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, as well as the Eversource
2016
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 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. We use this non-GAAP financial measure to evaluate and provide details of earnings results by business. 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. This non-GAAP financial measure 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.
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.
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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 and contain uncertainties that may materially affect our actual results, many of which are beyond our control. You should not place undue reliance on the forward-looking statements, as each speaks only as of the date on which such statement is made, and, except as required by federal securities laws, 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 Eversource's
2016
combined Annual Report on Form 10-K. This combined Quarterly Report on Form 10-Q and Eversource's
2016
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.
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
$259.5 million
, or
$0.82
per share, in the first
quarter
of
2017
, compared with
$244.2 million
, or
$0.77
per share, in the first
quarter
of
2016
.
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Our electric distribution segment, which includes generation, earned
$114.1 million
, or
$0.36
per share, in the first
quarter
of
2017
, compared with
$108.4 million
, or
$0.34
per share, in the first
quarter
of
2016
. Our electric transmission segment earned
$94.2 million
, or
$0.30
per share, in the first
quarter
of
2017
, compared with
$85.7 million
, or
$0.27
per share, in the first
quarter
of
2016
. Our natural gas distribution segment earned
$50.8 million
, or
$0.16
per share, in the first
quarter
of
2017
, compared with
$50.9 million
, or
$0.16
per share, in the first
quarter
of
2016
.
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Eversource parent and other companies earned
$0.4 million
in the first
quarter
of
2017
, compared with a net loss of $0.8 million in the first
quarter
of
2016
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Liquidity:
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Cash flows provided by operating activities totaled
$436.5 million
in the first
quarter
of
2017
, compared with
$500.0 million
in the first
quarter
of
2016
. Investments in property, plant and equipment totaled
$523.6 million
in the first
quarter
of
2017
, compared with
$431.5 million
in the first
quarter
of
2016
. Cash and cash equivalents totaled
$45.8 million
as of
March 31, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
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In March 2017, Eversource parent issued $300 million
of 2.75 percent Series K Senior Notes, due to mature in 2022. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program. In March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings. Also in March 2017, CL&P repaid at maturity $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings.
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On May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, payable on June 30, 2017 to shareholders of record as of May 31, 2017.
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Strategic, Legislative, Regulatory, Policy and Other Items:
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On April 14, 2017, pursuant to appeals the NETOs and Complainants filed on the first FERC ROE complaint decision, the D.C. Circuit Court of Appeals issued a decision vacating and remanding the FERC's decision. The Court remanded the case to the FERC for further proceedings consistent with the Court's decision.
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On March 31, 2017, pursuant to legislation that became law in 2016,
the Massachusetts EDCs, including NSTAR Electric and WMECO, and the DOER issued a joint RFP for 9.45 terawatt hours
of clean energy per year, such as hydropower, land-based wind or solar.
The RFP seeks proposals for long-term contracts of 15 to 20 years to provide electric distribution companies with clean energy generation. Northern Pass will be bid into the RFP.
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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 first
quarter
of
2017
and
2016
.
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For the Three Months Ended March 31,
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2017
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2016
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(Millions of Dollars, Except Per-Share Amounts)
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Amount
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Per Share
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Amount
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Per Share
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Net Income Attributable to
Common Shareholders (GAAP)
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$
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259.5
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$
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0.82
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$
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244.2
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$
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0.77
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Regulated Companies
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$
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259.1
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$
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0.82
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$
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245.0
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$
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0.77
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Eversource Parent and Other Companies
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0.4
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—
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(0.8
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)
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—
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Net Income Attributable to Common Shareholders (GAAP)
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$
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259.5
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$
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0.82
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$
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244.2
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$
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0.77
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Regulated Companies:
Our Regulated companies consist of the electric distribution, electric transmission, and natural gas distribution segments. Generation activities of PSNH and WMECO are included in our electric distribution segment. A summary of our segment earnings and EPS for the first
quarter
of
2017
and
2016
is as follows:
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For the Three Months Ended March 31,
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2017
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2016
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(Millions of Dollars, Except Per-Share Amounts)
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Amount
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Per Share
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Amount
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Per Share
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Electric Distribution
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$
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114.1
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$
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0.36
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$
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108.4
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$
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0.34
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Electric Transmission
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94.2
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0.30
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85.7
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0.27
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Natural Gas Distribution
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50.8
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0.16
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50.9
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0.16
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Net Income - Regulated Companies
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$
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259.1
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$
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0.82
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$
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245.0
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$
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0.77
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Our electric distribution segment earnings
increased
$5.7 million
in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to higher lost base revenues at NSTAR Electric and lower property and other tax expense, partially offset by lower generation earnings, higher operations and maintenance expense driven primarily by higher storm restoration costs, and higher depreciation expense.
Our electric transmission segment earnings
increased
$8.5 million
in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to a higher transmission rate base as a result of our continued investment in our transmission infrastructure.
Our natural gas distribution segment earnings
decreased
$0.1 million
in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to higher operations and maintenance expense and depreciation expense, partially offset by higher firm natural gas sales volumes driven by colder weather in Connecticut in the first quarter of 2017, as compared to the first quarter of 2016, and higher revenues due to growth in new customer base.
Eversource Parent and Other Companies:
Eversource parent and other companies had earnings of
$0.4 million
in the first quarter of 2017, compared with a net loss of
$0.8 million
in the first quarter of 2016.
The earnings increase was due primarily to higher investment earnings from Eversource parent's equity method investments and a lower effective tax rate, partially offset by higher interest expense.
Electric and Natural Gas Sales Volumes:
Weather, fluctuations in energy supply costs, conservation measures (including utility-sponsored energy efficiency programs), and economic conditions affect customer energy usage. Industrial sales volumes are less sensitive to temperature variations than residential and commercial sales volumes. In our service territories, weather impacts electric sales volumes during the summer and both electric and natural gas sales volumes during the winter; however, natural gas sales volumes are more sensitive to temperature variations than are electric sales volumes. Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur.
Fluctuations in retail electric sales volumes at NSTAR Electric and PSNH impact earnings ("Traditional" in the table below). For CL&P and WMECO, fluctuations in retail electric sales volumes do not impact earnings due to their respective regulatory commission approved distribution revenue decoupling mechanisms ("Decoupled" in the table below). These distribution revenues are decoupled from their customer sales volumes, which breaks the relationship between sales volumes and revenues recognized. CL&P and WMECO reconcile their annual base distribution rate recovery amounts to their respective pre-established levels of baseline distribution delivery service revenues of $1.059 billion and $132.4 million, respectively. Any difference between the allowed level of distribution revenue and the actual amount incurred during a 12-month period is adjusted through rates in the following period.
Fluctuations in natural gas sales volumes in Massachusetts do not impact earnings due to the DPU-approved natural gas distribution revenue decoupling mechanism approved in the last rate case decision ("Decoupled" in the table below). Natural gas distribution revenues are decoupled from their customer sales volumes, where applicable, which breaks the relationship between sales volumes and revenues recognized.
