Eversource Energy Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
July 29, 2022

Key Takeaways

  • EPS beat: Q2 GAAP earnings were $0.84/share versus $0.77 last year and non-GAAP earnings rose to $0.86/share from $0.79 in Q2 2021.
  • Guidance narrowed: Full-year non-GAAP EPS forecast was tightened to $4.04–$4.14 per share from a prior $4.00–$4.17 range.
  • Offshore wind JV sale: Eversource is marketing its 50% offshore wind interest with strong inbound interest, expects a sale outcome by year-end, and sees no bidder concerns over construction risk.
  • Regulated capital program: The $18 billion five-year investment plan and upper-half 5–7% EPS growth target were reaffirmed, plus an additional ~$3 billion of regulated projects by 2026 to replace wind earnings.
  • Massachusetts climate legislation: New law commits to 5,600 MW of offshore wind by 2027, modifies bidding to spur competition, adds EV and storage incentives, and allows pilot fossil-fuel bans in new buildings.
AI Generated. May Contain Errors.
Earnings Conference Call
Eversource Energy Q2 2022
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good morning. Thank you for attending today's Eversource Energy Q2 2022 Earnings Conference Call. My name is Alexis, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Jeff Kotkin with Eversource.

Operator

You may proceed.

Speaker 1

Great. Thank you very much, Alexis. Good morning and thank you for joining us. I'm Jeff Katkin, Eversource Energy's Vice President for Investor Relations. During this call, we'll be referencing slides that we posted yesterday on our website.

Speaker 1

And as you can see on Slide 1, some of the statements made during this investor call may be forward looking as defined within the meaning of the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations and are subject to risks and uncertainty, which may cause the actual results to differ materially from forecasts and projections. These factors are set forth in the news release issued yesterday afternoon.

Speaker 1

Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10 ks for the year ended December 31, 2021, and our Form 10 Q for the 3 months ended March 31, 2022. Additionally, our explanation of how and why we use certain non GAAP measures and how those measures reconcile to GAAP results is contained within our news release and the slides we posted last night and in our most recent 10 ks and 10 Q. Speaking today will be Joe Nolan, our President and Chief Executive Officer and John Moreira, our Executive Vice President and CFO. Now I will turn to Slide 2 and turn over the call to Joe. Thank you, Jeff, and

Speaker 2

thank you everyone for joining us on this call this morning. I hope that our investors on this call are having a good summer and have plans for some time off after earnings season concludes in another couple of weeks. We are enjoying a glorious summer so far in New England with many sunny days along our shoreline and our mountains. If you haven't made a trek here this summer, we urge you to do so and support 100 of 1000 of businesses. Over the past few weeks with the longest Sustained heatwave in Eastern Massachusetts in about a decade, our electric system has operated very well and they have all year.

Speaker 2

Through June, the average number of months between power interruptions continues to place our reliability in the top decile of the electric industry and our relatively short average duration of outages continues to place us in the top quartile. This is strong evidence that our investments in infrastructure to enhance reliability have been a significant benefit to our customers. Response time to natural gas service calls, a key safety and performance metric for our gas distribution business, continues to be excellent. Turning to Slide 3. About 2 weeks ago, we posted our 2021 sustainability report and linked it to our diversity, equity and inclusion report.

Speaker 2

Our DEI report is new this year. Over the past year, a number of our investors requested that we provide additional transparency about our diversity, including providing more detail about statistics around hiring, promotion and retention rates, areas of our organization that are of high focus for us. We decided that the best way to provide investors and others with this information is to create a separate report that highlights the significant and increasing diversity among our employees, our management and our Board. We welcome your feedback on both the DEI and our sustainability reports. The new sustainability reports highlights our successful accomplishments last year in a variety of areas.

Speaker 2

We continue to enhance the report and again have third party validation of our Scope 1 and Scope 2 emissions. The report focuses to a major extent on Eversource's very significant efforts to support our state's goals to reduce greenhouse gas emissions by 80% to 85% by 2,050. From a clean energy perspective, Slide 4 captures 3 of our initiatives in this area. Our battery storage project in Provincetown on Cape Cod was commissioned in the Q2 of 2022 and almost immediately showed its value when it helped avert an outage for approximately 5,000 NSTAR Electric customers. We have filed our first application under the most recent legislative authorization for regulated company solar generation investment.

Speaker 2

We are seeking approval of 3 different projects, all of which would combine solar with battery storage. They would be located in Brockton, warrants in Yarmouth in Eastern Massachusetts. And altogether, it's expected to cost an estimated $31,000,000 to build. We continue to progress on our unique geothermal network project that Massachusetts regulators approved and the most recent NSTAR Gas rate review. The project will be located in Framingham, Massachusetts and will connect 140 apartments, homes and businesses to a geothermal system that will provide both heating and cooling.

Speaker 2

Customer receptivity to the project has been very strong with nearly 85% of those along the route signing up for the pilot. We continue to expect the project to be operational in 2023. Turning to offshore wind and Slide 5. I want to update you on the progress we have made on our strategic review of our offshore wind investments. We've been working closely with on developing the marketing materials that will be disseminated to potential buyers for our 50% interest in our joint venture.

Speaker 2

We continue to target an outcome for this review by the end of this year. Thus far, We have had very high level of interest and expect a robust sales process. We recently kicked off our buyer outreach and have had preliminary discussions with potential buyers and expect that process to continue. Key materials have been developed, including a teaser, non disclosure agreement, confidentiality memorandum, independent engineering document and other materials. In the meantime, we continue to make steady progress on our 3 projects.

