Q4 2020 Eversource Energy Earnings Call
Good morning, and welcome to the other source of energy fourth quarter and Europe. In 2020 results Conference. My name is Brandon B of our operating for today at this time all participants are in a listen only mode. Later, we will conduct the question and answer session during which you may dial star. One if you have the question. Please note. This conference is being recorded and I will now turn it over to you.
Jeffrey Kotkin you may begin sir.
Thank you Brandon good morning, and thank you for joining us I'm, Jeff Kotkin ever source of energy as Vice President for Investor Relations.
During this call we'll be referencing slides that we posted last night on our website and as you can see on slide one some of the statements made during this investor call maybe forward looking as defined within the meaning of the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
These forward looking statements are based on management's current expectations and are subject to risks and uncertainty, which may cause the actual results to differ materially from forecasts and projections.
These factors are set forth in the news release issued yesterday.
Additional information about the various factors that may cause actual results to differ can be found and our annual report on form 10-K for the year ended December 31, 2019, and our form 10-Q for the three months ended September 30 of 2020.
Additionally, our explanation of how and why we use certain non-GAAP measures and how those measures reconcile to GAAP results is contained within our news release and the slides, we posted last night and and our most recent 10-K.
Speaking today will be Jim Judge, our chairman, President and CEO, and Phil Lembo, our executive Vice President and CFO.
Also joining us today are Werner schweiger, our EVP and Chief operating Officer, Joe Nolan, our EVP for strategy and customer and corporate relations, John Moreira, Our treasurer, and senior VP for finance and regulatory and Jay Buth, Our VP and controller now I will turn the floor.
And two and turn over the call to Jim.
Thank you, Jeff and thank you everyone for joining US today review of 2020 results and other.
Updated long term outlook on the first.
Let me say I hope that all is well with you and your families.
And the challenging year for everyone.
I'll start and my comments by thanking our more than 9000 episodes energy colleagues for their exceedingly hard work and the extraordinary difficult circumstances and 2020.
The only do they have to deal with the first pandemic the strength of the country and more than the century.
But they also had to address the highest level of storm activity ever for our company as well as the heart of some on record and large parts of our service inventories.
So with all of that work safely and professionally keeping the fellow workers and our customers first in mind.
And you can see and slide four despite the seven major and minor storms that struck our service territory and 2020, we successfully executed our $3 billion of capital program.
These expenditures are critical to enhance the resilience of our energy and water delivery systems as well as the connect new customers and to support state clean energy initiatives.
2020 was also a year during which we advanced a number of our strategic initiatives and.
At the end of February we executed an agreement with isos to bias Columbia gas of Massachusetts assets and.
And we closed on that acquisition in early October just seven months later.
The acquisition added about 5% to our regulated business and it's been extremely well received by state policymakers and by the more than 330000 customers. The episodes of gas company of Massachusetts now serves.
We continue to expect the transaction to be accretive and 2021 and <unk>.
Aggressively more accretive and the years ahead.
Steadily increase our level of investment and the episodes gas system.
So the profile.
<unk> some of these investments shortly.
Over the past 12 months. We've also moved ahead of the permitting of our three offshore wind projects.
And we are developing strategies to meet our industry, leading target of achieving carbon neutrality by 2030.
And the financial side, we achieved balanced outcomes and rate cases affecting our two operating companies that have struggled in recent years to earn the allowed returns and.
And we also maintained and on track record dating back to the 2012 bridge and the created episodes.
Of posting attractive earnings and dividend growth.
Turning to slide five you can see some of the very solid operating metrics that we achieved in 2020 the.
Spiked the and customers the challenges of Covid and incessant storm activity.
And I'm extremely proud of the operating record our employees achieved on behalf of our customers.
Slide six illustrates.
But we were able to achieve on behalf of our shareholders 2020 was far from the best year for utilities as you know, but we were able to achieve a four and 5% total return for our shareholders, keeping us and the top tier of <unk>.
The Ips and the short medium and long term.
Medium and longer term churns also compared favorably to the S&P 500.
The key element in achieving that long term return record is steady and attractive dividend growth.
As you can see on slide seven last week, we have a source of oil and increased the quarterly dividend by approximately six 2%.
You can also see that our payout ratio remains at about 62% of.
Relatively conservative level that allows.
<unk> $500 million of our earnings to be invested in our delivery systems each year.
We continue to target of dividend growth to be in line with the earnings growth, which continued in 2020 at a roughly 6% pace.
And you can see on slide eight we expect net growth rate to the enhanced in the coming years.
<unk> gas acquisition and the.
The offshore wind investments.
And the math associated with the acquisition is quite straightforward.
Adding <unk> cash increased our total regulated rate base by about 5%.
It's the finance it we only added about one 8% to our outstanding share count.
Since we already operate natural gas and electric utilities adjacent to the episodes of gas service territory.
Considerable opportunities to bring a high level of service and strong safety culture.
So our newest customers Phil will discuss the impact on our capital program at the moment.
I'll now turn to our long term strategy of being the principal catalyst for greenhouse gas reductions and new England.
Slide nine shows how far we as the company have come over the past 30 years as we have divested all of our fossil generation continues.
<unk> continued to reduce methane leaks from our distribution system and.
<unk> taken other steps to improve the efficiency of our delivery systems.
Facilities and of vehicles.
This has enabled us to be in sync with all of the states of the England, which of targeting greenhouse gas reductions within the borders of at least 80% of the year 2015.
Our long term strategy is built around being the principal enabler of that reduction.
While our company operations and not a significant contributor to our state's greenhouse gas emissions today.
We have set a goal of driving our direct emissions to net zero.
The left side of slide 10 highlights of our five primary areas of focus and that effort.
More significance of the region of the items on the right side.
Over the lifetime of more than $500 million that we invested and customers' energy efficiency initiatives in 2019 and alone will reduce greenhouse gas emissions by $3 2 million metric tons.
At the <unk>.
Deficiently spirit and zero ambitions of vehicle charging infrastructure.
And reduce the number of homes heated with oil off of very significant additional opportunities to reduce the region's emissions.
But the most significant initiatives we have underway is our partnership with <unk> that we expect the result, and at least 4000 megawatts of offshore wind facilities.
He's built off the coast of Massachusetts.