A summary of our retail electric GWh sales volumes and our firm natural gas Mcf sales volumes, as well as percentage changes, is as follows:
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For the Three Months Ended March 31, 2017 Compared to 2016
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Sales Volumes (GWh)
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Percentage
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Electric
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2017
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2016
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Increase/(Decrease)
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Traditional:
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Residential
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2,436
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2,404
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1.3
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%
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Commercial
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3,939
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3,990
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(1.3
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)%
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Industrial
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596
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600
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(0.7
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)%
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Total – Traditional
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6,971
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6,994
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(0.3
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)%
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Decoupled:
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Residential
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2,988
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2,943
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1.5
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%
|
Commercial
|
2,591
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2,618
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(1.0
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)%
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Industrial
|
622
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664
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(6.3
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)%
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Total – Decoupled
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6,201
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6,225
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(0.4
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)%
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Total Sales Volumes
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13,172
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|
13,219
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(0.4
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)%
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For the Three Months Ended March 31, 2017 Compared to 2016
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Sales Volumes (Mcf)
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Percentage
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Firm Natural Gas
|
2017
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2016
|
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Increase/(Decrease)
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Traditional:
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Residential
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7,093
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6,642
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6.8
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%
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Commercial
|
8,409
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7,976
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5.4
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%
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Industrial
|
3,403
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|
3,367
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1.1
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%
|
Total – Traditional
|
18,905
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|
17,985
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5.1
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%
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Decoupled:
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Residential
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10,185
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9,309
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|
9.4
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%
|
Commercial
|
9,130
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|
8,988
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|
1.6
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%
|
Industrial
|
1,709
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1,854
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(7.8
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)%
|
Total – Decoupled
|
21,024
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20,151
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4.3
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%
|
Special Contracts
(1)
|
1,217
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|
1,212
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0.4
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%
|
Total – Decoupled and Special Contracts
|
22,241
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21,363
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4.1
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%
|
Total Sales Volumes
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41,146
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39,348
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4.6
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%
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(1)
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Special contracts are unique to the natural gas distribution customers who take service under such an arrangement and generally specify the amount of distribution revenue to be paid to Yankee Gas regardless of the customers' usage.
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For the first quarter of 2017, retail electric sales volumes at our electric utilities with a traditional rate structure (NSTAR Electric and PSNH) remained relatively unchanged, as compared to the first quarter of 2016. Colder weather in March 2017, as compared to March 2016, was offset by the milder weather in January and February 2017, as compared to the same periods in 2016, which resulted in an overall slight decrease in sales volumes.
On January 28, 2016, Eversource received approval of a three-year energy efficiency plan in Massachusetts, which includes recovery of LBR at NSTAR Electric until it is operating under a decoupled rate structure. NSTAR Electric earns LBR related to reductions in sales volume as a result of successful energy efficiency programs. LBR is recovered from retail customers through current rates. NSTAR Electric recognized LBR of $17.2 million in the first quarter of 2017, compared to $12.9 million in the first quarter of 2016.
Our firm natural gas sales volumes are subject to many of the same influences as our retail electric sales volumes. In addition, they have benefited from customer growth in both of our natural gas distribution companies. In the first quarter of 2017, our consolidated firm natural gas sales volumes were higher, as compared to the first quarter of 2016. Heating degree days for the first quarter of 2017 were 4.0 percent higher in Connecticut, as compared to the same period in 2016.
Liquidity
Consolidated:
Cash and cash equivalents totaled
$45.8 million
as of
March 31, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
Long-Term Debt Issuances:
In March 2017, Eversource parent issued $300 million
of 2.75 percent Series K Senior Notes, due to mature in 2022. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program. Also in March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Long-Term Debt Repayments:
In March 2017, CL&P repaid at maturity the $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings.
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
March 31, 2017
and
December 31, 2016
, Eversource parent had
$801.0 million
and approximately
$1.0 billion
, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving
$649.0 million
and
$428.0 million
of available borrowing capacity as of
March 31, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
March 31, 2017
and
December 31, 2016
was
1.12 percent
and
0.88 percent
, respectively. As of
March 31, 2017
, there were intercompany loans from Eversource parent of
$3.4 million
to CL&P,
$144.9 million
to PSNH, and
$71.4 million
to WMECO. As of
December 31, 2016
, there were intercompany loans from Eversource parent of
$80.1 million
to CL&P,
$160.9 million
to PSNH and
$51.0 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. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop Eversource parent's
$1.45 billion
commercial paper program. There were
no
borrowings outstanding on the revolving credit facility as of
March 31, 2017
or
December 31, 2016
.
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
March 31, 2017
and
December 31, 2016
, NSTAR Electric had
$174.5 million
and
$126.5 million
, respectively, in short-term borrowings outstanding under its commercial paper program, leaving
$275.5 million
and
$323.5 million
of available borrowing capacity as of
March 31, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
March 31, 2017
and
December 31, 2016
was
0.86 percent
and
0.71 percent
, respectively. NSTAR Electric is a party to a
five
-year
$450 million
revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop NSTAR Electric's
$450 million
commercial paper program. There were
no
borrowings outstanding on the revolving credit facility as of
March 31, 2017
or
December 31, 2016
.
Cash Flows:
Cash flows provided by operating activities totaled
$436.5 million
in the first
quarter
of
2017
, compared with
$500.0 million
in the first
quarter
of
2016
. The decrease in operating cash flows was due primarily to $211.9 million in lower income tax refunds as a result of the impact of the December 2015 legislation that extended tax bonus depreciation. That legislation extended the accelerated deduction of depreciation to businesses from 2015 to 2019, and also resulted in a refund of approximately $275 million we received in the first quarter of 2016. Partially offsetting this unfavorable impact was the timing of regulatory recoveries, which primarily related to customer billings in excess of purchased power costs, and the timing of collections on our accounts receivable.
On February 2, 2017, our Board of Trustees approved a common share dividend of $0.475 per share, payable on March 31, 2017 to shareholders of record as of March 2, 2017. In the first
quarter
of
2017
, we paid cash dividends on common shares of
$150.5 million
, compared with
$141.2 million
in the first
quarter
of
2016
.
On May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, payable on June 30, 2017 to shareholders of record as of May 31, 2017.
In the first
quarter
of
2017
, CL&P, NSTAR Electric, PSNH, and WMECO paid
$49.6 million
,
$46.5 million
,
$18.5 million
, and
$9.5 million
, respectively, in common stock dividends to Eversource parent.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. In the first
quarter
of
2017
, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were
$523.6 million
,
$181.6 million
,
$132.1 million
,
$75.3 million
, and
$32.7 million
respectively.
Business Development and Capital Expenditures
Our consolidated capital expenditures, including amounts incurred but not paid, cost of removal, AFUDC, and the capitalized portions of pension expense (all of which are non-cash factors), totaled
$446.4 million
in the first
quarter
of
2017
, compared to
$368.5 million
in the first
quarter
of
2016
. These amounts included
$21.5 million
and
$24.0 million
in the first
quarter
of
2017
and
2016
, respectively, related to information technology and facilities upgrades and enhancements, primarily at Eversource Service and The Rocky River Realty Company.
Access Northeast
:
Access Northeast is a natural gas pipeline and storage project being developed jointly by Eversource, Enbridge, Inc. ("Enbridge") and National Grid plc ("National Grid"), through Algonquin Gas Transmission, LLC ("AGT"). This project is expected to enhance the Algonquin and Maritimes & Northeast pipeline systems using existing routes and is expected to include two new LNG storage tanks and liquefaction and vaporization facilities in Acushnet, Massachusetts that are currently expected to be connected to the Algonquin natural gas pipeline. Access Northeast is expected to be capable of delivering approximately 900 million cubic feet of additional natural gas per day to New England on peak demand days. Eversource and Enbridge each own a 40 percent interest in the project, with the remaining 20 percent interest owned by National Grid. The project is subject to FERC and other federal and state regulatory approvals. Its initial proposed configuration was expected to cost approximately $3 billion to construct, with Eversource Energy's investment share at approximately $1.2 billion. As of March 31, 2017, we have invested $31.1 million in this project.
Enbridge, Eversource and National Grid are currently evaluating a series of options surrounding Access Northeast, including state infrastructure legislation changes and LDC contracts, in order to help bring needed additional natural gas pipeline and storage capacity to New England. As a result, the final design, cost, and in-service date of Access Northeast will continue to be refined.
Bay State Wind
:
Bay State Wind is a proposed off-shore wind project being jointly developed by Eversource and Denmark-based DONG Energy. Bay State Wind will be located in a 300-square-mile area approximately 15 to 25 miles south of Martha's Vineyard that has the ultimate potential to generate more than 2,000 MW of energy. Both Eversource and DONG Energy hold a 50 percent ownership interest in Bay State Wind. In August 2016, Massachusetts passed clean energy legislation that requires EDCs to jointly solicit RFPs and enter into long-term contracts for off-shore wind, creating RFP opportunities for projects like Bay State Wind. The initial RFP, which is legislatively required to be for no less than 400 MW of off-shore wind, is due to be released by June 30, 2017, and Bay State Wind will be bid into that RFP.
