Earnings Call
Eversource Energy (ES)
Earnings Call Transcript - ES Q1 2022
Operator, Operator
Good morning, ladies and gentlemen. Thank you for joining and being present at the Eversource Energy First Quarter 2022 Earnings Call. My name is Irene and I will be coordinating today's call. I will now hand over to your host, Jeffrey Kotkin, Vice President for Investor Relations, to begin. Jeffrey, please go ahead.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you, Irene. And good morning, and thank you all for joining us today. I'm Jeff Kotkin, Eversource Energy's Vice President for Investor Relations. During this call, we'll be referencing slides that 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 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 risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. These forecasts and factors are set forth in the news release issued yesterday afternoon. 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, 2021. 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, the slides we posted last night, and in our most recent 10-K and 10-Q. Speaking today will be Joe Nolan, our President and Chief Executive Officer; Phil Lembo, our Senior Strategic Advisor and outgoing CFO; and John Moreira, our Treasurer and incoming CFO. Also joining us today is Jay Buth, our VP and Controller. Now, I will turn to Slide 2 and turn over the call to Joe.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you, Jeff and thank you everyone who is on the call this morning. It's been a very busy start of the year, so let me get right to it. First and most importantly, we have continued to deliver very safe and reliable service to our 4.4 million customers. The average number of months between power interruptions continues to place us and our reliability in the top decile of the electric industry, and our relatively short average duration of outages continues to place us in the top quartile. We also responded promptly to damage caused by a number of nor'easters that seemed to be arriving in New England every weekend from mid-January through February. Despite that inclement weather, response time to natural gas service calls, a key safety and performance metric for our gas distribution business, was excellent. I'm also pleased with our continued work to support our states' efforts to significantly reduce their carbon footprint. Our sustainability ratings at MSCI and Sustainalytics remain among the industry's best when compared to peer utilities. Our updated 2021 sustainability report will be published mid-year along with enhanced disclosures on our diversity, equity and inclusion metrics. We are also currently working to determine how an energy and water delivery company, such as Eversource, should address Scope 3 emissions. Turning to Slide 3. As many of you know, the Massachusetts Department of Public Utilities is conducting an NDF inquiry into the role that gas will serve as the state moves to reduce its greenhouse gas emissions by at least 85% by 2050. In March, we submitted a lengthy filing in response to the inquiry. That filing has been posted on our investor website and its key elements are included on this slide. As you can see, reducing energy demand by vigorously pursuing energy efficiency in both the electric and natural gas business is a cornerstone of our strategy. Additionally, we are recommending pursuing multiple options to reduce carbon emissions from our approximately 650,000 natural gas customers in Massachusetts. They include developing a hybrid electrification pilot in a community where we serve both electric and natural gas customers; building on the network geothermal pilot we announced earlier this year in Framingham, Massachusetts; initiating a renewable natural gas program through purchases, in-state on-system injection; and piloting the potential use of hydrogen with certain commercial and industrial customers. There is no question that our Natural Gas Distribution infrastructure will play a critical role in ensuring a successful transition to the state's clean energy future. The DPU is targeting a decision in this inquiry later this year. Turning to Offshore Wind in Slide 4, I'm sure most of those on this call have read our news release last night announcing that we have commenced a strategic review of our Offshore Wind investments, where we are partnering with Ørsted. It is clear that the landscape for Offshore Wind continues to evolve and many energy and infrastructure firms and investors, both inside and outside North America, are extremely interested in investing in the Northeast United States Offshore Wind market. The extremely strong prices paid for New York Bight leases in February attest to this. We plan to evaluate our 50% interest in our partnership with Ørsted together with the significant investment requirements we have ahead of us for our regulated energy and water delivery systems. We have a more than $18 billion five-year regulated capital investment program that needs to be financed, and additional capital projects are likely to arise in the coming years. We have concluded that now is an appropriate time to explore monetization of our Offshore Wind investments. The strategic review we have launched was formally endorsed yesterday by the Eversource Board of Trustees. It could result in a potential sale of all or part of our Offshore Wind interest. We fully expect that given the strong interest for Offshore Wind assets, we will be able to replace the Offshore Wind earnings per share that we would realize after our two larger projects reach commercial operation. This could result from either greater levels of regulated investment, reduced financing needs, or a combination of the two. Finally, I want to thank Phil for his decades of service to our company and our customers. I have worked with Phil for more than 30 years, playing on the softball team with him back in my early years, and he will be greatly missed. He has been a proven leader and a consummate financial professional. He has been our CFO for the past six years and has steered us through acquisitions, significant equity issuances, and a pandemic, while being transparent with the street, supportive of his staff, and wise in his counsel to senior management and the board. One can readily understand why our investors have rated Phil one of the top CFOs in the industry the past few years. I am truly thankful that he is remaining in a senior strategic advisor role with us for the near term to help us with this evaluation of our Offshore Wind investments. We do not have a specific timeline for the review of our Offshore Wind projects. During this process, we will continue to focus on a successful execution of our three Offshore Wind projects and we'll continue to lead the onshore portion of the projects during siting and construction. One key element that may amplify market interest in our 50% interest is the strong national and regional policy support for Offshore Wind. The current administration has targeted 30,000 megawatts of Offshore Wind in the Atlantic by 2030. The four states that are most likely buyers of energy generated by offshore projects continue to ratchet up their support for this clean energy source. We strongly believe that Offshore