Eversource Energy — Q1 2019 Form 10-Q
Business context and period. This combined, unaudited filing covers the three months ended March 31, 2019, with comparative results for Q1 2018. Eversource is a regulated electric, natural gas and water utility holding company serving approximately four million customers in Connecticut, Massachusetts and New Hampshire. The filing also reports separately on CL&P, NSTAR Electric and PSNH.
Key financial results
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Operating revenue | $2.416 billion | $2.288 billion | +5.6% |
| Operating income | $494.7 million | $442.5 million | +11.8% |
| Net income attributable to common shareholders | $308.7 million | $269.5 million | +14.5% |
| Diluted earnings per share | $0.97 | $0.85 | +$0.12 |
| Operating margin | 20.5% | 19.3% | +1.2 percentage points |
| Operating cash flow | $428.0 million | $177.7 million | +$250.3 million |
| Cash capital expenditures | $674.7 million | $607.3 million | +$67.4 million |
Net income margin was approximately 12.8%, compared with 11.8% a year earlier. Operating cash flow exceeded cash capital expenditures by $246.7 million; after dividends and other financing activity, cash and restricted cash declined by $101.0 million to $108.4 million. The cash balance-sheet line alone was $35.1 million at quarter-end, down from $108.1 million at December 31, 2018.
At March 31, Eversource reported $1.478 billion of notes payable, $805.5 million of current long-term debt, $12.284 billion of long-term debt, and $604.9 million of rate-reduction bonds, including current portions. Parent commercial paper borrowings were $1.371 billion, with $79.0 million of capacity remaining; NSTAR Electric borrowings were $368.4 million, with $281.6 million of capacity remaining. Revolving credit facilities had no borrowings outstanding. Management said operating cash flows, borrowing availability and capital-market access should be sufficient for expected requirements.
Changes, drivers and management commentary
- Regulated-company earnings rose to $315.7 million from $270.9 million. Electric distribution earnings were $120.1 million versus $104.2 million; transmission, $118.2 million versus $107.4 million; natural gas distribution, $76.5 million versus $57.8 million; and water, $0.9 million versus $1.5 million.
- Management attributed growth mainly to approved distribution rate increases, higher transmission rate base from infrastructure investment, and higher winter-period natural gas earnings. PSNH’s earnings were pressured by the 2018 sale of its thermal and hydroelectric generation assets.
- Operating cash flow improved largely because pension and PBOP contributions were $166.5 million lower than in Q1 2018, alongside timing of storm payments, accounts payable and tax receipts. Q1 2019 included $52.6 million of tax refunds, versus $11.5 million of tax payments in Q1 2018.
- Electric sales volumes declined 0.5%; firm natural gas volumes increased 5.1%, and water volumes increased 0.1%. Management noted that several utilities have decoupled rate structures that reduce the earnings effect of volume changes.
- On February 8, Eversource contributed approximately $225 million for a 50% interest in North East Offshore LLC, which holds the Revolution Wind and South Fork Wind projects and associated lease area. Reported property, plant and equipment reached $26.0 billion, up from $25.6 billion at year-end.
- The board declared a $0.535-per-share dividend paid March 29 and approved another $0.535 dividend payable June 28, 2019. No numerical full-year earnings or EPS guidance is provided in the filing text.
Outlook, risks and unusual items
- Northern Pass: The 1,090 MW project’s New Hampshire siting application was denied; an appeal was pending, with oral argument scheduled for May 15, 2019. Eversource had capitalized approximately $311 million of project costs and considered recovery probable, but warned that a future adverse recoverability conclusion could impair most of that amount materially.
- Regulatory ROE cases: FERC had not issued final decisions on four transmission return-on-equity complaints. Eversource recorded a $39.1 million pre-tax reserve for the second complaint period and said it could not reasonably estimate the outcome of the proceedings. A 10-basis-point change in base ROE for each 15-month complaint period would affect after-tax earnings by about $3 million.
- Millstone contract: CL&P and another utility signed 10-year contracts for a combined approximately 9 million MWh annually; PURA review was pending, with a decision expected in Q3 2019. The commitment is multi-billion-dollar in scale. The company plans to sell the energy and expects net costs to be recovered through customer rates, with no impact on CL&P net income.
- Storm recovery and one-time income: PSNH recognized $5.2 million pre-tax of storm-cost carrying charges after regulatory approval. After quarter-end, PURA authorized CL&P to recover $141.0 million of storm costs. These approvals affect recoveries and timing, rather than representing ordinary recurring operating growth.
- Debt and ratings: S&P changed outlooks on Eversource and the named utilities to negative in February 2019; Fitch changed the parent outlook from positive to stable in March. CL&P issued $300 million of long-term debt on April 1, after quarter-end, using proceeds primarily to repay short-term borrowings and fund capital and working-capital needs.
- Other contingencies: The Yankee Companies received a final $103.2 million judgment against the DOE for spent-fuel damages, with $1.2 million still to be tried. The Access Northeast project was terminated April 1 and the related $184.8 million parent guaranty was released. Eversource reported environmental reserves of $64.8 million across 59 sites.
Important facts for investors to verify
- How the FERC ROE proceedings develop, and whether the $39.1 million reserve remains adequate.
- The New Hampshire Supreme Court’s Northern Pass decision and any resulting recoverability assessment of the $311 million capitalized balance.
- PURA’s decision on Millstone contracts and the eventual net costs recovered from customers.
- Whether operating cash flow continues to cover the elevated capital investment program, given lower quarter-end cash and higher short-term borrowing.
- Credit-rating outlook changes and the effect of future financing needs and interest costs.
- Progress on offshore wind permitting, power-purchase agreements and expected commissioning dates.