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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to AVANGRID Second Quarter 2020 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. [Operator Instructions] I would now like to hand the conference over to your speaker today, Patricia Cosgel. Thank you. Please go ahead.
Thank you, Lindsey, and good morning to everyone. Thank you for joining us today to discuss AVANGRID's Second Quarter 2020 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 question-and-answer portion 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 Tony Marone, President and Chief Executive Officer of AVANGRID Networks.
Note that some of us will be together for the call today maintaining our social distancing, while others will be joining us remotely.
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 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 Dennis.
Well, thanks, Patricia, and good morning, everyone. First, I wanted to say how excited I am about leading AVANGRID and I am truly honored by the trust demonstrated by the Board of Directors in appointing me as CEO.
And I also want to thank all of you that have reached out with the warm wishes over the last couple of weeks. This is obviously a big change for me personally and I really do appreciate the support and advice I have received from so many people. And, yes, I will be moving from San Diego to Connecticut very soon.
I’d like to briefly share some thoughts on why I came to AVANGRID and what’s driving my optimism about the future. First, AVANGRID has a wonderful existing business platform focused on regulated and contracted businesses and its strategy for the future is aligned with the ongoing energy transformation, both globally and here in the U.S.
And demand for clean energy as we all know is being driven by consumer preferences, policy decisions and competitive costs and that preference for clean energy is only going to increase in the future.
With a strong balance sheet and attractive long-term investment opportunities, AVANGRID is committed to investing in a smarter and cleaner energy future while providing innovative solutions and high quality service to its customers.
And with more than 7500 megawatts of renewable energy generation in our portfolio, 90% emission-free capacity and a nearly 19 gigawatt pipeline of future wind and solar projects, AVANGRID today is one of the leading clean energy players in North America and we are well positioned to grow into the future.
With 1.6 gigawatts of signed PPAs for our Vineyard Wind and Park City projects, AVANGRID is leading the U.S. offshore wind industry by leveraging global offshore experiences from the Ibadrola Group and our European partners.
On the Networks side of the business, our connectivity to consumers and businesses through our eight utilities in New York, Connecticut, Maine and Massachusetts provides us with a strong platform to serve approximately 3.3 million customers.
And the company is building the grid of the future by investing in transmission solutions such as NECEC, evaluating non-wired alternatives to enable renewables and enhancing our distribution system with grid modernization technologies.
And as we look to the future, we are going to continue to introduce new technology like smart meters, grid automation, battery storage, and electric vehicle charging infrastructure that will further enhance our relationship and connectivity with our customers.
And for the growing number of ESG-focused investors out there, AVANGRID is already a leader, being for instance the first U.S. utility to set a goal for carbon neutrality from our electric generation. And my commitment is to make ESG performance, our strategic differentiator for our company in the future.
Now, I’ve heard from some of you that in the past, we’ve fallen short of the earnings expectations we’ve discussed publicly and I want to change that going forward and really focus on execution and delivering results that are consistent with our forecast. This is all about building your confidence in AVANGRID going forward.
And given that this is my third day with AVANGRID, I am planning to work with our team and do a detailed and thorough review of our previous financial forecast for 2020 and beyond. And as a result, we will not be reaffirming our 2020 guidance today, but we will provide you with a strategic update and financial projections at our Investor Day in November after we’ve completed this review.
I do want to take this opportunity to thank all of AVANGRID’s employees for the relentless focus on our customers and our communities that we serve. The pandemic has brought countless professional and personal challenges to our team, but we are grateful for their commitment to safely serving our customers at a time when access to clean, reliable and affordable energy is so important to all.
So I look forward to working with all of you and especially look forward to meeting with you in person as soon as it’s safe. And so, now, what I’d like to do is pass it off to Doug to give a brief business overview and to discuss second quarter financial results. Doug?
Alright. Thank you, Dennis, and just on behalf of all the AVANGRID employees, congratulations on your appointment as CEO and welcome to AVANGRID. We are excited as well that you’ve joined us and are glad to be part of your team.
Good morning everyone and thank you for joining us today. I am starting on Slide 5 with the highlights of our business. In the second quarter, we achieved several key milestones, success is in any environment, but particularly challenging while operating during the COVID-19 pandemic.
We remain focused on providing reliable and safe electric and gas service and generating clean energy and our top priority is the health and safety of our employees, customers and stakeholders in our communities. We include highlights of our significant accomplishments in the first half of 2020 on this page. So I’ll jump right into the details now on the next slides.
