Avangrid Inc (AGR) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2017 AVANGRID Inc.

Earnings Conference Call.

(Operator Instructions)

I would now like to introduce your host for today's conference call, Ms. Patricia Cosgel.

You may begin, ma'am.

Thank you, Kevin, and good morning to everyone.

Thank you for joining us to discuss AVANGRID's second quarter 2017 earnings results.

Presenting on the call today are Jim Torgerson, our Chief Executive Officer; and Rich Nicholas, our Chief Financial Officer.

A team of AVANGRID officers will also be participating on the call to answer your questions.

If you do not have a copy of our press release or presentation for today's call, they are available on our website at www.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 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.

With that said, I'll turn the call over to Jim Torgerson.

Thanks, Patricia.

Let me first introduce some of the team.

Besides Rich Nicholas, the CFO, and our Investor Relations team, we have Bob Kump, who heads up our Networks business; and Laura Beane, who heads up our Renewables business.

Let me start immediately going to Page 5 since Patricia gave all the headlines on the first 4 pages.

We really had an excellent quarter and year-to-date as we demonstrate our consistency in earnings from our regulated business, but also increasingly, contracted renewable business.

For the second quarter of 2017, net income was $120 million or $0.39 a share, which was up 17% from 2016's second quarter.

Year-to-date, net income was $359 million or $1.16 a share, which was up 14%.

Now on an adjusted basis, and keep in mind, adjusted is adjusted for the impact of the exclusion of the Gas Storage business mark-to-market earnings or losses and the gain or impairment of some investments that happened either -- mainly in 2016.

But our adjusted quarterly net income was $143 million or $0.46 a share, which was up 21%, and year-to-date, $369 million in net income, which was $1.19 a share, which was up 15%.

We're executing strongly on our strategic plan and really including also implementing the beginnings of our Forward 2020 program, which is focused on getting efficiencies in our businesses.

And we're just starting moving in that direction now, so we have the plans laid out and moving along.

We executed 401 megawatts of new wind PPAs year-to-date, including 200 megawatts in the second quarter.

We also have reduced our merchant exposure.

We have signed fixed-price contracts year-to-date for 589 megawatts, moving those out of the merchant category into fixed-price contracts.

We've also executed 122 megawatts for repowering PPAs.

And those are commitments year-to-date, really repowering commitments, I'd have to say, as it is a combination.

And that was above the plan.

Our long-term plan had contemplated 50 megawatts.

And we're also on track for our 2017 investments.

We've spent $956 million so far this year in capital, which is up 47% from 2016.

We've implemented rate cases in New York and the Connecticut electric distribution case.

We also have filed a rate case for Southern Connecticut Gas, which we'll get into that a little bit about what the parameters there are.

Also in the first half of this year, we have some opportunities in offshore wind.

We announced the 50% partnership in Vineyard Wind with Copenhagen Infrastructure Partners.

And we also acquired the offshore lease for Kitty Hawk in North Carolina.

Again, we'll talk about that in a little bit.

A third quarter dividend has been declared by the board on July 16, payable on October 2, and it's $0.432 a share.

And also, our total shareholder return as of yesterday was up over 18% year-to-date.

Moving to Page 6, you can see that the earnings, as I just mentioned, up 17% for the quarter and 14% for the year, really was a result of -- improved results in Networks, primarily due to implementation of new rate plans and cost mitigation.

As I said, we started our Forward 2020 programs.

Higher renewable production, it was actually up 4% year-to-date.

That's really due to the new capacity from the Amazon Wind Farm East, which was 208 megawatts, which was started up at the beginning of this year.

And then wind production of our existing facilities still seems to be running below average.

In the West, it was down over 2016.

Midwest and Northeast were flat to slightly down.

Texas and the Southwest are actually up somewhat, so we have a mix across the board as to how the wind is performing for us.

On Page 7, we -- again, with the adjusted earnings, and I mentioned already what these adjustments were.

Year-to-date '17 adjusted net income and adjusted earnings per share reflect that exclusion of the Gas Storage and -- results and the Renewables mark-to-market.

But you can see, we're up considerably, 21% for the quarter and 15% year-to-date.

And Rich will get into the details on how that was accomplished.

On Page 8, we have the capital expenditures, which are on track, up 47%.