Speaker 2

Southwalk is the first project to enter construction. We are virtually complete with the sections beneath the public roads in East Hampton, New York. We are now progressing rapidly On the onshore sections in the railroad right of way on the substation with 130 Megawatt project will connect. As a reminder, the offshore portions of South Fork will be built in 2023. We continue to expect the 2 larger projects Revolution Wind and Sunrise Wind to be fully permitted in 2023 and to be in service in 2025.

Speaker 2

On July 8, the Rhode Island Energy Facilities Society Board issued to Revolution Wind a decision in final order approving the project and granting a license to construct and operate. As a reminder, Revolution will supply a total of 704 Megawatts to Rhode Island and Connecticut and tie into the New England grid in North Kingston, Rhode Island. As you can see on Slide 6, we've also made progress on the procurement side with 82% of the 3 project costs walked in, up from 80% in May. The demand for offshore wind generation continues to grow in our region. Rhode Island just recently enacted legislation that requires a solicitation by October of this year for an additional 600 to 1,000 Megawatts of Offshore Wind.

Speaker 2

Another much larger offshore wind RFP for up to approximately 4,600 Megawatts was issued this week by New York. Including projects already awarded, we are now looking at approximately 18,000 megawatts of offshore wind from New York in the states of Southern New England. We are confident that this level of procurement will attract Wide interest in our wind investment since we continue to believe that the ocean tracks that we share with are about the most attractive in North America due to the high average wind speeds, moderate depths, proximity to load An incredibly deep public policy support. New legislation that passed in Massachusetts House and Senate last week should also further support a robust sales process. As you can see on Slide 7, There were several elements in that bill that should help solidify Massachusetts' effort to stay in the forefront of offshore wind development in the United States.

Speaker 2

They included an affirmation of the state's commitment to contract for 5,600 Megawatts of offshore wind by mid-twenty 27 modification of the bidding process to encourage more competition among developers and incentives to increase the manufacturing and assembly of offshore wind components in Massachusetts. There were also provisions to enhance the sale and leasing of electric vehicles in the state, build more energy storage and develop grid modernization plans that will support electrification as a key path to decarbonization. There is also a pilot program that would allow up to 10 communities in the state to restrict fossil fuel installation in new buildings. Healthcare and research facilities, which have proliferated across Massachusetts, would be exempt from the pilot, as would certain communities with housing affordability challenges. Thanks again for your time.

Speaker 2

I will now turn over the call to John Marrero.

Speaker 3

Thank you, Joe, and good morning, everyone. This morning, I will review our results for the Q2 of 2022, discuss recent regulatory developments and review our 2022 financing activity. I will start with Slide 8. Our GAAP earnings were $0.84 per share in the Q2 of 2022 compared with earnings of $0.77 in the Q2 of 2021. 2nd quarter results for both years include $0.02 per share of an after tax cost associated with acquisitions primarily related to the assets acquired from Columbia Gas of Massachusetts.

Speaker 3

Excluding those costs, we earned $0.86 per share in the Q2 of 2022 compared with earnings of $0.79 per share in the Q2 of 2021. For the first half of twenty twenty two, we earned $2.13 per share on a GAAP basis compared with earnings of $1.83 per share in the first half of twenty twenty one. Excluding charges related to the acquisition and a Connecticut storm penalty last year, we earned $2.16 per share for the first half of twenty twenty one compared with earnings of $1.94 per share in the first half of twenty twenty one. Looking at some additional details on the second quarter earnings results by segment, Starting with our Electric Transmission segment, which earned $0.44 per share in the Q2 of 2022 compared with $0.40 per share in the Q2 of 2021. Improved results were driven by higher level of investment in our transmission facilities.

Speaker 3

Our electric distribution segment earned $0.37 per share in the Q2 of 2022 compared with earnings of $0.35 per share in the quarter of 2021. Improved results here were driven largely by higher revenues, Lower pension costs and storm restoration costs, partially offset by higher costs related to property taxes, depreciation and other employee related expenses. Our natural gas distribution segment earnings were $2 per share in the Q2 of 2022 compared with earnings of $0.01 in the Q2 of 2021. Improved results were largely due to higher revenues and lower pension expense, partially offset by higher operating and maintenance costs, property taxes, interest expense and depreciation. Our water distribution segment earned $0.03 per share in the Q2 of 2022, the same level as we earned in the Q2 of 2021.

Speaker 3

Results for our Eversource parent And other companies improved by $1,000,000 in the Q2 of 2022 compared with the Q2 of 2021. Excluding the acquisition and transition costs I mentioned earlier, the results include after tax gains on Clean Energy Investments, which increased by $0.02 per share from last year's levels and were largely offset by higher Interest costs on long term and short term debt. Now that we have the first Half of twenty twenty two behind us from an earnings perspective and have a bit more line of sight on the Q2 of 2022, We have narrowed our non GAAP earnings guidance for the full year to $4.04 to $4.14 per share from our previous range of $4 to $4.17 per share. Before moving on, I'm pleased to announce that As of the end of June, we have fully transitioned the remainder of Eversource Gas of Massachusetts Business Systems off of the legacy NiSource system and onto the Eversource platform. Overall, We cannot be any more proud of the conversion process.

