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spk01: Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 NYSource Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a time for question and answers. To ask a question during the session, you will need to press star, then 1 on your telephone. If you require any further assistance, please press star, then 0, and an operator will come back on to assist you. I would now like to hand the conference over to your first speaker today, Mr. Nick Drew, Director of Investor Relations. Please go ahead.
spk03: Thanks, Amy. Good morning, and welcome to the NYSource Third Quarter 2020 Investor Call. Joining me today are Joe Hamrock, our Chief Executive Officer, Donald Brown, our Chief Financial Officer, Sean Anderson, our Chief Strategy and Risk Officer, and Randy Heelan, our Vice President, Investor Relations and Treasurer. The purpose of this presentation is to review NYSource's financial performance for the third quarter of 2020, as well as provide an update on our operations, growth drivers, and financing plans. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available on NYSource.com. Before turning the call over to Joe, Donald, Sean, and Randy, just a quick reminder. Some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the MD&A and risk factor sections of our periodic SEC filings. Additionally, some of the statements made on this call relate to non-GAAP measures. For additional information on the most directly comparable GAAP measure and a reconciliation of these measures, please refer to the supplemental slides and segment information, including our full financial schedules, available at NYSource.com. With all of that out of the way, I'd now like to turn the call over to Joe.
spk06: Thanks, Nick. Good morning, everyone, and thank you for joining us. Hopefully you've all had a chance to read our third quarter earnings release, which was issued earlier this morning. With 2020 in its home stretch, NYSource continues to execute on a path deliver premium value from our 100 regulated electric and gas utility platforms our teams are focused on continued execution of our safety and asset modernization programs and our transition to renewable energy in our electric business these investments are expected to drive compound annual growth of seven to nine percent in net operating earnings per share from 2021 through 2024 while reducing greenhouse gas emissions 90% by 2030. Sustaining this level of execution while maintaining safe, reliable energy service through the COVID-19 pandemic is a testament to the thousands of dedicated employees throughout NYSource. With the announcement of additional solar and storage energy projects in Indiana and the closing of the sale of Columbia Gas of Massachusetts last month, we have strengthened our foundation for future growth. So let's dive into the updates starting on slide three. We delivered non-GAAP net operating earnings of nine cents per share in the third quarter compared to zero cents in the same quarter a year ago. Our continued cost management and regulatory mitigation efforts are reducing the financial impacts of COVID-19, which we continue to monitor closely. Our transformational NYSource Next initiative is well underway and designed to enhance organizational capabilities, drive efficiencies, and maintain affordable service for our customers. Despite challenges related to the pandemic, we continue to expect to make $1.7 to $1.8 billion in capital investments in 2020, as our safety and asset modernization investments remain among our top priorities. We advanced our renewable generation strategy last month by reaching build transfer agreements with Nextera for three Indiana solar and storage projects, representing an $850 million capital investment for NIPSCO. On the regulatory front, we received approval of the sale of Columbia Gas of Massachusetts assets to Eversource, and the transaction closed on October 9th. We also reached a settlement in our gas base rate case in Maryland, and received approval of our latest capital expenditure program tracker update in Ohio. We are also today reaffirming non-GAAP net operating earnings per share guidance for 2021 in the range of $1.28 to $1.36, which includes an expected COVID impact of $0.05. And we are reaffirming the financial guidance that we provided at our investor day on September 29th. These include investments of $1.9 to $2.2 billion per year in safety, modernization, and growth from 2021 through 2024, $1.8 to $2 billion in incremental renewable generation investment opportunities across 2022 and 2023, and compound annual earnings per share growth of 7% to 9% from 2021 through 2024. with 5% to 7% annual growth in the near term. Now I'd like to turn the call over to Donald, who will discuss our third quarter financial performance in more detail.
