Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the nice to worse third quarter 2019 earnings Conference call.
At this time, all participants are gonna listen only mode.
The speakers presentation, there will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your speaker today, Mr., Randy Hsulin, Vice President of Investor Relations and Treasurer. Please go ahead Sir.
Thanks, Skylar and good morning, everyone and welcome to the nice source third quarter 2019, Investor call. Joining me today, our Joe Hamrock, Chief Executive Officer, and Donald Brown, Chief Financial Officer.
The purpose of this presentation is to review nice sources financial performance for the third quarter of 2019.
As well as provide an update on our operations growth drivers and financing plans.
Following our prepared remarks, well open the call to your questions.
Slides for today's call are available on nights sourced dot com.
Before turning to floral work to Joe and Donald just a quick reminder, some of the statements made during this presentation will be forward looking.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statement.
Information concerning such risks and uncertainties is included in the M. DNA and risk factors sections of our periodic SEC filings.
Additionally, some of the statements made on this recording relate to non-GAAP measures for additional information on the most directly comparable GAAP measure and a reconciliation of these measures. Please refer to the supplemental slides and segment information, including our full financial schedules avail.
Double at night source dotcom.
With all that out or the way I'd like to turn the call over to Joe. Thanks, Randy Good morning, everyone and thank you for joining us.
Nice source teams continue their relentless focus on our core commitments of safety and customer satisfaction and our long term utility modernization programs that enhance safety and reliability, while driving our financial results.
We've also made significant progress on or electric generation strategy in Indiana with the approval of the rose water wind project and the filing of the second joint venture Wind project, Indiana Crossroads, our execution through the third quarter has positioned nights doors to meet our financial commitments for 2019.
And today, we're initiating guidance for 2020.
There's much to cover so let's turn to slide three which summarizes our key accomplishments through the third quarter in early fourth quarter.
Consistent with our long term growth commitments, we expect to deliver non-GAAP net operating earnings per share in the range of $1.36 to $1.40 and to make capital investments of $1.7 billion to $1.8 billion and 2020 .
As we've stated before we expect to grow our non-GAAP earnings per share in dividends by 5% to 7% annually and to make capital investments of $1.7 billion to $2 billion each year through 2020 too.
Our third quarter 2019, non-GAAP net operating earnings were zero cents per share versus 10 cents in 2018.
Donald will address the drivers for the quarter in a few minutes, but I will emphasize that nine source remains well positioned to deliver net operating earnings per share within our dollar 27 to $1.33 guidance range for 2019.
We expect to complete $1.7 billion to $1.8 billion in capital investments in 2019 slightly above our initial forecast for the year.
We're making solid progress on our foundational commitment to safety, including accelerated implementation of a safety management system or SMS.
Our SMS is aligned with the framework developed for pipeline operators by the American Petroleum Institute.
The mess is a comprehensive approach to managing safety, emphasizing continual assessment and improvement and identifying and mitigating potential operational risks proactively.
As part of our SMS work.
Enhanced risk management processes have been introduced at each of our gas distribution companies.
Our SMS team has completed its first set of risk assets analysis, which will help inform our maintenance priorities in investment decisions.
The team is also introduced the corrective action program or cap, which offers a simple way for our employees and contractors to report safety concerns and provides a systematic process to review prioritized address and track progress to reduce risk.
This program is available across our gas business and supporting corporate functions.
In addition to SMS implementation safety enhancements to our low pressure gas distribution systems remain a priority.
Teams have installed more than 1000 automatic shut off devices across the nice towards footprint this year.
Including completing all installation of these devices in Massachusetts and Virginia.
These automatic shut off devices operate like circuit breakers to provide an additional level of control and protection.
When the device senses and operating pressure that is too high or too low.
Designed to immediately shut down natural gas to the system regardless of the cause.
Our teams have also located in mapped all of our nearly 2100 low pressure regulator station control or sensing lines.
We used this information to add new details into our electronic mapping systems.
Earlier this month, we named Chuck Shaffer to the newly created position of cheap safety officer.
Reporting directly to me Chuck is accountable for driving or long term multiyear outlook and roadmap to reduce risk, providing an independent view and source of safety expertise and risk analysis across all nice source companies.
He is leading a centralized safety function to provide structured oversight and expertise in assuring rigorous emphasis on safety.
Our electric generation strategy continues to advance in Indiana, We've issued our second request for proposals for replacement capacity.
