Avangrid, Inc. (NYSE:AGR) Q3 2023 Earnings Call Transcript

Avangrid, Inc. (NYSE:AGR) Q3 2023 Earnings Call Transcript October 28, 2023

Operator: Good morning, ladies and gentlemen. Welcome to Avangrid’s Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speakers’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] And now at this time, I would like to turn the call over to Mr. Alvaro Ortega, Vice President of Finance, Investor Relations and Treasury. Please go ahead, sir.

Alvaro Ortega: Thank you, Bob and good morning to everyone. Before we start, our CEO, Pedro Azagra would like to share message. Pedro?

Pedro Blazquez: Thank you, Alvaro. I think, before we begin, I’d like to say some — a few words about the horrific and trade mass shooting and loss of life in Lewiston, Maine. We have many central manpower employes in Lewiston and all over Maine, who are likely severely impacted by this horrible act of senseless violence. We are monitoring the situation very closely and we’re prepared to provide every resource available to our employees and our affected communities. Our hearts and thoughts from all of us at CMP, Avangrid and Iberdrola are with the Lewiston community during this difficult time. Let’s move now to our third quarter results presentation. Please, Alvaro, proceed.

A wind farm with turbines rotating in unison, showing the power of renewable energy.

Alvaro Ortega: Thank you for joining us today to discuss Avangrid’s third quarter 2023 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 of Avangrid Networks; Jose Antonio Miranda, President and Chief Executive Officer of Avangrid Renewables and Justin Lagasse, Senior Vice President and Controller. Other members of the executive team are also joining us today and may be called up on 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 at our website, avangrid.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 1995, 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 in the comments made during this conference call, in the risk factors of the accompanying presentation or in our latest reports and filings with the SEC, each of which can be found on our website. 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 Blazquez: Thank you, Alvaro. During the past months, Avangrid has continued working hard on building the foundation for a stronger and more resilient energy future, not only for our company, but also for the U.S. A year ago, we have many challenges ahead of us. I’m very pleased how the team has performed and we’ll be updating during the presentation on some of the major achievements we have been able to obtain at present. If we move to Slide 5, earlier today, Avangrid reported third quarter results for 2023, net income of $59 million or $0.15 per share and an adjusted net income of $105 million or $0.27 per share. Over the nine months, Avangrid reported net income of $389 million or $1 per share and an adjusted net income of $434 million or $1.12 per share.

In New York, our NYSEG and RG&E rate cases were approved by the Public Service Commission on October 12, with a positive after tax impact of $136 million or $0.35 per share to be recognized in the fourth quarter this year. This includes $66 million of positive impact, as if the joint proposal settlement was effective May 1, and $70 million for the mitigation of uncollectibles. We successfully terminated our offshore wind PPAs for Commonwealth Wind and Park City Wind with an after-tax payment of about $29 million in guarantees for this year. By terminating these contracts, we have improved the economics of our offshore wind projects and avoided billions in write-offs at minimal cost. This cost is excluded from our adjusted earnings. Based on our year-to-date achievements and progress on key issues, we are reaffirming our 2023 EPS guidance of $1.90 to $2.10, and adjusted EPS of $2.20 to $2.35.

This includes one-time extraordinary gains from, potential transactions of $0.24 to $0.28. Over the last months, we have successfully completed key challenges from ’22. One year ago, we announced our plan to file multi-rate — multi-year rate cases to avoid gaps between rates balancing earnings, cash flow and affordability. Just on October 12, we received a final decision on the rate case for our companies in New York, including over $6 billion of investment for the past and future investments. Our rate base will increase by close to 40% from $6.6 billion in ’22 to $9.2 billion in ’26, reflecting increases in plant additions needed to enhance the grid reliability and resiliency. The three-year rate case will also improve cash flow, up to $940 million or in excess of $940 million and enhance our net income to nearly $450 million in 2026.

This will help us pay for vegetation management cost, improve our credit metrics and provide a fair return on historic investments up to ’22 as well as those projected into ’26. The decision also includes risk mitigation provisions for uncollectibles and changes in long-term debt rates as well as make whole provision. This make-whole goes back to May 1, meaning that even though the new rates go into effect on November 1, we will be able — we will make whole as if the joint proposal settlement had been approved back on May 1. The allowed return-on-equity is 9.2% and the equity ratio is 48%. Ultimately, the newer rate case will enable us to continue to deliver a high-quality service to our customers, accelerate vegetation management, work to improve system reliability and resiliency and accelerate the clean energy transition in New York.

