Welcome to the Eversource Energy second quarter 2018 earnings conference call. My name is Paulette, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Jeffrey Kotkin, Vice President for Investor Relations. You may begin.
Thank you, Paulette. Good morning, and thank you for joining us. I'm Jeff Kotkin, Eversource Energy's Vice President for Investor Relations. During this call, we'll be referencing slides that we posted last night on our website. As you can see on slide one, 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. Some of 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 31st, 2017, and on Form 10-Q for the three months ended March 31st, 2018. Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides we posted last night, and in our most recent 10-K. Speaking today will be Phil Lembo, our Executive Vice President and CFO. Joining us by phone for Q&A is Lee Olivier, our Executive Vice President for Enterprise Energy Strategy and Business Development. Also joining us today are Jay Buth, our VP and Controller, and John Moreira, our VP of Financial Planning and Analysis. I will turn to slide two and turn over the call to Phil.
Thank you, Jeff. This morning, I'll summarize our second quarter and year-to-date results, recap recent regulatory proceedings, discuss our updated capital plan, and affirm our long-term growth rate. Overall, we're very pleased with results through the first six months of the year. Our mid-year results are consistent with our expectations, and we continue to target full-year EPS of between $3.20 and $3.30 a share. We've made good progress on a number of our initiatives in our regulated businesses that will enhance service to customers and support our 5%-7% long-term EPS growth rate. I'll provide more specifics on those initiatives shortly, I'll start with slide two and a review of our financial results. We earned $0.76 per share in the second quarter of 2018 compared to $0.72 in the second quarter last year.
Our electric distribution business earned $0.32 per share in the second quarter of 2018, compared with earnings of $0.38 per share in the same quarter of 2017. Just a reminder that historically, we reflected both distribution and our Public Service Company of New Hampshire generation in this electric distribution segment. Year-to-year comparisons will be impacted by the divestiture of these assets in January. The quarterly decline was expected and primarily due to lower electric distribution margins, I'll talk about that in a minute, as well as the lower generation earnings in New Hampshire generating assets. Also had some higher property tax expenses in the quarter. Together, those factors more than offset the benefits of distribution rate adjustments in Connecticut and Massachusetts.
The lower distribution margins in Eastern Massachusetts primarily reflect the timing of revenues through NSTAR Electric's new decoupling mechanism that was approved in the recent rate proceeding. This mechanism is more reflective of a seasonal usage pattern than NSTAR Electric's former loss-based revenue recovery mechanism, which was reflected ratably over the years. The new mechanism is more seasonal. The old mechanism was ratable over the year. As a result, compared with past years, we'll see higher revenues in the peak usage quarters, in other words, really the third quarter, and lower revenues in the other quarters. Simply put, the electric distribution segment is impacted by the generating asset sale and timing of the new decoupling mechanism, both as expected. Our electric transmission business earned $0.35 per share in the second quarter of 2018, compared to $0.30 per share in 2017.
Improved results were due largely to increased level of investment in our transmission facilities. Our natural gas business earned $0.02 per share in the second quarter of 2018, compared to $0.01 per share in the same period of 2017. Improved results were due primarily to much colder weather in the month of April, resulting in increased heating-related sales at Yankee Gas, which is not yet decoupled. Our new Aquarion Water Company subsidiary earned $0.02 per share in the second quarter, consistent with our expectations. Finally, the parent and other segment earned $0.05 per share in the second quarter of 2018, compared with $0.03 in the second quarter of 2017. Earnings in both years benefited from investments we've made in certain renewable energy facilities that we've discussed in the past, the impact of which is recorded in the second quarter of each year.
Turning to year-to-date results, we earned $1.61 per share in the first half of 2018, compared to $1.54 in the first half of 2017. Our electric distribution business earned $0.65 per share in the first half of 2018, compared with $0.74 per share in the same period last year. Again, lower results were primarily due to our New Hampshire generation divestiture, as well as the timing of decoupling revenues versus the previous loss-based revenue methodology. Our electric transmission business earned $0.69 per share in the first half of 2018, compared with earnings of $0.60 in the same period of 2017. This was also due to a higher level of investment in our transmission facilities. Natural gas segment earned $0.20 per share in the first half of 2018 versus $0.17 in 2017.
