Welcome to the Eversource Energy Second Quarter 2019 Results Conference Call. My name is Paulette, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Jeffrey Kotkin. You may begin.

Thank you, Paulette. Good morning, and thank you for joining us. I'm Jeff Kotkin, Eversource Energy's VP for Investor Relations. During this call, we'll be referencing slides that we posted last night 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 factors are set forth in the news release issued yesterday. 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, 2018, and our Form 10-Q for the 3 months ended March 31, 2019. Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides that we posted last night and in our most recent 10-K. Speaking today will be Phil Lembo, our Executive Vice President and CFO. Also joining us today are Werner Schweiger, our Executive Vice President and Chief Operating Officer; John Moreira, our Treasurer and Senior Vice President for Finance and Regulatory; Jay Buth, our VP and Controller; and Mike Ausere, our VP for Business Development. Now I will turn to Slide 2 and turnover the call to Phil.

Thank you, Jeff, and today I'm going to cover our second quarter 2019 financial results, provide an update on key regulatory dockets, review our financing activity and discuss several developments concerning our region support for offshore wind development. So starting with the quarter on Slide 2, you can see that we recorded an after-tax impairment charge of approximately $205 million in the quarter relating to our Northern Pass Transmission Project. It was driven by an adverse ruling we received on the July 19 from the New Hampshire Supreme Court. The court upheld last year's rejection on a permit for Northern Pass that was issued by the New Hampshire Site Evaluation Committee. Although we've received the vast majority of permits we need to build Northern Pass, the New Hampshire Site Evaluation Committee approval was critical to moving the project ahead. While we continue to consider Northern Pass a very beneficial project for both New Hampshire and all of New England, for both an economic as well as an environmental perspective. We see no near-term path for the project's success and have no plans to pursue it further. Excluding Northern Pass charge, we are at $0.74 per share for the quarter compared with earnings of $0.76 in the second quarter of 2018. Transmission earnings totaled $0.37 per share in the second quarter of 2019 and excluding the Northern Pass impairment, compared with earnings of $0.35 in the same period of 2018. The improvement was due to the increased level of transmission facilities in our rate base. In the first half of 2019, transmission capital expenditures at our 3 electric utilities totaled $447 million, and we continue to forecast core utility transmission investments of nearly $1 billion for the full year. Our electric distribution segment earned $0.33 per share in the second quarter…

And I'm going to turn the call over to Paulette just to remind you how to ask questions.

[Operator Instructions]. I'll now turn the call back to Jeffrey Kotkin.

Thank you, Paulette. Our first question this morning is from Mike Weinstein from Crédit Suisse.

How much of the offshore wind -- I guess, at this point, is everything that has been announced already in the -- expected to be in that guidance range you've already put out there? Or is any of this now above where your guidance is?

Mike, this is Phil. Our current guidance of 5% to 7% range goes through to 2023, so as I've said before, when you get to 2023 we'll really only be South Fork, which will be fully in-service for year and then Revolution Wind will be coming in during the year. So those projects are baked into the guidance that we have. The Sunrise Wind will come in beyond what our current guidance period is, and we will pick that up when we update our guidance on our year-end earnings call.

And what kind of returns are you expecting in these investments at this point?

What we stated is that on a unlevered basis, Orsted has publicly stated that they target and we would support sort of an unlevered return of about 8% that translates into a midteens ROE if you are in the Eversource world.

Got you. And also has -- the rating agency action on the downgrade, does that have any material effect on your earnings guidance going forward?

No, it doesn't, Mike.

Thanks, Mike. Next question is from Sophie Karp from KeyBanc.

Just wanted to ask you philosophically, what is your appetite for a project similar to NTP and maybe scale and complexity outside of the offshore wind where obviously, you're participating. So how do you think about that going forward?

Well, Sophie, welcome to the Eversource call. Good to hear your voice. So our region has aggressive targets for carbon reduction and a strong appetite for Clean Energy Solutions. So there is nothing on the drawing board that we see right now other than the offshore wind opportunities that we're involved with, but I'm certain that in the future as the regions need change and as more Clean Energy requirements come into play that other projects could develop, but right now, there is nothing in our plan and nothing in the drawing board for the region that's not already been announced out there.

Got it. And then on the offshore wind, obviously, there has been headlines about the issues that [indiscernible] having with that permitting from the federal level. What are your thoughts on that? And obviously, you've given yourself way more time to deal with that as far as the time line goes, but generally if you could just give us some color or thoughts on how you expect the permitting process to shape up?