Electric Transmission Business:
Our consolidated electric transmission business capital expenditures
increased
by
$29.3 million
in the first
quarter
of
2017
, as compared to the first
quarter
of
2016
. A summary of electric transmission capital expenditures by company is as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
CL&P
|
$
|
79.9
|
|
|
$
|
63.4
|
|
NSTAR Electric
|
39.2
|
|
|
31.7
|
|
PSNH
|
21.6
|
|
|
19.6
|
|
WMECO
|
18.6
|
|
|
18.0
|
|
NPT
|
9.7
|
|
|
7.0
|
|
Total Electric Transmission Segment
|
$
|
169.0
|
|
|
$
|
139.7
|
|
Northern Pass
:
Northern Pass is NPT's planned high-voltage direct-current ("HVDC") transmission line from the Québec-New Hampshire border to Franklin, New Hampshire and an associated alternating current radial transmission line between Franklin and Deerfield, New Hampshire. Northern Pass will interconnect at the Québec-New Hampshire border with a planned HQ HVDC transmission line. On July 21, 2015, the DOE issued the draft Environmental Impact Statement ("EIS") for Northern Pass representing a key milestone in the permitting process. The DOE completed the comment period on the draft EIS on April 4, 2016, and is expected to issue the final EIS in the third quarter of 2017.
On August 18, 2015, NPT announced the Forward NH Plan, which is expected to deliver substantial energy cost savings and other benefits to New Hampshire, including a commitment to contribute $200 million to projects associated with economic development, tourism, community betterment and clean energy innovations to benefit the state of New Hampshire. The Forward NH Plan also included a commitment by PSNH to secure a power purchase agreement ("PPA") with HQ to ensure that customers receive their load share of the low cost, clean energy to be delivered over that transmission line. On June 28, 2016, PSNH filed the executed PPA with the NHPUC for approval. On March 27, 2017, the NHPUC dismissed PSNH's petition for approval of the PPA. PSNH had requested suspension or reconsideration of that decision but on April 20, 2017, the request was denied by the NHPUC. The Forward NH Plan and the PPA are both commitments that are contingent upon the Northern Pass transmission line going into commercial operation.
On October 14, 2016, the NHPUC approved a settlement agreement between NPT and the NHPUC staff and granted NPT public utility status, conditional on final project permitting.
The Society for the Protection of New Hampshire Forests ("SPNHF") filed a lawsuit against NPT in November 2015 alleging that NPT does not have the right to install underground transmission lines in the public highway right of way without the permission of the abutting landowners, such as the SPNHF. On January 31, 2017, the New Hampshire Supreme Court upheld a lower court's ruling confirming that NPT has the right to install underground transmission lines along and beneath public highways in New Hampshire with approval of the New Hampshire Department of Transportation.
The New Hampshire Site Evaluation Committee ("NH SEC") commenced hearings for formal siting on April 13, 2017 and is expected to issue an order on Northern Pass no later than September 30, 2017. The DOE is expected to act on a Presidential Permit for Northern Pass after the final NH SEC order is released and is expected to issue an approval before the end of 2017. Northern Pass has been targeted for completion by the end of 2019.
In August 2016, Massachusetts enacted clean energy legislation that requires EDCs to jointly solicit proposals and enter into long-term contracts for energy, such as hydropower. The RFP was issued on March 31, 2017, and Northern Pass will be bid into that RFP in late July 2017.
Greater Boston Reliability Solution
: In February 2015, ISO-NE selected the Greater Boston and New Hampshire Solution (the "Solution"), proposed by Eversource and National Grid, to satisfy the requirements identified in the Greater Boston study. The Solution consists of a portfolio of electric transmission upgrades covering southern New Hampshire and northern Massachusetts in the Merrimack Valley and continuing into the greater Boston metropolitan area, of which 28 are in Eversource's service territory. The NH SEC issued its written order approving the New Hampshire upgrades on October 4, 2016. We are currently pursuing the necessary regulatory and siting application approvals in Massachusetts. Construction has also begun on several smaller projects not requiring siting approval. All upgrades are expected to be completed by the end of 2019. We estimate our portion of the investment in the Solution will be approximately $560 million, of which $146.4 million has been capitalized through March 31, 2017.
GHCC
: The Greater Hartford Central Connecticut ("GHCC") projects, which have been approved by ISO-NE, consist of 27 projects with an expected investment of approximately $350 million that are expected to be placed in service through 2018. Twelve projects have been placed in service, and eleven projects are in active construction. As of March 31, 2017, CL&P had capitalized $141.6 million in costs associated with GHCC.
Seacoast Reliability Project
: On April 12, 2016, PSNH filed a siting application with the NH SEC for the Seacoast Reliability Project, a 13-mile, 115kV transmission line within several New Hampshire communities, which proposes to use a combination of overhead, underground and underwater line design to help meet the growing demand for electricity in the Seacoast region. In June 2016, the NH SEC accepted our application as complete and we expect the NH SEC decision by late 2017. This project is expected to be completed by the end of 2018. We now estimate our investment in this project will be approximately $84 million, of which $15.4 million has been capitalized through March 31, 2017.
Distribution Business:
A summary of distribution capital expenditures is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
CL&P
|
|
NSTAR Electric
|
|
PSNH
|
|
WMECO
|
|
Total Electric
|
|
Natural Gas
|
|
Total Electric and Natural Gas Distribution Segment
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
42.9
|
|
|
$
|
30.1
|
|
|
$
|
17.8
|
|
|
$
|
5.2
|
|
|
$
|
96.0
|
|
|
$
|
15.8
|
|
|
$
|
111.8
|
|
Aging Infrastructure
|
40.6
|
|
|
14.6
|
|
|
19.4
|
|
|
4.3
|
|
|
78.9
|
|
|
29.0
|
|
|
107.9
|
|
Load Growth
(1)
|
9.5
|
|
|
15.8
|
|
|
4.3
|
|
|
(2.3
|
)
|
|
27.3
|
|
|
6.0
|
|
|
33.3
|
|
Total Distribution
|
93.0
|
|
|
60.5
|
|
|
41.5
|
|
|
7.2
|
|
|
202.2
|
|
|
50.8
|
|
|
253.0
|
|
Generation
|
—
|
|
|
0.3
|
|
|
2.3
|
|
|
0.3
|
|
|
2.9
|
|
|
—
|
|
|
2.9
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
93.0
|
|
|
$
|
60.8
|
|
|
$
|
43.8
|
|
|
$
|
7.5
|
|
|
$
|
205.1
|
|
|
$
|
50.8
|
|
|
$
|
255.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
39.1
|
|
|
$
|
24.0
|
|
|
$
|
15.1
|
|
|
$
|
3.4
|
|
|
$
|
81.6
|
|
|
$
|
12.6
|
|
|
$
|
94.2
|
|
Aging Infrastructure
|
26.5
|
|
|
12.5
|
|
|
14.4
|
|
|
4.4
|
|
|
57.8
|
|
|
19.2
|
|
|
77.0
|
|
Load Growth
|
9.0
|
|
|
14.2
|
|
|
3.5
|
|
|
0.5
|
|
|
27.2
|
|
|
6.0
|
|
|
33.2
|
|
Total Distribution
|
74.6
|
|
|
50.7
|
|
|
33.0
|
|
|
8.3
|
|
|
166.6
|
|
|
37.8
|
|
|
204.4
|
|
Generation
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
74.6
|
|
|
$
|
50.7
|
|
|
$
|
33.4
|
|
|
$
|
8.3
|
|
|
$
|
167.0
|
|
|
$
|
37.8
|
|
|
$
|
204.8
|
|
(1)
For the three months ended March 31, 2017, WMECO had $4.7 million of total contributions in aid of construction, which was a credit to capital expenditures for the period.