The RFP is consistent with our 2018 integrated resource plan, which calls for the retirement of nearly 80% over remaining coal fired generation by 2023, and all cogeneration to be retired by 2028 to be replaced by lower cost cleaner options.
The Indiana utility regulatory Commission has approved the joint venture agreement for our Rosewater Wind project and we recently filed a CPCN application for a second joint venture Wind project, Indiana Crossroads.
The hearing in our electric base rate case concluded in August and we expect in your seat order in the fourth quarter with new rates effective in January 2020.
Turning now to Massachusetts, the National Transportation safety Board or NTSB.
Last week issued the final report in its investigation of our September 2018 event in the Merrimack Valley.
Last month, the NTSB also close.
To open urgent safety recommendations issued last year.
The NTSB had made for such recommendations to nice source in 2000 in November 2018, and has now deemed our responses to these urgent recommendations as acceptable.
With the NTSB investigation now complete the Massachusetts Department of public utilities announced its own investigations of the incident in our emergency preparedness and response.
In mid August we completed our restoration efforts in the Merrimack Valley.
This restoration included the replacement of all customer equipment impacted by the event and fulfilled our commitment to have that were completed by September 15th.
We also repaired outdoor areas affected by or fall 2018, construction work, including residential lawn irrigation systems walkways driveways and state roads throughout the impacted communities.
A dedicated team remains in place providing support to impacted customers assisting with claims processing and providing repair support on appliances and heating equipment.
As announced in September we launched a verification process, which involves inspections of gas service lines abandoned as part of the fall 2018 recovery work in greater Lawrence.
These verifications as required by the Massachusetts Department of public utilities are confirming that the service lines were abandoned consistent with legal requirements and in compliance with our procedures and protocols.
As we find any service line abandonments that didnt meet those requirements, we're correcting the situation immediately.
We completed the initial set of 700 verifications by the required deadline of October 18th the.
The second set of approximately 2200, verifications is well underway and expected to be complete by November 15th.
And as announced late yesterday, we are planning to verify the remaining approximately 2000 service lines by year end.
These verifications are being done on a band in service lines, which are not connected to an active gas system, and therefore will not disrupt gas service to our customers.
We know that recent events in the Merrimack Valley have led many to lose trust in Columbia gas of Massachusetts.
The customers in the effected communities are worried about whether they are safe in their own homes.
We take responsibility for that loss since the security.
And as part of our comprehensive efforts to rebuild confidence and trust we brought in an experienced safety leader who knows Massachusetts.
Earlier this month, we named Nick Stavropoulos, as Chief Safety advisor at Columbia gas of Massachusetts reporting directly to me.
Nick has led several of the country's largest gas companies, including PG any national grid in key span.
Has the judgment experience and relentless safety focus to help us through these challenging times.
Now I'd like to turn the call over to Donald who will discuss our financial performance in more detail Donald.
Thanks, Joe and good morning, everyone.
Looking at our third quarter results on slide four we had a non-GAAP net operating loss of about $2 million revera since per share compared to net operating earnings for.
Of about $35 million or 10 cents per share for the same period in 2018.
The biggest drivers of our third quarter non-GAAP financial performance compared to a year ago were higher net revenues due to the impact of our long term infrastructure modernization investments.
Which were offset by increased safety related spending and higher financing costs.
Our 2019 year to date net operating earnings are in line with our plan, which puts us on track to achieving our 2019 guidance of $1.27 to $1.33 per share.
Before turning to our liquidity and financing plan I'd like to address greater low end.
Incident expenses.
Our total estimate which is detailed on slide nine has remained unchanged from our Q2 earnings release.
Going forward with the restoration work complete.
And the service line verification work nearing completion, we continue to not expect any significant future adjustments to the estimate.
However, as a reminder, this estimate excludes any amounts we may incur for Pim potential fines and penalties.
Also as we previously stated we expect to recover a substantial portion of our greater Lorne instant cost through the $800 million of casualty insurance coverage and $300 million of property insurance in place at the time of the event.
We started submitting claims in December 2018.
And have collected casualty insurance recoveries of $670 million through September thirtyth.
And expect to collect the remaining $130 million for early next year.
We also have filed proof of loss with our property unsure for the full cost of the $255 million to $260 million capital investment.
That we made and replacing the 45 miles of pipe following the event.
As insurance recovery process moves forward, we'll continue to provide quarterly updates on our progress.
Now turning to slide five I'd like to briefly touch on our debt and credit profile.
