Q4 2024 Summary
Published Feb 12, 2025, 6:31 PM UTC- Eversource expects earnings growth acceleration driven by recovery of approximately $2 billion in deferred storm costs, constructive rate mechanisms for infrastructure investments like the Electric Sector Modernization Plan (ESMP), and reduction of holding company debt, positioning the company to return to a 5% to 7% long-term EPS growth rate.
- Proceeds from the sale of Aquarion are expected to be accretive, with the $1.6 billion in cash proceeds used to reduce debt and more than replace the earnings from Aquarion, benefiting earnings starting in 2026.
- Eversource is focused on improving their financial position, aiming to change Moody's negative outlook to stable by maintaining FFO to debt ratio solidly above the 13% downgrade threshold, which can enhance their credit profile and reduce financing costs.
- Potential credit rating downgrade due to low FFO-to-debt ratio: Eversource's FFO-to-debt ratio for 2024 was between 10.5% and 11%, which is below Moody's downgrade threshold of 13%. The company acknowledges this shortfall and is aiming to improve its financial position to avoid a downgrade. A lower credit rating could increase borrowing costs and limit financial flexibility.
- Regulatory risks in Connecticut affecting operations: Eversource has filed a lawsuit against the Connecticut Public Utilities Regulatory Authority (PURA) seeking transparency in regulatory proceedings. The absence of a clear timeline for resolution introduces uncertainty, and ongoing regulatory challenges in Connecticut could adversely impact the company's operations and financial performance in the state.
- Interest rate exposure due to optimistic assumptions: The company's long-term earnings growth projections assume that the Federal Reserve will "move in the right direction," suggesting expectations of decreasing interest rates. If interest rates remain elevated or rise further, Eversource may face higher interest expenses, which could pressure earnings and hinder its ability to meet growth targets.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
2025 Earnings Per Share (EPS) | FY 2025 | no prior guidance | $4.67 to $4.82 | no prior guidance |
5-Year Long-Term EPS Growth Rate | FY 2025 | no prior guidance | 5% to 7%, based on 2024 non-GAAP recurring EPS of $4.57 | no prior guidance |
Equity Needs (2025–2029) | FY 2025 | no prior guidance | Approximately $1.2 billion, with $900 million being incremental to previous guidance | no prior guidance |
Capital Investment Plan (2025–2029) | FY 2025 | no prior guidance | Total planned investments of over $17 billion, including $10 billion for electric distribution infrastructure, $6 billion for natural gas infrastructure, and $1.2 billion for technology and facilities (including AI and cybersecurity) | no prior guidance |
Rate Base Growth | FY 2025 | no prior guidance | Projected 8% growth in rate base from 2023 through 2029 | no prior guidance |
Cash Flow Improvement | FY 2025 | no prior guidance | Significant improvement in cash flows from operations, nearly 50% higher in 2025 compared to 2024 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
FFO-to-Debt Ratio & Credit Rating | Q1: Aimed for a 14%-15% ratio by 2025 • Q2: Reaffirmed improvements with asset sales • Q3: Continued focus on progress and avoiding downgrade | Maintains negative outlook at Moody’s (threshold 13%) • Company issuing $1.2B equity (multi-year) to stay above that threshold | Consistently highlighted, remains a top priority given Moody’s scrutiny |
EPS Growth (5%-7%) | Q1: Reiterated 5%-7% range through 2028, base $4.34 • Q2: Maintained guidance ($4.50-$4.67 for 2024) • Q3: Reaffirmed long-term trajectory | Projected 5%-7% long-term growth off 2024 non-GAAP EPS of $4.57 • Below range in 2025 due to equity dilution, rebound in 2026 | Stable recurring target, slight short-term headwind from equity issuance |
Regulatory Environment in CT | Q1: Persistent challenges led to $500M capex reduction • Q2: Emphasis on improving relationships • Q3: Ongoing difficulties, capital reallocation | New lawsuit against PURA seeking transparency, no court timeline | Continued negative sentiment, now escalated by legal action |
Recovery of Storm Costs | Q1: ~$635M in prudency review (CT) • Q2: ~$634M under discovery • Q3: Not specifically updated | $2B of deferred storm costs on the balance sheet, plan to recover over forecast period | Costs increased significantly, remains a key recovery priority |
Offshore Wind Asset Sales | Q1: Proposed sales (South Fork, Sunrise, Revolution) • Q2: Closer to finalizing deals • Q3: Completed sales, net losses recognized | Exited offshore wind with an after-tax loss of $2.30/share • Limited new details on individual projects | Mostly finalized, references fading as wind exit is complete |
Aquarion Sale | Q1: Part of financing plan, uncertain timeline • Q2: Expected close by end of 2025 • Q3: Noted strong buyer interest, crucial to funding | $1.6B in cash + $800M debt payoff expected, closing in late 2025 | More specifics in Q4, integral to balance sheet improvement |
Performance-Based Ratemaking (PBR) | Q1/Q2: Discussed for CT and NH but not Yankee Gas • Q3: Introduced for Yankee Gas (annual adjustments, under-earning) | Not mentioned for Yankee Gas in Q4 | Overtaken by other regulatory issues, no recent expansion in Q4 |
Interest Rate Exposure | Q1/Q2: Not a major theme • Q3: Highlighted higher interest expenses, debt issuance challenges | CFO acknowledged market consensus on rates • Not singled out as a new bear-case | Muted focus in Q4; not escalated as a critical concern |
Cambridge Substation & Capex Plan | Q3: Cambridge substation ($1.5B-$1.6B), total capex $23.7B | Underground substation reaffirmed as part of $1.8B project • Capital plans updated, but $23.7B figure not repeated | Project still highlighted, overall plan discussed with slight adjustments |
Reducing Capex in Connecticut | Q1: Announced $500M reduction (regulatory misalignment) | Not revisited in detail in Q2-Q4, though CT regulatory issues persist | No new updates on further cuts; overshadowed by other topics |
Supreme Court Appeal (Aquarion) | Q1: Mentioned a 9-12 month timeline, filed request for review | Not discussed again in Q2-Q4 | No follow-up; appeal progress remains unclear |
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FFO to Debt Ratio
Q: What's your FFO to debt target and outlook?
A: We're focused on improving our FFO to debt ratio, aiming to surpass Moody's 13% downgrade threshold. Our financing plan, including $1.2 billion in equity over five years, keeps us solidly above 13%. In 2024, we ended up in the low double digits between 10.5% and 11%. We're working to move Moody's outlook from negative to stable. , -
Earnings Growth Rate
Q: Why is 2025 earnings growth below the 5–7% target?
A: The equity issued in 2024 is dilutive to our 2025 earnings, causing growth to be around 4%, below our 5–7% target. Without this dilution, we'd be within our target range. Additionally, we won't fully benefit from the $1.6 billion Aquarion sale until 2026 due to timing. -
Aquarion Sale Impact
Q: How will you offset the loss of Aquarion's earnings?
A: Selling Aquarion is accretive for us. The $1.6 billion proceeds will offload debt and reduce interest expense, more than replacing Aquarion's earnings. This benefit will materialize in 2026. -
Deferred Storm Cost Recovery
Q: How will deferred storm cost recovery drive growth?
A: We have $2 billion in storm costs on our balance sheet. Over the forecast period, we plan to recover substantially all of it, boosting cash flow and supporting our financing plan. -
Connecticut AMI Investment
Q: What's the status of the $1.5–$2 billion incremental investments?
A: The largest opportunity is the Connecticut AMI project. We're awaiting PURA's action on reconsidering the final decision, possibly later this year. More details should emerge in the next 12 to 18 months. -
Mystic Property Investment
Q: Will you pursue a $1 billion-plus investment at Mystic?
A: While not in our current CapEx plan, we're evaluating opportunities at the recently acquired Mystic property. We're excited about its strategic location and positive regulatory environment, and we're comfortable considering significant investments there in the future. , -
Interest Rate Assumptions
Q: What are your interest rate assumptions for growth?
A: We base our assumptions on market consensus and are comfortable with them for 2025 and beyond. Our projections assume the Fed will move in the right direction. -
Minimal Cash Tax Payments
Q: What drives minimal cash tax payments through 2028?
A: We've utilized tax credits, including R&D credits, and haven't yet tapped into the $500 million South Fork ITC. This allows us to maintain minimal cash tax payments, potentially through 2028. -
Lawsuit Against PURA
Q: What's the timeline for your lawsuit against PURA?
A: There's no set timeline. Along with Avangrid, we've filed a complaint seeking transparency from PURA regarding its orders. We await the court's decision. -
Revolution Wind Project
Q: Any changes or write-offs related to Revolution Wind?
A: Nothing has changed; we're making great progress. The project is on track for the second half of 2026. We don't anticipate any write-offs in our upcoming 10-K filing. -
Massachusetts Gas Line Extensions
Q: How will ending gas line extensions affect your plans?
A: It's too early to discuss. We're preparing our response to the DPU's proposal and will comment once we've formulated our position. -
Aquarion Sale Regulatory Approval
Q: Are you anticipating any roadblocks in PURA's approval of the Aquarion sale?
A: We feel confident in the regulatory process. As long as laws are followed, we expect the transaction to be approved. Rates currently include taxes for cities and towns, and we believe the new authority will continue to pay them. -
Equity Financing Methodology
Q: Will you continue using the ATM program for equity needs?
A: Yes, we've been pleased with the ATM program and plan to use it for future equity financing, allowing us to control when we access the market. -
Dividend Reinvestment Program
Q: What should we expect for share issuance through dividend reinvestment and employee programs?
A: Expect a slight increase. We've provided guidance of around $100 million to $120 million in annual cash savings from these programs. -
Interest Expense Reduction
Q: How will the Aquarion sale proceeds affect interest expense?
A: The $1.6 billion from the Aquarion sale will offload debt, significantly reducing interest expense and enhancing earnings from 2026 onward. , -
Connecticut Legislative Changes
Q: Are you concerned about legislative efforts affecting the Aquarion sale?
A: We're not concerned at this point. While bills have been filed, we believe the legislative body that allowed the sale less than seven months ago, along with the governor's support, keeps the transaction on track. -
FFO to Debt Assumptions
Q: Can we back into your rate increase assumptions based on your FFO to debt targets?
A: Yes, that's a fair assumption given our financing plan and maintaining FFO to debt above 13%. -
Recovery of Investments
Q: How will you recover your investments to support growth?
A: Through constructive rate mechanisms and timely recovery, particularly in Massachusetts with the ESMP. Projects like the Cambridge underground substation are advancing, with in-service dates toward the end of our forecast period.