Avangrid Inc (AGR) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the Q1 2019 AVANGRID Inc.

Earnings Conference Call.

(Operator Instructions) As a reminder, this conference may be recorded.

I will now turn the conference over to our host, Patricia Cosgel, Vice President of Investor and Shareholder Relations.

You may begin.

Thank you, Vivian.

Good morning to everyone.

Thank you for joining us to discuss AVANGRID's first quarter 2019 earnings results.

Presenting on the call today are Jim Torgerson, our Chief Executive Officer; and Doug Stuver, 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.

I will now turn the call over to Jim Torgerson.

Thanks, Patricia, and good morning, everybody, and I want to thank everybody for joining us this morning.

The start of 2019 really has been pretty good for AVANGRID in terms of execution on our strategic plan, and the first quarter earnings were in line with expectations after taking into account the significant below-normal wind conditions that we experienced.

Our net income for the quarter was $217 million or $0.70 per share.

The adjusted net income amounted to $219 million or $0.71 per share.

Now we continue to successfully execute on our strategic plan on our renewables and transmission projects.

Our nearly 1 gigawatt of renewable assets under construction is on track to come online in 2019.

Our New England Clean Energy Connect Transmission project is on track and recently received the Maine Public Utility Commission's Certificate of Public Convenience and Necessity.

A 900-megawatt AC project for the New York Transco was selected by NYISO to provide transfer capability from the Albany area through the Hudson Valley region.

And AVANGRID Networks investment is about $120 million or will be in that project.

Our Vineyard Wind offshore project is also on track with nearly 70% of the supply chain secured.

And recently, it received the Massachusetts Department of Public Utilities approval of contracts with the electric distribution companies.

In the Renewables business, we've increased our pipeline by 1.6 gigawatts to 15.4 gigawatts and did execute an additional contract for 58 megawatts with the expansion of an onshore wind project.

In addition, the Board, on April 11, declared a quarterly dividend of $0.44 per share payable in July 1.

Turning to Slide 6. For the quarter, GAAP earnings per share was $0.70, down $0.09 or 11% versus the first quarter of 2018.

And adjusted earnings per share was $0.71, down $0.07 or 9% versus the first quarter of '18.

Now the key drivers for the quarter-over-quarter results by business are really when you look at Networks, adjusted earnings per share for the first quarter of 2019 is flat versus 2018 at about $0.65 per share.

The positive contributions from our multi-year rate plans was partially offset by the impact of higher depreciation.

We also had positive earnings sharing adjustment in 2018 that impacts the comparison when you look at the quarter-over-quarter by about $0.02.

Storm-related activity, and really we're talking about the minor storms, had an impact very similar to what we saw in the first quarter of 2018.

Actually, it's probably about a penny more expense we incurred.

And recall that in the guidance we gave for year-end 2019, that includes half of the extraordinary impact recorded in '18, which was about $0.14 a share in '18, so we're considering about $0.07 would occur in 2019.

And right now we're running a little bit above that -- ahead of that with about $0.04 impact for the quarter when you look at the total versus our expectation.

In renewables, the adjusted earnings per share decreased by $0.13 to $0.02 per share.

And that was affected by really significant lower wind production.

If we were down 14% year-over-year and it was really 17% below our expectations.

And as was anticipated back in February and then really confirmed by our operational data published 2 weeks ago on our website, and I want to add a little more color.

When you look at February, it never really recovered and we ended up down about 18% in production.

And then in March, it continued being down about 15% of production.

And when you look at the wind resource, it's been below normal in all regions.

But really more significantly in the West where the production in the quarter has been 34% lower than last year and that's the lowest wind resource in the last 10 years.

In addition, we had some extreme weather conditions in some areas of the Midwest and Northeast that impacted all the assets in the area.

Exceptionally low temperatures, which were below our minimum operating range.

We had ice on blades and problems accessing the site because of snow, which really limited the performance of some of our assets.

Now our assets are all in good shape.

They're running well now because the spring is here.

But some of these negative aspects were factored into our guidance, but not all.

So the year-over-year comparison was also affected by the expiration of some PTCs and lower REC revenues, which again the PTCs we knew were coming off and the REC prices were a little lower.

And that was partially offset by -- we really had some higher revenues from our Klamath Cogeneration facility and then power trading.

Now the corporate adjusted earnings per share increased $0.06 to $0.04 a share, and really that was a tax benefit item.

So we are affirming today our consolidated 2019 earnings guidance of $2.18 to $2.33 in earnings per share and $2.25 to $2.40 in adjusted earnings per share.

Adjusted renewables range we're lowering by $0.04 a share downward to really reflect the wind resources in the first quarter.

And really, so far in April, April is down of almost 8% through the first part of April.

And then we increased corporate by $0.03 to really reflect the state tax benefits that we're seeing that weren't in our original guidance.

And as we also mentioned in our fourth quarter 2018 earnings call, we are actively engaged with a consultant to gain efficiencies that should mitigate over the balance of 2019 the negative impacts from below the expected wind resources that we realized in the first quarter.

Now moving to Slide 7 to the highlights from our Networks business.

When you look at New York, we expect to file rate cases for NYSEG and RG&E by the end of May for new tariffs that should be effective in the second quarter of 2020.

In these filings, we plan to request the cycle vegetation maintenance program at NYSEG, and recovery for resiliency investments.

Also New York, the 2017 storm settlement was approved, which included a $3.9 million commitment to increase storm hardening and resiliency and improve our customer communication initiatives and assistance.

