Q2 2022 Eversource Energy Earnings Call
Massachusetts regulators approved in the most recent and star gas rate review the project will be located in Framingham, Massachusetts, and we'll connect 140 apartments homes and businesses to a geothermal system that will provide both heating and cooling.
Customer receptivity to the project has been very strong with nearly 85% of those along the route signing up for the pilot. We continue to expect the project to be operational in 2023.
Turning to offshore wind in slide five I want to update you on the progress we have made on our strategic review of our offshore wind investments we've been working closely with <unk> on developing the marketing materials that will be disseminated to potential buyers for a 50% interest in a joint venture.
We continue to target an outcome for this review by the end of this year.
Thus far we have had very high level of interest and expect a robust sales process.
We recently kicked off.
Our outreach and have had preliminary discussions with potential buyers and expect that process to continue key materials have been developed including a teaser non disclosure agreement confidentiality memorandum independent engineering documents and other materials.
In the meantime, we continue to make steady progress on our three projects.
<unk> is the first project into construction, we are virtually complete with the sections beneath the public roads in east Hampton.
In New York.
We're now progressing rapidly on the onshore sections and the railroad right away.
On the substation with a 130 megawatt project will connect.
As a reminder, the offshore portions of South Park will be built in 2023.
We continue to expect the two larger projects Revolution wind and Sunrise wind to be fully permitted in 2023 and to be in service in 2025.
On July eight the Rhode Island energy facilities Siting Board.
Two revolution wind decision and final order approving the project and granting a license to construct and operate as a reminder, revolution will supply a total of 704 megawatts to Rhode Island, and Connecticut and tie into the new England grid and not Kingston Road.
Ireland.
As you can see on slide six we have also made progress on the procurement side with 82% of the three project cost walked in up from 80% in May.
The demand for offshore wind generation continues to grow in our region, Rhode Island.
Recently enacted legislation that requires a solicitation by October of this year for an additional $600 to 1000 megawatts of offshore wind.
Another much larger offshore wind RFP for up to approximately 4600 megawatts was issued this week by New York <unk>.
Including projects already awarded we are now looking at approximately 18000 megawatts of offshore wind authorizations from New York and the states of Southern New England.
We are confident that this level of procurement will attract wide interest in our wind investment since we continue to believe that the ocean tracks that we share with <unk> are about the most attractive in North America due to the high average wind speeds.
Moderate depth proximity to load and incredibly deep public policy support.
New legislation that passed in Massachusetts House and Senate last week.
Also for the.
Support a robust sales process as you can see on slide seven there were several elements in that bill that should help solidify, Massachusetts effort to stay in the forefront of offshore wind development in the United States. They included an affirmation of the state's commitment to contract for <unk>.
600 megawatts of offshore wind by mid 2027.
Modification of the bidding process to encourage more competition among developers and incentives to increase the manufacturing and assembly of offshore wind components in Massachusetts.
There were also provisions to enhance the seal and leasing of electric vehicles in the state.
Build more energy storage and develop grid monetization plans that would support electrification is a key path to decarbonization.
There was also a pilot program that would allow up to 10 communities in the state to restrict fossil fuel installation in new buildings.
Health care and research facilities, which have proliferated across Massachusetts would be exempt from the pilot as wood certain communities with housing affordability challenges. Thanks again for your time I will now turn it over the call to John Moreira.
Thank you Joe and good morning, everyone. This morning, I will review our results for the second quarter of 2020 to discuss recent regulatory developments and review, our 2022 finance and activity I will start with slide eight.
Our GAAP earnings were 84 cents per.
For sure in the second quarter of 2022 compared with earnings of <unk> 77 in the second quarter of 2021 second quarter results for both years include <unk> <unk> per share of an after tax cost associated with acquisitions, primarily related to the assets.
Acquired from Columbia gas of Massachusetts, excluding those costs.
We earned <unk> 86 per share in the second quarter of 2022 compared with earnings of 79 per share in the second quarter of 2021.
For the first half of 2022, we earned $2 13 per share on a GAAP basis compared with earnings of $1 83 per share in the first half of 'twenty to 'twenty one.
Excluding charges related to the acquisition and a Connecticut storm penalty last year, we earned $2 16 per share for the first half of 2021 compared with earnings of $1 94 per share in the first half of 2021.
Looking at some additional details on our second quarter earnings results by segment, starting with our electric transmission segment.
<unk> earned <unk> 44 per share in the second quarter of 2022, compared with 40 <unk> per share in the second quarter of 'twenty one.
Improved results were driven by higher level of investment in our transmission facilities. Our electric distribution segment earned <unk> 37 per share in the second quarter of 2022 compared with earnings of 35 per share in the quarter of 2021 improved results here were driven locks.