88% of the increase was in the Renewables business as we're spending money on the wind farms that will come online later this year.

We have 600 megawatts under construction right at this moment.

We're on target with our Networks investments of $1.3 billion and for Renewables of $0.8 billion, so we will be spending the $2.1 billion we had laid out in our original forecast in 2017.

Moving to Page 9. Renewables.

The long-term plan, we had said we were going to add 1,800 megawatts of new wind and solar with PPAs in the 4-year time horizon up to 2020.

We've already secured 1,000 megawatts of that or 55%.

And construction is in process on 600 megawatts with commercial operations dates of 2017.

Wind is 534 megawatts.

140 megawatts have already been installed and 36 megawatts commissioned at our El Cabo site in New Mexico, and that was as of the end of June.

We also have 66 megawatts of solar under construction.

10 megawatts are actually going to slide over into 2018 before they're finished but most -- the vast majority of our 600 megawatts will be online by the end of this year.

So we'll have, as of the end of June, we had total installed capacity of 6,046 megawatts, of which 349 of those were new.

And you remember, we have a 2,000-megawatt safe harbor, which we had for PTC at the end of 2016.

And our new PPA is for 401 megawatts, which we've signed already this year.

We have a new wind project in Texas with 200 megawatts being sold under a PPA to Austin Energy, which is the city of Austin's energy procurement arm.

And then the Montag project of 201 megawatts with Apple Energy LLC in Oregon.

So now we have, as I said, 1,000 megawatts already secured of the 1,800 in our long-term plan.

Repowering is also underway.

We had 372-megawatts in safe harbor, with 50 megawatts in our long-term plan.

While 22 megawatts from our Mountain View III site in California is in process, and that's a full repower retrofit targeted for 2019 of Vestas turbines.

But we also executed a PPA for an additional 100 megawatts of repowering in the Midwest.

So that one is moving -- was recently done.

Moving to Page 10.

We've also been focusing on reducing our merchant exposure and mitigating the merchant facilities.

But year-to-date, we've executed 589 megawatts of contracts to reduce our merchant capacity.

And we're really committed to keeping on track and adding even more as we see opportunities.

439 megawatts contracts were added, reducing the merchant exposure.

We're in 3 of our wind farms.

80 megawatts in Barton II Wind site in Iowa and that went to Dairyland.

Then we had 2 contracts with Uniper, 149 megawatts in Elm Creek in Minnesota and 210 megawatts in Buffalo Ridge II in South Dakota.

And we'll also be replacing a PPA that expires in 2019 of 150 megawatts at Shiloh in California.

So we've made great progress in reducing our merchant exposure, and our team is doing a great job and will continue.

But we've reduced the merchant capacity or will by the end of this year down to 27% merchant.

And our target has been to be 75% to 85% of PPA plus hedges that we have on merchant capacity.

So by adding the long-term hedges, we will actually be over 80%, that is fifth now, with long-term hedges or PPAs or contracts.

Moving to Page 11.

The pipeline.

We've actually increased our pipeline by 600 megawatts, up to 7.1 gigawatts in total.

And you can see on the map the 2,500 megawatts that we believe are the near-term, most likely possibilities in the areas there.

And in the West, we have 470 megawatts of wind and 345 megawatts of solar.

Texas is 800 of wind and 100 of solar.

And then solely wind in the Mid-Continent of 350 and the Northeast of 470.

So right now, we have over 6 gigawatts of installed capacity of renewables.

Moving to Page 12.

Looking at our offshore strategy, keep in mind, the U.S. Department of Energy has been forecasting 86 gigawatts of offshore wind would be operational by 2050.

Don't know if that's going to be the right number or not, but we see opportunities with offshore wind, and it's a growth opportunity for us in the longer term.

So offshore, our pipeline has a 50% ownership in Vineyard Wind.

That's a joint venture with Copenhagen Infrastructure Partners and 167,000 acres at least, which is about 15 miles south of Martha's Vineyard.

We believe we have at least a 2-gigawatt capacity there, or at least that is what the National Renewable Energy Lab estimate is.

And then the development team, we have a significant experience from Avangrid Renewables, the Iberdrola Group and CIP.

Keep in mind that CIP is the people that had formed DONG Energy originally and now have gone on their own and have significant investments already and great expertise, along with our team, which, from IBERDROLA, has 1.3 gigawatts of offshore wind operating or under construction right now.