On Slide 6, we update our current expectations of the impact to our businesses from COVID-19. This is a key area of focus for us. It highlights on responsibilities as an essential service and a partner with our communities and the resiliency of our team and our businesses.
For our Networks business, we have revenue decoupling in nearly all of our utilities and therefore we expect minimal net income impacts from decreases in load during the pandemic. That said, we also see a continuing trend of increased residential load, partially compensating the reduced commercial and industrial load and the states in our Networks service territories have begun easing their stay at home restrictions.
We currently expect utility disconnects and late payment fee moratoriums to continue through March 2021 in New York and be lifted in the third quarter of 2020 for our other utilities. Dockets are now open in each state to evaluate COVID-19 impacts and we are pursuing recovery of COVID-19 costs including bad debt expense and late payment fees.
The timing of state commission orders is not certain though and the final decisions may not occur until 2021. With the social distancing and compartmentalization of work, we expect a limited impact from the timing of our capital spending this year in our Networks business.
For our Renewables business, we are tracking the progress of wind projects and construction. We received force majeure notices from suppliers, but do not currently expect COVID-19 delays in these projects.
Congress’ extension of the Safe Harbor removed the PTC qualification risk although - and pandemic health and safety protocols. On the positive side, 98% of our counterparties have investment-grade credit ratings.
Now moving to Slide 7, we have some significant achievements in our Networks business to report. On June 22nd, we reached the joint proposal among 21 parties in full or in part in our New York rate cases, which we expect to be effective on November 1 with a make-whole back to April 17. The rate plan which covers almost 50% of our rate base as a three year term with cumulative incremental revenues of $439 million based on an 8.8% ROE which is in line with our expectations.
Importantly, the joint proposal includes investments to improve system reliability, addressing needed infrastructure improvements and drive economic recovery and job creation with capital expenditures through the three year plan was about $3 billion.
Other key provisions to support our critical needs, enhanced storm preparedness in response including funding for enhanced registration management, hiring of new field workers and enhanced storm staging cost recovery. The rate case also approved funding for COVID-19-related protections for our customers such as direct credits and grants, deferrals and adjustments to regulatory assets and liability amortization.
Additionally, we are receiving important approvals for our NECEC transmission projects, the permit from the Maine Department of Environmental Protection and the ISO New England I39. US Army Corps of Engineers permit is in its final stages and we anticipate a decision including our review and comments by early August. We expect the Presidential permit to follow this by 60 to 90 days.
While we are pleased with the permitting success of this very important project for the region, we are pursuing in parallel with constitutional challenge to a potential ballot referendum that would direct the states to revoke their prior approval of the project.
The Maine Superior Court ruled in June that, while the issue is challenging the referendum was sustentative, it would not decide on the constitutionality prior to the outcome of the referendum vote. We appeal to this to the Maine Law Court and expect a decision by the end of August.
Lastly, highlighting the benefits of the project, Hydro-Québec in the governor’s office announced their agreement to execute a PPA for Hydro-Québec to provide up to 500 gigawatt hours of discommend energy annually on the transmission lines directly to Maine Power. Hydro-Québec also agreed to accelerate by two years their prior financial commitments with the State of Maine.
On the next slide we turn to our achievements in the Renewables business. We expect to complete approximately one gigawatt of projects in 2020 including 158 megawatts that reached commercial operation in March, as well as 461 megawatts of onshore wind projects and 366 megawatts of repower projects. The new wind projects in 2020 will bring our total wind access in operation to approximately 8 gigawatts.
Our 81 megawatt Roaring Brook Wind Project is now expected to come online in early 2021 due to a delay in the interconnection communicated by National Grid.
In the second quarter, we also executed a new PPA with Puget Sound Energy for our 201 megawatt Golden Hills wind project in Oregon with an expected commercial operation date by late 2021. In addition, we have 670 megawatts of contract with solar projects with expected CODs in 2021and 2022.
And during the second quarter, we’ve added 900 megawatts of solar to our pipeline bringing our total pipeline size to nearly 19 gigawatts.
In offshore wind, the BOEM released its supplement to the draft environmental impact statement for the Vineyard Wind project evaluating the cumulative impacts of 22 gigawatts of offshore wind in the Eastern U.S. lease areas. The study indicates the direct impacts of the project were mild to moderate and that some of the cumulative impacts of the expected industry build out were major, but manageable.