Following the August issuance of $750 million of 10 year notes at 2.95% interest.
Total debt level as of September September Thirtyth with about $9.5 billion.
Of which about 7.7 billion with long term debt.
The weighted average maturity of our long term debt was approximately 17 years and weighted average interest rate with approximately 4.4%.
At the end of the third quarter, we maintain net available liquidity of about $1.4 billion, consisting of cash and available capacity under our credit facility in our accounts receivable securitization program.
Our credit rating from all three major rating agencies are investment grade and we're committed to meaning are maintaining our current investment grade rating.
I'd now like to turn slide six which covers our financing plan for our long term growth investments.
Our current plan is approximately $500 million of long term debt in 2020.
We continue to include annual equity in the range of $200 million to $300 million from our aftermarket or ATM equity issuance program as well as $35 million to $60 million from our employee stock purchase another programs.
Our ATM continues to be consistent with our approach to provide balanced predictable financing for our ongoing infrastructure investments.
The primary change to our financing plan is that we now expect.
A block equity issuance in the range of $500 million to $700 million in 2020.
This change is driven by the need to permanently financed or greater launch event.
Which excluding the capital investment is estimated to cost approximately $1.4 billion.
The total cost estimate is offset by casualty insurance recoveries that are expected to total $800 million.
And that leaves approximately $600 million to be financed.
We evaluated several different approaches to this incremental financing needs and determine at the best option to maintain our credit profile and to achieve our 5% to 7% annual non-GAAP EPS growth commitment is to pursue a common equity issuance in 2020.
And our analysis, we believe common equity is less costly than hybrid security alternatives.
Therefore, we are no longer planning to issue.
Hybrid securities such as preferred equity in 2019 or 2020.
As Joe mentioned earlier in the call, we expect to deliver non-GAAP operating earnings per share in the range of $1.36 to $1.40 in 2020.
Which includes the impact of this updated financing plan.
This is consistent with our long term forecast to grow our net operating earnings per share and dividend by 5% to 7% annually through 2022.
And we expect to make $1.7 billion to $2 billion, an annual capital investments each year from 20 point through 2022.
Now I'll turn the call back to Joe for few infrastructure investment and regulatory highlights.
Thank you Donald now, let's turn to some specific highlights for the third quarter in early fourth quarter of 2019 from our gas operations on slide seven.
In Maryland, our base rate case request remains pending before the Maryland to public Service Commission.
Filed in May the request supports continued replacement of aging pipelines and adoption of pipeline safety upgrades.
If approved as filed the request would increase annual revenues by approximately $3.7 million, including $1.2 million of current infrastructure tracker revenue.
Commission order is expected by the end of 2019 with rates in effect in January 2020.
In Ohio, the public Utilities Commission in August approved to the first annual adjustment to our capital expenditure program rider.
The CP rider, which was first approved by the P. USIO in 2018 allows us to recover capital investments and related deferred expenses that are not recovered through our infrastructure modernization tracker.
The approved adjustment allows us to begin recovery of approximately $122 million in capital invested in 2018.
New rates became effective in September .
In Indiana, our latest tracker update request in our long term gas infrastructure modernization program remains pending.
The request covers $12.4 million and incremental capital investments made between July 2018 in April 2019.
In Indiana utility regulatory Commission order is expected in the fourth quarter of 2019 with rates effective November 2019.
I would also note that we filed a notice to terminate our current programs in anticipation of filing a new plan application by year end.
Also in Indiana. The you RC last month approved our films a compliance plan covering approximately $230 million of capital expected to be invested between 2019 in 2023.
In Kentucky, we filed our annual rider update application in or accelerated main replacement program covering approximately $40 million in planned capital investments.
Included in that filing is a request to recover capital that will be spent on our low pressure systems safety enhancement work.
Now, let's turn to our electric operations on slide eight.
In August the value RC approved the joint venture and ownership agreement for Rosewater, one of three wind projects that NIPSCO announced in February 2019.
The value RC in June approved power purchase agreement applications for the other two projects Jordan Creek and roaming bison.
And earlier this month NIPSCO filed an application with the value RC for a fourth wind project, Indiana Crossroads joint venture with EGP Renewables North America LLC.
Which will have an aggregate nameplate capacity of 302 megawatts.
It is expected to be in operation in the fourth quarter of 2021.
As I mentioned earlier NIPSCO on October Onest announced the opening of its second request for proposals to consider potential resources to meet the future electric needs of its customers.
