Eversource Energy Q3 2022 Earnings Call Transcript

Participants

Corporate Executives

• Jeff Kotkin, Vice President of Investor Relations
• Joseph R. Nolan, President and Chief Executive Officer
• John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President

Analysts

• Shar, Guggenheim
• David Arcaro, Morgan Stanley
• Steve Fleishman, Wolfe Research
• Nicholas Campanella, Credit Suisse Group AG
• Durgesh, Evercore ISI
• Jeremy Tonet, JPMorgan Chase & Co.
• Ross Fowler, UBS Group AG
• Paul Patterson, Glenrock
• Paul Zimbardo, Bank of America Co.
• Travis Miller, Morningstar, Inc.

Presentation

[Operator]

Good morning, and welcome to today's Eversource Energy Third Quarter 2022 Earnings Conference Call. My name is Candice, and I will be your moderator for today's call. [Operator Instructions].

I would now like to pass the conference over to our host, Jeff Kotkin. Vice President of Investor Relations, to begin.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thank you, Candy. Good morning, and thank you for joining us. During this call, we'll be referencing slides that we posted yesterday on our website. And as you can see on slide one, 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 risk 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. Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2021, and our Form 10-Q for the three months ended June 30, 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-K and 10-Q. Speaking today will be Joe Nolan, our President and Chief Executive Officer; and John Moreira, our Executive Vice President and CFO. Also joining us today is our new Director of Investor Relations, Bob Becker.

Now I will turn to slide two, and turn over the call to Joe.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Thank you, Jeff, and thank you, everyone, for joining us on this call this morning. I will provide you updates on the energy supply challenges facing New England this winter and the strategic review of offshore wind investments. Before turning over the call to John to review the quarter in various regulatory proceedings. But first, I will review our operating performance. We've had an excellent first nine months of 2022 with our reliability indices remaining among the industry's best.

Our safety ratings strong and our diversity and sustainability metrics looking quite favorable compared with our goals and our peers. Response time to natural gas service calls, a key safety and performance metric for our gas distribution business continues to be excellent. Our sustainability ratings at MSCI and Sustainalytics continue to be well within the top quartile among our peers, and we are in the final stages of reviewing how to best move forward with establishing aggressive goals for greenhouse gas reduction, including potentially setting a science-based target, something that only a handful of U.S. utilities are undertaking.

While we continue to improve the service, we are delivering to our 4.4 million customers. We understand that our customers have a significant concern over this winter's energy costs. Not only are fossil fuel prices much higher than they were a year ago. Our region continues to be challenged by the combination of heavy reliance on natural gas generation and inadequate infrastructure to supply sufficient natural gas to that generation during cold winter months.

This winter looks particularly challenging for New England, given the disruptions in the global energy markets caused by the war in Ukraine. New England's access to reported LNG will be even more limited than in the past years. ISO New England has indicated that while our supply should be adequate in a moderate a normal winter, they may be challenged during a prolonged period of bitterly cold weather. Last week, I wrote to President Biden, asking him to consider a number of measures to help New England through the winter.

They included emergency audits under the Federal Power Act in the Natural Gas Policy Act in emergency authority under the Defense Production Act to ensure adequate energy supplies for New England. The letter also recommended considerations of a waiver under the Jones Act to ease the obstacles that effectively prevent the shipping of LNG between U.S. ports in New England.

I also asked President Biden to direct the Secretary of Energy to convene all relevant parties, to develop a plan to ensure the region is ready to meet the challenges one or more extreme winter weather events would present, using both the authorities available to the market participants in the federal government's emergency authorities. Many points in my letter were consistent with the letter to New England sixth governance sent to Energy Secretary Grand Home in late July, the need for action now is compelling.

Many of the solutions require advanced planning because they may require actions by regulators, finding new resources, chartering vessels and arranging for additional fuel deliveries. As a T&D utility with no generation other than 70 megawatts of solar, we are very limited in terms of how we influence the wintertime supply-demand equation. In those areas, we can influence. We've done a tremendous amount. We have invested billions of dollars hiding our transmission and distribution systems to alleviate bottlenecks.

Our nationally recognized energy efficiency programs have helped customers become more -- much more efficient with their energy consumption. We offer our customers innovative payment options, including year-round budget billing options. But this winter is nevertheless promises to be expensive for those electric customers who do not lock in multiyear contracts in the past years.