Wind will play a very important role in Southern New England and New York's aggressive decarbonization efforts. Ørsted is a recognized world leader in engineering, constructing, and operating Offshore Wind. Moreover, the sites we are developing are among the best in North America in terms of consistent wind speeds, moderate water depths, and proximity to the electric grid. In terms of our active projects, as illustrated on Slide 4, an onshore cable installation beneath the roads of East Hampton on Long Island is largely complete ahead of schedule. Major offshore work will take place in 2023 and will continue on the project, bringing a 130-megawatt, 12-turbine project into service by the end of next year. Siting and permitting on our two larger projects, Revolution Wind and Sunrise Wind, also continues to progress. We continue to expect to receive final federal and state approvals in 2023 and bring both projects into service in 2025. Slide 6 shows that there have been no changes to the cost estimates or schedules we discussed during our year-end earnings call in February, with contracts now essentially fully secured for South Fork. We continue to focus on negotiating contracts for the two larger projects, which we expect to be built in 2024 and 2025. In aggregate, about 80% of these projects' costs are now contracted. We're making good progress on procuring additional agreements and expect that the debt percentage will rise over the balance of the year. I want to add how thrilled I am that yesterday our Board elected John Moreira to be our new CFO. John will hit the ground running, having held leadership positions throughout the finance organization over the past two decades, including Treasury, accounting, budgeting, regulatory, and Investor Relations. He has also headed up our Investor Relations and our strategic initiatives, including our water acquisitions and the Offshore Wind business review we announced yesterday. He knows Eversource inside and out, and will provide us with experienced financial leadership as we invest on behalf of our customers. Thanks again for your time. I will now turn it over to Phil.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
Thanks, Joe. Good morning everyone. This morning, I'll cover the results for the first quarter of 2022, and then John will discuss recent regulatory developments and our 2022 financing activities. I'll start with Slide 7. Our GAAP earnings were $1.28 per share in the first quarter of 2022 and this compares to earnings of $1.06 in the first quarter of 2021. First quarter results for both years include $0.02 per share of after-tax costs associated with acquisitions, primarily related to the assets acquired from the Columbia Gas of Massachusetts deal. Results in the first quarter of 2021 also include a charge of $0.07 per share related to our performance in August of 2020 following Tropical Storm Isaias. Excluding the acquisition and transition costs in the first quarters of 2022 and 2021, as well as the storm-related charge in 2021, we earned $1.30 per share in the first quarter of 2022, compared with $1.15 in the same quarter of 2021. Our first quarter electric distribution earnings were $0.41 per share in the first quarter of 2022, compared with earnings of $0.34 in the first quarter of 2021. This excludes the storm charge. Improved results were driven largely by higher revenues in New Hampshire and Massachusetts and lower pension costs. Our electric transmission segment earned $0.43 per share in the first quarter of 2022 compared with earnings of $0.39 in the first quarter of 2021. Improved results were driven by a higher level of investments in our transmission facilities that we used to provide safe and reliable service. Our Natural Gas Distribution segment earnings were $0.47 per share in the first quarter of 2022 compared with earnings of $0.43 in the first quarter of 2021. Improved results were due primarily to higher revenues, partially offset by an increase in O&M costs. Our Water Distribution segment earned $0.01 per share in the first quarters of both 2022 and 2021. You may recall that the winter quarter is the weakest of the year for water utilities in the Northern U.S. Eversource Parent and other companies lost $0.02 per share in the first quarters of both 2022 and 2021, excluding the acquisition and transition costs I mentioned earlier. We are encouraged with the positive first quarter results, but believe it is a bit too early in the year to revisit our $4.00 to $4.17 per share EPS range. We'll continuously evaluate this guidance range as we move through the year, as we would typically do in past years. I think it's important to keep a few things in mind. A significant percentage of our incremental gas business earnings come in the first quarter. Also, we expect to commence our ATM equity issuance during the second quarter, depending on market conditions. Like everyone else, we're seeing a dramatic increase in borrowing rates. Short-term rates are up roughly 75 basis points depending on the day. The 10-year is nearly double where it was a year ago, so rates are higher. And storm response and restoration costs are a significant O&M item for the Company each year. With three-quarters of the year still ahead, we believe it's appropriate to see how the year progresses. Before turning the call to John, I'll just discuss our capital plan and touch on a few of Eversource's initiatives. First, Eversource Gas of Massachusetts, or EGMA. The process for transitioning EGMA into Eversource business systems is nearly complete and we expect charges related to this transition to tail off after the second quarter of 2022. Systems that have been transitioned since the start of 2022 include multiple work management systems, a natural gas dispatch system, a GIS and SCADA systems, and the new customer information system. This has been a great effort by the entire Eversource team to get all 300 business processes transitioned over from NiSource to Eversource quickly and effectively over the past 18 months. Second, Aquarian Water continues to grow. Earlier this year Aquarian announced an agreement to purchase a 10,000-customer water system that serves five communities in northwestern Connecticut. The transaction would result in Torrington Water shareholders receiving approximately 900,000 Eversource shares in exchange for their Torrington stock. Torrington is a very well-run water delivery system whose service territory is highly complementary to Aquarian’s existing footprint. Assuming timely regulatory approvals, we expect to close the transaction by the end of this year and for it to be accretive in 2023. I'm going to turn the call over to John in a moment, but first I wanted to say how grateful I am for all the relationships I've had with members of the financial community during my career. This has been especially true over the past six years when I was fortunate enough to serve as Eversource's CFO. Our company is in a strong financial position because of your confidence in us. I look forward over the coming months to helping Joe and other members of the Eversource leadership team execute our strategic review of our Offshore Wind investments. So thank you all. And now I'd like to turn the call over to John.