Consistent with the 2018 integrated resource plan, we will consider all sources in the RFP process, which closes November twentyth.
Our goal is to transition to the most economical cleanest electric supply mix available, while maintaining reliability diversity and flexibility for technology and market changes.
The hearing concluded in August in our electric base rate case, which remains pending before the value or C.
Prior to the hearing we filed two partial settlement agreements in the case.
The April settlement addresses our revenue requirement federal tax reform and depreciation schedules related to the early retirement of our coal fired generation plants called for in our 2018 IR Pete.
If approved as filed the partial settlement is earnings neutral and allows for a return on equity of 9.9%.
In May we reached a settlement with the industrial group, which resolves many issues related to implementing a new service structure for industrial customers.
And I you RC order is anticipated in the fourth quarter of 2019 with new rates effective in January 2020.
We continue to execute on our seven year electric infrastructure modernization program, which includes enhancements to our electric transmission and distribution system designed to further improve system safety and reliability.
You are see approved tedious program represents approximately $1.2 billion of electric infrastructure investments expected to be made through 2022.
Our latest tracker update request covering $131.1 million in incremental capital investments made from December 2018 through June 2019 remains pending before the value RC.
An order is expected in the fourth quarter of 2019 with rates effective in January 2020.
Before revisiting our key takeaways for the quarter I'd like to highlight a couple of milestones in September nine source was named to the Dow Jones Sustainability, North America index for the sixth consecutive year.
We were one of three us multi utility companies on the list and it reflects advancements we continue to make on our sustainability strategy, which includes aggressive greenhouse gas reductions in executing against more than $30 billion of long term infrastructure investments.
Customers and investors alike expect our companies to deliver energy safely reliably and in an environmentally responsible and sustainable way.
We continue to focus on delivering on all of these dimensions.
And if you haven't seen it I encourage you to read our 2018 climate report, which we published on Nisource Dot Com in August .
The report incorporates recommendations from the task force on climate related financial disclosures or Tcf D to disclose governance strategy risk management and metrics around climate related risks and opportunities.
We've taken an industry leading approach to addressing climate change, but developing plans that result in a projected 90% reduction of our greenhouse gas emissions by 2030, including a projected 50% reduction in methane emissions from natural gas distribution mains and service lines by 2000.
25.
Before we turn to the Q and a portion of the call.
I will share and reiterate a few key takeaways consistent with our long term growth commitments in 2020, we expect to deliver non-GAAP net operating earnings per share in the range of $1.36 to $1.40 and to make capital investments of $1.7 billion to $1.8 billion.
Yeah.
Nice source remains well positioned to deliver net operating earnings per share within our dollar 27 to $1.33 guidance range for 2019.
We expect to complete $1.7 billion to $1.8 billion in capital investments in 2019 slightly above our initial forecast for the year.
Our long term investment driven growth plan is intact and resilient inclusive of the adjustments made to our financing plan. We continue to expect to grow both net operating earnings per share and our dividend by 5% to 7% annually through 2022.
And we expect to maintain our current investment grade credit ratings.
Safety remains the foundation for all that we do and we're advancing that commitment with our accelerated SMS implementation across our seven state footprint.
Through SMS, we're increasing our rigor to identify risks and taking action to keep our employees contractors customers and community safe.
We continue to execute on safety enhancements to our low pressure systems.
Our electric generation strategy is advancing with three wind projects approved in the fourth one proposed in the second RFP issued to identify additional sources to replace our coal capacity.
Our electric base rate case is on track with partial settlements in place and the hearing on contested issues complete and an value RC order expected this quarter.
Significant milestones have been achieved in our recovery from the Merrimack Valley event with the NTSB issuing its final report and the second phase of the restoration completed.
We continue to work to rebuild confidence and trust in the community.
We're working diligently to assure the quality of last fall's construction work and we brought in experienced gas safety leader, who knows Massachusetts.
Thank you all for participating today and for your ongoing interest in support of nice sewers, we're now ready to take your questions Skyler.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound.
Please standby why we compile the Q and a roster.
Our first question comes from Julien Dumoulin Smith with Bank of America. Your line is now open.
Hey, good morning, Hey, good morning, good morning.
Hey, how do you so perhaps just to kick things off just on the capital front I know you guys have been talking a good bit about gas safety.
Over the year prospectively continue to talk about it will be curious how you think about this capex of of.
