Eversource Energy Q1 2017 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2017, compared with Q1 2016. Eversource is a regulated electric and natural-gas delivery holding company serving approximately 3.7 million customers in Connecticut, Massachusetts and New Hampshire. The combined filing also reports for CL&P, NSTAR Electric, PSNH and WMECO.
Key financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Operating revenue | $2.105 billion | $2.056 billion | +2.4% |
| Operating income | $509.0 million | $488.5 million | +4.2% |
| Net income attributable to common shareholders | $259.5 million | $244.2 million | +6.3% |
| Diluted EPS | $0.82 | $0.77 | +$0.05 |
| Operating cash flow | $436.5 million | $500.0 million | −$63.5 million |
| Cash capital investment | $523.6 million | $431.5 million | +$92.1 million |
| Cash and cash equivalents, March 31 | $45.8 million | $30.3 million at Dec. 31, 2016 | +$15.5 million |
Operating margin was approximately 24.2%, versus 23.8% in Q1 2016; net income attributable to common shareholders was approximately 12.3% of revenue, versus 11.9%. Cash flow less cash capital investment was negative $87.1 million, compared with positive $68.5 million a year earlier. These measures are simple calculations from reported figures.
At March 31, total long-term debt was $10.042 billion, including current maturities; notes payable were $975.5 million. Eversource parent had $801 million of commercial paper outstanding and $649 million of remaining capacity under its $1.45 billion program. Its $1.45 billion revolving credit facility had no borrowings outstanding. The declared common dividend was $0.48 per share in Q1; the Board later approved $0.475 per share for payment in June 2017.
Material changes and management commentary
- Electric transmission earnings rose to $94.2 million from $85.7 million, primarily reflecting a higher transmission rate base from infrastructure investment.
- Electric distribution earnings increased to $114.1 million from $108.4 million. Higher lost-base-revenue recognition at NSTAR Electric and lower property and other taxes were partly offset by storm-related operating costs, depreciation and lower generation earnings.
- Natural-gas distribution earnings were essentially flat at $50.8 million. Higher Connecticut gas volumes, colder weather and customer growth were offset by increased operating and depreciation expenses.
- Revenue increased $49.5 million, with natural-gas distribution and electric transmission growth partly offset by lower electric-distribution revenue. Many energy supply, transmission and efficiency costs are passed through regulated tracking mechanisms and therefore do not directly affect earnings.
- Operating cash flow declined mainly because Q1 2016 included approximately $275 million of income-tax refunds, including the effects of tax bonus depreciation legislation. Capital investment increased, primarily reflecting utility infrastructure spending.
- Other income increased to $13.6 million from $2.0 million, reflecting higher equity-method investment earnings, equity AFUDC and deferred-compensation plan gains. This was a notable contributor to the year-over-year improvement.
Outlook, risks and contingencies
- The filing provides no clear consolidated full-year earnings or EPS guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- PSNH’s generation-asset divestiture process began in late March; management expected a sale by year-end 2017. PSNH reported generation assets of $795 million and said recovery was probable through operating cash flows, sale proceeds and stranded-cost recovery. Sale proceeds could be below carrying value.
- The D.C. Circuit vacated and remanded the FERC’s first transmission ROE complaint decision in April 2017. Eversource retained a $39.1 million pre-tax reserve for the second complaint period and said the ultimate financial effect could not be predicted; a 10-basis-point base-ROE change for each complaint period could affect after-tax earnings by approximately $3 million.
- NSTAR Electric and HEEC face a U.S. Army Corps of Engineers action concerning permitting and the placement of an electric cable beneath Boston Harbor. The company is defending the action and cannot predict its outcome or financial impact.
- Major investment initiatives include transmission upgrades and Northern Pass. Northern Pass remained subject to siting and other approvals; the New Hampshire Site Evaluation Committee was expected to issue an order by September 30, 2017. The filing also describes continuing uncertainty about the final design, cost and in-service date of Access Northeast.
- Other risks include regulatory decisions and rate recovery, weather, capital-market access and interest rates, cyber and grid disruptions, environmental remediation, and execution and permitting of capital projects. Management reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Track FERC proceedings and whether the $39.1 million reserve remains adequate as ROE determinations develop.
- Confirm the timing, proceeds and regulatory treatment of PSNH’s generation-asset sale and stranded-cost recovery.
- Monitor cash flow relative to the elevated capital program, commercial-paper balances and refinancing needs.
- Follow approvals and milestones for Northern Pass, Access Northeast and major transmission projects.
- Assess the outcome and potential costs of the Boston Harbor cable litigation and other environmental matters.