Eversource Energy (D/B/A)

Welcome to the Eversource Energy Q3 2020 results conference call. My name is John, and I will be the operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you do have a question, press star then 1 on your touchtone phone. Please note that this conference is being recorded. And I want to turn the call over to Jeffrey Kotkin.

Thank you very much, John. 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 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 31, 2019, and our Form 10-Q for the three months ended June 30, 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 Vice President 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 slide two and turn over the call to Phil.

Thank you, Jeff. Good morning, everyone. I hope everyone on the call remains healthy and that your families are safe and doing well. This morning, I'll cover a variety of areas, review the results of the third quarter, discuss recent regulatory developments, including the acquisition of the assets of Columbia Gas of Massachusetts, provide an update on recent developments around our offshore wind partnership with ORSES. I'll start with slide two, noting that recurring earnings were $1.02 per share in the third quarter of 2020. compared with recurring earnings of 98 cents per share in the third quarter of 2019. GAAP results, which include a charge of one cent per share relating to the recently completed acquisition of the assets of Columbia Gas of Massachusetts, totaled $1.01 per share in the third quarter of 2020. In the first nine months of 2020, our recurring earnings, excluding Columbia Gas acquisition costs, totaled $2.80 per share, compared with recurring earnings of $2.69 per share in the first nine months of 2019, and excluding the northern path transmission impairment charge. GAAP results for September of this year were $2.76 per share. Turning to our business segments, our electric distribution segment earned $0.60, per share in the third quarter of 2020, compared with earnings of $0.61 per share in the third quarter of 2019. The low earnings were a result of both higher storm restoration costs and property tax expense, as well as the impact of share dilution. Our electric transmission segment earned $0.36 per share in the third quarter of 2020. compared with recurring earnings of $0.33 per share in the third quarter of 2019. Improved results were driven by the continued investment and reliability in our transmission facilities, partially offset by share dilution. Our natural gas distribution segment lost $0.04 per share in the third quarter of 2020, compared with a loss of $0.05 per share in the third quarter of last year. Improved results were due to higher revenues. I should note that because we didn't close on our acquisition of Columbia Gas of Massachusetts Assets until October 9th, the transaction had no impact on this, the gas segment, this segment during the quarter. Each quarter this year, we've booked acquisition-related costs at the parent and have segregated them for increased transparency. Beginning in the fourth quarter of this year, ongoing results of our new gas franchise, which is named Eversource Gas Company of Massachusetts, will be reflected in the natural gas segment. Integration-related costs, however, will continue to be recorded separately at the parent and excluded from our recurring gap earnings. Our water distribution segment earned $0.07 per share in the third quarter of 2020, compared with earnings of $0.06 per share in the third quarter of 2019. Improved results were due to a $3.5 million after-tax gain on the sale of our Hingham, Massachusetts area facilities to the town. Evisoas Parrot earned $0.03 per share in the third quarter of 2020, excluding the Columbia Gas of Massachusetts asset acquisition cost equal to our earnings in the third quarter of last year. As you probably noted in our earnings release and can see on slide three, we are reaffirming our 2020 earnings per share guidance of $3.60 to $3.70, and that is excluding the non-recurring costs related to the purchase of Columbia Gas of Massachusetts asset We are also reaffirming our long-term EPS growth rate of 5% to 7% from our core regulated business through the year 2024. We continue to expect to be somewhere around the middle of that range, largely due to the investments we need to make on behalf of our customers as we outlined for you earlier in the year. As a reminder, while we fully expect the Columbia Gas assets to be accreted to our earnings per share starting immediately in 2021. We have not yet updated our long-term financial outlook to reflect the acquisition of Columbia Gas assets in our capital, our CapEx, or our earnings growth. In addition, as we've disclosed previously, earnings from offshore wind would be incremental to our core business growth. We'll provide a comprehensive update of our regulated capital investment forecast, adding in Eversource Gas Company of Massachusetts projections, and provide an update of our offshore wind