Really by higher revenues lower pension costs and storm restoration costs, partially offset by higher costs related to property taxes, depreciation and other employee related expenses.
Our natural gas distribution segment earnings were $2 per share in the second quarter of 2022 compared with earnings of <unk> <unk> in the second quarter of 'twenty. One improved results were largely due to higher revenues and lower pension expense, partially offset by higher operating and maintenance.
Costs property taxes interest expense and depreciation.
Our water distribution segment earned <unk> <unk> per share in the second quarter of 2022 at the same level as we earned in the second quarter of 'twenty one <unk>.
Results for <unk>.
<unk> parent and other companies improved by $1 million in the second quarter of 2022 compared with the second quarter of 2021, excluding the acquisition and transition costs I mentioned earlier. The results include after tax gains on clean energy investments, which increase.
<unk> by <unk> <unk> per share.
From last year's levels and were largely offset by higher interest costs on long term and short term debt.
Now that we have.
Now that we have the first half of 2022 behind us from an earnings perspective, and have a bit more line of sight on the second quarter of 2022, we have narrowed our non-GAAP earnings guidance for the full year to $4 <unk> to.
$4 14 per share.
From a previous range of $4 to $4 17 per share.
Before moving on I am pleased to announce that as of the end of June we have fully transitioned the remainder of <unk> gas of Massachusetts business systems off of the legacy <unk> system and onto the <unk> platform overall, we cannot be.
More proud of the conversion process has gone extremely well.
Since we closed the transaction in the fourth quarter of 2022, we have converted approximately 300 business processes over two <unk>, including the most recent move onto a new customer information system feedback from both <unk> customers and employees have been very positive and.
Our operating and financial metrics have consistently met or exceeded our expectations. As a result transition related cost for this transaction will be minimal next quarter.
We are very appreciative of the great <unk>.
Port we have received from nice source the Nisource team during this transition period.
Turned into longer term earnings as you saw in our news release and can see on slide nine we are reaffirming our long term EPS growth rate in the upper half of 5% to 7% range on slide 10, we also reaffirm our $18 billion five.
Five year regulated capital program that we discussed during our February earnings call, including our $3 9 billion regulated capital investment projected for this year.
As Joe mentioned.
We expect that by 2026.
The last year of our current five year forecast.
Our incremental investments required to offset the.
The lap the loss of the offshore wind earnings contributions that would have been in place we estimate that.
That will be required approximately $3 billion of investments.
More to come on this front soon.
In both February and in May we noted a couple of additional areas, where we expect the need for incremental investment over our current five year forecast period to enhance reliability customer experience and efficiently connect clean energy resources, turning to slide 11.
We have provided a status update on Ami for both and Star Electric and <unk> at this time regulators in both Connecticut, and Massachusetts are actively working through dockets with a with decisions expected later this year.
Briefing has been completed in Massachusetts, and we expect a decision towards the end of the year and Connecticut PURA held hearings earlier this month.
To address further questions.
The department posed about an Ami rollout. We also expect Prs Ami review to be completed by the end of the year.
Separately as we mentioned on our first quarter earnings call and Starr Electric filed an application with FERC in March.
On an innovative recovery structure to help promote offshore wind.
<unk> off, Massachusetts, the application involves park city wind.
Which is an 800 megawatts.
Outbound grid project that was selected a couple of years ago.
As the winner of Connecticut's most recent offshore wind RFP.
Park City will connect into the 345 kv system, where we are already planned and some upgrades to meet rising load ryzen electric load requirements.
By working on the two projects together, we were able to reduce costs for customers in total the incremental upgrades.
Would be about $200 million.
Of which about $150 million of it will be collected from park city with FERC based returns.
FERC approved our application at its June .
Meeting, we expect there will be other opportunities to emulate this type of offshore wind transmission interconnection agreement going forward ISO New England is already reviewing another project that expects to tie into the new England grid through Cape Cod.
We have discussed previously that include in Park city, there are probably about $500 million of regulated transmission investment needs on Cape Cod to efficiently connect offshore wind that has reflected that is not reflected in our current $18 billion capital forecast.
We expect other significant investment needs to a rise in the near future in both electric distribution and transmission segments since our state's view renewable power as a critical means of reducing greenhouse gas emissions related to space heating and transportation.
On the regulatory side, we have one general.
Rate review, well underway and another one about to be filed a summary of those cases as shown on page on slide 12 hearings in the end Starr Electric rate review concluded just last week and we will be entering the recent phase soon.
With a decision expected December 1st of this year.