One seven to one eight relative to that kind of longer term trends through 22, how do you think the cadence is how do you think even that guidance through the 22 period.
Meshes with a potential further.
Spend or effort on gas safety Holistically.
Thanks Joanne.
Good morning.
We look at that.
Our long term guidance on capital, but the 1.7 at the 2 billion that we've got there there's a lot of focus on the gas side.
We certainly haven't seen significant changes.
On the investment.
Because of SMS approach, we're still early in that process.
I think it won't necessarily change that guidance level, but will change the components of the investments we make.
In each state there yes.
When you look at the increased to $2 billion over the next couple of years, we've got a couple significant projects one in Ohio that.
Really a looping project in central higher where we've had some significant growth.
Which runs through a tracker program and so thats the real increase that you will see open. The next couple of years in our guidance.
Got it and then perhaps if I can ask you with respect to.
The incremental equity financing in 2020, how do you think about perhaps some of the puts and takes against reaffirming the longer term, 5% to 7% EPS CAGR I understand that there's a range for a reason I understand that this is a discrete item against the longer term outlook, but would be curious if you perceive other items here.
Sure whether in 20 or onwards that might otherwise mitigates the dilutive dilutive impact of the incremental equity here.
So when we look at the long term certainly the plan for next year, but also as we build out the long term plan.
But our infrastructure investments and as you see on one of the charts and there is a significant portion of our investments are going are going into trackers.
So we're getting pretty quick returns back on those investments and that really does support the $500 million to $700 million of of equity.
That we've outlined for for next year. So we're confident.
And our ability to meet those commitments and think that we've got certainly levers on the infrastructure program, but our overall operating plan with continued investment in safety in the gas business.
Got it all right I'll leave it there. Thank you guys.
Thanks Julie.
Our next question comes from Shire for Asia with Guggenheim Partners. Your line is now open.
Hey, good morning, guys Warner Sharp good morning.
Can you just real quick still sticking with Massachusetts can you just touched on sort of the second gas leak. We saw with the restoration project is there sort of any status updates I think the formal investigations have started and.
Is the moratorium that's on non emergency work do you see any long term impact.
Yes, Thanks, Charlotte's, it's an important topics update on so so as we have.
Noted that that gas leak did not result in any.
Damage to property or any significant consequences, but it has indeed.
Struck soma, some erosion of confidence and trust and and concerns in the community and across the state. So the moratorium as it relates to that is we agree with and we are aligned with the deep you a part of our comprehensive efforts to restore confidence and restored.
Trust that leak as you know relating to work that was done last year on the rebuilds. So we've taken a hard look at the rebuild itself and we're continuing to verify the service lines that were abandoned throughout that not not in any way related to the leak in September but our efforts there.
Our comprehensive and focused on restoring trust and confidence the moratorium itself does two things it helps to Marshall resources for the service line investigations, but also gives us an opportunity to work with the GPU.
To build assurance of of safe operations across the state, we're confident and optimistic that as we work through the remaining phases of the.
The service line abandonment verification and begin to work with the deep you on the audit that we expect to be implemented that we will be on a path to rebuild that trust and confidence and that the moratorium would ultimately be lifted we don't have a date for that right now, but that's certainly our goal in terms of long term impact.
We are factoring in some impacts into our 2020 guidance, but on a fairly moderate basis, we expect the suspension of our modernization work. The GE step work to have an impact in 2020, that's inside the guidance, it's a relatively modest impact on CMH.
In offset to a degree with capital allocation in other states. So.
Something we're navigating through and adjusting to as we go through these steps with the GPU.
Settlement and then is there.
No thats exactly thank you.
Okay, and then just around the rate case.
We just get a sense on timing you still assuming first quarter and it doesn't seem like you know sort of this moratorium more or is going to impact the timing. So I guess are you still expecting to file a GRC in the first quarter.
We haven't set a date for filing I think what Weve said consistently as we look at that early next year, we'd start to take a look at that we have a number of steps we need to work through including.
The investigations with the deep you they announced as you know as we noted on the call earlier.
Two investigations one into the incident last year and the other into the response to the incident and so working through those will be an important part of the overall process with the deep you as we contemplate future rate case activity.
Got it and then just lastly on a follow up on the SMS question from the prior caller.
You guys are it's preliminary year, you're very early in the process.
Have a sense maybe on on the cost or on them and how that profile can shape as we look to model that on a go forward basis as you get further into the SMS program.