partnership during our year-end call in late February. From the third quarter results, I'll turn to slide four and our experience restoring power after Tropical Storm Isaias ravaged Connecticut on October 4th. We serve 149 cities and towns in Connecticut, and every one of these communities suffered damage from East IES, much of it catastrophic. As you can see on the slide, we had nearly 22,000 damaged locations that we had to address and brought in an army of electric restoration and tree crews to restore power, all the while working on the restoration in a pandemic setting. The restoration process lasted nine days, meaning we completed our work one to two days faster than we had in the last two tropical storms that hit Connecticut, even though we had 30 to 35% more damage locations. And most importantly, we completed that work safely with no serious electrical contact and no COVID exposure among the enormous work force we brought to Connecticut. Just a tremendous effort by all of our employees from across all parts of Eversource. At this time, we estimate that deferred costs across all three states will total more than $275 million, with the vast majority of that sum incurred in Connecticut. That figure will be adjusted as the actual invoices are received. We're still actively pursuing invoices from hundreds of vendors that assisted us during the statewide restoration effort. Where we were setting new poles or hanging miles of new wires or replacing hundreds of transformers, these related costs have to be capitalized. The ultimate recovery of storm costs and the evaluation of performance in safely and expeditiously restoring power to our customers is pending an ongoing review by the Connecticut Public Utilities Regulatory Authority, or PURA. That review is scheduled to be completed in late April of 2021. Sticking with our regulated business, I'll turn to slide five and a review of this year's distribution rate reviews. This past Friday, the Massachusetts Department of Public Utilities issued its decision in the NSTARGAS rate review that we filed last year. It supports our continued investment in the NSTARGAS system on behalf of our 300,000 customers. The decision allows NSTARGAS to increase distribution revenues by $23 million on an annualized basis. The DPU approved an ROE of 9.9% and a capital structure with It also permits us to implement performance-based rate-making for a 10-year term that, with sound operating performance by Instar Gas, will target annual base rate increases of inflation plus 1.03%. This is an earnings-sharing mechanism that would return 75% of the benefit to customers should we exceed the ROE of 10.9%. and a sharing mechanism on the downside if our ROE falls below 8.4%. Also exciting is the decision also approves our first ever geothermal pilot program. Our other longstanding rate proceeding involves public service of New Hampshire. In New Hampshire last month, we and all the parties to the PSNH rate case filed a proposed settlement in the rate review that has been pending for nearly a year and a half. As you can see from the slide, we settled on a $45 million annualized rate increase that includes a 9.3% return on equity and a 54.4% equity layer. Should regulators approve the settlement, the permanent increase would take effect in January 1st of 2021. You may recall that the New Hampshire Public Utility Commission allowed us to implement a temporary rate increase of approximately $28 million back in July, July 1st of 2019. The final approved rates would be retroactive back to that date, 18 months. We would recover that in a true up over the course of the year 2021. We consider the settlement to be a constructive outcome to PS&H's first general increase in about a decade. and have asked the New Hampshire PUC to approve the settlement before the end of November. From the rate reviews, I'll turn to slide six and our recently completed acquisition of the assets of Columbia Gas of Massachusetts for $1.1 billion of cash, excluding working capital adjustments. Most of these assets were assigned to Eversuisse Gas Company in Massachusetts, a new subsidiary I mentioned that we formed in May of 2020. As you can see on the slide, much of Eversource Gas' service territory is adjacent to NSTAR gas or Yankee gas service territories. Additionally, NSTAR Electric already provides electric service to about 20 of the communities that Eversource Gas serves with natural gas. As a result, we expect to realize operational benefits for our newest 330,000 natural gas customers in the communities where they live. To finance the transaction, we sold approximately $500 million of equity in June, and we financed the debt portion of the transaction in August. And again, we are very confident that this transaction will be accretive to our earnings per share in 2021 and incrementally accretive in the years ahead. A critical factor in ensuring that this transaction brings benefits to all stakeholders is an eight-year rate plan that we negotiated with the