spk05: Thanks, Joe, and good morning, everyone. Looking at our third quarter results on slide four, we had non-GAAP net operating earnings of about $36 million, or 9 cents per share, compared to a net operating loss of nearly $2 million, or 0 cents per share, in 2019. The year-over-year increase was driven primarily by increased gas segment results with relatively flat electric results in the quarter. For the year, our net operating earnings are up about $52 million, or 11 cents per share, compared to the same period of 2019. Looking more closely at our segment results on slide five, operating earnings were up about $36 million for the quarter in our gas segment. driven primarily by infrastructure investment revenue and cost management measures put in place to offset COVID-19 impacts. In our electric segment, operating earnings were down by $2.5 million, driven primarily by slightly higher revenues, excluding the cost of sales, with COVID-driven decreases in commercial and industrial sales, offset by increased residential sales. This net increase in revenue was offset by higher depreciation as a result of the accelerated depreciation of our coal-fired generation assets. Turning to slide six, we provide additional details about the financial impact of COVID-19. As you can see, we're seeing lower commercial and industrial sales, which are partially offset by increased residential sales. We're also seeing reduced late payment and reconnection fees as well as higher bad debt and other expenses. The total impact of COVID-19 in the third quarter was approximately a penny per share and seven cents per share year to date. As I mentioned, this impact was reduced by non-safety related expense reduction as well as regulatory mitigation efforts. We currently expect COVID to reduce EPS by five cents in 2021 under our base case scenario And that amount has already been factored into our 2021 non-GAAP EPS guidance range. While we're monitoring the pandemic closely, to date it has not presented significant barriers to our safety and infrastructure modernization programs or our long-term growth. As Jill mentioned earlier, we continue to expect to invest $1.7 to $1.8 billion of capital in 2020. we are reaffirming the guidance for long-term CapEx and EPS CAGR guidance that we outlined at Invest Today. Now, turning to slide seven, I'd like to briefly touch on our debt and credit profile. Our debt level as of September 30th was about $10.6 billion, of which about $9.1 billion was long-term debt. The weighted average maturity on our long-term debt was approximately 15 years, and the weighted average interest rate was approximately 3.68%. I will note that the liability management transactions that we completed during the quarter lowered our weighted average interest rate by more than 60 basis points and removed the need for any significant long-term debt refinancing through 2024. As Joe mentioned earlier, we closed on the sale of our Columbia Gas of Massachusetts assets on October 9th. This produced net proceeds of $1.1 billion, which we used to pay down our term loan and other short-term debt in October. At the end of the third quarter, we maintained net available liquidity of about $1.6 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization program. Our credit ratings from all three major rating agencies are investment-grade, and we're committed to maintaining our current investment grade ratings. Taken together, this represents a solid financial foundation to support our long-term safety and infrastructure investments. Now I'd like to turn the call back over to Joe, who will provide some infrastructure investment and regulatory updates from our gas and electric businesses.
spk06: Thank you, Donald. Now let's look at some NYSource Utilities highlights for the third quarter and early fourth quarter of 2020. starting with our gas operations on slide nine. In Pennsylvania, our base rate case remains pending before the Public Utility Commission. The application, filed in April, seeks an annual revenue increase of $100.4 million to invest in, modernize, and upgrade our existing natural gas distribution system, as well as maintain the continued safety of the system. An order is expected in the first quarter of 2021 with new rates expected to become effective in January 2021. In Maryland, we reached settlement with parties to the base rate case request we filed in May. The settlement supports further upgrading and replacement of our pipelines and would result in an annual revenue increase of $3.3 million, including $1.3 million of current tracker revenue, if approved as filed. A Maryland Public Service Commission order is expected in November 2020, with new rates effective in December 2020. In Ohio, the Public Utilities Commission approved our annual application for adjustment to our capital expenditure program rider, and new rates went into effect in September 2020. The order allows us to begin recovery of approximately $185 million in capital invested under the CEP in 2019. In Indiana, our latest tracker update is pending in our long-term gas infrastructure modernization program. The application covers $26 million in incremental capital invested under the program between January and June 2020. Earlier in the quarter, the Indiana Utility Regulatory Commission approved a six-year extension of the program, including nearly $950 million in planned capital investments through 2025 to be recovered through semiannual adjustments to the existing Transmission Distribution and Storage Improvement Charge, or TDISC, tracker. Now let's look at our electric operations on slide 10. Sean will update you in a moment on our progress transitioning our generation portfolio. Before then, I'll note that we continue to execute on our long-term electric infrastructure modernization plan in Indiana. This well-established program includes enhancements to our electric transmission and distribution system designed to further enhance safety and reliability. The program, originally approved by the IURC in 2016, includes approximately $1.2 billion in electric infrastructure investments expected to be made through 2022. In September, we filed our latest electric key disk tracker update request, covering more than $122 million in incremental capital investments made between July 2019 and June 2020. We expect an IURC order in January 2021, with new rates effective in February 2021. And now I'll ask Sean to talk about our renewable generation projects.