Additionally, public hearings on the supplements included and we believe were constructive. We expect the BOEM to remain on their schedule to issue the final environmental impact statement in November and the record of decision in December.
In the second quarter, Park City Wind executed and filed its PPA contract for 804 megawatts with the Connecticut PURA and a decision is expected by mid-August. Park City Wind also filed its commercial operation plan with the BOEM on July 2nd.
Additionally, we are in discussions with our partner that could result in increasing our ownership position in the project. City Hawk, the 2.5 gigawatt North Carolina lease area that AVANGRID is developing received approvals of its site assessment plan and geotech survey plan from the BOEM and deployed a Metocean.
Finally, we are looking forward to participating in New York’s next offshore wind RFP for up to 2,500 megawatts that was announced yesterday.
Turning to Slide 9, our quarterly and first half earnings results for 2020 compared to 2019 reflect our continued focus on improving our operating results through completion of our rate plan in Maine, management of our outage restoration costs and operation of our new wind assets.
For the second quarter, results improved in Networks and Corporate, although they were offset by lower results in Renewables resulting in a decline in EPS of minus 20% and adjusted EPS of 3%. For the first half of 2020, EPS was flat compared to the first half of 2019, while adjusted EPS increased by 5% reflecting improvements in Networks and Renewables and a decline in Corporate.
Our adjusted results exclude COVID-19-related costs including late payment fees, bad debt costs and certain higher operating costs totaling $13 million pretax for the second quarter and year-to-date, restructuring charges, renewable mark-to-market and accumulated depreciation from the repower and the four wind projects.
The combined impacts versus the prior year of the adjustments were $0.04 for the quarter and $0.02 for the first half.
Now moving to Slide 10, we show the results and drivers for the Networks business. For the second quarter, adjusted EPS improved by $0.05 to $0.26. We have a benefit of $0.02 due to the new rate years for our Connecticut gas companies and new rates with CMP effective March 1st.
Recall that 2019 was a challenging year for outage restoration costs and we reported a negative impact of $0.07 for the second quarter of 2019. This compares to a negative $0.06 for the second quarter of 2020 or $0.01 improvement.
These quarterly improvements were offset by higher depreciation of a negative $0.03 from new assets and service. Taxes had a positive $0.02 impact, primarily due to tax reform-related excess deferred income tax refunds to customers.
For the first half, Networks’ adjusted EPS improved by 5% or $0.04. The drivers were similar to those described to the quarter with rate increases contributing $0.03 and depreciation reducing results by $0.06. Taxes in the first half of 2020 versus 2019 were $0.06 favorable, also primarily reflecting the excess deferred tax refund to customers.
Importantly, the full impact of the New York Company’s joint proposal will not be reflected in our results until we have a final decision from the Commission. The $0.06 favorable year-to-date income tax benefit include approximately $0.04 of New York’s excess deferred tax amortizations that are part of the New York rate plan.
We estimate the first half results would have been approximately $0.03 higher for amount that are pending approval in the New York joint proposal and those will be recognized later in the year subject to Commission approval.
Now moving to Slide 11 where we talked about Renewables, our new assets operating in 2020 contributed positively to results although were reduced by market conditions including lower prices and curtailments impacted by the pandemic resulting in a second quarter decline in adjusted EPS of $0.11 to $0.10.
Wind production from our new assets and PTCs added $0.05 in the quarterly comparison, while there was no incremental quarter-over-quarter benefit or detriment from wind production at our existing assets as a strong first quarter in 2020 was matched by a weaker second quarter.
Offsetting the contributions of the new assets were declines in pricing predominantly in the South Texas region, lower merchant pricing impart due to COVID-19 and negative wreck inventory adjustment and other factors listed on the table.
For the first half comparison, wind production from existing and new projects NPTCs had a combined positive impact of $0.20. Similar to the second quarter, other negative impacts in the first half reduced the improvement in the first half to $0.02.
Taxes including the impact of PTCs and our consolidating tax adjustments, as large period-over-period impacts for the second quarter that are primarily offset in Corporate.
On Slide 12, the Corporate segment drivers include the positive consolidated tax adjustment offset in Renewables and higher interest expense due to the issuance of the $750 million green bond at a 3.2% interest rate.
Turning to Slide 13, our overall liquidity remains strong and this quarter we increased our subsidiaries’ credit availability by allocating to them additional minimum borrowing limits in our revolving credit facilities, which moved $500 million from the AVANGRID’s parent limit. We also supplemented AVANGRID’s liquidity with a new $500 million 364 day credit facility with an extension option.
