Q4 2023 Unitil Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Q4 2023 Unitil earnings conference call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to the Q4 2023 earnings Unitil earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

One on your telephone you will then hear it automated message advising that your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Todd Diggins, Chief Accounting Officer. Please go ahead.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Todd Diggins, Chief Accounting Officer. Please go ahead.

Todd Diggins: Good morning, and thank you for joining us to discuss Unitil Corporation's fiscal year 2023 results. Speaking on the call today will be Tom Meissner, Chairman and Chief Executive Officer, and Dan Hrstak, Senior Vice President, Chief Financial Officer, and Treasurer. Also with us today is Bob Hebert, President and Chief Administrative Officer, and Chris Goulding, Vice President of Finance and Regulatory Affairs. We will discuss financial and other information on this call. As we mentioned in the press release announcing today's call, we have posted information, including a presentation, on the investor section of our website at Unitil.com. We will refer to that information during this call. Moving to slide two, the comments made today about future operating results or events are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Good morning, and thank you for joining us to discuss Unitil Corporation's fiscal year 2023 results speaking on the call today, it'll become Mr Chairman and Chief Executive Officer, and Dan <unk>, Senior Vice President and Chief Financial Officer and Treasurer.

Also with US today is Bob Hebert, President and Chief administrative officer, and critical link Vice President of finance to regulatory.

He will discuss financial and other information on this call.

You mentioned in the press release announcing todays call, we have posted an information, including a presentation to the investors section of our website at <unk> Dot com.

We will refer to that information during this call.

Moving to slide two the comments made today about future operating results or events are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

Todd Diggins: Forward-looking statements inherently involve risks and uncertainties that can cause actual results to differ materially from those predicted. Statements made on this call should be considered together with cautionary statements and other information contained in our most recent financial annual report on Form 10-K and other documents we have filed with or furnished to the Securities and Exchange Commission. Forward-looking statements speak only as of today, and we assume no obligation to update them. This presentation contains non-GAAP financial measures. The accompanying supplemental information more fully describes these non-GAAP financial measures and includes a reconciliation to the nearest GAAP financial measure. The company believes these non-GAAP financial measures are useful in evaluating its performance. With that, I will now turn the call over to Chairman and CEO Tom Meissner. Great, thanks, Todd. Good morning, and thanks everyone for joining us today.

Forward looking statements inherently involve risks and uncertainties that can cause actual results to differ materially from those predicted.

Statements made on this call should be considered together with cautionary statements and other information contained in our most financial in our report on Form 10-K, and other documents, we have filed with or furnished to the securities and Exchange Commission.

Forward looking statements speak only as of today, and we assume no obligation to update them.

This presentation contains non-GAAP financial measures the accompanying supplemental information more fully describes these non-GAAP financial measures, including a reconciliation to the nearest GAAP financial measures. The company believes these non-GAAP financial measures are useful in evaluating its performance.

With that I will now turn the call over to chairman and CEO Tom Meissner.

Thanks, Todd good morning, and thanks, everyone for joining us today.

Thomas P. Meissner: Beginning on slide four, today we announced another strong year of results with net income of $45.2 million, or $2.82 per share, representing an increase of $0.23 per share, or 8.9% over 2022. This increase was once again above our long-term guidance of 5 to 7 percent, which we are reaffirming today. We also fully earned our authorized returns on a consolidated basis with a return on equity of 9.5%.

Beginning on slide four today, we announced another strong year of results with net income of $45 2 million or $2 82 per share representing an increase of 23 per share or eight 9% over 2022.

This increase was once again above our long term guidance of 5% to 7%, which we are reaffirming today.

We also fully earned our authorized returns on a consolidated basis with return on equity of nine 5%.

Thomas P. Meissner: As we close the books on 2023, I'm pleased to report that we had another successful year and delivered outstanding results across every facet of our business, both financially and operationally, while advancing the strategies that will provide long-term sustainable growth. I'm going to pass it over to Dan, who will take us through the details of our fiscal year results before I wrap up with a recap of our financial and operational achievements and our commitment to deliver consistent, sustainable shareholder value. Dan?

