Eversource Energy 2018 Q2 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, 2018. Eversource is a regulated energy and water delivery holding company serving approximately four million customers across Connecticut, Massachusetts and New Hampshire. Unless noted, amounts below are consolidated Eversource figures.
Key financial metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $1.854 billion | $1.763 billion | $4.142 billion | $3.868 billion |
| Operating income | $391.4 million | $448.2 million | $833.9 million | $949.2 million |
| Net income attributable to common shareholders | $242.8 million | $230.7 million | $512.3 million | $490.2 million |
| Diluted EPS | $0.76 | $0.72 | $1.61 | $1.54 |
| Operating margin | 21.1% | 25.4% | 20.1% | 24.5% |
- Revenue increased 5.2% in Q2 and 7.1% in the first half. Common-shareholder earnings rose 5.2% and 4.5%, respectively, while operating income fell in both periods. Lower income tax expense, principally reflecting the federal tax rate reduction from 35% to 21%, helped lift net income despite weaker operating income.
- Six-month operating cash flow was $698.1 million, down from $895.0 million. Property, plant and equipment investment was $1.252 billion, versus $1.147 billion. Management attributed lower operating cash flow mainly to storm restoration payments, higher tax payments and pension/PBOP contributions.
- At June 30, cash and cash equivalents were $64.2 million; cash, cash equivalents and restricted cash totaled $121.8 million. Notes payable were $1.191 billion, long-term debt including current maturities was $12.397 billion, and rate reduction bonds totaled $635.7 million. Commercial-paper capacity available was $703 million at the parent and $206.2 million at NSTAR Electric; revolving facilities backstop the programs.
- Common dividends declared were $0.51 per share for the first half, compared with $0.48 in the prior-year period. The June quarterly dividend paid was $0.505 per share.
Material changes and operating drivers
- Electric transmission earnings increased $16.3 million in Q2 and $29.5 million in the first half, mainly from a higher rate base as transmission infrastructure investment continued.
- Electric distribution earnings decreased $20.6 million in Q2 and $30.5 million in the first half. Drivers included the sale of PSNH thermal generation assets, higher property taxes and depreciation, and NSTAR Electric’s transition to fully decoupled rates in February 2018. Natural gas distribution earnings improved, supported by colder weather and customer growth.
- Water distribution results include Aquarion, acquired in December 2017; it contributed $53.5 million of Q2 revenue and $98.0 million for the first half.
- Revenue and purchased-power costs rose partly with energy supply prices and tracked regulatory costs, which generally are recovered from customers and do not affect earnings. The new revenue standard also changed ISO-NE power purchases and sales to net hourly rather than monthly, increasing reported revenue and purchased-power expense by $3 million and $22 million, respectively, for Q2 and the first half, with no net-income effect.
Outlook, risks and unusual items
- Capital plans: Expected operating-company capital expenditures for 2019–2021 increased from approximately $6.5 billion to $7.1 billion, primarily for resiliency and reliability investments. No specific full-year 2018 earnings or EPS guidance is stated in the supplied filing text.
- Storm costs: March and May storms caused significant outages. Approximately $274 million of restoration costs was deferred for recovery from customers; management considered recovery probable. The company reported approximately $172 million of storm-related cash payments in the first half.
- Northern Pass: The New Hampshire siting application and rehearing were denied, and Massachusetts terminated its project selection. Eversource planned a court appeal and continued to pursue approval. Approximately $297 million of costs remained capitalized; a future finding that costs are not recoverable could lead to a substantial write-off and materially harm financial results.
- PSNH generation divestiture: The thermal asset sale closed in January, with total proceeds reported at $116.8 million after adjustments. The hydroelectric sale was expected in Q3 2018 following FERC’s license-transfer approval. PSNH issued $635.7 million of securitized bonds at a weighted-average 3.66% rate to finance stranded costs; repayment is supported by a customer charge and the bonds are non-recourse to PSNH and Eversource.
- Regulatory and legal matters: Excess deferred tax liabilities of approximately $2.9 billion are expected to benefit customers over time, subject to regulatory processes. FERC transmission return-on-equity complaints remain unresolved; Eversource recorded a $39.1 million pre-tax reserve for the second complaint period and said the ultimate outcome cannot be estimated. Environmental remediation reserves were $64.9 million.
- Q2 and first-half other income included $17.6 million of unrealized gains on a renewable-energy fund in each period. This gain, tax effects, weather and regulatory recovery timing are relevant when assessing earnings quality and comparability.
Important facts for investors to verify
- Whether storm restoration costs and other deferred regulatory assets are ultimately approved for recovery, and on what schedule.
- Progress and recoverability of the $297 million Northern Pass investment, including the outcome of the planned appeal and any further permitting path.
- Final hydroelectric sale proceeds and the impact of the completed generation divestiture on PSNH earnings and customer charges.
- Resolution of FERC ROE complaints and the potential financial effect beyond the existing $39.1 million reserve.
- Whether the increased 2019–2021 capital program can be funded while maintaining liquidity, credit quality and dividend commitments.
- How much of reported earnings growth reflects lower taxes and investment gains versus recurring regulated operating performance.