In New Hampshire, our standard offer, our default service rate rose in August from $0.11 to $0.22 per kilowatt hour. Similar levels are likely in Massachusetts and Connecticut beginning in January. For our natural gas customers, residential heating costs in total bills will be up just over 20% on average compared with last winter, somewhat less than that in Connecticut. Well, any increases in these times is difficult for our customers, we are looking at much more significant increases a month or two ago before the recent pullback in natural gas prices.

Turning to slide three. I will provide you with an update on our offshore wind partnership with Orsted. As you know, construction of our first project, South Fork, commenced early this year. Installation of the onshore conduit system including cable vaults in town roads and along the Long Island railroad right-of-way is nearly complete and ahead of schedule. Construction of our new onshore substation is on schedule, progressing well. It should be complete in the second quarter of 2023.

In water construction, we'll begin this month using horizontal directional drilling to install a conduit 80 feet below the beach that will extend offshore. The transmission cable will be installed through that conduit next year to move energy from 12 offshore wind turbines to a new substation and into the Long Island Power Grid. Installation of the largest components including the foundations, turbines and offshore substations will begin next summer off the coast of Massachusetts. We also continue to progress well on our larger offshore wind projects. The Bureau of Ocean Energy Management issued a draft environmental impact statement for the 704-megawatt Revolution Wind project in September. We expect the final EIS in the second quarter of 2023, and to have all permits in hand in the second half of 2023. We continue to target a 2025 in-service date.

On Sunrise, our largest offshore project, we filed a joint settlement in September with the New York Public Service Commission. The settlement includes proposed mitigation for certain environmental, community and construction impacts associated with constructing the project. The joint proposal was signed by the New York Department of Public Service environmental conservation, transportation and state as well as the offers of agriculture end markets in the Long Island Commercial Fisheries Association.

We also continue to target a 2025 in-service date for Sunrise Wind. We are also making significant progress on our strategic review. That review covers three projects I just mentioned which will generate approximately 1,760 megawatts once in service as well as up to 175,000 acres of offshore wind lease areas, where we and Orsted have rights to build additional offshore wind facilities. We're now engaged with a number of potential buyers for our 50% ownership interest in our offshore wind joint venture. Orsted is actively supporting the process. It is very possible that we contract with one buyer for the three projects and another for the open acreage.

We do not expect to have any incremental news on our strategic review before the EEI conference, but we may by year-end. We remain very big fans of offshore wind and expect it to become a critical energy resource for the Northeast, particularly in the winter when wind speeds are higher and more consistent. You can see on slide four, how much has been awarded to date in New England and New York, and how much still needs to be secured. Contingent on the outcome of our review, I expect that our principal role in the future will be that of a regulated transmission provider integrating this valuable resource into our region's grid rather than a turbine owner. Thanks again for your time.

I will now turn the call over to John Moreira.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Thank you, Joe, and good morning, everyone. This morning, I will review our earnings results for the third quarter of 2022, discuss recent regulatory developments and review our finance and activity. I will start with slide five. Our GAAP earnings were $1 per share in the third quarter of 2022 compared with earnings of $0.82 in the third quarter of 2021. Third quarter results in 2021 included a charge of $0.19 per share to reflect last year's settlement agreement that resolved a number of regulatory issues at Connecticut Light and Power. Both years included the impact of $0.01 per share of charges related to transaction and transition costs associated with the former Columbia Gas asset acquisition.

Excluding these charges, we earned $1.01 per share in the third quarter of 2022 compared with earnings of $1.02 per share in the third quarter of 2021. For the first nine months of 2022, we earned $3.13 per share on a GAAP basis compared with earnings of $2.65 per share in the first nine months of 2021. Excluding charges related to transaction and transition and the CL&P settlement charges that we recorded last year. We earned $3.17 per share in the first nine months of 2022 compared with earnings of $2.95 per share in the first nine months of 2021. Looking at additional details on the third quarter earnings by segment, starting with our electric transmission segment, which earned $0.44 per share in the third quarter of 2022 compared with earnings of $0.40 per share in the third quarter of 2021.

Improved results were driven by a large level of higher investments in our transmission facilities. Moving on to our electric distribution segment, which earned $0.65 per share in the third quarter of 2022 compared with earnings of $0.62 per share in the third quarter of 2021. Again, excluding the settlement charges I previously talked about. The improved earnings were driven largely by higher revenues and lower pension costs, partially offset by higher O&M, property taxes and depreciation expense.

