Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this combined Quarterly Report on Form 10-Q, the combined quarterly report on Form 10-Q for the quarter ended March 31, 2017, 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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•
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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
$230.7 million
, or
$0.72
per share, in the
second
quarter of
2017
, and
$490.2 million
, or
$1.54
per share, in the first
half
of
2017
, compared with
$203.6 million
, or
$0.64
per share, in the
second
quarter of
2016
, and
$447.8 million
, or
$1.41
per share, in the first
half
of
2016
.
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•
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Our electric distribution segment, which includes generation, earned
$121.9 million
, or
$0.38
per share, in the
second
quarter of
2017
, and
$236.0 million
, or
$0.74
per share, in the first
half
of
2017
, compared with
$102.8 million
, or
$0.32
per share, in the second quarter of
2016
, and
$211.3 million
, or
$0.66
per share, in the first
half
of
2016
.
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•
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Our electric transmission segment earned
$96.4 million
, or
$0.30
per share, in the
second
quarter of
2017
, and
$190.6 million
, or
$0.60
per share, in the first
half
of
2017
, compared with
$92.5 million
, or
$0.29
per share, in the
second
quarter of
2016
, and
$178.2 million
, or
$0.56
per share, in the first
half
of
2016
.
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•
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Our natural gas distribution segment earned
$4.5 million
, or
$0.01
per share, in the
second
quarter of
2017
, and
$55.3 million
, or
$0.17
per share, in the first
half
of
2017
, compared with
$8.0 million
, or
$0.03
per share, in the
second
quarter of
2016
, and
$58.9 million
, or
$0.19
per share, in the first
half
of
2016
.
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•
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Eversource parent and other companies earned
$7.9 million
in the
second
quarter of
2017
and
$8.3 million
in the first
half
of
2017
, compared with earnings of
$0.3 million
in the
second
quarter of
2016
and a net loss of
$0.6 million
in the first
half
of
2016
.
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Liquidity:
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Cash flows provided by operating activities totaled
$908.0 million
in the first
half
of
2017
, compared with
$978.4 million
in the first
half
of
2016
. Investments in property, plant and equipment totaled
$1.1 billion
in the first
half
of
2017
, compared with
$869.2 million
in the first
half
of
2016
. Cash and cash equivalents totaled
$24.6 million
as of
June 30, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
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In May 2017, NSTAR Electric issued $350 million
of 3.20 percent Debentures, due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings and fund capital expenditures and working capital.
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On May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, which was paid 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 June 2, 2017, Eversource announced that it had entered into an agreement to acquire Aquarion Water Company ("Aquarion") from Macquarie Infrastructure Partners for $1.675 billion, consisting of approximately $880 million in cash and $795 million of assumed debt. On June 29, 2017, Eversource and Aquarion filed joint applications with regulators in Connecticut, Massachusetts, New Hampshire and Maine requesting approval of the transaction.
The transaction is expected to close by December 31, 2017.
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NSTAR Electric and Massachusetts Water Resource Authority have been parties to a civil action brought by the United States Attorney on behalf of the United States Army Corps of Engineers, alleging that they failed to comply with certain permitting requirements related to the placement of an electric distribution cable beneath Boston Harbor.
After substantial negotiations, the parties reached a settlement whereby a new
115
kV
distribution cable will be installed across Boston Harbor, utilizing a different route, and the litigation is expected to be dismissed with prejudice. In the second quarter of 2017, as a result of the settlement, NSTAR Electric expensed
$4.9 million
(pre-tax) of previously incurred capitalized costs associated with engineering work performed on the existing cable
that will no longer be used
.
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On July 27, 2017, Eversource Energy Transmission Ventures, Inc. and HQ jointly submitted proposals for Northern Pass into the Massachusetts clean energy RFP. Northern Pass is expected to be placed in service in the second half of 2020.
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On April 14, 2017, pursuant to appeals the NETOs and Complainants filed on the first FERC ROE complaint decision, the U.S. Court of Appeals for the D.C. Circuit issued a decision vacating and remanding the FERC's decision. On June 5, 2017, the NETOs, including Eversource, submitted a filing at the FERC to reinstate the base ROE of 11.14 percent with an associated ROE incentive cap of 13.5 percent effective June 8, 2017, as these were the last ROEs lawfully in effect for transmission billing purposes prior to the FERC order vacated by the Court on April 14, 2017. The NETOs have voluntarily delayed the date on which they will begin billing the reinstated ROEs until 60 days after the FERC has a quorum again. If the FERC takes no action within that 60-day period, the NETOs will begin billing the reinstated ROEs, subject to refund.
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Overview
Consolidated:
Below is a summary of our earnings by business, which also reconciles the non-GAAP financial measure of EPS by business to the most directly comparable GAAP measure of diluted EPS, for the
second
quarter and the first
half
of
2017
and
2016
.
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For the Three Months Ended June 30,
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For the Six Months Ended June 30,
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2017
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2016
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2017
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2016
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(Millions of Dollars, Except Per-Share Amounts)
|
Amount
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Per Share
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|
Amount
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Per Share
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Amount
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Per Share
|
|
Amount
|
|
Per Share
|
Net Income Attributable to
Common Shareholders (GAAP)
|
$
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230.7
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$
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0.72
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$
|
203.6
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$
|
0.64
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|
$
|
490.2
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$
|
1.54
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$
|
447.8
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|
$
|
1.41
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Regulated Companies
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$
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222.8
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$
|
0.69
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$
|
203.3
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|
$
|
0.64
|
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|
$
|
481.9
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|
$
|
1.51
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$
|
448.4
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$
|
1.41
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Eversource Parent and Other Companies
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7.9
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|
0.03
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0.3
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—
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8.3
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|
0.03
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|
(0.6
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)
|
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—
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Net Income Attributable to Common Shareholders (GAAP)
|
$
|
230.7
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|
$
|
0.72
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|
$
|
203.6
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|
|
$
|
0.64
|
|
|
$
|
490.2
|
|
|
$
|
1.54
|
|
|
$
|
447.8
|
|
|
$
|
1.41
|
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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
second
quarter and the first
half
of
2017
and
2016
is as follows:
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For the Three Months Ended June 30,
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For the Six Months Ended June 30,
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2017
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2016
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2017
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2016
|
(Millions of Dollars, Except Per-Share Amounts)
|
Amount
|
|
Per Share
|
|
Amount
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Per Share
|
|
Amount
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|
Per Share
|
|
Amount
|
|
Per Share
|
Electric Distribution
|
$
|
121.9
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|
|
$
|
0.38
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|
$
|
102.8
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|
$
|
0.32
|
|
|
$
|
236.0
|
|
|
$
|
0.74
|
|
|
$
|
211.3
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|
|
$
|
0.66
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|
Electric Transmission
|
96.4
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|
|
0.30
|
|
|
92.5
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|
|
0.29
|
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|
190.6
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|
|
0.60
|
|
|
178.2
|
|
|
0.56
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|
Natural Gas Distribution
|
4.5
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|
|
0.01
|
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|
8.0
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|
0.03
|
|
|
55.3
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|
|
0.17
|
|
|
58.9
|
|
|
0.19
|
|
Net Income - Regulated Companies
|
$
|
222.8
|
|
|
$
|
0.69
|
|
|
$
|
203.3
|
|
|
$
|
0.64
|
|
|
$
|
481.9
|
|
|
$
|
1.51
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|
|
$
|
448.4
|
|
|
$
|
1.41
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Our electric distribution segment earnings
increased
$19.1 million
in the second quarter of 2017, as compared to the second quarter of 2016, due primarily to lower operations and maintenance expense and
higher distribution revenues as a result of higher LBR and higher demand revenues driven by heat waves during the second quarter of 2017 at NSTAR Electric, partially offset by higher depreciation expense.