If I remember last year, many people put into question rightly that we’re not going to have a successful rate case. I think in the same case that in Maine when you work hard, you have relationships, you spend time with the regulator, you explain your case correctly, and things deliver. So, I’m very, very happy and proud of the work that has been done on this topic. Nobody could believe this outcome a year ago. Turning to Slide 7. A year ago, Park City Wind and Commonwealth Wind were financially exposed to significant additional project costs due to unprecedented (ph) economic headwinds. Many of the things we said a year ago, I think now everybody comments on the same way — in the same way. The contracts did not allow unilateral termination or renegotiation as of — and as promised in our latest strategic plan in September ’22, we took steps to improve the economics on the projects.

Since that time, Avangrid has been transparent and collaborative, working digitally with the state and further officials and the stakeholders to find solutions. Today PPIs, PPAs for both projects have been successfully terminated at minimum costs and avoiding massive write-offs. As we said, last year, we care about every dollar, every million as we care about billions, but we’re not here to put in danger, the money we received from our equity and debt investors. On Park City Wind, the electric distribution companies filed PPA termination documents with the Connecticut Public Utilities Regulatory Authority, or PURA, they approved termination of the PPA’s contract early this month. The impact was limited to the security deposit of almost $12 million after tax.

On Commonwealth Wind, the Massachusetts Department of Public Utilities, or DPU approved the termination of the PPAs in August. The impact was limited to the security deposits of almost of $18 million after tax this year. Over the last year, we continued to advance the permitting and development of these projects. Now, we have two high valuable leases readily — ready to leverage and experience as part of the Iberdrola Group developing, financing and constructing offshore projects, like Vineyard Wind 1. As in the case of the rate case in New York and the rate case in Maine, also in these two projects, I would like to congratulate the team. I think we have done a simply very difficult-to-believe work, which is towards — not even to initiate the construction in relation to the project and to be able to terminate two projects that otherwise we will be now speaking of billions of losses today, so congratulations and I’m very, very proud of the negotiations, and thank you also to all the legislatures, executive and other parties and constitutions we were with because this is the best thing, thinking of the company viability in the long term.

Turning to Slide 8. Earlier this year, we received approval for the first multi-year rate case in Maine for 15 years. The Maine Public Utility Commissions, MPUC approved over $380 million of investments to improve safety, reliability and resiliency. This increases our rate base to nearly $1.3 billion in rate year two, reflecting the plant additions necessary to improve and modernize the grid in Maine. This plan was designed to ensure that CMP can continue making progress towards upgrading the electric grid, improving vegetation management practices and enhancing the customer experience. Having been selected this year CMP the best company to work in Maine — to work for in Maine, I would say thank you to the team, terrific job. Again, very few people trusted it a year ago we were going to achieve a rate case like this one.

I think we’re doing this because it’s necessary. We’re happy now while spending all the time needed with all the constitutions we need to deal with, I think this is what basically comes out when the work is done correctly. So, congratulations and let’s continue. On the next item, NECEC, we have successfully resolved key legal matters and we restarted construction, enabling us to accrue AFUDC. The Massachusetts — in Massachusetts, sorry, we are right now investing, in this project, both in Massachusetts, as we have the agreement with ADCs. We will be investing approximately $1.5 billion in this project. Through the end of the third quarter, we have spend already almost $700 million. NECEC contributed $7 million on after-tax earnings in the third quarter and is expected to add earnings, almost approaching $20 million in the fourth quarter.

On Slide 9, we move to key items that we continue to make progress on. On Vineyard Wind 1, construction is progressing and we are on track for delivering first power before the end of the year and achieving commercial operation by the end of ’24. Once online, this project will generate clean renewable and affordable energy for over 400,000 homes and businesses in Massachusetts, while also reducing carbon emissions by over 1.3 million tonnes per year, which is equivalent to removing 325,000 cars from the road. Nearly 60% of the construction has been successfully completed, and we have achieved key milestones, including the installation of the first two wind turbines, 25 (ph) monopiles and 15 array cables to connect the turbines. We have also completed the installation of the offshore substation earlier this summer and the onshore substation has been energized.

