COMBINED NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout the combined notes to the unaudited condensed financial statements.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Basis of Presentation
Eversource Energy is a public utility holding company primarily engaged, through its wholly owned regulated utility subsidiaries, in the energy delivery business. Eversource Energy's wholly owned regulated utility subsidiaries consist of CL&P, NSTAR Electric, PSNH, WMECO, Yankee Gas and NSTAR Gas. Eversource provides energy delivery service to approximately 3.6 million electric and natural gas customers through these six regulated utilities in Connecticut, Massachusetts and New Hampshire.
The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH include the accounts of each of their respective subsidiaries. Intercompany transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
The combined notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The accompanying financial statements should be read in conjunction with the
Combined Notes to Financial Statements
included in Item 8, "Financial Statements and Supplementary Data," of the Eversource 2015 Form 10-K, which was filed with the SEC. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements contain, in the opinion of management, all adjustments (including normal, recurring adjustments) necessary to present fairly Eversource's, CL&P's, NSTAR Electric's, PSNH's and WMECO's financial position as of June 30, 2016 and December 31, 2015, the results of operations and comprehensive income for the three and six months ended June 30, 2016 and 2015, and the cash flows for the six months ended June 30, 2016 and 2015. The results of operations and comprehensive income for the three and six months ended June 30, 2016 and 2015 and the cash flows for the six months ended June 30, 2016 and 2015 are not necessarily indicative of the results expected for a full year.
Eversource consolidates CYAPC and YAEC because CL&P's, NSTAR Electric's, PSNH's and WMECO's combined ownership interest in each of these entities is greater than 50 percent. Intercompany transactions between CL&P, NSTAR Electric, PSNH and WMECO and the CYAPC and YAEC companies have been eliminated in consolidation of the Eversource financial statements.
Access Northeast is a natural gas pipeline and storage project (the "Project") being developed jointly by Eversource, Spectra Energy Corp and National Grid. Access Northeast will enhance the Algonquin and Maritimes & Northeast pipeline systems using existing routes. Eversource and Spectra Energy Corp each own a 40 percent interest in the Project, with the remaining 20 percent interest owned by National Grid. The total projected cost for both the pipeline and the LNG storage is expected to be approximately $3 billion, to be funded in proportion to ownership interest (approximately $1.2 billion by Eversource), with anticipated in-service dates commencing in November 2018. Eversources cumulative equity investment in the Project as of June 30, 2016 of $20.7 million
is presented in Other Long-Term Assets.
Eversource's utility subsidiaries' distribution (including generation) and transmission businesses are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for entities with rate-regulated operations, which considers the effect of regulation on the differences in the timing of the recognition of certain revenues and expenses from those of other businesses and industries. See Note 2, "Regulatory Accounting," for further information.
Certain reclassifications of prior period data were made in the accompanying financial statements to conform to the current period presentation and as a result of the adoption of new accounting guidance. See Note 1B, "Summary of Significant Accounting Policies Accounting Standards," for further information.
B.
Accounting Standards
Accounting Standards Issued but not Yet Effective:
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
, which amends existing revenue recognition guidance and is required to be applied retrospectively (either to each reporting period presented or cumulatively at the date of initial application). In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers Deferral of the Effective Date
, which defers the effective date of ASU 2014-09 to the first quarter of 2018, with 2017 application permitted. The guidance continues to be interpreted on an industry specific level. The Company is evaluating the requirements and potential impacts of ASU 2014-09 and will implement the standard in the first quarter of 2018. The ASU is not currently expected to have a material impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
16
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities
, which is required to be implemented in the first quarter of 2018. The Company is reviewing the requirements of the ASU. The ASU will remove the available-for-sale designation for equity securities, whereby changes in fair value are recorded in other comprehensive income in shareholders' equity, and will require changes in fair value of all equity securities to be recorded in earnings beginning on January 1, 2018, with the unrealized gain or loss on available-for-sale equity securities as of that date reclassified to retained earnings as a cumulative effect of adoption. The fair value of available-for-sale equity securities subject to this guidance as of June 30, 2016 was approximately $48 million. The remaining available-for-sale equity securities included in marketable securities on the balance sheet are held in nuclear decommissioning trusts and are subject to regulatory accounting treatment and will not be impacted by this guidance. Implementation of the ASU for other financial instruments is not expected to have a material impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which changes existing lease accounting guidance and is required to be applied in the first quarter of 2019, with earlier application permitted. The ASU is required to be implemented for leases beginning on the date of initial application. For prior periods presented, leases are required to be recognized and measured using a modified retrospective approach. The Company is reviewing the requirements of ASU 2016-02, including balance sheet recognition of leases previously deemed operating leases, and expects to implement them in the first quarter of 2019.
Recently Adopted Accounting Standards:
In April 2015, the FASB issued ASU 2015-05,
Intangibles Goodwill and Other Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
, effective for annual periods, including interim periods, beginning after December 15, 2015. The ASU amends existing guidance on intangibles and internal-use software and may be applied prospectively or retrospectively. On January 1, 2016, Eversource adopted the new accounting guidance prospectively, which did not have an impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting
. The ASU is intended to simplify some aspects of the accounting for share-based payment transactions. The ASU is required to be implemented in the first quarter of 2017, with early adoption permitted. The Company implemented this guidance in the first quarter of 2016. Beginning in the first quarter of 2016, the excess tax benefits associated with the distribution of stock compensation awards, previously recognized in Capital Surplus, Paid In in Common Shareholders' Equity on the balance sheet, are recognized in income tax expense in the income statement. The implementation reduced income tax expense by $2.7 million for the six months ended June 30, 2016. Also, beginning in 2016, in the statement of cash flows, the excess tax benefits are presented as an operating activity rather than a financing activity, and in both periods presented, cash paid to satisfy the statutory income tax withholding obligation previously reflected within operating activities in 2015 is now treated as a financing activity. The cash payments to satisfy this obligation for the six months ended June 30, 2016 and 2015 were $9.1 million and $9.7 million, respectively, and are included in Other Financing Activities on the statements of cash flows.
C.
Provision for Uncollectible Accounts
Eversource, including CL&P, NSTAR Electric, PSNH and WMECO, presents its receivables at estimated net realizable value by maintaining a provision for uncollectible accounts. This provision is determined based upon a variety of judgments and factors, including the application of an estimated uncollectible percentage to each receivable aging category. The estimate is based upon historical collection and write-off experience and management's assessment of collectability from customers. Management continuously assesses the collectability of receivables and adjusts collectability estimates based on actual experience. Receivable balances are written off against the provision for uncollectible accounts when the customer accounts are terminated and these balances are deemed to be uncollectible.
The PURA allows CL&P and Yankee Gas to accelerate the recovery of accounts receivable balances attributable to qualified customers under financial or medical duress (uncollectible hardship accounts receivable) outstanding for greater than 180 days and 90 days, respectively. The DPU allows WMECO and NSTAR Gas to also recover in rates amounts associated with certain uncollectible hardship accounts receivable. Certain of NSTAR Electric's uncollectible hardship accounts receivable are expected to be recovered in future rates, similar to WMECO and NSTAR Gas. These uncollectible customer account balances are included in Regulatory Assets or Other Long-Term Assets on the balance sheets.
The total provisions for uncollectible accounts and for uncollectible hardship accounts, which is included in the total provision, are included in Receivables, Net on the balance sheets, and were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Provision for Uncollectible Accounts
|
|
Uncollectible Hardship
|
(Millions of Dollars)
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
Eversource
|
|
$
|
205.5
|
|
$
|
190.7
|
|
$
|
123.7
|
|
$
|
118.5
|
CL&P
|
|
|
82.7
|
|
|
79.5
|
|
|
66.2
|
|
|
68.1
|
NSTAR Electric
|
|
|
56.9
|
|
|
52.6
|
|
|
28.6
|
|
|
25.3
|
PSNH
|
|
|
9.6
|
|
|
8.7
|
|
|
-
|
|
|
-
|
WMECO
|
|
|
15.3
|
|
|
14.0
|
|
|
8.4
|
|
|
7.4
|
D.
Fair Value Measurements
Fair value measurement guidance is applied to derivative contracts that are not elected or designated as "normal purchases or normal sales" (normal) and to the marketable securities held in trusts. Fair value measurement guidance is also applied to valuations of the investments used to calculate the funded status of pension and PBOP plans, the nonrecurring fair value measurements of nonfinancial assets such as goodwill and AROs, and the estimated fair value of preferred stock and long-term debt.
17
Fair Value Hierarchy:
In measuring fair value, Eversource uses observable market data when available in order to minimize the use of unobservable inputs. Inputs used in fair value measurements are categorized into three fair value hierarchy levels for disclosure purposes. The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement. Eversource evaluates the classification of assets and liabilities measured at fair value on a quarterly basis, and Eversource's policy is to recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. The three levels of the fair value hierarchy are described below:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable.
Level 3 - Quoted market prices are not available. Fair value is derived from valuation techniques in which one or more significant inputs or assumptions are unobservable. Where possible, valuation techniques incorporate observable market inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related products.
Determination of Fair Value:
The valuation techniques and inputs used in Eversource's fair value measurements are described in Note 4, "Derivative Instruments," Note 5, "Marketable Securities," and Note 9, "Fair Value of Financial Instruments," to the financial statements.
E.
Other Income, Net
Items included within Other Income, Net on the statements of income primarily consist of investment income/(loss), interest income, AFUDC related to equity funds, and equity in earnings of equity method investees. Investment income/(loss) primarily relates to debt and equity securities held in trust. For further information, see Note 5, "Marketable Securities," to the financial statements.
F.
Other Taxes
Gross receipts taxes levied by the state of Connecticut are collected by CL&P and Yankee Gas from their respective customers. These gross receipts taxes are shown separately with collections in Operating Revenues and with payments in Taxes Other Than Income Taxes on the statements of income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
(Millions of Dollars)
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
Eversource
|
$
|
37.5
|
|
$
|
33.2
|
|
$
|
79.8
|
|
$
|
75.1
|
CL&P
|
|
33.6
|
|
|
29.5
|
|
|
69.6
|
|
|
62.5
|
As agents for state and local governments, Eversource's companies that serve customers in Connecticut and Massachusetts collect certain sales taxes that are recorded on a net basis with no impact on the statements of income.
|
|
|
|
|
|
|
|
|
G.
Supplemental Cash Flow Information
|
Non-cash investing activities include plant additions included in Accounts Payable as follows:
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
As of June 30, 2016
|
|
As of June 30, 2015
|
Eversource
|
$
|
186.3
|
|
$
|
142.3
|
CL&P
|
|
59.5
|
|
|
47.2
|
NSTAR Electric
|
|
38.5
|
|
|
29.5
|
PSNH
|
|
31.1
|
|
|
25.6
|
WMECO
|
|
14.6
|
|
|
13.7
|
2.
REGULATORY ACCOUNTING
Eversource's Regulated companies are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for rate-regulated operations, which considers the effect of regulation on the timing of the recognition of certain revenues and expenses. The Regulated companies' financial statements reflect the effects of the rate-making process. The rates charged to the customers of Eversource's Regulated companies are designed to collect each company's costs to provide service, including a return on investment.