Speaker 3

It has gone extremely well since we closed the transaction in the Q4 of 20 We have converted approximately 300 business processes over to Eversource, including the most recent move on to a new Customer information system. Feedback from both EGMA customers and employees have been very positive and our operating and financial metrics have consistently met or exceeded our expectations. As a result, Transition related costs for this transaction will be minimal next quarter. We are very appreciative of the great Support we have received from the NiSource team during this transition period. Turning to longer term earnings, As you saw in our news release and can see on Slide 9, we are reaffirming our long term EPS growth rate in the upper half of 5% to 7% range.

Speaker 3

On Slide 10, We also reaffirm our $18,000,000,000 5 year regulated capital program that we discussed during our February earnings call, including our $3,900,000,000 regulated capital investment projected for this year. As Joe mentioned, we expect that by 2026, the last year of our current 5 year forecast, Our incremental investments required to offset the loss of the offshore wind earnings contributions that would have been in place, We estimate that, that will be we required approximately $3,000,000,000 of investments, More to come on this front soon. In both February and in May, we noted a couple of additional areas where we expect The need for incremental investment over our current 5 year forecast period to enhance reliability, customer experience and efficiently connect clean energy resources. Turning to Slide 11, we have provided a status update on AMI for both and Star Electric and CL and T. At this time, regulators in both Connecticut and Massachusetts are actively working through dockets with decisions expected later this year.

Speaker 3

Briefing has been completed in Massachusetts and we expect a decision towards the end of the year. In Connecticut, PURA held hearings earlier this month to address further questions that the department posed about an AMI rollout. We also expect Peura's AMI review to be completed by the end of the year. Separately, as we mentioned on our Q1 earnings call, nStar Electric filed an application with FERC in March on an innovative recovery structure to help promote offshore wind development off Massachusetts. The application involved Park City Wind, which is an 800 Megawatt up on grid project that was selected a couple of years ago as the winner of Connecticut's most recent offshore win RFP.

Speaker 3

Park City will connect into the 345 ks system where we are already planning some upgrades to meet Ryzen load Ryzen Electric load requirements. By working on the 2 projects together, we were able to reduce costs for customers. In total, The incremental upgrades would be about $200,000,000 for which about $150,000,000 A bit will be collected from Park City with FERC based returns. FERC approved our application at its June meeting. We expect there will be other opportunities to emulate this type of offshore wind transmission interconnection agreement going forward.

Speaker 3

ISO New England is already reviewing another project that expects to tie into the New England grid through Cape Cod. We have discussed previously that including Park City, there are probably about 500,000,000 of regulated transmission investment needs on Cape Cod to efficiently connect offshore wind that is reflected that is not reflected in our current $18,000,000,000 capital forecast. We expect other significant investment needs to arise In the near future in both electric distribution and transmission segments, since our states view renewable power as a Critical means of reducing greenhouse gas emissions related to space heating and transportation. On the regulatory side, we have one general rate review well underway and another one about to be filed. Great review concluded just last week and we will be entering the briefing phase soon with a decision expected December 1st of this year and with rates effective January 1, 2023.

Speaker 3

We feel very good about the strength of our case as well as our proposals to enable the Commonwealth's clean energy goals. Briefing will take place throughout the month of September. On July 1st, Aquarian Water of Connecticut filed a letter of intent for its rate review in about 10 years. Key elements of the 3 year plan are shown on the slide. We expect to file the actual application In August, Aquarion Connecticut's regulatory ROE was about 7.8% during the 12 months ended March 31, 2022 and the company's infrastructure investments have significantly increased over the past several years to enable water service reliability for its customers.

Speaker 3

Turning to recent financings. We issued $1,500,000,000 of 2 year and 5 year parent debt in late June. Proceeds were used to reduce short term debt. The relatively short average maturity In terms of the equity issuances, as you can see on Slide 13, we launched our 1,200,000,000 Aftermarket program in the Q2 of this year and to date have issued nearly 1,400,000 shares at a weighted average price of $91.98 Through July, we also have issued approximately 640,000 treasury shares this year to fund our dividend reinvestment and employee plans. We have received a number of inquiries from investors regarding our pension obligation.

Speaker 3

Let me start with an overview of Ops Land's performance last year. Our retirement plans earned approximately 1,250,000,000 which amounts to a 24% return on planned investments. And we have contributed about $180,000,000 into the plans last year. This resulted in the funded status of our pension plans increasing over the course of 2021 from about 79% to nearly 100%. The impact of pension expense on our earnings is mitigated by the fact that we have adopted a smoothing of actuarial gains and losses over the average participant future years of service.

Speaker 3

It's further mitigated by our pension trackers in place at our 3 Massachusetts electric and gas distribution companies and for our transmission segment. Additionally, much of our pension expense is capitalized into our capital projects and doesn't affect our earnings. And lastly, our qualified pension plan has been closed for new participants for well over a decade. Less than half of our pension expense actually affects earnings. The expense is lower this year due in large part to the strong returns we realized last year and a slightly higher discount rate.

Speaker 3

At this time, it is unclear whether pension expense will be a positive or a negative factor for our 2023 earnings. While it is unlikely that in 2022, we will excuse me, in 2023, we will experience The same returns as we realized in 2021, the discount rate that we will use for 2023 is expected to be significantly higher than the rate we are using currently. And that could help lower pension expense next year. As a reminder, our expected long term rate of return assumed on our pension investments is 8.25%. Thank you very much for joining us this morning.

Speaker 3

And now I will turn the call Back over to Jeff. Great. Thank you, John.