These where largely completed already in 2018, and the New York Commission issued an order to several New York utilities and NYSEG and RG&E included, to show cause for 2018 really directing the companies to respond to the New York PSCs staff storm investigation and potential violations to emergency response plans, regulations and orders.

In addition, the New York Commission issued an order directing the commencement of judicial enforcement proceedings for NYSEG.

In Maine, Central Maine Power has an ongoing rate case, for which we expect a decision in the fourth quarter of 2019.

And other regulatory eyes are watching includes the FERC's decision in New England Transmission Owner ROE proceedings, in which the Commission proposed a method for calculating ROE, which resulted in a 10.41% base ROE.

Our views are in line with the other New England TOs who are generally supportive of the methodology and since this order, we actually requested FERC to dismiss complaints 2 through 4. Separately we're tracking FERC's inquiry into the transmission rate incentives, and how the New England TO ROE methodology would apply to other transmission facilities.

Now moving on to our Networks project.

Central Maine Powers New England Clean Energy Connect or NECEC is on track and received a Certificate of Public Convenience and Necessity from the Maine PUC on April 19.

Other stages of the approval process are underway at the Maine Department of Environmental Protection and Maine Land Use Planning Commission and the Army Corps of Engineers.

Public hearings will conclude in early May with decisions expected in late 2019.

In addition, we've already done the EPC contract for the high-voltage DC converter and that was recently awarded.

In New York, New York ISO approved a proposal for the New York Transco for an AC transmission project called New York Energy Solution.

Now AVANGRID Networks owns 20% of the New York Transco and our estimated investment of project is $120 million.

The New York Energy Solution project will increase the transfer capability from the Albany region through the Hudson Valley by about 900 megawatts through existing right of ways, and it's scheduled to be in service in December of 2023.

Now this project replaces transmission assets that are about 90 or 80 years old, and will enable a surplus clean energy resources in upstate New York to help the state achieve its energy goal.

In Maine, through our MEPCO transmission project, we completed the rebuild of a 46-year-old structures along the 50-mile 345 kV circuit and came in well under budget.

Now on Slide 9 in Renewables, we are successfully implementing our strategic plan with 1 gigawatt of onshore wind projects under construction and are on track to be operational in 2019 in which tax equity financing is currently being negotiated.

Also in the first quarter, we executed a new offshore wind PPA for the 58-megawatt extension of the Tatanka Ridge project in South Dakota.

With that we have secured 550 megawatts of wind and solar projects for COD in 2020, and we've already exceeded our long-term goal for renewables contract to grow by 2022.

Moreover, we have increased our pipeline from 13.8 gigawatts to 15.4 gigawatts.

Now this breaks down into 6 gigawatts of onshore wind, 4.4 gigawatts of solar and 5 gigawatts of offshore wind.

Now that includes the 2.5 gigawatts for Kitty Hawk, 1.5 gigawatts for our 50% share of Vineyard Wind and then the gigawatt for our new lease off the coast of Massachusetts.

In addition, we continue to move forward in optimization and monetization of our pipeline, including various ongoing negotiations on asset sales and potential partnerships, some of which we really expect to close this year.

Now on Slide 10, Vineyard Wind, which is our 800-megawatt offshore wind farm in joint venture with Copenhagen Infrastructure Partners is on track and continues to advance through the permitting process.

This year, the Final Environmental Impact report was certified by the Commonwealth of Massachusetts.

And in March, Vineyard Wind received a positive consistency review to the Federal permitting process from the Rhode Island Coastal Resource Management Council, and this followed positive report -- support from the Fisheries Advisory Board of Rhode Island.

In April, Vineyard Wind received approval from the Massachusetts DPUC of the contracts with the electric distribution companies.

Now moving forward, the Final Environmental Impact statement is expected to be completed in June and the record of decision is targeted for August and we expect to receive all permits and approvals by year-end '19.

In addition, we've selected suppliers for over 70% of the project capital expenditures, including the offshore wind turbines with Vestas 9.5 megawatts.

Now we see a strong interest for the financial community part of the first offshore wind project, including the banks and tax equity investors.

Now we are targeting to have all 800 megawatts in operation by the end of 2021.

Now it has a positive impact to the earnings, really about $0.01 a share assuming we can spread the ITC over the life of the project in which is the 20 years.

Additionally, Vineyard Wind submitted a bid in the New York's first offshore wind RFP with its Liberty Wind project in order to contribute to the New York State goal of installing 9,000 megawatts of offshore wind by 2035.

This proposal includes options for 400, 800 and 1,200 megawatts with a robust direct transmission proposal to Long Island with high economic value to the region.

Vineyard Wind is partnering with transmission developer, Anbaric, who will finance and own the transmission.

NYSERDA plans to announce the winner this spring.

Vineyard Wind also submitted bids into the Rhode Island renewables RFPs, with proposals of 200 and 300 megawatts each and then the selection of bidders is expected in May.

Massachusetts announced its second 800-megawatt offshore wind RFP with bids due in August and the selection in November.

Now on slide 11, there's an overview of a very important initiative we have ongoing.

We performed a mid-period assessment of our Forward 2020 Plan for achieving best-in-class efficiency.

Now through this organization-wide review, we are identifying both near- and long-term opportunities, including process, organizational and technology initiatives to improve our performance.

We've identified best practices for our service delivery models in corporate functions and operations.

And we're evaluating and optimizing our systems and processes to identify causes and in cases that we can have for automation and remove duplication of activities and eliminating unnecessary reporting.

For 2019 alone, we've identified 10 business cases for automation in billing, front office and credit and collection departments, and we've already started implementations there.

We're optimizing our operating expense -- spend by scrutinizing contracts and through strategic sourcing events.

