced costs, improved cash flow, and help address pressures cost by the current macroenvironment and recent generation rate increases across the Northeast.

Over the last year, we’ve expanded our EB program by 16% to 1.2 million customers and increased mobile app downloads by 73% to 840,000 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 the state officials to reduce our and offer bill assistance. To help address this issue across New York, the PSC approved two phases of utility customer assistance. Phase 1, targeting residential low-income customers, provided $59 million approximately in state funds for NECEC and RG&E. NECEC and RG&E expect to receive approximately $34 million in Phase 2, which was approved in January, and will offer assistance to non-low income residential and small businesses customers.

After consistently meeting our customer service performance goals, the main PUC in February removed the 100-basis points adjustment on CMP’s return on equity. Lastly, we are 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 low court and FERC that resolve or materially address critical challenges to our NECEC project. Turning now to slide 10. Successfully closing our rate cases is one of our top priorities for our regulated business 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 affordable service, to expand access to clean energy, or to enhance operational performance.

We are making steady progress with Massachusetts successfully settled and the process advancing in other states, our expectation is to have new rating effects across all 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 investments over the next three 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 are aiming to secure multiyear agreements, which will provide better rate stability for our customers. In New York, we are currently in the middle of certain negotiations with all parties.

We expect new rates for NECEC and RG&E to be effective as of May 1st date. As part of this process, we are also seeking authorization to move forward with multiyear investments in our CLCPA Phase 1 transmission portfolio. In May, we filed rebuttal testimony earlier this month and are preparing to enter settlement discussions shortly. We expect CMP’s new rates to be effective in July. In Connecticut, in , and rebuttal testimony were filed in December and January. And last week, we began — share hearings. For UI, 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 large-scale offshore wind park, Avangrid’s 806 megawatts Vineyard Wind 1 project.

With supply fully contracted and manufacturing of all components underway, labor costs fixed or capped and financing secured with interest rate hedge and no foreign exchange risk, Vineyard Wind 1 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. Today, equipment installation at the onshore surface station is fully complete and cold commissioning has started. 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 Avangrid Vineyard Wind 1. This is a significant project for our company, for the country, and for Massachusetts, and we are proud to make it possible.

We also continue to advance the development of our two other new inland projects, Park City and Commonwealth Wind. As we collaborate with the 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 environmental impact statement. This will ensure that in the event that we reach a successful outcome, we can move forward with this project 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 Commonwealth Wind in our 2022-2025 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 operation 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 8.6-gigawatt fleet, which in 2022 operated with over 97% availability, an early two percentage point increase from just three years before in 2019. Additionally, our fleet has consistently maintained solid performance and even outperformed during extreme weather events with major generation outages, including a strong Uri in Texas in 2021 and Winter Storm Elliott in 2022.

Additionally, we successfully worked with our suppliers to secure panels for the 480 megawatts, we are constructing with COD this year. All of these panels have already been delivered on site and are in customs waiting to be released. We have several supply frameworks in place for the main equipment needed in our near-term pipeline with COD in 2024, which adds certainty to these projects and mitigate risks. We’re also continuing to explore opportunities to deploy in green hydrogen, leveraging our expansive onshore footprint and development and operational expertise to value to the renewable business. Our team is focused on building out a portfolio of commercial projects, along with the network suppliers and experienced partners. As you know, we announced in 2022, an agreement with Sempra Infrastructure to support potential joint development efforts.

In addition, we are actively engaged in seven coalitions for the Department of Energy’s Hydrogen Hubs Program. Final applications for this program are view this spring and awards are expected to be announced in fall 2023. As we look to the future, we are seeking to maximize the value of our robust to 20-gigawatt onshore pipeline, leveraging the attractive environment created by IRA. We are pursuing opportunities to create value through repowering, targeting the repower of more than half of our fleet by 2035, and leveraging solar PTC optionality and attractive hydrogen credits to improve project economics and generate future growth. Let’s turn to slide 13. As part of the Iberdrola Group, we have been focused on sustainable leadership and value creation for decades.

Our ESG+F position is a key part of our business profile. We are proud to lead our peers today with a cleaner generation mix, beating the top renewable operators in the country and an emissions intensity six times lower than the average US utility and to have created a robust set of goals to keep us ahead well into the future. Regarding our environmental efforts, Avangrid was the first US utility to establish a goal for carbon neutrality in our generation fleet. At our last Investor Day, we announced we would expand our goals to cover Scopes 1 and 2 neutrality by 2030, putting us ahead of most — almost other major US utilities. We are also developing a strategy to address Scope 3. 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 and that we serve, I also want to acknowledge our recognition and commitment to observing Black History Month. Through Avangrid, African-American Council for Excellence, we had focused activities that celebrate our own employees and their experiences, hosted external speakers, and highlighted community relationships that increase our reach and impact. We work actively to maintain the highest ethical standards and the best business practices across our organization.