Our natural gas distribution segment lost $0.07 per share in the third quarter of 2022 compared with a loss of $0.06 per share in the third quarter of 2021. The increased losses were due to a higher nontrack O&M, property taxes, depreciation and interest costs, which was partly offset by higher revenues and lower pension costs, primarily at Yankee Gas. Our water segment earned $0.05 per share in the third quarter of 2022, the same as the third quarter of 2021. Eversource parent and other companies lost $0.06 per share in the third quarter of 2022 compared with earnings of $0.01 per share in the third quarter of 2021, excluding the transaction and transition costs that I mentioned earlier.

The decline was due largely to two factors: higher interest expense, primarily related to new parent company issuances, which lowered the results by $0.04 per share; higher income tax expense of about $0.03 per share, which was specific to the third quarter results as this is when we finalize our annual corporate income tax returns. Despite the headwind from higher interest costs, we continue to project our full year 2022 earnings of between $4.04 and $4.14 per share, excluding transaction and transition costs that I spoke about earlier. Turning to the longer term. As you saw in our news release, and as you can see on slide six, we are reaffirming our long-term EPS growth rate in the upper half of 5% to 7% range through 2026.

We also reaffirm our $18 billion five-year regulated capital program that we discussed during our February earnings call, including our $3.9 billion regulated capital investment projection for this year. We will provide you with an updated five-year forecast when we report our year-end results in February. As we mentioned during prior earnings calls, there continues to be an even increasing need for Eversource to make capital investments in our transmission and distribution systems that will enable our region to achieve its aggressive clean energy targets more rapidly.

As a result of this strong public policy imperative and our ongoing focus on improving our systems to address agent infrastructure, we estimate that at least $3 billion of additional investments above our current $18 billion capital forecast will be required through 2026. In July, we discussed the need to invest up to $500 million in our transmission system on Cape Cod to enable approximately 2,000 megawatts of offshore wind generation to be connected into the New England grid.

We also noted that ongoing regulatory reviews of our advanced meter infrastructure proposals. At this time, regulators in both Connecticut and in Massachusetts are actively working through dockets, which decisions are expected later this year in Massachusetts and either at year-end or early next year in Connecticut. Moving to slide seven. We want to highlight some new infrastructure needs to enable clean energy distribution resources to connect to our grid.

Our proposals are currently before the Massachusetts Department of Public Utilities. Massachusetts has very ambitious carbon reduction goals, an 85% reduction by 2050, and two cornerstones of efforts to achieve those reductions are embedding -- enabling offshore wind and solar generation. Joe discussed the offshore wind earlier, now on the solar front, a growing number of solar distributed energy resources are awaiting connection to the grid.

In certain areas of our state, particularly in Southeastern Massachusetts, we are at a standstill in connecting new solar resources because there is a very little available grid capacity. Under the current existing model, the developer whose project is the last draw triggering the need for a significant upgrade to infrastructure pays the full cost of resolving this capacity issue of bottleneck. When large T&D equipment limits are reached, the cost to resolve such bottleneck could become cost prohibitive for these developers. So the project will not likely move forward nor will other projects behind it, and thereby stall in the interconnection queue. That has created a backlog of construction of about 350 megawatts of distributed solar generation in the state, a figure that is growing.

The map on slide seven shows the six areas of Massachusetts with the greatest bottleneck. We have proposed a resolution whereby we would build out the system in advance, and recover some of the costs from solar developers as they tie their projects into the grid. slide nine shows the upgrades would be a combination of transmission and distribution infrastructure needs. Together, they would total about $900 million under our proposal. Developers would pick up about 1/3 of those costs over time and the associated rate base would be adjusted accordingly. A DPU decision on the first of the six projects is expected later this year, with decisions on the remaining five projects to follow in 2023. We view our proposal as an innovative solution to a vaccine issue that has slowed the build-out of third-party solar expansion in Massachusetts.

On the regulatory side, we are nearing the end of one general rate review with hearings on another one about to commence. A summary of these two cases can be found on slide 10. Briefing in the NSTAR Electric rate review concluded late September, and a decision is expected on December 1, with new rates going into effect January 1, 2023. We feel very good about the strength of our case as well as our proposals to enable the Commonwealth's clean energy goals. Moving to our new rate review. On August 29, Aquarion Water connected -- of Connecticut filed its first rate review application in about 10 years. Key elements of the three-year plan are shown on this slide. Aquarion Connecticut's case is a result of significant infrastructure, investments made over the past several years to enhance the water service reliability for its customers.

Evidentiary hearings will start in about three weeks, and a final decision we expect in mid-March. Turning to recent financings. We completed our fourth green bond issuance at NSTAR Electric in September, selling $400 million of 30-year notes at 4.95%. That issuance helped pay off a similar size issuance that matured in mid-October. With that issuance now behind us, we have completed our long-term debt issuance program for the year.