Sure, not knowing specifically what their situation is, the details would be in their court, but really from Eversource and Eversource-Orsted side, we recognize how important sighting and permitting is for the success of this project, and we are focused in our sighting efforts to filing complete sighting and permitting applications, really based on thorough offshore site investigations, we've done a lot. A lot of upfront work, our approach is to complete an extensive amount of survey work to this -- the fullest extent possible prior to submitting applications. We think that's the best way to make it through the permitting process. On our projects, we've had a fleet of survey vessels. We've spent millions of dollars to assess the characteristics around these areas. That's -- those are critical to the filing of a complete application. We were the first in the U.S. to develop and deploy these measurement BOVIS that are in our lease area to study wind speed and wave height. So we put a lot of effort into thoroughly investigating the sites before moving forward. We also understand that there is constituencies out there that you have to address, the fisheries industry. We have full-time liaisons. We've modified our wind farm layouts to avoid impacts in our designs. We were the first developer to announce changes in proposed turbine layouts based upon input from local fishermen. So that plus the fact that we were the first developer to partner with a group called Responsible Offshore Development Alliance and really it provides a unique partnership for how fishermen can provide direct input to us. So really that combined with the combined strength, I'd say, of the Eversource and Orsted teams in this area, I think, really is a differentiator.

Next question is from Steve Fleishman from Wolfe.

So just a couple of things, first, Phil, could you just clarify the -- I think in the past the Revolution Wind even though it starts in 2023, it was not really going to benefit till after the forecast period, is that still the case?

That's correct, Steve.

Okay. And then is there any information you can give on pricing for Sunrise Wind and -- or any idea when that will be made public?

As I've mentioned in my comments, we are probably a few months away from finalizing a contract with [indiscernible] and the expectation really is within 30 or 60 days after that. So after that period at some point there is an expected disclosure of pricing.

Okay. And then just -- it sounds like maybe you could give a little more color on the comments on financing future growth in the offshore wind. So it sounds like -- a high level thought process is that as the first projects come on they generate cash flow that helps to basically fund the new growth and that's kind of high level how you are thinking about this?

In the early years of those, there's a significant amount of cash flow that's generated from projects once they go into service and that will be used to fund and finance some of the construction costs as we go forward and really -- so I think that helps us and that really gets to the conclusion that other than doing some minor at-the-market issuances we have no future needs for a block equity.

Okay. So for example, that might be as you're going to book, you're going to get the ITC from those projects. And then you can kind of reinvest those into the growth projects.

Right, there's cash generated from the... Correct, correct. But really, that should -- as I've said, that, that should really -- if you take that and the success that we've had on the future project, that really should allow us to -- and we expect that our growth will accelerate beyond the midpoint of our 5% to 7% as we move forward here.

Right. Okay, and then just one other question on the offshore wind. So just in terms of the actual booking of the accounting for the tax credit, how are you planning a rough sense of how you're planning to book the accounting of the ITCs?

Yes, the booking of it would be over the life of the asset or the life of the contract. So over a time period so -- or you could look at, so that's one option. The other is to do it over a 10-year period. So we're sort of looking at both of those at this stage.

Okay, but it's going to be -- you're not going to -- you're definitely going to spread it out?

Yes, correct.

Our next question is from Praful Mehta from Citi.

So maybe just picking up on the tax side, just to clarify on the ITC, is the assumption that the sharing of the ITC and the depreciation, will that be based on the ownership percentage? Or is there a disproportional sharing or a tax equity component related to any of the tax credits?

So when you look at -- the partnership is a 50-50, and I guess, the best way to look at it is, you could -- there's many ins and outs and gives and takes, but the economic value is shared 50-50 between the 2 partners.

Right. So the economic value in total, so the combination, I'm assuming of cash flows and tax credits but you could split the tax credits different from the 50-50, is that a fair way to understand that?

Any category could be -- within the categories split differently than 50-50, but the -- if one category is 40% then another category has to be 60% to offset. So overall, all the categories that relate to the economic value are shared 50-50, but if not each one of them has to be 50-50.

Got you. And just remind us, your tax profile post the 2022 time frame, you are a full tax -- cash taxpayer at that time?

That's correct.

Got you. Understood. That's helpful. And then in terms of the equity offering, you've talked about 12 million shares being done over some time period. Is there any color you can provide on how to think about matching of the timing of the forward with when you would want to do it depending on when the CapEx kind of hits, just to understand that timing?

Sure. The forward was put out for a year, so the expectation is that by the end of May of next year that those 12 million shares would be issued.

I got you. So you delay that as much as you can effectively is the good way to think about that?

