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 reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 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 a meaningful representative of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance by business. This non-GAAP financial measure should not be considered as an alternative to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as an indicator of operating performance.
From time to time, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:
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cyber breaches, acts of war or terrorism, or grid disturbances,
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actions or inaction of local, state and federal regulatory, public policy and taxing bodies,
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changes in business conditions, which could include disruptive technology related to our current or future business model,
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changes in economic conditions, including impact on interest rates, tax policies, and customer demand and payment ability,
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fluctuations in weather patterns,
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changes in laws, regulations or regulatory policy,
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changes in levels or timing of capital expenditures,
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disruptions in the capital markets or other events that make our access to necessary capital more difficult or costly,
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developments in legal or public policy doctrines,
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technological developments,
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changes in accounting standards and financial reporting regulations,
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actions of rating agencies, and
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other presently unknown or unforeseen factors.
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Other risk factors are detailed in our reports filed with the SEC and updated as necessary, and we encourage you to consult such disclosures.
All such factors are difficult to predict and contain uncertainties that may materially affect our actual results, many of which are beyond our control. You should not place undue reliance on the forward-looking statements, as each speaks only as of the date on which such statement is made, and, except as required by federal securities laws, we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for us to predict all of such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For more information, see Item 1A, Risk Factors, included in this combined Quarterly Report on Form 10-Q and in Eversource's
2016
combined Annual Report on Form 10-K. This combined Quarterly Report on Form 10-Q and Eversource's
2016
combined Annual Report on Form 10-K also describe material contingencies and critical accounting policies in the accompanying
Management's Discussion and Analysis of Financial Condition and Results of Operations and Combined Notes to Financial Statements
. We encourage you to review these items.
Financial Condition and Business Analysis
Executive Summary
The following items in this executive summary are explained in more detail in this combined Quarterly Report on Form 10-Q:
Results:
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We earned
$260.4 million
, or
$0.82
per share, in the
third
quarter of
2017
, and
$750.6 million
, or
$2.36
per share, in the first
nine months
of
2017
, compared with
$265.3 million
, or
$0.83
per share, in the
third
quarter of
2016
, and
$713.1 million
, or
$2.24
per share, in the first
nine months
of
2016
.
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Our electric distribution segment, which includes generation, earned
$157.4 million
, or
$0.50
per share, in the
third
quarter of
2017
, and
$393.4 million
, or
$1.24
per share, in the first
nine months
of
2017
, compared with
$170.1 million
, or
$0.53
per share, in the third quarter of
2016
, and
$381.3 million
, or
$1.20
per share, in the first
nine months
of
2016
.
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•
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Our electric transmission segment earned
$99.0 million
, or
$0.31
per share, in the
third
quarter of
2017
, and
$289.6 million
, or
$0.91
per share, in the first
nine months
of
2017
, compared with
$88.4 million
, or
$0.28
per share, in the
third
quarter of
2016
, and
$266.6 million
, or
$0.84
per share, in the first
nine months
of
2016
.
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Our natural gas distribution segment had a net loss of
$6.2 million
, or
$0.02
per share, in the
third
quarter of
2017
, and earnings of
$49.1 million
, or
$0.15
per share, in the first
nine months
of
2017
, compared with a net loss of
$7.0 million
, or
$0.02
per share, in the
third
quarter of
2016
, and earnings of
$51.9 million
, or
$0.16
per share, in the first
nine months
of
2016
.
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Eversource parent and other companies earned
$10.2 million
in the
third
quarter of
2017
and
$18.5 million
in the first
nine months
of
2017
, compared with
$13.8 million
in the
third
quarter of
2016
and
$13.3 million
in the first
nine months
of
2016
.
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Liquidity:
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Cash flows provided by operating activities totaled
$1.49 billion
in the first
nine months
of
2017
, compared with
$1.65 billion
in the first
nine months
of
2016
. Investments in property, plant and equipment totaled
$1.64 billion
in the first
nine months
of
2017
, compared with
$1.36 billion
in the first
nine months
of
2016
. Cash and cash equivalents totaled
$125.8 million
as of
September 30, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
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In 2017, we issued $2.5 billion of new long-term debt, consisting of $1.2 billion by Eversource parent, $700 million by NSTAR Electric, $525 million by CL&P, and $75 million by Yankee Gas. Proceeds from these new issuances were used primarily to pay short-term borrowings and redeem long-term debt at maturity.
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On September 6, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, which was paid on September 29, 2017 to shareholders of record as of September 19, 2017.
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Strategic, Legislative, Regulatory, Policy and Other Items:
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On October 6, 2017, the FERC issued an order that did not accept the NETOs June 5, 2017 filing to reinstate the base ROE of
11.14 percent with an associated ROE incentive cap of 13.5 percent. Therefore, 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.
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On October 12, 2017, PSNH filed an application with the NHPUC requesting approval of the sale of PSNH's thermal and hydroelectric power generation assets in New Hampshire to private investors for a combined purchase price totaling $258 million.
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On October 29, 2017, a storm delivered high winds and rain, causing extensive damage to our electric distribution systems across all three states. We estimate that more than
800,000
of our electric distribution customers were without power during or following the storm. Restoration costs cannot be estimated at this time. As a result of the extent of the damages, we expect the storm restoration costs will be material and will exceed the criteria to be declared a major storm in Connecticut, New Hampshire, and Massachusetts and, as a result, we do not expect the storm to have a material impact on our results of operations.
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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
third
quarter and the first
nine months
of
2017
and
2016
.
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For the Three Months Ended September 30,
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For the Nine Months Ended September 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)
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Amount
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Per Share
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Amount
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Per Share
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Amount
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Per Share
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Amount
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Per Share
|
Net Income Attributable to
Common Shareholders (GAAP)
|
$
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260.4
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$
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0.82
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$
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265.3
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$
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0.83
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$
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750.6
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$
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2.36
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$
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713.1
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$
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2.24
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Regulated Companies
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$
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250.2
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$
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0.79
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$
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251.5
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$
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0.79
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$
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732.1
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$
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2.30
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$
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699.8
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$
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2.20
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Eversource Parent and Other Companies
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10.2
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0.03
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13.8
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0.04
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18.5
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0.06
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13.3
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|
0.04
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Net Income Attributable to Common Shareholders (GAAP)
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$
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260.4
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$
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0.82
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$
|
265.3
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$
|
0.83
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|
$
|
750.6
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$
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2.36
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$
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713.1
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$
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2.24
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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
third
quarter and the first
nine months
of
2017
and
2016
is as follows:
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For the Three Months Ended September 30,
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For the Nine Months Ended September 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
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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
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Amount
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Per Share
|
Electric Distribution
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$
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157.4
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$
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0.50
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$
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170.1
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|
$
|
0.53
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$
|
393.4
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$
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1.24
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$
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381.3
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$
|
1.20
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Electric Transmission
|
99.0
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0.31
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88.4
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0.28
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289.6
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0.91
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266.6
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0.84
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Natural Gas Distribution
|
(6.2
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)
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(0.02
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)
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(7.0
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)
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(0.02
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)
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49.1
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|
0.15
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51.9
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|
0.16
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Net Income - Regulated Companies
|
$
|
250.2
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|
$
|
0.79
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|
$
|
251.5
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|
$
|
0.79
|
|
|
$
|
732.1
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$
|
2.30
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|
$
|
699.8
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|
$
|
2.20
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Our electric distribution segment earnings
decreased
$12.7 million
in the
third
quarter of
2017
, as compared to the
third
quarter of
2016
, due primarily to
lower sales volumes and demand revenues driven by the mild summer weather during the third quarter of 2017, primarily at NSTAR Electric, as well as higher property tax, depreciation and interest expense.
Our electric distribution segment earnings
increased
$12.1 million
in the first
nine months
of
2017
, as compared to the first
nine months
of
2016
, due primarily to
lower operations and maintenance expense
, partially offset by
lower sales volumes driven by the mild summer weather during the third quarter of 2017, primarily at NSTAR Electric, higher depreciation and interest expense, and lower generation earnings.
Our electric transmission segment earnings
increased
$10.6 million
and
$23.0 million
in the
third
quarter and first
nine months
of
2017
, respectively, as compared to the
third
quarter and first
nine months
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 in the second quarter of 2017 related to the annual billing and cost reconciliation filing with the FERC.
Our natural gas distribution segment results improved
$0.8 million
in the
third
quarter of
2017
, as compared to the
third
quarter of
2016
, and earnings
decreased
$2.8 million
in the first
nine months
of
2017
, as compared to the first
nine months
of
2016
.
