Eversource Energy (D/B/A)

Welcome to the Eversource Energy Second Quarter 2020 Results Conference Call. My name is Vanessa, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star, then 1 on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Mr. Jeffrey Kotkin. Sir, you may begin.

Thank you, Vanessa. 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 one, 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 31st, 2019, and our Form 10-Q for the three months ended March 31st, 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 last night and in our most recent 10-K. Speaking today will be Phil Lembo, our Executive VP and CFO. Also joining us today are Joe Nolan, our Executive Vice President for Strategy, Customer, and Corporate Relations, John Marrera, our Treasurer and Senior VP for Finance and Regulatory, and Jay Booth, our Controller. Now I will turn to slide two and turn over the call to Phil.

Thank you, Jeff. And good morning, and I'll start off by wishing all and hoping that everyone on the phone remains healthy and that your families are safe and doing well. This morning, I will cover several items, talk about the results of the second quarter 2020, review the impacts of COVID-19 on our customers and their energy use, I'll discuss recent regulatory developments, including new grid modernization proposals in Connecticut and the status of our application in Massachusetts to purchase the assets of Columbia Gas of Massachusetts. And finally, provide an update for you on our offshore wind investment partnership with Orsted. So, let's get started on slide two, noting that recurring compared with recurring earnings of 74 cents per share in the second quarter of 2019. GAAP results, which include a charge of one cent per share relating to our pending acquisition of the assets of Columbia Gas, totaled 75 cents per share, compared with earnings of 10 cents per share in the second quarter of 2019. And last year's results included a $0.64 per share impairment charge relating to Northern Pass. So in the first half of 2020, our recurring earnings, excluding Columbia Gas, totaled $1.77 per share, compared with recurring earnings of $1.71 per share in the first half of 2009. According to our business segments, our electric distribution segment earned $0.34 per share in the second quarter of 2020, compared with $0.33 in the second quarter of last year. Improved results were driven by higher revenues, partially offset by dilution and higher O&M costs, depreciation and interest expense. Our electric transmission segment compared with recurring earnings of 37 cents per share, again, excluding the NPT charge in the second quarter of 2019. Improved results were driven by a higher level of investment in our transmission facilities, partially offset by dilution. Our natural gas distribution segment earned one cent per share in the second quarter of 2020, compared with a slight loss in the second quarter of last year. Improved results were due to higher revenues, partially offset by O&M and depreciation, as well as dilution. Our water distribution segment earned three cents per share in the second quarter of 2020, compared to earnings of two cents per share in the second quarter of 2019. Improved results were largely due to higher revenues and lower depreciation expense. At the Eversource Parrot, we lost one cent per share in the second quarter of 2020, excluding the Columbia Gas of Massachusetts asset acquisition cost compared to earnings of two cents per share in the second quarter of last year. The primary driver of the change was a lower mark-to-market earnings this year in a clean energy investment we made a number of years ago. As you may recall, this is an investment fund that matures soon, and each year we mark that investment to market in the second quarter. As you probably noted in our news release, you can see on slide three, we are reaffirming our 2020 earnings per share guidance of $3.60 to $3.70 range, as well as reaffirming our long-term EPS growth rate of 5% to 7%. We expect that our existing core business will allow us to grow earnings per share around the midpoint of that range through 2024. Earnings from offshore wind and Columbia gas asset acquisition would both be incremental to that growth, though they would have somewhat of a different profile. As we've said before, offshore wind earnings would commence in the latter years of the forecast as the turbines enter service. while we expect Columbia gas asset acquisition to be accretive to our earnings per share starting in 2021. From second quarter results, I'll turn to slide four and our continued progress and success in operating the business during COVID-19 pandemic. A very strong safety and reliability performance continued through the first half of the year. We've responded promptly and effectively to all the storms we've encountered, and the vast majority of our employees who either had tested positive for COVID-19 or were self-quarantined are now back to work, providing superior service to our 4 million customers. We remain on target to executing our $3 billion capital program. Through June, our capital