Hello and welcome to the Eversource Energy Q4 and Full Year 2023 Earnings Call. My name is Elliot and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Bob Becker, Director for Investor Relations. The floor is yours. Please go ahead.

Good morning and thank you for joining us. I am Bob Becker, Eversource Energy's Director for Investor Relations. During this call, we'll be referencing slides we posted yesterday on our website. And as you can see on Slide 1, 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 will turn the call over to Joe.

Thank you, Bob and thank you all for joining us on the call this morning and for your interest in Eversource. Let me begin with the pathway for a full exit of our offshore wind business on Slide 4. When we started down this path in 2016, we were very excited for the opportunity to bring much needed renewable energy to our region. The high supply prices in the Northeast are not good for anyone, particularly our customers. Until we can reduce the region's reliance on gas, by electric generation price volatility will continue to cause difficulties for our customers. State mandates for our offshore wind procurement provided a strong impetus for our engagement, along with the recognition that offshore wind is one of the few renewable resources that can be produced in quantity to reduce reliance on natural gas and dampen the volatility of our region's electric prices. Unfortunately, our offshore wind investment experienced difficulties as early-stage projects. These difficulties were largely a result of the pandemic, supply chain disruptions, rising interest rates and uncertainty around available resources for installation vessels and fabrication of turbine foundations. We are not alone, as several other offshore wind developers have also experienced similar challenges. These challenges, coupled with the lack of pricing flexibility, inherent in contracts approved by state regulators, result in a projected investment returns substantially below our required thresholds. At the same time, our core business is well positioned to deliver solid operational and financial results, as we move forward in supporting the region's transition to a cleaner energy environment. This led us to seek out a path to refocus our investment portfolio on our utility business, with its strong opportunities for growth. For this reason, I am pleased about our announcement that we have reached an agreement to sell…

Thank you, Joe. And good morning, everyone. This morning, I will cover our 2023 financial results, the offshore wind impairment, the 2023 regulatory update, an update of our 5-year investment forecast for our regulated businesses. And I'll wrap up with our 2024 recurring earnings guidance, long-term financing plan and 5-year earnings and dividend growth guidance. I'll start with 2023 results on Slide 10. Our GAAP results for the year were a loss of $1.26 per share, compared with GAAP earnings of $4.05 per share in 2022. In the fourth quarter, results were a loss of $3.68 per share, compared with GAAP earnings of $0.92 per share in the fourth quarter of 2022. Results for the full year 2023 include an after-tax impairment charge of $5.58 per share, related to our offshore wind investment and $0.02 per share after-tax charge related to our nonrecurring costs. Results for 2022 include a $0.04 per share charge, primarily related to transition costs associated with a completed integration of EGMA. Excluding these charges and the offshore wind impairment, our non-GAAP recurring earnings were $4.34 per share in 2023 as compared to $4.09 per share in 2022. Breaking down our 2023 full year non-GAAP recurring earnings of $4.34 into segments. electric transmission earned $1.84 per share for 2023, as compared with earnings of $1.72 per share in 2022. Improved results were driven by continued investments in our transmission system and lower income tax expense. Our electric distribution earnings were $1.74 per share in 2023, as compared with earnings of $1.71 per share in 2022. A base distribution increase at NSTAR Electric was partially offset by higher interest expense, property taxes and depreciation. Our natural gas distribution segment earned $0.64 per share in 2023, as compared to $0.67 per share in 2022. Increases in depreciation and interest…

Thank you, John. As I previously said, I'm very excited as I look ahead to the future of Eversource. This amazing team that delivers every day is on the brink of a critical energy transformation, that will benefit our customers, our communities and our environment. The need for utility infrastructure investment has never been greater. In fact, in a draft study released last year, ISO New England projected a need, for up to $15 billion of transmission investment, to meet the region's 2050 Clean Energy objectives. As we look ahead, we see a tremendous need for a collaborative approach to leverage our utility infrastructure development and superior operating skills in Massachusetts, New Hampshire and Connecticut. On that note, I want to thank you for your interest in Eversource and I look forward to seeing you soon. I'll now turn the call back over to Bob and we look forward to answering your questions.