The decrease in the first nine months of 2017 was due primarily to higher depreciation expense, higher operations and maintenance expense, and lower demand revenues in Connecticut driven by lower peak usage in 2017, as compared to 2016, as a result of milder winter weather.
Eversource Parent and Other Companies:
Eversource parent and other companies earned
$10.2 million
in the
third
quarter of
2017
and
$18.5 million
in the first
nine months
of
2017
, compared with
$13.8 million
in the
third
quarter of
2016
and
$13.3 million
in the first
nine months
of
2016
. The improved year-to-date results were largely due to increased gains on investments recorded in 2017, partially offset by higher interest expense.
Electric and Natural Gas Sales Volumes:
Weather, fluctuations in energy supply costs, conservation measures (including utility-sponsored energy efficiency programs), and economic conditions affect customer energy usage. Industrial sales volumes are less sensitive to temperature variations than residential and commercial sales volumes. In our service territories, weather impacts electric sales volumes during the summer and both electric and natural gas sales volumes during the winter; however, natural gas sales volumes are more sensitive to temperature variations than are electric sales volumes. Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur.
Fluctuations in retail electric sales volumes at NSTAR Electric and PSNH impact earnings ("Traditional" in the table below). For CL&P and WMECO, fluctuations in retail electric sales volumes do not impact earnings due to their respective regulatory commission approved distribution revenue decoupling mechanisms ("Decoupled" in the table below). These distribution revenues are decoupled from their customer sales volumes, which breaks the relationship between sales volumes and revenues recognized. CL&P and WMECO reconcile their annual base distribution rate recovery amounts to their respective pre-established levels of baseline distribution delivery service revenues of $1.059 billion and $132.4 million, respectively. Any difference between the allowed level of distribution revenue and the actual amount incurred during a 12-month period is adjusted through rates in the following period.
Fluctuations in natural gas sales volumes in 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 September 30, 2017 Compared to 2016
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For the Nine Months Ended September 30, 2017 Compared to 2016
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Sales Volumes (GWh)
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Percentage
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Sales Volumes (GWh)
|
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Percentage
|
Electric
|
2017
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|
2016
|
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Decrease
|
|
2017
|
|
2016
|
|
Decrease
|
Traditional:
|
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Residential
|
2,583
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|
2,910
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(11.2
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)%
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|
7,126
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|
7,407
|
|
|
(3.8
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)%
|
Commercial
|
4,291
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|
|
4,525
|
|
|
(5.2
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)%
|
|
12,058
|
|
|
12,376
|
|
|
(2.6
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)%
|
Industrial
|
671
|
|
|
696
|
|
|
(3.6
|
)%
|
|
1,856
|
|
|
1,948
|
|
|
(4.7
|
)%
|
Total – Traditional
|
7,545
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|
|
8,131
|
|
|
(7.2
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)%
|
|
21,040
|
|
|
21,731
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Decoupled:
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Residential
|
2,972
|
|
|
3,398
|
|
|
(12.5
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)%
|
|
8,334
|
|
|
8,750
|
|
|
(4.8
|
)%
|
Commercial
|
2,849
|
|
|
3,039
|
|
|
(6.3
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)%
|
|
8,003
|
|
|
8,315
|
|
|
(3.8
|
)%
|
Industrial
|
730
|
|
|
776
|
|
|
(5.9
|
)%
|
|
2,054
|
|
|
2,170
|
|
|
(5.3
|
)%
|
Total – Decoupled
|
6,551
|
|
|
7,213
|
|
|
(9.2
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)%
|
|
18,391
|
|
|
19,235
|
|
|
(4.4
|
)%
|
Total Sales Volumes
|
14,096
|
|
|
15,344
|
|
|
(8.1
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)%
|
|
39,431
|
|
|
40,966
|
|
|
(3.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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For the Three Months Ended September 30, 2017 Compared to 2016
|
|
For the Nine Months Ended September 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
|
1,036
|
|
|
956
|
|
|
8.4
|
%
|
|
10,138
|
|
|
10,109
|
|
|
0.3
|
%
|
Commercial
|
2,482
|
|
|
2,350
|
|
|
5.6
|
%
|
|
14,432
|
|
|
13,864
|
|
|
4.1
|
%
|
Industrial
|
2,032
|
|
|
1,964
|
|
|
3.5
|
%
|
|
7,663
|
|
|
7,597
|
|
|
0.9
|
%
|
Total – Traditional
|
5,550
|
|
|
5,270
|
|
|
5.3
|
%
|
|
32,233
|
|
|
31,570
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Decoupled:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
1,244
|
|
|
1,308
|
|
|
(4.9
|
)%
|
|
14,593
|
|
|
13,848
|
|
|
5.4
|
%
|
Commercial
|
2,314
|
|
|
2,147
|
|
|
7.8
|
%
|
|
15,072
|
|
|
15,019
|
|
|
0.4
|
%
|
Industrial
|
1,270
|
|
|
990
|
|
|
28.3
|
%
|
|
4,293
|
|
|
4,163
|
|
|
3.1
|
%
|
Total – Decoupled
|
4,828
|
|
|
4,445
|
|
|
8.6
|
%
|
|
33,958
|
|
|
33,030
|
|
|
2.8
|
%
|
Special Contracts
(1)
|
1,147
|
|
|
1,208
|
|
|
(5.0
|
)%
|
|
3,495
|
|
|
3,507
|
|
|
(0.3
|
)%
|
Total – Decoupled and Special Contracts
|
5,975
|
|
|
5,653
|
|
|
5.7
|
%
|
|
37,453
|
|
|
36,537
|
|
|
2.5
|
%
|
Total Sales Volumes
|
11,525
|
|
|
10,923
|
|
|
5.5
|
%
|
|
69,686
|
|
|
68,107
|
|
|
2.3
|
%
|
|
|
(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 third quarter and the first nine months 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 third quarter and first nine months of 2016. Sales volumes were negatively impacted by the mild summer weather in the third quarter of 2017, as compared to the same period in 2016, and lower customer usage driven by the impact of increased customer energy conservation efforts. Cooling degree days for the first nine months of 2017 were 17.8 percent lower in the Boston metropolitan area and 24.8 percent lower in New Hampshire, as compared to the same period in 2016.
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 $18.8 million and $54.7 million in the third quarter and first nine months of 2017, respectively, compared to $17.4 million and $44.1 million in the third quarter and first nine months 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. Consolidated firm natural gas sales volumes were higher in the first nine months of 2017, as compared to the first nine months of 2016, due primarily to improved economic conditions across our service territories, partially offset by increased customer energy conservation efforts. The first quarter of 2017 mild winter weather was more than offset by colder than normal weather in the second quarter of 2017. Heating degree days for the first nine months of 2017 were 2.2 percent higher in Connecticut, as compared to the same period in 2016.
Major Storm:
On October 29, 2017, a storm delivered high winds and rain, causing extensive damage to our electric distribution systems across all three states. We estimate that more than
800,000
of our electric distribution customers were without power during or following the storm. Restoration costs cannot be estimated at this time. As a result of the extent of the damages, we expect the storm restoration costs will be material and will exceed the criteria to be declared a major storm in Connecticut, New Hampshire, and Massachusetts and that each operating company will seek recovery of these costs through its applicable regulatory recovery process. As a result, all qualifying expenses prudently incurred during the storm will be deferred and recovered from customers. We do not expect the storm to have a material impact to the results of operations of CL&P, NSTAR Electric, PSNH or WMECO
.
Liquidity
Consolidated:
Cash and cash equivalents totaled
$125.8 million
as of
September 30, 2017
, compared with
$30.3 million
as of
December 31, 2016
.
Long-Term Debt Issuances:
In August 2017, CL&P issued $225 million of 4.30 percent 2014 Series A First and Refunding Mortgage Bonds due to mature in 2044. These bonds are part of the same series of CL&P’s existing 4.30 percent bonds that were initially issued in 2014. The aggregate outstanding principal amount for these bonds is now $475 million. The proceeds, net of issuance costs, were used to refinance short-term debt and fund capital expenditures and working capital.
In September 2017, Yankee Gas issued $75 million of 3.02 percent Series N First Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings.
In October 2017, Eversource parent issued $450 million 2.75 percent Series K Senior Notes due to mature in 2022. These senior notes are part of the same series of Eversource parent’s existing 2.75 percent Series K Senior Notes that were initially issued in March 2017. The aggregate outstanding principal amount for the Series K Senior Notes is now $750 million. In addition, Eversource parent issued $450 million of 2.90 percent 2017 Series L Senior Notes due to mature in 2024. The proceeds, net of issuance costs, were used to repay short-term borrowings.