expenditures have totaled $1.44 billion, about $30 million ahead of last year's pace. In terms of usage, kilowatt-hour sales in the second quarter were down about 1.4% overall compared with last year. But in New Hampshire, which is not decoupled, they were actually up 1.8%. New Hampshire residential sector sales were very strong due primarily to more customer And we see that throughout the company. We had cooler than normal weather in the first half of the quarter and hotter and more humid than normal weather in late May and June. On the natural gas side, where both Yankee Gas and Enstar Gas are decoupled, sales in the second quarter were up about 1.7% compared with last year. And this was due to colder April and early May weather. So on a weather normalized basis, sales were off about 7% due to lower commercial and industrial usage. In our water segment, which is also decoupled in Connecticut, unit sales were up 7.1% in the second quarter this year. Lastly, due to customers irrigating their properties during a very hot and dry month of June. We are not shutting off customers for nonpayment. We continue that program. Connecticut and New Hampshire have implemented varying schedules for when shutoff moratoria will be lifted. In Massachusetts, we're part of a group that's working now to review policies regarding payment plans and shutoffs for nonpayments, and there are no due dates for ending the moratorium at this time. So despite the moratorium in place across the company, the impact of COVID-19 on our overall receivable balance has been manageable to date. COVID-19 and sales, I'll now turn to slide five, the recent developments around our ongoing rate reviews. With two general reviews pending, hearings in the NSTAR gas rate review in Massachusetts concluded a month ago. And final reply briefing will take place in August. We continue to expect a decision by the end of October with new rates effective November 1st. In New Hampshire, hearings and the public service of New Hampshire rate review start later, I guess, in the month of August with the final decision in November. New rates would be effective December 1st, we expect. but would be retroactive to July 1st, 2019, when a temporary rate increase of $28 million took effect. From the rate reviews, I'll now turn to grid modernization and the filing we're making in Connecticut today, later on today. As I've mentioned on past calls, the Public Utilities Regulatory Authority, or PURA, has opened 11 dockets to look at modernizing the electric grid in Connecticut to accommodate customers' higher expectations for reliability and technology and to provide both increased resilience and a path to help the state reduce its carbon footprint by at least 80 percent by the year 2050. Today, we and other parties are filing proposals in three of the 11 dockets. As you can see on slide six, The most capital-intensive proposal we're making is related to automated meter infrastructure, or AMI, for our Connecticut Light and Power customers. Our filing will present a comprehensive analysis of the cost as well as the technological, operational, and environmental benefits of implementing AMI. Moreover, as I've said in the past, our current AMR metering technology is ending nearing the end of its useful life and will need to replace about 800,000 meters one way or another over the next five years. It would involve capital investments that would be reviewed by PURA as part of their ongoing evaluation. In addition to AMI, we're seeking to support the state of Connecticut and targeting to have about 125,000 electric vehicles on the road by the year 2025. Our proposal combines rebates and infrastructure investments over a three-year period, enabling 2,500 homes to be wired for electric vehicle charging and for 3,000 additional charge ports to be enabled in multifamily dwellings, commercial centers, various destination locations, and other places. We would not own the charge ports themselves, but we would invest in the backbone to get the power to the vehicles. Finally, we're proposing a program to incentivize the installation of 30 megawatts of storage among CLMP's residential customers and 20 megawatts on the commercial industrial side. This program would not involve capital investment by CLMP, We expect PURE to facilitate an extensive review and public comment period over the balance of this year on all our proposals, as well as other proposals that are likely to be submitted by utility and non-utility parties today. In Massachusetts, we continue to implement the grid modernization plan authorized by regulators more than two years ago. We expect to complete the authorized projects, including infrastructure to connect 3,500 charge ports and utility storage projects on Cape Cod and Martha's Vineyard in 2021. In mid-2021, we'll be filing a new three-year plan for implementation in the 2022 through 2024 time period. In addition to the regulatory proceedings I just reviewed, we've made significant progress on our acquisition of the assets We'll pay $1.1 billion in cash for the assets. The cash will come from the combination of the issuance of new parent