And with rates effective January one of 2023.
We feel very good about the strength of our case as well as our proposals to enable the commonwealth's clean energy goals briefing will take place throughout the month of September .
On July 1st.
Aquarium water of Connecticut filed a letter of intent.
It's rate review in about 10 years.
Key elements of the three year plan are shown on the slide we expect to file the actual application in August aquarium, Connecticut regulatory Roe.
Was about seven 8% during the 12 months ended March 31, 2022, and the company's infrastructure investments have significantly increased over the past several years to enable water service reliability for its customers.
Turning to recent financing we issued one 5 billion of two year and five year parent debt.
In late June proceeds.
Proceeds were used to reduce short term debt.
Relatively short average maturity of the senior notes is due to our anticipation of a successful sale of our offshore wind interest.
In terms of the equity issuances as you can see on slide 13, we launched our $1 2 billion at the market program in the second quarter of this year and to date have issued nearly one 4 million shares at a weighted average price of $91 nine.
Eight.
Through July we also have issued approximately 640000 treasury shares this year.
To fund our dividend reinvestment and employee plans.
We have received a number of inquiries from investors regarding our pension obligation.
Let me, let me start with an overview of <unk> performance last year. Our retirement plans earned approximately 125 billion, which amounts to a 24% return on planned investments and we have contributed about $180 million into the plans last year.
This resulted in the funded status of our pension plans increasing.
Over the course of 2021 from about 79% to nearly 100%.
The impact of pension expense on our earnings is mitigated by the fact that we have adopted a smoothing of actuarial gains and losses over the average participant <unk> years of service. It is further mitigated by a pension trackers in place at our <unk>, Massachusetts.
<unk> electric and gas distribution companies.
And for our transmission segment. Additionally, much of our pension expense is capitalized into our capital projects and doesn't affect our earnings and lastly, our qualified.
<unk> plan has been closed for new participants for well over a decade.
Less than half of our pension expense actually affects earnings the expense is lower this year due in large part to the strong returns, we realized last year and slightly higher discount rate at this time. It is unclear whether pension expense will be a positive or.
A negative factor for our 2023 earnings while it is unlikely that in 202022, we will excuse me in 2023, we will experience the same returns as we realized in 2021.
The discount rate that we will use for 2023 is expected to be significantly higher than the rate we are using currently.
And that could help lower pension expense next year as a reminder, our expected long term rate of return assumed on our pension investments is 825%.
Yes.
Thank you. Thank you very much for joining us this morning, and now I will turn the call back.
Back over to Jeff great. Thank.
Thank you John .
Im going to turn the call back to Alexis to remind you how to enter your questions Alexis.
Yeah.
We would love to ask a question please press star.
Thanks Glenn.
Good morning, we would like to that question.
Followed by <unk>.
Quick question.
Right.
As a reminder.
Okay.
Thank you gentlemen.
Sure Yes.
Asking a question.
You may now begin.
Alright. Thank you Alexis our first question. This morning is from Shar <unk> from Guggenheim Good morning Shar.
Okay.
Yes.
Joe I appreciate sort of the color.
On the process, but can we maybe dig a little deeper into where we are right. Now did you get any inbound since the first quarter update and I know it's early but.
<unk> kind of your preferred structure. So if the leases and projects do get split up would you be willing to do it and take the construction risk for Sunrise and evolution, so like a build on transfer.
When youre thinking about an exit you really want to exit and not take any development risk at that point.
Yes.
Good morning, Sharon, it's great to hear your voice and I Hope you saw was going well. So couple of couple of pieces of your question first off we've had 12 additional inbounds folks that are interested in the properties I would tell you that.
That initial discussions folks are not afraid of construction risk there's no. There's no concern of that there's a very.
Healthy excited atmosphere for wind as you might imagine since.
Since the start of this year it's been.
Nothing but positive.
Positive things fall when we started with the New York bite leases.
Recent Rhode Island.
RFP news, the New York RFP News and obviously now this.
Washington deal, which is which is very exciting so.
We feel really good about it we don't think we're going to have to.
To do anything different in this in the sale process.
It's been very very well received.
Got it perfect and then just lastly.
Theres been some healthy amount of debating around how you sort of think about inorganic opportunities can you maybe just provide some thoughts around how you think about diversifying outside of new England, whether there is really any interest around acquiring electric operations or your strategic.
Priorities outside of your footprint is really around the water business.
Yes, yes, great. So first of all just so you understand we are laser focused on this when the wind piece right now that's what we're focused on that's what we're spending our time.
