EVERSOURCE ENERGY quarterly report, Q3 FY2021

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Eversource Energy — Q3 2021 Form 10-Q Summary

Business context and period. Eversource is a regulated electric, natural gas and water utility holding company serving approximately 4.3 million customers across Connecticut, Massachusetts and New Hampshire. This unaudited combined filing covers the quarter and nine months ended September 30, 2021, with comparisons to 2020. The consolidated results include EGMA, acquired in October 2020, so year-over-year comparisons reflect the addition of that business.

Financial performance

  • Revenue: Q3 revenue was $2.433 billion, up 3.8% year over year. Nine-month revenue was $7.381 billion, up 10.7%.
  • Earnings: Q3 net income attributable to common shareholders was $283.2 million, or $0.82 diluted EPS, versus $346.3 million, or $1.01, a year earlier. Nine-month earnings were $913.8 million, or $2.65 diluted EPS, versus $933.2 million, or $2.76.
  • Adjusted earnings: Excluding specified CL&P settlement and storm-penalty charges and acquisition/transition costs, non-GAAP earnings were $350.7 million, or $1.02 per share, in Q3 (versus $351.6 million, or $1.02). Nine-month non-GAAP earnings were $1.017 billion, or $2.95 per share, versus $946.0 million, or $2.80. These are company-defined non-GAAP measures, not substitutes for GAAP results.
  • Operating income and margins: Q3 operating income fell to $483.3 million from $561.2 million; nine-month operating income was $1.521 billion versus $1.534 billion. Operating margin was approximately 19.9% for Q3 and 20.6% year to date, compared with 23.9% and 23.0%, respectively, in 2020.
  • Cash flow and investment: Nine-month operating cash flow was $1.520 billion, compared with $1.496 billion. Cash capital investment was $2.211 billion versus $2.102 billion, leaving operating cash flow less these investments negative by approximately $898 million. Consolidated capital expenditures on the broader reported basis, including non-cash items, were $2.29 billion.
  • Debt and liquidity: At September 30, total long-term debt was $18.219 billion, including $798.9 million current; rate-reduction bonds totaled $496.9 million. Notes payable were $711 million. Long-term debt was $16.179 billion at year-end 2020. Cash was $88.2 million, down from $106.6 million. Available commercial-paper capacity was $1.86 billion; revolving credit facilities had no borrowings outstanding.
  • Shareholder returns: Eversource paid $603.6 million in cash common dividends during the first nine months and declared a quarterly dividend of $0.6025 per share.

Changes versus the prior comparable period

  • Reported earnings declined despite higher revenue. The main unusual drag was CL&P’s $75 million pretax settlement charge recorded in Q3, together with its storm-performance assessment; aggregate CL&P settlement and storm-assessment effects were $103.6 million pretax, or $85.8 million after tax ($0.25 per share), for the first nine months.
  • Electric transmission earnings increased, principally with a higher transmission rate base from infrastructure investment. Natural gas distribution earnings increased year to date, partly due to the acquired EGMA business and rate increases; the segment reported a seasonal Q3 loss.
  • Cash from operations rose modestly, while capital investment and debt increased. Eversource issued $3.15 billion and repaid $1.14 billion of long-term debt during the first nine months.

Outlook, management commentary and material risks

  • Management reaffirmed 2021 non-GAAP EPS guidance of $3.81–$3.93, excluding the specified CL&P charges and acquisition/transition costs. It also reaffirmed long-term EPS growth through 2025 in the upper half of a 5%–7% range from regulated utility businesses.
  • Management expects operating cash flows, borrowing availability and access to debt and equity markets to cover working capital, operating needs and planned capital investment.
  • CL&P’s settlement provides $65 million of customer credits and $10 million for customer assistance. In exchange, its base distribution rates are frozen until no earlier than January 1, 2024; certain other rate mechanisms and cost-recovery proceedings are outside the freeze. The settlement avoided proposed ROE reductions, but CL&P withdrew appeals related to the storm decisions.
  • Recovery of approximately $234 million of CL&P Tropical Storm Isaias restoration costs remained subject to a future prudence review; any disallowance could not be estimated. Management believed recovery was probable and did not expect the review to materially affect Eversource, but acknowledged possible disallowance.
  • COVID-19-related aged receivables and collection risk remained a concern. The consolidated allowance for uncollectible accounts was $441.7 million, including $57.0 million of amounts identified as COVID-19-related. Management expected Connecticut and Massachusetts regulators to allow recovery of incremental costs, but regulatory outcomes remain uncertain.
  • Four FERC transmission ROE complaints remain unresolved; Eversource recorded a $39.1 million pretax reserve for the second complaint period and said outcomes were uncertain. A separate FERC proposal to eliminate the RTO ROE incentive could reduce annual after-tax earnings by an estimated $15 million if adopted.
  • Offshore wind projects face federal, state and local permitting and schedule risks. Eversource disclosed substantial project-related guarantees, including a maximum exposure of $1.094 billion for North East Offshore construction-related agreements. NSTAR Electric also disclosed approximately $7.615 billion of renewable-energy contractual commitments, including an estimated $6.7 billion Massachusetts clean-energy contract over 20 years.
  • Other disclosed risks include severe weather and storm costs, regulatory decisions and cost-recovery limits, customer payment ability, capital-market access, cybersecurity, project execution and environmental obligations. Management reported no material direct COVID-19 impact on current operations or results to date.

Important facts for investors to verify

  • Reconcile reported GAAP EPS with management’s non-GAAP adjustments, especially the timing and full effect of the CL&P settlement and storm-performance charges.
  • Track the PURA review of Isaias restoration-cost prudence, the settlement’s customer-credit and assistance payments, and the effect of CL&P’s base-rate freeze.
  • Monitor receivable aging, collections, the allowance for uncollectibles and regulatory recovery of pandemic-related costs.
  • Assess debt growth, upcoming maturities, interest costs, available borrowing capacity and the funding required for the capital program and dividends.
  • Follow FERC ROE proceedings and the potential effect of transmission incentive changes on earnings and transmission investment returns.
  • Check offshore wind permitting, construction milestones, project financing and guarantee exposure, as well as regulatory approvals for the pending New England Service Company acquisition.