That will reduce greenhouse gas emissions by approximately 6 million tons annually.
The current status of our offshore wind essence of noted on slide 11.
As you can see our self for project received its draft environmental impact statement.
Comments on that drop into the next week.
The U S Bureau of Ocean Energy management continues to target of January 2022 for issuing a decision on cell phones, and construction and operations plan and <unk>.
Assuming a positive decision, we continue to target and <unk>.
The state by the end of 2023.
I should note that all of the steps of the south both of the deal process.
And the net is the on.
And are ahead of schedule since both of the established revised schedule by some of them.
On the sales side, New York hearings on self fourth were completed as of December.
And we expect the state siting decision and the first half of 'twenty and 'twenty one.
And on the local side of host community agreement with the municipality and the East Houston and.
The approved.
And Revolution wind, we filed a state siting application with Rhode Island at the end of December and was formerly docket and last month we.
We filed a set of application with bone and March of last year and expect both to establish and review schedule for resolution later this year.
And Sunrise and we filed our application of the bone and September and a state siting application with the new non public service Commission and the fourth quarter.
Later this year, we expect both established and reduce scheduled for Sunrise wind.
Our partnership with the list that has never been stronger and we continue to work closely on both the sighting and procurement for the projects we have won and.
And our bids for additional contracts.
And while we're disappointed that we did not win additional capacity and the latest New York RFP.
We will remain very disciplined and our ability and know that they are likely to be several additional rfps over the next 12 months, including Rhode Island, Massachusetts, and possibly the Europe.
You can see on slide 12, and while we can be so disciplined with operating strategy.
The 550 square miles of Ocean that we have on the long term lease for the federal government of the.
The closest the shore and should be the lease expenses to develop and maintain.
Moreover, one lease process of $1 million areas that are smaller and much further from shore well leased and a few years ago for $135 million a piece.
This slide shows the current status of megawatts one.
And then go us still to be bid among the four states where we compete.
And the number of megawatts being sought and will continue to rise.
And the legislation in Massachusetts, likely adding a number of 2400 megawatts for the states already approved 6800 megawatts of upcoming Rfps.
President and buying continues to express strong support for renewable energy and general.
And offshore wind specifically for.
January 48th President issues and the executive order.
Wired and the department of interior to conduct a full assessment of offshore wind siting processes. So.
The aligned with the administration and goals for advanced renewable energy production.
The President has also established the White House office of domestic climate policy and created a federal government wide task for us to coordinate actions between agencies.
Additionally actions taken by Congress and the IRS late last year.
Additional information of incentives offshore wind development.
And as you can see on slide 17, and those incentives of crude.
And 30% investment tax credits for projects and commence construction.
Before January 2026, and the 10 year Safe Harbor and projects eligible for tax credits.
Taken together these changes and have more certainty to the tax benefits available for offshore wind and underscore the federal government support for these projects.
Lastly, before I turn it over to Phil I want to emphasize the strong strategic position of episodes for the coming years.
Our corporate strategy and is fully aligned with the energy policy of the states we share.
Our execution continues to be extremely firm.
And our employees and board of trustees of fully engaged.
And last week <unk> corporate governance Committee became the governance, environmental and social responsibility committee with additional direct chatter of oversight responsibilities for our expanding ESG initiatives.
Five years ago, we said, we wanted to be viewed as the country's premier energy company and some of the citations noted on slide four illustrates the recognition that we received from a number of well regarded third parties.
I'm very confident and our future remains exceedingly bright.
Now I'll turn the call over to Phil.
Thank you Jim.
Good morning, everyone and I'll be covering several topics.
For our 2020 financial results.
I'll be discussing our 2021 guidance, our long term growth rate, our capital investment plan and recent regulatory developments So star.
Starting with the review of our full year results of.
Our GAAP earnings were $3 55 per share excluding <unk> <unk> per share of transaction costs associated with our October purchase of assets.
Of Columbia gas I should say, that's including the nine of.
Transaction costs.
Excluding those costs, we earned $3 64 per share and 2020, consistent with consensus and with guidance. We gave you a year ago.
Slide 16 summarizes both the year and fourth quarter and I'll.
Electric distribution earnings totaled $1 60 per share and 2020.
At the Penny per share from 2019.
Higher distribution revenues were largely offset by higher O&M depreciation and property tax expense interest costs and dilution.
The higher O&M was primarily attributable to record storm expense.
As a result of more than 100 major and minor storm events that affected our three electric service territories last year.
The non deferred storm expense totaled nearly $77 million and was the highest level we've experienced in recent years and each of the three states we serve.
These non deferrable storm costs totaled <unk> 17 per share in 2020.
Compared with an average of about <unk> <unk> per share in if you look at the year of 2016 through 2019 average.
And particularly impacted the fourth quarter of 2020, when it was responsible for and incremental <unk> per share and O&M.
Paired with the fourth quarter of 2019.
Electric transmission earnings totaled $1 48 per share and 2020.
Up from $1 43 per share and 2019, excluding the northern pass charge.
The benefit of increased investment and our transmission system was partially offset by dilution there.
I should note that 2020 was a very successful year for our transmission segment.
Placing into service more than $1 billion of investment include.
Including three major projects, we've been working on for several years.
And they were the greater Hartford, and Greenwich substation projects in Connecticut.
And the Seacoast project in New Hampshire.
Transmission capital expenditures totaled $964 million in 2020 up a bit compared with our projections that we had a year ago, which was $910 million.
Net of investment.
Our natural gas distribution business earned <unk> 40 per share and 2020.
Compared with <unk> 30 per share in 2019.
<unk> of that improvement occurred in the fourth quarter as the result, the the addition of every source of gas company of Massachusetts and.
<unk> gas of mass earned nearly $14 million in the fourth quarter of 2020.
And our water segment earned <unk> 12 per share and 2020 with earnings up $6 3 million from 2019.
Much of the improvement was due to a small gains associated with the sale of our Hingham, Massachusetts system and the sale of a small parcel of property.
Earnings from the parent and other companies totaled <unk> <unk> per share and 2020.
Excluding <unk> <unk> per share of acquisition related costs compared to earnings of <unk> <unk> per share in 2019.