For the electric distribution business, basic business includes the purchase of meters, tools, vehicles, information technology, transformer replacements, equipment facilities, and the relocation of plant. Aging infrastructure relates to reliability and the replacement of overhead lines, plant substations, underground cable replacement, and equipment failures. Load growth includes requests for new business and capacity additions on distribution lines and substation additions and expansions.
For the natural gas distribution segment, basic business addresses daily operational needs including meters, pipe relocations due to public works projects, vehicles, and tools. Aging infrastructure projects seek to improve the reliability of the system through enhancements related to cast iron and bare steel replacement of main and services, corrosion mediation, and station upgrades. Load growth reflects growth in existing service territories including new developments, installation of services, and expansion.
The natural gas distribution segment's capital spending program increased by $13.0 million in the first quarter of 2017, as compared to the first quarter of 2016, as a result of the Hopkinton Liquefier Replacement project. The total project cost is estimated to be approximately $170 million and is expected to be placed in service in late 2019.
FERC Regulatory Matters
FERC ROE Complaints:
Four separate complaints have been filed at the 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 each of the first three complaints, the Complainants challenged the NETOs' base ROE of
11.14 percent
that had been utilized since 2005 and sought an order to reduce it prospectively from the date of the final FERC order and for the
15
-month complaint periods arising from the separate complaints. In the fourth complaint, filed April 29, 2016, the Complainants challenged the NETOs' base ROE of
10.57 percent
and the maximum ROE for transmission incentive ("incentive cap") of
11.74 percent
, asserting that these ROEs were unjust and unreasonable.
In response to appeals of the FERC decision in the first complaint filed by the NETOs and the Complainants, the D.C. Circuit Court of Appeals (the "Court") issued a decision on April 14, 2017 vacating and remanding the FERC's decision. The Court found that the FERC failed to make an explicit finding that the prior
11.14 percent
base ROE was unjust and unreasonable, as required under Section 206 of the Federal Power Act, before it could set a new base ROE. The Court also found that the FERC did not provide a rational connection between the record evidence and its decision to select the
midpoint of the upper half of the zone of reasonableness
for the new base ROE.
A summary of the four separate complaints and the base ROEs pertinent to those complaints are as follows:
|
|
|
|
|
|
|
|
Complaint
|
15-Month Time Period
of Complaint
(Beginning as of Complaint Filing Date)
|
Original Base ROE Authorized by FERC at Time of Complaint
Filing Date
(1)
|
Base ROE Subsequently Authorized by FERC for First Complaint Period and also Effective from
October 16, 2014 through April 14, 2017
(1)
|
Reserve
(Pre-Tax and Excluding Interest) as of March 31, 2017
(in millions)
|
|
FERC ALJ Recommendation of Base ROE on Second and
Third Complaints
(Issued March 22, 2016)
|
First
|
10/1/2011 - 12/31/2012
|
11.14%
|
10.57%
|
$—
|
(2)
|
N/A
|
Second
|
12/27/2012 - 3/26/2014
|
11.14%
|
N/A
|
39.1
|
(3)
|
9.59%
|
Third
|
7/31/2014 - 10/30/2015
|
11.14%
|
10.57%
|
—
|
|
10.90%
|
Fourth
|
4/29/2016 - 7/28/2017
|
10.57%
|
10.57%
|
—
|
|
N/A
|
(1)
The total ROE between October 1, 2011 and October 15, 2014 was within a range of
11.14 percent
to
13.1 percent
. In 2014, as a result of a FERC order, the incentive cap was set at
11.74 percent
for the first complaint period and also effective from October 16, 2014 through April 14, 2017.
(2)
CL&P, NSTAR Electric, PSNH and WMECO have refunded all amounts associated with the first complaint period, totaling
$38.9 million
(pre-tax and excluding interest) at Eversource (including
$22.4 million
at CL&P,
$8.4 million
at NSTAR Electric,
$2.8 million
at PSNH, and
$5.3 million
at WMECO), reflecting both the base ROE and incentive cap prescribed by the FERC order.
(3)
The reserve represents the difference between the ROEs billed during the second complaint period and a
10.57 percent
base ROE and
11.74 percent
incentive cap. The reserve was
$21.4 million
for CL&P,
$8.5 million
for NSTAR Electric,
$3.1 million
for PSNH, and
$6.1 million
for WMECO as of March 31, 2017.
At this time, the Company cannot reasonably estimate a range of gain or loss for the complaint proceedings. The Court decision did not provide a reasonable basis for a change to the March 31, 2017 reserve balance of
$39.1 million
(pre-tax and excluding interest) for the second complaint period, and the Company has not changed its reserves or recognized ROEs for any of the complaint periods.
Management cannot at this time predict the ultimate effect of the Court decision on any of the complaint periods or the estimated impacts on the financial position, results of operations or cash flows of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
The average impact of a 10 basis point change to the base ROE for each of the
15
-month complaint periods would affect Eversource's after-tax earnings by approximately
$3 million
.
FERC Order No. 1000:
On August 15, 2014, the D.C. Circuit Court of Appeals upheld the FERC's authority to order major changes to transmission planning and cost allocation in FERC Order No. 1000 and Order No. 1000-A, including transmission planning for public policy needs, and the requirement that utilities remove from their transmission tariffs their rights of first refusal to build transmission, to allow for competition. ISO-NE and the NETOs, including CL&P, NSTAR Electric, PSNH and WMECO, made compliance filings to address this policy, which included exemption from competition for certain transmission solutions previously evaluated by ISO-NE, and the NETOs' rights to retain use and control of existing right of ways. This compliance was accepted by the FERC on December 14, 2015. At the same time, the NETOs filed an appeal to the D.C. Circuit Court of Appeals, challenging FERC's removal of the right of first refusal. State regulators also filed an appeal, challenging the FERC's determination that ISO-NE should select public policy transmission projects after a competitive process.
On April 18, 2017, the D.C. Circuit Court of Appeals issued a decision rejecting both challenges.
NSTAR Electric and WMECO Merger FERC Filings:
On January 13, 2017, Eversource made two filings with FERC related to the proposed merger of WMECO into NSTAR Electric with an anticipated effective date of January 1, 2018. One filing requests FERC approval of the merger, and the other filing requests FERC approval of NSTAR Electric's assumption of WMECO's short-term debt obligations. The FERC approved the merger on March 2, 2017 and will act on the assumption of debt filing later in 2017.
Regulatory Developments and Rate Matters
Electric and Natural Gas Base Distribution Rates:
The Regulated companies’ distribution rates are set by their respective state regulatory commissions, and their tariffs include mechanisms for periodically adjusting their rates for the recovery of specific incurred costs. Other than as described below, for the first quarter of 2017, changes made to the Regulated companies’ rates did not have a material impact on their earnings, financial position, or cash flows. For further information, see “Financial Condition and Business Analysis – Regulatory Developments and Rate Matters” included in Item 7, “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
,” of the Eversource 2016 Form 10-K.
Connecticut:
On April 20, 2017, PURA approved the joint request of CL&P, the Connecticut Office of Consumer Counsel and the Connecticut Attorney General to amend the deadline to establish new electric distribution rates in the 2012 Connecticut merger settlement agreement from "no later than December 1, 2017" to "no later than July 1, 2018".
Massachusetts:
Clean Energy RFP:
On March 31, 2017, pursuant to comprehensive energy legislation, "An Act to Promote Energy Diversity," which became law in 2016,
the Massachusetts EDCs, including NSTAR Electric and WMECO, and the DOER issued a joint RFP for 9.45 terawatt hours
of clean energy per year, such as hydropower, land-based wind or solar.