Management believes it is probable that each of the Regulated companies will recover their respective investments in long-lived assets, including regulatory assets. If management were to determine that it could no longer apply the accounting guidance applicable to rate-regulated enterprises to any of the Regulated companies' operations, or if management could not conclude it is probable that costs would be recovered from customers in future rates, the costs would be charged to net income in the period in which the determination is made.
18
Regulatory Assets:
The components of regulatory assets were as follows:
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
(Millions of Dollars)
|
Eversource
|
|
Eversource
|
Benefit Costs
|
$
|
1,754.1
|
|
$
|
1,828.2
|
Derivative Liabilities
|
|
413.7
|
|
|
388.0
|
Income Taxes, Net
|
|
644.3
|
|
|
650.9
|
Storm Restoration Costs
|
|
428.9
|
|
|
436.9
|
Goodwill-related
|
|
474.6
|
|
|
484.9
|
Regulatory Tracker Mechanisms
|
|
562.5
|
|
|
526.5
|
Contractual Obligations - Yankee Companies
|
|
117.3
|
|
|
134.4
|
Other Regulatory Assets
|
|
129.6
|
|
|
134.0
|
Total Regulatory Assets
|
|
4,525.0
|
|
|
4,583.8
|
Less: Current Portion
|
|
863.4
|
|
|
845.8
|
Total Long-Term Regulatory Assets
|
$
|
3,661.6
|
|
$
|
3,738.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
Benefit Costs
|
$
|
383.2
|
|
$
|
477.0
|
|
$
|
160.0
|
|
$
|
77.9
|
|
$
|
413.6
|
|
$
|
479.9
|
|
$
|
164.2
|
|
$
|
84.9
|
Derivative Liabilities
|
|
411.3
|
|
|
2.4
|
|
|
-
|
|
|
-
|
|
|
380.8
|
|
|
1.3
|
|
|
-
|
|
|
-
|
Income Taxes, Net
|
|
442.5
|
|
|
86.3
|
|
|
28.2
|
|
|
31.0
|
|
|
444.4
|
|
|
85.7
|
|
|
34.5
|
|
|
31.8
|
Storm Restoration Costs
|
|
269.5
|
|
|
117.7
|
|
|
21.7
|
|
|
20.0
|
|
|
271.4
|
|
|
110.9
|
|
|
31.5
|
|
|
23.1
|
Goodwill-related
|
|
-
|
|
|
407.5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
416.3
|
|
|
-
|
|
|
-
|
Regulatory Tracker Mechanisms
|
|
96.6
|
|
|
287.0
|
|
|
120.5
|
|
|
41.5
|
|
|
45.1
|
|
|
311.0
|
|
|
101.2
|
|
|
40.1
|
Other Regulatory Assets
|
|
78.0
|
|
|
50.9
|
|
|
31.1
|
|
|
12.1
|
|
|
82.0
|
|
|
56.3
|
|
|
31.5
|
|
|
11.3
|
Total Regulatory Assets
|
|
1,681.1
|
|
|
1,428.8
|
|
|
361.5
|
|
|
182.5
|
|
|
1,637.3
|
|
|
1,461.4
|
|
|
362.9
|
|
|
191.2
|
Less: Current Portion
|
|
312.2
|
|
|
316.7
|
|
|
122.9
|
|
|
57.7
|
|
|
268.3
|
|
|
348.4
|
|
|
105.0
|
|
|
56.2
|
Total Long-Term Regulatory Assets
|
$
|
1,368.9
|
|
$
|
1,112.1
|
|
$
|
238.6
|
|
$
|
124.8
|
|
$
|
1,369.0
|
|
$
|
1,113.0
|
|
$
|
257.9
|
|
$
|
135.0
|
Regulatory Costs in Other Long-Term Assets:
The Regulated companies had $83 million (including $2.6 million for CL&P, $38.5 million for NSTAR Electric, $5.5 million for PSNH and $19.4 million for WMECO) and $75.3 million (including $3.1 million for CL&P, $35.4 million for NSTAR Electric, $4.8 million for PSNH, and $16.7 million for WMECO) of additional regulatory costs as of June 30, 2016 and December 31, 2015, respectively, that were included in Other Long-Term Assets on the balance sheets. These amounts represent incurred costs for which recovery has not yet been specifically approved by the applicable regulatory agency. However, based on regulatory policies or past precedent on similar costs, management believes it is probable that these costs will ultimately be approved and recovered from customers in rates.
Regulatory Liabilities:
The components of regulatory liabilities were as follows:
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
(Millions of Dollars)
|
Eversource
|
|
Eversource
|
Cost of Removal
|
$
|
448.5
|
|
$
|
437.1
|
Regulatory Tracker Mechanisms
|
|
104.4
|
|
|
99.7
|
AFUDC - Transmission
|
|
65.7
|
|
|
66.1
|
Other Regulatory Liabilities
|
|
28.5
|
|
|
18.5
|
Total Regulatory Liabilities
|
|
647.1
|
|
|
621.4
|
Less: Current Portion
|
|
119.4
|
|
|
107.8
|
Total Long-Term Regulatory Liabilities
|
$
|
527.7
|
|
$
|
513.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
Cost of Removal
|
$
|
30.4
|
|
$
|
261.6
|
|
$
|
46.6
|
|
$
|
4.6
|
|
$
|
24.1
|
|
$
|
257.4
|
|
$
|
47.2
|
|
$
|
2.8
|
Regulatory Tracker Mechanisms
|
|
50.0
|
|
|
6.1
|
|
|
3.2
|
|
|
11.1
|
|
|
56.2
|
|
|
3.3
|
|
|
3.4
|
|
|
12.9
|
AFUDC - Transmission
|
|
50.9
|
|
|
6.0
|
|
|
-
|
|
|
8.8
|
|
|
51.5
|
|
|
5.7
|
|
|
-
|
|
|
8.9
|
Other Regulatory Liabilities
|
|
12.6
|
|
|
1.0
|
|
|
3.5
|
|
|
0.1
|
|
|
4.2
|
|
|
1.3
|
|
|
4.2
|
|
|
0.1
|
Total Regulatory Liabilities
|
|
143.9
|
|
|
274.7
|
|
|
53.3
|
|
|
24.6
|
|
|
136.0
|
|
|
267.7
|
|
|
54.8
|
|
|
24.7
|
Less: Current Portion
|
|
63.3
|
|
|
6.9
|
|
|
6.0
|
|
|
11.3
|
|
|
61.2
|
|
|
3.3
|
|
|
6.9
|
|
|
13.1
|
Total Long-Term Regulatory Liabilities
|
$
|
80.6
|
|
$
|
267.8
|
|
$
|
47.3
|
|
$
|
13.3
|
|
$
|
74.8
|
|
$
|
264.4
|
|
$
|
47.9
|
|
$
|
11.6
|
19
3.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
The following tables summarize the investments in utility property, plant and equipment by asset category:
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
(Millions of Dollars)
|
Eversource
|
|
Eversource
|
Distribution - Electric
|
$
|
13,425.4
|
|
$
|
13,054.8
|
Distribution - Natural Gas
|
|
2,819.9
|
|
|
2,727.2
|
Transmission - Electric
|
|
7,896.3
|
|
|
7,691.9
|
Generation
|
|
1,218.3
|
|
|
1,194.1
|
Electric and Natural Gas Utility
|
|
25,359.9
|
|
|
24,668.0
|
Other
(1)
|
|
583.5
|
|
|
558.6
|
Property, Plant and Equipment, Gross
|
|
25,943.4
|
|
|
25,226.6
|
Less: Accumulated Depreciation
|
|
|
|
|
|
|
Electric and Natural Gas Utility
|
|
(6,342.9)
|
|
|
(6,141.1)
|
|
Other
|
|
(274.5)
|
|
|
(255.6)
|
Total Accumulated Depreciation
|
|
(6,617.4)
|
|
|
(6,396.7)
|
Property, Plant and Equipment, Net
|
|
19,326.0
|
|
|
18,829.9
|
Construction Work in Progress
|
|
1,122.5
|
|
|
1,062.5
|
Total Property, Plant and Equipment, Net
|
$
|
20,448.5
|
|
$
|
19,892.4
|
(1)
These assets are primarily comprised of building improvements, computer software, hardware and equipment at Eversource Service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
Distribution
|
$
|
5,471.5
|
|
$
|
5,279.1
|
|
$
|
1,883.8
|
|
$
|
831.0
|
|
$
|
5,377.2
|
|
$
|
5,100.5
|
|
$
|
1,804.8
|
|
$
|
812.3
|
Transmission
|
|
3,691.2
|
|
|
2,205.3
|
|
|
972.0
|
|
|
977.9
|
|
|
3,618.0
|
|
|
2,131.3
|
|
|
928.2
|
|
|
964.9
|
Generation
|
|
-
|
|
|
-
|
|
|
1,182.4
|
|
|
35.9
|
|
|
-
|
|
|
-
|
|
|
1,158.1
|
|
|
36.0
|
Property, Plant and
Equipment, Gross
|
|
9,162.7
|
|
|
7,484.4
|
|
|
4,038.2
|
|
|
1,844.8
|
|
|
8,995.2
|
|
|
7,231.8
|
|
|
3,891.1
|
|
|
1,813.2
|
Less: Accumulated Depreciation
|
|
(2,089.2)
|
|
|
(1,962.7)
|
|
|
(1,217.3)
|
|
|
(323.0)
|
|
|
(2,041.9)
|
|
|
(1,886.8)
|
|
|
(1,171.0)
|
|
|
(307.0)
|
Property, Plant and Equipment, Net
|
|
7,073.5
|
|
|
5,521.7
|
|
|
2,820.9
|
|
|
1,521.8
|
|
|
6,953.3
|
|
|
5,345.0
|
|
|
2,720.1
|
|
|
1,506.2
|
Construction Work in Progress
|
|
263.1
|
|
|
267.0
|
|
|
104.4
|
|
|
94.5
|
|
|
203.5
|
|
|
310.5
|
|
|
135.3
|
|
|
69.1
|
Total Property, Plant and
Equipment, Net
|
$
|
7,336.6
|
|
$
|
5,788.7
|
|
$
|
2,925.3
|
|
$
|
1,616.3
|
|
$
|
7,156.8
|
|
$
|
5,655.5
|
|
$
|
2,855.4
|
|
$
|
1,575.3
|
As of June 30, 2016, PSNH had $1.2 billion in gross generation utility plant assets and related Accumulated Depreciation of $542.8 million. These generation assets are the subject of a divestiture agreement whereby PSNH agreed to divest of these generation assets. The NHPUC approved the divestiture agreement on July 1, 2016. The NHPUC is in the process of selecting an auction adviser to assist with the divestiture. Upon completion of the divestiture process, all remaining costs not recovered by the sale of these assets (stranded costs) will be recovered via bonds that will be secured by a non-bypassable charge or through recoveries in rates billed to PSNH's customers. See Note 8E, "Commitments and Contingencies PSNH Generation Restructuring," for further information.
4.
DERIVATIVE INSTRUMENTS
The Regulated companies purchase and procure energy and energy-related products, which are subject to price volatility, for their customers. The costs associated with supplying energy to customers are recoverable from customers in future rates. The Regulated companies manage the risks associated with the price volatility of energy and energy-related products through the use of derivative and nonderivative contracts.
Many of the derivative contracts meet the definition of, and are designated as, normal and qualify for accrual accounting under the applicable accounting guidance. The costs and benefits of derivative contracts that meet the definition of normal are recognized in Operating Expenses or Operating Revenues on the statements of income, as applicable, as electricity or natural gas is delivered.
