Eversource Energy (ES) Earnings Call Transcript & Summary

Very, very happy to have from the mean street -- is it the mean streets of Bedford?

Boston. Mean streets of Boston. [indiscernible] streets.

So Eversource CEO, Joe Nolan. Joe, why don't you kick us off with 5 minutes kind of summary on the company. You've had a lot going on. A lot of recent progress. So talk through that, and then we'll...

Great. Well, thanks, Steve, for having me here. I'm Joe Nolan. I'm the CEO of Eversource Energy in Boston. We have the best service territory probably in the world. We serve all the hospitals, universities. We have a lot of the defense contractors. We serve from the Canadian border to the New York border. We are able to ride through very difficult times in our area because we have such a blue-chip base of clients. We did experience some challenging times with the regulatory climate in Connecticut. A year ago, the governor -- everybody was fired on the commission. We have 5 new commissioners, a very stable environment. But we've been really focused on getting back to basics. We are a pure-play pipes and wires company, strictly regulated. We have exited the wind business. I'm pleased to report that last week, the final wind turbine was installed. So 65 out of 65 turbines are installed. And our partner that's constructing it, Orsted, has stated that we will be COD by the end of the year. So we're very excited about that. In addition to that, we did have a water business. People always like to ask me to say water because they make fun of my accent. But we did have a water business, Aquarion Water that -- I had some challenges on the sale of that with the previous regulatory commission. But I'm pleased to report we did sell that at $2.4 billion, $1.7 billion of cash came in. And that was very pleasing to the rating agencies, 3 rating agencies, all of them gave us upgrades. And so we're very pleased with our credit metrics. We've got a nice cushion in there now. We're not worried. We were owed over $1 billion in Connecticut for storm costs, and I'm pleased to report that we achieved 96% of our ask. We still have an opportunity to get the remaining $40 million, but we did get $960 million in storm cost. We filed last Friday the securitization plan for that. And so that cash will be coming in the door. So that's another significant opportunity. That's a great tool that we have in Connecticut. We also have it in New Hampshire. We wrote about $500 million in storm cost in New Hampshire. And that money, we'll get that probably within about a year. That's a little bit further behind the Connecticut. So again, additional cash. It is over $1 billion in cash coming in the door. So we're very, very pleased with that. In terms of opportunities, we have a 5-year capital plan of $26.5 billion that we've shown everybody here. But in addition to that, we just won last week a project with Iberdrola to build a line up to Canada. This is in our regulated space. That line is $2.2 billion. $700 million of that is ours. So we're very pleased. That will be added to the plan. In addition to that, we have an opportunity, we're working with our regulators in Connecticut for AMI. That's a $1 billion opportunity, not in the plan. We're working through to make sure that we can get timely recovery, and we feel good about that. So the Eversource story is a much better story today than it's ever been. We do have a rate case right now in Connecticut with Connecticut Light & Power. We are in there, very productive dialogue with our regulators and with PURA. We will start hearings in February, and we are very optimistic about that outcome. The last piece, I know, is probably on all of your mind is the FERC issue. And the FERC did come out with an order that we've been waiting for 13, 14 years. It was an order that we think has got a lot of flaw in it. But we will see a new rate. We filed our 205. We'll see a new rate by November 30, effective billing on December 1. So we're optimistic that will be a good number because we basically use the same formula that FERC used to apply a very low rate. As you know, money in 2012, 2011 was practically free. It's not free today. I think we know how much that's costing and impacting our business. So with that, I'll stop, Steve, and we can go where you want to.

Yes. No, that's great. Maybe we could start with Connecticut because it would be great to get a little more color on just the change in the environment there, how much of a difference that's making as you go into this case, why you feel so confident in a productive case there? Just more color on changes in Connecticut.

Yes. What we're pleased at is the commission has gone from 3 commissioners to 5 commissioners. These are 5 professionals. Everybody in the space is a professional. Two of them are former legislators that worked on the Energy and the Environment legislative committee. They know the business very well. We have a good relationship with them. Another one was a former investment banker, Everett Smith, understands regulated business, and he's very engaged. And then we have the Chair who came out of the Consumer Counsel's office that we've had a working relationship for many years. What's different today than it was from before is that all 5 commissioners sit on the bench. All 5 commissioners engage in the dialogue. There's a lot of give and take, and we're able to have this dialogue. And then the final commissioner is a woman that has taught at NARUC for many, many years. So she understands the regulatory environment. She understands the regulatory rules. So we're not going to get the types of surprises that we've gotten in the past. This is a stable regulatory body that's engaged. The other thing I will tell you is that they're very interested in investments. And if you look at the state of Connecticut, when we took over that utility, it used to be 12 months between interruptions. That means a customer would see an interruption every 12 months. Today, it's 24 months between interruptions. So we're operating a top decile utility. And then just this past weekend, we had those storms that rolled through and I never thought it would end. It just kept going from Friday night all the way through. And we just kept getting all of these different items. But I will tell you that all the feedback from folks in all 3 states was they cannot believe the work that we did to keep things on. And that's what's important. I mean that's my business. I grew up in the business. I worked to start on regulatory affairs. I know -- you're going to make sure that regulators in your communities are happy. And I will tell you that all of the feedback and the response and the collaboration, it went a long way.

