Eversource Energy - Q2 2023

Transcript

Operator (participant)

Hello everyone, and welcome to Eversource Energy's Second Quarter 2023 Earnings Call. My name is Emily, and I'll be coordinating your call today. After the presentation, there will be the opportunity for any questions, which you can ask by pressing star followed by one on your telephone keypads. I'll now turn the call over to our host, Investor Relations Director, Robert Becker. Please go ahead, Robert.

Robert Becker (Director for Investor Relations)

Good morning, and thank you for joining us. I'm Bob Becker, Eversource Energy, Director for Investor Relations. During this call, we'll be referencing slides we posted yesterday on our website. As you can see on slide one, some of the statements made during this investor call may be forward-looking. These statements are based on management's current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. We undertake no obligation to update or revise any of these statements. Additional information about the various factors that may cause actual results to differ, and our explanation of non-GAAP measures and how they reconcile to GAAP results, is contained within our news release, the slides we posted last night, and in our most recent 10-K and 10-Q.

Speaking today will be Joe Nolan, our Chairman, President, and Chief Executive Officer, and John Moreira, our Executive Vice President and CFO. Also joining us today is Jay Buth, our Vice President and Controller. Now, I'll turn the call over to Joe.

Joe Nolan (Chairman, President, and CEO)

Thank you, Bob, thank you everyone for joining us on this call this morning. I hope that you're all having a good summer and can take some time off after earning season. Today, we'd like to update you on our commitment to deliver value to our customers, to achieve important objectives on both ESG and diversity, and our progress to close out the offshore wind sale process. Starting on slide three, here at Eversource, we are working tirelessly to deliver energy and clean water safely and reliably to our 4.4 million customers. Our steadfast focus on serving our customers well continues to deliver superior results in all aspects of our businesses in Connecticut, Massachusetts, and New Hampshire. As you can see from the bottom of this slide, investments we have made over the past decade are greatly benefiting customers.

The average, average months between interruption and has increased significantly from 12 months in 2011 to nearly 20 months at the end of 2022, in over 2 years through the first half of 2023. As a result, this high performance level puts Eversource's reliability in the top decile compared to industry peers. In addition, when an outage occurs, the average duration experienced by customers has improved dramatically. Our relatively short average duration of outages also puts Eversource in the top decile compared to industry peers. This top decile level of reliability is the result of years of investment in the states in which we operate, the dedication and the hard work of our skilled employees. Turning to slide four on the energy supply slide of our customers bill. We're pleased that our customers have experienced some improvement in supply pricing in New England.

Challenges due to natural gas supply constraints because of the war in Ukraine and the global market dynamics led to last winter's historically high energy prices here in New England. This summer, natural gas prices have moderated nicely, and we're seeing much lower electricity prices as a result. In Connecticut and Massachusetts, new supply rates went into effect on July 1st and will remain in place through the end of the year. Supply rates for residential customers in Connecticut and Massachusetts decreased approximately 40% per kWh from January of this year to July 1st of this year. In New Hampshire, residential customers will see a decline of approximately 40% per kWh in the supply rate, effective August 1st.

As a reminder, we purchase power on behalf of our customers in accordance with guidelines set by our state regulators. We do not earn any profit from this portion of our customers' bill. We are very pleased that our customers have seen some cost relief this summer, as it helps to offset customers' usage that is much higher in the summer than in the winter. While 2023 prices have come down in recent months, we expect another seasonal increase in supply prices for this coming winter. Therefore, we remain focused on our industry-leading energy efficiency programs. We're continuing to engage with policymakers to discuss long-term solutions. To that end, in June, senior leaders actively participated in the FERC-sponsored forum in Portland, Maine, on gas and electric reliability matters.

The topics discussed include retaining existing natural gas infrastructure and new electric transmission infrastructure, needed to connect onshore and offshore generation and other renewable energy resources. This was a very well-attended meeting that included all four FERC commissioners and the state energy policy leaders from across New England. We look forward to continuing the engagement with FERC and other key stakeholders, to continue to advance this energy resource challenge for New England. Turning to slide five. In June, we posted on Eversource's website our 2022 sustainability report, along with our standalone diversity, equity, and inclusion report. These publications highlight our commitment to leading environmental, social, equity, and governance practices. We continue to make strong progress towards our 2030 carbon neutrality goal, with a quarter of the emissions already cut from our baseline year of 2018.

To continue progressing toward this target, we're focused on five key sources of emissions: line loss, natural gas leaks, energy use across our facilities, fuel use by our fleet, and releases of sulfur hexafluoride, that is used as an insulator in electrical equipment. The many initiatives we have implemented to drive emissions down are showing results. In fact, from 2021 to 2022, we've seen a 15% overall emissions reduction. These efforts have ranged from enabling more capacity for renewables on the grid, to replacing aging, leak-prone natural gas pipes, to investing in hybrid vehicles and procuring renewable energy for our buildings. We're also pursuing innovative solutions, such as a pilot project featuring a first-of-its-kind sulfur hexafluoride-free breaker used in our electric system. We continue to explore solutions that will enable a decarbonized heating sector.

