UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

 

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.   )

 

 

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Avangrid, Inc.

(Name of Registrant as Specified in Its Charter)

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2019 Notice of Annual Meeting OF SHAREHOLDERS & PROXY STATEMENT

 

Items of Business

 

1.

To elect 14 director nominees to our board of directors;

 

2.

To ratify the selection of KPMG US LLP as our Independent Registered Public Accounting Firm for the year ending December 31, 2019;

 

3.

To approve, on an advisory basis, named executive officer compensation;

 

4.

To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.

Record Date

April 29, 2019

Date These Proxy Materials Are First Being Made Available

April 29, 2019

Sincerely,

R. Scott Mahoney

Senior Vice President – General Counsel and Secretary

Orange, Connecticut

April 29, 2019

Table of Contents

 

 

Proxy Statement Summary

This summary highlights the proposals to be acted upon, as well as corporate governance and compensation information described in more detail in this proxy statement for our 2019 annual meeting of shareholders (the “Annual Meeting”). In addition, this summary provides a brief description of our purpose and values and sustainability achievements during 2018. In this Proxy Statement the terms “AVANGRID,” “company,” “we,” and “our” refer to Avangrid, Inc.

 

2019 Proxy Statement				1

Proxy Statement Summary (continued)

 

Matters to be Voted on at our Annual Meeting

 

				More Information		Board Vote Recommendation		Vote Required for Approval
Proposal One		Election of Directors		Page 77		FOR each director		Nominees receiving majority of votes cast
Proposal Two		Ratification of the selection of KPMG US, LLP (“KPMG”) as our Independent Registered Public Accounting Firm for 2019		Page 78		FOR		Majority of votes cast
Proposal Three		Advisory Vote to Approve Named Executive Officer Compensation		Page 82		FOR		Majority of votes cast

How to Vote

It is important that your shares be represented and voted at the Annual Meeting. Even if you plan to attend the Annual Meeting in person, please vote in advance of the meeting in the event your plans change.

 

		BY INTERNET You can vote your shares online at www.proxyvote.com
		BY TELEPHONE You can vote your shares by calling the number printed on your proxy card or voting instruction form
		BY MAIL Mail your signed proxy card

Attending our Annual Meeting

If you plan to attend the Annual Meeting in person, you must bring photo identification to be admitted. If you are a street name shareholder (i.e., you hold your shares through an intermediary, such as a bank or broker), you also must bring a letter from your intermediary confirming your beneficial ownership of your shares and, if you intend to vote the shares, a proxy permitting you to vote them. To request a proxy, follow the instructions at www.proxyvote.com. For additional information about our Annual Meeting, see Frequently Asked Questions beginning on page 88.

 

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Proxy Statement Summary (continued)

 

Director Nominees

 

Name		Age		Independent		Committee Memberships
Ignacio Sánchez Galán (Board Chair)		68				●  Compensation, Nominating and Corporate Governance ●  Executive
John Baldacci (Board Vice Chair)		64
Robert Duffy		64		✓
Carol Folt		67		✓		●  Audit and Compliance
Teresa Herbert		57		✓
Patricia Jacobs		55		✓
John Lahey		72		✓		●  Compensation, Nominating and Corporate Governance ●  Executive
Santiago Martinez Garrido		50
Sonsoles Rubio Reinoso		49
Juan Carlos Rebollo Liceaga		57
José Sáinz Armada		59				●  Executive
Alan Solomont		70		✓		●  Audit and Compliance
Elizabeth Timm		65		✓		●  Audit and Compliance
James Torgerson		66				●  Executive

 

Seven nominees (or 50%) are independent		Five nominees (or ~36%) are women

 

2019 Proxy Statement				3

Proxy Statement Summary (continued)

 

AVANGRID Organizational Structure

 

 

2018 Business Highlights

2018 Business Highlights

Investing in a smarter, cleaner and more sustainable future, we executed on the growth in our strategic plan during 2018.

 

Highlights of our performance include:

 

		Fiscal year 2018 consolidated net income of $595 million (or $1.92 per share); consolidated adjusted net income of $684 million (or $2.21 per share)*
		Capital spending of ~$1.7B in 2018
		Invested ~$1.4B in our electric and natural gas distribution businesses
		~594 MW of solar and onshore wind long term contracts executed in 2018 and started construction of ~1 GW of onshore wind projects
		Completed sale of the non-core gas storage & trading businesses in 2018
		Two New England clean energy strategic projects are advancing and remain on track
		Increased our quarterly dividend in the third quarter of 2018 to $0.44 per share

 

*

Adjusted net income is a financial measure that was not prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP) financial measure. See Annex A to this proxy statement for a discussion of adjusted net income as well as a reconciliation of adjusted net income to net income prepared in accordance with GAAP.

 

4				2019 Proxy Statement

Proxy Statement Summary (continued)

 

Purpose and Values

Our commitment to transforming the current energy model towards a new one in which the priority is the well-being of people and the conservation of the planet is reflected in our purpose:

 

 

“Working together to deliver a more accessible clean energy model that promotes healthier, more sustainable communities every day.”

 

 

To meet this purpose, three corporate values define our identity and form the backbone of our strategy:

 

		Sustainable   We seek to be a model of inspiration for creating economic, social and environmental value in our communities, and we act positively to affect local development, generate employment, and give back to the community.   Agile   We act efficiently and with passion to drive innovation and continuous improvement at both the local and global level.   Collaborative   We work together toward a common purpose and mutual benefit while valuing each other and our differences.

For more information about our purpose and value, please see the Corporate Governance section of our website at www.avangrid.com.

 

2019 Proxy Statement				5

Proxy Statement Summary (continued)

 

Committed to Sustainable Development

Sustainability is firmly entrenched in the values and principles that guide our board of directors, and respect for people, safety, communities and the environment are key priorities driving our business success. AVANGRID has incorporated the Sustainable Development Goals (“SDGs”) approved by the member states of the United Nations into the company’s strategy and governance system. In line with this principle, AVANGRID focuses its efforts on affordable, clean energy while nurturing sustainable communities through investments in research, development and innovation. This is aligned with the company’s continued stewardship for action on climate. These commitments are articulated in our sustainable development policies, which have been adopted by our board of directors and support the SDGs (available at www.avangrid.com).

 

		We focus our efforts particularly on building an affordable and clean energy supply and acting for climate change.

Key sustainability achievements in 2018:

 

•

7.6 GW of installed renewable capacity in 22 states. Our renewables business is among the top three wind operators in the United States.

 

•

89% of our generation capacity in 2018 was emission free. In 2018, we achieved a carbon dioxide emissions intensity of 53.9g CO2/kWh, which is a 15% reduction compared to 2015 baseline, more than eight times lower than the U.S. utility average, as reported by the U.S. Energy Information Administration.

For more information about our economic, social, and environmental goals and achievements during 2018 we encourage you to read the company’s Sustainability Report for 2018 available at www.avangrid.com.

 

6				2019 Proxy Statement

Proxy Statement Summary (continued)

 

Executive Compensation Highlights

Our executive compensation program is designed to effectively reward performance, while reflecting the responsibilities of our executive officers. Our compensation philosophy is to offer compensation that makes it possible to attract, retain, and motivate the most qualified professionals in a way that aligns with our long-term business goals and values, without motivating or rewarding excessive risk-taking. At our 2018 annual meeting, over 99% of the votes cast were in favor of our named executive officer compensation.

The key elements of our program are:

 

•

Base salary

 

•

Annual cash incentive; and

 

•

Long-term equity incentive.

 

What We Do						What We Don’t Do
		Engage independent compensation consultant						No guaranteed annual salary increases or incentive payments
		Use variable pay and long-term equity incentive awards as substantial portion of total compensation						No excise tax gross-ups or excessive perquisites
		Robust stock ownership guidelines with an equity retention requirement for CEO and executive officers						No hedging, pledging or short sale transactions
		Clawback of executive compensation paid in the event of certain acts of misconduct						No single trigger change of control arrangements
		Engage shareholders on executive compensation matters and consider prior year’s “say on pay” vote						No new stock option awards or stock option repricing

For a detailed discussion of our executive compensation program, please see the “Compensation Discussion and Analysis” beginning on page 42.

 

2019 Proxy Statement				7

Proxy Statement Summary (continued)

 

Corporate Governance Highlights

We believe that effective corporate governance is not a one-size-fits all approach. We carefully consider our corporate governance practices to ensure that they are appropriately tailored to our business and promote the long-term interest of our shareholders. Our corporate governance system includes a proactive engagement process. We encourage constructive dialogue with and feedback from all our shareholders to help shape our governance practices.

 

Highlights of our corporate governance include:
		Recognized as one of the World’s Most Ethical Companies® for 2019
		Earned the Compliance Leader Verification certification from the Ethisphere Institute, a third party verification of its ethics and compliance program
		Named company with the “best corporate governance” in the USA for 2019 by World Finance magazine
		Majority voting in uncontested elections of directors
		A majority (i.e., 8 out of 14) of our director nominees are not affiliated with our controlling shareholder, Iberdrola, S.A.
		Five of our director nominees are citizens of countries other than the United States
		Refreshed Corporate Governance System reflecting commitment to contributing to achievement of the Sustainable Development Goals approved by the member states of the United Nations
		Robust shareholder engagement program
		Majority independent compensation, nominating and corporate governance committee
		Audit and compliance committee comprised of all independent members
		Unaffiliated committee of directors not affiliated with Iberdrola, S.A. responsible for, among other things, approving all transactions entered into between us and Iberdrola, S.A. and its affiliates
		Independent director leads regular executive sessions of non-management and independent directors
		Annual board and committee self-assessment
		Annual evaluation by an independent third party of the board, audit and compliance committee, compensation, nominating and corporate governance committee, and principal subsidiary governance bodies
		No poison pill
		Annual election of directors (i.e., no staggered board)

 

8				2019 Proxy Statement

Directors

This section describes the director nomination process and the experience and qualifications of our board members and how they are compensated.

 

2019 Proxy Statement				9

Directors (continued)

 

Director Nomination Process

The compensation, nominating and corporate governance committee is responsible for identifying and evaluating potential director candidates, reviewing board and committee composition and making recommendations to the full board. In order to maintain a board with an appropriate mix of experience and qualifications, the compensation, nominating and corporate governance committee routinely assesses the composition of the board. The committee aims to strike a balance between the knowledge and understanding of the business that comes from longer-term service on the board with the fresh ideas and perspective that can come from adding new members and also considers the expertise and cognitive diversity that is needed as our business changes and expands, as well as the importance of diversity of age, gender, race, ethnicity, and nationality on the board. The compensation, nominating and corporate governance committee may engage an external search firm or a third party from time to time to assist it in identifying and evaluating director-nominee candidates, in addition to current members of the board standing for reelection.

Our criteria for directors are discussed in our corporate governance guidelines and our compensation, nominating and corporate governance committee charter, copies of which are available on our website at www.avangrid.com. Consistent with these guidelines, the compensation, nominating and corporate governance committee ensures that the nominees are qualified with relevant expertise, competence, experience, and training. All of the nominees must also have the time and commitment to meet their responsibilities as members of the board of directors. The compensation, nominating and corporate governance committee has no specific policy on diversity. However, the board recognizes the benefit of having directors who reflect differing individual attributes to contribute to the board’s discussion, evaluation and decision-making and considers diversity of knowledge, experience, origin, nationality, and gender. In the board’s annual performance evaluations conducted by the board and its committees, the board from time to time considers whether the members of the board reflect such diversity and whether such diversity contributes to a constructive and collegial environment.

The compensation, nominating and corporate governance committee will consider persons recommended by shareholders for election to the board. The committee will review the qualifications and experience of each recommended candidate using the same criteria for candidates proposed by board members and communicate its decision to the candidate or the person who made the recommendation.

To recommend an individual for board membership, write to:

 

		Senior Vice President – General Counsel and  Corporate Secretary AVANGRID, Inc. 180 Marsh Hill Road Orange, Connecticut 06477

 

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Directors (continued)

 

Board Refreshment

This year the board focused on refreshment and is proposing changes to its composition that resulted from a thoughtful process informed by the board’s comprehensive self-evaluation and director nomination process, as well as feedback received from the company’s engagement with shareholders and other stakeholders. As part of this process, the board has nominated four new directors that complement the overall skills and capabilities of the board in ways identified through the board’s self-evaluation.