In terms of equity issuances, as you can see on slide 11, we have now issued about 2.2 million shares through our at-the-market program at a weighted average price of $92.31. Through October, we also have issued approximately 810,000 shares of treasury stock this year to fund our dividend reinvestment and employee equity plans. The impact of those issuances reduced EPS by approximately $0.01 per share in the quarter. Finally, in terms of credit metrics, as you will see shortly, when we file our 10-Q, our cash flows from operations totaled $1.7 billion in the first nine months of 2022 compared with $1.5 billion in the first nine months of 2021.

The improvement was primarily -- this improvement was primarily driven by higher net income, higher depreciation and amortization and lower pension plan contributions since our plan is essentially fully funded as of the end of 2021. Thank you very much for joining us this morning, and we look forward to seeing many of those on the call at our Annual EEI Finance Conference in Florida later this month.

I will now turn the call back over to Jeff for Q&A.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thank you, John, and I'm going to return the call to Candice to remind you how to enter your questions. Candice?

Questions and Answers

[Operator]

Thank you Jeff. [Operator Instructions].

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thank you so much. Alright, first question this morning is from Shar from Guggenheim. Good morning Shar.

[Shar, Analyst at Guggenheim]

Good morning Jeff, good morning guys. So Joe, just on the offshore wind sale process, you indicated -- I think on prior calls, you were working on sort of the tax leakage offsets. Anything you have -- anything you've been able to identify there so far? And are we still thinking 100% sale, the leases in the projects, irrespective of what stages they're in, in their construction cycle, so no build own transfer scenarios?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. So we're definitely looking at a complete exit of the projects. In terms of the tax, I'm going to turn that over to John Moreira, he's better equipped to answer that question.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Shar, so as I continue to communicate, we're looking at every alternative to minimize any tax leakage. I think at this point, we're still going through those assessments working with our advisors. I think it's a little premature. But we do have a plan to mitigate as much of that tax leakage as possible.

[Shar, Analyst at Guggenheim]

Okay. Perfect. And then, Joe, you previously indicated that you need to find roughly $3 billion of spend to offset the loss of the wind earnings. If I recall, correctly, you had about $1.5 billion that's been identified. So we're simply stepping up here to having a line of sight on roughly $2.4 billion out of the $3 billion with the DER spending you just released, or is there some overlap? And I guess where could we see the remaining opportunities, especially as we're thinking about this in the context of your overall growth guide as we look ahead to the sale and the next roll forward?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. Well, good news is that number, we've got up to about $2.5 billion. John is going to fill in some of the details on how are we going to fill that in. So John, will you tell him?

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Sure. Shar, once again, we've mentioned about -- we've quantified and put on the table $1.5 billion of that $3 billion number that we have shared with you. So let me run -- take you through that. So $1 billion is AMI. And in my formal remarks, you heard me say that we do expect a decision now in Massachusetts by the end of this year, and Connecticut probably late this year or early 2023. So that's about $1 billion, $1.1 billion, okay? And then we also quantify it for you all, about $0.5 billion of transmission interconnection, of which we already have approval for $200 million of that. And today, we announced close to $900 million that we are very excited about to address this burning issue in Massachusetts to enable solar generation to connect into our grid.

Those investment opportunities will enable up to one gigawatt of generation to connect into our infrastructure, both transmission and distribution. So right now, we have about six cluster projects that we have before the DPU. That amounts to that $900 million. And as I said in my home remarks primarily in Southeastern Massachusetts, where we are stretched from a capacity standpoint. So that is -- from a regulatory standpoint, that's well on its way.

And we do have some -- we've been working, we think it's a very creative proposal that we put in front of the regulators to facilitate this need. So we're very excited about that. So that we see materializing between -- over the next four to five years, and we expect that, that full infrastructure will be in place by 2026 to allow for at least 350 megawatts of that one gigawatt that I mentioned.

[Shar, Analyst at Guggenheim]

Got it. Terrific. So I guess the key message is you're chopping wood on that $3 billion that you're looking to backfill. So that's good.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Absolutely. I feel very -- I feel highly confident that once we update our five-year capital plan that we'll share with you in February that we will get to that number.

[Shar, Analyst at Guggenheim]

Thanks [Indecipherable]. Congrats guys. Mr. [Indecipherable], we'll see you in a week and a half. Thanks.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Yes, thank you Shar.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thanks Shar. Next question is from David Arcaro from Morgan Stanley. Good morning David.