Additionally, we have fully secured the components needed to support construction and executed our first-of-its-kind tax equity financing for $1.2 billion. It represents the largest single asset tax equity financing closed, and the first for a commercial scale offshore within. This allows us to monetize trade depreciation of the project, supporting the capital structure and project economics. We are proud of the work accomplished by the offshore team in pioneering a new industry in the US, the lessons learned will be invaluable as we continue developing, this project and others in the US. Finally, parties in the merger case related to PNM presented our arguments to the New Mexico Supreme Court in September and we are now awaiting a decision.

We are also progressing in the divestiture plan that as is needed, before the end of ’24 and we continued to make progress there. Turning to Slide 10. We will discuss our UI rate case and the challenging regulatory environment in Connecticut. Two months ago, the Public Utilities Regulatory Authority, or PURA issued a final decision regarding the rate case. The decision departs without prior notice from over 25 years of PURA practices, resulted in our inability to recover reasonably incurred cost and earn a fair return on enough capital. The decision would hinder our ability to invest in the grid to improve the store resiliency and reliability and would slow down the state progress on its clean energy goals. For this reason, we have filed among others, an appeal in the Superior Court of the Judicial District of New Britain on September 18.

Turning now to Slide 11. The IRA is bringing tremendous opportunities to the industry, and will be crucial for Avangrid’s plan to repower up to approximately 1.6 gigawatts of our renewable assets between ’23 and ’32. Repowering allows us to increase production of our existing assets by around 30% and reduced O&M costs by approximately 10%. Let’s not forget that it allows, for tax credits for 100% of the asset production, not only the increased production including both, as we commented for the next 10 years and light wind field projects, repowering does not require full development and permitting, allowing the projects to reach completion much faster. In fact, we’ve already repowered very successfully in the last three years. This represents a low-risk opportunity to increase the value of our existing portfolio at least through 2032.

We have continued advancing in Slide 22 — sorry 12 in our priorities and achieved key additional — key milestones this year. On this slide, we have some examples. Within networks of CMP, we have secured a grant of $30 million awarded by the DOE Redevelopment Office under great resiliency and innovation partnership program. This brand was established by the Bipartisan Infrastructure Law and will position CMP to accelerate the deployment of smart grid technologies and reduce the frequency and impact of power outages. CMP also delivered an exceptional response to Hurricane Lee, which affected the region of Northern New England on September 16. We successfully restored power to the vast majority of the 130,000 customers impacted within 24 hours.

CMP has also been recognized as one of Maine’s best places to work. This is our research-driven program from Best Companies Group that examines the practices, programs and benefits of our company and perform surveys to its employees to evaluate their perspective. Across all operating companies and networks, we have improved our system average interruption duration index or SAIDI by 9% in ’23, when compared to our average SAIDI between 2019 and 2022. We continue to put the customer experience at the core of our network business by expanding our digital platforms. Year-to-date, we have over 1.1 million app downloads which represents an 8% increase on over 1 million customers on outage alert, which is a 46% increase. These tools and technologies, will help increase customer satisfaction, reduce costs to customers and improved cash flow.

Moving onto renewables. We have reached an installed capacity of 8.6 gigawatts of wind and solar energy and we are on track to install around 1.2 gigawatts between ’23 and ’25 as addressed in our strategic plan. Right now, we have close to 850 Megawatts of solar energy projects under construction. Equipment and supply needed for these projects are fully contracted and secure, preventing CapEx variation. In the first nine months, we have also secured 580 megawatts of new and renegotiated PPAs. In addition, earlier this year, we joined the CASIO Western Energy Imbalance Market, or EIM as the first-generationally entity. Regarding our corporate accomplishments, we recently reached an agreement with Vito to transfer $100 million of PTCs in ’23.

The PTCs will come from eight operating wind farms, totaling over 1.1 gigawatts for projects that are not in tax equity. This is one of the first for a tax transfers of PTC since the IRA allows for transferability of tax credits. Earlier this year, Fitch also upgraded Avangrid outlook to stable, improving our credit profile. Related to ESG achievements, we hosted our first Supplier Diversity Summit this quarter with the objective of bringing our small and diverse businesses together to promote equitable and competitive business practices. On innovation, we hosted our Annual Digital Summit this past quarter with technology leaders from around the country to showcase the latest digital solution for the energy sector. This year’s event featured disruptive technologies that will advance smart grids, improve operations and enhance the customer experience.