We're implementing governance best practices to ensure our processes for capturing those savings are sustainable going forward.

We looked rather closely at our organizational structure and how we benchmark against our peer group.

What we found was that there is an opportunity to drive agility and improve productivity and efficiency.

This will drive quicker decision-making and greater empowerment and accountability.

And we're reviewing our real estate portfolio to ensure the use of our facilities is optimized.

Revenue enhancing initiatives, such as increasing our wind energetic availability have also been identified to the project and are being implemented now.

So we've successfully identified and launched targeted initiatives and we're moving quickly to implement these optimizations and best practices, which will mitigate costs and deliver sustainable value.

Moving to slide 12 in summary.

With projects like the mid-period assessment and all that we have ongoing in our networks and renewable businesses, AVANGRID is on target to meet expectations.

We're focused on our core regulated and contracted businesses and we continue to maintain a very strong balance sheet while we work toward best-in-class operational efficiencies.

We'll continue to focus on delivering clean energy solutions as we build the grid of the future and take care of our customers through excellent customer service and ever smarter energy solutions.

We're fulfilling our strategy to deliver sustainable growth by investing in the smarter and cleaner energy future.

And now I'm going to turn it over to our CFO, Doug Stuver, to talk about the financial aspects.

Thank you, Jim.

Good morning, everyone, and thank you for joining us today.

I'm now on slide 14.

On this slide, we roll forward earnings per share from the first quarter of 2018 to the same period in 2019 on a GAAP basis and on a non-GAAP U.S. adjusted basis.

Adjusted EPS reflects the exclusion of mark-to-market adjustments in the renewables segment, restructuring charges and adjustments related to our prior ownership of Gas Storage and Trading businesses, which we exited in 2018.

The combined impact of which was minimal on a quarter-over-quarter basis.

As you can see, on a GAAP and adjusted basis, Networks results for the quarter are flat compared to the first quarter of 2018 and Corporate is up $0.06.

Renewables is down $0.15 on a GAAP basis and down $0.13 on an adjusted basis.

Renewables, as Jim noted, was significantly impacted in the first quarter from low wind production compared to 2018, reflecting lower than expected wind resource and the impacts of storms and severe weather.

Wind production for the first quarter of 2019 was also below our expectations.

We had higher corporate earnings in the quarter-over-quarter period due to favorable tax impacts, which partially offset the renewables impacts.

Now on the next several slides, I'll provide some more detail on these business segment impacts.

I'm now on slide 15.

This shows the results and key drivers for Networks, Renewables and Corporate.

For the first quarter, you can see that Networks results, as I mentioned were flat quarter-over-quarter with $201 million of adjusted net income and $0.65 earnings per share.

While we experienced the benefit of $0.04 quarter-over-quarter due to new rates going into effect for several of our utilities, this benefit was offset by a $0.02 negative impact from higher depreciation due to higher fixed asset levels in service and a $0.02 earning sharing benefit detriment in the first quarter -- that occurred in the first quarter of 2018 and did not recur in 2019.

So that was a period-over-period negative.

As Jim noted, while minor nondeferrable storms were not a factor quarter-over-quarter, the Networks business continued to experience storm activity in the first quarter of 2019.

Major deferrable storms were not as significant as in 2018 and minor nondeferrable storms had an impact of approximately $0.04 negative, which is approximately $0.01 higher than the first quarter of 2018.

As Jim noted, we included in our guidance for 2019 an estimate for minor storms of about $0.07 and that was about half of our 2018 experience.

Minor storm impacts include the direct cost of minor storms as well as the related effects to capitalize labor and AFUDC when resources are diverted from capital activities to perform storm recovery.

As I mentioned earlier, our Renewables segment was the key driver for the quarter-over-quarter decline in earnings.

Renewables adjusted net income declined by $42 million over the period or $0.13 per share.

Performance period-over-period was significantly impacted by 14% lower wind production and that would be 14.7% when you include our joint venture projects in that calculation.

This lower wind production explained over half of the decline and contributed $0.07 negative impact.

Low wind resource was the primary driver resulting in a quarter-over-quarter decline of approximately 610-gigawatt hours followed by weather impacts, which caused the further 119-gigawatt hour decline.

As Jim noted, the Western region was hit hardest with a 34% quarter-over-quarter decline in production.

Wind production also for the quarter was 17% below our expectations.

About 70% of that downside was poor wind resource and then the remainder was attributed to external factors, such as the significant weather that caused icing on the blades and heavy snowfall that prevented access to some of our sites.

The Western and Mid-Continent regions explained most of the wind production underperformance compared to our expectations with the West driven by poor wind resource and Mid-Continent due to lower wind resource and severe weather impacts.

In addition, other wind-related impacts mainly PTC roll-off and lower renewable energy credit sales contributed a $0.06 negative impact to the quarter-over-quarter variances.

Minority interest earnings, taxes and various other items also reduced 2019 quarter-over-quarter earnings.

These items were partially offset Renewables by a $0.04 quarter-over-quarter benefit and that came from optimizing the Klamath Oregon generation plants and our trading revenues.

We had high prices in the West and higher volatility in the West due to the exceptionally cold winter plus we had the ongoing impact of a Canadian pipeline rupture that was driving up prices.

Finally, the Corporate segment reported $13 million of adjusted net income or $0.04 per share.

This is a $0.06 improvement quarter-over-quarter.

Corporate income taxes for the first quarter of 2019 included an $11 million favorable discrete item pertaining to a state income tax net operating loss carryforward and a $12 million favorable consolidating tax rate adjustment.

This tax adjustment aligns the consolidated income tax expense with the sum of the income taxes for the Networks and Renewables segments.