And then maybe just on the -- part of it has also been kind of just like political noise, governor noise, things like that. How are you feeling about the elections, Connecticut, Massachusetts and just -- I guess, with a more professional commission that maybe kind of makes that a little less critical, but it would be good to get more...

As I said to Governor Healey and Lieutenant Governor Driscoll in Massachusetts last week, it's only 37 more days to go, Governor. There's obviously in an election year, you got 3 governors that are running. They're in this space. But at the end of the day, all 3 of them are going to have a victory, there's no question about it, double digits in every space. We have good relations with all of them. As much as you might hear them maybe take a whack or a knock at us or me or at certain things, I will tell you if I had $1 for every time they say, "Hey, nothing personal, Joe. You know you're our friend." But they have to do that. Obviously, they're getting attacked, utility issues are front and center. Rates are front and center. But all that noise in 37 days, you're going to see the volume is going to go right down and you won't hear much of that.

So that will be helpful into the rate case in Connecticut as well.

Yes, for sure. And I think we can get back to the days where we're able to collaborate. Like as I used to say to the governor, I'd say what's good for you is good for me. Like we don't want any light shining between us in terms of priorities. If something is important to you, we're going to make it important to us. So let's collaborate because as a matter of fact, we just talked with the governor in Massachusetts. She's frustrated with the legislature. She wants to get some things done. And what does she do? She called us to collaborate. What can we do to bring reductions to customers. She wants to work with us. And that's what we're used to working. That's the way we're used to working.

Okay. And then maybe just on the FERC issue and the ROEs. So there's -- you're filing to bring the ROE back up to reflect higher cost of capital. But then there's also this refund piece. And I guess there's periods where maybe you could try to settle with parties or not. I don't know how willing they are. But just how do you think this plays out? Does this just go to a commission decision? Do you think there's opportunities to try to settle out both those issues?

Yes. I mean, as you know, there's no really better utility than kind of settling. That's what we do. We're always looking for win-wins. But I will tell you, on this particular situation, you're talking about a point in time where none of the current parties involved were there. So it's hard for them to kind of understand what we're dealing with. But I will tell you that I think the first step in this will be what is the rate going to be? What will they come up with and they have to decide by November 30. So the good news for all of you is that you don't have to wait a long time. You've got November 30 for FERC, you've got the Connecticut Light & Power case, which is going to be draft decision in May. You have got COD on our wind. All this uncertainty that you've been experiencing over the past 2 or 3 years, like it's upon us now. I mean the storm clouds have passed. So I think the thing that's going to happen here is we're going to get a rate. You know it's going to be a lot better than 9.57%. If anybody is using proper calculations, it's going to be better than what they have proposed. So we're optimistic about that. Is that going to be enough of an opportunity to get the parties to the table? I don't know. But I will tell you this, you've got a court that is very aggressive in terms of wanting to resolve this. They have told FERC to get the record in and to certify the record and all the evidence this week. And so they had 30 days to do that. That hasn't moved at that type of a pace in a long time. We think we could have a final decision from the courts on this case as soon as August. And I will tell you that we feel very strongly that...

August next year.

August of '27. We feel very strongly that the FERC case is flawed because one of the things on your ROE and the test is it's a 2-part test. First is it just unreasonable, and they found it was not in 2014. But what they fail to recognize is that in 2017, the court -- and one of the judges that's on this current case is sitting on this new case. The one that took that order out, dismissed the case from 2014 vacated the order from FERC. So they don't have the first part of the test. They vacated the 2014 order. So the underlying first part of the test doesn't exist. So that's why we feel so good that this is significantly flawed. So we agree that they get a 15-month refund and we're going to do that. But this notion that they can get any longer than that is -- we don't feel is true. And all we did, we like to say to folks, what's good for the goose is good for the gander. We took the formula. We applied it and then we came out with this rate of 11.37%. So it's going to be interesting. But again, we're ready to sit down at any time and try to work this through. There might be a way that we don't need to accept this higher rate, but let's talk about the retroactive treatment that I think is very unfair.

Maybe switching gears to the capital plan. You mentioned the AMI in Connecticut. So maybe we could talk a little bit about the status of that. But just overall, I assume given back a year or 2 ago with that commission, you were probably holding back capital from what you would otherwise do, wait for the rate case, whatever. But if you're in a more normalized environment, like what are other opportunities, there's the AMI. Are there other things that you could be doing that we could see that you had to, kind of, hold back because you weren't getting recovery?

