Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- 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.
- 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.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS Guidance | FY 2024 | $4.50 to $4.67 | $4.52 to $4.60 | lowered |
Long-term EPS Growth Rate | 2028 | 5% to 7% | 5% to 7% | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Recurring 5%-7% EPS growth guidance | Q2 2024: Reaffirmed 5%-7% projection through 2028. Q1 2024: Reiterated the target and 2024 EPS guidance. Q4 2023: Maintained 5%-7% rate, including Aquarion sale impacts. | Reaffirmed 5%-7% growth through 2028 and updated 2024 EPS guidance to $4.52-$4.60, citing higher interest expenses. | Consistently reaffirmed with slight downward adjustment for 2024 due to higher interest. |
Ongoing focus on improving FFO-to-debt | Q2 2024: Emphasized target of 14%-15% by 2025 with asset sales, equity issuance, and rate increases. Q1 2024: Detailed strategies like cash recoveries, asset sales, and tax equity to reach 14%-15%. Q4 2023: Conveyed confidence in achieving 14%-15% by 2025. | Mentioned ratio has increased significantly from 2023 levels, but no new precise figure; still aiming for 14%-15%. | Remains a priority; partial improvement noted. |
Equity issuance plans up to $1.3B | Q2 2024: Reaffirmed up to $1.3B equity path, with ~$250M raised via ATM. Q1 2024: Maintained $1.3B estimate but tied to Aquarion sale outcomes. Q4 2023: Emphasized flexible ATM approach and possible reduction if water sale proceeds. | Already issued $1B in equity this year; still plans for up to $1.3B total over several years. No explicit mention of dilution. | Continued emphasis; no major change in plans. |
Regulatory challenges in Connecticut | Q2 2024: Highlighted uncertain environment and storm cost hurdles. Q1 2024: Announced capex reductions due to misalignment with regulators. Q4 2023: Faced Aquarion rate case disappointment and slow storm recovery. | Stressed timely cost recovery and cut $500M in planned Connecticut capex. Under-earning at Yankee Gas and cautious about further investment. | Ongoing challenges; sentiment remains negative, prompting Connecticut capex cuts. |
Increasing and shifting capex forecasts | Q2 2024: Only referenced $23.1B plan. Q1 2024: Cited $23.1B plus select incremental solar interconnect spending. Q4 2023: Maintained $23.1B total. | Raised 5-year capital forecast to $23.7B, up from $23.1B,** partly due to new Massachusetts investments. | New development with $600M added in Massachusetts. |
Exiting offshore wind projects | Q2 2024: Progressed on selling Sunrise, South Fork, and Revolution Wind. Q1 2024: On track to finalize exits. Q4 2023: Announced full exit with a ~$2.17B impairment. | Completed sale of key projects, recognized $524M net loss; future cost overruns on Revolution Wind shared 50-50 with Ørsted. | Implementation completed; major loss recognized. |
Sale of Aquarion water business | Q2 2024: Launched initial sale phase, noted encouraging interest. Q1 2024: Discussed potential sale, but no mention of robust interest [No citation for strong Q3 interest]. Q4 2023: Sale process initiated and projected to reduce equity needs. | Reported strong buyer interest, narrowed to a shortlist; expects to announce a winning bidder by end of Q1 2025. | Momentum rising; competitive interest in Q3. |
Delays & changing tax equity benefits | Q2 2024: No direct updates. Q1 2024: Believed $500M might extend beyond 24 months, citing other deductions and uncertain timeline. Q4 2023: Acknowledged the ITC could shift into 2026. | Indicated $500M tax equity benefit likely pushed into 2026 or later due to timing of other credits. | Timing pushed further out; cautious approach remains. |
Rising interest expenses, lower EPS | Q2 2024: Mentioned higher interest expenses but reaffirmed $4.50-$4.67 guidance. Q1 2024: Noted interest pressure but stuck to guidance. Q4 2023: Incremental interest costs impacting segments, yet guidance was unchanged. | Lowered 2024 EPS guidance to $4.52-$4.60, citing higher interest rates and debt issuance. | Negative effect becomes more pronounced in Q3, reducing EPS outlook. |
Positive regulatory developments (NH,MA) | Q2 2024: NH rate case + PBR approach, and MA approvals for major substation/solar interconnections. Q1 2024: Outlined ESMP in MA and NH updates. Q4 2023: Storm cost recovery rulings in NH, annual PBR adjustments in MA. | In NH, $61M interim rate and a 4-year PBR plan. In MA, approved $600M distribution investments in the ESMP and a rate base reset. | Continues to bolster cash flow; supportive environment in NH and MA. |
Dividend growth | Q2 2024 & Q1 2024: No new updates on dividend growth. Q4 2023: Featured alignment with 5%-7% EPS growth and a 6% dividend increase. | No specific mention in Q3 2024. | De-emphasized after Q4 2023 call. |
Storm cost recovery in Connecticut | Q2 2024: $634M request under prudency review, final outcome uncertain until ~2025. Q1 2024: ~$635M in storm costs under discovery phase. Q4 2023: No CT storm recovery in financials yet, awaiting review. | No mention in Q3 2024. | Not discussed in Q3; still unresolved from prior calls. |
Revolution Wind cost overrun impacts | Q2 2024, Q1 2024: No direct mention. Q4 2023: Detailed a cost-sharing arrangement on overruns (~$240M threshold), with Eversource bearing 50% beyond that. | Confirmed cost overruns beyond capped threshold are shared 50%-50% with Ørsted. | Reiterated cost-sharing approach in Q3. |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.