8-K: Eversource Aquarion Sale Rejected by Connecticut Regulators

Eversource Energy announced the Connecticut Public Utilities Regulatory Authority rejected its proposed sale of Aquarion Water Company, prompting an evaluation of legal remedies and a planned rate case.

Summary

• The Connecticut Public Utilities Regulatory Authority (PURA) rejected the proposed sale of Aquarion Water Company to the South Central Connecticut Regional Water Authority.
• Eversource had prepared for alternative outcomes, including identifying and evaluating strategic financing opportunities.
• This preparation led to the issuance of common equity and $600 million of parent company debt earlier this year.
• Eversource reaffirms its 2025 full-year non-GAAP recurring earnings guidance of between $4.72 per share and $4.80 per share.
• The company also reaffirms its expected compound annual earnings per share growth rate within the range of 5% to 7% from a 2024 base of $4.57 per share.
• Eversource is evaluating regulatory and legal remedies to be implemented expeditiously following PURA's decision.
• An Aquarion rate case is expected to be submitted early next year (2026) in the range of $60 million to $70 million, with new rates anticipated before the end of 2026.
• Aquarion Water Company remains a high-quality, well-managed utility and a valued part of the Eversource organization.

Sentiment

Score: 4

Explanation: While the company reaffirmed financial guidance and has a strong financial position, the rejection of a strategic asset sale by regulators is a significant negative event, requiring the company to pursue legal remedies and a rate case instead of the planned divestiture. This introduces regulatory uncertainty and a shift in strategic direction for the Aquarion asset.

Positives

• Eversource Energy remains in a strong financial position with ample tools to manage its capital structure and liquidity effectively.
• FFO to debt metrics have consistently improved and are expected to remain above rating-agency downgrade thresholds through 2026 and beyond.
• Reaffirmed 2025 full-year non-GAAP recurring earnings guidance of $4.72 to $4.80 per share.
• Reaffirmed expected compound annual earnings per share growth rate of 5% to 7% from a 2024 base of $4.57 per share.
• Aquarion Water Company is described as a high-quality, well-managed utility with a strong reputation for operational excellence.
• Eversource is recognized as a national leader for corporate citizenship and the #1 U.S. utility on TIME's List of World's Best Companies for 2024.
• Eversource is the #1 Energy Efficiency Provider in the Nation.

Negatives

• The Connecticut Public Utilities Regulatory Authority (PURA) rejected the proposed sale of Aquarion Water Company.
• The decision was contrary to Eversource's "reasonable expectations" based on the "strong merits of the application" and the unique customer benefits offered.
• PURA is noted to be transitioning from a difficult situation, with the new chairman recused in dockets, potentially impacting decision-making.

Risks

• Cyberattacks or breaches, including those compromising proprietary information and customer personal data.
• Ability to qualify for investment tax credits and investment tax credit adders.
• Variability in the costs and final investment returns of the Revolution Wind and South Fork Wind offshore wind projects.
• Disruptions in the capital markets or other events making access to necessary capital more difficult or costly.
• Changes in economic conditions, including impacts on interest rates, tax policies, tariffs, and customer demand and payment ability.
• Ability or inability to commence and complete major strategic development projects and opportunities.
• Acts of war or terrorism, physical attacks, or grid disturbances that may damage and disrupt electric transmission, electric, natural gas, and water distribution systems.
• Actions or inaction of local, state, and federal regulatory, public policy, and taxing bodies.
• Substandard performance of third-party suppliers and service providers.
• Fluctuations in weather patterns, including extreme weather due to climate change.
• Changes in business conditions, including disruptive technology or development of alternative energy sources.
• Contamination of, or disruption in, water supplies.
• Changes in levels or timing of capital expenditures.
• Changes in laws, regulations, Presidential executive orders, or regulatory policy, including compliance with environmental laws and regulations.
• Changes in accounting standards and financial reporting regulations.
• Actions of rating agencies.
• Other presently unknown or unforeseen factors.

Future Outlook

Eversource reaffirms its 2025 full-year non-GAAP recurring earnings guidance of $4.72 to $4.80 per share and its expected compound annual earnings per share growth rate of 5% to 7% from a 2024 base of $4.57 per share. The company plans to submit an Aquarion rate case early next year (2026) in the range of $60 million to $70 million, with new rates anticipated before the end of 2026. Eversource is also evaluating regulatory and legal remedies following the rejection of the Aquarion sale.

