Eversource Energy 2019 Form 10-K Summary
Business context and reporting period. This combined Form 10-K covers the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. Eversource is a regulated utility holding company serving approximately four million electric, natural gas and water customers in Connecticut, Massachusetts and New Hampshire. Its principal businesses are electric distribution and transmission, natural gas distribution and water distribution. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting at Eversource.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $8.526 billion | $8.448 billion |
| Operating income | $1.590 billion | $1.700 billion |
| Net income attributable to common shareholders | $909.1 million | $1.033 billion |
| Diluted EPS | $2.81 | $3.25 |
| Operating cash flow | $2.010 billion | $1.831 billion |
| Cash investment in property, plant and equipment | $2.911 billion | $2.570 billion |
| Cash and cash equivalents at year-end | $15.4 million | $108.1 million |
| Total assets | $41.124 billion | $38.241 billion |
| Long-term debt, including current portion | $14.098 billion | $13.086 billion |
| Common dividends declared per share | $2.14 | $2.02 |
Reported operating margin was approximately 18.7% versus 20.1% in 2018; net income attributable to common shareholders was approximately 10.7% of revenue versus 12.2%. Operating cash flow less cash investment in property, plant and equipment was negative approximately $902 million. Eversource reported current assets of $2.415 billion and current liabilities of $3.606 billion, a $1.191 billion working-capital deficit.
At year-end, Eversource parent had $1.225 billion outstanding under its $1.45 billion commercial paper program, leaving $225.1 million available; NSTAR Electric had $10.5 million outstanding under its $650 million program, leaving $639.5 million available. Neither revolving credit facility was drawn. The companies reported compliance with their debt covenants, including the maximum 65% debt-to-total-capitalization ratio. Management said operating cash flows, borrowing capacity and access to debt and equity markets should support forecast needs.
Material changes versus the prior comparable period
- Revenue increased about 0.9%, while reported common net income fell about 12.0% and diluted EPS fell about 13.5%.
- The principal unusual item was a $239.6 million pre-tax ($204.4 million after-tax, or $0.64 per share) impairment of Northern Pass Transmission (NPT). Excluding it, management-reported non-GAAP earnings were $1.114 billion, or $3.45 per share, up from $1.033 billion, or $3.25 per share, in 2018. This is a non-GAAP measure, not a substitute for reported results.
- Electric distribution segment earnings rose to $513.3 million from $455.4 million. Electric transmission reported earnings of $256.5 million, down from $427.2 million, but excluding the NPT impairment its earnings were $460.9 million.
- Natural gas distribution earnings increased to $96.2 million from $93.2 million; water distribution earnings rose to $34.9 million from $30.9 million.
- Operating cash flow rose approximately 9.8%, while cash capital investment increased approximately 13.3%. Eversource issued $852.3 million net from common share issuances and $1.52 billion of long-term debt, and repaid $801.1 million of long-term debt at maturity.
Outlook, management commentary and key risks
- Guidance: Management projected 2020 earnings of $3.60 to $3.70 per share. It forecast $14.19 billion of capital expenditures for 2020–2024, including $8.63 billion for electric and natural gas distribution, $3.98 billion for transmission, $0.69 billion for water and $0.90 billion for information technology and facilities. Forecast excludes offshore wind investment.
- Capital and dividends: Management expected approximately $300 million to $400 million of additional offshore wind investment in 2020. The board approved a $0.5675-per-share dividend for March 2020, a 6.1% increase over the December 2019 dividend.
- Major project and strategic developments: Following a New Hampshire Supreme Court decision in July 2019 affirming denial of NPT’s siting application, Eversource terminated the project and impaired substantially all capitalized costs. Management said no further project cash expenditures were expected. Separately, in February 2020 Eversource agreed to acquire NiSource’s Massachusetts gas distribution assets for $1.1 billion, subject to regulatory approvals; the agreement excludes liabilities related to the 2018 Greater Lawrence gas explosions.
- Regulatory uncertainty: Four pending FERC complaints challenge New England transmission returns on equity. Eversource recorded a $39.1 million pre-tax reserve for the second complaint period but said the ultimate outcome and any gain or loss could not be reasonably estimated. A separate FERC transmission-rate proceeding remained under negotiation.
- Other exposures: Eversource recorded $81.0 million of probable, reasonably estimable environmental remediation liabilities for 57 sites, including $67.9 million related to former manufactured-gas plants; costs could be higher as investigations progress. The filing also highlights storm and climate-related damage, cyber and physical security threats, regulatory cost-recovery risk, pension funding sensitivity, access to capital and project permitting and construction risks.
- Additional developments: The offshore wind partnership with Ørsted is developing Revolution Wind, South Fork Wind and Sunrise Wind, with permitting, construction schedules, cost control and contract amendments remaining important uncertainties. Eversource reported a $4.4 billion goodwill balance and no impairment in its 2019 annual test. Pension liabilities increased materially as year-end discount rates declined.
Fourth-quarter context
For the quarter ended December 31, 2019, Eversource reported revenue of $2.050 billion, operating income of $435.6 million, net income attributable to common shareholders of $250.0 million and diluted EPS of $0.76. In fourth-quarter 2018, the corresponding figures were $2.035 billion, $400.0 million, $231.3 million and $0.73.
Important facts for investors to verify
- Reconcile reported 2019 EPS of $2.81 with management’s adjusted, non-GAAP EPS of $3.45, including the NPT impairment and the adjustment methodology.
- Track FERC decisions on transmission ROE complaints and rate formulas, including potential effects on the $39.1 million reserve and future transmission returns.
- Monitor approval, financing and execution of the $14.19 billion five-year capital program, offshore wind projects and the proposed $1.1 billion Massachusetts gas-asset acquisition.
- Assess liquidity and refinancing needs against low year-end cash, the working-capital deficit, commercial paper usage, upcoming debt maturities and planned investment.
- Review environmental remediation estimates, pension assumptions and funding, storm-cost recovery, and the regulatory probability of recovering deferred costs from customers.