The improvement was due to a number of factors, including a lower effective tax rate in 2020 compared with 2019.
From 2020 results I'll turn to our 2021 guidance as you can see on slide 17, we project earnings per share of between $3 81.
And $3 93.
Excluding certain costs, we are incurring to transition our new natural gas franchise into the <unk> system.
Key drivers include several distribution rate adjustments that were effective in 2020 of the first quarter of 2021.
They also include the benefit from our transmission construction program, which I'll discuss shortly as well as the full year earnings from every source of gas with Massachusetts.
Offsetting these benefits will be higher depreciation and property taxes.
Which results from the significant upgrades to our energy and water delivery systems to better serve our customers.
We will also have a higher average share counts and the first half of 2021 as the result of the shares we issued in March to close out our equity forward and in June to finance, the Columbia gas acquisition.
In terms of O&M.
You should expect the numbers you will report you'll see will be higher because of the addition of every source of gas of Massachusetts on the normalized basis, though we expect O&M will remain.
Relatively stable during the entire forecast period.
Our long term growth will be driven by the investments, we make to modernize and harden our system to serve our customers and to support clean energy policies of the states we serve.
Our updated core business five year capital plan is shown on slide 18, it shows projected investments of $17 billion over the five year period, compared with $14 2 billion a year ago.
There are many changes for the forecast we provided you a year ago, but the most significant.
He is adding and resource gas and Massachusetts.
Slide 19 reviews, the capital forecast changes by segment during the 21 through 2020 for period, which is.
For the years that are common to both forecast the transmission segment accounts for $528 million of the increased investment during that four year period. There are a number of drivers here.
Unlike many of our past forecast increased transmission investment isn't.
Is not being driven by large regional projects.
Many of those were completed in 2020 on or below budget in the coming years there'll be more I'd say bite size will be replacing equipment.
And that was installed 60 or more years ago that has reached the end of its life expectancy.
And as a vulnerable to more frequent and severe storms were experiencing and new England, we're making these types of investments as well as investments in cyber and physical security and other areas across our service territory.
On the electric distribution side, we need to continue to upgrade our facilities to ensure that the reliability games. We've experienced in recent years our continued.
Additionally, new legislation that passed the house and Senate in Massachusetts last month.
And is expected to provide and Starr electric with an opportunity to build 280 megawatts of new rate based solar generation.
We expect the legislation will be enacted and have included $500 million of solar investment in our forecast.
For the natural gas segment. The continued replacement of aging infrastructure in the form of steel bare steel cast iron pipe with a safer more durable plastic remains a key component of our natural gas Capex plan the.
Appendix includes the slide that presents the ever source gas capital investment forecast separate from that of the entire natural gas distribution business. So you can better.
Model and understand our newest subsidiary.
And for the water segment, our capital plan increased due to capex required for ongoing main replacements treatment facilities and supply of improvements and southwest Connecticut.
On slide 20, we show the impact on rate base compared.
Impairing our actual rate base at the end of 2019 with a projected rate base at the end of 2025.
And our rate base CAGR over those years, including the addition of every source of gas of Massachusetts is projected to be 8% compared.
Compared with just under 7%.
We showed you last year.
We expect EPS growth to be and the upper half of the previously announced 5% to 7% CAGR range.
The higher growth outlook is primarily due to <unk> GAAP.
<unk> earnings.
And this acquisition was immediately accretive and we expect it will be incrementally accretive each year through the five year forecast period, as we migrate off of nice source systems and.
And increasingly apply every source of best practices to our newest operating company.
There are a number of investment opportunities that would significantly benefit our customers, but are not reflected in the plans because there is still some uncertainty around the scope and timing. So slide 21 highlights many of these.
As we get clarity of these opportunities we will update our subsequent forecasts.
In Connecticut pure is moving along on a number of grid modernization dockets, but there are no final outcomes at this time.
Implementing <unk> solely for our Connecticut, and Massachusetts electric customers.
Would involve an investment of approximately $800 million, but none of that some is in the forecast.
Additionally, Massachusetts, and Connecticut have a commitment to have at least 425000 electric vehicles on the road by 2025.
There is only a fraction of that level currently on the road.
And but we are only including a limited amount of investment and electric vehicle charging stations and our plan.
<unk> $15 million of year.
Two weeks ago, Massachusetts regulators approved extending our recent level of grid modernization investments.
Through the end of this year.
In mid 2021, we will file our new three year grid modernization plan and Massachusetts.
Additionally, we have now thoroughly reviewing the average source gas of Massachusetts system.
Since we have an obligation.
And to identify the capital investment needs and report that to our regulators by September one of 2021.
As the result of that review incremental investments may be identified.
Finally, as Jim mentioned earlier bones schedules for review of the Revolution wind and Sunrise projects are expected this year.
I expect that and next February as update we will have enough clarity to roll these offshore.
Wind outlooks into our base forecast, especially since the the binding and administration stated of desire to accelerate offshore wind development.
But to be clear in our CAGR guidance today, we reflect no earnings contribution from offshore wind.
From a forecast I will turn to current regulatory items. The 2020 was marked by achieving balanced outcomes and three rate reviews that are highlighted on slide 22.
The public service of New Hampshire, and and Star gas have been under earning our allowed returns and recent years for both companies were able to complete lengthy rate reviews.
Towards the end of 2020 with new multiyear plans.
And star gas is also able to implement performance based ratemaking similar to that events are electric.
We expect and star gas to continue without a base rate review for up to a decade.
Also in October, Massachusetts, regulators approved and eight year rate settlement in connection with our acquisition of the every source of gas assets, formerly known as Columbia gas of Massachusetts.
And with small rate changes in November of 'twenty, one and November of 'twenty, two and additional rate resets in 2024 and 2027.
Based on our investments and the system. We don't expect every source of gas to undergo a full base case review before 2028.
So not in the rate of arena for several years.
And public service of New Hampshire. In addition to the permanent rate increase that took effect January one and the settlement approved in December by regulators and allowed US three additional distribution rate changes to cover certain resiliency investments.
The first of those changes took place last month and resulted in an additional $10 million of annual revenue for PSNH.
To reflect the investments that were made in 2019.
The next rate resets in August of 2021, and again in August of 2022.
We'll reflect the investments during the 2020 and 2021 periods respectively.
