Eversource Energy (ES) FY2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-17) + Yahoo Finance

Auditor: Deloitte & Touche LLP — Clean opinion (2 critical audit matters: regulatory accounting, offshore wind contingent liability)

One-line verdict: Eversource is a New England utility in transition — it has exited offshore wind at enormous cost ($2.45B in cumulative losses over FY2023-2025), is selling its Aquarion water business (booking a $297M pending-sale loss in FY2025), and is refocusing on its core regulated electric and gas distribution franchises. Revenue surged 13.8% to $13.5B and net income more than doubled from $812M to $1.69B as offshore wind losses shrank from $464M to $284M. The F grade stems from structural utility features — negative FCF, minimal cash ($135M) versus $30.1B debt, and persistent CapEx-driven cash burn — plus an $800M contingent liability from offshore wind cost overruns. The underlying regulated business is strong and recovering from a difficult strategic detour.

Business Overview

Eversource Energy, headquartered in Boston, Massachusetts and Hartford, Connecticut, is a public utility holding company. From the 10-K: "We are engaged primarily in the energy delivery business through the following wholly-owned utility subsidiaries: The Connecticut Light and Power Company (CL&P), a regulated electric utility; NSTAR Electric Company, a regulated electric utility; and Public Service Company of New Hampshire (PSNH), a regulated electric utility." The company also operates natural gas distribution through Yankee Gas, NSTAR Gas, and EGMA, and water distribution through Aquarion (pending sale).

Eversource has four reportable segments: electric distribution, electric transmission, natural gas distribution, and water distribution. CL&P serves approximately 1.32 million customers in Connecticut.

Income Statement (from 10-K)

Three things stand out in this income statement:

1. Offshore wind losses are declining but not finished. Eversource sold its interests in Revolution Wind, South Fork Wind, and Sunrise Wind in Q3 2024. But the 10-K still shows $284M in offshore wind losses in FY2025, down from $464M in FY2024 and a staggering $2.167B in FY2023. The cumulative offshore wind losses from 2023-2025 total $2.915B — a catastrophic strategic misstep.

2. Amortization swung wildly — from negative $490M in FY2023 to $836M in FY2025, a $1.3B swing. This reflects regulatory amortization mechanisms, particularly storm cost recovery and energy efficiency program deferrals.

3. The Aquarion sale loss. The 10-K records a $297M loss on the pending sale of Aquarion, Eversource's water utility subsidiary. This is a strategic exit to simplify the business back to core electric and gas distribution.

Cash Flow (from 10-K)

CFFO/NI of 2.43 in FY2025 — profits are well-backed by cash. The offshore wind and Aquarion losses are non-cash write-downs that inflate CFFO relative to reported net income. The key improvement: FCF is nearly breakeven at negative $45M, compared to negative $2.3B and $2.7B in prior years, because CapEx declined by $322M and CFFO nearly doubled.

But cash on hand is just $135M against $30.1B in total debt. The company relies on revolving credit facilities and commercial paper for liquidity.

The 18-Point Screening

Revenue Quality

Revenue quality is clean. The 13.8% revenue growth was driven by higher distribution rates across CL&P, NSTAR Electric, and PSNH, plus higher purchased power pass-through costs. CFFO growth of 90.5% dramatically outpaced revenue growth, driven by the absence of FY2024's large working capital drains and reduced offshore wind cash outflows.

Expense Quality

Inventory declined 17.3% — consistent with Eversource's shift away from capital-intensive offshore wind projects and the pending Aquarion sale. CapEx actually declined 7.2%, unusual for a utility, reflecting the wind-down of offshore wind investment.

Cash Flow Quality

C2: FCF has been negative for years, but dramatically improved from $(2.7B) in FY2023 to $(45M) in FY2025. If CapEx stabilizes and CFFO continues improving, Eversource may achieve positive FCF in FY2026 — a rarity among utilities.

C4: Structural for regulated utilities. Cash is minimal because utilities operate on revolving credit facilities and issue long-term debt continuously.

Balance Sheet

D1: Goodwill increased from $3.6B to $4.2B (+$662M). The $4.2B in goodwill relates primarily to the NSTAR and Aquarion acquisitions. If the Aquarion sale closes, the associated goodwill will be removed.

Acquisition & Manipulation

Deloitte Critical Audit Matters

Deloitte identified two critical audit matters:

1. Regulatory Accounting. From the audit report: "Judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates." Eversource had regulatory assets of $7.7B ($1.98B current + $5.72B long-term) and regulatory liabilities of $5.5B ($1.26B current + $4.27B long-term) as of December 31, 2025. The regulatory asset balance increased from $7.1B to $7.7B, reflecting ongoing cost deferrals.

2. Offshore Wind Contingent Liability. From the 10-K, Eversource retained a contingent liability related to the post-closing purchase price adjustment for the offshore wind project sales. The balance sheet shows $448M current and $350M long-term — totaling $798M in contingent liabilities. Deloitte flagged this as a critical audit matter because "the variability in the costs and final investment returns of the Revolution Wind and South Fork Wind offshore wind projects as it relates to the purchase price post-closing adjustment" requires significant judgment.

Key Risks from Item 1A

1. Offshore wind cost overruns. The $798M contingent liability could grow if construction costs exceed estimates. From the 10-K, the company faces "variability in the costs and final investment returns of the Revolution Wind and South Fork Wind offshore wind projects as it relates to the purchase price post-closing adjustment under the terms of the sale agreement."

2. Regulatory recovery risk. CL&P's distribution rates were established in 2018 with a rate freeze under a 2021 settlement. Regulatory assets require future recovery approval — if regulators deny recovery, write-offs against earnings would follow.

3. Rising interest expense. Interest expense grew from $855M in FY2023 to $1.24B in FY2025 (+45% over two years). With $30.1B in debt, each 25bp rate increase costs approximately $75M annually.

4. Aquarion sale regulatory denial. The 10-K discloses a regulatory denial of the Aquarion sale in one jurisdiction, leading to "a subsequent appeal." The $297M loss on pending sale reflects management's assessment of the likely sale price versus book value.

Altman Z-Score and F-Score

Summary

Grade: F — driven by structural utility factors plus offshore wind overhang.

Eversource's F grade reflects two categories of issues. First, the structural utility features common to every company in this sector: negative FCF, minimal cash versus massive debt, and leverage above 5x EBITDA. Second, the company-specific offshore wind exit, which generated $2.9B in cumulative losses and left a $798M contingent liability on the balance sheet.

The positive narrative is that the worst is behind them. Offshore wind losses have shrunk from $2.2B to $284M. FCF improved from $(2.7B) to near-breakeven. Net income more than doubled. The regulated utility core — 84.7% gross margin, CFFO/NI of 2.43, stable DSO, low accruals — is healthy. The question is whether the offshore wind contingent liability produces additional losses and whether the Aquarion sale closes at acceptable terms.

**Disclaimer**: This report is based on Eversource Energy's FY2025 10-K (SEC EDGAR, filed 2026-02-17) and public financial data. This is NOT investment advice.

Data: SEC EDGAR 10-K (Filed 2026-02-17) + Yahoo Finance

Auditor: Deloitte & Touche LLP (Unqualified opinion, 2 critical audit matters)