As we close the books on 2023 I'm pleased to report that we had another successful year and delivered outstanding results across every facet of our business, both financially and operationally while advancing the strategies that will provide long term sustainable growth.

I'm going to pass it over to Dan who will take us through the details of our fiscal year results before I wrap up with a recap of our financial and operational achievements and our commitment to deliver consistent and sustainable shareholder value Dan.

Dan Hrstak: Thank you, Tom. Good morning, everyone. I will begin with slide five. As Tom mentioned, we announced fiscal year 2023 net income of $45.2 million, or $2.82 per share. Net income increased $3.8 million, or $0.23 per share, compared to the same period in 2022. This earnings growth was supported by higher distribution rates and customer growth, partially offset by higher operating expenses. Turning to slide six.

Thank you Tom.

Good morning, everyone.

I'll begin on slide five.

As Tom mentioned, we announced fiscal year 2023, net income up 50 or $45 2 million.

Our $2 82 per share.

Net income increased $3 8 million or 23 per share compared to the same period in 2022.

This earnings growth was supported by higher distribution rates and customer growth.

Partially offset by higher operating expenses.

Turning to slide six.

Dan Hrstak: I will discuss our Electric and Gas Adjusted Gross Margin, beginning with electric operations. For the 12 months ended December 31st, 2023, electric adjusted gross margin was $104.1 million, an increase of $5.3 million, or 5.4%, compared to the corresponding period in 2022. This increase primarily reflects higher distribution rates and customer growth. Electric unit sales were down for both residential and commercial industrial classes as a result of differences in actual weather compared to normal weather and lower average usage, partially offset by customer growth.

I will discuss our electric and gas adjusted gross margins.

Beginning with electric operations.

For the 12 months ended December 31 2023.

Electric adjusted gross margin was $104 1 million.

Increase of $5 3 million or five 4% compared to the corresponding period in 2022.

This increase primarily reflects higher distribution rates and customer growth.

Electric unit sales were down for both residential and commercial industrial classes as a result of differences in actual weather compared to normal weather and lower average usage, partially offset by customer growth.

Dan Hrstak: The company's electric distribution revenues are substantially decoupled, which eliminates the dependency of distribution revenue on the volume of electricity sales. For the year ended December 31, 2023, we estimate that revenue decoupling will support electric margin by approximately $0.13. We continue to expect future electric customer growth to be consistent with the historical annual growth trend of approximately 0.5 percent. Moving to gas operations, for the 12 months ended December 31, 2023, gas adjusted gross margin was $154.5 million, an increase of $10.6 million or 7.4% compared to fiscal year 2022. This increase primarily reflects higher distribution rates, in large part due to the higher rates resulting from the Northern Maine rate case, which took effect earlier than expected.

The company's electric distribution revenues are substantially decoupled, which eliminates the dependency of distribution revenue on the volume of electricity sales.

For the year ended December 31, 2023, we estimate that revenue decoupling supported electric margin by approximately 13 SaaS.

We continue to expect future electric customer growth to be consistent with the historical annual growth trend of approximately <unk>, 5%.

Moving to gas operations.

For the 12 months ended December 31, 2023 gas adjusted gross margin was $154 5 million.

An increase of $10 6 million or.

Or seven 4% compared to fiscal year 2022.

This increase primarily reflects higher distribution rates in large part due to the higher rates, resulting from the northern Maine rate case, which took effect earlier than expected.

Dan Hrstak: As we discussed during the second quarter call, new rates for the Northern Maine rate case were originally expected in the first quarter of 2024. However, as discussed on a third quarter call, the Maine Public Utilities Commission approved a comprehensive settlement in our gas-based rate case proceeding in late September, and new rates took effect in Maine on October 1st, 2023. Gas margin also increased due to customer growth, as we added approximately 950 gas customers to our system, and in Maine, which is our only non-decoupled service area, weather-normalized sales increased 3% compared to fiscal year 2022. Winter weather during 2023 was warmer than normal, and based on weather data collected in the company's gas service areas, on average, there were 6.5% fewer effective degree days in fiscal year 2023 compared to fiscal year 2022.

