Company Overview
Eversource Energy (ES) is a leading energy delivery company that serves approximately 4.4 million electric, natural gas, and water customers across Connecticut, Massachusetts, and New Hampshire. With a rich history spanning over a century, Eversource has established itself as a trailblazer in the regulated utility industry, leveraging its expertise and scale to drive sustainable growth and deliver reliable, affordable energy solutions to its customers.
Historical Background
Founded in 1869 as the Hartford Electric Light Company, Eversource has undergone a remarkable transformation over the decades, expanding its footprint and diversifying its operations. In 1999, the company merged with the Massachusetts Electric Company, creating NSTAR Electric, and in 2012, it acquired the Connecticut-based Yankee Gas Services Company, further strengthening its natural gas distribution capabilities. Eversource's most recent major acquisition was the 2020 purchase of Aquarion Water Company, solidifying its position as a leading provider of water services in the Northeast.
Business Segments
Today, Eversource's operations are organized into four reportable segments: Electric Distribution, Electric Transmission, Natural Gas Distribution, and Water Distribution. This diversified business model has enabled the company to navigate market challenges and capitalize on growth opportunities across multiple energy and utility sectors.
The Electric Distribution segment includes the results of NSTAR Electric's solar power facilities. This segment's revenues and earnings are impacted by fluctuations in retail electric sales volumes, which can be affected by factors such as weather, energy supply rates, conservation measures, and economic conditions. For CLP and NSTAR Electric, changes in retail electric sales volumes do not materially impact earnings due to their respective regulatory commission-approved distribution revenue decoupling mechanisms.
The Electric Transmission segment's revenues and earnings have increased due to a higher transmission rate base as a result of Eversource's continued investment in the transmission infrastructure. Transmission revenues are derived from regional transmission charges to the distribution businesses of CLP, NSTAR Electric, and PSNH.
The Natural Gas Distribution segment's revenues and earnings have increased due to higher revenues from capital tracking mechanisms driven by continued investments in natural gas infrastructure, as well as a base distribution rate increase at NSTAR Gas effective November 1, 2023. Factors such as weather and customer usage can impact natural gas sales volumes and earnings in this segment.
The Water Distribution segment's earnings benefited from a regulatory adjustment recorded in the first half of 2024 to recognize the impacts of Aquarion Water Company of Connecticut's rate case decision. Factors such as weather and customer usage can impact water sales volumes and earnings in this segment.
Eversource's journey from a small regional electric utility to one of the largest regulated utility holding companies in New England has been marked by strategic acquisitions and a focus on diversification. In the early 2000s, the company faced challenges due to the deregulation of the electricity industry, which led to increased competition and pressure on profit margins. In response, Eversource expanded its natural gas distribution and water utility operations, a move that proved crucial in maintaining financial stability during a period of industry disruption.
The acquisition of Aquarion Water Company in 2017 was a significant milestone for Eversource, expanding its water utility footprint and customer base. This acquisition aligned with the company's strategy to become a more diversified energy and utility services provider, reducing its reliance on a single business line. In recent years, Eversource has faced challenges related to the need for significant infrastructure investments to modernize its electric and natural gas distribution systems, as well as costs associated with storm restoration efforts. The company has worked closely with state regulators to secure timely recovery of these expenditures through rate adjustments, helping to maintain its financial health.
Financials and Liquidity
One of Eversource's key financial metrics is its robust balance sheet, which has underpinned its ability to fund its extensive capital investment program. As of June 30, 2024, the company had total assets of $58.35 billion, with a debt-to-capitalization ratio of 66.15%, and a strong liquidity position with $33.40 million in cash and $1.21 billion in available borrowing capacity under its commercial paper programs.
Eversource's financial performance has been relatively stable, with the company reporting annual revenue of $11.91 billion and a net loss of $442.24 million for the fiscal year ended December 31, 2023. The net loss was primarily attributable to a $2.17 billion impairment charge related to the company's offshore wind investments, a strategic decision to exit the offshore wind business and focus on its core regulated utility operations.
In the first half of 2024, Eversource reported revenue of $5.87 billion and net income attributable to common shareholders of $857.20 million, or $2.43 per share. Excluding the impact of the offshore wind impairment and other non-recurring charges, the company's non-GAAP earnings were $844.30 million, or $2.41 per share, for the first six months of 2024.
For the most recent quarter, Eversource reported revenue of $2,533,522,000 and net income of $335,341,000. The company's operating cash flow for the quarter was $670,714,000, while free cash flow was negative $400,759,999. Eversource experienced year-over-year growth in the most recent quarter.
Eversource's regulated utility operations have demonstrated resilience, with the Electric Distribution, Electric Transmission, and Natural Gas Distribution segments contributing $914.60 million, or 2.59 per share, to the company's net income in the first half of 2024. The Water Distribution segment added $13.40 million, or $0.04 per share, to Eversource's bottom line during the same period.
