Eversource Energy (ES) — Q2 2019 Earnings Call Transcript

Thank you, Paulette. Good morning, and thank you for joining us. I'm Jeff Kotkin, Eversource Energy's VP 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 1, some of the statements made during this investor call may be 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 risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. These factors are set forth in the news release issued yesterday. Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2018, and our Form 10-Q for the 3 months ended March 31, 2019. Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides that we posted last night and in our most recent 10-K. Speaking today will be Phil Lembo, our Executive Vice President and CFO. Also joining us today are Werner Schweiger, our Executive Vice President and Chief Operating Officer; John Moreira, our Treasurer and Senior Vice President for Finance and Regulatory; Jay Buth, our VP and Controller; and Mike Ausere, our VP for Business Development. Now I will turn to Slide 2 and turn over the call to Phil.

Thank you, Jeff, and today I'm going to cover our second quarter 2019 financial results, provide an update on key regulatory dockets, review our financing activity and discuss several developments concerning our region's support for offshore wind development. So starting with the quarter on Slide 2, you can see that we recorded an after-tax impairment charge of approximately $205 million in the quarter relating to our Northern Pass Transmission Project. It was driven by an adverse ruling we received on July 19 from the New Hampshire Supreme Court. The court upheld last year's rejection of a permit for Northern Pass that was issued by the New Hampshire Site Evaluation Committee. Although we've received the vast majority of permits we need to build Northern Pass, the New Hampshire Site Evaluation Committee approval was critical to moving the project ahead. While we continue to consider Northern Pass a very beneficial project for both New Hampshire and all of New England, from both an economic and an environmental perspective, we see no near-term path for the project's success and have no plans to pursue it further. Excluding the Northern Pass charge, we are at $0.74 per share for the quarter compared with earnings of $0.76 in the second quarter of 2018. Transmission earnings totaled $0.37 per share in the second quarter of 2019, and excluding the Northern Pass impairment, compared with earnings of $0.35 in the same period of 2018. The improvement was due to the increased level of transmission facilities in our rate base. In the first half of 2019, transmission capital expenditures at our 3 electric utilities totaled $447 million, and we continue to forecast core utility transmission investments of nearly $1 billion for the full year. Our electric distribution segment earned $0.33 per share in the second quarter of '19 compared with earnings of $0.32 in the second quarter in '18. Previously approved rate increases at Connecticut Light & Power and NSTAR Electric were mostly offset by higher operations and maintenance and depreciation expense. Also, second quarter 2019 results were down by about $0.01 per share due to the divestiture of our New Hampshire generating facilities in 2018. Our natural gas distribution segment had a small loss in the second quarter of '19, compared with earnings of $0.02 in the second quarter of 2018. The decrease was primarily related to the implementation of revenue decoupling in 2019 as well as modestly higher operations and maintenance costs. As I mentioned during our first quarter earnings call, the implementation of decoupling as a result of the Yankee Gas settlement last year boosted Yankee Gas results in the first quarter heating period by about $0.03. However, it would be slightly negative to neutral in other quarters compared to 2018, and as we expected, we saw a $0.02 negative impact from the implementation of the new seasonal decoupling mechanism in the second quarter and expect another $0.02 negative impact in the third quarter, but a positive pickup in the fourth quarter. In our water distribution segment, earnings were up by about $800,000 in the second quarter of 2019 compared with the same period in 2018, and totaled $0.02 per share. The higher earnings primarily reflected recovery of increased levels of investment in the Aquarion system in the outcome of our Massachusetts rate review last year, and a continued focus on realizing operational cost efficiencies throughout the organization. Our parent and other segment earned $0.02 per share in the second quarter of '19 compared with earnings of $0.05 per share in the second quarter of '18. The decline was due in part to higher interest expense. We had comparable results in the second quarter of both 2019 and '18 relating to the marking to market of our investment in certain renewable energy facilities. Overall, we earned $1.71 per share in the first half of '19, improving for the Northern Pass impairment charge, compared with earnings of $1.61 per share in the first half of 2018. That's a 6.2% increase. Excluding the charge, we remain on target to earn between $3.40 and $3.50 per share for the year, which is consistent with our long-term earnings growth rate of 5% to 7%, which we are also