Eversource Energy (ES) (Q1 2024) Earnings Call Transcript Highlights: Navigating Regulatory ...

• Revenue: Not specifically mentioned in the call.

• Net Income: Not specifically mentioned in the call.

• Earnings Per Share (EPS): Q1 2024 GAAP and recurring earnings were $1.49 per share, up from $1.41 per share in Q1 2023.

• Free Cash Flow: Not specifically mentioned in the call.

• Gross Margin: Not specifically mentioned in the call.

• Same-Store Sales: Not applicable to Eversource Energy.

• Store Locations: Not applicable to Eversource Energy.

• Market Capitalization: Not specifically mentioned in the call.

• Capital Expenditure: Planned reduction in Connecticut by $500 million over the next 5 years.

• 2024 EPS Guidance: Reiterated at $4.50 to $4.67 per share.

• Long-term EPS Growth Rate: Targeted at 5% to 7% through 2028.

• Capital Investment Forecast: $23.1 billion over the next 5 years.

• Warning! GuruFocus has detected 9 Warning Signs with ES.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Eversource Energy is on track with the sale of its offshore wind projects, expecting to close transactions in the coming months, which will bring significant cash proceeds.

• The company has successfully energized the South Fork Wind project and is applying similar construction processes to other projects, enhancing its renewable energy portfolio.

• Eversource Energy is making substantial investments in infrastructure to support clean energy transitions, aiming to increase electrification capacity significantly.

• The company reported strong financial results for Q1 2024, with earnings per share increasing from the previous year, and reiterated its EPS guidance for 2024.

• Eversource Energy is actively engaged in regulatory initiatives and collaborations to advance clean energy goals across the states it serves, particularly in Massachusetts and New Hampshire.

Negative Points

• Regulatory challenges in Connecticut are impacting the company's investment decisions, leading to a reduction in capital expenditure plans for the state.

• The lack of alignment between state policy and regulatory decisions in Connecticut is creating an uncertain environment for utility investments and innovation.

• Eversource Energy expressed concerns about the deferred and delayed cost recovery for upfront program funding in Connecticut, which affects financial planning and resource allocation.

• The company is facing pressures on its balance sheet due to under-collected costs, particularly in Connecticut, which contributed to a reduction in its FFO to debt ratio in 2023.

• Despite ongoing outreach and discussions, there remains significant work to align Connecticut's regulatory framework with the state's clean energy vision, posing ongoing challenges for Eversource Energy.

Q & A Highlights

Q: Joe, what CapEx are you guys actually cutting in Connecticut? Where are you kind of redeploying? And is that redeployment actually accretive just given the cost of capital differences? A: Joseph R. Nolan (Eversource Energy - President, CEO & Chairman) responded that significant money has been spent on electric reliability in Connecticut, improving customer interruption intervals significantly. However, due to misaligned regulatory decisions, without a secure cost recovery path, further capital cannot be risked. The reduction will likely come from reliability areas, and the redeployment of capital will be accretive.

Q: Can you cut more CapEx in Connecticut if needed? A: Joseph R. Nolan mentioned that while they are thoughtful about reductions, further cuts could be considered if the negative regulatory environment persists. John M. Moreira added that there is a resiliency program in place in Connecticut allowing timely recovery of up to $300 million in distribution investments, crucial for maintaining performance levels.

Q: Regarding the FFO to debt walk, could you remind us of the cadence of the 2023 under-recoveries hitting the cash flow statement this year? A: John M. Moreira (Eversource Energy - Executive VP. CFO & Treasurer) explained that the under-recovery for 2023 across all utilities, especially CL&P in Connecticut, was approximately $600 million. The favorable order on the annual rate adjustment mechanism will allow recovery of these costs plus additional 2024 costs starting July 1, significantly aiding cash flow.

Q: On the Massachusetts ESMP process, what are the next milestones, and how do you see opportunities for other states you serve to adopt similar frameworks? A: John M. Moreira noted that hearings have concluded, and decisions are expected by August. The plan calls for $600 million in incremental capital investments for solar interconnections through 2028. He highlighted ongoing discussions in New Hampshire about utility-owned solar and the potential for similar proactive investments in other states.

Q: With the Aquarion water sale, how does the appeal process affect the potential monetization of the asset? A: John M. Moreira stated that while they hope for a positive outcome from the appeal, the sale process for Aquarion will proceed independently. The appeal could take about a year, but they are moving forward with Phase 1 of the sale process.

Q: In Connecticut, what would it take to make you more comfortable with the regulatory setup? Are you looking for something like preapprovals for spending on AMI and EVs? A: Joseph R. Nolan expressed the need for preapproval and a clear regulatory recovery roadmap. He emphasized the importance of having an orderly recovery process for investments, similar to what is experienced in Massachusetts, to ensure fair treatment and eliminate uncertainty.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.