Eversource Energy
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good morning and welcome to the Eversource Energy first quarter 2021 results conference call. My name is Brandon and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, during which you may dial star, one if you have a question. Please note this conference is being recorded.

[Jeffrey Kotkin:]

Thank you Brandon. Good morning and thank you for joining us. I’m Jeff Kotkin, Eversource Energy’s Vice President for Investor Relations. During this call, we’ll be referencing slides that we posted this morning on our website, and as you can see on Slide 1, some of the statements made during this investor call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainty which may cause the actual results to differ materially from forecasts and projections. These factors are set forth in the news release issued this morning. Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2020. Additionally, our explanation of how and why we use certain non-GAAP measures and how those measures reconcile to GAAP results is contained within our news release and the slides we posted this morning, and in our most recent 10-K. Speaking today will be Joe Nolan, our new President and Chief Executive Officer, and Phil Lembo, our Executive Vice President and CFO. Also joining us today are John Moreira, our Treasurer and Senior VP for Finance and Regulatory; and Jay Booth, our VP and Controller. Now I will turn to Slide 2 and turn over the call to Joe.

[Joe Nolan:]

Thank you Jeff. We hope that all on the phone remain healthy and that your families are safe and well. Over the past couple of years, I’ve spoken to many of the investors who are on this call when I’ve joined Jim, Phil and Jeff at various industry conferences, including the last couple of EEI Finance conferences. I’m looking forward to meeting many more of you over the coming years and sharing my optimism and enthusiasm for Eversource’s future and excellent investment theses. I’m grateful to the Eversource Board of Trustees and to Jim for allowing me to lead an incredibly dedicated and high performing organization. I’m also thankful that Jim will remain a full time employee as Eversource as Executive Chairman. In approving these executive level changes, the Eversource Board is signaling its confidence in our long term strategy that focuses on our core regulated business with an exciting investment in offshore wind. We are in a world where customer service, safety and reliability have never been more important. We will never forget that we would not be in the business without our 4.3 million customers. They are our top priority. Customers pay the bills and they deserve a reliable and safe utility service that we must provide. Over the coming decades, the tens of billions of dollars we will invest in our energy and water delivery systems will be critical in helping New England prepare for a clean energy future, and we expect to be a central catalyst for the clean energy transition.

[Phil Lembo:]

Thanks Joe. This morning I will cover a couple of topics. I’ll review the results of our first quarter 2021 and discuss and add to some of the regulatory developments in Connecticut and at FERC. I’ll start with Slide No. 4, and noting that earnings were $1.06 per share in the first quarter compared with earnings of $1.01 per share in the first quarter of 2020. Results for both years included after-tax cost associated with our recent acquisition of the assets of Columbia Gas of Massachusetts, and that’s $0.02 per share this year and $0.01 per share in 2020. Resulting for our electric distribution and natural gas distribution segment showed the most significant changes year to year. Electric distribution earned $0.27 per share in the first quarter of this year compared with earnings of $0.39 per share in the first quarter of 2020. Lower results were driven by a couple of principle factors. The first is that we recorded a charge of $30 million or $0.07 per share primarily to reflect customer credits of $28.4 million and an additional penalty of $1.6 million to be paid to the State of Connecticut. These credits relate to a notice of violation that Connecticut regulators announced last week as a result of our performance in restoring power following the catastrophic impact of Tropical Storm Isaias last August. The docket established by PURA to review the penalty is scheduled to run through mid-July of this year. Additionally, electric distribution results were negatively affected by approximately $20 million of higher storm-related expenses in the first quarter of 2021, and that’s compared to a pretty quiet and warm first quarter in 2020. In fact, in this quarter we experienced 31 separate storm events across our three states versus fairly limited activity in Q1 of 2020. By contrast, our natural gas distribution segment showed a sharp increase in earnings because it’s now about 50% larger than it was a year ago. It earned $0.43 per share in the first quarter of 2021 compared with earnings of $0.26 per share in the first quarter of 2020. Improved results were due primarily to the addition of Eversource Gas of Massachusetts, which earned $0.14 per share in the quarter. In addition, we had higher revenues at NSTAR Gas and Yankee Gas, and these were partially offset by higher O&M and depreciation expense. I should note that the transition process for Eversource Gas of Massachusetts continues to progress extremely well as we continue to migrate off of NiSource business systems and onto Eversource platforms, reducing costs and improving service. To date, more than 80% of the business processes have been transferred to Eversource from NiSource - great progress has been made. Eversource ownership of the distribution system is being well received by customers, communities and employees, and we continue to meet or exceed the financial and operational targets we’d set for ourselves.

