Eversource Energy — Q3 2020 Form 10-Q
Business context and period: Unaudited results for the quarter and nine months ended September 30, 2020. Eversource is a regulated electric, natural gas and water utility serving approximately 4.3 million customers in Connecticut, Massachusetts and New Hampshire. The filing also covers CL&P, NSTAR Electric and PSNH.
Financial performance and position
| Consolidated Eversource | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $2.344 billion | $2.176 billion | $6.670 billion | $6.476 billion |
| Operating income | $561.2 million | $509.2 million | $1.534 billion | $1.155 billion |
| Net income attributable to common shareholders | $346.3 million | $318.9 million | $933.2 million | $659.0 million |
| Diluted EPS | $1.01 | $0.98 | $2.76 | $2.05 |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $1.496 billion | $1.495 billion |
- For the first nine months, net income included $12.8 million after tax ($0.04 per share) in CMA acquisition costs. Excluding those costs, non-GAAP earnings were $946.0 million, or $2.80 per share. The comparable 2019 period included a $204.4 million after-tax Northern Pass Transmission impairment; excluding it, 2019 non-GAAP earnings were $863.4 million, or $2.69 per share.
- Cash capital investment in property, plant and equipment was $2.102 billion for the nine months, versus $2.129 billion a year earlier. Cash and cash equivalents were $730.0 million at September 30, versus $15.4 million at year-end 2019; cash, cash equivalents and restricted cash totaled $829.0 million.
- At September 30, reported debt included $14.736 billion of long-term debt, $1.078 billion current long-term debt, $60.5 million of notes payable and $540.1 million of rate-reduction bonds. Common shareholders’ equity was $14.0 billion. The company reported $2.04 billion of available capacity under its commercial paper programs.
- Eversource issued common shares for $929.0 million net and issued $2.36 billion of long-term debt in the first nine months. These proceeds supported the CMA acquisition, refinancing and capital needs.
- For context, Q3 operating revenue increased about 7.7% year over year, while common earnings rose about 8.6%. Nine-month earnings growth was substantially affected by the absence of the 2019 impairment.
Material changes and business developments
- Segment earnings improved year over year in Q3 in electric transmission, water, electric distribution and natural gas distribution (the gas segment remained loss-making in the quarter). For the nine-month period, higher regulated utility earnings and the absence of the prior-year Northern Pass impairment contributed to growth.
- On October 9, 2020, after the reporting date, Eversource completed its $1.1 billion-plus-working-capital acquisition of Columbia Gas of Massachusetts assets. The acquired business serves approximately 330,000 customers. Eversource funded the transaction with debt and equity; purchase accounting and pro forma disclosures were not complete when the 10-Q was filed.
- Eversource sold its Hingham-area water system on July 31 for $110.5 million, recognizing a $16.0 million pretax gain ($3.5 million after tax).
Outlook, commentary and principal risks
- Management reaffirmed 2020 non-GAAP EPS guidance of $3.60–$3.70, excluding CMA acquisition and integration costs, and long-term EPS growth guidance of 5%–7% through 2024 from regulated utility businesses.
- Management said COVID-19 had not caused significant direct financial or operating impacts as of filing, but identified uncertainty from customer payment capacity, aged receivables, lower collections, disconnection moratoriums, capital-market conditions and possible regulatory recovery outcomes. The September 30 allowance for uncollectible accounts was $295.0 million; COVID-related uncollectible costs increased the allowance by $16.5 million year to date and were deferred for expected regulatory recovery. Management reported $15.1 million of net incremental COVID-related costs deferred.
- Tropical Storm Isaias caused severe outages, primarily in Connecticut. Estimated deferred restoration costs were approximately $257 million at CL&P and $276 million at Eversource. PURA is investigating CL&P’s response and the prudence of restoration costs; management expects recovery but final costs and regulatory outcomes remain uncertain.
- Connecticut temporarily suspended certain CL&P rate components, delaying cost collection while the impact is deferred as a regulatory asset. Separately, pending FERC transmission return-on-equity complaints remain uncertain; Eversource maintained a $39.1 million pretax reserve for the second complaint period and said it cannot reasonably estimate outcomes for all proceedings.
- Offshore wind projects face permitting and COVID-related schedule risks. Management said the projected end-2023 Revolution Wind and end-2024 Sunrise Wind in-service dates were unlikely to be met; South Fork Wind was expected in service by the end of 2023.
- Management cited possible risks from cybersecurity incidents, extreme weather, regulatory decisions, capital access and costs, suppliers, and pension and PBOP asset returns and discount rates. Management expected operating cash flow, borrowing capacity and access to debt and equity markets to meet forecast needs.
Investor verification priorities
- Confirm CMA acquisition purchase-price adjustments, final purchase accounting, integration costs and subsequent operating contribution.
- Track PURA’s Isaias investigation, final restoration costs, cost recovery and any penalties or customer bill credits.
- Monitor COVID-related receivable aging, collection performance and whether deferred costs are approved for recovery.
- Follow FERC transmission ROE proceedings and assess potential changes to the $39.1 million reserve and transmission revenues.
- Check progress and revised schedules for offshore wind permits, construction and expected in-service dates.
- Compare full-year EPS with the reaffirmed $3.60–$3.70 non-GAAP guidance and review reconciliation to GAAP results.