[David Arcaro, Analyst at Morgan Stanley]

Hey, good morning. Thanks much for taking my question. Maybe following up on a couple of the topics that Shar raised. On the offshore wind strategic review process, could you just give an update on what interests you're seeing, whether anything has changed with the rising rate backdrop and overall kind of number and type of potential interested parties there?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. So we've had -- the process is going on very well. We have several highly interested parties, and the interest rate has not caused any concern for them, and we're very, very optimistic and continue to be optimistic on the process.

[David Arcaro, Analyst at Morgan Stanley]

Okay. Got it. And then on the level of cost that have been locked in, it looked like the percentage hasn't changed since the last quarter. What are you seeing in terms of the inflation in offshore wind kind of construction costs lately and your current thinking around willingness to lock in additional costs with the strategic review going on?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

We are in the 80% range -- low 80s, the contracts that we're talking about are not ones that I'm particularly worried about around costs or those types of things. And we do have competition in that space. So we're going to be strategic in any type of contracting that we do. But I feel very good about -- I have eyes on the remaining, say, 15% to 18%, and I'm not concerned about it.

[David Arcaro, Analyst at Morgan Stanley]

Okay that's good to hear. Thanks so much.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Thank you.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thank you David. Next question is from Steve Fleishman from Wolfe. Good morning Steve.

[Steve Fleishman, Analyst at Wolfe Research]

Yeah, hey good morning everyone. So just we're getting near the end on the Massachusetts case. Could you just give us a sense of just how you're feeling about getting a reasonable outcome there?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. Steve, it's Joe. We feel very good about it. We had some very, very good hearings. We had a lot of good discovery, a lot of good exchanges. And we have been very actively engaged with multiple parties. So we are still extremely optimistic for a very favorable outcome in that proceeding. It's not a -- it wasn't a big number in terms of increases. And I think that folks recognize the extraordinary job we do for our customers here at Massachusetts. So we continue to be very optimistic.

[Steve Fleishman, Analyst at Wolfe Research]

Okay. Great. And then the -- maybe just in terms of asking a question from the beginning a little different way. Just when you announced the offshore wind sale, you talked about that net income that you'd hoped for in 2026 and be able to kind of take the proceeds and get to that level with investment in the regulated business.

And so obviously, you're starting to get the investments all lined up here. But just overall, how are you feeling about kind of getting to the kind of end game of whatever your growth rate was plus the incremental net income?

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Yes. Yes, good question. We are working on an update on our revised five-year forecast, taken into account or layering into our plan the additional capital that we need to execute on for the reasons that I've stated. So we feel very confident that we'll be able to get into our zone of guidance that you all would expect from us. So I'm feeling very good about it.

[Steve Fleishman, Analyst at Wolfe Research]

Okay, great. Thank you.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

All right. Thanks Dave.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Next question is from Nicholas Campanella from Credit Suisse. Good morning Nick.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Hey, good morning everyone. Thanks for taking my questions. I guess, Joe, just on the Biden letter and the winter scenario. Obviously, the fact that you're right in this letter, it's a serious situation. And I just wanted to ask, when you think about the ability to kind of deploy capital at the pace that you are in the current plan, does it change your thinking at all and the ability to spend capital with the pressure in customer bills from the fuel lines.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. No. I mean, I think the investments that we want to make around transmission to unlock and tap into some renewable resources that cannot get on to the grid in a way that's meaningful for the operator. So that's something that will only reduce customers' cost at the end of the day, if we're able to get at some of those renewables. So I don't think that, that would have an adverse impact on our customers. So no, I don't feel it's going to impact it.

[Nicholas Campanella, Analyst at Credit Suisse Group]

And then on IRA, good to see no AMT impact. And I think you're saying kind of cash uplift in the slides here. So can you maybe just update us on what your FFO to debt is in a post IRA world versus kind of where it is today?

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

It will head in the right direction. There's no doubt about it with the IRA given the deployment of our solar program in Massachusetts, where we get the ability to get that -- those tax benefits upfront and then as required flow it back to customers over time. So we do see an uptick in our FFO to debt.

[Nicholas Campanella, Analyst at Credit Suisse Group]

Okay. So just directionally positive. Appreciate it, thank you so much.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thanks Nick. Next question is from Durgesh from Evercore. Good morning Durgesh.