In October 2017, NSTAR Electric issued $350 million of 3.20 percent Debentures due to mature in 2027. The debentures are part of the same series of NSTAR Electric’s existing 3.20 percent Debentures that were initially issued in May 2017. The aggregate outstanding principal amount for the 3.20 percent Debentures is now $700 million. The proceeds, net of issuance costs, will be used to redeem long-term debt due to mature on November 15, 2017.
Long-Term Debt Repayments:
In September 2017, CL&P repaid at maturity $100 million of 5.75 percent 2007 Series C First Mortgage Bonds and PSNH repaid at maturity $70 million of 6.15 percent 2007 Series N First Mortgage Bonds.
In October 2017, NSTAR Gas repaid at maturity $25 million of 7.04 percent Series M First Mortgage Bonds.
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
September 30, 2017
and
December 31, 2016
, Eversource parent had $917.0 million and approximately
$1.0 billion
, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $533.0 million and
$428.0 million
of available borrowing capacity as of
September 30, 2017
and
December 31, 2016
, respectively. The weighted-average interest rate on these borrowings as of
September 30, 2017
and
December 31, 2016
was
1.34 percent
and
0.88 percent
, respectively. As of
September 30, 2017
, there were intercompany loans from Eversource parent of
$202.3 million
to PSNH, and
$96.9 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 terminates on 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
September 30, 2017
and
December 31, 2016
.
Except as described below, amounts outstanding under the commercial paper programs are included in Notes Payable for Eversource and are classified in current liabilities on the balance sheets as all borrowings are outstanding for no more than 364 days at one time.
As a result of the October 2017 Eversource parent long-term debt issuances, the net proceeds of which were used to repay short-term borrowings outstanding under the Eversource parent commercial paper program, $898.8 million of short-term debt was reclassified to Long-Term Debt as of September 30, 2017.
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
September 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
September 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 terminates on 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
September 30, 2017
and
December 31, 2016
.
Cash Flows:
Cash flows provided by operating activities totaled $1.49 billion in the first nine months of 2017, compared with $1.65 billion in the first nine months of 2016. The decrease in operating cash flows was due primarily to the $200.7 million net unfavorable impact as a result of the change in income tax payments made, or refunds received, in 2017 when compared to 2016. This unfavorable impact was primarily the result of the December 2015 legislation, which extended the accelerated deduction of depreciation from 2015 to 2019. The legislation resulted in a significant refund of approximately $275 million, which we received in the first quarter of 2016. Additionally, there was an increase of $76.0 million in Pension and PBOP Plan cash contributions made in the first nine months of 2017, as compared to the same period in 2016. Partially offsetting these unfavorable impacts was the benefit related to the timing of regulatory recoveries and the timing of collections and payments of our working capital items, including accounts receivable and accounts payable.
On September 6, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, which was paid on September 29, 2017 to shareholders of record as of September 19, 2017.
In the first
nine months
of
2017
, CL&P, NSTAR Electric, PSNH, and WMECO paid
$205.2 million
,
$186.0 million
,
$23.9 million
, and
$28.5 million
, respectively, in common stock dividends to Eversource parent.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. In the first
nine months
of
2017
, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were
$1.64 billion
,
$621.9 million
,
$358.0 million
,
$215.5 million
, and
$109.2 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. With the exception of Massachusetts, all state and federal regulatory agency approvals have been received and the related review period has expired. The transaction is expected to close by December 31, 2017.
Bay State Wind
:
Bay State Wind is a proposed offshore wind project being jointly developed by Eversource and Denmark-based
Ørsted (formerly known as
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
Ørsted
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
$1.69 billion
in the first
nine months
of
2017
, compared to
$1.43 billion
in the first
nine months
of
2016
. These amounts included
$97.8 million
and
$87.1 million
in the first
nine months
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
$40.9 million
in the first
nine months
of
2017
, as compared to the first
nine months
of
2016
. A summary of electric transmission capital expenditures by company is as follows:
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
CL&P
|
$
|
300.7
|
|
|
$
|
211.8
|
|
NSTAR Electric
|
108.5
|
|
|
162.6
|
|
PSNH
|
87.4
|
|
|
80.2
|
|
WMECO
|
70.9
|
|
|
75.7
|
|
NPT
|
32.1
|
|
|
28.4
|
|
Total Electric Transmission Segment
|
$
|
599.6
|
|
|
$
|
558.7
|
|
Northern Pass
:
Northern Pass is a planned HVDC transmission line from the Québec-New Hampshire border to Franklin, New Hampshire and an associated alternating current radial transmission line between Franklin and Deerfield, New Hampshire. Northern Pass will interconnect at the Québec-New Hampshire border with a planned HQ HVDC transmission line.
On April 13, 2017, the New Hampshire Site Evaluation Committee ("NH SEC") commenced final adjudicative hearings that, on August 31, 2017, were extended and will result in the issuance of a final order by March 31, 2018.
On August 10, 2017, the DOE issued the final Environmental Impact Statement for Northern Pass concluding that the proposed Northern Pass route is the preferred alternative, providing substantial benefits with only minimal impacts. Siting and permitting at both the state and federal levels is well advanced and the DOE is expected to issue the Presidential Permit for Northern Pass during the fourth quarter of 2017. Northern Pass is expected 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.
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 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 two 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 $186.3 million has been capitalized through September 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 2019. Sixteen projects have been placed in service, and eight projects are in active construction. As of September 30, 2017, CL&P had capitalized $192.3 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. Due to delays with the siting hearings, we now expect the NH SEC decision in mid-2018, and this project is now expected to be completed by the end of 2019. We estimate our investment in this project to be approximately $84 million, of which, through September 30, 2017, PSNH had capitalized $19.7 million in costs.
Distribution Business:
A summary of distribution capital expenditures is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
CL&P
|
|
NSTAR Electric
|
|
PSNH
|
|
WMECO
|
|
Total Electric
|
|
Natural Gas
|
|
Total Electric and Natural Gas Distribution Segment
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
161.8
|
|
|
$
|
110.3
|
|
|
$
|
52.5
|
|
|
$
|
16.4
|
|
|
$
|
341.0
|
|
|
$
|
51.3
|
|
|
$
|
392.3
|
|
Aging Infrastructure
|
127.4
|
|
|
49.6
|
|
|
63.9
|
|
|
16.3
|
|
|
257.2
|
|
|
149.6
|
|
|
406.8
|
|
Load Growth
(1)
|
41.0
|
|
|
53.2
|
|
|
14.1
|
|
|
(1.5
|
)
|
|
106.8
|
|
|
30.6
|
|
|
137.4
|
|
Total Distribution
|
330.2
|
|
|
213.1
|
|
|
130.5
|
|
|
31.2
|
|
|
705.0
|
|
|
231.5
|
|
|
936.5
|
|
Generation
(2)
|
—
|
|
|
24.6
|
|
|
6.7
|
|
|
20.9
|
|
|
52.2
|
|
|
—
|
|
|
52.2
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
330.2
|
|
|
$
|
237.7
|
|
|
$
|
137.2
|
|
|
$
|
52.1
|
|
|
$
|
757.2
|
|
|
$
|
231.5
|
|
|
$
|
988.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Business
|
$
|
127.0
|
|
|
$
|
87.7
|
|
|
$
|
46.8
|
|
|
$
|
10.7
|
|
|
$
|
272.2
|
|
|
$
|
48.9
|
|
|
$
|
321.1
|
|
Aging Infrastructure
|
97.4
|
|
|
57.8
|
|
|
61.9
|
|
|
17.6
|
|
|
234.7
|
|
|
103.0
|
|
|
337.7
|
|
Load Growth
(1)
|
31.9
|
|
|
48.1
|
|
|
11.8
|
|
|
(2.5
|
)
|
|
89.3
|
|
|
28.3
|
|
|
117.6
|
|
Total Distribution
|
256.3
|
|
|
193.6
|
|
|
120.5
|
|
|
25.8
|
|
|
596.2
|
|
|
180.2
|
|
|
776.4
|
|
Generation
|
—
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
|
8.5
|
|
|
—
|
|
|
8.5
|
|
Total Electric and Natural Gas Distribution Segment
|
$
|
256.3
|
|
|
$
|
193.6
|
|
|
$
|
129.0
|
|
|
$
|
25.8
|
|
|
$
|
604.7
|
|
|
$
|
180.2
|
|
|
$
|
784.9
|
|
(1)
For the nine months ended September 30, 2017 and September 30, 2016, WMECO had $11.0 million and $6.4 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 $51.3 million in the first nine months of 2017, as compared to the first nine months 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 September 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, the date on which 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 (consisting of
$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 consisted of
$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
September 30, 2017
.
