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    Eversource Energy (ES)

    Business Description

    Eversource Energy is a public utility holding company engaged in the energy delivery business through its regulated electric, gas, and water utility subsidiaries, serving residential, commercial, and industrial customers in parts of Connecticut, Massachusetts, and New Hampshire . The company is involved in the development of clean energy projects, including offshore and land-based wind farms, solar farms, energy storage facilities, and bioenergy plants . Eversource has been active in strategic initiatives, such as selling its offshore wind investments, including its interest in the Sunrise Wind project, to Ørsted . Additionally, the company is considering selling its water business to reduce equity needs and improve regulatory diversity .

    1. Electric Utility Services - Provides electricity delivery services to residential, commercial, and industrial customers in Connecticut, Massachusetts, and New Hampshire.
    2. Gas Utility Services - Supplies natural gas to customers in the regions it serves, ensuring reliable and safe energy delivery.
    3. Clean Energy Development - Engages in the development of renewable energy projects, including offshore and land-based wind farms, solar farms, energy storage facilities, and bioenergy plants.
    4. Water Utility Services - Offers water delivery services, with potential plans to sell this segment to optimize financial and regulatory strategies.

    Q3 2024 Summary

    Initial Price$57.07July 1, 2024
    Final Price$67.73October 1, 2024
    Price Change$10.66
    % Change+18.68%

    What went well

    • Implementation of Performance-Based Ratemaking (PBR): Eversource is introducing PBR in Connecticut through the upcoming Yankee Gas rate case, following successful implementation in Massachusetts and New Hampshire. This approach is expected to provide rate stability for customers and enhance cash flows for the company.
    • Significant Capital Investment with Favorable Recovery Mechanisms: Eversource has increased its 5-year capital investment forecast to $23.7 billion, including major projects like the $1.5 to $1.6 billion Cambridge underground substation. The company anticipates no lag in cost recovery for this project due to solid estimates and clear regulatory mechanisms.
    • Focus on Strengthening Balance Sheet and Improving Financial Metrics: Eversource has included known and measurable items such as $1 billion of equity needs and rate increases in its financing plan, enhancing confidence in achieving its FFO to debt target of 14% to 15% by 2025.

    What went wrong

    • Yankee Gas has been under-earning for quite some time, impacting cash flows and necessitating regulatory approval to enhance its financial position.
    • Regulatory uncertainties in Connecticut regarding the AMI program may delay significant investments, as the company seeks clear cost recovery mechanisms before proceeding.
    • The expected $500 million tax equity investment benefit from the South Fork Wind project is likely to be delayed beyond 2026, affecting anticipated cash flows and tax benefits.

    Q&A Summary

    1. Offshore Wind Cost Exposure
      Q: How does Orsted's impairment affect Eversource's offshore wind obligations?
      A: Eversource has reached its cost cap on offshore wind projects, so any further costs will be shared 50-50 with Orsted. The recent $900 million charge already factors in known issues, including those highlighted by Orsted, and no additional charges are expected at this time.

    2. Aquarion Sale Progress
      Q: What's the status of the Aquarion sale and its impact on financing?
      A: The Aquarion asset has received significant interest, exceeding expectations. The sale is progressing well, with an announcement expected by the first quarter of 2025 and closing within the year. Proceeds from the sale are a key component of the financing plan and are included in the company's FFO to debt improvement targets.

    3. Equity Issuance and Balance Sheet
      Q: Can you update us on equity issuance plans and balance sheet improvement?
      A: Eversource has issued $1 billion of equity this year to strengthen the balance sheet. The equity was not issued as a forward sale; the cash is already received. Further updates on equity needs and capital plans will be provided in the fourth quarter call.

    4. FFO to Debt Improvement
      Q: How are you progressing toward your FFO to debt targets?
      A: Known cash flow enhancements are expected to improve FFO to debt by 3% to 4%, with most major drivers locked in, including rate adjustments and equity issuance. The Aquarion sale is still pending but is part of the overall improvement plan.

    5. Connecticut Regulatory Environment
      Q: How is the Connecticut regulatory climate affecting investments?
      A: Due to regulatory uncertainties in Connecticut, particularly around timely cost recovery, Eversource is cautious about investing there. Without clear regulatory support, investments like AMI and other projects may be deferred. The company is prepared to redeploy capital to other jurisdictions if conditions don't improve.

    6. Yankee Gas Rate Case and PBR
      Q: Will Yankee Gas adopt a PBR framework in the upcoming rate case?
      A: Yes, Eversource is proposing Performance-Based Regulation (PBR) for Yankee Gas in Connecticut, aiming for rate stability and improved cash flows. Yankee Gas has been under-earning, and PBR is expected to enhance the company's ability to make necessary investments.