These include our geothermal pilot in evaluating the potential to replace natural gas with low or zero-carbon molecules. As many of you know, we're also expanding our emission reduction efforts through the commitment to adopt an ambitious science-based target. Committing to a science-based target is a best practice that places us among a handful of industry leaders in the U.S., and we plan to have our targets submitted by 2024. Turning now to our clean energy effort. In 2022, we invested nearly $800 million in clean energy, including offshore wind, battery storage, electric vehicle charging, and first-of-a-kind utility-scale network, geothermal energy pilot in Massachusetts. Although we announced our plans to divest of offshore wind assets, Eversource remains committed to supporting the development of important regional clean energy solutions.

Slide six reflects the many clean energy initiatives underway in Massachusetts to enable the clean energy transition. As you can see on this slide, Massachusetts has a constructive regulatory framework that will facilitate over $2 billion of clean energy investments over the next five years. This includes approximately $200 million of FERC-approved transmission projects that would enable offshore wind generation to interconnect to our grid. We could potentially see an additional $350 million of transmission investment when Massachusetts issues its next RFP for additional offshore wind generation. Certainly, we can expect this transmission interconnection need to grow as additional offshore generation is procured for the region. We continue to emphasize the need for system investments to support increased electrification and distributed generation, to help ease the current reliance on natural gas generation in the region.

Here at Eversource, while we're focused on enabling clean energy transition, we're also focused on enabling an equitable transition. This means protecting communities, industries, and people that are at risk of being disadvantaged in the clean energy transition. Moving to offshore wind. As you see here in slide seven, we continue to make progress in the development of our offshore wind projects through our joint venture with Ørsted. We recently achieved some major milestones with the South Fork Wind project. Construction of the project's U.S.-built onshore substation and transmission cable is complete, and the installation of the offshore substation and the subsea transmission cable were recently completed. Additionally, wind turbine pre-assembly is underway in New London, Connecticut, and installation of offshore towers will begin soon.

South Fork Wind is on track to become the nation's first completed utility-scale offshore wind farm in federal waters, and will soon deliver enough clean, renewable energy to power nearly 70,000 homes. We continue to make good progress on our Revolution Wind project. On July 17th, we received the environmental impact statement from BOEM, setting the process for our record of decision and construction and operations plan approvals over the next few months. In May, we announced the sale of our uncommitted lease area to Ørsted for $625 million in an all-cash transaction. Last week, we received federal approval on the lease transaction, clearing the way toward a closing. We are now working on finalizing the transaction for the sale of our interest in the three development projects. We have substantially completed the due diligence phase and commercial terms on this transaction.

We are now truly near the goal line of wrapping up this deal. We are now working through the various agreements needed to complete this transaction and expect to make an announcement soon. Moving to slide eight. As you can see here, the expected spending and in-service dates have not changed for the three offshore wind projects. What has changed is that our procurement costs for the three projects are now at 93% as we are getting close to commencing construction activities on Revolution Wind. John will discuss the path forward toward our sale of these projects, as well as some visibility on the impairment charge on the offshore wind investments. In closing, as we continue our focus toward enabling a clean energy future, our nearly 10,000 employees and I have one goal in mind: to serve our customers well.

That means making sure we understand our customers' needs, continuing to provide reliable and safe service, and making the necessary investments to deliver energy and clean water today, tomorrow, and for the years to come. We've made a commitment to make the appropriate investments to enable the transition into clean energy future. I couldn't be prouder of the effort that the Eversource team performs every day, and I look forward to the future with great excitement. Thank you again for your time, and I will now turn the call over to John Moreira.

John Moreira (Executive VP and CFO)

Thank you, Joe. Good morning, everyone. Today, I will review our results for the second quarter of 2023, including our offshore wind impairment charge. I'll also discuss our recent offshore lease sale transaction, give you a status update, and review our 2023 financing activity. Let me start with slide nine. Our GAAP earnings were $0.04 per share in the second quarter of 2023, compared with GAAP earnings of $0.84 in the second quarter of 2022. As we announced in May, based on our completion of the offshore wind strategic review and the status of the pending project sale process, the results for the second quarter include an after-tax impairment charge of $0.95 per share related to Eversource Energy's total offshore wind investment. I will review details of this impairment in a few minutes.

Results for both years include transaction and transition costs related to the acquisition of Eversource Gas Company of Massachusetts and other charges that totaled $6.2 million in the second quarter of 2023, compared with $5.5 million in the second quarter of 2022. Absent these charges and the offshore wind impairment, our recurring earnings were $1 per share in the second quarter of this year, compared with $0.86 in the second quarter of last year. Looking, looking at some additional details on the second quarter recurring earnings by segment, starting with our electric transmission segment, which earned $0.46 per share in the second quarter of 2023, compared with earnings of $0.44 per share in the second quarter of 2022.

Improved results were driven by our continued investments in Eversource's electric transmission system to maintain high reliability performance for customers. Our second quarter 2023 electric distribution earnings were $0.47 per share, compared with $0.37 in the second quarter of last year. The improved results were primarily due to higher revenues, mainly from base distribution rate increases at NSTAR Electric, an expected favorable regulatory decision in New Hampshire that provided the recovery of previously expensed costs, and lower O&M as a result of lower storm restoration costs. These benefits were partially offset by higher interest expense, depreciation, and property taxes. Our natural gas distribution segment earned $0.03 per share in the second quarter of 2023, compared with earnings of $0.02 in the second quarter of last year.