[Jeffrey Kotkin:]

Thank you Phil. I’m going to return the call over to Brandon just to remind you how to enter questions.

[Operator:]

[Jeffrey Kotkin:]

Thank you Brandon. Our first question this morning is from Angie Storozynski from Seaport Global. Good morning Angie.

[Angie Storozynski:]

Good morning guys. Thank you. My first question, you maintained the growth projections beyond ’21 off of 2020, so what is the offset to the lower earnings in Connecticut related to the 90 BPs ROE reduction?

[Phil Lembo:]

Thanks Angie, thanks for your call. As you can imagine, in any forecast it incorporates our best results on a lot of key assumptions, so rates and ROEs, interest rates, capex forecasts, what we’re looking forward on in term of O&M, etc., so incorporating each of those elements into the forecast, we’re comfortable in that upper half of the 5% to 7% range going forward.

[Angie Storozynski:]

Okay, then the incremental capex that you gave had proposed AMI, etc. in Connecticut. In light of this reduced ROE, should we expect that you will eventually shift some of the regulated spending on the regulated electric side away from Connecticut? If you could comment on projections for capex at Connecticut.

[Phil Lembo:]

Sure. Our goal is to provide safe and reliable service and outstanding customer service to all our customers, whether they be electric or gas or water, whether they be in Connecticut, Massachusetts or New Hampshire. Our investment profile is geared to ensuring that those high standards can be met. We’re very proud of the results we’ve been able to put up year after year in terms of where our reliability ranks, and usually it’s in the top decile versus our peers, so we’re continuing to focus on our vegetation management and making investments there to ensure that we have a reliable system. That’s the primary focus of how we determine the investments as to how it impacts in a positive way our customer service.

[Angie Storozynski:]

Great, and just a last question about the electric transmission ROE. I understand the RTO adder is still up for debate. Now, how about the recess of the base ROEs for New England in light of this proposed removal of the RTO adder? Do you expect now that the base ROE will also fall?

[Phil Lembo:]

Well Angie, that’s a question that I’ve been asked for, I’d say, many years and many quarters now, and as you know, we have four open cases at the FERC that really go back a decade, our oldest one in terms of open dockets there. It’s hard to predict the timing or the outcome of what those cases will show, so I’m not sure how exactly the FERC will look at the interplay between the incentive docket versus the base case docket, but certainly I think the thing that folks should keep in mind is something I said in my comments, which is very public - you know, policy desires by the Biden administration to electrification and to bring--connect clean energy resources, and there’s no region of the U.S. that’s connecting more clean energy resources than New England, and obviously we serve the primary load centers in New England and can help deliver that clean energy both from an offshore wind perspective but also from a transmission perspective. We’ve have to wait and see the timing and how those play out, but I wish I had a crystal ball that could predict an answer at this stage, but I don’t.

[Angie Storozynski:]

Understood, thank you.

[Jeffrey Kotkin:]

Thank you Angie. Next question this morning is from Steve Fleishman from Wolfe. Good morning Steve.

[Steve Fleishman:]

Hey, good morning. Thanks. Just to clarify, for 2021 guidance, Phil, are you incorporating the 90 BPs reduction starting October 1 in that guidance, the low end?

[Phil Lembo:]

Yes, that proceeding is underway now, and certainly we would incorporate that outcome into the guidance. There’s only--you know, if it was a quarter, if you say it’s October, that might be a $0.01 impact to the year, Steve.

[Steve Fleishman:]

Yes, okay. Good. Then Joe or Phil, Joe made the comment about areas to improve on your response plan and improving the relationship with PURA. Could you just give a little more color on how you’re going to do that, or just strategies there? You had grid obviously settle a lot of issues with pretty much all parties that settlement, so how do you go about--

[Joe Nolan:]

Yes, sure. Thanks Steve. I’ve spent a lot of time down in Connecticut. I spent several-- a couple days there last week. We’re engaged with all of the communities that we serve. We’re really focusing in on their priorities, PURA’s priorities. We obviously took that audit to heart. It’s a complex, 150-page audit, and there’s areas that we know that we could use some improvement on, and that’s what we’re focused on. But I also did remind folks that the storm in question, Isaias, we’ve never assembled that many crews - you know, 2,550 crews during the pandemic. It required double of everything - 6,000 hotel rooms, 14,000 meals a day, double the number of trucks. It was quite a unique situation, and I think that we can always improve and we will continue to work at that. We want to win the hearts and minds of our customers back in Connecticut, and obviously we’re sorry if we let them down during that storm.