The primary driver were higher sales resulting from colder weather in the months of January and April. Firm natural gas sales were up about 6.6% year to date compared with the same period in 2017. Our water distribution business earned $0.03 per share, and our parent and other earned $0.04 per share in the first six months of the year. I should note that the most profitable quarter for Aquarion is typically the third quarter, since water usage peaks during the summertime period. From results, I will turn to slide three and some recent regulatory developments. Regulatory decisions for our core business have been constructive and supportive of our utilities capital plans designed to meet the ever-increasing expectations of our customers.
We've increased the rate of infrastructure investment to modernize our electric grid, enhance electric reliability, accelerated the replacement of older natural gas and water distribution pipes, and increased investments to meet our state's environmental and clean energy goals. On May 1st, Connecticut Light and Power's new three-year rate plan took effect with an initial distribution rate adjustment of about $64 million. Two smaller increases will follow in May of 2019 and May 1st of 2020. In addition, the base rate adjustments for CL&P, regulators approved a capital tracker for investments in our system above a base amount of $270 million per year. These investments are aimed at making the grid more resilient such as smart switches, enhanced tree trimming, upgrades to our poles and their integrity, and substation security. These total about $75 million a year.
Recovery of these costs associated with these investments will go through the reconciliation mechanism. Currently, a PURA-sponsored process for identifying top priorities for grid modernization is underway, and we expect to file a separate grid modernization plan before the end of this year. We have not yet reflected any potential Connecticut grid mod investments in our distribution capital forecasts. I believe, though, our proposal could be meaningful as we work to enhance grid automation and two-way communications with our customers about real-time grid conditions, as well as consider investment in electric vehicle infrastructure and battery storage. Shortly after we wrapped up our CL&P rate review in Connecticut this spring, we filed our first Yankee Gas rate case in about eight years. Hearings in the case are scheduled to begin this month with a draft decision due on November 14th and a final decision on December 5th.
The new rates would take effect in January of 2019. The rate application includes a proposal for revenue decoupling, which we expect PURA to implement since Yankee Gas is the only one of the Connecticut utilities without a decoupling rate structure. We've also proposed to increase capital expenditures, particularly investments related to replacement of our cast iron and unprotected steel pipe. The acceleration of these important capital projects will provide great service reliability and safety, as well as continuing to improve the performance of leak-prone infrastructure. Fewer leaks are good for the environment and will help to lower O&M costs, ultimately benefiting customers. In our rate application, we highlighted the significant improvement in key performance metrics over the past four years with no increase in base distribution rates. This includes a 45% reduction in Class 2 leaks since 2014.
Additionally, Yankee Gas' actual non-fuel O&M in 2017 was 3% lower than it was seven years earlier in 2010. Another excellent story for customers. Turning from Connecticut to Massachusetts, we continue to move forward with our resiliency investments at NSTAR Electric. This past spring, the DPU approved $133 million of additional grid modernization investments for NSTAR Electric over the next three years. This is in addition to the $100 million authorized by the DPU in 2017 for two battery storage initiatives and initial electric vehicle infrastructure. As a result, we'll be investing a total of $233 million in grid mod projects, which will be recovered through a capital cost recovery mechanism. In addition, the DPU instructed NSTAR Electric to file a three-year rate plan for continued grid modernization efforts for the years 2021 through 2023. We expect to file that plan sometime in 2020.
Turning to slide four, I just want to pause a minute to discuss our capital forecast. Every year at this time, we commence our process for updating our long-term operating and capital plan. This effort concludes at the end of the year with the subsequent year's operating plan, the earnings guidance that we provide to you in February, as well as the long-term capital investment forecast we include in our 10-K. Since we published our most recent forecast, we've seen continued focus by state energy policymakers to enhance the electric grid, accelerate the replacement of aging infrastructure, and construct facilities to meet the growing customer needs. We'll provide you with a full update again in February, but at this time, we believe that our capital expenditures in the next three years, and that's the period 2019 through 2021, will increase by a total of $600 million.
This brings our total core business CapEx to $7.1 billion from the previous estimate of $6.5 billion. This incremental capital will be split between $300 million for electric transmission, $200 million for electric distribution, and $100 million for natural gas distribution infrastructure investments, all to benefit our customers. The primary driver of this increased level of expenditure will be investments in resiliency and reliability that will allow us to continue to enhance our customers' experience. As I said, this $600 million of expected increase in CapEx does not include any potential initiatives that may emerge from the grid mod reviews in Connecticut or Massachusetts. For electric operations, we need to accelerate resiliency investments, and this was underscored by the very harsh March and May weather we referenced in our news release.