As we discussed during our second quarter call new rates for the Northern Maine rate case were originally expected in the first quarter of 2024.

However, as discussed on our third quarter call the Maine Public Utilities Commission approved our comprehensive settlement and our gas base rate case proceeding in late September and new rates took effect in Maine on October one 2023.

Gas margin also increased due to customer growth as we added approximately 950 gas customers through our system and in Maine, which is our only non decoupled service area.

Normalized sales increased 3% compared to fiscal year 2022.

Winter weather during 2023 was warmer than normal and based on weather data collected in the company's gas service areas on average there were six 5% fewer effective degree days in fiscal year 2023 compared to fiscal year 2022.

For fiscal year 2023, we estimate that revenue decoupling supported gas margin by approximately 33 per share.

Dan Hrstak: For fiscal year 2023, we estimate that revenue decoupling will support gas margin by approximately $0.33 per share. Moving to slide seven, we provide an earnings bridge comparing fiscal year 2023 results to 2022. For fiscal year 2023, adjusted growth margin increased to $15.9 million as a result of higher distribution rates and customer growth, partially upset by warmer winter weather in 2023 and by the recognition in the second quarter of 2022 of $2.4 million in higher rates resulting from the company's New Hampshire gas base rate. As a reminder, the results for 2022 included the recognition of recoupment amounts related to the company's New Hampshire Electric and Gas rate case orders Recruitment is a regulatory treatment in which permanent rate case awards are reconciled back to the effective date of the temporary rate award.

Moving to slide seven we provide an earnings bridge comparing fiscal year 2023 results to 2022.

For fiscal year 2023.

Adjusted gross margin increased $15 9 million as a.

<unk> of higher distribution rates and customer growth.

Partially offset by warmer winter weather in 2023 and.

And by the recognition in the second quarter of 2022 of $2 4 million and higher rates, resulting from the company's new Hampshire gas base rate case.

As a reminder, the results for 2022 included the recognition of recruitment amounts related to the company's New Hampshire electric and gas rate case orders, which positively affected margin in 2022.

Recruitment is a regulatory treatment and which permanent rate case awards are reconciled back to the effective date of the temporary rate award.

Operating and maintenance expenses increased $1 9 million.

Largely due to higher utility operating costs higher professional fees and higher labor costs.

This change represents a two 6% increase in operating maintenance operating and maintenance expenses in 2023, compared to 2022, which slower than inflation over the same period.

Depreciation and amortization increased by $4 8 million, reflecting higher levels of utility plant in service and higher amortization of rate case and other deferred costs.

Dan Hrstak: Operating and maintenance expenses increased $1.9 million, largely due to higher utility operating costs, higher professional fees, and higher labor costs. This change represents a 2.6% increase in operating and maintenance expenses in 2023 compared to 2022, which is lower than inflation over the same period. Appreciation and amortization increased by 4.8 million dollars, reflecting higher levels of utility plant and service and higher amortization of rate case and other deferred costs. Taxes other than income taxes increased by $2.6 million due to higher property taxes on higher utility plan service and higher payroll taxes. Interest expense increased $3.2 million, reflecting higher interest expense on short-term borrowing, partially offset by higher interest income on certain regulatory assets.

Taxes other than income taxes increased by $2 $6 million due to higher property taxes on higher utility plant in service and higher payroll taxes.

Interest expense increased $3 $2 million, reflecting higher interest expense on short term borrowings.

Partially offset by higher interest income on certain regulatory assets.

Other expense decreased $2 $4 million, largely due to lower retirement benefit costs.

And lastly income taxes increased $2 million.

Afflicting higher pre tax earnings as well as higher flowback of excess accumulated deferred income taxes in the first half of 2022.

