EVERSOURCE ENERGY

Understanding EVERSOURCE ENERGY's Latest Annual Report

EVERSOURCE ENERGY plays a vital role in powering New England. This summary cuts through the complexity of its latest annual report, offering retail investors a clear, accessible overview of the company's performance and strategic direction. We highlight key takeaways and areas for further consideration, using plain language to ensure you grasp the essentials.

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1. Business Overview

EVERSOURCE ENERGY operates primarily as a regulated utility company, delivering essential electricity and natural gas services to customers across Connecticut, Massachusetts, and New Hampshire. The company conducts its operations through key subsidiaries, including The Connecticut Light and Power Company, Nstar Electric Company, and Public Service Company of New Hampshire. It also owns Yankee Gas Services Company. Beyond traditional utilities, Eversource has diversified into renewable energy with its "Offshore Wind Business."

2. Financial Performance

We can observe positive trends in several key financial indicators for the year ending 2024 compared to 2023, suggesting growth and stability in specific areas:

• Accumulated Profits (Retained Earnings): This figure, representing the total profit the company has kept over its lifetime after paying dividends, grew from $12.34 billion in 2023 to $13.37 billion in 2024, an increase of approximately 8.3%. This indicates consistent financial strengthening.
• Equity in Earnings: Eversource's share of profits from investments in other companies saw a healthy 16.7% jump, rising from $12 million in 2023 to $14 million in 2024.
• Investment Income: Earnings from the company's investments also increased by 25%, from $8 million in 2023 to $10 million in 2024.
• Interest Income: The company earned more interest, with this figure climbing from $13 million in 2023 to $15 million in 2024, an increase of about 15.4%.
• Allowance for Funds Used During Construction (AFUDC - Equity): This special accounting item for utilities, which recognizes the cost of equity used to fund new projects, increased from $11 million in 2023 to $13 million in 2024. This rise demonstrates continued investment in infrastructure and growth projects.

3. Risk Factors

Investors should carefully consider several key risks that could impact EVERSOURCE ENERGY's performance and stock price:

• Customer Payment Difficulties: A significant challenge is the 23% rise in "Hardship Accounts"—money owed by customers facing payment difficulties. This amount grew from $256 million in 2023 to $315 million in 2024. This trend could increase bad debt expenses and affect cash flow. Similarly, other customer receivables increased from $1.2 billion to $1.337 billion, indicating a larger amount of outstanding payments to collect, even if it also reflects increased activity.
• Strategic Divestiture Uncertainty: The company's decision to classify the Aquarion business segment as "held for sale" introduces uncertainty regarding the transaction's timing, terms, and ultimate impact.
• Regulatory Risks: As a heavily regulated utility, Eversource faces risks from unfavorable rate case outcomes, new environmental mandates, changes in energy policy, and challenges in recovering costs through approved rates.
• Operational Risks: These include severe weather events, infrastructure failures, cybersecurity threats, and the ongoing challenges of maintaining and upgrading aging infrastructure.
• Commodity Price Volatility: Fluctuations in natural gas and other commodity prices can impact operating costs and the company's ability to recover these costs from customers.
• Interest Rate Risk: Utility operations are capital-intensive, meaning rising interest rates can increase financing costs for new projects and the refinancing of existing debt.
• Environmental and Litigation Risks: The company faces potential liabilities related to environmental compliance, climate change impacts, and various legal proceedings.
• Project Execution Risk: Challenges in obtaining necessary permits and approvals for infrastructure projects, along with the risk of cost overruns or delays in major capital programs, pose significant risks.
• Workforce Risks: The ability to attract, train, and retain a skilled workforce remains a critical factor.

4. Management Discussion (MD&A Highlights)

The available data for the year ending 2024 shows consistent growth in accumulated profits and various income streams, signaling a stable and expanding business. It also highlights continued investment in infrastructure and growth projects, as reflected by the increase in Allowance for Funds Used During Construction (AFUDC - Equity), indicating forward momentum. The reported increase in the value of Renewable Energy Certificates (RECs) from $1.4 billion in 2023 to $1.5 billion in 2024 suggests active participation and growth in the green energy market.

The significant 23% rise in "Hardship Accounts" and growth in other customer receivables are notable trends.

Strategically, the decision to classify the Aquarion business segment (likely a water utility) as "held for sale" in late 2023 represents a significant portfolio optimization effort, potentially aimed at streamlining operations, optimizing the capital structure, or focusing on core electric and gas utility businesses.

5. Financial Health

We can observe aspects of Eversource's financial strength and asset management:

• Equity Growth: The company's overall equity, representing the value belonging to shareholders, has grown. This growth is largely driven by the 8.3% increase in Retained Earnings to $13.37 billion, generally pointing to a stronger financial foundation.
• Materials and Supplies: Eversource's inventory of materials and supplies increased from $900 million in 2023 to $1 billion in 2024, which could indicate preparations for future projects or operations.
• Natural Gas Reserves: The value of the company's natural gas reserves also grew from $1.1 billion in 2023 to $1.2 billion in 2024.

6. Future Outlook

The classification of the Aquarion business segment as "held for sale" clearly signals a strategic shift that will impact future operations and financial structure, likely aimed at optimizing Eversource's portfolio and capital allocation. Eversource's active involvement in Renewable Energy Certificates (RECs) suggests a strategic alignment with broader market trends towards decarbonization and renewable energy adoption, which would be a key part of its future strategy and capital deployment.

7. Competitive Position

As a regulated utility, EVERSOURCE ENERGY operates largely as a monopoly within its service territories, meaning direct competition for customers is limited. Competitive positioning remains important in terms of operational efficiency, customer service quality, and leadership in renewable energy initiatives.

In a regulated environment, competition primarily arises from the need to secure favorable regulatory treatment, manage costs effectively to minimize rate increases, and meet evolving customer expectations for reliable service and sustainable energy solutions. While direct competition for customers is limited, Eversource competes for capital in financial markets and for talent. Its competitive position is largely defined by its ability to execute capital programs efficiently, maintain strong relationships with regulators, and adapt to technological advancements and policy shifts in the energy sector.