We also have 100% ownership of the 122,000-acre lease, which is 24 miles off the coast of Kitty Hawk, North Carolina.

Project timelines for both of these are beyond 2020, and Kitty Hawk is estimated at 1.5 gigawatts right now.

Long-term plan on Page 13 for Networks is really on track.

Rate base will reach $11 billion by 2020, and our average capital spending for Networks is $1.4 billion.

91% of the capital expenditures are what we'd call secured, and they're in different categories.

We have transmission and distribution upgrades and replacements for safety, reliability and to support generation retirement in the region.

One good example is the Rochester Area Reliability, which is going to be operational by 2020.

That's a $200 million project.

NYSEG just completed their Auburn transmission project.

That was energized recently, a $105 million project in partnership with National Grid.

Our piece of that was $105 million.

And we are expanding the substations to address system reliability and eliminate some limitations in the NYSEG area.

And it also eliminated the need for a reliability support agreement with Cayuga Generating Facility.

Gas pipeline replacement and expansion.

We have -- we'll be spending $286 million in New York and $290 million in Connecticut just on pipeline replacement for aging infrastructure, which is the cast iron and bare steel pipe in those areas.

For expansion in our 2020 forecast, we're looking at spending about $179 million on expanding our system.

And then LNG enhancements, we'll spend another $85 million enhancing that area.

Customer service automation for innovative flexible pricing, we're spending $52 million at Central Maine Power on implementing new software to help us with that.

And then we also have, in New York, what we consider in the highly likely category, advanced metering infrastructure and our DSIP plan, which should commence in 2018.

We're working with the commission right now on settling that, and we should get an answer so that we can start moving forward in 2018.

But basically, it is on track.

Moving to Page 14 on Networks updates.

NYSEG and RG&E, I'm really happy to recognize them for having been designated as the most trusted brands among utilities in the East region.

We were ranked #1 and #2, and this is in a Cogent Reports Study by Market Strategies International.

We have new state commissioners in New York.

John Rhodes is now the Chair.

Phil Wilcox in the IBEW was named and has been confirmed, as is Jim Alesi, a former state senator.

And so we have a collaborative work, Earnings Adjustment Mechanism negotiations, those are ongoing.

That should be able to be implemented in 2018.

Southern Connecticut Gas filed a 3-year rate plan on June 30 for rates that would go into effect on 1/1/2018.

The request was for a cumulative revenue increase of $19 million, an ROE of 9.95% and 52% equity.

Average rate base increases go from $544 million at the end of December of 2017 to $634 million by the end of 2020.

And we also are requesting a Distribution Integrity Management Program, which would be a 20-year replacement cycle, and the cost recovery mechanism, which we would recover cost annually on that basis.

Once a year, we get to put in what the costs were and then recover it in rates, so it's a quick turnaround.

We don't have the regulatory lag, and that is exactly the same as we have for Connecticut Natural Gas today.

And also revenue decoupling, which is actually required in legislation in Connecticut.

Moving to the FERC.

We have, as most of you are aware, the 4 complaints.

We have the ROE Complaint I, which the New England TOs filed to begin billing at the prior 11.14% ROE.

That is the most recent rate that's actually in effect, that's legally in effect at this point.

But we requested to begin billing that again 60 days after the FERC has a quorum, with retroactive billing to June 8 of this year.

If really no FERC decision is reached, we'll start doing that.

ROE Complaint IV, Commissioner acting chair, LaFleur, denied a request to stop to -- well, actually, to stay the proceeding and directing that it did continue on and that an initial decision would be in March of 2018.

So the request was denied by the chair.

And we have a pending quorum.

Rob Powelson, Neil Chatterjee, they're awaiting Senate approval.

The President intends to nominate Rich Glick, who is actually a former VP of Government Affairs for AVANGRID.

And he left a little over a year ago to go work with Maria Cantwell in the Democratic General Counsel for the Senate Energy Committee.

And then Kevin McIntyre would be nominated as chair.

And I also want to note that AVANGRID electric utilities across the board improved their scores in the J.D. Power 2017 Electric Utility ranking for Residential Customer Satisfaction.

CMP and RG&E ranked in the top quartile in their respective categories.

Moving on to Page 15 with the Massachusetts RFPs.

