Eversource Energy — Q2 2023 Form 10-Q
Business context and reporting period
Eversource is a regulated energy and water utility holding company serving approximately 4.4 million customers in Connecticut, Massachusetts and New Hampshire. Its businesses include electric distribution and transmission, natural gas distribution and water distribution. This filing covers the quarter and six months ended June 30, 2023; financial statements are unaudited.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $2.629 billion | $2.573 billion | $6.425 billion | $6.044 billion |
| Operating income | $560.7 million | $455.6 million | $1.310 billion | $1.119 billion |
| Net income attributable to common shareholders | $15.4 million | $291.9 million | $506.6 million | $735.3 million |
| Diluted EPS, GAAP | $0.04 | $0.84 | $1.45 | $2.13 |
| Non-GAAP earnings / diluted EPS | $352.6 million / $1.00 | $297.4 million / $0.86 | $844.3 million / $2.41 | $746.1 million / $2.16 |
For the six months, operating cash flow was $647.3 million, down from $841.8 million. Cash investment in property, plant and equipment was $2.040 billion, versus $1.549 billion. Cash and cash equivalents were $42.2 million at June 30, compared with $374.6 million at year-end 2022; cash, cash equivalents and restricted cash totaled $178.0 million.
At June 30, long-term debt was $21.772 billion, with $2.062 billion classified as current; notes payable were $555.5 million and rate reduction bonds totaled $432.1 million. The company reported $1.80 billion of available capacity under its commercial paper programs and no borrowings under its revolving credit facilities. Total assets were $54.540 billion and common shareholders’ equity was $15.554 billion.
Material changes versus the prior comparable period
- GAAP earnings fell sharply in Q2 chiefly because of a $401 million pre-tax ($331 million after-tax) non-cash impairment of the offshore wind investment. Excluding that impairment and specified other items, Q2 non-GAAP EPS rose to $1.00 from $0.86; first-half non-GAAP EPS rose to $2.41 from $2.16.
- Revenue and operating income increased in both the quarter and first half. Results benefited from utility rate and capital-tracking mechanisms, transmission investment, and lower operating and maintenance costs; higher purchased energy costs were largely recoverable through customer rates.
- Interest expense increased, reflecting new debt and higher short-term borrowing costs. First-half cash from operations declined, while capital investment increased.
- Electric sales volumes were lower year over year, including a 5% decline across Eversource’s reported retail electric volumes for the first half. Regulated revenue decoupling limits the earnings effect of volume changes for several utilities.
Outlook, commentary, risks and unusual items
- Management reaffirmed 2023 non-GAAP EPS guidance of $4.25–$4.43, excluding the offshore wind strategic-review impairment, land-disposition loss and transaction costs. It reaffirmed long-term EPS growth through 2027 in the upper half of its 5%–7% range.
- Eversource agreed to sell its 50% interest in an uncommitted offshore lease area to Ørsted for $625 million, subject to approvals and expected to close by the end of Q3 2023. It intends to use $575 million of proceeds for South Fork Wind tax equity and continues to pursue a sale of its interests in three contracted offshore wind projects. Project value and the recorded impairment remain sensitive to sale terms, Sunrise Wind contract repricing and tax-credit qualifications.
- Management expects operating cash flows, borrowing availability and access to debt and equity markets to fund working capital and planned investment. The company issued $3.361 billion of long-term debt and repaid $853 million during the first half. Its common dividend was $0.675 per share for the quarter.
- Key exposures include offshore wind project execution, permitting, sale and tax-credit risks; regulatory and rate decisions; interest rates and capital-market access; severe weather, cybersecurity and customer collection risk. The filing notes substantial offshore-wind-related guarantees, including construction obligations, and a $130.9 million environmental remediation reserve.
- Four FERC transmission return-on-equity complaints remain unresolved. Eversource recorded a $39.1 million reserve for the second complaint period, but says it cannot reasonably estimate a loss range for the proceedings. A 10-basis-point change in base ROE would affect after-tax earnings by about $3 million per 15-month complaint period and approximately $5.5 million annually prospectively, based on 2022 rate base.
- Other notable items include a $16.9 million pre-tax PSNH benefit from pole-related regulatory recovery and a $147 million first-half liquidation of a renewable-energy investment fund. Connecticut legislation enacted in June changes certain future utility rate-setting rules; effects depend on later regulatory proceedings.
Important facts for investors to verify
- Progress, closing conditions and final proceeds for the offshore lease sale, and the timing and terms of any sale of the contracted wind interests.
- Whether Sunrise Wind achieves the expected contract repricing and whether the projects qualify for anticipated investment tax credits and adders; these could change the impairment estimate.
- Delivery of 2023 EPS guidance and the effect of planned capital spending, debt financing, interest costs and regulatory cash-recovery timing.
- Developments in FERC ROE proceedings, Connecticut regulatory changes and the Aquarion rate-case appeal.
- Cash generation, commercial-paper utilization, customer receivables and the recoverability of regulatory assets.