Speaker 1

And I'm going to turn the call back to Alexis to remind you how to enter your questions. Alexis?

Operator

You may now begin.

Speaker 1

All right. Thank you, Alexis. Our first question this morning is from Shar from Guggenheim. Good morning, Shar.

Speaker 4

Joe, appreciate sort of the color on the process, But can we maybe dig a little deeper into where we are right now? Did you get any inbound since the Q1 update? And I know It's early, but which kind of your preferred structure? So if the leases and projects do get split up, would you kind of be willing to do a COD and take the construction risk for Sunrise and Revolution, so like a build own transfer or when you're thinking about an exit, You really want to exit and not take any development risk at that point.

Speaker 2

Yes. Good morning, Sharon. It's great to hear your voice, I hope your summer is going well. So a couple of pieces to your question. First off, we've had 12 additional inbounds folks that are interested in the properties.

Speaker 2

I will tell you that initial discussions, folks are not afraid of construction risk. There's no concern of that. There's a very healthy, excited atmosphere for wind, as you might imagine. And Since the start of this year, it's been nothing but positive things for when we started with the New York Bight leases, Then the recent Rhode Island RFP news, the New York RFP news and obviously now This Washington deal, which is very exciting. So we feel really good about it.

Speaker 2

We don't think we're going to have To do anything different in the sale process, it's been very, very well received.

Speaker 4

Got it. Perfect. And then Joe, just lastly, there's been some healthy amount of debating around how you sort of think about Inorganic opportunities, can you maybe just provide some thoughts around how you think about flying outside of New England, whether there is really any interest around acquiring electric operations Your strategic priorities outside of your footprint is really around the water business. Thanks.

Speaker 3

Yes.

Speaker 2

Yes, great. So first of all, just so you understand, we are laser focused on this wind, the wind piece right now. That's what we're focused on. That's what we're spending our time. The water business, we love the water business.

Speaker 2

It's extremely fragmented. I think you know that when we were making acquisitions there, they're in the 10 1,000 customer range, 5000 to 10000, that's what we feel very, very good about. But there are really virtually no independent publicly traded water companies New England, that's really a left. So the focus has been on municipally owned water systems. Aquarion has a phenomenal reputation in the water space.

Speaker 2

We think we have a great platform for us to grow. And also some of these municipal systems in the region that are facing Some capital constraints as they have to look at upgrading their systems. I just want to make it very clear that we have no interest And expanding our natural gas footprint. That is not on our radar at all. And with regard to on the electric side,

Speaker 1

While there are potential customer benefits

Speaker 2

from a larger footprint, it would be very difficult for an acquisition to compete with investments in our own systems in Massachusetts, Connecticut, New Hampshire. There's no question that increased electrification will necessitate significant increased investment in our distribution and transmission systems in our substations to handle increased heating and electric transportation loads. Those investments will require significant capital. I think you know that our company history indicates that M and A is infrequent, but highly effective when it occurs. Mergers that created NSTAR about 25 years ago, Eversource 10 years ago And the added Eversource Gas and Massachusetts assets 2 years ago were beneficial to customers, accretive to our shareholders in the 1st 12 months after closing, Increased our EPS growth and lowered our risk.

Speaker 2

And that's what I want to emphasize. We are about de risking, lower risk. So we'd apply all these same principles to any future opportunities that we would pursue, Shah.

Speaker 4

Terrific. That's a lot of good color. Appreciate it, Joe. Have a good day. Bye, guys.

Speaker 1

Yes. Thank you. Thanks, Shar. Next question is from Neil Cowen from Wells. Good morning, Neil.

Speaker 5

Yes. Hi, everyone. Thanks for taking the question. So Joe, you mentioned the news out of Washington and you guys have had the advantage of others having a day to come and evaluate this. So we'd love to get your take on What you see in there that could be helpful to Eversource, particularly on the offshore wind side?

Speaker 5

And is this Something as you're looking to kick off the sale process, would you need to wait and see this actually passed before Moving forward with that.

Speaker 2

Yes. I don't think we need to wait for it to pass. I think it will move. We feel very confident that The inflation reduction that will move, I think you see a lot of support in Washington, a lot of discussions around it. I think that some of the things around it, the enhancements to the renewable energy tax credits is going to create substantial value for our projects.

Speaker 2

This bill is 7 25 pages long, and it's very detailed and we're going through each and every piece of it. But I will tell you That all indications that we have surfaced in that bill is very, very favorable

Speaker 3

For

Speaker 2

our business and for the wind business actually for all renewable businesses, quite frankly. So we're optimistic that this will help us, but we don't need This is not going to have us pause our efforts around the wind our wind exit.

Speaker 5

Okay. And one quick follow-up, and I don't know if you mentioned this in the remarks, so I apologize if you did. But Any sort of sense on how long this process will take to play out? It seems like there's pretty healthy interest. I mean, does that suggest that this could be Fairly quick or just any thoughts on that?

Speaker 2

Yes. And I feel very strongly that We will have answers in this year, in 2022. I would expect the 4th quarter, We would be able to share a lot more color around it and hopefully execute shortly thereafter. But realistically, we wouldn't execute in 2022, but we would have a lot of clarity around the buyer.

Speaker 4

Perfect. Thank you.

Speaker 1

Yes. Thank you. Thank you, Neil. Our next question is from Nick Campanella from Credit Suisse. Good morning, Nick.