The water business, we love the water business, it's extremely fragmented I think you know that when we're making acquisitions. There. They are in the 10000 customer range, 5% to 10000, and that's what we feel very very good about but they are really virtually no independent publicly traded water companies in new England that really left so the focus has been on mute.
It's simply owned water systems.
<unk> has a phenomenal reputation in the water space. We think we have a great platform for us to grow and also some of these municipal systems in the region that are facing some capital constraints as they have to look at upgrading their systems I just want to make it very clear that we have no interest in expanding on <unk>.
Natural gas footprint that is not that is not on our radar at all and with regard to on the electric side.
While there are potential customer benefits from a larger footprint it would be very difficult for an acquisition to two.
To compete with investments in our own systems, and Massachusetts, Connecticut, New Hampshire. There is no question that increased electrification will necessitate significantly increased investment in our distribution and transmission systems and our substations to handle increased heating and electric transportation loads those investments will require significant.
Capital.
You know that our company history indicates that M&A is infrequent, but highly effective when it occurs mergers that create creative and star about 25 years ago, <unk> 10 years ago and added <unk> gas in Massachusetts assets two years ago were beneficial to customers are accretive to our shareholders in the first 12 months after <unk>.
<unk>.
Increased our EPS growth and wall without risk and Thats why I want to emphasize we are about derisking the lower risk. So it would apply all these same principles to any future opportunities that we that we would pursue shah.
Terrific.
It's a lot of good color appreciate it Joe I have a good day guys.
Yes. Thank you.
Thanks Shar next question is from Neil Neil Accountant from well good morning, Neil.
Yes, hi, everyone. Thanks for taking the question.
So Joe you mentioned the news out of Washington, and you guys have had the advantage and rather than us having a data kind of evaluate just love to get your take on.
What you see in there that can be helpful to have resource, particularly on the offshore wind side.
And is this something as you are looking at you kicked off the sale process would you need to wait and see this actually passed before moving forward with that.
Yes, I don't think we need to wait for it to pass I think it will it will move we feel very confident that the inflation of reduction Act will move I think youll see a lot of support in Washington, and a lot of discussions around it.
Think that some of the things around the enhancements to the renewable energy tax credits is going to create substantial value for our projects.
This bill is 725 pages long.
And it's very detailed and we're going through each and every piece of it but I will tell you that that all indications that we have.
We have surfaced in that bill is very very favorable for our business for the wind business actually for all renewable businesses quite frankly, so we're optimistic that this will help us, but we don't need this is not going to have us pause our efforts around.
The window.
Our wind exit.
Okay, and one quick follow up I don't know if you mentioned this.
In the remarks, so I apologize if you did but any any sort of sense on how long. This process will take to play out it seems like there's a pretty healthy interest.
Does that suggest that this can be fairly quick or too.
Any thoughts on that.
Yeah, and I feel very strongly that we will have.
We will have.
The answers in this year in 2022.
The fourth quarter.
Would be able to share a lot more color around it and.
Hopefully execute shortly thereafter.
<unk>, we wouldnt execute in 2022, but we would have a lot of clarity around the buyer.
Perfect. Thank you.
Thank you.
Thank you Neal our next question is from Nick Campanella from Credit Suisse. Good morning, Nick.
Hey, good morning, everyone.
Thanks for taking my question.
So I guess just in your prepared remarks, you kind of just talked about.
Some some holdco debt that had a little bit of a shorter tenor and it sounds like the offshore proceeds will go towards.
Potentially paying down that first if I'm hearing you correctly. So that's about like I think $1 5 billion of debt.
How do you just think about use of proceeds in excess of that.
Talk about replacing offshore.
Earnings in the out years is there a kind of further debt paydown in the near term with capital deployment in the long term can you just kind of.
Help us understand that more.
Sure. Nick This is John So if you look at some of the upcoming maturities that we have at the holding company, we have pretty sizable maturities that will kick in in early mid and late 'twenty three.
In the billions of dollars. So so those are.
Mature.
Round the time that.
That this transaction will happen so there's more debt that is on that.
<unk>.
Okay.
And then I guess just on the.
Inflation reduction actions.
It sounds great for the industry in general.
How are you thinking about the potential impact of like an alternative minimum tax to your business.
Sure Bill.
<unk> has only been out 24 hours literally so.
We're going through that we have the team is looking at the <unk>.
And what that really means.
Little unclear right now on the surface, but.
We'll look at that certainly if if if it's a big.
Big check that we have to right from the minimum.
Tax perspective that has to weigh in.
We're still reviewing that.
Got it yes.
I appreciate it's really early.
And then one more if I could just squeeze it in the <unk>.
Reviews.
How do you feel about kind of ultimately being able to bring a settlement to the table is that something youre actively trying to work towards her.