Yes, I mean, we've certainly seen some higher cost this year and part of that is really the start up as we look at our processes and procedures and roll that out across.
Seven state I'd say going forward, we'll see.
It's a lower increases and the gas segment were certainly.
I expect that the gas segment will grow 1% to 2%.
Over the next year or so, but the real change comes and our process and procedures and and the rigor that we apply to those.
Those practices versus increased costs that would drive our overall on them for the gas segment.
Got it good glassware mobile pass this thanks guys.
Thanks sharp.
Again, if you have a question. Please press star and them line. Our next question comes from Insoo, Kim with Goldman Sachs. Your line is now open.
Thank you in regards to the equity issuance any thoughts or.
Tom So you could give on potential timing of that as we head into 2020 are you potentially thinking about maybe doing a forward.
The fourth quarter of this year for 2020, and then related to that what weighted average share count should we assume when you're providing the 2020 bps guidance.
So we've got some flexibility on the timing of that equity we needed by the end of next year to make sure that we hit our rating agency credit target.
So we havent.
From indoor decided.
Timing or how we'll do that including looking at forwards, but we are.
As you would expect those are all the things that we're looking at and trying to determine what what makes the most sense, but we've got some flexibility.
And then certainly don't need it until the end of next year to meet our targets Randy you have the.
Yes, I think as far as a weighted average share count for this year, it's largely going to be about where the share count is today, because we've done most of the activities under forward to closes in December of this year that wont really add to the share count on a weighted average basis.
So just to clarify that the 500, just 100 that youre assuming at some point in 2020, that's not necessarily embedded in the share count when you're giving the on 36 to 140.
It will be embedded.
Our next year's guidance absolutely, okay. So thats part of that and I guess, if I'm, assuming the midpoint, then if I'm spreading that across the year that would fall via relatively safe assumption, how youre getting to the midpoint.
You can certainly take that approach got it.
Just away from that.
Indiana with a 300 megawatt, Indiana Crossroads when farm I assumed that was part of that over the last round of ours piece and the separate from the October filing that you guys just made where you're.
Yes.
Finally for a lot more solar and wind and or storage.
Was that the JV and the partial ownership of Indiana Crossroads.
Part of your growth rate base growth plan into 2021 and then.
When it comes to the current round of our piece does that satisfy the.
With that satisfy the capacity that and the energy necessary for the 2023 timeframe further cost reductions.
Now let me take the last piece first it's part of the overall solution for the 2023 capacity replacement. The the crossroads filing that we just made mirrors the model that we pioneered earlier with the Rosewater project that the Rosewater was 100 megawatts.
Indiana Crossroads is 300 megawatts as you know rosewater approved by the value or see pending at FERC and we do have.
Private letter ruling support from the IRS. So we think we've got a good model in place to to follow with the Crossroads project and it is consistent to your first question with the RFP from last year. It follows from that it's not related to the new RFP.
Most of this is.
Beyond the current Capex guidance, though so most of what we're talking about with these projects falls beyond 2022, so our new RFP. That's out now we would expect to have in two or forecast and planning early next year, which should put us in a position sometime.
Next year to extend the guidance beyond 2022 in and that at that time will be in a much better position to lay out how all these projects in any of that come out of the current RFP set up for Capex beyond 2022, and our overall got growth guidance beyond 2022.
Understood. Thank you very much in season. Thank you.
And our next question comes from Steve Fleishman with Wolfe Research. Your line is now open.
Yeah, Hi, Thank you just wanted to clarify hey, guys.
The additional equity in the 2020 guidance.
That you're not just assuming it goes into the ended the year 2020 that it's kind of.
Average through the year or something like that.
No.
Let me clarify we have not determined the timing of that equity.
But what I would say is we don't need it until the end of the year. So it certainly gives us some flexibility to do it.
During the year or at the end of the year.
Okay.
And then the guidance range, which maybe to ask a different way and the guidance range for 2020, it's not going to really.
Move it much if you do it earlier then right at year end.
Is that fair that's fair okay.
And then and then just in terms of the decision because it.
Back a few months ago, you'd been reviewing things like prefer its and Highbridge and could you maybe just give a little more clarity on why you decided to do this is all equity just to be overly conservative or how how did you come to that conclusion.
Just looking at our current stock price.
Our expectations of what that cost of equity is an issuance costs versus what we're seeing.
For preferred preferred equity and the subordinated debt.
And since you don't get.
100% credit from the agencies for those subordinated notes.
