Q4 2019 Earnings Call
Welcome to the Eversource energy Q4, and year end 2019 results Conference call. My name is how life cycle up your operator for today's call. At this time all participants are in listen only mode. Later, well conduct that question answer session. During the question.
Sure session. If he has a question. Please press Star then one on your Touchtone phone. Please note. This conference is being required that I will now turn the call over Jeffrey Kotkin you may begin.
Thank you Paula good morning, and thank you for joining us on Johns Hopkins Eversource Energy's Vice President for Investor Relations.
During this call will be referencing flying that we posted last night on our website and ask you can see I like what some of the statements made during this investor call maybe forward looking as defined within the meaning of the safe Harbor provision of the U.S. Private Securities Litigation Reform Act 1995. These forward looking statements are based on matters.
<unk> 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.
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 31st 2018 at our form 10-Q for the three months ended September Thirtyth 2019. Additionally, our explanation of how and why we used.
Certain non-GAAP measures and how those measures reconciled to GAAP result is contained within our news release and Thislife, We posted last night and in our most recent 10-K.
Speaking today will be Jim, Josh, our chairman, President and CEO, and Phil Lembo, our executive Vice President and CFO.
Also joining us today, our Werner Schweiger, our EVP and Chief operating Officer, Joe Nolan, our SVP for strategy and customer and corporate relations John Moran, our treasurer and senior VP for finance and regulatory Jay both our VP and controller and my thoughts right our VP for business development.
Now I will turn to slide two and turn it over the call to Jim.
Thank you, Jeff and good morning.
Thank you everyone for joining us today for our view of 2019 resolved before our updated long term outlook.
I'll start by thanking our 8300 Eversource energy colleagues for just a terrific 2019 in for the very bright future, we expect for our company our customers.
As you can see slide for our investors benefited from a very strong total return to 34.4% in 2019.
Return was 860 basis points ahead of our peer index and the only 300 basis points ahead of the S&P 500 total return in 2019.
And as you also can see on this slide our three year five year 10 year performance has consistently beaten up here index as well as the brought to market.
And as the January 2020 performance comparison shows we're off to another strong start this year.
That constancy of shareholder return is directly related to our solid long term record operating performance.
On slide five you can see the results of our commitment to continuous improvement in our operating metrics related to reliability safety and grid and see response, there was a top tier of our industry in the top decile of our industry peer group for reliability.
That execution and the drive to provide ever improving service to our formally customers here in new England.
One diligent strategy.
Thanks, selling and our basic business, we enjoy strong credibility with our regulators and the state and federal policy makers.
Our leadership position on energy issues also enhanced by our strategy of being a catalyst for clean energy development in new England and for our efforts strive for best in class governance deployment policies safety programs energy efficiency support and leadership in our communities.
Some of the organizations that have recognized our leadership over the past year listed on slide six.
Credibility generated by our strong operating performance helped us achieve very tangible results.
Especially in areas such as structuring long term rate deals in our regulatory jurisdictions are entering new business ventures, such as water and offshore wind.
We have a prominent seat at the table as our business strategy aligns very well with the energy economic and environmental goals of the region.
All living space targeting at least an 80% reduction greenhouse gas emissions by the year 2015.
This is a very ambitious goal, especially given that nearly 50% of those admissions today come from the billions of motor vehicles that cross our affairs daily.
In December we announced that we will support these efforts by setting a goal.
Making eversource carbon neutral, but 23.
That's the most ambitious goal of any energy utility in the United States as you can see on slide seven we've already reduced carbon emissions by approximately 70% over the past few years, primarily by divesting our fossil generation in New Hampshire.
From here, our efforts will focus on the combination of improving the efficiency of our electric grid.
Further accelerating the replacement of older cast iron and unprotected steel natural gas distribution pipe.
Changing athlete to include more hybrid and electric vehicles, and increasing the energy efficiency of our buildings.
Setting this aggressive carbon reduction goals makes us more attractive to SG focus investors will now comprise about 10% of the 1600 domestic and international funds currently invested in Eversource shares.
Our clean energy strategy is further enhanced by our partnership with was.
To build at least 4000 megawatts of offshore wind up the cost of Massachusetts.
This buildout is incremental to our goal of making our operations carbon neutral by 23.
Slide eight provides a status report on 1700 14 megawatts, we have one thus far through successful bids into mode Island, Connecticut, and New York RFP.
As you can see on this slide we have secured approvals of the long term agreements we have under contract.
So clearly the focus ahead is of siting approvals.
This year, we expect to file our construction in operations plans.
For our two large projects with the Bureau of Ocean Energy management a ball.
We expect to file revolution wins in the first half of 2020.
To summarize wins in the second half of the year.
Most filings will be consistent with our expectation that revolution will have its first full year of operation in 2024 in Sunrise will have its first full year of operation in 2025.
We continue to target operation of the first smallest of these three projects self work by the end of 2022.
We're currently reviewing that schedule in light of bonds recent announcement that will not completed cumulative impact study.
Six tracks off, Massachusetts until mid June.
That study is part of the venue with application, but it will likely encompass all of the tracks.
The pricing of most of our PPH to pricing of most of our PPA pace is up.
And noted on this slide.
In December Congress passed at the present signed legislation.
Spending for one year and decreasing over 2019 levels, both investment tax credits and production tax credits for construction commencing in 2020.
We apply this extension, which supports this rapidly growing industry and we expect qualify for 18% tax credits on our three projects.
As you know while we were successful in New York RFP last year, we were not successful in the Massachusetts RFP.
The Connecticut, RFP, both of which were awarded in the fall.
While the Connecticut pricing is not public, Massachusetts pricing, what made public with the contract filing this month.
Like the first Massachusetts RFP in 2018.
