Eversource Energy (ES) — Q1 2021 Earnings Call Transcript

Thank you, Brandon. Good morning and thank you for joining us. I’m Jeff Kotkin, Eversource Energy’s Vice President for Investor Relations. During this call, we’ll be referencing slides that we posted this morning 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 risks and uncertainty which may cause the actual results to differ materially from forecasts and projections. These factors are set forth in the news release issued this morning. 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, 2020. Additionally, our explanation of how and why we use certain non-GAAP measures and how those measures reconcile to GAAP results is contained within our news release and the slides we posted this morning, and in our most recent 10-K. Speaking today will be Joe Nolan, our new President and Chief Executive Officer, and Phil Lembo, our Executive Vice President and CFO. Also joining us today are John Moreira, our Treasurer and Senior VP for Finance and Regulatory; and Jay Booth, our VP and Controller. Now I will turn to Slide 2 and turn over the call to Joe.

Thank you, Jeff. We hope that all on the phone remain healthy and that your families are safe and well. Over the past couple of years, I’ve spoken to many of the investors who are on this call when I’ve joined Jim, Phil, and Jeff at various industry conferences, including the last couple of EEI Finance conferences. I’m looking forward to meeting many more of you over the coming years and sharing my optimism and enthusiasm for Eversource’s future and excellent investment theses. I’m grateful to the Eversource Board of Trustees and to Jim for allowing me to lead an incredibly dedicated and high-performing organization. I’m also thankful that Jim will remain a full-time employee at Eversource as Executive Chairman. In approving these executive level changes, the Eversource Board is signaling its confidence in our long-term strategy that focuses on our core regulated business with an exciting investment in offshore wind. We are in a world where customer service, safety, and reliability have never been more important. We will never forget that we would not be in the business without our 4.3 million customers. They are our top priority. Customers pay the bills, and they deserve a reliable and safe utility service that we must provide. Over the coming decades, the tens of billions of dollars we will invest in our energy and water delivery systems will be critical in helping New England prepare for a clean energy future, and we expect to be a central catalyst for the clean energy transition. This morning, I want to cover a couple of topics associated with Eversource’s energy initiatives and then turn over the call to Phil, but first, I need to address our company’s relationship with Connecticut. We have thousands of employees in Connecticut who work hard each day to provide our 1.7 million natural gas, water, and electric customers with the most reliable and responsive service possible. During emergency situations, which we have had far too often over the past year due to historic storm levels, they are working up to 16 hours a day for as many days as it takes to ensure that our customers have their service restored promptly and safely, even in a pandemic. So I cannot tell you how painful it was for me to read certain elements of the Tropical Storm Isaias decision that was released on April 28. It did not reflect the hard work of our dedicated employees and the company I’ve been chosen to lead. Our customers, PURA, and our company all want the same thing - great service each and every day of the year, and when there is a storm event, power restoration as safely and quickly as possible. The women and men of Eversource work hard each and every day to meet these expectations. The PURA audit on storm response clearly identified areas for improvement. We know we have work to do not only on our response plan but also on our relationship with PURA. This was apparent from the April 28 decision and the subsequent notice of violation. I can assure you that we hear this loud and clear and are already doing all