To be more specific, on the electric transmission system, we now plan to accelerate the upgrades of aging wooden transmission structures and expect to replace thousands of them with new steel poles over the next several years. We're also focused on upgrades to certain substation equipment. On the electric distribution side, we're seeing additional customer growth in the immediate Boston and Cambridge area, which is resulting in the need to upgrade several key substations to accommodate this ever-increasing demand. On the natural gas side, most of the additional spending is at NSTAR Gas as we accelerate the replacement of leak-prone bare steel, cast iron, and unprotected coated steel pipe, which accounts for about 33% of our mains.
We are now also planning additional upgrades at our Hopkinton LNG facility, which is critical to maintaining adequate supplies of natural gas for our customers during extended cold spells like the one our region experienced this past winter. At this time, we're not anticipating incremental investments in our water segment beyond what we disclosed in February. Slide 5 shows that our current forecast envisions average annual rate-based growth for Aquarion of greater than 7% through 2021, compared with about 3% during the periods prior to our acquisition. This estimate is only from organic growth projects. Turning to slide 6, that relates to our CapEx revisions. These investments, the $600 million, combined with our normal strong cost management focus, will continue to benefit customers through improved reliability and service.
We are confident that we'll be able to achieve our long-term earnings growth around the midpoint of the 5%-7% growth rate, and that's without the Northern Pass, Access Northeast, or offshore wind projects, or without any share repurchases for that matter. To be clear, assuming we're successful and we execute our current capital plan, continue to manage our O&M costs, where we've always excelled, we're confident we can grow earnings around the middle of our 5%-7% projected EPS growth rate, even without the large projects. I should add that our forecast does not assume that any of our states move forward with widespread advanced metering technology, which could provide customers greater information for managing their energy consumption, and which could involve substantial capital investment.
In our grid modernization decision earlier in the year, Massachusetts regulators said that the advanced metering technology was not yet timely for implementation, they did express a commitment to reviewing advanced metering as a means to meet grid modernization objectives and intend to kick off this project to evaluate the next steps for cost-effective deployment. Additionally, Connecticut regulators are considering advanced metering component in their grid modernization review I mentioned earlier. As we've done in the past, we'll provide you with a new year-by-year capital investment forecast when we report year-end results in February. We're confident in our ability to operate, maintain, and invest in our core business to provide the reliable, responsive, cost-effective, and technologically advanced service that our nearly 4 million customers expect and deserve from us. That concludes my remarks. As Jeff mentioned, Lee is offsite this morning, but joining for the Q&A.
Now I'll turn the call back to Jeff.
I'll turn the call back to Paulette just to remind you how to enter questions.
Thank you. We will now begin the question-and-answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone.
Thank you, Paulette. Our first question this morning is from Shahriar Pourreza of Guggenheim. Good morning, Shar.
Hey, guys. Good morning.
Good morning.
Good morning.
Just a couple of questions on CapEx here. Obviously somewhat of a fairly healthy jump in CapEx. Just as far as we think about recognition, should we assume the spend was sort of incremental to plan or more sort of a pull forward of spend?
No, this is incremental to plan, Shar. As I said, we identified a lot of this just as a result of the harsh winter and the storms that occurred in the region over the first part of the year that really highlighted the need for incremental investment in our infrastructure.
Got it. Obviously, you've displayed a very strong level of confidence in sort of your growth trajectory without these binary risky projects, right? Is there any reason why we shouldn't assume sort of that same level of confidence as we move beyond your current trajectory of 2021?
There's no reason you shouldn't expect the same level of confidence.
Okay. Got it. Just lastly on sort of the grid mod. You guys, sort of you're in the midpoint of your range as we think about your base spend. As you think about grid mod, assuming a fair outcome or sort of a base outcome, is that enough to get you sort of to a top end of your range? Will that sort of clearly still support the midpoint?
Well, it's difficult to speculate because those proceedings are just in Connecticut, sort of just beginning as a smaller docket or another docket in New Hampshire. They're all sort of at the beginning phase and beyond our current grid mod in Massachusetts, as I said, we're filing another three-year plan, that's not going to be for another year. It would be difficult to speculate how much or what kinds of initiatives we would be expected to focus on. I need a little bit more clarity before being able to put you in a point in the range.
Got it. Then just on buybacks, just obviously given the higher capital outlook today and sort of incremental upside we're going to likely see around grid mod. Are buybacks sort of off the table at this point?
Well, as I said, the growth rate, the confidence we have in the mid-range of that growth rate does not assume any share repurchases.
Got it. Thanks, guys. Congrats, good change of messaging for sure. Thanks.