John Moreira, Treasurer and Incoming CFO
Thank you, Phil, and congratulations on your retirement. I personally want to thank you for your leadership of the finance team and for your mentoring of me over the past couple of decades. I also want to thank Joe, Jim, George, and the entire Eversource Board of Trustees for entrusting me with the CFO position. I am honored by the confidence you have shown in me and look forward to supporting Eversource Energy's lead efforts to serve our customers and prepare for New England's clean energy future. As you saw in our news release and can see on Slide 8, we are reaffirming our long-term EPS growth rate in the upper half of the 5% to 7% range. On Slide 9, we also reaffirm the $18 billion five-year regulated capital program that we disclosed during our February earnings call, including our $3.9 billion regulated capital investment projection for this year alone. You will recall that in February, we noted a couple of additional areas where we may see incremental regulated investment over the next five years. Turning to Slide 10, we have provided status updates on our AMI program for both NSTAR Electric and Connecticut Light and Power. At this time, regulators in both Connecticut and Massachusetts are actively working through dockets with a decision expected later this year. Briefing has been completed in Connecticut and is scheduled to wrap up in Massachusetts over the next couple of months. Separately, in March, NSTAR Electric filed an application with FERC on a new innovative recovery structure to help promote offshore wind development off of the coast of Massachusetts. The application references Park City Wind, which is an 800-megawatt Avangrid project that was selected years ago as the winner of Connecticut's most recent offshore wind RFP. Like the Vineyard Wind project, Park City Wind will connect to the New England grid through NSTAR Electric facilities in the Cape Cod area of Massachusetts. Park City would connect into NSTAR Electric's 345 kV system, where we are already planning some upgrades to meet rising electric loads. By working on the two projects together, we can reduce costs for customers. In addition, the incremental upgrades would be approximately $200 million, the vast majority being collected from Park City with FERC-based returns. We have asked FERC to approve our application in an expedited fashion. We expect there will be other opportunities that will emulate this type of Offshore Wind transmission interconnection agreement structure going forward. Together, Massachusetts, Connecticut, and Rhode Island are seeking approximately 9,000 megawatts of such offshore projects. On the regulatory side, our only active rate case is NSTAR Electric, and we continue to expect a decision around December 1st with new rates going into effect January 1, 2023. We are currently going through the discovery phase of this proceeding. At some point over the next couple of months, we do expect Aquarian Connecticut to file for its first rate review in about ten years. Connecticut's regulatory ROE is about 7.7% for 2021 and well below the allowed rate of return of 9.63%. In terms of financing and recent credit rating agency decisions, we completed $1.3 billion of 5- and 10-year issuances at the Eversource parent company in late February. Proceeds were used to meet the $750 million maturity at the parent company that matured in March, with the balance of the proceeds being used to reduce short-term debt. Fitch completed the annual review of Eversource last month and raised its outlook on CL&P from negative to stable. Fitch also reaffirmed the stable outlook for the rest of our family of companies. We have recently conducted our planned meetings with Moody's and S&P as well and briefed them on the status of our Offshore Wind initiative, our 5-year financial projections, and our equity needs. We look forward to the conclusion of these reviews later this year. In terms of upcoming equity issuances, as you can see on Slide 11, we expect to commence the issuance of new Eversource shares this quarter through our previously announced at-the-market, or ATM, program. As we said in February, we plan to issue $1.2 billion of equity through this ATM program over the next few years. Additionally, we will continue to issue treasury shares to fund our dividend reinvestment, our optional share purchase plan, and employee stock plans. This is expected to result in approximately $120 million worth of treasury share issuances per year through these plans during our forecast period. It is important to note that our planned issuance of $1.2 billion of equity through the ATM program and the DRIP share issuances are not impacted by the strategic assessment of our Offshore Wind that we announced yesterday. At this stage of our strategic assessment, it is too soon to comment on how any potential sale of all or a portion of our Offshore Wind investment would impact our financing plans in the future. Thank you very much for joining us this morning and I look forward to seeing all of you very soon. I will now turn the call back to Jeff for Q&A.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you, John, and I'm going to return the call to Irene, just to remind you how to enter questions.
Operator, Operator
Now, I will hand over to Jeffrey, who will coordinate the current questions and answers list. Jeffrey, please go ahead.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you, Irene. Our first question this morning is from Shar from Guggenheim. Good morning, Shar.
Shar Pourreza, Analyst, Guggenheim
Good morning, guys. Morning.
Joe Nolan, President and Chief Executive Officer (CEO)
Good morning.
John Moreira, Treasurer and Incoming CFO
Good morning.
Jeffrey Kotkin, Vice President, Investor Relations
So Phil, I'm a little conflicted about your retirement announcement on one end, really come for you and John for Phase two, but I'm going to miss our — definitely going to miss our state dinners and interstate road trips. So hopefully we can still do that.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
Yes. Nothing —
Shar Pourreza, Analyst, Guggenheim
So Joe, just a question here on the sale process and maybe first two parts, and I got a quick follow-up there. First, what kind of options we're looking at. I know you mentioned it could be piecemeal, so are you interested in the unused leases or everything? Are you sort of leaning one way or the other? And two, what is the timing for this process in your mind? I know you said within 2022, but with the latest ATM set to start this quarter, how should we start thinking about this?
Joe Nolan, President and Chief Executive Officer (CEO)
Well, thank you. And it's great to hear your voice and look forward to seeing you in person. So listen, we are just starting this process. We did have our board in here yesterday. Obviously, this was a decision that had a lot of thought going into it. We now will look at all of our options and the impact a sale, or sales, would have on our business. So I think, I don't have a definitive answer for you right now. It's not something that I have finalized. I will tell you that as this evolves, we definitely will keep everybody informed and we will be very thoughtful and deliberate about any type of review and any kind of next steps on wind.