[Steve Fleishman:]

Okay, great. Thank you.

[Jeffrey Kotkin:]

All right, next question is from Julien Dumoulin-Smith from Bank of America. Good morning Julien.

[Julien Dumoulin-Smith:]

Hey, good morning Jeff and team. Thank you guys very much. Maybe if I can ask the first question a new way, pivoting off of Steve’s framework, how do you think about performance-based rates here as an avenue to demonstrate change, and what’s the timeline for implementation there? Do you see that as part of the next Connecticut case here? Just curious as to how you end this 90 basis point impact, if you will.

[Phil Lembo:]

Thanks Julien, it’s Phil. In terms of just the mechanics, the performance-based rate docket is to be opened by June of this year, so right now there’s no docket number but the expectation is that that would be open by June of 2021. We thrive on performance measures. I think one of the keys to our success over many years is we have a very aggressive performance management system. We measure and monitor all of our key performance metrics, whether they be reliability, how frequently a customer has an outage, how long the outage takes to restore, what’s the safety performance of our employees, what’s the diversity of our workforce. We measure many different metrics and we perform well on them, whether you look at comparison to historical performance or where we fall relative to peer groups. Performance is part of our DNA, and I think we’ve delivered that. We have elements of performance-based rates in other jurisdictions - in Massachusetts for many years, they’ve had these SQI, or Service Quality Index measures where we’ve had to perform against and we’ve been very successful there. But as you know, the design of those measures is important and we would hope to work in a collaborative and constructive way with PURA and other intervenors during that process. But the idea of performance-based measures is something that we live with every day, and the docket for that is starting middle of this year.

[Julien Dumoulin-Smith:]

Got it. Maybe to dovetail with that, precisely what is the expectation on when this 90 basis point impact would roll off, if you will? I presume in tandem with a future rate review or a PBR, or what have you, but back to you on that.

[Phil Lembo:]

Yes, back to me. The decision itself said indefinite, so that’s the only direction at this point, Julien, is that wording in the order said that the 90 basis points would be indefinite.

[Julien Dumoulin-Smith:]

Okay, all right. Excellent, I’ll leave it there. Thank you all very much.

[Phil Lembo:]

Thank you.

[Jeffrey Kotkin:]

Thank you Julien. Our next question this morning is from Durgesh Chopra from Evercore. Good morning Durgesh.

[Durgesh Chopra:]

Hey, good morning Jeff. I just had two Connecticut-related questions, really quick clarifications rather than questions. Phil, there’s a mixed bag in terms of the pass through charges, some sort of going through or will be effective June 1, and the other is October 1. Just high level, the impact or the cash impact on that delay is pretty miniscule. Am I thinking about that right?

[Phil Lembo:]

Yes, I wouldn’t say it’s miniscule. I mean, it’s probably $150 million that would be spread out into the future, so it’s not insignificant but it’s not larger than that.

[Durgesh Chopra:]

About $150 million. Then just quickly, roughly I think the number is close to $270 million in deferred costs, the storm Isaias cost. When do we get a final ruling on that, the recovery of that?

[Phil Lembo:]

There’s many states that have some costs that are deferred with that. The largest is in Connecticut - it’s about $230 million of deferred storm costs related to Isaias. There were storm costs in Massachusetts and New Hampshire also, but at a smaller level. Each state has their own protocol for timing of when you go in and file for that, so we haven’t developed that filing. We certainly had provided some information on our cost during the previous docket - you know, PURA had asked that we get the best estimate of what we had seen to date, but unfortunately we have some invoices that come in over time and we have to gather them all, make sure they’re all accurate. We don’t pay anything unless we’ve reviewed it three times, I guess four ways from Sunday is the expression, so we don’t pay for things that are inappropriate and we take those back. After we go through that process, then we do a filing, so that filing could come in a future proceeding, it could come in a base rate proceeding. It just depends on the various states, but I would expect that those filings would be done over the next year or two in the various states.