Derivative contracts that are not designated as normal are recorded at fair value as current or long-term Derivative Assets or Derivative Liabilities on the balance sheets. For the Regulated companies, regulatory assets or regulatory liabilities are recorded to offset the fair values of derivatives, as contract settlement amounts are recovered from, or refunded to, customers in their respective energy supply rates.
20
The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported as net Derivative Assets or Derivative Liabilities, with current and long-term portions, on the balance sheets. The following table presents the gross fair values of contracts, categorized by risk type, and the net amounts recorded as current or long-term derivative assets or liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
Commodity Supply
|
|
|
|
Net Amount
|
|
Commodity Supply
|
|
|
|
Net Amount
|
|
|
|
and Price Risk
|
|
|
|
|
Recorded as
|
|
and Price Risk
|
|
|
|
|
|
Recorded as
|
(Millions of Dollars)
|
|
Management
|
|
Netting
(1)
|
|
a Derivative
|
|
Management
|
|
Netting
(1)
|
|
a Derivative
|
Current Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
$
|
3.5
|
|
$
|
-
|
|
$
|
3.5
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
|
17.5
|
|
|
(10.8)
|
|
|
6.7
|
|
|
16.7
|
|
|
(10.9)
|
|
|
5.8
|
|
CL&P
|
|
|
16.6
|
|
|
(10.8)
|
|
|
5.8
|
|
|
16.7
|
|
|
(10.9)
|
|
|
5.8
|
|
NSTAR Electric
|
|
|
0.9
|
|
|
-
|
|
|
0.9
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.1
|
|
$
|
-
|
|
$
|
0.1
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
|
70.1
|
|
|
(14.8)
|
|
|
55.3
|
|
|
62.0
|
|
|
(19.3)
|
|
|
42.7
|
|
CL&P
|
|
|
69.9
|
|
|
(14.8)
|
|
|
55.1
|
|
|
60.7
|
|
|
(19.3)
|
|
|
41.4
|
|
NSTAR Electric
|
|
|
0.2
|
|
|
-
|
|
|
0.2
|
|
|
1.3
|
|
|
-
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(5.8)
|
|
$
|
-
|
|
$
|
(5.8)
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
|
(93.0)
|
|
|
-
|
|
|
(93.0)
|
|
|
(92.3)
|
|
|
-
|
|
|
(92.3)
|
|
CL&P
|
|
|
(91.6)
|
|
|
-
|
|
|
(91.6)
|
|
|
(91.8)
|
|
|
-
|
|
|
(91.8)
|
|
NSTAR Electric
|
|
|
(1.4)
|
|
|
-
|
|
|
(1.4)
|
|
|
(0.5)
|
|
|
-
|
|
|
(0.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
|
$
|
(381.6)
|
|
$
|
-
|
|
$
|
(381.6)
|
|
$
|
(337.1)
|
|
$
|
-
|
|
$
|
(337.1)
|
|
CL&P
|
|
|
(380.6)
|
|
|
-
|
|
|
(380.6)
|
|
|
(336.2)
|
|
|
-
|
|
|
(336.2)
|
|
NSTAR Electric
|
|
|
(1.0)
|
|
|
-
|
|
|
(1.0)
|
|
|
(0.9)
|
|
|
-
|
|
|
(0.9)
|
(1)
Amounts represent derivative assets and liabilities that Eversource elected to record net on the balance sheets. These amounts are subject to master netting agreements or similar agreements for which the right of offset exists.
For further information on the fair value of derivative contracts, see Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," to the financial statements.
Derivative Contracts at Fair Value with Offsetting Regulatory Amounts
Commodity Supply and Price Risk Management
: As required by regulation, CL&P, along with UI, has capacity-related contracts with generation facilities. CL&P has a sharing agreement with UI, with 80 percent of the costs or benefits of each contract borne by or allocated to CL&P and 20 percent borne by or allocated to UI. The combined capacity of these contracts is 787 MW. The capacity contracts extend through 2026 and obligate both CL&P and UI to make or receive payments on a monthly basis to or from the generation facilities based on the difference between a set capacity price and the capacity market price received in the ISO-NE capacity markets. In addition, CL&P has a contract to purchase 0.1 million MWh of energy per year through 2020.
NSTAR Electric has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2018 and a capacity-related contract to purchase up to 35 MW per year through 2019.
As of June 30, 2016 and December 31, 2015, Eversource had NYMEX financial contracts for natural gas futures in order to reduce variability associated with the purchase price of approximately 7.1 million and 9.1 million MMBtu of natural gas, respectively.
For the three months ended June 30, 2016 and 2015, there were losses of $42.9 million and $36.6 million, respectively, deferred as regulatory costs, which reflect the change in fair value associated with Eversource's derivative contracts. For the six months ended June 30, 2016 and 2015, these losses were $74.4 million and $50.1 million, respectively.
Fair Value Measurements of Derivative Instruments
Derivative contracts classified as Level 2 in the fair value hierarchy relate to the financial contracts for natural gas futures. Prices are obtained from broker quotes and are based on actual market activity. The contracts are valued using NYMEX natural gas prices. Valuations of these contracts also incorporate discount rates using the yield curve approach.
The fair value of derivative contracts classified as Level 3 utilizes significant unobservable inputs. The fair value is modeled using income techniques, such as discounted cash flow valuations adjusted for assumptions relating to exit price. Significant observable inputs for valuations of these contracts include energy and energy-related product prices in future years for which quoted prices in an active market exist. Fair value measurements categorized in Level 3 of the fair value hierarchy are prepared by individuals with expertise in valuation techniques, pricing of energy
21
and energy-related products, and accounting requirements. The future power and capacity prices for periods that are not quoted in an active market or established at auction are based on available market data and are escalated based on estimates of inflation in order to address the full time period of the contract.
Valuations of derivative contracts using a discounted cash flow methodology include assumptions regarding the timing and likelihood of scheduled payments and also reflect non-performance risk, including credit, using the default probability approach based on the counterparty's credit rating for assets and the Company's credit rating for liabilities. Valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using historical market transactions adjusted for the terms of the contract.
The following is a summary of Eversource's, including CL&P's and NSTAR Electric's, Level 3 derivative contracts and the range of the significant unobservable inputs utilized in the valuations over the duration of the contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
Range
|
|
Period Covered
|
|
|
Range
|
|
Period Covered
|
Capacity Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
$
|
5.50
|
-
|
13.23
|
per kW-Month
|
|
2017 - 2026
|
|
$
|
10.81
|
-
|
15.82
|
per kW-Month
|
|
2016 - 2026
|
CL&P
|
$
|
5.50
|
-
|
13.23
|
per kW-Month
|
|
2020 - 2026
|
|
$
|
10.81
|
-
|
12.60
|
per kW-Month
|
|
2019 - 2026
|
NSTAR Electric
|
$
|
8.50
|
-
|
12.11
|
per kW-Month
|
|
2017 - 2018
|
|
$
|
10.81
|
-
|
15.82
|
per kW-Month
|
|
2016 - 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource, CL&P
|
$
|
2.00
|
per kW-Month
|
|
2016 - 2024
|
|
$
|
2.00
|
per kW-Month
|
|
2016 - 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REC Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource, NSTAR Electric
|
$
|
38
|
-
|
42
|
|
per REC
|
|
2016 - 2018
|
|
$
|
45
|
-
|
51
|
|
per REC
|
|
2016 - 2018
|
Exit price premiums of 4 percent through 21 percent are also applied on these contracts and reflect the uncertainty and illiquidity premiums that would be required based on the most recent market activity available for similar type contracts.
Significant increases or decreases in future energy or capacity prices in isolation would decrease or increase, respectively, the fair value of the derivative liability. Any increases in risk premiums would increase the fair value of the derivative liability. Changes in these fair values are recorded as a regulatory asset or liability and do not impact net income.
Valuations using significant unobservable inputs:
The following table presents changes in the Level 3 category of derivative assets and derivative liabilities measured at fair value on a recurring basis. The derivative assets and liabilities are presented on a net basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
NSTAR
|
(Millions of Dollars)
|
Eversource
|
|
CL&P
|
|
Electric
|
|
Eversource
|
|
CL&P
|
|
Electric
|
Derivatives, Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of Beginning of Period
|
$
|
(387.7)
|
|
$
|
(385.1)
|
|
$
|
(2.6)
|
|
$
|
(406.8)
|
|
$
|
(403.3)
|
|
$
|
(3.5)
|
Net Realized/Unrealized Gains/(Losses)
Included in Regulatory Assets and Liabilities
|
|
(46.6)
|
|
|
(46.8)
|
|
|
0.2
|
|
|
(37.1)
|
|
|
(36.8)
|
|
|
(0.3)
|
Settlements
|
|
21.7
|
|
|
20.6
|
|
|
1.1
|
|
|
21.5
|
|
|
19.9
|
|
|
1.6
|
Fair Value as of End of Period
|
$
|
(412.6)
|
|
$
|
(411.3)
|
|
$
|
(1.3)
|
|
$
|
(422.4)
|
|
$
|
(420.2)
|
|
$
|
(2.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
NSTAR
|
(Millions of Dollars)
|
Eversource
|
|
CL&P
|
|
Electric
|
|
Eversource
|
|
CL&P
|
|
Electric
|
Derivatives, Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of Beginning of Period
|
$
|
(380.9)
|
|
$
|
(380.8)
|
|
$
|
(0.1)
|
|
$
|
(415.4)
|
|
$
|
(410.9)
|
|
$
|
(4.5)
|
Net Realized/Unrealized Losses Included in
Regulatory Assets and Liabilities
|
|
(76.6)
|
|
|
(72.2)
|
|
|
(4.4)
|
|
|
(49.2)
|
|
|
(48.9)
|
|
|
(0.3)
|
Settlements
|
|
44.9
|
|
|
41.7
|
|
|
3.2
|
|
|
42.2
|
|
|
39.6
|
|
|
2.6
|
Fair Value as of End of Period
|
$
|
(412.6)
|
|
$
|
(411.3)
|
|
$
|
(1.3)
|
|
$
|
(422.4)
|
|
$
|
(420.2)
|
|
$
|
(2.2)
|
5.
MARKETABLE SECURITIES
Eversource maintains trusts that hold marketable securities to fund certain non-qualified executive benefits.
These trusts are not subject to regulatory oversight by state or federal agencies. CYAPC and YAEC maintain legally restricted trusts, each of which holds marketable securities, to fund the decommissioning and spent nuclear fuel removal obligations of their nuclear fuel storage facilities.
Trading Securities:
Eversource has elected to record certain equity securities as trading securities, with the changes in fair values recorded in Other Income, Net on the statements of income. As of June 30, 2016 and December 31, 2015, these securities were classified as Level 1 in the fair value hierarchy and totaled $10.6 million and $14.2 million, respectively. For the three months ended June 30, 2016 and 2015, net gains on these securities of $0.2 million and $0.5 million, respectively, and for the six months ended June 30, 2016 and 2015, net gains of $0.5 million and $2.1 million, respectively, were recorded in Other Income, Net on the statements of income. Dividend income is recorded in Other Income, Net when dividends are declared.
