Avangrid(US:AGR)2023-10-25 16:00PART I. FINANCIAL INFORMATION Financial Statements Presents Avangrid's unaudited condensed consolidated financial statements for Q3 and 9M 2023 and 2022, including income, balance sheets, and cash flows Condensed Consolidated Statements of Income (Q3 & 9M 2023 vs 2022) | (Millions, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $1,974 | $1,838 | $6,027 | $5,765 | | Operating Income | $89 | $112 | $480 | $635 | | Net Income | $31 | $106 | $297 | $694 | | Net Income Attributable to Avangrid, Inc. | $59 | $105 | $389 | $734 | | Earnings Per Share, Diluted | $0.15 | $0.27 | $1.00 | $1.90 | Condensed Consolidated Balance Sheets (As of Sep 30, 2023 vs Dec 31, 2022) | (Millions) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $3,058 | $3,210 | | Total Property, Plant and Equipment | $32,068 | $30,994 | | Total Assets | $42,386 | $41,123 | | Total Current Liabilities | $3,927 | $4,416 | | Total Non-current Liabilities | $18,084 | $16,365 | | Total Liabilities | $22,011 | $20,781 | | Total Equity | $20,375 | $20,342 | | Total Liabilities and Equity | $42,386 | $41,123 | Condensed Consolidated Statements of Cash Flows (9M 2023 vs 2022) | (Millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $757 | $894 | | Net Cash Used in Investing Activities | ($2,024) | ($2,020) | | Net Cash Provided by (Used in) Financing Activities | $1,279 | ($288) | | Net Increase (Decrease) in Cash | $12 | ($1,414) | Note 1: Background and PNMR Merger - Avangrid is an energy services holding company with two main subsidiaries: Avangrid Networks (regulated transmission and distribution) and Avangrid Renewables (renewable energy generation) Iberdrola, S.A. owns 81.6% of Avangrid's common stock29 - The proposed merger with PNM Resources (PNMR) is pending The NMPRC rejected the merger agreement in December 2021, and Avangrid/PNM have appealed to the New Mexico Supreme Court, with oral arguments held on September 15, 2023 The outcome is not predictable3031 - The merger agreement's 'End Date' has been extended multiple times, most recently to December 31, 2023, with an option for a further 90-day extension upon mutual agreement34 Note 4: Revenue - The Networks segment primarily generates revenue from tariff-based sales of electricity and natural gas The Renewables segment's revenue comes mainly from the sale of energy, capacity, and renewable energy credits (RECs) from its wind, solar, and thermal facilities4855 Disaggregated Revenue by Segment (Nine Months Ended Sep 30, 2023) | (Millions) | Networks | Renewables | Other | Total | | :--- | :--- | :--- | :--- | :--- | | Regulated operations – electricity | $3,602 | $— | $— | $3,602 | | Regulated operations – natural gas | $1,158 | $— | $— | $1,158 | | Nonregulated operations – wind | $— | $638 | $— | $638 | | Derivative revenue | $— | $335 | $— | $335 | | Total operating revenues | $4,936 | $1,092 | ($1) | $6,027 | - As of September 30, 2023, the company expects to recognize $357 million in future revenue from unsatisfied performance obligations on multiyear contracts, with $161 million expected in 202464 Note 5: Regulatory Assets and Liabilities - On October 12, 2023, the NYPSC approved a three-year rate plan for NYSEG and RG&E, effective November 1, 2023, with a make-whole provision back to May 1, 2023 The plan allows a 9.20% ROE on a 48.00% common equity ratio7275 - On June 6, 2023, the MPUC approved a two-year rate plan for CMP, providing for a 9.35% ROE on a 50% equity ratio, with rate increases beginning July 1, 20236869 - On August 25, 2023, PURA issued a Final Decision on UI's one-year rate plan, allowing a $23 million rate increase based on a 9.1% ROE (reduced to 8.63% by adjustments) UI has appealed this decision in Connecticut Superior Court91 Regulatory Assets and Liabilities Summary | (Millions) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total regulatory assets | $3,057 | $2,768 | | Key Components: | | | | Storm costs | $767 | $671 | | Unfunded future income taxes | $545 | $492 | | Total regulatory liabilities | $3,073 | $3,269 | | Key Components: | | | | 2017 Tax Act | $1,198 | $1,232 | | Accrued removal obligations | $1,150 | $1,178 | Note 8: Contingencies and