Thanks, Shar.
Next question is from Angie Storozynski from Macquarie. Good morning, Angie.
Good morning, guys. Thank you. Two questions. The updated growth plan does look strong. In the context of that, could you comment on how should we think about your continued interest in water M&A, and also separately, what happens with those bulky projects like Northern Pass, like offshore wind? Should we assume that you will continue to work on these, or are these basically now completely canceled? Thank you.
On the second point, there's certainly activities that are going on the projects in terms of either siting or analysis to position us for success in the future. As I said, there's nothing in the existing forecast period for significant investments or projects in that time period. In terms of water, again, we're interested in pursuing the Connecticut Water transaction. We feel that we have a superior and compelling proposal that benefits customers, communities, shareholders, employees. It's really highly complementary, and it's locally situated. It's in a territory of familiarity with us in terms of the region. We feel that the transaction will be accretive in the first year of any kind of transaction. That's the transaction that we're interested in at this time.
Okay. That transaction still has to be EPS accretive in the first full year after the closing, right? That's the flexibility as far as any potential higher offers for Connecticut Water, that it has to be accretive.
That is correct. We believe our proposal is a full and fair proposal. It would have to be accretive in the first year.
Lastly, on Aquarion, the 7% rate base growth is actually already pretty healthy. When, if at all, can we expect any updates to your growth plan for that business?
I would expect that that would be pulled into our normal operating and capital plan update. If there is any change or an update, we will provide you that information in February when we give our full update.
Great. Thank you.
Thanks, Angie. Next question is from Mike Weinstein from Credit Suisse. Mike, good morning.
Hi. It's actually [Hank for Mike.
Hi, how are you?
I'm good. How are you? Thanks for taking the question. I just wanted to see if there are any updates on the FERC ROE complaint at this point, given the recent commissioner departure.
Unfortunately, there is no update at this time. Really, we're in the same situation that we were at the end of the first quarter.
Okay. Can you remind us on the Connecticut work? Just now you mentioned a couple of filings. It was the second half of this year, these are all recovered through Riders mechanism.
Yeah. A few things that I mentioned that's going on in the regulatory arena in Connecticut is we filed for new rates at our Yankee Gas subsidiary for first time in seven years. That process is going on. I also discussed in Connecticut that there is a grid modernization. This has been initiated by the Connecticut regulator to look at what types of activities in terms of resiliency and other clean energy objectives could be implemented in the state, and that process will be ongoing through this year and possibly ending this year or early next.
Right. Thank you very much.
All right. Thanks for the question. Next question is from Praful Mehta from Citi. Praful, good morning.
Good morning. Hi, guys.
Hi.
Hi. Thanks for the clarity on the CapEx. It was really helpful to see the organic kind of CapEx plan. Really just a question on that, which is this a real change of heart in terms of how you pursue growth or look at growth, given the difficulty you've had with the larger projects? Is that what we should expect now as the new normal, the majority of your growth would be driven off of these kind of more stable, internal kind of driven projects, and then you have the potential for bigger projects, but that's outside your 5 to 7? Is that how we should think about it longer term as well?
Yeah, I think our focus has always been on providing outstanding service to our customers and running, operating, growing our core business. The strategic projects sort of relate to energy policies that exist from time to time in the various states. Our core growth, our focus, has been and will be on our core business, running that successfully and providing great service.
Got you. Fair enough. That's helpful. I guess in the context of those kind of strategic initiatives on the offshore wind side, as of now, you've not had the RFPs kind of going your way. Where do you see the gap from your perspective in terms of the offshore wind RFPs, and what do you think it takes? Do you actually see this as a big opportunity, as an upside opportunity for your growth story longer term, or how do you kind of see that offshore wind playing out?
Lee, do you want to answer that?
Yeah. In terms of offshore wind, we see the potential over the next 7, 8 years for probably somewhere between 5,000 to 7,000 megawatts of additional offshore wind between New England and New York. We see the long-term offshore wind becoming a major component of the bulk power inside of New England. In Massachusetts, you have additional 800 megawatts of authorization that will likely come in to an RFP early next year. We will participate in that. You've got a bill in the Massachusetts legislature that would authorize another 1,600 megawatts of offshore wind. We see the potential for offshore wind to be large. Yesterday, there was a kind of a zero-carbon RFP that was issued in Connecticut. The RFP has the authorization for 1,200 MW of clean energy. It could be Class I energy, but also it could be existing nuclear and hydro.