As of July 14th, we had $2.9 billion in liquidity available from our credit facilities after borrowing $620 million through our commercial paper program. The Board declared a quarterly dividend of $0.44 at its meeting on July 14th, payable on October 1st.
Now finally, on slide 14, I want to highlight the drivers of long-term value creation for our company. As Dennis noted, we are conducting a thorough review of our 2020 and long-term guidance to support achievement of the solid results driven by the attractive growth opportunities we have in our businesses.
We are a leader in offshore wind in the U.S. with the first large-scale offshore wind project in development and we are making progress developing our two offshore projects totaling 1.6 gigawatts, along with our Kitty Hawk North Carolina lease area and plan to continue to procure future offshore wind opportunities.
As a major sustainable energy company in the U.S., in 2017, we became the first utility to set a goal for carbon neutrality in our generation portfolio. Importantly, we believe our strong financial position and reliable dividend enhanced strategic growth opportunities in our Networks and Renewables businesses.
Thank you. And now I’ll hand the call back to our operator Lindsey for questions.
[Operator Instructions] Our first question comes from the line of Durgesh Chopra with Evercore ISI. Your line is now open.
Hey, good morning, team. Thank you for taking my questions.
Good morning.
And, Dennis, welcome in and look forward to working with you in the future. Just really quick – first I have a follow-up on the quarter. Doug, you mentioned a $0.04 EPS adjustment and you provided a very detailed explanation. Can you elaborate what of that $0.04 and I am looking at Slide 18, I believe, what of that $0.04 is Networks versus Renewables?
Are you talking about the COVID?
Yes. My apologies. It’s the impact of COVID-19. I am trying to see what is that made up of.
Yes. I mean, really the bulk of that is Networks and to a lesser extent Corporate. There is a small impact in Renewables, but if I break that down into pieces, we’ve got about $13 million of pretax impacts, about $5 million of that is uncollectable expenses, about $4 million is late payment fees and that’s in New York and Maine.
And then, the remainder is, additional costs we’ve incurred for things like PPE, rental vehicles, because we want to have proper distancing for our field service personnel and cleaning costs. So, I would say, the bulk of that remainder is Networks and Corporate, but there is also some degree of Renewables. So, those would be the main drivers there.
Understood. Great. I appreciate the color. And then just finally, in terms of looking at the Analyst Day, what do you expect? I am thinking about, so what the – I know, and it appear it’s too early, but what the base here is going to be and historically you’ve kind of provided long-term growth rates. So, any color that you can share around that would be great.
Sure, Durgesh. So this is Dennis, and thanks for joining our call this morning. We are going to look at everything really fresh. Obviously, 2020 is a foundational year for our growth going forward and with the assets that we are adding on Renewables and the rate case settlements that we’ll have in our networks it’s going to be really important to have that clean foundation going forward.
So, we are looking at what type of information we are going to give out for the future. I know that we will be having calls with many of you over the next several weeks and months and I’ll be interested in input from you on how best we could be serving both the sell side and the buy side communities that I think that we first want to get our arms around what we have and where we are going and the headwinds and the tailwinds and provide a useful information to you in November.
Excellent. Look forward to the chat, Dennis. Good luck. Thank you.
Thanks, Durgesh.
Our next question comes from the line of Jeffrey Campbell from Tuohy Brothers. Your line is now open.
Good morning. First I want to say, welcome aboard to Dennis as the new CEO. Slide 20, less curtailments as a potential CD-19 related production impact on Renewables. I wanted to ask what portion of the Renewable portfolio would be most likely to curtail production and how that would come about?
Thanks, Jeff. This is Dennis. Let me hand that over to Alejandro to give a little bit of color there.
Yes. Thank you, Dennis and thank you, Jeffrey for the question. So in terms of curtailments where we have seen most impacts over our fleets in this last two quarters, mostly the second one is actually in Pacific Northwest due to high – hydro which tied with low demand has brought some kind of curtailments there.
MISO has had also quite a lot of curtailments due to low demand. And then we have also seen important curtailments in the south in this case, fundamentally due to pricing – negative pricing that comes normally with curtailment. So pretty much spread over the geography. Probably, PJM is the only area that has been a little bit gets safe, but.
Okay. Thank you. And as a follow-up, regarding the NECEC constitutional challenge, I just want to review if a decision late next month was consistent with your expected timeline and if the challenges refused, what are the next steps? And what's their anticipated timeline? Thank you.