In terms of liquidity, Eversource has a $2 billion revolving credit facility that serves to backstop its $2 billion commercial paper program. Additionally, NSTAR Electric has a $650 million commercial paper program with a $650 million revolving credit facility. As of the most recent reporting period, the company had $33,380,000 in cash on hand.
Strategic Focus and Growth Initiatives
The company's strategic focus on its regulated businesses has been a key driver of its recent performance. Eversource has committed to a $23.1 billion five-year capital investment plan, with a significant portion dedicated to upgrading and modernizing its electric, natural gas, and water infrastructure to enhance system reliability, accommodate customer growth, and support the transition to a clean energy future.
In Massachusetts, Eversource is at the forefront of the state's ambitious clean energy goals, investing in grid modernization, electric vehicle charging infrastructure, and distributed energy resources. The company's electric sector modernization plan, which calls for $600 million in incremental distribution investments, has been well-received by regulators and is expected to enhance the resilience and flexibility of the grid.
Eversource's transmission segment has also been a consistent performer, contributing $365.70 million, or $1.04 per share, to the company's net income in the first half of 2024. The company's investments in new substations, transmission line upgrades, and projects to enable the integration of renewable energy resources have been crucial in supporting the region's clean energy transition.
In New Hampshire, Eversource's Public Service Company of New Hampshire (PSNH) subsidiary recently filed a rate case seeking to recover more than $765 million in investments since the last rate case in 2019. The proposed four-year performance-based ratemaking plan, which includes a capital support mechanism, is designed to enhance cash flow, support resiliency investments, and facilitate the integration of distributed generation.
Offshore Wind Divestment
While Eversource's offshore wind investments have been a source of volatility in recent years, the company's decision to exit this business and focus on its core regulated utility operations has been well-received by investors. In 2024, Eversource completed the sale of its 50% interest in the Sunrise Wind project to Ørsted for $152 million, and it is in the process of finalizing the sale of its 50% stakes in the South Fork Wind and Revolution Wind projects to Global Infrastructure Partners for approximately $1.1 billion, subject to adjustments.
The proceeds from these transactions will be used to strengthen Eversource's balance sheet and fund its extensive capital investment program, further enhancing the company's financial flexibility and positioning it for long-term growth.
Resilience and Recognition
Despite the challenges posed by the COVID-19 pandemic and the strategic pivot away from offshore wind, Eversource has demonstrated its resilience and adaptability. The company's commitment to operational excellence, customer service, and environmental sustainability has earned it recognition as a leader in the utility industry.
In 2023, Eversource was named one of TIME's World's Best Companies, highlighting its exceptional performance in areas such as employee satisfaction, revenue growth, and environmental, social, and governance (ESG) metrics. The company has also set ambitious greenhouse gas reduction targets and is actively investing in technologies and initiatives to support the clean energy transition.
Future Outlook and Guidance
Looking ahead, Eversource remains well-positioned to capitalize on the growing demand for reliable, affordable, and sustainable energy solutions. The company's robust capital investment program, coupled with its strong balance sheet and liquidity, positions it to continue delivering value to its customers and shareholders in the years to come.
Eversource has reaffirmed its 2024 EPS guidance range of $4.50 to $4.67. The company expects its longer-term EPS growth rate to be 5% to 7% through 2028, based on a 2023 recurring EPS of $4.34. To support its $23.1 billion five-year capital investment plan, Eversource plans to issue up to $1.3 billion in equity over the next several years.
The company is targeting an FFO to debt ratio of 14% to 15% at S&P in 2025 and has identified several actions to enhance this ratio. These include receiving $152 million in net proceeds from the sale of the Sunrise Wind project to Ørsted, anticipating $1.1 billion in gross proceeds from the sale of the Revolution and South Fork Wind projects to Global Infrastructure Partners, and filing for distribution rate increases in New Hampshire and for the EGMA acquisition in Massachusetts.
In the second quarter of 2023, Eversource recorded an impairment charge of $331 million ($0.95 per share) related to their offshore wind investment, which impacted their GAAP earnings. For Q2 2024, the company reported both GAAP and recurring earnings of $0.95 per share, compared to GAAP earnings of $0.04 per share and recurring earnings of $1.00 per share in Q2 2023.
Overall, Eversource Energy's diversified business model, prudent financial management, and strategic focus on its regulated utility operations make it a compelling investment opportunity in the dynamic and evolving energy landscape. The company's reaffirmed long-term earnings growth and capital investment guidance, coupled with its efforts to improve its financial position through utility sale transactions and rate case filings, underscore its commitment to sustainable growth and shareholder value creation.