spk08: Thank you, Joe. As Joe shared earlier, within the last month, we announced build transfer agreements with Nextera Energy Resources on three Indiana solar projects representing a capital investment of approximately $850 million for NIPSCO. The Dunn's Bridge 1 and 2 and Cavalry Solar Energy Centers are expected to be under construction by 2022 and placed into service across 2022 and 2023. Nextera will construct the solar and storage facilities, and we plan to form joint ventures with unrelated financial partners to own, operate, and maintain some facets of these assets. We will request the addition of these new projects to our supply portfolio in filings with the IURC by the end of this year. Construction is already underway on IURC-approved wind projects representing about $400 million in capital investment. Rosewater Wind, a joint venture with EDP Renewables North America and Wells Fargo as the tax equity partner, is on track to be placed into service by the end of this year. And construction has begun on Indiana Crossroads also a joint venture project with EDP, and is expected to be in service by the end of 2021. We continue to expect $1.8 to $2 billion of renewable generation investments through 2023. Inclusive of the aforementioned joint venture projects, we currently have executed agreements representing approximately $1.25 billion of this anticipated investment and are well underway in negotiating additional agreements which we expect will complete the balance of need for replacement capacity at an anticipated $550 to $750 million in capital investments. We are also well underway to complete purchase power agreements to fill out the balance of our capacity needs. Our Jordan Creek project is IURC approved, under construction, and is expected to be in service by the end of this year. Our Brickyard and Greensboro solar and storage PPAs are pending before the IORC. NextEra Energy Resources will develop Brickyard and Greensboro, which are expected in service in mid-2023. In addition to the remaining JVs under negotiation, we are engaged in additional solar and wind PPA negotiations, all of which are anticipated to go into service in 2022 and 2023. These renewable projects are consistent with our 2018 Integrated Resource Plan, which provides a preferred pathway to retire nearly 80% of our remaining coal-fired generation by 2023 and retire all coal generation by 2028 to be replaced by low-cost, reliable, and cleaner options. The plan is designed to drive a 90% reduction in our greenhouse gas emissions by 2030 and is expected to save our electric customers an estimated $4 billion over 30 years. Now, I will turn the call back over to Joe.
spk06: Thank you, Sean. As you can see from what we've covered today, we're continuing to execute on our plan to deliver long-term value for all of our stakeholders. I want to touch on our foundational commitment to safety. We're continuing to make progress on our safety initiatives across our gas and electric businesses. including our accelerated safety management system or sms implementation which follows american petroleum institute's rp 1173 and provides a comprehensive approach to managing safety emphasizing continual assessment and improvement as well as proactively identifying and mitigating potential risks we can highlight a few areas of accomplishment thus far in 2020 including continued deployment of our upgraded service line maps and records, with significant progress made in Kentucky, Pennsylvania, and Virginia, and we're on track for achieving this milestone in all of our states by the end of the year. We received regulatory approval in Ohio for a pilot of advanced mobile leak detection technology to perform quality assurance in our construction work. We have also continued to install automatic shutoff devices and enhance monitoring on our low-pressure gas distribution systems, with work completed in Maryland, Kentucky, and Virginia. If you missed Investor Day, I encourage you to visit NYSource.com to view the safety video we introduced, which brings our SMS work to life and which provides specific examples of these and other steps we're taking to help ensure safety for our customers, employees, business partners, and the public. I'm also pleased to note that our work to enhance customer service and make it easier to do business with us online has received national recognition. The American Business Awards recognized NYSource with its Gold Stevie Award for the work we did in 2019 to combine our utility websites into a seamless customer experience, including a customer portal with bill payment and account management services. Our customer experience team is hard at work on other benefits that we hope to bring customers in the future, including digital service requests, high usage alerts, outage map improvements, and