we can to improve on both counts. Turning to our clean energy initiatives, you are probably aware of the climate legislation that Massachusetts Governor Baker signed into law earlier this spring. Among many elements, the law will allow each of the state’s utilities to build up to 280 megawatts of solar generation. NSTAR Electric will be able to increase its level of solar generation in rate base from 70 megawatts to 350 megawatts. As Phil mentioned during our year-end earnings call, we have budgeted approximately $500 million for this initiative from 2022 to 2025. The other item with direct impact on us is the 2,400 megawatt expansion of Massachusetts’ offshore wind authorization from 3,200 megawatts to 5,600 megawatts. This expansion will help keep the state at the forefront of offshore wind development in the United States. As you can see on Slide 2, there are now more than 10,000 megawatts of unallocated offshore wind authorizations in southern New England and New York, with Massachusetts set to award up to 1,600 megawatts later this year. In fact, the Massachusetts RFP was just issued on Friday of last week. Our offshore wind partnership with Ørsted is very near and dear to my heart since I have overseen that relationship and worked closely with our partner in recent years. It is an important element of our clean energy growth strategy and we have had a number of positive offshore wind developments already this year. Starting with Slide 3 in early January, the Bureau of Ocean Management, or BOEM, released its draft environmental impact statement on the South Fork project. Comments were received by late February and we expect to see a final EIS late this summer. BOEM is scheduled to rule on our final federal permits for that project in January of 2022. Assuming that the January date is met, we expect to begin construction early next year and complete the project in late 2023. Additionally, in late March, the New York Public Service Commission approved the necessary New York State siting permit for the project where the local town and trustees of East Hampton approved the local real estate rights required for the project. Turning to Revolution Wind, late last month BOEM released a schedule for reviewing the 704-megawatt project. The schedule calls for a final environmental impact statement to be issued in March of 2023 and for a final decision on construction and operating plan by the end of July 2023. The release of that schedule represents a significant step forward for this project. Revolution Wind and South Fork are two of only three projects in the northeast that have achieved that milestone. Over the coming months, we and Ørsted will be reviewing the BOEM and the State of Rhode Island permitting process to develop a projection for the Revolution Wind construction schedule. Finally, we expect to receive BOEM review schedule for our 924-megawatt Sunrise Wind project later this year. We continue to make significant progress in preparing for the commencement of construction. Over the past couple of months, we have announced agreements with two critical ports that will serve as staging grounds for construction. New London, Connecticut will serve as a hub for turbine construction, and Providence, Rhode Island will be the center for foundation construction. Enormous economic benefits will accrue to these communities as a result of their role in our construction activities, including hundreds of direct jobs. We are also very encouraged by the extremely positive signs we see from Washington. President Biden has underscored his support for offshore wind construction along the Atlantic seaboard and has marshalled multiple members of his cabinet to support it. Their goal is to have about 30,000 megawatts of offshore wind turbines operating in the U.S. by 2030. We expect to be a significant contributor to that output through our partnership with Ørsted. Already, more than 1,750 megawatts are under contract to serve load in Connecticut, New York, and Rhode Island. Again, I look forward to speaking with many of you at the AGA virtual conference later this month. Now I will turn over the call to Phil.

