Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Management expects to grow the dividend in line with earnings growth of 5% to 7%, and does not plan to change the dividend policy despite capital and equity needs.
- Anticipated lower O&M expenses in 2024 due to non-recurring higher expenses in 2023 and efficiencies from technology deployments, such as a new CIS system and the Massachusetts AMI deployment, leading to cost savings and improved profitability.
- The initiation of the sale process for the Water business is expected to reduce equity needs and unlock substantial value for shareholders, improving the balance sheet.
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Equity Issuance and Aquarion Sale
Q: What's giving you confidence around the $1.3B equity raise and its timing?
A: They view Aquarion as a valuable asset and are confident in harvesting proceeds from a potential sale to meet up to $1.3 billion in equity needs over the next several years. They plan to issue equity starting in the coming months, primarily through their ATM program for flexibility but may consider other options if favorable. -
FFO-to-Debt Ratio Improvement
Q: How will your FFO-to-debt ratios improve, and what's the starting point?
A: They've been under-recovered in 2023, impacting cash flow, but expect improvements in 2024 and 2025 as under-recoveries are collected. They anticipate achieving a 14%-15% FFO-to-debt ratio, up from low double digits in 2023, aided by factors like tax equity investments and storm cost recovery. -
South Fork Tax Equity Impact
Q: How does the South Fork tax equity investment affect FFO-to-debt?
A: The $500 million tax equity investment from South Fork will improve FFO-to-debt ratios in 2024 and 2025. It's expected to be utilized over the next 24 months, enhancing cash flow during that period. -
Storm Cost Recovery
Q: Is storm cost recovery included for all states, including Connecticut?
A: Storm cost recovery is currently factored in for Massachusetts and New Hampshire. Connecticut is not included yet, as they've filed for prudency review, which will take time. Connecticut's recovery will provide additional cash beyond 2025. -
Aquarion Sale Process Confidence
Q: Why are you confident in the Aquarion sale process now?
A: Unlike previous wind asset sales, Aquarion is wholly owned and less complex to sell. It's a highly attractive asset in an industry with 50,000 water companies, making it appealing to many buyers. They expect the process to be smoother and not drawn out. -
EPS Growth Guidance
Q: Does the Aquarion sale affect your 5%-7% EPS growth guidance?
A: The potential sale of Aquarion is already factored into their 5%-7% EPS growth guidance. They are not specifying where within that range they will land but remain comfortable with their growth aspirations. -
Cost Savings and Lower O&M
Q: What are your cost savings initiatives leading to lower O&M in 2024?
A: They expect lower O&M in 2024 due to non-recurring higher levels in 2023. Implementing technology like a new CIS system as part of the Massachusetts AMI deployment will drive efficiencies and savings. They also foresee additional savings from organizational efficiencies. -
Potential Proceeds from Ørsted
Q: Are proceeds from Ørsted factored into your equity needs?
A: Proceeds from a potential sale to Ørsted are not currently included in their financing plan. Such proceeds would reduce their equity needs, which is why they mention an "up to" valuation in their equity guidance. -
Dividend Growth Alignment
Q: Will dividend growth match EPS growth?
A: Yes, they expect to grow their dividend in line with their 5%-7% EPS growth rate, continuing their long-standing practice of aligning dividend growth with earnings growth. -
Filling Earnings Gap from Aquarion Sale
Q: How will you fill the earnings gap from selling Aquarion?
A: They plan to fill the gap through debt reduction from sale proceeds and reallocating CapEx. Their forecast includes $1.6 billion in CapEx increases and up to $2 billion not included in the 5-year plan, enabling them to replace earnings and mitigate dilution.