Yes, I think the best way to think about it is, we would assess what our needs are and what the opportunities are, and we, again, be opportunistic about when we do it. But we're not going to issue before we need it, that's correct.

Understood. And then finally just on the growth profile that you talked about, the 5% to 7%, there clearly wasn't any Northern Pass in your forecast through 2023, is that right from a growth perspective?

Right, the capital investment was removed from our plan, that is correct.

Right, but was there any underlying base earnings or any AFUDC or anything else in related Northern Pass that was in the plan?

Yes, there was. And I think we've talked about that, that there -- in addition to earning the return on the investment under the transmission service arrangement that we have that there was kind of $0.03 to $0.04 of AFUDC annually in that in our forecast. So we know that, that will not occur, but we are very comfortable and reaffirming back our 5% to 7% target, and I will say that for the remainder of this year because of the impairment that they'll probably be about $0.02 of AFUDC that have been booked, had the project been active that will -- we will not be reflecting, but that we will, as we always do, look for ways and I'm confident, that we'll find opportunities to offset that for the rest of this year and going forward.

Got you. Super helpful. And just to confirm, the 5% to 7%, so you're still comfortable within the midpoint of that range even throughout through 2023?

Yes, that is correct.

Next question is from Paul Patterson from Glenrock.

I wanted to touch base with you on offshore wind and this declining price cap legislation, I guess, sort of the amendments are sort of eliminated and just sort of how you view that in the context of offshore wind economics, I mean, kind of a dramatic move, I guess, on the part of the state legislature and the governor. How should we think about that in the context of, I guess, what Massachusetts is experiencing?

Thanks for the question, Paul. So late last night, I think, you're probably referring to or maybe you haven't caught up with yet that the cap in Massachusetts, there was legislation that I'm not sure the governor actually signed it earlier this morning or will be signing it, but effectively that does lift the cap for one year. So for the next -- for this upcoming solicitation, the cap in Massachusetts is removed and I think that's just recognition that there's many things that they hadn't thought of at the time when the cap was instituted, but they still are focused on cost going forward. So the legislation was passed by both the Senate and the House that removes the cap for this current solicitation. So there is no cap over the current solicitation.

And is that because, I guess, they feel that the economics are such that we might see higher prices in this upcoming solicitation as opposed to what was achieved previously? Is that safe to say?

Yes, I think there is recognition if you've kind of followed the different proposals that were out there, Paul. Folks really honed in on this, the tax credits changing, when they passed the legislation they were at 24% or 30%, and they've been reducing each year. So I think that there is a recognition that all of the things being equal if you lose or have lower tax credits that, that's going to impact the pricing. So rather than sort of engineering every particular aspect of the bid, they just decided it's easiest just remove the cap and -- for a year and then go forward.

Okay. And then on the Connecticut grid mod. I'm sorry, if I missed this. What's the timing that you're expecting on that?

Well, the -- I'll just give a little bit of history there that this was a docket that has been completed and all the testimony has been done, but in the interim, there's been some -- there was changes, Katie Dykes, who was the chair of the PURA has moved -- sort of been moved into a higher position and a new chair at Connecticut PURA then there was legislation in Connecticut to increase the size of PURA by adding 2 more commissioners. So there's been a little bit of evolution in the Connecticut PURA. So right now, we believe that is certainly one of the issues that is on the front burner of the agenda at the PURA, but it's hard to say precisely when we expect it, I mean, we do expect it to come out this year. And we have been working on proposals that we would bake in response to it, so that we are ready to go when something does come up. But just to refresh your memory, this is not a prescriptive per se order that we're looking -- that's coming out, the expectation, it will be more directional and then ask each company to submit specific proposals to address it. So in the anticipation of that we are working currently on our specific proposals, again, so that we are ready when the order comes out.

It's been kind of dormant there, I mean, for -- I guess, since January or something, it seems to me, and I'm just wondering, you expect an order though just to of show up or is there any other process that will happen between -- or will there be something else that's going to be -- in other words, should we just -- are we just waiting for an order now? Is that pretty much where we're at?

There is no indication that there is any other process that would be done, so at this stage, we are just awaiting an order.

Okay. And then just finally on the battery stuff, how do you see the economics of your battery investments vis-à-vis peakers. I mean we're hearing different things from different players in the sector around the country, cheaper than a peaker, that kind of thing, when it's combined with renewables what happens? I'm just sort of wondering since you've highlighted the deployments that you're making in your service territory. How do you see that -- how do you see the economics of that going forward?