Thanks, Joe. This morning I will cover a couple of topics. I’ll review the results of our first quarter 2021 and discuss and add to some of the regulatory developments in Connecticut and at FERC. I’ll start with Slide No. 4, and noting that earnings were $1.06 per share in the first quarter compared with earnings of $1.01 per share in the first quarter of 2020. Results for both years included after-tax cost associated with our recent acquisition of the assets of Columbia Gas of Massachusetts, and that’s $0.02 per share this year and $0.01 per share in 2020. Resulting for our electric distribution and natural gas distribution segment showed the most significant changes year to year. Electric distribution earned $0.27 per share in the first quarter of this year compared with earnings of $0.39 per share in the first quarter of 2020. Lower results were driven by a couple of principal factors. The first is that we recorded a charge of $30 million or $0.07 per share primarily to reflect customer credits of $28.4 million and an additional penalty of $1.6 million to be paid to the State of Connecticut. These credits relate to a notice of violation that Connecticut regulators announced last week as a result of our performance in restoring power following the catastrophic impact of Tropical Storm Isaias last August. The docket established by PURA to review the penalty is scheduled to run through mid-July of this year. Additionally, electric distribution results were negatively affected by approximately $20 million of higher storm-related expenses in the first quarter of 2021, and that’s compared to a pretty quiet and warm first quarter in 2020. In fact, in this quarter we experienced 31 separate storm events across our three states versus fairly limited activity in Q1 of 2020. By contrast, our natural gas distribution segment showed a sharp increase in earnings because it’s now about 50% larger than it was a year ago. It earned $0.43 per share in the first quarter of 2021 compared with earnings of $0.26 per share in the first quarter of 2020. Improved results were due primarily to the addition of Eversource Gas of Massachusetts, which earned $0.14 per share in the quarter. In addition, we had higher revenues at NSTAR Gas and Yankee Gas, and these were partially offset by higher O&M and depreciation expenses. I should note that the transition process for Eversource Gas of Massachusetts continues to progress extremely well as we continue to migrate off of NiSource business systems and onto Eversource platforms, reducing costs and improving service. To date, more than 80% of the business processes have been transferred to Eversource from NiSource - great progress has been made. Eversource ownership of the distribution system is being well received by customers, communities, and employees, and we continue to meet or exceed the financial and operational targets we’d set for ourselves. On the electric transmission segment, we earned $0.39 per share in the first quarter of 2021 compared with $0.38 per share in the first quarter of 2020. Improved results were driven by a higher level of investment in transmission facilities, and this was partially offset by dilution of additional shares issued. Our water distribution segment earned $3.6 million in the first quarter of 2021 compared with earnings of $2.1 million in the first quarter of last year. Improved results were due largely to lower interest expense and a lower effective tax rate. As you may have noticed, last month Aquarion announced an agreement to purchase a small investor-owned water system that is based in Connecticut but also serves portions of Massachusetts and New Hampshire. New England Service Company, as it’s called, serves about 10,000 customers in the three states and has a rate base of about $25 million. This acquisition is consistent with the growth strategy we’ve discussed for our water delivery business, and assuming timely regulatory approvals, we expect to close the transaction by the end of this year and for it to be accretive right away in 2022. Rounding out the reconciliation, Eversource parent was down $0.02 per share in the first quarter of 2021, and that’s excluding the Eversource Gas of Massachusetts transition costs, the same as during the first quarter of last year, so $0.02 in each year. As you probably noted in our news release and you can see on Slide 5, we are reaffirming our long-term earnings per share growth rate in the upper half of the 5% to 7% range; however, we’ve modified our current year 2021 earnings guidance to reflect the customer credits I mentioned earlier. We now project EPS towards the lower end of the $3.81 to $3.93 range, and this includes the $0.07 per share impact of the credits. On the regulatory side, while our primary operating companies don’t have any base rate reviews pending, we have several regulatory dockets open in Connecticut, and I’ll summarize the status of a few of them. In addition to the penalty I described previously, PURA also identified a 90 basis point reduction in our authorized distribution ROE. This is likely to be addressed in the current CL&P interim rate decrease proceeding. Given the revised schedule that PURA released last week, we believe any ROE reduction would not take place or take effect until October 1 of this year. To help you size that impact, currently CL&P’s authorized ROE is 9.25%, and we have approximately $5 billion of rate base at CL&P. Also on April 28, PURA finalized an interim decision on the recovery of certain tracked costs by CL&P. This decision would result in a number of changes to those tracked costs that would be implemented on June 1, with other modifications deferred until October 1. The interim decision implemented a number of positive modifications to an earlier draft, and we appreciate PURA making those changes in its decision. PURA also continues to review several other dockets, including potential for grid modernization initiatives, including AMI, electric vehicle programs, and storage, and the status of the major open PURA dockets is listed in an appendix to our slides. Turning from Connecticut to Washington, we were disappointed last month in the developments around the ongoing notice of proposed rate-making concerning incentive that FERC has granted for many years to utilities that participate in regional transmission organizations, or RTOs. FERC will be taking comments and replies on the proposed changes over the next several weeks before deciding on a final order. I would expect that the New England transmission owners and others will file comments opposing the change, which some see as being inconsistent with the Energy Policy Act of 2005 and with President Biden’s focus on building out the nation’s electrical infrastructure to bring more clean energy resources to market. As a helpful rule of thumb, a 10 basis point reduction in our transmission ROE affects consolidated earnings by about a penny per share. In terms of financings, we completed $450 million of debt issuances so far this year, primarily to pay off maturities at Eversource parent and at Aquarion in Connecticut. We have not issued any additional equity this year other than through our ongoing dividend reinvestment and employee incentive programs; however, as you know and as we have stated in the past, we continue to expect to issue approximately $700 million of new equity through some sort of aftermarket program, and that would occur at various points in time over our forecast period. In terms of our operations, we’ve gotten off to a very strong start this year. Electric reliability continues to be in the top quartile of the industry versus our peers. Through March, our above-average safety record improved even further with fewer employee injuries than we experienced in the first quarter of 2020. All three of our natural gas utilities are outperforming on their emergency response requirements, and Aquarion’s water quality is solidly exceeding its target. Thank you for joining us this morning. I’ll turn the call back to Jeff for Q&A.