The RFP seeks proposals for long-term contracts of 15 to 20 years to provide the state's electric distribution companies with clean energy generation. The proposal submission due date is July 27, 2017. Contracts will be selected in January 2018, with an expectation to submit executed long-term contracts to the DPU for final approval in April 2018. Northern Pass will be bid into the RFP.
NSTAR Electric and WMECO Rate Case:
On January 17, 2017, NSTAR Electric and WMECO jointly filed an application (the "Joint Applicants") with the DPU for approval of a combined $96 million increase in base distribution rates, effective January 1, 2018. As part of this filing, the Joint Applicants are presenting a grid-wise performance plan, including the implementation of a performance-based rate-making mechanism in conjunction with a grid modernization base commitment of $400 million in incremental capital investment over a period of five years, commencing January 1, 2018. In addition, the Joint Applicants are proposing to streamline and align rate classifications between NSTAR Electric and WMECO, and requesting a revenue decoupling rate mechanism for NSTAR Electric. WMECO has a revenue decoupling mechanism in place. The DPU will also be reviewing the proposed merger of NSTAR Electric and WMECO as part of the rate case. A final decision from the DPU is expected in late 2017, with new rates anticipated to be effective January 1, 2018.
New Hampshire:
Generation Divestiture
: 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. Under the terms of the Agreement, PSNH agreed to divest its generation assets, subject to NHPUC approval. The Agreement provided for 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 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.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructs PSNH to begin the process of divesting its generation assets. The NHPUC selected an auction adviser to assist with the divestiture, and the final plan and auction process were approved by the NHPUC in November 2016. An intervening appeal alleging that the auction process and schedule were unreasonable was rejected by the New Hampshire Supreme Court in February 2017. In late March 2017, the formal divestiture process began. We continue to believe the assets will be sold by the end of 2017.
As of
March 31, 2017
, PSNH's energy service rate base subject to divestiture was approximately $620 million. This rate base will be reduced by the amount of the sales proceeds from the generation assets that are divested and sold. Upon completion of the divestiture process, 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 via bonds that will be secured by a non-bypassable charge or through recoveries in future rates billed to PSNH's customers.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and, at times, difficult, subjective or complex judgments. Changes in these estimates, assumptions and judgments, in and of themselves, could materially impact our financial position, results of operations or cash flows. Our management communicates to and discusses with the Audit Committee of our Board of Trustees significant matters relating to critical accounting policies. Our critical accounting policies that we believed were the most critical in nature were reported in the Eversource
2016
Form 10-K. There have been no material changes with regard to these critical accounting policies.
Other Matters
Accounting Standards
: For information regarding new accounting standards, see Note 1B, "Summary of Significant Accounting Policies –Accounting Standards," to the financial statements.
Contractual Obligations and Commercial Commitments
: There have been no material contractual obligations identified and no material changes with regard to the contractual obligations and commercial commitments previously disclosed in the Eversource
2016
Form 10-K.
Web Site
: Additional financial information is available through our website at www.eversource.com. We make available through our website a link to the SEC's EDGAR website (http://www.sec.gov/edgar/searchedgar/companysearch.html), at which site Eversource's, CL&P's, NSTAR Electric's, PSNH's and WMECO's combined Annual Reports on Form 10-K, combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports may be reviewed. Information contained on the Company's website or that can be accessed through the website is not incorporated into and does not constitute a part of this combined Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS – EVERSOURCE ENERGY AND SUBSIDIARIES
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for Eversource for the
three
months ended
March 31, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
2,105.1
|
|
|
$
|
2,055.6
|
|
|
$
|
49.5
|
|
|
2.4
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
753.6
|
|
|
754.9
|
|
|
(1.3
|
)
|
|
(0.2
|
)
|
Operations and Maintenance
|
330.3
|
|
|
320.1
|
|
|
10.2
|
|
|
3.2
|
|
Depreciation
|
186.8
|
|
|
174.0
|
|
|
12.8
|
|
|
7.4
|
|
Amortization of Regulatory Assets, Net
|
24.0
|
|
|
21.0
|
|
|
3.0
|
|
|
14.3
|
|
Energy Efficiency Programs
|
146.2
|
|
|
137.2
|
|
|
9.0
|
|
|
6.6
|
|
Taxes Other Than Income Taxes
|
155.2
|
|
|
159.9
|
|
|
(4.7
|
)
|
|
(2.9
|
)
|
Total Operating Expenses
|
1,596.1
|
|
|
1,567.1
|
|
|
29.0
|
|
|
1.9
|
|
Operating Income
|
509.0
|
|
|
488.5
|
|
|
20.5
|
|
|
4.2
|
|
Interest Expense
|
103.4
|
|
|
98.2
|
|
|
5.2
|
|
|
5.3
|
|
Other Income, Net
|
13.6
|
|
|
2.0
|
|
|
11.6
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
419.2
|
|
|
392.3
|
|
|
26.9
|
|
|
6.9
|
|
Income Tax Expense
|
157.8
|
|
|
146.2
|
|
|
11.6
|
|
|
7.9
|
|
Net Income
|
261.4
|
|
|
246.1
|
|
|
15.3
|
|
|
6.2
|
|
Net Income Attributable to Noncontrolling Interests
|
1.9
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
Net Income Attributable to Common Shareholders
|
$
|
259.5
|
|
|
$
|
244.2
|
|
|
$
|
15.3
|
|
|
6.3
|
%
|
|
|
(a)
|
Percent greater than 100 not shown as it is not meaningful.
|
Operating Revenues
A summary of our Operating Revenues by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric Distribution
|
$
|
1,401.1
|
|
|
$
|
1,436.1
|
|
|
$
|
(35.0
|
)
|
|
(2.4
|
)%
|
Natural Gas Distribution
|
403.6
|
|
|
342.6
|
|
|
61.0
|
|
|
17.8
|
|
Electric Transmission
|
316.9
|
|
|
283.3
|
|
|
33.6
|
|
|
11.9
|
|
Other and Eliminations
|
(16.5
|
)
|
|
(6.4
|
)
|
|
(10.1
|
)
|
|
(a)
|
|
Total Operating Revenues
|
$
|
2,105.1
|
|
|
$
|
2,055.6
|
|
|
$
|
49.5
|
|
|
2.4
|
%
|
|
|
(a)
|
Percent greater than 100 not shown as it is not meaningful.
|
A summary of our retail electric GWh sales volumes and our firm natural gas sales volumes in Mcf were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric
|
|
|
|
|
|
|
|
Traditional
|
6,971
|
|
|
6,994
|
|
|
(23
|
)
|
|
(0.3
|
)%
|
Decoupled
|
6,201
|
|
|
6,225
|
|
|
(24
|
)
|
|
(0.4
|
)
|
Total Electric
|
13,172
|
|
|
13,219
|
|
|
(47
|
)
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Firm Natural Gas
|
|
|
|
|
|
|
|
|
Traditional
|
18,905
|
|
|
17,985
|
|
|
920
|
|
|
5.1
|
|
Decoupled and Special Contracts
|
22,241
|
|
|
21,363
|
|
|
878
|
|
|
4.1
|
|
Total Firm Natural Gas
|
41,146
|
|
|
39,348
|
|
|
1,798
|
|
|
4.6
|
%
|
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, increased by
$49.5 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
.
Base electric and natural gas distribution revenues
: Base electric distribution segment revenues, excluding LBR, increased $3.2 million for the three months ended March 31, 2017, as compared to the same period in 2016. Operating Revenues increased $4.3 million for the three months ended
March 31, 2017
, as compared to the same period in
2016
, as a result of higher LBR recognition.
Base natural gas distribution revenues increased $3.4 million for the three months ended March 31, 2017, as compared to the same period in 2016, driven by higher firm natural gas sales volumes due to colder weather in Connecticut in the first quarter of 2017, as compared to the first quarter of 2016, as well as
growth in new customer base.
