Executive Summary / Key Takeaways

• NSTAR Electric, a core regulated utility subsidiary of Eversource Energy (ES), is strategically focused on delivering reliable electric distribution and transmission services in Massachusetts, underpinned by ongoing infrastructure investments and rate recovery mechanisms.
• Recent financial performance for NSTAR Electric in Q1 2025 showed earnings growth driven by base rate increases, transmission rate base expansion, and recovery through tracking mechanisms like AMI, contributing positively to Eversource's consolidated results.
• Eversource Energy has reaffirmed its 2025 EPS guidance range of $4.67 to $4.82 and a long-term EPS growth target of 5% to 7% through 2029 (off a 2024 non-GAAP base of $4.57), signaling expected continued growth from regulated operations despite recent asset divestitures.
• The company is actively managing its portfolio through the sale of non-core assets, including the pending sale of the Aquarion water business, with proceeds intended to strengthen the balance sheet and support regulated capital programs.
• Significant regulatory risks, particularly the long-standing FERC ROE complaints, and the need for continued technological investment to maintain efficiency and reliability relative to peers, remain key factors for investors to monitor.

A Regulated Core in Transition: Charting NSTAR Electric's Course

Eversource Energy operates as a public utility holding company, primarily channeling its efforts through a portfolio of regulated utility subsidiaries across Connecticut, Massachusetts, and New Hampshire. Among these, NSTAR Electric Company stands as a vital component, responsible for the electric distribution and transmission infrastructure serving a significant portion of eastern and western Massachusetts. As a regulated entity, NSTAR Electric's business model is fundamentally centered on investing in its infrastructure to ensure safe and reliable service, with the costs and a regulated return on these investments recovered through customer rates set by state regulatory commissions, such as the Massachusetts Department of Public Utilities (DPU), and federal regulators like the Federal Energy Regulatory Commission (FERC) for transmission.

This regulated framework provides a degree of stability and predictability often sought by investors, contrasting with the volatility inherent in competitive or unregulated energy markets. However, this stability exists within a dynamic landscape shaped by regulatory proceedings, the imperative for continuous infrastructure modernization, evolving energy policy, and the presence of both direct utility peers and emerging alternative energy providers.

Within this competitive environment, NSTAR Electric, as part of the broader Eversource system, positions itself based on its established service territory and regulatory licenses, which act as significant barriers to entry for direct utility competitors like Public Service Enterprise Group (PEG), Xcel Energy (XEL), and NRG Energy (NRG) in its specific service areas. These licenses grant NSTAR Electric exclusive rights to provide transmission and distribution services, underpinning its revenue base. Furthermore, the company strives for cost leadership in its distribution operations, aiming for operational efficiencies that can translate into a competitive edge, potentially offering lower operating costs per unit compared to some rivals.

However, the competitive analysis highlights areas where NSTAR Electric, and by extension Eversource's regulated electric segment, faces challenges. While its infrastructure provides reliable service, it may lag some peers like XEL in technological advancement and energy efficiency, particularly concerning the integration of advanced grid technologies and renewables. Xcel Energy's infrastructure, for instance, is noted as potentially boasting greater energy efficiency through advanced transmission technology compared to NSARP's systems, which may be less efficient due to older assets. This technological gap could impact long-term operational efficiency and adaptability. NRG Energy, while focused on retail, demonstrates agility and digital platform strengths that could influence customer expectations across the industry.

NSTAR Electric's strategic response is evident in its ongoing capital investment programs. The company is heavily focused on enhancing the reliability and capacity of its electric system. A notable example is the Greater Cambridge Energy Program, a significant undertaking involving the construction of an underground transmission substation and associated lines. This project is designed to meet increasing electric demand, bolster system resiliency against extreme weather, and support the region's decarbonization and electrification goals by providing a flexible grid capable of handling mixed energy sources. The project, approved by the Massachusetts Energy Facilities Siting Board in June 2024, is a multi-year effort with initial in-service dates expected in 2029 and full completion extending into 2031, representing a substantial investment of approximately $1.84 billion, with $1.38 billion allocated to transmission and $460.0 million to distribution. As of March 31, 2025, $112.0 million had been spent on this critical project.