Thank you, Phil. I’m going to return the call over to Brandon just to remind you how to enter questions.

Thank you, Brandon. Our first question this morning is from Angie Storozynski from Seaport Global. Good morning, Angie.

Good morning, guys. Thank you. My first question, you maintained the growth projections beyond ‘21 off of 2020, so what is the offset to the lower earnings in Connecticut related to the 90 BPs ROE reduction?

Thanks, Angie, thanks for your call. As you can imagine, in any forecast it incorporates our best results on a lot of key assumptions, so rates and ROEs, interest rates, capex forecasts, what we’re looking forward to in terms of O&M, etc. So incorporating each of those elements into the forecast, we’re comfortable in that upper half of the 5% to 7% range going forward.

Okay, then the incremental capex that you gave had proposed AMI, etc. in Connecticut. In light of this reduced ROE, should we expect that you will eventually shift some of the regulated spending on the regulated electric side away from Connecticut? If you could comment on projections for capex at Connecticut.

Sure. Our goal is to provide safe and reliable service and outstanding customer service to all our customers, whether they be electric or gas or water, whether they be in Connecticut, Massachusetts, or New Hampshire. Our investment profile is geared to ensuring that those high standards can be met. We’re very proud of the results we’ve been able to put up year after year in terms of where our reliability ranks, and usually it’s in the top decile versus our peers, so we’re continuing to focus on our vegetation management and making investments there to ensure that we have a reliable system. That’s the primary focus of how we determine the investments as to how it impacts in a positive way our customer service.

Great, and just a last question about the electric transmission ROE. I understand the RTO adder is still up for debate. Now, how about the recess of the base ROEs for New England in light of this proposed removal of the RTO adder? Do you expect now that the base ROE will also fall?

Well, Angie, that’s a question that I’ve been asked for, I’d say, many years and many quarters now, and as you know, we have four open cases at the FERC that really go back a decade, our oldest one in terms of open dockets there. It’s hard to predict the timing or the outcome of what those cases will show, so I’m not sure how exactly the FERC will look at the interplay between the incentive docket versus the base case docket, but certainly I think the thing that folks should keep in mind is something I said in my comments, which is very public - you know, policy desires by the Biden administration to electrification and to connect clean energy resources, and there’s no region of the U.S. that’s connecting more clean energy resources than New England, and obviously we serve the primary load centers in New England and can help deliver that clean energy both from an offshore wind perspective but also from a transmission perspective. We’ve got to wait and see the timing and how those play out, but I wish I had a crystal ball that could predict an answer at this stage, but I don’t.

Understood, thank you.

Thank you, Angie. Next question this morning is from Steve Fleishman from Wolfe. Good morning, Steve.

Hey, good morning. Thanks. Just to clarify, for 2021 guidance, Phil, are you incorporating the 90 BPs reduction starting October 1 in that guidance, the low end?

Yes, that proceeding is currently in progress, and we will definitely include the outcome in our guidance. If it were to happen within this quarter, for instance in October, that might result in a $0.01 impact for the year, Steve.

Yes, could you provide more details about how you plan to improve your response plan and your relationship with PURA? You have already settled many issues with all parties involved, so what are your strategies for moving forward?

Yes, sure. Thanks, Steve. I’ve spent a lot of time in Connecticut, including a couple of days there last week. We’re engaging with all the communities we serve and focusing on their priorities as well as PURA’s. We took the audit seriously; it’s a complex 150-page document, and we recognize there are areas needing improvement, which we are addressing. I also reminded everyone that regarding the storm, Isaias, we mobilized an unprecedented number of crews—2,550 during the pandemic. It required doubling our resources, including 6,000 hotel rooms and 14,000 meals a day, along with double the number of trucks. This was a unique situation, and while we strive for continuous improvement, we will keep working on it. Our goal is to regain the trust of our customers in Connecticut, and we sincerely apologize for any disappointment caused during that storm.

Okay, great. Thank you.

All right, next question is from Julien Dumoulin-Smith from Bank of America. Good morning, Julien.

Hey, good morning Jeff and team. Thank you guys very much. Maybe if I can ask the first question a new way, pivoting off of Steve’s framework, how do you think about performance-based rates here as an avenue to demonstrate change, and what’s the timeline for implementation there? Do you see that as part of the next Connecticut case here? Just curious as to how you end this 90 basis point impact, if you will.