For the first quarter, AVANGRID's consolidated effective tax rate was approximately 19.5% before discrete items.

Now moving to slide 16, we get into some of the Renewables production drivers.

Slide 16 covers the net capacity factors.

As you can see on this slide, the wind net capacity factor was 28.1% in the first quarter compared to 33.6% in the first quarter of 2018 or a 16% quarter-over-quarter decline.

Our annual and quarterly net capacity factors clearly demonstrate the recent negative trends in wind, including compared to our revised forecast.

As you're aware, this year, we revised our methodology for forecasting wind previously using an average of 2011 to 2014, and now using a life-to-date average on our plant-by-plant basis.

In the top right quadrant of the slide you can also see that the recent years remain below average in addition the bottom chart, which shows our historical quarterly performance demonstrates that the first quarter of 2019 was below the life-to-date average.

Now moving to slide 17.

We note that our wind production is 14% lower quarter-over-quarter predominantly in the West, which had a 34% decline and then the Mid-Continent, which had an 18% decline.

The primary factor driving the decline in the West was low wind resource, while in the Mid-Continent it was severe weather that caused icing on the blades and restricted access to our facilities.

The bottom portion of this chart shows Bonneville Power Administration generation and over the period from 2010 to 2019, there you can see that the first quarter of 2019 was a 10-year low in terms of generation for Bonneville Power Administration and kind of correlated well with what we saw in the West with our assets.

Now moving to slide 18.

We further highlight the impacts on wind production related to external factors, such as storms and icing with those impacts mostly in the Mid-Continent and Northeast.

As you can see on the left side of the chart, the first quarter 2019 gigawatt hours lost to these external causes was 87% higher than in 2018.

Icing on the blades negatively impacted generation in the first quarter by 80-gigawatt hours, and that's over double the impact in the first quarter of 2018.

Other external factors, the other portion of that bar graph that includes mainly site access limitations caused by severe weather, turbine shutdowns to prevent weather-related damage and also other weather-related items, such as low temperatures that prevent our field technicians from accessing the site.

In terms of the pricing, now I'm moving to Slide 19.

You can see here a decline in the average price quarter-over-quarter and that's largely due to lower REC sales and pricing on REC sales as well as the impact of expiring PPAs.

Moving to Slide 20.

Our credit ratings remain strong and we highlight the recent upgrades of the United Illuminating company and Southern Connecticut Gas company to an A- as well as the affirmation of AVANGRID and the other utility subsidiary ratings by Fitch.

Our dividend policy remains unchanged, targeting 65% to 75% of net income.

And as Jim noted, the Board recently approved a quarterly dividend payable July 1.

Now I'm moving to Slide 21.

We affirmed our consolidated 2019 earnings per share guidance of $2.18 to $2.33 per share and adjusted earnings per share guidance of $2.25 to $2.40.

We have revised our guidance for 2 of our business segments and that's primarily based on our first quarter performance as Jim noted.

In Renewables, considering the negative impacts in the first quarter from wind resource and weather, we reduced our ranges by $0.04 so that the EPS range under U.S. GAAP for renewables is now $0.41 to $0.49 and the adjusted earnings per share range is $0.48 to $0.56 per share.

In our February earnings call, we noted the poor wind resource for January compared to expectations and the intent to make up those impacts over the full calendar year through cost efficiencies.

As Jim noted, those negative impacts continued and the total impact for the quarter is 17% below expectations, as I noted earlier.

Also Jim mentioned, in April, we've seen continued downside with production about 8% below the life-to-date average.

In Corporate, I noted earlier, we had a positive state tax benefit and that was not considered in our guidance, so that allowed us to improve our earnings per share and adjusted earnings per share upward by $0.03 to minus $0.05 to positive $0.01.

As Jim noted, the lower wind resource has been a drag on our first quarter results and has exceeded our expectations; however, we're confident the work we're doing with our Forward 2020 program and the mid-period assessment, will deliver savings over the balance of 2019 that overcome these negative first quarter wind impacts.

That said, it's also important to acknowledge that our guidance over the remainder of 2019 assumes a return of wind resources to our historical life-to-date average and that we have limited capability to further offset those continued impacts for wind resource like we saw in the first quarter.

Our 2019 guidance also assumes a favorable outcome of the FERC ROE complaint that's pending.

That has approximately $0.06 per share assumed benefit.

Also the sale of projects and strategic partnerships and renewables that's assumed at between $0.05 and $0.10 per share positive and then the storm impacts in Networks are assumed at roughly $0.07 negative per share impact, which is half of 2018 levels.

Moving now to Slide 22.

We have our company highlights here.

We certainly have attractive investment opportunities in our Networks business and our Renewables business, as Jim noted, and we've made significant advances this quarter in our New England Clean Energy projects.

Our leadership in offshore wind in the U.S. with access to 3 lease areas now provides significant value and diversification to our business.

Our commitment to sustainability is also very important to us and we want to emphasize our long-term target of achieving carbon neutrality by 2035.

Importantly, we have a distinctively strong balance sheet and solid investment grade credit ratings and a commitment to increase our dividend in line with our 65% to 75% target payout ratio.

Thank you, everyone, and I'll now hand the call back to our operator, Vivian, for questions.

(Operator Instructions) And our first question coming from the line of Praful Mehta with Citigroup.

So maybe just starting off with the key topic around wind and the disappointment on the capacity factors.

It is surprising given you'd reset the capacity factors recently at the Analyst Day, so I'm just trying to understand what caught you by surprise so incrementally following the Analyst Day that, that wasn't foreseen in terms of wind capacity factor results that you now see?

