Eversource Energy — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Eversource is a regulated electric, natural gas and water utility holding company serving approximately 4.4 million customers in Connecticut, Massachusetts and New Hampshire. The filing is a combined report for Eversource and three utility subsidiaries.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $3.471 billion | $2.826 billion | +22.8% |
| Operating income | $663.1 million | $585.6 million | +13.2% |
| Net income attributable to common shareholders | $443.4 million | $366.1 million | +21.1% |
| Diluted EPS | $1.28 | $1.06 | +$0.22 |
| Operating cash flow | $371.9 million | $411.4 million | −9.6% |
| Cash capital investment in property, plant and equipment | $764.6 million | $689.0 million | +11.0% |
- Operating margin was approximately 19.1%, versus 20.7% in Q1 2021; the revenue increase largely reflected higher energy supply and transmission costs that are generally recovered from customers and do not directly drive earnings.
- Non-GAAP earnings were $448.7 million, or $1.30 per share, compared with $396.4 million, or $1.15 per share. Q1 2022 GAAP results included $5.3 million after tax of acquisition and transition costs; Q1 2021 included $24.1 million after-tax storm-performance penalty and $6.2 million of acquisition and transition costs.
- At March 31, 2022, total assets were $49.3 billion, current assets $3.47 billion and current liabilities $5.60 billion. Cash was $46.2 million. Long-term debt was $17.91 billion, with $817.1 million current portion; notes payable were $1.67 billion and rate-reduction bonds totaled $475.3 million including current maturities.
- Eversource issued $1.30 billion of long-term debt and repaid $770 million during the quarter. Its commercial-paper programs had $981.2 million of available capacity; revolving credit facilities had no outstanding borrowings.
Performance changes and management commentary
- Management attributed higher earnings principally to regulated rate increases, increased transmission rate base and investment, capital-tracking mechanisms, and lower pension expense. Higher operating and maintenance, depreciation, property-tax and interest costs partly offset those gains.
- Operating cash flow declined amid timing of customer collections, regulatory under-recoveries, storm-cost payments and CL&P customer credits. Investing outflows increased with higher capital spending; financing inflows included new debt issuance.
- Revenue rose across the reported businesses, with higher energy prices and supply-related sales volumes contributing to increased electric and gas revenues. Many supply costs are passed through to customers under regulatory mechanisms.
- The board approved a quarterly common dividend of $0.6375 per share, payable June 30, 2022.
Outlook, risks and unusual items
- Eversource reaffirmed 2022 non-GAAP EPS guidance of $4.00–$4.17 and its long-term EPS growth projection through 2026 in the upper half of a 5%–7% range. Guidance excludes acquisition and transition costs.
- On May 4, 2022, after quarter-end, Eversource announced a strategic review of its 50% offshore-wind partnership interest with Ørsted, including possible sale of all or part of the interest; it expected to complete the review during 2022. The company stated that the review did not affect the March 31 financial statements and that its outcome and financial impact could not then be estimated.
- Management expected offshore-wind investment of $0.9–$1.0 billion in 2022 and $3.0–$3.6 billion from 2023 through 2026 for three projects, subject to permitting, schedules and the strategic review. South Fork Wind entered construction in early 2022; Revolution Wind and Sunrise Wind remained subject to permitting and timing risks.
- Key exposures include regulatory proceedings, storm and extreme-weather events, customer collection risk, environmental remediation, project execution and permitting, capital-market access, interest rates, cyber and operational disruptions, and changes in regulation. Eversource recorded a $39.1 million pre-tax reserve for the second FERC transmission ROE complaint period; the company could not reasonably estimate a loss range for the pending proceedings.
- Environmental remediation reserves were $117.8 million at Eversource as of March 31, 2022. The filing also describes substantial offshore-wind guarantees and long-term renewable energy commitments, including NSTAR Electric’s estimated approximately $6.0 billion Vineyard Wind contract costs over 20 years.
Important facts for investors to verify
- Reconcile reported and non-GAAP earnings, particularly the exclusion of acquisition costs and the prior-year CL&P storm penalty.
- Track whether regulatory recovery keeps pace with supply costs, storm costs and customer receivables, and monitor the sizeable uncollectible-account allowance.
- Review cash-flow conversion, capital spending, short-term borrowing capacity and debt maturities as investment needs continue.
- Follow the offshore-wind strategic review, project costs, guarantees, permitting milestones and potential effects on investment plans.
- Monitor FERC ROE complaints and state regulatory decisions, including rate-case outcomes and the potential impact of the proposed transmission incentive changes.