As a result of the company's New Hampshire electric and gas rate case orders.

Turning to slide eight.

Our Fitchburg electric gas base rate proceedings are progressing as expected and we continue to work with all parties in these dockets.

The requested gross revenue increase is approximately $6 7 million for the electric division and $11 3 million for the gas Division.

Dan Hrstak: Other expenses decreased $2.4 million, largely due to lower retirement benefit costs. And lastly, income taxes increased $2 million, reflecting higher pre-tax earnings as well as higher flowback of excess accumulated deferred income taxes in the first half of 2022 as a result of the company's New Hampshire electric and gas rate case order. Turning to slide 8. Our Fitchburg Electric Gas Base Rate Proceedings are progressing as expected, and we continue to work with all parties in these documents. The requested gross revenue increase is approximately $6.7 million for the Electric Division and $11.3 million for the Gas Division. The requested return equity is 10.5% for the Electric Division and 10.75% for the Gas Division, with an equity layer of 52.26%. The final revenue increases are expected to be net of certain revenues that are currently collected through capital tracking.

The requested return on equity is 10, 5% fully electric division and 10, 75% for the gas division with an equity layer of $52, 26%.

The final revenue increases are expected to be net of certain revenues that are currently collected through capital trackers.

We have proposed the inclusion of $2 7 million and $4 $2 million of electric and gas revenues, respectively and base rates, which are currently recovered through capital trackers.

After consideration of these amounts the net revenue increase would be approximately $4 million for the electric division and $7 1 million for the gas Division.

Our electric and gas proposals also include multiyear performance based ratemaking plans with annual inflation based revenue adjustments.

Evidently evidentiary hearings began in early February and will continue throughout this month.

Dan Hrstak: We have proposed the inclusion of $2.7 million and $4.2 million of electric and gas revenues, respectively, in base rates which are currently recovered through capital track. After consideration of these amounts, the net revenue increase would be approximately $4 million for the electric division and $7.1 million for the gas division. Our electric and gas proposals also include multi-year, performance-based rate-making plans with annual inflation-based revenue adjustments. Evidentiary hearings began early February and will continue throughout this month.

We will provide additional updates regarding these proceedings during our next earnings call.

Moving to slide nine.

The Commonwealth of Massachusetts required each of the electric distribution companies to develop an electric sector modernization plan, which includes among other things a summary of distribution system improvements to increase reliability and resiliency as well as assessments of future demand.

We recently filed our final electric sector monetization plan.

Which addresses the investments we believe are necessary in order to assist the Commonwealth and achieving its climate goals.

The submission outlines investments totaling approximately $43 million through 2028 that support distributed energy resources.

Dan Hrstak: We will provide additional updates regarding these proceedings during our next earnings call. Moving to slide 9, the Commonwealth of Massachusetts required each of the electric distribution companies to develop an electric sector modernization plan, which includes, among other things, a summary of distribution system improvements to increase reliability and resiliency, as well as assessments of future demand. We recently filed our final electric sector modernization plan, which addresses the investments we believe are necessary in order to assist the Commonwealth in achieving its climate goals. The submission outlines investments totaling approximately $43 million through 2028 that support distributed energy resources, electric vehicle adoption, and building electrification. If approved as filed,

Electric vehicle adoption and building electrification.

If approved as filed.

<unk> of the capital spending in this plan would represent an upward revision to our current capital investment plan.

Our submission also includes a proposal for a capital tracker to recover these electric sector modernization plan investments.

In addition to the electric sector monetization plan.

I'd also like to provide an update on our Kingston, New Hampshire Solar project.

As discussed during previous earnings calls the company received a public interest determination for this facility from the New Hampshire Public Utilities Commission in May 2023.

The company has received most of the permits necessary to begin construction and we expect to work at this site to commence in the first quarter of 2024.

Turning to slide 10.

We have updated our projected five year investment plan, which now totals approximately $910 million.