Yes.

Praful, the main thing was that the wind resource in the production was down even more when -- for the rest of February then in the March.

So it ended up being down, as Doug said, 17% for the quarter in production.

Now the wind resource itself was the biggest part of that and the other things, we had icing and so forth, but still we never would have projected to be down 15% from what we consider the life-to-date average for the entire quarter.

And so that's why we brought it down initially as everybody noted and then we just had a continuation of very, very poor wind conditions and wind resources for across -- almost across the country, but really in the West and Midwest and a little bit more in the Northeast, that just continued throughout the quarter.

And so -- and then when we got to the first part of April, it's down almost 8% to the first half of the month, so we said it does -- we cannot justify not reducing the renewable piece a little bit going for the rest of the year.

And so that's -- we just wouldn't predict that we'll be down that much every month in the quarter.

So that's what caused it.

Now Laura, if you want to add anything else?

No.

I think that's exactly right, Jim.

Got you.

That's helpful color, Jim.

But again if you look in Slide 16, if you look at the capacity factors that you're showing over the last, I guess, starting 2011, there seems to be a clear trend down starting '15 in terms of capacity factors.

So I guess the question is, is the expectation that is being set in even with the new bar that you now have post Analyst Day appropriate?

Or is that still too high?

How do we get comfortable as investors that the set is now accurate or the bar that you have built into your forecast is now accurate versus what you're currently seeing on the ground?

Yes.

I think we'll continue to evaluate this.

But when we look at the life-to-date of the wind resources, you're going to have, I would say, ups and downs, normally.

The last 4, 5 years have been below that average and when you look at the previous few years, they were above that.

So we have to look at the life-to-date and figure out what it's going to do.

Now wind conditions are going to fluctuate and change.

Hopefully, it goes back up.

I know Laura, you may want to address this and how you see it because it's hard to -- it's difficult to predict other than looking at history and saying, what is history telling us and what will we see going forward.

Now we can look at wind patterns.

We can look at changes.

We have meteorologists on staffed to look at all these things and they're telling us, this is the best forecast we could do.

Yes, absolutely agree with that, Jim.

Historical life-to-date feels to be the best metric that we can use.

There's always going to be uncertainty in forecasts, and for this particular Q1, in addition to the wind resources you've seen in the chart, even the independent charts that were provided for the Columbia Courts by Bonneville, it really was just an exceptional low year.

Hopefully, a tail event for that particular resource, but also in the Midwest, we had such extreme weather that, that was an additional factor that really impacted us more than we've seen in previous years.

So there's definitely efforts ongoing with our technical teams to explore options for de-icing of blades and what other things can we be doing proactively given that extreme weather is tending to have impact on our fleets.

Got you.

And then just one quick follow-up on the partnership and asset sales.

Jim, you mentioned that you're hoping to have something done this year, it sounded like, is there any other color or context you can give around it?

Is it still the development pipeline that you're looking to monetize?

Or is there anything else that we should be thinking about on that front?

It's the development pipeline in total, and we're negotiating with a number of parties right now.

I'm looking at various projects, so we would expect to be able to have something.

As we said, we're targeting some sales every year going forward to make sure we're monetizing the pipeline and doing -- looking at what is in the best interest of the company.

If we can get a better net present value by selling it and not retaining it and developing ourselves, that's exactly what we're going to do.

So as I said, we have a number of opportunities we're pursuing right now, so we would expect something by the end of the year.

And our next question coming from the line of Julien Dumoulin-Smith from Bank of America.

Can you hear me?

Yes, we can hear you, Julien.

So perhaps just to come back to the New York update real quickly, can you talk a little about the storm response, and how that reconciles the rate case here?

Obviously, we've seen an uptick in spend from ConEd off late, but I was sort of curious because you've already talked about upping the spend in response to some of the storms, so how can we see that evolve here in the rate case and as a result of some of the latest developments in New York and what they said?

Well, you know we laid out the resiliency plan that we talked about and that's going to be part of our rate case.

And I'll let Bob, as he can fill you in on what we're doing right now.

Yes.

Thanks, Jim.

So a couple of things.

When you look at what the staff highlights in the results of their investigation into 2018 storms, I would put them in a number of pockets.

One is around storm preparation, in particular, around resources both internal resources as well as mutual assistance process.

Another one would be around resources associated with wire guard damage assessors.

A third would be around how utilities communicate with their customers, local community leaders, regulators, life support customers and the like.

And then the last one is around, as Jim said, really resiliency.

And I would include within that not only investments in the system to harden the system, but also very importantly, vegetation management policies and practices.

So post the storms in 2018, many of which occurred in the first quarter and the first half of the second quarter.

We started our own assessment and, quite frankly, many of these areas in terms of things we could do to improve on our storm response.

And as Jim mentioned, I think the first visible item was the resiliency plan that we came out with in June, which is a $2.5 billion plan, $2 billion of which is dedicated towards New York, $0.5 billion of that is AMI, $0.5 billion is vegetation management and the remainder being true resiliency-type investments.

But throughout the year, we did a lot also in terms of preparation for storm, in terms of assessing our resource plans, in terms of human capital, communications and the like.

So when we look at the recommendations that came out of the staff's investigation, we've already are well down the road on addressing many of them, so that will be our response.

Specific to your question, however, I will say that within their analysis, they fully recognize and are recommending that companies address what is the new norm for storms with resiliency type investments, including vegetation management and we feel it's very important as well AMI.

And so this is something we were planning on putting in our filings that we're going to make in May, anyway.

