EVERSOURCE ENERGY - Quarter Report: 2017 March (Form 10-Q)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2017 | |
or | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________ |
Commission File Number | Registrant; State of Incorporation; Address; and Telephone Number | I.R.S. Employer Identification No. |
1-5324 | EVERSOURCE ENERGY (a Massachusetts voluntary association) 300 Cadwell Drive Springfield, Massachusetts 01104 Telephone: (800) 286-5000 | 04-2147929 |
0-00404 | THE CONNECTICUT LIGHT AND POWER COMPANY (a Connecticut corporation) 107 Selden Street Berlin, Connecticut 06037-1616 Telephone: (800) 286-5000 | 06-0303850 |
1-02301 | NSTAR ELECTRIC COMPANY (a Massachusetts corporation) 800 Boylston Street Boston, Massachusetts 02199 Telephone: (800) 286-5000 | 04-1278810 |
1-6392 | PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE (a New Hampshire corporation) Energy Park 780 North Commercial Street Manchester, New Hampshire 03101-1134 Telephone: (800) 286-5000 | 02-0181050 |
0-7624 | WESTERN MASSACHUSETTS ELECTRIC COMPANY (a Massachusetts corporation) 300 Cadwell Drive Springfield, Massachusetts 01104 Telephone: (800) 286-5000 | 04-1961130 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes | No | |
x | ¨ |
Indicate by check mark whether the registrants have submitted electronically and posted on its corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
Yes | No | |
x | ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||
Eversource Energy | x | ¨ | ¨ | ¨ | ¨ | ||||
The Connecticut Light and Power Company | ¨ | ¨ | x | ¨ | ¨ | ||||
NSTAR Electric Company | ¨ | ¨ | x | ¨ | ¨ | ||||
Public Service Company of New Hampshire | ¨ | ¨ | x | ¨ | ¨ | ||||
Western Massachusetts Electric Company | ¨ | ¨ | x | ¨ | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
Yes | No | |
Eversource Energy | ¨ | x |
The Connecticut Light and Power Company | ¨ | x |
NSTAR Electric Company | ¨ | x |
Public Service Company of New Hampshire | ¨ | x |
Western Massachusetts Electric Company | ¨ | x |
Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date:
Company - Class of Stock | Outstanding as of April 30, 2017 |
Eversource Energy Common Shares, $5.00 par value | 316,885,808 shares |
The Connecticut Light and Power Company Common Stock, $10.00 par value | 6,035,205 shares |
NSTAR Electric Company Common Stock, $1.00 par value | 100 shares |
Public Service Company of New Hampshire Common Stock, $1.00 par value | 301 shares |
Western Massachusetts Electric Company Common Stock, $25.00 par value | 434,653 shares |
Eversource Energy holds all of the 6,035,205 shares, 100 shares, 301 shares, and 434,653 shares of the outstanding common stock of The Connecticut Light and Power Company, NSTAR Electric Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company, respectively.
NSTAR Electric Company, Public Service Company of New Hampshire and Western Massachusetts Electric Company each meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q, and each is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.
Eversource Energy, The Connecticut Light and Power Company, NSTAR Electric Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company each separately file this combined Form 10-Q. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
GLOSSARY OF TERMS
The following is a glossary of abbreviations or acronyms that are found in this report:
Current or former Eversource Energy companies, segments or investments: | |
Eversource, ES or the Company | Eversource Energy and subsidiaries |
Eversource parent or ES parent | Eversource Energy, a public utility holding company |
ES parent and other companies | ES parent and other companies are comprised of Eversource parent, Eversource Service and other subsidiaries, which primarily includes our unregulated businesses, HWP Company, The Rocky River Realty Company (a real estate subsidiary), and the consolidated operations of CYAPC and YAEC |
CL&P | The Connecticut Light and Power Company |
NSTAR Electric | NSTAR Electric Company |
PSNH | Public Service Company of New Hampshire |
WMECO | Western Massachusetts Electric Company |
NSTAR Gas | NSTAR Gas Company |
Yankee Gas | Yankee Gas Services Company |
NPT | Northern Pass Transmission LLC |
Eversource Service | Eversource Energy Service Company |
CYAPC | Connecticut Yankee Atomic Power Company |
MYAPC | Maine Yankee Atomic Power Company |
YAEC | Yankee Atomic Electric Company |
Yankee Companies | CYAPC, YAEC and MYAPC |
Regulated companies | The Eversource Regulated companies are comprised of the electric distribution and transmission businesses of CL&P, NSTAR Electric, PSNH, and WMECO, the natural gas distribution businesses of Yankee Gas and NSTAR Gas, the generation activities of PSNH and WMECO, and NPT |
Regulators: | |
DEEP | Connecticut Department of Energy and Environmental Protection |
DOE | U.S. Department of Energy |
DOER | Massachusetts Department of Energy Resources |
DPU | Massachusetts Department of Public Utilities |
EPA | U.S. Environmental Protection Agency |
FERC | Federal Energy Regulatory Commission |
ISO-NE | ISO New England, Inc., the New England Independent System Operator |
MA DEP | Massachusetts Department of Environmental Protection |
NHPUC | New Hampshire Public Utilities Commission |
PURA | Connecticut Public Utilities Regulatory Authority |
SEC | U.S. Securities and Exchange Commission |
SJC | Supreme Judicial Court of Massachusetts |
Other Terms and Abbreviations: | |
Access Northeast | A project being developed jointly by Eversource, Enbridge, Inc. ("Enbridge"), and National Grid plc ("National Grid") through Algonquin Gas Transmission, LLC to bring needed additional natural gas pipeline and storage capacity to New England. |
ADIT | Accumulated Deferred Income Taxes |
AFUDC | Allowance For Funds Used During Construction |
AOCL | Accumulated Other Comprehensive Loss |
ARO | Asset Retirement Obligation |
Bay State Wind | A proposed offshore wind project being developed off the coast of Massachusetts |
Bcf | Billion cubic feet |
C&LM | Conservation and Load Management |
CfD | Contract for Differences |
Clean Air Project | The construction of a wet flue gas desulphurization system, known as "scrubber technology," to reduce mercury emissions of the Merrimack coal-fired generation station in Bow, New Hampshire |
CO2 | Carbon dioxide |
CPSL | Capital Projects Scheduling List |
CTA | Competitive Transition Assessment |
CWIP | Construction Work in Progress |
EDC | Electric distribution company |
EPS | Earnings Per Share |
ERISA | Employee Retirement Income Security Act of 1974 |
i
ESOP | Employee Stock Ownership Plan |
ESPP | Employee Share Purchase Plan |
Eversource 2016 Form 10-K | The Eversource Energy and Subsidiaries 2016 combined Annual Report on Form 10-K as filed with the SEC |
FERC ALJ | FERC Administrative Law Judge |
Fitch | Fitch Ratings |
FMCC | Federally Mandated Congestion Charge |
FTR | Financial Transmission Rights |
GAAP | Accounting principles generally accepted in the United States of America |
GSC | Generation Service Charge |
GSRP | Greater Springfield Reliability Project |
GWh | Gigawatt-Hours |
HQ | Hydro-Québec, a corporation wholly-owned by the Québec government, including its divisions that produce, transmit and distribute electricity in Québec, Canada |
HVDC | High voltage direct current |
Hydro Renewable Energy | Hydro Renewable Energy, Inc., a wholly-owned subsidiary of Hydro-Québec |
IPP | Independent Power Producers |
ISO-NE Tariff | ISO-NE FERC Transmission, Markets and Services Tariff |
kV | Kilovolt |
kVa | Kilovolt-ampere |
kW | Kilowatt (equal to one thousand watts) |
kWh | Kilowatt-Hours (the basic unit of electricity energy equal to one kilowatt of power supplied for one hour) |
LBR | Lost Base Revenue |
LNG | Liquefied natural gas |
LRS | Supplier of last resort service |
McF | Million cubic feet |
MGP | Manufactured Gas Plant |
MMBtu | One million British thermal units |
Moody's | Moody's Investors Services, Inc. |
MW | Megawatt |
MWh | Megawatt-Hours |
NEEWS | New England East-West Solution |
NETOs | New England Transmission Owners |
Northern Pass | The high-voltage direct-current and associated alternating-current transmission line project from Canada into New Hampshire |
NOx | Nitrogen oxides |
OCI | Other Comprehensive Income/(Loss) |
PAM | Pension and PBOP Rate Adjustment Mechanism |
PBOP | Postretirement Benefits Other Than Pension |
PBOP Plan | Postretirement Benefits Other Than Pension Plan that provides certain retiree benefits, primarily medical, dental and life insurance |
PCRBs | Pollution Control Revenue Bonds |
Pension Plan | Single uniform noncontributory defined benefit retirement plan |
PPA | Pension Protection Act |
RECs | Renewable Energy Certificates |
Regulatory ROE | The average cost of capital method for calculating the return on equity related to the distribution and generation business segment excluding the wholesale transmission segment |
RNS | Regional Network Service |
ROE | Return on Equity |
RRB | Rate Reduction Bond or Rate Reduction Certificate |
RSUs | Restricted share units |
S&P | Standard & Poor's Financial Services LLC |
SBC | Systems Benefits Charge |
SCRC | Stranded Cost Recovery Charge |
SERP | Supplemental Executive Retirement Plans and non-qualified defined benefit retirement plans |
SIP | Simplified Incentive Plan |
SO2 | Sulfur dioxide |
SS | Standard service |
TCAM | Transmission Cost Adjustment Mechanism |
TSA | Transmission Service Agreement |
UI | The United Illuminating Company |
ii
EVERSOURCE ENERGY AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page | ||
PART I – FINANCIAL INFORMATION | ||
PART II – OTHER INFORMATION | ||
iii
EVERSOURCE ENERGY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and Cash Equivalents | $ | 45,763 | $ | 30,251 | |||
Receivables, Net | 879,451 | 847,301 | |||||
Unbilled Revenues | 166,710 | 168,490 | |||||
Fuel, Materials, Supplies and Inventory | 361,779 | 328,721 | |||||
Regulatory Assets | 875,037 | 887,625 | |||||
Prepayments and Other Current Assets | 182,659 | 215,284 | |||||
Total Current Assets | 2,511,399 | 2,477,672 | |||||
Property, Plant and Equipment, Net | 21,641,898 | 21,350,510 | |||||
Deferred Debits and Other Assets: | |||||||
Regulatory Assets | 3,564,700 | 3,638,688 | |||||
Goodwill | 3,519,401 | 3,519,401 | |||||
Marketable Securities | 561,585 | 544,642 | |||||
Other Long-Term Assets | 556,193 | 522,260 | |||||
Total Deferred Debits and Other Assets | 8,201,879 | 8,224,991 | |||||
Total Assets | $ | 32,355,176 | $ | 32,053,173 | |||
LIABILITIES AND CAPITALIZATION | |||||||
Current Liabilities: | |||||||
Notes Payable | $ | 975,500 | $ | 1,148,500 | |||
Long-Term Debt – Current Portion | 773,883 | 773,883 | |||||
Accounts Payable | 745,856 | 884,521 | |||||
Regulatory Liabilities | 199,160 | 146,787 | |||||
Other Current Liabilities | 639,366 | 684,914 | |||||
Total Current Liabilities | 3,333,765 | 3,638,605 | |||||
Deferred Credits and Other Liabilities: | |||||||
Accumulated Deferred Income Taxes | 5,758,603 | 5,607,207 | |||||
Regulatory Liabilities | 692,989 | 702,255 | |||||
Derivative Liabilities | 415,795 | 413,676 | |||||
Accrued Pension and SERP | 1,077,593 | 1,141,514 | |||||
Other Long-Term Liabilities | 848,776 | 853,260 | |||||
Total Deferred Credits and Other Liabilities | 8,793,756 | 8,717,912 | |||||
Capitalization: | |||||||
Long-Term Debt | 9,267,891 | 8,829,354 | |||||
Noncontrolling Interest - Preferred Stock of Subsidiaries | 155,568 | 155,568 | |||||
Equity: | |||||||
Common Shareholders' Equity: | |||||||
Common Shares | 1,669,392 | 1,669,392 | |||||
Capital Surplus, Paid In | 6,230,608 | 6,250,224 | |||||
Retained Earnings | 3,284,108 | 3,175,171 | |||||
Accumulated Other Comprehensive Loss | (62,141 | ) | (65,282 | ) | |||
Treasury Stock | (317,771 | ) | (317,771 | ) | |||
Common Shareholders' Equity | 10,804,196 | 10,711,734 | |||||
Total Capitalization | 20,227,655 | 19,696,656 | |||||
Total Liabilities and Capitalization | $ | 32,355,176 | $ | 32,053,173 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
EVERSOURCE ENERGY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars, Except Share Information) | 2017 | 2016 | |||||
Operating Revenues | $ | 2,105,135 | $ | 2,055,635 | |||
Operating Expenses: | |||||||
Purchased Power, Fuel and Transmission | 753,649 | 754,859 | |||||
Operations and Maintenance | 330,265 | 320,136 | |||||
Depreciation | 186,805 | 173,986 | |||||
Amortization of Regulatory Assets, Net | 24,017 | 20,997 | |||||
Energy Efficiency Programs | 146,158 | 137,175 | |||||
Taxes Other Than Income Taxes | 155,222 | 159,946 | |||||
Total Operating Expenses | 1,596,116 | 1,567,099 | |||||
Operating Income | 509,019 | 488,536 | |||||
Interest Expense | 103,429 | 98,212 | |||||
Other Income, Net | 13,577 | 2,011 | |||||
Income Before Income Tax Expense | 419,167 | 392,335 | |||||
Income Tax Expense | 157,829 | 146,302 | |||||
Net Income | 261,338 | 246,033 | |||||
Net Income Attributable to Noncontrolling Interests | 1,880 | 1,880 | |||||
Net Income Attributable to Common Shareholders | $ | 259,458 | $ | 244,153 | |||
Basic and Diluted Earnings Per Common Share | $ | 0.82 | $ | 0.77 | |||
Dividends Declared Per Common Share | $ | 0.48 | $ | 0.45 | |||
Weighted Average Common Shares Outstanding: | |||||||
Basic | 317,463,151 | 317,517,141 | |||||
Diluted | 318,124,536 | 318,481,050 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Net Income | $ | 261,338 | $ | 246,033 | |||
Other Comprehensive Income, Net of Tax: | |||||||
Qualified Cash Flow Hedging Instruments | 534 | 534 | |||||
Changes in Unrealized Gains on Marketable Securities | 1,645 | 264 | |||||
Changes in Funded Status of Pension, SERP and PBOP Benefit Plans | 962 | 871 | |||||
Other Comprehensive Income, Net of Tax | 3,141 | 1,669 | |||||
Comprehensive Income Attributable to Noncontrolling Interests | (1,880 | ) | (1,880 | ) | |||
Comprehensive Income Attributable to Common Shareholders | $ | 262,599 | $ | 245,822 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
EVERSOURCE ENERGY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Activities: | |||||||
Net Income | $ | 261,338 | $ | 246,033 | |||
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: | |||||||
Depreciation | 186,805 | 173,986 | |||||
Deferred Income Taxes | 141,398 | 141,132 | |||||
Pension, SERP and PBOP Expense, Net | 5,828 | 11,583 | |||||
Pension and PBOP Contributions | (45,700 | ) | (30,383 | ) | |||
Regulatory Over/(Under) Recoveries, Net | 56,734 | (82,772 | ) | ||||
Amortization of Regulatory Assets, Net | 24,017 | 20,997 | |||||
Other | (42,428 | ) | (16,532 | ) | |||
Changes in Current Assets and Liabilities: | |||||||
Receivables and Unbilled Revenues, Net | (50,251 | ) | (133,965 | ) | |||
Fuel, Materials, Supplies and Inventory | (33,058 | ) | (22,748 | ) | |||
Taxes Receivable/Accrued, Net | 32,313 | 279,106 | |||||
Accounts Payable | (57,701 | ) | (76,317 | ) | |||
Other Current Assets and Liabilities, Net | (42,793 | ) | (10,156 | ) | |||
Net Cash Flows Provided by Operating Activities | 436,502 | 499,964 | |||||
Investing Activities: | |||||||
Investments in Property, Plant and Equipment | (523,560 | ) | (431,472 | ) | |||
Proceeds from Sales of Marketable Securities | 154,772 | 136,805 | |||||
Purchases of Marketable Securities | (149,688 | ) | (135,427 | ) | |||
Other Investing Activities | (11,281 | ) | 5,494 | ||||
Net Cash Flows Used in Investing Activities | (529,757 | ) | (424,600 | ) | |||
Financing Activities: | |||||||
Cash Dividends on Common Shares | (150,521 | ) | (141,157 | ) | |||
Cash Dividends on Preferred Stock | (1,880 | ) | (1,880 | ) | |||
Decrease in Notes Payable | (173,000 | ) | (391,453 | ) | |||
Issuance of Long-Term Debt | 600,000 | 500,000 | |||||
Retirements of Long-Term Debt | (150,000 | ) | — | ||||
Other Financing Activities | (15,832 | ) | (13,855 | ) | |||
Net Cash Flows Provided by/(Used in) Financing Activities | 108,767 | (48,345 | ) | ||||
Net Increase in Cash and Cash Equivalents | 15,512 | 27,019 | |||||
Cash and Cash Equivalents - Beginning of Period | 30,251 | 23,947 | |||||
Cash and Cash Equivalents - End of Period | $ | 45,763 | $ | 50,966 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
THE CONNECTICUT LIGHT AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 15,315 | $ | 6,579 | |||
Receivables, Net | 349,714 | 359,132 | |||||
Accounts Receivable from Affiliated Companies | 17,184 | 16,851 | |||||
Unbilled Revenues | 51,069 | 50,373 | |||||
Materials, Supplies and Inventory | 56,432 | 52,050 | |||||
Regulatory Assets | 370,083 | 335,526 | |||||
Prepayments and Other Current Assets | 52,406 | 52,670 | |||||
Total Current Assets | 912,203 | 873,181 | |||||
Property, Plant and Equipment, Net | 7,754,894 | 7,632,392 | |||||
Deferred Debits and Other Assets: | |||||||
Regulatory Assets | 1,367,486 | 1,391,564 | |||||
Other Long-Term Assets | 140,157 | 137,907 | |||||
Total Deferred Debits and Other Assets | 1,507,643 | 1,529,471 | |||||
Total Assets | $ | 10,174,740 | $ | 10,035,044 | |||
LIABILITIES AND CAPITALIZATION | |||||||
Current Liabilities: | |||||||
Notes Payable to Eversource Parent | $ | 3,400 | $ | 80,100 | |||
Long-Term Debt – Current Portion | 100,000 | 250,000 | |||||
Accounts Payable | 281,414 | 289,532 | |||||
Accounts Payable to Affiliated Companies | 67,250 | 88,075 | |||||
Obligations to Third Party Suppliers | 51,885 | 55,520 | |||||
Regulatory Liabilities | 58,946 | 47,055 | |||||
Derivative Liabilities | 70,739 | 77,765 | |||||
Other Current Liabilities | 127,869 | 120,399 | |||||
Total Current Liabilities | 761,503 | 1,008,446 | |||||
Deferred Credits and Other Liabilities: | |||||||
Accumulated Deferred Income Taxes | 2,037,638 | 1,987,661 | |||||
Regulatory Liabilities | 101,241 | 100,138 | |||||
Derivative Liabilities | 415,187 | 412,750 | |||||
Accrued Pension, SERP and PBOP | 296,105 | 300,208 | |||||
Other Long-Term Liabilities | 123,931 | 123,244 | |||||
Total Deferred Credits and Other Liabilities | 2,974,102 | 2,924,001 | |||||
Capitalization: | |||||||
Long-Term Debt | 2,813,151 | 2,516,010 | |||||
Preferred Stock Not Subject to Mandatory Redemption | 116,200 | 116,200 | |||||
Common Stockholder's Equity: | |||||||
Common Stock | 60,352 | 60,352 | |||||
Capital Surplus, Paid In | 2,110,726 | 2,110,714 | |||||
Retained Earnings | 1,338,592 | 1,299,374 | |||||
Accumulated Other Comprehensive Income/(Loss) | 114 | (53 | ) | ||||
Common Stockholder's Equity | 3,509,784 | 3,470,387 | |||||
Total Capitalization | 6,439,135 | 6,102,597 | |||||
Total Liabilities and Capitalization | $ | 10,174,740 | $ | 10,035,044 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
THE CONNECTICUT LIGHT AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Revenues | $ | 732,310 | $ | 735,317 | |||
Operating Expenses: | |||||||
Purchased Power and Transmission | 244,938 | 272,600 | |||||
Operations and Maintenance | 128,226 | 110,843 | |||||
Depreciation | 59,751 | 56,969 | |||||
Amortization of Regulatory Assets, Net | 12,803 | 9,878 | |||||
Energy Efficiency Programs | 36,591 | 38,090 | |||||
Taxes Other Than Income Taxes | 73,979 | 75,465 | |||||
Total Operating Expenses | 556,288 | 563,845 | |||||
Operating Income | 176,022 | 171,472 | |||||
Interest Expense | 34,964 | 36,498 | |||||
Other Income, Net | 2,756 | 936 | |||||
Income Before Income Tax Expense | 143,814 | 135,910 | |||||
Income Tax Expense | 53,606 | 48,863 | |||||
Net Income | $ | 90,208 | $ | 87,047 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Net Income | $ | 90,208 | $ | 87,047 | |||
Other Comprehensive Income, Net of Tax: | |||||||
Qualified Cash Flow Hedging Instruments | 111 | 111 | |||||
Changes in Unrealized Gains on Marketable Securities | 56 | 9 | |||||
Other Comprehensive Income, Net of Tax | 167 | 120 | |||||
Comprehensive Income | $ | 90,375 | $ | 87,167 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
THE CONNECTICUT LIGHT AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Activities: | |||||||
Net Income | $ | 90,208 | $ | 87,047 | |||
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: | |||||||
Depreciation | 59,751 | 56,969 | |||||
Deferred Income Taxes | 47,864 | 58,363 | |||||
Regulatory Underrecoveries, Net | (18,734 | ) | (70,195 | ) | |||
Amortization of Regulatory Assets, Net | 12,803 | 9,878 | |||||
Other | (2,373 | ) | 2,216 | ||||
Changes in Current Assets and Liabilities: | |||||||
Receivables and Unbilled Revenues, Net | (1,280 | ) | (37,501 | ) | |||
Taxes Receivable/Accrued, Net | 32,920 | 141,951 | |||||
Accounts Payable | (16,957 | ) | (5,040 | ) | |||
Other Current Assets and Liabilities, Net | (32,576 | ) | (22,533 | ) | |||
Net Cash Flows Provided by Operating Activities | 171,626 | 221,155 | |||||
Investing Activities: | |||||||
Investments in Property, Plant and Equipment | (181,601 | ) | (147,131 | ) | |||
Proceeds from the Sale of Property, Plant and Equipment | — | 9,047 | |||||
Other Investing Activities | 32 | 49 | |||||
Net Cash Flows Used in Investing Activities | (181,569 | ) | (138,035 | ) | |||
Financing Activities: | |||||||
Cash Dividends on Common Stock | (49,600 | ) | (49,900 | ) | |||
Cash Dividends on Preferred Stock | (1,390 | ) | (1,390 | ) | |||
Capital Contributions from Eversource Parent | — | 145,700 | |||||
Issuance of Long-Term Debt | 300,000 | — | |||||
Retirement of Long-Term Debt | (150,000 | ) | — | ||||