22
Available-for-Sale Securities:
The following is a summary of available-for-sale securities, which are recorded at fair value and are included in current and long-term Marketable Securities on the balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
|
|
|
Pre-Tax
|
|
Pre-Tax
|
|
|
|
|
|
|
|
Pre-Tax
|
|
Pre-Tax
|
|
|
|
Eversource
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
(Millions of Dollars)
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Debt Securities
|
$
|
261.0
|
|
$
|
8.4
|
|
$
|
-
|
|
$
|
269.4
|
|
$
|
256.5
|
|
$
|
4.5
|
|
$
|
(0.6)
|
|
$
|
260.4
|
Equity Securities
|
|
207.8
|
|
|
58.5
|
|
|
(2.3)
|
|
|
264.0
|
|
|
215.3
|
|
|
59.2
|
|
|
(3.4)
|
|
|
271.1
|
Eversource's debt and equity securities include CYAPC's and YAEC's marketable securities held in nuclear decommissioning trusts of $439.5 million and $436.9 million as of June 30, 2016 and December 31, 2015, respectively. Unrealized gains and losses for these nuclear decommissioning trusts are recorded in Marketable Securities with the corresponding offset to Other Long-Term Liabilities on the balance sheets, with no impact on the statements of income.
Unrealized Losses and Other-than-Temporary Impairment:
There have been no significant unrealized losses, other-than-temporary impairments or credit losses for the three and six months ended June 30, 2016 and 2015.
Factors considered in determining whether a credit loss exists include the duration and severity of the impairment, adverse conditions specifically affecting the issuer, and the payment history, ratings and rating changes of the security. For asset-backed debt securities, underlying collateral and expected future cash flows are also evaluated.
Realized Gains and Losses:
Realized gains and losses on available-for-sale securities are recorded in Other Income, Net for Eversource's benefit trust and are offset in Other Long-Term Liabilities for CYAPC and YAEC. Eversource utilizes the specific identification basis method for the Eversource benefit trust, and the average cost basis method for the CYAPC and YAEC nuclear decommissioning trusts to compute the realized gains and losses on the sale of available-for-sale securities.
Contractual Maturities
: As of June 30, 2016, the contractual maturities of available-for-sale debt securities were as follows:
|
|
|
|
|
|
Eversource
|
Amortized
|
|
|
(Millions of Dollars)
|
Cost
|
|
Fair Value
|
Less than one year
(1)
|
$
|
27.2
|
|
$
|
27.2
|
One to five years
|
|
61.6
|
|
|
62.4
|
Six to ten years
|
|
45.4
|
|
|
47.2
|
Greater than ten years
|
|
126.8
|
|
|
132.6
|
Total Debt Securities
|
$
|
261.0
|
|
$
|
269.4
|
(1)
Amounts in the Less than one year category include securities in the CYAPC and YAEC nuclear decommissioning trusts, which are restricted and are classified in long-term Marketable Securities on the balance sheets.
Fair Value Measurements:
The following table presents the marketable securities recorded at fair value on a recurring basis by the level in which they are classified within the fair value hierarchy:
|
|
|
|
|
|
|
Eversource
|
|
(Millions of Dollars)
|
As of June 30, 2016
|
|
As of December 31, 2015
|
Level 1:
|
|
|
|
|
|
|
Mutual Funds and Equities
|
$
|
274.6
|
|
$
|
285.3
|
|
Money Market Funds
|
|
21.1
|
|
|
26.9
|
Total Level 1
|
$
|
295.7
|
|
$
|
312.2
|
Level 2:
|
|
|
|
|
|
|
U.S. Government Issued Debt Securities
(Agency and Treasury)
|
$
|
70.8
|
|
$
|
46.6
|
|
Corporate Debt Securities
|
|
39.5
|
|
|
43.9
|
|
Asset-Backed Debt Securities
|
|
18.8
|
|
|
20.0
|
|
Municipal Bonds
|
|
109.9
|
|
|
111.4
|
|
Other Fixed Income Securities
|
|
9.3
|
|
|
11.6
|
Total Level 2
|
$
|
248.3
|
|
$
|
233.5
|
Total Marketable Securities
|
$
|
544.0
|
|
$
|
545.7
|
U.S. government issued debt securities are valued using market approaches that incorporate transactions for the same or similar bonds and adjustments for yields and maturity dates. Corporate debt securities are valued using a market approach, utilizing recent trades of the same or similar instrument and also incorporating yield curves, credit spreads and specific bond terms and conditions. Asset-backed debt securities include collateralized mortgage obligations, commercial mortgage backed securities, and securities collateralized by auto loans, credit card loans or receivables. Asset-backed debt securities are valued using recent trades of similar instruments, prepayment assumptions, yield curves, issuance and maturity dates, and tranche information. Municipal bonds are valued using a market approach that incorporates reported trades and benchmark yields. Other fixed income securities are valued using pricing models, quoted prices of securities with similar characteristics, and discounted cash flows.
23
6.
SHORT-TERM AND LONG-TERM DEBT
Commercial Paper Programs and Credit Agreements
: Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of June 30, 2016 and December 31, 2015, Eversource parent had $438 million and approximately $1.1 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $1.0 billion and $351.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.66 percent and 0.72 percent, respectively. As of June 30, 2016, there were intercompany loans from Eversource parent of $93 million to CL&P, $120.9 million to PSNH and $53.7 million to WMECO. As of December 31, 2015, there were intercompany loans from Eversource parent of $277.4 million to CL&P, $231.3 million to PSNH and $143.4 million to WMECO. Eversource parent, CL&P, PSNH, WMECO, NSTAR Gas and Yankee Gas are parties to a five-year $1.45 billion revolving credit facility, which terminates on September 4, 2020. The revolving credit facility serves to backstop Eversource parent's $1.45 billion commercial paper program.
NSTAR Electric has a $450 million commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of June 30, 2016 and December 31, 2015, NSTAR Electric had $329 million and $62.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $121 million and $387.5 million of available borrowing capacity as of June 30, 2016 and December 31, 2015, respectively. The weighted-average interest rate on these borrowings as of June 30, 2016 and December 31, 2015 was 0.44 percent and 0.40 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility, which terminates on September 4, 2020. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program.
Amounts outstanding under the commercial paper programs are included in Notes Payable for Eversource and NSTAR Electric and are classified in current liabilities on the balance sheets as all borrowings are outstanding for no more than 364 days at one time. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are included in Notes Payable to Eversource Parent and are classified in current liabilities on their respective balance sheets. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are eliminated in consolidation on Eversource's balance sheets.
Long-Term Debt Issuances:
In March 2016, Eversource parent issued $250 million of 2.50 percent Series I Senior Notes due to mature in 2021 and $250 million of 3.35 percent Series J Senior Notes due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program.
In May 2016, NSTAR Electric issued $250 million of 2.70 percent debentures, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the NSTAR Electric commercial paper program and fund capital expenditures and working capital.
In June 2016, WMECO issued $50 million of 2.75 percent Series H Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Long-Term Debt Repayments:
In May 2016, NSTAR Electric repaid at maturity $200 million variable rate debentures, using short-term borrowings.
7.
PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Eversource Service sponsors a defined benefit retirement plan (Pension Plan) that covers eligible employees, including, among others, employees of CL&P, NSTAR Electric, PSNH and WMECO. In addition to the Pension Plan, Eversource maintains non-qualified defined benefit retirement plans sponsored by Eversource Service (SERP Plans), which provide benefits in excess of Internal Revenue Code limitations to eligible participants consisting of current and retired employees. Eversource Service also sponsors defined benefit postretirement plans that provide certain benefits, primarily medical, dental and life insurance, to retired employees that met certain age and service eligibility requirements, including, among others, employees of CL&P, NSTAR Electric, PSNH and WMECO (PBOP Plan).
Effective January 1, 2016, the Company refined its method of estimating the discount rate for the service and interest cost components of Pension and PBOP expense from the yield-curve approach to the spot rate methodology, which provides a more precise measurement by matching projected cash flows to the corresponding spot rates on the yield curve. Historically, these components were estimated using the same weighted-average discount rate as for the funded status. The discount rates used to estimate the 2016 service cost were 4.89 percent and 5.14 percent for the Pension and PBOP plans, respectively. The discount rates used to estimate the 2016 interest cost were 3.80 percent and 3.72 percent for the Pension and PBOP plans, respectively. The total pre-tax benefit of this change on Pension and PBOP expense, prior to the capitalized portion and amounts deferred and recovered through rate reconciliation mechanisms, for the three months ended June 30, 2016 was approximately $11.5 million and $2.5 million for the Pension and PBOP plans, respectively, and approximately $23 million and $5 million for the six months ended June 30, 2016, respectively.
On August 5, 2016, the Company amended its PBOP plan. The amendment standardized separate benefit structures that existed within the plan and made other benefit changes. Overall, the plan amendment is expected to reduce the PBOP plan's accumulated projected benefit obligation by approximately $220 million. The PBOP liability will be remeasured as of August 5, 2016, and the PBOP expense for the remainder of 2016 will be recorded using updated assumptions and actuarial calculations.