Paul, as I described in our applications, there's many different applications for the storage and it's -- some of it is purely based on cost displacement of a peak, our resource some of it has to do with reliability, providing battery storage as our application in province down on the Cape really provides an opportunity to improve reliability there and then we don't have to construct a line through the national seashore or a type of thing. So there's certainly a myriad of benefits, price being one of them, emissions being one of them, reliability being one of them, and I think battery storage, as a package, can address a lot of those things, and then if you can combine it with intermittent resources, it even has a better application. So certainly there's opportunities for the cost to come down. I believe in that area as there's improvements made in storage technology, but I think the early applications are going to kind of proof some of these things out, and we feel very -- have a great opportunity here to really demonstrate the real value that it brings on many fronts.

Next question is from Travis Miller from Morningstar.

So on the green bonds, I was wondering if you could talk about your decision to go with that type of bond versus the, obviously, traditional type. And then how much capacity you have to continue issuing those types of bonds given the pricing you've got?

Thanks for the question, Travis. I'd say that if you look at the bottom line, we believe that we -- our pricing was tighter in the green bond than it would have been in an alternative issuing, a nongreen bond issuance for when we need it. So pricing, there's certainly a lot of interest, our ESG profile really contributes to attracting investors. As you know with the green bonds, there needs to be a green reason to use it and certainly, as we move forward with all of Clean Energy applications, there could be more opportunities to issue green bonds going forward. So the -- I guess, the capacity for them is dependent upon what you're doing that's green, and we do a lot of things that aren't green. So I'd expect that we'd have much more capacity to issue green bonds as we move forward. I can't give you a specific dollar amount or application right now, but the basis for the green bond that we did issue was the $500 million a year that we spend on energy efficiency and some of our other green initiatives. So -- and those become more and more part of our business. There's more and more opportunity to issue those green bonds.

Okay. And do those have to sit, not the ones you issued, I know, I also have to sit at the parent but is there opportunity or capacity to issue green bonds down at the utilities for some of the stuff, the batteries or anything else that you're doing?

I mean, this one was -- in fact, this one was at NSTAR Electric. So it absolutely can go at the utilities.

Okay, I guess, I'll ask the reverse then, could you do it with the parent some sort of the offshore winds?

It's at the end of the parent.

So I think almost likely, yes.

Okay, okay. And then just really quick clarification on the equity. How much would you have needed if you weren't doing the offshore wind? Was there a need there either on the parent refinancing site or down at the utilities?

What we said and what we'll continue to say is that we had -- we have a robust $13 billion capital program in that forecast time period. And that combined with the activities we were performing in the wind area really drove the need for the equity issuance. I hesitate to allocate x amount to one category versus the other, but certainly when you look at, we do have robust capital plan that was a big driver of that deal.

Next question is from Julien Dumoulin-Smith of Bank of America.

So just coming back to some of the prior questions on tax credit. I was just curious, do you have any more specificity you can talk to about both the specific ITCs tax year that you're going to try to qualify for the different offshore projects? And also just come back just what is the amortization here? I know this was kind of indirectly asked earlier, but I just want to be very specific about it, and I recognize that you may not have yet made up your mind with respect to these decisions either.

Thanks for the questions, Julien. I'd say that the specificity we've given on the tax years or whatever to say that they were appropriate considering the timing of when we bid and what the construction schedule would be. But we have not nor would we plan to identify a specific year, a specific item, that type of thing. But I will say that we've accounted for being conservative, having schedule changes, et cetera, in our tax planning profile. So no more specific than that at this stage. In terms of the number of years, I'd say -- I pointed out there's different ways of showing that. Obviously, you get cash in early and then you could reflect that. So we would do it in the most attractive way, but still evaluating -- we're still evaluating how it best fits into our tax profile going forward. It's hard to say what that looks like right now, but we are going to make the best use of that in the years ahead.

All right. Let me reframe it this way perhaps, by the time that you're ready to roll forward your outlook to '24, will you be reflecting a decision with respect to tax recognition in that guidance right? I mean, this would seemingly be a pretty material piece of how you establish your future guidance, I would think?

Sure. I'd say there'd have to be some baseline assumption that we would make there that would be appropriate to discuss.

Got it. And then just come back to Praful's question earlier about the value share. I had a thought that Orsted had confirmed that they indeed there were going to provide you with their tax credits as a quasi-tax equity counterparty, but can you elaborate, I mean, to the extent possible about how they and you are talking about monetizing the other tax component? And also if possible, how you would think about recognizing that again in your income statement at least to which you are taking on their portion of tax credit.