Decrease in Notes Payable to Eversource Parent | (76,700 | ) | (161,900 | ) | |||
Other Financing Activities | (3,631 | ) | (205 | ) | |||
Net Cash Flows Provided by/(Used in) Financing Activities | 18,679 | (67,695 | ) | ||||
Net Increase in Cash | 8,736 | 15,425 | |||||
Cash - Beginning of Period | 6,579 | 1,057 | |||||
Cash - End of Period | $ | 15,315 | $ | 16,482 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
6
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and Cash Equivalents | $ | 2,448 | $ | 3,494 | |||
Receivables, Net | 264,337 | 257,557 | |||||
Accounts Receivable from Affiliated Companies | 4,565 | 8,581 | |||||
Unbilled Revenues | 28,393 | 31,632 | |||||
Taxes Receivable | 2,884 | 39,738 | |||||
Materials, Supplies and Inventory | 94,338 | 62,288 | |||||
Regulatory Assets | 276,476 | 289,400 | |||||
Prepayments and Other Current Assets | 17,109 | 14,906 | |||||
Total Current Assets | 690,550 | 707,596 | |||||
Property, Plant and Equipment, Net | 6,108,944 | 6,051,835 | |||||
Deferred Debits and Other Assets: | |||||||
Regulatory Assets | 1,051,090 | 1,057,746 | |||||
Prepaid PBOP | 100,609 | 95,073 | |||||
Other Long-Term Assets | 63,371 | 60,572 | |||||
Total Deferred Debits and Other Assets | 1,215,070 | 1,213,391 | |||||
Total Assets | $ | 8,014,564 | $ | 7,972,822 | |||
LIABILITIES AND CAPITALIZATION | |||||||
Current Liabilities: | |||||||
Notes Payable | $ | 174,500 | $ | 126,500 | |||
Long-Term Debt – Current Portion | 400,000 | 400,000 | |||||
Accounts Payable | 177,110 | 232,599 | |||||
Accounts Payable to Affiliated Companies | 96,924 | 91,532 | |||||
Obligations to Third Party Suppliers | 60,650 | 55,863 | |||||
Renewable Portfolio Standards Compliance Obligations | 94,800 | 75,571 | |||||
Regulatory Liabilities | 62,154 | 63,653 | |||||
Other Current Liabilities | 54,166 | 71,122 | |||||
Total Current Liabilities | 1,120,304 | 1,116,840 | |||||
Deferred Credits and Other Liabilities: | |||||||
Accumulated Deferred Income Taxes | 1,866,259 | 1,836,292 | |||||
Regulatory Liabilities | 390,458 | 391,823 | |||||
Accrued Pension and SERP | 99,491 | 111,827 | |||||
Other Long-Term Liabilities | 125,640 | 123,194 | |||||
Total Deferred Credits and Other Liabilities | 2,481,848 | 2,463,136 | |||||
Capitalization: | |||||||
Long-Term Debt | 1,678,514 | 1,678,116 | |||||
Preferred Stock Not Subject to Mandatory Redemption | 43,000 | 43,000 | |||||
Common Stockholder's Equity: | |||||||
Common Stock | — | — | |||||
Capital Surplus, Paid In | 1,045,378 | 1,045,378 | |||||
Retained Earnings | 1,645,156 | 1,625,984 | |||||
Accumulated Other Comprehensive Income | 364 | 368 | |||||
Common Stockholder's Equity | 2,690,898 | 2,671,730 | |||||
Total Capitalization | 4,412,412 | 4,392,846 | |||||
Total Liabilities and Capitalization | $ | 8,014,564 | $ | 7,972,822 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Revenues | $ | 603,779 | $ | 614,216 | |||
Operating Expenses: | |||||||
Purchased Power and Transmission | 233,093 | 254,336 | |||||
Operations and Maintenance | 88,351 | 94,696 | |||||
Depreciation | 55,216 | 51,886 | |||||
Amortization of Regulatory Assets, Net | 4,977 | 4,683 | |||||
Energy Efficiency Programs | 67,312 | 66,243 | |||||
Taxes Other Than Income Taxes | 27,393 | 32,555 | |||||
Total Operating Expenses | 476,342 | 504,399 | |||||
Operating Income | 127,437 | 109,817 | |||||
Interest Expense | 22,029 | 20,889 | |||||
Other Income/(Loss), Net | 3,249 | (334 | ) | ||||
Income Before Income Tax Expense | 108,657 | 88,594 | |||||
Income Tax Expense | 42,495 | 34,101 | |||||
Net Income | $ | 66,162 | $ | 54,493 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Net Income | $ | 66,162 | $ | 54,493 | |||
Other Comprehensive Loss, Net of Tax: | |||||||
Changes in Funded Status of SERP Benefit Plan | (4 | ) | (10 | ) | |||
Other Comprehensive Loss, Net of Tax | (4 | ) | (10 | ) | |||
Comprehensive Income | $ | 66,158 | $ | 54,483 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Activities: | |||||||
Net Income | $ | 66,162 | $ | 54,493 | |||
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: | |||||||
Depreciation | 55,216 | 51,886 | |||||
Deferred Income Taxes | 29,199 | 32,878 | |||||
Pension, SERP and PBOP Benefits and Contributions, Net of Expense | (10,422 | ) | (12,953 | ) | |||
Regulatory Over/(Under) Recoveries, Net | 4,373 | (16,746 | ) | ||||
Amortization of Regulatory Assets, Net | 4,977 | 4,683 | |||||
Other | (3,691 | ) | (3,245 | ) | |||
Changes in Current Assets and Liabilities: | |||||||
Receivables and Unbilled Revenues, Net | (2,376 | ) | (29,132 | ) | |||
Materials, Supplies and Inventory | (32,050 | ) | (40,322 | ) | |||
Taxes Receivable/Accrued, Net | 38,970 | 33,938 | |||||
Accounts Payable | (19,025 | ) | 1,187 | ||||
Other Current Assets and Liabilities, Net | 2,371 | 19,600 | |||||
Net Cash Flows Provided by Operating Activities | 133,704 | 96,267 | |||||
Investing Activities: | |||||||
Investments in Property, Plant and Equipment | (132,105 | ) | (91,319 | ) | |||
Other Investing Activities | (3,617 | ) | — | ||||
Net Cash Flows Used in Investing Activities | (135,722 | ) | (91,319 | ) | |||
Financing Activities: | |||||||
Cash Dividends on Common Stock | (46,500 | ) | (90,300 | ) | |||
Cash Dividends on Preferred Stock | (490 | ) | (490 | ) | |||
Increase in Notes Payable | 48,000 | 86,000 | |||||
Other Financing Activities | (38 | ) | — | ||||
Net Cash Flows Provided by/(Used in) Financing Activities | 972 | (4,790 | ) | ||||
(Decrease)/Increase in Cash and Cash Equivalents | (1,046 | ) | 158 | ||||
Cash and Cash Equivalents - Beginning of Period | 3,494 | 3,346 | |||||
Cash and Cash Equivalents - End of Period | $ | 2,448 | $ | 3,504 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 7,743 | $ | 4,646 | |||
Receivables, Net | 81,899 | 84,450 | |||||
Accounts Receivable from Affiliated Companies | 2,098 | 4,185 | |||||
Unbilled Revenues | 42,784 | 41,004 | |||||
Fuel, Materials, Supplies and Inventory | 165,725 | 162,354 | |||||
Regulatory Assets | 111,274 | 117,240 | |||||
Prepayments and Other Current Assets | 9,423 | 28,908 | |||||
Total Current Assets | 420,946 | 442,787 | |||||
Property, Plant and Equipment, Net | 3,076,608 | 3,039,313 | |||||
Deferred Debits and Other Assets: | |||||||
Regulatory Assets | 243,643 | 245,525 | |||||
Other Long-Term Assets | 42,797 | 37,720 | |||||
Total Deferred Debits and Other Assets | 286,440 | 283,245 | |||||
Total Assets | $ | 3,783,994 | $ | 3,765,345 | |||
LIABILITIES AND CAPITALIZATION | |||||||
Current Liabilities: | |||||||
Notes Payable to Eversource Parent | $ | 144,900 | $ | 160,900 | |||
Long-Term Debt – Current Portion | 70,000 | 70,000 | |||||
Accounts Payable | 70,710 | 85,716 | |||||
Accounts Payable to Affiliated Companies | 40,463 | 29,154 | |||||
Regulatory Liabilities | 17,224 | 12,659 | |||||
Other Current Liabilities | 52,771 | 43,253 | |||||
Total Current Liabilities | 396,068 | 401,682 | |||||
Deferred Credits and Other Liabilities: | |||||||
Accumulated Deferred Income Taxes | 796,118 | 785,385 | |||||
Regulatory Liabilities | 45,600 | 44,779 | |||||
Accrued Pension, SERP and PBOP | 91,911 | 94,652 | |||||
Other Long-Term Liabilities | 48,435 | 49,442 | |||||
Total Deferred Credits and Other Liabilities | 982,064 | 974,258 | |||||
Capitalization: | |||||||
Long-Term Debt | 1,002,305 | 1,002,048 | |||||
Common Stockholder's Equity: | |||||||
Common Stock | — | — | |||||
Capital Surplus, Paid In | 843,134 | 843,134 | |||||
Retained Earnings | 565,098 | 549,286 | |||||
Accumulated Other Comprehensive Loss | (4,675 | ) | (5,063 | ) | |||
Common Stockholder's Equity | 1,403,557 | 1,387,357 | |||||
Total Capitalization | 2,405,862 | 2,389,405 | |||||
Total Liabilities and Capitalization | $ | 3,783,994 | $ | 3,765,345 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Revenues | $ | 253,157 | $ | 242,290 | |||
Operating Expenses: | |||||||
Purchased Power, Fuel and Transmission | 61,747 | 50,214 | |||||
Operations and Maintenance | 62,351 | 59,213 | |||||
Depreciation | 30,735 | 28,235 | |||||
Amortization of Regulatory Assets, Net | 5,445 | 8,518 | |||||
Energy Efficiency Programs | 3,746 | 3,620 | |||||
Taxes Other Than Income Taxes | 20,881 | 21,795 | |||||
Total Operating Expenses | 184,905 | 171,595 | |||||
Operating Income | 68,252 | 70,695 | |||||
Interest Expense | 12,808 | 12,461 | |||||
Other Income, Net | 1,198 | 150 | |||||
Income Before Income Tax Expense | 56,642 | 58,384 | |||||
Income Tax Expense | 22,330 | 22,326 | |||||
Net Income | $ | 34,312 | $ | 36,058 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Net Income | $ | 34,312 | $ | 36,058 | |||
Other Comprehensive Income, Net of Tax: | |||||||
Qualified Cash Flow Hedging Instruments | 291 | 290 | |||||
Changes in Unrealized Gains on Marketable Securities | 97 | 16 | |||||
Other Comprehensive Income, Net of Tax | 388 | 306 | |||||
Comprehensive Income | $ | 34,700 | $ | 36,364 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
11
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Activities: | |||||||
Net Income | $ | 34,312 | $ | 36,058 | |||
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: | |||||||
Depreciation | 30,735 | 28,235 | |||||
Deferred Income Taxes | 11,290 | 21,181 | |||||
Regulatory Over/(Under) Recoveries, Net | 3,507 | (2,291 | ) | ||||
Amortization of Regulatory Assets, Net | 5,445 | 8,518 | |||||
Other | (4,471 | ) | (9,166 | ) | |||
Changes in Current Assets and Liabilities: | |||||||
Receivables and Unbilled Revenues, Net | 1,149 | (17,207 | ) | ||||
Fuel, Materials, Supplies and Inventory | (3,371 | ) | 6,903 | ||||
Taxes Receivable/Accrued, Net | 1,778 | 57,935 | |||||
Accounts Payable | 5,475 | 2,100 | |||||
Other Current Assets and Liabilities, Net | 27,332 | 24,021 | |||||
Net Cash Flows Provided by Operating Activities | 113,181 | 156,287 | |||||
Investing Activities: | |||||||
Investments in Property, Plant and Equipment | (75,327 | ) | (72,338 | ) | |||
Other Investing Activities | (145 | ) | 84 | ||||
Net Cash Flows Used in Investing Activities | (75,472 | ) | (72,254 | ) | |||
Financing Activities: | |||||||
Cash Dividends on Common Stock | (18,500 | ) | (19,400 | ) | |||
Capital Contributions from Eversource Parent | — | 11,500 | |||||
Decrease in Notes Payable to Eversource Parent | (16,000 | ) | (74,200 | ) | |||
Other Financing Activities | (112 | ) | (86 | ) | |||
Net Cash Flows Used in Financing Activities | (34,612 | ) | (82,186 | ) | |||
Net Increase in Cash | 3,097 | 1,847 | |||||
Cash - Beginning of Period | 4,646 | 1,733 | |||||
Cash - End of Period | $ | 7,743 | $ | 3,580 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
12
WESTERN MASSACHUSETTS ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 769 | $ | — | |||
Receivables, Net | 57,340 | 54,940 | |||||
Accounts Receivable from Affiliated Companies | 16,588 | 14,425 | |||||
Unbilled Revenues | 16,850 | 15,329 | |||||
Materials, Supplies and Inventory | 9,911 | 8,618 | |||||
Regulatory Assets | 66,033 | 64,123 | |||||
Prepayments and Other Current Assets | 3,365 | 2,595 | |||||
Total Current Assets | 170,856 | 160,030 | |||||
Property, Plant and Equipment, Net | 1,694,818 | 1,678,262 | |||||
Deferred Debits and Other Assets: | |||||||
Regulatory Assets | 123,317 | 127,291 | |||||
Other Long-Term Assets | 31,171 | 29,062 | |||||
Total Deferred Debits and Other Assets | 154,488 | 156,353 | |||||
Total Assets | $ | 2,020,162 | $ | 1,994,645 | |||
LIABILITIES AND CAPITALIZATION | |||||||
Current Liabilities: | |||||||
Notes Payable to Eversource Parent | $ | 71,400 | $ | 51,000 | |||
Accounts Payable | 44,023 | 56,036 | |||||
Accounts Payable to Affiliated Companies | 14,837 | 19,478 | |||||
Obligations to Third Party Suppliers | 9,705 | 10,508 | |||||
Renewable Portfolio Standards Compliance Obligations | 25,110 | 20,383 | |||||
Regulatory Liabilities | 12,897 | 14,888 | |||||
Other Current Liabilities | 7,659 | 14,984 | |||||
Total Current Liabilities | 185,631 | 187,277 | |||||
Deferred Credits and Other Liabilities: | |||||||
Accumulated Deferred Income Taxes | 507,203 | 490,793 | |||||
Regulatory Liabilities | 19,119 | 17,227 | |||||
Accrued Pension, SERP and PBOP | 18,660 | 20,390 | |||||
Other Long-Term Liabilities | 44,177 | 41,308 | |||||
Total Deferred Credits and Other Liabilities | 589,159 | 569,718 | |||||
Capitalization: | |||||||
Long-Term Debt | 566,415 | 566,536 | |||||
Common Stockholder's Equity: | |||||||
Common Stock | 10,866 | 10,866 | |||||
Capital Surplus, Paid In | 444,398 | 444,398 | |||||
Retained Earnings | 225,930 | 218,212 | |||||
Accumulated Other Comprehensive Loss | (2,237 | ) | (2,362 | ) | |||
Common Stockholder's Equity | 678,957 | 671,114 | |||||
Total Capitalization | 1,245,372 | 1,237,650 | |||||
Total Liabilities and Capitalization | $ | 2,020,162 | $ | 1,994,645 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
13
WESTERN MASSACHUSETTS ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Revenues | $ | 130,136 | $ | 128,095 | |||
Operating Expenses: | |||||||
Purchased Power and Transmission | 40,867 | 39,563 | |||||
Operations and Maintenance | 22,498 | 21,805 | |||||
Depreciation | 12,002 | 11,371 | |||||
Amortization of Regulatory (Liabilities)/Assets, Net | (488 | ) | 1,212 | ||||
Energy Efficiency Programs | 10,664 | 10,856 | |||||
Taxes Other Than Income Taxes | 10,428 | 10,232 | |||||
Total Operating Expenses | 95,971 | 95,039 | |||||
Operating Income | 34,165 | 33,056 | |||||
Interest Expense | 6,249 | 6,004 | |||||
Other Income/(Loss), Net | 77 | (149 | ) | ||||
Income Before Income Tax Expense | 27,993 | 26,903 | |||||
Income Tax Expense | 10,775 | 10,076 | |||||
Net Income | $ | 17,218 | $ | 16,827 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Net Income | $ | 17,218 | $ | 16,827 | |||
Other Comprehensive Income, Net of Tax: | |||||||
Qualified Cash Flow Hedging Instruments | 109 | 109 | |||||
Changes in Unrealized Gains on Marketable Securities | 16 | 3 | |||||
Other Comprehensive Income, Net of Tax | 125 | 112 | |||||
Comprehensive Income | $ | 17,343 | $ | 16,939 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
14
WESTERN MASSACHUSETTS ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | |||||||
(Thousands of Dollars) | 2017 | 2016 | |||||
Operating Activities: | |||||||
Net Income | $ | 17,218 | $ | 16,827 | |||
Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: | |||||||
Depreciation | 12,002 | 11,371 | |||||
Deferred Income Taxes | 16,176 | 9,921 | |||||
Regulatory Underrecoveries, Net | (452 | ) | (6,100 | ) | |||
Amortization of Regulatory (Liabilities)/Assets, Net | (488 | ) | 1,212 | ||||
Other | (326 | ) | (541 | ) | |||
Changes in Current Assets and Liabilities: | |||||||
Receivables and Unbilled Revenues, Net | (5,924 | ) | 2,197 | ||||
Taxes Receivable/Accrued, Net | (1,404 | ) | 26,976 | ||||
Accounts Payable | (10,141 | ) | (11,011 | ) | |||
Other Current Assets and Liabilities, Net | (4,057 | ) | (136 | ) | |||
Net Cash Flows Provided by Operating Activities | 22,604 | 50,716 | |||||
Investing Activities: | |||||||
Investments in Property, Plant and Equipment | (32,744 | ) | (39,891 | ) | |||
Other Investing Activities | 9 | 13 | |||||
Net Cash Flows Used in Investing Activities | (32,735 | ) | (39,878 | ) | |||
Financing Activities: | |||||||
Cash Dividends on Common Stock | (9,500 | ) | (9,500 | ) | |||
Increase in Notes Payable to Eversource Parent | 20,400 | 100 | |||||
Other Financing Activities | — | (3 | ) | ||||
Net Cash Flows Provided by/(Used in) Financing Activities | 10,900 | (9,403 | ) | ||||
Net Increase in Cash | 769 | 1,435 | |||||
Cash - Beginning of Period | — | 834 | |||||
Cash - End of Period | $ | 769 | $ | 2,269 |
The accompanying notes are an integral part of these unaudited condensed financial statements.
15
EVERSOURCE ENERGY AND SUBSIDIARIES
THE CONNECTICUT LIGHT AND POWER COMPANY
NSTAR ELECTRIC COMPANY AND SUBSIDIARY
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
WESTERN MASSACHUSETTS ELECTRIC COMPANY
COMBINED NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout the combined notes to the unaudited condensed financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
Eversource Energy is a public utility holding company primarily engaged, through its wholly-owned regulated utility subsidiaries, in the energy delivery business. Eversource Energy's wholly-owned regulated utility subsidiaries consist of CL&P, NSTAR Electric, PSNH, WMECO, Yankee Gas and NSTAR Gas. Eversource provides energy delivery service to approximately 3.7 million electric and natural gas customers through these six regulated utilities in Connecticut, Massachusetts and New Hampshire.
The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH include the accounts of each of their respective subsidiaries. Intercompany transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
The combined notes to the financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The accompanying financial statements should be read in conjunction with the Combined Notes to Financial Statements included in Item 8, "Financial Statements and Supplementary Data," of the Eversource 2016 Form 10-K, which was filed with the SEC. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements contain, in the opinion of management, all adjustments (including normal, recurring adjustments) necessary to present fairly Eversource's, CL&P's, NSTAR Electric's, PSNH's and WMECO's financial position as of March 31, 2017 and December 31, 2016, and the results of operations, comprehensive income and cash flows for the three months ended March 31, 2017 and 2016. The results of operations, comprehensive income and cash flows for the three months ended March 31, 2017 and 2016 are not necessarily indicative of the results expected for a full year.
Eversource consolidates CYAPC and YAEC because CL&P's, NSTAR Electric's, PSNH's and WMECO's combined ownership interest in each of these entities is greater than 50 percent. Intercompany transactions between CL&P, NSTAR Electric, PSNH and WMECO and the CYAPC and YAEC companies have been eliminated in consolidation of the Eversource financial statements.
Eversource's utility subsidiaries' distribution (including generation assets) and transmission businesses are subject to rate-regulation that is based on cost recovery and meets the criteria for application of accounting guidance for entities with rate-regulated operations, which considers the effect of regulation on the differences in the timing of the recognition of certain revenues and expenses from those of other businesses and industries. See Note 2, "Regulatory Accounting," for further information.
Certain reclassifications of prior period data were made in the accompanying financial statements to conform to the current period presentation.
B. Accounting Standards
Accounting Standards Issued but Not Yet Effective: In May 2014, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which amends existing revenue recognition guidance and is required to be applied retrospectively (either to each reporting period presented or cumulatively at the date of initial application). The Company is evaluating the requirements and potential impacts of ASU 2014-09 and will implement the standard in the first quarter of 2018 cumulatively at the date of initial application. The guidance continues to be interpreted on an industry specific level, including the timing of recognizing revenues from billings to protected customers that may not meet the collectability threshold for revenue recognition. Therefore, while the effects of implementing the ASU on results of operations are not expected to be material, there may be changes in the timing of revenue recognition on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities, which is required to be implemented in the first quarter of 2018. The ASU will remove the available-for-sale designation for equity securities, whereby changes in fair value are recorded in accumulated other comprehensive income within shareholders' equity, and will require changes in fair value of all equity securities to be recorded in earnings beginning on January 1, 2018, with the unrealized gain or loss on available-for-sale equity securities as of that date reclassified to retained earnings as a cumulative effect of adoption. The fair value of available-for-sale equity securities subject to this guidance as of March 31, 2017 was approximately $49 million. The remaining available-for-sale equity securities included in marketable securities on the balance sheet are held in nuclear decommissioning trusts and are subject to regulatory accounting
16
treatment and will not be impacted by this guidance. Implementation of the ASU for other financial instruments is not expected to have a material impact on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
In February 2016, the FASB issued ASU 2016-02, Leases, which changes existing lease accounting guidance and is required to be applied in the first quarter of 2019, with earlier application permitted. The ASU is required to be implemented for leases beginning on the date of initial application. For prior periods presented, leases are required to be recognized and measured using a modified retrospective approach. The Company is reviewing the requirements of ASU 2016-02, including balance sheet recognition of leases previously deemed operating leases, and expects to implement the ASU in the first quarter of 2019.