On April 11, 2019, upon the recommendation of the compensation, nominating and corporate governance committee, the board nominated Ignacio Sánchez Galán, John Baldacci, Carol Folt, John Lahey, Santiago Martinez Garrido, Juan Carlos Rebollo Liceaga, José Sáinz Armada, Alan Solomont, Elizabeth Timm, and James Torgerson to stand for re-election. In addition, Robert Duffy, Teresa Herbert, Patricia Jacobs, and Sonsoles Rubio Reinoso were nominated to stand for election. Mmes. Herbert, Jacobs, Rubio Reinoso and Mr. Duffy were identified as candidates by an independent director, management, and the chair of the board, and evaluated by PricewaterhouseCoopers (“PwC”), an independent advisor retained directly by the committee to assist with identifying, screening and evaluating candidates for the board. This refreshment includes a 250% increase in gender diversity on the board, with three out of four of the new nominees, and approximately 36% of the total nominees, women.

Messrs. Azagra Blázquez, Chase, and Elías Ayub, who each served on the board since 2014, 2015, and 2014, respectively, and whose terms expire on the day of the Annual Meeting, were not nominated by the board to stand for re-election

Director Recruitment Process

 

 

 

2019 Proxy Statement				11

Directors (continued)

 

Director Qualifications and Experience

The following chart reflects areas of qualifications and experience that our board views as important when evaluating director nominees. The compensation, nominating and corporate governance committee and our board believe that each director nominee brings to our board his or her own unique background and range of expertise, knowledge, and experience, including as a result of his or her valued service on our board and its committees, that provide our board as a whole with an appropriate and diverse mix of qualifications, skills, and attributes necessary for our board to fulfill its oversight responsibility to our shareholders. Each director nominee also contributes other important skills, expertise, experience, and personal attributes to our board that are not reflected in the chart below.

 

Director

Senior Leadership

Risk Management

Government / Regulatory

Finance / Financial Disclosure / Accounting

Global Perspective / International

Environmental / Industry

NYSE Independent

Audit Committee Financial Expert

Diversity

Ignacio Sánchez Galán

●

●

●

●

●

John Baldacci

●

●

Robert Duffy

●

●

●

●

●

Carol Folt

●

●

●

●

Teresa Herbert

●

●

●

●

●

●

●

Patricia Jacobs

●

●

●

●

●

John Lahey

●

●

●

●

Santiago Martinez Garrido

●

●

●

●

●

Sonsoles Rubio Reinoso

●

●

●

●

●

●

●

Juan Carlos Rebollo Liceaga

●

●

●

●

●

José Sáinz Armada

●

●

●

●

●

Alan Solomont

●

●

●

●

Elizabeth Timm

●

●

●

●

●

●

James Torgerson

●

●

●

●

●

Total director nominees with particular qualifications and experience

 

 

 

12				2019 Proxy Statement

Directors (continued)

 

Your Board’s Nominees for Director

The following biographies describe the skills, qualities, attributes, and experience of the nominees that led the board and the compensation, nominating and corporate governance committee to determine that it is appropriate to nominate these individuals for election at the Annual Meeting. All the nominees other than Mmes. Herbert, Jacobs, and Rubio Reinoso and Mr. Duffy, currently serve as directors and were elected at the 2018 annual meeting of shareholders.

 

Ignacio Sánchez Galán   Director since 2014   Chairman of the Board   Executive Committee Chair   Compensation, Nominating and Corporate Governance		Mr. Galán, 68, has served as chairman and chief executive officer of Iberdrola, S.A. since 2006. Mr. Galán has also served as the chairman of the board of directors of Scottish Power Ltd., an energy company in the United Kingdom (“Scottish Power”), since 2007, and as chairman of the board of directors of Neoenergia, S.A., a Brazilian energy company (“Neoenergia”), since 2017, each subsidiaries of Iberdrola, S.A. Mr. Galán holds honorary degrees from the Universities of Salamanca, Edinburgh and Strathclyde, where he is a visiting professor. Mr. Galán graduated as an industrial engineer from the Engineering School (ICAI) of Universidad Pontificia Comillas (Madrid). He also graduated in Business Administration and Foreign Trade from ICADE at Universidad Pontificia Comillas (Madrid) and in General Business Administration and Foreign Trade from the School of Industrial Organisation (EOI) in Madrid.   Among other qualifications, Mr. Galán brings to the board executive leadership experience in the energy industry, including his service as chairman and chief executive officer of a large international public company, along with extensive expertise in sustainable development, risk management and strategic planning and leadership of complex organizations in the global business environment.   Other current public company directorships Iberdrola, S.A.   Selected directorships and memberships   Chairman of the Board of Directors, Scottish Power Ltd.   Chairman of the Board of Directors, Neoenergia, S.A.   Board of Trustees, Princess of Asturias Foundation   Board of Trustees, COTEC Foundation   Board of Trustees, Carolina Foundation   Board of Trustees, Comillas-ICAI University Foundation   Board of Trustees, Conocimiento y Desarrollo Foundation   Board of Trustees, Aspen Institute Spain Foundation   Board of Trustees, Elcano Royal Institute   Royal Board of Trustees, Museo del Prado   Presidential CEO Advisory Board, Massachusetts Institute of Technology   Group of top utilities executives, World Economic Forum   Steering Committee, European Round Table of Industrialists

 

2019 Proxy Statement				13

Directors (continued)

 

 

John E. Baldacci   Director since 2014   Vice Chair of the Board		Mr. Baldacci, 64, has served as Senior Advisor for Economic Development & Government Relations at Pierce Atwood LLP since 2012. Mr. Baldacci served as the 73rd Governor of the State of Maine from 2003 until 2011. He previously served as director of the U.S. Department of Defense’s Military Health Care Reform Initiative from 2011 to 2012, and U.S. Representative for Maine’s 2nd Congressional District from 1995 to 2003. Mr. Baldacci earned a B.A. in History from the University of Maine at Orono. See the section entitled “Certain Relationships and Related Party Transactions—Other Relationships” in this proxy statement for additional information about Mr. Baldacci.   Among other qualifications, Mr. Baldacci brings senior leadership experience to the board, including his service as the Governor of the State of Maine, along with extensive experience in economic development and government relations.   Selected directorships and memberships   Board of Directors, Jobs for America’s Graduates
Robert Duffy		Mr. Duffy, 64, has served as President and Chief Executive Officer of the Greater Rochester Chamber of Commerce since January 1, 2015. Prior to working for Rochester Business Alliance, Mr. Duffy served as Lieutenant Governor in New York in Governor Andrew Cuomo’s administration from January 2011 to December 2014. Mr. Duffy previously served as Rochester mayor from January 2006 to January 2011 and as Rochester police chief from March 1998 to April 2005, when he resigned his post to run for mayor. He joined the Rochester Police Department in November 1976. Mr. Duffy holds two degrees from Monroe Community College, a Bachelor of Science degree from Rochester Institute of Technology, and Master of Arts degree from the Maxwell School of Citizenship and Public Affairs at Syracuse University.   Among other qualifications, Mr. Duffy brings to the board senior leadership experience, including his service as the lieutenant governor of New York, along with extensive experience in government relations, economic development, public policy, and risk management.   Selected directorships and memberships Board of Trustees, State University of New York Board of Directors, Business Council of New York State Board of Directors, Center for Governmental Research

 

14				2019 Proxy Statement

Directors (continued)

 

Carol L. Folt   Director since 2015 Audit and Compliance Committee		Ms. Folt, 67, holds tenured appointments in the faculties of Biological Sciences and the School of Global Public Health at the University of North Carolina and served as a member of the board of directors and president of the University of North Carolina at Chapel Hill from 2013 until January 2019. On July 1, 2019, Ms. Folt will take office as the 12th President of the University of Southern California. Ms. Folt became the 11th Chancellor of the University of North Carolina at Chapel Hill and its1st female leader on July 1, 2013. Ms. Folt previously served as interim president of Dartmouth College from 2012 to 2013 and provost from 2009 to 2012, among other roles, and was on the faculty in Biology. Ms. Folt earned a bachelors and masters of arts at the University of California, Santa Barbara, and a Ph.D. from the University of California, Davis.   Among other qualifications, Ms. Folt brings to the board executive leadership experience, including her service as the first female chancellor of a leading public university in the United States, and a valuable and different perspective due to her leadership in science, teaching and administrative leadership.
Teresa Herbert		Ms. Herbert, 57, has served as Chief Financial Officer of Independence Holding Company (NYSE: IHC), and in various accounting positions with Independence Holding Company since 1988. From 2002 to 2016, Ms. Herbert also served on the board of directors and as Chief Financial Officer of American Independence Corp., a public company traded on the NASDAQ, until the company was merged out of business in 2016. Ms. Herbert is a certified public accountant (inactive) and received a bachelor of science degree in accounting from Rutgers University.   Among other qualifications, Ms. Herbert brings to the board financial and accounting expertise as the chief financial officer of a public company and experience in corporate strategy, risk management, and strategic planning.   Other current public company directorships Board of Directors, Independence Holding Company   Selected directorships and memberships Board of Directors, Standard Security Life Insurance Company of New York Board of Directors, Independence American Insurance Company

 

2019 Proxy Statement				15

Directors (continued)

 

Patricia Jacobs		Ms. Jacobs, 55, has served as President of AT&T New England since 2012, and is responsible for developing the overall strategic direction for AT&T’s corporate activities in New England. Ms. Jacobs has held numerous leadership positions at the company including as regional vice president for international affairs and regional vice president for federal affairs. Prior to joining AT&T, Ms. Jacobs served as an aide to Congressman Edward J. Markey (D-MA), and as a member of the staff of the Massachusetts Senate’s Commerce and Labor Committee. Ms. Jacobs holds a B.A. from the University of Texas at Austin, and an M.A. and Ph.D. in Political Science from Boston College.   Among other qualifications, Ms. Jacobs brings to the board executive leadership experience, including her service as an executive at a global telecommunications business, along with strategic decision-making, regulatory and public policy expertise.   Selected directorships and memberships Board of Directors, Massachusetts Port Authority Board of Directors, John F. Kennedy Library Foundation Board of Trustees, Boys & Girls Clubs of Boston Board of Directors, Greater Boston Chamber Board of Directors, Massachusetts Business Roundtable Vice Chair, New England Council

 

John L. Lahey   Director since 2015 Compensation, Nominating and Corporate Governance Committee   Executive Committee		Mr. Lahey, 72, currently serves as President Emeritus and Professor of Philosophy of Quinnipiac University in Hamden, Connecticut, a private, coeducational university. Mr. Lahey previously served as the President of Quinnipiac University for 31 years. Mr. Lahey served as a Director of UIL from 1994 to 2015, and as its non-executive chair from 2010 until 2015. Mr. Lahey holds bachelor’s and master’s degrees from the University of Dayton, a master’s degree from Columbia University, and a Ph.D. from the University of Miami.   Among other qualifications, Mr. Lahey brings to the board executive leadership experience, including his service as the former president of a prestigious coeducational university, along with strategic decision-making, communications, and financial experience through his service on other public company boards.   Other current public company directorships Board of Directors, Independence Holding Company   Selected directorships and memberships Board of Directors, Yale New Haven Health System Board of Directors, Standard Security Life Insurance Company of New York Board of Directors, Alliance for Cancer Gene Therapy

 

16				2019 Proxy Statement

Directors (continued)

 

Santiago Martinez Garrido   Director since 2015		Mr. Martinez Garrido, 50, has served as the Head of Legal Services for Iberdrola, S.A. since 2016, and served as Deputy Secretary of the Iberdrola, S.A. board of directors since 2015. Mr. Martinez Garrido has also served as a member of the board of Neoenergia since 2014, and served as a director of Elecktro Holdings, S.A. from 2012 to 2018. Previously, he served as Head of Corporate Legal Services of Iberdrola, S.A., secretary of the board of directors of Iberdrola Renovables, S.A., secretary of the board of directors of Iberdrola España, S.A.U., and secretary of the board of directors of Fundación Iberdrola, the charitable foundation of Iberdrola, S.A. Before joining Iberdrola, S.A., Mr. Martinez Garrido served as Chief of Staff of the Minister of Justice of Spain and of the Justice Secretary of State of Spain from 2000 to 2004. Mr. Martinez Garrido has served as the secretary of the board of trustees of the Royal Academy of Jurisprudence and Legislation in Madrid since 2014. Mr. Martinez Garrido is a State Lawyer and has a degree in Law from Universidad Complutense in Madrid, a degree in Business Studies from Colegio Universitario San Pablo in Madrid and a PhD from Universidad Autónoma de Barcelona.   Among other qualifications, Mr. Martinez Garrido brings to the board executive leadership experience and extensive legal expertise in the energy industry, along with a global business perspective from his service as a senior executive at a large international public company.   Selected directorships and memberships Board of Directors of Neoenergia, S.A.