[Durgesh, Analyst at Evercore ISI]

Hey, good morning Jeff. Thank you for taking my questions. Guys, what are sort of the key dates for us to watch on these six DER-related projects in Massachusetts? I believe you said one of them is under consideration for approval here shortly. Just if you can give us a time line for us to kind of track that would be really helpful, for regulatory approval.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Sure. Durgesh, this is John. So we have filed all six proposals individually. And we expect the first one, which is about, let's call it, $150 million opportunity. That's the -- on the slide eight, it's the Marion Fairhaven project. So we expect to see a decision from the DPU late by the end of the year. And then the remaining five will trickle in over 2023.

[Durgesh, Analyst at Evercore ISI]

Got it. So basically, by the time of your fourth quarter update, capex update, you would have received a decision on one of the projects, the remaining five will be layered in sometime next year?

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

That's correct. That's correct. And the construct, as I mentioned, is basically the same for all six projects. Obviously, there's varying degrees of investment for these six, but the construct that we filed for is very consistent.

[Durgesh, Analyst at Evercore ISI]

That makes sense. Thank you John, appreciate the [Indecipherable].

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Alright, thanks Durgesh. Next question is from Jeremy Tonet from JPMorgan. Good morning Jeremy.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Hi, good morning. Just wanted to touch base on the offshore wind process a little bit more. And just want to see how is the process tracking toward that potential year-end announcement? Just trying to look at the language here, does your slide language point to a slightly longer process versus prior expectations? Just trying to parse through this end of the year as you put it in the slides.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Sure. Yes, it's Joe. We're working very hot at this right now. We've got very interested buyers. We would like to be able to have an announcement by year-end, but there's no guarantees around that. But I would tell you that there were a very strong group of buyers that are in there, and we feel very, very good about the process. So we're optimistic.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Got it. That's helpful. And then just pivoting, could you frame the impact of higher interest rate expense on growth within your EPS CAGR? Just wondering what levers are left to offset this higher expense? And how much of a headwind could it be? Same thing for pension, overall.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Yes. Yes, it will be a headwind, as you would expect. But we're on it, and we are working to mitigate that impact. Obviously, it's uncertain, the time frame and this higher interest rate environment will continue. But we -- as I mentioned earlier, we're focused on developing our plan for next year, and I feel very good that we'll have opportunities to mitigate that headwind.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Got it. I'll leave it there. Thank you very much.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Great, thanks Jeremy. Next question is from Ross Fowler from UBS. Good morning Ross.

[Ross Fowler, Analyst at UBS Group]

Good morning Jeff. Good morning Joe. Good morning John. How are you? All my questions on offshore would have kind of been answered. So maybe we can loop back to Joe, your comments at the front of the call about bill pressure across this winter. You said bills would be up an average of 20%, and that's given the pullback in natural gas. It's been in the 70s in New England, lately.

So we had some good weather, too, which is nice. But growing up there, it's going to get cold at some point. So can you just remind us how you're hedged across the winter for that natural gas on price, like through January, February and March? And then maybe it's not even necessarily about hedging and price given your commentary, but more about even getting supply should it get colder than normal across this winter. So just maybe frame that risk for us a little bit more.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Sure, sure. Let's focus first on our gas business. We have -- we are hedged. We have LNG. We keep roughly 20-day supply available of LNG at our facilities. We have multiple LNG facilities. So I feel very good about the supply and the natural gas situation for Eversource customers. This went to -- I have no concern around that. We began planning for that in putting resources into storage starting May of the -- in the spring time we start.

And we fill all our tanks and we're in very, very good shape this year for that. I think what I was -- what I'm pushing at is the issue around electric generators in the region, whether they are natural gas-fired or they are oil-fired, they do not have a firm fuel supply. And since they don't have a firm fuel supply, when we get these days for a protracted cold spells, they do not have fuel to run. And that is what my concern was. And that was -- that was really the letter that I had written to President Biden, looking for relief. Number one, with the petroleum reserves, he certainly has a significant resources to help with oil. And then really for around the Jones Act, to allow vessels to -- foreign vessels to operate freely within the U.S. foreign vessels.

Just this past week, there are probably six to eight vessels down in the Gulf. They're filling up. These are foreign vessels and they head into Turkey, Japan, South Korea, Europe. And the fact that they can't come up to the Northeast with the U.S. natural gas, LNG. It's disturbing to me. So the President has the policies. He's done it before with the prices in Puerto Rico, and he's been a real champion for energy issues and I don't believe he'll let us down here. I think the President will play an active role here, and help us get what we need to be sure that our customers have an event-free winter.