Thanks, Joe. I'll turn the call back to the operator to begin Q&A.

[Operator Instructions] First question comes from Shar Pourreza with Guggenheim Partners.

Joe, let me ask you a question on the up to $1.3 billion equity, I guess without seeing sort of market interest with the inquiring sale and details around Sunrise, where you could get more proceeds than you embed and planned, depending on how things shake out, right which you just alluded to in your prepared, what's kind of giving you confidence around the $1.3 billion, can you beat it? And how are you thinking about the timing and the means of raising that equity?

Sure. Good question, Shar. Thank you. I would start off by saying that Aquarion, we view Aquarion as a very valuable and attractive asset portfolio, company is well managed, well recognized as a water distribution company and its leadership. So we're -- based on that fact pattern, we've sized and we've estimated what we feel we could harvest from a potential sale. And just to be clear, the $1.3 billion is up to $1.3 billion of equity over the next several years. So we have some flexibility, so we can flex that depending on the ultimate proceeds that we receive.

Sorry but the timing and the means of that equity, any sense there?

Yes. Well, I mean, we've been guiding the street right along for the past several years, had a $1 billion need, right? And now we're going up to $1.3 billion. So I think it will happen over the next several years. We do plan to be in a position to issue, to go to the equity markets over the coming months. And we are going to -- Shar, just wanted to know, that's why we specifically indicated that we will be executing our equity needs through our ATM program to give us the flexibility that we need.

Great. And then just lastly on this one is just on revolution cost sharing. John, can you just maybe walk us through the pathways for overages on the project? I mean what can go wrong? Any way to sensitize some of the puts and takes either on the construction side, i.e., how expensive does it get putting the crew on standby on the O&M availability side?

Yes. Sure, Shar. It's Joe. I'll take that. I'll tell you, I'm really, really proud of the work that's taken place on South Fork. It's been an opportunity for us to really dry run, get a sense as to what's involved in this installation. This is a 12 turbine installation. We have 11 out in the lease area now. the 12th one is loaded on the barge in New London. It will go there this weekend. We have been delivering power since November, to folks in Long Island which we're very, very proud of. So given that we are the first upscale offshore wind farm in the United States, that brought a great opportunity for us to be able to understand what's involved in that. So in the fall, we were able to take a real good look at the cost, all the charges associated with constructing South Fork, as we begin to kind of refresh the Revolution costs. And I will tell you that we have accounted for the vessel strategy that we have to utilize now, we're utilizing a feeder barge [indiscernible] European vessel. It's been going very, very well. Those are some of the big charges. Those are the things that have caused increases in offshore wind costs for everybody, not just us. The lack of American vessels is certainly going to be a challenge for anyone in this business. But I will tell you that we have successfully executed. We will have -- the project will be done in March in South Fork. All of the kind of lessons learned, all of the challenges, everything that we've experienced in this offshore wind market, associated with South Fork has been brought to the table on Revolution. So that we know exactly what this is going to cost. We feel very comfortable with this number, this exposure at $240 million given what we have already factored in. So I have a great deal of confidence that we will be able to bring this in and not have to worry about these -- in the overruns.

We now turn to Steve Fleishman with Wolfe Research.

So just to close, maybe the loop on the equity issuance. I think John, I heard you say after using the ATM, also opportunistic with our alternatives. Could you just clarify what you mean by that?

Yes. I mean that was -- we like the ATM program for the reasons I've just stated, it gives us tremendous opportunity and we can take advantage of the market. But if we encounter a very favorable, attractive value, then we can do something -- we'll look to do something else. Whether it's a block or some other deals. So right now, we -- I want to have the most -- the greatest sense of flexibility to execute and maximize the value that we harvest.

Okay. All right. That's very clear. On the second question, just on the FFO to debt slide. Do you have a starting point for 2023 actual first?