Also related to innovation, Fortnightly recently awarded us with the Lewis Latimer Top Innovator Award in design. We were recognized for our projects simulating cybersecurity threats and our response. Thanks to these achievements, Avangrid is well positioned for success and I am confident that we’re taking the premise steps to drive our future growth. Turning to Slide 13. Avangrid continues to be recognized in the key ESG related indexes, reaffirming our strong efforts to meet our sustainability and governance goals. This year, we have received over 14 ESG recognitions. I would like to highlight the following four, which aligns with our ESG goals, The World’s Most Ethical Companies by Ethisphere, the Bloomberg Gender-Equality Index, the Financial Times Stock Exchange for Good by FTSE Russell, and the ’23 Sustainability Yearbook by S&P.

2023 marks the fifth consecutive year, being recognized as one of the World’s Most Ethical Companies by Ethisphere, a global leader in defining and advancing the standards of ethical business practices. We are one of the only nine honorees globally in the energy and utility sector this year. The Bloomberg Gender-Equality Index connects with Avangrid’s goal to build, maintain and improve diverse workforce and inclusive culture aligned with our ESG targets for women in executive and leadership positions. This is the sixth time we have won the FTSE4Good award, created by the global index and data provider, FTSE Russell. The FTSE4Good index measures the quality of each company’s management of environmental, social and governance matters. Avangrid has also been included in S&P’s 2023 Sustainability Yearbook scoring more than twice the average of the industry.

All these awards and accomplishments are a testament of the hard work and dedication of the teams to make this possible. As such, I wanted to thank everyone in Avangrid who works on hard every day to continue to deliver excellent customer and employee experiences, innovative ideas and contribution to these ESG goals. In particular, I would like to thank you, Patricia, for your dedication and the many contributions you have made to Avangrid over the past eight years. You didn’t join us here. You were here, as for eight years, with us. Earlier this week, we shared that Patricia will be leaving retiring from Avangrid in November. She has been an integral part of our company, first working at UIL as Vice-President and Treasurer and then as Vice-President of Investor Relations.

Patricia, we wish you all the best. And Justin, we welcome you now, you have been here also for a long time and it’s a pleasure to have you now as Interim CFO. And with that, let me return the call over to you.

Patricia Cosgel: Thank you, Pedro. Good morning, everyone. Before I start with this quarter’s financial performance, I want to comment on the recent announcement of my resignation from the company. It is for personal reasons, a family-related matter that requires my attention. I remain supportive of the company and Pedro as CEO, and I’m very thankful to Pedro, the Avangrid Board, the Chairman and Iberdrola for the opportunities I’ve had. I admire their support and commitment to the company. I have really enjoyed my tenure here at Avangrid and I’m proud of all of the accomplishments we have achieved including successfully managing through some real challenges in a complex business environment and the company’s efforts to effectively promote our financial objectives and the advancement of the clean energy transition in the US.

Thank you to everyone and I look forward to seeing some of you at the EEI in November. Turning to earnings on Slide 15. For the third quarter of 2023, our EPS was $0.15 a share compared to $0.27 in the third quarter of 2022 and our adjusted EPS was $0.27 compared to $0.31 in the third quarter of 2022. Networks results were $0.24 higher by $0.01 quarter-over quarter compared to the third quarter of 2022. The key drivers included a positive $0.06 due to the implementation of the third year of the existing rate plans for our New York companies and the implementation of our new rate plan in CMP. These results do not include the $0.35 one-time benefit of the new rates approved in New York, which will be in our fourth quarter results. We also experienced lower uncollectibles which had a positive $0.02 impact quarter-over-quarter due to higher bad debt write-offs in the third quarter of 2022 versus the third quarter of 2023 primarily in New York.

The start of construction of our NECEC project in August resulted in an additional $0.02 of AFUDC earnings quarter-over-quarter. Offsetting the positive results at Network were cost to implement our investment plans and operator businesses including O&M depreciation and interest costs. Our Renewables business segment also reflects the strong performance of $0.14 for the third quarter of 2023, higher by $0.03 quarter-over-quarter. Wind and solar operating performance, which includes the impact of pricing production and tax benefits, contributed $0.12 a share related to new projects and service, operating performance and tax spreads. We also benefited from higher earnings from our thermal operations and asset management of $0.05 a share and taxes primarily reflected the implementation of the IRA in 2022.