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, required to be implemented in the first quarter of 2018. The ASU requires separate presentation of service cost from other components of net pension and PBOP costs, with the other components presented as non-operating income and not subject to capitalization. The Company is assessing the impacts of the ASU on the financial statements of Eversource, CL&P, NSTAR Electric, PSNH and WMECO, however implementation of the ASU is not expected to have a material impact on the net income of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
C. Provision for Uncollectible Accounts
Eversource, including CL&P, NSTAR Electric, PSNH and WMECO, presents its receivables at estimated net realizable value by maintaining a provision for uncollectible accounts. This provision is determined based upon a variety of judgments and factors, including the application of an estimated uncollectible percentage to each receivable aging category. The estimate is based upon historical collection and write-off experience and management's assessment of collectability from customers. Management continuously assesses the collectability of receivables and adjusts collectability estimates based on actual experience. Receivable balances are written off against the provision for uncollectible accounts when the customer accounts are terminated and these balances are deemed to be uncollectible.
The PURA allows CL&P and Yankee Gas to accelerate the recovery of accounts receivable balances attributable to qualified customers under financial or medical duress (uncollectible hardship accounts receivable) outstanding for greater than 180 days and 90 days, respectively. The DPU allows WMECO and NSTAR Gas also to recover in rates, amounts associated with certain uncollectible hardship accounts receivable. Certain of NSTAR Electric's uncollectible hardship accounts receivable are expected to be recovered in future rates, similar to WMECO and NSTAR Gas. These uncollectible customer account balances are included in Regulatory Assets or Other Long-Term Assets on the balance sheets.
The total provision for uncollectible accounts and for uncollectible hardship accounts, which is included in the total provision, is included in Receivables, Net on the balance sheets, and was as follows:
Total Provision for Uncollectible Accounts | Uncollectible Hardship | ||||||||||||||
(Millions of Dollars) | As of March 31, 2017 | As of December 31, 2016 | As of March 31, 2017 | As of December 31, 2016 | |||||||||||
Eversource | $ | 203.2 | $ | 200.6 | $ | 118.0 | $ | 119.9 | |||||||
CL&P | 88.7 | 86.4 | 69.8 | 67.7 | |||||||||||
NSTAR Electric | 52.6 | 54.8 | 23.7 | 26.2 | |||||||||||
PSNH | 10.4 | 9.9 | — | — | |||||||||||
WMECO | 14.2 | 15.5 | 8.2 | 9.9 |
D. Fair Value Measurements
Fair value measurement guidance is applied to derivative contracts that are not elected or designated as "normal purchases or normal sales" ("normal") and to the marketable securities held in trusts. Fair value measurement guidance is also applied to valuations of the investments used to calculate the funded status of pension and PBOP plans, the nonrecurring fair value measurements of nonfinancial assets such as goodwill and AROs, and the estimated fair value of preferred stock and long-term debt.
Fair Value Hierarchy: In measuring fair value, Eversource uses observable market data when available in order to minimize the use of unobservable inputs. Inputs used in fair value measurements are categorized into three fair value hierarchy levels for disclosure purposes. The entire fair value measurement is categorized based on the lowest level of input that is significant to the fair value measurement. Eversource evaluates the classification of assets and liabilities measured at fair value on a quarterly basis, and Eversource's policy is to recognize transfers between levels of the fair value hierarchy as of the end of the reporting period. The three levels of the fair value hierarchy are described below:
Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 - Inputs are quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable.
Level 3 - Quoted market prices are not available. Fair value is derived from valuation techniques in which one or more significant inputs or assumptions are unobservable. Where possible, valuation techniques incorporate observable market inputs that can be validated to external sources such as industry exchanges, including prices of energy and energy-related products.
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Determination of Fair Value: The valuation techniques and inputs used in Eversource's fair value measurements are described in Note 4, "Derivative Instruments," Note 5, "Marketable Securities," and Note 10, "Fair Value of Financial Instruments," to the financial statements.
E. Other Income, Net
Items included within Other Income, Net on the statements of income primarily consist of investment income/(loss), interest income, AFUDC related to equity funds, and income/(loss) related to equity method investments. Investment income/(loss) primarily relates to debt and equity securities held in trust. For further information, see Note 5, "Marketable Securities," to the financial statements.
F. Other Taxes
Gross receipts taxes levied by the state of Connecticut are collected by CL&P and Yankee Gas from their respective customers. These gross receipts taxes are shown separately with collections in Operating Revenues and with payments in Taxes Other Than Income Taxes on the statements of income as follows:
For the Three Months Ended | |||||||
(Millions of Dollars) | March 31, 2017 | March 31, 2016 | |||||
Eversource | $ | 42.2 | $ | 42.2 | |||
CL&P | 33.9 | 36.0 |
As agents for state and local governments, Eversource's companies that serve customers in Connecticut and Massachusetts collect certain sales taxes that are recorded on a net basis with no impact on the statements of income.
G. Supplemental Cash Flow Information
Non-cash investing activities include plant additions included in Accounts Payable as follows:
(Millions of Dollars) | As of March 31, 2017 | As of March 31, 2016 | |||||
Eversource | $ | 220.5 | $ | 125.6 | |||
CL&P | 104.2 | 52.6 | |||||
NSTAR Electric | 29.8 | 11.7 | |||||
PSNH | 28.7 | 26.8 | |||||
WMECO | 19.6 | 10.7 |
2. REGULATORY ACCOUNTING
Eversource's Regulated companies are subject to rate regulation that is based on cost recovery and meets the criteria for application of accounting guidance for rate-regulated operations, which considers the effect of regulation on the timing of the recognition of certain revenues and expenses. The Regulated companies' financial statements reflect the effects of the rate-making process. The rates charged to the customers of Eversource's Regulated companies are designed to collect each company's costs to provide service, including a return on investment.
Management believes it is probable that each of the Regulated companies will recover its respective investments in long-lived assets, including regulatory assets. If management were to determine that it could no longer apply the accounting guidance applicable to rate-regulated enterprises to any of the Regulated companies' operations, or if management could not conclude it is probable that costs would be recovered from customers in future rates, the costs would be charged to net income in the period in which the determination is made.
Regulatory Assets: The components of regulatory assets were as follows:
Eversource | As of March 31, 2017 | As of December 31, 2016 | |||||
(Millions of Dollars) | |||||||
Benefit Costs | $ | 1,782.5 | $ | 1,817.8 | |||
Derivative Liabilities | 416.3 | 423.3 | |||||
Income Taxes, Net | 645.4 | 644.5 | |||||
Storm Restoration Costs | 375.8 | 385.3 | |||||
Goodwill-related | 459.3 | 464.4 | |||||
Regulatory Tracker Mechanisms | 578.9 | 576.6 | |||||
Contractual Obligations - Yankee Companies | 70.6 | 84.9 | |||||
Other Regulatory Assets | 110.9 | 129.5 | |||||
Total Regulatory Assets | 4,439.7 | 4,526.3 | |||||
Less: Current Portion | 875.0 | 887.6 | |||||
Total Long-Term Regulatory Assets | $ | 3,564.7 | $ | 3,638.7 |
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As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | CL&P | NSTAR Electric | PSNH | WMECO | |||||||||||||||||||||||
Benefit Costs | $ | 421.5 | $ | 429.9 | $ | 181.1 | $ | 85.1 | $ | 429.3 | $ | 438.6 | $ | 184.2 | $ | 86.7 | |||||||||||||||
Derivative Liabilities | 413.5 | 2.5 | — | — | 420.5 | 2.8 | — | — | |||||||||||||||||||||||
Income Taxes, Net | 435.9 | 90.4 | 23.4 | 30.9 | 437.0 | 89.7 | 24.2 | 30.8 | |||||||||||||||||||||||
Storm Restoration Costs | 225.1 | 118.5 | 17.0 | 15.2 | 239.8 | 112.5 | 17.1 | 15.9 | |||||||||||||||||||||||
Goodwill-related | — | 394.3 | — | — | — | 398.7 | — | — | |||||||||||||||||||||||
Regulatory Tracker Mechanisms | 170.5 | 245.9 | 101.8 | 49.1 | 123.9 | 257.3 | 104.5 | 46.7 | |||||||||||||||||||||||
Other Regulatory Assets | 71.1 | 46.1 | 31.6 | 9.0 | 76.6 | 47.5 | 32.7 | 11.3 | |||||||||||||||||||||||
Total Regulatory Assets | 1,737.6 | 1,327.6 | 354.9 | 189.3 | 1,727.1 | 1,347.1 | 362.7 | 191.4 | |||||||||||||||||||||||
Less: Current Portion | 370.1 | 276.5 | 111.3 | 66.0 | 335.5 | 289.4 | 117.2 | 64.1 | |||||||||||||||||||||||
Total Long-Term Regulatory Assets | $ | 1,367.5 | $ | 1,051.1 | $ | 243.6 | $ | 123.3 | $ | 1,391.6 | $ | 1,057.7 | $ | 245.5 | $ | 127.3 |
Regulatory Costs in Other Long-Term Assets: Eversource's Regulated companies had $91.4 million (including $5.0 million for CL&P, $33.3 million for NSTAR Electric, $12.9 million for PSNH and $22.1 million for WMECO) and $86.3 million (including $5.9 million for CL&P, $35.0 million for NSTAR Electric, $8.2 million for PSNH, and $20.1 million for WMECO) of additional regulatory costs as of March 31, 2017 and December 31, 2016, respectively, that were included in Other Long-Term Assets on the balance sheets. These amounts represent incurred costs for which recovery has not yet been specifically approved by the applicable regulatory agency. However, based on regulatory policies or past precedent on similar costs, management believes it is probable that these costs will ultimately be approved and recovered from customers in rates.
Regulatory Liabilities: The components of regulatory liabilities were as follows:
Eversource | As of March 31, 2017 | As of December 31, 2016 | |||||
(Millions of Dollars) | |||||||
Cost of Removal | $ | 469.6 | $ | 459.7 | |||
Benefit Costs | 130.8 | 136.2 | |||||
Regulatory Tracker Mechanisms | 188.8 | 145.3 | |||||
AFUDC - Transmission | 65.8 | 65.8 | |||||
Other Regulatory Liabilities | 37.2 | 42.1 | |||||
Total Regulatory Liabilities | 892.2 | 849.1 | |||||
Less: Current Portion | 199.2 | 146.8 | |||||
Total Long-Term Regulatory Liabilities | $ | 693.0 | $ | 702.3 |
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | CL&P | NSTAR Electric | PSNH | WMECO | |||||||||||||||||||||||
Cost of Removal | $ | 42.5 | $ | 273.3 | $ | 44.8 | $ | 10.6 | $ | 38.8 | $ | 271.6 | $ | 44.1 | $ | 8.6 | |||||||||||||||
Benefit Costs | — | 109.8 | — | — | — | 113.1 | — | — | |||||||||||||||||||||||
Regulatory Tracker Mechanisms | 44.5 | 62.2 | 15.0 | 12.7 | 37.2 | 63.7 | 10.7 | 14.7 | |||||||||||||||||||||||
AFUDC - Transmission | 49.9 | 7.2 | — | 8.7 | 50.2 | 6.9 | — | 8.7 | |||||||||||||||||||||||
Other Regulatory Liabilities | 23.2 | 0.2 | 3.0 | — | 21.0 | 0.2 | 2.7 | 0.1 | |||||||||||||||||||||||
Total Regulatory Liabilities | 160.1 | 452.7 | 62.8 | 32.0 | 147.2 | 455.5 | 57.5 | 32.1 | |||||||||||||||||||||||
Less: Current Portion | 58.9 | 62.2 | 17.2 | 12.9 | 47.1 | 63.7 | 12.7 | 14.9 | |||||||||||||||||||||||
Total Long-Term Regulatory Liabilities | $ | 101.2 | $ | 390.5 | $ | 45.6 | $ | 19.1 | $ | 100.1 | $ | 391.8 | $ | 44.8 | $ | 17.2 |
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3. PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
The following tables summarize utility property, plant and equipment by asset category:
Eversource | As of March 31, 2017 | As of December 31, 2016 | |||||
(Millions of Dollars) | |||||||
Distribution - Electric | $ | 13,893.9 | $ | 13,716.9 | |||
Distribution - Natural Gas | 3,049.3 | 3,010.4 | |||||
Transmission - Electric | 8,600.1 | 8,517.4 | |||||
Generation | 1,225.6 | 1,224.2 | |||||
Electric and Natural Gas Utility | 26,768.9 | 26,468.9 | |||||
Other (1) | 585.1 | 591.6 | |||||
Property, Plant and Equipment, Gross | 27,354.0 | 27,060.5 | |||||
Less: Accumulated Depreciation | |||||||
Electric and Natural Gas Utility | (6,607.5 | ) | (6,480.4 | ) | |||
Other | (251.3 | ) | (242.0 | ) | |||
Total Accumulated Depreciation | (6,858.8 | ) | (6,722.4 | ) | |||
Property, Plant and Equipment, Net | 20,495.2 | 20,338.1 | |||||
Construction Work in Progress | 1,146.7 | 1,012.4 | |||||
Total Property, Plant and Equipment, Net | $ | 21,641.9 | $ | 21,350.5 |
(1) These assets are primarily comprised of building improvements, computer software, hardware and equipment at Eversource Service.
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | CL&P | NSTAR Electric | PSNH | WMECO | |||||||||||||||||||||||
Distribution | $ | 5,628.7 | $ | 5,471.5 | $ | 1,981.9 | $ | 851.8 | $ | 5,562.9 | $ | 5,402.3 | $ | 1,949.8 | $ | 841.9 | |||||||||||||||
Transmission | 3,930.1 | 2,462.8 | 1,075.5 | 1,083.4 | 3,912.9 | 2,435.8 | 1,059.3 | 1,061.1 | |||||||||||||||||||||||
Generation | — | — | 1,189.6 | 36.0 | — | — | 1,188.2 | 36.0 | |||||||||||||||||||||||
Property, Plant and Equipment, Gross | 9,558.8 | 7,934.3 | 4,247.0 | 1,971.2 | 9,475.8 | 7,838.1 | 4,197.3 | 1,939.0 | |||||||||||||||||||||||
Less: Accumulated Depreciation | (2,125.4 | ) | (2,064.4 | ) | (1,277.7 | ) | (347.0 | ) | (2,082.4 | ) | (2,025.4 | ) | (1,254.7 | ) | (338.8 | ) | |||||||||||||||
Property, Plant and Equipment, Net | 7,433.4 | 5,869.9 | 2,969.3 | 1,624.2 | 7,393.4 | 5,812.7 | 2,942.6 | 1,600.2 | |||||||||||||||||||||||
Construction Work in Progress | 321.5 | 239.0 | 107.3 | 70.6 | 239.0 | 239.1 | 96.7 | 78.1 | |||||||||||||||||||||||
Total Property, Plant and Equipment, Net | $ | 7,754.9 | $ | 6,108.9 | $ | 3,076.6 | $ | 1,694.8 | $ | 7,632.4 | $ | 6,051.8 | $ | 3,039.3 | $ | 1,678.3 |
4. DERIVATIVE INSTRUMENTS
The Regulated companies purchase and procure energy and energy-related products, which are subject to price volatility, for their customers. The costs associated with supplying energy to customers are recoverable from customers in future rates. The Regulated companies manage the risks associated with the price volatility of energy and energy-related products through the use of derivative and non-derivative contracts.
Many of the derivative contracts meet the definition of, and are designated as, normal and qualify for accrual accounting under the applicable accounting guidance. The costs and benefits of derivative contracts that meet the definition of normal are recognized in Operating Expenses or Operating Revenues on the statements of income, as applicable, as electricity or natural gas is delivered.
Derivative contracts that are not designated as normal are recorded at fair value as current or long-term Derivative Assets or Derivative Liabilities on the balance sheets. For the Regulated companies, regulatory assets or regulatory liabilities are recorded to offset the fair values of derivatives, as contract settlement amounts are recovered from, or refunded to, customers in their respective energy supply rates.
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The gross fair values of derivative assets and liabilities with the same counterparty are offset and reported as net Derivative Assets or Derivative Liabilities, with current and long-term portions, on the balance sheets. The following table presents the gross fair values of contracts, categorized by risk type, and the net amounts recorded as current or long-term derivative assets or liabilities:
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||
(Millions of Dollars) | Commodity Supply and Price Risk Management | Netting (1) | Net Amount Recorded as a Derivative | Commodity Supply and Price Risk Management | Netting (1) | Net Amount Recorded as a Derivative | |||||||||||||||||
Current Derivative Assets: | |||||||||||||||||||||||
Level 2: | |||||||||||||||||||||||
Eversource | $ | 0.6 | $ | — | $ | 0.6 | $ | 6.0 | $ | — | $ | 6.0 | |||||||||||
Level 3: | |||||||||||||||||||||||
Eversource, CL&P | 12.5 | (8.6 | ) | 3.9 | 13.9 | (9.4 | ) | 4.5 | |||||||||||||||
Long-Term Derivative Assets: | |||||||||||||||||||||||
Level 2: | |||||||||||||||||||||||
Eversource | $ | — | $ | — | $ | — | $ | 0.3 | $ | (0.1 | ) | $ | 0.2 | ||||||||||
Level 3: | |||||||||||||||||||||||
Eversource, CL&P | 78.3 | (9.8 | ) | 68.5 | 77.3 | (11.7 | ) | 65.6 | |||||||||||||||
Current Derivative Liabilities: | |||||||||||||||||||||||
Level 3: | |||||||||||||||||||||||
Eversource | $ | (72.9 | ) | $ | — | $ | (72.9 | ) | $ | (79.7 | ) | $ | — | $ | (79.7 | ) | |||||||
CL&P | (70.7 | ) | — | (70.7 | ) | (77.8 | ) | — | (77.8 | ) | |||||||||||||
NSTAR Electric | (2.2 | ) | — | (2.2 | ) | (1.9 | ) | — | (1.9 | ) | |||||||||||||
Long-Term Derivative Liabilities: | |||||||||||||||||||||||
Level 2: | |||||||||||||||||||||||
Eversource | $ | (0.3 | ) | $ | — | $ | (0.3 | ) | $ | — | $ | — | $ | — | |||||||||
Level 3: | |||||||||||||||||||||||
Eversource | (415.5 | ) | — | (415.5 | ) | (413.7 | ) | — | (413.7 | ) | |||||||||||||
CL&P | (415.2 | ) | — | (415.2 | ) | (412.8 | ) | — | (412.8 | ) | |||||||||||||
NSTAR Electric | (0.3 | ) | — | (0.3 | ) | (0.9 | ) | — | (0.9 | ) |
(1) | Amounts represent derivative assets and liabilities that Eversource elected to record net on the balance sheets. These amounts are subject to master netting agreements or similar agreements for which the right of offset exists. |
For further information on the fair value of derivative contracts, see Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," to the financial statements.
Derivative Contracts at Fair Value with Offsetting Regulatory Amounts
Commodity Supply and Price Risk Management: As required by regulation, CL&P, along with UI, has capacity-related contracts with generation facilities. CL&P has a sharing agreement with UI, with 80 percent of the costs or benefits of each contract borne by or allocated to CL&P and 20 percent borne by or allocated to UI. The combined capacity of these contracts is 787 MW. The capacity contracts extend through 2026 and obligate both CL&P and UI to make or receive payments on a monthly basis to or from the generation facilities based on the difference between a set capacity price and the capacity market price received in the ISO-NE capacity markets. In addition, CL&P has a contract to purchase 0.1 million MWh of energy per year through 2020.
NSTAR Electric has a renewable energy contract to purchase 0.1 million MWh of energy per year through 2018 and a capacity-related contract to purchase up to 35 MW per year through 2019.
As of March 31, 2017 and December 31, 2016, Eversource had New York Mercantile Exchange ("NYMEX") financial contracts for natural gas futures in order to reduce variability associated with the purchase price of approximately 5.4 million and 9.2 million MMBtu of natural gas, respectively.
For the three months ended March 31, 2017 and 2016, there were losses of $26.5 million and $30.5 million, respectively, deferred as regulatory costs, which reflect the change in fair value associated with Eversource's derivative contracts.
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Fair Value Measurements of Derivative Instruments
Derivative contracts classified as Level 2 in the fair value hierarchy relate to the financial contracts for natural gas futures. Prices are obtained from broker quotes and are based on actual market activity. The contracts are valued using NYMEX natural gas prices. Valuations of these contracts also incorporate discount rates using the yield curve approach.
The fair value of derivative contracts classified as Level 3 utilizes significant unobservable inputs. The fair value is modeled using income techniques, such as discounted cash flow valuations adjusted for assumptions relating to exit price. Significant observable inputs for valuations of these contracts include energy and energy-related product prices in future years for which quoted prices in an active market exist. Fair value measurements categorized in Level 3 of the fair value hierarchy are prepared by individuals with expertise in valuation techniques, pricing of energy and energy-related products, and accounting requirements. The future power and capacity prices for periods that are not quoted in an active market or established at auction are based on available market data and are escalated based on estimates of inflation in order to address the full term of the contract.
Valuations of derivative contracts using a discounted cash flow methodology include assumptions regarding the timing and likelihood of scheduled payments and also reflect non-performance risk, including credit, using the default probability approach based on the counterparty's credit rating for assets and the Company's credit rating for liabilities. Valuations incorporate estimates of premiums or discounts that would be required by a market participant to arrive at an exit price, using historical market transactions adjusted for the terms of the contract.
The following is a summary of Eversource's, including CL&P's and NSTAR Electric's, Level 3 derivative contracts and the range of the significant unobservable inputs utilized in the valuations over the duration of the contracts:
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||
Range | Period Covered | Range | Period Covered | ||||||||||||||||||||||
Capacity Prices: | |||||||||||||||||||||||||
Eversource, CL&P | $ | 5.00 | — | 8.70 | per kW-Month | 2020 - 2026 | $ | 5.50 | — | 8.70 | per kW-Month | 2020 - 2026 | |||||||||||||
Forward Reserve: | |||||||||||||||||||||||||
Eversource, CL&P | $ | 1.40 | — | 2.00 | per kW-Month | 2017 - 2024 | $ | 1.40 | — | 2.00 | per kW-Month | 2017 - 2024 | |||||||||||||
REC Prices: | |||||||||||||||||||||||||
Eversource, NSTAR Electric | $ | 27.00 | — | 30.00 | per REC | 2017 - 2018 | $ | 24.00 | — | 29.00 | per REC | 2017 - 2018 |
Exit price premiums of 2 percent through 19 percent are also applied on these contracts and reflect the uncertainty and illiquidity premiums that would be required based on the most recent market activity available for similar type contracts.
Significant increases or decreases in future energy or capacity prices in isolation would decrease or increase, respectively, the fair value of the derivative liability. Any increases in risk premiums would increase the fair value of the derivative liability. Changes in these fair values are recorded as a regulatory asset or liability and do not impact net income.
Valuations using significant unobservable inputs: The following table presents changes in the Level 3 category of derivative assets and derivative liabilities measured at fair value on a recurring basis. The derivative assets and liabilities are presented on a net basis.