Sure. Yes, we have plenty of opportunities. We just shut the faucet off in Connecticut. Until we got paid our -- until we get the storm cost, we weren't going to put another dime down there. And then AMI, we see it's a 5-year program. We can get a tracker there. That's something it's front and center. We have a station, a substation down there. That's a key point of injection that we could bring renewables in. We could make that a clean energy hub in Connecticut if we start to see the environment change there and we're excited about it. As you know, we bought from Joe Dominguez at Constellation, we bought 26 acres in Boston that allows us -- that has 2,400 megawatts of switchgear and import capabilities that we now own we can inject in Boston. We have another site in Boston. So there's no shortage. And this AMI, it's unfortunate because AMI in Connecticut was only going to cost probably $750 million to $800 million. Because of these delays, now the cost is going to be $1 billion, totally unnecessary, but this is what takes place. So we feel we're in a good place. We'll get the securitization. We'll get that money in the door. We'll get our rate case, and then we'll get our eyes on how we can recover this $1 billion. We're not going to get ourselves in the same situation we got ourselves in with storm costs, where we will wait. We're not waiting. We're going to stay very close to it. And if there's a little blip, we're going to stop. AMI is a couple of things. First is the new billing system. That's a big item. Put that in, make sure we're staying up with the recovery. So I guess to answer your question, AMI is a good opportunity in Connecticut. We've got this clean energy hub in Connecticut where we can make some investments. Those are things I can think of right off the bat. And then if there's other things they want, we're trying to tell them they should put $60 million additional in the storm fund. It's funny, Everett Smith. He gave us -- we had some overcollection. He wanted to put $200 million and the rest of them up with $100 million, but he already understands the importance. He wants to give us $200 million to prefund that. So that was very, very good news. And then we have other things in there for reliability and tree trimming. We want to spend an additional $16 million. They don't want to spend it. It's not going to have any impact on our bottom line. We just think it makes sense.

Yes. I'm going to open up for questions in a minute, but maybe just on power supply in New England, how are you feeling about that? And I know there was supposed to be something, I think, later this year on Millstone and the like? Is there any update on whether you'd be able to keep accessing that?

Sure. Yes. I mean I'm very pleased with ISO New England. If you look at ISO New England compared to PJM, we don't have the volatility. And we like it that way. I am anti-data centers. I don't like data centers. I get friends and everyone calling me, they got -- I said we're not interested in the data center. We've got such growth opportunities with electrification in our territory that we don't need to have this volatility. I mean we have a finite amount of generation in the region. I'm not going to go give it to a data center that's going to employ 1 person and a dog. I'm not interested in it. I want to get somebody that's going to employ 200, 300, 400 people. It's going to be sustainable. It's not going to create volatility in our marketplace. So I may be an outlier on that, but the fact of the matter is that's what's good for our customers. And if it's good for our customers, then that's what I'm going to do. I will tell you the other thing that's happened last year, which I was thrilled with. We injected 1,100 megawatts from Hydro-Quebec, clean energy, okay? 1,100 megawatts of hydropower, unbelievable, into the ISO New England grid. We injected 800 megawatts from Vineyard Wind into the grid, and we injected 704 megawatts from Revolution. That's 2,600 megawatts of new power coming into ISO New England. And I will tell you, offshore wind at a 50% availability factor is a game changer for us, especially in these winter months. And it's having a positive impact. You're not seeing these price spikes in the region. We have an opportunity. We're taking in from the RARE project with Enbridge gas coming into the region, and that's designed at getting off of LNG. As I like to say to folks, you don't build a church for Christmas and Easter. And so what we have to do is store liquids in the region for these winter months. But the fact of the matter is it's very expensive. It's Dom Perignon champagne. So we have to get off of that. So the Enbridge line is going to allow us to get off of the LNG. That's going to reduce prices for customers. So we are really blessed. We've got facilities in Waterbury. We have 2 massive facilities in Massachusetts around -- these are our own LNG. So we're not going to be dependent on a third party. So all we're working on right now is keeping a very stable energy environment in New England. So we don't see the volatility. We don't see the price spikes and we help our customers. With regard to Millstone, listen, maybe when this election is over, obviously, we've got a merger going on. And that merger would have that one owner of 2 units in New England. So we need to take a good look at that.

Well, let me open up to questions from the audience.

I guess why don't you just talk about Connecticut. I know [indiscernible] carrying cost, which to me like as a utility investor was disappointing, but I understand that maybe there's a new thought process that they're working through. But just what evidence like can you really give us about like how -- have you had meetings with them? Like just what evidence can you give that you really think you're going to get a fair outcome here?