enhanced views of their energy usage history. Our customers should expect more from us in the future and know that we are aiming higher to meet their needs. Before opening the call to your questions, I'll share and reiterate a few key takeaways. Our teams are focused on continued execution of our safety and asset modernization programs and our transition to renewable energy in our electric business. We continue to expect to deliver non-GAAP net operating earnings per share in the range of $1.28 to $1.36 in 2021, which reflects an expected COVID-19 impact of $0.05. The guidance that we provided at our investor day on September 29th remain in place. These include $1.9 to $2.2 billion in annual safety, modernization, and growth investments from 2021 through 2024, $1.8 to $2 billion in incremental renewable generation investments across 2022 and 2023, and compound annual earnings per share growth of 7 to 9 percent from 2021 through 2024. with near-term growth of 5% to 7% from 2021 to 2023. Our transformational NYSourceNext initiative is well underway to enhance organizational capabilities, drive efficiencies, and continued affordability for our customers. This effort is designed to ensure that we are optimally positioned to support both the significant capital investments we will be making in renewable generation and our ongoing asset modernization and safety enhancement investments. With the completion of the sale of our Massachusetts assets, we are firmly focused on the future and delivering premium value from our 100% regulated electric and gas utility platform across our six states. Thank you all for participating today and for your ongoing interest in and support of NYSORES. We're now ready to take your questions. Amy?
spk01: At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star and the number 1 on your telephone keypad. Again, that's star 1 to ask a question. Your first question today comes from the line of Shar Pariza with Guggenheim Partners. Please proceed with your question.
spk09: Hey, good morning, guys. Good morning, Shar. So just a couple of quick questions. First, you know, looking at sort of the 21 COVID impact, you obviously reaffirmed the five cents impact at the midpoint, but usage and cost mitigation in the third quarter seemed fairly strong. So wondering how you're seeing this trend progressing into four Qs that's already into it. and also how you're sort of thinking about 21 progressing so is there a scenario where we could potentially see an updated guidance in 21 at sort of the year-end results or are you looking to sort of maintain the numbers in the near term to keep some contingency in place assuming the covid realities are better than sort of your internal planning assumptions so how do we sort of think of that all right good morning it's donald hey don um so if we think about covid you know
spk05: As you stated, we've got $0.05 in our guidance for 2021, and that's really based upon our scenario, our base case scenario that we outlined earlier. We're not seeing any changes in that scenario at this point. Certainly continuing to see lower revenues from our commercial industrial customers offset by the residential customers, but we're also seeing some higher bad debt expenses. As we look forward into this quarter and into the heating season, it really is the first time that we'll experience COVID in the heating season on our gas business. So we'll continue to monitor that. And as we progress through this quarter, we'll provide updates if we're seeing anything significant. But I would say we are continuing to watch the impacts on our customers as we progress through this time.
spk09: So just to reiterate, the few weeks we're into the fourth quarter, you're not seeing any sort of variations in your current assumptions?
spk05: No, not at this point.
spk06: One of the things I would note, Shard, one of the things I would note is that, as Donald said, we haven't seen a heating season yet with the COVID impacts. And keep in mind that on the gas side of the business, most of our residential rate structures are essentially decoupled. So you don't have the same volumetric shift that we've seen on the electric side through the second and third quarters. And so that's all factored into our thinking as we look both at Q4 and Q1, the two big heating season quarters for the gas side of the business.
spk09: Perfect. And then, Joe and Donald, in your sort of prepared remarks, obviously highlighted that, you know, 8 to 10 of the renewable projects were sort of in, you know, advanced commercial negotiations. You highlighted that. Obviously, three were announced very recently with NextEra. Wondering, you know, what the timeline looks like for the announcement of the remaining projects. Could we get an update on this as soon as EEI arrives?