Sure. Let me have Bob handle the NECEC question.
Sure, Dennis. Thank you. So just, the – we do expect based on the timeline that the court has set out that they will make a decision by the end of August on our constitutional challenge. If that were to occur, and presumably between now and then as Doug said, we are very close in the final stages on the Army Corps, we would have then everything we need to begin construction by the end of the third quarter.
If we’re not successful in the challenge, and the real issue here I think everyone – I’d say everyone, virtually anyone from a legal perspective agrees with us that the referendum as drafted is unconstitutional. We had great footing in this case by former PUC commissioners and Chairman, by the secretary of state in the State of Maine who agreed that is unconstitutional by law professors, by legislators.
The issue is more around, let’s call it rightness and should the court decide now or after the referendum. We believe that because the scope of the initiative exceeds the legislative authority that needs to get discussed now and determined now by the courts. But if they didn’t do that, and they wait until after, obviously then we would have to challenge assuming we lost, we would challenge it directly thereafter.
Now, we have a very active pack. We’ve been pushing really hard to make sure that consumers in Maine understand the benefits of the project and to correct, quite frankly the misinformation that being spread about the project. Because this project, when it’s all set and done, is a win-win for Maine, for consumers in Maine, for consumers in New England, and for the climate.
The only people they are losing this are the fossil fuel generators that stand to lose $3 million a day once this project comes online. So, we feel very strongly that the referendum is drafted is unconstitutional and it’s more a function of a timing with regards to when the courts will happen. We think it’s appropriate to act now which would allow us to begin construction by end of Q3.
Okay. That’s wonderful detail now. So and just to follow that up, just to reiterate, if the decision is to start, is there a reasonable timeline for the ultimate decision and then your follow-on action that can be projected or is it too hard to call at this point?
Well, I mean, I the courts, and these types of matters, we’ve gone through a couple of different iterations here with the courts whether it was on the original referendum and whether the signatures were appropriate or not and now with the constitutional challenge, the courts act on these fairly quickly, I mean, typically a couple of months.
So, if we went through the election day and the opponents were successful, then I would suspect it’s going to take three four months, probably into their end of first quarter of next year to go through the courts again.
Okay. Great. Thanks. I really appreciate.
I will say this, I mean, in terms of commercial operation date and the terms and conditions within our contractual our TSAs with the utilities in Massachusetts, we have a lot of flexibility in terms of the date that the project of COD. So there is no risk of the project in that perspective. And we still feel like even if we got delayed here a little bit then we could get this project online by the first half of 2023.
Okay. Great. Thank you. Really appreciate it.
Our next question comes from the line of Sophie Karp with KeyBanc. Your line is now open.
Hi, good morning and thank you for taking my question. Dennis, welcome aboard. I think you will like it Connecticut. It’s not that bad.
Thanks, Sophie.
It may be hard to believe in the temperatures as it is right now, but it gets better. Anyway, I was just having – I wanted to see if you could help with this high level question, I mean, we live in a world where the ESG is becoming the buzz word increasingly, right? And this is an election year where this is a topic again and we’ve seen SOX that are successfully implementing the ESG strategies to outperform.
And I think that AVANGRID really has this amazing platform on which to build a story like that, right, considering your Renewable ownership. What do you think is missing or what is needed rather for a reset here so that this story is – has the buying with investors and it’s more successful going forward. Thank you.
Well, Sophie, thanks for joining our call and I appreciate your question. From the ESG side, again, that was one of the reasons that I was really excited about joining AVANGRID. I think, as you mentioned, we are already doing many of the things that other companies wish they could be doing. And I think that’s really about making sure that we are coordinated internally that as we think about ESG.
And each of them are equally important that it’s a filter at the front of our investment thesis that ESG is not just something that we’d report on the outside but that we are actually very deliberate about it, whether it comes to how we run our businesses from an environmental standpoint and the impact we have on the climate.
As we think about the social aspects of our business and what we are doing from the engagements in community, how we are engaging our customers and our employees to support what we are doing. And then obviously, on the governance side, making sure that we are – we had a leading edge on the governance issue.
So, I really think it’s about coordination and then making sure that we can effectively communicate the story and understand what’s important to the different groups out there. Now, we are not planning to be everything to everyone. I think we want to be true to ourselves and it’s consistent with the purpose of the company and the vision.
But I am hopeful that when we come to November, you are going to hear a little bit more about some of the specific projects and programs that we want to do and what we want to emphasize. And this is a movement, as you mentioned that isn’t going to slowdown.