On June 5, 2017, the NETOs, including Eversource, submitted a filing to 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.
On October 6, 2017, the FERC did not accept the NETOs filing, temporarily leaving in place the ROEs (10.57 percent base ROE with an 11.74 percent incentive cap ROE) set in the first complaint proceeding until the FERC addresses the Court’s decision.
On October 5, 2017 the NETOs filed a series of motions, requesting that the FERC dismiss the four complaint proceedings. Alternatively, if the FERC does not dismiss the proceedings, the NETOs requested that the FERC consolidate all four complaint proceedings for expeditious resolution and/or stay the trial in the fourth complaint proceeding and resolve it based on the standards set in the April 14, 2017 Court decision.
At this time, the Company cannot reasonably estimate a range of gain or loss for the complaint proceedings. The April 14, 2017 Court decision did not provide a reasonable basis for a change to the reserve balance of
$39.1 million
(pre-tax, excluding interest) for the second complaint period, and the Company has not changed its reserve or recognized ROEs for any of the complaint periods.
Management cannot at this time predict the ultimate effect of the Court decision or future FERC action on any of the complaint periods or the estimated impacts on the financial position, results of operations or cash flows of Eversource, CL&P, NSTAR Electric, PSNH or WMECO.
The average impact of a 10 basis point change to the base ROE for each of the
15
-month complaint periods would affect Eversource's after-tax earnings by approximately
$3 million
.
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 December 31, 2017. 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 by the end of 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 nine months 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 agreemen
t
from "no later than December 1, 2017" to "no later than July 1, 2018." On October 27, 2017, CL&P filed a letter of intent with PURA to request a rate increase of $255.8 million, $45 million and $36 million effective May 1, 2018, 2019, and 2020, respectively.
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 compel 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 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
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 is expected to 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 December 31, 2017 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.
On October 11, 2017, PSNH entered into two Purchase and Sale Agreements ("Agreements") to sell its thermal and hydroelectric generation assets to private investors at purchase prices of $175 million and $83 million, respectively, subject to adjustments as set forth in each Agreement.
On October 12, 2017, PSNH filed an application with the NHPUC requesting approval of the Agreements. We ex
pect to receive approvals from the NHPUC and other necessary regulatory agencies by late December 2017 or early 2018, with the transactions
to be completed shortly thereafter. Upon completion, full recovery of PSNH's generation assets will occur through a combination of cash flows during the remaining operating period, sales proceeds, 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.
As of September 30, 2017, PSNH's energy service rate base balance was approximately $594 million
, and the carrying value of PSNH's total generation assets subject to divestiture was approximately $767 million.
Legislative and Policy Matters
On August 11, 2017, Massachusetts issued final legislation, pursuant to Executive Order 569, which established volumetric limits on multiple greenhouse emission sources to ensure reductions are realized by deadlines established in the Massachusetts Global Warming Solutions Act enacted in 2008. Under this legislation, the initial target date for reduction in greenhouse gas emissions has been established in the year 2020. The legislation is not expected to have a material impact on the financial statements of Eversource, NSTAR Electric or WMECO.
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 nine
months ended
September 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
1,988.5
|
|
|
$
|
2,039.7
|
|
|
$
|
(51.2
|
)
|
|
(2.5
|
)%
|
|
$
|
5,856.5
|
|
|
$
|
5,862.5
|
|
|
$
|
(6.0
|
)
|
|
(0.1
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
651.8
|
|
|
665.8
|
|
|
(14.0
|
)
|
|
(2.1
|
)
|
|
1,955.1
|
|
|
2,001.9
|
|
|
(46.8
|
)
|
|
(2.3
|
)
|
Operations and Maintenance
|
300.4
|
|
|
324.7
|
|
|
(24.3
|
)
|
|
(7.5
|
)
|
|
933.4
|
|
|
965.6
|
|
|
(32.2
|
)
|
|
(3.3
|
)
|
Depreciation
|
194.5
|
|
|
181.3
|
|
|
13.2
|
|
|
7.3
|
|
|
571.2
|
|
|
531.8
|
|
|
39.4
|
|
|
7.4
|
|
Amortization of Regulatory Assets, Net
|
41.8
|
|
|
43.9
|
|
|
(2.1
|
)
|
|
(4.8
|
)
|
|
58.1
|
|
|
56.2
|
|
|
1.9
|
|
|
3.4
|
|
Energy Efficiency Programs
|
129.2
|
|
|
149.1
|
|
|
(19.9
|
)
|
|
(13.3
|
)
|
|
391.8
|
|
|
406.0
|
|
|
(14.2
|
)
|
|
(3.5
|
)
|
Taxes Other Than Income Taxes
|
168.2
|
|
|
165.0
|
|
|
3.2
|
|
|
1.9
|
|
|
479.6
|
|
|
479.2
|
|
|
0.4
|
|
|
0.1
|
|
Total Operating Expenses
|
1,485.9
|
|
|
1,529.8
|
|
|
(43.9
|
)
|
|
(2.9
|
)
|
|
4,389.2
|
|
|
4,440.7
|
|
|
(51.5
|
)
|
|
(1.2
|
)
|
Operating Income
|
502.6
|
|
|
509.9
|
|
|
(7.3
|
)
|
|
(1.4
|
)
|
|
1,467.3
|
|
|
1,421.8
|
|
|
45.5
|
|
|
3.2
|
|
Interest Expense
|
108.7
|
|
|
99.9
|
|
|
8.8
|
|
|
8.8
|
|
|
319.5
|
|
|
298.6
|
|
|
20.9
|
|
|
7.0
|
|
Other Income, Net
|
21.2
|
|
|
13.6
|
|
|
7.6
|
|
|
55.9
|
|
|
56.3
|
|
|
23.7
|
|
|
32.6
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
415.1
|
|
|
423.6
|
|
|
(8.5
|
)
|
|
(2.0
|
)
|
|
1,204.1
|
|
|
1,146.9
|
|
|
57.2
|
|
|
5.0
|
|
Income Tax Expense
|
152.8
|
|
|
156.4
|
|
|
(3.6
|
)
|
|
(2.3
|
)
|
|
447.9
|
|
|
428.2
|
|
|
19.7
|
|
|
4.6
|
|
Net Income
|
262.3
|
|
|
267.2
|
|
|
(4.9
|
)
|
|
(1.8
|
)
|
|
756.2
|
|
|
718.7
|
|
|
37.5
|
|
|
5.2
|
|
Net Income Attributable to Noncontrolling Interests
|
1.9
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
|
5.6
|
|
|
—
|
|
|
—
|
|
Net Income Attributable to Common Shareholders
|
$
|
260.4
|
|
|
$
|
265.3
|
|
|
$
|
(4.9
|
)
|
|
(1.8
|
)%
|
|
$
|
750.6
|
|
|
$
|
713.1
|
|
|
$
|
37.5
|
|
|
5.3
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
A summary of our Operating Revenues by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric Distribution
|
$
|
1,547.1
|
|
|
$
|
1,623.4
|
|
|
$
|
(76.3
|
)
|
|
(4.7
|
)%
|
|
$
|
4,224.2
|
|
|
$
|
4,362.6
|
|
|
$
|
(138.4
|
)
|
|
(3.2
|
)%
|
Natural Gas Distribution
|
109.2
|
|
|
99.2
|
|
|
10.0
|
|
|
10.1
|
|
|
698.8
|
|
|
622.3
|
|
|
76.5
|
|
|
12.3
|
|
Electric Transmission
|
328.5
|
|
|
306.8
|
|
|
21.7
|
|
|
7.1
|
|
|
970.0
|
|
|
892.5
|
|
|
77.5
|
|
|
8.7
|
|
Other and Eliminations
|
3.7
|
|
|
10.3
|
|
|
(6.6
|
)
|
|
(64.1
|
)
|
|
(36.5
|
)
|
|
(14.9
|
)
|
|
(21.6
|
)
|
|
(a)
|
|
Total Operating Revenues
|
$
|
1,988.5
|
|
|
$
|
2,039.7
|
|
|
$
|
(51.2
|
)
|
|
(2.5
|
)%
|
|
$
|
5,856.5
|
|
|
$
|
5,862.5
|
|
|
$
|
(6.0
|
)
|
|
(0.1
|
)%
|
(a) Percent greater than 100 not shown as it is not meaningful.