 

Juan Carlos Rebollo Liceaga   Director since 2015		Mr. Rebollo Liceaga, 57, has served as the Administration and Control Director of Iberdrola, S.A. since 2010. Mr. Rebollo Liceaga also currently serves as a member of the board and the audit committee of Iberdrola España, S.A., Neoenergia, and Scottish Power. Prior to joining Iberdrola, S.A., Mr. Rebollo Liceaga worked at Arthur Andersen. Mr. Rebollo Liceaga holds a degree in Business Administration from the Universidad Comercial de Deusto.   Among other qualifications, Mr. Rebollo Liceaga brings to the board executive leadership experience and extensive financial and accounting expertise, experience in strategic planning and risk management of complex organizations, and a global business perspective from his service as a senior executive at a large international public company.   Selected directorships and memberships Board of Directors and Audit and Compliance Committee, Iberdrola España, S.A. Board of Directors of Neoenergia, S.A. Board of Directors, Scottish Power Ltd.

 

2019 Proxy Statement				17

Directors (continued)

 

Sonsoles Rubio Reinoso		Ms. Rubio Reinoso, 49, has served as Internal Audit Director of Iberdrola, S.A. since 2017. Ms. Rubio Reinoso joined Iberdrola, S.A. in 2008 as Internal Audit Manager of Renewable Business in Iberdrola Renovables, S.A. and later became the Chief Compliance Officer of Iberdrola, S.A. Prior to joining Iberdrola, S.A, Mr. Rubio Reinoso worked at Arthur Anderson, Repsol YPF, S.A., and Holcim, S.A. Ms. Rubio Reinoso served as a director of Seimens Gamesa Renewable Energy, S.A. from December 2011 until December 2018. Ms. Rubio Reinoso holds a degree in Economics and Business Sciences from Universidad Autónoma Madrid, a Master’s Degree in Insurance Management through ICEA, and a PPD through IESE. She is a Certified Internal Auditor, Certified Fraud Examiner, Certified Risk Management professional, Certified Compliance & Ethics Professional, and Leading Professional in Ethics & Compliance. She is vice president of the Institute of Internal Auditors in Spain.   Among other qualifications, Mr. Rubio Reinoso brings to the board executive leadership experience and extensive financial and accounting expertise and experience in risk management and the internal audit of complex organizations, and a global business perspective from her service as a senior executive at a large international public company.

 

José Sáinz Armada   Director since 2014 Executive Committee		Mr. Sáinz Armada, 59, has been the Chief Financial and Resources Officer of Iberdrola, S.A. since 2015. Previously, Mr. Sáinz Armada served as Chief Financial Officer from 2004 to 2015. Before joining Iberdrola, S.A., Mr. Sáinz Armada started his professional career at JP Morgan. He then held various positions Argentaria Bolsa, Banco de Negocios Argentaria, Argentaria, and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA). Mr. Sáinz Armada earned a degree in Law and Business Administration from the Catholic Institute of Business Administration from the Universidad Pontificia de Comillas Madrid and a M.B.A. from INSEAD in Fontainebleau, France.   Among other qualifications, Mr. Sáinz Armada brings to the board financial and accounting expertise as the chief financial and resources officer of a large international public company and experience in corporate strategy, risk management, and strategic planning of complex organizations from his service as a senior executive at a large international public company.   Selected directorships and memberships Board of Directors, Neoenergia, S.A. Board of Directors, Scottish Power Ltd.

 

18				2019 Proxy Statement

Directors (continued)

 

Alan D. Solomont Director since 2014 Audit and Compliance Committee Chair		Mr. Solomont, 70, has served as Pierre and Pamela Omidyar Dean of the Jonathan M. Tisch College of Civic Life at Tufts University since January 2014, and as chairman of the board of directors of the Spain-U.S. Chamber of Commerce since 2013. He previously served as United States Ambassador to Spain and Andorra from 2009 to 2013. Prior to his posting to Madrid, he was a member of the bipartisan board of directors of the Corporation for National and Community Service beginning in 2000, and he was elected chair in 2009. Mr. Solomont has a B.A. in political science and urban studies from Tufts University and a B.S. in nursing from the University of Massachusetts Lowell.   Among other qualifications, Mr. Solomont brings to the board extensive experience in the nonprofit industry and strategic decision-making and financial experience through his service on other boards.
Elizabeth Timm Director since 2016 Audit and Compliance Committee		Ms. Timm, 65, is the retired Maine Market President of the Bank of America (NYSE:BAC) and its predecessor company, Fleet Bank. Ms. Timm served in this role from 1998 until 2012. Ms. Timm served as a management and financial consultant for RE/MAX By the Bay in Portland from 2012 until December 2015. Ms. Timm served as an independent director of Networks, a wholly-owned subsidiary of the company, and chair of the Networks audit and compliance committee from March 2015 until her election to our board. Ms. Timm holds a Bachelor of Arts degree in Psychology from the University of Maine and an M.B.A. in Business from the University of Southern Maine.   Among other qualifications, Ms. Timm brings to the board financial and business expertise and experience in strategic planning and risk management through her service as a banking executive.   Selected directorships and memberships Board of Directors, Olympia Snowe Women’s Leadership Institute Board of Directors, University of Maine System Board of Directors, Girl Scouts of Maine

 

2019 Proxy Statement				19

Directors (continued)

 

James Torgerson   Director since 2015 Executive Committee		Mr. Torgerson, 66, has served as the CEO and as a director of AVANGRID since December 2015. Mr. Torgerson had been president and chief executive officer and a director of UIL since 2006. Prior to 2006, Mr. Torgerson was president and chief executive officer of Midwest Independent Transmission System Operator, Inc. Mr. Torgerson is the former chairman and a director of the Connecticut Business and Industry Association and chairman of the Connecticut Institute for the 21st Century. Mr. Torgerson holds a bachelor’s of business administration degree in accounting from Cleveland State University.   Among other qualifications, Mr. Torgerson brings to the board extensive executive leadership experience in the energy industry, including financial, accounting and utility operations, risk management and strategic decision-making at complex organizations.   Selected directorships and memberships Chair of Board and Executive Committee, American Gas Association Board of Directors and Executive Committee, Edison Electric Institute Board of Trustees, Yale-New Haven Hospital Board of Directors, Yale New Haven Health System

Current Directors Not Standing For Re-Election

The term of office of Messrs. Azagra Blázquez, Chase, and Elías Ayub expires on the day of the Annual Meeting and they will not stand for re-election.

 

Pedro Azagra Blázquez   Director since 2014 Executive Committee		Mr. Azagra Blázquez, 50, has served as the Chief Development Officer of Iberdrola, S.A. since 2008. He previously served as Director of Strategy from 1997 to 2001 and was responsible for corporate development activities of the Iberdrola group from 2001 to 2008. Mr. Azagra Blázquez has served as Professor of Corporate Finance and Mergers and Acquisitions at Universidad Pontificia de Comillas, in Madrid, Spain since 1998. Before joining the Iberdrola group he worked at Morgan Stanley in London and New York in the investment banking division in advisory, equity and debt transactions. He earned a business degree and a law degree from Universidad Pontificia de Comillas and a M.B.A. from the University of Chicago.   Among other qualifications, Mr. Azagra Blázquez brings to the board senior leadership experience through his service as a senior executive at a large international public company, along with his extensive knowledge of the utilities industry, capital markets and finance, and corporate strategy in the global business environment.   Selected directorships and memberships Board of Directors, Neoenergia, S.A. Board of Directors, Siemens Gamesa Renewable Energy, S.A.

 

20				2019 Proxy Statement

Directors (continued)

 

Arnold L. Chase Director since 2015 Unaffiliated Committee		Mr. Chase, 67, currently serves as President and a Director of Gemini Networks, Inc. and Managing Member of Chase Enterprises Holding LLC, Hartford, Connecticut, both of which are privately owned investment holding companies. Mr. Chase previously served as a Director of UIL Holdings Corporation (“UIL”) from 1999 to 2015 and served as the chair of the retirement benefits plans investment committee. Mr. Chase holds a Bachelor of Science degree in business administration from Babson College.   Among other qualifications, Mr. Chase brings to the board technical knowledge, familiarity with the federal and state regulatory process, and energy industry experience through his service on other boards.   Selected directorships and memberships Director, Gemini Networks, Inc. Board of Trustees, Connecticut Public Broadcasting, Inc. Board of Trustees, Talcott Mountain Science Center Board of Directors, Hartford Hospital
Alfredo Elías Ayub Director since 2014 Chair of Compensation, Nominating and Corporate Governance Committee Interim Chair of Unaffiliated Committee		Mr. Elías Ayub, 69, is currently the president of the board of directors of Promociones Metropolis, S.A. de C.V. From 2012 to 2015, Mr. Elías Ayub served as a director of Arcos Dorados Holdings Inc. (NYSE: ARCO). Mr. Elías Ayub previously served as chief executive officer and a director of Federal Electricity Commission, a Mexican state owned electricity company, from 1999 to 2011 and held a number of positions in the state owned industry and energy sector including Deputy Minister of Mines and Basic Industry and Deputy Energy Minister. He previously served as deputy director and director of Universidad Anáhuac’s Engineering School from 1978 to 1981 and a member of the Dean of Students Board of Advisors of Harvard University Business School from 2010 to 2013. Mr. Elías Ayub earned a degree in Civil Engineering from Universidad Anáhuac, in Mexico City, and a M.B.A. from Harvard University.   Among other qualifications, Mr. Elías Ayub brings to the board executive leadership experience in the energy industry, including his service as chief executive officer of a Mexican electricity company, along with experience in strategic planning and leadership of complex organizations, and a global business perspective from his service on other boards.   Other current public company directorships Board of Directors, Grupo Financiero Banorte   Selected directorships and memberships Board of Directors, Promociones Metropolis S.A. de C.V. Board of Directors, Banorte Rotoplas

 

2019 Proxy Statement				21

Directors (continued)

 

Director Compensation

Members of the board who are not employees of AVANGRID (“non-employee directors”) received compensation for their board service, which is reviewed annually by the compensation, nominating and corporate governance committee. For 2018, the board determined the form and amount of non-employee director compensation described below after reviewing the compensation, nominating and corporate governance committee’s recommendation. In 2018, non-employee directors received an annual cash retainer of $140,000. In 2018, each of the chair and the vice chair of the board of directors received an additional annual cash retainer of $60,000; the chair of each of the audit and compliance, compensation, nominating and corporate governance, and unaffiliated committees received an additional cash retainer of $30,000; and each non-employee director that was a member of one or more committee of the board received an additional cash retainer of $30,000. All retainers are paid in quarterly installments. The following table shows information regarding the compensation earned or paid during 2018 to each non-employee director serving on the AVANGRID board during 2018. Mr. Torgerson did not receive any compensation for his service as a member of the AVANGRID board.

 

Name			Fees Earned or Paid in Cash ($)				Total ($)
Ignacio Sánchez Galán			200,000				200,000
John E. Baldacci			200,000				200,000
Pedro Azagra Blázquez			140,000				140,000
Felipe de Jesús Calderón Hinojosa (1)			200,000				200,000
Arnold L. Chase			170,000				170,000
Alfredo Elías Ayub			200,000				200,000
Carol L. Folt			170,000				170,000
John L. Lahey			170,000				170,000
Santiago Martinez Garrido			140,000				140,000
Juan Carlos Rebollo Liceaga			140,000				140,000
José Sáinz Armada			140,000				140,000
Alan D. Solomont			200,000				200,000
Elizabeth Timm			170,000				170,000

⁽¹⁾ President Calderon resigned from the board effective December 31, 2018.