Thanks, Julien, it’s Phil. In terms of just the mechanics, the performance-based rate docket is to be opened by June of this year, so right now there’s no docket number but the expectation is that that would be open by June of 2021. We thrive on performance measures. I think one of the keys to our success over many years is we have a very aggressive performance management system. We measure and monitor all of our key performance metrics, whether they be reliability, how frequently a customer has an outage, how long the outage takes to restore, what’s the safety performance of our employees, what’s the diversity of our workforce. We measure many different metrics and we perform well on them, whether you look at comparison to historical performance or where we fall relative to peer groups. Performance is part of our DNA, and I think we’ve delivered that. We have elements of performance-based rates in other jurisdictions - in Massachusetts for many years, they’ve had these SQI, or Service Quality Index measures where we’ve had to perform against and we’ve been very successful there. But as you know, the design of those measures is important and we would hope to work in a collaborative and constructive way with PURA and other intervenors during that process. But the idea of performance-based measures is something that we live with every day, and the docket for that is starting middle of this year.

Got it. Maybe to dovetail with that, precisely what is the expectation on when this 90 basis point impact would roll off, if you will? I presume in tandem with a future rate review or a PBR, or what have you, but back to you on that.

Yes, back to me. The decision itself said indefinite, so that’s the only direction at this point, Julien, is that wording in the order said that the 90 basis points would be indefinite.

Okay, all right. Excellent, I’ll leave it there. Thank you all very much.

Thank you.

Thank you, Julien. Our next question this morning is from Durgesh Chopra from Evercore. Good morning, Durgesh.

Hey, good morning Jeff. I just had two Connecticut-related questions, really quick clarifications rather than questions. Phil, there’s a mixed bag in terms of the pass-through charges, some sort of going through or will be effective June 1, and the other is October 1. Just high level, the impact or the cash impact on that delay is pretty miniscule. Am I thinking about that right?

Yes, I wouldn’t say it’s miniscule. I mean, it’s probably $150 million that would be spread out into the future, so it’s not insignificant but it’s not larger than that.

About $150 million. Then just quickly, roughly I think the number is close to $270 million in deferred costs, the storm Isaias cost. When do we get a final ruling on that, the recovery of that?

There are many states that have some costs that are deferred with that. The largest is in Connecticut - it’s about $230 million of deferred storm costs related to Isaias. There were storm costs in Massachusetts and New Hampshire also, but at a smaller level. Each state has its own protocol for timing of when you go in and file for that, so we haven’t developed that filing. We certainly had provided some information on our costs during the previous docket - you know, PURA had asked that we get the best estimate of what we had seen to date, but unfortunately we have some invoices that come in over time and we have to gather them all, make sure they’re all accurate. We don’t pay anything unless we’ve reviewed it three times, I guess four ways from Sunday is the expression, so we don’t pay for things that are inappropriate and we take those back. After we go through that process, then we do a filing, so that filing could come in a future proceeding, it could come in a base rate proceeding. It just depends on the various states, but I would expect that those filings would be done over the next year or two in the various states.

Got it, perfect. Thank you Phil.

You’re welcome.

Thank you, Durgesh. Next question is from Insoo Kim from Goldman Sachs. Good morning, Insoo.

Hey, good morning Jeff. My first question is going back to Connecticut. In the interim rate docket, there’s been some testimony filed about the allowed ROE but also the equity layer, and now the party’s suggesting that the equity layer should be decreased meaningfully from the current 53%. Just curious on your thoughts there and whether there’s a way for you to potentially adjust the balance sheet to address this.

Sure Insoo, thanks for your question. Certainly in ROE, capital structure, all the revenue requirement elements are part of any sort of analysis that you would do, so capital structure is one part of it and certainly PURA has broad authority in a rate setting process, so that’s the framework that we work within. It hasn’t been the practice in the past in Connecticut. It’s been the practice to maintain the capital structure for each of the subsidiaries in a way that’s appropriate for that subsidiary to finance its capital needs. We do that in a very disciplined manner. Obviously we have rating agency considerations and any change in capital structure could have a positive or negative effect on ratings, just as regulatory rulings could have a positive or negative impact on ratings, so we’ll work collaboratively, constructively with PURA over whatever docket these issues come up in; but at this stage, the precedent has been that the operating companies would have their unique capital structures that reflect their unique characteristics. Don’t forget too that at a parent company, there are things that have nothing to do with the customer rate issues. There could be investments, like non-regulated investments - that’s where our offshore wind is financed. During construction, we finance that with debt. You recall sort of painfully, I know I recall that we had a write-off of our Northern Pass transmission project - that doesn’t impact customers, that goes right to the parent, so there are things that the parent takes, sort of protects the capital structure of the operating companies. That’d be something that would get reviewed in any kind of rate-setting process.