For the Three Months Ended March 31, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
(Millions of Dollars) | Eversource | CL&P | NSTAR Electric | Eversource | CL&P | NSTAR Electric | |||||||||||||||||
Derivatives, Net: | |||||||||||||||||||||||
Fair Value as of Beginning of Period | $ | (423.3 | ) | $ | (420.5 | ) | $ | (2.8 | ) | $ | (380.9 | ) | $ | (380.8 | ) | $ | (0.1 | ) | |||||
Net Realized/Unrealized Losses Included in Regulatory Assets and Liabilities | (15.4 | ) | (14.6 | ) | (0.8 | ) | (28.9 | ) | (24.6 | ) | (4.3 | ) | |||||||||||
Settlements | 22.7 | 21.6 | 1.1 | 22.1 | 20.3 | 1.8 | |||||||||||||||||
Fair Value as of End of Period | $ | (416.0 | ) | $ | (413.5 | ) | $ | (2.5 | ) | $ | (387.7 | ) | $ | (385.1 | ) | $ | (2.6 | ) |
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5. MARKETABLE SECURITIES
Eversource maintains trusts that hold marketable securities to fund certain non-qualified executive benefits. These trusts are not subject to regulatory oversight by state or federal agencies. CYAPC and YAEC maintain legally restricted trusts, each of which holds marketable securities, to fund the spent nuclear fuel removal obligations of their nuclear fuel storage facilities.
Trading Securities: Eversource has elected to record certain equity securities as trading securities, with the changes in fair values recorded in Other Income, Net on the statements of income. As of December 31, 2016, these securities were classified as Level 1 in the fair value hierarchy and totaled $9.6 million. These securities were sold during the first quarter of 2017 and were no longer held as of March 31, 2017. For the three months ended March 31, 2016, net gains on these securities of $0.2 million were recorded in Other Income, Net on the statement of income. Dividend income is recorded in Other Income, Net when dividends are declared.
Available-for-Sale Securities: The following is a summary of available-for-sale securities, which are recorded at fair value and are included in current and long-term Marketable Securities on the balance sheets.
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||||||||
Eversource (Millions of Dollars) | Amortized Cost | Pre-Tax Unrealized Gains | Pre-Tax Unrealized Losses | Fair Value | Amortized Cost | Pre-Tax Unrealized Gains | Pre-Tax Unrealized Losses | Fair Value | |||||||||||||||||||||||
Debt Securities | $ | 296.9 | $ | 2.4 | $ | (1.3 | ) | $ | 298.0 | $ | 296.2 | $ | 1.1 | $ | (2.1 | ) | $ | 295.2 | |||||||||||||
Equity Securities | 201.9 | 77.8 | (0.5 | ) | 279.2 | 203.3 | 62.3 | (1.2 | ) | 264.4 |
Eversource's debt and equity securities include CYAPC's and YAEC's marketable securities held in nuclear decommissioning trusts in the amounts of $482.3 million and $466.7 million as of March 31, 2017 and December 31, 2016, respectively. Unrealized gains and losses for these nuclear decommissioning trusts are recorded in Marketable Securities with the corresponding offset to Other Long-Term Liabilities on the balance sheets, with no impact on the statements of income.
Unrealized Losses and Other-than-Temporary Impairment: There have been no significant unrealized losses, other-than-temporary impairments or credit losses for the three months ended March 31, 2017 and 2016. Factors considered in determining whether a credit loss exists include the duration and severity of the impairment, adverse conditions specifically affecting the issuer, and the payment history, ratings and rating changes of the security. For asset-backed debt securities, underlying collateral and expected future cash flows are also evaluated.
Realized Gains and Losses: Realized gains and losses on available-for-sale securities are recorded in Other Income, Net for Eversource's non-qualified benefit trust and are offset in Other Long-Term Liabilities for CYAPC and YAEC. Eversource utilizes the specific identification basis method for the Eversource non-qualified benefit trust, and the average cost basis method for the CYAPC and YAEC nuclear decommissioning trusts to compute the realized gains and losses on the sale of available-for-sale securities.
Contractual Maturities: As of March 31, 2017, the contractual maturities of available-for-sale debt securities were as follows:
Eversource (Millions of Dollars) | Amortized Cost | Fair Value | |||||
Less than one year (1) | $ | 60.6 | $ | 60.6 | |||
One to five years | 47.4 | 48.1 | |||||
Six to ten years | 54.7 | 55.3 | |||||
Greater than ten years | 134.2 | 134.0 | |||||
Total Debt Securities | $ | 296.9 | $ | 298.0 |
(1) | Amounts in the Less than one year category include securities in the CYAPC and YAEC nuclear decommissioning trusts, which are restricted and are classified in long-term Marketable Securities on the balance sheets. |
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Fair Value Measurements: The following table presents the marketable securities recorded at fair value on a recurring basis by the level in which they are classified within the fair value hierarchy:
Eversource (Millions of Dollars) | As of March 31, 2017 | As of December 31, 2016 | |||||
Level 1: | |||||||
Mutual Funds and Equities | $ | 279.2 | $ | 274.0 | |||
Money Market Funds | 56.2 | 54.8 | |||||
Total Level 1 | $ | 335.4 | $ | 328.8 | |||
Level 2: | |||||||
U.S. Government Issued Debt Securities (Agency and Treasury) | $ | 57.0 | $ | 63.0 | |||
Corporate Debt Securities | 41.6 | 41.1 | |||||
Asset-Backed Debt Securities | 19.8 | 18.5 | |||||
Municipal Bonds | 112.5 | 107.5 | |||||
Other Fixed Income Securities | 10.9 | 10.3 | |||||
Total Level 2 | $ | 241.8 | $ | 240.4 | |||
Total Marketable Securities | $ | 577.2 | $ | 569.2 |
U.S. government issued debt securities are valued using market approaches that incorporate transactions for the same or similar bonds and adjustments for yields and maturity dates. Corporate debt securities are valued using a market approach, utilizing recent trades of the same or similar instrument and also incorporating yield curves, credit spreads and specific bond terms and conditions. Asset-backed debt securities include collateralized mortgage obligations, commercial mortgage backed securities, and securities collateralized by auto loans, credit card loans or receivables. Asset-backed debt securities are valued using recent trades of similar instruments, prepayment assumptions, yield curves, issuance and maturity dates, and tranche information. Municipal bonds are valued using a market approach that incorporates reported trades and benchmark yields. Other fixed income securities are valued using pricing models, quoted prices of securities with similar characteristics, and discounted cash flows.
6. SHORT-TERM AND LONG-TERM DEBT
Commercial Paper Programs and Credit Agreements: Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of March 31, 2017 and December 31, 2016, Eversource parent had $801.0 million and approximately $1.0 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $649.0 million and $428.0 million of available borrowing capacity as of March 31, 2017 and December 31, 2016, respectively. The weighted-average interest rate on these borrowings as of March 31, 2017 and December 31, 2016 was 1.12 percent and 0.88 percent, respectively. As of March 31, 2017, there were intercompany loans from Eversource parent of $3.4 million to CL&P, $144.9 million to PSNH, and $71.4 million to WMECO. As of December 31, 2016, there were intercompany loans from Eversource parent of $80.1 million to CL&P, $160.9 million to PSNH and $51.0 million to WMECO. Eversource parent, CL&P, PSNH, WMECO, NSTAR Gas and Yankee Gas are parties to a five-year $1.45 billion revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop Eversource parent's $1.45 billion commercial paper program. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
NSTAR Electric has a $450 million commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of March 31, 2017 and December 31, 2016, NSTAR Electric had $174.5 million and $126.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $275.5 million and $323.5 million of available borrowing capacity as of March 31, 2017 and December 31, 2016, respectively. The weighted-average interest rate on these borrowings as of March 31, 2017 and December 31, 2016 was 0.86 percent and 0.71 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
Amounts outstanding under the commercial paper programs are included in Notes Payable for Eversource and NSTAR Electric and are classified in current liabilities on the balance sheets as all borrowings are outstanding for no more than 364 days at one time. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are included in Notes Payable to Eversource Parent and are classified in current liabilities on their respective balance sheets. Intercompany loans from Eversource parent to CL&P, PSNH and WMECO are eliminated in consolidation on Eversource's balance sheets.
Long-Term Debt Issuances: In March 2017, Eversource parent issued $300 million of 2.75 percent Series K Senior Notes due to mature in 2022. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program.
In March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Long-Term Debt Repayments: In March 2017, CL&P repaid at maturity the $150 million 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short term borrowings.
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Long-Term Debt Issuance Authorizations: On January 4, 2017, PURA approved CL&P's request for authorization to issue up to $1.325 billion in long-term debt through December 31, 2020. On March 30, 2017, the DPU approved NSTAR Electric's request for authorization to issue up to $700 million in long-term debt through December 31, 2018.
7. PENSION BENEFITS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Eversource Service sponsors a defined benefit retirement plan ("Pension Plan") that covers eligible participants. In addition to the Pension Plan, Eversource maintains non-qualified defined benefit retirement plans sponsored by Eversource Service ("SERP Plans"), which provide benefits in excess of Internal Revenue Code limitations to eligible participants. Eversource Service also sponsors a defined benefit postretirement plan that provides life insurance and a health reimbursement arrangement created for the purpose of reimbursing retirees and dependents for health insurance premiums and certain medical expenses, to eligible participants that met certain age and service eligibility requirements ("PBOP Plan").
In August 2016, the Company amended its PBOP Plan, which standardized separate benefit structures that existed within the plan and made other benefit changes. The remeasurement resulted in a prior service credit of $5.3 million for the three months ended March 31, 2017, which was reflected as a reduction to net periodic benefit expense for PBOP benefits. The majority of this amount will be deferred for future refund to customers.
The components of net periodic benefit expense for the Pension, SERP and PBOP Plans are shown below. The net periodic benefit expense and the intercompany allocations, less the capitalized portions of pension, SERP and PBOP amounts, are included in Operations and Maintenance expense on the statements of income. Capitalized amounts relate to employees working on capital projects and are included in Property, Plant and Equipment, Net on the balance sheets. Pension, SERP and PBOP expense reflected in the statements of cash flows for CL&P, NSTAR Electric, PSNH and WMECO does not include the intercompany allocations or the corresponding capitalized portion, as these amounts are cash settled on a short-term basis.
Pension and SERP | |||||||
Eversource | For the Three Months Ended | ||||||
(Millions of Dollars) | March 31, 2017 | March 31, 2016 | |||||
Service Cost | $ | 18.7 | $ | 19.4 | |||
Interest Cost | 46.3 | 46.5 | |||||
Expected Return on Pension Plan Assets | (83.5 | ) | (79.6 | ) | |||
Actuarial Loss | 33.6 | 31.5 | |||||
Prior Service Cost | 1.1 | 0.9 | |||||
Total Net Periodic Benefit Expense | $ | 16.2 | $ | 18.7 | |||
Capitalized Pension Expense | $ | 5.4 | $ | 6.1 | |||
PBOP | |||||||
Eversource | For the Three Months Ended | ||||||
(Millions of Dollars) | March 31, 2017 | March 31, 2016 | |||||
Service Cost | $ | 2.4 | $ | 3.1 | |||
Interest Cost | 7.2 | 9.7 | |||||
Expected Return on Plan Assets | (15.9 | ) | (15.7 | ) | |||
Actuarial Loss | 2.0 | 1.1 | |||||
Prior Service Credit | (5.3 | ) | (0.1 | ) | |||
Total Net Periodic Benefit Income | $ | (9.6 | ) | $ | (1.9 | ) | |
Capitalized PBOP Income | $ | (4.6 | ) | $ | (0.9 | ) |
Pension and SERP | |||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2017 | For the Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | CL&P | NSTAR Electric | PSNH | WMECO | |||||||||||||||||||||||
Service Cost | $ | 4.8 | $ | 3.3 | $ | 2.5 | $ | 0.8 | $ | 5.0 | $ | 3.4 | $ | 2.5 | $ | 0.9 | |||||||||||||||
Interest Cost | 10.5 | 8.3 | 5.2 | 2.1 | 10.6 | 8.3 | 5.1 | 2.1 | |||||||||||||||||||||||
Expected Return on Pension Plan Assets | (18.0 | ) | (17.6 | ) | (9.9 | ) | (4.4 | ) | (18.2 | ) | (16.9 | ) | (9.7 | ) | (4.4 | ) | |||||||||||||||
Actuarial Loss | 6.9 | 8.6 | 2.8 | 1.5 | 6.7 | 8.4 | 2.5 | 1.4 | |||||||||||||||||||||||
Prior Service Cost | 0.4 | 0.1 | 0.1 | 0.1 | 0.4 | — | 0.1 | 0.1 | |||||||||||||||||||||||
Total Net Periodic Benefit Expense | $ | 4.6 | $ | 2.7 | $ | 0.7 | $ | 0.1 | $ | 4.5 | $ | 3.2 | $ | 0.5 | $ | 0.1 | |||||||||||||||
Intercompany Allocations | $ | 2.5 | $ | 1.9 | $ | 0.8 | $ | 0.5 | $ | 3.3 | $ | 2.2 | $ | 1.0 | $ | 0.6 | |||||||||||||||
Capitalized Pension Expense | $ | 2.5 | $ | 1.7 | $ | 0.3 | $ | 0.1 | $ | 2.7 | $ | 1.8 | $ | 0.3 | $ | 0.2 |
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PBOP | |||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2017 | For the Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | CL&P | NSTAR Electric | PSNH | WMECO | |||||||||||||||||||||||
Service Cost | $ | 0.5 | $ | 0.4 | $ | 0.3 | $ | 0.1 | $ | 0.5 | $ | 0.9 | $ | 0.3 | $ | 0.1 | |||||||||||||||
Interest Cost | 1.4 | 2.1 | 0.8 | 0.3 | 1.4 | 4.0 | 0.8 | 0.3 | |||||||||||||||||||||||
Expected Return on Plan Assets | (2.4 | ) | (6.6 | ) | (1.3 | ) | (0.5 | ) | (2.6 | ) | (6.4 | ) | (1.4 | ) | (0.6 | ) | |||||||||||||||
Actuarial Loss | 0.2 | 0.9 | 0.1 | — | 0.2 | 0.2 | 0.1 | — | |||||||||||||||||||||||
Prior Service Cost/(Credit) | 0.3 | (4.3 | ) | 0.1 | — | — | — | — | — | ||||||||||||||||||||||
Total Net Periodic Benefit Income | $ | — | $ | (7.5 | ) | $ | — | $ | (0.1 | ) | $ | (0.5 | ) | $ | (1.3 | ) | $ | (0.2 | ) | $ | (0.2 | ) | |||||||||
Intercompany Allocations | $ | (0.3 | ) | $ | (0.3 | ) | $ | (0.1 | ) | $ | — | $ | 0.2 | $ | 0.1 | $ | — | $ | — | ||||||||||||
Capitalized PBOP Income | $ | (0.1 | ) | $ | (3.8 | ) | $ | — | $ | — | $ | (0.2 | ) | $ | (0.6 | ) | $ | — | $ | (0.1 | ) |
8. COMMITMENTS AND CONTINGENCIES
A. Environmental Matters
Eversource, CL&P, NSTAR Electric, PSNH and WMECO are subject to environmental laws and regulations intended to mitigate or remove the effect of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or the remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current and former operating sites. Eversource, CL&P, NSTAR Electric, PSNH and WMECO have an active environmental auditing and training program and each believes it is substantially in compliance with all enacted laws and regulations.
The number of environmental sites and related reserves for which remediation or long-term monitoring, preliminary site work or site assessment is being performed are as follows:
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||
Number of Sites | Reserve (in millions) | Number of Sites | Reserve (in millions) | ||||||||||
Eversource | 60 | $ | 58.2 | 61 | $ | 65.8 | |||||||
CL&P | 14 | 5.3 | 14 | 4.9 | |||||||||
NSTAR Electric | 13 | 1.0 | 13 | 3.2 | |||||||||
PSNH | 11 | 5.3 | 11 | 5.3 | |||||||||
WMECO | 4 | 0.7 | 4 | 0.6 |
Included in the Eversource number of sites and reserve amounts above are former MGP sites that were operated several decades ago and manufactured gas from coal and other processes, which resulted in certain by-products remaining in the environment that may pose a potential risk to human health and the environment, for which Eversource may have potential liability. The reserve balances related to these former MGP sites were $53.0 million and $59.0 million as of March 31, 2017 and December 31, 2016, respectively, and related primarily to the natural gas business segment. The reduction in the reserve balance at the MGP sites was primarily due to a change in cost estimates at one site.
These reserve estimates are subjective in nature as they take into consideration several different remediation options at each specific site. The reliability and precision of these estimates can be affected by several factors, including new information concerning either the level of contamination at the site, the extent of Eversource's, CL&P's, NSTAR Electric's, PSNH's, and WMECO's responsibility for remediation or the extent of remediation required, recently enacted laws and regulations, or changes in cost estimates due to certain economic factors. It is possible that new information or future developments could require a reassessment of the potential exposure to related environmental matters. As this information becomes available, management will continue to assess the potential exposure and adjust the reserves accordingly.
B. Guarantees and Indemnifications
In the normal course of business, Eversource parent provides credit assurances on behalf of its subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, in the form of guarantees.
Eversource parent issued a declining balance guaranty on behalf of Eversource Gas Transmission LLC, a wholly-owned subsidiary, to guarantee the payment of the subsidiary's capital contributions for its investment in the Access Northeast project. The guaranty will not exceed $206 million and decreases as capital contributions are made. The guaranty will expire upon the earlier of the full performance of the guaranteed obligations or December 31, 2021.
Eversource parent issued a guaranty on behalf of its subsidiary, NPT, under which, beginning at the time the Northern Pass Transmission line goes into commercial operation, Eversource parent will guarantee the financial obligations of NPT under the TSA with HQ in an amount not to exceed $25 million. Eversource parent's obligations under the guaranty expire upon the full, final and indefeasible payment of the guaranteed obligations. Eversource parent has also entered into a guaranty on behalf of NPT under which Eversource parent will guarantee NPT's obligations under a facility with a financial institution pursuant to which NPT may request letters of credit in an aggregate amount of up to approximately $14 million.
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Eversource parent has also guaranteed certain indemnification and other obligations as a result of the sales of former unregulated subsidiaries and the termination of an unregulated business, with maximum exposures either not specified or not material.
Management does not anticipate a material impact to net income or cash flows as a result of these various guarantees and indemnifications.
The following table summarizes Eversource parent's exposure to guarantees and indemnifications of its subsidiaries to external parties, as of March 31, 2017:
Company | Description | Maximum Exposure (in millions) | Expiration Dates | |||||
On behalf of subsidiaries: | ||||||||
Eversource Gas Transmission LLC | Access Northeast Project Capital Contributions Guaranty | $ | 185.1 | 2021 | ||||
Various | Surety Bonds (1) | 38.7 | 2017 - 2018 | |||||
Eversource Service and Rocky River Realty Company | Lease Payments for Vehicles and Real Estate | 8.8 | 2019 - 2024 |
(1) | Surety bond expiration dates reflect termination dates, the majority of which will be renewed or extended. Certain surety bonds contain credit ratings triggers that would require Eversource parent to post collateral in the event that the unsecured debt credit ratings of Eversource parent are downgraded. |
C. FERC ROE Complaints
Four separate complaints have been filed at the FERC by combinations of New England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (collectively the "Complainants"). In each of the first three complaints, the Complainants challenged the NETOs' base ROE of 11.14 percent that had been utilized since 2005 and sought an order to reduce it prospectively from the date of the final FERC order and for the 15-month complaint periods arising from the separate complaints. In the fourth complaint, filed April 29, 2016, the Complainants challenged the NETOs' base ROE of 10.57 percent and the maximum ROE for transmission incentive ("incentive cap") of 11.74 percent, asserting that these ROEs were unjust and unreasonable.
In response to appeals of the FERC decision in the first complaint filed by the NETOs and the Complainants, the D.C. Circuit Court of Appeals (the "Court") issued a decision on April 14, 2017 vacating and remanding the FERC's decision. The Court found that the FERC failed to make an explicit finding that the prior 11.14 percent base ROE was unjust and unreasonable, as required under Section 206 of the Federal Power Act, before it could set a new base ROE. The Court also found that the FERC did not provide a rational connection between the record evidence and its decision to select the midpoint of the upper half of the zone of reasonableness for the new base ROE.
A summary of the four separate complaints and the base ROEs pertinent to those complaints are as follows:
Complaint | 15-Month Time Period of Complaint (Beginning as of Complaint Filing Date) | Original Base ROE Authorized by FERC at Time of Complaint Filing Date (1) | Base ROE Subsequently Authorized by FERC for First Complaint Period and also Effective from October 16, 2014 through April 14, 2017 (1) | Reserve (Pre-Tax and Excluding Interest) as of March 31, 2017 (in millions) | FERC ALJ Recommendation of Base ROE on Second and Third Complaints (Issued March 22, 2016) | |
First | 10/1/2011 - 12/31/2012 | 11.14% | 10.57% | $— | (2) | N/A |
Second | 12/27/2012 - 3/26/2014 | 11.14% | N/A | 39.1 | (3) | 9.59% |
Third | 7/31/2014 - 10/30/2015 | 11.14% | 10.57% | — | 10.90% | |
Fourth | 4/29/2016 - 7/28/2017 | 10.57% | 10.57% | — | N/A |
(1) The total ROE between October 1, 2011 and October 15, 2014 was within a range of 11.14 percent to 13.1 percent. In 2014, as a result of a FERC order, the incentive cap was set at 11.74 percent for the first complaint period and also effective from October 16, 2014 through April 14, 2017.
(2) CL&P, NSTAR Electric, PSNH and WMECO have refunded all amounts associated with the first complaint period, totaling $38.9 million (pre-tax and excluding interest) at Eversource (including $22.4 million at CL&P, $8.4 million at NSTAR Electric, $2.8 million at PSNH, and $5.3 million at WMECO), reflecting both the base ROE and incentive cap prescribed by the FERC order.
(3) The reserve represents the difference between the ROEs billed during the second complaint period and a 10.57 percent base ROE and 11.74 percent incentive cap. The reserve was $21.4 million for CL&P, $8.5 million for NSTAR Electric, $3.1 million for PSNH, and $6.1 million for WMECO as of March 31, 2017.
At this time, the Company cannot reasonably estimate a range of gain or loss for the complaint proceedings. The Court decision did not provide a reasonable basis for a change to the March 31, 2017 reserve balance of $39.1 million (pre-tax and excluding interest) for the second complaint period, and the Company has not changed its reserves or recognized ROEs for any of the complaint periods.
Management cannot at this time predict the ultimate effect of the Court decision on any of the complaint periods or the estimated impacts on the financial position, results of operations or cash flows of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
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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.