The components of net periodic benefit expense for the Pension, SERP and PBOP Plans are shown below. The net periodic benefit expense and the intercompany allocations less the capitalized portion of pension, SERP and PBOP amounts are included in Operations and Maintenance expense on the statements of income. Capitalized pension and PBOP amounts relate to employees working on capital projects and are included in Property, Plant and Equipment, Net on the balance sheets. Pension, SERP and PBOP expense reflected in the statements of cash flows for CL&P, NSTAR
24
Electric, PSNH and WMECO does not include the intercompany allocations or the corresponding capitalized portion, as these amounts are cash settled on a short-term basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP
|
|
Pension and SERP
|
Eversource
|
For the Three Months Ended
|
|
For the Six Months Ended
|
(Millions of Dollars)
|
June 30, 2016
|
|
June 30, 2015
(1)
|
|
June 30, 2016
|
|
June 30, 2015
(1)
|
Service Cost
|
$
|
18.7
|
|
$
|
22.8
|
|
$
|
37.9
|
|
$
|
45.9
|
Interest Cost
|
|
46.4
|
|
|
56.9
|
|
|
92.8
|
|
|
113.3
|
Expected Return on Plan Assets
|
|
(79.5)
|
|
|
(83.9)
|
|
|
(159.1)
|
|
|
(168.2)
|
Actuarial Loss
|
|
31.3
|
|
|
36.5
|
|
|
63.0
|
|
|
75.5
|
Prior Service Cost
|
|
0.9
|
|
|
0.9
|
|
|
1.8
|
|
|
1.8
|
Total Net Periodic Benefit Expense
|
$
|
17.8
|
|
$
|
33.2
|
|
$
|
36.4
|
|
$
|
68.3
|
Capitalized Pension Expense
|
$
|
5.4
|
|
$
|
9.8
|
|
$
|
11.4
|
|
$
|
21.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
PBOP
|
Eversource
|
For the Three Months Ended
|
|
For the Six Months Ended
|
(Millions of Dollars)
|
June 30, 2016
|
|
June 30, 2015
(1)
|
|
June 30, 2016
|
|
June 30, 2015
(1)
|
Service Cost
|
$
|
3.1
|
|
$
|
3.9
|
|
$
|
6.3
|
|
$
|
8.1
|
Interest Cost
|
|
9.4
|
|
|
11.7
|
|
|
19.0
|
|
|
23.6
|
Expected Return on Plan Assets
|
|
(15.7)
|
|
|
(16.9)
|
|
|
(31.5)
|
|
|
(33.7)
|
Actuarial Loss
|
|
0.9
|
|
|
1.7
|
|
|
2.1
|
|
|
3.4
|
Prior Service Credit
|
|
-
|
|
|
(0.2)
|
|
|
(0.1)
|
|
|
(0.2)
|
Total Net Periodic Benefit Expense/(Income)
|
$
|
(2.3)
|
|
$
|
0.2
|
|
$
|
(4.2)
|
|
$
|
1.2
|
Capitalized PBOP Expense/(Income)
|
$
|
(1.0)
|
|
$
|
(0.1)
|
|
$
|
(1.9)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP
|
|
|
For the Three Months Ended June 30, 2016
|
|
For the Three Months Ended June 30, 2015
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
(1)
|
|
WMECO
|
Service Cost
|
$
|
4.6
|
|
$
|
3.3
|
|
$
|
2.5
|
|
$
|
0.8
|
|
$
|
6.2
|
|
$
|
3.7
|
|
$
|
3.1
|
|
$
|
1.0
|
Interest Cost
|
|
10.2
|
|
|
8.5
|
|
|
5.1
|
|
|
2.1
|
|
|
12.9
|
|
|
10.0
|
|
|
6.1
|
|
|
2.6
|
Expected Return on Plan Assets
|
|
(18.0)
|
|
|
(16.9)
|
|
|
(9.6)
|
|
|
(4.4)
|
|
|
(19.8)
|
|
|
(17.5)
|
|
|
(10.1)
|
|
|
(4.7)
|
Actuarial Loss
|
|
6.3
|
|
|
8.7
|
|
|
2.6
|
|
|
1.3
|
|
|
8.0
|
|
|
8.7
|
|
|
2.9
|
|
|
1.6
|
Prior Service Cost
|
|
0.4
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
|
|
0.4
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
Total Net Periodic Benefit Expense/(Income)
|
$
|
3.5
|
|
$
|
3.6
|
|
$
|
0.7
|
|
$
|
(0.1)
|
|
$
|
7.7
|
|
$
|
4.9
|
|
$
|
2.1
|
|
$
|
0.6
|
Intercompany Allocations
|
$
|
3.5
|
|
$
|
2.2
|
|
$
|
1.0
|
|
$
|
0.6
|
|
$
|
5.8
|
|
$
|
3.4
|
|
$
|
1.6
|
|
$
|
1.1
|
Capitalized Pension Expense
|
$
|
2.2
|
|
$
|
2.0
|
|
$
|
0.4
|
|
$
|
0.1
|
|
$
|
4.7
|
|
$
|
2.7
|
|
$
|
0.9
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP
|
|
|
For the Six Months Ended June 30, 2016
|
|
For the Six Months Ended June 30, 2015
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
(1)
|
|
WMECO
|
Service Cost
|
$
|
9.6
|
|
$
|
6.7
|
|
$
|
5.0
|
|
$
|
1.6
|
|
$
|
12.2
|
|
$
|
7.5
|
|
$
|
6.0
|
|
$
|
2.2
|
Interest Cost
|
|
21.0
|
|
|
16.8
|
|
|
10.3
|
|
|
4.2
|
|
|
25.4
|
|
|
20.1
|
|
|
12.1
|
|
|
5.2
|
Expected Return on Plan Assets
|
|
(36.2)
|
|
|
(33.8)
|
|
|
(19.3)
|
|
|
(8.8)
|
|
|
(39.4)
|
|
|
(35.1)
|
|
|
(20.2)
|
|
|
(9.4)
|
Actuarial Loss
|
|
13.0
|
|
|
17.0
|
|
|
4.9
|
|
|
2.8
|
|
|
16.2
|
|
|
18.4
|
|
|
5.8
|
|
|
3.2
|
Prior Service Cost
|
|
0.8
|
|
|
-
|
|
|
0.2
|
|
|
0.2
|
|
|
0.8
|
|
|
-
|
|
|
0.2
|
|
|
0.1
|
Total Net Periodic Benefit Expense
|
$
|
8.2
|
|
$
|
6.7
|
|
$
|
1.1
|
|
$
|
-
|
|
$
|
15.2
|
|
$
|
10.9
|
|
$
|
3.9
|
|
$
|
1.3
|
Intercompany Allocations
|
$
|
6.8
|
|
$
|
4.5
|
|
$
|
2.0
|
|
$
|
1.2
|
|
$
|
12.2
|
|
$
|
6.9
|
|
$
|
3.4
|
|
$
|
2.3
|
Capitalized Pension Expense
|
$
|
4.9
|
|
$
|
3.7
|
|
$
|
0.7
|
|
$
|
0.2
|
|
$
|
9.4
|
|
$
|
5.9
|
|
$
|
1.7
|
|
$
|
1.0
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
For the Three Months Ended June 30, 2016
|
|
For the Three Months Ended June 30, 2015
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
PSNH
|
|
WMECO
|
|
CL&P
|
|
Electric
|
|
PSNH
(1)
|
|
WMECO
|
Service Cost
|
$
|
0.4
|
|
$
|
1.0
|
|
$
|
0.3
|
|
$
|
0.1
|
|
$
|
0.5
|
|
$
|
1.3
|
|
$
|
0.3
|
|
$
|
0.1
|
Interest Cost
|
|
1.3
|
|
|
3.8
|
|
|
0.7
|
|
|
0.3
|
|
|
1.8
|
|
|
4.7
|
|
|
1.0
|
|
|
0.3
|
Expected Return on Plan Assets
|
|
(2.5)
|
|
|
(6.4)
|
|
|
(1.4)
|
|
|
(0.6)
|
|
|
(2.8)
|
|
|
(6.9)
|
|
|
(1.5)
|
|
|
(0.6)
|
Actuarial Loss
|
|
0.3
|
|
|
0.3
|
|
|
0.1
|
|
|
-
|
|
|
0.2
|
|
|
0.4
|
|
|
0.1
|
|
|
-
|
Prior Service Credit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.1)
|
|
|
-
|
|
|
-
|
Total Net Periodic Benefit Income
|
$
|
(0.5)
|
|
$
|
(1.3)
|
|
$
|
(0.3)
|
|
$
|
(0.2)
|
|
$
|
(0.3)
|
|
$
|
(0.6)
|
|
$
|
(0.1)
|
|
$
|
(0.2)
|
Intercompany Allocations
|
$
|
0.2
|
|
$
|
0.1
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.4
|
|
$
|
0.2
|
|
$
|
0.1
|
|
$
|
0.1
|
Capitalized PBOP Income
|
$
|
(0.2)
|
|
$
|
(0.6)
|
|
$
|
(0.1)
|
|
$
|
(0.1)
|
|
$
|
(0.1)
|
|
$
|
(0.2)
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBOP
|
|
|
For the Six Months Ended June 30, 2016
|
|
For the Six Months Ended June 30, 2015
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
|
|
|
|
|
|
NSTAR
|
|
|
|
|
|
(Millions of Dollars)
|
CL&P
|
|
Electric
|
|
|
PSNH
|
|
|
WMECO
|
|
CL&P
|
|
|
Electric
|
PSNH
(1)
|
|
WMECO
|
Service Cost
|
$
|
0.9
|
|
$
|
1.8
|
|
$
|
0.6
|
|
$
|
0.2
|
|
$
|
1.1
|
|
$
|
2.7
|
|
$
|
0.7
|
|
$
|
0.2
|
Interest Cost
|
|
2.7
|
|
|
7.8
|
|
|
1.5
|
|
|
0.5
|
|
|
3.5
|
|
|
9.5
|
|
|
1.9
|
|
|
0.8
|
Expected Return on Plan Assets
|
|
(5.1)
|
|
|
(12.7)
|
|
|
(2.8)
|
|
|
(1.1)
|
|
|
(5.5)
|
|
|
(13.7)
|
|
|
(3.0)
|
|
|
(1.3)
|
Actuarial Loss
|
|
0.5
|
|
|
0.5
|
|
|
0.2
|
|
|
-
|
|
|
0.3
|
|
|
1.2
|
|
|
0.3
|
|
|
-
|
Prior Service Credit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.1)
|
|
|
-
|
|
|
-
|
Total Net Periodic Benefit Income
|
$
|
(1.0)
|
|
$
|
(2.6)
|
|
$
|
(0.5)
|
|
$
|
(0.4)
|
|
$
|
(0.6)
|
|
$
|
(0.4)
|
|
$
|
(0.1)
|
|
$
|
(0.3)
|
Intercompany Allocations
|
$
|
0.3
|
|
$
|
0.1
|
|
$
|
-
|
|
$
|
0.1
|
|
$
|
0.9
|
|
$
|
0.4
|
|
$
|
0.2
|
|
$
|
0.2
|
Capitalized PBOP Expense/(Income)
|
$
|
(0.5)
|
|
$
|
(1.1)
|
|
$
|
(0.1)
|
|
$
|
(0.2)
|
|
$
|
(0.1)
|
|
$
|
(0.1)
|
|
$
|
0.1
|
|
$
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts excluded approximately $0.8 million and $1.6 million for the three and six months ended June 30, 2015, respectively, that represented amounts included in other deferred debits.
|
8.
COMMITMENTS AND CONTINGENCIES
A.
Environmental Matters
Eversource, CL&P, NSTAR Electric, PSNH and WMECO are subject to environmental laws and regulations intended to mitigate or remove the effect of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or the remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current and former operating sites. Eversource, CL&P, NSTAR Electric, PSNH and WMECO have an active environmental auditing and training program and each believes it is substantially in compliance with all enacted laws and regulations.
The number of environmental sites and related reserves for which remediation or long-term monitoring, preliminary site work or site assessment is being performed are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
|
As of December 31, 2015
|
|
|
|
|
Reserve
|
|
|
|
|
|
Reserve
|
|
Number of Sites
|
|
(in millions)
|
|
|
Number of Sites
|
|
(in millions)
|
Eversource
|
|
63
|
|
$
|
59.5
|
|
|
|
64
|
|
$
|
51.1
|
CL&P
|
|
14
|
|
|
4.6
|
|
|
|
14
|
|
|
4.6
|
NSTAR Electric
|
|
14
|
|
|
2.3
|
|
|
|
15
|
|
|
2.4
|
PSNH
|
|
12
|
|
|
4.4
|
|
|
|
12
|
|
|
4.5
|
WMECO
|
|
4
|
|
|
0.6
|
|
|
|
4
|
|
|
0.6
|
Included in the Eversource number of sites and reserve amounts above are former MGP sites that were operated several decades ago and manufactured gas from coal and other processes, which resulted in certain by-products remaining in the environment that may pose a potential risk to human health and the environment, for which Eversource may have potential liability. The reserve balances related to these former MGP sites were $53.7 million and $45.5 million as of June 30, 2016 and December 31, 2015, respectively, and related primarily to the natural gas business segment.
These reserve estimates are subjective in nature as they take into consideration several different remediation options at each specific site. The reliability and precision of these estimates can be affected by several factors, including new information concerning either the level of contamination at the site, the extent of Eversource's, CL&P's, NSTAR Electric's, PSNH's, and WMECO's responsibility for remediation or the extent of remediation required, recently enacted laws and regulations or changes in cost estimates due to certain economic factors. It is possible that new information or future developments could require a reassessment of the potential exposure to related environmental matters. As this information becomes available, management will continue to assess the potential exposure and adjust the reserves accordingly.