Thank you for your insights. My other question is about offshore wind. With Ørsted recently mentioning some necessary structural improvements for their ongoing projects, are there any implications regarding costs or construction planning for the upcoming projects in the U.S.?

No, we’re good on that. In general, we've been closely monitoring supply chain issues, especially given the pandemic. Our teams, both at our utility and on the project, prioritize supply chain matters. The size of companies like Ørsted and Eversource gives us a significant advantage, as their combined buying power helps us establish strong relationships and secure multi-year supply chain agreements. As a result, we haven’t experienced any significant impact at this stage.

Got it, thanks Phil. Congrats Joe.

Thank you.

Thank you, Insoo. Next question is from Sophie Karp from Keybanc. Good morning, Sophie.

Hi, good morning. Thank you for taking my question. I wanted to switch gears to New England Gas and the results there. I’m just curious of the first quarter results were influenced by any particular developments that are not typical, the usual seasonality to experience in the future. It seems like it’s a very strong result, so I was wondering if there were any one-offs or weather impacts there that we should consider going forward. Thank you.

Thank you for your question, Sophie. When we acquired Columbia Gas of Massachusetts from NiSource, we rebranded it as Eversource Gas of Massachusetts, which is the former Columbia Gas subsidiary. NSTAR Gas is still in Massachusetts and Yankee Gas operates in Connecticut, so I’ll focus on Eversource Gas of Massachusetts. There’s nothing particularly noteworthy; the operational results simply led to the $0.14 outcome. Similar to our other gas franchises, the first quarter is likely the strongest because of heavy heating demands, while the fourth quarter also sees heating but is not as robust as the first. The second and third quarters experience little heating activity, resulting in limited or even negative contributions during those months. However, the earnings pattern is quite similar to NSTAR Gas and Yankee Gas regarding when earnings are generated, and this result comes from regular ongoing operations in that sector, with nothing unusual to report.

Thank you, that’s helpful. That’s all from me.

You’re welcome, Sophie.

Thanks, Sophie. Next question this morning is from Jeremy Tonet from JP Morgan. Good morning, Jeremy.

Hi, good morning. Just wanted to turn to offshore wind a little bit more, if you might be able to provide a little bit more commentary. It seemed like under the prior administration, things had slowed a bit as far as the process, and it seems like the opposite could be true with the new administration and things are maybe moving a bit faster. Just curious for your thoughts on that, if you see potential for things to move more smoothly maybe than what the current outline is. Then just with what you’ve received with Revolution, any thoughts on when we might get more color on capex or the project details, I guess down the line. Just looking for color on those thoughts.

Thank you for the question, and good morning. It has certainly been refreshing to work with the Biden administration. We have regular meetings with various officials from the administration. About a month and a half ago, the White House organized a meeting with offshore wind developers, which included four cabinet secretaries and two climate advisors. The key focus is on how we can support this agenda. We are already witnessing decisions being made at a much quicker pace than what we experienced in previous administrations, which represents a significant shift for the industry. We are very optimistic that the process will progress more rapidly and more orderly for all developers, not just for our projects. It truly has been a transformative change.

In response to the second part of the question regarding construction investment, as previously stated, our collaboration with partners involves a strategic approach to construction investments. I don't want to elaborate too much, but it's integrated into the competitive bid process. We have been providing limited information on the capital expenditures, and with an upcoming request for proposals in Massachusetts, we aim to position ourselves favorably. I would say we need to advance a bit further with the requests for proposals that we are likely to win before we can disclose more information that could be deemed competitive regarding these bids.

Got it, that’s helpful. Thanks. Maybe just pivoting over to the water side, I’m curious if you can refresh us, how deep do you see opportunity set there? Is this the type of pick-up we should expect every year, every other year? Just looking for more color on the strategy, how you see it coming together at this point.

