Eversource Energy (ES) — Q2 2023 Earnings Call Transcript

Good morning, and thank you for joining us. I’m Bob Becker, Eversource Energy’s Director for Investor Relations. During this call, we’ll be referencing slides we posted yesterday on our website. And as you can see on Slide 1, some of the statements made during this investor call may be forward-looking. These 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. We undertake no obligation to update or revise any of these statements. Additional information about the various factors that may cause actual results to differ and our explanation of non-GAAP measures and how they reconcile to GAAP results is contained within our news release, the slides we posted last night, and in our most recent 10-K and 10-Q. Speaking today will be Joe Nolan, our Chairman, President and Chief Executive Officer; and John Moreira, our Executive Vice President and CFO. Also joining us today is Jay Buth, our Vice President and Controller. Now I’ll turn the call over to Joe.

Thank you, Bob, and thank you, everyone, for joining us on this call this morning. I hope that you’re all having a good summer and can take some time off after earnings season. Today, we’d like to update you on our commitment to deliver value to our customers, to achieve important objectives on both ESG and diversity, and our progress to close out the offshore wind sale process. Here at Eversource, we are working tirelessly to deliver energy and clean water safely and reliably to our 4.4 million customers. Our steadfast focus on serving our customers well continues to deliver superior results in all aspects of our businesses in Connecticut, Massachusetts, and New Hampshire. As you can see from the bottom of this slide, investments we have made over the past decade are greatly benefiting customers. The average months between interruptions has increased significantly from 12 months in 2011 to nearly 20 months at the end of 2022, and over two years through the first half of 2023. As a result, this high performance level puts Eversource’s reliability in the top decile compared to industry peers. In addition, when an outage occurs, the average duration experienced by customers has improved dramatically. Our relatively short average duration of outages also puts Eversource in the top decile compared to industry peers. This top decile level of reliability is a result of years of investment in the states in which we operate and the dedication and high work of our skilled employees. On the energy supply side of our customers' bill, we’re pleased that our customers have experienced some improvement in supply pricing in New England. Challenges due to natural gas supply constraints because of the war in Ukraine and the global market dynamics led to this winter’s historically high energy prices here in New England. This summer, natural gas prices have moderated nicely, and we’re seeing much lower electricity prices as a result. In Connecticut and Massachusetts, new supply rates went into effect on July 1 and will remain in place through the end of the year. Supply rates for residential customers in Connecticut and Massachusetts decreased approximately 40% per kilowatt hour from January of this year to July 1 of this year. In New Hampshire, residential customers will see a decline of approximately 40% per kilowatt hour in the supply rate effective August 1. We purchased power on behalf of our customers in accordance with guidelines set by our state regulators, and we do not earn any profit from this portion of our customers’ bill. We are very pleased that our customers have seen some cost relief this summer as it helps to offset customers’ usage that is much higher in the summer than in the winter. While 2023 prices have come down in recent months, we expect another seasonal increase in supply prices for this coming winter. Therefore, we remain focused on our industry-leading energy efficiency programs and we’re continuing to engage with policymakers to discuss long-term solutions. In June, Senior Leadership actively participated in the FERC-sponsored Forum in Portland, Maine, on gas and electric reliability matters. We look forward to continuing engagement with FERC and other key stakeholders to continue to advance this energy resource challenge for New England. In June, we posted on Eversource’s website our 2022 sustainability report, along with our stand-alone diversity, equity, and inclusion report. These publications highlight our commitment to leading environmental, social, equity, and governance practices. We continue to make strong progress towards our 2030 carbon neutrality goal with a quarter of the emissions already cut from our baseline year of 2018. The many initiatives we have implemented to drive emissions down are showing results. In fact, from 2021 to 2022, we’ve seen a 15% overall emissions reduction. These efforts have ranged from enabling more capacity for renewables on the grid to replacing aging leak-prone natural gas pipes to investing in hybrid vehicles and procuring renewable energy for our buildings. We are also pursuing innovative solutions such as a pilot project featuring a first-of-its-kind sulfur hexafluoride-free breaker used in our electric system. As many of you know, we’re also expanding our emission reduction efforts through the commitment to adopt an ambitious science-based target, committing to a science-based target is a best practice that places us among a handful of industry leaders in the U.S. and we plan to have our targets submitted by 2024.