[Ross Fowler, Analyst at UBS Group]

And then maybe winding back for a little bit more color on an earlier question. You mentioned that all of these capital programs you're deploying and filed for but aren't yet approved yet, some of them are really to sort of mitigate the bill pressure around electric bills because you're taking fuel costs out of the system. But if bills are going up in the near term, are you worried about bill pressure, maybe not certainly taking those programs away because that's where we're trying to get to is mitigating that bill pressure. But are you worried about regulators slowing the pace to alleviate some of that bill pressure?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Well, listen, we feel for our customers, this is a challenging time, but there's not anything new to this region. We have experienced this before, and we have a long track record of working with our customers. I think when the regulators see the type of investments that we want to make, and the benefits. I can list 10 transmission projects that have reduced customers' bills by billions of dollars. So these are all very, very -- very good projects to help our customers access lower price electricity. So you have to put -- to make the investments in order to get the savings. And I think that's what the regulators and key decision-makers will look at and decide that it's the right decision.

[Ross Fowler, Analyst at UBS Group]

Well, thanks Joseph, that's great.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Alright, thank you Ross. Next question is from Paul Patterson from Glenrock.

[Paul Patterson, Analyst at Glenrock]

Good morning. Can you hear me?

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Yes.

[Paul Patterson, Analyst at Glenrock]

So I wanted to follow up on a few things. First of all, on the preceding in Massachusetts by Commonwealth Edison asking for a delay. You guys filed a joint letter, I believe, on Tuesday with National Grid and Unitil, I think. -- basically indicating that you guys had no intention to renegotiate the contract. And then, I guess, I saw that yesterday the Governor of Massachusetts seemed a little bit more open to the idea. Just wondering if you could give us a little bit more color on how you see this. And I guess if you can, why you guys see yourselves in a different position with your projects as opposed to this one that's asking for renegotiation?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. Keep in mind that our pricing is higher. It's in the 100 to 110 megawatt hour range. The project that we're talking about came in here and did very, very low pricing against projects that we had bid. I do not feel that likelihood and success for any renegotiation. And keep in mind that what the government has said is that he would allow Avangrid to make a proposal. He didn't say that he was going to go and renegotiate with them. And so there's a lot of plays that we'll have to decide on this. Certainly, it's our regulators. Now regulators at the end of the day are the ones that are going to decide what is best for the customers. And so that's the reason why you're not seeing any of our projects in there right now looking to renegotiate.

[Paul Patterson, Analyst at Glenrock]

Okay. That's great. And then just I was wondering what kind of response you've gotten -- I mean you sort of answered it, I think, just now with respect to the White House, and your letter, which makes a lot of sense. But I'm just thinking in general, is this -- I'm just wondering, is this a wake-up call maybe that -- I mean you just sort of wonder, the fact that LNG is being imported as a significant part of New England's reliability situation.

Is this any sort of a wake-up call that maybe infrastructure -- maybe the region should be more open to infrastructure or maybe the federal government should be sort of pushing the stuff along? Do you follow what I'm saying, whether it's done to go through Northern Pass or just a whole variety of projects that have been delayed. And it just -- you sort of wondered, is there any change in Washington that you're noting in the region with respect to perhaps sort of getting real about reliability? And do you follow what I'm saying and the need for significant infrastructure improvements to be streamlined and what have you?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Well, yes, you appreciating the inquiry here, absolutely. I do see that each of these governors realized the seriousness of this. I mean we are at fragile point in time as we transition to this clean energy environment. And so consequently, we're going to need some relief, whether it's the Jones Act relief or other types of projects, certainly, the -- it's disappointing. You know how hard we worked on Northern Pass to bring hydro down. Another great resource that this region could really use. So I do think -- I mean, we're all working collaboratively. We've -- we were up in Burlington, Vermont. We had all of the states along with the FERC, and we're looking at these issues. And listen, a lot of my people at the table, a lot of people understand the seriousness of it. And so I'm fully confident that we're going to be able to put steps in place that are going to allow us to transition uneventfully to a clean energy future. It's going to be challenging. It's going to be challenging. It's going to require a lot of work. But I know that the folks that -- and the people at the table can get this done.

[Paul Patterson, Analyst at Glenrock]

Okay, thanks so much. Have a good one.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thanks Paul. Next question is from Paul Zimbardo from Bank of America. Good morning Paul.

[Paul Zimbardo, Analyst at Bank of America]

Hey, good morning. Thank you. Just a couple for me. Following on Jeremy's question, what interest rates are you assuming in the cost of debt on the offshore wind when you give those expected long-term average ROEs? And just -- has that evolved since you gave that original target?

