Avangrid, Inc. (AGR) Q4 2023 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights operational improvements and strategic investments, such as Vineyard Wind's progress and increased rate base, which are positive indicators. The Q&A section reveals a focus on organic growth and O&M optimization, with management addressing challenges like the Connecticut regulatory environment. While some uncertainties remain, the overall sentiment is optimistic, particularly with the company's focus on infrastructure needs and financial metrics improvement. The positive operational achievements and strategic focus outweigh the concerns, suggesting a likely positive stock price movement.
Key Financial Performance
Earnings Per Share (EPS) $2.03 (19% growth year-over-year) due to operational excellence and successful rate case approvals.
Adjusted Earnings Per Share $2.09 (19% growth year-over-year) excluding $181 million from offshore wind gain and $37 million from tax benefits in 2022.
Dividend per Share $1.76 (no year-over-year change mentioned) reflecting commitment to shareholders.
Investments Approved $9 billion (new investments) including $7 billion in regulated investments and $2.3 billion for CLCPA Phase 2.
Positive After-Tax Impact from Rate Plans $136 million ($0.35 per share) recognized in Q4 2023 due to new rate plans in New York.
Maine Investments Approved $380 million (new investments) to improve safety, reliability, and resiliency.
Cash and Liquidity $3 billion in liquidity covering 15 months, supported by cash from operations and successful rate basis.
Green Bonds Issued $1.3 billion (new financing) to fund investments in growth.
Tax Equity Financing $1.2 billion (for Vineyard Wind) to monetize project ITCs and accelerated depreciation.
Operating Capacity Increased from 8.3 gigawatts to 8.6 gigawatts with 311 megawatts commissioned in 2023.
New Projects Under Construction 998 megawatts (all ready to build with PPAs) including 700 megawatts for data centers.
Tax Credit Monetization Up to $100 million from existing wind assets, successful execution of tax credit transfer agreement.
O&M Costs Positive $0.01 due to optimization and cost savings, offset by depreciation from new assets.
Credit Ratings All ratings on stable outlook, projecting stable credit metrics without the need for equity issuance in 2024.
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Operating Highlights
New Projects: In 2023, Avangrid executed on its disciplined plan for selective and profitable growth in onshore renewables with over 300-megawatt installed capacity and 728 megawatts of new FIDs taken this year.
Power Purchase Agreements: Renegotiated three PPA contracts totaling 470 megawatts, increasing prices and avoiding more than $30 million of penalties.
Vineyard Wind 1: Significant progress in project construction with the first turbine successfully started in 2023.
Market Expansion: Received approvals for $9 billion investments, including multiyear rate case plans in New York and Maine, enabling over $7 billion of regulated investments.
Regulatory Approvals: First multiyear rate case for a utility in Maine in 15 years approved, allowing over $380 million of investments to improve safety, reliability, and resiliency.
Operational Improvements: Improved customer service metrics with 25 out of 31 metrics showing progress and best reliability performance since 2019.
Cybersecurity: Achieved a score of 97 out of 100 from Security Scorecard, surpassing average industry figures.
Strategic Decision: Decided not to proceed with the PNM Resources merger due to lack of final regulatory approvals, eliminating the need for previously announced equity issuance for 2024.
Diversity Goals: Reached target of over 35% women in executive positions.
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Risk or Challenges
Regulatory Risks: The company faced challenges in obtaining final regulatory approvals for the PNM Resources merger, leading to the decision not to proceed with the merger.
Supply Chain Challenges: The company successfully terminated power purchase agreements for Commonwealth Wind and Park City Wind, avoiding billions in potential write-offs, indicating prior supply chain challenges.
Economic Factors: The company operated in a high inflation environment, which posed challenges but was managed through strategic rate case approvals.
Competitive Pressures: The company is focused on maintaining competitive pricing and operational efficiency in the renewable energy sector, particularly in light of lower wind generation output and decreased merchant prices.
Weather-Related Risks: The company acknowledged the impact of weather on wind resource availability, which can affect production and pricing.
Cybersecurity Risks: Despite achieving a high cybersecurity score, the company remains vigilant about potential threats and vulnerabilities.
Operational Risks: The company is focused on optimizing operational and maintenance costs while managing depreciation from new assets.
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Guidance & Outlook
Investments Approved: Received approvals for $9 billion investments, including multiyear rate case plans in New York and Maine.