Speaker 6

Hey, good morning, everyone. Thanks for taking my question. So I guess just in your prepared remarks, you kind of just talked about you issued some holdco debt that had a little bit of a shorter tenor and Sounds like the offshore proceeds will go towards potentially paying down that first, if I'm hearing you correctly. So That's about like, I think, dollars 1,500,000,000 of debt. And how do you just think about use of proceeds in excess of that?

Speaker 6

You talk about replacing offshore Earnings in the out years, is there kind of further debt pay down in the near term with capital deployment in the long term? Can you just kind of Help us understand that more.

Speaker 3

Sure, Nick. This is John. So if you look at some of the upcoming maturities that we have at We have pretty sizable maturities that will kick in, in early, mid and late 'twenty three, In the 1,000,000,000 of dollars. So those are will mature around the time That this transaction will happen. So there's more debt that is on our doorstep.

Speaker 6

Okay. And then I guess just on the Inflation Reduction Act, it Sounds great for the industry in general. How are you thinking about the potential impact of like an alternative minimum tax to your business?

Speaker 3

Sure. I mean, the bill has only been out 24 hours literally. So we're going through that. We have The team is looking at the and what that really means. It's a little unclear right now on the surface, but We'll look at that.

Speaker 3

Certainly, if it's a big check that we have to write from a minimum tax perspective, that has to Weigh in, but we're still reviewing that.

Speaker 6

Got it. Yes, I appreciate it's really early. And then

Speaker 1

one more, if I can

Speaker 6

just squeeze it in, the nSTAR rate review. Just how do you feel about kind of ultimately being able to bring a settlement to the table? Is that You're actively trying to work towards or and if you could, just what's the timing there?

Speaker 3

Sure. I mean, we just completed the hearings and you Always need to have enough information on the target in order to raise any settlement discussions. But I guess, I'm not ruling it out. I feel that settlement is certainly an option. I think if you look at our track record, we always gravitate The settlement versus a fully litigated proceeding.

Speaker 3

So that's I feel very good about that.

Speaker 6

All right. Thank you so much. Have a great weekend.

Speaker 7

Thank you, Nick.

Speaker 3

You too.

Speaker 1

Thanks, Nick. Next question is from Jeremy Tonet from JPMorgan. Good morning, Jeremy.

Speaker 8

Hi, good morning. This is actually Rich Sunderland on for Jeremy. Thank you for taking our questions today. Maybe starting off with the Massachusetts climate Can you speak to some of the distribution system upgrades that might come out of that legislation or any other enhancements you're looking at on the distribution side?

Speaker 2

Yes. Thanks, Rich. We've got, as you know, a significant capital plan around that. We have been working towards these investments, whether it's AMI or other upgrades in interconnection. That legislation really dovetails nicely with what our existing plans are.

Speaker 2

So, it's nothing But positive from our standpoint in terms of dollars. Again, that is also heading to the Governor's desk. We're hoping that gets signed And there's no changes before Sunday. Sunday is the deadline. So again, these are very new.

Speaker 2

These are only days old.

Speaker 8

Understood. Appreciate the color there. And maybe similar question, but on the transmission side, You're thinking about the coming offshore wind in the region. You spoke about the Park City upgrades. How do you think about the timing to scope out Some more of these opportunities, is this something that could evolve over the next year or 2 and particularly thinking about all the wind Coming down the runway here that you spoke to in the script.

Speaker 2

Yes. I will tell you, I've been pleasantly surprised. One of the reasons we've had this kind of point of inflection around our wind business is the fact that there's such significant Need for interconnections on our service territory and this is right in our regulated business, which is our sweet spot. So I think that I think every year or every 6 months, you're going to begin to see greater and greater clarity around Folks that want to interconnect, we are in a, what I would say, the crown jewel of service territories. We are in the low centers here, Whether it's in Connecticut, Massachusetts, this is where folks want this is where the load is and that's where folks want to interconnect.

Speaker 2

So I think that every time that we get on this call and we're talking with you and meeting with you, I think we're going to have more and more clarity and more and more information around Transmission opportunities that are taking place for renewable projects.

Speaker 4

Got it. Thank you for the time today. Yes.

Speaker 1

Thanks for the question. Next question is from Steve Fleishman from Wolfe. Good morning, Steve.

Speaker 9

Hey, good morning. First question is just, Joe, I think on the 1st quarter call, you said that you'd be able to ultimately Get back to the earnings you were going to get from the offshore wind with the proceeds from this sale. Are you still Confidence that that is the case?

Speaker 2

Yes, we are very confident, Steve. Yes.

Speaker 9

Okay. And then secondly, just the on the pension, John, I think you mentioned something of kind of you'll be for 2023, Not sure if it would be plus or minus. Is that versus 2022 pension expense? Or is that Pension expense or income overall, when you say that?

Speaker 3

Steve, it would be a comparison to 2022. Obviously, our returns right now are lagging behind what we earned in 2021, which is Basis for 'twenty two expense, but the significant change is the discount rate. So if I were to size the funded status of that plan today, We would move from 100% to something north of closer to 120%. So even though returns might be come down a bit And what we earned in 2021, but the movement in the discount rate could far exceed that impact.

Speaker 9

Okay. And then one last question just in terms of just to be clear on use of proceeds. So when we look at The likely use of proceeds from the outcome of the offshore wind sale, how should we think about the likely use of kind of debt pay down versus regulated investments versus something else?