Dan Hrstak: A portion of the capital spending in this plan would represent an upward revision to our current capital investment plan. Our submission also includes a proposal for a capital tracker to recover these electric sector modernization plan investments. In addition to the electric sector modernization plan, I would also like to provide an update on the Kingston, NH solar project. As discussed during previous earnings calls, the company received a public interest determination for this facility from the New Hampshire Public Utilities Commission in May 2023. The company has received most of the permits necessary to begin construction, and we expect work at this site to commence in the first quarter of 2024. Turning to slide 10.

This investment plan is nearly 50% higher than the total capital investments made over the prior five years and reflects the continued investment are central to maintaining safe and reliable electric and gas systems.

In 2024, we expect capital spending to be approximately $170 million as we continue to make necessary strategic system investments.

As noted on the previous slide there remains potential investment upside as we support the clean energy transition in the states we serve.

Moving to slide 11.

We continue to maintain our investment grade credit ratings through our focus on responsibly, managing the balance sheet and generating strong operating cash flows.

Over the coming years, we expect operating cash flows less dividends to fund the vast majority of our financing plan with the remaining financing financing needs being met through a combination of debt and equity.

Dan Hrstak: We have updated our projected five-year investment plan, which now totals approximately $910 million. This investment plan is nearly 50% higher than the total capital investments made over the prior five years and Reflects the Continued Investment Essential to Maintaining Safe and Reliable Electric and Gas Systems. In 2024, we expect capital spending to be approximately $170 million as we continue to make necessary and strategic system investments. As noted on the previous slide, there remains potential investment upside as we support the clean energy transition in the states we serve. Moving to slide 11.

This approach helps to ensure a balanced capital structure, which at the end of 2023 was comprised of 51% long term debt and 49% equity.

Maintaining a strong balance sheet and our investment grade credit ratings remain a top priority and we believe we compare favorably to other utility companies on certain credit metrics, such as <unk> to debt.

We have no significant debt maturities in 2024, and we do not expect any changes to our current credit ratings.

Next on slide 12, I am pleased to share that our board of directors has voted to increase the quarterly dividend by <unk> <unk> per share.

Dan Hrstak: We continue to maintain our investment grade credit ratings through our focus on responsibly managing the balance sheet and generating strong operating cash flow. Over the coming years, we expect operating cash flows, less dividends, to fund the vast majority of our financing plan, with the remaining financing needs being met through a combination of debt and equity. This approach helps to ensure a balanced capital structure, which at the end of 2023 was comprised of 51% long-term debt and 49% equity.

<unk> <unk> per share on an annualized basis.

This increase brings the 2024 dividend per share to $1 70.

Which is a 5% increase compared to 2023.

The dividend increase reflects the continued confidence in our ability to execute on our strategic plan.

We've now raised our dividend each of the past 10 years and in 2023 achieved a dividend payout ratio of 50, 57%.

Which is within our target dividend payout ratio range of 55% to 65%.

We expect to continue to be able to increase the annual dividend in line with our long term earnings growth rate.

I'll now turn the call back over to Tom.

Great. Thanks, Dan.

Dan Hrstak: Maintaining our strong balance sheet and our investment grade credit ratings remain a top priority, and we believe we compare favorably to other utility companies on certain credit metrics, such as FFO to debt. We have no significant debt maturities in 2024, and we do not expect any changes to our current credit rating. Next on slide 12, I am pleased to share that our Board of Directors has voted to increase the quarterly dividend by two cents per share, for $0.08 per share on an annualized basis. This increase brings the 2024 dividend per share to $1.70, which is a 5% increase compared to 2023.

Moving on to slide 13.

Providing safe and reliable service is something that we take great pride in and operationally, we remain a top tier utility.

In 2023, we once again surpassed our benchmark performance levels for both electric reliability and gas emergency response time.

Our customers seem to appreciate these results and for the fourth consecutive year. We were the top ranked utility in the northeast region for customer satisfaction and third out of 'twenty three utilities in the Eastern U S.

We are proud of these results and the tireless dedication of our employees. We will continue to deliver the high standard of excellence that our customers and other stakeholders expect of us.