A summary of our retail electric GWh sales volumes and our firm natural gas sales volumes in MMcf were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Electric
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
7,545
|
|
|
8,131
|
|
|
(586
|
)
|
|
(7.2
|
)%
|
|
21,040
|
|
|
21,731
|
|
|
(691
|
)
|
|
(3.2
|
)%
|
Decoupled
|
6,551
|
|
|
7,213
|
|
|
(662
|
)
|
|
(9.2
|
)
|
|
18,391
|
|
|
19,235
|
|
|
(844
|
)
|
|
(4.4
|
)
|
Total Electric
|
14,096
|
|
|
15,344
|
|
|
(1,248
|
)
|
|
(8.1
|
)
|
|
39,431
|
|
|
40,966
|
|
|
(1,535
|
)
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm Natural Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
5,550
|
|
|
5,270
|
|
|
280
|
|
|
5.3
|
|
|
32,233
|
|
|
31,570
|
|
|
663
|
|
|
2.1
|
|
Decoupled and Special Contracts
|
5,975
|
|
|
5,653
|
|
|
322
|
|
|
5.7
|
|
|
37,453
|
|
|
36,537
|
|
|
916
|
|
|
2.5
|
|
Total Firm Natural Gas
|
11,525
|
|
|
10,923
|
|
|
602
|
|
|
5.5
|
%
|
|
69,686
|
|
|
68,107
|
|
|
1,579
|
|
|
2.3
|
%
|
Three Months Ended:
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, decreased by
$51.2 million
for the three months ended
September 30, 2017
, as compared to the same period in
2016
.
Base electric and natural gas distribution revenues
: Base electric distribution segment revenues, excluding LBR, decreased $21.0 million for the three months ended September 30, 2017, as compared to the same period in 2016, due primarily to a decrease in sales volumes and lower demand revenues driven by the mild summer weather during the third quarter of 2017 at NSTAR Electric and PSNH. LBR increased $1.5 million for the three months ended
September 30, 2017
, as compared to the same period in
2016
.
Base natural gas distribution revenues remained relatively unchanged for the three months ended September 30, 2017, as compared to the same period in 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, certain tracked revenues include incentives earned and carrying charges that are billed in rates to customers. Tracked natural gas distribution segment revenues increased as a result of an increase in natural gas supply costs ($7.6 million) and an increase in energy efficiency program revenues ($2.2 million). Tracked electric distribution revenues decreased as a result of a decrease in retail electric transmission charges ($39.8 million), a decrease in stranded cost recovery revenues ($16.9 million), a decrease in energy efficiency program revenues ($13.9 million) and a decrease in pension rate adjustment mechanisms ($7.1 million). Partially offsetting these decreases were increases in tracked electric distribution revenues related to electric energy supply costs ($7.3 million), revenues related to renewable energy requirements ($10.8 million), net metering revenues ($7.0 million) and federally-mandated congestion charges ($2.8 million).
Electric transmission revenues:
The electric transmission segment revenues increased by
$21.7 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 ($5.0 million).
Nine Months Ended:
Operating Revenues decreased by
$6.0 million
for the nine months ended
September 30, 2017
, as compared to the same period in
2016
.
Base electric and natural gas distribution revenues
: Base electric distribution segment revenues, excluding LBR, decreased $13.2 million for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to a decrease in sales volumes driven by the mild summer weather during the third quarter of 2017 at NSTAR Electric and PSNH. LBR increased $10.6 million for the nine months ended
September 30, 2017
, as compared to the same period in
2016
.
Base natural gas distribution revenues remained relatively unchanged for the nine months ended September 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 ($57.8 million) and an increase in energy efficiency program revenues ($17.1 million). Tracked electric distribution revenues decreased as a result of a decrease in electric energy supply costs ($81.0 million), driven by decreased average retail prices and lower sales volumes, a decrease in retail electric transmission charges ($45.9 million), a decrease in transition and stranded cost recovery revenues ($33.1 million), a decrease in pension rate adjustment mechanisms ($16.2 million), and a decrease in energy efficiency program revenues ($8.8 million). Partially offsetting these decreases were increases in tracked electric distribution revenues related to federally-mandated congestion charges ($23.0 million), net metering revenues ($22.4 million) and revenues related to renewable energy requirements and the sale of PSNH's RECs ($14.7 million).
Electric transmission revenues:
The electric transmission segment revenues increased by
$77.5 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 ($15.0 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). Total Purchased Power, Fuel and Transmission expense decreased for the three and nine months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Nine Months Ended
Increase/(Decrease)
|
Electric Distribution
|
$
|
(0.4
|
)
|
|
$
|
(109.1
|
)
|
Natural Gas Distribution
|
7.0
|
|
|
50.1
|
|
Transmission
|
(20.6
|
)
|
|
12.2
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
(14.0
|
)
|
|
$
|
(46.8
|
)
|
The decrease in purchased power expense at the electric distribution business for the nine months ended
September 30, 2017
, as compared to the same period in
2016
, was driven primarily by lower prices associated with the procurement of energy supply and lower sales volumes. The increase in purchased power expense at the natural gas distribution business for each of the periods presented was due to higher average natural gas prices and higher sales volumes. The decrease in transmission costs for the three months ended September 30, 2017, as compared to the same period in 2016, 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. The increase in transmission costs for the nine months ended September 30, 2017, as compared to the same period in 2016, was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment, and Local Network Service charges, which reflect the cost of transmission service provided by Eversource over our local transmission network. This was partially offset by a decrease in the retail transmission cost deferral.
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
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Nine Months Ended
Increase/(Decrease)
|
Base Electric Distribution:
|
|
|
|
Employee-related expenses, including labor and benefits
|
$
|
(15.0
|
)
|
|
$
|
(46.2
|
)
|
Bad debt expense
|
(2.6
|
)
|
|
(15.3
|
)
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
5.4
|
|
|
15.0
|
|
Storm restoration costs
|
(4.0
|
)
|
|
3.1
|
|
Boston Harbor civil action settlement charge recorded in the second quarter of 2017
|
—
|
|
|
4.9
|
|
Other operations and maintenance
|
9.1
|
|
|
15.7
|
|
Total Base Electric Distribution
|
(7.1
|
)
|
|
(22.8
|
)
|
Total Base Natural Gas Distribution:
|
|
|
|
Shared corporate costs (including computer software depreciation at Eversource Service)
|
1.2
|
|
|
3.6
|
|
Other operations and maintenance
|
(4.1
|
)
|
|
(1.5
|
)
|
Total Base Natural Gas Distribution
|
(2.9
|
)
|
|
2.1
|
|
Total Tracked costs (Electric Distribution, Electric Transmission and Natural Gas Distribution)
|
(5.5
|
)
|
|
7.2
|
|
Other and eliminations:
|
|
|
|
Eversource Parent and Other Companies
|
(1.1
|
)
|
|
0.8
|
|
Eliminations
|
(7.7
|
)
|
|
(19.5
|
)
|
Total Operations and Maintenance
|
$
|
(24.3
|
)
|
|
$
|
(32.2
|
)
|
Depreciation
expense increased for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net
expense includes the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms, and the amortization of certain costs. The deferral adjusts expense to match the corresponding revenues.
Amortization of Regulatory Assets, Net
, decreased for the three months ended September 30, 2017 and increased for the
nine
months ended September 30, 2017, as compared to the same periods in 2016, due primarily to the deferral of energy supply and energy-related costs, which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs. Energy supply and energy-related costs at CL&P, NSTAR Electric, PSNH and WMECO, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs
expense decreased for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to deferral adjustments at CL&P, NSTAR Electric and WMECO, partially offset by deferral adjustments at the natural gas businesses, which reflect the actual costs of energy efficiency programs compared to the estimated amounts billed to customers. The deferral adjusts costs incurred to match energy efficiency revenue billed to customers and the timing of the recovery of energy efficiency costs. The costs for various state policy initiatives are recovered from customers in rates and have no impact on earnings.
Interest Expense
increased for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to higher interest on long-term debt ($5.8 million and $15.9 million, respectively) as a result of new debt issuances, and higher interest on short-term debt ($2.4 million and $4.8 million, respectively).
Other Income, Net
increased for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to increased gains on investments ($4.2 million and $24.9 million, respectively), primarily
related to Eversource's investment in a renewable energy fund,
market value changes related to the deferred compensation plans ($2.9 million and $5.1 million, respectively) and higher AFUDC related to equity funds ($1.2 million and $5.0 million, respectively).