And if you could just what's the timing there.
Sure I mean, we just completed the hearings.
Always need to have enough information on the docket in order to to raise any settlement discussions, but I guess I'm not ruling it out field.
I feel that settlement.
It's certainly an option and I think if you look at our track record, we always gravitate to settlement versus a fully litigated proceeding. So so that's I feel very very good about that.
Alright. Thank you so much have a great weekend. Thank.
Thank you Nick.
Thanks, Nick next question is from Jeremy Tonet from JP Morgan Good morning, Jeremy.
Yeah.
Hi, Good morning. This is actually rich Sunderland on for Jeremy. Thank you for taking my questions today.
Okay.
Maybe just starting off with the Massachusetts climate legislation can you speak to some of the distribution system upgrades.
<unk> come out of that legislation or any other enhancements youre looking out on the distribution side.
Yeah.
Yes, Thanks, Rich we've got.
As you know is significant.
Capital plan around that we have.
We have been working towards these investments, whether it's <unk> or other upgrades and interconnection. So.
That legislation really dovetails nicely with what our existing plans are so.
It's nothing but positive from our standpoint in terms of.
Again that is also heading to the Governor's desk will hoping that gets signed.
And there's no changes before Sunday Sunday is the deadline. So again. These are these are very.
These are very annuities are only days old.
Okay.
Understood I appreciate the color there and maybe similar question, but on the transmission side, you're speaking about the coming offshore wind in the region you spoke about the park city upgrades, how do you think about the timing to scope out some more of these opportunities you is this something that could evolve over the next two.
A year or two in particular thinking about all the wind kind of coming down the runway here that you spoke to in the script.
Yes, I will tell you I have been pleasantly surprised you know one of the one of the reasons. We've had this kind of point of inflection around our wind business is the fact that there is such significant.
Need for interconnections on our in our service territory and this is right in our regulated business, which is our sweet spot. So I think that.
I think every.
Every year or every six months you are going to begin to see a greater and greater clarity around folks that want to interconnect. We are in a what I would say the crown jewel of service territories. We are in the load centers here, whether it's in Connecticut, Massachusetts. This is where folks this is where the load is in.
That's where folks want to interconnect. So I think that every time that we get on this call. We're talking with you and meeting with you I think we're going to have more and more clarity and more and more information around.
Transmission opportunities that are taking place for renewable projects.
Got it thanks for the time today.
Yeah. Okay. Thanks for the question next question is from Steve Fleishman from Wolfe Good morning, Steve.
Hey, good morning.
First question is just.
Joe I think on the.
Our first quarter call you said.
You'd be able to.
Ultimately.
Get back to the earnings we're going to get from the offshore wind.
With the proceeds from this.
Are you still confident that that is the case.
Yes.
Yes, we are very confident Steve yes.
Okay.
And then secondly, just the.
On the pension John Thank.
I think you mentioned something else.
Kind of.
Your B for 2023.
Margins should be plus or minus.
Is that versus 2022.
Pension expense.
Overall.
When you say, Steve it would be it would be a comparison to 2022.
Obviously.
Our returns right now.
Our lagging behind what we earned in 2021, which is the basis for 'twenty two expense, but the significant.
Can change as the discount rate. So if I were to size. The funded status of that plan today, we would move from 100 from 100% to something north of closer to 120%. So even though returns might be come down a bit than what we earned in 2021, but.
The movement in the discount rate could far exceed that.
That impact.
Okay.
And then one last question just in terms of.
Just to be clear on use of proceeds so we look at.
The length of the use of proceeds from.
The outcome of the offshore wind sale.
How should we think about the like.
We use of funds.
Down versus regulated.
Men's versus something else.
Sure sure. So immediately when you get that cash is going to focus on and pay off some short term and as I mentioned in the earlier comment we do have quite a bit of maturities that.
Maturing in 2023, so that's where we'll deploy but certainly it gives us.
The capacity to redeploy.
Two incremental regulated wind investments that are needed as Joe has mentioned for transmission interconnections and and two.
Address the load concerns that our infrastructure is faced with to accommodate electrification. So that's what we're going through that analysis now and we will.
<unk> kind of the normal course of business as you know, we typically we will update our forecast.
In February so the team is working on that analysis as we speak.
Okay great.
Thank you.
Alright. Thanks, David appreciate it next question. This morning is from <unk> Kim from Goldman Good morning <unk>.
Hey, Jeff Good morning, and happy Friday first question on the ATM equity amounts.
Amounts you guys should so far any additional color on roughly how much more youre contemplating issuing in 2022.
Or do you think like this might be kind of it until we get it.