Our strategy in the water business has been consistent over the last several years, and we are quite positive about it. We believe it aligns well with our clean energy objectives and fits within our regulated infrastructure expertise. We aim to grow our water business in several ways, including organic investments in our systems, accumulating small roll-ups—we’ve done about six to ten of those recently—or pursuing larger-scale opportunities. While this particular transaction may not significantly alter Aquarion's footprint, it does add 10,000 customers to our family, and we will seek more opportunities like that. We believe there are plenty of prospects available, not just within the six-state New England region, but also in nearby states that could help expand our customer base. However, I want to emphasize that our goal isn't merely to increase the number of customers. We strive to ensure that these expansions benefit our customers—improving service, lowering costs over time, and achieving financial accretion. We often forego potential deals due to our disciplined approach, and we will continue to uphold that discipline when considering any business opportunity. We are not interested in growing just for the sake of growth.

Got it, that’s helpful. I’ll leave it there. Thanks.

Thank you.

Thank you, Jeremy. Next question is from Paul Patterson from Glenrock. Good morning, Paul.

Hey, good morning. Can you hear me?

Yes.

Returning to Connecticut, I notice a number of filings and orders that suggest there is some resistance or concern regarding rates. It seems that they desire transformation along with significant investment. I’m curious about how you plan to balance these two demands. On one hand, there is a clear need for increased investment, yet on the other hand, there appears to be apprehension towards rate increases, as indicated by their feedback on various initiatives. How should we approach this situation?

Thanks for the question, Paul. I think when we look at the price per kilowatt hour, the rates in Connecticut, I think it’s important to highlight for folks just how clean and how carbon-free that power is that’s delivered in Connecticut. You need to really strip out what portion of it is not generated if you want to do a comparison across the country. I would say that the folks in Connecticut, really the folks in New England are getting a very clean, green kilowatt-hour, and these are initiatives that administrations and regulators have taken upon themselves to bring to customers, and that’s something that they need to balance. Obviously, there are other things that they want to do down there, and I think it would only be fair that you break out what really is the utilities and what is state mandates or regional mandates, and that’s something I think we work every day at trying to tell that story. We’re certainly very proud of our initiatives as it relates to a carbon-free future.

Is there anything we should consider regarding how to potentially offset these rates? While there is a desire for green energy, we need to understand the willingness to pay for it. Can you provide any insight into how these competing interests may play out?

Sure. I think the biggest lever on that side would be energy efficiency, and as you know, we are number one in the country as it relates to energy efficiency. I think what we’re doing is helping our customers use energy more wisely and reduce their consumption, which obviously will drive at that price issue. If you’re paying a little bit more but we’re helping you use less, at the end of the day, the result is a net savings, and that’s what I think we’re very, very good at and we’ve obviously been recognized nationally for that.

Okay.

Did you want to add something, Phil?

Our investments in the transmission grid to enhance reliability are effectively reducing congestion costs in the region, leading to direct savings for customers reflected in their energy bills. Although the forward capacity market has declined, our transmission investments continue to benefit customers, contributing to lower bills. While we are not currently active in the supply market, decreasing supply costs also provide an advantage for customers.

Okay, great. Thanks so much.

Thank you, Paul. Next question is from David Arcaro from Morgan Stanley. Good morning, David.

Hey, good morning. Thanks so much for taking my question. I was just wondering, could you run through your latest outlook for equity needs here in light of some of the moving pieces with earnings, with ROE, with tracked costs, etc.?

Thanks David. Our equity needs are the same as we’ve stated in the past, which is they total, let’s call it a $1.2 billion over five years. It’s about $100 million a year through our dividend reinvestment, employee stock purchase type of issuances - that aspect is about $100 a year, so our forecast is five years, there’s $500 million. As I said in my remarks and we’ve stated before, over the course of our forecast period, we’re looking to do about $700 million of new equity through maybe some sort of aftermarket type of program, so those needs at this stage have not changed.

Okay, great. Thanks. I just wanted to double check, how much of the $0.07 from this quarter is one-time, or is any of that recurring?

No, that is related to the $30 million one-time penalty.

Okay, great. Wanted to confirm. Sounds good, thanks so much.

Thank you.

Thanks David. Next question is from Mike Weinstein at Credit Suisse. Good morning Mike.

