Eversource Energy — Q2 2019 Form 10-Q
Business context and reporting period. This combined, unaudited filing covers the quarter and six months ended June 30, 2019, with comparative results for 2018. Eversource is a regulated utility holding company serving approximately four million electric, natural gas and water customers in Connecticut, Massachusetts and New Hampshire. Results below are consolidated Eversource figures unless noted.
Key financial metrics
Amounts are in millions of dollars except per-share data.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating revenue | 1,884.5 | 1,853.9 | 4,300.3 | 4,141.8 |
| Operating income | 151.0 | 391.4 | 645.7 | 833.9 |
| Net income attributable to common shareholders | 31.5 | 242.8 | 340.1 | 512.3 |
| Diluted EPS | $0.10 | $0.76 | $1.07 | $1.61 |
| Cash provided by operating activities | Not separately stated | Not separately stated | 924.6 | 698.1 |
- Q2 and first-half 2019 GAAP results include a $239.6 million pre-tax Northern Pass Transmission (NPT) impairment, with an after-tax impact of $204.4 million, or $0.64 per share. Excluding the charge, management reported non-GAAP EPS of $0.74 for Q2 and $1.71 for the first half.
- Six-month capital investment in property, plant and equipment was $1.38 billion, compared with $1.25 billion in 2018. Cash dividends paid were $323.3 million.
- At June 30, 2019, total assets were $39.0 billion and common shareholders’ equity was $12.0 billion. Debt included $13.04 billion of long-term debt, $779 million of current long-term debt, $729 million of notes payable and $605 million of rate-reduction bonds. Balance-sheet cash was $20.6 million; cash and restricted cash in the cash flow statement totaled $167.2 million.
- Current assets were $2.13 billion and current liabilities $3.51 billion. Eversource reported $884 million of available capacity under its parent commercial-paper program and $487 million under NSTAR Electric’s program; neither related revolving credit facility had borrowings outstanding.
Changes versus prior comparable periods
- Revenue rose 1.7% in Q2 and 3.8% in the first half. The first-half increase reflected, among other items, distribution rate changes, transmission investment and energy supply cost recoveries.
- GAAP common earnings declined sharply, primarily because of the NPT impairment. Excluding it, first-half non-GAAP EPS increased to $1.71 from $1.61.
- Operating cash flow increased by $226.5 million year over year in the first half. Management attributed the improvement chiefly to lower pension and storm-restoration cash outlays, income-tax payment timing, receivable collections and DOE litigation proceeds.
- Capital spending increased. Eversource issued $1.0 billion of long-term debt during Q2 and raised $426.9 million net from a direct common-share issuance. Its separate forward sale covered 11.96 million shares and had not been settled at quarter-end.
Outlook, commentary and material risks
- Guidance: Management continued to project 2019 non-GAAP earnings of $3.40–$3.50 per share, excluding the NPT impairment. This is a non-GAAP outlook, not a GAAP forecast.
- Northern Pass: On July 19, 2019, the New Hampshire Supreme Court denied the project appeal. Eversource concluded construction was no longer probable and recorded the impairment in the June 30 statements as a subsequent event. The filing says significant future cash expenditures related to the charge are not expected; certain costs were subject to reimbursement agreements.
- Regulation: Four FERC complaints challenge transmission return-on-equity levels. A $39.1 million pre-tax reserve was recorded for the second complaint period; outcomes for all four proceedings remain uncertain, and the company could not reasonably estimate a gain or loss range.
- Rates and storm costs: Regulators approved recovery of $141.0 million of CL&P storm costs. PSNH received approval for a temporary $28.3 million annual distribution-rate increase and recovery of about $68.5 million of storm costs over five years, effective beginning in 2019. PSNH also had a pending permanent rate case.
- Commitments and development: CL&P and UI signed proposed ten-year Millstone power purchase contracts representing a significant multi-billion-dollar commitment; PURA review was pending. Sunrise Wind was selected to negotiate an 880 MW, 25-year power purchase agreement, subject to contract and investment decisions. Eversource’s offshore-wind investment was $499.5 million at quarter-end, with a further $54.9 million contribution in July.
- Other exposures: Environmental remediation reserves were $71.6 million across Eversource, including $57.1 million related to former manufactured-gas sites. The filing also identifies risks involving regulation, project execution, severe weather, cybersecurity, capital markets, credit ratings and customer demand. S&P downgraded Eversource and subsidiary ratings on July 25, 2019, while revising outlooks to stable.
Most important facts for investors to verify
- Reconcile reported GAAP results with management’s non-GAAP figures and confirm the treatment of the $204.4 million after-tax NPT charge.
- Track the FERC ROE complaints, including the $39.1 million reserve and potential effects of final orders.
- Review liquidity and funding needs against elevated capital spending, low unrestricted cash, debt maturities and the unsettled forward share sale.
- Confirm regulatory approval, contract terms and eventual investment commitments for Millstone and offshore-wind projects.
- Assess storm-cost recovery, PSNH’s pending permanent rate case, environmental reserves and credit-rating developments.