As a result, we have been named One of the World’s Most Ethical Companies by Ethisphere since 2019. Our focus on financial performance and sustainability makes it all possible. In 2022, we both delivered on our annual earnings commitment and applying a disciplined value-driven plan to create healthy and predictable growth over the next three years. In addition, we closed on nearly $800 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 Avangrid to its list of America’s Most Just Companies for the third year on a row. Avangrid is one of the just two US utilities recognized by S&P in its 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.

Patricia Cosgel: Thank you, Pedro. Good morning everyone. Since our company’s formation in 2015, Avangrid 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 growth opportunities and we have demonstrated success. Importantly, looking over the long-term, net income has grown by 85% or $404 million from our 2015 pro forma results to 2022. Our adjusted 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 stronger 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 in our 2022 earnings performance. For the full year 2022, our net income was $881 million, an increase of $174 million or 25% compared to 2021, 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 of a 100-basis point ROE adjustment in 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, a 2021 benefit from the storm Uri in Texas. Excluding this, 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 the NECEC AFUDC that we had in 2021 and depreciation. We had a consolidated net tax benefit 2022 that was approximately equal to 2021. In the business segment, it shows as a positive in renewables, primarily due to the release of a valuation 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 corporate.

For a business breakdown, we wanted to highlight the high percentage of Networks’ adjusted EBITDA with tax credits within Avangrid’s 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 in 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 COD in 2022 and that we expect to reach COD 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 raise 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 bonds. We were able to lock in competitive rates ranging from 2.25% to 4.96%, 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 defer debt and financing costs in the interim. In 2023, we look forward to closing on our merger with PNM Resources with Avangrid 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 and absent incremental asset sale proceeds that are not included in the 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 $3.575 billion sustainability-linked credit facility and we have a $500 million intercompany line of credit with Iberdrola. Iberdrola has also provided us with a $4.3 billion commitment letter that backs up 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 Iberdrola Group, which also has strong liquidity of approximately €25 billion, covering 27 months. Finally, our dividend policy remains unchanged. We’re targeting a payout of 65% to 75% that we will grow into as our earnings increase over time, subject to Board approval.

Importantly, our dividend yield of 4.36% exceeds the sector average of approximately 3.14%. Our Board recently declared a quarterly dividend of $0.44 a share payable on April 3rd, 2023. 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 $2.35 per share. We expect 2023 adjusted EPS to be relatively flat compared to our 2022 guidance and note that excluding the offshore win gain in 2022 and asset sale proceeds in 2023, our expected adjusted EPS results increased by approximately 9%. 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.

C&M is included in our guidance starting in mid-2023. And based on public information and our internal estimates, we have assumed EPS of approximately $0.30 in 2023 for P&L. 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 actions, storms and weather-related events the restart of the NECEC construction, thermal and asset management results, taxes and financial interest, business costs, and uncollectible. 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, but also include estimated proceeds from potential partnership transactions for new projects with CODs expected in 2024 and 2025.

In total, we are estimating pre-tax earnings benefit of approximately $125 million. Finally, today, we are also confirming our 6% to 7% CAGR in our adjusted EPS through 2025 based off a midpoint that is — based off a base that is the midpoint 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 focus 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, Glen, for questions, followed by closing remarks from Pedro.

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Q&A Session

Operator: Thank you. We have our first question comes from Richard Sunderland III from JPMorgan. Richard, your line is now open.

Richard Sunderland: Hi, good morning and thank you for the time today. Starting with the 2023 outlook. You ran through a lot of the details just at the end there, I wanted to confirm some of the pieces. The $125 million pre-tax gain, if I heard that correctly, that’s inclusive of both Kitty Hawk and the onshore partnerships? I think in the past; Kitty Hawk was tapped for about $100 million. Is that 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 Kitty Hawk have changed since the fall?

Pedro Azagra: No, I think there is no change. Again, this is two examples of the different options that we have to obtain those proceeds, okay. It’s not just those two examples you give, but I think there is no change in specifically having those assets targeted the 60/40 for some assets in development of onshore and then the Kitty Hawk among other things because we’re looking into several things right now from an asset rotation point of view.

