Eversource Energy 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with the first quarter of 2020. Eversource is a regulated electric, natural gas and water utility serving approximately 4.3 million customers in Connecticut, Massachusetts and New Hampshire. This combined filing also reports separately for CL&P, NSTAR Electric and PSNH.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $2.826 billion | $2.374 billion | +19.0% |
| Operating income | $585.6 million | $539.1 million | +8.6% |
| Net income attributable to common shareholders | $366.1 million | $334.8 million | +9.4% |
| Diluted EPS | $1.06 | $1.01 | +5.0% |
| Operating cash flow | $411.4 million | $420.3 million | Down $8.9 million |
| Property, plant and equipment investments (cash) | $689.0 million | $725.5 million | Down $36.5 million |
Operating margin was approximately 20.7%, versus 22.7% a year earlier; net margin attributable to common shareholders was approximately 13.0%, versus 14.1%. The filing reports no separate consolidated free-cash-flow measure; operating cash flow less cash plant investment was negative approximately $277.6 million.
At March 31, 2021, cash was $34.1 million, notes payable $1.872 billion, current portion of long-term debt $1.211 billion, long-term debt $14.783 billion, and rate-reduction bonds $518.5 million. Commercial-paper borrowing capacity remaining was $730.8 million. First-quarter financing included $350 million of new parent-company long-term notes and $572 million of long-term debt repayments. Total assets were $46.518 billion and common shareholders’ equity $14.233 billion.
Material changes versus the prior period
- Revenue increased substantially in natural gas distribution, primarily reflecting the October 2020 acquisition of Columbia Gas of Massachusetts assets (EGMA), as well as higher supply-related revenues and rate changes. The acquisition makes year-over-year comparisons less like-for-like.
- Natural gas distribution segment earnings rose to $147.6 million from $85.9 million, including $47.3 million of EGMA earnings. Electric transmission earnings increased to $135.4 million from $126.8 million, supported by a larger rate base.
- Electric distribution earnings fell to $93.2 million from $130.1 million, mainly due to the $30 million CL&P Tropical Storm Isaias assessment and higher operating, storm-restoration, depreciation and property-tax costs. Water distribution earnings rose to $3.6 million from $2.1 million.
- Reported EPS rose less than net income, in part reflecting a higher weighted-average share count. Non-GAAP earnings, excluding transition and acquisition costs, were $372.3 million, or $1.08 per share, versus $338.3 million, or $1.02 per share.
- Operating cash flow was lower, reflecting working-capital timing, income-tax cash flows, Isaias restoration payments and increased pension contributions. Capital investment remained substantial.
Guidance, outlook, risks and unusual items
- Management reaffirmed long-term EPS growth through 2025 from regulated utilities in the upper half of a 5%–7% range. It estimated 2021 non-GAAP EPS toward the lower end of its $3.81–$3.93 guidance range; this excludes transition costs related to the CMA acquisition and includes the $0.07-per-share Isaias penalty charge.
- PURA’s Isaias decisions concluded that CL&P failed certain storm-response standards. The company accrued a $30 million assessment in Q1: $28.4 million in customer bill credits and a $1.6 million state fine. CL&P intends to appeal and says it has meritorious defenses. A separate 90-basis-point allowed-ROE reduction could, when reflected in future rates, reduce annual revenue by about $31 million and annual earnings by about $21 million; timing and final impact are uncertain. S&P changed CL&P’s outlook to negative in May 2021.
- Isaias restoration costs deferred for recovery were approximately $231 million at CL&P and $249 million at Eversource at quarter-end. PURA may disallow some costs; the amount cannot currently be estimated.
- COVID-19 had not materially affected current operations or results, according to management, but customer delinquencies and lower collections had increased. Eversource’s allowance for uncollectible accounts was $391.7 million, including $47.0 million attributed to COVID-19. Management believes incremental costs are probably recoverable through rates, but future regulatory outcomes remain a dependency.
- Four pending FERC transmission ROE complaints remain uncertain; Eversource retained its existing reserve of $39.1 million for the second complaint period and cannot estimate the overall outcome. Separately, a proposed FERC change eliminating the RTO ROE incentive could reduce annual after-tax earnings by approximately $14 million if adopted.
- Offshore-wind permitting and schedule risks remain. Management said the projected end-2023 Revolution Wind and end-2024 Sunrise Wind in-service dates were unlikely to be met, pending permitting milestones and updated schedules.
- NSTAR Electric added approximately $6.7 billion of estimated costs under a 20-year Massachusetts clean-energy contract, expected to begin in 2023. Eversource also expected to invest $300 million–$500 million in offshore wind during 2021, subject to design and permitting progress.
Most important facts for investors to verify
- Whether CL&P’s $30 million Isaias assessment and prospective 90-basis-point ROE reduction are upheld, appealed or changed, and the timing of any resulting rate impact.
- Whether storm-restoration costs and COVID-related uncollectible expenses are ultimately approved for recovery through customer rates.
- How much of revenue and earnings growth reflects the CMA acquisition and other pass-through or rate effects versus underlying operating performance.
- Cash generation, capital spending and funding needs, including commercial-paper availability and upcoming debt redemptions.
- Final outcomes of the FERC ROE and transmission-incentive proceedings, and updated offshore-wind permitting and in-service schedules.