Eversource Energy — Q1 2023 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Eversource is a regulated energy and water delivery holding company serving approximately 4.4 million customers in Connecticut, Massachusetts and New Hampshire. The combined filing also reports separately for CL&P, NSTAR Electric and PSNH.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $3.796 billion | $3.471 billion | +9.3% |
| Operating income | $749.6 million | $663.1 million | +13.0% |
| Net income attributable to common shareholders | $491.2 million | $443.4 million | +10.8% |
| Diluted EPS | $1.41 | $1.28 | +$0.13 |
| Operating cash flow | $69.2 million | $371.9 million | Down $302.8 million |
| Capital investment in property, plant and equipment | $977.1 million | $764.6 million | +27.8% |
Operating margin was approximately 19.7%, versus 19.1% in Q1 2022; net margin was approximately 12.9%, versus 12.8%. These are calculated from reported consolidated revenue and income. Cash, cash equivalents and restricted cash totaled $162.8 million at quarter-end; balance-sheet cash and cash equivalents were $36.0 million, compared with $374.6 million at December 31, 2022.
At March 31, 2023, long-term debt including current maturities was approximately $22.18 billion, versus $21.04 billion at year-end; notes payable were $1.20 billion, versus $1.44 billion. Rate reduction bonds totaled $432.1 million. Eversource reported $1.45 billion of available commercial-paper capacity across its programs and no borrowings under its revolving credit facilities.
Material changes and drivers
- Regulated-company earnings were $492.4 million, versus $457.1 million. NSTAR Electric earnings rose $41.1 million, mainly from a rate increase and rate-design changes; the latter shift quarterly earnings timing, with no expected annual impact. Electric transmission and natural gas distribution earnings also increased.
- CL&P earnings fell $4.6 million and PSNH earnings fell $5.3 million, reflecting higher expenses and, at PSNH, lower sales volumes. Water distribution earnings declined $2.2 million.
- Parent and other-company losses narrowed, partly due to a $123.4 million cash receipt from liquidation of a renewable-energy fund investment. The liquidation benefit was partly offset by a $20.0 million charitable contribution; both were reflected in Other Income, Net.
- Revenue growth included higher energy-supply procurement revenues and costs that are generally recovered through customer rates and do not directly affect earnings. Consolidated purchased power, natural gas and transmission expense increased $513.5 million. Amortization expense decreased substantially, primarily reflecting CL&P regulatory-mechanism and rate changes.
- Operating cash flow declined amid regulatory under-recoveries and timing of collections and supplier payments. Capital investment increased, and investing cash outflow was $1.05 billion. Financing cash inflow was $623.4 million, including $1.55 billion of debt issuance and $400 million of debt repayment.
Outlook, commentary and risks
- Management reaffirmed 2023 non-GAAP EPS guidance of $4.25–$4.43, excluding potential effects of the offshore-wind strategic review and transaction costs. It also reaffirmed long-term regulated-utility EPS growth through 2027 in the upper half of a 5%–7% range.
- Management expects operating cash flows, borrowing availability and access to debt and equity markets to cover working capital, operations and forecast capital needs. It noted that CL&P’s FMCC rate is scheduled to move from a customer credit to zero on July 1, 2023, increasing cash collections in the second half relative to the first half.
- Eversource was reviewing strategic alternatives, including a possible sale of all or part of its 50% offshore-wind partnership interest, and expected to complete the review in Q2 2023. The carrying investment was $2.16 billion. Management cited possible impairment if a sale is delayed, does not occur, or achieves a lower value; project costs, permitting, schedules, tax treatment and interest rates are relevant uncertainties.
- Offshore-wind guarantees include substantial construction and funding exposures. Other disclosed uncertainties include pending FERC transmission-return-on-equity complaints (with a $39.1 million reserve for the second complaint period), environmental remediation reserves of $121.2 million, and regulatory recovery of customer receivables and other deferred costs.
- Aquarion’s Connecticut rate request was rejected; PURA ordered a $2.0 million base-rate decrease. Aquarion appealed and obtained a temporary stay pending a hearing. The filing reports no material changes to previously disclosed risk factors or legal proceedings.
Important facts for investors to verify
- Whether reported earnings growth is sustainable after considering the one-time renewable-fund liquidation and the quarterly timing effects of rate design and regulatory amortization.
- Progress and ultimate proceeds or impairment implications from the offshore-wind portfolio review, and the scale and timing of related investment and guarantees.
- Whether regulatory under-recoveries, working-capital timing and elevated capital spending affect liquidity or borrowing needs beyond the quarter.
- Outcomes of pending FERC ROE proceedings, Aquarion’s rate appeal, and other regulatory matters that could affect customer recovery or earnings.