Eversource Energy — Q3 2022 Form 10-Q
Business context and period: The combined, unaudited filing covers the quarter and nine months ended September 30, 2022, with comparative periods in 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 also reports separately for CL&P, NSTAR Electric and PSNH.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $3.216B | $2.433B | $9.260B | $7.381B |
| Operating income | $557.3M | $483.3M | $1.676B | $1.521B |
| Net income attributable to common shareholders | $349.4M | $283.2M | $1.085B | $913.8M |
| Diluted EPS | $1.00 | $0.82 | $3.13 | $2.65 |
| Operating margin | 17.3% | 19.9% | 18.1% | 20.6% |
Margins are calculated from reported revenue and operating income. Revenue grew substantially, largely reflecting higher energy supply prices and associated tracked revenues and costs, which generally pass through to customers and do not directly drive earnings. Operating margin consequently declined despite higher operating income.
- Cash flow and investment: Operating cash flow was $1.689B for the first nine months, versus $1.520B a year earlier. Property, plant and equipment investment was $2.353B, versus $2.211B; operating cash flow less this investment was negative $663.8M.
- Debt and liquidity: At September 30, long-term debt, including its current portion, was $21.442B, up from $18.217B at year-end 2021. Notes payable were $401.5M and rate reduction bonds were $453.7M. Cash and cash equivalents were $485.7M, including $440M of cash equivalents; available capacity under commercial-paper programs was $2.25B. Current assets of $3.920B were below current liabilities of $5.487B.
- Margins, expenses and other income: Interest expense rose to $178.2M in Q3 and $491.5M for the nine months. Other income increased to $89.8M and $255.3M, respectively, helped by pension and postretirement non-service income, interest income and other items.
Material changes versus prior periods
- Reported diluted EPS increased to $1.00 from $0.82 in Q3 and to $3.13 from $2.65 for the nine months. Comparisons benefited from the absence of 2021 CL&P settlement and storm-penalty charges: $63.2M after tax in Q3 and $85.8M after tax for the nine months.
- Excluding the specified settlement, storm and transaction/transition costs, management-reported non-GAAP EPS was $1.01 versus $1.02 in Q3 and $3.17 versus $2.95 for the nine months. These non-GAAP figures are not substitutes for GAAP results.
- Higher electric transmission earnings reflected growth in transmission rate base from infrastructure investment. Electric distribution earnings also benefited from rate and capital-tracking mechanisms; higher operating and maintenance, depreciation, property-tax and interest costs partly offset these gains.
- Eversource issued $4.045B of long-term debt and repaid $775M during the first nine months, and issued 2.17 million common shares for $197.1M net under its ATM program. The board approved a quarterly dividend of $0.6375 per share.
Outlook, commentary and risks
- Management reaffirmed 2022 non-GAAP EPS guidance of $4.04–$4.14 and a long-term regulated-utility EPS growth projection in the upper half of a 5%–7% range through 2026.
- Eversource was reviewing strategic alternatives for its 50% offshore wind partnership interest, including a possible partial or full sale; it expected to complete the review during 2022. Offshore wind investment was projected at $0.9B–$1.0B in 2022 and $3.0B–$3.6B in 2023–2026, subject to project completion, permitting and the strategic review. The investment balance was $1.824B at September 30.
- Offshore wind projects face federal, state and local permitting, construction, timing and appeal risks. Eversource disclosed maximum guarantee exposures tied primarily to offshore wind construction agreements, including $759.6M for North East Offshore, alongside substantial project commitments.
- Four FERC transmission ROE complaints remain unresolved. Eversource recorded a $39.1M pre-tax reserve for the second complaint period, could not estimate a loss range for the proceedings, and said a 10-basis-point change in base ROE would affect annual after-tax earnings prospectively by approximately $5M. A separate proposed elimination of the RTO ROE incentive could reduce annual after-tax earnings by an estimated $18M if adopted.
- Other items to monitor include the $121.1M environmental remediation reserve, customer collection and regulatory recovery assumptions, significant capital requirements, interest-rate and market-access risks, and Moody’s September 2022 change of NSTAR Electric’s outlook from stable to negative. Management said operating cash flows, borrowing availability and access to debt and equity markets were expected to fund working capital and forecast capital needs.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It identified no new risk factors or material changes to previously disclosed risks.
Important facts for investors to verify
- Reconcile GAAP EPS growth with the 2021 CL&P settlement and storm charges and management’s non-GAAP adjustments.
- Track the offshore wind strategic review, project permitting and schedules, future investment needs, and the scope and likelihood of guarantee exposure.
- Monitor FERC ROE proceedings, the $39.1M reserve, and potential changes to transmission incentives.
- Assess whether planned capital spending and dividends remain supported by operating cash flow, financing capacity and regulatory cost recovery.
- Review customer receivable collectability and the assumptions supporting recovery of regulatory assets, as well as NSTAR Electric’s negative credit outlook.