And I think, given the business platform that AVANGRID already has and our continued focus on new renewables and making our grid smarter to be able to accept those renewables and to give customers more choices, I think that we are extremely well positioned to continue our leadership and do some new and exciting things on the ESG front.
Thank you.
Thanks, Sophie.
Our next question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.
Hey, good morning and congratulations, Dennis. Thank you very much for the time. Excited to work with you here.
Julien, it’s good to hear from you again and I look forward to working with you.
Excellent. Thank you. Likewise. So, alright. Let me just start from – let me take the renewable side first. When you think about the offshore business here, firstly, I think it’s the cut right here, you guys should thinking about the increase in the state, can you talk about the context for why that might be the case? Why was – and maybe ask differently, why would someone want to sell down offshore given [Indiscernible].
Julien, you broke up there a little bit. Let me give a little bit of context and then I can hand it over to Alejandro, as well. I think that, given the projects that we have, we are excited about them. We think that offshore wind is definitely an area where we can continue to be a leader and invest. And I think that with, as Doug mentioned, we just got the word that New York is going to forward, as well.
So, we see this being an important and growing part of our overall business. As far as, being able to look at potentially increasing our ownership in the project that you mentioned. I think, whenever you do have good projects, you can earn more and it makes sense. That’s something that we would take into consideration. But let me hand it off to Alejandro to see if he wants to add a little bit more color.
Thank you, Dennis. And hello, Julien. I mean, not much more color to add, but I’d just reiterate to what Dennis said. This is a great project for us. We – as you know, we have put a lot of energy into it and we think that it will be very successful project. We cannot comment on the reasons why CIP might – may have opportunities of divesting in the project.
Actually, these kind of discussions on the ownership are really not unusual in the offshore wind industry across all projects globally, as you certainly know. And other than that, consistently with our previous messages we will not give more specifics on M&A and actions.
Right. Fair enough. Thank you guys. If I can take it back to a higher level here and talk about the business, obviously, you guys are pulling back away from 2020 guidance. At risk of asking what the deltas are in the quarter, what changed over the course of the quarter relative to the guidance that you had last call around?
Obviously, we’re getting more specifics on COVID, but if I can ask more directly, you had a New York rate case outcome and that seems that had a delta relative to what you all were at least projecting initially for your rate case. Can you talk about that New York rate base and potentially other deltas quarter-over-quarter here on – at least, what your earlier guidance was?
Just to clarify. I suppose the fear is out there by pulling away from guidance that there are other factors that might not necessarily be as transparent to us that are driving that decision. So I just want to try to get the clarity as best we can.
Sure, Julien. This is Dennis. Let me start just from a macro perspective, then hand it over to Doug to add some more color. I think, again, day three, I want to make sure that what we are putting out there for 2020 and beyond, our numbers and plans that I can support, that I understand, that I am comfortable with and confident in, so that you can be confident in those, as well.
And as we look at both tailwinds and headwinds, as you mentioned, as Doug highlighted in his script, there are lot of really good things going on. Now, obviously, the New York rate case, we are very excited about the joint proposal. But it’s not final yet. In the COVID situation, we are trying to provide you with as much detailed information as we know it.
But it’s a dynamic situation as we read about every day. So I think that rather than spend a lot of time on what the deltas may be to our previous guidance, the real focus here is going to be on execution, on clarity, on our forecast going forward in what we are going to be providing in November. But, Doug, let me see if you want to add anything to them.
Yes, I think that covers it well, Dennis. In the first half, I covered on my comments some of the main drivers that impacted our results. We had lower merchant pricing that it was below our expectations. We had some delay in the in-service date for Otter Creek and some lower availability in the south region for renewables.
Financing costs were a bit higher than we had expected because of basically how the market spreads blew out during the COVID period. And outside of that, I’d say, there is really not a whole lot of items further to mention obviously with the New York rate case.
We are not in the first half achieving the increase that we had expected, but that’s time we expected by the end of the year that will all get made out through the make-whole and rates becoming effective in November. So, so those are a few of the items that I would just add to Dennis’ comments.
Got it. Excellent. Thank you guys.
Thank you.
And just with respect to joint proposal, I know it’s not final. Were you going to add something to that, Dennis?
No, go ahead.
Well, I was just going to say, can you earn your returns, returns at full runrate here and again I know it’s not – the ink is not dry yet, if you will. But, as best you see it now, are you in a position to be able to earn that closer or at your authorized returns in New York specifically if you look at the outlook and again, I am trying to think ahead here for the long-term outlook in November.