Section 83D, this is the one requesting clean energy and looking at getting 9.45 terawatt-hours annually of renewables.

And AVANGRID does plan to bid multiple transmission and/or renewable solutions into this.

When we look at the eligible bid categories, they're looking for incremental hydro on a firm basis but also new Class I renewable portfolio standard, which would be wind and solar.

A combination of both could include transmission projects under a FERC tariff.

The RFP was issued in the end of March.

Proposals are due next week.

And the selection of projects would be at the end of January in 2019.

Then you submit the contracts to the DPU in Massachusetts by later in April of next year.

We also have the offshore wind project, and this is the request or the RFP for Massachusetts, looking for up to 1,600 megawatts of offshore wind.

Our partnership is intending to bid into that.

Now the first solicitation can be 200 to 800 megawatts.

Really the target is 400 megawatts.

People can bid 200 megawatts up to 800 megawatts, but they have to demonstrate that the benefits would be to the consumers in Massachusetts.

And those would all be under long-term contracts.

Just as the clean energy RFP, those -- this would also be 15- to 20-year contracts.

And the eligible bid categories include offshore wind, which really, you've got to look at project-specific general lead line proposal and also they've asked to have at the proposals for an expandable transmission proposal under a FERC tariff, so that you could have 1,600 megawatts under a transmission line that would -- could aggregate whatever generation is being put forth in -- that is accepted from, perhaps, different leasehold.

That RFP went out the end of June.

The proposals are due December 20 of this year and selection being the latter part of April, with contracts submitted by the end of July of 2018.

So let me highlight a couple of things.

One, we're executing and delivering on our commitment to deliver the 8% to 10% compound annual growth rates through 2020.

We had strong earnings performance in the second quarter and the first half of 2017.

We are affirming our 2017 adjusted earnings per share outlook of $2.10 to $2.35 per share.

We're really executing on our opportunities in the core businesses.

We have new and existing wind projects.

We're increasing our contracted capacity.

And our 2017 investments in both Renewables and in Networks are in line with our expectations.

We have the 3-year rate plans and FERC formula rates that really give us 80% rate certainty for our regulated businesses.

And we are implementing best practice through our Forward 2020 program.

And we have the potential for additional growth beyond our long-term plan with the Massachusetts Clean Energy RFP and the offshore wind RFP and New York transmission solicitations that we believe -- that are happening.

So we have quite a few projects going on right now that have great potential beyond what is even in our forecast today through 2020.

And finally, we also have -- the board has committed that -- they still have to make the decision, but their intention is to raise the dividend starting in 2018.

So with that, I'm going to turn over to Rich Nicholas to go over the financial results.

Thank you, Jim.

Good morning, everyone.

Thanks for joining us today.

Turning now to Slides 18 and 19, focus a little bit on our year-to-date results.

As Jim mentioned, our consolidated year-to-date net income is up 14% on a GAAP basis to $359 million and on an adjusted basis is up 15% to $369 million.

The adjustments in 2017 for the year-to-date amounts reflect the removal of $0.01 a share for the mark-to-market impacts in the Renewables segment and the $0.05 per share loss in Gas Storage.

And with rounding of those adjustments, it results in a net positive adjustment of $0.03 a share to go from GAAP to the adjusted basis.

For the comparable period, in 2016, the year-to-date reflects the removal of $0.06 a share of a gain that we had on our sale of our equity interest in the Iroquois pipeline.

We had a small impairment for our equity interest in the Northeast Energy Direct gas pipeline and $0.01 a share of Renewables mark-to-market.

Those were offset by a $0.10 a share loss in Gas Storage for that period.

Again, with some rounding it results in a net positive adjustment of $0.03 a share to go from GAAP to our adjusted number.

The increase in our earnings in 2017 compared to '16 were driven primarily by the improved wind production, with the completion of the Amazon Wind Farm East, the 3-year rate plans in New York and Connecticut, all while maintaining a continued focus on operational excellence and best practices.

And as can be seen on Slide 19, all of our core segments on an adjusted basis had adjusted net income both for the quarter and year-to-date that increased over the comparable period in 2016.

On a year-to-date basis, Networks is up 9% and Renewables up 26% adjusted net income year-over-year.

Turning now to Slide 20 results by business segment, year-to-date '17 versus '16.