We do not expect to file any general rate reviews in 2021.
The next review of Connecticut light and power rates would not commence would.
We'd need to commence no later than the first quarter of 2022 under the Connecticut statute that requires rates to be reviewed every four years for electric and natural gas distribution companies.
As you know we have a large number of other dockets and Connecticut, some of which stemmed from tropical storm <unk> and subsequent legislation that passed in September of 2020, and a special session.
We've listed several of the dockets on a slide in the appendix to help you understand which pure inquiries cover which topics.
From state regulatory reviews, and I'll turn now to FERC.
Many of the specifics concerning the new England ROE cases as shown on slide 23.
We do not know when these cases will be decided.
At this time pursuant to FERC directive the.
Transmission owners in new England continue to build their customers based on the 2014 ROE decision in the first complaint or complaint one and there was later vacated by the DC Circuit Court of Appeals.
And we continue to record transmission earnings based on that decision that is the base ROE of 10, 5%, 7% and <unk> adder for the vast majority of our for.
Facilities of 50 basis points.
And in that and an ROE cap of 11, seven and 4% on the oil transmission investments and new England.
Turning to our expected financings in 2021, we have about $1 billion of debt that comes due during the year.
Primarily at.
The <unk> parent and Starr electric and PSNH, and we expect to refinance all of these maturities.
We will continue to fund our dividend reinvestment and employee incentive programs with Treasury shares.
Raising about $100 million of year, each year of over the forecast period.
In 2019, and 2020, we issued just over 1 million Treasury shares through these programs.
Additionally.
We continue to expect that over the next several years, we will issue about $700 million of equity.
Through and at the market style program.
We will continue to evaluate the timing of such equity issuances based on market conditions, our investment program and credit metrics.
Finally, turning to slide 24, we know that investors are primarily focused on future earnings and cash flow.
Evaluating investments however, I mean, I also believe that accompanies track record of performance.
Must be considered and evaluated and the credibility of these future forecasts.
As you can see and this slide we are of very strong track record of accomplishing what we say.
When our merger closed nearly nine years ago, we said, we would improve reliability.
The high level of safety performance.
<unk>, our cost support our communities and our regions sustainability initiatives and <unk>.
And in the future and provide very competitive earnings and dividend growth.
As you can see on the slide we've been.
We have been successful in each of these areas and we're confident.
We can accomplish the very ambitious goals, we've set for ourselves over the coming years day.
<unk> for all of our stakeholders and including achieving the carbon neutrality by 2000 and by 2030.
Thanks, again for joining today and I will turn the call back to Jeff for Q&A.
Thank you for all and I'm going to return the call to brand and just to remind you of how to enter questions. Brandon. Thank you and we'll now begin the question and answer session. If you have the <unk>.
Question. Please press star one and your phone keypad, if you'd like to be removed from the queue. Please press the pound side of the hash key issue and a speakerphone. Please pick up your handset first before we tightly.
Once again and if you ask the question Keystone Star one non default keypad.
Okay. Thank you Brandon or first question. This morning is from Shar <unk> from Guggenheim and good morning Shar.
And Jeff Good morning, guys.
Good morning.
Couple of questions.
And to start off just one clarifying question.
And the growth rates on slide eight.
When the larger offshore wind projects starting to kick in.
And when you, obviously, you stay higher than 5% to 7% growth and following that we could see a step change and the growth rate, maybe let's say six months to a or simply of higher rebates that year and you would retain your 5% to 7% and <unk> do you have any sense on when you might be adding these projects to your plan and I think you're obviously.
The weighted for the review schedules from bond and solidified and <unk>.
Yes sure.
And.
The reduced schedule, obviously gives us some certainty of destinations in terms of the spending profile and the earnings profile, but the expectation is that we will have higher growth.
And as those projects kick in.
And beyond 2025, so we're not sort of the resetting of providing guidance for what that looks like right now, but it clearly will be incremental.
And.
Tribute to our earnings growth.
The linked twenties.
Got it so basically a step change and the growth rate of good got it.
And then just taking a look at your planned investments and GMA you point to $278 million of Capex annually, there, which is I think more than double the amount of capital. The nice source was investing in the system, what's sort of driving the increased capex is net.
Just more safety and reliability and just remind us the feed any sort of regulatory approvals for the spin.
All of the.
And the regulatory approval to the extent of capital trackers are in place.
And the wound.
The spending level is more of than historically has been spent there.
The assessment and bring the safety and performance of the infrastructure.
Is that the other episodes gas companies.
Able to achieve will require that type of.
Of the investment and the system.
Got it.
And I could add just for a couple of just a little color there too is that no.
And asset purchase not sort of the purchase of the company. So were some of the things where we do have some incremental maybe.
Technology types of spending.
Move over to <unk> systems in the past and we certainly spend and <unk>.
Continue to spend on our gas safety enhancement program that's the.
That's the largest category of spending and that and that business.
Got it thank you for that and then.
And just lastly for me.
And obviously you highlight the.
Couple of more Rfps coming this year, relying Rhode Island, Massachusetts, and New York, just keeping the bids we've seen for them obviously some of the oil majors and it may be difficult to be successful so.
But you still do have a lot of excess lease capacity. So can you maybe just elaborate a little bit more on your strategy with the lease areas do you sit on your leases until the other leases.
Sort of are filled which could take years or would you look to potentially monetize some of the space. There. So maybe just James if you could just elaborate a little bit more around the strategy around those leases.
Yes the strategy.
<unk> has been consistently one of the financial discipline.
And so.
On.
Told my board and of actually presented to the oil and warranted.
And the past and you should expect us to lose as many rfps and as we win because we're ahead.
And.
The intent on having these warrants the profitable so.
And we're excited about the increasing demands.
And it seems like every couple of months the numbers go up in terms of the state's appetite for this and.
And when we look at a situation of plenty of dry powder for those bids.
I could be wrong, but I think our leases.
On the subscriber compared to the ovens and starting to fill up the existing.
The portfolio of contracts so.
We will continue to be disciplined and we are optimistic that the appetite of the staff.
For a significant build out of offshore and so I think.
And the position.
Terrific. Thank you guys I'll jump back into queue and congrats.
Thank you star.
