NSTAR Electric Co. (Eversource Energy) Update: Regulatory Ruling Impacts Earnings

NSTAR Electric Co., a key subsidiary of Eversource Energy (NYSE: ES), is facing a major change in its regulatory environment. As a regulated utility, Eversource must follow rules set by the Federal Energy Regulatory Commission (FERC) regarding the rates it charges for transmission services.

1. What happened?

On March 19, 2026, FERC issued a final order lowering the allowed profit margin—known as the Return on Equity (ROE)—for transmission owners in New England. The authorized rate dropped from 10.57% to 9.35%.

This ROE is the government-approved profit NSTAR earns on its investments in power lines and grid infrastructure. By lowering this rate, FERC has reduced the revenue NSTAR can collect from customers to cover its costs.

2. Why does this matter for your portfolio?

This change creates immediate financial headwinds for Eversource:

• Lower Profits: The lower ROE is expected to cut Eversource’s annual after-tax profit by approximately $70 million in 2026.
• Lowered Guidance: Reflecting both this FERC ruling and the pending sale of its water subsidiary, Aquarion, Eversource has adjusted its 2026 earnings per share (EPS) forecast to a range of $4.57 to $4.72.
• Dividend Considerations: Income-focused investors should keep an eye on the dividend payout ratio, which currently sits at 65-70% of earnings. While the company still targets 5% to 7% annual earnings growth through 2030, regulatory shifts like this can tighten the margin of safety.

3. The Company’s Response

Eversource is not accepting this ruling quietly. They are taking specific legal steps to protect their bottom line:

• Request for Rehearing: The company is formally asking FERC to reconsider, arguing that the decision relies on outdated data that ignores current high interest rates and the rising costs of grid modernization.
• Request for Stay: They are seeking to keep the previous, higher rates in place while the legal process plays out.
• Strategic Pivot: The ongoing sale of the Aquarion water business remains a key move. Management plans to use the proceeds to pay down debt and strengthen the balance sheet, which helps offset some of the regulatory pressure.

4. What should you watch for?

• Regulatory Risk is Part of the Game: In the utility sector, these adjustments are a standard, cyclical risk. It is important to view this as a regulatory hurdle rather than a fundamental break in the business model.
• The Legal Outcome: The request for a rehearing is the most critical factor to monitor. A successful appeal could potentially reverse the $70 million profit hit.
• The "Rate Base" Growth: Ultimately, a utility’s value is tied to its "rate base"—the total value of its infrastructure. As long as Eversource continues to invest $3.5 billion to $4 billion annually in grid upgrades, that base grows, which helps compensate for a lower profit percentage over time.

Bottom Line: This ruling is a short-term earnings drag, but the long-term investment case remains tied to the company's ability to successfully modernize the grid and navigate the regulatory appeals process. Keep a close watch on the legal updates from FERC, as they will be the primary driver of whether this profit reduction is permanent or temporary.