Speaker 3

Sure, sure. So immediately when you get that cash, we're going to focus and pay off some Short term and as I mentioned in the earlier comment, we do have quite a bit of maturities that mature in 2023. So that's where we will deploy, but certainly it gives us the capacity to redeploy into incremental regulated wind investments That I needed, as Joe has mentioned, for transmission into connections and to address The load concerns that our infrastructure is faced with to accommodate electrification. So that's what we're going through that analysis now and We'll update you kind of the normal cost of business. As you know, we typically will update our forecast in February.

Speaker 3

So the team is working on that analysis as we speak.

Speaker 9

Okay, great. Thank you.

Speaker 1

Great. Thanks, Steve. Appreciate it. Next question this morning is from Insoo Kim from Goldman. Good morning, Insoo.

Speaker 10

Hey Jeff. Good morning and happy Friday. First question Shun, on the ATM equity, with the amounts you issued so far, any additional color on Roughly how much more you're contemplating issuing in 2022? Or do you think like this might be Until we get the clarity on the offshore wind stuff.

Speaker 3

Right. So it's not a race to the finish line. So we will continue to be very opportunistic and take advantage of our stock price. So and that's exactly what we did. I mean, We issued the $1.4 at close to $92 a share.

Speaker 3

So we'll it's difficult for me to answer that question Without knowing where we'll be, but if we have an opportunity to go to market, the next 5 months, we'll do so.

Speaker 11

Okay.

Speaker 10

Got it. And then going back to, I think, the question on the M and A side, you've made it pretty clear that The focus is probably on water. Obviously, a lot of municipal acquisition opportunities, I think, exist. But would you also Actually be open to looking at publicly traded water companies as well if they want.

Speaker 2

Yes, absolutely. If it was a strategic fit, we're not going to go across the country. It's going to have to make sense for us. It's going to have to be In the general area. So yes, we'd absolutely look at that.

Speaker 2

As you know, they're far and few between as you know, but certainly water is very, very attractive to us.

Speaker 12

Got it. Thank you so much.

Speaker 1

All right. Thank you. Next question is from Durgesh from Evercore. Good morning, Durgesh.

Speaker 7

Hey, good morning, Jeff. Just on the water M and A topic, Joe, just want to pick your brain on this like, so one of your fear water utilities, I guess, announced an agreement here north of $1,000,000,000 or close to $1,000,000,000 in Bucks County, Pennsylvania. I mean, you haven't experienced Running the Connecticut Water System for several years now. So are you outside of the publicly traded Water companies, could we see you get into sort of the municipal market in neighboring states on the waterfront?

Speaker 2

Absolutely. But they would be in neighboring states, just like you said. They'd be states that we're doing business in, And we feel that, that really is going to be the next road traveled. I think you're seeing municipalities and some of these Water systems that are facing some capital constraints, and I think they feel it's probably best to turn it over to a professional operator. And That's what I think you're seeing.

Speaker 2

That's what I think happened down there in the one you're talking about in Pennsylvania that they thought it would be best to Turn it over to us, a fantastic operator. I think that Essential is a fantastic operator and I think the Municipalities recognized that and that's why they did it. But I think the same thing is happening in this region, that we're seeing opportunities where Municipalities do approach us and looking for our expertise in the space. So that will continue. Again, These are small opportunities.

Speaker 2

I mean, when you're doing transactions that are in the $80,000,000 to $100,000,000 range to pick up 9000 to 10000 customers or even a municipal treatment, those They're a lot of work, but again, they're also very attractive to us because we have the platform. We have an incredible Management team at Aquarion that has the expertise needed to really turn things around. I think that our record stands for itself.

Speaker 7

Got it. Appreciate that color. And then John, I had a quick clarification. In your comments, you mentioned the $3,000,000,000 in investments in offshore. That's sort of the current plan, is that what you were referring to On the offshore front or was that sort of the regulated CapEx hole you needed to fill to kind of sort of Make you square on the offshore earnings.

Speaker 7

Can you just clarify that?

Speaker 3

Sure, sure. The $3,000,000,000 it would be the Incremental investments that we would need to replace the earnings that once we divest of the offshore wind would need to be replaced. So it's we so the and that aligns with the guidance that we gave you back in February where we said That we would expect our wind business to contribute between 6% to 8% based off of the regulated returns for the 1st full year of operations and that is 2026. So if you do the math, that puts you at about $140,000,000 100 And $30,000,000 $140,000,000 and the $3,000,000 is what it would take from a regulated standpoint to replace those earnings Using a fifty-fifty cap structure.

Speaker 7

Got it. So $3,000,000,000 in regulated investments would equal the earnings loss from offshore.

Speaker 3

That's correct. And on today's call and what we've been disseminating is we're Well on our way to reaching that. We're at between the AMI and the offshore Interconnection into our system, that's about $1,500,000,000 of that number. And then just Given the opportunities that Joe has mentioned and that we've been we're seeing happen to materialize, just on the whole distribution system and transmission system to accommodate The load expansion to bring in further renewable resources to address decarbonization and electrification, We feel very confident that we can reach that level of investment.

Speaker 7

Excellent. Thank you for the detail there. Much appreciated. Have a great day guys.

Speaker 1

Thank you, Durgesh. Next question is from Andrew Weisel from Scotia. Good morning, Andrew.