Our electric distribution segment earnings
increased
$24.7 million
in the first
half
of 2017, as compared to the first
half
of 2016, due primarily to
higher distribution revenues as a result of higher LBR and higher demand revenues driven by heat waves during the second quarter of 2017 at NSTAR Electric and
lower operations and maintenance expense, partially offset by higher depreciation expense and lower generation earnings.
Our electric transmission segment earnings
increased
$3.9 million
and
$12.4 million
in the second quarter and first
half
of 2017, respectively, as compared to the second quarter and first half of 2016, due primarily to a higher transmission rate base as a result of our continued investment in our transmission infrastructure, partially offset by a lower benefit related to the annual billing and cost reconciliation filing with the FERC.
Our natural gas distribution segment earnings
decreased
$3.5 million
in the second quarter of 2017, as compared to the second quarter of 2016, due primarily to lower firm natural gas sales volumes driven by warmer weather in Connecticut in the spring of 2017, as compared to the same period in 2016, lower demand revenues in Connecticut d
riven by lower peak usage in 2017, as compared to 2016, higher ope
rations and maintenance expense, and higher depreciation expense.
Our natural gas distribution segment earnings
decreased
$3.6 million
in the first
half
of 2017, as compared to the first
half
of 2016, due primarily to higher operations and maintenance expense, higher depreciation expense, and lower demand revenues in Connecticut d
riven by lower peak usage in 2017, as compared to 2016
.
Eversource Parent and Other Companies:
Eversource parent and other companies had earnings of
$7.9 million
in the
second
quarter of
2017
and
$8.3 million
in the first
half
of
2017
, compared with earnings of
$0.3 million
in the
second
quarter of
2016
and a net loss of
$0.6 million
in the first
half
of
2016
.
The improved results were largely due to equity in earnings recorded in the second quarter of 2017 primarily related to Eversource's investment in a renewable energy fund.
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 Connecticut impact earnings ("Traditional" in the table below). In Massachusetts, fluctuations in natural gas sales volumes 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). These distribution revenues are decoupled from their customer sales volumes which breaks the relationship between sales volumes and revenues recognized.
A summary of our retail electric GWh sales volumes and our firm natural gas MMcf sales volumes, as well as percentage changes, is as follows:
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For the Three Months Ended June 30, 2017 Compared to 2016
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For the Six Months Ended June 30, 2017 Compared to 2016
|
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Sales Volumes (GWh)
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|
Percentage
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Sales Volumes (GWh)
|
|
Percentage
|
Electric
|
2017
|
|
2016
|
|
Increase/(Decrease)
|
|
2017
|
|
2016
|
|
Increase/(Decrease)
|
Traditional:
|
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|
|
|
|
|
|
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Residential
|
2,108
|
|
|
2,092
|
|
|
0.8
|
%
|
|
4,543
|
|
|
4,497
|
|
|
1.0
|
%
|
Commercial
|
3,827
|
|
|
3,861
|
|
|
(0.9
|
)%
|
|
7,767
|
|
|
7,852
|
|
|
(1.1
|
)%
|
Industrial
|
589
|
|
|
652
|
|
|
(9.7
|
)%
|
|
1,185
|
|
|
1,252
|
|
|
(5.4
|
)%
|
Total – Traditional
|
6,524
|
|
|
6,605
|
|
|
(1.2
|
)%
|
|
13,495
|
|
|
13,601
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Decoupled:
|
|
|
|
|
|
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|
|
|
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Residential
|
2,374
|
|
|
2,410
|
|
|
(1.5
|
)%
|
|
5,362
|
|
|
5,353
|
|
|
0.2
|
%
|
Commercial
|
2,564
|
|
|
2,658
|
|
|
(3.5
|
)%
|
|
5,154
|
|
|
5,275
|
|
|
(2.3
|
)%
|
Industrial
|
702
|
|
|
730
|
|
|
(3.8
|
)%
|
|
1,324
|
|
|
1,394
|
|
|
(5.0
|
)%
|
Total – Decoupled
|
5,640
|
|
|
5,798
|
|
|
(2.7
|
)%
|
|
11,840
|
|
|
12,022
|
|
|
(1.5
|
)%
|
Total Sales Volumes
|
12,164
|
|
|
12,403
|
|
|
(1.9
|
)%
|
|
25,335
|
|
|
25,623
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2017 Compared to 2016
|
|
For the Six Months Ended June 30, 2017 Compared to 2016
|
|
Sales Volumes (MMcf)
|
|
Percentage
|
|
Sales Volumes (MMcf)
|
|
Percentage
|
Firm Natural Gas
|
2017
|
|
2016
|
|
Increase/(Decrease)
|
|
2017
|
|
2016
|
|
Increase/(Decrease)
|
Traditional:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
2,009
|
|
|
2,511
|
|
|
(20.0
|
)%
|
|
9,102
|
|
|
9,153
|
|
|
(0.6
|
)%
|
Commercial
|
3,541
|
|
|
3,538
|
|
|
0.1
|
%
|
|
11,950
|
|
|
11,514
|
|
|
3.8
|
%
|
Industrial
|
2,228
|
|
|
2,266
|
|
|
(1.7
|
)%
|
|
5,631
|
|
|
5,633
|
|
|
—
|
%
|
Total – Traditional
|
7,778
|
|
|
8,315
|
|
|
(6.5
|
)%
|
|
26,683
|
|
|
26,300
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Decoupled:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
3,164
|
|
|
3,231
|
|
|
(2.1
|
)%
|
|
13,349
|
|
|
12,540
|
|
|
6.5
|
%
|
Commercial
|
3,628
|
|
|
3,884
|
|
|
(6.6
|
)%
|
|
12,758
|
|
|
12,872
|
|
|
(0.9
|
)%
|
Industrial
|
1,314
|
|
|
1,319
|
|
|
(0.4
|
)%
|
|
3,023
|
|
|
3,173
|
|
|
(4.7
|
)%
|
Total – Decoupled
|
8,106
|
|
|
8,434
|
|
|
(3.9
|
)%
|
|
29,130
|
|
|
28,585
|
|
|
1.9
|
%
|
Special Contracts
(1)
|
1,132
|
|
|
1,087
|
|
|
4.1
|
%
|
|
2,349
|
|
|
2,299
|
|
|
2.2
|
%
|
Total – Decoupled and Special Contracts
|
9,238
|
|
|
9,521
|
|
|
(3.0
|
)%
|
|
31,479
|
|
|
30,884
|
|
|
1.9
|
%
|
Total Sales Volumes
|
17,016
|
|
|
17,836
|
|
|
(4.6
|
)%
|
|
58,162
|
|
|
57,184
|
|
|
1.7
|
%
|
|
|
(1)
|
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.
|
For the second quarter and first half of 2017, retail electric sales volumes at our electric utilities with a traditional rate structure (NSTAR Electric and PSNH) were lower, as compared to the second quarter and first half of 2016. Sales volumes were negatively impacted by lower customer usage driven by the impact of increased customer energy conservation efforts, partially offset by improved economic conditions across our service territories.
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
$18.7 million and $35.9 million in the second quarter and first half of 2017, respectively, compared to $13.8 million and $26.8 million in the second quarter and first half of 2016, respectively.
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 second quarter of 2017, our consolidated firm natural gas sales volumes were lower, as compared to the second quarter of 2016, due primarily to
warmer weather in the spring of 2017 and
increased customer energy conservation efforts, partially offset by customer growth
.
Heating degree days for the second quarter of 2017 were 7.4 percent lower in Connecticut, as compared to the same period in 2016.
Consolidated firm natural gas sales volumes were higher in the first half of 2017, as compared to the first half of 2016, due primarily to improved economic conditions across our service territories and customer growth, partially offset by increased customer energy conservation efforts. The impact of colder weather in the first quarter of 2017 was offset by warmer weather in the second quarter of 2017, as compared to the same periods in 2016, which resulted in an overall slight increase to sales. Heating degree days for the first half of 2017 were 1.6 percent higher in Connecticut, as compared to the same period in 2016.