26
B.
Guarantees and Indemnifications
In the normal course of business, Eversource parent provides credit assurances on behalf of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, in the form of guarantees.
Eversource parent issued a declining balance guaranty on behalf of a wholly-owned subsidiary to guarantee the payment of the subsidiary's capital contributions for its investment in the Access Northeast project. The guaranty will not exceed $206 million and decreases as capital contributions are made. The guaranty will expire upon the earlier of the full performance of the guaranteed obligations or December 31, 2021.
Eversource parent issued a guaranty on behalf of its subsidiary, NPT, under which, beginning at the time the Northern Pass Transmission line goes into commercial operation, Eversource parent will guarantee the financial obligations of NPT under the TSA with HQ in an amount not to exceed $25 million. Eversource parent's obligations under the guaranty expire upon the full, final and indefeasible payment of the guaranteed obligations. Eversource parent has also entered into a guaranty on behalf of NPT under which Eversource parent will guarantee NPTs obligations under its letter of credit facility with a financial institution pursuant to which NPT may request letters of credit in an aggregate amount of up to approximately $14 million.
Eversource parent has also guaranteed certain indemnification and other obligations as a result of the sales of former unregulated subsidiaries and the termination of an unregulated business, with maximum exposures either not specified or not material.
Management does not anticipate a material impact to Net Income as a result of these various guarantees and indemnifications.
The following table summarizes Eversource parent's exposure to guarantees and indemnifications of its subsidiaries to external parties, as of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Exposure
|
|
|
|
Company
|
|
Description
|
|
(in millions)
|
|
Expiration Dates
|
On behalf of subsidiaries:
|
|
|
|
|
|
|
|
|
|
Eversource Gas Transmission LLC
|
|
Access Northeast Project Capital Contributions Guaranty
|
|
$
|
187.4
|
|
2021
|
|
Various
|
|
Surety Bonds
(1)
|
|
$
|
35.8
|
|
2016 - 2018
|
|
Eversource Service and Rocky River Realty Company
|
|
Lease Payments for Vehicles and Real Estate
|
|
$
|
10.1
|
|
2019 - 2024
|
(1)
Surety bond expiration dates reflect termination dates, the majority of which will be renewed or extended. Certain surety bonds contain credit ratings triggers that would require Eversource parent to post collateral in the event that the unsecured debt credit ratings of Eversource parent are downgraded.
C.
Spent Nuclear Fuel Litigation - Yankee Companies
The Yankee Companies have filed separate complaints against the DOE in the Court of Federal Claims seeking monetary damages resulting from the DOE's failure to provide for a permanent facility to store spent nuclear fuel pursuant to the terms of the 1983 spent fuel and high level waste disposal contracts between the Yankee Companies and the DOE. The court had previously awarded the Yankee Companies damages for Phase I and Phase II of litigation resulting from the DOE's failure to meet its contractual obligations. Phase I covered damages incurred in the years 1998 through 2002 and Phase II covered damages incurred in the years 2001 through 2008 for CYAPC and YAEC and from 2002 through 2008 for MYAPC.
DOE Phase III Damages
- In August 2013, the Yankee Companies each filed subsequent lawsuits against the DOE seeking recovery of actual damages incurred in the years 2009 through 2012. The DOE Phase III trial concluded on July 1, 2015, followed by a post-trial briefing that concluded on October 14, 2015. On March 25, 2016, the court issued its decision, awarding CYAPC, YAEC and MYAPC damages of $32.6 million, $19.6 million and $24.6 million, respectively. In total, the Yankee Companies were awarded $76.8 million of the $77.9 million in damages sought by the Yankee Companies in Phase III. The decision became final on July 18, 2016. Management cannot predict the timing or amount of any customer refunds. At this time, the proceeds are primarily expected to be used by the Yankee Companies to fund remaining fuel storage obligations, and management does not expect any significant amounts to be refunded to Eversource utilities (CL&P, NSTAR Electric, PSNH and WMECO). The utilities would then ultimately refund any amounts received to utility customers.
D.
FERC ROE Complaints
FERC ROE Complaints I, II and III:
Three separate complaints have been filed at FERC by combinations of New England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (collectively the "Complainants"). In these three separate complaints, the Complainants challenged the NETOs' base ROE of 11.14 percent that had been utilized since 2006 and sought an order to reduce it prospectively from the date of the final FERC order and for the 15-month complaint refund periods stipulated in the separate complaints. In 2014, the FERC ordered a 10.57 percent base ROE for the first complaint refund period and prospectively from October 16, 2014, and that a utility's total or maximum ROE shall not exceed the top of the new zone of reasonableness, which was set at 11.74 percent. In late 2014, the NETOs made a compliance filing, and the Company began issuing refunds to customers from the first complaint period. The Company has refunded all amounts associated with the first complaint period.
As a result of developments in this matter, the Company recorded reserves across the complaint periods at its electric subsidiaries in the first half of 2015 and recognized a pre-tax charge to earnings (excluding interest) of $20 million, of which $12.5 million was recorded at CL&P, $2.4 million at NSTAR Electric, $1 million at PSNH, and $4.1 million at WMECO. The pre-tax charge was recorded as a regulatory liability and as a reduction to Operating Revenues. The NETOs and Complainants have filed appeals for the first complaint to the D.C. Circuit Court of Appeals. A court decision is expected in late 2016.
27
For the second and third complaints, the state parties, municipal utilities and FERC trial staff each believe that the base ROE should be reduced to an amount lower than 10.57 percent. The NETOs believe that the Complainants' positions are without merit. On March 22, 2016, the FERC ALJ issued an initial decision on the second and third FERC ROE complaints. For the second complaint period, the FERC ALJ recommended a zone of reasonableness of 7.12 percent to 10.42 percent and a base ROE of 9.59 percent. For the third complaint period, the FERC ALJ recommended a zone of reasonableness of 7.04 percent to 12.19 percent and a base ROE of 10.90 percent. The FERC ALJ also affirmed that the maximum ROE for transmission incentive projects should be the top of the zone of reasonableness. The NETOs filed briefs on April 21, 2016, in which the NETOs identified corrections and requested changes that should be made to the FERC ALJs recommendations. A final FERC order is expected in late 2016 or early 2017.
The Company believes that the range of potential loss for the second complaint period (the 15-month period beginning December 27, 2012) is from a base ROE of 10.57 percent to a base ROE of 9.59 percent. As the FERC ALJ initial decision on the third complaint recommended a base ROE of 10.90 percent, the Company concluded there is currently no range of potential loss for that complaint period. Given the differences between the recommended base ROEs in the FERC ALJs initial decision on the second and third complaints, as well as other factors, the Company is unable to predict the outcome of the final FERC order on these complaints. The Company does not believe any base ROE outcome within the 10.57 percent to 9.59 percent range is more likely than the base ROEs used to record the current revenues and reserves, and therefore the Company believes that the current reserves for the second complaint period are appropriate at this time.
The impact of a 10 basis point change to the existing base ROE of 10.57 percent would affect Eversource's after-tax earnings by approximately $3 million for each of the 15-month second and third complaint periods. If the Company adjusted its reserves based on the recommendations in the FERC ALJ initial decision (for both the base ROE and maximum ROE for transmission incentive projects) for the second and third complaints, then it would result in an after-tax increase of approximately $34 million and an after-tax decrease of approximately $8 million, respectively, to the existing reserves.
FERC ROE Complaint IV:
On April 29, 2016, a fourth complaint was filed with the FERC by certain municipal utilities claiming the current base ROE of 10.57 percent and the incentive cap of 11.74 percent are unjust and unreasonable. The NETOs answered on June 3, 2016 and requested that FERC dismiss the complaint. At this time FERC has not taken any action with respect to this complaint; therefore the Company is unable to predict the outcome of this complaint.
E.
PSNH Generation Restructuring
On June 10, 2015, Eversource and PSNH entered into the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement (the Agreement) with the New Hampshire Office of Energy and Planning, certain members of the NHPUC staff, the Office of Consumer Advocate, two State Senators, and several other parties. The Agreement was filed with the NHPUC on the same day. Under the terms of the Agreement, PSNH agreed to divest its generation assets upon NHPUC approval. The Agreement is designed to provide a resolution of issues pertaining to PSNH's generation assets in pending regulatory proceedings before the NHPUC. The Agreement provided for the Clean Air Project prudence proceeding to be resolved and all remaining Clean Air Project costs to be included in rates effective January 1, 2016. As part of the Agreement, PSNH agreed to forego recovery of $25 million of the deferred equity return related to the Clean Air Project. In addition, PSNH will not seek a general distribution rate increase effective before July 1, 2017 and will contribute $5 million to create a clean energy fund, which will not be recoverable from its customers. In 2015, PSNH recorded the $5 million contribution as a long-term liability and an increase to Operations and Maintenance expense on the statements of income.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructs PSNH to begin the process to divest its generation assets. The NHPUC is in the process of selecting an auction adviser to assist with the divestiture. Upon completion of the divestiture process, all remaining stranded costs will be recovered via bonds that will be secured by a non-bypassable charge or through recoveries in rates billed to PSNH's customers.
If the NHPUC approves the sale of the plants, the Company expects the plants will be sold prior to the end of 2017. The sales price of the generating assets could be less than the carrying value, but the Company believes that full recovery of PSNH's generation assets is probable through a combination of cash flows during the remaining operating period, sales proceeds upon divestiture, and recovery of stranded costs in future rates.
F.
Eversource and NSTAR Electric Boston Harbor Civil Action
On July 15, 2016, the United States Army Corps of Engineers filed a civil action in the United States District Court for the District of Massachusetts under provisions of the Rivers and Harbors Act of 1899 and the Clean Water Act against NSTAR Electric, Harbor Electric Energy Company, a wholly-owned subsidiary of NSTAR Electric ("HEEC"), and the Massachusetts Water Resources Authority (together with NSTAR Electric and HEEC, the "Defendants"). The action alleges that the Defendants failed to comply with certain permitting requirements relating to the placement of the HEEC-owned electric distribution cable beneath Boston Harbor. The action seeks an order to force HEEC to comply with cable depth requirements in the U.S. Army Corps of Engineers' permit or alternatively to remove the electric distribution cable and cease unauthorized work in U.S. waterways. The action also seeks civil penalties and other costs. Management believes it has valid defenses to the claims and intends to defend it vigorously; concurrently, NSTAR Electric and HEEC are seeking to work collaboratively with all parties for a mutually beneficial resolution. At this time, management is unable to predict the outcome of this action or the impact on Eversource's and NSTAR Electrics financial position, results of operations, or cash flows.