Beyond large-scale projects, NSTAR Electric's capital expenditures are directed towards basic business needs, addressing aging infrastructure through replacement programs (overhead lines, substations, underground cable), and supporting load growth through capacity additions and system expansions. The company also leverages technology like Advanced Metering Infrastructure (AMI), with costs recovered through specific tracking mechanisms, indicating an ongoing effort to modernize its grid operations, though the pace and scope relative to peers remain a point of comparison.

This focus on core regulated infrastructure is further underscored by Eversource's recent strategic divestitures. The sale of offshore wind investments in 2024 and the pending sale of the Aquarion water distribution business, announced in January 2025 and expected to close in late 2025 for an aggregate enterprise value of approximately $2.40 billion, signal a clear intent to streamline the business and concentrate on the regulated energy delivery segments. The net proceeds from the Aquarion sale are specifically earmarked for paying down parent company debt, aiming to strengthen the consolidated balance sheet and provide financial flexibility for future regulated capital expenditures.

Performance Reflecting Strategic Focus and Regulatory Dynamics

NSTAR Electric's financial performance in the first quarter of 2025 provides a snapshot of the impact of its strategic initiatives and the regulated environment. The subsidiary reported a net income increase of $7.2 million compared to the first quarter of 2024. This growth was primarily fueled by a base distribution rate increase effective January 1, 2025, authorized by the DPU under NSTAR Electric's Performance Based Ratemaking (PBR) mechanism, which allows for annual adjustments based on factors like inflation and capital additions. Higher transmission earnings, driven by a growing transmission rate base resulting from ongoing infrastructure investments, also contributed significantly. Additionally, revenues from the AMI tracking mechanism supported the positive earnings trend.

These gains were partially tempered by increased operating expenses, including higher property taxes (linked to increased utility plant balances and mill rates), higher interest expense (influenced by long-term debt levels), and increased depreciation expense (reflecting the growing asset base).

Looking at the broader Eversource consolidated results, which include NSTAR Electric's contribution, the company reported net income attributable to common shareholders of $550.8 million, or $1.50 per diluted share, for the first quarter of 2025, an increase from $521.8 million, or $1.49 per diluted share, in the first quarter of 2024. The regulated companies segment as a whole saw its contribution to net income attributable to common shareholders rise to $609.8 million in Q1 2025 from $540.8 million in Q1 2024. This growth was driven by all three energy distribution segments (Electric, Natural Gas) and Electric Transmission, with NSTAR Electric playing a key role. The "Eversource Parent and Other Companies" segment, however, saw its net loss increase significantly, primarily due to higher interest expense following the sale of offshore wind investments and increased long-term debt costs.

Operating revenues for Eversource consolidated increased by $785.8 million in Q1 2025 compared to Q1 2024, reaching $4,118.4 million. This was largely driven by increases in the Electric Distribution ($516.0 million) and Natural Gas Distribution ($235.4 million) segments, with Electric Transmission also contributing a $40.0 million increase. For NSTAR Electric specifically, operating revenues increased by $66.6 million, reaching $1,014.2 million. This increase was primarily in tracked revenues, reflecting the pass-through nature of costs like energy supply procurement and transmission charges, which do not impact earnings. Base distribution revenues at NSTAR Electric saw a $14.0 million increase, directly benefiting earnings.

Liquidity remains a critical focus for a capital-intensive utility business. Eversource's regulated operations, including NSTAR Electric, rely on operating cash flows, short-term borrowings (like commercial paper), long-term debt issuances, and capital contributions from the parent to fund investments and meet obligations. Consolidated cash flows provided by operating activities were robust in Q1 2025 at $1.04 billion, a significant increase from $291.3 million in Q1 2024, primarily due to improved regulatory recoveries related to the timing of collections for various cost tracking mechanisms across the subsidiaries. NSTAR Electric's operating cash flows also saw a substantial increase, reaching $311.4 million in Q1 2025 from $152.6 million in Q1 2024, driven by similar factors including improved regulatory recoveries and lower storm cost payments.

