Avangrid, Inc.
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

Good day and thank you for standing by. And welcome to the AVANGRID First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Patricia Cosgel:]

Thank you, Jason and good morning to everyone. Thank you for joining us today, to discuss AVANGRID's first quarter 2021 earnings results. Presenting on the call today are Dennis Arriola, our Chief Executive Officer; and Doug Stuver, our Senior Vice President and Chief Financial Officer. Also joining us today for the Q&A part of the call will be Bob Kump, Deputy Chief Executive Officer and President of AVANGRID; Alejandro de Hoz, President and Chief Executive Officer of AVANGRID Renewables; and Catherine Stempien, President and Chief Executive Officer of AVANGRID Networks. 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 and 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 Dennis.

[Dennis Arriola:]

Well, thanks, Patricia and good morning everyone. We appreciate you joining our earnings call. Now over the last 10 months you've heard our team talk a lot about the importance of execution and focusing on delivering strong and consistent results. These are the elements that build trust, confidence and deliver sustainable long-term value. Now building on the encouraging direction set in Q4 of 2020. Our results in Q1 demonstrate the progress we've made by prioritizing our resources and building a culture of high performance and accountability. Now we realize that one or two quarters don't make a trend, but you can't start a trend without a couple of quarters. So I'm pleased with the excellent start of the year driven by strong execution and solid operating performance in both our networks and renewable business.

[Doug Stuver:]

Thank you, Dennis. Good morning, everyone and thank you for joining us today. Turning to our financial performance and highlights for the first quarter of 2021, I'm pleased to report that AVANGRID is continuing to execute on its financial targets with a great start to the year, we're making excellent progress on our plans to earn our allowed ROEs and we're realizing the benefits of our efforts to improve the operations and energetic availability of our renewables fleet. In the first quarter of 2021, we produced net income of $334 million, or $1.08 per share, our adjusted net income was 354 million or $1.14 per share, an increase of 50% from the first quarter of 2020. On an adjusted basis, networks earned $0.74 per share for the first quarter, representing solid growth of 16% compared to the first quarter of 2020. Key drivers of the strong networks results include the successful rate agreements in the fourth quarter of last year in our New York company, which added 23 million or $0.06 per share and the implementation of our CMP rate plan in March of last year, which added another 3 million or $0.01 per share. Outage restoration costs in the first quarter are flat to down slightly compared to the first quarter of 2020. Although it's still early to draw conclusions, we're encouraged by this result, suggesting that higher vegetation management spend and focus on addressing the worst performing circuits, maybe helping to stem the growth in outage restoration costs. The significant quarter-over-quarter increase in renewables EPS to $0.40 per share in the first quarter of 2021 from $0.15 in the first quarter of 2020 was largely due to our focus on safety, operational excellence and proactive risk management during the Texas weather events, helping us to meet our fixed obligations and deliver excess energy to the grid, as we were an important part of the solution for the state. Wind production during the quarter was lower than 2020 strong first quarter, primarily due to wind resource and curtailment driving the net capacity factor for the first quarter of 2021 of 13.6%. About 45% of these curtailments were reimbursed under our CPA contracts. Importantly, AVANGRID's first quarter adjusted EPS excluding the Texas weather event would have been $0.87, a 15% increase compared to the first quarter of 2020 and exceeding our expectations. Investments in our business contributed to their on going growth and earnings potential. Networks which represents 75% to 80% of our business mix invested over $489 million to benefit our customers by enhancing safety, reliability and resiliency in the first quarter of 2021 approximately 40% higher than the first quarter of 2020. While renewables investments were lower in the first quarter of 2021, this reflects the timing of investments and transition to more solar versus wind project installations in 2021 and 2022. Finally, we highlight the 73% increase in renewables adjusted EBITDA, which includes tax credits as reflective of the increasing value of that business and are focused on delivering high quality projects that produce our targeted returns and contribute to achieving our growth targets. Now moving on to our liquidity, credit ratings and dividends, with our financial resources, predominantly regulated business mix and clear support from Iberdrola, we have the financial strength to finance our growth while maintaining a solid balance sheet and credit ratings. As we discussed on our fourth quarter earnings call, we plan to issue approximately $4 billion of equity this year, which will further strengthen our balance sheet and improve our share liquidity of this amount, 3.6 billion will be used to fund our acquisition of PNM Resources, which we remain confident will be over 3% of accretive. The remaining 400 million of equity will be used to finance the attractive investments in our long-term plan to support the 6% to 8% earnings per share compound annual growth rate that we outlined on our Investor Day last November. We also noticed that we did not expect to issue any additional equity in 2022 and we will add another $2 billion approximately of non-debt funding sources in 2023 to 2025 to further support our growth, potentially including equity, hybrid securities, asset sales, securitizations, or some combination of these. Our ample liquidity also supports our strategic initiatives. In the fourth quarter of last year Iberdrola provided a $3 billion intercompany loan at very attractive rate that serves as a bridge to the acquisition financing. This along with Iberdrola's $4.3 billion funding commitment letter for the PNM transaction highlights the unique benefits of the strong parent and Iberdrola's clear commitment to AVANGRID and the PNM merger. We also have additional liquidity available through our $2 billion commercial paper program supported by a $2.5 billion sustainability link revolving credit facility and an additional $500 million credit facility available from Iberdrola. Our robust growth plan will benefit from our liquidity, access to capital and credit ratings. With our significant networks footprint access to multiple sources of funding, strong liquidity profile and the backing of our parents, we are committed to maintaining solid investment grade credit rating. Finally, our dividend policy remains unchanged, targeting a payout of 65% to 75% that we will grow into as our earnings increase over time. Our Board recently declared a quarterly dividend of $0.44 per share payable on July 1. We're pleased with our strong results this quarter and are increasing our EPS and adjusted EPS outlook range by $0.10 to $2.25 to $2.45 per share, reflecting a range of net income and adjusted net income of 696 million to 758 million. As a reminder, our outlook assumes that we close on the PNM merger transaction and its financing at the end of 2021. The key drivers of our earnings growth that will support the delivery of this guidance are mostly unchanged from what we discussed on our fourth quarter call with the additional impact of our performance during the Texas weather event and our overall first quarter financial results. In summary, we have an ambitious and achievable plan to become the leading sustainable energy company in the U.S. Our focus continues to be on executing on those plans to drive sustainable value. Thank you for joining us today with our update on the first quarter results and execution on our plans. I'll now hand the call back to our operator Jason for questions followed by closing remarks from Dennis.