The improved second quarter results were due primarily to higher revenues from capital tracking mechanisms supporting our continued investments in Massachusetts natural gas infrastructure, as well as lower non-tracked O&M expense. These benefits were partially offset by higher depreciation, interest, and property tax expense. Moving on to our water distribution segment that earned $0.03 per share in the second quarter of this year, really at the same level that we earned in the second quarter of last year. Eversource Parent and other companies' earnings were $0.01 per share in the second quarter of 2023, compared with flat earnings in the second quarter of 2022, excluding the offshore wind impairment charge and the transaction and transition charges, as I previously discussed. Improved second quarter results primarily reflect a lower effective tax rate.

The residual benefit of a disposition of Eversource's interest in a clean energy fund, partially offset by higher interest expense. Turning to slide 10, to further expand on what Joe covered on the sale of our 50% interest in approximately 175 acres of undeveloped, uncommitted lease area to Ørsted for $625 million in an all-cash deal. We have executed a letter of intent with Ørsted to use a portion of the proceeds from the lease area to provide tax equity to South Fork- to the South Fork project, through a new tax equity ownership interest, that we are finalizing the terms of this new agreement as we speak.

On July 27th, we received approval from the Committee on Foreign Investment in the U.S. or CFIUS, that allows us to close on both the lease area as well as the tax equity investment in South Fork later this month or early September. As part of completing our offshore wind strategic review, Eversource evaluated its aggregate investment in the contracted projects, the uncommitted lease area, and other related capitalized costs, and determined that the carrying value of the offshore wind investment exceeded its carrying value. The current estimate of fair value has been based on the sale price of the uncommitted lease area, the expected sale price of Eversource's 50% interest in the three contracted projects based on the most recent deal pricing, investment tax credit qualifications for potential adders, and the expectation of a successful repricing of the Sunrise Wind OREC contract.

As a result, Eversource recognized an after-tax impairment charge of $331 million or $0.95 per share in the second quarter of this year. This charge will not have any impact on our cash flows from operations. We have made good progress on advancing the sale of our existing 50% interest in the three contracted offshore wind projects. As Joe mentioned, the due diligence phase is now substantially complete and behind us. We are advancing the transaction documentation. This process is complex, with multiple agreements that must be completed at the same time, such as a replacement joint venture agreement. We recognize this process has taken a bit longer than expected. We are not going to rush through this documentation phase. It's important for us to have all agreements in a good place.

With that said, we continue to remain focused on completing the final phase of this process, once again, as Joe mentioned, we expect to announce the transaction soon. As a reminder, our total offshore wind investment, after accounting for the impairment charge, is approximately $2.1 billion as of June 30th of this year. Turning to slide 11. We are maintaining our full-year guidance of $4.25-$4.43 per share, with a somewhat different quarterly earnings profile from 2022 due to a rate change, as I previously discussed in our first quarter call. As a reminder, the rate design change at NSTAR Electric became effective at the beginning of this year, which eliminated higher summer, summertime demand charges.

This change shifts $0.08 per share of after-tax revenues out of the third quarter and into the first and fourth quarter in roughly equal $0.04 per share split. There is no impact on the rate design change on the second quarter or the full-year results. In addition to reaffirming our long-term EPS growth, growth rate solidly in the upper half of the 5%-7% range, we also reaffirm our $21.5 billion five-year regulated capital program that we shared during our February earnings call. Capital expenditures has totaled about $1.98 billion in the first half of 2023. Moving to slide 12. Here, we highlight several factors that we expect will contribute to an improvement in cash flows in 2023 as compared to 2022.

We expect an improvement over last year's in the ratio of funds from operation relative to total debt levels. Items we are highlighting on this slide include absence of 2022 one-time cash outflow items, net proceeds from the sale of our offshore wind investment, both the projects and the lease area, that will be used to lower debt balances, monetization of South Fork Wind investment tax credits, higher storm cost recoveries, and distribution rate increases, and the remaining equity issuance that we have discussed.

... you are all aware, over the past several years, we have experienced several significant storm events, having an adverse impact on our cash flows, with a sizable deferred storm balance in Connecticut alone, at approximately $900 million at the end of June. Our dedicated employees and the external contractor resources we depend upon to restore service to our customers safely and efficiently, which comprise the vast majority of the well, the level of deferred costs, do an incredible job working around the clock in these severe weather events. That does come at a cost. In terms of the year-to-date financing activity, please turn to slide 13.

As you can see here, in early May, we issued $1.8 billion of parent debt in three tranches at coupon rates ranging from 4.75%-5.45%. We retired $450 million of parent company debt. Our expectation is that debt issuances will be much, much lower in the second half of 2023. We have issued no additional equity under our ATM program through July of this year. We remain committed to completing the remaining $1 billion in our ATM program. In addition, we anticipate raising additional equity through our dividend reinvestment and employee incentive programs using treasury shares. Through July, we have issued 647,000 shares. Thank you very much for joining us this morning. I look forward to seeing many of you soon.

I will now turn the call over to Bob for Q&A.

Robert Becker (Director for Investor Relations)

Thanks, John. I'll now turn the call back to Emily to begin Q&A.

