Eversource's Connecticut Reset Signals Shift in Regulatory Winds

The Regulatory Inflection Point#

ES finds itself at a genuine inflection point. Bank of America analyst Ross Fowler has upgraded the utility to Buy from Neutral, raising the price target to $85 from $73—a 16 percent upside that reflects something rare in utility regulation: demonstrable progress toward a more constructive operating environment. The upgrade rests not on operational magic or margin expansion, but on a tangible shift in Connecticut's regulatory posture following structural reforms to the Public Utilities Regulatory Authority, or PURA. This regulatory reset, coupled with the imminent resolution of several long-standing balance sheet headaches, creates genuine visibility into earnings acceleration through the decade's end. For institutional investors nursing years of regulatory lag and deferred cost frustrations, this represents a material turning point.

The Connecticut Regulatory Reset Takes Shape#

The heart of Eversource's bull case is Connecticut's parallel reset. The departure of PURA Chair Marissa Gillett—a figure long viewed skeptically by the utility sector—has opened the door to a fresh regulatory framework. Governor Ned Lamont's October 20 nomination of four new PURA commissioners, described in analyst notes as "more balanced and technically experienced" than their predecessors, signals an institutional shift away from the adversarial posture that had constrained Eversource's recovery prospects. Senate Bill 4, which expanded PURA from three commissioners to five and enabled utilities to securitize storm-related costs, provides the mechanical framework for unlocking years of deferred recovery. The combination is potent: new commissioners are likely to approach rate-setting with greater pragmatism, while the securitization mechanism offers a formal pathway to address the regulatory lag that has haunted the utility's earnings profile.

The significance of this shift cannot be overstated. Connecticut utilities have endured some of the most contentious regulatory environments in the nation, with PURA historically skeptical of cost recovery and rate base growth. The Gillett era embodied that skepticism. Her departure and the subsequent appointment of commissioners with stronger technical backgrounds suggests a regulatory body intent on stability and predictable cost recovery—the bedrock of utility investment economics. For Eversource, which derives roughly 50 to 60 percent of its earnings from Connecticut operations, this is existential.

Unlocking Balance Sheet Visibility Through Asset Sales and Cost Recovery#

Near-term catalysts are equally compelling. Eversource announced October 22 a proposed decision on the sale of Aquarion Water Company, a divested subsidiary that has dragged on returns and balance sheet flexibility. If approved, the sale would crystallize gains and redeploy capital toward the core electric and gas distribution franchises. Should regulators reject the sale, management is committed to aggressive remarketing—either way signaling capital discipline. More significantly, the acceleration of Revolution Wind's development—which Bank of America notes is now "substantially de-risked"—removes a major source of balance sheet volatility and allows management to focus on cost recovery.

The true earnings bridge, however, rests on the resolution of approximately $3 billion in deferred regulatory assets, largely stemming from storm recovery and other regulatory lag items. Under the previous regime, these deferrals would have been resolved at glacial pace, if at all. Senate Bill 4's securitization framework offers a path to accelerated recovery through a dedicated, ring-fenced securitization vehicle. The prospective resolution of this overhang—combined with the pending final order on Yankee Gas and the clarity that Aquarion settlement provides—creates a scenario where Eversource's regulatory assets normalize by 2027 at the latest. This normalization is critical, as it frees up financial capacity for reinvestment in rate base growth and capital returns.

The Earnings Acceleration Narrative#

Bank of America's revised earnings projections reflect this improving backdrop. The firm now models 2026 earnings of $5.05 per share, up 2 percent from the prior forecast of $4.95. For 2027, the estimate rises to $5.40 from $5.26, a 2.7 percent upgrade. The 2028 figure of $5.70 represents another 2.3 percent increase. While these revisions may appear modest in isolation, they compound meaningfully over a three-year horizon and establish a floor for sustainable earnings growth. The bank maintains its long-term view of 5 to 7 percent EPS compound annual growth through 2029, implying that near-term regulatory clarity unlocks a more stable, visible growth trajectory.

