Avangrid sees offshore wind deal as a success, faces M&A, transmission hurdles

Avangrid Inc. executives touted a $175 million transaction restructuring the company's offshore wind joint venture with Denmark's Copenhagen Infrastructure Partners K/S but acknowledged that the company faces regulatory roadblocks on other issues in New Mexico and Maine.

The transaction gives Avangrid Renewables LLC an option to gain operational control of the 800-MW Vineyard Wind 1 project, now under construction, once it achieves commercial operation. Avangrid will also take full ownership of lease area OCS-A 0534, which includes the planned 804-MW Park City offshore wind project in Connecticut and the Commonwealth Offshore Wind Project, which recently submitted a bid for up to 1,200 MW to the third Massachusetts offshore wind competitive solicitation.

"Now that we solely own and control 4.5 GW of our total 4.9-GW offshore portfolio, Avangrid controls its own destiny in terms of when we bring in partners to monetize our projects and reduce capital requirements," CEO Dennis Arriola said Feb. 23 during a fourth-quarter 2021 earnings conference call. Avangrid is a subsidiary of Spain-headquartered Iberdrola SA, which earlier in the day discussed its overall 2021 results.

"I don't believe that this optionality and incremental value is fully appreciated by the market," despite the deal's positive implications for cash flows and EBITDA, the CEO added.

Regarding materials issues facing other offshore wind developers, Arriola said Vineyard Wind 1 has contracted all of its supply chain requirements and that "the labor costs for the project are either fixed or capped."

Avangrid also welcomed a recent order by the Maine Public Utilities Commission conditionally removing a 100-basis-point penalty from Central Maine Power Co.'s allowed return on equity, even though the PUC is also opening an investigation into the utility subsidiary's management practices. Regulators said the utility met the required service-quality metrics, allowing it to seek relief from the ongoing financial penalty.

"We've turned the corner on our customer service challenges" in Maine, Arriola said during the call.

Multiple 'road bumps' ahead

Arriola also acknowledged outstanding "road bumps" concerning a proposed acquisition of PNM Resources Inc. and opposition to the NECEC Transmission LLC project in Maine.

The company is looking ahead to a May hearing at the Maine Supreme Court as Avangrid and partner developer Hydro-Québec attempt to overturn a November 2021 ballot referendum that resulted in the suspension of the 1,200-MW New England Clean Energy Connect transmission project, after Avangrid has invested approximately $450 million.

In New Mexico, after state regulators rejected the $4.32 billion acquisition in December 2021, Avangrid and PNM extended the merger agreement deadline to April 20, 2023, to allow for an appeal to the New Mexico Supreme Court.

"Are we disappointed that [the] PNM [merger] shifted given the timing? The answer is yes," Arriola said.

Avangrid President and Deputy CEO Robert Kump agreed that "the bottom line is, we, along with the folks at PNM, are absolutely committed to getting this thing done."

PNM executives also recently defended the deal's merits.

"The benefits and protections we proposed were far beyond the level required in the approval of other mergers," PNM Resources Chairman, President and CEO Pat Vincent-Collawn said Feb. 3. "These added benefits of protections were then weighed against perceived risks, including a fear that PNM would begin ignoring its obligations to provide quality service to customers as a result of Avangrid's ownership. These were not real risks supported in the record."

With approvals from five federal agencies and Texas regulators, Avangrid and PNM need only the approval of the New Mexico Public Regulation Commission, which voted unanimously against the acquisition.