Operator (participant)

Thank you. If you would like to ask a question today, please do so now by pressing star, followed by the number one on your telephone keypads. If you change your mind and would like to be removed from the queue, please press Star and then two. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question comes from the line of Shar Pourreza with Guggenheim Partners. Shar, please go ahead. Your line is now open.

Shar Pourreza (Director and Senior Equity Analyst)

Good morning, guys.

Joe Nolan (Chairman, President, and CEO)

Morning, Shar.

Shar Pourreza (Director and Senior Equity Analyst)

Can you hear me?

Joe Nolan (Chairman, President, and CEO)

Yes, we can hear you [crosstalk].

John Moreira (Executive VP and CFO)

Good morning.

Shar Pourreza (Director and Senior Equity Analyst)

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

Joe Nolan (Chairman, President, and CEO)

Yeah. Well, thank you, Shar, and I want to thank everybody for their patience around this complex offshore wind, sale. You know, it's been very, very complex. It involves multiple agreements that all have to be aligned, and we want to be sure that we get the most money for our shareholders out of that exit. We remain focused on completing this transaction to the point we're not going to let John Moreira take any summer vacation until he has it all taken care of. Back on, on point here, you know, this region is so dependent on natural gas for electric generation, and, you know, that shift has to come.

It has to come in some form of an alternative, generation, and that's where wind, given the, the energy factors in this region, you know, you got a wind availability factor out there of 40, you know, 49%-50%. In the winter months, it's even greater when we peak. We feel very strongly that wind is going to play a major role as we transition, to this clean energy environment. You know, it, it performs especially well, for us and for our customers, so I don't see any, anyone taking their foot off the gas. The policymakers are very, very excited about wind, so I, I don't, I don't see that waning.

I, and I really feel the appetite for wind assets, although there's been a few that have decided not to go forward, there are... You know, as you know, we're out there very actively building. I was excited to get a lot of reports out of the foundations being installed for the new substation. You know, we will be the first offshore wind company in service in the fall, which is very, very exciting to me. You know, there are many parties that remain committed to offshore wind. Our offshore wind leases are very, very prized assets. They sit in an area that has all the fundamentals necessary to deliver, you know, great, you know, great wind speeds for any future buyers.

That's why we feel good that it will continue to, you know, to do well here. All in all, it, it's going to take place. It didn't take place, obviously, at the pace that all of us would have liked it to take place, but I just want to promise you that we are, we are here at the one-yard line and that we are getting it over the goal. I think, you know, some of the announcements that we made today should give you greater clarity as to how much we really know about this transaction, and that this, this really is the final stage. We're really focused on redeploying the proceeds for a debt paydown, and we're reaffirming our $1 billion equity issuance that we provided to you on the Year-end 2022 Earnings Call.

You know, for that reason, I'm very confident that we'll complete the deal, soon. Thank you again for your patience, Shar.

Shar Pourreza (Director and Senior Equity Analyst)

No, of course. Joe, Joe, I guess, are you comfortable with the current financing that's out there and the growth rate post this transaction? I mean, obviously, you're still dotting your I's and crossing your T's, but I think that's just-

Joe Nolan (Chairman, President, and CEO)

Yes, we are. We are, we are fully confident in that.

Shar Pourreza (Director and Senior Equity Analyst)

Okay.

Joe Nolan (Chairman, President, and CEO)

Yeah. We are.

Shar Pourreza (Director and Senior Equity Analyst)

Okay.

Joe Nolan (Chairman, President, and CEO)

We are fully confident in that.

Shar Pourreza (Director and Senior Equity Analyst)

Understood.

Joe Nolan (Chairman, President, and CEO)

There's, there's no change.

Shar Pourreza (Director and Senior Equity Analyst)

Okay, perfect. Just lastly, obviously, you know, you've highlighted this, this deal is taking a lot longer to get over the finish line, and there's, you know, obviously a lot of investor angst over the contingencies and, and downside exposure. I guess, can you just maybe elaborate what remains on the negotiation side? How much of this kind of falls on Ørsted, which is kind of out of your control, and do you see the contingencies as being reasonable at this point in the discussions as we're thinking about upside and downside? Thanks, guys.

Joe Nolan (Chairman, President, and CEO)

John?

John Moreira (Executive VP and CFO)

Yes.

Yeah, sure, Shar. This is John. Yes, I mean, there, there are, as Joe mentioned, and I mentioned in my-.

Shar Pourreza (Director and Senior Equity Analyst)

Okay

John Moreira (Executive VP and CFO)

... formal remarks, there are, there are a multitude of agreements that needs to be executed, right, in conjunction with our purchase and sale agreement, some of which we do not we, we will not be a party to. So those... We will help facilitate those working with the buyer to make sure that they get to a good, a good place with Ørsted. As far as the contingencies, you know, what's on the table right now, and we're not here to disclose those components because we do not have an executed agreement, but I think we feel comfortable with that we can manage those well with Ørsted.

There's both, you know, they, you know, there's both pluses and minuses, downside and upside, and we feel comfortable, you know, what will ultimately be agreed to.

Shar Pourreza (Director and Senior Equity Analyst)

Okay, perfect. I'll jump back in the queue, let others ask. Thanks, guys. Appreciate it.