Next question. This morning is from Jeremy Tonet from Jpmorgan and good morning, Jeremy.
Hi, good morning.
Good morning.
I wanted to start off with the offshore wind yet and why.
Want to see it might be of help us how much OXXO bung can you on the leasing and using the new 13 megawatts of our volume versus the megawatt programs originally the Scott.
Yes, I think the shot at that and others and per the AD, but.
Fundamentally we've been talking about the lease capacity had been for the <unk>.
<unk> historically.
<unk>.
When you increase the capacity of the turbines.
Juan.
Megawatts, and 211, and as you mentioned potential and 13th going forward, obviously net increases of capacity at.
At the same time, we have agreed to spacing of the turbines and it's part of the compromises.
And get the approval process.
Volume was space and the mobile between each turbines so.
That actually reduces your potential capacity. So net net we're saying it's at least for 1000 megawatts and.
We expect it to.
We expect the format of the notice of that well.
More than 4000 megawatts with AD sales.
Got it.
While the understood the lease portfolio.
For Boston.
And just wanted turnover.
And for equivalent of where the <unk> rate case of reopening of peers really focus on low income rate structures and what we can see making that kind of a very low risk of my line.
And it looks like this to you or something else within employee for provided and plate.
Yes.
Guidance, we've seen as that.
The total will be looking at do make designs, including <unk>.
Possible low income, while economic development rates the width.
The fire a possible.
Into the reduction.
I think its importance and.
Recognize that we're not earning our allowed return and yet.
And that franchise and then.
And Navy the required to Covid.
A full review.
Actually within the next 12 months of because I'll mention of the first quarter of 2022.
Full review, which is needed so.
The understanding our expectations.
The rate design changes that come out there.
And not necessarily be accumulated for the company, especially as we continue to under the Hood.
That's very helpful and Thats it for me thanks.
Alright, Thank you very much.
Our next question is from Steve Fleishman from Wolfe.
Steve.
Hey, good morning, and I apologize in advance if I missed some comments on my the way of my questions but.
Yeah.
I think on the one of the first questions asked about the long term growth rate with the offshore wind and I think you said, Tim higher into the holding 2000 twenty's.
And not to be too picky, but just.
Is that suggesting that youre not really expecting the projects the fully come on until till.
So after mid decade.
For like should these projects essentially beyond for 2025.
And question.
Yes, and again.
And we are very hesitant, Steve too simple.
And permits the changing dates, especially since we think credit will shortly have guidance for.
The ministration of in terms of expected timelines, but what we've said and continue the sales that's helpful and we hope to.
And by the end of 2023 and.
And it's clear that the evolution when mark.
And.
And by the end of 2003 and.
Sunrise is not expected to be and by the end of 2000 for so that some slippage there.
And.
And the full.
<unk> of the.
The offshore wind projects, especially the big ones clearly.
And <unk>.
And Vince and.
The ICC kicks in there.
Well so.
With.
We're not talking about the way things just the math of it.
Project per <unk> during the year and didn't get the full benefit of it until the.
For a full calendar year and the next year or so.
Yes.
And to my comments and that and some.
The step up there.
Okay, no worries on that.
And I guess it doesn't matter as much anyway given the.
ITC extension and safe harbors and stuff and just maybe on that.
I mean is there.
I know theres a lot of moving parts. When you look at the economics of the projects you've done but.
Would you characterize the.
And the ITC order as.
Kind of improving.
The economics.
Overall from what you had expected before.
Yes, certainly the.
And significantly.
And based upon what we're assuming for ITC at the time of our.
Our bids and <unk>.
You mentioned when the lot of puts and takes.
Cost of go up and down and so our current.
<unk>.
That's the the ITC of months is the level of whether it's at now and more importantly, the the.
The 10 year window, I think de risk quite a bit the.
And that some might have and our.
Tc.
The level was.
Who's vulnerable so.
Yes.
Certainly and the major positive.
Great and then lastly on the Connecticut.
Great.
Review, that's going on.
Recognize that.
It's not kind of fall.
For rates and the like it just I guess.
I don't really know how to had of size.
These issues like what the basis would be to set any of these interim rates for other things sort of like.
Do you of any idea.
How they would even calculate what to do.
And what the basis would be.
I don't know probably examples of low.
The income rate side come out of development rates.
Of the states of implementing and could look at it as models and what I would say statements that were very early on the early stages of this process. So it's hard for me to add and.
And.
Certainty and there other than as I mentioned earlier that we clearly and not earning our allowed return.
And that we have agreed to under the settlement the spin.
The three years now.
Yeah, Okay. Thanks, so much.
Alright, Thanks, Steve. Our next question. This morning is for Ryan Greenwald from Bank of America. Good morning, Ryan.
Hey, it's Julien here.
And guys Hey, Howdy.
So maybe the follow up and.
In order here can you talk about the run rate level.
Contribution for the offshore project I know the timing.
Obviously, moving around and I know you just said that there are lots of puts and takes the in an effort to sidestep some of that debate and that you see today, including the latest update the Itc's how would you characterize that run rate level of net income contribution and if you will.
Yes.
And again, it's another wages of Julian and I guess kind of the question of providing guidance outlined.
Our forecast horizon here so.
And once.
Publish a number until we have it for the.
Pretty good visibility into the annual cash flows and.
And profile of each of the projects.
Got it understood and then we had what we had said and the consistent on is that we anticipate these projects too.
Simple volume mid teens Roe.
The solar and the highest.
And the segments.
Sales of appropriate because the.
And the mosquito of the business segments and our portfolio.
Got it.
And I appreciate the reaffirmation.
On the balance sheet and and equity I just want to make sure I heard you right because you've made a couple of comments and I think you didn't pay typically over what period of time. So I think you said several hundred billion over over the next several years and you want to make sure I'm hearing very clearly about your equity needs and work with it.
Positions of your balance sheet over the full five year period, if I can ask more directly.
Yes, I'll ask Phil to answer and that volume, yes, great.
And the jump and the engine so Julien.
The for the.
Plan that we put out in terms of the $17 billion capital forecast over the five years, the $700 million supports that.
And plan.
Along with the 100 million of year that we do through the through the dividend reinvestment and drip. So if you. If you look if you add that up that's the $100 million of year through that and then $700 million through a.
