EVERSOURCE ENERGY quarterly report, Q2 FY2017

Eversource Energy Q2 2017 Form 10-Q Summary

Business context and reporting period

Unaudited quarterly report for the three and six months ended June 30, 2017, filed August 4, 2017. Eversource is a regulated energy-delivery holding company serving approximately 3.7 million electric and natural gas customers in Connecticut, Massachusetts and New Hampshire. The combined filing also reports results for CL&P, NSTAR Electric, PSNH and WMECO.

Key financial metrics

Amounts below are Eversource consolidated unless otherwise noted; dollar amounts are in millions except per-share data.

• Calculated operating margin was approximately 25.8% in Q2 2017 versus 24.0% in Q2 2016, and 24.9% in the first half versus 23.9%.
• Operating cash flow was $908.0 million in the first half, down from $978.4 million. Cash capital investment was $1.147 billion, up from $869.2 million; operating cash flow less these investments was approximately negative $239 million.
• At June 30, cash was $24.6 million. Consolidated short-term notes payable were $937.5 million; current maturities of long-term debt were $1.484 billion, and long-term debt was $8.899 billion. The $1.45 billion revolving facility had no borrowings and supported the parent’s commercial-paper program, with $512.5 million of commercial-paper capacity remaining.
• Common dividends declared were $0.48 per share in Q2 and $0.95 per share for the first half; the company paid $0.475 per share on June 30.

Material changes versus prior period

• Q2 common-shareholder earnings rose 13.3%; first-half earnings rose 9.5%. Growth reflected improved electric distribution and transmission results, partly offset by weaker natural-gas distribution earnings.
• Electric distribution earnings benefited from lower operations and maintenance expense, higher distribution revenue and heat-driven demand at NSTAR Electric. Transmission earnings increased with a higher transmission rate base.
• Natural-gas distribution earnings fell by $3.5 million in Q2 and $3.6 million in the first half, primarily from weather-related demand and higher operating and depreciation costs.
• First-half revenue increased 1.2%, while Q2 revenue was nearly unchanged. Electric sales volumes declined 1.9% in Q2 and 1.1% for the first half; total natural-gas sales volumes fell 4.6% in Q2 but rose 1.7% in the first half.
• First-half operating cash flow fell mainly because the prior-year period included a large tax refund following bonus-depreciation legislation, and 2017 pension contributions were higher.

Outlook, risks and unusual items

• No company-wide earnings guidance is provided in the supplied filing text. Management said results for interim periods are not necessarily indicative of full-year results.
• Eversource agreed to acquire Aquarion Water Company for $1.675 billion, including approximately $880 million cash and $795 million assumed debt. Regulatory and other approvals were required; closing was expected by December 31, 2017.
• In the Boston Harbor cable settlement, NSTAR Electric recorded a $4.9 million pretax charge for previously capitalized engineering costs. It also agreed to a $17.5 million rate-base credit, with the initial $17.5 million of new-cable construction costs to be expensed as incurred; completion was expected in 2019.
• FERC transmission return-on-equity complaints remain unresolved. Eversource retained a $39.1 million pretax reserve for the second complaint period and continued recognizing transmission revenue using a 10.57% base ROE and 11.74% incentive cap pending further FERC action. Management estimated that a 10-basis-point base-ROE change for a complaint period could affect after-tax earnings by approximately $3 million.
• PSNH’s generation-asset divestiture process was underway, with approval expected by year-end 2017. The sale price could be below carrying value; management considered recovery probable through operating cash flows, sale proceeds and stranded-cost recovery.
• Access Northeast partners withdrew the project from FERC pre-filing in June while reassessing policy and pipeline constraints; final design, cost and timing remained under review. Northern Pass and other transmission projects remained subject to permitting and regulatory processes.
• Environmental remediation reserves for Eversource were $57.7 million at June 30. The filing also describes potential uncertainty from regulatory proceedings, litigation, project approvals, capital-market access, weather, customer demand and other listed risks.
• Management stated that regulated energy-supply costs are generally recovered from customers, limiting the regulated companies’ exposure to commodity-price changes. It also reported no material changes to previously disclosed risk factors or contractual obligations.

Important facts for investors to verify

• Progress and final approval terms for the Aquarion acquisition, including funding and assumed debt.
• FERC ROE complaint outcomes, related reserves and any changes to transmission billing or recognized revenue.
• PSNH generation-asset sale proceeds, stranded-cost recovery and regulatory approval.
• Capital spending and financing needs relative to operating cash generation, debt maturities and commercial-paper capacity.
• Boston Harbor cable settlement costs and the timing and regulatory treatment of the replacement project.
• Permitting, cost and schedule developments for Northern Pass, Access Northeast and other major transmission and infrastructure projects.