Eversource Energy — Form 10-Q Summary
Business context and reporting period. The combined filing covers Eversource Energy and subsidiaries, including The Connecticut Light and Power Company (CL&P), NSTAR Electric and Public Service Company of New Hampshire (PSNH). Eversource is a regulated electric, natural gas and water delivery holding company serving approximately four million customers in Connecticut, Massachusetts and New Hampshire. Results are unaudited for the three and nine months ended September 30, 2019; balance-sheet comparisons are with December 31, 2018. The report was filed November 7, 2019.
Key financial results
Unless stated otherwise, amounts below are Eversource consolidated and in U.S. dollars.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $2.176 billion | $2.271 billion | $6.476 billion | $6.413 billion |
| Operating income | $509.2 million | $466.0 million | $1.155 billion | $1.300 billion |
| Net income attributable to common shareholders | $318.9 million | $289.4 million | $659.0 million | $801.7 million |
| Diluted EPS | $0.98 | $0.91 | $2.05 | $2.52 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $1.495 billion | $1.408 billion |
| Property, plant and equipment investment (cash) | Not presented quarterly | Not presented quarterly | $2.129 billion | $1.885 billion |
Calculated operating margin was approximately 23.4% in Q3 2019 versus 20.5% in Q3 2018, and 17.8% year to date versus 20.3% in 2018. The year-to-date comparison includes the Northern Pass impairment described below.
- At September 30, cash on the balance sheet was $22.7 million; cash and restricted cash reported in the cash-flow statement was $151.9 million. Current assets were $2.221 billion and current liabilities $3.749 billion.
- Consolidated long-term debt was $14.293 billion, including its current portion; rate-reduction bonds were $583.3 million including current portion, and notes payable were $712.5 million. Common shareholders’ equity was $12.122 billion.
- Operating cash flow exceeded cash capital investment by about $634 million for the first nine months, before dividends, debt and other financing. Common dividends paid were $495.6 million.
Changes and operating performance
- Q3 revenue declined about 4.2%, while common-shareholder income rose about 10.2% and diluted EPS increased from $0.91 to $0.98. Lower purchased-power, fuel and transmission costs contributed to the quarter’s expense decline.
- Nine-month revenue increased about 1.0%, but common-shareholder income fell about 17.8% and diluted EPS declined from $2.52 to $2.05. The principal exceptional item was a $239.6 million pre-tax ($204.4 million after-tax, or $0.64 per share) impairment of Northern Pass Transmission (NPT).
- Excluding the NPT charge, nine-month non-GAAP earnings were $863.4 million, or $2.69 per share, compared with $801.7 million, or $2.52 per share, in 2018. Management attributes improved regulated earnings principally to distribution-rate increases and continued investment in transmission and distribution infrastructure.
- Electric distribution segment earnings increased to $422.7 million for nine months from $379.3 million. Electric transmission earnings were $138.4 million reported, or $342.8 million excluding the NPT impairment, compared with $329.6 million in 2018. Natural gas distribution earned $57.6 million versus $50.2 million; water distribution earnings were $26.3 million in both periods.
Outlook, risks and notable matters
- Management reaffirmed projected 2019 non-GAAP EPS of $3.40–$3.50, excluding the NPT impairment. It expects operating cash flow, available borrowing capacity and capital-market access to support working capital and planned investment.
- NPT construction was deemed no longer probable after the New Hampshire Supreme Court affirmed denial of the project’s siting application. The filing says no significant future cash expenditures are expected from the impairment. A related parent guarantee of up to $25 million remained outstanding, with expected extinguishment upon NPT’s final dissolution.
- Key uncertainty includes four FERC complaints challenging transmission returns. Eversource had recorded a $39.1 million pre-tax reserve for the second complaint period; outcomes for all proceedings remained uncertain and no reasonable range of gain or loss could be estimated.
- PSNH faces a Clean Water Act suit concerning alleged reporting failures at the Merrimack generation facility before its 2018 sale. Plaintiffs seek penalties; the filing identifies a maximum potential penalty of $195 million. PSNH says it believes the case lacks merit but cannot predict the outcome or financial impact.
- Management reported three significant storms in the second half of 2019, including October storms after quarter-end, and expects qualifying restoration costs to be recoverable through regulatory processes. Regulatory recovery, environmental remediation and customer affordability/collection risks remain relevant.
- Other developments include a ten-year Millstone nuclear power purchase contract for CL&P, with estimated gross annual commitments of about $360 million and costs expected to be recovered from customers; and Eversource’s $637.2 million equity investment in its offshore-wind business at quarter-end. Sunrise Wind’s 880 MW project had a 25-year New York OREC agreement announced in October, subject to project development and investment decisions.
- S&P downgraded Eversource and subsidiary ratings in July, changing outlooks from negative to stable. Eversource reported all disclosure controls and procedures effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile reported and adjusted EPS, especially the NPT impairment and the $3.40–$3.50 non-GAAP 2019 outlook.
- Track FERC transmission-return proceedings, the $39.1 million reserve and any change to billed ROEs or refund exposure.
- Monitor the PSNH litigation and potential penalties, as well as storm-cost recovery and other regulatory approvals.
- Assess the funding needs, project approvals and execution risks of the offshore-wind portfolio alongside capital spending, debt maturities and dividend commitments.
- Review liquidity using both unrestricted cash and available commercial-paper capacity; the filing reports $765.5 million available under Eversource parent’s program and $622.0 million under NSTAR Electric’s program at September 30.