So as I said, there are many categories to divvy up the 50-50 economic value of the partnership and certainly, if every source has more of an ability to utilize more efficiently the tax benefits of the partnership then we'd be foolish not to sort of make that determination. So I'd say at this stage, Julien, the specific, how that's going to work and what the numbers are, are still influx, still something that we look at all the time as part of our partnership, what makes the most sense for the partnership returns going forward, and how we can best utilize the financial profile and the operational knowledge, in fact, of each party to be the most successful financially and operationally here. So I think it's just common sense that if somebody can better do something, let them. Rely on them whether it be constructing something, if there's a better tax appetite, if you can finance cheaper. So all of these different items, we're going to pick the best way to do it and if that means that, that category isn't exactly 50-50, so be it. But the overall division is going to be 50-50. So some of these decisions evolve as you go through time.

Got it. Quick clarification if I can summarize here. How you think about the equity net injection needed for these offshore projects? Again, the thought process being, trying to tie back the balance sheet, the equity you raised here against your outlook over the 5-year period. How should we think about these projects? And I understand that their cash flow profile shifts pretty dramatically depending on the specific year, but upfront, 30% equity? How would you frame it?

I'd say the way that you should look at and the way that we've guided is to say, you should assume that it's sort of an Eversource profile cap structure and that would be 64%.

Next question is from Andrew Weisel from Scotia Howard Weil.

I have a question on your appetite for more offshore wind. So you have committed to 50% of over 1,700 megawatts. How big would you be willing to let that business get for you? Is it a question of the earnings mix or the balance sheet or the physical lease capacity space? And what would happen with the partnership with Orsted if you and they wanted to move at different paces?

Thanks, Andrew. And I guess this is a question of bigger -- is bigger better, I guess, is the nature of your question. But our lease sites can handle 4,000 megawatts of capacity and that's what we are in partnership with Eversource and Orsted and really I'd say there's not a race to get to the full capacity. There's many thousands on the drawing board of offshore winds RfPs and needs that are expressed in New England and New York. And those come in over many, many, many years and our lease areas, in my view, are the very best. I mean, you look at the proximity of where they are to shore, you look at all the wind speed and other depth characteristics of those sites, and I'd rather have my sites than anything else out there. So there will be plenty of opportunities to grow this as we move forward. But we're going to do it in a way that is disciplined, and we're going to look at each RFP in terms of what the schedule is, what we already have on our plate, what we can do going forward and what the financial profile is of that RFP. So it has to be not necessarily bigger but it has to fit the profile and be a financially additive to what we're doing going forward.

Okay. So notwithstanding cost, certainly, you can't get into the details for bidding reasons, but it sounds like you will be pursuing all of these reasonably aggressively, right?

I didn't say that, I said we would look at each one and make determination as to what the schedule that the RFP is looking for, what we already have on our plate, what we think the financial, the bid price would be, what that would mean in terms of returns and then we would make a determination based on that in terms of what our bid strategy would be for each specific RFP.

Okay, got it. And just to confirm, am I right that for all of these offshore wind projects, the interests will be capitalized and therefore, it will impact cash flows during construction but not earnings? Is that the right way to think of it?

That is, yes. You are correct.

Okay, great. Then one last one if I may. How do you think about affordability in New England given the higher costs of these projects? I understand that your utilities are in rate freezes, but over the next several years, is affordability a concern especially given the high starting prices for rates in the region?

Affordability for our customers is already always a primary concern as well as their reliability and the quality of service that we provide. So certainly, affordability of energy supply costs, affordability of our own distribution rates, affordability is top of the list for customers and top of our list. So we continue to evaluate that and you look at that in relation to what the alternative is, okay? So if you are in a region, as we are in the 3 states that we serve, and in a region that has very aggressive carbon reduction targets, you need to see how is it that you're going to meet those targets and provide the level of capacity and service to customers that they deserve. So what might seem like high cost to some is relative depending on the region you're in and the alternatives that you have, but certainly affordability is important to us.

Next question is from Mike Weinstein at Crédit Suisse. Mike?

One quick follow-up. Just wanted to know if you guys have heard anything from FERC on transmission ROEs and the decision on that upcoming. I'm sorry, if I missed this answer earlier.

Mike, you didn't miss any answer on that. The answer is that we have not heard anything from FERC on the status of our 4 open ROE compliance.

Okay, I was just wondering because they've been issuing a few decisions lately, so I was just wondering if there is any movement.

Yes, nothing that we're aware of or that we've seen.

We have nobody else in the queue, so we want to thank all of you for joining us this morning. If you have any follow-ups, feel free to give us a call or send us an e-mail. Thanks a lot and have a good day.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. And you may now disconnect.