[Durgesh Chopra:]

Got it, perfect. Thank you Phil.

[Phil Lembo:]

You’re welcome.

[Jeffrey Kotkin:]

Thank you Durgesh. Next question is from Insoo Kim from Goldman Sachs. Good morning Insoo.

[Insoo Kim:]

Hey, good morning Jeff. My first question is going back to Connecticut. In the interim rate docket, there’s been some testimony filed about the allowed ROE but also the equity layer, and now the party’s suggesting that the equity layer should be decreased meaningfully from the current 53%. Just curious on your thoughts there and whether there’s a way for you to potentially adjust the balance sheet to address this.

[Phil Lembo:]

Sure Insoo, thanks for your question. Certainly in ROE, capital structure, all the revenue requirement elements are part of any sort of analysis that you would do, so capital structure is one part of it and certainly PURA has broad authority in a rate setting process, so that’s the framework that we work within. It hasn’t been the practice in the past in Connecticut. It’s been the practice to maintain the capital structure for each of the subsidiaries in a way that’s appropriate for that subsidiary to finance its capital needs. We do that in a very disciplined manner. Obviously we have rating agency considerations and any change in capital structure could have a positive or negative effect on ratings, just as regulatory rulings could have a positive or negative impact on ratings, so we’ll work collaboratively, constructively with PURA over whatever docket these issues come up in; but at this stage, the precedent has been that the operating companies would have their unique capital structures that reflect their unique characteristics. Don’t forget too that at a parent company, there’s things that have nothing to do with the customer rate issues. There could be investments, like non-regulated investments - that’s where our offshore wind is financed. During construction, we finance that with debt. You recall sort of painfully, I know I recall that we had a write-off of our Northern Pass transmission project - that’s doesn’t impact customers, that goes right to the parent, so there’s things that the parents takes, sort of protects the capital structure of the operating companies. That’d be something that would get reviewed in any kind of rate setting process.

[Insoo Kim:]

Right, okay. Thanks for that color. My other question is on offshore wind. With Ørsted recently discussing some of the structural improvements they need to make in some of the projects they have online, are there any implications on a cost or construction planning process for the planned projects in the U.S.?

[Phil Lembo:]

No, we’re good on that. I think that in a broader case, if you look at--you know, we’ve been closely monitoring supply chain issues, and you’ve got a pandemic, and our teams, both at our utility as well as on the project, this is priority number one in terms of the supply chain. This is where I think size really matters - you know, having the buying power of an Ørsted or having the buying power of an Eversource, and then having the combined buying power really helps us to have relationships and schedules and multi-year supply chain agreements that put us in good shape, so we haven’t seen any significant impact at this stage.

[Insoo Kim:]

Got it, thanks Phil. Congrats Joe.

[Joe Nolan:]

Thank you.

[Jeffrey Kotkin:]

Thank you Insoo. Next question is from Sophie Karp from Keybanc. Good morning Sophie.

[Sophie Karp:]

Hi, good morning. Thank you for taking my question. I wanted to switch gears to New England Gas and the results there. I’m just curious of the first quarter results were influenced by any particular developments that are not typical, the usual seasonality to experience in the future. It seems like it’s a very strong result, so I was wondering if there were any one-offs or weather impacts there that we should consider going forward. Thank you.

[Phil Lembo:]

Thank you for your question, Sophie. The subsidiary--you know, when we purchased Columbia Gas of Massachusetts from NiSource, we branded, renamed that Eversource Gas of Massachusetts, so that Eversource Gas of Massachusetts is the former Columbia Gas subsidiary. NSTAR Gas remains in Massachusetts and Yankee Gas remains in Connecticut, so I’ll answer the question for Eversource Gas of Massachusetts. There’s nothing particularly noteworthy, it’s just the operational results of that franchise delivered the $0.14 result. Just like our other gas franchise, you can expect that the first quarter is probably going to be the strongest quarter that you see out of--you know, because it’s a heavy heating quarter, and the fourth quarter is a heating quarter, not as strong as the first quarter but is also a heating quarter. Not a lot of heating going on in the second and third quarters in the gas business, so those tend to be--you know, either small or limited contributions, or even negative contribution in those months. But the profile, the earnings profile is very similar to NSTAR Gas and Yankee Gas in terms of when the earnings come in, and it was just from regular ongoing operations in that business, nothing unusual.

