Executive Summary / Key Takeaways

• The Connecticut Light and Power Company (CLP), a core regulated electric utility subsidiary of Eversource Energy (ES), continues to demonstrate stable financial performance driven by its regulated rate structure and ongoing infrastructure investments.
• CLP's earnings increased by $17.8 million in Q1 2025 compared to Q1 2024, primarily due to higher transmission earnings from a growing rate base and increased revenues from capital tracking mechanisms for electric system improvements.
• Significant capital expenditures, totaling $223.6 million in Q1 2025, are focused on enhancing grid reliability, replacing aging infrastructure, and supporting load growth, underpinning future rate base growth and earnings potential.
• CLP's liquidity is supported by strong operating cash flows ($422.7 million in Q1 2025), access to credit facilities, and capital contributions from Eversource parent, enabling it to fund substantial capital programs and manage working capital needs.
• Key risks include the potential impact of ongoing FERC ROE complaints on transmission earnings and the evolving regulatory landscape in Connecticut, such as the evaluation of performance-based regulation (PBR).

A Foundation of Regulation: CLP's Role in the Energy Landscape

The Connecticut Light and Power Company (CLP), operating under the umbrella of its parent company, Eversource Energy (ES), stands as a foundational pillar in the regulated electric utility sector of Connecticut. As a wholly-owned subsidiary, CLP's business model is deeply rooted in the predictable framework of rate regulation, designed to allow for the recovery of prudently incurred costs and a fair return on invested capital. This structure provides a degree of stability often sought by discerning investors, contrasting with the volatility inherent in unregulated energy markets. CLP's operations span both electric distribution and transmission, serving a broad base of residential, commercial, and industrial customers across its service territory. Its strategic importance to Eversource is significant, contributing substantially to the parent company's overall financial performance and capital investment program. While specific historical founding details are not the focus here, CLP's long-standing presence in Connecticut has shaped its deep understanding of the local regulatory environment and the specific infrastructure needs of the region.

Powering Growth Through Infrastructure and Technology

CLP's core strategy revolves around continuous investment in its electric infrastructure. This isn't merely about maintenance; it's a forward-looking approach aimed at enhancing the reliability, resilience, and capacity of the grid. These investments, which include transmission line upgrades, new interconnection facilities, substations, and distribution system improvements, are critical for meeting increasing customer demand, integrating new energy sources, and hardening the system against severe weather events – a growing concern in the region.

A key aspect of this strategy involves leveraging operational and technological advancements. While specific details on revolutionary new technologies are not available, the article highlights the impact of targeted infrastructure improvements and mechanisms like the Advanced Metering Infrastructure (AMI) tracking mechanism (mentioned at NSTAR Electric, but indicative of broader Eversource initiatives that can apply across subsidiaries). These initiatives, while perhaps not "differentiated technology" in the sense of a unique product, represent significant operational technology aimed at improving efficiency and service delivery. For instance, investments in aging infrastructure directly target reliability, aiming to reduce outages and energy losses. Capital tracking mechanisms, like CLP's, allow for timely recovery of costs associated with these system enhancements, providing a direct link between investment and financial performance within the regulated model. Energy efficiency programs, though largely cost-recovery mechanisms, also represent a form of technological and operational advancement aimed at managing demand and supporting state energy policy goals. The strategic intent behind these investments is clear: build a more robust, efficient, and adaptable grid, which in turn supports rate base growth and justifies future rate adjustments.

The Competitive Landscape: Stability in a Regulated Market

CLP operates within the regulated electric utility market in Connecticut, where direct head-to-head competition for delivery service is limited by its service territory. Its primary competition comes from alternative energy sources and the ability of customers to choose third-party energy suppliers for the commodity itself.

Compared to larger, more diversified energy companies like Consolidated Edison (ED), Oneok (OKE), and Southwestern Energy (SWN), CLP's business model is more focused and less exposed to commodity price volatility (unlike OKE and SWN, which have significant midstream or exploration/production exposure). While ED operates a similar regulated utility model in a neighboring, denser market, comparisons highlight differences in scale and operational specifics. For instance, while CLP's customer loyalty is strong (estimated 85% retention for Eversource consolidated, which includes CLP), ED's dominance in urban markets provides a different kind of stability. CLP's operational efficiency, measured by metrics like energy loss rate (estimated 5-7%), may lag slightly behind peers like ED (4-5%), potentially due to the characteristics of its service area or infrastructure age, though ongoing aging infrastructure investments aim to address this.