At its meeting on February 13, 2019, after reviewing the compensation, nominating and corporate governance committee’s recommendation, the board determined to maintain the same form and amount of director compensation from 2018 for 2019.

 

22				2019 Proxy Statement

Corporate Governance

This section describes our corporate governance system and the role and structure of our board.

 

2019 Proxy Statement				23

Corporate Governance

 

Corporate Governance System

AVANGRID’s corporate governance system (the “AVANGRID Corporate Governance System”) is integral to the company’s corporate mission and the creation of sustainable value for society, customers, and shareholders. Reflecting the purpose and values of the Iberdrola group, the AVANGRID Corporate Governance System is inspired by and based upon a commitment to ethical principles, transparency, and leadership in the application of best practices in good governance and is designed to be a working structure for principled actions, effective decision-making, and appropriate monitoring of both compliance and performance. AVANGRID’s charter, by-laws, corporate policies, the internal corporate governance rules and the other internal codes and procedures approved or adopted by AVANGRID’s Board of Directors form the framework of governance of AVANGRID, including our corporate governance guidelines, code of business conduct and ethics, and committee charters. Reflecting our commitment to continuous improvement and best practices, the board, upon the recommendation of the compensation, nominating and corporate governance committee, approved an extensive refreshment of the AVANGRID Corporate Governance System to reflect AVANGRID’s commitment to contributing to the achievement of the U.N.’s Sustainable Development Goals. The AVANGRID Corporate Governance System, including our corporate governance guidelines, code of business conduct and ethics, and committee charters are publicly available in the Corporate Governance section of AVANGRID’s website at www.avangrid.com.

Board Leadership Structure

The AVANGRID Corporate Governance System allows the flexibility to separate or consolidate the positions of chairman of the board and chief executive officer. The board believes its current leadership structure best serves the objectives of the Board’s oversight of management, the Board’s ability to carry out its roles and responsibilities on behalf of AVANGRID’s shareholders, and AVANGRID’s overall corporate governance. The board also believes that the separation of the roles of chairman and chief executive officer allows the chief executive officer to focus more of his time and energy on operating and managing the company and leverages the chairman’s experience in the energy industry. The board periodically reviews its leadership structure to determine whether it continues to serve AVANGRID and its shareholders.

The Controlled Company Exemption

AVANGRID is a “controlled company” within the meaning of the rules of the NYSE because Iberdrola, S.A. owns more than 50% of the company’s outstanding shares of common stock. Consequently, AVANGRID is not required to comply with certain of the NYSE listed company requirements, such as the requirement to have a majority of “independent” directors on AVANGRID’s board of directors, or the requirement to have compensation and nominating/corporate governance committees comprised of “independent” directors. Nonetheless, the board has established a compensation, nominating and corporate governance committee and an unaffiliated committee each comprised of a majority of independent directors to assist the board in exercising its oversight responsibilities.

 

24				2019 Proxy Statement

Corporate Governance (continued)

 

Director Independence

Due to AVANGRID’s status as a “controlled company,” we rely on exemptions from the rules of the NYSE that would otherwise require that our board of directors be comprised of a majority of “independent” directors as defined under the rules of the NYSE. AVANGRID is also required to have an “independent” audit committee under the NYSE’s listed company requirements. See the section entitled “Corporate Governance—Audit and Compliance Committee” for additional information.

The board has undertaken a review of the independence of each director nominee. Based on information provided by each director nominee concerning their background, employment and affiliations, including family relationships, the board has determined that each of Mmes. Folt, Herbert, Jacobs and Timm and Messrs. Duffy, Lahey and Solomont do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these nominees is “independent” as that term is defined under the rules of the NYSE. In making these determinations, the board considered the current and prior relationships that each nominee has with the company and all other facts and circumstances the board deemed relevant in determining their independence, including the beneficial ownership of the company’s securities by each nominee, and the transactions involving them described in the section entitled “Corporate Governance—Certain Relationships and Related Party Transactions.”

Board Meetings and Committees

During 2018, the board held six meetings. Each director attended at least 75 percent of the meetings of the board of directors and the committees on which he or she served during 2018. It is our policy to schedule board and committee meetings to coincide with the annual meeting of shareholders, and directors are expected to attend the annual meeting of shareholders. All directors attended our 2018 annual meeting of shareholders.

Our board has the authority to appoint committees to perform certain management and administration functions. The board has an audit and compliance committee, compensation, nominating and corporate governance committee, executive committee, and unaffiliated committee. The composition and responsibilities of the committees are described below. Members serve on committees until their resignation or until otherwise determined by the board of directors.

 

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Corporate Governance (continued)

 

Committees Composition

The following table identifies the current membership of the board committees: audit and compliance committee; compensation, nominating and corporate governance committee; executive committee; and unaffiliated committees:

 

Director

Audit and Compliance Committee

Executive Committee

Unaffiliated Committee

Compensation, Nominating and Corporate Governance

Ignacio Sánchez Galán

John Baldacci

Pedro Azagra Blázquez

Arnold Chase

Alfredo Elías Ayub

Carol Folt

John Lahey

Santiago Martinez Garrido

Juan Carlos Rebollo Liceaga

José Sáinz Armada

Alan Solomont

Elizabeth Timm

James Torgerson

  Chair         Member

 

26				2019 Proxy Statement

Corporate Governance (continued)

 

Audit and Compliance Committee

As described in more detail in its charter, the audit and compliance committee assists the board in oversight and monitoring of:

 

•

the selection, retention and compensation of our independent registered public accounting firm, including its qualifications, independence, and performance, and pre-approval of the scope and plans for audits, all audit engagement fees, and all permissible non-audit engagements;

 

•

the auditing, accounting, and financial reporting process generally and our financial statements and financial information provided to shareholders, including the review and discussion with management and our independent registered public accounting firm our annual audited and quarterly unaudited financial statements and annual and quarterly reports on Forms 10-K and 10-Q and related matters;

 

•

our system of internal controls, including the design and function of our internal audit division;

 

•

our compliance with legal, regulatory and public disclosure requirements; and

 

•

enterprise risk management, including our guidelines and policies with respect to risk assessment and risk management.

Mmes. Folt and Timm served on the audit and compliance committee during 2018, with Mr. Solomont serving as the chair. All members of the audit and compliance committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NYSE. In addition, the board has determined that Ms. Timm is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933 (the “Securities Act”) and has the requisite financial experience as defined by the NYSE corporate governance rules. The board has determined that each of the members of the audit and compliance committee are “independent” as defined under the NYSE listing standards and under Rule 10A-3(b)(1) of the Exchange Act of 1934, as amended (the “Exchange Act”). The audit and compliance committee operates under a written charter adopted by the board in accordance with applicable rules of the NYSE and the SEC, which is available on the company’s website at www.avangrid.com. The audit and compliance committee met nine times during 2018.

Executive Committee

The executive committee is a standing committee that has and may exercise all the powers of the board when the full board is not in session, to the extent permitted by applicable law and provided that any of the authorities assigned to the audit and compliance committee or the unaffiliated may not be so delegated. Messrs. Galán, Azagra Blázquez, Lahey, Sáinz Armada, and Torgerson served on the executive committee during 2018. The executive committee held four meetings during 2018.

Unaffiliated Committee

The unaffiliated committee was established in accordance with the shareholder agreement dated December 16, 2015, between AVANGRID and Iberdrola, S.A. (the “Shareholder Agreement”) and, among other things, is responsible for reviewing and approving all transactions entered into between the company and Iberdrola, S.A., or its affiliates and ensuring that they are

 

2019 Proxy Statement				27

Corporate Governance (continued)

 

entered into on an arms’ length basis. Messrs. Elías Ayub and Chase served on the unaffiliated committee during 2018, with Mr. Calderón Hinojosa serving as chair until his resignation from the board effective December 31, 2018. Following Mr. Calderon Hinojosa’s resignation, Mr. Elías Ayub will serve as the interim chair of the unaffiliated committee until the Annual Meeting. The unaffiliated committee is comprised solely of “independent” directors; provided, however, that Mr. Chase, for so long as he is a director, is permitted to serve as a member of the unaffiliated committee irrespective of whether he qualifies as an “independent” director (as that term is defined under the rules of the NYSE). See the section entitled “Corporate Governance—Certain Relationships and Related Party Transactions” for additional information. The unaffiliated committee held four meetings during 2018.

Compensation, Nominating and Corporate Governance Committee

As described in more detail in its charter, the compensation, nominating and corporate governance committee is responsible for:

 

•

reviewing and approving executive officer compensation;

 

•

reviewing and approving (and, when appropriate, recommending to the board for approval)executive incentive compensation plans and equity-based plans;

 

•

administering the company’s executive incentive compensation plans and equity-based plans;

 

•

reviewing, and recommending to the board for approval, director compensation;

 

•

periodically reviewing the chief executive officer succession plan;

 

•

determining the qualifications, qualities, skills, and other expertise required to be a director;

 

•

reviewing and making recommendations to the board regarding the selection and approval of the nominees for director;

 

•

overseeing the company’s corporate governance policies and procedures; and

 

•

overseeing the board and committee annual self-evaluation.

For a description of the compensation, nominating and corporate governance committee’s processes and procedures, including the roles of the independent compensation consultant and AVANGRID’s executive officers in support of the compensation decision-making processes, see the section entitled “Executive Compensation—Compensation Discussion and Analysis.”

Messrs. Galán and Lahey served as members of the compensation, nominating and corporate governance committee during 2018, with Mr. Elías Ayub serving as the chair. Messrs. Elías Ayub and Lahey are “independent” as defined under the NYSE listing standards. The company relies on the controlled company exemption from the rules of the NYSE that would otherwise require the committee be comprised of solely “independent” directors as defined under the rules of the NYSE.

 

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Corporate Governance (continued)

 

The compensation, nominating and corporate governance committee operates under a written charter adopted by the board in accordance with applicable NYSE charter requirements for both compensation and nomination/corporate governance committees, which is available on the company’s website at www.avangrid.com. The compensation, nominating and corporate governance committee held five meetings during 2018.

To the extent the board and compensation, nominating and corporate governance committee deem appropriate, executive compensation matters relating to or governed by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), or Rule 16b-3 of the Exchange Act, are delegated to a subcommittee of the compensation, nominating and corporate governance committee comprised entirely of two or more directors who qualify as “outside directors” within the meaning of Section 162(m) of the Code and “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act (the “compensation subcommittee”). Messrs. Elías Ayub and Lahey currently serve on the compensation subcommittee. The compensation subcommittee serves to (i) establish, administer, approve and certify (for the purposes of satisfying the performance-based compensation exception under Section 162(m) of the Code, to the extent still applicable) performance goals for employee compensation awards and (ii) review and approve (for purposes of Rule 16b-3 of the Exchange Act) compensation grants and awards by the company of its securities to an officer or director of the company. Prior to the payment of any compensation awarded by the compensation subcommittee, all compensation decisions by the compensation subcommittee are subject to ratification from the full board.

Executive Sessions

In accordance with our corporate governance guidelines, to ensure that non-management directors serve as an effective check on management and to encourage open discussion among such non-management directors, our non-management directors meet in executive sessions without management directors or management present on a periodic basis but no less than twice a year. Our chairman, a non-management director, presides at these meetings. In accordance with the NYSE rules, our independent directors also meet in an executive session at least once a year. President Calderón, as chair of the unaffiliated committee, presided at the executive sessions of independent directors during 2018.

 

2019 Proxy Statement				29

Corporate Governance (continued)

 

Annual Board Assessment

The board utilizes a comprehensive, multi-part process for its ongoing self-assessment to ensure that the board and its committees are operating effectively and its processes reflect best practices. This year the board focused on refreshment and the proposed changes to its composition were informed by the board’s comprehensive self-assessment. While the formal self-assessment and independent corporate governance review described below is conducted on an annual basis, directors share perspectives, feedback and suggestions continuously throughout the year.