But I think it's clear from staff's own report, they see the importance of these types of investments to helping utilities: one, ensure that their system holds up better in a storm, but then, two, allows them to respond more quickly from a restoration perspective.

Excellent.

And also just a little detail here on the $0.03 tax -- state tax benefit.

How much of that is an ongoing item just as we think about fine-tuning things?

Yes, I honestly don't think of that Julien as an ongoing item.

That was a discrete item.

Basically, a change in apportionment among the states that had a higher allocation to Maine and due to the unique kind of tax treatment of NOLs in Maine and the high tax rate in Maine, it gave an improvement to our -- the value of our net operating loss carry forward.

Our next question coming from the line of Greg Gordon with Evercore ISI.

Can you just reiterate for me you said that you budgeted $0.07 this year for minor storms, which was obviously a reduction from what you experienced last year and how much of that was for lack of a better term eaten up in Q1?

Yes, Greg, it's Bob.

So the way I look at it is this, we -- when we look at the first quarter of this year to last year, overall, I would say, we saw less major storms but the frequency of either threatened or minor storms was as much as if not greater than last year in the first quarter.

And so what we're seeing is the expectations of a greater staging of resources in advance to the storm.

Those are the types of costs that we're currently incurring that are above and beyond.

For example, in New York, what we currently have reflected in rates, which is an agreement that was reached 4 years ago.

So I would say that for Q1 this year, our overall costs are relatively on par, nondeferrable costs to last year.

And it ate into it several pennies, $0.02, $0.03 into that $0.07 cushion, but I personally remain very confident that in the overall guidance of Networks for calendar year '19.

Either way, it's good that you're making progress with the regulators to fix the problem.

So...

Yes, this will be a big part, as I mentioned, in Julien's question of our rate cases.

I think it's -- we recognize that the expectations of customers, local community leaders, politicians, regulators is that we're ready for and respond rapidly to storms when they occur, and we are doing that.

Obviously, there's a cost associated with that, and that will be addressed in the rate cases.

Got you.

Next question, depending on how I look at the right-hand box on page 15.

There was either $0.13 or $0.15 of headwind if I include minority interest or exclude basically is the swing from wind production, other wind and things like that, and you've only lowered guidance in the range by $0.04.

So I mean arithmetically does that mean that you think you found between $0.09 and $0.11 of offsets through the programs you're putting in flight and that, that will actually impact this year?

I'll just start by saying that keep in mind that some of these are year-over-year impacts that were already contemplated, not entirely unpredictable.

For example, production tax credit expirations, that's a negative impact year-over-year and that's really a function of just reaching year 11 of the life of a wind farm and no longer qualifying for production tax credits in that year.

So not all of that impact really is driving negative against our guidance.

And so -- but -- to more broadly answer your question, yes, we feel like we have other offsets that we can achieve within renewables to help minimize those overall impacts.

That's a great clarification.

I get that, and that's fair.

We can talk offline about the -- what subset of these is the -- or if you have it on hand that's fine, what subset of the $0.15 was unexpected versus expected, but the short answer is you put programs in place to offset all but $0.04 of that?

Yes.

And Greg, let me just add, the plan we have with our -- the consultant we're using, we fully expect to be able to offset the downside in the first quarter from the wind resource negativity we saw.

We expect to be able to fully offset.

Now it's going to come into other areas, not necessarily all in renewables.

So we'll see that, and then, again, the cost reduction gets spread to Renewables and Networks as we go through, but as I said, we fully expect to be able to offset that fully.

Okay.

And my final question is when I think about the Klamath optimization and trading, I mean, it really is -- it's a nonrecurring opportunity, but really that opportunity is a function of the same issues, which caused headwinds in that region.

Absolutely.

So it's kind of like a dirty hedge.

So that reverses going forward, the problems also reversed, and so I see that as one to almost as dirty hedge to the things that caused the problems on the wind side in the first place.

Does that seem like a reasonable summary?

Yes, the way to look at it is since wind production was down so much, it gave us an opportunity to run our gas plant to generate more electricity to be sold and the prices were attractive because of the pipeline outage that was in Canada as well, which restricted the gas supply into the area.

So there are a lot of things going on that allowed us to have some benefit from Klamath, and -- but you're right.

I mean if wind production were back up to where it would be, we wouldn't be running the plant as much, and so, yes.

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

Yes.

No.

Absolutely agree with that.

And you're absolute right, low wind was a large contributor to the situation that occurred in the West that gave opportunity for us.

But as you know, we're a physical player in the West, and so we are optimizing a book and the combination of low wind in those extremely high gas prices and the fact that we were able to optimize transmission gave us a nice portfolio of tools to be able to offset some of the losses that we suffered due to low wind resource.

Our next question coming from the line of Chris Turnure with JPMorgan.

I just had a, I think, pretty quick modeling question probably for Bob.

Could you remind us over the past maybe 2 or 3 years, what you booked for a refund to customers at New York Networks?

My understanding is there is a year that ends in May of every year where you look at your earned returns within the bands, and then at some point after that, you book a refund to customers, and I think it goes into your adjusted EPS?

Yes, I mean, we do look at -- yes, the earnings share in calculation referring to is done on a rate year basis, which is basically May to May.

For what period are you looking for in terms of what our actual returns were versus I mean, I think some of that we have in our factbook, but if you're looking for specific dollars of what we deferred in years that we over-earned, I can get you that information by rate year.

Yes, I mean, I'm interested in the details, but just at least directionally kind of what were you booking in the past 2 or 3 years there?

Yes.

I'll -- let us get you some specific numbers back.

I would say, in general, it's the gas businesses, my recollection, have generally over-earned.

The electric, depending on the year, have been a mix.