CLP's competitive advantage lies primarily in its regulatory moat – the exclusive right to provide transmission and distribution services within its designated territory, granted by state regulators. This, coupled with its deep local operational expertise and established customer relationships, provides a significant barrier to entry for potential direct competitors. While customers can choose alternative energy suppliers, CLP retains the essential, regulated role of delivering power over its infrastructure. The strategic response to competition from distributed generation (like rooftop solar) and third-party suppliers involves focusing on the reliability and value of the delivery service itself, investing in grid modernization to support these new technologies, and participating in state-mandated energy programs.

Recent Performance: Investment Translates to Earnings Growth

CLP's financial results for the first quarter of 2025 demonstrate the impact of its regulated model and capital investment program. Operating revenues for the three months ended March 31, 2025, were $1,541.2 million, a significant increase from $1,121.3 million in the same period of 2024. This $419.9 million increase was primarily driven by higher tracked distribution revenues. Specifically, an increase in the retail Non-Bypassable Federally Mandated Congestion Charge (NBFMCC) rate, stemming from higher net costs associated with state-mandated power purchase agreements with the Millstone and Seabrook nuclear plants, contributed significantly. Additionally, higher wholesale market sales revenue, fueled by higher average electricity market prices in the ISO-NE market (averaging $99.02 per MWh in Q1 2025 vs. $39.65 per MWh in Q1 2024), also boosted operating revenues. It is crucial to note that most of these tracked revenue increases are offset by corresponding increases in purchased power and transmission expense or amortization of regulatory assets/liabilities, having no material impact on net income due to the cost-recovery nature of these mechanisms.

Despite the large revenue movements driven by tracked costs, CLP's net income attributable to common shareholders saw a meaningful increase, rising by $17.8 million to $156.2 million in Q1 2025 from $138.4 million in Q1 2024. This earnings growth was primarily attributable to higher transmission earnings, reflecting the increasing transmission rate base resulting from ongoing infrastructure investments. Higher revenues from CLP's capital tracking mechanism, tied to electric system improvements, also contributed positively. Lower operations and maintenance (O&M) expense provided an additional boost. These gains were partially offset by higher depreciation expense, a natural consequence of a growing asset base, and higher property tax expense.

CLP's retail electric sales volumes saw a modest increase of 4.1% in Q1 2025. However, due to the regulatory commission-approved distribution revenue decoupling mechanism in Connecticut, fluctuations in retail sales volumes do not materially impact CLP's earnings, providing revenue stability regardless of consumption patterns.

Key expense variances beyond tracked costs included a $2.4 million increase in total O&M expense, primarily driven by higher tracked costs like uncollectible expense, partially offset by decreases in non-tracked base costs. Depreciation expense increased by $8.3 million due to higher net plant in service balances. Taxes Other Than Income Taxes rose by $11.4 million, mainly due to higher Connecticut gross earnings taxes and increased property taxes linked to higher utility plant balances. Interest expense decreased by $4.8 million, influenced by regulatory deferrals and lower long-term debt interest, despite higher short-term notes payable interest. Other Income, Net increased by $1.1 million, benefiting from higher pension/SERP/PBOP non-service income components, interest income, and capitalized AFUDC related to equity funds.

Financial Strength and Capital Deployment

CLP's ability to execute its infrastructure strategy is underpinned by its financial health and access to capital. Cash flows provided by operating activities were robust in Q1 2025, totaling $422.7 million, a significant improvement from cash flows used in operating activities of $26.6 million in Q1 2024. This substantial increase was primarily driven by improved regulatory recoveries, particularly the timing of collections for the non-bypassable FMCC and SBC tracking mechanisms, and a $34.9 million decrease in cash payments for storm costs.

Capital expenditures remain a significant use of cash, reflecting the ongoing investment cycle. CLP's cash capital expenditures were $223.6 million in Q1 2025, down from $285.9 million in Q1 2024. These investments are directed towards maintaining and improving the transmission and distribution systems, enhancing reliability, and supporting system growth.