D. Eversource and NSTAR Electric Boston Harbor Civil Action
On July 15, 2016, the United States Army Corps of Engineers filed a civil action in the United States District Court for the District of Massachusetts under provisions of the Rivers and Harbors Act of 1899 and the Clean Water Act against NSTAR Electric, Harbor Electric Energy Company, a wholly-owned subsidiary of NSTAR Electric ("HEEC"), and the Massachusetts Water Resources Authority (together with NSTAR Electric and HEEC, the "Defendants"). The action alleges that the Defendants failed to comply with certain permitting requirements relating to the placement of the HEEC-owned electric distribution cable beneath Boston Harbor. The action seeks an order to force HEEC to comply with cable depth requirements in the U.S. Army Corps of Engineers' permit or alternatively to remove the electric distribution cable and cease unauthorized work in U.S. waterways. The action also seeks civil penalties and other costs. Management believes there are valid defenses to the claims and is defending NSTAR Electric and HEEC vigorously. Concurrently, NSTAR Electric and HEEC are seeking to work collaboratively with all parties for a mutually beneficial resolution. At this time, management is unable to predict the outcome of this action or the impact on Eversource's and NSTAR Electric's financial position, results of operations, or cash flows.
9. PSNH GENERATION ASSET SALE
On June 10, 2015, Eversource and PSNH entered into the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement (the "Agreement") with the New Hampshire Office of Energy and Planning, certain members of the NHPUC staff, the Office of Consumer Advocate, two State Senators, and several other parties. Under the terms of the Agreement, PSNH agreed to divest its generation assets, subject to NHPUC approval. The Agreement provided for a resolution of issues pertaining to PSNH's generation assets in pending regulatory proceedings before the NHPUC. The Agreement provided for the Clean Air Project prudence proceeding to be resolved and all remaining Clean Air Project costs to be included in rates effective January 1, 2016. As part of the Agreement, PSNH agreed to forego recovery of $25 million of the equity return related to the Clean Air Project. In addition, PSNH will not seek a general distribution rate increase effective before July 1, 2017 and will contribute $5 million to create a clean energy fund, which will not be recoverable from its customers.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructs PSNH to begin the process of divesting its generation assets. The NHPUC selected an auction adviser to assist with the divestiture, and the final plan and auction process were approved by the NHPUC in November 2016. An intervening appeal alleging that the auction process and schedule were unreasonable was rejected by the New Hampshire Supreme Court in February 2017. In late March 2017, the formal divestiture process began. We continue to believe the assets will be sold by the end of 2017.
The sales price of the generation assets could be less than the carrying value, but the Company believes that full recovery of PSNH's generation assets is probable through a combination of cash flows during the remaining operating period, sales proceeds upon divestiture, and recovery of stranded costs via bonds that will be secured by a non-bypassable charge or through recoveries in future rates billed to PSNH's customers.
As of March 31, 2017, PSNH's generation assets were as follows:
(Millions of Dollars) | |||
Gross Plant | $ | 1,192.6 | |
Accumulated Depreciation | (564.1 | ) | |
Net Plant | 628.5 | ||
Fuel | 98.3 | ||
Materials and Supplies | 48.5 | ||
Emission Allowances | 19.7 | ||
Total Generation Assets | $ | 795.0 |
As of March 31, 2017, current and long-term liabilities associated with PSNH's generation assets included Accounts Payable of $30.1 million, Other Current Liabilities of $21.7 million, AROs of $20.3 million, and Accrued Pension, SERP and PBOP of $23.7 million.
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10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Preferred Stock and Long-Term Debt: The fair value of CL&P's and NSTAR Electric's preferred stock is based upon pricing models that incorporate interest rates and other market factors, valuations or trades of similar securities and cash flow projections. The fair value of long-term debt securities is based upon pricing models that incorporate quoted market prices for those issues or similar issues adjusted for market conditions, credit ratings of the respective companies and treasury benchmark yields. The fair values provided in the tables below are classified as Level 2 within the fair value hierarchy. Carrying amounts and estimated fair values are as follows:
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||
Eversource (Millions of Dollars) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||
Preferred Stock Not Subject to Mandatory Redemption | $ | 155.6 | $ | 156.6 | $ | 155.6 | $ | 158.3 | |||||||
Long-Term Debt | 10,041.8 | 10,428.0 | 9,603.2 | 9,980.5 |
CL&P | NSTAR Electric | PSNH | WMECO | ||||||||||||||||||||||||||||
(Millions of Dollars) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||
As of March 31, 2017: | |||||||||||||||||||||||||||||||
Preferred Stock Not Subject to Mandatory Redemption | $ | 116.2 | $ | 113.5 | $ | 43.0 | $ | 43.1 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Long-Term Debt | 2,913.2 | 3,179.5 | 2,078.5 | 2,202.9 | 1,072.3 | 1,115.2 | 566.4 | 596.8 | |||||||||||||||||||||||
As of December 31, 2016: | |||||||||||||||||||||||||||||||
Preferred Stock Not Subject to Mandatory Redemption | $ | 116.2 | $ | 114.7 | $ | 43.0 | $ | 43.6 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Long-Term Debt | 2,766.0 | 3,049.6 | 2,078.1 | 2,201.6 | 1,072.0 | 1,109.7 | 566.5 | 589.0 |
Derivative Instruments and Marketable Securities: Derivative instruments and investments in marketable securities are carried at fair value. For further information, see Note 4, "Derivative Instruments," and Note 5, "Marketable Securities," to the financial statements.
See Note 1D, "Summary of Significant Accounting Policies - Fair Value Measurements," for the fair value measurement policy and the fair value hierarchy.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in accumulated other comprehensive income/(loss) by component, net of tax, is as follows:
For the Three Months Ended March 31, 2017 | For the Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||||
Qualified | Unrealized | Qualified | Unrealized | ||||||||||||||||||||||||||||
Cash Flow | Gains | Cash Flow | Gains/(Losses) | ||||||||||||||||||||||||||||
Eversource (Millions of Dollars) | Hedging | on Marketable | Defined | Hedging | on Marketable | Defined | |||||||||||||||||||||||||
Instruments | Securities | Benefit Plans | Total | Instruments | Securities | Benefit Plans | Total | ||||||||||||||||||||||||
Balance as of Beginning of Period | $ | (8.2 | ) | $ | 0.4 | $ | (57.5 | ) | $ | (65.3 | ) | $ | (10.3 | ) | $ | (1.9 | ) | $ | (54.6 | ) | $ | (66.8 | ) | ||||||||
OCI Before Reclassifications | — | 1.7 | — | 1.7 | — | 0.2 | — | 0.2 | |||||||||||||||||||||||
Amounts Reclassified from AOCL | 0.5 | — | 1.0 | 1.5 | 0.5 | — | 0.9 | 1.4 | |||||||||||||||||||||||
Net OCI | 0.5 | 1.7 | 1.0 | 3.2 | 0.5 | 0.2 | 0.9 | 1.6 | |||||||||||||||||||||||
Balance as of End of Period | $ | (7.7 | ) | $ | 2.1 | $ | (56.5 | ) | $ | (62.1 | ) | $ | (9.8 | ) | $ | (1.7 | ) | $ | (53.7 | ) | $ | (65.2 | ) |
Eversource's qualified cash flow hedging instruments represent interest rate swap agreements on debt issuances that were settled in prior years. The settlement amount was recorded in AOCL and is being amortized into Net Income over the term of the underlying debt instrument. CL&P, PSNH and WMECO continue to amortize interest rate swaps settled in prior years from AOCL into Interest Expense over the remaining life of the associated long-term debt. Such interest rate swaps are not material to their respective financial statements.
Defined benefit plan OCI amounts before reclassifications relate to actuarial gains and losses and prior service costs that arose during the year and were recognized in AOCL. The unamortized actuarial gains and losses and prior service costs on the defined benefit plans are amortized from AOCL into Operations and Maintenance expense over the average future employee service period, and are reflected in amounts reclassified from AOCL. For further information, see Note 7, "Pension Benefits and Postretirement Benefits Other Than Pensions."
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12. COMMON SHARES
The following table sets forth the Eversource parent common shares and the shares of common stock of CL&P, NSTAR Electric, PSNH and WMECO that were authorized and issued, as well as the respective per share par values:
Shares | ||||||||||||
Authorized as of March 31, 2017 and | Issued as of | |||||||||||
Par Value | December 31, 2016 | March 31, 2017 | December 31, 2016 | |||||||||
Eversource | $ | 5 | 380,000,000 | 333,878,402 | 333,878,402 | |||||||
CL&P | $ | 10 | 24,500,000 | 6,035,205 | 6,035,205 | |||||||
NSTAR Electric | $ | 1 | 100,000,000 | 100 | 100 | |||||||
PSNH | $ | 1 | 100,000,000 | 301 | 301 | |||||||
WMECO | $ | 25 | 1,072,471 | 434,653 | 434,653 |
As of both March 31, 2017 and December 31, 2016, there were 16,992,594 Eversource common shares held as treasury shares. As of both March 31, 2017 and December 31, 2016, Eversource common shares outstanding were 316,885,808.
13. COMMON SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS
Dividends on the preferred stock of CL&P and NSTAR Electric totaled $1.9 million for each of the three months ended March 31, 2017 and 2016. These dividends were presented as Net Income Attributable to Noncontrolling Interests on the Eversource statements of income. Noncontrolling Interest – Preferred Stock of Subsidiaries on the Eversource balance sheets totaled $155.6 million as of March 31, 2017 and December 31, 2016. On the Eversource balance sheets, Common Shareholders' Equity was fully attributable to the parent and Noncontrolling Interest – Preferred Stock of Subsidiaries was fully attributable to the noncontrolling interest.
14. EARNINGS PER SHARE
Basic EPS is computed based upon the weighted average number of common shares outstanding during each period. Diluted EPS is computed on the basis of the weighted average number of common shares outstanding plus the potential dilutive effect of certain share-based compensation awards as if they were converted into common shares. The dilutive effect of unvested RSU and performance share awards and unexercised stock options is calculated using the treasury stock method. RSU and performance share awards are included in basic weighted average common shares outstanding as of the date that all necessary vesting conditions have been satisfied. For the three months ended March 31, 2017 and 2016, there were no antidilutive share awards excluded from the computation of diluted EPS.
The following table sets forth the components of basic and diluted EPS:
Eversource (Millions of Dollars, except share information) | For the Three Months Ended | ||||||
March 31, 2017 | March 31, 2016 | ||||||
Net Income Attributable to Common Shareholders | $ | 259.5 | $ | 244.2 | |||
Weighted Average Common Shares Outstanding: | |||||||
Basic | 317,463,151 | 317,517,141 | |||||
Dilutive Effect | 661,385 | 963,909 | |||||
Diluted | 318,124,536 | 318,481,050 | |||||
Basic and Diluted EPS | $ | 0.82 | $ | 0.77 |
15. SEGMENT INFORMATION
Presentation: Eversource is organized among the Electric Distribution, Electric Transmission and Natural Gas Distribution reportable segments and Other based on a combination of factors, including the characteristics of each segments' services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates. These reportable segments represent substantially all of Eversource's total consolidated revenues. Revenues from the sale of electricity and natural gas primarily are derived from residential, commercial and industrial customers and are not dependent on any single customer. The Electric Distribution reportable segment includes the generation activities of PSNH and WMECO.
The remainder of Eversource's operations is presented as Other in the tables below and primarily consists of 1) the equity in earnings of Eversource parent from its subsidiaries and intercompany interest income, both of which are eliminated in consolidation, and interest expense related to the debt of Eversource parent, 2) the revenues and expenses of Eversource Service, most of which are eliminated in consolidation, 3) the operations of CYAPC and YAEC, and 4) the results of other unregulated subsidiaries, which are not part of its core business. In addition, Other in the tables below includes Eversource parent's equity ownership interests in certain natural gas pipeline projects owned by Enbridge, Inc., the Bay State Wind project, an energy investment fund, and two companies that transmit hydroelectricity imported from the Hydro-Quebec system in Canada. In the ordinary course of business, Yankee Gas and NSTAR Gas purchase natural gas transmission services from the Enbridge, Inc. natural gas pipeline projects described above. These affiliate transaction costs total approximately $62.5 million annually and are classified as Purchased Power, Fuel and Transmission on the Eversource statements of income.
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Cash flows used for investments in plant included in the segment information below are cash capital expenditures that do not include amounts incurred but not paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense.
Eversource's reportable segments are determined based upon the level at which Eversource's chief operating decision maker assesses performance and makes decisions about the allocation of company resources. Each of Eversource's subsidiaries, including CL&P, NSTAR Electric, PSNH and WMECO, has one reportable segment. Eversource's operating segments and reporting units are consistent with its reportable business segments.
Eversource's segment information is as follows:
For the Three Months Ended March 31, 2017 | |||||||||||||||||||||||
Eversource (Millions of Dollars) | Electric Distribution | Natural Gas Distribution | Electric Transmission | Other | Eliminations | Total | |||||||||||||||||
Operating Revenues | $ | 1,401.1 | $ | 403.6 | $ | 316.9 | $ | 236.3 | $ | (252.8 | ) | $ | 2,105.1 | ||||||||||
Depreciation and Amortization | (129.8 | ) | (21.7 | ) | (50.6 | ) | (9.2 | ) | 0.5 | (210.8 | ) | ||||||||||||
Other Operating Expenses | (1,041.9 | ) | (289.6 | ) | (90.0 | ) | (216.6 | ) | 252.8 | (1,385.3 | ) | ||||||||||||
Operating Income | $ | 229.4 | $ | 92.3 | $ | 176.3 | $ | 10.5 | $ | 0.5 | $ | 509.0 | |||||||||||
Interest Expense | $ | (48.2 | ) | $ | (10.6 | ) | $ | (28.1 | ) | $ | (19.7 | ) | $ | 3.2 | $ | (103.4 | ) | ||||||
Other Income, Net | 5.0 | 0.3 | 4.9 | 328.9 | (325.5 | ) | 13.6 | ||||||||||||||||
Net Income Attributable to Common Shareholders | 114.1 | 50.8 | 94.2 | 322.2 | (321.8 | ) | 259.5 | ||||||||||||||||
Cash Flows Used for Investments in Plant | 236.2 | 64.5 | 192.6 | 30.3 | — | 523.6 |
For the Three Months Ended March 31, 2016 | |||||||||||||||||||||||
Eversource (Millions of Dollars) | Electric Distribution | Natural Gas Distribution | Electric Transmission | Other | Eliminations | Total | |||||||||||||||||
Operating Revenues | $ | 1,436.1 | $ | 342.6 | $ | 283.3 | $ | 214.2 | $ | (220.6 | ) | $ | 2,055.6 | ||||||||||
Depreciation and Amortization | (127.7 | ) | (15.8 | ) | (45.1 | ) | (6.9 | ) | 0.5 | (195.0 | ) | ||||||||||||
Other Operating Expenses | (1,088.9 | ) | (233.5 | ) | (73.0 | ) | (197.3 | ) | 220.6 | (1,372.1 | ) | ||||||||||||
Operating Income | $ | 219.5 | $ | 93.3 | $ | 165.2 | $ | 10.0 | $ | 0.5 | $ | 488.5 | |||||||||||
Interest Expense | $ | (48.0 | ) | $ | (10.1 | ) | $ | (28.0 | ) | $ | (14.1 | ) | $ | 2.0 | $ | (98.2 | ) | ||||||
Other Income/(Loss), Net | — | (0.3 | ) | 2.6 | 305.5 | (305.8 | ) | 2.0 | |||||||||||||||
Net Income Attributable to Common Shareholders | 108.4 | 50.9 | 85.7 | 302.5 | (303.3 | ) | 244.2 | ||||||||||||||||
Cash Flows Used for Investments in Plant | 184.2 | 52.1 | 172.4 | 22.8 | — | 431.5 |
The following table summarizes Eversource's segmented total assets:
Eversource (Millions of Dollars) | Electric Distribution | Natural Gas Distribution | Electric Transmission | Other | Eliminations | Total | |||||||||||||||||
As of March 31, 2017 | $ | 18,343.3 | $ | 3,332.7 | $ | 9,015.6 | $ | 14,590.4 | $ | (12,926.8 | ) | $ | 32,355.2 | ||||||||||
As of December 31, 2016 | 18,367.5 | 3,303.8 | 8,751.5 | 14,493.1 | (12,862.7 | ) | 32,053.2 |
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EVERSOURCE ENERGY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related combined notes included in this combined Quarterly Report on Form 10-Q, as well as the Eversource 2016 Form 10-K. References in this combined Quarterly Report on Form 10-Q to "Eversource," the "Company," "we," "us," and "our" refer to Eversource Energy and its consolidated subsidiaries. All per-share amounts are reported on a diluted basis. The unaudited condensed consolidated financial statements of Eversource, NSTAR Electric and PSNH and the unaudited condensed financial statements of CL&P and WMECO are herein collectively referred to as the "financial statements."
Refer to the Glossary of Terms included in this combined Quarterly Report on Form 10-Q for abbreviations and acronyms used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations.
The only common equity securities that are publicly traded are common shares of Eversource. The earnings and EPS of each business discussed below do not represent a direct legal interest in the assets and liabilities of such business but rather represent a direct interest in our assets and liabilities as a whole. EPS by business is a financial measure not recognized under GAAP calculated by dividing the Net Income Attributable to Common Shareholders of each business by the weighted average diluted Eversource common shares outstanding for the period. We use this non-GAAP financial measure to evaluate and provide details of earnings results by business. We believe that the non-GAAP presentation is more representative of our financial performance and provides additional and useful information to readers of this report in analyzing historical and future performance by business. This non-GAAP financial measure should not be considered as an alternative to reported Net Income Attributable to Common Shareholders or EPS determined in accordance with GAAP as an indicator of operating performance.
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, assumptions of future events, future financial performance or growth and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify our forward-looking statements through the use of words or phrases such as "estimate," "expect," "anticipate," "intend," "plan," "project," "believe," "forecast," "should," "could," and other similar expressions. Forward-looking statements are based on the current expectations, estimates, assumptions or projections of management and are not guarantees of future performance. These expectations, estimates, assumptions or projections may vary materially from actual results. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause our actual results to differ materially from those contained in our forward-looking statements, including, but not limited to:
• | cyber breaches, acts of war or terrorism, or grid disturbances, |
• | actions or inaction of local, state and federal regulatory, public policy and taxing bodies, |
• | changes in business conditions, which could include disruptive technology related to our current or future business model, |
• | changes in economic conditions, including impact on interest rates, tax policies, and customer demand and payment ability, |
• | fluctuations in weather patterns, |
• | changes in laws, regulations or regulatory policy, |
• | changes in levels or timing of capital expenditures, |
• | disruptions in the capital markets or other events that make our access to necessary capital more difficult or costly, |
• | developments in legal or public policy doctrines, |
• | technological developments, |
• | changes in accounting standards and financial reporting regulations, |
• | actions of rating agencies, and |
• | other presently unknown or unforeseen factors. |
Other risk factors are detailed in our reports filed with the SEC and updated as necessary, and we encourage you to consult such disclosures.
All such factors are difficult to predict 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.
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Financial Condition and Business Analysis
Executive Summary
The following items in this executive summary are explained in more detail in this combined Quarterly Report on Form 10-Q:
Results:
• | We earned $259.5 million, or $0.82 per share, in the first quarter of 2017, compared with $244.2 million, or $0.77 per share, in the first quarter of 2016. |
• | Our electric distribution segment, which includes generation, earned $114.1 million, or $0.36 per share, in the first quarter of 2017, compared with $108.4 million, or $0.34 per share, in the first quarter of 2016. Our electric transmission segment earned $94.2 million, or $0.30 per share, in the first quarter of 2017, compared with $85.7 million, or $0.27 per share, in the first quarter of 2016. Our natural gas distribution segment earned $50.8 million, or $0.16 per share, in the first quarter of 2017, compared with $50.9 million, or $0.16 per share, in the first quarter of 2016. |
• | Eversource parent and other companies earned $0.4 million in the first quarter of 2017, compared with a net loss of $0.8 million in the first quarter of 2016. |
Liquidity:
• | Cash flows provided by operating activities totaled $436.5 million in the first quarter of 2017, compared with $500.0 million in the first quarter of 2016. Investments in property, plant and equipment totaled $523.6 million in the first quarter of 2017, compared with $431.5 million in the first quarter of 2016. Cash and cash equivalents totaled $45.8 million as of March 31, 2017, compared with $30.3 million as of December 31, 2016. |
• | In March 2017, Eversource parent issued $300 million of 2.75 percent Series K Senior Notes, due to mature in 2022. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program. In March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings. Also in March 2017, CL&P repaid at maturity $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings. |
• | On May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, payable on June 30, 2017 to shareholders of record as of May 31, 2017. |
Strategic, Legislative, Regulatory, Policy and Other Items:
• | On April 14, 2017, pursuant to appeals the NETOs and Complainants filed on the first FERC ROE complaint decision, the D.C. Circuit Court of Appeals issued a decision vacating and remanding the FERC's decision. The Court remanded the case to the FERC for further proceedings consistent with the Court's decision. |
• | On March 31, 2017, pursuant to legislation that became law in 2016, the Massachusetts EDCs, including NSTAR Electric and WMECO, and the DOER issued a joint RFP for 9.45 terawatt hours of clean energy per year, such as hydropower, land-based wind or solar. The RFP seeks proposals for long-term contracts of 15 to 20 years to provide electric distribution companies with clean energy generation. Northern Pass will be bid into the RFP. |
Overview
Consolidated: Below is a summary of our earnings by business, which also reconciles the non-GAAP financial measure of EPS by business to the most directly comparable GAAP measure of diluted EPS, for the first quarter of 2017 and 2016.
For the Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | ||||||||||||||
(Millions of Dollars, Except Per-Share Amounts) | Amount | Per Share | Amount | Per Share | |||||||||||
Net Income Attributable to Common Shareholders (GAAP) | $ | 259.5 | $ | 0.82 | $ | 244.2 | $ | 0.77 | |||||||
Regulated Companies | $ | 259.1 | $ | 0.82 | $ | 245.0 | $ | 0.77 | |||||||
Eversource Parent and Other Companies | 0.4 | — | (0.8 | ) | — | ||||||||||
Net Income Attributable to Common Shareholders (GAAP) | $ | 259.5 | $ | 0.82 | $ | 244.2 | $ | 0.77 |
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Regulated Companies: Our Regulated companies consist of the electric distribution, electric transmission, and natural gas distribution segments. Generation activities of PSNH and WMECO are included in our electric distribution segment. A summary of our segment earnings and EPS for the first quarter of 2017 and 2016 is as follows:
For the Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | ||||||||||||||
(Millions of Dollars, Except Per-Share Amounts) | Amount | Per Share | Amount | Per Share | |||||||||||
Electric Distribution | $ | 114.1 | $ | 0.36 | $ | 108.4 | $ | 0.34 | |||||||
Electric Transmission | 94.2 | 0.30 | 85.7 | 0.27 | |||||||||||
Natural Gas Distribution | 50.8 | 0.16 | 50.9 | 0.16 | |||||||||||
Net Income - Regulated Companies | $ | 259.1 | $ | 0.82 | $ | 245.0 | $ | 0.77 |
Our electric distribution segment earnings increased $5.7 million in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to higher lost base revenues at NSTAR Electric and lower property and other tax expense, partially offset by lower generation earnings, higher operations and maintenance expense driven primarily by higher storm restoration costs, and higher depreciation expense.
Our electric transmission segment earnings increased $8.5 million in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to a higher transmission rate base as a result of our continued investment in our transmission infrastructure.