Fluctuations in CL&P's, WMECO's and NSTAR Gas' sales volumes do not impact the level of base distribution revenue realized or earnings due to their respective regulatory commission approved revenue decoupling mechanisms. The revenue decoupling mechanisms permit recovery of a base amount of distribution revenues and break the relationship between sales volumes and revenues recognized. Revenue decoupling mechanisms result in the recovery of our approved base distribution revenue requirements.
Tracked distribution revenues:
Tracked revenues consist of certain costs that are recovered from customers in rates through regulatory commission-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply procurement costs and other energy-related costs for our electric and natural gas customers, retail transmission charges, energy efficiency program costs, and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked natural gas distribution segment revenues increased as a result of an increase in natural gas supply costs ($46.3 million) and an increase in energy efficiency program revenues ($10.1 million). Tracked electric distribution revenues decreased as a result of a decrease in electric energy supply costs ($53.6 million), driven by decreased average retail rates, partially offset by an increase in federally-mandated congestion charges ($12.6 million).
Electric transmission revenues:
The electric transmission segment revenues increased by
$33.6 million
due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power, Fuel and Transmission
expense includes costs associated with purchasing electricity and natural gas on behalf of our customers. These energy supply costs are recovered from customers in rates through cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power, Fuel and Transmission expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Electric Distribution
|
$
|
(62.1
|
)
|
Natural Gas Distribution
|
41.1
|
|
Transmission
|
19.7
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
(1.3
|
)
|
The decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply and lower sales volumes for the three months ended
March 31, 2017
, as compared to the same period in
2016
. The increase in purchased power expense at the natural gas distribution business was due to higher sales volumes. The increase in transmission costs was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment.
Operations and Maintenance
expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Base Electric Distribution:
|
|
Storm restoration costs
|
$
|
8.0
|
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
5.5
|
|
System resiliency project costs at CL&P
|
2.2
|
|
Employee-related expenses, including labor and benefits
|
(8.8
|
)
|
Bad debt expense
|
(3.2
|
)
|
Other operations and maintenance
|
0.6
|
|
Total Base Electric Distribution
|
4.3
|
|
Total Base Natural Gas Distribution:
|
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
1.3
|
|
Other operations and maintenance
|
2.2
|
|
Total Base Natural Gas Distribution
|
3.5
|
|
Total Tracked costs (Electric Distribution, Electric Transmission and Natural Gas Distribution)
|
9.4
|
|
Other and eliminations:
|
|
Eversource Parent and Other Companies
|
(2.0
|
)
|
Eliminations
|
(5.0
|
)
|
Total Operations and Maintenance
|
$
|
10.2
|
|
Depreciation
expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net
expense includes the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms, and the amortization of certain costs. The deferral adjusts expense to match the corresponding revenues. Amortization of Regulatory Assets, Net, increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the deferral of energy supply and energy-related costs which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs. Energy supply and energy-related costs at CL&P, NSTAR Electric, PSNH and WMECO, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs
expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the deferral adjustment for the natural gas businesses, which reflects the actual costs of energy efficiency programs compared to the estimated amounts billed to customers, and the timing of the recovery of energy efficiency costs incurred in accordance with the program guidelines established by the regulatory commissions. The deferrals adjust expense to match the energy efficiency programs revenue. The costs for various state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes
expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due to lower employment-related taxes and a decrease in property tax rates at NSTAR Electric, partially offset by an increase in property taxes at CL&P due to higher utility plant balances.
Interest Expense
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher interest on long-term debt ($4.9 million) as a result of new debt issuances.
Other Income, Net
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to an increase in earnings related to equity method investments ($4.7 million), higher AFUDC related to equity funds ($2.5 million) and an increase in net gains related to the deferred compensation plans ($2.1 million).
Income Tax Expense
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher pre-tax earnings ($9.4 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2.2 million).
RESULTS OF OPERATIONS – THE CONNECTICUT LIGHT AND POWER COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for CL&P for the
three
months ended
March 31, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
732.3
|
|
|
$
|
735.3
|
|
|
$
|
(3.0
|
)
|
|
(0.4
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
244.9
|
|
|
272.6
|
|
|
(27.7
|
)
|
|
(10.2
|
)
|
Operations and Maintenance
|
128.2
|
|
|
110.8
|
|
|
17.4
|
|
|
15.7
|
|
Depreciation
|
59.8
|
|
|
57.0
|
|
|
2.8
|
|
|
4.9
|
|
Amortization of Regulatory Assets, Net
|
12.8
|
|
|
9.9
|
|
|
2.9
|
|
|
29.3
|
|
Energy Efficiency Programs
|
36.6
|
|
|
38.1
|
|
|
(1.5
|
)
|
|
(3.9
|
)
|
Taxes Other Than Income Taxes
|
74.0
|
|
|
75.4
|
|
|
(1.4
|
)
|
|
(1.9
|
)
|
Total Operating Expenses
|
556.3
|
|
|
563.8
|
|
|
(7.5
|
)
|
|
(1.3
|
)
|
Operating Income
|
176.0
|
|
|
171.5
|
|
|
4.5
|
|
|
2.6
|
|
Interest Expense
|
35.0
|
|
|
36.5
|
|
|
(1.5
|
)
|
|
(4.1
|
)
|
Other Income, Net
|
2.8
|
|
|
0.9
|
|
|
1.9
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
143.8
|
|
|
135.9
|
|
|
7.9
|
|
|
5.8
|
|
Income Tax Expense
|
53.6
|
|
|
48.9
|
|
|
4.7
|
|
|
9.6
|
|
Net Income
|
$
|
90.2
|
|
|
$
|
87.0
|
|
|
$
|
3.2
|
|
|
3.7
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
CL&P's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
5,330
|
|
|
5,350
|
|
|
(20
|
)
|
|
(0.4
|
)%
|
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by
$3.0 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
.
Fluctuations in CL&P's sales volumes do not impact the level of base distribution revenue realized or earnings due to the PURA-approved revenue decoupling mechanism. CL&P's revenue decoupling mechanism permits recovery of a base amount of distribution revenues ($1.059 billion annually) and breaks the relationship between sales volumes and revenues recognized. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through PURA-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply procurement and other energy-related costs, retail transmission charges, energy efficiency program costs and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($30.0 million) driven by decreased average retail rates. In addition, there was a $4.0 million decrease in stranded cost recovery revenue. Partially offsetting these decreases was an increase in federally-mandated congestion charges ($12.6 million).
Transmission revenues increased by $18.9 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission
expense includes costs associated with purchasing electricity on behalf of CL&P's customers. These energy supply costs are recovered from customers in PURA-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
(38.3
|
)
|
Transmission Costs
|
10.6
|
|
Total Purchased Power and Transmission
|
$
|
(27.7
|
)
|
Included in purchased power costs are the costs associated with CL&P's GSC and deferred energy supply costs. The GSC recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs for the three months ended
March 31, 2017
, compared to the same period in
2016
, was due primarily to a decrease in the price of standard offer supply. The increase in transmission costs was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment.
Operations and Maintenance
expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, driven by a $9.0 million increase in non-tracked costs, which was primarily attributable to higher storm restoration costs, higher system resiliency project costs, and higher shared corporate costs, partially offset by lower employee-related expenses. In addition, there was an $8.4 million increase in tracked costs, which was primarily attributable to higher transmission expenses.
Income Tax Expense
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher pre-tax earnings ($2.7 million), higher state taxes ($1.1 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.9 million).
EARNINGS SUMMARY
CL&P's earnings increased
$3.2 million
for the three months ended
March 31, 2017
, as compared to the same period in 2016, due primarily to an increase in transmission earnings driven by a higher transmission rate base and higher distribution revenues due in part to a higher rate base for the system resiliency program. These favorable earnings impacts were partially offset by higher operations and maintenance expense and a higher effective tax rate.
LIQUIDITY
Cash totaled
$15.3 million
as of
March 31, 2017
, compared with
$6.6 million
as of December 31, 2016.