Networks adjusted net income of $268 million year-to-date in '17 makes up 73% of our consolidated adjusted net income, and as mentioned, benefited primarily from the new rate plans and ongoing cost management.

The new rate plan for UI began on January 1, '17.

And for New York, the first half of '17 includes 4 months of the first rate year and 2 months of the new -- of rate year 2. And recall that in rate year 2 in New York, the sharing band actually increases by 15 basis points, so there's now a 65 basis point band above the allowed return before sharing begins.

The results do reflect an accrual for estimated sharing from the first rate year in New York.

And that final sharing calculation subject to true-up will be filed later this month with the regulators.

In addition, the interest expense related to the UIL $450 million bond has been transferred to Corporate, also improving the Network results.

Turning to the Renewables segment.

Year-to-date adjusted net income of $97 million is about 26% of our total consolidated adjusted net income.

Renewables benefited from the higher production, improved REC pricing and energy management services, which we utilized to optimize our assets around our thermal plants and hydro and transmission rights.

The Corporate segment had $5 million of year-to-date adjusted net income.

And this segment includes the interest expense now for the UIL bond as well as the consolidated tax impacts that are partially offset in Renewables, resulting in a year-to-date consolidated effective tax rate of approximately 31% on a management reporting basis where we include the PTCs and gross margin.

But we do expect that the effective tax rate will increase in the normal course in the second half of the year, and -- although noncore Gas Storage did benefit from mark-to-market impact of the expiration of certain contracts.

So now on Slide 21, we've broken it out a little further.

The Networks net income of -- adjusted net income of $268 million.

The increase of $22 million, really driven by higher FERC transmission results, with a higher rate base of $8 million.

Distribution results, again, primarily impacted by the rate cases of $10 million and the net of all of the other, positive $4 million.

And on Renewables, the $20 million increase in adjusted net income, driven by wind production of about $9 million, a small increase in net prices of about $2 million, the energy management services that I mentioned of $4 million and the net effect of tax and everything else, about $5 million.

So turning now to Slide 22.

You could see graphically there, the installed capacity, as Jim mentioned, up 459 megawatts, 6% period-over-period, primarily driven by the Amazon Wind Farm and the portion of the El Cabo installed in the second quarter.

Load factor increased slightly to 32%.

And while PPA prices were down a little bit, REC prices increased by $2.40 a megawatt-hour.

Turning now to cash flow on Slide 23.

Our cash from operations continues to support planned growth during the '17 construction period as cash from operations was $925 million and cash CapEx was just over $1 billion, basically on target for our expectations.

So moving now to Slide 24.

As we look at our balance sheet, strong credit metrics continue, with a net debt-to-total-capitalization at 27% at the end of June and net debt to adjusted EBITDA of 2.8x, again right in line with our expectations.

And finally on Slide 25.

As Jim mentioned earlier, we are affirming our consolidated adjusted earnings per share outlook at $2.10 to $2.35 a share.

And we're also maintaining our segment guidance at -- of $1.66 to $1.74 per share for Networks, $0.50 to $0.65 per share for Renewables and minus $0.08 to minus $0.05 for Corporate.

Our outlook does assume a full year of new rates in New York and Connecticut, our ongoing integration and best practice efforts, the full year impact of the Renewables extension of useful lives as well as the new Amazon Wind Farm, normal wind production and the new renewable projects that are expected to come online towards the end of the year.

So now I'll hand it back to our operator, Kevin, for question and answer.

(Operator Instructions) Our first question comes from Chris Turnure with JPMorgan.

You had a couple million in net income in Corporate and other this quarter, could you maybe just walk through that?

I think, Rich, you touched on it a little bit, but just kind of bottoms up, what drove that number and what was in it?

And then it seems like you're trending pretty well versus your annualized loss guidance for that segment.

Is there kind of a part of that range we should think about you guys trending towards right now or maybe you're out of that range a little bit?

Any color would be appreciated.

Sure.

In the first half of the year, the consolidated tax adjustments, some of which we talked about on the first quarter call, the net effect of that was a positive impact on the Corporate segment.

But as you go through the year, that will be diluted somewhat by taxes over the rest of the year.

But then, primarily, what moves it into the negative category is interest expense as we continue to build out the Renewables.