Our natural gas distribution segment earnings decreased $0.1 million in the first quarter of 2017, as compared to the first quarter of 2016, due primarily to higher operations and maintenance expense and depreciation expense, partially offset by higher firm natural gas sales volumes driven by colder weather in Connecticut in the first quarter of 2017, as compared to the first quarter of 2016, and higher revenues due to growth in new customer base.
Eversource Parent and Other Companies: Eversource parent and other companies had earnings of $0.4 million in the first quarter of 2017, compared with a net loss of $0.8 million in the first quarter of 2016. The earnings increase was due primarily to higher investment earnings from Eversource parent's equity method investments and a lower effective tax rate, partially offset by higher interest expense.
Electric and Natural Gas Sales Volumes: Weather, fluctuations in energy supply costs, conservation measures (including utility-sponsored energy efficiency programs), and economic conditions affect customer energy usage. Industrial sales volumes are less sensitive to temperature variations than residential and commercial sales volumes. In our service territories, weather impacts electric sales volumes during the summer and both electric and natural gas sales volumes during the winter; however, natural gas sales volumes are more sensitive to temperature variations than are electric sales volumes. Customer heating or cooling usage may not directly correlate with historical levels or with the level of degree-days that occur.
Fluctuations in retail electric sales volumes at NSTAR Electric and PSNH impact earnings ("Traditional" in the table below). For CL&P and WMECO, fluctuations in retail electric sales volumes do not impact earnings due to their respective regulatory commission approved distribution revenue decoupling mechanisms ("Decoupled" in the table below). These distribution revenues are decoupled from their customer sales volumes, which breaks the relationship between sales volumes and revenues recognized. CL&P and WMECO reconcile their annual base distribution rate recovery amounts to their respective pre-established levels of baseline distribution delivery service revenues of $1.059 billion and $132.4 million, respectively. Any difference between the allowed level of distribution revenue and the actual amount incurred during a 12-month period is adjusted through rates in the following period.
Fluctuations in natural gas sales volumes in Massachusetts do not impact earnings due to the DPU-approved natural gas distribution revenue decoupling mechanism approved in the last rate case decision ("Decoupled" in the table below). Natural gas distribution revenues are decoupled from their customer sales volumes, where applicable, which breaks the relationship between sales volumes and revenues recognized.
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A summary of our retail electric GWh sales volumes and our firm natural gas Mcf sales volumes, as well as percentage changes, is as follows:
For the Three Months Ended March 31, 2017 Compared to 2016 | ||||||||
Sales Volumes (GWh) | Percentage | |||||||
Electric | 2017 | 2016 | Increase/(Decrease) | |||||
Traditional: | ||||||||
Residential | 2,436 | 2,404 | 1.3 | % | ||||
Commercial | 3,939 | 3,990 | (1.3 | )% | ||||
Industrial | 596 | 600 | (0.7 | )% | ||||
Total – Traditional | 6,971 | 6,994 | (0.3 | )% | ||||
Decoupled: | ||||||||
Residential | 2,988 | 2,943 | 1.5 | % | ||||
Commercial | 2,591 | 2,618 | (1.0 | )% | ||||
Industrial | 622 | 664 | (6.3 | )% | ||||
Total – Decoupled | 6,201 | 6,225 | (0.4 | )% | ||||
Total Sales Volumes | 13,172 | 13,219 | (0.4 | )% |
For the Three Months Ended March 31, 2017 Compared to 2016 | ||||||||
Sales Volumes (Mcf) | Percentage | |||||||
Firm Natural Gas | 2017 | 2016 | Increase/(Decrease) | |||||
Traditional: | ||||||||
Residential | 7,093 | 6,642 | 6.8 | % | ||||
Commercial | 8,409 | 7,976 | 5.4 | % | ||||
Industrial | 3,403 | 3,367 | 1.1 | % | ||||
Total – Traditional | 18,905 | 17,985 | 5.1 | % | ||||
Decoupled: | ||||||||
Residential | 10,185 | 9,309 | 9.4 | % | ||||
Commercial | 9,130 | 8,988 | 1.6 | % | ||||
Industrial | 1,709 | 1,854 | (7.8 | )% | ||||
Total – Decoupled | 21,024 | 20,151 | 4.3 | % | ||||
Special Contracts (1) | 1,217 | 1,212 | 0.4 | % | ||||
Total – Decoupled and Special Contracts | 22,241 | 21,363 | 4.1 | % | ||||
Total Sales Volumes | 41,146 | 39,348 | 4.6 | % |
(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 first quarter of 2017, retail electric sales volumes at our electric utilities with a traditional rate structure (NSTAR Electric and PSNH) remained relatively unchanged, as compared to the first quarter of 2016. Colder weather in March 2017, as compared to March 2016, was offset by the milder weather in January and February 2017, as compared to the same periods in 2016, which resulted in an overall slight decrease in sales volumes.
On January 28, 2016, Eversource received approval of a three-year energy efficiency plan in Massachusetts, which includes recovery of LBR at NSTAR Electric until it is operating under a decoupled rate structure. NSTAR Electric earns LBR related to reductions in sales volume as a result of successful energy efficiency programs. LBR is recovered from retail customers through current rates. NSTAR Electric recognized LBR of $17.2 million in the first quarter of 2017, compared to $12.9 million in the first quarter of 2016.
Our firm natural gas sales volumes are subject to many of the same influences as our retail electric sales volumes. In addition, they have benefited from customer growth in both of our natural gas distribution companies. In the first quarter of 2017, our consolidated firm natural gas sales volumes were higher, as compared to the first quarter of 2016. Heating degree days for the first quarter of 2017 were 4.0 percent higher in Connecticut, as compared to the same period in 2016.
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Liquidity
Consolidated: Cash and cash equivalents totaled $45.8 million as of March 31, 2017, compared with $30.3 million as of December 31, 2016.
Long-Term Debt Issuances: In March 2017, Eversource parent issued $300 million of 2.75 percent Series K Senior Notes, due to mature in 2022. The proceeds, net of issuance costs, were used to repay short-term borrowings under the Eversource parent commercial paper program. Also in March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings.
Long-Term Debt Repayments: In March 2017, CL&P repaid at maturity the $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings.
Commercial Paper Programs and Credit Agreements: Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt. As of March 31, 2017 and December 31, 2016, Eversource parent had $801.0 million and approximately $1.0 billion, respectively, in short-term borrowings outstanding under the Eversource parent commercial paper program, leaving $649.0 million and $428.0 million of available borrowing capacity as of March 31, 2017 and December 31, 2016, respectively. The weighted-average interest rate on these borrowings as of March 31, 2017 and December 31, 2016 was 1.12 percent and 0.88 percent, respectively. As of March 31, 2017, there were intercompany loans from Eversource parent of $3.4 million to CL&P, $144.9 million to PSNH, and $71.4 million to WMECO. As of December 31, 2016, there were intercompany loans from Eversource parent of $80.1 million to CL&P, $160.9 million to PSNH and $51.0 million to WMECO. Eversource parent, CL&P, PSNH, WMECO, NSTAR Gas and Yankee Gas are parties to a five-year $1.45 billion revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop Eversource parent's $1.45 billion commercial paper program. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
NSTAR Electric has a $450 million commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of March 31, 2017 and December 31, 2016, NSTAR Electric had $174.5 million and $126.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $275.5 million and $323.5 million of available borrowing capacity as of March 31, 2017 and December 31, 2016, respectively. The weighted-average interest rate on these borrowings as of March 31, 2017 and December 31, 2016 was 0.86 percent and 0.71 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
Cash Flows: Cash flows provided by operating activities totaled $436.5 million in the first quarter of 2017, compared with $500.0 million in the first quarter of 2016. The decrease in operating cash flows was due primarily to $211.9 million in lower income tax refunds as a result of the impact of the December 2015 legislation that extended tax bonus depreciation. That legislation extended the accelerated deduction of depreciation to businesses from 2015 to 2019, and also resulted in a refund of approximately $275 million we received in the first quarter of 2016. Partially offsetting this unfavorable impact was the timing of regulatory recoveries, which primarily related to customer billings in excess of purchased power costs, and the timing of collections on our accounts receivable.
On February 2, 2017, our Board of Trustees approved a common share dividend of $0.475 per share, payable on March 31, 2017 to shareholders of record as of March 2, 2017. In the first quarter of 2017, we paid cash dividends on common shares of $150.5 million, compared with $141.2 million in the first quarter of 2016. On May 3, 2017, our Board of Trustees approved a common share dividend payment of $0.475 per share, payable on June 30, 2017 to shareholders of record as of May 31, 2017.
In the first quarter of 2017, CL&P, NSTAR Electric, PSNH, and WMECO paid $49.6 million, $46.5 million, $18.5 million, and $9.5 million, respectively, in common stock dividends to Eversource parent.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. In the first quarter of 2017, investments for Eversource, CL&P, NSTAR Electric, PSNH, and WMECO were $523.6 million, $181.6 million, $132.1 million, $75.3 million, and $32.7 million respectively.
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Business Development and Capital Expenditures
Our consolidated capital expenditures, including amounts incurred but not paid, cost of removal, AFUDC, and the capitalized portions of pension expense (all of which are non-cash factors), totaled $446.4 million in the first quarter of 2017, compared to $368.5 million in the first quarter of 2016. These amounts included $21.5 million and $24.0 million in the first quarter of 2017 and 2016, respectively, related to information technology and facilities upgrades and enhancements, primarily at Eversource Service and The Rocky River Realty Company.
Access Northeast: Access Northeast is a natural gas pipeline and storage project being developed jointly by Eversource, Enbridge, Inc. ("Enbridge") and National Grid plc ("National Grid"), through Algonquin Gas Transmission, LLC ("AGT"). This project is expected to enhance the Algonquin and Maritimes & Northeast pipeline systems using existing routes and is expected to include two new LNG storage tanks and liquefaction and vaporization facilities in Acushnet, Massachusetts that are currently expected to be connected to the Algonquin natural gas pipeline. Access Northeast is expected to be capable of delivering approximately 900 million cubic feet of additional natural gas per day to New England on peak demand days. Eversource and Enbridge each own a 40 percent interest in the project, with the remaining 20 percent interest owned by National Grid. The project is subject to FERC and other federal and state regulatory approvals. Its initial proposed configuration was expected to cost approximately $3 billion to construct, with Eversource Energy's investment share at approximately $1.2 billion. As of March 31, 2017, we have invested $31.1 million in this project.
Enbridge, Eversource and National Grid are currently evaluating a series of options surrounding Access Northeast, including state infrastructure legislation changes and LDC contracts, in order to help bring needed additional natural gas pipeline and storage capacity to New England. As a result, the final design, cost, and in-service date of Access Northeast will continue to be refined.
Bay State Wind: Bay State Wind is a proposed off-shore wind project being jointly developed by Eversource and Denmark-based DONG Energy. Bay State Wind will be located in a 300-square-mile area approximately 15 to 25 miles south of Martha's Vineyard that has the ultimate potential to generate more than 2,000 MW of energy. Both Eversource and DONG Energy hold a 50 percent ownership interest in Bay State Wind. In August 2016, Massachusetts passed clean energy legislation that requires EDCs to jointly solicit RFPs and enter into long-term contracts for off-shore wind, creating RFP opportunities for projects like Bay State Wind. The initial RFP, which is legislatively required to be for no less than 400 MW of off-shore wind, is due to be released by June 30, 2017, and Bay State Wind will be bid into that RFP.
Electric Transmission Business:
Our consolidated electric transmission business capital expenditures increased by $29.3 million in the first quarter of 2017, as compared to the first quarter of 2016. A summary of electric transmission capital expenditures by company is as follows:
For the Three Months Ended March 31, | |||||||
(Millions of Dollars) | 2017 | 2016 | |||||
CL&P | $ | 79.9 | $ | 63.4 | |||
NSTAR Electric | 39.2 | 31.7 | |||||
PSNH | 21.6 | 19.6 | |||||
WMECO | 18.6 | 18.0 | |||||
NPT | 9.7 | 7.0 | |||||
Total Electric Transmission Segment | $ | 169.0 | $ | 139.7 |
Northern Pass: Northern Pass is NPT's planned high-voltage direct-current ("HVDC") transmission line from the Québec-New Hampshire border to Franklin, New Hampshire and an associated alternating current radial transmission line between Franklin and Deerfield, New Hampshire. Northern Pass will interconnect at the Québec-New Hampshire border with a planned HQ HVDC transmission line. On July 21, 2015, the DOE issued the draft Environmental Impact Statement ("EIS") for Northern Pass representing a key milestone in the permitting process. The DOE completed the comment period on the draft EIS on April 4, 2016, and is expected to issue the final EIS in the third quarter of 2017.
On August 18, 2015, NPT announced the Forward NH Plan, which is expected to deliver substantial energy cost savings and other benefits to New Hampshire, including a commitment to contribute $200 million to projects associated with economic development, tourism, community betterment and clean energy innovations to benefit the state of New Hampshire. The Forward NH Plan also included a commitment by PSNH to secure a power purchase agreement ("PPA") with HQ to ensure that customers receive their load share of the low cost, clean energy to be delivered over that transmission line. On June 28, 2016, PSNH filed the executed PPA with the NHPUC for approval. On March 27, 2017, the NHPUC dismissed PSNH's petition for approval of the PPA. PSNH had requested suspension or reconsideration of that decision but on April 20, 2017, the request was denied by the NHPUC. The Forward NH Plan and the PPA are both commitments that are contingent upon the Northern Pass transmission line going into commercial operation.
On October 14, 2016, the NHPUC approved a settlement agreement between NPT and the NHPUC staff and granted NPT public utility status, conditional on final project permitting.
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The Society for the Protection of New Hampshire Forests ("SPNHF") filed a lawsuit against NPT in November 2015 alleging that NPT does not have the right to install underground transmission lines in the public highway right of way without the permission of the abutting landowners, such as the SPNHF. On January 31, 2017, the New Hampshire Supreme Court upheld a lower court's ruling confirming that NPT has the right to install underground transmission lines along and beneath public highways in New Hampshire with approval of the New Hampshire Department of Transportation.
The New Hampshire Site Evaluation Committee ("NH SEC") commenced hearings for formal siting on April 13, 2017 and is expected to issue an order on Northern Pass no later than September 30, 2017. The DOE is expected to act on a Presidential Permit for Northern Pass after the final NH SEC order is released and is expected to issue an approval before the end of 2017. Northern Pass has been targeted for completion by the end of 2019.
In August 2016, Massachusetts enacted clean energy legislation that requires EDCs to jointly solicit proposals and enter into long-term contracts for energy, such as hydropower. The RFP was issued on March 31, 2017, and Northern Pass will be bid into that RFP in late July 2017.
Greater Boston Reliability Solution: In February 2015, ISO-NE selected the Greater Boston and New Hampshire Solution (the "Solution"), proposed by Eversource and National Grid, to satisfy the requirements identified in the Greater Boston study. The Solution consists of a portfolio of electric transmission upgrades covering southern New Hampshire and northern Massachusetts in the Merrimack Valley and continuing into the greater Boston metropolitan area, of which 28 are in Eversource's service territory. The NH SEC issued its written order approving the New Hampshire upgrades on October 4, 2016. We are currently pursuing the necessary regulatory and siting application approvals in Massachusetts. Construction has also begun on several smaller projects not requiring siting approval. All upgrades are expected to be completed by the end of 2019. We estimate our portion of the investment in the Solution will be approximately $560 million, of which $146.4 million has been capitalized through March 31, 2017.
GHCC: The Greater Hartford Central Connecticut ("GHCC") projects, which have been approved by ISO-NE, consist of 27 projects with an expected investment of approximately $350 million that are expected to be placed in service through 2018. Twelve projects have been placed in service, and eleven projects are in active construction. As of March 31, 2017, CL&P had capitalized $141.6 million in costs associated with GHCC.
Seacoast Reliability Project: On April 12, 2016, PSNH filed a siting application with the NH SEC for the Seacoast Reliability Project, a 13-mile, 115kV transmission line within several New Hampshire communities, which proposes to use a combination of overhead, underground and underwater line design to help meet the growing demand for electricity in the Seacoast region. In June 2016, the NH SEC accepted our application as complete and we expect the NH SEC decision by late 2017. This project is expected to be completed by the end of 2018. We now estimate our investment in this project will be approximately $84 million, of which $15.4 million has been capitalized through March 31, 2017.
Distribution Business:
A summary of distribution capital expenditures is as follows:
For the Three Months Ended March 31, | |||||||||||||||||||||||||||
(Millions of Dollars) | CL&P | NSTAR Electric | PSNH | WMECO | Total Electric | Natural Gas | Total Electric and Natural Gas Distribution Segment | ||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Basic Business | $ | 42.9 | $ | 30.1 | $ | 17.8 | $ | 5.2 | $ | 96.0 | $ | 15.8 | $ | 111.8 | |||||||||||||
Aging Infrastructure | 40.6 | 14.6 | 19.4 | 4.3 | 78.9 | 29.0 | 107.9 | ||||||||||||||||||||
Load Growth (1) | 9.5 | 15.8 | 4.3 | (2.3 | ) | 27.3 | 6.0 | 33.3 | |||||||||||||||||||
Total Distribution | 93.0 | 60.5 | 41.5 | 7.2 | 202.2 | 50.8 | 253.0 | ||||||||||||||||||||
Generation | — | 0.3 | 2.3 | 0.3 | 2.9 | — | 2.9 | ||||||||||||||||||||
Total Electric and Natural Gas Distribution Segment | $ | 93.0 | $ | 60.8 | $ | 43.8 | $ | 7.5 | $ | 205.1 | $ | 50.8 | $ | 255.9 | |||||||||||||
2016 | |||||||||||||||||||||||||||
Basic Business | $ | 39.1 | $ | 24.0 | $ | 15.1 | $ | 3.4 | $ | 81.6 | $ | 12.6 | $ | 94.2 | |||||||||||||
Aging Infrastructure | 26.5 | 12.5 | 14.4 | 4.4 | 57.8 | 19.2 | 77.0 | ||||||||||||||||||||
Load Growth | 9.0 | 14.2 | 3.5 | 0.5 | 27.2 | 6.0 | 33.2 | ||||||||||||||||||||
Total Distribution | 74.6 | 50.7 | 33.0 | 8.3 | 166.6 | 37.8 | 204.4 | ||||||||||||||||||||
Generation | — | — | 0.4 | — | 0.4 | — | 0.4 | ||||||||||||||||||||
Total Electric and Natural Gas Distribution Segment | $ | 74.6 | $ | 50.7 | $ | 33.4 | $ | 8.3 | $ | 167.0 | $ | 37.8 | $ | 204.8 |
(1) For the three months ended March 31, 2017, WMECO had $4.7 million of total contributions in aid of construction, which was a credit to capital expenditures for the period.
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For the electric distribution business, basic business includes the purchase of meters, tools, vehicles, information technology, transformer replacements, equipment facilities, and the relocation of plant. Aging infrastructure relates to reliability and the replacement of overhead lines, plant substations, underground cable replacement, and equipment failures. Load growth includes requests for new business and capacity additions on distribution lines and substation additions and expansions.
For the natural gas distribution segment, basic business addresses daily operational needs including meters, pipe relocations due to public works projects, vehicles, and tools. Aging infrastructure projects seek to improve the reliability of the system through enhancements related to cast iron and bare steel replacement of main and services, corrosion mediation, and station upgrades. Load growth reflects growth in existing service territories including new developments, installation of services, and expansion.
The natural gas distribution segment's capital spending program increased by $13.0 million in the first quarter of 2017, as compared to the first quarter of 2016, as a result of the Hopkinton Liquefier Replacement project. The total project cost is estimated to be approximately $170 million and is expected to be placed in service in late 2019.
FERC Regulatory Matters
FERC ROE Complaints: Four separate complaints have been filed at the FERC by combinations of New England state attorneys general, state regulatory commissions, consumer advocates, consumer groups, municipal parties and other parties (collectively the "Complainants"). In each of the first three complaints, the Complainants challenged the NETOs' base ROE of 11.14 percent that had been utilized since 2005 and sought an order to reduce it prospectively from the date of the final FERC order and for the 15-month complaint periods arising from the separate complaints. In the fourth complaint, filed April 29, 2016, the Complainants challenged the NETOs' base ROE of 10.57 percent and the maximum ROE for transmission incentive ("incentive cap") of 11.74 percent, asserting that these ROEs were unjust and unreasonable.
In response to appeals of the FERC decision in the first complaint filed by the NETOs and the Complainants, the D.C. Circuit Court of Appeals (the "Court") issued a decision on April 14, 2017 vacating and remanding the FERC's decision. The Court found that the FERC failed to make an explicit finding that the prior 11.14 percent base ROE was unjust and unreasonable, as required under Section 206 of the Federal Power Act, before it could set a new base ROE. The Court also found that the FERC did not provide a rational connection between the record evidence and its decision to select the midpoint of the upper half of the zone of reasonableness for the new base ROE.
A summary of the four separate complaints and the base ROEs pertinent to those complaints are as follows:
Complaint | 15-Month Time Period of Complaint (Beginning as of Complaint Filing Date) | Original Base ROE Authorized by FERC at Time of Complaint Filing Date (1) | Base ROE Subsequently Authorized by FERC for First Complaint Period and also Effective from October 16, 2014 through April 14, 2017 (1) | Reserve (Pre-Tax and Excluding Interest) as of March 31, 2017 (in millions) | FERC ALJ Recommendation of Base ROE on Second and Third Complaints (Issued March 22, 2016) | |
First | 10/1/2011 - 12/31/2012 | 11.14% | 10.57% | $— | (2) | N/A |
Second | 12/27/2012 - 3/26/2014 | 11.14% | N/A | 39.1 | (3) | 9.59% |
Third | 7/31/2014 - 10/30/2015 | 11.14% | 10.57% | — | 10.90% | |
Fourth | 4/29/2016 - 7/28/2017 | 10.57% | 10.57% | — | N/A |
(1) The total ROE between October 1, 2011 and October 15, 2014 was within a range of 11.14 percent to 13.1 percent. In 2014, as a result of a FERC order, the incentive cap was set at 11.74 percent for the first complaint period and also effective from October 16, 2014 through April 14, 2017.
(2) CL&P, NSTAR Electric, PSNH and WMECO have refunded all amounts associated with the first complaint period, totaling $38.9 million (pre-tax and excluding interest) at Eversource (including $22.4 million at CL&P, $8.4 million at NSTAR Electric, $2.8 million at PSNH, and $5.3 million at WMECO), reflecting both the base ROE and incentive cap prescribed by the FERC order.
(3) The reserve represents the difference between the ROEs billed during the second complaint period and a 10.57 percent base ROE and 11.74 percent incentive cap. The reserve was $21.4 million for CL&P, $8.5 million for NSTAR Electric, $3.1 million for PSNH, and $6.1 million for WMECO as of March 31, 2017.
At this time, the Company cannot reasonably estimate a range of gain or loss for the complaint proceedings. The Court decision did not provide a reasonable basis for a change to the March 31, 2017 reserve balance of $39.1 million (pre-tax and excluding interest) for the second complaint period, and the Company has not changed its reserves or recognized ROEs for any of the complaint periods.