[Operator:]

Your first question comes from the line of David Arcaro from Morgan Stanley.

[David Arcaro:]

Obviously, very strong earnings quarter and it's nice to see the increase in guidance for the year for the $0.10. I was wondering if there might be any further benefit that we might see if there's even more kind of excess earnings from this quarter that you could put to use later in the year in terms of potentially accelerating, I think like O&M, projects into this year from 2022? And start to help -- set yourself up for strong 2022 as well from here?

[Dennis Arriola:]

David, this is Dennis, thanks for your question. Look, as Doug said that we're really pleased with the first quarter. I think starting off in a strong way here gave us confidence, as well as with the output that we have with the rest of the year, it gave us confidence to increase our guidance. I think, rather than saying how we're going to use the proceeds from the first quarter, this is really still about just execution. We got a plan that we've set out, that we need to continue to demonstrate that we can deliver at our networks business and our renewables business. And I think that the solid foundation that we built here in the first quarter, gives us additional room to continue to perform well. So it's early in the quarter, early in the year, we've got one quarter under us. We'll continue to evaluate how the year looks quarter-after-quarter but we're really pleased with the start of the year.

[David Arcaro:]

Okay, got it. Thanks for that color. And then, separately, I was curious if you could comment on the future, how you see the future of the gas system, particularly in New York. Dennis appreciating your background in that area, just wondering how you see it evolving there the Commission's kind of evaluating how to think about recovery and long-term strategic planning for the gas system. Do you see heat pumps coming into play over time in that area? We'd be curious of your perspective there?

