Eversource Energy (Northeast Utilities) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. The filing covers Northeast Utilities (NU) and subsidiaries, including CL&P, PSNH and WMECO. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| NU consolidated metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Operating revenue | $1,114.9 | $1,243.3 | $3,397.6 | $3,694.2 |
| Operating income | $203.8 | $199.6 | $609.3 | $604.6 |
| Net income attributable to controlling interests | $90.0 | $100.5 | $281.4 | $258.7 |
| Diluted EPS | $0.51 | $0.57 | $1.58 | $1.46 |
| Dividends declared per share | $0.28 | $0.26 | $0.83 | $0.77 |
- Q3 revenue fell 10.3%, while operating income rose 2.1%; nine-month revenue declined 8.0%, while operating income increased 0.8%. Much of the revenue decline reflected lower supply and other pass-through costs that are recovered through customer rates.
- Q3 earnings declined principally because of losses on securities held in the supplemental benefit trust versus gains a year earlier, a WMECO wholesale-billing reserve, lower competitive-business results and a higher effective tax rate. Nine-month results benefited from electric distribution rate decisions and colder-than-normal first-quarter weather.
- Reported nine-month diluted EPS was $1.58; management’s non-GAAP figure excluding $10.1 million of after-tax merger costs was $1.64. Q3 non-GAAP EPS was $0.51, unchanged from the prior year.
- Net cash from operating activities in the cash-flow statement was $888.4 for the first nine months, versus $843.6 in 2010. Management separately reported operating cash flow of $837.2, net of rate-reduction-bond payments, versus $647.9. Cash capital expenditures were $749.1, up from $677.6; cash declined to $16.7 from $23.4 at year-end 2010.
- At September 30, NU reported total assets of $14.73 billion, current assets of $1.33 billion and current liabilities of $1.54 billion. Long-term debt was $4.61 billion, with a further $334.3 million current portion; rate-reduction bonds were $130.4 million and bank notes payable were $30 million. Total equity was $3.96 billion.
- NU issued $382 million of long-term debt and retired $124.1 million during the nine months. PSNH issued $282 million of bonds, including refinancing, and WMECO issued $100 million of notes. NU and its listed utilities reported compliance with debt covenants.
Material changes and business developments
- NU’s pending merger with NSTAR remained subject to approvals. Shareholders had approved the transaction; federal approvals included FCC and FERC, while Massachusetts DPU and Nuclear Regulatory Commission approvals remained pending. The parties extended the agreement termination date to April 16, 2012 and anticipated a closing in late 2011 or early 2012.
- NU maintained 2011 standalone EPS guidance of $2.30–$2.40 excluding projected merger costs of approximately $0.20 per share; GAAP EPS guidance was $2.10–$2.20. Management projected $5.7 billion of capital expenditures for 2012–2016 and rate base growth from about $8.2 billion at year-end 2011 to $11.2 billion by year-end 2016.
- Management lowered its 2011 operating-cash-flow forecast, net of rate-reduction-bond payments, to $800–$850 million from $900–$950 million, primarily reflecting Tropical Storm Irene restoration costs. It cautioned that the October snowstorm could further reduce cash flow.
- Capital investment included the $718 million Greater Springfield Reliability Project, expected in service in late 2013. PSNH’s Merrimack Clean Air Project entered service in September; estimated cost was revised to approximately $422 million from $430 million. Yankee Gas’s WWL project cost approximately $54 million and was expected in service in November 2011.
Outlook, risks and contingencies
- Tropical Storm Irene caused estimated NU restoration costs of approximately $142 million; CL&P recorded about $92 million as a regulatory asset at September 30. The companies expected to seek recovery through regulatory processes. Management expected no material earnings impact if costs qualify for recovery.
- An October 29, 2011 snowstorm caused outages for about 1.2 million customers. Management anticipated restoration costs at least comparable to Irene and expected to seek recovery; the event occurred after the quarter-end.
- A September FERC complaint sought to reduce the New England transmission base return on equity from 11.14% to 9.2%. NU could not predict the outcome; it estimated each 10-basis-point reduction would lower combined annual earnings by about $1.4 million.
- EPA’s draft renewal permit for PSNH’s Merrimack Station would require closed-cycle cooling. EPA estimated net present-value installation and 20-year operating costs of approximately $112 million. The permit was not final; Merrimack could continue under its existing permit pending resolution.
- NU expected approximately $390 million in pension contributions during 2012–2015, subject to plan experience and assumptions. A 100-basis-point decline in the discount rate would raise the estimated contributions to approximately $640 million.
- PSNH’s long-term renewable-energy supply contracts represented estimated future payments of approximately $1.465 billion, largely after 2016 and extending through 2033. NU also disclosed environmental remediation reserves, including $26 million across 33 NU sites; additional HWP remediation costs could not be reasonably estimated.
- Other stated risks include regulatory and rate decisions, weather and storm exposure, capital-market access, interest rates, demand, pension funding, environmental requirements and merger timing or integration. Management said disclosure controls were effective and no material changes in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Progress and conditions for closing the NSTAR merger, including remaining regulatory approvals and any effect on dividends or expected benefits.
- Actual recovery, timing and final costs for Irene and the October snowstorm, and the effect on cash flow and customer rates.
- Outcome of the FERC transmission ROE complaint and final EPA permit requirements and costs for Merrimack Station.
- Performance against 2011 EPS and cash-flow guidance, and execution of the projected capital program and rate-base growth.
- Pension funding assumptions and contributions, long-term contract obligations, and the capacity to fund investment while maintaining liquidity and dividends.