The periodic at the market type program and what I, what I suggested was that that would be <unk>.
<unk> upon.
What market conditions look like.
What our metrics are looking like what what are if this changes.
In terms of puts and takes in terms of the timing of the investment profile. So those would be the considerations. So it would be.
Sometime.
Over the the <unk>.
Five year Horizon, I don't expect that it would be.
In 2021.
I would expect that it would be and years other than other than 2021 in terms of the $700 million. Obviously, we're doing the dividend reinvestment every year. So we would have that number and.
Does that clarify it for you.
Maybe you can say slightly more definitively.
It.
This puts your metrics where from a net debt perspective I E.
Suffice to maintain your metrics at roughly the same level through the five year outlook at that equity level or youre not were not that simple.
That is correct that is correct, we would be looking to target the.
The metrics.
To support the current ratings and the where they are today.
Okay with the 700, alright, alright.
Over overemphasized I just want to make sure. It's clear. Thank you no that's fine.
Okay.
Next question. This morning is from AMG stairs and escape the morning Angie.
Good morning.
A follow up on the equity needs.
The delta between the rate base growth.
Earnings growth, that's purely about the the equity dilution of theirs.
Some changes and realized borrowing is low.
I'm not to say that again the energy.
Youre, saying that the rate base of growing at 8% and then.
And the earnings growth at the at the half of the five to seven night for the fall.
As the say six and a half life and I'm trying to understand if the death of between 8% and then say six and a half of.
And it's totally a function of the <unk>.
<unk> dilution or is that.
I don't know zone.
Lower Roe.
And that's something to that effect.
No and it's primarily the equity issuance would be the driver there I mean, even for 2021.
And you have to keep in mind that.
As I mentioned and my comments, we closed out of forward contract in March and and we had additional shares that we issued in June so all of those now get into a full year.
Of 2021.
Didn't impact us in 2020, and then as we do the treasury shares and.
No.
Moving the $700 million that I discussed that would be the primary.
The mechanism that would be causing the difference.
Okay. Thank you and then.
On the Columbia gas and sorry, and just kind of keep calling it.
And that for now is that the 700, and then $275 million of Capex and the stand at the site.
The kind of the mandate that you are going to be working on an incremental capex updates. The can you give us the span.
How big of that of that Delta, we could see that the doubling of that the 75 the year jumps.
The.
And some tweak to the current Capex estimates that you would expect.
While that process as I said, we are as part of the rate agreement that we had.
And with Massachusetts for the.
When the deal got approved.
And in September of this year, we will be filing a report that identifies that so.
Say, it's a little premature to speculate on what that might look like.
In terms of the sizing we're certainly active in terms of looking at at that right now I'd say that.
We've not been Theres been no surprises in terms of taking the keys.
We did of we.
We did it all remotely and in a COVID-19 environment, but we did a very in depth due diligence jobs and no surprises there, but I'd say it's worth just.
Not at the final stages of that assessment. So the I could give you a good answer.
Okay.
And one thing I'd add is that as Phil mentioned earlier and that 275 million and we had some onetime items over the next couple of years to fully integrate the.
Shared service functions that are currently being supported by nicely.
Transmission services agreement, so some of that spend and the next two years in particular.
One of the merger integration related.
Great and if I may just one last question and.
Of the climate for in Massachusetts for the latest version of that at the start.
It's still talks about.
Kind of origin.
A number.
A number of that.
Houses to electric.
And then.
And maybe less aggressive at scale.
Electric drive.
Construction and the Spain.
How do you see it.
Impacting both of the electric utility and gas utility in the state.
Yes.
That is the Republic of debit actually thanks for the pushing for it.
The less natural gas connections connections for our for new build and construction.
Well I think.
And for first of all in both of our gas and electric business.
And the state of Massachusetts, operating and decoupled.
And Jim So the extent volume goes up and down we true up to.
Improved.
And level the.
Biggest opportunity that we have and the state of Massachusetts is and the areas of transportation and.
Home heating oil more than 50% of the the.
Businesses, and homes, and Massachusetts heat with with oil and.
The significant improvement if you don't go to electric and you can go to gas the.
The emissions.
Uptake of improvement if you will and.
The significant so.
I think well.
The work of the state as of the other states to make sure that we can.
Most of the Decarbonize the.
Sure.
And the of the surprise.
Yes.
Comfortable where that legislation is and.
As Phil mentioned, one of the components and.
Allowance utility scale solar build out.
And we're confident enough in the day.
And that we're putting into our base forecast here for this guidance.
Thank you.
Thank you Angie next question. This morning is from third cash chopper.
Evercore good morning for Dash and good morning, Jeff. Thanks, two quick ones the first maybe.
Can you sort of what milestones should we watch for in terms of this the rate review and Connecticut.
The low income clients that you mentioned, so what does the timeline and what should we be sort of looking for.
In terms of calendar.
Gesture revenue specifics for the calendar that's the.
And I know early on and in the process.
Yes, we put the DAC it up but I don't think there's really any I mean, it's sort of open ended right now.
Got it okay perfect and then just one quick clarification in terms of the I believe the decision is in April on the storm investigation.
And just what to expect there and how are you sort of accounting for that and your 'twenty 'twenty one guidance numbers. Thank you.
Sure.
And the remaining schedule, there and I think reply briefs of actually do.
This week I think we will get.
First the tentative decision about a month linzess and <unk>.
Much.
The exceptions.
And we followed out of a few weeks later and.
And then.
All of arguments may be mid April with the final decision on the on the 28 I think current investigating the prudence of the costs.
We are confident that the.
Some of the largest workforce.
Connecticut for that storm response and the.
The majority of the cost and it would be.
And after the deal was.
Bringing in those external resource and see that from other utilities of them from contract and so.
We are.
And we expect as we have in the past the cost recovery would be.
The allowance for for these costs as the prudent.
Understood.
Thanks, guys much appreciate the time.
Alright I appreciate it the cash next question is from Ryan Levine from Citi. Good morning, Ryan.
Good morning, guys.
Couple of questions what percentage of the offshore wind and Capex do you expect to qualify for the ITC and are there any steps that the company can take to increase this in the coming months or years, and then I guess.