John Moreira (Executive VP and CFO)

Thank you.

Operator (participant)

Our next question comes from Steve Fleishman with Wolfe Research. Steve, please go ahead. Your line is open.

Steve Fleishman (Managing Director and Senior Analyst)

Hi, good morning. Thanks for the update.

Joe Nolan (Chairman, President, and CEO)

Good morning, Steve.

Steve Fleishman (Managing Director and Senior Analyst)

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

John Moreira (Executive VP and CFO)

Yes, Steve, that is correct. We have included both of those components in our impairment analysis. Obviously, in order for us to be in a position to do that, there needs to be a certain level of conviction and, you know, probability. On both of those, we feel very, very good about. I would say, you know, on average, I mean, folks can certainly calculate it, but it's probably, you know, $400 a piece, $400 million.

Steve Fleishman (Managing Director and Senior Analyst)

Okay. Understood. That's helpful color also on the probability part. Then my other question, John, just on the FFO to debt slide, that's very helpful in terms of the drivers. Is there any way to get a better sense of start and end points there or kind of the, the scale of any of those driver?

John Moreira (Executive VP and CFO)

Sure, I mean-

Steve Fleishman (Managing Director and Senior Analyst)

buckets there?

John Moreira (Executive VP and CFO)

Yeah. I think some of those items we have already shared, and they might even be disclosed in our, in our 10-Q. You know, I would, I would size, kind of the first category, you know, these one-timers that we experienced in 2022, that we will not materialize in 2023, I would say at least $250 million. $250 million goes away. You know, the three categories of those were: you know, we were, as part of the 2021 Connecticut Steel and Peace Settlement Agreement, we still had half a year of refunds in 2022. That ceased, so that's behind us. That was about $70 some odd million, $78 million.

We made early on in 2022 some capital contributions, which we don't expect to make, at least for the foreseeable future. Then we had another property tax settlement in Massachusetts to the tune of about another $70 million that will not materialize this year. That, that's that first category, and I think all the other ones, when you look at, you know, rate adjustments, cost recovery of previously deferred costs, those are starting to kick in. In Massachusetts, as part of the rate case, we have close to $400 million rolling into rates. We had a piece of it that took effect earlier this year, and we have another chunk that'll take effect January 1st, 2024.

I think if you factor those items in, and clearly, the, you know, the biggest immediate improvement in our cash flows is going to be the closing of these two transactions, the offshore wind transaction. Those are all the items. You know, obviously, you know, as we've said, we still have $1 billion left under our ATM program to be executed. All of those items gives me, gives me comfort that we will certainly move in the right direction from an FFO to debt.

Steve Fleishman (Managing Director and Senior Analyst)

Understood. I'll let others take from here. Thank you.

John Moreira (Executive VP and CFO)

Thank you.

Operator (participant)

Our next question comes from Durgesh Chopra with Evercore ISI. Durgesh, please go ahead. Your line is open.

Durgesh Chopra (Managing Director of Power and Utilities)

Hey, good morning, team. Thanks for giving me time. Hey, John-

John Moreira (Executive VP and CFO)

Good morning.

Durgesh Chopra (Managing Director of Power and Utilities)

Just really quickly. Hey, good morning, guys. You mentioned as part of the impairment charge, you assumed repricing on the Sunrise Wind. Can you just walk us through what the steps are or the next sort of milestones are as you kind of have filed for that for that repricing? Then what does that mean? Is that $400 million related to that repricing if that's what you quantified it as?

John Moreira (Executive VP and CFO)

Yes. First, let me say that the process is underway. There is a schedule out there that NYSERDA has posted, which could render a decision as soon as, you know, October and November. We expect something to be known by, certainly by the end of this year. Dependent on what the approval is, you know, we think it could be in the $4 million-$450 million range. I think discovery is taking place. There's been some requests, so we're going through that phase. Ørsted's going through that phase right now. So are the other bidders. We're all, we're all in the same procedural schedule.

Durgesh Chopra (Managing Director of Power and Utilities)

Got it. Thanks. Just switching gears, you mentioned roughly like $900 million in the deferred storm cost balance. I know there is a filing coming up in Connecticut. Maybe can you just talk to that? You know, what is the path to recovery and timeline of those costs?

John Moreira (Executive VP and CFO)

Well, the normal process in Connecticut is, you will commence recovery of storm costs as part of a general rate proceeding. What we've done in the past is we filed for a prudency. You know, it's uncertain. You know, right now, we're still compiling all of the necessary data that's needed for that, for that process to take place. Suffice it to say that you will, you know, the recovery of those costs will happen when there's a general rate proceeding. As we, as we've said, you know, the earliest that that'll happen will be end of 2025.

Durgesh Chopra (Managing Director of Power and Utilities)

Got it. As part of your cash flow walk, there's nothing there from like 2022 to 2023, and then, you know, in terms of just improvement from recovery of those costs. That's more longer-term dated.

John Moreira (Executive VP and CFO)

That, that, that balance is more longer-term dated. We do have, we do have some, some cost recovery in base rates, embedded in base rates for CL&P, but, it's, it's not significant, to recover that anytime soon.