Corporate costs reflect a decrease of $0.08 a share quarter-over-quarter primarily due to higher interest costs. Moving now to the next slide. We are reaffirming our 2023 outlook ranges for EPS of $1.90 to $2.10 a share and adjusted EPS of $2.20 to $2.35 a share. Our ongoing focus remains on achieving these targets as we execute our investment plans with discipline and a risk management focus. We also provide our expectations for the remainder of 2023. This includes first, the implementation of the New York rate case with a positive after-tax impact of $136 million or $0.35 a share from May 1 through November 1. This reflects and make whole adjustment of $66 million for the incremental rate as if the rate case had been implemented on May 1.

And a one-time catch-up of uncollectible adjustment of $70 million to match existing reserve amounts. To explain further, this one-time adjustment reflects a new regulatory treatment allows for the deferral of uncollectibles to match the amount set aside in our uncollectible reserve. Our NECEC project has a range of $0.04 to $0.05, reflecting AFUDC earnings. Additionally, operational performance in our Networks and Renewables business in the fourth quarter is in the range of $0.41 to $0.49, which includes the ongoing impact from the implementation of rate cases for NYSEG and RG&E, CMP and UI. And we have cost management initiatives in the range of $0.04 to $0.06. This brings us to expected results prior to our renewables transactions in the range of $1.95 to $2.08, which is the same as we indicated last quarter.

Adding the renewable transactions that we’ve previously disclosed which includes the partial sale of our Kitty Hawk lease area, at the range of $0.24 to $0.28, reaching our 2023 outlook range of $2.20 to $2.35. Note, that the delay in the closing of our merger with PNM has had a negative — minus $0.03 impact for the year, which is what we disclosed last quarter. Considering the net impact of PNM operations and interest rates on the cost of funding as our guidance had assumed $0.30 contribution in 2023 and $4.5 billion of debt to fund the closing of the transaction. Additionally, opportunities and risks impacting our 2023 results include renewables production and pricing, other regulatory adjustments, thermal and asset management results, taxes, interest, O&M, uncollectibles and asset rotation.

And finally, today we are reaffirming our 6% to 7% compound annual growth rate in our adjusted EPS through 2025 off a base that is the midpoint of our 2022 guidance. Moving now to the next slide. We are very much aware of the macro environment and are focused on managing our interest rate exposure. Some of the key points that we wanted to highlight are on this slide. A 93% of our long-term debt is fixed. Our variable debt exposure is limited to a hedge on an existing parent company bonds and our commercial paper program, which we did pay down by $800 million with an Iberdrola intercompany 10-year term loan earlier in the quarter at a 5.45% rate. Importantly, our regulated utilities can recover higher financing costs in their rates. For example, our New York utilities, which represents 58% of our rate base allowed for the annual recovery of debt costs and our new rate case includes a fixed-rate debt reconciliation mechanism.

In UI and CMP, interest costs are reconciled at the end of each rate year. And when we issued debt at the utilities in the private placement market, we were able to use a delayed draw feature that allows us to price in advance of taking the fund at a pre-issuance hedge. Through 2024, our maturities include $600 million at the parent and at the utilities are $75 million bond at United Illuminating and a $12 million tax exempt note. Our renewables business does not have external debt including project debt. Our offshore wind project, Vineyard Wind 1, is financed with variable debt with a swap to fix for the construction loan and the project debt, coverage hedged several years ago at very low rates. Overall, the weighted average interest cost of our debt is 3.94% as of September 30 and a sensitivity to our interest rate exposure was provided with our September ’22 Investor Day materials, with an estimated impact on a 50% — 50 basis points change in our interest rates through 2022 through 2025 of about $20 million.

We also want to highlight that we have strong processes in place to manage supply-chain costs. Our onshore supply-chain for our projects under construction is fully contracted and secured presenting CapEx variations. We are also working with affiliates and suppliers to ensure the availability of transformers, panels and other equipment. We have renegotiated 1 gigawatt of PPAs to reflect inflation, supply-chain disruptions and higher interest rates. For offshore, our Vineyard Wind 1 project closed supply-chain contracts in 2021 insulating the project from the current volatility in the global market. And as we have said, we exited our Commonwealth and Park City Wind contracts before securing supply when we saw the unprecedented spike in cost and interest rates to avoid billions and write-offs.