Shar Pourreza, Analyst, Guggenheim
Got it. And then just — what prompted this? Did you actually receive offers, or was this prompted by any interest from investors?
Joe Nolan, President and Chief Executive Officer (CEO)
Well, I don't think there was a single triggering offer. Folks have always asked us questions about whether we would monetize our wind assets. And Phil used to always tell folks, if somebody backs up a big check, obviously we would look at that. I think the New York Bight leases were a point of inflection for this company. I was actually in meetings that day and we started to see some of the pricing. As you know, we're here for the shareholders and we are going to do the right thing by our shareholders, our investors, and our customers. This is the right thing to take a look at. I think we also heard many of you loud and clear about what we were going to do around wind. So that's what really was the driver around this, Shar.
Shar Pourreza, Analyst, Guggenheim
Got it. And then just lastly, obviously, in the context of your base 5% to 7% growth. Is this just a dilution avoidance or do you have a line of sight to incremental opportunities right now that you're excited to fund with the potential proceeds? And then what's the tax impact of a full sale as we're thinking about it?
John Moreira, Treasurer and Incoming CFO
Shar, this is John. Let me start with the latter question. It's too early to tell, as Joe mentioned. We are looking at multiple structures and options to mitigate any tax leakage. It's too early on that front, but we are focused on that. On your former question, the financial impact of this — once again, we're still continuing to review and assess it, but we feel very optimistic about opportunities on the regulated side to continue to develop clean energy investment strategies. I mentioned one on the call in my formal remarks to support connecting Offshore Wind into Cape Cod. We think there's more to come. There's a recent bid in Massachusetts that would connect into Massachusetts and we are the incumbent utility in that area, so we're very optimistic. We have a sizable solar deployment program in Massachusetts which we're just kicking off the ground on now. Part of it will land in this forecast period and part of it could go beyond our forecast period. So we're very optimistic about what lies ahead to deploy the use of proceeds.
Joe Nolan, President and Chief Executive Officer (CEO)
But just to emphasize what John said, Shar, is we are focused on regulated assets, so we are not going to go from one unregulated venture to another.
Shar Pourreza, Analyst, Guggenheim
Terrific. Thanks again, John and Phil. Congrats on Phase 2 and Mr. Nolan, I'll see you soon. Thanks, guys.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you.
Jeffrey Kotkin, Vice President, Investor Relations
Thanks, Shar. Our next question is from Steve Fleishman from Wolfe. Good morning, Steve.
Steven Fleishman, Analyst, Wolfe Research
Yeah, hey, good morning. And Phil, wish you the best and hope to see that handicap keep getting lower. The just maybe first, could you clarify the messaging on your equity needs? Because at one time — are you keeping the ATM in place no matter what, or are you doing this for now until you see the outcome of the review and then deciding whether some of this would reduce equity needs? Just better clarity there would be helpful.
Joe Nolan, President and Chief Executive Officer (CEO)
Sure. Steve, as we mentioned in February, the $1.2 billion ATM program would be executed over several years. It's not as though we're going to execute it immediately all at once. Our core capital program that we continue to roll out is going in one direction and it's been increasing. Right now, we're looking at an $18 billion capital investment program that takes us through 2026. We view that $1.2 billion as support of that capital investment portfolio. But we will continue to monitor and, as I've said in my earlier remarks, it's too early to determine what impact any sale could have on our future financing plans.
Steven Fleishman, Analyst, Wolfe Research
Okay. Is it fair to say that you would use proceeds mainly to reduce debt? Or is it just more premature to determine?
Joe Nolan, President and Chief Executive Officer (CEO)
Yes. We are very focused on maintaining an appropriate capital structure. With these potential investments that we have discussed, those will happen over time, so we are looking at reducing our debt. We are maintaining relatively high levels of short-term debt and our forecast does have planned debt issuances that we could take off the table.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
And if I could add —
John Moreira, Treasurer and Incoming CFO
Steve, we've always talked about financing our growth in a balanced manner, and so we can't do it all one way or the other. This helps support that balanced financing approach, again to finance the growth that's in the capital plan.
Steven Fleishman, Analyst, Wolfe Research
Got it. That makes sense. Thank you. And then one other question just on the partnership agreements, could you maybe give us a little flavor of what the buy/sell rights are with respect to the partnership? Do they have a right of first offer or refusal? Can they have any say on who their new partner is going to be? Can they say no if they don't like somebody? Or could you talk a little bit about that?
Joe Nolan, President and Chief Executive Officer (CEO)
Sure. First, let me just tell you that Ørsted is a great partner. They are my very good friends. I've spent time in Denmark with Mads and have a great relationship with Martin and with their U.S. leadership; we have a very valuable partnership. We continue to play an important role in that partnership and we expect to continue to help Ørsted as they make landfall here with projects. We are a valued partner. I was at an industry event the other night for a project on Long Island and we're making significant progress; work that was supposed to take two years we ended up doing in one. So I think that relationship will continue and we will play a supportive role as they grow this business. In terms of the commercial terms as to whether they can buy us out or how that all works, that is confidential at this point, but we will begin to share those details as we are able to.
Steven Fleishman, Analyst, Wolfe Research
Okay. Thank you and congrats. And Phil, wish you the very best.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
Thanks, Steve.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you, Steve.
Jeffrey Kotkin, Vice President, Investor Relations
Thanks, Steve. Our next question is from Nick Campanella from Credit Suisse. Good morning, Nick.