Moving now to slide 14.

As I mentioned earlier, we are reaffirming our long term guidance of 5% to 7% growth in earnings per share.

Dan Hrstak: The dividend increase reflects our continued confidence in our ability to execute on our strategic plan. We have now raised our dividend in each of the past 10 years and, in 2023, achieved a dividend payout ratio of 57%, which is within our target dividend payout ratio range of 55% to 65%. We expect to continue to be able to increase the annual dividend in line with our long-term earnings growth. I will now turn the call back over to Tom. Great. Thanks, Dan.

We expect increases in operating and maintenance expenses to be equal to or less than broader inflationary increases, reflecting our continued focus on cost control and our ability to manage the business.

On this slide we have also provided an approximate distribution of our expected quarterly results, reflecting the seasonality of our earnings.

Yes.

Turning now to slide 15, I would like to recap some of our achievements over the past decade.

Looking first at earnings net income has more than doubled and on a per share basis, we have grown at 6% annually corresponding to the midpoint of our long term guidance.

Our rate base has also more than doubled over 10 years growing at just over 8% annually consistent with our long term range.

Thomas P. Meissner: Moving on to slide 13, providing safe and reliable service is something that we take great pride in, and operationally, we remain a top-tier utility. In 2023, we once again surpassed our benchmark performance levels for both electric reliability and gas emergency response time. Our customers seem to appreciate these results, and for the fourth consecutive year, we were the top-ranked utility in the Northeast region for customer satisfaction. We are proud of these results and the tireless dedication of our employees. We will continue to deliver the high standard of excellence that our customers and other stakeholders expect of us. Moving now to slide 14.

Over the past 10 years, we brought our payout ratio down from 88% in 2013% to 57% in 2023, enabling us to reinvest earnings to support our investment program.

We accomplished this while increasing the dividend 17% from 2013 to 2023.

We believe our track record over the last 10 years provides validation of our current guidance, which aligns closely with past results.

I should also mention that these results were all on the basis of our unadjusted GAAP earnings.

Turning to slide 16.

We strive to deliver consistent sustainable shareholder value and are committed to the goals we set for ourselves.

Thomas P. Meissner: As I mentioned earlier, we are reaffirming our long-term guidance of 5 to 7 percent growth in earnings per share. We expect increases in operating and maintenance expenses to be equal to, or less than, broader inflationary increases, reflecting our continued focus on cost control and our ability to manage the business. On this slide, we have also provided an approximate distribution of our expected quarterly results, reflecting the seasonality of our earnings.

As I already mentioned, we've consistently grown earnings in line with guidance over the last decade with the past few years being above the high end of our 5% to 7% range.

Our disciplined investment strategy achieved rate base growth above the midpoint of our range and we remained committed to dividend growth, even as we strategically lowered to pay out to our target range of 55% to 65% to support our investment program.

Thomas P. Meissner: Turning now to slide 15, I would like to recap some of our achievements over the past decade. Looking first at earnings, net income has more than doubled, and on a per share basis, we have grown at 6% annually, corresponding to the midpoint of our long-term guidance. Our rate base has also more than doubled over 10 years, growing at just over 8% annually, consistent with our long-term range.

Sure.

We have maintained our investment grade credit ratings, and our credit metrics compare favorably to others in the industry.

Our focus on cost control has enabled us to achieve efficiencies that resulted in O&M increases at or below inflation.

Thomas P. Meissner: Over the past 10 years, we have brought our payout ratio down from 88% in 2013 to 57% in 2023, enabling us to reinvest earnings to support our investment program. We accomplished this while increasing dividends 17% from 2013 to 2023. We believe our track record over the last 10 years provides validation of our current guidance, which aligns closely with past results. I should also mention that these results were all on the basis of our unadjusted gap earnings. Turning to slide 16.

We've also executed on our regulatory agenda fully earning our authorized returns on a consolidated basis, while maintaining healthy relationships with our regulators.