The overall cost to us appears to be lower to issue equity.
Okay.
And then on the.
Property insurance decision is there any way to gauge when you might get out.
Vision from the insurers on on that.
It's still early so we filed in July with the property insurer.
The NTSB report came out in late September and so we've really just started the process.
With the ensure that now they have access to the pipe and the report.
That they can do their due diligence on on the claim and so at this point we don't have.
Any recovery in our plan.
But certainly going to go through the process to seek to recover.
All that we filed form.
You have.
Recovery, though.
So two sets in your plan.
Recovery, what do you mean in terms like also like some kind of.
Great recovery for that if not property recovery rate recovery or you just assuming no.
Operator.
So from an insurance standpoint.
We would wait for.
The insurance process to fully finished before requesting any type of recovery on the investments we made last year and early this year in Merrimack Valley.
So that timing will will matter there on how we seek to recover that through for customers.
Okay, great. Thank you.
Thanks, Steve Thank you.
Our next question comes from.
Christopher tenure with Jpmorgan. Your line is now open.
Good morning, Joe and on most of my questions have been answered, but I wanted to just go back to 2020 drivers I think you mentioned that Oh Nm would only go up by one or 2% and the gas segment, but are there any other kind of major drivers there. Besides what you already talked about with.
But potential, Massachusetts rate relief interest expense reduction or cost cuts elsewhere.
Can you guys Jeremy.
I'm sorry.
He has muted.
So yes, I do expect that the gas segment will be up slightly year over year from an on him standpoint.
But.
Between the corporate segment and Neil in the electric segment that will offset and overall on m. should be about flat.
Okay, and then any other kind of major rate relief for other drivers that we might be missing Matt.
What we're going through that planning now.
To determine which rate cases, if any would file for next year.
As you expect.
We're typically in a couple every year across our seven.
Right.
But we havent publicly announce.
If in.
And when we would follow the next rate cases.
Okay. That's all ahead, thanks, guys, yes, thanks, Chris.
Our next question comes from Michael Weinstein with Credit Suisse. Your line is now open.
Hi, guys.
Michael Smart myself, hey, good morning.
On the 5% to 7% growth rate going forward.
At this point with the extra equity that's out there.
We are you expecting to that that's going to be the the permanent trajectory off $1.30 from 2019 based on that going forward in other words, you won't be any catch up to the original pre Lawrence guidance going forward as a result of the additional equity would that be fair to say.
Yes, I'd really say its 5% to 7% off of.
This year 2019 guidance.
Right right.
It doesn't.
And there is no there's no acceleration coming out of.
From a pension asset recovery or.
Faster than expected insurance recoveries or any of that.
Not that we're guiding to at this point.
Okay, Great Alright, Thats, all I had thank you yes.
Our next question comes from Greg Gordon with Evercore ISI Your line now Ben.
Hi, guys you guys have.
I've answered all my questions. Thank you have a good day. Thank you very soon.
Our next question comes from Andrew Levi with access point. Your line is now open.
Hey, guys. So are you more and Andy good morning.
Hey, just a few questions.
Yes on mass.
What percent of your total earnings come from mass.
It's about.
8% to 9%.
Hey to 9%, Okay and their Capex is about 102 180 to 140 million out of your one point.
7 billion dollar Capex budget.
It's in that range.
Okay. So it's really a small piece of your total business.
And obviously you know you've taken quite a ding there as far as sheriff.
What you had to put out but as.
As you stated that it seems to be kind of done now so it seems theres a do you guys feel there's a over emphasis.
On the financial impact going forward not what it was.
On this part of your.
This segment of your total business, which I guess the rest is 75% tracked.
Your next a fairly predictable.
No I think it it is a very good point financially Andy that.
It is a smaller portion of our business from and from an earnings standpoint.
So does have less of an impact.
Going forward, but I also understand.
Concerns and questions that investors and other stakeholders have.
No in that business and how that impacts overall nice source.
Yes. It is a smaller portion of our our earnings and our capital going forward.
And that does allow us.
Because we're in six other states to have some flexibility to meet our earnings and grow commitments.
And as far as the timing of equity issuance, which is not.
Not that big in the issuance.
Does that kind of happened this year or will it not the issue till next year.
Now, we we will not do it this year certainly with the insurance recoveries coming in faster than expected.
We're confident that will meet our credit targets for 2019 on so it's definitely a 2020 issuance.
Okay.