Management cannot at this time predict the ultimate effect of the Court decision on any of the complaint periods or the estimated impacts on the financial position, results of operations or cash flows of Eversource, CL&P, NSTAR Electric, PSNH and WMECO.
The average impact of a 10 basis point change to the base ROE for each of the 15-month complaint periods would affect Eversource's after-tax earnings by approximately $3 million.
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FERC Order No. 1000: On August 15, 2014, the D.C. Circuit Court of Appeals upheld the FERC's authority to order major changes to transmission planning and cost allocation in FERC Order No. 1000 and Order No. 1000-A, including transmission planning for public policy needs, and the requirement that utilities remove from their transmission tariffs their rights of first refusal to build transmission, to allow for competition. ISO-NE and the NETOs, including CL&P, NSTAR Electric, PSNH and WMECO, made compliance filings to address this policy, which included exemption from competition for certain transmission solutions previously evaluated by ISO-NE, and the NETOs' rights to retain use and control of existing right of ways. This compliance was accepted by the FERC on December 14, 2015. At the same time, the NETOs filed an appeal to the D.C. Circuit Court of Appeals, challenging FERC's removal of the right of first refusal. State regulators also filed an appeal, challenging the FERC's determination that ISO-NE should select public policy transmission projects after a competitive process. On April 18, 2017, the D.C. Circuit Court of Appeals issued a decision rejecting both challenges.
NSTAR Electric and WMECO Merger FERC Filings: On January 13, 2017, Eversource made two filings with FERC related to the proposed merger of WMECO into NSTAR Electric with an anticipated effective date of January 1, 2018. One filing requests FERC approval of the merger, and the other filing requests FERC approval of NSTAR Electric's assumption of WMECO's short-term debt obligations. The FERC approved the merger on March 2, 2017 and will act on the assumption of debt filing later in 2017.
Regulatory Developments and Rate Matters
Electric and Natural Gas Base Distribution Rates:
The Regulated companies’ distribution rates are set by their respective state regulatory commissions, and their tariffs include mechanisms for periodically adjusting their rates for the recovery of specific incurred costs. Other than as described below, for the first quarter of 2017, changes made to the Regulated companies’ rates did not have a material impact on their earnings, financial position, or cash flows. For further information, see “Financial Condition and Business Analysis – Regulatory Developments and Rate Matters” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the Eversource 2016 Form 10-K.
Connecticut:
On April 20, 2017, PURA approved the joint request of CL&P, the Connecticut Office of Consumer Counsel and the Connecticut Attorney General to amend the deadline to establish new electric distribution rates in the 2012 Connecticut merger settlement agreement from "no later than December 1, 2017" to "no later than July 1, 2018".
Massachusetts:
Clean Energy RFP: On March 31, 2017, pursuant to comprehensive energy legislation, "An Act to Promote Energy Diversity," which became law in 2016, the Massachusetts EDCs, including NSTAR Electric and WMECO, and the DOER issued a joint RFP for 9.45 terawatt hours of clean energy per year, such as hydropower, land-based wind or solar. The RFP seeks proposals for long-term contracts of 15 to 20 years to provide the state's electric distribution companies with clean energy generation. The proposal submission due date is July 27, 2017. Contracts will be selected in January 2018, with an expectation to submit executed long-term contracts to the DPU for final approval in April 2018. Northern Pass will be bid into the RFP.
NSTAR Electric and WMECO Rate Case: On January 17, 2017, NSTAR Electric and WMECO jointly filed an application (the "Joint Applicants") with the DPU for approval of a combined $96 million increase in base distribution rates, effective January 1, 2018. As part of this filing, the Joint Applicants are presenting a grid-wise performance plan, including the implementation of a performance-based rate-making mechanism in conjunction with a grid modernization base commitment of $400 million in incremental capital investment over a period of five years, commencing January 1, 2018. In addition, the Joint Applicants are proposing to streamline and align rate classifications between NSTAR Electric and WMECO, and requesting a revenue decoupling rate mechanism for NSTAR Electric. WMECO has a revenue decoupling mechanism in place. The DPU will also be reviewing the proposed merger of NSTAR Electric and WMECO as part of the rate case. A final decision from the DPU is expected in late 2017, with new rates anticipated to be effective January 1, 2018.
New Hampshire:
Generation Divestiture: On June 10, 2015, Eversource and PSNH entered into the 2015 Public Service Company of New Hampshire Restructuring and Rate Stabilization Agreement (the "Agreement") with the New Hampshire Office of Energy and Planning, certain members of the NHPUC staff, the Office of Consumer Advocate, two State Senators, and several other parties. Under the terms of the Agreement, PSNH agreed to divest its generation assets, subject to NHPUC approval. The Agreement provided for a resolution of issues pertaining to PSNH's generation assets in pending regulatory proceedings before the NHPUC. The Agreement provided for the Clean Air Project prudence proceeding to be resolved and all remaining Clean Air Project costs to be included in rates effective January 1, 2016. As part of the Agreement, PSNH agreed to forego recovery of $25 million of the equity return related to the Clean Air Project. In addition, PSNH will not seek a general distribution rate increase effective before July 1, 2017 and will contribute $5 million to create a clean energy fund, which will not be recoverable from its customers.
On July 1, 2016, the NHPUC approved the Agreement in an order that, among other things, instructs PSNH to begin the process of divesting its generation assets. The NHPUC selected an auction adviser to assist with the divestiture, and the final plan and auction process were approved by the NHPUC in November 2016. An intervening appeal alleging that the auction process and schedule were unreasonable was rejected by the New Hampshire Supreme Court in February 2017. In late March 2017, the formal divestiture process began. We continue to believe the assets will be sold by the end of 2017.
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As of March 31, 2017, PSNH's energy service rate base subject to divestiture was approximately $620 million. This rate base will be reduced by the amount of the sales proceeds from the generation assets that are divested and sold. Upon completion of the divestiture process, full recovery of PSNH's generation assets is probable through a combination of cash flows during the remaining operating period, sales proceeds upon divestiture, and recovery of stranded costs via bonds that will be secured by a non-bypassable charge or through recoveries in future rates billed to PSNH's customers.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and, at times, difficult, subjective or complex judgments. Changes in these estimates, assumptions and judgments, in and of themselves, could materially impact our financial position, results of operations or cash flows. Our management communicates to and discusses with the Audit Committee of our Board of Trustees significant matters relating to critical accounting policies. Our critical accounting policies that we believed were the most critical in nature were reported in the Eversource 2016 Form 10-K. There have been no material changes with regard to these critical accounting policies.
Other Matters
Accounting Standards: For information regarding new accounting standards, see Note 1B, "Summary of Significant Accounting Policies –Accounting Standards," to the financial statements.
Contractual Obligations and Commercial Commitments: There have been no material contractual obligations identified and no material changes with regard to the contractual obligations and commercial commitments previously disclosed in the Eversource 2016 Form 10-K.
Web Site: Additional financial information is available through our website at www.eversource.com. We make available through our website a link to the SEC's EDGAR website (http://www.sec.gov/edgar/searchedgar/companysearch.html), at which site Eversource's, CL&P's, NSTAR Electric's, PSNH's and WMECO's combined Annual Reports on Form 10-K, combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports may be reviewed. Information contained on the Company's website or that can be accessed through the website is not incorporated into and does not constitute a part of this combined Quarterly Report on Form 10-Q.
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RESULTS OF OPERATIONS – EVERSOURCE ENERGY AND SUBSIDIARIES
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for Eversource for the three months ended March 31, 2017 and 2016 included in this combined Quarterly Report on Form 10-Q:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Operating Revenues | $ | 2,105.1 | $ | 2,055.6 | $ | 49.5 | 2.4 | % | ||||||
Operating Expenses: | ||||||||||||||
Purchased Power, Fuel and Transmission | 753.6 | 754.9 | (1.3 | ) | (0.2 | ) | ||||||||
Operations and Maintenance | 330.3 | 320.1 | 10.2 | 3.2 | ||||||||||
Depreciation | 186.8 | 174.0 | 12.8 | 7.4 | ||||||||||
Amortization of Regulatory Assets, Net | 24.0 | 21.0 | 3.0 | 14.3 | ||||||||||
Energy Efficiency Programs | 146.2 | 137.2 | 9.0 | 6.6 | ||||||||||
Taxes Other Than Income Taxes | 155.2 | 159.9 | (4.7 | ) | (2.9 | ) | ||||||||
Total Operating Expenses | 1,596.1 | 1,567.1 | 29.0 | 1.9 | ||||||||||
Operating Income | 509.0 | 488.5 | 20.5 | 4.2 | ||||||||||
Interest Expense | 103.4 | 98.2 | 5.2 | 5.3 | ||||||||||
Other Income, Net | 13.6 | 2.0 | 11.6 | (a) | ||||||||||
Income Before Income Tax Expense | 419.2 | 392.3 | 26.9 | 6.9 | ||||||||||
Income Tax Expense | 157.8 | 146.2 | 11.6 | 7.9 | ||||||||||
Net Income | 261.4 | 246.1 | 15.3 | 6.2 | ||||||||||
Net Income Attributable to Noncontrolling Interests | 1.9 | 1.9 | — | — | ||||||||||
Net Income Attributable to Common Shareholders | $ | 259.5 | $ | 244.2 | $ | 15.3 | 6.3 | % |
(a) | Percent greater than 100 not shown as it is not meaningful. |
Operating Revenues
A summary of our Operating Revenues by segment is as follows:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Electric Distribution | $ | 1,401.1 | $ | 1,436.1 | $ | (35.0 | ) | (2.4 | )% | |||||
Natural Gas Distribution | 403.6 | 342.6 | 61.0 | 17.8 | ||||||||||
Electric Transmission | 316.9 | 283.3 | 33.6 | 11.9 | ||||||||||
Other and Eliminations | (16.5 | ) | (6.4 | ) | (10.1 | ) | (a) | |||||||
Total Operating Revenues | $ | 2,105.1 | $ | 2,055.6 | $ | 49.5 | 2.4 | % |
(a) | Percent greater than 100 not shown as it is not meaningful. |
A summary of our retail electric GWh sales volumes and our firm natural gas sales volumes in Mcf were as follows:
For the Three Months Ended March 31, | |||||||||||
2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||
Electric | |||||||||||
Traditional | 6,971 | 6,994 | (23 | ) | (0.3 | )% | |||||
Decoupled | 6,201 | 6,225 | (24 | ) | (0.4 | ) | |||||
Total Electric | 13,172 | 13,219 | (47 | ) | (0.4 | ) | |||||
Firm Natural Gas | |||||||||||
Traditional | 18,905 | 17,985 | 920 | 5.1 | |||||||
Decoupled and Special Contracts | 22,241 | 21,363 | 878 | 4.1 | |||||||
Total Firm Natural Gas | 41,146 | 39,348 | 1,798 | 4.6 | % |
Operating Revenues, which primarily consist of base electric and natural gas distribution revenues and tracked revenues further described below, increased by $49.5 million for the three months ended March 31, 2017, as compared to the same period in 2016.
Base electric and natural gas distribution revenues: Base electric distribution segment revenues, excluding LBR, increased $3.2 million for the three months ended March 31, 2017, as compared to the same period in 2016. Operating Revenues increased $4.3 million for the three months ended March 31, 2017, as compared to the same period in 2016, as a result of higher LBR recognition.
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Base natural gas distribution revenues increased $3.4 million for the three months ended March 31, 2017, as compared to the same period in 2016, driven by higher firm natural gas sales volumes due to colder weather in Connecticut in the first quarter of 2017, as compared to the first quarter of 2016, as well as growth in new customer base.
Fluctuations in CL&P's, WMECO's and NSTAR Gas' sales volumes do not impact the level of base distribution revenue realized or earnings due to their respective regulatory commission approved revenue decoupling mechanisms. The revenue decoupling mechanisms permit recovery of a base amount of distribution revenues and break the relationship between sales volumes and revenues recognized. Revenue decoupling mechanisms result in the recovery of our approved base distribution revenue requirements.
Tracked distribution revenues: Tracked revenues consist of certain costs that are recovered from customers in rates through regulatory commission-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply procurement costs and other energy-related costs for our electric and natural gas customers, retail transmission charges, energy efficiency program costs, and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked natural gas distribution segment revenues increased as a result of an increase in natural gas supply costs ($46.3 million) and an increase in energy efficiency program revenues ($10.1 million). Tracked electric distribution revenues decreased as a result of a decrease in electric energy supply costs ($53.6 million), driven by decreased average retail rates, partially offset by an increase in federally-mandated congestion charges ($12.6 million).
Electric transmission revenues: The electric transmission segment revenues increased by $33.6 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power, Fuel and Transmission expense includes costs associated with purchasing electricity and natural gas on behalf of our customers. These energy supply costs are recovered from customers in rates through cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power, Fuel and Transmission expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Increase/(Decrease) | ||
Electric Distribution | $ | (62.1 | ) |
Natural Gas Distribution | 41.1 | ||
Transmission | 19.7 | ||
Total Purchased Power, Fuel and Transmission | $ | (1.3 | ) |
The decrease in purchased power expense at the electric distribution business was driven by lower prices associated with the procurement of energy supply and lower sales volumes for the three months ended March 31, 2017, as compared to the same period in 2016. The increase in purchased power expense at the natural gas distribution business was due to higher sales volumes. The increase in transmission costs was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment.
Operations and Maintenance expense includes tracked costs and costs that are part of base electric and natural gas distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Increase/(Decrease) | ||
Base Electric Distribution: | |||
Storm restoration costs | $ | 8.0 | |
Shared corporate costs (including computer software depreciation at Eversource Service) | 5.5 | ||
System resiliency project costs at CL&P | 2.2 | ||
Employee-related expenses, including labor and benefits | (8.8 | ) | |
Bad debt expense | (3.2 | ) | |
Other operations and maintenance | 0.6 | ||
Total Base Electric Distribution | 4.3 | ||
Total Base Natural Gas Distribution: | |||
Shared corporate costs (including computer software depreciation at Eversource Service) | 1.3 | ||
Other operations and maintenance | 2.2 | ||
Total Base Natural Gas Distribution | 3.5 | ||
Total Tracked costs (Electric Distribution, Electric Transmission and Natural Gas Distribution) | 9.4 | ||
Other and eliminations: | |||
Eversource Parent and Other Companies | (2.0 | ) | |
Eliminations | (5.0 | ) | |
Total Operations and Maintenance | $ | 10.2 |
Depreciation expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher utility plant in service balances.
43
Amortization of Regulatory Assets, Net expense includes the deferral of energy supply and energy-related costs included in certain regulatory-approved tracking mechanisms, and the amortization of certain costs. The deferral adjusts expense to match the corresponding revenues. Amortization of Regulatory Assets, Net, increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the deferral of energy supply and energy-related costs which can fluctuate from period to period based on the timing of costs incurred and the related rate changes to recover these costs. Energy supply and energy-related costs at CL&P, NSTAR Electric, PSNH and WMECO, which are the primary drivers in amortization, are recovered from customers in rates and have no impact on earnings.
Energy Efficiency Programs expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the deferral adjustment for the natural gas businesses, which reflects the actual costs of energy efficiency programs compared to the estimated amounts billed to customers, and the timing of the recovery of energy efficiency costs incurred in accordance with the program guidelines established by the regulatory commissions. The deferrals adjust expense to match the energy efficiency programs revenue. The costs for various state energy policy initiatives and expanded energy efficiency programs are recovered from customers in rates and have no impact on earnings.
Taxes Other Than Income Taxes expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due to lower employment-related taxes and a decrease in property tax rates at NSTAR Electric, partially offset by an increase in property taxes at CL&P due to higher utility plant balances.
Interest Expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher interest on long-term debt ($4.9 million) as a result of new debt issuances.
Other Income, Net increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to an increase in earnings related to equity method investments ($4.7 million), higher AFUDC related to equity funds ($2.5 million) and an increase in net gains related to the deferred compensation plans ($2.1 million).
Income Tax Expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($9.4 million) and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($2.2 million).
44
RESULTS OF OPERATIONS – THE CONNECTICUT LIGHT AND POWER COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for CL&P for the three months ended March 31, 2017 and 2016 included in this combined Quarterly Report on Form 10-Q:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Operating Revenues | $ | 732.3 | $ | 735.3 | $ | (3.0 | ) | (0.4 | )% | |||||
Operating Expenses: | ||||||||||||||
Purchased Power and Transmission | 244.9 | 272.6 | (27.7 | ) | (10.2 | ) | ||||||||
Operations and Maintenance | 128.2 | 110.8 | 17.4 | 15.7 | ||||||||||
Depreciation | 59.8 | 57.0 | 2.8 | 4.9 | ||||||||||
Amortization of Regulatory Assets, Net | 12.8 | 9.9 | 2.9 | 29.3 | ||||||||||
Energy Efficiency Programs | 36.6 | 38.1 | (1.5 | ) | (3.9 | ) | ||||||||
Taxes Other Than Income Taxes | 74.0 | 75.4 | (1.4 | ) | (1.9 | ) | ||||||||
Total Operating Expenses | 556.3 | 563.8 | (7.5 | ) | (1.3 | ) | ||||||||
Operating Income | 176.0 | 171.5 | 4.5 | 2.6 | ||||||||||
Interest Expense | 35.0 | 36.5 | (1.5 | ) | (4.1 | ) | ||||||||
Other Income, Net | 2.8 | 0.9 | 1.9 | (a) | ||||||||||
Income Before Income Tax Expense | 143.8 | 135.9 | 7.9 | 5.8 | ||||||||||
Income Tax Expense | 53.6 | 48.9 | 4.7 | 9.6 | ||||||||||
Net Income | $ | 90.2 | $ | 87.0 | $ | 3.2 | 3.7 | % |
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
CL&P's retail sales volumes were as follows:
For the Three Months Ended March 31, | |||||||||||
2017 | 2016 | Decrease | Percent | ||||||||
Retail Sales Volumes in GWh | 5,330 | 5,350 | (20 | ) | (0.4 | )% |
CL&P's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $3.0 million for the three months ended March 31, 2017, as compared to the same period in 2016.
Fluctuations in CL&P's sales volumes do not impact the level of base distribution revenue realized or earnings due to the PURA-approved revenue decoupling mechanism. CL&P's revenue decoupling mechanism permits recovery of a base amount of distribution revenues ($1.059 billion annually) and breaks the relationship between sales volumes and revenues recognized. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through PURA-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply procurement and other energy-related costs, retail transmission charges, energy efficiency program costs and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($30.0 million) driven by decreased average retail rates. In addition, there was a $4.0 million decrease in stranded cost recovery revenue. Partially offsetting these decreases was an increase in federally-mandated congestion charges ($12.6 million).
Transmission revenues increased by $18.9 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission expense includes costs associated with purchasing electricity on behalf of CL&P's customers. These energy supply costs are recovered from customers in PURA-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Increase/(Decrease) | ||
Purchased Power Costs | $ | (38.3 | ) |
Transmission Costs | 10.6 | ||
Total Purchased Power and Transmission | $ | (27.7 | ) |
45
Included in purchased power costs are the costs associated with CL&P's GSC and deferred energy supply costs. The GSC recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs for the three months ended March 31, 2017, compared to the same period in 2016, was due primarily to a decrease in the price of standard offer supply. The increase in transmission costs was primarily the result of an increase in costs billed by ISO-NE that support regional grid investment.
Operations and Maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, driven by a $9.0 million increase in non-tracked costs, which was primarily attributable to higher storm restoration costs, higher system resiliency project costs, and higher shared corporate costs, partially offset by lower employee-related expenses. In addition, there was an $8.4 million increase in tracked costs, which was primarily attributable to higher transmission expenses.
Income Tax Expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($2.7 million), higher state taxes ($1.1 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.9 million).
EARNINGS SUMMARY
CL&P's earnings increased $3.2 million for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to an increase in transmission earnings driven by a higher transmission rate base and higher distribution revenues due in part to a higher rate base for the system resiliency program. These favorable earnings impacts were partially offset by higher operations and maintenance expense and a higher effective tax rate.
LIQUIDITY
Cash totaled $15.3 million as of March 31, 2017, compared with $6.6 million as of December 31, 2016.
CL&P had cash flows provided by operating activities of $171.6 million for the three months ended March 31, 2017, as compared to $221.2 million in the same period of 2016. The decrease in operating cash flows was due primarily to $117.0 million in lower income tax refunds received in 2017, as compared to 2016. Partially offsetting this decrease was the favorable impact of the timing of regulatory recoveries, primarily related to purchased power costs, and the favorable impacts related to the timing of collections and payments of working capital items.
In March 2017, CL&P issued $300 million of 3.20 percent 2017 Series A First and Refunding Mortgage Bonds due to mature in 2027. The proceeds, net of issuance costs, were used to repay short-term borrowings. Also in March 2017, CL&P repaid at maturity the $150 million of 5.375 percent 2007 Series A First and Refunding Mortgage Bonds, using short-term borrowings.
Eversource parent has a $1.45 billion commercial paper program allowing Eversource parent to issue commercial paper as a form of short-term debt, with intercompany loans to certain subsidiaries, including CL&P. The weighted-average interest rate on the commercial paper borrowings as of March 31, 2017 and December 31, 2016 was 1.12 percent and 0.88 percent, respectively. As of March 31, 2017 and December 31, 2016, there were intercompany loans from Eversource parent to CL&P of $3.4 million and $80.1 million, respectively.
Eversource parent, and certain of its subsidiaries, including CL&P, are parties to a five-year $1.45 billion revolving credit facility. The revolving credit facility's termination date is September 4, 2021. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
Investments in Property, Plant and Equipment on the statements of cash flows do not include amounts incurred on capital projects but not yet paid, cost of removal, AFUDC related to equity funds, and the capitalized portions of pension expense. CL&P's investments in property, plant and equipment totaled $181.6 million for the three months ended March 31, 2017.
46
RESULTS OF OPERATIONS – NSTAR ELECTRIC COMPANY AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for NSTAR Electric for the three months ended March 31, 2017 and 2016 included in this combined Quarterly Report on Form 10-Q:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Operating Revenues | $ | 603.8 | $ | 614.2 | $ | (10.4 | ) | (1.7 | )% | |||||
Operating Expenses: | ||||||||||||||
Purchased Power and Transmission | 233.1 | 254.3 | (21.2 | ) | (8.3 | ) | ||||||||
Operations and Maintenance | 88.4 | 94.7 | (6.3 | ) | (6.7 | ) | ||||||||
Depreciation | 55.2 | 51.9 | 3.3 | 6.4 | ||||||||||
Amortization of Regulatory Assets, Net | 5.0 | 4.7 | 0.3 | 6.4 | ||||||||||
Energy Efficiency Programs | 67.3 | 66.2 | 1.1 | 1.7 | ||||||||||
Taxes Other Than Income Taxes | 27.4 | 32.6 | (5.2 | ) | (16.0 | ) | ||||||||
Total Operating Expenses | 476.4 | 504.4 | (28.0 | ) | (5.6 | ) | ||||||||
Operating Income | 127.4 | 109.8 | 17.6 | 16.0 | ||||||||||
Interest Expense | 22.0 | 20.9 | 1.1 | 5.3 | ||||||||||
Other Income/(Loss), Net | 3.3 | (0.3 | ) | 3.6 | (a) | |||||||||
Income Before Income Tax Expense | 108.7 | 88.6 | 20.1 | 22.7 | ||||||||||
Income Tax Expense | 42.5 | 34.1 | 8.4 | 24.6 | ||||||||||
Net Income | $ | 66.2 | $ | 54.5 | $ | 11.7 | 21.5 | % |
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
NSTAR Electric's retail sales volumes were as follows:
For the Three Months Ended March 31, | |||||||||||
2017 | 2016 | Decrease | Percent | ||||||||
Retail Sales Volumes in GWh | 4,979 | 5,018 | (39 | ) | (0.8 | )% |
NSTAR Electric's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, decreased by $10.4 million for the three months ended March 31, 2017, as compared to the same period in 2016.