Income Tax Expense
decreased for the three months ended September 30, 2017, as compared to the same period in 2016, due primarily to lower pre-tax earnings ($2.4 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.2 million).
Income Tax Expense increased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($20.6 million), the absence of a tax credit in 2017 ($2.4 million), and higher state taxes ($1.3 million), partially offset by flow-through items and permanent differences ($4.6 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 nine
months ended
September 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
774.8
|
|
|
$
|
760.0
|
|
|
$
|
14.8
|
|
|
1.9
|
%
|
|
$
|
2,173.6
|
|
|
$
|
2,175.1
|
|
|
$
|
(1.5
|
)
|
|
(0.1
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
259.0
|
|
|
253.5
|
|
|
5.5
|
|
|
2.2
|
|
|
711.2
|
|
|
760.6
|
|
|
(49.4
|
)
|
|
(6.5
|
)
|
Operations and Maintenance
|
123.1
|
|
|
123.0
|
|
|
0.1
|
|
|
0.1
|
|
|
359.8
|
|
|
356.4
|
|
|
3.4
|
|
|
1.0
|
|
Depreciation
|
63.7
|
|
|
57.7
|
|
|
6.0
|
|
|
10.4
|
|
|
184.3
|
|
|
172.2
|
|
|
12.1
|
|
|
7.0
|
|
Amortization of Regulatory Assets, Net
|
34.6
|
|
|
23.4
|
|
|
11.2
|
|
|
47.9
|
|
|
58.8
|
|
|
30.3
|
|
|
28.5
|
|
|
94.1
|
|
Energy Efficiency Programs
|
37.7
|
|
|
44.4
|
|
|
(6.7
|
)
|
|
(15.1
|
)
|
|
106.5
|
|
|
118.0
|
|
|
(11.5
|
)
|
|
(9.7
|
)
|
Taxes Other Than Income Taxes
|
79.2
|
|
|
81.9
|
|
|
(2.7
|
)
|
|
(3.3
|
)
|
|
223.4
|
|
|
227.9
|
|
|
(4.5
|
)
|
|
(2.0
|
)
|
Total Operating Expenses
|
597.3
|
|
|
583.9
|
|
|
13.4
|
|
|
2.3
|
|
|
1,644.0
|
|
|
1,665.4
|
|
|
(21.4
|
)
|
|
(1.3
|
)
|
Operating Income
|
177.5
|
|
|
176.1
|
|
|
1.4
|
|
|
0.8
|
|
|
529.6
|
|
|
509.7
|
|
|
19.9
|
|
|
3.9
|
|
Interest Expense
|
36.3
|
|
|
36.1
|
|
|
0.2
|
|
|
0.6
|
|
|
106.6
|
|
|
108.6
|
|
|
(2.0
|
)
|
|
(1.8
|
)
|
Other Income, Net
|
7.5
|
|
|
3.7
|
|
|
3.8
|
|
|
(a)
|
|
|
14.1
|
|
|
10.9
|
|
|
3.2
|
|
|
29.4
|
|
Income Before Income Tax Expense
|
148.7
|
|
|
143.7
|
|
|
5.0
|
|
|
3.5
|
|
|
437.1
|
|
|
412.0
|
|
|
25.1
|
|
|
6.1
|
|
Income Tax Expense
|
52.6
|
|
|
57.1
|
|
|
(4.5
|
)
|
|
(7.9
|
)
|
|
159.5
|
|
|
155.4
|
|
|
4.1
|
|
|
2.6
|
|
Net Income
|
$
|
96.1
|
|
|
$
|
86.6
|
|
|
$
|
9.5
|
|
|
11.0
|
%
|
|
$
|
277.6
|
|
|
$
|
256.6
|
|
|
$
|
21.0
|
|
|
8.2
|
%
|
(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 September 30,
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
5,644
|
|
|
6,225
|
|
|
(581
|
)
|
|
(9.3
|
)%
|
|
15,812
|
|
|
16,541
|
|
|
(729
|
)
|
|
(4.4
|
)%
|
Three Months Ended:
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$14.8 million
for the three months ended
September 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, certain tracked revenues include incentives earned and carrying charges that are billed in rates to customers. Tracked distribution revenues increased primarily as a result of an increase in energy supply costs ($27.1 million) driven by increased average retail prices. Partially offsetting this increase was a decrease in stranded cost recovery revenues ($7.6 million) and a decrease in retail transmission charges ($7.6 million).
Transmission revenues increased by $6.3 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Nine Months Ended:
CL&P's Operating Revenues decreased by
$1.5 million
for the nine months ended
September 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 ($25.0 million) driven by decreased average retail prices and lower sales volumes. In addition, there was a $17.8 million decrease in stranded cost recovery revenues. Partially offsetting these decreases was an increase in federally-mandated congestion charges ($23.0 million).
Transmission revenues increased by $27.2 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 rates through PURA-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Total Purchased Power and Transmission expense increased for the three months ended
September 30, 2017
, and decreased for the
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to the following:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Three Months Ended Increase/(Decrease)
|
|
Nine Months Ended
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
5.7
|
|
|
$
|
(68.1
|
)
|
Transmission Costs
|
(0.2
|
)
|
|
18.7
|
|
Total Purchased Power and Transmission
|
$
|
5.5
|
|
|
$
|
(49.4
|
)
|
Included in purchased power costs are the costs associated with CL&P's GSC, CTA and FMCC tracking mechanisms and deferred energy supply costs. The increase in purchased power costs for the three months ended September 30, 2017, as compared to the same period in 2016, was due primarily to GSC-related purchased power expenses. 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
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, was due primarily to a decrease in the price of standard offer supply also associated with the GSC, and lower sales volumes. The increase in transmission costs for the nine months ended September 30, 2017, as compared to the same period in 2016, was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment, and Local Network Service charges, which reflect the cost of transmission service. This was partially offset by 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 increased for the three months ended
September 30, 2017
, as compared to the same period in
2016
, driven by a $0.4 million increase in non-tracked costs, which was primarily attributable to higher shared corporate costs, partially offset by lower employee-related expenses, lower storm restoration costs and lower vegetation management costs. The increase in non-tracked costs was partially offset by a $0.3 million decrease in tracked costs, which was primarily attributable to lower tracked system resiliency, lower bad debt expense and lower employee-related costs, partially offset by higher transmission expenses.
Operations and Maintenance expense increased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, driven by a $6.5 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 $3.0 million, which was primarily attributable to lower employee-related expenses, lower bad debt expense and lower vegetation management costs, partially offset by higher shared corporate costs, higher storm restoration costs, and higher system resiliency project costs.
Depreciation
expense increased for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net
expense includes the deferral of energy supply and energy-related costs and the amortization of certain costs, which are recovered from customers in rates and have no impact on earnings. The deferral adjusts expense to match the corresponding revenues. The increase for the three and
nine
months ended
September 30, 2017
, as compared to the same periods in
2016
, was due primarily to the fluctuation of the deferral, which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs.
Energy Efficiency Programs
expense decreased for the three and nine months ended September 30, 2017, as compared to the same periods in 2016, due primarily to the deferral adjustment, which reflects the actual cost of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs. The deferral adjusts costs incurred to match energy efficiency revenue billed to customers. The costs for various state policy initiatives are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes
expense
decreased for the three and nine months ended September 30, 2017, as compared to the same periods in 2016, due primarily to a decrease in gross earnings taxes, partially offset by an increase in property taxes due to higher plant balances. Gross earnings taxes are tracked costs and have no impact on earnings.
Income Tax Expense
decreased for the three months ended September 30, 2017, as compared to the same period in 2016, due primarily to the true-up of the return to provision impacts ($4.7 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.5 million), partially offset by higher pre-tax earnings ($1.7 million).
Income Tax Expense increased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($8.8 million) and higher state taxes ($2.6 million), partially offset by the true-up of the return to provision impacts ($4.7 million) and flow-through items and permanent differences ($2.6 million).
EARNINGS SUMMARY
CL&P's earnings increased
$9.5 million
for the three months ended
September 30, 2017
, as compared to the same period in 2016, due primarily to a lower effective tax rate, an increase in transmission earnings driven by a higher transmission rate base, and higher distribution revenues due in part to a higher rate base for the system resiliency program, partially offset by higher depreciation expense.
CL&P's earnings increased
$21.0 million
for the
nine
months ended
September 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 non-tracked operations and maintenance expense. These favorable earnings impacts were partially offset by higher depreciation expense.
LIQUIDITY
Cash totaled
$9.4 million
as of
September 30, 2017
, compared with
$6.6 million
as of December 31, 2016.