Nick Campanella, Analyst, Credit Suisse
Hey. Good morning. Thanks for taking my questions. Congrats to Phil on the retirement announcement. I just wanted to expand a little on Steve's question. I was curious about your flexibility on the 50-50 JV. Are you able to sell just lease rights or is the contract structured where you have to monetize an entire part of the JV? I just wasn't sure if there’s a hurdle to that flexibility. Thanks.
Joe Nolan, President and Chief Executive Officer (CEO)
Yeah. So I guess our flexibility is great, and our ability to make decisions on all parts is very flexible. Again, we will evaluate the options and what makes the most sense for our business and for our shareholders. We are not handcuffed in any way.
Nick Campanella, Analyst, Credit Suisse
Got it. And then if I could just ask a non-offshore question on inflation. I know you talked of higher financing costs. Where else are you seeing pressure? It's been a couple of quarters of pretty hot CPI prints. How do you feel on overall cost containment within the 5% to 7% growth?
John Moreira, Treasurer and Incoming CFO
Sure. Interest rates are the obvious item in front of us and we have to manage that and we have a plan to compensate for that. We're also seeing some pressure — I wouldn't characterize it as significant hurdles — but we are seeing challenges in the supply chain and more recently on the fuel component side. We are working to address those challenges and find opportunities to offset the impact.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
If I can add a little to that, some of the items that you see — commodities, cable, or certain types of equipment — mostly would impact our capital plan. These are items used to advance our capital program. As John mentioned, fuel and similar items are present. It's also important to keep in mind that in some of our rate plans, our incremental revenues are based on an inflation or performance-based rate (PBR) adjusted formula. That would help to offset cost increases should they occur going forward.
Nick Campanella, Analyst, Credit Suisse
Got it. Thanks. If I can squeeze one more in, you said you think you can replace all of the Offshore Wind earnings as we get to 2026. Is that net of full proceeds and then future investment in purely regulated opportunities? Can you clarify that?
Joe Nolan, President and Chief Executive Officer (CEO)
Sure. We have to wait and see what the ultimate transaction or transactions are, whether it's whole or in part, but we feel very optimistic that we can replace those earnings given the runway of regulated opportunities that we have ahead of us.
Nick Campanella, Analyst, Credit Suisse
Thanks for the time today, everyone.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you.
Jeffrey Kotkin, Vice President, Investor Relations
Thanks, Nick. All right. Next question is from Angie Storozynski from Seaport. Good morning, Angie.
Angie Storozynski, Analyst, Seaport
Good morning. I'm going to start with a non-Offshore Wind question. About Connecticut, you mentioned that Aquarian is going to be filing a rate case there. We saw that PURA denied an earlier utility filing, but can you give us a sense of the latest status of your regulatory relationships in the State of Connecticut?
Joe Nolan, President and Chief Executive Officer (CEO)
Yes. Good morning. Our relationships are very positive. We had hearings on AMI and have been in very constructive discussions with a very engaged commission. I would say that things are good. We have very good relations with the government and with the attorney general down there. I think things are much improved from some of our challenging times and I feel good about the climate down there.
Angie Storozynski, Analyst, Seaport
And what is your expectation for the future electric rate case in the state, given the inflationary pressures you are likely feeling and will continue to feel? Is there any change in the timeline on when you would expect to file the next rate case?
John Moreira, Treasurer and Incoming CFO
Angie, per the settlement agreement, we cannot change rates any earlier than January 1, 2024. As part of that settlement agreement, we put a stake in the ground that a re-rate review would qualify in four years, so we could actually wait until 2025. It's too early to determine whether we would file early or later; we will continue to monitor CL&P's earned returns and make a decision accordingly.
Angie Storozynski, Analyst, Seaport
Okay. Thank you. And then lastly on Offshore Wind: I understand you're just beginning the process, but looking at the reasons for the process with the recent offshore auction results, which implies that your leases are probably north of $2 billion, and then the amount of CapEx that you will have spent on Offshore Wind by the end of this year, I'm struggling to see how much regulated CapEx you can generate to deploy the potential proceeds here. By my estimate, that's more than $4 billion of potential CapEx, and AMI spending and other projects you're mentioning are not anywhere close to that amount.
Joe Nolan, President and Chief Executive Officer (CEO)
A lot of questions there, but let's start with the decision. This strategic review is designed to de-risk the business. You look at the market conditions with the Bight leases and you have to take a good look at that. Regarding the $4 billion number, John, do you want to comment?
John Moreira, Treasurer and Incoming CFO
Sure. Angie, it's important to note that that $4 billion is not going to happen all at once; it will not come in one year. We feel very optimistic that over the latter half of our forecast period and beyond, the two major projects in our forecast would kick in in earnest for the first full year of 2026. Looking at our 10-year view of investments, we feel optimistic that we could get to a sizable investment opportunity. AMI, as you know, is approximately $1 billion, which is not enough on its own. On the transmission side, there are opportunities to facilitate and accommodate clean energy connections into our service territories. I gave an example earlier of one such opportunity from an offshore developer. We see more happening, certainly in Massachusetts with the recent bids that were awarded earlier this year. So once again, we feel optimistic that over time, we will get to the kind of large investment opportunity you cited.
Angie Storozynski, Analyst, Seaport
But wouldn't you need more because the equity component of future growth would require additional CapEx? For example, if you're referring to $4 billion of total CapEx, the equity portion might be roughly half, so would you need more like $8 billion of CapEx to deploy this cash?
John Moreira, Treasurer and Incoming CFO
I understand the math. Where the states and the region are going for clean energy, there will be a need to accommodate further development both on distribution and transmission. We have a decarbonization strategy and we're seeing loads increasing in our service territory that we have to address in the short term. We see that as a window of opportunity. It's probably too early to put pen to paper, but given what we see and what we hear from our state policies, we feel optimistic about it.