CL&P had cash flows provided by operating activities of
$171.6 million
for the three months ended
March 31, 2017
, as compared to
$221.2 million
in the same period of 2016. The decrease in operating cash flows was due primarily to $117.0 million in lower income tax refunds received in 2017, as compared to 2016. Partially offsetting this decrease was the favorable impact of the timing of regulatory recoveries, primarily related to purchased power costs, and the favorable impacts related to the timing of collections and payments of working capital items.
In March 2017,
CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings. Also in March 2017, CL&P repaid at maturity the $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings.
Eversource parent has a
$1.45 billion
commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt, with intercompany loans to certain subsidiaries, including CL&P. The weighted-average interest rate on the commercial paper borrowings as of
March 31, 2017
and
December 31, 2016
was
1.12 percent
and
0.88 percent
, respectively. As of
March 31, 2017
and
December 31, 2016
, there were intercompany loans from Eversource parent to CL&P of
$3.4 million
and
$80.1 million
, respectively.
Eversource parent, and certain of its subsidiaries, including CL&P, are parties to a
five
-year
$1.45 billion
revolving credit facility. The revolving credit facility's termination date is September 4, 2021. There were
no
borrowings outstanding on the revolving credit facility as of
March 31, 2017
or
December 31, 2016
.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. CL&P's investments in property, plant and equipment totaled
$181.6 million
for the three months ended
March 31, 2017
.
RESULTS OF OPERATIONS – NSTAR ELECTRIC COMPANY AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for NSTAR Electric for the
three
months ended
March 31, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
603.8
|
|
|
$
|
614.2
|
|
|
$
|
(10.4
|
)
|
|
(1.7
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
233.1
|
|
|
254.3
|
|
|
(21.2
|
)
|
|
(8.3
|
)
|
Operations and Maintenance
|
88.4
|
|
|
94.7
|
|
|
(6.3
|
)
|
|
(6.7
|
)
|
Depreciation
|
55.2
|
|
|
51.9
|
|
|
3.3
|
|
|
6.4
|
|
Amortization of Regulatory Assets, Net
|
5.0
|
|
|
4.7
|
|
|
0.3
|
|
|
6.4
|
|
Energy Efficiency Programs
|
67.3
|
|
|
66.2
|
|
|
1.1
|
|
|
1.7
|
|
Taxes Other Than Income Taxes
|
27.4
|
|
|
32.6
|
|
|
(5.2
|
)
|
|
(16.0
|
)
|
Total Operating Expenses
|
476.4
|
|
|
504.4
|
|
|
(28.0
|
)
|
|
(5.6
|
)
|
Operating Income
|
127.4
|
|
|
109.8
|
|
|
17.6
|
|
|
16.0
|
|
Interest Expense
|
22.0
|
|
|
20.9
|
|
|
1.1
|
|
|
5.3
|
|
Other Income/(Loss), Net
|
3.3
|
|
|
(0.3
|
)
|
|
3.6
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
108.7
|
|
|
88.6
|
|
|
20.1
|
|
|
22.7
|
|
Income Tax Expense
|
42.5
|
|
|
34.1
|
|
|
8.4
|
|
|
24.6
|
|
Net Income
|
$
|
66.2
|
|
|
$
|
54.5
|
|
|
$
|
11.7
|
|
|
21.5
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
NSTAR Electric's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
4,979
|
|
|
5,018
|
|
|
(39
|
)
|
|
(0.8
|
)%
|
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by
$10.4 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues, excluding LBR, remained relatively unchanged for the three months ended March 31, 2017, as compared to the same period in 2016. Operating Revenues increased $4.3 million for the three months ended
March 31, 2017
, as compared to the same period in
2016
, as a result of higher LBR recognition.
Tracked revenues:
Tracked revenues consist of certain costs that are recovered from customers in rates through DPU-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs, retail transmission charges, energy efficiency program costs, net metering for distributed generation and transition cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($22.4 million) driven by decreased average retail rates and lower sales volumes, and a decrease in retail transmission charges ($7.3 million). Partially offsetting these decreases were an increase in net metering revenues ($7.3 million), an increase in revenues related to renewable energy requirements ($7.3 million), and an increase in energy efficiency program revenues ($4.0 million).
Transmission revenues increased by $3.6 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission
expense includes costs associated with purchasing electricity on behalf of NSTAR Electric's customers. These energy supply costs are recovered from customers in DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Decrease
|
Purchased Power Costs
|
$
|
(17.5
|
)
|
Transmission Costs
|
(3.7
|
)
|
Total Purchased Power and Transmission
|
$
|
(21.2
|
)
|
Included in purchased power costs are the costs associated with NSTAR Electric's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply and lower sales volumes. The decrease in transmission costs was primarily the result of a decrease in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance
expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, driven by a $6.6 million decrease in non-tracked costs, which was primarily attributable to lower employee-related expenses and lower bad debt expense, partially offset by higher shared corporate costs. Tracked costs increased $0.3 million.
Depreciation
expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Taxes Other Than Income Taxes
expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to a decrease in property tax rates and lower employment-related taxes.
Other Income/(Loss), Net
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher AFUDC on equity funds ($1.2 million), an increase related to officer insurance policies ($1.2 million) and an increase in gains related to deferred compensation plans ($1.1 million).
Income Tax Expense
increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher pre-tax earnings ($7.0 million), higher state taxes ($0.8 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.6 million).
EARNINGS SUMMARY
NSTAR Electric's earnings increased
$11.7 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to lower operations and maintenance expense, higher distribution revenues as a result of higher lost base revenues, higher earnings from net metering and higher energy efficiency incentives, lower property and other tax expense, and an increase in transmission earnings driven by a higher transmission rate base. These favorable earnings impacts were partially offset by higher depreciation expense and higher interest expense.
LIQUIDITY
NSTAR Electric had cash flows provided by operating activities of
$133.7 million
for the three months ended
March 31, 2017
, as compared to
$96.3 million
in the same period of
2016
. The increase in operating cash flows was due primarily to a favorable impact related to an increase in regulatory recoveries due to collections from customers in excess of purchased power costs and changes in the timing of working capital items. Partially offsetting these favorable impacts was $4.9 million in lower income tax refunds received in 2017, as compared to 2016.
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
March 31, 2017
and
December 31, 2016
, NSTAR Electric had
$174.5 million
and
$126.5 million
, respectively, in short-term borrowings outstanding under its commercial paper program, leaving
$275.5 million
and
$323.5 million
of available borrowing capacity as of
March 31, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
March 31, 2017
and
December 31, 2016
was
0.86 percent
and
0.71 percent
, respectively. NSTAR Electric is a party to a
five
-year
$450 million
revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop NSTAR Electric's
$450 million
commercial paper program. There were
no
borrowings outstanding on the revolving credit facility as of
March 31, 2017
or
December 31, 2016
.