CL&P had cash flows provided by operating activities of $623.3 million for the nine months ended September 30, 2017, as compared to $614.4 million in the same period of 2016. The increase in operating cash flows was due primarily to the favorable impact of the timing of regulatory recoveries and the timing of collections and payments of our working capital items, including accounts receivable and accounts payable. Partially offsetting these favorable impacts were the income tax payments of $19.8 million made in 2017, compared to the income tax refunds of $128.5 million received in 2016.
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
September 30, 2017
and
December 31, 2016
was
1.34 percent
and
0.88 percent
, respectively. There were no intercompany loans from Eversource parent to CL&P as of September 30, 2017. As of
December 31, 2016
, there were intercompany loans from Eversource parent to CL&P of
$80.1 million
. 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 terminates on 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
September 30, 2017
and
December 31, 2016
.
In August 2017, CL&P issued $225 million of 4.30 percent 2014 Series A First and Refunding Mortgage Bonds due to mature in 2044. These bonds are part of the same series of CL&P’s existing 4.30 percent bonds that were initially issued in 2014. The aggregate outstanding principal amount for these bonds is now $475 million. The proceeds, net of issuance costs, were used to refinance short-term debt and fund capital expenditures and working capital.
In September 2017, CL&P repaid at maturity $100 million of 5.75 percent 2007 Series C First Mortgage Bonds.
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
$621.9 million
for the
nine
months ended
September 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
nine
months ended
September 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
1,913.5
|
|
|
$
|
1,986.0
|
|
|
$
|
(72.5
|
)
|
|
(3.7
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
689.8
|
|
|
764.9
|
|
|
(75.1
|
)
|
|
(9.8
|
)
|
Operations and Maintenance
|
266.2
|
|
|
279.9
|
|
|
(13.7
|
)
|
|
(4.9
|
)
|
Depreciation
|
167.6
|
|
|
159.2
|
|
|
8.4
|
|
|
5.3
|
|
Amortization of Regulatory Assets, Net
|
17.8
|
|
|
18.3
|
|
|
(0.5
|
)
|
|
(2.7
|
)
|
Energy Efficiency Programs
|
198.8
|
|
|
212.9
|
|
|
(14.1
|
)
|
|
(6.6
|
)
|
Taxes Other Than Income Taxes
|
99.0
|
|
|
101.8
|
|
|
(2.8
|
)
|
|
(2.8
|
)
|
Total Operating Expenses
|
1,439.2
|
|
|
1,537.0
|
|
|
(97.8
|
)
|
|
(6.4
|
)
|
Operating Income
|
474.3
|
|
|
449.0
|
|
|
25.3
|
|
|
5.6
|
|
Interest Expense
|
70.0
|
|
|
62.2
|
|
|
7.8
|
|
|
12.5
|
|
Other Income, Net
|
8.7
|
|
|
7.6
|
|
|
1.1
|
|
|
14.5
|
|
Income Before Income Tax Expense
|
413.0
|
|
|
394.4
|
|
|
18.6
|
|
|
4.7
|
|
Income Tax Expense
|
161.3
|
|
|
154.5
|
|
|
6.8
|
|
|
4.4
|
|
Net Income
|
$
|
251.7
|
|
|
$
|
239.9
|
|
|
$
|
11.8
|
|
|
4.9
|
%
|
Operating Revenues
NSTAR Electric's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
15,204
|
|
|
15,746
|
|
|
(542
|
)
|
|
(3.4
|
)%
|
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by
$72.5 million
for the nine months ended
September 30, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues, excluding LBR, decreased $11.2 million for the nine months ended September 30, 2017, as compared to the same period in 2016, as a result of lower sales volumes in 2017, as compared to 2016 driven by the mild summer weather during the third quarter of 2017. LBR increased $10.6 million for the nine months ended
September 30, 2017
, as compared to the same period in
2016
.
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 procurement and other energy-related costs, retail transmission charges, energy efficiency program costs, net metering for distributed generation and transition cost recovery revenues. In addition, certain tracked revenues include incentives earned and carrying charges that are billed in rates to customers. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($44.1 million) driven by decreased average retail prices and lower sales volumes, a decrease in retail transmission charges ($53.9 million), a decrease in the pension rate adjustment mechanism ($14.7 million), and a decrease in transition cost recovery revenues ($11.9 million). Partially offsetting these decreases were an increase in net metering revenues ($20.2 million) and an increase in revenues related to renewable energy requirements ($23.4 million).
Transmission revenues increased by $20.6 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission
expense includes costs associated with purchasing electricity on behalf of NSTAR Electric's customers. These energy supply costs are recovered from customers in rates through DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Total Purchased Power and Transmission expense decreased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Decrease
|
Purchased Power Costs
|
$
|
(42.3
|
)
|
Transmission Costs
|
(32.8
|
)
|
Total Purchased Power and Transmission
|
$
|
(75.1
|
)
|
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 and lower sales volumes. The decrease in transmission costs was primarily the result of a decrease in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance
expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense decreased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, driven by a $13.0 million decrease in non-tracked costs, which was primarily attributable to lower employee-related expenses, lower bad debt expense and lower storm restoration costs, partially offset by higher shared corporate costs, a
$4.9 million
charge recorded in the second quarter of 2017 related to the Boston Harbor civil action settlement, and higher vegetation management costs. Tracked costs decreased $0.7 million, which was primarily attributable to lower tracked employee-related expenses, partially offset by higher transmission expenses and higher tracked bad debt expense.
Depreciation
expense increased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Energy Efficiency Programs
expense decreased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to the deferral adjustment, which reflects the actual cost of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs. The deferral adjusts costs incurred to match energy efficiency revenue billed to customers. The costs for various state policy initiatives are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes
expense decreased for the nine months ended September 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
nine
months ended September 30, 2017, as compared to the same period in 2016, due primarily to new debt issuances.
Income Tax Expense
increased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($6.9 million), partially offset by items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.1 million).
EARNINGS SUMMARY
NSTAR Electric's earnings increased
$11.8 million
for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to lower operations and maintenance expense and lower property tax expense, partially offset by
lower sales volumes driven by the mild summer weather during the third quarter of 2017, and
higher interest and depreciation expense.
LIQUIDITY
NSTAR Electric had cash flows provided by operating activities of
$413.0 million
for the
nine
months ended
September 30, 2017
, as compared to
$564.3 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to a decrease in regulatory recoveries, which were significantly impacted by the timing of collections of purchased power and transmission costs, an increase of $56.3 million in Pension and PBOP Plan cash contributions, and the income tax payments of $23.9 million made in 2017, compared to the income tax refunds of $28.1 million received in 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
September 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
September 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 terminates on 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
September 30, 2017
and
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
nine
months ended
September 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
733.6
|
|
|
$
|
727.8
|
|
|
$
|
5.8
|
|
|
0.8
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power, Fuel and Transmission
|
179.3
|
|
|
155.7
|
|
|
23.6
|
|
|
15.2
|
|
Operations and Maintenance
|
191.2
|
|
|
187.2
|
|
|
4.0
|
|
|
2.1
|
|
Depreciation
|
95.3
|
|
|
86.5
|
|
|
8.8
|
|
|
10.2
|
|
Amortization of Regulatory (Liabilities)/Assets, Net
|
(10.7
|
)
|
|
14.5
|
|
|
(25.2
|
)
|
|
(a)
|
|
Energy Efficiency Programs
|
11.0
|
|
|
10.9
|
|
|
0.1
|
|
|
0.9
|
|
Taxes Other Than Income Taxes
|
67.0
|
|
|
64.5
|
|
|
2.5
|
|
|
3.9
|
|
Total Operating Expenses
|
533.1
|
|
|
519.3
|
|
|
13.8
|
|
|
2.7
|
|
Operating Income
|
200.5
|
|
|
208.5
|
|
|
(8.0
|
)
|
|
(3.8
|
)
|
Interest Expense
|
38.7
|
|
|
37.4
|
|
|
1.3
|
|
|
3.5
|
|
Other Income, Net
|
2.9
|
|
|
1.0
|
|
|
1.9
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
164.7
|
|
|
172.1
|
|
|
(7.4
|
)
|
|
(4.3
|
)
|
Income Tax Expense
|
65.1
|
|
|
66.3
|
|
|
(1.2
|
)
|
|
(1.8
|
)
|
Net Income
|
$
|
99.6
|
|
|
$
|
105.8
|
|
|
$
|
(6.2
|
)
|
|
(5.9
|
)%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
PSNH's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
5,835
|
|
|
5,985
|
|
|
(150
|
)
|
|
(2.5
|
)%
|
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$5.8 million
for the nine months ended
September 30, 2017
, as compared to the same period in
2016
.