 

1		The board conducts an annual self-assessment to review the effectiveness of the board and its committees. In this comprehensive review, the self-assessment focuses on:
		• The composition and performance of the board, including the size, mix of skills and director refreshment practices;
		• The quality and scope of the materials distributed in advance of meetings;
		• The board’s access to company executives and operations;
		• The promotion of rigorous decision-making by the board and its committees; and
		• The overall functioning of the board and its committees.

 

2		Each of the audit and compliance committee and compensation, nominating and corporate governance committee also perform an annual self-assessment.

 

3		Annually, AVANGRID engages PwC to conduct an independent assessment of its corporate governance practices and the corporate governance practices of its principal subsidiaries and to recommend improvements to the operations of the board and its committees. The independent assessment focuses on:
		• Compliance with governance requirements; and
		• Alignment with trends in corporate governance.

 

4		The results of the board and committee self-assessments are compiled and presented to the board along with the results of the independent corporate governance assessment.

 

5		Items identified in the board and committee self-assessments and/or the independent corporate governance assessment requiring follow-up are monitored on an ongoing basis by the board and by AVANGRID management.

 

30				2019 Proxy Statement

Corporate Governance (continued)

 

Risk Management Oversight

In the normal course of its business, AVANGRID is exposed to a variety of risks, including political and regulatory risks, climate-related risks, credit and investment risks, and cybersecurity and other operational risks. In connection with the board’s oversight function, the board oversees AVANGRID’s policies and procedures for managing risk. The audit and compliance committee of the board of directors has been delegated primary responsibility for oversight of AVANGRID’s risk management practices and regularly reports to the board on such matters. The audit and compliance committee reviews AVANGRID’s risk assessment and regulatory compliance through the compliance, risk, and security divisions. AVANGRID’s risk division operates as the regular point of contact for communication between the audit and compliance committee and the rest of AVANGRID’s organization on specific matters in connection with risk. The director of the risk division regularly attends audit and compliance committee meetings and upon the request of such committee.

AVANGRID’s management has formed a risk committee, which is responsible for the development of AVANGRID’s risk management infrastructure, and is comprised of key members of management, including, without limitation, the chief executive officer, chief financial officer, controller, director of the risk division, general counsel, chief security officer, and director of internal audit. The risk committee is responsible for aligning the basic principles and general framework for the control and management of risks facing AVANGRID and its subsidiaries in accordance with the policies and procedures established by the board and overseeing the implementation of risk management practices. The risk committee, with the assistance of the risk division, periodically assesses the material risks that AVANGRID faces and establishes, under the oversight of the audit and compliance committee, a risk management infrastructure aimed at mitigating the identified risks.

In particular, we have risk based security measures in place designed to protect our facilities, assets and cyber-infrastructure, such as our transmission and distribution system. While we have not had any significant security breaches, a physical security intrusion could potentially lead to theft and the release of critical operating information. In addition to physical security intrusions, a cyber-breach could potentially lead to theft and the release of critical operating information or confidential customer information. To manage these operational risks, pursuant to the cybersecurity risk policy and corporate security policy approved by the board, we have implemented cyber and physical security measures and continue to strengthen our security posture by improving and expanding our physical and cyber security capabilities to protect critical assets. In an effort to reduce our vulnerability to cyberattacks, the board appointed a chief security officer, the company’s senior officer responsible for security, and we have established a dedicated corporate security office, responsible for improving and coordinating security and compliance across the company. We have adopted a comprehensive company-wide physical and cyber security program, which is supported by the governance program to manage, oversee and assist us in meeting our corporate, legal and regulatory responsibilities with regard to the protection of our cyber, physical and information assets.

In addition, AVANGRID conducts risk assessments to determine the extent, if any, to which the company’s compensation programs and practices may create incentives for excessive risk-taking. For a discussion of these assessments, see the section entitled “Compensation Discussion and Analysis—Compensation and Risk.”

 

2019 Proxy Statement				31

Corporate Governance (continued)

 

Shareholder Engagement

As part of our efforts to continuously improve our governance system, we launched an investor outreach program in 2016 to enable management and the board to understand the issues that matter most to our shareholders and address them effectively. In 2018, we reached out to shareholders to discuss the structure of the AVANGRID Corporate Governance System, executive compensation, the skills of our directors, and our sustainability achievements. The board carefully considered shareholder feedback and took a number of actions to enhance AVANGRID’s Corporate Governance System. These actions include the proposed refreshment of the composition of the board of directors and revisions to the AVANGRID Corporate Governance System to highlight our commitment to the contributing to the achievement of the Sustainable Development Goals approved by the member states of the United Nations.

 

 

• Evaluate AVANGRID’s annual meeting results and other relevant annual meeting results		• Meet with shareholders to discuss governance system structure, executive compensation, and other relevant topics		• Consider relevant governance enhancements at February board and committee meetings
• Review feedback from shareholder outreach and consider governance trends		• Meet with proxy advisors to discuss key governance trends and practices		• Disclose shareholder outreach results and related actions

To communicate with the board, write to:

 

				Senior Vice President—General Counsel and Corporate Secretary AVANGRID, Inc. 180 Marsh Hill Road Orange, Connecticut 06477

Any shareholder or interested party who wishes to communicate or request a meeting with members of the board of directors or with only non-management directors or any specified individual director may do so by writing to the address above. All communications received in accordance with these procedures will be reviewed by our legal services division who will, in consultation with our chairman of the board, determine whether the subject matter of the communication should be brought to the attention of the non-management directors, the full board, or one or more of its committees, as well as whether any response to the communication is appropriate. Any such response will be made only in accordance with applicable law and regulations relating to the disclosure of information.

 

32				2019 Proxy Statement

Corporate Governance (continued)

 

Code of Business Conduct and Ethics

AVANGRID has a code of business conduct and ethics that applies to all employees including AVANGRID’s principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers. The code is intended to provide guidance to employees and management to assure compliance with law and promote ethical behavior. Any amendment to the code, or any waivers of its requirements, will be disclosed on the company’s website at www.avangrid.com.

Compensation, Nominating and Corporate Governance Committee Interlocks and Insider Participation

Messrs. Elías Ayub, Galán and Lahey deliberated on executive compensation matters in their capacity as members of the compensation, nominating and corporate governance committee during 2018. None of these directors is, or has ever been, an officer or employee of AVANGRID or any of our subsidiaries. In addition, during the last fiscal year, none of our executive officers served as a member of the board of directors or the compensation committee of any other entity that has one or more executive officers serving on our board.

Review, Approval, or Ratification of Transactions with Related Persons

The board has adopted a written policy for approval of transactions between AVANGRID and its directors, director nominees, executive officers, greater than 5% beneficial owners, and each of their respective immediate family members, where the amount involved in the transaction exceeds or is expected to exceed $120,000 in a single calendar year and the related party has or will have a direct or indirect interest in the transaction. A copy of this policy, the related party transaction policy, is available on the company’s website at www.avangrid.com. The policy provides that the audit and compliance committee reviews all transactions subject to the policy (other than transactions between AVANGRID and/or one of its subsidiaries, on the one hand, and Iberdrola, S.A. and/or its affiliates, on the other hand, which are subject to review by the unaffiliated committee pursuant to the Shareholder Agreement) and determines whether or not to approve or ratify those transactions. In addition, the audit and compliance committee has delegated authority to the chair of the audit and compliance committee to pre-approve or ratify transactions under certain circumstances. The policy prohibits any director from participating in any review, discussion, consideration or approval of any transaction subject to the policy for which such director or his or her family member is a related party, except that such director is required to provide all material information concerning the interested transaction to the audit and compliance committee. In reviewing transactions subject to the policy, the audit and compliance committee, or the chair of the audit and compliance committee, as applicable, considers among other factors it deems approximate:

 

•

the benefits to the company;

 

•

the impact on a director’s independence, if applicable;

 

•

the opportunity costs of other sources for comparable products or services, including whether the transaction is made on terms no less favorable than terms that would be generally available to an unaffiliated third-party under the same or similar circumstances;

 

2019 Proxy Statement				33

Corporate Governance (continued)

 

•

the terms of the transaction; and

 

•

the actual or apparent conflict of interest of the related party.

Certain Relationships and Related Party Transactions

Relationship with Iberdrola, S.A.

Iberdrola, S.A. currently directly holds 81.5% of the outstanding shares of AVANGRID common stock. As the company’s controlling shareholder, Iberdrola, S.A. will continue to exercise significant influence over AVANGRID, including the composition of our board and any action requiring the approval of our shareholders. Transactions with Iberdrola, S.A. relate predominantly to pass-through charges of corporate services/management fees. These corporate services are entered into on an arm’s length basis and are aimed at maximizing our operating efficiency in an efficient and flexible service model. The corporate services are provided at market quality, and subject to audit and dispute resolution procedures. In addition, we pay Iberdrola, S.A. fees for credit support, relating to parent company guarantees that Iberdrola, S.A. has provided to third parties to guarantee the performance of Avangrid Renewables Holdings, Inc. (“ARHI”) subsidiaries.

The Shareholder Agreement

On December 16, 2015, we completed the acquisition of UIL pursuant to a merger agreement. In connection with the transaction, we entered into the Shareholder Agreement on December 16, 2015 with Iberdrola, S.A. The Shareholder Agreement sets forth certain governance arrangements and contains various provisions relating to, among other things, representation on our board, minority protections that limit the disposal or transfer of shares of the company by Iberdrola, S.A., registration rights, preemptive rights and protections for us relating to affiliate transactions and business opportunities, which are described in more detail below.

 

•

Until December 16, 2020, the company must have at least five “independent” directors (as defined in the Shareholder Agreement), and Arnold Chase and John Baldacci would be deemed to be independent directors solely for purposes of determining compliance with this obligation. Additionally, in the event of the resignation, removal or death of Mr. Baldacci and/or Mr. Chase (or their respective replacements on the board), or if Mr. Baldacci and/or Mr. Chase (or their respective replacements on the board) decide not to stand for reelection to our board or are otherwise unwilling or unable to serve on our board, Iberdrola, S.A. will nominate a person to serve on our board of directors who qualifies as an independent director pursuant to the rules of the NYSE and applicable law. The Shareholder Agreement also provides that the company will, after December 16, 2020, have at least four “independent” directors (as defined in the Shareholder Agreement), provided that either Mr. Chase or Mr. Baldacci, but not both, may be deemed independent directors for this purpose.

 

•

The Shareholder Agreement provides that the board must establish an unaffiliated committee made up of “independent” directors (as defined in the Shareholder Agreement). Under the Shareholder Agreement, a director is considered “independent” if he or she is independent under the rules of NYSE with respect to AVANGRID, and would be independent under the rules of NYSE with respect to Iberdrola, S.A. if he or she was a director of Iberdrola, S.A. Arnold Chase, for so long as he is a director, may serve on the unaffiliated committee even if he is determined not to be

 

34				2019 Proxy Statement

Corporate Governance (continued)

 

“independent”. The unaffiliated committee is responsible for, among other things, reviewing and authorizing transactions between AVANGRID and/or one of its subsidiaries, on the one hand, and Iberdrola, S.A. and/or its affiliates, on the other hand.

 

•

Iberdrola, S.A., on behalf of itself and its affiliates, is entitled to unlimited requests for demand registrations, piggyback registrations and shelf registration statement filings following the closing of the acquisition, in each case, subject to certain customary limitations. Iberdrola, S.A. also has the right to specify the method of distribution of securities, including an underwritten public offering, and approve the underwriters. Additionally, Iberdrola, S.A. has preemptive rights to protect against dilution for issuances of equity.

 

•

Iberdrola, S.A. is prohibited from effectuating a “going private” transaction, or any other similar transaction that results in the company no longer being a publicly traded company, without the prior approval of both the unaffiliated committee and a majority of the voting power of the shareholders not affiliated with the company. Subject to certain exceptions, the Shareholder Agreement generally prohibits Iberdrola, S.A. from causing the company to, and the company from, entering into or effectuating any transaction for the acquisition of the company by another entity, including any stock acquisition, reorganization, merger or consolidation, that results in all shareholders of the company exchanging their voting securities for cash or securities, unless all shareholders of the company are entitled to the same per share consideration to be received in such transaction as Iberdrola, S.A.