Liquidity
Consolidated:
Cash and cash equivalents totaled
$24.6 million
as of
June 30, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
Long-Term Debt Issuances:
In May 2017, NSTAR Electric issued $350 million
of 3.20 percent Debentures, due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings and fund capital expenditures and working capital.
Commercial Paper Programs and Credit Agreements
: Eversource parent has a
$1.45 billion
commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of
June 30, 2017
and
December 31, 2016
, Eversource parent had
$937.5 million
and approximately
$1.0 billion
, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving
$512.5 million
and
$428.0 million
of available borrowing capacity as of
June 30, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
June 30, 2017
and
December 31, 2016
was
1.34 percent
and
0.88 percent
, respectively. As of
June 30, 2017
, there were intercompany loans from Eversource parent of
$101.1 million
to CL&P,
$194.1 million
to PSNH, and
$68.7 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
June 30, 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
June 30, 2017
, NSTAR Electric had
no
short-term borrowings outstanding and as of
December 31, 2016
, NSTAR Electric had
$126.5 million
in short-term borrowings outstanding under its commercial paper program, leaving
$450.0 million
and
$323.5 million
of available borrowing capacity as of
June 30, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
December 31, 2016
was
0.71 percent
. 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
June 30, 2017
or
December 31, 2016
.
Cash Flows:
Cash flows provided by operating activities totaled
$908.0 million
in the first
half
of
2017
, compared with
$978.4 million
in the first
half
of
2016
. The decrease in operating cash flows was due primarily to $188.6 million in lower net 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. Additionally, there was an increase of $25.5 million in Pension Plan contributions made in the first half of 2017, as compared to the same period in 2016. Partially offsetting these unfavorable impacts 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 May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, which was paid on June 30, 2017 to shareholders of record as of May 31, 2017.
In the first
half
of
2017
, CL&P, NSTAR Electric, PSNH, and WMECO paid
$99.2 million
,
$93.0 million
,
$23.9 million
, and
$19.0 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
half
of
2017
, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were
$1.1 billion
,
$419.9 million
,
$262.1 million
,
$155.7 million
, and
$76.4 million
respectively.
Business Development and Capital Expenditures
Aquarion
: On June 2, 2017, Eversource announced
that it had entered into an agreement to acquire
Aquarion from Macquarie Infrastructure Partners for
$1.675 billion
, consisting of approximately
$880 million
in cash and
$795 million
of assumed
Aquarion
debt.
The transaction requires approval from PURA, the DPU, the NHPUC, the Maine PUC, and the Federal Communications Commission, and is also
subject to a review under the Hart-Scott-Rodino Act
.
On June 29, 2017, Eversource and Aquarion filed joint applications with regulatory agencies in Connecticut, Massachusetts, New Hampshire and Maine requesting approval of the transaction.
The transaction is expected to close by December 31, 2017.
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 June 30, 2017, we have invested $31.1 million in this project.
On June 29, 2017, Enbridge, Eversource and National Grid withdrew the Access Northeast project from the FERC pre-filing process. Once the project partners determine how to address i
nconsistent energy policy and natural gas pipeline constraints in the New England states
, they will re-engage in the FERC pre-file process. In the meantime, 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 offshore 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 offshore wind, creating RFP opportunities for projects like Bay State Wind. On June 29, 2017,
the Bureau of Ocean Energy Management ("BOEM") approved the project’s Site Assessment Plan ("SAP"), the first BOEM approval of an offshore wind SAP in the U.S.
On June 29, 2017, the Massachusetts RFP was issued, seeking bids for a minimum of 400 MW of offshore wind capacity. The RFP states that bids of up to 800 MW would be considered, provided they demonstrate significant net economic benefits to customers. Bay State Wind submitted a Notice of Intent to Bid on July 26, 2017 and will submit a proposal by the December 20, 2017 due date.
Consolidated 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
$1.0 billion
in the first
half
of
2017
, compared to
$905.0 million
in the first
half
of
2016
. These amounts included
$58.6 million
and
$58.0 million
in the first
half
of
2017
and
2016
, respectively, related to information technology and facilities upgrades and enhancements, primarily at Eversource Service and The Rocky River Realty Company.
Electric Transmission Business:
Our consolidated electric transmission business capital expenditures
increased
by
$14.4 million
in the first
half
of
2017
, as compared to the first
half
of
2016
. A summary of electric transmission capital expenditures by company is as follows:
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
CL&P
|
$
|
185.7
|
|
|
$
|
140.9
|
|
NSTAR Electric
|
78.9
|
|
|
107.6
|
|
PSNH
|
50.6
|
|
|
50.4
|
|
WMECO
|
39.1
|
|
|
46.1
|
|
NPT
|
21.1
|
|
|
16.0
|
|
Total Electric Transmission Segment
|
$
|
375.4
|
|
|
$
|
361.0
|
|
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. The DOE is expected to issue the final Environmental Impact Statement for Northern Pass during the third quarter of 2017. Siting and permitting at both the state and federal levels is well advanced, with all required permits expected in the second half 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 is 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, conditioned on final project permitting.
In April 2017, the NHPUC determined that no language in the easement deeds precludes PSNH from leasing the use of its existing rights-of-way to NPT. The NHPUC will now consider whether the terms of that lease are reasonable and in the public interest. A decision is expected by December 31, 2017. In addition, on June 16, 2017, the NHPUC approved NPT's application for a license to allow NPT to cross public roads and waterways.
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 final adjudicative hearings on April 13, 2017 and they are scheduled to continue until September 29, 2017. The NH SEC is expected to issue a written order in the fourth quarter of 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 and to be placed in service in the second half of 2020.
In August 2016, Massachusetts enacted clean energy legislation that requires EDCs to solicit proposals jointly and enter into long-term contracts for energy, such as hydropower. The RFP was issued on March 31, 2017 and on July 27, 2017, Eversource Energy Transmission Ventures, Inc. and HQ jointly submitted proposals for Northern Pass into the Massachusetts clean energy RFP. Northern Pass is expected to be placed in service in the second half of 2020.
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. To date, we have received approval for one of these projects from the Massachusetts Energy Facilities Siting Board. 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 $167.8 million has been capitalized through June 30, 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. Fourteen projects have been placed in service, and nine projects are in active construction. As of June 30, 2017, CL&P had capitalized $176.5 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 estimate our investment in this project will be approximately $84 million, of which $18.0 million has been capitalized through June 30, 2017.
Distribution Business:
A summary of distribution capital expenditures is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
CL&P
|
|
NSTAR Electric
|
|
PSNH
|
|
WMECO
|
|
Total Electric
|
|
Natural Gas
|
|
Total Electric and Natural Gas Distribution Segment
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
106.8
|
|
|
$
|
68.8
|
|
|
$
|
37.7
|
|
|
$
|
11.2
|
|
|
$
|
224.5
|
|
|
$
|
35.3
|
|
|
$
|
259.8
|
|
Aging Infrastructure
|
77.9
|
|
|
30.8
|
|
|
42.1
|
|
|
9.4
|
|
|
160.2
|
|
|
81.4
|
|
|
241.6
|
|
Load Growth
(1)
|
26.4
|
|
|
35.7
|
|
|
8.1
|
|
|
(3.5
|
)
|
|
66.7
|
|
|
15.9
|
|
|
82.6
|
|
Total Distribution
|
211.1
|
|
|
135.3
|
|
|
87.9
|
|
|
17.1
|
|
|
451.4
|
|
|
132.6
|
|
|
584.0
|
|
Generation
(2)
|
—
|
|
|
4.4
|
|
|
4.5
|
|
|
2.8
|
|
|
11.7
|
|
|
—
|
|
|
11.7
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
211.1
|
|
|
$
|
139.7
|
|
|
$
|
92.4
|
|
|
$
|
19.9
|
|
|
$
|
463.1
|
|
|
$
|
132.6
|
|
|
$
|
595.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
84.1
|
|
|
$
|
54.6
|
|
|
$
|
32.2
|
|
|
$
|
7.8
|
|
|
$
|
178.7
|
|
|
$
|
35.2
|
|
|
$
|
213.9
|
|
Aging Infrastructure
|
62.3
|
|
|
35.6
|
|
|
39.4
|
|
|
9.8
|
|
|
147.1
|
|
|
59.9
|
|
|
207.0
|
|
Load Growth
(1)
|
16.9
|
|
|
26.2
|
|
|
5.4
|
|
|
(0.4
|
)
|
|
48.1
|
|
|
14.3
|
|
|
62.4
|
|
Total Distribution
|
163.3
|
|
|
116.4
|
|
|
77.0
|
|
|
17.2
|
|
|
373.9
|
|
|
109.4
|
|
|
483.3
|
|
Generation
|
—
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
2.7
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
163.3
|
|
|
$
|
116.4
|
|
|
$
|
79.7
|
|
|
$
|
17.2
|
|
|
$
|
376.6
|
|
|
$
|
109.4
|
|
|
$
|
486.0
|
|
(1)
For the six months ended June 30, 2017 and June 30, 2016, WMECO had $10.3 million and $2.3 million, respectively, of total contributions in aid of construction, which were credits to capital expenditures for those periods.