Durgesh Chopra (Managing Director of Power and Utilities)

Thanks so much.

John Moreira (Executive VP and CFO)

Thank you, Durgesh.

Operator (participant)

The next question comes from David Arcaro with Morgan Stanley. David, please go ahead. Your line is open.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Hey, good morning. Thanks so much for taking my questions.

John Moreira (Executive VP and CFO)

Good morning.

Good morning, David.

David Arcaro (Executive Director and Senior Equity Research Analyst)

I was wondering, are you still expecting, are you still expecting $2.1 billion-$2.4 billion in CapEx in that 2024-2026 period, that I think you had disclosed previously? Are returns still at that same level in the 11%-13% ROE range?

John Moreira (Executive VP and CFO)

We refer-- David, is this offshore wind?

David Arcaro (Executive Director and Senior Equity Research Analyst)

Yes. Yes, sorry.

John Moreira (Executive VP and CFO)

Okay.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Offshore wind 2024-2026 CapEx plans. Any changes to the longer-term CapEx?

John Moreira (Executive VP and CFO)

No.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Uh-

John Moreira (Executive VP and CFO)

No, no. That's... Nope. It's reflected on that slide that we presented, so there's been no change in the overall capital forecast needs, both for this year, 'cause we did revise that on last quarter call. Longer term, no, there's been no, no, no capital changes to that.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Okay. Got it. Thanks. Then, the, the impairment on the offshore wind assets was slightly larger than the last estimate. I was just wondering if you could elaborate on what might have changed since the last estimate when you announced the recent transaction.

John Moreira (Executive VP and CFO)

Sure, David. In, in May, we were, you know, the buyer hadn't completed its due diligence process. We hadn't even filed for the request for Sunrise in New York. A lot of things have, have come together since we made that announcement. All of those, you know, puts and takes have been factored into the impairment charge that we just recognized. I would say a lot more is known and measurable today, certainly, than it was back in, in May. That does reflect, as I said in my phone remarks, the completion of due diligence and, you know, kind of the, the, you know, the, the current deal pricing.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Okay, got it. A couple of moving pieces there. It sounds like so in the original estimate of the write-off, that didn't include a repricing of Sunrise or the, or the potential value of the tax credit adders?

John Moreira (Executive VP and CFO)

It didn't include the New York repricing, but we've always felt comfortable on the tax, on the tax component. We did include the.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Okay. Okay.

John Moreira (Executive VP and CFO)

The adder.

David Arcaro (Executive Director and Senior Equity Research Analyst)

Got it. Understood. Thanks very much.

John Moreira (Executive VP and CFO)

Thank you, David.

Operator (participant)

The next question comes from Andrew Weisel with Scotiabank. Andrew, please go ahead. Your line is open.

Andrew Weisel (Director and Senior Equity Analyst)

Hey, good morning, everybody.

John Moreira (Executive VP and CFO)

Good morning, Andrew.

Andrew Weisel (Director and Senior Equity Analyst)

Hi. I want to clarify, there's some confusion about the CL&P rate case stay out. Does SB 7 allow regulators or interveners to call you in before October 25, or does the settlement supersede the new state law?

John Moreira (Executive VP and CFO)

Our position is that our 2021 settlement agreement provides the ability or qualifies for that 4-year rate review, and that 4-year rate review will expire in the fall of 2025.

Andrew Weisel (Director and Senior Equity Analyst)

Okay, great.

John Moreira (Executive VP and CFO)

Yeah.

Andrew Weisel (Director and Senior Equity Analyst)

Thank you. Next, I want to clarify the timing... Excuse me? Oh, okay. Sorry. I want to clarify-

John Moreira (Executive VP and CFO)

Andrew?

Andrew Weisel (Director and Senior Equity Analyst)

The timing. I think you said you expect. Can you hear me?

John Moreira (Executive VP and CFO)

Yes, we can hear you.

Andrew Weisel (Director and Senior Equity Analyst)

Hello?

John Moreira (Executive VP and CFO)

Okay. Yeah [crosstalk].

Andrew Weisel (Director and Senior Equity Analyst)

Terrific. Sorry about that. Must be my headset. You expect clarity on Sunrise for the end of the year, October, November, yet both Joe and John, you guys both use the word "soon" from a sale price announcement. To be as clear as we can be, does soon mean before the repricing process is complete, or will you and the potential buyer wait until the future of Sunrise is known, either by waiting to make an announcement or adding a contingency to the contract?

John Moreira (Executive VP and CFO)

No, we will not, we will not wait for the determination from the state of New York on that. We will announce once the, these documents, as we've mentioned, are ready to go.

Andrew Weisel (Director and Senior Equity Analyst)

Very good. Thank you. Sorry for the technical issue.

John Moreira (Executive VP and CFO)

No worries. Thank you.

Operator (participant)

Our next question comes from Gregg Orrill with UBS. Greg, please go ahead. Your line is open.

Gregg Orrill (Executive Director and Equity Analyst)

Yeah, thank you.

John Moreira (Executive VP and CFO)

Hey, Gregg.

Gregg Orrill (Executive Director and Equity Analyst)

Hey, regarding the $1 billion related to the ATM equity, what's the intent there for how long that would last you to fund the plan? Then is there any update on the Aquarion rate case appeal? Thanks.

