10-QPeriod: Q3 FY2002

EVERSOURCE ENERGY Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 8, 2002For Securities:ES

Summary

Eversource Energy (ES), operating as Northeast Utilities and its subsidiaries, reported financial results for the quarterly period ended September 30, 2002. The company experienced a year-over-year increase in net income for the third quarter, driven by gains related to the elimination of reserves for Seabrook unit 2 and stronger performance in regulated electric utility sales due to hot weather. However, for the nine-month period, net income declined significantly compared to the prior year, primarily due to underperformance in the competitive energy subsidiaries which faced challenges from mild weather, natural gas trading losses, and reduced hydroelectric production. Financially, the company saw a decrease in total assets and liabilities. Operating revenues declined year-over-year for both the quarter and the nine-month period, largely attributed to lower wholesale marketing revenues at the competitive energy subsidiaries. The company is actively managing its liquidity, which improved in the quarter, and is engaged in refinancing credit lines and planning future debt issuances to manage its capital structure. The outlook for the remainder of 2002 and into 2003 indicates a focus on returning competitive energy businesses to profitability and managing ongoing regulatory matters.

Key Highlights

  • 1Third-quarter net income increased to $48.6 million ($0.38 per share) from $34.6 million ($0.26 per share) in the prior year, boosted by a $14.5 million after-tax gain from Seabrook reserves.
  • 2Nine-month net income decreased to $96.1 million ($0.74 per share) from $193.5 million ($1.41 per share) in the prior year, largely due to $39.9 million in losses from competitive energy subsidiaries.
  • 3Consolidated revenues for the nine months ended September 30, 2002, decreased by 19% to $3.8 billion from $4.7 billion in the same period of 2001, driven by lower wholesale marketing revenues.
  • 4Regulated electric utility sales benefited from hot weather, with third-quarter residential electric sales up 10.9% and commercial up 6.0%.
  • 5The company generated $467.1 million in cash flows from operating activities for the nine months ended September 30, 2002, an increase from $399.2 million in the prior year.
  • 6Eversource Energy (as Northeast Utilities) has access to approximately $415 million through available credit facilities and expects improved cash position from the sale of its Seabrook ownership interest.
  • 7The company is projecting full-year 2002 earnings between $1.10 and $1.30 per share, with an outlook for 2003 in a similar range, contingent on regulated and competitive business performance.

Frequently Asked Questions

The primary driver for the decrease in net income for the nine-month period was the significant underperformance of the company's competitive energy subsidiaries, which incurred losses of $39.9 million compared to near break-even results in the prior year. These losses were attributed to mild weather impacting retail gas and electric customers, natural gas trading losses, and reduced hydroelectric production.

The sale of Northeast Utilities' (including CL&P and NAEC) 40.04% ownership interest in Seabrook to FPL Group, Inc. was completed in November 2002. This transaction resulted in a $14.5 million after-tax gain in the third quarter of 2002, primarily related to the elimination of reserves for Seabrook unit 2. Additional gains are expected to be recorded in the fourth quarter. Proceeds from the sale are being used for debt repayment and to offset stranded costs.

For the full year 2002, the company estimates earnings between $1.10 and $1.30 per share. The outlook for 2003 is projected to be in a similar range of $1.10 to $1.30 per share, with anticipated improvements in the competitive energy businesses offsetting lower expected earnings from regulated businesses, partly due to the absence of gains from the Seabrook sale and lower pension income.

The competitive energy subsidiaries are exposed to significant market risks, including volatility in energy commodity prices (electricity, natural gas, oil), counterparty credit risk, and challenges in managing full requirements contracts due to fluctuating supply and demand. Recent accounting changes and market conditions have also impacted their performance and outlook.