We will look to issue some long-term debt at Corporate later in the year, as we'd talked about on our Investor Day, in order to support funding for Renewables.

So there's some interest expense coming in later in the year that's not there now.

Okay.

Could you just remind me of what that consolidated tax adjustment was again in the first quarter?

It's as we -- throughout the period, to what we expect the effective tax rate to be for the year, it's -- every once in a while there are some discrete adjustments that come through from audits and other areas.

Nothing major to be concerned about.

Again, we would expect to see the management, what's now 31% to trend back towards 35% towards the end of the year.

Okay.

And just -- I think I had also seen a negative interest expense or a benefit for that segment for the quarter.

Is there AFUDC credit or something else in there that might be impacting that number?

No, that was really the transfer of the UIL debt that used to be at Networks change in obligor up to AVANGRID level.

And so there's interest expense sitting there this year at Corporate that wasn't there last year.

Got it.

But I think I had seen a benefit in the interest expense line overall for this quarter, unless I was reading that wrong.

No, that was not a benefit.

Okay, got you.

And then last question on the Gas Storage business.

Could you just give us an update on kind of strategic plans for that, if any?

Is it your intention to sell that or where are you in that process?

Yes, we're still working on that, Chris, and evaluating it, looking at opportunities there.

And we would fully expect to have some decisions by the end of the year on that one.

So we're working through it right now, I guess, is the best way to put it.

So by the end of the year, we should have a final determination.

Our next question comes from Michael Gaugler with Janney Montgomery Scott.

You mentioned $85 million in LNG enhancements during the slides, not a small amount.

And I'm wondering with the recent setbacks and some of the pipeline projects in the Northeast, if your thinking is changing on LNG and how much you might put to work in the future there.

Yes, the LNG is really for 2 facilities we currently have in Connecticut, one in Milford and one in Rocky Hill.

And really, they were put in place in the '70s.

And there, really it's full refurbishments of those 2 facilities but also increasing the liquefaction at one of them as well.

So it's not to take a bet or anything on LNG.

It's really, for the LNG, we need to operate the system on peak days.

I don't know, Bob, you want to...

Absolutely right.

Yes, the basis of my question is since you can't build, or I shouldn't say you can't build, but since it's very difficult to build pipelines in New England and you continue to have difficulty getting gas up into the region, I'm wondering if LNG becomes a bigger part of the picture over time if this trend continues with the pipelines.

It probably will, but that's not the intent for what we're building it toward.

But you're right.

I mean, we can't get any pipelines built.

I don't know, Bob, if you want to...

No, I think that's absolutely right, and there are areas within our system where we're looking at the possibility for LNG as being a solution to a regional issue.

Our next question comes from Greg Gordon with Evercore ISI.

I don't recall if you've given this, and perhaps you have or perhaps you haven't, but your guidance assumes normal wind production for the year, I would presume at the midpoint.

Is there a sensitivity you can give us on what we should think about, sort of what 1% above or below normal or below your base assumption would mean for earnings?

Yes, I think -- well, we -- Rich is looking it up, so I'll talk about things for a second.

Because we gave it last year at the 2016 Investor Day, and we got to fold that out, but really, our assumption is we'll have normal wind for the balance of the year and -- because obviously, the first 6 months are done.

And we're looking to see if we have that number.

So it's in the -- it was in the presentation we did in February of '16.

Okay.

But that is -- you're giving me some clarification.

So obviously, 6 months of the year is in the books.

We are where we are.

You reiterated guidance based on where you are, and guidance for the balance of the year at the midpoint would be based on normal wind for the remaining 2 quarters, correct?

Correct.

And what we probably said at Investor Day was net wind production was plus or minus 3%.

It would have about a 3% to 5% impact on net income.

Right.

But I should cut that in half now because we're halfway through the year.

Right.

The next question comes from Ashar Khan with Visium.

What I wanted to get a better understanding is what ROE are you running in your regulated businesses on LTM basis?

Can you help us with that?

That's in the fact book.

Including today's results.

We don't have -- we haven't announced it for New York.

That will get filed for the 12 months ending December.

Yes, we tend to look at, Ashar, on a rate year basis versus a calendar year because that's obviously how we're measured relative to earnings sharing.

And I think one of the things that was mentioned is we did book an entry earlier this year for earnings sharing associated with the New York companies for the first rate year that ended April 30 of this year.