That's helpful. And then the last thing is for for Joe.
If you kind of look at where the stock is trading.
Whether it's on 20 guidance.
21, or 22 consensus earnings.
And whether theyre, a penny high or low or whatever it's another fairly in the ballpark I think the stock trades from anywhere between 8% to 50% discount to the regulated electric group.
Could you kind of just address that and what your thoughts are that relative to where you have traded in the past and how is the CEO you plan to fix that.
Yes, Thanks, Andy I think it some of that goes to your earlier question. The core value. The business is intact resilient, we laid out a lot of the investment in regulatory profile. Even on this call for this year and looking ahead to next year with our guidance. So if you kind of.
All of the long trajectory here and add to that the work we're doing with our risk analytics in SMS. We see the same if not an enhanced pipeline infrastructure investment activities through the foreseeable future then supplement that with the work we're doing to position.
Generation investments in our in our generation portfolio repositioning work I'd say, we're in a strong if not a stronger position than we were a year ago set aside, Massachusetts, and the impact of the greater Lawrence incentive which which is.
As we've talked about today much of the cost of that is now well defined and wells accounted for in our plan. So I think I think it really becomes that core execution strategy in that core execution story that we've always had without a much enhanced level of rigor and risk analytics.
Driving that as we go forward.
Okay. Thank you for that and then just just a clarification on the equity timing so even though.
You're not going even do a forward to this year right. It's it won't be issue till sometime next year.
Correct.
You are just say, you're just saying as far as.
When you will actually reflected.
Exactly I think we've got some flexibility to do a forward. This year have determined if we will or not but certainly have flexibility to push equity needs to the end of next year. If that's what makes most sense.
Okay perfect. Thank you.
Thank you.
Again, if you have a question. Please press Star then one.
Your next question comes from Charles Fishman with Morningstar Research. Your line is now open.
Thank you Adolfo.
Hi, impose on Youtube Pete a comment you made I don't think I understood. It you were talking about the sizing of the block equity issuance next year 500 or 700.
I thought you said.
Suspect I got this wrong the logic of it was.
Directed towards Merrimack Valley 1.4 billion of costs, you assume an 800 million of recovery of insurance, which left 600 and that.
Thats, what was driving the sizing of the block equity issuance did I.
Did that.
Thats exactly right, yes, we need to finance that different.
Long term and to meet our credit.
Ratings target, we need to issue equity.
For that difference.
And obviously, there's a lot of other costs associated with SMS and.
Theres things you're doing outside of Massachusetts.
That was maybe in part driven by the events and Merrimack Valley.
Correct.
I'd say it was accelerated SMS work, where we really started about nine months before.
Merrimack Valley event in September .
But we certainly accelerated that activity post the event to make sure that.
We started to implement those processes and procedures across all seven states. Okay, and then 100 million increase in Capex. This year was that SMS, just general gas general electric work or.
Our all the above.
It's not SMS.
I'd say the big change that.
We had in this past year was the low pressure system work that we started in 2019 to install b.
Vices across seven states.
This was just an acceleration of that.
That's right so thats, a big portion of the change, but I'd say.
It's kind of across.
The seven states, including electric.
Setting that 100 million dollar increase.
Okay last question Slide 11.
I think it's consistent with the slides in the past where you show.
No what the recovery timing of your Capex Theres, a big drop down between 1920, and then going forward as far as the percentage that you have to go for a just a general rate case was that driven by Ohio.
Is it or what drove that drop.
That led to right there.
Okay, well going forward.
Into 2020 and 21, it really is Ohio.
With the CP.
I'm tracker that we have now that most of the capital for all of the capital expense in Ohio is going through.
The tracker program as well as just increases in Indiana and some other states.
Then you you said.
I assume then it was this change in Ohio that really.
Drove this big transmission project, there that you got coming up.
That's right.
That's right I think about how to think about is as you look at the difference between 18 19 and going forward is the investment we made inquiry greater Laurent.
You know until the $255 million to $260 million is reflected in those two numbers until you've got that switch of significant rate case investment that.
We wouldn't have going forward.
Okay. That's all I had thank you very much yes.
And at this time Im showing no further questions I'd like to turn the call back over to Joe Hannah CEO for any closing remarks. Thank you Skylar and thank you all for your engagement today in for your thought for an insightful questions we will.
We look forward to seeing many of you at the upcoming IAI Conference and until then please make it a safe day and appreciate your continued support and engagement. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.