spk08: Good morning, Char. This is Shawn Anderson. Great to hear from you. Thanks for the question. We continue to advance all facets of our generation transition journey. First and foremost, we're focused on the continued progress of the existing agreements that our teams have worked tirelessly to advance. So specifically those under construction or in the regulatory process. For example, we look forward to Rosewater and Jordan Creek facilities to become operational and anticipated even by the end of this year, perhaps. As it relates to the commercial negotiations underway, we do expect to have additional information by the end of this year and perhaps early into next year as well as we step toward both the commercial agreements and any potential to file through the regulatory process simultaneously. So we're well underway focused on them. Meanwhile, we also expect to file for CPCN approval for the three projects just announced, Dunns Bridge 1, 2, and Cavalry by the end of this year. So a lot going on just across the team and across the board. But we're excited for what fourth quarter will bring for us and plan to have more to share very soon.
spk09: Got it. So just to reiterate, so the 8 to 10 that are currently in advanced negotiations, the next update should be at the year-end results.
spk08: Yeah, that's correct. And that 8 to 10 was pre-G3 agreements that we just described. Right. So probably in that 5 to 7 range at this point. Terrific.
spk09: Thank you very much, guys.
spk07: This is Randy. Just to interject something, you won't necessarily have to wait until the year-end results. We'll be announcing progress as this takes place, and you'll likely see a press release with the next set of projects that we would announce done at the NIPSCO level. So although you're probably not going to see something new in a week when EEI starts, but as Sean mentioned, Certainly by year end, a lot of things are in flight to be announced. So it won't necessarily be February of next year. It will be more likely, you know, before the end of this year.
spk09: Terrific. Very helpful. Thank you, guys.
spk07: Thanks, Yara.
spk01: Your next question today comes from the line of Andre Shepard with Credit Suisse. Please proceed with your question.
spk09: Hi there, guys. It's Mike Weinstein, actually. Hey, Mike. Hey, good morning. Just to be clear on the CPCN process, when you get a CPCN for Duns and Calvary, that's just established as prudence later for the rate case, right? I mean, it's not a guarantee of anything. That's correct. That's correct. Gotcha. And then the same thing, is that the same exact thing that you're waiting for on the PPAs for Greensboro and Brickyard? Yes.
spk08: Yes. Yeah, we are still waiting for CPCN approval for those projects and expect those by year end.
spk09: Gotcha. Gotcha. And the block equity needs that you're citing for 22 to 23, just to be clear, that's intended to finance these projects. That's why the timing is 22 to 23?
spk05: That's correct. Yeah, we actually think about the timing of those investments when we'll need to make the investments on those joint ventures. We'll be in that 22 to 23 time period, and we'll top off a block equity deal off of whatever remaining equity content we need once we do our hybrid or convertible in 2021.
spk09: Gotcha. Gotcha. And then on the Raycase issue, Columbia Gas in Maryland, they're expecting to receive something this month. Is that coming up soon? The next week or two or?
spk06: We have a settlement filed there. Yeah, that's correct. Awaiting an order.
spk09: Awaiting an order. Okay. So is that first half of the month usually or do you have any idea? This is November.
spk06: Yeah.
spk09: Yeah. Okay. All right.
spk06: Well, thank you very much, guys. Okay. Thank you, Michael.
spk01: Your next question today comes from the line of Harry Poland, the Bank of America. Please proceed with your question.
spk05: Hey, good morning. It's Julian here, actually. Thanks, David, very much. Just wanted to follow up real quickly, if you can, a couple nuanced ones, and then just following up more conceptually. On the strategy side, how do you think about the timing of potential developments equity or equity-like solutions, especially in 2021, relative to any evolution on strategic desires when you think about asset monetization? And where are you in that thought process? Just think about the timing more than anything else here around some of the ideas you floated at the time of your annulacy a few weeks back. Hi, Julian. Good morning. we've got flexibility in terms of timing of the going out to the markets for the hybrid or convertible next year. So we don't have any specific time to give you at this point. Certainly will be by the end of 2021. And again, looking for equity content greater than 50% on those securities. With regards to portfolio optimization, it certainly is. analysis that is ongoing as we evaluate the plan. And certainly, as we have more information, if there's something to discuss, we provide updates to the investors. Got it. But basically, if I'm hearing you right, it's just too early to really say one way or another how serious of an intention it is for asset sales rather than equity alternatives right now. I'm hearing you right. It is. We're just continuing to look at the full plan and how we finance that. The plan that we outlined on Investor Day is still the same plan from a financing standpoint, and we're continuing to look at what the pricing is of those potential securities. As we look at those securities, we'll evaluate portfolio optimization and see what drives the highest shareholder value. Got it. And sorry to go back. To come back and clarify Char's question a little bit, if I can. You alluded to it. When you think about this 5 cent COVID impact, how much of that is the gas business and the fact that we haven't been through the winter season yet in the context of an LBC and seeing COVID impacts versus, say, just ongoing impacts from electric year over year here? Yeah, we probably haven't. I don't think we provided that level of detail. Certainly, as we look at the overall impacts to gas, electric, it's almost I'd look at in terms of, you know, three cents gas and two cents electric. But ultimately, you know, we'll have to see where that comes out. Right. Hence why we might be a little early here. in saying where you are against that range despite some nice tailwinds on COVID year-to-date already. That's right, yeah. I mean, we're really going to have to look at sales as we get into the heating season and then, again, bad debt and see from a customer standpoint what's the impact there. We do have really good regulatory programs in terms of our bad debt, and that has limited the impact so far this year, but it's something we continue to watch.