 

•

The Shareholder Agreement provides protections to us relating to transactions with Iberdrola, S.A. and its affiliates. The services provided by Iberdrola, S.A. or its affiliates to us and our subsidiaries and joint ventures at completion of the acquisition are provided by Iberdrola, S.A. or its affiliates at a cost to us not higher than the cost reflected in the expenses shown in our 2014 Internal Financial Reporting Standards (“IFRS”) audited consolidated financial statements, except in the case of ordinary course, market adjustments of such costs made on an arms’ length basis, or (ii) as otherwise approved by the majority of the members of the unaffiliated committee. Furthermore, we will not enter into any transaction between, or involving, Iberdrola, S.A. or any of its subsidiaries or controlled joint ventures, on the one hand, and us or our subsidiaries or controlled joint ventures, on the other hand, unless the transaction is both approved by a majority of members of the unaffiliated committee and entered into on an arms’ length basis.

 

•

The Shareholder Agreement permits Iberdrola, S.A. and its affiliates to conduct business that may be competitive with our business, while restricting actions by Iberdrola, S.A. and its controlled affiliates that could interfere with the ability of our executive officers to conduct the company’s business. Pursuant to the Shareholder Agreement, we recognize and acknowledge that Iberdrola, S.A. and its affiliates own, engage or participate in businesses and business activities that compete, or may compete, with our business and the business of our subsidiaries. We acknowledge and agree that neither the execution of the merger agreement, Shareholder Agreement or the completion of any transactions contemplated thereby will preclude or limit Iberdrola, S.A. and its affiliates from, directly or indirectly, owning, engaging or participating in any business or business activity at any time and in any geographical location, including such businesses or business activities that compete, or may compete, with our business or the business activities of our subsidiaries or any of their respective businesses.

However, the Shareholder Agreement provides that as long as Iberdrola, S.A. continues to own 50% or more of the outstanding voting stock of the company, Iberdrola, S.A. will not engage in any action that is reasonably expected to

 

2019 Proxy Statement				35

Corporate Governance (continued)

 

impair the executive officers of the company and its subsidiaries from conducting the business or operations in a manner consistent with such business or operation of the company and its subsidiaries immediately following completion of the acquisition.

 

•

Iberdrola, S.A. has been granted certain information and access rights to information related to our and our subsidiaries’ businesses, operations, plans and prospects.

We and Iberdrola, S.A. will not be able to amend the Shareholder Agreement without the prior approval of both our board of directors and a majority of the members of the unaffiliated committee. The Shareholder Agreement will remain in effect as long as Iberdrola, S.A. owns more than 20% of the outstanding voting stock of the company. Following any termination of the Shareholder Agreement, Iberdrola, S.A. will have one demand registration right, subject to customary limitations and exceptions, and piggyback registration rights with respect to any registration proposed by the company, subject to customary “cut back” provisions. The laws of the State of New York will govern the Shareholder Agreement as long as we remain a New York corporation. If we are redomiciled to Delaware, the laws of the state of Delaware will govern the Shareholder Agreement.

The Framework Agreement and Declaration of Acceptance

In connection with the acquisition of UIL, we entered into the Declaration of Acceptance, dated July 16, 2015, with Iberdrola, S.A. (“2015 declaration of acceptance”), making us a party to the framework agreement for 2015 and detailing the corporate services Iberdrola, S.A. provided to us or to any of our affiliates in 2015. The framework agreement governs the relationship between Iberdrola, S.A. and the various Iberdrola, S.A. entities, with respect to the corporate services Iberdrola, S.A. contracts to provide each relevant entity. Pursuant to the framework agreement, and under the Iberdrola group’s “One Corporation” structure, Iberdrola, S.A. provided efficient and flexible corporate services to us and our subsidiaries. Our entry into the 2015 declaration of acceptance was approved by a committee comprised solely of our independent directors. On July 14, 2016, the unaffiliated committee approved a new declaration of acceptance detailing the corporate services Iberdrola, S.A. provided to us or any of our affiliates (“2016 declaration of acceptance” and together with the 2015 declaration of acceptance, the “declarations of acceptance”).

Pursuant to the declarations of acceptance, Iberdrola, S.A. provided various corporate services to us including, among other services, those relating to the management of buildings and leases, surveillance and maintenance of buildings, international and corporate security, human resources, brand management, procurement, management of the SAP corporate platform, research and development, quality control, insurance, information technology and general administration. Pursuant to the 2015 declaration of acceptance and in accordance with the merger agreement, the foregoing services and the price thereof were entered into on an arms’ length basis and on financial and other material terms no less favorable to us and our subsidiaries than applicable agreements or arrangements in respect of such corporate or other shared services existing as of February 25, 2015, and did not result in a higher cost to us or our subsidiaries and affiliates than the aggregate costs for such services reflected in the 2014 IFRS audited consolidated financial statements of AVANGRID, except to the extent related to ordinary course, market adjustments made on an arm’s length basis. All new, future services to be provided by Iberdrola, S.A. or its affiliates to us and our subsidiaries must be on an arm’s length basis and approved by the unaffiliated committee

By entering into the 2016 framework agreement via the 2016 declaration of acceptance, any previous framework agreements between us and Iberdrola, S.A. were terminated by operation of law. The framework agreement covers any services provided

 

36				2019 Proxy Statement

Corporate Governance (continued)

 

by Iberdrola, S.A. as of January 1, 2016, and remains in force as long as we and/or our subsidiaries continue to operate as a subsidiary of Iberdrola, S.A. in accordance with the provisions of Article 42 of the Spanish Commercial Code. As soon as we or any of our subsidiaries ceases to be a subsidiary of Iberdrola, S.A., the contractual relationship under the framework agreement will be terminated between such AVANGRID entity and Iberdrola, S.A. If parties do not formalize a new declaration of acceptance in 2018, the current declaration of acceptance will continue to remain in force under the same terms, unless any ground for termination of the framework agreement arises.

Under the framework agreement, Iberdrola, S.A. must provide the relevant services pursuant to standard market conditions. Iberdrola, S.A. cannot receive financial or other types of consideration on a more favorable basis than what a third party in a substantially similar circumstance would receive. Iberdrola, S.A. must provide the relevant services in a manner that will not impair our decision making capacity, while we must provide accurate and complete information to Iberdrola, S.A. to enable Iberdrola, S.A. to effectively provide the relevant services. Iberdrola, S.A. must provide the relevant services with a level of expertise, care and diligence that a company providing these services on the open market would provide. We assume any liability that may derive from damage or losses attributable to the instructions or information provided to Iberdrola, S.A.; provided that Iberdrola, S.A. will only be liable for non-performance, defective performance or negligence. Iberdrola, S.A. is also required to notify us before December 31 of each year regarding the estimated price for each service contracted for the following year.

The framework agreement contains provisions relating to confidentiality, requiring each party to safeguard all information received by the other under the framework agreement. However, we and Iberdrola, S.A. are required to disclose the transactions performed under the framework agreement to the public, both in our annual and periodic public reports in accordance with applicable law. The framework agreement is governed by the laws of Spain and contains arbitration provisions for purposes of dispute resolution. The framework agreement cannot be modified or assigned without our prior written consent or the prior written consent of Iberdrola, S.A. We made payments to Iberdrola, S.A. pursuant the framework agreement in the approximate amount of $31.9 million for the year ended December 31, 2018.

Agreements Related to Liquidity Resources

We manage our overall liquidity position as part of the broader Iberdrola group of companies and, on December 1, 2017, AVANGRID entered into a customer liquidity agreement (the “Customer Liquidity Agreement”) with Bank of America, National Association (“BOA”), Iberdrola, S.A., Iberdrola Mexico, S.A. de C.V., and Scottish Power Ltd. Under the Customer Liquidity Agreement, the participants, including AVANGRID, may deposit funds with or borrow from BOA, provided that the balance of funds deposited less funds borrowed by all participants in the aggregate is not less than zero. Deposits are available for next day withdrawal. Simultaneous with entry into the Customer Liquidity Agreement, AVANGIRD and Iberdrola, S.A. entered into an indemnification agreement (the “Indemnification Agreement”) pursuant to which Iberdrola, S.A. has agreed to indemnify AVANGRID against all damages, charges, costs, fees and other expenses that the Corporation or its subsidiaries may incur arising out of the deposits or borrowings by Iberdrola, S.A. or the subsidiaries or affiliates of Iberdrola, S.A. a party thereto other than AVANGRID or its subsidiaries a party thereto pursuant to the Customer Liquidity Agreement. Deposit amounts, if any, are reflected in our consolidated balance sheet under cash and cash equivalents because our deposited surplus funds are highly-liquid short-term investment. There were no deposits in under the Customer Liquidity Agreement as of December 31, 2018.

 

2019 Proxy Statement				37

Corporate Governance (continued)

 

On June 18, 2018, AVANGRID entered into a credit facility with Iberdrola Financiacion, S.A.U., a member of the Iberdrola group. The facility has a limit of $500 million and matures on June 18, 2023. AVANGRID pays a facility fee of 10.5 basis points annually on the facility. AVANGRID has not borrowed any amounts under this credit facility. AVANGRID also is a party to a current account agreement with Iberdrola Canada Energy Services Ltd. pursuant to which either party can borrow from or lend to the other party at a variable interest rate determined by adding a benchmark interest rate plus a pre-determined applicable rate, which varies based on the transaction currency and the identity of the lender. The company borrowed approximately $282,000 from Iberdrola Canada Energy Services Ltd. under this agreement during the year ended December 31, 2018.

Other Agreements with Iberdrola, S.A. or its Affiliates

The company and Iberdrola, S.A. or its affiliates are also parties to the following agreements that primarily relate to the provision of additional corporate services and the recharge of expenses related to the employment of personnel from Iberdrola, S.A. or its affiliates by the company:

 

•

An annex to the agreement between Iberdrola, S.A. and Avangrid Service Company (“ASC”) for the provision of services and resource allocation for 2018 regarding a recharge of costs of Iberdrola, S.A. personnel assigned to ASC for the provision of corporate services. The amount paid under this agreement was approximately $111,000 for the year ended December 31, 2018.

 

•

Agreement between Iberdrola, S.A. and Avangrid Management Company, LLC (“AMC”) for the provision of services and resource allocation for 2018 regarding a recharge of costs of Iberdrola, S.A. personnel assigned to AMC for the provision of corporate services. The amount paid under this agreement was approximately $173,000 for the year ended December 31, 2018.

 

•

An agreement between Iberdrola, S.A. and AMC for the provision of services related to capital projects. The amount paid under this agreement was approximately $983,000 for the year ended December 31, 2018.

 

•

An international cost recharge agreement between Scottish Power UK PLC and AMC regarding Scottish Power UK PLC employees working full-time in the U.S. The amount paid under this agreement was approximately $417,000 for the year ended December 31, 2018.

 

•

An international cost recharge agreement between Scottish Power UK PLC and Renewables regarding Scottish Power UK PLC employees working full-time in the U.S. The amount paid under this agreement was approximately $36,000 for the year ended December 31, 2018.

 

•

An international pension contributions recharge agreement between Scottish Power UK PLC and Avangrid Service Company regarding Scottish Power UK PLC employees working in the U.S. but who remain as contributing members of the UK Final Salary Scheme. The amount paid under this agreement was approximately $205,000 for the year ended December 31, 2018.

 

•

An insurance framework agreement pursuant to which Iberdrola Financiación S.A.U. provides services to the company and certain of its subsidiaries related to the purchase and renewal of insurance policies, which are managed through corporate insurance programs. Each entity is charged an amount corresponding to its share under an established allocation formula. The aggregate amount charged to the company and its subsidiaries was approximately $2.4 million for the year ended December 31, 2018.

 

38				2019 Proxy Statement

Corporate Governance (continued)

 

•

A framework agreement for the provision of corporate development services between Iberdrola, S.A. and the company. The amount paid under this agreement was approximately $6.4 million for the year ended December 31, 2018.

 

•

A framework agreement for the provision of investor relations services between Iberdrola, S.A. and the company. The amount paid under this agreement was approximately $113,000 for the year ended December 31, 2018.