If you look at our factbook, I think, it's like Page 62, you'll see in there the returns.

Those are after-sharing returns, so it can give you a sense for where we shared.

But again, what I'll do is I'll get back to you with the actual dollars because I think you're looking for the actual dollars.

Correct?

That's correct.

And then I think you mentioned -- or Doug, you mentioned in the script that there was an impact year-over-year in the first quarter this year from Networks as a result of not having a cost of sharing being booked?

Yes, I think what happens there sometimes, Chris, is because the test is a rate year test that doesn't overlay with the calendar year.

We will make estimates at the end of a calendar year for accounting purposes of what we think sharing will be, but obviously that has to get trued up either in the first quarter or early second quarter to reflect what we ultimately do have for sharing for that rate year.

So that's -- we typically make some of those adjustments in Q1 because we start to get better visibility into what the rate year earnings will look like as compared to the calendar year.

Just to that point, so in Q1 of '18 that was a benefit...

Right, right.

We had essentially over approved at the end of calendar year '17 for what was then rate year 2 earnings that accompanies and some of that reversed.

Okay.

And then presumably flowing from that in the year that ended May of 2018, I guess you didn't earn into the bands at all so you did not book anything this quarter?

Well, we don't know that yet because we haven't finished the third rate year in terms of exactly, but as of this point, there weren't any issues in the first quarter that would have had us change or lower the estimate we had as of the end of '18 for a rate year 3 earnings sharing.

Our next question coming from the line of Michael Sullivan with Wolfe Research.

I just wanted to clarify on the guidance range so just kind of with some of the headwinds you talked about in Q1 and then what you're seeing in April and then some of the offsets that you've talked about, is the midpoint of the range still the rate placed to be thinking about?

Or are you now seeing some movement within that range for the year?

No, we're still seeing the range for adjusted earnings of $2.25 to $2.40.

I mean we're still looking at that range, and we feel pretty good about that.

Okay.

And then just specifically at the Corporate segment I was just looking back over the past couple of years and that really seems to move around.

You guys have moved the range a lot each year and there seemed to be these tax items that sort of pop-up every quarter, and I'm just wondering if there is anything on a go-forward basis that you guys can -- that be done to sort of normalize or smooth things out because it really just seems to vary a lot?

Yes, I'll just kind of start on an annual basis, I would say probably the biggest driver for that is the apportionment among our states and whatever impacts those have by shifting our taxable income.

We operate in many states, I believe, almost 30 and each obviously has different tax rate.

So it's difficult to manage or predict throughout the year where that apportionment will land and that normally is a fourth quarter adjustment.

So I will say though this year 2 things: one, we've implemented new software in 2018 that both helped as remediate the material weakness that we had and puts us on a much better footing going forward to have, I'll say, more stable and predictable tax results.

So that tool, I believe, will help to smooth out those impacts over time, but I think there still can be some variability.

Yes.

And Michael, one of the things that occurred in this quarter was by allocating the apportionment put more taxable income in the main, which has a higher tax rate than in others -- in other jurisdictions, which then we get more of our NOLs being utilized in Maine to offset some of that.

So that's why we end up with a tax benefit there.

So it depends -- as Doug was saying it depends on which jurisdiction has the more taxable income and how this all gets apportioned.

So we don't really know that when you look at every state we're in until late in the year, so we recognize it's kind of a problem for you guys to model and -- but it's also difficult for us to predict where it ends up based on what income is derived in which state and what apportionment done is required by each state, and the unitary taxes in some states and not others, so I know it's complicated and -- but we're trying to smooth this out as best we can.

Okay.

Yes.

I appreciate all the color on that.

And then just my last one is on the Vineyard Wind project.

It sounds like you guys are a little more confident on the margin that you're going to be able to get the whole thing into service in 2021.

Just from a financial standpoint, I was a little surprised why getting the higher ITC a year earlier only has a -- I think you said a $0.01 impact and then also just wondering at what -- where do you need to get in this project to the point where you may be able to give us some more guidance on the actual earnings contribution of the project as a whole?

Yes, I think we are pretty confident.

And the ITC impact, you got to remember that, that's just the impact, the benefit for us.

It's on the margin when you look at it.

It's just a shift from the 18% to the 24% for half of the project and half of that we get.

So it ends up being kind of small, but still $0.01 is still a $3 million tax benefit for us.

I don't know, Laura you may want to talk about how you see the project?

Yes, just a little additional color on that from my perspective.

The first 400 megawatts initially were targeted for the end of 2021 and then we had targeted May/June for the second.

So it's really not a full year impact and then as Jim and Doug mentioned that, of course, 50% of our share.

From a permitting perspective, we're expecting a final Federal permit at the end of the summer, and I think at that point where we'll feel very confident in our ability to be able to move forward with the construction program as planned.

I think the key is right now we're targeting to get it all in, in 2021.

That's really the plan now, but we have a backup that if that doesn't occur then we can still look at all the options of when, how to maximize the ITC we get from the full project.

Our next question coming from the line of Angie Storozynski from Macquarie.

I have a question about potential changes to the Jones Act.

I understand that those are more related to the natural gas supply for New England and Puerto Rico, but I'm just wondering if that could somehow positively improve our offshore wind project development in New England?

Yes, Angie, from what we understand the changes the President is suggesting for the Jones Act would provide only for assets to the LNG to be brought into the state.

We haven't seen anything yet that would apply to the offshore wind; however, we would love to see that change.

And I think we're pursuing with -- as we speak with people in Congress and with the administration we do bring that up that it would help facilitate the offshore wind business if we can get an exemption from the Jones Act.