The improvement in free cash flow metrics is equally telling. As regulatory deferrals unwind and cost recovery normalizes, funds from operations should rise relative to debt service. Bank of America models the FFO-to-debt ratio improving to 14.2 percent by 2027—a meaningful step toward utility peer averages and a signal that Eversource's leverage, currently stretched at 7.04x net debt to EBITDA, is on a path to normalization. The high capex intensity of the utility business, where Eversource invests roughly 38 percent of revenues in rate base growth annually, demands this financial headroom. The regulatory reset creates precisely that headroom.

Valuation and the Sum-of-Parts Thesis#

Bank of America's $85 price target rests on a sum-of-parts valuation that applies 2027 forward peer multiples to Eversource's disaggregated business segments. The electric distribution business—the largest and most stable segment—receives a 16.4x P/E multiple on 2027 earnings, slightly below the peer average of 16.9x and reflecting Eversource's recent regulatory discount. Natural gas distribution, which drives steadier contracted returns, receives a 16.1x multiple. These multiples are then increased by 5 percent to reflect anticipated earnings growth momentum over the valuation period. The mechanic is straightforward, but the logic is compelling: as regulatory visibility improves and deferred cost recovery normalizes, the discount to peers should narrow, supporting multiple expansion alongside earnings growth.

This dual driver of returns—earnings acceleration plus multiple rerating—is rare in the utility sector, where investors typically face a choice between growth or valuation upside, rarely both. Eversource's situation, however, is unusually clean. The regulatory reset is tangible and documented. The balance sheet pathway is mechanical: securitization authority, specific cost deferrals, and a clear timeline. The earnings driver is earnings accretion from cost recovery, not operational leverage or pricing power. Bank of America's confidence in the $85 target, then, rests on execution risk being lower than the historical norm for this utility.

Outlook#

Catalysts Driving the Next Eighteen Months#

The investment thesis crystallizes around three key catalysts. First, successful closure of the Aquarion sale—expected in 2026—would unlock capital for reinvestment and eliminate a persistent drag on returns. Second, the final resolution of Yankee Gas regulatory treatment, long pending before PURA, would provide clarity on a material subsidiary and reduce balance sheet uncertainty. Third, and most important, the formal implementation of Senate Bill 4's securitization framework must proceed on schedule. Any delays or regulatory complications here would materially set back the earnings acceleration timeline.

Wider utility sector dynamics also merit consideration. Eversource operates in a regulatory environment that faces macro headwinds: rising labor costs, inflation in capital project spending, and evolving energy policy around decarbonization and grid modernization. Connecticut's regulatory reset does not insulate the utility from these pressures; rather, it simply ensures that cost pass-through and rate base growth reflect economic reality. The 5 to 7 percent EPS CAGR that Bank of America projects assumes steady-state inflation, modest rate base growth, and stable dividend payout—reasonable but not guaranteed.

Risk Factors and the Path Forward#

The principal risk is regulatory execution. While Governor Lamont's commissioner appointments signal intent toward balance, outcomes depend on the specific preferences and technical expertise of those individuals once they take office. A single commissioner skeptical of cost recovery could delay the securitization or contest rate base growth—introducing friction that extends the timeline for balance sheet normalization. Additionally, the utility sector faces longer-term structural headwinds around electrification, decentralized generation, and energy efficiency, all of which could pressure load and margin growth over a five-to-ten-year horizon. Bank of America's thesis is robust to near-term uncertainty, but investors should remain attuned to regulatory implementation risk and broader sector dynamics.

For now, however, the direction is clear. Connecticut's regulatory reset is real. Eversource's balance sheet pathway is documented. The earnings acceleration is quantified and conservative. Bank of America's upgrade to Buy and $85 price target reflect a reasonable probability-weighted outcome in which regulatory clarity compounds into sustainable, visible earnings growth. The catalyst for this shift is neither operational nor financial engineering—it is governance. When regulated utilities finally escape prolonged regulatory lag, the compounding effect on shareholder value can be material and durable.