Massachusetts Attorney General and other key parties prior to our filing with the Massachusetts Department of Public Utilities. The key elements of that plan are listed on slide seven. It will allow us to make the necessary investments in our Eversource Gas of Mass system and reflect those investments and rates in a reasonably timely manner. We're thankful that the DPU approved the settlement and the acquisition very quickly. Now that we have the keys to the property and a long-term plan in place, we are focused on providing our new Eversource gas customers with the same high level of service that we provide our other 550,000 natural gas distribution company customers that we have in Massachusetts and Connecticut. As I noted earlier, we plan to integrate Eversource gas of Massachusetts into our updated five-year projections that we'll provide you in February. We continue to project approximately $3 billion of regulated company capital investments this year, despite the challenges posed by the pandemic and the need to take crews off of capital projects for a significant part of August to deal with the aftermath of Tropical Storm Isaias. Through September, our capital investments totaled approximately $2.2 billion. That's approximately the same level as this time last year in 2019. We made considerable progress on our transmission capital program in the third quarter, putting several projects into service at or below budget. And these benefits of lower costs will flow through to New England's electric customers. From the regulated business, I'll turn to offshore wind partnership with Orsted on slide eight. We've had a few developments since our July 31st earnings call. The most significant development was that in August, the Bureau of Ocean Energy Management posted a complete review schedule for our 130 megawatt South Fork project on Long Island. The schedule culminates in a decision on a construction and operations permit, or COP as it's known, in mid-January of 2022. We are also making progress on the other permits. In September, we filed a settlement proposal with the New York Department of Public Service to resolve much of the stakeholder feedback related to the construction, operations, and maintenance of the project that lies within New York jurisdiction. In October, Several of New York State agencies signaled their support for this proposal by signing on to the agreement. We've structured an agreement on host community payments and the necessary real estate rights with the town of East Hampton, where the offshore cable would land and would be connected to the Long Island grid. New York Public Service Commission siting hearings for South Fork are scheduled to commence the first week of December. We continue to expect the state signing process to be completed in 2021 before BOEM issues the COP. Based on that schedule, we now expect the project to enter service in the fourth quarter of 2023. This is consistent with the expectations we disclosed during our May and July earnings calls while we were still waiting for the review schedule. Turning to our other projects, you recall that we filed our BOEM application for Revolution Wind in March. We expect BOEM to establish a review schedule for that project in the first quarter of 2021. We do not expect to provide an updated in-service date for this project until the schedule is issued. But at this point, it is unlikely that the project will have this service by the end of 2023. Also, we filed our Sunrise Wind application with BOEM on September 1st and expect BOEM to establish a review schedule for the project next year. Once we receive that review schedule, we'll be able to better estimate a more up-to-date in-service schedule. But again, at this time, it would seem that the end of 24 in-service is not likely. We're very optimistic about our offshore wind business and expect many opportunities over the coming months and years to expand our offshore wind partnership beyond the 1,714 megawatts currently under contract. As we mentioned before, we have enough leaf capacity to construct at least 4,000 megawatts on the 550 square miles of ocean track that we have under long-term lease off the southeast coast of Massachusetts. On October 20th, we submitted a number of alternative bids into the second New York offshore wind RSP, where the state is looking for between 1,000 and 2,500 megawatts. New York state officials have indicated that they expect to announce the winners before the end of the year. Our Sunrise project, as a reminder, won the largest portion of New York's first RFP last year, 880 megawatts. Additionally, just last week, Rhode Island Governor Gina Raimondo announced that her state will target early next year for issuing an RFP to 600 megawatts of additional offshore wind. As you know, the majority of our Revolution wind capacity, 400 megawatts, will be sold to Rhode Island, with the balance going to Connecticut. Thank you very much for joining us this morning, and I'll turn the call back over to Jeff.