Speaker 11

Hi, good morning. Thank you. If I can first follow-up on that last question, it sounds like you're expecting to get at least half, if not all of that $3,000,000,000 You sound more confident. What would that mean for EPS growth? The EEI slides, you said you'd expect to be higher than 5% to 7%, thanks to offshore.

Speaker 11

So if you are able to back sell the wind earnings, does that mean you could grow earnings faster than 7%?

Speaker 3

Well, we're not here today To update our guidance, what we're saying is that the $3,000,000,000 investment would replace the earnings That we would lose from the win. So I think it's a little premature.

Speaker 11

Okay, fair enough. Then from the customer perspective

Speaker 3

But the answer is certainly it would be additive to our core business growth from where we are today.

Speaker 11

Okay, got it. Then from the customer perspective, the cost of offshore wind obviously won't go away if the owner changes. So how do you think about affordability impacts if you're backstilling the CapEx with projects in the rate base in addition to those offshore projects still moving forward?

Speaker 2

Yes. I think if you look at some of the pricing out there right now for energy, you'll see that wind is very, very competitive and Certainly, it's less costly than the options that are available right now in the marketplace. So I don't think that cost is going to be A barrier around wind.

Speaker 3

And then Andrew, what I would remind you of the $500,000,000 that we've discussed on the call today, As it relates to offshore wind interconnection, that's paid by the developer and not socialized.

Speaker 11

Okay. That's a good reminder. Thank you. Then one last kind of maybe funny question. In terms of the potential buyer, are there any requirements Preferences for the buyer to be a U.

Speaker 11

S. Domiciled company or could it just as easily be an international buyer?

Speaker 2

No, there is no restrictions on that. It could be international buyer, it could be a local buyer, whatever.

Speaker 11

Okay, great. Thank you.

Speaker 1

Thank you, Andrew. Our next question is from David Arcaro from Morgan Stanley. Good morning, David.

Speaker 13

Hey, good morning. Thanks for taking my question. I was wondering if you could give an update on how conversations have gone with credit rating agencies

Speaker 2

Any chance that you

Speaker 4

see for a

Speaker 13

lower FFO to debt threshold after this sale? And What is your thinking right now just around maintaining your ability to hit the thresholds that you've got in place right now, given that you've got quite a bit spending on the utility CapEx that you'll be adding to the plan?

Speaker 3

Sure, David. So I'll tell you that and Yes, I'm sure you're fully aware of this that we have completed our annual review with all 3 agencies, and overall great, great outcome As to how it relates to the Moody's getting to 15%. So we do have a plan. Obviously, the use of the proceeds that we would get from offshore wind, that would contribute very nicely and move the needle. The equity issuance that we've discussed in total in addition to the AMI, the ATM, we also have About $600,000,000 of treasury shares.

Speaker 3

So you're really looking at $1,800,000 that we're looking to execute. And then that metric has been negatively impacted, quite honestly by The high level of deferred storm costs that we're carrying and we have plans in Massachusetts to commence recovery certainly with this rate case. And as you know, in Connecticut, we do have a stay out that we can't change base rates, including recovery of storm costs any earlier than Oneonetwenty 4. So we're hopeful that over the next coming year or 2, those recovery that will be in place, that recovery. And then as I discussed in my formal remarks, the status of our pension fund, and obviously because we I'm expecting to be overfunded quite honestly that we have the ability to avoid any contributions for Couple of years out.

Speaker 3

And then the timing of rate adjustments, we have one Kicking in 2023, early 2023 for our open case that we have for Instaro Electric. So we do have the path to get to enhanced FFO to debt. So I feel very confident that we'll be able to get there.

Speaker 13

Great. That's really helpful. Thanks for that color. It sounds like there are some clear cash flow improvements coming. Should the big time kind of target or assumption be that you don't see the need for any more equity in the plan even To hit that $3,000,000,000 or to fund that $3,000,000,000 of incremental utility CapEx?

Speaker 3

Well, I mean that will happen over time. But once again, I think we once we get the offshore wind deal wrapped up, We will reevaluate our equity needs and align that with the timing of our incremental investment our incremental capital needs spending.

Speaker 13

Great. Yes, that's fair. Thanks so much.

Speaker 1

Thank you, David. Next question is from Paul Patterson from Glenrock. Good morning, Paul.

Speaker 14

Hey, good morning, guys. Thanks for the update. Just one question now, and that is, with respect to the Massachusetts climate legislation, what's your expectation here for what the governor Might do sort of running out of time. So I'm just sort of I was wondering if you guys are hearing anything or getting any sense as to what Direction this might be going in.

Speaker 2

Yes. Noel, good morning to you. He's favorably disposed to sign this legislation. I don't Anticipate anything that's standing in the way of that. He might have a couple of messages he sends back, But I think he realizes that it's out of time and I don't think he wants to jeopardize what he considers to be part of his legacy.

Speaker 2

So I think we're in good shape on that bill.

Speaker 14

Okay. So that's why I was wondering when in the Slide that says potential seeking modifications. I'm just wondering with the session sort of ending, I guess that would be kind of difficult to do, I would assume. Is that my way to think about

Speaker 2

it or We'll send back some messages. If they're not in formal session, it makes it difficult obviously to kind of override that. But that doesn't jeopardize the entire bill. These would be kind of individual or, say, pocket type of a change, the one offs that Wouldn't impact the overall bill.

Speaker 14

Okay, I see. So in other words okay, that's helpful. So in other words, he could make modifications Okay. I got what you're saying. I was thinking maybe a little bit.