Angie Storozynski, Analyst, Seaport
Okay. Great. Thank you, guys. Congratulations, thanks.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you, Angie. Next question is from Durgesh from Evercore. Good morning, Durgesh.
Durgesh Chopra, Analyst, Evercore
Hey. Good morning, Jeff. And thank you, team, for taking my questions. First, as we think about modeling the evaluation and future valuation of these assets, are you still using the 6% to 8% net equity return off of 2026? Is that a good estimate still for the representative earnings from these assets?
Jeffrey Kotkin, Vice President, Investor Relations
Yes, that is correct.
Durgesh Chopra, Analyst, Evercore
Got it. And then just one question, Joe. Strategically, if you were to exit potentially all of the offshore assets, how does that impact your onshore transmission and distribution investments? Does owning offshore assets help you in the onshore transmission and distribution investments or does it not matter? I'm thinking about implications on your onshore plan as it relates to these assets and other offshore assets.
Joe Nolan, President and Chief Executive Officer (CEO)
One interesting aspect of wind development is that even when the unregulated developer loses bids, we often win the interconnection and the transmission build for these developers. That continues and I'm very optimistic. I think we will continue to play a role in regulated onshore transmission construction and operation for these Offshore Wind developers — the appetite is extraordinary.
Durgesh Chopra, Analyst, Evercore
Got it. Thank you for that. Sounds like you're pretty optimistic and bullish on those prospects as it relates to onshore investments. Thank you, and Phil and Jim, congrats to you both. Thanks for taking my questions.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, Durgesh. Next question is from Jeremy from JPMorgan.
Ryan Karnish, Analyst (on behalf of JPMorgan)
Hey. Good morning. It's actually Ryan Karnish on for Jeremy. Thanks for taking my questions.
Jeffrey Kotkin, Vice President, Investor Relations
Hey, Ryan.
Ryan Karnish, Analyst (on behalf of JPMorgan)
I'll just start with the future of gas proceeding in Massachusetts. Any high-level thoughts on the level of CapEx that might be enabled by that proceeding, and over what time frame these might materialize?
Joe Nolan, President and Chief Executive Officer (CEO)
We're playing an active role in that proceeding. We continue to feel very good about the gas business. John, maybe you want to weigh in on CapEx.
John Moreira, Treasurer and Incoming CFO
On that question, it's too early to size the opportunity broadly. We do have about a $10 million investment opportunity in Framingham that we mentioned, where we're looking to test geothermal. But it's too early for us to size the 'breadbox' at this point.
Ryan Karnish, Analyst (on behalf of JPMorgan)
Totally understand. And then just one on Offshore: on the financing side, you talked about having discussions recently with the rating agencies. At a high level, how would a potential partial or full sell-down impact your credit metrics? How should we think about that impacting the financing plan?
Joe Nolan, President and Chief Executive Officer (CEO)
We feel comfortable with what we've announced — the $1.2 billion equity plan — and as we've said, that's regardless of potential proceeds from this initiative. We still need to evaluate it, but we feel optimistic. As I've mentioned, Fitch reaffirmed our ratings and raised the CL&P outlook; we are optimistic Moody's and S&P will follow.
Philip Lembo, Senior Strategic Advisor, Outgoing CFO
If I can add, we've had the rating agency visits and briefings. From a big-picture sense, a monetization would likely be viewed as credit positive, whether from proceeds standpoint or from reducing the risk profile. We'll have to work through the details with agencies over the next few months.
Ryan Karnish, Analyst (on behalf of JPMorgan)
Got it, understood. That makes sense. I'll leave it there.
Jeffrey Kotkin, Vice President, Investor Relations
Okay. Thank you, Ryan, appreciate it. Next question is from Insoo Kim from Goldman. Good morning, Insoo.
Insoo Kim, Analyst, Goldman Sachs
Hey good morning, guys. First, on transmission or other opportunities related to offshore development: as you think about the next five years of the build-out in your service territory, is there any way to frame or size the opportunity set — whether it's transmission or other opportunities that are more common to your operations versus those that may be competitive in nature?
Joe Nolan, President and Chief Executive Officer (CEO)
Good morning. When you look at Offshore Wind development, developers will make landfall and it makes sense for them to work with the host utility. There might be some competitive situations, but generally the host utility is the natural partner. We have strong operations and transmission capabilities; we've demonstrated that with competitive wins. I don't think you'll find better operators, and I'm not concerned about someone coming in and trying to undercut our position.
Insoo Kim, Analyst, Goldman Sachs
That makes sense. But can you frame a magnitude of those investments based on the projects that are expected to come online in your areas over the next 5 to 10 years?
Joe Nolan, President and Chief Executive Officer (CEO)
I wish I could give you a precise number like $5 billion or $10 billion, but it's early. Each project has interconnection and ISO study requirements. I will tell you it's significant and many projects want to get into this region and into our territory. It's too early for a precise figure.
Insoo Kim, Analyst, Goldman Sachs
Thanks. My other question: could this monetization open up organic opportunities on the utility side beyond financing? In other words, beyond balance sheet improvements, could it change how you pursue organic investments?
Joe Nolan, President and Chief Executive Officer (CEO)
All of the above. It would be a combination of balance sheet optimization and deploying proceeds into regulated investments where it makes sense. When we pursue acquisitions, we're disciplined and focus on returns; you won't see us make wild bets. So the proceeds could be used across a range of strategic options.
Insoo Kim, Analyst, Goldman Sachs
Got it. That's all for me. Phil, it's been a pleasure. John, congratulations.
