EVERSOURCE ENERGY annual report, FY2023

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Eversource Energy 2023 Form 10-K Summary

Business context and reporting period

Eversource Energy is a regulated utility holding company serving approximately 4.4 million electric, natural gas, and water customers in Connecticut, Massachusetts, and New Hampshire. Its principal businesses are electric distribution, electric transmission, natural gas distribution, and water distribution. This Form 10-K reports the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report.

Financial results and liquidity

  • Revenue: $11.91 billion, down 3.1% from $12.29 billion in 2022. The decline largely reflects lower electric wholesale market sales and reduced customer pass-through charges, rather than a comparable decline in underlying regulated earnings.
  • Profit: GAAP net loss attributable to common shareholders was $442.2 million, or diluted loss of $1.26 per share, versus net income of $1.40 billion, or $4.05 per share, in 2022.
  • Major unusual item: Eversource recorded $2.167 billion of pre-tax offshore wind investment impairments ($1.953 billion after tax, or $5.58 per share). Excluding those impairments and other specified items, non-GAAP earnings were $1.518 billion, or $4.34 per share, up from $1.420 billion, or $4.09 per share, in 2022. The company cautions that non-GAAP measures are not substitutes for GAAP results.
  • Operating performance: Operating income rose to $2.399 billion from $2.198 billion; operating margin was approximately 20.1%, compared with 17.9%. The increase was substantially affected by regulatory amortization and deferral timing. Interest expense increased $177 million to $855 million.
  • Segment earnings: Electric distribution earnings were $608 million, up $15 million; electric transmission earnings were $643 million, up $47 million; natural gas distribution earnings were $225 million, down $9 million; and water distribution earnings were $33 million, down $4 million.
  • Cash flow and investment: Operating cash flow was $1.646 billion, down from $2.401 billion. Cash investment in property, plant, and equipment was $4.337 billion, up from $3.442 billion. Management attributed weaker operating cash flow primarily to regulatory under-recoveries, storm-related payments, and working-capital timing.
  • Liquidity: Cash and cash equivalents were $53.9 million at year-end, versus $374.6 million a year earlier. Commercial paper borrowings were $1.772 billion at the parent and $366 million at NSTAR Electric; remaining capacity under those programs was $512.3 million. Current liabilities exceeded current assets by $2.09 billion at Eversource.
  • Debt and capital: Long-term debt, including current maturities, was $24.41 billion; notes payable were $1.93 billion and rate-reduction bonds were $410.5 million. Eversource issued $5.20 billion and repaid $2.01 billion of long-term debt during 2023. All long-term debt was fixed-rate at year-end. The company paid $2.70 per common share in dividends during 2023.

Material changes versus 2022

  • GAAP earnings swung from profit to loss, driven chiefly by offshore wind impairments; adjusted non-GAAP earnings and EPS increased.
  • Revenue declined while operating income increased. Lower wholesale electricity prices and lower CL&P congestion-charge billings contributed to revenue declines; transmission rate-base growth and distribution rate increases supported earnings.
  • Operating cash flow fell by $755 million, while cash capital investment increased by approximately $895 million.
  • Long-term debt increased, and commercial paper borrowing rose at both the parent and NSTAR Electric.
  • Electric sales volumes declined 3.3%, natural gas sales volumes declined 6.5%, and water sales volumes declined 1.6%. Many utility distribution revenues are decoupled from sales volumes.

Outlook, commentary, risks, and contingencies

  • Guidance: Management forecast 2024 non-GAAP EPS of $4.50–$4.67, excluding the expected offshore wind sales and related transaction costs, and long-term EPS growth of 5%–7% through 2028 from regulated utility businesses.
  • Capital plan: Projected 2024–2028 capital expenditures are approximately $23.12 billion, excluding offshore wind investments. Management expects operating cash flow, borrowing availability, and capital-market access to support planned needs.
  • Offshore wind: After year-end, Eversource agreed to sell its 50% interests in South Fork Wind and Revolution Wind to Global Infrastructure Partners for expected proceeds of approximately $1.1 billion, subject to approvals, closing conditions, construction economics, and purchase-price adjustments. Eversource retains specified Revolution Wind cost-sharing exposure. Ørsted agreed to acquire Eversource’s Sunrise Wind interest, contingent on a successful New York solicitation and other approvals. The year-end impairment used significant Level 3 estimates and assumed Sunrise Wind would ultimately be abandoned; actual outcomes could prompt further impairment or costs.
  • Other strategic matter: In February 2024, Eversource began exploring potential monetization or sale of its water distribution business.
  • Regulatory and legal exposure: $1.75 billion of deferred storm costs remained unfiled, pending approval, or subject to prudency review at year-end. A Connecticut proceeding covers approximately $634 million of CL&P storm costs, including Tropical Storm Isaias costs; potential disallowances are not clearly estimable. Four FERC transmission ROE complaints remain unresolved; the company recorded a $39.1 million reserve for the second complaint period and cannot estimate a total loss range.
  • Additional risks: Regulatory cost recovery and allowed returns, interest rates and access to capital, severe weather, cybersecurity and physical threats, supply-chain constraints, water availability and contamination, and offshore wind construction and permitting may affect results. Massachusetts’ “Future of Gas” proceedings may change natural gas utility planning or business models; management said the ultimate impact was not yet predictable.
  • Environmental liabilities: The company recorded $128.2 million for probable and estimable remediation costs at 65 sites, including $117.1 million related to former manufactured-gas-plant sites. Actual costs could be higher as investigations progress.
  • Audits and controls: Deloitte issued unqualified opinions on the financial statements and Eversource’s internal control over financial reporting. Regulatory accounting and offshore wind impairment were identified as critical audit matters.

Important facts for investors to verify

  • Whether the South Fork and Revolution Wind sale closes on the expected timetable and at anticipated net proceeds, after construction costs, tax-credit qualification, and contractual adjustments.
  • Whether Sunrise Wind wins a new OREC contract and sale approval, or instead incurs abandonment, cancellation, or additional impairment costs.
  • How much of the $1.75 billion storm-cost balance regulators approve for recovery, particularly CL&P storm costs and Isaias-related costs.
  • Whether 2024 EPS guidance and the 5%–7% long-term growth target are achieved while funding the substantial capital program and managing debt maturities and borrowing costs.
  • How the FERC ROE cases, Connecticut rate-making changes, and Massachusetts gas-transition policies affect allowed returns, cost recovery, and regulated investment growth.