RESULTS OF OPERATIONS – PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for PSNH for the
three
months ended
March 31, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
253.2
|
|
|
$
|
242.3
|
|
|
$
|
10.9
|
|
|
4.5
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
61.8
|
|
|
50.2
|
|
|
11.6
|
|
|
23.1
|
|
Operations and Maintenance
|
62.4
|
|
|
59.2
|
|
|
3.2
|
|
|
5.4
|
|
Depreciation
|
30.7
|
|
|
28.3
|
|
|
2.4
|
|
|
8.5
|
|
Amortization of Regulatory Assets, Net
|
5.4
|
|
|
8.5
|
|
|
(3.1
|
)
|
|
(36.5
|
)
|
Energy Efficiency Programs
|
3.7
|
|
|
3.6
|
|
|
0.1
|
|
|
2.8
|
|
Taxes Other Than Income Taxes
|
20.9
|
|
|
21.8
|
|
|
(0.9
|
)
|
|
(4.1
|
)
|
Total Operating Expenses
|
184.9
|
|
|
171.6
|
|
|
13.3
|
|
|
7.8
|
|
Operating Income
|
68.3
|
|
|
70.7
|
|
|
(2.4
|
)
|
|
(3.4
|
)
|
Interest Expense
|
12.8
|
|
|
12.5
|
|
|
0.3
|
|
|
2.4
|
|
Other Income, Net
|
1.1
|
|
|
0.2
|
|
|
0.9
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
56.6
|
|
|
58.4
|
|
|
(1.8
|
)
|
|
(3.1
|
)
|
Income Tax Expense
|
22.3
|
|
|
22.3
|
|
|
—
|
|
|
—
|
|
Net Income
|
$
|
34.3
|
|
|
$
|
36.1
|
|
|
$
|
(1.8
|
)
|
|
(5.0
|
)%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
PSNH's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase
|
|
Percent
|
Retail Sales Volumes in GWh
|
1,992
|
|
|
1,976
|
|
|
16
|
|
|
0.8
|
%
|
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$10.9 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues increased $2.9 million due primarily to a $1.0 million increase as a result of a distribution rate increase effective July 1, 2016.
Tracked revenues:
Tracked revenues consist of certain costs that are recovered from customers in rates through NHPUC-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs and costs associated with the generation of electricity for customers, retail transmission charges, energy efficiency program costs and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues increased primarily as a result of an increase in retail transmission charges ($5.8 million) and an increase in both energy supply costs and wholesale generation revenues (totaling $3.7 million) for the three months ended
March 31, 2017
, as compared to the same period of
2016
. The increase in energy supply costs was driven by increased average retail rates. Partially offsetting these increases was a decrease in revenues related to the timing of the sale of RECs ($7.7 million).
Transmission revenues increased by $6.2 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power, Fuel and Transmission
expense includes costs associated with PSNH's generation of electricity, as well as purchasing electricity on behalf of its customers. These generation and energy supply costs are recovered from customers in NHPUC-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power, Fuel and Transmission expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase
|
Purchased Power and Generation Fuel Costs
|
$
|
2.0
|
|
Transmission Costs
|
9.6
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
11.6
|
|
In order to meet the demand of customers who have not migrated to third party suppliers, PSNH procures power through power supply contracts and spot purchases in the competitive New England wholesale power market and/or produces power through its own generation. The increase in purchased power and generation fuel costs was due primarily to Regional Greenhouse Gas Initiative related expenses. The increase in transmission costs was primarily the result of an increase in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance
expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, driven by a $3.4 million increase in tracked costs, which was primarily attributable to higher transmission expenses, partially offset by a $0.2 million decrease in non-tracked costs.
Depreciation
expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net
expense includes the deferral to expense of energy supply costs and the amortization of certain costs, which are recovered from customers in rates and have no impact on earnings. The decrease for the three months ended
March 31, 2017
, as compared to the same period in
2016
, was due primarily to the deferral adjustment of the stranded cost recovery charge. The deferral adjusts expense to match the corresponding revenues.
EARNINGS SUMMARY
PSNH's earnings decreased
$1.8 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to lower generation earnings and higher depreciation expense, partially offset by higher distribution revenues due primarily to a distribution rate increase effective July 1, 2016 and an increase in transmission earnings driven by a higher transmission rate base.
LIQUIDITY
PSNH had cash flows provided by operating activities of
$113.2 million
for the three months ended
March 31, 2017
, as compared to
$156.3 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to income tax payments of $9.0 million made in 2017, compared to income tax refunds of $53.9 million received in the same period in 2016. In addition, there was a $10.3 million decrease related to the use of fuel inventories. Partially offsetting these decreases were $9.7 million lower Pension Plan contributions made in 2017, as compared to 2016 and the favorable impacts related to the timing of collections of accounts receivable and regulatory recoveries.
RESULTS OF OPERATIONS – WESTERN MASSACHUSETTS ELECTRIC COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for WMECO for the
three
months ended
March 31, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
130.1
|
|
|
$
|
128.1
|
|
|
$
|
2.0
|
|
|
1.6
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
40.9
|
|
|
39.5
|
|
|
1.4
|
|
|
3.5
|
|
Operations and Maintenance
|
22.5
|
|
|
21.8
|
|
|
0.7
|
|
|
3.2
|
|
Depreciation
|
12.0
|
|
|
11.4
|
|
|
0.6
|
|
|
5.3
|
|
Amortization of Regulatory (Liabilities)/Assets, Net
|
(0.5
|
)
|
|
1.2
|
|
|
(1.7
|
)
|
|
(a)
|
|
Energy Efficiency Programs
|
10.7
|
|
|
10.9
|
|
|
(0.2
|
)
|
|
(1.8
|
)
|
Taxes Other Than Income Taxes
|
10.3
|
|
|
10.2
|
|
|
0.1
|
|
|
1.0
|
|
Total Operating Expenses
|
95.9
|
|
|
95.0
|
|
|
0.9
|
|
|
0.9
|
|
Operating Income
|
34.2
|
|
|
33.1
|
|
|
1.1
|
|
|
3.3
|
|
Interest Expense
|
6.2
|
|
|
6.0
|
|
|
0.2
|
|
|
3.3
|
|
Other Income/(Loss), Net
|
—
|
|
|
(0.2
|
)
|
|
0.2
|
|
|
(100.0
|
)
|
Income Before Income Tax Expense
|
28.0
|
|
|
26.9
|
|
|
1.1
|
|
|
4.1
|
|
Income Tax Expense
|
10.8
|
|
|
10.1
|
|
|
0.7
|
|
|
6.9
|
|
Net Income
|
$
|
17.2
|
|
|
$
|
16.8
|
|
|
$
|
0.4
|
|
|
2.4
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
WMECO's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
870
|
|
|
876
|
|
|
(6
|
)
|
|
(0.6
|
)%
|
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$2.0 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
.
Fluctuations in WMECO's sales volumes do not impact the level of base distribution revenue realized or earnings due to the DPU-approved revenue decoupling mechanism. WMECO's revenue decoupling mechanism permits recovery of a base amount of distribution revenues ($132.4 million annually) and breaks the relationship between sales volumes and revenues recognized. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through DPU-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs, retail transmission charges, energy efficiency program costs, low income assistance programs, and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked revenues decreased due primarily to a decrease in energy supply costs ($4.9 million) driven by decreased average retail rates and lower sales volumes, partially offset by an increase in retail transmission charges ($2.2 million).
Transmission revenues increased by $4.9 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission
expense includes costs associated with the purchasing of energy supply on behalf of WMECO's customers. These energy supply costs are recovered from customers in DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
(1.9
|
)
|
Transmission Costs
|
3.3
|
|
Total Purchased Power and Transmission
|
$
|
1.4
|
|
Included in purchased power costs are the costs associated with WMECO's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply. The increase in transmission costs was primarily the result of an increase in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance
expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, driven by a $2.1 million increase in non-tracked costs, which was primarily attributable to higher storm restoration costs, higher shared corporate costs, and higher bad expense. Tracked costs decreased $1.4 million, which was primarily attributable to the deferral adjustment for RECs generated and sold by the WMECO solar program, partially offset by higher transmission expenses.
Amortization of Regulatory (Liabilities)/Assets, Net
expense decreased for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due to the timing of refunds or recovery of tracked costs to/from customers in rates. These costs have no impact on earnings.
EARNINGS SUMMARY
WMECO's earnings increased
$0.4 million
for the three months ended
March 31, 2017
, as compared to the same period in
2016
, due primarily to an increase in transmission earnings driven by a higher transmission rate base, partially offset by higher operations and maintenance expense.
LIQUIDITY
WMECO had cash flows provided by operating activities of
$22.6 million
for the three months ended
March 31, 2017
, as compared to
$50.7 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to a decrease of $22.4 million in income tax refunds in 2017, as compared to
2016
and the timing of collections of accounts receivable.