Commitments - Commonwealth Wind terminated its PPAs with Massachusetts EDCs, agreeing to a $48 million termination payment The DPU approved the termination in August 2023212 - Park City Wind terminated its PPAs with Connecticut EDCs, agreeing to an approximately $16 million termination payment PURA approved the termination in October 2023213 - The NECEC project has committed to approximately $90 million in future payments for various programs in Maine, which were suspended during the construction halt and restarted in July 2023216 - As of September 30, 2023, Avangrid had approximately $801 million of outstanding standby letters of credit, surety bonds, and guarantees214 Note 13: Segment Information - The company's two reportable segments are Networks (regulated energy transmission and distribution) and Renewables (renewable energy generation and trading)241 Segment Financials (Nine Months Ended Sep 30, 2023) | (Millions) | Networks | Renewables | Other (Corp/Elim) | Total | | :--- | :--- | :--- | :--- | :--- | | Revenue - external | $4,935 | $1,092 | $0 | $6,027 | | Operating income (loss) | $531 | ($46) | ($5) | $480 | | Adjusted net income (loss) | $364 | $170 | ($100) | $434 | | Total assets (as of Sep 30, 2023) | $29,161 | $13,926 | ($701) | $42,386 | Note 19: Equity Method Investments - Renewables holds a 50% indirect ownership interest in Vineyard Wind 1, LLC, a joint venture for offshore wind development This entity is considered a Variable Interest Entity (VIE) but is not consolidated281283 - In Q3 2023, Renewables made a capital contribution of $78 million to Vineyard Wind 1 The carrying amount of the investment was $87 million as of September 30, 2023283 - On October 24, 2023, Vineyard Wind 1 closed a tax equity financing (TEF) agreement and is expected to receive approximately $1.2 billion from investors as project milestones are met284 Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on Avangrid's financial condition and results, covering business overview, risks, regulatory updates, and liquidity Overview - Avangrid operates two primary businesses: Avangrid Networks, serving ~3.3 million utility customers in New York and New England, and Avangrid Renewables, with 9.2 GW of owned and operated generation capacity, primarily wind and solar288290292 - The company is pursuing a merger with PNM Resources (PNMR), which would expand its regulated utility presence to six states The merger is pending a decision from the New Mexico Supreme Court after being rejected by the NMPRC295299 Business Environment - The company is monitoring risks from global economic conditions, including inflation and supply chain disruptions Specific concerns include a DOC anti-circumvention petition on solar panels, potential maritime crewing legislation affecting offshore wind, and an inquiry from the U.S. Fish and Wildlife Service regarding eagle fatalities305306307309 - In June 2023, U.S. Customs and Border Protection (CBP) denied entry to ~220 MWs of solar modules intended for two projects due to insufficient documentation under the Uyghur Forced Labor Prevention Act (UFLPA) Avangrid has since entered an agreement to assign these modules to an Iberdrola subsidiary310 Legislative and Regulatory Update - The New England Clean Energy Connect (NECEC) project resumed limited construction on August 3, 2023, following a favorable jury verdict that the project had obtained vested rights, preventing a retroactive voter initiative from halting it329331 - A government-run power referendum, which could lead to the seizure of investor-owned utility assets, was certified for the November 2023 ballot in Maine334 - The NYPSC approved the 2023 Joint Proposal for NYSEG and RG&E, which includes provisions supporting the state's Climate Leadership and Community Protection Act (CLCPA), such as increased funding for energy efficiency and system enhancements for electrification348 - The Inflation Reduction Act of 2022 (IRA) is effective for the company starting in 2023 While the company expects to incur the new Corporate Alternative Minimum Tax (CAMT), it is not expected to have a material impact on earnings or cash flow351352 Results of Operations Q3 2023 vs Q3 2022 Performance