reaffirming today. Moving from our earnings discussion to key operating performance results. Our continued intense focus on safety continues to show strong results. Our record is among the best in the industry this year with our safety rate, commonly known as days away restricted time, at about 0.6 through June. Our electric reliability continues to trend very strongly with months between interactions performance at the very highest levels amongst industry peers. Overall, we are very pleased with our operating performance metrics for the year. Turning to recent regulatory activity. On June 27, New Hampshire regulators approved a settlement which had been reached with the Public Utilities Commission staff in the office of consumer advocate to implement a $28.3 billion temporary increase in annualized public service in New Hampshire base distribution rates. The temporary increase will go into rates for customers on August 1 and will remain in effect until permanent rates take effect in the middle of next year. Our application for a permanent rate increase was filed in late May and requests a $70 million annualized increase in base rates, which incorporates our temporary rate request. Also in New Hampshire, as you can see on Slide 3, it refers to the 1.7-megawatt battery storage project in Westmoreland, New Hampshire, a rural area where our radio distribution circuit must follow to serve growth. The $7 million battery project provides a cost-effective alternative to a new distribution line. We've discussed this in the past, and we've already started with 2 battery storage projects that were approved in Massachusetts. The Outer Cape and Martha's Vineyard projects represent $55 million of investment, 30 megawatts of capacity, and 58-megawatt hours of supply. Local stakeholders have been very supportive of the projects, and we expect to receive all necessary land use permits by the end of the year. These projects will increase reliability and, in the case of the Vineyard, significantly reduce dependence on high-cost and high-emissions diesel generation. We expect to have both projects in operation before the end of next year. In Connecticut, we continue to wait for the Public Utilities Regulatory Authority's decision on this grid modernization docket. In addition to Advanced Metering Infrastructure or AMI, we expect that decision to provide us with guidance from PURA on the types of investments to be pursued as well as the regulatory construct for renewing such investments. We have been evaluating several potential CL&P battery storage projects for consideration pending PURA's decision on the grid modernization docket. In the recently completed session of the Connecticut legislature, lawmakers clarified existing statutes to explicitly allow regulated utilities to participate in the ownership and construction of energy storage facilities that can be shown to benefit customers. With respect to our Massachusetts Electric Vehicle Charging Station program, we are on pace to complete our $45 million capital program that supports over 3,500 charging ports by the end of next year. We currently have more than 1,000 charging points under contract and are on track to secure commitments for nearly another 1,000 charging ports by year-end. A few weeks ago, we announced that some of the charging ports would be located at 7 Mass Audubon Wildlife Sanctuaries in the state. We are poised to propose a similar Electric Vehicle Charging program in Connecticut pending guidance from regulators on a broader review of grid modernization. In New Hampshire, we are working with state agencies and other state utilities to develop a public-private partnership that would leverage publicly available funds with utility infrastructure investment to set up a fast charging network in the state. Turning to financing on Slide 4, we had a very significant level of financing activity in the second quarter. On June 4, we closed on the sale of approximately $1.3 billion of new common equity, the price per share was $72.50. The sale included a forward-sale arrangement that delays issuance of about 12 million of those nearly 18 million shares. The forward sale will settle on or before May 29 of 2020. We're thrilled with the investors' response to the offerings; more than 60 institutional investors participated, and demand for the shares was about 3.5 times the supply. We're also pleased with the price performance since then, as it has performed very well immediately and for the longer-term asset we offer. We expect the sales to be the only block issuance for Eversource shares during our 5-year forecast period. We expect to issue another $700 million of shares through an at-the-market program later in the forecast period as our funding needs develop. This would complete the $2 billion of new equity through 2023 that we first discussed during our February earnings call. As we discussed earlier, we also expect to utilize approximately $100 million of treasury shares each year through 2023 to meet our dividend reinvestment and employee retirement plan requirements. Through July, we distributed about 750,000 treasury shares this year to meet those planned requirements. I will cover our recent offshore wind RfP award in New York later, but I believe it's important to state here that we do not