Follow up on related to that and.
How does that differ for.
For some of the prospective projects that you're looking at.
Hey, Doug.
Yeah.
And we're going to fill of Johns and provide any insight on that question.
Yes, effectively we would expect.
All of the majority of the spending to qualify.
Under the under the ITC provisions.
Okay, and I thought there is some component of the.
The portion that's not considered offshore.
And I qualify in terms of of the total capex of the point for the project.
Anything that and your percentage of the Capex.
Yes.
It's probably it's part of roughly about 80 20 split.
Could you kind of look at the total capex of about 80% of that will be the offshore piece of would qualify for the ITC.
Okay and then.
No opportunity to move that 80% closer to 100%.
No I mean, the rules are free.
Pretty clear in terms of what would qualify and what wouldnt and so kind of the kind of tied to of the onshore piece obviously.
And we wouldn't qualify and.
So when you kind of that onshore piece that got deemed onshore.
And is that 80%.
The <unk> of roughly applied to the prospective projects that youre looking at the date and the.
The various states.
I mean, I think from a rule of thumb, it's probably safe, but again, all the way kind of depends on.
And how we look at where we're going to land and.
And I would take account of the profile of what's out there with what we build and the.
The lease area.
Okay. Thank you.
Great. Thank you Jay and <unk>.
Thank you Brian next question is from Nick Lubrano from BMO capital Good morning, Nick.
Oh, Hey, guys its James Thalacker actually.
Hi, James.
Hey, Jeff Real quick question, just I guess.
Confirm it.
And and sound like the the equity needs that you were forecasting the $100 million of sort of Treasury shares and then the 700 million of incremental equity has really changed I guess as we think about the.
You've got a pretty large rate base growth at the Columbia gas business right now is part of the reason that.
Your equity needs arent going up materially because of the the rider treatment you have there as well as the the.
The fixed rate increase and that you have embedded and the settlement.
And I'd say the.
And we do have a number of.
I would call and timely recovery tracker programs, not not just debt and resource gas of Massachusetts, but.
Throughout the various <unk>.
Subsidiaries, whether they be for accelerated pipe replacement for.
For safety.
Safety and pole replacements things like that so.
The because of the timely tracker cash recovery that is very beneficial.
Okay, great. Thank you very much of them.
You're welcome Alright.
Thanks James.
Next question is from David Arcaro from Morgan Stanley Good morning, David.
Hey, good morning, Thanks, so much for taking my question.
A couple of quick one and so I was just curious on offshore wind to the extent there are.
Items and improved the economics like the higher ITC level of the longer wind blades with those benefits accrue to yourselves or other opportunities or changes that you would pass any of those backlog and lower rates and within the contract mechanism or anything like that.
The current contracts.
<unk> for adjusting the pricing based upon changes like that.
Okay got it understood and then.
But topic I was curious do you see any prospects for improved.
The acceleration.
And the heat pump you senior states anything that's on the horizon that might change the economics of being favor of using more heat pumps to electrify space heating.
And potentially increase the electric load going forward.
We do have a pilot program that was approved and.
And.
Gas rate case and so.
At this stage I think we're exploring what those pilots will tell us in terms of the long term prospects of and our geography for us for that technology.
Okay got it and we'll watch that and thanks so much.
Alright. Thank you David our next question is from Travis Miller from Morningstar. Good morning Travis.
Good morning, everyone. Thanks.
And I was just wanted to follow up on the earlier questioning of the Andy's question about the 8% rate base CAGR and then the earnings guidance of 5% to 7% understand and the equity component. It seems like you've got good long term rate plans in place and on a whole lot of regulatory risk on the upside just wondering if you could take the risk take us through some variable.
And that might get true to the lower end.
Of that range.
There is the.
Thanks, Travis for you for your question.
We talk about.
Our regulated business. So certainly regulatory outcomes have an impact on where you end up and any kind of earnings growth or annual range.
And so outcomes of of regulatory cases could move you higher or PPA, and the middle or moving to a different and of the range.
And the incremental investment opportunities we've identified several of them.
That are active now in terms of am I on the additional grid modernization and the.
And more things that can take you through the to the to the higher end of of the range.
Certainly how you do as the company any company does on their on their O&M management is important and.
I think.
You might agree that.
Can't really find anybody better than.
And then of resource and controlling costs and certainly if there is cost O&M pressure that could move you around and the range. So I think those are those of some of the bigger variables that could move you into different different parts of the range, but where we are confident and where we are guiding to we're confident and our ability to execute on.
And our our investment plans and as well as run the run the business and a safe and efficient and effective manner.
Great. That's helpful. Thanks, and then real quick on the electric vehicle charging if you look out over the five years you had mentioned the <unk>.
For the small program you have now.
What do you think about the upside potential in terms of Capex and.
What do we see that more and distribution or is there an opportunity to add transmission in terms of the large substations et cetera that would support EV.
I think.
And the benchmark for you.
And the drivers I mentioned and I think there were only 1400 charges and the state of Massachusetts, and the finishing up of.
The three year program that brings that number of some 5200, but the.
And the tightness, and Connecticut, and Massachusetts, both half of electric vehicles.
Some of them.
Slide and the unit that shows that so my ex.
The patient is that the.
And.
The investments largely be and the distribution system I think we'll be mindful of any potential impact.
And the transmission needs, but I think that the.
Focus on the distribution build out for these charges and.
And would you expect in the near term transmission needs cleaned by the low.
Okay, Great I appreciate it.
Thank you Travis next question is from Paul Patterson from Glen Rock Good morning, Paul.
Morning, guys How're you doing.
Alright, good for how are you putting all of.
Managing for sure.
And really quickly.
On the <unk>.
On the Connecticut, you guys mentioned that you don't the cure.
And the earning your ROE and stuff and I was just wondering I know last year, you guys, obviously of challenges with the storms and stuff, but if we would look like.
At this level on the 'twenty 'twenty, one and I know, you're not giving guidance for <unk>, but just sort of roughly speaking what kind of Roe.
Return range.
Do you guys sort of expect to be and for 2021 and Connecticut.
Paul This is Phil the.
Where our last filed the <unk>.
Files sort of on the on the quarters.
And Connecticut was about eight 6%.
And we're allowed nine and the quarter.