 

•

A services agreement for technical support services between Iberdrola Energia Altamira De Servicios, S.A. de C.V. and Enstor Operating Company, LLC. The amount paid under this agreement was approximately $62,000 for the year ended December 31, 2018.

 

•

A framework agreement for the provision of compliance-related services between Iberdrola, S.A. and the company. The amount paid under this agreement was approximately $46,000 for the year ended December 31, 2018.

 

•

A service agreement for common support and assistance services between Iberdrola Renovables Energia S.A.U and Avangrid Renewables. The amount paid under this agreement was approximately $3.5 million for the year ended December 31, 2018.

 

•

An agreement for recharge of services between Scottish Power Renewables (UK) Limited and Avangrid Renewables. The amount paid under this agreement was approximately $1.4 million for the year ended December 31, 2018.

 

•

An agreement related to company’s IFRS reporting between AMC and Iberdrola, S.A. The amount paid under this agreement was approximately $915,000 for the year ended December 31, 2018.

Guarantee and Support Agreement

On April 3, 2008, Iberdrola, S.A. and ARHI (formerly ScottishPower Holdings, Inc.), entered into the Guarantee and Support Agreement (guarantee and support agreement), which was amended on April 1, 2010 and April 1, 2015. Pursuant to the guarantee and support agreement, if ARHI is unable to meet its obligations set forth in a guarantee issued by ARHI or to meet its obligations to pay interest, principal or premium, if any, on any of its indebtedness for money borrowed, Iberdrola, S.A. guarantees to make payment of any such unpaid obligations, subject to certain limitations. In consideration for Iberdrola, S.A. undertaking its obligations under the guarantee and support agreement, ARHI agreed to pay to Iberdrola, S.A., after the end of each fiscal year of ARHI during the term of the guarantee and support agreement, an amount in cash equal to the product obtained by multiplying (a) the sum of the aggregate face value of obligations of ARHI relating to guarantees issued by ARHI in connection with any commodities trading arrangement consummated between any Iberdrola, S.A. subsidiary and a trading counterparty pursuant to a master trading agreement used in the United States with respect to energy, fuels, environmental commodities and derivatives markets and the aggregate exposure of ARHI to any obligations associated with guarantees issued to support structured transactions for which Iberdrola, S.A. provided any support pursuant to the guarantee and support agreement during the preceding fiscal year of ARHI, times (b) the guarantee fee.

Iberdrola, S.A. can terminate the guarantee and support agreement at any time by giving ARHI 60 days’ prior written notice; provided, however, termination of the guarantee and support agreement is without prejudice to Iberdrola, S.A.’s liability for any obligations in existence as of the date of termination. Further, at all times during the term of the guarantee and support agreement, Iberdrola, S.A. must continue to beneficially own, directly or indirectly, more than 50% of the voting stock of ARHI.

 

2019 Proxy Statement				39

Corporate Governance (continued)

 

On September 13, 2016, the unaffiliated committee approved a modification of the intercompany guarantee arrangement whereby AVANGRID, in exchange for a pass-through of the guarantee fees otherwise paid by ARHI to Iberdrola, S.A, agreed to “step into the shoes” of Iberdrola, S.A. with respect to certain old guarantees that Iberdrola, S.A. had previously made for ARHI. Under the modification of the arrangement, Iberdrola, S.A. passed through to AVANGRID approximately $328,000 of the guarantee fees incurred by ARHI in 2018.

New Haven Office Lease Agreement

Under the sixth amendment, dated February 15, 2012, to a lease agreement dated May 7, 1991, we lease offices in New Haven from 157 Church Street, LLC, which is controlled by Arnold L. Chase, a director and shareholder of the company, and members of his immediate family. During 2017, we consolidated our corporate headquarters and other corporate and support staff to a building located in Orange, Connecticut. As such we will not renew the lease with 157 Church Street, LLC, which will terminate on June 14, 2022. During the year ended December 31, 2018, our lease payments to 157 Church Street, LLC totaled approximately $1.3 million.

Other Relationships

The law firm of Pierce Atwood LLP was retained by the company during the year ended December 31, 2018 to furnish legal services. John E. Baldacci, a member of our board, holds a salaried position as senior advisor for economic development and government relations with the law firm and does not receive profit sharing or other incentives related to the legal services provided to the company. During the year ended December 31, 2018, Pierce Atwood LLP received approximately $3.5 million in fees from the company for its services.

 

40				2019 Proxy Statement

Executive Compensation

This section describes the compensation program for our named executive officers and includes the required executive compensation tables.

 

2019 Proxy Statement				41

Executive Compensation

 

 

Compensation, Nominating and Corporate Governance Committee Report   The compensation, nominating and corporate governance committee has reviewed and discussed with management the disclosures contained in the following “Compensation Discussion and Analysis.” Based on this review and discussion, such committee recommended to the board that the section entitled “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into the 2018 annual report on Form 10-K.   Members of the Compensation, Nominating and Corporate Governance Committee   Alfredo Elías Ayub (Chair) • Ignacio Sánchez Galán • John Lahey

Compensation Discussion and Analysis

This Compensation Discussion and Analysis is intended to provide our shareholders with a clear understanding of our compensation philosophy, objectives, and practices; our compensation-setting process; our executive compensation program components; and the decisions made in 2018 with respect to the compensation of each of our named executive officers (“NEOs”).

For 2018, our NEOs were:

 

•

James Torgerson, Chief Executive Officer

 

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Douglas Stuver, Senior Vice President – Chief Financial Officer

 

•

Robert Kump, President and Chief Executive Officer of Networks

 

•

Peter Church, Senior Vice President – Human Resources & Corporate Administration

 

•

R. Scott Mahoney, Senior Vice President – General Counsel and Corporate Secretary

 

•

Sheila Duncan, Former Senior Vice President – Human Resources & Corporate Administration

 

•

Richard Nicholas, Former Senior Vice President – Chief Financial Officer

Effective July 7, 2018, Richard Nicholas retired from his position as Senior Vice President – Chief Financial Officer. Effective October 31, 2018, Sheila Duncan resigned from her position as Senior Vice President – Human Resources & Corporate Administration. Ms. Duncan remained employed by the company in a transition role until her international assignment from Scottish Power LTD., a subsidiary of Iberdrola, S.A., the company’s majority shareholder, concluded on December 31, 2018.

This section should be read in conjunction with the compensation tables below, which provide a detailed view of the compensation paid to our NEOs in 2018.

 

42				2019 Proxy Statement

Executive Compensation (continued)

 

Executive Summary

2018 Compensation Program Overview

Our executive compensation program is designed to effectively reward performance, while reflecting the responsibilities of our executive officers. Our compensation philosophy is to offer compensation that makes it possible to attract, retain, and motivate the most qualified professionals in a way that aligns with our long-term business goals and values, without motivating or rewarding excessive risk-taking. The key elements of our program are base salary, annual cash incentives, and long-term equity incentives. We target a compensation mix for our executive officers that is weighted heavily towards variable compensation, including short-term cash incentives and long-term equity incentives, to align executive compensation with company performance and shareholder interests.

2018 Business Highlights

Investing in a smarter, cleaner and more sustainable future, we executed on the growth in our strategic plan during 2018.

 

 

Highlights of our performance include:

 

				Fiscal year 2018 consolidated net income of $595 million (or $1.92 per share); consolidated adjusted net income of $684 million (or $2.21 per share)*
				Capital spending of ~$1.7B in 2018
				Invested ~$1.4B in our electric and natural gas distribution businesses
				~594 MW of solar and onshore wind long term contracts executed in 2018 and started construction of ~1 GW of onshore wind projects
				Completed sale of the non-core gas storage & trading businesses in 2018
				Two New England clean energy strategic projects are advancing and remain on track
				Increased our quarterly dividend in the third quarter of 2018 to $0.44 per share

 

*	Adjusted net income is a financial measure that was not prepared in accordance with U.S. GAAP financial measure. See Annex A to this proxy statement for a discussion of adjusted net income as well as a reconciliation of adjusted net income to net income prepared in accordance with GAAP.

 

2019 Proxy Statement				43

Executive Compensation (continued)

 

Compensation Practices

The table below highlights certain of our executive compensation practices, including practices we have implemented that drive performance as well as those not implemented because we do not believe they would serve our shareholders’ interests.

 

Independent Compensation Consultant		The compensation, nominating and corporate governance committee uses an independent compensation consultant.
Annual compensation risk assessment		The compensation, nominating and corporate governance committee conducts an annual risk assessment of our compensation program.
Risk management		We prohibit short sales, transactions in derivatives of AVANGRID securities, including hedging transactions, and pledging of AVANGIRD shares.
Stock ownership guidelines & equity retention		Our board adopted stock ownership guidelines of five (5) times base salary for the chief executive officer and three (3) times base salary for our other NEOs and an equity award retention requirement of 50% of net shares until ownership guidelines are met.
Clawback policy		Our board has adopted a clawback policy that requires repayment to AVANGRID of certain compensation that may be paid in the event of certain acts of misconduct.
No tax gross-ups		We have no excise tax gross-up provisions in change of control arrangements or executive compensation plans.
No repricing		While there are no stock options outstanding and we do not intend to issue stock options, if they are issued in the future, all stock option exercise prices will be set equal to the grant date market price and may not be repriced.
Engage on executive compensation matters		We engage our shareholders in open dialogue regarding our compensation program and the compensation, nominating and corporate governance committee considers the results of the “say-on-pay” vote when designing our compensation program.
No single trigger change of control agreements		Neither our employment agreements nor our change of control agreements provide for single trigger termination rights.
No excessive perquisites		We do not provide excessive perquisites.

 

44				2019 Proxy Statement

Executive Compensation (continued)

 

Our Compensation Program Objectives and Guiding Principles

Our executive compensation philosophy is to offer compensation that makes it possible to attract, retain, and motivate the most qualified professionals, in order to enable us to attain our strategic objectives within the increasingly competitive and internationalized context in which we operate. The following principles guide the company’s compensation decisions:

 

•

Recruitment, Retention and Motivation of Key Leadership Talent. We ensure that our compensation, in terms of structure and total amount, is competitive with that of comparable entities. We review market data to obtain a general understanding of current compensation practices to ensure that compensation offered to our executive officers is reasonably market competitive.

 

•

Pay for Performance. A significant portion of compensation for our executive officers is linked to the achievement of specific, pre-established, quantifiable objectives in line with our corporate interests and strategic goals.

 

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Emphasis on Performance over Time. The compensation program for our executive officers is designed to mitigate excessive short-term decision making and risk taking, while encouraging the attainment of strategic goals through the inclusion of long-term incentives.

We regularly review our compensation practices and policies and periodically modify our compensation programs in light of evolving best practices, competitive positions, and changing regulatory requirements. The compensation, nominating and corporate governance committee works to ensure that the design of our executive compensation program is focused on long-term shareholder value creation, emphasizes pay for performance, and does not encourage imprudent short-term risks. The compensation, nominating and corporate governance committee will use the “say on pay” vote as a guidepost for shareholder sentiment, along with continued shareholder outreach, and believes it is critical to maintain and continually develop our compensation program to promote ongoing shareholder engagement, communication, and transparency.

Certain elements of our compensation practices and program reflect certain historical compensation programs of UIL Holdings Corporation (“UIL”) assumed by us that are applicable to Messrs. Torgerson and Nicholas, who formerly served as UIL’s president and chief executive officer and executive vice president and chief financial officer, respectively, immediately prior to the closing of the acquisition of UIL. Our executive officers also serve as executive officers of our subsidiaries and receive compensation for service at our subsidiaries. Compensation of our executive officers was set so that the aggregate compensation received from us and our subsidiaries was reasonable and commensurate with overall responsibilities of each executive officer and their respective roles in the group of companies held by us. Consistent with this holistic approach, we evaluated our 2018 performance in light of the objective performance of our AVANGRID and business area or corporate functions. In addition, our compensation, nominating and corporate governance committee engaged Aon Consulting, an independent compensation consulting firm, to provide information in connection with our review of our executive compensation practices for 2018.

