10-Q: Eversource Energy Reports Lower Q2 Earnings Amidst Charges

Eversource Energy reported a significant drop in second-quarter earnings, primarily due to charges related to the sale of Aquarion, increased offshore wind liabilities, and a FERC ROE refund, despite operational revenue growth.

Summary

• Eversource Energy's net income attributable to common shareholders for the second quarter of 2026 was $53.7 million, or $0.14 per share, a substantial decrease from $352.7 million, or $0.96 per share, in the same period of 2025.
• For the first half of 2026, net income was $660.5 million, or $1.75 per share, down from $903.5 million, or $2.45 per share, in the first half of 2025.
• The company recorded significant charges in the second quarter of 2026, including a $111.4 million after-tax charge for the sale of Aquarion, a $164.0 million after-tax charge for increased offshore wind contingent liabilities, and a $43.9 million after-tax charge related to FERC ROE refund proceedings.
• Excluding these charges, non-GAAP earnings were $329.1 million, or $0.87 per share, for Q2 2026 and $979.8 million, or $2.60 per share, for the first half of 2026.
• The company reaffirmed its 2026 non-GAAP recurring earnings guidance range of $4.57 to $4.72 per share and its long-term earnings per share growth rate projection of 5% to 7% through 2030.
• Operating revenues increased across most segments, with Electric Distribution up $17.1 million and Natural Gas Distribution up $67.9 million for the quarter, driven by rate increases and infrastructure investments.
• Cash flows from operating activities increased to $2.41 billion in the first half of 2026 from $2.10 billion in the first half of 2025, supported by improved regulatory recoveries and timing of collections.
• Eversource completed the sale of its Aquarion water distribution business on June 30, 2026, for approximately $2.4 billion, with net equity proceeds of $1.7 billion to be used for debt reduction.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as largely negative due to significant charges and a substantial decrease in net income compared to the prior year, despite some operational improvements.

Positives

• Operating revenues showed an increase, with Electric Distribution up $17.1 million and Natural Gas Distribution up $67.9 million for the quarter, driven by rate increases and infrastructure investments.
• Cash flows from operating activities improved to $2.41 billion in the first half of 2026 from $2.10 billion in the first half of 2025.
• The company reaffirmed its full-year non-GAAP earnings guidance and long-term growth targets.
• The sale of Aquarion water distribution business was completed, generating approximately $2.4 billion in proceeds, which will be used to reduce debt.
• The company's available borrowing capacity under its commercial paper programs was $2.16 billion as of June 30, 2026.
• Moody's revised the outlook for Eversource parent and NSTAR Electric from negative to stable.

Negatives

• Net income attributable to common shareholders significantly decreased to $53.7 million ($0.14/share) in Q2 2026 from $352.7 million ($0.96/share) in Q2 2025.
• The company recorded substantial after-tax charges totaling $322.3 million in Q2 2026 related to the Aquarion sale, offshore wind liabilities, and FERC ROE refunds.
• Electric Transmission segment earnings decreased due to the impact of the FERC decision lowering the allowed ROE from 10.57% to 9.57%.
• The FERC decision requires potential refunds with interest, estimated between $62.0 million and $968.4 million pre-tax, creating uncertainty and potential financial impact.
• The sale of Aquarion resulted in a non-cash, after-tax charge of $111.4 million.
• An increase in the offshore wind contingent liability led to a $164.0 million after-tax charge.
• Interest expense increased significantly by $62.2 million for the quarter and $126.7 million for the first half of 2026.

Risks

• The outcome of the FERC ROE complaints and related refund obligations could materially impact financial condition, results of operations, and cash flows.
• Potential for additional losses and increases to the offshore wind contingent liability due to cost overruns or delays in the Revolution Wind project.
• Changes in laws, regulations, or regulatory policy could impact compliance costs and strategic initiatives.
• Cyber events or breaches could disrupt operations and compromise sensitive information.
• Extreme weather events, influenced by climate change, could damage systems and lead to unplanned expenditures.
• The company's ability to secure acceptable ROEs in future FERC proceedings is a risk following the recent decision.
• The Greater Cambridge Energy Program faces potential delays in permit approvals, impacting its in-service dates.
• The outcome of the FERC Connecticut RTO Adder Complaint and related legal proceedings could impact revenue streams.

