ES Q2 2025: FFO/debt up 200bp, eyes 14% post-Aquarian
- Improving Liquidity and Financial Metrics: Executives expressed high confidence in reaching their target FFO to debt ratio—already improving by over 200 basis points this quarter and expected to gain an additional ~100 basis points with the Aquarian closing. This enhancement supports a stronger balance sheet and improved access to liquidity.
- Constructive Regulatory Outcomes: The Q&A highlighted constructive rate case outcomes in New Hampshire, including a favorable rate order with a 9.5% ROE and adjustments that were deemed fair by management, providing a stable base for future earnings growth and regulatory certainty.
- Strategic Capital Management: The discussion underscored disciplined capital management with minimal additional equity issuance anticipated this year. The progress on strategic initiatives like the Aquarian transaction and grid investments helps maintain a balanced capital structure while supporting future growth.
- Regulatory uncertainty on storm cost recovery: The company’s reliance on securitization of deferred storm costs in Connecticut is subject to delays, with the process now estimated to take 12–18 months, potentially pushing benefits to 2027, which risks prolonging higher financing needs and pressure on cash flow.
- Equity dilution risk and dependency on Aquarian closing: Although a $200 million equity raise occurred recently, further issuance remains a possibility if the Aquarian transaction or related liquidity measures do not proceed as planned, potentially diluting shareholder value.
- Interest and tax headwinds affecting earnings: The Q&A highlighted concerns over substantial interest costs and expected tax true-ups in the later quarters, which could pressure corporate earnings and compound margin challenges.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS | FY 2025 | $4.67 to $4.82 | $4.67 to $4.82 | no change |
Long-term EPS Growth Rate | FY 2025 | 5% to 7% | 5% to 7% | no change |
Capital Plan | FY 2025 | no prior guidance | $24.2 billion with a 10% increase over the previous five-year plan | no prior guidance |
Equity Needs | FY 2025 | no prior guidance | $1.2 billion | no prior guidance |
FFO to Debt Ratio | FY 2025 | well above 100 basis points over the rating agency thresholds | approximately 100 basis points above the rating agency thresholds | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Liquidity and Financial Metrics Improvement | Q1 2025 calls highlighted sustainable FFO‐to‐debt targets driven by regulatory cost recoveries and operating cash flow improvements. Q4 2024 noted FFO‐to‐debt ratios in the low double digits and plans to exceed a 13% threshold. Q3 2024 discussed progress via asset sales and equity issuances. | Q2 2025 emphasized improved liquidity with an FFO‐to‐debt ratio at 11.5% in Q1 2025, expectations to reach 13% (or 14% with the Aquarion closing), and positive cash flow enhancements. | Consistent positive momentum with continued improvements and reliance on Aquarion proceeds to boost financial metrics. |
Regulatory Environment and Rate Case Outcomes | Q1 2025 described constructive outcomes in Massachusetts and ongoing uncertainties in Connecticut and New Hampshire, with detailed PBR initiatives. Q4 2024 and Q3 2024 similarly discussed rate adjustments and regulatory collaborations. | Q2 2025 reported constructive decisions in New Hampshire and active discussions in Connecticut, maintaining a collaborative tone while noting regulatory uncertainties. | Steady focus with slight refinements; constructive regulatory outcomes persist while uncertainties in CT/NH continue to require attention. |
Aquarion Transaction and Equity Dilution Risk | Q1 2025 focused on the transaction closing by year‐end and its benefits to debt reduction along with equity dilution impacts on earnings. Q4 2024 detailed the sale’s structure and its anticipated positive impact on the balance sheet. Q3 2024 reviewed the sale process and financing plan assumptions. | Q2 2025 emphasized progress in regulatory approvals, a closing target by the end of 2025, and highlighted that equity issuance is aligned with liquidity needs, mitigating dilution risk. | Optimistic and balanced outlook as the narrative remains positive with robust progress and calibrated equity issuance plans. |
Capital Investments and Infrastructure Projects | Q1 2025 reaffirmed a $24.2B five‐year plan with significant grid, transmission, and substation investments. Q4 2024 expanded on investment levels and rate base growth. Q3 2024 emphasized clean energy initiatives via ESMP and major projects like the Cambridge substation. | Q2 2025 confirmed a 10% increase in the five‐year plan to $24.2B, strong execution of $2.2B in infrastructure investments, and detailed progress on AMI rollouts and the Cambridge Underground Substation. | Consistent and growing commitment with increased investment levels and steady execution on key grid modernization initiatives. |