(2)
In 2017, NSTAR Electric and WMECO incurred capital expenditures related to the construction of solar generation facilities.
For the electric distribution business, basic business includes 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 $23.2 million in the first half of 2017, as compared to the first half of 2016,
primarily due to an increased investment in system replacement and reliability, as well as upgrades to our LNG facilities. We expect the LNG facility upgrades to cost approximately $200 million and 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 separate
15
-month complaint periods. 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 U.S. Court of Appeals for the D.C. Circuit (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
11.14 percent
base ROE was unjust and unreasonable, as required under Section 206 of the Federal Power Act, before it 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.
On May 26, 2017, the Chief Administrative Law Judge ("ALJ") issued an order that the fourth complaint will continue to trial in December 2017 with an ALJ initial decision expected in March of 2018.
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 June 30, 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 billed ROE (base plus incentives) between October 1, 2011 and October 15, 2014 was within a range of
11.14 percent
to
13.1 percent
. On October 16, 2014, the FERC set the incentive cap at
11.74 percent
for the first complaint period and also effective from October 16, 2014 through April 14, 2017, at which time the Court vacated this FERC order.
(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
June 30, 2017
.
On June 5, 2017, the NETOs, including Eversource, submitted a filing at the FERC to reinstate the base ROE of
11.14 percent
with an associated ROE incentive cap of
13.5 percent
effective June 8, 2017, as these were the last ROEs lawfully in effect for transmission billing purposes prior to the FERC order vacated by the Court on April 14, 2017. The NETOs have voluntarily delayed the date on which they will begin billing the reinstated ROEs until 60 days after the FERC has a quorum again. If the FERC takes no action within that
60
-day period, the NETOs will begin billing the reinstated ROEs, subject to refund. The Company will continue to recognize transmission revenues as billed utilizing a base ROE of
10.57 percent
with an incentive cap of
11.74 percent
, until further FERC action or upon expiration of the 60-day period with no FERC action.
The Company will change the amounts it is using to recognize transmission revenues only upon a change in the rates billed to its customers.
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
.
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 half 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:
Eversource and NSTAR Electric Boston Harbor Civil Action:
On July 15, 2016, the United States Attorney on behalf of the United States Army Corps of Engineers filed a civil action in the United States District Court for the District of Massachusetts under provisions of the Rivers and Harbors Act of 1899 and the Clean Water Act against NSTAR Electric, Harbor Electric Energy Company, a wholly-owned subsidiary of NSTAR Electric ("HEEC"), and the Massachusetts Water Resources Authority (together with NSTAR Electric and HEEC, the "Defendants"). The action alleged that the Defendants failed to comply with certain permitting requirements related to the placement of the HEEC-owned electric distribution cable beneath Boston Harbor. The action sought an order to force HEEC to comply with cable depth requirements in the United States Army
Corps of Engineers' permit or alternatively to remove the electric distribution cable and cease unauthorized work in U.S. waterways. The action also sought civil penalties and other costs.
After substantial negotiations, the parties reached a settlement whereby HEEC will install a new
115
kV
distribution cable across Boston Harbor to Deer Island, utilizing a different route, and will remove portions of the existing cable. Upon the installation and completion of the new cable and the removal of the portions of the existing cable, all issues surrounding the current permit from the United States Army Corps of Engineers are expected to be resolved, and such litigation is expected to be dismissed with prejudice.
In the second quarter of 2017, as a result of the settlement, NSTAR Electric expensed
$4.9 million
(pre-tax) of previously incurred capitalized costs associated with engineering work performed on the existing cable
that will no longer be used.
In addition, NSTAR Electric agreed to provide a rate base credit of
$17.5 million
that will be
credited to the rates charged to
the Massachusetts Water Resources Authority
for the new cable. This negotiated credit will result in the initial
$17.5 million
of construction costs on the new cable to be expensed as incurred. Construction of the new cable will be completed in 2019.
Massachusetts RFPs:
On March 31, 2017, pursuant to a comprehensive energy law enacted in 2016, "An Act to Promote Energy Diversity," (the "Act")
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 was 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.
On July 27, 2017, Eversource Energy Transmission Ventures, Inc. and HQ jointly submitted proposals for Northern Pass into the Massachusetts clean energy RFP. Northern Pass is expected to be placed in service in the second half of 2020.
On June 29, 2017, pursuant to the Act, the Massachusetts EDCs, including NSTAR Electric and WMECO, and the DOER issued a joint RFP for long-term contracts for offshore wind energy projects, seeking bids for a minimum of 400 MW of offshore wind capacity. The Offshore Wind Energy RFP states that bids of up to 800 MW would be considered, provided they demonstrate significant net economic benefits to customers. Bay State Wind submitted a Notice of Intent to Bid on July 26, 2017 and will submit a proposal by the December 20, 2017 due date.
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 proposed to streamline and align rate classifications between NSTAR Electric and WMECO, and requested 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.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructed 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 expect the transaction to be approved by the end of 2017.