Future Outlook

Eversource reaffirmed its 2026 non-GAAP recurring earnings guidance range of $4.57 to $4.72 per share and its long-term earnings per share growth rate projection of 5% to 7% through 2030. The company expects annual earnings growth towards the upper half of the long-term guidance by 2028. The company expects future operating cash flows, borrowing availability, and access to debt and equity markets to be sufficient to meet working capital, operating requirements, and capital investment opportunities.

Management Comments

• "We reaffirmed our projection to earn within a 2026 non-GAAP recurring earnings guidance range of between $4.57 per share and $4.72 per share..."
• "We also reaffirmed that our cumulative long-term earnings per share growth rate will be within the range of 5 to 7 percent through 2030..."
• "Our regulated business is capital intensive and requires considerable capital resources."
• "Eversource's regulated companies recover their electric, natural gas and water distribution construction expenditures as the related project costs are depreciated over the life of the assets."

Industry Context

StockSavvy.ai notes that the utility sector is capital-intensive, with companies like Eversource heavily reliant on regulatory approvals for rate increases and cost recovery. The significant charges impacting Eversource's earnings are common in this sector, often stemming from large infrastructure projects, regulatory proceedings (like the FERC ROE complaints), and environmental liabilities. The sale of non-core assets, like the water distribution business, is a strategic move to focus on core regulated utility operations.

Comparison to Industry Standards

• Eversource's reported ROE for transmission services is under review by FERC, with a recent decision lowering the allowed ROE from 10.57% to 9.57%, which is below the industry average for regulated transmission utilities.
• The company's capital expenditure plans for transmission and distribution infrastructure are in line with industry trends focused on grid modernization, reliability, and resilience.
• The significant charges related to offshore wind projects are not typical for all utilities but reflect specific investment risks undertaken by Eversource in renewable energy development.

Legal Proceedings

• Eversource and other transmission-owning electric companies within ISO-NE are subject to complaints challenging the reasonableness of their allowed ROEs since 2011.
• FERC issued an order on March 19, 2026, finding the base ROE unjust and unreasonable, setting a new base ROE, and ordering refunds with interest for historical periods.
• The Connecticut Agencies filed a complaint at FERC against CL&P and UI regarding the 50-basis points ROE adder for RTO participation.
• CL&P and UI filed a motion to hold the CT RTO Adder Complaint proceeding in abeyance until a U.S. District Court proceeding is resolved.

Related Party Transactions

• Eversource parent provides loans to its subsidiaries to meet short-term borrowing needs, with interest charged at the weighted-average interest rate of its commercial paper program.

Stakeholder Impact

• Shareholders may be impacted by the lower earnings and the potential financial impact of the FERC ROE refund obligation.
• Customers may see changes in rates due to ongoing regulatory proceedings, including CL&P's base distribution rate case and storm cost recovery proposals.
• The sale of Aquarion will impact its customers and employees, with proceeds from the sale being used to reduce Eversource parent debt.

Next Steps

• Eversource will continue to evaluate the impact of the PURA decision on CL&P's storm costs and potential legal actions.
• CL&P will proceed with its base distribution rate case, with a decision expected by June 29, 2027.
• Eversource will monitor developments and evaluate potential exposures related to the offshore wind contingent liability.
• The company will continue to challenge the March 19, 2026 FERC decision regarding ROE refunds.
• Initial and reply briefs are due in the FERC paper hearing regarding transmission rates in August and September 2026, respectively.
• ISO-NE will select a preferred solution for the longer-term transmission planning RFP after stakeholder input in August 2026.

Key Dates

Recommendation

While the company reaffirmed its guidance and has strong operational cash flows, the significant charges, reduced ROE in transmission, and the substantial potential refund obligation related to the FERC ROE complaints create considerable uncertainty and downside risk. The sale of Aquarion is a positive strategic move, but the impact of the other negative factors warrants a cautious 'hold' rating until greater clarity emerges on the regulatory and legal outcomes.

Keywords

Eversource Energy, 10-Q Filing, Quarterly Report, Financial Results, Utility, Electric Distribution, Natural Gas Distribution, FERC ROE