Eversource Energy — Q2 2020 Form 10-Q
Business context and period. The combined, unaudited filing covers Eversource Energy and three utility subsidiaries for the quarter and six months ended June 30, 2020. Eversource is a regulated electric, natural gas and water delivery company serving approximately four million customers in Connecticut, Massachusetts and New Hampshire. Amounts below are in U.S. dollars; financial results are consolidated Eversource figures unless otherwise noted.
Financial results and liquidity
- Revenue: Q2 operating revenue was $1.953 billion, up 3.6% from $1.884 billion. First-half revenue was $4.327 billion, up 0.6% from $4.300 billion.
- Profit and EPS: Q2 net income attributable to common shareholders was $252.2 million ($0.75 per diluted share), versus $31.5 million ($0.10) a year earlier. First-half results were $587.0 million ($1.75), versus $340.1 million ($1.07). Comparisons are materially affected by the $204.4 million after-tax Northern Pass Transmission impairment recorded in Q2 2019 and $7.4 million of 2020 after-tax acquisition costs in the first half.
- Adjusted earnings: Excluding the specified items, management reported Q2 earnings of $256.1 million ($0.76 per share), versus $235.9 million ($0.74); first-half earnings were $594.4 million ($1.77), versus $544.5 million ($1.71). These are non-GAAP measures, not substitutes for reported GAAP results.
- Operating performance: Q2 operating income was $433.7 million, versus $151.0 million; first-half operating income was $972.8 million, versus $645.7 million. The prior-year impairment explains much of the reported increase. First-half segment earnings rose in electric distribution, transmission (excluding the impairment), natural gas distribution and water distribution.
- Cash flow and investment: First-half operating cash flow was $1.005 billion, compared with $924.6 million. Cash capital investment was $1.400 billion, versus $1.378 billion; investing cash flow was a $1.391 billion outflow. Management attributed stronger operating cash flow mainly to tax refunds and working-capital timing, including deferred estimated tax payments.
- Debt and liquidity: At June 30, long-term debt was $13.698 billion, with $701.0 million classified as current; rate-reduction bonds totaled $561.7 million, including the current portion, and notes payable were $493.5 million. Cash on the balance sheet was $64.9 million; cash plus restricted cash was $176.9 million. Available capacity under commercial-paper programs was approximately $1.607 billion. Eversource also reported $1.45 billion revolving credit support for its parent program and $650 million for NSTAR Electric; neither facility had outstanding borrowings.
- Equity and dividends: Eversource issued 11.96 million common shares during the first half, raising $929.0 million net. The quarterly dividend was $0.5675 per share, paid June 30.
Material changes and management commentary
- Revenue growth reflected, among other factors, base-rate increases, transmission investment and higher transmission revenues; lower energy supply prices and volumes reduced some tracked revenues and expenses. Decoupling mechanisms limit the earnings effect of sales-volume changes at several utilities.
- Management reaffirmed 2020 earnings guidance of $3.60–$3.70 per share and long-term regulated-utility EPS growth of 5%–7% through 2024.
- COVID-19 had not materially affected receivables or operations as of the filing, according to management, but the company reported some lower customer collections and $7.5 million of incremental COVID-related expenses that reduced first-half pretax earnings. It deferred $6.6 million of incremental costs for potential regulatory recovery and said future effects remain uncertain. Customer disconnection moratoriums, payment assistance, demand, energy-efficiency activity and capital-market access remain relevant uncertainties.
- Eversource agreed to acquire Columbia Gas of Massachusetts assets for $1.1 billion, subject to working-capital adjustment, and excluded liabilities related to the 2018 Greater Lawrence incident. Regulatory approvals remained pending; the company expected to finance the transaction with debt and equity and anticipated closing shortly after Q3 2020.
- Offshore wind projects face siting and permitting uncertainty, including COVID-related delays. Management said South Fork Wind was likely to be delayed beyond its projected end-2022 in-service date; it could not yet assess the schedule effect on Revolution Wind or Sunrise Wind.
Risks, contingencies and unusual items
- On August 4, 2020, after quarter-end, Tropical Storm Isaias caused extensive electric-system damage and outages, primarily in Connecticut. Restoration costs were not yet estimable; management expected to seek regulatory recovery and did not expect a material earnings impact.
- Four FERC transmission return-on-equity complaints remain unresolved. Eversource maintained a $39.1 million pretax reserve for the second complaint period and said it could not reasonably estimate the outcome or a range of gains or losses for the proceedings.
- Environmental remediation reserves were $78.5 million for Eversource, including $67.5 million related to former manufactured-gas sites. Management noted estimates could change with new information or remediation requirements.
- Management identified ongoing exposure to cyberattacks, capital-market disruption, regulatory actions, weather and climate-related events, supplier performance, and pension and benefit-plan market movements. Pension plan funded status was approximately 99% as of June 30.
Most important facts for investors to verify
- Whether the reaffirmed $3.60–$3.70 2020 EPS guidance is supported by subsequent results and regulatory decisions.
- Approval, financing, final purchase price and closing status of the $1.1 billion Columbia Gas asset acquisition, including confirmation of excluded Greater Lawrence liabilities.
- Final FERC outcomes in the transmission ROE complaints and whether the $39.1 million reserve remains adequate.
- Actual Isaias restoration costs, recovery timing and customer impacts, as well as COVID-related collections, bad-debt trends and regulatory cost recovery.
- Offshore wind permitting milestones, schedule changes and required future investment.