Speaker 14

So he wouldn't need the legislature to respond to those in order to have them become effective, If I understand that correctly.

Speaker 2

That's correct. That's correct. It's not one of these total up or down that you actually can come in a surgical piece. If he felt that strong, I will tell you that I think you've got a Governor here that is very mature and Really understands and has a relationship with the legislature. So he'll be very thoughtful, very deliberate about anything that he does around this bill.

Speaker 2

And I think anything he sent back, he probably will have already have kind of passed through with the legislature to make sure that everybody is on the same page.

Speaker 14

Great. Really appreciate it. Thanks so much and have a good weekend.

Speaker 2

Yes. Thank

Speaker 1

you. Thanks, Paul. Next question is from Julian from Bank of America. Good morning, Julian.

Speaker 15

Hey, team. Thanks so much for taking the time and the question. So just checking in, if I can just try to elaborate a little bit, and I know that you guys are Preliminary on this $3,000,000,000 number here, but a little bit more on the timing and the pieces here, right. When you talk about like the $1,500,000,000 tied to The offshore transmission for instance in part, what's the timing there? I know we've been talking about like sort of that would displace the 26 offshore, But is the idea that that $1,500,000,000 would be fully deployed by that point in time?

Speaker 15

And then similarly, my impression, but tell me What the specifics are, the other $1,500,000,000 there, how much of that is contemplated, for instance, AMI and how much of that AMI would be It's done by 26 here, if you will. I'm just trying to understand, of the $3,000,000,000 how much capital, at least under the line of sight that you have today, do you think that

Speaker 3

Julien, the guidance that we've given is that by 2020 6, we would have if you look at the forecast that we disseminated, take that capital number and add $3,000,000,000 So we hope to have all of these investments in place by 2026. So to To answer your question on AMI, as I said in my following remarks, we expect a decision from both Connecticut and Massachusetts. And quite honestly, we're working on Vendor agreements to be able to move forward with those investments. And that's about $1,000,000,000 in total. And we're going to start on it immediately.

Speaker 3

So certainly by 2026, those will be fully in place. And then on the $500,000,000 of interconnections, that one, a good portion of it, if not all of it, could be in place by 2026. So it's really the other opportunities to accommodate electrification and upgrades to our infrastructure.

Speaker 1

Got it. Excellent. So it sounds

Speaker 15

like at least on the parts that you've identified, you've got line of sight for 26. And the timeline for more fully introducing The balance here would be sort of coincident with the timeline for announcing the sale?

Speaker 3

Or as part of our normal update

Speaker 1

in February. Okay.

Speaker 2

All

Speaker 1

right. Yes, absolutely. Okay. Excellent. Well, thank you guys.

Speaker 1

Appreciate it.

Speaker 3

Thank you.

Speaker 2

Thank you for your time. Thanks, Julien.

Speaker 1

Next question is from Ryan Levine from Citi. Good morning, Ryan.

Speaker 12

Good morning. Any color you could share at this stage in the offshore wind sale process on the coordinated marketing effort between Eversor and Orsted? What drag along or tag along rights does Orsted have in this process? And how does that impact the role they're playing in the preparation of SIMS, teasers, etcetera?

Speaker 2

Yes. Well, first, good morning to you. Is a phenomenal partner. I mean, they are very good friends and they are on and on with us Even to write down to the level of detail around anything that we distribute, they also join us Any calls with potential bidders? So we don't really have any restrictions.

Speaker 2

They don't have any veto power. Obviously, They are our friend. They are a great partner and we will continue to do business with them whether it's on the interconnection front or helping them in any way. So you should understand that this is a very amicable, very friendly and very coordinated effort as we look at this piece of our business.

Speaker 12

Okay. So you said no veto rights. Do they have any ability to offer a price afterwards, After the formal auction gets completed?

Speaker 2

No, they do not. And keep in mind That we love this wind business. We are going to continue to support this wind business and we want them to be successful. So we're going to make sure that whoever is the acquirer fits very nicely with Horstead.

Speaker 12

Okay. And then somewhat related, is there a preset foreign valuation that Eversource would require with this Transaction for it to be contemplated, maybe just leave it open and just like that.

Speaker 10

And I

Speaker 3

think it's the first part of that.

Speaker 1

Yes. Ryan, could you Is there a floor evaluation that's associated?

Speaker 12

Yes. Is there a minimum bid that you require? No,

Speaker 3

we will go we're going to test the waters, right? So it's a little premature. I mean, we know how much we have invested in the joint venture and we feel given the market condition that we should do, It will be a lot more we're expecting a lot more of value given the current market situation.

Speaker 2

Yes. And keep in mind that this is not we have a lot of line of sight on Value because obviously we saw what took place in the New York pipe. We've seen other transactions. So it's not as if we Don't have a rough idea where this is going to end up. We know it's going to end up.

Speaker 2

And the players we're talking about, I mean, these are major players that are very well aware of the value of our assets. So we feel very, very good about that.

Speaker 12

Appreciate the color. Thank you.

Speaker 3

All right.

Speaker 1

Thanks, Ryan. Appreciate it. Well, we don't have anybody else in the queue. So we want to thank you all for joining us. If you have any follow ups, let us know today.

Speaker 1

We look forward to seeing you at the conferences in August September and have a wonderful summer off.

Speaker 2

Thank you. Thank you, everyone.

Operator

That concludes the Eversource Energy Q2 2022 earnings conference call.

Powered by Quartr