[Dennis Arriola:]

It's a great question, David. And I think it really depends upon who you ask, both from a regulator standpoint, legislative standpoint, I mean, I think as we think about natural gas, you could probably break it down into two different markets, there's the generation side of the business and there's the distribution side of the business. There's no doubt that natural gas on the generation side has been part of the solution in helping to decarbonize, the energy sources that we have here in the country, basically displacing coal. And I think that's going to continue to happen, although we expect that renewables will grow much faster than you'll see coming from gas-fired generation. If you think about the distribution side of the business, depending upon where you're at, whether you're in New York, or Connecticut, or Maine, having natural gas distribution is not just a nicety. But I think in many cases, it's a necessity. It's a clean, efficient, affordable source of energy. And so we expect that over the many decades to come that natural gas is going to continue to be a fuel of choice for those that have wanted. From a regulatory standpoint, we're going to continue to work with the regulators in each of the states, including New York to make sure that they understand the benefits and what customers want. I mean, I think sometimes there's a discussion about energy justice. And we think it's important that all of our customers be able to participate in the clean energy transition and we see natural gas as part of that clean energy transition. So, will we see more heat pumps? The answer is probably yes. But I think that we actually see natural gas continuing to play an important role in serving our customers. And we're looking at ways where we can further decarbonize the natural gas, whether it's through renewable natural gas, whether it's using green hydrogen to blend to bring down the carbon content and basically trying to be more efficient with our overall systems and helping customers use whatever energy they use more efficiently, which obviously reduces their carbon footprint as well. So we're focused on working with our customers working effectively with our regulators but also introducing new technologies, when appropriate.

[Operator:]

Your next question comes from the line of Peter from Mizuho.

[Unidentified Analyst:]

So first, just on the renewables business, obviously, the growth year-over-year is pretty substantial. Should we be considering any of that one time issue nature as a result of the Texas winter storms?

[Dennis Arriola:]

Peter, I think as we see it, we like the Texas market. We've been there for quite a while. We've got about 12,150 megawatts of renewable generation in Texas. We're not a huge part of the Texas market, but we're an important part of them. And so, as we see it, this is part of our ordinary course of business. When you think about the framework, it's meant to -- it's a no capacity payments market. So they want renewables to be a part of their energy mix. And we're an important part of that. We're a price taker for our non-contracted capacity. So it's during times like this, where we're part of the solution and providing that uncontracted energy to customers and they desperately needed it. And we were happy that our teams that performed extremely well and hit our turbines up and running at a time when the state really needed that energy. So we consider this part of our ordinary course of business going forward.

[Unidentified Analyst:]

Okay. Thank you for that. And then, secondly, just on the PNM deal, in terms of the approval process in New Mexico, can you just give us a sense of what are the issues that are preventing some of the other intervening parties from joining the stipulation?

[Dennis Arriola:]

Sure. Well, first of all, we're really happy with the progress we've made. We mentioned that in Texas, we're on the agenda here on May 6, and it could get voted out. But in New Mexico, there are multiple parties, I think there were close to 25 different parties that had filed for status as interveners. But when we look at the progress that we've made with the Attorney General, with the support of the governor and several other interveners, we're really pleased. Look, a lot of the things that people are looking for has to do with governance, how are we going to be treating customers. So we're continuing to have discussions with all of the interveners that are interested in chatting. We're working towards getting this through the commission, with as many interveners on board with the stipulation as possible. Would we like to get 100%? Absolutely. We will be surprised if we don't get 100%. But you get those that you can and you go through the process, but we feel really good about the modifications that we made to get to the stipulation agreement with the Attorney General and the other parties and we're confident that this will ultimately be approved by the Commission.

[Unidentified Analyst:]

Okay. Thank you for the color and congrats on the quarter.

[Operator:]

Your next question comes from the line of Neil Kalton from Wells Fargo Securities.

[Neil Kalton:]

So a couple of question on my end. First, just on the Texas, I think you mentioned in the prepared comments that x Texas EPS would have been $0.87, is that a GAAP or a non-GAAP number?

[Dennis Arriola:]

That's a non-GAAP number.

[Neil Kalton:]

Okay, thank you. And then, second on the pipeline. On the onshore pipeline, If I'm looking at things correctly, it looks like the onshore pipeline grew by about 2000 megawatts since the last update, a) is that correct? And b) seems like a pretty healthy increase. Is there anything sort of unusual in there that we should be aware of?