spk09: Okay, great. Thanks, guys, for your time. Cheers.
spk01: Your next question today comes from the line of Richard Sunderland with JPMorgan. Please proceed with your question.
spk04: Good morning. Just following up real quick on the COVID impact question. One, are there any items specifically included or excluded from that $0.05? It just stated for $0.21. And then two, any regulatory proceedings that could impact that number?
spk05: Thanks for the question. Let me start with the regulatory. At this point, we're not pursuing any additional regulatory items that would impact that number. Obviously, if there were any significant changes in our outlook that we could pursue regulatory mechanisms, we would. And so what we've got baked into that five cents is based upon the programs that we've got in hand right now. And the second question, I'm sorry, I missed that.
spk04: Just any specific COVID-related items that are, you know, I guess really excluded from that impact or just kind of definitionally anything that, you know, might see the COVID impact but wouldn't actually be included in the file sense?
spk05: Now, for us, we're really tracking sales impacts, bad debt expense, other fees that we might collect from customers and any kind of cleaning and safety expenses. Those are the key categories that we're tracking.
spk04: Great. And then I just want to dig into the O&M on this quarter a little bit. The O&M results seem strong. I'm just curious if you can quantify one-off savings versus savings expected to recur in 2021.
spk05: I'd say most of the savings that we've had this year are temporary reductions in programs that we've slowed down non-safety programs that we've reduced or slowed down or stopped this year and so i'd say they're more temporary expenses as we look forward and thinking about our nice horse next program that program really is driven to or designed to drive long-term lower costs through 2024.
spk04: And just to follow up real quick on that too, the savings from that program really aren't driving results currently and wouldn't necessarily be a significant driver in 21. Is that fair?
spk05: I'd say the NYFIRST-NEXT programs aren't driving significant results yet in 2020, but will drive impacts in 2021 and beyond.
spk04: Great. Thank you.
spk01: Your next question comes from the line of Dheerajesh Chopra with Evercore ISI. Please proceed with your question.
spk02: Hey, good morning. Most of my questions have been answered. Just one big picture. Can you talk about hydrogen? And a lot of your peers are doing some test projects. Obviously, you have extensive assets in gas LDCs. Maybe just what your view and outlook is there And, you know, are you going to be collaborating with others or projects of your own as it relates to blending hydrogen into your gas system?
spk06: Thanks, Durgesh. That's something we're closely monitoring. It's not yet part of our investment plan and our programs, as we've outlined, are driven by safety asset modernization and growth programs as well as our renewable transition on the electric side. But as we look forward at the role of natural gas in a decarbonizing economy, we certainly see opportunities both for increased renewable natural gas and for hydrogen blending. So it's an area we're watching. I would expect to see more information on that, more insight on that in terms of additional investment opportunities. in in the future but at this time it's what i would consider something that we're closely monitoring and very well positioned the other thing i'd stress there is you know one of the things that's always a key factor is just the fundamental economics of supply and demand and you look at our territories where we sit across a shale belts and the low basis cost and low volatility has really not been conducive to introducing much renewables or blending alternative fuels. But if you kind of flip that over, it also creates quite a bit of headroom for those kind of policies as we look forward. So we're very bullish on natural gas going forward in both environments, the current environment and a decarbonizing environment, because we have such strong fundamentals to work from across our territories.