So in general, I would say -- and that's obviously the largest -- those companies are the largest of the companies we have.

So we've stated all along, our goal is to earn that and through the authorized returns.

And I would say that we clearly did that in New York in the first rate year.

And I think we do that for the companies here.

For the -- Bob talked about the New York companies.

In Maine...

Maine, I'll say, we had talked about last fall looking at whether we felt we needed to file a rate case, and we concluded that we would not do that at this point.

We'll revisit that later this year or early next year.

But the returns that we've been seeing on the distribution business in Maine have been sufficient such that we feel like we don't need to file a case there.

Obviously, we just filed and got approval at UI, so we expect to do well there going forward.

The gas companies, we reached a conclusion at the same time they reached a conclusion at CMP that we didn't need to file at CNG.

But obviously, as Jim mentioned, we did file just recently for SCG for new rates, a 3-year plan.

Really, the key components of that, the increases we asked for are not large.

They're basically inflationary.

The big things for us are the revenue decoupling mechanism, which SCG currently does not have but CNG has as well as, we call it the [dim] tracker.

It's basically a tracker that allows us to recover, on a faster basis, investments in the replacement of cast iron pipe.

And just through the end of the first quarter for the 12 months following that, United Illuminating earned like 6.38, and keep in mind, we just had a rate increase (inaudible) those that have very little of it in there for the first quarter.

The Southern Connecticut Gas was slightly over 9, like 9.07, and Connecticut Natural Gas was 7.71 through the end of the first quarter.

So -- and again, CNG -- well, SCG, we filed a rate case just now, so we'll be in reasonable shape on all of those.

Our next question comes from Paul Patterson with Glenrock Associates.

Just to circle back on the second quarter Corporate.

I apologize if I'm slow here, but what exactly is driving the $10 million or $0.03 a share in the second quarter compared to the $4 million or $0.01 a share in the second quarter for 2016?

Yes, there're a number of pieces we've talked about.

Some are income tax adjustments, but also, and following up on Chris Turnure's question earlier, there is some positive income that comes from intercompany transactions and interest expense there.

So to Chris's question, I answered no.

There was no benefit.

There was no benefit from the UIL debt, that was a negative to Corporate.

But within Corporate, we do pull the cash and charged certain entities for their use of the cash.

And also, we did have -- we issued a $300 million bond at RG&E in the quarter and we had some cash.

So we actually had some interest income during the period as well.

So there is some benefit from that.

And so it's tax adjustments and intercompany interest income and every once in a while, some external interest income.

Okay.

And then you mentioned some benefits in the first quarter for taxes, some tax adjustments.

Were there any substantial tax benefits in the second quarter?

No.

Okay.

So...

We actually saw our effective tax rate go up a little bit.

Okay.

And then with respect to the ROE just on the transmission business, as you know, you guys have filed to raise the rates to reflect the previous ROE, given Emera.

And I think you guys are planning on doing it if there's no action by FERC 60 days after they get a quorum.

Has anything changed in your guidance or your expectations or thoughts about the transmission ROE?

No, not at this point.

So we're still using the old rate, and that's what we're booking to.

The, 10.5, so...

Right.

Okay.

And then finally, the PPA prices versus the -- what you're getting when they're merchant -- or I'm sorry, the contract prices versus what you're getting for the -- as these plans are merchant.

How should we think about the difference between those two?

So when you contract them, what's the price impact for the output when you do that?

Typically, what we would do, if we're going to contract for a term, we're going to look for some price that's above the, what I'd call the spot price or the current price and -- to make sure that we're being compensated for taking the risk, I'll call it risk of having a longer-term commitment.

So that's really how we look at it.

I don't know, Laura, you want to add to that?

Yes, definitely.

I would say when we're looking to contract output that's currently under merchant and subject to merchant risks, there're a lot of factors depending on where the facility is located.

And if you're in a location on the grid where there's constraints and you're subject to negative pricing or pricing curtailments, that will factor into your decision on how applications have completed that would be to the company to be able to secure a fixed-price contract and have some ability to know that you'll be able to generate when the wrong conditions are present.

Okay.

So when you guys do -- when you guys are doing these PPAs, you're getting price stability and you're also getting a price benefit.