We were able to achieve settlements in our last six rate cases, and implemented decoupled rate structures for the majority of our customers.

Lastly, as noted earlier, we continue to perform at an exceptional level operationally and pride ourselves on the service we provide to customers.

By setting clear expectations measuring progress and holding ourselves accountable to establish goals, we will continue to meet or exceed stakeholder expectations.

Thomas P. Meissner: We strive to deliver consistent, sustainable shareholder value and are committed to the goals we set for ourselves. As I already mentioned, we've consistently grown earnings in line with guidance over the last decade, with the past few years being above the high end of our 5-7% range. Our disciplined investment strategy achieved rate-based growth above the midpoint of our range, and we remained committed to dividend growth even as we strategically lowered the payout to our target range of 55 to 65 percent to support our investment program. We've maintained our investment grade credit ratings, and our credit metrics compare favorably to others in the industry. Our focus on cost control has enabled us to achieve efficiencies that have resulted in O&M increases at or below inflation.

Ending now on slide 17 too.

2023 was yet another exceptional year for the company.

We again delivered solid operational and financial results, while delivering exceptional service to our customers.

We are well positioned to be a key player in the clean energy transition and embrace the opportunities ahead.

I am very pleased with our results in 2023, and I'm optimistic and excited about what we will achieve in 2024.

With that I'll turn it back to Todd Thanks, Tom that wraps up the materials for this call. Thank you for attending I will now turn the call over to the operator, who will coordinate questions.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again and one moment for your first question.

Thomas P. Meissner: We've also executed on our regulatory agenda, fully earning our authorized returns on a consolidated basis while maintaining healthy relationships with our regulators. We were able to achieve settlements in our last six rate cases and implemented decoupled rate structures for the majority of our customers. Lastly, as noted earlier, we continue to perform at an exceptional level operationally and pride ourselves on the service we provide to customers. By setting clear expectations, measuring progress, and holding ourselves accountable to established goals, we will continue to meet or exceed stakeholder expectations. Ending now on slide 17.

And our first question will be coming from Fannie three of Infosys. Since your line is open.

Again, our first question will be coming from Fannie three of emphasis your line is open.

Yes.

Again, if you would like to ask a question. Please press star one one for any questions.

And our next question will be coming from Shelby Tucker of RBC cm.

Shelby Your line is open.

Good morning, how are you doing.

Quick question.

Quick question on.

On natural gas in Massachusetts to been some.

Thomas P. Meissner: 2023 was yet another exceptional year for the company. We again delivered solid operational and financial results while delivering exceptional service to our customers. We are well positioned to be a key player in the clean energy transition and embrace the opportunities ahead. I'm very pleased with our results in 2023, and I'm optimistic and excited about what we will achieve in 2024. With that, I'll turn it back to Todd.

Policy moving towards maybe potentially phasing out.

Natural gas as <unk>.

A heating source I'm trying to get a sense of where that policy stance and also given the move we've seen in across the nation of maybe embracing natural gas a bit more given some of the reliability issues any chance that the policy that we're looking at in Massachusetts could evolve over time.

Thank you.

Todd Diggins: Thanks, Tom. That wraps up the material for this call. Thank you for joining us. I will now turn the call over to the operator, who will coordinate questions. Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again and one moment for our first question. And our first question will be coming from Fanny Sri of InfoSystems. Your line is open. Again, our first question will be from Fannie Sree of Infosys. Your line is open.

Shelby This is Tom I'll start and others can jump in but.

The department of public utilities did issue an order in the proceeding that was referred to as future of gas.

And I think it is correct to say that over time, they envision phasing out natural gas in phase of electrification.

One of the things I'll mentioned that we've tried to be clear about is we feel we're well positioned to Massachusetts because of a high overlap between our electric and gas customers somewhere around 90% of our gas customers also have us for <unk>.

Electric so from that standpoint, we're well positioned in terms of the policy I think it's going to be slow to evolve.