Look, what I would say, and Tony may want to jump in on this. I think any time you have an approval by a commission, our goal is to meet the authorized return.
And so, we are going to be spending time here over the next several months looking at what we may need to do and change in focus to be able to do that. I know that in the past, we’ve fallen a short and there are challenges obviously. But, when a commission grants you an authorized return, our goal is to at least meet it.
Yes. This is Tony Marone. And Dennis I think said it well. So, we fully anticipate earning the authorized return. Once it gets approved, I think the make-whole provision gives us that look backward here to be able as Doug had said to be able to catch-up and it’s a better timing. But we feel good about our ability to be able to earn a lot of return.
Excellent. Thank you all very much for the time. All the best.
Thanks, Julien.
Our next question comes from David Arcaro with Morgan Stanley. Your line is open.
Hi. Thanks for taking my question and welcome Dennis.
Thank you, David.
Let’s see, I was wondering if we could get your thoughts on expectations for the COVID-19 kind of generic proceeding in New York, maybe your views on the potential pluses and minuses coming under that?
Yes, let me hand that over to Tony. But I think one of the things that I have been very impressed with so far is just the focus by the company on the safety and the well-being of our employees. I think the protocols that we’ve put in place both for our employees but also on how we deal with customers has been very impressive from my perspective. But let me hand that over to Tony.
Sure. Thanks, Dennis. David, and this is Tony Marone. So, regarding the New York COVID impacts, we were encouraged by the proceeding that the New York regulators have put forward and we work closely and filed with the joint utilities in New York, combined comments on July 15th regarding COVID impacts.
Fairly extensive comments where there is 22 or 23 questions that we answered and we laid out the case for the impacts on customers, as well as company. And I really put it into three broad buckets here in terms of our ability to make sure that there is a full understanding in the impacts of uncollectable expenses, our late payment fees.
And then, any incremental cost and savings related to COVID around some of the things that we’ve had to do to make sure that employees and customers are properly protected during this timeframe. I think, Doug mentioned earlier things like rentable vehicles and additional PPE and other sorts of things. Offsetting some of that are less travel expenses and so forth.
So, we’ve really tried to put all of this into that proceeding and a way that the Commission can understand the impacts on the company and on the customers, so that we can get a swift decision on this. And so, we look forward to participating in that proceeding as it goes forward.
Understood. Thanks. And do you happen to have any sense or expectations for the timing of when the Commission could lay out a set of preferences and when that might impact you?
So, we don’t - there is no timetable established yet for a decision in this case. We are hoping and anticipating that that will happen before the end of this year. We think that that’s important from several perspectives.
But there has not been a timetable yet. There are a lot of parties in this docket and that tends to slow things down to some degree, but ourselves and I believe along with the other joint utilities are fully engaged in this and we hope, maybe soon to be able to have a more definitive schedule.
Okay. Got it. That’s helpful. I was also curious if you could give an update on how you are thinking about FFO to debt this year with the latest COVID-19 impacts that you’ve laid out. It looks like a little bit more a drag on the cash flow side, but so, what’s your latest thinking there and also the potential response or perspective of the rating agencies for the credit rating?
Sure. Let’s have Doug touch that.
Sure. So, just as a reminder, in 2019, we were at FFO to debt or Moody’s metric is cash from operations pre-working capital to debt. We were at 16% in 2019 and we forecast for 2020 back in our fourth quarter call at 16.6%.
With the COVID impacts creating some drag this year, that has put further pressure on that metric, but recognize too that we also have the New York rate case that’s becoming effective in the later part of this year and we’ll see the full benefit of rate increases in 2021, likewise, in 2021we will see the full benefit of the CMP rate case.
So, there are some positives that looking forward can have an impact. That said, Moody’s did take a rating action where they have us on negative outlook for our BAA1 rating. So, those are probably the bigger items that I would highlight for you there.
Okay. Great. Thank you very much.
Thanks, David.
Our next question comes from Michael Sullivan with Wolfe Research. Your line is now open.
Hey, everyone. Good morning. Dennis, congrats.
Thanks, Michael.
Just to start, maybe just to follow-on that that last question there, so Moody’s has you guys on negative outlook currently. Do you have any sense of if they will act prior to you guys doing this refresh in November? And is there any need to potentially take action before then?