Investments in property, plant, and equipment across Eversource consolidated totaled $1.01 billion in Q1 2025. NSTAR Electric's cash capital expenditures were $367.5 million in Q1 2025, slightly down from $394.9 million in Q1 2024, but still reflecting substantial investment in its infrastructure.

To support these investments and manage its capital structure, Eversource parent and its subsidiaries utilize commercial paper programs and revolving credit facilities. As of March 31, 2025, Eversource parent had $1.38 billion outstanding under its commercial paper program with $618.4 million available capacity, while NSTAR Electric had $108.5 million outstanding with $541.5 million available capacity. In February 2025, NSTAR Electric issued $800.0 million in new long-term debt to refinance maturing debt and fund capital needs.

Outlook, Risks, and the Path Forward

Eversource Energy has provided clear forward-looking guidance, projecting 2025 earnings per diluted share between $4.67 and $4.82 and reaffirming a long-term EPS growth rate of 5% to 7% through 2029, using the 2024 non-GAAP EPS of $4.57 as the base. This outlook is predicated on continued investment in the regulated asset base and timely recovery of these investments through the rate-setting process. NSTAR Electric's ongoing capital programs and rate adjustments are integral to achieving these consolidated targets.

However, this outlook is not without its challenges and risks. The most prominent regulatory uncertainty stems from the long-running FERC ROE complaints against the New England Transmission Owners (NETOs), including NSTAR Electric. These complaints, dating back to 2011, challenge the allowed return on equity for transmission investments. While Eversource has established a reserve of $39.1 million (pre-tax, excluding interest) for the second complaint period, the ultimate resolution of these proceedings remains uncertain and could materially impact financial results. The company has stated it cannot reasonably estimate the potential range of loss beyond the recorded reserve at this time, highlighting the significant regulatory risk involved. A 10 basis point change in the base ROE could impact Eversource's annual after-tax earnings by approximately $6.0 million prospectively, illustrating the sensitivity to regulatory outcomes.

Beyond the FERC ROE issue, NSTAR Electric faces ongoing regulatory risk related to state-level rate cases and the implementation of new regulatory frameworks, such as the PBR proceeding in Connecticut which could influence future rate-setting methodologies. Construction risks, particularly for large projects like the Greater Cambridge Energy Program, include potential cost overruns and delays that could impact project economics and timelines. Environmental liabilities, such as those associated with former Manufactured Gas Plant (MGP) sites, also represent potential financial exposures, although reserves are maintained for estimated remediation costs.

Competitively, while regulatory barriers protect NSTAR Electric's service territory, the broader energy transition and technological advancements by peers pose a long-term challenge. The need for continuous investment in grid modernization, including advanced metering and potentially integrating more distributed energy resources efficiently, requires substantial capital and effective execution to maintain reliability and meet evolving customer and policy demands. NSTAR Electric's ability to effectively deploy and leverage technology will be crucial in managing costs and enhancing service quality relative to competitors who may be further along in certain areas of technological adoption or renewable integration.

Credit risk, particularly with energy marketing counterparties, is managed through established practices and collateral requirements, but remains a factor in the volatile energy markets.

Conclusion

NSTAR Electric, as a key regulated subsidiary within the Eversource Energy portfolio, is navigating a period of strategic focus and significant capital investment. The company's investment thesis is firmly rooted in the stability of its regulated electric distribution and transmission operations in Massachusetts, supported by rate recovery mechanisms designed to provide a return on its growing asset base. Recent financial performance demonstrates the positive impact of base rate increases and transmission investments on earnings.

The strategic divestiture of non-core assets underscores a commitment to strengthening the balance sheet and dedicating resources to the core regulated business, which is essential for funding the substantial capital expenditures required for grid modernization and reliability enhancements, such as the ambitious Greater Cambridge Energy Program. While the company benefits from regulatory protections that limit direct competition in its service areas, it must effectively manage ongoing regulatory challenges, particularly the uncertain outcome of the FERC ROE complaints, and continue to invest in technology to maintain operational efficiency and service quality relative to its utility peers. For investors, NSTAR Electric represents exposure to a stable, regulated utility business with a clear investment pipeline, but one where regulatory outcomes and the execution of large-scale infrastructure projects will be critical determinants of future performance and growth within the reaffirmed guidance framework.