Yes. I mean we -- 2023, we have been challenged by our operating cash flow, is primarily driven by the turnaround and the methodology that we have been required to use as part of guidance from PURA. So for example, our -- we've been significantly under recovered at the COMP franchise in 2023, by a sizable amount close to $1 billion. So that's going to turn around and that's going to turn around in 2024 and 2025. We will get that cash in. So right now, we expect to be in the low single digits for 2023. We're still kind of working those numbers through. But moving forward, I feel confident that we'll be in a 14% to 15% FFO to debt, as I indicated in Slide 19. I'm sorry, I said low single digits. I'm sorry. I meant low double digits.

Yes. And then just a few of the pieces that you highlight here on the improvement. So just maybe the South Fork part, the tax equity investment, how much like FFO to debt percentage points is that? And is that just all hit '24, '25 and then it goes away. And then I guess you fill it in with more of operating cash?

Exactly. So the utilization of that, Steve, will happen based on our taxable income. So a lot can happen, storm costs being one of them that we take the deduction as we incur those storm costs and that can lower the utilization of that ITC. So right now, we've modeled it over the next 24 months but if we have further deductions from an operating standpoint, that would slip into '26.

Okay. But for now, just take that $500 million and spread it over the 2 years, if we want to calculate that?

Correct; that's a reasonable approach.

Okay. And then just one other question on that slide. The storm cost recovery, is that just related to Massachusetts and New Hampshire? Or are you assuming you're able to get storm cost recovery in Connecticut somehow or is that after this period?

Yes. We don't have -- Connecticut is not factored in. As you -- we just said in the formal remarks, we filed for the prudency review. That's going to take some time. So none of that, it's all really predicated on Massachusetts and New Hampshire. However, once the Connecticut storm cost recovery kicks in, that will give us more inflow of cash for the out years beyond 2025.

Our next question comes from Nicholas Campanella with Barclays.

So good to see you reaffirming the 5% to 7%, I guess, just you previously used to say high end of that range. I just wanted to kind of clarify if you have any message on where you kind of stand in the 5% to 7% at this point? And then how do we kind of think about Aquarion sales kind of impact to that 5% to 7%? Is it baked in? Does it put you somewhere else in the range depending on those outcomes there?

Sure, Nick. So let me start with the latter question. The Aquarion potential sale is baked into that guidance, as I mentioned. So we are assuming that. And then the 5% to 7%, as I want to reiterate, it's a growth aspiration of 5% to 7%. We're not giving any indication where on that spectrum we will ultimately land. Right now, we're comfortable with that, a lot can happen that can move us up. But until we have that more transparency and more clarity, we're sticking with 5% to 7% growth rate. We'll continue to update you all as things progress on our long-term guidance growth.

Okay. I appreciate that. And then I guess just sticking with Aquarion, obviously, you're trying to find ways to mitigate equity issuance in the 5-year plan. Just what's inspiring your confidence to kind of come back to do another sales process at this point? Do you feel confident it's not going to be as drawn out as the last one? And then just how do we kind of think about like the time line and then also the agency's willingness to kind of see through another asset sale, just given you're still on negative outlook?

Yes. Well, let me add a couple of things. I'm not going to give you a time line on the asset yield but I will tell you that it's a very different animal, Aquarion. I mean we're talking about wind partnership with another party. We only own 50%. We talked about the fact that it's very challenging and you don't own the entire asset. We own all of Aquarion. It makes things a lot less complex. This asset is very, very attractive. We've been in this business now for several years. It's a great business. It's the seventh largest water company in the country. But the fact of the matter is there are 50,000 water companies in the country. So to try to do -- to assemble water companies. It takes time, it takes effort but something of this magnitude certainly is attractive to many, many folks. So I won't give you a time line but I will tell you that it's not nearly as complex. It's not even in the same category of the wind assets. So I feel very, very good about it.

And I would just add, Joe, is spot on from an execution, this is a totally different animal. And then from your latter question on how the agencies, as long as we have a pathway, this kind of mitigates any further equity needs that we may have. So it's still cash coming in the door which is very appealing and supportive of our credit metrics.

Our next question comes from David Arcaro with Morgan Stanley.