[Dennis Arriola:]

Let me hand it off to Alejandro, and he can give you a little bit more color on the pipeline.

[Alejandro de Hoz:]

Yes. Thank you, Dennis. So yes, Dennis is correct, those 2 gigawatts is additional pipeline versus the last communication 0.1 gigawatts, we did about this. So it's fundamentally a historic pipeline. And what it does reflects our continued interest in the solar growth in different areas of the country. It comes also with a maturation of other projects of our pipeline that are progressing across the pipeline. And to solve that we are progressing at all the levels of the pipeline, not only bringing pipeline from the bottom, but also progressing the top one. We are right now in 2.5 gigawatts of either bilateral or a short listed discussions for a potential PPA for the next years.

[Operator:]

Your next question comes from the line of Insoo Kim from Goldman Sachs.

[Insoo Kim:]

The first question is on Vineyard Wind. Do you have a sense of whether the record of decision from the Department of Interior is likely to be issued imminently? Or is there some back and forth between you and DOY before that decision could be made just trying to gauge when this year we could see that?

[Dennis Arriola:]

Yes. Thank you. So look, the team has been working very closely with BOEM and others that requested information. We are very optimistic that this will be coming out soon. We can't predict this specific day but we're very optimistic it's going to happen very soon.

[Insoo Kim:]

Got it. My second question, just on NECEC, could you give a little bit more color on -- since the last time we spoke on the various litigation of the cases that are attached to them. And I guess the assumption still that -- the construction will continue and commence throughout the year, while these are going on?

[Dennis Arriola:]

Sure. Let me hand it over to Bob Kump and he can give a little bit more color on those issues.

[Bob Kump:]

We feel really, really good about the progress we made here in the first quarter. Obviously, Dennis spoke in his remarks about completing the permitting and starting construction where we are now in construction is we have about a third of 150 miles right away cleared. It's in what we call segments two and three, segment one is the one we still have this temporary injunction. But we hope to have that lifted shortly. So we've been focusing on segments two and three, both in terms of clearing and beginning to erect the whole. So on the construction side, things are going well. In terms of consumer sentiment, if you would, we've done a lot of work through our path, making sure that consumers in Maine understand the truth about the project. I think the opposition has. Most of their campaign has been around this and quite frankly, live. So our focus has been on first debunking if you read those myths, but more importantly, the project now under construction, people realized and see the benefits the project will bring to Maine. And I think that's why as we continue to do polling, we continue to see more and more support, as Dennis mentioned in his remarks, for the project in Maine, because it is really important. Now, there continues to be, I think every permit we -- has been challenged, that continues. But we're moving through that process. And we're very confident that this will be a successful project, still looking at the second quarter of 2023. For our commercial operation date, as of first quarter. We've invested a little over 250 million. And so, we feel very good about where we are, we had some real milestones here in the first quarter. And we're moving forward.

[Insoo Kim:]

Got it. Just one additional, do you think the case, with the Army Corps and that temporary state, do you think do you expect that to be resolved, or I guess making or have some progress over the next few months here this year?

[Bob Kump:]

In terms of challenges of the Army Corps permit, those will take a long time Insoo. And it's the fact is, that every permit, starting with the CEPEC and in Maine, starting with the TSAs down in Massachusetts, Maine DEP. They're all being challenged. And we've been successful on this, because we think the record that has been made by these various agencies, had been very, very good and very careful and delivered full knowing that it's likely to be challenged. I mean, these types of challenges, as you know is part and parcel of the large infrastructure. We feel really good in terms of the quality of permits and where we are.

[Insoo Kim:]

Got it. Congratulations on a great quarter.

[Operator:]

Your next question comes from the line of Michael Sullivan from Wolfe Research.

[Michael Sullivan:]

First question, just wanted to clarify. It seemed like the implied Texas benefit just based on the adjusted earnings number you gave was about $0.28, why the guidance only up $0.10 for 2021?

[Dennis Arriola:]

Yes. It was approximately $0.27. But we're one quarter into the year there's a lot of things that we need to do to continue to execute and we're confident that we'll continue to execute, but we can revisit in the second and third quarter should it make sense to increase the guidance? I'll tell you that, personally, I would be very disappointed if we don't end up at least at the high-end of the range. But look, we've got three more quarters to go and we think it's prudent and appropriate at this time just to raise the guidance by $0.10.

