8-K: Eversource Energy Reports Full-Year Loss, Announces Potential Sale of Water Business

Eversource Energy reported a full-year 2023 loss of $(442.2) million, driven by significant impairment charges related to its offshore wind investments, and announced the exploration of a sale of its water distribution business.

Summary

• Eversource Energy reported a full-year 2023 loss of $(442.2) million, or $(1.26) per share, compared to a profit of $1,404.9 million, or $4.05 per share, in 2022.
• The company's fourth quarter 2023 loss was $(1,288.5) million, or $(3.68) per share, compared to a profit of $320.2 million, or $0.92 per share, in the same period of 2022.
• These losses are primarily due to after-tax impairment charges of $1,953 million for the full year and $1,622 million for the fourth quarter, related to offshore wind investments.
• Excluding these charges, Eversource reported non-GAAP earnings of $1,517.7 million, or $4.34 per share, for the full year 2023 and $333.5 million, or $0.95 per share, for the fourth quarter.
• Eversource is exploring the sale of its water distribution business, which has a $1.3 billion rate base as of December 31, 2023.
• The company projects 2024 non-GAAP earnings of between $4.50 and $4.67 per share.
• Eversource anticipates a compound annual earnings per share growth rate from its regulated businesses of 5 to 7 percent through 2028, using the adjusted $4.34 per share earned in 2023 as the base year.
• The company expects to issue up to $1.3 billion in equity over the next several years, in combination with the potential sale of its water distribution business segment.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are positives such as the focus on core businesses and the potential sale of assets, the significant losses and impairment charges, along with the need for equity issuances, weigh heavily on the sentiment.

Positives

• Eversource's core distribution and transmission businesses are well-positioned to deliver solid operational and financial results.
• The company has a pathway to a full exit of its offshore wind business through the sale of South Fork Wind and Revolution Wind to Global Infrastructure Partners, and an agreement with rsted for the sale of Sunrise Wind.
• Eversource's electric transmission segment earned $643.4 million in 2023, an increase from $596.6 million in 2022.
• The company's electric distribution segment earned $608 million in 2023, compared to $592.8 million in 2022.
• Eversource is focused on building the necessary transmission and distribution infrastructure for the clean energy future.
• The company is working constructively with stakeholders to improve the regulatory environment in Connecticut.
• Eversource has a strong focus on improving service metrics and modernizing the region's energy delivery system.
• The company is committed to a carbon neutral target by 2030.

Negatives

• Eversource reported a significant full-year 2023 loss of $(442.2) million, primarily due to offshore wind investment impairments.
• The company's fourth quarter 2023 loss was $(1,288.5) million, also driven by offshore wind impairments.
• The natural gas distribution segment earned $224.8 million in 2023, down from $234.2 million in 2022.
• The water distribution segment earned $33.1 million in 2023, a decrease from $36.8 million in 2022.
• Eversource anticipates equity issuances of up to $1.3 billion over the next several years.
• The company experienced great challenges over the past year.

Risks

• The company faces risks related to cyberattacks and breaches.
• There are risks associated with completing the offshore wind investment sales process on the expected timelines, terms, and pricing.
• The company may not be able to qualify for investment tax credits related to offshore wind projects.
• There is a risk of variability in the projected construction costs of offshore wind projects.
• Deterioration of market conditions in the offshore wind industry could negatively impact the company.
• Disruptions in the capital markets could make access to necessary capital more difficult or costly.
• Changes in economic conditions, including interest rates and tax policies, could affect the company.
• Actions or inaction of regulatory bodies could impact the company's operations.
• Fluctuations in weather patterns, including extreme weather due to climate change, pose a risk.
• Changes in laws, regulations, or regulatory policy could affect the company.
• The company faces risks related to the potential sale of the water distribution business, including the uncertainty of the outcome and timing of the process.

Future Outlook

Eversource projects 2024 non-GAAP earnings of between $4.50 and $4.67 per share and anticipates a compound annual earnings per share growth rate from its regulated businesses of 5 to 7 percent through 2028.

Management Comments

• Joe Nolan, Eversource Energy Chairman, President and Chief Executive Officer, stated that the company's core distribution and transmission businesses are well-positioned to deliver solid operational and financial results.
• Joe Nolan also mentioned that the company is focused on building the necessary transmission and distribution infrastructure for the clean energy future.
• Joe Nolan noted that the Aquarion team shares the Eversource values of customer commitment and stewardship of the environment.
• Joe Nolan stated that the company's focus remains on improving service metrics, making required investments, and enabling a clean energy future while enhancing the balance sheet.

Industry Context

The announcement reflects a broader trend of utilities re-evaluating their investments in offshore wind projects due to cost overruns and regulatory challenges. The potential sale of the water business also indicates a strategic shift towards focusing on core regulated utility operations.

Comparison to Industry Standards

• The impairment charges taken by Eversource are significant and highlight the risks associated with large-scale offshore wind projects, similar to challenges faced by other utilities in the sector such as Orsted and Avangrid.
• The projected 5-7% EPS growth rate is in line with the long-term growth targets of many regulated utilities, such as NextEra Energy and Duke Energy, but the company's current performance is below these peers.
• The exploration of the sale of the water business is a strategic move to reduce equity needs and improve regulatory diversity, which is a common strategy among utilities seeking to optimize their portfolios, similar to recent divestments by American Water Works.
• Eversource's focus on transmission and distribution infrastructure aligns with the industry's need to modernize the grid to support the transition to renewable energy, similar to investments being made by companies like Southern Company and Dominion Energy.

Stakeholder Impact

• Shareholders are negatively impacted by the reported losses and impairment charges.
• Employees are expected to continue providing safe and reliable service to customers.
• Customers will benefit from the company's focus on improving service metrics and modernizing the energy delivery system.
• The potential sale of the water business could impact customers of that segment.
• The company's commitment to a clean energy future will benefit the environment and communities it serves.

Next Steps

• Eversource plans to launch a process evaluating market interest in a transaction for its water distribution business segment.
• The company will continue to work constructively with stakeholders to improve the regulatory environment in Connecticut.
• Eversource will focus on improving service metrics and modernizing the region's energy delivery system.
• The company will continue to enable the clean energy future while enhancing its balance sheet condition.

Key Dates

Keywords

Eversource Energy, Offshore Wind, Water Distribution, Impairment Charges, Non-GAAP Earnings, Equity Issuance, Clean Energy, Electric Transmission, Electric Distribution, Natural Gas Distribution