Eversource Energy Financial Model

• Total assets: Approximately $50 billion to $55 billion.
• Key asset categories: Property, Plant and Equipment (PP&E) makes up the vast majority of assets. Regulatory Assets are also highly material.
• Goodwill & intangibles as % of total assets: Low (typically under 10%), stemming from historical mergers (e.g., NSTAR).
• Working capital profile:
• Days Sales Outstanding (DSO): 35-45 days.
• Days Inventory Outstanding (DIO): Relevant only for stored natural gas ahead of winter; peaks in autumn.
• Days Payable Outstanding (DPO): 30-40 days.
• Net working capital as % of revenue: Typically negative or near zero.
• Is working capital positive or negative? Utilities often operate with negative working capital, using customer deposits and deferred taxes as sources of zero-cost financing.
• PP&E: Consists of substations, poles, wires, transformers, and gas mains. Useful lives range from 30 to 60 years.
• Regulatory Assets: Represents costs incurred (like storm damage or under-recovered fuel) that regulators have approved for future recovery from customers.

• Capex as % of revenue: Extremely high, often 30-40% of revenue, as revenue is not the primary driver of utility valuation (rate base is).
• Maintenance capex vs. growth capex: Approximately 40% maintenance (replacing aging infrastructure) and 60% growth (grid modernisation, decarbonisation, new transmission lines).
• Major capex programmes underway: A $26.5 billion five-year capital plan (2026-2030) focused on electric transmission and distribution to support artificial intelligence data centre load and regional electrification.
• M&A pattern: Currently divesting non-core assets (offshore wind sold in 2024, Aquarion sale attempted but blocked). The company is a pure-play organic grower at this stage.

• Total debt: Approximately $20 billion to $24 billion.
• Debt/EBITDA ratio: Typically runs between 5.0x and 6.0x, standard for a regulated utility.
• Credit rating: Typically BBB+ / Baa1, though closely monitored by agencies due to recent offshore wind write-offs and regulatory friction in Connecticut.
• Key debt instruments: Long-term first mortgage bonds at the operating subsidiary level, and senior unsecured notes at the holding company level.
• Maturity profile: Laddered over 10 to 30 years to match the long-dated nature of utility assets.
• Interest rate profile: Predominantly fixed-rate long-term debt.
• Share repurchase programme: Inactive. The company issues equity rather than repurchasing it to fund its massive capex programme.
• Dividend policy: Target payout ratio of 60% to 70% of non-GAAP earnings. The current annualised dividend is $3.15 per share (yielding approx. 4.6%).

• Operating cash flow conversion: OCF is strong and predictable, typically exceeding Net Income due to high non-cash depreciation and deferred taxes.
• Free cash flow margin: Free cash flow is consistently negative. This is a feature, not a bug, of a growing utility.
• Major non-cash items: Depreciation, deferred income taxes, and regulatory asset amortisation.
• Working capital cash flow impact: Seasonal swings based on winter gas purchases and summer electricity usage.
• Capex intensity: Consumes 100% of operating cash flow and requires external financing.
• Cash tax rate vs. GAAP effective tax rate: Cash taxes are significantly lower than GAAP taxes due to accelerated depreciation on massive capital investments.

1. Assumptions: Hardcoded inputs for rate base growth, allowed ROEs, equity thickness, capex plans, and debt financing rates.
2. Scenarios: Toggles for base case, adverse regulatory outcomes (e.g., further FERC ROE cuts), and high load growth (AI/data centre expansion).
3. Rate Base & Capex (Utility Specific): Roll-forward schedules for Electric Distribution, Electric Transmission, Natural Gas Distribution, and Water Distribution rate bases.
4. Income Statement: Consolidated view with revenue and operating income broken out by the four reporting segments.
5. Balance Sheet: Highlighting Utility Plant in Service, Regulatory Assets, and Regulatory Liabilities.
6. Cash Flow Statement: Standard indirect method, highlighting the massive capex outflows and corresponding debt/equity inflows.
7. Debt & Interest Schedule: Tranches of holding company and subsidiary debt, calculating weighted average interest cost.
8. Regulatory Mechanisms: Tracking under/over-recovered fuel costs and deferred storm costs.
9. Valuation (DCF & DDM): Dividend Discount Model (primary for utilities) and standard DCF, referencing the 60-70% payout ratio target.