John Moreira (Executive VP and CFO)

Okay. Let me, let me, let me take the latter one. The Aquarion rate case appeal continues to move forward. There's, I think, briefs are due later this month, on the 17th of August, I believe, and then reply briefs. We hope that by this, there is a hearing date scheduled for December 14th, where the record will be closed, and then I believe it's scheduled for oral arguments at that point in time. Shortly thereafter, the judge could render a decision. That's where, that's where we, we stand on, on that.

As far as the $1 billion, you know, equity, remaining equity under the ATM program, certainly, you know, we've, we've said it over, over several years, you know, we haven't issued any equity this year just based on valuation. The ATM provides us with the ability to take advantage and be opportunistic. There's, you know, we'll continue to monitor things accordingly and issue the equity as we feel comfortable.

Gregg Orrill (Executive Director and Equity Analyst)

Thanks.

Operator (participant)

Our next question comes from Jeremy Tonet with JPMorgan. Jeremy, please go ahead.

Richard Sunderland (Senior Analyst)

Hi, good morning. This is actually Richard Sunderland on for Jeremy. Can you hear me?

John Moreira (Executive VP and CFO)

Yes, we can, Rich.

Good morning.

Richard Sunderland (Senior Analyst)

All right, great. Thank you. Just a couple housekeeping items up front. The $400 million-$450 million you're referencing for New York, is it a pre-tax or after-tax figure?

John Moreira (Executive VP and CFO)

Pre-tax.

Richard Sunderland (Senior Analyst)

Got it. Thank you. Then on the quarter itself, could you quantify the New Hampshire retroactive piece and the parent tax item as well?

John Moreira (Executive VP and CFO)

The parent tax item, I, I would tell you that it's probably close to about 100 basis points different quarter-over-quarter in the effective tax rate. Last, last year's effective tax rate was like 24% and change, and we're running around 22% and change.

Richard Sunderland (Senior Analyst)

Got it. That, that New Hampshire retroactive piece, just how much was that, and is that baked in the guidance?

John Moreira (Executive VP and CFO)

It was baked into the guidance. We were banking on that. You know, we were tracking the proceeding very, very closely last year, and we felt, we felt very good and comfortable about baking that in. I would say it's in, if I remember correctly, in the $15 million-$20 million range.

Richard Sunderland (Senior Analyst)

Got it. Very helpful. Then just 1 higher-level question. There's been a lot of attention on PURA's draft decision, came out recently. Any thoughts on, you know, how this impacts your approach on the CL&P front for 25, or any thoughts on rebuffs there to your Aquarion appeal, or just other thoughts on Connecticut overall in light of that draft decision?

Joe Nolan (Chairman, President, and CEO)

Yeah, well, no, that was a draft, as you know, on July 21st. It's not the final decision. Obviously, you know, it appears to track the Aquarion decision, discouraging investment in the state of Connecticut. You know, we're obviously concerned.

... about that decision, and we're hoping that between now and, and, the final decision, that there are some changes in that. As you know, we will have our day in court, and if this remains as is, I assume that, you know, UI will be in court as well, you know, to, to talk about that. You know, 2025 is a long way away in terms of, you know, what we expect will happen in 2025. You know, I don't want to speculate on that. You know, we will continue to monitor that, continue to engage with the, you know, key policy makers in the state. We have very good relations, you know, with the governor, with the attorney general, with other parties.

Their agenda, our agenda is very much aligned around clean energy and clean energy investments. You know, there are a number-- I mean, one of the things that's interesting with the state of Connecticut is the number of clean energy technology companies in that state. I mean, there are fuel cell companies, battery companies, all of them are looking to deploy their technologies. You know, any type of a, of a chill on investment in that state is, is not good for all of these startup companies, and it's obviously disappointing. Listen, we're not going to, we're not going to get disheartened. We're not going to lose faith.

We're going to continue to work those relationships down there, and try to get to a place that's fair for our customers and for our shareholders that gets us to a much better, cleaner environment with investments in that state. Again, it's a very fluid situation. We'll have to see what the final decision looks like, but I just want everybody to know that I, I am personally involved working this along with, you know, the 9,500 other employees of this company, we are going to work through these issues. I'm confident that we can get to a much better place.

Richard Sunderland (Senior Analyst)

Understood. Very helpful call. Thanks for the time today.

Joe Nolan (Chairman, President, and CEO)

Thank you.

John Moreira (Executive VP and CFO)

Thanks so much.

Operator (participant)

Our next question comes from Anthony Crowdell with Mizuho. Anthony, please go ahead. Your line is open.

Joe Nolan (Chairman, President, and CEO)

Morning, Anthony.

Anthony Crowdell (Senior Utilities Research Analyst)

Hey, good morning, Joe. Good morning, John. Thanks for taking my questions. I've been spending too much time up in Marlborough, Massachusetts, so I feel like a native now. Just I guess on slide 12, if I could jump on Steve's question. Where did you end the quarter on an FFO-to-debt basis? If you could just give us a range as you're very close to finishing the sale of offshore wind, on what the improvement could possibly be. Is it 200 basis points, or 200-250 basis points, or 100-150 basis points? If you're willing to quantify what the type of pickup would be in FFO to debt. I think with Steve, you gave more of the FFO, but not so much the metric.