Funding for these capital programs comes from a mix of operating cash flows, short-term borrowings (including intercompany loans from Eversource parent), long-term debt issuances, and capital contributions from the parent company. In January 2025, CLP issued $400.0 million of Series A First Mortgage Bonds to support its capital needs, repay short-term debt, and fund working capital. As of March 31, 2025, CLP had no outstanding intercompany loans from Eversource parent, down from $280.0 million at the end of 2024, indicating recent debt issuance helped manage this balance. CLP also paid $247.0 million in common stock dividends to Eversource parent in Q1 2025.

CLP's capital structure includes long-term debt with a carrying amount of $5,508.1 million and an estimated fair value of $5,168.9 million as of March 31, 2025. It also has preferred stock not subject to mandatory redemption with a carrying amount of $116.2 million and an estimated fair value of $92.0 million. The difference between carrying amount and fair value reflects changes in market interest rates since issuance.

Regulatory Headwinds and Future Outlook

While the regulated model provides stability, it also introduces regulatory risks. A key ongoing challenge for CLP, as part of the New England Transmission Owners (NETOs), is the series of FERC ROE complaints. These complaints challenge the authorized return on equity for transmission investments, and their resolution could materially impact CLP's transmission earnings. As of March 31, 2025, CLP has a reserve of $21.4 million for the second complaint period. Eversource estimates that a 10 basis point change to the base ROE used to establish reserves would impact its consolidated after-tax earnings by approximately $3.0 million for each 15-month complaint period. Prospectively, a 10 basis point change could impact Eversource's future annual after-tax earnings by approximately $6.0 million per year, increasing slightly over time with transmission investments. The ultimate outcome of these complex proceedings remains uncertain and is a significant factor to monitor.

In Connecticut, CLP is also subject to a PURA proceeding evaluating the implementation of performance-based regulation (PBR). This initiative could alter the future framework for setting distribution rates, potentially introducing new performance metrics, earnings sharing mechanisms, or multi-year rate plans. Final decisions on key aspects of the PBR framework are expected in 2025. The outcome could influence CLP's future revenue and earnings trajectory, linking them more directly to operational performance against defined metrics.

Environmental matters, such as remediation obligations at former Manufactured Gas Plant (MGP) sites, also represent potential liabilities. CLP has reserves totaling $13.2 million for environmental sites as of March 31, 2025, reflecting estimated remediation costs.

While specific financial guidance for CLP is not provided separately, its performance contributes to Eversource Energy's consolidated outlook. Eversource has reaffirmed its projection for 2025 earnings per share in the range of $4.67 to $4.82 and a long-term EPS growth rate of 5% to 7% through 2029, using a 2024 non-GAAP base of $4.57 per share. This outlook is supported by the continued capital investment program across Eversource's regulated utilities, including CLP, which is expected to drive rate base growth and earnings. The parent company's strategic divestitures of its offshore wind investments and the pending sale of the Aquarion water business are intended to strengthen the balance sheet by paying down parent company debt, which could indirectly benefit subsidiaries like CLP by improving overall financial flexibility and reducing the need for subsidiary dividends to service parent debt.

Conclusion

The Connecticut Light and Power Company (CNLHN) presents an investment profile characterized by the stability inherent in its regulated electric utility operations. Its core investment thesis is anchored in the predictable earnings stream derived from a growing rate base, fueled by necessary and ongoing infrastructure investments aimed at enhancing reliability and meeting regional energy needs. The recent financial performance in Q1 2025, showing earnings growth driven by transmission investments and capital tracking mechanisms, underscores the effectiveness of this strategy within the current regulatory framework.

However, investors must weigh this stability and growth against the potential impacts of significant regulatory proceedings, particularly the unresolved FERC ROE complaints and the evolving PBR landscape in Connecticut. While these introduce uncertainty, CLP's strong operating cash flows and access to capital, supported by its parent Eversource, position it to continue funding its crucial capital programs. As CLP contributes to Eversource's broader strategic goals and consolidated financial targets, its role as a reliable, regulated growth engine remains central to the overall investment narrative. The focus on infrastructure modernization and operational efficiency, while facing competitive pressures from alternative energy sources, provides a clear path for value creation within its defined service territory.