[Sophie Karp:]

Thank you, that’s helpful. That’s all from me.

[Phil Lembo:]

You’re welcome, Sophie.

[Jeffrey Kotkin:]

Thanks Sophie. Next question this morning is from Jeremy Tonet from JP Morgan. Good morning Jeremy.

[Jeremy Tonet:]

Hi, good morning. Just wanted to turn to offshore wind a little bit more, if you might be able to provide a little bit more commentary. It seemed like under the prior administration, things had slowed a bit as far as the process, and it seems like the opposite could be true with the new administration and things are maybe moving a bit faster. Just curious for your thoughts on that, if you see potential for things to move more smoothly maybe than what the current outline is. Then just with what you’ve received with Revolution, any thoughts on when we might get more color on capex or the project details, I guess down the line. Just looking for color on those thoughts.

[Joe Nolan:]

Yes, thanks so much for the question, and good morning. Obviously it’s been a breath of fresh air with the Biden administration. We have had--we have weekly meetings down there with various administration officials. The White House hosted a meeting with the offshore wind developers probably about a month and a half ago. They had four cabinet secretaries and two of the climate czars on that call, and the focus down there is what can we do to help move this agenda. We’re already seeing decisions that are coming out of there at a much faster pace than we’d seen in previous administrations, and it’s really been a sea change for this business. We’re very, very optimistic that the process will move along much faster and it will be much more orderly for all developers, not just for our projects. But yes, it’s been a sea change.

[Phil Lembo:]

In terms of the second part of the question, in terms of construction investment, as you can imagine and we’ve said before, working with our partners, the construction strategy, the investment amounts, I don’t want to say that--I guess they’re part of the competitive bid process is the best way to say it. We’ve been giving limited disclosure on the capex base, and there’s an RFP coming up in Massachusetts so obviously we want to be able to look at that and put ourselves in the best available position. I’d say that we’d have to get a little bit further down the road in terms of RFPs that are sort of in the win column before we would give out too much information that we would consider to be of competitive interest in these bids.

[Jeremy Tonet:]

Got it, that’s helpful. Thanks. Maybe just pivoting over to the water side, I’m curious if you can refresh us, how deep do you see opportunity set there? Is this the type of pick-up we should expect every year, every other year? Just looking for more color on the strategy, how you see it coming together at this point.

[Phil Lembo:]

Well, our strategy in the water business, we’ve been consistent and we’ve outlined that for the last several years that we like the water business. We think that it fits very well with our clean energy story, it fits very well in terms of our regulated infrastructure skill set, so we’d like to grow that business and we can grow it in a couple of different--two or three different ways - organically through looking at investments that we make in the system, we can accumulate small roll-ups, we’ve done a half dozen or 10 or so of those over the last few years, or you could do something that is larger in scale and scope. Not that this particular transaction is going to change the footprint so much of Aquarion, but it does add 10,000 customers into the Aquarion family, and we’ll look for opportunities that can do that. We think there are opportunities that are out there and we’re active in evaluating those, and then we’re active in searching out other opportunities, so we think that there’s plenty of opportunities to be had. It may not be just in the six state New England region - you know, there could be opportunities in adjacent states that would help increase the number of customers for Aquarion. But I can assure you that our goal is not to just add customers. Our goals are always to do--you know, one, there has to be something in it for customers. You don’t want to get bigger just for the sake of being bigger. What do you bring that could make for better customer service, that can lower costs to customers over the long period of time, and also that the deal can be accretive on the financial side. We carefully--we probably pass on more deals or lose out on more deals because of our discipline there, but we’ll continue to maintain that discipline in any business opportunity that we look at. We don’t want to get bigger just to get bigger.

[Jeremy Tonet:]

Got it, that’s helpful. I’ll leave it there. Thanks.

[Phil Lembo:]

Thank you.

[Jeffrey Kotkin:]

Thank you Jeremy. Next question is from Paul Patterson from Glenrock. Good morning Paul.

[Paul Patterson:]

Hey, good morning. Can you hear me?

[Jeffrey Kotkin:]

Yes.

[Paul Patterson:]

Just to sort of come back to Connecticut, reading all these, and it’s a myriad of filings and orders and what have you, I get the sense that there’s a rate resistance there or concern about rates. As you guy have--they also want transformation and they want a lot of investment, so--at least that’s how I’m seeing it. They want both these things, and I’m just wondering how you thread the needle here or how you picture this, if on the one hand there’s a demand for more investment but on the other hand, there seems to me at least to be, whether it’s their comments on the take back, the Grid Act, just a panoply of stuff here that they basically are apprehensive about rate increases, or want lower rates. How should we think about that?