We see that as a potential opportunity for offshore wind to bid into. As well as in New York, they have authorized essentially 2,400 megawatts of offshore wind. That's kind of a specific RFP to offshore wind, and probably the first 800 megawatts will come up in late this year or early 2019. We do see offshore wind as a great potential investment. Clearly, we were not successful inside of the Massachusetts RFP. I believe we put in a very compelling bid with the world's premier builder of offshore wind, Ørsted. We have told you very consistently we would not dilute the earnings of the company in wind for the sake of winning. We put in a compelling bid with returns that were consistent with the current returns we have in transmission. That was risk-adjusted.
Clearly, others took a different view of that, perhaps took more risk and lower returns. We're not in this thing to win for the sake of winning. We're in to win for providing shareholder value, as well as the certainty around signing on with a company like Ørsted and Eversource to get this wind built on time and on budget and delivered to customers.
That's super helpful. Thanks so much, guys.
Yeah. Thanks, Praful.
All right. Thanks, Praful. Next question is from Paul Patterson from Glenrock. Good morning, Paul.
Good morning.
Good morning, Paul.
Can you hear me?
Yes.
I apologize if I missed this. Crazy morning. The Massachusetts legislation that I think passed yesterday-
Yes
The net metering, I think that was taken out. It wasn't taken out, excuse me. The provision was left in that sort of took out how the DPU treat. Could you go over that a little bit and just how you see it impacting you?
Yeah, I think, Paul, to be honest, I think they finished the session at about 1:00 this morning. Some of the information is filtering out today. I think the overall assessment is that what came out of the legislature is kind of neutral. I think there's nothing in it that is really problematic or from that standpoint. There's some increases in RPS provisions. Some of the other details, I think we still have to kind of go through line by line to assess what's in there.
Okay. Just if you could just sort of update the sort of weather-normalized numbers for the first half of this year and over what you project them for being for the 2019 through 2021 period.
Before I answer that, I will say that most of our subsidiaries now, Paul, are decoupled. Weather and other-- Are you there, Paul?
Yeah, I'm here.
Hello? Okay. Most of our subsidiaries are now decoupled, and as I mentioned earlier, Yankee Gas, when it emerges from the current rate proceeding that it's in, will be decoupled. Really, Public Service of New Hampshire would be the only subsidiary that's out there that's not decoupled. Weather impacts are less and less on us. For 2019, to answer your last question first, I would expect minimal impact, because essentially, we'll have fully decoupled rates across our companies. Specifically, to answer your question, for weather-normalized sales on the electric business for the quarter, we're down about 1.5%, and same year-to-date. For gas, weather-normalized sales were up just over 10% and 8.3% year-to-date.
Okay. When we're talking about the forward outlook, I understand that you guys are decoupled, mostly. I guess I'm just sort of wondering in general when we're looking at this sort of full demand picture and into rate base growth, et cetera, I realize that a lot of this has nothing to do with demand growth. It's got to do with grid modernization, et cetera. I'm just trying to get a sense as to what you see sort of just underlying fundamentals in terms of electric demand are over the next three years. Do you guys have that?
Yeah, I think that I'll start by saying we're the number one utility in the U.S., number one-rated for energy efficiency programs. Really, our energy efficiency efforts have really removed a lot of the energy demand and peak demand from the system. Our programs are very effective helping customers lower their energy costs, including lower demand. In terms of general outlook, we see sort of sales being flat in our region over the next few years. The Boston area, you've probably been into the city, see all the cranes, we expect pockets. I think the best way to look at it, as when I talked about our capital plan, there's pockets of growth that require investment. It may not be that the overall system growth is there, but certain areas of the city are growing significantly and require investment.
I think it's more on a pocketed basis, Paul, that we see the big growth. Overall, it's probably flat over the next two to three years.
Okay. Thanks a lot.
Okay.
Thank you, Paul. Next question's from Andrew Levy from ExodusPoint. Good morning, Andy.
Hey, good morning. I think I'm all set. Just to make sure that I understand, so you're basically saying that you're firmly in the 6% growth range. Is that correct?
Yep, in the middle of the 5 to 7. Correct.
Right. Basically 6%. Just to understand whether it's the pole replacement or AMI or some other CapEx opportunities, that's what would get you above the 6%?
Well, there's a lot of factors, obviously. One of them is control of cost, right? O&M is a driver of moving in the range one way or the other. Constructive regulatory decisions is another factor that may move you in the range one way or the other, and more CapEx is another factor. There's probably a few factors, Andy, that could move you around in the range a bit. Certainly, if there's incremental CapEx that comes out of the grid modernization dockets that I alluded to, that could enhance that number. Correct. Any follow-up, Andy?