28
9.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Preferred Stock and Long-Term Debt:
The fair value of CL&P's and NSTAR Electric's preferred stock is based upon pricing models that incorporate interest rates and other market factors, valuations or trades of similar securities and cash flow projections. The fair value of long-term debt securities is based upon pricing models that incorporate quoted market prices for those issues or similar issues adjusted for market conditions, credit ratings of the respective companies and treasury benchmark yields. The fair values provided in the tables below are classified as Level 2 within the fair value hierarchy. Carrying amounts and estimated fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
Eversource
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
(Millions of Dollars)
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Preferred Stock Not
Subject to Mandatory Redemption
|
$
|
155.6
|
|
$
|
157.5
|
|
$
|
155.6
|
|
$
|
157.9
|
Long-Term Debt
|
|
9,614.8
|
|
|
10,512.0
|
|
|
9,034.5
|
|
|
9,425.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CL&P
|
|
NSTAR Electric
|
|
PSNH
|
|
WMECO
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
(Millions of Dollars)
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
As of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Not
Subject to Mandatory Redemption
|
$
|
116.2
|
|
$
|
115.0
|
|
$
|
43.0
|
|
$
|
42.5
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Long-Term Debt
|
|
2,764.9
|
|
|
3,240.4
|
|
|
2,077.7
|
|
|
2,354.3
|
|
|
1,071.5
|
|
|
1,150.8
|
|
|
566.9
|
|
|
617.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Not
Subject to Mandatory Redemption
|
$
|
116.2
|
|
$
|
114.9
|
|
$
|
43.0
|
|
$
|
43.0
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Long-Term Debt
|
|
2,763.7
|
|
|
3,031.6
|
|
|
2,029.8
|
|
|
2,182.4
|
|
|
1,071.0
|
|
|
1,121.2
|
|
|
517.3
|
|
|
551.8
|
Derivative Instruments:
Derivative instruments are carried at fair value. For further information, see Note 4, "Derivative Instruments," to the financial statements.
Marketable Securities:
Investments in marketable securities are carried at fair value. For further information, see Note 5, "Marketable Securities," to the financial statements.
See Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," for the fair value measurement policy and the fair value hierarchy.
10.
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in accumulated other comprehensive income/(loss) by component, net of tax, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2016
|
|
For the Six Months Ended June 30, 2015
|
|
|
Qualified
|
|
Unrealized
|
|
|
|
|
|
Qualified
|
|
Unrealized
|
|
|
|
|
|
|
Cash Flow
|
|
Gains/(Losses)
|
|
Defined
|
|
|
|
Cash Flow
|
|
Gains/(Losses)
|
|
Defined
|
|
|
Eversource
|
Hedging
|
|
on Marketable
|
|
Benefit
|
|
|
|
Hedging
|
|
on Marketable
|
|
Benefit
|
|
|
(Millions of Dollars)
|
Instruments
|
|
Securities
|
|
Plans
|
|
Total
|
|
Instruments
|
|
Securities
|
|
Plans
|
|
Total
|
Balance as of Beginning of Period
|
$
|
(10.3)
|
|
$
|
(1.9)
|
|
$
|
(54.6)
|
|
$
|
(66.8)
|
|
$
|
(12.4)
|
|
$
|
0.7
|
|
$
|
(62.3)
|
|
$
|
(74.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI Before Reclassifications
|
|
-
|
|
|
1.3
|
|
|
(2.6)
|
|
|
(1.3)
|
|
|
-
|
|
|
(1.1)
|
|
|
(0.4)
|
|
|
(1.5)
|
Amounts Reclassified from AOCI
|
|
1.1
|
|
|
-
|
|
|
1.6
|
|
|
2.7
|
|
|
1.0
|
|
|
-
|
|
|
2.5
|
|
|
3.5
|
Net OCI
|
|
1.1
|
|
|
1.3
|
|
|
(1.0)
|
|
|
1.4
|
|
|
1.0
|
|
|
(1.1)
|
|
|
2.1
|
|
|
2.0
|
Balance as of End of Period
|
$
|
(9.2)
|
|
$
|
(0.6)
|
|
$
|
(55.6)
|
|
$
|
(65.4)
|
|
$
|
(11.4)
|
|
$
|
(0.4)
|
|
$
|
(60.2)
|
|
$
|
(72.0)
|
Eversource's qualified cash flow hedging instruments represent interest rate swap agreements on debt issuances that were settled in prior years. The settlement amount was recorded in AOCI and is being amortized into Net Income over the term of the underlying debt instrument. CL&P, PSNH and WMECO continue to amortize interest rate swaps settled in prior years from AOCI into Interest Expense over the remaining life of the associated long-term debt. Such interest rate swaps are not material to their respective financial statements.
Defined benefit plan OCI amounts before reclassifications relate to actuarial gains and losses that arose during the year and were recognized in AOCI.
The amortization expense of actuarial gains and losses on the defined benefit plans is amortized from AOCI into Operations and Maintenance expense over the average future employee service period, and is reflected in amounts reclassified from AOCI.
29
11.
COMMON SHARES
The following table sets forth the Eversource parent common shares and the shares of common stock of CL&P, NSTAR Electric, PSNH and WMECO that were authorized and issued as well as the respective per share par values:
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Authorized as of
|
|
|
|
|
|
Per Share
|
|
June 30, 2016 and
|
|
Issued as of
|
|
Par Value
|
|
December 31, 2015
|
|
June 30, 2016
|
|
December 31, 2015
|
Eversource
|
$
|
5
|
|
380,000,000
|
|
333,878,402
|
|
333,862,615
|
CL&P
|
$
|
10
|
|
24,500,000
|
|
6,035,205
|
|
6,035,205
|
NSTAR Electric
|
$
|
1
|
|
100,000,000
|
|
100
|
|
100
|
PSNH
|
$
|
1
|
|
100,000,000
|
|
301
|
|
301
|
WMECO
|
$
|
25
|
|
1,072,471
|
|
434,653
|
|
434,653
|
As of both June 30, 2016 and December 31, 2015, there were 16,671,366 Eversource common shares held as treasury shares. As of June 30, 2016 and December 31, 2015, Eversource common shares outstanding were 317,207,036 and 317,191,249, respectively.
12.
COMMON SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS
Dividends on the preferred stock of CL&P and NSTAR Electric totaled $1.9 million for the three months ended June 30, 2016 and 2015, and $3.8 million for the six months ended June 30, 2016 and 2015. These dividends were presented as Net Income Attributable to Noncontrolling Interests on the Eversource statements of income. Noncontrolling Interest Preferred Stock of Subsidiaries on the Eversource balance sheets totaled $155.6 million as of June 30, 2016 and December 31, 2015. Common Shareholders' Equity was fully attributable to the parent and Noncontrolling Interest Preferred Stock of Subsidiaries was fully attributable to the noncontrolling interest on the Eversource balance sheets.
13.
EARNINGS PER SHARE
Basic EPS is computed based upon the weighted average number of common shares outstanding during each period. Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of certain share-based compensation awards as if they were converted into common shares. The dilutive effect of unvested RSU and performance share awards and unexercised stock options is calculated using the treasury stock method. RSU and performance share awards are included in basic weighted average common shares outstanding as of the date that all necessary vesting conditions have been satisfied. For the three and six months ended June 30, 2016 and 2015, there were no antidilutive share awards excluded from the computation.
The following table sets forth the components of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
For the Three Months Ended
|
|
For the Six Months Ended
|
(Millions of Dollars, except share information)
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
Net Income Attributable to Common Shareholders
|
$
|
203.6
|
|
$
|
207.5
|
|
$
|
447.8
|
|
$
|
460.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
317,785,495
|
|
|
317,613,166
|
|
|
317,651,319
|
|
|
317,352,004
|
|
Dilutive Effect
|
|
691,204
|
|
|
946,402
|
|
|
827,557
|
|
|
1,173,374
|
|
Diluted
|
|
318,476,699
|
|
|
318,559,568
|
|
|
318,478,876
|
|
|
318,525,378
|
Basic and Diluted EPS
|
$
|
0.64
|
|
$
|
0.65
|
|
$
|
1.41
|
|
$
|
1.45
|
14.
SEGMENT INFORMATION
Presentation:
Eversource is organized into the Electric Distribution, Electric Transmission and Natural Gas Distribution reportable segments and Other based on a combination of factors, including the characteristics of each segments' services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates. These reportable segments represent substantially all of Eversource's total consolidated revenues. Revenues from the sale of electricity and natural gas primarily are derived from residential, commercial and industrial customers and are not dependent on any single customer. The Electric Distribution reportable segment includes the generation activities of PSNH and WMECO.
The remainder of Eversource's operations is presented as Other in the tables below and primarily consists of 1) the equity in earnings of Eversource parent from its subsidiaries and intercompany interest income, both of which are eliminated in consolidation, and interest expense related to the debt of Eversource parent, 2) the revenues and expenses of Eversource Service, most of which are eliminated in consolidation, 3) the operations of CYAPC and YAEC, 4) the results of Eversource Gas Transmission LLC and 5) the results of other unregulated subsidiaries, which are not part of its core business.
Cash flows used for investments in plant included in the segment information below are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense.
Eversource's reportable segments are determined based upon the level at which Eversource's chief operating decision maker assesses performance and makes decisions about the allocation of company resources. Each of Eversource's subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, has one reportable segment. Eversource's operating segments and reporting units are consistent with its reportable business segments.