Could you just touch on cost savings initiatives. I think you mentioned that you're expecting lower O&M in 2024. I guess how much lower? What are the levers you're pulling there? And what are you thinking kind of going forward off of a 2024 base there, too?

Yes. I would say that in 2023, we did experience some higher O&M levels that we don't think will reoccur in 2024. So that's one of the drivers, David. And then we are still in the technology deployment. Right now, we are going through a new CIS system, as part of the Massachusetts AMI deployment. And we think that there are savings, there are efficiencies that we can harvest as well. We already have one of our operator in Western Massachusetts went live a couple of weeks ago. So we think that there's savings there as well that we can harvest. So those are the major drivers. And as well as other efficiencies throughout the organization.

Okay, great. Then, I just wanted to clarify maybe on the New York 4 outcome with the auction. How could that change the outlook? Is -- are you saying the proceeds for Orsted are not currently contemplated in the equity need guidance? And could that come down from where it is now based on being successful in that auction?

That is absolutely correct. It's not -- any proceeds from an ultimate sale to Orsted has not been factored into our financing plan. So it would adjust our equity needs. And then for that reason, among other things, that's why we went out with an up to valuation. So you're thinking about it correctly.

Yes, makes sense. Then just wanted to quickly clarify. Just the $1.3 billion, does that include the DRIP? Or do you -- what do you expect that to be on an annual cadence going forward?

The 1 point -- the up to $1.3 billion does not include the DRIP. So that level is pretty consistent about $100 million to $120 million per year and that will continue.

We now turn to Durgesh Chopra with Evercore ISI.

Can I go back to Aquarion? And in relation to you kind of alluding the 5% to 7% incorporates in Aquarion sale, you have the CapEx baked into your 5-year plan, the Aquarion CapEx currently. I'm just -- I guess what I'm trying to ask is, how do you fill the earnings hole for Aquarion, I understand it's small. Is it basically debt reduction from the proceeds or CapEx could go elsewhere to substitute Aquarion earnings?

I would say it's a combination of both. Yes, we did leave the CapEx, their CapEx in our forecast but it's clear, it's delineated. You can see how much that relates to. And the fact that in my formal remarks, I highlighted and we have it in the slide on the deck that if you look at the forecast period, forecast over forecast, we're up $1.6 billion. And in my formal remarks, I also indicated that we should be mindful of what has not been included in our 5-year forecast. And that amount could be up to $1 billion to -- up to $2 billion, once again within this forecast period. So we feel very, very optimistic, we are able not only to replace the earnings but also mitigate any of the dilution.

Understood. That's very clear. And then just what -- can you just remind us your earned ROEs in Connecticut, as of 2023? And what are you modeling as you think about the 5% to 7% EPS growth target going forward?

Yes. I mean, obviously, they have dipped a little. We've been out of Connecticut for quite some time. We've had the settlement agreement. I would say that they're probably in the CL&P [ph] is around hovering around 8% and Yankee in the 7% range.

Got you. And then just what are you modeling? Like are you modeling ROE improvement, ROE staying the same, perhaps going lower as you think about the 5% to 7% growth rate?

Well, I mean, we were -- we've determined that we're going to stay out for at least another year or longer. So we model in the appropriate assumptions as we normally do with any rate proceeding in our 5-year forecast.

We now turn to Angie Storozynski with Seaport.

So just maybe first on assumptions behind the equity needs. So again, if I just look at the $1.3 billion and what I would expect Aquarion could bring. That's a little bit -- it seems like we're getting close to $3 billion in equity, again, my estimates, that seems large versus our prior expectations. And I'm just wondering what kind of credit assumptions you have embedded in it? So do you expect that, that amount, whatever the number is, eventually allows you to keep current ratings -- credit ratings, especially with the S&P?

Yes. So Angie, we're very mindful of what the downgrade thresholds are. And our financing plan, we feel confident that it will meet that -- those thresholds, particularly at S&P which has moved us up to a 14% threshold, as you know.

Yes. And then secondly, you have this port challenge for Aquarion's rate case. And I'm just wondering if, one, there's an outcome we need for that sale process to be successful; and two, if you approach the regulator in Connecticut about this potential sale?