The pricing in the most recent RFP would not be sufficient for us to earn targeted mid teen returns. So although disappointed I was comfortable with up it's not being selected.
As I've said to both the west at Board.
And you have us was four.
We control the two best Ocean tracks that form has auctioned off it.
The closest to shore, which you can see on slide nine and should be the most economic to develop and retain.
Between New York, Connecticut, Massachusetts, and Rhode Island.
There will likely be at least 15000 megawatts of contracts available to developments over the coming years.
Lastly, we would want to do is lock ourselves into contracts with 20 to 25 years that would not allow us to earn a targeted returns because we bid to aggressively.
We consider our sites to be a tremendous competitive advantage.
And we'll be disciplined in our bidding.
It takes an additional few years to reach the 4000 megawatt capacity for anthrax.
Hi would be patient reserving has potential returns.
In the meantime off with developers of the tracks up, Massachusetts achieved a significant milestone late last year, when we committed to bone and the cost guidance that we we coordinate our development to provide one nautical miles spacing between offshore wind trends both east west.
Let's sell across all parcels created a grid like configuration.
We believe this is a very positive development is addressing the concerns of both the region's fishermen and the koska.
In late January the Coast Guard published a notice for public comment, indicating that this one nautical mile by one nautical mile configuration.
We create adequate paid adequate spacing the search and rescue operations.
And would vacate safe ship navigation.
Earlier this month, Connecticut government never mind announced a public private partnership that will result in up to $157 billion being invested in refurbishing the new one did state.
As a stated ground offshore construction.
This innovative partnership into which Eversource and horse fit together, we'll invest a projected 77.5 billion.
We will allow Connecticut to realize significant economic development benefits from this new clean energy source.
So to conclude my offshore wind condiments, I want to emphasize what a great opportunity. This development is for our region for our customers and for our company.
The area off the Massachusetts Coast is perhaps the best place offshore wind in all of North America.
Because of the year round wind speeds, the shallow depth of the waters in the proximity to southern New England low.
I believe two parcels of the best situated on six parcels that bogus auctioned off and our partner or said is the best in most experienced developer of offshore wind in the world.
Perhaps most importantly.
So when does in the sweet spot of public policy.
Providing billions of dollars of economic development benefits to our region.
The benefited from widespread support.
It's from public policy makers, the business community and environmental groups.
As a result, I could not be more optimistic about the future of offshore wind business.
As a reminder, our offshore wind opportunity is incremental to the solid growth prospects, we foresee for our core business.
As you can see on slide 10.
We have grown earnings per share by approximately 6% on average since the 2012 merger that created Eversource.
We expect to continue to grow earnings per share by 5% to 7% solely through the growth of our core regulated utility businesses.
5% to 7% growth excludes earnings from the two large offshore wind projects that we expect will produce significant additional EPS growth.
In 2024 in 2025.
As shown on slide 11, a key element of our total return profile remains on dividend growth.
The best solid earnings growth and conservative payout ratio, we could see dividends to be extremely well supported with a growth trajectory similar to five to seven cents EPS growth.
Earlier this month, the Atlas was board of Trustees approved the 6.1% increase in our quarterly common dividends.
That increase underscores our confidence in our long term rooms growth in business strategy.
Now I'll turn the call over the Phil.
Thanks, Jeff as today I'll cover our results for 2019.
Discuss the earnings guidance for 2020 in the key drivers that support that.
Provide an update for you on our five year Capex plan.
And our 5% to 7% EPS growth.
And review the outstanding regulatory items, we have pending.
I'll also cover it briefly what our financing plans offer for the year 2020.
Let's start with slide 13 at our fourth quarter full year results for 2019, our GAAP earnings with $2.81 per share in 2019, including the 64 cents Northern pass charge, we recorded in the second quarter, excluding that charge. We are at $3 in 45 cents per share in two.
And in 19 compared with earnings of $3.25 per share in 2018.
The three to $3.45 was a 6.2% increase in right at the midpoint of the earnings guidance, we provided you a year ago.
In the fourth quarter of 19, we earned 76 cents per share compared with earnings of 73 cents in the fourth quarter of 2018.
That's some specifics about the quarter and year earnings for our electric distribution segment were $1.59 per share in 2019, compared with $1.44 cents in 2018.
They were 28 cents per share in the fourth quarter of 19, compared with 24 cents in the fourth quarter 2018 for both the full year and the fourth quarter results improved primarily as a result of higher distribution revenues.
These are partially offset by higher depreciation and operation and maintenance expense.
Transmission segment earned a total of adult 43 per share in 2019, excluding the northern pass charge compared with $1.34 cents in 2018.
They were 36 cents per share in the fourth quarter of 2019, compared with 31 cents in the fourth quarter of 18.
The higher full year in fourth quarter earnings primarily reflect an increased level of investments in our transmission facilities. Our transmission rate base ended 2019 at an estimated seven 7.26 billion compared with 6.75 billion at the end of 2000.
In an 18.
Transmission capital expenditures totaled slightly more than $1 billion in 2019 or about 3.5% higher than the year previous.
Earnings from our natural gas segment totaled 30 cents per share in 19, compared with 29 cents in 2018 fourth quarter earnings were 12 cents per share in 2019, compared with 14 cents in 2018.
For the full for the full year higher revenues were largely offset with higher operations and maintenance costs depreciation higher property tax and interest expense. The fourth quarter decline was due to higher OEM and depreciation expense as well as the absence in 2019.
I mean of rubber benefit that we received in 2018 relating to our.
Thank you rate case.
Full year earnings from our water distribution segment totaled 11 cents per share in 2019, compared with 10 cents per share in 2018.
Quarter earnings in our water distribution business, where two cents.
Per share in 2019, that's up a penny.
Over 2018.
Improved results for the quarter were due in part to higher revenues lower interest and operating expense.
At the parent and other.
We earned two cents per share in 2019 compared with earnings of eight cents per share in 2018, the decline occurred likely in the fourth quarter when the parent last two cents per share.
Compared with earnings of three cents per share in 2018. This was due in part to two cents per share gain in 2018 relating to the results of a regulatory decision, allowing recovery of certain merger related cost.
Yes. It also resulted from a higher effective tax rate in 2019 than we had in 2018.
Turning to slide 14.
Our earnings per share guidance.
For 2020 is the range of $3.60 to $3.70 per share and this is consistent with our long term growth rate expectations.
The primary drivers of earnings growth are expected to be our continued investment in our transmission system and the positive impacts of our multi year regulatory plans in place for our electric and natural gas distribution businesses.
In the first half of this year, we're implementing electric distribution base rate.
Adjustments totaling more than $60 million and the natural gas rate adjustment of nearly 16 million.
Additionally, I will discuss shortly we have rate request pending at one of our electric subsidiaries and one of our natural gas distribution companies.
Also contributing to earnings growth would be the impact of infrastructure investment tracking mechanisms in place for our electric and natural gas distribution segments. These involve safety programs and pipe replacement in our gas business.
Offsetting these benefits are expected increases in depreciation interest cost and property tax expense.
Also we will have a higher share pounds in 2020 as a result of the equity sale last June and closing it out with the forward by the end of May of this year.
From 2020 outside the slide 15, and our long term capital investment forecast.
Over the next five years, we're projecting capital investments of $14.2 billion from our core electric natural gas and water business as well as a supporting information technology and facilities investments.
These investments are focused on providing reliable service to our 4 million customers across three states.
And our electric transmission segment.
We expect to invest approximately $4 billion over the next five years.
As a result by the end of 2023, we expect our regulated transmission rate base to be 9.4 billion.
Thats approximately $1 billion higher than we had estimated just a year ago.
And then we expect the rate base to be at 9.6 billion by the end of the forecast period in 2024.
Turning to slide 16, you can see that ingest. The years 2000 2020 through 2023, our capital investments are expected to be 1.6 billion higher and those time periods than what we had forecast at this time a year ago. This increase is primarily driven.
By investments in our electric transmission segment.
For the years 2020 through 2023 capital investments in electric transmission are expected to increase by about $1 billion.
We have multiple drivers affecting this increased level of spending and they're all related to providing reliable service and supporting our regions clean energy goals. For example, we're increasing use of drones to better inspect our transmission equipment high resolution drone photography is allowing us to identify damaged or failing equipped.
But much more effectively and efficiently, allowing us to accelerate the replacement of at risk equipment before it can cause reliability problems for our customers. In addition to replacing older equipment. We also need to address some notable areas of growth while overall, our electric load up.
At the lower we're installing additional equipment to address significant customer growth, particularly in pockets of Boston, and Cambridge, Southwest, Connecticut, and coastal New Hampshire.
We also need to add equipment to better integrate the renewable energy that continues to come online to maintain voltage and reactive capacity.
On the electric distribution side, we project investments of approximately 6.1 billion over the next five years from 2020 through 2023, we project nearly an additional 400 million investment compared to last year's forecast.
Our investments are helping to drive the excellent top tier reliability performance that Jim identified earlier by improving the resiliency and reliability our systems addressing continued economic growth and at the same time, helping to drive our own NAV costs out of the system.
Much of the increase our distribution capital program since last year's forecast is driven by substation investments in the growth regions that I mentioned earlier, such as greater Boston.
We also continue to invest in deep you approved grid modernization program in Massachusetts, you may recall that in late 2017 in the first half of 2018. The deep you approved 233 million of investments, including 55 million for too bad.
Battery storage projects.
$45 million for electric vehicle infrastructure that connect 3500 charging points.
And an additional 133 million per technology enhancements on our distribution system.
We had initially expected these investments will be completed over a five year period, but we now expect nearly all the work to be complete and up three and a half year, a less period or by early to mid 2021.
Additionally in 2018, the deep you instructed us to file an additional three year plan by mid 2020 to cover the years 2021 through 2023 in our capital investment forecast, we have included approximately $290 million.
For that new three year plan in Massachusetts.
There are few changes in the natural gas and water distribution segments, where capital investments more closely resembles the plan. We showed you a year ago.
The increased investment in our natural gas distribution system. During the year 20 to 23 is primarily at end star gas, where we have a number of additional resiliency projects plus continued execution of our pipe replacement program.
We have similar work underway at Yankee gas.
At aquarium on Slide 17, we provided you with updated aquarium rate base estimate that now reflects the expected sale of certain water facilities arrived in the Massachusetts to the tab.
We expect the sale to close in the second half of this year and we expect to receive more than $100 million for these facilities evaluation that was prescribed following a state Court review.
More than 90% of aquarium waters rate base is located in Connecticut.
And much of the capital investment over the coming years will come not only from replacing older less reliable pipe, but also from new project that bring additional water supplies into southwest Fairfield County, where Theyre currently summertime irrigation restrictions. Some of you may know about that.
More specifics about that extensive work are shown on slide in the appendix.
From what is included in our capital.
From what is included in our capital forecast, let's turn to slide 18, and discuss some of the items that are not reflected in the fourth.
On the electric distribution size the forecast does not include.
Grid modernization investments in Connecticut, or New Hampshire, Connecticut regulators have opened a number of dockets related to grid modernization, such as storage and electric vehicle charging infrastructure and pursuing them aggressively with regular public input sessions, but because those docket to not yet complete we have.
Not included any such investments in our plan.
Similarly, while we have proposed several innovative grid initiatives in new Hampshire, including battery storage project.
As these initiatives are not yet approved we've not included any of these investments in our implants either.
We are not reflecting any investment in advanced meter infrastructure or am I right and in any state.
Connecticut, there's an active and like docket now underway as part of its grid modernization review.
Massachusetts regulators have indicated that they will open a review of and buy in other customer facing technologies.
Although no specific timeframe has been established at this time.
We currently estimate the total investment needed to switch over all of our electric and natural gas customers to am I in the two states, Connecticut, and Massachusetts to be approximately $1 billion.
But it's unclear at this time of if or when am I might be authorized by regulators.
We're also evaluating a recent report issued by dynamic risk assessment systems. The consultants working from Massachusetts deep view to determine if we will need to make any incremental capital expenditures on our Massachusetts gas distribution system.
These investments would be needed to meet evolving state safety requirements. No. Additional investments have been included have been identified are included at this time in our forecast.
As you can see on slide 19, the level of investment in our plan will produce a rate base CAGR of 6.9% nearly 7% from year end 2018 through 2024.
This rate base growth underscores our high confidence in the core business, producing an EPS CAGR of 5% to 7% and as we've said in the past we believe we will be somewhere around the middle of that range.
Earnings from our major offshore wind investments will be incremental to the core business, 5% to 7% CAGR in years, when we're not adding any offshore wind we expect to be solidly in the back to 7% range as Jim said in periods immediately after we bring large offshore wind project in the.
Service earnings growth is likely to be significantly above the 5% to 7% range.
We expect those high growth periods to be the 12 month. After first revolution win and then Sunrise when enter service.
As you know for competitive reasons and because we're still early in the siting process. We have not discussed our expected total investment in these products projects.
So I will say that we're expecting to invest 300 million to 400 million and up in the offshore wind business in year 2000 twice.
As we previously said, we expect to capitalize the projects with a 40% to 45% equity and 55% to 60% debt.
Percentage, that's consistent with our current Eversource capitalization.
And as we've said we continue to expect to Aaron mid teens returns on the equity in these projects once operational.
As noted on slide 20 core business earnings growth is not just tied to rate base growth and the associated equip there are other items first some of the regulated segments, particularly, Massachusetts, and new cancer, New Hampshire distribution earned below their authorized returns in 2018.
We are expecting significant recovery from these levels going forward.
Second.
As our highly revenue regarded energy efficiency programs grow subdue potential incentives, we see we receive for doing and exceptional job.
Third we have conservatively modeling nominal own them to be relatively flat during the five year forecast period, compared with 2019 levels. The bottom line is we're very comfortable that our regulated segments alone will support the 5% to 7% earnings growth and again somewhere in the middle of.
That range.
From our growth rate I will turn into two active rate cases, one in new Hampshire at public service, New Hampshire, and in Massachusetts at end Star gas Slide 21 shows the status of these rate cases.
On the left hand side, you'll see the PS NH filed the rate case last year seeking a $70 million increase in base distribution rates. Following this settlement with the staff.
In New Hampshire public utility Commission approved the 28 million temporary increase that will remain in effect.
Until that you see implements a final decision on the permanent rates, we expect that decision in may with an effective date of July onest.
The New Hampshire plc process includes a number of days devoted to settlement discussions and the schedule targets April seven for the filing of the settlement.
If we're able to negotiate while regardless hearings will take place in April and historically, most new Hampshire rate cases have been settled.
At Enstar gas, we filed an application in November of last year to raise distribution rates by $38 million effective October Onest 2020.
We also requested a performance based rate mechanism similar to the one approved for Enstar electric in its rate case in late 2017.
Such a mechanism would tie rate adjustments in the future to inflation measures in years two through five a five year plan.
We expect this rate case to be fully litigated as was the Enstar electric case.
Worth noting is that our three largest distribution franchises are currently under multi year rate plans and we anticipate no new base rate plans for these franchises to be effective before 2022.
Strengthen the states to the FERC to the for information on Slide 22.
There's been significant that FERC are we activity since our November earnings call, but none of it directly related to our four pending complain.
Against the our leads earned by the New England transmission owners.
In a recent decision that was quite disappointing to us.
Work rules in November of 19 that it would advance in two of the four methodology. It had earlier suggested it would use in determining just and reasonable our lead.
Instead, it said it would focused solely on this path cash flow and cap am mechanisms.
Many parties requested reconsideration of that ruling and FERC appears to be considering reviewing its decision in the in that MISO case.
In the meantime, we continue to book earnings at the same rate at which FERC has afforded us to bill customers that includes a base. Our we have 10.57% with a project cap of 11.74%.
We have built at the same rate since early 2015, and do not expect changes and so for accruals on the new England case.
Turning to slide 23, I'll review the status of our equity issuance as you may recall.
We closed immediately.
Third of nearly 18 million shares that were issued.
Got it sold in June of 2019.
So.
The issuance at that time as just just under six 6 million shares the remaining nearly 12 million shares was subject to a forward share purchase arrangement.
On December Thirtyth, we closed on an additional 6 million shares of the forward and we'll close out the remaining approximately 6 million shares by the end of May of 2020.
Also last year, we used about 1 million treasury shares to fund our dividend reinvestment and certain employee incentive and retirement plan obligations. We had expect expected to issue about 1.5 million shares last year, but because of our higher share price we've reduced.
That rate of issuance.
Later in the forecast period.
We expect to implement than at the market program.
To address any equity requirements that that exists at this time, we expect to issue approximately 700 million in new equity. This is the same number that we've discussed for over a year now through such mechanism. During the forecast period, we'll continue to evaluate our financing needs as we move through the forecast period.
But we have no additional equity in the forecast.
We have we're very enthused and confident we'll be able to accomplish this ambitious plan are described to you. This morning. The plan will allow us to fulfill our work on behalf of our customers, while supporting energy policies of our that states, which they've adopted a slide 24, it illustrates some of our track record and Italy.
The targets, we've set for ourselves over the past eight years and.
And how we've been successful in meeting or beating them delivering significant benefits to our customers and value to our investors.
Thanks again for the time I'll turn the call back to Jeff. Thank you fell and I'm going to turn the call back to fall last to remind you how to enter the QNX.
Thank you we will now begin the question and answer session.
A question. Please press Star then one on your Touchtone phone, if you wish to be even most in the queue. Please press the pound sign that the hash key.
No speaker phones, you may need to pick up the handsets first before question that happens once again, if you have a question. Please press Star then one on you touch Tom Tom standing back to question.
Thank you Paul at our first question. This morning is from Mike Weinstein from Credit Suisse. Good morning, Mike.
Hi, good morning, guys.
Hi, Thanks for taking my call. It can you guys can you explain how why why do you think the bids are coming in so low for Massachusetts offshore wind auctions and what gives you confidence that you can eventually when further options going forward. It's the bids are coming in well.
Sure. This is Jim Hi, Mike.
The we give sort of rationalize some of the pricing that other bidders have put in there obviously the returns that they expect our lower.
An instance, with a time to by market share.
If you as we talk here today.
Instead, and Eversource that joint venture is the largest developer of offshore wind in North America based upon the 1700 14 megawatts that we have contracted.
So we see the glass is half full well that half empty. We've won some bids were won bids that are going to be profitable for us and we'll continue to be.
Selective in opportunities I would say that were sold in the other states, Massachusetts is.
Clearly been focused on price price and price loan, whereas other states uplift for other contributions to the safety of economic development or what have you. So, Massachusetts has clearly shown themselves to be.
On a state this focused primarily on price and we'll look for opportunities is currently over 25000 megawatts.
A bushel wins legislated in the northeast.
15000 alone when you look at New York, Connecticut, massive what I would it only about a third of that has been contracted plus so we're pretty excited about the opportunity here and the timing will fit with our.
Financial discipline, making sure that we win it's their profit.
Gotcha, Thanks, and also do you on.
Do you expect to continue excluding offshore wind earnings from forward earnings growth projections and future updates or do you think you might raise the guidance range at some point maybe next year.
Mike. This is Phil our current plan is to have our core business growth rate and keep it separate at this at this stage.
Gotcha.
One last question here can you explain how offshore wind will qualify for the PTC extension.
I think.
Initially that was supposed to apply only to onshore projects, but I understand there are some ways that.
They can be applied to offshore, but maybe can explain metals.
Hey, Mike as Jay Buth are you.
We when we kind of look at this.
In totality with the portfolio, we do read when we kind of read on that language that we talk to some of our advisors, we do see an avenue.
For the PTC extension to be.
Potential further to that offshore wind business, we do have some other strategies.
There were looking at the point from a qualification standpoint as well. So do you feel we do feel pretty confident in terms of our qualification routes.
Got you I'll get back in the queue. Thank you very much alright, thanks, Mike.
Next question is from Insoo, Kim from Goldman Good morning, and so.
Good morning. Thank you first regarding financing how much of the Sunrise when construction costs are you assuming would be.
Funded by the initial cash flows from Revolution when does.
Depending on the timing of the delay permitting and potential delays at what point, what your future equity needs change.
The potential magnitude of that.
Right.
That required so speculation on my part I'd say that.
We are confident with the schedule that we have the we're able to finance.
Our construction programs that we have in place for both our core business as well as the wind development with our cash flows from our business over the cash flows are all fungible, we their outflows from the core business and there will be cash generated from revenues or tax benefits from the offshore.
When that would be used to help finance.
The whole portfolio of capital that we have so as I said right now looking at the forecast how we have no new.
Equity needs and there are other than to complete what we've already indicated in the path and we're confident we'll be able to do that.
Understood and.
Maybe a little bit bigger picture Jim.
Obviously adverse source has benefited from its favorable DSG characteristics, including the strategy on offshore wind, we just look out longer term your portfolio mix could you just data so what about your thoughts on what the optimal mix is weather.
On the offer renewable front or on the water utility spot or anything else that you may be contemplating.
Well I think we're pretty pleased with sort of our core business I think we've received as an excellent operator, whether you look at at the electric and gas our water I do think the renewable space. We have taken advantage of opportunities develop utility scale solar where we have that opportunity.
And obviously offshore wind is growing opportunity for us as well I wouldn't say that we have a target mix between each sector.
The water sector.
I continue to believe is something that.
Fix for salute roll up.
Unfortunately, when you look at how water utilities trade currently at such a high price, it's hard to make the math work and link accretive which has always been our threshold for deals. So we'll look for opportunities to.
To grow the business will be selective and disciplined as we have in the past, but we're pleased with each one of the economics of the stool.
Hi, Thank you very much.
Thanks, and so next question is from Steve Fleishman from Wolfe Good morning safely.
Yes, hi, good morning.
Just a couple questions related to offshore wind.
Okay.
Could you just maybe give some sense on the why the timing delays on the.
On the fee the broader impact from bone.
And also just I think there is some opposition to the mile by mile configuration. So just.
Could you give a sense on your conviction on getting that approved.
And then finally, just how are you feeling about.
Your cost assumptions that you put into your.
Projects given.
Just the latest view of cost to build.
The projects and any impact of delays.
Okay.
You have to keep.
Honest here in terms of the questions I think the offshore wind.
One of the things that we're pleased to see was.
Ill fated view degree of granularity provided by Baum with the dates that.
Provided in the big win proceeding all the way through the.
The record of decision date I.
I think people realize that the delays at the new wins I may have some impact on other developments, we certainly hope that thats minimal.
Obviously, the cumulative impact analysis, that's due on June 12, who will provide some guidance of schedules going forward.
Eversource and listed we filed a very robust and complete and high quality club filing for south for so I expect that that can help expedite our approval once foam has completed their cumulative impact analysis.
While by mile while they're still may be some opposition to that design. There has been sort of a coalition the cost guidance kumho.
In favor of it.
Provides adequate distance for but for mariners to travel safely efficiency.
We think its.
Mhm.
Basically addresses the primary primary hesitation that concern that full pad when they when they did stalled in the U.S would process.
As a cost assumptions, we are continuously looking at.
Project construction, not only cost that schedules and opportunities to improve them.
Im happy to take that.
That we have also said that track record and is the way that I see the class develop attempt to include some conservatism contingencies that book to be.
Appropriate so we're continuously reviewing and testing those cost assumptions right now we're very comfortable that what we see is consistent with the returns that we provided the street mid term of mid teen returns on equity.
Okay, great. Thank you.
Thanks, Dave next question is from Paul Patterson from Glenrock Good morning, Paul.
Hey, good morning, guys, how you doing.
Right.
I wanted to.
Just basic items on slide 19.
And the.
Equip number.
How does how do you guys expect that to to go.
What's your tread expectation with respect to that.
Well this forecast period.
In terms of the quick number fall.
Yes.
Typically that would move up.
During the forecast period, just given our level of.
Construction activities I don't have a specific rate of increase that I would give you, but I would say that we would see that number is increasing during that period.
Okay.
And then with respect to the.
Just one more thing on the ultra when there was this independent evaluator report that came out on Friday.
In which they discuss the potential for the Mayflower.
But to be rebid, and it's being potential opportunity for you guys.
I was looking I'm just wondering if you guys had me.
Thoughts about potential or.
I can't speculate I think I did see something that suggested that the winning bid was close to the second bid.
Some people were making a case that.
That winning bid maybe higher risk and should be reassess, but.
Having any perspective I'd say this tool.
We've done with that.
Okay.
And then.
With respect to transmission.
There've been several dockets filed for some dealing with them ISO new England with respect to competition.
They are there any number of deferred cases that are basically kind of the the all spring of.
For quarter 1000, it seems like in terms of.
Compliance and in efforts to.
Cost containment what have you.
I was wondering what your thoughts might be in terms of this.
The parent effort on the Porter for up to them.
Two broad in order to to reassert this sort of competitive effort.
With respect to transmission projects.
Well I think.
We've seen ISO respond.
Issued an RFP in December to address.
One needs to do timings of mystic.
Eight nine.
Expected sometime with before and this is scheduled to process for a competitive bids to be.
Submitted in March.
Eversource and national grid will be obligated to propose backstop solutions give switch qualified business developers can bid so.
There is competition in new England.
So the major project comes on line.
Right, but they're talking about things like the immediate need stuff and supplemental projects.
I'm just wondering I mean should we look towards this this mystic one that you just mentioned is perhaps being.
A data point.
With which to see how this competition thing works out or I'm, just sort of ordering in general.
Let me read we don't have any.
So call as things that came out what have you those types of filings we would have responses to them. So we're sort of early the process, but just wondering I mean it from.
If you think this could potentially have any impact on on your forecast in terms of transmission.
Investment or what have you.
So I don't think sell I believe that.
The.
Some of the reliability concerns that Phil mentioned in terms of structure replacements that have been identified more more of a fine.
The use of drones and fine.
Vulnerabilities.
The federal government is focused on.
On the liability of the transmission system in particular, I think you the C.
The.
Vince continue to be the one to address particular near term fixes that need to be upgrades that need to be required by the system.
Okay.
And then just back on the grid Mod and Connecticut.
Phil touched on.
Im sorry, I missed this but what would have them. When do you think we're going to actually get something out of there I mean as you mentioned there are several proceedings, it's kind of difficult.
To monitor.
What do you think we might actually see some actually sort of concrete.
Proposals or what have you coming out of that there so Paul you're right there is.
Almost a dozen I think there's actually a 11 different.
Dockets that are active and.
The Connecticut.
Process has been inclusive.
That really stuck to scheduling and they've been aggressive in terms of going through the particular topics, but I will admit that I don't have a particular target date.
What has not been published.
At this time, but we expect to see something move in the first half of 2020 idle.
What I've said before and I believe to still be true as you not going to see like one item with all 11 come out you'll probably see some piece meal, one or two of the 11 move forward in the first half of this year, but I I don't have any more specifics with that.
I think that fixed.
Yes, I think the ones that they seem to be interested in battery storage fees are certainly programs that we have in place already in in Massachusetts and those are in.
In kind of the topping the list in Connecticut right now.
Okay fair enough. Thanks, so much.
All right. Thank you. Paul next question is from Julien Dumoulin Smith from Bank of America Merrill Lynch. Good morning Joanne.
Hey, good morning team congratulations.
Thank you.
Absolutely so perhaps to keep going a little bit in the same direction as Paul year, but turning back to slide 18 talking a little bit in trying to quantify well some of these upside.
I know you said, specifically am I was $1 billion still that seems on change can you talk about a the timeline if there any kind of.
Data points, we should be tracking and then separately for the other two.
Bullets here I know, it's difficult to put your finger on any kind of specific numbers, but as you begin to assess the quantum of Rollup capital here, how would you rain those other two I get it difficult, but at least initially, especially on the map student gas side, where I know that there's some data points coming up here.
Yes, Julien this is Phil in terms of one of the.
Following on to Paul's comment one of the one of the 11 items has to do with a omi internet of get in there. It does seem to be some interest there what are the other utilities operating in the state has implemented at least the partial analyze solution that that's out there.
We said.
In the electric and gas in Massachusetts, and Connecticut, Thats, that's about $1 billion.
And that likely would be spread over a four year five year time period, you're not going to get all of that spending in at once.
So I'd say that Connecticut is probably ahead of Massachusetts in that regard in terms of at least there is a docket.
Out there in a framework to start looking at.
So that could be something you see in 2020.
At least a direction in terms of Massachusetts. They have indicated and they continue to indicate they want to have more of a generic docket looking at am I in other customer facing items, but have not yet set up set a date for that.
And that Im not sure. If there is one on the drawing board, but I'd say, that's probably something that's going to at least kick off during this year I don't have any more.
Timeline for that so again.
Half of our customers are it's kind of a 50 50 split between the two so I mean realistically say half a billion is in each of the states.
In terms of the gaffe assessments, that's that's come out and we've been asked.
And all the companies are preparing.
Information now to be responsive to that assessment. So I would say, we should know within a relatively short period of time, if there's any incremental spend out of that and something to keep in mind.
That I just wanted to remind folks on its sort of in our gas filing in Massachusetts. We saw that this was coming right. We didnt know what might come out in terms of the.
Spending level, but we knew that this report was out there. So in the filing that we already have underway in Massachusetts for the gas case, we already have a carve out tracker.
Sort of a zero in at right now that we're proposing that say look we don't know what's going to come out but.
Likely something will and we will have a place for it so we won't have to wait five years.
Go back and get our recovery for it. So we plan to had not knowing exactly what the numbers were on the what would happen, but we at least have the mechanism lined up there.
So again as you suggested a little bit early to speculate there but.
It could be some.
Hundreds of millions of dollars between all of these that that would be incremental.
Got it and then just going sorry, sorry, Nit pick a little bit further.
On one of the to the big names here, but this notion of fuel security here.
I know you guys do kinda talk broadly about mystic here, a bit but more broadly that seems to you highlight some of the acute issues potentially kieran constant brick action very recently.
Is that another angle that I know, we've kind of alluded to here, but.
I'll leave it open ended.
In the Boston area and more broadly when you think about winter.
Yes, not where it is open ended I'm not really sure which are what you're asking about sorry. When it was getting after is obviously did mitigate nine go away and in general you have this open question that to enabling the retirement. So these.
Urban large generation sources do are there are there opportunities that opened the cells into for themselves sort of in in the here now.
To backstop or enable these retirements otherwise.
I think the.
This is Jim Julien the competitive FERC 1000, solicitation will sort of.
Reveal a number of opportunity set of creative to address the challenge of this to eight nine going away. So I wouldn't speculate on what they might be we'll see soon enough.
Okay, Alright fair enough that comes back to that I understood. Indeed, thank you.
Great. Thanks, So much joint next questions from Travis Miller from Morningstar, Good morning Travis.
Good morning, Thank you.
Was wondering going back to this transmission and not ideal upside on the transmission as we get out to 2023 2024 Wonder if you could characterize the the gating factors for lack of better term that might be coming there's their policy changes for change state change wondered.
What might lead to some of those extra growth projects that are not in the forecast right now.
Well I'll have shale.
Add on but one observation that make Travis is that.
Jeff Kotkin is the best IR day.
The stream, that's not be saying that that's all you folks on the phone, saying that because the Lindsay III Award every year and one of the reasons. He does this provides a lot of granularity on our capital spending plans go forward.
And as a long history here of providing a capex forecast any provides and based on projects that are already in the queue that we're aware of that were not plant.
Obviously, we know more about projects and then a plan for 2020 than we do have the 2025 right now and so if you look every single year since the merger in 2012, we've updated the Capex forecast going forward and this has increased based basically because were more aware of future.
Needs going forward so.
There are projects that are out there that would not aware right now that will be in the mix now that's not just transmission but distribution.
Electric and gas and water business as well.
I would add to that so yeah, just said in terms of a couple of categories.
As I talked about connecting.
Distributed resources to the system I think some kind of about 2600.
Distributed megawatts of.
Distributed energy resources.
In our territory now so as as.
Policies progress and as clean energy connections are required I think that could be a category that expands in that in that time period. So nothing to put in there yet, but thats, that's certainly a driver and and win and each year with spending more on site.
Her and physical security and things like that so that the the ramp up in that particular category seems to get higher and higher each year. So.
Those might be a couple of categories that that could move the spending up as you move out in the forecast.
Okay, and then just within that.
Are there any large project opportunities that you see if the as you look out kind of that five year trends I can transmission.
No. It are there any areas where are you see hey, this could be a possible large project opportunity lets call.
Yeah, 400, 500 million type of thing right actually just the opposite I'd say our forecast now includes more more smaller projects that.
More bite size inside the fence.
As I say cyber is certainly an issue.
I'd say the largest single project that we have now as our seacoast reliability project that we have as a single project all the other.
Transmission is really groups of smaller activities that were doing for reliability.
And.
To improve the reliability for our customers. So we don't see.
Any any big projects out there.
Okay, Great I appreciate the thoughts.
Thank you Travis next question is from Andy Levy from Exodus point more demanding.
Hey, guys how are you.
Good evening, we are you.
I'm doing well I agree what you say that Jeff.
Okay.
Thanks.
Right.
None of them on getting the time.
So.
Just.
I guess a follow up from an earlier question you would know something that you had commented on Jimmy.
So just on.
On the spacing.
Relative to the.
Offshore wind when do you guys.
Find out what the final.
Kind of outcome of that spacing as I guess were one at about one mile by one mile now its.
Yes.
One mile and.
Fortunately the first ones to agree to go to that design, a while ago. So we're probably further along others into development of.
Comps that need to be filed.
Yes.
Candidates to accommodate shipping postcard fishing interest.
The.
The we do believe the co Scott agrees that its adequate to address the concerns that they had initially and we think that will weigh in with bulbs decision when they evaluate the cumulative impact all the other developers have agreed to.
To the same format that eversource in which that has committed to.
Earlier so.
We'll see how how addresses the concerns and questions that will they have no. Both at on June 11 12.
Okay. So in mid mid June will get the idea of.
What the final spacing is or what will that be in December.
I'd like to June will give you the the expectation is that we'll get.
A draft.
Yes from bond will.
I'll address.
The cumulative impact.
The six leases it provides standards for us to use going forward that draft. Yes. It will be finalized by the end of 20 point here since the date that was published the win.
Decision was a record of decisions of Eightys wouldn't 20, so to 12 for the draft in December 18.
For the final.
Okay, and then just just on the spacing I guess I'd been or said was in New York earlier on the comp.
So if the spacing we right now were one mile Monmouth 0.1 mile, but if the spacing got I guess wider I don't know if that's the right term.
Now if it was one in a quarter miles or whatever it is.
What stage does not not the first two projects, but kind of the overall concept.
Of making.
A large investment as far as no better way to put it building a factory already built building. This company you are on land.
What stage spacing become too wide.
And mix makes it kind of non as economic or not economical to kind of put all back capital it because it would take away from the longer term.
Growth abilities.
The overall acreage that you have.
Yes, I think it to say the one by one should be adequate one of the.
The mitigating factors entity is that.
When we began this process and we talked about 4000 megawatts, we were looking at a technology that was.
Eight megawatt turbines and now we're seeing that wish that is actually.
Testing here in Massachusetts some of the.
12 megawatt turbine so.
We're forced to have.
Holes in the water if you will admit we won't be the mainline determines on which would.
With obviously positively impact the economic so.
Right now in key we don't anticipate any need beyond the one by one but.
We continue to believe that that will be adequate to provide us the financial results that with the target again.
But but anything over the one by one.
Kind of changes everything.
So I don't know, we will changes everything, but with which we evaluated.
I haven't heard anybody proposed something.
Beyond the one one by one other than the discussions with both.
Shipping lanes.
Also them corridors and things like that.
Okay. So I guess, we stuff to monitor it.
And it just it does seem that to be the biggest concern that or stead had.
And kind of it.
Product process, but I should.
Have a systemic lunch.
Okay. Thank you guys Anne Marie fire loss going off so I got to go okay.
Right.
Andy next questions from Andrew Weisel from from Scotia, Good morning, Andrew.
Hey, good morning, everyone.
Lot of its already covered of course, but just quick one on the offshore wind.
We do see some slippage in the in service dates related to BOEM or whatever do you have a quick and dirty rule of thumb or of what a one year delay would have on earned returns relative to your expectation of mid teens when an tax credits are more broadly.
No I don't think it's sort of reduces our returns it basically with just the later on.
We have affected into our purchase power agreements flexibility for delays, especially as the created might regulatory approval. So we don't anticipate major financial consequences of it although.
For the delays correct the earnings profile would shift out of what we're currently planning for 2000 20.5.
Got it Okay, and then lastly on Olin and obviously, you're guiding to flat through the forecast period would that be flattish in each year, including 2020 or is there any lumpiness or gram gold trajectory.
It should be consistent throughout the forecast here it Andrew.
No particular lumpiness.
Okay. So 2020 should be flat with 20 Nike.
Yep modestly flat I'd say, you know weve in 19, we had.
I think one of the drivers of own I'm being up or really led driver is really kind of a higher level of storms than we have had the previous year. So you know I know you've heard that from other people storms, sometimes could create lumpiness, but.
We're not expecting any other known item to be lumpy during that time period.
Got it thank you very much.
Thanks, Andrew next question, we have Mike Weinstein from credit Suisse back.
Hey, guys, Hey, with all the onshore talking to switch over to the other water.
A minute.
You know you don't aquarium number two years can you describe how operating in planning a water system has been more or less difficult and electric and gas systems that you have I remember at the time you with a first electric utility really to buy a water company and there was no questions about whether that would be easier or more difficult.
And then also up now that you have some experience would you consider looking beyond new England for further water investments.
At some point I know that in the past you havent, but now that you have experienced could you maybe reconsider that.
Yes, I would say that.
The water business that we've had for short period of time that we have has met or exceeded expectations. As we committed that it would be accretive to earnings to for she is very small business, obviously, but was.
They've moved their earnings in the second year.
I do.
There is sort of a.
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A roll up strategy within the.
The town's I think in the last seven or eight years.
Rolled in 70, a 71 small water entities, but but it doesn't move the dial a whole lot fall to the small this over 50000 water entities in the state so I'm sorry, the country and so it does bank for consolidations as I mentioned earlier the pricing is so high that's tough to justify paying.
Is that it would be required.
I think that we have.
Expanded footprint I started many years ago, Boston Edison and we.
We fared pretty well we knew Massachusetts, we did the deal that created Eversource, we expanded our footprint into.
Connecticut, and new Hampshire inch and proven that we're able to.
Accelerate really answers operation financial results beyond, Massachusetts, now into New York with offshore wind and they've had some success. There. So I think were less hesitant to move outside of.
Yeah.
Maybe I won't be that water expansion would require us to do that.
Thank you.
Alright, alright, thanks, Mike that was the last question in the queue. So we want to thank you all very much for your time today, we've got any follow up question. Please give us call.
Thank you ladies and gentlemen. This concludes today's conference. Thanks for participating can you may now disconnect.
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