The clarity on the ultra Wingstop.
Right so.
And so it's not a race to the finish line. So we will continue to be very opportunistic and take advantage of our stock price, So and Thats exactly what we did I mean, we issued the one four at close to $92 a share.
So we will.
It's difficult for me to answer that question without knowing where at where we'll be but if we have an opportunity to go to market.
The next five months, we will do so.
Sure.
Okay.
Got it and then going back to taking the question on the M&A side.
You've made it pretty clear that the focus is probably underwater.
Obviously, a lot of municipal.
Acquisition opportunities I think exist, but would you also potentially be open to looking at publicly traded water companies as well.
Good morning.
Yes, absolutely.
What's the strategic fit we're not going to go across the country, it's going to have to make sense for us.
It's going to have to be.
In this in the general area. So yes, we would absolutely look at that as you know they are far and few between as you know, but certainly waters is very very attractive to us.
Got it thank you so much.
Alright, thank you.
Next question is from their gas from Evercore good morning their gas.
Hey, good morning, Jeff.
Just on the on the water M&A topic, Joe just wanted to pick your brain on this like so so.
One of your peer water utilities, I guess announced an agreement here north of $1 billion of close to a billion dollars in Bucks County, Pennsylvania.
I mean, you havent experience running the connect medical water system for several years now. So so are you outside of the publicly traded water companies could we see you get into some of the municipal market in neighboring states on the waterfront.
Oh, absolutely, yes, but they would be they would be in neighboring states. Just like you said there'd be states that we're doing business in.
And we feel that that really is going to be the next.
The next road travel, but I think youre seeing municipalities.
These are water systems that are facing.
Some capital constraints and I think they feel it's probably best to turn it over to a professional operator, and that's what I think youre, saying Thats, what I think happened down there.
And the one you just talking about in Pennsylvania that they thought it would be best to turn it over to <unk> to.
To us a fantastic operator, I think that essentials, a fantastic operator, and I think Mr. Valli recognize that and that's why they did it but I think the same thing is happening in this region that we're seeing opportunities where municipalities do approach us.
I'm looking for our expertise in the space. So that will continue again. These are these are small opportunities I mean, you know.
When youre doing transactions that are in the $80 million to $100 million range to pick up.
Nine to 10000 customers or even the municipal.
Treatment those there are.
There are a lot of work, but again they are also very attractive to us because we have the platform we have incredible manner.
Management team at Aquarian that has the expertise needed to really turn things around and I think that our records stands for itself.
Got it appreciate that color and then John I had a quick clarification in your comments you mentioned that three 3 billion in investments in offshore.
That's sort of the.
Current plan is that what you were referring to on the offshore front or was that sort of the the regulated capex hole you need to fill.
To kind of make you square on the offshore earnings can you just clarify that.
Sure sure the $3 billion it would be the.
Incremental investments that we would need two.
To replace the earnings.
Once we divest of the offshore wind would need to be replaced so III.
So aligned and that aligns with the guidance that we gave you back in February where we said that we would expect our.
Wind business to contribute between 6% to 8% based off of the regulated returns.
For the first full year of operations and that is 2026.
So if you if you do the math that puts you at about 140 $130 million to $140 million and $3 million is what it would take from a regulated standpoint to replace those earnings using a 50 50 cap structure.
Got it so the $3 billion in regulated investments would equal the earnings loss from offshore.
That's correct.
Today's call and what we've been disseminated as ware.
Well on our way to reaching that we're at between the <unk> and the.
And the offshore interconnection into our system. That's about 1.5 billion of that number and then just given the opportunities that Joe has mentioned and we've been we were seeing happen to materialize just on the whole.
Distribution system and transmission system to accommodate the load expansion to bring in further renewable resources to address decarbonization and electrification.
We feel very confident that we can reach that that level of investment.
Excellent. Thank you for the detail there much appreciate it and have a great day guys.
Thank you alright. Thank you for your guests next.
Next question from Andrew Weisel from Scotia, Good morning, Andrew.
Hi, good morning, Thank you.
If I can first follow up on that last question. It sounds like youre expecting to get at least half if not all of that 3 billion you sound more confident what would that mean for EPS growth.
Slide you said you'd expect to be higher than 5% to 7%. Thanks to offshore. So if you are able to backfill. The wind earnings does that mean, you grow earnings faster than 7%.
Well, we're not here today to update our guidance.
But what we're saying is that the $3 billion investment would replace the earnings.
We would lose from from the win so I think it's a little premature.
Okay fair enough.
From the customer.
But Andrew was certainly it would be additive to our core business growth from where we are today.
