Eversource Energy 2020 Form 10-K Summary
Business context and reporting period
Filed February 17, 2021, this combined Form 10-K reports Eversource Energy and certain utility subsidiaries for the fiscal year ended December 31, 2020. Eversource is a regulated electric, natural gas, and water delivery utility serving approximately 4.3 million customers in Connecticut, Massachusetts, and New Hampshire. Its four reportable segments are electric distribution, electric transmission, natural gas distribution, and water distribution.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $8.90 billion | $8.53 billion |
| Operating income | $1.99 billion | $1.59 billion |
| Net income attributable to common shareholders | $1.21 billion | $909.1 million |
| Diluted EPS | $3.55 | $2.81 |
| Operating cash flow | $1.68 billion | $2.01 billion |
| Cash capital investment | $2.94 billion | $2.91 billion |
| Common dividends per share | $2.27 | $2.14 |
Operating margin was approximately 22.3% in 2020 versus 18.7% in 2019; net margin was approximately 13.5% versus 10.7%. Cash flow from operations less cash capital investment was negative approximately $1.26 billion. These margins and the cash-flow difference are calculated from reported figures.
Reported 2020 earnings included $32.1 million after tax, or $0.09 per share, of Columbia Gas of Massachusetts acquisition costs. Excluding these costs, non-GAAP earnings were $1.24 billion, or $3.64 per share, compared with $1.11 billion, or $3.45 per share, in 2019 excluding the $204.4 million after-tax Northern Pass impairment. Eversource cautions that these non-GAAP measures are not substitutes for GAAP results.
2020 segment earnings were $544.0 million for electric distribution, $502.5 million for electric transmission, $134.1 million for natural gas distribution, and $41.2 million for water distribution. Eversource reported $106.6 million in cash and $1.25 billion in notes payable at year-end. Long-term debt was $15.13 billion, with $1.05 billion classified as current; rate reduction bonds added $540.1 million. Current liabilities exceeded current assets by approximately $1.78 billion. Management said operating cash flow, borrowing availability, and capital-market access should meet funding needs; $945.7 million remained available under the parent commercial paper program and $455.0 million under NSTAR Electric’s program.
Material changes versus 2019
- Revenue rose 4.4%; GAAP net income increased 32.6%. The comparison was materially affected by the absence of the 2019 Northern Pass impairment. On an adjusted basis, earnings increased about 11.1% and adjusted EPS about 5.5%.
- Electric transmission earnings rose to $502.5 million from $256.5 million, primarily because 2019 included the Northern Pass impairment. Excluding that impairment, transmission earnings rose from $460.9 million.
- Operating cash flow declined to $1.68 billion from $2.01 billion, reflecting customer collection and regulatory recovery timing, approximately $196 million of Isaias-related storm restoration payments, and absence of 2019 DOE litigation proceeds.
- On October 9, 2020, Eversource acquired the Massachusetts gas distribution assets formerly operated as Columbia Gas for a stated cash price of $1.1 billion plus a $69.6 million target working-capital amount, subject to adjustment. The business contributed $154.8 million of revenue and $13.9 million of net income after acquisition through year-end. The final working-capital adjustment was not settled in the filing.
- Common shares issued during 2020 generated $929.0 million net proceeds; long-term debt issuance totaled $2.76 billion. The dividend increased to $2.27 per share from $2.14.
Outlook, management commentary, and risks
- Management projected 2021 non-GAAP EPS of $3.81–$3.93, excluding integration costs related to the Massachusetts gas acquisition, and long-term EPS growth through 2025 in the upper half of a 5%–7% range.
- Projected 2021–2025 capital expenditures total $17.03 billion: $10.90 billion in electric and natural gas distribution, $4.31 billion in transmission, $0.78 billion in water, and $1.05 billion in information technology and facilities. Offshore wind investment is excluded.
- Management expected offshore wind investment of approximately $300–$500 million in 2021, subject to project development and permitting. South Fork Wind was expected to enter service by end-2023; management said Revolution Wind’s end-2023 and Sunrise Wind’s end-2024 targets were unlikely to be met, pending federal review timelines.
- COVID-19 had not materially affected reported operations or earnings, according to management, but customer arrears and collection delays increased. The company recorded a $358.9 million allowance for uncollectible accounts and attributed $31.5 million of allowance increases to COVID-related amounts. It deferred $24.0 million of net incremental COVID-19 costs, while $11.1 million reduced pretax earnings. Recovery of some costs remained subject to regulatory proceedings.
- Tropical Storm Isaias caused severe outages, particularly at CL&P. Eversource estimated $245 million of Isaias-related deferred storm costs at year-end; CL&P’s estimate was $228 million. Connecticut regulators were investigating response performance and cost prudence, with potential penalties if standards were found unmet. Management believed recovery was probable and did not expect a material earnings impact, but the regulatory outcome was pending.
- Other material exposures include four pending FERC transmission return-on-equity complaints; the company recorded a $39.1 million pretax reserve for the second complaint period but said the ultimate outcomes could not be reasonably estimated. Environmental remediation reserves totaled $102.4 million across 63 sites, including $92.2 million for former manufactured-gas-plant sites.
- Key risks include regulatory decisions on cost recovery and allowed returns, project permitting and construction execution, severe weather and climate-related impacts, cyber and physical security, customer credit and pandemic effects, pension assumptions, and access to capital. Eversource reported a $2.78 billion regulatory liability for excess deferred income taxes to be returned to customers over time.
Most important facts for investors to verify
- Reconcile reported and adjusted earnings, especially the 2019 Northern Pass impairment and 2020 acquisition costs; assess whether adjusted earnings growth is sustainable.
- Track customer arrears, collection trends, allowance adequacy, and regulatory approval of COVID-19 cost recovery.
- Follow the Isaias investigation, final restoration costs, potential penalties, and regulator-approved recovery.
- Confirm the final acquisition working-capital adjustment, integration costs, and whether the acquired gas business meets expected earnings and rate-plan assumptions.
- Monitor the FERC ROE complaints, regulatory recovery of storm and other deferred costs, and large regulatory-asset balances.
- Assess refinancing of the $1.05 billion current long-term debt balance and funding for the $17.03 billion capital plan while maintaining credit ratings and dividend capacity.
- Check offshore wind permitting, revised schedules, project economics, and the extent of Eversource’s investment and guarantee exposure.
- Note that management and the auditor excluded EGMA, acquired in October 2020, from the 2020 internal-control assessment; the auditor’s control opinion did not cover EGMA.