Is that what we should think about versus what you're currently getting in the merchant -- which you're currently experiencing or looking at in terms of the forward curve in that market?

I think it would be fair to say, in general, that, yes, if we're going to contract for a fixed term at a fixed price, we would seek to do better than we would be -- plan to do under the merchant conditions.

Again, because of the volatility in some of those markets, they're subject to a lot of risks if you're a merchant.

And so that will definitely factor into the overall decision of what terms we'll be willing to contract.

And what are the contract sort of lengths that we're thinking about here when you say that you're -- when you're contracting them versus merchant?

What -- how long are those contracts for?

Yes, we -- typically, Paul, we'll look at more -- if we're taking it from merchant to a contract, it's kind of going to be more intermediate term, so not necessarily long term but more intermediate.

PPAs, if it's -- depending on the situation, it's not new, it's just going to be longer term.

So it varies and also depends on the customer, too.

What does intermediate mean?

Probably less than 10 years.

Our next question comes from Sophie Karp with Guggenheim Securities.

Could you talk a little bit about the environment in New York and what you've seen with the new commission now being in place?

And do you still expect to get resolution of the storm case and the AMI program that you have kind of on track?

Sure, Sophie.

I think -- It's Bob.

I think it's still early to tell.

Obviously, they just came on board.

We're just starting our meetings with them now to bring them up to speed on company things.

So I -- a couple of expectations I have.

In terms of the storm, that investigation is pretty much wrapped up, so we're kind of waiting for a staff recommendation around that.

So we'll see you when that transpires, but I would suspect, in the next few months, we'll hear something on that.

We've not seen any indication, and we fully expect that the commission will continue down its path with respect to the REV proceeding and all the various components of that.

And that's why, as Jim mentioned in his remarks, we continue to expect to move forward on things like the Earnings Adjustment Mechanism where we can earn some incentives for helping our customers be more efficient and for doing a better job of adding distributive forms of energy onto our system as well as the plans we have around AMI and a smart grid.

So it is very early, but we think that from a REV perspective, that focus will continue.

(Operator Instructions) Our next question comes from Joe Zhou with Avon Capital Advisors.

Sophie asked the question on AMI.

Can you guys give us an update on the New York Transco and what may or may not be happening there?

We continue to focus on the Transco.

There're a couple of proceedings in which they have projects out there.

And we also expect another solicitation probably later this year to address some further issues both associated potentially with offshore as well as congestion in the Hudson Valley region.

So it continues to move forward and be active in looking at solutions to those issues.

Wasn't there one large project that's not in your CapEx that was kind of...

Yes, we're still waiting on that.

There's been no resolution to that proceeding yet.

That was the original, like the AC proceeding, so...

Right.

Where do we stand on this process on that?

I would say early next year, something like that.

Okay.

And again, that's not in your forecast?

No, no.

That would be upside, correct?

There's one other one, the proceeding that's ongoing related to Western New York.

We may hear something on that in the next couple of months.

We have a project with Nike and on that it's not through the Transco.

That would be the next one we would expect to see a resolution of probably within the next couple of months.

Okay.

And then my other question, and I know we discussed this on the first quarter call, and I just want to make sure I understand it because I think it got resolved later.

But just on the income tax line again, just could you explain that?

Because with the big -- like for the quarter, income taxes were down like $128 million or something like that and for the year.

But then you also say that in the third and fourth quarter, that'll get trued up, so that'll be a higher number.

Can you just explain that?

And then I think part of it has to do with how you booked at PTC.

But...

A couple of things going on.

One is last year, coming out of the rate cases in New York, there was a $126 million adjustment, but it was offset up in revenue.

So if you look at revenue line and you look at the tax line on a GAAP basis and take that $126 million adjustment out, there really wasn't much of a change and it didn't hit the bottom line.

And so that's the major difference between the 2 periods.

And I'm not showing any further questions at this time.

I'd like to turn the conference back to our host.

Okay.

Well, thank you, everybody, for participating today.

As I said, we had a great quarter and first half and looking forward to continuing this for the rest of the year.

And we got a lot of upside going on.

And again, so we want to thank you for your participation.

And if you have further questions, please don't hesitate to contact our Investor Relations team.

So thank you all.

Ladies and gentlemen, that concludes today's presentation.

You may now disconnect, and have a wonderful day.