Okay got it and then from the customer perspective, the cost of offshore wind, obviously won't go away if the owner changes. So how do you think about affordability impacts if you're Baxter the capex with projects into rate base. In addition to those offshore projects still moving forward.
Yes, I think if you look at some of the pricing out there right now for energy Youll.
Youll see that wind is very very competitive in.
Certainly is.
Is less costly than.
The options that are available right now in the marketplace. So I don't think that cost is going to be a barrier around wind and then Andrew I would what I would remind you of the 500 million that we've discussed on the call today.
As it relates to offshore wind interconnection.
Hey by the developer.
And.
Socialized.
Okay. That's a good reminder, thank you and one last kind of funny question.
In terms of the potential buyer or are there any requirements and preferences for the buyer to be a U S. Domiciled company or is it just as easily be an international buyer.
No. There is no restrictions on that it could be international buyer could be.
A local buyer or whatever.
Okay, great. Thank you.
Thank you Andrew next question is from David Arcaro from Morgan Stanley Good morning, David.
Hey, good morning, Thanks for taking my question.
I was wondering if you could get an update on how conversations have gone with credit rating agencies.
Any any cheap for a lower threshold after the sale.
And what is your thinking right now just around maintaining.
Your ability to hit the threshold that you've got in place right now given that you've got quite a bit of spending on the utility capex.
That you'd be adding to the plan.
Sure sure David So I'll tell you that.
I'm sure you're fully aware of this that we have completed our annual review.
With all three agencies.
Overall, great great outcome.
As to how it how we.
How it relates to the Moody's getting to a 15% so we do have.
Our plan.
Obviously, the use of the proceeds that we would get from offshore wind.
That would contribute very nicely and move the needle.
The equity issuance that we've discussed in total in addition to the <unk>.
We also have about 600 million of <unk>.
Treasury shares so you're really looking at one eight that we're looking to execute and then that.
That metric.
Metric has been negatively impacted quite honestly by.
The high level of deferred storm costs that we're carrying and.
We have plants in Massachusetts commenced recovery certainly with this rate case and as you know in Connecticut, We do have a stay out that we can't change base rates, including recovery of storm costs any earlier than one $1 24. So we're.
We're hopeful that over the next coming year or two those recovery.
That will be in place that recovery and then as I discussed in my formal remarks stat.
The status of our pension fund.
And obviously, because we're six weeks I would expect it to be overfunded quite honestly that we have the ability.
To avoid any any contributions for.
A couple of years out.
And then.
The timing of rate adjustments, we have one kicking in 2023 early 2003.
Open case that we have for installed electric so we do have a path.
To get to an enhanced <unk> to death.
So I feel very confident that we'll be able to get there.
Great No. That's really helpful. Thanks for that color. It sounds like there were some clear cash flow improvements coming.
The big decline kind of target or assumption that you don't see the need for any more equity in the plan.
Yeah.
To hit that $3 billion or to fund that $3 billion of incremental utility capex.
Well I mean that will happen over time, but.
Once again I think we once we get the.
The offshore wind deal wrapped up.
We'll reevaluate our equity needs and align that with the timing of our incremental investment of incremental capital needs spending.
Great.
Thanks, so much.
Yeah.
Thank you David next question from Paul Patterson from Glen Rock Good morning, Paul.
Hey, good morning, guys.
Thanks for the update.
Just one question now and then.
Hum.
Massachusetts climate legislation.
What's your expectation here for what the government might do.
Sort of running out of time, so I'm just sort of I was wondering if you guys are hearing anything are getting any sense as to what.
Direction this might be going.
Yes.
Good morning to you.
This favorably disposed to sign this legislation I don't anticipate any.
Anything standing in the way of that he might have a couple of.
Message you see sense back, but I think he realizes that it's at a time and I don't think he wants to jeopardize.
What he considers to be part of his legacy. So I think we're I think we're in good shape on that on that bill.
Okay. So that's what I was wondering when in the slide it says.
Potential seeking modifications I was just wondering with the session sort of ending.
I guess that would be kind of difficult to do I would assume is that right.
Some messages if theyre not informal session. It makes it difficult obviously to kind of overrides that.
But that doesn't jeopardize the entire bill these would be kind of <unk>.
Individuals say pocket type of a changed one offs.
Wouldn't wouldn't impact the overall bill.
So in other words, okay. That's helpful. So so in other words he could make modifications.
Okay. Okay, I got what you're saying I was thinking maybe a little bit so he wouldn't be the legislature to respond to those in order to have them become effective if I understand that that's correct. That's correct. It's not one of these total up or down it you actually can come in and our surgical piece. If it if we felt that strong I will tell you that I think you have.