Sure. Moody’s hasn’t really laid out a timetable for us or further actions. I think they’ve more or less said that they’ll continue to monitor on a quarterly basis our metrics and there is really nothing additional in terms of color that I could provide on Moody’s to you there.
Yes, Michael, what I would – this is Dennis, what I would tell you is, I am planning in the next several weeks to be able to speak with each of our credit rating agencies to listen to them and share with them where we think we are going and our expectations of what the work we want to get done by November. So, hopefully, we’ll have a little bit more information.
Okay. Great. And on the – I think in the prepared remarks, it was said that the BOEM draft EIS see generally constructive. Can - maybe this is for Alejandro, can you maybe just give a little more color on what specifically in there, looks good and kind of what gives you conviction that the final EIS comes out okay and things are able to continue moving forward?
Yes. Sure. So, I think in terms of the draft environmental impact statement what makes us think that it goes in the right direction is that it addresses the key issue that was controversial and that generated the delays second half of last year which was around the layout of the future refunds.
So, now the whole area have been addressed, not only just the area on outcome of these addresses that the proposal that the developers had to push forward as a compromise and that’s Coastguard have been – have really approved is the one-by-one nautical mile north, south, east, west.
This proposal is now in the supplemental draft environmental impact statement and when you look at the mitigation requirements in each of the different scenarios, this one looks like the most probable to be chosen.
So, this is something that it’s really good turning for us. It’s good news going in the right direction and then, when you add to that, in fact that’s after the – in a few weeks of public hearings that we have more of an 85% of positive comments around the project from all kind of stakeholders.
And all this together makes us really pretty comfortable that we are really going in the right direction in terms of federal permitting. BOEM continues to say that this case will be put out at the end of last year that should end with a record decision in December of this year. And they are working towards it, and they think they will certainly need it. So, all in all, we are pretty confident that now we are in the right path.
Great. Thanks for that. And then just a last one, maybe for Dennis, if you could just talk at a high-level about how you are thinking about the election? And maybe the potential implications of a Biden administration?
Look, I think as I talked about before, when you look at what’s going on with ESG investing in specifically the growth in continued trends in clean energy, I think we are really well positioned. I think regardless of who wins the election, I don’t think this trend is going to reverse.
I think that we’ve seen in other countries that with changes in administrations, the demand for clean energy and for smart networks continues to increase. And I think that what we are seeing there has been a lot of the clean energy policy is really being driven at the state level where I think we’ve got really good relationships.
So, regardless of who is in office, whether it’s the White House or the Capital House, the New York, Massachusetts, Maine, or Connecticut, our job is to make sure that we are advocating on behalf of our customers and we are putting forward suggestions and ideas and solutions that are part of the overall solution on addressing the climate change and providing our customers with the energy and technology and systems that they need.
So, I am bullish either way, quite honestly. We’ll let the people in Las Vegas decide who is running ahead in the election. But I think for AVANGRID, this company couldn’t be better positioned for the continuing energy transformation that lies ahead.
Thanks a lot. I appreciate it.
Thanks, Michael.
[Operator Instructions] Our next question comes from Insoo Kim with Goldman Sachs. Your line is now open.
Thank you. Maybe just a specific on the Renewables business. For the quarter, what is the blended average price for the – I guess, the PPA/merchant pricing and for the balance of the year, how much have you hedged on your position?
Thanks, Insoo for joining us. Let’s look – Doug, why don’t you start on that and if we need to add more color, maybe Alejandro can jump in.
Sure. So, for the second quarter, the blended average price, so this would be the PPA plus merchant was $40.20 per megawatt hour. And that’s down a bit from the first half of 2019 by approximately 12%. And Insoo, I think you had another question on top of that. What was your second one?
Just on the merchant – I guess, the non- PPA piece and what type of hedges you have in place for the balance of the year and how much?
Yes. So, when you look at the balance of 2020, as well as into 2021, we are between the PPA and hedges, we are about 80% contracted and hedged. So about 20% open position for both periods.
And I think, Doug, we’ve got more of that information details in our fact book, as well.
Right.
There are no further questions in queue at this time. I’ll turn the call back over to Dennis Arriola for closing comments.
Well, I really want to thank everyone for joining us today for not being too hard me on my first earnings call. I really do look forward to working with you all and seeing you virtually I am sure during the upcoming conferences and here in the fall. And if you have any questions, please contact Patricia and Michelle on our IR team. We hope you stay safe and you have a great day. Thanks everyone.
This concludes today's conference call. You may now disconnect.