Thank you, Joe, and good morning, everyone. Today, I will review our results for the second quarter of 2023, including our offshore wind impairment charge, and I’ll also discuss our recent offshore lease sale transaction to give you a status update and review our 2023 financing activity. Our GAAP earnings were $0.04 per share in the second quarter of 2023 compared with GAAP earnings of $0.84 in the second quarter of 2022. As we announced in May, based on our completion of the Offshore Wind Strategic Review and the status of the dependent project sale process, the results for the second quarter include an after-tax impairment charge of $0.95 per share related to Eversource Energy’s total offshore wind investment. Results for both years include transaction and transition costs related to the acquisition of Eversource Gas Company of Massachusetts and other charges totaling $6.2 million in the second quarter of 2023 compared with $5.5 million in the second quarter of 2022. Absent these charges and the offshore wind impairment, our recurring earnings were $1 per share in the second quarter of this year compared with $0.86 in the second quarter of last year. Looking at some additional details on the second quarter recurring earnings by segment, starting with our Electric Transmission segment, which earned $0.46 per share in the second quarter of 2023 compared with earnings of $0.44 per share in the second quarter of 2022. Improved results were driven by our continued investments in Eversource’s electric transmission system to maintain high reliability performance for customers. Our second quarter 2023 Electric Distribution earnings were $0.47 per share compared with $0.37 in the second quarter of last year. The improved results were primarily due to higher revenues, mainly from base distribution rate increases at NSTAR Electric, an expected favorable regulatory decision in New Hampshire that provided the recovery of previously expensed costs, and lower O&M as a result of lower storm restoration costs. These benefits were partially offset by higher interest expense, depreciation, and property taxes.

Just a couple of questions here. Joe, just given the uncertainty that we’re seeing nationally around just offshore wind with a lot of project cancellations and renegotiations, how confident are you that you can get this transaction across the finish line at a reasonable price? And what does this sort of mean for the growth rate and the remaining portion of the ATM as it stands? Do you see any situation post this deal where we could see incremental financing or an impact on how you message around the 5% to 7% growth rate?

Well, thank you, Shah. I want to thank everybody for their patience around this complex offshore wind deal. It’s been very, very complex. It involves multiple agreements that all have to be aligned, and we want to be sure that we get the most money for our shareholders out of that exit, and we remain focused on completing this transaction. This region is so dependent on natural gas for electric generation. This shift has to come, it has to come in some form of alternative generation, and that’s where wind, given the energy factors in this region, plays a major role in this clean energy environment. I don’t see anyone taking their foot off the gas. The policymakers are very excited about wind. Our offshore wind leases are very prized assets. They sit in an area that has all the fundamentals necessary to deliver great wind speeds for any future buyers. We feel good that it will continue to do well here. We are getting very close to wrapping up this deal, and I appreciate your patience.

Yes. Sure, Shah. There are a multitude of agreements that need to be executed in conjunction with our purchase and sale agreement. Some of which we do not control, but we will help facilitate those with the buyer to make sure that they progress smoothly. As far as the contingencies, what’s on the table right now, we are not here to disclose those components because we don’t have an executed agreement. But we feel comfortable that we can manage those well with Ørsted. There’s both upside and downside, and we feel confident about what will ultimately be agreed to.

So just I think you mentioned that the impairment that you took on offshore wind assumes you get the New York restructuring as well as the ITC adders. Is there any way to get a sense of what the investment level would be if you don’t get those?

Yes. We have included both components in our impairment analysis. On both of those, we feel very good about. I would say, on average, folks can calculate it, but it is probably $400 million each.

You mentioned roughly $900 million in the deferred storm costs. What is the path to recovery and timeline of those costs?

We will commence recovery of storm costs as part of a general rate proceeding. It’s uncertain right now, as we are still compiling all of the necessary data. The earliest we expect that will happen will be at the end of 2025.

I was wondering, are you still expecting $2.1 billion to $2.4 billion in CapEx in that 2024 to 2026 period? And our returns still at that same level in the 11% to 13% ROE range?

No, there’s been no change in the overall capital forecast needs, both for this year and longer term.

On the $400 million to $450 million you’re referencing for New York, is it a pre-tax or after-tax figure?

Pre-tax.

Thanks, everyone. That concludes our call. If you have any follow-up questions, please reach out to Investor Relations.