Operator: Again, if you would like to ask a question, please press star 11 for any questions. And our next question will be coming from Shelby Tucker of RBCCM. Shelby, your line is open. Good morning, how are you doing?

Realistically, we don't see that.

That shift to full electrification occurring very quickly and we still have concerns about affordability and other aspects of that that we think are going to be a headwind to trying to move to electricity for.

Operator: Hi Shelby. A quick question on natural gas in Massachusetts. There's been some policy movement towards maybe potentially phasing out natural gas as a heating source. Trying to get a sense of where that policy stands and also, given the move we've seen across the nation of maybe embracing natural gas a bit more, given some of the reliability issues, any chance that the policy that we're looking at in Massachusetts... Hi Shelby, this is Tom. I'll start and others can jump in, but the Department of Public Utilities did issue an order in the proceeding that was referred to as the future of gas, and I think it is correct to say that over time they envisioned phasing out natural gas in the phase of electrification.

Heating of our customers so I'll, let others jump in in terms of responding to the question.

Hey, Shelby this is Bob.

Hope you can hear me.

They are probably one or two other points to be made the first is that the commission for the excuse me. The department made clear that they really have no interest in looking at the value of existing assets right. So.

So we have no concern whatsoever as to the value of the existing infrastructure looking.

Looking forward. The Department also noted that they don't necessarily have a preferred path to de carbonization. They understand that there are multiple paths available and wants to keep those options open although as Tom said there are portions of the order.

Operator: One of the things I'll mention that we've tried to be clear about is we feel we're well positioned in Massachusetts because of the high overlap between our electric and gas customers. Somewhere around ninety percent of our gas customers also have us for electric. So from that standpoint, we're well positioned. In terms of policy, I think it's going to be slow to evolve, and realistically, we don't see that shift to full electrification occurring very quickly, and we still have concerns about affordability and other aspects of that that we think are going to be a headwind to trying to move to electricity for the heating of our customers. So I'll let others jump in in terms of responding to the question. Hey Shelby, this is Bob Everett, or you can hear me. There are probably one or two other points to be made.

Specifically do look to electrification.

To that end one of the things we must do under the water is an electrification demonstration project a pilot.

And so we are actively looking at a portion of our system that would be amenable to that type of study and we think that by looking at the study given the fact that we do have such broad overlap between gas and electric operations and given that in Massachusetts, We've gone along.

Thomas P. Meissner: The first is that the commission, excuse me, the department made clear that they really have no interest in looking at the value of existing assets, so we have no concern whatsoever as to the value of the existing infrastructure. Looking ahead, the department also noted that they don't necessarily have a preferred path to decarbonization. They understand that there are multiple paths available and want to keep those options open.

Way in terms of replacing leak prone pipe.

We think that this will be a very good pilot program to really understand the full costs of electrification versus de carbonized gas for example.

And using the existing system for that purpose.

Bob Hebert: Although, as Tom said, there are portions of the order that specifically do look to electrification. To that end, one of the things we must do under the order is an electrification demonstration project, a pilot. And so we're actively looking at a portion of our system that would be amenable to that type of study. And we think that looking at the study, given the fact that we do have such broad overlap between gas and electric operations and given that, in Massachusetts, we've gone a long way in terms of replacing leak-prone pipes. We think that this will be a very good pilot program to really understand the full costs of electrification versus decarbonized gas, for example, and using the existing system for that purpose. So we do think that the order does have some options in it to help us really explore the most cost-effective way to decarbonize, in keeping with the Commonwealth's policy objectives.

So we do think that the order.

It does have some options in it to help us really explore the most cost effective way to Decarbonize and.

In keeping with the Commonwealth policy objectives.

Yes.

Okay. Thanks, Bob Thanks, Tom.

Again, if you would like to ask a question. Please press star one one for any questions.

And I'm showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Bob Hebert: Great. Thanks, Bob. Thanks, Tom. Again, if you'd like to ask a question, please press star 1-1 for any questions. And I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. www.InsooKim.com. Thanks for watching!

Okay.

[music].