Oh, I'm sorry. I had muted myself. That's good.
I'm sure a lot of people.
Which is not a bad thing. My wife would be happy about that. Thank you very much. That answers my question.
Okay. Thank you, Andy.
All right. Thanks, Andy. Next question's from [Joe Zhou] from Avon Capital. Joe?
Hey, good morning. Congratulations on the good quarter and the updated growth plan.
Thank you.
Actually, my offshore wind question has been answered. Thank you, Praful.
Okay, great. Thank you.
Since I get you here, just to follow up on Andy's question, just to clarify, on your long-term EPS guidance, is the five to seven based on 2017 actual or midpoint of 2018 guidance?
No, 2017.
2017 actual. Okay, great. Thank you very much.
Okay.
All right.
Thanks, Joe. Next question is from Julien Dumoulin-Smith. Morning, Julien.
Hey, good morning, the team.
Good morning.
Hey. Just wanted to follow up. In terms of the 6% that you guys are talking about, how do you think about the earned ROEs across the subsidiaries, maybe from today through that forecast period? Or versus the baseline year? I just want to understand how much of that is capital versus ROE improvements.
Yeah
Piecing it out. Secondly, just to go back to an earlier question on the grid mod side of the equation, for Connecticut, can you give us a sense of the magnitude of the capital contemplated in maybe the low and high points? I know it's early on. I know it was difficult to comment earlier, but maybe just follow up on that.
Yeah. In terms of the ROEs, we've just come from two very constructive rate reviews in Connecticut and in Massachusetts for the electric business. Those, I contemplate that we'll be earning at those allowed returns, and in Massachusetts, at NSTAR Electric and at CL&P. We are in for a rate review at Yankee Gas. We're earning below our allowed return there. That's creating the need to go in, and as I said, it's been 7 years plus since we've been in for new rates there, probably not a surprise. I see that we could have some uplift there to get to a new allowed return level. Same in New Hampshire. We haven't been in for rates in New Hampshire, and as you know, we've divested of our generating assets there, and we've kind of a little different business model in New Hampshire.
We now are in a position to move into New Hampshire for a rate review and expect to do that later this year. Again, it's another one of the subsidiaries that's under-earning its allowed return. I think there's some ROE uplift from those two subsidiaries. The others are off of recent rate reviews and expect to be earning at their allowed rate of return of ROE levels. In terms of grid mod, as I said, it really is hard to say. It could be a few hundred million. It could be more than that, depending on the extent to which the regulator wants to advance EV infrastructure or storage technologies. It depends on sort of what the basket of initiatives would look like that would advance what the state is looking for. I'd say it would be a few hundred million anyway.
Maybe just to clarify the timing on the grid mod here in Connecticut relative to your usual planning process, should we be basically interpreting this mid-year update as pretty much a draft version of the 4Q update? Perhaps barring a meaningful update in grid mod in Connecticut, it should be largely similar? I don't want to put words in your mouth here either.
No, I don't think you should look at it like that at all. I think that what we've been trying to do over many years is that as new information becomes available to us and we identify changes to our plan, that we would let you know. I would look at this more as an ongoing process that we're just at the beginning stages of, and we still have another several months in our operating plan review to go. I would say that likely, you will see other items included in that by the time we get to February.
Got it. Sorry to just clarify, clean up a little bit on Andy's question earlier on the water side, just to clarify real quickly, your commitment to a cash and equity deal, does there need to be a stock component here ultimately? B, just to go back to make sure I heard this right, it needs to be accretive in the first full year, whatever the composition is of leverage and, I suppose, share for share exchange?
To answer your second part of your question, absolutely. We have, and we continue to have a disciplined approach to looking at transactions. I could highlight the previous deals that we've done in terms of Aquarion or the NSTAR NU deal or previous deals, all accretive in the first year, and that would be the focus. The shareholder can elect cash or other. It's sort of an election in the offer to the Connecticut Water at this stage.
Got it. You're committed to keeping that election open?
That's the proposal that's on the table, yes.
Okay. All right, excellent. Well, thank you all very much for the time.
Thank you. Thanks, Julien. We don't have any more questions this morning. We want to thank you very much for joining us. Good luck with the other calls this morning. If you have any follow-up questions, feel free to send me an email or give me a call. Take care. Paulette?
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.