Finally, an important distinction for Avangrid is that we were part of the Iberdrola Group and we’re leveraging their experience, synergies and supply-chain network to drive efficiencies and mitigate the supply-chain and macroeconomics that are impacting the sector. Overall, we are managing costs as well through savings and optimization initiatives across the business. Moving on to our updates to our financing, liquidity, dividend and credit ratings. Just this week, we signed a milestone tax equity transaction for Vineyard Wind 1 for $1.2 billion to monetize project ITCs and accelerated depreciation. This is the first tax equity transaction for offshore wind and the largest single-asset renewables transaction tax equity deal in the US. For renewables, we recently — we also recently executed a tax credit transfer agreement, one of the first in this sector to do so to monetize $100 million of tax credits from existing wind assets not in tax equity financing structures, benefiting from the IRA.

We expect to continue to use the transferability provisions enabled by the IRA to monetize as generated tax credits to enhance our cash flow and alternative to tax equity financing. During the quarter as I noted, we issued an $800 million 10-year green term-loan with Iberdrola at a fixed-rate of 5.45%. And we issued $350 million 10-year (ph) note at 5.68% (ph) and a $400 million 30-year note at 5.85% (ph) for NYSEG, each of which we used to refinance high-cost short-term debt. And encourage to fund the investments and growth of the businesses. We also recently remarketed United Illuminating tax exempt bond for $64 million at an attractive rate of 4.50% through the maturity of the bond in 2033. Finally, we have no equity expected in 2023 and as we presented in our September 2022 Investor Day, we had planned for a $1.9 billion in our outlook in 2024.

However, we are also looking at other levers to manage this need, including this — including renewables divestiture options as well as other financing alternatives including securitization, transferability, tax equity, asset rotations and partnerships and other items to manage our targeted credit metrics. For the nine months, we have $7.8 billion in liquidity covering 14 months. This includes $4.3 billion commitment letter from Iberdrola that backstops our merger. Maintaining our solid credit ratings is a key objective. At the Avangrid level, all of our ratings are on stable outlook. Finally, our dividend policy remains unchanged, targeting a payout of 65% to 75% and our Board recently declared a quarterly dividend of $0.44 a share payable on January 2, 2024.

In summary, we continued to focus on executing our long-term financial plan. There are timing impacts to recognize the results of rate cases, transmission construction and renewables asset monetization that we expect to materialize in the fourth quarter as we’ve demonstrated. As you can see we have successes on, on — we have had successes on many important milestones that will support the achievement of our financial goals. Thank you for joining us today for our financial update. I’ll now hand the call back to our operator for questions followed by closing remarks from Pedro.

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Q&A Session

Operator: Thank you, ladies and gentlemen. [Operator Instructions] And we’ll take our first question this morning from Richard Sunderland with JP Morgan.

Richard Sunderland: Hi. Good morning. Can you hear me?

Patricia Cosgel: Yes.

Richard Sunderland: Thank you. Thanks for the time today. Looking at the repowering update and thinking about your onshore platform overall, when is the right time to give an update on kind of how that looks for the megawatts and development targets on a long-term basis? Curious if the asset sales that are contemplated in 2023, the really the timing there factored into when you might want to give that update. And maybe since I brought up those asset sales, any progress you can provide in terms of where those processes are right now?

Pedro Blazquez: I’ll comment on that. I think on the second one on the asset sales, remember that in the strategic plan, we said that, that was something to basically to be done no later than ’22 — sorry, than ’24, okay? Because that’s when we had this $1.9 billion capital increase. If you do divestitures, you don’t need to do it. If you don’t do it, you need to do it. So that’s why it’s by the end of ’24 when we need to do the divestitures not in ’23. We are progressing well. I think we have options, but we need to finish that. When we have a final decision on some of the options we have, we’ll come back. I think on renewables is different. I think on renewables, what I would like to do is come back to you in the upcoming months with a full detailed plan.

I think we’re now — as you can imagine, we have now more than $8 billion regulated investments in New York both in the rate case, RG&E, CPA . I think we have a huge amount of CapEx also in Maine. I think we have NECEC going on. I think we have Vineyard being completed. So we have a huge amount of things going on right now. So I think our idea is to put that all together in the upcoming months to bring — come back to you with a clear path beyond ’25. And I think that’s the time to go into a lot of detail in repowering. I think the good thing about repowering is we have 10 years to do it. So there is nothing that we need to rush and do it in a second. And we have identified all the assets on the pieces, what need to be changed. And I think we will come back with a very specific proposal.