Base distribution revenues
: Base distribution revenues decreased $2.0 million for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to a 2.5 percent decrease in sales volumes driven by the mild summer weather during the third quarter of 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 procurement and energy-related costs, costs associated with the generation of electricity for customers, retail transmission charges, energy efficiency program costs and stranded cost recovery revenues. In addition, certain tracked revenues include incentives earned and carrying charges that are billed in rates to customers. Tracked distribution revenues decreased primarily as a result of a decrease in revenues related to the timing of the sale of RECs ($15.3 million) and a decrease in the energy service rate ($5.1 million). Partially offsetting these decreases was an increase in retail transmission charges ($7.2 million) and an increase in wholesale generation revenues ($4.0 million).
Transmission revenues increased by $17.6 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power, Fuel and Transmission
expense includes costs associated with 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 rates through NHPUC-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Total Purchased Power, Fuel and Transmission expense increased for the
nine
months ended
September 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
|
$
|
5.1
|
|
Transmission Costs
|
18.5
|
|
Total Purchased Power, Fuel and Transmission
|
$
|
23.6
|
|
In order to meet the demand of customers who have not migrated to third party suppliers, PSNH procures power through power supply contracts and spot purchases in the competitive New England wholesale power market and/or produces power through its own generation. The increase in purchased power and generation fuel costs was due primarily to higher purchased power energy expenses that are recovered as a component of 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 costs billed by ISO-NE that support regional grid investment, and Local Network Service charges, which reflect the cost of transmission service, as well as the retail transmission cost deferral, which reflects 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
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, driven by a $2.1 million increase in tracked costs, which was primarily attributable to higher transmission expenses, partially offset by lower employee-related expenses. Non-tracked costs increased by $1.9 million, which was primarily attributable to higher shared corporate costs and higher vegetation management costs, partially offset by lower employee-related expenses.
Depreciation
expense increased for the
nine
months ended
September 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 of energy supply and energy-related costs and the amortization of certain costs, which are recovered from customers in rates and have no impact on earnings. The deferral adjusts expense to match the corresponding revenues. The decrease for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, was due primarily to the fluctuation of the deferral, which can fluctuate from period to period based on the timing of costs incurred and related rate changes to recover these costs.
Taxes Other Than Income Taxes
expense increased for the nine months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to an increase in property taxes due to higher plant balances.
Income Tax Expense
decreased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to lower pre-tax earnings ($2.6 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($1.0 million), partially offset by the absence of a tax credit in 2017 ($2.4 million).
EARNINGS SUMMARY
PSNH's earnings decreased
$6.2 million
for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to lower generation earnings, higher property tax and depreciation expense and
lower sales volumes driven by the mild summer weather during the third quarter of 2017. These unfavorable earnings impacts were
partially offset by an increase in transmission earnings driven by a higher transmission rate base.
LIQUIDITY
PSNH had cash flows provided by operating activities of
$264.0 million
for the
nine
months ended
September 30, 2017
, as compared to
$306.0 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to the income tax payments of $11.8 million made in 2017, compared to the income tax refunds of $41.3 million received in 2016. Partially offsetting this decrease was $16.2 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
nine
months ended
September 30, 2017
and
2016
included in this combined Quarterly Report on Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
(Millions of Dollars)
|
2017
|
|
2016
|
|
Increase/
(Decrease)
|
|
Percent
|
Operating Revenues
|
$
|
377.2
|
|
|
$
|
368.5
|
|
|
$
|
8.7
|
|
|
2.4
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power and Transmission
|
109.6
|
|
|
104.4
|
|
|
5.2
|
|
|
5.0
|
|
Operations and Maintenance
|
65.8
|
|
|
68.0
|
|
|
(2.2
|
)
|
|
(3.2
|
)
|
Depreciation
|
36.8
|
|
|
34.4
|
|
|
2.4
|
|
|
7.0
|
|
Amortization of Regulatory Assets/(Liabilities), Net
|
(0.6
|
)
|
|
3.3
|
|
|
(3.9
|
)
|
|
(a)
|
|
Energy Efficiency Programs
|
29.7
|
|
|
33.6
|
|
|
(3.9
|
)
|
|
(11.6
|
)
|
Taxes Other Than Income Taxes
|
31.4
|
|
|
30.4
|
|
|
1.0
|
|
|
3.3
|
|
Total Operating Expenses
|
272.7
|
|
|
274.1
|
|
|
(1.4
|
)
|
|
(0.5
|
)
|
Operating Income
|
104.5
|
|
|
94.4
|
|
|
10.1
|
|
|
10.7
|
|
Interest Expense
|
18.8
|
|
|
18.3
|
|
|
0.5
|
|
|
2.7
|
|
Other Income, Net
|
1.4
|
|
|
0.1
|
|
|
1.3
|
|
|
(a)
|
|
Income Before Income Tax Expense
|
87.1
|
|
|
76.2
|
|
|
10.9
|
|
|
14.3
|
|
Income Tax Expense
|
34.7
|
|
|
30.1
|
|
|
4.6
|
|
|
15.3
|
|
Net Income
|
$
|
52.4
|
|
|
$
|
46.1
|
|
|
$
|
6.3
|
|
|
13.7
|
%
|
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
WMECO's retail sales volumes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
Decrease
|
|
Percent
|
Retail Sales Volumes in GWh
|
2,579
|
|
|
2,695
|
|
|
(116
|
)
|
|
(4.3
|
)%
|
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by
$8.7 million
for the
nine
months ended
September 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 procurement and other energy-related costs, retail transmission charges, energy efficiency program costs, low income assistance programs, and restructuring and stranded cost recovery revenues. In addition, certain tracked revenues include incentives earned and carrying charges that are billed in rates to customers. Tracked distribution revenues decreased due primarily to a decrease in energy supply costs ($10.8 million) driven by decreased average retail prices and lower sales volumes, partially offset by increases in revenues related to renewable energy requirements ($6.6 million).
Transmission revenues increased by $12.0 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 WMECO's customers. These energy supply costs are recovered from customers in rates through DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Total Purchased Power and Transmission expense increased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to the following:
|
|
|
|
|
(Millions of Dollars)
|
Increase/(Decrease)
|
Purchased Power Costs
|
$
|
(2.6
|
)
|
Transmission Costs
|
7.8
|
|
Total Purchased Power and Transmission
|
$
|
5.2
|
|
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 for the nine months ended September 30, 2017, as compared to the same period in 2016, was due primarily to lower prices associated with the procurement of energy supply and lower sales volumes. The increase in transmission costs for the nine months ended September 30, 2017, as compared to the same period in 2016, was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment, and Local Network Service charges, which reflect the cost of transmission service, as well as the retail transmission cost deferral, which reflects 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
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, driven by a decrease in non-tracked costs of $1.9 million, which was primarily attributable to lower employee-related expenses, partially offset by higher shared corporate costs. Tracked costs also decreased by $0.3 million, which was primarily attributable to lower tracked employee-related expenses, and a lower deferral adjustment for RECs generated and sold by the WMECO solar program, partially offset by higher transmission expenses.
Depreciation
expense increased for the
nine
months ended
September 30, 2017
, as compared to the same period in
2016
, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets/(Liabilities), Net
expense decreased for the
nine
months ended
September 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.
Energy Efficiency Programs
expense decreased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to the deferral adjustment, which reflects the actual cost of energy efficiency programs compared to the estimated amounts billed to customers and the timing of the recovery of energy efficiency costs. The deferral adjusts costs incurred to match energy efficiency revenue billed to customers. The costs for various state policy initiatives are recovered from customers in rates and have no impact on earnings.
Income Tax Expense
increased for the nine months ended September 30, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($3.8 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.8 million).
EARNINGS SUMMARY
WMECO's earnings increased
$6.3 million
for the
nine
months ended
September 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 lower operations and maintenance expense.
LIQUIDITY
WMECO had cash flows provided by operating activities of
$92.0 million
for the
nine
months ended
September 30, 2017
, as compared to
$124.8 million
in the same period of
2016
. The decrease in operating cash flows was due primarily to the income tax payments of $2.0 million made in 2017, compared to the income tax refunds of $21.6 million received in 2016, and the unfavorable impacts related to the timing of collections and payments of our working capital items, including accounts receivable. Partially offsetting these unfavorable impacts was the benefit related to the timing of regulatory recoveries.