Richard Sunderland: And then in terms of the onshore piece within that you mentioned 2024 and 2025 CODs. Would the sum total of the gains there come in 2023? Or would you still expect to have 2024 and 2025 EPS contributions from those partnerships in terms of the gains themselves, not recurring earnings?

Pedro Azagra: In 2015, I think we had almost nothing long-term projections from EPS.

Patricia Cosgel: Yes. We had — we actually had the project COD in 2024 and 2025. And these are projects, COD 2024 and 2025 and a long-term outlook. I think we had $15 million of pre-tax in each year.

Richard Sunderland: 15?

Richard Sunderland: Okay. Got it.

Patricia Cosgel: We always — sorry, Richard, just my comment was we’re always looking for 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.

Richard Sunderland: Okay, got it. And sorry, just one last follow-up on the guidance itself. The $0.30 from PNM based on a mid-year close. Is that kind of all in with the financing cost or is that a separate contribution just from the PNM acquisition?

Patricia Cosgel: That’s PNM’s contribution. It’s not inclusive of any other–.

Richard Sunderland: Okay, got it. Thank you. And then just for my second question, the 6% to 8% and reiterating the outlook there, I noticed you referred back to the fall update for that. Does that then consider, I guess, 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 or any other changes relative to the fall that might impact the — sorry, the 6% to 7% EPS CAGR?

Patricia Cosgel: Yes, I was just going to say it was 6% to 7% of the EPS CAGR. So, we are affirming that today. And we do consider changes in the macro environment that have gone on since that point in time. I think what we’re — when we refer back to Investor Day, we’re 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 and investments rate base, all of that is unchanged. But we do look at other things as we narrow the range and got closer to this disclosure.

Richard Sunderland: Got it, very helpful. Thanks for the time today.

Operator: Thank you, Richard. We have our next question comes from David Arcaro from Morgan Stanley. David, your line is now open.

David Arcaro: Okay. 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?

Pedro Azagra: I’m afraid that is confidential.

Patricia Cosgel: Sure. Thanks David. I’ll update you as much as I can. Right now, we have an extension until March 6th 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 from May. And I will note that historically, the commission has been — have looked favorably upon make-whole agreements for rates. So, we’re working hard to see what we can do as soon as possible, but we’ll continue to hold those settlement negotiations as long as they’re productive.

David Arcaro: 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 bid that into the next auction, do you feel you have a good line of sight into the cost structure in terms of having a high level of confidence in the cost structure to be able to bid at a level that does protect your returns in this next round, but also be able to bid competitively. Just wondering if you could speak to how you think about positioning that strategically and particularly downside risk on returns?

Pedro Azagra: I think the first thing is, I think we need to terminate the existing contract. I think as we commented, we have already commented — declared our termination, but it has a process, so we need to finish that process. And then the rebid that will be in the May auction and then decisions in September and by the end of the year, the answer is yes. We’re very committed. What we are trying to do right now is also to make sure everybody understands that these situations that we have been suffering in the last quarters is not just to us. It’s worldwide and it has consequences. I think we see material deviations in many projects in onshore, in offshore, in substations, in many situations. And I think the important thing is also that when the auctions come out, keep in mind, you’ve seen some index considerations in other states in terms of the offshore development.

And I think that has to be taken into account. It will be very important in the actions that they take into account that the process takes so long that other things can happen in the middle and then there should be adjustments. But I think because of the work we have already done in the last more than three years, we’re probably as best positioned as we can to have as certain deals we can to making a new bid for this project because we continue working in the project, and we are committed to deliver this project.

David Arcaro: Okay, great. That’s helpful. Thanks so much.

Operator: Thank you, David. We have our next question comes from Michael Sullivan from Wolfe Research. Michael, your line is now open.

Michael Sullivan: Hey everyone. Good morning. Wanted to ask on just the latest on NECEC and some of the cost estimate updates and time line updates that you had in the fact book. And then maybe just a little more on what you mean by ensuring economic viability that was in the slide. So, is there any risk to this project at this point?

Pedro Azagra: I think if I can answer that, and please Catherine add up. It’s very simple. We have legal things ahead of us, and we need to finalize them. And also, we have to review the economics just to make sure that we get the right recovery of the costs we have incurred. There has been a change in law in this contract and that allows you not for updating the cost due to that change of law. So, I think those are the two things that we’re going to be working on. Catherine?