Joe Nolan, President and Chief Executive Officer (CEO)
Thank you.
John Moreira, Treasurer and Incoming CFO
Thanks, Insoo.
Jeffrey Kotkin, Vice President, Investor Relations
Thanks, Insoo. Next question is from David Arcaro from Morgan Stanley. Good morning, David.
David Arcaro, Analyst, Morgan Stanley
Hey, good morning. Thanks so much for taking my question and congratulations, Phil and John. In terms of the inflationary backdrop, could you give any sense of what you're seeing for the year-over-year increase in customer bills so far this year? I'm curious if you have any level of quantification you could offer.
John Moreira, Treasurer and Incoming CFO
Overall, with the energy component, we're seeing roughly a 7% year-over-year increase in customer bills.
David Arcaro, Analyst, Morgan Stanley
Got it. That's helpful. On the $200 million transmission opportunity you alluded to in the script, is that in the plan yet and could you remind me when that would come into service?
Joe Nolan, President and Chief Executive Officer (CEO)
That $200 million is not in the $18 billion capital forecast we disclosed in February. In February we noted additional opportunities and quantified a potential Offshore interconnection opportunity of approximately $500 million. This $200 million filing we did with FERC is part of that $500 million. We are confident there will be more to get us to at least the $500 million if not more. Timing-wise, you could see this materialize in the next year as PPAs are filed and studies proceed with ISO New England.
David Arcaro, Analyst, Morgan Stanley
Got it. And then just last quick question on Offshore Wind costs: what would you anticipate the percentage that's locked in toward the end of the year from that 80% level currently?
Joe Nolan, President and Chief Executive Officer (CEO)
We should be closer to 100% contracted by the end of the year. We feel good about closing that remaining piece; it's not anything keeping me up at night.
David Arcaro, Analyst, Morgan Stanley
Okay. Got it. Understood. Thanks so much.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, David. Next question is from Andrew Weisel from Scotia.
Andrew Weisel, Analyst, Scotia
Hi, good morning everyone. Thank you for squeezing me in. First, another congratulations to Phil and John. I wanted to clarify something: you've said you'd be open to selling offshore wind in the Northeast — if the sale happens, would the buyer be restricted to operate in the Northeast, or could they work with Ørsted projects in other parts of the country?
Joe Nolan, President and Chief Executive Officer (CEO)
I don't see any restrictions that would prevent a buyer from operating elsewhere. They could operate wherever they wanted, but it's early in the process.
Andrew Weisel, Analyst, Scotia
Okay. Just wanted to understand if there was anything in your contract with Ørsted that would prevent that.
Joe Nolan, President and Chief Executive Officer (CEO)
There's nothing contractually that restricts the buyer from operating elsewhere. Our philosophy is to stick to our core region because that's where we know the business best, but that's a strategic choice rather than a contractual restriction.
Andrew Weisel, Analyst, Scotia
Okay. Thanks for clarifying. On financing, you might get a lot of cash proceeds — you talked about offsetting the $1.2 billion ATM equity. What about the DRIP, which is about $120 million per year? Could you turn that off if you had the cash?
John Moreira, Treasurer and Incoming CFO
Yes. Andrew, the $1.2 billion ATM will be executed starting this quarter over several years, as we've discussed. The DRIP is more flexible; we can turn it on and off as appropriate. Right now, we plan to execute the DRIP, but we would reassess depending on the timing and magnitude of any potential transaction proceeds.
Andrew Weisel, Analyst, Scotia
Okay, great. Thank you very much.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, Andrew. Next question is from Julien Dumoulin-Smith from Bank of America. Good morning.
Julien Dumoulin-Smith, Analyst, Bank of America
Hey, good morning. Thank you, team. Congrats again. Phil, John, it's been a pleasure. Maybe returning to the tension on how much offshore net income you were expecting: how much were you anticipating from offshore and are you confident you can offset that by 2026? I know last quarter there was talk about ROEs and how much net income was at the whole year. Trying to reconcile the math this quarter and last quarter.
John Moreira, Treasurer and Incoming CFO
Julien, I'm confident we can find opportunities to replace those earnings given the state policies and the opportunities we've mentioned — AMI being one example at about $1 billion and the transmission opportunities tied to offshore interconnection. We feel confident that through a combination of investments and lower financing needs, we will be able to replace those earnings as we move forward. Right now it's too early to be precise.
Joe Nolan, President and Chief Executive Officer (CEO)
And there's no tension. Don't worry about that.
Julien Dumoulin-Smith, Analyst, Bank of America
If I can just rephrase slightly differently: how should we think about the need for equity beyond the $1.2 billion? Is there any incremental equity need that would be allocated from these proceeds? Obviously you're not building the wind assets, but I'm trying to understand how much further equity is needed versus what you would get from proceeds.
Joe Nolan, President and Chief Executive Officer (CEO)
It's far too early to make that determination because we don't know the outcome of the review or the timing of the investment opportunities.
John Moreira, Treasurer and Incoming CFO
To be clear, we have no plans for incremental equity beyond what we've already discussed. The $1.2 billion ATM and the DRIP remain the plan. There are no additional equity plans at this time.
Julien Dumoulin-Smith, Analyst, Bank of America
Got it. Thanks for that clarity, Phil. I appreciate it.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you. Next question is from Ryan Levine at Citi. Good morning, Ryan.
Ryan Levine, Analyst, Citi
Good morning. I appreciate the evaluation argument for potential monetization, but can you talk about any strategic dis-synergies or synergies that would impact your decision-making about deal structuring? Are there practical reasons for Eversource to maintain ownership or play a part in ongoing Offshore Wind operations from a contractual standpoint? And in this context, why is now the right time?