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Well, the -- are you referring to next year?

[Paul Zimbardo, Analyst at Bank of America]

The expected long-term average ROEs from the slides.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Okay. Well, just looking at it from a long-term perspective, the interest costs associated with offshore wind post close once we divest, those proceeds will be used to reduce our short-term as well as our long-term debt. For 2023, we have $1.2 billion of long-term debt that's maturing at the holding company, okay? So the timing cannot align any better for us. And then on another positive note, if you look at the total utility debt that's maturing, it's probably the lowest amount that I've seen in a long time. We only have about $800 million of debt maturing at the utilities. So that sets us up very nicely. But we still have -- nevertheless, we have to fund our capital program. So I'm not seeing a huge headwind and I'm not seeing a huge movement in our long-term guidance as a result of this environment that we are in from an interest rate perspective.

[Paul Zimbardo, Analyst at Bank of America]

Okay. I was more referring to like the actual projects. I didn't know if the interest rates are pressure and there's an offsetting mitigation positive to compete the average ROEs intact.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Well, number one, the -- because these projects are under construction, the interest cost that we are incurring during construction is capitalized. So we're not seeing any impact from a financing standpoint for these projects. And then once we get the proceeds from the divestiture that will be used to offset the debt that we currently are carrying.

[Paul Zimbardo, Analyst at Bank of America]

Yes. Yes. Understood. Okay. Great. And then briefly, I know you gave some commentary last call about pension. Just if you could give any updated thoughts there about pension returns or just your overall thoughts as we enter next year.

[John M. Moreira, Chief Financial Officer, Treasurer and Executive Vice President at Eversource Energy]

Sure. Sure, glad to do so. So pension returns, just like our peers, are not heading in the right direction for us. But even with that said, there will be some headwinds. But once again, not anything material, not anything that we cannot overcome.

[Paul Zimbardo, Analyst at Bank of America]

Okay, excellent. Thanks a lot.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thank you Paul. Next question is from Travis Miller from Morningstar. Good morning Travis.

[Travis Miller, Analyst at Morningstar]

Good morning, thank you. Not to belabor the point here too much, but back to the idea about what might happen on a harsh winter environment. In the past, on a regulatory standpoint, you guys have had some headwinds when we had difficult weather events. Do you think something has changed? Are you trying to set up a scenario here where if there are issues in terms of energy delivery, resilience, reliability? Is there a way you can turn that into a positive from a regulatory standpoint and get approval for more capital investment instead of getting penalized for not meeting a certain requirement?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Well, I think what we're focused on with the regulators now, our solution is to deal with this current winter. I don't know that maybe that would translate into some longer-term types of investments. But right now, this fuel security program where maybe these generators get given funds to have, say, a seven-day supply of fuel on-site. Those are the types of measures we're looking at short-term measures with our regulators.

But I think that -- during that dialogue is where you can demonstrate to the regulator that a particular transmission investment would unlock potentially a certain number of megawatt hours in a region and lower the cost. So I think the fact is we have very good regulatory relationships. We have very good regulators that are very engaged and we're engaged with them on these issues. So any time you have engaged parties you get much better solutions.

[Travis Miller, Analyst at Morningstar]

Okay. Great. And then one more on the governor's rates. Anything near term after the election that could be impacted either in programs that you're seeking approval for things you'd expect in the next year or so on the policy front, depending on the outcome?

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Yes. No, I think we have eyes on all of the states. I think we've got pretty stable regulatory climate, and we have plans -- we have multiyear plans. We don't expect that any -- but everyone's agenda around clean energy, around AMI, those are all consistent, no matter who the candidate is. I think everyone recognizes that -- we need to have a grid that can enable all sorts of resources to operate on it whether it's your charging your electric vehicle, your solar panels or any type of a distributor resource. So I don't -- I wouldn't expect any changes no matter who wins in what state.

[Travis Miller, Analyst at Morningstar]

Okay, great. Thanks so much. Appreciate the thoughts.

[Joseph R. Nolan, President and Chief Executive Officer at Eversource Energy]

Thank you.

[Jeff Kotkin, Vice President of Investor Relations at Eversource Energy]

Thanks Travis. Well, that was the last question that we have this morning. So we want to thank you all very much for joining us. We look forward to seeing you at the -- any of you at the EEI Annual Finance Conference. If you have any more follow-ups today, please send me an e-mail or give me a call. Thank you.

[Operator]

[Operator Closing Remarks]