Richard Sunderland: Got it. That’s helpful. I did just want to circle back on the asset sales by ’24 point, though. So the gain contemplated in the ’23 guidance would that gain shift to ’24 if you’re doing the asset sales in ’24? Or is there a path to announce something in ’23 that would crystallize the gain, but I guess, leave the proceeds for ’24?

Pedro Blazquez: No, it’s two separate things. If you remember, ’23 was a year that we made it clear was a transition year. We had a huge amount of issues last year to deal with. I think we are almost doing everything that we had to do to get them right. So ’23 was the year that I think some of you said, Why do you put a gain there? And we said, Well, get the guidance with and without the gain. If we do the gain fine, we don’t do the gain, that’s okay as well. But ’24 and ’25, remember, ’25, there was a very, very de minimus amount of gain there. But in ’24, there was no gain. So I think the approach right now that we have is very simple. We are working this year to finalize all these things to make sure that ’24 and ’25 turn smoothly as we have said they were going to.

I think in ’24, we were not contemplating any gain. So that’s why we want to move in one to the other one. I think in the case of the divestitures or rotation of assets, of course, we care about value, but semi structures will not mean any gain, because maybe we’re not semi control. So the important thing about the divestiture is more the cash angle, basically, to avoid a capital increase or to make sure that we top it up the financing needs with asset rotation, what we have done in the group for the past 25 years, nonstop. So that’s why it’s two separate things. But we’re not moving any gain to ’24. I think we’re very comfortable right now in ’24, that it should be the business delivering as we expect, ordinary cost of business and no gains in — for ’24.

Richard Sunderland: Okay. Got it. That’s very helpful. And just one quick follow-up here. The uncollectibles change, is this, I guess, a protection on a go-forward basis in terms of uncollectible deviating from baseline? Could you just parse a little bit more about what’s changed and what that does for you going forward? And then I guess, just to break down the $70 million, how much of that covers 2023? And how much of that covers prior periods that are getting trued up?

Pedro Blazquez: I’ll let Catherine and Patricia to comment. But the answer is yes. I think that is a sign the very positive things on this rate case. And again, we didn’t go through every single item we put in the presentation, but I think we’ll follow up with each of you separately if needed. I think the rate case is not just the rate increase. But many of you remember last year, you said, well, we’re going to have a 2% increase or 0% increase. Inflation is there. I think you have seen the rate increases. You have seen the recognition of our CapEx. And I haven’t set it in the conversations in the last week very strongly starting what you’re saying. There are many more things in the rate cases that we have achieved, which is, I would say, what we should have achieved around technical, but let’s not go backwards.

We have achieved them right now. And this is one of them, because this allows going forward to be done. Keep in mind also the governor is helping in the budget. So that’s why there are a combination of things going on right now that I think allows us to deal with examples like this one. So this is also very important. But Catherine and Patricia, you can comment.

Catherine Stempien: Yes. Thank you, Pedro. So you should think about the uncollectible $70 million as a onetime this year, but ongoing mitigating the risk going forward on uncollectibles. So from an accounting perspective, it matches up our uncollectible reserves that we make when accounts go into default with the deferred amount acknowledging from the NYPSC that we will be able ultimately to collect on the write-offs that we need to make from the uncollectibles. So going forward, those two will match up, and you won’t see increased risk on our balance sheet, but it will be matched with a deferral entry.

Patricia Cosgel: Just to give a little more description to it. And the $70 million reference is a reserve amount that we’ve set aside for uncollectibles. It’s not our full uncollectible balance. It’s the amount that we set aside as a reserve that has a — when we do that, that has a negative impact on earnings. So now with this new order, we’re able to now set aside a deferral to match that reserve amount. And so going forward, these deferral will match reserve amounts and you’ll mitigate the risk to your earnings upsetting aside incremental uncollectible reserves in the future. But because it goes into effect now with the new rate case, we do get to do a catch-up where we had actually had the expense and to set up the reserve, now we’re getting to set up that was $70 million to offset that. So there is a onetime catch-up expense and going forward, really no expected impact to P&L, but a risk mitigation going forward.