Joe Nolan, President and Chief Executive Officer (CEO)
A couple of things: dis-synergies are not an obvious issue. The piece of the business we've focused on is the onshore transmission and interconnection expertise, which will remain valuable whether or not we retain equity. As for why now: the New York Bight lease results and strong pricing were a catalyst. Given the market interest and policy support, it's an appropriate time to assess options on behalf of our shareholders. This strategic review is about evaluating options; it was endorsed by the board and we think it's the right thing to do now.
Ryan Levine, Analyst, Citi
If evaluation is the primary consideration, would you prefer to get valuation for a minority sale as opposed to selling your entire stake, given the cash proceeds questions you articulated earlier?
Joe Nolan, President and Chief Executive Officer (CEO)
We have shared the opportunities on the regulated side and believe they are compelling. If a full sale is right, we will consider it; if a partial sale is right, we'll consider that. We are focused on disciplined choices that are in the best interest of shareholders.
Ryan Levine, Analyst, Citi
Appreciate it. Look forward to seeing you in Boston next week.
Joe Nolan, President and Chief Executive Officer (CEO)
Great. See you there.
Jeffrey Kotkin, Vice President, Investor Relations
Thanks, Ryan. Next question is from Sophie from KeyBanc. Good morning, Sophie.
Sophie Karp, Analyst, KeyBanc
Hi. Good morning. I can't help but ask another Offshore question from a different angle. I understand monetizing given valuation, but help me paint the broader strategic picture. You seem like you're selling an asset you don't need to sell, and you don't have an immediate funding need. Despite that, you're proceeding with the ATM and you have yet to quantify where the proceeds could go. Strategically, what is the narrative here?
Joe Nolan, President and Chief Executive Officer (CEO)
The strategic narrative is that there's an extraordinary opportunity in regulated investments where we are very strong, a rotation from a high-value unregulated asset to regulated investments can de-risk our position and be beneficial for shareholders. The appetite and pricing in Offshore Wind is very strong right now, and there are also significant needs for interconnection where we add value. So it's about playing to our strengths and optimizing for shareholders.
Sophie Karp, Analyst, KeyBanc
You used the word 'de-risk' — do you think the risk profile of the projects has changed since you entered into the commitments originally?
Joe Nolan, President and Chief Executive Officer (CEO)
The risk profile itself hasn't necessarily changed, but market dynamics have; there are additional lease areas and many more players in the market now. We're disciplined investors and have to remain so. If the market brings many newly capitalized entrants with different risk appetites, that changes the landscape and is something we have to consider.
Sophie Karp, Analyst, KeyBanc
Great. Thank you. I'll jump back in the queue.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, Sophie. Our next question is from Paul Patterson from Glenrock. Good morning, Paul.
Paul Patterson, Analyst, Glenrock
Good morning. Can you hear me?
Joe Nolan, President and Chief Executive Officer (CEO)
Yeah. We can hear you, Paul.
Paul Patterson, Analyst, Glenrock
Congratulations Phil and John. On the review, have you had any indications or expressions of interest so far? I know your board just took action recently, but have there been any preliminary indications of interest?
Joe Nolan, President and Chief Executive Officer (CEO)
We have not — we just announced the review yesterday and focused on this earnings call. We do expect significant interest and likely there is already interest at this point, but we have not begun the formal process of soliciting and evaluating bids.
Paul Patterson, Analyst, Glenrock
Should we expect something later this year like an announcement around December, or could it happen earlier?
Joe Nolan, President and Chief Executive Officer (CEO)
It could happen earlier. You will have updates as things progress. We'll have a better understanding as to who shows interest, and we'll be transparent and share information as it becomes available.
Paul Patterson, Analyst, Glenrock
Awesome. Sounds smart. Thanks again and best wishes.
John Moreira, Treasurer and Incoming CFO
Thank you, Paul. I appreciate it.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, Paul. We will wrap up with one last question from Travis Miller from Morningstar. Travis?
Travis Miller, Analyst, Morningstar
Good morning, everyone. Thanks for taking my questions and congrats. Phil, John, I appreciate all the information over the years. One follow-up: you've talked about Offshore Wind returns being higher than regulated returns. Has anything changed in terms of supply chain or inflation that would change that view?
Joe Nolan, President and Chief Executive Officer (CEO)
I'll take that. The returns remain higher than regulated returns today. We still feel that way in our estimates and projections — Offshore Wind returns are higher than what we see for regulated returns.
Travis Miller, Analyst, Morningstar
Great. And one quick follow-up on Massachusetts: do you think the spirit of the DPU inquiry has to do with political and policy discussions in the state regarding fossil fuel bans and other measures?
Joe Nolan, President and Chief Executive Officer (CEO)
Yes, absolutely. I think it reflects the state's leadership on gas and their desire to have a fair, deliberative process to sort through the role of gas in the energy transition. We welcome being at the table and participating in that thoughtful process.
Travis Miller, Analyst, Morningstar
Great, thanks so much. I appreciate the extra time today.
Joe Nolan, President and Chief Executive Officer (CEO)
Yes, thank you.
John Moreira, Treasurer and Incoming CFO
Thank you.
Jeffrey Kotkin, Vice President, Investor Relations
Thank you. I don't see any other folks in the queue but if you have any further questions, please either reach out by email or phone to us today. We really appreciate you being with us. And I'm going to turn it back to Irene for any closing remarks.
Operator, Operator
Thank you, Jeffrey. Currently, we have no further questions. If Jeffrey would like to have any closing remarks, ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.
Jeffrey Kotkin, Vice President, Investor Relations
All right. Thank you, everyone.