So.
And we're certainly below the <unk>.
Allowed return.
And the settlement that we had.
And that will be finalizing.
The year and unexpected to change dramatically.
But that was our last filed the number and Connecticut, which is net of the storms and stuff and there or is that sort of the normalized number.
Well as you as you probably know that.
Most of the storm cost for ESI is for deferred because theres triggers that.
Okay.
If you are above <unk>.
$4 million and Connecticut, you defer the costs so.
And we'll be disclosing.
There's about $228 million of.
Deferred storm cost so those within the effect. It so it's not an abnormally low number because of that in addition, as I mentioned and Jim mentioned, we had a 100 plus other storms.
And some of those don't trigger of deferral, so those would impact.
The franchise all of <unk>.
Electric franchise.
Okay. That's great. That's helpful. And then also just on the COPD transmission Capex.
2021 and 2022.
It seemed like the jumped a lot.
And both of your last forecast.
And I was just sort of wondering if there's anything.
The callout on that I mean, you guys mentioned doing and large projects really or it's mostly sort of.
Nuts and bolts it sounds like I was just wondering if there's anything of particular debt.
And that seems to be one of the bigger bigger moves and the and the slot.
Good day.
I'm not.
Actually I think the the <unk>.
Projected transmission capital.
Is decreasing net.
And.
There is some.
The large expense spend at yours, or you could say larger and 'twenty one, but then those sort of the decline is that this chart and youre looking at.
Okay.
When I look at the chart look to me when I was doing the comparison that.
From 2021 and maybe.
Two of $94 43, and for 2020 to 184 to one of $2 64.
I can follow up later, I mean I'm not okay.
But that's that's what I just looked at the payback there was a it can be timing two or something I don't know any way of just I was wondering if there was anything in particular and then finally.
On the offshore wind.
Given what we've seen in Texas, and what have you and I apologize for not knowing this but I was just wondering.
Just in terms of how these contracts work if there was some issue with.
And not being able to provide power.
<unk>.
Is there.
And do you have to go and the spot market and make it up or do you just simply not get paid for the power that you'll deliver or I just wanted to sort of.
Get a sense as to how it works.
Basically what would maybe think about this of course is what we're seeing and.
And the Midwest and stuff.
And from what I understand the vote the.
Texas.
The struggling which I think the problems.
And from the financial structure for power generation and that really is an off of the many incentives.
The power plant operators to prepare for the winter.
Electric revenue and put an emphasis on cheap prices over reliable service.
And we went and Juno, we have the robust capacity market, where the IFC.
So lots of and adequate supplies moving.
Four of five years out and.
In terms of the people were talking about the wind, but from what I understand.
The impact on the thermal plants.
The.
For the free substance.
The the.
The dealing with I think the into the nuclear unit went down.
And the gas plants, and probably five or six times the.
For loans.
Last winter and I think we've only 10%.
And Texas.
Okay.
Are you of what Youre, saying im not suggesting that the there is some particular issue with the I'm just sort of I'm just wondering though if.
In terms of wind being kind of and integrated resource and I'm, just wondering with the way the contract works.
And if for some reason whatever it may be you don't have the production that you expected.
Would that be something where you just simply don't get paid and get that production of isn't happening or would you actually maybe the short so to speak and have to make up the difference.
We don't need for them or not the latter, but I just wanted to add.
And as a form and we get paid for.
Q1.
Pieces and so we don't deliberate of the revenue.
Eastern coming in.
Okay.
Thanks, So much I really appreciate it guys.
Alright, Thank you Paul and welcome to our next question from Mike Weinstein from Credit Suisse and good morning, Mike.
Hey, good morning.
A couple of one more question on <unk>.
And offshore wind CEO of hotel today came out and said that the irr's on offshore wind are very competitive the most competitive of the entire renewable illustrate 2% to 3% IRR.
Is that something you guys are seeing as well.
And your analysis of the project.
Project opportunities for more sets.
The C going forward.
Yes.
Clearly the competition and crew.
And I think the latest evidence.
The New York, Rfps that I mentioned and Mike My comments and so.
We continue the stay disciplined I think people are bidding into this for multiple reasons very small returns, but maybe some branding.
And this I think hence appeal for some of the plans and the business now so.
As I mentioned, we'll continue to participate and Rfps.
We will get creative of boat.
Cost structure going forward.
And more and more of the supply chain moves over the.
The U S from Europe.
And our cost advantages there so.
And we'll be continuing to be disciplined to the.
The 3% IRR of its not something that we won the wind.
And then the.
And with some tightening that mid teens Roe for.
And for our investors.
Alright and.
For the day.
And review schedule I know I think and the slide deck, you sort of expected in 2021 for both resolution and Sunrise.
I think for.
<unk> said early 'twenty, one for revolution, but it looks like if you forgot the word early is the intentional.
Yes, I don't think its essential and take the recognizing that the alumina.
And with specifics on both of those projects as new leadership of boom and the department of interior settled into the rates into the roles of Ella.
And clearly the by the administration and supportive of.
And what kind of win and accelerating the approval process.
And it's not moving theory I don't believe the book.
The secretary.
And approved yet.
We are encouraged by what we see as the new.
And the volume she actually came out of the couple of administration and is very familiar with the offshore wind.
Solicitations in New York.
And so.
Yes, I wouldn't read much flow into it other than the new people with new low so.
And we'll see what the schedule is.
Great and then for <unk>.
The EV and Ami docket.
Is that I think you guys are expecting some comments in March and the.
Sockets and.
Also is there any kind of inter player are they of eight dependent on getting.
This rate review docket done first.
Completely independent.
Around the Bandon.
Go ahead Phil.
Go ahead, Jimmy finish and.
Yes.
I think the Ami and Hurley for early on.
And the process in terms of the calendar.
Electric vehicle the appointment hearings on the take place.
Strong proposals at the end of February and we would expect and decisions.
In late March and I think they were totally separate from the other dockets.
And are on the table insurer.
Okay, great. Thank you very much thanks.
Alright, Thank you Michael and that was for the last question. We had this morning. So thank you very much for joining US today. If you have any follow up questions. Please call or send an email and we'll get back to you and have a good day.
Thanks stay well everybody.
Thank you.
And ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.