equity and debt. We raised the equity portion in mid-June when we sold 6 million shares and netted just over $500 million in proceeds. We're very pleased with the investor interest in the issuance, which was nearly three times oversubscribed and priced without price without a discount until the prior day is closed. We'll fund the debt portion of the purchase price from a future parent long-term debt issuance. We're very confident that the transaction will be accretive to Eversource shareholders in 2021, the first full year after closing, and be very positive for Columbia Gas customers. Slide 8 reviews the principal elements of our DP ownership to one of the largest gas delivery systems in Massachusetts and a pathway for 330,000 customers to benefit from Ebersource's award-winning energy efficiency program, a strong safety record, and high level of customer service and reliability. We truly believe it is a win for Columbia Gas customers, the communities, and for the state as a whole. The DPU filings, which are available on our investor website under the rate case update section, includes a settlement between the State Attorney General, Governor Baker's Department of Energy Resources, a low-income coalition, NYSource, and Eversource. We've asked the DPU to approve the application by September 30th. The GPU has scheduled virtual public hearings August 25th and August 27th to take up the matter. The settlement structures an eight-year rate plan with modest rate increases on November 1st of 2021 and 2022, respectively. There are additional base rate resets on November 1st of 2024 and in 2027. and unprotected steel pipe. And we expect Columbia to continue to replace about 45 miles of its older pipe annually. The agreement maintains Columbia's currently authorized equity component of its capital structure of 53.25%, but raises the authorized return on equity from currently at 9.55% to 9.7%. Based on the integration planning we've undertaken to date, we also remain confident that the transaction would be very beneficial to Columbia Gas customers and communities. As you can see on the slide, we'll provide the DPU with a status report on the Columbia system by September of next year. That report will provide a blueprint of enhancements we'll make to ensure that Columbia's 330,000 customers receive the same level safe and reliable service that our existing 550,000 natural gas distribution company customers receive in Massachusetts and Connecticut. Turning now to slide nine, in our offshore wind partnership with Orsted, on June the 9th, the Federal Bureau of Ocean Energy Management, or BOEM, released its cumulative impact study concerning potential development of about 22,000 megawatts of offshore wind generation along the Atlantic seaboard. This was an important step in BOEM's evaluation process for the different applications that have been filed to date, including two joint proposals with Orsted, one of those being Self Work, the other Revolution Wind. The study reviewed the impact of the projects, which BOEM expects to be developed over the next decade. Impacts were graded from major to negligible, I guess, on their scale. The level of impact identified in the report were anticipated by the offshore wind industry. They were primary reason that the four developers in the six ocean tracks off of Massachusetts, including our partnership with Orsted, proposed a one nautical mile by one nautical mile spacing for all turbines in the region. fisheries and navigation. The cumulative impact study was supported by the Coast Guard's earlier conclusion that the proposed turbid basin, which is the widest in the world for offshore wind, was adequate to support safe navigation in search and rescue efforts. Fisheries mitigation plans proposed through other agencies, such as the Rhode Island Coastal Resource Management Commissioner, will further mitigate impacts on wind farms. The response to the analysis by the public was, I'd say, largely positive, with renewed emphasis on the very significant contributions these turbines will make to carbon emission reductions in the Northeast. Five public comment sessions on the impact study were held in the summer, and written comments were due on Monday this week. BOEM is expected to make a final decision on the Vineyard Wind application on December 18th. And as you recall, Vineyard Wind is the first New England project in the queue. We expect that later this summer, BOEM will release its schedule for federal agency review of South Fork. And as we disclosed in the Q1 earnings call, we believe it is very unlikely that South On the other projects, we were able to resume survey work in June in New York State to support our sunrise wind filing with BOEM. We continue to expect that filing to be made later this year. And finally, last week New York issued an RFP for up to 2,500 megawatts of offshore wind. Bids are due on this RFP. by October the 20th, with awards to be made by the end of this year to ensure the winners can benefit from expiring federal tax credits. We and Orsted expect to bid into that RFP. Sunrise wins. And I'll turn the call back to Jack for Q&A.