Management Comments

• "Given recent regulatory developments in Connecticut in the past few days, Eversource Energy is providing a financial and strategic update."
• "As part of our strategic process, we prepared for alternative outcomes in relation to our petition for approval to sell Aquarion Water Company."
• "Reasonable expectations included receipt of a lawful decision on the strong merits of the application, particularly in light of the unique customer benefits and local control that the transaction offers."
• "In addition, we took steps to identify and evaluate strategic financing opportunities in the event that PURA denied the transaction. This resulted in our issuance of common equity earlier this year, combined with an issuance of $600 million of parent company debt."
• "Eversource Energy remains in a strong financial position and we have ample tools in our toolbox to manage our capital structure and liquidity effectively."
• "Our FFO to debt metrics have consistently improved and we expect to remain above the rating-agency downgrade thresholds through 2026 and beyond."
• "We reaffirm our 2025 full-year non-GAAP recurring earnings guidance of between $4.72 per share and $4.80 per share."
• "We also reaffirm our expected compound annual earnings per share growth rate within the range of 5% to 7% from a 2024 base of $4.57 per share."
• "We are mindful that PURA is transitioning from a difficult situation and reaching decisions in dockets where the new chairman, as the only lawyer on the commission, is recused."
• "Following a thoughtful review of PURA’s decision, we are evaluating regulatory and legal remedies to be implemented expeditiously."
• "We expect to submit an Aquarion rate case early next year in the range of $60 to $70 million, with new rates anticipated before the end of 2026."
• "In the meantime, Aquarion remains a high-quality, well-managed utility with a strong reputation for operational excellence that stands as a valued part of the Eversource organization."

Industry Context

The rejection of a utility asset sale by a state regulator highlights the increasing scrutiny and potential challenges in the highly regulated utility sector, particularly concerning local control and customer benefits. Eversource's strategic financing in anticipation of such an outcome demonstrates proactive risk management common in the industry. The planned rate case is a standard utility response to ensure cost recovery and fair returns, reflecting the ongoing need for utilities to navigate regulatory environments to maintain financial health and service quality.

Comparison to Industry Standards

• Eversource's reaffirmation of 5-7% EPS growth from a 2024 base of $4.57 per share is generally in line with or slightly above the average for mature regulated utilities, which often target 4-6% growth.
• The company's FFO to debt metrics are expected to remain above rating-agency downgrade thresholds through 2026 and beyond, indicating strong financial health relative to industry peers and rating agency expectations.
• The planned Aquarion rate case of $60-$70 million is a typical mechanism for utilities to recover investments and operating costs, comparable to rate adjustments sought by other water utilities like American Water Works or California Water Service Group.
• Eversource's recognition as the #1 U.S. utility on TIME's List of World's Best Companies for 2024 and #1 Energy Efficiency Provider in the Nation positions it favorably against peers in terms of operational excellence and sustainability efforts.

Legal Proceedings

• Evaluating regulatory and legal remedies following PURA's decision to reject the Aquarion Water Company sale.

Stakeholder Impact

• Shareholders: Potential uncertainty due to the rejected sale and reliance on legal/regulatory remedies. Reaffirmed financial guidance provides some stability.
• Customers (Aquarion): The sale to South Central Connecticut Regional Water Authority, which offered "unique customer benefits and local control," will not proceed. New rates are anticipated before the end of 2026 due to a planned rate case.
• Employees (Aquarion): Aquarion remains a part of Eversource, maintaining operational continuity.
• Regulators (PURA): The decision highlights a potentially difficult regulatory environment, with the new chairman recused in some dockets.

Next Steps

• Evaluate regulatory and legal remedies expeditiously following PURA's decision.
• Submit an Aquarion rate case early next year (2026) in the range of $60 million to $70 million.
• Anticipate new rates for Aquarion before the end of 2026.

Key Dates

Recommendation

The rejection of the Aquarion Water Company sale is a negative development, introducing regulatory and legal uncertainty. However, Eversource's proactive financing, reaffirmed financial guidance, strong FFO to debt metrics, and plans for a rate case demonstrate resilience. The company's fundamental business remains strong, but the immediate future involves navigating regulatory challenges rather than executing a planned strategic divestiture. Investors should hold to observe the outcome of the legal and regulatory remedies and the rate case.

Keywords

Eversource, Aquarion Water Company, PURA, utility, water utility, asset sale, divestiture, regulatory decision, Connecticut, financial guidance, earnings per share, debt, capital structure, rate case, ES