Eversource Energy 2018 Form 10-K Summary
Business context and reporting period. This combined Form 10-K covers Eversource Energy and certain utility subsidiaries for the fiscal year ended December 31, 2018. Eversource is a regulated energy-delivery and water utility holding company serving approximately four million customers in Connecticut, Massachusetts and New Hampshire. Its reporting segments are electric distribution, electric transmission, natural gas distribution and water distribution. The filing is annual; fourth-quarter figures are noted separately below.
Financial performance and liquidity
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Operating revenue | $8.448 billion | $7.752 billion | Up 9.0%; growth included Aquarion and higher tracked energy-supply revenues. |
| Operating income | $1.700 billion | $1.888 billion | Down 10.0%; expenses grew faster than revenue. |
| Net income attributable to common shareholders | $1.033 billion | $988.0 million | Up 4.6%. |
| Diluted EPS | $3.25 | $3.11 | Up 4.5%. |
| Operating cash flow | $1.784 billion | $1.996 billion | Down $212 million, reflecting storm payments, higher tax payments, working-capital timing and a nuclear-fuel obligation payment. |
| Cash capital investment | $2.523 billion | $2.348 billion | Operating cash flow less cash capital investment was approximately negative $739 million. |
| Cash and cash equivalents | $108.1 million | $38.2 million | At year-end. |
| Common shareholders’ equity | $11.487 billion | $11.086 billion | At year-end. |
| Reported long-term debt | $12.249 billion | $11.776 billion | Additionally, $583.3 million of long-term rate-reduction bonds and $837.3 million of current long-term debt were reported at year-end. |
Operating margin was approximately 20.1% versus 24.4% in 2017; net income attributable to common shareholders was approximately 12.2% of revenue versus 12.7%. Dividends declared rose to $2.02 per share from $1.90. Current liabilities exceeded current assets by $1.82 billion at Eversource; management cited the capital-investment program and timing of recovery as factors and said operating cash flows and capital-market access should meet requirements.
Fourth quarter: Revenue was $2.035 billion versus $1.896 billion in fourth-quarter 2017; operating income was $400.0 million versus $443.7 million; net income attributable to common shareholders was $231.3 million versus $237.4 million; diluted EPS was $0.73 versus $0.75.
Material changes versus the prior year
- PSNH completed the sale of its thermal generation assets in January 2018 and hydroelectric assets in August 2018; it no longer owned generation facilities at year-end. The sales reduced PSNH generation earnings.
- PSNH Funding issued $635.7 million of securitized rate-reduction bonds to fund remaining generation-divestiture costs, recovered through a non-bypassable customer charge.
- Electric distribution segment earnings declined to $455.4 million from $497.4 million, primarily due to lower PSNH generation earnings and higher depreciation, operating, interest and tax costs. Electric transmission earnings rose to $427.2 million from $391.9 million, and natural gas distribution earnings rose to $93.2 million from $74.6 million.
- Water distribution earnings were $30.9 million versus a $1.2 million loss in 2017; comparison is affected by Aquarion’s December 2017 acquisition.
- Operating expenses increased $884.6 million, including higher purchased power, fuel and transmission costs, depreciation and amortization. Lower federal income tax expense following the Tax Cuts and Jobs Act helped lift net income despite lower operating income.
Outlook, management commentary, risks and unusual items
- Management projected 2019 diluted EPS of $3.40–$3.50. Planned 2019–2023 capital expenditures total approximately $12.75 billion, excluding Northern Pass and offshore wind investment.
- On February 6, 2019, the board approved a quarterly dividend of $0.535 per share, a 5.9% increase from the December 2018 dividend.
- Eversource recorded a $32.9 million pre-tax impairment, effectively writing off its Access Northeast equity-method investment, citing uncertainty about project cash flows amid legislative obstacles and the 2018 Massachusetts gas explosions.
- Northern Pass siting approval was denied in New Hampshire and its Massachusetts clean-energy selection was terminated. An appeal was pending; $307 million of project costs remained capitalized, and management warned a future impairment could be material.
- Four FERC transmission return-on-equity complaints remained unresolved. Eversource had a $39.1 million pre-tax reserve for the second complaint period; final outcomes and any further effects were uncertain.
- Severe 2018 storms generated approximately $266 million of deferred restoration costs across the electric utilities. Recovery depends on regulatory approval. Environmental remediation reserves were $64.7 million for 60 sites, including $50.1 million for former manufactured-gas-plant sites.
- On February 12, 2019, S&P changed its outlook on Eversource and the named electric utilities from stable to negative; Moody’s and Fitch outlooks varied by entity. Eversource reported compliance with its debt covenants, including the maximum 65% debt-to-capitalization ratio.
- Other risks include regulatory rate and cost-recovery decisions, project permitting and execution, cyber and physical security, severe weather and climate impacts, capital-market access, pension assumptions, environmental obligations, and changing energy demand and technology.
Important facts for investors to verify
- Whether 2019 EPS guidance and the $12.75 billion five-year capital plan remain achievable, and how those investments will be financed and recovered in rates.
- Regulatory progress and potential customer refunds related to FERC return-on-equity complaints, tax-reform excess deferred taxes, storm costs and PSNH securitized charges.
- The status and recoverability of the $307 million Northern Pass investment, and the implications of the Access Northeast write-off for other strategic projects.
- Debt maturities, commercial-paper use, liquidity and credit-rating outlooks, particularly given negative S&P outlooks and current liabilities exceeding current assets.
- How recurring operating performance compares with reported earnings, considering weather, pass-through revenues and costs, tax effects, asset sales, acquisition comparisons and unusual items.
The financial statements received unqualified audit opinions, and management reported effective internal control over financial reporting as of December 31, 2018.