[Michael Sullivan:]

Okay. And just to be super clear, though, the raises is entirely tied to Texas and the base business is kind of just on track not better or worse. Is that fair?

[Dennis Arriola:]

No. I think if look at it, our network's business is doing very well, our renewables business even without Texas, I mean we were at a $1.14, so $0.27 of that was related to Texas, so we are at $0.87, we're nearly 15%, higher than we were in the first quarter of 2020. And that first quarter of 2020 had a really strong renewable quarter. So we feel good about not just the first quarter, but the outlook for both renewables and with networks, both including and excluding Texas.

[Michael Sullivan:]

Okay, fair enough. I mean, just wanted to get a little more color on thoughts on the PURA order basically rejecting the settlement. And what else can be done there? What are some of the things you guys are thinking about that could -- maybe yield in a different type of settlement that they'd accept?

[Dennis Arriola:]

Sure. Well, let me do this. Let me put it in context. And I'll have Catherine jump in on this. I think it's important to recognize that this type of settlement before has had not been done with the Attorney General, with the office of the governor, with various other parties. So we feel really good, not just about the absolute settlement, but how it came about and the fact that we were able to get together with multiple parties and find a solution that we didn't have to do, but that we were able to through collaboration and I think building trust and building the relationship with these different parties. The fact that it wasn't full heartedly embraced by PURA, I think was candidly a little disappointing to everyone. But I think that we're looking to and we've already started collaborating -- continuing to collaborate with the settling party and having discussions with PURA. Let me see if Catherine, if you want to provide some more color to that.

[Catherine Stempien:]

Thanks, Dennis. I think when we look at the decision, as Dennis said, the important part is our ability to work with our other stakeholders. And we'll sit down with them and talk about the PURA decision and talk about whether or not there are areas that we can take a look at the settlement and improve it from their perspective. But got an ambitious agenda and we're really happy that we got strong relationships with our stakeholders there. And we can work with them to collaboratively to come up with solutions that are both good for the state and good for our customers.

[Michael Sullivan:]

Okay. And anything you can say what those solutions might be just any more specifics there?

[Dennis Arriola:]

We'd rather not negotiate in public other than to say that we want the solution that makes sense for the multiple parties that came together as well as our customers. And we recognize that, PURA made look at things slightly differently than we did. The part of our job is to make sure that we can advocate for our customers and get them up to speed on why we feel strongly for the original settlement.

[Operator:]

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.

[Julien Dumoulin-Smith:]

It looks like you're doing a quite well as well I assume.

[Dennis Arriola:]

That was a good quarter, Julian.

[Julien Dumoulin-Smith:]

Absolutely. I wanted to kick things off first on the renewable side and renewable development side, just talking about procurement opportunities. I mean, we're seeing accelerated corporate involvement across the state. So curious as to how you think about the opportunity. I know you guys gave your kind of grand vision only a handful of months ago, but curious how the year is shaping up as well as, if the ITC dynamics are resulting in any shifts in your backlog, maybe pushing out projects slightly, etc, as best you understand it today?

[Dennis Arriola:]

Sure. Let me start, I will ask Alejandro to jump in as well and provide some more color. I think that what we were seeing even before the Biden administration has only picked up both from a customer standpoint and from individual states. I think that, we're continuing to see more customers who want to be part of the clean energy transition. It makes sense because costs continue to come down because they -- I think for their stakeholders, it's important for them to represent that they're getting cleaner. So that's all positive. I think from a state standpoint, we saw this momentum with renewable portfolio standards started well before this administration, but I think this administration and their ambitious goals has only given us a shot in the arm. So that's all positive. Alejandro, do you want to add any color just from what's going on with the pipeline and conversion from a customer standpoint?