Yes. So Angie, this is Joe. The court case was heard. We felt that the -- it went very well. We do expect a decision in the next few months. And our expectation is that it would go back to PURA. It will have no impact on our ability to transact. So we're still -- we're very, very confident in that case in the outcome.

Angie, I would just add that, quite honestly, as Joe mentioned, we should see that court decision in the next couple of weeks. That's our expectation. And that would actually be behind us before we execute on the transaction.

Okay. And no discussions with PURA around that potential sale or putting the asset on the block?

Yes. No, we've had communication with the governor. I did talk to the governor and I let him know of this transaction. As you know, it's quasi-judicial Board, the PURA and there's certain things they can and can't talk about. So we're trying to be very mindful of that.

And then lastly, the dividend growth profile, is it basically mimicking the earnings growth or EPS growth?

Angie, you're spot on. As you heard from me, our growth rate 2023, compared to '22, hovered around a 6% growth rate. We just -- as Joe mentioned, the Board just approved on an annualized basis, another 6% dividend increase. So we have a long-standing record of continuing to grow our dividend in line with our earnings.

Our next question comes from Anthony Crowdell with Mizuho.

Just I guess two quick ones. One to follow up from Steve's question. I think you were talking about maybe some ITCs in your FFO to debt metrics. Any chance you could tell us what amount of ITCs you booked in '23 earnings and what your forecast is in '24 earnings?

Yes, Anthony, this is John. So the ITC that Steve was alluding to, relates to the South Fork equity investment, that we just completed last year. And the size of that bread box is about $500 million. We have not recognized any of those ITCs. And I would view those ITCs as being cash driven and not earnings driven.

Great. And then just lastly, on the 8-K you filed this morning, gave some more details on the transaction. I believe in it, you guys have guaranteed an IRR to the buyer of roughly 13%. If you use your best estimate today of what you think the project would cost and your best estimate forecasting everything, where do you think the IRR stands today?

Yes. With the cost pressures that we've had, I want to make sure I understand your question.

Well, I guess I'm wondering, it's at 13%, we were maybe forecasting a lower IRR of the project based on our assumptions. And so we're thinking that -- or is there from day 1 that you assume that there's a payment going out to the buyer to get to the 13% IRR?

It's been -- it's already been baked in the transaction. That's what -- that's a portion of the impairment which would allow them to be able to get the return that they expect. So that's already been factored in that -- that was accounted for.

Yes, that's right.

We now turn to Paul Zimbardo with Bank of America.

To clarify, what's the forecast for capital investment into offshore wind into 2024 and specifically kind of before the close of the transaction?

Yes, Paul, we really haven't said that. There's time sensitivities as to when funding obligations transfer, not only to both GIP but also to Orsted as well. But I can tell you that it's not a significant level. And all of those assumptions have been baked into our financing plan.

And whatever we put in comes back to us. It's not as if we're going to be out of any money.

Okay. And then on the lower effective tax rate in 2024, could you quantify what that benefit is, kind of what you had in 2023 from lower effective tax rate? And how much of the improvement is in 2024?

Yes. I mean, where we landed in 2023, I would say, high teens and where we project to be in 2024 is also in the high teens, I would say, 18% to 20%, is the effective tax rate. So some of the benefits that we were able to recognize, we see those recurring in 2024.

Our next question comes from Ryan Levine with Citi.

On the cost sharing or earnout clawback like structure, what's the time line where you would receive cash payments, if costs were lower than targets? And conversely, if there's any cash flows -- cash outflows? And any sense on timing when you expect those payments to be made?

Sure. I mean would be all resolved at COD. At COD, our contingent liability is resolved. We plan to have the Revolution project in service in the fall of 2025. So that should be the timing you should be thinking.

Okay. And then given the uncertainty of the contingent payments, would you look to wait to time your equity issuance once you have resolution on COD?

Well, the equity issuance is a multiyear program. So it wouldn't be anything, it would be right, it's still the same window of time that we're talking about. John?