As of
June 30, 2017
, PSNH's energy service rate base subject to divestiture was approximately $616 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 and six
months ended
June 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
1,762.8
|
|
|
$
|
1,767.2
|
|
|
$
|
(4.4
|
)
|
|
(0.2
|
)%
|
|
$
|
3,867.9
|
|
|
$
|
3,822.8
|
|
|
$
|
45.1
|
|
|
1.2
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
549.7
|
|
|
581.3
|
|
|
(31.6
|
)
|
|
(5.4
|
)
|
|
1,303.3
|
|
|
1,336.1
|
|
|
(32.8
|
)
|
|
(2.5
|
)
|
Operations and Maintenance
|
302.7
|
|
|
320.7
|
|
|
(18.0
|
)
|
|
(5.6
|
)
|
|
633.0
|
|
|
640.9
|
|
|
(7.9
|
)
|
|
(1.2
|
)
|
Depreciation
|
189.9
|
|
|
176.5
|
|
|
13.4
|
|
|
7.6
|
|
|
376.7
|
|
|
350.5
|
|
|
26.2
|
|
|
7.5
|
|
Amortization of Regulatory Assets/(Liabilities),
Net
|
(7.8
|
)
|
|
(8.7
|
)
|
|
0.9
|
|
|
(10.3
|
)
|
|
16.2
|
|
|
12.3
|
|
|
3.9
|
|
|
31.7
|
|
Energy Efficiency Programs
|
116.4
|
|
|
119.7
|
|
|
(3.3
|
)
|
|
(2.8
|
)
|
|
262.6
|
|
|
256.8
|
|
|
5.8
|
|
|
2.3
|
|
Taxes Other Than Income Taxes
|
156.2
|
|
|
154.3
|
|
|
1.9
|
|
|
1.2
|
|
|
311.4
|
|
|
314.2
|
|
|
(2.8
|
)
|
|
(0.9
|
)
|
Total Operating Expenses
|
1,307.1
|
|
|
1,343.8
|
|
|
(36.7
|
)
|
|
(2.7
|
)
|
|
2,903.2
|
|
|
2,910.8
|
|
|
(7.6
|
)
|
|
(0.3
|
)
|
Operating Income
|
455.7
|
|
|
423.4
|
|
|
32.3
|
|
|
7.6
|
|
|
964.7
|
|
|
912.0
|
|
|
52.7
|
|
|
5.8
|
|
Interest Expense
|
107.3
|
|
|
100.5
|
|
|
6.8
|
|
|
6.8
|
|
|
210.7
|
|
|
198.7
|
|
|
12.0
|
|
|
6.0
|
|
Other Income, Net
|
21.5
|
|
|
8.1
|
|
|
13.4
|
|
|
(a)
|
|
|
35.1
|
|
|
10.0
|
|
|
25.1
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
369.9
|
|
|
331.0
|
|
|
38.9
|
|
|
11.8
|
|
|
789.1
|
|
|
723.3
|
|
|
65.8
|
|
|
9.1
|
|
Income Tax Expense
|
137.3
|
|
|
125.5
|
|
|
11.8
|
|
|
9.4
|
|
|
295.1
|
|
|
271.7
|
|
|
23.4
|
|
|
8.6
|
|
Net Income
|
232.6
|
|
|
205.5
|
|
|
27.1
|
|
|
13.2
|
|
|
494.0
|
|
|
451.6
|
|
|
42.4
|
|
|
9.4
|
|
Net Income Attributable to Noncontrolling Interests
|
1.9
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
Net Income Attributable to Common Shareholders
|
$
|
230.7
|
|
|
$
|
203.6
|
|
|
$
|
27.1
|
|
|
13.3
|
%
|
|
$
|
490.2
|
|
|
$
|
447.8
|
|
|
$
|
42.4
|
|
|
9.5
|
%
|
(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 June 30,
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric Distribution
|
$
|
1,275.9
|
|
|
$
|
1,303.1
|
|
|
$
|
(27.2
|
)
|
|
(2.1
|
)%
|
|
$
|
2,677.0
|
|
|
$
|
2,739.2
|
|
|
$
|
(62.2
|
)
|
|
(2.3
|
)%
|
Natural Gas Distribution
|
186.0
|
|
|
180.4
|
|
|
5.6
|
|
|
3.1
|
|
|
589.6
|
|
|
523.0
|
|
|
66.6
|
|
|
12.7
|
|
Electric Transmission
|
324.6
|
|
|
302.5
|
|
|
22.1
|
|
|
7.3
|
|
|
641.5
|
|
|
585.8
|
|
|
55.7
|
|
|
9.5
|
|
Other and Eliminations
|
(23.7
|
)
|
|
(18.8
|
)
|
|
(4.9
|
)
|
|
26.1
|
|
|
(40.2
|
)
|
|
(25.2
|
)
|
|
(15.0
|
)
|
|
59.5
|
|
Total Operating Revenues
|
$
|
1,762.8
|
|
|
$
|
1,767.2
|
|
|
$
|
(4.4
|
)
|
|
(0.2
|
)%
|
|
$
|
3,867.9
|
|
|
$
|
3,822.8
|
|
|
$
|
45.1
|
|
|
1.2
|
%
|
A summary of our retail electric GWh sales volumes and our firm natural gas sales volumes in MMcf were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
6,524
|
|
|
6,605
|
|
|
(81
|
)
|
|
(1.2
|
)%
|
|
13,495
|
|
|
13,601
|
|
|
(106
|
)
|
|
(0.8
|
)%
|
Decoupled
|
5,640
|
|
|
5,798
|
|
|
(158
|
)
|
|
(2.7
|
)
|
|
11,840
|
|
|
12,022
|
|
|
(182
|
)
|
|
(1.5
|
)
|
Total Electric
|
12,164
|
|
|
12,403
|
|
|
(239
|
)
|
|
(1.9
|
)
|
|
25,335
|
|
|
25,623
|
|
|
(288
|
)
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm Natural Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
7,778
|
|
|
8,315
|
|
|
(537
|
)
|
|
(6.5
|
)
|
|
26,683
|
|
|
26,300
|
|
|
383
|
|
|
1.5
|
|
Decoupled and Special Contracts
|
9,238
|
|
|
9,521
|
|
|
(283
|
)
|
|
(3.0
|
)
|
|
31,479
|
|
|
30,884
|
|
|
595
|
|
|
1.9
|
|
Total Firm Natural Gas
|
17,016
|
|
|
17,836
|
|
|
(820
|
)
|
|
(4.6
|
)%
|
|
58,162
|
|
|
57,184
|
|
|
978
|
|
|
1.7
|
%
|
Three Months Ended:
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, decreased by
$4.4 million
for the three months ended
June 30, 2017
, as compared to the same period in
2016
.
Base electric and natural gas distribution revenues
: Base electric distribution segment revenues, excluding LBR, increased $4.6 million for the three months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher demand revenues driven by heat waves
during the second quarter of 2017 at NSTAR Electric. Operating Revenues increased $4.9 million for the three months ended
June 30, 2017
, as compared to the same period in
2016
, as a result of higher LBR revenues.
Base natural gas distribution revenues decreased $3.2 million for the three months ended June 30, 2017, as compared to the same period in 2016, driven by lower firm natural gas sales volumes due to warmer weather in Connecticut in the spring of 2017, as compared to the same period in 2016,
and lower demand revenues in Connecticut d
riven by lower peak usage in 2017 as compared to 2016
.
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 ($3.9 million) and an increase in energy efficiency program revenues ($4.9 million). Tracked electric distribution revenues decreased as a result of a decrease in electric energy supply costs ($34.7 million), driven by decreased average retail prices, a decrease in stranded costs recovery revenues ($9.3 million), a decrease in pension rate adjustment mechanisms ($5.2 million), and a decrease in retail electric transmission charges ($4.3 million). Partially offsetting these decreases were increases in tracked electric distribution revenues related to federally-mandated congestion charges ($7.7 million), revenues related to renewable energy requirements ($6.6 million) and net metering revenues ($7.2 million).
Electric transmission revenues:
The electric transmission segment revenues increased by
$22.1 million
due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Other:
Other revenues decreased due primarily to the sale of Eversource's unregulated telecommunication business on December 31, 2016 ($5.0 million).
Six Months Ended:
Operating Revenues increased by
$45.1 million
for the six months ended
June 30, 2017
, as compared to the same period in
2016
.
Base electric and natural gas distribution revenues
: Base electric distribution segment revenues, excluding LBR, increased $7.8 million for the six months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher demand revenues driven by heat waves during the second quarter of 2017 at NSTAR Electric. Operating Revenues increased $9.1 million for the six months ended
June 30, 2017
, as compared to the same period in
2016
, as a result of higher LBR revenues.
Base natural gas distribution revenues remained relatively unchanged for the six months ended June 30, 2017, as compared to the same period in 2016. The impact of higher firm natural gas sales volumes was offset by
lower demand revenues in Connecticut d
riven by lower peak usage in 2017 as compared to 2016
.
Tracked distribution revenues:
Tracked natural gas distribution segment revenues increased as a result of an increase in natural gas supply costs ($50.3 million) and an increase in energy efficiency program revenues ($14.9 million). Tracked electric distribution revenues decreased as a result of a decrease in electric energy supply costs ($88.3 million), driven by decreased average retail prices, a decrease in stranded costs recovery revenues ($16.1 million), a decrease in pension rate adjustment mechanisms ($9.2 million), and a decrease in retail electric transmission charges ($6.1 million). Partially offsetting these decreases were increases in tracked electric distribution revenues related to federally-mandated congestion charges ($20.2 million), net metering revenues ($15.4 million) and revenues related to renewable energy requirements ($5.9 million).