Interest, Tax, and Cost Inflation Headwinds | Q1 2025 discussed a $0.16 drag from higher interest costs due to new debt and outlined tariff‐related cost increases on capital investments. Q4 2024 noted higher interest expenses and minimal discussion on inflation beyond regulatory recovery measures. Q3 2024 covered higher interest rates and cost pressures from construction expenses. | Q2 2025 reiterated that interest costs are a headwind—especially in the first half—with tax true-ups in Q3 and higher O&M and depreciation costs partially offset by timely rate recoveries. | Persistent headwinds remain, though management expects a softer impact later in the year; overall challenges are consistent. |
Credit Rating Pressures | Q1 2025 highlighted setting FFO‐to‐debt targets well above rating thresholds, with active discussions with Moody’s. Q4 2024 stressed maintaining ratios above 13% to counter Moody’s negative outlook. Q3 2024 noted balance sheet strengthening efforts. | Q2 2025 noted that Moody’s reaffirmations coexist with a slight rating concern for CT, while emphasizing improvements with an FFO‐to‐debt ratio of 11.5% and plans to further enhance metrics. | Continued focus on credit metrics; sentiment remains cautiously optimistic with ongoing actions to exceed key thresholds. |
Emerging Offshore Expansion with Minimal Tariff Risk | Q1 2025 mentioned robust procurement and proactive tariff risk mitigation measures (e.g., stocked components). Q4 2024 reaffirmed timelines with no changes. Q3 2024 focused on divestiture components and cost-sharing related to the offshore project. | Q2 2025 reported that the Revolution Wind offshore project is approximately 75% complete, emphasized rapid progress on the onshore substation with testing underway, and noted reduced critical path risks. | Steady progress continues with active construction milestones and effective management of tariff risks, maintaining minimal tariff exposure. |
Renewable Energy Project Delays (South Fork Wind Tax Equity Investment) | Q3 2024 mentioned delays with full benefits spilling beyond 2026 due to sequencing of tax credits and other attributes. Q4 2024 briefly referenced unused ITC benefits. Q1 2025 did not address the topic. | Q2 2025 did not mention this topic. | No current discussion; the topic appears to have been dropped or deprioritized in the current period. |
Diminishing Emphasis on Corporate Drag Concerns | Q1 2025 noted a drag impact of $0.16 tied to offshore wind capitalized interest and subsequent improvements. Q3 2024 indirectly touched on offsetting drag via equity issuances. Q4 2024 did not mention corporate drag explicitly. | Q2 2025 reflected clear commentary that corporate drag (mainly interest costs) is being mitigated through liquidity improvements, equity raises, and progress on the Aquarion transaction. | Reduced emphasis on corporate drag as operational improvements and strategic transactions minimize its impact in the current period. |
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Balance Sheet Outlook
Q: Confidence hitting 14% FFO-to-debt target?
A: Management expressed high confidence in reaching a 14% FFO-to-debt ratio, citing strong rate recoveries—including the $900MM recovered in July—and the anticipated Aquarian closing adding roughly 100 basis points, which supports their balance sheet improvements. -
Storm Securitization
Q: How will storm cost securitization impact funding?
A: They explained that while storm cost securitization won’t reduce the $1.2B equity need outright, it will help stabilize the balance sheet. The process, now updated to span 12–18 months and likely impact cash flows around 2027, is under active review. -
Credit Metrics Update
Q: What are current Moody’s/S&P metrics?
A: Management noted that the company is already in a strong position with Moody’s and S&P, having improved by more than 200 basis points on a 12‑month rolling basis, suggesting continued progress in credit metrics. -
Equity Issuance Timing
Q: Why resume ATM equity issuance now?
A: They resumed raising about $220MM in June to secure liquidity driven by near‑term needs like the Aquarian transaction, and expect minimal further equity issuance once the transaction closes. -
New Hampshire Rate Base
Q: What’s the NH rate base split?
A: Management indicated that for New Hampshire, the state‑regulated portion is approximately $2.1B, while the FERC‑regulated assets are roughly in the $1.7–$1.8B range, providing clear insight into asset segmentation. -
CT Equity Needs Impact
Q: Will CT securitization lower equity needs?
A: They clarified that while securitization in Connecticut might help stabilize funding, it is expected to prevent additional rises in equity needs rather than reduce the overall target, especially when balanced against new capex demands—with a forecast refresh coming in February. -
CT Prudency Clarification
Q: What did the CT court decide on prudency?
A: The court clarified that prudency reviews cannot incorporate hindsight adjustments, ensuring that investment decisions made based on then‑existing facts remain protected, thus supporting management’s current capital planning. -
H2 Earnings Drivers
Q: What will drive second-half earnings?
A: Looking ahead, management expects lower interest expense post‑transactions and locked‑in rate adjustments—coupled with potential tax true‑ups in Q3—to be the key elements underpinning a stable second half.
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