[Joe Nolan:]

Thanks for the question, Paul. I think when we look at the price per kilowatt hour, the rates in Connecticut, I think it’s important to highlight for folks just how clean and how carbon-free that power is that’s delivered in Connecticut. You need to really strip out what portion of it is not if you want to do a comparison across the country. I would say that the folks in Connecticut, really the folks in New England are getting a very clean, green kilowatt hour, and these are initiatives that administrations and regulators have taken upon themselves to bring to customers, and that’s something that they need to balance. Obviously there’s other things that they want to do down there, and I think it would only be fair that you break out what really is the utilities and what is state mandates or regional mandates, and that’s something I think we work every day at trying to tell that story. We’re certainly very proud of our initiatives as it relates to a carbon-free future.

[Paul Patterson:]

Okay, but is there anything that we should think about in terms of potentially offsetting these rates, or is there any--I mean, it’s one thing for them to be wanting green energy and everything, it’s another thing to actually be wanting to pay for it. Is there any sense that we should get in terms of whether or not--you know, how that might fall out, I guess, the two competing interests, so to speak?

[Joe Nolan:]

Sure. I think the biggest lever on that side would be energy efficiency, and as you know, we are number one in the country as it relates to energy efficiency. I think what we’re doing is helping our customers use energy more wisely and reduce their consumption, which obviously will drive at that price issue. If you’re paying a little bit more but we’re helping you use less, at the end of the day the result is a net savings, and that’s what I think we’re very, very good and we’ve obviously been recognized nationally for that.

[Paul Patterson:]

Okay.

[Joe Nolan:]

Did you want to add something, Phil?

[Phil Lembo:]

Yes, just one thing, Joe, on that too is our transmission investments, the investments we’ve made for increased reliability on our transmission grid really help to lower congestion costs in the region, so those are a direct savings to customers as it flows through the energy part of a customer’s bill. The forward capacity market is down, things like that, so those are--you know, the investments we make in our transmission business are also helping customers, so that’s another way that bills can go down. Certainly we don’t--we are sort of out of the supply market, but certainly as supply costs move down, that’s a helpful benefit to customers.

[Paul Patterson:]

Okay, great. Thanks so much.

[Jeffrey Kotkin:]

Thank you Paul. Next question is from David Arcaro from Morgan Stanley. Good morning David.

[David Arcaro:]

Hey, good morning. Thanks so much for taking my question. I was just wondering, could you run through your latest outlook for equity needs here in light of some of the moving pieces with earnings, with ROE, with tracked costs, etc.?

[Phil Lembo:]

Thanks David. Our equity needs are the same as we’ve stated in the past, which is they total, let’s call it a $1.2 billion over five years. It’s about $100 million a year through our dividend reinvestment, employee stock purchase type of issuances - that aspect is about 100 a year, so our forecast is five years, there’s $500 million. As I said in my remarks and we’ve stated before, over the course of our forecast period, we’re looking to do about $700 million of new equity through maybe some sort of aftermarket type of program, so those needs at this stage have not changed.

[David Arcaro:]

Okay, great. Thanks. I just wanted to double check, how much of the $0.07 from this quarter is one-time, or is any of that recurring?

[Phil Lembo:]

No, that’s just the--it’s related to the $30 million penalty, one-time.

[David Arcaro:]

Okay, great. Wanted to confirm. Sounds good, thanks so much.

[Phil Lembo:]

Thank you.

[Jeffrey Kotkin:]

Thanks David. Next question is from Mike Weinstein at Credit Suisse. Good morning Mike.

[Mike Weinstein:]

Hey, good morning. Thanks for taking my question. I just wanted to clarify, does any portion of the Isaias penalty flow through the decoupling mechanism to be deferred to the next base rate case, and what is the timing of the base rate case, the next one for CL&P?

[Phil Lembo:]

This is a direct credit to customers. There’s no putting it back into the decoupling. This is a penalty, a charge that goes back to customers, so this flows directly back to customers. The timing of the next proceeding would be when that PBR mechanism, maybe that kicks it off, but by statute we’re ending a three-year rate settlement that we had in place. We’re required to file every four years in Connecticut, so the next filing that we would look to do is next year, in 2022 in terms of our expectations of when we would file for new base rates in Connecticut.