 

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Executive Compensation (continued)

 

Compensation-Setting Process

The following parties are responsible for the development and oversight of our executive compensation program.

Role of the Compensation, Nominating and Corporate Governance Committee

The compensation, nominating and corporate governance committee, which consists of a majority of independent directors, reviews and recommends to the board the compensation of AVANGRID’s executive officers and acts as the administering committee for AVANGRID’s equity compensation plans. Each year, the compensation, nominating and corporate governance committee conducts an evaluation of AVANGRID’s executive compensation program to determine if any changes would be appropriate. In making this analysis, the compensation, nominating and corporate governance committee may consult with its independent compensation consultant and management, as described below; however, the compensation, nominating and corporate governance committee uses its own judgment in making recommendations to the board, which then makes the final decisions regarding the compensation paid to our executive officers. To the extent the board and compensation, nominating and corporate governance committee deem appropriate, executive compensation matters relating to or governed by Section 162(m) of the Code or Rule 16b-3 of the Exchange Act are delegated to a subcommittee of the compensation, nominating and corporate governance committee comprised entirely of two or more directors who qualify as “outside directors” within the meaning of Section 162(m) of the Code and “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act. For additional information regarding the compensation subcommittee, see “Corporate Governance—Compensation, Nominating and Corporate Governance Committee.”

Role of the Independent Compensation Consultant

The compensation, nominating and corporate governance committee retained Aon Consulting to serve as its compensation consultant in 2018 to provide counsel and advice on executive and non-employee director compensation matters. Aon Consulting provided the compensation, nominating and corporate governance committee and the company’s management information about peer groups against which performance and pay should be examined, financial metrics to be used to assess the company’s relative performance, competitive long-term incentive practices in the marketplace, and compensation levels relative to market practice. To ensure that Aon Consulting’s consulting services remain independent and objective: (i) at least annually, Aon Consulting conducts a review of its performance; and (ii) Aon Consulting’s fees are not linked to the size of the company’s executive compensation. The compensation, nominating and corporate governance committee has reviewed the independence of Aon Consulting, including the “independence” factors contained in Section 303A.05 of the NYSE Listed Company Manual, and determined that Aon Consulting is independent and the services provided by Aon Consulting do not raise any conflicts of interest. Aon Consulting received $74,841 in fees in 2018 for services related to determining or recommending the amount or form of executive and non-employee director compensation. Separately, management engaged Aon Consulting to perform unrelated services and Aon Consulting was paid $3,642,804 for these services, which included actuarial, pension administration, and health and welfare benefits and other consulting services. The compensation, nominating and corporate governance committee was informed about these services, but its formal approval was not requested.

 

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Executive Compensation (continued)

 

Role of the CEO and Other Executive Officers

The Chief Executive Officer and the Senior Vice President – Human Resources & Corporate Administration made recommendations regarding compensation of the executive officers (other than for the Chief Executive Officer) based on competitive market data, internal pay equity, responsibilities and performance. The compensation, nominating and corporate governance committee reviewed, and made recommendations to the board, which made all final determinations regarding executive officer compensation, including salary, bonus targets, and related performance goals with respect to 2018 compensation. The executive officers, including the NEOs, do not propose or seek approval for their own compensation.

Role of Peer Companies and Other Benchmarking

Our board believes that market data is essential to determining compensation targets and actual awards for executives in an effort to attract and retain highly talented executives. Market data is used to assess the competitiveness of the company’s compensation packages relative to similar companies and to ensure the company’s compensation program is consistent with its compensation philosophy, but the board does not target direct compensation at any particular percentage of the market median. As part of its review of the executive compensation program, the compensation, nominating and corporate governance committee engaged Aon Consulting in 2018 to conduct a market compensation analysis for our executive officers, including the NEOs, utilizing proprietary survey data and a group of nineteen publicly-traded utility and energy companies based on fiscal year-end revenues, market capitalization, positive total shareholder return performance, and comparable business focus. The consideration of competitive compensation data is one of several factors that the compensation, nominating and corporate governance committee considers with respect to the compensation of our executive officers, including our NEOs. The companies in the peer group for 2018 are listed below.

 

Peer Group
Alliant Energy Corporation		Edison International		SCANA Corp.
Ameren Corporation		Entergy Corporation		Sempra Energy
CenterPoint Energy, Inc.		Eversource Energy		Vectran Corporation
CMS Energy Corp.		NiSource Inc.		WEC Energy Group, Inc.
Consolidated Edison, Inc.		Pinnacle West Capital Corporation		Westar Energy, Inc.
DTE Energy Company		PPL Corporation		XCEL Energy Inc.
		Public Service Enterprise Group Inc.

 

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Executive Compensation (continued)

 

Elements of Compensation

The objective of our executive compensation programs is to attract and retain talented executives and motivate them to achieve our business goals through a combination of cash and equity-based compensation. Other elements of compensation, including retirement benefits, life insurance, savings, health and welfare plans and other benefits offered to employees generally are also considered in order to evaluate the entire compensation package offered to executives.

Compensation for our executive officers, including NEOs, primarily consists of:

 

		Compensation Element		Form		Purpose		How it Links to Performance
FIXED		Base Salary		Cash		To provide a fixed element of compensation, which is intended to help attract and retain the best talent		Reviewed annually in light of performance factors (company and individual) and market compensation practices
VARIABLE		Annual Incentive		Cash		To promote the achievement of annual performance measures, which are reviewed annually		Variable and based on pre-established company and business performance goals
		Long-Term Incentive Awards		Equity		To motivate sustained performance over the long term, and align the interests of our executives and our shareholders		Variable and based on our financial performance in the form of PSUs that only pay if the applicable performance goals over the four-year performance period are met

Base Salary

Base salary is a customary, fixed element of compensation intended to attract and retain executives. Our compensation, nominating and corporate governance committee reviews base salaries annually and considers market data provided by its independent compensation consultant, market surveys, and internal comparisons, as well as the need to maintain internal pay equity. For 2018, Messrs. Torgerson’s, Stuver’s, Kump’s, Church’s, Mahoney’s and Nicholas’ salaries were set at $1,100,000, $325,461, $705,738, $330,000, $415,000 and $449,509, respectively, and Ms. Duncan’s was $366,528. These base salaries reflect an increase of approximately 10%, 40%, 2.0%, 6.7%, and 5.6% for Messrs. Torgerson, Stuver, Kump, Mahoney and Ms. Duncan, respectively. In the cases of Messrs. Torgerson, Kump, and Mahoney and Ms. Duncan, salary increases reflect the compensation, nominating and corporate governance committee’s consideration of relevant market data provided by its consultant and were approved in recognition of their respective contributions and continued dedicated service to AVANGRID. Mr. Stuver’s increase was approved in connection with his promotion to the role of chief financial officer on July 8, 2018.

Annual Incentive – Plan Structure

On February 15, 2018, the board, upon the recommendation of the compensation, nominating and corporate governance committee, adopted an annual cash incentive plan entitled the 2018 Executive Variable Pay Plan (the “EVP Plan”) , which replaced and superseded the Executive Annual Incentive Plan, the company’s prior annual cash incentive plan. Each of our executive officers, including NEOs, participated in the EVP Plan during the year ended December 31, 2018. The EVP Plan is designed to provide executives and certain other key employees of the company and its affiliates with the opportunity to earn annual incentive compensation through engagement in promoting the company’s objectives and superior management performance and is intended to promote the future growth and success of the company and its affiliates, and enhance the linkage between employee, customer and shareholder interests.

 

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Executive Compensation (continued)

 

Officers and key employees of the company and its affiliates selected to participate by the board of directors and who were employed prior to October 1, 2018 were eligible to participate in the EVP Plan during 2018. The compensation, nominating and corporate governance committee approved a maximum incentive opportunity for each NEO (as set forth below), expressed as a percentage of annual base salary as of December 31, 2018, which is dependent on the level of the employee’s position and the scope of the employee’s responsibilities. Payments under the EVP Plan are made in cash. Participants may elect, during the year preceding the performance period, to defer up to 100% of any potential cash incentive award.

Performance under the EVP Plan is measured under three levels (AVANGRID corporate, business/corporate function, and, for participants other than executive officers, individual business), which are weighted differently for participants based on their respective roles to reflect the business areas where each participant has the most significant impact on AVANGRID’s results. The tables below show the EVP Plan level weighting and performance calculations for each NEO.

 

Name		Corporate Metrics		Business/Corporate     Function Metrics
James Torgerson		100%		–
Douglas Stuver		50%		50%
Robert Kump		50%		50%
Peter Church		50%		50%
R. Scott Mahoney		50%		50%
Richard Nicholas		50%		50%
Sheila Duncan		50%		50%

For NEOs, all EVP Plan corporate and business/corporate function metrics are set by the compensation, nominating and corporate governance committee. Payouts under the EVP Plan are based upon achievement of the performance metrics and payouts for performance between levels are determined using straight-line linear interpolation. The level of achievement of the corporate metrics is the same for each participant under the EVP Plan including the NEOs. Maximum performance is obtained by achieving maximum level of the performance goals and results in a payout equal to 200% of his base salary for Mr. Torgerson, 135% of his base salary for Mr. Kump, 110% of his base salary for Mr. Nicholas, 100% of their respective base salaries for Mr. Mahoney and Ms. Duncan, and 80% of his base salary for Mr. Stuver.

 

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Executive Compensation (continued)

 

The tables below show the corporate metrics for the 2018 EVP Plan approved by the compensation, nominating and corporate governance committee.

 

Corporate Metrics		Threshold				Target				Maximum				2018 Results				Weight
Adjusted net profit ($ million)			686				730				774				699				30%
Adjusted non reconcilable net operating expenses ($ million)			(1,309)				(1,271)				(1,233)				(1,273)				30%
Total shareholder return			4th Quartile				Median				1st Quartile				3rd Quartile				30%
Health and safety targets			0.72				0.66				0.59				0.58				10%

 

•

Adjusted net profit, as used for the purposes of the EVP Plan goal, is AVANGRID’s net income for the year ended December 31, 2018, calculated in accordance with generally accepted accounting principles in the United States, adjusted to reflect the effect of mark-to-market changes in the fair value of derivative instruments, adjustments for the non-core gas storage and gas trading businesses including certain losses related to the sale of such businesses, restructuring charges primarily associated with reorganizing to better align our people resources with business demands and priorities as part of the Forward 2020+ program, impact from measurement of deferred income tax balances as a result of the Tax Act enacted by the U.S. federal government on December 22, 2017 (the “Tax Act”), impact of accelerated depreciation on the repowering of certain assets, the impairment of certain equity method investments and the exogenous impact of certain extraordinary weather.

 

•

Adjusted non reconcilable net operating expenses, as used for the purpose of the EVP Plan excludes major storm costs that are recoverable and offset in gross margin and certain other items including the exogenous impact of extraordinary weather.

 

•

Total shareholder return, as used for the purpose of the EVP Plan goal, is measured based on AVANGRID’s total shareholder return ranking within the S&P 500 utilities index with second quartile at 66.6% and third quartile at 33.3%. Total shareholder return is calculated based on the average price on the first and last trading days of 2018 plus the value of any dividends received during 2018.

 

•

Health and safety targets, as used for the purpose of the EVP Plan goal is measured in four parts based upon (i) employee lost time accident (“LTA”) incidence rate; (ii) contractor LTA incidence rate; (iii) percent completion of the predetermined objectives in an AVANGRID preventive activity plan; and (iv) implementation of a predetermined Occupational Safety and Health Administration plan.

Annual Incentive – Business/Corporate Function Metrics

Business objectives are established at the beginning of each year, specific to the participant’s business area objectives. Subsequently, the levels of achievement of the business are measured against these pre-established goals and objectives. The business objectives are intended to be considered together with the corporate objectives to ensure a tailored evaluation of performance. EVP Plan awards are not payable if minimum performance targets are not met at the AVANGRID corporate level.

Douglas Stuver. Mr. Stuver was subject to five business objectives during 2018, all of which he achieved and, in conjunction with the company results, attained 137% of his target incentive opportunity, as determined by the compensation, nominating and corporate governance committee. Mr. Stuver’s business objectives for 2018 were related to:

 

•

effectively managing average cost of debt;

 

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