expect to issue additional blocks of equity like we did back in May even after considering the 880-megawatt award in New York. Should there be any future equity need beyond the current forecast period, we expect it to be minor given the significant cash flows that we expect from the South Fork and Revolution Wind projects as they enter service beginning in 2022. And it would most likely be satisfied through a small at-the-market issuance program if needed. On the long-term debt side, NSTAR Electric issued its first green bond in May, starting at $400 million of senior unsecured notes with a coupon of 3.25%. It was the tightest spread ever on an unsecured green bond in our industry and attracted some new investors to Eversource and a strong very sustainable investment profile. We had about 90 investors on the informal call interested just shortly before the issuance. While we are very pleased with the investor interest in our recent equity and debt issuances, we're also very disappointed with S&P's rating action last week concerning the Eversource system. We believe the combination of our robust financial profile; industry-leading cost management; strong operating history; our positive regulatory environment, which includes multiple multiyear settlements; and diverse regulatory jurisdiction exposure should have allowed us to preserve our previous ratings or at least limit any downgrades. Nonetheless, there are no electric utility holding company peers with higher ratings than Eversource at S&P, and we expect to continue to be able to finance at very favorable levels that will continue to benefit our customers. From financing, I'll turn it to offshore wind and on Slide 5. On July 18, New York Governor Andrew Cuomo announced nearly 1,700 megawatts of offshore wind awards, including 880 megawatts to Sunrise Wind, a partnership between Eversource and Orsted. 1,700 megawatts represented the largest offshore wind award to date in the United States and a major first step in reaching New York's target of 9,000 megawatts by 2035. We are targeting an in-service date for our facilities of 2024, and we signed a memorandum of understanding with Con Ed and the New York Power Authority to work together on certain transmission facilities relating to our winning bid. We expect to complete negotiations with the state on a contract for the project within a few months, and as you can see from the slide, this is our second successful bid that we've made in New York, with South Fork being the first and most advanced. This slide provides you with a summary of where we won contracts to date, where we are in the several siting processes, and when we expect the facilities to enter service. In Rhode Island, the PUC issued its written decision in June approving a 400-megawatt contract that’s part of our Revolution Wind project. A contract for a separate 200 megawatts of offshore wind from Revolution was previously approved by Connecticut regulators, and a contract for another 104 megawatts is now before the Public Utilities Regulatory Authority. In terms of future RFPs, I'll turn it to Slide 6. In Connecticut, Governor Lamont signed a bill on June 7 that authorized the state to procure another 2,000 megawatts of offshore wind by 2030, with an RFP for 400 megawatts starting within 2 weeks of the governor's signature. Preparation for the RFP is now underway, and bids are expected to be due in late September and awards in November. In Massachusetts, the state issued the Commonwealth's second offshore wind RFP in May, requesting bids for at least 400 megawatts of offshore wind. However, as they did in the first RFP, they said bidders can offer up to 800 megawatts as little as 200 megawatts of offshore wind. We are currently evaluating the investment profile and timeline for both the Connecticut and Massachusetts RFPs in order to develop and refine appropriate bid strategies. We continue to view our partnership with Orsted as a terrific combination of 2 highly performing organizations that view risks, financial return thresholds, and operating excellence similarly. Orsted is the largest and most successful developer of offshore wind in the world, renewing the largest utility with strong stakeholder relationships and the deepest knowledge of the region's bulk power delivery system and one of the industry's strongest financial profiles. This combination of attributes continues to make us very competitive in the region's offshore wind solicitations. We continue to expect our offshore wind partnership will provide a significant source of earnings and cash flow growth as the offshore wind turbines enter service beginning in late 2022. We expect that the awards we have won will continue to enhance our current 5-year earnings growth profile as we move into 2024 and beyond. As we've noted previously, there likely will be increases in competition for future offshore wind solicitations in New England and New York. We do not expect to win all of the state solicitations that are ahead, but when we do win, we are confident that it will be with a disciplined bid that will allow us to achieve returns that are well above those in our regulated business and commensurate with the profile of the offshore wind business model. That concludes my comments, and now I'll turn the call back to Jeff.

And I'm going to turn the call over to Paulette just to remind you how to ask questions.

Thank you, Paulette. Our first question this morning is from Mike Weinstein from Crédit Suisse.

How much of the offshore wind is everything that has been announced so far expected to fall within the guidance range you have previously provided? Or is any of this now exceeding your guidance?

Mike, this is Phil. Our current guidance of 5% to 7% range goes through to 2023, so as I've said before, when you get to 2023, we'll really only be South Fork, which will be fully in service for the year, and then Revolution Wind will be coming in during the year. So those projects are baked into the guidance that we have. The Sunrise Wind will come in beyond what our current guidance period is, and we will pick that up when we update our guidance on our year-end earnings call.

And what kind of returns are you expecting in these investments at this point?

What we stated is that on an unlevered basis, Orsted has publicly stated that they target and we would support sort of an unlevered return of about 8% that translates into a mid-teens ROE if you are in the Eversource world.

Got you. And also, does the rating agency's downgrade have any material effect on your earnings guidance going forward?

No, it doesn't, Mike.

Thanks, Mike. Next question is from Sophie Karp from KeyBanc.

Just wanted to ask you philosophically, what is your appetite for a project similar to NTP and maybe scale and complexity outside of the offshore wind where obviously, you're participating. So how do you think about that going forward?

Well, Sophie, welcome to the Eversource call. Good to hear your voice. So our region has aggressive targets for carbon reduction and a strong appetite for Clean Energy Solutions. So there is nothing on the drawing board that we see right now other than the offshore wind opportunities that we're involved with, but I'm certain that in the future as the regions need change and as more Clean Energy requirements come into play that other projects could develop, but right now, there is nothing in our plan and nothing in the drawing board for the region that's not already been announced out there.

Got it. Regarding offshore wind, there have been some headlines about the challenges with federal permitting. What are your thoughts on this? You've allowed yourself more time to address the timeline, but could you provide some insights or expectations on how you think the permitting process will progress?

Sure, not knowing specifically what their situation is, the details would be in their court, but really from Eversource and Eversource-Orsted side, we recognize how important siting and permitting is for the success of this project, and we are focused in our siting efforts to file complete siting and permitting applications, really based on thorough offshore site investigations. We've done a lot. A lot of upfront work, our approach is to complete an extensive amount of survey work to the fullest extent possible prior to submitting applications. We think that's the best way to make it through the permitting process. On our projects, we've had a fleet of survey vessels. We've spent millions of dollars to assess the characteristics around these areas. Those are critical to the filing of a complete application. We were the first in the U.S. to develop and deploy these measurement BOVIS that are in our lease area to study wind speed and wave height. So we put a lot of effort into thoroughly investigating the sites before moving forward. We also understand that there are constituencies out there that you have to address, the fisheries industry. We have full-time liaisons. We've modified our wind farm layouts to avoid impacts in our designs. We were the first developer to announce changes in proposed turbine layouts based upon input from local fishermen. So that plus the fact that we were the first developer to partner with a group called Responsible Offshore Development Alliance really provides a unique partnership for how fishermen can provide direct input to us. So really that combined with the combined strength, I'd say, of the Eversource and Orsted teams in this area, I think, really is a differentiator.

Next question is from Steve Fleishman from Wolfe.

Phil, could you clarify whether the Revolution Wind project, even though it starts in 2023, will not provide any benefits until after the forecast period? Is that still accurate?

That's correct, Steve.

Okay. Can you provide any information on the pricing for Sunrise Wind and when that will be made public?

As I mentioned earlier, we are likely a few months away from finalizing a contract, and the expectation is that within 30 to 60 days after that, there will be a disclosure of pricing.

Could you provide more details on the financing strategy for future growth in offshore wind? It seems that your approach involves leveraging cash flow from initial projects to support new developments. Is that an accurate understanding?

In the early years of these projects, a substantial amount of cash flow is generated once they start operating, and this will be utilized to fund and finance some of the construction costs going forward. I believe this supports the idea that aside from some minor at-the-market issuances, we do not require a significant amount of equity in the future.

Right. Okay, and then just one other question on the offshore wind. So just in terms of the actual booking of the accounting for the tax credit, how are you planning a rough sense of how you're planning to book the accounting of the ITCs?

Yes, the booking would occur over the life of the asset or the contract, so it would be spread out over time. Alternatively, we could also consider doing it over a 10-year period. We are currently evaluating both options.

Okay, but you're definitely going to spread it out?

Yes, correct.

Our next question is from Praful Mehta from Citi.

So maybe just picking up on the tax side, just to clarify on the ITC, is the assumption that the sharing of the ITC and the depreciation, will that be based on the ownership percentage? Or is there a disproportional sharing or a tax equity component related to any of the tax credits?

So when you look at the partnership is a 50-50, and I guess, the best way to look at it is, there's many ins and outs and gives and takes, but the economic value is shared 50-50 between the two partners.

Right. So the economic value in total, so the combination, I'm assuming of cash flows and tax credits but you could split the tax credits different from the 50-50, is that a fair way to understand that?

Any category could have a different split than 50-50, but if one category represents 40%, another must account for 60% to balance that out. Overall, all categories related to the economic value are shared equally at 50-50, but if they vary, each must still total 50-50.

Got you. Just to clarify, after 2022, will you be a full cash taxpayer?

That's correct.

Got you. Understood. That's helpful. And then in terms of the equity offering, you've talked about 12 million shares being done over some time period. Is there any color you can provide on how to think about matching of the timing of the forward with when you would want to do it depending on when the CapEx kind of hits, just to understand that timing?

Sure. The forward was put out for a year, so the expectation is that by the end of May of next year those 12 million shares would be issued.

I got you. So you delay that as much as you can effectively is the good way to think about that?

Yes, I think the best way to think about it is, we would assess what our needs are and what the opportunities are, and we, again, would be opportunistic about when we do it. But we're not going to issue before we need it, that's correct.

Understood. And then finally just on the growth profile that you talked about, the 5% to 7%, there clearly wasn't any Northern Pass in your forecast through 2023, is that right from a growth perspective?

Right, the capital investment was removed from our plan, that is correct.

Right, but was there any underlying base earnings or any AFUDC or anything else in relation to Northern Pass that was in the plan?

Yes, there was. We have discussed that in addition to earning a return on the investment under the transmission service arrangement, there was about $0.03 to $0.04 of AFUDC annually in our forecast. We understand that this will not happen, but we are confident in reaffirming our 5% to 7% target. I should note that due to the impairment, there will likely be about $0.02 of AFUDC that has been booked, assuming the project had been active, which we will not reflect. However, as we always do, we will look for ways to offset that for the rest of this year and moving forward.

Got you. Super helpful. And just to confirm, the 5% to 7%, so you're still comfortable within the midpoint of that range even throughout through 2023?

Yes, that is correct.

Next question is from Paul Patterson from Glenrock.

I wanted to touch base with you on offshore wind and this declining price cap legislation, I guess, sort of the amendments are sort of eliminated and just sort of how you view that in the context of offshore wind economics. I mean, kind of a dramatic move, I guess, on the part of the state legislature and the governor. How should we think about that in the context of, I guess, what Massachusetts is experiencing?

Thank you for your question, Paul. Late last night, there seems to have been some legislation regarding the cap in Massachusetts, which I believe the governor may have signed this morning, or is about to. Essentially, this legislation lifts the cap for one year. For the upcoming solicitation, there will be no cap in Massachusetts, indicating an acknowledgment of various factors that weren't considered when the cap was initially put in place, while they remain focused on controlling costs moving forward. Both the Senate and the House passed the legislation that eliminates the cap for this current solicitation.

And is that because, I guess, they feel that the economics are such that we might see higher prices in this upcoming solicitation as opposed to what was achieved previously? Is that safe to say?

Yes, I think there is recognition if you've kind of followed the different proposals that were out there, Paul. Folks really honed in on this, the tax credits changing, when they passed the legislation they were at 24% or 30%, and they've been reducing each year. So I think that there is a recognition that all of the things being equal if you lose or have lower tax credits, that's going to impact the pricing. So rather than sort of engineering every particular aspect of the bid, they just decided it's easiest just to remove the cap for a year and then go forward.

Okay. And then on the Connecticut grid mod. I'm sorry, if I missed this. What's the timing that you're expecting on that?

I’d like to provide a bit of background regarding the docket that has been completed, with all testimony finished. However, there have been some changes in Connecticut’s PURA. Katie Dykes, the former chair, has taken a higher position, and a new chair has been appointed. Additionally, recent legislation has expanded PURA by adding two more commissioners. This has resulted in some evolution within the Connecticut PURA. Currently, we believe that this is one of the top priorities for PURA, but it's difficult to determine the exact timing. We anticipate that an announcement will come this year, and we are actively working on proposals in response to it to ensure we are prepared when it arises. It’s important to note that this will not be a prescriptive order; rather, it is expected to provide general guidance and solicit specific proposals from each company. We are in the process of developing our proposals to be ready for when the order is released.

It seems to have been inactive for quite some time, perhaps since January, and I'm curious if you expect an order to arrive soon or if there will be another process involved. Should we just be waiting for an order at this point? Is that essentially our current situation?

There is no indication that there is any other process that would be done, so at this stage, we are just awaiting an order.