[Mike Weinstein:]

Got you. A follow-up on Paul Patterson’s line of thinking, I was thinking the same thing - I mean, does this provide--do you think the storm provides a boost to grid modernization in Connecticut as the state continues to review that? Maybe it’s more of an opportunity for the utility going forward.

[Joe Nolan:]

Thanks so much for the question. It does. There’s a lot of dialog actually in both Massachusetts and Connecticut around grid mod, around AMI. We certainly have a seat at the table and we are fully engaged, and I do think there’s an opportunity to demonstrate some of the technologies that are available, that would, number one, empower our customers but also enhance the grid to allow for greater reliability and cost savings for our customers, so yes, I definitely agree that this should provide us the platform.

[Mike Weinstein:]

Got you. Can you remind us what you’re assuming for FERC transmission ROE in the long term guidance? I remember you’re fairly conservative, I think, at the current--you know, what you’re currently allowed. You don’t have anything higher than that? Just curious what’s in there.

[Phil Lembo:]

That’s correct, the current allowed 10.57 base rate.

[Mike Weinstein:]

Got you. I tell you, it’s striking - just a year ago, the positive reaction from the Massachusetts regulators and the governor towards the company when they wanted you to take control of Columbia Gas out there, and with what’s happening in Connecticut, it’s a striking difference across the company. Hopefully you can figure out a way to, I guess, get the Connecticut regulators to see you the same way that they see you in Massachusetts.

[Joe Nolan:]

We agree. We’re always sought after during natural disasters and crises for our team to come in and take care of business for folks across the country, so it obviously is disturbing when that takes place. But rest assured we will win back the hearts and minds of folks in Connecticut. It was a very unique storm during a pandemic. Folks had been sheltering in place for many, many months and obviously the loss of electricity and connectivity poses great challenges for folks, and we recognize that and we are going to do all we can to turn that situation around and have the same level of confidence that folks here in Massachusetts did certainly when we got called upon for the Columbia Gas situation. I think that we can do that. I feel good about a path forward, so thank you for that question.

[Mike Weinstein:]

Great, thank you very much.

[Jeffrey Kotkin:]

Thanks Mike. Next question is from Travis Miller from Morningstar. Good morning Travis.

[Travis Miller:]

Good morning everyone. Thank you. You’ve answered very comprehensively most of my questions, but two quick ones from me, one on Connecticut. Does the PURA activity, both the decisions and the ongoing stuff, does that take away any legislative actions that were out there? Are there still any proposals on the legislation side?

[Joe Nolan:]

Yes, thanks Travis for the question. The legislature during this session has really allowed PURA to implement a lot of the stuff that they had done in the fall legislation, so we’re not seeing any activity, and right now they are just trying to put the rules in place and that’s really what we’re actively involved in. We have not seen any additional legislative activity other than some basic stuff around maybe solar or storage.

[Travis Miller:]

Okay, great. Then a quick one on offshore wind - with the schedule that you now have, what’s the flexibility in terms of technology? We’re seeing technology develop almost daily in terms of offshore wind - efficiency and turbine size and stuff. What kind of flexibility do you have in the next two, three years before you start putting steel in the ground to change that?

[Joe Nolan:]

Yes, so another helpful question. It’s interesting - when you think of delay, everyone always thinks cost increases, but I will tell you that in this business, the offshore wind business, it has been incredible the types of advancement in technology, turbine sizes. I will tell you that our permits, all the permits that we have filed have that level of flexibility to be able to upsize, so I will tell you that delay in these circumstances has been a very positive thing for our business, and we’re very, very optimistic.

[Travis Miller:]

Okay, so the EIS doesn’t lock you into any kind of technology or anything?

[Joe Nolan:]

No, but it has caps on size. We can take it up to maybe a 14 megawatt, but that’s the level of flexibility, up in that range.

[Travis Miller:]

Okay, great. Thanks so much.

[Jeffrey Kotkin:]

All right, thank you Travis. I know a number of folks have already moved onto the 10 o’clock call, so we’ll end it here. Thank you very, very much for all your time today. If you have any additional questions, please let us know, give us a call or send us an email, and we look forward to seeing you at the coming conferences.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect.