10-Q: EVERSOURCE ENERGY – MarketWatch

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this combined Quarterly Report on Form 10-Q, the combined Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as well as the Eversource 2020 combined Annual Report on Form 10-K. References in this combined Quarterly Report on Form 10-Q to “Eversource,” the “Company,” “we,” “us,” and “our” refer to Eversource Energy and its consolidated subsidiaries.

Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business, but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP (non-GAAP) that is calculated by dividing the Net Income Attributable to Common Shareholders of each business by the weighted average diluted Eversource common shares outstanding for the period. Our earnings discussion also includes a non-GAAP financial measure referencing our 2021 and 2020 earnings and EPS excluding certain acquisition and transition costs.

We use these non-GAAP financial measures to evaluate and provide details of earnings results by business and to more fully compare and explain our 2021 and 2020 results without including these items. We believe the acquisition and transition costs are not indicative of our ongoing costs and performance. Due to the nature and significance of the effect of these items on Net Income Attributable to Common Shareholders and EPS, we believe that the non-GAAP presentation is a more meaningful representation of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance of our business. These non-GAAP financial measures should not be considered as alternatives to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as indicators of operating performance.

We make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as “estimate,” “expect,” “anticipate,” “intend,” “plan,” “project,” “believe,” “forecast,” “should,” “could,” and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:

cyberattacks or breaches, including those resulting in the compromise of the confidentiality of our proprietary information and the personal information of our customers,

Other risk factors are detailed in our reports filed with the SEC and updated as necessary, and we encourage you to consult such disclosures.

All such factors are difficult to predict and contain uncertainties that may materially affect our actual results, many of which are beyond our control. You should not place undue reliance on the forward-looking statements, as each speaks only as of the date on which such statement is made, and, except as required by federal securities laws, we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for us to predict all of such factors, nor can we assess the impact of each such factor on the business

or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For more information, see Item 1A, Risk Factors, included in this combined Quarterly Report on Form 10-Q and in Eversource’s 2020 combined Annual Report on Form 10-K. This combined Quarterly Report on Form 10-Q and Eversource’s 2020 combined Annual Report on Form 10-K also describe material contingencies and critical accounting policies in the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations and Combined Notes to Financial Statements. We encourage you to review these items.

Financial Condition and Business Analysis

Executive Summary

Eversource Energy is a public utility holding company primarily engaged, through its wholly-owned regulated utility subsidiaries, in the energy delivery business. Eversource Energy’s wholly-owned regulated utility subsidiaries consist of CL&P, NSTAR Electric and PSNH (electric utilities), Yankee Gas, NSTAR Gas and Eversource Gas Company of Massachusetts (EGMA) (natural gas utilities) and Aquarion (water utilities). Eversource is organized into the electric distribution, electric transmission, natural gas distribution and water distribution reportable segments.

The following items in this executive summary are explained in more detail in this combined Quarterly Report on Form 10-Q:

Earnings Overview and Future Outlook:

We earned $264.5 million, or $0.77 per share, in the second quarter of 2021, and $630.7 million, or $1.83 per share, in the first half of 2021, compared with $252.2 million, or $0.75 per share, in the second quarter of 2020, and $587.0 million, or $1.75 per share, in the first half of 2020. Our results include after-tax transition and acquisition costs of $6.8 million, or $0.02 per share, in the second quarter of 2021, and $13.0 million, or $0.04 per share, in the first half of 2021, compared with $3.9 million, or $0.01 per share, in the second quarter of 2020, and $7.4 million, or $0.02 per share, in the first half of 2020. Excluding those transition and acquisition costs, we earned $271.3 million, or $0.79 per share, in the second quarter of 2021, and $643.7 million, or $1.87 per share, in the first half of 2021, compared with $256.1 million, or $0.76 per share, in the second quarter of 2020, and $594.4 million, or $1.77 per share, in the first half of 2020.

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The first half of 2021 earnings include an after-tax charge of $0.07 per share at CL&P recorded within the electric distribution segment primarily for customer bill credits assessed by PURA as a result of CL&P’s preparation for and response to Tropical Storm Isaias in August 2020.

We reaffirmed our projection of our long-term EPS growth rate through 2025 from our regulated utility businesses in the upper half of the 5 to 7 percent range. We estimate to earn toward the lower end of the 2021 non-GAAP earnings guidance range of between $3.81 per share and $3.93 per share, which excludes the impact of transition costs related to our October 2020 purchase of the assets of CMA and acquisition costs. That 2021 non-GAAP earnings estimate includes the $0.07 per share charge for the penalty proceeding for CL&P’s Tropical Storm Isaias response that the PURA assessed on May 6, 2021.

Liquidity:

Cash flows provided by operating activities totaled $807.4 million in the first half of 2021, compared with $1.01 billion in the first half of 2020. Investments in property, plant and equipment totaled $1.42 billion in the first half of 2021, compared with $1.40 billion in the first half of 2020. Cash totaled $217.4 million as of June 30, 2021, compared with $106.6 million as of December 31, 2020. Our available borrowing capacity under our commercial paper programs totaled $647.5 million as of June 30, 2021.

In the first half of 2021, we issued $1.53 billion of new long-term debt, consisting of $425 million at CL&P, $300 million at NSTAR Electric, $350 million at PSNH, $350 million at Eversource parent, and $100 million at Aquarion Water Company of Connecticut. In the first half of 2021, we repaid $1.02 billion of long-term debt, consisting of $250 million at NSTAR Electric, $282 million at PSNH, $450 million at Eversource parent, and $40 million at Aquarion Water Company of Connecticut.

On May 5, 2021, our Board of Trustees approved a common share dividend payment of $0.6025 per share, paid on June 30, 2021 to shareholders of record as of May 20, 2021.

Regulatory Items:

On April 28, 2021, PURA issued a final decision on CL&P’s compliance with its emergency response plan that concluded CL&P failed to comply with certain storm performance standards and was imprudent in certain instances. On May 6, 2021, as part of a separate penalty proceeding, PURA issued a notice of violation to CL&P that included an assessment of $30 million, consisting of a $28.4 million civil penalty for non-compliance with storm performance standards to be provided as credits on customer bills and a $1.6 million fine to be paid to the State of Connecticut’s general fund. On July 14, 2021, PURA issued a final decision in this penalty proceeding that included an assessment of $28.6 million, maintaining the $28.4 million performance penalty and reducing the $1.6 million fine for accident reporting to $0.2 million. We have accrued PURA’s assessment in the first quarter of 2021, which resulted in an after-tax charge of $0.07 per share on the six months ended June 30, 2021 income statement. We believe we have meritorious defenses and intend to vigorously defend CL&P’s position, but do not have an estimate of the ultimate outcome on CL&P’s financial position, results of operations or cash flows at this time. On June 10, 2021, CL&P appealed the April 28, 2021 PURA decision.

In PURA’s April 28, 2021 decision, PURA also ordered CL&P to adjust its future rates in a pending or future rate proceeding to reflect a monetary penalty in the form of a downward adjustment of 90 basis points in its allowed rate of return on equity (ROE), which is currently 9.25 percent. The estimated annual impact of a 90 basis point ROE reduction at CL&P would be a decrease of approximately $31 million of future annual revenues and approximately $21 million of lower annual earnings. The ROE reduction would impact revenues and earnings prospectively, once new rates are established. In light of our pending court appeal, coupled with the uncertainty of how long that penalty, if implemented, would last, we cannot predict the ultimate outcome or the resulting financial impact on CL&P.

PURA has an ongoing proceeding related to new rate designs to consider the implementation of an interim rate decrease, low-income and economic development rates for electric customers, and a review of that rate design implementation process. In the second phase of this case, PURA is considering a potential interim rate decrease for CL&P. It is unclear how such a decrease would relate to the 90 basis point reduction PURA ordered as part of its April 28, 2021 decision concerning Tropical Storm Isaias. It is also unclear how long such a decrease, if implemented, would last. As a result, we cannot predict the ultimate outcome or the resulting financial impact on CL&P. A negative outcome in this phase of the proceeding could adversely impact CL&P’s future revenues, earnings and cash flows.

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Earnings Overview
Consolidated:  Below is a summary of our earnings by business, which also
reconciles the non-GAAP financial measures of consolidated non-GAAP earnings and
EPS, as well as EPS by business, to the most directly comparable GAAP measures
of consolidated Net Income Attributable to Common Shareholders and diluted EPS.
                                                         For the Three Months Ended June 30,                                           For the Six Months Ended June 30,
                                                      2021                                   2020                                  2021                                   2020
(Millions of Dollars, Except Per Share
Amounts)                                   Amount             Per Share           Amount           Per Share            Amount             Per Share           Amount           Per Share
Net Income Attributable to Common
Shareholders (GAAP)                    $     264.5          $     0.77          $ 252.2          $     0.75          $    630.7          $     1.83          $ 587.0          $     1.75
Regulated Companies (1)                $     272.2          $     0.79          $ 257.5          $     0.77          $    652.1          $     1.89          $ 602.4          $     1.79
Eversource Parent and Other Companies         (0.9)                  -             (1.4)              (0.01)               (8.4)              (0.02)            (8.0)              (0.02)
(non-GAAP) (1)
Non-GAAP Earnings                      $     271.3          $     0.79          $ 256.1          $     0.76          $    643.7          $     1.87          $ 594.4          $     1.77
Transition and Acquisition Costs              (6.8)              (0.02)            (3.9)              (0.01)              (13.0)              (0.04)            (7.4)              (0.02)
(after-tax) (2)
Net Income Attributable to Common
Shareholders (GAAP)                    $     264.5          $     0.77          $ 252.2          $     0.75          $    630.7          $     1.83          $ 587.0          $     1.75

(1) The 2020 amounts were revised to conform to the current period segment presentation.