Base distribution revenues: Base distribution revenues, excluding LBR, remained relatively unchanged for the three months ended March 31, 2017, as compared to the same period in 2016. Operating Revenues increased $4.3 million for the three months ended March 31, 2017, as compared to the same period in 2016, as a result of higher LBR recognition.
Tracked revenues: Tracked revenues consist of certain costs that are recovered from customers in rates through DPU-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs, retail transmission charges, energy efficiency program costs, net metering for distributed generation and transition cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues decreased primarily as a result of a decrease in energy supply costs ($22.4 million) driven by decreased average retail rates and lower sales volumes, and a decrease in retail transmission charges ($7.3 million). Partially offsetting these decreases were an increase in net metering revenues ($7.3 million), an increase in revenues related to renewable energy requirements ($7.3 million), and an increase in energy efficiency program revenues ($4.0 million).
Transmission revenues increased by $3.6 million due primarily to the recovery of higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission expense includes costs associated with purchasing electricity on behalf of NSTAR Electric's customers. These energy supply costs are recovered from customers in DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Decrease | ||
Purchased Power Costs | $ | (17.5 | ) |
Transmission Costs | (3.7 | ) | |
Total Purchased Power and Transmission | $ | (21.2 | ) |
47
Included in purchased power costs are the costs associated with NSTAR Electric's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply and lower sales volumes. The decrease in transmission costs was primarily the result of a decrease in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, driven by a $6.6 million decrease in non-tracked costs, which was primarily attributable to lower employee-related expenses and lower bad debt expense, partially offset by higher shared corporate costs. Tracked costs increased $0.3 million.
Depreciation expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher utility plant in service balances.
Taxes Other Than Income Taxes expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to a decrease in property tax rates and lower employment-related taxes.
Other Income/(Loss), Net increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher AFUDC on equity funds ($1.2 million), an increase related to officer insurance policies ($1.2 million) and an increase in gains related to deferred compensation plans ($1.1 million).
Income Tax Expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher pre-tax earnings ($7.0 million), higher state taxes ($0.8 million), and items that impact our tax rate as a result of regulatory treatment (flow-through items) and permanent differences ($0.6 million).
EARNINGS SUMMARY
NSTAR Electric's earnings increased $11.7 million for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to lower operations and maintenance expense, higher distribution revenues as a result of higher lost base revenues, higher earnings from net metering and higher energy efficiency incentives, lower property and other tax expense, and an increase in transmission earnings driven by a higher transmission rate base. These favorable earnings impacts were partially offset by higher depreciation expense and higher interest expense.
LIQUIDITY
NSTAR Electric had cash flows provided by operating activities of $133.7 million for the three months ended March 31, 2017, as compared to $96.3 million in the same period of 2016. The increase in operating cash flows was due primarily to a favorable impact related to an increase in regulatory recoveries due to collections from customers in excess of purchased power costs and changes in the timing of working capital items. Partially offsetting these favorable impacts was $4.9 million in lower income tax refunds received in 2017, as compared to 2016.
NSTAR Electric has a $450 million commercial paper program allowing NSTAR Electric to issue commercial paper as a form of short-term debt. As of March 31, 2017 and December 31, 2016, NSTAR Electric had $174.5 million and $126.5 million, respectively, in short-term borrowings outstanding under its commercial paper program, leaving $275.5 million and $323.5 million of available borrowing capacity as of March 31, 2017 and December 31, 2016, respectively. The weighted-average interest rate on these borrowings as of March 31, 2017 and December 31, 2016 was 0.86 percent and 0.71 percent, respectively. NSTAR Electric is a party to a five-year $450 million revolving credit facility. The revolving credit facility's termination date is September 4, 2021. The revolving credit facility serves to backstop NSTAR Electric's $450 million commercial paper program. There were no borrowings outstanding on the revolving credit facility as of March 31, 2017 or December 31, 2016.
48
RESULTS OF OPERATIONS – PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE AND SUBSIDIARY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for PSNH for the three months ended March 31, 2017 and 2016 included in this combined Quarterly Report on Form 10-Q:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Operating Revenues | $ | 253.2 | $ | 242.3 | $ | 10.9 | 4.5 | % | ||||||
Operating Expenses: | ||||||||||||||
Purchased Power, Fuel and Transmission | 61.8 | 50.2 | 11.6 | 23.1 | ||||||||||
Operations and Maintenance | 62.4 | 59.2 | 3.2 | 5.4 | ||||||||||
Depreciation | 30.7 | 28.3 | 2.4 | 8.5 | ||||||||||
Amortization of Regulatory Assets, Net | 5.4 | 8.5 | (3.1 | ) | (36.5 | ) | ||||||||
Energy Efficiency Programs | 3.7 | 3.6 | 0.1 | 2.8 | ||||||||||
Taxes Other Than Income Taxes | 20.9 | 21.8 | (0.9 | ) | (4.1 | ) | ||||||||
Total Operating Expenses | 184.9 | 171.6 | 13.3 | 7.8 | ||||||||||
Operating Income | 68.3 | 70.7 | (2.4 | ) | (3.4 | ) | ||||||||
Interest Expense | 12.8 | 12.5 | 0.3 | 2.4 | ||||||||||
Other Income, Net | 1.1 | 0.2 | 0.9 | (a) | ||||||||||
Income Before Income Tax Expense | 56.6 | 58.4 | (1.8 | ) | (3.1 | ) | ||||||||
Income Tax Expense | 22.3 | 22.3 | — | — | ||||||||||
Net Income | $ | 34.3 | $ | 36.1 | $ | (1.8 | ) | (5.0 | )% |
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
PSNH's retail sales volumes were as follows:
For the Three Months Ended March 31, | |||||||||||
2017 | 2016 | Increase | Percent | ||||||||
Retail Sales Volumes in GWh | 1,992 | 1,976 | 16 | 0.8 | % |
PSNH's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by $10.9 million for the three months ended March 31, 2017, as compared to the same period in 2016.
Base distribution revenues: Base distribution revenues increased $2.9 million due primarily to a $1.0 million increase as a result of a distribution rate increase effective July 1, 2016.
Tracked revenues: Tracked revenues consist of certain costs that are recovered from customers in rates through NHPUC-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs and costs associated with the generation of electricity for customers, retail transmission charges, energy efficiency program costs and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked distribution revenues increased primarily as a result of an increase in retail transmission charges ($5.8 million) and an increase in both energy supply costs and wholesale generation revenues (totaling $3.7 million) for the three months ended March 31, 2017, as compared to the same period of 2016. The increase in energy supply costs was driven by increased average retail rates. Partially offsetting these increases was a decrease in revenues related to the timing of the sale of RECs ($7.7 million).
Transmission revenues increased by $6.2 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power, Fuel and Transmission expense includes costs associated with PSNH's generation of electricity, as well as purchasing electricity on behalf of its customers. These generation and energy supply costs are recovered from customers in NHPUC-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power, Fuel and Transmission expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Increase | ||
Purchased Power and Generation Fuel Costs | $ | 2.0 | |
Transmission Costs | 9.6 | ||
Total Purchased Power, Fuel and Transmission | $ | 11.6 |
49
In order to meet the demand of customers who have not migrated to third party suppliers, PSNH procures power through power supply contracts and spot purchases in the competitive New England wholesale power market and/or produces power through its own generation. The increase in purchased power and generation fuel costs was due primarily to Regional Greenhouse Gas Initiative related expenses. The increase in transmission costs was primarily the result of an increase in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, driven by a $3.4 million increase in tracked costs, which was primarily attributable to higher transmission expenses, partially offset by a $0.2 million decrease in non-tracked costs.
Depreciation expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to higher utility plant in service balances.
Amortization of Regulatory Assets, Net expense includes the deferral to expense of energy supply costs and the amortization of certain costs, which are recovered from customers in rates and have no impact on earnings. The decrease for the three months ended March 31, 2017, as compared to the same period in 2016, was due primarily to the deferral adjustment of the stranded cost recovery charge. The deferral adjusts expense to match the corresponding revenues.
EARNINGS SUMMARY
PSNH's earnings decreased $1.8 million for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to lower generation earnings and higher depreciation expense, partially offset by higher distribution revenues due primarily to a distribution rate increase effective July 1, 2016 and an increase in transmission earnings driven by a higher transmission rate base.
LIQUIDITY
PSNH had cash flows provided by operating activities of $113.2 million for the three months ended March 31, 2017, as compared to $156.3 million in the same period of 2016. The decrease in operating cash flows was due primarily to income tax payments of $9.0 million made in 2017, compared to income tax refunds of $53.9 million received in the same period in 2016. In addition, there was a $10.3 million decrease related to the use of fuel inventories. Partially offsetting these decreases were $9.7 million lower Pension Plan contributions made in 2017, as compared to 2016 and the favorable impacts related to the timing of collections of accounts receivable and regulatory recoveries.
50
RESULTS OF OPERATIONS – WESTERN MASSACHUSETTS ELECTRIC COMPANY
The following provides the amounts and variances in operating revenues and expense line items in the statements of income for WMECO for the three months ended March 31, 2017 and 2016 included in this combined Quarterly Report on Form 10-Q:
For the Three Months Ended March 31, | ||||||||||||||
(Millions of Dollars) | 2017 | 2016 | Increase/ (Decrease) | Percent | ||||||||||
Operating Revenues | $ | 130.1 | $ | 128.1 | $ | 2.0 | 1.6 | % | ||||||
Operating Expenses: | ||||||||||||||
Purchased Power and Transmission | 40.9 | 39.5 | 1.4 | 3.5 | ||||||||||
Operations and Maintenance | 22.5 | 21.8 | 0.7 | 3.2 | ||||||||||
Depreciation | 12.0 | 11.4 | 0.6 | 5.3 | ||||||||||
Amortization of Regulatory (Liabilities)/Assets, Net | (0.5 | ) | 1.2 | (1.7 | ) | (a) | ||||||||
Energy Efficiency Programs | 10.7 | 10.9 | (0.2 | ) | (1.8 | ) | ||||||||
Taxes Other Than Income Taxes | 10.3 | 10.2 | 0.1 | 1.0 | ||||||||||
Total Operating Expenses | 95.9 | 95.0 | 0.9 | 0.9 | ||||||||||
Operating Income | 34.2 | 33.1 | 1.1 | 3.3 | ||||||||||
Interest Expense | 6.2 | 6.0 | 0.2 | 3.3 | ||||||||||
Other Income/(Loss), Net | — | (0.2 | ) | 0.2 | (100.0 | ) | ||||||||
Income Before Income Tax Expense | 28.0 | 26.9 | 1.1 | 4.1 | ||||||||||
Income Tax Expense | 10.8 | 10.1 | 0.7 | 6.9 | ||||||||||
Net Income | $ | 17.2 | $ | 16.8 | $ | 0.4 | 2.4 | % |
(a) Percent greater than 100 not shown as it is not meaningful.
Operating Revenues
WMECO's retail sales volumes were as follows:
For the Three Months Ended March 31, | |||||||||||
2017 | 2016 | Decrease | Percent | ||||||||
Retail Sales Volumes in GWh | 870 | 876 | (6 | ) | (0.6 | )% |
WMECO's Operating Revenues, which consist of base distribution revenues and tracked revenues further described below, increased by $2.0 million for the three months ended March 31, 2017, as compared to the same period in 2016.
Fluctuations in WMECO's sales volumes do not impact the level of base distribution revenue realized or earnings due to the DPU-approved revenue decoupling mechanism. WMECO's revenue decoupling mechanism permits recovery of a base amount of distribution revenues ($132.4 million annually) and breaks the relationship between sales volumes and revenues recognized. The revenue decoupling mechanism results in the recovery of approved base distribution revenue requirements.
Fluctuations in the overall level of operating revenues are primarily related to tracked revenues. Tracked revenues consist of certain costs that are recovered from customers in rates through DPU-approved cost tracking mechanisms and therefore, have no impact on earnings. Costs recovered through cost tracking mechanisms include energy supply costs, retail transmission charges, energy efficiency program costs, low income assistance programs, and restructuring and stranded cost recovery revenues. In addition, tracked revenues include certain incentives earned and carrying charges. Tracked revenues decreased due primarily to a decrease in energy supply costs ($4.9 million) driven by decreased average retail rates and lower sales volumes, partially offset by an increase in retail transmission charges ($2.2 million).
Transmission revenues increased by $4.9 million due primarily to higher revenue requirements associated with ongoing investments in our transmission infrastructure.
Purchased Power and Transmission expense includes costs associated with the purchasing of energy supply on behalf of WMECO's customers. These energy supply costs are recovered from customers in DPU-approved cost tracking mechanisms, which have no impact on earnings (tracked costs). Purchased Power and Transmission expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to the following:
(Millions of Dollars) | Increase/(Decrease) | ||
Purchased Power Costs | $ | (1.9 | ) |
Transmission Costs | 3.3 | ||
Total Purchased Power and Transmission | $ | 1.4 |
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Included in purchased power costs are the costs associated with WMECO's basic service charge and deferred energy supply costs. The basic service charge recovers energy-related costs incurred as a result of providing electric generation service supply to all customers who have not migrated to third party suppliers. The decrease in purchased power costs was due primarily to lower prices associated with the procurement of energy supply. The increase in transmission costs was primarily the result of an increase in the retail transmission cost deferral, which reflects the actual costs of transmission service compared to estimated amounts billed to customers.
Operations and Maintenance expense includes tracked costs and costs that are part of base distribution rates with changes impacting earnings (non-tracked costs). Operations and Maintenance expense increased for the three months ended March 31, 2017, as compared to the same period in 2016, driven by a $2.1 million increase in non-tracked costs, which was primarily attributable to higher storm restoration costs, higher shared corporate costs, and higher bad expense. Tracked costs decreased $1.4 million, which was primarily attributable to the deferral adjustment for RECs generated and sold by the WMECO solar program, partially offset by higher transmission expenses.
Amortization of Regulatory (Liabilities)/Assets, Net expense decreased for the three months ended March 31, 2017, as compared to the same period in 2016, due to the timing of refunds or recovery of tracked costs to/from customers in rates. These costs have no impact on earnings.
EARNINGS SUMMARY
WMECO's earnings increased $0.4 million for the three months ended March 31, 2017, as compared to the same period in 2016, due primarily to an increase in transmission earnings driven by a higher transmission rate base, partially offset by higher operations and maintenance expense.
LIQUIDITY
WMECO had cash flows provided by operating activities of $22.6 million for the three months ended March 31, 2017, as compared to $50.7 million in the same period of 2016. The decrease in operating cash flows was due primarily to a decrease of $22.4 million in income tax refunds in 2017, as compared to 2016 and the timing of collections of accounts receivable.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk Information
Commodity Price Risk Management: Our Regulated companies enter into energy contracts to serve our customers and the economic impacts of those contracts are passed on to our customers. Accordingly, the Regulated companies have no exposure to loss of future earnings or fair values due to these market risk-sensitive instruments. Eversource's Energy Supply Risk Committee, comprised of senior officers, reviews and approves all large scale energy related transactions entered into by its Regulated companies.
Other Risk Management Activities
Interest Rate Risk Management: We manage our interest rate risk exposure in accordance with our written policies and procedures by maintaining a mix of fixed and variable rate long-term debt.
Credit Risk Management: Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties pursuant to the terms of our contractual obligations. We serve a wide variety of customers and transact with suppliers that include IPPs, industrial companies, natural gas and electric utilities, oil and gas producers, financial institutions, and other energy marketers. Margin accounts exist within this diverse group, and we realize interest receipts and payments related to balances outstanding in these margin accounts. This wide customer and supplier mix generates a need for a variety of contractual structures, products and terms that, in turn, require us to manage the portfolio of market risk inherent in those transactions in a manner consistent with the parameters established by our risk management process.
Our Regulated companies are subject to credit risk from certain long-term or high-volume supply contracts with energy marketing companies. Our Regulated companies manage the credit risk with these counterparties in accordance with established credit risk practices and monitor contracting risks, including credit risk. As of March 31, 2017, our Regulated companies did not hold collateral (letters of credit) from counterparties related to our standard service contracts. As of March 31, 2017, Eversource had $24.3 million of cash posted with ISO-NE related to energy transactions.
We have provided additional disclosures regarding interest rate risk management and credit risk management in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," in Eversource's 2016 Form 10-K, which is incorporated herein by reference. There have been no additional risks identified and no material changes with regard to the items previously disclosed in the Eversource 2016 Form 10-K.
ITEM 4. | CONTROLS AND PROCEDURES |
Management, on behalf of Eversource, CL&P, NSTAR Electric, PSNH and WMECO, evaluated the design and operation of the disclosure controls and procedures as of March 31, 2017 to determine whether they are effective in ensuring that the disclosure of required information is made timely and in accordance with the Securities Exchange Act of 1934 and the rules and regulations of the SEC. This evaluation was made under management's supervision and with management's participation, including the principal executive officer and principal financial officer as of the end of the period covered by this Quarterly Report on Form 10-Q. There are inherent limitations of disclosure controls and procedures, including the possibility of human error and the circumventing or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The principal executive officer and principal financial officer have concluded, based on their review, that the disclosure controls and procedures of Eversource, CL&P, NSTAR Electric, PSNH and WMECO are effective to ensure that information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and regulations and (ii) is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
There have been no changes in internal controls over financial reporting for Eversource, CL&P, NSTAR Electric, PSNH and WMECO during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
We are parties to various legal proceedings. We have disclosed these legal proceedings in Part I, Item 3, "Legal Proceedings," and elsewhere in our 2016 Form 10-K. These disclosures are incorporated herein by reference. There have been no additional material legal proceedings identified and no further material changes with regard to the legal proceedings previously disclosed in our 2016 Form 10-K.
ITEM 1A. | RISK FACTORS |
We are subject to a variety of significant risks in addition to the matters set forth under "Forward-Looking Statements," in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Quarterly Report on Form 10-Q. We have identified a number of these risk factors in Part I, Item 1A, "Risk Factors," in our 2016 Form 10-K, which risk factors are incorporated herein by reference. These risk factors should be considered carefully in evaluating our risk profile. There have been no additional risk factors identified and no material changes with regard to the risk factors previously disclosed in our 2016 Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table discloses purchases of our common shares made by us or on our behalf for the periods shown below. The common shares purchased consist of open market purchases made by the Company or an independent agent. These share transactions related to shares awarded under the Company's Incentive Plan and Dividend Reinvestment Plan and matching contributions under the Eversource 401k Plan.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans and Programs (at month end) | |||||
January 1 – January 31, 2017 | 6,374 | $ | 54.71 | — | — | ||||
February 1 – February 28, 2017 | 291,389 | 56.95 | — | — | |||||
March 1 – March 31, 2017 | 109,367 | 59.24 | — | — | |||||
Total | 407,130 | $ | 57.53 | — | — |
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ITEM 6. | EXHIBITS |
Each document described below is filed herewith, unless designated with an asterisk (*), which exhibits are incorporated by reference by the registrant under whose name the exhibit appears.
Exhibit No. | Description | ||
Listing of Exhibits (Eversource) | |||
Declaration of Trust of Eversource Energy, as amended through May 3, 2017 | |||
* | Eighth Supplemental Indenture between Eversource Energy and The Bank of New York Trust Company N.A., as Trustee, dated as of March 10, 2017, relating to $300 million of Senior Notes, Series K, Due 2022 (incorporated by reference to Exhibit 4.1, Eversource Energy Current Report on Form 8-K filed March 16, 2017, File No. 001-05324) | ||
Ratio of Earnings to Fixed Charges | |||
Certification by the Chief Executive Officer of Eversource Energy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chief Financial Officer of Eversource Energy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chief Executive Officer and Chief Financial Officer of Eversource Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
Listing of Exhibits (CL&P) | |||
* | Supplemental Indenture (2017 Series A Bonds) between CL&P and Deutsche Bank Trust Company Americas, as Trustee dated as of March 10, 2017 (incorporated by reference to Exhibit 4.1, CL&P Current Report on Form 8-K filed March 16, 2017, File No. 000-00404) | ||
Ratio of Earnings to Fixed Charges | |||
Certification by the Chairman of The Connecticut Light and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chief Financial Officer of The Connecticut Light and Power Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chairman and the Chief Financial Officer of The Connecticut Light and Power Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
Listing of Exhibits (NSTAR Electric Company) | |||
Ratio of Earnings to Fixed Charges | |||
Certification by the Chairman of NSTAR Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chief Financial Officer of NSTAR Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chairman and the Chief Financial Officer of NSTAR Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
Listing of Exhibits (PSNH) | |||
Ratio of Earnings to Fixed Charges | |||
Certification by the Chairman of Public Service Company of New Hampshire pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
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Certification by the Chief Financial Officer of Public Service Company of New Hampshire pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chairman and the Chief Financial Officer of Public Service Company of New Hampshire pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
Listing of Exhibits (WMECO) | |||
Ratio of Earnings to Fixed Charges | |||
Certification by the Chairman of Western Massachusetts Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chief Financial Officer of Western Massachusetts Electric Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Certification by the Chairman and the Chief Financial Officer of Western Massachusetts Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
Listing of Exhibits (Eversource, CL&P, NSTAR Electric, PSNH, WMECO) | |||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema | ||
101.CAL | XBRL Taxonomy Extension Calculation | ||
101.DEF | XBRL Taxonomy Extension Definition | ||
101.LAB | XBRL Taxonomy Extension Labels | ||
101.PRE | XBRL Taxonomy Extension Presentation |
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EVERSOURCE ENERGY | |||
May 5, 2017 | By: | /s/ Jay S. Buth | |
Jay S. Buth | |||
Vice President, Controller and Chief Accounting Officer |
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CONNECTICUT LIGHT AND POWER COMPANY | |||
May 5, 2017 | By: | /s/ Jay S. Buth | |
Jay S. Buth | |||
Vice President, Controller and Chief Accounting Officer |
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NSTAR ELECTRIC COMPANY | |||
May 5, 2017 | By: | /s/ Jay S. Buth | |
Jay S. Buth | |||
Vice President, Controller and Chief Accounting Officer |
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE | |||
May 5, 2017 | By: | /s/ Jay S. Buth | |
Jay S. Buth | |||
Vice President, Controller and Chief Accounting Officer |
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY | |||
May 5, 2017 | By: | /s/ Jay S. Buth | |
Jay S. Buth | |||
Vice President, Controller and Chief Accounting Officer |
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