Operator: Our next question comes from David Arcaro with Morgan Stanley.
David Arcaro: 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?
John Moreira: 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.
David Arcaro: 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?
John Moreira: 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.
David Arcaro: 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?
John Moreira: 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.
Operator: We now turn to Durgesh Chopra with Evercore ISI.
Durgesh Chopra: 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?
John Moreira: 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.
Durgesh Chopra: 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?
John Moreira: 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.
Durgesh Chopra: 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?
John Moreira: 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.
Operator: We now turn to Angie Storozynski with Seaport.
Agnieszka Storozynski: 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?
John Moreira: 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.
Agnieszka Storozynski: 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?
Joseph Nolan: 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.
John Moreira: 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.
Agnieszka Storozynski: Okay. And no discussions with PURA around that potential sale or putting the asset on the block?
Joseph Nolan: 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.
Agnieszka Storozynski: And then lastly, the dividend growth profile, is it basically mimicking the earnings growth or EPS growth?
John Moreira: 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.
Operator: Our next question comes from Anthony Crowdell with Mizuho.
Anthony Crowdell: 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?
John Moreira: 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.
Anthony Crowdell: 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?
John Moreira: Yes. With the cost pressures that we’ve had, I want to make sure I understand your question.
Anthony Crowdell: 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?
Joseph Nolan: 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.
John Moreira: Yes, that’s right.
Operator: We now turn to Paul Zimbardo with Bank of America.
Paul Zimbardo: To clarify, what’s the forecast for capital investment into offshore wind into 2024 and specifically kind of before the close of the transaction?
John Moreira: 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.
Joseph Nolan: And whatever we put in comes back to us. It’s not as if we’re going to be out of any money.
Paul Zimbardo: 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?
John Moreira: 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.
Operator: Our next question comes from Ryan Levine with Citi.