So -- but right now from what we're seeing it doesn't -- it won't have a positive impact for us.

And as I'm sure you're aware our construction plan anticipates compliance with the Jones Act since we've been planning to set all along.

Okay.

And then back to that $0.01 earnings contribution, so if there is -- that $0.01 assumes just like you mentioned, Laura, that there's going to be a half year contribution of the first half, first 400 and then half year and just marginal contribution from the remaining 400, right?

So what if I were to look at the annual contribution of these assets if they were to be operational for 12 months and less than 12, how much will that be?

Yes, Doug, go on.

Yes, so let me just clarify a little bit.

So when Jim talked about the $0.01, that's basically looking at the ITC benefits and its contribution to earnings by moving that forward 1 year and upsizing the level of the ITC.

We're basically at an average right now of 21% when you think of 2 phases, 1 at 18%, 1 at 24%.

So by taking it all to 24% that will deliver roughly $0.01 per share positive impact from the ITC, assuming that, that ITC gets spread over the life of the project, right?

And that's also subject to some uncertainty because we're using tax equity and actually the terms of the tax equity financing will help us dictate what that recognition period will be.

So that I'd say that $0.01 benefit that Jim described is probably the minimum just related to the ITC impact.

There will also be all other impacts of having the project in service a year earlier and getting full benefits of its operation.

So that piece is not part of this $0.01, it would be further additive.

So when are we going to know what is the remaining factor here for this entire project to come online by 2021?

Is there any specific permit that we need to look out for to determine this earlier COD?

Angie, we're having a hard time hearing you.

There's a lot of static on the phone.

I think what you're asking is permit limitations to be able to get to 2021.

I think as Laura suggested, we should have the Federal permits by the end of the summer and then we can then readily determine if we're going to be able to meet everything by 2021.

We're making great progress with the suppliers and as I said, we got about 70% of the -- all of the supplies we're going to need are under -- are being contracted now.

So we're in pretty good shape from that standpoint.

We feel very confident about getting the permits that we need.

So I think, the 2021 is realistic.

It's just assuming things fall in line with the rest of this year.

And by the end of the summer, we should have a really good sense if that 2021 is -- we can get everything in by that point in time.

If not, as I said, we'll have a backup plan that maximizes the ITC and the production we're going to derive from the project.

And our next question coming from the line of with Phil Covello with ExodusPoint.

It's Andy Levi.

Just a few follow-up questions.

Just on the Corporate side.

So what's the total annual impact?

And is it just taxes that you optimize in a better way to put it?

Or is there anything else in there?

I came up with like $0.07 delta for your guidance.

Yes, there's really 2 things going on in Corporate both tax related.

One is the state tax NOL item that I mentioned on some of the earlier questions and then there's also a consolidating rate adjustment that we do incorporate that basically aligns the overall effective tax rate of AVANGRID and the income tax expense at that level for the sum of the income tax expense for the other segment.

So that piece of it actually will just reverse over the course of the year.

By the end of the year, there is no need to further balance all the individual segments that just resolves itself.

So that particular item was about $12 million after-tax impact to corporate.

The other item, this state allocation and the NOL was an $11 million item.

You're right.

It's about $0.07.

Okay.

And that's all onetime in nature, right?

Well, yes, the state NOL item is one time in nature.

This consolidating tax rate item is something that we generally have throughout the year and then it reverses by the end of the year.

In all cases it would smooth out.

Okay.

Could we see corporate change by like $0.06, $0.07 versus the guidance?

No, we moved the guidance by $0.03.

I thought it was more.

Okay.

I guess the range maybe.

I don't know.

Okay.

So -- and then just understand like your commentary on the year.

So if I kind of go back and look at the transcript, basically, what you're saying is that if you have from April on or May on, if the wind is normal and everything kind of else goes right at the utility, you should be able to stay within your range, but if not, there could be an issue?

Yes.

Our assumption is, we will be able to mitigate the first quarter from the wind with cost savings we're going to be putting in and efficiencies.

And that -- and you're right, if going forward, if we have, let's say, 15% production decline over the rest of the year, which will be unheard of, that would be challenging for us.

But even if it was 5% below normal that would be challenging, I guess, right?

Yes.

I mean -- but it's not quite a significant, but yes.

And they are all kinds of factors we put in when we look at the guidance, that Doug was going through.

Okay.

And then on the cost-savings initiative, could you just tell us what business lines that's occurring on?

Is that happening at both -- is it happening in the Renewables business?

Is that happening on the wind side, at Corporate?

Can you just give us a little color of just the areas and then I have a follow-up to that?

It's really across the board, Andy.

It's at Corporate, Networks and Renewables.

And we're looking at all areas as to how to get efficiencies and improve in every area.

So it's really across the board.

It's not isolated to one area or another.

And will most of the savings come at the utility?

Or will it come from Renewables and Corporate?

There's going to be a mix and then even Corporate -- but keep in mind, Corporate gets allocated to the businesses.

So on savings there we'll move down to Networks and Renewables.

And ladies and gentlemen, we are now out of time.

I would like to turn the call back over to Mr. Jim Torgerson for closing remarks.

Okay.

Well, thank you, everybody, for participating.

I know we ran out of time here.

So if you have further questions, please don't hesitate to call our Investor Relations team, and I think the bottom line is we had some challenges from the wind resources, but everything is really on track for our businesses overall.

And I think we're very confident with the performance of our businesses going forward and with the projects that we have particularly the large projects, the NECEC and the Vineyard Wind.

We're very confident that those are going to be very successful.

So with that, I want to thank you all for participating today, and have a great day.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program, and you may now disconnect.

Good day.