Electric transmission revenues:
The electric transmission segment revenues increased by
$55.7 million
due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Other:
Other revenues decreased due primarily to the sale of Eversource's unregulated telecommunication business on December 31, 2016 ($10.0 million).
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 and six months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Six Months Ended
Increase/(Decrease)
|
Electric Distribution
|
$
|
(46.6
|
)
|
|
$
|
(108.8
|
)
|
Natural Gas Distribution
|
2.0
|
|
|
43.2
|
|
Transmission
|
13.0
|
|
|
32.8
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
(31.6
|
)
|
|
$
|
(32.8
|
)
|
The decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply for the three and six months ended
June 30, 2017
, as compared to the same periods in
2016
. The increase in purchased power expense at the natural gas distribution business was due to higher average natural gas prices. The increase in transmission costs was primarily the result of an increase in Local Network Service charges, which reflect the cost of transmission service provided by Eversource over Eversource’s local transmission network.
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 decreased for the three and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Six Months Ended
Increase/(Decrease)
|
Base Electric Distribution:
|
|
|
|
Employee-related expenses, including labor and benefits
|
$
|
(22.4
|
)
|
|
$
|
(31.2
|
)
|
Bad debt expense
|
(9.5
|
)
|
|
(12.7
|
)
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
4.1
|
|
|
9.6
|
|
Storm restoration costs
|
(0.9
|
)
|
|
7.1
|
|
Boston Harbor civil action settlement charge recorded in the second quarter of 2017
|
4.9
|
|
|
4.9
|
|
System resiliency project costs at CL&P
|
0.4
|
|
|
2.6
|
|
Other operations and maintenance
|
3.3
|
|
|
3.9
|
|
Total Base Electric Distribution
|
(20.1
|
)
|
|
(15.8
|
)
|
Total Base Natural Gas Distribution:
|
|
|
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
1.1
|
|
|
2.4
|
|
Other operations and maintenance
|
0.4
|
|
|
2.6
|
|
Total Base Natural Gas Distribution
|
1.5
|
|
|
5.0
|
|
Total Tracked costs (Electric Distribution, Electric Transmission and Natural Gas Distribution)
|
3.3
|
|
|
12.6
|
|
Other and eliminations:
|
|
|
|
Eversource Parent and Other Companies
|
3.9
|
|
|
1.9
|
|
Eliminations
|
(6.6
|
)
|
|
(11.6
|
)
|
Total Operations and Maintenance
|
$
|
(18.0
|
)
|
|
$
|
(7.9
|
)
|
Depreciation
expense increased for the three and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory (Liabilities)/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 (Liabilities)/Assets, Net
, increased for the
six
months ended June 30, 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.
Interest Expense
increased for the three and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to higher interest on long-term debt ($5.2 million and $10.1 million, respectively) as a result of new debt issuances and higher interest on short-term debt ($1.4 million and $2.3 million, respectively).
Other Income, Net
increased for the three and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to an increase in second quarter equity in earnings recorded in our equity method investments ($15.6 million and $20.2 million, respectively), primarily
related to Eversource's investment in a renewable energy fund,
higher AFUDC related to equity funds ($1.2 million and $3.8 million, respectively), and market value changes related to the deferred compensation plans ($0.3 million and $2.2 million, respectively).
Income Tax Expense
increased for the three months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($13.6 million) and higher state taxes ($1.0 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2.8 million).
Income Tax Expense increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($23.0 million), the absence of tax credits in 2017 ($1.6 million), and higher state taxes ($1.4 million), partially offset by items that impact our tax rate as a result of flow-through items and permanent differences ($2.6 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 and six
months ended
June 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
666.6
|
|
|
$
|
679.8
|
|
|
$
|
(13.2
|
)
|
|
(1.9
|
)%
|
|
$
|
1,398.9
|
|
|
$
|
1,415.1
|
|
|
$
|
(16.2
|
)
|
|
(1.1
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
207.2
|
|
|
234.5
|
|
|
(27.3
|
)
|
|
(11.6
|
)
|
|
452.1
|
|
|
507.1
|
|
|
(55.0
|
)
|
|
(10.8
|
)
|
Operations and Maintenance
|
108.5
|
|
|
122.5
|
|
|
(14.0
|
)
|
|
(11.4
|
)
|
|
236.7
|
|
|
233.4
|
|
|
3.3
|
|
|
1.4
|
|
Depreciation
|
60.8
|
|
|
57.5
|
|
|
3.3
|
|
|
5.7
|
|
|
120.6
|
|
|
114.5
|
|
|
6.1
|
|
|
5.3
|
|
Amortization of Regulatory Assets/(Liabilities), Net
|
11.4
|
|
|
(2.9
|
)
|
|
14.3
|
|
|
(a)
|
|
|
24.2
|
|
|
6.9
|
|
|
17.3
|
|
|
(a)
|
|
Energy Efficiency Programs
|
32.2
|
|
|
35.5
|
|
|
(3.3
|
)
|
|
(9.3
|
)
|
|
68.8
|
|
|
73.6
|
|
|
(4.8
|
)
|
|
(6.5
|
)
|
Taxes Other Than Income Taxes
|
70.5
|
|
|
70.6
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
144.4
|
|
|
146.0
|
|
|
(1.6
|
)
|
|
(1.1
|
)
|
Total Operating Expenses
|
490.6
|
|
|
517.7
|
|
|
(27.1
|
)
|
|
(5.2
|
)
|
|
1,046.8
|
|
|
1,081.5
|
|
|
(34.7
|
)
|
|
(3.2
|
)
|
Operating Income
|
176.0
|
|
|
162.1
|
|
|
13.9
|
|
|
8.6
|
|
|
352.1
|
|
|
333.6
|
|
|
18.5
|
|
|
5.5
|
|
Interest Expense
|
35.3
|
|
|
36.0
|
|
|
(0.7
|
)
|
|
(1.9
|
)
|
|
70.3
|
|
|
72.5
|
|
|
(2.2
|
)
|
|
(3.0
|
)
|
Other Income, Net
|
3.8
|
|
|
6.3
|
|
|
(2.5
|
)
|
|
(39.7
|
)
|
|
6.6
|
|
|
7.2
|
|
|
(0.6
|
)
|
|
(8.3
|
)
|
Income Before Income Tax Expense
|
144.5
|
|
|
132.4
|
|
|
12.1
|
|
|
9.1
|
|
|
288.4
|
|
|
268.3
|
|
|
20.1
|
|
|
7.5
|
|
Income Tax Expense
|
53.2
|
|
|
49.5
|
|
|
3.7
|
|
|
7.5
|
|
|
106.9
|
|
|
98.4
|
|
|
8.5
|
|
|
8.6
|
|
Net Income
|
$
|
91.3
|
|
|
$
|
82.9
|
|
|
$
|
8.4
|
|
|
10.1
|
%
|
|
$
|
181.5
|
|
|
$
|
169.9
|
|
|
$
|
11.6
|
|
|
6.8
|
%
|
(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 June 30,
|
|
For the Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
4,838
|
|
|
4,966
|
|
|
(128
|
)
|
|
(2.6
|
)%
|
|
10,168
|
|
|
10,316
|
|
|
(148
|
)
|
|
(1.4
|
)%
|
Three Months Ended:
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by
$13.2 million
for the three months ended
June 30, 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 ($22.1 million) driven by decreased average retail prices. In addition, there was a $6.2 million decrease in stranded cost recovery revenue. Partially offsetting these decreases were increases in federally-mandated congestion charges ($7.7 million) and retail transmission charges ($6.3 million).
Transmission revenues increased by $2.0 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Six Months Ended:
CL&P's Operating Revenues decreased by
$16.2 million
for the six months ended
June 30, 2017
, as compared to the same period in
2016
.
Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($52.1 million) driven by decreased average retail prices. In addition, there was a $10.2 million decrease in stranded cost recovery revenue. Partially offsetting these decreases was an increase in federally-mandated congestion charges ($20.2 million).
Transmission revenues increased by $20.9 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 and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Six Months Ended
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
(35.6
|
)
|
|
$
|
(73.9
|
)
|
Transmission Costs
|
8.3
|
|
|
18.9
|
|
Total Purchased Power and Transmission
|
$
|
(27.3
|
)
|
|
$
|
(55.0
|
)
|
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 and
six
months ended
June 30, 2017
, compared to the same periods 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 Local Network Service charges, which reflect the cost of transmission service provided by Eversource over Eversource’s local transmission network.
Depreciation
expense increased for the three and
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory (Liabilities)/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 increase for the three and
six
months ended
June 30, 2017
, as compared to the same periods in
2016
, was due primarily to the deferral adjustment of energy supply and energy-related costs, which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs. The deferral adjusts expense to match the corresponding revenues.
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
June 30, 2017
, as compared to the same period in
2016
, driven by a $12.4 million decrease in non-tracked costs, which was primarily attributable to lower employee-related expenses and lower bad debt expense, as well as a $1.6 million decrease in tracked costs, which was primarily attributable to lower tracked bad debt expense, partially offset by higher transmission expenses.
Operations and Maintenance expense increased for the
six
months ended
June 30, 2017
, as compared to the same period in
2016
, driven by a $6.7 million increase in tracked costs, which was primarily attributable to higher transmission expenses, partially offset by lower tracked bad debt expense. Non-tracked costs decreased $3.4 million, which was primarily attributable to lower employee-related expenses and lower bad debt expense, partially offset by higher storm restoration costs, higher shared corporate costs and higher system resiliency project costs.
Interest Expense
decreased for the
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to lower interest on regulatory deferral mechanisms ($1.4 million) and an increase in AFUDC attributable to borrowed funds ($0.7 million).
Income Tax Expense
increased for the three months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($4.2 million) and higher state taxes ($1.0 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.5 million).
Income Tax Expense increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($7.0 million) and higher state taxes ($1.9 million), partially offset by items that impact our tax rate as a result of flow-through items and permanent differences ($0.4 million).
EARNINGS SUMMARY
CL&P's earnings increased
$8.4 million
for the three months ended
June 30, 2017
, as compared to the same period in 2016, due primarily to lower operations and maintenance expense 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 depreciation expense.
CL&P's earnings increased
$11.6 million
for the
six
months ended
June 30, 2017
, as compared to the same period in 2016, due primarily to an increase in transmission earnings driven by a higher transmission rate base, higher distribution revenues due in part to a higher rate base for the system resiliency program, and lower operations and maintenance expense. These favorable earnings impacts were partially offset by higher depreciation expense.
LIQUIDITY
Cash totaled
$5.8 million
as of
June 30, 2017
, compared with
$6.6 million
as of December 31, 2016.
CL&P had cash flows provided by operating activities of
$353.9 million
for the
six
months ended
June 30, 2017
, as compared to
$429.4 million
in the same period of 2016. The decrease in operating cash flows was due primarily to $117.1 million in lower income tax refunds received in 2017, as compared to 2016, and the timing of payments of working capital items. Partially offsetting this decrease was the favorable impact of the timing of regulatory recoveries.
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
June 30, 2017
and
December 31, 2016
was
1.34 percent
and
0.88 percent
, respectively. As of
June 30, 2017
and
December 31, 2016
, there were intercompany loans from Eversource parent to CL&P of
$101.1 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
June 30, 2017
or
December 31, 2016
. The revolving credit facility serves to backstop Eversource parent's
$1.45 billion
commercial paper program.
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
$419.9 million
for the
six
months ended
June 30, 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
six
months ended
June 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
1,187.8
|
|
|
$
|
1,205.5
|
|
|
$
|
(17.7
|
)
|
|
(1.5
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
430.4
|
|
|
473.5
|
|
|
(43.1
|
)
|
|
(9.1
|
)
|
Operations and Maintenance
|
173.6
|
|
|
183.7
|
|
|
(10.1
|
)
|
|
(5.5
|
)
|
Depreciation
|
111.4
|
|
|
104.5
|
|
|
6.9
|
|
|
6.6
|
|
Amortization of Regulatory Assets, Net
|
8.0
|
|
|
8.7
|
|
|
(0.7
|
)
|
|
(8.0
|
)
|
Energy Efficiency Programs
|
127.2
|
|
|
128.1
|
|
|
(0.9
|
)
|
|
(0.7
|
)
|
Taxes Other Than Income Taxes
|
62.0
|
|
|
66.7
|
|
|
(4.7
|
)
|
|
(7.0
|
)
|
Total Operating Expenses
|
912.6
|
|
|
965.2
|
|
|
(52.6
|
)
|
|
(5.4
|
)
|
Operating Income
|
275.2
|
|
|
240.3
|
|
|
34.9
|
|
|
14.5
|
|
Interest Expense
|
45.5
|
|
|
41.1
|
|
|
4.4
|
|
|
10.7
|
|
Other Income, Net
|
5.3
|
|
|
2.5
|
|
|
2.8
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
235.0
|
|
|
201.7
|
|
|
33.3
|
|
|
16.5
|
|
Income Tax Expense
|
91.5
|
|
|
79.0
|
|
|
12.5
|
|
|
15.8
|
|
Net Income
|
$
|
143.5
|
|
|
$
|
122.7
|
|
|
$
|
20.8
|
|
|
17.0
|
%
|
(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 Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
9,680
|
|
|
9,781
|
|
|
(101
|
)
|
|
(1.0
|
)%
|
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by
$17.7 million
for the six months ended
June 30, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues, excluding LBR, increased $3.3 million for the six months ended June 30, 2017, as compared to the same period in 2016, as a result of an increase in demand revenues driven by heat waves during the second quarter of 2017, partially offset by lower sales volumes in 2017, as compared to 2016. Operating Revenues increased $9.1 million for the six months ended
June 30, 2017
, as compared to the same period in
2016
, as a result of higher LBR revenues.
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 ($35.5 million) driven by decreased average retail prices, a decrease in retail transmission charges ($23.4 million), a decrease in the pension rate adjustment mechanism ($8.3 million), and a decrease in transition cost recovery revenues ($6.7 million). Partially offsetting these decreases were an increase in net metering revenues ($13.9 million), an increase in revenues related to renewable energy requirements ($14.7 million), and an increase in energy efficiency program revenues ($5.9 million).
Transmission revenues increased by $14.1 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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Decrease
|
Purchased Power Costs
|
$
|
(33.8
|
)
|
Transmission Costs
|
(9.3
|
)
|
Total Purchased Power and Transmission
|
$
|
(43.1
|
)
|
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. 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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, driven by a $12.5 million decrease in non-tracked costs, which was primarily attributable to lower employee-related expenses and lower bad debt expense, partially offset by a
$4.9 million
charge recorded in the second quarter of 2017 related to the Boston Harbor civil action settlement and higher shared corporate costs. Tracked costs increased $2.4 million, which was primarily attributable to higher transmission expenses and higher tracked bad debt expense, partially offset by lower tracked employee-related expenses.
Depreciation
expense increased for the
six
months ended
June 30, 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 six months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to a decrease in property tax rates and lower employment-related taxes.
Interest Expense
increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher interest on long-term debt.
Other Income, Net
increased for the
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to an increase related to officer insurance policies ($1.5 million) and market value changes related to deferred compensation plans ($1.0 million).
Income Tax Expense
increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($11.7 million) and higher state taxes ($1.5 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.7 million).