(2) The 2020 acquisition costs are associated with our purchase of the assets of CMA on October 9, 2020. The 2021 costs are for the transition of systems as a result of the CMA acquisition and costs associated with our pending water business acquisition.

Regulated Companies: Our regulated companies comprise the electric distribution, electric transmission, natural gas distribution and water distribution segments. A summary of our segment earnings and EPS is as follows:

                                                     For the Three Months Ended June 30,                                           For the Six Months Ended June 30,
                                                  2021                                   2020                                  2021                                   2020
(Millions of Dollars, Except Per
Share Amounts)                         Amount             Per Share           Amount           Per Share            Amount             Per Share           Amount           Per Share
Electric Distribution              $     121.6          $     0.35          $ 115.0          $     0.34          $    214.9          $     0.62          $ 245.1          $     0.73
Electric Transmission                    137.6                0.40            129.5                0.39               273.0                0.79            256.2                0.76
Natural Gas Distribution (1)               4.1                0.01              2.6                0.01               151.6                0.44             88.6                0.26
Water Distribution                         8.9                0.03             10.4                0.03                12.6                0.04             12.5                0.04
Net Income - Regulated Companies   $     272.2          $     0.79          $ 257.5          $     0.77          $    652.1          $     1.89          $ 602.4          $     1.79

(1) The 2020 amounts were revised to conform to the current period segment presentation.

Our electric distribution segment earnings increased $6.6 million in the second quarter of 2021, as compared to the second quarter of 2020, due primarily to base distribution rate increases at NSTAR Electric effective January 1, 2021 and at PSNH effective January 1, 2021, and higher earnings from CL&P’s capital tracker mechanism due to increased electric system improvements. The earnings increase was partially offset by higher operations and maintenance expense, higher depreciation expense, and higher property tax expense.

Our electric distribution segment earnings decreased $30.2 million in the first half of 2021, as compared to the first half of 2020, due primarily to an after-tax charge of $0.07 per share at CL&P for the accrual of an assessment by PURA recorded in the first quarter of 2021 as a result of CL&P’s preparation for and response to Tropical Storm Isaias in August 2020. For further information, see “Regulatory Developments and Rate Matters – Connecticut” included in this Management’s Discussion and Analysis. Earnings were also unfavorably impacted by higher operations and maintenance expense driven by higher employee-related expenses and higher storm restoration costs, higher depreciation expense, higher property tax expense, and higher interest expense. The earnings decrease was partially offset by base distribution rate increases at NSTAR Electric effective January 1, 2021, at PSNH effective January 1, 2021 and at CL&P effective May 1, 2020, and higher earnings from CL&P’s capital tracker mechanism due to increased electric system improvements.

Our electric transmission segment earnings increased $8.1 million and $16.8 million in the second quarter and the first half of 2021, respectively, as compared to the second quarter and the first half of 2020, due primarily to a higher transmission rate base as a result of our continued investment in our transmission infrastructure, partially offset by a lower benefit from the annual billing and cost reconciliation filing with FERC.

Our natural gas distribution segment earnings increased $1.5 million in the second quarter of 2021, as compared to the second quarter of 2020, due primarily to base distribution rate increases at Yankee Gas effective January 1, 2021 (with changes to customer rates beginning March 1, 2021) and at NSTAR Gas effective November 1, 2020. The earnings increase was partially offset by a loss from the addition of Eversource Gas Company of Massachusetts (EGMA) operations of $5.6 million due to the seasonality of the natural gas business, higher depreciation expense, and higher property tax expense.

Our natural gas distribution segment earnings increased $63.0 million in the first half of 2021, as compared to the first half of 2020, due primarily to the addition of EGMA earnings of $41.7 million. Additionally, the earnings increase was due to base distribution rate increases at NSTAR Gas effective November 1, 2020 and at Yankee Gas effective January 1, 2021 (with changes to customer rates beginning March 1, 2021), and higher earnings from capital tracker mechanisms due to continued investments in natural gas infrastructure. The earnings increase was partially offset by higher depreciation expense, higher operations and maintenance expense, and higher property tax expense.

Our water distribution segment earnings decreased $1.5 million and increased $0.1 million in the second quarter and the first half of 2021, respectively, as compared to the second quarter and the first half of 2020. The earnings decrease in the second quarter was due primarily to lower revenues due to the sale of the Hingham, Massachusetts water system in the third quarter of 2020.

Eversource Parent and Other Companies: Eversource parent and other companies had increased losses of $2.4 million and $6.0 million in the second quarter and the first half of 2021, respectively, as compared to the second quarter and the first half of 2020, due primarily to an increase in the transition and integration costs of EGMA of $2.9 million and $5.6 million, respectively.

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Impact of COVID-19

COVID-19 has adversely affected customers, workers and the U.S. economy. We provide a critical service to our customers and have taken extensive measures to maintain its safety and reliability. We continue to address the impacts of the COVID-19 pandemic and how the related developments affect Eversource. We are in the early re-entry phase of our pandemic response plan, in which the majority of our employees under remote work arrangements are starting to transition back to the workplace. We have not experienced significant impacts directly related to the pandemic that have materially affected our current operations, our workforce, or results of operations. The extent of the impact to us in the future will vary, and depend on the duration, scope and severity of the pandemic and the resulting impact on economic, health care and capital market conditions. The future impact will also depend on the outcome of future proceedings before our state regulatory commissions to recover our incremental costs associated with COVID-19, which include uncollectible customer receivable expenses.

The current and expected future financial impacts of COVID-19 as it relates to our businesses primarily relate to collectability of customer receivables and customer payment plans and increased expenses for cleaning and supplies for personal protective equipment.

As of June 30, 2021, our allowance for uncollectible customer receivable balance of $425.8 million, of which $210.7 million relates to hardship accounts that are specifically recovered in rates charged to customers, adequately reflected the collection risk and net realizable value for our receivables. We continue to evaluate the adequacy of the uncollectible allowance based on an ongoing assessment of accounts receivable collections and customer payment trends, economic conditions, delinquency statistics, aging-based quantitative assessments, the impact on residential customer bills because of energy usage and change in rates, flexible payment plans and financial hardship arrearage management programs being offered to customers, and COVID-19 developments, including any potential federal governmental pandemic relief programs and the expansion of unemployment benefit initiatives, which help to mitigate the potential for increasing customer account delinquencies. Additionally, management considered past economic declines and corresponding uncollectible reserves as part of the current assessment. This evaluation has shown that our operating companies have experienced an increase in aged receivables and lower cash collections from customers because of the length of the moratorium on disconnections in Connecticut and Massachusetts, and the economic slowdown resulting from the COVID-19 pandemic.

Based upon the evaluation performed, in the first half of 2021, we increased the allowance for uncollectible accounts for amounts incurred as a result of COVID-19 by $32.1 million for Eversource ($12.3 million for CL&P, $6.3 million for NSTAR Electric, and $14.7 million at our natural gas businesses). These COVID-19 related uncollectible amounts were deferred either as incremental regulatory costs at our Connecticut and Massachusetts utilities or deferred through existing regulatory tracking mechanisms that recover uncollectible energy supply costs, as we believe it is probable that these costs will ultimately be recovered from customers in future rates. As of June 30, 2021, the total amount incurred as a result of COVID-19 included in the allowance for uncollectible accounts was $63.6 million at Eversource ($15.1 million at CL&P, $17.3 million at NSTAR Electric, and $30.1 million at our natural gas businesses). Based on the status of our COVID-19 regulatory dockets, communications with our state regulatory commissions, and policies and practices in the jurisdictions in which we operate, we believe our state regulatory commissions in Connecticut and Massachusetts will allow us to recover our incremental costs associated with COVID-19, which include uncollectible customer receivable expenses, while balancing the impact on our customers’ bills and our operating cash flows.

On July 7, 2021, the NHPUC issued an order to New Hampshire utilities that concluded that recovery of incremental bad debt or waived late fees related to the COVID-19 pandemic would be addressed in a future rate case to the extent those costs are relevant at that time. The NHPUC concluded that New Hampshire utilities would not be permitted to establish a regulatory asset for these items. As a result of the order, in the second quarter of 2021, PSNH removed its $0.6 million deferral of net incremental COVID-19 costs. In New Hampshire, the moratorium on disconnections of non-hardship residential and commercial customers ended in late 2020 and PSNH has resumed disconnection activities, which has resulted in improved collection of outstanding customer receivable balances.

In Connecticut, the moratorium on disconnections of commercial customers ended in June 2021, but is still in place for residential customers. In Massachusetts, the moratorium on disconnections of commercial customers and residential customers ended in September 2020 and July 2021, respectively. Disconnection activities have largely resumed after these moratoria have expired.

We continue to work closely with our state regulatory commissions and consumer advocates on customer assistance measures, including payment plan options in order to mitigate the impact on customer rates in the future, as well as financial hardship and arrearage management programs for those customers who are unable to pay their utility bills. We developed these long-term solutions for customers in order to help minimize the extent of the impact of COVID-19 on customer receivable balances and customers’ affordability in light of the . . .

Aug 06, 2021

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