Yes. And that's been factored into our financing plan, the timing of when that would reach COD and so we're -- we feel good. Joe, in his formal remarks and some of the Q&A that he's responded to, we feel good where we are with the most current forecast -- construction forecast for Revolution and that has become the baseline for the sharing.

Okay. And then on the water sale, to the extent you can respond, did the process already start? Or is it being initiated with the announcement last night?

No, it's -- the process has not started. It's going to -- last night, we kicked it off and it will be -- we'll get to work on it as soon as this call is over.

Great. And then last question for me. We've seen other utilities slow the dividend growth to be less than EPS growth. Is the management or Board considering a change in dividend policy on a go-forward basis, as the capital needs and equity needs evolve?

No, we don't. I just reiterated what our expectations are for both long-term earnings, EPS growth of 5% to 7% and we have -- we expect to grow our dividend in line with the earnings growth.

Our next question comes from Travis Miller with Morningstar.

On the Revolution, what kind of involvement are you going to continue to have on the operational construction side? And I'm thinking in part to make sure that the costs stay in line with your estimate. Will you be involved in the project or more third party?

Yes. No, no, great question. So we're actively involved in the land-based portion of that construction. I've been down in Rhode Island. I've been with Governor McKee, we broke ground on the substation, the conduit work that runs from the point of entry from the ocean to the substation. We will play a very, very active role. And I think that having a seat at the table is important for all the reasons that you stated. So we will continue to play that role until such time as that project is in commercial operation.

Okay, perfect. And then going back kind of strategic over the years. I think one of the initial thoughts that you had behind all these nonutility investments was to reduce some of the exposure to Connecticut. Now it seems like you've come back and now have more of that exposure post this. What's kind of changed over the years to -- in Connecticut to suggest that you think perhaps a better operating environment -- investment environment there?

Well, I would say the Aquarion transaction was more -- it's predicated on the fact that our equity needs that we need to raise equity and this is an accretive -- potential accretive transaction that we are looking to execute. So that's really kind of the impetus of us pursuing a transaction for Aquarion.

[Operator Instructions] We now turn to Paul Patterson with Glenrock Associates.

Just really quickly to make sure I understood the answer to Anthony Crowdell question. There is no earnings impact associated with 2023 and 2024 with offshore wind on a non-GAAP basis and adjusted basis. Is that correct?

I believe Anthony's question was more on the ITC.

Okay. Yes. Okay. Well, I'm just wondering, just generically speaking, is there any EPS impact on an adjusted non-GAAP basis for offshore wind in 2023 and 2024?

No.

Okay, great. And then, moving to the PBR case. I noticed that in December, you guys and also United Illuminating, as for the case to be withdrawn and then reinitiated as a new type of case. And without getting into the details because they're very complicated. But how do you see that case proceeding, I guess, at this point? I know that the commission earlier this month said no to that proposal. But obviously, there's some concerns that you guys have about it that you voiced in your filings. Any thought process we should have about what the outlook is there?

Yes. Paul, a couple of things there. Number one, quite honestly, we were a bit disappointed that docket or those dockets, there is actually 3 of them got delayed or pushed out a bit. So I think it's still far too early for us to speculate because I think there are proceedings that we wanted to take place. And now some of those will likely happen. So we can't speculate, as to what the outcome would be at this point. I think there's a lot more work and a lot more discussion with PURA that will have to take place.

We now turn to Jeremy Tonet with JPMorgan.

This is actually Aidan Kelly on for Jeremy. Just one quick question on our end. What was the parent interest expense drag in '23 versus '22? And could you just talk about like the offsets behind that?

Well, I would say the interest obviously is higher and we said that has an impact. But I would focus your attention more on to the financing plan, that we just disseminated and the EPS growth rate and for '24 and the longer-term growth rate.

This concludes our Q&A. I'll now hand back to Bob Becker for final remarks.

Thanks, Elliot and thank you, everybody, for joining us today. If you have any follow-up questions, please reach out to Investor Relations.

Thank you, everyone.

Thank you, everybody.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.