EARNINGS SUMMARY
NSTAR Electric's earnings increased
$20.8 million
for the
six
months ended
June 30, 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 LBR and higher demand revenues, and lower property and other tax expense. 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
$138.5 million
for the
six
months ended
June 30, 2017
, as compared to
$165.1 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to the unfavorable impact related to changes in the timing of working capital items driven primarily by the timing of accounts payable payments, a decrease in regulatory overrrecoveries due to purchased power costs in excess of collections from customers, and $7.6 million in lower income tax refunds received in 2017, as compared to 2016. Partially offsetting these decreases was a favorable impact related to the timing of collections of accounts receivable.
NSTAR Electric has a
$450 million
commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of
June 30, 2017
, NSTAR Electric had
no
short-term borrowings outstanding and as of
December 31, 2016
, NSTAR Electric had
$126.5 million
in short-term borrowings outstanding under its commercial paper program, leaving
$450.0 million
and
$323.5 million
of available borrowing capacity as of
June 30, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
December 31, 2016
was
0.71 percent
. 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
June 30, 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
six
months ended
June 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
483.5
|
|
|
$
|
460.8
|
|
|
$
|
22.7
|
|
|
4.9
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
122.2
|
|
|
95.9
|
|
|
26.3
|
|
|
27.4
|
|
Operations and Maintenance
|
127.5
|
|
|
123.0
|
|
|
4.5
|
|
|
3.7
|
|
Depreciation
|
63.2
|
|
|
56.9
|
|
|
6.3
|
|
|
11.1
|
|
Amortization of Regulatory (Liabilities)/Assets, Net
|
(13.5
|
)
|
|
0.3
|
|
|
(13.8
|
)
|
|
(a)
|
|
Energy Efficiency Programs
|
7.0
|
|
|
6.9
|
|
|
0.1
|
|
|
1.4
|
|
Taxes Other Than Income Taxes
|
44.0
|
|
|
44.0
|
|
|
—
|
|
|
—
|
|
Total Operating Expenses
|
350.4
|
|
|
327.0
|
|
|
23.4
|
|
|
7.2
|
|
Operating Income
|
133.1
|
|
|
133.8
|
|
|
(0.7
|
)
|
|
(0.5
|
)
|
Interest Expense
|
25.8
|
|
|
25.0
|
|
|
0.8
|
|
|
3.2
|
|
Other Income, Net
|
1.7
|
|
|
0.4
|
|
|
1.3
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
109.0
|
|
|
109.2
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Income Tax Expense
|
43.1
|
|
|
41.9
|
|
|
1.2
|
|
|
2.9
|
|
Net Income
|
$
|
65.9
|
|
|
$
|
67.3
|
|
|
$
|
(1.4
|
)
|
|
(2.1
|
)%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
PSNH's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
3,815
|
|
|
3,818
|
|
|
(3
|
)
|
|
(0.1
|
)%
|
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$22.7 million
for the six months ended
June 30, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues increased $4.5 million due primarily to a $1.9 million distribution rate increase effective July 1, 2016 and higher demand revenues in 2017.
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 ($9.5 million) and an increase in both energy supply costs and wholesale generation revenues (totaling $8.4 million) for the six months ended
June 30, 2017
, as compared to the same period in
2016
. The increase in energy supply costs was driven by increased average retail prices. Partially offsetting these increases was a decrease in revenues related to the timing of the sale of RECs ($13.9 million).
Transmission revenues increased by $11.3 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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase
|
Purchased Power and Generation Fuel Costs
|
$
|
8.8
|
|
Transmission Costs
|
17.5
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
26.3
|
|
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 higher purchased power energy expenses recovered in the Energy Service rate, and Regional Greenhouse Gas Initiative related expenses recovered in the SCRC. 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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, driven by a $3.7 million increase in tracked costs, which was primarily attributable to higher transmission expenses, as well as a $0.8 million increase in non-tracked costs, which was primarily attributable to higher shared corporate costs and higher storm restoration costs, partially offset by lower employee-related expenses.
Depreciation
expense increased for the
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory (Liabilities)/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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, was due primarily to the deferral adjustment of the energy service charge. The deferral adjusts expense to match the corresponding revenues.
Income Tax Expense
increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to the absence of tax credits in 2017 ($1.6 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.4 million).
EARNINGS SUMMARY
PSNH's earnings decreased
$1.4 million
for the
six
months ended
June 30, 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
$142.1 million
for the
six
months ended
June 30, 2017
, as compared to
$204.3 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to income tax payments of $26.5 million made in 2017, as compared to income tax refunds of $37.3 million received in the same period of 2016. Partially offsetting this decrease was $9.8 million of lower Pension Plan contributions made in 2017, as compared to 2016, and the favorable impacts related to the timing of 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
six
months ended
June 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
250.9
|
|
|
$
|
244.5
|
|
|
$
|
6.4
|
|
|
2.6
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
74.7
|
|
|
72.2
|
|
|
2.5
|
|
|
3.5
|
|
Operations and Maintenance
|
44.2
|
|
|
43.9
|
|
|
0.3
|
|
|
0.7
|
|
Depreciation
|
24.3
|
|
|
22.9
|
|
|
1.4
|
|
|
6.1
|
|
Amortization of Regulatory (Liabilities)/Assets, Net
|
(0.8
|
)
|
|
2.2
|
|
|
(3.0
|
)
|
|
(a)
|
|
Energy Efficiency Programs
|
18.7
|
|
|
21.2
|
|
|
(2.5
|
)
|
|
(11.8
|
)
|
Taxes Other Than Income Taxes
|
20.7
|
|
|
19.8
|
|
|
0.9
|
|
|
4.5
|
|
Total Operating Expenses
|
181.8
|
|
|
182.2
|
|
|
(0.4
|
)
|
|
(0.2
|
)
|
Operating Income
|
69.1
|
|
|
62.3
|
|
|
6.8
|
|
|
10.9
|
|
Interest Expense
|
12.4
|
|
|
12.1
|
|
|
0.3
|
|
|
2.5
|
|
Other Income/(Loss), Net
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
57.0
|
|
|
50.2
|
|
|
6.8
|
|
|
13.5
|
|
Income Tax Expense
|
22.2
|
|
|
20.1
|
|
|
2.1
|
|
|
10.4
|
|
Net Income
|
$
|
34.8
|
|
|
$
|
30.1
|
|
|
$
|
4.7
|
|
|
15.6
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
WMECO's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
1,673
|
|
|
1,707
|
|
|
(34
|
)
|
|
(2.0
|
)%
|
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$6.4 million
for the
six
months ended
June 30, 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 ($9.2 million) driven by decreased average retail prices, partially offset by increases in retail transmission charges, revenues related to renewable energy requirements and net metering charges ($4.1 million, $3.0 million and $1.5 million, respectively).
Transmission revenues increased by $9.5 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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
(3.1
|
)
|
Transmission Costs
|
5.6
|
|
Total Purchased Power and Transmission
|
$
|
2.5
|
|
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 Local Network Service charges, which reflect the cost of transmission service provided by Eversource over Eversource’s local transmission network.
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
six
months ended
June 30, 2017
, as compared to the same period in
2016
, driven by a $1.0 million increase in tracked costs, which was primarily attributable to higher transmission expenses, partially offset by the deferral adjustment for RECs generated and sold by the WMECO solar program, and lower tracked employee-related expenses. Non-tracked costs decreased $0.7 million, which was primarily attributable to lower employee-related expenses, partially offset by higher shared corporate costs and higher storm restoration costs.
Amortization of Regulatory (Liabilities)/Assets, Net
expense decreased for the
six
months ended
June 30, 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.
Income Tax Expense
increased for the
six
months ended June 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($2.4 million) partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.3 million).
EARNINGS SUMMARY
WMECO's earnings increased
$4.7 million
for the
six
months ended
June 30, 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 energy efficiency incentives earned, partially offset by higher depreciation expense.
LIQUIDITY
WMECO had cash flows provided by operating activities of
$77.7 million
for the
six
months ended
June 30, 2017
, as compared to
$95.9 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to a decrease of $20.6 million in income tax refunds in 2017, as compared to
2016
, and changes in the timing of working capital items.