Hey, good morning. Thanks for taking my question. I just wanted to clarify, does any portion of the Isaias penalty flow through the decoupling mechanism to be deferred to the next base rate case, and what is the timing of the base rate case, the next one for CL&P?

This is a direct credit to customers. There’s no putting it back into the decoupling. This is a penalty, a charge that goes back to customers, so this flows directly back to customers. The timing of the next proceeding would be when that PBR mechanism, maybe that kicks it off, but by statute we’re ending a three-year rate settlement that we had in place. We’re required to file every four years in Connecticut, so the next filing that we would look to do is next year, in 2022 in terms of our expectations of when we would file for new base rates in Connecticut.

Got you. A follow-up on Paul Patterson’s line of thinking, I was considering the same idea. Does the storm provide a boost to grid modernization in Connecticut as the state continues its review? Perhaps this presents more of an opportunity for the utility moving forward.

Thanks so much for the question. It does. There’s a lot of dialog actually in both Massachusetts and Connecticut around grid mod, around AMI. We certainly have a seat at the table and we are fully engaged, and I do think there’s an opportunity to demonstrate some of the technologies that are available, that would, number one, empower our customers but also enhance the grid to allow for greater reliability and cost savings for our customers, so yes, I definitely agree that this should provide us the platform.

Can you remind us what you’re assuming for FERC transmission ROE in the long-term guidance? I remember you’re fairly conservative at the current level that you’re allowed. You don’t have anything higher than that? I’m just curious what’s in there.

That’s correct, the current allowed 10.57 base rate.

Got you. I tell you, it’s striking - just a year ago, the positive reaction from the Massachusetts regulators and the governor towards the company when they wanted you to take control of Columbia Gas out there, and with what’s happening in Connecticut, it’s a striking difference across the company. Hopefully you can figure out a way to, I guess, get the Connecticut regulators to see you the same way that they see you in Massachusetts.

We agree. We’re always sought after during natural disasters and crises for our team to come in and take care of business for folks across the country, so it obviously is disturbing when that takes place. But rest assured we will win back the hearts and minds of folks in Connecticut. It was a very unique storm during a pandemic. Folks had been sheltering in place for many, many months and obviously the loss of electricity and connectivity poses great challenges for folks, and we recognize that and we are going to do all we can to turn that situation around and have the same level of confidence that folks here in Massachusetts did certainly when we got called upon for the Columbia Gas situation. I think that we can do that. I feel good about a path forward, so thank you for that question.

Great, thank you very much.

Thanks Mike. Next question is from Travis Miller from Morningstar. Good morning, Travis.

Good morning everyone. Thank you. You’ve answered very comprehensively most of my questions, but two quick ones from me, one on Connecticut. Does the PURA activity, both the decisions and the ongoing stuff, does that take away any legislative actions that were out there? Are there still any proposals on the legislation side?

Yes, thanks Travis for the question. The legislature during this session has really allowed PURA to implement a lot of the stuff that they had done in the fall legislation, so we’re not seeing any activity, and right now they are just trying to put the rules in place and that’s really what we’re actively involved in. We have not seen any additional legislative activity other than some basic stuff around maybe solar or storage.

Okay, great. Then a quick one on offshore wind - with the schedule that you now have, what’s the flexibility in terms of technology? We’re seeing technology develop almost daily in terms of offshore wind - efficiency and turbine size and stuff. What kind of flexibility do you have in the next two, three years before you start putting steel in the ground to change that?

Yes, so another helpful question. It’s interesting - when you think of delay, everyone always thinks cost increases, but I will tell you that in this business, the offshore wind business, it has been incredible the types of advancement in technology, turbine sizes. I will tell you that our permits, all the permits that we have filed have that level of flexibility to be able to upsize, so I will tell you that delay in these circumstances has been a very positive thing for our business, and we’re very, very optimistic.

Okay, so the EIS doesn’t lock you into any kind of technology or anything?

No, but it has caps on size. We can take it up to maybe a 14 megawatt, but that’s the level of flexibility, up in that range.

Okay, great. Thanks so much.

All right, thank you, Travis. I know a number of folks have already moved onto the 10 o’clock call, so we’ll end it here. Thank you very much for all your time today. If you have any additional questions, please let us know, give us a call or send us an email, and we look forward to seeing you at the coming conferences.