spk02: That's helpful, Joe. Thanks a lot. Maybe just one quick follow-up on the insurance proceeds in Massachusetts. Just any update there and maybe a timeline that you could, you know, when to expect anything at all.
spk08: Yeah, thanks. This is Sean. No update from what's reported and no anticipated timeline. We're still working through that process.
spk02: Understood. Thanks, Sean. Take care, guys. Thanks, Degashe.
spk01: Your next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.
spk06: Good morning. You know, all my quarterly questions and guidance questions were answered. Let me, if I could follow up on a question I asked at your investor day a month ago. And the question was, you know, concerning the election prospect, you know, what would happen if we had higher corporate income taxes? What would happen if we saw restrictions on taxes? cracking that caused natural gas prices to go up, and I got some great answers from Joe Yu and Donald Pablo, so it was really good. But since then, we've had a debate where one of the candidates has indicated they'd like us to eventually get out of gas. And as somebody that owns an electric or a combined utility, electric and gas, in northern Indiana, a place that gets really, really cold in the wintertime, I mean, I look at the economics of, I mean, I would assume air source heat pumps aren't going to work there in full day. And you're basically dealing with electricity heating. And even with all due respect to MIPSCO's low electric rates, electric heating is going to be really expensive. But my question is, as somebody that owns the electric utility in that area, Do you even have the capability, BTU-wise, to deliver the kind of BTUs that are needed on a really cold day with electric in northern Indiana? Is that even feasible? And I guess my question would be the same for, obviously, you don't own the utilities there or have the generation assets in Ohio and Pennsylvania, but my question would be similar. Wouldn't we be struggling to deliver the BTUs at your gas utilities? currently provides in really cold weather? Yeah, Charles, thanks for your question there and for the follow-up from the Investor Day question because it's an insightful question. If you really look at the energy requirements on a peak day in the winter, especially you look at our territory, and we're a good testbed for that in NIPSCO because we're on both sides of that. We're both electric and gas. We see the full customer demand profile. both winter peak and summer peak. And it's a very insightful question, even as you perhaps decarbonize the grid and with renewables and therefore decarbonize the energy equation, you still have to serve that peak winter day or those peak winter days. And there are scenarios where you could imagine the gas system as the battery or the storage system for those kind of peak days. But certainly as it's currently configured, at least across the territories that we're familiar with, electric grid itself, not just the supply component, but the grid itself may not be well positioned to serve those kind of peak days. So there's a lot of engineering to be done to really see your way through to a world without natural gas. And we think the better question is how do you position natural gas with renewable natural gas, potential hydrogen blending to decarbonize the gas stream itself as a part of the strategy for meeting customer requirements and providing resilience when you have multiple fuel sources. So it's a complex engineering question. The economics of it are challenging. And it's an insightful question that you raised. There have been studies about this that actually converted the grid modernization required to a cost per ton of carbon avoided if you did renewable energy and upgraded the grid. And it's a pretty significant way to avoid carbon, a high-cost way to avoid carbon in most of the country, particularly in the areas that we serve. So I would assume you're trying to demonstrate to the regulators as well as policy people in government how the feasibility of this electrification mandate really is not feasible in your service. areas as they are maybe in some milder climate where we're seeing them. Is that what's going on? Yeah, I think it's not such an absolute thing. I think it's really a more complex picture than that in terms of what's the best role for natural gas, what's the best role for electric renewables, what's the best energy delivery system for the needs of our country. And so I don't think it's a yes-no question for gas. I don't think it's a an all electrification solution either. I think we've got to solve this with the resources that are available to us to make sure that we keep our economy viable and rely on the resilience of the supply basin that we have. Okay. And I ask this because, you know, as an analyst, it seems to weigh on not just you, but, you know, your company, some other utilities in the natural gas distribution that's bought. or this discussion of electrification. And I guess I'm just having, I'm struggling making it work economically or technically in the colder climate. Yeah, I agree with you. There's a lot of work to do to help inform that perspective, and we think we're well-positioned to help do that. Okay. Thank you. I appreciate that. That's all I have. Thanks, Charles. Have a good day.