[Alejandro de Hoz:]

Yes, sure. Thank you, Dennis. Hi, Julian. I mean, from our side, as you know, we have a plan that we presented in November with a clear objectives in the next few years until 2025. And we are going to continue delivering on that plan. And these current situation right now, the only thing that it makes is that, it gives more certainty, I will say, we will be able to deliver according to that plan. So I have mentioned about our pipeline, we're increasing our pipeline, adding new projects into it. But we're also mastering it by being in dimension 2.5 gigawatts of negotiations for future PPA. We are delivering on 1.3 gigawatts of projects that will be constructed this year and the next, and so, all-in-all a solid presence for the coming year. So a robust plan that we really believe we can deliver with the support of the Biden administration. And all the legislative changes that are probably going to happen in the next or through the year, will certainly be helpful for us.

[Julien Dumoulin-Smith:]

And you also talked about just what's happening from an ICC standpoint?

[Dennis Arriola:]

Look, we're not necessarily delaying projects just because of that, I think, if it makes sense to go forward and customers want it, we have all the permits and approvals to go forward with a PPA, we're going to do that. But I think that different customers are also going to look at the tax incentives that are being proposed. And the other thing that we're obviously looking at that could be very beneficial to us and to our customers is direct pay. So there's a lot moving around, which I think is all positive and with the quality of the pipeline that we have. We're excited.

[Julien Dumoulin-Smith:]

Excellent. And if I can, can you comment a little bit on the latest in Maine again, on NECEC? Obviously, there's noise again this year again, but how does it differ, if you will? How are you thinking about it differently from last year, if you don't mind? I'll leave it open ended.

[Dennis Arriola:]

Let me start and Bob can jump in. I think one of the things that's changed, and candidly, we've been spending more time on the ground, educating people on the benefits of the project. We think that it's not only good from a clean energy standpoint, but also from a from an economic standpoint, the jobs, we're seeing local businesses, whether it's restaurants, whether it's hotel, general stores, we're getting more people coming in, because of the construction workers that are there. And when people were previously talking about, well, are there going to be jobs coming to Maine, we're seeing that the jobs are coming to Maine and there's definitely an economic impact. So we're having to communicate that more effectively. And I think as people in Maine and the local communities understand that this is for real, it's a main project that benefits Maine with energy and with economic development. We're seeing people support the project. Now, look any type of transmission in this country is difficult. And in a wonderful state like Maine, that has beautiful forests. There's obviously going to be some opposition, but I think our job what's changed from last year is more and more momentum of recognizing the importance of this to the state, the benefit to the local people in Maine. And quite honestly, I think the opposition's running out of arguments.

[Bob Kump:]

Yes, Dennis, I agree. I think the fact that the project is now under construction is huge in terms of people physically seen the benefits that come to Maine as compared to a promise in the future. The thing I will say is the recognition of late both by the Biden administration and the country as a whole. And Dennis touched on in his remarks about the need for transmission if we're going to achieve our goals around decarbonisation is becoming very well known. Take a look. There was an article actually yesterday that he AEP put out just about this and it talks about, if you would between some environmental groups that just like to say no, with fossil fuel janitors that stand to lose millions of dollars a day when other transmission in more supply comes online. So there's a number of influences that we think just puts us in a much better position today than we were a year ago.

[Operator:]

Your next question comes from the line of Richard Sunderland from JPMorgan.

[Richard Sunderland:]

Just a few about your momentum around the TMM deal and the financial plan upside coming out of the quarter? Have you evaluated pulling forward the equity veil? Or is your timeline really about aligning that equity with the PMF that you have closed?

[Dennis Arriola:]

Let me -- I'm going to hand it to Doug. But I just want to be clear, again, that for planning purposes, we assumed that the deal closes at the end of the year. And the funding for it happens at the end of the year, we thought that was the easiest way to models, but we knew what the overall power of our earnings are for AVANGRID on a standalone basis. But Doug?

[Doug Stuver:]

Yes. I would just add, Dennis, our overall objective with equity is to maintain a strong balance sheet and solid investment grade credit rating. Things that we think about, from a timing standpoint with the equity issuance, just the capital market conditions at the time, and also just the status of regulatory approvals? I think those are the two main points.

[Richard Sunderland:]

Yeah. That makes sense. And then, separately, referenced a little bit earlier and just curious if you could speak more to the potential impacts, would be this upon -- that would be around I guess, financing flexibility? Or maybe any broader market impacts you would expect on the ?

