Eversource Energy — Q3 2023 Form 10-Q
Business context and period. Eversource is a regulated utility holding company serving approximately 4.4 million electric, natural gas and water customers in Connecticut, Massachusetts and New Hampshire. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $2.791B | $3.216B | $9.216B | $9.260B |
| Operating income | $530.6M | $557.3M | $1.841B | $1.676B |
| Net income attributable to common shareholders | $339.7M | $349.4M | $846.2M | $1.085B |
| Diluted EPS | $0.97 | $1.00 | $2.42 | $3.13 |
| Operating cash flow | Not separately reported for the quarter | $1.169B | $1.689B |
- For the first nine months, non-GAAP earnings were $1.184B, or $3.38 per share, versus $1.098B, or $3.17 per share, in 2022. This measure excludes specified items; GAAP net income and EPS were lower year over year, principally reflecting the offshore-wind impairment.
- The second-quarter offshore-wind impairment was $401M pre-tax ($331M after tax, or $0.95 per share). It was non-cash.
- Cash capital investment in property, plant and equipment was $3.126B for nine months, up from $2.353B. Operating cash flow did not cover this investment.
- At September 30, cash and cash equivalents were $78.8M. Long-term debt was $22.087B, with a further $2.072B current portion; notes payable were $1.530B and rate-reduction bonds totaled $410.5M. These balances compare with $19.724B long-term debt, $1.320B current debt, $1.442B notes payable and $453.7M of rate-reduction bonds at December 31, 2022.
- Eversource reported $1.120B of available capacity under its commercial-paper programs. It issued $4.340B of long-term debt and repaid $1.203B during the first nine months. The weighted-average interest rates on outstanding parent and NSTAR Electric commercial paper were 5.53% and 5.35%, respectively.
- The common dividend was $0.675 per share for the quarter. Cash dividends paid to common shareholders totaled $688.9M in the first nine months.
Changes and management commentary
- Q3 revenue fell $424.1M year over year, while nine-month revenue was down $43.1M. Revenue movements largely reflect energy supply and wholesale-market pass-throughs, lower wholesale electricity prices and customer credits; these items generally have offsetting costs or regulatory treatment.
- Nine-month operating income rose $164.9M, despite higher interest expense. Lower regulatory amortization expense—particularly the $717.3M decrease associated with CL&P’s FMCC mechanism—was a significant reported movement. Management cautions that regulatory timing and recoveries affect cash flow and reported expenses.
- Nine-month operating cash flow declined $519.8M. Management cited regulatory under-recoveries and the timing of accounts-payable payments and other working-capital items, partly offset by tax refunds and other timing factors.
- Regulated-company earnings were $1.156B for nine months versus $1.127B in 2022. Electric transmission earnings benefited from a larger rate base; electric distribution results included rate changes, storm costs and regulatory mechanisms. NSTAR Electric’s rate design shifted quarterly revenue timing, with no expected annual impact from that change.
Outlook, risks and contingencies
- Management narrowed its 2023 non-GAAP EPS guidance to $4.30–$4.43 and reaffirmed long-term EPS growth from regulated utilities in the upper half of a 5%–7% range through 2027. Guidance excludes specified offshore-wind, land-disposition and transaction items.
- Eversource is pursuing a sale of its 50% interests in three contracted offshore-wind projects. It sold its 50% interest in an uncommitted lease area to Ørsted for $625M in September and contributed $528M of proceeds to South Fork Wind tax equity. Management said the contracted-project sale process continued to progress.
- Offshore-wind valuation remains sensitive to sale timing and price, construction costs, project schedules, tax-credit adders and Sunrise Wind contract repricing. After quarter-end, on October 12, 2023, New York regulators denied the Sunrise Wind OREC repricing petition. Eversource said adverse developments could cause a significant future impairment. The company also cited uncertainty over roughly $400M of assumed ITC adders and possible additional project funding needs.
- After September 30, Eversource received a $318M distribution from its offshore-wind investment and used it to reduce short-term debt. South Fork Wind was expected to enter service in early 2024; Revolution Wind and Sunrise Wind were expected in late 2025, subject to approvals and construction progress.
- Credit outlooks weakened after quarter-end: S&P moved Eversource parent, NSTAR Electric and PSNH to negative outlooks; Fitch moved Eversource parent and NSTAR Electric to negative outlooks. Moody’s downgraded Eversource parent and NSTAR Electric ratings and set stable outlooks.
- FERC transmission return-on-equity complaints remain unresolved. Eversource maintained a $39.1M pre-tax reserve for the second complaint period and said it could not reasonably estimate a loss range for the four proceedings.
- Environmental remediation reserves were $130.5M for Eversource at September 30. Eversource also disclosed substantial offshore-wind construction-related guarantees; outcomes and potential cash needs depend on project performance and obligations.
- Management expects operating cash flows, borrowing availability and access to debt and equity markets to meet working-capital and forecast capital needs. This expectation is subject to capital-market, regulatory, weather, project-execution and other risks described in the filing.
Most important facts for investors to verify
- Progress, timing, terms and proceeds of the proposed sale of the three contracted offshore-wind interests, and whether further impairment or capital contributions arise.
- Sunrise Wind’s response to the OREC petition denial, the re-bidding outcome, and qualification of the expected investment tax credits and adders.
- Execution of the $4.30–$4.43 non-GAAP EPS guidance and the underlying regulated-utility earnings trajectory.
- Operating cash flow, capital spending, short-term borrowing needs and refinancing costs, including implications of the negative credit outlooks and ratings actions.
- Regulatory recovery timing, the FERC ROE proceedings and environmental remediation estimates.