    7. Interest Expense Impact on Guidance
      Q: Has higher interest expense affected your earnings guidance?
      A: The midpoint of the earnings guidance range is slightly reduced due to higher interest expenses, resulting from delayed Federal Reserve actions and increased debt issuance. The equity issuance was on plan and did not impact guidance.

    8. Cambridge Substation Investment
      Q: Is the Cambridge substation investment included in your plan?
      A: Yes, the Cambridge underground station investment is included in the current five-year plan, with most spending occurring between 2028 and 2031. Cost recovery is anticipated without lag, as it's a FERC-regulated transmission asset.

    9. Tax Credits and Cash Flow
      Q: How are tax credits affecting your cash flow projections?
      A: The $500 million tax equity investment benefit may spill into 2026 and beyond. Eversource is utilizing other tax attributes before tapping into the ITC, maintaining overall cash flow projections.

    10. Focus on Regulated Investments
      Q: Will you consider merchant transmission projects like lines from Canada?
      A: No, Eversource is committed to being a pure-play regulated utility and will focus on regulated investments, avoiding large-scale merchant projects.

    11. Remuneration from PPAs
      Q: How does the company benefit from PPAs like the NEC transmission line?
      A: Eversource receives a 2.25% remuneration on annual billings from PPAs, which helps strengthen the balance sheet and contributes to earnings.

    12. Massachusetts Electrification Investments
      Q: What's the outlook for electrification investments in Massachusetts?
      A: Eversource supports Massachusetts' model for electrification and has significant investment opportunities through programs like ESMP and CIP, totaling over $1 billion. More investments are expected beyond these programs.

    Questions to Ask Management

    1. Given the regulatory uncertainties in Connecticut, particularly around timely cost recovery for critical investments like the AMI program, how does Eversource plan to manage capital allocation in this jurisdiction, and are you considering further reductions in planned investments if regulatory conditions do not improve?
    2. With the approval of your electric sector modernization plan adding $600 million in distribution investments, can you clarify how you intend to fund this increased capital expenditure and what impact it may have on your balance sheet and financing requirements?
    3. Considering the sale of Aquarion is a key component of your financing plan and embedded in your FFO to debt targets and EPS growth guidance, what risks do you foresee if the sale does not close by the end of 2025 as planned, and how would this affect your financial metrics and growth trajectory?
    4. Given that the expected $500 million benefit from the South Fork tax equity investment is now anticipated to extend beyond 2026, how will this shift affect your cash flow projections and your ability to utilize other tax benefits to meet near-term financial targets?
    5. You have raised approximately $1 billion through your ATM program and issued over 15 million common shares to date; with ongoing needs to strengthen your balance sheet and improve your credit position, should investors expect further equity dilution, and how do you balance this with shareholder value considerations?

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      • Full Year 2024 Recurring EPS Guidance: $4.52 to $4.60 due to higher-than-anticipated interest expense .
      • Long-term EPS Growth Rate: 5% to 7% through 2028 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Earnings Per Share (EPS) Guidance: $4.50 to $4.67 .
      • EPS Growth Rate: 5% to 7% through 2028, based on 2023 recurring EPS of $4.34 .
      • Equity Needs: Up to $1.3 billion over the next several years .
      • FFO to Debt Ratio: 14% to 15% at S&P by 2025 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Earnings Per Share (EPS) Guidance: $4.50 to $4.67 per share .
      • EPS Growth Rate: 5% to 7% through 2028, based on 2023 recurring EPS of $4.34 per share .
      • Capital Expenditure Forecast: $23.1 billion across all business units .
      • Equity Issuance: Up to $1.3 billion over the next several years .
      • FFO to Debt Ratio: 14% to 15% by 2025 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Earnings Per Share (EPS) Growth Rate: 5% to 7% through 2028, based on 2023 recurring EPS of $4.34 .
      • 2024 Non-GAAP Recurring Earnings Guidance: $4.50 to $4.67 .
      • Dividend Growth: Expected to grow in line with the earnings growth, aligned with the 5% to 7% EPS growth rate .
      • Capital Plan: $1.6 billion increase in utility infrastructure investments from 2024 through 2027 compared to the prior plan .
      • Long-term Financing Plan: Includes cash inflows from the announced sale of South Fork and Revolution Wind of $1.1 billion, and realization of their tax equity investment in South Fork Wind, expected to bring in around $500 million over the next 24 months .
      • Equity Issuance: Up to $1.3 billion through their existing ATM program over the next several years .
      • FFO to Debt Ratio: 14% to 15% by 2025 .