Eversource Energy — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited combined filing covers Eversource Energy and three utility subsidiaries for the quarter and six months ended June 30, 2022, compared with the same periods in 2021. Eversource is a regulated electric, natural gas and water delivery holding company serving approximately 4.4 million customers in Connecticut, Massachusetts and New Hampshire. Unless stated otherwise, financial amounts below are for consolidated Eversource.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $2.573B | $2.123B | $6.044B | $4.948B |
| Operating income | $455.6M | $451.6M | $1.119B | $1.037B |
| Net income attributable to common shareholders | $291.9M | $264.5M | $735.3M | $630.7M |
| Diluted EPS | $0.84 | $0.77 | $2.13 | $1.83 |
| Operating cash flow | Not separately stated | Not separately stated | $841.8M | $807.4M |
| Capital expenditures for property, plant and equipment | Not separately stated | Not separately stated | $1.549B | $1.423B |
- Q2 revenue rose 21.2%, while common net income rose 10.3% and diluted EPS rose 9.1%. First-half revenue increased 22.1%, common net income 16.6% and EPS 16.4%.
- Operating margin was approximately 17.7% in Q2 versus 21.3% a year earlier; first-half operating margin was approximately 18.5% versus 21.0%. Higher energy procurement costs and regulatory amortization contributed to the margin decline; many supply costs are recovered from customers through regulatory mechanisms and do not directly affect earnings.
- At June 30, cash was $29.5M, total assets $49.9B, common equity $15.1B and long-term debt $19.6B. Current debt included $1.265B of long-term debt due within a year and $98.8M of notes payable; rate-reduction bonds totaled $475.3M including current maturities.
- Available capacity under the two commercial-paper programs was approximately $2.46B. The company reported no borrowings under its revolving credit facilities. Management expected operating cash flows, borrowing availability and access to debt and equity markets to meet working-capital and forecast capital needs.
- First-half financing included $3.35B of long-term debt issuance, $770M of long-term debt repayments and $126.3M net proceeds from common-share issuance. The quarterly common dividend was $0.6375 per share.
Material changes and management commentary
- Higher revenues largely reflected higher energy supply prices and volumes, greater wholesale market sales, and increased transmission revenue from a larger transmission rate base. Much of the associated supply-cost revenue and expense is passed through to customers.
- Operating income increased only $4.0M in Q2 despite higher revenue, as operating expenses rose $446.1M. First-half operating income increased $81.4M. Other income rose materially in both periods, including higher pension, SERP and PBOP non-service income and higher equity-method earnings.
- Management reported non-GAAP earnings of $297.4M, or $0.86 per share, for Q2 and $746.1M, or $2.16 per share, for the first half, excluding transaction and transition costs. The first-half 2021 comparison also included a $22.6M after-tax CL&P storm-performance penalty absent in 2022.
- Operating cash flow increased $34.4M year over year in the first half. Higher regulatory under-recoveries, customer credits, storm-cost payments, receivable timing and a $76.1M NSTAR Electric withheld-property-tax payment partly offset favorable cash timing and lower pension contributions.
Outlook, risks and unusual items
- Eversource reaffirmed long-term EPS growth from regulated utilities through 2026 in the upper half of its 5%–7% range. Its 2022 non-GAAP EPS guidance was $4.04–$4.14, excluding transaction and transition costs.
- The company began a strategic review of its 50% offshore-wind partnership interest with Ørsted, including potential sale of all or part of the stake. Targeted buyer outreach began in late July; management expected to complete the review in 2022. The review did not affect June 30 financial statements. Offshore wind investment was $1.49B, and estimated 2022 investment was $0.9B–$1.0B, subject to the review and project progress.
- Offshore wind projects face permitting, construction and appeal risks. Eversource disclosed guarantees and indemnifications primarily related to offshore wind, including maximum exposures of $889.9M for North East Offshore construction-related agreements and additional project guarantees. These stated maximums are contingent exposures, not reported losses.
- Key regulatory uncertainties include four FERC transmission ROE complaints; the company held a $39.1M pre-tax reserve for the second complaint period and said it could not reasonably estimate the loss range for the proceedings. A proposed elimination of the RTO return-on-equity incentive could reduce annual after-tax earnings by an estimated $18M if adopted.
- Environmental remediation reserves were $121.3M for 62 sites. Other material matters include recovery of regulatory assets and customer receivables, climate and weather exposure, capital-market access, and environmental and permitting requirements. Management stated no material changes to previously disclosed risk factors.
- COVID-related uncollectible balances remained a consideration. Management believed Connecticut and Massachusetts would permit recovery of relevant costs; no COVID-related amounts were deferred at PSNH under a regulator’s order.
Most important facts for investors to verify
- Whether reported earnings growth is sustained by regulated rate-base investment and approved rates, rather than timing effects, pension income or other non-operating items.
- How the offshore-wind strategic review concludes, and the effect of any sale or continued project funding on guarantees, cash needs and earnings.
- Progress in recovering regulatory assets and under-recoveries, and trends in customer delinquencies and uncollectible-account allowances.
- Debt maturities, borrowing costs, capital spending and funding needs, including the potential use of the $1.2B at-the-market equity program.
- Outcomes of FERC ROE proceedings and other pending state rate, grid-modernization and water-rate matters.
- Project permitting, construction schedules and cost estimates for offshore wind and major transmission investments.