spk01: Our next question comes from the line of N.C. Kim with Goldman Sachs. Please proceed with your question.
spk09: Thank you. Just one quick question from me. I think you talked about in the slide that in the third quarter you lowered your average interest rate by over 60 basis points. How much of that dropped to your bottom line, and was that type of refinancing and lowering of the rate embedded when you gave your longer-term guidance?
spk05: Yeah, good morning. Great question. When you think about that financing, it did lower our long-term financing costs. It is embedded in our guidance for 2021 and beyond. And so it's embedded in there and does provide savings for us going forward.
spk09: Got it. And how much of that is more you get to keep the savings versus more the utilities? I just haven't gone there.
spk05: Well, I'd say that's a little bit more complex because we do finance our utilities separately than when they need cash. That savings doesn't necessarily drop to the utilities. Their financing is done over the course of the year, not necessarily when we actually go out to the external market to finance. And that's why I think just think about it from a standpoint of, that those dollars and those savings are embedded in overall NYSource guidance and financing plans.
spk09: Got it. And I know I said one question, but just one additional one. When we think about your gas utilities, and I think in Virginia and Maryland, the revenue decoupling at the residential side. So when we head into this winter season, any of the benefit that you're seeing on the demand for our residential, that'll get decoupled away is your point. And part of that was, you know, embedded when you gave your five cents over overall impact for 2021.
spk05: That is correct.
spk09: Got it. Thank you.
spk01: And again, ladies and gentlemen, if you would like to ask a question, please go ahead and press star then the number one on your telephone keypad. Your next question comes from the line of Andrew Levi with Hype Hedge. Please proceed with your question.
spk06: Hey, guys. Can you hear me? We got you, Andy. Perfect. So just to follow up on Julian's question, so You know, on your analyst day, you definitely threw out and you kind of, you know, threw it out again today, the possibility of selling, maybe it's an LDC, selling some assets, whatever it may be. And so I guess my first question just around that is, you wouldn't really bring that up unless it was a real possibility. Is that correct? So our messaging hasn't changed at all from analyst day. You know, we've got a track record of evaluating and executing on structural changes when that makes sense. The separation or spin of the pipeline business, the sale of CMA are good examples of that. And our financing plan, as we said on investor day, does not assume any portfolio changes. But our point is that we always evaluate the portfolio as a matter of normal course, to make sure that we're doing what's in the best long-term interest of shareholders and in the most credit-supportive way. So, just want to reiterate, that's the key message. That's what we're conveying. And what would the process be as far as doing that? Meaning, obviously, you have to hire a banker, do all that type of stuff, but... Just can you kind of talk at a very high level, you know, what you're thinking about specifically on that?
spk09: Because it is, you know, a event that would be significant to your company, even if it's a small LDC and obviously not having to issue as much equity and kind of the puts and takes around that, just be a little bit more specific, please.
spk06: Yeah, and we're not going to speculate about, you know, particular scenarios or anything like that. It obviously involves evaluating the impact of the loss of earnings in cash flows, as well as any cost of synergies that we'd have to manage as a result of a transaction like that. And all of that, as you all know, can influence credit and the earnings trajectory. So we look at the long-term value drivers for the business, and we look at the contribution of each of our companies toward that. And we look at the alternatives anytime we're looking at equity issuances. Do you guys think there's a strong market out there for smaller LGCs? Don't really know. Okay. And are any of your subsidiaries not earning their allowed return? Now, all of our, we've got really constructive regulatory support in all of our states. We expect all of our and have seen all of our companies earn if they're allowed return. Of course, we've had the recent sale of CMA, but that's a different profile. Right, right. And last question is, what is the timing on making the decision here?
spk09: Is it kind of in step with the equity you have to issue next year or the hybrid you have to issue next year?
spk06: No, we haven't set any timetable for that. Okay, gotcha. Thank you very, very much. Thanks, Andy.
spk01: And this concludes our question and answer session for today. I now turn the call back to Mr. Joe Hamrock.
spk06: Thank you, Amy, and thank you all for joining us today and for your continued interest in and support of NYSource. Please stay safe and make it a great day.
spk01: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
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