[Doug Stuver:]

Yes, this is Doug. Direct pay for us is very attractive. And it's not abundantly clear at this time, what form that will take, there have been some forms that would monetize existing tax credit carry forwards others that would be applied on a go forward basis. But I think, just starting with the go forward, direct pay, it helps quite a bit in terms of a very economic substitute for tax equity financing. So I think it can help our overall project return by having that form of funding. From a historical standpoint, if there's a means to monetize existing tax credits, through direct pay, we have a large carry forward position and that would also be quite attractive for us.

[Dennis Arriola:]

Yes, Richard, I'd say that the only people that probably don't like the direct pay are the banks because they don't get the fees from the tax equity.

[Operator:]

Your next question comes from the line of Michael Gaugler from Jenny Montgomery.

[Michael Gaugler:]

Just wondering if you're having any supply chain issues across your various projects? And how you're thinking about project costs in an escalating commodity price cycle?

[Dennis Arriola:]

Well, in general, I think the supply chain isn't as challenging as it was, say, six months ago or nine months ago. But I think that depending upon what we need for either on the network side, whether it's cable or pipe and everything, we seem to be getting everything that we're looking for right now. And on the renewables side, Alejandro, I don't know, if you want to comment.

[Alejandro de Hoz:]

On the renewable side, I think that as of now we are getting what we need. And in terms of commodity prices, well, it is true that it's part of the negotiations with suppliers, but normally this have risk that is, transfer to the suppliers by the time we sign entities. And as of now, our projects for 2021 and 2022, we are comfortable.

[Operator:]

Your next question comes from the line of Angie Storozynski from Seaport.

[Angie Storozynski:]

Okay. So I have two questions. First, given the recent updates from about some excessive wear and tear on cables related to their offshore wind farms. Is this something that you guys aware of and how is it going to be incorporated in your upcoming offshore wind projects?

[Alejandro de Hoz:]

So, I mean, I am not aware of that particular issue from our states. But, I mean, we don't have any issue wear and tear on cables in our existing wind farms. The ones that said, they have a little bit of breaking in Europe. There is no such thing in any of those issues with the cables they're wearing out. And sorry, I can't really comment on that.

[Angie Storozynski:]

Okay, I understand. And then, secondly, you mentioned about a growing support for NECEC. I remember you that showed the results of a survey conducted, I think by Hydro-Quebec back in January. So can you please tell us by your view, is the project now polling above 50% in Maine given that the referendum is coming?

[Dennis Arriola:]

Let me have Bob, touch on that.

[Bob Kump:]

Yes, I don't know if I want to get into details of polling. Obviously, there's important aspects of that. But I will say we've seen consistent improvement in the polling. Since a year ago, we've done I believe three polls, HQ has done at least one, possibly two. So the trend line is good.

[Angie Storozynski:]

And then, lastly, of the changes in the transmission ROE, the removal of the RTO adder or the likely removal from the RTO adder, how it will impact the returns on this project and any other transmission project doesn't really have?

[Dennis Arriola:]

Yes. We looked at that, Angie, and look, I think that there were definitely transmission lines for new projects, where that adder makes a difference, because it's difficult to get these done. And because the length of period that it takes to get the approvals adds risk. For AVANGRID, we've taken a look at it. It's not material, should that happen. And it falls within the range of guidance that we've given. But we're not going to go into more specifics than that.

[Operator:]

That concludes our Q&A for today. I would now like to turn the call over to Dennis Arriola for closing comments.

[Dennis Arriola:]

Well, we appreciate everybody joining us today. And again, I'm really pleased with our quarter but we know we've got a lot of work ahead of us. Success is contagious. And our job is to keep this positive momentum going, making every day better for our customers, employees and stakeholders. And by focusing on execution and building on a culture of high performance and accountability, I'm confident that we're going to deliver on our long-term goals that we've outlined for you. I truly believe that AVANGRID is uniquely positioned to be the leading sustainable energy company in the U.S. So I look forward to sharing our progress with you over the coming quarters. And we appreciate your continued support. If you have any other questions, please follow up with Patricia and Michelle. Have a safe day and we'll talk to you soon. Bye-Bye.

[Operator:]

That concludes today's conference call. Thanks to everybody for joining today. You may now disconnect.