1. "Electric Distribution Earnings = Average Electric Distribution Rate Base x Equity Thickness (approx. 50%) x State Allowed ROE"
2. "Electric Transmission Earnings = Average Transmission Rate Base x Equity Thickness x FERC Allowed ROE (9.57% base)"
3. "Natural Gas Distribution Earnings = Average Gas Rate Base x Equity Thickness x State Allowed ROE"
4. "Ending Rate Base = Beginning Rate Base + Segment Capex - Segment Depreciation - Deferred Taxes"
5. "Total Revenue = Pass-Through Fuel Costs + Distribution Revenue + Transmission Revenue"
6. "Purchased Power Expense = Pass-Through Power Revenue" (Zero margin impact)
7. "Purchased Gas Expense = Pass-Through Gas Revenue" (Zero margin impact)
8. "Interest Expense = (Average Holding Company Debt x HoldCo Rate) + (Average OpCo Debt x OpCo Rate)"
9. "Dividends Paid = Prior Year Non-GAAP EPS x Target Payout Ratio (65%) x Share Count"
10. "New Equity Required = Total Capex + Dividends Paid - Operating Cash Flow - Net New Debt Issued"

The Rate Base & Capex sheet is the engine of the model. Segment Capex feeds into the Rate Base roll-forward. The calculated Average Rate Base feeds the Income Statement to generate Segment Earnings. Segment Earnings flow to Net Income, which feeds the Cash Flow Statement. The massive Capex outflow on the Cash Flow Statement creates a funding shortfall, which triggers the Debt & Interest Schedule to issue new debt and equity. The new debt generates Interest Expense, which creates a circularity by reducing Net Income and Operating Cash Flow, thereby requiring slightly more debt.

• Revenue and Income: Positive.
• Assets: Positive.
• Liabilities and Equity: Positive.
• Operating Expenses (O&M, D&A, Taxes): Negative on the Income Statement.
• Capital Expenditures: Negative on the Cash Flow Statement and Rate Base schedules.
• Dividends Paid: Negative on the Cash Flow Statement.
• Debt Issuance: Positive on the Cash Flow Statement.

• Including offshore wind in forward estimates: The company completely exited offshore wind in 2024. Historical financials include massive impairment charges ($1.95 billion in 2023, $524 million in 2024, and $75 million in 2025) that must be excluded from go-forward recurring earnings.
• Ignoring the FERC ROE cut: FERC recently cut the base ROE for New England Transmission to 9.57% (capping incentives at 12.09%). Using historical transmission margins will overstate 2026 earnings by approximately $70 million.
• Misunderstanding fuel pass-throughs: Purchased power and natural gas costs are pass-through items. Modelling them as a fixed percentage of revenue will cause margin volatility that does not exist in reality.
• Modelling positive free cash flow: Utilities in heavy investment cycles do not generate positive free cash flow. Forcing the model to balance without external debt/equity issuance will break the capital structure.
• Assuming the Aquarion sale closed: Connecticut regulators rejected the $1.6 billion sale of the water business. It must remain in the operating model and rate base calculations for the foreseeable future.
• Applying a standard corporate tax rate to cash flows: Utilities benefit from massive accelerated depreciation, creating large deferred tax liabilities. Cash taxes are a fraction of the GAAP effective tax rate.
• Ignoring equity dilution: Eversource plans to issue $800 million to $1.1 billion in equity between 2026 and 2030. Failing to increase the share count will artificially inflate EPS.

• "Dividend payout ratio should remain between 60% and 70% of non-GAAP earnings based on stated policy."
• "Consolidated rate base growth should approximate 8% annually through 2028."
• "Free cash flow after dividends must be negative, reflecting the $26.5 billion five-year capital expenditure programme."
• "Transmission ROE should not exceed the 12.09% FERC incentive cap."
• "Debt to EBITDA should remain between 5.0x and 6.0x to maintain the current credit rating."
• "Purchased power and gas expenses must exactly equal their corresponding pass-through revenue lines."
• "Balance sheet must balance: Total Assets = Total Liabilities + Equity in every period."

• Filings: SEC EDGAR (Form 10-K, 10-Q, 8-K), Eversource Investor Relations presentations.
• Regulatory Data: Federal Energy Regulatory Commission (FERC) dockets, Connecticut Public Utilities Regulatory Authority (PURA), Massachusetts Department of Public Utilities (DPU).
• Key Peers: National Grid (NGG), Consolidated Edison (ED), Avangrid (AGR), and American Electric Power (AEP).
• Consensus Estimates: Bloomberg, FactSet, or S&P Capital IQ for EPS and rate base growth validation.

• Eversource Energy 2025 Form 10-K and Earnings Release (February 2026)
• Eversource Energy 8-K regarding FERC ROE Reset (March 2026)
• Seeking Alpha: Eversource Energy Double-Digit Annual Return Potential (March 2026)
• Simply Wall St: What Eversource Energy's FERC ROE Reset Means For Shareholders (March 2026)
• Investing.com: Eversource Energy approves quarterly dividend of $0.7875 per share (January 2026)
• CommonWealth Beacon: Eversource exits wind business, reports massive loss (February 2024)