EVERSOURCE ENERGY quarterly report, Q3 FY2015

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Eversource Energy — Form 10-Q Summary

Business context and reporting period

For the quarter and nine months ended September 30, 2015; filed November 6, 2015. Eversource is a regulated electric and natural-gas delivery holding company serving approximately 3.6 million customers in Connecticut, Massachusetts, and New Hampshire. This combined filing also reports for CL&P, NSTAR Electric, PSNH, and WMECO. Unless stated otherwise, financial amounts below are consolidated Eversource figures.

Financial performance and liquidity

  • Third quarter: Revenue was $1.933 billion, up 2.1% year over year. Operating income was $469.2 million, up 6.4%; net income attributable to common shareholders was $235.9 million, up 0.6%. Diluted EPS was $0.74, unchanged.
  • First nine months: Revenue was $6.264 billion, up 6.9%. Operating income rose 14.6% to $1.379 billion; net income attributable to common shareholders increased 16.5% to $696.7 million. Diluted EPS was $2.19 versus $1.89.
  • Margins: Operating margin was approximately 24.3% for Q3 versus 23.3% a year earlier, and 22.0% for nine months versus 20.5% in 2014, calculated from reported revenue and operating income.
  • Cash flow and investment: Operating cash flow was $1.342 billion for nine months, down from $1.404 billion. Property, plant and equipment investment was $1.177 billion, up from $1.117 billion; operating cash flow less this investment was approximately negative $164 million. Common dividends paid were $397.4 million.
  • Balance sheet at September 30: Cash and equivalents were $35.8 million. Current assets of $2.368 billion were below current liabilities of $2.972 billion. Long-term debt was $8.757 billion, current maturities $228.9 million, and notes payable $1.016 billion. Total capitalization was $19.207 billion, including $10.294 billion of common equity.
  • Borrowing capacity: Parent commercial paper borrowings were $757 million with $693 million available under the $1.45 billion program; NSTAR Electric had $258.5 million outstanding and $191.5 million available under its $450 million program. The related revolving facilities were extended to September 2020 after quarter-end.
  • Dividend: The board approved and paid a $0.4175-per-share dividend on September 30.

Material changes versus prior periods

  • Nine-month earnings growth was driven by regulated distribution rate increases, higher sales volumes, lower operating and maintenance costs, and favorable regulatory outcomes. Q3 common-shareholder earnings were nearly flat despite higher operating income.
  • Reported nine-month purchased power, fuel and transmission costs increased $230.8 million, largely reflecting higher energy-supply costs earlier in 2015; these costs are generally recovered through customer rates. Operating and maintenance expense decreased $91.7 million, while depreciation increased $39.2 million.
  • Electric sales volumes rose 4.5% in Q3 and 1.8% for nine months. The filing attributes Q3 growth primarily to warmer weather and nine-month growth to colder winter and warmer Q3 conditions; weather-normalized electric volumes were largely unchanged for nine months.
  • Compared with 2014, nine-month operating cash flow declined partly because 2014 included $132 million of DOE damages proceeds and 2015 pension and PBOP contributions were about $88 million higher. Tax refunds in 2015 partly offset these effects.

Outlook, regulatory matters, risks and unusual items

  • The filing provides no explicit consolidated earnings or EPS guidance. Management describes continued capital investment and discusses proposed projects, regulatory proceedings, and customer-rate mechanisms; stated project schedules and estimates depend on approvals and other contingencies.
  • PSNH agreed to divest its generation assets, subject to New Hampshire Public Utilities Commission approval expected in early 2016. The agreement includes foregoing $25 million of deferred Clean Air Project equity return, a nonrecoverable $5 million clean-energy-fund contribution, and recovery of remaining stranded costs through bonds backed by a customer charge. PSNH also agreed not to seek a general distribution-rate increase effective before July 1, 2017.
  • Northern Pass’s estimated cost increased from $1.4 billion to $1.6 billion after a revised route included 52 miles underground. The project remained in permitting; the company expected operation in the first half of 2019. Access Northeast, an approximately $3 billion pipeline and LNG project, remained subject to FERC approval.
  • FERC transmission return-on-equity proceedings remain material. A March 2015 order upheld a 10.57% base ROE for the first complaint period and prospectively, with total ROE capped at 11.74%. Eversource recorded a $20 million pretax charge in 2015; appeals and further complaints were pending.
  • Regulatory outcomes also produced notable 2015 items: NSTAR Electric recorded a $24.2 million pretax benefit from the basic-service bad-debt ruling and a settlement benefit related to 11 Massachusetts dockets; CL&P recorded additional revenue under an ADIT-related rate-base settlement. Some customer recovery timing remained subject to regulator review.
  • Other unusual items included a $5 million PSNH clean-energy contribution, a $20 million pretax FERC ROE charge, and third-quarter tax provision adjustments. Management reported no material changes to previously disclosed risk factors or contractual obligations. Key risks include regulatory decisions, weather, capital-market access and interest rates, cyber and grid events, and project permitting.

Important facts for investors to verify

  • Track the NHPUC decision, PSNH asset-sale terms, securitization and customer-charge mechanics, and timing of the generation divestiture.
  • Monitor FERC ROE appeal and complaint outcomes, including potential customer refunds and future transmission returns.
  • Confirm DPU decisions and timing for NSTAR Electric bad-debt recovery and other pending rate and energy-efficiency plans.
  • Assess Northern Pass’s revised $1.6 billion estimate, permitting progress, and any further cost or schedule changes; likewise verify Access Northeast approvals and financing.
  • Review cash generation against elevated capital spending, debt maturities and short-term borrowing needs; distinguish unrestricted cash from marketable securities held in trusts.
  • Evaluate the durability of earnings growth by separating rate and regulatory effects, weather-driven volumes, tax adjustments, and other one-time items from recurring operating performance.