Summary | (Millions) | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $1,974 | $1,838 | +$136 | | Operating Income | $89 | $112 | -$23 | | Net Income Attributable to Avangrid | $59 | $105 | -$46 | - Q3 2023 vs Q3 2022 Changes: - Networks Revenue: Increased $41 million, primarily due to rate increases in New York - Renewables Revenue: Increased $94 million, driven by higher wind/solar generation, favorable trading, and positive mark-to-market changes - O&M Expenses: Increased $166 million, largely due to a $40 million offshore contract provision, increased corporate costs, and higher flow-through amortizations (offset in revenue) - Interest Expense: Increased $31 million, mainly from higher debt balances and rates358359362366 - 9M 2023 vs 9M 2022 Changes: - Renewables Revenue: Increased $271 million, driven by higher generation, favorable trading, and significant positive mark-to-market changes - Networks O&M: Increased $182 million due to higher business costs, personnel expenses, and uncollectibles - Equity Method Earnings: Decreased by $256 million, primarily because the 2022 period included a $246 million pre-tax gain from the offshore joint venture restructuring369373376 Non-GAAP Financial Measures - The company uses non-GAAP measures like Adjusted Net Income and Adjusted EBITDA to evaluate performance Adjustments exclude mark-to-market earnings, COVID-19 costs, PNMR merger costs, and an offshore contract provision380381 Reconciliation of Net Income to Adjusted Net Income (Q3 & 9M) | (Millions) | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income Attributable to Avangrid | $59 | $105 | $389 | $734 | | Mark-to-market earnings | $23 | $22 | $19 | $17 | | Merger costs | $1 | $1 | $2 | $3 | | Offshore contract provision | $40 | $— | $40 | $— | | Income tax impact of adjustments | ($17) | ($6) | ($16) | ($6) | | Adjusted Net Income | $105 | $122 | $434 | $749 | Liquidity and Capital Resources Liquidity Position | (in millions) | As of Sep 30, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $75 | $69 | | Avangrid Credit Facility | $3,575 | $3,575 | | Iberdrola Group Credit Facility | $750 | $500 | | Less: borrowings (Commercial Paper) | ($954) | ($397) | | Total Liquidity | $3,446 | $3,747 | - The company expects to incur approximately $1.1 billion in capital expenditures for the remainder of 2023408 - In July 2023, the company entered into an $800 million green term loan agreement with Iberdrola Financiación, S.A.U., maturing in 2033404 Quantitative and Qualitative Disclosures about Market Risk States no material changes in market risk exposures during the nine months ended September 30, 2023, compared to the 2022 Form 10-K filing - There have been no material changes in market risk during the nine months ended September 30, 2023, as compared to those reported for the fiscal year ended December 31, 2022423 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal controls during the quarter - Based on an evaluation by management, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report425 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting426 PART II. OTHER INFORMATION Legal Proceedings Refers to Note 8 (Contingencies) and Note 9 (Environmental Liabilities) for information on potentially material legal proceedings - For a discussion of potentially material legal proceedings, the report refers to "Note 8—Contingencies" and "Note 9—Environmental Liabilities" in Part I, Item 1430 Risk Factors Advises shareholders and investors to consider risk factors previously disclosed in the company's 2022 Form 10-K - The report refers shareholders and prospective investors to the risk factors disclosed in the Form 10-K for the fiscal year ended December 31, 2022431 Other Required Disclosures Confirms no unregistered equity sales, no defaults on senior securities, and no new Rule 10b5-1 trading plans by directors or officers during the quarter - The company reports no unregistered sales of equity securities or defaults upon senior securities during the period432433 - During the quarter ended September 30, 2023, no directors or executive officers entered into new trading plans intended to comply with Exchange Act Rule 10b5-1436