Got it.
Governor here that is very mature in <unk>.
Really understands and has a relationship with the legislature. So he'll be very thoughtful very deliberate about anything that he does around this building and I think anything we sent back he probably will have already have.
Kind of pass through with the legislature to make sure that everybody's on the same page.
Great really appreciate it thanks, so much and have a good weekend.
Yes. Thank you. Thanks. Paul next question is from Julian from Bank of America, Good morning Julien.
Hey team. Thanks, so much for taking the time and the question.
So just check again, if I can just try to elaborate a little bit I know you guys are preliminary on this this $3 billion number here, but a little bit more on the timing and the pieces here right. When you talk about like the 1 billion and a half tied to the the offshore transmission for instance in part what's the timing there I know we've been talking about that would displace the 26.
Sure.
The idea that the 1 billion and a half would be fully deployed by that by that point in time and then similarly, my impression but tell me.
What the specifics are the other 1 billion and a half there how much of that is contemplated for instance.
How much of that would be done by 'twenty six years. If you will I'm just trying to understand of the $3 billion.
How much capital at least under the line of sight that you have today do you think that you can have in place by 'twenty six versus at some point through the decade, if you will.
Sure Julien.
The guidance that we're giving is that by 2026, we would have if you look at the the the forecast that we disseminated take that capital capital number and add 3 billion. So we hope to have all of these investments in.
In place by 2026, so to answer your question on <unk> as I said in my formal remarks, we expect a decision from both Connecticut, Connecticut, and Massachusetts, and quite honestly, we're working on vendor agreements to be able to move forward with the with those with those investments and that's about $1 billion in total.
And we're going to we're going to start on it immediately so certainly by 2020.
<unk> those will be fully in place and then.
And then on the $500 million of interconnections.
One a good portion of that if not all of it could be in place by by 2026. So it's really the other opportunities to accommodate electrification and upgrades to <unk>.
Our infrastructure.
Got it excellent so it sounds like at least on the parts of that you've identified you've got line of sight for 26, and the timelines for more fully introducing the balance here would be sort of coincident with the timeline for announcing the sale.
Or is part of our normal update.
In February Okay, alright.
Absolutely Okay excellent well. Thank you guys I appreciate it.
Thank you. Thank you for your time, Thanks, Julien Our next question from Ryan Levine from Citi. Good morning, Ryan.
Good morning.
Any color you could share at this stage in the offshore wind sale process on a coordinated marketing effort between <unk> and <unk> drag along or Tagalong rights or <unk>.
That happened these process and how does that impact the role they're playing in the preparation of Sims teasers et cetera.
Yes.
Well first good morning to you all.
That is a phenomenal partner I mean, they are very good friends and they are arm in arm with us.
Even to go right down to the level of detail around anything that we distribute they also they also join us on any any calls with potential bidders.
We don't really have any restrictions they don't have any veto power, obviously, they're a friend.
They are a great partner and we will continue to do business with them, whether it's on the interconnection products or helping them in any way.
You should understand that this is a very amicable very friendly and very coordinated effort.
We can look at.
This piece of our business.
Okay, So you're saying no veto rights do they have any ability to two.
To offer a price afterwards after the formal auction is completed.
No they do not and it keep in mind that we we love this wind business.
We are going to continue to support this win business that we want them to be successful. So we're going to make sure that whoever is the acquirer.
Fits very nicely with with oriented.
Okay, and then somewhat related reserve preset, Florida evaluation than ever source would require with this transaction.
<unk> contemplated.
And maybe just leave it open at different times.
And the first part of that Yeah, right could you is there a floor on value ratio and they're frustrated.
Yeah is there a minimum that you require.
No. We will go we will we're going to test the waters right. So it's a little premature I mean, we know how much we have invested in a joint venture and.
So we feel given the market conditions that we should do.
It'll be a lot more.
We're expecting a lot more of value given the current market situation.
In mind that.
This is not we have we have a lot of line of sight on value because obviously, we saw it took place in the New York bite, we've seen other transactions. So it's not as if we don't have a rough idea of where this is going to end up we know what's going to end up in the play as we're talking about I mean these have made these are major players.
That are are very well aware of the value of our assets. So we feel very very good about that.
I appreciate the color. Thank you.
Yes.
Alright. Thanks.
Thanks, Brian I appreciate it well, we don't have anybody else in the queue. So we want to thank you all for joining us.
And any follow up let us know today, we look forward to seeing you at the conferences in August and September and have a wonderful summer all.
Thank you. Thank you everyone.
That concludes.
Energy.
<unk> earnings conference call. Thank you.
You may now disconnect your lines.