Rate Case Plans: New rate plans in New York have a positive after-tax impact of $136 million, or $0.35 per share.
Renewable Energy Projects: Executed a disciplined plan for selective and profitable growth in onshore renewables with over 300-megawatt installed capacity in 2023.
Cybersecurity: Achieved a score of 97 out of 100 from Security Scorecard, surpassing average industry figures.
Diversity Goals: Reached target of over 35% women in executive positions.
Vineyard Wind 1: Significant progress in project construction with the first turbine started in 2023.
Tax Equity Financing: Closed the first ever US tax equity financing of $1.2 billion.
2024 EPS Guidance: Introduced 2024 outlook ranges for EPS of $2.17 to $2.32, representing an 8% increase from 2023.
CapEx for 2024: Anticipating additional CapEx spending of over $600 million in 2024.
Dividend Policy: Targeting a payout of 65% to 75%, maintaining the annual dividend of $1.76 per share.
Financial Health: No equity issuance is assumed in 2024, focusing on maintaining stable credit metrics.
Revenue Expectations: Incremental revenues from rate plans primarily in Maine and New York.
Operational Focus: Focus on delivering results through strong financial performance and executing commitments in multiyear rate plans.
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Shareholder Return Plan
Dividend per share: Avangrid paid a dividend of $1.76 per share in 2023.
Quarterly dividend: The board declared a quarterly dividend of $0.44 per share payable on April 1, 2024.
Dividend payout target: The company targets a dividend payout of 65% to 75%.
Share repurchase program: None
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Key Q&A
Q:Can we get an update just on how you're thinking about asset sales?
A:We're always keeping an eye on potential divestitures and partnerships. We want to focus on a budget for 2024 without any gain or divestiture being contemplated, but we will continue analyzing opportunities at the right price and time.
Q:How are you thinking about M&A, as you look forward?
A:We have a huge amount of organic growth and investments planned, so we want to focus on that rather than pursuing M&A opportunities at this time.
Q:Can you comment on Vineyard Wind and the ITCs for 2024?
A:We are focused on finishing the Vineyard Wind project and are working on determining the final amount of ITCs we can achieve.
Q:What is the status of the rate base for year-end 2023?
A:The year-end 2023 rate base came in at $600 million above original guidance, with contributions from New York and Maine.
Q:What is the AFUDC rate you're assuming in 2024 for the NECEC line?
A:The AFUDC rate is at 8.5%.
Q:Can you comment on the Connecticut regulatory environment?
A:We are in litigation regarding the rate case in Connecticut and are defending our investments and employees. We believe we have a strong case.
Q:What is the timeline for the financial outlook at the Investor Day?
A:We will provide guidance at least through 2025, possibly including 2026.
Q:Can you quantify O&M optimization in '24?
A:We are targeting O&M efficiencies to be at a rate lower than inflation.
Q:Is the repowering of wind assets driven by retaining earnings power or true cash benefit?
A:It's driven by both retaining earnings power and true cash benefits.
Q:What is the update on NECEC construction?
A:Construction is progressing well, with 25% of foundations set and 20% of poles installed.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific range of ITCs for Vineyard Wind and the potential for raising dividends.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AFUDC
Ancel Vice
Charlotte Ancel
Commission New
Commission investment
Connecticut jurisdiction
Day
Dominion
Eversource
FFO debt
HVDC converter
ITCs work
Lagasse
NextEra
OM optimization
Public Commission
ROEs
Slide number
Utilities
Vineyard
York Maine
amount
approach
couple
divestiture
equity issuance
et cetera
fleet
gain
infrastructure
investment year
law
mind
need
partnership
repowering
staff
upgrade
vision
weather
write
AGR Transcript
Avangrid, Inc. (AGR) Q4 2023 Earnings Call Transcript
Positive2-22
The earnings call highlights operational improvements and strategic investments, such as Vineyard Wind's progress and increased rate base, which are positive indicators. The Q&A section reveals a focus on organic growth and O&M optimization, with management addressing challenges like the Connecticut regulatory environment. While some uncertainties remain, the overall sentiment is optimistic, particularly with the company's focus on infrastructure needs and financial metrics improvement. The positive operational achievements and strategic focus outweigh the concerns, suggesting a likely positive stock price movement.
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AGR Report
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