Okay. Finally, regarding battery investments, how do you evaluate the economics of these investments compared to peakers? We're hearing varying reports from different companies in the sector about the costs, such as being cheaper than a peaker. How does this change when integrated with renewables? I'm curious because you've mentioned the deployments in your service area. What are your thoughts on the economics moving forward?

Paul, as I mentioned regarding our applications, there are various uses for storage. Some are focused on reducing costs at peak times, while others relate to reliability. For instance, our battery storage application in the province on the Cape enhances reliability, and it allows us to avoid the construction of a line through the national seashore, among other benefits. There are numerous advantages to consider, including cost, emissions reduction, and reliability. I believe that battery storage as a whole can tackle many of these issues. When combined with intermittent resources, its application becomes even more effective. There are definitely opportunities for costs to decrease, especially as storage technology advances; however, the initial applications will help validate these benefits. We see a great opportunity to showcase the genuine value that battery storage offers in many areas.

Next question is from Travis Miller from Morningstar.

So on the green bonds, I was wondering if you could talk about your decision to go with that type of bond versus the obviously traditional type. And then how much capacity you have to continue issuing those types of bonds given the pricing you've got?

Thanks for the question, Travis. Looking at the bottom line, we believe our pricing was more favorable for the green bond compared to what it would have been for a traditional bond issuance when needed. There is certainly strong interest, and our ESG profile plays a significant role in attracting investors. With green bonds, there must be a clear green purpose for using them, and as we advance our Clean Energy initiatives, there will likely be more chances to issue green bonds in the future. The ability to issue them depends on our green activities, and we do engage in many initiatives that are not green. Therefore, I anticipate we will have significantly more capacity to issue green bonds going forward. While I can't provide a specific dollar amount or application at this time, the basis for the green bond we issued was the $500 million we spend annually on energy efficiency and other green initiatives. These efforts increasingly become integral to our business, creating more opportunities to issue green bonds.

Okay. And do those have to sit, not the ones you issued, I know, I also have to sit at the parent but is there an opportunity or capacity to issue green bonds down at the utilities for some of the stuff, the batteries or anything else that you're doing?

This one was at NSTAR Electric, so it can definitely be done at the utilities.

Okay, I guess, I'll ask the reverse then, could you do it with the parent some sort of the offshore winds?

It's at the end of the parent.

So I think almost likely, yes.

Okay, okay. And then just really quick clarification on the equity. How much would you have needed if you weren't doing the offshore wind? Was there a need there either on the parent refinancing site or down at the utilities?

What we stated and will continue to state is that we have a robust $13 billion capital program in the forecast period. This, combined with our activities in the wind sector, really drove the necessity for the equity issuance. I am cautious about assigning a specific amount to one category over another, but it is clear that our strong capital plan was a significant factor in that deal.

Next question is from Julien Dumoulin-Smith of Bank of America.

So just coming back to some of the prior questions on tax credit. I was just curious, do you have any more specificity you can talk to about both the specific ITCs tax year that you're going to try to qualify for the different offshore projects? And also just come back just what is the amortization here? I know this was kind of indirectly asked earlier, but I just want to be very specific about it, and I recognize that you may not have yet made up your mind with respect to these decisions either.

Thank you for the questions, Julien. I'd say the details we've provided regarding the tax years are appropriate based on the timing of our bids and the construction schedule. However, we do not plan to pinpoint a specific year or item at this time. That said, we have taken a conservative approach, factoring in potential schedule changes in our tax planning. So, I can't provide any more specificity at this point. Regarding the number of years, there are various ways to present that information. We anticipate receiving cash early, which we would report in the most favorable manner, but we are still assessing how it will best align with our tax profile moving forward. It's difficult to predict what that will look like currently, but we are committed to optimizing it in the upcoming years.

All right. Let me reframe it this way perhaps, by the time that you're ready to roll forward your outlook to '24, will you be reflecting a decision with respect to tax recognition in that guidance right? I mean, this would seemingly be a pretty material piece of how you establish your future guidance, I would think?

Sure. I'd say there'd have to be some baseline assumption that we would make there that would be appropriate to discuss.

Got it. And then just come back to Praful's question earlier about the value share. I had a thought that Orsted had confirmed that they indeed were going to provide you with their tax credits as a quasi-tax equity counterparty, but can you elaborate, I mean, to the extent possible about how they and you are talking about monetizing the other tax component? And also if possible, how you would think about recognizing that again in your income statement at least to which you are taking on their portion of the tax credit.