30
Eversource's segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
Electric
|
|
Natural Gas
|
|
Electric
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Distribution
|
|
Distribution
|
|
Transmission
|
|
Other
|
|
Eliminations
|
|
Total
|
For the Three Months Ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
$
|
1,303.1
|
|
$
|
180.4
|
|
$
|
302.5
|
|
$
|
211.1
|
|
$
|
(229.9)
|
|
$
|
1,767.2
|
Depreciation and Amortization
|
|
(98.4)
|
|
|
(16.8)
|
|
|
(45.6)
|
|
|
(7.5)
|
|
|
0.5
|
|
|
(167.8)
|
Other Operating Expenses
|
|
(994.4)
|
|
|
(141.1)
|
|
|
(82.5)
|
|
|
(188.1)
|
|
|
230.1
|
|
|
(1,176.0)
|
Operating Income
|
|
210.3
|
|
|
22.5
|
|
|
174.4
|
|
|
15.5
|
|
|
0.7
|
|
|
423.4
|
Interest Expense
|
|
(47.6)
|
|
|
(10.4)
|
|
|
(27.4)
|
|
|
(16.6)
|
|
|
1.5
|
|
|
(100.5)
|
Other Income, Net
|
|
6.3
|
|
|
0.1
|
|
|
5.3
|
|
|
219.0
|
|
|
(222.6)
|
|
|
8.1
|
Net Income Attributable to Common Shareholders
|
$
|
102.8
|
|
$
|
8.0
|
|
$
|
92.5
|
|
$
|
220.7
|
|
$
|
(220.4)
|
|
$
|
203.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
$
|
2,739.2
|
|
$
|
523.0
|
|
$
|
585.8
|
|
$
|
425.3
|
|
$
|
(450.5)
|
|
$
|
3,822.8
|
Depreciation and Amortization
|
|
(226.1)
|
|
|
(32.7)
|
|
|
(90.7)
|
|
|
(14.4)
|
|
|
1.1
|
|
|
(362.8)
|
Other Operating Expenses
|
|
(2,083.3)
|
|
|
(374.5)
|
|
|
(155.5)
|
|
|
(385.4)
|
|
|
450.7
|
|
|
(2,548.0)
|
Operating Income
|
|
429.8
|
|
|
115.8
|
|
|
339.6
|
|
|
25.5
|
|
|
1.3
|
|
|
912.0
|
Interest Expense
|
|
(95.6)
|
|
|
(20.5)
|
|
|
(55.3)
|
|
|
(30.7)
|
|
|
3.4
|
|
|
(198.7)
|
Other Income/(Loss), Net
|
|
6.3
|
|
|
(0.2)
|
|
|
7.9
|
|
|
524.4
|
|
|
(528.4)
|
|
|
10.0
|
Net Income Attributable to Common Shareholders
|
$
|
211.3
|
|
$
|
58.9
|
|
$
|
178.2
|
|
$
|
523.1
|
|
$
|
(523.7)
|
|
$
|
447.8
|
Cash Flows Used for Investments in Plant
|
$
|
362.0
|
|
$
|
105.0
|
|
$
|
349.1
|
|
$
|
53.1
|
|
$
|
-
|
|
$
|
869.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
Electric
|
|
Natural Gas
|
|
Electric
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Distribution
|
|
Distribution
|
|
Transmission
|
|
Other
|
|
Eliminations
|
|
Total
|
For the Three Months Ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
$
|
1,382.7
|
|
$
|
186.0
|
|
$
|
267.8
|
|
$
|
203.7
|
|
$
|
(223.1)
|
|
$
|
1,817.1
|
Depreciation and Amortization
|
|
(98.5)
|
|
|
(17.7)
|
|
|
(39.7)
|
|
|
(7.1)
|
|
|
0.5
|
|
|
(162.5)
|
Other Operating Expenses
|
|
(1,052.1)
|
|
|
(150.2)
|
|
|
(73.1)
|
|
|
(190.7)
|
|
|
223.5
|
|
|
(1,242.6)
|
Operating Income
|
|
232.1
|
|
|
18.1
|
|
|
155.0
|
|
|
5.9
|
|
|
0.9
|
|
|
412.0
|
Interest Expense
|
|
(45.6)
|
|
|
(9.1)
|
|
|
(26.3)
|
|
|
(12.4)
|
|
|
1.1
|
|
|
(92.3)
|
Other Income, Net
|
|
5.5
|
|
|
0.3
|
|
|
5.1
|
|
|
220.1
|
|
|
(218.1)
|
|
|
12.9
|
Net Income Attributable to Common Shareholders
|
$
|
120.9
|
|
$
|
5.3
|
|
$
|
80.4
|
|
$
|
217.0
|
|
$
|
(216.1)
|
|
$
|
207.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
$
|
3,142.8
|
|
$
|
693.4
|
|
$
|
516.8
|
|
$
|
443.7
|
|
$
|
(466.2)
|
|
$
|
4,330.5
|
Depreciation and Amortization
|
|
(257.6)
|
|
|
(35.9)
|
|
|
(80.1)
|
|
|
(14.3)
|
|
|
1.0
|
|
|
(386.9)
|
Other Operating Expenses
|
|
(2,395.0)
|
|
|
(538.7)
|
|
|
(147.2)
|
|
|
(419.9)
|
|
|
466.7
|
|
|
(3,034.1)
|
Operating Income
|
|
490.2
|
|
|
118.8
|
|
|
289.5
|
|
|
9.5
|
|
|
1.5
|
|
|
909.5
|
Interest Expense
|
|
(93.2)
|
|
|
(18.1)
|
|
|
(53.9)
|
|
|
(24.1)
|
|
|
2.2
|
|
|
(187.1)
|
Other Income, Net
|
|
7.6
|
|
|
0.1
|
|
|
8.1
|
|
|
535.0
|
|
|
(532.2)
|
|
|
18.6
|
Net Income Attributable to Common Shareholders
|
$
|
251.4
|
|
$
|
61.0
|
|
$
|
147.0
|
|
$
|
529.9
|
|
$
|
(528.5)
|
|
$
|
460.8
|
Cash Flows Used for Investments in Plant
|
$
|
319.8
|
|
$
|
67.5
|
|
$
|
328.7
|
|
$
|
24.4
|
|
$
|
-
|
|
$
|
740.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes Eversource's segmented total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eversource
|
Electric
|
|
Natural Gas
|
|
Electric
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Distribution
|
|
Distribution
|
|
Transmission
|
|
Other
|
|
Eliminations
|
|
Total
|
As of June 30, 2016
|
$
|
17,855.6
|
|
$
|
3,122.5
|
|
$
|
8,376.2
|
|
$
|
13,218.3
|
|
$
|
(11,689.9)
|
|
$
|
30,882.7
|
As of December 31, 2015
|
|
17,981.3
|
|
|
3,104.5
|
|
|
8,019.3
|
|
|
13,256.7
|
|
|
(11,781.5)
|
|
|
30,580.3
|
31
EVERSOURCE ENERGY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this combined Quarterly Report on Form 10-Q, the combined quarterly report on Form 10-Q for the quarter ended March 31, 2016, as well as the Eversource 2015 Form 10-K. References in this combined Quarterly Report on Form 10-Q to "Eversource," the "Company," "we," "us," and "our" refer to Eversource Energy and its consolidated subsidiaries. All per share amounts are reported on a diluted basis. The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this
Management's Discussion and Analysis of Financial Condition and Results of Operations
.
The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP that is calculated by dividing the Net Income Attributable to Common Shareholders of each business by the weighted average diluted Eversource common shares outstanding for the period. The tabular presentations below also include non-GAAP financial measures referencing our second quarter and first half of 2016 and 2015 earnings and EPS excluding certain integration costs. We use these non-GAAP financial measures to evaluate and to provide details of earnings by business and to more fully compare and explain our second quarter and first half of 2015 results without including the impact of these items. Due to the nature and significance of these items on Net Income Attributable to Common Shareholders, we believe that the non-GAAP presentation is more representative of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance by business. These non-GAAP financial measures should not be considered as an alternative to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as an indicator of operating performance.
Reconciliations of the above non-GAAP financial measures to the most directly comparable GAAP measures of consolidated diluted EPS and Net Income Attributable to Common Shareholders are included under "Financial Condition and Business Analysis Overview Consolidated" and "Financial Condition and Business Analysis Overview Regulated Companies" in this
Management's Discussion and Analysis of Financial Condition and Results of Operations
, herein.
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:
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cyber breaches, acts of war or terrorism, or grid disturbances,
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actions or inaction of local, state and federal regulatory, public policy and taxing bodies,
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changes in business conditions, which could include disruptive technology related to our current or future business model,
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changes in economic conditions, including impact on interest rates, tax policies, and customer demand and payment ability,
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fluctuations in weather patterns,
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changes in laws, regulations or regulatory policy,
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changes in levels or timing of capital expenditures,
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disruptions in the capital markets or other events that make our access to necessary capital more difficult or costly,
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developments in legal or public policy doctrines,
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technological developments,
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changes in accounting standards and financial reporting regulations,
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actions of rating agencies, and
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other presently unknown or unforeseen factors.
Other risk factors are detailed in our reports filed with the SEC and updated as necessary, and we encourage you to consult such disclosures.
All such factors are difficult to predict, contain uncertainties that may materially affect our actual results and are beyond our control. You should not place undue reliance on the forward-looking statements, each speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for us to predict all of such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For more information, see Item 1A, Risk Factors, included in this combined Quarterly Report on Form 10-Q and in Eversources 2015 combined Annual Report on Form 10-K. This combined Quarterly Report on Form 10-Q and Eversources 2015 combined Annual Report on Form 10-K also describe material contingencies and critical accounting policies in the accompanying
Management's Discussion and Analysis of Financial Condition and Results of Operations and Combined Notes to Financial Statements
.
We encourage you to review these items.
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Financial Condition and Business Analysis
Executive Summary
The following items in this executive summary are explained in more detail in this combined Quarterly Report on Form 10-Q:
Results:
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We earned $203.6 million, or $0.64 per share, in the second quarter of 2016, and $447.8 million, or $1.41 per share, in the first half of 2016, compared with $207.5 million, or $0.65 per share, in the second quarter of 2015, and $460.8 million, or $1.45 per share, in the first half of 2015.
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Our electric distribution segment, which includes generation, earned $102.8 million, or $0.32 per share, in the second quarter of 2016, and $211.3 million, or $0.66 per share, in the first half of 2016, compared with earnings of $120.9 million, or $0.38 per share, in the second quarter of 2015, and $251.4 million, or $0.80 per share, in the first half of 2015.
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Our transmission segment earned $92.5 million, or $0.29 per share, in the second quarter of 2016, and $178.2 million, or $0.56 per share, in the first half of 2016, compared with $80.4 million, or $0.25 per share, in the second quarter of 2015, and $147 million, or $0.46 per share, in the first half of 2015.
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Our natural gas distribution segment earned $8.0 million, or $0.03 per share, in the second quarter of 2016, and $58.9 million, or $0.19 per share, in the first half of 2016, compared with $5.3 million, or $0.02 per share, in the second quarter of 2015, and $61 million, or $0.19 per share, in the first half of 2015.
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Eversource parent and other companies had earnings of $0.3 million in the second quarter of 2016 and a net loss of $0.6 million in the first half of 2016, compared with earnings of $0.9 million in the second quarter of 2015 and $1.4 million in the first half of 2015.
Liquidity:
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Cash flows provided by operating activities totaled $978.4 million in the first half of 2016, compared with $865.3 million in the first half of 2015. Investments in property, plant and equipment totaled $869.2 million in the first half of 2016, compared with $740.4 million in the first half of 2015. Cash and cash equivalents totaled $38.7 million as of June 30, 2016, compared with $23.9 million as of December 31, 2015.
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In May 2016, NSTAR Electric repaid at maturity $200 million variable rate debentures using short-term borrowings. Also in May 2016, NSTAR Electric issued $250 million of 2.70 percent debentures, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings under the NSTAR Electric commercial paper program and fund capital expenditures and working capital.
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In June 2016, WMECO issued $50 million of 2.75 percent Series H Senior Notes, due to mature in 2026. The proceeds, net of issuance costs, were used to repay short-term borrowings.
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On May 4, 2016, our Board of Trustees approved a common share dividend payment of $0.445 per share, which was paid on June 30, 2016 to shareholders of record as of May 31, 2016.
Strategic, Legislative, Regulatory, Policy and Other Items:
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On April 29, 2016, a fourth complaint was filed with the FERC by certain municipal utilities claiming the current base ROE of 10.57 percent and the incentive cap of 11.74 percent are unjust and unreasonable The NETOs answered on June 3, 2016 and requested that FERC dismiss the complaint. At this time FERC has not taken any action with respect to this complaint; therefore, we are unable to predict the outcome of this complaint.
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On June 30, 2016, NSTAR Electric and WMECO filed an application with the DPU seeking approval to develop 35 MW and 27 MW, respectively, of solar generation facilities. We expect DPU approval of the application by the end of 2016 and expect to complete development of the facilities by the end of 2017. We estimate our investment in these new facilities will be between approximately $180 million to $200 million if fully approved.
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On July 1, 2016, the NHPUC approved the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement in an order that, among other things, instructs PSNH to begin the process to divest its generation assets.
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On July 31, 2016, the Massachusetts Legislature passed "An Act to Promote Energy Diversity", which requires electric distribution companies to jointly solicit a request for proposal (RFP) and enter into contracts for offshore wind and for hydropower. The bill is awaiting the governor's signature.
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Overview
Consolidated:
Below is a summary of our earnings by business, which also reconciles the non-GAAP financial measure of EPS by business to the most directly comparable GAAP measure of diluted EPS, for the second quarter and first half of 2016 and 2015. Also included in the summary for the second quarter and first half of 2015 is a reconciliation of the non-GAAP financial measure of consolidated non-GAAP earnings to the most directly comparable GAAP measure of consolidated Net Income Attributable to Common Shareholders.