John Moreira (Executive VP and CFO)

Yeah. No, I, I hear you, and I'm not-- we have not disclosed that. Truth be told that I want to have those discussions with the agencies before I share any of that detail with the broader audience. We are now, given where we are with the, the, the contracted project transaction, now we're at a point where I can share some of that information, some of the details with the rating agency. I have a meeting scheduled over the next several weeks to be able to do that.

Anthony Crowdell (Senior Utilities Research Analyst)

Great. Then, just, just curious on the, the sale, and I, and I, I apologize, I'm using just a different word. You may have answered this with Shah's question. Once the sale is announced and once the sale closes, is there the potential for further liabilities that you have to be concerned with? The expectation is once there's a sale and the sale closes, there's no more impact to Eversource?

John Moreira (Executive VP and CFO)

Those are the, what we plan to disseminate once we execute the agreement. As I've said, there will be some potential movements up or down.

Anthony Crowdell (Senior Utilities Research Analyst)

I'm sorry, potential movements after the close, that could be up or down. Is that fair?

John Moreira (Executive VP and CFO)

Correct. Correct.

Anthony Crowdell (Senior Utilities Research Analyst)

Great. Thanks so much for taking my questions. I really appreciate it.

John Moreira (Executive VP and CFO)

Thank you.

Operator (participant)

Our final question today comes from the line of Julien Dumoulin-Smith with Bank of America. Julien, please go ahead. Your line is now open.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Hey, good afternoon, team, or good morning, rather, I should say. Thank you guys very much for the time. Just following up on a few housecleaning items here from the prior questions. Just clearly, when in your forecast do you assume Connecticut electric and natural gas rate cases? Obviously, you're holding to the upper end. Just wanted to clarify when you think you'll pursue those.

John Moreira (Executive VP and CFO)

On the electric, as we, as we continue to state, our settlement agreement allows us to meet the 4-year review period, and that review period will expire in the fall of 2025. We do not expect to file a CL&P case prior to that date. If you look at the length of time it takes in a general rate proceeding, you're looking at a year. With that timeframe, you're probably looking at the earliest date that rates will be changed would be early 2027. Then for, for Yankee Gas-

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Right. Yep.

John Moreira (Executive VP and CFO)

... Julien, you know, we, you know, we have no, no plans right now to file a rate proceeding. We'll, we'll, we'll continue to monitor that, as we always do, but we don't have any current plans to file.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Got it. No changes to your CapEx forecast for now, right, in Connecticut?

John Moreira (Executive VP and CFO)

Mm, that is correct.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Got it. Excellent. Then just clarifying earlier, the FFO to debt. I know lots of questions, pluses, minuses, but can you just quantify the big building blocks as you think about through the forecast period, especially through 2025 here? I mean, I think I heard ITC earlier. Can, can you just clarify? I know that you got some legacy items that we talked about earlier, and thank you again, John. But on 2022, but can you talk about the big puts and takes here that improve the metrics perspectively through the forecast period?

John Moreira (Executive VP and CFO)

Through the forecast period, through 2027?

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Yeah, I, I'm, I'm thinking about not just like 2023-2024, but really kind of getting that sustainable structural level, right?

John Moreira (Executive VP and CFO)

Sure.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

As you think about the big building blocks.

John Moreira (Executive VP and CFO)

Yes, yes. I would say, the offshore wind will, will be the kickstart to that enhancement once we get those and offload, you know, some debt. I think if you look at the longer-term rate mechanisms that we have in place, certainly in Massachusetts, that will, will drive, enhance operating cash flows. The recovery of storm costs. Although for CL&P, it'll be towards the latter part of the forecast period. I think all of those items, when you look at the cash flows in Massachusetts, as I mentioned, will-- we, we are putting into rates, about $400 million of deferred storm costs. As part of the rate case, the amount included in rate, in rate base, in base rates, was significantly increased.

Those are the, all, all of the items that will continue to have enhanced cash flows, and then completing our $1 billion equity program over the coming years will certainly enhance that credit metric.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Yeah, just to clarify, your 2024 metrics here, do they benefit in FFO? Oh, go for it.

John Moreira (Executive VP and CFO)

Yes. No, absolutely. I mean, we, with everything else being equal, yeah, we, we see 2023, as I mentioned in my formal remarks, moving, moving in the right direction from where we landed in 2022, and I see that trend continuing certainly into 2024 and beyond.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Right. 2024 includes the tax equity in your FFO?

John Moreira (Executive VP and CFO)

Yes.

Julien Dumoulin-Smith (Senior Equity Research Analyst)

Got it. Okay, excellent. Thank you. Really appreciate all the details here. Appreciate the cleanup. Best of luck, guys. Cheers.

John Moreira (Executive VP and CFO)

Thank you.

Operator (participant)

Those are all the questions we have time for today, so I'll hand the call back to Robert Becker for any closing remarks.

Robert Becker (Director for Investor Relations)

Thanks, Emily. That concludes our call. Thank you for joining us today. If you have any follow-up questions, please reach out to Investor Relations.

Operator (participant)

Thank you everyone for joining us today. This concludes our call. You may now disconnect your lines.