So as I said, there are many categories to divvy up the 50-50 economic value of the partnership and certainly, if Eversource has more of an ability to utilize more efficiently the tax benefits of the partnership, then we'd be foolish not to sort of make that determination. So I'd say at this stage, Julien, the specific, how that's going to work and what the numbers are, are still in flux, still something that we look at all the time as part of our partnership, what makes the most sense for the partnership returns going forward, and how we can best utilize the financial profile and the operational knowledge, in fact, of each party to be the most successful financially and operationally here. So I think it's just common sense that if somebody can better do something, let them. Rely on them whether it be constructing something if there's a better tax appetite, if you can finance cheaper. So all of these different items, we're going to pick the best way to do it and if that means that, that category isn't exactly 50-50, so be it. But the overall division is going to be 50-50. So some of these decisions evolve as you go through time.

Got it. Quick clarification if I can summarize here. How you think about the equity net injection needed for these offshore projects? Again, the thought process being, trying to tie back the balance sheet, the equity you raised here against your outlook over the 5-year period. How should we think about these projects? And I understand that their cash flow profile shifts pretty dramatically depending on the specific year, but upfront, 30% equity? How would you frame it?

I'd say the way that you should look at and the way that we've guided is to say, you should assume that it's sort of an Eversource profile cap structure, and that would be 64%.

Next question is from Andrew Weisel from Scotia Howard Weil.

I have a question on your appetite for more offshore wind. So you have committed to 50% of over 1,700 megawatts. How big would you be willing to let that business get for you? Is it a question of the earnings mix or the balance sheet or the physical lease capacity space? And what would happen with the partnership with Orsted if you and they wanted to move at different paces?

Thank you, Andrew. Your question revolves around whether bigger is indeed better. Our lease sites have the capacity for 4,000 megawatts, which we are developing in collaboration with Eversource and Orsted. It's important to note that we are not in a rush to reach full capacity. There are numerous offshore wind opportunities being planned in New England and New York, and these will be realized over many years. In my opinion, our lease areas are superior, considering their proximity to shore and favorable wind speed and depth characteristics. We believe there will be ample opportunities for growth ahead. Our approach will be strategic and methodical, evaluating each request for proposals based on schedule, our existing commitments, future potential, and the financial implications. It's crucial that any expansion not only fits our profile but also adds financial value to our operations moving forward.

Okay. So notwithstanding cost, certainly, you can't get into the details for bidding reasons, but it sounds like you will be pursuing all of these reasonably aggressively, right?

I didn't say that, I said we would look at each one and make a determination as to what the schedule that the RFP is looking for, what we already have on our plate, what we think the financial, the bid price would be, what that would mean in terms of returns and then we would make a determination based on that in terms of what our bid strategy would be for each specific RFP.

Okay, got it. And just to confirm, am I right that for all of these offshore wind projects, the interests will be capitalized and therefore, it will impact cash flows during construction but not earnings? Is that the right way to think of it?

That is, yes. You are correct.

Okay, great. Then one last one if I may. How do you think about affordability in New England given the higher costs of these projects? I understand that your utilities are in rate freezes, but over the next several years, is affordability a concern especially given the high starting prices for rates in the region?

Affordability for our customers is always a primary concern as well as their reliability and the quality of service that we provide. So certainly, affordability of energy supply costs, affordability of our own distribution rates, affordability is top of the list for customers and top of our list. So we continue to evaluate that and you look at that in relation to what the alternative is, okay? So if you are in a region, as we are in the 3 states that we serve, and in a region that has very aggressive carbon reduction targets, you need to see how is it that you're going to meet those targets and provide the level of capacity and service to customers that they deserve. So what might seem like high cost to some is relative depending on the region you're in and the alternatives that you have, but certainly affordability is important to us.

Next question is from Mike Weinstein at Crédit Suisse. Mike?

One quick follow-up. Just wanted to know if you guys have heard anything from FERC on transmission ROEs and the decision on that upcoming. I'm sorry, if I missed this answer earlier.

Mike, you didn't miss any answer on that. The answer is that we have not heard anything from FERC on the status of our 4 open ROE compliance.

We have nobody else in the queue, so we want to thank all of you for joining us this morning. If you have any follow-ups, feel free to give us a call or send us an email. Thanks a lot and have a good day.